In its recent study of the asset management market the Financial Conduct Authority, the investment industry regulator, found that “retail investors do not appear to benefit from economies of scale”. Despite pressure to change, the economies of scale are still biased solely towards the fund managers themselves.
A service that enables families to benefit from pooling their resources while still allowing each individual to invest according to their own needs makes perfect sense. Yet no traditional wealth manager currently offers this service.
This may be because they are then able to charge their clients more, says Henry Tapper, director at First Actuarial and founder of the Pension Playpen blog: “Advisers prefer individual fees, because there’s an awful lot more in it for them.”
How the Netwealth Network fee savings make a considerable difference over time
Note: The average annual fee for traditional wealth managers we reference above is 1.82% and based on research from Numis Securities. Calculated as the average total expense ratio (TER) of the wealth managers listed in research by Numis and Citywire.
In the example above, each individual is already better off by investing with Netwealth compared to with a traditional manager. However, once in a network the rewards grow even more.
If Mary opens a Netwealth account with £250,000, she would pay an all-in annual fee of 0.85% – already far lower than the average UK wealth manager's charge. If she then invites her partner and a parent to the Network and they add an ISA of £75,000 and a SIPP pension of £175,000 respectively, the fees would drop to a reduced all-in annual fee level of 0.70%.
Mary’s son could also be added to the Network and open an ISA for £5,000, yet still pay the same 0.70% as the rest of the Network. He could also increase his savings from as little as £100 a month.
How the fees compare with a traditional wealth manager
In this illustration, the family Network is paying Netwealth an investment management fee of 0.35%. There are also the estimated underlying fund costs of 0.30% per annum and estimated annual trading costs of 0.05%. This brings the all-in annual charges to 0.70%.
If the same family invested individually via a traditional wealth manager, Mary and her husband could each pay an average annual fee of 1.82%, according to research by Numis Securities – more than 2.5 times the all-in charge at Netwealth. What’s more, as her son’s £5,000 falls well below the minimum investment threshold set by traditional wealth managers, he would be unable to invest in this way at all.
The four family members – in this example – would save a combined £4,475 in fees every year by investing with Netwealth compared to the average UK wealth manager. And by taking advantage of the Netwealth Network, they can save a further £1,090, bringing the total fee saving for the family to more than £5,565 a year.
If we assume annual investment returns of 6%, due to the compounding effect of fee savings, over a 10-year period the combined portfolios would be better off at Netwealth by over £84,000.
A flexible alternative
Our family Network offering is unique in the UK. No other provider currently offers a single aggregate fee level across family members and friends, while still allowing each individual account holder to pursue their own financial goals.
Henry Tapper believes this model will prove popular: “There is a gap in the market to cater for individuals keen to get the benefits of investing as a [network],” he says.
Particularly in a low interest rate environment, the potential for family groups or close friends to drive costs down while still pursuing their own investment agenda should come as a unique and welcome change.
Nell Butler has three generations in her Netwealth Network and says, “We all have investments with Netwealth. We benefit from lower fees as a result of the family network while our individual accounts remain private. Everything is transparent which means even someone like me, who is normally frightened of financial matters, feels in control.”
Please remember that when investing your capital is at risk.