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Investors in dark on fees as charges erode returns

Written by: Emma Lunn
Investors undervalue the cost of platform fees on investments by more than £5,000, according to AFH Wealth Management.

The financial advice firm’s What Price Advice report found more than four in five (84 per cent) investors undervalued the impact of platform fees on their investments.

Investors who have accessed financial advice were asked how much a 0.3 per cent platform charge would cost on a £50,000 investment over 25 years. On average, investors estimated platform fees would cost £7,400, undervaluing the true £12,500 cost by more than £5,000.

Those who had received advice in the past five years were closer to the real cost, estimating £7,600 against those who hadn’t (£7,100). Nonetheless, both sets of investors significantly underestimated the impact of platform fees.

Knowledge gap

Platforms have become an integral tool in the investment landscape, used by both advisers for their clients and directly by individual investors, to buy, hold and sell funds, and monitor performance. Yet despite being widely adopted there is a clear knowledge gap amongst investors.

Two in five (41 per cent) investors admitted they didn’t know the impact of platform fees on their investments; 27 per cent were aware of the fees but not sure how they affected their investments, and one in eight (13 per cent) were not aware of the fees they are paying at all.

Holly Mackay, founder and CEO of Boring Money, said: “The fundamental question that any retail investor wants to answer is how much their investment pot has gone up by and how much they have paid for the privilege. Sadly, this latter question remains more difficult to answer than it should be.

“Cost is of course an important component of net performance, but investors remain broadly unable to articulate or calculate what these charges are. Advice is valued but we continue to take for granted that people understand what it is. It is only once we can better articulate the benefits and be very upfront about what the total charges are, that we can expect our customers to decide if that represents value or not.”

Alan Hudson, chief executive officer at AFH Wealth Management, said: “Investors are baffled by the charges they face, and the impact they have on returns. Platform fees, for instance, have the potential to cost thousands of pounds which could delay a person’s retirement goals or stop them supporting younger generations onto the housing ladder.”

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