HOW TO FIND AFINANCIAL ADVISER

Peter B Matthew CFPCM

This eBook is a

Production

With grateful thanks to Richard Allum of The Paraplanners

© 2013 Meaningful Money Limited - All Rights ReservedSoli Deo Gloria

Nothing makes one feel so strong as a call for help- Pope Paul VI

Introduction

In my experience, most people go through life hoping that they never have to see a financial adviser. We don’t enjoy ‘serious’ engagements like seeing

our accountant or a solicitor. And financial advisers are only there to sell us products aren’t they?

Meeting with a good financial adviser or planner (I’ll explain the difference later) can either be a very good experience or a very bad one. Perhaps it is this uncertainty that leads to our nervousness. In this short ebook, I will show you how to get advice, and how to find the right adviser for you. While I can’t guarantee a good experience, hopefully by the end you will be well-equipped to distinguish good from bad and make the most of the process.

If a man will begin with certainties, he shall end in doubts; but if he will be content to begin with doubts, he shall end in certainties.

- Francis Bacon, The Advancement of Learning

1. Do you even need advice?

People tend to arrange to see a financial adviser with a single issue they need resolving. Usually, this is triggered by a life-event of some kind, like

an inheritance, the birth of a child, or a divorce.

Very rarely does a client walk into my office and ask me to sort out their entire financial life and give me free rein to look into every aspect of their finances. They just want their one issue fixing.

But advice is best done with an unrestricted view of your finances, so a good adviser will often ask questions around the subject that you are seeking advice about. The more information you provide, the more rounded and suitable his advice will be.

Like a competent GP, your adviser will be able to recognise cause and effect, and that perhaps the financial symptoms you are displaying are caused by something you may not have considered. There may also be a solution that might not occur to you.

As is true of every profession, you should expect an expert to have a much wider grasp of a situation than a layperson and to be able to come up with a more comprehensive solution.

All that said, there could be some circumstances where you could advise yourself. The whole premise behind the MeaningfulMoney site is to provide

information in a format that people can easily understand in the hope that they may be able to sort out many of their own financial issues.

Hopefully, if people understand the pros and cons of the different kinds of life assurance for example, they can work out which is best for their circumstances, without having to refer to an adviser.

Or if you want to save for your future, you can find out enough to decide whether that should be into an ISA or a stakeholder pension. You could even learn about all the different kinds of trusts to determine which to set up for your circumstances.

Many people of course don’t have the time or inclination to do this, and if this is you, then go see an adviser.

Not everyone needs one, but everyone can benefit from time spent with a good adviser. The rest of this book is designed to help you identify a good one.

NEXT: Finding an adviser you can trust

To be trusted is a greater compliment than being loved.- George MacDonald

2. Finding an Adviser you can trust

If you decide you do need to see an adviser, where and how do you find a good one? This relationship with a professional has the potential to

make or break your future wealth. It could possibly be the most important professional relationship you ever have. You need to get it right.

Perhaps more than any other profession, with the possible exception of your GP, your relationship with your adviser needs to be based on trust. Your adviser will end up knowing every detail of your finances, warts and all, and not just the side you display to the public.

Where I live in West Cornwall, it is a very close society and nearly everyone knows each other. Imagine how quickly my business would disappear if I ever betrayed just one client’s trust: the whole world would know by teatime! My clients trust me, and you need to be able to trust your adviser absolutely.

There are three steps to finding an adviser you can trust.

1. Ask a friend for a referral – If you know someone who has used an adviser and had a good experience, this is the best place to start. If the friend is in a similar financial position to you and is likely to have similar needs, then so much the better.

2. Find out everything you can about the adviser before you meet – Check their website; make sure they are present on the FCA Register; read

their blog posts or watch their videos. You should get a sense of their ‘voice’, and their views on things.

3. Meet the adviser in person – At a first meeting, you will be guided by your innate human ability to decide whether or not you like or trust someone. In the next chapter I give you five questions to ask a potential adviser, which should help you along the way.

What can you do if you don’t know someone who has dealt with an adviser recently? There are a few sites that can help you find an adviser in your area:

• Unbiased.co.uk

• FindAnAdviser.org

• VouchedFor.co.uk

All of these sites let you narrow your search by advice area, such as pensions, investments or equity release.

