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Question of the Day: Did you buy your last car with cash or on a finance plan?
PPS, Yes or No?
- Thread starter Maverick154
- Start date
http://www.ppsinvestments.co.za/Assets/podcasts/JD.mp4
This is a link to a podcast on the PPS website answering the question "Can I transfer my investment to the modern, unit trust based section of the Fund?"
I am not able to view it at the moment, perhaps you can let us know what they say.
Maverick154
Well-Known Member
- Joined
- Apr 12, 2009
- Messages
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That is the thing, with a broker and with Sanlam, you never know what the hell is going on. It just feels like there is some clause somewhere that says they can change things without letting me know and then I will be worse off. With going direct I can at least invest on my own terms and know what is going on at all times.
So Sygnia vs Coronation? Anyone know the pros and cons? I know that Sygnia has lower fees, but are they good funds?
So Sygnia vs Coronation? Anyone know the pros and cons? I know that Sygnia has lower fees, but are they good funds?
He spends majority of the presentation telling you about the cost involved in switching out of the traditional section of the RA Fund and justifying why.
In my opinion, majority of the marketing material in the past related to the traditional policy based fund mentioned the "bonus allocation" which they have since been stopped. If one takes this matter up with the Ombudsman then you have a good chance of exiting without penalties.
supersunbird
Honorary Master
Good post. I concur with most that was said.
I criticised that thinking in another thread yesterday. I see Moneyweb has an interview with Sygnia CEO Magda Wierzycka today where she makes the same argument.
http://www.moneyweb.co.za/moneyweb-special-report/magda-wierzycka--ceo-sygnia-group
Here is my post from yesterday:
Short answer:
Open one account with a single provider. Select a single investment manager and invest in their balanced fund.
Longer, but far from exhaustive answer:
The concept of diversification as used in finance theory is not understood by lay people.
Diversification is not synonymous with the idea to not put all your eggs in one basket.
Finance identifies risks which are priced by markets (called market or systematic risk), and risks which are not priced, because it can be diversified away (idiosyncratic or non-systematic risk).
An investor who buys a priced (discounted) risk, can expect to be rewarded for bearing it by earning a risk premium. Exposure to an unpriced risk brings no premium expectation. (Note: an expected premium should not be confused with a guaranteed premium).
Active manager risk is not a risk priced by a market – you get no discount when you expose your portfolio to it, and you can expect no premium for bearing it.
Active manager risk is like the risk you take when you play the lottery: the average participant’s expected outcome is negative after costs. In contrast the average participant exposed to a priced risk can expect to earn a premium.
For this reason it is not smart to take on idiosyncratic risk unless you know that you have an advantage over the other participants –like for eg. Warren Buffett.
So active manager risk is not priced because it can be diversified away by investing in the index.
What you do get as you spread your investments over more and more active managers, is a portfolio which comes closer and closer to the market portfolio, so you simply end up paying high active manager fees for the index portfolio which you could access much more cheaply through an index fund.
If you decide to go for active management, you should do so because you believe that you have an advantage over other investors in identifying winning managers. Then you should stick to the manager so identified through thick and thin. Any attempts to diversify and chop and change simply means you pay the same amount for less active management.
Cius
Honorary Master
Guys, just a note. RA's are broken instruments in general no matter what company you go through. With the new legislation coming out next year allowing over 25% of your income to be put in a pension tax free so I suspect the RA industry will die after that law comes in as people rather pay a single management fee. Personally I am planning on stopping my RA with PPS and rather increasing my pension contributions as the fees structure of a good pension fund is much lower than that of RA's and RA's in general have many hidden costs and fees that make them almost impossible to compare. The Personal Finance magazine has some excellent writers and they recently tried to compare PPS and another companies RA's and their findings covered pages and in the end said that the fee structures where so obfuscated that it was almost impossible to compare them.
Overall I think its best to just put money in unit trust based pensions as of next March and suspend all RA payments at that point penalties or not.
