Were you offered ‘free’ advice by your financial adviser when he or she sold you that investment product, pension or regular savings plan? If the answer is yes, then you have probably been taken for a ride.
All advice costs money, and there are two ways you can pay for it: fees or commission.
If you pay a fee to your adviser, then the amount of time your adviser spends on the advice given to you and the time it takes to set up your investment, pension or savings plan will be paid for from your own pocket. Always ask them to tell you the fees upfront.
This is where it gets a bit tricky. If you have not been asked to pay your adviser directly, or been told you are getting ‘free’ advice, then the chances are he or she is being paid commission by the provider of your investment, pension or savings plan.
In reality, you are certainly not getting free advice at all, and it could be costing you a lot more than you think. The minimum you can expect to pay on commission for most of these products is around 7%, but it can go as high as 12% or even 20% in some regions for specific investment, pension or savings products.
You may think it does not matter as long as you don’t have to pay the fee directly yourself. But in fact, you are paying this fee yourself and directly from the money you are hoping to invest.
Let’s say you are putting £10,000 into an investment for your future. If the commission paid to the adviser for that is 20%, then actually you are only investing £8,000 into the product, and £2,000 is going straight into the adviser’s pocket for the work he has done.
So, now do you think you had free advice?
In addition, these fees are just the initial commissions too, you will also be paying an ongoing amount from your pot for the privilege of having that money managed. So, in effect, each year that adviser is sticking his hand in your ‘pocket’ and taking out some money without you even realising.
It is certainly far from being ‘free’ advice.
However, there will always be a charge for advice, you just need to ensure it is as low as you can get it.