FinancialPLANNER

The

SUPPORTING EXCELLENCE IN FINANCIAL PLANNING

Issue 42 (3 of 2016)

Human vs.Robo

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The Financial Planner magazine is published by CEO Global. www.ceomag.co.za

Opinions expressed in this publication are those of the authors and do not necessarily reflect those of this journal, its editor or its publishers, CEO Global. The mention of specific products in articles or advertisements does not imply that they are endorsed or recommended by this journal or its publishers in preference to others of a similar nature, which are not mentioned or advertised. While every effort is made to ensure accuracy of editorial content, the publishers do not accept responsibility for omissions, errors or any consequences that may arise therefrom. Reliance on any information contained in this publication is at your own risk. The publishers make no representations or warranties, express or implied, as to the correctness or suitability of the information contained and/or the products advertised in this publication. The publishers shall not be liable for any damages or loss, howsoever arising, incurred by readers of this publication or any other person/s. The publishers disclaim all responsibility and liability for any damages, including pure economic loss and any consequential damages, resulting from the use of any service or product advertised in this publication. Readers of this publication indemnify and hold harmless the publishers of this magazine, its officers, employees and servants for any demand, action, application or other proceedings made by any third party and arising out of or in connection with the use of any services and/or products or the reliance of any information contained in this publication.

Contents

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ContentsLetter from fPI

ProfILeS

FPI Award Finalists

FPI Approved Professional Practice™ firms

CLIent engagement

Human Advisor versus the Robo-Advisors

emPLoYee BenefItS

Shifting the Benefits of Employee Benefits

eStateS and truStS

A new look at Intestate Succession and Estate Planning

etHICS

The importance of African Ethics in Financial Planning

InduStrY neWS

InVeStment

Robo Financial Advice; the Good, the Bad and the Confusing

PraCtICe management

Financial Planners vs. Social Media…Should you, or Shouldn’t you?

retIrement

A South African retirement story: Two sides of a Saved coin- part 2

How to Fund a Retirement Income for Life

teCHnoLogY

Embrace the Digital Age and set Yourself Apart

BooK reVIeWS

The Financial Planner magazine is now available on the MoneyMail App

the financial Plannerwww.fpi.co.zatel: 086 1000 fPI (374)

Tsholofelo Dihutso, CPRP EditorCommunications Specialistmedia@fpi.co.za

editorial enquiries:media@fpi.co.za

Postal address:PO Box 6493, Weltevredenpark, 1715Street address:84 Sophia Street (Cnr 11th Avenue), Fairland, Johannesburg, 2170

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FinancialPLANNER

The

SUPPORTING EXCELLENCE IN FINANCIAL PLANNING

Issue 42 (3 of 2016)

Human vs.Robo

PROOF THAT WE’RE DOING THE

RIGHT THINGS RIGHT, DAY AFTER DAY,

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*Best Fund House: Larger Fund Range, Morningstar Awards, 2016.Prudential Investment Managers (SA) (Pty) Ltd is a licensed financial services provider.

If you aren’t already investing with us, contact our Client Services team on 0860 105 775, speak to your Financial Adviser or visit:

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Consistency is the only currency that matters.

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Looking forward

Letter from fPI

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to the year ahead

As 2017 is upon us, it’s important that we look at the year ahead and how we can improve the financial services industry as a whole. We also need to look at empowerment of both CERTIFIED FINANCIAL PLANNER®/CFP® professionals and their clients. We

need to first gauge the evolution of financial planning clients and changes to their environment, then exploring how these will likely affect financial planning practitioners.

While some financial planning professionals may at first feel intimidated by robo-advisors and other technological advancements, they will need to employ a more effective use of technology, more complex financial strategies, implement different business models, endure stricter regulations, possess stronger soft skills, operate in a non-commoditised environment, peer-to-peer rating as well as more effective marketing tactics to add value to the future.

the value of financial planningWe have certainly noted an increase in awareness around the value of financial planning amongst South Africans, with the global Comparator Research Survey suggesting that 78% of companies surveyed, expected an increase in the number of South Africans seeking professional financial planning advice in the short term. Our Global Consumer Survey also found that 38% of consumers currently using a CFP® professional feel confident that they can achieve their financial goals.

I am satisfied with the path we, as FPI, are on and I believe the Institute is well on its way to reshaping the financial planning profession in South Africa. Of paramount importance to us and that of the industry is maintaining the highest levels of ethics and professionalism amongst our member base. If financial planning is to be an integral part in the lives of most South Africans, it stands

to reason that we should always have the interest of consumers at heart. While our aim is to improve membership levels as part of ensuring that there's a wider spread of well qualified and accredited financial planners, the quality of advice takes precedence.

the year aheadNext year, we would like to put a focus on, and expand on, the use of technology and how robo-advisors can assist in ensuring that professionals keep up with modern and innovative ways to provide first-rate value propositions for their clients. We have obviously focused in the past on local and global trends of financial planning as well as regulatory aspects, however 2017 will see a continuation of these topics been covered. With our international affiliates, from Financial Planning Standards Board’s (FPSB) 25 member countries attending our annual FPI Professionals Convention to be held on 19-20 October in Cape Town, these topics come at no perfect time. We will also take this opportunity to further engage with key industry players to continue advocating for this ever growing global profession and to promote professionalism to ensure that the financial planning professionals are always acting in the client’s best interest.

In a perfect world, next year we would like to see every single financial planner or advisor working towards attaining the professional designation, particularly the CFP® designation. This would instantly professionalise the industry, restore much needed public trust in the industry and increase pride in profession, ultimately resulting in better outcomes for all South Africans.

Godfrey NtiChief Executive Officer|Financial Planning Institute of Southern Africa (FPI)

Letter from fPI

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Finalists Profiles

The 2016 FPI Financial Planner of the Year competition proved to attract some of the country’s best CERTIFIED FINANCIAL PLANNER® professionals. The competition was tough, but the

planners endured to the end.

Wende Davids, Customer Experience Officer, interviewed Yolande Botha, CFP®, and Francois Le Roux, CFP®, finalists of the 2016 FPI Financial Planner of the Year competition, to find out what their experience of the competition was and how it’s added value to their lives.

aWard fInaLIStS

Award

by Wende Davids Customer Experience Officer,Financial Planning Institute (FPI)

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What motivated you to take part in this year’s competition? I spent the first part of my career in the legal profession as an attorney in private practice, where professional ethics, accountability and fees were part of my existence pretty much from day one. Being part of one of the oldest and most established professions you command respect throughout. My passion for professionalism has prompted me to enter the competition and to contribute to the growth of our much younger profession. My wish is to see financial planners grow in status, taking our rightful place alongside the older, more established professions like law, medicine, accounting and engineering.

What has been the greatest learning that you have taken away from the competition?It has given me a better sense of what FPI is all about, and its actions to serve and further the interests of the financial planning profession in South Africa. With that, a renewed focus and understanding of the value of good financial planning advice. Also a deeper appreciation for our affiliation

Well done on being a finalist in the 2016 FPI Financial Planner of the Year award.

Francois Le Roux, CFP®

aWard fInaLIStS

also a deeper appreciation for our affiliation with the

international financial Planning Standards Board (fPSB), and the global recognition that we enjoy

as top rated CfP® professionals in South africa.

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aWard fInaLIStS

with the international Financial Planning Standards Board (FPSB), and the global recognition that we enjoy as top rated CFP® professionals in South Africa. We have a good story to tell – let’s continue doing that.

describe in six words, what you felt when you were told you are a finalist.Immensely honoured, grateful, overjoyed and proud.

If you were to encourage other planners out there to enter the fPI financial Planner of the Year competition, what would you say?This is a challenge that every serious professional financial planner should consider taking up. As you progress through the rounds, the pace picks up, and eventually it becomes intense, particularly when you are running an established practice that demands your time as well. Therefore, align your support network (at work and home!) closely around you, as you will need that throughout the competition. Taking yourself out of your comfort zone is stressful, but I was once again amazed at what the human mind and spirit is capable of enduring and producing under these conditions. So do take up this wonderful challenge – probably the greatest test of your professional skills and abilities, and definitely a ground-breaking experience.

What have been some of your proudest moments; personally and professionally?Getting my Master’s Degree was good, being admitted as an attorney by the High Court of South Africa was even better, but being announced in the 'top three' in the FPI Financial Planner of the Year competition was great! And I couldn’t have done this without the incredible support received from the Private Wealth Management team. Being recognised by your professional governing body at this level has undoubtedly been my proudest professional accomplishment to date. On a personal level keeping my family intact despite our busy lives has been rewarding, particularly seeing my children grow up, develop, flourish and being successful in their own right.

mention one serious or silly thing about yourself that people don’t know.I had a considerable amount of doubt about my potential for success in the financial planning arena when I left the legal profession some 16 years ago. The first year was extremely tough, but fortunately my career has gone from strength to strength since then.

I had a serious desire 15 years ago to travel and see something of the planet, but I could not see this happening. Fortunately this dream has become a reality, and I’ve travelled from Hollywood to the Great Wall of China, and a whole lot in between. More recently we travelled with our children, and it has been a privilege to unlock something of our great planet for them as well.

If you spot a Narina Trogon, consider yourself among a fortunate few. It’s one of Africa’s most elusive birds – a rare breed indeed.

Like graduate professionals. Which is why PPS, with our rare insight into the graduate professional world, acknowledges and rewards the achievement of being one.

As a PPS member, you benefit not only from financial services exclusively available to graduate professionals, but also from our unique PPS Profit-Share Account.

Rare achievements deserve reward. Contact your PPS-accredited financial adviser or visit pps.co.za to see if you qualify.

RARE IS REWARDING

The rara avis apaloderma narina narina trogon

Members with qualifying products share all the profits of PPS PPS offers financial solutions to select graduate professionals with a 4-year degree. PPS is an authorised Financial Services Provider

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aWard fInaLIStS

What motivated you to take part in this year’s competition? If you strive to be world class, the only good way to test whether you are on the right path is to enter the Financial Planner of the Year competition. This competition is the most rigorous and comprehensive assessment in our industry. Being named a finalist in this years’ competition was a great honour.

As an organisation we strive to give world class advice. This means that a lot of work goes into the planning processes, systems and communication with clients. There is ongoing training for all our planners and we need to stay up to date with new developments in the industry and legislation to ensure that our clients are treated in the best way possible. Being a finalist in the FPI Financial Planner of the Year competition is validation for myself as a financial planner and for Galileo Capital as a business.

What an achievement; being a finalist in the FPI Financial Planner of the Year Award on your first attempt at the competition.

Yolande Botha, CFP®

Woman are also good at giving advice. as it was once said: “god

made adam first as he didn’t want any advice from eve on how

to make adam”.

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aWard fInaLIStS

What has been the greatest learning that you have taken away from the competition?Perfection is a moving and without a doubt, an impossible target; you can always improve. In our industry, we have to work with many assumptions and to work to get the best possible outcome is a challenge you need to take up with each and every client.

I have had fantastic support from our company’s leadership and the learning curve became exponential during the competition. I was very lucky to have Warren Ingram, CFP® who won the award in 2011, as well as the FPI Media Award in 2012, to help with some of the trickier questions I had.

describe in six words, what you felt when you were told you are a finalist.Very excited, happy and bowled over.

You were the rose among the thorns, the only woman finalist. If you were to encourage other female planners out there to enter the fPI financial Planner of the Year competition, what would you say?This competition teaches you a lot about yourself and by design makes you a better planner. Amongst their other skills, woman usually have good organisational abilities and generally have a lot of empathy for others. This makes them good planners. Woman are also good at giving advice. As it was once said: “God made Adam first as he didn’t want any advice from Eve on how to make Adam”.

