Financial advisers charge 1% in 2016

Financial advisers charge 1% in 2016

Adviser charges have steadily increased in recent years with a 1 per cent adviser charge now becoming the norm, according to research by Harrison Spence.

The business consultancy's research found 29 per cent had a 1 per cent advice charge while some charged 1.25 per cent.

The consultancy's poll of 170 advice firms in October showed 26 per cent of advisers charged 0.5 per cent while 22 per cent charged 0.75 per cent.

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The overwhelming majority of advisers – 90 per cent – said they had no plans to increase their charge in the next 12 months.

Brian Spence, founding partner of Harrison Spence, said advice firms would need to be able to prove that increasing fees were accompanied by an increase in the level of service clients receive.

He said that while increased fees could be good for the bottom line, they could be bad news for advisers looking to sell their business.

He said: “On a multiple of recurring income basis, there will be less of a margin for acquirers to work with, which will affect the multiples achievable.

“One per cent leaves them little room for manoeuvre and paying higher multiples like four times revenues then starts to make little sense as it could take decades for an acquirer to make their money back.

“Alternatively, maintaining a 0.5 per cent model makes it a good prospect for acquirers with a long-term view.”

Steve Carlson, a chartered financial planner with Cardiff-based Carlson Wealth Management, said 1 per cent was reasonable if clients were getting a full service.

He said: "I charge 1 per cent but for that I am picking funds, doing cash flow forecasting, they are getting tax advice and estate planning. I think that is fantastic value.

"It isn't about how much someone is charging, it is about how much the client is getting. If an adviser is charging 1 per cent and having a cup of tea with their client every year, that is ridiculous."

The survey also found four in 10 IFA business owners are considering a sale in the next five years.

But just short of one-third want to retire when they sell, with 60 per cent wanting to stay on as an adviser or an ambassador/introducer for the business when they sell.

Mr Spence said: “Relatively few advisers view a sale as an immediate opportunity to retire, but rather as a means of achieving financial security by capitalising on their hard work over many years."

The most popular firm that business owners would like to sell to are large, privately owned, regional advice businesses, with 29 per cent preferring this as a buyer.

Sales to small local businesses are also popular, with 24 per cent of business owners preferring this option while 18 per cent would choose a management buy-out.

Mr Spence said: “IFAs have taken great care of their clients over the years and understand that books of business represent real people, not just numbers in a column.