Paying for financial advice
A financial adviser's service is not free of charge. All advisers, whether IFAs or those tied to banks or building societies, charge for their services.
What ever form these costs and charges take, they must be made clear to you at the outset before you are in a position to make a commitment.
IFAs are either fee-based and do not receive any payments via commission or they operate a fee charging and a commission based service.
The industry’s regulator, the Financial Services Authority, requires all IFAs to provide consumers with the option to pay for advice by fees. Other 'advisers' who are tied to one or more product provider such as a life company do not have to offer you a fee option. Many advisers will not charge you for the first 30 minutes of an initial meeting so that you can find out if they are the right adviser for you.
Fees
You can pay the adviser by a fee which is based on an hourly rate, or for a sum which covers the whole of the advice process. Remember, the time spent talking about your needs and then delivering a report, is only the tip of the iceberg in the financial advice process – most time is spent researching the market and identifying the range of options and then individual product solutions that meet your needs.
Whilst sometimes it may be advantageous to pay for advice immediately (as a single payment), many people wish their IFA to carry on advising them and so opt for a system which is based on a “funds under management” or “funds under advice” for their investments.
Commission
You pay indirectly for your advice via commission. This is deducted by the product provider (e.g. the life insurance company) from the payment you make for any products you have agreed to purchase and paid to your IFA. As well as commission charged at the outset when a financial plan has been agreed, there may be annual commission payments to cover ongoing advice from your adviser over the lifetime of your products.
Fees and commission
You can pay a combination of fees and commission. An IFA could rebate any commission received back into the product you have purchased, or they could give it directly to you or offset it against a fee. You may want to pay for some of the advice you receive by fee and another part of the transaction by commission.
Ongoing advice
Many clients value the fact that their IFA will continue to stay in contact with them and offer ongoing advice. If this is the service you would find useful, make sure you and your IFA agree the basis on which this will work. Obviously, advice comes with a price tag and many IFAs will operate a retainer system, charge a figure based on the investments they look after for you, or will receive on-going commission from the product provider to help them offer you the level service you would like.