Are your finances in need of a workout? For less than the average cost of a gym membership you can get your Isa or pension investments into shape.
Paying for an adviser could be money well spent, but other investors may prefer to go it alone.
And just like choosing an exercise regime, there are plenty of ways to approach it, from using a DIY platform to getting help from a financial adviser or wealth manager.
It is important to choose the right type of help so that you are making the most of your money, particularly if it is invested in stocks. Someone with a £100,000 investment pot could pay as little as £80 a year, plus fund charges, through Interactive Investor (iii.co.uk), a DIY investing platform. Or they could outsource the choice and management of their investments to an independent financial adviser (IFA), or more specialist wealth manager, and pay about £2,000 a year on the same portfolio.
Investing platforms are a good choice if you are confident about choosing your own funds and keeping an eye on performance. You will need to pay a platform fee plus fund charges. Websites such as Hargreaves Lansdown and Tilney Bestinvest (also known as fund supermarkets) let users build a portfolio of funds and shares that can be held in an Isa or self-invested personal pension.
Some will provide discounted fund recommendations, such as the Hargreaves Lansdown Wealth 150 or Fidelity’s Select 50. However, the onus is on you to spread risk across different assets and sectors, and to monitor performance and decide when to put money in and when to take it out. Several platforms, such as Nutmeg, also offer model portfolios that automatically allocate a range of funds based on your chosen strategy or risk rating.
The best platform for you will depend on the type of investor you are. Those with big portfolios may benefit from a platform with flat fees, such as Interactive Investor, rather than a percentage-based charge.
If you are likely to move your funds around regularly you should also consider a platform offering free trades, such as Charles Stanley Direct. Most platforms charge for share-dealing, with fees ranging from £5 on iWeb to £12.50 with Alliance Trust. There may also be discounts for trading regularly each month.
Cost, however, should be only one consideration. Steve Nelson, of The Lang Cat, the investment consultant, explains: “Some of the platforms that are less competitively priced will tell you that value is more important than price, but remember, a provider cannot give value. It can only provide a proposition,” he says. “It’s the investor that gets to determine value from that proposition, based on things like customer service, investment range, tools and calculators, relevance of communication and price.”
The IFA route
A qualified IFA can help you to set up and follow a financial plan and manage your pension and Isa, as well as ensure that you have the right type of insurance in place. They can also help with finding old pensions and weighing up any hidden benefits to assess whether it’s worth consolidating them.
You can find an adviser on the websites Unbiased and VouchedFor. Advisers may charge an hourly rate or a percentage fee based on the amount you are investing. The average hourly rate is £150, says Unbiased, the advice website. It may seem pricey, but an expert can help to choose the right type of product and make sure you know when and where to move your money.
Unbiased’s 2015 Value of Advice report revealed that people who had taken financial advice saved an average of £71 more a month than non-advised savers. Karen Barrett, the chief executive of Unbiased, said: “The fee for advice is remarkably small when you realise how much it can give back in the long term. Our research has found that advice taken in good time on saving into a pension may cost under £600, but result in tens of thousands more in the eventual pension pot.”
Wealth managers specialise in building investment portfolios of their own funds or from other investment companies. If all you need is help with your investments, a wealth manager may be more cost-effective.
Using data on adviser charges from Unbiased, findawealthmanager.com analysed the costs of a £100,000 portfolio for a retired low-risk investor, with a five-year investing horizon. It found that an initial consultation with an IFA could cost £500, while it could cost £1,500 for full advice on a pension pot, £450 to set up an Isa and there may also be a 1 per cent fund charge, amounting to £1,000. Costs would therefore be £3,450 in the first year. In the second year an IFA would charge a 1 per cent management fee, a 1 per cent fund charge and £250 for an hour-long consultation, producing a cost of £2,250.
In comparison, findawealthmanager. com found that Quilter Cheviot, the investment manager, would charge an annual fee of £1,200, which is 1 per cent plus VAT, as well as an Isa set-up cost of £200 and fund charge of 0.64 per cent. Therefore, the £100,000 portfolio would cost £2,040 to be managed by a wealth manager in the first year and £1,840 in the second.
Lee Goggin, the co-founder of findawealthmanager.com, says: “There is a cost, but in the long run you are more likely to get the desired results.”