Article by Grant Hicks, CIM President, Advisor Practice Management 

Favourable introductions are easier than referrals. After 30 years in the financial industry in various roles including being a financial advisor, National Director of Practice Management and financial advisor coach, I truly believe that favourable introductions are easier for financial advisor clients than referrals. Let me explain. When I was growing my financial advisory practice, I was looking for more ideal clients, wealthy individuals who needed complex planning and advice to help them reach all of their goals. The financial industry and all top advisors said, grow your business by referrals only. But, I did not buy it; there must be more to it than sitting at your desk waiting for people to call you because they told a friend how wonderful you are. I was looking for better and better clients, not the same type of clients. I was also taught many years ago to position referrals at every client meeting, usually at the end of the meeting. It seemed so easy, just ask for a few names and away you go. Yet, at the end of the meeting, compliance, and paperwork took control of the meeting, and if I did not do the paperwork, referrals were useless. So with this wonderful sage advice, I decided to find another way to acquire more ideal clients. Favourable introductions.

 Favourable introductions

What is the difference between a favourable introduction and a referral? I truly believe that your best clients are 10 times more comfortable introducing you to someone than giving you a referral or a specific name to call. So how do you get introduced to people by your clients? Simple, go to your client events, not your events. So how do you do that? Let me share a story with you. One of my clients Bob was a retired pilot. In every meeting with clients, I used an agenda. On the agenda was the word ‘events’. It was positioned at the beginning or middle of the meeting, NOT the end of a meeting when the time is running short and paperwork is longer than expected.

Ask the golden question

In the meeting, when it came to the word events, I would always ask one golden question. “Bob, if I was to meet a group of retired pilots, where would I go to meet them, how would I meet and connect with them? Are there any events you are involved in with retired pilots”. Bob replied, “Why yes, there is a group of retired pilots at the small airport where I keep my plane, why don’t we meet next week and I will introduce you to some of them.” This is where Bob introduced me to Greg, another retired pilot. Greg knew that Bob was successful, so being favourably introduced as his financial advisor was all Greg needed to have confidence in talking to me. And as simple as asking one question, I discovered that asking for favourable introductions is easier than asking for referrals. The next week at the hangar, Bob introduced me by saying” Hey Greg, I want you to meet a friend of mine who happens to be my financial advisor, Grant”. Greg was working on his airplane and jokingly said” nice to meet you, Grant, you must be a great advisor since Bob has a better plane than mine. Let’s grab a coffee sometime. “. That is all it took. There was no awkwardness in meeting people and get favourably introduced, not making up an elevator pitch of who you are and what you do. Your clients will be glad to introduce you to anyone, given the opportunity.

You are vetted

How do you get vetted by ideal prospects/ the vetting part can sometimes take a long time, several meetings and tons of questions. But since Bob, the retired pilot is already successful when he favourable introduces me; I am vetted in his friend's mind, as a qualified professional. The meeting with Bob there, allows Bob to introduce me and one sentence confirms I am a professional that you can trust. That sentence looks something like" Hi Greg, I would like you to meet Grant, my financial advisor".

Two simple steps

Make that opportunity happen in two simple steps. First, add the word “events” into the top portion of your agenda. I recommend using agendas with your ideal clients. Use it as a trigger to ask for favourable introductions from ideal clients. Second, ask the question” If I were to meet a group of successful people like you (categorize the group, eg retired pilots, surgeons, dentists, farmers etc.) how would I meet them? You will be shocked by how helpful people will be with this question.

Charitable events

Every week, wealthy people attend charitable events. Another question; if people are having difficulty recognizing events in their group, is to go to charitable and community events by asking this question. “Is there anything near and dear to your heart you are involved in such as charities or community events that you may need help with? We try to align our interests with our client's interests.

Success stories

I can list countless stories of advisors I coach that have added two simple steps to their process, and went to amazing events with their best clients, and met a group of ideal prospects. Referrals are great, but favourable introductions are easier and more comfortable with your ideal clients. If you went to 10 client events this year and was favourably introduced by an influential or ideal client at each event, do you think you will be introduced to your next ideal clients? Favourable introductions have been a game changer for some advisors trying to figure out how to meet more ideal prospects.


A reputable financial adviser 'sells advice, not products'

Article by Devlin Brown, Business Live

Financial advice is key to achieving your investment goals. Choosing the right adviser could have a marked impact on the returns you enjoy over years of meticulous saving.

A study by US financial services provider Vanguard found that advised clients earn returns of about 1.5 percentage points a year more than non-advised clients.

"Good advice does cost money, but the opportunity cost of not having a good professional, independent adviser is very expensive and is rarely calculated," says Barry O'Mahoney, a Financial Adviser at Veritas Wealth.

O'Mahoney is a certified financial planner (CFP), an internationally recognised qualification for financial planners.

The Financial Planning Institute (FPI) is a professional body for financial planners in SA, and the only institution in the country to offer the CFP certification.

Every year the FPI awards a professional with the accolade of Financial Planner of the Year, which the FPI says is the highest award a financial planner can achieve.

O'Mahoney, a former winner of the award, says that engaging a CFP means the person you are dealing with has a postgraduate diploma in financial planning and is required to adhere to a professional code of ethics and code of conduct.

"The internationally recognised CFP designation is one of the best-kept secrets in the industry," he says.


What is a good financial planner?

Financial Planner of the Year 2018 Janet Hugo, Director of Sterling Private Wealth, says: "It's essential that you only take advice from a person who is qualified, experienced and has a successful track record, or works with a reputable firm with sound in-house investment and operational strategies."

Floris Slabbert, Director at Ecsponent Financial Services, says a good financial adviser will bring the skills, qualifications, experience and discipline required to offer advice that will "ultimately unlock the best returns from your investments".

This is done by combining industry knowledge with a cool, collected outside perspective of your unique circumstances.

"The outside perspective on your circumstances - combined with industry knowledge on the effects of tax and estate planning on financial plans - often proves invaluable in constructing the best possible solution to achieve your financial goals," says André Lindeque, a private-client Wealth Management Consultant at the financial advisory firm GTC.

"A good adviser has the ability to listen, understand and interpret the requirements of their client. Crucially, they should be able to communicate the appropriate plan of action in understandable terms to their clients. They must also have a competent support team, to give clients the necessary assurances and information in the event that their adviser is not available," adds Lindeque.

Hugo says it is very important for clients to stay engaged in their financial journey. "All clients should stay informed, and question and discuss the advice they receive from their selected adviser. They should take an active part in the decision-making and understand the pros and cons regarding the selection of their adviser," she says.


What about fees?

O'Mahoney says that a key driver in looking for an adviser is understanding how they make their money. "Look for an adviser who makes money on an annual and ongoing basis, and avoid advisers who rely primarily on upfront commissions, as this motivates the wrong behaviour and does not align your interests with your adviser."

Hugo agrees. "It's advisable to question fees which include a significant upfront amount which is not commensurate with the value of the advice."

Hugo believes professional fees are acceptable when a service adds value. Fees may include an annual management fee on an investment portfolio.

Understand how you are being charged, relative to the advice you're getting and the impact on your investment.


Tied versus independent advisers

A tied adviser has a contract with a specific product provider.

"A tied agent will be most informed and knowledgeable about one range of products," explains Slabbert, "whereas with an independent adviser, there won't be targets and commission tied to how much business is written for a company."

O'Mahoney adds: "It's unlikely that a tied agent would advise you not to use the products offered by his company."

Independent financial advisers are not tied to a particular product supplier, meaning they can allocate their clients' funds to the products and providers that are most suitable to their unique set of needs.

Hugo says successful independent advisers have rigorous systems and dedicated staff to evaluate new product developments.

You need to understand how your money is being invested and what the costs are. You must be confident your adviser has your best interests at heart and operates according to the best standards of professionalism.

When searching for the right adviser, O'Mahoney offers a pearl of wisdom: "A reputable adviser sells advice, not products."

How SA’s financial indicators compare with other emerging markets

Article by Mike Schüssler, Moneyweb.

The rand is undervalued but interest rates are nicely in the middle.

South Africa has a daily forex turnover of $21 billion a day, higher than many developed economies. Picture: Waldo Swiegers, Bloomberg South Africa has a daily forex turnover of $21 billion a day, higher than many developed economies. Picture: Waldo Swiegers, Bloomberg

Financial market movements are an important part of the daily information an economy gets. When it comes to stock markets, forex markets and interest rates, how does South Africa compare with other emerging markets ?

There are five financial market indicators that are fundamental to an economy (stock market performance has been left out for now).

Stock market size – where does the JSE fit in?

