Risk, reward and the right advice


MoneyPlus Features Team

28th July 2016 at 10:09am

Managing your money can seem a risky business.

Risk warnings litter financial communications, and not just because financial organisations need to be transparent, but as an acceptance that the financial world is a complex one.

With the legendary value investor Warren Buffet believing “risk comes from not knowing what you’re doing”, how can we prevent ourselves adding to those risks if we can’t claim to be that financially savvy?

The good news is there are ways and means.

Mitigating risk

The world is full of risk takers, from extreme sportsmen to investors like Buffet, but one thing these thrill seekers and financial impresarios will all have in common is they’ll have done their homework.

They’ll leave little to chance. By gathering as much information and expertise in their field as possible, they’ll avoid taking a leap of faith when emerging from an airplane at 3000 feet or pumping big money into some risky stock.

And we too can take measures to avoid that leap of faith when it comes to our money management.

Don’t worry, you don’t need to rush off and take a crash course in economics, spend hours brushing up on the workings of the stock market or take finance 101.

The answer is quite simple; seek guidance from someone who has – take financial advice.

Seek enlightenment

There’s some interesting research from the adviser search site Unbiased to support this theory.

Figures suggest advice could boost your pension pot. Unbiased found that UK savers who take advice save on average £98 more every month and receive an additional income of £3,654 every year of their retirement, based upon a pension pot of £100,000.

And it would seem getting this advice as early as possible is best, but it’s never too late.

In a poll of 200 IFAs, they discovered that most are confident of boosting a client’s retirement income if consulted 15 years before retirement. This figure drops closer to retirement, but more than a quarter of advisers are still confident they can boost retirement income even if approached at the point of retirement itself.

The value of advice

One aspect of taking financial advice is to get back more than you put in by minimising those risks we were talking about, but there are other benefits associated.

  • Return on investment – getting back more money than you invested
  • Future security – making sure you have enough income in later life through careful pension planning
  • Peace of mind – comfort in the knowledge you’ve secured the best deals available to meet your particular requirements
  • Protection – putting the security in place that if anything unfortunate happens such as illness, job loss or death, you and your loved ones will be catered for
  • Achieving goals – helping you overcome challenges and reaching milestones; financing that dream home for example
  • Avoiding mistakes – it can reduce the risk of you making financial decisions you might regret and can help you avoid scams and fraud too
  • Opportunities – helping you make your money work harder by presenting new and unexpected opportunities.

The cost of advice

Tapping in to that rich vein of experience and knowledge does come at a cost, but remember the definition of good financial advice is that it leaves you better off in the long term – that initial outlay could reap later dividends.

According to The Money Advice Service, an adviser can charge you in several different ways. These include:

  • An hourly rate – this will vary from £75 an hour to £350, although the UK average rate is about £150 an hour
  • A set fee for a particular piece of work – this could be several hundred or several thousand pounds
  • A fee that you have to pay every month – this could be a flat fee or a percentage of the money you want to invest
  • An ongoing fee. An adviser can only charge you an ongoing fee in return for providing an ongoing service, unless you are paying off an initial charge over time through a regular payment product.

Some advisers may offer different ways that you can pay for advice. If there is a particular option you prefer, ask the adviser as they may be happy to negotiate.

To get help in finding an adviser, Citizens Advice have pulled together a useful list of organisations that can put you in touch with a qualified adviser in your area.

A free alternative

If cost is an issue, or your affairs less complex, there are many ways to get free financial help and information. But it also pays to know when you might need the type of advice free services can’t provide.

You’ll be able to source free financial help and information from:

  • charities
  • government-led or government-backed services – including the Money Advice Service and Pension Wise
  • commercial organisations like comparison websites or magazines

These services will be able to give you reliable help and guidance, but they don’t offer what is called ‘regulated’ financial advice like an adviser. So if you buy a product based on what you’ve heard, you alone are responsible if it proves unsuitable.

Check out the Money Advice Service for a list of helpful sources.

Use an advantage

Your financial affairs, however complex, can always benefit from some financial advice. And going by the evidence, taking advantage of it can mitigate those risks, make a real difference to your future finances and be good for you too.

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The information in this blog or any response to comments should not be regarded as financial advice.

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