Zero fees may keep capital safe by preventing the capital being eroded by fees and boost returns, says financial services provider, Fedgroup. But not all zero fee propositions are what they say they are.
The company that has been in existence for over 30 years says that on average South Africans pay administration fees starting up to 3% or more and, depending on the service provider, those fees can move upwards from there.
“Investors should know what they’re paying, but the real question is, should they be paying anything at all?” says Michael Field, COO and Head of Investments at Fedgroup, “The need for South African investors to pay fees for the opportunity to save their money in all of the products in their financial portfolio is a unreasonable proposition”.
Most investors still don’t fully understand how their investments work or what the fee structure entails.
Field says that some financial services providers charge inflated fees or have structures that hide the fees being charged, despite legislation encouraging a more transparent fee structure.
Field was referring to financial institutions charging both the investor and the investee costs for their services. This has often led to inflated fee structures that have dramatically reduced the ability of an investor to benefit from their returns.
To combat the industry’s concern for high or hidden fees, the Financial Advisory and Intermediary Services Act of 2004 (FAIS) provides a framework for fees to be more transparent.
The legislation refers to measured expenses, which include, but are not limited to, custody costs, asset management and administration fees, trustee fees, taxes, costs of buying and selling units from investors, scrip (securities) lending costs, and bank charges.
Many financial institutions are beginning to offer zero fee propositions, but investors are warned to proceed with caution and scrutinise the offering. “Some investments only offer a fee hiatus for a restricted period, and others require the investor to purchase another financial product that comes with a less than appealing fee structure,” says Field.
He also suggests that investors consider including investments in their portfolio that offer capital protection to steer it more towards individual needs and circumstances.
“It is important that investors carefully examine the products offered by financial services providers to create a balanced portfolio that suits their risk profile and needs. And chat to their financial advisor,” says Field.
PERSONAL FINANCE