Like everything good, the rewards of blogging are not always obvious at first. You diligently tap shit into a computer for several months. 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.
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 something with you I recently received from a reader via email about their escape from the evil clutches of a financial adviser / 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) now has to expend much more energy to try to keep up with the other horses in the race. More likely, it will fall at one of the hurdles or just finish last.
Others think they are hiring a financial adviser in order to guide them through complexity. But its not hard 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 good financial advisers that give truly independent fixed-fee based advice. The problem is that they are a small minority.
Any financial adviser paid a % of funds under management (most of them) can’t be fully independent. With that fee structure, they have a huge incentive to gather assets and keep the client in a state of ignorance and dependence.
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.
Any financial adviser that you allow to deduct their fees direct from your portfolio is (probably) going to act like a vampire given the keys to the bloodbank. But don’t just take my word for it: here’s Monevator on the subject.
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. And when I say that, I am not talking about Romeo and Juliet making beautiful love under a starry sky. I am talking about Prison Rape like in The Shawshank Redemption.
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. Get a financially sophisticated friend to help you. Or hire an accountant or a money coach. This shit is important. Once you know the true cost, it becomes obvious that you need to break up with your wealth manager.
The rewards are huge and its really easy. 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 early retirement!
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