18 min Read
06 Nov 2019

Written by Marc

Marc Shoffman is a leading finance journalist who specialises in personal finance, property and small business.

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How much does financial advice cost?

How much does financial advice cost?

Finding the best place to put your investments or pension savings can be tricky, but you don’t have to do it alone.

A financial adviser can help build a portfolio based on your risk appetite and goals. They will often have tools to assess how much risk you are happy to take and may be able to forecast how much you need to save to reach certain milestones. In addition to setting up an investment portfolio or pension, a financial adviser can provide regular monitoring to ensure you are keeping on track. A financial adviser can even be at the end of a phone or email if you have any concerns about performance or how certain political or economic events may hit your portfolio.

Types of financial advice provided by a financial adviser

Not all financial advisers are the same. There are two main types, an independent financial adviser (IFA) and one who is restricted.

Independent financial advice

An IFA considers all types of retail investment products such as investments and pensions and will recommend funds or providers from across the market. An IFA is seen as the most unbiased type of adviser as they are not limited to a specific range of products or providers.

Restricted advice

In contrast, a restricted adviser is defined as someone who only recommends certain products, providers, or both. For example, a restricted adviser may only provide pension advice or could advise on a limited range of investment funds. The term restricted is a little misleading as while it sounds negative, these advisers may often still cover a broad market range. For example, an adviser would be restricted if they only provided whole of market investment advice but didn’t consider pensions. In some cases, such as with advisers who are part of networks, the funds or providers a restricted adviser recommends may just have been chosen after an investment committee already considered the whole of the market.

Financial guidance

There is a third related category called guidance, where you are only given general information about one or more investment products, or have products or related terms explained to you. This is guidance rather than advice and there is no financial product or agreement at the end. Organisations that provide guidance include Pension Wise, the Citizens Advice Bureau and the Money Advice Service.

Find out more information in our guide on how to find a financial adviser.

When should I seek financial advice?

Financial advice isn’t only for the wealthy. Some firms may have high minimum investment requirements but others, such as Wealthsimple have no minimum investment amount. It can be all the more important to seek advice if you are not well off as you will want to ensure every penny counts. Below we have summarised three key areas of financial planning and when you may want to seek financial advice.

When should I seek investment advice?

There are plenty of robo-advice or DIY fund platforms that will help you build an investment portfolio, as demonstrated in our best buy tables. But this still requires time and understanding as a wrong move such as lack of diversification can lead to losses. An adviser can do a lot of the legwork in setting up and monitoring an investment portfolio. This can be beneficial if you don’t have the time to conduct the necessary due diligence on a fund. They can assess your attitude to risk to help inform your investment strategy and can choose the funds for you. Similarly, a financial adviser can ensure your portfolio is diversified across different assets, regions and sectors, so any poor performance can be offset by positive returns elsewhere in your portfolio.

You only have to look at issues with the collapse of Neil Woodford’s Equity Income fund to understand the importance of diversification and managing risk, which novice investors may not be ready for. Many DIY investors followed Neil Woodford, once described as a star fund manager, when he moved from Invesco to setup his own funds in 2014. But withdrawals were stopped earlier this year and it is now set to close after nursing big losses. To understand exactly what happened, check out our article 'Neil Woodford fund suspension: What to do if you are affected'. There have been stories of DIY investors seeing all their savings locked away, something an adviser would most likely have avoided.

There may be complex tasks you want to do such as consolidating legacy ISAs. An adviser can take on the administration of contacting old providers and merging your funds as well as spotting any exit penalties.

You could also get support with longer-term financial planning such as saving money for your children. An adviser can discuss whether it is best to do so in your own name or through a Junior ISA, which can have various implications.

It can also be beneficial to seek advice if you suddenly come into money such as through an inheritance or if you find yourself managing money for a loved one who has recently passed away. It can be daunting to decide what to do with a large sum or if you are not experienced at building or running a portfolio and an adviser can ensure you make use of all your tax allowances and make sensible decisions.

When should I seek pension advice?

Similar to setting up an ISA, a financial adviser can help setup a pension for you if you are not confident about choosing the right provider or underlying funds. An adviser can also be useful when it comes to consolidating your pensions. Few people have just one job nowadays and you are likely to build up several company pension pots over your career. It can be easier to combine your pensions, which an adviser can help facilitate. Additionally, they can check for any exit fees or if there are any benefits you are giving up by transferring.

If you are in a final salary scheme, also known as a defined benefit pension, there is now a legal requirement to seek financial advice before transferring to a SIPP or private pension if the funds are worth more than £30,000.

The same rules apply if you are in a defined contribution pension worth more than £30,000 and have a guaranteed annuity rate, which an adviser can also check for.

If you are wondering whether you should seek financial advice in order to combine your pension pots, check out our article 'What is the best way to combine my pensions?'.

When should I seek retirement planning advice?

