Which RA is most cost-effective?

A comparison of local providers.

In recent years a lot of talk about retirement funding has focused on cost. Investors are increasingly being made aware that the fees that they pay have a very meaningful impact on what they get out at the end.

This has become such an important issue that some providers are now able to promote themselves purely on the basis of what they charge. There has been something of a ‘race to the bottom’ in terms of who can offer the lowest fees.

On its website, low-cost provider 10X makes a case for how important this is. Using the example of someone who saves R3 000 every month for 40 years into a retirement annuity (RA), and earns a return of 6.5% above inflation, 10X provides the following illustration:


In other words, just paying 2% more in fees when you are earning the same return can eat away almost half of your investment in 40 years.

It therefore makes sense for investors to be asking just how low fees can go. And how big a difference is there between the low cost providers and the rest?

The first important thing to note is that 10X is not exaggerating when it suggests that some investors could be paying 3% per annum on their RAs. In fact, in some cases they could even pay more than that. Some products offered by life insurance companies also charge layers of fees that are very difficult for investors to untangle.

However, a number of asset managers are now offering their own RA products in which the fees are much more transparent, and much lower. Thankfully the industry has also adopted the Effective Annual Cost (EAC) standard, which requires complete disclosure.

Using the EAC it is also possible to look across the industry and make direct comparisons between providers. Moneyweb has done this to compare what an investor would be paying if they chose to invest directly with a number of different providers – specifically those who are offering low cost options and two large active asset managers.

For the sake of the analysis, Moneyweb considered an investment amount of R500 000. In all cases, the underlying investment was placed in the RA provider’s own high equity Regulation 28-compliant portfolio and the latest available expense ratios were used.

The relative costs are displayed in the below tables and shown as an annual percentage of total assets invested. Providers don’t all report charges in the same way, so the terminology differs from one to the other, but the effective annual cost is what investors can expect to pay.

10X Investments

Underlying investment: 10X High Equity Fund

Total investment fee


Transaction costs


Effective annual cost


Note: 10X charges fees on a sliding scale depending on the amount invested. For amounts over R1 million the total charge would be 1.00% and for amounts over R5 million it falls to 0.82%.


Underlying investment: Sygnia Skeleton Balanced 70 Fund (unit trust)

Administration fee


Fund total expense ratio


Transaction costs


Effective annual cost



Underlying investment: Sygnia Skeleton 70 Fund (unitised life fund)

Administration fee


Fund total expense ratio


Transaction costs


Effective annual cost


Note: Two options are provided for Sygnia, as the costs differ significantly depending on which underlying product the investor chooses. The unitised life fund includes a fund of hedge funds component that significantly increases the overall cost.

etfSA RA

Underlying investment: Wealth Enhancer portfolio

Retirement annuity fund charge (including all transaction costs)


Portfolio management fee


Effective annual cost



Underlying investment: Satrix Balanced Index Fund

Management fee


Custody and trustee fees


Underlying funds’ total expense ratio


Brokerage and transaction costs


Glacier administration (including reduction in yield effect)


Effective annual cost



Underlying investment: Coronation Balanced Plus Fund

Administration fee


Investment management fee


Effective annual cost


Note: When investing directly with Coronation, the investment management fee includes the administration fee. This would be expressed separately if investing via a LISP platform.

Allan Gray

Underlying investment: Allan Gray Balanced Fund

Administration fee


Investment management fee


Effective annual cost


The lowest cost option is through Sygnia using its unit trust fund as the underlying investment. However, the other low cost options, including Sygnia’s unitised life fund, all come at similar cost.

10X is slightly cheaper than the rest at this level, and does become meaningfully cheaper when larger amounts are invested.

It’s also noteworthy that the products offered by Allan Gray and Coronation are not significantly more expensive. If an investor is looking to spread their RA between passive and active managers, they can therefore do so without paying exorbitant fees.

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Another issue with cost is, that there is a cost that some have and some don’t have, I don’t pay a 0.5% financial advisor fee, while someone else might, thus I save more on costs than them.

I think it’s about time 20 years later that the discussion around costs and fees have surfaced. HOWEVER let’s see what type of returns as well. It’s great to pay lower fees and I’m am all for it BUT saving .75% on fees and getting a LOW return on the underlying portfolio does not make sense. You think someone (in the journalism industry)would do a head to head analysis??