What have been some of your proudest moments; personally and professionally?Being named as a finalist in the FPI Financial Planner of the Year competition stands out as a very proud moment professionally. There are some instances where I have been able to make a real difference in people’s lives and that definitely rates at the top as personally rewarding moments.

mention one serious or silly thing about yourself that people don’t know.I am like a kid when it comes to scuba diving and had the privilege of seeing manta rays (the elephant of the sea), diving with whale sharks and having dolphins join us on a dive.

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ProfILe

FirmsThe Financial Planning Institute’s (FPI) mission is to advance and promote the pre-eminence

and status of financial planning professionals, while at all times acting in the interests of the society whom the profession serves. The FPI Approved Professional PracticeTM brand plays and

important role in assisting the Institute in fostering this mission.

Absolut Wealth Management and Gradidge-Mahura Investments, who have recently been recognised as an FPI Approved Professional PracticeTM firms, are profiled in this edition and highlight the:

• ImportanceofbeinganFPIApprovedProfessionalPracticeTM;• Howtherecognitionaddsvaluetotheirbusiness;• WhytheFPIApprovedProfessionalPracticeTM recognition is important to help promote the

CFP® mark and help deepen engagement efforts with their clients.

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Wealth Management Absolut

Personal finances evoke powerful emotions in all of us. By understanding what is important to you, Absolut

Wealth Management is able to reduce client’s fear and anxiety by managing their financial plan, educating and

coaching them along the way.

Absolut Wealth Management as a privately owned and completely independent financial planning practice, offers a complete Wealth Management solution and holistic financial planning service. It also empowers their clients to make wise financial decisions to protect and grow their wealth.

With the practice’s financial planner/advisors being CERTIFIED FINANCIAL PLANNER®/CFP® professionals, it ensures that a high standard of quality advice is offered and maintained.

Absolut Wealth Management advise clients on their life savings and help them to ensure that their families and loved ones will be financial taken care of when they are no longer around. This is a responsibility that the practice takes very seriously in honouring the trust that their clients have placed in them, by treating them fairly and engaging them in a transparent and professional manner.

Being an fPI approved Professional Practice™Absolut Wealth Management believes that by becoming an FPI Approved Professional PracticeTM, it has further supported and professionalised the practice as an organisation as well as the service they offer to their clients. The recognition gives their clients peace of mind and trust that they are dealing with a highly credible organisation that is committed to maintaining the highest

standard in the industry. It also helps them attract and retain high quality financial planners/advisors and staff.

their offeringAbsolut Wealth Management offers objective and independent financial advice to both individuals, small and medium size business. Their financial planners/advisors have specialised in fields such as investments (local and offshore), retirement planning, estate planning, succession planning, risk management and employee benefits.

They have aligned their business model with their client’s interests, so that they can share a long and mutually beneficial partnership.

Their goal is to understand their client’s objectives and life journey in order to create a customised comprehensive financial life plan.

about absolut Wealth management

Absolut Wealth Management was founded in January 2004 by Michael Westcott, CFP® who had previously been an investment manager with Appleton Wealth Management, which was then sold to the PSG Group in August 2002. His objective was to create an advice based financial planning practice that he would want to be a client of.

Absolut Wealth Management was automatically aligned from the beginning with the then new FAIS and FICA Acts, which were just coming into effect. They offer both bespoke investments solutions as well as actively managed model portfolio’s.

Absolut Wealth Management has become a trusted brand with offices currently in Johannesburg and Cape Town.

Visit www.absolutwealth.co.za

ProfILe

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Why professional financial planning?The importance of comprehensive planning has not been fully appreciated by market participants, including clients and the broader financial services in general. The development of the industry has placed the focus on sales, fund selection and product features. With time it has become clearer that this approach has not delivered meaningful value to clients.

Planning has also become more important as a result of increasing complexity in tax, pension and financial services legislation. We are also dealing with a more demanding client wanting to understand the context in which financial planning advice is being offered.

Corporates and other institutions employ entire teams of highly skilled people to do planning (strategic, financial and organisational), and ensure that they achieve their long term objectives. The same should apply to individuals as they too have objectives that they wish to achieve.

the importance of becoming a recognised fPI approved Professional Practice™ At Gradidge-Mahura Investments the motto is Independent. Professional. Confidential. While independence and confidentiality are easier to measure, professionalism is a more complex construct. It is great to be able to go through an independent and structured process, and be found that they are indeed professional in their approach to dealing with clients. Being the first black owned and managed practice to achieve this is the cherry on top, and hopefully inspires other black practices to follow their lead.

A key requirement for an effective financial plan is trust. This recognition helps Gradidge-Mahura Investments to build that bridge of trust a lot quicker. Client referrals and other initiatives and programmes also assist in building that trust. In 2016 the company entered the Intellidex Wealth and Private Banking Survey for the first time. Ranking 3rd in the overall category for boutique managers. They were also ranked 2nd in the People’s Choice category which is based on the feedback from clients. These achievements, in addition to the academic achievements of various staff over the years make it easier for clients and prospective clients to put their trust in GMI as their advisor.

added value of recognitionThe recognition has helped in a number of ways; clients have peace of mind that they are dealing with a professional practice that is adhering

Gradidge-Mahura Investments

About Gradidge-Mahura Investments

Gradidge-Mahura Investments was founded in 2008 by Craig Gradidge, CFP® and Kagisho Mahura, CFP®. The company was incorporated in June 2008, and licensed in October 2008. Virath Juggai, CFP® joined as a partner in March 2011 with a view to increasing the service offering to clients.

The company offers a comprehensive, analysis driven financial planning service for individuals and companies. Services include risk planning, retirement planning, investment planning and estate planning.

The company is black owned and managed, and corporate clients can benefit from its BBBEE level 2 classification. The company has offices in Johannesburg, Cape Town and Durban.

For more information about Gradidge-Mahura Investments, visit gminvestments.co.za

to the highest financial planning standard that the country has to offer, employees are proud to be working for a company that operates with the highest standards, and shareholders have assurance that they have indeed invested in a professional business.

However, the recognition comes with added responsibility on staff as they have to live up to this expectation. It is not only the credibility of their company on the line, but that of FPI as well. It is a responsibility that Gradidge-Mahura Investments are acutely aware of, and one that motivates them on an ongoing basis.

ProfILe

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unparalleled path of professional development and mentorship towards building a career in financial services.

If you would like to be part of this dynamic and innovative business, please send your CV and cover letter to dfa@discovery.co.za.

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CLIent engagement

Robo-Advisor

By Kobus Kleyn, CFP®

2015 and 2016 FPI It Starts with Me Award Winner and Financial Planning Institute’s Risk Competency Committee Chairperson

versus the

Human Advisor

Describing robo-advice (and in real terms it should be referred to as on-line advice), within our presence as a major disruptor or opportunity, we as financial advisors must take note of this major trend within the financial services sector. We need to embrace this online

technology and systems to build and incorporate it into our practices and businesses to enhance our long term sustainability and profitability.

Robo-advice can effectively be used to reduce the general administration hassles we have to deal with daily and especially with regards to investments practices.

By utilising it you will certainly be able to reduce cost and become much more efficient. It is therefore up to all of us who can deal with change management to make robo-advice work for us and not against us and this is absolutely possible. I strongly believe an advisor value proposition cannot be automated and neither can face to face relationships. The main reason for this belief is that we work with dreams and aspirations of clients which you can only feel as a human being. On top of this critical fact clients really want to know that they will be taken care of during life changing events and problems in life and that their affairs will be taken care of with empathy to their family and dependants once they have deceased!

With the upcoming Retail Distribution Review (RDR), robo-advice can lead to better advice affordability and to indeed reduce the advice gap which normally is a consequence of RDR roll out over the first couple of years. Robo-advice is still better than no advice. We should be aware that robo-advice is purely targeting investment advice at this stage.

I for one believe that that millennials would be prone to use robo-advice as they appear the least confident on advice decisions and embrace technology which they are simply comfortable with.

CLIent engagement

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We need to embrace this online technology and systems to build and incorporate it into our practices and businesses to enhance our long term

sustainability and profitability.

This really opens a whole new niche market for older advisors who are struggling to get to terms with the Millennials way of operating.

There has been a myriad of electronic technology changes on the financial services profession and it simply is snowballing as I write this piece. The generation gaps as we know it has expended on top of this and new terms for new generations born is becoming futuristic.

It is imperative that financial advisors not only anticipate such disruptors and opportunity, but also apply innovation on how to

engage with these generations in the midst of continuous pressure to participate to ensure younger client bases are created as your older clients bases may fall off the books.

The answer for most financial advisors and practices would be the use of hybrid investment systems and tools on advice to your clients

We have to embrace technological advances with vigour to meet increased client demands and to become the trusted advisors through being online and offering online convenience at very low cost to our clients.

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CLIent engagement

Please tell us about the nature of your research and its key findingsNeuro imaging is where we look at what happens in the brain when people are making different kinds of financial decisions. We try to use that information to gain insight into how those decisions are made. Our recent research reveals how people choose financial advisors while they were in the brain scanner.

Specifically, what we did is we had them play a stock market game but in that stock market game they didn’t get to pick stocks, they had to pick financial advisors who would then choose

By Mandisa MagwazaMember Engagement Manager, Financial Planning Institute (FPI)

Using Neuro

The

University

of the Free State held a

complimentary continuous

professional (CPD) event and invited

Professor Russell James from Texas Tech

University to discuss neuro imaging. I had the privilege

to explore this topic further from a local perspective

by attending the Momentum MI.ND Lab™ event to

learn more about their innovative investment to Neuro

discoveries. Momentum has set up a division that

conducts conventional qualitative research as well as

various neuroscientific studies.

After listening to Professor Russell James, I conducted an

interview were he shared interesting insights of his research.

imaging to learn more about howClients choose a financial advisor

their stocks. We were exploring how do people decide to choose a financial advisor and also how do

they decide to switch when they are changing financial advisors? During the course of the

game the financial advisors had different levels of returns compared to the market

and people could choose to switch. We were investigating what happens in the brain when people hire and fire their financial advisors, at least within this experimental setting. That was the research setup and we found a couple of interesting things.

One of the interesting things that we found is that when people are getting ready to fire their financial advisor, they are doing lots of math, numbers and error detection, most likely related to the returns of that advisor compared

to the market returns and what has been happening recently and this

concern that the advisor is making a mistake or an error. In contrast when

people were in a quiet period where they were not close at all to firing their financial

advisor, they were less likely to do math, worry about numbers. They were more likely to be looking at the

faces of the financial advisors.

It may be that when people are more focused on the personal side, the relationship side that indicates a stronger relationship, less likely to terminate whereas if they are completely focused on numbers, beating the last quarter or the last monthly returns, that relationship may be more unstable. This actually connects with other research that suggests that it’s important that people reframe the loss experience to keep them invested in the markets. The reality is that if you are invested in markets, there are ups and there are downs and the risk is that people will leave during those down periods and not get the advantage of long term investments in those markets. So we’re talked a little bit today about other research on how to reframe the loss experience so that people will stay invested in the market.

How can an advisor best explain to the client the volatility of the market?There are different strategies for what technically is called reframing a loss. Reframing a loss means thinking about a market downturn in a different way than simply losing money. One way to think about a market downturn is the idea that, when the market goes down the investments become cheap, they become a good deal. Another way to reframe a loss is to explain that there will be gains and losses, but

we’re not concerned about what’s happening today because you’re not using the money today.

The argument is to say, client comes in, I just looked at the newspaper and stocks are down 10% and the response is, “were you going to spend that money this year or are you going to spend it in your retirement, in 20 years? Well I’m going to spend it in my retirement in 20 years.” So it doesn’t matter what happens today, it matters what happens over that 20-year period and over that 20-year period we are going to have lots of down but we will have more ups and that is why we want to stay in this investment.

That’s a strategy were we reframe by looking at a longer term view, were we expect the losses, we tell the client about the losses and when they experience it we say, “That’s part of the game, and the way you win the game is, you have more gains than losses. And the way you have more gains than losses is to stay in the market, because everybody else gets out when things get bad. That’s exactly the best time to be investing for the up side of the market.”

