How Much Should I Pay for Financial Advice?
Published / Last Updated on 10/05/2024
Working out how much you should pay a financial adviser is a difficult question to answer given the permutations of advice that you may need alongside risk, business costs and time.
No Consumer Limitations
Consumer limitations restrict the time you can sue for breach of contract to 6 years in England and 5 years in Scotland. If a contractor or professional breaches their contract with you or is negligent you have up to 6 years to claim compensation. This is not the case with finance as the financial services industry is not subject to consumer limitations law. Financial services firms have an open-ended liability for the life of the contract or when you die. Financial adviser’s estates (after they have died) have even been known to be sued for compensation. The costs for professional indemnity insurance for a financial adviser can range from anything between £10,000 to £15,000 per year per adviser. Just for that alone, if you are paying a solicitor £150 per hour or you are paying a builder £300 a day, then you can expect to pay at least what a solicitor would charge for professional services.
Different Advice Means Different Liability for the Adviser
- Low risk advice areas: life insurance, pension annuities, mortgages and ISAs. Expect to pay a lower rate.
- High risk advice areas: Inheritance tax planning, care fee planning, trusts, pension transfers and flexible drawdown. For many higher risk areas, financial advisers are required to keep records indefinitely. Expect to pay more for higher risk advice.
- Volume/Size of Liability: if your advice is for a £100,000 pension transfer and your neighbour’s pension transfer is £500,000 then the adviser has 5 X the liability, so the larger the risk, the larger the fee.
Professional Qualifications Cost
We have all heard or read the story of the engineer that arrived to fix a valuable mining machine that was costing £000s each day it was not working. Local workers could not fix the problem, so an expert was called in, had a look around, adjusted a simple bolt in minutes and then charged £20,000 for a few minutes work to the outrage of the client. It was what the engineer knew, their knowledge and experience and not the time that was valuable and added value for the client by saving £00,000s when the machine that was not working. This is the same for basic financial advisers versus Chartered Financial Planners.
Professional financial services study materials and tutorship for a 3-hour written exam can cost anything up to a £1,000 per subject. Our director, Ashley Roberts-Clark ACII, FPFS and Chartered Financial Planner has sat and passed 35 advanced professional financial services examinations in his career with the Chartered Insurance Institute and the Chartered Banker Institute. This has cost many £000s in addition to the time involved studying, revising, and sitting examinations to achieve the equivalent of 2 X 1st Class Honours Degrees in Finance as well as ongoing requirements for 200+ hours of continuing professional development study required each year in addition to 35 years industry experience.
Taking advice from a Chartered Financial Planner for more complex areas should cost more than simpler areas such as life insurance or mortgages.
Is Your Car Worth More Than Financial Security for Life?
- Many people spend £000s on a car and then £000s each year to keep the car insured, taxed, MOT, tyres, repairs, cleaning etc, yet it is a depreciating asset that will eventually be scrapped.
- Your insurance, pensions and investments are your financial security both now and in the future. How much would you pay for total financial security? You should be paying more each year for this rather than your car.
Financial Adviser Running Costs
Office costs, staff costs, website costs, huge professional indemnity insurance premiums, Financial Conduct Authority fees, Financial Ombudsman Service levies and Financial Services Compensation Scheme levies and minimum capital reserves requirements all mount up. Even for our small business, our business expenses run at around £14,000 per month and capital reserves are required at levels similar to buying a small apartment.
Compare your own salary (or salary when you were working if now retired). Working full time, you would expect at a minimum wage level to be paid nearly £2,000 per month gross for a 38 hour week and if a high earner, you may be earning £5,000, £10,000 or £20,000 per month.
With all the costs and liabilities, minimum competency and qualifications, would you expect your Chartered Financial Planner to charge £500 per week or £5,000 per week for services?
What to Pay a Financial Adviser?
We suggest:
- £150 per hour for lower risk advice areas and up to £250 per hour for higher risk advice areas.
- We suggest you avoid advisers charging 1-3% of the value of your wealth upfront and 1% pa ongoing. Look for 1% upfront and 0.25% pa ongoing.
- Our Preference: We suggest you should look for advisers that publish their fees in numbers in writing and offer fixed fees for services unless it is a higher risk area where you should expect to pay a little more for higher risk areas and the complexities involved.
We publish all our fees online and believe they are a fair reflection of the time, the work, the complexity, and the risks involved for each area of advice that we offer. See: Our Fees
Other useful links: Contact Call Back Calculators
