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The fees charged by the investment management industry are notoriously vague and often expensive despite the changes in legislation and regulation to combat this.

The debate between a basic flat fee service and a service based on commission structures features regularly in personal finance discussions.

There is a train of thought that suggests clients should pay a flat fee for the rendering of a financial service to them as this will reduce the opportunity for confusion over commissions and hidden costs. The theory being that commission structures are open to abuse and that unscrupulous advisers may not always provide unbiased advice in the best interests of their clients when faced with lucrative commission payments.

The other line of thought is that clients apparently do not like the idea of ‘paying’ fees. Somehow it is seen as more palatable if the cost of the service is incorporated into the products they buy and the advisers they use. This may be because they do not see the money actually leave their wallets as they would if paying a plumber or doctor for their professional service. Maybe it’s because the fee they pay comes off every month rather than in a potentially larger one off charge which may seem excessive when disclosed upfront.

It is impossible to cover all scenarios and all products in one go but by looking at the following real life example investors should get an idea of the type of fees charged within the industry and understand the impact of these fees on their investments.


The client had a lump sum investment of R214, 400.00 that he wished to invest for the future education of his three children. He invested in a combination of three Collective Investment Funds or Unit Trusts offered by three well known asset management companies. He makes an additional monthly contribution of R4,626.00 which he wishes to escalate at 15% a year to outstrip the impact of inflation. The assumed rate of inflation for the purposes of the investment period was 6% and the investment time horizon was 10 years.

The client was invested in 3 separate funds which had the following return assumptions and fee structures:

Fund % Portfolio Value Expected Return Std Annual Management Fee Performance Fee Total expense Ratio Initial Fee

Fund A







Fund B







Fund C







The expected return on the portfolio based on the weighted return of the three funds is therefore 12.66% per annum before fees and inflation. (Calculation: (Weighting Fund A x Expected Return Fund A)+ (Weighting Fund B x Expected Return Fund B)+……)

The weighted Total Expense Ratio of investing in the three fund portfolio is 2.4% per annum. (Calculation: (Weighting Fund A x TER Fund A)+ (Weighting Fund B x TER Fund B)+……)

No initial fee has been charged in this case but investors need to be aware that often a fee up to 4% is levied on any initial lumpsum investment which could in this case have equated to an additional R8,576.00 charge (R214, 400.00 x 4% = R8,576.00).

The client’s previous financial adviser charged an additional annual advice fee of 0.5% of assets under management for providing ongoing advice throughout the year. He met with the client on an annual basis to discuss how the investment portfolio was performing.

A premium fee was levied by the financial adviser at a rate of 1% on the additional contributions that the client made each month.

There were no additional administrative charges but investors should be aware of other charges like the investment platform fee, monthly administrative fee, monthly debit order fee and something called a capital charge – All ways of attaching additional fees which reduce the amount actually invested as a proportion of the contribution the client makes.

At the end of the 10 year investment horizon assuming the returns of 12.66% were indeed achieved the portfolio value would look something like this:

Investment performance over the 10 year period ex-fee

Investment portfolio value at end of 10 years excluding fees (12.66%)


Actual contributions made over the 10 years (escalation at 15%)


Investment gain less own contributions


Fees over the 10 year period

Cumulative annual Investment management fee (3 funds with weighted average TER of 2.4%)


Cumulative annual advice fee for the financial adviser (0.5%)


Cumulative premium fee


Total Fee


Actual Investment portfolio value at the end of 10 years including fees


Reinvestment income adjustment *


Total impact of fees on the value of the portfolio over the 10 year period (R463,948.96)

*As fees are deducted during the course of the year it is not just the actual fee amount that must be adjusted for (R365,232.75) but the reinvestment income that is lost as a result of that money not being available for compounding in future years.

It is clear from the above example that the fees you are charged have a very significant impact on your investment returns.

A good service deserves to be remunerated and it is impossible to eliminate all fees associated with financial services rendered to you. However, investors can manage the impact of fees on their investments by deciding on the level of service they require on an ongoing basis (adviser) and also the type of products or product providers that they use (Investment Management Companies).

Please contact White Investments if you would like to learn more about the options available to you when structuring your retirement and savings plan so as to achieve an appropriate level of service in a potentially far more cost efficient manner.


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