A reader recently asked me this question...
“I think you might have mentioned somewhere that your investments are with 10x, however according the the RA calculator, 10x never comes up as a cheaper option than Sygnia or OUTvest - is there a reason that you are remaining with 10x besides possible impacts of transaction costs to switch not being low enough to justify this move?”
It's true. My RA and pres fund are with 10x. 10x is cheap. The EAC on these investments is below 1%. This is great. But they are not the cheapest.
I have not shared my reasons before. I have not done so as my reasoning may not be 100% rational & possibly clouded due to personal experience. I will share my reasons anway & you are free to make your own judgments.
Ok - with all of the disclaimers out of the way, here are my personal reasons why I have not switched my RA & pres fund from 10X to Sygnia, Nedgroup or Outvest.
Magda and her team have done and are continuing to do a great job at Sygnia. Part of their offering includes the Sygnia Skeleton range, which I have included in the RA calculator.
From a pure cost perspective, the Sygnia Skeleton offering consistently rank as the cheapest or second cheapest RA you can get in South Africa. This is mainly because you pay (a) no platform fees if you invest via Sygnia & (b) your investment is allocated to low-cost, index-tracking portfolios. This means the only fees your RA will incur are fees related to running the Sygnia Skeleton fund. Given the scale of the funds, the total fees will hover around 0.5%-0.6%. This is excellent.
So why am I not with Sygnia? Sygnia in the past have included hedge funds in their Skeleton range. I personally do not like hedge funds. They have consistently failed to deliver what they have promised in South Africa. Hedge funds charge high management fees & evil performance fees. No thanks! The other BIG issue for me is a big lack of transparency of fees to an end-investor. You do not get a true reflection of the cost of hedge funds in your portfolio.
Sygnia have removed investment allocations to hedge funds. So this point may be mute, but it still leaves a sour taste in my mouth.
The other reason I do not invest with Sygnia is due to their active asset allocation strategy. This means they (1) actively decide on the amount of money going towards the different asset classes & (2) within each asset class invest in passive index-tracking portfolios. Whilst I love their passive-index tracking approach, I personally do not like Sygnia's active approach to asset allocation decision making. I would rather they stick with a strategic target as set out by the fund’s mandate and not tinker with the allocations.
That is why I personally prefer 10x’s retirement funds above Sygnia.
I mentioned that part of my reasons for keeping my investments with 10x may not be 100% sound & rational. Favouring 10x over Nedgroup’s Core range may well be wrong.
But here are my personal reasons.
- I favour smaller companies (10x) over big behemoths (Nedgroup)
- I had a bad personal experience with Nedgroup in my personal history.
Dealing with 10x has been smooth and - above all - uber convenient. 10x’s entire take on process, moving funds & doing everything online has highlighted that South African companies can get this right. And 10x for me has gotten it right i.t.o customer take on & service. If I do call their contact centre, they pick up immediately. Their responses have been efficient & professional. They also do not sales call me.
A big corporate such as Nedgroup is simply unable to offer me this kind of service. If I do call, I first have to tell the automated teleprompter service to put me through to the right department after which I am transferred ten times. Eventually, I end up in the right department but am now on the line with an inexperienced junior. I finally get through a round of FICA related questions, which include “Why do you like pizza more than ice cream?” to merely ask the question “How do I update my telephone number on your website? “. Shoot me, please.
In my past life, I have had dealings with Nedgroup where I promised myself I will not move to Nedbank. Ever. Admittedly, this was an entirely different department. I also know that no bank is perfect. You will always find customers which have had bad experiences at a bank. Unfortunately, for me this was Nedbank. Which is why I am not moving to Nedbank. (I am not cold hearted & happy to be dissuaded if enough people tell me that their experience has been good.)
Outvest is a new entrant. Their fixed fee model is revolutionary in the South African context. The bad stench attached to RA’s just a few years is fading fast as these new entrants now focus on what consumers have been craving. Low fees, transparency and no penalties for leaving. Outvest like 10x, Sygnia and Nedgroup are delvering on all these fronts. Outvest is trumping the others though in terms of fees if your RA is around R900 000. It goes as low as 0.24% once your RA is above R2.25m. A 0.24% fee is unheard of!
Why am I not with Outvest? There is a small nagging feeling within me which still distrusts insurers. This is merely due to the harm insurers (not necessarily Outsurance, but other big insurers) have done to consumers - specifically in the RA space - for a number of years. This reasoning may well be unfounded.
But more importantly,I would like to see whether their targeted fees actually materialise in the upcoming quarters. Lets unpack what I mean. When you invest with Outvest, your investments will flow into a CoreShares portfolio - which is run specifically for Outvest customers. CoreShares funds have expected TIC figures - ie total costs of running the fund - of around 0.03%-0.04%. I want to see whether this figure will materialise in their quarterly fee disclosures. My personal view is that they are only likely to materialise once the funds have grown in value & inflows have stabilised (ie their offering is more mature).
I will keep a close eye on Outvest, but for now I am not yet moving to Outvest.