Professional financial advisers carry out a ‘fact find’ where they ask you detailed questions about your circumstances, your goals and how much risk you are able and prepared to take with your investment. They may then recommend financial products that are suitable and affordable for you.
Types of financial adviser
Financial advisers offer services ranging from general financial planning and investment advice, to more specialist advice, such as the suitability of a particular product such as a pension. In the case of investment products, some advisers are ‘independent’ - meaning they offer advice on the full range of investment products from the market, or a specific market segment (eg pensions),while others offer a ‘restricted’ service meaning that the range of products or providers they will look at is limited.
What are the benefits of getting advice?
Money fitness tip
It makes sense to get professional financial advice to ensure that the product you buy meets your needs - and you're protected if things go wrong.
If you buy an investment product based on financial advice and a recommendation you should get a product that meets your needs and is suitable for your particular circumstances. Depending on the type of adviser you use, you may also have access to a wider range of choices than you’d be able to assess realistically on your own. You also have more protection if things go wrong if you buy based on advice. For example, protection would be given where unsuitable advice was given, or your adviser is found to have not acted in your best interests. Similarly, non-advised investors would also be protected if they were misled or mis-sold a product.
The difference between advice and ‘non-advised’ sales
Many banks, building societies and specialist brokers will talk you through your different options and leave it up to you to decide which product to take. In this case you are buying based on ‘information’ and they will generally not be assessing whether a specific product is suitable for your specific situation/needs. Which means you will have fewer rights to claim compensation if the product turns out to be unsuitable.
By contrast, if you end up with an unsuitable product after getting advice and a recommendation you could have a case for 'mis-selling' - though this doesn’t protect you against making losses if the market goes up or down.
What do you pay for financial advice?
The rules on fees for financial advice changed from 31 December 2012. If you are looking for general financial planning advice or for advice on buying particular investments you will pay a fee. Advisers must be clear upfront about what their fees are and agree with you in advance how you will pay them.
However, some mortgage brokers might still charge upfront fees for advice, while others receive a flat rate introducer’s fee from the product provider. Receiving mortgage advice directly through your lender is usually free.
Is it cheaper to buy without advice?
You won’t have to pay an advice charge if you invest without receiving advice. But you may be more likely to buy a product that is unsuitable for you if you invest without taking advice first.
Advice can help you buy a better product than one you choose yourself. An adviser will also have the expertise and knowledge to find better options, as some products are only available if you go through an adviser.
So when do you need financial advice?
The answer partly depends on the product and partly on other factors.
Cash savings products
If you’re looking to put money into savings accounts, cash ISAs or fixed rate savings bonds you may feel confident to assess your options using comparison sites and tables. Because these products are relatively easy to understand, you may feel that you don't require financial advice and you can buy directly from providers very easily.
If you’re thinking of investing in shares, unit trusts and other investments, you may feel confident to buy these directly from a broker or fund without taking advice. However, these products are harder to understand than cash savings products, and by not taking advice, you may not be considering all of the options available to you.
There’s also a risk that you might buy a product that not suitable for you because you don’t understand it. So you really need to do your homework.
Ask yourself these questions:
- Do you have the time to do the research?
- Do you have much experience, knowledge or skills when it comes to investing?
- Can you afford to lose any money?
- If things go wrong, are you comfortable taking responsibility for any bad investing decisions?
If the answer to any of these is ‘No’ then seeking financial advice may be your best option. When trying to decide, also bear in mind the cost of fees against the financial and emotional cost of getting it wrong if you buy without advice. See Choosing a financial adviser.
Insurance or mortgages
Some insurance products and mortgages can be purchased using price comparison websites, or bought directly from suppliers. However, you may also want to speak to specialist brokers who will talk you through a range of options and may be able to get you a better deal. It's up to you whether you buy with or without advice. See the Insurance and Buying a property sections for more information.
If your employer offers a workplace pension they may also offer you access to advice or provide guidance about joining their scheme. You should take this offer up if available.
If you’re looking to invest in a personal pension, to boost your existing pension or to merge different pots from existing pensions it’s usually best to get advice unless you really understand how these products work. Pensions are long-term investments so you need to be sure you understand the type of fund you’re investing in, the risks and the suitability for your particular situation. See Personal pensions for more information.
Find a financial adviser
If you think that financial advice is for you, see Choosing a financial adviser to understand more about independent versus restricted advisers and to link to organisations that will help you find an adviser in your area.