Of them all, I like VouchedFor the best because it not only gives you the adviser’s details, but has reviews and testimonials from clients of that adviser. It’s a kind of TripAdvisor for the financial advice world. It’s still quite new, but is going from strength to strength.

If you are finding your adviser in one of these ways, you may want to meet with two or three, to see which adviser you warm to the most. While this

may seem like a lot of effort, remember that this person is going to be looking after your future wealth – it’s time well spent.

NEXT: The First Meeting

His dress told her nothing, but his face told her things which she was glad to know.

- A A Milne, Once on a Time

3. The First Meeting

You need to know what to expect from the first meeting with a prospective adviser. You also need to know how to get the most out of the meeting

so you can make an informed decision whether or not to work with this person.

Disclosure

It is a requirement of the Financial Conduct Authority that an adviser disclose his status to you early on in the meeting. He will be disclosing two main points to you:

1. Regulatory Status – Confirming that he and his company are regulated by the FCA. Look for an FCA Firm Reference Number (FRN) on a business card or letterhead and check it on the FCA Register when you get home, if you haven’t already.

Here’s a link to the FCA Register, and here’s another link to a video showing you how to search the register to find your adviser

2. Independence Status – An adviser can source financial products from either:

• The whole available market – An independent adviser

• A limited range of products and/or providers – A restricted adviser

I would not expect the first meeting with an adviser to cost you anything, but neither would I expect any advice to be given. It is an opportunity to get to know the adviser and how he works. For the adviser, it is his chance to introduce his company and process, and to get to know enough about you to see whether he can help you.

It is also the only way you can see whether or not you like each other and would be happy working together. This goes both ways; I will no longer engage with someone I feel is going to be difficult or unpleasant to work with. I spend so much time at work that I want it to be enjoyable and not a chore.

So, assuming you like your adviser and are happy with his disclosure, what’s next?

Initial discussions

Your adviser will ask your reasons for seeking advice and then probe a little further to get more detail, but it is unlikely that a full fact-finding exercise will take place. Instead he will find out just enough to decide whether he can add value to you in your financial life right now.

At some point in that first meeting, the adviser will present the way his company works. You should know and understand the journey you will take through the adviser’s process, so that you know what to expect at

every step.

Most advisers stick loosely to the six-step model for giving financial planning advice:

1. Establish and define the client/adviser relationship

2. Gather data including goals (completing the Fact Find)

3. Analyse and evaluate your financial situation

4. Develop and present recommendations

5. Implement the recommendations

6. Monitoring and reviewing the recommendations once they have been implemented

This first meeting is step number 1 above. Your adviser should explain his own version of the process, including the costs and timescales of each stage. Your adviser may have four steps, or ten, and the steps may have branded names like ‘The Discovery Meeting’TM, but the process underneath will look much the same wherever you go.

Five Questions to ask a prospective adviser

Remember that you are there to interview the adviser just as much as the other way around. You may need to ask some questions to satisfy yourself that this person is someone you can get along with. Here are five questions

which should help you decide:

Can you describe your advice process? – We have dealt with this above, but if you haven’t heard this yet, this question should prompt the adviser into clarity

How and when do you get paid? – There’s no escaping this question. It makes it clear to the adviser that you mean business. Make sure you get a clear and direct answer to this one.

Why do you do this job? – If you hear something like ‘I fell into financial services after leaving the army’ you need to push further. What do they enjoy or dislike about the job? Why are they doing this and not something else?

What are your qualifications/expertise? – We’ll deal with adviser qualifications later in this ebook, but this is the time to ask about them. You should also be told if the adviser has any particular specialism.

Can you describe your ideal client? – This will tell you a lot. For example, I like to work with clients who can delegate the day to day workings of their money to me, but who want to engage with their long term planning. I like dealing with family-focused people, with £2million or less in investable assets, and who can make decisions and stick to them.

If you are happy with your prospective adviser at this stage, the first meeting may develop into the FactFinding stage of the process. But don’t be under

any pressure to continue unless you are satisfied that the adviser’s process is something you can go through happily and be willing to pay for.

Do shop around. Though the process is largely the same from one adviser to the next, each adviser will add something unique to the process, and you need to find the adviser you are most comfortable with.

