ICPA Analysis: Roddy Kohn on Charges, Investments and Equitable Life

Guilty as charged?

 

It’s not all bad news out there, says Roddy Kohn. There are money-making opportunities to be had

 

As I write, it’s almost a year to the day when almost one million Equitable Life policyholders realised their compensation was to be less than a quarter of their losses. And it hasn’t taken long into 2012 for the financial services industry to be faced with yet another new challenge. Charges.

Our prone-to-melodrama financial journalists, it appears, have found a new Holy Grail. Column inch after column inch of the weekend financial pages refer to the outrage of excessive investment charges. Headlines cry out: “Savers lose thousands!” “Are charges eating into your investment returns?” “Charges, charges charges! Read all about it!” And so it goes, from weekend money section to weekend money magazines, as though this was a new discovery akin to Einstein’s theorem.

Here at KohnCougar we have been banging on about charges for the best part of 25 years. I don’t mean that to sound as immodest as it clearly does. I simply seek to highlight the fact that charges have always played a part in investment returns, and are something that always deserved much greater attention.

In fact, the reality is that almost 25 years ago KohnCougar started to make noises about claims made by Equitable Life. In particular, we wrote to Liz Dolan, then personal finance editor of the Sunday Telegraph, about their bugle call that it  “did not pay commission to middlemen”.

Friends in high places

However, Equitable Life had friends in high places indeed. My views were only to be aired in much watered-down copy, and Ms Dolan was – allegedly – made mindful of her future at the paper. Fortunately, in all this inequitableness, I stumbled upon an old marketing trick. In Equitable’s case it was having the nous to deny paying a ‘commission’ to its salesmen. It discovered that by replacing the word ‘commission’ with the word ‘bonus’ that it could act with both moral turpitude and with impunity. This duplicitous approach was supported by cleverly worded adverts showing an elderly gentleman retiring to his allotment, safe in the knowledge that “It’s an Equitable Life, Henry”, which were regularly aired on television. In fact, as many of you know, professionals were among the most ardent supporters and investors in Equitable Life, and, sadly, victims, too.

Some one million investors were affected by the company’s eventual demise but memories are short and therein lies a wonderful opportunity for ICPA members. This whole issue of charges can appear complex, and with the aid of our free guide and a desire to market your services to your clients, you can seize this opportunity to leave existing clients inspired and prospective clients delighted to have found you!

Three opportunities

Number 1: Investors grow increasingly wary and fearful of financial institutions and insurance companies (who can blame them!), who promise the world in exchange for their nest egg. Our research suggest they are not so weary of ICPA members, whose reputation for fearsome number-crunching can leave them in no doubt of your ability to make sense of the charges they are already paying to their bank, etc. So go on, write and ask them if you can help.

Number 2: How about helping your clients to identify how specific charges might be eating into their funds. For example, let’s just say a Mr Tony Margaritelli wanders into your office looking forlorn, fed up with all the bureaucracy. Might I suggest you profer these words: “Did you know, Mr Margaritelli, if you invested £10,000 in a fund with the industry average total expense ratio (TER) of 1.67%, your return would be reduced to £23,344 over 20 years, meaning £9,000 of your growth goes on charges? If the TER was 2.5%, £12,000 would be paid out in charges. That’s not even factoring in the portfolio turnover rate costs”. At which point, being typically Italian, he jumps up, kisses you on both cheeks, and offers to take you to a Barclay James Harvest concert for free.

Number 3: Let your clients know that seeking advice from you now could save them thousands of pounds if they are investors who:

• Buy direct from investment companies.

• Buy online without advice.

• Take advice from their bank about their investments.

• Own insurance investments from almost any insurance company.

• Had an advisor that has gone into receivership/left the company/retired, etc.

You might be tempted to think such conditions don’t exist. But they really do. Millions of investors don’t know how to begin to go about addressing this unfair and imbalanced monopoly and finding small, independent firms to help them out is no easy feat. Every KohnCougar client benefits from institutional dealing rates, exceptionally low portfolio turnover and tax and financial planning advice that easily dwarfs our fees. What’s more, many of our clients were being given poor ongoing advice or, worse, misleading advice. But guess what? Most of our clients don’t really know about the legwork any of us does on their behalf to protect their interests. And why should they? When I buy a pair of shoes I rarely have the knowledge to understand what effort it’s taken to produce them The logistics, the skill, the care, the passion!

I suspect many ICPA members’ clients are the same. Go to it, you unsung heroes!

 Roddy Kohn, KohnCougar. Roddy will be covering the budget for Sky News on 21 March 2012

 

This article is taken from “Accounting Practice” the ICPA quarterly magazine. Dedicated to supporting and promoting the needs of the general practitioner. You can find us at  www.icpa.org.uk  or email info@icpa.org.uk  or by ‘phone on 0800-074-2896