In this article, we want to discuss a very important subject – fees and charges.
Most people realise that nothing is for free and that to get expert service or advice, there is a cost involved. What people tell us they want is that fees are clear, the costs are reasonable, and that they relate to the work done for you.
When you are looking at fees and charges, remember this: if it seems too good to be true, it probably is. We will discuss how this applies to direct platforms and to financial and investment advisers.
A number of direct investment platforms pitch as being free. They may be efficient, accessible and low-cost ways to invest directly and manage your money but they are not free. They are not doing it to be nice to you or from the goodness of their heart. They are making money in the process. If you are not paying a demarcated fee for a transaction, you may well be paying a higher administration fee, a higher monthly charge, and/or you might be incurring wider buy-sell spreads. This means they make a larger profit margin when you trade. NB a buy-sell spread is also sometimes called a bid-offer or a bid-ask, different jargon to explain the same thing.
|A buy-sell spread happens like this: The unit price of an investment is €1.00. When you sell that in your investment, they buy it from you at 0.95c. When you buy it, you pay €1.05. In this hypothetical example, you can see that a platform that is apparently free, actually makes 5% on each side of the transaction!|
So, you might be incurring more costs than you realise on a ‘free’ account.
You should also be aware of how any advising professional is being remunerated. A critical question to ask any financial or investment adviser is: How do you get paid and how do I pay you?
This is actually three questions.
First: how does the company get paid?
Do they receive commissions or overrides from a product provider? If they do, they are not independent. What’s more, in some countries in Europe, like the Netherlands where there is a ban on commissions, they might not even be compliant!
Beware of this: if you are told, not to worry and that there is no cost for their service, you can be sure that they are receiving some form of commission or kickback somewhere. Ask for it to be explained so it does not cost you more in the long run. Its ok to pay for a service by an indirect commission sometimes, as long as the cost back to you isn’t too much. Make sure it is clear.
Second, how does the adviser get paid? Is it salary or commission?
We at Black Swan Capital strongly advocate that advisers should be employed and on salary. This means they are free to act in the client’s best interest and not under pressure to get sign you up to make a commission or other revenue quota. Ask your adviser whether they are employed and receiving a salary, or if they are independent contractors, whether they receive a commission share, or a revenue share from the business their place.
Third, how do you pay them?
If they say they will receive a commission, that may be fine, but you do need to check what impact that has on your costs and charges. As we stated above, if you are told there is no charge, this is always a concern. It means there is likely to be a commission or other payment hidden somewhere. The firm should be clear in how much and how you pay for the service you receive. In fact, if you engage them, make sure they give you this in writing.
If you are told there is no cost and that they will receive a commission, ask for a breakdown in your investment or insurance costs; not just upfront but projected over the next 10 years. Ask if there are any exit fees or penalties if you change your investment or try to withdraw all your money at any time.
Avoid exit fees. One of the Black Swan Capital core principles is that, as an international professional, you should always have absolute liquidity and flexibility in all your investments. This means, if you need to, you can change, stop, close or withdraw from your investment at any time without any restriction, penalty or exit fee.
At Black Swan Capital we have a fiduciary obligation to act in the best interest of our clients at all times, making sure our clients are better off having paid for our advice than not.
We set out all our fees and charges clearly and in writing so there is absolute clarity, no hidden charges, no lock-ins and no surprises!
Our advisers are employed and on a fixed salary, so their incentive is only to provide the best advice to you, our client.
Finally, we never accept any form of commission, or incentive direct or indirect from any product provider and refuse to use any investment products that have these features. We use only the cleanest and most cost-effective solutions to help you, our clients, achieve your investment objectives and life goals.
If you are unsure about your position, or the cost of your investments, ask your adviser, or contact us and we can offer a professional review of your situation. Contact us at [email protected].