What is an independent financial advisor, how do you become one, and why is this relevant to actuaries? Darryl Boulton explains
Many actuaries will get asked by friends and family for some form of financial advice. While you are probably very capable, you do need to ensure you are not inadvertently transgressing into areas that are regulated (such as investment advice). But what about going the whole hog and becoming an independent financial advisor (IFA)?
Following a chance conversation at a networking event three years ago, that is what I decided to do. I was aware of the considerable paperwork that must back up every piece of advice given, and that had deterred me from making the move previously. However, I was assured that modern software takes much of that pain away, and I am pleased to report that this is so.
What an IFA does
Contrary to popular belief, an IFA does not advise on the buying and selling of individual shares. What you will do is check individuals have the right insurances in place, and source the best product for them where necessary.
Other common advice areas are ensuring assets are suitably diversified and, above all else, increasing awareness of the tax breaks and reliefs available. Did you know, for example, that you can pay £240 per month into a pension for your child or grandchild and the government will chip in £60 each month too?
The best IFAs have not only good technical ability but also, and just as importantly, people skills. The latter is not always associated with actuaries, but we are not all the same!
If you have the technical skills to be an actuary, you are more than equipped to qualify as an IFA. However, you will not be an effective advisor unless you also have the ability to sell yourself and gain people’s trust so that they will share information about their personal finances with you. Equally, you must not be a pushover – while giving free advice makes you popular, it does not feed the family.
How to transition
A common route to the basic qualification required is passing five exams featuring multiple-choice questions covering regulation, investment, personal tax, pensions and protection, followed by a three-hour general paper based on case studies. If you wish to give advice in some specialist areas, such as pension transfers or equity release, then you will also need to pass further exams.
Are the exams easy? Relative to actuarial exams I would say yes, but they are certainly no pushover. I was pleasantly surprised at how well-designed multiple-choice questions can provide a fair and thorough test, even with numerical-based subjects.
Best of all, with the multiple-choice question-based exams, you do not wait two months for your results. Approximately 30 terrifying seconds after submitting your answers, you will get an onscreen message that hopefully begins with ‘congratulations’.
IFAs are, rightly, highly regulated. It is essential to cover your back and ensure that you have done a thorough and clearly documented fact-find in all circumstances. It is not good enough that the advice given is correct – you need to ensure that all aspects of the process are captured as evidence. Disappointingly, a handful of insurers still insist on snail mail for many processes.
Money and lifestyle
A competent and well-organised advisor can earn as well as an actuary. However, if you do make the switch, you will need to be able to support yourself for the first couple of years or more as you build up your client base.
I work from home most of the time, at hours that suit me. I sometimes pop a shirt on and visit clients, although many are happy with a Zoom call. I can do the school run, will not miss Sports Day (if it happens), and often listen to the radio as I work.
And I make a positive difference to my client’s finances. What’s not to like?
Darryl Boulton is an independent financial advisor.