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05/26/2007: "Charges: wake up and smell the coffee "

In the weekend FT Money Josephine Cumbo tells of a reader looking for an income drawdown manager ‘who was stunned to find that charges ranging from £74,000 to £115,000 would be deducted from his wife’s pension pot depending on whether annual returns of 5, 7 or 9% were achieved’. The pot was £154,000. The provider was St James’s Place Capital. Its quoted charge of 2.7% pa would absorb 38% of the mid-range return. It is also near enough 100% of the ‘risk premium’ relative to a risk-free investment strategy. Challenged to defend its charges, SJP claimed they were justified by access to top fund managers.

Do people really believe this nonsense? This FT reader didn’t but most do. St James’s Place clients fit the profile of middle- and upper-income households who have been serial victims of this conflicted industry. They don’t think for themselves and they don’t do even the simplest maths. Too busy or too lazy, they just want to delegate it all to someone who talks the talk. No wonder the FSA despairs that people who really should be capable of taking care of themselves when dealing with the industry just can’t be bothered. I think we’ll hear more of this when it reports the outcome of its Retail Distribution Review on 27th June.