This is the time of year when people make financial resolutions, and “stop wasting money” is one of the most common.
Which? recently ran an article on the subject, in which it claimed you can save a whopping £4,000 a year by giving up takeaways, cigarettes, alcohol and unused gym membership, and by reducing your food waste.
Of course, all needless expenditure is wasteful. But something that never ceases to amaze us here at RockWealth is how little attention people pay to what they spend on investing and financial advice.
Fixed versus percentage fees
Good financial advice is very valuable, but many clients are paying too much for it. That’s because most advisers charge percentage fees — known as ad valorem fees.
In other words, each year the client pays the adviser a percentage of their investable assets.
Our view, here at RockWealth, is that this is an outdated model which isn’t in the client’s long-term interests.
“Paying percentage fees can work out very expensive,” says RockWealth Brighton’s Steven Williams, “especially with the effects of compounding. It’s particularly unfair on those which larger portfolios.
“That’s why RockWealth charges fixed fees for both initial and ongoing advice. What the client pays is based not on how wealthy they are, but on a combination of value added, complexity and time.
“Clear and transparent charging and value for money are part of core values.”
Evidence-based funds
Something else that people tend to overpay for is investment management.
Most advisers tend to recommend actively managed funds. These are funds that try to beat the stock market through a combination of picking stocks and market timing, or getting in and out of the market at the right time.
But the evidence shows that the vast majority of active funds fail to beat the market over the long term.
For that reason, we put our clients’ money in funds that simply aim to capture the returns of the market, or particular segments of the market, in an efficient and low-cost way.
This type of investing — we call it evidence-based investing — is very much cheaper and generally leaves investors with considerably higher returns.
“As clients become more knowledgeable,” says Steven Williams, “they’re increasingly seeking out financial planners, like ourselves, who use index-based funds.
“They want every pound to count, and not waste their money on expensive fund managers who rarely add any value,
“In ten years’ time I believe that most well-informed clients will be using evidence-based investing.”
Let’s talk
Are you paying a set percentage of your assets each year to your financial adviser? And is your money invested mainly in actively managed funds? If the answer to either of these questions is Yes, you owe it to yourself to seek a second opinion.
To arrange a meeting with Steven, call him on 01273 699 267 or drop him an email at Brighton@rockwealth.co.uk.
Remember, every unnecessary pound you spend in fees and charges is one pound less in your retirement pot.