WATCH THE FEES

When you invest on the advice of an adviser, the adviser has to earn something for advising you.

The adviser may earn commission that is paid by the product provider. This is typically the case with policies that have penalties if you break the contract by stopping or reducing your contributions before the term is up.

The adviser can charge a professional fee per hour or a monthly retainer.

Most advisers, however, charge a initial fee for a financial plan and an ongoing fee based on how much you invest on their recommendation (known as a fee based on assets under management).

If you invest in a policy with underlying investments, or on an investment platform, you need to consider the total cost of all the fees, including:

The adviser’s fee. Remember that investing through an adviser could reduce the fee you pay to an investment platform.

The platform fee, which is typically on a sliding scale, depending on how much you invest.

The asset management fee on each underlying fund. This could be either an ongoing fee or a performance fee.

You should also be aware that:

Some unit trust companies pay rebates to the platform provider that may or may not be passed on to you in the form of a lower platform fee or a lower asset management fee.

Some investment platforms offer what is known as “all in” fees that include the fund or asset management fee, the advice fee and the platform fee.

An often-quoted statistic is that, at a total fee of 2.5 percent, you will forfeit 40 percent of your investment return over 40 years. – Laura du Preez