As we brace for inflation to ramp up again, many savers will find that the value of their money degrades over time.
Over 10-year periods from 1899 to 2015, the stock market outperformed savings accounts 91% of the time, according to the Barclays Equity Gilt Study.
But getting started with investing can be daunting, and it’s hard to know whether you need to pay for someone’s help.
Here, we look at the pros and cons of paying for financial advice vs managing your own investments, including which is cheaper and whether an adviser could help you get better returns.
Please note that this article is for information purposes only and doesn’t constitute advice. Please refer to the particular terms and conditions of an investment platform before committing to any financial products.
What are the benefits of using financial advice?
Working with a financial adviser means having someone qualified who can take into account your needs and wishes and present you with investment options tailored to you.
If you’re nervous about investing, it’s much easier to overcome your panic and get started with the help of someone who has experience and knowledge. Working with a professional gives you the chance to discuss the things you don’t understand and talk through your concerns.
Unfortunately, you might struggle to find financial advisers who will work with you if you have less than £100,000 to invest. You can use search tools like Unbiased and VouchedFor to filter for advisers who accept clients with your level of savings.
If you decide to work with a financial adviser, you’ll generally be best off going with an independent financial adviser (IFA) as they can invest your money wherever’s best, while a ‘restricted’ adviser can only invest your money with their company’s funds, which might not be best for you.
You can shop around to find an adviser you feel comfortable with by setting up a ‘discovery call’. These are usually free and give you a chance to meet an adviser and talk through your goals.
- Find out more: how much financial advice costs
Can you invest without a financial adviser?
To invest without any help, you can start from as little as £1 on some investment platforms.
You’d need to first find an investment platform, which essentially works like a supermarket for investments. They vary in cost, how many investments they offer, and how easy they are to use.
You can set up a stocks and shares Isa on an investment platform, which means any money you make from your investments is tax-free.
Once you’ve got an account, you’ll need to pick what you’d like to invest in, which can be daunting for a beginner.
To reduce the amount of risk you take on, you can diversify your investments. This means not putting all of your money into just one stock, but spreading it across stocks in different sectors and countries, as well as other types of investments like bonds.
You can also invest in funds and ETFs, which spread your money across many different investments for you. However, investing in just one fund or ETF could still leave you too concentrated in one area, so read the ‘Key Investor Information Document’ on the investment platform’s page for any fund or ETF. This will tell you how risky the fund is on a scale of one to seven, as well as which sectors and countries it is investing in.
Before you get started with investing, it’s important to clear any high-interest debts (for example, credit card debt) and make sure you have some emergency savings you can easily access – between three and six months’ worth of living expenses.
Is DIY investing cheaper than paying for advice?
The main drawback to financial advice is the cost. Creating a financial plan involving £100,000 of investments and receiving ongoing advice for five years would cost £2,326 upfront and £3,975 ongoing on average (£6,301 total), according to adviser comparison site VouchedFor.
By contrast, even the most expensive investment platform would cost less than £2,300 to run your account for five years, and some providers charge nothing at all.
But you can still rack up high fees when investing on your own if you invest in expensive funds, or you trade often and rack up transaction costs.
There are ways to save on financial advice, though. If you don’t mind meeting your adviser online only, you could save money by looking outside of your local area. For example, advice in London will typically be pricier than in the north east.
- Find out more: how much financial advice costs
Which will give you better returns?
A financial advisor can’t guarantee better investment returns, and higher fees will reduce your returns if your investments perform equally well.
However, working with an adviser can stop you making some of the common investing mistakes that can cost you.
Some of our emotional instincts don’t help us when it comes to investing, and you’re more likely to experience this as a beginner. For example, if you panic and sell your investments when markets are spooked, you’re more likely to end up worse off than if you stay calm and hold on.
On the other hand, research has shown that investors who choose their own investments tend to sell an investment that’s doing well too soon because they want to crystallise their profits, while holding on to a long-term losing investment to avoid making it official. But this behaviour typically makes investors worse off.
A financial adviser will know about these instincts and can potentially save you from expensive bad habits, though they’re not entirely immune from some of the same mistakes themselves.
There’s no consensus on whether working with an adviser means you choose better investments, but they typically help you build a diversified portfolio and avoid some beginner errors.
Are there any alternatives?
If you haven’t got the money to spend on financial advice but you’re too apprehensive to manage your investments yourself, you might prefer ‘robo-advice’ or managed portfolios.
These services are halfway between investing for yourself and hiring an adviser. You’ll answer a questionnaire about your goals and how much risk you’re willing to take on.
Then, you’ll be assigned a diversified portfolio that will be automatically adjusted on your behalf.
Unlike a conversation with a financial adviser, robo-advice has limited opportunities for you to learn more and ask questions. Any wider financial planning also won’t be covered by a managed portfolio.
It’ll also cost more than choosing investments yourself, as you’ll usually pay a management fee on top of your usual account fee.
These vary between platforms but can be as much as an extra 0.75% of the value of your investments – so if you had £10,000 invested, you’d pay £75 in management fees in the year.