When to get a financial adviser, and how to choose the right one

This is an audio transcript of the Money Clinic podcast episode: ‘When to get a financial adviser, and how to choose the right one’

Laureen
Laureen from ten years now would be screaming at the current Laureen saying, “Why didn’t you do this? Why didn’t you look into this?” Then my reason to her would be, “Ah, no one told me about it.”

Claer Barrett
Meet Laureen. She’s 22, working her first job in a London bank. And she’s all at sea when it comes to what to do with her new found salary.

Laureen
Despite all the financial advice that I’m reading about — the blogs, the podcast, your book, of course — I just still feel a bit overwhelmed and paralysed with choice as in regards to what to do with my money. When I get that monthly income, I’m like, it’s the first time I’m earning quite a lot, and I genuinely don’t know what to do despite all the advice out there. And I wonder if I need a wealth manager.

Claer Barrett
Laureen has been doing her own research into wealth managers and financial advisers. We’ll come on to the different shortly, but after chatting to a couple she liked the look of, she realised that choosing the right one isn’t as easy as it first seemed.

Laureen
I knew I wanted one, but I kind of didn’t, I next didn’t know how to manage that relationship or know what to ask of them.

Claer Barrett
So stumped for what to do next, Laureen got in touch with Money Clinic with a clear mission in mind.

Laureen
I don’t usually walk past wealth managers. So where are you, and where can I find you?

[MUSIC PLAYING]

Claer Barrett
Welcome to Money Clinic, the weekly podcast from the Financial Times about personal finance and investing. I’m Claer Barrett, the FT’s consumer editor. Financial advisers, wealth managers and financial planners, what do they actually all do, and how do you know if you need one? In today’s episode, we’ll be discussing where to get professional financial support from an expert and exactly how they might help you. And we have two of my favourite experts in the FT studio today, Moira O’Neill, who’s a personal finance expert and FT columnist. You might know her better on Instagram as @moiraonmoney. Good morning.

Moira O’Neill
Hello, Claer.

Claer Barrett
And we have Sally Hickey, who is a chief reporter at FT Adviser, which is our specialist publication for financial advisers. Welcome to the show, Sally.

Sally Hickey
Thank you for having me.

Claer Barrett
Well, Moira and Sally will be sharing their insider tips on the world of financial advice planning and wealth management in just a moment. But first, let’s hear more from Laureen. As I mentioned, she’s 22. She’s landed a big job at a bank. How much is she earning?

Laureen
Can I be completely honest (chuckles)?

Claer Barrett
Of course!

Laureen
Oh, great! I’d say I am 49k, and that’s only by being in the bank for six, seven months.

Claer Barrett
Wow.

Laureen
Yeah.

Claer Barrett
And are you entitled to get a bonus as well on top of that?

Laureen
Yes! So in April this year, I did get a nice bonus.

Claer Barrett
And what about your workplace? Are they offering any sort of financial guidance to you as a young employee on the graduate scheme?

Laureen
The irony is I do work in a financial institution, but my knowledge of personal finance is very limited, and I don’t know if it’s even to do with the culture of where I work, like, everyone earns loads of money, but we can’t talk about it, ironically. So it’s almost like I’m always curious as to what my managers’ managers are doing with their money, or what they would say to us if they were grads in on our salary.

Claer Barrett
Well, you’re on a really good starting salary, but tell me about your financial upbringing, Laureen. Did you expect to be earning this much at such a young age?

Laureen
I think just growing up, I live in the council flat. I’m still at home (sic) my parents. And right now, I actually earn more than my parents.

Claer Barrett
Wow.

Laureen
So that’s incredible (chuckles). And because of that, I’m just so I’m conscious of my money story and where I come from. And for me to be someone the first my generation to be earning this much and also knowing the potential to earn more, sometimes I’m in modes where I do need to seriously save because I’m like, I don’t want to lose it all.

Claer Barrett
OK, I’ve got you. So why have you been thinking that you need a financial adviser to help you? What, what do you feel you need their help to do?

Laureen
I’m thinking, if these wealth managers usually deal with large clients or people with loads of salary, what is it that they know that they’re not telling the everyday people? Like, they’re not in everyday conversation, like, so then that, that must mean that I’m not entitled to this service. But then for those who say that, oh, they offered the services with no minimums, OK, that’s great, but you’re going to need to help me out here because I’m like, I’m probably your youngest client.

