George asks: My wife and I have been saving by buying unit trusts through a financial adviser at our Nedbank branch.
However, whenever we want to add more money to our existing portfolios we always find that if we invest R10Â 000, for example, on the statement it shows that I have invested R9Â 600. This is presumably as a result of commissions.
Is this legal? Should we pay commissions every time we make such investments to existing portfolios? And what then are the benefits of having unit trusts when all your investment is “stolen” in commissions and fees?
Maya replies: It sounds like you are paying the maximum upfront fee of 3% plus VAT to the financial adviser. But also be aware that the adviser could also be receiving an annual trailer fee.
You need to ask yourself if the adviser’s service is worth R342 for every R10Â 000 you invest. Do you consult with the adviser each time you invest? Does the adviser give you updates or spend time understanding your financial situation and whether this is still the best investment for your needs? The adviser would need to spend an hour with you each time you invest to justify the fee.
These reoccurring fees catch many people out — although they may be disclosed upfront, clients don’t understand that it is deducted every time you invest. Clients are also not aware that they can negotiate this fee.
Once you have spoken to an adviser, they have their code loaded on to your investment and make money every time you invest, even if you never see them again. It is extremely important that you resolve this, so you need to contact your branch and get clarity on exactly what you are paying for.
Susan Le Roux, who is GM for Nedbank Financial Planners (NFP), provided this response to your query:
“All financial planners are bound by the commission guidelines. In NFP a financial planner can charge up to 3% upfront commission on a unit trust investment. This commission will be deducted every time an ad hoc payment is added to the investment.
“However, this commission is disclosed and explained to the client at the point of sale of the investment.
“Furthermore, a financial planner can also charge an ongoing commission for the ongoing advice on the investment. Should the client be unhappy about the upfront commission, he can renegotiate this with his financial planner.”
Nic Andrews of Nedgroup Investments, which is the unit trust company that offers a range of unit trust vehicles, says Nedgroup Investments does not charge any upfront or initial fees on its unit trust portfolios.
Therefore the full commission is going to the financial-adviser fee that is negotiated between the client and the financial adviser.
Nedgroup Investments says that “should the client not require the services of an adviser they are able to invest without any fee being deducted”.
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