Save, make, understand money

Editor's Pick

Four questions to ask a prospective financial adviser

Kit Klarenberg
Written By:
Kit Klarenberg

Selecting an adviser could be one of the most important financial decisions you ever make so it is crucial that the adviser you choose fully understands your goals, and is right for you.

Consumers searching for an independent financial adviser (IFA) are urged to draw up a shortlist of candidates, and attend preliminary consultations with them, before reaching a verdict.

“These meetings will be a learning experience for you both, a time to discuss your current financial situation and where you hope to be in five, ten or even 40 years’ time,” says Karen Barrett of unbiased.co.uk, a website that helps consumers find a financial adviser.

“If you prepare well and consider broadly what you want to achieve, your meeting could be the start of a long and beneficial relationship.”

Here are four key questions you should ask an adviser at your first meeting. If an adviser is reluctant to provide full and candid answers to any of these questions, walk away and find a more suitable contender.

Are you an independent financial adviser?

This might seem obvious, but the legitimacy of an IFA should be your first consideration. For an IFA to qualify for the title, at the very least they need to hold a Financial Conduct Authority (FCA) -recognised financial planning diploma, and a valid Statement of Professional Standing (SPS).

“FCA regulation isn’t merely a stamp of professionalism and credibility, it’s the only way of ensuring an adviser is truly independent – that they’re not acting on behalf of any product, provider or vehicle, but their clients alone,” says Martin Bamford CFP of Informed Choice.

“It also ensures that you can hold them accountable through the Financial Ombudsman should you be unhappy with their service.”

Simon Gibson, director of financial advice firm Mattioli Woods, says this information is easy to find online.

“Don’t bother meeting a potential adviser without confirming their credentials first,” he says.

The Financial Services Register is a public record of all financial services firms and individuals regulated by the FCA, and the search engine Unbiased.co.uk allows you to find IFAs in your area. Consult these resources when drawing up your shortlist.

What are you best at?

Most financial advisers can advise on a number of topics, but whether you specifically require general support across financial affairs, or seek expertise in one or two areas, it is important to identify an IFA’s core strengths.

“Some aspects of financial advice are more complex than others, and require specialist qualifications and experience to deliver,” says Andrew Pennie of Intelligent Pensions.

“If you solely require advice on tax or pensions, you should of course look for an IFA with relevant diplomas. The old adage of ‘jack of all trades, master of none’ very much applies.”

Bamford, however, believes that diplomas aren’t necessarily the be-all end-all.

“If you’re keen on a particular adviser who doesn’t personally have appropriate qualifications, ask whether they have access to other specialists who can work with them,” he says.

Gibson recommends asking about the profiles of the IFA’s other clients, and their experience of dealing with similar financial circumstances, or attaining comparable objectives, to your own.

It is also important to understand how many clients an IFA has. This determines how much time and resource will be dedicated to you.

“You don’t want to bring complex affairs to an IFA who already has masses of clients – nor do you don’t want to be too big or too small for them,” says Gibson.

“If you’re smaller than their other clients, the reality is that you and your finances won’t be their priority – if you’re bigger, they may not be able to adequately cater to your needs.”

What’s your philosophy in respect of…?

Every financial adviser will have their own views, beliefs, and personality. It’s important to understand an IFA’s philosophy – their strategy, selection process, risk appetite, and more – to see whether their characteristics cohere with your own.

“Relationships with IFAs sometimes fall down because the parties involved simply don’t get along,” notes Bamford.

“It is always worth finding out about the adviser as an individual – both professionally and personally. You’ll likely be working with them for a very long time, and sharing very personal information – mutual respect and trust are essential.”

Even their attitude to interaction matters, as they may have preferences in respect of meetings, reporting and contact that differ from yours.

“For instance, an IFA may strongly favour a highly interpersonal relationship with clients, involving regular phone/email contact, occasional face-to-face meets and monthly reports,” says Pennie.

“You may insist on only speaking on the phone on agreed dates, receiving all correspondence in writing, or quarterly reports at most. Having opposing priorities is the recipe for a poor relationship.”

How, and how often, your IFA reviews your situation is also a key consideration – not merely because IFAs typically charge performance fees (see next question), but financial goals and objectives can change over time, and the state of the market can impact how your current goals and objectives are met.

How are you paid?

Since 31 December 2012, all advisers must charge an upfront fee they agree with you in advance. However, how they charge these fees varies significantly.

Most common is a percentage fee, proportional to the money managed. First, you will pay an initial percentage for becoming a client, then an ongoing percentage for each year the IFA manages your money. The percentage can vary significantly (“it could be as low as 0.5 per cent, or as high as 5 per cent,” notes Gibson), so ask for clarification.

Other financial advisers bill by the hour, a payment structure associated with the legal sector.

“If an adviser charges by the hour, ensure they will provide you with a full breakdown of the work they’ve done, and how long it took – these charges can be high, and some find them opaque,” says Pennie.

For those who want short-term assistance on a particular ‘job’ (writing a divorce agreement say, or consolidating a pension), a fixed-fee will typically be levied.

If an IFA is to manage your investments, Bamford notes it is important to identify whether they intend to serve as an intermediary, and employ a discretionary fund manager or portfolio management service for the active responsibilities.

“If so, ask about any additional costs involved – you shouldn’t be paying for investment advice twice,” he concludes.