The Doctor’s Surgery
From these figures, it is easy to see why fund managers lobbied hard for so long to avoid revealing exactly how much they charge. And even now, fund managers do not have to publish the extra information in clients’ pre-sale documents for another year. You have to ask a financial adviser for the figures.
Within the investment industry, fund managers are not the only people who charge percentages. There are ‘platforms’ – online places where you can buy and sell shares and investment funds and which can be cheaper than dealing directly with stockbrokers or fund managers. They are used partly by DIY investors but also by financial advisers, who are another level of people taking an annual percentage of your money.
A minority of advisers charge an hourly rate (between £75 and £350) or flat fees but most prefer to take a percentage of your money. This is broadly 1 to 3 per cent to start with, and then between 0.25 and 1 per cent every year, though you are unlikely to find the figure published openly on any firm’s website.
Who decides what is a reasonable percentage to charge? They do – the people imposing the fees; and they set the figure as high as they can get away with. The rate bears no relation to how many hours’ work is involved.
If your investments become worth more, which is after all the whole object, you pay correspondingly more, year on year. If you lose money, the adviser still earns a healthy income.
They argue that a percentage model works out better for clients with little money, but this means the wealthier clients are, without any choice, subsidising those who are less well-off.
Another argument is that running an advisory firm is expensive. But who drives a top-of-the-range car: you or your adviser?