The IFAs that rip you off

A new study has highlighted a significant difference between the fees IFAs charge for identical services.

When two people charge hugely different fees for pretty much the same service, you have to be suspicious. When that difference can be as much as £2,450, you know you are being cheated.

Incredibly, that’s the range of fees independent financial advisers (IFAs) can charge for the same service, according to new research from consumer champion Which?.

Its researchers asked 200 IFAs to give quotes for a variety of services, and found a shocking difference in what people are being asked to pay.

One IFA in Scotland quoted a meagre £50 to transfer £5,000 into a stakeholder pension, or 1% of the money transferred. By contrast, an adviser in the south east quoted a sickening £2,500.

That’s 50% of the total sum.

Extreme advising

Both are extreme cases. To be frank, £50 is almost suspiciously cheap, given the paperwork involved. Whereas £2,500 is nothing short of a stick-up job.

The average fee was £322.

Between, say, £150 and £350 seems a fair range of fees for a straightforward stakeholder set-up, depending where the adviser is based. As ever, you can expect to pay more in London and the south east, where staff salaries and office rental costs are higher.

But not £2,450 more.

Or with a little time and effort, you can do it yourself for free, as we explain in Why you should transfer your pension.

Grim up north too

You don’t just risk getting ripped off by slimy southern IFAs. You can also get ripped off by naughty northern advisers.

An IFA in the north west quoted £2,100 to arrange a term life assurance policy for a 30-year old female - nearly £2,000 more than an adviser in Scotland. Nationally, the average fee was £596.

Somewhere in Scotland, somebody is getting great value financial advice.

Bad advice

You can also get great value down south, if you’re lucky. The average fee quoted to transfer £10,680 into a stocks and share ISA was £356. Two IFAs in the south west and the east of England quoted a mere £106.

Again, one adviser in the south-east quoted £2,500 for the job. I suspect this is the same adviser who quoted £2,500 for a straightforward pension transfer.

Maybe he charges £2,500 for everything he does, say, doing the washing-up, helping his children with their homework, or giving you the time of day. Or, more likely, he’s just trying to scare away low-income customers, so he can focus on the more lucrative high net worth trade.

How much?!

If you’re planning to take independent financial advice, check out several different advisers. You can find a choice of four in your area by visiting website Unbiased.co.uk.

Interrogate each adviser to find out exactly how much they will charge for the services you require. Don’t be embarrassed, they are obliged to tell you.

Sadly, there is no approved list of fees to act as a handy guide. Few advisers post their fees on their website, which would be a big help when comparing fees.

Which? would like to see this happen, and so would I. Don’t hold your breath.

Retail therapy

How we all pay for independent financial advice is set to change from the end of this year, as part of the catchily-titled Retail Distribution Review (RDR).

From January 2013, advisers will have to tell you exactly how much their services cost in advance. You will then agree how much you will pay.

Currently, most people pay for advice through commission on the products they buy. Most people like this, because it’s less painful than writing out a cheque for an hourly fee. Many even pretend the advice is free. It isn’t.

Paying by commission is dangerous, because it gives the adviser a financial incentive to recommend products that pay the fattest commission, even if they’re wrong for you.

In future, you can still choose to pay without writing a cheque. Instead, the adviser’s fee will be deducted from your investments or other products. The difference is that you will have agreed how much you pay in advance.

If you want to know more about RDR, you can find out here.

It’s down to you

Your biggest enemy isn’t the high-charging IFA, it’s you. You have the absolute right to check what they charge in advance. If it looks too costly, or isn’t clear, or you just feel uneasy, you can simply walk away.

The problem with most British people (me included) is that we get embarrassed too easily. We don’t like to haggle. We avoid conflict where possible. We put up with bad service, and never complain.

The pushy sort of adviser knows this, and turns it to their advantage. If you’re not happy, be polite, but be firm. It could save you a lot of worry and money.

Maybe as much as £2,450.

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