Blue Chip Journal - June 2019 edition

Issue 72 • June/July 2019 

www.bluechipjournal.co.za 

The South African Journal of Financial Planning 

Outcome-based investing 

Momentum Investments CEO Jeanette Marais 

on the revolutionary philosophy

THE POWER OF 

PERSPECTIVE 

From the ground, the Nazca lines of Peru look like nothing more than ordinary 

markings in the desert sand. It’s only from the air that these ancient masterpieces 

are revealed. 

At Obsidian Capital, we believe that when you view things from a different angle, 

you can uncover the extraordinary. Our holistic approach to investing allows us 

to recognise unique opportunities, delivering ten years of consistent returns for 

our valued clients. 

Discover how you can benefit from our multi-asset hedge fund strategies. 

Contact us at operations@obsidiancapital.co.za 

Obsidian Capital is an authorised financial services provider.

CONTENTS 

7 ON THE MONEY 

The latest happenings in financial services 

12 INVESTED FOR THE LONG RUN 

What outcome-based investing means for investors 

18 FINANCIAL PLANNING FOR ALL 

New FPI CEO has big plans 

20 A YEAR OF LEARNING 

Rewarding career 

opportunities 

to make a 

difference 

Are you target-driven, 

goal-oriented and want to 

determine your own income? 

Then read on… 

Janet Hugo reflects on her term as Financial Planner of the Year 2018 

22 BLUE SKIES AND SUNSHINE 

Momentum Financial Planning (MFP) is a provider of financial services in South Africa. We provide career 

opportunities, with a competitive remuneration model, for financial planners at any stage of their careers. 

In line with an endeavour to become the most competitive, accountable and professional in-house 

financial advice business in South Africa, MFP is looking to expand its financial planner force. 

We are looking for passionate individuals who believe in themselves, and who want to partner with us on 

their journey to success. 

Not yet qualified? We provide you with the expert knowledge and professional skills you will need and 

support you to obtain the Certified Financial Planner® (CFP) qualification. 

We are a purpose-driven organisation; our behaviour and choices centre round our conviction: showing 

up to positively impact your success, because we care. 

Join the growing family of Momentum financial planners, who believe in the value that financial planning 

and advice adds to people’s lives, today. Send your CV to mfpintouch@momentum.co.za. 

Momentum is a division of MMI Group Ltd, an authorised financial services and credit provider. 

FSP6406. Terms and conditions apply. 

Mauritius maintains appeal for investment managers focused on Africa 

24 BETTING ON RED 

Weighing up China as an investment destination 

Achieving a fulfilling and rewarding life is a journey. 

Every individual’s journey is unique, with different 

highlights and challenges along the way. Having a 

vision and setting goals will place the destination 

within reach, but a well-designed plan for the 

challenges that life throws, will get you there. 

Momentum Investments is a division of MMI Group Limited, an authorised financial services (FSP6406) and registered credit (NCRCP173) provider. 

The South African Journal of Financial Planning 

Outcome-based investing 

Momentum Investments CEO Jeanette Marais 

on the revolutionary philosophy 

Issue 72 

June / July 2019 

Issue 72 • June/July 2019 


27 SETTING A PRECEDENT 

Shareholder activism on climate change and other ESG risks starting to 

gather steam 

28 NO DILEMMA 

Blending passive and active investing 

30 FUTURE VALUE 

ESG increasingly informs investment decisions 

ISSN 1682-8666 

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32 FACING THE BOUTIQUE FEAR 

Building a sense of community is key 

33 PEOPLE'S CHOICE 

Open-access investment with Satrix 

36 SMOKE AND MIRRORS 

Some tough questions for the retirement fund industry 

40 IN IT FOR THE LONG RUN 

The life right model may be the right choice for retirement 

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41 THE HIDDEN COST OF RETIREMENT 

Understanding fees is key to better performance 

56 UNDOING PERVERSE INCENTIVES 

Picking the right insurance for your client 

42 HUSTLE ON THE SIDE 

What if our focus is wrong in our efforts to solve the retirement gap? 

46 BREAKING BAD 

Gerald Mamfunda battled poverty, bedbugs and bandits to found a thriving 

financial services company 

58 CLARIFYING VALUE 

Negotiating the shifting landscape of fees for 

financial advice 

60 WHO DARES, WINS 

The call for courageous conversations with clients 

48 HOW BEHAVIOURAL FINANCE CREATED A COMMUNITY 

Humans Under Management – South Africa 2019 

62 NO, NO, AND NO 

Advocating a new mindset for financial advisors 

52 MEETING THE CHALLENGE OF INVESTOR BEHAVIOUR 

Research shows investments outperform investors 

64 FOR A BETTER RETIREMENT 

Spend the income, not the capital

Actual 

investors 

think in 

decades. 

Not quarters. 

SEARCH FOR ACTUAL INVESTORS

Actual 

investors 

look to 

the future. 

Not the past. 

SEARCH FOR ACTUAL INVESTORS

FOREWORD 

A new direction for the FPI 

Greetings! For those of you who don’t know me, I’ve just taken over as the new full-time 

CEO of the FPI. (Ed: Read our profile of Lelané on page 18 to get to know her better.) 

Fresh off the plane from a convention in Washington, I’m now sinking my teeth into 

the exciting challenge of steering the financial planning profession into the future. 

With your help, of course… 

Conventions and awards 

Our first port of call is the upcoming FPI Convention on 17 and 18 July in Sandton – our 30th 

annual gathering! The convention is a fantastic opportunity for industry professionals to grow 

both their networks and their skillsets (the lineup of international and local speakers is out of the 

very top drawer). For me, it is also a timely chance for us all to take stock of the FPI’s strengths and 

challenges and to build on the progress made in the past 12 months to forge a new and fruitful 

direction for the Institute. 

In the lead-up to the convention, we have the daunting task of choosing our Financial Planner 

of the Year from what has been an especially stellar batch of applicants. We are currently in the 

process of whittling the field down to three finalists (not easy!) whose practices we will visit for 

on-the-ground evaluations of their business and financial planning processes. From these three 

finalists, there can be only one winner – you’ll have to wait until the glitzy gala dinner on 17 July 

to find out who it is. 

Nuts and bolts 

There are also plenty of other matters to address. For the sake of our members, we’ve updated our 

CPD cycle to run from 1 June to 31 May annually. This will assist members who are also licensed 

under FAIS to file all their CPD documentation at the same time. It is important though to note that 

the recent FSCA exemption from CPD requirements (FSCA FAIS Notice 40 of 2019) does not apply 

to FPI members. Members must still comply with the 35 CPD hour requirement by 31 May 2019. 

4 www.bluechipjournal.co.za

FOREWORD 

We’ve also made the decision to update – rather than phase out – the RFP designation. In order to 

protect the terms “financial planner” and “financial planning”, we changed the significance of the RFP 

SAQA-registered designation from Registered Financial Planner to Registered Financial Practitioner. 

This will enable us to reserve the term “financial planner” for individuals who have put in the time and 

effort to achieve the esteemed CFP® professional status, while at the same time allowing us to grow 

the industry and penetrate new markets where the underlying qualification does not need to be on 

an NQF 8 level. The RFP designation also serves as a learning pathway towards FSA certification and 

ultimately CFP® certification. 

What’s more, we’ve introduced a new “Affiliate” membership category aimed at non-members who 

elect to complete their CPD hours using our very own Centre for Professional Development. There is no 

membership fee over and above the cost of the CPD activities. Affiliates merely have to sign an ethics 

declaration and ensure they acquire 20 CDP points annually. 

This new category provides an elegant and affordable solution for FSPs that don’t have the staff/ 

facilities to manage in-house CPD training for their Key Individuals and Representatives. Such companies 

can rely on our well-established CPD policy, procedures and Code of Ethics and Practice Standards to 

ensure that all of their Key Individuals and Representatives are objectively certified against our industryleading 

benchmarks. In addition, affiliate membership also offers a foolproof road-map for newcomers 

who are working towards full, professional membership of the FPI. 

Better together 

The FPI is all about serving both its members and the wider financial planning community and its consumers 

– and this starts with listening to their concerns. In the months and weeks ahead I plan to speak 

to as many people as I possibly can. I know I’ll see many of you at the convention (please come over and 

introduce yourself), but I’d also love to hear what you’ve got to say before then. My door is always open. 

Lelané Bezuidenhout, CEO, FPI 


5

ED'S NOTE 

Change and transformation 

are the order of the day at 

present, nowhere more 

than in the financial 

services industry. To begin with, 

the FPI has begun a new chapter 

in its existence, with an exciting 

new mixture of vision and purpose, 

as detailed by new CEO Lelané 

Bezuidenhout in the Foreword to this 

issue and further elaborated on in an 

introductory article on page 18. We 

Perspectives on 

transformation 

welcome Ms Bezuidenhout and wish her every success in 

this important venture. 

Retirement is one of life's biggest changes, and it falls 

to the financial advisor to help their clients prepare 

for this stage of their lives as best they can. Naturally, 

quite apart from the emotional and mental considerations 

implicit in this transformation, adequate 

retirement capital is essential if the desired retirement 

lifestyle is to be achieved. Financial planners 

have to do their homework and ensure that this capital 

is not reduced by fees and other hidden costs 

that can be avoided. A number of perspectives on 

this aspect of financial planning are contained in this 

issue, including an examination of issues around fees. 

When it comes to personal development, it seems 

that more and more professionals are realising that the 

process of transformation begins internally, not only for 

themselves but also for their clients. We hope you enjoy 

the inspirational testimony and insights shared by our 

professional contributors in this issue. 

Editor: Greg Penfold 

Art Director: Brent Meder 

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Chris Whales, Global Africa Network 

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CAPE MEDIA CORPORATION 

Managing Director: Robert Arendse 

Financial Director: Andrew Brading 

Laurium Balanced 

Prescient Fund 

3 YEARS OF STAYING AHEAD 

NO MATTER THE TERRAIN 

Launched 9 December 2015, the fund is ranked 1/148 in the 

South African Multi-Asset High Equity Sector with a return 

of 10.95% p.a. (annualised) over 3 years to 30 April 2019 (net 

of fees). This is 6.2% p.a. (annualised) ahead of the average 

fund in the same sector! 

Visit www.lauriumcapital.com today. 

Cumulative Performance 

Balanced Fund since inception vs. SA Multi-Asset High Equity. Investment Growth Time 

Period 2015/12/09 (inception date of fund) to 2019/04/30 

We know Investments 

T +27 11 263 7700 

E laurium@lauriumcapital.com 

www.lauriumcapital.com 

Source: Morningstar 2019/04/30 

Annualised performance shows longer term performance rescaled to a 1-year period. Annualised performance is the 

average return per year over the period. Actual annual figures are available to the investor on request. Collective Investment 

Schemes (CIS) should be considered as medium to long-term investments. The value of your investment may go up and 

as well as down as past performance is not necessarily a guide to future performance. CIS’s are traded at a ruling price 

and can engage in script lending and borrowing. Performance has been calculated on the A2 class using net NAV to NAV 

numbers with income reinvested. The performance of each period shown reflects the return for investors who have been 

fully invested for that period. Individual investor performance may differ as a result of initial fees, the actual investment 

date, the date of reinvestments and the dividend withholding tax. Highest rolling 1-year return since inception of 19.8%. 

Lowest rolling 1-year return since inception of -3.1%. A schedule of fees, charges and maximum commissions is available 

on request from the Manager. There is no guarantee in respect of the capital or returns in a portfolio. A CIS may be closed 

to new investors in order for it to be managed more efficiently in accordance with its mandate. Prescient Management 

Company (RF)(PTY) Ltd is registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002). 

Laurium Capital (Pty) Ltd, Registration number: 2007/026029/07 is an authorised Financial Services Provider (FSP34142) 

under the Financial Advisory and Intermediary Services Act (No.37 of 2002). For any additional information such as fund 

prices, brochure and application forms please go to www.lauriumcapital.com

On the money 

Making waves this quarter 

A reference of note 

Classic retirement fund handbook turns 25 

The Manual on SA Retirement Funds is celebrating 

its 25th year in the industry. This veritable tome of 

information comments on all the pieces of legislation 

that are relevant for an EB practitioner. With its panel of 

distinguished authors, the Manual is widely recognised 

as a leading reference work on employee benefits and 

its online format is ideally suited to this. Sanlam is to 

be applauded for making the Manual available free 

of charge, to Sanlam staff, intermediaries, retirement 

fund clients and members as well as to any persons who 

registered for the trustee and PO qualifications offered 

by Batseta. 

Holding firm 

Tradehold shows resilience in demanding markets 

In the year to February 2019, Tradehold, with property interests split 

between Southern Africa and the United Kingdom, made several farreaching 

structural and operational changes to the company to strengthen 

its balance sheet and tighten its focus. 

Its financial services division has been unbundled and listed 

separately on JSE’s AltX, making Tradehold exclusively a property 

company. 

Underscoring the new route, an unrelated party (ie I-Group 

Investments (Pty) Ltd) sought to invest R833m in Tradehold’s South 

African portfolio of mainly industrial buildings in exchange for a 25.7% 

shareholding in the Collins Group that was restructured post year end. 

The full transaction has since been finalised, valuing the restructured 

South African business at R2.4-bn. 

Tradehold joint CEO Friedrich Esterhuyse said the cash injection at the 

tangible net asset value of the Collins Group will be used to restructure 

the balance sheet by reducing gearing and restructuring debt under 

more favourable conditions, which should have a marked effect on the 

group’s future profitability and dividend prospects for shareholders. 

With the unbundling of the financial services division, the value of 

Tradehold’s total assets reached £859-m compared to £985-m in 2018 if 

financial services are excluded. Revenue came in at £96.4-m compared to 

£101.4-m the previous year. Total profit dropped to £13.3-m from £30.8-m. 

The decrease is mainly due to the net loss in the fair-value adjustment of 

its investment properties and related assets of £8.9-million, compared to a 

gain of £11.8 -million in the previous financial year and financial services net 

profit of £4-million in the previous year. Headline earnings per share was 

8 pence, up by 0.1 pence from 7.9 pence if financial services are excluded, 

and tangible net asset value per share was 123.7 pence / R22.97, compared 

to 132 pence / R21.48 if financial services are excluded.

On the money 


Impactful sessions with fund managers 

“Meet the Managers” adopting a new format 

The Collaborative 

Exchange will be 

running a series of 

“masterclass” conferences 

throughout 

South Africa in July 

2019 where 29 local 

and international 

fund managers will be 

present. 

The format is an 

impactful way for 

financial advisors to 

see eight of their chosen fund managers within the space of one 

day and earn CPD points for doing so. Meet the Managers is now 

in its third year of existence and has been attended by about 1300 

financial advisors last year at sessions in Johannesburg, Cape Town 

and Durban. 

Kevin Hinton, a Director of The Collaborative Exchange, says, 

“Meet the Managers provides an insightful platform for financial 

advisors who want to keep abreast of financial markets and the 

funds that they have invested their clients’ assets with.” 

Both large and emerging investment managers participate as 

well as domestic and international fund managers. So, advisors can 

ensure that they also get the opportunity to see new firms that are 

emerging. Hinton says, “We do this in an impactful way in ensuring 

that the sessions are small and intimate, and advisors can get 'up 

close and personal' with fund managers. It is widely accepted that 

the TED talk format is impactful, with short, concise and powerful 

sessions generally not longer than 18 minutes.” 

Marc du Plooy, the Managing Director of Wealth Associates and 

Chairperson of the Financial Intermediaries Association says, “You 

know what I like about 'Meet the Managers'? It is that you actually 

meet the managers! What better way to round out your perspective 

of economics, volatility, asset classes, portfolio construction than 

by listening to and engaging with a number of top-class managers 

in a series of intensive personal interactions. It allows you to really 

test your own understanding in the construct of your portfolios for 

your clients. Even if you are not currently using all those managers, 

it is incredibly valuable and insightful to listen to the views of other 

top-class industry professionals. It can only make you a better 

investment professional.” 

Not your ordinary balanced fund 

Protecting capital, growing wealth 

In a crowded and competitive market of 533 Balanced CIS Funds, 

representing R806-billion according to latest ASISA stats, how does 

one choose where to invest your hard-earned retirement savings? 

Clearly support for the “big four” high-equity balanced funds from 

the larger houses has been popular, given that they constitute 40% 

of the R806-billion in this category, and advisors have done well to 

select these funds for their clients, but often fall short when it comes 

to considering the correlation of the funds that they have chosen. Due 

to their significant size and the limited investment universe in South 

Africa, they are highly correlated. Advisors should consider mixing 

funds from boutique managers, to enhance the diversification and 

hence the risk-adjusted return profile for their clients. 

The perception that funds from boutique managers are riskier 

is a broad misconception. The graph below shows the drawdown 

of the Laurium Balanced Prescient Fund versus the largest highequity 

funds in the SA high-equity MA category. Clients invested 

in balanced funds are as concerned about protecting capital on 

the downside, as they are about growing their wealth in real terms. 

Drawdown 

Time Period: 2016/01/01 to 2019/05/31 

0.0 

-1.0 

-2.0 

-3.0 

-4.0 

-5.0 

-6.0 

-7.0 

-8.0 

-9.0 

-10.0 

-11.0 

-12.0 

Laurium Balanced Fund 

Manager C 

Source: Morningstar Direct 

2016/05 2016/11 2017/05 2017/11 2018/05 2018/11 2019/05 

(ASISA) South African MA High Equity 

Manager D 

Manager A 

Manager B 

Drawdown vs Largest Balanced Funds (since inception 9 December 

2016 to 30 April 2019) 

As you search for investment managers who have the potential to 

deliver real returns and alpha above their benchmarks, be sure to 

consider boutiques in your portfolio. 

Financial advisors that want to attend Meet the Managers should email 

info@meetthemanagers.co.za or visit www.meetthemanagers.co.za

The world is 

changing. 

Why have employee benefits 

stayed the same? 

Introducing the first ever 

needs-matched group risk cover, 

designed to meet the needs of a 

21st century workforce. 

BrightRock Life Ltd is an authorised financial services provider and registered insurer. Company registration no: 1996/014618/06, FSP 11643. Copyright © June 2019 BrightRock. All rights reserved. Terms and conditions apply.

On the money 


Licenced to excel 

Protea becomes an FSP 

Fairtree Asset Management and Protea 

Capital Management announced on 14 

June that, after an intensive nine-month 

process, the Financial Sector Conduct 

Authority has granted Protea its own 

Financial Service Provider (FSP) licence. 

The licence will enhance the 

independence of the Protea business 

and allow Protea to execute on its 

marketing plans and distribution 

initiatives regarding the awardwinning 

Protea range of hedge funds, 

under its own brand. The Protea range 

of hedge funds was launched over 

the past three years and comprises a 

South African Long/Short Hedge Fund, 

a Global Long/Short Hedge Fund and 

a Worldwide Flexible Hedge Fund. 

The South African fund, the Fairtree 

Protea Equity Long Short SNN Retail 

Hedge Fund, was the best-performing 

investment fund for 2018, out of all 

funds available to the general South 

African public, inclusive of long-only 

funds and hedge funds (according to 

Calling all financial advisors 

Investment Think Tank launches in your area 

data from Morningstar, ProfileData and 

HedgeNews Africa). 

Jean Pierre Verster, CEO of Protea, 

comments: “This is an exciting next 

step on our long-term wealth-creation 

journey. I am grateful for the faith 

that the public has placed in us by 

investing in the Protea range of hedge 

funds during a particularly difficult 

three years in investment markets. We 

are pleased with the strong returns 

that the funds have generated thus 

far and will continue to apply our 

‘quantamental’ investment process in 

a disciplined manner to maintain our 

edge.” 

