How do financial advisers make money?

How do financial advisers charge their clients?

According to the UK government’s National Careers Service, the median annual salary for financial advisers is around £45,000 annually. 

Advisers can be compensated in a few different ways, sometimes using a combination of methods.

The most common method is charging a percentage of the assets they manage for you, known as assets under management (AUM).

This fee will range from 0.5% to 1.5% annually. Another option is a flat fee, often used for one-time services like creating a financial plan. Although less common today, some advisers earn commissions by selling certain financial products. 

Let’s take a look at some of the most common financial adviser charges below:

Fee-based charges

Financial adviser income from fees includes directly charging for their services rather than earning commission from selling financial products. This model prioritises transparency and aligning the adviser's interests with yours.

It can include:

• An hourly rate: Like a lawyer or accountant, you pay for the adviser's time.
• A flat fee: A set price for a specific service, such as creating a financial plan.
• A retainer: An ongoing fee for continuous access to the adviser's expertise.

The typical costs include:

• Rates from £75 to £350 per hour.
• Flat fees for financial plans often fall between £1,000 and £5,000.
• Retainers can vary from £1,000 to £10,000 annually.

Commission-based charges

Commission-based financial advisers earn money by selling you financial products, which means they get paid a commission each time you buy something they recommend, like a mutual fund or insurance policy.

In the UK, commissions are banned for advice on pensions, investments, and retirement income to ensure you receive independent guidance.

However, commissions are still allowed on products like mortgages and insurance.

Percentage-based charges

Percentage-based fees, or AUM fees, are a common way financial advisers charge for their services. In essence, you pay a percentage of the total value of the investments they manage for you.

For example, if you have £100,000 invested and your adviser charges 1% per year, your annual fee would be £1,000. This is usually deducted directly from your account, often quarterly. Typical percentages range from 1% to 2%, but they can vary.

What are the different financial adviser fee structures?

Financial advisers use these fee structures to charge for their services:

Fee-based financial advisers

Fee-based advisers charge you directly for their services rather than relying solely on commissions from selling financial products.

Fee-based advisers can use various methods, including hourly rates, flat fees for specific services, and retainers for ongoing access to their expertise.

Fee-only financial advisers

Fee-only advisers take the fee-based model a step further by exclusively charging fees for their services.

They do not accept any commissions or compensation from third parties, eliminating potential conflicts of interest. Like fee-based advisers, fee-only advisers may use hourly rates, flat fees, or retainers.

What influences what a financial adviser charges?

Basic financial advice might involve an hourly rate or a flat fee, while investment management often involves a percentage of your assets.

Specialised services such as retirement or estate planning usually come with higher fees. Advisers in cities tend to charge more, which is usually due to higher operating costs and increased demand for their expertise.

If your adviser charges based on AUM, the size of your portfolio matters. Many advisers use a tiered system where the percentage decreases as your assets grow, but some may also require a minimum account size.

How do financial advisers make money?

Making money as a financial adviser in the UK can be done in different ways, such as hourly rates, flat fees for specific services, or retainers.

Despite being less common now due to regulatory changes, some advisers still earn commissions for selling financial products like mutual funds or insurance policies.

Financial advisers may earn referral fees for recommending other professionals, such as accountants or attorneys.

Some advisers, particularly those highly qualified and working with high-net-worth individuals or institutions, may charge performance-based fees.

An adviser might charge a 20% performance fee on returns exceeding a benchmark, such as the S&P 500 index.

If the client's portfolio earns 15% in a year when the S&P 500 returns 8%, the adviser would receive a performance fee on the 7% that exceeded the benchmark.

How do I start working with a financial adviser?

Working with a financial adviser can make a real difference in your life.

However, getting started can seem daunting, so it’s important to consider what you want to achieve. Are you saving for a house, planning for retirement, or trying to manage your money better? Once you know what you need, you can look for an adviser.

Unbiased will connect you with an expert financial adviser who will provide transparent information about their charges. 

What are the expected costs of a financial adviser?

On the lower end, you might find advisers charging £100-£200 per hour or offering basic financial plans for £500-£1,500.

Robo-advisers provide automated investment services with minimal human interaction and often have the lowest fees, around 0.25% to 0.50% of your assets annually. 

For more experienced advisers or those offering a more comprehensive range of services, hourly rates typically fall between £200 and £350, while comprehensive financial plans can cost £2,000 to £5,000.

How do I compare financial adviser costs?

Comparing financial adviser costs requires a clear understanding of their fee structure. Do they charge hourly, a flat fee, a percentage of your assets, or a combination?

A higher fee might be justified if they offer specialised expertise or a proven track record.

Get expert financial advice

Financial advisers help you manage your money and plan for the future, using various fee structures that best suit your long-term goals. When choosing an adviser, consider your needs, their expertise, and how their compensation aligns with your best interests.

Finding the right financial adviser is easy with Unbiased. We’ll match you with an expert financial adviser who can offer assistance and guidance on what you need most.