Savings

I assume he means:

Month 1: R500 Contribution, Upfront Fee = R7.5, Total Value R 492.50, Annual Fee = R0.20
Month 2: R500 Contribution, Upfront Fee = R7.5, Total Value R 985.00, Annual Fee = R0.41
Month 3: R500 Contribution, Upfront Fee = R7.5, Total Value R 1,477.50 , Annual Fee = R0.61
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I am using a CFP, he is transferring my previous employers Pension Fund into a RA for me (lots of paper work and Old Mutual full of issues and stories), wanted 1.5% of the lump sum but I said 1% is allowable for the work, since I chose my own RA and the funds in it. I also don't see a very big need for an annual fee.
 
What exactly is the purpose of the annual fee?

CFP advises me I pay the upfront fee. Fine. Then I keep paying and in return I receive...?
 
Hendrix said:
Ohhhh, now I understand.
So CFP's get paid twice, once for any money going in and again on the total value of the portfolio, which will increase as the investment increases.
I shall keep the rest of my thoughts to myself...
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The upfront fee is there to serve to pay for the initial effort in handling the paper work, administration and effort required to set up the investment. A good financial planner seeing you on a regular basis and monitoring the investment is compensated for his/her time via the ongoing fee.

I assume he means:
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Yes, thanks for correcting me.

I am using a CFP, he is transferring my previous employers Pension Fund into a RA for me (lots of paper work and Old Mutual full of issues and stories), wanted 1.5% of the lump sum but I said 1% is allowable for the work, since I chose my own RA and the funds in it. I also don't see a very big need for an annual fee.
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Seems fair on the upfront, since you made the decision. If you his not charging a ongoing fee, then i believe its only far he is not expected to monitor the investment in the years ahead.

What exactly is the purpose of the annual fee?

CFP advises me I pay the upfront fee. Fine. Then I keep paying and in return I receive...?
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I refer you to the above comment on the difference between the fee's. But would also like to add that many people don't know, what they don't know. I will leave a link below that describes the difference between a normal financial adviser and a CFP. There are many, MANY factors to take into account when making not only investment decisions but insurance planning, estate planning, etc.

But I understand that the proof is in the pudding, and me just typing here wont convince anybody.

On a side note, would you find more value in a "expert" coaching you on the different aspects to look out for that i mentioned above as a once-off exercising then you make your financial decisions. As compared to paying a financial planner a relatively small ongoing fee to monitor it for you. The feeling i get is because people don't actually see the benefit/service the financial planners provide, like lets say a lawyer, they don't think the fee that is charge is justified. I would love to have your thoughts on this.

http://www.fpi.co.za/YourFinancialPlanning/tabid/3076/Default.aspx
 
Jozsef Borbely said:
As compared to paying a financial planner a relatively small ongoing fee to monitor it for you.
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You see thats the thing. I know from friends in the industry that many of these advisers are subject to commission structures that are solidly aimed at new sales. There is zero incentive to spend time on existing clients that are diligently paying. Its cynical I know, but I'd venture that for the most part absolutely nothing is done to earn that monthly fee. Undoubtedly there are exceptions of course - CFPs who stay in touch with clients and genuinely care etc. But if I pull a randoms CFPs name out of a hat...will I get one of those (imo) exceptions?

Hell just this week I was talking to someone who got talked into some RA by a major company. Years & years of zero communication. Eventually she contacted the company (not vice versa) just to find out what the hell that thing is worth (not much apparently).

Jozsef Borbely said:
On a side note, would you find more value in a "expert" coaching you on the different aspects to look out for that i mentioned above as a once-off exercising then you make your financial decisions.
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For myself - sure. Preferably one paid by the hour not based on % of products sold.
 
Jozsef Borbely said:
On a side note, would you find more value in a "expert" coaching you on the different aspects to look out for that i mentioned above as a once-off exercising then you make your financial decisions. As compared to paying a financial planner a relatively small ongoing fee to monitor it for you. The feeling i get is because people don't actually see the benefit/service the financial planners provide, like lets say a lawyer, they don't think the fee that is charge is justified. I would love to have your thoughts on this.
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Indeed I do not need monitoring, I am quite capable of logging onto Coronation or Allan Gray and monitoring it myself.