Kobus Nel, CEO of Fairtree, comments: 

“We are delighted that we could 

support Jean Pierre and Protea Capital 

Management in obtaining its own 

FSP licence. This is a new season with 

wonderful opportunities for Jean Pierre 

and his team, and we have no doubt 

that they will continue to thrive and 

deliver market leading returns.” 

A new industry event is being launched by The Collaborative Exchange. The Investment 

Think Tank has been designed considering the needs of financial advisors in cities 

outside of Sandton, Cape Town and Durban.. The event is a combination of thoughtleadership 

and “Masterclass” principles. The event will also be eligible for CPD points/ 

hours and, subject to the approval of the FPI, is likely to attract six CPD points/hours. 

The dates for these events are as follows: 

• 30 July 2019 – The Roots Lifestyle Centre, Potchefstroom 

• 1 August 2019 – The Boardwalk Hotel and Conference Centre, Port Elizabeth 

• 5 August 2019 – Windmill Casino and Conference Centre, Bloemfontein 

• 7 August 2019 – Tsogo Sun Emnotweni Conference Centre, Nelspruit. 

Fund managers and DFMs (Discretionary Fund Managers) presenting include 

Ashburton, Analytics, ClucasGray, Coronation, Credo, Element, Glacier Invest, 

Laurium, Matrix, Morningstar, Obsidian, Prescient, Prudential, Rezco, Sentio, Stanlib, 

Sygnia, Tantalum and Truffle. 

www.investmentthinktank.co.za or email info@investmentthinktank.co.za 

Strategic moves 

Fuelling future growth 

STANLIB announced on 28 May a pipeline of strategic 

management moves in its investment team, marking 

the next phase of its performance enhancing drive to 

fuel future growth. 

Since the announcement of its performance 

drive in 2018 the group has achieved consolidation 

of its equity capabilities, bolstered its index 

capabilities and established its Credit Alternatives 

team. It has also implemented a much-needed 

rationalisation of STANLIB’s product range and 

significantly strengthened its leadership team, both 

key milestones for future growth. These efforts are 

already having an impact, as evidenced by a 41% 

increase in earnings for the 12 months to December 

2018, improved investment performance in core 

retail and institutional equity and balanced funds, 

and significant growth in external third party client 

cash inflows. 

The group announced a series of senior-level 

management changes that will take effect over the 

course of 2019, to strengthen the quality and depth 

of its investment teams. 

Commenting on the announcement, Giles 

Heeger, executive, Asset Management, said: “Over 

the past 18 months STANLIB has made meaningful 

progress to improve investment performance, but 

there is still work to be done. The bolstering of our 

investment teams is an important step in delivering 

on our strategy and will go a long way to support 

the execution on the next phase of growth for the 

business.”

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UNIT TRUSTS | INTERNATIONAL | RETIREMENT FUNDS 

Nedgroup Collective Investments (RF) Proprietary Limited is the company that is authorised in terms of the Collective Investment Schemes Control Act to administer the 

Nedgroup Investments unit trust portfolios. Unit trusts are generally medium to long term investments. The value of your investment may go down as well as up. Past performance 

is not necessarily a guide to future performance. Nedgroup Investments does not guarantee the performance of your investment and even if forecasts about the expected future 

performance are included you will carry the investment and market risk, which includes the possibility of losing capital. Unit trusts are traded at ruling prices and can engage in 

borrowing and scrip lending. Certain unit trust funds may be subject to currency fluctuations due to its international exposure. Nedgroup Investments has the right to close unit 

trust funds to new investors in order to manage it more efficiently. A schedule of fees and charges and details of our awards are available on request from Nedgroup Investments.

COVER PROFILE 

Invested for 

the long run 

What outcome-based investing 

means for investors 


COVER PROFILE 

It has been said that outcome-based 

investing (OBI) is analogous to 

one-day international (ODI) cricket, 

with returns and risks comparable to 

chasing runs and losing wickets. Under 

the ODI format, teams chasing a lower 

total of runs can pace themselves and 

knock the ball for ones, twos and the 

occasional four. When chasing a big 

target, however, teams have to take a 

riskier approach and try to hit the ball 

for six rather than play it safe. Similarly, 

while all investments carry some sort 

of risk, it is the higher investment risks 

that carry the larger potential returns. 

Whereas conventional investment 

strategies tend to focus on returns or on 

outperforming competitors, outcomebased 

investing (OBI) maximises clients’ 

chances of achieving their specific 

investment goals. Like a cricket team 

chasing a score, investors following 

the OBI philosophy know in advance 

what is required to attain a particular 

goal in a given timeline – when to 

pace themselves and when to go all 

in. Naturally, in OBI as in ODI, skill and 

experience make all the difference. Blue 

Chip spoke to Jeanette Marais, CEO of 

Momentum Investments and deputy 

CEO of MMI Holdings, to find out more 

about how Momentum has applied the 

OBI philosophy for almost a decade 

and how the lessons learned can help 

investors stay ahead of the game. 

What makes the outcome-based 

investing philosophy revolutionary in 

the investment management space? 

Momentum Investments pioneered 

outcome-based investing in South Africa. 

CIO Sonja Saunderson and her investment 

team took the well-adopted international 

best practice in investment management 

and successfully implemented it in 

the South African market in 2011. This 

journey took the team away from being 

a traditional multi-manager or single 

manager, and we took the best of both 

worlds into our investing philosophy. Our 

differentiator is not just how we think 

about portfolio construction but also how 

we then implement and execute it. It’s a 

difficult thing to copy and we now have a 

compelling track record. 

The departure point of the outcomebased 

investing philosophy is the client. 

When we understand a client’s needs, 

it helps to formulate the requirements 

and goals that the investment solution 

needs to deliver. It therefore starts with 

the end in mind and manages towards 

a predefined outcome, as opposed to 

short-term noise or short-term, lowconviction 

opportunities. 

How will the funds be managed 

differently to other funds with 

similar asset allocations? 

There is a defined set of tools and 

opportunities in the investment 

industry, so taking a snapshot of a fund 

or portfolio at a single point in time 

may make it appear indistinguishable 

from other funds. The real test and 

difference comes through over time; in 

a lower-yield environment, what actions 

do you take (we have increased our 

growth-orientated asset classes), and do 

you increase your exposure to unlisted 

investments (for example private equity, 

unlisted credit, property)? 

The benefit of managing the funds 

on a life balance sheet is that it gives 

clients the opportunity and ability to 

invest in asset classes that will deliver 

returns that are different from the usual 

equities, bonds and cash. Term-premium 

or illiquidity premiums can be harnessed 

in a much more effective way than what 

a traditional investment manager can 

achieve. 

How will the funds deliver more 

certainty than other funds? 

We construct funds with the outcome 

in mind. This means the starting point 

is already aligned to deliver on the 

predefined outcome. Every single 

investment decision we make along the 

way is with the outcome in mind. This 

ensures that we manage the risk relative 

to the outcome in the most optimal and 

effective way possible. 

The DNA of the investment team and 

our philosophy has remained largely 

unchanged for more than a decade. 

Clients and financial advisers can be 

confident about what to expect from 

the investment team. It also tells a good 

story, and maybe it’s the ultimate form 

of flattery that so many investment 

managers are now joining the chorus 

and becoming outcome-based or 

goal-based investment managers. The 

challenge though is that when you 

change your DNA, only time will tell 

whether you will be able to deliver consistent 

returns with a new philosophy 

and investment process. Our biggest 

challenge though has been to get an 

emotional connection with our clients 

to what they are buying and making 

sure they fully understand what outcome-based 

investing actually is. It’s 

not a 90-second conversation. 

What role does the media 

play in helping investors 

manage their emotions? 

The media has a critical role to play as 

a trusted source of perceived impartial 

and objective information. Importantly, 

while it may be tempting to focus on 

fads and narrow success stories, it is 

important to reiterate that investors 

need to first and foremost think about 

what they want to achieve, what success 

looks like for them and how much risk 

they are willing to take. Successful 

investors are patient investors who do 

not chop and change on impulse, but 

rather consider the consequences of 

their actions carefully. 

The media often thrives on 

negativity. This adds fuel to the fire 

in terms of the irrational behavioural 

biases and actions we so often see 

in humans. Creating that balance 

between reality, expectations and the 

requirement to have a financial adviser 

and remaining invested in a solution 

suitable for an investor’s outcome is a 

crucial strategy the media should use 

to help manage investor behaviour and 

emotions. 


13

COVER PROFILE 

Active or passive 

investing are tools 

in a toolkit that can 

address different 

needs and, in some 

instances, complement 

each other 

How should investors behave 

to gain more certainty? 

Avoid impulsiveness and buyers’ 

remorse, and don’t chase after the latest 

fad or success story. Once you commit 

to an investment, understand what you 

have invested in and allow enough time 

for your investment to deliver. 

How can you ensure that a 

financial adviser’s advice process 

is aligned with the outcomebased 

solutions you offer? 

This is a question with levels of grey. At 

best, we can influence advice by making 

sure financial advisers know what our 

products and funds entail, and we can 

empower them with tools. The greatest 

control we will have is with financial 

advisers who are most closely aligned 

with our business. Ultimately, the advice 

process happens in a closed room 

between the financial adviser and client. 

As a client, you need to listen carefully and 

apply a rationality test; does this make 

sense, is it realistic or just too good to be 

true (the ultimate walk-away question)? 

Our outcome-based solutions do, 

however, give the financial adviser the 

ability to choose funds that are more 

closely aligned to an investor’s needs. 

This in itself should ensure a closer 

alignment to the advice process. 

The importance 

of staying 

invested for 

the long run 

You mentioned 

the high 

probability 

of beating 

inflation over 

long periods. 

What can be 

done to direct 

clients’ attention 

to long-term 

rather than shortterm 

returns? 

Repeat the message, 

gain a client’s trust and be proactive 

and honest with good and bad news, 

opportunities and risks. Markets go 

up and down, and if there is too much 

focus on the short term, it becomes an 

emotional experience for clients, who 

will be overwhelmed by the noise. So, 

keep reinforcing the long term, and the 

successes attained. 

Stay invested, even if the market 

doesn’t seem to be offering the 

opportunities to deliver high inflationoutperforming 

returns. 

What are the main reasons that 

clients stop being invested? 

Apart from the practicalities of needing 

their money, it is often about losing trust 

and faith in the investment because their 

expectations are misaligned and the 

disappointment that naturally follows. In 

other words, irrational behavioural biases. 

How can technology be used to 

prevent clients from switching 

funds during a market correction? 

Sometimes just creating a pause for 

thought, allowing time for reflection and 

highlighting the consequence of your 

decision, can sway an investor. 

We can also use technology as a prewarning 

for irrational behaviour. We should 

communicate to clients during times when 

markets are tough. 

What responsibility do fund managers 

have to help clients behave better? 

They should be honest and create 

a clear context and expectation. To 

communicate on an ongoing basis 

what the client can expect, what has 

happened – good and bad – and what 

we are doing. Keep clients up to date 

with what is happening, and why. 

How can clients know how much 

volatility they are able to handle? 

We actually need to start by asking 

ourselves whether we are speaking a 

language clients understand. Volatility 

is a concept clients may battle to truly 

understand. We need to use a different 

language around risk and opportunity 

and how long clients can remain 

invested. 

Instead of talking about the investment 

horizon and what happens if there 

is a loss of capital, ask how much can a 

client bear to lose compared to the return 

he or she wants or needs. Everyone 

understands this and this will better 

align clients’ expectations, experience 

and portfolio returns. 

How important is financial 

literacy and investor education 

in managing client behaviour? 

It is crucial. If we cannot speak a common 

language, we cannot align our expectations. 

If we don’t understand each other, we'll end 

up disappointing each other. 

The role of a financial adviser 

in ensuring that clients 

achieve their goals 

How equipped is the average 

financial adviser to deliver a goalbased 

service to their clients? 

There are great financial advisers 

and some not so good ones, just like 

in any other field. We believe good 

financial advisers would already be 

focusing more on the needs and goals 

of their clients as part of providing a 

professional service and running a 

great practice. As such, we believe our 


solutions are well aligned to best practice in 

the financial adviser space. 

What are the skills that a financial 

adviser needs to put together a financial 

plan based on desired outcomes? 

The most important requirement is to effectively 

communicate what our solutions entail and what 

a client can expect. We truly believe the greatest 

value financial advisers can add is the time spent 

in front of their clients, understanding their needs 

and coaching them on the journey to success. We 

need to help financial advisers who support us to 

understand that. By using and understanding our 

solutions, we help them to free up their admin time 

to create the ability to deepen and enrich their 

client contact time. 

What skills do financial advisers need 

to be able to help clients stay the 

course to achieve their outcomes? 

Great financial advisers need to be truly driven 

by a passion to help their clients, a willingness 

to engage and be available. This needs to 

complement the real technical and product skills 

to create a holistic experience for clients. 

The statistics of financial advisers who are 

able to help clients remain invested are 

worryingly low. What can Momentum do to 

support financial advisers with this challenge? 

The best we can do is to empower financial advisers 

with information, support them in understanding 

our solutions and create opportunities for them 

to access and speak to us often. We are investing 

significantly to support financial advisers through 

boosting the knowledge base of our call centres, 

having more support staff available, reviewing our 

IT platforms and apps, and refreshing our fund 

fact sheets to convey information we believe is 

meaningful for clients and their financial advisers. 

To what extent do financial advisers 

themselves act emotionally 

when dealing with clients? 

We are all emotional creatures. Being and acting 

emotionally is natural. We need to guard against 

emotions that result in actions that can affect us 

negatively. To really make this change, we need to 

help foster trust in the system through a common 

understanding and set expectations that focus on 

what is realistic in the medium to longer term. 


15

COVER PROFILE 

Why outcome-based investing 

is easier than you think 

How should investors process the 

emotions that they feel during 

increased market uncertainty? 

They need to understand how their 

investments behave and know what is 

likely to happen before it happens. Equity 

markets are volatile and will lose capital 

from time to time. We have to inform 

clients that this will happen, making 

sure they know they can afford to lose 

capital in the short term, reassuring them 

they have enough time for markets to 

recover, and enforcing the message that 

the points of greatest risk often coincide 

with the best opportunities. This will give 

clients the confidence to remain invested 

even when the unexpected happens. 

Try to understand what drives 

uncertainty in the markets, as it is often a 

short-term phenomenon. Do some of your 

own research by understanding that it is 

better to remain calm and invested during 

uncertain times, and don’t look at your 

investment values on a day-to-day basis. 

Research showing that investor returns 

are lower than investment returns has 

been done frequently. What is likely 

to trigger an improvement now? 

Greater levels of knowledge and 

professionalism in the financial adviser 

space, together with better tools should 

align expectations more realistically. 

Unfortunately, this is not a silver bullet, 

and there will be many instances of clients 

being disappointed. Ultimately, clients 

need to exercise their choices and should 

choose their financial advisers carefully. 

Switches and cash flows often affect 

investor returns. Keep switches to a 

minimum and only switch if absolutely 

necessary or if the investment strategy 

changes. 

Most people don’t know what they 

want to do next year. How should 

they go about understanding 

their life-long goals? 

I think this is as a result of just not spending 

the time and effort thinking about the 

future and constructing stories of where 

and what they want to be. This is an 

opportunity for financial advisers to start 

conversations with their clients where they 

look at their dreams, needs and fears, and 

then systematically make this practical and 

achievable. 

Often we don’t understand our lifelong 

goals. What we do know is we want 

to retire comfortably and perhaps have 

enough money to travel and leave a 

legacy. This should already be enough 

to start a conversation and change the 

mindset of the investor to a longerterm 

view as opposed to short-term 

focus on risk. 

We manage all funds with the outcome 

as the focus. It’s not just a single outcome 

of inflation plus 5%, for example. It’s also 

about the experience the client has over 

time. It’s a fantastic story to tell and a 

great “aha” moment when the client 

finally gets it and fully understands the 

"what" and the "how". Once we reach that 

point, it is difficult to lose clients, and the 

whole conversation and type of language 

we use changes when we give feedback. 

Suddenly, clients understand that we 

don’t focus on our competitors but on 

the outcome and the experience. How 

we perform relative to our competitors 

is now a consequence, not the focus. We 

stand for keeping clients invested, using 

diversification and, in that 

process, making the journey 

comfortable. 

How does outcomebased 

investing align 

with active or passive 

investment management? 

We don’t believe it is an “or” 

but rather an “and”. Active 

or passive investing are 

tools in a toolkit that can 

address different needs 

and, in some instances, 

complement each other. Our 

funds generally use a blend 

of these approaches where it 

makes sense: passive for cost 

control, risk management 

and to get direct exposure 

to market movements, whereas active 

management opens up alternative 

sources of return, the potential to add 

outperformance relative to a market 

benchmark. 

The decision between active or 

passive investing or a combination 

is always approached from what the 

solution is targeting as a whole. Cost 

control is a driving factor, but so is 

risk and reward. Active strategies are 

used only where there is a clear value 

to be added from an outperformance 

perspective over time after costs have 

been deducted. The combination of 

active, passive and alternative passive 

strategies, for example smart beta, helps 

create robust outcomes over time. 

How can you be sure that financial 

advisers not only understand their 

clients’ goals but also have the 

expertise to choose the appropriate 

solution that will maximise the 

probability of achieving these goals? 

We try to help financial advisers through 

education and tools, support and 

contact sessions, even by growing our 

own tied-adviser force. However, this is 

not a silver bullet and clients need to 

be selective about which company and 

financial adviser they choose to partner 

with. 

Suddenly, clients 

understand that 

we focus on the 

outcome and the 

experience – how 

we do relative to 

our competitors is 

now a consequence, 

not the focus 


24 32 47 59 91 

85 78 63 51 

What are the chances of 

your clients achieving their 

investment goals? 

Assess if their investments are on track. 

Calculate their outcome-based investing score 

by scanning the QR code . 

Speak to your Momentum consultant to find out how outcome-based 

investing can help you and your clients achieve their goals. 

Momentum Investments is a division of MMI Group Limited, an authorised 

financial services (FSP6406) and registered credit (NCRCP173) provider.

FPI 

Financial 

planning for all 

The new FPI CEO has big plans 

Lelané Bezuidenhout, CFP® professional, was 

recently announced as the new CEO of the 

Financial Planning Institute of Southern 

Africa (FPI). The FPI is a Recognised 

South African Qualifications Authority (SAQA) 

Professional Body as well as the licensing authority 

for the CFP® marks in Southern Africa through an 

agreement with the Financial Planning Standards 

Board (FPSB). We spoke to her about trends in the 

industry and what she hopes to achieve for the 

Institute going forward. 

On 1 June 2019, Lelané Bezuidenhout assumed the 

role of Chief Executive Officer at the FPI. 

Bezuidenhout has 20 years’ experience in 

the financial services sector. She began her 

career at a major insurance company where she 

played various roles especially in the FAIS space. 

She then joined the FAIS Ombud and gained 

further expertise in this field. She steadily and 

systematically climbed the learning pathway 

and completed her Post-Graduate Diploma 


FPI 

in Financial Planning and became a 

CERTIFIED FINANCIAL PLANNER®. She’s a 

proud wife and mother of two boys aged 

23 and 17 and she loves nature, often 

volunteering at Rietvlei Nature Reserve 

outside Pretoria. 

While she respects the 40-year heritage 

of the FPI and the crucial role it plays, she 

acknowledges that the team needs to 

modernise the Institute, ensuring that it 

continues to set and uphold professional 

standards in an age of constant disruption 

and consumers questioning the value 

of financial planning versus automated 

advice. 

