Investments, pensions and taxes are all daunting topics if you have little to no financial knowledge. Savers may feel bombarded by the sheer amount of information.
Even if you feel confident using a low-cost investment platform, a second opinion from an adviser or coach could prove useful.
Financial advisers, planners and coaches all want to help savers with their money but there are key differences which mean one might work better for you than another.
This Is Money looks at what they offer and what a new generation of digital advisers means for savers.
Savers should note the difference between financial guidance and financial advice
What is a financial adviser?
Financial advisers provide specialist advice on how to manage your money, including investments, pensions, tax planning and insurance. Financial advice informs you which specific product would best suit your needs, unlike financial guidance which provides you with information on the available options.
There are two types of advisers – independent and restricted – and both must be registered with the regulator.
To check if an adviser is authorised by the Financial Conduct Authority you can check its register, and you should also look at its warning list to make sure there are no red flags against their name.
Independent financial advisers, or IFAs, will offer advice on a range of investment products based on your scenario. A restricted service, like that offered by St James’s Place or Quilter, may only use their own investments to create your portfolio, or those from a panel of providers.
Some restricted advisers only focus on one area, such as pensions, but offer products from any provider within that market.
It is important to shop around for an adviser and a comparison website like Unbiased or VouchedFor is a good starting point.
Costs depend on an adviser’s fees, which tend to be between 0.5 per cent and 1 per cent, and the charges of the funds in your portfolio.
What is a financial planner?
A financial planner is a type of adviser that tends to cover your entire financial life to help develop a long-term plan.
Chartered financial planners will help you define your goals and explain the best way to achieve them, including everything from spending habits, insurance, pensions, investments and inheritance.
The first ‘discovery’ meeting will be free of charge and take around 30 minutes to an hour. The financial planner will then gather some financial information from you before agreeing specific aims and the fee level.
‘Increasingly, the role of the financial planner will include behavioural coaching, to help investors make better decisions and avoid the often irrational choices that arise due to human nature,’ said Martin Bamford, financial planner and personal finance expert.
‘For example, a financial planner acting as a behavioural coach will help an investor make logical decisions when stock markets are crashing, to remain invested for the long-term rather than selling on each dip and inevitably missing out on returns.’
What is a financial coach?
For some people, IFA fees are too high to be worthwhile and financial planning has become something for the wealthy. This so-called advice gap has opened up the market for financial coaches, who offer a similar service for a fraction of the price.
Coaching services are not regulated by the FCA however, so you may not be able to complain to the Financial Ombudsman Service or the Financial Services Compensation Scheme (FSCS).
Adam Price, founder of VouchedFor and Octopus Moneycoach
Coaches don’t make their money from management fees, instead charging for their time, but they offer guidance not advice. Their prices vary depending on the coach and the packages on offer.
What does a financial coaching session look like? Adam Price, founder and chief executive of Octopus Moneycoach, said: ‘We tend to have a half an hour discovery meeting through Zoom. The main focus is a client’s financial goals, what would bring them happiness… At the end of that session the coach will give you a few pointers whether that’s budgeting and saving, investing, pensions or mortgages.’
‘If you want to continue, you would start to pay for the service – £249 for the year – and the coach would build a financial plan for you.’
Price, who also launched the financial adviser site VouchedFor, thinks advisers and coaches can co-exist.
‘If you’ve already built up large pots of money, you’re nearing retirement, or you’re in a complicated situation like a divorce, a financial adviser may be the best route for you,’ he said.
‘Our coaches are for the clients that the advisers don’t serve: younger people pre-retirement who haven’t built up large pots of money already and who aren’t in any other particularly difficult circumstances.’
Digital first?
As with other parts of the financial services industry, the advice market is starting to see increased digitisation.
Robo advisers are a popular low-cost alternative to the traditional wealth management industry. Companies like Moneyfarm and Wealthify match you with an investor profile through a quick questionnaire on your risk attitude, as well as how much you earn and your financial goals.
Robo-advice firms are regulated by the FCA and the FSCS will protect your money up to a maximum of £85,000. And big firms are starting to move into the market: JPMorgan Chase recently snapped up Nutmeg as it moves into the market.
The benefit of robo-advice for less confident investors is that you get a diversified portfolio managed on your behalf. It is much cheaper than traditional financial advice and you can access the service even if you only have a relatively small amount – like £50 a month – to invest.
However they can’t make intuitive recommendations or deal with complex cases, such as when you might need advice spanning a number of different tax regimes.
‘Robo-advice is playing a useful part in closing the so-called advice gap, ensuring that more people have access to savings, investments and protection. However, nothing yet replaces the human touch to deliver excellent financial advice,’ Bamford said.
There are also an increasing number of apps emerging which seem to offer some level of financial guidance, whether it be a budgeting app like Plum or full blown coaching.
Claro Money recently launched, claiming to be the UK’s first financial coaching app. The app is free to download and users can book a one-to-one call with a financial coach, create a financial plan and then choose savings and investment products. The app takes a management fee off the money invested on its platform.
‘We believe we can merge technology with a personal experience, creating what we call a digital virtual coach,’ boss Rob Brockington told This Is Money. ‘If someone comes to us and hasn’t got an emergency pot in place or emergency funding in place that covers three months of their salary, that’s the first thing we guide people to consider.’
Claro’s platform is free to use up to £2,500 and then costs 0.45 per cent per year paid monthly. Its portfolio fee is on average 0.19 per cent per year while its average market spread – the difference between what it costs to buy and sell – is 0.05 per cent.