An issue in this field I think it that one does not see results quickly as with a doctor (can be very immediate) or lawyer (slightly longer timeframe). Retirement is a very long term event so how can one judge the result except at earliest after 5 years minimum? And life insurance is a grudge payment (like any insurance) and one either cannot see the results (cause you're dead) or its unlikely to happen, compared to say a car accident which you have short term insurance for. .
 
You see thats the thing. I know from friends in the industry that many of these advisers are subject to commission structures that are solidly aimed at new sales. There is zero incentive to spend time on existing clients that are diligently paying. Its cynical I know, but I'd venture that for the most part absolutely nothing is done to earn that monthly fee. Undoubtedly there are exceptions of course - CFPs who stay in touch with clients and genuinely care etc. But if I pull a randoms CFPs name out of a hat...will I get one of those (imo) exceptions?

Hell just this week I was talking to someone who got talked into some RA by a major company. Years & years of zero communication. Eventually she contacted the company (not vice versa) just to find out what the hell that thing is worth (not much apparently).
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You are exactly right. I keep on going on about the two different RA's but have a look at how the planner gets paid and you will see two things. A old style, life based RA pays a financial planner on a life basis, I wont go into the formula but for instance lets say a young person takes out one of those RAs on only R250. The planner in that case would receive about R2,000 in the beginning. This is crazy i know, and that R2,000 is amortized against the investment value over the term of the contract. On top of this you have almost not flexibility. You cant stop the R250 contribution because there will be a penalty, you cant transfer it either.

Now compare this too a new style flexible RA. This is where the upfront % and ongoing % comes is. with a 1.5% upfront fee on R250 comes to R3,75 compared too R2000. If a financial planner is willing rather take the R3.75 over the R2000 then it might give a indication that they have your best interest at heart.

There is zero incentive to spend time on existing clients that are diligently paying.
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The small ongoing fee doesn't seem like much in isolation. But if you have enough clients that you have excellent relationship with, a planner can earn a good annuitized revenue stream from this. Therefore its in the financial planners best interest to walk the road with a client.

If a planner uses the old life based RA's then yes there is almost no financial incentive to monitor the ongoing needs of the client.

For myself - sure. Preferably one paid by the hour not based on % of products sold.
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Im thinking more a eBook with videos, and excel spreadsheet calculators to do the complex calculations for you. Just thinking out loud. The problem with a hourly rate is that everyone is different, a complex concept might be quick for one person to understand, but difficult and time consuming for another. If its a "product" that a person can take their own time to go through, it might be more practical.
 
HavocXphere said:
Its cynical I know, but I'd venture that for the most part absolutely nothing is done to earn that monthly fee.
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Much like the maximum credit provider fee of R57. No way running a debit order and sending out a statement for vehicle finance (once a month) or home loan (once every three months) costs that much.
 
Very interesting info here. I use a CFP, they took the 1.5 form my initial investment and i pay the fee on my monthly contribution of R10 and my money still grows with at least R500 a day(had a few bad days) some days i saw a nice R4000 jump.
My money is divided between the below:
Coronation Balanced Defensive Fund (Class A) 155.03 94 050.1931 14.97%
Coronation Balanced Plus Fund (Class A) 7 839.53 1 527.0875 12.29%
Foord Balanced Fund (Class B2) 4 329.79 3 410.8995 15.16%
Nedgroup Investments Flexible Income Fund (Class A2) 1 455.82 7 431.4809 11.11%
Nedgroup Investments Rainmaker Fund (Class A) 9 208.24 1 052.8702 9.96%
Nedgroup Investments Stable Fund (Class C) 147.70 99 312.8290 15.06%
Prudential Dividend Maximiser Fund (Class A) 887.35 11 311.5552 10.31%
Prudential Equity Fund (Class A) 915.37 5 495.6923 5.17%
Prudential Inflation Plus Fund (Class X) 303.89 19 141.4274 5.97%

For someone like me who have no clue about investing, im quite happy to pay someone to help me, i dont even know if these are the best funds but they are working for me
 
Friedpet said:
True, But your role will influence where you save. The bread-winner will rather opt for RA's while the other person will rather go for savings accounts/investments, or not?
I say this because the other person might have a very low income.

