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The UK’s wealth management industry still has “incredibly complex” fees and some firms even use “deliberate obfuscation” to disguise their true costs, according to the founder and chief executive of Netwealth.
Charlotte Ransom established the discretionary wealth manager a decade ago with a focus on offering lower and clear charges to attract customers seeking financial advice and investment management.
But she said the industry has not properly addressed the issue of complicated and hidden fees during this time, deterring many people from investing or leaving them unable to make comparisons in the market.
“I do think there is a level of deliberate obfuscation . . . in order to make it harder for clients to understand,” she added.
Her comments came as the Financial Conduct Authority issued proposals on Thursday to simplify how platforms, advisers and wealth managers communicate the costs of investing and ensure that they use “plain English” for clients.
The FCA said it will consult on simplified rules for how firms communicate the costs involved in investing, from product charges to advice. The regulator added that it would ban “double dipping”, where wealth managers or investment sites take some of the interest on clients’ deposits, while also charging a fee for holding the cash balance.
The issue of jargon and charges has long clouded the industry and left customers in the dark, despite sweeping regulation over the years aimed at tackling the problem, Ransom said.
Even though the UK financial watchdog unveiled rules under the Retail Distribution Review (RDR) in 2013 to help customers receive financial advice with more transparency over fees, Ransom said that the wealth management industry has not properly addressed the problem.
“More than 10 years in [from RDR] this simply hasn’t materially changed,” she said, referring to complicated structures and hidden fees.
Certain wealth managers have come under scrutiny for their charging structures to ensure that clients receive a fair deal, as the recent Consumer Duty regulation has sharpened focus on the issue.
St James’s Place, the UK’s largest wealth manager, overhauled its fees last August and removed a punitive “exit” charge for new clients, although those who joined before that month are still subject to this fee.
Last month, wealth manager Rathbones said it was halting investments from high-risk clients following a review by the regulator. It noted in the same announcement that it would stop charging fees on cash sitting in clients’ discretionary accounts from July.
Chris Bredin, consultant at research firm The Lang Cat, said: “It helps to separate two things: what an adviser or wealth manager charges for their advice and ongoing service, and what sits underneath that, the platform, investment and cash interest retention that come with any portfolio.
“Both are disclosed reasonably well in isolation, but meaningful comparison is very challenging.”
Netwealth, which has just over £1.5bn in assets and just under 3,000 clients, typically runs portfolios worth £500,000. The wealth manager is chaired by Edward Bonham Carter, the former chief executive of Jupiter and veteran City fund manager.
For clients receiving both investment management and financial advice, Netwealth charges 0.7—1.1 per cent, depending on the size of a client’s portfolio, plus investment fees ranging from 0.1 per cent to 0.45 per cent.
The company notes on its website that even a saving of 1 per cent on fees on £250,000 over two decades equates to £114,000.
“You can’t control what markets do, but you can stay invested and keep an eye on costs,” Ransom said.
Gina Miller, who has long campaigned for transparency over fees, said: “More than a decade after RDR, it’s shameful that investors still can’t see what they’re really paying when they invest. That isn’t complexity — that’s a choice.”
