The fees that you end up paying your bank are only the tip of an iceberg! Let's find out why?
As you may already know, fee withdrawals are incessant with everyone from your bank to your advisors charging a relatively small yet discernible amount. Fees vary in nature. A few examples are custody, investment advice, tax form preparation, etc. These fees are directly debited from your bank account, ensuring straightforward verification and visibility.
What you may not necessarily know – a significant portion of the fees is hidden. Those fees are not deducted from your bank account but directly debited from Net Asset Value (NAV). Examples include the management fee that you pay to your mutual fund, the forex fee that banks are charging you, or the short-term floating interest rate offered so handy to finance your last PE capital call. This time the computation is quite opaque, which makes fee verification a challenging task.
It wouldn't be a problem if the hidden fee was just something marginal. But it is not! In our experience, the hidden cost can be in the range of 40-50% of all fees paid by a private investor.
Most private investors just accept the hidden fees, assuming they are an untouchable part of the entire investment contract. Indeed, the tools to control and monitor are mainly available to sophisticated institutional investors.
But we believe an investor can and should negotiate those fees. In our experience, the top 3 lines that require investor attention are:
1) The investment management fee for UCITS funds
2) Forex fee - > a progressive ladder can be replaced by
3) Fee-in-fee structure
For the investment management fee, one can negotiate an upgrade in share class if certain conditions are met even without hitting the minimum required amount.
For the Forex fee, we saw several examples where banks agreed to bypass an 'expensive' part of the FX fee ladder (typically for the amount < 100k-250k) and only stick to the min fee regardless of the amount.
Lastly, for the fee-in-fee structure, pay attention to the individual components of the discretionary mandates run by the bank (typically at an all-in fee). For example, we observed many cases where banks put their own products into a discretionary run portfolio. By this virtue, they effectively impose double tariffs and set a famous fee-in-fee structure.