If you buy a traditional RA from an asset manager, your investment choices are limited to a range of unit trust funds from that asset manager; or a limited range of unit trust funds from a few accredited asset managers. These pre-selected funds simply add more layers to your fees.
This is where a Linked Investment Service Provider (LISP) steps in. A LISP is a company that allows you to buy from a wide range of different investment providers as well as assets, and then it links all your handpicked investments into one portfolio.
You also get the flexibility to invest in unit trust funds from more than one asset manager at the same time. And you'll receive centralised reporting on the performance of these investments.
You can now take control and invest directly into a customisable share portfolio with lower fees.
Let’s start building your customised retirement annuity
Step 1: Find a wealth manager who offers you the flexibility you need
Not all wealth managers will allow you to select your own shares for your DIY retirement fund. You need to clarify this before you do anything.
So, the first step is to contact your wealth manager. Tell him you want to invest in an innovative RA called a wrapper fund or ‘new generation’ RA from a Linked Investment Service Provider (LISP).
If you’re happy with the flexibility your wealth manager offers you, go ahead and tell him you want to set up a RA inside one of their Regulation 28 compliant Wrappers.
For some of the most flexible wrapper funds, consider Glacier by Sanlam and Momentum.
Step 2: Make sure your wealth manager understands your needs
Once you’ve found a wealth manager you like, he’ll ask you to do a needs analysis questionnaire. This helps him understand your financial needs and goals. It will help him to confirm that you’re making the best, well-informed decisions when it comes to reaching your retirement goals.
Step 3: It takes money to make money – R250,000 to be exact
You can only open up a ‘Personal Share Portfolio’ in a RA if you have the minimum capital balance of R250,000. This can be in cash or in existing share holdings. But if you have your holdings in shares, you’ll sell these as you transfer ownership to the new wrapper fund like Momentum or Glacier.
When you sell these shares; you may trigger a taxable activity. Any gains you’ve made may become liable for capital gains tax.
Step 4: Get the right Regulation 28 approved weighting to suit your needs
Once you’re happy with your wealth manager, make sure he understands your needs and you have put up the capital to get started, you need to select the weightings in your portfolio.
This means you must choose how much of the different asset classes you want to hold in your portfolio. If you’re a more aggressive investor, you’ll want to hold more equities. A more conservative investor may choose to hold more bonds.
Remember, your retirement investment portfolio must comply with Regulation 28. This is a set of guidelines which determine how much of your retirement savings can be invested into any particular asset type.
If this sounds daunting, don’t stress! Your broker can help you select the weighting best suited to your needs.