How important was a professional designation amongst the experimented group?What we found was this, if the advisor was out-performing the market, it didn’t matter what their designation was. People were very happy with that if you can beat the market every day, then designation or no designation people are going to be happy with you. The difference happened when the advisor was under-performing the market. When the advisor was under-performing the market, what we found is that if that advisor did not have a designation, the brain activity of the clients indicated that the clients were engaging in a good deal of second guessing where they were doing the math, they worried about the errors, they are concerned about all of these decisions that the financial advisor was making. But if the under-performing financial advisor had the designation and it was explained to them what the credentialing means, in that case the person was much more comfortable, much less second guessing taking place in the neuro imaging, when we looked at the brain activation. I found that it was particularly interesting that the difference between having the certification and not having the certification didn’t show up until we experienced a period of under-performance. This means that, when things went down that’s when having the certification became really important.

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We try to use that information to gain insight into how those decisions are

made. our recent research reveals how people choose financial advisors while

they were in the brain scanner.

CLIent engagement

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• absenteeism and incapacity are unmanageable Abuse of sick leave and some disability claims can be

managed or prevented by employee wellness schemes.

• Choice means better-tailored benefits Because every employee has different circumstances,

financial decisions made with the guidance of experts such as CERTIFIED FINANCIAL PLANNER®/CFP® professionals will be of more benefit to the employee as opposed to financial decisions employees make on their own.

Financial matters are complex by their very nature, and when people make financial decisions, they do not always realise the impact of it. When employers restructure their employee wellness schemes, understanding their employees and their unique circumstances are more important than the

benefits itself.

If you work at a mid-size to large company, benefits likely make up an important part of your compensation package. But in the last 20 years, the items that are included in these packages – those valued by employees and offered by

employers – have undergone some surprising changes.

When considering employee benefits for your employees, it is vitally important that one considers the employee as a whole. According to the Alexander Forbes Benefit Barometer (2016), some of the misconceptions employers have about employee wellness are:

• unhealthy finances do not affect productivity

In reality, employees who are concerned about their finances tend to spend most of their time at work focusing on their financial troubles.

Employee BenefitsShifting the benefits of

By Barbara Mundell, CFP® Technical Specialist, Financial Planning Institute (FPI)

emPLoYee BenefItS

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• financial planning The problems employees face is not

limited to retirement, death or healthcare, but rather general financial management. According to the Financial Planning Institutes (FPI) 2016 Global Consumer Survey (GCS), 38% of South African’s are confident that they will reach their financial goals, 27% are successfully sticking to their financial strategies and 81% feel it is very important to be free of major financial debt. According to Statistics South Africa, consumers’ debt is at 40.59% of the Gross Domestic Product. When employers include financial planning options in their employee wellness schemes, CFP® professionals should be considered to provide such services as they will be able to guide employees, set their financial goals and implement a plan to achieve those goals.

As we move through the different phases of life, our priorities and needs change. At a younger age, employees have a need for more life cover for their dependents and debt. However, one should be cautious of labelling all workers of the same age group and placing them into one specific option of benefits, as every individual will have different circumstances. The same principal applies for older employees. There will be employees that have no debt five years prior to retirement and other employees may have debt that they need to protect.

A CFP® professional can address all of the above by developing a comprehensive financial plan. Paying for such a service on behalf of your employees could have a better outcome for the employee than the actual benefit on offer. The GCS survey further shows that consumers who work with a CFP® professional are more confident in achieving their financial goals as they are able to stick to their financial strategies.

• employee education Often members of a group scheme do not

emPLoYee BenefItS

understand their benefits or how benefits are funded. When employers engage with employees, it is important that they inform them how it is benefiting them. In some instances employees pay for benefits, such as disability benefits inside a scheme and outside a scheme, but when claiming these benefits they will find that they will only receive a pay-out from one of the benefits after paying for both.

Before restructuring employee benefits, consider what your employees needs are, their various backgrounds and what relationship they have with money. Often not knowing the basic financial planning principals, such as budgeting and cash flow analysis prevents employees from achieving their financial goals and understanding the benefits offered by employees.

It’s important to consider the solutions employees already have in place outside of the group before deciding if a scheme is optional or compulsory. If an employer wants to use group benefits to attract and retain staff, you need to consider their personal circumstances and how you can improve on them rather than enforcing benefits employees see no value in.

20

eStateS and truStS

ruled on this case, the Civil Unions Act was not yet signed into law and Gory and Brooks had no legal avenue to formally get married. They did however hold a ceremony to indicate their commitment to one another. The court ruled that the Intestate Succession Act [1987] 'unfairly discriminated' against same sex partners on the basis of sexual orientation. Under the Intestate Succession Act [1987] this violated Section 9 of the Constitution and thus became invalid.

Laubscher n.o. v duplan and another [2016]In the case of Laubscher N.O. v Duplan and Another [2016], the Constitutional Court considered the Gory vs Kolver NO [2006] case in its determination. The applicant in this case argued that the judgement in the above case was only an interim solution and should not be considered in this case, as the Civil Unions Act 17 of 2006 provides for same sex marriages to be registered and thus legally recognised. The deceased and Mr. Duplan had been living together since 2003 and during this time they had reciprocal duties of support. They had never registered their partnership in terms of the Civil Unions Act 17 [2006]. The court ruled the judgement in Gory vs Kolver NO [2006] was indefinite of duration until such time as Parliament has repealed the judgement. Section 1(1) of the Intestate Succession Act [1987] has

With so many proposed changes in the current legislation that affects estates and trust planning every estate plan will need a review in the near future.

Unfortunately, there will always be people that pass away without having a valid will, thus dying intestate. Rights of permanent partnerships of both same sex and heterosexual has always been questioned by family of deceased persons.

In the latest Constitutional Court ruling, unmarried gay couples may inherit from each other’s estates. The intestate succession act states that when a person is married, with no kids or adopted kids, their spouse will inherit their entire estate. Where the person is not married, the estate will be left in equal halves to the deceased’s parents, and where the parents have passed away, the siblings of the deceased will inherit. gory vs Kolver no [2006]The facts of the two cases were similar, as both of the partners died intestate without a valid will. In the Gory case, the court ruled that the fact that Gory and his same sex partner had no option to formally get their partnership recognised. By the time the court

By Barbara Mundell, CFP® Technical Specialist, Financial Planning Institute (FPI)

Intestate Succession

A new look at

and estate planning

21

eStateS and truStS

not been amended since the judgment in Gory vs Kolver NO [2006], and until such time the court must take the judgement into consideration.

rights of married couples and equalitySection 13(2)(b) of the Civil Unions Act [2006] states that the legal consequences of a civil union, with the exception of the Marriage Act and the Customary Marriage Act, any reference to husband, wife or spouse in any other law, including the common law, includes a civil union partner. The Constitutional Court ruled that the Civil Unions Act must be interpreted in such a manner that it does not infringe on any of the fundamental rights to equality. Apart from couples that choose to accept the benefits by formalising their marriages, there remains a number of same sex and heterosexual partners with the reciprocal duties to support. The court then accordingly found that same sex and heterosexual partners have a right to inherit intestate.

does this change the definition of a spouse? What has not been tested in this particular case, was the duty to support in terms of the Maintenance of Surviving Spouses Act 27 [1990]. In terms of this judgement by the Constitutional Court, Mr Duplan enjoyed the same benefits as a spouse would, in terms of the Intestate Succession Act no 81 [1987]. If we assumed that the deceased in fact did have a valid will and he did not provide for his partner in the will, the question would be if Mr Duplan would have been able to submit a claim to the estate in terms of the Maintenance of Surviving Spouses Act, 27 [1990]. The judgement clearly indicated that the equality rights of same sex and heterosexual partners may not be infringed on and they should be treated equally as any spouse. Section 2(1) of the Maintenance of Surviving Spouses Act 27 [1990], clearly states that if the marriage is dissolved by death, the survivor shall have a claim against the estate of the deceased spouse’s estate for his/her reasonable maintenance needs until his/her death or when the survivor remarries. Such claim against an estate will be seen as

a creditors claim against the estate, and shall enjoy the same order of preference as any other creditor of the estate.

reciprocal duties to support During the course of a marriage, spouses have a duty to support each other. The support could include items such as food, clothing, shelter and medical services. The reciprocal duty to support will come to an end when the marriage comes to an end. Legally a marriage will come to an end either by death or divorce. Until such time as a marriage has been dissolved, married couples thus have a duty to support each other where needed and in accordance with their lifestyle and the means of their respective incomes. The question would be, how would the reciprocal duty to support be measured when the partnership comes to an end and the one partner wants to pursue a maintenance claim against the other partner?

the duties of a trustee in terms of the Pension funds actWhen a member of a pension, provident or a retirement annuity fund dies, the Trustees need

the difference in the estate would be in the calculations for capital gains tax. In terms of assets that are subject to capital gains tax, but are inherited by a spouse, a rollover is applied and the assets will thus only become subject to

capital gains tax when the surviving spouse dispose of such assets during his/her lifetime or at his/her death.

The pension fund has 12 months to trace a dependentof the deceased. If more than one dependent hasbeen found, the fund will have the discretion toequitably distribute the fund to the dependents of thedeceased.

Where no dependents were traceable by the fund,and the member completed a nomination form andthe nominee was not a dependent of the deceased,the benefit will become payable to that beneficiarynomination, provided that the deceased assetsexceeds his liabilities in his estate.

Where no dependents or nominations is available thebenefit will pay to the estate of the deceased if aninventory is provided by the Master of the High Court,where there is no inventory the funds will go to theGuardians fund of the Unclaimed benefits fund.

Distribution ofPension Benefits

Section 37Cof the Pension Funds Act

22

to follow the guidelines provided in section 37C of the Pension Funds Act 24 [1956], to distribute the benefits to the beneficiaries of the deceased. The section provides that the benefits not payable to spouse in terms of the rules of the fund shall be distributed according to the illustration on page 21. Interestingly the Pension Funds Act defines a spouse as a person who is a permanent life partner or spouse or civil union partner in accordance with the Marriage Act of 68[1961], the Recognition of Customary Marriages Act 68 [1997] or the Civil Unions Act 17 [2006], or the tenets of a religion.

does this ruling affect estate planning? Section 1 of the Estate Duty Act 45 [1995], defines a spouse as a person who, at the time of death of the deceased, was the partner of such person if they were married, in a customary union recognised in terms of the laws of the republic, in a union recognised as a marriage in reference to any religious tenets or, in a same sex or heterosexual union where the Commissioner is satisfied that the intention of such a relationship was to be a permanent partnership. The act further specifies that such marriages will be deemed to be a marriage without the community of property, unless proof exist to prove the contrary.

The rulings thus have no impact on how estates are dealt with in accordance with the estate duty act.

It is however important that the financial planner does consider the possible implications on other items in the estate that might have an influence on the liquidity of the estate, such as capital gains tax and donations tax.

the difference in terms of the tax implications for the estateThere is no real difference on how the estate would have been taxed in terms of the Estate Duty Act 45 [1995], as the inheritance would have been deducted in terms of section 4(q) and the claim for maintenance would have been a deduction in terms of section 4(b) of the Estate Duty Act 45 [1995].

The difference in the estate would be in the calculations for capital gains tax. In terms of assets that are subject to capital gains tax, but are inherited by a spouse, a rollover is applied and the assets will thus only become subject to capital gains tax when the surviving spouse dispose of such assets during his/her lifetime or at his/her death. In the instance where the claim for maintenance has succeeded against the estate, the capital gains tax would become payable by the estate of the deceased and then again when the survivor disposes of such an asset.

The current definition of a spouse in terms of the Income Tax Act 52 [1962] has been amended by the Tax Laws Amendment Act 25 [2015] and is now similar to the definition in the Estate Duty Act 45 [1995], but contains an additional level of clarification by specifying that 'married', 'husband' or 'wife' will mean that the taxpayer and his/her spouse will be recognised as spouses in the Act where required.

