The times when it pays to take financial advice
It’s never been easier to be a DIY investor with all the tools and information now available online. The internet has democratised information, and many people have consequently become their own financial advisers.
This saves on charges, with advice usually costing upwards of £500, depending on the precise level of service required. But while many investors are now confident about going it alone, there are still times when the services of a professional financial adviser can be extremely valuable.
Pension planning is one example. For someone simply putting £100 a month into a workplace pension, there’s probably little call for financial advice, but things can get a whole lot more complicated than that. Pension savers who are bumping up against the annual or lifetime pensions allowance might consider getting advice, not least because getting things wrong can result in highly punitive tax charges.
Those who are approaching or at retirement might also benefit from taking advice, because their pot is likely to be close to its peak level, so there’s lots at stake, and the options aren’t always straightforward. At retirement you need to decide how to draw your pension, and that will determine how you invest in the lead up to retirement, so it requires some dedicated planning, which may be best done with the help of a financial adviser.
If you’re thinking of transferring out of a defined benefit pension into a SIPP (self-invested personal pension) or money purchase pension, it’s can be a really good idea to take advice. Sometimes there are perfectly valid reasons for wanting to transfer out of a defined benefit plan, but it’s difficult to assess the value of the guaranteed income provided by such a scheme.
It’s easy to overvalue the benefit of having a lump sum up front and undervalue the importance of having an income year in, year out, for life, and a financial adviser can help you get to the bottom of that conundrum.
Inheritance tax planning is another area where taking advice can be really helpful. Again the sums involved tend to be large, and so the tax benefits of a well-considered plan can more than outweigh the costs of taking advice.
Inheritance tax comes with a high degree of complexity around rules, allowances, and gift exemptions, which is a bit of a minefield to navigate on your own. It can also be easily ignored, because naturally we all like to keep our own mortality out of sight and mind as much as possible.
Taking financial advice can help bring this difficult subject out in the open in a guided and thoughtful way. Financial advice could also be useful to help you manage your overall investment portfolio, if you feel you don’t have the time, or knowledge to do it yourself. Part of the service will normally include making this as tax-efficient as possible.
Generally speaking, the more complex your planning needs, and the bigger your portfolio, the more value you are likely to get from a financial adviser. Financial advice does have a bit of a bad image, but that is really an outdated hangover from the 1980s and 1990s.
MAKE SURE YOU GO WITH A REGULATED FIRM
Advisers today are extremely well qualified and very heavily regulated. Of course, always make sure the advisory company you are dealing with is regulated by the FCA; any reputable firm won’t mind showing you their regulatory credentials. Not everyone will need advice, but sometimes paying a professional to tackle your finances can lighten the load.