[TOP STORY] Flat-fee retirement investing

Imagine going to a doctor who charges a fee according to your net worth: DoshGuide founder Rory Brachner explains the investment analogy.

SIMON BROWN: I’m chatting now with Rory Brachner, founder and managing director at DoshGuide. Rory, I appreciate the early morning time. We are talking flat-fee retirement investing. We were chatting a month or so ago, and you had the experience of taking out a retirement product, doing the right, responsible thing as a young investor, and getting completely nailed by massive fees which ate most, if not all, of your returns. This inspired you for the website.

RORY BRACHNER: Good morning, Simon. Yeah, exactly. I ended up signing up for a product that worked out I had around 4% fees. Unfortunately I figured that out only some five years later, after paying huge amounts of premiums into the product for years. Really, those kind of fees just make the product unsustainable and ultimately impossible to grow your investment on. The sad truth is that I, like many other people, just didn’t know and didn’t have the knowledge or didn’t have the right questions to ask at the time. It was a good lesson which inspired me to start DoshGuide.

SIMON BROWN: I’ve got to say, 4%! I think my first product was 7.5%. I appreciate that 4% is insane, but you’re obviously younger than me. I took mine out in the early nineties, and it was a 7.5% fee.

Now your idea is that, rather than that 4% fee –  and some of it remains in the product, but a lot of it is advisor fee that goes to an individual and is being paid by the financial institution – you’re saying, ‘Flip that around; I would pay the advisor directly rather than the institution and I can potentially get significantly lower fees, partly because it’s not percentage-based’.

RORY BRACHNER: Yeah, exactly. I think the truth of the matter is that most financial advisors in the industry operate on some sort of commission, whether it’s an upfront commission or a percentage of the assets under their management that you hand over to them. A commission assumes a product, and the truth is that sometimes a product’s not even necessary, like if there’s an assumption of a product there’s an immediate inherent conflict of interest.

What we’re trying to do is to say that, yes, most advisors work that way – probably 99% of advisors in South Africa work on that basis – but we don’t think that’s a good way to work. We prefer to work on a sort of upfront, transparent, monthly subscription. You still get access to an advisor, a qualified CFP advisor, but there’s no product that’s being pushed, there’s nothing being sold. If I had had that type of advisor when I was making my decision on my retirement product, I wouldn’t have ended up in a product that had sort of 4% fees.

SIMON BROWN: I suspect the challenge is that that 4% fee is huge, but of course you don’t see the money. If I’ve now got to pay the advisor and maybe it’s going to cost me R30 000 a year, and I think to myself, yoh, that’s a large amount of money if my retirement product is, say, over a million I’m saving money, but it kind of feels like I’m not. That perhaps is the stumbling block that we need to sort of get through in our head.

RORY BRACHNER: Yeah, exactly. I think the psychology behind it is kind of interesting. We’re very comfortable to pay money off the back of a product which really has the same exact net effect on our income and our balance sheet, our personal balance sheet. But when the money comes out of our own bank account on a monthly basis, and we see that money coming out, there’s a totally different feeling about it. We’re much more comfortable to do it that way, which is strange because, if we think about any other professional service that we get, whether it’s a doctor or a personal trainer or an accountant, we’re very happy and we see the value in paying for that. But the industry has created this precedent around financial advice – that it’s ‘free’ – and we all instinctively know there’s no such thing as free advice.

SIMON BROWN: I love your point. Imagine going to a doctor, and when it comes to the bill, they don’t set me a fee; they ask me what my net worth is, and they then charge me a percentage of that. We would frankly be freaking out around that.

Rory Brachner, founder and managing director at DoshGuide.

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