Comment: Advice needs bigger picture

Financial planning or financial advice. Is there a difference? I believe there is. My view is that you cannot give financial advice without having in place a financial plan.

For example, it may be suggested that because you have a certain amount of money in your bank account then some of this should be moved into an investment product such as an investment bond or stocks-and-shares Isa.

The rationale could simply be that you have not used your allowance for a certain tax year and if you do not make the investment, you will lose this allowance.

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I would question this advice and ask what planning has been done. For example, what are your financial goals in the short, medium and longer terms? Do you have any specific monetary requirements or are there any particular one-off costs on the horizon, such as a wedding, or a deposit for a property purchase? Do you anticipate a change in your tax position in the future?

Consider the example of a higher-rate tax payer becoming a basic-rate tax payer in retirement. He may normally consider adding further payments to his pension plan because he receives tax relief on the payment, and in this case it would amount to 40 per cent of the gross contribution.

However, if when he reaches retirement, his pension income then puts him back into a higher rate-tax position then that advice has not been planned well. Perhaps the use of Isas to provide a future monthly payment in retirement free from tax could be a better solution?

It is easy to make simple comparisons like this. However, to involve the client in the financial planning process is more satisfying from everybody’s perspective and, hopefully, the end result is much more beneficial to the client.

But what should you, as an investor, do? You should first decide what you want from a planner and how complex your situation is. Is it simply a review of your pension position, or do you need a more comprehensive review?

In the last few years, pensions and tax legislation have changed quite dramatically. When you deal with your financial planner or adviser you should look to review your planning on a regular basis to allow them to suggest changes to take into account these alterations.

A good planner or adviser will ask you a lot of questions to find out what your goals are. They should not simply be looking to sell you a product.

For example, they may suggest what investment rate of return you will need to meet a specific goal or whether you should pay off your mortgage or not. Neither of these involve the selling or the purchase of a product but can make a big difference financially.

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Look to set up your own financial plan with an independent financial planner and keep in touch with them.

• John Mortimer is a chartered financial planner at Muirfield Partnership

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