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Explaining IFA fees

Mike Hunt

The Independent Financial Advisor (IFA) community continues to provide expertise and support during difficult times. The cost of accessing financial advice can initially seem high to those seeking it for the first time.


In this article, we will explore in detail the costs typically associated with engaging an IFA.


Is an IFA Right for You?

When you access the advice of an IFA, there are several practical and cost considerations to keep in mind. This is regardless of whether you are consolidating an existing portfolio or exploring new financial products.

Evaluating and implementing long-term financial goals, such as pensions, inheritance, and mortgage planning will invariably require an expert's eye to ensure that your hard-earned funds are working to their maximum potential. Indeed, you can do much of this yourself, but an IFA will be able to centralise all of your financial information into one platform with the most up-to-date insights.


IFA fees are, of course, a significant consideration. However, depending on your circumstances, an IFA may be able to help you both grow your portfolio and save money at the same time.


How Much Will You Pay for an IFA's Services?

IFAs in the UK can provide several services, including complete financial health checks, re-evaluating pension provisions, and selecting new financial products.


There are a variety of fee models and structures that you will encounter when you speak with an IFA provider, regardless of the services you may need.


Nevertheless, you should note the following types of financial advisory fees:

  • % of Assets - Over time, an advisor may charge you a percentage of your portfolio's total value each year instead of a fixed fee. If your portfolio grows, the fee increases as well.
  • Flat-fee - A set price will be agreed in advance for the service provided by the IFA. You should confirm in writing what will be included in the fee before any work begins.
  • Rates by the hour - As the average hourly rate in the UK is £170.00; this could be a helpful structure for charging smaller and more individualised services. A complete and time-specific quotation should be provided to you by your advisor.
  • Annual Portfolio Management Fees


Additionally, be aware that some advisors may charge an annual fee to manage your portfolio - typically between 0.5-1%.

 

However, an advisor can request an alternative payment model if that is their preference. HOWEVER, your IFA should be able to provide you with a high level of technical expertise and service.


Portfolio Benefits vs. IFA Costs - What is the Cost of Using an IFA?

In general, your IFA fees are determined in part by the level and extent of the advice you need. They are also determined by the time it takes and the value of the assets involved.


There is no fixed price for advice support from an IFA, but it will depend entirely on your needs and portfolio complexity. However, it can cost you anywhere from £500 for preliminary work to upwards of £5000 for more comprehensive and complex works if you hire an IFA. In any case, an IFA should always give you an indication of what the projected fees will be.


IFA's are paid for their services and don't charge you a commission should also be noted.


Advisors typically charge between 1-5% of the assets of a financial asset, which includes product fees - however, advisors may charge a lower percentage for a high-value asset and a higher rate for a low-value asset.


Here are some examples of typical advisor fees. Despite the costs, it is often imperative to get expert advice - especially when nearing or planning retirement.


Based on some real-life case studies, here are some average industry costs:

  • Mortgages for £250,000 cost an average of £425.
  • A combined pension of £250,000 costs £13,510 - £5,000 upfront and £8,510 per year.
  • The average cost of a £20,000 Investment ISA is £1,400, with a £600 upfront payment and £800 in ongoing management fees for the next five years.
  • £100,000 Investment - £5,704 with £2,850 upfront and an ongoing management fee of £2,850 over five years.
  • Average hourly rates for bespoke work of £150 - £190.

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