The pricing of financial advice can often seem like a mystery. Unfortunately, reports such as this Which? article from 2018 often add to the confusion. Today, we delve inside the headlines to explain the how’s and why’s of the numbers.
“On Average, Financial Advisors Charge 2.7% Of The Asset Value To Consolidate Multiple Pensions Into A Single Plan”
On the surface, this may seem expensive. However, let’s unpick the numbers and see what’s included in the price. Firstly, the administrative effort of locating, accessing, and retrieving pensions can be considerable, especially when funds have been left dormant for several years. Additionally, one of the primary roles of an IFA is to find the most tax-efficient and legal retirement options, which is a complex process that demands the highest level of professional insight and expertise. Not doing this generally leads to people missing out on the best strategies, or, in many cases, paying far too much tax. As such, the cost of not using an IFA will, on average, amount to considerably more than the fees that you would pay.
Additionally, individuals can of course choose to make investment, tax or broader financial decisions themselves, but should this turn out to be a bad decision or choice, then they are fully responsible for those choices. If these products or investments are recommended by a regulated adviser then there is added protection and the right to recourse via the financial ombudsman.
Fee Transparency Is Critical
Full transparency is vital in the financial sector, so all IFAs should publish as much information as possible on their websites. However, consolidating pensions and optimising the retirement solution is as personal as both an individual’s financial history and their hopes and dreams for the future. One-size-fits-all plans have no place in financial management, so there is rarely such a thing as a blanket price, and therefore no easily digestible service menu to put online. Instead, good IFAs will walk clients through the costs, explaining everything in detail.
“Many People Are, Unsurprisingly, Daunted By The Intricacies Of Retirement Planning And Require Professional Help To Make The Right Decisions”
Absolutely! Not only are the laws complex, but they are also frequently subject to quiet changes that can have a profound impact. This is particularly the case for anyone wishing to retire overseas, as legislation in multiple jurisdictions must be considered. Events such as Brexit, changes of government, and Budgets can alter financial status overnight, leaving individuals out of pocket. Consequently, to ensure that retirement plans are optimised, IFAs must be experts in agility as much as they are experts in financial law. Very few people can match this in a DIY approach.
“Most Advisers Charge An Upfront Fee, With An Average Fee Of 2.7%”
This is not by choice but is a legal requirement. Until 2013, the majority of IFAs charged commission, but this was prohibited by the Financial Services Authority (FSA) in 2013. The change was brought in following an intensive Retail Distribution Review (RDR) and is intended to protect investors by increasing transparency.
“87% Of Advisers Charge For Ongoing Advice And Annual Reviews, At An Average Rate Of 1.3% P.A.”
This is probably the single most important cost of an IFA service. In fact, I’d go so far as to say that 1.3% is very generous considering the risks of not undertaking regular comprehensive reviews. The country the money is being kept in, or accessed from, will have constantly evolving tax conditions. Failure to keep a close eye on things can, therefore, lead to some very nasty surprises. Retirees can end up being overcharged, sometimes at extraordinary rates, while others can end up owing governments money without realising it. Retirees can also easily miss new opportunities to grow their investments. As such, by ensuring that a professional is looking after the fund, many clients will rapidly recoup any maintenance fees whilst avoiding unexpected bills.
What next?
And there you have it! At Arlo Group, we always strive to offer prices that enable us to create secure, financially stable retirement, so for more information, please give us a call.
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