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The Chase Buchanan teams around the world are focussing on making sure every one of our clients is 2021 tax ready. Repeatedly, as we conduct investment portfolio reviews and fee comparisons, we uncover ‘hidden’ costs – that aren’t always understood.

So:

  • How can you assess whether your investment fees are competitive?
  • Do you know how much you are ‘really’ paying per annum?
  • And why is a portfolio review essential for every investor?

Let’s take a look.

The Role of Portfolio Reviews in Being 2021 Tax Ready

Perhaps you feel that an investment portfolio review sounds like an unnecessary use of your time?

If your products are performing well, you’re making sound returns, and you are confident that your investments are being handled in the right risk exposure category – why would you benefit from a review? The overriding issue here is that reviews are vital to the continued health and growth of your portfolio.

Risks change, climates evolve, plans progress and markets expand. And so, to have a clear overview of the ideal investment strategies to align with your future goals, it is beyond critical to engage in a comprehensive review to assess whether there are ways to maximise your returns. This year, such reviews have become even more essential, in the advent of Brexit.

Changes to tax legislation and citizenship status may have profound impacts on the stability and tax efficiency of investment vehicles. Time is of the essence to structure your portfolio in a future-proof way.

The other priority factor is to analyse your costs. Many Chase Buchanan clients come to us and are astonished at how revealing a cost-comparison can be. A vast number of investors aren’t clear about what their fees cost per annum, how they are structured, and what impact they have on net returns.

Therefore, being 2021 tax ready isn’t just about the nature of your investments – it is about safeguarding your assets to ensure they are performing to your optimal benefit.

 How Investment Fees Impact Your Returns

Financial advisers (of any type) must disclose the fee basis before they begin managing your portfolio.

However, there is a great potential for hidden costs – where investors don’t understand where that cost is being charged, or how it is calculated. It is easy to focus on investment returns and growth figures, but the reality is that high fees can have a tremendous impact on your net investment returns every year.

Here are a couple of basic illustrations:

  • You invest £100,000 today, with a 4% annual return. Your wealth manager charges 2% in yearly fees. In 10 years, you have earned £21,899 on your investment. Had you opted for an independent investment portfolio review, and switched to an adviser charging 1% per annum? You’d have increased that return by £12,494.
  • You invest the £100,000 in a mutual fund, with a 1.5% charge per annum. That doesn’t sound like much! However, in the same ten years, you will have paid £15,000 in fees. Had you invested in a fund with, say, a lower 1.2% fee, you would have paid £3,000 less.

These simple figures show how even fees that appear low can quickly stack up; and take a chunk out of your returns.

If you’re not certain about what your fees are, don’t have a clear breakdown of how they have been applied, or aren’t sure whether you are paying more than you should be – it is time for a portfolio cost analysis.

Why an Investment Portfolio Cost Analysis is Vital

Chase Buchanan offers our clients access to our cost-comparison tools, which enable us to identify what you are paying clearly, and the impact on your investment portfolio.

The benefits of doing so are immeasurable:

  1. Identify what fees you are paying, including those that aren’t immediately apparent.
  2. Receive impartial advice about how those costs relate to the sector, and if it is likely, you are paying over the odds.
  3. Fresh advice regarding long-term investment products, and whether more tax-efficient or higher return opportunities now exist.
  4. Calculating the savings available by reducing your fees and how much you could boost your portfolio income by.
  5. Demonstrating the impact of hidden charges and how you can mitigate the underlying implications for your investment portfolio.

As with all industries, there is a world of difference between advisers and the value for money on offer. It may be that we identify that your portfolio fees are reasonable and competitive – but by and large, we find the opposite. Working with an adviser or wealth manager is based on a foundation of trust. Investors often trust that their adviser is doing the right thing, and therefore give them free rein to charge fees or uplifts, even when a negotiation would be advantageous.

Over time, portfolios diversify and expand, and so pre-existing fee structures may remain in place, even if they no longer remain beneficial. It’s worth remembering that an adviser is managing your portfolio in return for professional fees.

As with any ongoing service, you have control over managing those costs, and being able to make an educated decision about whether the expenses you are paying are no longer in your best interests.

Investment Portfolio Fees

The biggest issue with understanding investment portfolio fees is that these can vary significantly depending on what sort of products you own. Most investors are busy people, and simply do not have the time to conduct a thorough analysis of their annual statements.

This complexity leads to situations where investors are paying far in excess of what would be reasonable, and are reliant on investments to fund their retirement aspirations or life goals, while not receiving the full value of returns they should be expecting.

We wouldn’t buy a home without reviewing the local market – and so it stands to reason that it is crucial to compare fees between asset managers!

Here are some of the most common types of fees:

  • Advisory fees (or management fees): the professional fees charged for selecting a fund, or building a portfolio.
  • Annual expenses: usually a yearly charge as a percentage of your portfolio. This type of fee is charged as a yearly expense on exchange-traded funds and mutual funds.
  • Exit fees: costs incurred when you sell unit trusts or OEIC assets.
  • Investment management costs: fees charged for selecting new investments for your portfolio, or researching new opportunities.
  • Loads or transaction fees: charged when you instruct your adviser to make a transaction. Back-end loads can be a significant cost, charged by some mutual funds when you sell fund shares.
  • Performance charges: applied by some funds in addition to annual fees, when specific targets are reached.
  • Platform fees: charges levied by online fund platforms.

Some fees are payable directly, some are deducted from your fund, and others are charged when a specific event or transaction takes place. So it is very likely that fees are being taken from your portfolio value without your needing to make a bank transfer or sign a cheque.

 

Chase Buchanan provides professional wealth management services to clients all over the world. We have offices across Europe, as well as global offices in Canada and the US, and an Administration Centre in the UK. Our role in investment portfolio reviews is to ensure that you are 2021 tax ready, your investments are positioned for optimal stability and returns, and your fees are competitive, reasonable and transparent.

Contact us today to book in your portfolio review and cost-analysis; and make sure you are ready for the changes next year will bring, with your investment funds aligned in the best possible way.