Investment advice annual fees: good value for money or drag on returns?

A story recently caught my eye in the Sunday Times. It was about an investor who’d paid about £10,000 since 2011 for ongoing financial advice he didn’t receive. 

It’s not an isolated case. More than 230 financial advice firms are charging pensioners for annual investment reviews they never get, the regulator, the Financial Conduct Authority (FCA), has warned. 

Meanwhile, as widely reported, some of the UK’s leading advice firms have set aside budgets – running into the hundreds of £millions in some cases – to compensate investors for this.  

Only some investors will be directly affected by this. But it might prompt others to look at their arrangements and question if the balance between what they pay and what they get is quite right. 

Here, we’ve looked at the impact of charges on returns and possible alternatives experienced investors happy to make their own investment decisions may want to consider. 

Important: The information on this website is for experienced investors. It is not a personal recommendation to invest. If you’re unsure, please seek advice.

What is the cost of advice – and how does it impact returns?

When you take advice – from a financial adviser or a wealth manager – you normally pay an initial adviser charge, typically ranging from 1% to 3% of the amount invested, occasionally reaching up to 5%.

But the bulk of the expense normally comes later, in the form of annual charges. It’s estimated annual charges for advised portfolios are around 2.2% (some of this will be investment expenses and some might be for ongoing advice). 

If you invest £250k and the investment grows 7% per year, an initial charge of 5% and an annual charge of 2.2% could cost you nearly £600k over 25 years. 

Whilst investment advice can be very valuable, if you don’t need it, it can eat into returns. Not only do the fees reduce the value of your investments, you also miss out on any returns you would have earned on those fees. 

Meanwhile, if your annual costs were halved to 1.1%, you might have an additional £280k in your portfolio after 25 years. 

The chart below shows the difference in returns.  It compares advice fees of 5% initial and 2.2% per year vs. no initial charge and 1.1% per year.

Impact of charges on returns

Source: Wealth Club. Assumes growth of 7% per annum. The average ongoing cost of a Wealth Club Portfolio is 1.08% (November 2023). For illustration purposes only.

But the real question is: are you happy with what you're getting for the money you are paying?

What might you consider?

If you don’t need ongoing advice, experienced investors could make significant savings – up to 40% – by switching to a non-advised managed portfolio (the Wealth Club Portfolio Service is an example). 

Here, you still have a well-diversified portfolio built, managed and monitored for you by investment professionals. The main difference is that you will decide which portfolio is right for you, from a range with different risk profiles, without receiving advice. 

Important: the Wealth Club Portfolios are discretionary managed portfolios of funds and investment trusts and are for the long term. They can go down as well as up in value – returns are not guaranteed. Before transferring a pension you should check the costs involved and whether you’d lose any valuable benefits.  The Wealth Club Portfolios are managed by Wealth Club Asset Management Limited, a wholly-owned subsidiary of Wealth Club Limited.

How does the Wealth Club Portfolio Service work?

Our portfolios invest in a diverse mix of 30–45 actively managed and low-cost index funds as well as investment trusts. They give you exposure to equities and bonds from around the world but also infrastructure and other private assets; from mainstream managers such as Artemis and Fundsmith to those you might be less familiar with such as Comgest, Dodge & Cox and Brookfield.

There are five investment portfolios – Conservative, Balanced, Growth, Adventurous Growth or Income. You choose which you think is best for you, based on the level of risk you are comfortable with. We do the rest: make the investment decisions and regularly rebalance the portfolio. 

These portfolios have been over two years in the making. We have reviewed 2,509 funds and investment trusts. We have done all the time-consuming legwork so you don't have to. 

You can invest through an ISA, SIPP or General Investment Account (GIA). You can invest new money or transfer existing investments.

Who manages the Wealth Club Portfolio Service?

The portfolios are managed by our Head of Investment Research Jonathan Moyes and his team. Jonathan previously co-managed £400 million across over 10,000 discretionary investor portfolios at award-winning wealth management boutique Whitechurch Securities. 

Under Jonathan’s tenure, from 2011 to 2019, the average portfolio in each risk category significantly outperformed the average wealth manager. His portfolios also consistently won awards for their risk-adjusted performance (PAM Award – 2016, Portfolio Adviser – 2014/16/18, Citywire – 2014/15/16), and he is a Chartered Fellow of the CISI. Past performance is not a guide to the future. 

Register your interest

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.