Financial planning for all 

Bezuidenhout’s first challenge and opportunity 

is to stabilise the FPI from the inside. 

The Institute had a bumpy 2018, with some 

enterprise risk management issues that 

had to be dealt with. The board recently 

adopted the King IV Code on Corporate 

Governance. Among other changes, the 

new code will bring about greater stakeholder 

inclusion in corporate decisionmaking 

– for better, more sustainable 

outcomes. 

A more personal challenge for 

Bezuidenhout is her desire to raise 

awareness about the value of financial 

planning. Ultimately, she hopes that 

financial planning subjects will become 

part of the high school curriculum, thereby 

bolstering the profile of the profession 

and making it an appealing career choice 

at an early age. 

Getting young people on board is 

non-negotiable: “Our membership base 

is ageing and lacking transformation,” 

she says. “It’s important that we focus our 

attention on younger professionals across 

all population groups in South Africa.” 

Indeed, the vision motto for the FPI is 

“financial planning for all”, as the Institute 

looks towards 2025 and beyond. 

Bezuidenhout adds: “We need to 

ensure that the CFP® curriculum and 

competency profile is updated to deal with 

the disruptive technologies of the Fourth 

Industrial Revolution. The human side of 

the financial planning and advice business 

is more important than ever – artificial 

intelligence doesn’t understand human 

psychology and emotion. At the same time, 

advisors need to stay up to date with the 

latest fintech solutions. We must not fear 

the unknown but embrace it to enhance 

our business offerings to our clients.” 

Professionalising the industry 

Some of the major changes to have 

occurred in the advisory space in recent 

years relate to compliance and legislation. 

With Bezuidenhout’s experience in these 

fields, she is well-placed to guide the FPI 

and its members in this space. 

“It feels as if we are stuck in the eye of 

a regulatory storm that has been hitting 

us since around 2002. There is a constant 

update of regulations from all sides, and it 

seems like it is never going to stop. But these 

changes are very necessary to ensure that 

full effect is given to Twin Peaks regulations 

and the recent circulated COFI Bill,” says 

Bezuidenhout. 

She continues, “The FPI has been and 

continues to be very involved in working 

streams at both National Treasury and the 

FSCA as part of consultation processes 

ensuring that these regulations focus on 

professionalising the financial services 

industry and furthering consumer 

protection and consumer education.” 

Barrier to entry 

Another issue that Bezuidenhout wishes 

to address is the perceived barrier to 

entry and access into the financial planning 

profession. “FPI has recognition of 

prior learning (RPL) mechanisms in place 

to ensure that access and entry into the 

financial planning profession is possible 

not only via the normal certification route, 

but also through our Challenge Status 

Examination route. 

“We recently reduced the number 

of years of relevant financial planning 

experience needed by candidates that 

hold any relevant NQF 8 qualification 

and who want to challenge the CFP® 

professional competency examination 

(PCE) from 10 years to five years. Should 

the candidate be found competent in the 

CFP® PCE, then he or she has access to 

apply for CFP® professional membership.” 

Candidates who wishes to obtain professional 

membership to the Institute via this 

route can apply for access to the upcoming 

CFP® PCE via www.fpi.co.za 

Protection of the term Financial 

Planning and Financial Planner 

There seems to be confusion in the consumer 

space with regards to who can 

call themselves a “financial planner”. “FPI 

is actively seeking to protect the term 

‘financial planning’ and ‘financial planner’ 

via legislation (refer to RDR proposals). 

We recently updated our RFP designation 

from Registered Financial Planner to 

Registered Financial Practitioner to ensure 

that the only designation that is relevant 

to Financial Planning and Financial 

Planner, is the internationally recognised 

CFP® professional designation and that 

the underlying qualification for a financial 

planner is pegged at an NQF 8 level,” says 

Bezuidenhout. 

Bezuidenhout ended by adding that 

she is very excited about what the future 

holds and that the FPI is here to serve 

its members and the professional, but 

cannot do this without the support of 

loyal and dedicated members. She invites 

all who want to provide comments on 

what they would like to see the FPI stop 

doing, continue doing and start doing 

by emailing her with your comments at 

CEO@fpi.co.za 

Lelané Bezuidenhout, CEO, FPI 


19

FPI 

A year of learning 

Janet Hugo reflects on her term as Financial Planner of the Year 2018 

I 

entered the Financial Planner of the Year 

competition for the first time in 2017, 

and to my surprise, I didn’t win! This was 

a humble reminder of how competitive 

the market is and how many excellent 

advisors there are in South Africa. The 

competition examines all areas of financial 

planning, practice management and 

compliance. It is pretty daunting opening 

up your practice and client files for review 

by both peers and academics to judge. 

I swallowed my pride and applied again 

in 2018 with renewed determination. I 

drafted the application from my daughter’s 

bedside in the ICU, after she’d been critically 

attacked on the campus of the University of 

Stellenbosch. We both 

had the resolve to win. 

During the 

process of the 2018 

competition, I learned 

the importance of 

establishing an insightful 

rapport with the panel of judges. I 

embraced their questioning and assisted 

them in "digging deeper" into the content 

of my financial planning proposal. I shared 

my knowledge with them and guided 

them to think differently instead of being 

threatened by their fire of questions. 

One of the most significant learnings 

has been how valuable the title of 

Financial Planner of the Year is. The 

win sets you apart from other advisors 

and assists you in gaining immediate 

credibility from others in the industry, the 

financial media, as well as from clients. It’s 

a prize and honour that will live with me 

throughout my career. The competition 

is by no means a popularity contest, nor 

a measure of the amount of financial 

planning business you do. I salute each 

of the previous 18 winners as industry 

leaders, aiming to achieve the best for 

their clients consistently. 

I’ve also learned how to deal with 

the media as I’ve been presented with 

many opportunities to publish articles, 

speak on the radio and present in 

Being Financial Planner of the Year 

is a prize and honour that will live 

with me throughout my career 

public. I’ve learnt to trust our public 

relations consultant to secure media 

space and assist in drafting the 

many financial planning messages I 

wanted to relay. I’ve become a more 

accomplished public presenter as I’ve 

had more opportunity to practise, and 

I’m more confident knowing that I’ve 

been selected and endorsed by the 

Financial Planning Institute to be its 

representative. 

Most successful financial advisors are 

pedantic perfectionists as there’s no room 

for error when dealing with clients’ hardearned 

wealth – and this makes it difficult 

to delegate to others. Dealing with the 

media has been quite time-consuming, 

and I’ve had to learn to let go to a greater 

extent and rely on the detailed systems and 

excellent administrative team that we have 

at Sterling Private Wealth Group. 

I’ve also learned to say no to media 

opportunities when I need to manage 

pressing client requirements and 

important family commitments. 

Janet Hugo 


Establish yourself 

as a financial 

planning expert 

“USB gave me the extra edge 

“USB gave me the extra edge 

in providing my clients with 

in providing quality my clients 

financial with 

advice.” 

quality financial advice.” 

Michael Savva, Postgraduate Diploma 

Michael in 

Savva, Financial 

Postgraduate Planning alumnus 

Diploma 

in Financial Planning alumnus 

Providing quality financial advice 

Since 2005, USB’s Postgraduate Diploma in Financial Planning has laid the 

Since 2005, USB’s Postgraduate Diploma in Financial Planning has laid the 

foundation for several CERTIFIED FINANCIAL PLANNER®s. We are therefore geared 

foundation for several CERTIFIED FINANCIAL PLANNER®s. We are therefore geared 

towards creating a transformative student journey tailored for your success. 

towards creating a transformative student journey tailored for your success. 

As a PGDip in Financial Planning student at USB, you benefit from extra student 

As a PGDip in Financial Planning student at USB, you benefit from extra student 

support, module specific workshops, peer to peer learning and sound preparation 

support, module 

for your FPI specific workshops, 

examination. You also peer 

have to peer 

access to learning and 

world-class sound 

facilities preparation 

such as our 

for your 

library FPI examination. 

(USBI) as well as You also 

exclusive have access 

contact with to world-class 

high-end facilities 

prospective such as our 

employers. 

library (USBI) as well as exclusive contact with high-end prospective employers. 

Michael gained the expertise 

WHERE WILL YOUR 

and 

Michael confidence 

gained to 

the help 

expertise 

his 

FINANCIAL 

WHERE WILL PLANNING 

YOUR 

clients 

and confidence succeed. 

to help his 

JOURNEY 

FINANCIAL TAKE 

PLANNING 

YOU? 

clients succeed. 

JOURNEY TAKE YOU? 

Keep learning. Keep striving. 

Keep learning. Keep striving. 

Keep discovering. 

Keep discovering. 

Contact us today: finplan@usb.ac.za | 021 918 4246 | www.usb.ac.za/pgdfinplan 

Contact us today: finplan@usb.ac.za | 021 918 4246 | www.usb.ac.za/pgdfinplan

JURISDICTION 

Blue skies and sunshine 

Mauritius maintains appeal for investment 

managers focused on Africa 

Not just the ultimate holiday 

stop, Mauritius is also a 

preferred jurisdiction for fund 

managers looking to establish 

African-focused funds. A scenic island 

off the coast of Africa, Mauritius' main 

competitive advantage is its proximity to 

the jurisdictions that African-focused funds 

invest in, but it is also business oriented 

and regulation friendly, with enviable tax 

efficiencies. It is known for the high quality 

of its administrative and professional service 

providers and is generally less expensive 

than competing fund administration hubs 

in Europe and the Channel Islands. 

Mauritius’ sunny appeal has recently come 

under attack for its low-tax regime and its 

challenge will be to avoid international 

censure while still remaining competitive. 

From our perspective, Mauritius remains 

a credible regime with a lot to offer those 

looking for a platform from which to invest 

into Africa. 

Some of the most pointed criticism 

of Mauritius has come from the United 

Nations and IMF. According to the United 

Nations, the low tax regime and wideranging 

tax treaty network of Mauritius 

is responsible for a USD 100-billion (R1.5- 

trillion) loss in revenue for developing 

countries. An IMF paper published in 2018 

found that African countries are likely to 

suffer a reduction in tax revenue when 

they sign tax treaties with headquarter 

regimes such as Mauritius. The IMF paper 

has, however, been critiqued for failing to 

assess the benefits of such tax treaties to 

African economies, particularly Mauritius' 

contribution to “Foreign Direct Investment” 

in Sub-Saharan Africa. The paper's findings 

were further criticised for relying upon 

outdated information and statistics and 

ignoring efforts by Mauritius to enhance 

its legal and regulatory frameworks for 

exchange of information and transparency 

in terms of international norms and 

standards, which it achieved through the 

incorporation of a Common Reporting 

Standard (CRS) platform focusing on 

Automatic Exchange of Information by the 

Mauritius Revenue Authority in July 2018. 

On the positive side, the following 

findings by international organisations have 

reinforced that Mauritius continues to be a 

credible jurisdiction: 

• On 21 August 2017, the Global Forum 

on Transparency and Exchange of 

Information for Tax Purposes published 

the outcomes of a new and enhanced 

peer review process assessing the 

compliance with international standards 

for the exchange of information on 

request between tax authorities and rated 

Mauritius as overall "Compliant"; 

• On 16 October 2018, the OECD removed 

Mauritius from the list of countries 

that offer residence and citizenship 

through investment schemes that could 

potentially be detrimental to the integrity 

of the CRS; 

• In November 2018, the OECD's Inclusive 

Framework on BEPS approved updates 

to the results of reviews of preferential 

tax regimes conducted in connection 

with BEPS Action 5. All Mauritius regimes 

previously determined to be harmful 

were cleared; and 

• In December 2018, the Dutch authorities 

published an updated list of low-tax 

jurisdictions flagged by the Dutch 

as being harmful in addition to the 

jurisdictions already blacklisted by the 

European Union. Mauritius did not 

appear on the list. 

These positive shifts in recognition can 

be attributed to various initiatives that 

Mauritius has implemented over the last 

few years in order to address its perceived 

harmful tax practices. The following changes 

to Mauritius' domestic laws are noteworthy: 

• From 1 January 2019, there shall be 

no Global Business Licence 1 or Global 

Business Licence 2 licences issued by 

the Financial Services Commission (FSC); 

instead there will be a single licensing 

regime known as the Global Business 

Licence (GBL). There is a grandfathering 

provision that allows previously licensed 

GBL1 and GBL2 entities incorporated on 

or before 16 October 2017 to operate 

under the previous licensing regime and 

to retain their tax status and benefits 

until 30 June 2021. This change is aimed 

at removing certain exceptions that 

were previously specific to GBL1 and 

GBL2 companies. Any person who is not 

a citizen of Mauritius may no longer do 

business outside of Mauritius through a 

Mauritian domestic resident corporation 

but will be obliged instead to have a GBL. 

• The FSC has introduced enhanced 

substance requirements for the 

GBL with effect from 1 January 

2019, pursuant to which 

a GBL holder (a GBC) 

22 

www.bluechipjournal.co.za

JURISDICTION 

Nicole Paige, Partner at Webber Wentzel 

must at all times carry out its core income 

generating activities in, or from, Mauritius 

by employing a reasonable number of 

suitably qualified persons to carry out the 

core activities; and have a minimum level 

of expenditure, which is proportionate 

to its level of activities. In determining 

compliance, the FSC will make each 

assessment on a case-by-case basis 

looking at the specific circumstances of 

the GBC. From the indicative guidelines, 

however, it can be assumed that a fund 

manager with USD 500-million (R5-billion) 

under management must employ a 

minimum of three suitably qualified 

people in its Mauritian office and have 

a minimum expenditure of USD 30 000 

(R450 000) per annum. With respect to 

licensees that are part of a group, the FSC 

will assess the new enhanced substance 

requirements at group level. 

• The deemed foreign tax credit mechanism 

has been discontinued. Unless specifically 

exempt or eligible for Partial Exemption, 

the foreign source income of each GBC 

(ie income not derived from Mauritius) 

will be taxable at the standard corporate 

tax rate of 15%. The Partial Exemption 

applies to specified financial services 

and, subject to compliance with the 

substance requirements above, operates 

to exempt 80% of foreign income derived 

by a collective investment scheme (CIS), 

closed-end fund, CIS Manager, CIS 

administrator, investment manager or 

asset manager licensed or approved by 

the FSC. 

The legislative safeguards which have been 

introduced into Mauritian law have certainly 

gone a long way in addressing Mauritius’ 

detractors. The challenge for Mauritius, 

however, will be to ensure that such 

legislative changes do not erode 

its competitiveness. 

Fund managers 

establishing their funds 

in Mauritius will need to 

Michael Denenga, Partner at Webber Wentzel 

bear in mind that any GBC must be centrally 

managed and controlled from Mauritius, 

with a minimum expenditure proportionate 

to its level of core generating activities and 

the minimum number of staff required 

to properly conduct such activities. The 

Mauritian Central Management and Control 

test is not aligned with the internationally 

understood test and fund managers 

will need to ensure that all 

indicative factors 

are taken into 

account. 


23

FOREIGN INVESTMENT 

Betting on red 

Weighing up China as an investment destination 



The rapid rise of the Chinese 

economy over the past 20 

years is quite remarkable. From 

being an economic backwater 

a generation ago, China has become a 

global powerhouse of manufacturing, 

largely thanks to its relatively lower wages 

and highly productive workforce. Despite 

this strong economic growth, however, 

most foreign investment in China has been 

through direct investment into physical 

assets, like factories and assembly plants, 

while financial investment into Chinese 

equity markets has been negligible. The 

reason for this is that a large segment of 

Chinese investment markets is closed to 

foreign investment, and the segments 

foreign investors can invest in are tightly 

regulated by the Chinese government. 

Global investors therefore approach 

investment opportunities in China with 

some scepticism. But many of these 

restrictions are being relaxed, and as 

China continues to grow the question has 

become whether it is becoming a more 

attractive investment destination. 

An investment-worthy destination 

should provide investors with strong 

growth prospects on their investments, a 

transparent and efficient market and the 

protection of property rights. Below we’ll 

consider some evidence regarding how 

China is satisfying these requirements. 

Positive demographic trends 

China has over 1.4-billion inhabitants, 

making it the most populous country on 

the planet. To put this into perspective, 

China’s population exceeds the secondmost 

populated country, India, by the entire 

population of Germany. This population 

is becoming increasingly mobile and 

participative in the Chinese economy. 

There has been rapid growth of the urban 

Chinese population over the last 10 years. 

About 800-million Chinese, or 57% of the 

population, currently live in urban areas, 

and another 350-million are expected to 

migrate to urban areas within the next 

20 years. Despite the national population 

growing relatively slowly, there is massive 

movement of people from poorer rural 

areas to richer, more dynamic urban areas. 

The education levels within the Chinese 

populace are also increasing, with the 

Chinese government spending over 

USD700-billion on education every year. 

Their investment is bearing fruit, whereas 

only one-million out of 160-million (0.63%) 

Chinese between the ages of 56 and 65 

years have graduated from university, 

around 26% of the millennial population 

(aged 25-35) have graduated. 

Chinese consumers are also getting 

richer. Where 17% of urban households 

were identified as being upper middle 

income or affluent with annual incomes 

of R230 000 or above in 2012, 63% of the 

population is expected to fall into these 

groups by 2022. The combination of a 

rapidly urbanising population, with higher 

levels of education and disposable income, 

suggests massive growth in demand for 

more sophisticated consumer goods and 

services, and for the companies that cater 

to these needs. 

Economic resilience 

The Chinese economy is the second 

largest in the world after the United States, 

generating about USD11.2-trillion in output 

every year, and has shown astounding 

resilience in its ability to grow at high 

rates despite its large size. Consider this: 

to generate growth rates of 6-7% today, 

the Chinese are adding the equivalent of 

the entire South African economy to their 

GDP1 every five months. One of the reasons 

they are able to achieve this is because they 

still lag developed nations on a relative per 

capita2 basis. While Chinese GDP per capita 

is growing around three times faster than 

US GDP per capita, Americans still generate 

around seven times as much economic 

output per person as the average Chinese 

every year. In fact, China is only now 

catching up to South Africa in terms of GDP 

per capita. 

Moving up the value chain 

Chinese products haven’t historically 

had a reputation for quality. Instead, 

China has typically been seen as more 

of an assembly plant of goods designed 

in developed nations and therefore an 

adopter of foreign technology rather 

than an innovator. This is changing, 

with Chinese manufacturers moving up 

the value chain and producing more 

advanced, higher-quality products. 

Evidence of this can be seen in the number 

of high-tech firms listed on Chinese stock 

exchanges. Some 60% of the firms listed 

on China’s second-largest exchange, the 

tech-heavy Shenzhen Stock Exchange, 

operate in high-technology industries. 

Of the 20 largest high-technology firms 

by market capitalisation in the world in 

2013, only three were Chinese. By 2018, 

this number had grown to eight. Chinese 

companies now spend more on research 

and development than all firms in the 

European Union combined. 

Market penetration 

Foreign ownership of capital is tightly 

controlled by the Chinese government, 

with the limits varying depending on the 

importance of an industry to national 

interests. Consequently, Chinese equities 

are divided into different share classes 

depending on where the shares are 

traded, and who can buy them. The two 

most common types of shares are A-shares 

and H-shares. A-shares are companies 


25


that are incorporated in China, listed on 

either the Shanghai or the Shenzhen stock 

exchanges and trade in RMB3. H-shares 

are incorporated in China but trade on 

the Hong Kong Stock Exchange in HKD4. 

