Investors estimated that platform fees would cost an average of £7,400, undervaluing the true £12,500 cost by more than £5,000, according to research from AFH Wealth Management.

In its report, What Price Advice, the firm argued that investors are “in the dark” over the fees that are eroding their investment returns, with a particular misunderstanding of platform fees and their impact. More than four in five (84 per cent) undervalued the true cost of such fees on their investments.

However, those who had received advice in the last five years were closer to the actual cost than those who had not, though only marginally. Those who received advice guessed £7,600, while those who had not estimated £7,100. Regardless, both sets of investors significantly underestimated the impact of platform fees.

Platforms have grown to become an integral tool in the investment landscape, as both advisers and individual investors use them to buy, hold and sell funds, and monitor performance. Despite being widely adopted, AFH Wealth Management highlighted there is a clear knowledge gap among investors.

Two in five (41 per cent) investors admit they don’t know the impact of platform fees on their investments; 27 per cent are aware of the fees but are not sure how they affect their investments and one in eight (13 per cent) are not aware of the fees they are paying at all. With so many investors undervaluing the impact of platform fees, even those with some understanding do not realise the full extent of their bearing on long-term returns.

Commenting on the findings, AFH Wealth Management CEO Alan Hudson said: “Investors are baffled by the charges they face, and the impact they have on returns. Platform fees, for instance, have the potential to cost thousands of pounds which could delay a person’s retirement goals or stop them supporting younger generations onto the housing ladder.

“Advisers and advisory firms, must be ready and willing to disclose fees, be that platform fees or ongoing advice fees and importantly, outline their impact over the long term through the power of compounding. Only through a greater drive for transparency will the industry be able to show value for money, and ultimately improve widespread trust.”

The organisation emphasised the importance of educating clients about platform fees and their significant compound impact on investments over the long term and stressed that the knowledge gap needs to be bridged. This view is supported by the adviser community, with the majority (70 per cent) arguing there needs to be more transparency on costs and charges.

Boring Money CEO and founder Holly Mackay added: “The fundamental question that any retail investor wants to answer is how much their investment pot has gone up by and how much they have paid for the privilege. Sadly, this latter question remains more difficult to answer than it should be.

“Cost is of course an important component of net performance, but investors remain broadly unable to articulate or calculate what these charges are. Advice is valued but we continue to take for granted that people understand what it is. It is only once we can better articulate the benefits and be very upfront about what the total charges are, that we can expect our customers to decide if that represents value or not.”

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