How much does a financial advisor cost?

In 2012, commission fees paid to financial advisors were abolished. Moreover, they are replaced with fees like how accountants or solicitors are paid. This may not sound like a big deal, but the Retail Distribution Review started in 2012. This revolutionised financial services with the abolishment of commissions. As a result, advisors were no longer paid by hidden commissions. Where pension and investment funds went to providers that paid the highest commission.

This change was indeed a game-changer for the consumer. Advice would only be given if the product was right for the consumer. If the advice were not right for the consumer, the advisors' advice would be to leave the funds where they are. A win-win situation for any consumer seeking financial advice.

Types of financial advisor fees

The cost of a financial advisor can vary widely. The services they offer, their location, and their experience level all affect it. Typically, financial advisors charge fees based on one of the following structures:

1. Percentage of assets: Many financial advisors charge a percentage of the assets. They initially transfer or manage annually on your behalf. This fee typically ranges from 0.5% to 3%.
2. Hourly rate: Some advisors charge by the hour for their services. Rates can vary, but the UK average is £150 per hour.
3. Fixed fee: In some cases, financial advisors charge a fixed rate for creating a financial plan. The complexity of these services can inflate the prices.

How a financial advisor can save you money

Financial advice can save you money in several ways. After all, independent financial advisors have access to some 30,000 products. Making it possible to offer investment products at considerably lower charges. Saving you significant costs over the long term.

The way they help you save money is by planning your finances. This way, your money isn't eroded by tax and inflation.

Most importantly, they stop you from making stupid mistakes. Such as buying inappropriate financial products or falling victim to fraud.

How much do financial advisors charge?

Your advisor's fee will depend on several factors, such as the complexity and time required to give the advice. It will depend on the size of the assets involved. Advisors charge 0.5% and 3% of the asset (e.g., a pension pot). A pension pot of £300,000 would attract a lower fee than a pension pot of £30,000.

Advisors are required to discuss their fees upfront. 

We surveyed our advisors on the cost of their services; the typical costs are:

Pension pot of £30,000 transfer	£900
Defined Benefit advice	£3,000
Pension pot of £300,000 transfer	£3,000
The setting up of a pension plan	£600

 

Financial advisor ongoing fees 

Ongoing fees typically cover a range of services, including portfolio fund management. Normally, this service usually requires a meeting review. Usually face-to-face or via Zoom. The fees are between 0.25% and 1% per annum. The value of these services is offset by helping you make the best move; this means your goals are hit more effectively.

How do independent financial advisor fees pay for themselves?

Let's see an example of how financial advice can pay for itself. Regulated advice has booked more than 7,500 pension appointments since 2013. The premise behind each appointment during 2013 and 2019 was to review each person's pension fund. As well as see what the charges were and if they could be better. Switching from a legacy pension costs £1,500. A new plan saves £875 yearly. The savings cover costs in under two years.

Annual Management Charge

                                                                                                                                   Percentage                                                                                                                                                  Cost                                                                             

Legacy scheme £50,000 pension pot	2.5%	£1,250
New flexible pension	0.75%	£375
Gross annual saving		£875
Advisor trail fee	0.5%	£250
Net annual saving		£625
Savings compounded at 3% for 20 years		£17,895
Advisors fee	3%	£1,500

 

The annual saving of £875 can help boost your pension's value. Over 20 years, the compound effect would increase a pension pot by £17,895. All for a mere initial fee of £1,500.

Alongside this significant monetary saving, the peace of mind that comes from making the right choices.