Before 2003, A-shares were completely 

off limits to foreign investors, who were 

restricted to H-shares if they wanted to get 

Chinese exposure. 

Over the last few years there have been 

several changes to the benefit of investors 

seeking exposure to mainland China: 

• Firstly, the government relaxed 

regulations to make foreign ownership 

of A-shares less restrictive. Foreign 

ownership is still limited to 30% of a 

company’s shares, but restrictions on 

moving capital in and out of China have 

been relaxed. 

• Secondly, access to A-shares listed in 

Shanghai or Shenzhen can now be 

traded directly via brokers based in the 

city of Hong Kong. 

• Lastly, the MSCI5 started slowly 

including A-shares in its indices. This 

means that passive funds will need to 

start investing in A-shares in their aim 

of replicating the index. 

The obvious benefit of the Chinese mainland 

market opening up is the sheer range of 

opportunities available to investors. There 

are almost 3 400 A-shares trading on Chinese 

exchanges, in comparison to around 900 

H-shares that foreign investors traditionally 

had access to before. A-shares are also 

diversified over a broader range of business 

sectors, whereas H-shares are dominated 

by technology stocks like Tencent, which 

South African investors already have access 

to through Naspers. 

Property rights 

A risk that investors still worry about is 

that China remains a socialist state and 

that property rights aren’t protected. The 

argument that is used against this concern 

is that the Chinese government realises the 

need to open up their markets to foreign 

investment and that they are committed 

to becoming a global investment 

destination. As a result, the likelihood of 

foreign property being nationalised is low. 

These commitments can only be taken at 

face value and will depend on investors’ 

confidence that their property isn’t more 

at risk in China than it is in Brazil or Russia. 

China is expected to generate over 35% of 

total global growth over the next few years. 

The country has an enormous population, 

which is increasingly participating in the 

economy, becoming richer and more 

educated in the process. Arguably, the 

country is now on a more sustainable 

growth trajectory that is supported by 

stronger domestic consumption and highvalue 

manufacturing, in contrast to the 

export-led low-margin manufacturing they 

Ian Jones, CEO, Fundhouse 

were dependent on before. The market is 

opening up to foreign investment which 

should facilitate a more efficient investment 

environment going forward. There are 

country-specific risks that investors have 

to consider, as with all foreign investments. 

But, in terms of China growing as a global 

investment destination, my money is on 

red. 

1. Gross domestic product, which is a 

measure of the value all the goods and 

services produced in a country in a year 

2. Per person 

3. Renmimbi is the Chinese currency 

4. Hong Kong Dollar 

5. MSCI creates global investable indices to 

benchmark performance against 

26 


ESG 

Setting a precedent 

Shareholder activism on climate change and other ESG 

risks is starting to gather steam, says Jon Duncan. 

South Africa recently saw its 

first-ever climate-risk-related 

resolutions tabled at a listed 

company AGM, when Standard 

Bank Annual General Meeting (AGM) 

allowed a resolution calling on the bank 

to prepare a report on its exposure to 

climate risk in its lending, financing and 

investment activities, as well as a second 

resolution calling on the company to adopt 

and publicly disclose a coal power and 

mining lending policy. These resolutions 

are a significant step forward in local 

shareholder activism on climate change. 

While the majority of shareholders 

voted against the first resolution (62%), 

the second resolution received the 

support of 55% of the shareholders and 

is therefore binding on the company. 

The move may have set a new precedent 

and the industry can expect to see more 

shareholder resolutions and activism of 

this kind this year, as well as on other 

environmental, social and governance 

(ESG) related issues. 

The Standard Bank resolutions 

indicate that ESG issues will increasingly 

be showing up on the corporate agenda. 

The fact that climate risks were raised 

at a large corporate’s AGM shows that 

stakeholders and shareholders alike 

recognise that the risk associated with 

transitioning business models to align 

with a two-degree Celsius future are 

material. 

Jon Duncan, Head of Responsible 

Investment at Old Mutual Investment Group 

More than 800 000 homes 

powered by renewable energy. 

Reducing total carbon emissions by 

3 052 638 tons (equal to greenhouse 

gases from 587 963 cars driven for 

a year). 

WHO DO YOUR INVESTMENT 

DECISIONS ENRICH? 

Our investors want their investments to do well and do good. That’s why 

we incorporate environmental, social and governance factors into all our 

investment and ownership decisions. And why we have committed over 

R122bn of our clients’ capital to sustainable investments that generate 

long-term returns, while solving some of society’s biggest challenges. 

Invest for a future that matters. Read more at oldmutualinvest.com 

INVESTMENT GROUP 

DO GREAT THINGS EVERY DAY 

119939L 

The following entities are licensed Financial Services Providers (FSPs) within Old Mutual Investment Group (Pty) Ltd Holdings approved by the Financial Sector Conduct Authority (www.fsca.co.za) to provide advisory 

and/or intermediary services in terms of the Financial Advisory and Intermediary Services Act 37 of 2002. These entities are wholly owned subsidiaries of Old Mutual Investment Group Holdings (Pty) Ltd and are 

members of the Old Mutual Investment Group. Old Mutual Investment Group (Pty) Ltd (Reg No 1993/003023/07), FSP No:604. | Old Mutual Alternative Investments (Pty) Ltd (Reg No 2013/113833/07), FSP No:45255. | 

African Infrastructure Investment Managers (Pty) Ltd (Reg No 2005/028675/07), FSP No:4307. | Futuregrowth Asset Management (Pty) Ltd (Reg No 1996/18222/07), FSP No:520. Figures as at 31 December 2018 unless 

otherwise stated. Sources: Old Mutual Alternative Investments; African Infrastructure Investment Managers (AIIM); Old Mutual Specialised Finance; Futuregrowth Asset Management.

PPS BALANCED INDEX TRACKER FUND 

Blending passive 

and active investing 

Adopting a balanced approach 

When making decisions 

about active and passive 

investments, it is important 

to know the difference 

between the two. 

An active approach aims to find opportunities 

to outperform the market. Skilled portfolio 

managers gather, analyse and interpret 

data and select companies they believe are 

likely to beat a predetermined benchmark. 

Asset managers rely on extensive research, 

professional judgement and industry 

experience to actively buy, hold and sell 

securities in seeking to generate alpha 

(returns in excess of a market index). The 

downside of the active approach is that 

many managers find it difficult to deliver 

on this objective consistently. 

A passive approach involves investing in 

baskets of securities that replicate a market 

index or benchmark (also referred to as an 

“index tracker” and Exchange Traded Fund 

(ETF), instead of trying to outperform the 

market. In other words, an index tracker 

seeks to match market returns as closely as 

possible. 

Passive investments are generally more 

cost-effective, due to simpler administrative 

requirements resulting in lower transaction 

fees and a saving on research costs. 

Why choose when you can 

combine the two 

The active versus passive conversation has 

had very strong arguments on both ends of 

the spectrum. Despite all the great thinkers 

contributing to the debate, the answer is not 

active or passive: it’s both. 

A strategic blend of active and passive 

allows a more holistic approach. Combining 

them decreases dependency on the market 

cycle. In addition, using passive investments 

in active portfolios reduces costs. 

In the current economic climate, many 

will seek the most cost-effective opportunity 

and weigh up the pros and cons before 

choosing a product or service. Similarly, as 

an investor, you may also be increasingly 

more fee-conscious when considering an 

investment. 

Aligned to government’s ongoing 

retirement reform, fee and cost structures 

within investments are now clearer and 

more standardised across investment 

service providers. Initiatives such as the 

Effective Annual Costs (EAC) standard, 

introduced in 2017, enable investors to 

compare the fees and costs of investment 

solutions from various service providers. 

The most recent change became effective 

from 1 March 2019, compelling all service 

providers and retirement funds to comply 

with the standard on retirement savings 

cost disclosures. Both standards endorse full 

disclosure of costs levied by administrators, 

advisors and asset managers. This level 

of disclosure empowers and educates 

investors on their investment choices in the 

pursuit of wealth creation. 

The below example blends the PPS 

Balanced Index Tracker Fund (A2 class) 

with three of the most popular retail 

funds of the last year based on ASISA retail 

2017, enable investors to compare the fees and costs of investment solutions from 

flows. 

various service 

The 

providers. 

table 

The most 

illustrates 

recent change became effective 

the 

from 

reduction 

1 st March 

2019, compelling all service providers and retirement funds to comply with the 

standard on retirement savings cost disclosures. Both standards endorse full 

in 

disclosure 

fee 

of 

that 

costs levied 

the 

by administrators, 

client 

advisers 

experiences 

and asset managers. This 

when 

level 

of disclosure empowers and educates investors on their investment choices in the 

introducing pursuit of wealth creation. a passive fund to an existing 

active 

The below example 

portfolio. 

blends the PPS Balanced Index Tracker Fund (A2 class) with three 

of the most popular retail funds of the last year based on ASISA retail flows. The 

table illustrates the reduction in fee that the client experiences when introducing a 

passive fund to an existing active portfolio. 

Fund 

TIC 

Active Manager 

(no passive) 

Fund A 2.10% 33.33% 25.00% 

Fund B 1.10% 33.33% 25.00% 

Fund C 1.53% 33.33% 25.00% 

PPS Balanced Index 

Tracker A2 

0.80% 0.00% 25.00% 

Estimated TIC* 1.58% 1.38% 

Blended portfolio 

*TIC consists of the Total Expense Ratio (TER) and the Transaction Costs (TC) 

We recommend consulting a financial adviser before making any investment 

decisions. 

*TIC consists of the Total Expense Ratio 

PPS Balanced Index Tracker Fund 

(TER) and the Transaction Costs (TC) 

The PPS Balanced Index Tracker Fund is a passive multi-asset high equity option for 

long-term investors, based on the carefully constructed PPS Balanced Index. There 

will be times when the PPS Balanced Index will underperform active managers, but 

Hayley Brown, Executive: 

Business Development at PPS 

Investments 

PPS Balanced Index Tracker Fund 

The PPS Balanced Index Tracker Fund is 

a passive multi-asset high equity option 

for long-term investors, based on the 

carefully constructed PPS Balanced Index. 

There will be times when the PPS Balanced 

Index will underperform active managers, 

but we believe a portfolio tracking this 

index will provide a useful diversification 

for investors seeking to combine active 

managers with a core tracking portfolio in 

the solutions they construct. The portfolio 

has been constructed as an appropriate 

Regulation 28-compliant solution for 

South African investors saving for their 

retirement. 

The PPS Balanced Index Tracker Fund 

has grown to over R500-million, and the 

increased scale has allowed us to reduce 

the management fee to 40 basis points 

(bps). As a result, the total investment 

cost (TIC) is expected to drop from the 

current 80 bps to around 65 bps. 

We recommend consulting a financial 

advisor before making any investment 

decisions. 


HEDGE FUNDS 

Future value 

ESG increasingly informs investment decisions 

Hedge fund superstar Robert 

Charles Gibbins is the founder 

and chief investment officer of 

Autonomy Capital, a New York 

City hedge fund with $5.5-billion (R82- 

billion) in AUM that has been called "one 

of the top-performing hedge funds of 

2018", returning an annualised 12.85% 

net of fees since its inception in November 

2003, as opposed to 8.9% for the S&P 500 

index. His investment philosophy is to bet 

large on global economic and political 

trends. The latest of these trends is climate 

change. 

According to a Forbes report, Gibbins 

believes that climate change must be 

factored into “every single analysis, every 

investment”. Climate change has been 

happening for some time and will continue 

rapidly. He is betting that the global future 

is going to be “overheated and underwater” 

in which carbon sequestration will be a 

costly and necessary process. European 

carbon-futures contracts have already 

proven a lucrative speculation. 

For Gibbins, rising sea levels and 

soaring temperatures will only exacerbate 

economic instability, which is why he 

recently shorted Turkey and South 

Africa, viewing Erdogan and the ANC as 

completely inept. Argentina presents 

a different case: Gibbins believes that 

10 years of failure have turned people 

against economic populism, so he’s going 

long, expecting sensible, pragmatic policy 

choices to follow the next election. 

These calls are made on the basis 

of meetings “with local bureaucrats, 

journalists and business executives to 

gauge how decisions are made and 

how well local institutions function and 

whether they can handle chal lenges like 

climate change”. 

In terms of individual stocks, Gibbins 

believes that because much of the business 

of property insurers “is writing coverage 

for short periods”, they will have the 

ability to reprice in order to adapt to claims 

from weather-related damages; REITs, on 

the other hand, are risky. Gibbins also 

predicts that the USA will ultimately see 

the light, enter a deal with Europe to limit 

carbon emissions globally and penalise the 

non-compliant countries – which would 

put big oil stocks at risk and render “oil-addicted 

nations” vulnerable. 

Climate change, of course, is much 

more than an investment risk – it’s a 

global existential threat that implicates 

every living human being. For this reason, 

among others, institutional investors are 

favouring investment funds and strategies 

emphasing good governance and socially 

responsible business practices – factors 

that, historically, have not been of particular 

interest in an industry characterised by 

shorter-term and aggressive bets. However, 

this is starting to change. 

Bloomberg reports that 30% of 

hedge funds are already relying on 

environmental, social and governance 

(ESG) considerations to inform investment 

decisions. Hedge fund investors are 

starting to ask more detailed questions 

about climate change; hedge fund 

managers are having to puzzle out 

how to incorporate sustainable, ethical 

investment practices into their trades. 

So-called activist funds are already used 

to taking “longer-term bets in a relatively 

concentrated number of companies”, 

are adding ESG research to the mix, 

with ValueAct Capital Management, for 

example, launching a fund “focusing on 

social and environmental investments” and 

Trian Fund Management pledging to back 

ESG issues. 

The tipping point, according to Blue 

Harbour Group’s Clifton S. Robbins, is 

simply that investors are starting to care 

about ESG – presumably because it impacts 

on the sustainability of their personal existences 

going forward. ESG is also an increasingly 

important factor in how future investors 

value companies. 

Blue Harbour’s latest report details 

how the firm has urged companies to 

add wellness programmes, increase 

diversity and reduce emissions. The firm 

assesses companies against a 20-page ESG 

diagnostic questionnaire and incorporates 

the results into investment strategies. 

Still, of 250 managers representing 

funds with a combined total $1.3-trillion 

(R19.5-trillion) of assets under management 

surveyed by JPMorgan Chase & Co.’s capital 

advisory group, only 23% believe that 

ESG strategies policies will help them 

outperform. At the same time, more than 

60% of the same managers report that 

“investors are asking about ESG as part of 

their operational due diligence, a proportion 

that rises to 75% for managers based in 

Europe, the Middle East and Africa”. 

Fund managers would be well advised to 

listen to their investors’ concerns – not just for 

the sake of keeping them sweet, but because 

it’s the right thing to do. In the words of David 

le Page, writing for The Daily Maverick: 

“The most fundamental infrastructure 

for any economy is a stable climate, clean 

air, clean water, and healthy well-fed, welleducated 

people in safe communities. But 

many of the industries and companies 

that are supposedly the backbone of our 

economy systematically undermine this 

basic infrastructure. 

“Eskom and Sasol and other coalintensive 

companies, for example, are 

engaged in mass human rights violations, 

aided and abetted by government and an 


HEDGE FUNDS 

asset management industry blinkered by 

short-term incentives. 

“Consider, for example, Sasol, in which 

most investing South Africans have shares. 

For annual revenues of about R25-billion, 

Sasol is willing to impose climate damages 

on society that, conservatively calculated, 

start at R45-billion – every year. Every Sasol 

shareholder who does not challenge this 

status quo effectively winks to an open 

scandal. The damage calculation excludes 

non-climate externalities. The government 

effectively declines to hold Sasol to account. 

“Climate change has already cost the 

economy 10% of GDP. Air pollution costs 

the equivalent of 6% of GDP annually. 

Corruption and crime cost at least 1.5% 

and 19% of GDP. All are deeply linked 

to what has been called extractivism. 

Our economy is not built on mining; it is 

stunted by mining. Yet our leaders insist 

again and again that economic value must 

be dug out of the ground. It’s a model that 

serves only elites.” 

Not only are investment strategies that 

either wittingly or unwittingly favour elites 

and flout ESG concerns reckless in the full 

sense of the word, but they are also a bad 

bet. In the end, the banker in this casino 

is the Earth itself, and as the record of 

previous mass-extinction events demonstrates 

all too clearly, this banker has no 

compunction in calling in all the cards. 


31

BOUTIQUES 

Facing the boutique fear 

Building a sense of community is key 

If you hang around boutique asset 

managers long enough, you’re bound 

to hear them bemoan a lack of growth 

in their assets under management 

given the returns they’ve generated. It 

is a legitimate gripe. Most left an institutional 

background to implement their 

respective investment philosophies with 

autonomy. There was risk involved in 

such a move. Jump forward a few years 

and many of these fund managers have 

very appealing track records. But many 

remain frustrated that their hard-won 

returns haven’t resulted in a commensurate 

growth of their entrepreneurial 

endeavours. 

Why are good track records going unrewarded? 

An understanding of the psychological 

barriers walling off investors from 

our respective boutique propositions is a 

good place to start. 

Don’t make me look bad 

As we go through life, we choose to 

associate ourselves with certain people, 

places and brands. We do this because 

of an innate desire to belong, to feel that 

we’re part of something bigger. Who, or 

what, we chose to associate ourselves with 

depends on how we resonate with that 

entity, and importantly, how that association 

reflects on us. 

Investors are no different. Whether 

you’re a discretionary fund manager, a 

multi-manager, a financial advisor, or the 

end investor, you want to partner with an 

asset manager that, for whatever reason, 

you feel proud to be associated with. 

Whether you’re having your nails done, 

or sitting around a braai with friends, 

you want to be able to broadcast who is 

managing your money. Most will do this 

only because they know a community 

exists that feels the same way. 

The challenge facing most boutique 

asset managers is that their brands are 

not strong enough to provide that feeling 

of community. Because of this, investors 

considering boutiques must accept that if 

something goes wrong (say poor returns), 

they will not have that safety net that 

community provides. Without that support, 

their decision will be less forgiveable (for 

both themselves and others), and, in very 

simple terms, make them look bad. 

Why this is one fear you must face 

Diversification: Whether small managers 

perform better than bigger managers is a 

moot point. What is important is that larger 

managers are likely to correlate to each 

other for the simple fact that they share 

a similar investment universe. It therefore 

makes little sense to blend larger players in 

the name of diversification. Find the boutique 

managers that produce uncorrelated 

return streams and work those into your 

portfolios to realise the benefits of true 

diversification. 

Differentiation: This element is specific to 

the intermediaries building investment 

solutions for investors. We are all acutely 

aware of the increasing transparency in 

our industry. The somewhat uncomfortable 

truth is that greater clarity around how 

investments are managed will finger those 

in the value chain not adding, well, value. 

It’s critical for the sustainability of all stakeholders, 

including boutiques themselves, 

to be able to differentiate themselves from 

their competition. Boutiques still offer 

intermediaries this opportunity. 

Development: If we read the same books, 

listen to the same people and visit the same 

places, we forgo the opportunity to learn 

and become better humans and better 

decision-makers. Boutique managers, like 

their bigger counterparts, have their own 

set of unique beliefs and views. Absorbing 

these could provide fresh insight to help 

you solve old problems. 

Getting over the boutique fear 

Rather than shouldering all the risk yourself, 

introduce an interesting boutique to your 

community of end investors before making 

an investment. You’ll find that most smaller 

fund managers are very open to such 

requests. And instead of a dry PowerPoint 

presentation on their philosophy, rather 

choose a setting where relationships can 

form because people trust people not slides. 

