Amy | Edited by Johanna
Updated January 2017
Taking financial advice is going to cost you. But when it comes to making life-changing financial decisions, it might save you money in the long run.
This guide will help you understand what a financial adviser is and whether you need to use one. It'll explain the questions you should ask and, most importantly, how much it'll cost.
In this guide...
What is a financial adviser?
Throughout your life you're likely to need different financial products. A financial adviser can help you make the right decision about the best product for you.
While the advice isn't free and DIY options are available, if you're looking at getting a complex product, even the money-savvy see the value in paying for an adviser to ensure they get it right.
There are two types of financial advice you can get, independent or restricted:
Independent financial advisers (IFAs): If an adviser is 'independent' or a firm advertises that it gives 'independent advice' this means that it's able to advise and sell products from any provider right across the market. Therefore you should get the very best advice and products tailored just for you.
Restricted advisers: In contrast, and as the name suggests, if an adviser or firm is restricted it can only recommend certain products or product providers to you. The adviser should clearly be able to explain the nature of the restriction to you, but if you're not sure, ask.
If you're using an adviser, always always make sure it's an independent financial adviser.
If you're going to get professional advice, check it's from an IFA. This is best if you're starting out with financial advice, as it's often difficult to identify why restricted advisers are restricted. Some will be restricted by products they advise on (not always bad), and some by provider (often bad, as other providers may have better deals).
I've got a financial adviser and I'm not sure if they're independent, how do I find out?
It's simple. Just ask. If they have a website or any documentation they've sent to you, it should clearly state what sort of advice they are giving you.
However, if it's not clear, call them up, or next time you see them, just ask. They should be able to clearly explain whether they are independent and if they are restricted, the nature of the restriction.
Are there ever situations where I should use a restricted adviser?
The reason we suggest you always use an independent financial adviser is because unless you know the nature of the restriction, it's a lot easier to use an IFA.
However, if you've done your research and for example you know you're only looking for advice on one specific area or product, pensions for example, then a specialist pensions adviser who can search the whole of the market, but only within that area, could be the best choice.
When would I need to use an adviser?
If you're looking at complex financial products, it can pay to get advice if you're not sure or not confident doing the research yourself.
Some of the main products that financial advisers deal with are listed below. Even if you're going to use a financial adviser to get one of these, it's a good idea to buff up on what you're getting before you meet. That way you'll feel more in control of the decision-making process.
Annuities: An annuity is a product you can trade your pension in for when you retire, in order to get a regular income for life. More on annuities.
Since the introduction of pension freedom in April 2015 (see the guide to taking your pension for more), getting an annuity when you retire is no longer the main option for people.
If you do decide you still want to take an annuity then you'll likely need an adviser. It's a big one-off financial transaction, and it's important you get it right as once you've bought an annuity you can't change your mind. Many people just opt for the annuity their pension firm offers them, meaning they could miss out on £1,000s over the course of their retirement.
Best practice is to get an adviser to search the whole market for you so you get the best annuity possible with your pension pot.
Financial or tax planning: The more money and assets you have, the more complex financial planning gets. There's a range of sometimes impenetrable products that can be useful but are also tough to understand. Here a good IFA can really prove their worth.
Investments: Choosing an investment is about assessing the risk and trying to second-guess the markets. It's important to remember advisers don't have a crystal ball; their choices for you are best guesses, not certain knowledge. More on investments.
While research helps, there's always an element of gambling when it comes to picking investments. If you go it alone, you get a head start because, if you do it right, charges are a lot lower as you don't have to pay for advice. So the IFA has to pick substantially better than you to justify the fee charged.
However, if you're planning investments for future events (eg, funding university fees - though see our guide on why you shouldn't pay uni fees upfront), it can be very complex and an adviser could be very useful. Always pick an advisers who specialise in investing.
Mortgages and equity release: Another huge financial transaction, so advice is a boon. Remember you'll get an adviser, not an instructor. So the most important thing is always to make sure you at least know the basics beforehand. Please read our free guides to First-time Buyers or Remortgaging. More on mortgages and equity release.
But unless you get an IFA who specialises in mortgages (check their qualifications), you're often better off going to a specialist mortgage broker, who can search the whole market for you.
Many mortgage brokers don't charge a fee. For more information on how to find a mortgage broker, read Cheap Mortgage Finding.
Protection insurance: Life insurance, critical illness, and income protection can all be complex products, with many exclusions. In some events, it can be done cheaply without an adviser, but those with less than straightforward family arrangements or health issues, will find help useful.
Pensions and pension transfers: Getting a private pension these days is often a simple case of picking the right provider (or joining the one your work provides - see the Pension Need-To-Knows guide). But pensions can be very complex, especially for those who want to transfer a sizeable existing pension. In this case, you may want to get an IFA's input.
