Can you really afford not to take advice?
With cutbacks set to hit home, a timely campaign encourages people to seek help when it comes to their finances. By Simon Read
Saturday 27 November 2010
Half of us don't save anything at the moment while 28 per cent choose not to save. That's according to a survey that warns that the lack of saving will leave many of us "in the eye of a perfect financial storm".
"We have to make it both easier for people to save and equip them with the knowledge and skills to make well-informed choices about how and when to save," says John Lawson of Standard Life, the company that published the research.
Is this just another attempt to drum up business or are the concerns expressed in the report true? It's been published to coincide with Financial Planning Week, a marketing exercise designed to encourage more of us to seek out the services of financial planners and advisers. "Millions of people are risking financial disaster by failing to take action when it comes to planning their finances and their lives," warns Nick Cann of the Institute of Financial Planning. "Not everyone is in a position to take professional advice when it comes to their personal plans, and it is those we are aiming to help."
Getting expert advice – especially if you have complicated financial matters to deal with – is a good idea. But what often puts people off is the cost. While many advisers offer a free first consultation, you may then be charged upwards of £150 an hour for advice, charges that can eat into your savings. Some advisers work on commission which means you don't pay them directly, they are paid by the finance companies that provide the savings scheme, mortgage, pension or insurance policy.
In short, the cash will come from your premiums or payments. "Unfortunately, too many advisers in the past have given clients the impression that their services are free, when in fact that has not been the case. You would have paid one way or another," says Marlene Shalton of Bluefin Wealth Management and president of the Institute of Financial Planning. But if the advice helps you make more of your money it could prove cost-effective. In other words, the question is can you afford not to take professional advice?
Part of the problem, of course, is that so few people understand how to get the best from their savings. "There is a need for education about the real value of money," says Alan Dick of Forty Two Wealth Management in Glasgow. He cites the fact that few people understand the affect inflation has on their cash. "For people on fixed incomes, or relying on their investments to supplement their income, inflation can be a very real problem as the cost of just living their life continues to rise faster than their income."
He advises people to make a detailed budget of income and expenditure. "It should highlight any areas that might be affected particularly badly. For example, fuel costs may rise faster than the average rate of inflation so if these make up a large part of a person's expenditure, they should investigate ways to control this. Likewise, if mortgage payments are a large part of a person's monthly outgoings, they should work out the impact a rise of 1 per cent or 2 per cent might have on their household budget. "Simply knowing in advance how these individual costs may impact will often highlight a simple strategy to handle the situation," says Dick.
Having someone else examine your finances can help pinpoint where savings can be made, or where money can be used better. That's at a fairly simple level, but almost all of us could also benefit from the right advice when it comes to saving for retirement. Pensions can be really complicated, especially as the law relating to them changes so frequently that it's almost a full-time job keeping on top of what the current allowances or tax rates are. Rather than having to worry about that, it could make sense to pay someone else to.
But, as well as the cost, there's the trust element. With so many stories about financial scandals and conmen, it can seem impossible to find the right adviser. There are some out there. Word of mouth can help you find them, but asking to talk to an adviser's existing clients can be reassuring. And if an adviser refuses to put you in touch with a satisfied customer, that's probably a sign that you should walk away.
The best advisers should be interested in helping you in all your financial matters. But how much advice you take is up to you, according to Karen Barrett, chief executive of financial advice promotion outfit unbiased.co.uk. "Your relationship with your adviser is a two-way process and you need to ensure that you are happy with the advice recommended," she says. She advises people to check that they understand all the information and terminology. "You should also check that all your financial planning needs have been met and that your Independent Financial Adviser (IFA) understands what you are looking for financially, your long-term goals and attitude to risk."
* To help savers, Standard Life has launched a website which includes suggestions to help plan your financial future at www.getarealitycheck.co.uk
* There are tips, tools and information about financial planning at www.financialplanningweek.org.uk
* At www.unbiased.co.uk you can search through 15,000 IFAs to find the adviser to suit your needs. You can also access unbiased.co.uk's 'find an IFA' search through an iPhone.
* Check the Financial Services Authority public register of advisers at www.fsa.gov.uk/register/home.do to ensure your adviser is registered.
Graham Armfield: 'I wanted to start my own business'
Being made redundant from the Royal Bank of Scotland last year left Graham Armfield with some decisions to make. "I have some talents I wanted to use and didn't have enough cash to retire early," The 53-year-old from Woking says. "Having thought about it and talked it over with my wife Sandra we decided to start our own business, but needed help with getting our finances straight. I knew we'd have to live off savings while getting the business started so needed to ensure that the money was being used properly."
In stepped Philip Pearson of P&P Invest of Southampton who already advised Graham's parents. "We take an holistic approach to advice, looking at the whole of people's finances, not just their investments," Pearson says. "We see our clients regularly and update their portfolio to reflect their changing circumstances."
With Pearson's help, Graham and Sandra have been able to set up their consultancy, building websites for businesses and advising on web accessibility for disabled users.
"I guess we could have tried to sort out our finances ourselves, but I felt better going to an expert," says Graham. "Philip was able to short-circuit the process and come up with decent solutions that has given us a good strategy for the next few years. It's meant we can now focus on building up our business rather than worrying about finding the right homes for our savings."
Donna Dunnachie: 'Care home fees were so expensive'
Having to put your mother into a care home can be a heartbreaking situation. But having to deal with her complicated financial situation at the same time is difficult, as Donna Dunnachie discovered.
The 49-year-old postie saw her mother's Alzheimer's worsen until there was no alternative than to get June, 86, full-time care in a home.
"I had no clue what to do about the finances," Donna, right, said. "We sold my mum's home and planned to use the cash to pay for mum's care until the money ran out. But when I talked to an expert, I found out that you could buy an annuity which provided an income to cover the cost of care. It meant there was some money left and it wasn't all eaten up by the care costs."
Guiding Donna through the financial maze was specialist adviser Lorreine Kennedy of St Albans-based CareMatters.
"I set up an Immediate Care Plan, which means Donna knows that her mother can receive the level of care she needs, can afford to stay in her chosen care home, and Donna has no more worries about the money side of things."
"Lorreine guided me through everything I needed to know and was even able to put me in contact with someone who dealt with leasehold law when a problem arose over the lease on mum's home," says Donna. "It was a highly-charged emotional time for me so it was great having someone to help deal with all the financial hurdles."
Michael and Barbara Pratt: 'We needed advice to get the most from our savings'
The couple became worried that their savings weren't working hard enough for them. "Our investments and pensions were in disarray and we needed them to be sorted out," says company director Michael.
For 15 years he has worked as a consultant general manager helping to turn troubled businesses back into profitability. But he's beginning to take on less work and the couple's four sons have grown up and left home. The couple decided it was time to get their finances in order so they could make more of their time together.
"We wanted to get our investments managed in one place but still be able to make decisions about them ourselves," he says. They turned to Bristol advisers Hargreaves Lansdown who put Martin Hurrell on the case.
"The Pratts wanted to consolidate their investments and pensions to make them easier to manage and to enable a single coherent investment strategy to be adopted," says Hurrell. He arranged for the couple's investments and ISAs to be transferred to a funds supermarket, meaning Michael and Barbara can manage the money themselves. They still get alerted if Hargreaves' investment research team change their views on their holdings, but the decision to switch will remain with the couple.
"We aimed to set them off in the right direction but then leave them to make future decisions themselves using the information and email alerts we provide," says Martin. "We'll be happy to advise them in the future but the flexibility means they only pay for the advice they need and no more."
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