What to look for in a financial adviser. An insider’s take.

Apparently, those who benefit from financial advice have seen their overall wealth increase by £47,000 over the previous 10 years according to a study commissioned by Royal London which was conducted by the International Longevity Centre. When I first came across this study, I paused, reflected and thought “nonsense”, it must be a lot more, but admittedly it’d be incredibly difficult to quantify.

I mean, how do you quantify the advice that identifies cost-effective protection needs for a client that 15 years down the line results in a now single parent having enough funds to support the education of her children, maintain a roof over their heads whilst being able to grieve the loss of a spouse without the pressure of needing to worry about money?

How do you quantify the value add of maximising the growth of your surplus income and savings by appropriately choosing the correct tax wrappers and then tailoring the underlying investments? 

How do you quantify the value add of knowing how and when to access those investments in the most tax-efficient manner possible?

How do you quantify the value add of structuring your wealth in such a way to benefit your children and your grandchildren?

How do you quantify the value of the advice given to a director of a business that goes on to protect the jobs of their employees and the valuable services they offer to their customers by putting in place effective succession plans in the event of their death? 

How do you quantity the value of the advice given to stop you from making a ridiculous decision several years prior?

I don’t know, admittedly it’s beyond me.

Financial advice has come a long way in the UK; advisers are better qualified than ever before, and the industry is more closely regulated than ever before. Admittedly there’s a tug of war between the industry and the regulator, but in my opinion, it’s a healthy one. 

The business model

In saying that it’s important you know how the industry works. For instance, an adviser’s performance is based on two metrics, and they are rarely standards of service. These two metrics are one, assets under management (AUM) and two, the initial advice fee.

The AUM is a good measure of the ongoing income that’s likely to be generated by an adviser who charges an ongoing advice fee. This fee is usually between 0.5 – 1% per year; therefore, £1,000,000 under management on which there is a 1% ongoing advice fee, earns the practice, £10,000 per year. Of that amount, a portion will go to the adviser as per his/her contract, i.e. self-employed or employed. Where protection is put in place, a good measure would be £1,000 commission for every £50 premium. The commission that is paid to the adviser may apply a loading to the premiums you pay, for the entire term of the policy. 

Advisers who’ve accumulated enough AUM can effectively sit back and service only those clients and the odd referrals that come out from them. Their motivation is to provide quality customer service to a manageable client base but also to have a better work/life balance.

The AUM is crucial because it is the most significant factor in determining the value of the financial advisory business which is important when the Director of the practice wants to exit, that is to sell up and retire. But many may simply decide not to take on any further clients.

Most advisers tend to be self-employed, so in the early years, their income is driven largely by the initial advice fees charged. Standard fees being 3% of the amount invested. Employed advisers, on the other hand, need to justify their salary, so if an employed adviser is on a basic salary of £60,000 per year, he/she would need to usually validate this income by a factor of 3. This means he/she would need to generate £180,000 of fee income to incentivise his/her employer, which would, in turn, allow the adviser to earn bonuses over and above the validation figure.

My biggest problem with the remuneration structure, despite the internal compliance checks, despite the regulation, despite consumer access to the Financial Ombudsman Service, is the simple fact that the adviser’s income or their job security is overwhelmingly dependent on an investment being made. This is contingent charging.

Now, in my opinion, a fairer model would be to negotiate a fixed fee based on the complexity of the work, even if that means them issuing you with a report simply explaining your situation and then concluding ‘take no action’. I’d even go as far as to say, that the ongoing advice fee should be fixed rather than being dependent on the AUM. However, this is often not feasible – I discuss why here – Why do advisers charge on a percentage basis? 

Where it is, pay that fee via standing order and not from your underlying investment funds, which could risk encashing your investments to pay for said fees at the wrong time.

A financial adviser doesn’t grow your investment, that’s the job of your fund manager(s), however your adviser would’ve adopted an investment strategy for their firm and should be able to justify it. It’s important to have an investment strategy as opposed to relying on a stockpicking strategy every year which is no different to listening to stocktips from a tiktoker. 

