Multiple layers of fees erode investment performance and retirement outcomes for retirees
We simply see money being deducted from our salary each month, and expect or hope that it will accumulate into a decent amount…
However, behind the scenes there are quite a few participants involved in the process, each of them charging fees for their services:
- A retirement fund administrator – the administrator assists with channelling portions of your monthly deductions to the different asset managers that will manage (and hopefully grow) your funds, channeling portions of your money to an insurer for your group insurance benefits, manage claim payouts and so forth;
- Asset managers – they will invest your monthly contributions into specific shares and other instruments, usually based on some form of life-stage investment strategy;
- In addition to their normal asset management fee, they may charge a performance fee if the portfolio performance exceeds some benchmark (which investors rarely understand).
- Separate (and usually higher) fees are charged for the portion of your investments that are invested offshore.
- Multi-managers – multi-managers may sometimes be involved in the management of your investments by managing the underlying investment managers who each manage certain portions of your investments. An additional multi-manager is then levied for this service.
- Platform providers – these providers have the systems and operations to give more savvy retirement fund members more choice in terms of where to invest their retirement funds. Platform fees are levied for this as well.
- Employee benefits brokers – their responsibility is to help your employer with the structuring of your retirement benefits, be the interface with the administrator, assist with educating you (the employee) about how to better grow your retirement savings, and so forth.
- Asset consultants – these consultants typically advise stand-alone retirement funds with regard to investment strategies and levy a fee for this advisory service.
Multiple layers of fees erode investment performance of your short-term or medium-term savings
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