Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Should I pay for expert financial advice on my pension?
Is it worth paying for financial advice? I was asked this very important question several times after presenting at the recent Retirement Money Show event in London, with many people unsure how best to make use of the pension freedoms. The answer depends on your own personal circumstances and preferences.
Many Shares readers will feel perfectly capable of devising a retirement income and investment strategy without engaging the help of a professional. Others might baulk at the charges involved or feel their portfolio is simply too small to warrant financial advice.
Whatever your situation, it makes sense to know the benefits of advice and what your options are before deciding whether or not it is right for you.
HOW MUCH WILL IT COST?
Most advisers will offer you an initial consultation for free – think of this as a test run to see if advice could be the right option for you.
If you decide to go ahead, you’ll likely pay two different charges – ‘initial’ and ‘ongoing’. The initial charge will be for a distinct service, such as creating a financial plan or assessing the merits of a defined benefit pension transfer.
The ongoing charge pays for the adviser to continue reviewing your investments and retirement strategy into the future.
Some advisers will charge you a fixed fee while others ask you to pay by the hour. The most common method, however, remains percentage-based charging.
According to the Financial Conduct Authority, the UK regulator, average (median) charges as a percentage of investment value for initial advice were reported by firms as between 1% and 3% in 2017, while ongoing charges were between 0.5% and 1%.
The difference these charges could make to the final value of your pot could be huge, particularly in the case of ongoing fees which will increase as your pot gets larger. However, in most cases these costs are dwarfed by the value and peace of mind offered by an adviser.
WHAT WILL I GET FOR MY MONEY?
A good adviser will assess your individual circumstances and financial goals and come up with a plan to achieve those goals. They will also help manage your tax affairs and navigate the complex quagmire of rules governing areas like pensions, investments and inheritance.
Furthermore, in recommending solutions to meet your personal circumstances advisers accept responsibility for those recommendations.
This means if something goes wrong or you feel the advice wasn’t in your best interests, you can complain to the Financial Ombudsman Service (FOS) or the Pensions Ombudsman.
INDEPENDENT VERSUS RESTRICTED
There are two broad categories of adviser you should be aware of: independent and restricted.
Independent advisers will search the whole market to find a totally unbiased solution that meets your needs.
Restricted advisers can still provide a valuable service, but their recommendations may be limited to a particular type of product or to funds from a specific company.
Neither is inherently better or worse, but it’s worth finding out any limitations your adviser might have before parting with your hard-earned cash.
Tom Selby, senior analyst, AJ Bell