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  • Writer's pictureWilliam Webster

Who is eating your pie?

How much does it cost you to save? Take someone who saves £5,000 per annum for 30 years in a tax free environment like a pension or ISA. What’s the maturity value? It depends. Excluding all fees and commissions compounding at 4% gives £280,424. At 8% it’s £566,416. But that’s not the real world. Our investor pays fees and commissions. Let’s assume they are 1%. Deduct these from the investment and £280,424 becomes £237,877 that’s a £42,547 difference. And £566,416 becomes £472,303 a £94,113 difference. Hardly trivial sums and it gets worse. Whilst some low cost trackers and ETFs charge less than 0.30% per annum many managed funds charge an awful lot more. Total fees and expenses can run north of 2.5%. In the 8% example above that’s a cost to our investor of £204,238. What’s more I’m not certain what it’s for. After all it’s well known that most active fund managers can’t consistently outperform trackers. With this in mind the fund management industry needs to come clean. The information provided to investors needs to be absolutely clear. That’s why every annual statement needs to state how much has been deducted in terms we understand. That’s cash. The asset management industry says it’s too complex. It isn’t. They just don’t want you to find out the true cost of saving. That's when a 2.5% cost becomes a 36% deduction from your pie (£204,238/£566,416).

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