EAC and Your Retirement

Despite significant advances in technology aimed at driving down costs, many South African retail investors are routinely still paying between 2% and 6% for the “privilege” of saving for retirement. Recent research indicates that 88% of all-inclusive fees, excluding VAT on Advice and Administration are over 3%.*

 

The effect of fees on investment performance over time can be quite substantial and, in some cases can reduce the value of the investment at retirement by over 30%, especially if you invest for long periods with fees of greater than 3% p.a.

 

“But I only pay 1.5% - my statement tells me!”

 

Here is a challenge for you – download the fund fact sheet for your unit trust investment. Scroll down to where it talks about the Total Investment Cost (TIC) and we are sure you will breathe a sigh of relief when it says that you are paying somewhere between 1.5% and 2.5% - still high – but definitely not 3% for the total cost of your investment...… or are you?

 

This is one of the single biggest challenges facing the industry at the moment – what you see on your statement is not necessarily the true cost of your investment.

 

Your ongoing investment cost is usually made up of three components:  

 

  • The Total Investment Cost, this is typically found on you Fund Fact Sheet
    • Plus:
  • The Administration Fee (Typically quoted excluding VAT)
    • Plus:
  • The Ongoing Advice Fee (Typically quoted excluding VAT)

Our next challenge to you is to scour your personal investment statement and see if you can find the Administration Fee and the Ongoing Advice fee that you are being charged. If you can find them, add them together with the Total Investment Cost from the Factsheet, that is how you can work out your total cost in percentage terms. 

 

In contrast, when you invest through OUTvest, you can log in to your profile at any time using a computer or mobile device and see the amount in rands and cents that you pay on your statement with our new ONEfee model. 

 

So how does one go about finding out about the total cost of your investment with your provider. Well, you need to ask your provider for your Effective Annual Cost or EAC for short. The EAC allows you to compare the charges across different investment providers, and makes it easier to make an informed decision. Ask for your EAC from your investment provider today and stay informed when it comes to understating the fees applicable to your investment. Over time fees have a significant impact on your investment return.

 

The OUTvest Retirement Annuity offering allows you to configure a low-cost, transparent and tax-efficient investment with one of the most competitive fee structures in the market. Ask for the EAC and compare OUTvest’s fee with the rest.  

 

For more information on the OUTvest RA, please click here.

Marc Ashton

* In house research conducted in 2018 that samples the Total Expense Ratio, Administration and Advice Charge on a selected number of Investment Administration Platforms. The total cost indicated is the sum of the Advice, Administration and Total Expense Ratio for various unit trust share classes available for use by retail investors and excludes customized fee structures.

OUTvest is an Authorised FSP.  All investments are exposed to risk and not guaranteed

 

 

 

 

 

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