Fees for discretionary fund management services are critical for investors to consider when choosing investment managers and funds.
First – what is discretionary fund management?
Discretionary fund management is where an investment manager is paid to make decisions about your portfolio on your behalf. They actively decide what you should be invested in to achieve the best possible returns – considering your overall appetite for risk. It’s one of the core services we offer here at 7IM.
Now while some discretionary management fees are made clear up front, others may be hidden, so it’s important you ask about all potential fees and charges and they are clearly explained.
Why? Because when all the fees and charges are added up, you may end up paying more than you see returned in performance. So you’re actually eating into your original investment.
In addition, even slight differences in fees can have a big impact on returns in the long-run.
Eroding your investment
We’ve calculated the impact that reoccurring fees could have on an investment over 30 years and the results are surprising, to say the least.
For example, assume you start with £250,000 and invest £500 a month. If the discretionary annual service charge and fund costs combined are 3%, and annual growth is 7%, after 30 years the pot will have grown to £1,106,930.90*. (Source 7IM)
But with fees reduced to 1.46% combined and using the same growth rate it will reach £1,671,095.02 – or £564,165 more – a significant 33% more in total.
Here at 7IM, we don’t think that makes a lot of sense. Nor do we think it’s a fair price to pay. We know investors don’t like obscure and confusing fees that continue to increase.
Investors might assume that higher fees are charged because the investment manager is confident that it will perform above the average. But there is no evidence to suggest this is the case. Instead, you should be happy that the fee you pay reflects the service you receive.
There’s another way
That’s why we’ve always been upfront about the fees we charge. It is also why, that as we’ve grown, we’ve passed on the benefits of that growth to our clients by reducing fees – leaving them with more money in their portfolios.
In addition, at Seven Investment Management we don’t think it’s fair that you’re charged for wanting access to your portfolio or to make specific trades. So you don’t pay dealing charges, which at some firms, can be as high as £30 per trade or separate custodial fees. Neither do we charge performance fees.
It is important to us, here at 7IM, that we keep our fees as low as we possibly can in order to reduce the impact on your portfolio and any potential investment returns.
While for some this might be surprising, to us it’s just radical common sense.
Justin Urquhart Stewart
Co-founder and Head of Corporate Development
* Please note this sum is indicative and will be charged as a percentage of your assets – therefore these will fluctuate with your portfolio size, rising if your portfolio rises in value.
You should make sure that you understand the risks of investing which include the risk that your investment can fall in value and that you may get back less than you originally invested.
Seven Investment Management LLP is authorised and regulated by the Financial Conduct Authority. Registered office: 55 Bishopsgate, London EC2N 3AS. Registered in England and Wales No. OC378740.