18 Do I need financial advice when choosing an investment or should I go it alone?
We’ve just taken you through a session that includes lots of complicated and risky products. That risk does not make them bad products, but it is key to get good advice before making any investment decision if you’re not 100% sure you know what you are doing.
Before we go further, we should add that when talking about advice we are talking about investment advice and not savings advice, as the risks of getting it wrong with investments can be huge. With savings, your capital is safe if within the FSCS limits, so the only risk is not getting the best possible interest rate.
For cash savings products, it’s easy for most people to make decisions using sites such as MSE or comparison sites. Ensure you do this research, as simply going to your bank could mean you get a poor rate.
Now onto investment advice. Should I get it?
The benefit of getting advice is that you should get the products that meet your needs and your risk appetite, but it is not a sure-fire way to make money. Advisers are only human beings and do not have access to a crystal ball to determine if your investment will be successful or not.
To make a recommendation, advisers should carry out a fact find, where they ask details about your circumstances, goals, time horizons for these goals and your capacity to absorb losses on investments.
Note that some advisers are independent, in that they are not tied to a specific set of investment products. Independent advisers can provide guidance on the full range of products you are interested in investing in. By contrast some advisers just offer a ‘restricted’ service, linked to a defined range of products and not the full market. Advisers do have to disclose whether they’re ‘restricted’ or not in the guidance they provide.
There is a clear difference between advised and non-advised product sales. Non-advised sales involve being talked through options with the decision about which product to invest in being left with you.
Advised sales point you to particular products. If you end up with an unsuitable product after being recommended it by an adviser, then you may have a case for claiming that it has been ‘mis-sold’ to you. ‘Unsuitable’ is not the same as ‘loss-making’: as investments are risky some people do lose money even after making what sounded like a good investment at the outset.
If your answer is no to at least one of the following questions then seeking financial advice is worth considering. If the answer is no to all three questions, advice is arguably essential.
If your answer is yes to all three questions, you may consider yourself able to make your own decisions and to transact without advice using a low-cost provider (e.g. an internet platform) of the products you want.
The key questions to ask yourself are:
- Am I an experienced investor?
- Can I afford to lose at least part of the capital sum invested?
- Have I the time to both put in the research ahead of investing and then monitor the investment after I have acquired it?
For pension products, advice should arguably be sought. For workplace pensions your employer should either provide advice or access to advice about the scheme(s) on offer and their costs to you. For a private pension it is sensible to seek advice even if you consider yourself to be knowledgeable about investments. The consequences of investing in an inappropriate pension product can be financially devastating. The new rules on access to pension funds, that came into effect in 2015 and which we look at in Session 6, really make it important to know what you are doing, not only when entering into a pension product but also in accessing the funds it generates as you move towards and into retirement.
What do I get charged for advice?
Sadly, there is no menu of fees we can show you, as this can be as complex an area as investments themselves. For some, the cost can be minimal, for others it can cost £100s or even £1,000s over many years.
Advisers must set out explicitly the fees charged for the advice provided. These fees vary from adviser to adviser so don’t just glance at them, look at the fees carefully and check how they compare with those of other advisers.
If you are seeking general financial advice or advice in respect of specific products, advisers will normally charge a fee and be required to advise you of the fees they charge up front. Some advisers may be prepared to provide an initial consultation free of charge – so why not ask if they do this when arranging an appointment.
Before 2013, advisers often earned their income by receiving commission from the product providers which was then deducted from customers’ initial or ongoing investment. This practice has now been stopped on pensions and investments to ensure that there is complete transparency about fees charged.
Do note the difference between the fees charged by advisers and the ongoing management charges applied by product providers, particularly when the investments are ‘managed’ (looked after actively by fund managers) as opposed to being placed passively (and left unmanaged) throughout the life of the investment.
Where do I go to find an adviser if I need one?
You may find a good adviser through word-of-mouth or online. But always be careful that the adviser is not just steering you solely towards the products offered by an institution they are associated with or work for.
Two sources are particularly useful when it comes to locating advisers and obtaining financial advice.
The Money and Pensions Service provides guidance on the use of financial advisers: Explore their guidance [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] .
Additionally, unbiased.co.uk provides a list of authorised financial advisers. You can also check that the adviser is regulated by looking them up on the FCA register.
You’re nearly at the end of the session now. Next it’s time for the end-of-session quiz before the session is rounded up.