SPE­CIAL MEN­TION: BEST TAX-FREE SAV­INGS AC­COUNTS

Financial Mail - Investors Monthly - - Cover Story -

TAX-FREE SAV­INGS AC­COUNTS

TAX-FREE SAV­INGS AC­COUNTS TFSAs are now an estab­lished part of an in­vest­ment port­fo­lio. They can be used as a top-up to an ex­ist­ing port­fo­lio or to di­ver­sify it, for ex­am­ple, to in­crease ex­po­sure to off­shore in­vest­ments, or to save for a long-term goal, such as chil­dren’s ed­u­ca­tion.

Stock­bro­kers are key providers of TFSAs. Many have put in much ef­fort to cre­ate a com­pelling of­fer for first-time in­vestors to get in­volved in the stock mar­ket — and have done so even though profit mar­gins for bro­kers on such ac­counts are ex­tremely thin at best. We sup­port those en­deav­ours with a prize for those we think have cre­ated the best of­fer­ings.

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 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 like bank ac­counts, but the ev­i­dence is clear that in the long run

Easy Eq­ui­ties is strong on costs and re­ceived pos­i­tive rat­ings

they out­per­form. Stock­bro­ker ac­counts are also the most tax ef­fi­cient, al­low­ing in­vestors to avoid cap­i­tal gains tax and div­i­dends tax.

Be­cause of the re­stric­tions, most bro­kers of­fer the same range of ETFs. Our as­sess­ment there­fore con­sid­ers price, aware­ness, ease of open­ing an ac­count and client views.

Clients’ as­sess­ments of their bro­ker’s 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 goes to EasyEquities, which is strong on costs and re­ceived over­whelm­ingly pos­i­tive rat­ings from clients. Rand Swiss is sec­ond, with Stan­dard Bank OST/Stock­broking third.

EasyEquities, Stan­dard Bank OST/Stock­broking 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. An In­tel­lidex sur­vey last year shows that from the launch of TFSAs on March 1 2015 to Fe­bru­ary 2017, 460,609 such ac­counts had been opened, of which 30,205 were through stock­bro­kers. As­sets in stock­broking TFSAs to­talled R614m, an av­er­age of R20,313 per ac­count.

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