In the past decade the amount of financial resources online has exploded, making it easier than ever to self-build an investment portfolio online. However, just as doing your accounts, or managing your legal affairs, can also be done with the help of online resources, this does not mean it is necessarily a good idea.
The scope and type of investment assets available is huge, and to navigate it safely requires knowledge, research tools, and experience. A financial advisor is trained and educated to a level that the Government deems sufficient to provide client advice. Then that advice is continually monitored, and if it is not of high quality, the client has an avenue for recourse. So in effect, financial advice comes with an insurance policy, in fact al UK advisors hol Personal Indemnity insurance for just such a situation.
If you choose to build and investment portfolio yourself, not only do you lose the expert knowledge and training, you have no recourse for giving yourself bad advice.
Different types of investment advice
Investment advisors are usually paid via set fees, to reduce a conflict of interest when advising on investment products. In the past investment advice often earned the advisor a commission from the product provider, which made it hard for the advice to be considered truly unbiased.
If an adviser says they are independent, their advice must be:
- Based on reviewing the whole of market, without influence or ties to any particular provider.
- These days advisors often use platforms, which are similar to online supermarkets for investments. A good independent advisor should look at more than one platform when deciding which is best for their client, as fees and products vary.
- Model investment portfolios are often sold as a type of “packaged product”. For example if you are considered a low risk investor, the advisor may have a model portfolio of assets which he recommends to all his/her low-risk investors. If this is the case, the advisor still needs to ensure the investment suits the clients attitude-to-risk, and investment goals. To be considered truly independent the advisor also needs to consider and discount non-packaged investment products.
Restricted advisers will either focus on just one subject area, like pensions, but look at the whole of the market, or could recommend investments from all providers, but just for one type of products, such as only recommending unit trusts. An example of a restricted advisor would be a bank employee, that only offers advice on the banks financial products.
Simplified advice services are the most basic and often automated On straightforward products, such as Isas, a computer may select an investment portfolio for you based on the criteria you give it. However this process still needs to adhere to the same standards for suitable advice, charges and professionalism as those providing independent and restricted advice.
Checklist of what to look for in an investment advisor
1. Look for an investor specialised in your needs. For example if you need to manage your pensions, then a retirement specialist will have the best qualifications, training and experience.
2. Ensure they are qualified to a good level, that allows them to legally provide financial advice in the UK. The Retail Distribution Review (RDR) requires all advisors are qualified to a certain level.
3. Discuss fees. Similar to a lawyer or accountant an investment advisor will have a set fee for advice depending on complexity and time. This may be negotiable, so it is always worth talking to your advisor and agreeing a fee structure, up-front.
4. Speak to more than one advisor. Many investment advisors offer free initial consultations, so you can get to know them and their services better.
5. Get everything in writing. The advisor is obliged to provide you with relevant documentation that outlines the advice process, the regulatory structure, and all costs and fees in an open and transparent way.
6. Make sure you can forge a long term relationship with your advisor. Managing your personal finances is for life, so it is best to have the same financial advisor with you for as long as possible, rather than changing for each life event.