13/02/2019
Why Buy Advice, deciding to pay for financial advice is a big step?
It is normal to question yourself, especially as the results of this particular investment may not be apparent for years to come.
This page is for anyone going through that decision making process. We hope you find it helpful, but please do not hesitate to ask if you have any questions or would like to talk to us in more detail about the advice service we can provide.
Getting advice – The basics
Many of us can probably take some financial steps ourselves without the need for professional advice, and with just a little research online. For example, write a simple Will, put some money aside each month into a workplace pension (your employer is obliged to enrol you into their work pension automatically these days) and pay off debts. However, as you start to accumulate assets and your situation potentially becomes more complex, it is natural to think about seeking advice. That might be to help with the financial implications of a specific situation, such as retirement, the sale of a company, divorce or the birth of a child. It might be to seek reassurance you are on the right track financially (and to make any necessary adjustments if you are not).
Understanding your needs
Whatever financial decisions you have to make, the first step towards making the right decisions for you is to establish a clear understanding of your financial needs. These might be obvious, for example, you have taken out a mortgage and need insurance to help your family pay it off should you die. They might be less obvious, for example, you have accumulated some money over time but do not know how much you need to retire. One of the most valuable things an adviser can do for you is to draw out a clearer vision of your financial future. They can help you understand what options you have around longer-term issues, such as retirement, estate planning and looking after your family. If you have an obvious and immediate need, they can also help you to meet this, in the form of a financial product. Talking to your Prosperis adviser, you may find you have financial needs you have not yet considered. Your adviser’s professional experience can help tease these out and address them for you.
Tip – Unless you understand your needs, you will not know which direction to take and what your destination will be. It is impossible for you or an adviser to decide on the right solution for you without understanding your needs.
Setting your Financial Priorities
Once your financial needs are clear, the next step is to be clear on your priorities but you might need to prioritise some over others. Your Prosperis adviser will use their expertise to help you work things through in this area and develop a plan of action to suit your personal situation. Generally, the first thing you would normally look to do is ensure you and your family are protected in the event of misfortune, such as ill health or death.
Tip – Always ask whether your adviser is choosing from the whole of the market or if they are contractually obliged to use certain ones.
The Need to Invest in your Future
Beyond protection for you and your family, for many people the next priority is investing for their future and in particular for their retirement. The state pension provides a relatively modest income of £155.65 a week for anyone reaching state pension age now (if you qualify for the full payment). If you are not already very close to state pension age, relying on it to be there by the time you retire is probably unwise. Successive governments are gradually pushing back the state pension age. People are living longer, placing a financial burden on the state future governments need to address.
Some people are still lucky enough to have company defined benefit (final salary) pensions. These have historically paid out reasonable pension incomes to those who have accrued longer periods of service with their employer. An example is the NHS pension scheme. Final salary pensions are becoming increasingly rare amongst private employers though, and even if you have one, you may still not achieve the income you would like in retirement.
Even once you reach retirement, you still need to make wise decisions with your money. The options open to you for taking retirement income range from the simplicity but reduced flexibility and expense of buying an annuity, to staying invested and taking income as and when you need it, with the ongoing investment risk associated with this.
Understanding Investments
Someone could approach you and ask you to invest all of your savings in their new business venture. Most people would be uncomfortable with this. It is difficult to assess whether a new business will be successful with no track record and you would be ‘putting all your eggs in one basket’. It could make you very rich, but there is also a very good chance you will lose all of your money and what if you wanted to sell your investment?
If you invest in an established, publicly listed company, more information is available. You can examine its financial track record and, compared to a private company, it is far easier to sell the shares when you want to. Even better, by investing in multiple publicly listed companies you are less reliant on the performance of just one business. Your investments are diversified. You can diversify still more by spreading your investments across different types of industries and countries, reducing the risks you might be exposed to if there are problems in a particular geographical or business sector.
Establishing how much risk you are prepared to take with your money and understanding what risk really means to you, is critical to the investment decisions you make. Some of the risks we have already touched on are:
o Capital risk – Losing your capital (the amount you originally invested)
o Liquidity risk – Not being able to find a buyer when you want to sell
o Volatility risk – Share prices going up & down based on performance & other factors
o Concentration risk – Concentrating your investments in a single market
Your Prosperis adviser, perhaps working with other investment professionals, can help you to make sure your investment portfolio is set at an appropriate level of risk for your particular circumstances. That includes diversifying where your money is invested, so that a downturn in one particular market does not necessarily mean a downturn in all of your investments.
