Hiring a Financial Adviser
If you’ve heard it once, you’ve heard it a hundred times: you need to invest for retirement, especially if you want to retire early.
That means, at some point, you’re going to need a financial adviser – someone who can explain complex investments in terms you can understand.
Finding the right professional may seem intimidating, but it’s not that difficult; you just need to remember a few things.
What is a Financial Advisor?
Simply put, a financial adviser is a Financial Conduct Authority-regulated individual who can advise on ‘regulated products’ such as pensions and investments.
You can check out the financial adviser and their firm by a quick search on the FCA website.
Types of Financial Adviser
You would be forgiven for thinking that all financial advisers are the same, but sadly that’s not the case.
When considering a financial adviser there are six main areas to focus on:
- Products they can advise on
- The way in which they work
- The qualifications they hold
- Manage your own money
- Hire someone who helps you make smart decisions
- Know how your financial advisor is paid
Let me explain further:
Products They Can Advise On
If you wanted nutritional advice, would you ask a nutritionist or a butcher?
Of course that’s not a difficult decision, if you ask a butcher, the answer you’re going to receive is meat! Meat’s a great protein source, but perhaps what I really need is more Vitamin C or to reduce my cholesterol.
So, you don’t want to ask a butcher for nutritional advice. It’s the same with financial advisers, of which there are two types:
- Restricted Advice – the butcher
- Independent Advice – the nutritionist
An independent financial adviser (IFA) offers you a choice from all the products in the market, according to what’s right for you. The Restricted Adviser can only offer you his meat! Avoid at all costs, with restricted advisers you may get meat cramps…
The FCA, the regulator of all types of advisers, has produced a very good comparison.
The Way in Which They Work
Now this may not seem a big deal to you before you’ve experienced the difference, but some advisers are ‘product focused’ – so they look at which product you should buy and may save you for example 0.01% in fees because their product is cheaper than that product.
The other option is a Financial Planner, a minority fiduciary group within the profession of financial advisers whose focus is on you rather than the product. They are more inclined to work on what’s the best solution for you, regardless of what that is. You may find that repaying your mortgage is the right thing to do, or doing nothing is the right thing to do – the thing to notice is that their approach is not product focused, it is client focused!
The best designation in the UK for true financial planners is the Certified Financial Planner, or CFP (not to be confused with Chartered Financial Planner). This is an internationally recognised, rigorous exam and accreditation that only a few professionals in the UK have achieved.
You can find a CFP on the Financial Planning website.
Qualifications They Hold
Now this may seem obvious, because when you go to your solicitor or accountant, most of them hold a degree and have gone through their professional exams.
That wasn’t always the case in the financial adviser universe. Back in the early days, you could be a milkman on Friday and a financial adviser on Monday! Thankfully this has recently changed, so now to remain licenced by the FCA, all financial advisers need a minimum of a Level 4 diploma qualification.
However, if you were going into surgery, would you want the trainee or the experienced surgeon? Perhaps if you had a question about a cold the trainee would be fine, but to plan your retirement, you want to check that they are at least a Certified Financial Planner, or a Chartered Wealth Manager.
Ideally for more complex retirement planning work, you would be looking for a Fellow of the Chartered Institute for Securities & Investments.
This is the highest level (other than a Master’s degree) which a financial adviser can achieve and when you’re planning for something that can’t be fixed if it goes wrong – it’s too late to rectify your retirement planning when your 65! – you want to engage the best.
Manage Your Own Money
No one else will feel the regret and pain of losing your hard-earned money like you will. Some celebrities and professional athletes lose their entire fortunes because they let other people manage their investments for them. It’s your money and your future, so don’t be shy about taking charge of it!
A good adviser is smarter than you are about investing but knows you still call the shots. If an adviser wants you to do something simply “because they said so”, find someone else to partner with. You aren’t hiring a parent – you’re gathering counsel.
This is also true with decision making. Don’t be lazy. Some advisers are discretionary, which means you allow them to trade your account at their discretion. They may tell you it’s more efficient, but it’s your money: you want to be involved with every decision.
Hire Someone Who Helps You Make Smart Decisions
You can’t make an informed decision with your money if you don’t understand what you’re investing in. That’s why it’s important to look for an adviser who takes time to help you learn about your investments.
Avoid sales-minded pros or “experts” who make you feel dumb for asking questions. The right financial advisor will explain every detail to you until you get it – no matter how long it takes.
If you don’t fully understand it, don’t do it and walk away.
Know How Your Financial Advisor Is Paid
When evaluating a potential financial expert, make sure you know how they will be compensated. In other words, are they on a commission or are they fee-based?
You want to ensure the master works for you, then make sure you pay the master; otherwise they may be really working for the person who pays them, and not you!
You should expect to pay for the advice and planning – don’t feel happy if they ‘give it away’ or don’t charge you – they need to cover their overheads and pay their mortgage somehow!
You should also expect to pay a reasonable fee to implement the transaction i.e. when you buy the investment.
You want these two stages:
- Stage 1 – Advice & planning
- Stage 2 – Implementation of any products
to be separate and not contingent on each other.
If It Doesn’t Feel Right, Walk Away
Finally, if something doesn’t feel right about a potential adviser, then keep looking. Hiring an expert can be difficult, and you must feel good about the relationship. Interview as many experts as it takes to find someone you can trust to educate you on your options, so you can make investment choices that are best for you.
Keep all of this in mind when you’re hunting for the right financial expert, and you’ll be on your way to building a retirement strategy you can feel good about.