Even the wealthy balk at the cost of advice
The proportion of British investors who claim to invest with no help or advice from experts continues to increase – up from 40% in November 2016 to 44% in May 2017. However, investors are more inclined to use an adviser when investing larger sums: a third (32%) of investors are willing pay for advice when investing a £20,000 lump sum, but this proportion increases significantly to 63% for investors investing £200,000.
Investors would be willing to pay £200 for financial advice about investing £20,000 – 1% of the lump sum amount. Investors would be prepared to pay a fee of £616 on average for advice about investing a £200,000 lump sum or 0.3% of the capital. This is significantly less than the average 2.2% of portfolio value that advisers usually charge each year.
Platforum asked investors to imagine how they would invest a windfall lump sum. The aim was to find out whether they would treat lump sums of £20,000 and £200,000 differently. The key findings were that investors are more likely to seek advice if they are investing a large lump sum – only 16% of investors would contact an adviser if they were investing just £20,000. One in ten (10%) said they would know exactly what they need to do without any external input. These DIY investors are more likely to go directly to a provider or platform.
The use of active funds, where investors pay a fund manager to pick stocks for them rather than simply tracking an index, is higher among investors with smaller amounts. Investors are more likely to invest the whole lump sum in actively managed funds if they are investing £20,000 (35%), but only 22% would choose actively managed for investing £200,000. A higher proportion of investors (77%) in the £200,000 scenario would split their investment between active and passive funds.
A recent report from think tank ILC-UK and Royal London found that investors who take advice are better off by an average of £41,099 in financial assets and pension wealth over a lifetime compared to those who did not take advice.