Despite new rules, finance firms aren't open about cost of advice
If you think all advisers will charge the same, think again. The difference in costs is astounding says Simon Read.
Simon Read is Personal Finance Editor at The Independent. He edits the Saturday Your Money section and writes the Daily Money column and Wednesday’s Midweek Money section in i newspaper. He also writes for the news and business pages of the Independent and i newspaper and is a regular money commentator on TV station London Live. He has won numerous awards including Consumer Finance Journalist of the Year.
Friday 01 March 2013
New rules that came into force at the end of 2012 mean that financial advisers must now tell you exactly how much you'll have to pay for their help. But research conducted on behalf of The Independent has revealed that prices vary enormously.
The results mean that if you fail to find out how much an adviser will charge you and then shop around for better rates, you could discover thousands of pounds of your savings disappearing into advisers' pockets.
The City watchdog changed the way that financial advisers get paid by effectively banning commission payments to them.
It meant that the long-standing tradition where many advisers could simply rely on generous commissions handed out by the firms which supply the financial products is over. Instead they now have to charge you a fee.
The hope was that it would become obvious to customers how much they are paying for advice and end the temptation for advisers to simply flog the products - investments and insurances - that paid the highest commission.
But there is no set scale of fees or control on how much advisers can charge. And, as our research has found, the charges can vary enormously.
The research threw up charges ranging from 1.5 per cent to 2.74 per cent a year. That's a difference of £3,100 per year for an investment or pension pot of £250,000.
It suggests that people could save up to 1.24 per cent in annual investment and pension charges, by shopping around smaller independent financial-advice firms.
The study involved a mystery-shopping exercise where 14 financial advice firms were contacted. The sample included six large firms whose advice is "restricted" to a specific selection of funds, and eight small "independent" companies, which are free to advise across all available funds. The small firms were selected on the basis of their advisers' good client ratings on the VouchedFor.co.uk website.
Under the new rules, financial advice firms must agree with clients an explicit fee. Despite that, the study revealed that it is not so easy to obtain that crucial information.
Among the six large "restricted" firms contacted, only one – Towry – provided full information about its fees. Otherwise, firms did not respond, insisted on first meeting the client, or provided scant information.
One major advice firm contacted which declined to reveal its fees reportedly charges clients up to 5 per cent in the first year.
In the case of a client with £250,000 to invest, Towry levies an initial charge of 1 per cent plus VAT, then from 2.39-2.74 per cent each year thereafter, in cases where they recommended their own funds. These charges are inclusive of advisory, platform and fund costs.
The smaller "independent" firms fared better, with six of the eight responding with fee information more quickly, within 24 hours.
They typically had an initial charge of up to 1 per cent, with annual charges then ranging from 0.8 per cent to 1.2 per cent, for someone looking to invest £250,000.
The charges covered the cost of advice, but excluded fund and platform charges. However with independent advisers free to seek out the best funds available, you'd expect them to find competitive fund and platform charges. They alone can range from less than 1 per cent to more than 3 per cent.
One accredited financial-planning firm, Tower Hill Associates, suggested total annual investment charges, including advice, platform and fund costs, should be around 1.5 per cent. That works out as a saving of up to 1.24 per cent compared with Towry's charges.
Adam Price, founder of VouchedFor, said: "It appears some firms are shying away from transparency, while others are embracing it.
"There are more than 6,000 firms offering financial advice in the UK, and not all are equal. People should compare different firms, not just on transparency and cost, but also quality of advice and service. It pays to shop around for a well-recommended independent financial adviser with a clear charging structure."
At the heart of any advice service is the fact that people want the right advice and should be prepared to pay for it. After all, a good financial adviser should be able to help investors avoid expensive mistakes.
But when looking for financial advice, cost is one of the key factors for most people. According to Unbiased, a body which represents many professional advisers across the UK, the average cost per hour for financial advice is about £150 depending on where you live and the qualifications of the adviser.
Karen Barrett, chief executive at Unbiased, said: "A financial adviser who helps you to review your investments or set up your pension may be happy to do this for a fixed charge for the whole job, and see if there is room for negotiation or paying in instalments."
If you don't know any financial advisers you can search them out online. At www.unbiased.co.uk you can search based on location, as well as product areas, qualifications, testimonials, specialist advisers and accreditations.
At www.VouchedFor.co.uk you can look at others' reviews of financial advisers. On average the site says its clients have rated the listed IFA firms 4.6 out of 5 for value-for-money.
Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk
Buying property overseas? Check out these hotspots
Bargain Hunter: Exclusive discount on a SmartGlider - a self-balancing electric scooter
Questions of Cash: I've been chased for a phantom debt. What can I do to stop it haunting my credit status?
Offset mortgages: How to save thousands of pounds and reduce the term of your home loan
My Travel Cash card charges a punitive 'inactivity' fee of €2.50 a month
- 1 What marriage would look like if we actually followed the Bible
- 2 If these extraordinarily powerful images of a dead Syrian child washed up on a beach don't change Europe's attitude to refugees, what will?
