One percent is a rounding error. It is the gap between 1.5% and 2.5%. It is a figure nobody argues over in a meeting.
Here is what it does. Take R100,000, leave it alone for ten years, add nothing and withdraw nothing. At an assumed 8% annual return before costs, it grows to about R216,000. If costs pull the net growth down to 7%, it grows to about R197,000 instead. Same money, same decade, roughly R19,000 of difference.
The example is deliberately simplified: real returns vary, fees may use different calculations, and tax and inflation may apply. Stretch the period out and the gap widens, because the money spent on costs is not there to compound.
None of which proves the lower-cost option is better. The more expensive arrangement may deliver a different investment exposure, or advice and administration you value. That is exactly why the extra service or feature should be something you can name: a small recurring percentage translates into a meaningful rand trade-off, so it is worth knowing what you are trading it for.
Try this now
Ask for a projection showing the same starting amount, contributions, period and return assumption under the current total cost and a cost 1% lower. Check that both examples treat fees, VAT and tax consistently, otherwise you are comparing two different questions.
Ask your advisor
- What explains the cost difference, and which outcomes or services should I use to assess it?
- Is the comparison based on the total cost or only one layer?
The figures above illustrate compounding; they are not expected returns or a product comparison.