Yesterday afternoon I walked into the office of an asset manager whose funds are used in the “wealth sector”. The meeting didn’t take very long, the poor fellow was counting the seconds till he could get back to his screens as markets tumbled. Frankly the interests of the investors using his funds were secondary in our conversation to those of the intermediaries whose portfolios were in free-fall.
I tried asking about whether he thought the actual owners of these portfolios were the investors but the immediacy of the crisis facing him did not brook niceties. His customer was the person buying his fund and that was the wealth manager.
The wealth manager has a different problem. He has to explain why the portfolio he carefully put together has bombed, not for any of the reasons he could have predicted last year, but because someone caught a bug off an animal he was purchasing in a market in a district of China no-one had ever heard of.
For this a client with a £1m personal pension, may have lost more than £100,000 in the past week. There is some explaining to do, but no doubt the problem is not the wealth manager’s either, it is simply a “market correction”.
People don’t get markets – not when it’s their own money
Yesterday Al Rush and the steelworkers from Teeside to Port Talbot visited parliament to complain about the poor advice they had received, the unfortunate exposure they had to markets and the failures of regulators and trustees to stop them swapping rights to a pension for rights to a fund.
Many of these people will have lost more in a week than they earn in a year. Rather than let the trustees of the New BSPS pension scheme worry about the marketing correction, they have to do that worrying. You can understand why steelworkers “transferred out” by watching this video (curated by Al Rush).
But the advisers who told them they would be better off on their own are powerless to prevent their portfolios falling in value by 10%+ in a a couple of days.
And this is where it gets nasty, because what the steelworkers heard was a promise that they would be better off on their own than with the BSPS Trustees and a promise to a steelworker is as good as a guarantee.
What are we getting paid for?
Although I do not manage money, I feel complicit , just as Holly Mackay does. Writing a column in the FT , Holly asks herself why she pays £30 for a bottle of Sip-smith gin when she could pay £11 for Morrison’s own brand.
She gets letters from people who invest their portfolios through advisers
The difficulties of comparing likely costs before going into drawdown means consumers are making huge financial decisions with little understanding of the impact, as @HollyAMackay illustrates in her @ftmoney column: https://t.co/QkbFU9zl8g #ClearPensionCharges @JosephineCumbo pic.twitter.com/sbZwvJWsh7
— Claer Barrett (@ClaerB) February 28, 2020
Compared to other professions, this feels steep. Let’s say a barrister costs £2,000 a day. For your £28,000 bill you get 14 days of focus, largely undivided attention on you and utterly bespoke treatment.
Was our reader getting that level of care? I doubt it.
Was he paying massively over the odds? No.
Was it value for him? I can’t answer that.
The well-heeled investment industry loves to tell an audience in complacent self-satisfied tones that a fool knows the price of everything and the value of nothing. The problem is that pension customers today are unable to calculate even the basic price of anything, let alone get on to considering value.
We’re being kept one rung below fools, and without devoting hours of your life to finding out the figures, it’s very hard for consumers to shop around. As an industry, we have to start by making charges clear to people upfront and publishing on websites what they will pay for the services they receive — and in tangible pounds and pence amounts, not “basis points” or percentages with 20 pages of small print.
And here the grim reality hits home for the steel men. They were buying Sipsmith gin not Morrison’s own brand. But they shouldn’t have been buying gin at all. They drank Brains in the rugby club bar and had no need to be paying upwards of £10,000 pa for the management of their pensions. But the 2.5% pa I found many were paying (before transaction costs) on an average CETV of £400,000 meant that they were paying the best part of £1000 per month for what they were getting from the scheme for nothing.
And whereas the scheme was protecting them at times like this, the financial adviser is powerless. How many steel men’s transferred pots have been protected from the market downfall? For all the money paid to advisers, I would suggest very few.
The gin-sipping clients of Headline Money feel “rinsed”, as do the steel men now cared for by Al Rush.
The grim irony of the timing
At the very time when the steelworkers were assembling in the cafe of Methodist Central Hall before meeting MP’s, the market was opening to a further 4% fall. Today it will open to another big fall, predicted by the far-east markets which are tanking.
The FTSE has sunk through 7,000 and there is no obvious floor in sight, could it sink through 6,000 or further? Are bonds immune? Is there a safe haven and is there any way to get to it? Should you be cutting your losses now or riding the storm? These are the questions that those dependent on their portfolios have to ask and there is simply no good answer to any. We will know in a couple of weeks, perhaps a couple of months, but like the poor chap who I met in his City office, right now he has nothing to say that can give his clients much comfort.
The grim irony of all this will not be lost on the steel men who may have misplaced their trust but who are certainly not stupid.
Can Mickey Clark give some advice?
To the chap in his City office or the wealth manager in Surrey or South Wales, to the gin-sippers and the beer-drainers.
Mickey Clark retired today. He had his last show on Wake up to Money this morning. He leaves at the end of the worst week of the financial crisis and you can hear him chuckling through it here
Mickey has been through a few of the crisis’ we are currently experiencing and he doesn’t even have to mention current events to advise us how to cope with them.
Mickey just keeps smiling, working and helping us deal with the twin imposters as one.
Mickey Clark has never charged for his advice but it’s worth a few bob, a lot more than some of the advice dished out by some advisers.
All we can do is to sit tight and wait, and it may be a long wait, but if you are in the market , you stay there.