Once, there was a tauke. From humble beginnings, he built a business empire spanning 10 listed companies across multiple industries. By the time he passed on, he had become a towering figure in the corporate world.

In his will, he left all his shares equally to his 10 grandchildren. Together, they inherited a 60% controlling stake in the entire conglomerate.

In the first year after the inheritance, the group earned US$100 million. Sixty percent – US$60 million – belonged to the family, split evenly among the 10 grandchildren.

Over the next few years, earnings continued to grow. As the businesses prospered, so did the family. On paper, everyone was winning.

But that was before competition entered the picture.

A helper at the clubhouse

One day, Ben, one of the grandchildren, was playing golf at a country club with his best friend, Mike. Between swings, Mike floated an idea.

Ben, he said, didn’t have to earn the same as his siblings and cousins. If he sold some of his shares in companies with lower growth potential and swapped them for shares in companies he believed would grow faster, he could pull ahead.

The family would still own 60% of the conglomerate. The only difference would be who owned what – and how much.

Mike offered to broker the deal. Sensing an opportunity, Ben agreed.

Soon after, the conglomerate earned US$200 million. The family’s share rose to US$120 million – minus the brokerage fee paid to Mike.

Ben, of course, earned more than the rest.

Let the competition begin

Word spread quickly. Ben’s siblings and cousins were not keen to sit still while one of their own outearned them. A few began making similar moves, outmanoeuvring the rest and capturing a larger share of the profits.

Those left behind grew unhappy – and restless.

Their solution arrived in the form of Alex, a seasoned professional. Alex proposed pooling their shares into a fund. He would handle all the buying and selling on their behalf, helping them outperform the more “clever” cousins.

There was a cost, of course. To participate, they agreed to pay upfront sales charges, annual trustee and management fees, and a performance fee – compensation for Alex’s expertise and effort.

The following year, the conglomerate earned US$250 million.

The family still owned 60%, amounting to US$150 million – less Mike’s brokerage fee, Alex’s fees, and the various charges attached to the fund.

Bringing others into the picture

Alex did a decent job – but for some grandchildren, “decent” wasn’t enough. Surely, they thought, there must be even better professionals out there – managers who could deliver superior returns.

The challenge was figuring out who those people were. So they hired planners and advisers to help them search. In pursuit of higher returns, they willingly paid advisory fees, consultation fees, and finder’s fees.

That year, the conglomerate earned US$300 million. As a family, they still owned the same 60% – US$180 million – less Mike’s brokerage fees, Alex’s fees, sales charges, management and trustee fees, performance fees, and now advisory and planning fees as well.

The businesses were earning more than ever. The family, less so.

Fees: the quiet enemy of returns

This story is a modern retelling inspired by Warren Buffett’s 2005 shareholder letter, and echoed in John Bogle’s “The Little Book of Common Sense Investing”.

Their message is deceptively simple. Investment returns ultimately come from corporate earnings – value created by real businesses doing real work. Fees, however, subtract from those earnings.

The more intermediaries involved, the more transactions occur. The more transactions, the higher the costs. And every dollar paid in fees is a dollar no longer compounding for the investor.

But despite decades of wisdom from Buffett, Bogle and others, the urge to beat siblings and cousins is timeless.

The desire to do better, to win, to come out ahead – these instincts are deeply human. They give rise to two powerful market emotions: greed – the need to outperform others; and fear – the terror of falling behind.

Together, they fuel a multi-billion-dollar wealth-management industry.

There will always be demand for outsmarting, outshining and outearning others – and many investors are willing to pay handsomely for the promise.

So, how do we minimise fees?

The first step is recognising a simple truth: paying more fees does not guarantee higher returns. In fact, many investors end up keeping more of their wealth simply by paying less.

Reducing fees is not a compromise – it is part of building a winning portfolio.

Wealth is built through long-term compounding, not constant activity. For investors, that means learning how to own businesses that can grow earnings steadily over time – and resisting the temptation to overtrade or over-delegate.

In many ways, education is the most powerful fee-reduction strategy of all. Because in investing, it’s not just about how much the businesses earn – but how much of those earnings you get to keep.

This article first appeared in KCLau.com.

Ian Tai is a financial content writer, dividend investor, and author of many articles on finance featured on KCLau.com in Malaysia, and ‘Fifth Person’, ‘Value Invest Asia’ and ‘Small Cap Asia’ in Singapore.