Definition:

A Linked Investment Service Provider (LISP) is an independent administration company that offers investors access to collective investment schemes (or unit trusts) across a number of different management companies.  One could use a LISP to invest proceeds in one of the following, although each would have different tax implications and fund restrictions:

• a unit trust investment   
• an endowment policy 
• a living annuity 
• a retirement annuity

It is important to note that a LISP acts purely as an administrator and does not manage the fund assets nor does it provide investment advice.

Benefits:

• Easy to understand investment solutions
• Eliminates the burden of buying unit trusts from different companies
• Available for discretionary investments as well as retirement funds
• Wide range of investment options
• No penalties relating to stopping your contributions (if there is a regular one being made as opposed to a lump sum)
• Investor is responsible for any income tax payable as well as CGT when a withdrawal is made from a fund
• Consolidated investment reporting
• Provides a single view of your investment portfolio
• 3 LISP fees:
  1. Platform (Admin)
  2. PW Harvey & Co advice (Broker)
  3. Unity Trust Fund (Manager)
• Flexible investment terms
• There are no guarantees (unless money market funds are used)
• Unit Trust Funds are classified between “low risk and aggressive” and the ones used would depend on the client’s risk profile (Rating 1 to 5)
• Often provide funds at reduced costs compared to stand alone funds
• Facilitates switching between funds
• 24-hour access to statements, valuations and transactional history
• A dedicated service team
• Funds are available within 7 working days should a withdrawal be necessary

Below is an example of a R 2 500 000 unit trust investment using an Old Mutual LISP platform.

Using a spread of different unit trust funds with different risk profiles, we are able to invest these funds at a total ongoing cost of 2.07% per annum thereby taking advantage of the benefits of investing in a LISP, as listed below.

An Endowment has a number of similar features but differs from a LISP as a result of the following:

• Choosing to use an endowment should be based on tax and estate planning reasons (not for investment reasons).
• The proceeds from an endowment are paid out after the administrator has already withheld income and capital gains tax (deducted during the term). Income tax at 30% and CGT at a rate of 12%.
• Investing a family trust’s money in an endowment makes sense as we are able to reduce the income tax rate from 41% to 30% and the rate of CGT from 33% to 12%.
• Traditionally, an endowment is a long term investment (minimum term 5 years).
• There are limited withdrawal opportunities during the first 5 years although a client is entitled to capital plus 5% at any stage during the term.
• A beneficiary may be appointed on an endowment thereby ensuring speedy transfer of Funds as well as executors’ fees saving on the death of the contracting party.
• An endowment can also be used as security and may be ceded to a financial institution for this purpose