South Africa has one of the best and deepest financial markets in the emerging market world. The JSE is the 18th largest stock exchange in the world, which is impressive given that the country’s GDP comes in at 34th. The JSE was 16th largest just two years ago, but with lacklustre performance it has slipped back a little.

The JSE is only the fifth-largest emerging market stock exchange, but South Africa has the third-largest market capitalisation. This is because India and China have two stock exchanges each, and all four are larger than the JSE. South Africa now has a few other exchanges but they are still small in a world context. They are, however, starting to add interesting dimensions to the overall picture.

The JSE market cap was $988.4 billion at the end of November, which is about three times SA’s GDP. The JSE is by far the largest stock market in Africa; the next biggest, Morocco’s Casablanca, has only about 6% of the market cap of the JSE. Botswana is fourth largest but does not disclose its data to the World Federation of Exchanges (WFE). Its market cap is about $39 billion, which is between Cairo (third largest) and Nigeria (fifth).

After these stock exchanges the next biggest stock market in Africa is Mauritius, followed by Tunisia and Namibia. Thus three of the biggest eight stock exchanges in Africa are in Southern African Customs Union countries.

Source: World Federation of Exchanges

Source: World Federation of Exchanges

How important is the rand in a world and emerging-market context?

The fact that the JSE is in the top 20 exchanges in the world helps other parts of the South African financial market – turnover in the rand foreign-exchange market is one example. With the JSE in 18th place with regard to market capitalisation, the rand punches above its weight internationally.

Every three years, the Bank of International Settlements (the central bank of central banks if you wish) does a survey of all forex dealers in over 50 countries where free trade in currencies takes place.

While the US and UK dominate world trading of foreign exchange, South Africa was the largest emerging market regarding volume of foreign exchange traded for a number of years from 1998.

This is a good indicator of the overall importance of a country in the world of finance since bonds and stocks get traded in the local currency – resulting in trade between a foreign currency and the local one.

At present South Africa has the 25th largest forex turnover, and is fifth largest among emerging markets in the dollar value of forex transaction turnover.

China, which had a very small and closed forex market, has in recent years leapt past all the other emerging markets in size and importance, but accounts for just over 1% of the total forex turnover of the world. In SA, the daily turnover (not profits or anything else) is $21 billion a day! Worldwide, forex turnover is in the region of $7 trillion a day.

So, while South Africa is important in Africa and the biggest by far on the continent, it is still very small on a world scale. However, many developed economies such as Ireland do not have the turnover that SA has in the forex market.

The rand is an interesting case of a currency that has been an important emerging market currency – sometimes the most important – but like several South African indicators, it is been overtaken by other developing markets such as China, Russia and India.

South Africa will always be a deep and liquid market in the forex game but is probably going to be overtaken by Brazil in the April 2019 survey on the total turnover and importance of forex volume. SA will then be the smallest of the Brics markets, whereas in 1998 it was the biggest.

However, forex volume is a bit of a vanity indicator once there is enough turnover in a market. I believe around $12 billion is probably enough for a liquid market to function.

Source: Bank for International Settlements

Source: Bank for International Settlements

How cheap is the rand really?

This is a tricky indicator to value. Many institutions have purchase power parity indices for currencies, but they are often old and get redone every few years as spending patterns change.

It is however an important measure of how confident others (and yourself) are in a country’s future.

For this, I use the Big Mac Index as it comes out once a year and is now available for well over 70 countries and about 56 currencies (remember that the euro represents 19 countries). It measures how much a Big Mac costs in dollars in all of these countries, and compares the figures against the US price. From this, one can see how ‘expensive’ or ‘cheap’ a currency is.

With my focus on emerging market countries, I have the relative value – or undervaluation – of these currencies, and see that many are undervalued at present. The rand is nearly 60% undervalued! But it is not the worst currency by far as seven other currencies have lower relative purchasing power than the US dollar at present.

The Big Mac Index gives much insight into currency valuations. Picture: Daniel Acker/Bloomberg

The Big Mac Index was updated early in January, and the results are interesting. Russia is the most undervalued country at over 70% followed by the Ukraine, Turkey and Argentina. Even the Chinese yuan is undervalued, by 45%.

In fact, 52 of the 55 currencies that feature on the index are, in relative price terms, undervalued. Only Sweden, Norway and Switzerland have currencies that, according to their ability to buy Big Macs, are overvalued.

The most expensive country according to the Big Mac Index is Switzerland. The SA Big Mac costs about $2.23 and the Swiss one $6.62 – so a South African can only buy a third of a Big Mac in Switzerland. Or a Swiss person can get three for the price of one in SA, or four for the price of one in Russia! It’s incredible that anyone still wants to eat a Big Mac in the little mountain country.

So the rand is cheap, but a few places are cheaper. In Russia, your rand will buy you one and a third of a Big Mac for the same price as in SA. In the 20-year history of the Big Mac Index in SA, the rand has always been cheap. But at close to 60%, it is probably overdone. So either the SA rand price of a Big Mac increases in the next year or the rand will bounce back a little – or both.

Emerging market currencies are almost always undervalued, and SA has been one of the most undervalued currencies for a long time. However, the rate of decline has to an extent slowed in recent years but more on this another time.

Source:, McDonald’s and

Source:, McDonald’s and

 Are SA interest rates high in an emerging market sense?

The South African Reserve Bank (Sarb) is an inflation hawk and people often say South African interest rates are high. But if we look at the available data from the Bank for International Settlements (BIS), four countries have higher rates than South Africa in their dataset – and all of them are emerging markets. Argentina has an interest rate of over 60% while Turkey has a policy rate of 24%.

The Sarb repo rate is 6.75%, which is on the higher side, but not if one considers that of the five Brics countries, Russia, Brazil and India are all within less than 1% of SA’s repo rate (or within 75 basis points). Russia has a policy rate of 7.5% and India and Brazil are at 6.5%.

China is the only Brics country with a rate of below 5%; at 4.35%, it is the lowest of our Brics partners.

Source: BIS and

Source: BIS and

Policy rates should take inflation – or at least future inflation – into account

Having shown that China has a policy rate of 4.35%, what about the fact that China has an inflation rate of only 2.2%? Well, that means they still have a relatively high real policy rate. India has inflation at 2.4%, Brazil at 3.7%, and Russia at 4.3% at present – so the SA inflation rate of 4.5% is the highest of all the Brics countries.

This brings me to the actual real policy rates, since one often hears that SA interest rates are killing the economy and should be as low as China’s as that is what is helping China to grow.

I see this as bollocks since China has a higher real rate than SA! China recorded an inflation rate of 1.9% in December – so that 4.35% rate works out to a real rate of 2.5%, which is higher than the SA real rate of 2.3%

After inflation, of the 23 emerging markets that have policy rates, South African real rates are very much in the middle. Yes, Chile and Poland have much lower rates than SA and some, like Hungary, have negative real rates – the fact is that SA is in the middle here, which shows that our policy rates are not at all out of line for an emerging market.

Remember too that emerging markets are seen as more risky (although in some cases I would debate that) and many, like SA, need to attract savings to help pay for current account deficits.

Source: BIS, The Economist, various central bank websites and

Source: BIS, The Economist, various central bank websites and

In simple terms, South Africa’s financial indicators are important, and are not the worst or the highest of the emerging markets out there. The rand is undervalued but interest rates are nicely in the middle, and not much can be said of the stock market except that the JSE is a very large emerging market stock market but a medium-sized one in a world context.

Mike Schüssler is an economist at

Offshore tax exemption to be reviewed

Article by Personal Finance, Amanda Visser

The controversial tax on income South Africans earn abroad and the R1million exemption on it will be revisited during a special workshop between National Treasury and industry players in coming weeks.

Several organisations and individuals submitted proposals at the end of November, to be considered during next month’s Budget to address concerns raised about an amendment that the South African Revenue Service (Sars) introduced last year to provide for an exemption on the first R1m earned.

The date for the implementation of the tax is March 1, 2020.

The National Treasury held a workshop at the beginning of last month to discuss submissions for technical tax proposals for the 2019 Budget Review.

However, due to the “importance and extent” of the submissions, a workshop solely to address concerns about the tax on foreign income has been scheduled.

Tax Consulting South Africa says in its submission, on behalf of the Expatriate Petition Group and the South African Rewards Association, that it is “prudent” to deal with the issue in 2019, before it takes effect next year.

Jonty Leon, the legal manager at Financial Emigration, a division of Tax Consulting, says they wish to address the issue of “distorted inflation of taxable income of expatriates by including fringe benefits and allowances”.

“If these benefits are taken into consideration for purposes of the (exemption), we submit that it would result in a disproportionately high tax liability for a number of expatriates,” the November submission read.

The South African Institute of Tax Practitioners (SAIT) says in its submission that the R1m exemption provides little relief for South African employees who are working on assignments overseas.

