Before I get into the nitty-gritty of offshore and stock investing in an upcoming post, let’s just tackle the elephant in the room … Fees. Everyone wants to maximise their portfolio returns, and one of the ways to do that is to minimise the fees levied against it. This might look like a straightforward exercise, especially when it comes to the financial advisor, but before you throw the proverbial baby out with the bathwater, understand the different fees and the norms first.
Firstly, unpack that there are layers of fees. There are platform/admin/management fees – every platform seems to use its own terminology – anywhere from 0% to 0.35% pa (LISPs and insurance platforms charge, discretionary managers (like us at Rexsolom) usually don’t. If you have a regulated retirement product, there are wrapping fees for the ‘Life License’ circa 0.25-0.35% pa. The biggie is the fund/asset management fees. In RSA, this spectrum is from around 0,65% to 2%. Usually, the higher the profile of the Unit Trust, the higher the fees (yes, you’re paying for the advertising and fancy head offices). Some bring down their costs by using a ‘passive core’ (I will be going into this in a later series). Then there are financial advisor fees. I have written a whole blog on fees here: so I won’t rehash this again here.
Let’s start with Financial Advisors first. This might seem like low-hanging fruit for investors, because they are one of the only fees that are negotiable. First, the contentious one, “upfront fees”. In South Africa, the cap on this is regulated by the FAIS Act, with upfront fees capped at 3,5% of the asset and ongoing fees capped at 1,5%. There are some FSPs out there who charge a ‘fee for a plan’ – this is unregulated and they can charge what they like (or perhaps more accurately, what the market will bear), this may be in addition to upfront fees. Unlike other professions like lawyers or doctors, this upfront percentage is not related to the qualifications or experience of the advisor – there is no “500% of medical advisor rate” equivalent available for a top-tier financial advisor, so they usually manage their resources by having an ‘investable minimum’
Occasionally, I am asked straight out what the “value” of a financial advisor is and why they should pay for the advice. It’s not an unreasonable question, given the experiences of some clients, especially those who had a product sold to them or where fees are still being collected from an investment product despite a failed relationship with a broker. Not everyone has a bad experience. I joined the profession after years in the corporate c-suite because I had a decent advisor who increased my knowledge, interest and understanding of the field that became a passion to this day.
A financial advisor can help individuals create a comprehensive financial, retirement and estate plan tailored to their specific goals. Any old advisor can plug in the numbers to an app and give you a plan (heck, your AI agent can probably do as good a job as these cookie-cutter apps). These plans are often done upfront, and if this is not charged for (or upfront fees are not charged), then the cost of this is effectively amortised over the length of the investment, topped up with reviews.
In my experience, this is the problem of ‘fee for plan’ models adopted by some advisory firms (no shade, just not for me!). On paper, a ‘one fee and done’ might look like a good cost saving. Unfortunately, unless it is reviewed and monitored at least annually, it will be dated and irrelevant within a couple of years. (Many ‘fee for plan’ advisory firms now also tack on a 0,5% ongoing fee too.)
The good news for retirees who haven’t managed to attract a well-experienced and qualified advisor – your retirement fund, often a person’s largest asset in retirement, will probably fit into their critical mass requirement (even if you’re in retirement, as long as you haven’t been lured down the ‘life annuity’ route). Retirement funds and annuities can move platforms, switch investments without tax or (major) fee implications (remember retirement funds are not charged CGT – one of the biggest barriers for flexible investments). My approach is to help a client develop their own ‘RedFile’, of which their plans only form a part, but can be a repository for everything financially important in their life, so that the family is not left scrambling to ‘get your affairs in order’ when you are either incapacitated or ‘moved on’. (This template is still available free on request.)
A financial advisor can provide peace of mind by relieving the burden of managing complex financial matters, especially if they have oversight into all aspects of your wealth and risk portfolio. In my experience, that can go a long way to reduce stress and anxiety that creep up on all of us from time to time. If you have a comprehensive plan, you can look at this whenever you want to make sure you’re still on track. I do this for myself, so I know how helpful it can be. It should be easy to understand, with a short clear summary – wads of fluff impress nobody. One of the reasons I blog so extensively is to help my clients upskill and stay in the loop. As I tell my clients, creating wealth is a simple equation: income minus consumption equals wealth. I can look after the wealth side of the equation; you are the only ones who can balance your income and consumption. If you’re a retiree or soon to become one, I am offering free 30-minute Zoom calls (while I have capacity).
Advisors, especially independent financial advisors, often have access to a wide range of financial products, investment opportunities, and industry research that may not be readily available to individual investors. They can leverage their expertise and network to provide clients with valuable insights and opportunities. For example, I work extremely closely with a (Cat 2) Asset Manager, so I have access to an understanding of local and offshore shares that my clients are being invested in, directly or indirectly( through a fund.) We also invest offshore for our clients (out of Switzerland, not using RSA International FSPs). I also have access to tax specialists, business gurus, lawyers, executors, Trust attorneys and others whom I can call on for advice.
Then there’s the soft stuff. Behavioral Finance is a fascinating and thriving aspect of financial management, and most planners today form a strong, trusted bond over a long period of time with their clients and can provide emotional support and coaching during times of market turbulence or major life transitions. We try to help clients stay disciplined and focused on their long-term financial objectives, preventing them from making impulsive decisions that could derail their plans.
Bottom line – It’s not only about performance – it is what the adviser saves you (including saving you from your over-reactive self. In the next in this series, I will look specifically at investment advice and advisors.
Articles and Blogs
Investment series part 1 (NEW)
Investment series part 2 (NEW)
Legacy Series Part 4
Legacy Series part 3
Legacy Series Part 2
Legacy Series Part 1
Holiday checklist
Next year – Action Plan
Next year – Vision, Mission etc
Medical Risk Mitigation
Next Year – Consolidation
Abdication or diversification?
Carbo-loading your retirement
Spoiled for choice
Who needs a plan anyway
8 questions you need to ask about retirement
What to do when interest rates drop
How to survive volatility in your investments
What to do when interest rates drop
Difficult Financial Conversations
Financial Implications of Longevity
Kick Start Your Own Retirement Plan
You matter more than your kids in retirement
To catch a falling knife
Income at retirement
2025 Budget
Apportioning blame for your financial state
Tempering fear and greed
New Year’s resolutions over? Try a Wealth Bingo Card instead.
Wills and Estate Planning (comprehensive 3 in one post)
Pre-retirement – The make-or-break moments
Some unconventional thoughts on wealth and risk management
Wealth creation is a balancing act over time
Wealth traps waiting for unsuspecting entrepreneurs
Two Pot pension system demystified
Cobie Legrange and Dawn Ridler,
Rexsolom Invest, Licensed FSP 45521.
Email: cobie@rexsolom.co.za, dawn@rexsolom.co.za
Website: rexsolom.co.za, wealthecology.co.za