At MyBump2Baby we are proud to be connecting families with trusted financial advisers throughout the UK with our new family protection campaign. Today we have an article from our financial adviser in Brentwood. Our financial advisers offer advice on pensions, savings and investments and family protection.
When MyBump2Baby asked me to write an article on money matters for the ‘growing family’ they listed various headlines to spur my imagination. I chose two of these to concentrate on, and soon realised that rather than an article, perhaps I should write a book!
‘Financial Planning for Families’ and ‘Financial Protection For A Growing Family’ are both worthy chapter headings, but perhaps they’d appear nearer the middle of my book on financial advice than the beginning.
The following is my idea on where I’d begin my book
Hopefully it will start to introduce some of the building blocks we should consider in this all-encompassing area of our lives.
I suspect I’d begin with ‘What is financial Advice’ and follow it up with ‘Why do I need a Financial Adviser and what do I need to know?’’
First things first, let’s try to understand what we’re talking about and get some of the basics right:-
What is Financial Advice?
Money is one of those areas where everyone has a view. Everyone knows someone. It might be Uncle John who’s done rather well for himself, or it could be the bloke down the pub with the fancy car.
As a financial adviser I like it when my clients buy life insurance, start a regular savings plan or a pension because I get paid!
But, before I even consider which products might be appropriate to you, there’s a lot of information I need from you, the client, before I can honestly, hand on heart, say I have considered your circumstances, provided you with the best advice and presented the right bespoke solution for you, the individual.
Financial Advice is personal
Everyone’s different, the advice I give you is not going to be the same as the advice I’d give your parents. Your job and that of your partner might affect the order of the advice I give you in comparison to how I might advise a single parent even though your long-term goals may be broadly similar.
Advice will reflect the changes in your circumstances!
It sounds simple, but not always appreciated.
As you grow older and move from education to work, your financial requirements change. Your banking needs will probably increase as you go from an occasional saver to requiring monthly direct debits or standing orders, perhaps you’ll enter into your first overdraft arrangement and start building up student debt whilst at University.
When buying your first car, insurance is a legal requirement and is possibly your first experience of insurance as a product.
Simply put, when buying insurance, you are paying to protect the value of your possession should it be damaged, lost or stolen. Specifically, car Insurance might pay the cost of repairs to your vehicle if you’re in an accident or replace it if stolen. If you are deemed at fault, it would pay the cost of repairs to the other parties vehicle or property and compensation if injury or death occurred.
As you progress in your career, build your savings, buy a home and/or start to build your pension savings, the financial advice you receive is going to change, it will be different to the advice given to someone who is coming up to retirement having paid off the mortgage and already has an investment portfolio.
Do I need financial advice?
Some people will go through life never having had or sought financial advice.
But, will they be better off?
Well, there are a number of surveys that show those who have received financial advice use their tax allowances more effectively, they accumulate more in wealth in liquid financial assets and are more likely to have larger pension savings and income.
So whilst some people will feel that they can get through life without seeking financial advice, for the majority of us, it’s likely that at some point, an adviser will be able to point us in a slightly different direction. This may ensure we arrange a more appropriate level of insurance cover, help us decide on the best mortgage deal for our circumstances and help identify the most tax efficient and the best way to save for our old age.
Financial Advice – the very basics
KISS – Keep It Simple Stupid.
Initially at least, financial advice should be simple. You don’t need anyone to tell you you‘re spending more than you’re earning.
By fully understanding your costs and monthly and annual expenses and comparing them to your income you will be in control and properly able to make spending decisions.
Rather than trying to fund an annual cost such as car insurance when it is due for renewal, set up a separate account and pay into it every month. Try to make sure you are earning interest on this account. Every little helps!
We’re used to the idea of checking out the cheapest car insurance or mobile phone data deals on comparison websites, making sure we’re not overpaying for a particular service will help you budget your monthly expenses and maybe free up a little cash to pay off debt or start saving.
Pay off your high cost debt.
As a society we have got used to the concept of renting rather than owning. Credit is more available now than ever, but debt is still a debt regardless of your credit score!
If you have a debt, a personal loan, an overdraft or a credit card, it’s likely that the interest you are paying every month is more than you could earn if you had the same amount in a savings account.
If you have a credit card that’s charging you 16, 17 or 18% a year on your borrowings, pay it off before you save anything, don’t keep utilising your overdraft to pay a standing order into a savings account paying you 0.5% on your balance, that’s what the banks want you to do !
Build up an emergency buffer.
Now that you’ve paid off your debt and have regained control of your money you can think about the next step. Building an emergency cash buffer to cover those unforeseen expenses.
Ideally, your cash buffer should be enough to pay all your bills and expenses, pay your mortgage or rent along with any other weekly or monthly payment commitments you may have for at least 3 months.
How much do I need? It’s a personal number, we’re all different and will all have different requirements.
How much would you need if you were unexpectedly made redundant? How long would your current employer pay you if you fell ill and couldn’t work for a year? How long could you maintain your current lifestyle and meet all your financial commitments if you couldn’t find a new job, or weren’t well enough to go back to work?
