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Financial Advice When to get it, how to find a good one, and how to pay

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Want someone to cut your bills? Then don't use an Independent Financial Adviser. What IFAs do is look at protection products, annuities, investments, mortgages, tax structuring and financial planning. This guide's about who to get advice from and how.

If you want one-on-one help on bill-cutting or credit cards, then sadly it simply doesn't exist. It's a DIY job. The best place to start is the Give Yourself a Money Makeover guide, or Martin's Money Diet* book.


THEN READ PART II:
Picking and paying for the right IFA!

When to use an adviser

If you're scared, short of time, or don't feel confident doing the research when looking for complex financial products, you'll find financial advice worthwhile.

Yet if you're money-savvy, DIYing it is likely to be cheaper - but don't rush in. Take the time to research the best products.

But, even for the savvy, when dealing with the interaction of various complex financial products, professional help can be very useful, and it's worth paying an adviser to ensure you get it right. Common areas where you might want expert help include:

  • Annuities (pensions). An annuity is the product you trade your pension in for when you retire, in order to get an annual payment for life. It's a big one-off financial transaction, and it's important you get it right as you can't change your mind. Most people should consider an adviser for this, as it's important to seach the whole market for the best deal.

    Some advisory firms specialise. So if you only want annuity advice, it's worth looking at one of the big three specialists, Annuity Bureau, Annuity Direct and William Burrows.

  • Endowments. The financial services industry, and many of its advisers, are culpable for the problems with endowments. Yet they're also often your best chance of sorting them.

    If you have a sizeable endowment and are considering surrendering or selling it, the complexities can be huge. Talking to an IFA to work through the options is often worthwhile. It's also worth checking whether you're eligible to complain about a mis-sold endowment.

  • Financial and tax planning and structuring. At the high end, finance can be complex. 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 his or her worth.

  • Investments. Choosing an investment is about assessing the risk and trying to second-guess the markets. It's important to remember advisors don't have a crystal ball; their choices for you are best guesses, not certain knowledge.

    While research helps, there's always an element of gambling when it comes to investment picking. 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 - read our Discount Brokers guide. So the IFA has to pick substantially better than you to justify the fee charged.

    However, if you are planning investments for future events (eg, funding university fees), it can be very complex and an adviser could be very useful.

  • Mortgages. 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 Mortgages or Remortgaging.

    Yet unless you get an IFA who specialises in mortgages (check their qualifications), you're often better off going to a specific mortgage broker, who can search the whole market for you without charging a fee. For full details, read Cheap Mortgage Finding.

  • Protection products. Life assurance, critical illness, and income protection can all be complex products, with many exclusions. In some events, it can be done cheaply without an adviser (see the Level Term and Mortgage Term Life Assurance guides), but those with complex arrangements will find help useful.

  • Pensions and pension transfers. Getting a private pension these days is often a simple case of picking a stakeholder correctly (see the Pension Buying guide). Yet pensions can be very complex, especially for those who want to transfer a sizeable existing pension. In this case, again, you may want to get an IFA's input.

What kind of adviser to go for

Advisers are legally divided into one of two types.

  • Independent Financial Advisers. IFAs are unbiased and can advise on and sell products from any provider right across the market. They are obliged to give 'best advice'.

  • Restricted advisers. These are the type of advisers you'll usually find in high street banks, or those who have chosen to specialise in certain providers' products or certain areas of advice. Their 'restricted' status means that they can only sell and advise on a limited range of products, or from a limited number of firms.

    They are not able to search the entire market for the best product to suit your needs, but - if you know what you're doing - they are still worth considering, as some are deemed restricted because they specialise in certain areas of financial advice.

The Golden Rule

If you're using an adviser, always, always, always ensure it is an Independent Financial Adviser (IFA).

If you're going to get professional advice, check it's from an Independent Financial Adviser. This is best if you're starting out with financial advice, as it is often difficult to identify why restricted advisers are restricted - some will be by product, and some will be by provider.

This terminology is a legal distinction so ask them, "are you an Independent Financial Adviser?" Don't accept any hedged answers.

How much will I pay?

Since 31 December 2012, independent and restricted advisers have to charge you a fee for investment, pension and endowment advice rather than accepting commission, though it's up to you what form this fee takes.

You can either pay upfront for the adviser's time, probably around £100-£250 per hour of work they do for you, or you can agree a commission-like fee which is taken from money you invest in a product you buy through them.

However, for mortgages and insurance advice, all advisers are still able to accept commission, so you may still be able to get this advice 'for free'. But remember, even though you haven't agreed a fee, the provider will use the money they receive from you for the product to pay the adviser.

Advisers offering "basic advice" can also receive commission. This is what you receive when you go to a bank for, eg, an insurance product, and the advice on which product to take is given depending on your answers to scripted questions about your circumstances and insurance needs.

Other advisers to use

IFAs aren't the only ones who talk money. If you're looking for mortgage, tax or debt advice, you need to get in touch with the right person for you.

  • Never, ever, ever use a bank manager. Don't go to banks and building societies for money advice. They simply flog you their own, usually uncompetitive, products and are often incentivised to sell you debt and insurance that you don't need or want.

    Don't go near them for advice. Though if you're having problems repaying debts, it's important to tell them.

  • Mortgage brokers. We advocate going to a mortgage broker for advice - mortgage products are fast-changing and an adviser will be able to help you pick the best option. Find a fees-free, 'whole-of-market' broker, who will search all the UK's mortgage lenders. For a full guide, read Cheap Mortgage Finding.

  • Tax accountants are often crucial and unavoidable if you're self-employed, have complicated tax affairs or need inheritance tax advice. To find a tax accountant in England and Wales, go to the Institute of Chartered Accountants. In Scotland, go to the Institute of Chartered Accountants of Scotland, and in Northern Ireland, see the Chartered Accountants Ireland - they cover both Northern Ireland and the Republic of Ireland.

  • Debt advice. Finally, if you've serious debt problems and can't afford to make your minimum repayments, the free debt counselling services are fantastic. For more info, read the Where to Start With Problem Debts guide.


NOW READ PART II:
Picking and paying for the right IFA!


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