On a day-to-day basis, it’s all too easy to presume that you aren’t one of a (supposedly) select group of people in need of independent financial advice. The idea has a certain exclusivity to it – something that is reserved for people with much more complex financial backgrounds, burgeoning investment portfolios and major assets to sort through on a regular basis.
Put simply, however, independent financial advice is an essential part of managing your money successfully, whoever you are, and wherever you are in life.
The chances are that, over the years, you have been offered financial advice by your bank, or encountered a financial advisor in any number of places. These advisors are able to offer advice based on what they are able to offer to their clientele, and a relatively narrow level of insight into managing your money. It’s not independent or particularly personalised to your situation, but, if your finances are relatively simple, it seems sufficient.
As a result, plenty of people don’t realise the importance of reaching out for independent financial advice. In essence, it’s easy to write it off with a simple, ‘If I needed it, I’d know’, when the reality is quite different. Seeking unbiased advice opens a door that will remain open for the rest of your life, and for good reason.
Below, we go through everything you need to know about seeking advice from an independent financial advisor, from what it entails to why you stand to benefit from it – and what level of protection you will have against financial risk.
A Brief Definition of ‘Financial Advice’
Whether we’re talking about independent financial advice, or the financial advice offered by a representative of a bank or a particular company, then the subject is characterised by the fact that the person giving the advice will make recommendations for particular products – in this context, things like investment opportunities and specific ISAs (although the nature of those recommendations differs between independent and restricted advisors).
This is what separates financial advice from financial guidance, which is a much broader and more generalised subject. Think of it as a lot more generic, since the specifics are stripped away in favour of a more open-ended level of insight.
Financial advice is much more valuable to individual clients looking to get their finances in the best shape possible, since it will (ideally) lead to a series of specific and actionable steps they can take, with nothing left vague or undecided.
The key thing to remember, however, is that not all financial advice is created equal, and that the type of financial advisor you choose to work with will have a monumental effect on the type of insight and actionable guidance you will receive.
First, however, here is a brief overview of the areas financial advisors commonly offer advice on.
What do financial advisors help with?
Your financial situation does not represent one single topic – it comprises a wide range of things you need to consider, understand, plan for, and protect against. For that reason, financial advisors don’t all specialise in the same area, and will not all offer an identical approach to financial advice.
Financial advisors can, of course, be proficient in many different areas, or they may specialise in one area in particular.
Here are some of the key areas in which financial advisors can help you to ensure that your finances are in order:
- Planning for retirement, even if it is decades in advance
- Pension advice and receiving an income during retirement
- Buying property with (or without) a mortgage, and re-mortgaging
- Downsizing to a smaller home
- Starting a family, setting up financial safeguards for them, and upscaling to a larger home
- Equity release
- Creating a will
- Divorce
- Investment advice
- Starting your own business, or even just maintaining it (and your own interests at the same time)
- Savings
- Inheritance tax planning, or any sudden and drastic changes to your financial situation
- Cashflow planning
It is worth pointing out that this list is not exhaustive, and there are plenty of queries clients will have over the years that fall outside of these categories. This is why having a pre-existing relationship with a financial advisor or firm so often proves invaluable; it means you have access to personalised and truly insightful, impartial advice whenever you need it most, rather than feeling like you need to navigate and interpret generalised guides online for answers.
The cost-of-living crisis of 2022 is an example of an unforeseen time of concern and worry for many people across the country. Having an existing relationship with an advisor to fall back on is invaluable in events such as these.
How do you know you need a financial advisor?
There’s no specific moment at which a financial advisor becomes necessary. In reality, anyone managing their own finances stands to benefit from unbiased and independent advice at any time, and the misconception that only a select few require the insight of a financial advisor is why so many people end up limiting their scope with a restricted advisor.
We’ll go into the differences between independent and restricted advisors below but, for now, it’s worth remembering that you’ve got to be proactive about accessing independent advice. If not, then you’ll find yourself ‘stumbling into’ situations with restricted advisors and, potentially, missing out on a much more valuable level of help.
While you may be automatically enrolled onto a pension plan through your workplace, for instance, it’s usually much better to with an independent pension and retirement advisor – or you may not be making the most the opportunity to prepare during these pre-retirement years.
What is the Difference Between Restricted and Independent Advice?
With that in mind, the key trait that all genuine financial advisors share is their readiness to name specific products and investments, but there is a major difference between the sort of advice an independent advisor will provide versus one who is working for a particular company or bank.
As you can imagine, a truly independent financial advisor will tailor the advice they give to the client, rather than the company they are tied to. It’s the difference between recommending an ISA because it is the best ISA on the market for the client and recommending an ISA because it is the best one offered by the company they work for, or the provider they are tied to.
And, for obvious reasons, one is considered far more advantageous to clients than the other.
What does ‘restricted’ advice entail for you?
Advisors who are tied to a particular company or provider are known as restricted financial advisors. Sometimes, it is very easy to tell whether the advisor you’re talking to is restricted or not. The most obvious example is, of course, the advisor waiting in the foyer of the bank, but there are plenty of instances where a financial advisor’s ‘restricted status’ is a lot less obvious.
Consider the process of buying a house. A truly independent financial advisor can help you through the process of saving for a deposit – or managing an inherited deposit from a family member – then, when you are ready to buy, reviewing the mortgage options available to you in order to find for the very best option. There is, of course, a lot more to it than that, but even a simplified version of the process highlights the major difference between unbiased advice and restricted advice.
A restricted advisor will, instead, simply review a limited list of options – options from the providers they are restricted to – and try to sell one of them to you. They won’t have that history you would likely have with a financial advisor, or their sights set on working with you into the distant future.
