Investonline Frequently Asked Questions

A Background to Investonline

Investonline launched in 2009 to provide independent investment advice through an online platform at significantly lower fees than the industry average.

Today, the company has added a string of additional financial planning services to its suite of products. From a platform of top performing unit trusts, a bespoke fund of funds, retirement and living annuities, to holistic financial planning solutions, all of which are provided by a committed team that works hard to offer all clients the best financial solutions available.

• What services do you provide?

  Investonline provides independent financial planning and investment advice which includes estate planning, tax planning and offshore investing.

• Am I investing through the internet?

  No, whilst we do provide our clients with online access to their investments, you will be serviced by a Client Portfolio Manager who will assist you with the management of your portfolio.

  Nick Brummer and our team of Client Portfolio Managers are based at our offices in Newlands, Cape Town.

• Have you experienced any company or personal milestones that you would like to share?

  We are proud to be in our 15th year as an Independent Financial Advisory and we have grown substantially over the years with many satisfied clients.

  We have been featured in several publications, sharing insight into financial planning and investment markets.

  We are registered at Allan Gray.

  Personal milestones include Nick being constantly rated as a number 1 or 2 equity analyst in South Africa during his time as an analyst at Deutsche Bank and subsequent stock broking enterprises.

• Who is a typical Investonline client?

  We partner with clients who:

  • Take co‐ownership of the financial planning process and engage with us regarding their needs and investment strategy.
  • Strive for success in their profession or industry.
  • Are transparent in their approach and open to ask questions.
  • Trust our expertise and experience and believe that we can add value to them.

• What are Investonline’s credentials and what experience do you have as a financial planning firm?

  At Investonline, we have a team of twelve.

  • Nick Brummer is a director and co‐founder of Investonline.
    Nick is a chartered accountant and has been an investment analyst since 1995. He was a director at Deutsche Bank and Citi Group. During this time, he was rated in the top‐two in the annual Financial Mail Analyst rankings in most industrial equity sectors. As a stock market specialist, he has gained invaluable insight into the processes and psyche of the leading fund managers in South Africa.
  • Stuart Dyer is a director and the Head Client Portfolio Manager.
    Stuart is a Certified Financial Planner and will oversee your financial planning process, which will include structuring your investments to be as tax and estate duty efficient as possible.
  • Geran Steyn, Jannie Smit, Dirk Smuts, Joshua Strydom, and Ewan Matthee are the Client Portfolio Managers.
    The team of Client Portfolio Managers provide financial planning services and assist clients with the management of their investment portfolios.
  • Dylan Bam and Penny Mashele are Associate Client Portfolio Managers.
  • Natasha Atkin is the Client Services Manager. Mellisa Brooks and Zaakirah Adams support the team of Client Portfolio Managers as Wealth Assistants.

• Do you have dependence or a tied relationship to any of the large Insurance Companies and/or Investment Management firms?

  We are an independent financial advisory approved by both Allan Gray and Old Mutual Wealth. We partner with a number of fund houses including Coronation, Prudential, Ninety-One, PSG etc.

  To reiterate, we are independent which means we are not under pressure to recommend a particular fund or institution and we pride ourselves in following best advice practices.

Financial Planning Process

• What is your financial planning process?

  Step 1 ‐ We collect your financial information and compile a financial plan to ensure your investments and assets will fund your lifestyle goals. This includes establishing the most appropriate investment vehicles to minimise your tax liabilities and provide the necessary ongoing liquidity.

  Step 2 ‐ Once we have defined the most appropriate structure for your investment accounts, we will proceed with an investment and asset allocation strategy that will be based on the risk that we deem necessary to achieve your investment goals.

  Step 3 ‐ We can then implement the investment strategy/financial plan and we will monitor and adjust your plan and investment strategy as need be. This will be a proactive relationship with you to discuss your objectives as they change, as well as our market
  strategies

• Do you offer once‐off advice services or is it an annual service that you provide?

  We do not provide once‐off or annual consultations as being an investment firm, we strongly believe that investment management is a continuous service and our processes demand that we constantly talk to you as our client and monitor your portfolio at all times.

• What are the details of the ongoing services you will provide to me after I invest?

  Once we have finalised your initial financial plan and investment strategy, we will continue to monitor your investment and recommend any changes that may benefit you.

  This includes providing you with a formal review every 3‐12 months, depending on your time horizon. We will send you an informative market related newsletter every 2 weeks.

  You will also have access to contact your Client Portfolio Manager or one of the team members at any time during business hours. At no stage do you deal with a call centre.

• What factors would you consider when making a recommendation?

  We consider a number of factors before providing specific recommendations and a final proposal. Some of these considerations are:

  • Your current age and state of health.
  • Your family members and their dependence on your retirement income.
  • Where you plan to live and if you plan to move abroad in the future.
  • All sources of income as this can affect the tax efficiency of your investments if you have other sources of income that we are unaware of.
  • Your spending outlook and if you plan to downscale or lower your level of income in later years.
  • Your risk appetite and experience in investing into unit trusts.

