Protecting your finances at every milestone

Article written by Vera Nagtegaal , Executive Head at Article from MoneyWeb.

South African women are living at least six years longer than their male counterparts, a mid-year population estimate compiled by Statistics SA shows. While various reports also reflect an increase in women participating in the economy, it is imperative that women continue to take charge of their financial futures.

Women must assess their finances and seriously start investing and saving, as being left widowed or divorced can be catastrophic without having a safety net.

Unlike previous generations, many families are finding it tough to survive on one income because of increases in municipal bills, transport, electricity, food, and data costs.

Being completely financially-dependent on your spouse or partner may no longer be a good idea considering that Statistics SA data on Marriage and Divorces shows that a significant proportion of couples will breakup within a decade of tying the knot.

According to the survey, released in 2016, four in 10 divorces (44.4%) of the 25 326 recorded that year, lasted for less than 10 years.

Whether you have a long-term partner or not, it’s important for women to take financial decisions into their own hands.

With the doubling of the divorce rate globally since 1990 for women over 50, referred to as ‘grey divorce’, married women of all ages should be encouraged to participate equally and actively with their (marital) partners in financial decisions and investment choices.

According to a recent report by UBS Global Wealth Management, 59% of widows and divorcees regret not taking part in long-term financial planning when they were part of a couple.

Some tips on making sound decisions at different age milestones:

The twenties
Find a reputable financial adviser and take out important policies – such as income protection (in case you are ill and can’t work), medical aid (to cover unforeseen health issues as well as day-to-day medical expenses) and a retirement annuity.

You want to get your retirement savings started early on, so you don’t end up scrambling to save at the end of your career.

It’s also a good idea to begin saving for short or medium-term goals such as travel and buying property, using savings vehicles like unit trusts.  Unit trusts are well-established financial instruments that allow people to participate in the markets.

The thirties
If you start thinking about having a family during your thirties, you should certainly start doing your research about life insurance, affordable family medical cover and homeowners’ insurance. Putting money into an education plan can also put your mind at ease about paying for your child’s future studies.

The forties
Depending on your individual trajectory, some women might have teenage children at this stage. Others might be thinking of growing their portfolio of properties or purchasing a new car. If you find yourself drawing from long-term savings to cover the cost of your children going to university, or to pay for a large purchase, be sure to increase the amount you’re putting away for your own retirement.

The fifties
Don’t be in a hurry to retire if you are enjoying your career and need more time to save for future security. Another reason to keep on working is to be able to afford some of the luxuries that were possibly sacrificed when your children were young, ranging from holidays to home renovations.

The sixties
Women at this age might experience an increase in health bills than in previous years, or they might find themselves in the unfortunate situation of being widowed. It’s therefore important to meet with a financial adviser to assess your existing investments to be sure that you are getting the most out of your money.

According to the latest World Bank Group Africa poverty report, there are as many widows as married women by the age of 65.

Whether you have a long-term partner or not, it’s important for women to empower themselves by taking financial decisions into their own hands. Like most things, it begins with educating yourself – which in this case involves financial literacy in various areas such as saving, education, medical costs and other long-term expenses.

Don’t ruin a relationship through financial debt

Article written by Stephen Davies

There is one sure-fire way to damage a friendship, and that is lending or borrowing money. It can even damage family relationships too, although relatives tend to be far more forgiving if debts don’t get repaid.

The problem is that when someone you are close friends with or you are related to asks you for money, its immediately puts you under pressure. There is the pressure of worrying about lending someone money in the first place, and there is also the pressure of refusing the request and fearing that your refusal could irrevocably destroy the relationship.

It seems like it’s a lose-lose situation.

The fact of the matter is that you really have to be prepared to lose the money once and for all if you do make your mind up to help out. If you aren't prepared to write-off the cash, you are better off walking away.

Covering the opportunity cost

No-one should expect to borrow money for free. There is always an opportunity cost for that money if you are savvy about your savings. You can put it in an ordinary saving account, (even though interest rates are pretty poor) or you can put it into a particular type of savings account or investment that offers higher interest.

The general rule of thumb is that the safer the investment, the less interest it offers.

If you do decide to offer a loan to a friend or relative in need, the opportunity cost of doing so is forfeiting the interest that it would have accrued. You should at least expect the borrower to cover that risk.

Learning how to say no

The most significant risk, of course, is when the borrower reneges on the agreement and doesn't pay you back the whole amount or indeed anything at all. It's not a risk that most of us can afford to take – especially here in South Africa where we are not the richest of nations.

The other thing is ‘steeling yourself to say no’. But it doesn’t have to be an open and shut refusal. You can try offering some advice on money management, or steer the person in another direction where they can get a loan from a legitimate and safe source.

Stick away from Loan Sharks and Mashonisas

The worst thing anyone can do when they are looking to borrow money is to go to a so-called “loan shark.” A recent article on the Business Tech website reports that there could be as many as  40,000 loan sharks operating here in South Africa including what are known as “mashonisas,” non-registered crooks who are not afraid to use threats to recover loans issued at exorbitant rates of interest.

Mashioisas and other loan sharks are not always easy to identify. The look and initially act like ordinary people. It is only when debts are unpaid, or repayments are late when the trouble starts.

Is the loan source NCR approved?

The easiest way of ensuring that someone seeking a loan doesn’t become a victim of this sort of financial crime is to advise them to check out whether or not their proposed loan source is approved by the NCR (National Credit Register). If it is not, the company should be avoided.


Claim statistics reveal our biggest risks

Article written by Maya Fisher-French

Cancer, car accidents and retrenchment are major risks for younger people.

Both Momentum and Liberty released their claim statistics earlier this year, revealing some concerning trends especially relating to cancer and claims among younger clients.

Momentum statistics show that claims for cancer-related events increased by 8% compared to last year. Furthermore, critical illnesses like cancer were not restricted to older clients but were also prevalent among younger clients.

We know as we get older we will be more susceptible to illness, but what these statistics are telling us is that younger people are more likely to claim for a severe illness or disability than death, with Momentum’s figures revealing that 43% of critical illness claims were by clients under the age of 50, with the youngest claimant aged just 21 years old. Individuals between the ages of 30 and 39 accounted for 14% of all critical illness claims.

Cancer remains the most prevalent cause of critical illness claims. Both Liberty and Momentum show that breast cancer is by far the most common cancer for women and prostate cancer for men. But women are more likely than men to be diagnosed with cancer. Liberty’s statistics show that cancer claims among women remain high, accounting for 32% of all claims of which nearly 4/10 are for breast cancer. For men, cardiovascular issues remain the number one reason for claims but according to Momentum’s figures, when it comes to men under the age of 30, vehicle accidents are the major cause of claims.

Increase in retrenchment claims

Liberty includes retrenchment cover as part of their offering and their figures show that retrenchment remains the highest claim for ‘Young Achievers’ (those in their 20s and 30s) ‒ this has increased from 12% in 2016 to 17% in 2017. However, for women in this category, cancer claims now equal those made for retrenchment, with both accounting for 19% of claims. In fact, for women, cancer and retrenchment are both more significant than for young men who claimed 15% for retrenchment and 13% for cancer. Young women are, however, less likely to claim for motor vehicle accidents or cardiovascular conditions.

The statistics also highlight the importance of disability cover for younger people who are self-employed, especially for temporary disability which could be event driven, such an accident or time off work to recover from an illness. Temporary disability income would cover one’s income if one were unable to work for a period of time.