Claer Barrett
Yeah.

Laureen
So what does that mean for me? Yeah, what does that mean for me? What should I be thinking about now so that when I’m in my forties or fifties I’m not, I’m not having regrets.

Claer Barrett
Yeah. Are you aware of the sort of basic difference between a wealth manager, a financial adviser and a financial planner?

Laureen
Or a financial coach? No, I’m not (laughs). All of these terms . . . No, I think I need to do some research and dig in on what the difference is.

Claer Barrett
So what kind of questions do you have about finding an adviser that you’d like me to put to the experts?

Laureen
Oh, biggest thing — fees. There’s no such thing as free lunch. So surely the advice they’re giving me or what they’re recommending, there’s a fee attached to that. I don’t know where that fee comes from, or like, yeah, so what will I be charged for engaging in this service, that’s the biggest thing I want to know.

Claer Barrett
OK. Anything else?

Laureen
Secondly, I would love to know at this age, at 22, what are some short-term, medium-term and long-term goals I should be thinking about with my money.

Claer Barrett
OK. And finally?

Laureen
Finally, what are the different types of advices that I should be aware of, and what are the pros and cons of each, I guess?

Claer Barrett
So we’ve heard from Laureen there, who, may I just say, is quite possibly my favourite guest we’ve ever had on Money Clinic so far. Just so on top of things in a way that I think even she perhaps doesn’t realise. But now it’s time for the experts to answer her very sensible questions. So Moira, tell me your first impressions of Laureen. I mean, isn’t it great that she wants to educate herself about money?

Moira O’Neill
Definitely. And Laureen is asking all the right questions about what she should get from a financial adviser. She’s expressing a bit of scepticism about fees, about the service that she’s actually going to receive.

Claer Barrett
Bravo, I say.

Moira O’Neill
Yes, hooray. And what I would also like her to be asking herself is why do I think I can’t do this by myself?

Claer Barrett
OK. Well, we’ll come back to that later. But Sally, by normal standards, Laureen is very young to be considering taking formal financial advice. Now, you write for an audience of financial advisers. Do their clients tend to be older and richer than Laureen?

Sally Hickey
Yes, they do. I think the biggest thing is the older you get, the more complex your financial situation is. You’ll potentially have a mortgage. You’ll maybe have dependants. And the big one is retirement. So pensions, especially in the UK, are such a complex product that you really do need advice for it. So I would say a lot of, a lot of advisers’ clients are older. On the other side of that, advice can be quite expensive. So if you are Laureen’s age and you don’t have a complex situation — I don’t know what her kind of debt situation looks like — you don’t necessarily need to pay for it at this point. It might be too expensive for you, so there might be a better way to go about it. I think something that is important to pick up in what I, what a lot of IFAs say is that a lot of people will go to get financial advice at the point they need it. So something will happen to them. They’ll get divorced. They’ll have a bereavement. They’ll have something that changes their financial situation. They’ll go, “Oh my goodness. There’s so much happening. I don’t know what to do with it. I need help.” That is not the best time to get advice. The best time to start thinking about this as Laureen is doing is, you know, fix the roof when the sun is shining, to get plans in place now. So I think the fact that she’s thinking about it at this age is fantastic. And I would urge everyone in their early twenties to start thinking about and just get your head around what your finances look like.

Claer Barrett
OK. We’re going to get into the meaty part of today’s podcast now. With Sally and Moira’s help, we’re going to dissect the various layers of the financial advice market, from money coaches to algorithm-powered robo managers to fully-regulated investment advice. Tell you what they’re qualified to advise you about, and of course, what you’d expect to pay for these services. Well, we’ll start with the cheapest and move up to the most expensive. So, Sally, at the bottom rung of the ladder, we have money coaches. Now, this is a fairly recent phenomenon, the money coach. Some banks are offering money coaching as a free service to their customers. But there are all kinds of people popping up online who offer this too. What exactly is it?

