How much does financial advice cost?
Financial advisers must agree up front how much you will be charged for their services, when you'll be charged and how payments will be made to them. There are three main ways you will be charged.
A one-off charge that covers everything from the fact find to the plan implementation. Tailored to your needs, but could vary wildly from adviser to adviser.
You could be charged an initial fee for the recommendations and then a flat fee annually for reviews or each piece of work your adviser undertakes.
Simple and easily evidenced, but beware, as this method may be less of an incentive for the adviser to work quickly.
You could expect to pay anything between £50 to £250 an hour.
Proportion of the money you want to invest
This is a percentage of your assets. You could be charged an initial fee, ranging between 1% to 3%, and an ongoing charge between 0.25% and 1%.
Note that if you have a smaller amount to invest, an adviser who uses this method of charging might be reluctant to take you on, as they might feel the amount of revenue they would generate might not justify the cost of offering you their service.
Examples of the cost of financial advice
In August 2019, Which? surveyed 108 real financial advisers to get a sense of how much you could expect to pay for financial advice for a range of scenarios.
Here we show the average quote we were provided for each scenario.
I’m approaching retirement with £100,000 in savings, a £150,000 pension and £100,000 in an investment Isa, and would like advice on drawing an income in retirement.
Average quote: £2,540
I’m 10 years into my career, with £60,000 in savings and £40,000 in an investment Isa. I’d like to start saving for my child university education.
Average quote: £1,060
I’m 50, with comfortable savings and no mortgage, and would like to invest a £100,000 inheritance.
Average quote: £1,980
Can I get free financial advice?
Many financial advisers offer a free initial consultation, which involve explaining what your financial needs are and identifying where you need help.
A good adviser will also talk you through your options and the services it offers to help you take the next steps.
That's where the free bit ends. If decide that you want a professional adviser to manage your financial affairs, you will only get firm recommendations and a strategy provide to you if you go ahead and agree to use their services.
However, if you're looking for general advice - sometimes called 'guidance' without recommendations, there are a few options - particularly if you are planning your retirement.
- Pension Wise - set up when the pension freedoms were introduced, you can speak to someone over the phone or face to face to understand your pension options
- The Pensions Advisory Service - an independent organisation funded by the government that can answer your pension questions
- The Which? Money Helpline - free for Which? members, our team of experts can help answer any financial queries, from savings, investments, pensions and tax
Ways to pay for financial advice
Depending on how much you have to invest, and the complexity of the services you're asking a financial adviser to provide, the cost of advice can often run into the hundreds, sometimes thousands, of pounds.
However, there are some ways that can make meeting the cost of professional advice a little easier for you to manage.
The Pensions Advice Allowance
Introduced in April 2017, the Pensions Advice Allowance lets you withdraw up to £500 from your pension savings to put towards the cost of retirement and pensions advice.
This £500 allowance can be used three times, which is designed to allow you to access retirement advice at different stages of your life. You may, for example want advice when choosing a pension, and again when you’re deciding what to do with your savings.
However, you can only use one of your three withdrawals per tax year.
The good news is that you won’t be charged any tax on your withdrawal, provided you use it to pay for financial advice.
The Pensions Advice Allowance is available at any age, but can only be used by people who have a defined contribution pension. The scheme is not available for those that have a defined benefit, or final salary, pension.
Financial advice through your employer
Companies can also offer to pay for financial advice for their employees without paying income tax.
This tax-exemption has always existed – but has been increased since April 2017 from £150 to £500.
In combination with the Pensions Advice Allowance, this means you could get £1,000 towards paying for pension or retirement advice.
What if I'm still paying commission on old investments?
'Trail' is the ongoing commission that advisers used to receive from your investment funds.
Advisers can still receive trail commission if the advice was given before 1 January 2013. Trail can also still be charged if you move to another adviser, as long as the adviser discloses the amount of trail to you immediately.
However, if your adviser switches you to a new investment, or recommends increased contributions to your investments, you will have to pay an explicit fee.
If you suspect you are still invested in funds that pay trail commission, it would make sense to ask your adviser to review your portfolio.