WHY YOU SHOULD QUESTION YOUR WEALTH MANAGER OR FINANCIAL ADVISER
I’m frequently contacted by people who have products and services of relevance to my clients. For over 25+ years I have maintained a policy that I do not accept introducers fees or commissions – I simply broadcast and comment on good ideas.
Max Horne writes:
I was recently referred to a friend’s brother who is a high-profile management consultant based in London but dealing with familiar businesses.
It turns out that he has had a collection of individual shares he has bought through stockbrokers of the companies that he has contracted with over the years. He had also been persuaded by his wealth manager to buy funds that his wealth manager had recommended, and he had bought these in significant amounts, either through his ISA or pension over the years.
All of these funds were in actively managed household name funds. He had time to look at these in greater detail at the beginning of the lockdown and realised that for a long number of years these funds had not shown any profit due to the high fees that were being charged both by the investment houses and by his wealth manager.
It was a classic case of what I see more and more these days.
Traditional wealth managers or financial advisers used to tell you that they could pick funds that would deliver high profits and that their choices were better than the next guy. They thought was the value they were bringing to clients. Since 2007, when the banking crisis worldwide took place, it has been exposed that active fund management, after the deduction of fees and charges, does not add any value whatsoever.
Warren Buffett, the legendary stock picking investor in the USA, suggests to ordinary investors that they would be better in index funds and has written into his will that his wife should be investing 90% of the funds she gets on his death in an index fund in the S&P 500 in the USA.
Index funds can dramatically reduce the investment management fees compared to what an active fund manager will charge.
Recently, two of the largest investment managers in the world have introduced, in the UK, a direct to consumer option where clients can now buy directly, cutting out a huge amount in investment fees.
Typically, you can do this for around 0.35% compared to an average of around 1.5% for the active managed equivalent. Then on top of that comes, typically, a 1% wealth manager charge where it is now possible, through the system we operate, to have fixed monthly fees payable that are a fraction of this. I have often wondered why the investor with £1 million should pay 10 times more than the investor with £100,000 as they are not getting 10 times the advice and certainly not 10 times the value.
So, this was the dilemma my management consultant client had. He was paying a fortune in fees, and he decided to go directly to a major investment house and buy their well-known range of index funds.
By also firing his wealth manager and adopting my Lifestyle Funding Programme, he saved around 2% per annum in fees on his substantial investment portfolio. He reckons over a 10-year period he will save around £140,000 in fees that he would have otherwise paid, and he says this can buy him another Aston Martin – he likes fast cars.
Most people don’t realise the huge amount in fees that they are paying for investment management and wealth manager charges, and it comes as a shock to find this out. Why not look at the website www.thelifestylefundingcompany.com and find out just how much you are overpaying in fees each year.
Chartered MCSI, CFP
Chartered Wealth Manager
Certified Financial Planner CM
Highland Capital Ltd
27 East Port
t: 01383 620333