Why it pays to use a non-intermediating financial planner.
Whether you’re looking to increase your life savings, or protect your assets from tricksters, fraudsters and scam artists, there can be clear benefits of talking to independent financial experts.
Paying someone a fixed fee of £1,500 to help with your money can feel counter-intuitive but expert impartial advice can add real value many times over to your financial future, particularly when information about products and fees is so well hidden and complex. Here are some of the reasons why non-intermediating financial planning can be worth your while.
- A wall between planning and product:
Is your planner paid depending on how much product they sell you? If your financial planner isn’t remunerated by product sales, all of a sudden, you’re guaranteed that the advice they give is independent, impartial and unbiased. Although this non-intermediating model is rare, its fiduciary nature avoids conflicts of interest and ensures that your adviser acts in your best interest all of the time. They’re on your side, as opposed to being an agent for some product provider. Plus, you avoid those highway robbers – offering to ‘take care of’ your money for you. When it comes to financial planning, it always pays to have ‘blue-water’ between us and them, with an expert on your side.
- Potentially adding an extra third to your life savings:
According to ONS, average current investments in London are £106,096 (and in the regions £48,847). According to the FCA, average ‘intermediating’ financial planner fees are 3% initial and 0.5% pa ongoing charges. In London, typical intermediating financial planner charges might be £3,182 plus £530 pa.
What happens with a ‘non-intermediating’ financial planner? When the fee is fixed, at say £1,500, and not dependent on your current investments, you can save instantly. Further savings are available from self-implementing planned solutions, investing for market returns, avoiding platform charges and even tax wrapper charges. These cost savings can mount up over a lifetime. Your impartial adviser can show you how.
To illustrate the impact this can have on your savings, should your funds grow at 6% pa, deduction of annual charges from the intermediary route could total 1.5% pa, when a non-intermediating route can be available from as little as 0.5% pa (for example, a self-implemented passive retail multi-asset fund on a platform). The savings from the difference between a 4.5% pa and 5.5% pa net return on your investments can add up over a lifetime through the miracle of compound interest.
Value of £100 invested:
| Net Return pa | 10 years | 25 years | 40 years | 65 years |
| £100 @ 5.5% | £171 | £381 | £851 | £3,246 |
| £100 @ 4.5% | £155 | £301 | £582 | £1,748 |
| % lost in charges | 9% | 21% | 32% | 46% |
For example, a 60-year-old expecting to live for 30 years until age 90 with a £100,000 current investment may see the value of the final estate at age 90 to be £375,000 @ 4.5% pa growth, or £498,000 @5.5% pa growth. A difference of £123,000!
That is, the 5.5% route adds an extra third to your life savings!
Ask yourself, what am I getting for the extra 1% charge? It’s not additional investment return. If your intermediating financial planner claims to be able to beat market returns on your investment … run a mile! According to the Pensions Institute 99% do not. And, the 1% that did, did so by luck, and can’t be chosen in advance.
- Avoid the ‘do nothing’ scenario wiping 75% off your savings:
95% of the population are disintermediated due to their limited wealth, as many financial advisers have a threshold of £100,000 or more in investable assets before they will take on a client. If this is you, the option for these underserved individuals is to either self-invest, or do nothing.
60% of the population have little or no savings. Without an adviser to encourage them, many never begin to save. Thrift is a very much outdated concept. Even if you do save, leaving the money in a bank account or savings account can deplete your potential life savings.
Cost of leaving money in a deposit account:
| Net Return pa | 10 years | 25 years | 40 years | 65 years |
| £100 @ 0.5% | £105 | £113 | £122 | £138 |
Self-investing can be scary when you don’t have an expert on your side. It’s easy to fall victim of highway robbers when self-investing when you don’t know what you’re doing, I’m sure you would agree. But, staying in cash can be equally as costly.
For example, if the 60-year-old above had left their life savings on deposit paying 0.5% pa the value of the estate at age 90 is £116,000. A difference of £382,000, when compared to the 5.5% scenario.
That is, the 5.5% route gives you more than a four-fold increase in your life savings when compared to a deposit account.
The value of investments can fall as well as rise. You may get back less than what you paid in. Future values are not guaranteed. The figures used above assume income is reinvested, are before tax, are for illustrative purposes only and actual interest rates and investment returns may vary. In real terms, that is allowing for inflation, the final figures can be far lower.
Which one will you choose: Intermediary; Non-intermediating financial planner; or do nothing?
Academy of Life Planning 