Easy Equities has taken flak online after making its “Thrive” loyalty programme compulsory and announcing that customers below a certain rewards level would be charged R25 per month.
What was once a voluntary rewards program is now mandatory for all EasyEquities users from the end of November.
To avoid paying the R25 monthly fee, customers must reach Thrive Level 3. Users younger than 21 and older than 65 will also be exempt.
Customers complained that the new fee is nothing more than a regressive platform fee that disproportionately hurts those with smaller portfolios.
However, the detail that drew the heaviest backlash was that the Purple Group-owned investment platform would sell people’s stocks to cover the Thrive fee.
“When an investment platform decides to introduce new fees and start selling your stocks to cover them,” one user tweeted.
“Plus, I can’t find the mail informing me of any of this.”
Several users echoed the complaint that they only learned about the change on social media.
Customers also raised questions about whether Easy Equities would sell assets from people’s Tax-Free Savings accounts to cover the fee.
This would be a major problem, as the rules governing Tax-Free Savings accounts in South Africa essentially stipulate that you can’t put money back after taking it out.
However, Purple Group chief marketing officer Carel Nolte assured they wouldn’t touch Tax-Free Savings accounts.
Nolte explained that the purpose of the Thrive programme was to encourage healthy financial habits and education.
“There are many ways to avoid the R25 Thrive fee, and the intention is that as few as possible people pay,” he stated.
“Prior to any charges, users will be alerted to the possibilities and ways to prevent the fee.”
He also outlined the process Easy Equities will follow to collect the R25 per month fee:
- If user is charged a fee, it will be collected from free cash
- If no cash is available, every six months, it will collect the fee by selling user holdings
“The first collection is February 2024, and we will have a system in place where users can change what gets sold,” he explained.
“To repeat, we will work hard with users for this to be the exception, not the rule.”
Looking at the Thrive Rewards page on Easy Equities’ website, the easiest way to hit level 3 is to deposit more than you withdraw.
Another option is to refer at least one person to the platform every month.
Customers can also earn a rewards level each for investing on multiple Easy-branded platforms, using other Easy products, donating to charity while buying or selling stocks, and completing monthly lectures at the EasyEquities Academy.
Purple Group financial situation
The introduction of a monthly fee for EasyEquities users is unsurprising considering its parent company Purple Group’s recent financial results.
Its results for the six months ended 28 February 2023 revealed that its operating expenses increased significantly faster than its revenue.
The standout figure was a net loss of R10.6 million over the reporting period, a negative swing from the previous net profit of R17.7 million.
Purple Group’s operating costs, including depreciation and amortization, increased by R64 million, while company revenue only increased by R9 million.
Therefore, the company’s incremental revenue increases were met by seven times higher operating expenses.
The Purple Group share price has also been under pressure, losing 80% in value since its peak in January 2022.
Despite the decline, Purple Group still trades at a price-to-earnings (P/E) ratio of 58, much higher than other fintech and financial companies.
Its price-to-sales (P/S) and price-to-book (P/B) values are also much higher than most of its peers.
The R25 monthly fee will help the company to increase revenue and earnings, considering EasyEquities has 850,000 active account holders.
With customer equity of R42 billion, many people speculated that it would have been easier to introduce a 0.5% platform fee.
Such a platform fee, which is charged by many other investment platforms, would have generated an additional R210 million for the company.
However, it is not clear what regulatory and consumer protection requirements are associated with introducing a platform fee when users did not initially agree to it.
MyBroadband asked why Easy Equities elected to implement a flat R25 per month charge rather than a percentage-based platform fee.
“We have always veered away from a platform fee (also no minimums) and do not want to charge the Thrive fee,” Nolte stated.
“The aim is to get more users to join the thousands who already exhibit great financial discipline; consistent deposits (any amount), education, etc.,” he said
“If users do not Thrive, the R25 is a nominal amount for the immense value users get for local and foreign equity, ETFs, crypto, property, etc.”
R25 per month can crush investment returns
Although R25 per month may not sound like much, it can have a tremendously detrimental effect on small investments over the long term.
To illustrate the effect of a R25 monthly fee, Daily Investor compared two hypothetical R5,000 investments over ten years.
The first investor used the previous EasyEquities service with no fees. The second investor is on the new system EasyEquities service with a mandatory Thrive subscription.
This investment comparison simulates a buy-and-hold strategy over ten years with no additional investments. This strategy would trigger the R25 fee every month.
We used the popular Satrix JSE Top 40 as an investment for the ten years — from 2013 to 2023.
The investment on the original EasyEquities platform without fees would have grown to R8,971.25 — a 79% total return.
The investment with the new Thrive membership would have decreased to R4,774.07 — a 4.5% loss over the ten-year investment period.
The charts below show the growth of the Satrix JSE Top 40 investment on the old EasyEquities platform and the new Thrive model with a R25 monthly fee.