Then monitor them. Ask how they are 

positioned and track their performance 

to see whether they do what they say 

they’re doing. Check that they have their 

own money invested in the funds they are 

asking you to invest in. And then, once 

you and your community are comfortable, 

start small, increasing your investment with 

them as your comfort grows. 

Warren Kelly, Business Development, 

Obsidian Capital 


UNIT TRUSTS 

People's choice 

Open-access investment with Satrix 

Satrix is South Africa’s oldest index 

tracking business. It listed the 

first-ever exchange traded fund 

(ETF) on the Johannesburg Stock 

Exchange in 2000. This ETF was the Satrix 

40 ETF and remains “The People’s Choice” 

right up to today. Since then, Satrix’s 

popularity with investors has continued 

to grow, reflected in the fact that Satrix 

earned no fewer than four top spots at the 

South African Listed Tracker Funds Awards 

(SALTA) in May this year. 

Commenting on the awards, Satrix CEO 

Helena Conradie says, “I am extremely 

proud of the team of professionals I 

work with. Everyone takes complete 

ownership of the brand and their role 

in the business; it is their focus and 

dedication that leads to awards but 

more importantly improving access and 

financial inclusion to investors.” 

Satrix won awards in the following 

categories: 

• The People’s Choice for the favourite ETF 

amonge the investing public – Satrix 40 

ETF 

• Best Total Return Performance, 3 years – 

Satrix RESI ETF 

• Best Trading Efficiency, 3 years – Satrix 

RESI ETF 

• Best ETF Issuer for Capital Raising, 1 year 

– Satrix Managers. 

“I see The People’s Choice award for 

the Satrix 40 ETF as recognition by our 

investors for the work we have done 

over the last 19 years to make investing 

accessible to all South Africans. This is 

the second time we have won the award 

and as CEO of a leading index business, 

but a small investment business by South 

African standards, I feel that we have been 

able to educate and assist investors way 

beyond what I may have thought possible 

when we first started out,” says Conradie. 

“The performance awards are always welcome 

to receive, but we really have no 

control over that as we deliver what the 

market gives us. I suppose, what is really 

being recognised here is the expertise we 

have as an index-tracking investment team. 

The Best ETF Issuer for Capital Raising is 

also a feather in our caps as it really talks 

to how strong our brand is and how more 

investors trust us by giving us their money 

to manage.” 

In March Satrix took its ETFs into the 

rest of Africa, making it possible for even 

more people to become investors. As 

Conradie comments, “Everything we do at 

Satrix is about access. We want to enable 

all people to become investors no matter 

where they are. So as much as listing 

our ETFs into Africa is obviously about 

growing our market share, it is also about 

taking investment options to the people 

of Africa by making these very accessible 

and available right on their very own stock 

exchanges.” 

Beyond the active-passive debate 

According to Conradie, the industry has 

moved on from the active versus passive 

debate and has embraced the notion 

of both options being appropriate in 

one portfolio if combined correctly in a 

way which talks to a specific risk-return 

outcome. 

“Historically, investors may have 

reluctantly used vanilla index trackers 

to bring down costs and for that they 

believed they were compromising 

performance. Through much education, 

most investors now know this is a myth. 

We have also been able to introduce the 

concept of factor investing which means 

you can invest in funds which are able 

to capture and collate systematically the 

performance drivers of groups of stocks 

which can be used to target a risk-andreturn 

outcome. 

“When blending factor funds with other 

vanilla index trackers or active managers, 

an investor has a greater level of control 

over their portfolio outcomes. I am 

convinced portfolio solutions rather than 

single-product funds are here to stay 

and can redefine the asset management 

industry in a very positive way,” Conradie 

comments. 

Solution funds 

When it comes to short-, medium- and longterm 

investment, Conradie distinguishes 

between investors and savers: “Investors 

have time on their side and savers do 

not. So if you are a saver (short on time), 

keep your money in an interest-bearing 

account. If you are an investor, you need 

to match the time you have with the risk 

you can bear. This again is where solutions 

come in because you can use a blend of 

various asset classes to target a risk/return 

outcome. 

“We all know that equities have 

delivered the highest real return of all 

asset classes over long periods of time, 

but given how uncertain the future is 

and how poorly equities have performed 

in the last five years, this may not last. 

This is why a solution fund constructed 

and managed by a professional will 

help you achieve your goals,” Conradie 

concludes. 

Helena Conradie, CEO, Satrix 


33

ADVERTORIAL 

How well do you know the 

Satrix Balanced Index Fund? 

What kind of fund is the Satrix 

Balanced Index Fund? 

As the name implies, the Satrix Balanced 

Index Fund is a multi-asset index tracking 

fund which is also Regulation 28 compliant. 

It is a well-diversified unit trust which 

invests across asset classes (ie equities, 

bonds, property and cash), both locally 

and globally. This means you don’t have to 

decide how to allocate your investment, 

the fund does it for you. 

What does it invest in? 

The fund has a strategic asset allocation, which 

simply means each asset class has a set weight 

which is rebalanced at set intervals. For the 

Satrix Balanced Index Fund, these intervals 

are semi-annually in March and September. 

The fund invests in local assets (75%) 

and international assets (25%). 

Seventy percent of the fund is 

invested in equities (49% domestic and 

21% international), giving it a moderate 

risk profile. The graph below shows the 

allocation between the seven asset classes 

as well as which index is being tracked for 

each asset class. The fund has a unique 

multi-factor equity component called the 

Satrix SmartCore. 

What is the Satrix SmartCore? 

The local equity exposure (49%) of the 

fund is represented by what we call the 

Satrix SmartCore. The SmartCore is a 

proprietary Satrix equity index, launched 

Satrix Balanced Index Fund Asset Allocation 

in 2013. Its composition is researched 

and periodically reviewed by Satrix. Three 

factor signals are combined to make up the 

SmartCore, representing the 49% local SA 

equity exposure of the fund: 

• 33.3% Momentum factor 

• 33.3% Value factor 

• 33.3% Quality factor 

Each factor brings complementary but 

differing equity exposure to the core of the 

fund. This ensures the SmartCore captures 

the type of returns we are targeting from the 

SA equity market. 

What returns can I expect? 

The Satrix Balanced 

Index Fund has 

delivered a strong 

performance track 

record over all periods. 

Over the three- and 

five-year periods to 

May 2019, the fund has 

placed 13th out of 154 

and 11th out of 100 

funds respectively, while 

since inception the fund 

is in the top quartile in 

its category. There are 

currently 200 balanced funds available in 

the multi-asset or balanced fund category, of 

which 11 are index-tracking balanced funds. 

The chart above shows you what the 

actual returns have been in this fund since 

inception and also 

compares it to the 

median return of 

funds in the same 

category. 

Who should 

invest in 

this fund? 

This is a moderaterisk, 

diversified 

fund with both 

local and global exposure. Investors with 

a long-term time horizon and who don’t 

want to manage a portfolio across asset 

classes should consider this fund. 

The fund is suitable for people saving 

towards retirement or who are in retirement 

and drawing an annuity because it adheres 

to Regulation 28. 

You can use the fund in your taxfree 

savings account either as your total 

exposure or as part of your portfolio. 

Long-term after-tax money can also be 

invested in this fund. 

This fund is a well-diversified moderaterisk 

fund and can be held over long periods 

of time. Because it is suitable for retirement 

savings, you can invest in the fund while 

you are saving for retirement and keep the 

fund while you are drawing an income. 

How much does it cost? 

The fund’s annual management fee is 

0.35% (+ VAT) for direct individuals and 

0.25% (+ VAT) on LISPS. 

What is the best way to 

access the fund? 

The Satrix Balanced Index Fund is available 

online via SatrixNOW.co.za. 

The fund can be accessed via LISPs (eg 

Glacier, Allan Gray, Investec) as well as directly 

through Sanlam Collective Investments. 


SATRIX BALANCED 

INDEX FUND. 

NOT AS PASSIVE 

AS YOU THINK. 

A TOP-PERFORMING BALANCED FUND. 

Morningstar performance data – Ranked 13th of 154 funds 

for 3 years and 11th of 100 funds for 5 years to 31 May 2019 

in the ASISA South African Multi-Asset High Equity Category. 

For more information visit www.satrix.co.za. 

Satrix Managers (RF) (Pty) Ltd is an authorised financial services provider and a registered and approved manager in terms 

of the Collective Investment Schemes Control Act. Maximum fund charges (including VAT): Manager Annual Fee 0.40%. 

Transaction Costs (TC) 0.25%. Total Expense Ratio (TER) at 31 March 2019, 0.47%.

RETIREMENT FUNDS 

Smoke and mirrors 

Some tough questions for the 

retirement fund industry 

The power of compound interest is 

a miraculous thing when it works 

in your favour, but it is disastrous 

when it works against you. 

All manner of laws and regulations have 

been passed in South Africa to better 

protect investors from the predations 

of retirement fund administrators and 

managers who have developed some 

ingenious ways of squeezing an extra 

fraction of a percent, and in many cases 

much more, out of your savings. Over the 

long term, this adds up to a tidy sum. 

While there is no doubt that some of 

the more rapacious practices of the past 

have been stymied by these laws and 

regulations, from my experience, many 

retirement fund administrators and 

managers just got smarter at disguising 

their parasitic behaviour. This behaviour 

renders these laws and regulations 

meaningless. 

High fees are disguised 

in a variety of ways 

The average person is simply not equipped 

to detect when they are being fleeced. 

That’s because the fees are disguised in 

a variety of ways. The retirement fund 

industry has become a game of smoke and 

mirrors. Company CEOs or chief financial 

officers are bamboozled by retirement fund 

investment rankings showing Fund X in the 

upper quartile. What they are not seeing 

is the slow but inexorable rape of their 

employees’ savings. 

A few years ago National Treasury 

released a paper entitled “Charges in 

South African retirement funds” which 

should have shamed the industry but 

apparently didn’t. South African fee 

structures compare poorly with our 

overseas peers; they lack transparency and 

are not particularly comparable, especially 

when it comes to umbrella funds. Nor are 

they readily “portable” (easy to migrate 

to a new fund). Pricing is so complex you 

need a professional to explain the costs 

and terms. Making matters worse is the 

fact that intermediaries are incentivised 

to sell the products of specific service 

providers, creating an unnatural swing 

towards high-cost funds. 

The retirement industry is awash with 

flexible funds and differentiated products 

and services, creating such a complex and 

layered landscape that no-one can make 

sense of it. You might be tempted to think 

that this is the magic of the free market 

at work, but it has the pernicious effect 

of embedding the incumbents, allowing 

outrageous fees to pass unnoticed and 

raising industry barriers to entry. The 

actual effect is to stifle price competition. 

An actual example 

Let me illustrate by way of an example. 

We recently did an exercise for a JSElisted 

company with roughly R300-million 

in retirement assets and more than 500 

members. We did a cost comparison to see 

what the fund would look like if different 

default investment options had been 

availed. What we found was a potential 

saving of over R1- million a year. On a R300- 

million fund that’s not much, you might say. 

But it is when you compound it over 20, 30 

or 40 years. One could question the role of 

the independent trustees of the umbrella 

fund in question in this instance in ensuring 

value for money for the members. 

The South African retirement 

industry in a nutshell 

The South African retirement industry is 

worth in excess of R3-trillion in assets. That’s 

a huge sum of money, with nearly twothirds 

of that tied up in the Government 

Employee Pension Fund (GEPF), 

administered by the Public Investment 

Corporation (PIC). Though most of these 

assets are administered by the PIC, the 

actual investment function, for the most 

part, is farmed out to private-sector asset 

managers. Judging by cost disclosures on 

unit trusts, the average total cost runs at 

between 2-3% of assets per year. If one adds 

all the costs of running a retirement fund, 

that amounts to in excess of R100-billion a 

year in fees going to administrators, fund 

managers and others in the retirement 

fund ecosystem. 

Up to 40% of your retirement 

has been swallowed in fees 

Put another way, these outlandish fees 

could cost you 40% of your retirement. 

The answer is not necessarily to opt 

for the cheapest but rather ensure that 

members are receiving value for money, 

depending on the type of product or 

solution. Much has been written about 

passive investment but even there the 

difference between the lowest and 

highest cost provider is more than 

double. However, the focus has to be on 

the total cost across the full spectrum. 

Paying the industry average of 2-3% of 

total cost versus a more palatable cost of 


RETIREMENT FUNDS 

half this amount could benefit a member 

who is saving R3 000 per month for 40 

years, to the tune of close to R5-million. 

In reality, this is what is happening in the 

South African retirement fund industry. 

Retirees have to live on less than 30% 

of their pre-retirement salaries 

Relying on industry participants, let’s 

put this in some kind of context. In 

the retirement industry, we talk about 

the net replacement ratio, which is a 

person’s projected income at retirement 

as a percentage of their salary before 

retirement. Most South Africans will retire 

with less than 30% of their pre-retirement 

salaries. You need to put away between 

15% and 18% of your gross monthly salary 

each month in order to accumulate enough 

money to retire on. 

How independent are the consultants? 

New Treasury regulations introduced 

in August 2018 require financial service 

providers to offer default investment 

solutions for their funds. They must also 

provide counselling to members when 

they retire, leave the fund or make choices 

within the fund. 

The question then arises: who will 

provide this counselling? The service 

providers? Or independent counsellors 

with no financial ties to the product 

providers? 

This is no small matter. If we are going 

to rely on service providers to counsel 

members, you can be sure that the thrust 

of this advice will be tainted by conflicts of 

interest. The last thing a financial service 

provider wants is to point to the benefits 

of a competing fund. 

Despite a slew of laws and regulations 

intended to keep the retirement industry 

honest, there are too many loopholes and 

financial ties, backed by clever lawyers, to 

make this a reality. Hence, much of my 

time is spent educating CEOs and chief 

financial officers on the reality of the 

retirement fund industry. Executives have 

a fiduciary duty to their employees. Why 

squander up to 40% of their retirement 

funds on bloated fees? 

Allowing service providers to manage 

conflicts is like leaving children to run 

amok in a candy store. The regulators 

should have zero tolerance for any conflict 

of interest. 

Asking the tough questions 

CEOs and their executives should be asking 

tough questions of their retirement fund 

administrators, managers and advisors. 

Why is the all-in cost on some umbrella 

funds 1% and others 3% of total assets? 

Why do some employers even entertain 

advisors who are employed by the selfsame 

product providers? 

The day is fast approaching when 

members will quite justifiably ask how 

employers can allow such obvious 

conflicts to erode their savings. 

The Financial Advisory and Intermediary 

Services (FAIS) Act requires full disclosure 

of costs sold by intermediaries/advisors, as 

well as those of competing products, but 

National Treasury doubts that this is being 

followed. There may be light at the end of 

the tunnel if the ASISA signatories abide 

by the Retirement Savings Cost Disclosure 

Standard that will become mandatory in 

all umbrella retirement fund quotations 

on 1 September 2019. 

All of this deception and preying 

on the ignorance of the consumer 

works in favour of the product sellers. 

The retirement industry has become a 

shark tank, and South African savers are 

carcasses on which to feed. It is time to 

get some honest debate around some of 

these issues. The press reminds us daily of 

the failings and corruption in government, 

but very little is said about the gouging 

that is taking place in retirement funds. 

That must change if we are to bring reform 

to a sector desperately in need of it and to 

provide retirees with the just rewards of 

their many decades of labour. As it stands, 

much of those rewards, and they are huge, 

go to someone else. It’s time we called 

“time out” on this nonsense. 

Trevor Taylor CFP®, Managing Director, 

Chartered Employee Benefits 


37

Invest in 

a carefree 

retirement 

lifestyle 

Evergreen Lifestyle has earned an 

enviable reputation as South Africa’s 

leading provider of retirement living. 

They take an all-round approach to 

caring for seniors and the communities 

of healthy, happy retirees who call their 

villages’ home, speak for themselves.

PHYSICAL 

SECURITY 

At all villages you will 

find comprehensive 

security measures, 

including electric 

fencing, CCTV cameras, 

24-hour foot patrols 

and access control. All 

homes have intelligent 

emergency response 

buttons. Keeping 

residents safe is 

Evergreen’s top priority. 

FINANCIAL 

PEACE OF MIND 

The Evergreen Life 

Right offers flexibility, 

with reduced upfront 

costs and transparent 

levies to provide 

residents with financial 

security and fantastic 

lifestyle benefits. 

CONTINUOUS 

CARE 

Evergreen builds its relationship with residents 

using these four pillars. It’s a Partnership for Life 

model that has served it exceptionally well and 

which will underpin its ambitious growth and 

expansion plans in the next decade. 

Residents are provided 

with care when 

they need it, from 

primary healthcare 

to home-based care, 

recuperative care, frail 

and dementia care and 

if needed palliative care. 

SENSE OF 

COMMUNITY 

Smiling residents, happy 

staff, and a warm sense 

of welcome is what you 

can expect at Evergreen 

villages. And in every 

village you’ll find lush 

gardens, walkways and 

relaxation areas ideally 

designed for residents 

to enjoy the best years 

of their lives. 

Call Sharon on 087 808 7000 

You get peace of 

mind and quality of 

life in your later years. 

info@evergreenlifestyle.co.za 

www.evergreenlifestyle.co.za 

/evergreenlifestyles 

@Evergreen_LV 

We look forward to welcoming you.

RETIREMENT 

In it for the long run 

The life right model may be the right choice for retirement 

An important retirement decision 

is whether to remain on the 

property ladder or purchase a life 

right in a retirement development. 

Financial advisors would do well to consider 

the many benefits of the latter, argues Arthur 

Case, Brand Marketing Director of Evergreen 

Lifestyle, leading South African retirement 

living provider and joint venture between 

the Amdec Group and PSG Group. 

Evergreen is on a surge, expecting to 

grow its footprint this financial year from 

a total of 570 to 1200 retirement units in 

developments in the Western Cape and 

Gauteng. 

“The demand is there and we feel we’ve 

got the model right,” comments Case. “Our 

ambition is to grow to 10 000 units with 

assets of R30-billion.” 

This confidence is supported by current 

industry trends, especially a generational 

shift as the so-called Baby Boomers enter 

the retirement village market. 

“The oldest of them are in their early 

70s, and they want a lifestyle rather than a 

nursing model,” says Case. “They’re looking 

for beautiful homes and facilities, some 

are moving in before they finish working, 

and they want to enjoy a lock-up-and-go 

lifestyle where everything is taken care of. 

Older residents also require continuous 

care facilities.” 

Continuous care involves a significant 

investment from the developer in terms of 

facilities as well as keeping units operating 

in the early days when take-up is lower. 

“Few medical aids pay for frail care but 

they do pay for medical procedures. The 

smallest centres we’re building are around 

2 000m², with a minimum of 32 beds, 

and will cater for both frail and dementia 

care, but our bigger villages will have 

much bigger care centres with sub-acute 

facilities,” says Case. 

The life rights model is underpinned by 

the strongest property right in South Africa, 

as contained in the Housing Development 

Schemes for Retired Persons Act No 65 of 

1988 (HRP Act). The main benefit is that 

the life right developer remains involved 

literally for life, unlike the comparative 

sectional title or freehold individual title 

retirement village, where the developer 

departs once the last unit is sold. 

“Sectional title schemes often build frailcare 

centres that are not suitable and the 

operation and funding burden is left to the 

residents via their Body Corporate. In many 

instances these facilities are closed down or 

repurposed because residents do not have 

the resources and expertise to run these 

centres,” says Case. 

There are no transfer duties or VAT, and 

no special levies are permitted in terms of 

the Act. 

