How to read a fee schedule without being fooled

A fee schedule is designed to be read quickly. Reading it slowly is where the value is. Six questions convert any set of percentages into one comparable number.

What is the fee charged on?

The same percentage means completely different amounts depending on its base. A fee on the property price, a fee on the amount you personally put in, a fee on profit, and a fee on assets under management are four different things. Find the base before you look at the rate.

How often is it charged?

A one-off charge and an annual charge at the same percentage are not comparable. An annual fee has to be multiplied by the expected hold period before it can sit next to a one-off fee.

Is it charged whether or not the investment works?

A fee on capital is charged in a bad year as well as a good one. A fee on profit above a hurdle is not. This is the largest structural difference between fee models, and it is the clearest signal of where a manager's incentives point.

Who is charging it?

Platform fees, asset-level operating costs and third-party invoices are often presented together and are not the same thing. Ask specifically which are marked up and which are passed through at cost, and whether the platform receives any rebate from the third parties it appoints.

What is missing from the list?

Taxes, transaction costs, currency conversion and exit costs frequently sit outside the fee schedule and still reduce your result. A schedule can be entirely accurate and still be an incomplete picture of what you pay.

What does it come to, in money?

Do the arithmetic once. Total every fee across the expected hold, divide by the amount you would put in, then divide again by the number of years. That gives an average annual cost as a percentage — the only form in which fees can be compared with each other and set against a target return.

A worked habit

On a ten-thousand-shekel ticket, a one percent entry fee is one hundred shekels, and a one percent annual fee over five years is five hundred. Together that is six hundred shekels: six percent of the ticket, about one point two percent a year. Whether that is reasonable depends entirely on what the fee buys and what the asset targets — but it is now a number you can argue about rather than a percentage you cannot.

And the last question

If a schedule cannot be turned into shekels in five minutes, that is itself information.