Why You Pay A Financial Adviser More Than A Window Cleaner
Published / Last Updated on 16/07/2024
Before the Financial Conduct Authority’s (FCA) Retail Distribution Review (RDR) went live on 1st January 2013, financial advice on pensions and investments as well as all other financial products could pay commissions on the sale of any product. Make no mistake, you still paid for the advice via higher charges inside the pension, investment, or life insurance cover. After 1st January 2013, RDR required that:
- No commissions could be paid for pensions and investment advice, fees must be quoted and agreed before any work started. Fees can be paid direct or from your pension/investment policy as you choose. Financial Advisers have an opened ended liability for the advice that they give you. This is not restricted by consumer limitations of 6 years and is open ended for life.
- Commissions can still be paid where no advice is given i.e., you select a investment, pension or mortgage from the search results and the intermediary or investment firm takes on no liability for the suitability of your product but full commissions can still be paid. You have a risk of 'mis-buying'.
- Financial Advisers must be qualified to at least diploma level and working towards degree level in professional finance qualifications.
- Non-advised intermediaries do not have to achieve this level.
- Many banks, investment houses and insurance companies closed their ‘financial advice’ arms and branched out onto search engine/comparison site type sales with no liability. We repeat, you have the risk of 'mis-buying'.
How much to expect to pay for financial advice?
The easiest way we can break this down for you is to give you a basic idea of the costs involved to run our small, Husband and Wide financial advisory practice.
- FCA fees £7,000 pa
- Financial Ombudsman Service levy £1,200 pa
- Financial Services Compensation Scheme levy £1,200 pa
- Professional Indemnity Insurance (to protect you for life) £30,000 pa
- 4 X part-time staff (including web developer) £100,000 pa
- Website hosting, domains, security and development £18,000 pa
- Premises and remote working costs £15,000 pa
- Heat, light, power £2,000 pa
- Telecoms and internet/fibre £5,000 pa
- Professional research tools and software £3,000 pa
- Professional Fees to Chartered Insurance Institute and Personal Finance Society (for continuous professional development CPD and training, competency, Statement of Professional Standing Certificates etc) £1,000 pa
- Total c£180,000 pa
For 2 X financial advisers, working the average 190 working days per year, that’s nearly £1,000 per day needed as chargeable time just to cover business expenses before the owner/directors can make profit and get paid themselves.
This equates to £143 per hour (working a 7-hour day). Our lowest hourly rate (with the 25% online discount) is £145 per hour. As you may have guessed, we work much more hours to ensure we make a profit.
When you talk to any qualified financial adviser, know that:
- They are likely to have passed between 15 and 30 professional examinations at a cost of around £500 per subject. That’s £15,000 in training costs plus thousands of hours of study time, not just for the qualification itself but also ongoing CPD each year of around 200 hours.
- They are liable for the rest of your life or the policy life.
- They do not take commissions but charge you a fee to offer you whole of market, unbiased advice.
- Expect to pay an hourly rate of at least £150 per hour.
We calculate the fees for all works that we do based upon a core fee of the time involved plus a ‘risk fee’ to match the liability that we take on e.g., the liability for a £200,000 investment is quadruple that of a £50,000 investment even though the time take to deliver the advice may be similar.
If we can make or save you say £100,000 in inheritance tax or protect 50% of your wealth from any care fees means test, if we charge you £2,000 to do this, then we believe that is fantastic value added.
If we can save you doing 100 hours of research and learning only for you to get it wrong, maybe paying for 15 or 20 hours of work knowing that it will be done right and you get the right product, advice or service that may make or save you £000s as well as time, it must be worth it.
If you are paying £1,000 a year to service and MOT your car worth say £20,000 but devaluing everyday and you pay your financial adviser less or don’t have one, then you are at risk.
Your window cleaner may charge you £50 an hour for two employees on site to clean your windows, and they repeat the same process every month. If you spend £600 per year on window cleaning and you pay your financial adviser less or don’t have one, then you are at risk.
This is why financial advice is more expensive and perhaps more valuable than your car service or windows being cleaned. We all need window cleaners and car mechanics and they have costs as well as providing a valuable service but we also all need professional financial advice too and we hope you now understand why it is likely to be more expensive than your window cleaner.
