When A 4% Investment Fee Hurts More Than A 20% Investment Fee



When comparing investment service companies, it’s important to understand that not all fees are considered equal. 


Companies often use complicated fee structures as a smoke and mirrors show.


Ongoing Fees Are The Most Damaging


A 4% ongoing fee is worse than a 20% upfront transaction fee.  OK, nobody charges a 20% upfront fee (at least no firm that I know of!) but many products cost investors 4% or more in ongoing fees per year.


Those ongoing fees are a result of mutual fund costs (expense ratios) plus platform costs.  Investment products offered by Friends Provident, Zurich International, Royal London 360, Royal Skandia/Old Mutual (which are often brokered by the DeVere Group) can cost 4% or more per year when counting mutual fund costs plus ongoing account charges.


The ongoing charge is the one that hurts.  Compare ongoing charges of 4% per year with transaction charges of 20% plus a 1% fee.  The results may surprise you.


$10,000 Invested Each Year For 35 Years



20% Transaction Charge Plus 1.4% Total Ongoing Fees

0% Transaction Charge Plus 4% Total Ongoing Fees

Amount Invested Per Year



Assumed upfront charge (remember that nobody charges 20%)



Amount getting deposited after upfront charge

$8000 per year

$10,000 per year

Assumed (pre-fee) rate of investment return



Annual ongoing account fees including fund charges



Annual Rate of Return After Account Fees



Investment Duration

35 Years

35 Years

Portfolio End Value




You can see that ongoing charges are far more damaging than upfront transaction costs.  This is a dramatic example, using an upfront transaction charge of 20% on everything that the investor deposits.


Nobody charges that much!  But as you can see, even if they did, they would do better with ongoing fees of 1.4% compared to somebody paying 0% in transaction costs, but a 4% ongoing fee.

Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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