ConclusionIn current legislation there are multiple definitions of a spouse and could possibly be confusing at times as many of these acts are interlined with one another. When a financial planner is considering the circumstances of the client, he/she needs to be aware of all the different definitions to ensure that the estate plan presented to the client will not leave the surviving partner or spouse of a permanent relationship or spouse destitute when death occurs.

In my opinion, the definition of spouse in the Estate Duty Act 45 [1995] needs to be adopted in the Intestate Succession Act [1987], as this provides for any partnership between two people, whether heterosexual or a same sex relationship. The question is what would be regarded as an intention to have a permanent relationship and who will be the judge of such a relationship.

There is however a far simpler solution to this very complex situation: ensuring that each of your clients have a

valid will, whether they are single, in a permanent partnership or married. This allows for proper

estate and succession planning, avoids costly court battles and will ensure

that the surviving partner or spouse is not left

destitute while the battles in the court continues.

eStateS and truStS

Definition of a spouse?

Wills

Right to inherit

Intestate succession

Trusts

As a profession we are feeling threatened by the developments in our industry. It was therefore an awakening when an article where Richard Branson, one of the most dynamic international entrepreneurs stated that he lives the principles of Ubuntu and that his companies, Virgin Unite, Virgin

Galactic and Virgin Mobile all have embraced Ubuntuism. This got me thinking what really this Ubuntu is and would it help us to achieve true African financial planning ethical conduct?

Should we refer to these principles in our code of ethics?

my financial planning ethical investigations took me to the source:The new Coat of Arms of South Africa contains two human figures from Khoisan (the First People of Africa) rock art that are depicted as facing one another in greeting and in unity, representing the beginning of the individual’s transformation into the greater sense of belonging to the nation and by extension, the collective humanity.

The motto –! ke e:/xarra//ke, is written in the Khoisan language of the/Xam people, officially translated: ‘diverse people unite’ and referring to ‘people who are different coming together.’

This concept of collective humanity such as espoused in Ubuntu, reaches back to ancient Egypt as a concept of Ma’at. The concept of Ma’at is associated with the so-called Forty two Declarations of Ma’at and the seven cardinal virtues that formed the guidelines for correct moral behavior. This standard of moral behavior can be traced to the present day beliefs of Ubuntu. Ma’at predates the 10 commandments by at least 1 500 years before the discovery of the Ten Commandments with recordings dating back to the period of the Old Kingdom (the period in the 3rd millennium BCE (ca. 2375 BCE and 2345 BCE.1)

The concept of Ma’at/Ubuntu is taken up in The Golden Rule; “Do as you would be done by” and speaks to human relations that are universally desirable. Ubuntu can thus be said to be an eternal African philosophy of 'Oneness' – this oneness is an understanding of the interconnectedness of all life.

A golden thread of goodness connects all life from the lowest creature to the highest, this golden thread of goodness is commonly known as love i.e. Ubuntu.2

Were other people aware of this ubuntu?At the Heritage Day celebrations in Taung, North West, 26 September 2005, President Thabo Mbeki stated: "We have a responsibility to use the

The importance of

African Ethics

By Gail Gibson, CFP®

Financial Planning Institute’s Healthcare Competency Committee Member

in financial planning

etHICS

1 http://www.humanitysteamsa.org/ubuntu/2 https://www.virgin.com/virgin-unite/business-innovation/how-the-ubuntu-philosophy-can-have-a-positive-impact-on-your-business

positive attributes of Ubuntu to build a nonracial, nonsexist and united South Africa."3 Today this seems like a dream as I look at our reality. We need to go back to this belief.

Financial planning professionals protect people’s futures. We need to look at the question of identity and how the country's heritage can help define it in order to create the futures we protect.

According to IoDSA's president and long-time King Committee member, Dr Reuel Khoza “The central pillar of the African humanist worldview captured in the concept of Ubuntu is to spread benefits to stakeholder’s not just shareholders.“4

A financial planning professional promotes the benefits of positive behaviours to all the stakeholders. This is the essence of financial planning as opposed to product selling.

Ubuntu is the core of human values and without Ubuntu mankind is enveloped by greed, selfishness, immorality, pride etc. These are dominant values that bind communities together and ensure social cohesion. Ubuntu means people first, or human kindness with its basic tenet motho ke motho ka batho ba bang [a person is a person through other people].

People who practice Ubuntu rejoice in the differences of others and work to create a greater good. This sounded like a Financial Planning Institute philosophy.

uBuntu stands for the fPI Code of ethics and Practice StandardsSpirit of humanity is where an individual is entitled to respect

The collective good should be chosen over individual good

“Do as you would be done by” You can’t exist as a human in isolation as there is mutual interdependence and coexistence

You must give respect and human dignity when dealing with others

A person’s behavior is governed by a ability to reason and think within the community context5

Inherent trust and belief in the fairness of human beings.

Client First

Professionalism

Fairness

CompetenceConfidentiality

Diligence

Integrity

A golden thread of goodness connects all life from the lowest creature to the highest, this golden thread of goodness is commonly known as love i.e. Ubuntu.6

Where Ubuntu is lacking we are enveloped by greed, selfishness, immorality, pride etc. We affirm our humanity when we acknowledge that of others. This is the mark of the professional.

Ubuntu philosophy defines what it means to be truly a financial professional and we should embrace it, by ensuring our codes of conduct reference the principles.

etHICS

24

3 http://www.southafrica.info/about/people/ubuntu-260905.htm#.WCBFcfl96Uk4 http://www.ujuh.co.za/king-pushes-for-ubuntu-infused-corporate-governance/5 (Maphisa, 1994; Swarts & Davies, 1997: 290-296).6 https://www.virgin.com/virgin-unite/business-innovation/how-the-ubuntu-philosophy-can-have-a-positive-impact-on-your-business

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Manager

Meet FPI’s Certification Manager, Fatima Fakier. She joined the Financial Planning Institute of Southern Africa (FPI) in January 2016 as the certification manager. Fatima has been in the education and training

sector for twenty years fulfilling various positions.

Before joining FPI, she was the learning and development manager at SBV; and prior to that she worked as a skills development facilitator, training facilitator and educator.

Fatima’s role and responsibility at FPI, among other things, is to ensure that an effective certification process and setting of robust standards are implemented successfully. This is achieved by making sure that the strategic objectives of the department are transferred into achievable operational goals. These goals are then communicated and monitored through active engagement with the certification consultants.

FPI’s Certification

She, over the past 11 months, has found that these objectives can only be achieved through a committed and effective certification team. As the certification manager, Fatima is also actively involved on the FPI Certification Advisory Panel.

She has a husband and two precious children who are very influential in the goals and priorities she sets for herself.

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fPI neWS

Speech Competition Financial Literacy

The Financial Services Board (FSB), in partnership with the Gauteng Department of Education (GDE), hosted the first Gauteng Schools Financial Literacy Speech Competition.For the past 20 years the KwaZulu-Natal Financial Literacy Association (KZNFLA) and its stakeholders have hosted the

annual Money Talk Speech Competition. The competition targets Grade 11 learners and focusses on encouraging learners to become more financially literate through conducting research and then presenting their findings in a well-crafted speech.

FSB was inspired by the success of the KZN project and in collaboration with the GDE decided to initiate a similar competition in Gauteng.

The project, piloted in selected schools around the 15 Gauteng schooling districts, was made possible through the funding received from the Financial Services Consumer Education Foundation (FSCEF) through donations from various donors both within and outside the financial services industry. the objectives of the project:• Promotingfinancialliteracyinschools(budgeting,saving and investment).• Creatingawarenessofconsumerrightsandavailable support systems.• Introducinginsuranceasinvestmentforallindividualsanduse

youth to discuss financial concepts with their parents.• Integratingtheoryandpracticeasanimportantprincipleinthe

National Curriculum Statement.

The learners were given a choice to present one of the following topics:1. I wanna make my own money, my own way.2. Stokvels vs. stock exchange.3. Just put in on my card?

The competition was held in three rounds from school progressing to district and culminating in the provincial final. The district winners competed at the provincial finals of the Gauteng Schools Financial Literacy Speech Competition that was held on Wednesday, 28 September 2016 at the Midrand High School to determine the overall winner.

WinnersMirriam Maluleka from Hoërskool Kempton Park was the overall winner of the 2016 Gauteng Schools Financial Literacy Speech Competition. She walked away with an investment of R20 000. Mirriam was also invited to present her speech at the Seminar on

fPI neWS

Financial Education: Challenges, Trends and Measures of Success in Supporting Financial Inclusion in Sub-Sahara Africa on Friday, 30 September 2016.

The first runner-up, winning an investment amount of R10 000, was Nkanyezi Sikakane from Randfontein Secondary School and the second runner-up Chakira Pelser from Montana High School, won R5 000.

In addition to their investment amount they won, they also won a session with the 2015 and 2016 FPI It Starts with Me Award Winner, Kobus Kleyn, CFP®. He will be providing financial planning advice, relating to their prizes, to the three learners and their parents and/or guardians.

Kleyn noted that should he had been faced with a similar challenge, as the below adjudicators, to choose a winner, he too would have selected the same three learners. He added how critical it is that financial planning and consumer education is done at school level.

the adjudicators on the day were: Prem Govender, CFP® - Chairperson: Financial Services Consumer Education Foundation and former chairperson of the Financial Planning Institute (FPI) Board of Directors.

Caroline Da Silva - Deputy Executive Officer for Financial Advisory and Intermediary Services and Consumer Education at FSB

Ntai Phoofolo, CFP® - FPI Board of Directors Chairperson-Elect

Sybil Mdunge - Deputy Chief Education Specialist and Business Studies Coordinator at GDE

Dudu Msomi - FSB Board Member

This competition was first of many to come and due to its Gauteng pilot success, it will be rolled out to more provinces going forward.

At the time of this publication going to print. Kobus Kleyn, CFP®, has since had the pleasure of meeting with the three winners and family to advise on the prize money investments. He will be investing the three prizes (no charges and fees) on their behalf as the capital will come in handy to the parents for university fees, or similar, when the time arrives.

FPI partners with the industry to promote financial literacy in schools

Speech Competition

Your best investment.

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30

fPI neWS

Empowering consumers to get back on the right financial trackWeek 2016

Financial Planning

According to the 2016 Global Consumer Survey (GCS) issued by the Financial Planning Institute (FPI), only 27% of South Africans believe that they are knowledgeable about finance and financial matters. However, 74% of South Africans consider building a savings plan to be a top priority.

The Institute, together with the financial services industry, acknowledges the fact that there is a desperate need for financial education in South Africa. Understanding the challenges which the South African consumer faces, industry came together and offered complementary one-on-one financial planning consultations, workshops on a variety of topics and literacy courses to consumers during the annual Financial Planning Week which ran from 5-9 September 2016, as part of an ongoing initiative to educate consumers about financial planning.

In one of the media interviews conducted during Financial Planning Week, Bruce Fleming, CFP® professional and 2016 FPI Financial Planner of the Year said that saving is crucial for any economy. Saving helps consumers buffer themselves during economic hardships.

The importance of this initiative is to address this issue, and many more that relate to financial planning and to help consumers get back on the right financial track to achieve financial freedom. Topics and workshops, such as Getting you on the right track, Basics of planning your future, Understanding investments, Understanding insurance, Planning your retirement and FPI MYMONEY123™ programme, were presented for free during Financial Planning Week.

the importance of this initiative is to address this issue, and many more

that relate to financial planning and to help consumers get back on the right financial track to achieve

financial freedom.

31

fPI neWS

at these workshops, consumers were provided with tips to address the following questions:• Howtogetoutofdebt.HowtoliveonunderR10000per

month as a family• “AmIontrackforretirement?DoIhaveenoughfor

retirement?”• Dealingwithdebt/cashflow• Whatisthebestandquickestwaytogetoutofdebt?• Whentoupdatemywilland/orhowtogetawill?• Estateplanning.