Andries la Grange, the Chairperson of SAIT’s personal tax work group, says SAIT appreciates the decision to introduce the exemption, but it would like to see it being tweaked.

He says it is evident that the capped exemption as it stands will provide little relief for employer-sponsored assignees, who are normally provided with a number of “assignment specific benefits”.

Other than a tax gross-up (when an employer increases the gross salary to account for the taxes to be withheld), which ensures that an assignee is not adversely affected or benefited by host-country tax rates, and cost-of-living allowances, the major fringe benefit is generally the provision of accommodation.

The current structure and amount of the exemption will leave employers and individuals materially worse off in situations where the transfer and transfer benefits result in a tax charge they would not have incurred had they not been transferred, La Grange says.

Tax Consulting says the cost-of-living differential also poses problems. The cost of housing in some jurisdictions, such as the United Arab Emirates, far exceeds that of South Africa.

“In rand terms, the expatriate may earn a very sizeable package, but this is not reflective of his actual buying power in the country where he works.”

Leon also referred to other benefits, such as security guards or a driver, which may be classified as a taxable benefit in a South African context.

“But where the employee is assigned to perform work in a remote location in Africa, this is almost rudimentary.”

The submissions further raised concern about pegging the cap to the rand, given its volatility.

“It is proposed that the exemption be pegged against a more stable foreign currency, especially considering the fact that the salary packages of the majority of individuals will be based in a foreign currency,” La Grange said in his submission.

Tax Consulting says, against the rand, the dollar and the Emirati dirham increased by about 13% between January and November last year and the English pound increased by more than 7%.

Over a decade, the exchange rate differences have been substantial; against the rand, the dollar rose 106%; against the pound, it rose 32.7%; and against the Emirati dirham, 106%.

What does the price of a unit trust mean?

Article by Ray Mhere, Allan Gray

When you buy a product or a service, the price you pay for that item tells you something about it. An apple that costs R50 (suspiciously expensive) or an Apple computer that costs R500 (suspiciously cheap) might make you doubtful. So what does the price of a unit trust tell you? Does a unit trust that costs R2 have less quality or more value than one that costs R20? To answer these questions, Ray Mhere delves into how unit trusts are priced before looking at what this means for you as an investor.

A unit trust is a type of investment that provides you with easy and affordable access to financial markets. Your money is combined with the money of other investors who have similar investment goals. Our investment managers use the pool of money to buy underlying investments to build a portfolio, which is then split into equal portions called “units”. Units are allocated to you according to the amount of money you invest and the price of the units on the day you buy them.

How a unit is priced

The way a unit in a unit trust is priced is a simple equation: The assets of the unit trust are the shares, bonds, cash and/or property that the unit trust owns on behalf of investors. The value of these assets is generally updated daily, but sometimes weekly, depending on the unit trust.

The operating expenses comprise fund management fees, operating costs – which include trustee and custodian fees, audit fees or their service fee, and bank charges – transactional costs for buying and selling shares, and VAT. Once operating expenses are subtracted from assets, this sum is then divided by the total number of units bought by investors.

The problem with exclusively using unit prices to compare unit trusts is that it says nothing about the value of the unit trust as a whole. If we have two unit trusts both with assets of R1 000, but one has 50 units and the other five, their prices would be R20 and R200 respectively. An investor would be mistaken in thinking that one is 10 times more valuable than the other by virtue of its price.

Unit trusts are priced differently to shares

Investors also often make the mistake of thinking unit trust prices are analogous to share prices. But there is a vast difference. The share price of a stock is the price that buyers and sellers agree to at a given time, which usually has a wavering relationship with the actual value of the business behind the stock.

Sometimes the share price is a wild guestimate based on sentiment, mood and herd behaviour. The price of a unit trust comes from the actual value of the investments within it. Sentiment and mood play no direct role. Put another way: If stock market investors fall in love with a stock and then buy it in excess, the price of that stock will be driven up, but if unit trust investors love a unit trust and buy lots of its units, it will do nothing to influence the unit price.

What changes the price of a unit trust?

The variables that move a unit trust’s price are the value of the assets within it and its operating expenses. When the shares inside an equity unit trust do well, then the pool of assets of the unit trust increases in value and the price of an individual unit increases as well. The same happens when your unit trust manager lowers any part of operating expenses: Lower expenses lead to a bigger pool of assets being divided between unit holders.

Investors are sometimes tempted to try to take advantage of this price movement by attempting to time the market – buying when the price is low and selling when the price is high, just as some traders do with shares. But, just as with shares, timing unit trust purchases is difficult. In fact, trying to time the exact right moment to buy or sell a unit trust may be even more difficult because it involves not just one investment, but a large number of investments, and the price of each investment may move independently of one another.

Most unit trusts are not designed to be traded frequently, and doing so will likely result in a lower return. Their strength is in the accumulation of wealth over time, as time smoothes out the rough-and-tumble of volatile price movements.

How should you compare unit trusts?

Looking at price is a simple but misleading heuristic for comparing unit trusts. So what should you do instead?

The correct way to assess a unit trust is to:

See how the price per unit has grown over time; this will give you an indication of the track record that the investment manager has for creating wealth. You can get the same information by looking at the performance over different time periods on our factsheets.

Examine the operating expenses to see that these are not excessive. Typically, investment management fees should be fair relative to the performance delivered.

In addition to these hard measures related to performance and costs, you should:

·         Think about what you need from your investment and the risk you are comfortable with.

·         Find an investment manager whose philosophy resonates with you.

·         Assess their performance over a long enough time frame, through different market cycles.

·         Ensure that you understand the mandate of the unit trust and that it aligns with your needs.

It’s easier to just look at price, but as Vuyo Nogantshi discusses, being thorough before you invest generally leads to better outcomes.

Monitoring a unit trust

Watching the unit price daily, weekly or even monthly is like watching bombastic daily business reports on the market – fun to do, but almost meaningless to a long-term investor. It is akin to watching the rev meter on your dashboard to see if you are getting closer to your destination. Rather review your investments at reasonably set intervals to see if they still meet your needs, and to check that they are performing as they should.

Where can I see price information?

Allan Gray unit trust prices and factsheets are available on our website. Most other managers include prices on their websites as well, and they are also quoted on various financial news websites. Prices are typically quoted in cents.

Ensure your life savings support you for life

Article by Business Live, Charlene Steenkamp.

Many South Africans have effectively been gambling with their life savings by choosing to draw a pension from a living annuity with no longevity protection and without being rewarded for the higher risk involved.

Actuary Bjorn Ladewig, from retirement product provider Just, says this is because living annuities have generally underperformed with-profit guaranteed annuities since 2006.

The company's recent survey, Just Retirement Insights, shows that 89% of retirees want a lifetime-guaranteed income. Yet, according to the Association for Savings and Investment SA (Asisa), 92% of retirement money is invested in living annuities.

There is renewed interest in traditional guaranteed life annuities as the retirement industry scratches its head to solve the crisis that results in fewer than one in 10 South African retirees receiving a sustainable income in their golden years.

Living annuities are popular because they provide retirees a sense of ownership and control, says Warren Matthysen, Principal Consultant at Alexander Forbes Investments.

They also appear reasonably easy to understand because you earn investment returns on, and draw, an income benefit off the capital you invest. Any capital left when you die is available for your heirs.

Many investors see the flexibility and choice that living annuities offer as desirable, he says.

But "the harsh reality is that those retiring do not have enough savings to sustain their income for life and their desire to leave a legacy will ironically result in them becoming dependent on their family or the state", Ladewig says.

You may not face this challenge if you are able to live on an annual income equal to the broadly accepted figure of 4% or less of your retirement savings, but the average retiree needs to draw more, Roenica Tyson, Investment Product Manager at Glacier by Sanlam, says.

Matthysen says living-annuity investors may be unaware of the cost of providing for a legacy - one of the key reasons that many choose a living annuity - at the expense of their future income.

The answer for many retirees is to use a combination of a living annuity and a guaranteed life annuity to achieve the twin goals of a sustainable income and a legacy, Tyson says.

In a paper presented to the annual convention of the Actuarial Society of SA, Matthysen calculated the cost of the future income and legacy to heirs.

Assume a 65-year-old man makes a R1m investment into a living annuity and draws an income starting at R52,000 a year (5.2% of his capital) and which increases at 6% a year for rest of his life (assuming an investment growth of 6% a year). The cost of the future income stream amounts to only R570,000. This means that R430,000 of the original R1m is funding the legacy and is not being used to provide an income.

Matthysen said living-annuity investors need to properly understand the cost of leaving a legacy.

