Sunday, November 05, 2006

Financial Adviser earns trailer fee of 1% annually

I met an agency manager from another company (not NTUC Income). His top adviser wants to leave him to join an independent financial adviser firm. The IFA firms pays him a trailer fee of 1% per annum on the total sum invested.

This means that the customer probably has to bear a charge of 2.5% to 3% on the amount invested. This is required to pay the trailer fee to the adviser and to pay the fund for managing the assets.

The total fee of 3% is FAR TOO HIGH.

Over the past 10 years, the average return on equity is about 7% per annum. After deducting 3%, the investor gets only 4% left. This is insufficient for the risk.

For a fund managed by NTUC Income, the total deduction is less than 1% per annum. If our fund earns 7%, the investor gets 6%.

A difference of 2% over 10 years amounts to more than 20%. You can get a much bigger payout from NTUC Income, because our deduction is modest. Most of the return goes back to you.

Over a long period, most funds will earn about the same return for the same type of risk. There is very little difference between the performance of good fund managers. It is better to invest in a large, well diversified, low charge fund (ie the fund offered by NTUC Income.
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2 comments:

Magdeline Teo said...

Dear Mr Tan,

I was surfing the www.askdrmoney.com website and chance upon the "The 10 Best Low-Cost CPF-Approved Unit Trusts and Funds".

In it, NUTC Income's Flexi-Link Fund was quoted to have a 3.5% initial commission. Say if one is to invest in this Fund by approaching the personnels at your Business Center (meaning not doing this through a NTUC Income financial advisor), would the initial commission be different?

According to this website, with an annual fee of 1.05% on this Fund, the total fees in the first year would be approximately 4.55%, am I right?

Thanks for your clarification.

MTeo

November 08, 2006 12:54 PM
Tan Kin Lian said...

If you invest a larger sum, say more than $20,000, you will get a bonus unit of 1% or 2%. This reduces your upfront charge of 3.5%. It is available from our insurance adviser or from the business center.

The annual fee of 1.05% has recently been reduced. This fee is deducted monthly, and not at the start of the investment.

November 09, 2006 8:18 PM

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