Blue Chip Issue 78 - Jan 2021

Issue 78 • January 2021
www.bluechipdigital.co.za
The Official Publication of the FPI
OUTCOME-BASED
INVESTING
Martin Riekert of Momentum
Investments on placing the
client’s goals at the centre
of the plan
A HEART FOR
THE PEOPLE
Meet Hester van der Merwe,
2020 FPI Financial Planner of the Year
THOUGHTS, CHOICES, ACTIONS
The 3 roles of the financial planner
SPECIAL EDITION: INVESTING OFFSHORE

Linking precision investment
management to financial advice.
For advisers.
Investment Management by Design
portfoliometrix.com
PortfolioMetrix Asset Management SA (Pty) Ltd is authorised and
regulated financial services provider operating in South Africa,
regulated under the Financial Advisory and Intermediary
Services Act 37 of 2002 (FSP No: 42383).

CONTENTS
02 WHAT’S HAPPENING AT THE FPI?
Message from the CEO
04 EDITOR’S NOTE
By Alexis Knipe
05 ON THE MONEY
Milestones, news and snippets
08 HESTER’S MONEY STORY
Meet the FPI Financial Planner of the Year 2020,
Hester van der Merwe CFP®
12 THE WISDOM OF WEALTH
Blue Chip interviews Martin Riekert, Executive Head
of Retail Investments at Momentum Investments
16 NEXT GENERATION LEADERS
Kapil Joshi and Fareeya Adam from
Momentum Investments
18 THE ROLE OF OFFSHORE INVESTMENTS
FOR SA INVESTORS
Column by Florbela Yates, Head of
Momentum Investment Consulting
20 THE OFFSHORE OPPORTUNITY SET
A tour of the offshore investment landscape
23 OFFSHORE 2020
Old Mutual Wealth offers a comprehensive guide
to all the aspects of investing offshore
43 SLOWLY UNPACKING FINANCIAL EMIGRATION
Should you take all your money out of South Africa?
46 WHAT HOLDS SOUTH AFRICANS
BACK FROM INVESTING OFFSHORE?
Your offshore investing questions answered
48 SHOOTING FOR THE NORTHSTAR
Blue Chip speaks to Rory Spangenberg, CIO and Director
of Global Equities at Northstar Asset Management
50 EMERGING MARKETS
Why you should consider other emerging markets (EMs)
when investing offshore
52 NEW HORIZONS
The dominant asset management model in
South Africa is set to change, by PortfolioMetrix
54
BEING SPOCK (AND NOT HOMER)
How understanding investor switching behaviour
can help improve your investment returns
56 3 ROLES OF THE FINANCIAL PLANNER
Facilitating thoughts, choices and actions
58
HAVE YOU THOUGHT OF YOUR 2021 PLAN?
Nonhlanla Nxele, CEO, Tokoloho Financial Services,
tells us how to master our destiny
60 ARE YOU, THE FINANCIAL ADVISOR,
STILL RELEVANT?
Learn more about the Momentum
Intemediary Coaching Programme
62 HOW CONFLICTED ARE PROFESSIONAL
FINANCIAL PLANNERS?
Appreciating the psychological factors
that lie behind conflicts
ISSUE
78
JANUARY 2021
Hester, congratulations! After a grue ling competition,
you have been awarded the FP of the Year 2020. What does
winning the award mean to you? Thank you! I want to give a l the
honour and glory of winning the award to my Heavenly Father. For
me, it represents such a growth opportunity – even the journey from
entering up to just before the announcement had been amazing – a
constant learning curve! For the practice, this is also a big deal since
I am the third winner of the award from Ultima. Ge rit Viljoen won
the award in 2003 and Jan-Carel Botha won in 2012 (he no longer
works at Ultima).
What was your motivation for entering the FP of the Year
competition? American busine sman Max De Pree said: “We cannot
become what we need to be by remaining what we are.” I believe
you cannot grow in any role without pushing yourself out of your
comfort zone. This competition certainly pushed me way out of my
comfort zone and presented a steep learning curve.