In me and my wife's case, where we both earn about the same, we both have LI and RA.
If my wife was earning only a small salary, I'd have her rather make investments at a bank.

What is Satrix's minimum entry fee?
Allan Gray is R20 000 last time I checked.
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Well I would expect everyone to cater for themselves and each person to have an RA or be putting away enough of their own income towards some kind of savings.

If you are married it changes a little though, depending on how you are married of course.
 
SauRoNZA said:
Well I would expect everyone to cater for themselves and each person to have an RA or be putting away enough of their own income towards some kind of savings.

If you are married it changes a little though, depending on how you are married of course.
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The higher earner will benefit more from the tax benefits of contributing to a RA, and not have to worry about paying CGT and income tax on the investment. The lower earner will be in a lower tax bracket and thus have to pay lower tax. The lower earner can be the owner of the flexible investment / emergency fund. Then in the future they both live off the living annuity when they retire. Nice plan.
 
BizzTech said:
Very interesting info here. I use a CFP, they took the 1.5 form my initial investment and i pay the fee on my monthly contribution of R10 and my money still grows with at least R500 a day(had a few bad days) some days i saw a nice R4000 jump.
My money is divided between the below:
Coronation Balanced Defensive Fund (Class A) 155.03 94 050.1931 14.97%
Coronation Balanced Plus Fund (Class A) 7 839.53 1 527.0875 12.29%
Foord Balanced Fund (Class B2) 4 329.79 3 410.8995 15.16%
Nedgroup Investments Flexible Income Fund (Class A2) 1 455.82 7 431.4809 11.11%
Nedgroup Investments Rainmaker Fund (Class A) 9 208.24 1 052.8702 9.96%
Nedgroup Investments Stable Fund (Class C) 147.70 99 312.8290 15.06%
Prudential Dividend Maximiser Fund (Class A) 887.35 11 311.5552 10.31%
Prudential Equity Fund (Class A) 915.37 5 495.6923 5.17%
Prudential Inflation Plus Fund (Class X) 303.89 19 141.4274 5.97%

For someone like me who have no clue about investing, im quite happy to pay someone to help me, i dont even know if these are the best funds but they are working for me
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Those funds are all over the risk/return spectrum. But im glad your investing. Dont make the mistake of looking at the movements on a daily basis. Unit trust investing is not speculating on the stock market. Its a long term investment. 10years +
 
Jozsef Borbely said:
The higher earner will benefit more from the tax benefits of contributing to a RA, and not have to worry about paying CGT and income tax on the investment. The lower earner will be in a lower tax bracket and thus have to pay lower tax. The lower earner can be the owner of the flexible investment / emergency fund. Then in the future they both live off the living annuity when they retire. Nice plan.
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Higher earner still has a tax benefit limitation.

Also we don't know how much the salaries in question differ from another, they might only be a percentage value in difference and therefore both getting the tax break could be more beneficial.

I get what you are saying though, but without all the information an accurate assumption is impossible to make.
 
Jozsef Borbely said:
Those funds are all over the risk/return spectrum. But im glad your investing. Dont make the mistake of looking at the movements on a daily basis. Unit trust investing is not speculating on the stock market. Its a long term investment. 10years +
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Whats your opinion on them for interest sakes. look at the percentages on the right. total investment just over R1mil
 
BizzTech said:
Whats your opinion on them for interest sakes. look at the percentages on the right. total investment just over R1mil
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A nice way I find to explain the risk return relationship of investments if to compare it to a CPI+ benchmark. So for instance you have a prudential equity fund which i would consider a CPI+7% fund, so it should provide a real return above inflation of 7%. You also have Coronation balanced defense, with a CPI+ profile of CPI+3% combine them together and the portfolio as a whole has a CPI+ profile somewhere in the middle. Now do this will all the funds and and you would have a idea of where you stand. If you like a could do this for you, but it is a bit of a exercise. Send me a private message if you are interested.

I also discuss this in a eBook I give my clients. If you would like a copy all you have to do is sign up to my weekly newsletter on my website where i discuss topics like this and other matters in financial planning. If you dont want the weekly newsletters, sign up, get the eBook and then unsubcribe. Its quite easy.

The website is www.financespotlight.co.za
 
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