The “Real” Cost of Investing

In an ever increasingly competitive market place where “value for money” is a key driver in the mind of a consumer, how do Independent Financial Advisors (IFA’s) offer true value?

Basic product offerings tend to be very similar and generic and from a shared pool of providers. Costs to consumers vary only slightly (often driven more by investment premium rather than anything else) and claims of enhanced servicing levels are met with a degree of cynicism.

Typically, investors would incur fees at two levels. Firstly, when the “structure” or platform is set up to hold the investments and secondly, upfront fees paid when the investments within the structure are actually made. Fees for the setup are unavoidable, but have you ever considered what the impact of upfront fees are on the investments? Have you ever asked your IFA how these fees affect your savings over the long term?

Did you know that you can access the same investments, with the same returns, but pay ZERO up front fees?

Our investment philosophy and offering at Carrick* is that we don’t charge our clients any entrance fees into any of our investment options. Your money is fully empowered to work for you and your long-term financial well-being.

The graph below illustrates the hugely damaging effect upfront fees have on an investment. They are based on an initial investment of £250,000 growing at an annualised rate of 7%**, with reinvestment into the same product of those returns, every 24 months. For the purpose of the illustration, only one investment strategy has been used***.

  • The blue line shows the size of your savings if you had invested into the investment strategy that charges an upfront fee of 4%
  • The red line shows the exact same strategy but, without the 4% entrance fee.

The “real” cost of investing

As you can see the difference between the two is massive!

  • After just 5 years the gap between the two pots is over £43,000 (£375,183 compared to £331,938).
  • After 10 years the gap is an even bigger £114,000 (£526,213 vs £411,897).
  • After 20 years the variance is a whopping £374,000 (£1,035,141 vs £660,667).

There are IFA’s out there who promise great returns, but choose not to divulge the “hidden” costs and impacts that come with those returns – ask yourself a simple question:

“Would you rather have an extra 370K in retirement, or are you happy to pay it to somebody else?” ****

* Carrick Financial Services is an Authorised Financial Services Provider
** Terms and returns will vary depending on market conditions.
*** Carrick does not advocate the use of a single investment strategy, but rather advises clients to diversify their portfolios by means of multiple investment strategies and options.
**** The above should not be construed or acted upon as advice and is solely to be used for illustrative/educational purposes only.

Post Categories: Financial News

Leave a Reply

Your email address will not be published. Required fields are marked *