By Alec Hogg
How to make a small fortune? From personal experience I suggest start with a big one and go farming. My colleague Jackie Cameron would add, you can also entrust your money to a large South African life assurance company.
Having worked together for a couple decades, I know Jackie eats her own cooking. So before recommending things for others, she would first need to be convinced by promises that retirement annuities offered by large life offices would create wealth. But as shared in today’s very personal and explicit contribution, she found out marketing promises can be another word for bald faced lying.
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Jackie Cameron writes: “I have made some costly mistakes over the years. My annual benefit statement from Sanlam is a regular reminder of the error to entrust chunks of my annual income to a financial services giant – in particular a public company with roots in life assurance rather than asset management.
My annual financial cold shower, the Sanlam Benefit Statement, arrived in my inbox this week. It shows a R10 000 lump sum invested through a Stratus Retirement Annuity (RA) in 2001 has grown to be worth just over R20 000. So, the initial investment has doubled over 15 years which sounds OK, except a very modest outcome is if your money should double every seven years on an annual return of 10%.
That was just the starter. The R40 000 I ploughed into Sanlam’s Stratus International Retirement Annuity in 2002 has grown – wait for it – into a fund value of just over R41 000. So, in 15 years, all that the well-paid asset managers and clever actuaries at Sanlam have managed to do with my cash lump sum is add a pathetic R1 000.
Both lump sums are invested in offshore RA portfolios, one aggressive and one conservative. The annual statement doesn’t provide any details of how portfolios have performed or what costs have been deducted for “managing” this investment on my behalf.
As prudential regulations govern how retirement funds can invest on behalf of their clients, I very much doubt some exotic decisions are to blame for the miserable outcomes. Most likely it is a complex array of hidden costs that have eaten into my savings.
I still have many years before being able to access the money. The investment industry likes to tell us that past performance is no guarantee of future performance, but it’s probably sensible if I recalibrate my expectations for my Sanlam pay-outs. Assuming the folks over in Bellville keep up their efforts at the current pace, I’m now wondering what R42 000 will get me in 2030 or R43 000 in 2045.
It’s not only Sanlam that has lured hard-earned pre-tax income out of me. Old Mutual also has some of my cash locked up in RAs. The only difference is that Sanlam seems to be better at updating me annually on how “pleased” it is with its progress on effectively destroying the value of my savings.
Do I blame RAs? No. Here’s why. As reality dawned that the benign-looking costs associated with investing hammer long-term returns, I started looking around, opting next time for Allan Gray’s RA range. That was partly because Allan Gray’s investment performance is generally impressive. But also as it is more transparent about fees – and also sets aside charges allocated to intermediaries for direct investors.
My annual Allan Gray statements delivered a very different picture. The money I subsequently set aside in these RAs has, save a few short-term wobbles, doubled every five or so years.
I think the major factor separating Allan Gray from Sanlam and Old Mutual is that Allan Gray is a private company, so it isn’t beholden to shareholders who want to see short-term profits constantly on the up even if this is at the expense of clients.
Unlike Sanlam and Old Mutual which are expensive corporate beasts to manage, Allan Gray is a lean operation that sticks to what it does best – investment management. My experience with Sanlam has shattered my belief that public life assurers are the right organisations to take care of long-term savings.”
A true story. Suddenly I’m not surprised that Old Mutual is unbundling into smaller pieces. And Sanlam is working hard to shake off its past. As an entrepreneur, I’ve always had a business to swallow (OK, and also, once, a farm) to keep my cash out of their clutches. But millions of others aren’t that fortunate. The trouble with lying is people eventually discover the truth.
Comment from Biznews community member John Frith
In 1998/9 when executor to my late father’s estate I discovered that although the rate of estate duty at the time was 25% because of how estate duty is calculated 33.3% was to be paid (currently 25% is paid and the rate is 20%).
I had a meeting with Advocate Meyerowitz the then doyen of tax and he changed his book almost immediately after the meeting. I eventually won a Bloemfontein Appeal Court Judgement against SARS which enabled the correct rate but only if a spouse or charity were the sole residuary heir. I developed a will structure with a formula that always ensured a spouse or charity were the sole residuary heir.
The crux was that when I explained to the estate boss of Old Mutual the comment was “you will never teach Old Mutual anything about estate duty” and when I spoke to Sanlam I was told we will never use your services and to date they still don’t disclose the estate duty issue.
The case is the law and the only way to effectively avoid executors paying the extra estate duty.
To see the effect of the extra estate duty, visit my website at www.yfccodicil.co.za.
