Some advice businesses are charging as much as 5% for their initial fees, according to data compiled by advice comparison site VouchedFor.
The comparison site has recently allowed advisers to specify whether they charge an hourly rate, fixed fee, percentage of assets or a combination of all three.
Within a week of the feature being launched, some 423 advisers had published their full fee breakdowns for a range of different portfolio sizes on the website. Of those, six advisers recorded charging a 5% initial fee and 12 said they charged 4%.
VouchedFor CEO and founder Adam Price said this sort of charging was usually for clients in the lowest wealth band. Most advisers on the website do not take on individuals below a certain wealth level, he continued, but for those that do, the percentage would be "relatively high".
Simplified Money director and financial adviser Lesley James described such a charge as "outrageous", adding: "We target smaller investors specifically in my business and 5% is totally unnecessary - and, more importantly, not value for money for the client."
Informed Choice managing director and IFA Martin Bamford was equally unimpressed. "Charging a percentage for initial advice is a very old-school approach that is more likely to benefit the adviser than the consumer," he said.
"It's pseudo-commission and should have been abolished as part of the Retail Distribution Review, rather than being allowed to continue under the guise of adviser charging."
Where large investments are involved, Bamford said, a 5% charge results in "an incredibly large fee paid to the adviser" and, for smaller investments, it still disadvantages the client to see a comparatively high percentage of their money taken away on day one.
He added: "Rather than finding a tolerable fee methodology for smaller clients, advisers should be developing automated services that don't involve expensive human interaction, or focusing their attention on clients with higher levels of wealth where the fees they need to charge represent better value for money."
'Transparency is key'
An alternativce view was offered by IFS Wealth and Pensions director and chartered financial planner Alan Chan, who said a 4% or 5% charge was fine, so long as it was presented transparently.
"It's an agreement between the client and adviser," he argued. "The client is not forced to use their services and, ultimately, it is their decision if they wish to proceed or not.
"For new clients with smaller amounts to invest, a charge of 4% or 5% is not uncommon. Realistically, what can you charge someone who is, for instance, looking to invest £20,000 in an ISA? 2% is £400, which does not even begin to cover any of your costs or time on this case."
Mulling 'comparison' feature
The fees outlined by VouchedFor reflected hourly rates ranging from £125 to £250 with an average of £178. Advice costs expressed as a percentage of invested assets ranged from 0.5% to 5% for initial advice fees, with an average of 1.72%. For ongoing advice fees they ranged from 0% to 2%, with an average of 0.69%.
For investment advice, average initial percentage charges fell sharply as the amount a client can invest increased. For a client with £100,000 to invest, for example, the average initial fee was 2.06%, with an average ongoing fee of 0.71%.
For clients with £250,000 to invest, however, these averages fell to 1.56% and 0.69% respectively.
Price told Professional Adviser the company was considering a ‘comparison' feature that would allow customers to sort and compare advisers based on fee level, but acknowledged it would be "very challenging to compare across lots of different fee structures and service propositions".
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