Do you feel confident enough to make important decisions about pensions and investments without taking professional financial advice?
If you do, well done!
Oddly though, most of us don’t feel confident enough with such decisions.
Sure, we can all make decisions about which restaurant to go to or whether to watch this film or that film. Choosing where to go on holiday is easy enough. We can decide on a new kitchen or even a new house. And buying a pair of shoes is easy enough, and so is organising a children’s party (well sort of).
Yet, when it comes to decisions around pensions and investments?
There’s just confused silence – a lot of the time anyway.
Is it because pensions and investments are so complex?
Is there too much technical jargon?
Do we get lost in ‘risk ‘profiling’, ‘uncrystallised pension benefits’, ‘capital gains tax’ and the merits of using ‘trusts’?
Is it any wonder there’s apprehension with doing it yourself?
At least if you use somebody else and it goes wrong you can blame them for ‘bad advice’!
However, it could also just be laziness or plain fear.
I Need Financial Advice – Why?
Why would you need financial advice in the first place?
Why don’t you just do your own research, make your own evaluations and decisions?
You want to take responsibility for your own decisions, don’t you? Because, then if you get it wrong you can ‘shrug it off’ or ‘kick yourself’ for your error of judgement. Your error.
However, unless you’re a ‘financial services’ professional and/or have relevant experience how can you do that?
Or do it without just guessing?
Well, you can. You just need to be brave enough.
There’s plenty of information (especially on the internet) so just Google away.
“Ah there’s a problem“, you say.
“So much of the information, guidance and advice makes me more confused!”
Yes, it does. And that IS a problem.
So, why not take the ‘pain’ away and talk to a ‘financial advisor’.
“Yes please”, you sigh.
The ultra wealthy and even their poor cousins, ‘the wealthy’, have a hand picked bunch of highly qualified and experienced advisors to look after their finances, tax and all that.
But that’s not me and you, is it. Nowhere near.
So what is available in terms of advice and how do you find an advisor?
I Need Financial Advice – Finding an Advisor
The Financial Conduct Authority (FCA) runs a Financial Services Register.
It provides details of authorised and regulated financial advisors in the UK, and other things.
But there’s another problem.
The register is only for when you’ve found an advisor.
The register lets you check the status of an advisor, if they’re authorised and what they’re authorised for.
It won’t tell you if they’re a good advisor, or a bad advisor.
It won’t tell you if you’ll get ‘value for money?’ Maybe, you will, maybe you won’t.
Will you get ripped off with charges? Maybe, maybe not.
The register provides information, but you may find most if it isn’t really user friendly or useful.
Below are images of what the register looks like. The top one is the older version of the register and the blue one below is the newer register (which is still in its teething stage, or Beta as IT testers like to call it)
Source: FCA Website
Old register (still in use on FCA website)
Unlike the previous register an effort has been made to separate types of financial services businesses and their target market. Just comparing these two ‘interfaces’ it’s evident that the older one is full of irrelevant suggestions. In comparison the bottom one is clearer.
Well done, the FCA! At least your making an effort, but why is it taking so long?
Let’s just hope the underlying rot has been cut from within the register!
Source: FCA Website
Into the future this will be the way (possibly the only way) to search for ‘financial advice’.
Once ‘Beta’ testing is complete expect HM’s Treasury (who have oversight of the FCA) to roll out the ‘Public Relations (PR)’ big guns telling us from every lamp post to use the register, and nothing else.
What if You Don’t Trust the FCA Register?
If you haven’t got a trusted brother or sister, father or mother or trusted family friend to ask for a referral, and you don’t trust the regulator.
Then you’re left with the 21st Century Wild West.
A search on Google for a financial advisor typically yields some Google Ads to start with:
The number of times ‘free’ is mentioned.
These are ‘Google ads’. This means the businesses you click through to, from these ‘ads’ have paid to be at the top of the search engine results.
There is no ‘vetting’ of ads and Google accepts money from anybody.
Further down in the Google search results we find what Google generates ‘organic search results’. This means the organisations and businesses haven’t paid to appear.
The FCA appears because of all the thousands and thousands of financial services businesses that ‘link’ to them. This is also applicable to to ‘which’ and ‘Citizensadvice’.
I Need Financial Advice – Can You Afford an Advisor?
Financial advice isn’t cheap. Why should it be, if it’s quality financial advice?
Miss X has consulted an advisor regarding a pension transfer. A valuation has been received from her previous employer’s pension scheme of £456,700.
An advisor may charge 1%. So that would be a reasonable £4,567
Another advisor may charge 1.5%. So that would be a bit higher at £6,850.50
Yet another advisor may charge 2%. So that would be a significant sum of £9,134.
Could another advisor really go for the full buffet and charge 3%? Yes, so that would be a whopping £13,701.
As you can see these small percentage difference make a considerable difference to Miss X’s ‘investable funds’ after her pension transfer.
Of course, instead of a percentage a ‘fixed fee’ could be charged.
So, fixed fee of £5,000 or £6,000 for example.
It’s also quite possible if an advisor works under an ‘umbrella’ network that a cap (formal or informal) will be in place to ensure ultra high charges are not levied. That’s a good thing from a consumers perspective.
On a transfer value of £456,700 Miss X (if she’s like the majority of people) probably won’t pay much attention to the commission, fee or in other language ‘contingent charge’ on her pension transfer.
However, what about Mr P? He’s only got £75,000.
Using one charge from above of 2%. Mr P will pay £1,500.
That’s not going to be ‘worth it’ for most advisors. Their time is better spent on the higher transfer values as demonstrated above.
Therefore, Mr P may be left to the ‘sharks’. This will be especially true if Mr P hasn’t got what’s called a Defined Benefit pension. Then he really is on his own. Not quite, because he’ll have the sharks for company.
Conclusion – I Need Financial Advice
Yes, you probably do. But if you have less than £100,000 you really are in difficulty. That’s not to say you won’t find plenty to offer their advice, of course you will. But you’ll have the least protection. So tread carefully!
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