Study: Larger IFAs Charging Significantly More than Smaller Firms for Investment Advice



Posted on: 31st May 2016

New research suggests that in a statistical sense, the larger the company offering investment advice, the more they are likely to charge. Despite the industry’s bigger players having much greater spending power and general stability than small IFAs, larger firms charge considerably more.

That’s according to a report just published by the Financial Conduct Authority (FCA) today, which noted a striking difference in the kinds of on-going fees charged by firms at different levels within the same industry. When a client has £10,000 or less with which to invest, very small firms were found to charge an average of 0.5% for on-going investment advice, small firms 0.6% and larger firms a much higher 0.88%.

It was only when the client in question had at least £1 million to invest that things became more level, with advisors of all sizes generally attaching the same on-going charges. The data was produced by the Financial Conduct Authority, having conducted a survey of more than 230 retail investment firms of various sizes. The information was included in the Financial Advice Market Review (FAMR) final report last month.

Very small firms were noted as those with no more than two advisors, small firms had a maximum of nine advisors while larger firms had teams of at least ten or more.

The average rate charged by smaller firms for on-going investment advice was found to be 0.5% in instances where the client had an investment pot of between £10,000 and £1 million.

This increased considerably when the same advice was provided by a larger company. When a client had between £10,000 and £250,000, larger firms charged an average of 0.81% for on-going investment advice – more than 50% more than smaller firms. After the £250,000 threshold, this fell to 0.75% for larger firms, falling once again after the £1 million mark to 0.5%. This would appear to suggest that with the exception of the wealthiest investors, clients could save a great deal of money long-term by working with smaller financial advice firms.

In terms of initial percentage charges, there were very few significant differences from firms of one size to the next. Across the board, when clients had funds between £10,000 and £250,000, all firms of all sizes charged a flat 3% on overage. After the £250,000 threshold, it fell to 1% for very small firms, 1.2% for small firms and 1% for larger firms.

The same pattern was also found for retirement investment advice, which didn’t change a great deal between the different firm sizes. For pots over £1 million the average charged was 1%, £500,000 attached a fee of 1.5%, £250,000 2% and up to £100,000 3%. Fixed initial fees for retirement advice also came in the same across most of the firm’s studied – £1,000 for pots over £50,000, £960 for pension pots of £30,000 and £750 for savers with up to £10,000.

The median hourly rate charged across the industry was found to be £185 per hour, with 90% of the firms charging between £100 and £300 per hour.