Across the world, there a lot of money held in stockmarket related companies. Statistics show that Global Stock Exchanges hold around £100 Trillion in early 2020. While this will have taken a major hit with the effect of the Covid-19 Virus, this figure will be eclipsed in the coming years given the prominence of the stock market.
With all this money being held in one place, it’s an excellent idea for investors to know where the best place to keep their money, and more importantly, where they should avoid saving money. This generally brings up the question of where your advice comes from, and in what form.
I have written numerous articles on both saving money and investing those assets on the stock market, but I’m not a qualified professional. If you want to speak with a qualified adviser to help build an investment portfolio, you have two choices, a Financial Advisor or a StockBroker? In real terms, both Financial Advisors and Stockbroker exist to help their clients make money, but they both have different approaches and money management philosophies.
I have a general hatred of Financial Advisers as I rarely see them add value, especially in the short-term. Where financial advisors add value is when you come to estate planning and need effective strategies to protect your assets from inheritance tax. This is where financial advisers come into their own as these strategies get very complicated, very quickly, especially when you start adding trusts, living wills and power of attorney’s to the equation.
For investments, Financial Advisors try to provide comprehensive financial guidance to individuals that goes well above simply picking stocks, bonds and funds. They try to build an investment plan that takes into account a clients wants and needs, to offer financial security over the long haul. Financial Advisors are typically paid in one of three ways, Commission-Only, Fee-Only or a yearly retainer.
- Commission Only – This option is dwindling due to new laws in the UK, but still exists Internationally. A commission-only Financial Advisor get paid an upfront fee to provide advice. As an example, if you invest £20,000 into a fund that is recommended by the adviser, and the fund charges 5% commission, £19,000 get put into your investment, while £1,000 goes to the adviser.
- Fee-Only – This option is where you pay a fee for specific services. If you need a portfolio review, that will cost you £150, have a tax-related question, its £200 and a face-to-face meeting, £300.
- Yearly Retainers – This is typically how you’ll pay for ongoing investment advice. If you give a financial adviser £100,000, they will charge you between 1 & 2% each year to manage your money.
A Stockbrokers job is to ultimately make you money by buying and selling company shares and taking a commission in the process. Stockbrokers should review a clients tolerance to risk and provide investment ideas that are generally short-term, although in some cases there is the possibility to buy shares for the long term.
Most stockbrokers will be paid a commission to buy and sell, no matter whether the trade goes up or down in value. As an example, a stockbroker recently phoned me to discuss a trade idea he thinking about. For the short-term trade, which would last approximate a week, he would charge me 0.25% to buy and another 0.25% to sell.
Of all the financial advisers I have ever met, I cannot think of one that has talked to me about anything other than funds, that said, I cannot think of a stockbroker who has offered me anything but stocks.
In my experience, choosing a financial adviser means signing up for a comprehensive money management experience, which will likely result in higher costs and fees, but doesn’t guarantee you a greater profit. Taking advice from a stockbroker means that you’re getting a more limited money management services, but the fees will be one-off. It’s also possible to get win-only fees if you shop around.
Making a qualified choice between an advisor and a broker requires thorough research and careful planning. Ultimate both try to make you money, but will charge you whether they make money or lose money.