Which? finds huge variations in financial adviser fees
14 January 2012
Which? has found huge variations in Independent Financial Adviser (IFA) fees across the UK, with one quoting £2,450* more than the cheapest alternative to transfer money into a stakeholder pension.
The consumer champion asked 200 IFAs to give quotes for different services and found large regional variations in the fees. Although the average fee quoted to transfer a £10, 680 investment into a stocks and share Isa was £356, one adviser in the south-east quoted £2,500. Two IFAs in the south-west and the east of England quoted £106.
Meanwhile, an IFA in the north-west quoted nearly £2,000 more to arrange a protection policy for a 30 year old female than an adviser in Scotland quoted to do the same job. The average fee Which? were quoted by IFAs in this case was only £596.
Currently there is no approved list of ‘typical’ charges for IFAs’ fees, meaning people will find it difficult to know whether an IFA's fees are reasonable. Which? wants IFAs to be forced to publish a rate guide on their website, so that people can make an informed decision about which IFA to choose and what is a reasonable amount to pay.
Which? believes that consumers should go to an IFA rather than approaching their bank for advice, and has produced a list of key questions that people should ask in order to help them choose an IFA that offers a fair price and good service.
Which? chief executive, Peter Vicary-Smith says:
“Financial advisers should be much more transparent in their pricing, providing details of all their charges upfront. At present it's very difficult for customers to know how much they're going to be charged, and what is reasonable.
"IFAs should clearly display their fees online and if they don’t the regulator should step in to make this happen.”
New regulations*** which will be introduced at the end of 2012, will make paying for financial advice fairer and clearer. They will ban advisers from receiving commission for new investment advice. This should mean that advisers are more likely to recommend the best course of action for the consumer rather than the one which pays the adviser the most commission.
Notes to Editor
The full article ‘Counting the Cost’ appears in the February 2012 issue of Which? Money magazine. For further information, a copy of the full article, or an interview, please contact Natalie Hagan. For more information about Which? Money please visit www.which.co.uk/money
*An IFA in Scotland quoted £50 to transfer £5,000 into a stakeholder pension (equivalent to 1% of our total), however an IFA in the south-east quoted £2,500 for the same service, 50% of the total.
How do charges for independent financial advice differ?
The table below shows the highest and lowest quotes we were given, from a sample of 200 independent financial advisers around the country, for four different financial scenarios. The average fee is shown along with the sample size of advisers that were able to carry out the work required from each of the scenarios. Our research was carried out between 21 and 25 November 2011.
| The cost of financial advice | |||
|---|---|---|---|
| Service provided | Highest total fee quoted | Lowest total fee quoted | Average total fee quoted |
| The transfer of a single premium of £5,000 gross into a stakeholder pension | £2,500 (south-east) | £50 (Scotland) | £322 (of 156 IFAs) |
| The transfer of an investment of £10,680 into a stocks and shares Isa | £2,500 (south-east) | £106 (two: south-west and east of England) | £356 (of 192 IFAs) |
| Arranging a 20-year level-term assurance policy, with a sum assured of £100,000, for a 40-year-old male in good health | £1,500 (three: south-west, north-west and London) | £155 (south-east) | £519 (of 152 IFAs) |
| Arranging an income protection policy for a 30-year-old female in good health, earning £30,000 a year, with a retirement age of 65 | £2,100 (north-west) | £120 (Scotland) | £596 (of 148 IFAs) |
**89% of the IFAs we questioned said they offered a free initial consultation.
*** The price consumers pay for investment advice can be hidden within the product charges of the investment they buy. The changes will mean that advisers will have to tell consumers how much their services will cost and agree with the consumer how much they will pay.
Which? campaigned for the introduction of the Retail Distribution Review. The changes will mean that from the end of 2012:
- Advisers will have to be clear as to whether they offer ‘Independent’ advice covering the whole market or ‘Restricted’ advice covering a small number of products or providers
- Advisers will have to tell consumers how much their advice will cost and agree it with them. For new investments, they will no longer be allowed to receive commission set by product providers.
- The minimum level of qualification for financial advisers will increase and advisers will have to meet professional standards which will include a code of ethics.
Which? believes that consumers should go to an IFA, rather than approaching their bank for advice. Which? has created eight questions that people should ask before choosing an IFA.
1. How will the fees be charged?
2. Does the IFA receive commission set by product providers? If so, what plans does the practice have to bring its charging approach in line with the Retail Distribution Review?
3 At what stage of the process will you be charged?
4 How will you have to pay the fees: by cheque or bank transfer?
5 Are different fee options available to you for the service you require? For example, are you able to choose between paying by fixed fee or hourly fee? If different options are available, ask the IFA to explain the pros and cons of each one.
6 What level of qualification does the IFA have?
7 What service are you receiving for the fees/ commission? Is it just the initial service or is any ongoing review involved?
8 Will there be any ongoing commission or fees?
If an IFA tries to dodge these questions or implies that it’s unreasonable to ask them, go elsewhere.
Which? is a consumer champion. We work to make things better for consumers. Our advice helps them make informed decisions. Our campaigns make people’s lives fairer, simpler and safer. Our services and products put consumers’ needs first to bring them better value.
