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One of the hallmarks of a savvy investor: Concentrate on the charges
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| The good news: The initial commission you pay to your adviser or product provider when you purchase a financial product is clear and easy to understand, so long as it is disclosed at the time of purchase by the company you buy the product from.
The bad news: What is not so clear, and never has been, is the ongoing charge you continue to pay each and every year on the financial products you own.
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| Research isn't just for the markets |
| One problem that some investors make is to spend all their time researching the markets. Are Bonds a sound buy, what about the FTSE, can China's economy be trusted and if so should I invest.
But as important as this kind of research can be there's often a simpler way to get a better return - spend some time researching the running costs of your investments and work out if you're getting value for money.
If you own any sort of financial product at all e.g. a personal pension, unit trusts, an ISA, life cover, other insurances, an endowment, investment bonds etc, you will be paying some level of charge to the product provider.
The amount of charges you pay can vary depending on the company and the product involved. However the real issue at hand is not necessarily how high these charges are, although they can be surprisingly high, but the fact that you get almost no service whatsoever for what is called a management or administration charge.
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| Do you know how much you're paying? |
| All financial products have built in to their charging structure not only an initial commission that funds the product provider's and adviser's running costs and profits, but also a ongoing charge that continues to fund their running costs and profits year after year.
How many people know that they are paying an annual management charge on their unit trust, or an annual administration charge on their ISA and personal pension every year?
How many people can say they know how much they pay towards the running costs and profits of their product provider every year?
How many people can say they are happy at the thought of a financial adviser that they haven't spoken to for 10 years, still living off that pension they sold you, or that ISA they arranged for you all those years ago?
How many people were told when they bought their ISA, or their pension that they would be paying not only an initial commission but also an ongoing commission every year?
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| Too many investment firms + too many advisors = not good for investors |
| The fact is too many companies and too many advisers in the UK are living off their historic sales, still earning an ongoing commission and are providing no service in return whatsoever.
But at my company, Investor, Profile we think this is not only daylight robbery, but plainly not fair.
After all you wouldn't find Currys selling you a TV and charging £500 up front and then asking for £50 a year to help fund their running costs and profits.
There is enormous pressure for product providers to reduce their ongoing charges. However insurance and investment companies have made a nice living off keeping their charges disclosed at worst, and conveniently high at best for more than 100 years. So the likelihood of change is a long way off.
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| So what can you do about it? |
| Investor Profile has created a way for you to gain much better value for money.
By becoming a client of our Easy Viewer Portfolio you will be able to gain online access to your investments, including fund details and latest valuations, as well as access to your personalised portfolio report any time you need it. On top of that we provide you with all of your administration needs and will keep you up to date with important investment and financial planning news.
The reason we do this is so that you can get better access to important information about your investments. That is, the job that your product provider or financial adviser should be doing.
The way the financial services industry works is that a product provider has a set annual management charge. Whether they pay a financial adviser some of this or not they will still charge the same amount to their customers' policies.
So what we do is charge the product provider a portion of the annual management fee that they normally set aside for an adviser, or would otherwise keep for themselves to line their own pockets, and provide you with the best service we possibly can. This way we can make sure you are getting good value for money out your annual management charge regardless of the products you own.
For more information about how you can register for Investor Profile's Easy Viewer Portfolio please visit the Investor Profile website.
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