Yahoo Finance Would you pay £184.58 an hour for financial advice?
High and murky fees charged by financial advisers have been put back under the spotlight by the City watchdog.
The banning of commission payments between advisers and financial services firms in 2013 was intended to boost transparency for consumers.
But City watchdog the Financial Conduct Authority warned last week that “few advisers are transparent about their pricing before they sell advice”.
In an annual update, it said a lack of clarity on what customers are actually paying for advice does not “incentivise advisers to compete on price and may result in limited pressure on them to reduce their charges”.
Financial advisers include high-street IFAs as well as national firms restricted to recommending their own services, such as St James’s Place and Standard Life’s 1825.
Advisers are allowed to use a wide range of fee structures and can combine various models. These typically include an upfront “initial” fee, ranging between 1pc and 3pc of the client’s assets, and an ongoing charge of between 0.5pc and 1pc.
To further complicate matters, while some charge these percentages on money invested or saved, others charge a fixed fee or hourly rate. Some may do both.
Across Britain, the average maximum hourly rate is £184.58, according to City watchdog figures.
Justin Modray, of Candid Financial Advice, said some advisers add a host of additional fees that may not be obvious to ordinary savers.
These include “implementation fees” levied in addition to normal initial charges; dealing fees when switching funds; long notice periods if you try to move to another adviser; and high transfer fees on funds or shares moved elsewhere.
Conservative MP Tom Tugendhat has been campaigning for improved transparency across the industry after struggling to get information about charges on his own pension statement.
“It is pretty clear that the current system allows people to hide charges,” he said. “When I asked for a breakdown of what fees I was paying, I was told it would be difficult to find out. That is not a good enough answer – it is my money.
“We need to get away from a percentage figure and into a firm number. If people don’t know what they are paying, they don’t know whether they are getting their money’s worth.”
Former pensions minister Baroness Ros Altmann said: “We need to have transparency. [Advisers should be] telling people in pounds and pence how much they are going to charge.
“Customers need to have the ability to shop around. But if you don’t know how much you are being charged, how can you?"
Chris Hannant, of the Association of Professional Financial Advisers, an adviser trade body, said investors should be able to have charges structured the way that suits them, whether that’s an hourly rate or a percentage fee.
He said: “Most firms are flexible. They are client-focused and want to keep their clients happy.”
The watchdog’s warning last week comes as Duncan Cameron, the millionaire founder of the price comparison website Moneysuper market.com, tomorrow launches a new digital advice service he claims will be 80pc cheaper than traditional face-to-face advice. It will cost less than 0.5pc a year and have no upfront fee, he said.
As with other emerging online advice services being launched by high-street banks and existing advisers, Mr Cameron’s eVestor service uses complex “decision trees” to spit out recommendations. This could be whether an individual should put money into a pension or Isa, or if they should avoid investing in stock markets altogether.
The FCA is keen to promote lower-cost advice services amid concern that consumers are being left to make complicated financial decisions without any help, particularly at the point of retirement.
Since April 2015, the “pension freedoms” have meant that those over the age of 55 have far more control over how they use their savings but are also faced with more choices.
One consequence of the 2013 ban on commission was a sudden drop in the number of people getting advice. Since then advisers have focused on wealthier clients, saying it became uneconomical to provide services for people with even average levels of savings.
Tips to avoid losing out on fees
Consumer champion Mick McAteer, of the think tank Financial Inclusion Centre gives his top tips on how to get good financial advice without paying over the odds.
When taking advice for the first time
Ask what options there are for paying fees. You should be offered the choice to pay by cheque or direct debit. If this is not offered, ask why not.
Request a breakdown of any future fees on your annual statement in pounds and pence.
Consider paying for advice only when you need it, rather than paying a yearly retainer. This could be for services such as an adviser checking over your long-term investments once every five years or a consultation after a major event such as Brexit.
Check if the adviser, or firm, has achieved “chartered” status. This is the profession’s gold standard.
If you are already paying for advice
Ask your adviser how much you are being charged each year and what they are doing for this fee.
Call your provider and request to know what fees you have been paying. Ask for this in pounds and pence, not as a percentage. Don’t take no for an answer.
Ask your adviser if there are like-for-like funds that are cheaper than the ones they recommend. If there are, ask them why they are recommending more expensive ones.
Feel you've been overcharged on your savings and investments? We want to hear from you: sam.brodbeck@telegraph.co.uk
