If you asked a financial adviser for advice about what to do with a pension, you’d expect to pay for their time. But how much should you pay? Hourly fees charged by independent financial advisers (IFAs) vary widely, and some charge a percentage fee rather than an hourly rate.
How independent financial advisers are paid
Independent financial advisers (in fact, any adviser) can only charge a fee if they give you advice about investments or pensions. They cannot take a commission from the company whose products they recommend. But it doesn’t mean there will only be one fee option, you can pay by:
- Hourly fee. You’re simply charged an hourly rate and the longer the work takes the more you pay.
- A fixed fee based on the particular service. You’ll be quoted a fee in advance and you’ll know exactly how much you will pay.
- A percentage fee. This is generally charged on advice about investments. The amount you pay will depend on a range of factors, but one of these will be the amount of money you’re investing. Generally, the more you have, the lower the percentage you pay.
Getting information on costs
Some consumer groups say that independent financial advisers should display information about costs and fees on their website, but not all financial advisers agree. Philippa Gee of Philippa Gee Wealth Management doesn’t display information about fees on her website but she does tell clients how much she charges in the first meeting, which is free of charge. “I don’t do one-off advice as I strongly believe in the value of ongoing advice. I don’t take any upfront fees when people first invest, but charge a percentage based on whether someone has six or 12-monthly reviews.”
Example of Philippa Gee’s charges: For someone investing up to £200,000, the fee would be 1%, based on 12-monthly reviews. Anyone with £5 million+ would pay 0.6% of the amount invested. There is a minimum fee of £550 plus VAT. Philippa Gee says she would also contact clients between their review if, for example, the stock market fell and their portfolio needed switching etc as a result.
Vijay Thakkar, of independent financial advisers Blackstone Moregate, does include fee information on the firm’s website. He says that fees can vary for a variety of reasons: “Skills and qualifications of the IFA, those advisers who are ‘transaction based’ versus and those seeking to build a long term relationship, as well as the cost of overheads can all influence fee levels.”
Factors influencing fees:
- Qualifications and skills of the adviser in question.
- Nature of the IFA firm: an adviser might be doing all the work for £150 an hour, whilst other firms use support staff do some of the work at a lower hourly rate.
- Location: The overheads of a London IFA are likely to be greater than a rural adviser.
- Cost of insurance and levies: Professional indemnity insurance, FCA levies etc vary by size of the firm.
When cheaper may not be better
I’m all for getting good value for money and no one wants to pay more than they need to, but with something like financial advice, it’s much more important that you use an IFA who understands you and what you want from your money (even if they are not the cheapest) than that you go for someone with a rock bottom rate who won’t take time to get to know you and who isn’t interested in explaining what they’re recommending.
SAVVY TIP: Transparency around fees — so you know exactly what you’re expected to pay is very important. Of course, there are some advisers who charge a very high fee and who don’t deliver good value, so IFAs can be too expensive as well as ‘too cheap’.
Questions to ask your IFA
Which? has created eight questions that it believes people should ask before choosing an IFA.
- How will the fees be charged?
- At what stage of the process will I be charged?
- How will I have to pay the fees: by cheque or bank transfer?
- Are different fee options available for the service I require? For example, are you able to choose between paying by fixed fee or hourly fee? If different options are available, ask the IFA to explain the pros and cons of each one.
- What level of qualification do you have?
- What service will I receive for the money I pay you? Is it just the initial service or is any ongoing review involved?
- Will there be any ongoing charges?
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