Few of us can claim to be experts in everything and there’s no shame in enlisting the help of a professional when needed – especially when it’s about something as important as our future financial security. A financial adviser is a highly qualified professional and using one could be considered just as essential as using an accountant or lawyer, in the right situation.
Many people are unfortunately put off even considering financial advice as they assume it’s only for the wealthy or that the fees will be so extravagant that it’s not even worth finding out more.
The reality is that these days both the fees and the benefits are very different from what many think. The world of financial advice has changed a lot over previous years, partly due to the introduction of more strict rules and regulations bought in to help protect consumers and make sure they are getting good value advice. With the financial world getting increasingly more complicated there are more potential pitfalls, but also more opportunities and benefits.
This article runs through some of the benefits of financial advice to help decide if it is for you.
A key part of many types of financial advice is a financial plan that helps map out your future. Developing a personalised financial plan that is tailored to your own goals, current financial and tax situation, and risk appetite.
This can not only help you plan for your future (answering questions such as “how much more do I need to save each month to retire at the age I want” or “is now the right time to use my tax-free lump sum“) it can also help you make more informed financial decisions today (“which investments are right for me?”) and achieve your long-term financial objectives. A good example is effective tax planning; arranging your finances with a long term view so that you don’t pay more tax than you need to.
One of the most obvious benefits of financial advice is being able to have a professional review your current financial arrangements and determine if they are in the most suitable place, and if not where they should be. For example you may have a pension, Investment ISA or savings account that could be moved to a different provider or type of pension/ISA which is lower costs and also has more options and benefits and would be more suitable. Having a financial adviser who is aware of the huge range of options of financial products and also how they work and how their costs are structured can be a big help in making sure your money is in the right place.
The financial landscape has become much more complicated over the last few decades, with increasing tax rules and regulations, greater choice of financial products and a constant change in the financial landscape with new accounts, such as the Lifetime ISA, being released.
As such there are many more opportunities out there, to not only grow your money, but to save you money (such as through tax relief). It can be hard to find something if you don’t know what to look for. Financial Advice can help you to not miss out on any potential opportunities and make the most out of your finances.
There are lots of non monetary benefits to Financial Advice, such as confidence that you are putting enough away each month to hit your retirement goals or simple peace of mind that your investments are in the right place and everything is going according to plan. However, there are often also monetary benefits that can be considered alongside any fees you may pay.
From pointing out missed tax savings opportunities, finding lower cost pension or investment providers, or helping you get the potential for more growth in your investments or pensions.
Advisers can fully understand the costs of a product, from everything from the actual cost of the product (which may be easier to find) to the more obscure costs such as annual fund charges or transactions costs, which still cost the customer money. An adviser can better understand the total cost, weight it against the benefits and help guide you to a more cost effective solution.
There are a range of tax efficient ways of arranging your finances that you may simply not be aware of. This is alongside having an effective financial plan to help make the most of your money. Alongside these potential savings there are many others that an adviser may be aware of.
Mistakes are a part of life, especially when starting something new. Unfortunately mistakes in something as complicated as pensions for example, can be easy to make and some of them have financial consequences that can run in to thousands. Having someone to help guide you and avoid any unpleasant penalties has not only a financial benefit, but also gives better peace of mind.
However, whilst saving more money than you spend on advice is certainly a benefit, the non-monetary benefits should not be forgotten either.
Unconscious bias is something, that by its own definition, is something we’re often not aware of.
In terms of investing, unconscious bias refers to the subconscious preferences or prejudices that investors may have towards certain investment opportunities, investment managers or economic events, without being aware of it. Unconscious bias can lead investors to make investment decisions that are not based solely on the potential return on investment and underlying fundamentals, but are influenced by their human emotions, such as fear. For example, many investors over sell when the market goes down, or hold onto an investment to long for sentimental reasons, even though the investment is no longer suitable.
Using an adviser can help remove emotion from the equation and by using a well tried methodological approach, including following certain steps (for example, such as assessing risk tolerance) to help align the investors actions with their goals.
Financial Advice can be the most effective when it takes a broad look at your entire life, bringing everything together. One example of this is making sure that your family is protected by making sure you have the right insurance and protection policies in place, alongside or as part of a wider financial plan or just as a standalone review.
This helps provide financial security by offering protection against unforeseen events, such as accidents, illnesses, loss of employment or death. It also provides peace of mind, knowing that you are insured and protected against any unexpected events, helping to reduce any stress and feel more secure in you and your family’s life.
It also allows you to plan the rest of your life more securely. For example, if you know that you are covered against certain events, such as losing your job, then you may feel more secure in putting more money away for your future retirement, for example.
A good financial adviser should be able to explain your finances, financial plan and their recommendations to you in a clear and easy to understand manner that is hopefully understood. Over time as you work with your adviser you will begin to understand more about your financial situation, helping to improve your financial literacy and understand more complex financial concepts.
This can help individuals make more informed financial decisions in their life and feel more confident about their financial future.
One of the biggest benefits of financial advice is that it can help you avoid mistakes. A lot of people make mistakes when managing their money, but a good adviser will be able to help you avoid these errors by providing advice on how to manage your finances. Mistakes can range in nature from choosing the wrong product or investment, to incurring penalties for breaching certain rules and regulation. For example there are penalties such as the 55% charge for “unauthorised payments“* from your pension.
We are now all in a world where, thanks to the internet, we can look up almost anything from a variety of sources all over the country and the world. This includes topics such as which are good stocks or bonds to buy or which account you should keep these products in. Unfortunately there is a lot of misinformation out there, or information that is not meant for the UK (many online sources of financial information are often US focused, with different finance and advice regulations) and there is a danger that following the wrong advice will lead to negative outcomes.
There are a variety of studies on the monetary benefits of receiving financial advice, although it is admittedly a difficult topic to accurately define or measure.
A recent study by the International Longevity Centre, (“Revisiting the Value of Advice“*) found that those that took financial advice at the beginning of the study saw their investments grow by an additional £47,706 compared to those that didn’t take advice. And for those that continued to use a financial adviser, it resulted in a 50% increase in assets compared with those that just took financial advice at the start. The growth was measured over time periods that lasted between 8 and 15 years and then averaged; as most will spend several decades building up their pensions there is scope for even greater increases, especially as the extra growth in one years get compounded over future years and continues to build up.
The exact benefits that someone will get out of using a financial adviser will vary greatly depending on their exact situation. Some will have a very clear need for financial advice, such as needing to transfer a final salary pension, and for others there will be uncertainty as to whether financial advice is need at all.
While many focus on the costs of financial advice (which can also vary wildly) the benefits need to also be understood to make sure you’re getting a deal. In some cases the benefits may appear clear, such as a lower cost and better performing pension, but in other cases in can be difficult to know the benefits that you may receive, either monetary such as saving tax, or more intangible ones such as knowing when it is safe to retire.
This is one of the reasons that we offer a free and thorough initial consultation. It is a great opportunity to not only chat through and explore your situation but explain what type of finance advice you may need, how it could benefit you and how much it might cost.
Leaf Financial Advisers are Bristol based independent financial advisers offering high quality financial advice at a reasonable price. Please get in touch on 01173 823 823 or at email@example.com to find out more.