Haggle over your adviser’s charges and you could save a packet
If you think you are paying too much for financial advice, ask to pay less — it could save you a fortune.
The rate that most advisers quote online or in brochures will, in reality, be much less if you argue your case.
For example, Hargreaves Lansdown, Britain’s largest do-it-yourself investment platform, levies up to 2% of the sum you want to invest as a charge for initial advice. However, the firm said clients can negotiate that rate. The average paid across its business is 1.2% a year.
Britain’s largest wealth manager, St James’s Place (SJP), advertises an initial charge of 4.5% when advising on new money added to its funds. But its average initial charge is 2.99%, it revealed.
Fees are generally tiered by how much you have invested, but a survey by the Financial Conduct Authority (FCA) showed that the lowest rate people actually pay is 1% on average for initial fees and a 0.5% ongoing annual charge.
Mark Polson of investment analyst the Lang Cat said: “Firms have the right to charge what they feel is appropriate and clients have a right to challenge it.
“The key thing is to make challenges from a position of really understanding what the adviser or planner is doing for you, and what it costs not in percentage terms but in pounds and pence.”
The cost of financial advice is under scrutiny amid concerns that people do not appreciate the long-term impact of what look like small percentages. Say you have a pension pot of £100,000 and are charged 2% a year. Assuming 6% annual growth, you would lose £22,000 in charges and lost growth over 20 years compared with someone paying 1.5%.
Over three decades, you would lose £50,200.
Typically, the more you have invested, the better deal you can negotiate. Brewin Dolphin, for example, will only negotiate fees if you have £5m-plus invested. Another large wealth manager, Quilter, charges an initial 1%-3%, but as its advice is “highly personalised”, it occasionally agrees a bespoke fee.
One smaller firm, Candid Financial Advice, which charges 1% for initial advice and then an average of 0.35% a year, encourages clients to haggle. Its founder, Justin Modray, said: “If you think an adviser is charging too much, try and negotiate a fairer fee. The worst that can happen is they say no, and you can take your custom elsewhere.”
SJP said: “There are occasions where [fees] may be adjusted but that will depend on a number of factors, such as the complexity of the advice being provided, the size of investment and the scale of the existing relationship.”
Other wealth managers may be less flexible. Tilney, for example, says its charges are not up for negotiation. However, the firm charges customers “appropriately, commensurate with the level of work identified”.
It said: “There is a world of difference between complex inheritance tax planning and relatively straightforward work. Fees are typically £200 per hour.”
Schroders Personal Wealth said: “It’s not part of our approach to offer discounts. We are committed to maintaining competitive pricing and our fee structure is simple and transparent. Our clients can easily see what they are paying for.”
For anyone who received advice before 2013, it’s worth asking whether you are invested in a cheaper, modern version of a fund.
Financial advisers were banned from receiving commission from investment providers in 2013 and have had to levy upfront charges instead. The intention was that this would give investors a better understanding of costs. However, advisers can continue receiving payments from business written before 2013. Commission has fallen since then but was still worth £756m in 2018, down from £1.5bn in 2013, said the FCA.
Some firms will also charge a fixed fee or a fee per hour. For example, Chase de Vere offers the option to pay by the hour — at £400 for services such as “estate planning” or “complex pension advice”. Its standard advice costs £250 an hour; basic administration is £80 an hour.
Bancroft charges a flat annual fee of £500 for managing up to £5m of assets. However, unlike Chase, its 15 independent advisers are available only on the phone and online, not face to face.
Last week, AdviceBridge launched pension advice for as little as £100 a year, excluding platform and fund charges. It only has two full-time advisers, but its annual charge does cover services such as re-balancing a fund to maintain a level of risk, switching between funds, and moving in and out of cash to mitigate volatility.
Chase will charge separately for these services — as much as 3%. The firm said: “We are transparent with our clients regarding our maximum fees, although the actual fees we charge are always client-specific.
“Our advisers operate under strict guidelines with regards to fees, in order to ensure consistency across our business, and our clients are always fully aware of our fees and have the choice of how and when we work for them.”
Source: Sunday Times 23/02
If you need financial advice check out this list of UK financial advisers.