The simple investment, unit trusts, doesn’t seem that simple anymore
Alan Finlay The growth of the local unit trust industry holds something of an irony. The point of unit trusts is that they allow ordinary individuals, who may not have much economic savvy, to invest sensibly in the market. The advantage of maximum returns has been handed to the person in the street on a silver platter. All he or she had to do was follow the basic course of one or two indices in the local paper. Now units trust are more complicated. There are around 310 available on the local market, nine of them having been introduced over the past two months. There are about 40E000 available internationally. Nearly as much skill is needed in deciding where to put your hard-earned cash as if you were playing the market directly. “The public has, over the past five years, been flooded with a range of funds covering esoteric themes,” says Futuregrowth Unit Trusts’s chief executive Ian Hamilton. “The basic needs of the investor have been ignored.”
But it’s not only the public who are in the dark. Brokers are also battling to keep track of the market and to understand properly the benefits of every new product springing up. Added to this, legislation is being drafted that will make financial advisers legally vulnerable, should they give bad advice. And investment houses know this. “Advisers would just get more unwilling to provide financial advice, leaving the client with a problem. As the average client would hardly be regarded as an investment expert, it amounts to a catch-22 situation,” says chief executive of Sanlam Unit Trusts, Fanie Lategan. While some investment houses are reluctant to partake in what they say is the dumbing- down of the industry, many are going out of their way to make unit trusts clearer and more attractive to the ordinary person. Sanlam has relaunched its Big Easy product, built around the Fund of Funds concept. The Big Easy offers a simple choice of five unit trusts, with varying degrees of risk. It says its product is “the only unit trust that investors will ever need.” Futuregrowth has just launched its Four Seasons product, a kind of pizza of four different unit trusts catering for different investor profiles. Added to this are retailers like Woolworths who also offer unit trusts. The investor is invited to put his or her faith in a brand that, like buying a cardigan for a chilly day from one of the Woolworths stores, may be more comforting than worrying about the pros and cons of a particular fund or, for that matter, what a unit trust is. Wrap funds and Fund of Funds offer a way to deal with the problem. Wrap funds allow investors to put their money in a predetermined selection of unit trusts, depending on their risk profile. When an investor comes along, he or she is simply slotted into an investment template. A Fund of Funds is a unit trust that itself invests in other unit trusts, rather than directly in the market. “Wrap funds make it easier for the broker to abnegate the increasingly challenging responsibility of unit trust investment,” says Colin Woodin, the executive director of the Association of Unit Trusts, which monitors the industry.
Nedcor Investment Bank is focusing on wrap funds to attract clients, offering the Altitude and Horizon funds, with obvious relative risk profiles. Among other products, Fedsure offers its Balanced Fund of Funds, Flexible Fund of Funds and Assertive Fund of Funds. A problem with wrap funds is that they aren’t as transparent as a normal unit trust and it is difficult getting proper performance statistics to measure their success.
Others are taking care to provide an increasing amount of information to brokers on a particular product, to make it more understandable. “The real value comes in giving advice on how and where to put a client’s money,” says Jean Bardenhorst from Momentum Advisory Service (MAS). MAS goes out of its way to make advice to brokers on all of Momentum’s products just a phone call away. “In the past we only launched the product. Now we provide packaged advice together with the product,” says Bardenhorst.
In the end branding is vital. Trusting an investment house, which often boils down to putting your trust in a name, is often the key behind a choice an investor makes. However, not everyone is impressed with the branding, repackaging, and drive to simplify the industry. “South Africans need to grow up,” insists Pieter van Niekerk of Old Mutual, who says he’s impressed with Sanlam’s Big Easy, but that it caters for the near “brain-dead category”. “In the US [United States] you have 6E500 unit trusts and no-one complains. Here we want everything given to us on a plate. There’s a good amount of choice in the industry. South Africans need to do just 10 minutes of homework and focus their minds.”s