In the end a head to head analysis of performance would just boil down to each providers Balanced Fund (or similar) unit trust.

And that bring us to cj1s comment below. If 95% of the RA investing population invested in the top 10 balanced funds from managed providers, then the other 5% investing in the Sygnia and 10x would get the performance of the average of those 10 funds and their weightings. If all 10 funds had equal weights then Sygnia and 10x would have the similar performance to around funds 4 to 6.

Finfit, exactly. Surely one also has to look at the last 15 year performance comparisons and consider the oaks who came out under the top 10, albeit that they may be a bit more expensive.

The article does not propose that just because a fund is cheaper that it is better. The point is simply to provide a comparison so that investors can be aware of what they are actually paying in relation to other options in the market.

Sygnia leading the way. Especially since the unitised life fund which includes a hedge fund element is unique and should be excluded from any comparison.

Will Steven of 10X, who so often preach the benefits of low cost investing please comment on why anyone should pick 10X over Sygnia? According to his own philosophy, it is a no brainer and Sygnia all the way.

Playing the cost card when you are not the cheapest is folly.

If he feels some other facts other than fees should be considered, why then not AG or Corro?

My input is based on Micropal figures to 30 November 2016. To compare for example Allan Gray (AG) with a very long track record to 10X is not fair. Firstly AG is managing more than R123 billion in its Balanced Fund to 10X with R137 million as AG, due to size is limited to only about 30 shares in its equity portion where 10X can have more funds that offer value. As 30 Nov 10X return was 1,5% vs AG 5,99%. Over a full one year AG 8,43%, Safex Bal 1,1% and Signia Balanced 70 1,02%. Over 3 years AG 9,9%, Safex 7.02% and Sygnia 8,2%.Not one of them beating Inflation +6.5%. 10X did not have a one year track record at 30 Nov and to make the assumption that it will top of the list in say 10 years time is not fair to AG. I will rather stick to Allan Gray and Coronation who have proofed that they are good jockeys and who I believe will always be competitive and do not punt their funds on cost structures but by performance.

Agree with Finfit. I have RA / Provident funds with 3 of the funds referred to above all of which were started around the same time. I did a comparison of returns using the amount invested and the value of the fund at the time I did the exercise. The value of the funds was based on the report of the respective fund, which was after fees, as I understood. Two had annual returns about 10% above that of the one pushing the virtues of low fees. Admittedly the exercise was done over a relatively short period so may change in 10 or so years.

The old order of RA’s with their high fees and low internal rate of return have impoverished a whole generation of investors where promises never ever matched the forecast returns the big green kept telling their investors. They also charged fees for extending the life of the RA, and never lowered their fees.
These old order high fee RA’s were nothing more than Ponzi schemes under a disguise

The very same large Insurance companies are today flogging themselves as Investment houses!!!!!

It may also be worth your while to explore options provided by Life Insurers, Discovery offers a Fee PayBack on Invest costs and return from Life Cover into your RA at selected retirement age which in certain instances can provide for an actual negative EAC !

Figures from an actual client who has an existing Discovery Life Plan with premiums of R 1 600pm with Vitality and contributing R 3 000pm towards his RA within the Discovery Balanced Fund (Reg 28) has a term to retirement EAC of -0.4%. (This is from an actual quote presented to my client).

So definitely worth looking at in our current market where costs have taken center stage again.

Look at the the fees Discovery charge you on their RA. Forget about all the paybacks because those are only really worthwhile if you are on Diamond Vitality status, never use your medical and never make any changes to your RA. The ‘payback’is coming from the very high fees they charge on the RA.

I know this as i have been a Discovery Life policy holder for a long time. I cannot calculate the annual increases because it is linked to my medical aid claims! How do you predict what your health will be? Your ‘payback’is also linked to medical aid claims and Vitality status. Eventually the premium becomes unaffordable and you cut down on the benefits/ premiums, therefore forfeiting a lot of the payback benefit.

I know this because i am a financial planner and used to sell their products.

After inflation these balanced funds only return about 4% per year over the long term, so if your fees are 2%, you are effectively paying 50% of your profits to the investment company. They are taking no risk, but getting half the profits.

