Financial advisor fees can vary depending on what you want them to help you with. In this guide, we’ll go through how much you should expect a financial advisor to charge, how their fees work and what sort of returns to expect.
How much you should pay for a financial advisor depends on the services you want from them. You could pay as little as £300 for services like setting up an investment ISA or as much as £7,500 or more for investments of £250,000+.
Typically, the more money you want to invest with financial advice, the more you’ll pay.
Financial advisor fees tend to work in three different ways: percentage fees, flat fees or hourly rates:
If you want to make investments with advice from a financial advisor, most will charge you a percentage of the amount you want to invest. For the initial advice, fees tend to be between 1%-3%, then 0.5%-2% per year for ongoing advice. The more money you want to invest, the lower the percentage fee tends to be.
If you want advice on a specific financial product, such as a pension, or you want your financial advisor to set up a certain account for you, they generally charge a fixed fee. Flat fees will vary depending on the complexity of the task, but for example, advice on a pension contribution of around £300 per month could cost approximately £500.
In some circumstances, a financial advisor may charge you an hourly rate. While this may seem like the simplest option, you may end up paying more if your financial situation is particularly complex and the advisor has to spend a long time working through your documents.
Financial advisor hourly rates vary between £75 to £350 depending on the service they are providing, but the average is around £150 per hour according to MoneyHelper.
Financial advisor fees are calculated based on a few different factors:
The kind of advice you need
The size of the assets involved – e.g. your pension pot or a lump sum of inheritance
How long it will take your financial advisor to prepare reports, set up accounts and give advice directly to you
For a large asset, for example a lump sum that you want to put in an investment ISA, your financial advisor will probably charge between 1%-2% of the amount as their fee. The more money you invest, the lower the percentage tends to be.
Don’t just go with the first financial advisor you come across. Make sure you speak to multiple advisors to get an idea of their costs and consider who offers the most value for money. It’s also a good idea to speak to a few different people to see who you feel most comfortable with – everyone’s personalities are different, and you may get on well with or trust some advisors more than others.
Choosing an independent financial advisor (IFA) means that you’ll get advice from someone who can help you set up financial products from a range of providers from the market. If you use a ‘restricted’ advisor, they may only be able to offer you advice on one type of product, for example a pension, or they may only help set up products from a few providers – meaning you could end up with a worse deal.
If you’re paying your financial advisor hourly for ongoing advice and management of your investments, the chances are you’re paying too much. The costs can soon rack up when you’re paying your financial advisor by the hour – speak to them about moving to a fixed monthly fee or percentage of your asset and see whether it saves you any money.
If you think you’re paying your financial advisor too much, have a frank but fair conversation with them. Ask them what work they have carried out for you since you paid them their fee, and if you still think you’re paying them too much, ask them if there’s anything you can do to reduce the cost.
They will probably do their best to help you since they won’t want to lose you as a customer – but if they can’t move on price and you think you can get better elsewhere, you should have the right to break your contract and choose another financial advisor to work with.
It’s difficult to say what return you should expect from a financial advisor because investments move up and down all the time. A good way to benchmark what to expect is to look at how your investments were growing before you asked for financial advice (if you had investments before then). If your investments have grown more than they grew before you got advice, then you’ve got a good return on investment (ROI).
If you didn’t have investments before seeking financial advice, consider whether your investments have grown more than the fee you paid your financial advisor. If they have, then again, you’ve had a good ROI from your advisor.
However, it’s important to remember that as investments can fluctuate a lot, it’s best not to look at returns on a day-by-day or week-by-week basis. It’s better to look at them over a yearly or quarterly basis to see how much your investments have grown.
|Investment ISA advice
|Inheritance tax planning advice