What are the costs?

● When you ask about costs include all these fees:

1. Policy fee:

Most RAs will have a policy or administration fee to cover the costs of running the fund.

2. Platform fee:

RAs that offer access to different underlying unit trust funds are offered on an investment platform for which you will pay an administration fee. This fee may be charged on a sliding scale.

3. Investment management fees:

These are the fees on the underlying funds or portfolios that are charged as a percentage of the value of your savings. Some funds charge performance fees — a percentage of the amount by which your returns exceed a predetermined performance hurdle or benchmark. 4. Advice fees:

If you make use of the services of an adviser, your RA costs may include an ongoing advice fee agreed between you and your adviser.

5. Debit order fees:

Investing in some RAs through a regular debit order can also incur a debit order fee. Some providers subsidise this cost.

An effective way to measure all the costs is to compare the effective annual cost (EAC). You should demand an EAC when you obtain a quote.

This allows investors to better understand the impact of fees and costs. You can use the EAC to determine how much you pay in fees, Lance Solms, director of Itransact, says. If your fund returns 10% before fees over five years and the EAC for five years is 2%, you are paying 20% of your return each year.