Do I really need to use a financial adviser?

As someone who has spent over 50 years working as a financial adviser and financial planner you would probably expect me to say ‘Yes’ to this question.

But not everyone needs to use a financial adviser in every circumstance. This section is designed to show you when you should use a financial adviser and when you really don’t need to do so. I will use the term financial adviser to encompass both financial advisers and financial planners for simplicity.

How much capital do I need to warrant using a financial adviser?

Financial advisers naturally charge fees. The cost for a financial advice firm of adding a new client will obviously vary with the complexity of the client’s circumstances. According to research carried out in 2019 by NextWealth and the Personal Finance Society (PFS) the average cost to onboard a client is £1,543.

So if you only have £30,000 to invest you could be losing 5% straight away which makes little sense.

For this reason financial advisers generally won’t take you on as a client if your investable capital is below a certain minimum. This varies a lot and could be anywhere between £80,000 and £800,000.

It also varies on where you live. If you live in London or the South East you will find that financial advisers generally require a higher level of assets from a new client than other areas.

Certainly if you have so far accumulated less than £80,000 of pensions and investments you will find it very expensive, as a percentage of your wealth, to use the services of a professional financial adviser with a physical office that you can visit. In this case an alternative, if you are happy dealing online, is to use the services of a robo-adviser firm.

Many financial advisers offer an initial consultation without cost to you or any obligation to proceed further. So even if you don’t have sufficient capital to warrant the use of a financial adviser you could find that the adviser is willing to point you in the right direction following such a discussion.

What if I want to invest monthly or contribute to a pension monthly?

Prior to 2012 financial advisers would receive a commission from a product provider for setting up an investment or pension. This practice was ended as it could lead to an adviser choosing a plan from a provider which offered a higher commission rather than one that was most suitable for you. Whilst the majority of  advisers always put the needs of their clients first, regulators have to set conditions which protect clients from ones which do not.

One unfortunate result of the removal of commission is that it has created an advice gap amongst the general public. If you only want to invest on a monthly basis and do not also have the required minimum capital amount then you are unlikely to be able to do so via a financial adviser. Remember that the financial adviser has got to cover his onboarding cost of around £1,500 and this can only come from you.

So if you are just starting out on your journey towards prosperity and you want to contribute, say, £500 a month to a personal pension or £750 a month to a Stocks and Shares ISA you should use one of the online investment platforms such as Vanguard, Fidelity, AJ Bell, True Potential or Wealthify.

What if I just need life insurance or health insurance?

Here you might be in luck. This is because financial advisers can still receive commission on these products. There is a lot of information on the internet to help you work out how much cover you need without an adviser, for example confused.com and moneysupermarket.com.

While you can purchase the cover you need via such websites you won’t receive any advice and they usually have a more restricted panel of companies to choose from. For example, you should consider putting most forms of life insurance cover under trust. A financial adviser can arrange this for you. You may be a company director in which case a financial adviser can arrange a type of cover which your company can pay for and receive tax relief on the premiums.

When it comes to arranging health insurance such as income protection and critical illness cover, getting the right product features is vitally important. Furthermore, premiums can be variable, guaranteed not to increase, or guaranteed to increase by a fixed amount with your age. A good financial adviser can stop you making a mistake here.

Financial advisers have the tools to compare products in detail and not just the lowest premiums. If you shop around you should be able to find a financial adviser who is happy to arrange such cover for you by taking the commission from the product provider as their fee.

You can find independent financial advisers on Unbiased, VouchedFor and New Model Adviser Top 100.

What is the best age to see a financial adviser?

I wish it were possible for every person starting out in their first job to talk through their goals and aspirations for life with a financial adviser. After all if you wanted to improve your physical fitness the earlier you get started at the gym the better. It is the same with your financial wellbeing.

However, the fees that financial advisers need to charge to run a profitable business make this impossible for many younger people who are saving for their own property, buying a car and possibly paying off student debt. You wouldn’t want to trust your future financial security to an unprofitable financial advice firm.

If you are a young entrepreneur already building a successful business then you won’t mind paying the fees required by a financial adviser and you will gain a lot of benefit by doing so. However, if you are in your 20s or early 30s and are not likely to be settling the world on fire anytime soon you would be better off using one of the online investment platforms such as Vanguard, Fidelity, AJ Bell, True Potential or Wealthify until your assets are of a sufficient size.

What is the difference between a financial adviser and a financial planner?

In the UK the terms financial adviser and financial planner are often interchangeable and the same person can at different times be both.

The financial planning aspect includes assessing your situation, agreeing objectives, creating a plan to meet your long-term objectives and managing that plan with your commitment. Financial planning, of itself, is a holistic activity rather than one which is concerned with arranging products. The financial plan provides a plan of action and, in theory, it could simply include generic product recommendations which would not be a regulated activity.

Where you are provided with specific product recommendations that is where the financial advice aspect comes in. That is, of course a regulated activity.

So, if an adviser recommends that you should be putting, say, 15% of your income aside into a personal pension plan and he or she stops there, they are acting as a financial planner. However, if they go on to say that the 15% should be contributed to an XYZ Personal Pension Plan then they are acting as a financial adviser and must be authorised and regulated to do so.