DO THEY ADD VALUE OR ARE THEY A WASTE?
By Elmie de Jager
Nothing worthwhile comes free. Still, it’s frustrating to waste hard-earned money on something that adds little or no value.
Sometimes, an expensive option is worth every cent, and sometimes “cheap” turns out to be costly.
In this article, I want to shed more light on the different fees or charges linked to investments. I’ll explain which fees truly add value to your investment, and which are simply unnecessary costs that eat into your returns.
The goal is to equip you with enough knowledge so you can make informed decisions when structuring your investments – knowing which costs are justified, and when it’s fine to go for the cheapest option.
Administration Fees
Let’s start with administration fees.
If your investment is not done through an investment platform but via an insurer through a policy, it’s important to look carefully at how the fees are structured. These institutions often break the cost down into several components – an administration fee, a policy fee, and sometimes even “other” charges. You need to add up all these components to understand the full picture of your administration costs.
Simplicity is key. It often makes sense to choose one reliable platform to handle the administration of all your investment vehicles. Why? Cost benefits through consolidation. I see it daily – people placing their proverbial eggs into different administrative baskets (platforms), thinking they’re spreading risk. In reality, this offers no investment diversification, but rather leads to unnecessarily higher admin fees that ultimately hamper your investment growth.
True diversification happens in the fund and asset allocation management – something that can be handled on a single platform. Platforms typically operate on a sliding scale: the more assets you have under management, the lower your admin fees. So, check what your rate reduction would be if you simply consolidated your assets on one reliable platform.
Fund Management Fees
Fund management fees should always be viewed in context. The rate depends on the underlying asset allocation.
In my experience, fees only become a problem in the absence of value.
Performance measurement is therefore critical. A high fee is acceptable if the fund consistently outperforms its performance benchmark, just as a low or even zero fee is unacceptable if there is no performance growth.
You should be highly selective about the fund managers you choose. Whether you use unit trusts or try to save costs through direct share investments, the most important factor is that your portfolio performs better on a net basis (after all fees) than the relevant benchmark. You must regularly check and compare your returns after fees – it’s the only way to know if your strategy is working.
All fund managers will, from time to time, in the short term, underperform the benchmark. What matters is that long-term performance stays above the benchmark. It’s not the fee itself that matters, but whether there is value delivered for that fee.
Advice Fees
Finally, let’s consider advice fees.
What can you expect from them, and what real value can they add to your wealth?
This fee should not be seen as just another line item of costs, but as an investment in guidance, insight, and structural planning.
A good financial adviser can add immense value – not just by helping you plan, but especially by keeping you on track with that plan when it matters most.
A financial adviser is not merely a portfolio builder, but also your behavioural coach. Even the best plans can fall apart when emotions take over during times of market uncertainty or stress.
Here are three key value-add areas to look out for:
1. Structure adds net value
Value isn’t just about investment growth above benchmarks – it also lies in creating an efficient structure that optimises tax.
A well-structured plan can mean you pay less to the South African Revenue Service – and that’s true net growth.
2. Your plan is more important than the product
You and your adviser should design a plan (note: don’t just talk about products) that meets your unique needs and long-term goals. Once the plan is in place, the greatest value lies in sticking to it and monitoring your progress. Following a good process gives you the best possible chance of a positive outcome.
3. Emotional guidance
Markets are unpredictable. No one can forecast short-term movements. The real danger isn’t in the market’s movements, but in how you react to them.
Your behaviour during market uncertainty – whether you panic-sell during a drop or rush in during a surge – can have a bigger impact on your wealth than any fee you pay.
Emotions trip up decisions and lead to poor investor behaviour. History shows this time and again. A good adviser’s role is to keep you focused when you might otherwise react to emotion, media hype, or fear.
This emotional guidance won’t appear on any product statement – but it’s where the true value lies.
In closing, the idea that the lowest-cost investment will deliver the best outcome is like saying the car with the smallest engine will win the race.
The necessary work must be done to optimise – trimming what doesn’t add value, and adding what gets you to your goal faster and more securely.
Elmie de Jager is a certified financial planner at Woodland Wealth. Contact her at info@woodlandwealth.co.za.
Although all possible care has been taken in the preparation of this document, the factual correctness of the information contained herein cannot be guaranteed. This document does not constitute advice and anyone who intends to take any financial action based on this document is strongly advised to first consult with his/her personal financial advisor. Woodland Wealth is an authorized financial service provider with FSP no. 5966.