Focus on fees: how 10 IFAs charge clients for advice

The fee debate rumbles on. Here is where our most recent ten cover stars stand.

The fee debate rumbles on.

Fixed, flat, ongoing, hourly: you have a lot to choose from when deciding how to charge your clients - or indeed changing your existing model. 

Here is where our most recent ten cover stars stand. We have also started asking firms what a client would pay who has £100,000 to invest and who needs a financial planning service.

Get in touch if you want to discuss this issue with us. We are keen to hear your views. Email news@citywire.co.uk or tweet us: @newmodeladviser 

The fee debate rumbles on.

Fixed, flat, ongoing, hourly: you have a lot to choose from when deciding how to charge your clients - or indeed changing your existing model. 

Here is where our most recent ten cover stars stand. We have also started asking firms what a client would pay who has £100,000 to invest and who needs a financial planning service.

Get in touch if you want to discuss this issue with us. We are keen to hear your views. Email news@citywire.co.uk or tweet us: @newmodeladviser 

Firm: Hunter Aitkenhead & Walker (HAW)

Location: Leicester

HAW publishes all its fees on its website with a calculator. ‘The calculator has lost us clients, even though I believe our fees are slightly below average, because they have nothing to compare it to,’ says chartered financial planner Jim Aitkenhead. ‘We keep it because we want to be open.

‘According to The Yardstick Agency’s research, only 17% of adviser websites mention fees and only 5% disclose in detail the likely fee paid by a client. What are the others hiding?’

The firm’s initial report fee of £925 is waived if the client moves to implementation, which is 1.5% for the first £250,000; 0.5% on the next £250,000; 0.25% on the next £500,000; and 0.15% above £1 million.

Ongoing fees vary between ‘premium’ and ‘managed’ services. They are 0.9% or 0.75% respectively for the first £250,000; 0.75%/0.6% on the next £250,000; 0.7%/0.55% on the next £500,000; and 0.65%/0.5% above £1 million.

A client with £100,000 to invest who needs a financial planning service could expect to pay £1,500 for implementation and between £750 and £900 as an ongoing fee in the first year.

Premium service clients receive quarterly investment reviews, and annual financial planning meeting and reports. Managed service clients receive annual planning meetings and annual investment and objectives reports.

HAW also offers ad-hoc advice based on an hourly rate of £185. While clients will value the creation of financial plans, Aitkenhead says it is implementation that really costs the business, calling it ‘often complex and time-consuming’.

Firm: Tandem Financial

Location: Luton

Initial meetings are free. They include cashflow modelling, fact finding and risk profiling.

Tandem Financial charges between £1,250 and £3,000 (depending on client complexity) for a financial report, which includes recommendations. This is normally produced for the client at the second or third meeting.

If the client decides to go ahead with the recommendations of the financial report, the firm charges a 1% implementation fee on assets up to £1 million (0.5% for more than £1 million), which covers the administrative cost of moving money into different products.

For ongoing fees, the firm charges clients a 1% annual fee for the first £1 million of assets, which covers the basic model portfolio service, and 1% on any regular payments. For assets between £1 million and £3 million, the ongoing charge is 0.75%.

So a client with £100,000 assets and fairly simple requirements might pay £1,250 for a financial plan, £1,000 to implement and £1,000 ongoing, totalling £3,250 in their first year.

There are four ongoing service models: the basic Trails model portfolio management plan; Bronze (an additional £15 per month), which includes other services such as unlimited phone support and a protection service; Silver (an extra £30 per month), which covers a biannual review report as well as other extras; and Gold (£60 per month), which covers an annual written review.

Firm: Philip James Financial Services

Location: Oxfordshire

Philip James has a straightforward charging structure of initial advice at 3% for new investments or 1% for transfers. Ongoing advice is charged at 0.5%. For larger investments of, say, £1 million or more, the firm may negotiate.

So a new client with £100,000 to invest could pay £3,500 in their first year.

‘We might be a bit more expensive up front compared with some, but we are very cost effective and efficient in the long term,’ says director Philip Hanley.

One could argue 3% initial incentivises short-termism, but the firm’s 74% recurring income suggests it is not relying on initial fees to stay afloat.

New clients typically have three meetings or more. Ongoing clients are offered at least a yearly review, a client portal with real-time valuations, weekly emails with blogs, and unlimited contact. This works out at around £175 per hour to provide the ongoing service, says Hanley. The average recurring income per active client is £1,075.

‘Many advisers overcomplicate their service to justify 1% fees and have lower profit margins than we do,’ he says. ‘Different service levels, a tiered charging structure, and keeping tabs on who qualifies for what all add complication and administration.

‘Many firms also feel they need in-house model portfolios and employ an investment adviser to justify that 1%. That doesn’t give better value than outsourcing to a large institution that does all the research and management for you. It is difficult to add extra value and, when the regulator focuses on advice costs, it will look at those with a 1% charge most closely. For someone with £1 million, you have to work very hard to justify £10,000 of fees every year.’

Hanley says if the profession moves away from percentage fees, it will be due to regulation rather than consumer pressure.

