Which? has uncovered huge variations in Independent Financial Adviser (IFA) fees across the UK, with one quoting £2,450 more than the cheapest alternative for exactly the same service.
In November, we asked 200 IFAs to give quotes for various common services. We found large regional variations in the fees; and surprisingly, the IFAs quoting the highest fees weren’t always in the most affluent areas of the country.
£2,000 variation in quotes
We asked IFAs how much they would charge to transfer of an investment of £10,680 into a stocks and shares Isa. Although the average fee quoted was £356, one IFA in the south-east quoted £2,500, compared to the figure of £106 given by two IFAs in the south-west and the east of England.
We also asked how much IFAs would charge to arrange an income protection policy for a 30-year-old female, in good health, earning £30,000 a year and with a retirement age of 65. An IFA in the north-west quoted nearly £2,000 more for this than one in Scotland. The average fee quoted in this case was only £596.
This table outlines the results of our survey in full:
|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)|
Fees should be made clearer
There is currently no approved list of ‘typical’ charges for IFAs’ fees, making it more difficult for people to work out whether the fees they are quoted 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? chief executive, Peter Vicary-Smith says: ‘Financial advisers need to be much more transparent in their pricing, providing details of all their charges upfront. Currently, it’s very difficult for customers to know how much they’re going to be charged, and what is reasonable.
‘IFAs need to clearly display their fees online and if they don’t the regulator should step in to make this happen.’
Which? campaigned for the introduction of new regulations, known as the Retail Distribution Review (RDR). The changes will mean that from the end of 2012, advisers will have to tell consumers how much their services will cost and agree with the consumer how much they will pay.
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.
Questions to ask an IFA
Which? believes that consumers should go to an IFA, rather than approaching their bank for advice. We’ve created eight questions that people should ask before choosing an IFA.
1. How will the fees be charged? For example, you could be charged an hourly rate, ‘set menu’ fees for certain projects, via commission, or a combination of these.
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? Will you be asked to pay a lump sum, for example, or in instalments?
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!