Different advisers will charge differently for the process. You need to know what the process is likely to cost, and be comfortable with committing to that cost before proceeding.

Once you have decided on a particular adviser, you will move into the advice process itself.

NEXT: The Financial Advice Process

Plans are of little importance, but planning is essential.- Sir Winston Churchill

4. The Financial Planning Process

As outlined in the last chapter, the advice process will look much the same from one adviser to the next, though each adviser will put their

own stamp on it by virtue of their unique personality. Here’s how the process will work:

The FactFind

The Financial Conduct Authority requires an adviser to know her client before making recommendations. Usually this means completing a questionnaire known as a FactFind or KYC (Know Your Customer) document. The FactFind will help the adviser record ‘hard’ facts such as how much you have in your pension, which company it is with and what the policy number is.

A good adviser will also be recording ‘soft’ facts , which are the more touchy-feely things such as the comments you make about your layabout son-in-law, or where you like to go on holiday. These might not directly relate to your finances, but a good adviser knows that the better she knows her client, the better she can advise them.

The FactFind is for the adviser’s benefit, to have a record of your conversations. She will refer back to it frequently and update it as the relationship develops.

The more information you can give to your adviser, the better and more complete the picture she will have of your current financial circumstances,

as well as your dreams and aspirations for the future. You should feel able to open up completely, something many people find difficult. A good adviser will put you at your ease and act almost like a counselor, drawing out the information gently.

The FactFind process should culminate in your adviser confirming the main objectives for seeking advice. You will then agree which of these objectives you want to have addressed in this round of advice. Some issues you may wish to defer for another time, so your adviser will help you prioritise and agree the way forward with you.

Risk Tolerance

An important part of the FactFind process will be a discussion about your tolerance to risk. Achieving financial goals almost always involves some element of risk, which can take many forms:

• Investment risk – your money may go down as well as up if it is invested

• Inflation risk – inflation will eat into the value of your money each year

• Mortality risk – the risk that you might die earlier than expected, or that you might live too long and run out of money

• Morbidity risk – the risk that you might become ill or have an accident which might derail your financial planning

All these risks should be considered when setting your financial planning

objectives, and it is your adviser’s job to identify the risks that are relevant to your situation, to make sure you understand them, and to take them into account when making recommendations.

Be wary of an adviser who deals with this important subject in a cursory fashion. It is important that your adviser understands your feelings about the various risks and records them accurately. This will directly influence her recommended solution.

Analysis

Having collected all the information she needs, your adviser will go away and analyse all the detail you have given to her.

She may take your authority to approach the providers of your existing pensions and investments, so that she can ask relevant questions to fill in any details that you weren’t able to provide.

She will identify certain shortfalls and other needs which you may not have considered.

She will then recommend solutions that will meet your objectives. This may or may not involve selecting financial products for you to buy. If it does, and if your adviser is independent, she will have to research the best product in its class to recommend to you.

If, for instance, you need to start a pension plan to begin saving for retirement, your adviser will identify the best type of pension for you, and

the specific provider and plan.

Presenting recommendations

Your adviser will then present their recommendations to you and should provide you with a detailed written report. Usually you will meet to go through her recommendations, giving you chance to ask questions and make any tweaks you both feel necessary.

You should then take some time to think about your decision to proceed or not. Don’t be under any pressure to sign up there and then. Your adviser should be happy to give you all the time you need to make an informed decision.

Costs

In every case, there will be costs involved in proceeding with the adviser’s recommendations. A good adviser will not cover these costs in a hurried way but will explain them carefully to you, and show you the impact of those costs on your future wealth.

For example, if you are facing a bill for £2,000 for the adviser’s work, that is £2,000 that you will not be able to invest, or spend. Whatever the costs of your financial planning, your adviser should spend time explaining and justifying it. Wherever there are costs, there must be benefits to you, which make the costs worth paying.

Implementation

Again, you should take time to think over the recommendations presented to you by the adviser. If you agree to proceed, your adviser will help you complete the various forms required.

Then a great deal of work happens, most of which you will not see. The adviser and her staff will be sending off the forms, dealing with financial providers like insurance and investment companies, answering queries and generally chasing people to get things moving.

