Investors are in the dark over the cost of advice and they don’t really understand how platforms work or how much they cost, according to research from AFH Wealth Management.
The firm surveyed 221 IFAs and 1,026 UK adults with over £100,000 ($125,309, €111,245) in personal savings who had seen a financial adviser.
Its report, ‘What price advice?’, found that adviser charges are a source of confusion:
- 8% are not clear about what they pay for;
- 8% don’t understand the fees they pay; and,
- 8% aren’t even aware they pay fees.
Paying for platforms
When it comes to adding platform fees into the mix, 41% of investors don’t know the impact they have on their investments.
Of that group, 27% are aware of the fees but not sure how it affects their investments.
Worryingly, 13% are not aware of the platform fees they are paying.
According to AFH, this trend is not just restricted to those will smaller sized pots.
Nearly a quarter (23%) of those with personal savings or investments of more than £750,000 are not aware “of how platform fees eat away at their investments”.
Get a pen and paper ready
As part of its research, AFH asked investors to estimate how much platform charges cost.
The scenario they were given was a £50,000 investment over 25 years on a platform charging 0.3% – assuming a 5% per annum return.
The overwhelming majority undervalued the impact the fees would have.
On average, investors estimated it would cost £7,428, which is more than £5,000 below the true cost of £12,500.
Given the increasing spotlight on fees and a wider push to drive down costs, 22% of advisers agreed that it is becoming more difficult to discuss fees and charges with their clients.
Interestingly, it is advisers whose clients have lower portfolio values who find it most difficult to talk costs.
AFH’s group head of advice, Austin Broad, said “Talking about fees shouldn’t be a tricky topic for advisers, especially if the service they provide is valuable.
“The responsibility should undoubtedly fall on advisers not just to be transparent but also to initiate conversations about the different costs they charge, be that platform fees or ongoing advice fees.
“Explaining what impact fees have on a client’s portfolio over the long term is also essential, otherwise we risk another mis-selling scandal.”