Is My Money Protected?

Following the news of BHI Ponzi scheme where the press is reporting losses of close to R3 billion by more than two thousand investors, many people are wondering whether their investments are safe.

We at Apex Private Wealth, in common with many other advisers, are careful to treat client’s investment money in such a way that it could not be misappropriated. There are many layers of protection, which if followed, should give you comfort.

 The adviser firm should be licensed (and therefore regulated) by the Financial Services Conduct Authority (FSCA). This includes complying with and reporting on many aspects. Our FSP number is 52487.

  • The adviser needs to be registered, have the requisite experience, and passed the RE5 regulatory exam.
  • The investment platform needs to be licensed and regulated as a Financial Services Provider (FSP) with the FSCA. They need to display their registration number.
  • The funds in which we invest are regulated either as unit trusts or share portfolios.
  • Unit trusts are regulated by the FSCA. They are required to comply with rules and publish a minimum disclosure document which includes information on fund risk level, fund price, returns, fees charged. Unregulated unit trusts are less protected.
  • The unit trust is managed by a registered manager and the portfolio is held by an independent custodian, typically one of the large banks. The manager can trade shares but never has access to the money.
  • Share portfolios are similarly regulated via the Johannesburg Stock Exchange where shares are listed. Unlisted shares are not regulated.
  • These rules also apply to offshore unit trusts, where the FSCA registers and regulates certain unit trusts sold in South Africa.
  • A unit trust typically invests in a range of instruments, such as shares, bonds, or property trusts. Their portfolios are diversified so that a loss is limited by to a small portion of the portfolio. An example was Steinhoff, where the company failure had a small impact on most unit trusts, which held less than 10% in the company.

You can see that there are several layers of protection for regulated investments and below is a flow chart of the various levels of protection and responsible parties.

Investments such as a Ponzi scheme, crypto currency or get rich quick product are not protected and you run a significant risk of loss. Do not put all your money there!

We at Apex apply three further risk mitigation measures.

  • We take great care to select reputable and top performing managers. They have long track records, strong research teams and sound investment processes.
  • We diversify across a few managers, typically three for each risk group, and with a low correlation to each other. This ensures that if one manager stumbles or takes a different view of the future, the others will even out any dip. Our experience over many years is that our selection outperforms the average of the sector.
  • We never take your investment capital. It goes straight to the investment platform.
  • You receive regular statements from the investment platform in addition to the reviews from your advisor.

Our process may sound boring, but the investment coin has a reward side and a risk side, both of which need attention. In the long run that is how to win at the game of investing.