The money move you must make before the year ends

Amid the festivities, the holiday period should also afford a little time to take care of important financial business. Here, we explain why spending half an hour looking under the bonnet of your investments will ensure that you are on the winning side of how small amounts add up over time.

The implosion of the Woodford Equity Income fund has taught many investors hard lessons about the dangers of betting too heavily on a “star” fund manager. Savers trapped in the gated fund are likely to lose at least third of their money when it is wound-up, if not much more, and exposures are heavy when people have piled into funds recommended to DIY investors.

Ensuring that your investment portfolio is well diversified and follows a solid asset allocation strategy insulates you from the vagaries of the markets, and is the safest way to build wealth. However, there is a further health check on your investments you must carry out as soon as you can.

Paying more than you need?

New research* suggests that almost a quarter of retail assets invested in UK funds are still held in pre-RDR share classes which might pay trail commissions to financial advisers, meaning that investors may be paying 0.59% more than if they invested in a “clean” share class and could have been doing so for a period of many, many years off the back of a relationship that is not meaningful any more. The RDR abolished commissions back in 2013, and “fully loaded” share classes are now legacy holdings. If this applies to you, you should talk to an adviser about how to make changes to your portfolio in the best possible and prompt way.

This difference in costs may seem relatively small, but over the long term will compound to make a significant impact on your returns. Remember, that you should always think about returns net of all fees.

New research suggests that almost a quarter of retail assets invested in UK funds are still held in pre-RDR share classes which might pay trail commissions to financial advisers, meaning that investors may be paying 0.59% more than if they invested in a “clean” share class

This goes for management fees and every other cost associated with investing your money (and other financial advice), and you should take a thorough look at everything you are being charged to make sure that you are getting the best possible deal. Any good provider will offer a clear fee schedule for you to scrutinise and will explain anything you ask about with alacrity.

Light bulb

Top Tip

It’s easy not to want to get into the “fine print”, but it really does pay to make sure that your investments are being managed as cost-effectively as possible. When I tell users about the difference that even half a percent can make to the size of a nest egg like a pension pot, they are usually very quickly inspired! Always think of performance as being your gains net of fees, and don’t think that higher fees are necessary to achieve good performance. 

Lee Goggin - Co-Founder

Lee Goggin

Co-Founder

Ask for the best possible deal

Read our Guide to what to expect from wealth management fees so that you feel more empowered to discuss costs and negotiate. Remember, even in a happy relationship, it is healthy to periodically review your wealth manager to ensure that you are on the winning side of how small amounts powerfully add up over time.

Remember, even in a happy relationship, it is healthy to periodically review your wealth manager to ensure that you are on the winning side of how small amounts powerfully add up over time

Leveraging the investment management skills of a wealth manager is likely to lead to a significant uplift in your investment performance, not to mention a much tighter level of control over risk, which naturally also hugely impacts long-term returns. The kind of over-exposure to Woodford’s fund that many DIY investors fell into is the antithesis of the deep due diligence and strict investment policies that wealth management firms apply.

Wealth managers will also ensure that you are invested in the most cost-efficient way possible and are often able to offer cheaper institutional share classes that retail investors cannot access. This is a very much underappreciated further way that professional money managers add value.

Make no mistake, increasing your returns or decreasing costs by even a modest amount can add up to a huge difference in your eventual financial position. And, the sooner you take action to achieve one – or as is more than possible, both – the better. Harness time and the power of compounding to your benefit

Make no mistake, increasing your returns or decreasing costs by even a modest amount can add up to a huge difference in your eventual financial position. And, the sooner you take action to achieve one – or as is more than possible, both – the better. Harness time and the power of compounding to your benefit.

Small difference really add up

To inspire you, let’s look at the magnitude of difference just half a percentage point can make. If you invested a £200,000 nest egg over 30 years at an annual growth rate of 7%, and paid 1.5% in fees, you would end up with nearly £1m in your pot. If you paid 2% in fees, your ending position would be more like £865,000 – a massive difference of £130,000, allfrom just half a percent difference.

By exploring what the best wealth managers out there can offer, you can find a provider who can offer more attractive returns, better risk management and reduced costs all at the same time. If such a small saving can make such a large difference, imagine what are larger one could do for the health of your wealth.

Calling compound interest “the eighth wonder of the world”, Einstein said that those who understand it earn it, while those who do not are doomed only to pay it

Calling compound interest “the eighth wonder of the world”, Einstein said that those who understand it earn it, while those who do not are doomed only to pay it. Ensure that you are on the right side of that equation. Never pay more than you need to for your investments to be managed, and ensure that you get the very best performance your risk-profile will allow.

Give our smart search tool just a few details to see which wealth managers best suit your needs, then compare like-for-like to get the perfect fit for you. Alternatively, contact our expert team to discuss your needs further.

* November 2019 research from Fitz Partners

We're Here To Help You

Find your best wealth manager with our 3-minute search

Get Started

We're Here To Help You

Find your best wealth manager with our 3-minute search

Get Started