Your adviser should keep you informed of progress. It shouldn’t be the case that once you have signed your forms, you don’t hear from the adviser for weeks. Some financial solutions can take a long time to put in place. Life assurance, for example, can take months to underwrite if the insurance company has to write to your doctor, wait for a response and then maybe ask for more medical tests. You should know what is going on with your implementation every step of the way.

Completion

Once everything is in place, you will very likely meet with your adviser one more time, where she can present you with policy documents if applicable, and remind you of what she has done for you and the reasons for doing it.

This is a tidying up session, where a line is drawn under the round of advice for now. At this meeting, depending on what the adviser has done for you, you will agree a timescale and basis for your ongoing relationship.

NEXT: The Ongoing Relationship

I mean, if the relationship can’t survive the long term, why on earth would it be worth my time and energy for the short term?

- Nicholas Sparks, The Last Song

5. The Ongoing Relationship

Unless your adviser has arranged a simple, one-off transaction like a life assurance plan, you will very likely need to keep in touch with your

adviser on an ongoing basis. The financial world is in a constant state of flux, and tax rules, investment markets and many other things can change with very little notice.

Your adviser’s work for you doesn’t stop at the end of the implementation stage, unless you want it to. Instead, you will agree with your adviser how often you should meet, usually annually or six-monthly. This is to ensure your plan stays current within the changing landscape, and to incorporate any changes in your circumstances. A typical agenda for an annual review meeting might look like this:

• An update from you – Has anything changed in your personal or financial circumstances since the last review? Have your long- or short-term goals altered?

• Investment Review – Looking back at the performance of your investments since the last review, in the context of the wider markets, the world economy and your long-term goals

• Investment Action Plan – Looking forward and implementing any changes to your portfolio in light of your updates and the investment

review

• Taxation Update – Reviewing any changes in taxation that may affect you and making adjustments as needed

• Pensions Update – Reviewing any changes in pensions laws since the last review, and making adjustments if applicable

• Estate Planning Review – Ensuring your estate planning wishes are up to date and legally valid. Have your views or wishes changed in this area?

• Family Review – Discussing any financial issues affecting your family

• Strategic Review – An update by your adviser, recommending any changes in light of the above discussions

• Filing – If you wish, your adviser may go through the paperwork you have received since the last review and help you determine what to keep and what to discard

• Liaise with your other professional advisers – It may be that, in light of the discussions, your adviser should update your other professional advisers such as your accountant or solicitor

As you can see, a comprehensive financial review is about much more than just monitoring investment performance. In my 15 years of experience conducting review meetings with my clients, it is quite common for me to spend just five or ten minutes of a meeting talking about the financial stuff.

Far more time is spent talking about the clients’ family and long-term goals – a subject they find much more interesting – than about the state of the world markets.

This review service from your adviser comes at a cost of course. Your adviser should be able to tell you what it will cost before you agree to it.

Often, the cost is expressed as a percentage of your portfolio value, and is usually between 0.5% per year and 1% per year. So on an investment of £250,000, you can expect to pay between £1,250 and £2,000 per year.

The charge for the review service can usually be paid from the investment portfolio itself, if you wish. This is often more palatable than a direct debit or standing order being taken from your bank account, but the latter is possible too, in many cases.

You should sign a terms of engagement letter or similar, which will lay out the adviser’s responsibilities towards you in return for the fee you are paying her. You can then hold your adviser to account if she does not fulfill her responsibilities.

Your ongoing relationship with your adviser will develop over time, hopefully into a trusted friendship, but it should always remain professional and structured so as to be useful to you and constructive towards your future for many years to come.

NEXT: Adviser Qualifications - The Alphabet Soup

The companion of an evening, and the companion for life, require very different qualifications.

- Samuel Richardson

6. Adviser Qualifications

Financial Advice vs Financial Planning

Some advisers will call themselves financial advisers. If someone asks me what I do for a living, I always say that I am a financial planner. Is there a difference, and does it matter?

Traditionally, someone who called themselves a financial adviser could be from any part of the financial world. Perhaps they just dealt with mortgages, or specialized in complex, offshore tax planning for multi-millionaires. They would usually be regulated by the FCA, but not always. They might be extremely highly qualified and a specialist in a given area, or they may have had only the bare minimum of qualifications.

