How to choose a financial adviser – Forbes Advisor UK


If you are looking for expert advice on complex financial products such as investments, mortgages and pensions, you may benefit from the advice of a financial adviser.

According to a study by the Financial Conduct Authority, only 8% of people in the UK use a financial adviser. However, that figure rises to 17% for people with more than £10,000 of investable assets and 38% for people with assets worth more than £250,000.

Although paying for financial advice may seem expensive, it can help you achieve your financial goals and prevent you from making costly mistakes.

According to financial advisor review site VouchedFor, client inquiries grew nearly 6% in 2021.

Alex Whitson, Managing Director of VouchedFor, said: “The demand for expert financial advice remains high. This is hardly a surprise as we grapple with a cost of living crisis, inflated house prices, jittery stock markets and complex retirement options.

Here’s what you need to know about choosing a financial advisor, including the different types of advisors, typical fee structures, and the best questions to ask to choose the right advisor for you.

Remember: any investment is speculative and your capital is at risk. You may not get some or all of your money back. This applies regardless of whether you take advice or not.

What are the different types of financial advisers?

Financial advisors may also be referred to by their specialty, such as a mortgage, investment or pension advisor or broker, or a financial planner.

All financial advisers in the UK must be regulated by the Financial Conduct Authority (FCA) and have obtained at least a Level 4 qualification in financial advice recognized by the FCA. Some financial advisors also have Chartered or Certified Financial Planner qualifications.

In terms of the range of advice provided, there are two main types of financial advisers:

1. All market advisors

Market-wide financial advisors are able to provide advice on all available financial products and providers, rather than being limited to particular products and/or providers.

They can call themselves Independent Financial Advisors (IFAs) because they offer unbiased advice based on comprehensive analysis of the entire market, without influence from product providers.

Since 2012, IFAs have been prohibited from accepting commissions on investment and retirement products and must charge clients a fee instead (more on this later) to increase transparency of how they are remunerated.

However, they are still able to accept commissions from certain insurance, mortgage and capital release providers. The commission is usually taken from the client’s premiums or other payments.

2. Restricted Advisors

As their name suggests, these financial advisors can only recommend either:

  • a restricted set of products (such as mortgages)
  • products from a limited set of suppliers (such as a limited set of fund managers)
  • or both.

Restricted advisers are not legally permitted to call themselves independent.

That said, it’s not necessarily a bad thing to have an adviser restricted to “the whole market”, for example, someone limited to advising only on pensions but able to recommend products of all providers.

Restricted advisors may also be referred to as “tied” if they work for a particular vendor such as a bank or building society and are only able to offer products from that vendor.

Linked advisors will often receive a commission as part of their overall compensation for selling products to clients.

Research by the Personal Finance Society and NextWealth found that clients of restricted advisers pay an average of 28 basis points (0.28%) more in overhead than those using independent financial advisers.

What fees do financial advisors charge?

Fees vary depending on whether or not you have entered into a fee and/or commission agreement with your advisor. There are three main types of tariff structures:

1. Percentage fee

This is the most common fee structure where you pay a percentage of money invested or managed. This breaks down as follows, based on data provided by VouchedFor:

  • Initial fees for product setup: this typically varies from 0.5% to 5%, with an average of 1.86%. However, 95% of advisors charge 3.5% or less.
  • Ongoing charges for product management: this varies from 0% to 3.2%, with an average of 0.77%. Only 5% of advisors charge more than 1% in ongoing fees.
  • Underlying investment portfolio fees: these annual fees are charged by the provider of the underlying product, eg custody and fund management fees. According to the FCA, these averaged 1.1% but ranged from 0.4% to 2.0%. These fees will also be payable under a fixed and hourly fee arrangement.

Taking all of the fees above into account, the FCA found that customers pay an average of 1.9% in fees every year.

One of the disadvantages of a percentage fee structure is that your fees will increase with the value of your investments, which can add up to a substantial amount of money over time.

2. Fixed costs

A flat fee is typically used for one-time advice such as combining pension plans, setting up an annuity, or producing an overall financial plan, where people don’t want ongoing advice.

Fixed costs vary greatly depending on the scope of work, but you should expect to pay upwards of £500.

3. Hourly rate

Some advisors charge hourly fees which typically range from £75 to £300 per hour, according to VouchedFor, with an average hourly rate of £193.

Advisors should provide an estimate of the number of hours the work is likely to take and their invoice should show a breakdown of the hours spent.

What are the typical fees for financial advice?

Advisor comparison site VouchedFor has calculated the average fees for different types of financial advice over a five-year period, based on the fees charged by advisors on its database:

Source: Guaranteed for

How do I find a financial adviser?

It’s worth taking the time to choose the right financial advisor for your situation. One option is to ask family and friends for personal recommendations.

Alternatively, comparison sites VouchedFor and Unbiased have a database of thousands of financial advisors, allowing you to filter advisors by expertise, area and customer reviews.

Once you’ve narrowed down your options, you need to ask yourself the following questions:

  • Do they offer independent or restricted advice? As mentioned earlier, whether or not they advise you on restricted products, you should look for an adviser who covers the whole market in terms of suppliers.
  • Are they authorized by the FCA? This is easy to verify by looking in the financial services register which indicates whether they are authorized and, if so, for which activities.
  • Do they have the necessary qualifications? Advisors must hold a Level 4 or higher qualification on the Qualifications and Credits Framework. They must also have an annual declaration of professional status.
  • What is their pricing structure? This can be posted on their website and should be available upon request.
  • How will they give their advice? In person, by phone or email, or via a written report?
  • Do they offer continuous service and how much does it cost?

Most advisors offer a free initial consultation where you can discuss what you’re looking for and ask questions. After this meeting, the advisor must provide a “key information document” describing their fees and what their work will cover.

If you are satisfied with the advisor you have chosen, you will sign the necessary documents and undergo client identity checks. If you have paid for ongoing advice, you will usually receive an update from your financial advisor once or twice a year.

Where can I get free financial advice?

There are a number of resources available for people looking for general financial advice at no cost:

Employers can also offer access to free financial advisory services, either generally or for a one-time project such as a change to company pension plans.

What happens if something goes wrong?

As financial advisers are regulated by the FCA, the Financial Ombudsman Service (FOS) will investigate a complaint if you are unhappy with the advice provided or if you believe a product has been mis-sold.

The FOS will investigate your complaint and, if confirmed, has the power to fine advisers and demand that they pay you compensation. However, you cannot claim investments on the grounds that they have lost value.

Also, if you have an investment and the provider or advisor has gone out of business, you may be able to claim compensation from the Financial Services Compensation Scheme (FSCS). This covers up to £85,000 of eligible investments per person per product.


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