I have met many investors with a very negative view of the financial services industry. They may have read articles in the national media about advisers ripping off investors, experienced poor financial advice themselves, or simply believe they can do the job just as well, without having to pay a fee.
I feel the same way about dentists. I find it very difficult to pay a large sum of money on a regular basis to a professional who says ‘Yes, everything is fine’ year on year… until something happens. As there is nothing worse than toothache, I am then more than happy to pay that professional to fix it, service my teeth and make sure it never hurts again, regardless of cost.
Investors now have toothache, and this is a great opportunity to highlight the benefit of professional advice.
Worldwide, clever financial professionals are all trying to compete against each other to grow the wealth of their clients, and there are thousands of funds to choose from. If you are not working in the financial services industry, what access do you have to information that gives you an advantage over all these professional global market makers?
On the other hand, many investors have been lucky with stock picking over the past decade and feel strongly that they do not need to pay for financial advice. I have lost count of the number of times I have been told ‘We are very happy with the returns we are making.’ My answer is simply “Compared to what?” When stockmarkets are rising like they have over the past decade, everyone makes money.
I met an investor in July 2019 who had a large sum invested with Hargreaves Lansdown. She studied the stockmarkets and was very comfortable with her fund selections and the return she was getting on her money. However, she asked me for a portfolio review.
My findings suggested that, while the fees were well controlled, she had chosen funds from best-buy lists, recommendations from financial publications and articles promoting individual star fund managers, generally based on performance. No thought had gone into a risk strategy, diversification of global funds or how many stocks each fund held, or whether these stocks were duplicated in other funds. Why would she even be aware of these issues?
After I sent my report, she decided to take her own advice. As the total cost of the industry fees was going to increase by £743 per annum (albeit with advice), she concluded she was in a financially better position using the DIY method she had used over the past decade.