“Good feedback from people in general who really appreciated the pro bono planning and advice. One gentleman that I met with, age 54, had never had the courage to meet with a financial advisor for fear of being flogged a policy. Fortunately, he was fairly astute and

his affairs in reasonable order as he has worked for a corporate for the last 30 years. However, the point remains, he felt comfortable with the ‘non-obligatory’ initiative and was very grateful for the time!” Mark MacSymon, CFP®, Private Client Holdings.

Sue Torr, CFP® from Crue Invest also commented “We had a very positive uptake on the pro bono advice sessions and complimentary wills. We consulted with about eight clients in total on these two aspects." "An extended token of appreciation goes to our members, financial planning practices and corporates, as well as our affiliates who participated during Financial Planning Week. The work done by FPI volunteers in this week does help in creating a more educated and financially aware South Africa, which will ultimately lead to a better life for all” said David Kop, CFP®, HOD: Advocacy and Consumer Affairs at FPI.

• AbieNell,CFP®

• BDO• BlinkConsulting• DaberisticFinancialServices• CogentConsult• CoreWealthManagers• CrueInvest• EfficientAdvise• EtienneMarx,CFP®

• Exceed• FNBFinancialAdvisory• Glenfin• JeanRouxFinancialServices(Pty)Ltd• Liblink-KobusKleyn,CFP®, Florah Mulondo, CFP®, Marietta Tappan, CFP®,

Juanita Doolan, CFP®, Albert Johnson, FSA™ and Erika Lawrence

• LifestyleWealthManagement• MachrieBrokers• MckenzieLife• O’HaganAttorneys• OracleBrokers• PrivateClientHoldings• QuoinWealth• SchoolofSavingsSouthAfricaCC• SouthwoodFinancialPlanning• StandardBankFinancialConsultancy(SBFC)• TridentWealthManagement• UlyssesConsulting• UniversityofStellenboschBusinessSchool• VeritasWealthManagement

thank you to the following practices and CfP® professionals for making this event a success:

• AshleyPercival,CFP®

• BernardSebopa,CFP®

• DesiganMutusamy• JacquesHeyneke• JameelaDusthageer• JohannvdMerwe,CFP® • KobusKleyn,CFP®

as part of the financial Planning Week initiative, fPI participated in the 2016 Leaderex event, themed financial education. at the event, the following financial planners provided financial planning consultations:

• MarisaGroenewald,CFP®

• MathysLeRoux,CFP®

• NcebaPupuma,CFP®

• PeterCut,CFP®

• SheilaMaluleka,CFP®

• TatendaMupunga,CFP®

32

and Investment Convention

S eptember saw the second annual Retirement and Investment Convention, hosted by the FPI Centre for Professional Development, in Durban, Johannesburg and Cape Town. The theme of the convention that came through quite clearly for delegates is that retirement and investment planning is no

longer only about money, but rather about a lifestyle that a client would like. This approach changes the traditional retirement planning method of calculating a lump sum based on the desired income, to more about having a conversation with a client about what life they want to live and then working out the finances needed to make this a possibility.

In the age of fintech, where the first approach can be easily commoditised by so called “Robo Advisors” the second more human approach is increasingly becoming the financial planners value proposition.

day one – retirement planningDay one, sponsored by Overseas Trust and Pension, focused on retirement. The first talk of the day was delivered by Ilze Alberts an internationally renowned Wealth Psychologist and human behaviourist specialist. Her talk touched on her personal story and why she become inspired to consider generational wealth and to see if she could change the rags to riches to rags proverb. Her talk was not only theoretical but she took the audience through a practical exercise, using the Demartini Method that could assist

Retirement

InduStrY neWS & eVentS

with determining client’s values. This can then be used to deliver personal focused financial planning advise.

All retirement funds (pension, provident or retirement annuity) have a board of trustees who have a fiduciary duty to manage the fund for the benefit of the members. Stephen Dold took delegates through the role of trustees in a retirement fund. This enabled financial planners to not only understand this vital role, but also empowered them with questions to ask the trustees to ensure that the fund is well governed, when recommending a fund.

The tax rules relating to retirement funds are constantly changing. 2016 saw an Act, dealing with annuitisation of provident funds that was signed in 2014 amended two days before the implementation date of 1 March 2016. Marius Botha, CFP®, unpacked the technical aspects of the tax changes both implemented and to be implemented.

With the world becoming smaller and clients wanting portfolios not only diversified by asset class but also geographically. Rex Crowley of Overseas Trust and Pension discussed and took delegates through some of the options for offshore retirement planning.

The day closed with Wouter Fourie, CFP®, 2015 FPI Financial Planner of the Year, providing practical insight to engaging with clients and developing process to deliver financial planning advice. This provided a practical way of implementing the knowledge gained during the day.

34

InduStrY neWS & eVentS

day two – Investment planningThe second day, sponsored by ABSA, focused on investment planning. The day started with a presentation by Roland Rousseau from ABSA introducing a risk management approach to investing.

Tiago Fernandes, international speaker, did not only focus on the use of structured products, but he provided valuable insight into behavioural finance. A relatively new though increasingly important skill for financial planners to master.

Warren Ingram, CFP®, 2011 FPI Financial Planner of the Year and well known media commentator, once again gave practical insight into running an investment advisory practice. His presentation provided insight into the mistakes and success of his practice and their robo-advisory platform.

Hannes Du Plessis, from Absa Risk Management, provided a different take on the active vs passive debate, suggesting that the debate should not be active vs passive but rather to take a risk management approach. His technical analysis provides some food for thought by using risk management principles to build an investment portfolio.

In closing, Shaun Leviathan (Johannesburg and Cape Town) and Costa Economou (Durban); both from Colourfield; provided not only an insightful presentation on behavioural finance but also a masterclass on delivering a great presentation.

“This 630 word article doesn’t do justice to the knowledge and learning that we took away from this event. I for one can see this event taking its place alongside other quality events like the Annual Refresher Workshop”, said David Kop, CFP®, Head: Consumer Affairs and Advocacy at the Financial Planning Institute (FPI).

all retirement funds (pension, provident or retirement annuity) have a board of trustees

who have a fiduciary duty to manage the fund for the benefit of the members.

technical@fpi.co.za

Our technicalninjas arestanding by!

FPI technical helpdesk

Are you in need of financial planningtechnical guidance and help on regulation matters?

36

InduStrY neWS & eVentS

The Momentum Risk Summit brought one of the biggest crowds at Sun City earlier this year. Most attendees agree the 2016 event was the best by far. The event organisers carefully selected top keynote speakers in and outside the financial planning industry.

The presentations were impressive and were delivered from a unique and refreshing perspective. Attendees were exposed to relevant content that was useful to being future fit.

Group CEO Nicolaas Kruger opened the conference by sharing industry insights of the fourth industrial revolution encouraging the

MomentumRisk Summit

audience to manage the challenges and seize the opportunities that the approaching advanced wave of technology. One of the technological advances that is highly popular to the financial services industry would be topic of robo-advice. This is an automated form of advice that provides a simplistic form of advice on investment solutions. From an MMI perspective Nicolaas explained how he believes that face to face client engagement will remain irreplaceable especially when it comes to complex client needs and solutions.

Other noteworthy sessions included Caroline de Silva, deputy executive officer at the Financial Services Board (FSB), who unpacked the key issues of the changing regulations. She also provided clarity on some of the key issues that are causing dissonance in the industry.

One of the most memorable presentations was by Dawie Roodt who is the chief economist from Efficient Group. He gave a thought provoking report on solutions the South African economy can grow by looking at where is the critical need and area of growth for ethnic groups. He used statistical data plus his expert opinion to relay his controversial recommendations that made everyone sit upright.

It would be also worth your while to research the works of Graeme Codrington and Pieter Geldenhuys who are futuristic strategist and innovation strategist respectively. The two keynote speakers gave eye opening presentations on technological advances related and unrelated to financial planning.

Lastly, another hit at the summit was the social event where the productive technical sessions were rounded off with an all-night party.

Those who attend the summit found themselves richly rewarded from an intellectual perspective plus FPI members gained 7.5 continuous professional development (CPD) points.

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InternatIonaL neWS & eVentS

BE Baltimore 2016Annual Conference:

Iwas very fortunate in that one of my awards for winning Financial Planner of the Year 2016 was to attend the Financial Planning Association’s annual conference in Baltimore, Maryland. It is the largest gathering of CERTIFIED FINANCIAL

PLANNER®/CFP® professionals in the world. The keynote speakers ranged from T. Rowe Price Group chairman, Brian Rodgers, practice management guru, Eliza De Pardo, to baseball legend, Cal Ripken Jnr and the mastermind behind Saddam Hussein’s capture, Eric Maddox. The experiences of both Cal Ripken Jnr and Eric Maddox can be brought back to financial planning and were conveyed in a financial planning context.

I was also very honoured to speak at the Association of African AmericanFinancialAdvisors,orQuadAastheycallthemselves.They are a very inspirational group of financial planning professionals at the forefront of promoting African American financial advisors in the industry in the United States (US).

I also was able to visit some large financial planning firms operating out of Baltimore, where not only was I able to learn some important aspects around financial planning in the US, but they too were able to learn from me around financial planning in South Africa.

The 10 days that I was in Baltimore was a great learning experience for me, but it also made me realise that they are grappling with the same issues as we are in South Africa. They are ahead in some fields, but in others we are ahead of them.

The big news coming out of the US at the moment is the imminent implementation of the US Department of Labour’s Final Fiduciary Rule requiring restructuring of pay and compliance policies at financial institutions serving retail retirement clients and increasing

By Bruce Fleming, CFP® 2016 FPI Financial Planner of the Year

FPA

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InternatIonaL neWS & eVentS

the litigation risks of financial institutions associated with providing investment advice to individual retirement accounts (IRAs) and IRA beneficiaries.

The basic premise of the DOL rule is to assure clients are getting objective recommendations that are in their “best interest”, and knowing how the planner is being paid. Since planners were previously held to a “suitability” standard of care they were not required by law to offer the “best product”, only a suitable one. In some cases, therefore planners were recommending the products that paid them the most. Obviously varying levels of commissions being paid to the planner would cloud their objectivity and make it difficult to put the client’s interest ahead of their own. But once under this new regulation, all planners will be required to put their client’s interest first, eliminating their current form of compensation, as it is inherently conflicted.

The legislation is a lot more comprehensive than the summary above, but it is evident that legislation around the world is finally putting the interests of the client first and foremost, just as it is here in South Africa. Leading the trend is how financial planners are remunerated. In South Africa we have had conflict of interest legislation for a number of years now and many financial planners that I have had contact with over the years have moved away from commission generated product selling to a fee based model. The fee-based model also has its foundation on “objective-based financial planning”, which if done correctly will always be done in the best interests of the client, which should be the reason why we entered the industry in the first place.

One of my biggest passions was also addressed by the CFP Board, which is public and industry awareness of the CFP® designation. Even though the CFP® designation is the only globally recognised mark of professionalism for financial planners, only 37% of Americans and only 42% of South Africans surveyed are aware of the CFP® designation. As a profession it is incumbent on us to promote the designation as all CFP® professionals are automatically

held to a higher standard, from an educational and experience perspective as well as continuous learning/development perspective; and all CFP® professionals are bound by the Financial Planning Institute code of ethics, much like lawyers, accountants and doctors.

Both in the US and in South Africa we have a problem of an ageing industry. In the US there are more financial planners over the age of 70 than younger than 30 with 25% of the industry looking to retire in the next five years of which only a third of them have a succession plan. In South Africa we have more financial planners under the age of 30 than over the age of 70, but there are significantly more financial planners over the age of 60 than under the age of 30. It is a very worrying trend and something that needs to be addressed by our industry by promoting financial planning as a professional industry that the youth will aspire to, as well as promoting the CFP® mark.