Sally Hickey
So a coach will talk you through your financial goals. They’ll help you understand your finances. They’ll work with you to write a financial plan and talk you through, you know, what are your aims to your finances, what do you hope to achieve? And it’s important to stress that this is not a regulated activity. So you should not be taking any specific investment advice from a money coach. They shouldn’t be telling you, invest in this stock; invest in that fund. And the cost varies hugely, as you say, Claer, some, some banks do it for free. And it’s worth asking if your company, if she works for a financial company, her company might offer the service so it’s worth looking internally. The cost varies hugely. I did a bit of kind of Googling about this, and it can be anything from £25 a month. It can be up to £150 an hour. I think given Laureen was really sceptical about fees, it is completely acceptable to say upfront before you’ve decided to go with a coach, what are your fees? How will I pay, and what exactly, what services do you offer? And then you can compare and contrast.

Claer Barrett
OK. We’ll come on a little bit more to what they do, but sticking at the low cost end of the market, if you’re a customer of many investment platforms and you open a SIP or a stocks and shares ISA but don’t quite feel confident enough to select investments to go in it, many platforms have come up with digital solutions. They’ll either use a questionnaire to work out your risk appetite or even sell you a financial advice session that you can do online or over the phone more. Moira, what could that cover, and how much might it cost?

Moira O’Neill
I mean, if you’re doing a free questionnaire on, on a website, it should be part of the service. But, you know, robo advisers usually package their fees into the percentage charge that they have in the investments.

Claer Barrett
Right.

Moira O’Neill
So it’s sort of wrapped up in one service, and, yeah, just watch out for percentage fees because they can seem like tiny amounts of money.

Claer Barrett
Yeah, 1, 2 per cent or less.

Moira O’Neill
It could seem like very little. But over, you know, she’s 20, over the next 30 years, they could compound up into a massive amount.

Claer Barrett
And of course, there are lots of investment platforms now which are offering the bolt on of speaking to an adviser. Nutmeg is one. Hargreaves Lansdown is another. But in most cases, these kinds of advice services are restricted because obviously the platforms can only tell you to invest in things that you can buy via their websites. But Moira, the term financial planner and financial adviser, they’re not exactly the same thing, are they? We’ve had both appear as guests on the podcast. But what’s the difference?

Moira O’Neill
OK, so the regulated term is either restricted or independent financial adviser. Now the people who operate as financial advisers can do different types of exams that back, back up their, their knowledge and their work. And once that, well, there’s two sets of exams which are the financial planning exams. One is you end up being a certified financial planner and one you end up being a chartered financial planner. They’ve got nothing to do with the regulatory background, but they do indicate a really good sort of set of skills and financial planning is usually looking at the whole picture of everything that you own and working out a cash flow plan to see how long your money is going to last, what might happen if the stock market dips, what might happen if inflation goes up and planning that out over your lifetime, sort of projecting into the future to see, well, if you’re in your twenties, you’re investing enough now to have enough for retirement, or if you later in life, if your money’s going to last until your 90 or 100.

Claer Barrett
So never mind Laureen in 10 years’ time, the financial planner could help her consider Laureen in 50 years’ time.

Moira O’Neill
Exactly. Yes. It’s like projecting into the future. And they use a range of tools, I mean, some of which you can find, you know, similar types of things which are therefore for consumers online now, which can help you project into the future. But I think it’s a great skill, a financial planner, to really grasp what the scenario, how the scenarios of your money could, could play out in future. And, you know, sort of think, you know, what happens if I leave my big city job at 30 and do something different . . . 

Claer Barrett
As many people do . . . 

Moira O’Neill
. . . and earn a bit less money. Yes, which is, you know, or what happens if I got a mega promotion at 40? You know, this kind of thing can be modelled into that financial plan.

Claer Barrett
But then when it comes to a financial adviser, how is that different from, from a planner when it comes to qualification.

Moira O’Neill
A financial adviser has to pass certain exams which are set by the financial regulator and class them and become regulated, which means they have to have all sorts of things in place. They have to run their business properly. They have to be overseen by it, and they also have to have insurance and that kind of thing, so that you have to pass through lots of hurdles. And, you know, it’s just very important you are protected if you’re with a independent financial adviser in a way that you aren’t with somebody who is calling himself a coach or a planner and doesn’t have regulation. So in the case of something going wrong with your money, you have recourse, you know, if the business goes bust or financial adviser disappears into thin air, you have, you can go to the regulator and get help.

