My cousin likes a bit of DIY, so when his boiler stopped working in November he decided to have a go himself. He looked up the model on the internet and downloaded a 72-page document with everything he needed to know about his boiler. After dismantling it and making a mess in the kitchen as a result, he realised he’d bitten off a little more than he could chew.
A month later, puzzled to the point of insanity but with no hot water, no central heating and a wife threatening to leave him, he decided to call a plumber. £90 and 45 minutes later, the boiler had been reassembled and was purring away like new.
With the number of price comparison website out there, there are a lot of tools available for the DIY investor. If you want an ISA, a pension, life insurance, a mortgage or even critical illness cover, you can go online and do it all yourself. So why pay a financial adviser?
Until recently, the perception was that financial advice was free. This was, of course, because financial advisers earned commission that was paid to them through the charges within the product sold. And who paid for the charges within the product? The client did. So the client paid the adviser, albeit in a roundabout way, creating the perception that the advice was free. However, the new rules for 2013 mean that advisers will no longer earn commission. Any fees earned by the adviser will be separate and transparent – so the client will be much more aware of what they are paying for financial advice. Which now begs the question: is financial advice worth paying for?
Being a financial adviser, I may be a little biased – but the answer is both yes and no. Why pay for financial advice if you are able on your own to determine your financial goals, assess your attitude to investment risk, determine and calculate how much you need to put into a pension, or find the best tax wrapper for your own individual tax circumstances?
It’s easy for me, because I’ve been doing this for years. I can certainly identify gaps and shortfalls in a client’s finances pretty quickly. Without too much effort, I can help a client determine what is most important to them from a financial standpoint. I can identify and select the best product for a given financial shortfall within a matter of minutes. I do it all day every day. However, with the innumerable websites and information sites available on the internet, with a bit of time and application, I’m sure most people could sift through the thousands of options out there and hand-pick the best solution for their circumstances. Could they? Or am I being naive?
I would wager that those who take the accumulation and protection of their wealth seriously would engage the services of a trusted financial adviser and happily pay for the privilege. They would know that the elderly couple enjoying their retirement through the careful accumulation of wealth probably used a financial adviser. They would be aware that the financially secure widow with three children probably took advice from a financial adviser at some point. They would also be aware that only through engaging a financial adviser would you get access to a qualified financial professional who was accountable for the advice given. And by using an adviser, you automatically qualify for the protection and compensation mechanisms created by the financial services regulator, the FSA.
So how does the cost of a financial consultation compare to the cost of getting it wrong? Well, just imagine that at age 65, you discovered that your entire retirement plan was set up incorrectly because you misinterpreted the information available on the internet? Oops!
There is nothing wrong with DIY – in fact, a bit of DIY can be fun. But in this case, we are talking not about hot water and warm radiators but your financial future. Unlike my cousin, I’d have called in a plumber at the outset. The question with financial planning is not whether you can afford to pay for it but whether you can seriously afford not to?