To help cut through the confusion, Netwealth has developed the Portfolio Cost Calculator, which is available on its website and helps people to estimate what they are paying to have their wealth managed and to know what questions they should be asking their money manager.
Wealth managers often charge separately for all or some of the services below:
- Annual management charge (AMC), typically NOT including VAT;
- VAT (if not included in AMC);
- Custody and platform charges;
- Transaction (trading) costs;
- Tax reporting;
- Underlying investment fund fees.
Poor awareness
Charlotte Ransom, chief executive of Netwealth, explains: “In its recent report on the Asset Management Industry, the Financial Conduct Authority noted that ‘investors’ awareness and focus on charges is mixed and often poor’.
“Transparency regarding the impact of fees on future investment returns is also highlighted as a priority in the Mifid II proposed regulations. Netwealth’s Portfolio Cost Calculator is designed to help address these important problems.”
The company found that when wealth managers quote a management fee; which may include the cost of advice, without including other charges such as VAT, trading costs and the underlying fund fees, it can be difficult for clients to understand what they will ultimately receive.
Five Questions
Netwealth’s Portfolio Cost Calculator asks five questions to estimate the all-in fee:
- The value of your current portfolio;
- Whether your portfolio is professionally managed or self-invested;
- Whether you receive ongoing advice and financial planning;
- Whether you have an Independent Financial Adviser or receive advice from your portfolio manager; and,
- Whether your portfolio is mainly invested in active or passive funds.
No surprises
Netwealth quotes an all-in fee to ensure there are no surprises. Costs that are not included are those of the underlying tracker funds, which are low cost and come directly out of the returns.
In the case of Netwealth, which also offers advice, they then charge on a separate hourly basis if advice is requested.
Matt Conradi, senior client adviser at Netwealth, said: “Many clients of traditional wealth managers are sometimes either too trusting or too afraid to ask the important questions about how much they are paying for advice and to have their wealth managed.
“The headline fee they are quoted can often significantly underplay the overall costs.
“Our Portfolio Cost Calculator helps highlight all the items for which you might be charged. It estimates the cash amount you are paying every year in fees, based on how much there is in your portfolio, and the type of wealth management services and investments you have. We then encourage clients to ask their current provider to detail what their services cost in total each year.”
