Monday 7th February 2022
What's it all about?
This article's designed to help you:
Pensions can be kind of a scary business sometimes and, in a few important ways, they’re a lot more complicated than they once were. You’re making big decisions when you plan for retirement. You’ve got a huge responsibility, and your choices can affect more than just your own future. Even if your money situation’s fairly simple, you could easily be looking at spending decades in retirement, so you’ve got to find a way to make your savings last.
So, where do you go to get solid, trustworthy advice when you’re heading toward your last few working years? More to the point, what’s it going to cost you? Here’s a basic breakdown of the kind of help you can find, and a few ideas on how to pick an adviser that suits your circumstances.
Good question – and not always an easy one to answer.
It’s obviously best to go into any major money decision with good advice. That’s just common sense. Even so, paying for an Independent Financial Adviser (IFA) to look at your situation may not always be worth it.
Don’t get us wrong – there are plenty of reasons to talk to a financial adviser. You might find yourself in an unusual or complicated financial position, for instance. Maybe you need help setting goals or understanding the risks of investing. On the other hand, if you’ve got relatively simple needs and plans, flushing a load of cash away on an adviser might not be a good foot to set out on in retirement.
Generally speaking, the less money you’re playing with, the less help you’ll probably need managing it. However, every decision you make will matter – so again, blowing a ton of cash on professional advice may not be the smartest move up-front.
So, how much money are we talking about here? Obviously, there’s a range of prices on offer for financial advice services, so a lot depends on where you’re looking and what you’re asking for. Also, it’s easy to get wrong-footed at the start with offers of free first consultations. By all means, take advantage of these, just to test the water. Keep in mind, though – you could well be looking at a sudden bill of up to £500 the next time you set an appointment.
Once you’ve picked an adviser (and a price) you’re comfortable with, you’re probably going to find yourself staring facing an hourly rate for your actual advice. Prices for this kind of help can feel pretty steep if you’re not prepared. We’re talking in the range of anywhere between £75 and £350 an hour here, with £150 per hour being a reasonable average to expect.
Things change if you’re looking for more of a “hands-on” style of financial help. For instance, you might need your adviser to take more of a long-term role in handling how your retirement money’s invested. At this point, the costs involved will largely depend on the size of the portfolio you’re playing with (basically, what’s in your investment “basket”). Typically, you’ll be charged a percentage of the total value of your investments. Again, there’s a range of prices for this kind of direct management, but you’re probably looking at somewhere between 0.5% and 5%.
The bottom line of all this is that the kind of advice you need with your retirement savings – and the price it’s worth paying for it – will depend on what your actual goals are. If you’re still thinking about that, we’ve put together two articles to help point you in the right direction: “Pension or ISA” and “SIPP or ISA”.
So, right now you’re probably wondering what you’re actually getting for all this money. Maybe it’s even starting to look like it’s not worth paying an adviser in the first place. The thing is, getting professional advice on your pension can genuinely be a financial life-saver. In fact, there are times when it’s actually a legal requirement.
The first thing to realise about choosing your adviser is that there’s a world of difference between the real professionals and the dodgy financial “cowboys” out there. The choices you end up making for your retirement cash will only be smart if the advice you took when making them was good.
You do have a fair bit of protection to fall back on, in the form of the Financial Conduct Authority (FCA). The FCA actually has a list of “dodgy dealer” financial advisers you should absolutely avoid, along with a page for reporting any scams or scammers you might run into. There’s a limit to how protected you can be, though. While the FCA’s general rules about how an adviser conducts its business cover all IFAs in the UK, that doesn’t mean they have to keep your best interests at heart in everything they do.
Here’s where things get a bit technical – but bear with us for a minute. Financial advisers in the UK aren’t strictly required to stick to “fiduciary standards”. These are basically a set of rules that determine how trustees (people making financial decisions for someone else) take care of the assets of beneficiaries (the “someone else” – in this case, you). IFAs aren’t technically bound by these standards, but the FCA is still constantly pushing to make things safer for you.
So, what about the times when you absolutely have to get financial advice? Are you protected then? Take pensions, for example. If you’re trying to transfer a pension that’s worth over £30,000, the law says you need to get advice on the process. Your financial advisor has a responsibility to stand behind the advice they give. When that advice falls short, there are complaints procedures and systems of compensation to help you limit or undo the damage.
It’s worth keeping in mind that the term “financial adviser” isn’t just describing one thing. Depending on what you’re looking for and where you’re looking for it, you might end up talking to a range of different ones.
A “tied” adviser, is someone who really only handles products from a single supplier. You can expect them to have detailed knowledge of that company’s products, but you probably won’t get a full picture of the alternatives available elsewhere.
A “multi-tied” adviser, is similar to a tied one, but will be able to help you with a wider variety of suppliers and options.
A “whole-of-market” adviser, is someone whose advice would cover a much larger range of providers and products. These are similar to Independent Financial Advisors in a lot of ways - but not all, as we’ll see in a moment.
Another thing to remember is that most advisers you’re dealing with will be looking after their own money as much as yours. Almost all of them will be taking a commission from the providers you end up choosing based on their advice. Yes, they might well be taking your money in exchange for steering you in the right financial direction. You won’t be the only one who’s paying them, though. While that may be obvious enough when you’re talking to a tied adviser, it’s also true of the whole-of-market ones. They’ll certainly want you to be happy with the choices they offer you – but they’ll have financial goals of their own to look after, too.
In the investment world, you can see this kind of thing in action pretty clearly. When choosing between “active” and “passive” investments, you’ve likely to see an investment manager being held up as a big selling point of actively managed funds. It makes sense, after all. Having an expert directly looking after your investments can only be better than going it alone, right? In fact, when put to the test, about 90% of the “passive” index tracker funds that were measured performed better over 20 years than the actively managed ones. Even over just 3 years, there was no real benefit to active investments. Basically, you could argue that investment managers can sometimes be more interested in what makes them money than in what gives your investment the best chance of growth.
So, let’s look at IFAs again. As we mentioned above, they’re not that different from whole-of-market advisers, since they’re not tied to any specific company. That means they can give you the widest possible range of advice. Yes, some of them will still get a commission when they steer you toward specific options or providers. That’s not true of them all, though. Some IFAs do work purely for the flat-rate fee they charge you for their time, effort and expertise.
By and large, an IFA will offer the most custom-built advice, factoring in your full personal situation, plans and goals. This is true whether they work for a larger IFA company or are just in business for themselves. If you’re looking for a truly independent opinion on how to sort out your retirement finances, then this is probably your best chance of getting one.
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