People retiring without enough money is an issue all over the world. Things are particularly bad in South Africa, where, according to figures from National Treasury, 94% of people dont have enough to retire on, and where social grants dont come close to plugging the hole.

South Africa has a poor savings culture and individuals must take some responsibility for that. But many who do save diligently end up having to work longer or retire poorer than they had hoped, or both. The retirement industry largely made up of huge businesses with long histories of large profits must surely shoulder some of the blame.

There are various reasons for what many now see as a failure of the retirement industry, among them actively managed investment portfolios. Active fund managers charge high fees and, net of these fees, the great majority underperform the stock market over time. The likelihood of picking a fund manager who will outperform the market in the long term the time horizon that applies to most retirement investors is usually no better than 10% or 20%.

You might think that no one would pay high fees for an under-performing product for long, but that presumes a level of transparency in the industry that does not exist and a proper understanding of the charges among customers. The investment industry is famously difficult to understand, and people realise their pensions are not what they were cracked up to be only when it is too late to do anything about it that is, when they retire.

Also, the asset management industry has long cultivated an image of being an exclusive and highly complex world that your average investor would not be able to navigate without the help of the insiders, those rare and highly paid experts. The fund name, the managers and the fee structures are often so obscure that even insiders find them hard to explain.

The argument for high fees is that fund management is an expensive business, involving a lot of costly research that must be done by the crème de la crème of the financial world. There is an idea among the outsiders (the customers, the ordinary mortals) that you get what you pay for. There is a presumption that paying more for something means it has value. You could roll out any number of clichés here right up to the old chestnut: If you pay peanuts, you get monkeys. (And there are those who say you might as well.)

The truth is that the market beats those highly paid experts many more times than not. The evidence shows that investors are better off putting their money in a low-cost passively managed fund, one that tracks the market rather than relies on a fund manager or investment adviser.

The industry marketing (and there is a lot of it) persuades us that the well-paid experts consistently beat the market by predicting market moves and choosing winners, but the evidence shows that this happens only occasionally. Just think about it: what are the chances of reliably predicting the future?

If someone does, luck must surely play a role, and how likely is it that this will happen to the same person again and again? Rationally speaking, there is no sure way to tell which fund manager will beat the market next year; the past is not a reliable guide to the future.

League tables for the top fund managers prove this: 39 out of 156 South African General Equity Funds beat the FTSE/JSE All Share Total Return Index over one year to the end of July 2016. Out of the 39 funds, only seven could beat the same index in the subsequent year to July 2017. Only 18% of the funds that beat the benchmark over one year could beat the benchmark the subsequent year. (Source: ProfileData, Sector: South African Equity General)

10X Investments, which is in the vanguard of disruptors in South Africa, is urging fund members to interrogate the products they are buying, particularly the high fees they pay for the benefit of what amounts to not much more than a calculated guess about the future.

10X Investments promises consistently good results for all their customers using one simple, transparent investing formula. From the bricklayer to the board member, 10X says, all customers benefit from the formula, which relies entirely on index tracking, also known as passive fund management.

It might seem like the new hot trend but passive investing is no flash in the pan. Index funds have been around for a number of decades and have already gained a large and fast-growing following in the US. Supporters say it is just a matter of time before it really catches on in South Africa.

In the US, the evidence overwhelmingly supports passive investing. The Spiva scorecard (published by S&P Dow Jones Indices) reports that over the 15-year period ending December 2016, 92% of large-cap, 95% of mid-cap and 93% of small-cap managers trailed their respective benchmarks. The average outperformance is 1.5% pa, a cumulative enhancement of almost 25%, simply by tracking the market.

But does it suit the local market? The naysayers argue that it doesnt, claiming that the countrys market is not nearly as efficient as that in the US.

But the basic case for indexing is not premised on market efficiency, but on simple arithmetic. On average, both index trackers and active investors match the market return, before fees. But as index investors pay lower fees, they earn a higher average net return than active investors. That holds true for every market, in every country, in both bull and bear markets.

Active investing is a zero-sum game before fees: half the invested money will beat the market average and half will lag. This means that net of fees the majority of actively managed money is destined to underperform.

When Jack Bogle, who was chief executive of Vanguard, one of the global leaders in index tracking, launched the worlds first index fund in 1975, he was met with scorn and ridicule. His peers protested that settling for average was un-American and called on investors to stamp out index funds. The scorn has long since turned to respect and envy and Vanguard dominates the mutual funds industry today.

The company manages $4-trillion of assets, has a 23% market share and saw $300-billion of cash flows in 2016 (more than its 10 closest rivals combined). As it turns out, theres nothing more American than going after the best deal in town.