“Over time, a 650-unit estate is going 

to need investment, and that investment 

comes from the life right developer, never 

the resident. They only pay their service 

levy monthly,” says Case. 

“We continually reinvest to keep our 

villages pristine. During the threat of Day 

Zero in Cape Town, for example, we sank 

boreholes and installed water purification 

plants because we wouldn’t want our 

residents to queue for water.” 

Flexible purchase pricing is another 

advantage: “If you’re selling a R2-million unit 

with a 100% capital return on termination, 

you can offer it at a low purchase price and 

adjust the capital return at the end of the 

life right to accommodate a lower, more 

affordable purchase price.” 

In emergencies, residents can liberate capital 

from the life right capital during their 

tenure towards funding arrear levies or care. 

For middle to upper middle income 

South Africans, the life right model 

removes some of the risks of outliving their 

retirement capital. 

“Purchasers are more concerned about 

levy inflation and affordability than the 

ticket price,” says Case. “To assist, we don’t 

Arthur Case, Brand Marketing Director 

profit from levies whatsoever, nor do we 

charge a management fee.” 

Case encourages financial planners to 

acquire a thorough understanding of 

the life right model before dispensing 

retirement advice. 

“The mindset has to go beyond just 

preserving and growing the retirement 

asset – that retiring person has a range 

of needs. For example, many seniors will 

actually prejudice their retirement lifestyle 

in order to leave a legacy. Advisors need to 

be able to advise clients to look after their 

own retirement first – if there is a surplus at 

the end, then that can go to the children.” 

To determine which life-right retirement 

product is best suited to your clients' needs, 

Case suggests: 

• Look for strong shareholders, an operator 

with a solid track record and credentials, 

and scale developments – the biggest 

defence against levy inflation is scale. 

• Look for continuous care – you don’t 

want someone purchasing a retirement 

product and having to relocate seven 

years later when the need for care arises. 

• Make sure the location is right, that they 

don’t move away from their support 

networks, that they understand the pros 

and cons of the purchase model, and then 

look at affordability going forward. 


FEES 

The hidden cost 

of retirement 

Understanding fees is key to better performance 

Maximising clients’ retirement 

income is one of the financial 

advisor’s most important 

duties, which means cutting 

costs wherever possible. Retirement fund 

fees, for example, are often higher than 

they need to be. An understanding of how 

to reduce these sometimes very subtly 

structured fees is therefore imperative 

for every financial advisor. We spoke to 

Quaniet Richards, Head of Institutional 

Business at Nedgroup Investments, for 

more insight. 

For some time, the retail market has been 

subject to effective annual cost disclosure 

where service providers disclose all the 

fees entailed in unit trusts, retirement 

annuities or other products. This includes 

transactional costs, which investors don’t 

see and did not use to be readily disclosed. 

However, things can get complicated in the 

umbrella fund stage. 

“It is really hard for a Board of Trustees 

of retirement funds to compare apples 

and apples if they want to switch from a 

standalone fund to an umbrella fund,” says 

Richards. 

“Each umbrella fund has different fee 

structures and often all the fees weren’t 

disclosed or effected in a consistent 

manner. For example, an umbrella fund 

might charge an annual administration 

fee of, by way of example, 0.2%, provided 

that the fund has been chosen from the 

approved list of funds. 

"If you choose a fund outside of the 

approved list, you have to pay an additional 

admin fee of 0.35%. The boards of trustees 

sometimes don’t quite realise that there 

is this additional cost. Compare that to 

another umbrella fund which charges an 

all-in fee of 1.5% including investment 

charges. It becomes quite tricky in terms 

of understanding the effective cost on the 

actual member.” 

Once the Board of Trustees has made 

a decision on behalf of a member, the 

member needs to understand the implications 

of the fee structures. All too often, 

misunderstanding gives rise to confusion 

when a member looks at their statement 

and thinks “I’ve under-performed”. 

Fee structures typically consist 

of an investment management fee, 

administration fee, risk benefit charges and 

consultant fee, if a consultant is required on 

the retirement fund. 

“Now for each of those, the fee 

structures could vary from one service 

provider to another, especially the 

administration and risk benefit charges,” 

says Richards. “In my experience, during 

the members' report-back session, they 

tend to confuse investment management 

performance and the impact of fees. 

Administration and risk benefit fees often 

have a bigger, negative impact on overall 

investment perfomance for members, 

greater than just the investment 

management fee. 

“The past five years have been tough,” 

Richards admits, “and investment returns 

haven't always kept up with inflation, but 

if you deduct all your admin charges and 

your risk benefits cost, then your returns 

are even lower. At the end of the day, 

members are suffering because the fee 

structures are so opaque that Boards of 

Trustees struggle to understand them.” 

It was in recognition of this state 

of affairs that the Association for 

Savings and Investment South Africa 

(ASISA) instituted the retirement 

savings cost disclosure whereby, as of 

1 March 2019, all umbrella funds have 

to report their costs consistently so 

that boards of trustees and retirement 

fund management committees can 

better understand what they are getting 

themselves into. 

For Richards, it is tremendously important 

for members to be educated on how 

fees are implemented, especially when 

they enter the post-retirement world and 

the fees really begin to bite. 

“Some people entering retirement are 

being charged a 0.5% ongoing advice fee 

on their retirement assets, the biggest 

sum of money they have ever had. The fee 

may have been disclosed, but if they were 

educated, they would understand why they 

are paying it and that after two years they 

can stop. Education can therefore make 

a huge difference in the post-retirement 

world where people often run out of money 

before they die.” 

For Richards, the most important point 

for investors to realise is the impact that 

higher fees have on their investment 

portfolios. “Paying higher fees erodes your 

retirement savings pool prior to retirement, 

while paying higher fees in the postretirement 

world affects the quality of life 

by reducing income and impairing lifestyle. 

“Some of the analysis we’ve done 

suggests that members are saving up to 

a R1-million or more, depending on their 

retirement savings investment, in fees 

alone,” he concludes. 

Quaniet Richards, Head of Institutional 

Business at Nedgroup Investments 


41

RETIREMENT GOALS 

Hustle on the side 

What if our focus is wrong in our 

efforts to solve the retirement gap? 


RETIREMENT GOALS 

The thing I like least about financial planning 

is the delivery of the first financial plan.I love 

everything leading up to it, getting to know my 

clients, understanding their lives and dreams, 

getting stuck into a great spreadsheet and producing a 

thick PowerPoint presentation to explain the options of 

how to close their retirement gap (you just can’t take the 

management consultant out of me). 

However, it doesn’t matter how hard I work, how 

beautiful my presentation or the hours thinking of ways 

to get them to invest more, there’s no fun way to tell them 

that they are so short of their retirement goal. I never 

leave the meeting feeling “Woo-hoo! That was great!” 

Most of my clients are employed, and so there is not 

much flexibility on their income. Being in their 40s and 50s, 

they need to spend less in order to invest more so they 

can close the gap. They nod in vigorous agreement to my 

suggestion of finding ways to cut their expenses and they 

commit whole-heartedly to implement every suggestion. 

Over time, though, their urgency to resolve their retirement 

gap wanes as life and its expenses happen. 

Eventually there comes a point when you must wonder 

if there is another way to close the retirement gap. 

In addition to working one-on-one with my wealth 

management clients, my passion in life is to teach women 

about money. Living in South Africa calls on each one of 

us to contribute to the upliftment of our country by using 

our unique gifts. With 62% of children in South Africa born 

in 2017 with no father registered on their birth certificate, 

those single mums have got to get access to financial 

education: not only for themselves, but so that they can 

teach their children who are our future. 

The biggest challenge I see in the young people I speak 

to in their late 20s is a deep lack of financial acumen. They 

are, in so many cases, the first in their family to get a stable 

job and have the privilege and burden that comes with 

moving their family from the “back room” to their own 

house. The weight on their shoulders is heavy as they rise 

at 3:30am to catch the transport into town to earn the 

money to house their family. 

Faced with the challenge of 62% of newborns 

with single mums, and young adults with no financial 

education, I set myself a goal to teach a million women 

about money within the next six years through my 

podcast and blog Working Women’s Wealth. 

However, their feedback is also that every cent goes 

to their family, so cutting expenses won’t help the 

retirement gap. Their salary disappears with medical 

expenses, school fees, transport and food. 

So if my wealth management clients and my podcast 

clients aren’t able to save enough, is there another way? 

What happens if the answer is on the other side of 

the equation? The income side. What if we enable and 

equip people to generate additional incomes that can 

last beyond their formal employment? Not only will they 

have more money to save along the journey, but they 

also won’t need as much to retire because that income 

supplements their draw down. 

As part of this notion, I built an online course to teach 

people how to build an online business. Honestly, I did 

it to remove the objections from my clients and podcast 

listeners that they didn’t know how to start a business. 

It’s early days, but I’m seeing people start businesses; 

moreover, I’m seeing people have hope. Hope for a 

different future. One with more control of its outcome. 

The more I watch people transition into retirement, 

the more I think everyone needs a side hustle, whether 

you have enough or not. The psychological impact of the 

transition is significant, and one of the biggest mistakes 

I see is people leaving work rather than going into 

retirement. 

The difference? The sense of purpose and continuity. 

For many, retiring is an abrupt end to status, control, 

direction and intellectual stimulation. A client of mine 

began a photography safari tour for international 

clients when he was 55 years old. With one year to go, 

he is so excited to retire because his business is off 

the ground and he’ll get paid to do what he loves in 

retirement. 

Now I’m all about the and, not the or. I recommend my 

side-hustle clients invest all their money back into growing 

the business, or at least invest half. Firstly, because if they 

use the money to spend, they exacerbate the retirement 

problem by growing into a larger expense base. Secondly, 

to ensure that they beef up their retirement savings, 

because life and health happen as we age. 

By encouraging our clients to start a side hustle to generate 

more income for and in retirement, we could help 

make yet another little dent in the huge retirement gap 

crisis our country is facing. 

Lisa Linfield CFP®, CEO Southern Pride Wealth, Host of 

Working Women’s Wealth podcast 


43

ADVERTORIAL 

Making a dent in the universe 

It is possible to change the world 

Being a financial planner is possibly 

one of the best jobs ever! It is not 

a job. it is an adventure. Very few 

careers offer the opportunity to 

affect people on such a deep and fundamental 

level – their financial life. A financial 

planner can make a dent in the universe. 

If you improved a single client’s financial 

life through proper financial planning, then 

you have made a difference to that person 

and for that person, it may be his/her world. 

Dark matter 

That opportunity, unfortunately, goes to 

waste if the engagement with a client was 

product-focused. A product-focused narrative 

is starved of meaning and connection. 

A client engagement in which an advisor 

focuses on moving a product acts like dark 

matter in the presence of reality… It destroys 

value. 

In search of meaning 

Wealth has different meanings for different 

people, is deeply personal and is intentional. 

To connect with people on a truly 

deeper level, you need to be able to have 

meaningful conversations with clients. 

Meaningful conversations start with the 

client and their goals and dreams. 

You can inspire your clients 

How do you change an engagement from 

manipulating clients to buy product to 

inspiring them to achieve their goals and 

dreams? How do you inspire clients to act? 

You start with what is important to the client. 

You ask about their goals and their dreams. 

You listen with sincerity; you guide them 

and you co-create their plan with them. 

Enter goal-based financial planning 

This is goal-based financial planning. Goalbased 

financial planning is a deeply personal 

experience for the client. It talks to 

their goals and dreams. Products become 

incidental to the discussion, incidental 

tools to enable or to protect the client’s 

financial life. 

Goal-based financial planning is about: 

• the client’s goals and dreams; and 

• helps them prioritise the financial elements 

of those goals and dreams; and 

• helps them to find an optimal plan to 

fund them; and 

• helps them to protect their plan; 

• all in the context of the client’s current 

personal economy. 

Enabling goal-based financial 

planning with financial engineering 

Your financial planning system can either 

enable goal-based financial planning or 

sabotage your efforts. 

If you want to build a goal-based financial 

planning practice, your system must be 

able to do the following: 

• provide an holistic view of the client’s 

goals and needs; and 

• visually show the impact of each goal 

and all other financial goals; and 

• allow the client to visually see the impact of 

their decisions now and in the future; and 

• empower the client to consider the 

trade-offs of his/her financial decisions; 

and 

• be flexible enough to facilitate 

co-creation of the client’s plan; 

• marry user experience with sophisticated 

financial engineering; 

• have the ability to model the client’s 

financial future, and 

• be intuitive and simple to use. 

Change your system – change your life 

We know that change can be a little 

scary. Pick a system that helps you elevate 

your business. Pop in for a cup of 

coffee or email us at avalon@allegiance. 

co.za — but not unless you want to 

change your world. 

Simplicity should not be used as a 

device to cloak the lack of sophistication 

to deal with South African taxes, 

client narratives or proper cash-flow 

modelling. 

Change your system, change your life. 

Change to Avalon, change the world. 


Pushing the boundaries 

of what’s possible in 

financial planning. 

THE 4TH GEN 

PLANNING 

SYSTEM 

Life Planning Module 

Avalon empowers financial planners to help 

their clients make better financial decisions. 

It is not just a tool, it is an advice narrative. It 

enables clients to take co-responsibility and 

ownership of their financial destiny as it 

maps out their financial future. 

Substance and authenticity 

User Experience 

Co-creation 

Enabling Collaboration 

Contextual Financial Identity 

Goal-based Financial Planning 

Advanced Financial Reality Modelling 

Life planning helps clients to see their financial 

goals and can empower clients to visually see the 

trade-offs of their financial plan. It ultimately helps 

them achieve their goals and dreams. 

Wealth and Investments 

Helps you visualise financial decisions, quickly and 

effortlessly. Scenario planning allows for modelling 

sophisticated scenarios – allows you to model life. 

Advanced Estate Planning 

Does a dual plan for client and spouse on 14 

scenarios based on deep financial engineering from 

experts in the market. You can also do a quick FNA 

just to kickstart the conversation. 

Deep CRM 

Leads, Opportunities, Work Flows, Task management 

and a document vault. Communication to clients 

and much more. 

www.avalon.co.za

INSPIRATION 

Breaking bad 

Gerald Mamfunda battled poverty, bedbugs and bandits 

to found a thriving financial services company 

Originally from Zambia, after 

finishing my studies in sales and 

marketing at the local university, 

I was absorbed by Cadbury 

Schweppes as a sales rep. I quickly proved 

myself and after a year with the company 

I was promoted to a sales management 

position at the age of 22. My future was 

looking very bright until Coca-Cola bought 

out Cadbury Schweppes worldwide; I was 

retrenched and couldn’t find another job for 

almost a year. 

In a country where only one or two job 

adverts appeared in the national newspapers 

in a month, finding another job proved to be 

very difficult. 

At a young age, I had to make the 

audacious decision to become an “economic 

refugee” in another country. My gaze fell 

on South Africa despite all the negative 

information we used to see in the media 

about crime and discrimination. 

In late 1999 I packed my bag and jumped 

on the Intercape bus to Johannesburg. After 

almost 24 hours, I finally arrived at Park 

Station and walked to Berea, where I would 

stay with my friend’s sister while I looked for 

a job. 

I could not believe my eyes when I opened 

the newspaper to find three full pages of sales 

and marketing adverts. I quickly bought a 

R30 Telkom card and ran to the phone booth 

at Ellis Park to phone around for interviews. 

After phoning only five companies I managed 

to secure four interviews. It was like a dream. 

Immediately, however, I hit a stumbling 

block – despite impressing almost all the 

people who interviewed me, I did not have 

a work permit. 

After a month of seeking employment 

without success, my friend’s sister moved 

out of the flat while I was away attending 

interviews without troubling to notify me. 

When I came back home in the evening, I 

only found my bag of clothes in the flat and 

nothing else. That evening the landlord came 

to demand two months’ back rent; he ordered 

me to pay up or get out. I asked for more time 

and promised to pay what was owing. 

I continued looking for any job I could 

find but the little money I came with ran out. 

I remember going for an interview in Midrand 

with only enough money to go, not having 

R2.40 to get back home. After the interview 

I had to go to a local shopping centre and 

act as a car guard helping people to reverse 

so that some drivers could give me some 

coins to go back home. During this trying 

period I could only afford to eat bread and 

water every day, and slept on the floor with 

no bedding. Tired of sleeping on the floor I 

remember one day I saw a mattress which 

was thrown next to the dust bins at my flat 

which looked in fair condition. Since I had 

nothing I decided to take it to my place, not 

realising it had bed bugs that sucked my 

blood for almost a month and made me sick. 

One bad thing led to another. One day I was 

attacked by thugs with knives in central Joburg. 

They took my most important possession, my 

Nokia 3210 phone which had the number on 

my CV. A little while later I got another phone 

and was attacked in the Metrorail train by 

criminals with a pistol. I had to surrender my 

precious phone and wallet again. 

Fast forward a month later: I managed to 

get a job at American Health and Sport, now 

Planet Fitness. I remember walking almost 

35km from Berea to Ruimsig on the West 

Rand and back. I quickly learned the skills 

and reached targets almost every month. I 

later moved to Health Connection and was 

eventually poached by Virgin Active, where I 

rose to the position of assistant sales manager 

until I decided to leave in 2006. 

After getting married I had discovered that 

the long hours and low pay prevalent in the 

health and fitness industry were not working 

for me. A friend of mine, Ben Nortman, who 

is a broker with Discovery, convinced me to 

join the financial services industry. However 

it looked easy to convince people with a gym 

contract to rejoin the gym through the wellness 

programme and have life cover, disability and 

severe Illness as a bonus. 

I was given a once-off counter-offer with 

better benefits and a promotion, but I had 

made up my mind to leave, even though the 

general manager told me how many people had 

failed in the financial services industry, which 

was saturated with over 60 000 brokers in the 

country. I stuck to my guns. 

Later on I discovered that I was not giving 

clients the right advice and decided to study 

financial planning at Stellenbosch University 

through PSG Konsult. 

After being declined a number of times, I 

was eventually granted the FSP licence in 2009 

and accreditation by the Council for Medical 


INSPIRATION 

Schemes in the same year. I was very 

excited, a state of mind which led to grave 

errors of judgement. 

Going against the advice of my mentors, 

Clive Le Meme and Theuns Botha of 

Discovery, I employed an enormous team 

of 17 brokers who gave me a lot of lapses, 

which together with skyrocketing overheads 

almost collapsed our organisation. However, 

by concentrating on the basics we managed 

to pay off what we owed to insurance 

companies in a few months. We decided to 

get rid of almost everyone and right now 

we have a total staff complement of seven 

employees, most of whom have been with 

the company since inception. We run the 

practice with my wife Thembi Mamfunda, 

in the northern suburbs of Johannesburg. 

Most of my broker friends have been 

very discouraged with the changes taking 

place in our industry and the fact that fewer 

than 10% of advisors in the industry are 

black just makes it worse. 

My encouragement to every advisor 

regardless of race is that there are still 

many opportunities and a lot of money to 

be made in our industry if you just work 

hard and follow legislation. 

To date we have many clients of all races 

and backgrounds who have trusted us to 

handle their risk as well as investments, 

with over R250-million in assets under 

management and growing. 

We have also diversified into other 

businesses: real estate, transport and 

farming. 

We are also proud of giving back to 

the community through our NGO Azusa 

Foundation, where we are currently 

looking after 11 less privileged children 

by providing all their requirements 

including education costs. This year we 

are looking forward to attending the 

graduation of a person we took from the 

streets who is finishing his LLB degree 

with UNISA. 

