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12 BUSINESS A.M. FEBRUARY, MONDAY 05 - SUNDAY 11, 2018 EXECUTIVE KNOWLEDGE SERIES ...Why you should be your own CEO driving force, and the baby boomer advisor will do well to hire enough millennials in their own firm so that it becomes a diverse group, not the gray-hair speaking. The millennials are the children of current clients. They’re the grandchildren of current clients. Ignore them at your peril. Knowledge@Wharton: One of the biggest challenges that millennials face is learning about managing wealth, especially if they happen to be born in well-off families. One of your chapters deals with whether being born into wealth is a blessing or a curse, and what parents should do about it. Beyer: It can be both. One of the pieces in that chapter talks about how it’s mighty hard for the acorn to grow in the shadow of the mighty oak. It’s a Hungarian proverb. In my experience, many children who’ve grown up with enormous wealth or substantial wealth operated somewhat at a disadvantage because they haven’t learned the joy of struggle, the joy of reaching beyond your grasp. The parents who allow that self-sufficiency and working at a job — not just going on a philanthropy vacation, but really working and struggling to accomplish something — those children and those parents see the incredible rewards later on. In terms of learning about money and learning about wealth management, the overarching trend is millennials want money to have meaning. As (investment consultant) Charley Ellis so beautifully put it, “The way you spend your money is the ultimate manifestation of your most deeply held values.” Millennials get that much more intuitively. They’re not as materialistic or commercially thrown off and lured by all the things. They want meaning, and they want purpose. It’s why impact investing is on such an enormous tear right now. It’s not the false siren of doing good by your investing. It’s a much more disciplined look at how can my investments more closely align with what I value? Knowledge@Wharton: I’ve heard it described as the two-pocket mentality versus the one-pocket mentality, which used to be that one pocket was for your business and the other for philanthropy. Increasingly, people are starting to realize that it’s all the same pocket. Beyer: It’s equivalent to that double bottom line concept people talk about in business. You may be making a fortune, and your bottom line might look fantastic, but if you haven’t focused on the other aspects of business — like the motivation and engagement of your employees, the motivation and engagement loyalty of your customers — it’s a flash in the pan. It’s not going to last. Knowledge@Wharton: What advice would you offer to young women about how they should manage money, especially at a time in life when they may not have a lot to invest? Beyer: There are lots of apps out there and firms that are happy to help them, and I think some of them are doing a very good job of combining education with investing. But I’ve heard it said often that the best way that a man becomes a feminist is by having a daughter. The moment that daughter begins to grow up, and the dad sees the good and the bad of what’s going on out there in our culture, in our media, he becomes a feminist, a male champion. “The overarching trend is millennials want money to have meaning.” Women are increasingly feeling their own power, but culturally it’s going to take time for that courage and that confidence to be full throttle. I was very blessed, and I’m very grateful that I learned that early on in my career, but not every young woman does. I have young women I mentor who still encounter horrendous issues in the workplace. But learning about wealth management is something that’s probably going to happen sooner than the incredible cultural change we might need. Knowledge@Wharton: Are there any tools you recommend to help young women to manage their wealth better? Beyer: I don’t like to mention names because I haven’t done the due diligence, but there are companies out there that you can put in $5 a week and buy stocks. There are companies that not only are saying, “Come and be a client,” but they’re saying, “We’re going to teach you.” They’re pretty easy to find on Google, and you can take a look at them. There are plenty of tools. The question is whether a young woman takes the time to do it. My book is trying to encourage people to realize they don’t have to become a technical expert. They merely need to say, “I am the CEO of my wealth, even if it’s modest, and I need to step up and make sure I know who I’m hiring.” Common sense is very important here. Knowledge@Wharton: You have a new chapter in your book about women and their wallets. Do you think women investors face different challenges in managing wealth than men do? Beyer: It’s more of a scientific challenge. Women tend to live longer than our spouses, and it doesn’t show any signs of changing. But the other huge change is that, in many cases, women represent the primary breadwinner in the family, and there are certainly more two-income households. In a recent study by Columbia University and Barnard College that Andrea Turner Moffitt talks about in her book, Harness the Power of the Purse, almost twothirds of women consider themselves the CFO of their own family. The piece in the “Women With Wallets” chapter that I emphasize is that women want to feel comfortable with whom they’re working with, so I give a list of questions and concerns. A firm they’re interviewing should distinguish between the different types of investing and goals that different women might have. A newly widowed woman