How much does a financial planner charge is a frequently asked question which has a multitude of answers, depending upon who you ask, and what you want. ‘How long is a piece of string?’ really does apply to this question.
The first element to appreciate is that not all financial planners are equal. A financial consultant, a financial adviser, or an IFA (independent financial adviser) can all cover a huge spectrum of the financial services advice sector.
Start with ‘Why?’
Much will depend on whether you want a one-off piece of specific advice (for example, should you join your employer’s pension scheme), or whether you want ongoing financial support and guidance (tax-efficient investing, planning for retirement, helping children onto the property ladder, planning to reduce inheritance tax etc.).
Once you know what it is that you want, next you need to decide if you want impartial and unbiased financial planning or restricted advice. And do you want to work with a firm that works with ‘people like me’ or are you going to risk being an outlier?
How much a financial planner charges will vary depending on the type of fee structure the firm uses. The variety of charging structures in the UK financial services sector is vast.
Most firms in the UK charge a percentage of the money you save or invest with them (assets-under-management, or AUM), which is usually between 0.75% and 1.5% a year. This means if you invest £1million and are being charged at a rate of 1%, your financial planner will charge you £10,000 a year. Other firms might charge an hourly rate or project rates for specific tasks. It pays to ask detailed questions at the outset.
Capital will not charge a percentage of the assets invested. Nor will we undertake one-off projects.
The Capital difference
At Capital, our charges are simple, transparent, and flat. This sets us apart from almost all other financial services businesses. Our relationship is with you, not with your money, so, we charge based on the value that can be added for you, the complexity of the planning advice, how much time it takes to manage your affairs, the seniority of the client team (specialist knowledge) and finally the risks to Capital’s business.
Capital believes that a flat-fee-for-service makes perfect sense for you and removes all bias from the advice process.
Three lifestyle services
Capital offers three service levels for you to choose from, depending on the services you require and the degree of complexity. Our fees start at £500 a month. The flat fee won’t go up just because your investments increase in value.
Our light-touch service is designed for those who are either building up their wealth or who have retired and simplified their financial affairs. Typical clients will have between £500,000 and £1,500,000 to invest.
Portfolio management has a monthly fee of £500.
Our core service is designed for clients with more complex affairs who are beginning to face key life decisions. Ideally for those looking for personal and professional guidance about their goals and who may need to realign their existing assets into a comprehensive lifestyle financial plan.
Wealth management is our most popular service and has a monthly fee of £1,167.
Our all-inclusive, by invitation service, designed for wealthier clients who may have complex financial affairs involving their wider family, trusts, philanthropy and other interests in more than one country. It is for those who want to delegate their affairs to a proactive, trusted family adviser and life coach, available any time. Choice™ has a monthly fee starting from £2,084.
What other charges are there?
Other additional investment charges to factor in are:
1. Investment management costs
Investment management costs are charged by the fund managers themselves. In the case of Capital, the fund managers are Vanguard, Dimensional, HSBC and Blackrock (Blackrock and Vanguard are the number 1 and number 2 ranked asset managers in the world).
These costs vary according to the investment type; passive/tracker or active investments. Index funds tend to be significantly less expensive than active funds.
According to citywire.co.uk, one of the largest (£353m) actively managed funds in the UK has an annual management charge of 1.40% (plus an initial investment charge of 5%). By comparison, a large index fund (£983m) has an ongoing cost of 0.22% and zero initial investment charge. Some index funds now come with a zero fee.
Research by Morningstar (reported in the FT October 2018) shows that after fees have been considered, ‘active fund managers repeatedly fail to beat benchmarks.’
2. Platform/wrap hosting costs
A fund platform or wrap is an online service that administers your investments, typically letting you review your whole investment portfolio online at any time.
Research on platform charges from The Lang Cat shows that the average annualised cost is 0.243% based on a £1m investment.
Example total charges based on a £1m investment*
Before Capital provides you with financial planning advice, we will add together all the costs and charges payable so that you are able to understand the overall costs of our services and recommendations. This is referred to as aggregated costs and charges information.
We will confirm the actual aggregated costs and charges (in pounds and pence) based on our recommendations within our suitability report before carrying out the associated work or making investments. Capital will advise you if any fee is likely to be subject to VAT. You will not be charged until your payment options have been discussed and agreed with you.
Is the cost of a financial planner worth it?
A financial planner is a great investment in the right circumstances, especially when your finances are becoming more complex. A good financial planner will work with you on a personal level to integrate all aspects of your life and finances. They will help you to grow and preserve your hard-earned money, to achieve the life you want. Most importantly, your financial planner will help to give you peace of mind and financial security.
It is important to evaluate whether a financial planner is right for you. Do you have enough money to invest that, after fees, will generate a good return?
At Capital, we will always tell you if we don’t think we can add value to your wealth. If you do decide a Capital financial planner isn’t for you, we will be happy to point you in the right direction.
For more information on financial planning fees, download our guide or read six reasons why working with a financial planner beats robo-adviser apps every time.
At Capital we believe financial planning fees should be fair, transparent and simple. These values flow through everything we do. If you would like help navigating your finances or creating a financial life plan to work towards your goals, contact Capital today and we will be happy to help you.