Fund Mismanagement

Finally, one of my old investments came on line so that I can go in and check it at will. It was an endowment policy that I took out back in 1992 because, frankly, I didn’t know any better in those days.

Years later, when the scandal of mortgage mis-selling reached a peak, I discovered that the first full year of payments that I’d made into this endowment policy went straight to the agent who’d sold me it. I didn’t remember him mentioning that when he sold me the policy. I made a claim against this for compensation, but it was judged that not pointing out this fact in plain English wasn’t seen as illegal or dodgy practice and my claim was turned down. The agent could show that he’d done everything else right in terms of the sale, and I suppose he had. But he took the first £1,500 of my payments which, 25 years later at maybe a 5% return….oh, it’s too painful to work out!

As I clicked through to the website to have a look at my investment, however, I suddenly find nothing’s changed. So far, this year to date, I’ve been charged over £700 in fees for the “management” of this policy. Suddenly, the screen before me went red. Then I realised it wasn’t the screen, it was a red mist of rage descending on my brain. Frankly, if they’d charged me a tenth of that for their “management”, I’d still have questioned it. Fifteen minutes later I was on the ‘phone to them trying to discover if I cashed the policy right now, today, were there any charges, bonus forfeits or anything else that I needed to be aware of before I did so? The answer was “no”, so I asked for that in writing. Preferably in their blood. And then I cashed it, well aware that charges of one sort or another on this policy over twenty five years had cost me in excess of twenty grand.

Isn’t that scandalous? It makes me feel almost physically ill. I mean, what are they doing for this money? I even originally chose the damn funds that the investments was being split into so they didn’t even have an input into that. Not that they were probably allowed to. I can still remember as clear as day how the agent (I’m not sure if they were called IFAs in those days) “advised” me on picking funds for the endowment. He basically held open a magazine and started flicking through pages that listed literally hundreds of fund options. He’d highlighted a few of these with a yellow marker as some that he, personally, found of interest but, of course, the choice of where to put my money was absolutely mine. What did I think? Again, he personally would choose maybe three or four to split my monthly payments equally into, but the decision of how many was up to me. Sitting there, in his office, I was at a total loss – this was all beyond me, but I was far too proud to admit that to him, or my young wife sitting next to me. I picked three with absolutely no idea what I was doing, but hoped that I looked as if it did.

Actually the funds I picked were none too bad, but I had no idea of the charges they’d accrue. I still don’t. In a way, I don’t want to know the detail because I can’t turn the clock back and change anything now. I’ve lost twenty grand. I’m on the verge of tears writing it down.

At this point, I have to grudgingly admit that this firm were – now – making very clear what I was being charged on my investments. I can’t say this about the other financial providers I hold funds with. Why can’t I, very simply, go into a website , click on that “Global Special Situations” fund and see what I’ve been charged on it this year to date? And I mean all the charges, every last one, shown as a total figure? With a percentage next to it that I can then compare to similar funds?

And, you know, maybe I can do that. But if that’s so, then it’s not simple – either to do, or to understand. And I’m bloody interested in this stuff! What chance have other people who are “trusting” that their grandly named fund management company will be giving them a quality service for a fair price?

They say that the margin in the fund management industry is over forty percent. They’re probably creatively accounting like mad to make it that low.  I look at the City, the salaries and the bonus payments, the cosy self-congratulation about just how great they all are and it makes my blood boil. I’m paying for that, and so are you. Supposedly there’s change in the air with so much money now going to Index funds and government reports into excessive profits. Vanguard have also launched into the the UK with their lower cost model, and praise be to them. But until we get real transparency on fees, real healthy competition and a government more interested in consumers than a non-exec future seat on a City firms’ Board, change will continue at a glacial pace. After all, it’s been this way for a long time, and the customer’s yachts are still missing from the harbour.

My Tuppence Worth

The question of the week in the UK FIRE blogshphere is: Could Channel 4 have made a less effective TV show about “How to Retire at 40” if they’d tried? The answer is a resounding “NO!”

For me, the show didn’t get off to a great start. As a thick, Northern, Brexit-loving, neo-fascist who could hate gays, women and disabled people, I have to be reminded to celebrate diversity by my intellectual superiors at Channel 4 through their selection of presenters. Patronised? Moi? Surely not.

Putting aside my petty hatreds, the first couple of minutes of the show sounded promising.  The presenters announced that there was a growing amount of people interested in the concept of Financial Independence and Retiring Early in the UK and that they were going to explore the subject from a variety of angles. This seemed like a decent premise, and I felt a wee glow of pride in that I found the book “Early Retirement Extreme” back in 2010. “I’m a pioneer!”, I cheered, and then quickly warned myself not to become the FIRE equivalent of someone who claims that they were at the first Sex Pistol’s gig in 1976. It’s really not that big a deal.

