New rules are driving people to relatives or the web for help in money matters to save cash
CONSUMERS are turning to their families or the internet for financial advice to avoid paying professional advisers.
Research by the financial services firm NFU Mutual found that since the requirements of the retail distribution review (RDR) were introduced in January, one in seven people making big financial decisions has sought advice from a family member. One in six has relied solely on the internet.
The RDR changed the way we pay for financial advice.
The survey of 2,000 people found that, of those who based financial decisions on non-professional advice, 30% were deterred by the cost, while 22% felt the level of fees was unclear, although the review aimed to simplify charges.
Patrick Connolly of independent financial adviser Chase de Vere said: “It is dangerous to make anything but the most basic financial decisions based on the views of somebody who isn’t properly qualified or experienced.
“If you need advice you should speak to an independent financial adviser, or you could be gambling with your financial future.”
You can check an adviser’s credentials online. You should be able to find both firm and individual adviser on the Financial Conduct Authority’s financial services register at fsa.gov.uk/register/home.do.
One way to find help is via unbiased.co.uk, which lists 8,442 firms with 15,400 independent financial advisers. Put in your postcode and it lists those is your area. You can also search by topic. The site has advice on how to choose: go to unbiased.co.uk/adviser-checklist.
Advisers can also be found on vouchedfor.co.uk, with reviews and ratings by clients.
What advisers must tell you
Commission payments on investments were banned by the RDR, transforming the market for financial advice.
Advisers must now disclose charges up front and describe their services either as independent, meaning they must be unbiased, or restricted, where they can recommend products from only a limited number of providers.
Complying with the new rules has proved too costly for some advisers, who have left the industry. Others will work for only those with large sums to invest. Research by Unbiased into its 8,442 adviser firms showed that only 3,094 will give advice to those with income or investable assets of less than £50,000.
Adam Price, Vouchedfor’s founder, said: “When people haven’t used an adviser before, the search process can be daunting. There are thousands of advisers, and it’s not always obvious to people how to choose, what to ask them, or how much advice costs.”
When to use an adviser
Financial advice can prove invaluable. Common areas in which people seek advice include investing for maximum returns, annuities, pensions, and tax planning.
Martin Bamford of the adviser Informed Choice said: “We are seeing a rise in demand for financial advice. This is driven by a growing number of people reaching retirement as the baby boomer generation reach 65 over the next 20 years or so.
“This wealthy generation have accumulated assets on which they now require expert independent financial advice.”
On a specific issue, such as annuities, it is often a good idea to choose a specialist adviser.
Advisers offering only annuity and “at retirement” services include Annuity Direct. It charges 1.3%-1.8% of annuity purchase price on cases not medically underwritten (depending on the commission rate of the provider) and 1.25%-3% on cases that are medically underwritten. The minimum fee is £750 and the maximum £2,500.
For mortgage advice you can look for a local specialist, although it may be simpler and cheaper to use a no-fee mortgage broker such as London & Country Mortgages. It does not charge a fee as it will be paid commission by the lender. Brokers and advisers can still accept commission for mortgages and insurance advice.
How much will you pay for ongoing advice?
Advisers use different charging structures. Some charge hourly, others take payment based on a percentage of the value of the total portfolio.
Unbiased said the average cost per hour for financial advice in Britain is £175, but this will vary depending on where you are in the country and the specialisms and qualifications of the adviser.
Philippa Gee, managing director of Philippa Gee Wealth Management, said: “I suggest you draw up a shortlist of advisers and meet them. They shouldn’t charge for an initial meeting, so you can find out more about what they offer and their costs.
“Be careful of any small print and check what penalties you might incur if you decided to move to another adviser.”