How the wealth industry risks failing its clients

An extraordinary thing happened during lockdown: many of us finally came to terms with the fact that our personal finances don’t take care of themselves. We actually have to engage with them.

Our renewed focus makes sense. We have been confined to our homes for an extended period, at a time when our finances have been buffeted in some fairly frightening ways. This has made us all start thinking: is our retirement planning still on track? Are our outgoings still supported by our investments and other income? Do we need to confront our own mortality and hence our inheritance planning?

In last week’s FT Weekend Festival discussion on the “language of money”, it was clear that financial consumers are seeking answers to these questions, but are struggling with the jargon, the paperwork, and the general obfuscation that can make looking at personal finance such an off-putting and alienating exercise.

Two datapoints help to highlight this problem. Passive funds, or trackers, are designed to be a low-cost way to invest in different markets around the world and are becoming increasingly popular as an alternative to more expensive active funds. But, according to Vanguard, we have bought more than £9bn of funds that are labelled as trackers, yet are still priced closer to active funds by their providers. Language can be deceptive.

Another concern is HMRC’s latest Isa stats, showing that of the £584bn held in adult Isas, 46 per cent or £268bn is held in cash. While cash has its uses, it makes little sense that almost half of savings in this excellent and simple tax wrapper should be languishing in accounts that earn less than inflation, rather than being invested in stocks and shares that provide the potential for more meaningful returns over the long term. In both of these examples, consumers have gone part of the way to accessing value, but the wealth industry has not helped them on the final and most important part of the journey.

This is where wealth management is falling down. As a result, we run the risk of failing investors who rely on the sector to help them reach their goals. There is too much focus on products, an overdependence on impenetrable language and too little done to help clients fully understand how to line up investments against their individual life needs. It’s time to use modern technology and processes to bring people closer to their money.

We now have a real chance to adapt the way wealth management is both delivered and communicated. For example, how about providing investors with online illustrations that show the impact of all-in fees on returns over time? If you pay 1 per cent more in annual fees than necessary, it can compound up to a 14 per cent hit on your wealth after 10 years.

This type of illustration can really grab attention. On a pension of £1m, that’s a terrifying £140,000 that could otherwise extend the pension pot or be part of your IHT-free assets on death (add or subtract noughts as you wish — the point is clear). Or maybe you don’t need annual advice and would like to know that you can access it when needed on an hourly basis, rather than included as part of an inflated all-in annual fee.

At this point there will be much gnashing of teeth by those arguing that it’s not a question of fees, it’s a matter of value for money. I’d argue that it’s both. Today, we can offer the combination of highly experienced advisers and investment managers, with all the benefits of modern technology, which makes for a highly potent mix. What is more, it seems that this combination meets the definition of value for money which investors are now seeking.

Let’s focus on what we can control and give investors the best chance to meet those important financial goals

According to a survey conducted for Netwealth by Censuswide this July, attitudes are changing quickly. Of the 1,000 participants — split roughly 60/40 between those with their wealth managed by an adviser and those who use a DIY platform — 70 per cent want to be able to track their portfolio performance online, 63 per cent expressed a desire to manage their accounts fully online, including updating cash flows, adding to portfolios or transferring Isas or pensions.

Over half (56 per cent) placed greater importance on having access to online financial planning tools. And back to that thorny issue of cost: 56 per cent of those now considering switching stated it was due to high fees.

There is no doubt that clients still value advice; it’s just more likely to be delivered remotely. In fact, of those surveyed who have until now been managing their money themselves, 41 per cent now consider that having access to professional advice is important.

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This is what modern wealth management must deliver: excellent, human-led services with technology that provides clients with full transparency, flexibility and more control.

No one knows quite what the markets will deliver, so let’s focus on what we can control and give investors the best chance to meet those important financial goals. This can be done with no compromise on quality yet with a much improved client experience and at a much lower cost.

With this type of modern wealth management service, clients can make up their own minds about value for money. They may even find that personal finance can be quite fun.

Charlotte Ransom is chief executive of Netwealth