Make 2020 the year of defiance against high fees and low returns

True to the old adage “there ain’t no such thing as a free lunch”, fees are universally accepted for all transactions we make, particularly when it comes to our personal financial dealings. But why are so many of us content to pay more for less?

Earlier this year, 10X Investments released its 2019 Retirement Reality Report (RRR19), in which it was revealed that 66% of South Africans do not know how much they pay for their retirement products. Coupled with that, we launched the 10X Million Giveaway competition, which demonstrated to all entrants the devastating long-term impact of fees on one’s retirement annuity (RA).

In my case, I learned that paying an additional 2% in fees for my RA each month meant I would wind up with 108% less income in retirement than if I had been paying 10X Investment’s standard 1%.

The truth is that you have a choice about how much money you give away to your service provider and how much you keep for yourself. As your future essentially depends on it, it’s vital to be defiant and demand lower fees and higher returns from your financial services provider (FSP).

Advisors and some FSPs charge exorbitant fees that will harm your chances of retiring comfortably and with dignity. Worst of all, there is often a lack of education from FSPs, which makes the investor feel dependent on the advisor.

Much like a personal or professional relationship, total dependency can become a form of entrapment that is hard to escape from for a number of reasons:

Fear: The future is uncertain. Breaking ties with your advisor and FSP means you have to seek out and settle elsewhere. “Better the devil you know …”, the saying goes, but unless you pluck up the courage to find out, you’ll only really know how much your policy is going to pay out when you retire. By then, the damage to your savings will be severe. Start by finding out the Effective Annual Cost of your RA upfront. Sign nothing unless you know what the fees are.

Believing high fees are normal: Because so many FSPs and advisors charge high fees, paying more than 1% is the norm. We associate high fees with high-quality advice and expert guidance. The reality is that despite their promises, no asset manager can consistently beat the market over the long term. There are simply too many variables at play, which is why it makes more sense to own the market through low-cost passive investments. High fees diminish wealth; low fees allow it to grow.

Embarrassment or guilt: What will your friends and family say when they find out you have changed providers? Advisors and providers are often recommended by one’s family and friends and it can be hard to have a conversation about the fact that switching is in yours and their interest.

Blaming yourself: I would like to believe that most investors never blame the advisors or FSP for the balance on their investment statement. What can you say to your advisor when he says markets are down when you enquire about your growth? You start thinking that it's your fault your investments aren’t growing. It's not your fault!

Switching FSPs can be a tough decision to make. But it’s important to remember that your retirement fund is likely to be one of the largest investments in your life, alongside buying a house, so it’s vital to safeguard that investment for all it’s worth. Be defiant and protect your future by changing to a provider that keeps fees low and values your retirement as much as you do.

10X Investments is currently running a fee-free promotion: anyone who signs up for a new retirement product, or transfers an existing one to 10X, before 13 December will not pay any fees in 2020. Learn more here.