We don’t believe that understanding your statement should be as hard as cracking the Da Vinci Code. Or that you should have to rely on someone else to understand what’s happening with your money. So, with that in mind we have created the following guide to take you through how to do it yourself.
*Note: Statements vary, as does the language providers use. But they should all amount to more or less the same kinds of information. To simplify things, we’ve broken up statements into the following categories: Basic Info, Transactions, Portfolios, Performance, and Fees.
Basic Info
Generally, your investment statement will contain the following:
- Your name.
- Your Policy number or numbers.
- Statement period date: This can vary, some statements are monthly, others bi-monthly, quarterly or annually.
- What you are invested in, and a statement for each: These are typically referred to as “funds”, “policies”, “holdings” or “products.”
- A summary of any recent transactions: Any transactions that have taken place since your last statement. See next section for the types of transactions you can expect to see.
- Your Financial Advisor’s name and details.
Transactions
Your statement will detail the transactions that have taken place since your last statement. These can include:
- Contributions: The money deposited into your policy. You might have this automatically withdrawn from your salary. Your employer may also contribute an amount on your behalf.
- Withdrawals: Any money you have taken out of your policy.
- Dividends: Some companies distribute a percentage of their profits to stockholders, which is called a dividend.
- Gains and losses: This shows how much a specific investment has increased or decreased in value. This can be shown as an amount in Rands, or as a percentage. If an investment is bought or sold, it's called a "realised" gain or loss.
- Switch In and Switch Out: If your investment plan is managed by a company that picks your funds for you, they may decide to exchange one fund for another, which will be noted on your statement.
- Monthly income or draw-down: The retirement income you draw from your living annuity or life annuity.
Portfolios
While many providers omit this level of detail, some will give you a breakdown of the portfolios you are invested in, and their allocations. Here’s some terminology that you can expect to see:
Asset class: This refers to the types of assets you’re invested in, such as Equities (or stocks); Bonds; Property; and Cash.
Asset mix: Also called an asset allocation. This will show you what percentage of your money is invested in which asset classes. To understand more about how your asset mix should adjust over time, read our article.
Performance
This section deals with the parts of your investment statement that tell you about how your money is growing.
- Initial Investment: The amount that you originally invested.
- Current balance: The amount that is currently in your account.
- Beginning balance: This is the balance you started with at the beginning of the statement period. Depending on your recent transactions and your return, your beginning and ending balances are usually different.
- Return: The amount your investments have increased or decreased in value. This may be represented in a Rand amount, or as a percentage. This is considered by providers and advisors alike as the most important part of your statement. However, as we will explain in our Fees section, your returns are only half the picture.
- Taxable or non-taxable income: Some investments earn interest which is subject to tax. This could be noted as taxable or non-taxable income on your statement.
- Rate of Return: This refers to an investment’s gain or loss over a specific time-period. It is expressed as a percentage of your initial investment.
Fees and costs
And now for the meaty bit! As mentioned previously, your returns are what providers, brokers, and advisors usually highlight as the most important part of not only your statement, but your investment outcome. On a surface level, this makes sense. The higher the return, the more money for you in the end, right? Wrong! While returns do matter, they do not determine how much money lands in your pocket. If you are interested in how much money you are really making, you need to look at your Net Return.
But what is a net return and how do you find it? The bad news is that you can't find it on your investement statement. The good news is that you can calcluate it yourself, with the following simple formula:
Net Return = Return – (Total Fees + Costs)
In other words, how much your investment has increased (or decreased), less the fees and costs that your provider charges you. Which is simple enough. However - and here’s the catch - providers are not legally obligated to show you all of your fees! Most statements only display one or two fees, while many omit fees entirely, saying that the information is available on request. And those that do show fees often obscure their impact by showing them as a Rand amount, as opposed to a percentage (which can disguise the impact of these fees as they compound over time).
So how then can you know what your costs and fees are? A good place to start is by knowing the types of fees you can expect to see, and what they mean:
1. Initial Fee. When you invest for the first time you are generally charged an upfront initial fee from your provider ranging between 0% and 5% depending on the type of investment.
2. Financial Advisor Fees. These are the advice fees charged by your financial advisor. The first fee you can expect to pay is a consultation fee, also include an initial consultation fee. These can be expressed in a percentage, or in a Rand amount. Beware of Rand amounts, as these obscure how much of your growth they are eating into.
3. Platform Fee. This is the fee you are charged for a 3rd party to manage the investment platform.
4. Administration Fee. This is a fee that covers your provider's administration costs.
5. Fund Manager Fee. Also known as TER (total expense ratio) or asset management fees. This is the fee your fund manager charges you for actively managing your fund, regardless of performance.
6. Trading Costs (TC). A cost your asset manager charges to trade across asset classes.
7. Performance Fee. This is the fee that your provider charges you for generating a positive return. This is generally calculated as a percentage of your return.
8. Penalty Fees. These are fees charged by providers when you take certain actions, for example, ceasing contributions or switching funds.
9. Marketing Fees. Some providers charge you a fee so that they can market their products… to you. No, it makes no sense to us either.
10. Transaction Costs. An external fee that is charged to your provider for transactions made.
But even if you know what fees to expect, how can you find out which fees and costs you truly are paying? Sadly, in the majority of cases, it’s not by what your investment statement tells you. You need to explicitly request a breakdown from your provider, and tell them to include all third-party costs too (because some providers only show the fees that they are responsible for, as opposed to external fees that you still pay for).
Turning Rands into Sense
Once you have a comprehensive breakdown of your fees from your provider, how do you go about assessing whether you are paying too much?
While of course “too much” can be a relative concept, what’s important to take into account is that paying just 3% in total fees - regardless of your returns - can erode up to 55% of your retirement. That’s more than half of your retirement going to your provider, and not you. We think that’s criminal. Retirement is a time when having more money matters most, which is why we never charge more than 1% in fees excl. VAT, and are 100% transparent in our reporting.
The bottom line: find out the fees you’re paying today. If your provider isn’t telling you all (or any!) of your fees, you should be suspicious. A lie by omission is a lie nonetheless - and why put your life's savings in the hands of someone who lies to you?
