You may have heard both these terms in conversation about various financial subjects. Many people think they know the difference, but it’s critical to understand them to get the most from your pension fund.
In 2015, the government passed legislation that included the Guidance Guarantee. This provision means that you can now receive impartial guidance through Pension Wise or the Citizens Advice Bureau. However, you should be aware that the guidance you receive from these organisations is not the same as the advice you’ll get from a regulated advisor.
Here is the difference between the two:
- What is financial guidance?
- What is professional financial advice?
- When you must seek financial advise
- Should you use an independent advisor or restricted financial advisor?
- Financial guidance provides you with an overview of all options on the market. However, all of these options may not be available to you.
- Financial guidance provides you with general information. It will provide you with various questions to ask an advisor.
- You will get no guarantees on the decisions you make based on financial guidance.
- Financial guidance is free as part of the Guidance Guarantee.
- If you need an introduction to the various types of pension plans on the market, financial guidance can be useful.
- Financial advice will inform you which options are available and also how appropriate they are for you.
- Financial advice is specific to the individual. Advice will consider various aspects of your financial situation, such as your investments, goals, risks, and potential benefits.
- Some financial advisors require a fee before they provide advice. Some will give you non-obligatory advice, only requiring a fee if you go with their advice.
- If you receive financial advice that is incorrect or through which you lose money, you can approach the Financial Ombudsman or the Financial Services Compensation Scheme. This protection is only available if you are dealing with an FCA (Financial Conduct Authority) regulated advisor. You can check with the FCA’s database to find regulated advisors.
- ILC UK research from 2019 shows that those who use a financial advisor accumulate an average of £30,991 more in their pension pot compared to people who seek no advice.
- Financial advice helps you choose a product based on your situation.
You are obliged, by law, to obtain regulated financial advice in the following circumstances:
- If you are in a final-salary or career-average pension scheme with a value over £30,000 that you want to move it into a defined contribution scheme.
- If you are in a defined contribution scheme valued over £30,000, that includes a guaranteed retirement income (such as an annuity), and you wish to use it for something else.
It might be prudent to consult a financial advisor for either one of these circumstances, even if your pension’s value is less than £30,000.
Restricted advisors are limited in the products they can advise you on. In contrast, independent financial advisors have access to the entire market.
It would be best if you always asked a financial advisor whether they are independent or restricted.
When looking at options for your pension, get in touch with a regulated financial adviser such as Portafina or, view the info at Pension Wise.