The effect of reverse compounding is "pretty toxic" to passive investing returns once the fees of the full value chain of advice are taken into account, BMO GAM multi-manager co-head Rob Burdett has said.
The BMO GAM team subtracted varying charges - ranging from 1% to 2% - to simulate different extents of the full value chain of investing, including adviser fees. It then tracked how these fees compounded and dragged on returns from the MSCI World index, from August 2001 to December 2017. With no charges, the MSCI World index saw a 205% return in this period. BMO GAM compared this with its global equity boutique product, which saw a 219% return over the same timeframe - after taking into account BMO GAM's fees, underlying fund fees, the adviser and platform fees, for a typical ongoing cha...
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