Investment choices: Platform investing versus direct unit trust investing
Financial advisors play a crucial role in encouraging people to save and in advising clients regarding the investment vehicle. Very often this decision comes down to a choice between investing directly into a unit trust fund or investing into a fund via a LISP or life company investment platform.
A recent report by Old Mutual on Household Savings in South Africa indicated that between 1995 and 2007, the gross savings rate declined from almost 4.5% to less than 2%. Considering the rate of growth in household revenue over this period, that represents a real decline of 3.4% annually.
Financial advisors not only play a crucial role in addressing this savings challenge, but also in providing best advice regarding the investment vehicle. When deciding whether to invest via a platform or directly via a unit trust company, there are several considerations.
Cost
Cost is always an important consideration. It will generally be cheaper to invest into a particular fund when doing so directly via the relevant unit trust company. However, the cost difference is often only marginal, particularly when investing into a platform company's own funds. Considering the additional advantages of investing via a platform rather than directly, this option offers good value for money and may be more suitable to an individual investor.
Wider fund choice
Investing via a platform usually provides access to a wide range of funds – both funds managed by the platform company's own asset managers and funds managed by other asset managers. This means that a range of investment funds can be combined into a single plan, rather than using multiple plans from different unit trust companies. In addition, many platforms provide access to life company funds and a range of guarantee options not normally available when investing directly via a unit trust company.
Diversification of management styles
Many investors find value in combining the funds of multiple asset managers in a platform investment in that they combine the philosophies and investment styles of different asset managers in a single solution. This advantage may be viewed similarly to that provided by investing into a multi-managed fund, but there is no fee for the service of a multi-manager in blending the funds.
Ease of administration
Combining multiple funds from multiple asset managers into a single investment plan allows for much simpler administration for both a client and the financial advisor. The platform will provide consolidated reporting, often available online, and a single point of servicing access, whereas investing via a range of unit trust companies comes does not bring any of this administrative consolidation.
Flexibility and additional features
Investment plans provided by platforms generally come with elements of flexibility and a range of features not available when investing via a unit trust company. Clients are able to switch easily between funds from different asset managers, without the need to disinvest into their bank accounts first.
Platforms provided by life companies also often allow investors to add premium protection benefits – meaning that future savings contributions will be paid if the client becomes disabled or dies.
As with all financial decisions, it is important to understand the individual circumstances of the investor and then to consider whether the advantages that investing via a LISP or life company platform can provide are suited to that particular investor.
