How to break up with your wealth manager

wealth manager

Reader: OK, T.E.A. – I’m the customer of a wealth manager or financial adviser and I read your previous post on being screwed

I’ve a nasty feeling I’m paying a shit load of fees for underperformance but I’m nervous about changing.  It would be hard for me to leave…who would I speak to when the news headlines are scary?  How would I cope on my own? 

Is it just me or has anyone else noticed the parallels between someone trapped in an abusive relationship and the typical customer of a wealth manager and actively managed funds?  Lets break down the similarities between the victims in both scenarios….

They don’t realise how bad things have got

Most people who have wealth managers / active funds and financial advisers* paid based on % of funds under management have no idea how much they are paying in costs.   When I ask people to guess, they usually wildly under-estimate the amounts they’re paying.  In one case they admitted they had no idea but then guessed between £100 and £200.  It was actually more like £20,000 a year.  That’s like paying a full time butler who never bothers showing up to work…other than a couple of times a year when they nick your DVD player and your wife’s jewellery.

They have lost confidence

People who delegate managing their money to others have lost (or never found) the confidence to take their own decisions.  This is a shame because it can be made really simple.  Its crazy to pay someone else life changing amounts of money so you can wash your hands of any feelings of regret or responsibility if your portfolio value goes down.  Victims will often say they don’t have the time to manage their investments themselves. This is not true (we all have the same 24 hours each day), its after-the-fact justification.

They’d be better off by themselves

Taking control is empowering. Managing your own portfolio can be easy and cost effective.  All you need is a low cost online broker and a Vanguard ETF or two.  Being on your own can feel mentally challenging because our ancestors evolved in an environment where being socially isolated meant almost certain death.  Fortunately this is no longer the Ice Age, food is plentiful and we can manage just fine on our own.

They need an alternative support network

There is however no doubt that its easier to make the move if you have support and good information from like minded people.  I recommend the section of this site entitled “Blogs that helped me” for these purposes. Sites like Monevator are great not just for the content but for the comments sections / forums where readers encourage and support each other to take control of their own financial destiny.

They get their information from the abuser(s)

Your current sources of information may be polluted. Never ask a barber if you need a haircut. A wise man once said to me, get the incentives right and the right behaviours will follow. And vice versa with the wrong incentives. If your “independent” financial adviser* is paid on commission or a % of funds under management, they cant be fully independent: it is simply impossible.  Professionals are not saints, they are flawed human beings just like the rest of us.  We are capable of altruism, but advisers and other intermediaries are running a business. For themselves.  They may be friendly but they are not your friend.

They under-estimate their own strength

Investors in index trackers have strength in the knowledge that the long term returns they get will reflect the dynamism of capitalism as well as the aggregation of all of the analysis and active investing decisions of hedge funds, fund managers, insider dealers and all other investors.  Most people should worry less about beating the market and instead focus on how to they ensure they don’t under-perform those market returns.

OK, for all those readers still with me, here is The Escape Artist’s simple step by step guide on how to leave your wealth manager / financial adviser:

1) Repeat after me: “This is my responsibility….I need to take control here”

You have to take agency. Some things should not be delegated. Only you will stick up for your own interests.  Financial Services companies are not your friend, no matter what those nice pictures in the adverts suggest.  A lion does not subcontract responsibility for guarding a zebra carcass to a wolf. The lion is smart and knows the wolf would eat the zebra itself.  In this analogy, you are the lion, the zebra is your portfolio and the wolf is the wealth manager.

2) Understand the charges you are losing

Get a full breakdown over the last full financial year of all costs associated with your investments.  Insist on this in actual £ amounts not percentages.  This should include the costs deducted by the fund managers as well as the costs deducted by the intermediary / financial adviser / platform.  It should include all dealing costs, commissions and stamp duty.

Your wealth manager knows that they have to provide this information and that, if you understand it, the cat will be out of the bag. So their favoured tactics will be obsfuscation and/or delay.  They may deluge you with reams of paper and multiple reports.  They will provide you with the haystack and you have to find the needle within. The other classic tactic is delaying. They may be “having some problems with our systems currently“. Funny that.  To get this information you may have to be as persistent as a Rottweiler.

3) How many extra years work will your wealth manager cost you?

Once you have a fair estimate of total costs, calculate how many hours a year you have to work in order to earn that amount.  Remember if you are a top rate taxpayer, you need to earn £100 gross in order to earn £53 net of top rate tax and national insurance.  If you have a £750,000 pension pot or portfolio, you may be paying total costs of about £18,750 (2.5%) per annum.  To make this up, you have to earn about £35,000 before tax.  Earning £35,000 of additional salary every year is a lot harder than filling out a couple of forms to buy Vanguard ETFs via a low cost broker. I’ve done both in the past, so trust me on this one.

Another way to think about this is how many years earlier you will be able to retire if you are not suffering the huge costs of active fund management and parasites.  Use a simple excel spreadsheet to calculate when you can afford to retire (ie pot of 25x annual spending) assuming market returns of,say, 6% per year versus market returns of say 3.5% per year.  You can see the impact of costs of 2.5% per annum on the value of a portfolio here.

4) Open an account with a low cost online broker. 

This should take about 5 minutes online.  I have sat alongside people helping them do this and they are always surprised at how quick and easy it is….the conclusion is always “If I’d known it was that easy, I’d have done this ages ago“.

5) Fill in a transfer form

Fill in the form that instructs your broker to process the transfer of investments from your current wealth manager. This will take another 5 minutes. So, total time spent on paperwork about 10 minutes.

6) Don’t waver, stay strong

Your wealth manager will try a bunch of tricks to try to keep your business.  You may suddenly get more attention from senior staff.  Offers of sports tickets, fancy dinners and other corporate hospitality may start coming your way.  They may try to intimidate you with the complexities and “risks” of your move. This is all normal and to be expected. I suggest you respond with your middle finger.

