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News Article : What is the real return?
Category: Advisers & Brokers : Best Advice
Author:Thomas Labuschagne
Email:[email protected]
Posted:18 Mar 2007

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Is there a reason they don’t want us to have this information at our finger tips?

Insurance companies offer literally thousands of products for investment purposes. They are usually beautifully packaged and accompanied by glossy envelopes with promises of riches beyond your wildest dreams.

As financial advisors we are held responsible by our clients and by legislation for the performance – or rather, lack thereof – of the products that we recommend to our clients.

Insurance companies are just interested in seeing the investors’ money roll in endlessly, charge their fees and that’s where their responsibility ends. They do not run any more risks and their fees are safely stacked away.

The broker and the client on the other hand, carry all the risk. Brokers advertise, use their own stationery, infrastructure, and with the electronic age do so to a far greater extent now, than ever before (operating costs have tripled) and our commissions are dwindling. 

I suppose we have choices and if we as brokers do not wish to accept the responsibility and/or risk we can simply do something else or not do investments at all. Then again, I believe quitting is not a solution. 

I have on request by a client looked at his unit trust investment which was placed at a certain product provider company. There is nothing wrong with the investment in principal however I have an unanswered question for this investment institution as well as all other insurance companies:

What is the net return after costs on the client’s investment?

The client invested more than R600 000 over a period of three years—some as lump sums, some as premiums over different terms and so on. I did a calculation that took me two days to complete in order to determine the real rate as a percentage/return.

This investment consisted of about 20 different unit trust funds scattered all over the investment in different proportions. At a glance the investment seemed to have been doing very well, but after doing the calculations and taking into consideration the costs – ‘not so well’.

The point is this: none of the investment institutions /insurance companies seems to be able or willing to provide us with the real growth of investments and particularly unit trust funds. What does the quarterly report mean which states: “growth for the quarter was 10%”?

How can we invest clients’ money and charge fees if we are unable to track real returns and inform clients timeously? Just imagine if you invest money for 200 clients in the above manner (i.e. ad hoc lump sums, premiums and so on) over a period of one year and you wish to report to them monthly/quarterly on their investment performance.

Is it really that impossible for mentioned institutions to incorporate a facility on their computer systems to provide this info at the press of a button? Is the reason perhaps that they don’t want us to have this information at our finger tips? If so, why not?

Can we as brokers afford to effect these investments if we are not fully in control of the facts/figures? The fact that each fund/product does have a portfolio management team does not simply reduce our liability for possible losses.

What I am saying is this, despite the fact that a risk analysis is performed beforehand, and despite the fact that we get the clients to sign numerous disclaimer documents to try and make ourselves “not liable”, this state of affairs is utter and total nonsense!

What is the solution?

Imagine if you can start your computer every morning; enter the necessary codes and viola! – you can access all investments/clients listed on your code at a specific company with “real return” figures before and after costs regardless of time periods and investment patterns. Why can’t we do the same as some pension fund administrators?

We do not want to interfere with portfolio managers, but we do need to know on a daily basis what is happening to investments. We also don’t want to chop and change investments on a daily basis and do understand – contrary to common belief – just how important it is not to effect untimely surrenders/redemptions or discontinue investment premiums.

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