In this piece, Brooke Armstrong, who is currently completing her undergraduate degree in Financial Services, breaks down how and why we charge fees as Financial Planners:
Fees: What You Need To Know
Fees are the remuneration or charges paid to a financial planner/adviser for his or her services. They come in various forms and will always be transparent and laid out to the client. However, sometimes they can be complex causing difficulty when interpreting. This post breaks down the different types of fees you can encounter as well as reasons behind charging them and what factors can impact the fee you pay.
Different Types of Fees
The initial fee is charged for making a recommendation and subsequently putting that recommendation in place for you. It covers your initial meeting where your adviser gathers information and helps identify your goals, needs and objectives. It covers the analysis and research required to determine the most appropriate solution for you and the creation of a plan to meet your immediate and subsequent objectives. It covers the front and back office costs including all our staff and meeting costs. It also covers any subsequent meeting costs associated with the initial advice up until the agreed plan is in place.
The ongoing fee is usually a small percentage of the funds we have influence over for you, typically around 1% per annum. It covers the ongoing management of the whole financial plan we have put in place for you. It not only covers any investments themselves but also the continued appropriateness of your plan as your financial goals and objectives change and any other changes to legislation or the financial solutions available to you. This mostly happens out of sight to you but is summarised for you in our Annual Review meeting where your adviser will cover all the relevant areas so you continue to have confidence that your plan will meet your objectives.
One-off fees are for any specific tasks we do for you that do not form part of the normal planning process. We will always tell you before we do any one-off work what the fee will be. One-off items include things like Capital Gains Tax analysis of funds you have that are not under our influence or an Inheritance Tax Report for your solicitor when they are preparing your will. Fees will usually come out of your invested monies each month but can be paid directly. There will always be a breakdown of how much has been paid in your annual review.
Commission is a payment made to us by a product provider for non-investment products such as Life Assurance or Private Medical Insurance. It is accounted for by the provider in their plan charges. It is not an additional payment to us. The amount of commission payable is detailed in the product illustration, and we will point it out to before you make any decision to proceed. Commission replaces the need to charge you a fee and pays for the same services as the fees noted above.
Why Do We Charge Fees?
Fees and Commission are what provide the firm with the income it needs to operate. We have no other source of income and without fees from our clients we would not be available to help them with their financial plans and save them money, tax and time. Fees are essential as wealth managers are highly qualified individuals that exercise their expertise in order to benefit the client based on their specific financial position, goals, and objectives.
Fees allow you to see exactly what you are paying for our services and can be used to measure us against other providers. Having a set percentage as an ongoing fee lets you see what you are being charged easily. Product providers also charge percentage rate fees for the management of their product and their individual funds which we will also tell you about and are outlined within our client annual reports.
What Can Impact How Much You Pay?
Experience and Qualifications. Highly experience and qualified advisers will usually charge a higher premium for their expertise. Not all advisers are the same so it can be useful to investigate or ask what the adviser usually specialises in.
Complexity of Situation. The complexity of the tasks at hand can impact the fees you will pay. It can be easy for finances to get messy over a lifetime and transferring or combining pensions can be a convoluted and complex arrangement. In contrast, setting up ISA’s or PMI are usually less complex which reflect in the fees you pay for such activities.
Provider/Fund Picking. Depending on your risk appetite and the adviser’s recommendations, different providers and funds can be recommended which may come with different charges. For example, actively managed funds have a higher premium, but they are expected to outperform the market with the hope for higher returns to be achieved.
To conclude, fees are important to understand and can sometimes be outlined in long documents that make it difficult to assess the impact on you. Your adviser will explain them as best they can and ensure you feel comfortable with everything before going forward. It is vital that, as a client, you do not hesitate to ask your adviser about anything you don’t fully understand, and it is important to comprehend the fees you will be charged.
December 2022
Get in Touch
If you would like to arrange a no-obligation meeting to discuss your needs, please contact us on 0131 260 2760 or at www.mi-plc.co.uk.
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Attribution: Nick Youngston