Overall I think its best to just put money in unit trust based pensions as of next March and suspend all RA payments at that point penalties or not.
supersunbird
Honorary Master
I guess with index funds there are not really good or bad funds per se (higher fee being worse than lower fee of the same index though), just bad index performance. For example the Divi index of good dividend paying companies has performed poorly the past 2 years, while before that it had stellar performance.
supersunbird
Honorary Master
Will make more sense for ME to open a Sygnia RA with a 0.40% fee than my excellent and cheap 10x Provident Fund with a fee of 1% provided by my employer...
Sygnia offers a platform with many unit trusts. They have actively managed funds as well, some managed by themselves and some by other managers like Coronation.
I only give a blanket endorsement for their RA if you invest in their SYGNIA SKELETON BALANCED 70 FUND (management fee .4% VAT incl; no admin; no platform; no adviser fees) for investors under 45 (or those over 45 if they have assessed their levels of risk aversion).
http://www.sygnia.co.za/collective-...ia-Skeleton-Balanced-Fund_Fund-Fact-Sheet.pdf
I would steer clear of their actively managed funds, and completely avoid the funds managed by 3rd parties because of the costs involved.
Sygnia is a business, so don’t be naïve – they make a lot more money if they can sell active management. They will attract a lot of customers with their lowest cost claims, but many of those attracted will fail to read the fine print, and end up paying higher fees. The admin fees are exempted only if you invest in Sygnia funds – if you add a 3rd party fund you will pay an admin fee of .5% on it as well as .25% on the Sygnia funds in your RA.
Are they good funds? The Skeleton balanced 70 fund sure is. It is a passively managed index fund, which will closely track (within a few basis points before costs) the index performance of various asset classes. There are few issues in economics which are more settled than the superiority of passive management over active management. Research shows time and time again that over a typical retirement accumulation period (30 years or so) more than 90% of actively managed funds underperform their index after costs.
There is no guarantee that Allan Gray or Coronation’s funds will beat 90% of their opposition over the next 30 years, but it is a mathematical certainty that a low cost index fund like Sygnia’s will beat 90% of its actively managed peers.
If you don’t believe me, read this simple explanation written by nobel prize winning economist William Sharpe.
http://www.stanford.edu/~wfsharpe/art/active/active.htm
Passive management gives you peace of mind knowing that you are not exposed to uncompensated active management risk. At your stage in the investment cycle you should not be enriching insurance co’s, brokers and asset managers, whilst running the risk of underperformance. You should rather be concentrating on finding ways to save as much as possible. Once your retirement pot gets to 5 times gross annual income, and if you still feel out of your depth, you can pay a fee only adviser to check if your allocations and plan are sound.
No. From the 2015/16 tax year the distinction between RA's, pensions and provident funds will largely disappear from a tax perspective. Members of any of these funds will get a tax deduction for contributions made not exceeding 27.5% of taxable income. So the relevance of RA's will not be affected at all.
Remember many employees do not have access to pensions or provident funds because their employers don't belong to such funds.
The RA's I am endorsing are basically unit trust based pensions where the costs are completely transparent. I have analysed many pension funds, and I am yet to find one that is more transparent than management fee only unit trust RA's.
I agree that pension funds are generally much cheaper than the average RA- we are not talking about average RA's here though.
Anyone who has access to a pension fund which invests in the pooled portfolio funds managed by Allan Gray, Coronation or Foord are getting the best deal available as far as management fees go, but they may still get screwed on the admin side.
Cius
Honorary Master
Good to know. Thanks for the interesting info.
It is very disappointing.
If I understand correctly, members who invest with them get R120 for every R100000 invested allocated to their apportionment accounts, which translates to 0.12%.
Their admin fees for their own funds are .29%, and these funds are not cheap. (Balanced fund 1.71%).
For third party funds the admin fee depends on the discount given by that manager. eg for Allan Gray funds the admin fee is .63%.
So for active management it is better to go directly to Allan Gray or Coronation who charge no admin fee for their own funds.
They have 2 cheap Sanlam index funds (0.5% management fee) , but they charge a .74% admin fee on these, so not worth it.
If the apportionment at least matched the admin fees it would start getting attractive, especially if they expanded the range of index funds. Until then Sygnia is way better.
PPS is a better position to offer low cost investing than anyone else in this country. Vanguard, the pioneers of indexing are also mutualised.
