How to Choose a Financial Advisor?

Before deciding whether this is the right option for you, weigh the pros and cons of hiring such a professional.

Updated: June 14, 2024
Matt Crabtree

Written By

Matt Crabtree

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Whether you want to invest for retirement or plan to put an inheritance to lucrative use, a financial advisor can provide valuable guidance and help you achieve your financial goals. 

These professionals offer an array of services, including financial planning, investment management, and retirement advice. 

Choosing the best financial planner can be intimidating. This guide can help you understand what financial advisors do, why hiring one is important, and how to pick the right financial advisor for you.

At a Glance: Pros & Cons of Financial Advisors 

Should you keep your money in a savings account or opt for a CD? Investing can double or even triple your money when done right, but what to invest in?

If you don’t have the desire to become a financial expert, you might have to hire a financial advisor. 

Before deciding whether this is the right option for you, weigh the pros and cons of hiring such a professional.

Pros

✔️ Finance experience and investment knowledge. Trustworthy financial advisors are certified professionals and have extensive knowledge of wealth management and investing. They can help you plan your financial future and invest in the most advantageous ways from a tax and risk perspective. 

✔️ Financial peace. While hiring a financial advisor doesn’t alleviate you from the responsibility of overseeing your wealth, you can have peace of mind knowing that your wealth and investments are managed by someone with extensive experience. 

✔️ They can offer unbiased advice. The vast majority of fee-only financial advisors operate as fiduciaries and are legally bound to certain ethical obligations. They have to act in your best interest at all times and offer unbiased investing and wealth management advice that can help you achieve your financial goals. Fee-based advisors are not bound to the fiduciary standard and may recommend products or services that earn them a higher commission.

✔️ They can help you save time. Hiring a financial advisor can help you save time studying and researching different investing strategies. Most advisors also manage your portfolio and collaborate with accountants who can help you file annual returns and pay your tax.

✔️ Comprehensive investing strategies. An advisor is typically more equipped to choose advantageous investment opportunities and create strategies to help you meet your long-term financial goals. 

Cons 

❌️ You are still responsible for your wealth. While an advisor can help you make sound financial decisions, there is no guaranteed success in investing. Even a trusted advisor can make mistakes that could lead to great losses.

❌️ They could be expensive. Most financial advisors work with high net worth individuals and charge expensive fees. Starting with a minor sum could result in a large percentage of your returns being eaten by the advisor’s fees. Some advisors may even refuse to work with you if your wealth is below a certain threshold.

❌️ Some financial advisors could offer biased advice. Fee-based financial advisors earn commissions on investments, and could sometimes earn more if they convince a certain number of people to invest in a specific company. These investments might not always be profitable or in your best interest. 

What is a Financial Advisor?

A financial advisor or financial adviser is a professional trained to provide financial services based on the client’s financial situation. Services can vary from wealth management and planning to investments. 

In the UK, this role can be covered by individuals who have earned the necessary qualifications or stockbrokers. 

Advisors must also be authorised by the Financial Conduct Authority (FCA) before they may practise. 

However, qualification and FCA authorisation aren’t always indicative of a good financial advisor. While these individuals are considered fit to practise, they may not always have your best interest in mind. Risks are higher when hiring non-fiduciary advisors. 

Different Types of Financial Advisors 

According to FCA, there are two types of financial advisors

  • Independent advisors. These professionals or firms are not affiliated with any products or services and can recommend a wide range of investment products. They generally provide unbiased and unrestricted advice. They are generally called independent financial advisers or IFA
  • Restricted advisors. These professionals or firms are generally affiliated with certain products and services and can only recommend those products or providers. They can work with a single provider and only recommend services from that company or with a limited range of providers. Restricted advisors may be unable to review existing investments that you already have in place but could have more in-depth knowledge about the provider or providers they work with. Hence, they could be a better choice than an IFA if you’re familiar with the company or products your restricted advisor recommends.

What Does a Financial Advisor Do?

Whether independent or restricted, financial advisors often specialise in a specific area. Knowing the differences between them can help you pick the right advisor for you. 

Financial Advisor SpecialisationWhen To Hire
Financial plannerThese professionals evaluate your financial situation and build specific savings or investment plans aimed to help you reach your short-term and long-term goals. They may provide advice in areas such as budget planning and cash flow, insurance, real estate planning, retirement, etc. You should hire a financial planner if you’re unsure how to manage your finances.
Investment managerEither a FA or a stockbroker specialised in giving investing advice and managing client portfolios. Investment managers should abide by fiduciary duty, and you should beware of working with a non-fiduciary investment manager. You should hire an investment manager if you have savings or other assets that you want to invest in.
Wealth managerCombining financial planning with investment management, wealth managers provide comprehensive services under a single umbrella. You should hire a wealth manager if you have £50,000 or over in savings and want to make the most out of your money. 

