Finance · Fees & financial decisions
“Only 1%”: show me the fee in dollars
By Prof. Alessandro Buffoli, PhD
An annual cash estimate, the charging method, and the work included. That is where the fee conversation should start.
I don’t accept “only 1%” as an explanation of an investment fee. Tell me the cost in dollars and what the adviser does for it. Then we can discuss whether it is reasonable.
The word “only” asks the customer to accept a judgment before seeing the bill. A small percentage can make an expensive service sound cheap, especially when the fee comes out of the account and the customer never has to make a separate payment.
Take a hypothetical HK$100,000 investment earning exactly 6% a year before fees. Charge 1% of the balance after each year’s return. In year one, the investment grows to HK$106,000, the fee is HK$1,060, and HK$104,940 remains invested.
Repeat those assumptions for 20 years, with no deposits, withdrawals, taxes, or other costs:
| Scenario | Value after 20 years |
|---|---|
| No fee | HK$320,714 |
| 1% fee after each year’s return | HK$262,314 |
| Difference | HK$58,400 |
The HK$58,400 difference includes the fees and the returns the deducted money would otherwise have earned. It is not the total paid to the adviser. The no-fee column is a mathematical comparison; the 6% return is an assumption. The SEC’s fee bulletin explains why even apparently small annual charges affect compounding.
What work is included?
I’m willing to hear a case for paying for advice. A plan for withdrawals, a difficult family decision, or help sticking to an agreed investment approach can be valuable. “Personalised service” tells me very little about which of those things I will actually receive.
For portfolio management, I want a stated mandate and a way to assess results after costs. For financial planning, I want to know which decisions the adviser will work through, what gets reviewed, and when. A list of services makes the price easier to judge.
The fee presentation should show the percentage, an annual cash estimate, and any additional product or transaction charges together. A longer-term illustration can follow, with its assumptions visible. Customers should not need to reconstruct the bill from three documents.
There is a straightforward test for the sales conversation: explain the service, quote the cash cost, and see whether the customer still wants it. If “only” has to do the persuading, the explanation needs work.
Put financial decisions on the agenda.
Invite Alessandro to discuss how framing and the presentation of information affect consumer choices.
Prof. Alessandro Buffoli, PhD
Assistant Professor of Marketing at The Hang Seng University of Hong Kong.