SYDNEY, October 15 2018: New research from digital wealth provider InvestSMART is putting the spotlight on the devastating effect high fees and costs can have on investor nest eggs.
Data modelling in InvestSMART’s new paper, How fees can destroy your wealth, shows someone who had invested $100,000 in Australian shares over the 30 years to June 2018 at a fee of 0.5% would have $1,207,807 at the end of the period, while a fee of 1.5% would have netted them just $896,5081 – almost 26% less.
From financial advice fees to platform and fund manager fees, the total costs involved in investing are having a significant impact on investment outcomes.
Commenting on the findings InvestSMART CEO Ron Hodge said in most cases, fees rather than returns make the biggest difference to investors’ quality of life in later years.
“What we found is that many investors are paying for outperformance and getting the opposite. Our research shows that on average fund managers are underperforming by the amount of their fees,” he said.
“We want to help investors to understand the depth and the extent of the fees they are paying and the impact it has on their savings over time, because a small number can make a big difference.”
The effect of ‘fee stacking’
According to Mr Hodge, the high total costs of investing are caused by ‘fee stacking’ – an accumulation of apparently small fees including financial advice fees, implementation fees, platform administration and investment management fees, which can easily add up to 2% per annum.
“The impact for investors is huge. The money is lost to fees, and the corresponding loss of the benefits of compounding ends up in the pockets of the middlemen and women of finance,” he said.
Mr Hodge encouraged investors to do their homework when it comes to fees, many of which are avoidable or reducible.
“There are now plenty of low-cost alternatives to financial advice, including scaled advice offered by super funds and independent research.
“Across the board, product fees are also coming down. If you’re heading down the passive route, just look for a low fee and if you prefer an active manager, make sure it has the performance track record to justify the fees being charged,” he said.
InvestSMART offers a range of products and resources to help investors to reduce their total costs of investing. These include a popular free online Portfolio Manager; low fee investment products independent research from an experienced investment team; and Compare Your Fund, an online resource that allows investors to compare the fees and performance of managed funds and superannuation funds.
“As technology continues to level the playing field for investors, we believe there is no reason anyone in this day and age should be paying excessive fees,” Mr Hodge said.
“That is why InvestSMART is currently investing heavily in a range of technology-based products to help investors lower the cost of investing.”