Financial-advice fees can appear relatively straightforward when expressed as a percentage.
The difficulty is that percentages can disguise the amount actually being paid.
As wealth increases, a fee that appears relatively small in percentage terms can translate into a significant annual sum. For people with larger portfolios, that can prompt an important question:
What is the fee actually paying for?
There is no single charging model used throughout financial advice. Different firms structure their fees in different ways, and the appropriate comparison should consider both cost and service.
But for clients with substantial assets, it is particularly important to understand the relationship between the amount invested, the complexity of the work and the fee being charged.
Key Sections
- Percentage fees and portfolio growth
- Fixed fees approach the question differently
- The investment-management cost is not necessarily the advice cost
- The calculation that prompted one client to review his arrangement
- What was the work?
- Questions worth asking about any fee structure
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Our Fixed Fee Financial Planning approach
Percentage fees and portfolio growth
Under a percentage-based model, an ongoing advice fee is calculated with reference to the value of the assets to which the charge applies.
That makes the cost relatively easy to calculate.
It also means the monetary fee can increase as the portfolio increases.
Suppose, for example, the client's investments grow substantially over several years.
The financial-planning work may also have become more complex during that period.
But it may not have.
If the percentage remains unchanged, the amount being paid can nevertheless rise simply because the value of the assets has risen.
For clients with larger portfolios, that relationship is worth examining carefully.
Fixed fees approach the question differently
A fixed-fee model starts from a different principle.
Rather than calculating the adviser fee directly as a proportion of assets, the charge can be set according to the nature and complexity of the work being undertaken.
That may include areas such as:
- cashflow modelling;
- retirement-income planning;
- pension and investment structuring;
- tax planning;
- intergenerational planning;
- investment-management oversight;
- coordination with accountants, solicitors and other professionals;
- and ongoing reviews as circumstances change.
Importantly, fixed does not necessarily mean identical.
Two clients with similar levels of wealth can require very different amounts of work.
One may have a relatively straightforward collection of pensions and investments.
Another may have trusts, business interests, complex tax issues, substantial employer shareholdings and several generations to consider.
A fee based on complexity can reflect those differences without automatically using portfolio size as the determining factor.
The investment-management cost is not necessarily the advice cost
It is also useful to distinguish between financial planning and investment management.
They are related, but they are not the same service.
Investment management concerns how assets are invested and managed within an agreed mandate.
Financial planning determines what the capital needs to achieve, the appropriate level of risk and liquidity, how income should be structured and how investment decisions interact with tax, family and longer-term objectives.
Depending on the arrangement, there may therefore be different layers of cost associated with advice, investment management, platforms and underlying investments.
A meaningful fee comparison needs to consider the whole picture rather than looking at one number in isolation.
The calculation that prompted one client to review his arrangement
One recent Niche client had accumulated substantial wealth over a long career in investment management.
He was already receiving financial advice under a percentage-based arrangement.
As he considered the combined value of his holdings and what the percentage charge could mean in actual pounds, he performed what he described as a quick “back of the fag packet” calculation.
His conclusion was that he could potentially be paying somewhere around £30,000-£50,000 a year.
His reaction was succinct:
“You must be joking.”
That calculation did not tell him whether his previous adviser was technically competent.
It prompted a different question: whether the amount he might ultimately pay remained proportionate to the work he wanted undertaken.
* Retirement planning case study. (Anonymised case study. Not advice. Your circumstances will differ.)
What was the work?
That question becomes clearer when the service is considered in practical terms.
During the first twelve months of our relationship with this client, the work included building a complete cashflow picture, simplifying pension and investment arrangements, establishing a retirement-income structure, reviewing protection and healthcare, coordinating specialist tax support and restructuring investments around different time horizons.
Nine months into the relationship, an additional private-equity opportunity emerged.
That required the plan to be adjusted again: liquidity requirements changed, future capital calls were incorporated into cashflow modelling and portfolio risk elsewhere was reconsidered.
In other words, the ongoing value was not simply the existence of an investment portfolio.
It was the planning around it.
Questions worth asking about any fee structure
Regardless of the charging model, clients with substantial portfolios should be able to understand:
- What am I paying in pounds each year?
- What services are included?
- Which costs relate to financial planning and which relate to investment management or platforms?
- What would cause my fee to increase?
- Is the complexity of my circumstances reflected in the charge?
- What happens after the initial recommendations have been implemented?
The answers are more useful than the percentage alone.
Our Fixed Fee Financial Planning approach
At Niche Private Clients, we charge fixed fees for financial planning rather than calculating our advice fee as a percentage of the client's portfolio.
The complexity of the client's circumstances and the work involved determine the appropriate service tier and fee.
Our reasoning is straightforward.
We believe fees should be set against the work, not simply against the portfolio.
For clients with substantial assets, understanding that relationship can make a very significant difference to how the cost of advice is assessed.
Talk to Niche Private Clients
If you are approaching retirement, managing several pension and investment arrangements or questioning whether your existing financial structure still suits the next stage of your life, an initial conversation with us is free and carries no obligation to proceed.
Important Information:
The foundation of this article is an anonymised case study based on one client’s circumstances. It is for illustration only and is not financial advice. The right approach for you will depend on your own circumstances.
Fee figures are the client’s own estimate of a previous arrangement and are not a comparison with any specific firm. Our fixed fees depend on the complexity of your circumstances and are agreed in advance.