Deane Moore, CE at Just, says the starting point for a person retiring and wanting to use a combination strategy, is to calculate your annual expected costs in retirement which should include food, utilities, medical, transport, insurance and the ongoing costs of retirement accommodation.

A guaranteed pooled product, such as a with-profit life annuity, can offer better returns at lower risk than a living annuity, because investors in the pool that survive to the end of each year benefit from the pot of money that stays behind in the pool when some of the other investors die, Moore says.

In this way the pool shares the risk rather than the individual having to provide for that risk, as in the case with a living annuity.

What you are getting as an investor in a pooled product is a return from your invested assets plus an additional return from the assets of those who die early.

The longer you live, the greater your additional return from a guaranteed annuity, he says.

Shaun Duddy, Product Development Manager at Allan Gray, says combining living and guaranteed annuities allows you to better utilise and trade off the different characteristics of each.

He adds the industry has some way to go still in equipping financial advisers and annuity investors with the necessary information and tools to combine the two.

There are, however, some options available to retirees who want to benefit from both types of annuities.

Alexander Forbes, Sygnia and Glacier now offer a living annuity with the option to use a portion of your investment to provide a guaranteed annuity income.

In the Alexander Forbes and Sygnia products you buy units in the guaranteed annuity as you would buy into other underlying funds.

The guaranteed annuity is a with-profit one provided by Just that you can use to guarantee an income to cover your essential expenses regardless of how investment markets perform or how long you live.

The lifetime income increases each year roughly by inflation and the increase is derived from the above-inflation investment returns generated by Alexander Forbes or Sygnia asset managers.

Glacier by Sanlam's Investment-Linked Lifetime Income Plan provides a lifetime retirement income that is linked to the growth of an underlying investment portfolio. Unlike typical guaranteed annuities, you get to choose the underlying unit trust funds and the income is linked to the performance.

As Glacier's Investment-Linked Lifetime Income Plan will not provide a legacy for your heirs, you can provide for a spouse or dependants by adding a guaranteed income payment term (for up to 15 years), or by adding life assurance to the policy, Tyson says.

Here’s how you should be saving money during your lifetime

Article by Business Tech.

By assessing your life at various stages can enable you not only to plan ahead, while also target certain financial achievements to ensure your well-being.

This is according to Errol Meyer, legal specialist from Standard Bank Financial Consultancy, who says that personal financial planning becomes easier and adjustments can be made as you go along.

Below, Meyer sets out how you should be saving during your lifetime.

Starting out and becoming established (ages 18 to early 30s):

At this stage, education and getting a car, rather than thinking about retirement are usually priorities. But, this is the time to begin thinking that far ahead.

At this stage of life, you should concentrate on developing life-time habits such as:

  • Making sure that you pay yourself first. Decide what you want to save and put this aside before spending any money. You can build future financial independence earlier than you think if you decide, for example, to put away 33% of your earnings for the future.

  • Learning not to compromise. Committing money to investments that stop you from drawing it out takes away temptation. A 12-month fixed investment is ideal. The money grows and you can’t get it.

  • Putting together a budget. Deduct your compulsory savings and then set aside money for living and money for short-term goals.

  • Consider starting a long-term fund. Investment portfolio’s that are aligned to lifestyle goals, such as education and buying a house are good ways to go. The earlier you invest the less the investment will cost and the more you will benefit.

  • Wisely invest some of your budget. For example, cars just don’t hold their value. Buy a pre-owned car or downsize and you will have money available when you need it.

Moving on and beginning to accumulate assets (mid 30s to 50)

With your education complete and career path decided, you are now focusing on family and other responsibilities such as focusing on home loans, saving for the future of your children and other needs.

Typically, this is the time of your life when you get established and your income increases accordingly. You should be looking at:

  • Increasing your contributions to medium and long-term savings mechanisms and taking out life insurance.

  • Diversifying savings and moving into shares, unit trusts and other products.

  • Reassessing your retirement savings and adjusting them if necessary.

  • Making sure that you have a will.

Review your investment plans regularly and get a professional financial planner to assess what you need for the next stage of your life. As you approach 50, it pays to be realistic about your health and plan for contingencies that could result if your health doesn’t stay good.

Independent family and the road to retirement (age 50-65)

Ironically, life gets cheaper and earnings greater at this stage of your life. Children leave home and even begin their own families. Simultaneously, your earning power peaks. Retirement beckons.

The important things to consider now are:

  • Making sure you have no debt as you approach retirement. After retirement, you have to live on investments and pensions. Major debts can be financially damaging.

  • Consolidating your investments so that they are low-risk investments that offer steady, inflation-linked returns.

  • Adjusting your long-term retirement strategy and thinking about increasing your contributions to a retirement annuity.

  • Planning your estate and taking steps to ensure that your family-rather than the tax man- benefits when you die.

Know what a policy covers

Article by Standard Bank, found on Personal Finance.

Original title: Know what your policy covers

Lodging a life insurance claim needn’t be an ordeal if you and your beneficiaries are aware of what is covered by your life policy and what isn’t, said Felix Kagura, the Head of Long-Term Insurance Propositions at Standard Bank

“Too often clients don’t consider crucial aspects of what is covered by their insurance policies and are then surprised when they find out they may not be covered for certain events,” said Kagura.

“You need to pay particular attention to all the exclusions contained in the policy as well as the premium pattern over time; the language around beneficiaries and any possible waiting periods that may be stipulated.”

Exclusions, as contained in life insurance policies, detail possible claim events which may not be covered by a particular policy. This means that the insurer will not meet a claim that is made on such events. Examples of such exclusions include death due to events like war, civil unrest, epidemics, suicide and even the mere act of being out of your home country for a protracted time (usually more than three months).

“Most policies will not pay out if you willingly relocate to a territory that is in a state of declared war and possibly even if there is civil unrest taking place without advising your insurer in advance,” said Kagura. “If you’re planning to be in any foreign country for a significant period then the critical thing is that you declare it to your insurer.”

Kagura said national risk profiles were usually dependent on the country you may be visiting, with some African countries frequently having diverse risk profiles. It is therefore crucial that you find out what the exclusions are around the country you will be visiting.

4 things expected to hit SA’s financial stability in the next year – Reserve Bank

Article by Business Tech

The South African Reserve Bank (SARB) has released its second annual financial stability review.

One of the key focuses of the report is an analysis of some of the risks which could impact South Africa’s financial stability.

“The SARB regularly assesses the risks to financial stability in the next 12 months, with a view to identifying and mitigating any risks and/or vulnerabilities in the domestic financial system,” it said.

“Potential threats to financial stability are identified and rated according to the likelihood of their occurrence as well as their expected impact on the domestic financial system.

“The identified risks are classified as ‘high’, ‘medium’ or ‘low’ in terms of both the likelihood of each risk materialising and its possible impact on financial stability.”

Four specific risks were focused on by the Reserve Bank, including:

  • Weaker global economic growth

  • Faster than expected tightening of global financial conditions

  • Lower domestic economic growth

  • Cyber-security risks

Notably, the SARB said that there was a high likelihood of lower domestic growth, which could lead to a deteriorating fiscal position, rising debt levels and ratings downgrades triggering capital outflows.

It also highlighted that cyber-security risks could have a high impact on South Africa, with the possibility for corporate security breaches and a crash of crucial financial infrastructure.

Faster than expected tightening of global financial conditions is also expected to have a big impact on South Africa (should it occur), as it leads to a repricing of risk, an increase in capital outflows and possible exchange rate depreciation.


Why retirement contributions don’t reduce your taxable capital gains

Article by Carrie Furman, Allan Gray

You may be aware that every tax year you can make a pre-tax contribution to your retirement fund of up to 27.5% of the higher of taxable income or remuneration, capped at R350 000 per year. But you may not be aware that the tax deduction you are entitled to from contributing to your retirement fund can include taxable capital gains. The logical next question to ask is whether your retirement contributions can reduce that taxable capital gain.

Unfortunately, the answer is no. The retirement savings deduction is applied to reduce your income amount before the taxable capital gain is added. In other words, your taxable capital gain is still fully taxable.

The confusing part is that the South African Revenue Service (SARS) uses the words ‘taxable income’ in two instances: One for determining the maximum amount you can deduct for tax purposes for retirement fund contributions, and the other to determine your final tax liability.

Taxable income is used to determine the maximum amount you can deduct for tax purposes for retirement fund contributions

Your retirement deduction calculation tells you how much of a deduction you will get from SARS based on the amount you save for retirement. It has no bearing on the sum of your taxable capital gain. This is where the first use of ‘taxable income’ comes into play. To work out your maximum annual retirement fund deduction, you need to determine the following amounts:

Your remuneration – how much did you earn from your employer (including any commissions and bonuses)?

