G.R. Krahmer
The Total Cost of Ownership (TCO) is a measure of the total annual costs of a
investment product or investment service. We think it is extremely important that there is one A uniform calculation method is used to make a good cost comparison between providers of investment products. We advocate transparency in the financial world, and that includes transparent costs. You will see that brokers or banks show the costs ‘transparently’, but that in reality the total costs are often higher than they seem at first glance.
When investing, it is not only the costs directly charged to the investment firm that are important (the so-called ‘direct’ costs). The costs (the so-called ‘indirect costs’) that you pay when investing in a specific investment product, such as an investment fund, also ultimately determine the net return of your investment portfolio.
A TCO therefore includes both direct and all indirect costs.
An ‘expected‘ TCO gives you as an investor an estimate of the costs you can expect on an annual basis. The variable costs, such as transaction costs, are determined on the basis of a historical average. Although the variable costs may differ in reality, this gives a good indication.
How do you calculate it?
It is important to have insight into the total costs required for managing your assets. In the overview below we give an example of the total expected costs (TCO), broken down into the costs for services, asset management/service and the costs associated with the various investment products, measured on an annual basis.
Example is with a portfolio of €250,000.
Management fee/Service costs VAT on management fee Performance fee
Depository bank custody fee Ongoing costs of investment funds Ongoing costs for struct. products Total running costs of products Currency conve, dividends, spread* Transaction costs*
€2,500 1.00% / 0.44% €525 0.21% €0 (I hope none) €240 0.12% – 0.16% €875 0.35% €650 0.26% €1,525 0.61% €100 0.04%. €500 0.20 % 0.50%
Total asset management costs (TCO) €5,290 2.11%
*These are the average-expected transaction costs for a current portfolio in a year. The transaction costs at the start and completion of the portfolio have not been taken into account. This is because these costs are one-off and therefore cannot be passed on as an average rate.
Ongoing costs of the investment funds in the portfolio:
The overview lists the costs of the investment funds. These so-called ‘ongoing’ costs are not charged directly, but are included in the return, or the price of the investment fund.
The ongoing costs of investment funds include the management fee, the administration costs, accountant costs, permits, taxes and the custody fee. Not included are the entry and exit costs of participants, transaction costs of investments, any performance fees and interest costs on the bank account. The current costs and the exact costs charged are stated in the Prospectus of the investment fund and in the Essential Investment Information (EBI).
