Having recently competed with a large wealth manager for some pension business it was truly shocking to see the difference in cost and also the historic returns of our solutions. The performance of the competitor’s portfolio over 1 month, 3 months, 6 months, 1 year, 3 years and 5 years was comparably awful. It was actually far worse than the clients existing default funds which were obviously far less expensive. I have suspected this for some time regarding a few larger firms, but the recent evidence was more extreme than I had even imagined. I therefore feel compelled to say something.
At SWA we are encountering an increase in instances whereby an alternative wealth management company is presenting funds to their clients, that do not look likely to achieve the expected returns they are hoping for. In fact, often times retaining faith in the current funds without switching, would have been far more beneficial.
It’s with this in mind, we have put together a few questions to ask your wealth manager at your next review. Before we get to the questions, what can often drive poor outcomes, is the fact clients can (and do) take this advice at face value, with very little explanation or degree of transparency.
This has to change.
It should go without saying that portfolio managers are accountable to their clients and any investments they make on the client’s behalf, be in their best interests to gain maximum return. It’s a position of trust that must never be neglected or held lightly.
It is with that sentiment and moral code at heart, that SWA actively encourage anyone looking to invest a sum of money with a wealth management company, to question and query the advice they have been given, with specific regard to:
- 1. Request a breakdown of all costs. It’s commonplace for advice fees to be highlighted, however transaction costs, platform charges, underlying costs of using third party funds are just a few that are not presented upfront. At SWA we believe in full transparency.
- 2. Request a direct comparison, as part of your own due diligence, it is fair to ask for a comparison between your funds and similar – so you can gauge how successful your portfolio manager is performing.
- 3. Request the historic returns of funds your portfolio manager is presenting. Historic returns are not a guide to future performance, but it is still useful.
Overall, we encourage any potential investor to compare wealth management companies. There is no harm in speaking with a select handful before making the final decision.