The accessibility of progressively clearer and more comprehensive investment detail have afforded investors more information both at the time of commitment and throughout the invested period. And the client-focused investment environment now offers South Africans greater flexibility and choice while at the same time ensuring enhanced protective legislation.
But as with all good deals terms and conditions do apply and so there is a caveat: With the increased knowledge and investment alternatives South Africans now have available to them also comes heightened responsibility. And as an individual investor it is up to you to ensure that your savings products are optimally structured to provide a secure financial future.
You may be able to think back to the old days of investing. If you do, you’ll probably remember the contents of your investment portfolio but it is unlikely that any particular details spring to mind… This is not a statement intended to offend, but rather simply a statement of fact – there will be little recollection of product detail because there were so few details available! The companies that provided the vast majority of investment and savings products at the time were neither inclined nor compelled to disclose details of how your savings were managed or of how you were being charged – it just wasn’t the norm.
Consider the approach to retirement savings, for example. Until relatively recently, most South African employees would have automatically gained membership to their employer’s Defined Benefit Pension Fund; a Fund that committed to pay a set percentage of the employee’s final salary prior to retirement as retirement funding. This level of certainty meant that most people showed little interest in understanding more about how their savings were invested or about how much they were paying in investment fees.
The level of uncertainty facing the employer, however, means that these Funds have largely been replaced with Defined Contribution Pension Funds. Although offering a much clearer model with greater line-of-sight, the Defined Contribution Pension Fund places far more onus on the individual, as the level of your retirement funding depends entirely on how much you decide to save and how you go about doing so.
The principle, of course, extends beyond retirement savings, and investments directed at achieving any important goal should be approached with the same diligence. After all, you can only take advantage of the benefits the new investment landscape presents if you genuinely take ownership of all of your investment decisions.
As times have changed, you may very well find that the product you invested in some years ago may not be the most appropriate choice today. So the opportunities presented by the re-set of structures and costs in the financial services industry should be the fundamentals of your financial plan review – a review you should be conducting on an annual basis.
Nick Battersby: CEO of PPS Investments