Do I have to use a financial adviser?
The simple answer is no, you don't have to use a financial adviser. If you're confident you could for example use fund supermarkets, or other websites for investing, or set up your own pension. However, if you don't know much about the financial decision you need to make or don't feel confident, it might be best to get professional advice.
How much does financial advice cost?
For years, IFAs were paid in one of two ways - either by fees (you paid upfront) or commission (they took an ongoing cut, which varied per product). By law they were required to give you the option of either.
But since 31 December 2012, IFAs have been banned from accepting commission from providers on products, such as investments and pensions. Instead, they must charge a fee they agree with you.
All advisers can still accept commission from providers for life, critical illness and income protection insurance policies, and mortgage broking. Here, advisers take a cut every month that the product is held. This may seem free to you, but your money still pays them, just over a longer period instead of upfront - and it often adds up to a much higher cost.
How much will the fees cost me?
This will depend on whether you pay an hourly fee, a flat fee or a 'commission-style' fee. Often the initial meeting or conversation with a financial adviser where they find out what sort of products you need is free, but check just in case you get landed with a bill.
From then on, you'll have to pay. You can do this in three ways, depending on which adviser you pick:
Percentage fee: This is the most common way for advisers to charge, perhaps because it most closely resembles how they used to charge under the commission model. It's based on a percentage of the money you want advice on or managed.
You'll usually pay an initial percentage charge for becoming a client and investing your money, then an ongoing percentage charge for each year that they continue to manage your money. This percentage can range anywhere from 0.5% to 5%, so make sure you ask.
Fixed fee per service: These fees are charged each time you go to the adviser for different 'projects', such as consolidating your pensions, or investing. These are best for people that don't want ongoing advice and just need help with a specific job.
Hourly charge: Some advisers are moving more to a model which resembles solicitors or accountants and charging on an hourly basis. If you choose to go down this route, make sure you're given a full breakdown of the work they've done and how long it took. Hourly charges can be anything from between £50 to £250 an hour, so make sure you ask before you go ahead.
How do I find a financial adviser?
First things first, speak to family and friends and find out if they've used an independent financial adviser in your local area. Of course, just because they've had a good (or bad) experience with them, it doesn't mean that you'll have the same experience, but it's certainly a good starting point.
Failing that, the following websites are a good place to start:
VouchedFor - VouchedFor only features independent advisers. The website hosts reviews of IFAs, and checks them to make sure they're from genuine clients.
30-60min financial health check - ongoing.
Request a free over the phone or face-to-face financial health check from VouchedFor*.
You can use the session to get advice on anything from how to decide if you can afford to purchase a property, or how to make the most of tax-free savings schemes, to how to plan for a comfortable retirement.
If you want to get a free written financial plan instead then follow this VouchedFor* link. If you book this a financial adviser will help you set up your financial goals.
Unbiased.co.uk - Has a network of 26,000 advisers (both independent and restricted whole-of-market advisers). Just enter your postcode and it will list your local advisers. It also allows you to search by speciality, gender, payment options, advice areas, level of wealth and adviser qualifications, so you can find the best adviser. Or you can use their online form to find recommended advisers depending on the advice area and value involved. The site does a weekly check to verify all advisers are registered with the regulator, the Financial Conduct Authority (FCA).
Your Money - Has a network of 22,000 advisers. Be careful, though, because this doesn't just list IFAs; check they're independent first. Start by going to three and see who you get on well with, as this is an important consideration.
The Institute of Financial Planning (IFP)- Lists certified financial planners and accredited firms. As with Find An Adviser not all firms listed are independent - so check first.
A few Citizens Advice Bureaus also have volunteer IFAs as part of the Moneyplan scheme - check with your local bureau if it's taking part.
Free 30min financial health/pension/mortgage/investment check
Unbiased is running a number of offers on its site - you can choose from a free 30 minute session with a local financial adviser to either discuss your general finances, pensions, investments or mortgage.
Just follow any of these links to book your free meeting: A free pension check* for retirement or pensions planning, a free financial health check* for general financial planning, a free investment check* to help actively manage your investments or a free mortgage check* whether you're a first time buyer or looking to remortgage.
When you've selected the adviser you'd like to meet, just send them an email quoting 'UNBIASEDFREE50' for the pension, financial health or investment check or quoting 'UNBIASEDFREE' for the mortgage check. All offers are ongoing although they could be pulled at any moment so don't delay if you feel they'd be of use to you.
To make sure you get the most out of any of these checks, it's a good idea to have a summary of your financial situation to hand - any savings, debt, incomings, outgoings - and future plans.
What questions should I ask an adviser?