Your taxable income – the sum of the taxable income you earn from your employer, other income (such as rental, annuity income and the taxable portion of your interest income) and any taxable capital gain you have made for the tax year. The taxable income amount here is effectively your ‘income’ amount (see Graphic 1), plus your taxable capital gains for the year.

Graph by Allan Gray

Graph by Allan Gray

Next, you choose the higher of the two figures and multiply it by 27.5% to get your retirement savings tax deduction.

Taxable income is used to calculate your tax liability

Once you have calculated your retirement deduction, you can use it to work out your tax liability for the tax year. The retirement fund deduction is first applied to reduce your income amount and then you add the taxable portion of capital gains. If you look at the complete tax calculation shown in the graphic, you can see this bit in block 3.

What is the benefit of including capital gains?

You can look at it this way: Your maximum retirement deduction would be limited to 27.5% of your annual salary plus any other taxable income you may have earned outside of your employment, such as rental income. Allowing you to include your capital gain in the calculation enables you to benefit from a greater deductible amount. If you can’t use the full tax deduction in one year it can roll-over to the following tax year, or it can be used when you take a lump sum from your retirement fund or when you receive an annuity income.

Whether you can use the full tax deduction in the current year or whether it rolls over depends on the proportion of your other taxable income to the amount of your taxable capital gains. There is always a benefit in contributing more to your retirement fund, even if you don’t benefit from the entire deduction in the same tax year as the year you make the contribution.

As the end of the 2017/2018 tax season approaches on 31 October, we encourage you to take advantage of these deductions and file your tax return. If you can afford to increase the amount you save for your retirement, you can benefit from an increased tax deduction when you file your return for the 2018/2019 tax year. If you are able to contribute in excess of the maximum tax-deductible amount for this tax year, you will receive the tax benefit next year or at some point in the future.

Diversified investment portfolio a defence mechanism

Article by Owen S Nkomo, Sowetan Live

A key decision when creating an investment portfolio is how much of each of the main types of asset classes to include.

Knowing the asset classes will assist you in selecting those that are suitable for your investment objectives.

The growth of your investment comes from the underlying asset classes in your portfolio.

The risk profile, benefits, and features of these asset classes are different as this article explains.

An asset class is a group of similar investments whose prices tend to move together. The goal when investing is to have a diversified portfolio of unit trust funds or underlying investments in different asset classes. This lowers your exposure to risk.

The four main asset classes are:

Shares, also known as equities

Most investors buy shares of companies that are listed on a stock exchange - the JSE.

Shares buy you a small part of a company. This gives you a potential share of profits the company makes. Shares provide investors with two types of returns - annual income and long-term capital growth.

Most shares offer income in the form of dividends, which are typically paid twice a year. Dividends can be seen as a reward for shareholders. They are paid when a company is profitable and has cash in the bank after it has satisfied all its obligations.

Share prices go up and down, so buying shares is not without risk.


Cash includes money held in bank fixed deposits and money market assets, which earn interest.

Cash provides a stable low-risk investment and is considered the safest asset class.

It tends to deliver a more regular and reliable income than shares, although the potential returns are lower compared to other asset classes over longer periods.

Cash has the highest risk of losing purchasing power over time due to inflation.


A bond is a loan, similar to the credit you may be granted.

A government or company wanting to borrow money issues bonds. They are usually referred to as fixed-interest assets.

By buying corporate or government bonds, you are lending money to governments or companies in return for regular interest payments and the return of your capital when the bond matures. Your return from bonds comes from the interest the company or government pays and any change in the price of the bond bought and sold in the market.

Bonds tend to deliver a more regular and reliable income than shares, although the potential returns are often lower.


These investments are usually in listed commercial property - you buy a share in the ownership of a number of buildings.

These buildings might be office blocks, shopping malls or industrial properties.

Property investments can provide growth in two ways - through increases in the value of the property and rent paid by the tenants of the buildings.

It is considered long-term investment and is not low risk.

It is important to know what type of asset classes you are invested in, to see if your overall exposure to each asset class is appropriate for your investment objectives and risk profile.

TRUST TO TRUST: Does a trust eliminate estate duty?

Article written by Phia van der Spuy, IOL.  

Although death and taxes are certain, people are always looking for ways to minimise taxes upon death.

In certain instances, people are not even aware of the tax consequences upon death. They may have to pay in excess of 30 percent in costs and taxes - capital gains tax, estate duty and executors fees.

If no provision was made for these costs and taxes, the executor may have to liquidate assets needed by the remaining family, to make these payments from the estate.

Many people are unaware that all the costs and taxes (as if you bequeathed it to any other legatee) will firstly have to be settled from the estate, before the trust is registered, as determined in the deceased’s will. This may leave dependents, such as minor children, with much less assets to survive from.

When you set up a trust during your lifetime, it will determine the tax consequences, both during your lifetime and upon your death. Many people believe that they should only set up a trust after they have created sufficient wealth. This is too late, for two reasons.

Firstly, when you transfer paid up assets held in your personal name to the trust, the trust will not have any liquidity to pay for those assets, and they will either have to be donated to the trust, or acquired on loan account. When you donate assets to the trust, donations tax at 20 percent on the first R30million, and on amounts in excess of R30m at 25 percent will be payable upon transfer to the trust from liquidity, which very few people have.

When you sell your assets to the trust on loan account, you will now be required to either charge interest on such loan accounts at at least the official rate (repo rate plus 1 percent, currently 7.75 percent), or pay ongoing donations tax if your loan was interest-free or interest is charged below the official rate (Section 7C of the Income Tax Act).

The donations tax will be calculated on the interest income forfeited by you. This tax on interest forefeited can be equated to the annual payment of estate duty during your lifetime.

Secondly, the balance of the loan to the trust will be included in your estate upon your death. If you charge interest on the loan, to avoid the donations tax liability, discussed above, all the interest charged will inflate your estate.

Section 7C has been successfully implemented by Sars to prevent the estate duty avoidance that could result when a person transfers growth assets to a trust.

The best time, therefore, to create a trust for estate planning purposes, is before major wealth is created during a person’s life.

In this instance, the assets will be acquired and grow in the trust, such as shareholding in a company which is acquired at nominal value when it is created, and where all the growth happen in the trust, with no resulting taxes as discussed above.

If you intended to create a trust, but you have dealt with the trust assets during your life as if they were your own, then Sars can attack the trust and have it labelled as an alter ego trust; in other words, an extension of yourself.

Despite the fact that the trust does in fact exist, SA Revenue Service will disregard the trust and treat the assets as if they belong to you, and include the assets in your estate. There must be a clear separation of control from enjoyment of trust assets. All trustees - and not just one of them - should control the trust assets for the enjoyment of the beneficiaries.

The Estate Duty Act (Section 3(3)(d)) is relevant where the trust instrument contains a provision that empowers the deceased, immediately prior to his/her death, to: appropriate or dispose of property; or revoke or vary the provisions of any donation, settlement, trust, or other disposition made by him/her for his/her own, or his/her estate’s benefit.

In such cases, the trust property will be included in the estate of the deceased as deemed property, so it is important that you are mindful of inserting problematic provisions when you draft your trust deed.

If you have a trust, please review and amend your trust deed and remove any provisions which may impact your estate negatively, especially if you have not made provision for additional estate duty and capital gains tax payable upon your death, as a result. When and how you set up a trust, and how you execute it, may impact estate duty payable.

​​​You either sleep well or you eat well

Article by Sherwin Govender. Article from Glacier, Sanlam.

It’s perfectly natural for clients to feel nervous about their investments, given the low-return environment over the past few years, and even more so when the client is nearing retirement.

It becomes very difficult to be optimistic with the constant market shocks and negative news both locally and internationally. It is repeated time and time again but it is important to not let fear lead clients to making adverse decisions.

The true value of an adviser

History repeatedly shows us that markets recover from bad periods and that investors who ride out the tough times tend to do much better than those who sell out of the market.

But if we look at investment flows in times of high volatility, we see the converse of this. This is where the true value of an adviser comes in. Being able to stomach tough times and under-performance becomes more a function of trust in an adviser as opposed to knowledge of investment finance principles. Many professionals in the industry have advisers themselves, because they also need someone to help manage their emotions. Advisers also keep the focus on the long term goal of a comfortable retirement and steer clients away from “knee jerk” reactions.

Contextualising your investment

If clients understand upfront what they’re buying, it makes it easier to tolerate future volatility. It’s quite common for clients to refer to investment returns as “interest”. If a client views a market-related portfolio the same way as they would a fixed deposit at the bank then they are more likely to see negative returns as “losing money”. However, if the client can see that they actually own small units of companies (equity), provided loans (bonds) or own a piece of property, then it becomes easier to relate to the under-performance.

