Fast little loans
Finally! Consumers in SA have started taking action. Discovery Health clients are threatening to obtain new quotations for the administration of their fund.
This is permissible as the fund belongs to the members.
The Council for Medical Schemes may be accurate in their statement that larger administrators do not offer any cost advantages over their smaller rivals.
The industry immediately defends their position with statements that read “a 2 percent or 3 percent reduction in administration costs is not going to stop the rapid yearly increases in our medical scheme premiums”.
This is a nonsense argument when we test the impact over a 45-year period (the time of membership between age 30 and 75). A 2 to 3 percent decrease in administration cost over time is massively significant when the administrator will increase the base cost for administration along a 6 percent inflation level, rather than medical inflation of more than 13 percent.
If we apply these figures your current medical aid at R1 000 a month will cost R44 000 a month rather than R66 000 in 30 years.
How can this not be significant when the extra 50 percent cost, or 22 percent after just 15 years, can be avoided?
We often wave the white flag of surrender in battles with big business. We should never give up challenging service providers and institutions that deal with our money.
Consumers should not stop there and must challenge medical inflation.
How can this consistently remain at levels of more than double the inflation rate? My challenge to you is to investigate; find the truth and then challenge the powers and processes.
Today I want to lobby for something far more sinister and with far more ominous results.
It affects us badly and this travesty is not only by financial service providers, but by the investment division of life insurers.
Some of the large insurers are returning an investment growth of only 1 percent on average a year.
Some are even worse, with negative returns.
The impact of this over a 35-year term (from 30 to retirement at 65) is that the investor will accumulate only 30 percent of the total amount needed if a 6 percent return (close to inflation) was expected.
No wonder we cannot afford to retire. It is not only lack of savings but a loss of 70c in every rand that will stop you being able to retire.
We should start to challenge the people who are rendering these poor returns on the money we are entrusting to them.
So to whom do we turn for help?
l The Life Offices Ombudsman does not regulate investment returns.
l Big business will cry over the hard times and how it affected returns, despite several publications claiming that the same portfolios are beating inflation.
l Small guy. You will be advised to go back to your adviser and sue him for “poor advice”. You may have some success here when the Financial Advisory and Intermediary Services ombudsman agrees, but you will never recover what the investors lost.
The life insurance industry is controlled in much the same way as banks are, through a centralised council. Here, control vests.
Many goodwill gestures are made, as was done a few years ago when a R3 billion slush fund was established to ensure investors would receive at least 65 percent of their money back when ending a retirement investment fund.
This goodwill gesture has, by appearance, now taken on the flavour of a “mere warranty”; and when a client wishes to disinvest they will not be granted their full fund value – it is reduced through early cancellation penalties.
The life offices have for too long blamed adviser commissions as the cause. They fail to disclose fully all the costs that diminish returns.
A friend of mine calls it “smoke and mirrors” when the insurer cost (disclosed) is enhanced, hidden from sight in the other departments with: retirement fund manager fees; investment manager fees; fund or fund manager fees; fund fees; performance fees; and trade fees (all undisclosed).
Six levels of fees are killing our investments.
The demutualisation of life societies did us no favours and we cannot vote anyone out (as Discovery Health clients are doing) as the funds no longer belong to policy holders but to shareholders.
Because they cannot serve two masters, the life offices appear to have ceased to serve the policy holders. Shareholders hold the key and are strongest when benefiting from the many levels of fees.
Consumer action here will surely affect share values negatively and will be resisted – and it is sorely needed.
l Deon Hattingh is a certified financial planner and trainer on financial literacy, budget, debt management, and wealth creation.
For more information visit www.makingSENSE, or e-mail him at firstname.lastname@example.org