This is traditionally a time to take stock of our personal finances and to assess what progress we have made towards achieving our long-term objectives. And this is where a financial adviser can play a very valuable role in this process. One of the most important aspects of the adviser’s role is to help define your objectives so that they are achievable, specific and measurable. There is no point in having unrealistic goals because it may remove the motivation to make any progress at all.
Once your objectives are clear the adviser’s job is to structure a financial plan intended to achieve them, and design a review program to make sure that you stay on track.
In essence, the adviser needs to take time to understand you and what you want to achieve in your life and relate this to what is happening in the wider world. To do this effectively the adviser must have a genuine interest in people and be prepared to tell you what you need to hear, as opposed to what you want to hear. They must also possess a thorough grasp of the tax system, investment markets and macroeconomics.
Unfortunately, there are many advisers who are not up to the job.
These days, advisers are supposed to be better qualified, but there are still many out there with only rudimentary qualifications. The minimum qualification level is set to be raised, but not until the end of next year.
In the meantime it is probably a good idea to place your trust in firms that have already demonstrated the highest level of expertise through achieving Chartered Financial Planner status. This requires a high level of professional qualification equivalent to that of a chartered accountant or a solicitor.
Seeking advice from an independent adviser certainly makes it more likely that you will receive the correct guidance, but independence alone is not a guarantee of this. There are some very able tied advisers (employed by insurance companies, banks and building societies) but no matter how good they are, they are limited by a relatively narrow product range. If there isn’t something to suit you in that product range you will end up with the next best thing.
Equally, there are independent advisers who have the advantage of independence but lack the expertise to use this advantage consistently.
There is no such thing as free professional advice, so don’t be fooled into believing this to be the case. The financial services industry has long recognised a general unwillingness on the part of investors to pay for advice. This is why we have seen some poor financial products, incorporating excessive ongoing charges and redemption penalties.
Paying for advice is likely to save you a considerable amount in the long run as it will give you access to more competitively priced financial arrangements and, of course, with a proper plan in place, there is a greater chance of achieving your objectives.
Most good IFAs offering genuine advice (as distinct from simply selling products) now charge a defined fee to create a bespoke financial plan, rather than rely on commissions generated from the sale of investment products. The charge will depend upon the scale and complexity of the work involved. Once a plan is agreed, you should expect your money to be invested on preferential terms, the savings for which could well be substantial.
Once a financial plan has been implemented it is important that the adviser keeps things under review (for which some form of retainer will need to be agreed). The depth and frequency of reviews should be tailored to your specific circumstances and needs. The greater the depth and frequency of the reviews, the higher the cost. Like most things in life, you get what you pay for.
So what should you look for when choosing an IFA? Competence is an essential factor and unless you are yourself a financial expert and able to judge this, the only reliable guide is professional qualifications.
Empathy is also important. You will need to work closely with your adviser in the years ahead, so you need to instinctively like them.
And finally, when selecting an advisory firm it is worth bearing in mind that the most successful relationships with an adviser are long-term ones. As an example, my own firm, Partridge Muir & Warren was established in 1969 and having joined in 1991, 2011 is my 20th year here. Over the years I have forged strong relationships with many interesting clients – some with exceptionally complex financial affairs but also those with relatively straightforward requirements. It really is a privilege to be given the responsibility of making a positive difference to someone’s financial well-being.