Are you getting value for money from your investment adviser?

In this post, I'd like to take you through the likely performance of financial or investment adviser over a ten year time span. We'll then compare this to ISACO. We'll use an investor with a £250,000 ISA and SIPP portfolio as an example.

As we've covered in previous posts, the majority of investment advisers fail to achieve 7% growth per year. However, in this example we'll give them the benefit of the doubt and imagine that over this 10 year period they ‘match’ the stock market’s performance.

Investment adviser

Here's what a typical investment adviser might achieve for this investor.

Year	Capital start of year before fee taken (£)	2% annual fee (£)	Amount after fee (£)	Capital growth aim	Capital value end of year (£)	Cash flow at 5%
1	250,000	5,000	245,000	7%	262,150	N/A
2	262,150	5,243	256,907	7%	274,890	N/A
3	274,890	5,498	269,392	7%	288,249	N/A
4	288,249	5,765	282,484	7%	302,258	N/A
5	302,258	6,045	296,213	7%	316,948	N/A
6	316,948	6,339	310,609	7%	332,351	N/A
7	332,351	6,647	325,704	7%	348,503	N/A
8	348,503	6,970	341,533	7%	365,440	N/A
9	365,440	7,308	358,132	7%	383,201	N/A
10	383,201	7,664	375,537	7%	401,824	£20,091

For illustrated purposes only.

ISACO

Next we’ll look at what could happen to this investor's capital if he or she chooses to get investment guidance from ISACO.

Even though we generally say that 12-15% growth per year is our aim, ISACO’s Chief Investment Strategist’s investment outlook over the next decade is for a ‘very strong upwards trending market’ which could result in returns of 15%-20% per year. However there is no guarantee his outlook will materialise and therefore, to be conservative, we’ve used a 12% annual growth aim.

Year	Capital start of year before fee taken (£)	Initial fee (£)	Service fee (£) (1%)	Amount after fee (£)	Capital growth aim	Capital value end of year (£)	Cash flow at 5%
1	250,000	2,995	2,500	244.505	12%	273,846	N/A
2	273,846	0	2,738	271,108	12%	303,641	N/A
3	303,641	0	3,036	300,605	12%	336,678	N/A
4	336,678	0	3,367	333,311	12%	373,308	N/A
5	373,308	0	3,733	369, 575	12%	413,924	N/A
6	413,924	0	4,139	409,785	12%	458,959	N/A
7	458,959	0	4,590	454,369	12%	508,893	N/A
8	508,893	0	5,089	503,804	12%	564,260	N/A
9	564,260	0	5,642	558,618	12%	625,652	N/A
10	625,652	0	6,256	619,396	12%	693,724	£34,686

For illustrated purposes only

The results - ISACO vs an investment adviser

Now lets take the data from both of these tables and make some sense of it. Let’s compare the factors that we find are the most important to our clients. 

• Total cost of client fees

• Cost of client fees per year

• Profit made for client over 10 years

• Cumulative gain made over 10 years

• Annual % gain after fees

• Annual cash flow generated
  
  

Results - 10 Year Performance and Fees Comparison

Results	Adviser	ISACO
Total cost of client fees	£62,479	£44,085 (Fee savings of 29.4%)
Cost of client fees per year	£6,248	£4,409 (Fee Savings of 29.4%)
Profit made for client	£151,824	£443,724 (Profit increase of 192.3%)
Cumulative gain realised	60.7%	177.5%  (Gain increase of 116.8%)
Annual % gain after fees	4.9%	10.7% (Gain increase of 5.8%)
Annual cash flow generated*	£20,091	£34,686 (Cash flow increase of 73%

*5% annual cash flow

Many people are shocked when they see these results. The worst situation for an investor is when their investment adviser charges too much, gives poor service and underperforms the market. In this case the fees an investment adviser charges are clearly not justified. However the flip side of this is when your adviser charges you a fair fee, with good service and helps you outperform the market. I'm sure you'd agree, in this scenario an adviser's fees are justified.

About ISACO

We specialise in providing a premium Investment Guidance Service for ISA and SIPP investors with portfolios in excess of £100,000.

Our mission is to help investors achieve better performance over the long-term, better protection in falling markets and at a better price.

For more information about ISACO and our Investment Guidance Service, please read our free brochure.