Do I need an Independent Financial Adviser?
Some of life’s biggest decisions are also one-off decisions – which means that you have to make these major choices based on little or no experience. That’s why it’s almost always a good idea to seek independent financial advice at these critical points, to ensure you get it right first time.
You can benefit from independent financial advice at any time of life, but there are certain times when it can be invaluable or even essential. Let’s take a look at the key advice moments – the very best times for seeing an independent financial adviser (IFA).
Buying a home
Your home will almost certainly be your biggest ever purchase, and the greatest financial burden on you for most of your working life. Securing the right mortgage is vital, but it’s really just the first step. You’ll also have to service that mortgage – pay it off month by month – and many homeowners find they have little room to manoeuvre. A financial adviser can create an overall financial plan for you, to ensure that you really can afford that property, and advise you on how you would manage if your circumstances were to change.
Saving up your pension
You should really be saving into a pension from the day you start your career, so you’ll probably have one on the go by the time you buy your first home (see above). But you need to take care that buying a home, or saving for one, doesn’t detract from your pension savings. It seems natural to prioritise short-term goals over long-term ones, but remember that the most effective pension saving takes place when you are young.
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If you have a workplace pension, the scheme administrator will usually invest your contributions in a ‘default fund’ unless you specify otherwise. In most cases this fund won’t be ideal for your needs at this stage of your career, as you can afford to take more risks when retirement is a long way off. An IFA can look at your pension scheme and ensure it is invested in the most suitable funds – this can translate into a difference of many thousands of pounds in the long term.
If you have a private pension, such as a SIPP, then seeking advice is even more important to ensure that your investment choices are appropriate to your needs.
Having a family
According to the Centre for Economic and Business Research, the average cost of raising one child in the UK to the age of 18 is around £227,000 – only slightly less than the average UK house price. In other words, having a child is like taking out an extra mortgage, so requires similarly rigorous financial planning. An IFA can help you re-think not just your weekly and monthly spending, but also long-term plans such as investing for school and higher education. The good thing about childhood is it comes with some very predictable milestones, which is a great help when building an investment strategy.
Accessing your pension
If you seek financial advice only once in your life, it should be when you access your pension savings. You can do this at any age from 55 onwards, so you may still be working and perhaps even still paying off a mortgage. It can be tempting to use some of your savings for home improvements, or perhaps to help your children onto the property ladder. However, you should remember that your pension is intended to support you throughout your retirement.
Options for accessing your pension include lump sums (either tax-free or taxable), a flexible (but finite) income, or a guaranteed (but limited) income for life. Weighing up the pros and cons of these and how they relate to your needs can be very complex. Even more stressful can be the process of turning your decision into action and choosing the correct products. A financial adviser can relieve you of the whole burden, helping you to assess your options and choose the best products, while avoiding costly mistakes.
There are many other choices to make in retirement, besides how to access your pension. Will you continue to live in the same home? Can you unlock any of its value to provide extra income? Will you eventually need long-term care? Should you downsize? An IFA can help you weigh up all these options – for example, equity release can provide you with income and/or a lump sum in exchange for some of the value of your home. An adviser will be able to recommend the best solution for your needs.
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