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How much is too much when it comes to management fees?

It seems that fees of 1% are deemed a little too high when it comes to managing your money. 60% of savers believe it is unacceptable for their wealth manager to charge more than 1% in fees.1

High investment fees eat returns

Yet many of you can find yourself with an investment portfolio costing around 1.5% in fees for “actively” managed portfolios2. These high fees eat into returns and ultimately lower the value of your savings. In the current income starved environment investors need to be wary of high fees.

This 60% of savers refusing to pay above 1% in fees shows how the consumer has shifted. Years of low interest rates has created a consumer that demands low-cost, high quality alternatives to saving in cash. This consumer is not prepared to pay high fees but they expect a good quality of service. We’ll call them the savvy savers.

The savvy savers are put off investing by the high costs charged by many wealth managers. When not investing many turn to cash savings which, since the Bank of England’s decision to lower interest rates to 0.25%, offers almost no returns. But the savvy saver isn’t wrong to turn his or her back on high costs.

A low-cost investment alternative

There are now alternative forms of investment that provide a cost effective and high quality service and you can access these at a touch of a button. Technology is giving the savvy saver access to a smooth customer experience combined with strong returns that are right for their ambitions. Many traditional wealth managers struggle to provide this tailored solution and crucially this now comes at a lower cost.

For example, Moneyfarm uses technology to rapidly stress test its portfolio against key economic scenarios – like a sudden rise or fall in property prices or interest rates. This is what an institutional investor would get, somebody like the Marks & Spencer pension scheme. Not only this but Moneyfarm also ensures portfolios have proper diversification of risk across asset class and geography.

Savers no longer have to pay through the nose to get a top quality professional asset management service. Traditional wealth managers are essentially risking losing their clients huge amounts of money by charging them higher prices which eat into their returns.

1 Survey of 761 savings/ISA holders.
2 According to research from Morningstar, June 2015.

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