Choosing a Financial Advisor: Step-by-Step Guide

The easiest way of choosing a financial advisor is by deciding what you need help with. However, you must consider how much you can pay and choose the right advisor option, too. The guide below can help you in this endeavour. 

Step 1 – Decide What Financial Services You Need

As explained, financial advisors often specialise in one or more areas. Figuring out what you need help with can point you toward the right professional. 

A few services you might want the financial advisor to cover include: 

  • Budgeting and cash flow. Are you terrible at managing your money and struggling to make ends meet despite an above-average income? A financial planner can teach you how to budget and maintain a positive cash flow. 
  • Tax planning. If you have complicated taxes, a financial planner or financial coach specialised in taxes can help you minimise the burden. Such a professional is often useful if you’re both self-employed and an employee of a separate company.
  • Retirement planning. An investment manager could help you invest your savings and strategize your retirement finances for peace of mind during your senior years. 
  • Health and long-term care planning. Financial advisors or specialised insurance agents can make sure you have a good financial plan in place to help you cover any medical expenses as you get older or to manage chronic illnesses. 
  • Investments. If you want to invest your assets but don’t have industry expertise, an investment manager can walk you through different options, help you decide which investments are right for you, and manage your portfolio. 
  • Estate planning. Wealth managers can put a plan in place and provide you with peace of mind if you have a complex financial situation. 
  • Inheritance. If you’re expecting a large inheritance and need help deciding how to use or invest those funds, a wealth manager can provide the financial planning and investment management that you need.

Step 2 – Consider How Much You Can Afford to Pay

Knowing whether you have to pay any fees upfront and the compensation your advisor expects is crucial to determine affordability. 

The most common financial advisor fee structures include*: 

ServiceAverage CostsService Examples
Fixed fees£415Advice on mortgages, insurance, etc.
Hourly fees£192General advice, financial planning
Ongoing fees0.5% to 1.12% p.a. Investment management, ongoing ISA advice, pension consolidation, ongoing advice, etc.

* Average costs calculated by VouchedFor in March 2022 based on the fee structure of over 600 advisers. Costs are representative and can vary from one financial advisor to another.

Step 3 – Choose Between the Various Advisor Options

There are lots of ways to get financial advice nowadays. Depending on your budget and needs, you might want to consider one of the following options. 

  • Traditional financial advisors. The most common choice for those who need or want to meet with their advisor in person. These advisors have offices where they welcome clients to discuss their financial planning needs. Generally, traditional advisors are the most expensive option, charging around 1 per cent of assets under management. Some offices also require a minimum capital, such as £100,000 or more in assets. That said, traditional financial advisors are the best option if your situation is complex and you want to develop a long-term relationship with them.
  • Online financial advisors. If you’re comfortable with getting financial advice online and want to cut down costs, this is the next best thing for traditional advisors. Online services often offer automated investment management through an app or web portal, plus the ability to consult a financial advisor if you have questions or need more advice. Depending on the value of your capital or how much you want to invest, you can choose apps that require no minimum investment or services with a minimum investment requirement if you like exclusivity. Fidelity is one of the apps offering holistic financial planning services in addition to automated investment management.
  • Robo-advisors. Ideal for investors looking for simplified and low-cost investment management, robo-advisors have the lowest fees. Most services charge around 0.25 per cent of your balance and provide automatic investment management tools. They also provide access to self-help tools and articles that can teach you financial planning and investing basics. However, you won’t have access to a team of financial planners and will have to make all decisions on your own.

Step 4 – Vet the Financial Advisor’s Background 

Regardless of the advisor option you choose, vetting the advisor’s background is crucial before signing up or agreeing to a contract. 

Whether they are offering their services online or in a brick-and-mortar office, financial advisors must be certified and authorised by the FCA. Don’t be afraid to ask for credentials if these are not clearly displayed in the office or on the website. 

If you plan to invest in international markets and look for a financial advisor overseas, find out what authority regulates financial adviser activities in your target country and make sure the firm you choose holds all the necessary qualifications. 

Step 5 – Interview Multiple Advisors and Choose

Following the steps above, draw up a list of potential financial advisors to hire. Then, schedule meetings with all the advisors on your list and interview them to decide who to hire. 

Make sure the advisor answers all your questions and concerns during this initial consultation. 

Important questions to ask regard the fee structure and costs beyond advisory fees that you should be aware of, whether they earn commissions from third parties by selling their products or services (the advisor might be biased if yes), whether they specialise in a specific area, whether they impose a minimum investment amount, and so on. 

Once you have interviewed everyone on your list, decide who can best represent your financial interests. 

Conclusion 

A financial advisor can help you plan your finances, invest and manage your savings, and help you choose the best financial services, such as mortgages or insurance. 

Depending on your net worth and goals, you can choose from robotic, online, and traditional advisors. Before signing on the dotted line, don’t forget to interview a few different advisors and vet your chosen one.

Related Guides:

FAQs

What are the best qualities financial advisors should have?

What is a reasonable financial advisor fee?

How much money should you have before hiring a financial advisor?

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