• How do you take tax into account when formulating an investment plan or proposal?

  We take certain factors into account such as individual’s overall income, marital regime, marginal tax rate and income requirements to assist with compiling a detailed investment plan for each individual.

  We will then make recommendations that we determine to be the most cost and tax efficient to benefit the investor with mitigating tax where possible. This includes estate planning to mitigate estate duties.

• What factors should I consider when deciding who to invest my savings or retirement monies with?

  It is important to complete a due diligence when choosing a company or financial planner to manage your hard‐earned money. The following are important factors to take into account:

  • The experience and qualifications of the financial planner and team.
  • The processes in place to provide you a holistic financial plan and investment strategy.
  • Independence to provide you with the best solutions to meet your goals.
  • The long‐term track record of the recommended fund offerings.
  • If the firm has been approved and accredited as an approved financial planning advisory by other financial institutions such as Allan Gray or Old Mutual Wealth.
  • Registered with the FSCA.
  • A support team to provide immediate assistance daily.

Investment Strategy

• What do you recommend clients invest into?

  We recommend that all clients invest into unit trust funds, either locally or offshore.

  There are more than 1,000 unit trusts available in South Africa and thousands more internationally.

  Unit trust funds are managed by professional and experienced fund managers who can achieve good returns for investors over the medium to long‐term.

  Unit trusts range in risk from low to high, and there is a solution to suit every kind of investor.

• How do you decide how much of my savings should be invested into equities, bonds or cash?

  We will discuss the investment strategy with you in detail, and explain our allocation between equities, bonds, cash and offshore assets.

  We determine this by taking into account both:

  • The amount of risk you need to take to achieve your desired investment return.
  • And the current market conditions.

   

  We will put an investment strategy in place which will be flexible to alter as market conditions change. Examples of this are increasing or decreasing offshore exposure as the Rand strengthens or weakens.

• Why do you prefer unit trusts over shares or products at the bank?

  Unit trusts provide investors with a diversified investment as they can invest into a variety of asset classes which includes shares, bonds, cash and property.

  If you invest directly into shares, it is exceptionally difficult for individuals to beat the market and effectively decide which shares to buy and sell.

  Professional fund managers have a long track record of meaningfully beating the market over time.

  If you put your money in the bank, you will earn a fixed interest rate (from a money market or fixed deposit) which will not provide an after‐tax return above inflation over time. The concern with a fixed deposit is its inflexibility to move into growth assets when the opportunity presents.

• Why do you recommend Unit Trusts over ETFs or passive funds?

  We have completed research on the well‐known ETF and passive fund providers in SA and compared them to traditional ‘active’ unit trust companies.
  Our findings showed that the top‐rated active fund managers achieve their return objectives more consistently over time and add the most value to investors.
  Passive funds are often riskier in SA given the concentrated nature of the South African market.

  Our process of selecting funds, which we refer to as “premium funds” involves:

  • Understanding the management teams at all the top fund houses
  • Understanding their investment philosophies
  • Knowing their research teams & capabilities
  • Having evidence of their proven history of being constantly rated as the top in the field

• Who are your preferred fund providers and what are your reasons?

  We make use of funds from Allan Gray, Prudential, Prescient, Coronation, Ninety-One, PSG etc.

  Our motivation is that these investment houses are constantly rated in the top 10 fund houses in South Africa (according to annual Morningstar rankings) and hence they provide the most value to investors over the medium to long-term.

  Also, our personal relationships with the teams and fund managers at these firms provides us with invaluable insights into how the funds are positioned and their in‐house market views.

• What are the minimum or maximum number of funds you would consider for an investment portfolio?

  We recommend that investors split their capital between 4 or 5 different unit trust funds. We believe that investing into too few funds (1 or 2) is risky as this means that you are overly reliant on that fund performing well in all time periods, which is normally unlikely. This is called ‘concentration risk’, as too much of your assets would be invested into one fund or fund manager.

  More than 6 funds are not suitable as this is too widespread (we see some investors hold 10+ funds).
  It is important to have a clear investment strategy and market view, and this can be best achieved through 4 or 5 funds.

• What are the main criteria you use for selecting any particular fund or unit trust to form part of an investment portfolio?

  We consider:

  • The investment process and philosophy of the investment house.
  • The experience and track record of the fund managers of the fund.
  • The size and quality of the firm’s research team.
  • The rating of their funds in their respective categories. We are provided with the monthly Morningstar ratings.

   

  Finally, we then analyse and stress‐test the current positionings of the various funds.

Offshore Investing

• What types of offshore investments are available?

  There are two options when investing offshore: indirect offshore or direct offshore.

  • Indirect offshore investments allow you to invest in offshore assets (also known as global assets) without the money physically leaving South Africa. This is done by investing locally in “asset swap” unit trusts. No tax clearance is needed, and the investment performance and investment value are reported in Rands.
  • Direct offshore investments can be invested in global unit trusts or cash accounts, in hard foreign currency such as US Dollar, Sterling or Euro. This is done by transferring your money into an offshore account.

