Investors are willing to pay for advice – providing the price is right, according to new research.
If investors are paying a percentage fee, the target they have in mind is £200, or 1% of a £20,000 lump sum.
But as the amount for investing grows larger, the fees investors are ready to pay get stingier.
For advice about managing a £200,000 lump sum, most investors are only ready to pay £616, which amounts to just over 0.3% of their cash.
Investor expectations fall short of what a professional advisers charge, says the study by financial research firm Platforum.
How much an IFA charges
The average charge for an initial consultation for most advisers is 2.2% of the investment value.
For £20,000, that’s £440 and for a stake of £200,000, the charge is £4,400. Both are likely to come with VAT on top, making the fee range between £528 and £5,280.
The cost is a major factor dissuading investors from taking professional investment advice, says the firm.
The research went on to show 44% of investors do not pay for advice. Only 16% agreed they would seek advice for a £20,000 lump sum investment, rising to 46% looking for help with £200,000.
However, other recent research by Platforum reveals only 3% of savers do not invest due to the cost of advice. Instead, 23% do not consider they have enough disposable income and 21% believe investing is too risky.
Find out the cost early on
The study also found 69% of savers planning to invest over the next 12 months will do so through their bank, which is unlikely to offer independent advice.
Other research from find-an-IFA web site Unbiased found investors expect to pay around £500 for an initial consultation and £150 an hour for ongoing advice.
The site calculated the cost of taking advice on investing £100,000 would come to around £2,000. In percentage terms, that’s 2% of the pot.
Not all IFAs charge percentage fees for their help. Some offer fixed fees, while others charge on a time-basis.
“Make sure the adviser gives an estimate of how long the work will take and discuss pricing at your first meeting,” the site suggests.