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Save yourself a fortune
By Jeff Salway
A recent experiment run by AXA showed that regularly meeting an independent financial adviser could make the average UK household better off by up to £5,000 in just one year.
However, this doesn't mean we all need to rush to our nearest IFA. But while some things require only common sense, there are some financial decisions that require expert guidance.
Paying off debts
Research from debt charity the Money Advice Trust reveals that up to four million Brits are stressed about debts, but too embarrassed to seek help.
With energy bills fluctuating, water bills increasing and phone, internet and TV deals proliferating, there has never been a better time to ask whether you're getting the best deal possible. For example, customers who switch energy suppliers can save up to £325 over a year.
Our biggest expense is usually the mortgage. A borrower with a £150,000 mortgage over 25 years on a typical SVR of 7.24% would pay £1,083 a month. But by switching to a market-leading rate of 4.94% a borrower could see their costs fall to £872 a month - a saving of £211 a month or £2,532 a year.
The next step is to review credit cards and personal loans. Check out price comparison website iii.co.uk to see if you can get a better deal.
Savings
The AXA study showed that we are unsure as to which were the most suitable savings vehicles and instead of saving up for large purchases or holidays, we're more likely to borrow money. And when we do save, we still tend to go for low-paying accounts with our bank rather than taking advantage of tax-free individual savings accounts.
Pensions
Professional advice could be an important part of pension planning. Work out how much income could be directed towards pension contributions.
Mortgages
Brokers can find the most suitable deal from across the market and also help you with other parts of the process, like completing the application form. Just make sure they are able to offer you a mortgage from any UK lender. Some brokers charge a fee, but most work on commission so you don't pay a penny.
Equity release also falls into this category. This is a particularly complex area where the consequences of getting it wrong can be dire. But there's a growing range of equity release products available and they can vary hugely. Buying directly from providers can cost customers more than £30,000 in extra interest over five years than if they had gone through an IFA.
Investments
Investing is usually a bit of a gamble, so you need to know how much risk you're comfortable with and find suitable investments. The advantage of doing your own research and selecting your own investments is that it's free.
If you know exactly what you want to invest in, use a discount broker rather than an IFA as the cost will be reduced substantially.
Estate planning
With the average detached house now worth more than the inheritance tax threshold (£300,000), IHT is a growing concern. There are many ways of reducing your IHT liability, such as giving away assets. An IFA specialising in estate planning will help you assess your liability and offer affordable solutions.
Insurance
Payment protection insurance (PPI) are sold with credit cards and loans to help people make repayments when they fall ill or lose their jobs. People who are persuaded to take out policies by their bank or mortgage lender, neither of whom is obliged to tell them they can get it cheaper elsewhere, could save thousands.
With health-based insurance it's tricky to know if you're getting the best deal. Critical illness cover, which pays out in the event of death or on the diagnosis of some potentially terminal conditions, is a complex product. By going through a specialist broker or an IFA, you're more likely to get the most suitable cover. It also means you can take any grievance to the Financial Ombudsman. This service can't help you if you bought direct, because the product can't have been mis-sold.
Even for simple products like life insurance, it's still worth getting advice. Most people are wholly unaware that a life insurance pay-out will boost the value of their estate making it potentially liable to IHT at 40%. Ask your insurer to write the policy in trust.
Getting debt advice
You should never have to pay for debt advice. The Consumer Credit Counselling Service, National Debtline or your local Citizens Advice Bureau all offer their services free of charge. They'll help you work out a budget and offer advice. Where necessary they may even work with your lenders to renegotiate repayments and freeze interest on your debts.
Getting the best deal on an annuity
One of the most important pension-planning decisions you'll need to make is where to buy your annuity as it will determine your retirement income. Most people take an annuity with their existing pension provider but it's worth shopping around. This is particularly important if you smoke or are not in good health as you should be able to get an enhanced income.
The regulation of mortgage brokers has tightened up a great deal in recent years. Brokers now fall under the watchful eye of the Financial Services Authority (FSA) and need to pass an exam before they start advising. Check if yours is regulated.
Choosing an IFA
An all-too-easy option is to get advice from your bank. Advisers are usually 'tied' which means they can only tell you about products offered by their company. Your best bet is a qualified independent financial adviser.
Always ask friends and family for recommendations, and IFA Promotion can help you search for an IFA in your area.
IFAs have to be qualified, with at least a Certificate of Financial Planning (CFP) or the previous version, the Financial Planning Certificate. The best IFAs will have additional qualifications.
Some IFAs charge by fees only, which tend to vary from £50 to £200; some are paid by providers whose products they sell (commission-only) while others combine the two. If you want the guarantee that your IFA is wholly impartial, always opt to pay a fee.
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