Picture: 123RF/GUSTAVO FRAZAO
Picture: 123RF/GUSTAVO FRAZAO

If you want to pay one of the lowest investment fees in SA, a single, fixed-fee of R4,500 a year is all it now costs to invest between R300,000 and R2.25m in a balanced index-tracking fund provided by OUTvest, the robo-investment business in the Outsurance group.

And you can invest in a retirement annuity, tax-free savings account or a vanilla investment account and enjoy advice on what income your investment will help you achieve in retirement, or how to reach a savings goal for the likes of a holiday, wedding or education for yourself or your children.

If you think R4,500 sounds like a lot, consider this: most investments cost more than 2% and many as much as 3% a year without taking any trading costs and taxes in the portfolio into account.

At an investment of R2.25m, R4,500 is a fee of just 0.2% a year, including all trading costs and taxes. A 2% fee — possibly made up of an asset management, an investment platform administration fee and an adviser — amounts to R45,000 for the year while 3% will cost you R67,500 on top of the costs in the fund that you don’t see deducted in rands. These fees are only disclosed as percentages when total investment costs are disclosed.

On a R1m investment, R4,500 is just 0.45% a year; and at R500,000 it is 0.9% a year.

Grant Locke, MD of OUTvest, says the company calculated in rands what it actually costs to invest your money and devised its “aggressive” fixed ONEFee on that. The fee does not increase as you invest more as most percentage-based investments fees do. Only when your investment reaches R2.25m will you again pay more for each rand invested.

You may be offered one of three portfolios with varying levels of exposure to equities, bonds, listed property and cash both locally and globally managed

At that level, the fee grows with your investment but remains at 0.2% of your investment, which Locke describes as one of the best fee models in the industry for individual investors.

At R300,000, the R4,500 is 1.5% a year — this is the percentage fee OUTVest has, until now, been charging, excluding VAT, on the advice and administration, as well as the transaction costs. It will, in future, charge those with less than R300,000 invested the ONEFee at 1.5% of the investment, but this will include both VAT and transaction costs. Locke says OUTvest’s fees may be 76% lower than the 3% fee that you pay on some retirement annuities offered on  investment platforms, and this can make up to a 60% difference to a retirement saver. 

An investor with R250,000 invested and making R2,500 in contributions each month escalating at 6% for 25 years, would retire with R2.1m more by reducing the fee from 3% to R4,500 a year.

The new fixed-fee is a first in the investment industry, but not the first attempt by an investment house to aggressively lower fees.

Other options

10X Investments, the investment house that often attacks its competitors on fees, currently charges 1.16% as a total investment charge for the first R1m invested in its retirement annuity that also uses index-tracking portfolios. Charges are reduced on higher balances and 10X does not charge a platform fee, and its portfolios are intended to be used without advice.

Sygnia is another provider of passive investments that offers a low-cost retirement annuity invested in its index-tracking funds at a fee, which includes transaction costs of 0.55% and no platform administration fee. Advice fees should you need an adviser, are additional.

Depending on your investment amount, OUTvest’s fees may well come in lower than these competitors. You can invest as little as R100 a month with OUTvest but the new, all-inclusive fee is designed to benefit those with more than R300,000 invested.

OUTvest’s robo-adviser will recommend funds for you from a choice of four portfolios designed to suit your investment term and your ability to take investment risk. If you are investing for the short term, a money market unit trust fund managed by Granate is likely to be recommended, but at higher investment terms, the robo-adviser will recommend higher levels of equity exposure to allow you to achieve higher returns above inflation.

You may be offered one of three portfolios with varying levels of exposure to equities, bonds, listed property and cash both locally and globally managed in line with indices developed by S&P and managed by CoreShares and Granate.

For example, someone with a longer investment term, investing for retirement, is likely to be advised to invest in the CoreShares OUTmoderate Index Fund, which has the highest exposure a retirement fund investor can have to equities (locally and globally) at 75% of the fund.

This fund has a static allocation of 53% to local equities and 13.3% to global equities; 11.3% in local property and 4.9% in global property. With this allocation it aims to achieve a return of the consumer price index plus 4%.

The fund is a quarter shy of achieving a three-year track record, but its return since inception is 6.1% and its two-year return is 2.97% a year according to Morningstar, and has outperformed 51% of its peers.