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The high cost of non-independent investment advice

Advice is never free, especially when that advice is tied to an investment product provider.
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It’s important when taking investment advice to understand the financial strings behind that advice.

“The linked investment service provider [LISP] industry is predominantly driven by alliances to asset managers and has a legacy of higher fees and limited administration,” says Charles Brits, sales manager at Wealthport.

“This leaves the investor with sub-optimal choice, denying them access to investment instruments that have traditionally only been available to a small market segment. It’s time we challenge the industry and provide advisors with a platform to offer their clients the true power of independent investing.”

Non-independent advice comes with a very real cost – even a lowball figure of 0.25% a year, compounded over 20 years, adds up to a princely sum.

It’s time investors start asking what non-independent advice is costing them. “Apart from the financial cost, there’s the element of transparency. Tied investment advice is wrapped in murky fee structures and it’s frustrating trying to get to the bottom of it,” adds Brits.

Wealthport is an award-winning administration platform founded a decade ago to break the stranglehold that established platforms had on the market.

“We can do some things that our competitors cannot,” says Brits. “What sets us apart is that we’re independent. We have no allegiance, agreements or links with asset managers. Brokers who are tied to product providers can sell only those products, and that denies the client access to potentially far superior products that are better suited to their needs. We make our money purely off platform fees.

“We don’t push just one product provider but will offer advisors a broad universe of solutions that they in turn can offer their clients.”

Guarding independence

By closely guarding its independence, Wealthport has built a powerful and growing business. Funds under management grew 52% in 2021.

This exceptional growth story is underpinned by the flexibility to add and subtract funds. “We go through proper due diligence on all funds and businesses we have relationships with, and we build long-term relationships,” says Brits.

Traditional platforms offer a limited ability to combine various investment instruments. This presents a gap for greater variety that is happily filled by Wealthport, which offers exchange-traded funds (ETFs), unit trusts, structured products model portfolios and retail investment hedge funds in a number of investment vehicles, such as tax-free savings accounts, endowments, retirement annuities and preservation funds. Hedge funds used to be for the very wealthy – with an entry threshold of around R1 million – but have since become accessible to retail investors, who can participate for as little as R1 000 a month.

ETFs have become a popular addition to many portfolios, something Wealthport is able to offer. Traditional investment platforms are limited in their ability to trade ETFs.

“We’re very flexible in adding ETFs and unit trusts to our platform,” says Brits. “Anything an advisor requests, we can add or take off as we please. That expands the universe of options for advisors.”

We don’t require financial advisors to commit to large minimum investment amounts.”

Wealthport charges a standard fee – 0.4% for the first R3 million, and 0.3% thereafter – with room for negotiation. The fees are competitive, and hence the company is loath to horse-trade.

Questions to ask your financial advisor

“My question to financial advisors is this: if you can get a portfolio of solutions that are more cost effective and fitting to your client’s financial plan on one platform relative to another, why aren’t you giving your clients access to that?

“Some ETFs we host are 0.5% cheaper than actively managed unit trusts. You have access to model portfolios that contain ETFs. Clients are becoming more sensitive to fees and if you can save 0.5% in annual fees and include the savings in performance fees usually charged, that can impact overall fund performance by anywhere between 10% and 15% over 20 years,” says Brits.

Brits has a few other questions clients should be asking their financial advisors:

  • Do I have access to the right type of funds?
  • Have I got alternative solutions in my portfolio and if not, why not?

“We have about 140 ETFs listed on our platform, and we can get more if requested,” he adds.

Brits relates the story of one financial advisor who put clients into an oil ETF after the oil price crash of 2020, and then sold out four months later when he reasoned that oil had hit its peak. It is these kinds of opportunities that ETFs present and that are usually denied to clients due to the limited universe of investment options available on most platforms.

Vested interests run deep within the financial services sector, so getting financial advisors to change behaviour requires a push from clients, who are becoming far more informed on the range of products and their relative costs.

“Despite this, many clients remain tied to their brokers, in much the same way as banking clients are reluctant to switch. Switching is admin-intensive and time-consuming, but advisors don’t need to make this switch – rather they should think about whether there are better options for the new business they bring in. Options take away the non-independence that we are speaking about,” says Brits.

Due diligence

Wealthport subjects all new funds and businesses to a thorough due diligence and negotiates institutional rates with investment managers, ensuring only quality and best-priced investment products are listed on its platform.

Non-independent advisors are unable to offer their clients the choice, agility, platform accessibility and fee structure that independent advisors can, according to Brits. This explains the huge growth in funds under management in recent years.

Wealthport has representation in the Western Cape and Gauteng, but services the whole of South Africa.

Brought to you by Wealthport.

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