You studied law a the University of Pretoria
and then you obtained your Post Graduate
Diploma in Financial Planning as we l as
Financial Planning and Services at the
University of the Free State. Why did
you change your field of studies? When
I decided to study law, my objective was to
become a prosecutor. I have always fel the
need to be useful – to add value – and this
career path seemed to offer that. As a student, I
worked at a firm of a torneys in the debt co lection
department and after graduating I migrated to the
debt co lection department of a bank. I found
th environment very harsh and did not
enjoy the work.
While raising a young family, we
decided that I would work half-day
and that resulted in me entering
the financial industry as an admin
a sistant. I was quite reluctant as
I did not have a positive view of
the industry at a l! However, I was
fortunat enough to enter the
industry alongside an amazing planner whose a tention to detail
and close relationships with his clients made me change my mind
completely and I grabbed the opportunity with both hands.
To be ter understand the work he was doing, I enro led for the
Post Graduate Diploma, with no intention of becoming a planner
myself, but only to gain a be ter understanding of the inner workings
of a financial plan (and to improve my Excel sheets). However,
once the planning bug has bitten you, there is no turning back. So
I persisted until I was able to write CFP® behind my name!
You started your career trajectory as Head of Wealth Planners
at FNB in 2012 and then as Financial Advisor at Ultima Financial
Planners in 2015, where you cu rently are. Besides winning
the FPI award, what has been the highlight of your career?
Head of Wealth Planner sounds much more impre sive than it
was. I headed up a very sma l but exce lent team of Certified
Financial Planners®. There I discovered the beauty of a fixed salary
as opposed to commission-driven advice. Our job description
simply included making sure clients received the best advice
without offering any products. Clients valued this unbiased advice
and I was able to gain a lot of insigh that I can now apply when
dealing with our clients at Ultima. Hence, that experience counts
as a highlight for me.
According to the FPI, you set yourself apart from the
other competitors through your depth of knowledge, the
immeasurable detail of your financial plans, as we l as your
extraordinary commitmen to clients. How important is each
one of these factors in the financial planning profession? I think
they are a l equa ly important. Without a sound knowledge of the
technical and legal aspects of financial planning, it wi l be impo sible
to do a financial plan without endangering both the client and the
good name of the profe sion. This goes for an a tention to detail
HESTER’S
MONEY STORY
as we l. In financial planning, the adage “the devil is in the detail” is
unquestionably applicable! The last is where my pa sion lies. The
most rewarding facet of financial planning is the people we work
with. A financial planner should have a heart for people. We need to
be mindful of the fact that the work we do impacts directly on our
clients’ lives and wellbeing.
How were you able to rise above the economic and pandemic
crises facing South Africa and the world, and sti l manage to
maintain the level of exce lence required to win the coveted
title? I would not have been able to accomplish this without a strong
team behind me. At Ultima, we believe in building a diversified team
where each player is a lowed to play to his or her strengths. This
mean that we were able to cope with the cha lenges by making
slight adjustments only and could continue to offer the same level
of service to our clients throughou this difficult year. I, therefore,
felt empowered to tackle the competition and give it my best shot.
Amid the highly cha lenging circumstances of Covid-19, what
was the biggest lesson for you? Has the pandemi changed
your approach to financial planning? A tried and tested proce s
is no guarantee that a super-fast about-turn is not lurking around
the corner. Be forward-looking at a l times, identify possible threats
and how to deal with them when the time comes. The pandemic did
not change my approach to financial planning, since I have always
been very client-focused. The heartfelt and enduring relationships
we form when doing lifestyle financial planning is a the centre of
my regard for the industry and this stayed true while dealing with
the pandemic.
