How do you run your own money safely?
There are no guarantees in investing. The value of an investment may fall as well as rise however you invest and with whoever you invest. You may get back less than the amount invested.
But in real terms, it’s the only way you may get back more than the amount invested, as cash savings carry a high inflation risk.
What are my top tips on how to run your own money safely? Here I’m talking about financial assets rather than property or business assets. Keep it Boring!
I’m the former head of investments at HSBC, and previously I held that position for other banks. I am an investment expert and frequently consulted by and quoted in numerous articles in Financial Times, The Mail on Sunday, FT Adviser, Money Marketing, and IFA Online. Here is what I have found.
Firstly, let me share three of the best words of wisdom I have heard.
1) Christopher Woolard CBE. Board trustee of the UK Consumers’ Association, Which? And the former interim chief executive of the FCA. In September 2020, he said:
“The overwhelming majority of retail investors are best served by readily understood, well-diversified and low-cost investments, which are already available from a range of providers, but many retail investors don’t choose these.”
2) Gareth Fatchett. FS Legal Solicitors LLP. Shortlisted for International Lawyer of the Year by the Birmingham Law Society, Gareth has acquired an exceptionally high profile, both nationally and internationally, in the financial services sector in acting for large groups of investors who have received negligent financial advice and who have been financially devastated as a result of collapsed funds and schemes.
Gareth has in-depth experience in a wide variety of failed funds and investments such as Harlequin, Arch Cru, Keydata Investment Services Limited, ARM, Stirling Mortimer, Unregulated Collective Investment Schemes (UCIS), Sustainable Growth Group, Alpha Bank – Cyprus, Green Oil, to name but a few.
“The best investments are boring.”
3) Robin Powell, freelance journalist, reporter, and documentary maker for Sky News, ITV News, and the Politics Show on BBC1. He campaigned for better investor education and greater transparency in global asset management. His blog — The Evidence-Based Investor and Adviser 2.0.
“Once you factor in fees and charges, actively managed funds subtract value for investors rather than adding it. If you really, really want to use an active fund — and there’s overwhelming evidence that you shouldn’t — look for one that 1. has a low AMC and 2. keeps its trading costs to a minimum. The less you pay, the more you keep for yourself. It really is that simple.”
In short, then, retail investors are best served by:
- Index funds
To this, I would add auto-rebalancing. You buy and go live your life. You may be tempted to try and do better. I say we don’t waste your time.
Why is this important?
According to the FCA, 27.7m adults in the UK have characteristics of vulnerability, such as poor health, low financial resilience, or recent adverse life events. That’s nearly half of us. Adults with more vulnerable characteristics are more susceptible to scammers.
I’m also in the asset recovery business. CEO of Asset Recovery (UK) Ltd. I have witnessed many people lose their life savings to scammers; the impacts on their lives can be devastating.
The advice is to check whether an investment company is a genuine FCA-regulated advice firm. I say:
- Don’t talk to anyone on the phone.
- You’re not going to find an excellent investment on the internet.
- Scammers imitate regulated advice firms (even my firm!)
- Don’t trust anyone.
- If it sounds too good to be true, it undoubtedly is.
What you should do instead is:
Sign up for Which Money . Choose an investment platform and take it from there.
What about independent advisers?
You may be told to seek independent financial advice first if in doubt. And check the FCA register. There are many great IFAs out there doing a terrific job. But according to the FCA, there are also a few bad apples.
Make your own decision on this one. But, here’s what I found and why I chose to be advice-only.
IFAs are not independent of products; that’s how they get paid. That puts some pressure on them to sell a product. Yes, they are regulated, and the protections are marginally better than unregulated advisers (note you have a private right of action against unregulated advisers that you don’t have with regulated advisers). I concluded from my own experience talking to my clients that the track record of investment advisers is not that great.
- Many pride themselves on being clever investment advisers and selling you their story. The truth is that 99% of advisers fail to beat the index with their centralised investment propositions. They don’t add alpha; they take beta away.
- Gareth’s failed funds and investments include Harlequin, Arch Cru, Keydata Investment Services Limited, ARM, Stirling Mortimer, Unregulated Collective Investment Schemes (UCIS), Sustainable Growth Group, Alpha Bank – Cyprus, and Green Oil, to name but a few. They were all recommended by clever (regulated) investment advisers.
- The clients I referred to Gareth had valid indemnity claims against their IFAs. But typically the IFA went bust, had lapsed Professional Indemnity insurance policies so claims could not be honoured, personally declared themselves insolvent to avoid private action, FOS claims were rejected on bankrupt distributors, and FSCS compensation was limited. Protection varies depending on the product type; some investment products aren’t protected. Also, there are limits to the amount they can compensate too if the firm fails after 1 Apr 2019 – up to £85,000 per eligible person.
- Failing regulated distributor firms is not uncommon due to failure of funds or investments, also see BSPS scandal failures. This happens again and again.
- According to AJ Bell, the most popular investment funds recommended by financial advisers are Vanguard LifeStrategy funds, yes, you guessed it, simple, diversified, low-cost, boring, auto-rebalancing index funds available to consumers direct. After the advice firm has tapped into the product for fees, there is a relative loss for the investor. That’s why intermediation adds no value in a commoditised market.
Financial planning, on the other hand, adds loads of value. Where an IFA includes financial planning, they add value.
So, if you were worried about running your own money, don’t be. Sign up to Which Money for DIY investors. Get yourself the world’s first customer-directed Open banking-powered financial planning application for DIY planners – HapNav. And seek additional support from your advice-only financial planner as and when you need it.
Our initial assumption is most of the time; you should do things for yourself with the right support.