Find out how much financial advice costs, the different ways you can be charged for financial advice and how to negotiate financial adviser fees and charges.
How much does financial advice cost?
Financial advisers must agree up front how much you will be charged for their services, when you’ll be charged and how payments will be made to them. There are three main ways you will be charged.
A one-off charge that covers everything from the fact find to the plan implementation. Tailored to your needs, but could vary wildly from adviser to adviser.
You could be charged an initial fee for the recommendations and then a flat fee annually for reviews or each piece of work your adviser undertakes.
Simple and easily evidenced, but beware, as this method may be less of an incentive for the adviser to work quickly.
You could expect to pay anything between £30 to £250 an hour.
Proportion of the money you want to invest
This is a percentage of your assets. The Financial Conduct Authority (FCA) says advisers charge an average of 2.4% of the amount invested for initial advice and 0.8% a year for ongoing advice (1.9% p.a with underlying product and portfolio charges factored in).
Examples of the cost of financial advice
Here’s what you could expect to pay for three scenarios commonly searched for on adviser comparison site VouchedFor. Percentage figures are shown in brackets where IFAs charged by percentage.
How do IFAs display charges information?
IFAs used to get paid by commission, and the cost would be passed onto customers. Under new rules, introduced under the Retail Distribution Review in 2012, IFAs have to charge their clients directly.
Although, when Which? looked at the websites of 100 IFAs in April 2021, we found 89 showed no pricing online. Of the ones which did show pricing, some displayed their hourly rate per consultation, while others showed their implementation fee and ongoing percentage fee for hypothetical scenarios.
Some displayed associated product-related charges, but not all.
IFAs aren’t required to display their charges information on their websites, and many will ask to have an initial meeting with you first to ensure their quote is accurate based on your financial situation.
It’s still important to shop around and not go with the first IFA you meet – there could be one that suits your needs better, and is better value for money. We generally advise getting three quotes before making a decision.
- Find out more: how to find a financial adviser
How much money do I need to get financial advice?
According to the FCA, the average advised customer has over £150,000 of assets under advice. Separately, research by Canada Life in 2019 found that, out of 250 advisers, just 16% would take on a client with less than £100,000, down from 50% in 2014.
Note that if you have a smaller amount to invest, an adviser who charges you based on how much is in your pot might be reluctant to take you on, as they might feel the amount of revenue they would generate might not justify the cost of offering you their service.
You can use VouchedFor or Unbiased to filter advisers according to your investment pot size. If you can’t afford the remaining options, you may be able to pay an adviser a fixed fee to get one-off advice, instead of paying for an ongoing service.
- Find out more: alternatives to financial advice
Can I get free financial advice?
Many financial advisers offer a free initial consultation, which involve explaining what your financial needs are and identifying where you need help.
A good adviser will also talk you through your options and the services it offers to help you take the next steps.
That’s where the free bit ends. If you decide that you want a professional adviser to manage your financial affairs, you will only get firm recommendations and a strategy provided to you if you go ahead and agree to use their services.
However, if you’re looking for general advice – sometimes called ‘guidance’ without recommendations, there are a few options – particularly if you are planning your retirement.
- MoneyHelper – money and pensions guidance over the phone, online and face-to-face (replaces the Money Advice Service and The Pensions Advisory Service)
- Citizens Advice – guidance on a variety of issues from money to consumer rights, benefits and legal issues
- Pension Wise – set up when the pension freedoms were introduced, over-50s can speak to someone over the phone or face to face to understand your pension options
- The Which? Money Helpline – free for Which? Money members, our team of experts can help answer any financial queries, from savings, investments, pensions and tax
Don’t get stung by ‘free’ debt advice
There are dozens of firms offering debt advice – the adverts for some of which imitate genuine established debt charities.
These firms could end up directing you to use expensive or unsuitable strategies.
For free debt advice, go direct to debt charity StepChange. It has been offering advice for over 25 years, now available online and over the phone.
Ways to pay for financial advice
Depending on how much you have to invest, and the complexity of the services you’re asking a financial adviser to provide, the cost of advice can often run into the hundreds, sometimes thousands, of pounds.
However, there are some ways that can make meeting the cost of professional advice a little easier for you to manage.
The Pensions Advice Allowance
Introduced in April 2017, the Pensions Advice Allowance lets you withdraw up to £500 from your pension savings to put towards the cost of retirement and pensions advice.
This £500 allowance can be used three times, which is designed to allow you to access retirement advice at different stages of your life. You may, for example want advice when choosing a pension, and again when you’re deciding what to do with your savings.
However, you can only use one of your three withdrawals per tax year.
The good news is that you won’t be charged any tax on your withdrawal, provided you use it to pay for financial advice.
The Pensions Advice Allowance is available at any age, but can only be used by people who have a defined contribution pension. The scheme is not available for those that have a defined benefit, or final salary, pension.
Financial advice through your employer
Companies can also offer to pay for financial advice for their employees without paying income tax.
This tax-exemption has always existed – but has been increased since April 2017 from £150 to £500.
In combination with the Pensions Advice Allowance, this means you could get £1,000 towards paying for pension or retirement advice.
What if I’m still paying commission on old investments?
‘Trail’ is the ongoing commission that advisers used to receive from your investment funds.
Advisers can still receive trail commission if the advice was given before 1 January 2013. Trail can also still be charged if you move to another adviser, as long as the adviser discloses the amount of trail to you immediately.
However, if your adviser switches you to a new investment, or recommends increased contributions to your investments, you will have to pay an explicit fee.
If you suspect you are still invested in funds that pay trail commission, it would make sense to ask your adviser to review your portfolio.