Financial advice - flat fee versus percentage

br1anstorm · 12 January 2019 at 4:16PM

I try to keep reasonably well informed about financial and money-management matters. I review savings rates, I have an ISA and a SIPP and some money in funds and shares (mostly via the Hargreaves Lansdown platform).

Over the years I have followed the forum-discussions on MSE and elsewhere about platform-charges. I have seen the comparative tables produced for example by 'snowman' (on this site IIRC) , the Telegraph, and also The Lang Cat, a consultancy firm. These are very useful in working out the best deal for investments of various amounts in ISAs or in shares and funds.

My question - and the reason for this post - is to ask if there is any similar comparison available, on MSE or anywhere else, of financial-adviser charges?

I have been burned in the past by advisers whose motivation was upfront commission rather than the client's best interests. I even got reimbursement for some mis-sold investment plans. Since then I have essentially been a self-investor making my own decisions.

The regulatory and legislative reforms of recent years were supposed to bring clarity and transparency to the way such advisers were paid and to bring commissions out into the open. The rules are also intended to distinguish clearly between "tied" (or restricted) and "independent" (whole-of-market) advisers. All very fine.

Now however, in retirement, I'm grappling with various choices concerning for example SIPP drawdown, annuity purchase, and reallocation of investments. None of these are horribly complicated; but I do feel I would benefit from some professional/expert advice. But I'm far from certain where to look.

Hargreaves Lansdown offers advice. But on a 'restricted' basis, and for a percentage fee. I'm attracted by the argument advanced by flat-fee advisers that it takes no more time, and costs no more, to advise on £100k than it does on £500k.

I'd like to look at, and ideally compare, the fees and charges of different advisers in much the same way as it's possible to compare the fees and charges of competing investment platforms.

I know that there are hundreds, if not thousands of professional advisers out there, and that individual needs and circumstances differ. But that's equally true if you're buying a car or a washing machine: doesn't prevent comparison of providers and products in terms of cost, performance and value for money.

Is there any existing comparative table or analysis (a "Which-style" review or 'best buy' table....) of even a selection of financial advisers?

System · 12 January 2019 at 7:05PM

Over the long term no advisor or investor has beaten just putting money into index funds and the like.

Whether flat fee or percentage is best depends on the size of your stash so the maths is simple. Whether or not that extra money you pay gets you better advice is questionable at best and any advice they give you in regards to investing is basically a crap shoot anyway as nobody can predict what the global economy is going to do with any accuracy in 3 months time let alone 3 years so personally I'd not bother wasting my money on anything other than advice on how to do it in the best tax efficient manner possible.

dunstonh · 12 January 2019 at 7:40PM

My question - and the reason for this post - is to ask if there is any similar comparison available, on MSE or anywhere else, of financial-adviser charges?

No. Most IFA firms are 1-4 advisers with the sort of internet coverage that your local butcher has. Its not feasible.

Hargreaves Lansdown offers advice. But on a 'restricted' basis, and for a percentage fee. I'm attracted by the argument advanced by flat-fee advisers that it takes no more time, and costs no more, to advise on £100k than it does on £500k.

Actually, it does take more time. Smaller investors are more likely to be on multi-asset or more basic investments over 1 or 2 tax wrappers. Larger investors are more likely to have bespoke portfolios, have multiple tax wrappers and things like CGT, dividend allowance etc to be calculated.

I know that there are hundreds, if not thousands of professional advisers out there

Around 20,000 FAs and IFAs going by recent FCA stats.

Aegis · 12 January 2019 at 7:49PM

Tarambor wrote: »

Over the long term no advisor or investor has beaten just putting money into index funds and the like.

Presumably this isn't deliberately so, but this is a misstatement of what the research actually shows. Almost every study demonstrates that the average active fund underperforms benchmark indices over the long term, but that most certainly does not mean that no adviser or investor has beaten the market over the long-term. I'm not sure how you'd even prove that claim without actually analysing every investment portfolio in the world.

