You’re thinking of buying something or investing your hard-earned money, but you’re not sure if it’s the right choice. You wonder if it’s worth your money and whether or not it’ll benefit you in the long run. Luckily, people that help you decide on those things actually exist: they’re called financial advisors; so, should you hire a financial advisor in the UK?

You should hire a financial advisor in the UK if you need help with investing, understanding complex topics or examining potential pension plans. Financial advisors specialize in considering your present situation, but the high cost can be unnecessary with great DIY options increasingly common.

This article will explore why you may or may not need to hire a financial advisor. It will also discuss the types of financial advisers, the benefits of hiring one, and analyse the case against financial advisors.

What Can You Get When You Hire a Financial Advisor?

When you hire a financial advisor in the UK, you’ll benefit from assistance in obtaining the best financial products that accommodate your specific needs. They’re different from financial planners and focus on a single goal or specific topic rather than your big-picture financial situation.

You can rely on them to discuss different financial products with you. They’ll do the research and provide the expertise on your behalf when searching for the financial products that best suit your scenario. These products range from cash savings items to investments and pensions. Sometimes, you may seek a financial advisor for help in buying a property or taking out a mortgage if you are uncomfortable with these things in the UK context.

Financial Advisor and Financial Planner Differences

You need to note that a financial advisor differs from a financial planner. A financial advisor simply advises you and tells you what you need at a particular moment. Meanwhile, a financial planner will look at the big picture and your long-term goals.

This means that a financial advisor will show you which financial product you can benefit from now without as much consideration of the bigger picture. Financial advisors typically answer whatever question you ask them, and they’ll often focus on a single issue at a time.

Meanwhile, a financial planner will help you figure out your goals and create a plan for them. Financial planners discuss your current financial status and show you how you can achieve your goal. In short, a financial advisor thinks about your money and investments, while a financial planner considers you and your goals.

For beginners or those uncomfortable in the arena of personal finance and investing, hiring a financial planner may be a superior starting point.

Similarly, note that financial advice differs from financial guidance. Financial guidance simply shows you your options without recommending any products, whereas financial advice suggests specific financial products. 

In terms of cost, financial planners charge a fixed fee averaging at £1,000 to £3,000. On the other hand, financial advisors will cost you about 2 to 3% of your investments or product cost.

This cost shouldn’t be understated. For a financial advisor to be worth the cost, they have to make you the % they charge as a fee back but more on this later.

Financial Advisor Types

You can find two types of financial advisors in the UK: independent financial advisors (IFAs) and restricted advisors. Restricted advisors can only recommend specific products to you. They’re usually bound to one field and a restrained number of companies. On the other hand, IFAs give unbiased advice on a wide range of products across different companies.

If you’re looking for advice on a particular field, such as pension or cash savings products, it’s wise to hire a restricted advisor. They usually have a deep understanding of their products by working in that field for a long time. Meanwhile, if you want a variety of choices presented to you and the pros and cons of each clearly laid out; it’s best to hire an IFA. 

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Should You Buy Financial Products Without Advice?

You can buy financial products without advice, but if you’re dealing with a huge amount of money, you may find it wise to seek a financial advisor first. A financial advisor decreases your chances of buying a product that doesn’t suit you. He or she can also find items you may not find by yourself.

This question is also highly dependent on which financial product you purchase. For example, I frequently suggest visitors of this website invest in low-cost, passive index funds. This isn’t a complicated process and can be set-up in less than an hour.

However, if you’re investing in a more complex financial instrument (such as an option) – it likely makes sense to hire a financial advisor to guide you through the gaps in your understanding and help to ensure you don’t purchase something ill-suited.

When Do You Need Financial Advice in the UK?

People often seek out financial advice for the following reasons:

  • They’re seeking investment advice. At times, people can’t find the time or resources to research investment items properly, so they hire a financial advisor to help them out. This ensures they’re investing in something that actually suits them.
  • They’re considering cash savings products. Some people find it easier when somebody explains the pros and cons of a potentially suitable product to them rather than looking at the charts themselves.
  • They’re examining potential pension plans. This works best for anyone thinking about investing in a personal pension or boosting their existing pension. It’s best to hire a financial advisor to show you how things work on this side.
  • You have a large or complex financial dilemma. If you have a large balance to invest from an inheritance or lottery pay-out or have an unusual, complex financial situation – it makes a lot of sense to have a qualified financial advisor to guide you through this.

