Finance Matters: High charges and poor performance?

May 8, 2014

High charges are eroding many people’s retirement funds. Fact.

The impact of charges on private pensions can be substantial. Coupled with poor performance this could seriously detriment an individual’s hopes of a good retirement.

Some of the initial and ongoing costs are incurred by independent financial advisers, who can receive large commissions for referring savers to pension funds and often receive “trail commission” every year from then on.

Such charges can be justified if you are receiving regular reviews and good quality service and on-going advice from your adviser. The problem is that many people aren’t. Find out what you’re paying for, and ask yourself: what sort of service am I receiving? We recently posted about the FCA (Financial Conduct Authority) review that found seven out of ten IFAs are still not being transparent about their fees – here’s an example:

Many companies may offer you their own funds. Sounds good? Tread carefully, and beware of double charging. There is an annual management charge on the fund, the adviser’s trail commission for nurturing your investment, and then, oh, an additional charge for accessing their fund! So they pocket the fee twice. In some cases the charges could be 3% a year. Consider if performance is 7% and your return is 4%, not quite the headline rate. This can make a huge difference to the value of your investments, especially over a long time horizon.

In our view the industry needs to move away from the ‘sales led’ bias that it’s currently in, and move towards a ‘service led’ industry, focussed on the client.

This article is for general use only and is not intended to address your particular requirements. It should not be relied upon in its entirety and shall not be deemed to be or constitute advice.