It is a disgrace that Sygnia is streets ahead of them and testament that Mike Jackson their MD has not recovered from the disease called Old Mutual where his roots lie.
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I posted the following account of my personal PPS profit share account elsewhere. Thought it might be of interest.
PPS members pay for life and disability insurance and they are given shares in the company based on the particular insurance products they subscribe to.
Dividends are paid out of the profits earned by the company. All profits are distributed to the members.
These dividends accumulate every year in an account for the benefit of the member and are available tax free on retirement from age 60. Investment returns are earned on this account.
Over the 11 years 2003-2013 the annual average returns on my account was 18% per year (after tax). Compare this to the Allan Gray Balanced fund's 17.5% (before tax) return over the same period. This is a real after inflation return of 12% per year over the 11 year period I have been monitoring.
In 2013 my premiums totalled R22686 (of this R6700 is tax deductible saving me R2700 in tax) for the following:
Sickness benefit R17062 per month.
Permanent disability R54017 per month
Term life cover of R4425000
Disability lump sum cover of R1950000
On this I received dividends of R10485 ie. 46% of the premiums. If you include the investment return on my benefit account, the increase for the year far outstrips the premiums paid.
The dividend per share have been growing by about 6% per year over the last 11 years. In addition to this members are allocated more shares every year to compensate for the effect of inflation on the benefits.
If I put all this in a spreadsheet assuming real growth of 12% a year, my own PPS profit share account will amount to about 2.7M in today's purchasing power terms when I retire at 65. Not a bad bonus for someone who went to PPS to get life insurance, oblivious of the huge benefits of mutuality. I only wish I needed more insurance.
The 12% real return achieved over the last 11 years is not sustainable in my opinion. If I do the calculation using a more reasonable 5% estimate for the real return from now to my retirement date the value of the profit share account comes to R1M in today’s money.
PPS members pay for life and disability insurance and they are given shares in the company based on the particular insurance products they subscribe to.
Dividends are paid out of the profits earned by the company. All profits are distributed to the members.
These dividends accumulate every year in an account for the benefit of the member and are available tax free on retirement from age 60. Investment returns are earned on this account.
Over the 11 years 2003-2013 the annual average returns on my account was 18% per year (after tax). Compare this to the Allan Gray Balanced fund's 17.5% (before tax) return over the same period. This is a real after inflation return of 12% per year over the 11 year period I have been monitoring.
In 2013 my premiums totalled R22686 (of this R6700 is tax deductible saving me R2700 in tax) for the following:
Sickness benefit R17062 per month.
Permanent disability R54017 per month
Term life cover of R4425000
Disability lump sum cover of R1950000
On this I received dividends of R10485 ie. 46% of the premiums. If you include the investment return on my benefit account, the increase for the year far outstrips the premiums paid.
The dividend per share have been growing by about 6% per year over the last 11 years. In addition to this members are allocated more shares every year to compensate for the effect of inflation on the benefits.
If I put all this in a spreadsheet assuming real growth of 12% a year, my own PPS profit share account will amount to about 2.7M in today's purchasing power terms when I retire at 65. Not a bad bonus for someone who went to PPS to get life insurance, oblivious of the huge benefits of mutuality. I only wish I needed more insurance.
The 12% real return achieved over the last 11 years is not sustainable in my opinion. If I do the calculation using a more reasonable 5% estimate for the real return from now to my retirement date the value of the profit share account comes to R1M in today’s money.
A little late, but relevant none-the-less. Although PPS has a Profit Share Account, one must remember that if you're a member with them because you want risk cover, your sole objective should be affordable comprehensiveness.
With PPS's Permanent Incapacity Benefit (the most important aspect of a young professionals portfolio):
1) The client is assessed according PPS's Permanent Incapacity Assessment Benefit. Here, one either receives a pay-out of 20%, 60% or 100% of their income, depending on the outcome of the assessment. This should worry a researcher, because the assessment procedure is not highlighted on the website (not available to the public domain). If I were to be insured, I would like to know that I will get at least the legislated amount of 75%, irrespective of how serious my disability were to be.
2) One cannot make unrelated claims. This is very dangerous.
