We often think about the future, but we often don’t do enough to ensure our future meets our expectations. This inaction is widespread, as our recent survey with YouGov reveals, and it has serious implications for those who hope to achieve their goals as they go through life.
Inertia is widespread – and costly
A survey we conducted with YouGov into how people deploy their savings and investments showed that people are slow to take effective action with their money. This is despite greater attention on the negative impact of high fees, the Neil Woodford scandal and outdated wealth management services.
Our research found that over half (55%) of investors have never considered switching from their current investment provider. In addition, 35% of investors have been with their current provider for more than 10 years, with 63% having been with them for more than five years.
On the face of it, this tendency to stay put – and stay invested – with their provider sounds like a good thing. It is typically better to be invested rather than to leave your money in a savings account. Yet with buoyant markets, even mediocre providers have delivered double-digit returns over the past few years, so investors may not have been too fussed about questioning whether they were getting value for money.
However, the difference between being invested with a traditional wealth manager and a competitive wealth manager like Netwealth can be staggering. If you have £500,000 in a moderate risk portfolio, and pay 1% less in total costs every year, you could be £70,267 better off after just 10 years, rising to £205,256 after 20 years*. Not to mention the benefits from greater ease of use and transparency, and inventive planning tools which let you visualise potential financial outcomes.
What prevents people from making necessary changes?
Recognising that we could benefit from change is one thing, but summoning the initiative to move provider is another. The industry is rarely geared to help, either. Our survey found that even if investors found a better alternative for their money, 50% would be put off by the hassle and stress of changing provider and 39% cited the prospect of exit penalty charges as preventing them from switching.
Anyone who has dragged their heels with changing phone or electricity provider may be familiar with the various biases that hold us back. But being aware of these biases doesn’t prevent them from derailing our reasoning. A way to overcome them is to look at information objectively – and to try and assess how much difference taking an action, or not acting at all, will make to our wealth.
“Our research shows that levels of inertia towards switching wealth management providers is extremely high, yet 64% of investors would consider switching due to high levels of charges which we know continue to persist,” says Netwealth CEO Charlotte Ransom. “This inertia is worrying, particularly taking into account the likely reduction in investment returns over the coming decade and the huge impact that excessive charges will have on investors’ net returns.”
Grimmer news for those who don’t invest at all
Among the respondents to our survey, a sizeable percentage (33%) have never actively invested any of their wealth.
While 52% of those said they didn’t want to take any risks, they should equally be aware of the risks of not being invested. And while we always stress the value of taking a long-term outlook, those who stayed on the side-lines in 2019 alone missed out on a considerable opportunity – up to £9,100 for every £50,000 they didn’t put to work.
Being better with our money now can lead to considerable rewards later in life. These four factors you can control could make a big difference to any of your future goals. And if you wish to talk about tailored guidance to help you meet them, please book an appointment for a time that suits you.
Please remember that when investing your capital is at risk.
* Source: Netwealth. Calculations assuming gross returns of 5% per year, and a difference in fees of 0.65% vs 1.65%.