What Does a Financial Adviser Do? (And How to Know If You Need One)

Simply, it is somebody who is qualified and registered to offer you specific advice on what to do with your money - strategies to build and maintain wealth, mitigate various taxes and suggest specific products.

What a Financial Adviser Actually Does

They can either make investment decisions for you under an agreed contract (‘discretionary management’) or advise you on what to do while you stay in control (‘advisory service’). Not every adviser has the ability to provide the discretionary service but they must be clear about their parameters before you start.

They are trained to assess and take account of your finances, your history, your goals, your appetite for risk and your ability to withstand financial shocks. With that information, they can run the figures and work out where they think your money will work best for you in the long run - most often with the help of very clever software (and even AI nowadays) - and they’ll provide projections based on different variables because, ultimately, nobody has a crystal ball.

Independent vs Restricted Advice

Financial advisers can be independent (an IFA) meaning that they offer unbiased advice over a wide range of products on the market and aren’t tied to a specific institution (like a bank or investment provider) or they might be a restricted adviser. This means they might be tied to one provider’s products or specialise in a specific product area, such as pensions or protection. Either way, they still have to provide objective and suitable advice and work in the client’s best interests.

How Financial Advisers Are Regulated

In the UK, it is a highly regulated profession. One must have a level 4 diploma in financial advice, be authorised and appear on the Financial Conduct Authority’s (FCA) register and keep up with Continuous Professional Development according to the FCA’s code of conduct. They must take careful notes to provide the reasoning behind their decisions and they are expected to provide the highest level of professional, meticulous service.

Financial planners are also FCA-regulated, but they typically take a more holistic view, integrating your income, savings, investments and estate planning to create a longer term financial plan.

How Financial Advisors Charge

They charge in a few different ways: a percentage of assets under management, a fixed fee or an hourly rate. Assets under management is probably the most common option.

Typical charges include an initial advice fee and an annual ongoing fee of around 0.8–1% of assets under their control. Fixed fee will be for a specific task - for example, consolidating your pensions. And an hourly rate is fairly straightforward (it’s hard to estimate an average over the UK but I’d hazard a guess at £150-£200 an hour as a average).

Fees must be transparent. Even before the work starts the client must be aware of the fee structure and when it will apply. Some advisers will combine the different fee structures and clients must be aware of the boundaries. Equally, the two kinds of advice - discretionary vs advisory - may attract different fee levels to reflect the differing levels of risk and specialism.

Do I Need a Financial Adviser?

Well, I can’t answer that.

Many advisers will have a lower limit on the amount of money they will deal with (see my £13,000 debacle), I’ve seen that lower limit be as high as £250,000 (which seems a bit much but what do I know?!).

More complex life situations - perhaps combining family finances, annuities or receiving a large lump sum like an inheritance or redundancy payment might make it more necessary.

By law, if you’re transferring a defined benefit pension worth over £30,000, you must get regulated financial advice before proceeding. You can get lots of pension information over on the Money and Pensions Service website.

What a Financial Adviser Isn’t Good For.

Financial advisers are not, on the whole, trained to deal with the emotional side of money. They deal with figures and statistics, likelihoods, technicalities and spreadsheets.

That’s not to say many of them aren’t empathetic (or even nowadays, trained! The coaching course I took was developed initially by a financial adviser for other financial advisers) but it’s not actually a part of the job. It could be worth reflecting on whether what you need is support and confidence rather than somebody to tell you the financially best thing to do with your money - and that may well depend on how much money you have!

They’re also not about basic information. The reports they offer must be understandable, clear and truthful but they are not in the business of financial education and so if you look at interest rates with wide eyes and a churning stomach, perhaps seeing ten different pie charts and a spreadsheet isn’t the service for you. And that’s okay - they’re doing their job and you’re looking to get the right service for you, just as you are.

Coming Up…

I loved studying to become a financial adviser. It was a totally different way of thinking about the world for me - detailed and specific and I enjoyed getting into the weeds of it all but if you come back for the next blog, I’ll talk further about what a financial coach is, and ultimately why I think that suits me (and what I want to do in the world) infinitely better.

Don’t forget that my financial coaching services are now for sale! Click here for more information and to book your spot.

Love Eleanor. xxx