Tower Investments New Zealand boss Paul Bevin says that adviser fees must come down in the future to ensure that investors are getting better returns than they are currently receiving.
He says that in a low market return environment there is more pressure on fees than when returns are higher.
The pressure isn't just on advisers, he says, it is on fund managers as well.
He says that in the early 1990s when returns were running at around 12%, advisers were taking 1.5% and fund expenses plus manager fees added up to about 1.6%.
The total industry take out was 3.1% and after tax the net return to investors was a healthy 6%.
Now with market returns around 8%, the total industry take out for an adviser running a business which doesn't use a platform such as a master trust or a wrap account is 1.6%, tax takes another 2.1% leaving a net return of 4.3% to the client.
An adviser using a platform provides a worse result to the investor, because there are extra fees. Bevin reckons under this model the investor is left with 3.8%.
Going forward Bevin suggests the model may look something like this. With market returns of 8%, the total industry take out will fall to 1.8%, tax will account for 2.1% and the net return for investors will be 4.1%.
|
Early 1990s |
Now A | Now B | Future? | |
| Market return |
12% |
8% |
8% |
8% |
|
Adviser fee/com |
1.5 |
0.4 |
1.0 |
0.6 |
|
Platform fee |
|
|
0.4 |
0.3 |
|
Fund expenses |
1.1 |
0.9 |
0.7 |
0.6 |
|
Manager fee |
0.5 |
0.3 |
0.3 |
0.3 |
|
Total Industry takeout |
3.1 |
1.6 |
2.4 |
1.8 |
|
Tax |
2.9 |
2.1 |
1.8 |
2.1 |
|
Total take outs |
6.0 |
3.7 |
4.2 |
3.9 |
|
NET RETURN |
6.0 |
4.3 |
3.8 |
4.1 |
| « News Round Up | Sovereign takes regulation bull by the horns » |
Special Offers
© Copyright 1997-2024 Tarawera Publishing Ltd. All Rights Reserved