• What are the income tax implications of holding offshore investments?

  South African residents are taxed on their worldwide income as South Africans are taxed on a residence basis and not on a source of funds basis. Any taxable income or capital gains produced by the investment/asset must be declared for tax in South Africa on the received by or accrued to basis.

• What happens when I pass away with offshore assets?

  Individuals require a will and an executor/solicitor for every jurisdiction in which they hold any assets.

  Therefore, if you have any investments/monies directly offshore and these measures are not in place, the winding up of your global estate can be an arduous and expensive task, sometimes taking years to conclude.

  It is important to seek the advice of an experienced wills and fiduciary specialist to put the necessary measures in place, such as us at Investonline.

• Is it risky to invest offshore?

  Investing offshore does have additional risks as you will be holding foreign currency assets, and hence your investment value will fluctuate as the Rand strengthens or weakens. Therefore, a longer‐term investment holding is advisable to avoid potential disappointment in the short term (a result of currency volatility).

• How do you determine how much of my savings I should invest offshore?

  This depends on your personal long‐term goals and risk profile. Everyone is different.

  In theory, you should match your % offshore investments to your % offshore spending to protect against an erosion of local purchasing power.

  A general industry guideline is:
  Aggressive or (+10 years investments) 50% to 100%
  Moderate or (5 to 10 years investments) 30% to 50%
  Conservative or (3 to 5 years investments) 10% to 30%

  Retirement savings are restricted to 45% offshore.

Industry General

• Who provides a backing to my investment?

  Your capital will be invested through an investment platform (LISP) into a portfolio of unit trust funds.

  If something unexpected were to happen to your Client Portfolio Manager or Investonline, your investment will safely remain invested with the underlying platform administrator.

  Examples of platforms that we use are Old Mutual Wealth and Allan Gray.

• What happens to my investment if my financial planner or one of the key individuals passes away?

  As discussed above, we have a growing team currently of twelve. There is a succession plan if anybody in the team were to pass away unexpectedly.

  If at any time you are unhappy with our services, you are able to terminate the relationship and appoint a different advisor if you feel it is necessary.

• What are areas where potential ‘conflicts of interest’ could arise?

  Potential conflicts can occur when ‘tied’ financial advisors are obligated to recommend funds or products from their own institution.

  As we are an independent institution and approved by the likes of Allan Gray and Old Mutual Wealth, we can recommend any solution or fund portfolio that we believe is in the best interest and most suitable to meet the requirements of each client.

• In the event that I draw a regular income from my investment, how do you determine how much I can safely withdraw without the investment being eroded?

  We model these numbers and provide you with various income scenarios.

  In addition, we use the ASISA guidelines, which all institutions use to manage the drawdowns from your investments, to ensure your capital is preserved and income requirements (considering inflation) are sustained.

• What is the difference between a living annuity and a life annuity and which do you recommend?

  A life annuity is a guaranteed annuity that provides a pension income in retirement.

  A living annuity is a retirement investment that can be used to grow and provide an income in retirement.

  We strongly prefer living annuities as opposed to life annuities. Fixed life annuities generally provide a very low rate of interest 5%‐6% and does not provide the investor with a legacy as the capital ordinarily falls away on death or at the end of a specified guarantee period.

  Guaranteed life annuities also do not provide the investor with flexibility to adjust their income to match changes in their lives. As you select a certain escalation percentage at inception or a CPI %, you have no say over changes in your income as your income escalation will be determined by the insurance company with which you invest.

  Living annuities are more suitable as they provide you with the flexibility to change your income to any value (between 2.5% and 17.5%) of income, and this means you can change your income to match your actual requirements as life changes occur. You will also be able to leave a legacy as the full investment balance will fall to your spouse or beneficiaries as selected.

Fees

• Are you transparent and disclose all the fee’s clients will pay?

  Yes, we disclose all ongoing fees and explain these fees to you and how they are charged.

  We charge an annual advice fee of 0.50% (0.58% incl. VAT) on the assets that we manage on behalf of the client. This fee is charged on the investment account/s monthly in arrears.

  An upfront fee of 0.50% (0.58% incl. VAT) is charged on investments below R3m.

• What strategies do you follow to minimise the overall effect of fees?

  We recommend platforms and unit trust funds that are as cost effective as possible for you to achieve your desired returns after fees.

  That being said, we are happy to pay fund manager fees where the fund manager has a history of providing good returns after their fees.

  We do not believe that keeping fees as low as possible is the best for investors, as often low‐cost solutions end up resulting in a worse outcome for the investor.

• Are there any fee discounts applicable for a family?

  Yes, our recommended platform provides a discount for families where they combine the assets for spouses, children under 23 and any related entities for fee purposes.

  This often results in a significant saving in admin costs compared to traditional investment platforms.