What Type of Investor Needs Financial Advice?

Let me begin this article by explaining that every investor will have a very unique set of circumstances, be it financial, relationships or geographical, which makes their needs slightly different from the rest of the population. 

In that vein, you should always read guides about whether you need financial advice with a pinch of salt – after all, no journalist or writer will understand your situation and be able to make a proper assessment. 

That being said, financial advice is not for everyone. Everyone, from the UK financial regulator, to financial advisers themselves will be upfront and admit this. 

So, who are financial advisers an ideal match for? What type of investor should be seeking professional advice on matters such as investments? Let’s take a look at different investor types (by general bucket) and see how a financial advisor could help or hinder them. 

Novices (People who have little interest or knowledge of investing)

The first group of investors are the novices. And I mean complete novices – those who aren’t familiar with the characteristics of stocks & shares or corporate bonds. A novice won’t have directly invested into equities, bonds or property before. They won’t have even read an investing book. 

As a result, they will have typically kept their savings in a safe, government-backed bank account or savings bond.

For this group of people, financial advisers offer a gateway into a far more lucrative form of investing. 

Without the support of a qualified professional, a novice may never feel they have the confidence or direction to place money into a diversified portfolio of assets. The financial adviser is not only an adviser, but also a sign-post, capable of educating and opening the eyes of novices to better opportunities beyond the horizon. 

This group of investors are well catered for by the financial advice industry. They will be dealt with by advisers who can communicate complex matters clearly and in simple terms that they will understand.

The Wealthy

The wealthy could also benefit from financial advice because for them, it’s virtually free. What do I mean by that? A rich person discount? Absolutely not, if anything, a financial adviser will charge higher fees to a wealthy individual. 

However, fees for upfront advice (such as creating an investment plan) tend to be fixed rather than % based. This means that for an investor with a £20m sum of money to invest (such as a lottery winner), the fee will be capped at (for example) £10,000. £10,000 may feel like a significant amount of money to spend on a few hours or days of research and advice, however relative to the investment itself, it’s a modest amount (It’s 0.05%!).

The benefits of advice scale up with the size of the investment – the money you have invested, the more financially better off advice could make you. However the costs don’t scale up. This makes professional advice a perfect match for the wealthy. 

If you’ve heard of the term ‘family office’, this is a private organisation that a high net worth individual has created primarily with the purpose of organising and advising on their financial affairs.

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