The Truth About Fees
To ensure you can make a fair and relative comparison of the costs incurred when engaging with a wealth manager relative to the wider UK marketplace, below we outline information from both the FCA (Financial Conduct Authority, the UK’s financial planning regulator) and Longhurst’s own research.
Research by the FCA in 2016 and 2017 identified that the average Initial Financial Planning Fee ranged from 1% to 3% of the amount invested (each year).
For Ongoing Annual Charges, the average ranged between 0.5% to 1% (of total funds under management).
Research by Longhurst in October 2018 (using a sample of 12 platforms, fund houses and fund supermarkets) calculated that the Median Platform Charge for a portfolio valued between £50,000 to £750,000 was circa 0.33% to 0.28%.
The Median Annual Fund Charge was on average 1.07%.
Combined Financial Planning/Advice with Investment Management
INITIAL ADVICE = Our research confirmed that the total Initial Advice, Product Charge, and Investment Charge combined ranges on average from 0.5% to 3%. A median charge of 1.75%. We’re aware of wealth managers charging initial fees of 5%.
ONGOING ADVICE = The total average Annual Ongoing Charges ranged from 1.85% to 2.40%. A median charge 2.13%. We’re aware of wealth managers charging annual fees in excess of 2.5%.
What impact do different ranges of fees have on your portfolio?
To help you visualise the extent to which the impacts of these approaches differ, we have provided a cost comparison graph for you.
Here we show you the impact of costs on the fund growth potential for an investor starting with a £1,000,000 account and an investment time period of 30 years.
We compare the following wealth managers and their associated fees:
- Longhurst @ £3,000 Financial Planning Flat Fee + 0.3% Investment Administration Fee + 0.3% Fund Fee + 0.25% Platform Fee
- Wealth Manager #1 @ 2% Total Fee (advice + fund + platform)
- Wealth Manager #2 @ 2.5% Total Fee (advice + fund + platform)
We have attributed a linear 5% portfolio growth return across all managers.
We have not factored in the impact of inflation on the end values.
|Year||Longhurst||Wealth Manager #1||Wealth Manager #2|
The truth is this: Unless you are careful, the fees that you are paying your wealth manager will, over time, transfer wealth from your pocket into theirs.
The impact on your estate over multiple decades could be a life-changing sum of money.
The difference consulting with Longhurst over Wealth Manager #2 makes, per the above example, could amount to north of £1,000,000 after 30 years (pre-inflation).
At Longhurst we work with investors at any stage in their wealth journey, from those who are experienced and seasoned to those who are just starting out.
When we first meet an investor one of our initial planning roles is to review their existing investment accounts and policies.
Here we will establish several things, including investment charges, performance data, and whether any exit penalties exist (which we’d help you avoid).
We will then tell you the truth about them. The whole truth.
It’s up to you to decide what you do next.
THE VALUE OF INVESTMENTS AND THE INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.