Edition: June / Aug 2017
Editorials

INVESTMENT CHARGES

Fee, fi, fo . . .

In the contested umbrella-fund industry,
cost comparisons really shouldn’t be complex for readers
of product providers’ marketing material.

At present there isn’t a harmonious relationship between Sygnia and TT. Apart from the angry reaction of Sygnia chief executive Magda Wierzycka to views expressed in one article (see previous page), she has also responded irately to another.

The latter is where John Anderson, then a Sygnia executive (he’s subsequently returned to Alexander Forbes) answered questions on Sygnia’s fees particularly related to its advertised claim of 0,4% annually for certain funds in its ‘Skeleton’ range and on the actual charges for the Sygnia Umbrella Retirement Fund known as SURF (TT March-May).

Wierzycka says that this article, “quoting our competitors whose financial interests we have seriously threatened upfront, with an explanation by us buried deep in the article”, was an example of how comments about Sygnia lacked objectivity and were unfairly represented.

It’s easy to access the article and come to one’s own conclusion. Yet the acrimony reached a higher pitch when, wanting to follow up on this article, TT put certain questions to Wierzycka:

  • What proportion of the SURF overall assets are invested in the Sygnia Skeleton Range (passive) without hedge funds?
  • What proportion of the SURF overall assets are invested in the Sygnia Skeleton Range (passive) with hedge funds?
  • What proportion of the SURF overall assets are invested in the Sygnia Signature Range (active) with hedge funds?

The purpose was to get an idea of the volumes in Sygnia’s assets under management respectively being charged total fees at 0,4%. Further confusion arises in that, whereas Sygnia’s extensive media advertising had proclaimed that its Skeleton funds are “offered at 0,4% pa”, a September 2016 circular to investors showed that the 0,4% applied only to the base investment management fee. For four Skeleton funds in the life portfolio, as opposed to the unit trusts, it showed total expense ratios all higher than 1%.

An additional question was on the total expense ratio on the Sygnia Fund of Hedge Funds. This is one of the funds that, according to an actuary’s calculation, could have total fees of over 5% and possibly even up to 8%.

For bullet-proof
confidence on
how Sygnia stacks
up, there are two
industry bodies
able to undertake
independent
research and
produce objective
findings.

Wierzycka replied: “Please ensure that if you decide to once again write about Sygnia or SURF, you make it clear that Sygnia has had no input into your article and hence you cannot vouch for the accuracy of what you are publishing.”

Okay then. Done.

Obscurity appears to be at odds with transparency in trying to pick through the Sygnia funds’ fact sheets. In some, for example three Skeleton funds as at end-March, there is no published disclosure of fees; instead, it’s stated that the information will be provided on request. In some others, there’s more than one actuary who finds it challenging to look through the effects of allocations to Sygnia’s in-house hedge funds.

If Wierzycka can be meticulous in analysing the costs and claims of her targets – she’s certainly prolific in her ‘Daily Maverick’ series – then she might expect that similarly-qualified professionals would want to take a closer look at Sygnia’s own costs and claims too.

For bullet-proof confidence on how Sygnia stacks up, there are two industry bodies able to undertake independent research and produce objective findings. All they need do is compare the marketing claims against the full gamut of fees actually charged, and perhaps also come to a view on whether the disclosure that “a schedule of fees and charges is available on request” is adequate for their requirements.

One body is the Financial Services Board. Leanne Jackson, who heads the ‘Treating Customers Fairly’ initiative at the FSB, comments:

ANOTHER DISRUPTER

Large life offices dominate the market for commercial umbrella funds. Asset manager Allan Gray looks set to become the major competitor to Sygnia in the non-life space, and clearly to take on the life offices too.

Late last year, in early presentations of its umbrella fund, Allan Gray talked of being a “disrupter”. Everybody in the industry, it appears, is these days initiating or adapting to the “disruption” of advances in technology.

Now rolling out its umbrella fund, Allan Gray is laying down the gauntlet in terms of high costs and opaque pricing. Fees disclosure, it says, is critical but cost comparisons are complex in the area of group retirement savings: “Retirement savings should not be complicated at all. The service offered is very standardised and price and value-for-money should be easy to compare.”

A differentiator at Allan Gray is claimed to be no built-in risk benefits and no hidden costs, for instance on marketing. It will rely on its “trusted brand” to build scale.

Among the six desired TCF Outcomes are those providing that “Customers are provided with clear information and kept appropriately informed before, during and after the point of sale” and that “Products perform as firms have led customers to expect”. In the investment space, achievement of these outcomes requires disclosure of product costs and the impact of such costs and investment returns to be clearly, accurately and meaningfully disclosed.

The TCF principles are further underpinned by a number of specific rules-based provisions, including detailed cost-disclosure requirements under the Financial Advisory & Intermediary Services Act (FAIS) and the Collective Investment Schemes Control Act. FAIS also includes requirements to ensure that any comparisons between products or providers are fair and accurate. There is also a process underway (where) disclosure standards are a particular focus area.

Whether the relevant TCF principles and/or current specific disclosure rules have been breached in the case you have highlighted, would of course need to be based on a specific investigation.

The other body is the Association of Savings & Investment SA of which Sygnia is a member. ASISA senior policy advisor Taryn Hirsch comments:

While ASISA cannot force members to comply with the ASISA standards, they are standards of good practice and all ASISA members undertake to comply with them.

The ASISA standards are developed and put together with the regulator’s knowledge and support. In particular, the standards have been framed with the regulator’s ‘Treating Customers Fairly’ initiatives in mind. Although we cannot enforce compliance as such, members face considerable industry pressure and reputational risk by not complying. The savings and investment industry is highly competitive, and competitors keep a close eye on each other’s practices.

To ensure meaningful cost disclosure to clients, last year ASISA introduced the Effective Annual Cost (EAC) standard. This standard facilitates a standardised approach to cost disclosure by product providers that consumers and advisors can use to compare charges in a meaningful way irrespective of whether the product is a unit trust, a living annuity, a retirement annuity or an endowment policy.

Consumers are therefore entitled to request the EAC disclosure from companies when deciding where, and in what products, to invest. The EAC standard outlines the recourse that advisors and/or clients have should they have reason to believe that the calculations used by an ASISA member company, in determining the EAC contained in the quote, were not correct.

The to-and-fro between Sygnia and TT is best left for FSB and ASISA interventions.