Claer Barrett
And often in these cases, the financial adviser will be managing your investments on your behalf, whether they’re in ISAs or held within a self- invested personal pension. And they will take their fees as a percentage of your assets. And Sally, that’s why so many of them probably wouldn’t be interested in Laureen right now. They have a minimum of, what, say, £100,000 of investible wealth.

Sally Hickey
That is the figure that is bandied around. Having said that, we, I did, I talked to financial advisers probably most days and a surprising number at the moment are saying, you know what, although we wouldn’t take her on as a client, we are looking to a younger generation. And advisers are really keen to tap into this market, and they are also keen to tap into younger people, who perhaps won’t need advice now, but in ten years can say, “Well, I’ve had a couple of chats with this person who works here. They seem, we seem to get on pretty well. I would like to then use them as a client in ten years’ time.

Claer Barrett
Now, Laureen specifically asked about a wealth manager. Now, I thought that was really interesting because obviously she’s 22. A salary of nearly 50K and a bonus to her is unimaginable wealth, but to a lot of wealth managers, would this be enough for them to take her on? I mean, you may have heard of the term Henrys and Henriettas, high earners but not rich yet. And it certainly sounds like some of the wealth managers she has approached have at least given her, given the time of day, had an appointment with her. What do you both think?

Sally Hickey
Wealth managers, I would say, tend to be attached to family offices. So this is when you’ve got a big dynasty of a family. There’s a lot of money there. A wealth manager will be incorporated into a family office that will also do tax planning and inheritance and all this kind.

Claer Barrett
For the whole family . . .

Sally Hickey
For the whole family. So this can be 50 members of the family. And the more money you have, the more complex and difficult it gets. What I would say with a wealth manager is they tend to, their purpose tends to be to maintain wealth that’s already been accrued.

Claer Barrett
Right.

Sally Hickey
So I would say specifically for Laureen, potentially it’s, it’s not the way that she goes down. I don’t know whether she meant wealth manager, as in someone to help her manage her wealth, which could be a coach, a planner or an adviser.

Moira O’Neill
I would say a wealth manager probably isn’t going to be interested in anyone who’s got less than 250,000, but she might find lots of financial advice firms actually call themselves wealth managers. And maybe that’s what she’s found when she’s done her research, because they all call themselves quite grand names sometimes when really what they’re offering is the standard advice from a financial adviser.

Claer Barrett
Hmm. No, I think there’s, I think there’s a lot in that. Now, where should people go to try and find somebody, regardless of what type of adviser they are, that’s right for their needs? What would you both advise?

Moira O’Neill
Well, there are some great financial advice, sort of search websites out there. One is VouchedFor, which will help you find a financial adviser that are local to you, that comes highly recommended or is in the area that you want to go in. You can even search for a female financial adviser, if that’s what you prefer. But, you know, you can always ask family and friends because people like to get recommendations from people they trust because that’s a recommendation on the personality and the potential chemistry you’ll have with the person. But I would say meet with three at least, and those first initial meetings should be free. And then you can choose the person who you think is going to add most value to you and who you have the most chemistry with. And Laureen should ask all her awkward questions that she, she’s already put together. Fantastic questions. And say things like, you know, what’s, what’s your investment philosophy? How are you going to add value? What are you going to do for me that I couldn’t do myself, that kind of thing, to really get an understanding of the service you’re going to get for the money.

Claer Barrett
Good questions.

Moira O’Neill
 . . . and ask about what the fees are, too.

Claer Barrett
Well, of course. Sally, what would you add to that?

Sally Hickey
I, yeah, I think word of mouth, definitely. I think that between 70 and 80 per cent of IFAs are found through word of mouth. What I would also say is don’t be embarrassed. You know, don’t be embarrassed that you don’t know anything. We don’t have lots of financial education in the UK.

Claer Barrett
Yeah! That’s why you need advice.

