In January 2017, Capital published our ‘Flat Fee Guide’, which was written to explain our detailed opinion, that the UK wealth management ‘industry’ was broken. The word ‘industry’ is used because according to the Investment Association the sum of money invested by their members is about £7 trillion, and that is money on a truly industrial scale.
The guide is broken up into chapters to explain key themes including: costs; cross subsidy; contingent charging and conflict of interest.
One key differentiator for Capital, who are innovators in the UK financial planning industry, is that our advice has been charged on a flat fee-for-service basis for some time now. That means it is expressed in pounds and pence, not percentages, which is totally transparent and fair.
As part of our guide, we prepared a Tool Kit that can be downloaded from our website. One of the features was ‘The Ten Questions to Ask Your Wealth Manager’. This was for investors who are already delegating investment management of their wealth to a professional fund manager/stockbroker/private bank, or were considering it.
We listed the questions that are rarely asked when dealing with a wealth manager, and which in most cases are never willingly disclosed.
It is refreshing to note that The Times newspaper contacted our CEO Alan Smith for an interview on the topic, and their article was published in The Times on Saturday 6th January. It is written by Mark Atherton (Investment Editor – Money and Property) and is called “How to interview your financial adviser”(the Times has a paywall but you can register easily to get two free articles a week).
In January 2018, a major related piece of legislation called MiFID II came into effect for the wealth management industry. The aim of the legislation is to empower consumers by giving them access to the true and total costs incurred when their money is invested. And the costs must be expressed in pounds and pence for the first time.
All costs are compiled into an aggregated annual charge, as well as showing the investor the long-term effect of these charges on future growth and returns. A small percentage each year doesn’t look much at all on paper – but looking ahead 20 or 30 years the gulf between outcomes would shock most investors. This is a significant unseen transferal of wealth from the investor and their family to the wealth management firm and shareholders.
MiFID II is both radical and innovative, to such an extent that despite a long notice period, many wealth management firms are not yet in a position to properly account for and publish the aggregated cost (at the time of writing this article in January 2018).
Actual evidence and experience clearly show that when it comes to investing, costs matter.
The consumer will be the final arbiter of what works best for them, but now at least the investing public will have access to the total, and formerly hidden, cost of investing and the impact these charges have on their future wellbeing.
“If every buyer knew every seller's price, and the seller knew what every buyer was willing to pay, everyone in the market would be able to make fully informed decisions and society resources would be distributed efficiently.” Adam Smith. Wealth of Nations 1776.