Things to Consider Before Hiring a Financial Advisor 

Before hiring a financial advisor in the UK, you need to consider a couple of things. First, you need to think about why you want to hire a financial advisor. Is it to save up for a certain event, like retiring or for a college fund? Is it to invest in a business or product? 

Once you figure that out, you’ll need to consider your current financial status. Do you have enough money to spare for the financial product and the financial advisor? Similarly, are you prepared to take a financial risk?

It’s also worth considering that with certain investments your money may be tied up and unavailable for several years. So, you need to ensure that you can do without that money and you trust the financial advisor to give you great suggestions.

Lastly, you need to figure out if you’re really looking for advice or just for information. If you’re looking for information, you can simply research or ask around for details about the product you’re interested in. That way, you can figure out if that product suits you and is worth your money. Meanwhile, if you need advice, a financial advisor should tell you what you can do with your money.

Where to Find a Financial Advisor

If you’re thinking of hiring a financial advisor in the UK but aren’t sure where to find them, here are some excellent resources:

Are You Receiving the Right Advice?

You sought out and hired a financial advisor for a reason, so you need to ensure you’re getting the right advice. To check if you’re getting the right advice, observe if your financial advisor does the following things:

  • Finds an excellent but affordable product suitable for your budget
  • Considers if you’re thinking about saving short term or long term
  • Assesses the products based on whether or not you pay tax
  • Sticks to their field or your reason for hiring them

Remember that a financial advisor can only provide you with the correct advice within the limitations of their qualifications. If you hire a restricted advisor, they’re meant to suggest specific products from a limited number of companies in their field and nothing more. Hence, they can’t suggest products or companies outside their limitations. This means you can’t complain if you find the same product sold at a lower price in a different company.

Similarly, note that if a financial advisor can’t find an item that’s suitable for you, they need to point you to another advisor who can potentially assist you. You can file a complaint against them if they don’t do this.

financial advisor

The Case Against Financial Advisors

Before I start with this section, please bear in mind that many financial advisors are honest, talented people and if you are truly unsure or concerned about a financial matter, play it safe and hire one from a reliable source.

However, I believe that for most people hiring a financial advisor is a waste of money, particularly if only small sums of money are involved. If you’re a novice when it comes to investing – take a Saturday to learn the basics. Start with ‘The Simple Path to Wealth’ linked here and go from there.

Following an investing approach whereby you invest in low-cost, passive index funds is about as simple as it gets. Understand the basics of how these funds work, begin investing using my Vanguard starting guide and you’re on your way.

As alluded to earlier, my big problem with financial advisors is the cost. Investing in a passive index fund which tracks the S&P 500 (500 largest companies in the US) will historically speaking, return you on average about 11% a year.

If you hire a financial advisor for let’s say 2% per year (which is actually cheaper than most FA’s) – they will have to advise you to buy products making at least 13% per year just to break even.

My problem with this is: very few people, even professionals, can consistently beat the market.

My second problem is that there are many dishonest, unqualified advisors out there. If you are the type of person who isn’t confident with finances or investing, you’re probably not confident in finding and vetting a well-priced, reliable financial advisor either.

Use the time spent searching for one to teach yourself the basics of personal finance and investing instead. Read every post on this website that catches your attention and you’ll have given yourself a pretty solid starting point.

Again, if you have a big, complex financial matter that despite your best efforts you just can’t seem to understand – hire a financial advisor. Do the research and due diligence to get a good one.

If not and you just want to start investing – research the topic for yourself and save yourself the cost.

Final Thoughts

You should hire a financial advisor in the UK if you think you need it. If you’re considering spending a huge amount of money or have a complex financial issue, it can be wise to seek an advisor. However, if you’re simply looking for guidance or more information about certain products, you may not need to hire an advisor and doing so will be an unnecessary cost that negatively impacts your future wealth.

As always, please remember I am an Accountant, but not your Accountant. In this post (and all of my others) I share information and oftentimes give anecdotes about what has worked well for me. However, I do not know your personal financial situation and so do not offer individual financial advice. If you are unsure of a particular financial subject, please hire a qualified financial advisor to guide you.

This article has been written by Luke Girling, ACA – a qualified Accountant and personal finance enthusiast in the UK. Please visit my About page for more information. To verify my ACA credentials – please search for my name at the ICAEW member finder. To get in touch with questions or ideas for future posts, please comment below or contact me here.