What changes would you like to see in the industry? Change is
inevitable as we a l know by now, and wi l be exponential. Now may
be our only opportunity to secure the integrity of financial advice
going forward and this is where my focus lies. We are extremely
fortunate that our industry has had the opportunity to develop
to where we are now – we are ski led profe sionals, subscribing to
a carefu ly cultivated profe sional standard and practica ly apply
the FPI code of ethics in our everyday dealings with the public.
Development in AI and therefore fintech wi l undoubtedly change
financial planning as we know it i revocably.
We have to start asking questions such as: Is it po sible to instil
the principles of our Code of Conduct into a Robo advisor? I think
we need to stand together now more than ever before and ensure
that our voice is heard during this time of exponential growth and
development – that our principles and our very humanity do not
get washed away by this tech-driven tsunami.
As this year’s FPI ambassador, how wi l you use the platform
to motivate change? I wi l encourage women from a l walks of
life to put on their financial boots and climb the mountain they are
facing. If I can encourage women to tackle their financial affairs, ask
to be included in the decision-making proce s of the household or
to become a Certified Financial Planner® that wi l be bri liant!
I would also love to introduce people to their money stories. It is
so important for everyone to understand that they have a unique
money story, which has been wri ten almost since the day they
were born. This personal story gives colour to the way we perceive
money and creates our blind spots, opens certain doors for us and
closes other doors. Once we understand this, it is po sible to rewrite
our story and open up new possibilities. The cha lenge is that very
few people even realise tha they have a money story, much le s
understand the impact it may have on their lives! If I can accomplish
this I wi l feel that my year has been turned to good account.
What do you consider as the most important trait of an
accomplished financial advisor? You must have a heart for
people! The qualifications, experience and technical knowledge
should be a given.
What do you deem as the most critical component to financial
success? Set sound long-term goals and work with a financial
partner that can keep you accountable and help to magnetise your
compa s when you lose your true north.
Do you have any advice for women that are considering a
financial career? Do not expect i to be easy, but do expect i to
be the most rewarding journey you will ever undertake. Make sure
you are 100% clear on your “why” and focus on that, even when the
going gets tough.
Please share a message of motivation for those that have
considered competing for the FPI award in future. Do not
hesitate! This is such a unique experience and wi l present you with
a once in a lifetime opportunity to grow and become who you were
meant to be!
On another level, your practice wi l benefit immensely from this
exercise. You are forced to consider a l aspects of your practice once
again and view it from a different perspective while preparing for
every stage of the competition. If you are in earnest, opportunities
for improvement wi l present themselves regardle s of the outcome
of the competition.
Winning brings so many opportunities to you and your practice.
Both existing and prospective clients wi l feel rea sured that their
financial planning wi l be thorough and tailor-made. Trust is earned
over time, bu this award wi l help clients to gain a measure of
confidence in you and the practice.
Investment philosophy? My philosophy is to be patient and never
make emotional decisions.
FOR FINANCIAL PLANNERS
• Always be aware of the big picture: how wi l your
actions impac the reputation of the industry?
• You cannot be everything to everybody. If a client is
not a good fit, walk away firmly but with kindness.
• Work on your listening ski ls. This may be your most
important action when dealing with clients.
• Do not be afraid to show your vulnerability.
• Always plan for the person, not the portfolio.
FOR CLIENTS
• Choose your financial planner carefu ly. This is a
partnership that should last and you must feel
secure in the relationship.
• Adhering to the fundamentals wi l add more
value in the long term, than trying to time
the market.
• Do not lose sight of your long-term goals. Even
when it feels counterintuitive, stick to your plan.
BLUE CHIP ADVICE
FINANCIAL PLANNER OF THE YEAR
FINANCIAL PLANNER OF THE YEAR
Meet the 2020 Financial Planner of the Year, Hester van der Merwe CFP® from Ultima Financial Planners.
The FPI Financial Planner of the Year award is the highest accolade bestowed on financial planners in
South Africa as it represents the very pinnacle of the profession.
