While a thorough analysis of risk-adjusted historical returns and due diligence on an asset manager's stability, experience and governance remain key, ignoring an investment manager's costs can lead to significant losses in future wealth.
- Fact #1: Costs matter a lot.
- Fact #2: They have very little to do with performance.
Key findings
- There is no proven correlation between higher fees and better returns. Regression analyses carried out by ZWEI Wealth between returns and annual costs show no correlation between the two variables. Expensive managers are not better per se; cheaper solutions do not necessarily bring poor returns - but cheap is not automatically better either. Costs must therefore be analyzed independently of performance reports.
- Costs remain a more stable, predictable factor than performance, which is volatile and cyclical.
The cost structure in detail
ZWEI Wealth uses an established cost concept in the industry to divide the total investment costs into three main categories:
Management fees
Relatively transparent and linked to the assets under management, they represent the remuneration for the asset manager who runs the day-to-day business. Active managers often charge more; larger assets and less individualization generally lead to lower fees.- Relatively transparent, usually as a percentage of assets under management.
- Remuneration for the manager's services
- Lower on average for higher assets
- On average higher for active managers than for passive managers
- Wide range between 0.5% and 1.5% of assets per year
- Special case: performance-related fees
Bank fees (bank charges)
Less transparent, in particular transaction-related costs such as foreign exchange fees and spreads or additional costs for tax reports or the safekeeping of non-standardized securities can quickly add up. Many of these costs are unknown at the beginning of the year and depend on both the activity and the negotiating power of the asset manager. This can range from almost zero for portfolios with low turnover and simple investments to over 1% p.a. for very active portfolios with complex products.
- Less transparent, mainly transaction-based (e.g. foreign exchange fees, spreads, special reports).
- Some as a % of assets, others transaction-based
- Custody fees for the safekeeping of securities
- Tax statement - possibly charged separately?
- Potential position fees or transfer costs
- Trading fee or "brokerage fee" -> % or "ticket fee"?
- Bid/ask spread
- Foreign currency costs (FX costs) of all kinds!
- Range from 0.1% to 1% annualized
Product fees
The least transparent and potentially most damaging costs, often accounting for 40-50% of the total cost of a portfolio. With hidden tiers, subscription/redemption fees, spreads and embedded costs, they are often a goldmine for banks who use their own sales teams to actively sell these products to clients. Overall, these fees can range from as little as 0.1 % for simple ETFs to over 3 % p.a. for complex product structures such as hedge funds, private market vehicles or other structured products.- Least transparent, often most damaging.
- Often 40-50% of total costs.
- Range: from 0.1% for ETFs to over 3% p.a. for complex products (hedge funds, private markets, structured products).
- Buying and selling fees, bid/ask spread
- Nested fees for the product manager (-> Total Expense Ratio or TER)
- Investment and redemption fees are also common
- A gold mine for banks - often 40-50% of the effective total costs in a portfolio
- Very wide range of 0.1% - 3% for complex products
Hidden traps and tips for investors
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All-in fees
are basically a positive development, but our analysis has shown that only 50-60% of the effective total costs are covered by all-in fees. Product fees and currency-related costs are generally not included. -
Performance fees
A special form of management fees, these are common in private markets and the hedge fund industry, but are also occasionally applied to traditional investments. Although they are advertised as being "in the same boat as the client", they could harbor conflicts of interest and encourage unnecessary risks in order to achieve certain returns above a defined target level -
Billing errors are common.
This may come as a surprise, but it happens more often than it should - in fact, never at all! Negligent customers end up footing the bill for sloppy IT structures or simple typos by bank employees. Bank statements should always be checked! -
Very important:
Prices are negotiable - and comparable between providers. Customers who do not negotiate end up paying significantly more than those who demand a discount. Banks practically always give a discount unless you don't ask for one or don't negotiate. Today, it is easy to compare offers via our digital platform, for example.
A plea for transparency
Making costs visible and empowering investors. With an independent cost methodology, ZWEI Wealth helps to uncover hidden fees, compare providers and negotiate better conditions.
Too many investors believe that performance alone is what counts.
But you can't control markets. Costs, on the other hand, can - and reviewing them is a simple, effective way to improve long-term results.Cyrill Moser, Head Provider Management
The analysis clearly shows that costs are a decisive factor - regardless of the return andoften without added value. Check now with our cost comparison whether you are paying too much.
