Investment fees to keep in mind
Samuel van Tonder, technical sales analyst at PSG Wealth, noted that the first step in making sure you are getting a “fair deal for what you are paying for,” is to understand what you are being charged for.
An adviser or investment house needs to carry out a certain amount of administration when you invest. These fees include providing you with investment statements, as well as following your instructions with regards to your investment.
“Administration fees are often charged on a sliding scale: the larger your portfolio, the lower your fee becomes. Administration fees typically range from about 0.096% per annum (excluding VAT) to 1.25% per annum (excluding VAT),” revealed van Tonder.
Advice fees are what you pay to a financial adviser. This can either be a consultation fee, which will usually be charged upfront, or on an ongoing basis for the management of your portfolio.
“In most instances, advisers prefer an ongoing basis so that they can oversee your portfolio over the lifetime of your investments. As a guideline you should be wary of advisers charging more than 1.5% [of your account value] per annum (excluding VAT) on ongoing advice fees,” noted van Tonder.
“Asset management companies charge fees to manage the unit trusts you invest in; and different managers charge different fees. The easiest way to compare management fees is to have a look at the fund fact sheet on the unit trusts you are interested in, which will tell you the Total Expense Ratio (TER) of a unit trust. The TER expresses the cost of investing as a percentage of the amount invested in the unit trust,” said van Tonder.
Fund fact sheets should be available on your asset manager’s website, according to van Tonder.
The total cost of fees
These fees (administration, advice and management fees) will determine your annual recurring fee for your investment house or financial adviser. Van Tonder highlighted, that just as your returns will compound over time, your investment fees will also increase.
“Recurring fees have a significant effect over long periods of time on investment performance. And while a difference of 1% might not sound like a lot, over time it can result in a significant amount,” noted van Tonder.
He added: Fees are a fact of life and should be looked at in terms of the value one gets from the service you receive. Taking all the factors into account when choosing a particular investment or financial professional, be sure you understand and compare the fees you’ll be charged. It could save you a lot of money in the long run.”