Various studies have shown that those who receive financial advice are significantly better off financially than those who don’t seek expert help. But what represents the right value for money when it comes to taking financial advice? All-too-often, savers undercut potential investment returns – and consequently their long-term wealth-building goals – by paying excessive fees.
Expensive advice can prove costly
Excessive fees or costs can be a significant drag on investment performance over a long period of time. The total fees you pay have a major impact on long-term returns, as the chart below illustrates. Carefully scrutinizing total costs and charges can ensure you’re not overpaying, and are getting good value for money.
Regulatory scrutiny
The UK’s Financial Conduct Authority (FCA), the financial services sector’s watchdog, is increasingly focused on ensuring that those who pay for financial advice are receiving fair value and a full service. Some wealth managers have found their fee models in the spotlight in recent months, in light of FCA scrutiny around costs and charges, value for money, and the fair treatment of customers.
The FCA has also highlighted that some wealth firms are pushing and promoting unsuitable products and portfolios, which are not aligned to their clients’ risk profiles, and which fail to provide value for money.
This increased regulatory scrutiny highlights the importance of being aware of what you are paying for, as well as ensuring you’re actually receiving the ongoing services (such as annual reviews) that are included as part of yearly ongoing costs.
What represents good value?
Figures from the FCA reveal that financial advisers charge an average of 2.4% of the amount invested for initial advice. According to the FCA, the total cost of ongoing advice services (including underlying product and portfolio charges) averages 1.9% annually.
These are average figures, which means that some consumers will pay less, and others will pay more. There will be cases where fee differences are justified, in light of specialist or additional services. Careful comparison can help shed light on total costs.
The cost differences between providers can be large. Paying just 0.5% more for ongoing annual charges can substantially erode the overall value of a portfolio, and mean you’re potentially missing out on tens or hundreds of thousands of pounds over a long-term time horizon.
Beware of opaque charging structures
Too often, investments have complex and opaque charging structures that can be difficult to understand. All-in costs can include trading fees, management charges, and product charges. The cost of ongoing financial planning advice (if applicable) is also an important consideration. You should ensure you’re getting full value for ongoing advice, and that you’re receiving the ongoing services that you pay for.
Lumin Wealth prides itself on its cost-effective fee model. Costs and charges are transparent, and are significantly lower than the industry average in terms of both initial advice (percentage of the amount invested) and investment management and financial planning services (ongoing annual fee). Call 03300 564 446 to find out more, or get in touch via our contact form.
This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
