Financial advisors are your best option if you need a specialist’s perspective on complex financial activities, such as investing or applying for a mortgage or pension benefits.
Professional financial consultations can be pretty expensive, although they can be good for meeting your financial goals and keeping you from making decisions that may be detrimental to the financial plan.
Money advice from a qualified expert is essential today as people try to navigate through a cost-of-living crisis, volatile stock markets, and higher prices in the real estate sector.
Here are a few pointers to choosing the right financial advisor for you, including the key types of advisor, their fee structures, and the factors you need to check to find a suitable advisor for your situation.
Types of Financial Advisor
Financial advisors can go by their area of expertise, like investment, pension, mortgage advisor or broker, or financial planner.
They also hold specific licenses and qualifications from the respective regulatory body in their countries, with some even having Chartered or Certified Financial Planner (CFP) credentials on their record.
As regards the range of services financial advisors can provide, that can be determined by analyzing the two key types of such experts.
Whole of Market Financial Advisors
Whole of market financial advisors can guide you through any financial products and providers available at your disposal, meaning their expertise is not limited to certain product providers.
These advisors provide advice based on a detailed analysis of the whole market, minus product provider involvement, which is why they are also known as independent financial advisors (IFAs).
IFAs don’t usually get paid by commission on investments and pension products. Instead, they earn by charging clients particular fees. That way, they have a more transparent means of making money.
While that is usually the case, IFAs can still receive commissions from particular insurance, mortgage, and equity release firms. The commission is generally paid out of a client’s premiums or other payments.
Restricted Financial Advisors
Restricted financial advisors are the complete opposite of IFAs. These experts can help you with a focused group of products, such as a mortgage, products offered by specific providers, or both.
Restricted advisors can’t also officially consider or call themselves independent. Still, working with this type of financial expert has its own advantages. For example, a pension-focused advisor can offer recommended investment products from nearly every pension provider.
Additionally, some restricted advisors are called tied advisors when they work for a particular provider, like a bank, or create a community and can only recommend products from that provider.
Restricted advisors usually earn through commission which is a part of their payment for being able to sell the products to clients.
Financial Advisor Fees
The fees that financial advisors charge can vary based on the agreement you established with them. Is it commission-based or not?
Here are the common types of fee structures in financial advising:
A percentage fee is the typical fee structure that involves paying a percentage of the invested or managed money. That includes the original charge for arranging the products, the ongoing management fee, and the annual fees on the core investment portfolio.
While this is the widely used fee structure in the financial advising space, a percentage fee structure increases your fee as the value of your investments climbs. And that could eventually lead you to pay a considerable amount.
Some financial advisors charge an hourly rate of at least $100 per hour for their service. Advisors who use this fee structure need to provide their clients with an approximate time it could take to get the work done. They also need to ensure that their invoice shows the details of the hours spent.
Fixed fees are typically for consultations that only take place for less than a day, such as consolidating pensions, building an annuity, or creating an entire financial plan.
Such fees can be significantly different due to the amount of work that has to be done, although the average fixed fee could cost around $500.
Finding a Financial Advisor
Finding the right financial advisor requires time and proper research.
You can ask your family or friends to help you choose, but you also need to determine the following:
Type of Service: Whether or not they only offer advice on certain products, you should consider finding an advisor who can guide you through the whole of market.
Authorization: It’s also important to confirm whether the advisor is approved or licensed by financial authorities, such as the Financial Conduct Authority (FCA), which has a Financial Services Register consisting a record of firms and individuals that can officially offer financial services.
You can also see which financial services or products the advisor is authorized to provide on their register.
While not every financial advisor is required to be licensed, they still need to have some certifications if they’re looking to offer investment products.
Official Qualification: Financial advisors typically need a Level 4 qualification or higher on the Qualifications and Credit Framework (QCF).
In addition, advisors should have a Statement of Professional Standing (SPS), which can only be provided by the FCA, as this confirms that they work in accordance with ethical codes.
Fee Structure: You can check a financial advisor’s fee structure by request or on their website.
Means of Communication: Does the financial advisor do face-to-face consultations, or do they do it via call, email, or by making a report?
Period Length: See if the advisor provides ongoing or one-time consultations.
Many financial advisors charge no fee on the first consultation, during which you can discuss your needs and get answers. After that, you should receive what is known as the key facts document (KFD) from your advisor.
A KFD is a file required by regulators that covers the advisor’s fees and the work involved in executing a plan or product.
Once you’ve found a suitable financial advisor, you’ll need to sign some important papers and confirm your identity. If you opted for ongoing consultations, your advisor would often update you once or twice a year.