With so much readily, freely available today on the internet, it can be tempting to think you can manage your pension, investments and retirement planning without professional advice.
An important question to ask is, will the advice you are given pay for itself? The services of an independent financial adviser will often cost hundreds, if not thousands, of pounds. Will handing them this money result in more money which pays for this advice, and then some?
Certainly, a good place to start is to get free pension advice. This kind of advice obviously pays for itself, as it only costs you time and effort (and perhaps a bus fare to meet a government adviser).
For instance, by using the government’s non-paid services such as Pension Wise and the Pension Advisory Service. You can speak to an advisor over the phone, a face to face appointment, or even a web chat if you’re more tech savvy!
This is helpful if you are not familiar with the current pension rules, giving you the pros and cons for different options you face. For instance, these services can help you see the differences between annuities and drawdown, and give you some benefits and disadvantages to each (in broad terms).
However, this is essentially where the usefulness of these services ends. They cannot provide what is known as “regulated financial advice,” which will recommend a financial product or particular course of action you should take.
With this kind of advice, you have certain rights if things go wrong as a result of acting upon the advice you have been given. Free pension advice rarely, if ever, will give you these kinds of rights. This kind of advice is valuable, and so comes with a price tag.
The Rise Of “Robot” Pension Advice
With rapid advances in technology have brought a new kind of adviser into the spotlight – “robot advisers” who use algorithms, formulas and computer modelling to assist you in making decisions about your pension and retirement.
Typically, these services work by first asking you to fill in an online questionnaire. For instance, they will likely ask you about how you feel about risk, and how many years you were planning on investing for. Once you have given your answers, the robot adviser can direct you to a portfolio model which it deems suitable to your needs and goals.
These services can range in their price tag, and companies which offer them include Rplan, Simply EQ, Nutmeg and Money-On-Toast. Usually, they’ll take 1% plus investment charges. This is typically cheaper than going through a regulated, independent financial adviser directly. However, whilst your options are wider than what you get with the free pension advice routes above, your options are more limited than going through a professional intermediary.
If the advice given by these robotic services are based on your attitude to risk, as well as your financial position, then they are regulated. This gives you some protection should the advice you receive turn awry. However, make sure you fully understand your rights, and the risks involved, before setting yourself upon this kind of advice.
For some people, this kind of pension advice can be worthwhile and cost effective. However, if you want the best range of financial options to choose from, and/or your finances are quite complex, then you might need further help.
Full, Independent Financial Advice
An independent financial adviser is authorised by the Financial Conduct Authority (FCA) to advise you on investment options (e.g. individual shares and funds), as well as appropriate financial/pension products (e.g. drawdown and annuity products). They can even build a full financial plan for you, including long-term budgeting, tax planning and investing. They can also be used to monitor the performance of your finances on a regular basis, even making adjustments accordingly in light of changes in the market.
PensionAdvice.org exists to refer people seeking pension advice to professional financial advisers such as these. We only ever recommend you to a recommended, FCA-regulated financial adviser, and go out of our way to ensure the person you speak to is as local and relevant as possible to your needs.
The cost of a financial adviser is hard to compare, as their charges vary. Some IFAs choose to charge hourly (this can be around £200 an hour), whilst for other tasks IFAs might choose to levy a one-off fee. An initial review is, on average, about £500.
For pension advice on how to invest a £100,000 pension fund, a fee of around £1000 is fairly common. However, if you are unsure of your goals or if you do not know what you want to do with your savings, the fee can be a lot higher. Maybe even double. This is because the adviser has to put in more work to help you figure this out.
Sometimes, going through an IFA can give you preferential rates on certain financial products. If an adviser can assist you in lower the taxes you will pay in retirement, then the professional advice can certainly more than pay for itself.