Do you need financial planning or financial advice? It’s worth it?

Seeking financial advice can be a daunting prospect. Many people are under the impression that financial advice is too expensive or just “not for someone like me.”

But you don’t have to be a millionaire investor to make it worth your time and money, and the lifetime value you get from financial advice can far outweigh the initial cost.

You don’t necessarily need a specific problem for an expert to help you; Instead, financial planning could ensure that you are on the right path to making the right decisions, increasing your wealth, and enjoying a richer future.

Even for those who know the world of money well, there are times when it is advisable to seek professional help. Situations such as converting your pension into retirement income or doing inheritance tax planning are likely to cause some headaches and in these types of one-off scenarios, financial advice can pay off.

Our guide explains what you need to know about financial advice and financial planning.

What is financial advice?

Financial advisors are qualified specialists who can help you manage your money, provide personalized advice and choose the best financial products for your individual needs.

The terms financial advice and financial planning are often used interchangeably – and there is an area of ​​overlap between the two – but the general distinction is that financial advice deals with one-off situations, while financial planning is an ongoing relationship of medium to long term. .

Financial advice is considered to deal with a specific issue, such as investing your pension into retirement income, arranging life insurance or managing investments.

While financial planning involves creating a plan around your life to achieve certain goals and is a process that continues for many years.

Financial advice comes in two forms: independent and restricted.

Independent advisers, known as IFAs, offer advice covering a wide range of financial products and topics, and will not be biased towards a particular set of products.

Restricted advisors, on the other hand, only provide limited advice in specific areas and can only provide financial products from the company they work for or have a particular connection with. A restricted advisor still has a binding obligation to act in your best interests and any restrictions and restraints must be made clear.

One important thing to note is that financial advice, unlike other forms of financial guidance, is regulated by the Financial Conduct Authority.

To be qualified, a financial adviser must have achieved level four or above of the National Qualifications and Credit Framework.

In addition to this, advisors must subscribe to a code of ethics under the Statement of Professional Reputation. This includes the advisor completing a minimum of 35 hours of continuing professional development each year.

A Statement of Professional Status can only be issued by a body that has been accredited by the FCA.

To check if an advisor has an accreditation, you can check the FCA registerwhich lists advisors and companies by name and can be sorted by location.

If you are considering financial advice, it might also be worth checking the name of your potential advisor or company with the FCA warning listwhich indicates unauthorized firms that do not have permission from the FCA to offer advice.

While they will take a comprehensive look at your finances into account, what a financial advisor won’t do is look at your broader lifetime financial plans beyond what they are advising you; This is where a financial planner comes into play.

> Find out if you would be better off with financial advice. This is the Money partner service with Flying Colors

What is financial planning?

The key difference between financial planning and financial advice is that planning seeks to address your long-term financial needs, rather than offering specific help when you have something to do.

Like financial advisers, financial planners must be registered with the FCA.

However, unlike financial advisors, a financial planner will help you create a personalized plan, based on your goals, income, wealth and the major milestones you are likely to face and the ambitions you have.

This means that if your needs are ongoing and not a one-off thing, such as investing a lump sum in an Isa, taking out protection insurance or classifying your pension, then financial planning can offer you a way to get advice that can last and work with you. you over time.

Financial planners can offer help with tax efficiency, investing for your or your children’s future, retirement and pension planning, and creating an estate plan that ensures your loved ones are not hit by a huge inheritance tax bill.

Planners can also create a comprehensive plan that covers all aspects of your financial life, taking into account how one part may affect another.

Financial planning should fit with your life goals and ambitions and a good financial planner will look into your finances, ask you where you want to be in the future and create a plan to get you there.

So, for example, you may want to leave full-time employment when you’re around 50 and use your time to travel and work on your own terms.

A financial planner can create a roadmap for you to get there, such as paying off your mortgage, investing to build an Isa fund to draw on to fund your lifestyle and ensuring you have enough in your pension for your retirement years.

Blueprint: A financial planner will create a picture that incorporates your long-term financial goals

Should I choose financial advice or planning?

Your circumstances will determine whether a financial planner or advisor is the right person to turn to.

Financial advisors will usually help you solve a specific problem and recommend a product that suits your needs, whether in the form of a pension plan or a life insurance policy.

An advisor will recommend the product that he believes solves the problem. A financial planner, on the other hand, will recommend what best fits your overall life, both financially and in terms of your goals and aspirations.

Your relationship with an advisor is likely to be transactional, depending on when you need help. Whereas, with a financial planner, you’ll probably meet with them annually to review where you are and update the plan you’ve created if necessary.

This financial plan considers both short- and long-term goals, as well as your family members, your career and retirement goals, and where you hope to end up.

How much does it cost?

Whether you seek financial advice or planning will also depend on your financial situation.

The advice doesn’t come cheap and is likely to cost you between £500 and £5,000 depending on what you need to do, according to financial adviser directory Unbiased.

Financial planning can often involve a cost based on the amount you have to invest or the value of what you need to do, along with an ongoing annual charge.

A good financial advisor or planner will always clearly lay out all costs before any are incurred. If you don’t understand something or are unsure, ask. If they can’t explain it satisfactorily, walk away.

An initial meeting is likely to be free, allowing you to discuss what you need advice on, find out how much you can expect to pay, and get to know the advisor.

What you end up paying can vary from advisor to advisor and depends on the method they use to calculate the fee.

Some, for example, may charge a flat fee for specific services, while others charge a percentage of the value of an asset they manage. It generally ranges between one percent and two percent, but can vary depending on the size of the asset.

For simpler tasks, such as moving investments, advisers can charge an hourly rate, with £150 per hour being the average figure in the UK.

Regardless, a preliminary meeting will allow you to discuss these charges with the advisor, who will be able to tell you how much you will likely be charged.

Of course, the idea of ​​financial advice is that it will make you richer in the long run, so even if you don’t have a huge sum to work with, it could still be worth it in the future.

A classic example of this is turning a pension into an income for the rest of your life. Financial advice may seem like a high upfront cost, but the benefit could be a higher, more secure income each year for the rest of your life.