It gives investors a different perspective when they look at the JSE Top 40 with the significant negative returns year to date and see a “sale” on top quality companies as opposed to seeing loss.

Major challenges

There are two major considerations when it comes to saving for retirement. Firstly inflation, the ultimate detractor of value. Conservative investments give you a smooth and low-stress ride but they are never going to beat inflation in a meaningful way. My previous manager used to have a saying when it came to risk: “You either sleep well, or you eat well.” I personally would prefer the latter.

The second big consideration is longevity risk. Life expectancies have increased steadily over time and many of us have a high probability of reaching 100 and beyond. This means that our retirement life may well be longer than our working life. This means that growth investments become more of a necessity than a personal choice.

Stay the course

Once your retirement strategy is in place, it is usually best to trust in the plan and keep to the time frames. Adverse decisions are usually made based on short-term market fluctuations which will have long-term ramifications on your retirement. If the focus remains on the ultimate goal (retirement) then the noise tends to soften.

It may seem difficult to ignore the negatives around us. The way I like to think about it, is that investing in the market is essentially betting on the progress of everyone around us. Sure, the challenges and obstacles are numerous but we have, and always will, persevere.

41% of South Africans don’t have any form of retirement plan - report

Article by Personal Finance

A first-of-its-kind report reveals the extent of South Africa’s private retirement savings crisis and its pending impact on government resources in the coming years, as well as the savings disparity among racial groups and the massive divide between men and women.

The first 10X Retirement Reality Report (10XRRR) - the findings of a survey of more than 11-million South Africans - indicates that 46% of people have a profound lack of trust in the retirement industry, while 41% people have made no provision for retirement at all.

The report, commissioned by 10X Investments, reveals a profound lack of understanding of what they have saved and what they need to have saved among existing clients of the retirement industry.

The poll further highlights some worrying trends across within South African demographics.

  • 62% don’t have any form of retirement plan or have little understanding of their existing policy

  • 53% don’t know how much their pension is worth

  • 62% lack trust and confidence when it comes to investing money

  • Less than 35% of black respondents have a pension or provident fund

  • Less than 20% of black respondents have a retirement annuity

  • More than 40% of women across all demographics have no investments or savings in any form

Says 1X Investments Founder and CEO Steven Nathan, “The industry has amassed wealth at the expense of its clients, who frequently discover how poorly their retirement products have performed only when it is too late to do anything about it.

“The industry’s messaging makes strong emotive appeals. It’s high time that the facts get some air time,” he said.

The survey pointed to the gender pay gap in South Africa, where women are understood to earn around a quarter less than their male counterparts, which has a knock-on effect on retirement savings. The report noted that the gender pay disparity is often “exacerbated by the increased likelihood that women’s careers will be interrupted during pregnancy and child-rearing”.

A total of 36% of female respondents said they neither saved nor invested, and 37% saved cash but did not invest it. Very few women, a mere 16%, reported investing their savings in order to grow their wealth.

Emma Heap, Head of Growth at 10X Investments, said: “If women aren’t investing their money for growth they will have little chance of beating inflation and having enough money to draw a decent income after retirement.

“Hopefully the report will inspire women to take control of their finances and ensure their money is working as hard for them as they are for it.”

10X Investments believes that the release of the 10XRRR will promote action and awareness in addressing the underlying issues that are poised to financially cripple the South African economy and millions of individual South Africans.

The release of the 10XRRR comes amid heated debate on rising poverty levels in South Africa, despite government’s national development plan to eliminate poverty by 2030.

The report also aims to spark debate about the lack of transparency and, in some cases, daylight robbery committed by fund managers in terms of hidden costs and fees. 10X Investments is a disruptor financial institution that recognises that the retirement industry has done disproportionately well for itself, but has failed its clients.


Things I wish I’d known in my 20s

“I wish I had known earlier how much the financial decisions I make today will affect tomorrow. If I had, I could have avoided many costly mistakes in my youth,” says Peter Tshiguvho, the new Chief Executive of Metropolitan Retail.

Tshiguvho says he hopes that by sharing some of the financial lessons he and others have learnd the hard way, it will prevent young people – like his two daughters aged 16 and 18 and son of 11 – from making the same mistakes.

He has the following tips:

Say no to instant gratification and peer pressure

When I was younger, many of my friends wanted to impress women and each other by buying expensive things that they actually couldn’t afford. This resulted in them taking out multiple credit and store cards when they first started working. It was great for a while because they could buy whatever they wanted, whenever they wanted, but a year later, all their earnings were going towards paying off their debt.

While it might be tempting now to take out credit and store cards, you’ll be paying the price later on – sometimes even for several years. You need to ask yourself if whether the people you are trying to impress are worth the pain. Your friends and partners should like you for who you are, not what you own.

Find a financial advisor

 It’s important to have a financial advisor from the minute you start earning money so that you can make better decisions on what to do with it (and don’t end up drowning in debt). Many people are reluctant to speak to a financial advisor because they are worried that their money will be taken from them. However, a financial advisor will work with you to come up with a financial plan that can be reviewed on an ongoing basis and adjusted in line with your needs. If you allow yourself to engage with a financial advisor at this early stage, you can make informed financial decisions that can pay off handsomely in future.

Plan for retirement right away

While retirement may seem a long way off, you need to plan for it as soon as you start working so you can harness the power of compound interest and be set up for a life of leisure. Those who don’t save early often feel caught off guard when retirement age starts creeping up on them and, while they might try put away large sums of money at the last minute, they won’t have the benefit of compound interest and may even compromise their current quality of life by doing so. Your financial advisor can guide you on the best policy to get, based on what you can afford at the moment.

Get life insurance early

Taking out life cover at a young age comes with a number of advantages - you’re in good health, it’s cheaper and you get much higher cover. If you leave it too late, by the time you apply your premiums will be more expensive and you won’t be as healthy.

“Young people today are fortunate that they have a world of information at their fingertips and don’t have to learn these lessons the hard way,” concludes Tshiguvho.

Common mistakes when drafting a Will and how they impact your wishes

Article by Kezia Talbot, Legal Advisor and Remay de Kock, Legal Adviser at BDO SA. Article published on Maya on Money.

It is officially National Wills Week. Wills can get quite tricky – there are several common mistakes that are made when drafting a Will that can have a serious impact on your wishes.

One of the most difficult aspects we have had to deal with in recent years, is to ensure that clients realise the importance of having a valid Will in place. The most difficult part is probably to make sure clients understand why we “sell” the concept of having a Will. Many people’s first reaction to this topic is that there are many other more pressing issues that have to be dealt with – tax, education, investments (for the short and long term), holiday funds, etc. These are things which have to be handled in the present in order to ensure a stable and secure future. The second reaction is that there are excessive – and “unnecessary” – costs associated with drafting a Will. If I know to whom I want my estate to devolve, why do I need to pay avoidable costs?

If we rely on the client’s perception of dealing with a means to an end to ensure a stable and secure future, the importance of having a valid Will in place is one of the foundations to achieve this. When drafting a Will you ensure that your affairs are in place in order to guarantee a smooth process of administration, but you also ensure that sufficient means are met in order to guarantee that your family will be looked after at your death. Thus, you are essentially ensuring a game-plan in order to suffice for current and future events.

When dealing with new clients and their estate planning needs, we often have to deal with Wills which are not only outdated, but as a result of changed circumstances reflect neither the client’s current affairs nor their wishes. A properly drafted Will warrants a process where you are certain of a document which is in line with your current circumstances and any changes are in line with your wishes.

Whether you already have a valid Will or not, these are some of the most important the factors to consider:


When nominating an executor, ensure that successive nominees are mentioned in case of failure, for whatever reason, of the first nominee. I have come across situations where the spouse passed away, followed by their children. There were no other family members and the administration process suffered heavy delays as a result thereof.

Defining heirs

To avoid confusion, heirs should be appropriately defined considering their relationship to the Testator and identity number, in order to easily identify them during the administration of the estate. A bequest of “R100 000 to Chris Marx” is insufficient taking into account the fact that there are three people with the same name related to the Testator.

Successive heirs

Testators all too often do not provide for alternative heirs in the event of the heirs predeceasing the Testator. Although the Testator’s intention might be to have a specific person or class of persons inherit failing the others, if this is not clear from the Will, your executor will have to refer to the Wills Act to provide for a solution – a solution which might not be consistent with your wishes. To avoid these situations, ensure that provision is made for alternate heirs for all bequests mentioned.

Provision for minor children

When dealing with minor children, a lot of confusion exists as to the proper manner to deal with this situation. Proper advice needs to be obtained to confirm if a Trust is to be established for their benefit or if funds can be paid directly to the guardian. In most cases it is advisable to make provision for a Testamentary Trust, but each case needs to be assessed on its own merits, depending on the facts of each situation. Remember, if you do not make provision for a Trust or insert a clause that funds can be paid directly to a guardian, then all funds payable to a minor will be paid into the guardian’s fund.

