Dec 08

Penny Wise Pound Foolish

Have you ever considered how the terms, “Penny wise pound foolish” and “Look after the pennies and the pounds will look after themselves” fly in the face of each other?

Two established and oft used phrases that we all seem to accept, but which fundamentally give us completely different advice!

Things are also often like this within the financial services industry, great advice from one advisor can be argued to be a complete disaster by another. One man’s meat is most definitely another client’s poison, within this cut throat world.

In all industries there is a great degree of competition, but in financial services it can become obsessive and almost paranoid. The participants give each other very little credit and there is often a lack of comprehension as to exactly how big the market place is and that consequently wasting energy putting down your competitor, simply wastes time and opportunities.

Good Advice is Priceless and you should seek it out whenever you can. So what value is priceless info, what is a fair and reasonable amount for you to pay for your Sages words of wisdom?

That is, to be honest, impossible to answer, but if your advisor is receiving a percentage of your capital or monthly payments and they are obliged by law to tell you this, then a simple rule of thumb should be applied.

Ask what the commission bands are, you want the lowest and the highest, 0.5% is normal but more is often pushed for! Ask what percentage your adviser will receive from that point onwards, 0 – 0.50% per annum is also the norm, but again more is often pushed for!

Perhaps a comfortable commission for you to accept would be between 0 – 3% upfront, dependant on the value invested and the work undertaken and between a 0 -“ 0.50% as a fair annual commission. That is unless the advisor is actually managing a portfolio of shares, where the fee is likely to be anything from 1 – 2.5% per annum and often with an additional performance fee.

So what is this rule of thumb you ask? Well basically something you feel comfortable with and feels reasonable, given the time taken and work completed by the advisor.

But always remember there is no simple one rule fits all, otherwise all little throw away lines such as “Penny wise pound foolish” would make sense and quite clearly they don’t.

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