The show quickly went downhill from there, and it soon became clear I wasn’t the intended audience and neither was any of the rest of the FIRE community. We wanted to see the elegance of the maths (which The Escape Artist made a heroic attempt at, no doubt, only to edited down to about thirty seconds of soundbites “You only need to save 75% of your income and you can retire in seven years!”) We wanted to see the heroes of FIRE, Jacob Fisker, Mr Money Moustache et al, and not some bloke selling potatoes who was happy to tell us what his profit was, but not his turnover, and young Pippa of Nut Butter fame, who was happy to tell us the turnover of her business, but not the profit. I held my breath to hear what Huw from Financially Free by Forty would say, but clearly the editor had decided his contribution was going to be his startling good looks alone.  As for Julie and Jason, whose blog I follow as they wander around Europe on permanent holiday, if they’d a point to make I must have missed it.

The following day at work, the couple of colleagues I’d nudged to tune in informed me that they’d squandered an hour of their lives on “utter crap”.  “What was it all about?” they asked, and I was at a loss to tell them. As I’ve tried to evidence on this blog, I’m no evangelist for Retiring Early but would like to see a rise in interest on Financial Independence. I had harboured quiet hopes that this show would at least spark some interesting debate on the subject, but judging by the complete lack of reaction following it in the national press I can’t help but feel an opportunity has been missed.

It’s easy to criticise and forget that while we in the FIRE community had this show planned as TV event of the week, the rest of the nation were immersed in the body-shaved car crash that is Love Island. We find this stuff incredibly interesting and appealing, but 99% of the rest of the population couldn’t give a toss about it. That’s what the producers were up against. But when the Mad Fientist can string together a bunch of immersive, informative and entertaining podcasts on FIRE and the people involved in it, is it beyond TV to produce something of a similar ilk? As it stands it seemed all they managed to do was annoy anyone interested in the subject while failing to interest anyone else. Bit of a shame really.

 

Tell Me Lies

I’m reading an interesting and entertaining book at the moment, “Everybody Lies: What the Internet Can Tell Us About Who We Really Are”.  It’s about how Google searches tell us much more about people in general whereas relying on surveys, or Facebook, Instagram, Twitter – or even blogs! – is perhaps the worst way to understand anything about anybody because almost nobody “tells the truth” about themselves on these platforms.

Then, driving into work, I decided to listen to a podcast I haven’t for some time, the Dave Ramsey phone-in, a very American biased show about debt, money issues and how to deal with them (hint: buying Dave’s books, audio tapes and signing up for his courses helps).
Dave alway starts his shows with the adage that his is a world where:

“debt is dumb, cash is king, and the paid-off home mortgage has taken the place of the BMW as the status symbol of choice.”

Unfortunately though, having “a paid-off home mortgage” is one of the least symbols of status you could imagine. Look out your window. How many people in your street have paid off their mortgage? Exactly. You’ve no idea. Like the fabled “Millionaire Next Door”, you’ll never meet your mortgage-free neighbours unless they introduce themselves as such.

Similarly, on the internet, if everybody is lying, does that include Mr Moustache, Jacob Fisker or even little old me? Are we really walking the talk? Or are we just broadcasting a facade to the world for some ulterior motive?

After all, attaining FIRE is quite a status symbol, isn’t it? Or at least telling people you’ve attained it is. I’ll hold my hands up here and admit that I got a nice charge from telling people I had retired early. I was proud of this fact, although now having gone back to work I kind of wish I’d kept my mouth shut. Outside of pride and ego, I’m not sure what my motivation was for announcing it. I like to think it was something more than just to parade my own “status symbol of choice”, but I don’t know. I sometimes think that I had to tell people as a way of committing myself more to the idea of retirement and I do think there is a germ of truth in that. It’s just not a very big germ. Maybe I thought I’d be a bit of an inspiration to people, but that’s a pretty vain assumption too. Perhaps I felt it made me a bit of a curiosity, a slightly more interesting person who, as Dave Ramsey states, “lived years like nobody else to now live like nobody else”. Pride, vanity, ego. Surely there’s more to it (and me!) than that?

Well, one thing I could argue about why I told people I’d “retired early” was that I was definitely inspired and motivated by the FIRE bloggers who I’d discovered via trying to learn more about investing, saving and being cheerfully frugal as a lifestyle choice. If it inspired me, perhaps it would inspire others to adopt, what I felt, were worthwhile goals and objectives? There is an alternative to buying pairs of £500 shoes, if only more people knew what those were. I can’t say I wanted to be an “inspirational figure”, I just felt that maybe some people could learn from my example and experience of the FIRE lifestyle that seemed to be gaining prominence in certain circles. When you’ve experienced something positive in life, you’re kind of inclined to want to share it and I find that blogging allows me to do that whereas trying to “convert” individuals on a personal basis is, I find, being a bit more evangelical than I want to be. When if comes to my blogging, people can take it or leave it.

So, as my blog attests, the “retiring early” part of the FIRE equation didn’t work out and I wanted to write about that because I was fairly sure I wasn’t the only one out there discovering that I missed the workplace once I was out of it. All the same, I didn’t want to dismiss FIRE as a waste of time because the “Financial Independence” part was a massively positive goal that I couldn’t see a downside to. The difference between having to work for a living and choosing to work to enhance your living is massive, and more people should strive to allow themselves the opportunity to achieve it. I’ve seen quite a few bloggers describe this state of employment, where you’re not doing it for the cash, as having “FU Money” but when I see my salary drop into the bank for doing a job I’m choosing to do, it’s more “Thank You” than FU!