Investment fees should not be difficult to understand and must at all times be transparent. Many years ago, this was not the case but in recent years the industry has standardized the terms and set out clear limits.
Annual fees set out as an EAC table (Effective Annual Cost) is relatively easy to access even for the investor by logging into their online portal. These fees will always be set out in the initial proposal and quotation before any investment is done and is a good reference point for reporting.
The total fees are shown as a percentage of the capital invested on an annual basis and includes VAT.
Here is an example of how that would look:
• Investment Management: The impact of the investment management charge is based on the weighted average annual fee of the underlying assets
• Advice: The impact of the advice charge is based on the annual fee as shown in the table
• Administration: The impact of the administration charge is based on the annual administration fee charged by the platform, which is calculated on a sliding scale
• Other: The impact of other charges is based on fees paid in respect of model portfolios or other discretionary managers
- How are these fees paid?
The fees will automatically be paid monthly from the capital to the parties involved by the investment platform. Some investors choose to pay the advice fee direct to the advisor firm. The advice fee will in this instance not be included in the table above.
- Do fees have an effect on growth?
Fees are an expense to the invested capital and growth should be reported on after fees. Lower fees mean higher effective growth rates.
Some advisors ask higher annual advice fees than others, but these fees are justified in the amount of hours and knowledge that goes into the planning and management of an investor’s portfolio.
A “value add” may include tax- and estate planning using the underlying structures of an investor’s portfolio. Providing feedback on financial goal setting based on investment horizons in annual review meetings may also be a way to justify advice fees.
Ruvan J Grobler RFP™ (PGDip Financial Planning)