Sygnia Asset Management’s advertisement claiming that investors could be losing up to 60% of their retirement savings to fees is not misleading, the Advertising Regulatory Board’s appeals committee has ruled.
In April, the ARB’s Directorate found the claim was unsubstantiated and therefore contravened the Code of Advertising Practice. It requested its members not to accept the advert for publication in its current format.
ARB members include the Association for Communication & Advertising, the Marketing Association of South Africa, the Association of Independent Publishers, the National Association of Broadcasters, and the South African Insurance Association.
The ARB is a self-regulatory entity funded by donations from marketers and advertisers. It administers the Code of Advertising Practice.
Sygnia posted the advert on its Facebook page on 6 February this year. It features a video accompanied by the following text:
“Invest better with a Sygnia Retirement Annuity
Are you aware that you could be losing as much as 60% of your retirement savings to fees? There’s a better way. Make the switch to a Sygnia Retirement Annuity and maximise your retirement savings. Secure your financial future with Sygnia.”
The complainant, Braam Hattingh, disputed the claim that RAs are so expensive that they can consume as much as 60% of one’s savings. Hattingh asserted this was “a blatant lie” designed to convince consumers to move their RAs to Sygnia. It created confusion and was misleading.
In its response to the complaint, Sygnia said a fund with lower recurring management fees will yield a greater net return than a fund with higher recurring fees. It said this claim was supported by a July 2013 discussion paper titled “Charges in South African retirement funds”, published by National Treasury.
The Directorate said the nearly 11-year-old “hypothetical model” published by Treasury was “virtually meaningless” relative to the claims made in the advert.
Independent modelling
Sygnia told the ARB’s Appeals Committee that the Directorate did not accord sufficient weight to the credibility of the Discussion Paper. The paper was largely the work of Dr David McCarthy, an actuary and a highly qualified researcher. McCarthy is a Fulbright Scholar with a PhD in Applied Economics from the Wharton School at the University of Pennsylvania. In 2013, he advised Treasury on aspects of retirement fund regulation.
Regarding the Directorate’s concern that the paper is outdated, Sygnia said the FSCA endorsed the paper in its 2022 Investment Guide. It quoted the Authority as stating that reducing investment fees from 2.5% to 0.5% annually can result in a retirement benefit 60% greater after 40 years. The FSCA added: “Costs add up. You don’t just lose the small fees paid, but also the potential growth over time. Saving even a small amount in fees can significantly impact your final investment.”
Sygnia submitted it independently modelled and confirmed the finding that a reduction in fees from 2.5% to 0.5% can yield a benefit 60% greater at retirement after 40 years, all else being equal. It said the 2% fee differential was a realistic comparison between Sygnia’s RA products and those of its competitors. The modelling was provided to the Appeal Committee.
Sygnia also provided the Appeals Committee with a comparative analysis of the total investment charge (TIC) of balanced funds similar to the Sygnia Skeleton Balanced 70 Fund. This comparative analysis is conducted regularly by Morningstar.
The Skeleton Balanced 70 Fund had a TIC of 0.54%, the fifth-lowest of 217 funds. The median for the group was 1.68%, so a significant number of peer group funds were more expensive by at least 1%.
Sygnia said most RA product providers charge an administration/product/platform fee in addition to the investment management fee of the underlying fund, whereas Sygnia does not charge an administration fee.
The asset manager further submitted that the advert does not guarantee that investors will save 60% more at retirement with Sygnia compared to other product providers. The advert is clear that consumers could be losing “as much as” 60% on the total investment return over time.
The Directorate said some consumers – particularly less financially literate and educated consumers – may believe the advert is saying they stand to lose 60% of their capital investment to fees.
Sygnia did not agree this was a reasonable interpretation because the advert urges consumers to “invest better” and “maximise your retirement savings” by paying closer to attention to the effect that higher fees have on your accumulated savings. There is no suggestion that investors could lose up to 60% of their capital.
In its appeal, Sygnia denied that the advert makes unsubstantiated claims, is misleading or confusing, or seeks to create fear.
Mathematically and factually accurate
The Appeals Committee found in favour of Sygnia, saying the advert is sufficiently clear and substantiated and therefore not in breach of the Code.
“We accept that the message of the advertisement is that a consumer has little control over how their money is invested or what returns they are likely to receive, but they can control what fees they pay. And that is what Sygnia is encouraging the consumer to engage with.”
Sygnia’s reliance on Treasury’s Discussion Paper, which was written by recognised experts, met the Code’s requirement for substantiation. The committee accepted Sygnia’s submission that the FSCA’s endorsement of the paper addressed concerns the paper is outdated.
The independent modelling submitted by Sygnia made it clear that the claims in the advert are mathematically and factually accurate.
The advert contains a link to Sygnia’s website where additional information can be obtained. Sygnia’s target market consists of people who are fairly financially astute and would engage with the nature of the fees and returns and would not be misled by the advertisement, the Appeals Committee said.
