Why More Than Just Fees Matter With Investing

“Free” platforms and websites can be tempting when you’re looking to invest and make every cent count. But what is it really costing you? Dean Anderson, CEO of Kernel Wealth, shares why you should take more than just the price into consideration when choosing your mechanism for investing.

When it comes to money and investing, one name instantly comes to mind — Warren Buffett. One of the greatest investors of our lifetime, the Oracle of Omaha has developed a global following with his annual meeting often attended by over 30,000. It’s an event that has been nicknamed “Woodstock for Capitalists” and is on the bucket list of many financial professionals.

Over the years Buffett has been unashamed in dishing out sage advice to investors, advising against trying to time the peaks and troughs of the stock market through to recommending low-cost index funds to all, even his wife. However, one famous quote from Buffett stands out against the rest: “Price is what you pay, value is what you get.”

All investments have a cost, even if you don’t realize you’re paying it. And over time high fees and costs compound, eating into your returns. When it comes to managing your money and building wealth, lower fees can be a big contributor to success. However, that doesn’t mean low fees are always value for money. Sometimes investors get lured in by a low fee offering, oblivious to the hidden costs and lack of value for money they are actually getting. 

As per Buffett’s quote, it’s the value that you should be assessing, not just the price.  

When low-cost goes wrong

In recent years, many new investors have been lured into share trading with discount trading platforms and zero fee investments. But have you ever stopped to think how these ‘too good to be true’ products and services actually make money? On the face of it, it looks like you are saving a lot in fees, but what you are actually paying is hidden behind the scenes. 

In one recent example, the SEC fined a large $0 trading platform USD$65m for not being forthright with customers on how it makes money through its commission-free platform. It also didn’t live up to its duty to ensure users got the best terms on trades, with investors receiving a poorer price for their shares than what they could have got. When the SEC analyzed the impact on investors between 2015 to 2018, they found investors missed out on USD$34m, and that’s after having factored in a five-dollar trade commission alternative. In this example, it seems investors who chose to go with a transparent, known, and still low-fee trading platform, received far greater value than the $0 trade platform. 

Buffett also highlighted the value investors receive from investing in index funds, having famously made a decade-long $1m wager against high-fee active funds as to which would perform better. The index fund won. But why pay for someone to manage your money at all, whether it’s an index fund manager, financial adviser or budgeting app. Surely these are just unnecessary fees you could cut out? 

Value means more than just the price you pay

Managing money and efficiently building your wealth is time-consuming, and at times emotional. Paying an independent adviser for those complex cases and to keep you on course during the ups and downs of the market can deliver you significantly more in future wealth than their fee. Equally, paying for a high-quality budgeting app that keeps you engaged and on course are valuable tools to help you maximize your wealth and financial freedom. As they say, you have to spend money to make money!

As an index fund manager, one thing we value highly is transparency. We believe that transparent, fairly priced services and products are a better outcome for all users over heavily discounted offerings that don’t fully reveal what your true costs are, no matter whether it’s investments, buy now pay later services, or even your mobile phone plan. 

The quality of the service and product is also important. We’ve all made the mistake of opting for a cheaper alternative, only to later accept it didn’t live up to expectations and then having to revert to the fairly-priced quality product (I’m looking at you, my discount vacuum cleaner). 

When selecting a service or product, it’s important to take the time to question how the provider is making their money. Nothing in this world is free. If you can’t understand how they make their money, then there is likely to be a range of hidden costs behind the scenes which may be much larger than you realize. Or even worse, in today’s world it could be through selling your personal information and data, exposing you to unknown security risks.


Dean is founder and CEO of Kernel. He is proud dad to (fur baby) Cooper, a regular member of the Kernel team and a great draw card to talk all things money. He is passionate about designing innovative new solutions to help all Kiwis grow their long term wealth.

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