Secondary

PFA Ruling on Fund Returns

It is standard practice that Ombuds do not rule on what investors may deem to be unsatisfactory returns. This ruling is interesting for two reasons:

  • The complainant alleged that excessive fees caused the poor returns and
  • it is the first ruling that we are aware of where Treating Customers Fairly feature.

The complainant submits that her retirement investments with the first respondent performed poorly due to the excessive fees levied by the respondents on her investments.

She submits that the excessive fees are a character of the type of products offered by the first respondent referred to as old type policies. The respondents deny the allegation of excessive fees and submit that the fees levied on the complainant’s investments are the 1% investment guarantee charge of R223.48 charged when the policy was acquired and the monthly management fee charged at 1% of the investments. They submit that the complainant’s total management fees since 1 June 1996 when the policy commenced amounts to R5 220.92.

The respondents submit that the policy is invested in the markets and members are provided with annual updates to allow them an opportunity to switch to portfolios suitable for their needs. They submit that the complainant made use of these switches twice. They submit that values are determined by the performance in the portfolios in which the funds are invested and it is therefore not possible to allocate additional returns were no investment was made. The respondents submit that the investments were in accordance with the complainant’s choices and as a result, the complaint should be dismissed.

On the evidence submitted, this Tribunal is satisfied that the cause of the complainant’s poor returns is not due to excessive fees. The management fees of R5 220.92 charged over a period of 17 years on an initial investment of R22 105.71 does not appear excessive. Her investment return was determined in accordance with her selected investment portfolios and the market performance in her selected portfolios. The respondents duly communicated the necessary information about the performance of the complainant’s investments to her annually in terms of section 7D(c) of the Act. Furthermore, they invested the complainant’s funds as per her instructions. The complainant is reminded that when one decides to invest in the markets, more so when the member has a choice to elect where her funds should be invested, she should be ready to bear any positive and negative returns inherent in the swing of the markets.

However, this Tribunal note with concern the submission by the respondents that they are unable to produce a breakdown of costs (management fees) levied on the complainant’s investments despite their insistence that it is 1% of the investments. This admission by the respondents falls short of the openness required by the treating customers fairly (TCF) initiative with which the respondents associate themselves. As a result, this Tribunal considers that it is appropriate to order the first respondent to provide the complainant with a breakdown which shows how it quantified the 1% management fee that was levied on the complainant’s investments.

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