By Casey Mills
There is a growing number of commentators, experts or otherwise, who have strong opinions as to how much a consumer should pay for financial advice. The Financial Conduct Authority (FCA) also have their opinion as to what the monetary cost of advice should be. All this debate and conjecture is set against a backdrop of an industry that is attempting to develop a true financial advice profession.
So how much does financial advice really cost?
When you Google "How much does financial advice cost?" an array of results comes up: potential range of hourly rates, fixed fees, initial percentages based on the amount a client invests. There is no one unbiased answer.
In October 2017 the FCA issued a Data Bulletin (Issue 7) that confirmed the average charges for initial advice are 1.00% (minimum) to 3.00% (maximum). For ongoing charges, the average rates are 0.50% (minimum) to 1.00% (maximum) and the most common hourly rate is £150.
In August 2019, Which? surveyed 108 real financial advisers to establish how much a client could expect to pay for financial advice in a range of different scenarios:
A client 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
A client 10 years into their career, with £60,000 in savings and £40,000 in an investment Isa. They'd like to start saving for their child's university education; Average quote: £1,060
A client who's 50, with comfortable savings and no mortgage, and would like to invest a £100,000 inheritance; Average quote: £1,980
From a a consumers' perspective, this information suggests that if you are looking for financial advice there is a choice in how you pay and some price competition.
When I first started working in Financial Services 20 years ago the typical adviser remuneration was 3.00% initial commission and 0.50% ongoing fund-based commission. This was the beginning of a move away from high upfront commissions to a lower initial cost and the provision of an ongoing service funded from a clients' invested money. In short, although we have moved to a fee-based remuneration model, not much has changed.
The cost of financial advice, i.e. the transaction of investing or transferring money, hasn't changed that much over the last 20 years on an initial and ongoing basis.
Rather, a growing number of advisory firms have updated and enhanced how they provide financial advice. Advice has moved away from a predominantly transactional service to a holistic planning service.
Professionalism of financial advisers has also improved over the past 7 years. There are now 7,000 Chartered advisers in the UK, many of whom are looking to learn new skills outside of financial service textbooks; coaching, mentoring, behavioural studies, and more. The financial advice transaction is being almost entirely commoditised by technology, which further emphasises the need and importance of the human adviser.
The great financial advisers have always fulfilled that trusted adviser role; being that highly valued sounding board, challenging opinion, and supporting families through times of hardship and emotionally challenging life events.
The professional service we still call financial advice will continue to evolve, focusing more on those things that really matter to real people - not products.
The real question then becomes, how much does the new service of Lifestyle Financial Planning cost?
The answer surely isn't 3.00% plus 0.50% or a new iteration of this old commission-based model, as this is now a highly professional and extremely valuable fee-for-service offering. The future is that this new service has a cost and a fee that has no direct link to the amount of money a client has or plans to invest.
At TFP Financial Planning, we have seen many clients amazed by our financial planning service, as it's something they didn't know even existed. Every client's experience of the service is different, but one example will stay with me for a very long time.
Last year I was sitting with a couple in their mid-60's who we had helped guide through a retirement decision a few years before. We were reviewing their lifetime financial forecast and talking about their plans, including travel, some amazing experiences, and then they wanted to help their children and impending grand-children.
Then, one my clients started crying, which is not a typical reaction to our confirmation that they could achieve everything they wanted.
What had actually happened was in that moment my client realised that she and her husband really could afford to do all those things they wanted to do. They could easily help all of their children move, but most importantly they could do this without affecting their own plans. That's the power of financial planning. When it's truly about people and their lives, money becomes a means to an end a facilitator.
Casey has worked in financial services since 2001; he established TFP Financial Planning Ltd in 2015 alongside Ian Jones. Read his full bio here.