‘Advisers must take financial responsibility for the advice we give, so we must charge a fee accordingly,’ he says. ‘The liability increases according to the size of investment you take on.’

Firm: Shaw Gibbs

Location: Oxford

Financial services director and chartered financial planner Ed Gibson uses a mixture of fixed fees and an hourly rate for his charging structure, often depending on the client’s preference. An internal pricing matrix that considers time, complexity, the member of staff required and other factors will determine both types of rates.

Initial work is mostly done on a fixed fee basis. There is no minimum or maximum fee but generally this is between £2,500 and £4,000. ‘If a client’s needs are pretty simple, we would normally steer them towards the hourly rate because that’s often the cheapest version for them,’ says Gibson.

A client with £100,000 and fairly simple requirements, for example, could pay a fixed fee of around £1,500 for initial work.

For implementation, there is still an option to charge on percentage of assets: 1% on the first £200,000, 0.75% on the next £800,000 and 0.5% above that. But most clients now pay on an hourly rate basis.

‘The vast majority of implementation is an administrative task, our business support guys are really good at doing it, they’re quick and efficient,’ Gibson says.

That means a client with £100,000 could pay ‘a couple of hundred quid’ for implementation on an hourly basis, which is likely to be less than on the percentage system.

Ongoing fees can also be a percentage of assets staggered in the same way as above, or an hourly rate, depending on what the client and adviser agree works best. Gibson says he is finding more clients opting for the hourly rate but is happy for clients to switch between the two, as long as it is manageable.

‘For example, I had a client who had reached a stage where what he needed was going to be relatively low level until he got divorced, and that was a couple of years down the line,’ he says. ‘But he knew his timescale. So working on an hourly rate basis made complete sense for him, because we were essentially in a bit of a holding pattern. After the divorce, a lot more was required.’

Shaw Gibbs offers several levels for ongoing service that include review meetings, use of the ISA allowance from existing investments, a look at capital gains allowance and so on.

Firm: Addidi Wealth

Location: London

Addidi has three stages of financial plans: the Investment Plan, which tends to focus more on assets in the main market such as pensions and investments; the Wealth Plan, which looks at all assets including businesses, property, enterprise investment scheme solutions and so on; and the Legacy Plan, which deals with families through the generations.

Clients with less than £1 million to invest are likely to be on the Investment Plan and pay the minimum planning fee of £5,000 (which would be 0.5% on a £1 million pot). Clients on Wealth Plan may pay £14,000 to £22,000, and those on the Legacy Plan up to £44,000 for complex cross-generational advice including succession, divorce and so on.

Sofat used to charge around £1,500 for planning, but raised the fees to make this a standalone service that clients can take away and implement elsewhere if they wish.

Implementation is then a further 1%, and ongoing fees tend to be a minimum of £3,000. ‘We are looking at all these fees at the moment, though, and we will probably have a mix of percentage or flat fees,’ managing director Anna Sofat says.

However, for someone with £100,000 to invest, the ongoing fee may be reconsidered, as Addidi will not take more than 1% from the portfolios.

‘I was speaking recently to a woman referred to us from a client who has just over £100,000,’ Sofat says. ‘She was in that middling ground where I could see she needed advice but she couldn’t afford the £5,000 up front. And there’s no way £3,000 ongoing is going to be cost-efficient; that’s 3% a year.

‘So we could reduce [the planning fee] to £3,000, charge 1% implementation and then I said maybe we need to see you every two years, or you may decide to pay a top-up fee in one year.

‘When you’re trying to be bespoke so much it can be a nightmare. So you’ve got to try to have some sort of bands and service you try to stick to.’

Firm: SG Wealth Management

Location: Norwich

For a client with £250,000 to invest, SG Wealth Management - which is run by managing director and chartered financial planner Stephen Girling - does not charge for the first meeting, which includes a fact-find.

Its initial advice fee is different for each individual client, ranging from £750 to £4,000 depending on the complexity. For a client with £250,000 who has three pension pots and some ISA money, an initial fee would be around £1,500 for a financial planning recommendation (including fact-find, cashflow modelling and review of their existing holdings).

If the client agrees to implement the financial plan, there is an additional administration fee of £150 per pot of money to do the paperwork. This is based on the hourly cost of the work.

For ongoing fees, SG Wealth Management has two services. One is its financial planning review service, which is suitable for clients with £250,000 and more. For this service, the firm charges 75 basis points (bps), which would include an annual review as well as contact points through the year. On top of this it charges 20 bps for its discretionary fund management (DFM) service plus VAT.

Its other tier is its wealth management service, for clients with £500,000 or more to invest. These clients are charged 150 bps for ongoing advice and the DFM.

For DB transfers, there is a non-contingent flat fee for a suitability report, the same as for regular service clients. But if the client goes ahead with the transfer, there is a higher implementation cost of around 1%, which recognises the high cost of professional indemnity insurance and the risk of taking the work on.

Firm: Lily Advisory

Location: London

After a free initial fact-finding meeting managing director Indre Butkeviciute puts together a plan of how long work is likely to take and charges an hourly rate of £150. She has increased her hourly fee since launching from £100 due to increased demand for her services.