If I could make it against all odds, any 

other person can make it in this industry 

and help to reduce the unemployment rate 

by telling new graduates not to focus on 

basic salaries. 

A lot has been said about foreigners 

taking jobs from the locals, but I believe 

that there are exceptions like myself, in that 

for the past 20 years I have only worked on 

commission and no basic salary. 

Coming from another country and 

hearing a lot said about apartheid, I had 

prepared myself for it. Unfortunately the 

opposite has happened to me the most: 

I have suffered more discrimination from 

fellow black South Africans than from 

white people. At times even the police 

would question my wife as to why she 

married a foreigner, saying she should “be 

very careful”. Sometimes I would go to see 

a client and they would simply refuse to do 

business with me, but when my junior from 

the office goes who speaks their language 

they would be comfortable. At times some 

would even tell me that I would run away 

with their money. I always respect people’s 

opinions and move on to other people 

who have trusted us with their lives due to 

the exceptional service we give them. 

I believe that many other people can 

make it if they just focus on the positives 

and not the negatives. Every single day 

when I wake up, I just see opportunities 

and really wonder why people are always 

protesting for lack of jobs. 

In conclusion, I would like to encourage 

fellow advisors to take part in the one-year 

ASISA IFP practice programme sponsored 

by Allan Gray, Prudential, Coronation and 

Investec, as it has given me a different 

perspective about the financial services 

industry and has definitely added so much 

value to our practice. 

Gerald Mamfunda, Key Individual/ 

Financial Advisor, Azusa Financial 

Services 


47

EVENTS 

How behavioural finance 

created a community 

Humans Under Management – South Africa 2019 

It’s America in the 1970s. The US 

economic picture is dominated by 

inflation, unemployment, high oil prices 

and recession. Meanwhile, a small group 

of economists and social scientists start 

to question the idea that humans always 

make rational and predictable decisions 

when it comes to money. At the time, this 

seems like a crazy challenge to established 

economic thinking. All economic theories 

assume that humans aren’t affected by 

their emotions during financial choices and 

just do the rational thing when they have a 

decision to make. 

But this handful of academics keep working 

away at this new idea. They become 

increasingly convinced that traditional 

theories don’t tell the full story. If we want 

to really understand how people make 

financial decisions, they say, we also need to 

consider more carefully how emotional and 

irrational humans can be. Between them, 

this handful of academics became the 

founding fathers of behavioural economics 

and behavioural finance. This was the very 

beginning of the community that me and 

my fellow behavioural financial advisors 

and coaches are now a part of. 

Defining idea of our era 

It was a revolutionary idea at the time which, 

unsurprisingly, didn’t take off immediately. 

However, this community started to grow 

and grow while behavioural thinking was 

working its way into many other sectors 


All Things Behavioural 

Financial Advice 

A Conference By Advisers, For Advisers 

Financial planning is a noble profession. Some say it is the most 

important profession of the 21st century. 

But we face an almighty challenge. Advising people on what 

they need rather than what they want has never been easy. 

Behavioural coaching is the single most important way that a 

financial planner adds value. 

Humans Under Management exists to promote, highlight and 

build on the work that great advisers are doing in developing 

their behavioural financial advice practices. 

This isn’t a fad or a phase - this is who we are. 

Individually we can’t, together we can 

Date: 

10 September 2019 

Venue: 

Allan Gray Auditorium, 

V&A Waterfront 

Grab your tickets at: 

www.humansundermanagement.com/ 

southafrica 

“Having been to HUM London 2018, I have no doubt that this will be the 

most relevant and important conference that any financial adviser in South 

Africa attends in 2019. Practitioners and experts go to the heart of every 

financial adviser’s work, engaging with human beings around their lives 

and their money. Don’t miss it!“ 

Rob Macdonald, Head of Adviser Services, Fundhouse

EVENTS 

Andy Hart, financial planner and founder 

of the Humans Under Management 

conference 

too, like politics, business and retail. When 

one of the founding academics, Richard Thaler, 

won the Nobel Prize for Economics in 2017 it 

confirmed its acceptance as one of the most 

important and defining ideas of our era. 

The behavioural finance community 

continues to expand and develop today. I 

can see it in my own experience among fellow 

financial advisors. 

There was a time was when it was just 

a small huddle of us nurturing this new 

philosophy in our profession but there are 

more and more of us every time I look. It 

started as a niche, but that niche is growing 

daily, monthly, yearly. Independent financial 

advisors are on the front line and deal with 

humans every day, so it shouldn’t be a surprise 

that they should be the early adopters. But 

now even some of the big asset managers are 

cottoning on to the insights of behavioural 

thinking and employing them at a more 

corporate level. 

Bringing the community together 

I organise the annual Humans Under 

Management conferences which bring this 

community together in the UK and beyond. 

They are the first fully-focused behavioural 

finance events of their kind and the place 

where practitioners can meet to learn 

from each other and compare experiences. 

There’s one coming up in South Africa on 10 

September and this year’s London conference 

is scheduled for 4 December. 

The Cape Town conference includes a 

keynote speech from Christo Brand, a South 

African former prison guard who was one of 

several that were responsible for guarding 

Nelson Mandela, and who developed a close 

friendship with the statesman over the years 

of his incarceration and beyond. Clearly 

someone who will understand a little about 

human behaviour. 

In London, we’ll be joined by Dr Moira 

Somers. Moira is a psychologist, professor, 

author and executive coach who brings 

a unique combination of expertise in 

neuroscience, financial psychology, mental 

health and behaviour change to bear on 

any number of personal and professional 

challenges. Both conferences will include 

speeches and input from a broad range of 

practitioners on all things behavioural. 

And that’s one of the things I like most 

about these events and the behavioural 

discipline in general – the mix of people 

we attract from a variety of different 

backgrounds, both speakers and delegates. 

It’s relevant to so many fields. Last year’s 

events in both London and Dublin saw 

speeches from not just financial advisors 

and experts in behavioural finance, but 

also from areas as varied as management 

consultancy, think tanks, the media, riskprofiling 

and fintech. This is why I believe 

behavioural finance advice is so powerful: 

because it channels the insights of so many 

areas and is open to input from such a broad 

spectrum of disciplines. It allows us to keep 

developing into ever-more sophisticated 

advisors so we can give our clients the best 

insights and service possible. 

In this community, our clients are the 

most important members of all. When 

you work so closely with them over many 

years through the significant phases and 

transitions of their lives you can get to 

know each other very well. It’s unsurprising 

that employing such a human approach to 

helping clients doesn’t just bring them into 

the community, it often turns them into 

friends too. From an idea born in 1970s, 

recession-hit America, behavioural finance 

has created a community that makes our 

profession proud. 


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CLIENT COACHING 

Meeting the challenge 

of investor behaviour 

Research shows investments outperform investors 

Investor behaviour is a problem. 

Arguably, investors are their own 

worst enemies. US research company 

Dalbar Inc. conducts annual research 

to compare the return that investors get 

versus the returns of their investments. 

No matter the period of measurement, 

the story is the same. The average investor 

underperforms on their investments. 

According to Dalbar, the magnitude of 

underperformance is on average around 

5% per annum. An extraordinary number. 

Investor behaviour is a 

perennial challenge 

This is not a new phenomenon. As far 

back as the 1600s people succumbed 

to the so-called Dutch tulip mania. 

They believed that there were untold 

riches to be made from investing in 

tulips. This ended with more people 

in rags than riches. The argument that 

society, including investors, was not 

sophisticated back then is flawed. The 

global financial crisis of 2008 was a 

more recent case of deluded investors. 

They believed property prices only 

went up, and interest rates would 

always be low. Bitcoin is a story that is 

currently playing itself out. Investors 

have been their own worst enemies 

ever since humans stumbled on the 

idea that bartering wasn’t the only way 

to exchange value. 

Investment results are dependent 

on investor behaviour 

Dalbar asserts that, “No matter what 

the state of the mutual fund industry, 

boom or bust: Investment results 

are more dependent on investor 

behaviour than on fund performance.” 

Unlike other markets in which human 

beings participate, investment market 

participants tend to buy high and sell 

low. The more markets rise, the more 

optimistic investors become. The more 

they fall, the more pessimistic they get. 

This problem of investor behaviour has 

been addressed by the industry with a 

two-pronged approach: firstly, financial 

education and secondly, applying a 



risk-profiling approach to assessing 

investors’ suitability for the investments 

in which they invest. Neither of these 

approaches have worked. 

Investor education has failed 

As Dalbar puts it: “After decades of 

analysing investor behaviour in good 

times and in bad times, and after 

enormous efforts by thousands of 

industry experts to educate millions of 

investors, imprudent action continues 

to be widespread.” Investor education 

has tended to focus on investments 

themselves and has effectively tried to 

promote financial “literacy”, explaining 

complex concepts to lay people. In effect 

this is an attempt to provide a vocabulary 

around investments. 

To draw an analogy with the 

health industry, attempts at financial 

education have focused on the 

medication and how it works, rather 

than on how people can lead a healthy 

lifestyle. The focus has been on the 

aspirin and antibiotics, rather than 

on nutrition, exercise and sleep. This 

suggests that in order to address the 

issue of investor behaviour, a greater 

focus on the investors themselves is 

necessary. In an effort to achieve this, 

the second intervention by the industry 

has been to apply a risk-profiling 

approach to investors. 

Risk profiling is a simple 

but inadequate solution for 

a complex problem 

The theory of risk profiling is that if someone 

knows their risk profile, they can invest in 

a product/investment with a matching risk 

profile. The problem with this approach is 

it often only focuses on an individual’s risk 

appetite or their propensity to take risk. 

However, an investor’s investment risk 

appetite tends to change as markets rise 

and fall, hence the habit of buying high and 

selling low. 

A more comprehensive risk profile 

would include a person’s financial capacity 

to take risk and to question the extent to 

which they can absorb loss. It would also 


53


consider the level of risk they actually 

need to take to achieve a particular return 

or goal. But even a three-dimensional risk 

profile does not capture the complexity of 

a human being, particularly when it comes 

to money and a person’s relationship with 

money. Money goes to the core of our 

being as humans and can impact our lives 

hugely. Since the American Psychological 

Association’s annual “Stress in America” 

survey began in 2007, money consistently 

has been the top stressor for Americans. 

Coach your clients 

and they won’t make 

poor decisions 

Human complexity is evident in 

the drivers of investor behaviour 

This complexity is evident when we 

consider what actually drives investor 

behaviour. Often we think it is simply 

the emotions of greed and fear. They 

certainly play a role. But our minds are 

also problematic. Research suggests 

we are prone to over 180 cognitive 

biases that can influence our thinking 

and decision-making. Organisational 

psychologist Herbert Simon coined the 

term “bounded rationality” to describe 

our limits with respect to how we think 

and make decisions. 

To compound matters, as Daniel 

Kahnemann points out in his book 

Thinking Fast and Slow, we have two 

brains, intuitive (fast) and reflective 

(slow). The reality is that our brains are 

lazy and like to take short cuts wherever 

possible. These short cuts are often 

driven by our intuitive brains, which 

always look for the most obvious and 

quickest solution. The problem is our 

intuitive brain responds to immediate 

triggers like falling markets or hungry 

lions, and in some instances we make 

good decisions, like running away from 

the lion, but in other situations we make 

bad decisions, like selling investments 

when they are cheap. 

Apart from our emotions and our 

minds, which neuroscience suggests are 

inextricably linked, a third influence on 

our behaviour and decision-making is 

other people. As social beings, humans are 

susceptible to social pressure. This is often 

a key driver of poor investor behaviour. 

Investors love to compare the performance 

of their investments. Or take the advice of 

family, friends, colleagues and the media. 

These are then used as ammunition 

to challenge a financial advisor’s 

advice or perspective. 

Behavioural coaching can 

help advisors handle their 

clients’ complexity 

It is no surprise, given the complexity 

of human beings, that to 

overcome poor investor behaviour 

is a challenge. It explains why reputable 

investment businesses like Vanguard and 

Morningstar suggest that the most significant 

value that a financial advisor offers 

is behavioural coaching. US financial 

advisor and author of the book Behavioural 

Investment Counseling, Nick Murray, 

believes that this value equates to Dalbar’s 

behaviour penalty of 5%. He tells clients 

that 80% of his value to them is coaching 

them through the market's ups and downs. 

The other 20% is helping them put a plan 

in place and developing a strategy to fund 

that plan. The coaching helps the clients 

stick to the plan. 

The message seems clear. To overcome 

the challenge of investor behaviour, coach 

your clients and they won’t make poor 

decisions. Easier said than done, particularly 

since financial advisors are human 

themselves, and many poor decisions by 

investors are in fact advised decisions. 

The path of least resistance 

perpetuates the investor 

behaviour problem 

My experience of working with financial 

advisors is that often they take the path 

of least resistance. If the client compares 

performance, complains, or is just grumpy 

about their investment, the temptation 

for the advisor is to do something to 

make them happy again. Unfortunately 

this happiness is short term. Deviation 

from a long-term strategy for short-term 

happiness simply provides Dalbar with 

another statistic to show how investors 

underperform on their investments. 

As any coach will tell you, no matter 

the context, coaching is tough. It means 

challenging your client. Pointing out where 

they are making flawed assumptions. 

Highlighting where they are not sticking 

to commitments or taking personal 

responsibility. A friend of mine who is an 

executive coach tells his clients that they 

will have a “fight” in their third or fourth 

meeting and only if they get through that 

will the relationship be able to continue. 

The path of least resistance is not the 

path to achieving goals. Being personable 

is not enough to overcome the challenge of 

investor behaviour. Engaging clients with a 

coaching way of being and then dispensing 

sound expert advice is what is needed. 

Unfortunately, until now, the focus of advisor 

training has been on expert advice. I believe 

we will only overcome the challenge of poor 

investor behaviour through real human 

connection and the development of genuine 

behavioural coaching skills. 

References 

Dalbar Quantitative Analysis of Investor 

Behaviour, 2015 

American Psychological Association, “Stress 

in America” Surveys, 2007-2018. 

Rob Macdonald, Fundhouse 


ARE THE FUNDS 

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INSURANCE 

Undoing perverse 

incentives 

Picking the right insurance 

for your client 


INSURANCE 

My first role in the industry 

was as a broker consultant 

for a life insurance company 

and it was my job to market 

the company’s products to brokers who 

in turn would sell these products to their 

clients. Before that, I was a high school 

mathematics teacher and I frequently 

found myself out of my depth in this 

strange new industry where sales targets 

and commission were the driving factors. 

I was also confused by the 

interchanging between the words 

broker, agent, intermediary, 

financial advisor and 

occasionally, even financial 

planner. Initially I was in 

awe of many of the 

advisors that I called 

on who, from appearances at least, had 

clearly made it. They drove expensive cars 

and lived in upmarket suburbs and were 

clearly good at what they were doing. 

However, it quickly became apparent that 

most of them lived from one commission 

cheque to the next – back then, commission 

cheques were often hand-delivered and it 

was not uncommon to have to hand over 

a commission cheque when collecting the 

new business that still had to be processed. 

Such was the lack of planning from many 

of the so-called financial advisors/planners. 

People who had been in the industry for 

decades were still living hand-to-mouth. 

Things moved on and within a few years 

I found myself on the other side of the table, 

face-to-face with clients and subject to the 

proverbial sales targets that were imposed 

by management. I clearly remember the 

day that I went to my manager and asked 

him at which stage I could stop bringing 

in new clients as I wanted to look after the 

ones that I had promised to take care of. 

His answer was an unequivocal “never, you 

have a target”. I left the company shortly 

thereafter, resolving to go and do business 

differently, to build a service-related model 

that did not rely on selling products. 

About the same time, I attended an FPI 

(Financial Planning Institute) conference 

where a representative from the old LOA 

(Life Offices Association, now part of ASISA) 

spoke about the cost of life insurance and 

declared that up to 35% of the cost of 

new business could be attributed to the 

commission that they paid to advisors. A 

spark was lit and I reasoned that if I could 

remove the commission from life insurance, 

the premium should go down by around 

35%. How naive I was. 

To date, I have only come across two 

insurance companies who have reduced 

the cost of commission-free insurance by 

anything close to this (Altrisk, now Hollard 

& Metropolitan Odyssey, which is now part 

of Momentum but the discount no longer 

applies). Most companies (if they reduce 

the premium at all) only offer a ±15% 

reduction in the premium on commissionfree 

quotes. So where is the balance of the 

money going? 

Perhaps it’s time to revisit life insurance 

and why we need it. I will never benefit 

from the proceeds of my insurance policy; 

it pays when I die and is there to cover a 

risk that I can't afford or don’t want to take. 

It is not an investment! It is a commodity 

and should be treated in the same way as 

any other commodity. If you can find the 

same, similar or better (cheaper) product 

elsewhere you would probably take it, so 

why not the same for life insurance? 

The problem with the current salestarget 

driven and commission-based 

model is that there is often a perverse 

incentive. The higher the premium, the 

more commission and the more frequently 

a policy can be churned, the more 

commission. (I think the industry turns 

a blind eye to the ethics of this.) On the 

other hand, if a client changes or cancels 

their insurance policy before the claw-back 

period is up, the insurance company will 

claw back some (or all) of the commission. 

This is crazy – why should we be penalised 

if we have done our jobs correctly? Why 

should we be penalised if the client’s 

circumstances change and they no longer 

need the policy? Commission claw-backs 

are an outdated and crazy model. In fact, 

it is my view that the commission model 

bears no relation to financial planning at all. 

Commission-free policies, where 

the client pays a fee for the work done, 

means no need or incentive to increase 

the premium by adding frills to increase 

income earned and better still, there will 

never ever be any claw-backs. It is my view, 

that if we are really serious about a financial 

planning profession, then all life insurance 

products should be available commission 

free and that the full commission effect 

(35%?) should be reflected in the reduced 

premium. 

So how about it then, which insurer 

will give us a full disclosure of all the costs 

related to the distribution of life insurance, 

including the percentage that is attributed 

to commission? Which insurer is prepared 

to pass that full saving on to a commissionfree 

product? Better still, who is prepared to 

cut the commission from the product and 

start charging a (professional) fee for the 

service rendered? 

Gregg Sneddon, CFP® at The Financial 

Coach 


57

FEE MODELS 

Clarifying value 

Negotiating the shifting landscape 

of fees for financial advice 

Our profession is in danger of succumbing 

to a price war unless 

those who have the most to 

offer lead us bravely. 

As pricing specialists Simon-Kucher 

note, “We’ve seen time and time again 

that industries on the brink of price wars 

can be saved through ‘value warriors’, 

who understand the worth of their proposition 

and charge appropriately and 

transparently.” 

“Robo-advice” services are yet to affect 

financial planners as once predicted, but 

what they have done is force businesses 

to become clearer about the value they 

bring to clients. 

Around the country, advisors are 

engaging in behavioural coaching 

workshops and conferences, believing 

that their most valuable contribution 

to client relationships is the ability to 

influence behaviour under uncertainty. 

As large parts of the investment 

management process get commoditised, 

developing the skills for real human 

connection will be the key to advancing 

our profession. 

Unfortunately, this value proposition is 

incongruent with how fees are currently 

calculated. This makes our work more 

difficult than it already is. 

It’s simple. Clients love transparency 

and a clear articulation of value. 

RDR (Retail Distribution Review) is 

bringing greater transparency. As a 

result we will need to express our 

value more clearly. But consumers 

also love fairness and choice. This 

means that greater flexibility and 

different fee models are likely in the 

future. 

The current AUM-based fee model is 

better than what we had before. The fee 

is reasonably transparent and easy to calculate. 

