I was recently approached by someone for help with her Sanlam RA’s – they are the bad, old traditional life RA’s with opaque fees, poor returns and hefty penalties if you make any changes before the term ends. It seems that Sanlam has found a way around this though with their Cumulus Echo RA where they are encouraging clients to move. The “carrot” is no penalties when the move to this RA and bonuses if they see out the term. Sounds good, or does it?
It took quite a bit of digging to find the fees on these new RA’s but after a while I found 2 pages* on the Sanlam website that say it all. The first one is the advice and marketing costs which are “hidden” behind a “more information” button. Here is what it says…
“If you prefer to select your own funds and will be investing recurring monthly payments, the following marketing and administration charge is applicable:”
| Fund value band | Yearly marketing and administration charge % of the fund value of the plan |
|---|---|
| First R500 000 | 4.10 |
| R500 001 – R1 000 000 | 3.75 |
| Excess above R1 000 000 | 3.50 |
The fee for using internal funds is slightly lower but still far too high to make it attractive.
But I think that the most insightful part of the investigation was an example of how much an investor could expect if they used the RA (including future bonuses). “The Example is based on a monthly payment of R1000, taking into account an annual inflation increase of 6% over 25 years. It assumes an investment return of inflation plus 2% after fees.”
2% after fees? We know, that it is reasonable to expect a “balanced” unit trust fund to generate CPI+5% (after fees) over the long term (25 years). Sanlam seems to be acknowledging that their fees are so high that an investor should expect to only receive inflation+2% over that time. The loss of the 3% to fees, compounded over 25 years, will be devastating to your retirement and will result in significant damage to your ultimate fund value (bonus or not).
My advice to anyone considering the Cumulus RA is to run far away – pay the penalty for transferring away from the old RA and find a unit trust RA with an underlying passive fund – your total annual fee should come in at around 1-1.25% pa (advice fee included).
*One of the pages: https://www.sanlam.co.za/personal/retirement/savingforretirement/Pages/sanlam-cumulus-echo-retirement-annuity.aspx#Works