A financial planner on the other hand, is usually someone with degree-level qualifications and who specializes in holistic financial advice. In other words, they are not financial product salesmen, but are uniquely concerned about your whole financial wellbeing.

It is important to note that the term financial planner is not ‘official’. Anyone can call themselves a financial planner.

The financial profession has not done its clients any favours here. Before 2007, the term financial planner was generally used by members of the Institute of Financial Planning. The IFP is the awarding body for the Certified Financial

PlannerCM licence in the UK. This qualification is the pinnacle of practical, applied financial advice across the world. In my opinion, a Certified Financial PlannerCM will offer the best, holistic financial planning advice. If you can find a CFPCM near you, and if you can afford him, (sounds like the A-team!) these are the advisers to use.

In 2007, the Chartered Financial Planner designation was introduced by the Chartered Insurance Institute. This is a degree-level qualification. At about the same time, the rest of the qualification framework was also overhauled, with the entry level qualification being renamed the Certificate in Financial Planning.

Certified Financial Planner; Chartered Financial Planner; Certificate in Financial Planning. Of these, only the first can officially be shortened to CFPCM, but you can see how the public can be confused!

Qualification levels

There are three main levels of qualification for advisers:

• Level 3 – the most basic, entry-level of qualification. Often called Certificate level, this level is sometimes held by adviser office staff or some mortgage and protection advisers in banks.

• Level 4 – From January 2013, this is the new minimum qualification for those advising on investments and pensions etc. It is often called the Diploma level.

• Level 6 – This is the top flight of financial advisers. The Chartered Financial Planner and Certified Financial PlannerCM qualifications are at this standard.

Level 3

Level 3 advisers will sometimes have the following letters after their name on their business card (it is a regulatory requirement for advisers to give you their business card at the first meeting, so you can check this):

CertCII – Certificate in Financial Planning issued by the Chartered Insurance Institute

CertPFS – Certificate in Financial Planning issued by the Personal Finance Society

CeFA – Certificate in Financial Advice issues by the Institute of Financial Services

Level 4

Look for the following letters or designations to identify a level 4 adviser:

DipCII – Diploma in Financial Planning issued by the CII

DipPFS – Diploma in Financial Planning issued by the PFS

DipFA – Diploma in Financial Advice issued by the IFS

Level 6

The top-flight of advisers will designated as one of the following:

APFS or Chartered Financial Planner

CFPCM or Certified Financial Planner

Adv DipFA – Advanced Diploma in Financial Advice issued by the IFS

Beyond Level 6

Yes, there’s more. The very best financial advisers and planners often seek to better themselves even further by attaining fellowships of one or both of the main professional bodies. Look for the following designations:

FPFS – Fellow of the Personal Finance Society

FIFP – Fellow of the Institute of Financial Planning

Some advisers choose to complete Masters degrees or even a PhD in financial planning.

Which level of adviser should you choose?

The obvious rule here, as in many things in life, is to choose the best adviser you can afford.

I suggest you start by looking for a Certified Financial PlannerCM (CFPCM) professional. You can find one by searching the database of the Institute of

Financial Planning’s register of CFPCM qualified advisers. Click here to go there now.

The practical, applied nature of the CFPCM qualification is why I think they are best placed to advise you. It isn’t just an exam-sitting exercise, but an extremely rigorous case study-based process, far more applicable to real life than sitting in an exam room recalling obscure facts about pension legislation.

Short of that, make sure you are dealing with a Level 4, Diploma qualified adviser. This is the minimum standard for regulated advice in the UK after January 1st 2013.

Above all, remember the benefits of gaining referrals from friends and family, and of trusting your gut instinct.

A long list of qualifications doesn’t mean that adviser is necessarily the right person for you to work with, but it does give you some idea as to whether they are pushing to a higher standard, to be the best they can be.

Ask any adviser you are interviewing about their qualifications and plans for the future, and use the answer to help determine whether you want to work with them.

NEXT: How to avoid getting ripped-off

7. How to avoid getting ripped-off

The financial advice profession has not exactly covered itself in glory in its short history. It is easy to find stories of so-called advisers running

away with their clients’ life savings, or investing in dodgy schemes which fall apart, losing everything. There have also been large-scale problems like widespread endowment mis-selling, occupational pension transfers or more recently, the PPI mis-selling scandal.

