My latest Best Advice column was published this week by Money Marketing magazine, looking at the breakdown of costs when investing money.
My adviser has recommended that I use a wrap platform for my investments. He has told me how much of the annual management charge he gets as commission but seems reluctant or unable to tell me how much goes to the wrap provider or fund manager. I know the total cost but not the breakdown. Should I be concerned?
This is a hot topic. There are, as you have identified, three parties on any given wrap platform – the wrap provider, the fund manager and the adviser. Each of them will want to get paid.
Your adviser must and should disclose to you the amount of remuneration they receive and you can then use this information to help you judge value for money.
You will want to determine how much the adviser charge is in monetary terms in order to compare that with the standard of service they provide.
The provider of the wrap platform will also want to be paid and again it seems fair that you know how much they charge for the facilities they offer.
Finally, the fund manager will want to charge for the investment funds they administer.
I am in favour of transparency. You should know exactly what the total cost to you is as well as what they constituent parts of that cost are.
Probably the biggest single barrier between the consumer and the financial services sector has been the opaqueness of certain financial products, perpetuated by a reluctance or inability to say who gets paid what.
There is an argument from some quarters that consumers should know the total cost but not the components of that cost.
That must surely be wrong. I am not sure what the supporters of opaqueness are afraid of but forward-thinking advisers and providers support transparency.
Often, this argument is justified by the suggestion that people do not want or need to know the breakdown. I disagree.
Part of the problem, we are told, is that the fund managers have entered into commercial deals with wrap providers and, if these deals were to become known, they would damage the relationships that fund managers have with other wrap providers.
In other words, the fund managers may be offering varying annual management charge rebates to each provider.
You can sort of see the logic in this because one wrap provider may be able to distribute more of a particular fund than another, so offering a higher rebate to the first makes commercial sense.
But I sense there is more to it than this. To a certain degree, this is also about resistance to the modern world and some providers are going to need to be dragged kicking and screaming into the future.
This may not be the fault of your adviser. Some providers simply will not make this level of detail available to them.
You could ask your adviser to recommend an alternative wrap provider that offers total transparency. Some offer a platform where the adviser charge is explicit, the fund manager charge is explicit, the platform charge is explicit and where any rebates are paid to the benefit of you the customer.
One or two clicks on a screen and you can see each of the credits to your account. Total transparency, no smoke and mirrors. Now that is the future.
