Getting expert guidance on big money decisions surrounding pensions, savings, and investments can be life-changing, but there are often concerns about the cost of working with a financial adviser.
This article will look at how much an independent financial adviser costs and what fees to expect.
Before we delve in, it’s worth stressing that financial advice is not the same as financial guidance – the latter is free and often provided by charities or reputable companies.
While you pay for financial advice, an adviser looks at your circumstances and recommends the best course of action based on your circumstances, whether you want to optimise investments or build a retirement strategy.
A huge consideration in getting financial advice is the cost.
The exact amount that advisers charge depends on what kind of help you need and costs may vary nationally - but good advice should always cost less than none at all.
Note that independent financial advisers are not paid by commission. If financial advice appears to be free, then you are not dealing with an independent adviser but a salesperson.
Need a quick estimate? Try the Unbiased Cost of Advice calculator
The quickest way to find out estimated costs for your enquiry is to use our free Cost of Advice tool.
Read on to find out more about average fees and how these are worked out.
How much do independent financial advisers charge?
Your adviser’s fees will be based on many things: what advice you need, how much time it will take, and the size of the assets involved.
Advisers often charge between 1% and 2% of the asset in question (e.g. a pension pot), with lower percentages being charged for larger assets.
So, this means higher fees may apply for smaller assets.
Every adviser is different, but they should be happy to discuss their fees upfront.
When we surveyed our customers about the cost of adviser services, we found a range of fees from which we calculated the below averages as a guide.
Advice and set up of £10,000 investment ISA
Advice on a £300 a month pension contribution
Advice on defined benefit pension transfer (based on a transfer value of £100,000)
At-retirement advice on £250,000 pension pot
Remember, the whole point of taking advice is to be financially better off in the long term. So for most people who take advice, the cost is less than the cost of doing nothing.
Types of financial adviser fees
Your initial meeting with a financial adviser is usually free, as it gives you the opportunity to find out whether they are right for you and what kind of fees to expect.
Your financial adviser may offer you a number of different ways to pay them, depending on the services you require and the time period involved.
Here are the kind of charging structure you may come across, ranked from most common to least common.
1. Fixed fee
The adviser will perform a specific service, such as setting up an annuity, for a set price agreed in advance.
You should ask for written confirmation of what is included in the fee.
2. Percentage of assets
An adviser who manages your investment portfolio over a period of time may charge a percentage of the portfolio’s total value.
So, this means your fee grows as your portfolio’s returns rise.
3. Hourly rate
Some advisers may charge an hourly rate for certain services (£150 per hour is the UK average).
This can be for quick jobs such as moving investments on your behalf.
You should make sure your adviser gives you an estimate of how long the work is likely to take.
You also might be charged a monthly fee, which could either be a set fee or a percentage of the money you want to invest.
In your first meeting with a financial adviser, you should discuss what fees apply and how much it’ll cost, so you know what to expect going forward.
What can affect how much you pay for financial advice?
Financial adviser fees can vary depending on several factors.
If you need help with services that are complex or time-consuming, you may end up paying higher fees.
It’s a good idea to ensure you have everything the adviser needs, so the process goes smoothly.
And if the financial adviser is highly qualified and doing the work themselves (rather than using support staff and then approving it), you’ll likely end up paying more.
How you choose to get advice can also impact how much you pay. Getting financial advice digitally could save you money as the adviser has lower overheads, while in-person advice in expensive areas can lead to higher fees.
It’s worth doing your research and getting a recommendation if you choose digital advice.
Finally, the type of adviser you choose is an important consideration.
Restricted advisers are limited in the products they can offer and providers they can access, while independent advisers are not limited in the financial products they can offer or providers they can recommend.
A note about IFA pension transfer fees
The fee your independent financial adviser will charge for the transfer reflects not just the advice and the work they do for you, but also the risk involved.
Since you are exchanging a guaranteed benefit for a non-guaranteed type of pension, it is important to thoroughly research and consider your decision carefully.
Financial adviser ongoing fees
Sometimes you may want to work with an independent financial adviser on an ongoing basis. For example, you may want them to manage your portfolio of investments to help boost future returns.
If the company manages investments in-house or uses active investment strategies, they may charge more.
You agree an ongoing fee in advance, which may be a percentage of assets under management.
A typical independent financial adviser fee might be between 0.25% and 1%, but some advisers may charge a different percentage depending on your circumstances.
Be sure to find out exactly what service you are receiving for any ongoing charges, and whether it is dependent on a certain level of returns.
Can I get help with paying for financial advice?
If you have a defined contribution pension and are seeking retirement and pensions advice, you can use the pensions advice allowance to withdraw up to £500.
You can do this three times but can only use the allowance once in a tax year. As long as you use the money withdrawn for financial advice, you won’t be charged any tax .
Before accessing the pensions advice allowance, contact your pension provider to check if you are allowed to access it.
Companies can offer up to £500 to pay for financial advice without paying income tax, but it’s worth checking with your employer to see if this benefit is available.
Does my financial adviser receive a commission?
If you’re receiving advice about investments, pensions or retirement income products, your financial adviser cannot be paid a commission – so they must charge you a fee.
However, if your advice concerns mortgages, general and protection insurance or equity release, your financial adviser may be paid a commission.
How financial advice can save you money
A financial adviser can help you save money in various ways.
They can recommend pension schemes, investments, mortgages and protection products with lower fees, saving you significant costs over the long term.
An adviser can help you save more effectively, so your money isn’t eroded unnecessarily by tax and inflation.
Most importantly, they can help you avoid costly mistakes, such as buying an inappropriate financial product, losing money through an error of judgement, or falling victim to fraud.
How independent financial adviser fees pay for themselves
Even more valuable is the way financial advice can help to grow your money.
For example, the Value of Advice report** by Unbiased found that those who took advice on pension saving near the start of their careers saved an average £34,300 more than those who took no advice – excluding tax relief or compound interest.
Start at age 35
Start at age 25
Cost of advice on a £200/month pension contribution
Boost to retirement savings
extra £25,730 in pension pot (excl. tax relief and interest)
extra £34,300 in pension pot (excl. tax relief and interest)
Return on the initial cost of advice
Learn more: what are the average savings by age in the UK?
Financial advice is especially vital leading up to retirement, and at the point of retirement itself.
It can help you boost the value of your pension in your final years of saving, and help you ensure the right level of income in retirement, while minimising the risk of running out of money.
Alongside the savings, financial advice can help you make confident decisions, and offer peace of mind.
*Averages calculated from various responses to Unbiased.co.uk research from customers in July 2018
** Value of Advice research 2015