2.2.5 Advisers and fees
Two key decisions involved in making financial decisions are whether professional advice should be sought and, if so, where do I find it? Taking advice is different to using a broker – a broker simply executes the transaction you have decided to make at the best possible price. An adviser provides direction on which transactions should be undertaken.
In terms of whether advice should be sought the key factors are:
- How well informed are you about the product in question and all its associated risks?
- How experienced are you in respect of the product (for example, what experience do you have in different types of investments)?
- Are you able to access the market for the relevant product effectively (for example, do you know the best providers and their current product offerings)?
The use of financial advisers varies from product to product. For some basic products, like a savings account, they are not really needed. For more complex investment, pension and borrowing products that have material risks associated with them, seeking advice is prudent and, in certain cases, essential.
A poll of investors by the online investment platform, Interactive Investor, found that one in five now prefer to make their own investment decisions having previously relied on an adviser to assist them (Sunday Times, 2014).
Since 31 December 2012, financial advisers have been required to be fully transparent about their costs and need to set these out ahead of the completion of transactions on behalf of customers.
Financial advisers should also specify their extent of the market for the financial products that they cover. There are two main categories:
- independent/unrestricted: such advisers cover the whole of the market
- restricted: advice is provided on only a limited number of products or advice about the range of products provided by a certain financial firm.
There is also a further category for much more limited advisory services:
simplified: advice is given only on very straightforward products like stakeholder pensions. The assessment of suitability is questionnaire-based and is typically provided online or by telephone and is defined as ‘an automated advice process’ (Mindful Money, 2014). With simplified advice, no assessment is made on a customer’s existing products.
The fees charged by advisers vary according to the category of service they provide.
If you need the services of a financial adviser, then both the Money Advice Service (MAS) sites will help you.and the
Financial advice is distinct from services provided by brokers or platforms in undertaking (or ‘executing’) the orders given by a customer. In these circumstances, no advice is given about the suitability of decisions being made by the customer. ‘Execution-only’ services involve no financial advice.