Most studies don't do a particularly good job of even attempting any sort of filtering process, and many studies completely ignore the level of risk taken within certain market sectors, which doesn't seem valid.

I don't disagree with the conclusions on active vs passive, i.e. that on average they both underperform their respective indices over the long run, but there is still certainly room to research and find funds that are better suited to someone's short-, medium- and long-term requirements and restrictions when constructing portfolios.

Whether flat fee or percentage is best depends on the size of your stash so the maths is simple. Whether or not that extra money you pay gets you better advice is questionable at best and any advice they give you in regards to investing is basically a crap shoot anyway as nobody can predict what the global economy is going to do with any accuracy in 3 months time let alone 3 years so personally I'd not bother wasting my money on anything other than advice on how to do it in the best tax efficient manner possible.

To an extent my own view is in line with this - advisers should be at their best when managing the tax, risk and cash flow, and this process should work alongside any investment strategy, whether active or passive. Which strategy is suitable for a specific client varies though, so I don't commit to either active or passive in advance.

Tom99 · 13 January 2019 at 9:35AM

Tarambor wrote: »

Over the long term no advisor or investor has beaten just putting money into index funds and the like.

[FONT=Verdana, sans-serif]If you remove those investors who are using an index tracker, then of the investors who remain half (by value) must have beaten the index and half fallen short.[/FONT]
[FONT=Verdana, sans-serif]Ie the accumulated total of all the non index trackers must equal the index performance.[/FONT]

EdSwippet · 13 January 2019 at 10:36AM

br1anstorm wrote: »

Is there any existing comparative table or analysis (a "Which-style" review or 'best buy' table....) of even a selection of financial advisers?

Perhaps start here: https://www.vouchedfor.co.uk/

dunstonh · 13 January 2019 at 1:03PM

EdSwippet wrote: »

Perhaps start here: https://www.vouchedfor.co.uk/

Very little coverage of adviser firms. Lead generation sites like these require the adviser firm to pay money to them. Most of the decent firms have more business coming in then they can handle (or at least enough that they do not need to go chasing it). So, they will not pay to be listed on sites like that. Instead, you get the ones that need business on those sites. There could be genuine reasons why they need the business. New firm/new adviser starting out for example. Expansion of firm meaning they have capacity for more business etc.

I just did a search on my postcode and the first 5 were all employee advisers of regional firms (with a pay split that sees the main firm take 30% of their income on self gen stuff and 70% on firm generated stuff. Plus, a monthly fee to the parent firm. So, dont expect them to be cheap). Only two were within a 10 mile radius. The others were 35 miles away. and city based. None of the small rural firms were listed. None of the advisers I would consider top tier locally were listed. Mainly, as they don't need to pay to get more clients.

Unbiased has gone lead generation too. Trustpiliot is really expensive for advisers (so fees will reflect that).

Mr.Saver · 13 January 2019 at 5:21PM

dunstonh wrote: »

Very little coverage of adviser firms. Lead generation sites like these require the adviser firm to pay money to them. Most of the decent firms have more business coming in then they can handle (or at least enough that they do not need to go chasing it). So, they will not pay to be listed on sites like that. Instead, you get the ones that need business on those sites. There could be genuine reasons why they need the business. New firm/new adviser starting out for example. Expansion of firm meaning they have capacity for more business etc.

I just did a search on my postcode and the first 5 were all employee advisers of regional firms (with a pay split that sees the main firm take 30% of their income on self gen stuff and 70% on firm generated stuff. Plus, a monthly fee to the parent firm. So, dont expect them to be cheap). Only two were within a 10 mile radius. The others were 35 miles away. and city based. None of the small rural firms were listed. None of the advisers I would consider top tier locally were listed. Mainly, as they don't need to pay to get more clients.

Unbiased has gone lead generation too. Trustpiliot is really expensive for advisers (so fees will reflect that).

