How Much Do FAs Charge? When should I use an IFA?

3 Mar 2016 | COMMENTS: 0 | Author: Ryan Smith | we answer

There’s no such thing as free financial advice.

If you want an experienced financial advisor to manage your money, it’s going to cost you. Be cautious if you’re offered free advice, and check whether the individual or firm offering you this advice is registered with the Financial Conduct Authority (FCA).

The big question most people ask is ‘what will financial advice cost me?’

So how much do FAs actually charge?

There a number of factors that determine FA charges, mainly the complexity of financial advice required, how long it will take and the value of your assets. Experience and the advisor’s location can also determine the charges.

Ultimately, whether you feel a financial advisor is worth the cost will depend on the assets you need to manage, and your financial goals. You should always request an initial consultation before entering into an agreement with an advisor, to ensure it will be worthwhile.

Benefits of Paying for Financial Advice

When deciding whether you need financial advice, your financial goals will be a determining factor. These could be anything from purchasing a home, to planning your retirement or investing your assets for growth.

Taking advice ensures you’re benefitting from the experience of a professional advisor who will assess your needs and manage your assets for the best results.

Seeking free guidance over professional financial advice will only lead you to general assumptions, and not recommendations based on your personal circumstances. You’ll also be protected by the Financial Ombudsman and the FCA on the off-chance you happen to be misadvised.

As a general rule, financial management on assets worth £30,000 or more will get you the best value from financial advice.

Types of Charges

The way in which FAs earn money has changed over the past few years. They were once able to earn commission from providers in exchange for directing clients towards specific products. This practice was banned at the end of 2012, as the products being promoted weren’t always in clients’ best interests.

There are now three main ways for advisors to charge you:

  • A Percentage Fee
  • A Fixed Fee
  • An Hourly Charge

Additionally, if you have large assets requiring on-going management, you may choose to keep a financial advisor on retainer, paying them a monthly fee for any work that needs carrying out.

Percentage Fees

Charges can be a percentage of the money your advisor is managing. This most closely resembles the historic commission-based model, so is the most common way for advisors to charge.

The percentage can vary from as little as 0.5% of total assets, up to around 5%. The higher your assets are valued, the lower the percentage you’re likely to be charged.

Always clarify your advisor’s exact charges in your initial consultation with them, and ask if there is anything you don’t understand about the way the fees are charged.

Fixed Fees

If you don’t need ongoing advice, and simply want the input of an advisor for a one-off financial transaction, they will usually charge a fixed fee.

This fee will vary depending on how complex the work is, and the financial advisor’s level of experience.

An advisor should be able to give you a price up-front before they take on the work.

Hourly Charges

Many advisors are starting to move towards hourly charges, similar to the way solicitors and accountants charge. This is a move away from the more common percentage fee model, and can be fairer to the client.

If your advisor charges by the hour, always ensure that they provide a detailed breakdown of work undertaken and the time it took.

The average hourly fee for advisors is £150, but can vary from £50 up to around £500 depending on location, the size of the firm (and associated costs) and the advisor’s level of expertise. Your judgement shouldn’t be based solely on price – sometimes a more expensive advisor will be better value for money if they’re dealing with complex transactions.

Typical Charges

A recent Unbiased survey of 230 financial advisors revealed the average cost of an initial financial review is £500, as well as providing average charges for varying financial advice scenarios.

Investment Advice

Avg. Cost
Advice and set up of an £11,000 investment ISA £450
Investment strategy for a £50,000 inheritance for a 50yr old seeking medium-term growth £1,500

Retirement Planning

Avg. Cost
Advice on an £80 a month pension contribution £500
Advice on a £200 a month pension contribution £580
Advice on transferring a £30,000 pension with guaranteed annuity rates £900
Advice on transferring a £100,000 pension with guaranteed annuity rates £2,000
Specialist advice on a defined benefit pension transfer £1,500

At Retirement

Avg. Cost
Converting a £30,000 pension fund into a lump sum and annuity £825
Converting a £100,000 pension fund into a lump sum and annuity £1,750
At retirement advice on £100,000 pension pot (client needs full advice) £2,000
At retirement advice on £100,000 pension  pot (client knows what they want to do) £1,000
At retirement advice on £200,000 pension  pot (client needs full advice) £2,500
At retirement advice on £200,000 pension  pot (client knows what they want to do) £1,100
Set up of a drawdown scheme on a £300,000 pension pot £3,500
At retirement advice where the client has a £200,000 SIPP, some DB income,  £100,000 of investments and a £250,000 investment property, incorporating estate planning £5,000

Remember that charges will vary by advisor and location, so use the prices above as a general guideline.

Your Initial Consultation

You’re entitled to a free initial consultation with a financial advisor before they begin managing your finances.

This ensures you’re happy with the work they’re going to undertake, and allows them to discuss their processes, costs and your financial goals.

This consultation is different to a financial review; you’ll receive no recommendations and work won’t begin until both parties are happy with the direction and costs proposed.

Any financial advisor we connect you with via Local Financial Advice will offer this free initial consultation as standard.

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