How will a financial adviser charge?

If you’re looking to instruct a financial adviser, the cost of that advice will be something you will need to understand.

There are a number of different ways an adviser may charge:

• A fixed fee
• An hourly fee
• As a percentage of your funds
• Or a mixture of the above

Ensure you get full details of what fees will be charged and at what stage the fee is chargeable and payable. If the adviser charges an hourly rate aim to get an estimate of how many hours your financial plan will take, or at least an upper limit. Otherwise it is very difficult to budget for what the final cost may be.

If the adviser charges by a fee based on a percentage of funds, is that based just on the funds your adviser manages on your behalf or is it on all your funds?

As an example, my fees arise at three different stages:

An advice fee.

This is a fixed fee chargeable for preparing the advice report. The level of the fee will depend on the complexity and scope of work required. This fee is payable whether or not there is any further work.

 An implementation fee.

If you require a financial product a fixed fee will be charged to cover the administration involved in preparing the paperwork to set up the necessary policy.

An on-going review and forward planning fee.

I provide a forward planning meeting service. We meet at least once a year to review your plans and check your progress against objectives. This is charged at a fixed monthly fee.

If you are comparing the cost of one adviser against another ensure you look at the fees in total rather than just one element. Be aware that some advisers charge very little (or sometimes no) advice fee but then charge a significant implementation fee.  Are you comfortable with this? Are you happy that the adviser only gets paid if you purchase a product based on their advice?

Your adviser must always be willing to clearly explain all their fees. You should always understand exactly what your financial adviser is charging at each stage of their service and exactly what you are getting in return. Ask for an engagement letter describing the fees in detail before agreeing to your adviser commencing any chargeable work on your behalf.

 photo credit: flickr/stevendepolo