Could I be paying a financial adviser I don’t see anymore?

A friend recently told me that I could still be paying money on my investments to a financial adviser I haven’t seen in years. Is this true?

P. B., Northampton.

Old rules: Until a few years ago, fund managers paid financial advisers commission for introducing new investors to their funds

Paul Thomas, of Money Mail, replies: The short answer is yes, you could well be. Until a few years ago, fund managers paid financial advisers commission for introducing new investors to their funds.

Typically, they received an upfront payment, as well as an annual payment equal to 0.5 per cent of the saver’s pot.

These commissions were meant to cover the cost of the adviser giving you ongoing advice, and they lasted for as long as your money remained invested in the fund.

On a £10,000 fund, an adviser received roughly £50 a year.

The City watchdog stopped fund managers paying commission to advisers for new investors on January 1, 2013.

However, they were allowed to carry on receiving the 0.5 per cent ‘trail’ commission for anyone they’d put into funds before this date.

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HOW THIS IS MONEY CAN HELP

How to choose the best (and cheapest) DIY investing Isa – and our pick of the platforms

It’s thought there are thousands of savers paying these extra charges — even though they haven’t received advice in years.

It means some advisers are raking in money for doing nothing.

The effect these payments can have on your pot is enormous.

Figures from investing broker Bestinvest show that after 20 years, your £10,000 would be worth £29,953 in the new version of a fund and just £27,703 in the old version — a difference of £2,250.

This presumes your pot grows 7 per cent a year before fees, which is at the top end of what realistically to expect.

You can check if you’re paying these fees by looking at your annual investment statement.

If you’re being charged more than 1 per cent, then it’s likely that you are.

One way to cut your fees is to sell your investments and buy them back again. You can ask your adviser to do this or speak to an investment broker such as Bestinvest or Hargreaves Lansdown.

Check first if there are any charges involved.

If you don’t want to sell your investments, you could ask your financial adviser to start offering a better service through regular advice and reviews.

Alternatively, you can ask the adviser to pay you the commission. If they won’t do this, you can transfer your investments to a new adviser or a DIY broker service.

Send your questions to: Investment Clinic, Money Mail, Northcliffe House, London W8 5TT.