Sygnia’s All Stars Fund of hedge fund’s total fee was 7.53% for the 12 months ended September 2016. This fund returned -2.4% for the 12 months, underperforming its own benchmark by 13.5%. You may want to think twice about investing in Sygnia’s Skeleton Funds which have a 10% allocation to its own hedge funds that charge these outrageous fees.

Well done Patrick, the investing public is well served when they can compare costs on a like for like basis.

I would like to know what the cheapest platform is to access the Nedgroup core diversified fund in an RA.
I can’t figure out what the admin costs are if you use Nedgroup investments, but the TIC is .61%, on par with Sygnia Skeleton balanced 70.
On the Allan Gray platform Ned. Core Div. will cost 1.06% for 1st 1.5million and .72% for next 3.5million – but they show a TIC of only .49% – their admin fee is 0.57%. Is there a cheaper RA platform for this fund?
The big risk with Sygnia Skeleton Balanced 70 is the small size of the fund (R224m) which makes me nervous, Nedgroup core diversified is a 4.6bn fund.

I have checked with Nedgroup Investments and they suggest that the best option is to access the Core Diversified Fund through an Allan Gray RA, as you have suggested. The Nedgroup Investments RA is not available directly to retail investors. You have to go through an adviser for that.

If Sygnia only have R 224m in the fund and are charging so much less, then why are the big guys charging so much? Allan Gray Equity charging over 2.4% when they have R 38bn in the fund (latest fund fact sheet). Wouldn’t it make sense if the smaller company had the higher fees?

Work out what Sygnia make on R 224m (R224m at 0.4% = R 896k). AG are making over R 900 million in fees. And their returns are not that great. Not enough to justify those fees. No prizes for guessing where i am investing my money!

Sygnia make their money from their R3.9 billion hedge funds with +- 2% fees (base fee and performance fees) generating Sygnia +- R80 million in annual revenues. Sygnia’s Skeleton funds invest 10% in their own hedge funds so their fees are NOT 0.4% but rather the 1.09% the article showed. The Sygnia Balanced Skeleton Funds don’t invest in this hedge fund so do have lower fees, but most of Sygnia’s “passive” money is in their Skeleton Funds that invests in their own hedge funds and charges.

What happened to the Sygnia Skeleton 70 fund – I see you show the TER as 1.09% . The latest fact sheet shows fund management fees of only .39%. It does not make sense that a 10% allocation to a hedge fund can add .69% to cost. (Implying a 6.9% fee is charged by the hedge funds)

Is this fund available to retail investors?

In a world where performance & service is uniform, it would make sense to use cost as a deciding factor. But such is not the case, and since we live in a world where being the cheapest, seldom equates to being the best, a more balanced view would make for far better reading.

The additional cost of the fund of hedge fund component comes from two things. The first is Sygnia’s own management fee for running the fund of hedge funds. The second is the fees paid to the underlying managers. There are also performance fees.

The fund is available to retail investors, although Sygnia may request that the investor satisfies them that they have an understanding of how hedge funds work and that they are appropriate for them.

Sorry, the first reply was meant for the post above this one.

This article is only concerned with cost. It does not propose anywhere that just because a fund is cheaper that it is better. It is simply providing a comparison so that investors can be aware of what they are paying.

Fair enough Patrick – point taken.

I can attest to the exceptional service offered by Allan Gray compared to low cost providers from personal experience.
However if you use a balanced fund (which is the appropriate option for an RA investment) you are best advised to set and forget about it for the next 20-40 years – therefore service levels are not a big consideration.

As for performance, there is plenty of academic literature that unequivocally shows that there is zero correlation between past and future performance. You cannot predict the actively managed funds that will outperform the low cost passive portfolio over the next 20-40 years by looking at past performance.

Sygnia and 10X – Moneyweb’s biggest backers. Marginal fee savings can only be considered alongside performance, not on their own. Low-cost products are generally inferior products. A diversified portfolio of a few high-quality products is the way to go. For supersunbird who’s complaining about paying 0.5% to an advisor – if that gets you good, ongoing, independent advice it’s worth every cent. It’s the irrational decisions that investors make that cost them over the longer term, not slightly higher fees.

