“What’s the point in seeking financial advice when I can get guidance for free?”.
We regularly get asked this question by clients. And such queries are understandable, to a point.
At face value, free guidance – either from an individual or a website – is very similar to advice. Both have the aim of helping people to better understand their financial needs and priorities based on their current circumstances. And because guidance is free, many people feel that it is the superior of the two. Indeed, recent research from My Pension Expert found that almost two thirds (65%) of UK adults prefer to seek free guidance online rather than consulting an independent financial adviser.
However, there are some fundamental differences between guidance and advice. And as is the case with any decision, it is important to understand all the facts before deciding which option to utilise.
What’s the difference?
Guidance is free, impartial recommendations to help an individual make decisions about their finances. As a rule of thumb, guidance is generic and suggests what an individual “could” do to better their financial situation.
An example of this would be the Financial Conduct Authority’s (FCA) Investment Pathways. This guidance helps people approaching retirement age, who may have received prior recommendations about their retirement finances, to achieve better retirement outcomes. Following a short questionnaire about their financial situation, the individual is directed towards one of four investment options.
Notably, however, guidance which falls outside the remit of the FCA’s website is unregulated. What’s more, as this guidance – even the Investment Pathway scheme – is general in nature, it does not take into account the complexities of a person’s financial situation or their long-term goals.
In contrast, independent financial advice is regulated by the FCA and involves a detailed analysis of an individual’s personal finances and financial goals. Following this analysis, the adviser is able to make tailored recommendations about pursuing a specific product or service. What’s more, they help the client to develop a long-term strategy to achieve their financial goals.
The fact that the advice is regulated also means that clients are protected by the Financial Ombudsman Service and the Financial Services Compensation Scheme, so individuals can protect their money if the recommendations they follow go awry.
The deciding factors
As is frequently the case, many people will make their final decision in accordance with cost. As My Pension Expert’s aforementioned research revealed, three quarters (75%) of adults consider financial advice to be expensive; therefore, it is highly likely that people may think it more cost-effective to use free guidance.
However, advice is not as expensive as many assume. Indeed, at My Pension Expert, we only charge clients if they decide to pursue the recommendations of our expert advisers. Advice is not exclusively for the super-wealthy: anyone can receive independent financial advice, regardless of their circumstances.
So, at such little cost, it certainly seems logical for savers to protect their future finances and seek regulated financial advice, as opposed to essentially guessing their best financial option in accordance with generic advice.
At the end of the day, it is up to the individual as to whether they opt for free guidance or independent financial advice. However, it could certainly be more beneficial for people to pursue the latter. The fact that it is regulated and tailored towards a client’s specific needs ensures that clients are able to make informed decisions with minimal risk to their cash. Any other form of financial guidance could put their financial futures at risk.