Friday 16 March 2018

Fees, Commissions, Charges, and Interests

There are 2 common tricks that snake oils try to fleece as much wool or milk "bei kambings" as long as possible:


This one is easier to spot.

That's where unscrupulous financial advisers will encourage you to switch unit trusts, do unnecessary asset relocations, and/or invest in anything that's new or flavour of the montht!

Its the same reason why insurance agents encourage their clients to surrender their old and upgrade to new insurance policies with the latest bells and whistles...

And of course why brokers would encourage you to trade - the more frequent the better!

Buy and hold (forever and ever)

This one is very common but most bei kambings not so aware...

Low cost mutual funds and ETFs, no matter how low cost, still charge an annual management fee. They're profit seeking businesses, are they not?

How to make money from you if you withdrew the funds from them as in redemptions or sale of ETFs?

Same goes for credit cards, bank savings accounts, insurance policies, etc.

The trick is to make you think loooooooooong term. Even better if you buy and forget!

For those who love to parrot passive income, how you feel knowing you're the "passive income" for these vested interests? 

You think why their competitors dangle so many attractive "free" goodies to entice you to switch your business to them?

Of course "free" here involves jumping through hoops and rings as stated in the small print.

Opposite sides of the same coin

Yes! Now you're on to it!

What would a smart landowner do?

Have two businesses - one encourage quick buy and sell; the other evangelise the benefits of long term buy and hold.

Heads I win; tails I win too!

Is that why SIA also has vested interest in a low cost airline too?

I'm sure if you think hard enough, you can spot other examples too!


  1. Why some will sell tools for other people to make money and not using their tools to make money for themselves?

    1. CW,

      A more interesting question is why some people don't ask the question you've just asked?

  2. Hi SMOL,

    Good one on buy and hold.

    Though not entirely relevant to your post, I realized something recently while reflecting. There's this adage circulating around that retail investors should shun actively managed funds because you pay the fund managers for performance but they may not outperform the index. Hence, passive indexing is good as you still get market returns and don't pay (much) for mediocre returns.

    1). Are active fund managers, let's say, on Wall Street really noob because they can't beat market returns? If active fund managers "do not know much", which is what indexers tend to critique them on, why does Wall Street have a high barrier to entry instead of a low barrier to entry?

    2). In WallStreetPlayboys website, they emphasize 3 forms of skills: numerics, sales, synergistics. How do you inspire confidence while speaking with the heads of institutional investors and high networth clients? You need ethos (I know this is debatable to some), logos, and pathos. You need to convince. You need to explain the numbers and effectively answer queries. If you look at it from this perspective, retail investors who denigrate the performance of active managers don't get the point that active managers are evaluated on a qualitatively different skill set. 0.00001% expense ratio of a billion dollar fund is enough to grant the active fund manager an early financial freedom through how they present themselves to their superiors and clients with their sales and numerics skill while retail investors are slogging for an additional percentage point of return. Apples to oranges comparison leh.

    3). Active managers are faced with certain constraints that retail investors do not have to deal with. Some might have to be fully invested as to prevent cash drag. Retail investors can sit and wait at the sidelines.

    1. Unintelligent Nerd,

      1. The acolytes of passive indexing conveniently ignore the 25% of active managers that beat the index by more than a mile.

      They include immortals like Warren Buffet, Peter Lynch, Phlip Fisher, George Soros, etc.

      2. Even if we manage to spot and find these immortal active managers today, I not sure we "qualify" to be their clients - a few millions may not even qualify!?

      The outperforming ones also have stopped accepting new clients too :(

      3. There is a reason why most hedge funds are underperforming passive indexing, especially after 2009 ;)

      I'm not so sure the days of the stock pickers are over!?

      4. I prefer to stay clear of strategies that were aimed at "anyone and everyone" . Vested interests started with Buy-and-Hold from the beginning, now it has morphed into passive indexing - which is another form of "Buy-and-Hold".

      Same wine; different bottle.

      Just as long customers' funds stay under AUM (asset under management), there's still money to be made - just like low cost carriers, IKEA, Walmart, and Diaso still can make money too!


  3. Hi SMOL,

    Hohoho, I'm lazy so don't want to think so much ... hence ok to let some middlemen earn some titbits. LOL!

    I'd rather focus on the big picture, sectors / countries with the strongest performance & momentum, avoid large prolonged downturns, instead of worrying about the 0.05% - 0.4% (compounded) fees. :)

    I treat it more as usage / access fee, since sometimes I can be out of the markets for quite some time e.g. I was totally out of Asian ETF/funds from May2015 to Feb2016, with only part of my portfolio in a tech ETF on-and-off for some months during that time.

    OTOH, I was in the tech ETF from May2016 till stopped out in Feb2018 (now back in again LOL!)

    So I actually don't mind paying those "low" fees as long as the asset is performing well enough! :)

    1. Spur,

      I see you think like land owners too ;)

      Land owners make sure they TIP their shepherds generously. Which competent shepherd wants to work for CHEAP landowners?

      Never mistreat those who can help us make money :)

      Ah! ETFs are great TRADING vehicles!

      That's why we have ETFs for all kinds of sectors and themes!!!

      The number of ETFs available today is simply mind boggling!?

      That shows how profitable ETFs are to the creators/sponsors :)

      Rich Dad Poor Dad is right. Business owners are good, better, best!

  4. Some things never change? Theoretically, over time retail investors should get wiser after education (nowadays personal finance information is more easily accessible to the layman) but I don't see it happening! I think its more of an interest and diligence issue, if someone has no interest in financial matters or are too lazy to educate themselves (despite perhaps even if they realise the importance of getting on top of such matters), they are going to get fleeced when they get the itch/FOMO feeling to start investing their savings..

    1. SGRetailTrader,

      Hey! Nice to have another trader's voice around here!

      I see you are not afraid to speak your mind ;)

      Well, if you can poke fun at lawyers, and your lawyer wife don't mind, it shows something about your wit and humour!

      You are treating trading as a craft; I salute the sincerity in you.

      Do come back and join in the "talk male-chicken" fun!

      This watering hole has a shortage of traders :)

  5. You know theres emotional selling. Selling of 七情六欲。 Hahah, I'm jUST bsing.

    1. Small Time Investor,

      There's emotional buying too ;)

      A bit like shotgun marriage.

      Too excited. Forget to use protection. Bang! Marriage...

      Talk about a short term trade turned into a looooong term investment!



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