In many of my readings, I often come across articles on multiple asset classes and their respective market commentaries describing the movement of financial markets. However, not much is said about the benefits this will bring you as an investor. Also, little space is given to how you can apply this to your investment portfolio.
After many years of consulting with several investors, I have come to realize that many investors do not know where to start their investments and simply let the capital build up in their bank account. Not that there is anything wrong with money in a bank account, but there are other ways to grow capital over time.
This brings me to the discussion of Linked Investment Service Providers (LISP for short) as an alternative way to invest your capital rather than letting your capital build up in your bank account at a modest interest rate. LISPs are an investment that allows you to have access to multiple funds from different fund managers on a single platform. Additionally, LISPs offer a plethora of different investment products, but I’d like to focus on core discretionary investing (as in the case of non-pension multi-party trusts).
The advantages of investing in a LISP investment (I will call it ‘LISP investment’ for short as many LISP companies refer to these investments by different product names even though they are all essentially the same) are as follows, but without be limited to:
- No regulatory compliance such as Regulation 28;
- There is no minimum duration;
- Provides a wide range of investment options;
- Provides a single view of your investment portfolio;
- Facilitates switching between funds;
- Funds can be invested as a lump sum or via a debit order;
- Withdrawals are unlimited and can be taken all at once. or a regular withdrawal
Due to the advantages mentioned above, LISP accounts can be used for multiple reasons and in many ways.
One of the flexibilities is that the investment does not need to comply with Regulation 28 of the Pension Funds Act, as this only applies to pension funds. Regulation 28 limits the exposure you can have in certain asset classes.
Assuming you want to reduce or increase your exposure to an asset class such as stocks, properties, bonds, and cash based on market conditions, the mutual funds that make up the underlying portfolio can be changed to reflect your current preference, often without at a low cost (some LISP service providers charge for switches).
As mentioned above LISP Investments offers a regular withdrawal option, this withdrawal can be structured from all underlying trusts or from a single trust in your portfolio. Suppose the latter applies; this allows you to select a single mutual fund for withdrawal while letting the other mutual funds in your portfolio grow undisturbed.
As an investor in this type of product, you have a wide variety of SICAVs to include in your portfolio, such as single asset class SICAVs or multi-asset class funds (like a balanced fund and a feeder fund). , thus diversifying your risk.
The advantage of mixing different mutual funds from different fund managers is that you can reduce your concentration of risk, thereby creating a portfolio that suits your investment goals. Blending your portfolio into multiple asset classes allows you to tap into offshore markets without using your regulated offshore investment allocations.
One question that comes to my mind is: what are the downsides of LISP Investments? A brief overview of the downsides of this product is that there are tax implications (such as capital gains tax and interest earned tax) and the capital is not guaranteed, therefore more, you cannot designate a beneficiary.
Regardless of the vast benefits posed by this investment, many investors simply feel that they do not have the level of knowledge required to select the right mix of mutual funds to meet their investment objectives, liquidity or their unique needs. For these types of investors, I urge them to consult with a knowledgeable independent investment advisor to help structure this investment and manage this investment from time to time as the markets are constantly changing. An Investment Advisor will help you refine, rebalance or change your investment portfolio based on:
- Your investment objectives;
- Your investment strategy;
- Liquidity needs;
- Regulatory and tax requirements;
- Unique needs; and
- Risk tolerance and willingness to take risks.
I have presented this article in generic terms, however, if you would like more information on how to invest in this product, please contact us at Global & Local or speak to your own trusted investment advisor.