Are you overpaying for underperforming advice?

Article by Phil

As advisers we are constantly scrutinised by the FCA to ensure that our practices are transparent, compliant and that we treat customers fairly in everything that we do.

At the heart of this are our Client Agreements which set out our charges and how we will deal with our clients. It is vital that we are clear with all our clients, especially at the outset, so there can be no misunderstandings about charges.

These requirements apply to all firms in the market, so I often wonder exactly why so many clients seem to be so very happy with the following declarations:

  1. We are NOT a firm of Independent Financial Advisers, we will not consider products and providers across the whole market to suit your requirements, we will decide what we can offer you and we will manage your funds ourselves.
  2. We think that some of our funds are really good, but in the interests of transparency we have to say that our UK High Income fund (formerly managed by Neil Woodford) is officially one of the UK’s worst performing “dog” funds (that is – a fund that has underperformed the rest of the sector by at least 5% for the last 3 years running), but please don’t hold that against us.
  3. We will charge you 2% of the value of your investments as an initial fee and 0.5% of the value of your funds for ongoing advice – in most cases these fees will be at least twice as expensive as fixed fees offered by other Independent Financial Advisers.
  4. And finally, we will lock in your money so that you can’t move it. If you want to move your money away from us, we will apply a 6% penalty charge. This charge will renew every time you make any further contributions to your investments.

Now, that you fully understand what we are offering we’re sure that you will be more than happy to sign our Client Agreement.

Thank you – you are now with the UK’s largest firm of financial advisers and can be safe in the knowledge that all our other clients are in the same situation.

But you don’t need to pay for advice to get poor performance you can just buy it direct!

Hargreaves Lansdown was (5/5/19) urging its clients to stick with its Wealth 50 UK Equity fund, despite it returning only 4% over the last 5 years compared with an average of 27% return over the same time period across all company sectors. Of course, this fund has remained on the advertised “Wealth 50” list for all this time along with the Woodford fund!!


There have now been suggestions in the press (FT Adviser 31/10/19) that the Financial Ombudsman Service may be looking into claims that consumers were misled by the wording on Hargreaves Lansdowns website, where the funds were described as “passing rigorous tests” and having a “fantastic track record”. Whilst not strictly advice, there could be question marks over whether consumers could misunderstand the definition of “advice”. The website carries the usual disclaimers and warns consumers that they are only being offered information and not personal advice.
Further investigative work by the Sunday Times into SJP’s practices reveals that making a £1million investment, over 20 years would attract 45% in charges, or more than £990,000. In comparison a DIY investor using Hargreaves Landsdown platform would pay only 29%.

Transparency of charges is a real issue. As James Coney, Money Editor at the Sunday Times comments “I have still not had it explained to me how SJP can justify charging an early withdrawal charge on a pension when exit fees are banned by the FCA. I have also never liked that SJP is not whole of market……returns across many funds are mediocre. Do clients know what they are missing out on?”

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