Magda Wierzycka and I go back a long way. Apart from the glamour which she brings to proceedings, Magda is also a straight talker, never shirking controversy. I recall her admitting that lavishly entertaining guests at the 2004 Greece Olympics was, with hindsight, a mistake. But that stemmed from her only significant mis-step in an otherwise brilliant career when she tied up with controversial entrepreneur Mzi Khumalo. She quietly extricated herself after selling Khumalo’s African Harvest to Cadiz in 2006. Wierzycka is back with a bang. Her new firm, Sygnia, focuses on running passive investment portfolios and in the past seven years has quietly accumulated a hefty R100bn in funds under management. She is now taking her rock-bottom cost strategy into the retail market. – AH
To watch the video of the interview on CNBC Power Lunch click here
ALEC HOGG: Sygnia has announced the launch of a retail market offering it describes as a game changer. Joining us live from our Cape Town studio is Sygnia’s Chief Investment Officer, Magda Wierzycka. Magda, you’ve been under the radar for quite some time. It was interesting looking through your release today, that you have R100bn worth of assets under management. And now you are going for the jugular, attacking the retail market mainly on costs.
MAGDA WIERZYCKA: Indeed, I think seven years ago when we launched we made the decision that we will only start making noises about Sygnia once there was something to make a noise about. We started with about R2bn in assets under management. We are now managing and administering in excess of R100bn. So it is something to shout about, I guess. We’ve mostly based ourselves in the institutional space and offered services to the Retirement Fund Industry. We think the time has come to do two things. One is to expand into the retail market, in terms of what Sygnia offers. And two, to maybe shake up the Financial Services Industry a little bit. There has been a huge amount of focus on costs and fees of investing, inaccessibility of investing, so we thought we’ll do something different. Hence this retail offering, which is priced at this revolutionary price of an all in price of 0.4% per annum, including VAT.
ALEC HOGG: And Government is helping you as well with its latest recommendations.
MAGDA WIERZYCKA: Indeed, the June Paper by National Treasury, on costs, has lifted the lid on the level of profit margin that has currently been made by Financial Service Companies. So, certainly from an awareness perspective, the issue of costs is foremost in the industry’s mind. Obviously, very fortunate for us, in terms of the timing of our launch.
ALEC HOGG: It all makes a lot of sense Magda except we are in South Africa where products are sold through Financial Advisors. At 0.4% all-in costs, how are you going to incentivise them?
MAGDA WIERZYCKA: The incentives remain unchanged because most financial advisors charge around 1% per annum, for financial advice, to most of their investors and, obviously, the cost of that financial advice comes on top of a management fee. But if you actually think of the total proposition then, to the end investor, financial advice plus retirement annuities plus investments; for an all in price then of their 1%, our 0.4% per annum amounting to 1.4% per annum all in. I think it is a value for money proposition and I think it is very attractive for financial advisors because the cost of the overall advice of the overall picture is not that significant. It is about a third of what investors are used to paying at the moment.
ALEC HOGG: Just explain that. Who pays the 1% to the financial advisors?
MAGDA WIERZYCKA: You know, in the current regulatory environment financial advisors need to agree the 1% fee with the ultimate investor. A Financial Services Company pays that 1% on behalf of the investor but the 1% commission is agreed with the ultimate investor, and signed off by the ultimate investor and processed by the Financial Services Company.
ALEC HOGG: But then you aren’t the cheapest because if I want to buy Satrix, which is a well-known brand in the South African market, it will cost me 0.8%. If I want to buy one of your products, it is going to cost me 1.4%.
MAGDA WIERZYCKA: No, it is going to cost you 0.4%. You don’t need to use financial advice, and you don’t need to use a financial advisor. If you come to Sygnia directly, all you will pay is 0.4% per annum, so it is about half of the cost of what Satrix is offering.
ALEC HOGG: All right, so that 1% is not an obligatory fee, and can be avoided if I come straight to you. And do you the systems in place to service that?
