It may sound strange to ask the question, who is your portfolio working for? In an ideal world, the answer should be balanced. That doesn’t mean say 50/50. It means balanced with fairness. It depends on what both parties ‘bring to the table’. The investor brings all the money and takes all the risk. The wealth managers provide investment skills. So what is a fair balance?
Imagine you own a property for rent. Its value is £500,000. The rental is £25,000. The rental company fees are 15%. That’s £3,750 pa. You may shop around to check if that’s fair. If you do not, you may look for an agent with lower fees. Alternatively, you may decide to manage the property yourself. What matters is what work is involved, who is doing it, and who is responsible. So if paying £3,750 to the agent is acceptable, you also need to know what exactly are they doing for £3,750.
If you have £500,000 invested within ISAs, pensions, etc, what is a fair fee for managing your money? Is £3,750 fair? £6,000?£12,500? When does the fee become out of balance when compared to the inputs that each party brings? As an investor you provide 100% of the capital and take 100% of the risk; what is a fair share of the return?
We know it’s hard to determine what is fair. It’s also hard to really understand what you are paying for? But if you don’t know, you’ll find it hard to determine what is or is not fair. Neither will you know if your money invested is working more for your wealth manager than it is for you.
How particular are you about fairness?