New analysis carried out by the Lang Cat on behalf of Skandia has revealed that the total cost of owning similar portfolio management services can vary by as much as 66% over a 10 year period.
The firms said the The Skandia Portfolio Pricing Report showed how important it was to focus on the total cost of ownership, including platform, portfolio management, underlying investments and trading costs, rather than just than any one of these costs in isolation.
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Mark Polson of the Lang Cat said: "Even we were surprised by just how hard it is to get a common basis of comparison between outsourced investment services. And if we struggle, advisers will have it twice as difficult. It strikes us that, as a minimum, anyone offering these services should be completely transparent as to the allocation of their portfolios, the constituent elements, the rate of portfolio turnover and thus the total cost of ownership.
"Anything else is just asking clients and advisers to take it on trust, and this sector is a long way short of demonstrating it's worthy of that trust."
For a £75,000 investment in a pension, the total cost of ownership ranged from 1.12% per annum for the best value portfolio to 1.86% for the most expensive, a differential of 66%. Over a ten year period this resulted in the highest cost portfolio being worth £7,000 less than the best value portfolio.
For a £500,000 investment in a pension the impact on returns was more pronounced. The best value portfolio had a total cost of ownership of 1.04% per annum compared to 1.60% for the most expensive, a differential of 54%. This resulted in a portfolio value difference of £46,000 after ten years.
Skandia said it became clear how difficult it can be to access underlying data such as asset allocation, investment costs and dealing costs, for some portfolio management services.
Some portfolio management services – to which many advisers are outsourcing their investment activities – remained 'opaque' according to Tom Hawkins, head of UK proposition marketing at Skandia.
He said: "In order to make portfolio management services more accessible to customers we believe there needs to be greater transparency around total cost of ownership so customers can understand what they are paying."