Costs
How much do I pay to Empodering?
- Hello Albert. I have doubts about the costs of my financial investments. Can I ask you a few questions?
- Go ahead, Tina!
- I have received an email from Empodering with my Personalized Investment Plan, after having filled out their questionnaire on investor profile.
- Hmm…
- And I am not sure about the costs to invest with Empodering, nor how they compare with the alternatives I have.
- I understand! What does your Personalized Investment Plan say about it?
- The recommendation I have received is to invest in the Empodering Multi-Strategy investment fund, which you told me about the other day.
- Exactly!
- And in the documentation, they tell me that the investment fund’s current expenses are 1.3%, and its management fee is 0.7%. But I don’t understand the difference between current expenses and management fee: what am I really paying?
- Good question! The current expenses are the total costs of the investment fund. And the management fee is part of these total costs, which are what must be paid to the investment manager to manage the fund.
- In other words, what I really pay is the current expenses, right?
- Exactly!
- Then, it’s cheaper than what Mario, my private banker, charges me, but it’s more expensive than the robo-advisor my friend hired a few months ago. She told me they were very cheap.
- Maybe. And do you receive the same quality of service in all three cases?
- Well, I really don’t know. Mario speaks very well, and whenever I meet him, I think I’m in good hands. But then, I look at his results, and I don’t like them very much. And as I said, his costs are high.
- Hmm.
- And about robo-advisors, I have no experience regarding their quality… oh, now I have just remembered my friend said the other day that although she had a conservative risk profile, she was losing a lot with the robo-advisor in the first months of 2022, and she didn’t quite understand why.
- Investments sometimes do better, sometimes worse. But it is true that conventional portfolios are relatively simple, with a given percentage invested in shares and the remaining in fixed income. The proportions depend on the client’s risk profile.
- Yes, my friend told me that she had a lot of fixed income and few stocks, to control her risk.
- During the first months of 2022, with high inflation, both equities and debt have suffered losses. Therefore, fixed income has not “protected” as it should have, and many conservative investors have had more losses than expected.
- What you explain makes sense. But what does all this have to do with the costs of Empodering?
- Well, a lot! Because Empodering offers you an investment strategy, the Multi-Strategy, which improves conventional risk management. They not only use fixed income to hedge risks, but also use products and strategies that until now were only available to large institutional investors.
- Ah, very good. And do they work in practice?
- We already analyzed this issue the other day.
- Yes, yes, but this is all in theory. And in practice?
- You like cars, right? What do you prefer: a car with many sophisticated safety controls (stability control, many airbags…), or one without?
- Well, I prefer it with a lot of security gadgets, of course! Accidents sometimes cannot be avoided. But the probability is less than with a car that does not have them.
- You said it yourself!
- Okay. But I repeat: what does all this have to do with the costs of Empodering, and those of the robo-advisors?
- A lot! Empodering uses advanced products and strategies to control risks. And all this has a cost. In contrast, conventional portfolios only use debt to hedge risks, which has low costs.
- This is similar to the fact that a car with advanced security systems will be more expensive than without them, right?
- That’s right! The key is value for money. There are people who do look for the minimum cost, but others prefer to balance price and quality.
- Yes, it’s like with the apartments I renovate: at the beginning of the business, I tried to spend as little as possible. But later I saw that this caused me problems, “you get what you pay for”. And I focused on slightly higher cost rehabs, and in the end I can charge more, and I have fewer headaches.
- Exactly!
- Yes, but… I don’t want to pay too much! How do I know that what Empodering charges me is really going to improve the quality of the service, and they don’t keep it in their pocket without doing anything?
- Very good question! Here is the difference between current expenses and management fee. The management fee is what the manager and Empodering keep for their work, which is 0.7%.
- And the rest?
- The rest, 0.6%, is mostly the cost of increasing quality. In practice, it is the management fee of the investment funds that Empodering uses in the Multi-Strategy strategy.
- Well, these figures seem reasonable to me. Empodering is not the cheapest service among my alternatives. But it is not the most expensive either. In fact, of the options available to me, it’s in the lower cost zone.
- True!
- But, on the other hand, the perceived quality is high. In that, they are in the high zone among my alternatives.
- So it is likely to be good value for money. And another important thing…
- Tell me.
- European regulations require that if two investment funds have the same current expenses, this means that their investors pay exactly the same.
- Seems logical, doesn’t it?
- Well, not really! This regulatory obligation to report costs in a homogeneous manner does not always exist. And, therefore, it can happen that two private bankers give the same costs, but the client ends up paying a different amount.
- Yeah… but what about the other costs?
- What other costs?
- Well, what Empodering charges me, or other costs that it may have, other than the current expenses of the investment fund. Couldn’t there be other hidden costs?
- There aren’t! Your Personalized Investment Plan makes it clear that your only costs are the current expenses of the investment fund. You have no custodian fee, no VAT, no subscription fee, no reimbursement fee, no…
- Are you telling me that they don’t charge me anything else? And what does Empodering live on?
- Empodering charges a portion of the investment fund’s management fee, for advice.
- Oh yes, you told me before.
- Exactly! And finally, one last advantage for you: since Empodering is paid by the manager, they should not bill you. And therefore, you should not make any bank transfer to Empodering, or pay them with a debit card, or anything like that. It’s automatic, and you don’t have to do anything.
- Seems reasonable. Thank you, Albert, you have answered my questions well. See you soon!
- See you soon, Tina, and good luck!