Do you need a financial adviser?
Whether you need an adviser depends on a few different factors, if you’ve answered yes to all of the questions below, you might not need professional advice right now:
- You’re comfortable making your own investment decisions.
- You are mostly focused on cash savings, rather than investing.
- Your tax situation is straightforward, and you don’t have cross-border tax issues.
- Your insurance and family protection cover needs, are already taken care of and are sufficient.
- Your own time, is worth less than the cost of outsourcing your financial affairs to a professional.
- You have the time to conduct in-depth research on different investment approaches, providers, and tax structures.
- You’re willing to pursue the required level of financial education and qualifications, to make sure you aren’t making common mistakes.
- You’re only looking for simple advice on one issue, and don’t want a holistic viewpoint of your circumstances, and how the impact your future.
However if you answered ‘no’ to any of those questions, working with a professional could help you to get the right advice quickly, tailored to you, and to short-cut any costly mistakes.
The difference between Financial Advisers and Financial Planners
Financial Planning is relatively new term, so you might find both the titles Financial Adviser and Financial Planner used interchangeably.
But there can be quite a significant difference in the service delivered across different advisers.
Financial advice tends to focused on a single product or solution. Like recommending a mortgage, insurance products or investments.
Meanwhile financial planning tends uses these tools to look holistically at your whole wealth. A good financial planner doesn’t just manage your investments or insurances.
They’ll also help you understand how this ties in to things like your long-term financial goals, estate planning, and tax planning. Considering things like whether you could afford to retire, start your own business, or take a career break.
Depending on your needs, we offer both financial planning and financial advice. But people often benefit the most from a holistic financial planning approach.
What about financial coaches?
Recently financial coaches, have dominated social media platforms.
But most financial coaches are entirely unregulated, meaning they can’t provide advice on specific structures or investments to help you manage your wealth. Instead they offer ‘education and coaching’.
If you’re looking for an adviser to both provide advice and help you implement their recommendations, a financial coach is unlikely to be the optimal solution.
If you’re thinking of working with a financial coach, to ensure you’re getting appropriate advice, you should expect them to hold the same qualifications a regulated financial adviser must have (see below).
Where a financial coach has no independently recognised financial qualifications, it could be a red flag 🚩.
What qualifications should a financial adviser have?
Most people wouldn’t trust an unlicensed doctor to treat an illness, and your finances should be no different.
Qualification requirements vary across jurisdictions. In some countries no experience or qualifications are required, but this doesn’t mean you should work with someone who isn’t qualified.
In others jurisdictions high level exams need to passed before providing advice.
As a benchmark, in the UK to provide financial advice or financial planning, you must hold a Level 4 qualification deemed appropriate by the FCA (full list here). These include the CISI Investment Advice Diploma or the CII Diploma in Financial Planning.
However few advisers simply stop at these entry level qualifications.
If you’re looking for a professional committed to delivering advice of the highest standards, look for someone who is either:
- A Chartered Member of the Chartered Institute for Securities & Investment
- A Chartered Financial Planner qualified through the Chartered Insurance Institute
- Or a Certified Financial Planner (CFP).
Fees & Charges
Most advisers fall into one of three categories, Commission-Based, Fee-Only, and Fee-Based. All of which have their strengths and weaknesses.
Commission-Based Advice
These advisers are paid directly by product providers, not their clients. This easily leads to conflicts of interest. And such arrangements prevent them from being truly independent.
Their services are often marketed as not costing you anything. However we all know there’s no such thing as a free lunch, the product provider is charging you, and is paying the adviser from those funds.
The important thing is understand the cost of advice. So make sure that any commission paid to the adviser is disclosed to you, so you know what you’re really paying.
Commission based products often come with lock-in periods and exit penalties, so look out for these on any products recommended.
Fee-Only Advice
These advisers are only paid directly by their clients, but surprisingly this again can also lead to conflicts of interest.
Most fee-only advisers will deduct adviser fees from the assets they manage for you, administered by the investment platform or product provider. This is always transparent and disclosed.
However because of this arrangement, many fee-only advisers will be unwilling to work with any existing products you may hold.