As a rough guide we’d normally suggest a minimum of enough savings to cover between 3 and 6 months expenses. However, ‘be realistic’ is good advice.
This emergency buffer should be money that is easily accessible, ideally in instant access deposits. Keep it separate from your normal bank account and definitely try to avoid the temptation of dipping into this emergency pot for ‘life’s little luxuries’!
Why do I need a Financial Adviser and what do I need to know?
So, you’ve read all the above. You cannot understand what all the fuss is about, it seems easy, common sense really.
You’re happy in your job, maybe going for promotion, and your work contract says if you’re ill you can still get full pay for 3 months and half pay for another 3 months. Between you and your employer, you’ve even got a pension started.
What do I need you for I hear you say.
Financial advice -What’s important and what do I need to know?
All financial advisers must be registered with the Financial Conduct Authority, (FCA).
The FCA are the financial industry’s policeman. We all have to be registered by them, as an individual or as a company, if we are not registered, we are not allowed to conduct business or advise clients.
Make sure you check your potential adviser is ALLOWED to give you advice.
Anyone can go online and check any individual adviser or their company and see if they appear on the FCA register. Against my own registration number and name there is also a list of what I am allowed to advise you on as well as my previous employment history.
Restricted or Independent?
If a company or adviser is an independent financial adviser, an IFA, or you are offered independent advice, then this means that the advice you receive and the products you can buy could come from ANY provider in the market.
The alternative is restricted advice, and as the name suggests a restricted adviser can only recommend products from certain providers.
Whilst this may sound like you are limiting your choice, it is very unlikely that a restricted adviser will offer you just one product provider to choose from. Most likely they have a selection of companies that they trust and are happy to promote to their clients. Do ask them which companies they work with and why.
How much will Financial advice cost me?
If you purchase an insurance product such as life, critical illness or income protection insurance policy via a financial adviser, there will be no fees to pay. This is because the company providing the product pays the financial adviser directly from the premiums that they charge you.
If, however, you are seeking advice on savings or pension products, then fees can be charged in a number of ways.
You can pay a flat fee for the advice, based on the time it takes the financial adviser to consider and make a recommendation. If you are paying fee based advice on a product then it is most likely that you will be charged VAT in addition to the agreed amount. Always check with your adviser.
Alternatively, and the most common way an adviser will charge you is a percentage fee based on the amount of money you invest or you wish to be managed. You will pay an initial fee and, most likely an ongoing percentage charge all the time they are continuing to manage your money.
You should always be told, prior to seeking or accepting any advice exactly how you will be charged for the service you seek and it should be agreed with you before any advice is given.
How do I find a Financial Adviser?
You could also speak to family and friends, find out if they’ve used an adviser before, do they know or would they recommend anyone in the local area?
Ring the adviser up and have a chat. Find out what sort of advice they offer and which products areas, if any, that they specialise in.
Most advisers will offer a free introductory meeting so you can get to meet them and understand if you could trust them.
You will be spending money, (possibly a lot of it over time), with this person, so don’t be embarrassed about asking pointed questions and getting comfortable with them.
Remember, this is someone who you are going to have a very open and honest relationship with. You will be discussing very personal subjects with a financial adviser, including money, family and health.
This is someone who you are asking to help you make informed investment and protection decisions for you and your family, so take the time to make the right choice for you.
What will a Financial adviser do for me?
An adviser will help ensure you are using your annual allowances as effectively as possible. Everyone, taxpayer or not, has annual allowances available to them and they should always be considered when making savings and investment decisions.
For instance, did you know:-
-You can earn £1000 a year Interest on your savings tax free if you are a basic rate taxpayer or £500 as a higher rate taxpayer?
-As a basic rate taxpayer, for every £80 you save in your pension the government puts in £20 making it £100 in total, if you’re a 40% taxpayer the government will pay you £40 towards your £100 pension investment!
-You can start saving into a private pension for your child or Grandchild and the government will add 20% a year to your contributions up to a total maximum £3600 ?
-The first £2000 a year dividend income is tax free for a normal rate taxpayer?
-ISA income and gains are tax free.
-Parents, family or friends can save up to £4,368 a year in the Junior ISA, (JISA).
If you are self-employed or you own your own business, your financial adviser should be able to work with your accountant or legal advisers and suggest ways for you to save tax efficiently.
So why do I enjoy being a financial adviser?
Simply put, because I like helping people make a positive choice.
I enjoy working with my client’s, getting to understand their needs, helping them protect their families against the worst, helping them save and grow their assets whilst assisting them to plan for the future and their financial independence.
What do I hope to get from my client? I’d hope they consider me to be one of their ‘hubs’. Someone they refer to when they have a financial query or are considering taking a financial decision so I can help them avoid costly tax mistakes. I’d hope they consider me to be someone they can trust and recommend to others.
Who knows, if there’s sufficient interest, I might just get around to writing another chapter or two?