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Financial advice fees 'drop' hides true picture

Financial advice fees 'drop' hides true picture
November 13, 2014
Financial advice fees 'drop' hides true picture

By contrast, if you need to take independent financial advice you'll face a murky world in which fees are often hidden from view entirely. Earlier this year Which? found that financial advisers would not disclose their fees upfront to clients. Most don't disclose fees on their websites, saying that they can't decide the fee until they meet the client and discuss their needs.

It's welcome news that the median hourly fee for professional financial advice has dropped 14 per cent to £150 from £175 over the past year, according to research from unbiased.co.uk. However, the survey of just 140 advisers listed on the unbiased website, although a useful indicator (see table below), does not reveal the full picture.

 

ADVICE SCENARIOS AND FEES CHARGED

Advice scenarioMedian fee charged 2014
Hourly fee£150
Initial financial review and report£500
Advice on a £200/month pension contribution£500
Advice for investment strategy for a £50,000 inheritance for a 50-year-old seeking medium term growth£1,500
Advice on converting a £100,000 pension fund into a lump sum and annuity£1,500
Advice on setting up a drawdown scheme on a £300,000 pension fund£3,000
Advice (including estate planning) for client with £200,000 Sipp, £100,000 investments, DB pension and buy to let property worth £250,000£3,500

Source: unbiased.co.uk, October 2014

 

Critics say that the fees charged by advisers are still too expensive - would you really choose to pay £500 for advice on a £200-a-month pension contribution? Instead, build up the money in a cheap FTSE All-Share Tracker fund such as Fidelity Index UK (GB00BLT1YM08) or Legal & General UK Index (GB00BG0QPJ30). You could then use your hard-earned £500 to boost your initial contribution - or pay for three years' full subscriptions to Investors Chronicle, if you're so inclined.

The advice industry reportedly prides itself on helping its clients but doesn't give them much help in deciphering its own fee structure. The 'advice' fees charged by advisers often don't include hidden costs such as 'implementation' or 'review' fees. In plain English, this means that the advice charges are only for coming up with a financial plan or investment strategy - the theoretical bit. They don't cover the practical bit - buying the investments or other products that you may have been recommended. This is work done by the firm's administrator or paraplanner. And they don't include making sure that your plan is still on track next year.

Customers need to be acutely aware of ongoing advice fees, which can dwarf the initial advice fees over time. Justin Modray is the founder of Candid Financial Advice and an expert contributor to our Portfolio Clinic. He says: "Many financial advisers seem to charge between 0.75 per cent and 1 per cent a year, which, on larger portfolios, is nothing short of daylight robbery." 1 per cent for investment advice and monitoring of a £500,000 portfolio would be £5,000 a year, which is no more work than that required on a £100,000 portfolio.

Also, watch out for extra fees incurred though the adviser offloading investment responsibility. Many advisers use expensive fund of funds or discretionary management services without reducing their own fees.

 

Fee examples from Investors Chronicle's Portfolio Clinic experts

Unbiased quotes the average initial fee for drawdown advice on a £300,000 pension as £3,000. In this scenario Candid Financial Advice would charge a maximum £1,500 initial advice fee with no hidden extras.

Alan Steel, the founder of Alan Steel Asset Management says his firm doesn't charge an hourly rate. Instead, they have a repeat all inclusive annual charge of 0.6 per cent of assets, whether in a pension fund, Isas or other investments.

Colin Low, a chartered financial planner at Kingsfleet Wealth, says: "In any piece of advice or transaction the client will have a combination of fees. So, my time is charged at £230 per hour, whereas admin time is £105 per hour and paraplanner time is £155. In most work, there is more admin time than adviser time, so the average fee tends to be lower per hour than the £150 average."