HOURLY FEES for IFAs may have tumbled, but customers need to check the ongoing costs of a service, writes Jeff Salway
New research showing a fall in the cost of financial advice over the past year has been dismissed as unrepresentative and misleading by advisers in Scotland.
But they say finding a qualified adviser or planner you can rely on is easier than ever, after rules were introduced nearly two years ago banning commission on investment sales.
Hourly fees for financial advice have tumbled by 14 per cent over the 12 months, according to advice sourcing service unbiased.co.uk. The average hourly rate has fallen from £175 an hour in 2013 to £150 an hour this year, its research found.
Advice on a £200 monthly pension contribution will typically set you back £500 – down from £595 in 2012 – and the fee for help with a £50,000 inheritance averages £1,500.
The cost of advice on converting a £100,000 pension fund into a lump sum and annuity has returned to the 2012 level of £1,500, after falling last year to £1,350, while clients pay an average of £3,000 for help with drawing down an income from a £300,000 pension pot.
But costs are only relevant in terms of the benefits of the advice, said Karen Barrett, chief executive at unbiased.co.uk. “Our recent Value of Advice research found that those who had taken advice receive an additional income of £3,654 every year of their retirement, based upon a pension pot of £100,000 – a clear demonstration of the benefit of taking professional advice,” she said.
But the report’s focus on hourly fees is misleading, said Alan Dick, principal at Forty Two Wealth Management in Glasgow. “Hourly rates are generally disliked by everyone – clients and advisers. Even the legal and accountancy professions are generally trying to move away from hourly rates,” he said.
Advisers face growing regulatory and qualification costs not directly related to client work and which can’t realistically be reflected in hourly rates, he said.
“At the moment the main fee model is still a percentage of assets under advice although this may start to move towards fixed fees over time,” said Dick.
Asset-based fees can mount up at an alarming rate, however. The annual fee of 0.75 or 1 per cent charged by many advisers can take hefty chunks out of larger investment portfolios.
Some firms will take the costs from your investment over a set period. For instance, for a £500 a month investment they may spread their fee over six months or a year rather than ask for it in a lump sum.
Would-be advice clients also need to check the ongoing costs of a service, said William Hunter, director of Hunter Wealth Management in Edinburgh. “Initial costs are one thing but ongoing reviews are crucial and one firm may promise a complete face-to-face meeting with an investment review where the other may just promise annual valuations and the availability of a call centre,” he said.
Some firms charge far higher ongoing servicing costs than others, said Hunter. But they might be the advisers who meet their clients face-to-face for regular reviews, rather than provide only basic annual valuations.
The biggest challenge facing consumers can be in finding out how much advice will cost them, with few advisers making their fees public.
Almost six in ten advisers, wealth managers and private banks failed to provide upfront information on advice costs, a review by the Financial Conduct Authority found earlier this year.
“Many firms are still struggling to figure out what their real service proposition is let alone how to charge for it so it could be some time yet before we see the numbers really settle down,” said Dick, a certified financial planner.
“Until more people are delivering financial planning as a service rather than transactional advice it will remain difficult to compare fees.”
So how do you find an adviser that is professional and qualified to meet your needs? That task has become easier since the Hogmanay 2012 launch of the retail distribution review. This was the radical shake-up that featured higher qualification requirements and a ban on provider commission payments on investment sales, in a bid to eradicate mis-selling and “commission bias”.
Dick suggests looking for the Institute of Financial Planning’s Certified Financial Planner (CFP) licence. “This is the only qualification that truly demonstrates the ability to deliver financial planning in the real world. CFPs have to sign up to one of the most rigorous codes of conduct and ethic of any profession,” he said.
It’s similarly important to feel confident in your adviser, said Hunter. “Pick someone whom you get on with and ask for testimonials or recommendations from clients who are similar to you,” he said. “Good advisers will have no problem asking existing clients to speak up for them if they have done a good job.”