How To Choose A Financial Advisor

If you are looking for expert guidance on complex products such as investments, mortgages and pensions, you may benefit from talking to a professional financial advisor.

While paying for financial advice may seem costly, it can help you achieve your financial goals and save you from making expensive mistakes.

According to Unbiased.co.uk, the directory which helps people find an independent financial advisor, enquiries from people looking for an IFA rose by 34% in the year to February 2024. This, it says, was mainly fuelled by an increase in enquiries for pensions, retirement planning and investment advice. 

Karen Barrett, founder and chief executive at Unbiased, says: “Around 75% of those using Unbiased to find an adviser have never taken financial advice before, and it’s encouraging to see more consumers looking to confidently plan their financial future. An adviser can help you with your finances by ensuring you’re on track to meet your money goals and not paying more tax than necessary.”

Here’s what you need to know about choosing a financial advisor, including the different types of advisor, typical fee structures and the best questions to ask to pick the right advisor for you.

What are the different types of financial advisor?

Financial advisors may also be called by their specialism, such as a mortgage, investment or pension advisor or broker, or a financial planner.

All financial advisors in the UK must be regulated by the Financial Conduct Authority (FCA) and have achieved at least a Level 4 qualification in financial advice recognised by the FCA. Some financial advisors also have Chartered or Certified Financial Planner qualifications. 

When it comes to the range of advice provided, there are two main types of financial advisor:

1. Whole of market advisors

Whole of market financial advisors are able to provide advice on all the financial products and providers available, rather than being restricted to particular products and/or providers.

They are able to call themselves independent financial advisors (IFAs) as they offer unbiased advice based on a comprehensive analysis of the whole market, without influence from product providers.

Since 2012, IFAs have been banned from accepting commission on investment and pension products and must charge clients a fee instead (more on this later) to increase the transparency of how they are remunerated. 

However, they are still able to accept commissions from some insurance, mortgage and equity release providers. Commission is generally paid out of the customer’s premiums or other payments.

2. Restricted advisors

As the name suggests, these financial advisors are only able to recommend either:

• a restricted set of products (such as mortgages)
• products from a restricted set of providers (such as a limited set of fund managers)
• or both. 

Restricted advisors are legally not allowed to call themselves independent. 

That said, it’s not necessarily a bad thing to use a restricted ‘whole of market’ advisor, for example, someone restricted to advising only on pensions but able to recommend products from all of the providers.

Restricted advisors may also be known as ‘tied’ if they work for a particular provider such as a bank or building society and are only able to offer products from this provider. 

Tied advisors will often be paid a commission as part of their remuneration package for selling products to customers. 

What fees do financial advisors charge?

Fees and charges will vary depending on whether you have a fee and/or commission-based agreement with your advisor. There are a number of different types of fee structures. Typically a financial advisor firm will use a combination of these fees, depending on the nature of the service and advice.

1. Percentage fee

This is the most common fee structure whereby you pay a percentage of the money invested or managed. This is broken down as follows, based on data provided by VouchedFor:

• Initial charge for setting up products: this typically varies from 0.5% to 5%, with an average of 1.86%. However, 95% of advisors charge 3.5% or less.
• Ongoing fee for managing products: this ranges from 0% to 3.2%, with an average of 0.77%. Only 5% of advisors charge more than 1% in ongoing fees.
• Underlying investment portfolio charges: these annual fees are charged by the underlying product provider, for example custody and fund management fees. The percentage fee will typically reduce (with a tiered pricing structure) as a client’s portfolio grows in size. According to NextWealth’s Financial Advice Business Benchmarks report 2023, the average advisor platform fees were 2.5% in 2023.

Taking into account all of the above fees, NextWealth found that customers paid an average of 1.75% in total charges last year. This is down from 1.98% in 2022.

One of the drawbacks of a percentage fee structure is that your fee will increase with the value of your investments, which can add up to a substantial amount of money over time.

2. Fixed fee

A fixed fee is typically used for one-off advice such as combining pension plans, setting up an annuity or producing an overall financial plan, where people do not want ongoing advice. 

Fixed fees vary significantly depending on the scope of the work but you should expect to pay upwards of £300 to £500, with some fees stretching into thousands of pounds (see table below).

Unbiased has surveyed the financial advisors in its directory to gauge average one-off fees for some popular financial advice services, including the following:

3. Hourly fee

Some advisors charge an hourly fee which tends to range from £75 to £300 an hour. According to VouchedFor the average hourly fee in 2023 was £198.

Advisers should provide an estimate of the number of hours the work is likely to take, and their invoice should show a breakdown of the hours spent.

4. Subscription fee

Growing numbers of advisors are moving to a monthly subscription based fee structure for certain types of clients, including those now referred to as ‘Henry’ (high earning, not rich yet). These are generally people who don’t have significant assets yet, but are potentially on a trajectory to be high net worth individuals in the future.

