Merryn's Blog

How to choose a financial adviser

Choosing a financial adviser is not something you should do lightly. Merryn Somerset Webb suggests a few questions you should ask of any candidate.

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.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

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.

Advertisement - Article continues below

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.

Advertisement - Article continues below

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.


Most Popular

Investment strategy

The secret to avoiding being panicked out of your portfolio

With the coronavirus continuing to occupy headlines, investors still aren’t sure how to react. But the one thing you mustn’t do is panic. Tim Price ex…
11 Feb 2020
Silver and other precious metals

You should all own some silver. Just don’t expect it to make you rich

Silver is cool, beautiful and immensely useful. But for investors it's the most frustrating of metals. Dominic Frisby explains why you should own some…
12 Feb 2020
Investment strategy

Just five assets matter for investors. Here's what they are

Every investor’s needs are different – but most can be met by the right combination of five investments
11 Feb 2020

Is 2020 the year for European small-cap stocks?

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, on why he believes European small-cap stocks are performing well.
12 Feb 2019