Sally Hickey
Exactly. And if you’re thinking, you know, it’s always not nice going into a meeting thinking, “Uhh, I don’t know anything.” But ask those questions. That’s what they’re there for. And I would say the biggest thing is if you have a burning question, if you don’t understand something, it’s your money. You’re going to be paying for the service. Ask those, ask the stupid questions now, because as Laureen as, as incredibly intelligently figured out, in 20 years, she’s going to be really grateful she asked those questions now.

Claer Barrett
Well, finally, Laureen’s had some introductory meetings with financial professionals already, and one of them asked that classic question, “What are your financial goals?” And at the age of 22, this rather stumped her. I mean, what are the kind of goals, short term, medium term, long term, that the two of you think somebody like Laureen should be considering?

Moira O’Neill
Well, first of all, she should have an emergency savings fund, which is, you know, six, six months of salary in case she lost a job for some family emergency, etc. And then secondly, she probably wants to get together a deposit to buy her first property and think about getting the mortgage on that. So, you know, ways to save for that. And then longer term, she may be thinking about, you know, supporting a family. If she chooses to have children, how she would do that and maybe have a bit of a fund to pay for nursery fees or whatever happens. And then even longer term, which things which you have to start thinking about at 21, 22 is retirement and how you’re going to fund that and what that retirement ideally might look like. It’s quite hard for a 22-year-old to think about retirement, and that’s why a financial adviser might come in handy because they can help her picture it and sort of help her think about, you know, she’ll see the experience of her own parents. They might, whether they are worrying or not worrying about retirement, and that might help her think differently.

Claer Barrett
Now, Sally, when it comes to financial goals, products are often something that financial advisers can tell us about ways of doing things in the most tax efficient way. How could that tie in with the kind of goals that Moira talked about?

Sally Hickey
Something I would say on the 50K band, it’s important to know what your tax rates are because there’s a funny quirk in the UK system that sometimes you can get paid £1,000 more a year and be pushed into a high tax band, so actually pay more money. And things like this, the good way to get out of that is start to contribute more to your pension so you bring your salary down. These things are quite complex to understand. There’s also things like your ISA, which you have a £20,000 limit, so you can invest tax free. You can either leave that in cash or you can put it in a stocks and shares ISA, and you can start to invest that. These are really, really, really good ways to invest your money. And that’s what a financial adviser would say. The first thing is, are you taking full advantage of all these tax breaks that the UK government is offering you. To add to that with, with Laureen’s goals, she mentioned she was, she was worried about blowing it all. And it seems like she’s quite nervous about this money that she has. I think something she should be thinking about is, is setting aside a bit to enjoy.

Claer Barrett
Live a little.

Sally Hickey
Exactly.

Claer Barrett
Enjoy the money that you’ve got. But it’s all about balance, Moira, isn’t, isn’t it? Making a plan where you can say, this is what I can safely spend, and I’m doing really well saving for my short-term, medium-term, long-term goals and making the most of this fantastic opportunity.

Moira O’Neill
Definitely. I mean, the holy grail of financial planning is to spend as much as you possibly can, save as much as you possibly can and end up on your deathbed with zero. So you balance both of them perfectly. Now, I’ve yet to meet a financial adviser who’s give me an example of a client where he’s done exactly that for them. But this is the kind of goal can work together to try and maximise the pleasure you get from your money and also the security that your money can give you and your future.

[MUSIC PLAYING]

Claer Barrett
Well, thanks very much to Moira O’Neill and Sally Hickey. And that’s it for Money Clinic with me, Claer Barrett, this week. And we hope you like what you’ve heard. If you did, spread the word and please leave us a review. We’re always looking to chat with people about their money issues for the show. If you’re interested in being part of a future episode and want some expert money advice, then please email us. Our address, money@ft.com. You can also take a peek at our website ft.com/money. Grab a copy of the FT Weekend newspaper, or follow me on Instagram. I’m @claerb. Moira is @moiraonmoney. Money Clinic was produced in London by Persis Love. Our sound engineer is Jake Fielding, and our editor is Manuela Saragosa. You heard original tunes this week by Metaphor Music. And finally, our usual disclaimer, the Money Clinic podcast is a general discussion around financial topics and does not constitute an investment recommendation or individual financial advice. For that, you’ll need to find an independent financial adviser, and after listening to today’s episode, I think you’ll know a lot more about where best to find one. That’s the small print for now. See you back here next week. Goodbye.