As with all industries the concern with financial planning is technology and specific to our industry is robo advisors. Technology is here to stay so we need to embrace it. Research has shown that there are 1.5 billion users of Facebook, for example, and the biggest growing demographic is retirees. Most users of Skype are retirees who are speaking to children and grandchildren around the world. So even the older generation are becoming more technologically literate. If we as financial planners look after our clients and always do what’s in the best interests of our clients, we can embrace robo advice, but it will never replace us. Robo advice cannot replace what we do for our clients on a deep personal level.

Our industry in South Africa is by no means unique as we are dealing with the same issues and challenges as our American colleagues. I honestly believe that the financial planning industry is going in the right direction with FPI leading the way. It is also up to us in the industry to professionalise it and promote it as a professional industry that young people graduating want to be in.

To read more about the conference visit fpa-be.org.

Old Mutual Investment Group (Pty) Limited (Reg No 1993/003023/07) is a licensed financial services provider, FSP 604, approved by the Registrar of Financial Services Providers (www.fsb.co.za) to provide intermediary services and advice in terms of the Financial Advisory and Intermediary Services Act 37 of 2002. Old Mutual Unit Trust Managers (RF)(Pty)Ltd (OMUT) is a registered manager in terms of the Collective Investment Schemes Control Act 45 of 2002. The fund fees and costs that we charge for managing your investment is accessible on the relevant fund’s Minimum Disclosure Document (MDD) or Table of fees and charges, both available on our public website, or from our contact centre. The Net Asset Value (NAV) to Net Asset Value figures are used for the performance calculations. The performance quoted is for a lump sum investment and in respect of the Old Mutual Flexible Fund. The performance includes income distributions prior to the deduction of taxes and distributions are reinvested on the ex-dividend date. Actual performance may differ as a result of actual initial fees, the actual investment date, the date of reinvestment and dividend withholding tax. Past performance is not a guide to future performance. Annualised returns are the weighted average compound growth rate over the performance period measured. The actual highest, average and lowest 12-month return figures since inception to 30 September 2016 are 54.0% (highest), 15.0% (average) and -26.9% (lowest). The fund was launched on 20 August1996. Morningstar and Old Mutual Investment Group calculated the performance of the fund as at 30 September 2016. Old Mutual is a member of the Association for Savings & Investment South Africa (ASISA).

INVEST WHERE THE FUND MANAGERS INVEST

FCB10021318JB

/E

www.oldmutualinvest.com/asinvested

All my money is invested in our funds, so if I have a good investment idea, my clients benefit and so do I.

Peter BrookeBoutique HeadMacroSolutions

At Old Mutual Investment Group, our fund managers invest their own money alongside yours.

The Old Mutual Flexible Fund is currently enjoying top quartile performance over both the short and the long term.

Speak to an Old Mutual financial adviser or your broker about investing alongside our fund managers or call 0860 INVEST (468378).

10021318JB 297x210E.indd 1 2016/11/09 4:44 PM

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By Dawn Ridler, CFP® Financial Planning Institute’s Risk Competency Committee Vice-Chairperson

Robo financial advice

In case you hadn’t noticed, there is a noisy revolution going on in the investment and risk environments and it’s all about ‘robo-advisors’ taking over from flesh-and-blood advisors. As with all dastardly

plans this started in the States. Robo-advisors are nothing more than computer programs or strings of algorithms that take the information you feed them and spit out a recommendation and loads of follow-up reports, and very kindly, don’t charge you for it – providing you use their platform of course.

Why on earth would you or your client want to do that? Fees of course. Cutting out the middleman is the quickest way to dump a bunch of fees. Asset manager, platform fees plus advisor fees can easily top 3%, robo-advisors (in this country) often charge 0.5% or less. The robo-advisor disruption is just a small part of the rebellion against bloated advisory and investment fees. Post 2008 that bunch called investment bankers, have not been popular. Let’s face it, they were responsible for lumping hordes of bad debt (from sub-prime housing loans that were never going to perform) into one pretty little package, calling it an investment, getting it rated A+ by the ratings agencies and flogging it to the unsuspecting public.

ETFs and trackers (also called passive investments) have exploded in the States for a good reason - their returns from the stock market, bonds or cash has been in low single digits. When your return is 1%, you’re going to cotton on to the 3% fees charged pretty quickly. Fees that exceeded the meagre returns the market was offering stuck in the craw of the investing public and led to this revolution. Advisors in South Africa have been 'luckier' in that respect, with double digit returns, asset managers and advisors can hide high fees. With the stock market being flat or down for many months now, that is changing.

What is ‘passive’ investing? This is investment done by a cold blooded computer, supervised by an even colder blooded asset manager. This is way less work than an asset manager doing it all by himself – an ‘active’ asset manager. Active managers spend most of their time in front of a computer, passive managers might have a 20 minute meeting in the morning and whip their computers for the rest of the day. Most of the costs associated with ETFs and trackers are admin (a few people), software, marketing and buy-and-sell costs. Obviously with active asset managers you have to add payments on the Ferrari and beach house in Clifton. There is also yet another

breed of active asset managers (who aren’t smart enough to make a Unit trust themselves) who take pre-existing unit trusts and make another unit trust and adding their own fee (adding layers upon layers of fees). If you see FOF or fund of funds tacked onto a unit trust take a look at the fees – then run.

Having eroded the fee base of asset managers with ETFs and trackers, fees paid to financial advisors was the obvious next target. To be fair, all robo-advisors did was take the same information that inexperienced or lazy financial advisors used to stick into a computer program to churn out your investment recommendation without another thought and no additional service, and turned it into a DIY model.

This is all good, however there is one big caveat - if you want to use the robo-advisor you usually have to invest on the robo-advisor platform – and be forced into a handful of proprietary funds. That is where they make their money.

the notion that robo-advisors will take over from real advisors makes a number of assumptions:• Adozenquestionsareenoughto

assess the investor’s objectives, tax

the good, the bad and the confusing

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structure, market sophistication and risk appetite. If the questionnaire becomes too long, clients switch off, click close and they are lost.

• Theaverageinvestorknowsexactlywhat he wants and how it should be structured to optimise their portfolio.

• Investorshaveagoodknowledgeandunderstanding of the market, risk and return, asset allocation and concepts like standard deviation, alpha or beta.

• Theinvestor’sentirewealthportfoliois properly balanced (savings, risk mitigation, obligations, retirement, bucket list, legacy).

• Therightinformationisbeinginputinto the ‘robo-advisor’. Garbage-in-garbage-out. We fool ourselves all the time, never more so than when it comes to money. Money decisions suck in and wrap up all sorts of emotion and ego that a computer can’t even start to understand. If clients hide wealth or debt from their advisors – will they fess up to the robo?

The programs and algorithms used by robos are not sophisticated, probably less sophisticated than some of the programs advisors are currently using to assess client’s needs, so that is not their strength - their strength lies in costs.

That’s it. The big opportunity for advisors is to use that technology to improve the advice given to a client, reduce the asset management fees, but maintain their own margin with superior, holistic advice.

Advisors should know the average cost of ‘servicing’ a client, irrespective of size. The robo-platforms are ideal for those clients that it is just not economical to service, either because their investments are ‘too small’ or they demand a lion’s share of your time and discounted fees, -disproportionate to their investment. Unfortunately you get what you (don’t) pay for.

The value of a real advisor or financial planner is that they can use their understanding of a client’s entire wealth and risk portfolio, tax structure, financial objectives and financial behaviour to structure a holistic plan, flexible enough to change as the client grows.

Risk robo-advisors are gaining momentum, and the threats to the client in this ‘low or no advice’ environment is even more pronounced than it is in the investment environment. The call-centre model has not decreased fees, but the robo-environment might have better luck. There are a couple things that are going to have to be addressed so that these products don’t end up at the Financial Services Board.

The client is going to have to read all the small print and clearly understand what he or she is buying. This is highly unlikely. The robo-risk environment is likely to attract fee and premium conscious clients, who are usually unsophisticated and have a poor understanding of the products and benefits available in the market. Take the least sophisticated benefit – life cover. Does the client understand the difference between accident only, termed life cover and whole of life cover, or do they just look at the premium? Do they understand level versus age rated premiums? Disability cover is a complete nightmare with some products only really paying out if you’re comatose or on death’s door – this is bad enough in the Group risk environment let alone in a robo environment.

Wealth is what is left after you have consumed your income, part of that consumption has to go into protecting your long term wealth accumulation and obligations. This is the true value of holistic advice, it stops the continuous chorus of 'pick-me' that the man in the street has to face from advisors in all the different disciplines. A client’s disposable income can be optimised (with the help of programs and algos) across all aspects of their wealth and risk, and an advisor or planner can more than justify their fee.

In recent times, we had interesting conversations with an array of financial planners across the country. About a lot of things. Social Media, however, is a topic that is regularly the point of discussion. The viewpoints are as diverse as the universe. Many planners believe in Social Media (and some only in

one specific social network), some do not and then others are indifferent or undecided.

Let us clarify. When we refer to Social Media in this article, we refer to it in a business sense. Not your personal activities and profiles.What is the difference between social networks and Social Media?

In the good old days (and we still do today to an extent), before social networks and Social Media, we attended conferences, meetings, cocktail parties and other events to meet new people. To build our network. We consistently nurture our network, foster deeper relationships and ultimately build trust. All of this to receive referrals or to sell to our network (or a large part thereof). We also add value back into our network by referring people and by being a brand ambassador in some cases.

Financial planners vs.

Social Media… Should you, or shouldn’t you?

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By Francois du Toit, CFP® Financial Planning Institute’s Risk Competency Committee Member

Today, we still do this, just on a much larger scale. With much more opportunity. And responsibility.

A social network is the same as the 'Good Old Days' network, it is merely facilitated by software and the internet. A social network refers to the network of people you are connected to as a member of the specific software (or platform). Another way to refer to your network is your audience.

Social Media on the other hand, refers to content that is distributed on the social network to your audience and other members of the social network.

What is the shape of social network use in South africa?World Wide Worx and Fuseware released their executive summary report of their annual survey: “South African Social Media Landscape 2016” in March this year. The usage and membership of the main social networks at this point were:

Social Media… Should you, or shouldn’t you?

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Facebook - 13 million users, almost 25% of the population and up 8% from 2015;Twitter - 7.4 million users, up 12% from 2015;LinkedIn - 5.1 million users, up 27.5% from 2015;YouTube - 8.3 million users, up 15% from 2015;Instagram - 2.7 million users, up 133% from 2015.

These are mind blowing figures and the best is, they continue to grow. Strongly. Year on year.

different types of contentEach social network focuses on a specific type of content. Traditional content is fast being overtaken and, in many cases, replaced by digital content. Below is a comparison:

Traditional

Television

Radio

Newspapers

Billboards

Advertisements

Classifieds

Magazines

Digital

Video

Podcasts

Blogs

Banner adverts

Targeted advertising

Auction sites, classified sites

PDF

One of the big reasons for the shift from traditional to digital, is that now the power to create, produce and distribute any kind of content is in the hands of normal people. In the past, selected people had access to television, radio and printed publications to distribute their message. Today all you need is your smartphone.

Consumption of contentRemember the times you watched advertisements on the television? You were excited to see what is on offer. Today? When advertisements come on, it is an opportunity to catch up on Facebook updates, Tweets and images on Instagram. Hardly anyone is watching the ad that came on in the middle of the episode they were watching.

It is all around us. People waiting at traffic lights. In the doctor’s room. In restaurants. In line at the bank. All consuming content on their phones every second they get. The majority of the content they consume, they consume on their favourite social network.

the biggest mistakeThe biggest mistake professionals make, is trying to sell on their social networks. They expect that if they have say 1 000 followers or connections and they post what they offer, that prospects will queue at their inbox.

They forget one very important rule. What we do are based on relationships and trust. Period.

The mere fact that someone is following you or that they see your advertisement or post, does not mean you have a relationship with them. Nor that they trust you. The same age old principle applies: You must engage with a person over a long period to have a real relationship and to build trust.

