How to choose a financial adviser

How do you choose an financial adviser or for that matter, an accountant?

I wrote  in the Spectator last week about the various exams that advisers have to take these days. These are good, in that they weed out the very obvious idiots from the profession. But they aren’t enough.

It doesn’t follow that someone who can pass a relatively easy exam will go on to be a good financial adviser, rather than a dishonest incompetent. That also requires honesty, good communication skills and some years of experience. So how do you choose?

Word of mouth works best (Alan Steel of Steel Asset Management in Scotland tells me that some 60% of his clients have been referred by friends or family). But either way I reckon there are probably a few questions you might want to chuck into the mix when you first meet your would-be adviser.

The first is whether he is restricted or not (restricted advisers are attached to networks that limit the products they can sell). You don’t want a restricted adviser.

The next is about qualifications. You want your adviser to be at least level 6.

Then, charges. If he tells you what they are, clearly that’s good. If they are based on the value of your portfolio, but he nonetheless explains what they will cost you in absolute cash, that’s good. If they are flat fees charged only when you actually get advice (ie there is no “ongoing charge”), that is very good indeed. If you don’t understand the charges, or if no one tells you what they are in actual cash, that’s not so good.

The last question is about tax. You might ask how the adviser would suggest you mitigate your tax bill. The answer should include some chat about Isas and Sipps, as well as mention of transferring income-earning assets to spouses with lower incomes. It might also include making sure your will use your ‘IHT nil band’ properly and giving away what cash you can to take advantage of the ‘seven year’ and ‘gifts out of income’ rules.

Finally, if you are really quite rich it would be acceptable for the adviser to bring up the subject of venture capital trusts (although regular readers will know I don’t like them much myself).

But if the adviser mentions anything more esoteric, head for the exit. Danger words include film finance, offshore (particularly when combined with “bond”) and property development.

Those in any doubt might like to read the cautionary tale of the now much-poorer-than-he-once-was Mr Leaper in the Telegraph. Leaper invested in a series of unregulated investments in an attempt to cut his tax bill. The result was losses of £1.3m.

The choice of adviser is not one to make lightly.

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One Response

  1. 04/06/2014, PW_1000 wrote

    Hi Merryn-

    Interesting article. However I think most of your readers are already familiar with ISAs, Sipps and even a lot of IHT. I would be interested in an advisor who could deal with assets in several countries (inc US) and offshore wealth, planning appropriately for the optimal tax situation with all these variables.

    I am having trouble finding one.

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