Financial advisers sell expensive products to earn commissions

We’ll be the first to admit that, unfortunately, financial advisers don’t have an amazing reputation. We’re probably up there with estate agents and journalists as the professionals you’re most suspicious of and don’t really want to engage with.

In 2018 in the UK, 69% of clients don’t trust their financial adviser to act in their best interests [1], and this is a pattern reflected across the world: in the US (52%), Germany (76%), France (60%), Australia (69%) and Hong Kong (65%). There are exceptions, however, in China (only 30%), and India (only 29%) [1] .

A large part of this distrust is the belief that advisers have a conflict of interest (57%) and have opaque fee structures (52%) that do not reflect the value that advice provides (59%) [2]. The conflict of interest reflects a fear that advisers are financially incentivised to sell you specific products. So they’re more interested in their commission than your real needs.

Myth buster: advisers work for you and put you first

In the past, financial advice came with no explicit costs. Instead, advisers were paid a commission on all the products they sold. This is how the suspicion that they were encouraged to sell products that paid the highest commission arose.

But, since 2012, regulations have changed the way advisers are remunerated. They no longer earn commissions from selling products but are paid by the client for the specific work they undertake. This makes the financial basis of the relationship more transparent, and aims to align their objectives with yours.

We believe that well-thought-out financial advice can change lives with its empowering ability to help people feel more secure about their financial futures.

Expert financial advice has been shown to increase people’s prosperity over the long term, with the moderately wealthy benefitting the most: those that took advice between 2001 and 2006 saw their finances boosted by 35% by 2016 [3].

Here at Schroders Personal Wealth, our advice is centred on you. We want to understand your position, your needs and how to put the best strategies in place for you. Our aim is to build a close, long-term relationship with you, so that we can help you to plan ahead and also to adjust those plans, as and when life inevitably gets in the way.

We help you answer the thorny financial questions: how could you fund school fees if you want your children to have a private education? Do you want to help your children or grandchildren financially? How much money do you, personally, need to retire on – not what is the average amount? Do you need to fund care home costs for either yourself or your parents? Do you need estate planning to help you pass on your wealth in a clear and efficient way? These are the questions we can help you answer in a way that’s right for you.

There is absolutely no one-size-fits-all approach. It’s our number one priority to make sure that you are matched up with the financial products – such as the pension plan, investment funds and financial protection – that suit you best and that will take you in the direction you want to go. We also carefully analyse your individual risk appetite to make sure that you’re not exposed to any more risk than you would want to take.

We understand that everyone’s tolerance for risk is personal and is dependent on a number of factors. These include their current financial circumstances, their outlook for their financial health, and their previous experience. We should also acknowledge that some people are generally more cautious in life, and at the other extreme are those that are generally more adventurous.

So what does financial advice cost?

That’s an important question and is driven by a number of factors. One to consider is the type of advice you choose to take. Roboadvice (where computer programs analyse your situation to make recommendations based on what you tell them) is the cheapest. Remote advice – where your adviser is at the end of a telephone or video conference – costs more than this. And face-to-face advice – where the adviser comes to your home or workplace – carries the highest costs and can be the most expensive.

The complexity of your situation will also have a bearing on the amount of work required to draw up your personalised plan and to review it each year.

But the comforting thought is that all these fees should be disclosed to you up front so you know exactly how much each element of advice will cost. Your adviser should also provide an illustration of the specific charges for each product or solution they recommend.

If you’d like to know more about our pricing structure, head over to www.spw.com/pricing.

Sources:

[1] https://nextgentrust.cfainstitute.org/wp-content/uploads/2018/04/CFAITrust-Global-Report.pdf, page 5, accessed on 08 April 2020

[2] https://nextgentrust.cfainstitute.org/wp-content/uploads/2018/04/CFAITrust-Global-Report.pdf, page 7, accessed on 08 April 2020

[3] https://www.yourmoney.com/saving-banking/financial-advice-sees-47k-wealth-boost-in-a-decade/, accessed on 08 April 2020