Retirement Annuities

[Verde]

All of you guys saying switch to "direct" options did you actually bail out your "old" RA options and take the knock?

Or did you just start new funds with Allan Gray etc?

Reason I ask is that I've got my pension fund from my previous employer sitting with Alexander Forbes under an Umbrella fund and I'm wondering if it's worth it bothering to move it over to Allan Gray.

Alexander Forbes are pissing me off with their management AND advice fees and the fact that recently they've assigned a fresh out of varsity girl to my account who has the business manners of a five year old.

I have never been caught in the old style RA trap. I opened my RA account with Allan Gray on the day they launched their RA's in 2002.

I assume your pension funds are in a preservation fund. I doubt if there will be penalties if you move. You should however carefully compare all costs and options between the AF and AG preservation funds.
I know that AF's admin is terrible, but as an institutional investor they have access to institutional funds managed by the top fund managers like AG, Coronation and Foord. The management fees charged on these funds are cheaper than the unit trusts you will get if you go direct.
I compared the performance of the AG balanced fund to the AG global balanced pooled portfolio for the 10 years 2002-2011 a few years ago, and found that the pooled fund outperformed the UT by .8% per year (18.2% vs 17.4% pa). I am pretty sure you can access the pooled AG fund through AF.
You will however not pay any other fees if you are a direct investor through AG. At AF you will be charged admin fees, and there may be other sneaky fees, so you will have to ask them for full disclosure of the fees charged on your fund. If these fees are less than .8% pa, you are probably better off staying with AF.
I think you should be able to opt out of paying adviser fees at AF if you ask them to remove your adviser. If you are forced to use the adviser then moving to a unit trust platform like AG or Coronation will probably save you money.

 

[^^vampire^^]

A bit disappointed with Sygnia, sent through my application form on Thursday morning and haven't heard a peep.

 

[Shayd]

A bit disappointed with Sygnia, sent through my application form on Thursday morning and haven't heard a peep.

You mean the service from a low cost provider isn't top notch. I'm shocked. You really should have considered Allan Gray.

 

[SauRoNZA]

I have never been caught in the old style RA trap. I opened my RA account with Allan Gray on the day they launched their RA's in 2002.

I assume your pension funds are in a preservation fund. I doubt if there will be penalties if you move. You should however carefully compare all costs and options between the AF and AG preservation funds.
I know that AF's admin is terrible, but as an institutional investor they have access to institutional funds managed by the top fund managers like AG, Coronation and Foord. The management fees charged on these funds are cheaper than the unit trusts you will get if you go direct.
I compared the performance of the AG balanced fund to the AG global balanced pooled portfolio for the 10 years 2002-2011 a few years ago, and found that the pooled fund outperformed the UT by .8% per year (18.2% vs 17.4% pa). I am pretty sure you can access the pooled AG fund through AF.
You will however not pay any other fees if you are a direct investor through AG. At AF you will be charged admin fees, and there may be other sneaky fees, so you will have to ask them for full disclosure of the fees charged on your fund. If these fees are less than .8% pa, you are probably better off staying with AF.
I think you should be able to opt out of paying adviser fees at AF if you ask them to remove your adviser. If you are forced to use the adviser then moving to a unit trust platform like AG or Coronation will probably save you money.

Yeah performance wise I'm actually quite happy with them having averaged in the region of 18% as you already states.

I just get pissed off with "advice" when they haven't don't any advising in five years and basically contact me once a year and I tell them to leave it as is as I'm still happy with the performance.

Management fees I can obviously understand.

 

[Analog Revenant]

Nonsense. With, Sygnia, Allan Gray, Coronation you can cut out the advice fees by going direct. It results in a massive saving over time- cutting out the useless adviser's fees can result in more than a 20% increase in your retirement pot.
These co's also don't charge platform and product fees, which could increase your retirement pot by another 10-15%.
Their fund management fees are also cheaper (especially Sygnia's) than Sanlam, Stanlib, Old Mutual, Momentum, Discovery, Investec etc.

Expect to enjoy a 40% richer retirement if you go the direct route using balanced funds than if you use the brokers flogging the insurance company products just because of the cost savings on advice, admin, product, platform and management fees.

Just an extra point, you can also go direct with Old Mutual Unit Trusts. This platform is also online and self service. No adviser's fees and the costs are relatively low.

 

[jambai]

Good advice.
Sygnia's RA is the cheapest on the market at the moment at 0.4% per year all in if you go direct and use the balanced index portfolio. You can expect this fund to outperform more than 90% of actively managed balanced portfolios over a 20 year investment period. 10% will outperform it though, and in a few cases the outperformance will be spectacular. There is however no reliable way to identify these funds in advance, so you are very likely to choose one of the 90% laggards.

read this advice again.Dont waste your time with financial advisors.They know a little bit about all the products but they cant predict which funds are going to outperform .Tracker funds are way forward...

 

[^^vampire^^]

You mean the service from a low cost provider isn't top notch. I'm shocked. You really should have considered Allan Gray.

Already have an RA with Allan Gray thanks.

EDIT: The confirmation e-mail never got to my mailbox but everything was setup.

