Have you ever wondered why there is so much financial advertising on TV, social media, in the newspapers and pushed through your letterbox? Well, here is my take on it.
In simple terms; They want your money, they want you to buy their product, they want you to invest with them.
If you buy into this without exploring all the options, how can you be sure that the product purchased is the right one for you?
Those who pick up the phone without first seeking counsel from an Independent Financial Advisor (IFA) will have little understanding of whether they are serving their own best interest – or those of the product provider.
The other evening, I returned from a meeting, sat down after a long drive, and turned on the TV to have another equity release advert presented to me. Seriously, who comes up with this twaddle? A smiling, silver-haired couple wanting to convert the loft on a large townhouse, which has probably two spare bedrooms already?
In all my years as an IFA, I have not come across one client that this product would suit, but there is always a first. Maybe ponder a few of these questions if you’re tempted by the sales patter:
Does this smiling couple need a loft extension?
Can they not put up visitors in a spare bedroom?
Wouldn’t a nice sofa bed be a cheaper option?
Have they thought about downsizing or relocating?
If missing friends locally, how often do you see them?
Wouldn’t staying in a nice hotel once a month to catch up be a cheaper option?
What about gifting/selling to their children and paying normal market rent?
Have they realised the compounding interest would swallow up the remaining equity leaving little or no legacy for their family?
A while ago, a client was referred to me having committed to an equity release product five years earlier. It took all my experience to catch up to the compounding interest to repay the outstanding balance, which resulted in the right solution being put in place and increased the estate by £400,000 for the client’s children.
In short, I will explore all alternatives before broaching the suitability of equity release to a client.
The equity release advert was quickly followed by, yes, you guessed it, a payday loan. Why on earth would anyone consider a payday loan? With a considerable percentage of the population not having great financial literacy, there is little point in a small disclosure of crippling interest repayments at the bottom of the page.
Companies defend their interest charges by saying this is for a short period of 30 days or less. You may think you need the money now for whatever reason, but have you considered how tough the following months would be? Only use these products in an absolute emergency, birthdays are not essential, nor are comfort foods, and neither is replacing the TV if it were to go bang!
There are so many places to go for help before considering a payday lender. If you’re already feeling the consequences of a short term loan, consider talking to Step Change.
Many of you will have seen life cover adverts promising: ‘for as little as £5 per month, you can give your family protection.’ Well, it is possible, you will get some cover but not likely the protection you need. The advertiser just happens to choose a young, healthy, non-smoker with no reference to the term or type of cover, for example, is it reviewable, convertible, decreasing term?
I wonder how many people who click on the advert end up paying £5.00. As the old saying goes, ‘there’s one caught every minute’. If you don’t want to be left with the consequences of buying a product that delivers inadequate cover, you need to talk to a whole-of-market adviser (Independent) to recommend the right cover for your needs rather than be seduced by an unrealistically cheap premium amount.
That said, the one that makes my blood boil the most is the bank cashier who attempts to pass me to a bank adviser after clocking my balance. I politely decline and explain that I am an IFA and that I would not use a bank adviser. Can you imagine how many poor souls say, yes, please do?
Remember banks want your money, they want to sell you their ‘wonderful’ products. Oh, and do not forget banks are not independent – they will give you an umbrella when it is sunny and take it away when it rains.
Do I advertise? Of course, I do, but the main reason I advertise is so that people can get in touch with us first so we can recommend the right financial strategy for their needs.
My advice is to speak to an independent financial adviser before making any financial product purchase or investment decision. Friends, family and in-the-know work colleagues may be knowledgeable but in my experience, those that are knowledgeable but not qualified miss out on the most important parts, which has likely cost them substantially in the past.
However, you have to be ready to accept the advice of a professional and stick with it if you want to achieve the best outcome from your investments.
I met a chap more than 10 years ago before the pension freedoms came into force, he asked me my profession, his response was I don’t need financial advice I have over £900k in my pension. I could have replied, ”Congratulation, you’ve made yourself a high rate taxpayer for the rest of your life”, What I do know is that he would be a lot better off if he did seek financial advice. You can lead a horse to water but you can’t make it drink.
Do not just go with the first adviser you speak to, this is your future, your money. If you found the topics covered in this column interesting and would like to explore how you could better manage your finances, feel free to drop us an email at firstname.lastname@example.org to arrange a no-obligation chat.