Duncan Higgs, managing director and head of portfolio solutions at bfinance, told SMSF Adviser that the recent steep rises in trading, brokerage fees, and market impact costs can have a detrimental effect on investors.
“We are noticing these increased costs for asset owners both in Australia and globally and it is something for larger SMSF owners to be aware of when they are allocating money,” Higgs said.
“It’s not rocket science that it’s best to maintain fees and costs at a lower point, but the challenge is what you use to measure your fees.”
Higgs said there are ways in which SMSF investors can do this through surveys, databases and comparison sites.
“SMSFs need to be able to benchmark these fees in the same manner as larger institutional investors and hold up a stick to see what fees are available and then hopefully have an opportunity to drive them lower,” he said.
“There are things like administration fees and other costs that are now becoming more publicly available, and the sector is becoming more transparent in this regard.”
Higgs said the investment world is a “changing beast” but investors, even smaller ones such as those with SMSFs, are becoming more comfortable with what to expect with fees and charges.
However, he said with more esoteric investment it becomes difficult as there are certain types of private equity where there are not enough comparison points available.
“That’s the challenge, but you find that it occurs in nearly every asset class,” Higgs said.
“With private equity, however, there are multiple layers of fees that can be applied. Any investment that exists in private equity also needs to be transparent but they are less standardised and the information is less available.”
Although there is a global push to have a more standardised approach to the fees involved in private equity investing, Higgs said in SMSFs it is the trustee who ultimately takes on the responsibility of looking at those fees and assessing them.
“Fees are ultimately a net drag on the investment and the worry you get when talking about fees is that you may miss out on performance. It’s OK to pay more fees if you have better performance,” he said.
“You’re also looking to get good value for money – net return, consistency, robustness – and seeing if you are generating good returns, above an objective level.”
Higgs said education by advisers to their clients in this space is important, and explaining the long-term strategy that is involved in private equity investing is imperative.
“If an investor decides to go into private equity, and is aware of the fees and costs, the long-term timeframe and is comfortable with the liquidity risk that is fine.”
“SMSF trustees should also be made aware that they can’t pull their money out quickly so they should be comfortable with that as well.”
Additionally, Higgs said advisers should also be promoting diversification of investments and asset classes.
