Martin Wilcocks


The financial services model in the UK is broken. From the global financial crisis to the PPI scandal, we are now faced with the prospect of serious mismanagement of our pensions and investments. There is around £5.7 trillion invested with banks and large financial institutions, and 68% of that figure (£4 trillion) is actively managed in highly priced arrangements by fund managers who typically charge about 2% more than they should, for underperformance.

The FCA have acknowledged that fund managers and platform providers have systematically overcharged investors through layers of hidden costs. The recent MiFIDII legislation is meant to enforce full reporting disclosure of fees in the hope that investors will recognise they have been paying more than they should for decades. It’s a step in the right direction, but it doesn’t really address the root of the problem.

Research carried out by the University of London, CASS Business School and Vanguard tells us that around 80% of the actively-managed £4 trillion (£3.2 trillion) is invested in funds that do not keep pace with the market. So that 2% fee that is costing UK investors £64 billion every year. If you had £200,000 in your pension, that 2% is £4,000 per year. Compounded over 30 years, it may cost you the same £200,000 in excess fees that you invested in the first place.

There are cases of regular working people who have saved their entire life, paid into pension schemes, only to find that when they look at their annual statement at the time of retirement expecting to see income figures between £30,000-£60,000, they’re getting as low as £2,000 for the year. It’s a scandal. Institutional investment firms have huge overheads and they are paying for this out of the pockets of investors who are feeding a system that doesn’t properly serve them.

I saw these problems arise first-hand when I worked at Barclays and St James’ Place some years ago. Advisors are of course paid for their services, but then in addition to that there are layers of Field Sales Managers, Sales Managers, Area Directors, Boards of Directors, all of whom are all being paid by the client unnecessarily. This is the 2% fat, the £64 billion problem, which is not going back to the working person who is trying to invest in their future, but into the pockets of multi-layered management tiers to fund their executive lifestyles. This, I believe, is where the system is broken – where you have a massive wealth gap and a lack of quality in the financial advice people are receiving, which is stopping them from retiring and living in the way they have worked for and planned towards.

I am reminded of a client that I came across some time ago, who had invested his money into a network’s pension fund and had not kept an eye on its progress for about 12 years. When the time came for him to review his finances, there was absolutely nothing left in his pension pot, simply because the charges had eaten into it. The client’s pension was actively managed, and because of this his funds were in fact going backwards! Unfortunately, the majority of these actively managed accounts do not perform well and are eventually renamed, fail and are shut down. Here, again, lies the £64 billion problem.

Decades of research has shown us that markets cannot be beaten over time. No matter how successful a fund, or its manager, may appear, it’s nearly impossible to repeat this success year-on-year. The smartest way to invest is diversifying your portfolio across multiple market and geographic segments. Tracking close to the whole globally developed and emerging world markets at a low cost is most likely to return more in the long term. When you reach retirement, you should be much better off.

At Wilcocks & Wilcocks, we can offer you a far more sensible investment solution based on evidenced-based research. We provide investment solutions with goal-aligned plans, at a low price. Contact us today through our online form or call 0845 200 4041 to arrange a free consultation. We can provide an in-depth portfolio review and independent analysis of your investments, to show you what you are paying now and how we could potentially save you thousands of pounds per year. We look forward to hearing from you.

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