Huge variations in financial adviser fees
Consumer champion Which? asked 200 IFAs to give quotes for different services and found fees varied widely between regions.
For example, an IFA in Scotland quoted £50 to transfer £5,000 into a stakeholder pension (equivalent to 1% of the total), while an adviser in the south-east quoted a whopping £2,500 for the same service, 50% of the total. The average fee quoted by 156 financial advisers was £322.
At least, 89% of the IFAs questioned said they offered a free initial consultation.
The investigation also found that the average fee quoted to transfer a £10,680 investment into a stocks and share Isa was £356. Once again this masked huge regional differences: while one adviser in the south-east wanted £2,500, two IFAs in the south-west and the east of England quoted £106.
Meanwhile, an IFA in the north-west quoted nearly £2,000 more to arrange a protection policy for a 30-year-old female than an adviser in Scotland would charge for the same job. The average fee quoted by IFAs in this case was £596.
Currently there is no approved list of 'typical' charges for IFAs' fees, meaning people will find it difficult to know whether an adviser's fees are reasonable. Which? wants financial advisers to be forced to publish a rate guide on their website, so that people can make an informed decision about who to choose and what is a reasonable amount to pay.
But the consumer group still believes that consumers should go to an IFA rather than approaching their bank for advice, and has produced a list of key questions that people should ask in order to help them choose an IFA that offers a fair price and good service.
Which? chief executive, Peter Vicary-Smith says: "Financial advisers should be much more transparent in their pricing, providing details of all their charges upfront. At present it's very difficult for customers to know how much they're going to be charged, and what is reasonable. IFAs should clearly display their fees online and if they don't the regulator should step in to make this happen."
New regulations to be introduced at the end of the year will make paying for financial advice fairer and clearer. They will ban advisers from receiving commission for new investment advice. This should mean that advisers are more likely to recommend the best course of action for the consumer rather than the one which pays the adviser the most commission.
At the moment, the price consumers pay for investment advice can be hidden within the product charges of the investment they buy. The changes will mean that advisers will have to tell consumers how much their services will cost and agree with the consumer how much they will pay.
Advisers will also have to spell out whether they offer 'Independent' advice covering the whole market or 'Restricted' advice covering a small number of products or providers. And the minimum level of qualification for financial advisers will increase and advisers will have to meet professional standards
Here is a check list of questions people should ask before choosing an IFA.
1. How will the fees be charged?
2. Does the IFA receive commission set by product providers? If so, what plans does the practice have to bring its charging approach in line with the Retail Distribution Review?
3. At what stage of the process will you be charged?
4. How will you have to pay the fees: by cheque or bank transfer?
5. Are different fee options available to you for the service you require? For example, are you able to choose between paying by fixed fee or hourly fee? If different options are available, ask the IFA to explain the pros and cons of each one.
6. What level of qualification does the IFA have?
7. What service are you receiving for the fees/ commission? Is it just the initial service or is any ongoing review involved?
8. Will there be any ongoing commission or fees?
If an IFA tries to dodge these questions or implies that it's unreasonable to ask them, go elsewhere.