How can you avoid this happening to you? There are some easy steps to take and some things to avoid which can help keep you and your money safe from bad or fraudulent advice.

What to do

Firstly, check your adviser is registered with the FCA and check their disciplinary record

The regulator makes all disciplinary action against advisers public on its website. The FCA Register shows an adviser’s history of companies he has worked for, so you can see his career path in quite some detail. Five minutes research should tell you whether there are any skeletons in your adviser’s closet.

For an instructional screencast about how to search the FCA register, click here.

If something sounds too good to be true, it probably is.

- Pete’s Golden Rule

Next, you should read any documentation carefully.

You adviser is required to present you with detailed information about his recommendations to you, before asking you to sign up. The idea is you should be able to make an informed choice about whether or not to take up his recommendations. This information will include:

• Key Facts document, giving all the major points about a particular policy, pension or investment

• A client-specific illustration carrying your name and date of birth, and with the exact amount you are planning to invest. It will detail the charges, risks, and all other details specific to you proposed plan

• Terms & Conditions which gives all the fine detail of the proposed plan. This is a much more in-depth document than the Key Facts.

Finally, be realistic. Your adviser is not a miracle worker. He cannot guarantee double-digit investment returns or insure you against every conceivable disaster. You need to exercise caution and realism in your dealings with him.

He can help you to plan, and put in place solutions which are designed to meet your goals. Understand that in order to give that plan the best chance of succeeding, you should keep in regular touch with your adviser after the initial round of advice is completed.

What not to do

1. Don’t pre-fill withdrawal forms

There have been many examples of advisers asking clients to pre-fill withdrawal forms for investments, and then using these forms to withdraw money without the client knowing. Never sign documents in advance for the adviser to keep on file. It shouldn’t be too much hassle for you to take five minutes to go see the adviser and fill in the form when needed. In this age of the internet, paper withdrawal forms are becoming less common in favour of online instructions in any case.

2. Don’t write cheques to your adviser without checking their client money permissions

You can check to see whether your adviser has ‘client money’ permissions with the FCA by checking the FCA register as mentioned above. If they do not, you should never write a cheque made payable to them unless they have invoiced you first. An adviser without client money permissions cannot accept a cheque made out to them for an investment; it has to be made out to the investment provider directly. If possible, ask if money can be sent by direct transfer instead.

3. Don’t invest in anything you don’t understand

Your adviser is there to advise you, but also to educate you. You may have no interest in investing theory, but this is your hard-earned money, so you need

to have a reasonable idea where it is invested, the risks involved and so on. When a client says to me ‘Just do what you think best’ I feel honoured that they trust me so much, but nervous that they are so passive. Instead I seek to educate them a little bit about where they are investing, so that we can have a meaningful conversation at review time.

Golden Rule

If your adviser makes a promise to achieve 10% returns for you every year, they are at best being overly-optimistic, and at worst, they are lying. If a proposed investment sounds like it has no down sides, be suspicious.

Make sure you have understood what your adviser has said and taken time to read the supporting information, and asked any questions to clarify points you are not sure about. Don’t be passive. Instead be an active part in the advice process, however much you might dread doing so. A good adviser will include you, not hold you at arms length saying ‘trust me, I’m a financial adviser.’

The golden rule to keep in mind at all times: If it sounds too good to be true, it probably is.

NEXT: Conclusion

Hopefully this little book has given you some food for thought, and some ammunition if you are considering seeking advice in the near future.

I cant stress it enough; your relationship with your adviser could become one of the most rewarding friendships in your life. Yes, seriously! Think of how many people know the deeper points of your financial situation – your spouse or partner, maybe your kids, and your financial adviser, that’s about it.

Revealing this to an adviser requires an extraordinary level of trust on your part. In return, you adviser should reward your trust with years of care and expertise which will improve your financial situation. I know of several examples where advisers and clients have gone out for a slap-up meal to celebrate the client’s retirement, both parties knowing the adviser was an integral part of helping the client get to that point.

I wish you every success in your financial journey.

Conclusion

It is good to have an end to journey toward; but it is the journey that matters, in the end.

- Ernest Hemingway