How to pick a financial advisor – Jasmine Birtles

A question I am being asked more and more, particularly since the start of lockdown, is “Where can I find a good financial advisor?” The sad truth is that at the moment I can’t think of anyone I would unequivocally recommend. However, I do believe that people should obtain independent financial advice once they have enough money to need some steering, and that it’s worth putting a bit of effort into finding the best available.

You can do a lot for yourself

The first thing to know is that there is a lot you can learn about money management and investing, quite easily, for yourself. Happily there are many resources online and on paper to give everyone the basics of managing their money and investing their wealth.

A few places to start are:

• MoneyMagpie.com – my own website which (immodestly) I consider is a great starting point for anyone looking to get a handle on their daily finances and start investing for themselves.
• Pretty much any other independent money information site, such as the Money Advice Service (www.moneyadviceservice.org.uk). They’re all singing from the same hymn sheet. Also, for the same reason, any of the newspaper money pages are worth reading as they are full of useful information, often written in easy-to-digest chunks.
• Again, any money management book you pick up will be worth a read. Your local library has them and they are certainly available new and second-hand online. They will give you the same basic principles of managing, and probably investing, your money. It’s worth skimming through at least one of them.

Even if you do then decide to take on an Independent Financial Advisor (IFA), it still helps to have a good deal of knowledge yourself so that you can ask informed questions and work out if their advice is worth taking or actually not appropriate for you.

Friends, family and directories

It is worth asking around friends and family for recommendations. However, make sure you only ask people who are savvy with their money already. Some people can be hoodwinked by clever ‘advisors’ for years before they realise that they have lost money.

If you don’t have any good recommendations from people you know, the next best thing is to go online and see which advisors have a five-star rating. 

VouchedFor.co.uk

The website Vouchedfor.co.uk is a directory of financial advisors that are rated by clients and former clients. This way you actually get a decent idea of who is worth speaking to in your area. Alex Whitson, managing director of VouchedFor says “We use reviews as one of many trust signals to help people find the right advisor for them. It’s a bit like Tripadvisor as you can filter the reviews to find what people like you think about particular advisors. That helps give a steer on whether they are right for your needs.”

He says the vast majority of those who review their advisors on Vouchedfor are content with their performance. In fact, the average ratings for advisors on the site is over 4.8 out of 5. “That’s really key,” he says, “because if you read some of the reviews you can see just how life changing advice has been for many people. You can see that fees paid have been vastly outweighed by value received. Since lockdown, it’s been very apparent that people have really valued having an expert by their side. It’s easy to be a successful DIY investor when it’s good but when things go south they get unstuck if they haven’t balanced their portfolios.”

In fact, if you would like to get a free financial health check right now through VouchedFor you can do it through an offer set up by MoneyMagpie here. 

Unbiassed.co.uk

Another directory of IFAs is Unbiassed.co.uk which shows you potential advisors that could match your needs in your area. This one doesn’t rate advisors but Karen Barrett, CEO of Unbiassed says they collect seven data points about each user and an algorithm finds the best match among their members.

However, although this guidance can cut out advisors that would not be right for you, you still don’t know which of the ones that are left are really any good. But it’s still a good way of narrowing down the choice in your area which can save you time looking for someone who meets your needs.

How much?

One of the main reasons why I have such difficulty recommending financial advisors is the fees they charge. Other financial journalists agree. One newspaper personal finance editor who asked not to be named said “I find it very difficult to recommend any financial advisors to friends. They are all expensive and not one comes to mind that I could suggest. The whole IFA thing is not what it was because of regulation and lower returns.”

Alex Whitson disagrees. “RDR [the Retail Distribution Review – regulations brought in by the FCA in 20212 to govern IFAs] has brought positive changes,” he says. “The onus is on financial advisors to help people understand the value of advice. We’re really keen on encouraging advisors to post their fees on VouchedFor.” 

He says that fees vary from advisor to advisor and can be higher in some regions than others. However, the average amount you should expect to pay are as follows:

• A typical initial fee for investment advice is 1.7% of the amount invested.
• Then there would be average ongoing management fees of 0.8%. 
• Advisors’ average hourly rate, if you want to pay in that way, is around £190.
• Some will quote specific fees for different services such as investing in an ISA (around £800) or transferring a pension (£3-5k).
• Also remember that financial advisors tend to offer their first meeting for free so you could test out a few to see what you think of them and get free financial advice into the bargain.

It’s also worth knowing that most advisors have a tiered fee structure dependent on the wealth level being discussed, so if you have £50,000 to invest you will pay a higher percentage than if you had £500,000 stashed away. 

For this reason, if you have a relatively low amount to invest and manage then it can be worth looking for an advisor who works on a ‘fixed fee’ basis. Not that many do but there are a few around the country.

Alex Whitson says, “Every time an IFA gives advice they are taking a regulatory risk. Their insurance is always going up and that impacts their prices. What I recommend people do in that situation is look for advisors who are willing and able to help people on their level of wealth. Quite often the young and newer ones are willing to help people of any level of wealth.”

Karen Barrett from Unbiassed also suggests that you try to get yourself in a position where your admin is sorted before you go to see an advisor which will cut down on the amount of time they need to spend sorting things out for you.  “Ask yourself what you want from the advice too,” she adds “When do you want to retire? Do you want to go on a big holiday soon, and so on.”

So shopping around and getting your thoughts and paperwork prepared before visiting an IFA can cut down the cost quite significantly. Give it a go.

Jasmine Birtles is a TV finance expert and founder of www.moneymagpie.com

The views expressed here belong to the author and do not represent those of Funding Circle. Funding Circle is not authorised to, and does not, provide investment, tax, legal or regulatory advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, such information contained here. If you have any questions, please speak to your professional adviser or seek independent specialist advice.