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Advised investors oblivious to platform cost – FT Adviser

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Nearly half of people investing through a financial adviser are unaware of how much their platform costs.

That’s the finding of research from AFH Wealth Management, based on two online polls conducted in November 2018.

Investors surveyed were asked how much a 0.3 per cent platform charge would equate to over 25 years for a £50,000 investment.

The average estimation was that the costs would equate to £7,400. In fact, the true cost is £12,500.

The report found that two in five investors did not know how platform fees would impact their investment returns.

And 13 per cent of those surveyed did not know they were paying platform fees at all.

The surveys asked the views of 221 UK financial advice groups and more than 1,000 Britons with personal assets exceeding £100,000.

Holly Mackay, founder and CEO of Boring Money, said: “The fundamental question that any retail investor wants to answer is how much their investment pot has gone up by and how much they have paid for the privilege.

“Sadly, this latter question remains more difficult to answer than it should be.

“Cost is of course an important component of net performance, but investors remain broadly unable to articulate or calculate what these charges are.

“It is only once we can better articulate the benefits (of advice) and be very upfront about what the total charges are, that we can expect our customers to decide if that represents value or not.”

The Financial Conduct Authority warned in its platform market study in July it found 30 per cent of advised clients either did not think they paid for their platform, or were unable to say whether they did or didn’t.

It said it had concerns about price transparency and complexity at platforms but would hold off judgement on this issue until firms have had more time to get to grips with Mifid II.

The research among IFA firms found that the majority were in favour of more transparency on costs. With 70 per cent saying they backed greater charging transparency.

In the report AFH Wealth Management said that the widespread ignorance of platform fees among customers, suggested that IFA firms should absorb these costs.

“Platform costs are a dead weight and only subtract from performance,” the group stated.

Alan Hudson, chief executive officer of AFH Wealth Management, said: “Investors are baffled by the charges they face, and the impact they have on returns.

“Platform fees, for instance, have the potential to cost thousands of pounds which could delay a person’s retirement goals or stop them supporting younger generations onto the housing ladder.”

AFH Wealth Management last year pledged it would be absorbing all platform fees for clients as part of an initiative to increase transparency, reduce costs and improve client investment returns.

In March Lee Robertson, the former chief executive of Investment Quorum, called for a new model of advice which would involve advisers soaking up platform fees.