Investments make you rich but fees make you poorer.

Consider the following table that shows return and costs of investment plans. For various size pots along the top, with various % returns down the side, Income per month is shown.

For example £100,000 generating 3% return will give £250 per month.




However most investment platforms charge fees PerAnnum that can vary from 1.5% down to 0.2% of the capital held in the investment. When this fee is deducted from the income generated the net value delivered can be seen in the orange lines at the base of the table.

For Example for a £100,000 pot generating 3% return could pay from £1,850 year when the fees are 1.15% or pay £2,800 when fees are set at 0.2%.  The key point here is the fees are charged as a % of the total pot invested and not as a proportion of the value generated.  Given the same example paying 10% of the value generated as the fee would still provide £2,700 outcome.

When calculated as a proportion of the value generated the fees charged can easily amount to as much as 1/2 of the value generated by the investments.  For example investments returning 3% PA but paying 1.15% fees loose more than 1/3 of the returned value.

The costs of fees are compounded over the term of the investments. Money taken in fees is not available to accumulate in the later years of the investment. This has a big impact on the final value. For example over 10 years our £100,000 pot generating 3% returns delivers £134,391 with no fees,  £131,804.78 with 0.2% fees or just £120,118.62 in a 1.15% fee structure. The difference between 0.2% fees and 0.15% fees is over £11,000.

Studies have show that there is little relationship between the level of fees charged by advisors and the generated returns. In the short and long term, going for lower fees and ongoing costs, is a better strategy than trusting high fee charging advisors.

PS: Just swap the £ for your local currency symbol if required - the numbers are the same.