One of the great things about a blog is the comments, emails and other feedback from readers.
Best of all are reader success stories like the one I have for you today.
Like everything good, the rewards of blogging are not always obvious at first. You share your insights and try to make the world a better place but its not obvious that its making any difference. The world carries on, seemingly regardless.
But then I get feedback that makes me realise that people are actually putting the messages of The Escape Artist into action. So I want to share with you an email I recently received from a reader about how they fired their wealth manager.
Taking control of your own investments (including pensions) is one of the single most important actions you can take on the path to financial independence. The cost savings accumulate into hundreds of thousands of pounds over an investing lifetime. I showed how some could easily save a million pounds here.
But its not just the cost saving that matters, its also the mindset. The person who delegates looking after their money to others is often subconsciously evading responsibility for their own future.
The irony is that most people think they are hiring a financial adviser / wealth manager in order to stand a better chance of beating the market. This is like a racehorse owner hiring a bigger jockey to improve performance. The financial adviser’s fees are the extra weight carried. The horse (your portfolio) is now less likely to keep up with the other horses in the race. More likely, it will fall at one of the hurdles or finish last.
Some think they are hiring a financial adviser in order to guide them through complexity. But its easy to construct a simple, efficient portfolio. The complexity has been created by the financial services industry in order to confuse the public and justify its fees.
I have no problem with financial advisers that give truly independent fixed-fee based advice. The problem is that they are a minority. Incentives matter. Any financial adviser paid a % of funds under management (most of them) has a huge incentive to gather assets and keep the client in a state of dependence on the adviser.
Have you ever wondered why the advisers fees are deducted direct from your portfolio? Is this for convenience? Whose convenience? This is not some minor administrative detail; its central to the entire business model. If the customers had to physically write them a cheque or get their credit card out to pay fees, most would be horrified at the sums involved. The game would be up.
Awareness is the first step to change. I’ve helped a number of people calculate their total investing costs. This is harder than it sounds. The total costs borne by the client are not just the fees of the financial adviser, they also include the fees of each of the underlying fund managers and then dealing costs: the bid-offer spread, dealing commission, stamp duty and price disturbance on trades which can only be estimated. But its material: active fund managers churn their portfolios as they seek to minimise personal career risk.
If you do not know how much (ie a specific number of pounds / euros / dollars) you are paying in fees, that is a clue that you are being screwed. As Warren Buffet puts it: if you are at the poker table and you don’t know who the patsy is, then its probably you.
Everyone should try to calculate their total investing costs themselves. If you can’t decipher the endless bumph and small print, don’t give up. That’s normal and no accident (the financial services industry likes it that way). Persevere until you get the answers. Once you know the true cost, it becomes obvious that you need to break up with your wealth manager.
This is important. The rewards are huge and its really easy. Get help if you need it: ask a financially sophisticated friend to help you. Or hire an accountant or a financial coach. But don’t take it just from me, let’s hear from a reader of the blog.
The Escape Artist
Just thought I’d just drop you a line & let you know that I finally broke up with my ‘Wealth Manager’.
I braced myself for all of his compelling arguments why I should stay.
There were literally none!
I expected it to be complicated to set up a SIPP myself.
It was easy!
I thought that setting up a regular investment in a tracker fund would be difficult.
It was simple!
Everything is absolutely transparent now.
I can see how much I’ve saved.
I can see the effect of major events, like the recent stock market wobble.
I feel like I’m in control.
I no longer have to try & fathom out the meaning of quarterly reports which I suspect were deliberately baffling.
I can just log in & see if the number at the bottom of the page has gone up or down!
I only saw the annual management charges on the funds when I requested a list, prior to ditching the ‘Wealth Manager’. I think they were all between 2 & 5%. That on top of a hefty ‘set up’ fee too. Yikes!
It’s embarrassing to think about how gullible I was, although in my defence, the “Wealth Manager” was introduced to me through my employer. This was at a time when the company was obliged to offer ‘Stakeholder Pensions’ to all employees. This put him in a position of trust from where he was able to mount a Trojan Horse type attack on my pension!
Now that I’m in total control of my pension, its much easier to see what needs to be done before I can push the eject button at work.
Obviously my so called ‘Wealth Manager’ was never going to let on that it was all so easy!
So thanks for shocking me into action & I look forward to more motivational dispatches from the front line of financial independence!