Earlier in my career I cut my teeth as a journalist working for a series of publications aimed at financial intermediaries such as IFAs and insurance brokers. Every change in legislation, budget tax change or product launch was regarded as a potential business opportunity. I swiftly learnt that the financial services industry is interested in making money - and who is its main target? Ordinary investors like you.
The more levels of 'financial service' that you use, the more you have the potential to lose money. Every time you buy a share you pay a fee, every time you invest in a fund you pay the fund manager's annual charge and the underlying portfolio turnover costs. If you invest in a pension there are administration costs. If you use an IFA you pay thousands of pounds in fees.
An insightful piece from the Economist Buttonwood column earlier this year said the need for advice burns so strongly that people become blind to its quality. There is a remarkable tendency to trust experts, even when there is little evidence of their forecasting powers.
In most cases the 'advice' you receive is not information that you can't access yourself. It is not access to 'secret' investments that will fast-track your retirement. It may save you time and effort but it will not necessarily bring you to conclusions that you could not have reached on your own.
For example, what is your attitude to investment risk? An adviser will put you through a risk questionnaire that will score you on grades 1-10. Personally I don't like these different grades of risk. Risk is personal and it is commonsense. Divide your assets into portions of money that you can afford to lose (which you can invest in equities) and money that you cannot (cash). You can either take on the risk of investing in equities or you can't. Asking an adviser to tell you whether you can is an abdication of responsibility for your investment actions. If you want to be in control of your investments, then the first step is to take responsibility for the level of risk you take.
An adviser will tell you whether you are on track for retirement. Most of us can work that out quite easily using an excel spreadsheet. Alternatively, there are a vast range of retirement planning tools freely available on the internet - one is the Investors Chronicle's own pension calculator.
Many financial advisers offer holistic services, giving you a healthy relationship with money and doing life planning in addition to financial planning. The idea is that money should be a route to freedom. They may ask what you would do if you knew that you had 10 years left to live in good health before you were run over by a bus, or could you live in a cheaper home/cheaper area.
Most of this is common sense. Do you really want to spend £2,000 on a healthy dose of common sense? Surely it's far better to invest some time on thinking these issues through yourself.
I agree there are some seriously talented highly professional financial advisers out there that do a great job for their clients. But I still think that an averagely intelligent person should not reach for the crux of financial advice without first examining what they can do for themselves.
