Recently, I found myself taking another look at wealth management – what used to be called discretionary fund management back in the day.
To be clear, I haven’t done a full market sweep of the big names offering it. But every so often, someone I know will send something across and ask: “What do you think of this?”
Now, I’m not one to throw stones from a glass house, but one friend’s portfolio gave me pause.
He’d been switched into Scottish Mortgage at £15 a share – and, before anyone accuses me of hindsight bias, the FT had already suggested it was time to take profits. It didn’t sit right at the time, and it still doesn’t now.
But I digress. It’s not always the portfolio makeup that grabs my attention; it’s the fees.
Way back when, a bank’s portfolio landed on my desk. The prospective client asked a simple question: “Where are my gains?” The portfolio was UK-focused, and in the 1980s that should have meant returns of around 15% a year. Yet, the actual performance was nowhere close.
Transparency implies clarity, but it doesn’t mean people actually understand what they’re paying for
Digging into it, the problem wasn’t poor stock selection – it was cost. A management fee of nearly 2% was one thing, but the real issue was turnover. Whether a fund or stock, every transaction cost over £100. Turnover exceeded 25% annually. No wonder the returns were disappointing.
Fast forward to today. In a world supposedly built on transparency, this sort of thing shouldn’t happen. And yet, in some ways, it still does. ‘Transparency’ has become a buzzword. It implies clarity, but it doesn’t mean people actually understand what they’re paying for.
A lot of confusion seems to centre around the blending of advice and portfolio management into one service. While bundling might seem convenient, I’m not convinced it helps with transparency.
As a client, I want two distinct services. First, financial planning: the conversations around lifestyle goals, needs and priorities. Then, if I choose not to manage the investments myself (which many retirees understandably don’t), I want investment management. That part is more time-consuming and nuanced.
Mark Dampier: Is this the final nail in the coffin for private pensions?
This is where DIY platforms tend to fall short. They’re great for accumulation, but not so much for managing decumulation. That’s when clients often move on to someone who can provide hands-on support.
So, why not pay for each part separately?
It seems logical to pay a one-off or ongoing fee for advice, and a separate fee for portfolio management. Just as you would with an accountant or solicitor. I know some firms already do this but not all, particularly among the bigger names.
What really stood out to me, though, were the investment management fees themselves; not the underlying fund charges, but the fees paid to the portfolio manager.
In many cases, these remain around 1–2% per year. To take one not particularly extreme example: a £2m SIPP attracted annual charges, including VAT, of more than £28,000. If the aim is to generate a 4% natural yield – say, £80,000 – then after tax and fees, the client might be left with less than £20,000 in their pocket.
That feels stark.
Yes, you’d hope the portfolio grows in capital terms, too (and of course, so does the fee). But it seems expensive to me. Maybe larger portfolios carry more risk for the firm and the fees reflect that liability. And maybe, after years of DIY investing, I’m more sensitive to the costs than others.
It seems logical to pay a one-off or ongoing fee for advice, and a separate fee for portfolio management
I do appreciate that the cost of doing business isn’t cheap. But surely, after 40 years and significant technological progress, it’s reasonable to expect client charges to have come down more?
Asset managers have long been accused of high fees, but in many cases, charges have been falling – especially for passive products. So are wealth managers using passive funds to maintain high overall margins?
I know many of you reading this are seasoned professionals who’ve been in the industry even longer than I have. So I’d welcome your thoughts in the comments, particularly around where the balance lies between fair fees and the work involved. I’m happy to be told I’m wrong, as long as you say it nicely.
This part of the market is growing fast, and I completely understand why many investors don’t want to manage their money themselves. But surely the key question is: what’s the right price for the right service?
Mark Dampier is an independent consultant and can be found tweeting at @MarkDampier
