IFA Direct Home: Can you tell us a bit about your background?
Graham Thompson: Sure, I first entered the world of Financial Services in 1997. After leaving university I started working for a large insurance company, alongside the team of financial advisers working for the firm. This gave me a real feel for the role and inspired me further to go on and obtain the qualifications I needed to become a financial adviser myself.
I gained my first regulated advice role at the start of 2001 and have been working as a financial adviser since. I have worked for several companies over that time (both large and small) and now work on a self employed basis as a completely impartial, Independent Financial Adviser. After several years of working within the restrictions of various companies, I was regularly frustrated by not always being able to select the absolute best solution for me clients. Those frustrations are now gone as I now able to work 100% in the interests of my clients, as opposed to a company I work for.
IFA Direct Home: Who should be seeking advice?
Graham Thompson: A good question, but for me this is quite simple. Anyone who is faced with an important financial decision (whether that is making the right plans for retirement, deciding where to invest money for income or growth or understanding how best to protect their loved ones if the worst should happen) and is unsure of how to make that decision, needs to take financial advice.
IFA Direct Home: Why should they seek advice over making a decision themselves?
Graham Thompson: I have seen the consequences of people making the wrong decisions and it can be very costly and have a significant impact on their futures. If advice is taken, then you have the backing of that advice and cause for recompense if the advice turns out to be unsuitable. If you do not take advice and it all goes wrong, then you do not have the backing of that advice and must live by your decisions.
IFA Direct Home: What financial pitfalls might people come across?
There are almost too many to mention here. A few would be, not understanding your tolerance to risk and investing within assets that subject your funds to an unsuitable level of risk. You could be paying more in the way of charges than you should, or you may be investing within assets that are simply performing badly. Another would be failing to plan correctly for an event (be it a wedding, house or car purchase or a longer term event such as retirement) and then struggling to cope with the demands of the event. Finally, failing to protect liabilities and loved ones can have a disastrous impact if an accident, sickness or a death removes a significant income from the household.
IFA Direct Home: Can you explain the process of receiving financial advice?
Graham Thompson: Before any adviser can provide advice, it is vital for them to fully understand the circumstances of their clients. We always offer a free introductory meeting, where the adviser can discuss the client’s requirements and situation and where the client and adviser can decide if they will be comfortable working together. The adviser will explain how they work, how they get paid and the services they offer.
From then on the adviser will carry out a ‘fact finding’ exercise where they gather all of the important facts regarding a client’s position, as well as understanding their feelings and emotions towards specific subjects. This is a very two-way exercise where it is important to build the fullest picture possible. With regard to investment and retirement planning, this process will involve assessing a client’s attitude towards risk, understanding their aims, objectives, knowledge and experience as well as their capacity to sustain financial loss
Once the adviser has a clear picture of the client’s circumstances, they will go away to formulate specific and clear recommendations, which will be presented to the client in the form of a suitability report. This will explain exactly why the recommendations are suitable for the client, along with other options that have been considered and the risks applicable with accepting the recommendations.
The client will then decide whether to accept the recommendations presented.
IFA Direct Home: Do you find that a client’s initial objective changes following their first meeting with you?
Graham Thompson: Yes, this is quite often the case. The financial world is rarely straightforward and it is common for there to be a range of solutions that may be suitable for a client. A recent example would be following the huge changes to the rules on accessing pension funds. It is easy to read or watch an article on the subject and feel that you then know the right action to take, but quite often, these articles do not take into account the full picture and there may well be an option out there that is more suitable to a client’s specific requirements.
I have reviewed clients who were dead set on on taking a pension fund as cash, only to realise that they would be giving up a fantastic rate of guaranteed retirement income if they did. After looking at the full picture, they would have been significantly worse off by taking the cash from their pension and therefore changed their minds. It may have cost them to receive the advice, but had they not elected to take the advice, they could have been thousands of pounds out of pocket and would have lost an important source of guaranteed income at a level which is simply unavailable today.
IFA Direct Home: How much does advice cost?
Graham Thompson: This does vary based on the type of advice and the regulatory risk of that advice to the firm. As mentioned earlier, it really is the backing of the advice and the protection that offers, that you are paying for. If an adviser gets the advice wrong, it can cost tens of thousands of pounds to put right. Advice fees therefore reflect this risk. Typically, if a client was investing a lump sum, we would charge in the region of 3% of the amount invested. So if a sum of £10,000 was invested, that would equate to around a fee of £300. If an amount of £50,000 was invested, then the fee would be around £1,500. The fees can either be paid directly by the client or they can be taken from their investment or pension. It is down to the client to decide how they pay us.
As well as paying for initial advice, a client may wish to receive on-going advice on their investments or pensions. For this we would usually charge between 0.5% and 0.75% of the value of the pension or investment per annum.
Advice on protection products (such as protection against death or ill health) is still paid for through commissions paid by the relevant insurance company.
IFA Direct Home: Isn’t it a catch-22 situation to be spending money to find out how to save money?
Graham Thompson: It can seem like that initially, but hopefully after understanding my earlier points, it is clearer why paying for advice is important. If an investment does not meet a client’s risk tolerance level, that can lead to them panicking at the wrong time and withdrawing their funds at a significant loss. If an investment a client has chosen performs badly, then that can see them lose thousands when compared to an investment a regulated adviser may have selected. Similarly, an investment a client may have selected my have high on-going charges. The compound effect of these charges can make the charges paid to receive the advice seem tiny in comparison.
IFA Direct Home: How often do you review the financial situation with your clients?
Graham Thompson: This all depends on the type of client and their on-going needs. Some clients have fairly simple financial needs and are invested within plans which only need to be reviewed every year or even every 2 years. Some clients have more complex needs, which require several meetings throughout the year, often alongside other financial professionals.
Ryan Mellor, Co-founder at IFA Direct Home
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