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As retirement looms, you resolve to take professional advice — only to discover a quandary: from which of the vast array of 30,000 UK registered advisers keen to take your custom?
This puzzle has been faced by growing numbers of savers since the government reformed the pensions market by removing the requirement to turn savings into a secure income, offering a far greater choice in how to deploy a nest egg.
That choice has driven up demand for advice. Unbiased.co.uk, an online directory, has seen a 20 per cent increase in searches for financial advisers compared with last year, according to Karen Barrett, chief executive.
But choosing an adviser can be daunting. Jane Vass, head of public policy at Age UK, says: “We know that people often put off using an adviser, even if they think they need one.
“They’re worried about being charged commission, they feel they won’t understand the charges, they won’t feel able to negotiate or they don’t know how to compare advisers.”
Those in need of advice may take some reassurance from the Retail Distribution Review reforms that took effect in 2013, increasing the qualifications required to register as an adviser — now equivalent to a certificate of higher education. They must regularly obtain a “statement of professional standing”, which certifies that they have kept their qualifications up-to-date and signed up for an ethics code.
Under the changes, all advisers were banned from taking commissions on most financial products, removing the incentive to sell products that a customer may not need.
Experts say this has led to significant progress in improving standards and rooting out rogue operators, after a spate of overly risky products were sold to retail investors in the early 2000s. A series of advisers have been banned and fined, and others investigated for exposing clients to high-risk investments in areas such as overseas property and biofuels.
“The industry is clearly in a very different place from where it was 10 years ago,” says Ms Vass.
Among the first decisions to be taken is whether to opt for an “independent” or “restricted” adviser. The latter will only offer products from a limited panel of providers, although their charging structures and qualifications are similar to their independent counterparts.
Both types of advisers charge fees to the investor, not commissions. But regulatory and insurance requirements are more onerous for independent advisers — such as proving that they really do survey the entire market when choosing products. Some smaller operations with limited resources opt for restricted status.
Advisers may also be restricted in a different way, offering advice on just one type of financial product, such as mortgages. This can enable them to develop specialist knowledge while saving on costs — but make sure you clarify in what way an adviser is restricted.
Beyond the minimum standards, advisers may also have extra qualifications in specialist areas, such as pensions advice or long-term care, a bonus if one of these is your focus.
“Ring up and go to see at least three or four advisers,” Ms Barrett says. “Ask them who’s going to be working with me, what experience do they have, where have they worked before, what types of clients are they especially able to help?”
Many advisers will offer an initial free face-to-face consultation, which gives you a chance to brandish a checklist of questions, including on the vexed question of fees; you can also ask how the adviser expects to make or save you money that will make the fees worth your while.
While the commission ban has been hailed as a step forward, advisers have now put in place varied and often confusing charging systems, according to research last year by the consumer group Which?
A survey by Justin Modray, founder of Candid Financial Advice, this month found that only five advice firms — Brewin Dolphin, Hargreaves Lansdown, Investec Wealth & Investment, Sanderson House and Vestra Wealth — disclose their fees on their websites, out of 50 that were reviewed.
“Never be afraid to ask an adviser how much they will charge you and what you will get in return,” says Mr Modray.
“Also include all underlying fund and platform costs where applicable, and ask for amounts in pounds and pence where they are charged as a percentage. Only then can you make a sensible comparison between advisers.”
Many advisers charge an ongoing fee as a percentage of the assets invested with them so it is crucial to make sure you will receive a genuine ongoing service in exchange. Ask about continuing support such as tax assessments, portfolio reviews and regular updates.
Jason Butler, author of the Financial Times Guide to Wealth Management, says you should preferably pay for these services yourself rather than as deductions from financial products you own.
And if you do not really need an ongoing service but are looking for one-off help such as reviewing your pension, seek out an adviser who will instead charge an hourly rate, for example.
Also check whether an adviser does receive any commissions, since some products are exempt from the broad commission ban.
“The cost savings from shopping around for a good deal can be massive,” says Mr Modray.
How much do you really need advice? At their best, financial advisers can not only help with different parts of your financial life — insurance, mortgages, investments, pensions, equity release, tax and so on — but with juggling the whole picture.
The number of UK registered advisers
However, people who have relatively straightforward needs and enjoy personal finance for its own sake may choose to go it alone, as may people with small amounts to invest; those looking for investment advice on less than £30,000 of assets may find the costs of advice are not worthwhile.
More affluent people may opt for full-blown wealth management, in which a company manages a range of financial products on your behalf.
Finally, for retirees, another option is available: free guidance from the government’s new Pension Wise service. While this does not equate to advice, it is a useful starting point which everyone should take up, says Ms Barrett.
“It’s free, it will help you get your house in order and it’s a great first stop,” she says.