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How fees add up

In general, fees are higher for higher levels of adviser service, more complex investments (such as NZ and overseas shares, and property) and smaller investors. You need to make sure you’re getting value for money – are you paying only for what you need? If you can reduce the fees, you can improve your finances. Even a small difference in a fee (like the difference between 0.5% and 0.75% of your investment over a year) can make a big difference to the amount of money you end up with.

How much you pay in fees
Investing $5,000 a year in monthly instalments Return
1 year 10 years 20 years 40 years
Baseline (no fees) $5,099 $60,331 $146,952 $449,889
Low cost fee 1.0% $5,081 $58,266 $136,691 $383,671
High cost fee 3.0% $5,045 $54,402 $118,568 $283,519
Difference in today's dollars between low and high cost fees $36 $3,864 $18,951 $100,152

The table above shows the difference in fees you would pay over time if you invested every year in a typical retail savings product with a mix of shares and fixed interest. It includes all fees associated with the investment including entry, on-going and exit fees.

The figures in the table

  • The baseline allows you to compare the estimates for low cost and high cost fees.
  • These figures are based on a return (before tax and fees) of 8.5%.
  • These figures are based on the return (less fees) being taxed at 33%.
  • An inflation rate of 2% per annum was used to calculate the today’s dollars figures.
Glossary: adviser
A person who sells financial advice and/or products. They include financial advisers, insurance agents, planners, sharebrokers, mortgage brokers and bank managers or agents. They may be salaried, paid a commission or have an hourly rate.
Glossary: shares
Shares and equities refer to the same thing - a share in the ownership of a company and entitlement to any distributions (eg dividends).
Glossary: interest
Money paid in return for the use of money. If the bank is using your money (in a savings account) they pay you interest. If you are using the bank's money (via a loan), you pay the bank money.
Glossary: inflation
Inflation - is the rate at which the prices of goods and services increase over time. The effect of this is to reduce the purchasing power of money. For example, if you could buy something with $1000 now, in one years time, you would need $1020 to buy that same thing (assuming 2% inflation).
Glossary: per annum
Yearly. Often shortened to "p.a."
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