The top 5 things you need to know before selecting a great financial planner

The top 5 things you need to know before selecting a great financial planner, Capital Asset Management

Once you discover how you could benefit from financial planning, the challenge is deciding which financial planner to work with. This could be the difference between a great experience that positively impacts your future, or a terrible experience.

Financial adviser, financial planner, IFA, wealth manager – the many job titles are mind-boggling. It’s hard to know what each one does, and which one you need for your unique circumstances.

At Capital, we understand that looking for a financial planner can be a minefield. So we want to let you in on the top 5 things you need to know before selecting a great financial planner;

1. What does independent mean?

According to the Financial Conduct Authority (FCA), anyone offering financial advice must make clear what type of advice they can give.

Independent financial adviser/planner

To be independent, you have to offer independent ‘whole of market’ advice, free from any influence or bias. Independent financial advisers are able to recommend the most suitable solution for you from across the entire marketplace. This means you get the most tailored advice for your needs, without any barriers.

Restricted financial adviser/planner

Many advisers only offer ‘restricted advice’. As the name suggests, this means they are only permitted to advise on a limited range of products and services.

Most large advice firms and banks offer restricted advice. This is like being limited to do your weekly shopping in only two aisles of a single supermarket, rather than all the aisles of any supermarket, local store or online supplier. Hoping that your ideal product or service falls in their limited list could be hit or miss. Probably miss.

2. What qualifications should my financial planner have?

You want to sleep easy knowing your hard-earned savings are in the safest and most qualified hands. But how do you know what qualifications your financial planner needs for your situation?

Surprisingly, the level of experience and qualifications needed to be a financial adviser remains relatively low. Anyone who has achieved the Level 4 Diploma of Financial Planning is qualified to be a financial adviser. This is like a Higher National Certificate (HNC), which is one level above an A-Level. However, there are many more qualifications a financial planner should have.

The financial and tax landscape has become increasingly complex over recent years. Therefore, a deep level of technical knowledge is essential for a financial planner to confidently advise you on the best way to grow your assets, reduce risks and conserve your wealth.

The highest level of financial planners is to be Chartered. Chartered Financial Planner status is a widely accepted ‘gold standard’ qualification for financial planners. The qualification sits at QCF Level 6 in the Qualifications and Credits Framework and is equivalent to a Bachelor with honours degree. Maintaining chartered status requires knowledge and qualification to be updated annually.

When it comes to your family’s financial future, appointing a well-qualified chartered financial planner is a must. It also makes sense to work with a business that is a Corporate Chartered Financial Planning firm, as designated by the Personal Finance Society.

3. Do I need planning included?

If you were setting off on a long road trip, you are likely to plan the journey carefully and prepare accordingly: look at a map, consider the potential issues such as distance, traffic, and general ‘speed bumps’, and work out the best route to get you safely to your destination. Top-up your fuel, check your tyre pressures.

Getting your financial life in order is no different. In many ways it is one of the most important journeys you will take, making having a financial roadmap essential for a smooth journey to your chosen destination. A good financial plan involves discovering what you really want from life: your goals and dreams, from travelling the world to helping your children onto the property ladder. Combine these ambitions with your circumstances to create a thorough financial plan to make your money fuel their achievement. A good financial plan should include clearly defined time and money-specific goals. Software should be used to allow you to visualise your future and to stress-test scenarios. A financial plan will place everything in context, enabling you to take sensible decisions ahead of time and providing clarity and peace of mind.

As Eisenhower famously said, “Planning is indispensable”.  Choose an adviser who will provide you with a personal financial plan as a core part of their service.

4. What should I look for in an investment philosophy?

The most common reason for seeking financial advice is to grow your savings. A financial planner will help you do this through building an investment portfolio for you.

It’s important to understand how the financial planner you choose plans to invest your savings.

In the world of investing, everyone has an opinion, but few opinions are based on hard facts and evidence. Before choosing your financial planner, ask about their investment philosophy.

Fees and charges are a sure-fire way to eat up your returns. Always ask what the total fees and charges are. Keeping costs low means you receive more of your investment returns, and therefore have more money to spend how you wish. Investing tends to fall into two categories: active and indexed.

For most investors, a low-cost index fund strategy will be the ideal solution. This will minimise fees and provide you with a greater chance of achieving your personal goals and objectives.

5. What do different types of adviser fees mean?

The next step is to understand the different ways financial planning firms charge.

Most advisers charge a percentage of the assets under management (AUM). Typically, this is about 1% of the amount of your money they are looking after. For smaller amounts of money, this model works well. However, if you have a larger portfolio or retirement pot (£500,000+), it may be less cost-effective for you. For example, 1% of a £100,000 portfolio means £1,000 a year in fees. However, a £1m portfolio costs £10,000 a year in fees, for what can be a very similar level of service.

In addition, AUM fees may create a conflict of interest when discussing withdrawing money from the portfolio; for example, when you want to pay off debts, buy a new car or gift money to your family.

For that reason, you should ask your selected financial planner if they could charge you on a flat fee basis. A number of leading advice firms will offer to work on that basis, but you may need to request it.

Finally, trust your intuition

– do you like, trust and respect the financial planner, and have confidence in the financial planning firm? Do they work with clients similar to you? Will they introduce you to some clients that you can speak with and get a sense of what the service is really like?

Take your time, do your homework and choose wisely.

Selecting a financial planner to work with could be one of the most important financial decisions you make. The positive impacts could help your family finances for decades or even generations to come.

If you would like a second opinion, or want to discuss your choices, please contact us today.

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