That being said, it’s in fact more important your adviser advises on a tailored investment product and tax wrapper in light of your current circumstances and longterm needs especially if it’s creating a funding source for your business, managing different types of tax, and even ways optimum ways to pass your accumulated surplus wealth down to your children – yes – a will is not always sufficient and not the only mechanism. In fact the underlying investment strategy although important is not anywhere near as important as ensuring the overall structure in place is appropriate for you and your family.

It’s knowing the big picture where the value of financial advice or more correctly, wealth management, really plays a huge part. The more competent your adviser is in understanding trusts, family investment companies, structuring protection policies, tax implications as well as regulated investment solutions, the more priceless your adviser is. They may charge at least 1% per year and require £500,000 in assets under management to you for the privilege. Where larger sums are involved they may be willing to work on a fixed fee basis. Such advisers are rare, so understand the dynamic with such advisers is different but provided you both get along the value-add to the family would far outweigh any charges.

  • They won’t care about earning commission from recommending an exotic investment product.
  • They will avoid unregulated investment solutions
  • They will not attempt to offer you investment solutions via their unregulated company
  • They won’t promise you market leading investment returns – they already know and by then you will know, that investing in the stockmarket is there as a better place to park your funds, than keeping it in cash.    

QUICK TIP: Every time you have a meeting with your adviser, keep a meeting record of what was discussed, who was present, how long the meeting lasted, and what the outcome of the meeting was. If your adviser does this anyway, just request a copy and make any edits and return.

What to expect

A financial adviser is not there to make you wealthy and achieve financial freedom. If they say they are, they don’t mean it, and it’s probably based on very poor ‘sales’ training. The only person who is going to make you wealthy, is you, along with your entrepreneurial efforts.

The role of a financial adviser is simply to manage your wealth better. What you get out of a financial adviser is dependent on where you are in your life, how complex your affairs are and even how resourceful your adviser is. Now, when it comes to determining the complexity of your affairs, leave that judgment to your financial adviser – you don’t know what you need to know to make that assessment.

Recommendation: Have a financial health-check at least every two years and negotiate a fixed fee with an adviser.

During an initial meeting, expect a conversation about all aspects of your life, I’m talking, lifestyle, career, family; parents and children, property, retirement, aspirations and concerns which will allow the adviser to get a good picture of your world and consider what solutions would be most appropriate for you. For instance, some investment solutions won’t be suitable if you are planning to leave the country. Or if you expect to receive an inheritance whilst in a difficult marriage it could lead to advice around structuring any windfall in a certain way to ensure it’s protected from a divorce settlement claim.

Remember you’re not only tapping into technical advice but also the adviser’s resources and professional connections.

A good initial meeting could last around 2 hours, although I’ve had initial meetings where it’s been over 4hrs. Some advisers will offer that initial meeting for free, especially if you’re closely connected to an existing client. If your parents have a financial adviser, I’d suggest you reach out to them first.

What to appreciate in an adviser and what to look for (not in any order of preference):

  1. Integrity; difficult to assess this in an initial meeting, but it’ll either come across or won’t over the more ‘touches’ you have. An adviser with integrity may not know the immediate answer but will go out of his/her way to find it before recommending any course of action and thereby being closer to any ‘sales target’.
  2. Technical competency; once upon a time, many years ago, I still remember a senior manager saying technical competency didn’t matter, only that you needed to know how to sell. Utter nonsense. Smart advisers will have a broad understanding of investments, tax, law, different financial structures and will be able to add immeasurable value as a sounding board for some ingenious ideas some entrepreneurs come up with, that with a few tweaks could work.
  3. Resourcefulness; a very good adviser will also be very well connected to other quality professionals who can add value to you personally and in terms of your business.
  4. Good fact-finding skills; you’ll get an idea of this from the initial meeting based on the questions they ask and comments they make. You should get a few ‘ahaa!’ moments and ‘I didn’t know that!’.
  5. Likeability; you need to like your adviser. This is someone who will be in a very privileged position to know about your personal financial affairs and someone with whom you’ll be in regular contact with. Liking your adviser will make the relationship so much better.
  6. Transparent Fees; if you don’t know how much you are paying; you can’t appropriately measure value. I would also extend this to include the disclosure of any fees they get for recommending a certain product or even a third-party professional.

