The cost of advice

26th March 2022

Is your money working hard enough for you? Consulting an adviser could lead to a higher return on your investments

Holly Thomas

The golden rule when taking financial advice is to understand from the outset exactly what you are paying and may continue to pay in the future.

All firms are required to have a clear fee structure, yet there’s not one model for what to charge. These costs depend on the company, but you will be given a menu of fees before you sign on the dotted line.

There is typically an initial charge that covers the cost of the advice as well as putting recommendations in place. After this there can be ongoing charges for monitoring and reviewing any investments – this will be less than the initial charge as it’s more about maintenance of what’s already been put in place.

If any big changes need to be made, there may be more to pay.

Some firms charge a fixed fee for the whole job, so there’s just one lump sum for the advice and to put the recommendations in motion. Others charge an hourly fee.

Factors that affect the cost are the complexity of your situation and your financial goals.

That’s because there’s much more work involved for an adviser to recommend trust structures for inheritance tax planning, say, compared with setting up a straightforward investment ISA that you pay into every month.

It’s important to remember that, while there will be an initial outlay, you are paying for the expert guidance to put you in a much stronger financial position in the longer term. According to a study*, investors who use an adviser to choose the funds for their portfolios receive better returns than those who go it alone.

“The difference means advised investors generate a 27 per cent higher return over 12 months.”

“More clients are showing an interest in the way in which advisers charge, which is extremely positive,” says David Stealey of Cardiff-based Romilly Financial. “We want people to understand every aspect of the financial planning journey. It’s good practice for anyone looking for an adviser to compare charges from two or three advice firms to make sure they choose the one that presents the best value for money.”

When it comes to buying a house or remortgaging, the benefits of using a broker to source and arrange your finance can far outweigh the alternative of doing all the legwork yourself.

The cost of mortgage advice is slightly different because in some firms brokers offer their services completely free of charge.

Brokers make money with every mortgage arranged because most lenders pay them a commission – known in the industry as a procuration fee – which is roughly 0.35 per cent of the amount borrowed.

Some brokers may opt to charge you a fee directly, on top of or instead of their commission – so they may ask you to pay and then refund you any commission they earn.

“The way that advice firms charge should be made clear,” says Jane Newman of Jane Newman Financial Planning. “If it’s not, ask for clarification.”

*Legg Mason Global Investment Survey 2018

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