Three million people may no longer be able to get financial advice next year, when new regulations will change how advisers charge for their services. In a new report published, Aviva, Britain's largest insurer, says there are concerns that many advisers will focus purely on wealthier clients, who can afford to pay hourly fees – leaving 3.3m without access to advice at all.
Going to their bank may not be an option. Most aren't expected to offer "independent" advice to the mass market, but instead will simply sell their own products.
Getting decent financial advice has never been easy. Banks have been repeatedly criticised for the poor investment advice they give, while so-called "wealth management" companies recently had their knuckles rapped by the regulator for recommending "unsuitable" products.
Financial advisers also have a chequered reputation. While many give considered and insightful advice, others stand accused of selling products that are more likely to benefit them – via generous commission payments – than their customers.
The first question you need to ask yourself is whether you need advice, or simply information. Those who just want straightforward information – how much should you be putting into a pension, for example – can probably find the answers themselves. There are a host of websites that contain information on the best savings, mortgage and credit card deals (for a list, see over).
But if you are short of time, or are not confident dealing with complex financial products such as pensions, annuities and investments, you should seek independent advice. As well as giving you information about your options, an adviser will also recommend appropriate products. Those who buy a financial product directly – without advice – do not normally have anyone to complain to if it turns out to be unsuitable. But if it has been recommended, you do have this additional protection.
WHAT TYPE OF ADVISER DO YOU NEED?
Advisers come in all manner of guises: wealth managers, financial advisers, stockbrokers, accountants, financial planners, mortgage brokers, tax advisers, tied agents and multi-tied agents, to name but a few. Which is best?
Consumers should think about what type of help they are looking for. Do you want a complete overhaul of your finances, or are you looking for guidance on a specific problem, such as retirement planning?
If you need help with specifics, seek out an appropriately qualified adviser. The website www.unbiased.co.uk enables you to search for local advisers specialising in mortgages, annuities or long-term care, for example. For tax queries, you need to talk to a qualified accountant. They might appear costly, but could save you more in the long run.
Always look for an independent adviser, who recommends products from the whole market. Your local bank might suggest you talk to one of its financial advisers, but in many cases these just sell the bank's own products (a tied agent) or advise on a very limited panel of companies (multi-tied agent).
Avoid where possible. Some wealth managers and investment advisers may have similar arrangements and not be truly independent. If in doubt, ask – although this distinction should be clearly explained at the outset.
For a general overhaul, you are probably best talking to a financial planner, who is typically better qualified and will take a more holistic approach to your finances.
WHAT DO YOU WANT TO PAY?
The short answer is probably as little as possible. But cutting corners on costs can often lead to shoddy advice. Most advisers will either charge a fee, usually at an hourly rate, or collect a commission payment from the company whose products they eventually sell to you.
The latter system can appear cheaper, as you don't have to part with £200-plus to start with. But these commission payments can skew advisers' recommendations and often are clawed back anyway through product charges, so can prove far more expensive in the long run.
Commission explains why many independent financial advisers recommend with-profits investments and unit trusts, but don't recommend paying off credit cards or tracker funds – which typically will earn them no income at all.
Currently, all independent advisers have to offer the option of paying a fee, and this will be the only way they can charge for their services from next year. Regardless of which method is chosen, make sure the adviser explains what the costs will be. Make sure you know what service you can expect for this fee. This should be set out in the "key facts" document that advisers have to complete.
DO YOUR RESEARCH
Don't walk in blind. Have some idea about what your financial goals are and how you think they can best be achieved. What type of investment do you think you need and how much do you have to save each month? If the adviser recommends a different course of action, ask why theirs is better.
Most advisers will give you a free initial consultation. Feel free to see more than one adviser until you find someone you trust. Ask family and friends for recommendations – but remember that good advice is about more than a charming manner and a free cup of tea. Mull over any suggestions made to ensure they meet your needs. Don't rush into signing anything.
DON'T PUT UP WITH JARGON
Don't invest in any product you don't fully understand. A good adviser won't mind explaining complicated financial products again; the best advisers probably avoid these products in the first place, or explain them clearly at the outset. Be sure to ask about potential downsides.
KEEP IN TOUCH
However good the advice at the time, circumstances change. You may need to revisit your investments and make adjustments accordingly. A good adviser should be in regular contact.