Questions to ask yourself before investing in Debit order investments

What are financial advisors (FA)?

A financial advisor, who is also referred to as an “Authorised representative”, is a person authorised by a manager to solicit investments in a portfolio from members of the public or to give financial advice or make disclosure of information to investors or potential investors concerning the sale, repurchase, issue or cancellation of a participatory interest.

What is the role of a financial advisor?

A Financial Advisor must take all reasonable steps to: Determine your investment objectives, risk tolerance, financial situation and investment experience; Ensure that the product s/he recommends is suitable for you, taking into account all the information you gave; and Explain to you why the product s/he is recommending is suitable for you. Financial Advisors in Namibia are currently not required to register with NAMFISA, therefore, the onus lies with the consumer to understand the following terms before investing in a unit trust fund

What is a unit trust?

A Unit Trust Fund pools money from investors and invests it in a portfolio of assets according to the fund’s stated investment objective and investment approach. Through a unit trust fund, an investor can also achieve a spread of investments in assets such as shares, bonds, deposits, money market instruments, real estate etc. A unit trust is a fund which adopts a trust structure. The pool is managed by a team of full time professionals and a trustee is appointed to protect the interests of the unit holders. What are the benefits of investing in a unit trust? A financial advisor must be able to explain the benefit of investing in a unit trust. However, some of the benefit are listed below as follows:
  • Professional Investment Management: Unit Trust Management Companies hire full-time investment professionals to manage the investment portfolios;
  • These managers have realtime access to market information and they are able to execute trades in a very quick and cost-effective manner;
  • Affordable and Easy: Unit Trusts are affordable as you can invest small amounts of money (as little as N$100 per month) and this makes it possible for more people to easily invest in underlying assets that they normally would not be able to afford;
  • Diversification: Unit Trusts invest in a broad range of securities. This limits investment risk by reducing the investor’s exposure to a possible decline in the value of any one security.
  • Liquidity: Unit Trusts in Securities are easy to sell which means that you can sell all or part of your investment at any time and get your money back in a prompt manner at the relevant market related prices;
  • Transparency: You get regular information on the value of your investment and you may be able to obtain information on the specific investments that are made by the Unit Trust Fund;
  • Different investment options: Unit Trusts in Securities offer flexible investment options as you can make
  • Lump sum investments – these can be made at any time once you have opened your collective investment account
  • Debit order investments – you can make regular payments, e.g. monthly, into your account;
  • Switching – as there are many different collective investment portfolios, you can switch between different portfolios at little or no cost.

Do all unit trusts have equal risk?

All investment carry some degree of risk that could affect the value of your savings. It’s important for you to know the type of risks associated with the investment you make. In this regard, ask your financial Adviser to explain the type of risk associated with your potential investment.

Types of Retirement Funds and Benefits

What information should a financial advisor disclose to you when recommending an investment product?

Your Financial Advisor should be able to provide you with up to date information about the various investment products available to you (in accordance with your risk appetite), the associated costs and the services they provide to you. When a financial advisor is recommending a unit trust to you, s/he is required to disclose the key features of the product including the following:
  • Nature and aim of the product: Whether the product is a unit trust (in securities or property), and whether it is meant for protection, savings or investment
  • Benefits of the product: Information on the amount and timing for payment of benefits and whether the benefits are guaranteed or non-guaranteed.
  • Risks of the product: Take the time to understand whether the funds you’ve shortlisted actually fit in with your risk profile before you invest in them. Details of the risk factors that may result in the benefits payable as stated in the prospectus or profile statement (for a unit trust)
  • Details about the fund manager: The business address and permitted activities of the fund manager, and the relationship between the fund manager and the Financial Advisor.
  • Fees and charges to be borne by you (investor): Details of the amount and nature of fees and charges to be paid by you, and the frequency of payment
  • Tax on profits: Details on the withholding tax to be charged on dividends earned and calculations thereof. Warnings, exclusions and disclaimers: Information on the procedures, charges and restrictions for withdrawal, surrender or claim of the product.
  • Reports that you are entitled to receive: Details of how often you can expect to receive reports on your unit trust investment and how you can get the reports (email, Post, website, etc.).
  • Time Horizon: Determine whether the unit funds you wish to invest in fit your time horizon goals
  • Fund distributions? Find out how frequently the fund will distribute (interest)
  • Switching between funds/ portfolios? Find out whether you have the option of switching between funds and the costs involved

What documents must a Financial Advisor give me when recommending an investment product?

  • A summary of the information obtained from you on your investment objectives, financial situation and personal needs; The specific recommendations of the Financial Advisor and the basis for the recommendation;
  • A copy of the prospectus or profile statement (for unit trusts only);
  • A copy of the product summary and benefit (fund fact sheets
Ask. Read. Understand. Then Decide
Get your Financial Advisor to explain what is in these documents. Read the documents carefully, including the fine print, and ask your Financial Advisor if there is anything you do not understand or are unsure about.

How do I check whether a unit trust is approved for offer to the public?

list of approved management companies and funds is immediately available upon request from the NAMFISA. In addition, the management companies are issued with registration certificates which must be visible at the management company’s offices. Lastly, all registered unit trust funds are also listed on the Association for Unit Trusts website. Although there are laws and guidelines to aid investor protection, it is ultimately the investor’s responsibility to evaluate the suitability, profitability and viability of an investment. An investor must read the information which is required to be provided in the prospectus and make the decision whether to invest or not, based on their own circumstance and attitude to risk.

What reports can I expect to receive for my unit trust investment and how frequently will these reports be sent to me?

Information pertaining to the performance of your unit trust investment must be provided to you on a quarterly basis or at financial year end of the company. This information includes:
  • Annual Reports and Performance Statements from the Fund Manager
  • Monthly or Quarterly Fund Fact Sheets
  • Investment Statement
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