You are achieving good returns, but are you getting good value?

If you are rewarded with generous investment returns from your wealth manager it is only natural to feel a sense of kinship towards them. Perhaps, then, you don’t look too closely at some of the finer details around their offer – yet if you don’t assess whether you are getting real value for money, you could be missing out on much more.

There are typically more positive years of investment returns than negative. Investors may therefore feel satisfied with their lot over the long term. However, much of the returns generated are usually due to a flourishing stock market rather than the insights of whoever invests on your behalf.


So are you sure you are getting good value when most investors also benefit from a rising tide?


Small differences add up


A traditional wealth manager may charge as much as 2% a year or more to look after your money. This figure is commonly comprised of an investment management fee, custody or platform charges, transaction charges, underlying investment fees and more.


We highlight the range of typical charges here, but it’s worth noting that even a small difference in costs each year makes a significant difference over time. They all add up.


Look at how paying 1% less in fees can give you so much more over 20 years.



Simulated performance numbers should not be relied upon as an indicator of future performance.

The example above is based on the forward-looking gross investment return for a medium risk portfolio of 4.40% per annum and an initial investment of £200,000. The total cost of investing for the traditional manager is 1.86%, based on figures compiled by Numis Securities.



Why do investors pay more?


Wealth managers have traditionally invested in active funds on their clients’ behalf. While the industry has historically been geared around this way of investing, it is much more expensive than taking a passive approach (through index funds and ETFs).


The argument has long been that active managers use their skills to pick the winners in a crowded market, but time and time again research shows this is rarely the case. Taking the US market as an example, in the 10 years to the end of 2019, 89% of large-cap funds underperformed the S&P 500¹. And good luck picking the ones that do better.


It’s the same story in a downturn. During periods of volatility active managers are said to come into their own. This FT analysis highlights that most active fund managers in the US failed again to beat the market over the past year, a failure we also found was evident in the previous two downturns.


So why should you pay more to get less?


The quest for value


Slowly, a culture of delivering value is becoming more embedded in the investment sector – and more in demand by investors. We surveyed over 1,000 respondents recently to ask what matters most to investors today: a third were considering switching from their current provider due to high fees and poor investment returns.


The financial services conduct regulator, the FCA, is also on the case – at least in the fund management industry. As this FT article shows the FCA is assessing whether effective steps are being taken to root out funds that provide poor value for money.


As yet, no plans have surfaced of similar safeguards for the wealth management sector. Investors, therefore, need to have their wits about them – so doing your homework, and a little forensic examination, is certainly worthwhile.


Assessing what’s important


Value for money is often highly personal, and therefore subjective, but if your objective is to make the most of your investments over a certain timeframe you should be able to evaluate if that goal is better served by paying less in fees.


Of course, it is not unusual to feel conflicted even if you determine you are not getting value. Inertia can impose a magnetic hold on investors, and numerous biases may exert pressure on us to do little, even if it is for our own good.


Most investors can overcome a damaging status quo when they realise their investments serve a greater purpose – to help them get more out of life. Consistently good returns can help to progress that aim, just make sure you are getting good value for your money, too.


To find out if your circumstances could be improved – by getting better value – please get in touch with one of our financial advisers.  


Please note, the value of your investments can go down as well as up.


¹ S&P Dow Jones Indices research 

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