Simon Brown: I’m currently chatting with Rory Brachner, founder and managing director of DoshGuide. Rory, I appreciate the morning time. We are talking about flat-fee leisure investment. We were chatting a month or so ago, and you had the experience of taking a retirement product, doing the right, responsible work as a young investor, and completely nailing off the huge fees that have eaten up most of your returns. . This has inspired you for the website.
Rory Brackner: Good morning, Simon. That’s right. I signed up for a product that worked for about 4% of my fee. Unfortunately I realized that after only five years, after paying huge premiums on the product over the years. Really, this kind of fee makes the product sustainable and in the end it is impossible to increase your investment. The sad truth is that I, like many others, just didn’t know and didn’t have the knowledge or the right questions to ask at the time. It was a good lesson that inspired me to start DoshGuide.
Simon Brown: I mean, 4%! I think my first product was 7.5%. I appreciate that 4% is crazy, but you are obviously younger than me. I took mine out in the early nineties, and it was a 7.5% fee.
Now your idea is that instead of that 4% fee – and some of it remains in the product, but most of the advisory fee that goes to an individual and is paid by the financial institution – you say, ‘that flips around; I would pay the advisor directly instead of the organization and I could potentially get significantly lower fees, partly because it’s not percentage-based. ‘
Rory Brackner: That’s right. I think the truth of the matter is that most of the financial advisors in the industry work on some kind of commission, be it an upfront commission or the percentage of assets under their management that you transfer to them. A commission assumes a product, and the fact that sometimes a product is not even needed, such a product is an assumption if there is an immediate underlying conflict of interest.
What we’re trying to do is, yes, most advisers work that way – probably 99% of South African advisers work on that basis – but we don’t think that’s a good way to do it. We like to work on a kind of advance, transparent, monthly subscription. You still have access to an advisor, a qualified CFP advisor, but there is no product that is being pushed, not being sold. If I had such an advisor when deciding on my retirement product, I would not end up with a product for which there was a 4% fee.
Simon Brown: I suspect the challenge is that the 4% fee is huge, but of course you don’t see the money. If I had to pay the advisor now and maybe it was going to cost me R30 000 a year, and I think to myself, oh, if it were my retirement product, I’d save over a million, but it looks like I’m not. This is probably the stumbling block that we have to sort through our heads.
Rory Brackner: That’s right. I think the psychology behind it is kind of interesting. We feel very comfortable paying behind our income and our balance sheet, a product that really has the same exact net effect on our personal balance sheet. But when money comes from our own bank account on a monthly basis, and we see that money coming out, there is a completely different feeling about it. We feel much more comfortable doing it this way, which is strange because if we think of any other professional service we get, be it a doctor or a personal trainer or an accountant, we are very happy and pay the price for what we see. But the industry has set this precedent around financial advice – that it is ‘free’ – and we all know instinctively that there is no such thing as free advice.
Simon Brown: I love your point. Think of going to a doctor, and when it comes to bills, they don’t charge me a fee; They ask me what my net worth is, and then they charge me a percentage of it. We will freaking out frankly around that frankly.
Rory Brachner, founder and managing director of DashGuide.