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BLOG: We’re living in a better investment world

Nick Blake
Written By:
Nick Blake

Something is happening in the investment world: platforms and fund managers alike are reducing their fees.

According to the IMA, net retail sales for tracker funds in 2013 have reached £3.2bn, the highest on record, while their average TER (Total Expense Ratio) has gone down even further compared to 2012.

Across the board, providers are starting to compete on price. To investors who are committed to doing some research and planning, the new world looks promising.

RDR is working

Price wars are not unusual, but the timing, one year after RDR (Retail Distribution Review), is striking.

The aim of RDR was to create transparency, improve professionalism and remove biases in the distribution and management of investment products. The price cuts across the industry may indicate that RDR is working just as it was intended to.

Removing biases and creating transparency creates pressure on prices and gives investors more choice. Ultimately, investors gain more control over their portfolio. Choice can lead to better ways of doing things, but it also comes with responsibility. In the new world, investors need to do their own research and find out the solution that works best form them. The results, however, may be well worth it.

What investors need to think about

Successful investing requires research, planning and asking the right questions. But not all investors have the time, willingness and ability required to understand all the details of constructing a robust investment portfolio.

To those investors, a financial adviser can be invaluable to make sure their investment strategy addresses their individual needs. But regardless whether investors choose to seek external advice or go on their own, the questions they need to answer remain the same:

1. How do I set appropriate goals?
Investors need to establish what goal they are trying to achieve and what they need to do to achieve it.

2. How do I develop a sensible, balanced portfolio?
To achieve their goals, investors need to develop a suitable portfolio based on reasonable assumptions about risk and returns. Diversification can help to avoid unnecessary risk.

3. How do I minimise costs?
Costs reduce investment returns and the impact of costs compounds over time. Investors need to consider finding the most cost-effective way to implement their plan.

4. How do I stay on track?
Investing can evoke strong emotions and seduce investors to abandon their plan. To achieve their goals, investors need to stick with their plan through the ups and downs of the market.

Of these four, costs is where product providers have the greatest impact. The recent price cuts suggest that the industry is getting ready for investors to take control and to take a closer look at the cost of their investments.

RDR is changing the industry for the better and the new investment world is offering better opportunities for investors who are willing to take them.

Nick Blake is head of retail at Vanguard