Momentum’s figures show nearly 70% of disability income payments were for individuals under the age of 50 and while this may be skewed by the fact that disability income policies usually terminate when you retire, the highest age group for disability income was 40-49 years old, which is about the time that a person is most likely to have family commitments like school fees and mortgages.

Stress-related claims on the rise

Another concerning trend is the increase in stress-related claims such as suicide and strokes. According to Liberty, despite the fact that Gauteng has the highest number of claims for motor accidents, the number of suicide claims in this province was even higher than road accident claims. This suggests that stress in the country’s economic hub is taking its toll and could also be an explanation for the higher-than-average brain cancer claims. In Gauteng, the percentage claimed for brain cancer was almost four times higher than other provinces.

Momentum experienced a significant spike in stroke-related claims with the number of disability claims as a result of strokes doubling compared to last year. Hypertension (high blood pressure) is one of the leading causes of strokes and again could indicate a higher stress levels in the population.

What we can learn from these statistics is that we need to take better care of our health and also better care on the roads. Take the time to do an annual preventative screening for breast or prostate cancer, monitor your blood pressure and cholesterol levels, and take a taxi if you’ve been drinking. And if you are under the age of 50, your cover should focus on critical illness and disability events.


Investors Must Take Advantage Of SA’s Economic Renewal

Article by the Huffington Post

"South Africa is open for business," said the President, speaking at the G7 outreach summit in Canada.

President Ramaphosa has told leaders at the G7 outreach summit in Canada that South Africa's economic renewal creates opportunities for investors around the world, reported Eyewitness News.

Ramaphosa, accompanied by a local business delegation told his host, Canadian Prime Minister Justin Trudeau that South Africa sees Canada as a strategic partner in navigating the difficulties facing the world economy.

“South Africa has entered a new dawn, a new era in which our economy occupies centre stage. Business confidence and investor sentiment is improving. Government is responding to create a dynamic and enabling business environment that will promote greater productive investment,” said the President in a speech.

He said South Africa has embarked a new path of renewal and growth, adding that the country was hard at work to remove the constraints that have held it back and to create new opportunities for growth.

"Our aim is to unlock the economic potential of our country, which has been constrained for decades by policies of racial exclusion. For generations, black South Africans were denied opportunities to own assets, establish businesses, acquire skills and enter professions," Ramaphosa said.

"Nowhere was this more apparent than in the patterns of ownership and usage of land. The extreme concentration of ownership of land is one of the great impediments to the full realisation of our country's potential. We have taken a decision to accelerate land reform, including land redistribution and ensuring security of tenure for the rural poor," he said.

"This needs to be done through a range of measures, which will include, in appropriate circumstances, the expropriation of land without compensation. We are determined that this should be achieved in a manner that is consistent with our Constitution, enhances agricultural production and food security and promotes economic development," he said.

"South Africa is open for business. We anticipate a new wave of investment in our economy and in our region over the next few years. We encourage Canadian companies to join that wave and to reap the rewards of investing in a country and a continent on the rise."

The summit is being hosted by Canada's Prime Minister Justin Trudeau under the theme 'healthy, productive and resilient oceans and seas, coasts and communities'.

In a statement, the Presidency said the meeting is in line with the goals outlined in South Africa's National Development Plan and speaks to the country's efforts to stimulate economic growth and create jobs through, amongst other things, unlocking the oceans economy.

South Africa's Operation Phakisa is using South Africa's untapped 3,924km coastline to create one million jobs and contribute up to R177 billion to the gross domestic product (GDP) of the country.



Original title: With massively confusing industry charges, FInancial Advisors must consider new practises to remain competitive.

With revenue being squeezed by compliance and technology, financial advisors are trying to find ways to increase their revenue and continue to give value-added service to their best clients. When revenue flatlines or starts to shrink, so does the spending on technology and processes. This is a short-term recipe for disaster and frustration, and leaves advisors with tough decisions for their future: sell out if they can, merge with another practice if possible, or invest into systems and processes that can build scale and service their high net worth clients.

New compliance processes
How many times have you had to update your processes with new regulatory changes in the past couple of years? With new regulations being written on a regular basis, come new processes and systems. With new regulations comes training and all of this takes time, which most advisors don’t have these days. Time to implement processes and systems to handle the new regulations and processes. You can either plan the time to tackle these challenges, join forces with someone who has the processes in place or hire a consulting firm to help guide you in implementing new processes. Or do nothing, and see what happens. It’s your choice.

Comprehensive wealth management
Challenging as the environment may be, running a comprehensive and integrated wealth management and financial planning firm, is the future of the financial services industry. Financial firms who invest in the technology and have processes in place are finding it easier and easier to compete and grow their practices. They are the ones who have all seven areas of a client’s financial life in mind. The seven areas I categorize are tax, estate, investment, risk management, insurance, debt and cash flow. While they may not give direct advice or planning in all areas, it is coordinated or integrated planning and advice.

Comprehensive practice management
The same as running a comprehensive wealth management firm, their processes are organized into six areas.
How many financial advisors you know have their complete financial planning practice in order in all six areas-
1. Ideal client acquisition process– increasing your value, pricing or fees?
2. Client experience process- delivering a list of comprehensive value-added services to their best or high net worth clients.?
3. Ideal metrics and KPI’s- Increasing practice revenue with fewer clients than the average advisor?
4. Human capital processes- How many advisors have these in writing?
5. Ideal capacity – segmentation clients annually and time management systems?
6. Ideal Lifestyle- How many advisors are taking 8 weeks off a year?
Consider doing a process audit for your best clients to determine gaps and opportunities to serve your best clients.

Do advisors have their own plan in order?
What is the probability of success in reaching your business goals currently?
Is it 50% 75% OR 90%+?
We know that 72% of financial advisors have a business plan in their head. And 25% of them have a business plan and earn 41% more than advisors who do not have a business plan. But the highest probability of success comes from having a fully documented business plan, reviewed every 90 days and progress tracked to plan, earn 246% more than an advisor who does NOT have a clear plan for their future.

Consumer behavior change
Fee compression and higher costs are forcing advisors to examine their business models, and target more high net worth clients, and move to fee-based accounts. They are also adding value added services such as financial planning, fee audits, and advice-based services such as beneficiary audits for insurance planning. The future, however, is becoming clearer for the consumer, that basic advice will not have the same cost in the future, and revenues for advisors already are being forced downward.

With revenues decreasing and demands growing from consumers, advisors will have to offer more value and more comprehensive services. This takes time, and processes in place, two critical items some financial advisors don’t have. When are you going to find the time to put in more comprehensive services and processes to deliver? When I started my coaching firm to help advisors build these processes, I planned to be busy, but advisors need help, and I am past capacity in my consulting practice.

I urge advisors to find a coach or consultant who can help you implement these processes into your practice, and find the time to do so. This may be the key to the independent advisors future, instead of merging or selling ( if possible). I call it project 100. Plan 2-4 hours per week to implement the key processes, technology, and systems into your practice. Only then can you deliver more value to your best clients and prospects. Start by booking the time in your calendar this week.

How direct and indirect offshore investments differ


Investing offshore remains a hot topic of conversation, mainly because it enables you to diversify your portfolio and access market sectors and securities that are not available in South Africa. 

Before you take the plunge, however, make sure you understand your motivation for investing offshore, as well as the implications of your choices. It should be a strategic decision taken with the construction of your overall portfolio in mind and as part of a carefully crafted, holistic financial plan.

One of the first choices you need to make is between using a rand-denominated offshore feeder fund (“asset swop”) facility and investing directly in offshore unit trusts. The best option (or combination of options) is the one that will most suit your needs and that will best complement your overall financial plan.

