MONEY CLINIC | Can we invest our retirement annuity without a broker, and negotiate fees charged?

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Couple going over their finances together at home
Couple going over their finances together at home
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A Fin24 reader looking to invest in a living annuity, was shocked to find that she would have to pay fees of up to R110 000 per annum. She wants to know if there are other options.

She writes:

My husband is a 60-year-old government employee and opted to resign from the GEPF instead of remaining in the fund, because we have two children that are studying at university and even though the pension fund monthly annuity payout is a lot, if something happens and he dies, I as his spouse will only get half the payout.

My health is not good, so if I pass away my children will get nothing, not a single cent, and all his pension goes back into the government kitty, which is grossly unfair. So we opted to invest in a Living Annuity, which is what all the people we consulted recommended to us. But imagine my shock when I asked the broker after a few visits from him what his fees were and if he could give us a breakdown of all the fees we would be paying. The amount was nearly R110 000 per annum, which is over a million rand in 10 years’ time. In all of our working like we were never able to save this amount and now we must pay this over to a broker and insurance company.

What I want to know is can we invest our own money without a broker and can we negotiate the Admin, Investment and Management fees with the insurance companies? For us this is clearly daylight robbery of our hard-earned money.

Andre Tuck, Senior Investment Consultant at 10X Investments, responds:

You can most definitely invest your hard-earned money directly with an approved provider. You can transfer your Living Annuity from one provider to another; this is called a Section 37 transfer. With some providers – such as 10X Investments – you can invest directly and avoid paying adviser fees. Other providers (especially the life insurance companies) make it compulsory to use an adviser.

If you do not have an adviser, one will be appointed on your behalf, and you will pay for that service, whether you use it or not. Yes, of course, you should negotiate your fees. It is, after all, your retirement savings. The problem is that there are often various layers of fees and it can be difficult to know what you are paying for what. The average South African is paying around 3% pa in total investment fees. Let me break that down into the type of fees you are probably being charged (as well as VAT on top of that): 1. Investment management

This annual fee (charged monthly), based on your investment value, is paid to the fund manager for investment and portfolio management services. The typical industry fee is 1.5%.

2. Administration and platform fees

This fee is charged against the value of your fund to cover the expenses of administering the fund and to cover your provider’s distribution costs. The typical industry fee is 0.5% for administration and platform fees.

3. Advisor Fees 

This fee is what you pay for the advice and input of your financial advisor, typically charged at 0.75%. Complexity when investing your hard-earned savings can be intimidating and confusing. It is worth noting that the investment industry did not create advisors to support its complexity; it created complexity to support advisors and, by extension, the distribution of its products.

Making investing seem overly complicated forces investors to consult an expert, to help with their selection. You are right not to want to incur advice fees that are product commissions in disguise. Such fees are guaranteed to add to your cost with no guarantee they will add to your return. Take charge of your own investment affairs. Pay for advice only when it is likely to improve your outcome by managing the factors that are under your control: your investment strategy, your fees and your emotions.

It has never been easier to avoid the industry’s "advice" fees eating up your return. And it’s never been easier to invest in an effective, sensible, low-cost manner. It is on you to take advantage. 

Questions may be edited for brevity and clarity.

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