As a professional investment adviser at The Whitehall Partnership for the best part of twenty years I was curious about all the controversy surrounding complaints to Barclays Wealth. They received 618 complaints relating to investments in 2011 dwarfing those received by its competitors by some considerable margin. I was curious why investors were so infuriated with Barclays Wealth and the root cause of the problem. In their defence Barclays were not the only culprits who felt the wrath of investor fury; others include Bank of Scotland, HSBC and Santander. I was also surprised to find Towry in the firing line since they were not a mainstream bank like the others. In fact Towry received a staggering 345 investment related complaints in the six months ending 2010, evoking serious disquiet amongst their clients.

In the course of my work at The Whitehall Partnership our firm regularly analyses investment performance for people who want a second opinion. You would think this work would uncover a broad range of problems but frankly it doesn’t. It does however tend to include the usual suspects in the form of poor investment returns. The underlying problems which cause poor performance are generally excessive charges, inappropriate levels of risk and poor investment decisions. These issues tend to be common areas for concern for most investors who deal with wealth manager and private banks. The interesting link between investors is that they felt mislead and were not presented with clear information in plain English from the start.

Many investors we talk to are disappointed with investment performance and become very disillusioned with investing. The major banks like Barclays Lloyds, BOS, HBOS and Santander produce glossy sales literature designed to entice customers. Unfortunately this literature fails to disclose the real facts behind the investment and lacks the transparency for investors to understand what they’re doing. If they understood the full extent of charges, risk and investment decisions made by these so-called experts, they would certainly think twice.

Lack of full disclosure in plain English is only part of the problem and many of these institutions including Towry simply charge too much for their services. Towry’s ‘Investment Team’ claims to meet between 350 and 400 investment managers every year to uncover the best funds for their clients. Sounds good, but this activity is either expensive, lacks credibility or both if you look beneath the sales veneer of their investment proposition. Firstly, the list of fund managers is not very big and many look after income or accumulation versions of the same fund. This list could be reduced further by removing the obvious dog-funds to leave a very short list of potential funds for consideration. Furthermore, clients are encouraged to retain investments for a reasonable period, say five years. Since there seems to be oodles of time to meet fund managers I can only conclude that Towry clients are paying for a lot of repeat meetings that transpire into nothing or pay high transaction charges for the inclusion of new funds. This probably explains why Towry’s overall management charges of around 2.8 per cent annually are amongst the highest in the industry.

Interestingly Lloyds Private Bank received fewest complaints but our research has found their charges to be amongst the highest. Investing with Lloyds Wealth Management is an expensive game with up to 2.5 per cent being taken immediately and a further 1 per cent after four months. Growth prospects are hampered further by additional management charges applied to underlying funds which have a total expense ratio around 1 per cent annually. Not a bad day at the office for Lloyds Wealth, meaning a massive 4.49% is lost to charges in year 1. Barclays Wealth tells a similar tale albeit charges are split differently with approximately 3.48% per cent is taken in the first year alone. To put matters in perspective I have compared investment charges with Towry, Barclays and Lloyds with ours at The Whitehall Partnership below.

Every fair minded individual appreciates that investment expertise comes at a price along with quality information, service and performance. However, our research has found inconsistencies across all aspects of the management services provided by these organisations. In some cases even getting the simple things right like accurate reporting or returning a telephone call is beyond the pale. This must call into question their investment skill and ability to make sound investment decisions for customers. Indeed, we have identified a variety of management techniques but none has produced superior investment returns. Furthermore, it is our belief that none of the companies mentioned above have a firm grip on controlling investment risk. But more to the point, whether their clients have a full understanding of the risks they are advised to take.

Towry LLoyds Barclays The Whitehall Partnership
Initial Charge 1.80% 2.50% 1.20% 1.08%
Total Annual Management Charges (TER) 2.71% 1.99% 2.28% 1.76%
Administration Charge 0.08% 0.00% 0.00% 0.00%
Total 1st Year Charges 4.59% 4.49% 3.48% 2.84%
Year 2 and onwards Annual Management Charges (TER) 2.79% 1.99% 2.28% 1.76%
Termination Charge £0.00 £500.00 £0.00 £0.00

Notes

  1. Charges schedule based on data available as at 12/06/2012
  2. Charges are based on an initial investment of £200,000
  3. Portfolio is a balanced risk asset allocation
  4. Charges include all known expenses and should be considered a fair approximation

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