You should not view investing offshore primarily as a rand hedge. Although this the main reason many people invest offshore, investors already gain substantial rand-hedge exposure through JSE-listed companies that generate their earnings abroad. Keep in mind that, because your expenses are priced in rands and are linked to South African inflation, moving too much of your portfolio offshore could result in a number of problems.

Rand-denominated offshore investments are ideal if you don’t necessarily want to expatriate your capital but want to take an investment view.

Various rand-denominated offshore (feeder fund) unit trusts are available. Typically, this is the cheaper and more easily accessible option when diversifying your portfolio offshore.

When investing in a feeder fund, you are taking advantage of your fund managers’ offshore allowance instead of using your personal offshore discretionary investment allowance. Generally, you can invest smaller amounts than when you invest directly offshore, and you can invest by setting up a debit order.

You may want to consider investing directly offshore if you plan to access your money offshore – for example, if you plan to emigrate, have offshore liabilities, live overseas part of the year, or expect that your children will study abroad.

This involves taking money out of South Africa, which needs to happen via an authorised dealer. Once the money is physically out of South Africa, it can be invested in offshore markets in a foreign currency by using the offshore capital investment allowance granted to the authorised dealer by National Treasury and the South African Revenue Service (Sars). There is a range of options, from shares to offshore unit trusts and a foreign bank account.

Investors can use their personal single discretionary allowance of R1 million per taxpayer per calendar year (which does not require tax clearance from Sars) or their foreign capital investment allowance of R10m per taxpayer per calendar year (which does require tax clearance from Sars).

Taking the plunge and investing offshore makes sense for many investors, provided you are clear about your reasons for doing so, and understand the advantages and disadvantages of the option you choose.

Ramaphosa’s massive cabinet reshuffle


Article written by Business Tech.

Newly-elected President, Cyril Ramaphosa, has announced his new cabinet in a press briefing on Monday evening.

In his late-night reshuffle, Ramaphosa said that government will retain its existing ministries and departments until a review is made at a later date.

However, he still made a number of significant changes, notably the announcement of David Mabuza as Deputy-President, the reshuffling of Malusi Gigaba as Finance Minister, and the re-introduction of Pravin Gordhan into cabinet.

Nhlanhla Nene was re-appointed as Finance Minister, marking a dramatic comeback after being sacked by former President Jacob Zuma in 2015.

The shakeup comes 11 days after Ramaphosa was elected president, replacing Zuma, who was forced to resign amid pressure from the ANC.

Nene served as Deputy Finance Minister before taking over the post of Finance Chief from Pravin Gordhan in 2014 and won the respect of investors before his firing.

Since then he’s taken up a position on the board of Fund Manager Allan Gray, become an adviser to Thebe Investment and served as temporary head of the University of Witwatersrand’s Business School, Bloomberg reported.

Nene will spearhead efforts to revive an economy that only grew about 1% last year, drive down a 27% unemployment rate and rebuild investor confidence that was badly damaged during Zuma’s scandal-marred nine-year tenure.

“The reappointment of Nhlanhla Nene is a positive step in rebuilding South Africa’s fiscal credibility,” Andrew Canter, Chief Investment Officer at Futuregrowth Asset Management told Bloomberg.

“Ultimately, South Africa’s renewal lies in the ability get economic growth and opportunity back on track.”

Gordhan was named as Minister of Public Enterprises, Gigaba returned to his former post of Minister of Home Affairs, while Lindiwe Sisulu will become Foreign Minister.

This is the list of Ramaphosa’s new cabinet members:


Shuffled In

Shuffled Out

Deputy President

David Mabuza

Minister of Finance

Nhlanhla Nene

Malusi Gigaba

Deputy Minister of Finance

Mondli Gungubele

Sifiso Buthelezi

Minister of Energy

Jeff Radebe

David Mahlobo

Minister of State Security

Dipuo Letsatsi Duba

Bongani Bongo

Minister of Public Enterprises

Pravin Gordhan

Lynne Brown

Minister of Home Affairs

Malusi Gigaba

Ayanda Dlodlo

Minister of International Relations

Lindiwe Sisulu

Maite Nkoana-Mashabane

Minister of Public Works

Thulas Nxesi

Nathi Nhleko

Minister of Water and Sanitation

Gugile Nkwinti

Nomvula Mokonyane

Minister of Transport

Blade Nzimande

Joe Maswanganyi

Minister of Sport

Thoko Xasa

Thulas Nxesi

Minister of Communications

Nomvula Mokonyane

Mmamoloko Kubayi-Ngubane

Deputy Minister of Communications

Pinkie Kekana

Tandi Mahambehlala

Minister of Social Development

Susan Shabangu

Bathabile Dlamini

Minister of Mineral Resources

Gwede Mantashe

Mosebenzi Zwane

Minister of Cooperative Governance

Zweli Mkhize

Des van Rooyen

Minister of Science and Technology

David Mahlobo

Naledi Pandor

Minister of Police

Bheki Cele

Fikile Mbalula

Minister of Higher Education

Naledi Pandor

Hlengiwe Mkhize

Minister of Human Settlements

Nomaindia Mfeketo

Lindiwe Sisulu

Minister of Public Service and Admin

Ayanda Dlodlo

Faith Muthambi

Minister of Rural Development

Maite Nkoana-Mashabane

Gugule Nkwiti

Minister of Tourism

Derek Hanekom

Thoko Xasa

Minister in the Presidency for Monitoring

Nkosazana Dlamini-Zuma

Jeff Radebe

Minister of Women and Disability

Bathabile Dlamini

Susan Shabangu

Millenials get finance advice from bots

Article written by iAfrica.

Millennials are not only developing a healthy appetite for financial advice, they are also more likely to trust digital advice from automated investment services than older generations.

The question of how companies can win over Millennials is a hot topic among digital leaders worldwide. Forrester surveyed online adults in 20 markets to determine their need for and perception of financial services. The resulting report, “Millennials Want Financial Advice, With or Without Humans”, shows that Millennials:  

Want financial advice: Increasingly complicated finances have resulted in younger people actively looking for financial guidance – more so than their older counterparts. Results from the study showed that in Europe, 32% of online adults between the ages of 18 and 37 say they “rely on financial advice from professionals,” compared with 29% of older generations.

Are not afraid to share personal information in order to get the advice: At least two thirds of US Millennials were willing to share personal data in order to get improved service from their financial institution.

Are not confident in the current advice they are receiving: Only 38% of US Millennials are confident that a bank or credit union will offer them valuable financial advice, compared with 46% of their older counterparts. Moreover, just over two-thirds of US Millennials say, they don’t know who to approach in order to get reliable financial advice, compared with less than a third of older generations.

While the results of the survey show that Millennials not only want financial advice more than the older generations, it also goes on to show how they differ in terms of the way they want to receive that advice. The report explains how Millennials:

Prefer to interact with digital touchpoints rather than humans for financial activities: Millennials are more likely to use mobile apps and sites for banking, credit cards, payments, investments, and wealth management. Millennials are also far more likely than older generations to use websites and apps to research financial products.

Prefer mobile-first for financial advice and tools: While 26% of US adults say they prefer to use mobile devices to access financial services and advice, almost half (46%) of Millennials say they would rather use their mobile phone for this.

