Momentum Investments announced this week that it is slashing its platform fees, making them what it claims is the most competitive in the industry.
Platform administration fees are charged when you invest on a platform that allows you to select and switch between a range of underlying investments, such as unit trusts. Your investment on a platform could be either a discretionary investment, tax-free investment, retirement annuity, living annuity, endowment or preservation fund. Platform fees can be anything from 0.15 percent to as much as one percent a year. In addition you pay asset management fees in the funds in which you invest.
Momentum Investments previously charged an administration fee of 0.5 percent a year if you invested R1 million in funds on its platform in its core range, but if you accessed a wider range of funds, it charged an additional “FundShop fee” of 0.12 percent for access to four of these additional FundShop funds.
Momentum is now offering a new range of funds in what it calls its Outcome-based Solutions portfolio range. In addition, from April 18, a maximum fee of 0.3 percent a year applies to all new investments into funds the 17 funds in this new range, Steven Schultz, the head of investments and savings marketing at Momentum, says.
A higher administration fee may apply if you invest in funds outside of the Outcome-based Solutions portfolio range, but the “FundShop fee” has been scrapped.
This means that if you invest in the Momentum funds only, your first R1.5 million attracts a platform fee of 0.3 percent, but if you invest in a wider range of funds you will pay 0.5 percent. Regardless of the funds in which you invest, the next R3.5 million attracts 0.25 percent, and on more than R5 million, the fee reduces to 0.15 percent.
The impact of the new pricing structure is significant. On an investment of R1 million, the new pricing means you pay 37 percent less in fees if your portfolio is half invested in Momentum’s new portfolio range and half invested in any external funds. But if you invest fully in Momentum’s Outcome-based Solution portfolio range, you will pay 52 percent less in fees.
Momentum’s shift towards outcome-based investing is part of the “evolution” in the investment management industry, Schultz says. The investment community has evolved since the early 1900s to the 1960s, when concentrated stock portfolios were considered the optimal way to create value for clients. Between the 1960s and the 1980s, efficient portfolio construction was in vogue. Then came strategic asset allocation, which has been overtaken by outcome-based investing.
With outcomes-based investing, your needs, or your specific goals, determine the investment strategy, as opposed to investing to target an arbitrary market benchmark.
Momentum says diversification is central to its outcome-based philosophy, because different asset classes and investment styles either benefit from or adversely react to the way markets fluctuate.
Although we can often control how much risk we take, how much we pay in cost, and the time we spend in the investment market, we tend to focus, if not fixate, almost exclusively on returns – the one thing over which we have no control, Schultz says.
Outcome-based investing, which is aligned with the principles of Treating Customers Fairly, is aimed at delivering the performance you need to meet your investment goals.