Guide to financial adviser fees
Wondering how much financial advisers charge? It depends on a number of things, including your specific needs and the firm you decide to hire.
Financial adviser fees vs commission
How much does a financial adviser charge?
What can affect a financial adviser’s fees
The end of commission-bias
Financial adviser fees vs commission
Since 2013 advisers cannot be paid a commission if they give you advice about:
Pensions
Investments
Retirement income products such as annuities
Instead they must charge you a fee for the advice.
However, if you’re getting advice on: mortgages, equity release, general insurance (like travel or home insurance) or protection insurance, such as term life insurance, advisers can still be paid commission.
At the end of the day, in both cases you are effectively paying for advice.
Either by paying a fee, or by purchasing a costlier product that gives the financial adviser commission.
How much does a financial adviser charge?
Many financial advisers offer an initial meeting free of charge. This isn’t designed to give you specific advice about your situation. It’s a chance to see how they work, how much they charge and to get a sense of whether you feel comfortable with them.
A financial adviser’s fees vary depending on what they are charging you for and how you pay.
Some advisers offer different ways that you can pay for advice.
If there is a particular option you prefer, ask the adviser as they might be happy to negotiate. These include:
An hourly rate - this will vary from £75 an hour to £350, although the UK average rate is about £150 an hour
A set fee for a piece of work - this could be several hundred or several thousand pounds
A monthly fee - this could be a flat fee or a percentage of the money you want to invest
An ongoing fee - an adviser can only charge you an ongoing fee in return for providing an ongoing service, unless you’re paying off an initial charge over time through a regular payment product
Make sure it works for you
It’s a good idea to find out whether you can choose different ways of paying for different services.
For example, paying an hourly rate for advice about your pension, but a percentage for advice about your investments.
Try to find a system that suits you.
Your adviser must give you a copy of their charging structure before providing any services to you.
They should also tell you how much the service you need will cost, or at least give you an estimate.
What can affect a financial adviser’s fees
The fees that financial advisers charge vary.
There are several factors that could affect how much an adviser charges:
Location - some advisers might be based in a more expensive part of the UK, which means their office costs will be much higher
How the service is delivered - some firms now offer advice by phone or even online, which can mean the cost of the advice is cheaper as they have lower overheads. However, if you’re receiving advice this way, make sure that it comes with a recommendation that’s specific to you so you’re fully protected
Who does the work - some financial advice firms will use a highly-qualified adviser for all the work whereas another firm might use support staff to do some of the work (signed off by an adviser) which will cost you less
How well qualified a financial adviser is - the more qualifications and experience an adviser has, the higher their fees might be. Depending on the type of advice you’re looking for, you might feel that paying for an adviser who is highly qualified is worthwhile
How complex your situation is - if there’s a lot of sorting out to do, this can take time and time is money. You can help by being very clear about the type of advice you need and having your papers in good order. Any sorting out you can do in your own time you won’t have to pay for. Only use your adviser to do the things that you can’t do yourself and to provide the expert advice
The end of commission-bias
The Financial Services Authority (FSA) confirmed its pledge to ban commission on investment products by the end of 2012.
In a retail distribution review discussion paper published on 26 March, the City watchdog said it would ban financial advisers from taking commission from providers when recommending products.
Instead, advisors would have to be upfront about how much they charge for their services and give recommendations based on a comprehensive and unbiased analysis of the market.
"These new rules were designed to boost confidence and trust in the retail investment market by removing commission bias, actual or perceived, and exploding the myth that investment advice is free," said Sheila Nicoll, the then director of the FSA.
When the review rolled into action in 2012, investors were given the choice of paying an upfront fee or they can bundle the cost of advice with the cost of the product and spread out the payments.
It was unclear how exactly the bundling of advice and product fees would operate.
However, more needs to be done to help people who cannot afford to pay for full financial advice: It is clear that the changes meant that full advice services moved further up market, meaning that even more consumers need an alternative advice option.