Investors shouldn’t need to crack the Enigma code to work out costs

Posted by Robin Powell on September 15, 2015


It’s probably my age, but it’s as much as I can do after a hard day’s work to walk the dog, eat supper and flop in front of the TV. The thought of having to spend my evening trying to crack the equivalent of the Enigma code fills me with horror.

Yet that’s precisely the analogy the Sunday Times used to describe the challenge faced by clients of St James’s Place Wealth Management in trying to work out how much they’re actually paying.

For those who aren’t aware of it, St James’s Place is a very successful all-in-one advice, fund management and platform business, operating in the UK. A FTSE 100 company, it has £55.5 billion of client funds under management.

Judging by some of the comments in the Sunday Times article, however, SJP clients are pretty fed up with trying to get to the bottom of its fee structure. ”Whenever I have asked about its fees”, said one client, “I don’t get simple answers.. Nothing is transparent.”

As if to prove quite how complex SJP’s fee regime is, it’s a very long article and yet I, for one, was left even more confused by the end of it.

I have no personal experience of SJP, but I do find it odd that people enter into a commitment as big as saving for retirement without fully understanding what they’re paying. The cost of investing, compounded over a typical investing career, is enormous. My experience is that the vast majority of investors, and indeed many financial professionals and journalists, fail to grasp the long-term impact that fees and charges have. For instance, for the premium which the average UK investor pays to invest their pension in actively managed as opposed to passive funds they could buy a family-sized house. That’s right, a house.

Think about it. It’s your money. You’re the one who’s taking all the risk. And yet you’re handing over a huge chunk of your returns — up to half is not uncommon — to other people. They can’t lose. They always get paid, regardless of how badly your investments perform.

We shouldn’t be surprised that the industry doesn’t go out of its way to spell out quite how much investors are paying. Nor can we be too judgemental about the media focussing not on boring old fees but on the possibility of large and short-term gains. To quote Jason Zweig from the Wall Street journal: “Most financial journalism, like most of (the industry) itself, is dedicated to a basic principle of marketing: When the ducks quack, feed ‘em.”

But there is, surely, far more that regulators could and should be doing to help and protect the ordinary investor. It’s complicated enough for the professionals to work out the total cost of investing — advice fees, fund charges, transaction costs and so on — let alone the consumer. Investment fees need to be much more simple and transparent.

My own belief is that people would pay far more attention to investment costs if they were regularly shown, in black and white, precisely what they’re paying and to whom. The investment blogger Cullen Roche hits the nail on the head when he says that “the fees you pay are often pulled out of your account without the investor even noticing. It’s almost like (the industry) has its hands in your wallet without you knowing. The fees disappear from their account like a wire transfer in the night.”

The solution? Every adviser or wealth manager should be required, once a year, to send their client a fully itemised bill — just like a telephone bill. Job done.

In the meantime, I strongly suggest you steer well clear of any company, financial or otherwise, that requires previous experience of code breaking to work out its prices.


(Featured image: Dave Addey)


Robin Powell

Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector.


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