Wouldn’t independent advise by its very definition require a fee structure that is not commission based? I.E hourly rate.

tomorrow: you posted as follows “Sygnia’s All Stars Fund of hedge fund’s total fee was 7.53% for the 12 months ended September 2016.”

What is your source, the fund’s latest fact sheet shows it charges .86% + 10% of out-performance on CPI+5%.

It is Sygnia’s own Fact Sheet for October 2016 (hedge fund performance is one month in arrears). However, as you say, Sygnia have now stopped disclosing their actual fees. You should ask Sygnia to provide this to you.

So you can’t prove it. The Oct fact sheet does not show a fee of 7.53% (that would imply that the fund returned 75%+ before fees.

Sygnia’s October fact sheet shows a 7.53% fee with a -2.4% return. Sygnia is NOT disclosing all the fees charged. In a fund of hedge funds there are two layers of “managers”, the actual fund manager and the fund of fund manager. Investors pay fees to both parties. The following fees are charged: 1) Hedge manager investment fee (around 1%), Sygnia manager fee (0.85%), fund manager performance fee (20% of performance, so long as net return beats the benchmark), Sygnia performance fee (10% of performance). Hedge funds have very high transaction costs as they trade often so this may push up their expenses. I have no idea how Sygnia’s fund fee was 7.53% when the returns were negative but this is what Sygnia published.

Choose one or two of the best-known and respected platforms. Then compare what you actually pay in, including costs with what you get out at the end. Trying to analyse every provider down to the last detail will give you ulcers and nervous breakdowns which will cost you more than you save in worrying about costs and performances 🙂

It should be pointed out that Allan Gray charges a performance fee, and the stated management fee of 1.38% will actually fluctuate between 0.5% and 1.5% excluding VAT. That complicates the comparison because the cost and performance remain intertwined.

The appropriate way to compare the Allan Gray balanced fund’s cost is to calculate the fee as if the fund achieved the same return as a balanced index fund before costs.

In that case the fee will be: Management fee 1.14%; Performance fee .34%; Underlying fund fee (25% allocation) .375%; Fund costs (including underlying fund costs) .2% = Total cost 2.06%

The fund will charge a performance fee even if it under performs an indexed balanced fund because the benchmark it uses already has a cost of +- 1.5% deducted from it. So the 20% performance fee will result in a cost of .2*1.5% + Vat =.34%

The difference between this cost of 2.06% and Sygnia’s .62% can be expected to result in a 28% lower pension after 40 years if both options have the same before cost returns.

There’s no chance that Sygnia’s before cost return over 40 years will be anywhere near Allan Gray’s, not even over 5 years. All Sygnia has going for it is their low costs, nothing else.

Before costs hey! Now we know that you are just talking your book here. The rest of us are only interested in our returns after costs.
If you put your money where your mouth was 5 years ago, you would have been trounced after costs, and probably also lost before costs.
Sygnia Skeleton 70 beat Allan Gray Balanced by 1.4% annually (14.2% vs 12.8% annual returns)over the last 5 years. Don’t know and don’t care what the margin was before costs.

Before you accuse anyone you should get your facts right. Often seen the nonsense you post on Moneyweb and surprised they haven’t banned you.

I referred to before cost returns because that’s what you commented on – see your last line. The Sygnia Skeleton 70 fund was launched in July 2013 so it doesn’t have a 5 year track record, only 3 years. A comparison of the fund against Allan Gray Balanced shows that the AG fund has a superior after costs return of 1.77% pa over the Sygnia fund.

Green Jacket – I apologize, I now see your “before costs” comment in the context of my earlier comment. I jumped the gun there – sorry about that.
The Sygnia Skeleton 70 has a track record going back much further than 5 years as an institutional unitised life fund. I was able to go back 8 years (2009-2016) over which period it returned 14.6%pa vs Allan Gray balanced 12.5%pa (after costs).

Green Jacket – To be fair it must be pointed out that Allan Gray’s Balanced institutional mandate returned 14% over the same period (2009-2016) so it was only beaten by .2% pa by Sygnia.
The big difference is that the Sygnia fund has been made avaialble to retail clients at institutional costs since 2013, whilst the Allan Gray retail option still carries costs of 1.5% pa more than their institutional fund.

End of comments.



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