 

[Maverick154]

Does anyone here know the difference between (A), (B), (B4) etc funds? I see that some funds have multiple designations and I am just curious as to what they mean?

What I have read is that is has to do with the fees that are paid, (A) for example has a front or rear end load fee? Just wonder if someone has a great way of explaining exactly what they mean and which ones are typically the best to go for?

 

[Maverick154]

Another question I have, do you guys invest in balanced funds or do you make up your own mix? Please share what you invest in if it is something other than a balanced fund and why you chose what you did?

Thanks!

 

[Verde]

Another question I have, do you guys invest in balanced funds or do you make up your own mix? Please share what you invest in if it is something other than a balanced fund and why you chose what you did?

Thanks!

If you think you have better info/insights on macro-economic shifts than the fund managers at Allan Gray or Coronation then you should do your own allocations. I think fewer than 1 in 10000 (I am one of the 9999) investors can lay claim to such skills.

You can however use index funds to copy what an asset manager with a good asset allocation track record does. They reveal their allocations on a monthly basis.

 

[Verde]

Yes different fees. Fees charged can either be paid directly by the fund, thereby reducing the value per unit, or it can be recovered by selling units, or a combination.

See fund fact sheets for explanation of fees paid directly by a fund which in effect reduces the value of the units. You must identify the correct fund fact sheet for the class (A,B etc) you are interested in.

Other fees recovered by selling units can be indentified by looking at the product brochure.

 

[Gaz{M}]

1) Please simplify something for me: Is it best to open an account with each UT/RA or investment platform separately and have all of them?

e.g I should have an Alan Gray, Coronation, etfsa and xxx Bank Share Account and deposit money into each of these as and when I wish to buy various products? Rather than going with only 1 or 2 platforms and then buying other FSP's products via these.

2) Is it easy enough to do your tax return with multiple investment platforms - ie: they all give you summarised tax forms to copy to your efiling? Specifically when it comes to RA tax deductions.

 

[Verde]

1) Please simplify something for me: Is it best to open an account with each UT/RA or investment platform separately and have all of them?

e.g I should have an Alan Gray, Coronation, etfsa and xxx Bank Share Account and deposit money into each of these as and when I wish to buy various products? Rather than going with only 1 or 2 platforms and then buying other FSP's products via these.

2) Is it easy enough to do your tax return with multiple investment platforms - ie: they all give you summarised tax forms to copy to your efiling? Specifically when it comes to RA tax deductions.

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.

 

[Shayd]

Good answer Verde. In my experience as a financial planner, the clients who did the best were the ones who invested through a low cost product like the Allan Gray retirement annuity into their balanced fund and then just updated their premium as their income changed.

Too many people confuse investing with trading and think that you should be moving your investments around on a regular basis.

 

[Gaz{M}]

Good answers, thanks.

I don't mean trading and chopping and changing around between multiple platforms. What I am suggesting is to buy both AG and Coronation Balanced Funds and Equity Funds and keep them long term. Then sprinkle on a Top40 ETF. That way, you would benefit from whoever did better in that particular year and at the same time, you aren't losing out by changing providers. Yes, it would mean that your performance might not be as good as going with just one provider, but then again you also would not miss out of a good year by either provider. The ETF would be a baseline, low cost backup.

How could you ever decide between AG and C and then live with your choice forever?

 

[Maverick154]

Does anyone know whether managing your own RA through Coronation for example, has a tax benefit? I know that if you go through a insurance company you get a tax certificate for your RA, is this the same if you go direct?

 

[BloodBurner9000]

What an awesome response - thanks for sharing your insights.

 

[BloodBurner9000]

Does anyone know whether managing your own RA through Coronation for example, has a tax benefit? I know that if you go through a insurance company you get a tax certificate for your RA, is this the same if you go direct?

Yes, it is exactly the same.

I have initialized my own RA through Allan Gray - you get to choose/compose your own portfolio, but I found it difficult to get it compliant so opted for the balanced fund, everything was done online with little effort - and expect to be able to get the tax certificate soon.

 

[Maverick154]

So I have another question and I was asking about this a while back but now I have some figures that everyone can look at and give their opinion. So Sanlam has a product called the Cumulus Echo which works on a giving back structure, so the more payments you make over the years the more you get back as a lump sum at retirement. If you skip payments, you just get less of a bonus.

Now here is my question, as you can see from the image the total fees on this product is 2.4%. So they invest the contributions 4 ways into the Coronation Balanced Fund, Allan Gray Balanced, SIM Balanced and the Investec Managed Fund. So I know this is higher than investing in those 4 individually but the difference in fees is really not that much given that this product will have a 2.4% TER.

So I would like to know if you guys think it is wise to make use of this product or take a knock and move away from Sanlam, my dilemma is found at this post http://mybroadband.co.za/vb/showthread.php/606310-Sanlam-To-cancel-or-not-to-cancel (it explains the entire situation).

I feel that this product is not bad at all, but given that this is Sanlam, I am never sure what the best option is.

Thanks in advance.

 

[ld13]

Going to need a wee bit of a bigger picture...