As we mentioned, there is a lot more to working with an independent financial advisor throughout the process of saving, looking, applying, and buying a home, and you can read more about working with an independent financial advisor while navigating the house-buying process on our blog by clicking here.
Why is independent financial advice so important?
The fact that independent financial advice gives you a much broader scope, without the restrictions of ‘branded’ advice is the obvious advantage, but there are more benefits to be gained from steering clear of restricted advisors.
For starters, it is so often the case that restricted financial advisors are much less prepared to form lasting relationships with their clients. While it may sound cynical, it’s also understandable that, for a restricted advisor, checking that initial box – making the referral or onboarding a new customer to a particular service or provider – is the most important part of the job.
For independent financial advisors, there is generally a much greater emphasis on building long-standing relationships with clients and ensuring that they are there to see them through the many, many different changes and phases anyone undergoes throughout their lifetime. This naturally leads to a much more personalised level of service, which is something we consider to be as important as unbiased advice.
As a direct result of that commitment to their clients, there are also many more opportunities for an independent financial advisor to be proactive and pre-emptive. For a restricted financial advisor specialising in one niche area, the focus remains solely on that area and the products/providers they are representing that relate to it.
For an independent financial advisor, there are more opportunities to think about the bigger picture, refer clients to colleagues with specialties in relevant areas, and generally ensure that they have a much more comprehensive level of care. You can work together to create a plan for your financial future, rather than merely being sold a product.
Plus, with the right advisor, you can feel more like an individual, rather than one on a long list of prospects that a restricted advisor needs to get through during any given day or month.
How Do You Know if a Financial Advisor is Independent?
This is where things can get a little bit more complicated. As we mentioned above, there are times when it is obvious that you’re talking to a restricted financial advisor, with specific products or providers to represent – but it’s not always as clean cut as a bank uniform. While, walking onto a car lot, you expect to encounter a salesperson, the same isn’t always true for walking into a financial advisor’s office.
The issue is made even worse by the fact that, even if a financial advisor claims to be totally independent, this may not actually be the case, and they could be restricted in some way.
The best way to ensure that the advisor you’re considering working with is certified independent is to check that they are directly appointed by the Financial Conduct Authority.
What is the Financial Conduct Authority?
The FCA is a regulatory body within the UK, responsible for ensuring that customers are stepping out onto a clear and level playing field when they decide to seek financial advice. In a very broad sense, they are there to make certain that the entire industry is has a positive impact on its clients, and on the country’s economy.
They are the body behind the high standards to which reputable and worthwhile firms, companies and business must adhere, at all times, and with every single customer who walks through the door.
Direct authorisation from the Financial Conduct Authority is the only guarantee of true independence. An Appointed Representative (AR), on the other hand, works as an agent for another authorised firm instead.
When you begin a relationship with a financial advice company, you must be given financial disclosure agreements. This agreement will cover all of the basic necessities for protecting your interests throughout the course of your relationship with your chosen firm or advisor, such as the agreed fee, the services offered to you, details concerning data protection – and, of course, your coverage under FSCS.
What is FSCS?
FSCS stands for Financial Services Compensation Scheme, and it offers an invaluable line of reassurance to people like you who decide to work with a financial advisor.
The FSCS was created with the sole purpose of protecting consumers from the potentially devastating consequences of a failed bank, building society, credit union, insurer, pension provider, or any other financial firm that has led to you requiring compensation. This essentially boils down to financial security for you, against the failure or insolvency of a firm you put your trust into.
The FSCS was put in place by the government, and, for customers of authorised financial firms, protection is standard. As we mentioned above, your coverage under the scheme will be clarified within your financial disclosure agreement. If it isn’t, then you’ll want to walk away as fast as you can.
Working with a registered independent advisor, your interests are also protected by the FOS.
What is the FOS?
The Financial Ombudsman Service is there to assist with and help settle any dispute that arises between a consumer and a financial service provider. Like the FSCS, this covers a very broad range of potential providers, from mortgage lenders to insurance providers, debt collectors, and, of course, financial advisors.
While choosing a reputable and experienced firm safeguards against many of the risks associated with restricted or subpar firms, even working with the best independent financial advisors out there necessitates the support offered by the FOS, even if it is never called upon. Protecting your money (and your interests) effectively means protecting them from all angles, and the ombudsman is a little like a secure lock on a door that may never be used.
Are Independent Financial Advisors Worth it?
In our opinion, yes, an independent financial advisor is more than worth the investment of time and money. They are not, as so many people assume them to be, an option that is only useful for the very wealthy, or for those with incredibly complex financial backgrounds, or growing investment portfolios.
In reality, financial advisors can – and do – offer an invaluable line of support and planning to people who are in relatively ‘ordinary’ financial situations. While, day to day, you may not notice encounter all that many reasons to book an appointment and talk through your financial situation in detail, it’s very likely you will encounter some (or all) of the big milestones at some time or another: inheritance, buying a house, getting married, having children, preparing for retirement and, eventually, retiring, dealing with a big life change or, just generally, trying to augment your savings and get the most out of money sitting in an account.
The trouble comes when we think we’re not important or earning enough to justify independent financial advice. It’s very easy to walk into the bank and talk to one of their advisors, or to be complacent with monumentally important choices like which mortgage broker to use or who to entrust your pension to, but there is an insidious risk attached to it.
Independent financial advisors are experts in their field, and they are there to ensure their customers make the best (and most informed) choices possible – not just to shill a product, package, or provider to as many people as possible. For unbiased advice, there is no better professional to turn to, and, when you think about it, you can’t afford not to.
At Fingerprint, we are incredibly proud of our status as a truly independent provider of financial advice. We consider our commitment to offering comprehensive advice to be just one of a long list of reasons to work with us, and one of the reasons why so many of our clients form long-lasting and close-knit relationships with our team.
