The top 10 hidden wealth management costs
With this is mind findaWEALTHMANAGER.com has compiled a list of what it perceives to be the top 10 hidden wealth management costs that investors need to be aware of.
Lee Goggin, co-founder of findaWEALTHMANAGER.com, says: “The Retail Distribution Review may have eliminated commissions hidden from clients taking financial advice but some of the less fees charged by wealth managers can escape clients’ notice and have a significant impact on performance.”
So here are the top 10 hidden costs to look out for:
- Charges levied on cash balances – This can happen before a portfolio is fully invested so can come as a surprise.
- Transaction costs – These are sometimes included in annual management fees but not always so clients need to find out. They can drag on performance and can be difficult to predict as they will depend on the style of the wealth manager, a client’s objectives, market conditions and how often a portfolio needs rebalancing.
- Underlying costs for using third party funds – These vary widely between different managers and strategies so are essential for clients to understand.
- Custody and nominee costs – Some wealth managers and private banks charge for the safe custody of assets or the collection of interest and dividends, this could be as high as 0.45%.
- Platform charges – Overseas investments held in a custody account, for example, may attract charges so a client needs to ask if these are likely to be part of a portfolio.
- External brokerage costs – These are accrued dealing in overseas assets and would normally be passed on to clients.
- VAT – Clients need to be aware that wealth managers’ annual management charges will normally be quoted exclusive of 20% VAT.
- Product costs for tax wrappers – The expenses associated with setting up, for example, an ISA, a pension or an offshore bond.
- Foreign exchange costs – Overseas assets will be bought and sold in foreign currencies meaning that commission charges will apply.
- Exit charges – These can often catch out the unwary. They can be surprisingly high and can leave in bestirs trapped with a wealth management firm they are no longer happy with.
Googin cautions that while important, fees are just one of a number of factors to take into account when considering someone to manage your wealth.
“Fees have to be balanced against the time it takes to monitor your own portfolio and the conservable stress and financial risk that involves,” he says. “It is unfortunate that a perceived lack of clarity on fees has prompted many to take the DIY investment route that so often leads to disaster.”
Andy Steel, CEO at the wealth management firm James Hambro & Partners, adds: “What is important is that managers are really clear about costs from the outset. There can be some quite complex unseen charging in p[arts of the industry, so in choosing or reviewing managers it is important to ensure you are comparing like with like on fees.”
Pamela Reid, executive director at the wealth management business Quilter Chevoit, says it is also important to consider the standard of reporting and quality of service that is provided with the fees.
“Does the service include capital gains calculations, is the income reporting easy to use, what options are available when it comes to how income can be taken from the portfolio?” she says. “All these qualitative issues are also in the equation to ascertain the best value for money.”