Goodluck and hope the above helps.

Mohammad Uz-Zaman is a chartered private client wealth manager who holds accreditations across regulated financial advice and estate planning. He holds graduate and post-graduate degrees and he is also an associate member of the Society of Trusts and Estate Practitioners (STEP). He works closely with financial advisers, general practice solicitors, accountants and investment managers from several major practices.

Should you like to book an initial slot with Mohammad Uz-Zaman directly, please contact us and request scheduling a slot with him personally.

5 Questions for the Potential Investor

Thinking about investing your personal finances is not a decision to be taken lightly. With so much to consider, just the thought of entrusting your hard-earned money can make your head swim! That being said, there’s no need to feel over-whelmed by making the decision to invest – with our help, you can keep your head above water and discover the right financial move for you.

Whilst taking the step of investing is actually very simple, the wisest investors and quite often those who reap the most lucrative rewards, are those who take the time to look before they leap. Whether you have the urge to jump in feet first or are hanging on to those purse strings for dear life – a few choice questions and a little reasoning will work wonders for your money’s potential as well as your peace of mind.

To help you, we have prepared 5 questions to ask yourself before you invest so that you can be a savvy investor:

1. Why should you invest?

Well put simply – if you want your money to grow and to benefit you as time goes by, investing is the best way to do that. Money that sits idle in a bank account serves little benefit beyond being some nice numbers on your bank statement each month. Investing puts your money to good use as well as increasing its value by being part of a wider project. Invested money is active money and is far more likely to benefit you in the long term than simple saving for a rainy day.

2. When should you invest?

The specific details of what you choose to invest in are up to you but the state of the market is something you should look at and consider. That being said, trying to predict a market or pick your ideal moment will probably just leave you in the starting blocks whilst the race goes on ahead of you. The thing to remember is that all markets experience short-term movement or fluctuations but it is the longer term picture that you should consider. There may never feel like the completely perfect time to invest but with a bit of research you can pick a very good time to put your money in.

3. How should you invest?

Investment markets will have down periods which is something that needs to be taken as the rough with the smooth. To minimise the risk of being adversely affected by these downturns, it may be wise to consider splitting your finances and diversifying your portfolio.  But beware: spread yourself too thinly and you may regret it due to a lack of financial reward and the pressure of keeping on top of too many assets. Choosing a few, specifically selected projects will instead enable you to keep an eye on your money, minimise risk and reap the benefits.

4. Where to invest?

A market that has a healthy long-term future is the best option. One which cannot be predicted to be a flash in the pan but instead is a more like a constant simmer. Giving your money some time to grow IS necessary and the safest, most stable option. So whilst you may be tempted to put your finances into the next big thing, a market which can demonstrate maturity and longevity is the wisest choice.

5. What to invest in?

This really is the million-pound question – and the answer lies entirely with you. After all your considerations, you need to be happy with what you are investing in and stay happy.  Consider regular reviewing your portfolio to check on the health of your investments and the decisions you made. In time, your preferences may change as your life moves forward. For instance – investing abroad may seem like a good idea when you are younger but as you approach retirement, UK investment may seem the more sensible option. Think about the needs of your family, your plans for the future and the benefits that your investments give you (if any) which are not financial.

Considering the questions above will give you a good starting point from which to make your investment choice. And as you take the step forward, you can go in to your investment being satisfied with the decision you have made. Winging it may seem like a good idea with some things in life – but choosing where to entrust your money is not one!


Disclaimer: The information contained within this article are provided as illustrative purposes only based on legislation at the time of publication. Nothing in this article should be construed as advice or guidance to one’s personal situation. The value of your investments may go up and down, similarly, other aspects of your wider lifestyle and financial context may impact on your objective. In a nutshell, don’t rely on blogs and the articles for personal advice, and always seek advice from a qualified professional.