How do I find a good financial adviser? It's a question I am often asked. And there is no easy answer. Especially if you do not have a lot of money.
Under these rules there are two main sorts of financial advisers.
The sort you want is called 'independent'. That can mean one of two things.
1. They give advice on all financial matters and looks across the whole of the market and give that advice on any financial topic where they might recommend a product.
2. They give advice on a specific type of product - such as annuities or pensions - and not on other types of product. But they must still look across the whole of the market relating to that product. This may be called 'focused independent' or may just be called 'independent'.
Any adviser who is not independent does not look at the whole of the market and may be tied to one or more firms and can only recommend products from those firms. In the UK these advisers are called 'restricted' though hardly any of them used that term. Never ever use an adviser who is restricted by products. If you ask 'do you offer independent financial advice' and the answer is anything but a clear 'yes' then reject them. Many work for a bank or insurance company and of course only recommend you buy their products. That is just sales masquerading as advice.
A lot of advisers will be rejected by Filter One. The only way through it is to become independent.
- you know each year how much has been taken from you so you can see if it is value for money.
- you review the service you get every year and if it is poor, find another adviser.
One iniquitous method of charging grew up around pension transfers. If you have a good company pension that promises you a pension related to your salary - called Final Salary or sometimes Career Average schemes (they are branded Defined Benefit or DB schemes by the industry) you may be tempted to transfer it to a pension pot scheme - a money purchase or Defined Contribution (DC) scheme.
Transferring out of a DB scheme into a DC scheme can seem very tempting because you will get a massive amount of money to move away from the guaranteed DB pension. And then if you choose to do so you can cash some or all of that pension in. It is almost always a bad idea. In the past some financial advisers who would deal with this for you (you have to get advice if your pension is worth a transfer value of £30,000 or more) charged on a 'contingent' basis. That meant you only paid them if you took their advice and transfered your fund. Such fees created a conflict of interest between you and the adviser who was only paid if you transfered. The FCA finally saw sense and banned contingent fees from 1 October 2020.
These three filters will take you a long way towards finding good, safe, but often expensive, financial advice. There may be adequate or even good, safe, and perhaps cheaper advisers which have been filtered out. They can get themselves through my three filters by becoming independent, getting financial planning qualifications, and changing the way they charge.
I must also add that there are a small number of well qualified independent financial advisers who have given dreadful advice (especially about pension transfers), have gone out of business, or have even turned out to be crooks. So these three filters are not a guarantee but they are a good start.
1. Adviser Book is the newest directory. Unlike the others no-one pays to be included. It has the complete list of more than 12,000 FCA regulated adviser firms on it but it does not yet list individual advisers separately. It clearly states who is verified as independent and you can filter by qualifications and specialisms. You can also filter by independent and how fees are charged.
2. Unbiased was the first real attempt at a comprehensive database. It says it lists more than 18,000 independent financial advisers. Restricted ones should not be on there. Advisers get a basic listing free but they must pay a subscription to be directly contactable through the website. You will see a list of the 'top 20' near your postcode which unbiased says is based on how near they are to you.
You can use the site to apply my filters. You can also make other choices such as specialisms or qualifications. You can even pick a male or a female adviser.
3. Vouched For uses its algorithms to provide a list of advisers for you. They are ordered to take account of how local they are to you, reviews by customers, and ratings. Advisers cannot pay for a better position in the list. The site checks qualifications by asking the senior manager who is responbile for them and checks that periodically. It demands images of certificate for qualifcations.
Other listings are available but they are much less useful. The Personal Finance Society lists all the advisers who have its qualifications and are Chartered Financial Planners, or are on the way to becoming Chartered, or work for a firm which is Chartered. That is a useful check. But it does not indicate if they are independent.
Most advisers will give you one free session. Go prepared with details and information about yourself. Try two or three and see which you prefer. Do not be embarrassed to say 'no' to them.
If you pick an adviser but later regret it you can leave by just writing them a letter telling them that they are no longer your adviser. Ask them to return any documents and destroy all your data. If you feel you have been badly advised or locked into investments you did not want, then complain and pursue the complaint to the Financial Ombudsman Service.
Free financial advice
If you are ever cold called or receive a text or email from an adviser you have not found and researched just say 'no'. No-one ever lost money by doing that. Many have lost money by not doing that.