It is so important for everyone to
understand that they have a unique
money story, which has been written
almost since the day they were born.
Hester van der Merwe CFP®, Ultima Financial Planners
It is possible to rewrite our story
and open up new possibilities.
T
hink of a country’s cu rency as it share price. When
there’s negative sentiment about a country the local
cu rency weakens and overseas cu rencies become more
expensive. It seems an inopportune time to se l your rands
and yet many investors do jus that: when the domestic cu rency
loses values against peers, spooked investors tend to move their
money abroad. Those investors who did this when the do lar was
at R18 wi l be si ting with their heads in their hands now that it’s
strengthened to R15-odd.
In short, investors tend to chase performance in cu rencies as
they do in stock markets and this can be a damaging strategy.
Often investors pursue this route because it feels “safer” or less
“scary”. As with a l investments, fear is never a great strategy. A
sound, solid financial plan looking at a l aspects of your investment
goals can help you stay the course and char the “unknown”. And
if anything, this year has been a pre ty stark reminder of how li tle
control we have over predicting the future.
The level of comfort or te ror you derive from watching the rand
move up or down in line with most foreign cu rencies is part of the
emotional ro ler-coaster tha tends to fo low markets, and then
investors. Investing offshore, like a l investment a locations, should
be done in with a holistic view of your financial plan in mind.
What should I invest offshore?
How much you can invest offshore wi l depend very much on
your financial circumstances, your risk profile and your investment
horizon. Most importantly, you should consider how we l your
a sets and liabilities match. Your a sets should, for the most part,
be in the same cu rency as your expenses.
It might be that you wan to send your children to an overseas
university or perhaps that you want to retire abroad. To fund these
expenses, it’s a good idea to own assets in the right cu rency to
avoid being unnece sarily impacted by unfavourable movements
in the exchange rate. That’s not to say that if you plan on staying in
South Africa you don’t need to be taking your money offshore. It’s
completely the opposite. Given the economic backdrop in South
Africa, it may we l be prudent to move some of your a sets overseas
from a diversification point of view.
Economic theory is not a perfect science. It does make some
suggestions on how to think about the level of offshore exposure
you need in your portfolio. In comparison to most trading partners
for South Africa (Inc), we have higher inflation numbers (even at
these low levels), which means we could expect our cu rency to
depreciate over time. The fact that we’ l be importing goods in our
shopping baskets at a weak or weakening cu rency, wi l over time
increase inflation and the cost of living. Common advice suggests
tha the first rule to wealth creation is wealth preservation – or
the ability to protect the purchasing power of your money in
the future. This is a more noble goal than it receives credit for – a
common goal that applies to a l investors.
When should I invest offshore?
The wrong time to invest offshore is when the rand is weak because
one unit of foreign cu rency is going to cost more rands than it did
before the cu rency weakened. Trying to time the movement of
the rand, like trying to time the markets, has proven to many to
be a futile undertaking. Sure you can make an educated gue s,
but it’s far better to consistently move your money over time. This
way your gains from exchanging at a good rate, and your lo ses
from exchanging at a bad rate, should balance each other out.
The principle remains that it’s the long-term effects that ma ter
most and these are the most deserving of your focus and planning.
How should I invest offshore?
It can be quite overwhelming deciding where to start offshore
investing, but it needn't be. Broadly speaking, there are two
approaches: the direct offshore investment using your investment
a lowance, or investing indirectly by accessing a fund manager’s
institutional a lowance.
Direct. You can convert your rands into foreign cu rency by
physica ly moving your money from a South African bank
account into an offshore account if you are over the age of 18 and
a taxpayer in good standing. This is most suitable for investors
who are happy to leave assets offshore for the long term, perhaps
because they plan on a lot of international travel or they expect
to incur expenses overseas.
