UK Investment Advice – Upfront Fees versus Ongoing Investment Fees



 UK Investment Advice – Upfront Fees versus Ongoing Investment Fees

Rather than going it alone for investment and pension advice, many people often seek out a financial professional. Over years past, the typical person would either go it alone, or they would seek out an advisor who offered advice with a catch. While the investor may have considered it to be “free” advice, the reality is that the investments often had high fees annually, which compensated the advisor for their advice. However, there is a growing trend toward paying an advisor upfront in cash, so as to get more unbiased opinions since they aren’t compensated from the investments they recommend. Here are some benefits to this newer approach of upfront fee investment advice:

  • No conflicts of interest – The historical model suffers from what is known as commission bias, which is essentially the notion that advisors are inclined and incentivised to recommend investments that are not necessarily in your best interest but in their best interest, so they can collect the best commission. This is about as bad a conflict of interest as you can get. Imagine if each time you went to the doctor, they came up with a procedure you needed because then they’d get paid to perform the procedure.  You’d be having work done all the time! Well, this is similar. At least with an upfront payment to an unbiased advisor, they would probably not only recommend lower cost investments, but perhaps more prudent and risk-appropriate investments as well.
  • Better long-term returns – As mentioned below, even though you have to sometimes pay a few hundred pounds out of pocket upfront, over a decade-long period of time, by not being saddled with high annual expenses in the old model, your investment returns should be much higher and more tied to your needs.
  • Once and Done or Hourly Payments Later – Rather than having your investments drained of their returns over a lifetime, this structure is nice in that you know what to expect and can manage your expenses. Many people may opt to pay just once for the initial consultation. Some others will want a check-up every few years, whereby the same financial advisor can charge a much lower hourly rate than the initial upfront payment to set up their plan. Charges vary, but most financial experts agree that over many years, this is definitely a lower cost approach, even if having check-ups every so often.

I’ve always been a firm believer (and history has backed this up), that for individual investors, avoidance of fees has a much larger impact on the final returns than trying to make the best investment, time the market, or keep switching strategies. This method of using upfront costed advisors only certainly puts you in a much better position than the traditional method.

The information in this article is provided for education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.



Darwin is an engineer and MBA who takes an "evolutionary" approach to finance, writing about adapting to evolving financial management, tax, investing and savings opportunities. Making more money and saving more money is an adaptive process — join the evolution! He blogs at Darwin's Money and ETF Base

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