Rory Brachner | Founder | Managing Director | DoshGuide | mail me |
An additional percentage point in annual investment fees may seem insignificant. However, over a lifetime, it can compound into millions in lost retirement savings. Yet many South Africans remain unaware of the fees they pay to invest and grow their wealth.
An investor paying just 1% more in annual investment fees could retire with R3.5 million less than someone paying lower fees. Two South Africans investing R3,000 a month over 40 years could end up with vastly different retirement outcomes. Both investors could earn an average annual return of 10%. The difference would simply come from the fees they pay.
How fees compound over time
The investor paying 1% in annual fees would accumulate approximately R14 million. Meanwhile, someone paying 2% would retire with around R10.5 million. At a total annual cost of 3%, the same investment would grow to only R7.8 million. That is almost half the value achieved by the lower-cost investor.
People spend a lot of time chasing an extra one or two percent in investment returns, yet very few stop to ask what they’re paying in fees. The irony is that returns are impossible to predict, while fees are known in advance and, in many cases, can be reduced. They’re one of the few factors investors can actually control.
The impact of fees is increasingly being recognised globally. Morningstar’s 2026 Annual US Fund Fee Study reinforces one of its longstanding findings: lower costs remain one of the strongest predictors of better long-term investor outcomes. The study found that US fund investors paid record-low average fees of 0.32% in 2025. That figure fell from 0.80% in 2006. The reduction saved investors an estimated $6.8 billion in fund expenses in 2025 alone.
Morningstar attributes this decline to a combination of greater investor awareness, increased competition among asset managers, the growth of passive investing and a broader shift towards fee-based financial advice. The trend highlights a growing focus among investors on understanding costs. It also shows that investors want to ensure more of their returns remain invested.
Understanding what investors actually pay
One of the biggest challenges for local investors is understanding what they actually pay. Banks, insurers, investment platforms and fund managers all disclose costs differently. As a result, consumers must navigate a maze of percentages, platform charges, administration costs and adviser fees. Providers rarely present these costs in a consistent format.
To improve transparency, the industry body, the Association for Savings and Investment South Africa (ASISA) introduced the Effective Annual Cost (EAC) standard in 2016. The standard requires product providers to disclose investment, advice, administration and other charges as separate annualised percentages. These percentages then sum to a single total cost figure.
It is one of the most useful yet underutilised tools available to consumers. If every investor asked one question, it should be: ‘What is my Effective Annual Cost?’ It immediately allows you to compare different products on a like-for-like basis.
The EAC breaks costs into four broad categories: investment management fees, adviser fees, administration fees and other charges, including potential penalties or contractual costs. Looking at these costs together gives investors a far clearer understanding of what they pay. It also provides more context than examining individual fee disclosures in isolation.
The hidden costs of investment fees
Many of the people who approach me have never questioned the fees attached to their retirement annuities, investment portfolios or insurance products. We’ve seen people paying total fees of four or even five percent a year. Most of the time they didn’t know they could ask, and nobody explained how those fees would affect their long-term wealth.
The hidden costs of investment fees can therefore become significant over time. Investors may focus on headline returns without considering how recurring charges reduce the amount that remains invested. The hidden costs of investment fees also compound because investors lose not only the fees themselves, but also the future growth that money could have generated.
This is where the real value of financial advice should lie. A financial planner shouldn’t just be recommending products. They should be analysing every fee you’re paying, challenging whether those costs are necessary and making sure your money is working as efficiently as possible.
In conclusion
The structure of financial advice is an important consideration. A flat-fee model separates the cost of advice from investment products and assets under management. This creates a different incentive structure from traditional percentage-based advice models.
Too many investors spend years chasing marginally higher returns while overlooking the fees quietly eroding their investments. Over decades, those hidden costs can become one of the biggest obstacles to long-term financial success – not because the market failed them, but because they never questioned what they were paying to participate.