Foreign assets

If you own foreign assets, it is of the utmost importance to ensure that you properly deal with these assets. When considering if a South African Will alone is sufficient for your worldwide estate, consider the following common law rule which is used in most scenarios: when dealing with movable assets, such as bank accounts and investments, the law of the Testator’s last domicile governs the validity and distribution thereof, whilst, when dealing with immovable property, the law of situs thereof is used to govern the validity and distribution thereof.


Your Will needs to be signed by yourself and two witnesses in your presence and in the presence of each other. Ensure that the witness signing the Will is not a beneficiary, executor, guardian, trustee in terms of the Will or any spouse of the aforementioned persons. Should any of these persons sign as a witness, although not invalidating the Will, they will be disqualified from receiving any benefit stipulated therein.

Liquidity constraints

Remember that before any distributions can be made to your heirs, all liabilities – both before and after death – have to be paid. Thus, when attending to your Will, think about the consequences of the bequests:

  • Will you have sufficient funds available to settle your debts?

  • What are the consequences if funds are not available?

If no other alternatives are available, assets will have to be sold from the estate, or heirs will have to have liquid funds available, adding pressure to their financial capabilities, in order to settle outstanding debts so as to prevent assets, which may have a sentimental value, from being sold from the estate. Take cognisance of your policies, investments, retirement annuities and how these assets fit into your wishes at death. If you have a policy with a beneficiary nomination, then these funds will pay directly to the beneficiary, regardless of your Will. Testators tend to forget these funds and do not even take them into consideration when attending to the Will. These funds might prove to be useful in establishing surplus liquidity in your estate.

Tax consequences

Taking into account liquidity constraints and your ability to settle taxes which arise at death, be aware of the tax implications of each of your bequests. If you wish to bequeath your entire estate to your spouse, as it entails a tax free distribution, you are probably not completely doing this for the right reasons. Remember that you are in effect only delaying payment of taxes and that your spouse will have to take responsibility for all taxes payable thereon at their death. The section 4A abatement of R3.5million is also at your disposal, thus fully utilise your tax relief before making decisions which do not correlate with your actual wishes.

Drafting a Will entails an understanding of all factors which may have an influence on your bequest. Consider speaking to a fiduciary specialist to guide you through the dynamics of proper estate planning, taking into account all of the above, and how it impacts your wishes regarding your family and loved ones.

What to look for in a good fund manager

Article by Martin Hesse, Personal Finance

You’re looking for somewhere to invest. You have decided what types of collective investments you want to be in (which are appropriate to your circumstances), and must now decide on asset managers that you believe will do the best job for you.

This is not a decision to be taken lightly, and an experienced, independent financial adviser would help you enormously.

Two investment experts, Prasheen Singh, a Director and Consultant at investment consultancy RisCura, and Rory Maguire, the Managing Director of British investment consultancy Fundhouse, offer the following advice.
(For clarity, the unit trust management company is referred to as the “asset manager” and the person managing the fund the “fund manager”.)

1. Do your research

Singh says, given the wealth of information available today, you can do your own research. “Visit the asset managers’ websites and compare the fund fact sheets (or ‘minimum disclosure documents’) of the funds you’re considering. Ensure you understand the risk profile of the portfolio and the mix of asset classes.”

Also research the company, fund manager and fund on websites apart from the company’s own to get a balanced picture.

2. Find a company you can trust

Speaking at the recent Allan Gray Investment Summit, Maguire says: “Asset managers are stewards of your capital. It’s important that they understand that the money they manage is yours – there must be trust.”

There are a number of things you can check for:

  • The business structure must allow for a long-term view, without shareholders pressurising the company to chase short-term earnings. Privately owned companies and family- or staff-owned companies tend to do better in this respect, Maguire says.

  • Be cautious of large funds and companies with many funds. “Asset managers get paid on the size of assets that they manage. A large fund can constrain a manager by being less liquid and less able to access smaller companies,” he says. “So look out for asset managers with limited capacity. It’s frustrating when an asset manager closes a fund to new investment. As hard as that is, it is telling you that they are putting their profits second to your returns.”

  • There must be honesty and transparency. “Look for honesty, clarity, someone who admits mistakes. Avoid managers who are obfuscating and put catch-phrases and jargon in front of you to throw you off the scent,” Maguire says. Singh agrees: “Good fund managers should be able to explain their approach and how they intend to achieve their objectives in a manner that makes sense, even to a novice investor.”

  • Fund managers who have their own money in their funds have a higher success rate than those who don’t, Maguire says. “They are going to care more and try harder. They have to eat their own cooking.”

3. Look for good-quality people

Maguire says there must be consistency in how the fund is managed, and this comes through a stable, professional team. The key things to look for are:

  • Passion

  • Experience

  • Differences of opinion. “Look out for companies that may be employing similarly-minded people. You get better answers through disagreements and proper debate,” Maguire says.

  • The quality of the people behind the scenes.

  • Employer of choice. “It’s a poor indicator if a company is losing people to its competitors. You want to be attracting good people and retaining them for fairly long periods,” Maguire says.

  • Temperament. “Managers that add value to your portfolio are those that take different views to the market. But to do that requires the right temperament, which is a very hard thing to pinpoint. However, negative temperament is quite easy to spot. When you get defensive, ego-based answers to performance dips, be careful.”

4. The investment process must be consistent

Asset managers employ different investment styles: some focus on value (assets at below-average prices), others more on quality (how well a company is run, its profitability, and its prospects), and others on growth (young, progressive companies with the potential to grow exponentially).

Whatever the style, the company must be consistent in its investment process, which should counteract the human biases that result in bad investment decisions. This process, Maguire says, must be fairly simple to understand and “must be implemented ruthlessly”. But it also needs to allow for differences of opinion. “We look for outliers, where fund managers are sticking their necks out. And the process needs to allow for that. When you look at a fund manager’s decisions and track record, those outlying moments are important to pin down.”

5. Look at the manager’s track record

The two experts say you shouldn’t pay much attention to awards, although Singh says it may be worth looking at a fund that has consistently won awards over an extended period. Don’t forget, the person managing the fund may have changed since the fund's last award.

If you are looking at past performance, which is no guarantee of future performance, Maguire says it’s worthless looking at anything less than five-year periods. “The top South African fund managers are quite consistent for five-year performance over long periods. Any shorter period is absolutely meaningless. There is nothing predictive to be gained by looking at shorter than five years, and five years is slightly less predictive than 10,” he says.

6. Consider fees in context

All management fees should be clearly stated on the fund’s minimum disclosure document, and these may include a performance fee. Singh says the lower the risk for the fund, the lower the fee should be. For example, a cash fund will have lower fees than an equity fund because it is lower risk. “Remember that fees represent the type of product, not the quality of the product. Higher fees are not an indicator of better quality in the investment world.”

Importantly, make sure you understand the total investment cost, which may include advice fees, Singh says.

7. Be patient

It’s essential that once you have made your choice, you stick to it. “It takes time for a fund to achieve its objectives – typically between three and five years,” Singh says. “There will be periods when the fund’s strategy is out of favour, and that’s okay. You need to consider it in a long-term context and understand how and why the strategy that is out of favour today can make a comeback in a few years’ time.”

Savings bonds will no longer bypass your estate

Article by Personal Finance.

Investors in RSA Retail Savings Bonds have been informed by National Treasury that, with effect from October 1, the savings bonds will no longer offer the option to nominate beneficiaries to receive the proceeds on the investor’s death.

In a report in the Alexander Forbes Lighthouse newsletter, Jenny Gordon, the Head of Legal Retail at Alexander Forbes, says that, in future, the savings bonds will, on the death of a bondholder, pay directly into the deceased estate.

The intention is to align the savings bonds with the Administration of Estates Act, which states: “Any person who at or immediately after the death of a person has the possession or custody of any property book or document which belongs to or was in the possession or custody of such deceased person at the time of his or her death… shall upon written demand by the… executor … surrender any such property … to the executor… provided that it shall not affect the right of that person to remain in possession of such property under any contract or right of possession or attachment.”

Gordon says: “The right of an investor in an RSA Retail Savings Bond to nominate a beneficiary for proceeds or ownership of the bond was a feature which was inconsistent with the law of succession, which requires property of the deceased to pass on death in terms of a will.

“An RSA Retail Savings Bond is property that exists in the estate at date of death. All property and assets that exist in an estate should be bequeathed via a will and should be dealt with in the estate of the deceased.”