The advisor and client’s interests 

are more closely aligned, but when fees 

are expressed in rands and cents rather 

than percentages of AUM, the pressure on 

showing value will increase. 

So, in the current environment of 

growing fee pressure there are a few 

reasons to expect that the AUM-based 

model will change: 

• It does not effectively reflect the true 

value delivered. Two clients with differing 

asset levels can pay vastly different 

fees for effectively the same service. 

• The model relies on wealthy clients to 

finance the majority of the client base, 

which often includes a large group of 

unprofitable clients. Given the introduction 

of choice, there is no incentive for 

wealthy clients to keep doing this. 

• It does not cater for clients who are yet to 

accumulate the minimum asset level, but 

are willing to pay a fee for advice. These are 

typically younger clients who will become 

tomorrow’s target market. 

• Under the scrutiny of fee-sensitive consumers, 

it leads to unfair comparisons 

with other investment-focused 

services. If an investment manager is 

charging an AUM-based fee for managing 

a client’s money, why does a 

financial advisor have the same model? 

The AUM-based fee model may continue 

to work for businesses serving retired 

clients who all require the same service. 

But even here the wealthier will subsidise 

other clients. 

For the large group of consumers who 

fall outside of this group, choice seems 

inevitable. 

In “The Future of Fees”, Simon-Kucher 

examines eight new fee models for 

wealth management that have been 

implemented successfully in the US by 

forward-thinking practitioners. 

The diversity in models reflect the need to 

appeal to a wide range of non-traditional 

segments. 

In contrast to the current model they: 

• recognise that the complexity of a client’s 

situation should be a fee driver, 


FEE MODELS 

• offer choice as a way to differentiate 

value and price, and 

• understand that there needs to be 

a coherent story around the fee 

calculation. 

The range of fee models suggest that 

there will be no one “new fee model”. 

The future will simply be more diverse, 

allowing our profession to profitably 

serve different client types with different 

value and fee models. 

Most importantly, any new fee model 

that an advisor adopts needs to align 

the value provided to the fee being 

paid, and needs to suit the market being 

targeted. This is not about finding the 

“right” fee model. It’s about finding one 

that works best for the specific client 

group you are serving. 

As Simon-Kucher concludes, 

“Moving to a new pricing paradigm 

will not be easy, but it is possible to 

take note, heart, and insight from 

entrepreneurs who have walked the 

walk and are blazing a trail for the 

future of financial advice." 

Pierre Taljaard, Independent Financial 

Advisor and Consultant 


59

LEADERSHIP 

Who dares, wins 

The call for courageous conversations with clients 

The financial planning industry is 

evolving, and clients are increasingly 

expecting conversations about 

more than just the returns their 

investments have achieved. 

As life happens and circumstances change, 

we as planners are expected to adjust and 

plan accordingly. Our products and services 

are no longer a once-off investment but a 

fluid process that’s adjusted to match the 

many life transitions and goals of our clients. 

I believe that the core focus of financial 

planning needs to be understanding the 

client’s relationship with money. 

Clients desire an interpersonal 

connection 

To establish the interpersonal connection 

that our clients expect, our value proposition 

needs to change. It is by engaging in brave 

and authentic conversations that we extract 

meaning and begin to familiarise ourselves 

with the history, values, defining experiences 

and future goals of our clients. Financial 

planning is not an event, it’s a relationship. 

It’s about supporting our clients through 

their financial and life journey. 

Becoming daring leaders 

The challenge is that we need to change the 

way in which we show up with people. Money 

conversations are brave conversations. It’s 

about facilitating deeply vulnerable topics 

that often involve emotions such as shame, 

fear, anger and sadness. We need to feel 

more comfortable engaging at this level if 

we want to stay relevant in our clients' lives. 

I have identified four key skills that we as 

financial planners require to keep up with the 

changing demands: 

• Reinvent our offering to clients through 

thought leadership. 

• Facilitate poignant discussions tapping 

into deeply vulnerable topics. 

• Establish deep interpersonal connections 

to serve clients, which involves being 

daring leaders – as opposed to armoured 

leaders. 

• Pursue personal growth and development 

to be better equipped to help clients reach 

their full potential. 

These skills all relate to one word – courage, 

or, what Dr Brené Brown calls Dare to 

Lead. Brené Brown is a research professor 

at the University of Houston. She has 

spent the past 20 years studying courage, 

vulnerability, shame and empathy, and most 

recently completed a seven-year study on 

courageous leadership. She is the author of 

five New York Times bestsellers: The Gifts of 

Imperfection, Daring Greatly, Rising Strong, 

Braving the Wilderness and Dare to Lead, 

which is at number one on The Wall Street 

Journal and Publisher’s Weekly. 

It is these skills, encompassing vulnerability, 

living our values, braving trust and learning to 

rise, that will revolutionise our industry and 

take us to a place where we serve others, not 

ourselves. 

My personal journey of courage 

I grew up in a family that was dysfunctional 

where money and power was concerned. 

I have been driven to pursue my financial 

independence and vowed early in life that 

I would never give anyone the power to 

control me with money. 

My dysfunctional money psychology 

has shaped many life decisions, financially 

and otherwise, and motivated me to start 

a journey of introspection. Understanding 

how my relationship with money shaped 

my life was a very personal and vulnerable 

process that forced me to work through my 

innermost emotions. 

This was the beginning of my growth 

journey. I realised that I could only live my 

purpose if I understood who I really was. 

Given my personal struggle with money, 

I was intrigued by the world of financial 

planning and intuitively knew that you 

cannot separate people from their money. 

With 

the certain 

knowledge 

that I belonged 

somewhere in the world 

of financial planning, I enrolled 

for a Postgraduate Diploma in 

Financial Planning (2007). I became a 

Certified Financial Planner® and joined 

Chartered Wealth Solutions in 2008. I was 

convinced that traditional financial planning 

missed the essence of how people view 

money differently; that they have unique 

relationships with money. My path became 

clear: I wanted to empower people to 

transform, to put money in its proper place: 

as an enabler. 

Meeting Mitch Anthony 

I discovered Mitch Anthony when I read 

The Next Step by Roy Diliberto and realised 

that I had found someone who shared my 

passion and philosophy around holistic 

planning. John Campbell, Barclay Hoar and 


LEADERSHIP 

I flew to the States to meet and learn from 

him. We returned to South Africa with eight 

books that Mitch had written and a world 

of knowledge, ready to re-think financial 

planning at Chartered Wealth Solutions. We 

now initiate our journey with a life planning 

meeting as a precursor to financial planning, 

giving each client a tailor-made life plan. 

My first introduction to Brené Brown 

During the process of learning, getting to 

know myself better and working with clients, 

I came across a Ted Talk entitled "The Power of 

Vulnerability". This was my first introduction to 

Brené’s work and the beginning of a long-term 

admiration. A good friend shared that Daring 

Greatly was one of her favourite books of all 

time. As a self-proclaimed learner and teacher, 

I immediately bought the book, and started 

my six-year journey with Brené Brown. 

Learnings from Brené Brown 

I have since read all of Brené’s books. Daring 

Greatly taught me that vulnerability is our 

clearest path to courage, and that if we allow 

ourselves to drop the armour, we are more 

open to authentic experiences that bring true 

meaning to our lives. It inspired me to bring 

my whole self to the world, as wife, mother, 

friend, businesswoman and coach, especially 

with clients in life planning meetings. 

Rising Strong contains a powerful 

message: if we are brave, we will stumble and 

fall at times. But it is in the falling that we learn 

from our disappointments, giving us the 

power to rise up with renewed hope. I was 

encouraged to step out of my comfort zone 

and write my book, Retiremeant – Get More 

Meaning From Your Money, and to launch my 

own brand. This was a leap of faith for me, but 

I felt compelled to share my message. Next, 

Brené wrote Braving the Wilderness, which 

guides us to being our authentic selves. 

Parallel journeys 

When I entered the financial planning 

industry, sharing the Life Planning 

philosophy, I was often met with blank stares 

and disbelief. I introduced this revolutionary 

concept at many conferences, urging 

planners to understand their clients’ history, 

principles and personality before advising 

on their finances. Many planners argued that 

they did not have the time for life planning. 

My learnings from Brené’s work encouraged 

me to stay steadfast on my path, offering 

support and guidance to whoever wanted to 

join me. I truly believe that when the student 

is ready, the teacher will appear. 

Brown released her latest book, Dare 

to Lead, in 2018. Her work has had such a 

significant impact on my life, on a personal 

and business level, that I applied (and was 

accepted) to be trained by Brené Brown’s as 

a Dare to Lead Facilitator. 

Dare to Lead keynotes and workshops 

I am excited to share my insights based 

on my personal experience and Brené 

Brown’s 20-year study on courage at the 

Humans under Management conference 

in September. I will be introducing the 

Dare to Lead philosophy to the industry 

and encourage financial planners to move 

towards Daring Leadership. 

Financial planners have a unique role, and 

indeed, responsibility, to understand their 

clients’ relationship with money so that they 

can enable them to change the behaviour 

that no longer serves them – and put money 

in its rightful place. 

Kim Potgieter 

Marketing and Life Planning Director, 

CERTIFIED FINANCIAL PLANNER®, 

Retiremeant Specialist 

• If you would like more information on the 

Dare to Lead programme, please email Kim 

Potgieter at kim@kimpotgieter.co.za 


61

TRANSFORMATION 

No, no, and no 

Advocating a new mindset for financial advisors 

By divine decree none of us 

know where our careers will 

eventually lead us. I started my 

career back in 1982 as a qualified 

analytical chemist with Warner Lambert 

Pharmaceuticals (WL), only to change 

my profession six years later to become 

a business planner at WL. Ironically, my 

nickname at WL in the 1980s was Mojaff. 

My affinity for financial planning started in 

1995/96 when I was contracted to the first 

LISP company, TMA, and “sold” my first unit 

trust investment to a former colleague 

at WL. I learned my first very expensive 

lesson as secretary of an investment club 

at WL in 1998: never try to time the market. 

Fortunately, it was with my own money. 

After two lucky strikes I got it horribly 

wrong the third time. 

At the time I also obtained my BCompt 

degree from UNISA and I acquired the 

proficiency of being circumspect, especially 

with “broker-the-salesman” characters who 

had a reputation for selling products that 

clearly were not in the clients’ interests. 

Soon after I left the corporate world in 

1999 I had a nauseating encounter with one 

such salesman. His sole aim was to make a 

quick sale and score big on commission, 

but I could see through his pitch and 

unceremoniously disarmed him. That was 

my second important lesson. 

Also in 1999, some friends and I invested 

in a paint manufacturing business. Disaster 

struck when our factory went up in flames 

in 2000. Our insurers declined our claim and 

I faced another radical readjustment, from 

a senior position at WL to a jobless and 

penniless state three years later. 

After finally closing down the businesses 

in June 2003 I carefully considered my 

options. After one job interview, I decided 

that working for a boss is not for me. A friend 

who helped me at the time asked why not 

start my own business? 

It was a light bulb moment, almost as 

though the chemistry at WL and the paint 

factory had prepared me for this – my own 

business in financial planning! Another 

friend of mine assisted me to enter the 

industry and set up shop as financial 

planner from my own home. 

My vision was to add value to clients’ 

lives, and not to pursue personal interests 

above that of my clients. It was particularly 

challenging getting the required training 

in an environment where the average 

financial advisor had already been in the 

profession for over 20 years. Everyone 

seemed to complain about the FAIS act, 

although I was of the view that it was an 

overdue and effective measure to contain 

the broker-the-salesman persuasion. 

I recall a case where a broker advised 

a client to cash in his provident fund and 

invest it into an equity fund offered by 

his company. This clearly served his own 

interests while his client would have to 


TRANSFORMATION 

pay an exorbitant amount in tax. Churning 

is another lemon in our industry. Another 

client was persuaded by his broker to 

change his life cover every second year. 

Again, this served the interests of the 

broker and not the client. 

By 2007 I had obtained my post-graduate 

diploma in financial planning and in 2013 

I worked on my Advanced CFP in Estate 

Planning and Risk Management, although 

I did not write the Risk Management exams. 

These competencies are necessary to 

provide the best service to clients. 

Just as we would like the best qualified 

health professionals to look after our 

health, so should we ensure that the best 

qualified financial advisors look after our 

financial well-being. 

The Three No's 

In order to help transform a mindset we 

have banned three words that carry a 

terrible stigma at our offices. If a consultant 

uses these words, they get fined R50. The 

offending words are: 

• Broker. I believe the word refers to a 

glorified salesman and we definitely are 

not salespeople. 

• Sales/Selling. As professionals we do 

not sell products. Instead, we develop 

financial plans/financial homes. The 

different investments are rooms within 

the client’s financial home. The size of 

the financial home and rooms depends 

on the goals and needs of the client. 

• Commission. Commission is what 

you earn when you sell something. 

As professionals we add value to our 

clients’ financial well-being and get paid 

a fee for that. How that fee gets paid 

differs from one advisor to the next. 

Each one of us should take responsibility 

for a mindset transformation in ourselves 

and the industry as a whole. So too 

should the various service providers, 

typically recognised as the companies 

green, blue, red, etc. 

Mohamed Jaffer (Dip Analytical Chemistry), 

BCompt (UNISA), CFP (Stellenbosch) 

Key individual and financial planner at 

Mojaff (Pty) Ltd. 


63

RETIREMENT SOLUTIONS 

For a better retirement 

Spend the income, not the capital 

Duggan Matthews, Investment 

Professional and Chief Investment 

Officer at Marriott 

Four years of disappointing equity 

market returns have left many 

retired investors feeling anxious 

about their financial futures. Unlike 

pre-retirement, the requirement to continuously 

withdraw from a portfolio significantly 

increases the risk of running out of 

capital (longevity risk) when market returns 

are poor. 

To assist retirees in successfully navigating 

this low-return environment, Marriott 

has recently introduced a new fund – the 

Essential Income Fund – into its “Solutions 

for Retirement” fund range. Each portfolio 

is managed to deliver an expected level 

of income and growth in income to assist 

retirees in maintaining their lifestyles in 

retirement, as outlined in the table below: 

Spend the income not the capital for a better retirement 

Four years of disappointing equity market returns have left many retired investors feeling 

anxious about their financial futures.Unlike pre-retirement, the requirement to continuously 

withdraw from a portfolio significantly increases the risk of running out of capital (longevity risk) 

when markets returns are poor. 

To assist retirees in successfully navigating this low return environmentMarriott has recently 

introduced a new fund –the Essential Income Fund – into its “Solutions for Retirement” fund 

range. Each portfolio is managed to deliver an expected level of income and growth in income to 

assist retirees in maintaining their lifestyles in retirement, as outlined in the table below: 

With an exclusive focus on retired investors, we have applied our signature Income Focused 

approach to managing the Essential Income Fund. The portfolio’s key differentiating factors are 

outlined below: 

With an exclusive focus on retired investors, 

we have applied our signature Income 

Focused approach to managing the Essential 

Income Fund. The portfolio’s key differentiating 

factors are outlined below: 

1. Reliable, growing income 

When an investor requires an income from their investment, Marriott recommends drawing 

only the income produced by the investment, which we refer to as the matching principle. By 

drawing only the income produced, investors can be assured that their capital base will not be 

eroded (the biggest contributor to longevity risk). 

To achieve this the Marriott Essential Income Fund invests exclusively in companies that have 

been able to pay reliable and growing dividends consistently over thelong term such as Clicks, 

Reliable, growing income 

When an investor requires an income from 

their investment, Marriott recommends 

drawing only the income produced by 

the investment, which we refer to as the 

matching principle. By drawing only the 

income produced, investors can be assured 

that their capital base will not be eroded (the 

biggest contributor to longevity risk). 

To achieve this the Marriott Essential Income 

Fund invests exclusively in companies that 

have been able to pay reliable and growing 

dividends consistently over the long term, 

such as Clicks (see graph below), Growthpoint, 

Sanlam and Standard Bank. 

Growthpoint, Sanlam and Standard Bank. The dividend track records of these companies are 

illustrated below: 

Optimal long-term asset allocation 

The Essential Income Fund currently produces 

a gross yield of 6.9%, which should grow in 

line with inflation over time. This has been 

achieved through investing in an optimal 

2. Optimal long-term asset allocation 

mix of both growth and higher-yielding asset 

The Essential Income Fund currently produces a gross yield of 6.9% which should grow in line 

classes, with inflation over as time. outlined This has been achieved in the through table investing in an below. 

optimal mix of both 

growth and higher yielding asset classes as outlined in the table below. 

Asset Class 

Asset 

Allocation 

Current Income 

The Fund's asset allocation will remain relatively stable over time as we believe this is the right 

mix for fund's investors looking asset for the highest allocation sustainable level of inflation-hedged will remain income. relatively 

3. Low cost stable over time as we believe this is 

The annual management fee of the portfolio is 0.75% which is highly competitive. 

the right mix for investors looking for the 

highest sustainable level of inflation-hedged 

income. 

Low cost 

The annual management fee of the portfolio 

is 0.75%, which is highly competitive. 

Investor benefits 

A combination of an income focused investment 

approach, with an optimal long-term 

asset allocation and a low fee results in a 

number of key investor benefits, which are 

outlined below: 

Yield 

Long-Term Income 

Growth 

SA Equities 40 - 50% 4.0% 8 – 10 % 

SA Property 25 - 35% 9.0% 3 - 5% 

SA Long Term Bonds 

(15year) 

20 - 30% 9.6% 0% 

Cash 5% 7.0% 0% 

Portfolio Total 100.0% 6.9% 4 - 6% 

Source: Marriott 

1. Sustainable income – no longevity risk 

By investing in assets that produce reliable 

and growing income streams, our incomefocused 

approach looks to match the income 

requirements (rand liabilities) of retirees with 

the income produced by their capital (rand 

assets). Investors can therefore live off the 

income produced by their investments without 

eroding capital, which effectively eliminates the 

risk of running out of capital post-retirement. 

2. More Income – higher drawdowns 

The Essential Income Fund combines the 

benefits of both traditional living annuities 

and guaranteed annuities by enabling an 

investor to draw a higher level of sustainable 

income with increased flexibility (access/ 

ability to leave a legacy). The fund’s current 

net income yield is approximately 6%, which 

is significantly higher than the generally 

accepted 4% “safe” withdrawal rate when 

relying on unpredictable capital growth to 

fund the annuity. 

3. Exposure to quality companies 

The cornerstone of the Essential Income Fund 

is exposure to only the highest-quality South 

African dividend-paying companies (property 

and equities) and government bonds. The 

companies we select are responsible for 

generating the income for our investors into 

perpetuity; therefore, investing in quality 

businesses that are able to continually grow their 

earnings through all cycles is paramount. Over 

the long term, companies of this nature tend to 

produce solid income and capital returns. 

Summary 

Subdued returns and endless choice have 

left many retirees feeling anxious about their 

financial futures. Using the Essential Income 

Fund to “spend the income not the capital” 

will get your retirement plan back on track. 

For more information on the fund please visit 

Marriott’s website (www.marriott.co.za). 

64 


Marriott's Solutions 

for Retirement 

Solving the 

Retirement Puzzle 

Contact us on 0800 336 555 

or visit www.marriott.co.za

Rewarding career 

opportunities 

to make a 

difference 

Achieving a fulfilling and rewarding life is a journey. 

Every individual’s journey is unique, with different 

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Are you target-driven, 

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determine your own income? 

Then read on… 

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Momentum Investments is a division of MMI Group Limited, an authorised financial services (FSP6406) and registered credit (NCRCP173) provider.

Blue Chip Journal - June 2019 edition

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