How much is top-notch financial advice worth?
From next year, all independent financial advisers (IFAs) will charge up-front fees for their services, rather than siphon off their payments using commission.
Many of This is Money’s super-savvy readers will not care a jot because they are already happily making their own informed financial decisions.
But for others, there is concern that a typical £200 an hour cost will put off those in need of high quality advice.
Because he’s worth it: Most people think financial advice is over-priced and would rather pay £50 than the typical £200 an hour – what do you think is fair?
That figure can range as high as £400; enough to make your eyes water and many are expected to baulk.
In fact, people think the tips and money management provided by IFAs is worth just a fraction of that price.
In one survey of 1,000 people by CoreData Research, the typical price they’d be prepared to pay was £39 on average – a long way off the real typical rate. For a full review, which may be more than one session, £155 seemed acceptable. But one in ten people even said it should be completely free.
The reality is that costs at present vary wide of that typical price.
Unbiased.co.uk, which helps put consumers in touch with financial advisers, says some advisers do charge lower fees. But this often reflects the quality of the advice.
Costs typically come in between £75 to £250 per hour ‘depending on the level of expertise’ and on location, Unbiased says. It says that an initial meeting is usually free.
Which?, the consumer group, found there are huge variations in the fees between. Its says the current cost can range from £50 to more than £400.
Advisers argue that their expertise is worth good money – and like us all, they need to earn a living from their work.
Former FT Money Editor Nic Cicutti, writing in MoneyMarketing, the magazine for financial advisers, says: ‘The value that consumers place on financial advice is frighteningly little.
‘What is worrying is that in so many cases advisers somehow have failed to demonstrate any worth in their relationship with clients.’
It is feasible that these costs may rise after a shake-up in the rules next year because the regulators are demanding advisers must be better qualified.
Traditionally, many advisers have used commission ratcheted on to pensions, mortgages, and investment policies to eek out payment for their services. A small percentage is taken off the regular contributions an investor or borrower makes. In these cases, upfront fees are usually waived.
However, this often enables advisers to take a long trail of payments over many years, with the sums adding up to far more than a £200 one-off hourly rate.
The Financial Services Authority watchdog will from next year ban the use of commission payments to pay for financial advice. The dully-named Retail Distribution Review (RDR – see box, above) is designed to clean up the industry by fostering transparency and clarity. Customers will know exactly how – and how much – their adviser is paid.
Many advisers already charge a fee; others will be forced to play by the new rules. A sizeable number of advisers are expected to exit the profession altogether in response.
A poll of advisers by insurer Aviva last year found that most expected to charge between £100 and £150 after the system is changed. But another study by the business analysts Deloitte, published around the same time, suggested consumers would baulk at that and pay only £70.
Some consumers may spurn financial advice altogether. With a wealth of information, guides, tools, tips and investing tactics on sites like This is Money, many will feel comfortable going it alone. But for complex matters like converting your pension pot into an income (i.e. buying an annuity), it still pays to get bespoke advice.
It could also trigger what is being called an ‘advice apartheid’. Good advice on things like buying an annuity could be restricted only to the rich. Savers with more modest pension funds – worth less than £50,000 for example – could find themselves priced out of the market and left with lower incomes in retirement.
And there’s also the danger that the next big financial scandal could be ‘self mis-selling’, where unguided investors treat their portfolios like casino bets, placing the lot on high-risk punts such as Latin American stock market funds or volatile mining shares.
Published: 23 March 2012
By Dan Hyde
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