You can also listen to this podcast on iono.fm here. ADVERTISEMENT CONTINUE READING BELOW BOITUMELO NTSOKO: In the world of investing, many investors focus solely on returns, but the costs incurred along the way can significantly impact one’s bottom line. Today we’re joined by Munaf Mukadam, a certified financial planner at Gradidge-Mahura Investments. We’ll explore the various forms these costs take and strategies to mitigate them effectively.BOITUMELO NTSOKO: Let’s start with the basics.
But the one way to do it would simply be to do the calculations and take a look at the end investment value in two different scenarios to really appreciate the impact that costs can have on the investment over the long term. The second category, which is the administration costs, is the cost of the product provider – so the product provider or administrator we use for the investment product – to set up the retirement annuity or the unit trust. And the administration is essentially their product, and they’ll provide you with investment statements and tax certificates.If you want to make withdrawals or ad hoc contributions, they’ll have their admin team execute those instructions.
MUNAF MUKADAM: The initial advice and the annual service fee, which is the advisory practice, the maximum as per regulation is 3% as an initial advice fee. It’s rare for an advisor or the advisory practice to charge above 1.5%. That’s kind of the norm in the industry for that to be the cap, unless there was an excessive amount of time and hours invested into the client and the planning process. But 1.5% is usually the cap.
Read: Mind the gap: Why fees aren’t the only cost to consider when choosing between unit trusts and ETFs The old-generation products are the ones that generally have higher costs. These are the products that, if you have a debit order and you cancel the debit order, there’s a charge for that. Or if you cancel and terminate the product, there’s a termination charge for that.
BOITUMELO NTSOKO: Can you please give us examples of the new-generation products that you just mentioned? BOITUMELO NTSOKO: Just staying on cost effectiveness, what cost-saving strategies are available when constructing one’s investment portfolio? There are two things that I would suggest you consider when selecting the product provider. The two things would be the sliding scale that the administration fee would be applied on. First, how does that sliding scale work? And the second thing is aggregated pricing, which I’ll explain shortly.
So it’ll end up being a higher cost overall than if the investment company or the product provider said, ‘Okay, you’re a client who has two products; we’ll combine the assets and you have R100 in your RA and R100 in the unit trust. Let’s combine them and you’ll have R200 altogether; now let’s apply the sliding scale to the R200’. Generally that would result in lower admin costs.
So if you’re an individual in the 18% tax bracket or the 26% tax bracket, then I would rather use a unit trust because you’re getting taxed at your tax bracket, which is 18% or 26%, as opposed to the 30% within the endowment. But at retirement, it’s important to determine that with a tax-directive simulation; you can then plan your retirement income in a tax-efficient way.Harnessing tax simulations for informed lump sum withdrawal strategiesBOITUMELO NTSOKO: Munaf, as we wrap up, what final advice do you have for investors looking to manage their investment costs more effectively?
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