shouldn’t be stereotyped right in there with a young career woman who’s single. Nor should an advisor be so nosy as to ask, “Do you plan to get married and have children?” Knowledge@Wharton: How do you keep up with all the innovation that is going on in wealth management? Beyer: I’m an avid reader, and I have all my social media alerts coming to me, besides just the regular daily news. Then there are a lot of very smart people who blog and write and are looking over the horizon at the future. “It’s not about the money; it’s about what we do in our life to bring that joy.” The other way I stay current is I love to stay involved with younger women. The mission of my foundation, Principle Quest, is to support women in innovative mentoring and educational formats. By staying in touch with these younger women in their 20s and 30s, I am always struck by how much I have to learn, how they view the world, how they look at their wealth, how they look at relationships. That’s an enormous boon for me, on a personal level, to stay in touch with these women. I just had a big celebration last weekend where 54 of the women who’d been on a Principle Quest retreat came to a big party, and they brought their spouses or boyfriends and partners. We danced. We had fun. But at the core of that is young and old need to learn from each other. In our society, we’ve become so polarized. The diversity of age and ethnicity is so vital to a common understanding and progress on wealth management, or in any area. I am the CEO of my wealth, even if it’s modest, and I need to step up and make sure I know who I’m hiring Knowledge@Wharton: There’s so much innovation and disruption in wealth management. What do you think will change, and what will remain the same? Beyer: I believe the balance of power that has been so skewed toward the provider of the product or advice will tip, and maybe tip too far the other way. We all know CEOs who are too autocratic, don’t listen, don’t hire the right people. If that happens, where the investor gains too much power and is not selfaware enough to realize the need to have balance, that would be one big change. But I think it’s going to be technology and its incredible gift to having the human brain and the way we interact much stronger in the areas that we need it to be strong in — whether it’s planning, setting goals, specifying outcomes. In the end, wealth is really something that should bring joy. It’s not about the money. It’s about what we do in our life to bring that joy. This article is republished courtesy of Knowledge@Wharton. Copyright Wharton School of the University of Pennsylvania.
BUSINESS A.M. FEBRUARY, MONDAY 05 - SUNDAY 11, 2018 FINANCE & INVESTMENT 13 Insurers’ investment yield below 10% on inefficient asset allocation German Cosulate welcomes Business a.m.: Topmost diplomat at the Consulate of the Federal Republic of Germany in Lagos recently warmly welcomed global focused Nigerian financial newspaper, Business a.m., to the world’s media market, when consul general, Ingo Herbert, received a team from Businessnewscorp Limited, publishers of Business a.m. Picture shows ingo Herbert (second right) in a handshake with Phillip Isakpa, executive editor; flanked by Steve Omanufeme, managing editor (left) and Iheukwumere Amadi, COO (right). S&P sees uncertain outlook for global Sukuk market in 2018 ...as Nigeria relishes success in first attempt Steve Omanufeme THE FAVOURABLE outcome of Nigeria’s tapping the Sukuk market for the first time in 2017 may well position the country seeing it as a veritable financing option going forward. However, global rating and research firm, Standard & Poor’s says its outlook for the market remains uncertain in 2018, adding that issuance volumes may moderate to between $70 billion and $80 billion from the over $97 billion recorded in 2017. “While we believe the financing needs of some Islamic finance core countries will remain high, we expect that total issuance will likely decline to $70 billion-$80 billion in 2018.” The S&P analysts outlined three main reasons for their expectations including a likely tightening in global liquidity, mounting geopolitical risks and slow progress on the standardization of Islamic products. “The outlook for sukuk in 2018 looks uncertain. While we still foresee significant financing needs for core Islamic finance countries, tighter global liquidity conditions, mounting geopolitical risks, and slow progress on the standardization of Islamic finance products will continue to hold the market back from its full potential,” S&P analysts said in their January 2018 report. While noting that global liquidity remained abundant in 2017, they expect some tightening in 2018, adding that they see the federal funds rate increasing by 75 basis points in the course of the year. “Overall, we think that the cost of funding for issuers will rise and that liquidity from developed markets channeled to the sukuk market will reduce or become more expensive,” they noted. The analysts also believe that geopolitical risk considerations are weighing heavier on the minds of some investors, citing sanctions imposed on Qatar in early June 2017, by a group of Arab states, which resulted in funding outflows from the country’s banking system that is estimated at $21 billion as of Sept. 30, 2017. Similarly, they see investors look unfavorably upon recent shifts in Saudi Arabia’s power structure and societal norms, which could increase the risk of policy mistakes. However, a major concern is the slow pace of standardization of Islamic finance products. “The standardization agenda is progressing slowly: Standard-setting bodies have expended a significant amount of