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The Costs Dilemma in the Modern Wealth Management Industry

No doubt, a solid financial advice is essential for a guaranteed a happy retirement. But have you ever thought about how much would you have to pay for it? No wealth manager would give you a ready answer, as it highly depends on a variety of factors, such as portfolio size and other details of the service an investor is looking for. This obscure lack of transparency is quite problematic for the industry.

You might think that company websites can give you a more less clear idea on the prices charged and some valuable insights, and you will be partly right. For instance, the websites of Brewin Dolphin and Rathbones provide a substantial amount of information for potential investors, including the management fees charged. However, the cases when this type of insights are provided are rare. Numerous other websites simply suggest you to contact and organize a meeting with an investment manager, who is supposed to answer all your questions concerning fees charged and eliminate doubts. In the 21st century, when customers’ demands continue to grow rapidly, being transparent and modern, meaning providing a price schedule directly in your website for increased transparency, should rather be perceived as an opportunity and advantage.

Yet, even without the figures in front of your eyes, it is obvious that wealth management advice in its traditional form is not a cheap service. What you know for sure is that there will be a set-up cost, as well as an annual percentage charged. But what you don’t know is that at some point the costs might just become unsustainable and you might start loosing money instead of becoming closer to your goals.

We are not trying to diminish the value of the services provided by experienced wealth managers. At the end of the day, it is in your best interest to get a well-diversified portfolio, adjusted to the amount of taxes you pay, as well as to your personal goals and preferences. And all this doesn’t usually come with a low price tag. Besides, your wealth manager will become a trusted person to talk to about detailed retirement planning and children’s college tuition coverage. At some point, they might even convince you to think outside your box and invest in something you’ve never really thought about as a suitable option to maximize gains. As convincing and pleasant as this can sound, you have to realize that the time you spend talking with this experienced professional in a $1000 suit will cost you money.

You may deconstruct these costs, though, if you think about the amount spent in order to organize this pleasant encounter in a well-furnished office: compliance, legal services, depositories, staff and the list goes on. Then comes the cost division into the money spent on getting the advice and the actual investing price. Investors are generally ok with covering these costs, yet paying for active management (given relevant results statistics) is something they are quite reluctant to do.

What people choose to do instead is refer to the services of managers who buy ETFs, relatively low-cost funds and investment trusts. These give investors a pretty much same type of service in terms of advice, excluding, however, all the fancy excess that you can experience during your visits to a traditional wealth manager’s office. To be more specific, someone with $500,000 in assets would be paying as low as 0.85% in annual charge.

Another fruit of the digital innovation age you can take advantage of is robo-advisers’ services, which are more suitable for the customers who are not looking for constant human contact with the wealth manager and have lower amounts they would like to invest. In this case you get rid of the need to make constant investment decisions and pay significantly less than you would with the old-school type of service.

In a nutshell, we can say that with innovation extensively penetrating all the areas of our lives, wealth management will not become an exception. The optimization and transparency of costs, digitalization and access to the investment portfolio at the fingertips is exactly what modern customers are looking for. This said, the industry should prepare itself for changes and disruptions that seem to be just around the corner.