MAGDA WIERZYCKA: We have all the systems in place. In fact, in terms of us accessing the institutional market a lot of it has been based on the fact that we own a systems development company. We have developed a fairly revolutionary administration software and we have spent the last three years developing or amending the software in such a way that it can cater for the retail market, so what we are known for is a very strong administration and revolutionary systems. To the extent that we’ve been appointed by some US and UK based Retirement Funds purely on the back of the administration backbone that we offer. So, we are fairly confident that our systems for the retail market are in place. In fact, if you watch ‘That Space’ we’ve got some fairly innovative systems and platforms that we are launching now. Our official launch function is on the 11th November but if you watch ‘That Space’, we are also set to revolutionise the Financial Advisory platforms in South Africa, in the near future.
GUGULETU MFUPHI: Magda, it is Guguletu here. You mention that your costs will stick to 0.4%. How are you still going to be able to make a profit with cost structure so low?
MAGDA WIERZYCKA: It’s a good question. Obviously that is the question that everyone has been asking us is how can we afford to do it at 0.4% per annum and there are three reasons for that. One is the obvious. We are prepared to accept lower margins, which gives you an idea of how high margins are in the Financial Services Industry. Two, we believe that our systems are of such quality that we can enhance the efficiency of what we do behind the scenes, so it is going to cost us less. The third reason is that we have no legacies, so we don’t have an existing book of assets or a book of clients that we would upset by virtue of launching cheaper products or where we would have to take revenue cuts in an existing product line because we are now launching something so much cheaper. So this issue of not having legacies is very important and, hence, yes, it is a revolutionary pricing but we believe that we can generate sufficient volume of new business to still make very comfortable margins and very comfortable fees of attracting new business.
GUGULETU MFUPHI: You are also interested in the South African consumers coming directly to Sygnia. How are you going to increase your marketing strategy as not many consumers are aware of you?
MAGDA WIERZYCKA: Indeed, I think we are very well known in the institutional space. We are not known by the man in the street today, however, you know, it is word of mouth. It is a very powerful thing. Number one, we will obviously increase our PR profile. We will increase our advertising spend, which has been non-existent over the past seven years because we just didn’t need to reach the man in the street. So you will see a lot more of Sygnia and of Sygnia branding in the market in the next year or so. In addition to that, I think that word of mouth, among the financial advisory market and among our own institutional distribution networks is very powerful, in terms of getting the brand name out there and, you know, there is quite a story behind Sygnia. Because we’ve grown from this R2bn in assets since the end of 2006, to over R100bn in a space of seven years. We also started in the institutional space with no brand name, so we are hoping we can replicate that success and adopt some of those strategies in the retail arena as well. Hopefully you will be hearing a lot more of Sygnia in the forthcoming future.
ALEC HOGG: And in Index Trackers, the ETFs, it’s all about costs and I suppose that as the retail investor gets more sophisticated and more educated it is going to swing in your favour?
MAGDA WIERZYCKA: Indeed, I think that there really is a space for an Index Tracker in South Africa which doesn’t charge an arm and a leg. To date, what we have seen in that space is Index Tracking Funds, which are charging an all in fee of in access of 1% per annum. So when we looked at our own pricing strategy, in the Index Tracking space, we looked at what the international players are charging you, or our vanguards of this world and really this 0.4% per annum comes from the international arena. We are at the stance at the moment, apart from the savings products, your Retirement Annuities, Living Annuities, and Preservation Funds, which we offer on top of our Index Tracker. But just Index Trackers alone, at 0.4% per annum, are less than half of what an average exchange traded fund would charge you or now competing or passively managed during a Trust. So we are very proud of our pricing strategy in the Index Tracking space and hope to generate volume on the back of that.
ALEC HOGG: And very disruptive as well. Well, that was Sygnia, Chief Investment Officer, Magda Wierzycka.
