How fees impact your investment return over a lifetime.

Posted On:29th,May 2024

Catagory:Personal Finance


A question every investor should ask is: What fees am I paying for this investment? 


John Bogle, the founder of Vanguard, said: "What happens in the fund business is that the magic of compounding returns is overwhelmed by the tyranny of compounding costs. It's a mathematical fact."

This is very true; everyone always talks about the returns, but they are referring to the gross returns. The return investors should be concerned about is the net return. This is the return after taking into account all fees. 

Let's take a look at the typical fees charged in the unit trust industry to clarify the question: “What fees am I paying?” Then we will make comparisons of how different fees impact an investment. 


Types of fees

Broker fees:

For making use of your financial advisor, they will typically take a percentage of your investment. This could either be an upfront/initial fee that takes a percentage of your investment upfront, and the rest is invested. Or they will charge an annual advice fee for services rendered. The latter is the most common type in South Africa. 

Administrative or platform fees:

Administrative platforms charge a fee for doing admin work, such as reporting, additional investments, withdrawals, etc. on your investments. The admin fee usually works on a sliding scale depending on the size of your investment. It works on a percentage scale, reducing as the investment amount increases. There is no set fee, so ensure you are not paying or paying a minimum fee for this.

Fee breakdown for investment types for unit trusts and ETFs:


Unit trusts

Shares and ETFs

Management fee


+Performance fees

Settlement and administration

+Other fees (audit, custody, trustee, VAT)

Monthly platform fee

=The above fees give your total expense ratio (TER)


+Transaction cost


=Total investment charge (TIC)



The average investment fee in South Africa is 1.5%, 0.5% for administration fees, and 0.75% for advice fees, totaling up to 2.75%. Some managers may even ask for a performance fee above these fees. Ensure that you are getting value for money as fees have a massive impact on your investment amount in the long run, as we will see below. 


Comparison of fees on an investment over time

We took an investment of R1 million, with a gross return of 12% per year over a 30-year period. The only difference we implemented between these two was an annual fee of 0.50% vs. 1.5%. This annual fee could be made up of fund fees as discussed above or annual advisor fees, but for illustration purposes, it's just a 1% difference in fees.

The difference over 30 years in end value is an astounding 31.16% in investment value!


With plenty of platforms and funds available in South Africa, ensure that you are getting value for your money. By comparing your fees to the average fees charged in South Africa.

The tool used in this article is available for download at :


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