Choosing between a restricted or independent financial adviser
'Good financial coaches (advisers) hover in a helicopter over your financial and emotional maze and direct you away from panic and emotion to the best exit. It's a powerfully close relationship.'
WE all need coaches. Whether it’s your accountant, financial adviser, solicitor, psychologist, or just a mate telling you to get down off a table before you make a fool of yourself, again. The coach stops your cortex shutting down your ability to think straight. (Google that).
When I’m dealing with any of my advisers, they are not selling me extreme expertise. They are selling me a relaxed bedside manner as a human, father, mother, sister, who just happens to be excellent at what they do. You’ll know that feeling of ringing someone’s office and the person answering that phone can either make you feel like a total subordinate, or they’ll make you feel like the only customer they have. Easy stuff really.
Good financial coaches (advisers) hover in a helicopter over your financial and emotional maze and direct you away from panic and emotion to the best exit. It’s a powerfully close relationship.
The difference in choosing the wrong financial adviser as a coach however can be significant. Do not make that decision based on convenience. Base it on the ability to make sure you and your family/business have the very best chance to be secure and thrive.
I remember my offer of promotion to a highly paid job in 1998 led to my resignation. It would have meant I wouldn’t have been able to provide independent financial advice. I would have been restricted to just one company’s products. This would have had a catastrophic impact on my customers.
How could I take someone’s budget and put that through just one of all the companies out there when being independent meant I could choose. That is someone’s father, mother, sister, son, daughter, niece. I took the privilege and responsibility I had and I resigned.
Whilst most tied or restricted adviser firms closed, some of the misconceptions still exist. So what are they?
Communication around who you are dealing with and their status; quality of product on offer; availability and pricing.
The FT recently reported that over a third of customers said they didn’t know if their adviser was independent or restricted. Restricted advisers choose from a limited range of their products and can only recommend those. An independent financial adviser has to choose from the whole of the market.
This seems to be poorly communicated. I’ll explain what that means to your pocket and security.
An adviser generally deals with pensions, protection, investments, long term care, inheritance tax, mortgages and savings.
An independent financial adviser will have to look at the quality of each of these products and choose who to deal with. Whether it’s an inheritance tax product or pension, the differences are very significant, but if you are dealing with just one company which offers limited solutions, the many other products are not available to you.
One reader gave me an example of being told to encash all their ISAs and investments to put into a loan trust to protect their estate. This involved a complete loss of tax benefits on the ISA but was also only offered because of the limited products on offer by the restricted adviser.
In reality there were countless better options available at a fraction of the price of the advice, but the adviser wouldn’t have known that as they weren’t independent.
Looking at protection, many restricted advisers don’t even offer a relevant life policy, for example, so you would buy a life insurance plan with them and miss out on a 49 per cent saving in tax/and insurance breaks, all easily available via an independent financial adviser.
Consider basic protection costs let alone relevant life availability. There are many life insurance companies out there, but the difference between number one and 14 on the IFA quote system is 81 per cent. Most restricted firms don’t make the top 14 but this extra benefit could be going to your family rather than company profits.
I covered pensions before showing the worst pension fund (with a household name) returned £95,000 for a £100,000 investment over 20 years, whereas the best offered over £1 million. This provided a weekly pension of £407 versus £36. Think about that.
These are striking differences that have life changing impacts on families and businesses. It's your call.
Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you have a financial query, call Darren McKeever on 028 6863 2692, email firstname.lastname@example.org or visit wwfp.net.