Independent Financial Advice – Is It Worth It Or Can You go It Alone?

Wading through the numerous investment products available can be overwhelming. First you need to choose one to suit your needs, and secondly you need a clear understanding what you’re investing in and the risk factors associated.

Sounds obvious, right? Well, not for most of us who keep our hard-earned cash in the bank / building society lest it go missing if we dare to put it elsewhere.

To help you decide whether you’d benefit from professional independent financial advice or if you could make the investment decisions alone, here are the pro’s and con’s.

1. Professional Independent Financial Advice

1.1 Where Can I Find Financial Advice?

If you’re seeking financial advice, there are different routes available to you.

a) Your Bank

Many people enlist the financial advice services of their bank. However bear in mind that the advice offered won’t be impartial; they’ll try to direct you to the products sold by their bank alone. These products may not be the most suitable for your needs.

b) Financial Adviser

There are two types of financial adviser: the first is independent (Independent Financial Adviser or IFA) and will search the market for a product suitable to your needs. Most people use this type of adviser when they first embark on the financial advice journey.

The other is a restricted one that’ll recommend a precise range of products to suit your very specific requirements.

The adviser should make clear their scope before you appoint them. If they don’t, ask them.

1.2 What does an IFA do?

We’ve all heard of Independent Financial Advisers, but what do they actually do? They will:

• Thoroughly assess your financial situation
• Explore the entire market for financial products available to suit your requirements
• Propose an appropriate financial approach
• Advise on matters including pensions, mortgages, buying funds and ISAs – or just basically managing your money sensibly.

1.3 What do they charge?

To ensure that the adviser is impartial, they’re not permitted to receive commission on new advice given, but instead charge a fee. This fundamental change (introduced in 2012) is part of the Retail Distribution Review, which also imposed the minimum qualifications and standards for financial advisers.

The fee that advisers charge can be either a percentage of the assets you want to invest, or on a hourly basis.

It’s essential to determine how much you’ll be charged – and for what – before you work with an IFA.

2. DIY (investment platforms)

Going it alone, or with the help of an investment platform, could be the best route if you’re confident of your investing abilities. All you need is a computer or smart phone.

Investment platforms:

• Give you access to research and tools to assist in choosing products, plus funds and shares.
• Offer guidance (not advice). The decisions made are yours alone.
• Offer risk-profiling tools when you’re selecting your own holdings to ensure you’re not taking on too much risk.
• Give access to investing ideas that’ll show you which range of funds are likely to outperform in the future.
• Offer ready-made portfolios suited to your level of investment.

2.1 What’s The Charge?

The cost varies, but it’s cheaper than using an adviser in most cases. You’ll pay an administration fee, either a flat fee or a percentage of your holdings, and there may be additional charges for other services.

The platform charges differ: some have better functionality and some are suited to beginners or more advanced investors. As with using an adviser, check that the platform is regulated by the Financial Conduct Authority.

3. What Should I Do?

If you’re considering putting money into shares or investment trusts, and you’re not confident in your investment abilities, you should appoint an adviser. Setting up and monitoring an investment portfolio can be confusing and tedious. You have to assess potential risks and be sure you’re reaping the benefits of your investments. You also have to appreciate that the markets fluctuate and know when it’s time to sell, and when it’s time to stay put.

A financial adviser will give expert advice on how to manage your money – although you will of course pay more for this service than using an investment platform.

You will also be able to contact the Financial Ombudsman Service if you feel that you’ve been mis-sold a product (eg. if the risks weren’t sufficiently explained to you).

If you’re still undecided about appointing a financial adviser or going it alone, ask yourself the following questions:

• Do you have time to do the necessary research?
• Do you have the knowledge, skills and experience necessary to make sound financial investments?
• Is losing money an option if the investments fail?
• If the investment decisions don’t go to plan, are you happy to take the responsibility?

If you answer ‘no’ to any of the questions above, it’s best to consult an expert when managing your money.