What should you rather do?In the Social Media world, content is king. How will content stand in you in good faith though? By helping you build your brand. Brands build relationships. Brands are trusted. Brands are bigger than ourselves.

It is as simple as that. When your focus shifts from selling to building your brand, everything changes. You have a long term plan and no short term goals. You understand that you are in it for the long haul. That the benefits 3, 5, 10 or 20 years from now will be massive.Stop selling on Social Media. Have conversations.

How do I start conversations on Social media?First, you need a strategy. You need to define the ideal client you would like to attract and you need to understand your existing clients. You need to plan the kind of conversations you want to have with your clients and prospective clients. Identify key topics that your existing and ideal clients are interested in. You must identify which social networks they frequent. Determine what type of content they like most, e.g. video, audio or written content. In most cases, it will be best to distribute a single piece of content in different formats on different social networks.

Most important, you must stick to your strategy and be consistent.It is not about how many people see your post or your video or your picture. It is about the ones that interact with your content, be it through a like, comment or share. Make sure you respond quickly, show your appreciation and provide value.

Last thoughtsWe are not suggesting that you absolutely must use Social Media. That is dependent on your personality, your business model and the type of client you deal with. What we are however strongly suggesting is that you do not blatantly sell on your social networks every opportunity you get. Rather provide content that is meaningful and of interest to your audience, consistently. Ensure that you use the appropriate social networks for the audience you are trying to reach. The sheer volume of people using social networks in South Africa coupled with the ability to target them cost effectively with your content (instead of your advertisement) based on your defined criteria for ideal clients, makes this the best avenue to build your brand. You do this and the opportunity to sell will present itself again and again. Lastly, Social Media is part of your marketing strategy, it is not the only strategy.

By Alex Funk Head of Asset Consulting, GCI Asset Management

gets tough… Word on the street is that, in these times, asking clients to pay an extra

fee for discretionary fund management is not on. Nothing could be

further from the truth.

Investment returns are sluggish at present, and are likely to remain in the single digits for the next two years. With clients grumbling about low returns, many financial advisors are reluctant to propose adding the costs of a discretionary fund manager to the charges clients already pay.

In fact, many advisors say they are considering reducing their own charges to keep clients loyal in the face of lacklustre returns, so adding an extra 0.2% or so for a discretionary fund manager seems too big an ask. If clients are already paying around 3% for their financial advisor, asset manager and investment platform, and are only getting returns of 5%, they are hurting, goes the argument.

Quitetrue,butthefactofitisthatinasidewaysmarketlikethisone,thediscretionary fund manager is actually in a position to add a huge amount of value, and really help the financial advisor stand out in an overtraded market.

When the going

PraCtICe management

the tough gets a discretionary fund manager

Delivering superior returns sustainably is directly correlated to how well a financial advisor can construct a portfolio. This is less obvious in a bull market, when just about every fund is delivering double-digit returns but, since 2014, the false buoyancy created by quantitative easing has dissipated. It’s now harder to find investments with above-average returns in our market – until, that is, you factor out the big dual-listed rand hedges. It’s then apparent that South African Shares ('SA Inc.') actually do offer good value. But the big, well-known funds struggle to build up significant holdings in them because the companies’ share capital is too small: internal-mandate rules prevent funds from owning too large a proportion of any one company.

In short, to access this value, one needs to look beyond the big funds to the smaller, boutique ones. But with some 1 600 funds in South Africa alone, no financial advisor has the time or expertise to do a proper investigation to find the right fund for a specific portfolio. These boutique funds also tend to carry more operational risk, and so the investigation has to be thorough.

Playing safe isn’t safe at allSo the automatic choice of the big funds that the clients will recognise from TV adverts and billboards – you know which they are – is not going to provide the ultimate so necessary in these testing markets. Including various boutique managers alongside these safe bets will be crucial over the next 18-24 months.

Another point about portfolio construction is that each fund has its own investing style, which will perform best in certain phases of the economic cycle. However, the truth is that many people tend to pile into a fund after it has just posted returns in excess of its portfolio benchmark. The problem here is that Alpha (the active return generated by the manager’s skill over and above the return of the market) is usually or often succeeded by a period of underperformance because the investment climate or economic cycle shifts, and the fund’s investment style is less suited to it. A discretionary fund manager will be able to provide better forward investment planning that assesses which funds are likely to outperform in the current and future economic conditions, not the past.

Finally, proposed regulatory changes – Treating Customers Fairly (TCF) and Retail Distribution Review (RDR) – will make it mandatory anyway for financial advisors to do the research across all funds in order to advise clients properly. When these come into force, planners will either need to become discretionary fund managers themselves – an option that is not possible for most, or enter into a partnership with an asset consultancy firm. For many advisors, it makes excellent sense to outsource asset consulting to the discretionary fund manager.

From where I sit, in fact, paying 0.2% looks cheap for a professional research service that includes the right tools to help construct a customised portfolio aligned with a client’s 'risk budget'. As I said, this capability will set the financial advisor apart, and will also keep him or her on the right side of the law. Clients will see it as a significant value-add, too – especially when they start comparing their returns with those their friends are getting.

A final word of advice: discretionary fund managers aren’t all equal. Make sure you deal with one that has a track record of managing third-party collective investment schemes on behalf of clients, and so has a performance history that is public and verifiable.

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46

A South African retirement story

As discussed in part one of this article (published in Issue 41), the differences between defined benefit and defined contribution funds were discussed. Retirement funds have a fiduciary duty towards the members of the fund.

Legislation in relation to fund surpluses. The Second Amendment to the Pension Funds Act was promulgated on 7 December 2001. In terms of this legislation, if a fund had a surplus, it had to be shared out between all of the former members, pensioners, employers, current members and deferred pensioners. This was yet another reason for employers to change over to DC.

The change allowed employers to take a big step back from retirement funding… but as a consequence, members are now obliged to take a big step forward and start thinking long term.

Two sides of a saved coin- part 2

retIrement

By Ronelle Kind Chief Operating Officer,Liberty Corporate Consultants and Actuaries

member representationFrom 15 December 1998, dual employer/employee representation on a board of trustees to a retirement fund became compulsory. This means members have the right to elect at least 50% of trustees on all retirement funds. The remaining trustees are appointed by the employer. This has led to many new trustees being appointed who do not necessarily have the skills and the knowledge required for them to function optimally.

All trustees need to be trained so as to understand what is at stake, in order to make good choices on behalf of the members. Investment risk must be managed, and other factors (such as member longevity) also need to be taken into account.

Where does this leave us?The goal of saving for retirement is to maintain one’s standard of living, and this is best measured by the monthly income one’s savings will generate, not by the lump sum. The trustees should choose an appropriate replacement ratio to target and provide members with feedback regarding their progress towards that goal. The only choices members should be making are those regarding the income they require during retirement and how to get there. (Professor Robert Merton, MIT, in the Harvard Business Review).

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retIrement

South Africa does not have a culture of saving. Many of us are victims of procrastination, impatience, temptation (instant vs delayed gratification), and the overwhelming consumer culture in which we function. We are hard-wired to think short term. This means that often, when we are given a choice, we do not take the best option available to us. For example, we contribute the minimum amount so that we take home more cash each month, or we invest too conservatively, or we withdraw our savings when we change jobs.

It is for these reasons that the government is implementing retirement reform measures, which act as an incentive for South Africans to get into the habit of saving:• Mandatorypreservation(delayedlegislation)• Taxincentivestoencouragesaving• Enhancedportabilityofinvestments(delayedlegislation)• Transparentandcost-effectivemanagementoffunds• Taxationharmonisationandfundconsolidation• Simplificationofretirementproducts

Industry insightsThe necessity for saving has become exponentially important over the last decade. This is partly due to greater longevity. In a country where, statistically, only 30% of all citizens will retire within their means, and only 13% believe they have enough money left for savings after covering all

their spending needs, effective communication of the right message is crucial. An alarming 3.5 million South Africans have seriously considered cancelling an investment in order to service debt (Finscope South Africa 2015 Survey). More than 80% of our pensioners qualify for social grants. Incidentally, more than 70% of South Africans never obtain professional financial advice either.

Preservation needs to be actively encouraged and the implications of withdrawing retirement savings at retirement or when leaving an employer needs to be explained in a way members can easily understand and relate to. Member apathy also needs to be addressed as a matter of urgency. This can be done by means of high-impact, hard-hitting induction, and member guidance from day one of their employment. If members are educated effectively, they will invest correctly according to their individual needs, and voluntarily revisit their decisions whenever necessary. Finally, if all of this can be achieved, DC funds will succeed in their aim of providing the best benefits possible to members.

the next step – purchasing the right pensionLife annuityMembers who purchase a life annuity pay over their savings to an insurance company at retirement. The insurer will look at the amount available and inform the member as to how much he/she can receive as a monthly annuity (pension) for the remainder of their lives. The annuity will depend on factors such as current interest rates, assumed future interest rates, age, etc. In order to maintain his/her standard of living, it is estimated that the average member would need to target a pension equivalent to 75% of their pre-retirement income.

the missing linkMembers very often compare an escalating or inflation-linked annuity with a level annuity and opt for the increased starting pension of the latter. The value of their pension is soon eroded due to the effects of inflation, which leaves the pensioner in a compromised financial situation. It is important to provide members with the tools and information to understand this and make sensible comparisons between the various options available at retirement.

Living annuityIn this case the member invests a cash lump sum with an insurer and then withdraws a monthly pension from this amount. Regulation provides limits on the annual percentage that may be withdrawn, however, the larger the capital and the higher the investment returns, the more the member will be able to withdraw. The member’s money remains invested after retirement and is still subject to the rise and fall of investment markets. To ensure that the investment provides an adequate income for the rest of the member’s life, he/she needs to select an appropriate level of withdrawal that does not deplete the capital investment amount leaving him/her without an income at older ages.

ConclusionThe large-scale conversion from Defined Benefit to Defined Contribution arrangements and the legislative changes over the last 20 years have increased member responsibility tenfold. Members have not embraced this responsibility, which leads to a large shortfall in funding for retirement across the industry. Assisting members to make the transition can not only be achieved by the communication efforts of retirement funds, but will have to involve human resources departments and the organisation as a whole. Education will have to be frequent and continuous, supplemented and enhanced by employee wellness programmes.

Ultimately, however, it is the responsibility of employers and board of trustees to accept the obligation and fulfil the role of education leaders. By guiding employees instead of dictating to them, by ensuring they understand why they should be making certain decisions, instead of merely telling them what decisions they ought to make, the retirement industry in South Africa is sure to become progressively healthier.

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fPI neWS and eVentSretIrement

By Karen Wentzel, CFP® Head of Annuities, Sanlam Employee Benefits

• Annuitiescanbetailoredtomeetspecificfamilyneeds.Forexample, they can provide a benefit that equals 75% of the income of the main member to a surviving spouse or dependent child. Annuities give clients and their spouses the peace of mind that, no matter how long they may live, their payment stream will continue.

• Freedomfrommakinginvestmentdecisionsforclients.Insurers can invest in a wide range of assets. Not only do insurers offer products with attractive returns that annuity holders could not access on their own, but they also release pensioners of the stress of having to make their own investment choices. This is especially important when cognitive ability starts to decrease during old age.

However, the disadvantage is that guaranteed annuities offer clients an income for life, but no remaining capital is left as an inheritance or legacy after death. A guaranteed annuity also cannot be transferred to a living annuity.

Living annuitiesLiving annuities provide pensioners with an income from their retirement savings, offering flexible investment choice and withdrawal rates. In exchange for this flexibility, pensioners take on the risk that they may outlive their savings or experience poor investment returns (known as longevity and investment risk).

The pros of living annuities are:• Flexibility.Pensionersareallowedtomakeinvestmentchoices

about the underlying assets in their portfolios, and can choose the annual withdrawal rates in a range of 2.5% to 17.5%.

