SURF’s up, and costs are down
The new Sygnia Umbrella Retirement Fund has shaken the industry and offers much more than a low fee structure
consumption’ by creating new consumers and new demand.”
This is where Sygnia has seen the opportunity, and its growing product range indicates just how significant Wierzycka believes it can be.
From an investment administrator and asset manager offering multi-manager, fund of hedge funds and index-tracking products, it has grown to provide linked life insurance, unit trusts, a Lisp (linked investment services provider) platform and a stockbroking operation. This year it entered the umbrella retirement fund market by launching the new Sygnia Umbrella Retirement Fund (SURF).
All this is supported by inhouse systems development which Sygnia says is on the “bleeding edge” of technological innovation.
Most recently Sygnia launched the Sygnia 4th Industrial Revolution Global Equity Fund, taking on staid, old-world offshore products by offering investors the opportunity to invest in the latest technologies which are driving global change, such as virtual reality, drones, 3D printing, and autonomous vehicles.
As this is at its core an indextracking product it comes, once again, at a significantly lower fee.
Across its range, Sygnia’s first value proposition is always price. Its flagship index-based Sygnia Skeleton product range is offered to individual investors at 0.40%/annum, which beats all other active and passive unit trusts on offer. SURF, with its highly innovative benefit design, is 70% cheaper than its competitors. Sygnia RoboAdvisor offers simple financial planning advice for free.
“I’ve been astounded by how easy it has been to become a market disruptor,” Wierzycka says.
“The challenge to the industry is to respond. But can it? Financial services companies all have existing revenue streams, shareholder expectations and staff bonuses to pay. To respond, these would all need to be cut dramatically, and that is difficult.”
Conservative estimates by Sygnia suggest that the average member of a commercial umbrella fund pays 2.2%/annum in fees. Yet the same person could purchase a stand-alone retirement annuity from Sygnia for 0.40%/annum. This wide gap leaves plenty of room for disruption.
“The large umbrella funds that have dominated this market have never passed economies of scale onto consumers,” says Sygnia head of strategic projects David Hufton. “We plan to change that.”
The launch of the Sygnia Umbrella Retirement Fund (SURF) has certainly shaken up the industry. By waiving administration
and consulting fees, SURF offers up to a 70% cost saving relative to its competitors such as the Alexander Forbes or Sanlam-sponsored umbrella funds.
“SURF challenges the opaque nature of the industry,” Hufton says. “It has thrown down the gauntlet by introducing a single all-in fee — members only have to pay the asset management fee and nothing else.”
But he says that there is a lot more to SURF than just the low and simplified fee structure. Aspects such as benefit design, investment strategies and the member and employer experience have all been revolutionised.
For instance, SURF offers infund preservation and annuitisation, so that on resignation or retirement members don’t have to leave the fund. This means that they can seamlessly stay invested in the same institutionally priced investment portfolios and not have to incur the higher costs that come with having to invest in unit trusts.
Sygnia’s member portal is a huge leap forward relative to what an average umbrella fund offers. “We want SURF members to feel like high net-worth individuals, rather than being just a line item within a standard administration system.”
How it’s structured
The fund offers three retirement options: a with-profit annuity, a living annuity and a hybrid annuity in which every year for 10 years 10% of the member’s assets shift from the living annuity into the with-profit annuity.
“This means a pensioner can leave a legacy to his heirs if they die in the early years after retirement. But by the time they turn 75 and need the certainty of a guaranteed income, their income is fully secured,” Hufton explains.
This hybrid model has been built to align with National Treasury’s proposals, which urge all funds to provide security for their members in retirement rather than leaving them to the uncertainties of living annuities, which are as volatile as the
All this is supported by in-house systems development which Sygnia says is on the bleeding edge of tech innovation
A further innovation is that the Sygnia RoboAdvisor is being adapted to serve as the fund’s “benefits counsellor”. This is to meet National Treasury’s vision that this service should be available free-of-charge to all members of retirement funds.
While Hufton says that SURF is most obviously disruptive on price, he strongly recommends that employers use some of this saving to hire knowledgeable independent consultants.
“We believe that the value of an in-house consultant is constrained by the obvious conflicts of interest," he says. "An employer can count on an independent consultant to objectively assess their participation in SURF and regularly scan the market for alternatives.
“Where administration, consulting and investments are provided by a one-stop-shop there is huge scope for abuse,” Hufton says. “Consultants employed by the companies sponsoring umbrella funds have every incentive to steer the employer away from fair and transparent competitor reviews and keep the illusion that he is receiving the best cost and investment performance proposition.”
David Hufton – head: strategic projects: New package gives special incentives to clients