Choosing what to do with your pension when you retire is a once in a lifetime decision. Everyone can take 25% tax-free from their pot from age 55 and can also make further cash withdrawals that are subject to income tax. There is also the option of taking a guaranteed income with an annuity or staying invested but still taking a set amount through drawdown.

Finding the right route, method and product can be complicated. The wrong move could leave you with a low income, tax charges or even risk your pot running empty. An adviser can talk through the various options and pros and cons, as well as the tax implications, of routes such as annuities or drawdown or simply just taking cash out of your pot. You may want to check out our article 'What is a sustainable amount that you can drawdown from your pension?' which goes into more detail.

If you are still unsure as to whether you should seek financial advice, read our guide for further tips on when you may need financial advice.

How much does financial advice cost?

Before 2012, most financial advisers were paid a commission for recommending a certain product provider. This no longer exists as it could be argued that it created a bias towards certain firms and products, plus it created the illusion that advice is free. Instead, advisers must now be transparent about what they charge.

How much does a financial adviser charge?

There is no standard amount that an adviser charges. Similar to other professions such as lawyers, an adviser may charge a fee in a variety of ways, summarised below:

  • an hourly rate
  • a set fee
  • a percentage based on assets

There may also be ongoing monthly or annual fees. Typically, a financial adviser managing an investment portfolio or starting a pension may charge a setup fee as well as an ongoing annual charge for monitoring and administering your assets. There will also be fund fees on top of this.

Factors that can impact the fees charged by a financial adviser

Location: The fee you pay may be influenced by location. A centrally-located firm may be convenient but they could have higher fees to offset the cost of plush offices.

Qualifications: An adviser could also charge a higher amount if they have extra qualifications such as if they have achieved chartered status, which reflects a higher level of skill, knowledge and training.

Complexity: You may also need to pay more if the advice is more complex and requires different products or extra time and administration.

Brand and Reputation: Bigger and well-known brands may also charge higher fees to reflect their status and brand name. This doesn’t always guarantee a positive performance. For example, well-known wealth manager St James’s Place has been criticised for high fees and perks for advisers that critics claim impacts portfolio performance.

What is the average fee percentage a financial adviser will charge?

Advisory comparison website VouchedFor lets advisers include their fees on their profile, although not all do. Its latest Cost of Advice report – based on what users feature on their profiles - found most advisers will offer a free initial consultation. Initial fees range from 0.5% to 5% of investable assets with an average of 1.74%. Ongoing charges range from 0 to 2%. The average ongoing fee, based on all fee structures uploaded to VouchedFor, is 0.79%.

Initial consultation Upfront/
admin fee
Ongoing annual / monthly management fee Investment
(stocks and shares ISA) / Pension
Financial plan
Free One-off or ad hoc charges for advice vary from 0.5 to 5% of the assets you wish to invest. The average initial fee is 1.74%. Ranges from 0 to 2%.
The average ongoing fee is 0.79% but varies depending on the service you are looking for, whether you have assets to invest and what kind of advice you seek.
Average 3.79% of the amount invested as an average initial fee. Average 0.84% ongoing charge. £0-£500 or more depending on situation

Source: VouchedFor

Where can I get free financial advice?

There are times when you can get advice for free or funded. Employee benefits packages often offer advice from a chosen firm such as when you start a company pension or when it comes to transferring a company pension.

There is a Pension Advice Allowance for those seeking an adviser to discuss their retirement options. This lets savers take £500 from their pension pot once a year and up to three times in total to pay towards the cost of retirement advice. Not all pension providers allow this payment method, so you should check with your provider to see if it is available.

Money to the Masses readers can also access a free financial plan via VouchedFor, worth £500. There is no obligation to pay for advice or purchase any products.

You can get plenty of free guidance from websites such as the Money Advice Service, Pension Wise and Which? Charities such as the Citizens Advice Bureau and National Debtline can also be a useful source of information.

Watch out for Financial Planning Week, which takes place each October, when advisers will offer free sessions to look at your finances. Check out our article 'Where to get free financial advice' for more information.

How can I find a financial adviser that I can afford?

The best recommendations often come from friends so it is worth asking people in similar situations who they have used for advice. Advisory comparison website VouchedFor lets advisers list fees on their profiles, which should give you an idea of costs, although not all disclose their charges. Some may display their fees on their own website or tell you before you get started.

It is also worth checking the Financial Conduct Authority register to see if an adviser is qualified and what they can offer. An adviser may also have extra qualifications known as chartered status, which could mean higher fees but you will be getting a higher level of knowledge and training.

It is not just about the cost though. A financial adviser should provide added value. The right advice can ensure you are in the right type of fund or retirement product, which could ultimately boost your income. They can also be at the end of the phone to listen to and address any concerns you have about the market and the impact on your money. It can be hard to put a price on that. For more information on finding a financial adviser that you can afford, check out our article '10 tips on how to find a good financial adviser'.

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