How to find the right retirement adviser for you
What can an IFA do for me?
While your first question might be ‘what should I do with my pension?’ an IFA will consider your overall finances to come up with a solution that works for you and your lifestyle. They will help you strike the right balance between security and flexibility and help you structure your finances to minimise the amount of tax you pay. If you want to leave an inheritance or save money for future care bills they can plan for that too.
Additionally, unlike the government’s Pension Wise service, an IFA is allowed to make specific product recommendations, which will have been based on an assessment of your circumstances.
How do I find a good IFA?
Start by seeing if any friends or family can make any recommendations, or consider search engines that help you find regulated IFAs in your area – such as unbiased.co.uk.
Unbiased allows you to filter by specialism, qualifications, payment options, gender and languages spoken and you can email them via the site or request a call back.
Before making contact with any adviser, it’s important to check they are legit, says Bob Stark, a director at specialist pension adviser Portal Financial. “Check that they are FCA regulated – you should find this detailed at the bottom of their webpage. Be very wary if it isn’t.”
But just as you wouldn’t employ a builder without getting a range of quotes, it makes sense to meet multiple advisers before committing to one. Although you will need to pay to hire an IFA, shopping around shouldn’t cost a penny.
Danny Cox, head of advice at Hargreaves Lansdown, says: “The first meeting is normally free and is a fact-finding session for both sides: you will want to learn whether the adviser can help you, what services they offer and how much they will charge. The adviser will want to understand more about what help you are looking for and whether they can add value to your situation.”
Stark adds that an IFA’s listening skills are just as important as their market knowledge: “How good are they at listening to and answering the questions you ask?”
You also need to be sure that you get along with your adviser – you’ll be tackling some fairly emotive subjects like your health and your family, so it’s important you are comfortable talking openly with them.
You should also keep in mind that all of this isn’t a one-way street; the IFA will want to know if it’s worth working with you, too. Sadly this usually means one thing: is your pot big enough?
Stark says: “The average pot we deal with is £53,000, but the average pension is closer to £30,000 and many IFAs won’t be interested if you have less than £100,000.”
But even if you don’t have an enormous pot, it’s important to shop around, as advisers’ attitudes will vary. “We’ve done a reasonable chunk below £10,000 because we don’t like to turn people away,” he adds.
How much does it cost to use an IFA?
Following the introduction of rules that prevent IFAs from earning commission for the products they sell – which could encourage less scrupulous IFAs to skew their recommendations – all advisers now need to charge a fee for their services, be it hourly, a fixed, or a percentage of the money they are managing.
Costs will vary across the UK but as a broad-brush guide Unbiased.co.uk says the average hourly fee for an IFA in 2014 was £150. A financial review and report would cost around £500, while advice on turning a £100,000 pension into a lump sum and annuity would set you back around £1,500. Setting up income drawdown for a £300,000 pension would cost approximately £3,000.
It may seem counter-intuitive to be spending money when you’re attempting to trim your costs, but long-term an IFA is there to make your money work harder, and you should recoup the cost.
As Stark points out, “take a £50,000 sum growing at 4.5% a year after charges. If they went to an IFA who was able to increase performance by just 1%, the difference in growth over 20 years would be £25,000.”
Can I trust my IFA’s advice?
The advice you receive from an IFA is backed by consumer protection, adds Stark, which isn’t available when you go it alone. “With an IFA, you have access to the Financial Ombudsman so your advice is covered. If you DIY or are scammed, your money could end up gone.
“Your IFA is taking a risk every time they make a recommendation. If we mess up because something was not in your best interest, we’ll have to provide recompense.”
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.
If you’ve have a complaint about a financial service product you have bought but the company you bought it from refuses to resolve your problem after eight weeks, the Ombudsman can help. The Ombudsman will investigate and resolve the matter. The Ombudsman is independent and its service is free to consumers. The Ombudsman may find in the company’s favour but consumers don’t have accept its decision and are always free to go to court instead. But if they do accept an Ombudsman’s decision, it is binding both on them and on the business.
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.