When faced with a major financial decision, a financial adviser can help you make the most of your finances. They can save you money and give peace of mind by advising you on the right products for your needs.
Finding a financial adviser can seem like a daunting task; with so many out there, how do you know where to begin? Richard Escott, Senior Financial Planner at Alan Boswell Group, explains how to choose a financial adviser that’s right for you.
There seems to be a huge number of businesses offering financial advice – where do I start?
First, you need to understand the differences between the two main types of advice provider. One is ‘restricted’ which means the provider has access to a limited number of products or solutions. The other is ‘whole of market’, usually referred to as ‘independent’ where the adviser has access to all of the providers and solutions available.
Where can I find these advice providers?
There are many different types of advice providers but the main ones are:
- Banks and building societies
- Stockbrokers/discretionary fund managers
- Firms of restricted advisers
- Firms of Independent Financial Advisers (IFAs).
What are the main differences between these providers?
Banks and building societies
Most banks and building societies offer some kind of financial advice, but many are restricted so their services are limited. You might find one or two offering independent advice but that’s very rare.
Whilst some tend to deal with any customer, others have a ‘wealth’ division specifically aimed solely at wealthy or very wealthy individuals. In many cases that service is via a ‘discretionary fund manager’ arrangement, similar to those offered by traditional stockbrokers (see below).
There is little competition on charges as their main users are existing customers of the bank or building society. This means these tend not to be the most cost effective option.
Stockbrokers/discretionary fund managers
Stockbrokers and discretionary fund managers, often referred to in the trade as DFMs, mainly tend to offer a discretionary managed portfolio. This is where the chosen manager makes changes to the portfolio of investments without needing to check with the client first (although some still offer an advisory service where they do). Once the level of risk clients are willing to take has been assessed, the chosen fund manager will put together a portfolio for them. These portfolios tend to cover a broad spread of mostly UK and international stock market assets, often a combination of individual shares (also known as equities), bonds and funds.
Although these providers give expert fund management, most do not have in-house financial advisers, so cannot offer specific pension or other strategic financial advice themselves. They often work with external IFAs (such as ourselves) to provide that service to their clients. Some do have in house teams but they are, of course, more likely to recommend the fund manager solutions within their own firms than from the whole market.
Firms of restricted advisers
Restricted advisers make recommendations from a restricted number of providers or products (as the name suggests!) They can be extremely limited in what they can offer – some have just one provider or solution. Others are able to choose from a broad spread but can be excluded from certain types of investment and products.
Firms of independent financial advisers (IFAs)
Independent financial advisers have access to the whole market. With no holds or restrictions on services, they can change the underlying investment solutions according to conditions, performance, charges and service.
This means IFAs can mix solutions. For example, clients with larger portfolios can choose to spread their investments across a number of funds and products to share the risk. They can also choose different solutions where there is more than one objective. As they operate independently, the IFA can recommend the funds or fund managers that they consider best in each category, rather than being limited to having the same one covering all bases.
With so many firms to pick from, how do I choose an IFA?
You would expect most IFAs to work in a similar way and while this is largely the case, there are some differences to look out for.
It has become increasingly popular for many IFAs to manage their own ‘model portfolios’. This could mean they employ one or more individuals to choose funds from all of those available. The manager of the model (usually a shareholder or director of the IFA company) can change the underlying funds within the model as he or she sees fit. Whilst these can perform very well, there is a risk that if they do not, the IFA firm may not choose to cash in their own models and give the proceeds to other providers to manage.
However some IFAs, like ourselves, do not offer our own model portfolios. Instead, we choose from all of the funds and models available in the market. This allows us choose the one(s) that we consider will work best for our clients in terms of expected performance, service and charges. We can blend those solutions together and change solutions for the client if one or more fails to perform in line with expectations.
Do all IFAs offer all products to their clients?
Not necessarily. Some IFAs have decided that certain investments are not suitable for their clients; often these are tax efficient investments such as Venture Capital Trusts (VCTs), Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS). These investments attract income tax relief but are very high risk. We do offer these solutions to suitable clients willing and able to afford to take those risks.
Do all IFAs offer the same charging structure?
The charging structures used by IFAs have changed a lot over the years. Now, many IFAs tend to charge up to 3% of the amount invested up front plus up to 1% per annum of the investment value as an ‘Ongoing Adviser Charge’ (OAC). For example, on a £500,000 investment portfolio the initial charge could be £15,000 and the OAC would be around £5,000 in the first year. This OAC is in addition to the charge for managing the underlying funds. Adding the OAC and the underlying fund managing charges together could mean that the total annual charge on assets invested is around 2% (although it can be more or less of course). IFAs using this charging model are therefore remunerated best by having the greatest level of funds under management.
We do things differently at Alan Boswell Group. As long as our fees are covered, we have a number of options from which a client can choose which they prefer. For most clients we work on a fixed fee basis. For the initial work we usually agree the fee based on our estimate of the likely time to be spent. We can do one off work or offer regular reviews as required. For review based clients requiring an ongoing service, we can charge a fixed annual fee, send invoices to cover the actual time spent or agree to take an OAC which we consider is likely to roughly equate to the time spent. This is usually at a significantly lower level than is levied by a number of our competitors.
Why should I choose Alan Boswell Group?
The combination of offering truly independent advice, excellent service and an attractive charging structure makes our firm very well positioned in this market. Alongside this, we have a high calibre team, with a wide range of extensive industry experience. They will take the time to understand the needs of our clients and recommend solutions personally tailored to them. The team includes members with many years of experience and training with professional firms such as KPMG, Grant Thornton and Eversheds solicitors.
We receive referrals from many of the top solicitors and accountancy firms in the region and further afield. Indeed, we advise a large number of partners in professional practices personally within this area as well as their clients in Norfolk, London, Cambridge, Ipswich and the Midlands.
About the author:
Senior Financial Planner, Alan Boswell Group
With over 30 years experience as an Independent Financial Adviser, Richard has an in-depth knowledge of a wide range of products and solutions. He advises lawyers and accountants personally as well as their clients, who are often retired and widowed individuals.
The value of tax reliefs depends on your individual circumstances. Tax laws can change.
The value of your investment and the income from it can go down as well as up. You may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance.