Cost of Financial Advisors

How Much do Financial Advisor Services Cost?

The costs of financial advisor services vary from one advisor or financial firm to the next. For many investors, the rewards of receiving guidance from a professional advisor make the fees or commissions well worth the cost. Because many financial advisors work on commission, the fees that you pay for investing in specific financial products such as debt management plans may include the cost of the advice you received.

A successful relationship with a financial advisor may improve your personal circumstances and increase your financial security. By the same token, giving personal or financial details to an unreliable advisor may result in costly losses. When you’re searching for an advisor, a professional’s training, experience and credentials should be considered as well as commissions or fees. Limit your search to advisors who represent firms that are regulated by the Financial Services Authority, or FSA, an agency that regulates financial advice.

How Financial Advisors Charge

Many financial advisors charge on a commission basis only rather than charging a fee for their services. When you work with an advisor who works on behalf of a bank, insurance company or other financial institution, it is likely that the advisor is paid by the provider for the sales of financial products. If you purchase an insurance policy, take out a mortgage loan or invest in a particular fund, the advisor who counselled you will receive a commission based on this sale.

Independent financial advisors, or IFAs, provide professional advice directly to clients rather than working through a financial institution. An IFA must represent an FSA regulated firm and must uphold the ethical standards of this independent regulatory agency. IFAs may work on a commission basis and may charge an additional fee for their services. An IFA must disclose the amount of the commission and his or her fees to a client.

The amount of the commission the advisor earns will depend on the cost of the product. A client who purchases a product through an advisor may pay a higher fee in order to cover the commission. In some cases, paying an advisor a fee may be less expensive than paying a commission. When you work with an IFA on a fee-only basis, you have the reassurance of knowing that the advisor is recommending products based on their value rather than on the commission offered by the provider.

Fees and Commissions

The fees charged by an IFA may depend on the consultant’s level of certification and expertise, on the nature of the advice being provided and on the area of the UK where you live. Many advisors offer a free initial consultation, where you may discuss the costs of financial advisor services as well as your needs and expectations. After the initial consultation, fees may be charged on an hourly basis or may be based on a pre-determined sum. Fees may range from 75 pounds per hour up to 200 pounds or more.

An IFA must advise you of the commission that he or she will earn from the sale of a product. If the IFA works on a combined fee and commission basis, a percentage of the commission may be returned to you after the sale. Although some IFAs work on a fee only basis, it is most common for them to charge a fee plus a commission, or to work on commission only.

Financial firms should provide a menu of their services and fees. At your first meeting with a financial advisor, the advisor should clarify the fee structure with you. Before you choose an individual advisor or a firm, meet with several professionals to discuss your options.