Hi dunstonh,

Your post is very helpful. But I have a question after reading it. If those websites (vouchedfor, unbiased, etc.) aren't the best place to find a reasonably priced good IFA, where are the better places to find one?

Thanks in advance.

br1anstorm · 14 January 2019 at 12:18AM

Thanks to all who have responded to my OP.

Just to make one point clear. I was not looking for views on whether using an adviser was likely to generate better returns than self-investing. Nor was I seeking comments on the perpetual debate over active versus passive (index-linked) investing.

My question was specifically about the charges financial advisers make: how the fees are calculated (flat-fee, hourly rate, or percentage of amount being advised-on), and how they might vary (either geographically or for different kinds of advice).

Platforms are pretty transparent about the way they charge. So even though they may use different formulae (some charge for every share trade, some have a fixed fee for eg managing a Sipp, some levy a percentage of the total holding) it's demonstrably possible to calculate and compare what it would cost to invest a given sum via HL, or AJ Bell, or Bestinvest or whoever.

The same is true in other areas. It's possible to compare banking charges to see which bank is best for those who need overdraft/credit, and for those who hold substantial balances. It's possible to price a basket of household products from Waitrose, Tesco, Asda and Lidl to see what you pay for comparable products. It's equally possible in the "professional" arena to compare the price for having, say, a hip-replacement or dental work in Harley Street, a BUPA hospital or in Romania.... You can get a quote for - say - writing a standard will from a selection of solicitors and from will-writing firms.

That's the thinking that lay behind my original question. I recognise the points that dunstonh makes. There are lots of advisers. Each client's circumstances are different. But most people have a pretty standard set of needs.

Which is why it ought not to be impossible to find, and compare, the costs of financial advice offered by different firms for a range of standard financial services. Not just investment-advice, but pension-admin, tax-planning, and other "basic" matters.

Like Mr Saver, I'd like to know how to go about finding a good adviser, and like him I am a bit disappointed that sites like unbiased and vouchedfor are in fact not to be relied on because they are (in the jargon) lead-generating operations where firms pay to be listed. A bit like paying commission, then? Or like the comparison sites that only show the firms that pay them retainers....

At the moment choosing a financial adviser feels a bit like a blindfold lottery, or pin-the-tail-on-the-donkey, or a trawl through the Yellow Pages. Surely there is a more methodical way of deciding who to look to for financial advice?

Is there scope, I wonder, for MSE - or other consumer-champions - to take a look at the world of financial advisers fees and maybe at least offer some pointers on how to find a decent adviser, and how to take a view on whether their charges are reasonable and in line with the prevailing market-rates (whatever they may be...)

eskbanker · 14 January 2019 at 1:28AM

br1anstorm wrote: »

Is there scope, I wonder, for MSE - or other consumer-champions - to take a look at the world of financial advisers fees and maybe at least offer some pointers on how to find a decent adviser

They could perhaps publish an article like https://www.moneysavingexpert.com/savings/best-financial-advisers/

dunstonh · 14 January 2019 at 12:38PM

Like Mr Saver, I'd like to know how to go about finding a good adviser, and like him I am a bit disappointed that sites like unbiased and vouchedfor are in fact not to be relied on because they are (in the jargon) lead-generating operations where firms pay to be listed. A bit like paying commission, then? Or like the comparison sites that only show the firms that pay them retainers....

The lead generation style directories range from taking a fixed fee per referral to actually taking a cut of the adviser remuneration. They either do not show non-paying advisers or filter them so they appear at the bottom and with a basic listing. Or have a default to not show them at all unless you untick a box to show them.

PFS and adviserbook are non cost directories. Adviserbook is relatively new and many firms are not aware it exists yet. But they do verify IFA status for those that actually have registered there. PFS doesnt show IFA/FA status but does verify the qualifications.

Financial advice - flat fee versus percentage

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