Are interested in digital advice: While older generations remain skeptical about software being able to deliver financial advice, the survey shows that younger folk are much more open to the idea. More than one in three US online Millennials believe that “automated investment services (e.g., robo-advisors) give credible advice,” while just 10% of older generations say the same. Millennials also show more faith in digital financial advice overall, with 39% of US Millennials agreeing with the statement “I trust digital advice,” compared with just 12% of their older counterparts.

Commenting on the findings, Peter Wannemacher, Forrester senior analyst and co-author of the study writes in the report: “Millennials now represent the largest generation in the workforce in the US and many other countries. Over the next two decades, Millennials are set to inherit tens of trillions of dollars in assets — the largest wealth transfer in history. Digital leaders at banks and wealth management firms should invest in digital capabilities and collaborative advices now to better win, serve and retain Millennials going forward.”

8 quick tips for year-end financial planning

Original article written by Forbes.

1. Assess your 2017 plan progress.
Look at any areas of your 2017 written financial plan that you have not yet accomplished and endeavour to complete them in the remaining months, or include them in your 2018 plan.

2. Review your current cash flow.
Take a deeper look at what you are spending your money on each month and determine what opportunities there are to find “painless savings”. You may even find some easy ways to save a few extra rands for your long-term goals.

3. Calculate your asset allocation.
The run-up in stocks may have increased your stock allocation and you may hold more risk than you are comfortable with. If so, look at making some reallocations – and don’t forget to consider the tax implications of any move inside a taxable account.

4. Estimate if you are on track to maximize your retirement contributions.
Try not to miss any valuable tax deductions; this is a great time of year for retirement top ups, especially with year-end bonuses.

5. Talk with your tax and financial advisors.
Explore other ways to save on your tax liability. There may still be time to act, but time is running out!

6. Check your Tax Free Savings Account.
You can only contribute R33 000 per year to a Tax Free Savings Account and you cannot back date the payments. Ensure that you are using this facility to maximise your tax efficiency.

7. Review your estate planning.
Each year we should really take the time to review our wills and general estate planning. Your year may have changed your estate planning more than you thought and taking the time to engage the topic will prevent it from running ahead of you in the future.

8.  Consider what life changing events you may face in the new year.
For example: if your employer is struggling, planning job cuts, or if you are considering a job change, do you have enough liquidity on hand while you look for a new position? If you are buying a new home, are there steps you can take now to improve your credit rating? Or, if you have unexpected medical expenses how will you meet what is potentially a high deductible in your health insurance policy?

The financial planning process is continual and never ending. Reviewing year-to-date progress and anticipating future needs can lead to better results. Use this year-end period to assess your current situation and identify future planning opportunities.


Capital gains tax & how it affects unit trust investors

Article written by Rob Formby.

Capital gains tax (CGT) was introduced into the Income Tax Act, 1962 in South Africa from October 1 2001 and is applicable to capital gains made after that date. The Act sets out the basis on which you are taxed on capital gains arising from the disposal of an asset.

Understanding the treatment of various types of capital gains that you may enjoy in your lifetime is important.

In this article, we aim to equip you with some background to CGT and an understanding of the importance of the CGT tax certificates that we send you annually around this time of the year.

Key facts about CGT for investors

Investors do not pay CGT when the portfolio manager trades shares

A key difference and benefit for investors in South African unit trusts is that you only incur CGT when you sell your units in a unit trust. The buying and selling of the underlying assets held by the portfolio manager are not seen as CGT events for either unit trust company or investor. Portfolio managers can therefore focus on their core business of managing the portfolio according to their mandate, without having to concern themselves with tax issues. The unit trust investor receives the advantage of asset allocations changing without CGT being triggered, which would be the case if the investments were held in a segregated share or property portfolio.

You decide when to become liable for CGT

A CGT event is triggered whenever an investor sells units. Therefore, you decide when to become liable for CGT, allowing you to defer tax and to plan your investments appropriately. In this sense, your role in managing your exposure to this tax is important.

In other words, you are not liable to pay CGT simply because your investments grew in a particular tax year. You realise a capital gain or loss on unit trust investments only once you sell the units (known in the industry as a ‘withdrawal’ or ‘repurchase’). This includes:

• Regular and once-off withdrawals

• Switches between funds

• Transfer of an investment (or part thereof) to another investor (referred to as a ‘change of beneficial ownership’)

• The divorce of an investor married in community of property as assets jointly owned are sold to divide the proceeds between the two parties

• Sequestration, emigration or death of an investor (unless you have made provision for your units to be transferred to your surviving spouse; or you transfer them to a registered public benefit organisation)

If you remain invested in the same unit trust, you could avoid paying CGT for as long as you remain in that fund. Investors should be careful, however, not to lose sight of their overall investment goals and objectives when considering ‘deferring’ CGT. CGT is merely one aspect to consider as part of your investment decisions.

Calculating your capital gains and losses

The Act provides that a taxable capital gain or loss must be included in the taxable income of a taxpayer for the year of assessment. The taxable capital gain is calculated in terms of the rules contained in the Eighth Schedule to the Act and will be determined by calculating the difference between the original cost (‘base cost’) and the market value of the units at the date of sale.

Determining the base cost of your units

The base cost of an asset is the cost of acquiring it. A capital gain or loss is determined by deducting the base cost from the market value of the units at date of sale.

• Base cost of investments acquired before 1 October 2001. For investments made before 1 October 2001, unit trust management companies publish a price to be used for this calculation, which is effectively the price on that date.

• Base cost of investments acquired on or after 1 October 2001. For investments made on or after 1 October 2001, the actual cost incurred in acquiring the units is used to calculate the base cost. Industry practice is to make use of the Weighted Average Unit Cost (WAUC) method for the calculation of the base cost.

In determining the base cost of your units, there are certain costs that may be added to the original cost. These amounts were incurred as expenditure directly related to the acquisition of the assets, one of which is initial financial adviser fees. If you make use of a financial adviser, Allan Gray automatically includes any initial fees you paid to them in the base cost of your investment. This reduces your CGT liability when you eventually sell the units. Ongoing financial adviser fees may not be added to the base cost of an investment.

A new WAUC is determined every time you buy units, taking into account the number of units you hold, the number of units you buy, the price paid for the units and the previous base cost. Allan Gray calculates and supplies investors with a WAUC.

CGT is applicable to offshore investments

Capital gains on offshore investments need to be calculated and declared in rands. To make this work, taxpayers are asked to translate each leg of the underlying transactions (each purchase and sale) into rands. Sars allows you to choose between using the average exchange rate over the year to do this, or to use the rate on the day of the purchase or sale. Fluctuations in the exchange rate can therefore also give rise to (or eliminate) capital gains or losses.

Planning is critical

In conclusion, it is important to plan your investment properly and understand the tax implications of your decisions. Make adequate provision for your tax liabilities and consider taking advantage of any concessions provided by SARS in your investment plan. Although we have tried to set out the key things to consider in CGT, we are not tax professionals and we suggest you seek the help of an adviser if you need it.

Liberty’s Investment App is major hit

Article written by Gugu Lourie, Tech Financials

Original headline: Liberty’s Investment App reaches 12 000 User Mark in Less Than 5 Months

Stash, an investment app created by Liberty, has proven to be a major hit among young South Africans after being downloaded and used by 12 000 users since this year’s Android launch in April.

On 15 October, the app to invest your spare change will also be available on Apple’s iOS.

Stash is an app that simply rounds up transactions when you swipe your bank card and invests the digital spare change in South Africa’s Top 40 companies, tax free.

In just 49 seconds, you sign up, link your debit, credit or cheque card to the app, and get R50 free to kick-start your investment journey.

