There are two ways to arrange your financial planning, the DIY approach or using an Independent Financial Adviser (IFA).
We’ve always believed that both routes are equally valid, some people have the time, knowledge, experience and desire to take the DIY approach, others prefer to have an adviser onboard to help them plan for the future. We cater for both types of person via our free to access website and our team of IFAs.
It has never been easy though to quantify whether the DIY or advised route is more successful, but a new report offers some valuable insights.
The report, which is part of the Value of Advice campaign launched by Unbiased.co.uk and Standard Life, compares the financial situation of people with and without an IFA and makes interesting reading, especially when it comes to retirement planning.
pot at age 54
Average total pension
pot at age 65
Annual retirement income
(in today’s terms)
£5,921 per year
£493.42 per month
£3,132 per year
£261 per month
The research showed a clear gap in the retirement provision of people who have and have not used an IFA.
According to the report clients of IFAs pay more each month into their pensions than those people who do not take advice. Unsurprisingly, clients of IFAs have on average over £80,000 more in their pensions at the age of 65 and enjoy as much as £232 more income per month in retirement.
The report shows that the current average pension fund of people taking independent financial advice is £74,554, 100% more than those people who have not taken advice, who had an average pension pot of £37,277.
The full figures can be seen in the table to the right.
Why such a gap?
The report provides few answers to this question, so we’ve come up with some thoughts of our own.
Firstly, it is possible to argue that the majority of people who seek advice have spare income to devote to financial planning, otherwise why would they see an IFA? It follows therefore that people who seek advice will naturally be able to afford to pay more towards their retirement.
Furthermore, although the survey only included responses from people with gross household incomes of £15,000 or more, the group of people who do not take financial advice will include those who simply cannot afford to make provision for their retirement; the current economic climate is clearly making it harder for people to save for their future.
It is also possible to argue, and this is definitely open for debate, that people who seek advice are more motivated to start planning for their retirement.
However, although advice is not free an IFA certainly adds value.
A good adviser can help an investor avoid mistakes such as paying charges that are too high, investing in poorly performing funds, investing inefficiently from a taxation perspective, or investing in areas that do not match their attitude to risk.
An IFA can also help to dispel some of the myths associated with pensions and help some people to overcome their mistrust of retirement planning.
Dave McGovern, Head of Retail Marketing at Standard Life, said: “A good adviser will quickly understand your financial position and help you identify your goals. They’ll look at the lifestyle you have today and the one you want in the future. They’ll understand how you want to invest and what your financial and life priorities are. With this insight they’ll prepare a financial plan that’s unique to you, and more importantly, a plan that will adapt as your needs change. In short, they’ll make dealing with your finances easier, giving you greater confidence and certainty over your long-term plans. Good financial advice is something we are passionate about at Standard Life and that’s why we’re working closely with unbiased.co.uk to help promote its value to the consumer.”
Adding value ‘at retirement’
Financial advice can be of real benefit as you approach retirement.
It is clear that one of the reasons IFA clients enjoy bigger incomes in retirement is because on average they have a larger pension fund. However, part of the reason may also be because they take advice when the time comes to turn their pension fund into an income.
At a very basic level, an IFA can help search the market to help find the best Annuity income and also advise whether an Enhanced Annuity is available from insurers who will often not deal direct, only through advisers.
An IFA can of course advise on other ways to taking an income from your pension, for example, would Income Drawdown be more appropriate or would a Fixed Term Annuity or Investment Linked Annuity offer a better solution?
Other areas of financial planning
The report also revealed that, with the possible exception of savings accounts, people who have taken advice are making more financial plans compared to those who do not see an IFA.
For example 51% of people questioned who used an IFA had Life Cover, compared to only 35% of people who did not seek advice. A gap was also clear when it came to Critical Illness Cover with 18% of people who had taken advice having this type of protection compared to only 7% who did not take advice.
Interestingly, the number of people saving money was higher amongst the non advised group than those people who had seen an IFA. 71% of non advised people had a savings account and 58% had a Cash ISA, compared to 68% and 57% for those people who had taken advice.
Who uses an IFA?
The report found that only 18% of people seek financial advice from an IFA, with 79% of those people who do take advice being over the age of 35.
Perhaps unsurprisingly, the research found that it was older generations who were more likely to take advice, with the most likely time being between the ages of 60 and 69, when most people choose to retire.
Value of Advice Campaign
The Value of Advice campaign has been launched by Standard Life and Unbiased.co.uk to demonstrate to consumers the long term advantages of seeking independent financial advice.
Karen Barrett, Chief Executive of Unbiased.co.uk said: “It’s our aim to tackle the misconception that financial advice is free, it has never been free and like other forms of professional advice (solicitor, accountant) we need to clearly demonstrate that the service IFAs provide comes at a cost but, as our research shows, one that is well worth paying for.”
The full report can be found by clicking here.
We’d love to hear from you
We’d love to hear your thoughts, opinions and comments on the report and our article, please let us know what you think by using the comments box below.
Alternatively, if you now feel that the time is right for you to take Independent Financial Advice our team of IFAs are experienced in developing retirement income strategies for clients the length and breadth of the UK.