PROPOSED REGULATION WILL BAN CHARGING DIFFERENT FEES DEPENDING ON HOW YOU INVEST IN A FUND
Investing in in-house funds may save you fees You may pay less if you invest through some advisers
You may pay a lower platform administration fee if you use a financial services company’s investment platform and invest in the funds offered by its unit trust company.
The Retail Distribution Review (RDR) proposals suggest that platform administration fees should be the same, regardless of the fund in which you invest, so there is no conflict of interest. As investors, we tend to focus more on the platform administration fee than on the fund fees and may therefore choose funds that come with the promise of a lower platform fee.
But many platform providers say they should be able to charge a lower fee if you invest only in funds offered by its associated unit trust company.
Ashburton and Sygnia waive their platform administration fees if you invest in their respective funds.
Joseph Pieterse, the head of investor platform at Ashburton, says that, if the RDR proposal is adopted, investment platforms will introduce reduced-fee classes for funds offered by their associated companies, so that investors pay the same reduced fees.
Shaan Watkins, the head of linkedinvestment service provider (lisp), at Absa Wealth and Investment Management, says Absa does not charge a lower administration fee if you invest in its unit trust funds, but it believes it should be able to do so.
Alexander Forbes charges a lower fee if you invest in its funds, and Clinton Cole, the head of lisp business at Alexander Forbes, says the company does not believe this is a conflict of interest.
Allan Gray also discounts its platform fee for investors who invest in Allan Gray’s funds. Michael Summerton, the product development manager at Allan Gray, says prohibiting this will increase administration costs for little benefit.
Discovery charges lower fees if you invest in its funds, because it earns revenue from asset management fees, Craig Sher, the head of research and product development at Discovery Invest, says.
PSG charges an administration fee that is 0.2 percentage points below its fee for third-party funds. Lizé Visser, the head of sales at PSG Wealth, believes it should be allowed to do this, in the same way that Pick n Pay can offer its branded products at a lower price in its stores.
Investec, Momentum and Stanlib say they do not charge lower fees if you invest in their funds. If you invest on an investment platform through certain financial advisers, you may pay a lower platform administration fee, or the platform may offer you the option of investing in a special fund class that has a lower fee.
Most platforms apply a sliding scale to their administration fees: the more you invest, the less you pay, but you may pay a lower fee if your adviser has negotiated a preferential fee on behalf of his or her clients.
Advisers who are tied agents paid by financial services companies do not have the same bargaining power as independent financial advisers to negotiate lower fees for their clients, which may put the clients of tied agents at a disadvantage.
However, if a tied agent advises that you invest in the funds of the company that he or she represents, the platform fee may be discounted (see “Investing in in-house funds may save you fees”, left).
Many financial advisers have engaged the services of discretionary investment advisers, who have the skills to put together portfolios for investors. These investment advisers are also negotiating with platforms and asset managers for lower fees.
Special fund classes for financial or investment advisers may not be shown on the public list of funds offered on an investment platform.
Lizé Visser, the head of sales at PSG Wealth, says PSG offers lower administration fees to investors who invest through financial advisers who save PSG from providing some administration and support services.
Belinda Forbes, the head of linked-investment services provider (lisp) product solutions at Stanlib, says financial advisers who place large investments on its platform on behalf of their clients pay a lower platform fee.
Shaan Watkins, the head of lisp at Absa Wealth and Investment Management, says Absa does not charge different platform fees depending on whether an investor invests through a tied agent or an independent adviser, but it does have special fund classes for advisers who have negotiated lower fees.
Clinton Cole, the head of lisp business at Alexander Forbes, says Alexander Forbes’s independent financial advisers pay preferential prices, because of the efficiencies the company derives “from integrating with an internal distribution partner”.
Daryll Welsh, the head of product at Investec Investment Management Services, says Investec has fund classes that are restricted to advisers or their investment managers who have negotiated lower fees, but Investec is discouraging new arrangements of this type, because it introduces complexity.
Magda Wierzycka, the chief executive officer of Sygnia, says Sygnia does have large investors who have negotiated lower management fees on a number of the unit trusts on its platform, but the discounts are passed on to investors.
Mickey Gambale, the head of discretionary investments at Momentum Wealth, say Momentum has special fund classes for certain financial advisers.
Michael Summerton, the product development manager at Allan Gray, Joseph Pieterse, the head of investor platform at Ashburton, Craig Sher, the head of research and product development at Discovery Invest, and Mark Lapedus, the head of product development at Liberty Investments, say their investment platforms do not have different fees, or fund classes with different fees for different types of advisers.
Summerton says if there were different fund classes for advisers who invest large amounts on behalf of their clients, the unit trust company, not the platform, would be responsible for this practice.
Glacier and Old Mutual declined to answer questions about platform and fee classes for different advisers.