Question:
There's a lot of mention around the issue of fees and making sure your fees are not too high, but what is considered high investment fees? I've got an 'old age' retirement annuity fund and pay an on-going management fee of 0.16% p.m. (levied monthly on the fund value) and a monthly contribution charge of 3.5% p.m. Is that reasonable, or high?
Answer:
Morne,
It is high but we have seen much worse. Your annual charge works out to around 2% pa - in some cases this number can be as high as 4% pa or more. Just be sure you are not also paying other charges such as broker commission and investment administration charges.
But to put things into context: Your monthly contribution charge lowers your investment by 3.5% per month. At maturity date you will have 3.5% less money, which is passable.
However, your annual investment fee is 0.16% pm , or 1.92% per year, say 2% of assets. This does not sound a lot, until you put this number into its proper context. Your real (after-inflation) return on a balanced portfolio is likely to be around 5% pa over the long term. By paying fees of 2%, you are losing 40% of that real return; compounded over many years (30 or 40 years) means you will have 40% less money in retirement, in real terms. That is a big chunk out of your retirement income.
Some fees are inevitable, but you can get new age retirement annuities (such as the 10X RA) with all-in fees less than 1% pa.
