How financial advice has changed
You wouldn’t expect a builder to repair your roof for nothing. Or a plumber to replace a leaking pipe gratis. The same is true if you need professional financial advice.
This was always true, even if it didn’t appear that way. Previously, advisers made their money through commission, giving the impression that their services were free. Now, you usually have to pay an upfront fee.
Not everyone’s convinced. Some are reluctant to pay an upfront charge – even if this could mean they are better off in the long run.
However, a recent survey found that 90% of those who see a financial adviser regularly say it has benefited them – by reducing the tax they pay, improving their financial situation and giving them peace of mind1.
How it was: no such thing as free advice
- Previously, many advisers collected a commission from the provider, instead of charging customers a fee. This helped create the impression that you could get free financial advice – although this was never the case.
- People still paid for this advice, through higher product charges or deductions in the value of their pensions and investments. But these charges weren’t transparent. This made it difficult for investors to compare costs and see whether they were getting value for money.
- Financial advisers can’t now take commission payments if they are recommending pensions, investments, life insurance or equity-release products. However, those selling mortgage or other insurance products may still be paid this way.
How it is now: transparent charges
- New rules, introduced in 2012, have made the cost of advice far clearer. Advisers now have to disclose all charges at the outset – so customers can see what they are paying in pounds and pence.
- Customers have the option of paying the fee upfront or arranging for this charge to be deducted from the money they are investing.
- Many advisers charge an hourly fee. The average is around £1502.
- Some will charge a fixed fee for certain tasks: for example, transferring a pension or setting up an ISA. Wealth managers may take a percentage fee from the assets they manage, but this usually only affects those with more substantial investment portfolios.
- Many advisers will offer a free initial consultation, where they will set out their charges and explain what you can expect for their fee. Check this is the case before booking an appointment.
- Patrick Connolly, chartered financial planner with Chase de Vere, says: “Don’t assume the cheapest option is best. You’ll often find advisers with cheaper costs offer a more standardised service, perhaps they give advice by phone or online rather than in face-to-face meetings. You need to determine the right mix of charges and service to meet your requirements.”
So just as you wouldn’t employ a builder or a plumber without checking what they are able to do and how much it will cost, make sure you do your homework before employing a financial adviser.
For more on the cost of advice and what you get in return, see this article by the Money Advice Service (MAS). If you don’t have a financial adviser and would like to find one in your area, check out our Find an Adviser tool.
1 Old Mutual Wealth, Redefining Retirement 2015
2 Unbiased: https://www.unbiased.co.uk/ways-pay-ifa