IT’S TIME TO INVEST WISELY
Gulf Bank highlights the impact of fund fees on investment returns By Tareq M. Al-Saleh and bazaar staff
The days of hiding your money under your mattress are thankfully over. Still, it’s quite common to learn that many people don’t have the faintest idea of how to actually invest their money that's idly sitting in the bank, and this is simply because the everyday person could feel that they aren’t equipped to take control of such major financial decisions. In this day and age, and with an overwhelming wealth of information available to us at our fingertips, this can be quite the daunting task. Nonetheless, it’s really integral to wrap your mind around the basics—starting with how you could invest your money, what fees are involved, and the impact that these fees could have on your investment returns. There are many reasons to invest in today’s markets. Never before have markets been this global, and never before have we seen such an incredible opportunity to increase one’s wealth like we have today. If you’re dreaming of setting a little something aside to go traveling around the world one day, why not look to your bank for an investment opportunity? This is why an enlightening discussion with Gulf Bank’s AGMInvestments—Consumer Banking Tareq M. AlSaleh is in order. Not only did Tareq devise and spearhead Gulf Bank’s brand new investment platform WISE that’s completely revolutionizing the way in which we could manage our financial investments, he also has some key tips to share about investing in general to help you get started. What happens when you choose to invest You’ve decided to invest your money with the bank—great! How this technically works is quite straightforward. Tareq breaks it down, “Fund houses manage client assets in various products including mutual funds and take key investment decisions to enable growth and accumulate wealth. In order to perform this role, typically the respective fund houses charge several types of fees, and may be incentivized to do so.” Understand your investment fees When you’re day dreaming about your splendid retirement home, set in tropical climes and surrounded by pristine blue waters, it’s so easy to forget about the actual fees that go into the type of investment that you are looking to make, 54
and you could easily hand over your money to an investment manager expecting a specific amount in returns, when the reality isn’t quite so. Tareq says, “Investors in general focus primarily on returns while ignoring the impact due to fees charged by the investment manager. Due to the complexity in fee structuring, it becomes difficult for an investor to track the effects [of the fees] on returns. However, a small rise in fee could adversely impact returns in a sizeable way. Hence, it is more fruitful to invest with managers, who show all their fees in a transparent manner compared to the ones, who charge multiple fees.” Tareq even broke down the different types of investment-related fees that one could expect, and he says that the most important investment fee to take into consideration is the management fee charged for performing all the needed activities to accumulate wealth on your initial investment. This takes work on your investment manager’s part, from “stock
research and selection, portfolio construction, monitoring and rebalancing.” After all, your investment manager would be highly trained in this field, and would be able to grow your portfolio whilst taking into account both local and global market forces. But you see, some other fees could easily add up. Tareq says that sometimes, a performance fee is charged by the managers “to ensure there is an ongoing incentive to outperform the market index. Apart from these annual fees, the fund also incurs regular operational costs including legal and audit fees, administration expenses, sales/agent commissions and marketing and selling costs,” and those fees are on top of whether or not your investment is returning a profit or a loss. Also note the following, every time a fresh investment is made into your investment fund, or if you withdraw funds due to unforeseen circumstances or even if you have to close your investment early, a transaction charge