Tip – A good adviser will act as a coach to help you meet your goals, managing you and your investments through more turbulent times and advising you against making rash decisions.
You Need a Plan before you Need a Product
We have already established, when it comes to making good financial decisions, the most important thing to do is to get under the skin of your needs, goals and objectives.
Tip – A good adviser will not simply focus on a set of products or funds you might need
Tip – As part of their ongoing service, your Prosperis adviser will also handle the practical side of implementing their recommendations for you, leaving you with little to do once the advice has been agreed.
Tip – A good financial adviser will keep a laser-like focus on meeting your financial goals, steering you away from situations like these, where the psychological factors described above might otherwise cause you to make poor decisions and veer off track.
Helping you get what you want out of life
Financial advice is often viewed as providing solutions to problems or meeting specific needs. This is part of what it does, but it is also much more. An adviser offering a financial planning service looks beyond short-term problems and needs and looks at your situation more holistically. They will find out what you really want from life and about your hopes and ambitions for yourself and your family.
It is not just about organising your finances, but about identifying where you are, where you want to go and building a financial roadmap to help you get there. Ultimately, it is about helping you get what you want out of life.
Taking care of you & your family
Financial advice is most commonly talked about in the context of investments, but the reality is that your needs go a long way beyond that. Good advisers will not simply talk to you about the money you have to invest or the products you could invest in. Instead, your wider circumstances and needs will come into play, to ensure that every step you take fits in with the overall plan to get what you want out of life.
That means your adviser will consider tax, so you invest tax-effectively, do not miss opportunities to save money and do not risk unnecessary tax charges. Your family needs are part of it too, including inheritance tax and your family’s financial security, along with insurance, savings and later life issues such as long-term care and wills.
Saving you from yourself
Poor decisions are perhaps the biggest threat to successful long-term investing and we have already seen how human psychology means our decisions risk being driven by emotion rather than reason. Working with a third-party professional can make a big difference here.
A financial adviser does not have the same emotional attachment to your investments. Their responsibility is to you, which means helping provide a clear vision of the future and a view of the bigger picture. In other words, keeping that laser like focus on your longer-term goals.
A good adviser will thoroughly understand your needs and objectives and how to meet them. There is a good chance they have been there before, know where the pitfalls are and recognise when emotions are getting in the way of good decision-making.
Your Prosperis Financial Adviser is well qualified to help
Under rules set by industry regulator, the Financial Conduct Authority (FCA), all financial advisers must be qualified to at least ‘Level 4’. That is broadly equivalent to the first year of a degree and covers topics including personal tax, pensions and retirement planning and investment principles and risk. There are also Masters and PhD equivalents above that, and specific qualifications for areas such as mortgages, pension transfers and equity release.
Tip – If you are meeting a financial adviser for the first time, it is always worth asking about the qualifications they have and what they mean.
You Agree the fees you pay upfront
Your adviser will agree their fees with you upfront, and the services that will be covered. This is good business practice and you understand the cost of both the initial and ongoing advice your adviser will give you. It is also something the FCA requires advisers to do. You can usually agree for the fees to be taken out of your investments if you wish, rather than paid separately.
Investment providers no longer pay advisers commission, so you do not need to worry they may be influenced by this.
You have access to protection if things go wrong
If you ever feel your adviser gave you wrong or misleading advice, you can usually make a complaint to the Financial Ombudsman Service, at no cost to you. All advisers have to hold minimum levels of professional indemnity insurance, to cover complaints. If your adviser firm is no longer around or able to meet a claim you may be able to access compensation from the Financial Services Compensation Scheme. You can find out more about this scheme and how much you could be covered for at www.fscs.org.uk
Tip – If you use an unregulated adviser, these protections will not be available. They will often approach you through unsolicited telephone calls or mailshots. You should not take financial advice from anyone without first checking they are authorised and regulated by the Financial Conduct Authority. You can do this by checking the Financial Services Register at www.fca.org.uk
Remember, if it sounds too good to be true, then it almost certainly is.
