Price or Value? Part 2
In Part 1 I looked at the nature and value of financial advice and highlighted what a client should be paying for. In this article I will explore how advisers charge for their services and whether clients are getting good value for their money.
If you are dealing with a firm or individual where fees and charges are contingent on the purchase of a plan or product, you are not really dealing with an adviser at all. You are dealing with a salesman. Furthermore, a salesman’s charges will reflect the amount of time “wasted” on the ones that get away. Once upon a time these firms and individuals were paid by commission taken out of your plan or investment. Up front commissions of 3% (and higher) were typical. The Retail Distribution Review (RDR) did away with commissions and made all advisers work on a fee basis agreed in advance with their clients. Sadly, many firms simply swapped commission for fees and still charge you 3% when they sell you a product.
So don’t confuse advice and sales. Advice is about establishing your needs and making appropriate recommendations which may or may not involve a specific plan or product. Professional, holistic advice may be about budgeting, debt repayment, sourcing the best savings rates, gifts or simply switching funds within an existing investment plan. It does not have to be about buying a new ISA or SIPP or Investment Bond.
Be prepared to pay for an adviser’s time and experience. Fee rates will vary considerably so be sure to “look under the bonnet”. If a firm is particularly expensive are they offering a service to match or do they just need to charge high fees to survive? If they are very cheap how can you be sure that they will maintain the necessary resources to provide an efficient ongoing service? What is the culture of the business – service or sales? Regular reviews are a key element of successful financial planning – is this a firm that wants to work with you for the longer term?
If you ask a firm for advice but you are not being charged for advice you have to ask why. If you don’t want to pay for advice then be prepared for the sales pitch …
The first charge to expect then is the initial cost of advice. This should always be agreed with you up front as either a fixed fee or as an hourly rate. If you agree to an hourly rate, ask for an estimate of the total costs and whether these are subject to VAT. Furthermore, check that you are not paying an adviser’s rates for administrative tasks being undertaken by more junior staff. Always agree terms in writing and be sure that you know what you are going to get for your fee.
In the next article I will look at charges for ongoing advice and consider what you should expect for your money.
To discuss further or to arrange a face to face meeting please contact us.
Price or Value? Part 3. Ongoing Fees - What are you paying for?