Time for a financial health check

By Daniel McGonigle [email protected]

Daniel McGonigle is Managing Partner at WorldWideBroker, one of Europe’s largest financial advisory firms, offering advice to expatriates in Portugal, Spain, The Netherlands, Switzerland and Greece.

It’s a new year, so that means new resolutions for many. Whether it’s losing a few pounds, cutting back on drinks, or whipping your finances into shape, most of us have a hard time sticking with our resolutions for the long run.

2011 may be a milestone year and a time to reflect on your finances, you may be celebrating another decade, reaching retirement or a family member is heading to university.

Whatever it is, you need to consider the expense and January is a good time to have a ‘Financial Health Check’ rather than heading straight to the sales!

So you’ve decided to sort out your finances but you’re not sure where to start as there are so many questions running through your head. What should be your priorities?

What are your financial goals? How much should you have as an emergency fund? What is the most tax efficient way to structure your finances? How much do you need to save to retire or for university fees? Is your debt manageable?

The list can be endless and often it’s best to seek advice from a professional advisor; even those in the industry themselves seek advice as they may not have time to manage their own affairs.

So what exactly does a Financial Advisor do?

The first thing any good financial advisor should do is conduct a full and thorough review of your current financial situation. This will help you to determine your own personal financial goals and identify areas that can be amended to help achieve them.

Once they understand your goals then they should provide you with a professional report detailing the steps that you need to take to achieve them. It is public knowledge that many financial institutions overcharge clients, so make sure your financial advisor is completely transparent when disclosing charges and fees within their recommendation.

Below is a guide to the type of advice you can expect from a financial advisor, how they charge and the different types of advisors.

How do financial planners charge?

Financial planners may charge in any of the following ways:

• An hourly rate

• A flat fee to complete a specified project

• A quarterly or annual retainer fee

• A fee charged as a percentage of assets that they manage on your behalf (typically anywhere from 0.5% per year to 2% per year. The more assets you have, the lower the fee usually is)

• Commissions paid to them from financial or insurance products you buy through them

• A combination of fees and commissions

What does a good financial planner give advice on?

• What you need to do differently

• How much you need to save

• What types of retirement accounts to use

• What plans to use for your children

or grandchildren

• What type of mortgage you should have

• What type and how much insurance you need (to include life insurance, income protection and critical illness cover)

• How much to keep in your emergency fund

• What changes might improve your tax situation

• What rate of return you will need to earn to achieve your goals over a given time frame

• How to gain a better rate of return of your current savings or pensions

• Whether it makes sense for you to pay off your house

• Many financial planners provide estate planning advice and tax planning services.

What are the different types of financial advisors?

An independent financial advisor (IFA) – offers unbiased financial advice to their clients and recommends the most suitable products, if any, after researching the whole market. The key differentiator is that they act on your behalf.

Tied agents – offer advice on the products of only one provider and are normally funded or part funded by the financial provider they work with. 

Multi-tied agents – are financial advisors who offer advice on products from a limited selection of financial providers, rather than just one.

Finding a good financial advisor can be a daunting task. Any good financial advisor will have an area of expertise. You want someone who has expertise working with someone like you.

For example, if you’re about to retire then you don’t want someone who’s primary clients are dealing with young families.

Find an advisor who is used to dealing with clients that are in a similar situation to yourself, whether it is in terms of age, your needs or your asset level. Don’t be baffled by technical terms or be afraid to ask your advisor questions; you need to be comfortable with the decisions your make and have someone who can explain things in plain English.     

So why not take a financial health check in January rather than heading for the sales?

You can contact me, Daniel McGonigle, Managing Partner at WorldWidebBroker, on (+351) 91 279 2998 or [email protected]

WorldWideBroker is a firm of regulated independent financial advisors (IFA). We don’t charge a fee for our initial financial review and you are under no obligation to take our advice.