Investors are becoming more aware of the costs associated with investing.
However, this is not the only criteria to be used when making investment decisions.
I will try to explain my statement in a simple, yet practical way.
For example, investors often ask advisers what their fee is instead of a more pertinent question – the value they can add.
Remember, there are usually three different types of fees that are reflected in your total investment cost.
The first of these are portfolio management fees. This is, for example, what management companies like Allan Gray, Coronation or Ninety One are asking to manage their respective funds. It can range between 0.4 and 2.5%.
Then there is the administration fee of the platform. There are several platforms, these include companies like Glacier, Momentum and Allan Gray, and their fees are usually between 0.2 and 1.0%. This fee can be based on a sliding scale and the funds you have under management on the specific platform.
Finally, there is the adviser fee of between 0.5 and 1.5% plus VAT received by financial advisers such as PWM.
A practical example of how this works is as follows: Advisor A quotes a management fee of 1.1%, a platform fee of 0.4% and an adviser fee of 0.5% for a total fee of 2%. If the investment return, for example, is 8.1% the net return will be 6.1%.
Advisor B’s total fee (0.94, 0.4 and 0.75%) is 2.09% with a return of 9.4% – thus a net return of 7.31%. A third person, Advisor C,’s fee is (1.3, 0.4 and 1.0%) 2.7% with a return of 12.4% and a net return of 9.7%.
The investment return is of course linked to the knowledge and experience of the adviser and thus one of the most important elements of the total sum.
In our example, Advisor C’s fee is the highest, but so is the net return. One can therefore conclude that his investment strategy is the best and that he adds value in this way.
My view is clear: Costs are important, but choosing a consultant is even more important.