Understanding the true cost of investing: what the EAC really tells you

Feel free to reach out to PSG Wealth Manager Tanya Joubert  directly.

This is why the effective annual cost (EAC) was introduced in South Africa. It is a standardised, transparent way to help investors understand and compare the total cost of different financial products – all expressed as a single, annualised percentage.

What is the EAC?

The effective annual cost (EAC) is a summary of all the costs you will incur in an investment product, presented in a way that allows for easy comparison between different options. Think of it as the all-in fee – similar to the price tag on a product in a store. It includes four components:

1. Total investment charge, often referred to in an EAC report as the investment management fee
2. Advice fees
3. Administration fees
4. Other costs (such as termination or performance fees, where applicable

The EAC is typically shown for different investment periods (for example, one year, three years, five years, and full term to maturity) based on the assumption that the investment is terminated at the end of each of those points.

Let us look at a simplified example:

Please note: All fees shown above are inclusive of VAT.

Breaking down the components

To understand what you are paying for, it is important to unpack each part of the EAC.

1.          Total investment charge (1,23%)

These are the fees charged by the asset manager for managing the underlying fund – selecting the right mix of assets, adjusting the strategy over time, and ensuring the capital is invested according to the fund mandate. The fee can be found on the fund fact sheet and is made up of all underlying transaction fees and the fund management fee. One often finds that funds that are more actively traded have a higher total investment charge than passive funds or funds that have a lower exposure to growth assets, like equities.

This fee has already been taken into account in the calculation of the performance of the particular funds and does not get deducted directly from a client’s investment capital. It has already been considered in calculating the unit price of the fund.

2.          Advice fees (1,15%)

This is the cost of working with your financial adviser – someone who not only helps you to select the right products but also ensures that your investment strategy aligns with your long-term goals, risk appetite and life changes. Sound advice can have a significant impact on long-term outcomes.

Often, in the event that the adviser charges an upfront fee, the first year will be more expensive than the following years. Generally speaking, PSG Wealth Pretoria East does not charge any upfront fees on investment products.

This fee is expressed as an annual fee but is deducted from the investment capital on a monthly basis.

3.          Administration fees (0,15%)

These cover the cost of the platform that administers your investment (for example, PSG Wealth, Momentum Wealth, or Allan Gray) – processing transactions, generating statements, and ensuring regulatory compliance. Importantly, administration fees are usually calculated on a sliding scale, meaning the percentage decreases as your investment value increases.

Furthermore, many platforms offer family pricing benefits, where investments held by immediate family members (who are also clients of our office) are combined for fee calculation purposes. This can result in significantly reduced administration fees, thanks to the higher cumulative value across accounts.

The advisers and wealth managers at PSG Wealth Pretoria East have agreements in place with various administrators, allowing them to choose an investment platform for their clients that is tailored to their investment needs.

This fee is expressed as an annual fee but is deducted from the investment capital on a monthly basis.

4.          Other costs (0,00%)

Some products may include additional costs such as termination penalties, guarantee costs or performance fees. In this example, there are none – which is ideal.

Why it matters

Understanding the EAC helps you answer important questions like:

• Am I getting value for the fees I am paying?
• How do the costs compare across similar investment products?
• Are there ways to optimise fees through smart structuring?

As your wealth managers, we believe in full transparency. If you ever have questions about the costs in your portfolio, or if you would like us to review how your investments are structured, we will be happy to assist.