Does member investment choice add value?

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PICTURE GOES HERE

PICTURE GOES HERE

PICTURE GOES HERE

QUESTION: WHY DO YOU OFFER MEMBER CHOICE ON YOUR FUND?

•Peer pressure (competing with other Funds)•Member demographics (one size does not fit all)•It’s the right thing to do•Under performance “come back” strategy

Introduction

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Member 1: First fulltime job

•Employment contract stipulates membership of a retirement fund•Induction pack: Administrator, risk provider and investment choices

•Life stage model (Active/passive or a combination)•Single manager (Balanced funds, Absolute return funds)•Capital guaranteed fund and if you do not choose, you will default to life stage model

Practical examples

40 year investment horizon

Member 2:working for last 10 years, changes job /career

Member 1:1st job

Member 3: 25 years service, limited choice

• How do I know what to choose?• Let me ask a colleague/spouse/HR?• Who was the best performing fund manager last year?• I just don’t know – it is not important right now• Default life stage option

MEMBERS THOUGHT PROCESS

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Member 2: 10 years

•Exit process•Exit pack with a number of brochures and options•Transfer, preserve or take money in cash

•Member decides to preserve with Service provider A and the platform offers 700 portfolio options

•Members thought process:•How or who should I investment my money with?•Past performance•Have more than one manager - diversification

Practical examples

40 year investment horizon

Member 2:working for last 10 years, changes job /career

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•2 recent examples

•Member takes out RA•12 different underlying asset manager portfolios•Ave cost 2.63%

•Take the choice element out, reduces the cost by more than half without compromising on performance

•Member preserves•Chooses platform A (exit pack)•Invest money in two single manager balanced funds•Why? Good brand names, should be safe, recommendations from friends, advertising (pot of gold at the end of the rainbow)

•Remove choice and associated cost and member can retire with R800 000 more!

Practical examples

40 year investment horizon

Member 2:working for last 10 years, changes job /career

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•New employer•Repeat previous process, employment contract, induction pack

•Agree – member should by now know what to do?

•Member of an umbrella fund•200 investment options•Default option•Or else contact the appointed consultant/advisor for advice

•Member thought process•Same portfolio as before?•Do I need to pay for the advice or where to invest?•What is the difference between all these portfolio options?•Who was the best performing manager last year?•I still don’t know – too confusing – default

Practical examples

40 year investment horizon

Member 2:working for last 10 years, changes job /career

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Member 3: 25 years

•Member of retirement fund and the fund offers 3 portfolios

•Aggressive, Moderate and Conservative•Member chooses to have 50% in Aggressive and 50% in the Conservative portfolio•Diversification•Cant have all your eggs in one basket

•End Result?•Moderate investment portfolio, twice the costs

Practical examples

40 year investment horizon

Member 3: 25 years service, limited choice

In all 3 scenarios member will not reach retirement objective

Basic investment principles have been ignored and confused by overwhelming choices

1.Time period of investment2.Mandate of portfolio options3.Cost associated

Conclusion

1. 85% of members in default option2. Direct and indirect cost implications - lack of transparency3. Recent article in Personal Finance – at 35, member can pay as much as 45% of total fees to the asset

managers and as much as 82% 30 years later!

So the question is: If an asset manager/platform has conviction about his/her investment philosophy then surely he/she should have one, maximum 2 portfolio options?

Play video: Only 1% of fund managers outperform or can we trust the investment industry?

Conclusion

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Thank you