‘Some people have criticised my business model asking why I charge the same for someone with £300,000 and someone who has £60 million but it doesn’t matter how much money you have: I want to provide a service that will benefit each client. I want them to know they can trust me and come to me with any questions they have and I’m not going to rip them off.’

Butkeviciute receives no money from recommending advisers, wealth managers, platforms and so on to clients.

She is also critical of firms that charge assets under management-based (AuM) fees. 'Ten years ago it was easy to charge an AuM fee because returns were so much better. In this environment it is very difficult to get good returns unless you take substantial risk.'

'I often tell my clients, you need to weigh up how much you are paying for your advice and you need to figure out all the different fees. Some providers [asset managers] are still not upfront about how many different fee layers there are.

'You need to see what return you’re getting and think about the fees you’re paying plus inflation, and if you end up just below 1% real return is it really worth you taking the risk to invest in whatever you’re investing in to get that? Is it worth taking all this advice to end up with this return?

'If a manager is actually performing then fair enough, but until now so many managers were charging management fees irrespective of performance, even when they were underperforming. Well how does that make sense? In reality it doesn’t. So charging needs to change and with me it’s pay as you go.'

Firm: Verve Investment Planning

Location: Cambridgeshire

Verve services are bespoke, and it charges no initial fees for clients who sign up to the ongoing service. The annual charge is 0.5%, 0.75% or 1%, depending on how much time the adviser spends per client and is worked back to an hourly rate of £200.

Typically, a 0.5% client would receive passive investments, and at least one annual review plus standard statements and updates. A 0.75% client would usually receive at least six-monthly reviews, and regular updates and economic reports.

1% clients receive at least quarterly reviews, bespoke updates and reports, and cashflow analysis adaptable at any time. All clients have access to a portal, provided by PlanLab or Unipass.

However, principal Steve Buttercase stresses that clients – especially in the 1% bracket – often receive much more than these minimums, for example, in-depth tax planning or advice on business financing.

Firm: Ashlea Financial Planning

Location: Cheltenham

Director Diane Weitz is a firm believer in cashflow analysis and says the firm is very much organised around the service. She brushes off the criticism some have that cashflow plans start using a snapshot of clients’ goals and circumstances.

‘The whole point is you do it for one year and then go back to it every year,’ says Weitz. ‘The cashflow and the assumptions are going to change as people’s circumstances change.’

The fee agreement is given to the client after their initial discovery meeting, which is done at Ashlea’s expense, and states how much they will be charged for the first cashflow analysis and any other work due to be carried out. The work might include a review of attitude to risk and capacity for loss, estate planning recommendations and an income tax analysis.

The fixed fee will be between £750 and £1,500. Future cashflow analysis sessions will be covered by the 1% ongoing fee.

This initial planning fee is based on an hourly rate for a chartered financial planner of £250 per hour, adviser support at £150 per hour and administration at £75 per hour, all of which are detailed in the client agreement.

The client agreement also explains the implementation fee is charged at 2% for the first £500,000 of the client’s investment, 1% for the amount between £500,000 and £1 million and 0.5% for anything over £1 million.

 

Firm: Planet 3 Wealth

Location: Swansea

Planet 3 Wealth offers five service options, based on how and where it gives advice, as this has the biggest effect on costs, says Morgan.

The ‘Once’ option is transactional; ‘Lite’ is for those who receive advice over the phone, Skype and email only; ‘Core’ clients can have review meetings in the office between 9am and 5pm only; ‘Flex’ clients can see an adviser at their home or out of hours; and ‘Plus’ also provides cashflow forecasting with Truth software.

Core and Flex are the most popular categories, populated by 116 and 73 clients respectively out of 224 in total.

Initial fees are taken for the advice and planning, are fixed and start at £500. They are separate from a charge taken for implementation. This is tiered, with the first £50,000 at 3%; the next £100,000 at 2.75%; the next £150,000 at 2.25%; the next £200,000 at 1.5%; and the next £500,000 charged at 0.75%. For amounts above £1 million, the fee is between 0.1% and 0.35%, depending on complexity.

However, to stop costs spiralling for complex cases, initial fees are offset against implementation fees. ‘The tiered fee for the implementation will be less the £500 we have already charged for the review and broad recommendations from the second client meeting,’ says Morgan. ‘If the client walks away after the second meeting, we have at least covered, or partially covered, our time.’

Ongoing charges are 0.5% for Lite; 0.75% for Core; 1% for Flex and 1% plus a £500 a year retainer for Plus.

A typical Core client with £250,000 will therefore pay just under 2.75% initial, plus 0.75% ongoing. Morgan says: ‘We calculated those figures by looking at our costs [and what others are charging]. We don’t work it back to a specific hourly rate, we simply look at whether the company is making money or not. No client has ever complained about our charges.’

The directors also launched a non-regulated company, Trust Planet 3 Wealth, in March. This offers protection, will writing, powers of attorney, and generic reports, mostly via outsourced partners, for an extra charge.

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