Financial-Advisor

Do you know what fees you are paying with your advisor?

5The UAE is currently is about to implement changes to the way investors who invest through an insurance product is charged and how the advisor is compensated.

These changes are long overdue, I have reviewed the Circular 33 and see that the massive changes will only benefit clients. However, I still believe the fees are still too high. The fees will go down, the insurance portion will rise.

I know that I go on and on about fees, and may sound like a gramophone record that has stuck and repeats itself.

However as this is your money, (I am only trying to help). I have a template which you can use to identify all the costs. (this exercise may be outdated when the law changes in the UAE).

The regulators (not the product providers) are pushing for more transparency and fewer fees. In a very clear format. It used to be that funds paid a trailing commission to the advisor. This will stop, if there is a trailing commission this will be paid back to the client.

Due to the power of compounding, fees that may look reasonable can have a substantial effect over time.  This can reduce your returns and affect your goals.

If you are a low risk investor, then you can expect lower returns, the effect of fees can make a huge difference.

Research has proven that the higher the costs then the lower the statistical probability that an investor will receive good returns (despite what some advisors may say).

There are some very good managers available, but the higher the costs the greater the difficulty in beating the benchmark.

Often a fund will be shown to a client with healthy returns, however it does not reflect the other costs you have to pay such as platform fees, commissions, account charges etc. etc.

At the same time, paying lower fees does not automatically mean you get better returns, (price is what you pay, value is what you get)

However, there is generally a strong relationship between costs and performance.

The charts below shows the effect on investing 100,000 using a gross return of 6%

It then compares a 2%, 3% and 4% annual cost structure.

At 6% the 100,000 would grow to 320,000 in 20 years,

If you had a 2% fee then it would only grow to 220,000, a difference of 100,000.

If your fees were 4% p.a., then the investment wold only grow to 149,000

graphDo not forget that a portfolio should reflect your risk (diversify into other asset classes), and that emotional decisions tend to have a negative impact on performance.

Published by

Gordon Robertson

I'm an entrepreneur and a veteran in the financial services industry for 30 years. I worked through operations, to compliance, sales, teaching and management. Last position I opened and ran the branch office for Prudential in Dubai and was licensed by the Central Bank of the U.A.E. to run a financial institution. Today, I'm the ME Group Chairman and I'm now permanently based in Dubai.

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