Take a look at the article in the Express. . A graph shows it takes 25 years to accumulate £100,000 paying £154 per month and indexed at 2%. The average UK investors pay on average over 2% per annum in costs and fees. So when the investor reaches 25 years, based on 2% costs, about 66% of monthly premiums are taken to cover these fees.
When you pay for investment services, you might think percentage fees are relatively small, but sometimes you need to look at things from a fresh perspective.
How did we get to 66%?
When fund and wealth managers talk about their costs, they say things like ‘only 1%’ If you use the highest possible denominator and lowest numerator, it makes the costs look almost insignificant. If we analyse the article in the Express. In 25 years time, with 2% inflation, your contribution is now £252 per month. But if you convert 2% fees and charges, you end up paying over £166 of your contribution in fees and costs. Is that fair? The industry will say, of course, its fair, but is it fair to you? If your future self was told, set up a pension and 66% of your contributions were taken in fees, you would be outraged.
Why don’t wealth managers and product providers frame costs in this way; it’s not to their advantage to do so? If it’s not in their favour.
The key focus is to understand what you are actually paying for? You can then decide what is fair and not fair. Always remember the seller is doing everything in their power, legally, to entice you to buy. Caveat Emptor every time.