Category Investments

SA retirement investors are getting a raw deal

06 April 2011 Steven Nathan, Chief Executive of 10X Investments
Steven Nathan, Chief Executive of 10X Investments

Steven Nathan, Chief Executive of 10X Investments

South Africa scored the second worst of 22 countries in the Morningstar Second Global Investor Experience Study which evaluates investor-friendly practices in fund markets worldwide. This comes as no surprise to Steven Nathan, Chief Executive of 10X Investments (pronounced tenex).

“The South African retirement investment market has a lot to answer for. It simply isn’t serving investors” says Nathan.

Morningstar, Inc., a leading provider of independent investment research, released the results of its second study that measures the experiences of mutual fund (unit trust) investors in 22 countries in North America, Europe, Asia, and Africa. Countries were evaluated in four categories: Regulation and Taxation, Disclosure, Fees and Expenses, and Sales and Media. The study helps investment companies, distributors, and regulatory bodies worldwide to focus on and enhance best practices for investors.

Morningstar’s evaluation identified the United States and Singapore as the best markets for fund investors based on such criteria as investor protection, transparency, fees, taxation, and investment distribution.

SA was included in the evaluation of investor experiences for the first time this year, together with Belgium, India, Norway, Sweden, and Thailand. SA scored at the bottom of the new countries evaluated, and second worst overall, with a C-.

Morningstar revealed that SA scored poorly for disclosure: “historical expense ratio information, detailed fees, trading costs, and portfolio holdings were generally lacking or difficult to obtain”. It further noted that “funds in South Africa rarely include an example of the impact of fees.”

“Simple, meaningful, easy-to-understand reporting is in short supply in SA. The industry’s reporting is incomplete and lacks transparency,” says Nathan. “Investors need to monitor the performance of their investment, be aware of the fees charged and the long-term impact fees have on their investment, and they are not getting any of this.”

The research also pointed out that SA is one of only two countries that permit the practice of directed brokerage, which can lead to high trading costs for funds. Alarmingly the Morningstar study notes that “sales incentives and sales contests are common in SA – thereby putting investors at risk of being put into funds that might not be right for them.”

Nathan says that it is these retirement industry practices that lead to high fees and inappropriate investment choices for the investor.

“These practices comprise hundreds of investment choices, active fund managers and commission driven brokers. All these add cost to the investment but do not increase the investment return. The result is low investor returns in an industry where fees are the most dependable indicator of a fund’s future performance. “On average in South Africa, aggregate fees reduce the real (after-inflation) investment return by approximately 75%,” says Nathan.

Nathan is passionate about changing this, using direct low-cost index investing. By doing so he may well be changing the face of retirement investing in South Africa, offering investors a higher return at lower risk.

10X has low fees – around half the industry average.

This is largely due to 10X’s simple and elegant index investment model. “Index funds beat most professional managers,” explains Nathan. “As the cost of indexing is lower than active management, on average it delivers a higher return than the active management which is prevalent in SA.” In fact, the 10X direct, index fund model would be most familiar to investors in the United States, the top-scoring country in the study.

10X provides corporate retirement investment to leading blue-chip companies including Deutsche Bank, I-Net Bridge, African Bank 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, allowing investors to extract the most out of their investment through low fees, age-appropriate portfolios and great service.

Each person is invested in an appropriate investment portfolio according to their age and retirement date. As the investor’s risk profile changes over time, they automatically pass through ten life-stage portfolios, to preserve a steadily increasing portion of their capital.

This makes it easy to invest directly with 10X. There are no brokers, so no broker fees.

Importantly 10X provides full transparency through simple, meaningful reporting and independent expert governance.

“We have tested and refined our reporting system to equip our investors to make informed choices. We provide them with the information that they need to invest responsibly, to plan for their retirement and, importantly, understand exactly what fees they are paying,” says Nathan.

“Our model may not be popular with the retirement industry in SA, but it addresses the industry problems which are so accurately identified in the Morningstar Global Investor Experience report: it cuts out the middle-man, reduces fees and delivers best practices to investors.”

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