As financial markets experience volatility and significant changes to pensions and inheritance tax laws emerge, more individuals are turning to financial advisers for guidance. According to recent analysis from the Financial Conduct Authority (FCA), regulated financial advisers are charging between 1% and 3% for their services, which encompass areas such as pension planning and retirement strategies. Understanding how much to pay for financial advice is becoming increasingly important, especially with the potential for tax increases in the upcoming Autumn Budget.
Understanding Financial Advice: Types and Services
A financial adviser offers professional guidance on various financial matters, including investments, pensions, and inheritance tax planning. There are two main types of advisers: independent and restricted. Data from 2024 indicates that around 87% of firms providing retail investment advice offer independent advice, meaning they are not limited to a select panel of products. In contrast, 12% provide restricted advice, often only recommending products from specific providers, such as bank advisers who can only suggest their employer’s offerings.
While some advisers may be restricted, they often work with vetted providers, ensuring a degree of reliability. According to the FCA, 1.4% of firms in 2024 offered both independent and restricted advice, a slight decline from 2% in 2023. Understanding the type of advice you are receiving is crucial when determining the fee structure.
What to Expect: Costs Associated with Financial Advice
The costs for financial advice vary, with advisers implementing different charging structures. Initial charges typically range from 1% to 2.9%, while ongoing fees can be between 0.4% and 0.9%. If you are subject to ongoing fees, it is essential to ensure that you continue to receive comprehensive management of your investments. Philly Ponniah, a financial coach, emphasizes that fees can be justified if the advice provided is genuinely expert and delivers substantial value, especially in navigating complex financial situations that may lead to unexpected tax liabilities.
“The issue is some firms charge at the top end while offering little more than an annual review, which isn’t enough for today’s savvier clients,” Ponniah states. Those paying ongoing charges should anticipate proactive guidance rather than a mere compliance exercise.
While the cost of financial advice is straightforward to calculate, the value derived from it can be more challenging to quantify. Eamonn Prendergast, a chartered financial adviser with Palantir Financial Planning, notes that a good adviser provides much more than just fund selection. They help create financial forecasts, identify a retirement ‘magic number,’ and guide clients through market fluctuations.
Prendergast highlights the concept of “adviser alpha,” which includes behavioural coaching, tax planning, and strategic decision-making that could yield greater benefits than the fees incurred. “If your adviser helps you stay invested during market volatility, avoid costly mistakes, and structure your finances tax-efficiently, that is a value that cannot be easily reflected on a statement,” he explains.
Clients should always receive a clear breakdown of the adviser’s fees, platform charges, and fund costs, ensuring that the advice genuinely moves them closer to their financial goals. As the landscape of financial advising evolves, understanding the associated costs and the value provided will empower individuals to make informed decisions about their financial futures.