Each time you spend on your card, the app rounds up the amount spent to the nearest R10 and stashes the digital spare change into your investment account.

Stash now works with all of South Africa’s major banks too.

The most recent addition is Capitec – the second biggest bank in South Africa. “If you bank with Capitec and tried to sign up, now you can get a Stash,” says Juan Labuschagne, head of development at Stash.

Stash, an investment app created by Liberty, has proven to be a major hit amongst young South Africans

Stash, an investment app created by Liberty, has proven to be a major hit among young South Africans. The company said more than 60% of Stashers are under the age of 35.

“Getting the younger generation to invest is a challenge because young people are so focused on work, family and socialising that they often neglect this essential financial imperative, that’s why Stash has kept it simple. We’ve loved how quickly people have caught on to Stash. More than a third of Stashers join through friends and more than 3 000 people have pre-registered for Stash for Apple on,” said Labuschagne.

The company said an average Stash user saves R175 every month; approximately R2 100 invested every year.

What is Twin Peaks?

Article written by the Financial Services Board

The Twin Peaks model of financial sector regulation will see the creation of a prudential regulator – the Prudential Authority – housed in the South African Reserve Bank (SARB), while the FSB will be transformed into a dedicated market conduct regulator – the Financial Sector Conduct Authority.

The implementation of the Twin Peaks model in South Africa has two fundamental objectives:

  • to strengthen South Africa’s approach to consumer protection and market conduct in financial services, and
  • to create a more resilient and stable financial system.

The Prudential Authority’s objective will be to promote and enhance the safety and soundness of regulated financial institutions; while the Financial Sector Conduct Authority will be tasked with protecting financial customers through supervising market conduct. Structures will be in place to ensure proper co-ordination between the two authorities and other regulators.

The Financial Sector Regulation Bill (FSR Bill, December 2014) is the first in a series of bills towards the implementation of the Twin Peaks model and it follows two policy papers that respond to lessons learnt from the 2008 global financial crisis: A Safer Financial Sector to Serve South Africa Better (National Treasury, February 2011) and Implementing a twin peaks model of financial regulation in South Africa (Financial Regulatory Reform Steering Committee, February 2013).

What does Twin Peaks mean for the FSB?

The FSB will have a new name and a new mandate. As the Financial Sector Conduct Authority (FSCA), its objective will be to protect financial customers by:

  • ensuring that financial institutions treat financial customers fairly;
  • enhancing the efficiency and integrity of the financial system; and
  • providing financial customers and potential financial customers with financial education programs, and otherwise promoting financial literacy and financial capability.

The FSB is in the process of reviewing its structures, frameworks and resources in preparation for the shift to its new Twin Peaks focus.

The proposed new regulatory structure

 Image source:  Ernst and Young

Image source: Ernst and Young


Article by Prescient Investment Management Ltd. 

In the current environment were global market uncertainty and political risks impact investment returns, it is pretty stressful selecting which type of unit trust to invest in to achieve your investment objectives. With that in mind, a viable option should be multi-asset funds, which target long-term real returns that are more stable compared to single asset funds. 

These funds are compliant with Regulation 28 of the Pension Funds Act and offer a wide risk spectrum to investors depending on their risk appetite. Significant diversification benefits are achieved as different asset classes and currencies are blended together. Statistics released by the Association for Savings and Investment South Africa (ASISA) show that the unit trust industry has cottoned on to this, favouring the funds in the ASISA Multi Asset High Equity category in particular.

Within this category, the Prescient Balanced Fund has just surpassed three years of existence, in which time it has performed particularly well. As at 30 June 2017, it ranked in the first quartile over three months, twelve months as well as the period since its inception on 31 May 2014. The chart below is based on cumulative monthly performance since the Prescient Balanced Fund’s inception and shows superior outperformance relative to its category average.

Source: Morningstar

In a similar vein, the Prescient Balanced Fund has consistently outperformed its category average on a rolling twelve month basis.

Source: Morningstar

Remarkably, the Fund has returned 4.85% year-to-date and 7.08% per year since inception, while peer average returns over the same periods were 2.47% and 5.03% respectively. Despite its impressive performance record, the Prescient Balanced Fund is also the cheapest fund in the ASISA Multi Asset High Equity classification, with a total expense ratio (TER) of 0.55% and a total investment charge (TIC) of 0.58% a year. 

On a comparative basis, Prescient’s TER of 0.55% compares very favourably to the average categories TER of 1.82%, which consists only of funds in the category with at least a three year track record. 

In other circumstances, a 1.27% fee difference could possibly be overlooked. However, in the current low performance environment, investors need to scrutinise charges as expensive performance fees in many circumstances result in negative net of fee returns when gross returns were initially positive. Put differently, fees detract from fund performance and that determines how much cash is left at the end of the investment time horizon. 

Source: Morningstar and Prescient Investment Management

The future is uncertain and of that, we are sure. However, paying lower fees is one way of ensuring better returns and this is illustrated in the above chart, which is based on an initial investment of R1 million returning 6.5% per annum for five years, before fees. 

The Prescient Balanced Fund is a passively managed fund that offers a diversified mix of assets and geographic exposure. Accordingly, 55.25% of the fund is exposed to local equities and 9.75% to global equities. Similarly, 24.75% is invested in local interest-bearing assets while 5.25% is exposed to global interest-bearing instruments. The remaining 5% is invested in local property.  The Fund targets returns of inflation plus 5% to 6% a year over the long-term.  

The Fund has been a star performer and its investment strategy has placed it squarely in the top quartile of comparable peers. 


MAKING CENTS: DOs and DON'Ts of financial planning

Article written by Grainne McGuinness

When it comes to getting on top of our finances, sometimes there is so much advice out there listing differing priorities that it’s hard to know where to start.

And when it comes to doing the right thing, so much of it depends on your age and individual circumstances. With that in mind, here are some of the crucial areas to focus on and common pitfalls to avoid, at every age.


Do - Consider starting a pension. Yes, retirement is almost inconceivable and you have plenty of other ideas on how to spend your earnings. But money you pay now will have decades to work for you and build up interest, far more so than money you put away in your 50s and beyond. You don’t need to put away a big chunk of your wages, but if you can afford it, consider contributing up to the tax relief limit — currently up to 15% of remuneration/net relevant earnings for Irish taxpayers under 30.

Don’t - Run up debt just because you can. When you get your first taste of a regular salary and access to a credit card, it is all too easy to start spending more than you earn. Yes, you want to enjoy your 20s and clock up those holidays and life experiences. But don’t enter your 30s saddled with debt just because you tried to live a Sex And The City lifestyle on a starting salary.


Do - Sort out health and life cover sooner rather than later. The Lifetime Community Rating means consumers are penalised if they are over 35 when they first take out health insurance, and the rates you pay for life insurance policies will also only increase as you get older. If you haven’t these sorted already, get them now. It is also worth considering taking out a specified serious illness policy. Statistics suggest that, of a group of people all aged 30, 56% of them will be diagnosed with a critical illness over the course of their lifetime, with an average claimant age of just 47. Having protection if the worst happens, takes at least one worry out of traumatic situations.

