This list does not cover all fees that may be charged, but it is a good place to start when interrogating costs on investment policies and products.
Effective Annual Cost (EAC)
Before we get granular, allow us to introduce this three-letter acronym which pretty much sums up all of the annual fees an investor would pay into one line item. This tells you, in total, what your investment costs are. Usually, EAC is represented as a percentage of an investment.
“In at least one extreme case (I won’t name names) I’ve seen that this can go as high as 48.7%, which is very near half of the investment.” Asavela says, “Giving away half your investment capital, whether the market is doing well or not, is going to be very painful.”
Performance fee
These are exactly what they say they are. If a manager performs well or returns are positive compared to the chosen benchmark, a performance fee applies.
“At 10X, we believe that good performance should be rewarded but we don’t believe that reward should come at the expense of the investor, or when positive performance is minimal. 10X is all about performance without any of the fuss and does not charge performance fees.”
Management fee
This is the basic fee managers charge to run their funds. While management fees are levied to keep the lights on, they can vary dramatically and high fees can mean investors perform badly even when the markets shoot the lights out.
“This one may be confused with the performance fees mentioned above, but it is levied irrespective of how the investment performed,” says Asavela.
Transaction costs
When a manager buys or sells assets fees will be incurred on the transactions, and these costs can be passed on to clients.
Asavela says: “With every transaction the financial provider must pay different agents in the markets, from bank charges to clearing and settlement fees and brokerage fees. Even when these costs are paid by the fund rather than being passed on to the investor, they still lower total investment returns.”
Transfer fees
When an investor moves their portfolio to another financial provider or company, the outgoing company can sometimes levy a portfolio transfer fee.
“This might sound harmless enough, but it will feel like a severe punishment when you discover that you are being charged a penalty to move your investment to a different company,” Asavela says. “This is pretty much a punishment for moving to a company’s rival.”
She adds: “10X does not charge clients a transfer fee.”
Exit fee
The exit or withdrawal fee is levied on an investor cashing in their investment partially or entirely. This is another fee that can feel like extortion but, unfortunately, is common practice in the investment industry.
“Much like divorcing, splitting up, de-coupling or parting company, this fee may have different names but ultimately means the same thing,” Asavela says. “The common factor is that it comes at the end of a relationship [with a financial services provider].”
To give as many people as possible a break from fees, 10X is running a campaign which gives everyone who signs up for a 10X retirement product in the month of November a chance to invest without paying fees for their first six months.
Paying low fees makes a big difference in a world where everything is becoming more expensive. Paying no fees makes all the difference in the world.
Visit the 10X website and enquire today.
Ts & Cs apply.
10X Index Fund Managers (RRF) Pty) Ltd (“10X”) is a registered Manager of the 10X Collective Investments Scheme, approved in terms of the Collective Investments Schemes Control Act, No 45 of 2002.
The content herein is provided as general information. It is not intended as nor does it constitute financial, tax, legal, investment, or other advice. 10X Investments is an authorised FSP (number 28250).
