Question: Is it better to hold my investments and individual unit trusts, or should I invest them through a platform? I am concerned that investing through a platform will add a lot of additional costs.
Answer: There are two elements to this question: convenience and costs.
Investing through a platform has a number of advantages:
The downside of using a platform is that there are additional costs. Because the platforms place a lot of business with various asset managers, they get wholesale pricing.
I looked at investing in one of the more popular unit trusts and got the following result:
The platform fee depends on the size of your investments and the size of your financial adviser’s book of business on the platform. These typically range from 0.2% to 0.5%. If you are a small investor, then going via a platform will cost you an additional 0.25% and if you are a larger investor, you could save money by going via a platform.
If your marginal tax rate is more than 30%, you could use some of the product structures that are available on the platform to your advantage. You are able to wrap your unit trust investment in an endowment or sinking fund structure.This has the following advantages:
I did a calculation for a client with a 41% tax rate where it was cheaper to invest R5-million through an endowment structure than directly into a unit trust. Add in the additional R200,000 saving in executor fees that you will get as you can attach a beneficiary, then it certainly makes sense to consider using an endowment.