How to find a financial adviser in 2016
Regular saving is important to ensure a secure financial future. Investing offers the chance to beat the interest rates paid on high street bank accounts - whether you're cautious or adventurous with your money. There are a number of ways to get involved in stock market investing, which can generate better returns then straightforward savings accounts.
Some people choose to enlist the help of a financial adviser to take control of their money. While a financial adviser can charge hundreds or even thousands of pounds for their services, depending on the size of your investment, they can help you decipher which product is better suited to your needs. Independent financial advisers (IFAs) can help with broad financial planning as well as more specific projects, such as how to invest an inheritance, pay school fees or plan for retirement. They cover all the major categories including budgeting, savings, investments, pensions and tax.
Here's what you need to know about taking professional advice:
When do you need advice?
Getting financial advice is not a one-time event - and it's certainly not a case of one-size-fits-all. Financial planning should start early and be reviewed regularly. As your circumstances change, so will your financial needs. There are a number of trigger points during your lifetime that will invite the need to do some financial planning.
Buying a house, getting married, starting a family, moving up the career ladder, retirement are the main things that will warrant a rethink of your finances.
Parents looking to build a nest egg for their children's future as well as those building a savings pot for a larger family home, or simply for just saving for a secure financial future, can benefit from financial planning.
Online searches for financial advice have increased by 35% in the past year, according to search data from unbiased.co.uk. This has been driven by enquiries about pension freedoms, the rule changes that allow people to access the cash saved in their pension pots directly.
Karen Barrett, chief executive of unbiased.co.uk, says: "Pension freedom has clearly been a big driver for people to seek advice in the past year, with more retirement options available than ever before. For example, income drawdown was a restricted and therefore less popular option before April - when the freedoms were introduced - but has seen a huge spike in interest in the past year, with over three times as many searches the site."
However, new research from money.co.uk reveals that just one in five over-55s that are making a withdrawals under pensions freedom are willing to pay for financial advice. When asked why, 59% don't feel they need it, 28% think it's a waste of money, 27% can't afford it and 15% want their money quickly without any hassle.
How much does it cost?
Costs vary largely between firms and the kind of advice you need. According to website unbiased.co.uk, advice on a £200 per month pension contribution would cost on average £500. Converting a £100,000 pension fund into a lump sum and annuity would cost around £1,500. A more involved scenario would be more expensive again. Advisers would typically charge £3,500 for advising a client (including estate planning) with a £200,000 self-invested personal pension (Sipp), £100,000 of investments, income from a defined benefit pension scheme and a buy to let property with a value of £250,000.
While the fees may look steep, it can be worth every penny spent if it means your money is working hard for you. Research conducted by unbiased.co.uk found that those who had taken advice receive an additional income of £3,654 every year of their retirement, based upon a pension pot of £100,000 - a clear demonstration of the benefit of taking professional advice.
Where to find advice
If you don't already have an adviser you can trust, you can find local independent advisers at unbiased.co.uk, or call on 0800 085 3250. Here you will also find a full list of the different qualifications an adviser can have as well as the professional bodies that represent them. You can also visit vouchedfor.co.uk, which allows consumers to rate and review advisers they have used. Financial advisers have to be authorised by the Financial Conduct Authority (FCA).
Not all advisers are classed as independent, so it is important to know what the adviser you have chosen is able to offer at the outset.
Advisers who are tied to product providers aren't IFAs but "restricted advisers".
Like a self-select ISA but for pensions, self-invested personal pension is a registered pension plan that gives you a flexible and tax-efficient method of preparing for your retirement. It gives you all sorts of options on how you put money in, how you invest it and how it’s paid out and offers a greater number of investment opportunities than if the fund was managed by a pension company. SIPPs are very flexible and allow investments such as quoted and unquoted shares, investment funds, cash deposits, commercial property and intangible property (i.e. copyrights, royalties, patents or carbon offsets). Not permitted are loans to members or people or companies connected to the SIPP holder, tangible moveable property (with the exception of tradable gold) and residential property.
The term is interchangeable with stock exchange, and is a market that deals in securities where market forces determine the price of securities traded. Stockmarket can refer to a specific exchange in a specific country (such as the London Stock Exchange) or the combined global stockmarkets as a single entity. The first stockmarket was established in Amsterdam in 1602 and the first British stock exchange was founded in 1698.
A stockmarket security (a form of derivative) issued by companies on their own ordinary shares to raise capital. A warrant has a quoted price of its own that can be converted into a specific share at a predetermined price (called the conversion price) and future date. The value of the warrant is determined by the premium of the share price over the conversion price of the warrant. Warrants give the same economic exposure to an underlying security without actually owning it, and cost a fraction of the price of the underlying security.
A financial adviser who is not tied to any financial services company (such as a bank or insurance company) and is authorised by the Financial Services Authority (FSA). They can advise on financial products to suit your circumstances. All IFAs have to give consumers the choice of paying by fees or commission and have to explain which would best suit the customer in that particular instance. Also, if commission is paid either by the client or the financial service provider recommended by the IFA, the IFA must disclose what that commission is.
An alternative to an annuity, income drawdown (also known as an unsecured pension) allows you to take income from your pension fund while the fund remains invested and so continues to benefit from any fund growth. The drawdown of income has to be calculated carefully as taking too much income could exhaust the pension fund so experts say the annual drawdown must not exceed what the assets would normally yield in an average year. The invested pension fund could also be hit by market turbulence and the value of the assets could fall.
Defined benefit pension
Often referred to as a “final salary” pension, benefits paid in retirement are known in advance and are “defined” when the employee joins the scheme. Benefits are based on the employee’s salary history and length of service rather than on investment returns. The risk is with the employer because, as long as the employee contributes a fixed percentage of salary every month, all costs of meeting the defined benefits are the responsibility of the employer. (See also Final Salary).
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.