Investing and fees

[MaryTheLastTudor]

I'm sorry if this comes across as insensitive at a time when so many are struggling but I'd appreciate some advice.

A few years ago I inherited a substantial sum of money from my parents' estate. Paid off debts. Had a nice holiday. Decent sum left still ~£150k.

I work and intend to continue working. Fairly secure job. Pension etc. Same for DH. Neither particularly high earners but ok.

Money has been sitting in various bank accounts paying minimal interest, some fixed rate ISAs (terrible rate now rates are rising!), premium bonds and a stocks and shares ISA. So effectively losing money via inflation.

My work put on a financial advice seminar with the option of having free personalised advice. I signed up and as expected they want to manage my money. FCA regulated etc.

I am considering this. Their fee is 2% plus VAT as their model is active management rather than passive. Is this a 22% fee?!

I don't know if this is a good move or not. Obviously I can be cautious within their risk model but is this fee high?

Otherwise it is definitely losing value via inflation even if I move it around every so often to a different interest baring account.

What sort of questions should I be asking?

I think if you invest £150k, 2% charges will be £3k and 20% vat on those fees will be an additional £600 cost.

Thanks. Would that be considered high? Seems it's a lot of money before they've done anything and there are no guarantees.

It's well known that management fees eat into your compound returns over the long term. I imagine you will also be paying fund fees as well as IFA fees. The S&P 500 historically returns about 11% (FTSE is about 6.5%), once you factor in the Fed's/BOE's target inflation of 2%, you're looking at 9%, and if you factor in 2% fees, you're now at 7% returns.

Except, your manager will likely never beat an index fund, and depending on your age and how they manage risk overall, they will have more of your assets in fixed income, so you'll never see that 11% equity growth.

That's a lot of money to pay for not much in returns. You can always look up some model portfolios and manage your own money based on one that matches your risk profile and investment timeline.

Initial fee of 2% for giving advice and setting up your financial plan sounds about right.

Of more importance is to be clear about the annual costs of your investments - there will be a product provider admin charge, fund management charges, and an (optional) ongoing advice fee. Have you been given this breakdown?

This adviser isn't from St James Place by any chance, are they???

Financial advisers for the Joe average person aren't very cost effective. Any gains will be eroded by their fees.

Set up a vanguard account and look to invest it into some of their funds, anything that is currently in an ISA can be transferred into a stocks and shares ISA tax free PROVIDED YOU FOLLOW THE PROCESS, do not just withdraw and redeposit.

All of their funds come with fact sheets, all have an element of risk, high risk usually comes with high reward but he prepared to lock away your money for 5-10 years to see good gains. Limit your exposure by investing in multiple funds.

I would have expected 3-4k for initial planning and then an ongoing assets under management of under 1%... maybe around 0.75%.

You have the money to pay upfront for planning, so I would do that, not have a higher ongoing fee which could last decades.

I would suggest joining the Facebook groups Financial Independence UK and Meaningful Money, do searches on Index Funds, S & S ISAs and SIPPs and do it yourself on a low cost platform such as Vanguard. You could also ask your question in the groups. As you say, you have lost out on compound interest with your money sitting in banks. Paying high fees will certainly erode your growth so spend some time doing the research.

2% is very high, due to being “managed” - tell them to take a hike.
Three quarters of all managed funds don’t even match the relevant index.

If it was me I’d put most of it into low-cost stocks and shares index trackers.

Read: Money - Master the game by Tony Robbins.

The only thing you can control about an investment’s overall return is the fee you pay. 2% is high and as a pp mentions, you’ll possibly be paying Fund and trading fees on top. For what? Past performance isn’t a guide to future performance, so not for guaranteed returns.

If I were you I’d go for a low cost platform and low cost index funds, trade as infrequently as possible, check you’re invested in what you want to be (if you’re going to get all diversified/balanced portfolio about it) twice a year maximum and leave it to grow. Depending on when you want to access it and tax implications etc you might want to put some into a pension or ISA wrapper but check your allowances etc.

Thanks all. Glad to know my concerns are valid! I will wait for their report for now (this is all free, I assume they receive some money from my work) and make a decision.

It's a fortunate position to be in of course but I want to be sensible for the sake of my children.

Initial instinct is to steer well clear of this. While £150k is a decent chunk of money, it isn't enough to justify having it 'managed'. How you save/invest the money will depend on your age, your objectives and your attitude to risk. I'm 41 and investing each month over a 10-20 timeframe and I'm keeping my costs/tax low by utilising pensions and S&S ISA both in Global index funds with low charges. If anyone tells you they can manage your money and beat the market, don't believe them!

Dont get a managed fund. The advisors take a large fee and most of the time dont beat a return that an index fund can bring in.

Check out Vanguard. They have index funds and retirement funds that automaticall “rebalance” every year and fees are capped at around £300/year no matter how much money you have in the ISA.

as others have said, don’t pay 2% to have them manage this for you. Also if VAT is 20% it’s a % of the charge so 2.4% not 22% :)