Paying for a financial adviser: when it is worth it and what it costs

Whether you need a financial adviser depends on what decision you are facing, not on a fixed pot size. Advice costs real money: the cost of financial advice can vary from £500 to £5,000 or more depending on the adviser and the type of advice¹, and advisers who charge by the hour average £150 an hour². For many everyday questions, free guidance is enough, and the government-backed MoneyHelper service offers free, impartial money and pension guidance³.

The difference matters. Guidance gives you general information and signposting without recommending a specific product; advice is a personal recommendation, and an adviser who gives it takes on legal duties to you⁴. If you are consolidating pensions, investing a lump sum, or transferring a final salary pension, paid advice is either legally required or strongly worth considering. If you are budgeting, choosing a savings account, or working out how much to put into a workplace pension, free guidance will usually cover it.

Do I need a financial adviser?

There is no rule that says you must use a financial adviser, but there are situations where the law or the stakes make it the sensible route. If you have a defined benefit pension, often called a final salary pension, and are considering transferring it to a defined contribution scheme, you are legally required to take financial advice if the transfer value is £30,000 or more⁶. That is because giving up a guaranteed income for life is one of the biggest financial decisions a person can make.

For other decisions, the question is whether the choice is complicated enough, and whether the amounts are large enough, for a personal recommendation to be worth paying for. Independent guidance suggests setting up meetings with at least three advisers before deciding on one, so you can compare what each offers and how each charges⁷. An adviser must by law give up to date and appropriate advice tailored to your situation and goals in life⁸, which is a duty that free guidance does not carry.

It also helps to know what an adviser is not. Independent financial advisers do not usually have detailed knowledge of benefits and entitlements, so a specialist benefits adviser is still worth speaking to if that is your situation⁸. And if your problem is debt rather than investing, a money adviser or debt charity is the right starting point: there are free advice services that can help⁹, and in Scotland certain debt solutions require advice from an approved money adviser before you can apply¹⁰.

The distinction between advice and guidance is worth understanding before you spend anything. Guidance is a broader term covering general information and signposting about pensions which does not include a recommendation¹¹. Advice does. The comparison page on financial advice or guidance sets out the difference in more detail.

What a financial adviser can help with

A financial adviser's job is to recommend products and courses of action that fit your circumstances, and the law requires those recommendations to be suitable. An adviser can help with investing a lump sum, planning retirement income, consolidating pensions, protection insurance, inheritance tax planning and deciding how to draw down savings. For advice about increasing your workplace or private pension, the official guidance is to speak to a financial adviser¹², and an independent financial or pensions adviser can help you decide which personal pension is suitable for you¹³.

To do this well, the adviser needs a full picture of your finances. Independent guidance sets out what an adviser will want to know: your total annual household income and how it breaks down into earnings, benefits or other sources; how much you have in savings; your monthly housing costs including mortgage or rent, council tax, and electricity and gas bills; what you spend on food, other necessities and leisure; what you pay in insurance; and whether you pay into a pension⁸. Gathering this before a first meeting makes the meeting itself more useful.

Once advice has been given, the adviser provides a key facts document covering: the adviser or firm being used and the services they offer; the products they have recommended; the right to change your mind about taking out a financial product and how long you have to do it; your right to be given further information or an explanation if there is something you do not understand; how to make a complaint if you are not happy with the service or product provided; who the firm is authorised and regulated by; and the cost of the service and/or product⁴.

Advisers have limits on what they can recommend. Unregulated collective investment schemes, for example, can only be promoted by advisers to wealthy or more experienced investors¹⁴. If an adviser cannot find a product to suit your needs, they must refer you to another adviser who can help⁴.

Independent or restricted: the two types of adviser

Every regulated adviser in the UK is either independent or restricted, and they must tell you which before you commit to anything. The disclosure you are owed covers whether the advice is independent or restricted, the level of advice you will receive, and how much you will have to pay⁴.

An independent financial adviser (IFA) must consider a wide range of suitable investment products, including investment trusts, to determine which best meets your needs¹⁵. If an adviser says they are independent, their advice must be based on a comprehensive analysis of the market and be unbiased, with no influence from product providers⁷. In everyday terms, an IFA can look across the whole market before recommending anything.