The South African Reserve Bank (SARB) a lows individuals
to take up to R1-mi lion out of the country a year withou tax
clearance. A further R10-mi lion can be moved offshore each year
with the approval of the SARB and a tax clearance certificate. These
funds can then be used to invest directly in offshore assets of your
choosing. There’s a lot of flexibility associated with this approach
and you can choose the cu rency you receive your proceeds in.
Indirect. The alternative is to invest in rands through:
• A loca ly-administered unit trus that is mandated to invest a
portion of the fund in international markets. Local funds can
invest up to 30% of their a sets overseas and an additional 10%
across the African continent.
• A foreign-administrated rand-denominated local unit trust that
invests entirely offshore. These are known as “feeder funds”.
Both structures can give you acce s to international markets
without physica ly moving your money abroad and you are not
restricted by how much you can invest in the uni trust (it doesn’t
count as part of your personal R11-mi lion offshore a lowance). This
can be a straightforward option if you are happy that the proceeds
from any divestment are paid to you in local currency again. And
importantly, this route can be the most acce sible way to acce s
offshore markets as investors could start saving with R500 a month
via debit order in some of these funds.
A l investors should be sure to understand the tax considerations
and differentiations involved with these routes, as we l as the
estate planning consequences for owning a sets abroad. While
it is potentia ly simpler then you thought, we would suggest you
su round yourself with trusted professionals and sound advice
when drafting a financial plan, or any investment strategy.
Where should I invest offshore?
Investors can be faced with a daunting choice of offshore options. Do
you look to the we l-known developed markets, where companies
are potentia ly be te recognised and understood but economic
growth is subdued (with consequences for earnings potential)? Or
do you look to the emerging East, where companies are perhaps
less familiar but economic growth is be ter and earnings prospects
may be brighter? How do you genuinely a se s the merits of any
international market from as far away as South Africa?
The best way to navigate these cha lenges is to partner with
a seasoned international fund manager
that has local presence and in-depth
knowledge of the intricacies and
idiosyncrasies of most global markets.
There is an increasing number of global
asset managers with funds on offer in the
South African market so it’s becoming
easier every day for investors to invest
offshore. As with most things in life, be sure
you do so with the right objectives and
rational reasoning. Emotions are powerful
motivators, but often no the long-term
investment partners you can count on.
The views and opinions contained herein
are those of the author.
Local funds can invest up to
30% of their assets overseas
and an additional 10% across
the African continent.
How do you genuinely assess the
merits of any international market
from as far away as South Africa?
Your offshore investing
questions answered
Ebeth van Heerden,
Head of Intermediary
South Africa, Schroders
What holds South Africans back
from investing offshore?
www.bluechipdigital.co.za
46 www.bluechipdigital.co.za 47
OFFSHORE INVESTMENTS
OFFSHORE INVESTMENTS
1 “Nixon, P.P., Barnard, M., Bornman, R., and Louw, D.J.D. 2019. The
South African investor behaviour tax and helping investors count
what counts. Momentum Investments.
2 See Kahneman and Tversky, 1979, and Tversky and Kahneman, 1992.
3 Sitkin, S.B. and Pablo, A.L. 1992. Reconceptualizing the determinants
of risk behavior. Academy Of Management Review, 17(1), pp.9-38.
54 www.bluechipdigital.co.za 55
www.bluechipdigital.co.za
INVESTOR BEHAVIOUR
Being Spock
(AND NOT BEING HOMER)
risk that Nobel Laureate Daniel Kahneman developed with Amos
Tversky 2 . CPT highlights firstly, the importance of a reference point
for individuals when they make decisions – they hate lo ses more
than they like gains; and secondly, decision-makers’ inability to
co rectly a se s probabilities – they overweight extreme outcomes.
