Win for investors as fund managers slash fees
SOME investment fund managers are working for nothing as dramatic changes to fee structures put investors in the box seat for savings.
While you cannot escape fees if you want your money managed by professionals, traditional entry and exit fees of up to 5 per cent on investments are becoming extinct as tough competition creates novel new ways to pay.
Understanding what you are paying for is an important rule for any investor, financial specialists say.
Harvest Lane Asset Management managing director Luke Cummings said there was a greater variety of fees than before and the process had become more transparent.
“The fee structure you paid five to 10 years ago is not the fee structure you pay now,” he said.
Mr Cummings said newer types of fees included:
• Performance only fees, where investors only paid fees when a fund outperformed a set benchmark, such as a stock exchange index;
• Staggered loyalty discounts, where fees were reduced in proportion to time spent invested in a fund;
• Sliding scale fees, where management fees fell as a fund’s assets rose;
• Clawback options, where previously paid performance fees could be recovered by investors if a fund gave up its strong outperformance from a previous year.
Harvest Lane operates on a performance only structure, where it takes a 25 per cent share of gains above a specific benchmark but zero if the fund only reaches the benchmark.
“Fund managers generally have had it way too good for years and years, even though they haven’t done particularly well for investors,”
Mr
Cummings said.
“Sensible advice is to understand what you are paying for. Paying a lot of fees can make a difference to returns over the longer term.” Dixon Advisory associate director Ishara Rupasinghe said the ways fees were charged had changed under the supervision of the government and financial advice reforms in recent years. “The good thing out of that is that certain fees, like commissions, are now completely banned, and fee disclosure statements required on an annual basis,” she said.
“It’s important to know and understand what you are paying for to make sure you are getting a service that reflects the fees and is right for your needs.
“In some cases paying more can be worthwhile, but it depends on your personal preferences and goals.”
Ms Rupasinghe said a good place to start checking fees was the annual statement from your super fund.
“Make sure the service for that fee is right for you.”