22 Jul Navigating your investments: meet the essential players.
Clients are often unsure about the services provided by the various role players involved in their investments. A common mistake is to confuse the role of the administrator of their investments with that of the various investment managers managing the unit trust funds they are invested in.
The managers of the unit trust funds that the client is invested in have the biggest impact on the overall growth of the client’s investment. Therefore, the client, with the assistance of their adviser, should focus on the investment performance of the specific unit trust managers and not on the administrator’s investment performance.
Let’s look at the main functions of four role players involved in a typical investment:
- Financial adviser
The financial adviser advises their clients on which investment products to invest in, which administration platform to use, and finally, which combination of investment managers to use. The adviser facilitates the investment by communicating with the administration platform. The client pays money into the bank account of the investment product.
It’s important to note that client monies are not paid into the bank account of the adviser, the administrator, or the investment manager.
- Administration platforms
Administration platforms enable investors to invest in any of an extensive list of unit trust funds, managed by various investment managers. They also provide various investment products for clients to select from. They perform daily valuation of the investments, and manage all transactions related to specific products, including contributions, withdrawals, debit orders, etc. Administration platforms provide online access for investors and advisers to view the value of investments and to perform online transactions. They also provide investment statements and tax information.
- Investment products
Investment products are separate legal entities, managed by the administration platform, for the benefit of investors. Investment products are not “owned” by the administration platform but are legal entities in their own right. Each investment product has a separate bank account into which client monies are paid.
Some investment products have their own board of trustees. They ensure that the administrator manages the product in line with legislation. Retirement annuities and preservation funds are examples of products that have trustees. Other examples of popular investment products include endowments, unit trust accounts and living annuities.
- Investment managers
Investment managers’ primary role is to build a portfolio of specific investments that meets a targeted return and risk profile. Such a portfolio may include a combination of shares, property, bonds and cash. The portfolio of investments is housed in a unit trust, also called a collective investment scheme. Each unit trust is a legal entity, separate from the investment manager, with its own bank account and board of trustees.
The trustees of the unit trust fund ensure that it is managed according to the rules of the fund and legislation. The investment manager is primarily responsible for the performance of the unit trust fund. Furthert to that, it also has various administrative functions, such as determining a price or value for each unit trust fund daily, processing inflows and outflows from the unit trust fund, and more.
In the example investment statement further down, the following role players feature:
- Allan Gray as the administration platform
- The Allan Gray retirement annuity fund as the investment product
- Redwood Wealth as the financial adviser
- Allan Gray, Coronation and PSG as investment managers
- The Allan Gray, Coronation and PSG Balanced funds, as three separate unit trust funds
The investment performance of this fictional client is determined by the performance of the three investment managers – Allan Gray, Coronation and PSG.
Example investment statement – Allan Gray Retirement Annuity Fund
Client details: Mr AN Other
Adviser details: Redwood Wealth
Latest fund values:
Allan Gray Balanced Fund 20% R200 000
Coronation Balanced Plus Fund 50% R500 000
PSG Balanced Fund 30% R300 000
Total value 100% R1 000 000