Living Annuity Platform (LISP) Comparisons in South Africa

In this post I will be giving an overview of Living Annuity Platforms and comparing them from a South African perspective.

What is a Living Annuity?

A living annuity is an investment product that usally takes a single big contribution once as a lumpsum, usually from the proceed of the death of a family member or when you retire from your retirement annuity or similar product.
It must pay you an income in the form of monthly payments from 2.5% to 17.5% of the total value each year.
It is important to choose a living annuity provider service provider platform that has low fees and the ability to invest in many different funds – if you want to ensure your wealth grows.

What are Living Annuity Platforms?

A living annuity lets the owner choose where to invest the money inside it.
The money will be deposited into a living annuity platform, which is usually a website or portal that you can use to view and manage your investments inside the living annuity. Often people that are not too savvy with money and financial matters will use a financial planner or asset manager to set up and control the funds.

The correct terminology is a LISP, a Linked Investment Service Provider. These financial intermediaries provide access to a range of funds from different management companies.

The Pitfalls of Letting a Fund Manager Control your Living Annuity

Most people think they can just leave the management of their money to a financial planner or asset manager to grow the money in their fund. These people will pay a fee (Max of 1% that with VAT becomes 1.15%) for the advice and investment choices are left up to the advisor. Then everything will be fine until retirement…in theory.

This is not how it works in reality.
In life things are rarely this easy.
Asset Management companies are for profit, they will look to maximise their profit through fees and are not your friends that are going to be looking out for you and your life.

Why you should manage your living annuity fund yourself:

  • The EAC (Effective Annual Cost) of the whole investment including the investment management fee, advice, administration and other costs make up the Effective annual cost. This can be as high as 4- 5%. Which means if youare drawing the minimumof 2.5% per annum your fund manager is taking (stealing) more than you are each month.
  • Fund Managers and Advisors will recommend and sometimes lock you into using their funds, even though other funds are of a higher quality, have had better returns and may be better suited for your portfolio. You will be using under performing funds simply because the fees on this fund go to the company of the person advising you. For example if you use PSG asset managers they will advise you/manage your investment to be fully invested in PSG funds. Which means they get 100% of the fees.
  • The “highly specialised” buying and selling of assets is not a highly specialised thing. Most people trading on financial markets do not know the future – and are taking calculated risks. They are simply investing in a diversified set of companies, properties and bonds which usually track an index. The amateur investing in a market / passive fund tracker like an ETF outperforms active investment management professionals on average. Check this: Warren buffet $1m for a charity with this passive investment call.
  • The number 1 reason is that it is your money, you should be responsible for it and understand exactly why, what and how things are happening the way they are. You can’t simply believe the tricks of fund managers showing you fake predictions for the future. Most of these don’t take into account the reality that markets sometimes do badly.
  • Fees are constant, your returns are variable. Whether you make lots or little you will be paying a fixed amount of fees each year that can wither away the value of your living annuity.

Living Annuity Platform Comparisons

I have looked around the web and there aren’t many comparisons of Living Annuity Providers / LISP’s (Linked Investment Service Provider). There providers are usually part of the asset manager themselves and seem to only offer funds from their own stable. Nonetheless, I have searched for the different platforms and will show you the comparison in fees and eligible funds below:

Platform NameMin Platform Admin FeeFees on Local FundsFees on external FundsNumber of Funds AvailableExpense ratio on R10m (external)
Sygnia Alchemy00%0.5%620.25%
Glacier by Sanlam (Partner of Satrix)R640.84%0.84%9270.275%
Allan Gray Platform00.2%0.5%670.238%
OPN/PPS LIVING ANNUITY00.5%0.5%?0.238%
PSG Wealth00.350%0.575%4600.217%
Absa Linked Investments (AIMS)R2280.75%0.75%?
Ashburton Investments00%0.46%970.261%
Coronation Fund Managers Living Annuity00N/A23 (Only Coronation Funds)0%
Alexander Forbes Global Platform00.7%0.7%10 - 200.7%
INN8 Onshore00.5%0.5%
Liberty Bold1%0.5%0.5%1900.25%