A restricted adviser may only recommend a limited range of investments, or investments from just one provider¹⁵. A restricted adviser can only recommend a particular type of product, or products from a particular company⁸. That is not automatically worse: a restricted adviser who specialises deeply in one area, such as workplace pensions, may suit a person whose need sits squarely within that area. But it does mean the recommendation cannot be assumed to have been compared against the whole market.

Neither type is allowed to hide which it is. Ask directly, and check the answer against what the adviser tells you about the products on their list. If your need is broad, comparing several kinds of product at once, independence gives the wider sweep. If it is narrow, a restricted adviser may be able to help, provided their range covers what you actually need.

How advisers charge: hourly, fixed fee, retainer or percentage

Advice can be charged in four main ways: an hourly rate; a set fee according to the work involved; a monthly retainer; or a percentage of the money invested⁴. Each suits a different kind of job, and the same adviser may use different methods for different pieces of work.

An hourly rate suits one-off questions where the work is hard to price in advance. The average is £150 an hour². A set fee suits a defined project, such as a single retirement plan or a pension transfer review, because you know the cost before committing. A monthly retainer buys continuing access to an adviser over time. A percentage of the money invested is the most common method for ongoing relationships: advisers frequently charge a percentage of the assets they advise on, which could be one or two per cent¹.

Percentage charging has a feature worth understanding: the fee grows with your pot even if the work does not. For pension advice, you can expect an initial fee usually ranging between 1% and 4% of the pot value, and an ongoing annual charge between 0.5% and 1.0%⁶. The FCA puts the average ongoing advice fee at 0.8% a year, rising to 1.9% a year once underlying product and portfolio charges are factored in¹⁶. On a large pot, a percentage fee can amount to far more over the years than an hourly or fixed arrangement would have done, so it is worth asking for the cash figure as well as the percentage.

Some investment platforms offer one-off advice sessions for a fixed fee from around £500 to £1,000¹⁷, which can be a lower-cost way to get a personal recommendation on a single decision without taking on ongoing charges.

What advice typically costs: £500 to £5,000 or more

The headline range is wide because the work varies enormously: the cost of financial advice can run from £500 to £5,000 or more depending on the adviser and the type of advice¹. A one-off session sits at the bottom of that range; a full financial plan with ongoing support sits at the top.

For a sense of what ongoing advice adds up to, independent figures show the average cost of advice over five years for an investment worth £250,000, including investment, ongoing support and planning, is £16,250 in the rest of England, £15,995 in the North of England and Scotland, and £13,375 in Wales¹⁸. A separate survey put the average for investing £250,000 with ongoing advice at £14,809 over five years, made up of £5,036 upfront and £9,773 ongoing¹⁷. An earlier set of figures for the same scenario gave £5,165 upfront, £9,940 ongoing and £14,805 in total². The numbers differ between surveys, but they agree on the shape: ongoing advice on a large pot costs thousands of pounds over five years.

Two things explain why advice skews towards larger sums. First, according to the FCA, the average advised customer has over £250,000 of assets under advice¹⁶. Second, just under two thirds of advisers have a minimum asset requirement, according to research by The Lang Cat⁶, so people with smaller pots can struggle to find an adviser at all. If your savings are modest, a fixed-fee one-off session, or free guidance, may be the realistic options.

Advisers cannot take commission and must agree fees up front

Since the rules changed, advisers are no longer paid by commission⁴. Advisers must charge you directly for their advice: they are not allowed to accept commission, which could influence the products they recommend¹. This removes the old conflict of interest where an adviser's income depended on which product you bought.

The rule that follows from it is that both independent and restricted advisers must agree up front how much you will be charged for their services, when you will be charged, and how payments will be made to them¹⁶. This means the number, the timing and the payment method are all settled before any work starts. An adviser who is vague about fees is one whose terms have not been properly agreed.

One area still has a commission element worth knowing about: for some pension products, some advisers charge a fee while others receive commission from the pension provider¹⁹. Ask directly how your adviser will be paid for the specific work you are asking them to do.

Pension Advice Allowance: up to £500 from your pension

If you need advice about your pension, there is a specific way to pay for it from your pension savings. The Pension Advice Allowance lets you take up to £500 from your pension fund to help pay for financial advice about your pension options²¹. It was introduced in April 2017²², and the £500 annual cap was set because automated advice services cost around £500 when the consultation was drafted, while face-to-face advice cost on average £150 per hour and pensions advice could take up to nine hours²³.

