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

Weekend Argus (Saturday Edition) - - GOODPOSTER -

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.

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