Don't feel embarrassed. You're potentially going to be transacting a lot of money via this person, so you have every right to ask questions and make sure you're confident in your decision.
Usually your first meeting with a financial adviser is free, so you're under no pressure to use them if you're not impressed, or you simply don't 'click'. If you go in armed with the below list of questions (and any others you have of your own) you'll be best placed to make a decision.
Q. Are you independent or restricted?
A. This is probably the most important question you can ask and it's best to make it your first so you know where you stand. An independent financial adviser will be able to search the whole of the market to get the best product for you, and must be entirely unbiased to call themselves independent. Read more on the difference.
Since 31 December 2012, advisers who are not able to search the whole market, or are tied to certain providers, must class themselves as 'restricted advisers'.
If you find a restricted adviser, check what their restriction is. Some are called restricted because they have, for example, chosen to specialise in certain areas such as pensions and won't offer advise on anything else.
However, other restricted advisers are tied to certain providers and will only be able to offer you products from those providers, or none at all if there are no products they can advise on that match what you want. Always check if the adviser you are consulting meets your needs. If in doubt, always, always look for an independent adviser.
Q. How will I receive the advice?
A. You should ask whether the advice will be given to you face-to-face, on the phone, via email or in a report. If you have a preference, ask if there are different prices for each.
The adviser should send you an outline of their recommendations, which is usually called a 'suitability report'. Read and check this carefully to ensure it reflects the discussion you had with the adviser and that you understand why they recommended a particular product.
Q. Are you authorised?
A. The FCA monitors firms to check they are qualified and above board. Before you meet any IFA, do a quick search on the FCA's website to check they're fully authorised.
Q. What qualifications do you have?
A. The FCA requires all IFAs to pass what they call 'Level 4 qualifications' - so you should be looking for a diploma-level certificate, such as the Diploma in Financial Planning (DipFP) (formerly the Advanced Financial Planning Certificate), or even better, the Advanced Diploma in Financial Planning (ADFP). Read more on qualifications.
To get these, the IFA has to sit advanced exams. They can choose which subjects to specialise in, such as pensions and investment, though the taxation qualification is compulsory.
The adviser also needs to have an annual Statement of Professional Standing (SPS), issued by an FCA-accredited body. This will attest to their qualifications and their accreditation on the FCA's register. This should be displayed in their office - if not, ask to see it.
The top qualifications IFAs can get is Certified Financial Planner or Chartered Financial Planner, which put them up there with accountants. For a full list of IFA qualifications, go to Unbiased.co.uk- your adviser must hold at least a Level 4 qualification.
What questions will the adviser ask me?
The first meeting with an adviser is two-fold. They'll want to find out about you and your needs, and also explain to you what services they can give you. They should give you something called a 'key-facts document', this will outline any fees and what sort of relationship you should expect to get from them.
If you're happy to use their services the adviser will carry out a 'fact-find'. This provides advisers with information about your finances, goals and attitude to risk. Here they'll look at your situation now - what savings do you have, do you have any debt, etc. They'll think about the future - how much money will you have coming in, what your attitude to risk is. Once they've built up a picture of you, they'll be able to better assess what products are suitable.
I got the wrong advice - what can I do?
If you feel you've been mis-advised, you need to collect as much paperwork as you can find, then write to the firm that sold you the product and explain clearly and concisely why you think the advice you were given was wrong.
If you're still not satisfied with the firm's response, you have the right to take your complaint to the Financial Ombudsman Service, which can award compensation. This is a free service, so never pay to reclaim, you'll just lose even more money.
For full details on how to claim, go the Financial Ombudsman Service website.
Remember, when it comes to investing, 'low risk' isn't the same as 'no risk'. You can still lose your money. Provided the adviser has explained this, there are no grounds for complaint.
However, if they told you that you couldn't lose money with a product, and you did, then you were mis-advised. In a nutshell, for investments you're complaining about the way you were sold, not the performance of a product.
How do I know if I was mis-advised?
Take a non-financial example to start with. Imagine you go into a store and tell the shop assistant you're looking to buy a washing machine that has a tumble dryer combined with it. Then when you take it home and use it you discover there's no tumble dryer setting on the machine. There's nothing wrong with the actual washing machine (it still washes your clothes), but it's not what you wanted it for, so it's been mis-sold to you.
The same applies with financial products. The adviser you choose must advice you on products that are suitable for your needs and most importantly explain to you what the product both does and doesn't do. If they don't do this then you may be able to claim compensation.
What happens if my IFA has gone out of business?
You may still be able to get compensation if the firm you used has gone bust and can't afford to pay you anything. You'll need to go to the Financial Services Compensation Scheme (FSCS) - the compensation of last resort.