If you’re investing for your future, it’s vital to get off to a strong start.
But if you take independent financial advice before deciding where to put your money, you have to accept you’re starting with a handicap.
New figures out this week show that the average independent financial adviser charges £150 an hour.
Somebody seeking advice on a £200 monthly pension contribution pays £500.
And if they wanted advice on investing a £50,000 inheritance, that would rise to a whopping £1,500.
Unbiased? Moi?
The new figures are courtesy of ‘find an adviser’ site Unbiased.co.uk, which helps people find three named advisers in their area.
If you don’t have the competence or confidence to manage your own money, by all means, take advice.
But first, understand exactly how much it will ultimately cost you.
Say you are investing your full £15,000 ISA allowance for this year. If your money grows at an average annual rate of 6%, it would be worth £86,150 after 30 years.
Now let’s say you pay your adviser a £500 fee, and therefore only invest £14,500. After 30 years, your money would be worth just £83,280.
So that initial £500 fee will ultimately cost you £2,870.
How much!
It gets worse. Most advisers also charge ongoing annual fees of up to 1% of the value of your investment portfolio. That’s what does the real damage.
So if your adviser charges 1% a year on top of that £500 initial fee, your £15,000 will shrink to just £62,670 after 30 years.
You start £500 down but end up an incredible £23,480 worse off.
Pound For Pound
It is worth paying for complex advice, say, deciding whether to take income drawdown at retirement, or planning your family’s tax affairs.
But if you’re simply saving for the long term, with a little effort, you can do that yourself.
One easy way is to buy a low cost index tracking fund that follows the FTSE 100, such as the Fidelity Index UK. This has no initial charge whatsoever, and its annual charge is just 0.09% a year.
Or you could track the FTSE All-Share through the Legal & General Tracker Trust, which charges just 0.16%.
Alternatively, you could build up a portfolio of blue-chip stocks, trading and cheaply and easily using an online stockbroker.
You won’t always get it right, and you’ve only got yourself to blame if you get it wrong.
But remember, you start £500 ahead. And as my figures show, that could ultimately run into tens of thousands of pounds.