The allowance can be used up to three times, but not more than once in any tax year, so you can access retirement advice at different stages of life²¹. The overall cap is £1,500, matching three withdrawals of £500²³. The allowance is available at any age, but only if you have a defined contribution pension². To claim it, you write to your pension provider to make the request⁵, and the money is paid directly to the financial adviser you have chosen, not to you²⁴.

Employers can help too. Companies can pay for financial advice for their employees without the employee paying income tax, up to £500¹⁶. In combination with the Pension Advice Allowance, this means you could get £1,000 towards paying for pension or retirement advice¹⁶.

Checking an adviser is qualified and FCA registered

All financial advisers must be registered with the Financial Conduct Authority (FCA)¹, and all financial advisers must hold a qualification at Level 4 or above of the national Qualifications and Credit Framework⁴, the equivalent of the first year of an undergraduate degree⁷. The subject areas covered at this level include regulation and ethics, investment principles and risk, personal taxation, pensions and retirement planning, financial protection and financial planning practice⁷. Advisers holding a Statement of Professional Standing have signed up to a code of ethics and completed at least 35 hours of professional training each year⁴.

Checking registration takes minutes and should be done before any money changes hands. You can check whether a provider or adviser is authorised on the FCA register²⁵, and the FCA has also launched a Firm Checker tool to help consumers check whether financial services firms are authorised and have permission to sell products and services²⁶. Searching the register by the adviser's firm gives the most accurate results²⁷. If the search results show the adviser's status as "authorised", the Financial Services Compensation Scheme (FSCS) may be able to compensate you if the firm fails²⁷.

Registration matters for more than scam protection. Firms must be authorised by the FCA to advise on financial products such as personal pensions¹⁹, and the FSCS's own guidance on pension protection starts with the same step: search the FCA register to check that it authorises your financial adviser²⁸. An adviser who is not on the register is not giving regulated advice, and you lose the protections that come with it.

If the advice turns out to be unsuitable

Regulated advice carries duties, and there are routes to redress if the recommendation was wrong. When advising on a pension switch, an adviser must determine whether it is suitable, per the FCA's rules²⁹. If you have lost money because you received the wrong financial advice, the Financial Ombudsman Service will tell the financial adviser to put things right, and may tell them to pay compensation for distress or inconvenience³⁰. Where investments were unsuitable and your pension pot is smaller as a result, the ombudsman will usually tell the adviser or provider to make up the difference³¹.

The ombudsman can look at complaints across the areas advisers work in: advice about personal pensions³¹, ongoing financial advice services³⁰, savings and endowments³², and lifetime ISAs, where you may complain about advice received or the way an adviser or investment company managed your ISA³³.

Compensation from the FSCS works differently, and only where the adviser has failed. The adviser must have gone out of business, and must have been regulated by the FCA at the time it gave the advice, for the FSCS to help³⁴. The same conditions apply to claims about defined benefit pension transfer advice³⁵, and the FSCS also covers bad mortgage advice in certain circumstances²⁷.

Free help and differences across the UK

Before paying anyone, it is worth knowing what is free. MoneyHelper offers free, impartial money and pension guidance, backed by government³, and covers all areas of pensions advice²⁴. For debt problems, free help is available across the UK: there are many organisations offering free and independent advice on dealing with debt³⁶, and in Scotland the cost of living campaign signposts free debt and money help¹⁰. A debt adviser can check whether you can claim any benefits and help you apply, help with budgeting, negotiate with creditors and recommend formal debt solutions⁹. In Scotland, some debt solutions require advice from an approved money adviser before you can apply¹⁰, and a money adviser there must not charge a fee unless they have told you free money advice is available and you have agreed in writing to pay³⁷.

For mortgage decisions, the choice between shopping around and getting advice is set out in official guidance³⁸, and a mortgage adviser must have completed the Certificate in Mortgage Advice and Practice (CeMAP) qualification to give mortgage advice³⁸. For pensions, there are no comparison sites for personal pensions, so you either need to search and compare options manually or pay a financial adviser³⁹.

The rules on advice itself are the same across the four nations, but the free help available differs, and Scotland has its own debt solutions and money advice requirements. Pages on money help in Scotland, Wales and Northern Ireland set out what is available locally, and free money guidance covers the national services.