One reason people typically give at this point to justify their prevarication is tax.  People wrongly assume that if you move all your investments from your current wealth manager to a low cost platform you will have to sell them and trigger any capital gains liabilities. This is simply not true in many (most?) cases.  If you have shares, investment trusts, ETFs or funds with your wealth manager, you can simply instruct these to be moved to a low cost broker without them ever being sold.  This is easy and in most cases the paperwork is minimal and will be handled by your new platform.

This transfer in specie has additional advantages.  It makes it possible to move one step at a time.  It means you can separate the decision which platform to use (how to hold your investments) from the investment decisions (which investments to hold).

Before you fire your wealth manager, you can start to prepare by opening a low cost broker account and getting comfortable with how it works with small sums of money.  Then move across your existing holdings and you can take your time to sell any expensive funds and invest in low cost trackers over time.

You may have noticed this post is short on technical complexities involved with firing your parasitic manager / adviser and long on the motivational aspects.  That’s because the process is really fucking simple.

So why don’t more people do it?  Good question…I’m not sure I fully understand all the reasons.  But I sense that the issues often relate to fear or lack of self-confidence.   Also, too many people believe that they can eschew responsibility and that someone else will look after them like they are medieval serfs with a feudal Lord responsible for their welfare.  Well, if you want to be treated like a medieval peasant paying tithes to your master, then fine. But I think you can do better.

Let’s leave the last word to Gloria Gaynor and her classic 1978 song recounting her experience leaving her wealth manager.  Some people have told me that if you read carefully between the lines of the lyrics, you can also interpret this song as being about male / female relationships….but that just sounds like amateur pyscho-babble to me.

* For the avoidance of doubt, I have no objection to people using professional financial planners where the fees are clear, transparent and either fixed upfront or based on hours spent.  This is rare.  It is the stealth deduction of fees based on % of funds under management that is so objectionable.  Here is the distinction: – if the client writes a cheque or hands over cash then they know what they are paying. If it is deducted, they are probably being screwed. And not in a good way.

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  1. An excellent post.

    I’ve recently helped my father do this kind of move. He wasn’t in too deep as he only had a few ISAs of single stocks being held by a broker who was providing ‘investment advice’.

    He was amazed at how he was quite clearly being robbed of several hundred pounds a year for pretty much nothing in return. Most of the advice was just very simple research documents that could be sourced online for free anyway!

    As you suggest fear was the only thing stopping him from taking action. Once he saw the light he was of course filled with regret he didn’t listen to me sooner!

  2. BeatTheSystem · · Reply

    I think I know what inspired your excellent post. Some really good points and advice, I like the abuser metaphor. Good IFA’s are masters of creating a Stockholm syndrome relationship. I probably should have no excuse (but I do) for exercising the parasitic drain on my finances. I wouldn’t mind what they made if I was making good money. The get all stockholmy, in defence of IFA’s they do an OK’ish service for many who do not have the capacity to DIY which I imagine are the majority.

  3. Having never had, nor been anywhere near qualified to aspire to (?) a “wealth manager” I agree about the importance of having the confidence, information and tools to DIY. It is probably easier for us lesser mortals with average income and savings to take the low cost route. After all we have no need to feel we need to buy the luxury of redundant “advice” for form’s sake.

    Margins do actually matter a great deal when it really is touch and go whether you can retire at 60 rather than 65. So, great advice, and needed just as much by those of us who need to be our own “modest income” advisers.

  4. I’ve just made this move myself and consolidated everything with one low cost platform. I prevaricated for months but really glad I made the move to 85% passive, feels like freedom

    1. DKM – Thanks! Great to have a comment from someone who’s successfully made the move…are there any other tips / learning points from your experience worth sharing with other readers?

      1. I think it’s important to do as much research as possible, for me it was not just the switch from an IFA to DIY but also a switch from active to passive. The more you read on the subject the more confidence you have to hold strong when things get difficult as we saw last month. There is a wealth of free material on the net. I recommend blogger sites as well as material from Vanguard in particular but also other major passive fund provider sites. I spent several months researching the correct asset allocation for my personal risk profile and building a low cost portfolio. I used the recent correction to acquire more equities. I still maintain 15% in actives. Ignore the ‘advice’ from your IFA that it’s too difficult to go DIY, it’s very easy and more satisfying, not to mention the massive positive impact I expect from compounding the savings on charges.

  5. Rowan Tree · · Reply

    Radio 4 is always bleating on about needing an IFA when you retire, so a couple of years ago we went to check out our local one for future use. I’ve made enough mistakes in the past. so I thought he might be able to do better. Not so, he was a pleasant enough man, but looked so embarrassed at my searching questions! Since then I’ve continued educating myself via blogs and internet, moving money around just as you suggest. Yeah, it is scary at times, but I count previous mistakes as the cost of my education. Keep on writing these excellent pieces!

    1. Rowan Tree – Thank you for your comment and well done for doing it yourself. You mentioned bleating on Radio 4….did you have their programme Moneybox in mind?

  6. Rowan Tree · · Reply

    Yes, Radio 4’s Moneybox – I’ve stopped listening to it now. Internet is more useful.

  7. Hey Huw, I’ve been thinking about challenging two of my legacy pensions for a while (standard life & Skandia) and after reading your blog above, I wrote to both this morning asking for clarity on the charges. I recently consolidated 4 other pots into 1 – with Scottish widows and am paying much less, around .35% in AMC. Interestingly two of them were already with SW and I was able to reduce those AMC’s also by consolidating. Are there any other factors to consider before switching ?

    Cheers Cra19

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