Choosing an IFA

 

Firstly ask yourself the question - Do you need an IFA 

The activities of managing your pension include  

• Building a financial plan to achieve your goal of retirement 
• Understanding your level of risk
• Choosing the platforms and products that suit your objectives (ie SIPP, ISA, general investment accounts)
• Choosing which funds you should invest in
• Accessing your funds in the most tax efficient way
• Ensuring you don't fall foul of any regulations relating to accessing your pension

Knowing this, it's worth thinking about the approach that is best for you, in particular how much effort do you want to spend doing work versus how much you want to pay for someone else to do it. In general this boils down to three main choices to manage your pension 

1. Do it yourself 
2. Find an IFA and get one off advice when you need it
3. Find an IFA and get ongoing advice 

There is an increasing trend of people managing their own pensions. This is primarily driven by reducing the charges that come out of your pension to pay for financial advice, and that some consider Financial Advisors not value for money. Managing your pension yourself is definitely and option, particularly if your pension affairs are not complex, you are willing to take some level of risk yourself, and willing to put in the effort required to manage it. 

The DIY route is something that everybody should consider. If nothing else, it will help to educate you enough so that if you do choose to engage a Financial Advisor, you'll do it in an informed way. It will also enable you to understand how they are managing your pension, if they are managing it in line with what you would do, and if not to be able to ask them why they are managing it a particular way. 

Even though my pension affairs were relatively straightforward and I consider myself relatively knowledgeable on pensions, I didn't feel comfortable managing the largest asset I own myself. So in the years leading up to my retirement I chose an IFA.

My starting point was one of the IFA's at the company I worked for. I will say I got lucky and the IFA I chose was knowledgeable, very interested in my objectives and up for the challenge when I asked loads of questions. Some of my colleagues were not that lucky.

All that said I do revisit the decision to self manage my pension at least once a year. I also know a number of people who successfully manage their pension themselves without ongoing advice from a Financial Advisor

Choosing an IFA and company

Selecting your first IFA is a bit of a minefield. You'll likely start with recommendations from your family or friends, or failing that use one of the search engines like Unbiased to find IFA's that have knowledge in the specific areas but you have questions on (ie SIPPs, Defined Benefits, Inheritance trusts).

Whichever way you search, when you end up looking at an IFA, it's important to do some due diligence to ensure that they are suitable for your needs. In my case I started with these set of questions:

1. Independent Financial Advisors versus Restricted Financial Advisors 

I'm not going to try and explain this in detail, other than the say some advisors (known as Restricted advisors) only recommend a limited set of products or services from a specific company, typically the company they work for. Independent Financial Advisors on the other hand have access to the entire market and recommend the best products from the whole market for your needs. This means IFAs offer unbiased, whole-of-market advice, whereas tied advisors provide advice within a narrower range of options. 

Ask outright if the IFA is actually Independent or Restricted. 

2. Firm profile 

Whilst a small local company might be good for some, I wanted a firm with a few IFA's supported by a back office. So I needed to know numbers of registered employees, and in particular the number of IFA's and how long the advisors have been with the company. Some of this information will be available on the company's website, however I did find some information on the FCA's register 

3. Platform and companies they use

Unless you choose one of the major Financial Services or Pensions companies, it's likely that smaller companies will use the platforms and products of those major companies. So you may find that a small IFA firm is actually using the platforms and services from the likes of Aviva, Standard life or Prudential to name a few. 

This isn't a problem and can actually be a big benefit, both in terms of how your funds are managed and in your ability to be able to log on and see performance of your pension. The key is to understand if they are simply fronting that main company platform and using the product and services - charging you a premium for the privilege, or if they are adding value by the likes of bespoke funds and services.

4. Funds Under Management

If I'm going to move a large sum to a firm then I'd like to know what scale they are. I wouldn't move my bank account to new bank with 2 customers and £500 of accounts, so why would I consider a firm where my investments are a large proportion of their funds. 

There is no simple way to find this information, so I had to ask each company to provide me some detail. If they declined it made me feel they would have something to hide, however I did find most firms did given indication of the funds so managed. 

