How can a financial planner help you?
A financial planner can help with the management of your finances to ensure you are on the right track to meet your financial goals. They will assess your current financial situation and discuss the objectives you want to reach and the time frame that can be achieved. By evaluating your situation, your financial planner will be able to develop and implement a plan to help you reach your goals. They will also review your plan as it develops to change and update it as necessary.
Your goal at 25 may be to retire to a tropical island by the time you are 60 – but by 35 it may be to fund your children through higher education or help them to buy their first home. A financial planner can help you make the right decisions to keep you on track for achieving your goals – such as starting to save for your pension, or putting aside money for school and university fees – and they’ll also advise you on the things you might not immediately think of like life insurance or investments to grow your capital.
Financial planning can leave you with the peace of mind that your finances are under control, and help you achieve your financial objectives.
Why do people take financial advice?
On one hand they are looking to maximise their investments and to benefit from the professional know how of an expert. However, there is more to financial advice than simply the returns in pounds and pence.
While the value of financial help is sometimes hard to quantify, it is clear that paying for high quality advice can lead to a range of positive outcomes. We asked our clients and the results are surprising – keep reading to find out more.
What research told us
The answer that most people expect is; doubling of investments returns, or the likes of “he found a great investment opportunity” but no – the answers were – we value:
- An independent professional pointing us in the right direction
- Taking the emotion out of decisions
- Taking away the administration
- Having trust in someone that has our interests at heart and is continually trying to improve our financial future.
We have doubled clients investments, saved their family hundreds of thousands of pounds in tax – all for a few thousand pounds. But, it appears that the destination is not always as important as journey.
Why financial advice is like home repairs
When faced with the prospect of DIY and other chores such as car repairs, most would rather hire an expert to do the job. Generally it is because of:
- The time it takes
- The risk of making a mistake
- The cost of putting right any mistakes made
- Fact that it’s not enjoyable
Most people happily pay an electrician, decorator or builder to do the job – not for financial reasons but because they know they will benefit from a good job, well done.
Value of advice – source www.unbiased.co.uk
The whole point of taking financial advice is to get back more than you put in. Every year we carry out consumer research to try and measure the net benefits of seeing a financial adviser. How do the rewards weigh up against the costs? We call this the value of advice.
The many different kinds of value
The value that comes from financial advice may take numerous different forms, including:
Return on investment – Getting back more money than you invested, including the cost of the advice
Future security – Ensuring you will have enough income in later life (e.g. pension planning)
Peace of mind – Knowing you have made the best practical choices and obtained the best deals the market has to offer you
Protection – Making sure you and your family have safeguards in place against unfortunate circumstances (e.g. illness, job loss, premature death)
Achieving goals – Overcoming challenges and reaching milestones (e.g. finding the right mortgage for your dream home)
Avoiding mistakes – Reducing the risk of making financial decisions you regret, or falling victim to fraud
Opportunities – Discovering new and unexpected ways to make your money work harder for you
Advice can boost your pension pot – According to research by Unbiased, UK savers who take advice save on average £98 more every month and receive an additional income of £3,654 every year of their retirement, based upon a pension pot of £100,000.
Seeking advice when young makes you better prepared for retirement
Our research found a directly correlation between people’s readiness for retirement and how early they had sought financial advice. We asked a sample of 213 UK savers ‘How prepared do you feel for retirement?’ and this is what we found:
Early advice is better – but it’s never too late
In a poll of over 200 IFAs listed on unbiased.co.uk, we discovered that most advisers are confident of boosting a client’s retirement income if consulted 15 years before retirement. This figure drops closer to retirement, but more than a quarter of advisers are still confident they can boost retirement income if approached at the point of retirement itself.
One in three who take financial decisions without independent advice later regret them
Our research found that over a third (34 per cent) of those who have purchased or arranged a financial product themselves have later regretted the decision, rising to 41 per cent of males and 47 per cent of people in their twenties.
Ironically the same research found that, of the people who had never sought financial advice, 40 per cent said the reason for this was that they were confident making their own decisions.
Many people have topsy-turvy financial priorities
In a survey of 166 independent financial advisers, we asked them to name the top five most important areas for seeking advice. We compared these against the top five areas for which consumers typically seek advice, and found that people may not be asking for advice about the most important things.
Let’s test how shrewd you are. Someone offers you an investment and says it’ll pay a five per cent return. Are you impressed? Maybe a little, that’s a very good rate these days – but you might not be astonished.
Then another person tells you of a scheme that’ll pay you back ten per cent. Now you’re definitely impressed – but probably a bit suspicious too. With returns like that, there’s almost certainly a catch.
But it doesn’t stop there. Someone’s offering you a 20 per cent return. You don’t even have to think about that one – it’s so plainly a scam, it insults your intelligence.
If anyone suggested you might achieve a return of 100 per cent, 200 per cent or 300 per cent, you’d probably just laugh. (Before calling the FCA.) But you can rest assured that a genuine financial adviser wouldn’t dream of offering you anything like those figures. They have their feet on the ground and deal only in realities, with figures derived from hard data.
Which is why what they can offer you is more like 6,000 per cent.
I don’t believe it!
Explanation time: we’re not actually talking about ‘return on investment’ here, as the term is usually understood. (You never really thought we were). No, what that 6,000 per cent figure refers to is the average benefit that results from pension advice taken at a young age, when set against the cost of the advice itself. Obviously a lot more money is involved, in the form of pension contributions, but the difference advice can make to the final pension pot is plain to see.
Here’s how it works. A person at the age of 35 consults an adviser on starting a pension (she should really have started much earlier than this, but more of that later). The cost of the advice (based on the Cost of Advice guide from unbiased.co.uk) is around £580. According to the 2015 Value of Advice report by unbiased.co.uk and MetLife, people who take financial advice end up saving on average £71 more per month than non-advised savers in a similar income bracket. This results in an extra £25,730 in the individual’s pension pot (actually much more, because this does not factor in tax relief or compound interest). This figure outweighs the initial cost of the advice by over 4,000 per cent.
But suppose the saver followed the prevailing recommendation to start a pension by the age of 25. In this case, the additional sum in the pension pot (before tax relief and interest) would be over £34,000 – a benefit outstripping the cost by nearly 6,000 per cent.
Why advice pays off in the long term
It bears repeating that this 6,000 per cent isn’t a direct return on investment. What it is, rather, is a quantification of the value of advice. The increase in the pension pots described above is a result of savers increasing their monthly contributions, which in turn is a direct result of taking financial advice.
Why? Because formal advice gives savers the confidence and motivation to increase their retirement savings. It gives them hard evidence that this is the right course of action. And it reassures savers that they can afford to do this (i.e. they can cover other necessary expenditure), while reminding them that they can’t afford not to. Financial advice allows people to consider their lives in the round, to think about the future and not just the now. With advice, you can see how every pound you earn needs to be stretched across your whole life – to cover the many years when you won’t be earning anymore.
Financial advice isn’t a get-rich-quick scheme.
As the research shows, it’s far more important than that. The difference between ‘with advice’ and ‘no advice’ is so clear cut, it makes sense to see advice as just a fundamental part of life planning; the common-sense route to ensuring your financial security in retirement.