Fi­nan­cial ad­vis­ers were right about prop­erty – just not prop­erty syn­di­ca­tions

Weekend Argus (Saturday Edition) - - PERSONALFINANCE -

ast week, a 67-year-old pen­sioner, Bo­huslav Kaut­sky, shot him­self out­side the Pre­to­ria of­fices for­merly oc­cu­pied by im­plod­ing prop­erty syn­di­ca­tion com­pany Share­max.

Kaut­sky was one of thou­sands of pen­sion­ers who stand to lose what, at the fi­nal reck­on­ing, will prob­a­bly be bil­lions of rands, all be­cause of the scan­dalous way in which prop­erty syn­di­ca­tions were struc­tured and hard-sold by fi­nan­cial ad­vis­ers, par­tic­u­larly to strug­gling pen­sion­ers.

The ad­vis­ers, ac­cord­ing to nu­mer­ous de­ter­mi­na­tions by fi­nan­cial ad­vice om­bud Nol­untu Bam, were driven mainly by the ex­traor­di­nar­ily high com­mis­sions they stood to earn.

Both the spon­sors of the syn­di­ca­tion schemes, such as Share­max, and the ad­vis­ers, such as Deeb Risk, who ad­vised Kaut­sky and a num­ber of other pen­sion­ers to in­vest in Share­max, claimed that prop­erty syn­di­ca­tions were low-risk in­vest­ments and would pro­vide su­pe­rior in­come flows. Risk, in­ci­den­tally, was not avail­able for comment this week, be­cause he was on hol­i­day in Thai­land.

The claims that prop­erty syn­di­ca­tions were low risk were made de­spite re­search by a num­ber of pub­li­ca­tions, in­clud­ing Per­sonal Fi­nance, and peo­ple in the fi­nan­cial ser­vices in­dus­try that showed that most syn­di­ca­tions were and are ex­tremely high-risk in­vest­ments. Prop­erty syn­di­ca­tions are def­i­nitely not ad­vis­able for pen­sion­ers.

LProp­erty syn­di­ca­tions were rid­dled with prob­lems, from be­ing out­right scams to hav­ing ex­tremely high costs and be­ing sold on fairy-tale as­sump­tions that prop­erty prices would con­tinue to grow at 20 per­cent a year.

Most of the fi­nan­cial ad­vis­ers who steered the el­derly into th­ese so-called in­vest­ments still roam free and con­tinue to hold li­censes is­sued by the Fi­nan­cial Ser­vices Board. Th­ese ad­vis­ers were cor­rect to re­gard prop­erty in­vest­ments as one source of pen­sion in­come, but they should not have ad­vised their clients to put their all into prop­erty – and they most def­i­nitely should not have steered them into prop­erty syn­di­ca­tions.

They should have put their clients into listed prop­erty via col­lec­tive in­vest­ment schemes – but then the com­mis­sions were a frac­tion of what they could earn from prop­erty syn­di­ca­tions, where the com­mis­sions started at six per­cent and went up to 15 per­cent of the in­vest­ment. Against this, the max­i­mum com­mis­sion on a sin­gle-pre­mium re­tire­ment prod­uct is three per­cent.

Dries du Toit, the for­mer chief in­vest­ment of­fi­cer of San­lam In­vest­ment Man­age­ment, is a wise and ex­pe­ri­enced man. When Du Toit talks up prop­erty, par­tic­u­larly as a repos­i­tory for re­tire­ment sav­ings ( see “Listed prop­erty will give your sav­ings and pen­sion a boost”, above), he does so based on due cau­tion, ex­pe­ri­ence, re­search and knowl­edge.

When Du Toit talks about in­vest­ing in prop­erty as a way to save for re­tire­ment and to pro­vide an in­come in re­tire­ment, he means prop­erly man­aged prop­erty in­vest­ments, such as com­pa­nies listed on the JSE, and di­rect own­er­ship of bricks-and­mor­tar prop­erty.

Du Toit does not even men­tion prop­erty syn­di­ca­tions. And, most im­por­tantly, he does not over­state the re­turns, as hap­pened in the prop­erty syn­di­ca­tions disas­ter.

Most peo­ple do not have the money to buy prop­erty shares or in­vest di­rectly in prop­erty. You need at least R300 000 for a di­rect in­vest­ment and at least R10 000 per trans­ac­tion to in­vest cost­ef­fec­tively in shares.

The way most or­di­nary mor­tals can in­vest in prop­erty is via col­lec­tive in­vest­ment schemes – both unit trust funds (32 South African funds, one re­gional fund and six global funds) and ex­change traded funds ( three funds). By in­vest­ing through a col­lec­tive in­vest­ment scheme, you are di­ver­si­fy­ing your ex­po­sure to risk, be­cause many of the listed prop­erty com­pa­nies spe­cialise in a par­tic­u­lar type of prop­erty – com­mer­cial, re­tail, in­dus­trial, hos­pi­tals or ho­tels.

The other ad­van­tages of listed prop­erty shares and col­lec­tive in­vest­ment schemes over di­rect prop­erty own­er­ship are: Your money is avail­able when you want it. You can sell at any time.

You do not have the has­sle of col­lect­ing rent from ten­ants and main­tain­ing the prop­erty.

Mort­gage par­tic­i­pa­tion bonds (known as part bonds) are also worth con­sid­er­ing for an in­come flow. In sim­ple terms, a fa­cil­i­ta­tor, such as Fed­bond, puts bor­row­ers in con­tact with in­vestors. The in­vestors are is­sued with mort­gage loans by the fa­cil­i­ta­tor, which also col­lects and pays the in­ter­est and cap­i­tal redemp­tions to in­vestors.

Part bonds are reg­u­lated by the Col­lec­tive In­vest­ment Schemes Con­trol Act, be­cause the money of in­vestors is pooled for on­ward lend­ing.

If the fi­nan­cial ad­vis­ers who flogged prop­erty syn­di­ca­tion schemes had re­ally been in­ter­ested in your fi­nan­cial se­cu­rity, as the Fi­nan­cial Ad­vi­sory and In­ter­me­di­ary Ser­vices Act re­quires them to be, they would have con­sid­ered th­ese other, far su­pe­rior and safer, prop­erty in­vest­ments.

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