No hidden surprises

No hidden surprises

If you have ever ordered a new car you will know how difficult it can be to reach the point where you find out how much you actually need to pay.  An endless list of choices: upholstery, in-car entertainment, sat nav, not to mention paint…. PAINT?  Isn’t that a fundamental component?  Only if you want one of the standard colours apparently.

One of our objectives is to make the complex simple for our clients.  That doesn’t just relate to the financial complexity of their own affairs but also to one of the focal points for every potential client: Cost.

In particular, the cost related to our investment portfolios which, rather like buying that shiny new car, comprises a number of elements.  This is in no small part due to the number of stakeholders involved in the chain between the underlying investments and the investor.

We like to think that we are as transparent as possible but sadly the world of investment management (like that of car purchasing) is not as clear or straightforward as we would like it to be.  As the saying goes ‘a picture paints a thousand words’ so not only do we calculate the costs for both our own portfolio models and of those assets that we don’t manage, we also summarise them in charts which provide a visual breakdown of the costs attributed to the four main elements which we are able to estimate, i.e.

  • Underlying asset costs: Generally this relates to the funds in which we invest;
  • Portfolio turnover costs: The costs of the fund managers’ trading within those funds;
  • Custody costs: Maintaining secure records of the holdings attributable to each client account, providing trading and settlement facilities;
  • Advice and management costs: What Bloomsbury charges for ongoing financial planning and portfolio management.

Breaking the cost down between the different elements makes it easier for our clients’ to know what they are paying for and to assess whether it represents good value for them.  It also makes it easier for us to identify where cost savings might most effectively be made.

Having done our utmost to bring clarity with our charts and data we recently took on a new client who revealed that, despite our best efforts, we had not been quite as successful as we had hoped in this regard; even though he had a sound financial background, he found the chart confusing.  He very kindly provided some valuable feedback which has led us to refine the presentation of our information and to explain better the numbers behind the charts.

Feedback like this is invaluable to ensure that we really can simplify the complex.  It’s a work in progress.

Everyone wants to understand what they are paying for, even if it does mean that paint comes as extra!  As John Bogle, the founder of Vanguard pointed out, in investing:  “You get what you don’t pay for”.

With kind regards.

Elaine McErlean