There is a perception, perhaps unjust, that the industry is opaque and expensive.
As a result, wealth managers are preparing for the Financial Conduct Authority’s study into the fees levied on investors by the asset management industry, due to start in early 2016.
However, Lee Goggin, co-founder of findaWEALTHMANAGER.com, refutes that notion saying: “Improved fee transparency is helping the wealth management industry shed its image of being opaque and expensive. Total Expense Ratios (TERs) are now an industry standard and these provide a much better barometer of wealth management costs than the annual management charge.
Total Expense Ratio is calculated as the total cost to manage an investment, including management fees, over the value of the investment or asset.
“Nevertheless, some of the less obvious fees charged by wealth managers can escape clients’ notice and in some cases may be listed separately from TERs. All fees, whether clearly understood or not, will impact on performance and so it is well worth seeking clarity from a wealth manager about the exact nature of the charges you may have to pay.”
To help potential clients get to grips with wealth management costs, findaWEALTHMANAGER.com has compiled a list of the 10 lesser known, less understood or uncommon charges that may be levied by some wealth managers, with a brief explanation of what they are.
1. Charges levied on cash balances
This may happen before a portfolio is fully invested so can come as a surprise
2. Transaction fees
3. Underlying cost for using third-party funds
4. Custody and nominee costs
5. Platform charges
6. External brokerage costs
7. VAT
8. Product cost for tax wrappers
9. Foreign exchange costs
10. Exit charges
Adds Goggin:
“A perceived lack of clarity on wealth management costs has prompted some people to take the DIY-investment route with their hard-earned savings or vital retirement funds. Unfortunately, this approach can be high risk for many people and sometimes may even lead to disaster. In many cases, a person may be better off leaving it to a professional.
Fees, a Balancing Act Between Quality and Qualitative
However, an accountancy and aggregation of those fees is just the beginning. Goggin notes,“Fees also have to be balanced against the time it takes to monitor your own portfolio and the considerable stress and financial risk involved. It’s also important to remember that wealth manager fees often cover more than investment management. You may also be paying for financial planning, tax advice and other specialist services.”
Wealth manager James Hambro & Partners CEO Andy Steel says: “What is important is that managers are really clear about costs from the outset. There can be some quite complex unseen charging in parts of the industry, so in choosing or reviewing managers it is important to ensure you are comparing like with like on fees.”
Pamela Reid, executive director at Quilter Cheviot, said: “An investor needs to consider the standard of reporting and quality of service that is provided for the fees.
“Does the service include capital gains calculations, is the income reporting easy to use, what options are available when it comes to how income can be taken from the portfolio? All these qualitative issues are also in the equation to ascertain best value for money.”
As Find a Wealth Manager we believe the expertise of a good wealth manager in protecting your wealth and generating positive returns usually more than offsets any charges. Fees are obviously important, and it’s important you understand what you are paying but we recommend you focus on returns after a wealth manager’s fees. Over the long term, this figure should be between 3% and 6% a year above inflation, depending on your risk profile and portfolio size (clearly, the more sensitive you are to investment risk, the lower the return you should expect).
The FWM team have over 70 years combined industry experience and are passionate about helping our clients understand what they are paying for and what questions they should be asking. Feel free to contact the team here straight-talking Find a Wealth Manager team are always on hand to answer your specific questions. Alternatively, you can try our smart online tool to compare firms or you might like to click the banner below to download the free guide.