3) There are no defined payments under the listed impairment categories. Why would one even consider having an income protection policy that does not cover the insured for impairment when they these types of policies do exist and are extremely competitively priced.
4) There is no, for lack of a better word, catch-all benefit that many other insurers do have. If a claim does not fall under any of the listed definitions, the catch-all benefit ensures the pay-out still has a fighting chance by being assessed under said benefit.
Comprehensiveness is very important with long-term insurance (risk cover). Companies like PPS, I feel, pad the lack thereof with benefits in other area's, shifting the consumers attention to from the reason they're there, to a more colourful, but completely separate domain.
Just my 2 cents.
With PPS's Permanent Incapacity Benefit (the most important aspect of a young professionals portfolio):
1) The client is assessed according PPS's Permanent Incapacity Assessment Benefit. Here, one either receives a pay-out of 20%, 60% or 100% of their income, depending on the outcome of the assessment. This should worry a researcher, because the assessment procedure is not highlighted on the website (not available to the public domain). If I were to be insured, I would like to know that I will get at least the legislated amount of 75%, irrespective of how serious my disability were to be.
2) One cannot make unrelated claims. This is very dangerous.
3) There are no defined payments under the listed impairment categories. Why would one even consider having an income protection policy that does not cover the insured for impairment when they these types of policies do exist and are extremely competitively priced.
4) There is no, for lack of a better word, catch-all benefit that many other insurers do have. If a claim does not fall under any of the listed definitions, the catch-all benefit ensures the pay-out still has a fighting chance by being assessed under said benefit.
Comprehensiveness is very important with long-term insurance (risk cover). Companies like PPS, I feel, pad the lack thereof with benefits in other area's, shifting the consumers attention to from the reason they're there, to a more colourful, but completely separate domain.
Just my 2 cents.
Maverick154
Well-Known Member
- Joined
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Thanks for this, then I must ask, which company can be trusted and used? It seems like every company in some way is not great, so then where do we turn to get what we are "paying" for?
@PPS_Advisor
New Member
PPS is the best Financial Services company to be with if you qualify.
Fundamentally they will always have the best products at the best price because it is Mutual Company/Co-operative.
PPS is in fact the last largest Mutual Insurance Company left in South Africa and the largest multi-disciplinary group of graduate professionals in the world.
Members have exclusive ownership in the company and also have voting rights.
This means that the products will always be designed in the members best interest.
Additionally to collectively owning your own insurance company, as a qualifying member you get a share of the net profit of the company.
In the long run this Profit Share has resulted in many of my clients getting back more in their Profit Share Account than total premiums paid. All the while being covered by the most comprehensive insurance in South Africa, and one the best Sickness Covers in the world.
I am an accredited PPS advisor with years of experience in comparing PPS to competitor products and I encourage everyone to seek professional advice from trustworthy legally accountable people rather then opinion from general discussion on a forum.
A bit of clarification:
● On 1 October 2014 PPS Investments dropped their fee structures. This makes their administration fees equal to or cheaper than any other platform in South Africa that has access to third party Unit Trusts. Equal to Allan Gray, cheaper than Sygnia.
● The Profit Share from the PPS Investments products are low because the margin is low to keep fees low.
1) PPS's Permanent Incapacity Assessment Process is unique in the world to make sure it is the most comprehensive cover possible for the working professional. An appropriate award will be made to compensate for the loss of ability to perform usual
professional duties and generation of professional earnings. Feel free to contact me for the full Assessment Process.
2) One most definitely can make unrelated claims. I have personally helped process many unrelated claims.
3) PPS does not asses impairment conditions like any other provider that offers Income Protection because PPS has a unique assessment process that is more comprehensive and fair. It is a pure Sickness and Incapacity cover not just an Income Cover.
4) PPS does have a CatchAll benefit that can added which increases your cover beyond any listed benefit categories.
The members of PPS are not simply consumers, they are owners.
If you qualify for PPS the only decision you need to make is which PPS Advisor you are going to use as service does vary as it does in every industry. A good consultant will allow to bypass any servicing issues.
Only a mutual company will allow you to get more then you are "paying" for. A listed company creates products designed to make a profit from you and then pays that profit to external shareholders. PPS is designed to help, and the profit after that is yours.