• Theremainingcapitalisnotlostintheeventofdeathafterretirement and can be paid out to nominated beneficiaries.

When considering income products at retirement, members want: • Accesstogoodreturnswithsomeinvestmentchoice• Protectionagainstriskand,inparticular,investment

risk and longevity risk• Accesstocapital,beforeandafterdeath.

Given the combination of needs that individuals will have and risks that they will face throughout their retirement years, a single retirement product is unlikely to be appropriate.

Every financial product has advantages and disadvantages, benefits and costs. Incorrect product advice and a misunderstanding about the features of annuities may lead to mixed emotions and different opinions.

guaranteed life annuities For all life annuities, pensioners carry no longevity or investment risk and some of the advantages of this cannot be understated:• Incomeforlife.Annuitiesprovideanincomestreamthat

clients cannot outlive. This is more than just a marketing phrase; this is a promise for life. Insurers pool all annuity customers together, and although insurers do not know exactly when policyholders will die, they have a fairly good estimation of their lifespan by using mortality tables.

A

income for life

How to fund a retirement

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Anil Ghelani, CFA©

2016

CFA Institute. All righ

ts reserved.

#CFAdifference

cfasociety.org/southafrica

Ask high-net-worth investors why they work with investment managers with the CFA® designation and they’ll tell you that those letters represent a proven understanding of investment management, commitment to ethics, and always putting clients’ interests first. Which means they can be relied on to stay true to an investor’s financial goals. Because, for our charterholders and their clients, those three letters are making a real difference every day.

I OFFER MY CLIENTS

UNPARALLELED SERVICE

AND THE HIGHEST ETHICAL STANDARDS.

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RETiREmEnT

The cons are:• Livingannuitiesdonotguaranteeanincomeforlife.People

who live longer than average are significantly at risk of running out of cash. Statistics indicate that people are living longer and this leads to a rapid depletion of capital, and is currently the greatest risk for pensioners. Living annuities unfortunately offer no protection to those pensioners who may outlive their cash. Pensioners will carry this risk on their own.

• Releasefromtheresponsibilityofownershipofyourretirementoutcome. Living annuities not only give pensioners more flexibility, but also more responsibility in making the correct investment decisions and withdrawal rates. This may be fine when you are 65, but it is not something you still want to worry about when you are 85.

In the same way that premium economy class addresses more than one need for passengers, by offering a more affordable spacious way of travelling, hybrid and composite annuities address retiree needs by way of access to good returns, protection of risks and access to capital.

Composite annuities are becoming a popular option in the market, with the following versions:• Livingannuity,phasingintoaguaranteedannuityovertime• Buyingalivingannuitytogetherwithadeferredannuityat

inception• Buyingatermannuityforthefirst5-10yearsandthereafter

receiving income from a living annuity

When starting with a living annuity and switching into a guaranteed annuity later, the big question remains: When is the optimal time to do this?

Let’s compare two options, namely:1. Buying a 5% guaranteed escalation annuity at age 65; 2. Buying a living annuity at age 65 and then switching into a 5%

guaranteed escalation annuity at age 70.

option 1:Our calculation shows that for a member retiring with R1 million into a 5% guaranteed escalation annuity, the starting annual pension amounts to R97 974 per annum.

Increasing this pension annually by 5%, the member will receive an annual income at age 70 of R119 088 per year.

option 2:This is compared to the alternative of buying a living annuity at age 65, then withdrawing the same income as received from the guaranteed escalation annuity now from the living annuity.

If a member then five years later, buys a 5% guaranteed escalation annuity of R119 088 per year (the same as the income in option 1 after five years), the member age 70 needs R1.053 million to afford this. The question is what return is needed in the living annuity after fees, during the first five years to afford the guaranteed annuity after five years?

And for those interested, all calculations are based on the PA90 mortality table without mortality improvements. You will know that with increasing age, the member becomes a select life and a guaranteed annuity is becoming relatively more expensive. The return needed to afford the same pension after five years is 13.9% per annum, which is a high return for a portfolio without investing in risky assets. Thus, if a member wants to be ultimately in a life annuity, the best time to do this is as soon as possible.

“The secret to living well is to die without a cent in your pocket. But I miscalculated, and the money ran out too early”. Jorge Guinle

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Planning Institute (FPI), which represents

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teCHnoLogY

Embrace the

digital age By Almo Lubowski, CFP® Financial Planning Institute’s Risk Competency Committee Member and Associate Consultant at Beyond RDR

and set yourself apart

I think we can all agree that we can’t deny the rapid pace with which technology is moving and if we plan to do business as financial planners in the next 10 to 30 years we would be doing ourselves a great disservice by not embracing it. In fact, we should use it to our advantage. In the financial planning and

advice industry it is understandable that there would be an aversion to it, especially currently, with buzzwords such as “robo-advice” being used haphazardly and often with no real definition or meaning.

I will begin this article by giving you my opinion on how I see the world of technology in financial services, also known as Fintech. I think robo-advice is probably a misleading term, because it should be called robo-implementation. If we consider the current South African Regulators definition of advice in the Financial Advisory and Intermediaries Act (FAIS), it does place, as its main focus, the advice around products specifically. I believe a lot of this product advice and implementation can and should be delivered to clients easily and affectively via online technology, as well as in the form of mobile apps.

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teCHnoLogY

Why resist? Instead rather take the opportunity as a highly qualified financial planner to re-align your business and value proposition by accepting that quite a few of the things you do will probably be done using Fintech in the near future. Instead rather focus and enhance the services that can’t be replaced by technology? Furthermore, focus on working with clients that are playing a big game, and still value your input regardless of the technology available to them.

In this regard, I personally love a golf analogy. When playing on a recreational level it is unlikely that you will use a caddy to play the course with you. Most would use a mobile golf app, which makes use of an inbuilt GPS. I’m sure you can see this is similar to Fintech. When you move up to playing your club champs you may however consider using one of the local course caddies for the day, as you want to have the best chance of winning. This is usually a once off transaction and you aren’t likely going to go on tour taking the caddy along with you. This is similar to a once off engagement by a client with a financial adviser on a specific product, which may be just a little too complicated for the client to implement on their own. Then however, you start playing on tour and taking up golf professionally. Hiring a caddy to go on tour with you makes sense for various reasons; the game is big enough now to warrant professional input on a continuing basis. Even when you think you have it all under control the pressure on tour is high and you need someone in your corner to provide constant perspective. In the financial planning world this is our ideal client situation, the one where the client has come to realise the seriousness of the game they are playing and without question know the value you add.

Technology has its place and can never fully replace the full financial planning experience, when delivered properly. So rather use technology to your advantage. Streamline your business and service offerings and even reach people you may have never reached before. There will always be clients that value your professional services as a caddy or coach.

Why do I say this? I would not build a business value proposition purely around product advice and implementation. That is not the reason I completed a postgraduate qualification in financial planning. I studied further so that I can do more for clients and add value in areas that require a multitude of knowledge and insight. Combined with a “personal touch”, is something that cannot be delivered by a computer with access to the Internet.

Even if many of these services are not yet fully available online or through other technology means, surely it is just a matter of time.

South AfricaShort Term Insurance in

BooK reVIeW

about the authors

Liz Still has written about investments and the medical scheme industry for over 20 years. In 1998, 1999 and 2000 she wrote ‘Profile’s Unit Trust Handbook’, a beginner’s guide to unit trusts. As a result of this work she joined equinox.co.za, an online investment company as Head of Research and Web Editor; a position she held for 12 years. This involved interviewing unit trust fund managers and writing about the investing and regulatory environment for the company website. During this time she was also an investment committee member for the Equinox Fund of Funds portfolios and a trustee of the Equinox Retirement Fund.

While studying towards the CFP® certification she identified a need for a guidebook on the health sector in South Africa and proposed this idea to Profile Media. This gave rise to the publishing, Healthcare in South Africa, an annual handbook now in its 10th edition.

Gareth Stokes is a specialist finance writer, and current communications manager for the Financial Intermediaries Association of Southern Africa (FIA), who has written on countless topics in insurance and investment over a financial services career spanning more than 11 years. He started his writing career as the managing editor for Fleet Street Publications (FSP) where he produced a number of monthly investment newsletters including the prestigious ‘Zurich Club’ – later ‘SA Investor’ – and the share tipping sheet, ‘Red Hot Penny Shares’. In 2006 Gareth self-published a book titled ‘Fear, Greed and the Stock Market’, which was a basic guide to investing in ordinary equities through the JSE.

He continues to write a regular freelance column in the UK-based risk management publication, Commercial Risk Africa, for which he was recently shortlisted as a finalist in the 2016 Continental Re Pan-African Reinsurance Journalism Awards.

Short Term Insurance in South Africa, a 360 page overview of the South African short term insurance industry, written by veteran journalists Liz Still and Gareth Stokes, is aimed at anyone who wants to get a deeper understanding of the concepts of short term insurance, the history of short term insurance in South

Africa, trends in the sector and the regulatory environment.

First reviewers of the book have observed that the book will be a useful resource for a wide range of readers, including students writing regulatory exams, consumers who might be confused by the concepts and terminology used by insurers and professionals such as auditors, marketers, public relations practitioners who need a quick overview of the industry and how it works.

Please note that the authors did not follow any curriculum of any insurance course offered by educational institutions but that various educational bodies and corporate in-house trainers have none the less reportedly used the book for training and educational purposes.

The book has 14 chapters and a glossary. The chapters cover the following:• Insurancefundamentals• Thehistoryofshortterminsurance

• Thebusinesscaseforinsurance• Insuranceasacomponentofthefinancialservicesindustry• Typesofinsurersandtheirfunctions• TheSouthAfricanshortterminsurancelandscape• Differenttypesofinsurancecover• Insurerfinancialstatements• InternationalandSouthAfricaninsurancetrends• Theregulatoryenvironment• Lawscurrentlyinforceintheshortterminsuranceenvironment• Proposednewlawsandpolicyobjectivesaffectingshortterm

insurance• Industryassociations• Participationpages

need a copy?As an FPI member you qualify for over 26% discount when you buy the Short Term Insurance in South Africa book. The suggested retail price is R300 and as a member you only get to pay R220. A delivery fee of about R49 will be charged for delivery within South Africa. A bulk price order for orders over 10 copies and over 50 copies is available.

For more information or to order a copy, contact still@netactive.co.za or gareth.stokes@redsphere.co.za or visit www.analytica24.co.za.

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BooK reVIeW

56

Collen, author of “Why broke when there is so much info”, has found the missing link between most people and how they manage their money. He decided to write this book after

identifying with many people’s financial journey and felt inspired to prod them into taking action and planning better for their financial futures. Anyone who has ever experienced a financial challenge will not only find this book interesting, but also an exciting read.

Collen tells his own story and the story of other people, so when you’re reading this book you will most likely relate to their personal experiences allowing you to reflect on your own financial situation. When asked how he came up with the subject for the book, Collen stated “When we get huge payouts we become complacent and blow

Why broke

about the author

Collen Lemawane is currently the anchor of business news and a specialist producer on SABC News 24 hour channel. In 2012, he was a senior producer of Interface on SABC 3. He was senior producer on SAFM and anchored a news programme called “World Today” on SABC 3. Collen was senior producer and presenter of Motsweding FM Current Affairs since 2003. He joined the media in 1996 as a news presenter on Radio Mmabatho, Radio Sunshine and Radio Bop.

so much infowhen there is

the money like there is no tomorrow essentially ending up broke. So I considered why we get broke when there is so much information about money management available.”

He is frank about our relationship with money and gives practical tips to follow if you are tired of being broke. This first time writer believes that when it comes to financial literacy, especially the language applied to educate the public about money, a lot of jargon is used which excludes a lot of people. Financial problems emanate from lack of financial planning, strategy and literacy for many. In his book he draws from his personal experience and decisions that landed him in financial trouble and shares how he managed to bounced back.

BooK reVIeW

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