Don’t - Combine your finances without having a serious talk about how you intend to manage your money into the future. Too many couples avoid properly declaring their financial position to each other up until, and even after, they wed. If you’re planning a lifetime together, that has to include a money talk. You need to know how much each other earns and any existing debt that might also be coming to the table. One current account or two, how many credit cards and how will childcare be paid for? These are questions to be thrashed out before you are settled in domestic bliss, in order to avoid conflict or unpleasant shocks down the line


Do — Reassess your pension. Ideally you have been paying into one for more than a decade by the time you reach your forties, but chances are you’ve given it little thought. Building it up is the most important thing in your earlier years, but now is the time to take control. Gather all your information and go for a full financial review. Your bank will be happy to arrange one or you can go to an independent adviser such as the Money Doctor John Lowe at Decide what level of income you want in retirement and start funding as much of it as you can afford.

Don’t — Move home or undertake major renovations without being sure that the change is necessary. With the family home often at its busiest at this time, many couples decide to either move or significantly extend their home. If you genuinely need to, then of course do. But sometimes upgrades are undertaken just because the money is there and the mortgage has been significantly shrunk. Imagine if, instead of paying to change, you turbo-charged your mortgage repayments and cleared it ahead of schedule. The interest savings and extra funds available down the line might be far more valuable than an attic conversion that gets little use as kids leave home.


Do — Review your health cover. According to insurance expert Dermot Goods of, if you have renewed your health insurance for more than two years without shopping around, you are paying more than you need to. Now is the time to take a good look at your policy and see if the level of cover is enough to meet your needs. With increased medical care likely as you age it makes sense to look for a plan that will include refunds on your routine medical costs with no excess to pay first. Remember, you are free to switch to any provider in the market and your new insurer must accept the time you spent with your previous insurer and cannot apply new waiting periods for existing benefits. Don’t feel bound by loyalty, do your research and get the best deal for your money.

Don’t — Put yourself in debt for your children’s sake more than you absolutely have to. It is only natural for parents to want to give young adult offspring every support possible. But at this stage you need to prioritise financing for your own future. If you have the income to fund a good pension and still help your children with house deposits, weddings and extended education, then brilliant. Lucky them.

But if you can’t afford it comfortably, don’t do it. You may think that your children will care for you in your old age, and they may feel the same. But when the time comes, if they have conflicting obligations due to their own families, they may not be able to help.


Do —As you prepare for retirement, make sure you know exactly what you are entitled to in terms of state pensions. This can be quite a complex area depending on how much you worked during your life, so it is well worth sitting down with an adviser a few years before you retire to work out where you will stand. Continue to mind your money once you retire.

Don’t — Rule out earning opportunities just because you hit the retirement age. Your expertise and experience doesn’t cease to exist the day you turn 65. For many of us, working provides a sense of purpose, structure to the week and may have a social aspect.

Hopefully you no longer need to earn, but if you find something you enjoy, it will help top up your pension funds as well as the other benefits.


SA’s in a recession. Here’s what that means

Article written by Jannie Rossouw.

South Africa has been rocked by news that it has slipped into a recession after its gross domestic product (GDP) declined 0.7% during the first quarter of 2017 after contracting by 0.3% in the fourth quarter of 2016.

What is a technical recession?

It’s when an economy suffers two consecutive quarters of negative economic performance. It refers to shrinking economic output, sometimes also known as negative economic growth or economic decline.

In short, it implies that the economic activity of a country is declining. This is never a good thing. In South Africa’s case it’s particularly serious because the country needs strong economic growth to make inroads into unemployment, which currently stands at more than 27%.

South Africa desperately needs a strong economy for other reasons too. The first is that the living standards of its citizens can’t improve without economic growth. The second is that the economy needs to grow for the government to be able to increase revenue to meet its growing social welfare budget.

There are other ways to describe a recession, although the technical definition is one that’s generally accepted. Other definitions include “an economy performing below potential” or “an increase in the output gap”. As an aside, it’s interesting to note that there’s a technical definition for a recession, but no agreed definition for a depression (as in Great Depression of the 1930s).

South Africa’s economy showed marginal positive growth for 2016, although it then contracted in the fourth quarter of the year. With similar contraction in the first quarter of 2017, the country entered a technical recession.

If the economy shows positive growth for the remaining three quarters of this year, South Africa will avert a recession for the calendar year 2017.

What caused it?

Economic activity contracted over a wide range of sectors, including construction, manufacturing and transport. Only mining and agriculture made a positive contribution to output growth. All other sectors contracted.

This reflects subdued demand throughout the South African economy. The data on the first quarter confirms what many small and medium business owners have been saying since the beginning of 2017 – that demand is down and that business conditions are tough.

The important question is whether this recession will continue in the second quarter – April to June, or whether there will be a turn around to economic growth.

Who’s to blame?

It’s difficult to say who is to blame. But it must be noted that recessions are rare events, as policies are generally aimed at economic growth. This is the second recession experienced in the post 1994 South Africa.

Rapid economic growth depends on investment, which in turn is dependent on confidence and positive expectations of the country’s future. President Jacob Zuma’s administration doesn’t instil confidence. This partly explains subdued investment. The recent credit risk downgrades into sub-investment grade has made South Africa a less attractive investment destination.

The lack of confidence is also reflected in suppressed demand, which in turn results in contractions in economic output.

How do we get out of it?

Investment is required to get South Africa out of its depressed economic conditions. Investment will boost demand in the economy, with positive spill-over effects into a number of sectors.

Naturally restoring South Africa’s credit risk rating to investment grade would help boost investment. A better credit rating would reduce the risk of investing in the country.

The upcoming credit rating decision from global credit rating agency Moodys’ is going to be a critical moment. This after two big rating agencies Fitch Ratings and Standard & Poors downgraded some of South Africa’s instruments into sub-investment grade. A downgrade from Moodys’ will trigger massive capital flights which will exert further pressure on the economy.

What company are we keeping? Are other countries in the same boat at the moment?

South Africa is joining a growing list of countries which have slipped into technical recessions. These include Ecuador, Equatorial Guinea and Venezuela. It’s important to remember that a country’s status can change from quarter to quarter depending on its growth rate. This means that an assessment of economic growth or recession status needs to be made based on the most recent data.


The value of diversification

Article written by Patrick Cairns

The benefits of a balanced portfolio over the long term.

At the start of 2016, when markets were still reeling from the blow-out in bond yields after the dismissal of Nhlanhla Nene from the finance ministry, few would have been brave enough to predict that South African bonds would be the best-performing asset class for that year. Yet that is exactly what happened.

For the 12 months to December 31 2016, South African bonds returned 15.4%. This was significantly higher than the next best-performing asset class – the 10.2% gain in South African listed property.

What’s more telling is that the year before, South African bonds had been bottom of the pile. The asset class had returned -3.9%.

What this brief example shows is how difficult it is to anticipate how markets are going to perform. Another would be that when the rand was at nearly R17 to the dollar in the wake of Nene’s dismissal, many investors were rushing their money offshore thinking that the currency could only go one way.

In retrospect, however, that would have been entirely the wrong thing to do. International asset classes all underperformed in rand terms during 2016 as the currency strengthened again.

“When you are investing, it’s very difficult to know what’s going to happen in the short term,” says Graham Tucker at MacroSolutions, the manager of the Old Mutual Balanced Fund. “That’s why you have to make decisions based on fundamentals that play out over the long term.”

To illustrate this point, MacroSolutions produced the below table showing how different asset classes have performed over the last five years:

Even over this short period, there is a lot of variance in the relative performance of individual asset classes from one year to the next. No asset class was the top performer for two consecutive years.

If one extends the analysis over the last ten years, the changes in relative performance become even greater. Over that time period, gold, global bonds, South African equity, and South African bonds have all been both the best-performing and the worst-performing asset class in different years.

