It can be tricky to compare wealth managers’ fees on your own, but using us to compare similar firms’ offerings side by side and then asking just a few key questions can put you in control.
I’m often asked to comment on fees by the press, given that findaWEALTHMANAGER.com was launched with the mission of making it easier to compare wealth managers and so to find the best possible deal. Just last month, I featured in this piece in The Times.
When it comes to discussions about costs, investment fund fees tend to be the focus, rather than investment managers’ fees – the all-in costs of having your money managed. Although it is vital to appreciate how much each part of your portfolio costs, the better to be able to “shop around” if you are a DIY investor, most people of significant wealth tend to delegate management of their assets to the professionals past a certain point. For them, understanding the drag that all costs and charges will have on their investment returns is the name of the game.
Similar “dishes” (for which read, portfolios), or even one made with exactly the same ingredients (investments), can fetch very different prices, depending on who is serving it up and how
The difference is akin to focusing on the cost of ingredients in a restaurant meal, rather than the menu price. The former is easily understood and pretty transparent, while the latter is far more of a moveable feast, if you’ll excuse the pun. Similar “dishes” (for which read, portfolios), or even one made with exactly the same ingredients (investments), can fetch very different prices, depending on who is serving it up and how.
Your task when weighing up wealth managers is to determine what represents good value to you, in the round. Here is how.
The first thing to consider when shopping for a wealth manager is to compare like-for-like as far as possible. That, admittedly, can be a hard thing for anyone who doesn’t know the crowded and highly varied UK market to do – which is exactly why we launched our service.
Once you have a shortlist of firms offering broadly the same thing in terms of breadth of investment offering, individual attention from an adviser and any additional services you might need like financial planning advice, it’s time to get granular on fees. Even a seemingly small difference can add up to a massive one when compounded over the years.
TER: the big question
If you remember nothing else, ask for the firm’s Total Expense Ratio – this is the total cost of running your portfolio, all costs and charges included.
A headline Annual Management Charge might not be very meaningful at all since there may be other costs, like brokerage and custody fees that firms necessarily add on in different ways depending on their model. A TER ensures you really will have a good idea of final costs, and therefore how much of a drag on your investment returns these will be.
If you are dealing with a reputable wealth manager, they will be transparent about fees. However, it can be difficult for them to give you definitive figures without knowing what your needs are. This is why you will seldom find such figures quoted on firms’ websites. By presenting your scenario to a shortlist of firms and then asking for a Total Expense Ratio for the portfolio they propose, you can feel far more confident that you are comparing like for like and getting the best possible value.
Pay a premium only by choice
We often find that our users are happy to pay a small premium for a premier service or superior returns, but make sure that this is a conscious choice. If a wealth manager is charging a TER in excess of about 2% then do not be shy about asking them to justify that with performance figures going back a number of years, and for a risk-profile similar to yours (you should ask performance data over several periods in any case).
We often find that our users are happy to pay a small premium for a premier service or superior returns, but make sure that this is a conscious choice
Some really solid performers will only charge 1.5% or even less for a significant portfolio, and while giving really responsive, personal service too. In this context, the many people who are being charged five times that or more by certain firms would be right to feel aggrieved.
Make sure you get what you pay for
The bottom line always has to be your bottom line: keep costs down and performance as high as you reasonably can, and don’t be afraid to change provider as soon as disappointment sets in. It is easier and quicker than many might fear. A new provider will do the bulk of the work for you and might even offer you a fee holiday to sweeten the deal too.
You do get what you pay for in wealth management, as with everything else – but you must insist that you really do get investment returns and service standards which warrant the price
You do get what you pay for in wealth management, as with everything else – but you must insist that you really do get investment returns and service standards which warrant the price. If a potential provider can’t be transparent and prove that they do offer real value for money, then avoid them. Our panel features scores of wealth managers which have committed to better-value fees and which have great track records and reputations. It costs you nothing to compare a shortlist of your best-matched wealth managers through us – and it might make and/or save you a great deal.
The investment strategy and financial planning explanations of this piece are for informational purposes only, may represent only one view, and are not intended in any way as financial or investment advice. Any comment on specific securities should not be interpreted as investment research or advice, solicitation or recommendations to buy or sell a particular security.
We always advise consultation with a professional before making any investment and financial planning decisions.
Always remember that investing involves risk and the value of investments may fall as well as rise. Past performance should not be seen as a guarantee of future returns.