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Have you ever wondered or considered the effect of investment fees on your retirement savings? Have you considered moving from one investment platform/product to the next and then been told that you have a substantial amount of administration fees to pay?
It is critical to understand what you are paying for and whether it is worth paying for. Changes in legislation over time have ensured that fees charged on investments are becoming more transparent. One of the easiest ways for investors to compare fees is the Effective Annual Cost (EAC) measurement
The EAC represents the total cost per year that you are paying for fees. It allows an investor to compare fees across various investment products and suppliers and shows the effect of exiting an investment over specific periods. The EAC incorporates four categories of costs: investment management charges; advice charges; administration charges; and other charges. Each is expressed as an annual percentage of the investment amount. The below table is an example that shows the EAC for an investor that exits his investment over different periods.
Fees* | 1 Year | 5 Years | 10 Years | 20 Years |
Investment Management | 1.5% | 1.4% | 1.3% | 1.2% |
Advice Fees | 0.6% | 0.6% | 0.6% | 0.6% |
Administration Fees | 0.5% | 0.5% | 0.5% | 0.5% |
Other Fees | 0.1% | 0.1% | 0.1% | 0.1% |
Effective Annual Costs | 2.7% | 2.6% | 2.5% | 2.4% |
*Please refer to your investment fund fact sheet for rates applicable.
The EAC thus helps the investor to better understand all the costs involved in their purchase and make better-informed decisions. Hence, make EAC your new investment companion when comparing investment products, as it will help you decide which option is best for you. According to an article on Moneyweb, βIn South Africa, fees usually average 2.75% plus VAT of your investment: 0.075% for advice fees; 0.5% for administration; 1.5% for investment fees.β
Any small saving in fees can make a big difference to your retirement savings. For e.g. A treasury report noted that if an individual reduced his annual investment fees from 2.5% to 0.5%, he would receive a benefit of 60% greater at retirement after 40 years. In rand terms, this means retiring with R1.6 million instead of R1 million. This is a huge saving.
Another factor to consider is that funds with higher fees will not always outperform funds with lower fees. However, it is certainly better for investors to be fully informed of all aspects of financial products, including all potential cost implications before they invest.
It all begs asking the question: are you getting value for your investment fees?
Master Builders KwaZulu-Natal are the administrators of the KwaZulu-Natal Retirement and Provident Funds. The benefits contained in the funds administered are highly competitive and have been enhanced at no additional cost. The total fund operating fee is 1% which includes Investment management fee, administration fee, consulting or advice fees. The Association prides itself in providing value and offering the most competitive benefits in the market.
Contact us on 031 831 3217 or email benefits@masterbuilders.co.za to switch or start your retirement savings with Master Builders KwaZulu-Natal. We look forward to walking this journey with you.
Reetesh Balgobind, Accountant
References:
- https://www.moneyweb.co.za/investing/unit-trusts/are-you-getting-value-for-your-investment-fees bySygnia
- Mail & Guardian: How to compare Investment Fees by Thalia Holmes
https://mg.co.za/article/2019-04-05-00-how-to-compare-investment-fees
- M & G Investments by Pieter Hugo
https://www.mandg.co.za/insights/articlesreleases/investors-encouraged-to-use-new-eac-cost-measure