- 3 'Heartbreaking' Syria orphan photo wasn't taken in Syria and not of orphan
- 4 Bob Geldof offers to take four refugee families into his home 'immediately' as he condemns humanitarian crisis as a ‘f**king disgrace'
- 5 Orthorexia nervosa: How becoming obsessed with healthy eating can lead to malnutrition
Britain to take more refugees as Cameron bows to pressure after more than 250,000 back our campaign
Senior British politicians tell David Cameron: When dead children are being washed up on beaches – it's time to act
Jeremy Corbyn calls Osama bin Laden's killing a 'tragedy' - but was it taken out of context?
If these extraordinarily powerful images of a dead Syrian child washed up on a beach don't change Europe's attitude to refugees, what will?
Make your voice heard: Sign The Independent's petition to welcome refugees
If you're not already angry about the refugee crisis, here's a history lesson to remind you why you really should be
iJobs Money & Business
£16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...
£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...
£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...
£14000 - £16000 per annum: Recruitment Genius: This company was established in...
Day In a Page
This five-bedroom home in Sutton Coldfield is arranged over three floors, with a detached garage to the rear and a driveway at the front of the property.
In an elevated position above the bay, this four-bedroom home offers sea and headland views. There is a decked balcony and sun terrace - plus coastal walks on the doorstep.
With four bedrooms, this spacious maisonette in a mid-terrace period-style house in Holland Road is well-maintained and offers high ceilings and period features.
The terraces of this two-bedroom penthouse apartment offer panoramic views that stretch over fifty miles from the cliffs of Beachy Head.
In the heart of the coastal village of Mumbles and moments from the pier, this five-bedroom Victorian terrace is set over three floors and retains many original features.
In a sandbanks location, moments from the beach, this three-bedroom apartment has a large open-plan living area and a south-west facing balcony.
This four-bedroom home has an annexe accessed from the side of the house, with potential for improvement and conversion subject to the necessary permissions.
In the heart of the hamlet of Wardley, this five-bedroom period home offers countryside views and a stylish interior, with original features and open fireplaces.
Offering countryside views and landscaped gardens, this three-bedroom Grade II-listed lodge has a spacious conservatory and a large cellar that could serve as a workshop.
Set in approximately 1.5 acres, this four-bedroom home comes with a second, detached property that's currently used as an annexe.
In the hamlet of Newchurch, this former parish church is now a four-bedroom home complete with clock tower and eyrie.
Offering scenic views from a large balcony and sun terrace, this four-bedroom home has a wraparound garden and a heated swimming pool.
Offering views across the Humber and East Yorkshire Wolds from a glass panelled balcony, this four-bedroom barn-style home befits a life of leisure.
This four-bedroom home offers versatile accommodation with annexe potential; features include a hot tub, sauna and Norwegian BBQ hut.
Well-located for schools, colleges and the town centre, this contemporary thatched cottage offers flexible living space with six bedrooms.
Built in 1907, this four-bedroom Edwardian period home has been refurbished by the current owners, retaining many original period features.
Surrounded by landscaped gardens, this five-bedroom home offers living space across three floors.
This lovely country home in Burnham Market is currently run as a popular holiday cottage, with five en suite bedrooms and colourful gardens.
This three-bedroom 17th-century former village bakery is just a few miles from the East Sussex coast.
Set on a landscaped plot, this light and airy four-bedroom home comes with a log burner in the lounge, a fitted kitchen and an open-plan ground-floor layout.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Built on a former chapel site, this impressive four-bedroom home boasts balconies, stunning views and contemporary modern living.
This three-bedroom house is situated in a quiet mews and set over three floors. Features include glazed staircases and high ceilings.
A period townhouse set over four floors, this five-bedroom home was built in the 18th Century and retains many original features.
With five bedrooms, this spacious home offers beautiful gardens and modern interiors - set within the popular market town of Bingley.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This first-floor flat comes with two bedrooms, an impressive open-plan reception room and two lovely roof terraces.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Moored at Taggs Island and reached via a pretty garden, this two-bedroom houseboat has a vaulted reception room and skylit garden studio - currently a beauty salon.
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
A contemporary house spread over three storeys, this three-bedroom detached home has large sliding doors that open out to the River Quaggy.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
This former village bakery, dating back to the 17th century, is now a three-bedroom detached home just a few miles from the East Sussex coast.
On the picturesque Isle of Man, this four-bedroom character home has a ground-floor shop that's currently run as a newsagents and a flat that would make an ideal holiday let.
In a new collection of flats, this first-floor two-bedroom apartment offers ample entertaining space and a prime view of Furze Green from a private balcony.
This three-bedroom stone-built cottage currently trades as the village store with a restaurant in the annexe and family accommodation on the upper floors.
Previously two semi-detached properties, this five-bedroom home is spread over three floors with a large breakfast kitchen, orangery, office and gym on the second floor.
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.