The value of advice

By Sara Benwell

26th March 2022

The number of people seeking financial advice is on the up, with searches on VouchedFor, the adviser review site, increasing by 5.7 per cent in 2021. It’s hardly surprising as we grapple with a cost-of-living crisis, rocketing house prices, jittery stock markets and complex retirement options.

The uncertainty has risen further with geopolitical unrest and the crisis in Ukraine, all while the pandemic persists. It may seem impossible to know how this affects us individually and what financial decisions we should be making, but this is where expert advice comes in.

There are many reasons for seeking advice. Some people simply want to improve their financial planning, while other enquiries are triggered by changes such as starting a family or buying a house.

“Taking advice before, during and after major life events will highlight its value,” says Alex Hatfield, a partner at The Private Office. “Particularly so with decisions that are irreversible. Knowing you have reviewed all the options and then made the most appropriate decision for your situation and your life goals will provide huge reassurance.”

MOVING ON UP

Speaking to a mortgage adviser has always been important, but never more so than in the current market. House prices increased by 10 per cent last year – the sharpest rise in 15 years. As interest rates rise, affordability is a widespread concern, and many people are keen to lock in deals. Advice can save you time and make a positive result more likely.

Mortgage advisers can also help homebuyers with non-standard income, such as the self-employed. They understand the marketplace and have established lender relationships that help ensure a smoother outcome.

“Successful offer rates are significantly higher through an intermediary and, in a competitive housing market, getting an offer quickly is crucial,” Saul Conway, MD of AS Financial, says. “An individual’s best chance of achieving their property goals is through an adviser.”

Setul Mehta, head of business development and adviser services at The Openwork Partnership, explains how the right advice saved a client significant sums when remortgaging. The family had stuck with their original lender – chosen due to credit issues that had been sorted in the years since – on a high rate for several years. “One of our advisers was able to place them with HSBC and save them £600 per month. This is the value of going through an advised process.”

GETTING RETIREMENT READY

These days, pension savings often eclipse property as a person’s most valuable financial asset and there is a dizzying array of options when you retire. Two in five users (39 per cent) of VouchedFor were looking for pension advice last year. That’s up from 34 per cent in 2020. Speaking to an adviser can help you improve tax efficiency, take early retirement, choose the right level of investment risk, and even pass on savings inheritance tax-free.

Roger Clarke, partner at The Private Office, shares how sensible planning helped one client leave more money to family. The client was withdrawing £40,000 from his self-invested personal pension (SIPP) but receiving just £24,000 after tax. Clarke advised that he use his non-pension portfolio and cash resources instead. “Not only did this mean he only had to draw £24,000, as opposed to £40,000 gross,” Clarke says. “But it reduced the value of his estate for inheritance tax purposes while keeping the SIPP, which is IHT free, intact for his heirs. Our cashflow model indicated that, at a normal mortality age of 87, his estate would be over £330,000 better off.”

INVESTING FOR THE FUTURE

Poor savings rates mean more people are considering investments to make their money work harder and beat inflation. However, some people are wary of investing, confused by the number of options, different tax wrappers and risks. A good adviser will recommend a portfolio with risk levels that are comfortable – and they will take responsibility for investment management and selection. “Improved financial outcomes include seeing investments grow well in an account with low charges, and low or no tax to pay,” says Rebecca Aldridge, chartered financial planner at Balance: Wealth Planning.

She explains how she helped a client boost redundancy pay and retire earlier. The client received a payout worth about £75,000 before tax, which they were planning to put into the bank. Aldridge recommended putting £96,000 into a pension – made up from the redundancy money and other savings – which led to an immediate tax-relief boost of £24,000. As a higher-rate taxpayer, the client was entitled to additional tax relief on top. They claimed the extra £15,000 via self-assessment return.

She said: “That’s a £39,000 increase almost overnight through sensible planning. We modelled that they could actually afford to retire straight away rather than working two to three years more as planned.”

THE RIGHT PROTECTION

The pandemic has understandably put mortality at the forefront of people’s minds. Increased mortgage demand has also boosted interest in protection products. This is another area where financial advice can pay dividends.

“The main benefit is suitability; making sure that the product and provider is the best fit for that client, not only from a benefit standpoint but also an underwriting one,” says Chris D’Arcy, head of protection at AS Financial. “Trusts are also important; making sure the benefit is as tax efficient as possible and goes to the intended recipients.”

D’Arcy recently helped a client whose insurer had increased their life insurance premium by 100 per cent, due to a medical disclosure. After researching the options and providing information to underwriters, he secured terms on a like-for-like policy at £18 a month cheaper. The client had taken out a policy to the age of 90 but, due to cost, had reduced the benefit significantly below what was needed. D’Arcy says: “We were able to increase the cover level to what was needed to protect their family.”

EQUITY RELEASE OPTIONS

People are expecting more from longer retirements but often find they have insufficient pension assets to support their ambitions – despite a lifetime of saving. But, as house prices rise, the equity in a family home can be a powerful tool for retirement planning.

Understandably, people are wary after scandals of the past, but a good adviser can make sure the decision is right for the client, exploring all options, including downsizing, before making recommendations.

“With low rates, flexible features and valuable embedded protections such as a no negative equity guarantee, modern equity release products can offer good outcomes for a wide range of different customers,” Will Hale, CEO of Key, says. “However, advice should always be highly personalised and never feel like product orientated order-taking. As part of the process, we check that people are receiving all the state benefits they are entitled to and there have been cases of people finding they have missed out on thousands of pounds.”

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