Stockbrokers, how do they stack up?


Posted by: Swindells FP, on January 20, 2013.


A recent article in the financial press highlighted some pertinent issues that Swindells Financial Planning often comes across when reviewing client’s investment portfolios that are managed by Wealth Managers and Stockbrokers, also known as Discretionary Fund Managers.

It can be the charm of the sales patter and talk of impressive returns in excess of the FTSE 100 and other global markets that can attract people to employ the services of Wealth Managers and they can do a decent job of ensuring you use your capital gains allowance each year, look at tax efficiency and provide you with an income stream.

So ignoring for now the active management and stock picking investment style Wealth Mangers employ, that we would never advocate, what is the catch?

Unfortunately Wealth Managers charge an awful lot for their services. Cost is one factor you can control as an investor and the cost of investing has a major impact on the returns you see.

So, typically, what do Wealth Managers charge to look after your portfolio?

–          An annual management fee of 0.75% to 1.5% per annum of assets under management excluding VAT;

–          Fees when assets are brought or sold, typically 1.2% of the value of the trade;

–          Underlying fund charges if trades are into unit trusts or OEICs;

–          Little or no interest on cash deposits (which in effect is a charge as it could be earning you interest elsewhere);

–          Other hidden costs such as a percentage point here or there on the exchange rate the Wealth Manger secures and the one he gives you.

In the aforementioned article in the Financial Times, Merryn Somerset Webb, researched the typical cost of investing £500,000 with a Wealth Manager, retaining 10% of this as cash. She found that using an example firm investing into a portfolio of unit trust the total cost to the investor would be of the order of £13,125 per annum, or 2.6% of the value of the assets.  Therefore, just to break even in real terms (after fees and inflation) presently the Wealth Manger needs to make 5.3% per annum. This is a disconcerting finding given the UK equities have made an average real return of 5.1% a year since 1900.

Add to this that research last year on the Wealth Management sector found that on average, and with some exceptions, five year returns generated by them was averaging about 3.2%, and the cost for Wealth Management services looks to be devastating.

Here at Swindells Financial Planning we believe that costs matter which is why we operate a transparent charging structure, use only low cost funds and deliver to you the investor the real value that comes with have a robust financial plan that focuses on you and your unique financial challenges.



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