Fee focus threatens investment advice: Moneyfarm

Fee focus threatens investment advice: Moneyfarm

The vast majority of savers think investment advisers care more about fees than performance, meaning many turn their back on advice as a result, according to new research.

A report from digital wealth management company Moneyfarm, which surveyed 761 savings account and Isa holders in April, found 81 per cent thought financial advice was biased towards generating fees, rather than delivering better investment performance.

High fees caused nearly half of the investors surveyed to opt for a DIY approach instead of paying for professional advice.

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Paolo Galvani, chairman and co-founder of Moneyfarm, said: “Consumers are becoming increasingly shy of the high costs and the lack of transparency which is often associated with active fund managers and financial advisers – often for good reasons.”

The asset management industry has come under increasing scrutiny over its costs lately, with the Financial Conduct Authority putting more pressure on firms to reduce their prices.

A report in the Journal of Financial Economics last month estimated 26 per cent of the £911bn worth of funds sold in the UK during 2015 were either closet-trackers or managed passively, with excessive charges meaning investors could be paying £1.8bn in unnecessary costs every year.

Mr Galvani stated: “Unless the investment industry’s fees come down, savers will continue to opt out of using professional advice – risking lower returns, in the long-term, as a result.”

He suggested technology could help bring down fees without sacrificing good quality service.

“Products need to be made cheaper, unnecessary costs need to be eliminated and investors need to have more visibility over where their money is invested, what it is doing and how it is performing.”

Darius McDermott, managing director of Chelsea Financial Services, described the findings from the survey as “very sad”, pointing to the Retail Distribution Review which forced advisers to be more qualified.

He said the increasing burden of regulation has meant they have to do a lot of work before giving any advice.

“I’m afraid advice doesn’t come cheap. It is a professional service and there is no reason it should not be looked on in the same way as legal or accountancy advice.”

Paul Lindfield, director and IFA at Manchester-based Sedulo Wealth Management, disagreed with the suggestion advisers focus more on fees than performance, but noted the “internet age” means consumers now concentrate more on getting a cheap deal, sometimes at the expense of quality.

He said part of the problem is the FCA has focused a lot on lowering costs, rather than value.

He said: “A client could invest in the cheapest thing in the world, but if it doesn’t perform, then is it worth it? There is always a cost-benefit analysis to everything.”

Commenting on those clients who choose to go it alone, Mr Lindfield said occasionally “savvy” investors can be successful, but there are a lot of people who do not do well by investing in a DIY approach because they haven’t got the “education, time or inclination” to manage their money.