SA’s investment fees are high compared to abroad

Few South African clients are aware of the fees they are paying on investment products and are shocked when they discover how high they are relative to offshore offerings, according to Mike Abbott, head of London-based Sable Wealth.

Apart from the fees or commission charged by their financial adviser – which have to be disclosed in terms of the Financial Advisory and Intermediary Services (FAIS) Act – there is a general lack of awareness among South African investors of the more opaque product and platform fees, Abbott told journalists in Johannesburg this week.

He said that fees in the UK, taking into account adviser and platform costs, tended to be half of what they are in South Africa, where most investors are highly exposed to the JSE’s All Share Index (Alsi) even though it represents just 1% of global markets. “This is not a healthy market to have all your exposure to. Everyone should have fully diversified portfolios,” he maintained.

Abbott said that the Retail Distribution Review (RDR) would force transparency on product providers, making it easier for customers to compare costs and leading to a “price war”.

With roots helping newly resident South Africans manage their wealth in the UK, Sable Group offers a range of client services, including tax planning, citizenship by investment programmes, forex and wealth management.

Implemented in the UK at the beginning of 2013, RDR has forced “product sellers” to either professionalise or risk being swallowed up by DIY investment tools, such asrobo-advisers, Abbott said.

“There was a massive reduction in advice from big national private banks, who have now scaled down to focus on high net worth individuals,” Abbott added.

Promising sweeping changes to the way that financial products are distributed in South Africa, RDR will do away with upfront commission on the sale of investment products, driving the change towards fee-based financial advice.

It will also require that financial advisers write product exams and disclose whether they are independent or tied to one product provider (or a handful of product providers).

According to Abbott, RDR has professionalised the financial advice industry in the UK, but has also created something of an advice gap for consumers who cannot afford to pay a fee for financial advice or are not willing to.

This was particularly true for individuals nearing or in retirement, who need help managing volatile and overvalued markets with low yields, Abbott said.

In order to retain customers in a post-RDR world, Abbott said that traditional financial services firms will have to offer products to clients across multi-channels, servicing both those who are willing to pay for a financial adviser and those who prefer lower cost, DIY options such as robo-advisers.

RDR is set for implementation at the end of next year and forms part of South Africa’s shift to a Twin Peaks regulatory system.

In his Medium-term Budget Policy Statement (MTBPS) on Wednesday, Finance Minister Nhlanla Nene said that the Twin Peaks Bill has been certified by state law advisers and will be tabled next week.

Source: Moneyweb