How much does free advice cost?
That might sound like a daft question. The answer is obvious. Nothing - free means it doesn’t cost anything, Of course that cannot be the case unless a charity, government body or similar is giving the advice - even then that definition of free is arguable.
It is important to note that there is plenty of free advice available to anyone. Anywhere. Anytime. All you have to do is ask friends, your colleagues, Google it or watch TV, and you’ll receive more advice than you need. The problem with free advice is that it may not be coming from someone who is as knowledgeable as they need to be and/or who does not have your best interests at heart.
Although many professionals are happy to supply what they call free advice, those who follow their recommendations often pay an unseen price for that guidance and the questionable quality of that financial advice can lead to poor results.
Financial advisers who offer free advice are intermediaries and are compensated by financial companies via commissions. So, there is always that angle of conflict of interest that one needs to be aware of. You really don’t know whether what they are selling to you is really good for you or good for them as a commission-generating sale.
You should never ask a barber if you need a haircut.
The costs of not taking advice
The costs of not seeking professional advice include:
The Cost of Education.
Do you want to spend the time to bring yourself up to a decent level of knowledge? Then to stay updated with the constant changes? How long will it take you to become knowledgeable?
The Cost of What You Don’t Know.
There are things that you know you need to learn, but what about the things that you don’t know you need to learn? How are you going to become aware of them?
The Cost of Consequences.
Do you understand how different things are interrelated? Actions in one area can often cause harm in another. How are you going to become aware of all the interconnected relationships and consequences?
The Cost of Mistakes.
Can you afford to learn from your mistakes? Some mistakes are minor, while others can be quite serious. If you make a mistake, how costly will it be, and do you have the time and resources to rebound from your mishap?
The Cost of the Unknown.
Do you have the temperament to do what is necessary to succeed? Sometimes the correct action or behaviour is counter-intuitive. Professionals are trained to cope with unplanned difficulties and disasters. How will you cope?
The Cost of Time.
What is the value of your time? How will you determine when you are spending too much time trying to solve a problem versus the alternative of paying someone else to solve it?
While there is a clear cost associated with engaging a financial adviser these subtler costs of not working with one when the situation warrants it should be taken into consideration. When you stand to gain more than the fee charged by your adviser, the time is right to ask for advice.
Paying for advice
In the UK at the end of 2012 the Retail Distribution Review (RDR) was brought into legislation. RDR effectively stopped financial advisers from taking commissions and in doing so ended a generation of financial advisers who might not have had your best interests at heart. Changes to the way financial advisers are now paid in the UK offers investors greater clarity about the cost of advice, free from fear that commission drives any recommendations.
Since RDR came into force, UK customers now get details separating the charges for financial advice (which they pay directly to their adviser) from the charges for managing their money, making it easier to compare advisers, platforms and investments. They may also benefit from advice on a wider range of investments. Previously, advisers might have focused mainly on unit trusts that paid commission.
The way in which fund platforms charge for their services has also become more transparent, with explicit charges made for specific services. One other benefit of RDR is that brokers, platforms and fund supermarkets are competing to attract these investors, by offering low cost access to popular investment funds.
What EFPG does
EFPG prefers to follow the UK’s RDR framework even though there is no requirement to do so in Gibraltar. When providing advice e.g. for a personal pension plan we would state the cost of the advice to you, the costs associated with investing your pension contributions (trading and custody) and the costs of the selected investments so you can clearly see all of the costs associated with your pension arrangement. We do this to give you the comfort in knowing that your investment for your retirement has no hidden charges or commissions that could negatively affect the quality of your retirement.