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News Bulletin : ADA News Bulletin February 2011
39 FEBRUARY 2011 investment insight account balances increase. Others like Macquarie WRAP charge administration fees on a per investment basis (Table 1). • Investment management fees -- When investing in managed funds, the underlying investment fund chosen will have their own management fees in addition to the WRAP account administration fees. Typically, these are wholesale fees which are about half the retail fund equivalent. As platforms gain more and more market share they are able to negotiate additional fee rebates from fund managers. Some platforms like Asgard eWRAP and Personal Choice eWRAP pass these rebates back to the investor in the form of cash rebates while others like BT WRAP pass on only a portion of the rebates and retain a portion to increase their profitability. Table 1 shows a range of investment management fees but the majority of wholesale Australian share funds have an Investment Cost Ratio (ICR) averaging about 0.90% per annum. No investment management fees will apply if you invest in direct shares. • Transaction fees -- Some platforms charge transaction fees for buying and selling investments and investors can also incur additional fees such as the buy sell spread when transacting in managed funds. This buy sell spread ranges from 0--1.5% but can be higher. Share trading also incurs a brokerage fee either from the default platform broker or the investor's chosen broker from the available panel of brokers. Typically, brokerage costs about 0.11% with a minimum of $30 applying before advisers add their mark up or additional fees. • Establishment or entry fees -- These can be up to 5% and like retail funds these go to your adviser. However, you can negotiate and pay a professional hourly fee for advice and execute your own investments. Although, with WRAP accounts it is often difficult to bypass the adviser as most WRAP platforms will not deal directly with clients. • Adviser service fees -- The renewed focus on commissions and the fact that you can switch between investment options have made it more difficult for advisers to charge percentage based commissions. However, advisers are a resilient bunch and they have created a new type of fee (often percentage based) called the adviser service fee or portfolio review fee. Nowadays adviser service fees ranging from 0--2% have become commonplace in WRAP accounts. These adviser service fees are in addition to other platform fees and can be a significant portion of your overall fee. Investors should avoid percentage based adviser service fees and instead pay a professional hourly fee or a flat fixed dollar amount for ongoing advice and service if and when it is required. By now readers may be thinking: With all of these fees why would anyone use a WRAP account to invest? Some of the best investment management talent is not accessible in any other way. Most new funds and some boutique managers are only available on investment platforms. As well, many investors are devoting a larger share of their portfolio to direct equities and a WRAP account greatly simplifies the administration of direct share holdings. As the value of your portfolio increases the administration fees decline significantly. The key is to educate yourself about the fees and charges in WRAP accounts so you can determine which fees are optional and what represents value for your money. Table 1 compares the fees and charges of the largest operators of WRAP accounts (BT Portfolio Services, Macquarie WRAP, Asgard, Oasis Asset Management, MLC Custom, MLC Navigator and AXA Summit) as well as a white labelled or private labelled version of Asgard eWRAP called Personal Choice eWRAP. These WRAP account operators represent some 90+ badged versions of these products and it is important to note that some of the dealer group white labelled versions differ dramatically in their fee structure. Now that you are aware of the fees, the following is a list of the potential traps that should be avoided: TABLE 1 -- FEE COMPARISON INVESTMENT WRAP ACCOUNTS COMPARISON OF FEES IN POPULAR WRAP ACCOUNTS JANUARY 2011 Product Name BT WRAP MACQUARIE WRAP WEALTHTRAC PORTFOLIO SERVICE (OASIS ASSET MGMT) MLC NAVIGATOR INVESTMENT PLAN ASGARD eWRAP PERSONAL CHOICE eWRAP*** ASGARD private label MLC MASTERKEY CUSTOM AXA SUMMIT Investment Minimum $50,000 $50,000 $25,000 $20,000 $100,000 recommended $100,000 recommended No minimum $20,000 Fees -- Administration 0-$100,000 0.79% 0.67%* 1.23% (0.87%**) 1.85% 0.820% 0.801% $100 per month 1.00% $100,000-$250,000 0.70% 0.67%* 1.08% (0.72%**) 1.85% 0.615% 0.596% 1.03% 0.60% $250,000-$500,000 0.23% 0.67%* 0.87% (0.51%**) 1.75% 0.308% 0.308% 0.70% 0.35% $500,000-$750,000 0.23% 0.67%* 0.46% (0.10%**) 1.65% 0.308% 0.308% 0.51% 0.35% $750,000-$1,000,000 0.23% 0.67%* 0.46% (0.10%**) 1.65% 0.103% 0.103% 0.43% 0.35% $1,000,000+ 0.09% 0.67%* 0.00% 1.10% 0.103% 0.103% 0.37% 0.12% Investment Management Fees~ 0-6.0% 0-8.08% 0-3.74% 0-2.50% 0-2.40% 0-2.40% 0.10-4.61% 0-4.64% Adviser fees Establishment/Entry fees 0-5.0% Negotiable -- no set limits 0-5.00% (Nil through 2020) up to 4.0% 0-5.0% 0-5.0% (Nil through 2020) 0-5.0% 0-4.0% Adviser Service fees~~ 0-2.0% Negotiable -- no set limits 0-1.54% (0.10% through 2020) 0-1.0% and up to $110 per share trade 0-5.0% (Nil through 2020) Negotiable -- no set limits Up to 2.69% Access directly (adviser optional) No -- adviser only No -- adviser only Yes through 2020 DIRECTINVEST only No -- adviser only No -- adviser only Yes through 2020 DIRECTINVEST No -- adviser only No -- adviser only Potential total fees on $300,000 portfolio"" 2.55% -- $7,655 2.57% -- $7,710 3% -- $8,985 through adviser 1.64% -- $4,905 if bought directly through 2020 DIRECTINVEST 3.73% -- $11,200 2.53% -- $7,596 1.52% -- $4,549 if bought directly through 2020 DIRECTINVEST 2.6% -- $7,800 2.59% -- $7,775 Source -- PDS PDS -- 1/09/07 PDS -- 31/07/2010 PDS -- 21/06/10 PDS -- 2/10/2010 PDS -- 31/05/2010 PDS -- 16/08/2010 PDS -- 1/11/2010 6/21/2010 ~ Average equity investment management fees are approximately 0.90% -- investors need to check eligible investment lists for exact figures. * Macquarie charges on per investment basis with 0.67% for the first $50,000 per investment and 0.10% for amounts above $50,000 per investment. ** Wealthrac Portfolio Service is available through 2020 DIRECTINVEST with direct access and reduced administration fees and no transaction fees. *** Personal Choice eWRAP is available directly through 2020 DIRECTINVEST with minimal transaction fees and no adviser service fees. Note: Administration fees are calculated taking into account the Reduced Input Tax Credit (RITC) for GST- Share investments are not eligible for RITC. Establishment fees and adviser fees shown are exclusive of GST. Deferred entry fee options are to be avoided as they result in higher annual management fees. ''' Assuming 0.90% investment management fee and 1.0% adviser services fee where applicable. ~~ Typical fee around 1% up to 2 %.
ADA News Bulletin December 2010
ADA News Bulletin March 2011