energy in advancing the standardization agenda, but we are not there yet. “The Accounting and Auditing Organization for the Islamic Financial Institutions (AAOIFI) and the Islamic Financial Ser- Page 14 Business a.m DESPITE THE BULLISH returns on government securities, which impacted other money market investments positively, Nigeria’s insurance industry’s estimated investment yield is still at single digit of about 8 percent, according to Agusto & Co. The foremost credit rating and research firm says the abysmal poor returns in the industry are as a result of inefficient asset allocation and weak balance sheet management. In a November economic newsletter released recently, its analysts noted that the woes in the industry are equally compounded by poor regulatory enforcement, weak corporate governance and risk management framework, as well as general inefficiencies. “The net effect of the financial condition of the industry is its poor return on Equity (ROE) of about 8.4 percent. With inflation averaging 15 percent and one-year Treasury Bill rates at about 18 percent, investors are losing in real returns and can earn higher returns on alternative risk-free assets,” they highlighted. This is despite the insurance industry controlling an investment portfolio of about N723 billion as at FYE2016, with about 60 percent of total investments in money market placements (bank placements and government securities). Specifically, they noted that 16 percent of the industry’s investments are in real estates that continue to record poor rental yields on account of poor location, poor state of the infrastructure and significant exposure to undeveloped land. “Unlocking the income potentials of these real estate investments alone could significantly impact the bottom line of the Nigerian Insurance Industry in the near term,” they opined. To this end Agusto & Co recommended industry recapitalisation through consolidation and foreign direct investments (FDIs). “The full implementation of the risk based capital framework, which simply measures capital adequacy in view of underwriting risks, should spur recapitalization in the near term,” they argued, adding that it could be positive for the industry by strengthening underwriting capacity, while fringe players may capitulate. The industry has undergone two major rounds of capitalisation in the last 15 years leading to a drop in number of operators to 49 from 103. Currently, the minimum capital requirement for life, non-life, composite and reinsurers are N2 billion, ₦3 billion, N5 billion and ₦10 billion respectively. At this level, it is clear that capitalization remains inadequate and a significant amount of risks are insured overseas as the capital base of most insurers cannot carry the risks of insuring assets in key sectors such as oil & gas and aviation. This has led to the consortia of insurance companies pooling funds together to underwrite significantly large risks. “In our view, there could be major consolidations within the Nigerian Insurance Industry, driven by recapitalisation which would separate the wheat from the chaff,” they stressed. Tax seen major constraint on SMEs growth in Nigeria Business a.m. NIGERIA’S current rules for taxation, which subject profitmaking companies to multiple taxations in their first three years of commencement, are increasing the risk of failures of small and medium enterprises, according to Ani Chizoba, manager tax & regulatory services at Deloitte & Touche In an article “Tax policy on SMEs in Nigeria – How fair?” published in Deloitte’s newsletter, December 4, 2017, Ani argued that the exemption of companies with at least 25 percent imported equity from minimum tax is discriminatory to Nigerian owned businesses. “More notably, it discourages investment and increases the risk of failure for companies in periods of little or no profitability in the case of SMEs. In the same vein, a good number of SMEs are not able to adequately benefit from tax incentives due to the small size of their operations,” she stated. Ani, maintained that small and medium enterprises (SMEs) are the bedrock of the Nigerian economy and there is need to create a favourable business and regulatory environment for them to thrive. “In order for SMEs to thrive, there is need to create a favourable business and regulatory environment. Most large companies have their roots in SMEs. In other words, the future large corporations in developing countries like Nigeria are present day SMEs that need to be nurtured.” She noted that the absence of harmonized tax regime increases the strain on cash flow and other limited resources of SMEs when compared to large corporations. “In Nigeria, SMEs are subjected to multiple taxes by the different tiers of government, each with its own rigorous process and significant compliance cost. “Considering the size of their operations, the absence of harmonized tax regime increases the strain on cash flow and other limited resources of SMEs when compared to large corporations,” she pointed out, adding that SMEs are also regulated by several government agencies; thereby leading to significant regulatory compliance cost, which in most cases are duplicated. She however highlighted that though, there are numerous incentives and support facilities available to SMEs in Nigeria (e.g. the Federal Government Special Intervention Fund for MSMEs, Bank of Industry and the Central Bank of Nigeria’s Intervention Fund, etc.), access by SMEs to such incentives and facilities seems to have been hampered by bottlenecks. She also maintain that lack of awareness of these government funds and ab- Page 14
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