Advisers
'Advice' must be unbiased and independent. Otherwise it's not advice - it's selling
Financial management is difficult and you will almost certainly benefit from advice. But it is something of a regulatory minefield, as you will see. The word 'advice' on this page is used in its plain English sense. In regulator-world it has a more precise (and restricted) meaning that we'll come to.
Titles
Choosing financial advice is a minefield. The enormous pie of 'Advice' can be sliced in two different ways, both of them important. There is:
- 'Regulated advice' and 'unregulated advice'
- What advisers choose to call themselves
The regulatory slice matters because then you have protection against carelessness and, worse, scamming. Against that, regulation is expensive and therefore so will be your fees.
'What advisers choose to call themselves' matters as a description of the focus of the firm.
There are two types of regulated advice under the law: 'independent' and 'restricted'. Independent financial advisers (IFAs) must be prepared to help you buy the whole range of financial products without bias. 'Restricted' financial advisers typically represent a particular financial services firm and will favour the products of that firm, but within a code of behaviour set by the regulator (the FCA).
All firms, whether regulated or not, can call themselves whatever they want. In practice there are four main descriptions:
- Wealth managers
- Financial planners
- Financial coaches
- Financial advisers
'Wealth managers' are usually (but not always) providers of full financial management services to the wealthier end of the market. 'Planners' are usually (but not always) members of one of the two professional financial planning associations. 'Coaches' usually (but not always) have an emphasis on helping you help yourself and project an image of freedom of commercial bias. 'Advisers' could be anything, but there's nothing wrong with that.
Don't sneer at buying an hour of the time of a professional who is none of these things - your local accountant for example. Be wary of the advice of enthusiastic friends. They will want you to do all sorts of things which they enjoy but which are not as necessary as they think. If it's not in Simple Investing you don't need it.
Fees
Until you become a net saver, and therefore an investor, you should be able to obtain all the advice you need from free sources. After that you may need to pay for professional help. The trick here is to avoid lifetime ad valorem fees on your savings. Once you've saved your first £10,000, to spend maybe £1,000 on advice seems like a lot but the advice you receive will be just as applicable to your first million as your first £10,000. And will have cost a lot less than a percentage of your savings every year on the journey.
An adviser should charge you a fee, not a commission. More, they should charge fees for all their clients and not take commissions from anybody. Otherwise they are not unbiased.
Bias
Many advisers are 'tied' to specific wealth managers. This means they only recommend the funds of that manager (or funds from which that manager takes a commission). One major wealth manager (but not the largest) has 1,700 tied advisers. We have looked at a few websites of tied advisers but are unable to find any disclosure of that conflict of interest. Presumably the regulations either do not allow it or are framed in a way that makes them ineffective.
There is no single qualification or designation that guarantees you are getting real advice. The advice industry before the regulatory changes of 2014 was taking £6 billion per year off the consumer in return for acting as the sales channel of a financial products industry. Things are different now, but it's still a big industry and it only has one source of profit and that is you.
Skills
Advisers don't need to be clever - just honest. (Simple Investing only needs simple advice). Whatever you chose be ruthless in understanding your adviser's source of income.
The government-sponsored advice service MoneyHelper has a page that lists no less than five different adviser directories but offers no advice on how to chose between them. Regrettably we can't decipher their marketing schtick either.