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Hannah Goldsmith: Clients must stop paying for the investment industry’s excesses

Many years ago, I watched a film about how the farming industry had manipulated the public over many decades to buy its products regardless of consequence.

A speaker in it asked an audience how many had been brought up by their parents to believe that cows’ milk was good for them and gave them strong bones. Almost everyone said yes.

He then said: “But why not dog milk, or chimpanzee milk or elephant milk? Not even calves drink cows’ milk after six weeks.”

He went on to point out that if an industry keeps promoting the same message over and over, generation through generation, it becomes accepted as truth. In this case, it enabled the milk marketing board and associated industries the opportunity to deliver a product and sell for a profit using an effective, easily repeatable process.

Financial services has developed a similar opportunity to push its own products to investors.

For decades, the industry has first and foremost promoted itself and its products for its financial gain before any of its investors’ long-term financial interests. Why wouldn’t it? It is in business only to make a profit.

So who pays for the opulent offices across the world, or the sponsorship of the most prestigious sporting events? Who provides the mega salaries and bonus packages to those whose job it is to maximise corporate profits – and that is without the continued fines for misselling to loyal clients?

None of this would be possible without investors’ money. Yet it is the investor who takes all the capital risk.

What will happen when those investors realise they can get the same return on their money, with the same consumer protection and backing of global investment companies, but pay less in charges, just by changing the philosophy passed down by older generations who bought into the industry hype?

What will happen when they realise they could still generate additional compound interest sufficient to buy the holiday home they have always dreamed of, generate additional income, offset nursing home care costs or just pass this additional wealth to future generations?

Will these new, financially astute investors still want to leave their capital in the supposedly safe traditional hands?

Consumers are already questioning whether cows’ milk is as good for them as they first thought, now that other, more beneficial, milk products are readily available to them.

Surely it is not too long before investors start questioning what is best for their finances.

Because why should they give so much of their money away to fund the lifestyles of those in the financial services industry?

Savvy investors of the future will think it absurd that so many people gave away so much money so freely to so many middlemen when the technology to invest in the most financially efficient and transparent format was readily available.

If only the industry told them. But then, why would it?

Hannah Goldsmith is founder of Goldsmith Financial Solutions

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. a very interesting analogy, Ms Goldsmith, milk promotion and ‘active fund’ promotion! There is much truth in what you say and, I think, not enough truth is spoken in our ‘industry’. One assumes you build portfolios with the likes of DFA and various low-cost index funds/ETF’s, and I further assume that these are entirely passive. No room for investment trusts? Many of these are low-cost and a good source of (reserved) dividend income!

    I wish you all the best.

  2. Christopher Petrie 16th March 2019 at 6:57 am

    This article confused me.

    It rails against “opulent offices”and “mega salaries”. But then goes on to suggest investors avoid “middlemen” and still enjoy the “backing of global investment companies “.

    But it’s not the “middlemen” (IFAs?) who are in opulent offices….it’s the global investment companies!.

    Even ETF companies like Vanguard don’t work out of rooms above a fish shop.

    Certainly there’s room for price pressure access the board. But in my experience, clients appreciate the personal service of their IFA rather more than a faceless investment firm managing their unit trust. The speed in which they accept a recommendation to change funds (usually without charge) indicates they have little loyalty to those institutions.

    Mifid 2 is shining a light on the fund management industry and that’s where I see price falls in the next few years.

  3. Hannah Goldsmith 22nd March 2019 at 1:14 pm

    Hi Christopher

    … thank you for your response.. however i did not mention IFA’s who are the middlemen. My belief is that IFA’s are in the front line.

    But as IFA’s do we not have a fiduciary duty of care, to take our clients to market in the most financially efficient and transparent way possible.

    Far too often i see clients portfolios leaking fees by layers of lazy costs. The more times the industry touches the clients money, the smaller their pot gets. I call it ‘soap on a rope investing’.

    All industries have changed or adapted to new technologies… those that do not …do not survive.

    In my opinion, Mifid 2 shining a light on the fund management industry is not something that will effect price falls in a few years time. It started 5 years ago !

    Just my thoughts …

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