How Do Financial Advisers Charge For Their Services

How Do Financial Advisers Charge for Their Services?

When you’re thinking about working with a financial adviser, understanding how they charge for their services is key. Because the service depends so much on individual circumstances, the cost involved also varies by individual circumstance.

However, there are a few common ways that financial planners charge, and it is helpful to understand the pros and cons of each approach.  In this article, we provide a straightforward breakdown to help you understand the basic ways a financial advisor could charge for their services.

1. Hourly Fees

Some financial planners charge by the hour, much like consultants or lawyers. This is a pay-as-you-go approach, where you’re billed for the time spent on your specific needs, whether it’s creating a financial plan or providing advice on a particular issue.

  • Good for: Clients who have specific questions or want to focus on one or two areas of their finances, without the need for ongoing advice.
  • Keep in mind: Hourly fees can vary depending on the complexity, but you’ll always know what you’re paying for upfront.

2. Fixed or Flat Fees

Fixed fees, sometimes called flat fees, are charged for a defined set of services, such as creating a comprehensive financial plan. This means you’ll know the cost from the beginning, with no surprises. Some planners offer different tiers or packages, so you can choose the level of detail and support that suits you.

  • Good for: Those who want a detailed financial plan, one-time service, or set of services with clear costs.
  • Keep in mind: It’s ideal if you want a specific deliverable, like a retirement plan or an investment strategy, without a long-term commitment.

3. Percentage of Assets Under Management (AUM)

One of the more traditional models, this approach charges a percentage based on the value of the assets an adviser manages for you. For example, if a planner manages your £100,000 portfolio and charges a 0.75% fee, you’ll pay £750 per year. Many times, the percentage charge is reduced for higher asset values. This structure aligns your financial success with the planner’s success, as they’re incentivised to grow your investments.

  • Good for: Clients with significant investments who want ongoing advice and someone to actively manage their portfolio.
  • Keep in mind: If achieving investment growth is a primary objective, an AUM fee structure may be more aligned with your goals.

4. Retainer Fees

Some financial planners work on a retainer basis, charging a regular monthly or annual fee for ongoing services. This fee covers continued access to advice and check-ins, so you have support as your financial situation evolves.

  • Good for: Individuals who want regular financial guidance and support over time rather than occasional advice.
  • Keep in mind: This approach suits those with complex needs or a desire for ongoing monitoring and management.

5. Commission-Based Fees

Some advisers receive commissions for selling financial products (like insurance policies or mortgages). This model means the adviser earns a percentage of the sale price when you buy a product through them and don’t charge a fee to you.

  • Good for: This model can work if you’re seeking straightforward products and don’t mind that the adviser’s income may be tied to the products they sell.
  • Keep in mind: It’s important to ask about any potential conflicts of interest with commission-based fees to ensure that recommendations are truly in your best interest.

So, Which Fee Structure is Best for You?

The ideal fee structure depends on your financial needs, preferences, and comfort level with paying for advice. At Peppermint, we’re dedicated to offering transparent, flexible options that work for you. We’re happy to explain all your options and help you choose the one that best fits your financial journey.

While there may be some debate about the fairest way to charge financial advice fees, it is clear that regardless of the approach, the costs must be transparent, you must know what you are paying, and you must feel you are getting value for money.

If you have questions about how we charge or want to learn more about working with an independent financial adviser, please reach out to us. We’d love to chat and see how we can help.