I always knew investment costs were high but I was surprised at how high.
Without any advisor fees, many “low-cost” options are well north of 1.50% (ex VAT) per annum. If we add advisor fees and then add platform fees the costs become very concerning. Cost ratios of 3% and above are not unheard of.
Why is this a problem for Forget The Noise?I love dividends. I like portfolios with a dividend yield of 4% to 5%. If I subtract costs of 3%, then I am left with practically nothing. I am not happy. This is why I keep harping on about costs.
What is the problem?There are two many “helpers” in financial markets and they all charge a service fee. Here are just some examples:
- Active fund manager who actually manages the money (usually very poorly and at high cost)
- Financial advisor (upfront and annual fees)
- Platform fees (where the investment “lives” and they charge an annual admin fee)
- Fund of fund managers (they choose active fund managers and create a fund on top of that)
- DIMs managers (not quite sure what value they add but they supposedly “help” advisors choose funds and… of course… they charge fees)
- Qualitative fund appraisers (they assess funds and again charge a fee)
I am not saying the above are terrible people. Most of the ones I have met are smart and friendly. I am just saying the maths does not work in their favour. In their defence, they will say the “alpha” (fancy word for value) they generate justifies the fee. I disagree but don’t want to wade further into the active/passive debate. I’ll just ask that whatever investment vehicle or person you use, that you carefully consider the costs involved.