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

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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

in­vest­ment markets.

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

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