Do you dread seeing your wealth manager? Has your relationship been deteriorating for a while, but you don’t know if it’s time to say goodbye? There are three key signs it’s time to take definitive action and find a better wealth management relationship, explains Lee Goggin, Co-founder of Find a WEALTH MANAGER
So, how do you know when it is time to break up?
Here are three red flags to watch out for:
- Opaque and excessive fees
- Complacency and poor performance
- A lack of mutual trust
Opaque and excessive fees
Would you find it acceptable to be charged £100 for a sandwich at one deli compared to just £5 at the supermarket just next door? Arguably, most people would scoff at being given such a bad deal.
However, a few wealth management providers and brokerages seem to be doing just that. And clients are unwittingly falling into their trap.
Some investors are being slapped with hefty management fees and suffering a heavy drag on investment performance due to excessive fees or their portfolios not being constructed in the most cost-effective manner.
Shockingly, anecdotal evidence suggests that as much as 40-70% of an investor’s real return can be swallowed up by management charges. What’s more, research carried out by Numis Securities has highlighted huge variation in the fees levied by institutions, with some charging up to four times more than their rivals.
Investors are also often shocked to find that the fees they are paying do not cover everything. Transaction fees, charges on cash balances, custody and nominee costs and VAT are just some of the lesser-known or uncommon charges that may be levied by some wealth managers. If you are accessing a wealth manager via an IFA who has chosen to outsource managing your portfolio you may find that a further 1% or even more is being siphoned off.
The common practice of levying fees based on a percentage of assets under management (known as ad valorem fees) arguably made it easier for wealth managers to be less upfront about their charges. The industry is now moving towards presenting investors with all-in fee schedules up front – known as Total Expense Ratios – and if you feel transparency is lacking with your provider, certainly consider bringing this up.
Back in 2012, the regulator mounted a crackdown on the clarity of charging, so investors should no longer feel that the fee structures of wealth management firms and private banks are shrouded in mystery and hidden away behind lengthy disclosure documents.
Alas, progress has not been even across the industry: the UK’s watchdog, the Financial Conduct Authority, released a damning report two years ago highlighting that as many as 73% of financial advisory companies were unclear about their fees.
Is your wealth manager one of them?
The next question indubitably rises from this – do you know how much you could save if you switched to another wealth manager?
Our research shows that you could actually save a very significant amount. On average, our clients who have invested £2m through a retail fund, or an IFA, could achieve savings of around £22,000 a year – which could then be ploughed into other investments.
Do a little number crunching to determine how much you were charged and how much you made over the last five years to build a concise and fairer estimate on whether you’re getting your money’s worth.
Then, ask yourself:
Are the fees being levied by your wealth manager eroding your portfolio’s long-term performance? Would you appreciate greater transparency to help you see where leaks in your portfolio’s profitability might be coming from? If the answer is “yes”, then perhaps it is time to move on and look for someone new.
Complacency and poor performance
Complacency often seeps into relationships over time. So, even if your wealth manager has performed exceedingly well in the past, it does not mean that your portfolio will continue to see anticipated returns or your finances will be in order in the years ahead. Your needs and lifestyle will inevitably change over the course of your life and an adept wealth manager will be able to adapt to your evolving profile.
In order to determine if you and your wealth manager are still in sync, we suggest evaluating their performance using this objective method:
First set a benchmark and determine the level of performance that is acceptable to you; be realistic, however, as the attractive returns of past decades are far harder to come by in today’s investment environment.
Then, analyse the investment performance reports your wealth manager has shared with you in the last three to five years. Has the portfolio remained fit for purpose, performing broadly as your financial objectives require, or has it drifted away from the asset class mix agreed in your initial investment mandate or disappointed you more often than not with lacklustre returns?
Ask your wealth manager about their future plans for your portfolio. Do they only give you a high-level overview or go into precise detail illustrating the risks involved, as well as the potential rewards? A wealth manager that does the latter is clearly a better long-term bet.
Has your wealth manager tried to dodge questions about a serious loss? A wealth manager who tries to avoid hard questions is not worth having. Hold on to the advisor who takes the time and effort to have a frank discussion when things don’t go exactly according to plan. Growing your wealth is unlikely to be an entirely linear journey, which is why you should invest over the long term and be prepared for a few bumps in the road.
Another clear sign that you are in competent hands is when milestones are reached or exceeded. Did you manage to reach your financial goals within the timeframe you both agreed on?
A lack of mutual trust
The reputation of wealth managers lies in their ability to build a relationship with their clients. As H.L. Mencken wrote, “It is mutual trust, even more than mutual interest that holds human associations together.”
Poorly-performing wealth managers are usually sales-oriented, and they will be ambivalent when it comes to discussing your needs. They might even dismiss your valid concerns.
On the other hand, an exceptional wealth manager would be an expert at relationship management and will be able to ask you the right questions, answer you promptly, provide lots of reassurance and put you at ease. They will pride themselves on being your trusted wealth advisor.
Have a look at the following list and determine which ones apply the most to you:
- Do they see eye to eye with you on your financial objectives?
- Has your wealth manager enquired about your retirement and estate planning plans? (Even if they are solely an investment manager, a good advisor will need a holistic overview of why you are investing.)
- Do they check in with you regularly to see if your needs have changed?
- Do they understand you?
- Have they given you impartial advice?
If you’ve answered “no” to three or more of these statements, the time is definitely ripe to get another wealth manager on board.
Breaking up is hard to do, but inertia could cost you dearly.
Wealth management is a premium service and you should not put up with a strained relationship that no longer works. A wealth manager who is not transparent; is ignorant or complacent; and who isn’t even bothering to have a conversation with you is simply not worth your time or money. It would be best to sever ties and to hunt for a better match. The process of swapping firms is a lot easier than you expect.
As a start, explore www.findaWEALTHMANAGER.com. Talking to someone new might just give you the clarity and impetus to make a firm decision about where to entrust your financial future. The site’s proprietary algorithm will connect you to wealth management firms based on your needs and preferences, and take all the guesswork out of finding a provider perfectly suited to you. You can then choose for a maximum of three best-matched wealth managers to contact you and provide a free, no-obligation consultation to help you get more out of your hard-earned money.
If you suspect your wealth could be working harder, you have nothing to lose and everything to gain from considering alternative wealth managers. See which wealth managers match your profile with our smart online tool or if you need some help researching and comparing firms click the banner below for our free guide.