Fee structures are lower than what they used to be but can punish you when life throws curveballs at you
I recently took on a new client, who like many South Africans, found himself facing retrenchment.
After a few consultations, we agreed that one of the financial obligations that he should let go of, for now, would be his retirement annuity contribution. Many industry presentations quote Mark Twain, Albert Einstein or some famous person on the benefits of compounding. But this product design nullifies the very thing that will contribute the most to your retirement.
These fee structures persist because people continue to buy them. The incentive for firms to continue to offer them is clear — they are highly profitable. Why investors still buy them is a more complex issue.Regulators are up against a powerful, well-resourced and highly intelligent lobby group.
Investors do need to bear some responsibility, though you are often not presented with honest and clear enough information on which to base your decision. Many apologise for asking questions about fees: “I hope I am not being rude or anything, but how much does this product cost?” I’ve heard that more than a few times. Many do not even ask, which is an even greater concern.
If we do not pay commissions upfront, how are young advisers meant to enter the industry and survive?
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