HNWIs are proving keen to explore their options around pension drawdown, equity release and buying in big on the benighted tech sector this month.
Affluent investors are increasingly recognising that small differences in fees add up to a big difference in overall returns, but they are also recognising the broader value of professional advice too – particularly when it comes to the tougher financial planning questions.
Recent media coverage really shone a light on the range of fees being applied across the industry, helping cement investment management costs as our users’ number one concern.
Our users have definitely picked up the message we so often promote via our Knowledge Centre, that seemingly small increases in returns – or decreases in costs – compound over the long term to make a huge difference to your eventual position. This year has seen fees and their impact become more transparent than ever, and investors seeing very plainly in black and while how much of a drag on returns the costs of investing can be.
If you were to invest *£200,000 and achieve 7% annual growth over 30 years and pay 2% in fees you would end with a nest egg of £865,000. However, if you paid 1.5% in fees, you would achieve a pot of almost £1m – a massive difference of £130,000, all from just half a percent difference.
It is healthy to review even satisfactory relationships on a regular basis to ensure you are getting the best deal for your money. And you should certainly not enter a wealth management relationship without carrying out a like-for-like comparison of several providers. Entering a relationship is an important decision and a robust approach is to meet a shortlist of best-matched wealth managers through our smart matching tool and go along to meet potential advisers having read our Guide to what to expect from wealth management fees.
In fact, this is a valuable read whether you are new to wealth management or a longstanding client exploring alternatives and will put you in an empowered position to make sound comparisons and even to negotiate. We only work with wealth managers committed to better value fees, but those with substantial sums to invest can often negotiate on rates and, as we know, you should seek every little difference you can.
Fees have been front of mind for our users, particularly for those already in relationships who are wondering if they are getting the best deal for their money. But we’ve also noticed far more people talking about the value of proper financial advice – in the widest possible sense of the term.
It’s not just that we live in such uncertain times, although that is certainly part of the issue. It’s the fact that advisers make the nebulous concrete and help you navigate financial challenges that can be fraught with complexity, both in terms of the hard numbers of investment and financial planning, and the softer, emotional side of things.
Fascinatingly, new research from deVere Group has revealed that when it comes to the subjects we are least comfortable broaching with family and friends, money is a far bigger taboo than sex, religion or politics. No one is denying that there are lots of complexities bound up in matters of income, taxes, pensions, debt, savings and expenses, yet tackling wealth management challenges with the maximum success often depends on laying down plans well ahead of time and taking a holistic approach to managing wealth.
Procrastination is the enemy of achieving your financial goals, and it’s really gratifying to hear our users increasingly talking about how valuable it has been to talk things over with a professional. A great many of the High Net Worth Individuals who come to us to find professional advice are driven by financial planning needs such as strategies for business succession or passing wealth down through the generations tax-efficiently, and you will find that wealth managers will have a range of case studies to share where they have helped people just like you.
People are sometimes unsure of just how much value a wealth manager will add, or are fearful of complex fee schedules. Costs can vary slightly due to the many moving parts involved, but you can rest assured that all good wealth managers should be able to give you clear understanding of costs and an indicative all-in fee figure (called a Total Expense Ratio) for managing your portfolio. Combine this with typical returns for a client like yourself and you will have a good idea of how much better off you will be using a wealth manager.
Also in the news – and therefore on our users’ minds – has been a new, much talked-of book in which William Sharpe tackles what he calls the “nastiest, hardest problem in retirement”, namely, the challenge of ensuring you have enough money to sustain your desired lifestyle in retirement but also that you will not run out of money.
The Nobel Prize–winning economist, who is best known with the eponymous ratio for risk-adjusted returns, performs an important service in highlighting what is often known as “longevity risk”.
We’ve certainly noticed an increased appreciation of this issue in our conversations with HNWIs users since pension freedoms were introduced, but we fear that others may not be taking a realistic view of just how much they need to save into a pension – and how hard they will need to make those investments work to have the retirement they deserve. Even a well-funded pension may not be a well-managed one, meaning where returns are maximised for your risk-profile, and costs keep to a competitive level.
It is vital that you have a professional’s guidance across the lifecycle of your pension planning, from when you are building up funds through to when you are drawing from them. The asset allocation your portfolio will need to change quite dramatically over time depending on your stage of life and risk-profile. You should also sure to speak to an adviser before making any big decisions as it is easy to make costly errors and get hit with hefty tax bills. For instance, it is thought that up to half of people transferring a final salary pension are making an expensive mistake.
The end of the year seems to be inspiring affluent individuals to want to get their financial houses in order even more than usual, and we want to encourage that spirit as the festive season really gets under way. The holidays should afford at least some time for reflection and planning among the celebrations, and choosing to invest that in considering your wealth management plan could be one of the best decisions you ever make.
Why not start the new year by meeting with a few wealth managers to see what they could help you achieve? You might be surprised at how much more quickly you could reach your goals.