This makes the performance of the MacroSolutions Balanced Index interesting. This is not an actual fund, but a static combination of asset classes designed to illustrate how a typical balanced fund would have performed.

While individual asset classes are constantly moving up and down the table, the index retains a fairly consistent position in the top half. With the exceptions of 2016 and 2008, it also regularly outperforms inflation.

This illustrates the value of diversification. Spreading your investment across asset classes means that you are exposed to different sources of risk and return while also minimising big swings in performance.

“Over the long term, you need growth assets in your portfolio,” says Tucker. “You need to have exposure to equity and property that give you returns that combat the effects of inflation. But the problem with growth assets is that they come with risk. They will be more volatile.”

Including other asset classes smooths some of this out, allowing investors to access real returns, but at lower risk. To illustrate this further, MacroSolutions showed how the performance of the balanced index over the long term comes in only marginally below that of South African equities:

What this shows is that, over the long term, a diversified portfolio can deliver returns not significantly below those of the best-performing individual asset classes. However, they make it much easier for investors to remain invested because those returns come in a much less volatile, more consistent pattern.


Market Overview Q1 2017: Eventful start to the year

Article by Albert Louw

From Trumponomics to local junk status!

The first quarter of 2017 and subsequent events that followed proved to be very eventful both globally and in South Africa. Whilst the market’s focus early in the quarter was squarely on the improving global economic outlook, rising inflation, Trump’s effectiveness in implementing policies and the path to Brexit, the real story was simmering below the radar closer to home.

Globally, the US Federal Reserve continued on its normalisation path and hiked interest rates by 25bps in March. However, this was followed by a dovish statement from its chairperson and as a result did not have a big impact on the markets. More uncertainty unfolded when President Trump lost on his attempt to repeal Obamacare – following this, investors have started raising questions on whether he can implement any of his promised policies. In Europe, the ECB remained unwavering on its quantitative easing program albeit at a slower pace. Notwithstanding this, improving macro-economic data has led to market expectations that the ECB could soon be winding down the program.

In United Kingdom, Prime Minister May officially started the Brexit process and it soon became evident that this will be a long process with many unknowns still to be worked out by the markets. On the local front, subtle undertones of political dissatisfaction had probably been there for a while, not only expressed at grass roots due to a deterioration in the institutional quality of many SOE’s, but also as evidenced by a growing divide between the President and former Finance Minister Gordhan, splitting the ruling party and more recently as highlighted in the emergence of “radical economic transformation” as the government’s new policy direction. Tensions bubbled to the surface late in the quarter culminating in a cabinet reshuffle and the dramatic removal of the Finance Minister, which lead S&P Global Ratings to downgrade South Africa’s international credit rating to below sub-investment grade status for the first time since 1994. A second rating agency, Fitch, followed suit and downgraded both the local and foreign currency denominated debt ratings.

Positive returns across assets classes
Most of the above events occurred late in March that it did not meaningfully impact returns for the quarter. The 2.5% return from SA bonds for the quarter – and similarly the 1.4% return from property – was generated on the premise of low but rising economic growth, falling SA inflation and the increased likelihood of a rate cut later in the year. The rand had strengthened for most of the quarter and finished up 1.9% relative to the dollar, which hurt rand hedge equity, particularly in February. Local equity was however up 3.3% for the quarter, driven largely by a strong performance from Naspers in March thanks to good results and Tencent’s purchase of a 5% stake in Tesla.

Global equities were also generally stronger, whilst global bonds yields rose (prices fell) as US inflation breached the 2% level and investors started to anticipate a quickening rate hike cycle. Emerging market equities rallied 11.5% over the quarter (China continued to provide strong support for commodity prices) outpacing Developed market equities which returned 5.9%. Global bonds retreated 0.2% as bond yields in most regions went up.

More surprises or not – volatility to remain
We urge investors to remain calm and patient as we can expect continued volatility and scope for surprises for the remainder of this year. As a multi-manager we take responsibility for manager/fund selection and our robust investment philosophy and approach enables us to make appropriate long-term decisions for the benefit of our investors. It is therefore very pleasing for us that our funds delivered strong returns through this volatile period with 94% of our funds in the top two quartiles over 12-months. Over three and five years these rankings continue to stand at 75% and 80% respectively - consistency is key in managing investor expectations.

Myth busting for Financial Planners


There  are many myths that financial planners – and all financial advice givers – encounter when navigating the financial services environment. We need to make sure that these myths are ‘busted’ in order to have successful interactions with both existing clients and prospects. In this article I share and debunk some of these long-standing myths, both from an advisor and a client perspective. This article appeared the first time in FIA Insight Magazine Q 4 (2016).

Myth #1 – Financial advice is not affordable

There is an international myth – in countries where Retail Distribution Reviews (RDR) or similar regulatory interventions have hastened the move to fee-based advice models – that financial advice is unaffordable. As we align ourselves with the Financial Services Board’s RDR, South African financial advice professionals would be well advised to proactively address this misconception.

It helps to explore this from an individual client’s perspective. With a financial planner at your side you can work through your budget and your investment portfolio to see how you are spending and saving your hard-earned income. You will be able to conduct a thorough and informed review of the premiums you pay for life assurance, healthcare insurance and short term insurance policies and benefit from advice on how to reduce these premiums without exposing yourself to undue risk.

These savings often more than offset the fee that you pay for the professional service that your financial planner offers. Your financial planner can also advise on the allowable tax deductions that you can utilise towards fees for services offered. There could also be significant savings over the longer term to your estate planning with good use of section S 4A and S 4Q;  the use of trusts; and many more advisor-led interventions.

Making advice more affordable

Financial planners have various remuneration models which they can put on the table to make advice affordable. These models can take account of the commissions embedded within future product sales; ongoing fees as a percentage of assets under management; fee-based advice for the financial plan; recurring monthly retention fees or a hybrid model combining any of these. The eventual remuneration ‘mix’ will depend on which category – restricted or non-restricted – the planner operates within.

To end this part of the discussion I must add that financial planning is not only for the wealthy. It is a discipline that can be directed at people from all income groups. The vast array of remuneration models ensures that any client or prospect can benefit from affordable advice tailored to his or her needs.

I therefore consider the ‘financial planning is not affordable’ myth busted as there is no doubt that a financial advice professional will add holistic value to your financial plan. You in turn will benefit by way of a handsome return on your fee investment – even more so when you consider that the fee need not impact negatively on your current cash flows. 

Myth #2 – All financial planners are the same

"The belief that potential clients can pick any financial planner out of a hat and have 100% confidence that the advice they subsequently receive will be a perfect match for their personal needs and circumstances is frightening."
I remain astounded by how prevalent this myth is! The misconception centres on the poor understanding of advisor categories and is one of the key drivers of the advisor categorisation focus in the RDR. The bottom line is that professionals have different skills, expertise, qualifications, designations and compensation. The financial advice profession has levels of ability in much the same way that the medical profession distinguishes between GPs and specialists.

A financial planner could choose to specialise in a niche advice discipline; offer holistic financial planning advice; or become a product seller for a particular financial brand – or any combination of these. The mix of services offered by the advisor will make a big difference in the type of consumer seeking his or her advice and on the eventual advice outcome.

Finding the right planner is an imperative and there is no better place to go than the FPI ( to find someone that is a match for your financial needs, or to simply check out the referral you have received. You can turn to the FPI’s list to find an ethical and professional financial planner who is bound by South Africa’s world class financial services regulation and committed to giving you the best possible financial advice.

