The latest Investment Association report shows £9.4 trillion* invested in our pensions, ISAs and investments, with 69% (around £6.5 trillion) ‘actively’ managed by financial advisers and investment managers who attempt to analyse, forecast and predict what will happen in stock markets. They select stocks, bonds and funds using guesswork, crystal balls, and top fund buy lists. They look through a rearview mirror at ‘past performance’. The various layers of excess cost within active management can total anything between 1-3% per year**.
We know from an overwhelming level of independent, peer-reviewed academic research and data that in most cases (c. 80-90%***), the investment strategy fails to keep pace with the benchmark it is tracked against. If we work conservatively and say 80% of that £6.5 trillion fails, it suggests £5.2 trillion is exposed. Those responsible for that huge sum of money inside your pension or ISA cannot continuously keep ‘getting decisions right’. Wins may occasionally appear significant, but losses, in almost all cases follow, and the various layers of excess cost drag the portfolio down further.
Approximately 1.4% each year in excess cost, on that adjusted total, is equal to around £72 billion****, and your portfolio is likely contributing towards it, if actively managed. In a rising cost world where we can expect to see the cost of living triple during a typical three-decade retirement, our investment portfolios need, and they need it more than ever before, to run as close as possible to their maximum potential. Just look at how the cost of a first-class stamp rose over the three decades between 1990 and 2020. How will your portfolio cope with this kind of inflation?
If your portfolio is worth £250,000, that 1.4% excess equals £3360. Over a 3-decade retirement, it’s around £100,000 that you are giving away in excess fees. If left in your portfolio to compound, it will likely equal the same £250,000 you have today. Take it back. Use it to enjoy life and retirement, take holidays, impact your children’s or grandchildren’s financial lives, or contribute to good causes or charities close to your heart. By way of example, I signed up as an ambassador for Save The Children in 2019 because my children are lucky, but not all are. I took my family with me when I signed up to give them a different perspective.
Certain firms and advisers currently benefit from that £72 billion annual excess. It is being used to cover the cost of unnecessary layers of upper management and fleets of flagship offices in premium locations. As I say in my book and on my video channel, it’s a monumental scandal that passes quietly under the radar. The Retirement Quiz below is free, with no need to make contact, register or proceed any further. Take the test and see if it triggers a conversation with your current adviser. If it encourages you to contact my office for a fresh perspective, there is an option to book a 20-minute consultation to see if we can add value for you. We will also provide a non-cost Portfolio XRAY Analysis™ on your current portfolio at our expense.
- example Portfolio XRAY Analysis™ …
*Investment Management in the UK 2020-2021 The Investment Association Annual Survey, www.theia.org/industry-policy/research/investment-management-survey
**Financial Conduct Authority, Review on disclosure of costs by asset managers (February 2019), www.fca.org.uk/publications/multi-firm-reviews/review-disclosure-costs-asset-managers
***Plagge, J-C et al., The case for low-cost index-fund investing (Vanguard, April 2021), www.vanguardinvestments.se/documents/institutional/low-cost-index-fund-investing-eu.pdf
****Typical cost excess on active management compared with passive management (2022), www.martinwilcocks.co.uk/bulletproof/
