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Go it alone or pay for advice?
The reason people seek financial advice is for many different reasons but ultimately it is because they need help from an expert.
Due to the complexities of the financial arena expert advice is often needed. Authorised Financial Advisers adhere to strict rules from the Financial Conduct Authority.
Everyone therefore appreciates there is a cost for this advice.
We have outlined below what a typical financial adviser adds to a clients investment returns along with a summary of our own advice charges.
Uncovering the value of financial advice
An in-depth research project conducted by Vanguard Asset Management has shown that financial advisers typically add around 3% a year to their clients’ investment returns.
Advisers know they add value but how is this demonstrated to the customer.
Vanguard call this added value Adviser’s Alpha, and define it as the difference between the return that investors might achieve with an adviser and the return that they are likely to achieve on their own.
Identifying adviser value
Financial advisers know we add value. But in a competitive, fee-based world, that value needs to be identified and communicated. We need to show that our value is not just tied to investment performance, but is spread across an array of long-term benefits accrued from a strong adviser-client relationship.
Building on deep experience in the US, Canada and Australia, Vanguards Investment Strategy Group has now identified seven key areas where UK advisers can make a critical difference, and estimated values for each area.
Vanguard Group is the world’s second largest fund manager with over $4 trillion dollars under global management.
Source Reuters February 2017.
So, what could this potentially mean in monetary terms;
Let’s say a client has £100,000 invested and achieves a net return of 2% per annum with inflation at say 2.0% (below the government target).
In 10 year’s time your investment would be worth £122,119.94. Allowing for inflation this would have a net adjusted value of £100,180.89 in today’s terms.
Now let’s add the value of advice, say the adviser charges an advice charge of 2% (£2,000) and an annual ongoing adviser charge of 1% per annum.
£98,000 invested after advice charge, annual return of 5% (3% more using Vanguards research, allow for the 1% adviser charge gives an overall net return of 4% per annum)
In 10 year’s time the £98,000 would be worth £146,101.60. Allowing for inflation at 2% per annum this would have a net adjusted value of £119,854.20 in today’s terms.
Vanguard’s Adviser’s Alpha strategy modules
Value-add relative to 'average' client experience (in basis points of return)
1. Suitable asset allocation using broadly diversified funds/ETFs
>0 bps
2. Rebalancing
0-43 bps
3. Cost effective implementation (expense ratios)
66-92 bps
4. Behavioural coaching
150 bps
5. Tax allowances & asset location
0-23 bps
6. Spending strategy (withdrawal order)
0-48 bps
7. Total return versus income investing
0 bps
Potential Value Add
About 3%
Our charges at a glance
We provide an initial free 30 minute telephone consultation. This gives you the opportunity to determine whether or not we are a company that you would like to appoint.
We break our advice into 4 clear stages which consist of an initial face to face consultation, providing advice, implementation of the advice and subsequently our continuing service.
We give clients the choice of either a percentage of the amount invested, an hourly rate or a fixed adviser fee.
This means that you the client can choose which level of service you require and at which stage plus you also have peace of mind knowing costs involved at each of those stages.
Charges as a Percentage
Step 1 INITIAL CONSULTATION
Initial consultation meeting
£249 for an initial face to face meeting
Step 2 ADVICE
A percentage (%) of the amount invested for non-complex advice
Typically 0.5% on the first £1,000,000 subject to a minimum fee of £595. 0% on balances over £1,000,000.
A percentage (%) of the amount invested for complex advice
Typically 1.0% on the first £200,000 subject to a minimum fee of £595. 0.5% on balances between £200,000 and £1,000,000. 0% on balances over £1,000,000.
Step 3 IMPLEMENTATION
A percentage (%) of the amount invested for non-complex advice
Typically 0.5% on the first £1,000,000 subject to a minimum fee of £395. 0% on balances over £1,000,000.
A percentage (%) of the amount invested for complex advice
Typically 1.0% on the first £200,000 subject to a minimum fee of £395. 0.5% on balances between £200,000 and £1,000,000. 0% on balances over £1,000,000.
Step 4 CONTINUING SERVICE
A percentage (%) of the amount invested
Typically 1.0% on the value of the funds under management subject to a minimum annual fee of £750.
Non Complex Advice:
The maximum we would charge for advice and implementation for non complex advice is 1% of the combined amount invested up to £1,000,000.
Complex Advice:
This is where we provide advice on financial planning matters, specifically taking retirement benefits, estate planning, pension transfers and long term care provision, which demand a more specialised and time-intensive approach coupled with more complex research.
The maximum we would charge for advice and implementation for complex advice is 2% of the combined amount invested up to £200,000 and 1% combined on the amount invested between £200,000 and £1,000,000.
Adviser Charge Examples:
You invest £100,000 into unit trusts and ISA’s and require our continuing service annually. The initial advice charge will be 0.5% of the amount invested i.e. £500 and the implementation charge will be 0.5% of the amount invested i.e. £500. However, our initial consultation charge is £249, our minimum advice charge is £595 and our implementation charge is £395 making a total initial adviser charge of £1,239 which equates to an overall percentage of 1.239% of the amount invested. The ongoing charge will be 1% of the value of the investment each year approximately £1,000.
You require advice on the suitability of transferring a personal pension of £200,000. The advice charge will be 1% of the amount invested i.e. £2,000 and the implementation charge will be 1% of the amount invested i.e. £2,000 making a total adviser charge of £4,249 including the initial consultation. This equates to 2.13% of the amount invested.
In respect of Continuing Service we will confirm whether the charge will commence immediately or after a specified month.
If paying by a percentage of funds under management, it will usually be paid monthly on the basis of 1/12th of the amount payable. Note: This amount will increase or decrease dependent on the underlying performance of the funds. For example if £100,000 is invested and an adviser charge of 1% has been agreed, if the fund grows to £110,000, then £1,100 will be payable. If the fund falls to £95,000, then £950 will be payable.
For more information regarding typical adviser charges see the link to the unbiased site here