Making an Investment? Don’t be a fish!

We all know this familiar saying.

Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.


Well, when it comes to the financial services industry, it’s a little bit different.


The big fat fee earning fish and there’s a huge amount of preying financial fishermen out there trying to get hold of your wealth.

Why are you the fish?

It’s all to do with people’s inability to understand percentages, compound interest and how small sums can add up to very large sums over a period of time.

This is why many financial firms resemble asset gatherers, rather than the financial adviser title they have on their business card.

When you skim a little off the top of large pools of money, it adds up to a lot over time. How do you think the financial industry has become so wealthy and influential?

When you get caught in the financial fisherman’s net there is a large cost.

Many financial advisers will take commission, take a percentage fee from your total fund value, each year you are on their books as a client.

It varies with each firm, ranging between say 0.5% and 1.5% each year.

There’s also an initial fee for the transfer of your products, advice recommendation.

This could be anything from 2% to 5% of your fund, seriously!

Let’s use an example of a person who wishes to invest £100,000. We will assume an initial fee of 3%, plus a continuous 1% fee each and every year. Let’s see what the effect is if you stay invested with this model for 20 years and obtain a return of your investments of 5% a year.

Here’s how much your fund would be worth in 20 years time.


Looks okay doesn’t it?

Let’s see how much you have paid to your financial adviser.

Well, firstly you paid the 3% initial fee, so that’s £3,000 gone, just to get started.

Then you pay 1% of the value of your fund each year, which is usually taken monthly. Remember, as your fund gradually increases in value, so does the fee you pay.

Here’s a table that shows how much you will pay each year.

Year Fund Value Fee Paid
Year 1 £101,850 £1,019
Year 2 £105,873 £1,059
Year 3 £110,055 £1,101
Year 4 £114,402 £1,144
Year 5 £118,921 £1,189
Year 6 £123,619 £1,236
Year 7 £128,501 £1,285
Year 8 £133,577 £1,336
Year 9 £138,854 £1,389
Year 10 £144,338 £1,443
Year 11 £150,040 £1,500
Year 12 £155,966 £1,560
Year 13 £162,127 £1,621
Year 14 £168,531 £1,685
Year 15 £175,188 £1,752
Year 16 £182,108 £1,821
Year 17 £189,301 £1,893
Year 18 £196,778 £1,968
Year 19 £204,551 £2,046
Year 20 £212,631 £2,126

Here’s the total.


That is a HUGE amount of money to pay out!

The true cost of the advice is even worse. You are losing the benefit of gaining compound interest on those fee payments.

If you obtained the same investment return, but didn’t pay any fees to a financial adviser, you would have a fund of £265,330.

So the financial advice has actually cost you this much.


This is a relatively good scenario.

The financial services industry is adept at creating reasons for you to move to a new product every 5 to 10 years, meaning you have to pay product transfer commission, initial advice fees again and again.

Here’s the truth.

You can create a sensible investment strategy and obtain similar returns, without paying the fees to a financial adviser.

That means you’ll actually end up with more money in your pocket.

The first thing you need to learn is how not to be a fish.

Through education, you can learn how to make sensible financial decisions and how to manage your own money.

Future investment returns are entirely uncertain. The fees you will pay out are not.

Improve your chances for success by concentrating on something that gives a concrete benefit to you. Reduce the amount of money you pay out in fees and keep it for your own benefit.

Stop being the fish. Take control of your wealth.

Get in touch today for a personal, independent, and comprehensive financial plan.

Mark Underdown | DipPFS IMC CeMap

Financial Planning Consultant


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