Savers and pension holders wasting thousands of pounds on hidden investment fees, research reveals
Exclusive: Almost half of people investing through an adviser are unaware of impact of so-called platform fees
If you invest your savings through a financial adviser, you may be one of many individual investors unwittingly spending thousands of pounds on a little-known type of fees.
New research seen by The Independent shows that 41 per cent of investors are unaware of the impact of platform fees on their investments. These are charged by online services used by financial advisers to build and manage customers’ portfolios. In 2017, £311bn of investments was managed on adviser platforms.
Adviser platforms charge on average around 0.3 per cent of the latest value of investments annually – a cost that is usually passed on straight to savers and pension holders. AFH Wealth Management, which commissioned the research, provides an example: on a pot of £50,000, invested over 25 years and growing 5 per cent a year, the investor will fork out a hefty £12,500 in platform fees alone, in addition to payments for financial advice.
The 41 per cent of oblivious investors is made up of 27 per cent who know about the fees but are not sure how they affect their investments, and 13 per cent who do not even realise they are paying platform fees.
While in some cases investors themselves can be blamed for the lack of awareness, AFH sees the problem elsewhere. “These findings simply highlight the crucial need for greater levels of transparency, engagement and education of investors”, it says in a report on the research.
But it goes further and questions the very practice of passing platform fees onto investors.
“If a platform offers superior service to advisers, increasing operational efficiencies, is it fair that customers should pay for these very indirect benefits?” AFH asks in the report.
In another quirk of the current system, adviser platforms are chosen by advisers but are paid for by consumers, as the Financial Conduct Authority (FCA) pointed out in a report published in March.
AFH suggests that financial advisory firms should absorb the cost of platform fees and do so without increasing other charges to make up for the expense.
“Unlike ongoing adviser charges and active fund management, which seek to add direct value for clients, platform costs are a dead weight and only subtract from performance,” the firm says.
The FCA stopped short of making the same recommendation in its report on investment platforms.
AFH also found broader uncertainty about fees among a quarter of investors: 8 per cent of those surveyed were confused about what they pay for, an equal share didn’t understand the fees they pay, and another 8 per cent weren’t even aware they pay any fees.
The share of perplexed investors was matched almost exactly by the 26 per cent of advisers who said they had always felt uncomfortable talking about fees and charges.
“Perhaps they feel they can’t justify their expense or there are simply too many charges to explain,” AFH says.
The research is based on two online surveys carried out in November, involving 221 financial advisers in the UK and 1,026 British adults with over £100,000 in personal savings who have seen a financial adviser.