There is no truth in the notion that your financial planner’s credentials are unimportant. On the contrary the letters which designate a financial planner should be considered – they can assist you in matching the advisor to the type of financial advice that you are looking for. One of the best known credentials is the Certified Financial Planner (CFP®), but you can add CFA (and international credentials such as CPA and CLU) to the list.

"Each of the above credentials indicates that the planner has expert financial knowledge across a wide spectrum of financial planning disciplines. They also show that the planner has passed a comprehensive board exam which tests his or her ability to apply theory to practical financial planning techniques."
Let me make it clear that these credentials are not a guarantee; but rather a good indicator that you are engaging with the right planner. I should also point out that there are many great planners with no credentials who have years of experience that cannot be bought ‘off the shelf’. I therefore consider the ‘all financial planners are the same’ myth solidly busted.

Myth #3 – Financial planning is a once-off

This myth is creating some serious advice gaps in the financial sector. Financial planning cannot be viewed as a project with a set timeline and is definitely not a once-off exercise. It is a long term process in recognition of which I refer to the discipline as ‘financial life planning’ – a process that spans all life stages and involves whole-of-life advice and planning.

Appropriate long term financial planning will take account of life events such as career changes; matrimonial changes; the birth of a child; health issues; the impact of the economic and investment environment on investments; estate planning; and so much more. It will also accommodate unexpected events such as dying too soon; living too long; critical illness; and disability.

We must view financial planning as a long term process that adapts to the clients’ needs at each life stage. And for this reason the client should ensure continuity by appointing a financial planner with a succession plan in place. The ‘financial planning is a once-off’ myth is therefore easily busted. 

Myth #4 – Financial planning must be holistic

The above myth is an unintended consequence of the pro-consumer stance adopted by financial sector regulators. There is no doubt that financial planning should be holistic to ensure that all decisions reflect in your long term plan and to avoid negative outcomes. But an unquestioned belief that planning must be holistic can also lead to significant advice gaps.

An experienced and qualified financial planner is well equipped to deal with so-called ‘single need’ situations that arise following retrenchment; inheritance; the rollover or maturing of an investment; purchasing immovable assets; drawing up the last will and testament; and so many others.

Each of the above events could impact on a financial plan; but ‘single need’ advice – if taken – can be incorporated into future financial planning consultations as necessary. Indeed we can bust our fourth myth by saying that it is not an imperative that all financial advice be part of a full or holistic financial plan.

Myth #5 – Financial planners are not needed for advice

One of the most dangerous myths within the financial services sector derives from another myth, namely that advice is unaffordable. There are many financial consumers who are confident enough to make their own financial decisions; but I have only encountered a handful whose financial planning is top notch. For the most part these are individuals who have been employed at one company for 30 or more years.

Upon closer inspection the opportunity cost in going it alone is plain for all to see. A financial advice professional will have elevated the aforementioned (and apparently successful) DIY financial plan from an acceptable retirement with a 70% replacement ratio to one of 100% or better.

Such opportunity arises from the expertise that the financial planner brings to the planning process in so far knowledge of tax legislation; investments; financial products; and estates as well as his or her ongoing education on financial planning methodologies.

Recent studies have shown that a professional financial planner can add between 3% and 5% in return per annum – when you compound this over three decades it makes a staggering difference. All financial clients need financial planning expertise over the long term, which means that this myth is also busted.

Myth #6 – The IFA is independent

This myth has developed over many years and has risen to the fore locally as part of the RDR discussion on advisor categorisations. What makes things worse is that the myth has been perpetuated by independent financial advisors (IFAs) themselves.

"It is not surprising therefore that the latest RDR proposals could see the IFA category fall away with the word ‘independent’ being more clearly defined to ensure that it cannot be misrepresented."
There are still true IFAs out there; but here I refer to financial advice professionals who make a pure living from giving advice based on a financial plan that is drawn up on behalf of the client in return for which they receive either an hourly fee; fixed-plan fee; or recurring retention fee for ongoing consultations on the plan.

Such IFAs have no interest in selling a product or investment apart from making recommendations as to what products or investment types match the plan. There can also be no reference to product suppliers, no referral system and no association with third parties to satisfy the ‘independent’ test.

This arrangement ensures that there is no conflict of interest or undue influence of any kind and makes such a person a truly independent planner. To be a truly independent planner is one of the toughest jobs out there as you are entirely fee based. You have to operate within the right niche market where the affordability of such advice is not a problem.

The whole-of-market pipedream

Any financial planner who is unable to give whole-of-market advice (absolutely impossible) or who is related to another FSP (via a consultant code or the FSP holding one) cannot claim true independence – and it would not matter if there were minimum targets and service levels or not.

The Financial Planning Institute refers first and foremost to advice as part of the financial planning process and does not differentiate between restricted and non-restricted planners. The reason for this is that a consequence of professional financial planning may be the recommendation and selling of financial products, with the caveat that this outcome should not be driving the advice and planning process.

I hope you find value in this article and urge you to share it with your colleagues and clients alike. Let us work together to debunk the many financial planning myths that I describe above and to focus on giving professional financial advice to both our clients and prospects at all times. 

When you look in the mirror

Article written by Mark Keating. 

You can’t be successful in sales unless you completely accept that you’re a salesperson. If you’re in any doubt about it at all, or you have any sense of resistance to that fact, you’re never going to achieve the results that could otherwise easily be yours. Salespeople who make the grade, who sell and who exceed their targets are always those who regard themselves first and foremost as salespeople, and are proud of that fact. What about you? When you look in the mirror, are you proud of the salesperson staring back at you?

If you don’t see a salesperson…

If you aren’t proud to see yourself as a salesperson, you’ll never find the motivation to do the things that are essential: make calls, prospect, open new relationships and really put in the effort to look after your customers.

You’ll hold yourself back from dreaming big and approaching prospects that may seem out of your reach and you’ll never bring in a breathtakingly surprising deal. You won’t go the extra mile to ensure your customers are so blown away by your service and your care that they’ll never consider going anywhere else. You’ll get worn out too quickly by the size of the task before you. You’ll try less hard and ultimately, you’ll quit. Everyone loses if you allow your lack of self-belief to hold you back … but nobody will lose more than you.

If you aren’t proud to call yourself a salesperson and to embrace the role, you’ll waste time on tasks that don’t move you forward. You’ll be busy, being busy, but that busyness will have nothing to do with work.

You won’t ask difficult questions. You won’t seek out ways to provide the best solutions. You won’t follow up and you won’t do the easy work that is necessary to become successful.

But if you do see a salesperson…

If what you see when you look in the mirror is a proud salesperson, full of self-belief and convinced you’re in the right profession, then you’re already further down the road to success than most other people in your line of work.

You’ll understand that it takes time to be brilliant and over that time, it takes a great deal of effort. But you know you’ll get there. You’ll understand that if you don’t motivate yourself and get yourself started, you’ll never make a big success of your career and you’ll put in the effort to ensure that nothing is left to chance.

You’ll love dealing with customers, want to help them, to give them a brilliant experience and to want to keep you in their lives for a long time into the future. You’ll see this as your mission.

You’ll know that trust is critical but that it takes time and that it must be earned. You’ll think through every move you make to ensure you maintain the highest standards so your customers and colleagues can believe in you. ma

You’ll believe in integrity – that you do what you say you’ll do. You’ll put that ahead of money because you’ll know that in sales, money comes to those whose efforts deserve it.

If you see a salesperson, you’ll see someone who has selected the greatest career in the world and who has the ability to create a future that others can only dream about.

So who do you see, really?