Investment comment
Following SJP case, how much do other advisers charge?
St James’s Place, the wealth manager, has been under attack as a result of its failure to provide direct answers to questions about the costs of financial advice included in its products.
The case raises more questions about charges imposed by other financial advisers and what they do for their clients.
There are two types of adviser authorised by the Financial Conduct Authority (FCA) – “independent” and “restricted” – and it is important to know how these distinctions affect the advice a client may be given.
An adviser who deals with the full range of financial products and the full range of providers is an “independent adviser”.
All others are “restricted”. This means that a restricted adviser may be “tied” to one company and can only offer its products, or they may deal with some or all of the providers in the market but do not advise on all products.
Some advisers who were independent have become restricted because they did not wish to advise on certain financial products such as Enterprise Investment Schemes or Structured Investments.
According to the FCA website an adviser can charge:
- an hourly rate;
- a set fee according to the work involved;
- a monthly retainer; or
- a percentage of the money invested.
Whilst some advisers offer an hourly rate and or set fee option, it is much more common for the fee to be expressed as a percentage of the amount invested.
This will take the form of an initial fee and/or an ongoing fee. The fees should be expressed in pound notes as well as percentages. Some advisers only charge if a client proceeds with a recommendation to make an investment, known as “contingency fee” charging. This means they will not be paid for their advice unless the client buys a product.
How much a client will be charged will depend on the adviser and the amount of work undertaken. A full financial planning report will typically cost £3,000 from an independent adviser using an hourly rate but could be far more if the client’s affairs are complicated.
If the adviser has an initial charge as a percentage of the amount invested this typically will vary between 1% and 3%. For example if a client has £100,000 to invest that will be £1,000 to £3,000, but at £500,000 invested the numbers jump to between £5,000 and £15,000.
So clients should not be afraid to haggle. Ongoing fees are commonly 0.5% to 1.0% a year, so the fees in these two examples would range from £500/£1000 up to £2,500/£5,000 respectively as a yearly charge.
These fees are commonly deducted from a client’s investments at source through an investment platform.
Over time a client would expect his/her investments to grow so needs to be aware that these fees will also grow. It is worth having a frank discussion with an adviser about how much you are prepared to pay and what they will do.
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Public still think an adviser acts for them in all cases. Nothing learned then from Equitable Life fiasco during the ’90s. If you sell one company’s products how does that make you an adviser ? You’re a salesperson. And in the case of SJP a very expensive one. Few quality IFAs if any have their charges. And they do give advice. They are agents of the client , not of their paymasters.
SJP is a very clever and expensive Marketing machine .