James ConeyOct 28 2020

Investors need to know how much they are paying

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I realise that advisers think journalists are more obsessed by this than clients are, but I would argue that is is because we appreciate how damaging excessive charges can be.

Paying one percentage point more than you need equates to a loss of 50 per cent of your profits over 20 years; that is the stark fact I like to remind everyone of.

Value is important too, as I have argued many times before, but you can not understand one without knowing the other. You may be happy with your profits, until you find out that someone else has made twice as much as you.

Paying one percentage point more than you need equates to a loss of 50 per cent of your profits over 20 years

It is part of the issue over why client outcomes are so hard to assess.

Also, I do not buy the argument that investors are not interested in cost.

That certainly was the case 20 years ago, but the rise and rise of low-fee trackers (putting aside the rights and wrongs of this as an investment strategy) is testament to the fact that ordinary savers are interested in what they pay for a service.

Given the environment we are in, it is flabbergasting that the government has decided to push ahead with mandatory pension statements without costs included in them.

I am taking part in an industry panel event next month in which the issue of transparency and investor communications will be at the heart of the debate.

Spoiler alert: I am very much in favour of empowering investors with information to help them make better decisions.

I am never entirely sure that civil servants are best placed to be able to understand the decisions ordinary investors have to make.

Does anyone in a government pension scheme care about cost? Of course they do not, it is just not something they have to worry about.

It is exactly the same kind of problem that held up auto-enrolment for decades, because Whitehall mandarins with wonderful pensions did not understand why everyone else did not have one too.

Besides, lots of them have degrees from London School of Economics, Oxford and Cambridge, which most normal savers do not have.

Clearly with the growth of defined contribution pension saving we need to have better accountability, and simplified statements are a major stride towards having a pension system that allows people to make informed decisions.

And we know that having real visibility in costs has been a great route to reducing overall investment costs across the industry, with no tangible impact on performance.

Indeed, the margins of the big investment houses just keep getting better.

Without cost disclosure, investors are never going to know if they are getting value for money. The government’s logic is that on a two-page form investors would already be bombarded with too much information. I do not believe it.

Let’s allow pension savers to have the choice over what information they want to receive. Leaving it in the hands of the industry means they only get one side of the story.

Self-employed pensions

Did the death of commission also spell the end of self-employed pensions? Maybe, but not necessarily.

Research reveals the slow decline of pension saving among the self-employed, with a sharp fall in contributions since 2000.

It was suggested that this was mostly to do with the fact pensions for the self-employed were largely sold and not bought.

That is, once the commission model ended for advisers then self-employed people stopping taking them out because they needed someone to cajole them into them.

It is a fine rhetoric, but does not quite match up with the figures.

Trail commission on new products ceased in 2013; depolarisation came into force in December 2004. This all came long after the fall in pension saving began for the self-employed.

Really, the biggest change to hit the self-employed was the reduction in the annual allowance from £250,000 to £50,000.

The self-employed would often use the sale of a business to invest in their pension over one or two years. Cutting the allowance made this impossible.

A fine example of another well-intended government crackdown having severe unintended consequences.  

Non-tangible assets

My 10-year-old son is always pestering me to buy Robux, a type of online currency used to play the game Roblox, which is a popular app with his age group.

I have explained to him that this is essentially swapping actual money you can buy physical assets with for something fake that does not exist. He seems to understand.

This is what I thought of when I received a press release from auction house Wilsons hits my inbox. Among the luxury items for sale are 0.25 to 1 Bitcoin.

What kind of person joins a bidding war for a non-tangible asset?

I will tell you who: the type of person who buys expensive watches and fast cars to show off with while the rest of the country is suffering.

James Coney is money editor of The Times and The Sunday Times