As financial planners, we like to concentrate on the things we can control, i.e. the risks you take, the tax you pay and the fees you incur.
Fees are necessary, as they facilitate the management of your investments, but they must be appropriate and not so excessive, they impede the performance of the financial strategy we’ve agreed upon.
The pension perspective
It is possible to have what is known as a ‘defined benefit’ pension, upon which you, the individual, would not incur any fees. As long as you remain in the scheme, arguably, your investment journey is mapped out for you. Even if you leave, the company sponsor takes on the risks and incurs any charges, but this is not necessarily the best package for everyone. You may need to follow a different course.
In a previous blog, I talked about how it was essential to plan your investment route, likening it to long distance cycling, where you need to conserve energy to reach your end goal. In this analogy, the rate at which you expend energy compares to taking an appropriate amount of risk, whilst the bike’s brakes represent the fees you pay – apply them too heavily and they will slow you down.
Small percentage, big difference
How much performance is impeded by fees has been quantified recently by investment house, Vanguard.
Over a ten-year period, it calculated the amount of pension you have left after annual fees of 1.5% is 85.9% and 77.6%, if you pay a management charge of 2.5%. On a fund of £250,000, this one per cent difference equates to £20,850, a considerable amount of money!
However, this data assumes a zero rate of return and no market movements. This isn’t totally unheard of. It arguably happened in Japan in the early 1990s and was known as the lost decade. (It followed a long period of expansion and low interest rates. Sound familiar?)
At Belmayne, we aim to offset our fees and actually add value, by using the right investment solution and the right asset allocation. We also rebalance your investments at the optimum point and use efficient tax planning, withdrawal strategies and behavioural coaching.
As holistic, chartered financial planners, we have the requisite knowledge and expertise to deliver a bespoke service that will support you, ensuring the fees you pay won’t put the brakes on your investment journey.
If you’d like to learn more about Belmayne’s approach to controlling fees, don’t hesitate to contact me on (01246) 298181 or email: email@example.com