: Fees Gobble Down South Africans’ Retirement Investments
Recent Gauteng Business News
Steven Nathan, Chief Executive of 10X Investments (pronounced tenex) explains that studies demonstrate a direct correlation between how expensive a fund is and how well it performs. He points to a report from Morningstar issued last year which found that over every single time period tested, low-cost funds beat more expensive funds.
Research completed by Lipper in April 2011 also tips fees as the most likely cause for Global equity funds in the US returning 32% more to investors over the past 15 years than similar products in the UK.
Nathan explains that US private investors are far more cost conscious than investors in the UK and SA. “By being cost aware, US investors are getting a better deal,” points out Nathan.
“It’s time that SA investors did the same,” says Nathan.
94% of South Africans are estimated to have inadequate financial resources at retirement.
On average in South Africa, Nathan explains, aggregate fees reduce the real, or after-inflation, investment return by approximately 75%.
“Traditionally SA retirement investors have paid more attention to investment options and focussed less on fees, to their own detriment,” Nathan explains.
However, the traditional retirement investment environment in South Africa encourages exactly this, according to Nathan. Hundreds of investment choices, active fund managers and commission driven brokers all add cost to the investment, but do not increase the return.
“The higher the fees, the lower the investor returns – no matter what the investment choices. It’s that simple,” says Nathan.
Independent boards of directors have a major impact on achieving lower fees according to the Lipper study. US mutual funds are required to have a majority of independent board directors who have the task of keeping fees down. In the UK, directors of unit trusts are employees of the fund management company.
SA is very similar to the UK as most boards of trustees are not independent of the investment manager
“Without independent boards, the fund management company is player and referee and this creates a conflict between serving the interest of investors versus the company’s interests,” says Nathan. “In this case, the company’s s interest wins and investors suffer by paying higher fees,”
The good news is that South African investors now have access to lower-cost retirement investment. 10X has low fees – around half the industry average.
10X provides corporate retirement investment to leading blue-chip companies including Deutsche Bank, African Bank, EOH, I-Net Bridge and Macquarie. In 2011 it introduced a solution to the retirement industry problem for individual investors.
The 10X RA is an innovative direct retirement investment that ensures investors are always risk-appropriately invested, thus obviating the need for brokers and broker commissions. It allows investors to extract the most out of their investment by using low-cost index investing which offers investors a higher return at lower risk. 10X is different as 10X Funds are independently controlled and thus have a strong focus on the investors’ interest and hence low fees.
With the introduction of the 10X RA for private investors, Nathan is determined to introduce a whole new ‘cost-aware’ mindset to retirement investing in SA.
In fact, the 10X direct, index fund model would be most familiar to the cost-aware private investors in the US.
The US-founded Vanguard Group, Inc. pioneered index funds for individual investors and has more than three decades of indexing experience. It is now one of the two largest mutual fund organizations in the world.
“Vigilance in lowering fund fees in South Africa and making every basis point count is essential,” says Nathan. “Investors in the US already know this and it benefits them greatly. Its time SA investors take this lesson to heart too.”
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