Putting the client first is a mantra for many advisers who take pride in providing quality service and value for money. For IFA firm Goldsmith Financial Solutions founder Hannah Goldsmith, this has meant refusing to play ball with investment groups that would charge her clients more in fees than the returns they would receive.
“How much does it cost a client to invest over their lifetime? It’s probably about 2.5 per cent per annum, but what does this mean in real money terms?” she says.
“If a client has a £250,000 portfolio that grows by 5 per cent a year over
20 years, the projected return is in the region of £456,061. Of that, £250,000 is their own money, so £206,061 is profit. Most clients would be happy with that – until you tell them a 2.5 per cent cost per annum would account for £212,464 in charges over their lifetime, so it has cost them more in fees than they get back in returns.”
Even though Mifid II has introduced greater transparency in terms of charges, Goldsmith believes it will not have much of an impact unless it is put into a format consumers can understand.
“Even if clients are being told what the fee is, I don’t see them understanding it. I’m not sure it’s being highlighted enough; there’s a bit on this page, a bit on that page.”
Goldsmith has built her business around low-fee investing, with clients benefiting from the effect of compounding. She has also written a book – “Retire Faster: Practical Retirement Planning & Investment Advice for Company Directors” – which came about as a way of explaining her investment approach to others.
As well as this, she also offers a second opinion service for those who have existing investment portfolios but do not know what they are investing in or what it is costing them.
“When we try to review portfolios it’s very difficult to get information out of the companies. They don’t want to tell you the total expense ratio on their old funds,” she says.
It is fair to say Goldsmith does not have a particularly high opinion of the investment industry in general, believing it to act in its own interests rather than those of the consumer. Her opinion was first formed back in the 1980s, when life and pension firms sold policies customers would pay into and “get virtually nothing back”, but she feels the problem remains even now.
“We give away complete trust to someone who says: ‘I don’t know
the amount I can make for you, but I’m charging you this much and I’m not telling you what the other hidden charges are.’ Why do we put up with complexity in financial services, when in every other part of our lives, technology delivers what we want instantly, accurately and cost efficiently?”
Goldsmith’s starting point is how to get clients invested in the market in the most cost-effective and transparent manner. She makes a point of not going to insurance companies, which she refers to as the “dinosaurs” of the industry.
“They are big and cumbersome. When you email or call them, you have to wait five days, then that department contacts another department which takes another five to 10 days, then you find it’s been sent to the wrong department.
“Why do we use the heavy oil tanker approach when we can use wrappers that are cost-effective and now GDPR compliant? If you pay 0.3 per cent on a wrapper, you can go to the investment market at 0.3 to 0.5 per cent for a fully managed portfolio. That is more cost effective than a DFM and many online investment houses,” she says.
Financial services was not Goldsmith’s first choice of career – she wanted to be a rockstar. As a 19-year old songwriter, she sent a demo of her music to the famous Abbey Road recording studios. They liked it and got in touch – but Goldsmith did not take up the opportunity.
“At that age, I was worried that I was not good enough,” she says.
Eventually drawn into the financial services world, Goldsmith worked in sales at Prudential before becoming a self-employed IFA. She founded Goldsmith Financial Solutions in 2010 and spent five years working on the systems and processes for her low-cost investment service.
With plenty to say on investment fees, you might expect Goldsmith to have a similar view on the need to drive down advice fees. However, she does not have a problem with advice firms agreeing industry standard fees with clients for their knowledge and services.
“An IFA charging cheaper fees does not make them any better than another; it’s how they get their client to market in a way they can keep more of their money. That is what makes a difference.”
She admits some peers do not get her approach and become defensive or angry if she tries to explain that it is another way they could add value in their own business.
“If, as an IFA, I know something will have a negative impact on my clients, why shouldn’t I do something about it? The whole industry can’t work without clients’ money, yet the client takes all the risk and does not receive the full returns available to them.”
Feeling strongly about such matters, Goldsmith is busy with a campaign for fairness in pensions and Isa investments, and running her consumer awareness seminars on how to become financially efficient.
Her way of thinking adds an interesting spin on some issues. Take the argument that people need to put more money into their pensions to fund their retirement. Goldsmith’s response is that paying lower charges and benefiting from compounding would provide a much higher return than many clients could ever afford by upping their contributions, part of which would end up in the industry’s pocket anyway.
“Why should we take more out over someone’s lifetime than we give back? That’s not fair,” she says.
“But it’s hard to break that down as the big fund houses fight this tooth and nail. We need to get to the point where the industry comes on board, but I think that will take a long time.”
What is the best bit of advice you’ve received in your career?
If you’ve got something important to say, don’t keep it a secret – stand up and tell everyone.
What keeps you awake at night?
My partner’s snoring.
What has had the most significant impact on financial advice in the last year?
The obvious one is Mifid II but for me it’s the response I get when we go through the charging with clients. I call it the tipping point, when they suddenly say: “I get it”.
If I was in charge of the FCA for a day I would…
Speak to the government about teaching finance in schools.
Any advice for new advisers?
Financial decisions your clients make today will lead them to their future lifestyle. Please lead them wisely.
2010-present: Founder, Goldsmith Financial Solutions
1992-2010: Self-employed IFA
1986-1992: Sales consultant then sales manager, Prudential