Financial Advice

How is financial advice charged?

Getting Value for Money from Your Financial Advice

Value for money can be a very subjective area.  It’s not always about cost: although, sometimes, low cost equals poor quality, it is occasionally the case that high cost doesn’t equal high quality.

For every purchasing decision we make, our minds calculate value for money based on cost, quality, expectations and previous experience.  Often, particularly for lower cost items, these calculations are done instantly in our heads so we don’t have to think too much about them.  Otherwise we would never buy anything at all as we constantly try and calculate whether it’s value for money.

But for new areas of expenditure, where the cost is high or we do not have much experience assessing value for money can be much more difficult to understand.  This can be the case for financial advice when charges are taken from the product to fund the charge for advice.

That’s because we lack experience and gaining the knowledge to give us that experience is difficult. Costs are not transparent, not easily understood and so can be difficult to compare.  In these instances we may either avoid the decision at all or make it on trust, which can sometimes be a good measure but we don’t always know who to trust.

How is Financial Advice Charged?

Financial advice tends to be charged in one of two ways:

  • Fixed fees based on hourly rates
    Approximately 25% of Advisers charge for their services through this method. The advantage is that it can be transparent (if the advice firm provides an estimate of how much the total charge will be). The disadvantage is that it can be expensive and because of this is putting customers off seeking advice
  • Deductions from Invested Funds
    The second – and more common method – is to deduct the fees for advice from the money invested into the product on a percentage of funds basis.  This method is less transparent and arguably not fair.  The better the product performs, the more fees the adviser can charge (even if they had nothing to do with that performance). It also has a long-term, damaging effect on the growth potential of the product

We are not aware of any financial advisers who reveal the impact of their charges on the performance of your investment or pension in the same way illustrated above.

But this is exactly what we plan to do because it clearly illustrates the long term costs of financial advice and helps you decide if you are receiving value for money.

Financial Advice Charging – Examples

Take a look at the tables below to see how ‘traditional’ models of charges apply to your managed financial products and how they impact your results. The first table shows typical charging methods used by traditional models of financial. The second table shows the impact that these charges can have by comparing them against our model. You can see that lower charges can mean improved growth performance.

We plan to provide all customers with an illustration showing the long-term costs of financial advice and how they can impact fund performance so that you can compare if you are receiving value for money

We are not aware of any financial advisors who reveal the impact of their charges on the performance of your investment in the same way illustrated below.

Such illustrations are exactly what we plan to do because it clearly illustrates the long-term costs of financial advice and helps you to decide if you are receiving value for money.

Click the images to view the details.

Lower My Charges - Changing the Face of Financial Advice
Lower My Charges - Changing the Face of Financial Advice

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