It’s not common to find someone looking for an IFA when a little bit of common sense and some searching online would deliver results.
For many consumers one of the battles of the last few years has been to find a safe place to put their savings where the interest rate gets them at least to a par after inflation. Whilst growth in the equities markets have been solid in the last 6 months it’s understandable that in these stormy times people still seek the comparative safety of a savings account.
The good news here is that Bank of England announced this week that the CPI measure of inflation fell to 2.4% from 2.8% the prior month. Many will say that’s too high, but it’s a big plus for savers who have been struggling to find a way to ensure their cash is not eroded.
In these circumstances it remains a solid piece financial advice to go for one of the competitive variable rate cash ISA’s. Many of these ISA’s even manage to beat inflation without locking your money away for a set number of years.
First Direct’s cash ISA pays interest at 3% and whilst this is the best deal of the lot – you have to deposit a minimum of £40,000. It only really works for those savers rolling forward many years of accumulated Cash ISA allowances.
Another solid financial product is Nationwide’s Flexclusive ISA (Issue 3) which also offers 3% and £1 minimum deposit the only real frustration being the need to open one of their FlexAccount current account.
By comparison the fixed rate ISA products available are looking much less attractive to consumers. In particular as lock-in terms can be quite adverse where so many households face continued uncertainty.
Many commentators on personal finance in the UK have stated that it is amazing how limited options for customers are. It would be any source of comfort for Mervyn King to have commented this week that inflation is expected to edge back up in the coming months. It could be that this will be a short lived lift for savers.
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Customers seeking financial advice in 2013 from a qualified financial adviser may find themselves facing a much higher fee than expected. But this could in itself drive some people away from their local IFA and towards investment advice offered by their high street bank.
But the banks are not completely immune from proposing high fees for their financial advice either. The latest research indicates that banks advisory products could easily consume 3pc of the money invested, and that is just in the upfront fees alone.
Looking at two of the major high street banks and their investment advice propositions is quite revealing. In the case of HSBC they will only offer a financial advisory service to those investing at least £50,000 and in that case their initial fee is £950 with an additional 1.3pc charged on the assets invested. The situation with Lloyds banking group is no better with investors needing to commit £100,000 to be considered with a 2.5pc charge applied.
The impact of the shake-up in the financial advice sector known as RDR has not been altogether favourable for the man in the street. The goal was to ensure greater transparency in the fee structures from IFA’s and ensure that the advice given to a customer was truly independent and not skewed by the IFA incentive from the provider of the product you were recommended to invest in. However the outcome has been very much higher fee IFA fee’s than anyone ever anticipated and the banks choosing to limit advice to the better off or in some cases no longer offer that independent advice service at all. Santander has currently operating with it’s equivalent investment advice service suspended completely and Barclays have chosen to move away from the traditional advisory service in favour of an execution only play. The Barclays move is in many ways the most revealing – the message from the UK’s most influential player seems to be that below a certain net worth you need to be placing your own bets.
The overall outcome of all this is that the independent financial advisors operating in the UK are likely to see less business and the element that remains will be seeking value for money. More and more consumers will seek references and testimonials on financial advisers either through direct contact of via the internet.
No doubt websites offering independent reviews on IFA’s will see greater usage. This development should not be ignored. It ought to be that top rated IFA’s continue to be in demand and some of the less effective advisors, much like the banks, will ask themselves if they will sustain their offering.
Posted in Financial Adviser Reviews, IFA, IFA search, Recommended IFA, Retirement Planning, Reviews | Tagged Fee (remuneration), Financial adviser, IFA, Independent Financial Adviser | Leave a Comment »
Saving for retirement
People seeking out the best financial advisor are likely to struggle after the UK’s new RDR regulations leave them priced out of the market for advice from an IFA.
Only two weeks into the new year and I would suggest that there are more than a few IFA’s on the UK’s high street wondering when business will pick up. But with the new regulations preventing financial advisors from monetising their advise from the provider side – consumers are going to have to deal with fee’s of up to £160 an hour, according to research by accountancy firm BDO.
But we all know that new regimes have a habit of sewing the seeds to innovation. In the instance of personal financial advise a whole host of new options are being developed to allow consumers to make good financial investment decisions without the cost of a top rated IFA.
In London, the home of much talked about FinTech group of products and services, we are now seeing the next generation of innovative adviser services allowing people to run an investment strategy with an advisory layer in place – albeit without the kind of fee’s an IFA who seek to glean for face to face advice. One example of this is Nutmeg.com - a website that produces a personalised investment strategy based on the individuals circumstances and their fundamental attitude to risk and reward.
But the introduction of next generation advisory services is not necessarily a good thing for everyone. For a seasoned investor who knows the ropes it may well be a relatively straight forward approach allowing them to see a substantially lower advisory fee by taking to the web. But this underestimates the complexity of some peoples financial situations and, frankly, those seeking advise for the first time are receiving a financial education from a standing start.
In my mind it remains clear that there is a place for the IFA across the UK’s town’s and cities. A recommended IFA with a track record of delivering on clients needs will always be well positioned to drill into the individuals financial situation in a holistic way – getting to the nub of the issues and having the chance to apply enquiry, experience and analysis when it comes to implementing financial planning for consumers. I’m sure many of these websites will occupy a strong position in the advisory market for years to come – but at the same time I think we can safely say that recent rumours of the extinction of the IFA are somewhat exaggerated.
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The connection between those who receive financial advice or training and their success with their personal finances has never been more apparent. A recent study involving a large sample of tenants from a social housing project demonstrated a significant and direct beneficial impact from the provision of financial advice and training.
