Putting money to work is a task.
Just like you need to make choices between various investment options available, so do the people and institutions you entrust your money to. They have to put the money to work in order that they are able to generate a return from it and share it with you. If they just sit on the money, it will be a loss-making proposition for them.
Putting money to work involves cost.
When you deposit money with a bank, they need to lend it out to companies and individuals who will be charged interest which becomes their return, a part of which gets shared with you based on agreed terms. The cost of this effort is factored into the interest rate promised on the deposit.
When you deposit money with a fund, they need to research markets, move money around and make choices in line with the objective of the fund. Many funds charge a management fee to their investors on an annual basis in order to pay for these costs.
Financial advisors also cost money.
Most people have a long investment horizon, from the time they start working, till the time they retire from active work. Annual and other fees over a long horizon become substantial.
Hence, keeping the investment cost low can itself deliver a huge benefit over several decades.