I am happy to answer any questions.
TL;DR summary:
PPS is the best for risk cover, but the best and cheapest RA for early accumulators available in SA today is the Sygnia RA using the Skeleton 70 fund which will ensure that you enjoy a 15% richer retirement compared to the cheapest PPS option. It is a disgrace that a mutual society like PPS refuses to compete on costs with profit seeking businesses.
Long explanation:
I agree with your assessment of the risk products offered by PPS.
As far as investments go, I think your advice is biased and misleading.
You say PPS’s margins are low, but these margins are the same as Allan Gray for eg. whose founder became the richest man in SA (if he still lived here) on the back of those margins. Surely a mutualised entity should have much lower margins than a private company.
http://www.moneyweb.co.za/moneyweb-the-money-whisperer/85-billion-shades-of-gray
It is true that the PPS admin fees (0.57%) are now equal or lower than other platforms, but that only relates to third party funds. Allan Gray, Sygnia and Coronation do not charge an admin fee on their platform if you use their funds. PPS still charges the full admin fee even if investors use the PPS funds.
Earlier in this thread I explained that it is silly to diversify amongst active managers because active management risk is not priced. It therefore follows that investors who want to use actively managed funds are best advised to select a single active manager and stick with them through thick and thin. Anyone who does not possess the ‘talent’ to select the asset manager who will outperform the market in the future should stick to low cost index funds. So honest advice would be to invest in the asset manager of choice on their own platform where admin fees are zero. Saving 0.57% per year in admin fees will result in an approximately 15% higher pension.
You should not invest in the PPS active funds because you will pay a 0.57% admin fee which other active managers don’t charge on their platforms.
Sygnia offers the lowest cost RA in SA at present if you use their Skeleton fund range.
The Skeleton 70 fund for eg. has a TER of 0.45% pa with zero admin fees. So total cost for direct investors is 0.45% pa. This fund is ideal for those in the early accumulation stage of a retirement plan.
On the PPS platform the lowest cost RA with a similar risk profile to the Skeleton 70 fund would look like this:
50% Satrix top 40 index fund -TER 0.57%
10% Satrix Property index fund -TER 0.57%
25% Satrix MSCI world index fund -TER 0.57%
10% PPS flexible income fund -TER 0.63%
5% PPS enhanced yield fund -TER 0.29%
Total TER 0.56%
Add to this the admin fee of .57% and deduct the profit share of 0.12% and you get a total cost of 1.01% pa.
That is 0.56% higher than the Sygnia alternative. So you are throwing away 15% of your retirement with PPS.
The other advantage with Sygnia is that they rebalance the portfolio automatically to comply with reg. 28, the lowest cost PPS portfolio will have to be rebalanced manually. This means that most investors will not be able to go the direct route and save on advice costs, which will be another 0.5% at least. (and another 15% of your retirement gone.)
Sygnia also adjusts the portfolio based on a value informed algorithm, which is a scientifically proven way to enhance long term returns. Once again most investors will have to rely on their expensive advisers to do this for them using the lowest cost PPS portfolio, or they will have to use the more expensive PPS balanced fund (TER1.21%) which has unfortunately badly underperformed an appropriate benchmark since inception.
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@PPS_Advisor
New Member
Thank you for your excellent response. I am sure this conversation is very useful for investors.
PPS has been going for 74 years while PPS Investments was only started in 2007.
PPS Investments experienced massive growth and turned profitable after only 5 years.
PPSI currently have about R 14 billion total assets and the profitability will still increase.
I would rather have PPS match the lowest fees and give back profits to their members than charge the lowest fees with no profit share. PPS also run an open investment platform for non-members.
PPS Investments offer a selection of third party Unit Trusts and the PPS Multi-Manager funds.
If PPS decided to create their own in house managed "PPS Funds" then there might be the option to charge no admin fees on them.
I can only speak from my own experience in that there are many professionals who need a simple one stop platform to handle all their insurance and investments. PPS offers this solution and will continue to improve on this offering with input like yours above.
I believe that having a selection of low cost ETF's will be the next good development to offer.