In this case three bodies, the Citizens Advice Bureau, Bristol University and the Chartered Institute of Housing, spent 12 months providing free financial advisor support to the group. The vast majority of the group responded through adjustments to their financial planning and generated an effective 5 percent increase in their effective income levels.
The project, which was financially supported by Santander, provides clear evidence that incorporating financial education either in schools or in adult life has a measurable and direct impact on the wellbeing of the recipients. It shouldn’t be surprising to consumers in the UK that the developed of financial planning skills in the next generation is a top priority.
Earlier this year a Private Members bill successfully navigated the Commons leading to the first ever Financial Literacy Bill in british history being scheduled for a second reading in January 2013. The recent studies would indicate this evolution in the education process has the capacity to increase the financial wellbeing of the population. Of course on the converse, some financial institutions who rely on less than savy consumer decision making for their profits might need to lift their game if they are to maintain shareholder expectations. For our start just imagine the level of quantum of UK bank balances currently receiving interest 2 percentage points or more off the best available rates.
In the meantime any consumer looking to get their financial situation in shape will have to seek to get the best value financial advice they can from the myriad of IFA’s and certified financial planning consultants on the market. Households are best advised to ensure that they validate the quality of a financial adviser – making use the websites offering ratings and reviews for IFA’s.
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One of the biggest decisions people will make in financial planning is the first step to initiate a pension scheme. Gone are the days when employee’s settle down with a paternal employer in their mid-twenties and take comfort that the company pension scheme will see them through 40 years down the line. We’ve all seen the baby boomer generation do pretty well from both their property portfolio and their pension based investments – but generation Y is unlikely to see capital growth of this quantum.
This makes is all the more important that consumers take advice on their financial planning and in particular give some thought to the affordability of pension planning. In particular it will not be enough to assume that the new NEST based employer auto-enrolment based schemes will be sufficient to cover the ever increasing forecast cost of retirement.
What remains certain is that ensuring that you take the right steps on pension provision is very much determined by the receipt of good financial advice.
A report published by Standard Life in 2011 showed the current average pension pot for consumers who have been advised on their retirement planning is £74,500, by comparison, those who did not take financial advice saw only £37,200 accrue in the scheme. This is in part down to the value of that advice, but also the simple fact that formalising the decision process inherently leads to a greater financial commitment.
One IFA I discussed this with identified education is the main hurdle to getting the latest generation of employee’s to adopt prudent financial planning. A typical 25 year old employee will struggle to identify the need to address the pension question sooner rather than later – to be quite frank this generation have more immediate needs higher up their list. The NEST based approach is without doubt a step in the right direction but good financial advice will be necessary for everyone if they are to get their pension provisioning alignment with anticipated costs of retirement.
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The purchase of a property has always been a key step for young people in the UK. But a new report out this month suggested that the UK housing market will deny over a million young adults access to their first property.
The Jospeh Rowntree Foundation’s report indicates that the number of homeowners under 30 will drop to half current levels by 2020. This leads to the so called ‘generation rent’ – millions of young people unable to buy their first property and whilst facing one of the most difficult job market seen in decades.
David Clapham, lead author of the report, said: ‘Young people are at a double disadvantage – it takes longer to raise enough for a deposit and their wages are generally lower’. The fact that homeownership is concentrated in the south east of the UK just exasperates the situation with their being insufficient homes being built to generate the uptick in supply needed to correct the situation.
In addition those vital years when a young adult might be establishing a firm financial foundation by paying down a part of their mortgage are being lost with many more of this generation likely to retire without ever having completed their capital payments.
The result is that we are on track to see just 27% of young people living in a mortgaged home ownership situation compared with 43% in the early 1990’s.
For those young adults keen to get the mortgage they need to take the first step on the property ladder there are really only three steps that are available to them. Looking to commit to a savings plan towards a deposit, seeking to release some capital from the bank of mum and dad and ensuring that they use a financial adviser to help find them the best deal for their first time buyer mortgage.
Based on what I have seen the last 3 years it is dipping into the previous generation’s capital that is the most prevalent of the three. Having a good IFA to advice is clearly a good thing – but those prospective purchases with a little something from mum and dad or Auntie Dora’s inheritance is becoming increasing common. Not only have we seen the advent of generation rent, but I suspect the lowest levels of social mobility for those stepping up on the property ladder.
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One of the characteristics of the global economy is without question our increased longevity and the implication that has for personal financial planning. More and more consumers will need to seek good financial advice so that they can be sure to cover the need for care for the elderly.
One of the great middle class scandals of the last few years has been the readiness of ordinary people to circumvent the rules on council paid care for the elderly. In England currently the rules say those who have more than £23,250 in assets, and that includes their home, have to meet the full cost of care.
In the light of the property boom and it’s impact on the value of the asset base for the generation now in retirement that means a substantial proportion of the elderly will not qualify for council paid for care. But here’s the twist – it often isn’t the individual pensioner who is quizzed on their financial status. Ordinarily the relatives are the ones in dialogue with the council about their parent’s financial position – and here rises the incentive to hide the true value of their assets. Effectively the relatives are misleading the council into paying for are as a mechanism to protect their own inheritance.
One Sussex based financial adviser told me the last few years ‘the question of parental asset disclosure has come up time and time again in clients discussions’ it remains a real concern that consumers are prepared to defraud the taxpayer to be sure of releasing the full wealth of a parent or relative when they eventually pass away. It really is necessary for the current generation to establish a robust financial plan that allows for their care in their elderly years to be covered, without incentivising the next generation to take this kind of radical fraudulent actions.
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