More than a trillion rand in fee's commissions

Time to to get the full picture?

We often think it is only the South African financial Industry that is under pressure. In a recent article by Rich Smith of http://www.fool.com/ the cost of fees paid by investors comes under serious scrutiny.

The fact is Americans paid away more than a Trillion Rand in fees and commissions in 2004, but perhaps the most startling fact is that less than 7 % of the total was paid as financial advisory fees and commissions and the rest to the industry as management and other fees. Our thoughts are that perhaps a similar local study might also prove that management and other fees and not so much financial advisory fees and commissions are the real problem affecting client investment returns. Perhaps it is time for analaysis on costs and fee to be done so investors can get a true picture of the state of the nation.

Below the full article by Rich Smith provided to us Courtesy of the http://www.fool.com/

Also take part in our poll this week, the question :

Do you think a similar study on costs in South Africa will result in similar findings to that in the US?

Brother, Can You Spare $350 Billion?

Three hundred and fifty billion dollars -- and probably quite a few cents. That's the size of the paycheck American investors paid to the nation's financial-services industry in 2004. Paid unwittingly. Paid involuntarily. Paid unnecessarily.

It's a number that has bothered us here at The Motley Fool for some time, and it should bother you, too. Here's how the $350 billion breaks down, in round figures:

That's a pretty big number

Indeed it is. But big numbers are just little numbers with lots of zeros tacked on, until you put them into context. Just for fun, I drew up a shopping list of what we, as investors, could have purchased with that $350 billion -- had we managed to hold on to it.

If we wanted to splurge and spend the whole $350 billion in one shot, we could have bought ourselves General Electric in its entirety. In 2004 alone. And we could have done it again in 2005. And again in 2006. Or, were we to split the bankroll up, here's what we could have gotten for our money:

It Bogles the mind

The amount of money involved here simply boggles the mind. Or Bogles the mind, to give credit to the man who pointed out the problem. But let's bring this down to a personal level: $350 billion amounts to $1,182 for every man, woman, and child in America. Or $3,318 per household.

If not for the ongoing exaction of these intermediary fees from the fund managers, bankers, and assorted other moneymen up on Wall Street, the average American family would have an extra $3,300 and change at the end of every year. That's enough money to save Mom from sweating over a hot microwave oven every day of the week and order pizza every few days. It's enough to buy Junior a halfway-decent used car to take with him to college. Enough to pay the family's entire auto insurance bill and make a good-sized dent in the health insurance bill, to boot.

Or, as we like to think we'd do here at The Motley Fool, let's say that instead of handing over your $3,318 to the financial-services industry, you were allowed to keep and invest it in the basket of stocks above. Thanks to Ford's recent troubles, this random selection of stocks wouldn't have beaten the market, but it still would have made you nearly $3,500 richer than if you'd handed everything over to the bankers.

*Assumes a $5 commission.

Over the longer term, if invested in your basic S&P index fund at its historical annual appreciation rate of 10.5%, $3,318 could become more than $66,000 in 30 years (before taxes). Even better, if you invest $3,318 not just once, but again every year over the course of the 30, the pot grows to more than$666,000. Combined with Social Security benefits, that's probably enough of a nest egg to retire on -- and you could create it just by refusing to hand your money over to Wall Street.

Waiter? Reality check, please.

Of course, it's not really possible for you -- or any investor -- to hold on to the entire $3,318, to say "good riddance" to the financial establishment. The system is rigged to see that at least some cash gets skimmed off the top. But you can still minimize the damage by turning off the cash spigots that you do control.

How? For one thing, by dropping your actively managed mutual funds, which underperform the S&P 75% of the time in any case. If Americans took control of their own investing, they could save $70 billion right away -- enough to buy ourselves an Amazon and an eBay a year. Just saying "thanks, but no thanks" to the annuities-hawkers could buy us a Ford (the company, not just the car).

Article provided courtesy https://www.fanews.co.za/admin/media/www.fool.com- Danny Hsia -dhsia@fool.com