Gordon says the exception to this rule is the proceeds of a life insurance policy.

“The proceeds of a life insurance policy are payable on death. The proceeds do not exist in the estate before death. A beneficiary nomination on a life insurance policy is a special contract called a ‘stipulation alteri’, or a contract for the benefit of a third party. The policyholder contracts for the insurer to pay the proceeds to the beneficiary on the death of the policyholder and not to the estate.

“The death benefit did not exist in the estate of the policyholder during his or her lifetime, so it need not be bequeathed via a will. Current practice extends this to beneficiary nominations for ownership on endowment policies and sinking funds, although this is not clear-cut in law,” she says.

Treasury introduced the retail bonds in 2004, and they have proved a popular means of saving. There are fixed-rate bonds with terms of two, three and five years, and inflation-linked bonds, with terms of three, five and 10 years.

Pay less tax? Is there a way?

Article written by WellSpent

I am sure that many of us have thought about how we can pay less tax. As you’ve worked through the tax season, you’ve likely reflected on the amount of money you’ve handed over to SARS this last tax year.

There is a perception out there that, by being extremely clever, you can pay less tax.

People also think that if they can find the right tax ‘guy’, that he’ll help them save a bucket-load of tax and get a fat refund.

Tax advisors get asked this all the time, so it’s likely something that weighs on people’s minds – a LOT.

It’s frustrating to get asked this so often. It sounds like people are wasting a lot of time on false and wishful pursuits. There are much better personal finance questions one should be asking – ones that’ll actually make a difference. Allow us to give you an honest account as to what your options really are and how important tax advice is – or isn’t.

Your expense account is not what it used to be.

Our tax laws, especially around remuneration (the stuff you get paid by your employer every month) have come a long way in the last 10 years. Way back when the West was wilder – it seemed like everyone had a car, travel and cellphone allowance.

The old days of salary structuring are essentially over. If your employer has agreed to pay you an amount of R25, 000 per month – you will pay tax on this amount, no matter how you try and carve it up between allowances and benefits[1]. In most cases, employers don’t give you options. Simply because if they get it wrong, they are responsible for the PAYE that SARS should have received. It’s not worth their while to try and structure a package for you.

So let’s conclude on this and move right along. If you’re a salaried employee and you’re not a small business owner or earning rental income from a property, or from a side gig – you do not have options around structuring your salary to pay less tax.

Tax Guys are helpful, but for boring reasons

Finding a good person to help you with your taxes is not a bad idea. Tax has become increasingly complex of late, and it can be daunting to complete a tax return by yourself. The mental stamina and patience required for correcting mistakes with SARS can take months. People generally don’t like to deal with SARS for any longer than they need to. So if you’re uncomfortable with completing a tax return by yourself, then find someone who can help you out. See what they do and give it a go next year. If your circumstances don’t change, it’s unlikely that how you complete your tax return will change much either.

If you’re a salaried employee and not a business owner, then finding someone to help you with your tax should only be driven by your desire to get your taxes done quickly and correctly. Not be because you think a very clever advisor will save you lots of money. That doesn’t happen. It cannot. You’ll notice how emphatic I’m being here. That’s because “Oh you’re a tax consultant, can you get me a huge refund?” is as annoying as “Oh, you’re a comedian, tell me a joke.”

Your options are limited by tax laws, and a reputable tax practitioner can only operate within the framework of those laws. They can’t make stuff up. If you’re wanting to pay a premium for a tax advisor with the hope of getting a big refund, rather save your money and spend that on a good financial advisor.

Common-sense tax savings.

There are ways to pay less tax, but they don’t involve clever maneuvering or allowances. Come to think of it, we’ve discussed most of them already at WellSpent, but to put this discussion to rest, we’ll list the biggest and easiest to achieve.

Contributions to a pension, provident or retirement annuity fund

This is by far the most common and effective way to reduce your annual tax bill. The laws around making contributions to retirement annuities, pension, and provident funds have changed recently. You can now get a whopping 27.5% deduction for amounts contributed to your retirement. The general rule is that this deduction is limited to R350, 000 per tax year.

So let’s just assume that you have some idle cash lying around, perhaps money in an emergency fund that is superfluous to your needs; let’s go with R100, 000.

Simplistically put – If you started a retirement annuity today and made a starting R100, 000 contribution, you would get a deduction of R27, 500 in your current tax year. If your effective rate of tax payable was 30%, you should get a refund from SARS of R8, 250 (R27, 500 x 30%), assuming you don’t owe SARS any other tax.

You’ve effectively saved R100, 000 for retirement, in a way that will maximize your long-term growth, but that only cost you a net R91, 750.

Well done – the South African National Treasury has just subsidized your investment!

Why not use your SARS refund money to start a Tax-Free Savings Account and see how big you can get it, all with refunds from SARS.

Making a donation to a Public Benefit Organisation.

Making donations to Public Benefit Organisations, registered such that they can issue an 18A certificates, will allow for the deduction of donations made from taxable income. Deductions of this nature are capped at 10% of taxable income.

You may feel that the government is incapable of spending your money wisely. If that’s the case, you could identify a charity or other Public Benefit Organisation that is doing work you think is important, and give them a big chunk of your tax bill.

Manage your interest income

As a natural person, you’re eligible to earn a certain amount of interest income per year, without paying tax on that amount. At present, that amount of interest is R22, 800 p.a. Earn any more than that, and you start paying tax at your marginal rate of tax.

If you are in a position that you need to hold a certain amount of stable value for a short term need or goal, consider splitting some of your investment in something that is not interest bearing – just enough to avoid paying unnecessary tax on your return.

In our article on emergency funds, we mentioned a stable fund. These are unit trusts that might consist of half interest-bearing instruments and half dividend income. The Dividend Tax you would pay on your dividends at 20% (from March 2017 onward) is most likely a lot less than your marginal tax rate.

There are many stable funds on offer. Do some Googling and investigate some.

Be aware that earning slightly more interest in a tax year that is tax-free, is likely to push you over the provisional taxpayer threshold. This would require provisional taxpayer registration. This is not too dire. It does add more tax return complexity to your life. It also means you need to submit additional tax returns to SARS during the tax year.


There are quite a few legitimate ways to save on tax, and no sneaky, brilliant scheme ways. So, no, I can’t get you a huge refund. Kindly stop asking.

Why you may not have a claim on your partner’s living annuity

Article written by Maya Fisher-French

Court case highlights the lack of rights for spousal claims when it comes to a living annuity.

When it comes to retirement vehicles such as a provident fund, pension fund or retirement annuity, depending on the marriage regime, a spouse could have a claim to the funds on divorce. Based on the “clean break” principle, the non-member ex-spouse could receive a lump-sum payment from the fund.

The rules of the Pension Funds Act require the trustees to consider all financial dependants when the member dies. If the spouse is a financial dependant, he or she would receive benefits from the retirement fund. This is not however the case with living annuities, which are purchased post-retirement, as living annuities do not fall under the Pensions Fund Act.

A recent court case further confirmed that on divorce, the spouse would not have a claim on the capital amount of a living annuity. The Supreme Court of Appeal ruled that the capital of a living annuity does not form part of the assets of the annuitant (the person with the living annuity) on divorce. This is very different from a pension or provident fund where the spouse could have a claim.

The court determined that as the living annuity is part of an insurance contract, the underlying capital value cannot be included as part of the annuitant’s accrual. In other words, the capital belongs to the insurer and not the annuitant.

While the spouse does not have a claim on the capital, he or she could have a maintenance claim on the monthly income from the annuity. However, according to Jenny Gordon, Head of Retail Legal at Alexander Forbes Retail, the problem with the court ruling is that while the annuity income can be used in the assessment of a maintenance claim in the case of divorce, “what is not clear is how this income is calculated since the annuitant can choose an income of between 2.5% and 17,5% of the capital.” This means that the annuitant could select the minimum income of 2.5% in order to avoid paying significant maintenance.

The court case also ruled that this payment from the income of the annuity can only be paid for as long as the annuitant is alive. On death, unlike a retirement fund which falls under the Pension Funds Act, the annuitant does not have to select the spouse as a beneficiary and could in fact leave all the funds to another individual if he or she chooses. If the annuitant has not selected a beneficiary, then the living annuity is paid to the estate.

“There is obviously a level of unfairness in the law at present,” says Gordon, who explains that during membership of a retirement fund, the law recognises the pension interest as being an asset in the estate of the member spouse for the purposes of divorce. However, as soon as the member exits the fund and buys a living annuity with the benefit, the other spouse loses those rights.

Gordon says industry organisations have made submissions to the Regulator for the law to be changed to recognise a way for the pension to be split between divorcing spouses after membership of the retirement fund has ended. Feedback on this is still awaited.