When I talk about performance of pension funds or investment portfolios, investors will get very defensive about their wealth managers. It is almost as though they want to defend their personal decisions to work with their particular financial organisation, even though at the time they did not fully understand or were fully aware of the costs that would be sucked out of their investment.
I am often told that “I am very happy with the returns that I am making on my money,” which raises the question; “I am sure you are, but if you could have had an extra profit of tens or hundreds of thousands of pounds or millions of pounds, would you not have been even happier?” This question of complacency is extremely interesting. It appears that if an investor is getting an acceptable return on their money, they are not particularly concerned with how much of their wealth they are giving away unnecessarily. Why is this?
Is it anxiety, fear, doubt or just not wanting to show a lack of understanding of the financial world. What ever it is that is stopping investors from caring about their money, there must become a point when you say ‘STOP’.
Conventional wealth management institutions have internal systems set up to deliver a particular service and they will much prefer that the status quo prevails, as it is more profitable to them and their shareholders. Why would you expect them to keep you informed of new financial opportunities which exist outside of their organisation? Why would they provide you with an opportunity to move your money to a competitor at their expense, even if it was in your best financial interest? These corporate entities are in business to maximise shareholder value and get rewarded for doing so. They are not in the game to make sure that each investors financial outcomes are catered for, that’s the investor’s problem and if the investor has not considered all the facts, that’s not the corporate’s responsibility.
Let’s not kid ourselves here in the real world, Banks, Discretionary Fund Managers and Wealth Management Companies are in one business and one business only. They are targeted to grow their client bases and to increase funds under management regardless of charges or performance. It is therefore really important for the investor to take back control of their money and ensure that their portfolio costs are kept to the bare minimum. The fee you pay your financial adviser is for the personal service and help that you receive in constructing and managing your portfolio, so this aspect of the fee is not in dispute.
But how much do you give away unnecessarily each year?
Let us look as this example of investors with various degrees of wealth, which they invest in Company A charging the industry average of 2.2% and Company B charging 1.1%. Both companies average 5% growth per year over 25 years and lets look at how performance and compound interest impacts on your long term wealth.
|Amount of investment||Company A 2.2% fees||Company B 1.1% fees||Profit being wasted|
Take a moment to consider how much money you have invested in your pension and investment portfolio and ask yourself why are you wasting so much profit unnecessarily.
What would happen if investors suddenly realised they could still get the same financial return on their money, still have the same consumer protection and still have the backing of global Institutional investment companies, but pay less in investment and management charges for this comparable service. Would these investors still want to leave their capital in these supposedly safe hands of the traditional investment world?
What if by moving their capital and reducing these fees investors could do the following?
- Afford the holiday home they had always dreamed of.
- Could comfortably afford exotic holidays every year.
- Receive additional income, to live their life without fear of ever running out of money.
- Could set aside a nest egg in case additional care was needed in later life.
- Could pass on this additional wealth to their beneficiaries.
This would be additional spending money. This is using money that is currently and unnecessarily funding the financial services industry. So if you really care about your money and would like to consider creating more wealth… stop worrying about your financial future and start planning what you will spend it on.