Photo by Ferdinand Stöhr on Unsplash
Recently, ASIC penalised super fund Spaceship for making false and misleading statements about its GrowthX fund.
ASIC took issue with Spaceship’s claim it was actively managing the portfolio and being selective in deciding which stocks to include and which to omit, based on profitability and product differentiation.
Regularly, I’m asked:
How do I check if my investment advisor has given me good advice?
My answer:
How is your investment portfolio performing against the index (or average) of the markets in which you are invested?
And in my experience, the majority of people I ask tell me that they don’t know.
There are other factors that determine good investment advice besides performance. But it surprises me how many intelligent people don’t think to check the performance of their portfolio against the average market return. Especially when they’re paying an advisor a fee for investment advice.
Photo Credit: smiscandlon
Have you ever thought about how much you’re really paying for the advice you got from your financial planner? The direct costs are one part – and I think you should look at those closely to ensure you’re getting value – but take a look at the indirect costs.
Keeping costs down are a key to wealth – high costs put your future at risk.
Some of the most significant costs are hidden in your portfolio and are caused by product selection and your advisor’s bias towards actively managed funds.
Although most financial advisors recommend actively managed funds, in reality, the net return of active funds are consistently below most passive investments or index funds.
But apart from the underperformance and additional cost of active funds, there is another cost, which is often overlooked when investors compare active and passive (index) fund portfolios – a cost I’ll cover later in this post.
Photo Credit: NickiMM
Investors in Australia have lost about 45% of their returns in management fees over the last 5 years, according to research published last month (check out this article in the Sydney Morning Herald).
