I did some research recently for one of the weekend papers to see how many of the largest 100 financial advisers in the country gave any indication of how much they charge on their websites.
The answer? 11
And of those only 6 explicitly published their fees, the others gave some detail but not enough to gauge how much you might actually pay.
Why are advisers so shy about publishing their fees?
In my view it’s likely a combination of not wanting to scare off potential enquirers with high fees and maintaining flexibility to try and charge as much as they feel they can get away with.
Such advisers will usually say something along the lines of ‘we can only establish the work involved, hence cost, after an initial consultation.’ While there is an element of truth in this, any adviser who’s been in the business for a while knows pretty well what they will charge for most scenarios, so it would be easy to publish these on their websites, if not an explicit rate card.
The real reason, I suspect, for wanting a meeting is to try and suck the potential client into their sales process and maximise their chance of a successful sale. I’ve encountered a lot of people over the years who paid a lot of money for poor advice, simply because they felt committed to using an adviser after meeting them.
My advice is simple. Don’t use an adviser unless they clearly publish their fees on their website. After all, an adviser who charges reasonable fees has nothing to hide. And if you end up chatting to an adviser, either by phone or face to face, never feel pressured into using them. It’s your money and you should be the one in control.
How much do advisers charge?
It varies. Based on the few advisers who do disclose their fees the typical level seems to be around 2-3% of the money invested for initial advice and at least 0.50% a year for ongoing advice. Although they don’t disclose fees on their website, prominent adviser Chase de Vere has been quoted as saying they charge 3% initially and 1% a year, or £250 and £80 per hour for advice and administration respectively. To me that looks on the high side, but is probably quite representative of many advisers.
This is probably a topic that merits its own article, so I'll revisit at some point.
Most ongoing commissions to stop from April 2016
If you already used an adviser in the past, there is a fair chance you are still paying them via ongoing ‘trail commission’, certainly if you took advice before 2013 (when commission on new investments was effectively banned). However, if the investments are held on a ‘platform’ these commission payments will have to cease from April 2016, potentially leaving a big dent in some advisers’ wallets.
The only option such advisers have is to get in touch with those clients and agree an ongoing fee instead. If the commission/fee involved is reasonable and you’ve received good ongoing service this should be a formality. But I’m guessing there are many instances where advisers have been collecting commissions while providing no meaningful service in return.
So if you hear from a long lost adviser there’s a high chance it’s because they want you to sign a fee agreement to replace the commission. If they didn’t look after well the first time round I can’t see any reason to give them a second chance.