For the financial advisor, starting to build a working relationship with this type of client early in their financial planning journey is seen as a good investment for the business.

Subscription rates can vary widely but might typically be from around £50 to £100 per month. For this the client will receive regular check-ins (monthly or quarterly for example) with their advisor, typically including some financial coaching and goal setting, to ensure their financial plans are on track.

Around one fifth of advisors are already using this type of fee model for some clients in their business, according to the NextWealth Financial Advice Business Benchmarks report, up from 13% in 2022.

But overall NextWealth analysis shows the majority of advisors still use a percentage fee, combined with one-off charges and some fixed fees.

The fee structures used by financial advice firms

What factors should be considered when selecting a financial advisor?

There are a number of things you’ll want to consider when picking a new advisor to ensure the service and the advisor will be suitable. These are likely to include:

• What type of advisor is it, whole of market or is it restricted to advising on a select panel of providers or products?
• Does the style of advice suit your needs and preferences, such as will the meetings be face to face, over the phone or via zoom?, for example
• Does the advisor have particular areas of specialism or focus that will fit your goals?
• Will you be able to build up a good working relationship with your advisor, do you feel that they understand your outlook and aims?
• Think about the advisor’s fees and fee structure, does it fit with your budget both now and on an ongoing basis?

What are typical fees for financial advice?

Adviser comparison site VouchedFor has calculated the forecast average fees for different types of financial advice over the next five years, based on fees charged by advisors on its database:

How can you find a financial advisor?

It’s worth taking the time to choose the right financial advisor for your circumstances. One option is to ask for personal recommendations from your family and friends.

Alternatively, comparison sites VouchedFor and Unbiased have a database of thousands of financial advisors, allowing you to filter advisors by expertise, area and customer reviews. 

Once you’ve narrowed down your options, you should ask the following questions: 

• Do they offer independent or restricted advice? As mentioned earlier, whether or not they advise on restricted products, you should look for an advisor that covers whole of market in terms of providers. 
• Are they authorised by the FCA? This is simple to check by searching the Financial Services Register which shows if they are authorised and if so, for which activities.
• Do they hold the necessary qualifications? Advisers must hold a Level 4 qualification or above on the Qualifications and Credit Framework. They also need to have an annual Statement of Professional Standing.
• What is their fee structure? This may be displayed on their website and should be available on request.
• How will they provide their advice? In person, by phone or email, or via a written report?
• Do they offer an ongoing service and how much does it cost?

Most advisors offer a free initial consultation during which you can discuss what you’re looking for and ask any questions. After this meeting, the advisor should provide a ‘key facts document’ outlining their fees and what their work will cover.

If you are happy with the advisor you’ve picked, you’ll sign the necessary documents and undergo customer identification checks. If you have paid for ongoing advice, you will usually receive an update from your financial advisor once or twice a year.

Where can I get free financial advice?

There are a number of resources available to people looking for general financial advice at no cost:

• The Pensions Advice Allowance gives people with defined contribution pensions the option to withdraw £500 on up to three occasions to pay for financial advice.
• MoneyHelper is a government-approved website offering advice on a variety of topics including pensions, savings and debt.
• Other sources of financial advice include the Citizens Advice Bureau and National Debtline.

Employers may also offer access to free financial advisory services, either generally or for a one-off project such as changes to the company pension schemes. 

What happens if something goes wrong?

As financial advisors are FCA regulated, the Financial Ombudsman Service (FOS) will consider a complaint where you are unhappy with the advice provided, or you believe a product has been mis-sold.

The FOS will review your complaint and, if it is upheld, has the power to fine advisors and require them to pay compensation to you. However, you are unable to claim for investments on the basis that they’ve fallen in value.

In addition, if you have an investment and the provider or advisor has gone out of business, you may be able to claim compensation from the Financial Services Compensation Scheme (FSCS). This covers up to to £85,000 of eligible investments per person per product.

Alternatives to financial advisors

If you’re looking for investment help, one alternative to getting full holistic financial advice from an IFA is to use a robo-advisor.

Robo-advice is sometimes described as a half-way house between going it alone (where you self-select your own investments) and full-blown advice from a professional advisor. 

With robo-advice you’re using the tools and technology of an investment platform to help tailor your investment portfolio to suit your risk appetite and savings goals.

So while it won’t be personalised investment advice, a robo-advisor can help you put together an investment strategy and portfolio that broadly suits your aims (and at a much lower cost).

Most investment platforms can also offer a one-off investment advice service, which can be used in conjunction with robo-advice, for example. This might take the form of a one-off review of your investments and goals, or a one-off report, for example, for a single flat fee.