How much should I pay for independent financial advice?
To get independent financial advice from a fully qualified adviser with access to products from across the market, you need to pay for it.
Rules that had previously allowed IFAs to earn an income from commission were scrapped at the end of 2012 due to fears that payments from providers skewed the advice IFAs offered.
So how much does an IFA's advice now cost?
As with every service, fees will vary between providers and some parts of the country will invariably be cheaper than others. Nonetheless, research from unbiased.co.uk revealing average costs provides a useful starting point, and can help you establish whether the quotes you're receiving are reasonable.
It found the typical IFA will now charge £175 an hour for their service. However many will quote a fixed price for a job such as investing an inheritance or setting up a pension.
Costs for common advice needs:
- Initial financial review and report - £500
- Advice on a £200 monthly pension contribution - £500
- Advice and setting up of a £10,000 investment Isa - £300
- Advice and investment strategy for a 50-year old investing a £50,000 inheritance seeking medium growth - £1,500.
- Advice on converting a £100,000 pension into a lump sum and income - £1,350
- Advice on setting up an income drawdown scheme on a £300,000 pension - £3,000
Cost will in many cases determine whether or not consumers seek advice, but in searching for a good IFA Karen Barrett, chief executive of unbiased.co.uk said people shouldn't focus too much on the price: "A focus on cost alone is not necessarily helpful for consumers looking for the best adviser for their needs. As with any professional adviser, costs are only relevant in terms of the services provided and we urge consumers to bear that in mind when shopping around for an adviser."
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
A financial adviser who is not tied to any financial services company (such as a bank or insurance company) and is authorised by the Financial Services Authority (FSA). They can advise on financial products to suit your circumstances. All IFAs have to give consumers the choice of paying by fees or commission and have to explain which would best suit the customer in that particular instance. Also, if commission is paid either by the client or the financial service provider recommended by the IFA, the IFA must disclose what that commission is.
An alternative to an annuity, income drawdown (also known as an unsecured pension) allows you to take income from your pension fund while the fund remains invested and so continues to benefit from any fund growth. The drawdown of income has to be calculated carefully as taking too much income could exhaust the pension fund so experts say the annual drawdown must not exceed what the assets would normally yield in an average year. The invested pension fund could also be hit by market turbulence and the value of the assets could fall.