Shiva Sachaphimukh from Farnam Tree gives his insight.
Investing is a great way to grow wealth and take advantage of compounding. However, the fees that are involved also add up, so it is imperative that you are mindful of this part of the equation. If you are not careful, excessive fees can have a damaging impact on your investment outcome.
An easy way to navigate this is by examining the incentives at play. When an agent sells you a product, do they have your interest in mind or their commission? Always remember to ask the person on the other side of the table how they get paid. If they cannot clearly explain this to you, that is a red flag.
Overall, understanding the different types of costs and how you pay them will help you make better decisions. Paying attention and being aware can save you money, headache, and heartache.
The cost for managing your investments: a management fee
Unless you do everything yourself, you are paying a fee to investment companies or advisors to help manage your assets. In most cases, this is charged on an annual basis and assessed as a percentage of your account size. If you hold units in an investment fund, the fee will be deducted directly. These fees compensate the individuals and teams that manage and oversee investment activity.
Management fee structures differ depending on the type of investment strategy. The simpler the strategy, the lower the fee. Over the past few decades, management fees have come down, to the benefit of investors. Therefore, if you see anyone charging more than 1.5 percent of your asset base to manage your investments, do more diligence and make sure they can justify this.
Before making any investment, be sure to check how the management fees are structured, and how they are charged.
Costs involved for buying/selling: transaction fees
To purchase investment securities, you need to go through a broker or access a marketplace, and this comes at a cost. These are usually lower than management fees, but you still need to be careful.
For example, the transaction fees to purchase foreign securities from Thai brokers vary greatly, so you get a large benefit by selecting the lower-cost option. The good thing is that brokers all have a fee schedule which clearly explains their transaction fees per order. We recommend that our readers find a broker they trust, and that is competitive with their prices.
Be careful when commissions are involved
Sellers of financial products are often paid by commissions on sales volume, which can create a conflict of interest. Agents and sellers are incentivised to sell products, and sometimes this takes precedence over acting in the client’s best interest. The more transparency there is in the way that the advisor or professional gets paid, the less you have to worry about this risk.
SHIVA SACHAPHIMUKH is a Director and part of the investment team at Farnam Tree. He is a licensed Investment Consultant with the Thai Securities and Exchange Commission (SEC).
Farnam Tree is a boutique investment and wealth management firm based in Bangkok. The company is a licensed Investment Advisor under the Thai SEC and Ministry of Finance.