Wealth Manager costs

StKi1da

Very fortunate to have come into a substantial (for me) amount of money via an inheritance. Had a discussion with a couple of "Wealth Managers" where the cost averages out at 2.6% per year (including fund costs).  Within that I get all required advice around pension planning as well as investment planning and fund management etc.  
So that means 2.6k per 100k invested gores in charges per year (regardless of performance) or put another way 26% of a 10% annual profit goes to them.
My feeling is that, while they "might" outperform the market by 2.6% - it seems to be a service I cannot afford.  It's not until the investment portfolio gets pretty large that the % fees drops to something acceptable as compared to the fund values.
It does seem I would be better to create a balanced portfolio via Vanguard or similar myself and spot buy advice on pension planning every few years.
Am I missing something?

talexuser

No.StKi1da said:

Am I missing something?

No. Active funds generally cost between 0.5% and 1.5% range, passive in the 0.1 to 0.2 % range, Cheapest DIY platforms add 0.25% up to 0.4% but you can go cheaper with different instruments, ETFs or Investment Trusts etc. This gives you the idea of the extra your 2.6% total is costing for the advice and presumably rebalancing (hopefully not too often as costs can rise). A global tracker or mix from Vanguard wll be cheaper, and the wealth manager will have to significantly outperform to recoup those charges.

dunstonh

Am I missing something?

First thing is that a general rule of thumb is to avoid firms that refer to themselves as wealth management firms.  These are usually expensive and usually restricted to own fund range or that of a selected discretionary fund manager.  One consistent thing is that they are usually damned expensive.

The choice is either to DIY or use an IFA.   Not an FA or wealth manager.   

It does seem I would be better to create a balanced portfolio via Vanguard or similar myself and spot buy advice on pension planning every few years.

Do you have the knowledge and understanding to build your own portfolio?  Why would you restrict yourself to Vanguard (they are not the best in every area)?    Portfolio weightings are not static and would need adjusting.  Are you going to keep doing that or get bored and not bother? 

masonic

HOW MUCH?  

Sebo027

Your wealth manager will likely offer to meet you once per year and offer a full review of your finances. Bills and outgoings, cash savings, invested money, pensions, income etc. and based on the information you give him and your stage in life help you achieve your financial goals and targets. Are you comfortable taking your own investment decisions to avoid paying the fees?

Audaxer

StKi1da said:

It does seem I would be better to create a balanced portfolio via Vanguard or similar myself and spot buy advice on pension planning every few years.
Am I missing something?

I agree that 2.6% charges seem very high and you should avoid Wealth Management companies. If you do want to DIY and don't have the experience, confidence and knowledge to build your own portfolio, I think simply choosing a low cost, globally diversified multi asset fund, like for example one of the Vanguard Life Strategy funds or HSBC Global Strategy funds with the percentage of equities that most meets your risk tolerance, would be a better solution for you.

StKi1da

dunstonh said:

Do you have the knowledge and understanding to build your own portfolio?  Why would you restrict yourself to Vanguard (they are not the best in every area)?    Portfolio weightings are not static and would need adjusting.  Are you going to keep doing that or get bored and not bother? 

Thanks for the reply and the excellent questions which has helped me think further. This is my exact dilemma really. I can research and make reasonable choices, but a professional I am sure would be more confident at this and would do it whenever required as that's what they are paid and trained to do. It is tempting to hand it off.  I'm not suggesting the cost of this service is unfair. It would take time and it's a regulated industry - but I am feeling it is a service even someone with modest to good amount of cash available would struggle to get value from as long as I don't make any huge errors particularly with the many passive and "prepackaged" portfolio options available.  I will certainly look at some other platforms as Vanguard have limited fund investment options - even if they are very straightforward and seem to tick a lot of boxes. Thanks again.

dunstonh

I'm not suggesting the cost of this service is unfair

I think at 2.6% p.a. it is.    Halve that and you are in the ballpark of expectation for an IFA.      

A now deceased adviser once laughed at me as he would deal with around 10% of the clients I would deal with but earn broadly the same.   He was one of the greedy types and too many of those still exist.  However, from a business point of view, he was right.  He could get away with it and did.       A year or so back, we were up against SJP. Our initial charge was £2,500 with bottom line ongoing at 0.95% p.a. all in and SJP was £25,000 initial with around 1.8% p.a.     Yet the person was besotted by the marketing of the SJP sales rep who also did their family and all the family swore by them.     When there is a market for people willing to pay ridiculous charges, then there will be companies out there willing to take money from them.    

Albermarle

My feeling is that, while they "might" outperform the market by 2.6%

Probably worth pointing out that the main reason to have a financial advisor is not to 'beat the market' .

They can look at your total financial/personal/family position and offer advice on tax, future planning and most importantly assess your risk tolerance. Only as a last step will they put together an investment portfolio in line with the above.

Now as pointed out you can probably put together something similar yourself with some knowledge of investments but again most people should have a portfolio that suits their own position/risk tolerance/age etc  rather than trying to beat the market .

csgohan4

passive investing on the whole beat active investing in the long run, unless your Warren Buffet.

You can of course have active funds who have fund managers and these have their own risk as well but will depend on how much research and risk appetite you want. 

I know some people on here don't like cheap global index trackers, but they have their role, especially those who are beginning and wanting to dip their toes in, but they are still miles better than a savings account in the long run

quirkydeptless

StKi1da said:

so that means 2.6k per 100k invested gores in charges per year (regardless of performance) or put another way 26% of a 10% annual profit goes to them.

Yes, that certainly does gore your profits!