Ensure you understand service fees

By Staff Writer

Question: I am investing some capital and was surprised to find some financial advisers quote an upfront fee and others not. All quoted an ongoing service fee. Why the difference?

Answer: Each financial adviser has their own financial model on which they run their business.

It’s an important point to remember: they are running a business and nobody works for free. So you need to dig a little deeper into the quotations.

If there is an upfront fee, it could be made up of an administration fee and/or an initial structuring (advice) fee for the investment. Sometimes an adviser will waive all or part of these initial fees.

In addition, they will charge ongoing fees made up of advice, product administration and asset manager fees. Usually these ongoing fees are paid directly to each party, but alternatively the adviser, administrator and asset managers could pool part of their fees.

Obviously, if an adviser is getting more out of the ongoing fees than just the advice fee, then it’s easier to waive the initial fees. It’s a seemingly more attractive pricing structure to the client.

FAIS regulations require full disclosure of fees to a potential investor.

To protect your interests, you need to weigh up the total fees in each quotation, to consider who in fact is offering the fairest overall fee structure to you.

You also need to take into account performance-based fees too, when considering your options. These are harder to quantify and vary from one asset manager to the next.

I think the last point to be made is for you to also understand what services are being offered for the fees being tendered. It may be that you are more comfortable paying a higher fee to receive a higher level of advice.

Remember that promises of service should be confirmed in writing in the form of a service level agreement. This agreement enables you to hold your financial adviser accountable for future service delivery.

  • Chris Willis is the head of Alexander Forbes Financial Planning Consultants

Recent Articles

Featured Request your credit report from the right bureau

With so many different credit bureaus in South Africa, it may be difficult to decide from which one to request your credit report. We have a look at what you should be aware of when selecting a credit bureau.

Applying for a home loan? Consider the repo rate

When you apply for a home loan, one of your top priorities should be to secure a low interest rate. In order to achieve this, you need to be familiar with the repo rate. We find out more about this.

Effective financial planning as a single parent

As a single mom or dad, it can be challenging to keep up with the ever-increasing expenses of raising a child. We have a look at the importance of setting up a budget as a single parent.

How your credit score impacts your insurance – and vice versa

Since insurance is paid in advance, it may seem unrelated to your credit score. However, these two are in fact linked to one another. We find out why insurers look at your credit score.

Deals

Get a FREE flight ticket with Hotel Sky

Price: From R5,200
When: Until 31 January 2022
Where: Johannesburg and Cape Town

Voucher for 2 special at Bakwena Day Spa

Price: From R1,798
When: Until 31 January 2022
Where: Centurion, Hartbeespoort and Stellenbosch

Spier Hotel Summer Special

Price: Available on request
When: Until 31 March 2022
Where: Stellenbosch


Latest Guide

Guide to debt rehabilitation solutions