Beware of hidden costs


When you decide to invest your hard-earned money, it’s not for free, no matter what any financial adviser claims!

Wondering how much financial advisers charge? It depends on a number of things, including your specific needs and the firm you decide to hire.

Most saving or investment arrangements have fees and charges associated with them. While some fees are made clear up front, be alert to the fact that others may be hidden.

Ultimately your adviser should inform you about all your options and all of the fees associated with them, as opposed to selling you a packaged product that doesn’t clarify those fees.

Many advisers offer an initial meeting free of charge. This isn't designed to give you specific advice about your situation. It’s a chance to see how they work, how much they charge and get a sense of whether you feel they are suitably qualified and experienced to do the job for you.

A financial adviser’s fees vary dependent on what they are charging you for and how you agree in advance to pay. Once a fee is agreed it should be clearly stated in the client agreement signed between yourself and the appointed adviser.

Fee for advice

It is now law in many countries, that if you invest with the help of a financial adviser, you pay a separate charge for this advice. The amount of the charge is decided between you and the adviser, but there are different ways to pay. For example, you could pay a lump sum direct to the adviser at the time you receive advice.

Alternatively, you might arrange to spread the payment for the initial advice or to pay a regular sum to the adviser for continuing help, in which case the payment might be collected as a deduction from the value of your investment.

The cost of advice varies but might be around, say, £250 an hour, or 1% a year of the value of your investment.

Remember fees stop your money growing

Managing investments involves time and money and you must expect to pay reasonable charges. However, fees erode your investment earnings. Of course, your hope is that a financial adviser and investment manager charge fees because they are confident that they will perform above average, but there is no real evidence that any adviser, or more importantly, investment manager can consistently deliver superior performance. Try and make sure you know how much you are paying and satisfy yourself that it is good value for the service and investment performance you are getting or expect.

Typical annual charges for different investment types

This table provides an indication of the typical annual costs for different investment products, based on ongoing charges and excluding any entry and exit costs and charge for financial advice (see below). The yearly return is based on a fund that has been invested in the market and therefore has incurred dealing costs.

Investment Service

Typical yearly cost

Actively managed discretionary service

0.75% - 1.25%

Advisory managed service

0.25% – 0.75%

Customised portfolio service

0.75% - 1.75%

What makes up the costs shown in the table?

This depends on the type of investment. Costs are made up of some or all of the following – always ask before you buy.

Investment management charges

Investment management charges are deducted from the value of your investment in order to cover the costs of researching and selecting investments for the fund. They form part of the ongoing charge.

Administration charges

These are charges for administration and other services such as maintaining a record of your investment and calculating the value of the fund each day. They form part of the ongoing charge.

Custody fee

A ‘custody fee’ is a banking or trading facility that administers your investments, typically lets you review your whole portfolio at any time, and may offer a range of interactive tools to help you explore your investment options.

The custodian makes a charge for these services, in the region of 0.15 – 0.25% a year.

In the majority of instances custody fees should be separately itemised on a client's valuation or laid out clearly in the initial advice provided.

What other costs might you have to pay?

Entry and exit fees and costs

If you buy or sell mutual funds and unit trusts direct from an investment company, or insurance linked investments, you may have to pay entry or exit charges. It may be cheaper to buy through a broker (especially a discount broker), or arrange to pay a fee in advance, so it is worth comparing the costs before you buy. Either way, fees should be expressed in a transparent and clear way.

Performance fees

Depending on the type of service you require, some investment companies are willing to reduce typical regular annual charges for a share of performance. These are typically expressed as a % of any performance in excess of a target level, the idea being to align the interests of the fund manager and the investor.

Fees and charges on life insurance linked investment products

Life insurance bonds and whole of life policies are subject to most of these charges too, but they have different charging structures to other investments. A key features illustration may be provided which shows the charges you will pay, including the cost of any commissions, and how these might affect what you get back.

How to compare costs?


Commissions and volume-based payments for recommending financial products can influence the advice given by financial advisers. As described earlier, in certain countries such as the United Kingdom and Netherlands commissions were banned on investments, however financial advisers can still receive commissions from selling life insurance contracts. To receive a table of fees on a number of insurance contracts; It can be worth paying higher fees if you get a better service or performance, but you should remember that past performance is not a reliable indicator of future performance. Also, higher returns are normally available only with higher risk investments, where the risk of losing your money is also greater.


How we are paid

Our fees are always set out in our Client Agreement which we agree with you in advance of work commencing. We offer an initial meeting at our expense – allowing us to discuss your situation and how we might work together. If you decide you would like us to work on your behalf we will make some recommendations.

The author of this article is Marcus Queree, Partner & Director of DNA Wealth. Any information herein is only expressions and opinions. This document does not constitute an offer, an invitation to offer, or a recommendation to enter into any transaction, nor does it constitute investment advice. The information contained herein is confidential and reproduction of any part of this material is prohibited. If you are in any doubt as to the suitability of an investment you should always consult your financial adviser. DNA does not receive any form of compensation for circulation of such material.