5. Client base

If the company did have a significant Funds Under Management, I wanted to know where would my pension fit in that? Are there a couple multi-million pound clients and a handful of smaller clients and where do I fit in that mix (ie big fish in a small pond, small fish in a big pond, or the only fish in the pond). 

Again there was no way to find this, so I resorted to asking the question and in general firms were willing to share this information in a generic why 

6. What do other clients think of them and have there been any complaints? 

This is the "Truspilot" review or similar (and I'm well aware of the limitations of client feedback). Again I couldn't find a source of information along these lines. And as for finding complaint information - that should be easy, but it's not

7. What are the inflows and outflows

This is the amount of money coming into the company through new clients bringing their pensions to them, and money going out of the company through existing clients moving away. If there is more money moving away coming in you might want to ask why? Is it customer satisfaction that's causing people to stay or dissatisfaction that's causing them to leave? 

8. Do you feel you have a rapport with the IFA 

After going through all of the above, generally through multiple meetings or conversations with your prospective IFA, you will have a developed an understanding about how they approach things and how you might get on with them. Having a good feeling about the person you will be engaging with is key. Yes it can be the right sized company backed by the right products and with a track record of investment performance. However if you don't have a good feeling about the individual you will be dealing with then it's worth continuing to look.

Is your existing advisor doing right by you and do they represent value for money

So you've chosen an advice firm and an advisor. Your funds are growing and your relatively happy. 

At this point you might want to validate what advice you are getting and how much it is costing you - after all advice isn't free. So a couple of questions to think about:

• Do you receive regular reporting on the performance of your pension and of the market in general?
• Do you receive a clear breakdown of the fees you are being charged (ie Advisor, platform, product & fund charges)
• Does your advisor meet with you regularly (at a minimum once a year) and do they revisit your requirements as part of that meeting?
• Does the performance of your pension meet with your expectations and how does it compare with other investments options available on the wider market?
• Are the charges that you are paying fair given the performance off my pension and the time taken by my advisor to focus on my needs?

I wouldn't get too hung up on the last question about charges, it's just important to have an idea of how much you are paying for the services you are getting. It also needs to be considered in the context of overall performance. That said, it is worth thinking about the time being spent on you individually for what you are paying. You might not feel good to be paying say £10k a year for a 30 minute call once a year, so it's knowing what they are doing behind the scenes and the effort put into manage your pension specifically.

The performance question is also one that is worth delving into. You want to see your funds are growing, and that after all costs that growth is the best available to you given your circumstances. Some investment or wealth management companies will have their own products that they believe will outperform other products on the market. So it's important to know if the balance of performance and the charges being offered ends up netting out better than a product from the wider market.

Breaking up with your IFA 

Generally once you have an IFA you will, like a bank, stay with them for life. 

However, their can be good reasons for changing your Advisor. In my case the IFA I was working with left the company and I was allocated another Advisor. After introductions and about 12 months worth of engagement with my new Advisor, my confidence in their focus on my personal needs was dwindling, so I started looking for other Advisors and companies. This obviously included the firm my IFA moved to, and it's the reason that I came up with the questions above on choosing your IFA.

In choosing to move from one firm to another, I did not want to burn bridges and I felt some loyalty to the original company. As such I wanted to give them feedback on why I was considering a move. This also gave the firm I was with a chance to address the issues and maybe keep me as a client. 

I wrote up my concerns about how I was being dealt with and that my confidence was dwindling and sent this to my existing Advisor. My expectation was they would fight for me as a client and respond to the concerns I raised. To my surprise they didn't 🤔. I simply received an email saying thanks for letting us know. This reinforced my decision to move.

The actual move was pain-free. My new IFA took over and did the transfer of funds. They've now been managing me for two years and I once again feel confident in my Advisor and my financial future. 

Bottom line - if you're not 100% happy do some investigation and consider moving firms and Advisors. Paying for advice is not cheap thank you want to make sure you are getting value for money and being treated like an individual.