This is a question commonly asked of financial advisers and the investment management industry – and it is fair that it is tackled head-on.
Although our investment managers Asset Intelligence work hard to add value to your capital, they cannot be held responsible for periods when stock markets and the prices of other assets fall across the board, as was certainly the case in the very difficult conditions of 2022. It would be a harsh character indeed who would judge that out-of-the-blue events such as COVID or the war in Ukraine could have been reasonably predicted and all losses prevented.
In the same vein, the investment managers cannot take the credit for delivering good returns when markets and the prices of other assets rise across the board. In exactly the same way, if markets rise strongly that is clearly not a reason to congratulate Asset Intelligence for their genius (!)
What you should really judge their performance on is how they fare relative to competitors, cash and inflation over the long-term – which we have tried to demonstrate fairly and transparently in our previous blog here. Has value been added or detracted relative to these key comparators? (Also crucial of course is how performance fares in relation to your own needs and cashflow plan.)
And we believe Asset Intelligence have the ingredients in place to deliver long-term outperformance of these key informal benchmarks. That is what their fees go to cover.
However, this is of course only part of the story. You also pay fees to Furnley House for the advice you receive. This covers a wide range of services aside from investment management, including tax planning, cashflow modelling for retirement and pensions advice. (In fact, our standard ongoing advice charge is more than 6% below the average for financial advisers, on the basis of figures published by the Financial Conduct Authority in 2020.)
Part of your adviser’s role is also to provide guidance around remaining invested in the markets. In the eye of the storm, it can be easy for anyone to lose their nerve, throw in the towel and move assets back to cash. Over the long-term, even short periods of time spent outside of the capital markets can be very detrimental to the long-term growth of your wealth.
Indeed, analysis conducted by investment manager Vanguard has shown that this ‘hand-holding’ role can account for up to an extra 1.5% per annum in returns compared to clients without investing without a financial adviser. In fact, Vanguard’s analysis shows that, taking into account a number of the less high-profile roles advisers play – including timely portfolio rebalancing, making judicious use of tax allowances, and appropriate asset allocation – advised clients can potentially find themselves around 3% better off per annum than non-advised clients.
Finally, it is also worth noting that fees at both Furnley House and Asset Intelligence are percentage-linked to the size of the assets we manage for you. That means that, aside from the values we wholeheartedly espouse, our interests are intrinsically aligned – when your assets grow, our revenues grow – and when your assets shrink, our revenues shrink.
Put another way, the better you do, the better we do!
https://www.fca.org.uk/publication/corporate/evaluation-of-the-impact-of-the-rdr-and-famr.pdf
https://www.vanguard.co.uk/content/dam/intl/europe/documents/en/quantifying-vanguards-advisers-alpha.pdf
