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Getting good advice?

28/ 4/2008

A FINANCIAL adviser can save you a fortune if you're making a big investment or planning for an important event such as retirement, so it is good to see that many of you are already visiting one.

More than two fifths of Which? members have used a financial adviser in the past two years, according to a new Which? Money survey.

Almost half of these people did so for investment advice, two fifths for a general review of their finances and a third for retirement planning.

Financial advisers are good at shopping around for the best deals. This is worth doing, for example, if you are buying an annuity to give you a retirement income, as the differences between products can be significant. It's particularly important to get financial advice when you're approaching the end of your working life, but 12 per cent of you planned for your retirement in the past two years without it.

When we checked, a 65-year-old man with a pension pot of £100,000 could be £708 a year better off by choosing the best-value annuity (from Aegon Scottish Equitable) instead of the worst (from Axa). A 65-year-old woman could be £696 a year better off.

A good financial adviser can also help you to save money if you are planning to take out protection insurance, such as income protection.

However, three per cent of the people we surveyed had taken out protection insurance in the past two years without using a financial adviser.

A 39-year-old man with a clerical job could save more than £3,700 over a 20-year term by taking out the cheapest guaranteed premium income protection policy giving £1,000 of cover a month (from National Deposit Friendly Society) compared with the most expensive (from HSBC). A woman of the same age could save £6,852.

PICK THE RIGHT ADVISER

It's important to make sure you get the best adviser for the job. Independent financial advisers (IFAs) look at the whole market, so are a better option than tied advisers, who look at only a selection of providers' products. IFAs will also give you the option to pay a fee for their advice rather than paying by commission. Paying by fee can boost the return you get on investments.

According to our survey, many of you are already wise to the benefits of using an independent adviser. Seventy six per cent of Which? members who have used an adviser in the past two years went to an IFA. These people were also more likely to have been happy with the advice they got - 53 per cent said they were very satisfied, compared with 31 per cent for tied advisers.

Choose an IFA with expertise and preferably specialist qualifications in the area on which you want advice. You can search for suitable advisers, including those with extra qualifications, at www.unbiased.co.uk or by calling 0800 085 3250. You can also find information on qualifications held by IFAs at www.which.co.uk/money. It's a good idea to contact a few local advisers to find out about the service they offer and how much they charge before choosing one.

In our survey, 32 per cent of you said you found your adviser through a friend or family member. Such recommendations can be valuable, but you should also make sure the adviser has specialist knowledge of the topic on which you want advice and that they are authorised by the Financial Services Authority.

To get the most out of your meeting with an adviser, it's important to do some preparation beforehand. Your IFA should give you a `fact find' questionnaire to fill in so they can collect the information they need to advise you. If you ask them to send this to you in advance, you can fill it in before your meeting, saving time and money. Being prepared should also avoid the risk of you taking out any unnecessary products you might be offered.

THE COST OF ADVICE

An IFA will give you the choice of paying for their services with a fee, through commission from the product provider, or both. The first meeting you have with them will often be free.

Choosing the commission option means you don't have to pay anything upfront, but it's usually better to pay a fee for investment or pension advice, as paying commission can decrease the return you get. The more you invest, the more of a difference this makes.

Fees charged by IFAs vary hugely. In Which? research carried out last year, we asked 231 IFAs to quote their fees for advice in several different scenarios. Costs ranged from less than £50 to more than £400 for the same task, so it's important to check charges before choosing. The average price for advice on picking a stocks and shares Isa into which you would like to pay £100 a month was £237; for advice on investing £10,000 it was £353.

It's worth negotiating on fees, as 80 per cent of the IFAs we spoke to said charges are negotiable. Most IFAs also told us they would consider taking less commission than they stated on their cost documents.

If you paid £100 a month into a stocks-and-shares Isa for 10 years (a total of £12,000) your return would be £15,000 if you paid for the advice by commission, assuming growth of seven per cent a year. If you paid by fee, the return would be £15,500. This is £263 more after deducting the average fee for this advice (£237).

BEWARE BAD ADVICE

Last year, we made undercover visits to 21 independent financial advisers and 19 tied advisers from 10 big banks and building societies. We posed as someone wanting advice on what to do with an inheritance. Our aim was to find out how good advisers really are.

More than half the IFAs we visited (52 per cent) failed our tests, while a shocking 68 per cent of the tied advisers failed. However, this was an improvement on the previous year, when 66 per cent and 84 per cent failed, respectively.

The results were disappointing but confirm that IFAs tend to offer a better service than tied advisers. We have consistently found this to be the case over the 20 years we have been doing this sort of mystery shopping.

MORTGAGE ADVICE

Shopping around for a mortgage can save you thousands. Independent financial advisers can help you do this, as they can look at the whole market to find you the best deal for your circumstances.

In our survey, 15 per cent of the people who have used an adviser in the past two years did so for mortgage advice.

However, 11 per cent of you have taken out a mortgage in the past two years without advice.

Paying by fee is less important when getting mortgage advice, as commission does not affect the cost of the product you choose.

Before you visit an adviser, do your homework using our mortgage calculator at www.which .co.uk/mortgages to compare the total cost of products.

You could save almost £3,000 over five years with one of the best five-year fixed-rate deals on a £100,000 mortgage over a 15-year term instead of one of the most expensive.

CHECKLIST

1 Use an independent financial adviser rather than a tied adviser.

2 Choose an adviser with expertise and advanced qualifications in the area on which you want advice.

3 Telephone at least three advisers to find out about the service they offer and their costs before choosing one.

4 Pay for investment or pension advice by fee, not commission, if you can.

5 Prepare for your meeting with your adviser by carefully considering your financial situation and the advice you need.

6 Fill in the 'fact find' document before your meeting to save time.