Wealth management fees: Know the value as well as the price

Wealth management fees get a bad rap. Understand the value a good wealth manager can bring and put the fees under the microscope writes Wendy Spires.

In these cost-conscious times, the issue of wealth management fees remains high on the agenda. Journalists eagerly jump on instances of what they consider to be poor value and invariably suggest that DIY investing would deliver similar results for investors in terms of performance for a far lower cost.

In these cost-conscious times, the issue of wealth management fees remains high on the agenda. Journalists eagerly jump on instances of what they consider to be poor value and invariably suggest that DIY investing would deliver similar results for investors in terms of performance for a far lower cost.

Of course, this all makes good newspaper copy at a time when some people are still sceptical of the financial services sector. It is also the case that the proliferation of online trading platforms means that investing is cheaper and easier for the individual than ever. But while some investors can do well for themselves by running their own portfolios, it would be over-simplistic to suggest that the cheaper DIY option is always the best choice. There are myriad reasons why engaging a wealth manager could actually represent very good value indeed. (Read our top five reasons to have a wealth manager here).

Do you really want to Do-It-Yourself?

In our latest poll, we found that 39% of our users do some DIY investing, but crucially a third of those said they had reached a point where they didn’t have time to manage their investments any more. This is actually a very often overlooked part of the puzzle. Active investors obviously take a keen interest in the markets and macroeconomic developments, but – as they tend to soon realise – properly monitoring and managing an investment portfolio can be a very involved task. It can also be quite a stressful one in what continues to be an extremely volatile investment environment on a whole host of fronts.

Geopolitical strife, an oil price war and a General Election looming in the UK are long-term themes, but the stunning currency movements seen in recent weeks have underscored the fact that dangers to portfolios can come from many quarters. The removal of the Swiss National Bank’s currency peg to the euro sent the Swiss franc soaring by as much as 40%, causing the stock market to tumble amid fears for Swiss exporters. Shortly after, the victory of the anti-austerity Syriza party in the Greek national elections sent the Euro crashing to an 11-year low and sterling soaring. The interlinking of economies, currencies and industries globally can have huge implications for investors’ portfolios – even if they hold a fairly small selection of what seem to be quite straightforward investments – and it is easy to see how keeping on top of all the relevant developments can start to feel like a full-time job for the DIY investor.

Many investors are busy professionals or business-owners who find they simply don’t have as much time they initially thought they had to monitor and manage their investments. Even those with sufficient time on their hands can often find that the pressure of making big-stake investment decisions in a highly-uncertain environment is something they are increasingly uncomfortable with. It is instructive to remember that understanding the implications of short-term events and longer-term trends is not something that even professional wealth managers undertake alone: institutions have whole teams of people dedicated to unpicking the challenges and opportunities the investment environment presents each day.

Price

Engaging a professional wealth manager does involve paying a premium, but any assessment of value for money needs to factor in the all the behind-the-scenes expertise and infrastructure that premium includes. Having top-quality research and investment expertise applied to the management of your portfolios is likely to hugely boost your return potential, while also minimising risk, which could mean that the DIY route isn’t actually that much cheaper when you think about things in terms of net gains. Furthermore, some would argue that it’s hard to put a price on the peace of mind that comes from having a highly-experienced manager to advise you on your investments. (Read our blog here about the false economies of DIY).

Access to investment expertise and the psychological comfort that comes from proper risk management are, however, only part of the story. There are a whole host of ways that wealth managers can deliver more value than you might think. It is often the case that retail investors are buying more expensive financial instruments than their counterparts who have gone to the professionals, simply because institutions can use their buying power to buy more cost-effective fund units, for example.

DIY aficionados may be unused to thinking of wealth managers as being concerned with getting good deals for their clients, but actually this is a real focus which can see clients save money in myriad ways – and not just in their investments.

It may surprise you to know, for instance, that private banks are often able to offer high-value mortgages on terms very much more attractive than what might be available on the high street; they may also be able to offer a Lombard loan against your investments at a very competitive rate.

Service and Expertise

The point with wealth management fees is that engaging a professional institution opens the door to a whole host of experts and services which could both make you or save you some serious money over the long term. Therefore, while the headline costs of DIY may be smaller, investors need to be aware that there is a reason for that. Those going it alone receive no advice; nor do they have someone looking at their wealth holistically to see where clever planning and structuring can add serious value.

So, while the costs of wealth management are often stated quite baldly in the mainstream media, investors weighing up their options need to appreciate the subtleties behind the headline figures. It is all too easy to know the price of something without fully understanding it’s value and it may well be that – to you -expertise, peace of mind and broad capabilities a wealth manager represents are worth paying a little extra for.

Many of the firms on the findaWEALTHMANAGER.com panel have made cost-effectiveness for clients a real focus. To start the process of finding your best-matched wealth manager, just take our short online questionnaire.

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