Chanté BurgerFintech innovation has been an undisputed driving force behind lowering fees and improving customer experience in the financial industry for quite some time, but consumers need to be on high alert for “disrupter” investment products that may, on scrutiny, be high-fee traps in the guise of low-fee fintech.
But not all robo-advisers are created equal, and I urge anyone considering these investment platforms, or similar, to first consider a few factors so that they do not fall victim to strategically worded advertisements about so-called “disrupter” products. According to the Treasury, paying 2.5% in fees as opposed to 0.5% will erode 60% of your retirement savings over 40 years. We advocate that no RA fee should exceed 1%. This should be the total cost, including the management fee and all other charges, such as use of the platform, administration fees and transaction costs.Granted, some fees — such as transaction costs related to the product — cannot be marketed upfront as they are not always known in advance, but they should not be forgotten.
Herein lies the rub for 2020’s new entrant to the market, which is the first in SA to offer a rand-based flat fee of R4,500 per annum for investments of more than R300,000. On face value this is a great offer, especially if you have large amounts to invest, in which case fees can drop to as low as 0.2%. But for investments under R300,000 a percentage-based fee structure kicks in and this translates to a steep 1.5% in fees.
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