Although a recent FCA report claims that so-called robo-advisers need to be more transparent when it comes to fees, transparency is an age-old problem that pre-dates the rise in online investment services. The focus has shifted recently towards robo-advisers as in theory, digital technologies should make it simpler and more affordable than ever before for people to receive advice on how to invest their money. This is what inspired the creation of evestor. We know that we can operate with much lower overheads, meaning we can provide regulated advice at a reduced cost and pass these savings on to investors – meaning lower fees charge on their money.
Whilst we are seeing the cost of investing coming down slowly (it’s still too high in relation to the services being provided and the expected returns being generated) we are not seeing financial advice becoming more accessible. The industry confuses the public around what is and what isn’t advice and this needs to be addressed urgently.
Most online investment providers don’t provide any advice. This means that investors are paying high fees for essentially clicking a few buttons and auditing their own risk using a relatively simple automated questionnaire.
Whether their choice of investment or product is the right one, or even if investing itself is the right thing to do, is a decision being left to the customer. The non-expert telling the expert what to do.
Yes, a person’s money is invested, and it is right to pay for an investment service, but this does not justify such high fees. Similarly, it’s not in the interest of the investor for them to part with their cash without being provided with actual advice that considers their financial situation, investment experience and long-term goals.
We absolutely need tighter rules on fees and services and how these are communicated to investors. Yes, steps are being taken such as MiFID II, but much more needs to be done.
Just take a look at any of the websites of the large wealth managers or speak with them about making any investment. It’s no easier to understand their charges than it was before the MiFID II directive came into force. This isn’t acceptable and means investors are still paying much more than they imagine.
The best way to create clarity around charges is to outlaw complex fee structures entirely. Instead, there should be one simple all-in cost disclosed immediately at the moment an account is opened. Without question this should include the cost of everything – from advice platform to the underlying transaction costs of the funds.
More importantly, one simple all-in charge would make it easier for investors to compare what they are paying with their hard-earned money across the market. Consumers are able to make such financial comparisons across many other areas of their spend such as insurance or home energy bills, and it’s about time the world of investing and financial advice caught-up.
In the meantime, my advice for investors is ask plenty of questions of their investment provider before parting with their money. They shouldn’t be afraid to ask exactly how much they’ll be paying for their services and when, whether this will increase or if they’ll pay more further down the line. Most importantly, they should ask for a shopping list of exactly what their fees will cover. If the investors don’t understand any of what they’re told – they shouldn’t feel foolish or intimidated, they won’t be alone in such instances. Instead, they should find a provider who gives them information they do understand.