You will compare the full cost of one fund bought through a bank and through a platform.
After her Saturday review, Wei Ling went home with a recommendation and a question she could not answer. Her relationship manager had been helpful and patient. Arjun kept saying the same fund was cheaper on a platform. Both could be true. What she needed was the gap in dollars, over a period she cared about, and a view on what the extra money, if any, was buying.
This exercise produces that answer for one fund. You will compare buying it through a bank and through a platform, over five years, on S$10,000. Wei Ling's fund is the worked example, with every figure made up for the example.
Choose one fund that both a bank and a platform offer. For each channel, find the cheapest share class it actually sells you in the currency you want. Lesson 2.3, Same fund, different price: share classes, explains why these may differ.
For Wei Ling, the bank offers only class A in Singapore dollars, expense ratio 1.75%, with a trailer fee built in. The platform offers a clean class in Singapore dollars, expense ratio 1.00%. Both own the same pool of investments, so before costs they earn the same return.
For each channel, write down four things, with sources: the sales charge you would actually pay, any platform or account fee, how trailer fees are treated, and the expense ratio of the class.
Bank: sales charge 2%, no platform fee, trailer fee kept by the bank and already inside the 1.75% expense ratio. Total yearly cost 1.75%.
Platform: sales charge 0%, platform fee 0.4% a year, clean class so no trailer fee, expense ratio 1.00%. Total yearly cost 1.00% plus 0.4%, which is 1.40%.
If your platform sells the class with a trailer fee and rebates part of it to you, take the rebate off the expense ratio before adding the platform fee, as lesson 3.2, Fund platforms: lower charges, more of the work on you, explained.
To compare costs fairly, give both channels the same return before costs. Wei Ling uses 6% a year, which is an assumption for the example, not a forecast. Changing it changes the dollar figures but not which channel is cheaper.
The method has two parts. First, take any sales charge off the starting sum. Second, grow what is left at the return minus the total yearly cost. In a spreadsheet, the FV function from How money works, lesson 6.2, Future value: what a sum or monthly saving grows to, does it in one line.
Bank: S$10,000 minus the 2% sales charge leaves S$9,800 invested. It grows at 6% minus 1.75%, which is 4.25% a year. Type =FV(6%-1.75%, 5, 0, -9800) and you get S$12,067.20.
Platform: all S$10,000 is invested. It grows at 6% minus 1.40%, which is 4.60% a year. Type =FV(6%-1.4%, 5, 0, -10000) and you get S$12,521.56.
Now a third line: the same S$10,000 at 6% with no costs at all, =FV(6%, 5, 0, -10000), which gives S$13,382.26. This is not an option you can buy. It is the yardstick for measuring what each channel costs in total.
Subtract. The bank route costs S$13,382.26 minus S$12,067.20, which is S$1,315.06 over five years. The platform route costs S$13,382.26 minus S$12,521.56, which is S$860.70. The gap between them is S$454.36, or about S$91 a year on average.
Taking cost off the return each year is a simplification, because in practice fees come out daily. It is close enough for a comparison, and you will refine the model in module 7.
The number is only half the answer. The other half is what the extra cost pays for. Write down, for each channel, the service you actually get: advice before buying, a yearly review, someone to call when markets fall, help with your wider finances, or nothing beyond the trade itself.
Wei Ling's bank offers a yearly review and a named relationship manager. In three years she has had two reviews, and both included a switch suggestion. The platform offers none of this, but has research articles she could read.
Her comparison fits in a small table: two columns, one per channel, with rows for share class, sales charge, platform fee, trailer fee treatment, total yearly cost, ending value after five years, and total cost in dollars. Under the table, a short list of what the bank's service includes.
Her conclusion was that S$454 over five years would be worth paying if the reviews changed her decisions, and not otherwise. In the activity below you complete the same comparison for your fund and write one sentence on whether the extra cost, if there is one, buys something you would use.
Complete the two-channel comparison and write one sentence on whether the extra cost, if any, buys something you would use.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).