SPECIAL MENTION: BEST TAX-FREE SAVINGS ACCOUNTS
Because of the restrictions, most brokers offer the same range of ETFs
STOCKBROKERS ARE KEY
providers of tax-free savings accounts (TFSAs). Many have put in much effort to create a compelling offer for first-time investors to get involved in the stock market, and we support them with this special mention of those we think have created the best offerings — and have done so even though profit margins for brokers on such accounts are extremely thin at best.
Investors can save up to R33,000 a year with a lifetime limit of R500,000 with all gains free of tax.
TFSA regulations do not allow direct investments in listed equities but do allow for access to the equities market through exchange traded funds (ETFs). Such funds invest in a portfolio of shares and represent a cheap way to get exposure to diverse equity investment. Equities tend to be more risky than alternatives such as bank accounts, but the evidence is clear that they outperform over five to 10 years. Stockbroker accounts are also the most tax efficient, allowing investors to avoid capital gains tax and dividend tax.
Because of the restrictions, most brokers offer the same range of ETFs. Our assessment considered price, awareness, ease of opening an account and client views. Some brokers have lobbied treasury to relax regulations and allow brokers to offer listed shares in the accounts, even if only for blue chip stocks such as the top 40.
Clients’ assessments of their brokers’ TFSA product was the main determinant of the rankings. They rated their brokers on costs, the range of products in which they could invest, ease of opening an account and overall quality of the TFSA offering.
First place was taken by the Purple Group, including EasyEquities, GT Private Broking and GT247, which all offer the same basic TFSA.
EasyEquities has gone out of its way to promote TFSAs to first-time investors and our research indicates it has had considerable success. EasyEquities, Standard Bank and others have created special low-cost accounts just for investing in ETFs.
Stockbrokers have largely kept in mind the overall goal of getting more first-time investors into the market, and have kept prices extremely low. While low margins and high volumes are the core business model for stockbroking generally, with TFSAs this is even more of a factor.
The TFSA regime seems to be working — a survey conducted by Intellidex this year shows that from the launch of TFSAs on March 1 2015 to February 2017, a total of 460,609 tax-free accounts had been opened, of which 30,205 were through stockbrokers. Assets in stockbroking TFSAs totalled R614m, giving an average of R20,313 per account.