When you are looking for financial advice for yourself, your family, or your business for the first time, there isn’t a clear, straightforward choice regarding who to turn to. Professionals working in financial services fulfil a broad range of different roles including; financial adviser, IFA, and financial planner.
Whether you are looking for advice on savings, investment management, tax planning or insurance, your first step is to find out who is the best person to speak to.
What exactly is the difference between a financial planner, a discretionary investment manager (DIM) and an independent financial adviser (IFA)? And what distinguishes an independent financial adviser from a financial adviser?
To save you time in getting the right advice, here’s an overview of what the different roles mean and who to turn to based on your financial objectives.
This catch-all is potentially the most confusing term of them all, as it is the least specific and sometimes the least helpful in narrowing down your options.
Financial advisor is used as something of a basic term across financial services for anyone whose day-to-day job involves making recommendations about financial products and services. You will find financial advisors working in banking, insurance, estate and investment management, in the stock markets and more.
They may have more specific job titles such as mortgage adviser or insurance adviser, which provides a guide to what they can help with. Often, however, financial companies will be deliberately vague about this. Regardless of what you are looking for, a financial advisor’s job may be to sit you down, carry out an interview to assess your financial circumstances, and then try to sell you products based on whatever answers you give.
Financial advisor is the term to look for if you are after general, basic-level advice about managing your finances, or if you are looking for recommendations about specific products and services in areas like banking and insurance.
There are two types of financial advisor: tied (restricted) and independent. The titles should explain the limitations. Restricted advice means just that. You can’t get the full picture or select from all options. A restricted adviser may be very helpful and knowledgeable about the products on offer – but what if they aren’t ideal for your circumstances?
An independent or whole-of-market advisor has access to everything, without restriction.
Independent financial advisor (IFA)
As the name suggests, IFAs are in a position to offer independent, objective advice across the board. To put it another way, you could see IFAs as the option to turn to if you want advice without a sales pitch - although the caveat to this is that some IFAs are still in ‘sales’ mode when it comes to solutions.
IFAs tend to operate as small firms where the primary asset is their expertise and experience in a range of financial matters. Some specialise in certain areas, so if you want to know more about your investment portfolio risk profile or final salary pension transfer options (to a greater level than what your bank manager tells you), a suitably qualified IFA will be able to give you a broader, whole-of-market picture of what is available.
Some IFAs focus their services on high net worth individuals, charging premium fees in return for highly specialised and personalised advice. Most firms will focus on working with clients in their immediate geographical location.
Financial planners are typically chartered financial planners and often work within chartered financial planning firms (as designated by their professional body, the Personal Finance Society). They are highly qualified and often come with lengthy professional experience.
When working with a chartered financial planner the focus will be on you, your goals, and the outcomes you desire. Rarely is this a product-led service because advice and planning are the core commodities on offer.
Only when your future goals have been identified and refined can a plan of action be created. A good financial plan will include your attitude to risk and reward, your timeframes, age and health, your income and expenditure patterns, and your tax status. In addition, your legal affairs (wills and trusts for example) will also be considered.
Subjects covered will include an investment strategy, use of the most beneficial tax structures, plans to reduce your inheritance tax liability, an explanation of how investments should be held (to best exploit personal allowances), your life insurance protection needs, debt management, and retirement planning.
If you have a specialist requirement such as trusts and passing on wealth to your grandchildren, this can be included on request.
The overall focus of a financial planner is helping you to achieve long-term goals and financial stability. While you would typically turn to a financial adviser for information about specific products and services, a financial planner is there to give you a much bigger picture.
If you are looking for advice in areas such as funding your retirement, making your assets more tax efficient, or reducing the inheritance tax your children are likely to have to pay on your estate, a financial planner is the person for the job.
Wealth Manager/Discretionary Investment Manager (DIM)
Also known as asset managers (or in older terms, stockbrokers), there is a public perception overlap between the role of wealth managers and financial planners.
There is a key and fundamental distinction between a DIM and a chartered financial planner. When all else is cut away, a DIM has a relationship where your money or wealth is the focus of attention. It is from your wealth that fees and charges are collected, and profit levels maintained.
With a chartered financial planner, you are the focus of the relationship, not your money. Fees are paid by you to receive a service (which usually also includes investing your money).
There is another subtle but important distinction. A DIM has a present-day focus on money and returns. The here and now. Buying and selling. Monthly and annual returns and fund performance. Gains and losses. Charts, tables, and graphs.
A professional chartered financial planner has an eye for the longer term and ignores day-to-day noise. The long game is the only game worth playing.
If what you think you need is a DIM who can produce outstanding investment returns with low risk, year in and year out, then good luck. If you like to monitor charts, trends, performance and yield, then a DIM may be ideal.
If you want to try to beat and outperform a ‘benchmark’ on a rolling annual basis, a DIM may be for you.
As you can see, it’s horses for courses. Much depends on what you need and what you want (if you can know of course). It also depends on what form of ongoing relationship you want, and where the focus is to be (your money or your life).
If it’s simply a question of which ISA to select and how much to invest, a financial adviser can help. Take care between restricted and whole-of-market options.
If all you want is somebody to invest your money in the markets with the aim of beating a benchmark, then a DIM could be for you (at the last count there were more than 80 DIMs, so shortlisting them could be fun).
Finally, if you need professional help and guidance to transform and transition your life, because it is beyond your own DIY abilities, then a chartered financial planner (CFP) will be the best choice. A skilled CFP will harmonise advice from your bank, accountant and solicitor and pull all the strands together. They will ensure that you aren’t left with an exposed Achilles heel.
If you would like a free and impartial second opinion to help you choose, contact one of the Capital team.