In this post we demystify the true cost of financial advice and then look at the benefits of professional advice vs. attempting to manage your own financial affairs. Is professional financial advice worth the cost?
The cost of advice
Not all firms charge for advice in the same way. Historically, many investors have not been fully aware of the total cost of the advice or ongoing management of their financial affairs and/or investments. This is due to the complex layering of fees and hidden charges (‘commission’) embedded within the products or policies they purchased.
Sales commission is not a new concept. The problem in the financial services industry is that, in the past, commission rates were not disclosed and often clients were not aware of the motivations of the ‘adviser’ guiding their decisions.
Added to this are the often confusing costs associated with the purchase of investment products.
What you are paying for when you work with a professional adviser? (like PK Partnership)
A professional financial adviser will provide a bespoke financial advisory service to private and/or corporate clients. Their advice is customised to your specific needs, free from commission and separated from the sale of products.
Typically, after a detailed analysis of your needs, the adviser will prepare your personalised Financial Plan. This will include an overview of your objectives and a strategy to provide you with the best opportunity for achieving them.
As part of this process the adviser will consider your risk profile, looking at the risk you’re willing to accept, and the risk required in order to achieve your goals. They will then recommend the most appropriate investments and tax structure, while also protecting you against the unexpected and ensuring your estate is looked after – not subject to a hefty 40% tax bill.
Most advisers, like PK Partnership, will have a clearly defined investment process built on sound investment principles, using funds with no initial charges and low Total Expense Ratios (ongoing charges) – far lower than if you were to invest in funds directly on a DIY basis.
The financial adviser will also provide guidance as to the most appropriate tax wrappers (product structures, such as offshore bonds, ISAs, Open Ended Investment Companies ‘OEICs’) to suit your needs.
With your permission they will regularly rebalance your portfolio to reduce volatility and potentially increase returns. This also helps to keep your portfolio in line with your attitude to risk.
An added benefit of working with an independent financial adviser is that they are tightly regulated and ‘on the hook’ for their advice. We are regulated by the Financial Conduct Authority (FCA), with quarterly audits and we are members of the Financial Services Compensation Scheme (FSCS) – a levy we pay each year to ensure consumers are protected from the failure of financial services providers or advisers who go into default. This cost is built into our advice. No such protection is afforded to you if you manage your own affairs.
The real value of advice
A research study conducted by unbiased.co.uk and Standard Life revealed the true value of independent advice. According to their report, taking independent advice could leave you on average £2,780 a year better off in retirement.
The Value of Advice research compared the differences in pension savings and contributions between consumers who have taken independent advice on their retirement provision and those who haven’t. The report showed that:
» The average pension pot for consumers that have been advised on their retirement is double (yes, double!) that of those who have not sought advice.
» Those who have taken advice put nearly a third more a month into their pension plan.
» Independently advised consumers are financially better protected than consumers who do not seek independent advice.
So, with clear evidence of the benefits of receiving independent advice, there is never a better time to start planning for your future using an independent financial adviser. To speak to one of our advisers at PK Partnership, please get in touch.