Today I would like to share a true but shocking statistic with you. Did you know that 80-90% of financial advisers underperform the stock market. This means that most advisers will achieve less than the FTSE 100’s growth.
This underperformance by advisers can have serious consequences for investors. Over the last twelve years, if you’d been taking your guidance from an adviser, your performance will probably be either in line with the FTSE 100’s 19.6% cumulative loss or possibly worse.
The impact of poor investment performance
When an IFA or wealth adviser underperforms the stock market, it often results in a major disappointment for their client, because poor investment performance means the client not arriving at their intended goals on time.
This may seem harmless to some, but when you look at the impact of poor investment performance on reaching retirement goals, most people take more notice. This table below highlights the dangers and shows what would happen to your retirement plans if your investments underperform. In this example, I’ve used a person with a £250,000 portfolio whose aim is to grow it into a million pounds over the next ten years.
| Starting amount | Retirement goal | Annual growth rate | Time frame taken to hit retirement goal | Arrived at goal on time? |
| £250,000 | £1 million | 15% | 10 years | Yes |
| £250,000 | £1 million | 7.5% | 20 years | No, 10 years late. |
| £250,000 | £1 million | 3.75% | 40 years | No, 30 years late. |
To be able to reach their goal successfully, this person would have to grow their account at 15% per year, which I'm sure you'll agree is no easy feat. However, it is possible when you have all the components in place, such as a strong upwards trending market.
This is the compounding rule - when you achieve 15% annual growth, your money doubles every five years. That means at 15% annual growth, £250,000 turns into £500,000 in the first five years, and the £500,000 turns into a £1million in the final five years.
If you suffer from poor investment performance and fail to get adequate growth on your capital, it's going to take you much longer to reach your retirement goals. For example, if your adviser is one of the 80-90% who underperforms the market and he or she helps you achieve just 7.5% annual growth, it would take you twice as long to get to your goal. Instead of getting to your objective in ten years, it would take you twenty.
However, if your adviser was in the bottom 20% of their field, and only managed to help you achieve 3.75% annual growth, it would take you forty years to get to your goal. That’s thirty years late!
ISACO's performance
Our clients receive their investment guidance from Stephen Sutherland, ISACO’s Chief Investment Strategist. His market beating performance since 1999 has helped him to be recognised as one of the UK’s leading investors. From 1999 to 2010, he made a cumulative gain of 124.2% versus the FTSE 100’s 0%. In the last 3 years1 he’s made an average gain of 22.7% versus the FTSE 100’s 9.3%.
About ISACO
We specialise in providing a premium Investment Guidance Service for ISA and SIPP investors with portfolios in excess of £100,000.
Our mission is to help investors achieve better performance over the long-term, better protection in falling markets and at a better price.
For more information about ISACO and our Investment Guidance Service, please read our free brochure.
1(Nov 2008-Nov 2011)
Please remember that past performance should not be used as a guide to future performance. The value of investments can go down as well as up and you may not get back the amount you originally invest.
