Many people are put off seeking financial advice because of the perceived cost. The key thing to remember is that good financial advice should cost less over the long term than no advice at all. After all, the whole point is to improve your financial position.
Initial consultations are often free, and this meeting should enable you to judge whether paying for financial advice will deliver the best value for you overall.
Advisers may take payment in a number of different ways. Talk to them about their fees in each case to find a payment method that suits you both.
- Hourly rate – the UK average is about £150. Make sure the adviser gives you an estimate of how long the work is likely to take. Tip: ask if any of the work can be carried out by a junior colleague (with a lower hourly rate) and then signed off by a senior, to save money.
- Fixed fee – some advisers will charge a fixed fee for a specific task, such as setting up a pension policy. Make sure they confirm in writing precisely what is included in the agreed fee.
- Percentage of assets – this is often used by wealth planners who manage a portfolio of assets and investments. The adviser takes a percentage of the portfolio’s total value as payment.
- Retainer – the adviser takes payment based on an agreed percentage of the value of the assets, or by working out a time/cost basis for regular management of your finances.
- Commission – the adviser takes payment in the form of a commission from the company that sells you the product. However, the Retail Distribution Review (RDR) in 2012 prohibited financial advisers from charging commission on products that could be broadly described as investments. These include pensions, equity release, life policies, unit trusts and other investments. For some other financial products (such as insurance or a mortgage) advisers are still allowed to be paid by commission. Ask your adviser if commission payment is an option.
The myth of ‘free’ advice
In the past, many individuals have received financial advice and never been presented with a bill for it. This gave rise to a misperception that financial advice could be free. However, financial advice has never been free, from any source. Those advisers who did not appear to charge their customers simply received payment via commission from product providers – and it was customers who ended up paying for this commission, through increased charges. In many cases, customers who preferred not to pay an up-front fee ended up paying more for their advice over the longer term.
The Retail Distribution Review in 2012 banned advisers from receiving commission on investment-related products, and required them to disclose their charges up front. Under the new rules, charges for the initial advice you receive can still be taken from your investment products if you choose, but ongoing charges taken out of your investment will only be allowed if your adviser provides an ongoing service.
This factsheet from the FCA is a simple guide to how things work now.
For more about typical fees, see our Cost of advice guide.