If you have any older commission-based products, this can often lead to recommendations to surrender those products and move your accounts, which may not be in your best interest if there are penalties for doing so.
The life insurance industry exclusively works on a commission basis, this means many fee-only advisers are unable to advise on insurance products. Even when insurance products could be essential for protecting your financial well being (e.g. term life insurance) or have tax advantages.
In many European countries (like France, Portugal & Spain), investment-linked life insurance has significant tax benefits, and fee-only advisers will be unable to offer this as a solution.
Fee-Based Advice
This is a blend between commission-based and fee-only advice. A fee-based adviser has the flexibility to work all available products and structures.
Most fee-based advisers avoid commission-based products, except where they’re essential to your wider financial plan, or ones you already have that need fixing.
They can manage your wealth on a fee-only basis, but also work with legacy commission-based products you hold, and also advice on your insurance needs.
Generally fee-based advisers recognise the conflicts of commission-based products, and will ensure any fees or commission paid is transparently disclosed.
For most expats, a transparent fee-based adviser, represents the optimal solution.
Minimum investment amounts
As we’ve established above, you’re always going to pay for advice, one way or another.
This means many firms have minimum investment amounts, to make sure they’re delivering a service that is commercially viable.
These minimums can range from £50,000 to £1,000,000 depending on the firm. And many organisations may be able to waive these minimums for high savers, who will quickly meet their requirements.
But if you’re investing a small amount or even starting from zero, make sure to be clear on what the advice is costing you. As the cost of advice could outweigh the benefits.
We work with investors with over £150,000 to invest, or those below this amount who can save over £5,000 per month.
Personal service or a team based approach?
This often comes down to the type of service you’re looking for, and whether you want continuity from one person.
A focus on personal service
There are many advisers who have full autonomy over the service they deliver. This means you’ll work with the same person for the long-term, building up a in depth working relationship over time, with someone who really understands you.
This doesn’t mean you’re solely reliant on the knowledge of an individual, they’ll often work with a network of tax and estate planning professionals, that they can bring in when required. But you’ll have a single point of contact.
Team based approaches
Other organisations pursue a team based approach, this means it’s highly likely your designated adviser will change over time.
For businesses with high staff turnover, this can lead to issues with continuity, as your new adviser will be less familiar with your circumstances initially. It also brings the risk that smaller clients will be routinely passed to junior advisers.
Our focus is delivering personal service from one adviser, for the long run.
Independent or Tied Advice
The advice provided by a financial adviser or financial planner often falls under one of two categories, but its’s not always as clear as the title would suggest.
Independent Financial Advice
An independent financial adviser has the ability to work with all the products available on the market. However in practice, few actually do.
Most independent advisers look for the most suitable products available on an ongoing basis, and work with a select few providers to help clients manage their wealth. This provides a balance between offering best in class solutions, and managing administration across different providers. In some jurisdictions this is called ‘restricted advice’.
To understand what your financial adviser can really offer, it’s important to ask about the diversity of their product range and your investment options.
I’ve come across some so-called independent advisers, who in practice only recommend one or two solutions for investments. If these are mostly in-house products, this can be a red flag 🚩.
Tied Financial Advice
You’ll also come across many advisers who are tied to a single product range.
Often this is because they’re employed by a product provider (like a bank, insurance company, or even national financial advice firm) and are only able to recommend their in house products.
Be aware that their recommendations will represent the best that they can offer, rather than the best available solutions on the marketplace.
If you’re dissatisfied with your arrangements, it can also lead to issues if you try to move elsewhere. Aside from potential exit penalties, other adviser may not be able to deal with these in-house products, meaning you’ll need close your account to move the funds.
For this reason, I generally recommend avoiding approaching banks or insurance companies if you’re seeking impartial advice.
In Summary
- Consider if you only need advice on a single product, or if a holistic view would better help you achieve your goals.
- Look for Chartered or Certified financial professionals, for the best quality advice.
- Make sure to understand what your financial products are costing you.
- Find out how your adviser relationship will evolve over time.
- Ask about the product range your adviser can work with, broader usually means better.
Looking for professional help to grow your wealth?
Are you an expat living in overseas? Arrange your complimentary initial consultation today.