Sitkin and Pablo 3 extend this work by proposing that while
investors each have a “risk preference” or character trait of being
a tracted o repe led by risk, this preference is mediated by our
“risk perceptions” or asse sment of risk in any given situation and
our “risk propensity” to take risk, which is a function of recent
experience in thi space. In short, humans are particularly poor
at assessing risks and can easily be fooled by something as
simple as the way a given situation is framed. Investors typically
underestimate risk when experiencing lo ses and often look for
excess risk at the opportunity of negating
such painfu lo ses. Moreover, our propensity
to a sume risk is significantly affected by prior
outcomes (recent succe ses or failures).
These insights guided our choice of the
explanatory variable for what is a first for
South Africa: a segmentation of South African
investors based on a risk-based analysis of the
switching of their holdings in discretionary
unit trusts. Switches were grouped based
on the relative historical performance of
the funds being switched out of and those
being switched into; the relative risk profiles
of these funds and fina ly, the average number of switches and
their frequency. The use of the Hierarchical Clustering technique
showed tha there are five clearly defined groups (or archetypes)
of switching behaviour inside this large sample of investors:
1) Risk Avoiders. These switches are made by investors who
tend to have a low-risk appetite and rather avoid risk altogether.
They therefore stick to a more conservative a set allocation and
do not switch often. Keeping with avoiding risk and avoiding
change, they are likely to remain in funds with similar (low) risk.
They are relatively likely to chase past performance when cu rent
performance is below inflection. This behaviour seems to be
more common in older investors and slightly more common with
females compared to other archetypes.
2) Contrarians. As the name suggests, these switches are made
by investors who are seemingly showing the opposite behaviour
than that of the other archetypes. They have a seemingly high
risk preference and a high tolerance for downside risk. Whether
performance is high or low, these investors rarely chase past
performance: they are more likely to switch to funds with worse
past performance. Keeping with the title of this archetype, this was
the only cluster which realised a positive behaviour tax.
3) Market Timers. The main driver here is switch frequency since
marke timers constantly move between funds in an attemp to
beat the market and maximise returns. These investors show a mix
o fear and greed driving switches. We see that such behaviour
leads to high behaviour tax during periods of crisis and periods
of fluctuating markets.
4) Anxious. Investors with this type of switching behaviour
seem to have a low risk appetite; however, they do not avoid risk
altogether. These investors are very sensitive to downside risk and
are likely to act out of fear when underperformance looms. They
are very likely to down-risk and chase past performance when
cu rent funds are performing below inflection. Such behaviour led
to high behaviour tax, especially during periods of growth where
they would be “mi sing out” on performance.
5) Assertives. Investors with this type of switching behaviour are
more risk-tolerant and set on chasing past performance. When
chasing past performance, it is mostly between funds with similar
risk profiles. We expec these investors to be overconfident and
to fo low their ways and not be influenced as much by advisors.
The distribution of the occu rence of these switches through time
is presented in the graph (above). As expected, the “Anxious” and
“Risk Avoiders” switches dominate in times of crisis and poor market
returns. The “Market Timer” switches peak after the crisis period.
Why is this segmentation important? A better understanding
of the compromising nature of myopic risk behaviour (which
places too much emphasis on the transient present and its related
emotions) is key to understanding your behaviour, and, if you’re an
advisor, your clients’ behaviour. More importantly,
it can provide a proper basis for intervening at
the righ time to avoid the a sociated negative
implications of these behaviours. Ultimately, the
point is to help a l investors avoid the harmful
outcomes of them “being Homer”. These empirical
insights are key to achieving this outcome.
* This article is a summary of a white paper:
“Understanding the great forces that rule the
world. A study on South African investor behaviour”
wri ten by Paul Nixon, Evan Gilbert and Dirk Louw of
Momentum Investments in October 2020.
How understanding investor switching behaviour can help you improve your investment returns
W
hen we make decisions, we would a l like to think that we are more like
Mr Spock from Star Trek (who uses relentle s, emotionle s logic) than Homer from
The Simpsons (who doesn’t). Unfortunately, it is sad, bu true, tha the opposite
is usually co rect. Multiple studies have demonstrated that investors’ decisionmaking
is dominated by their emotions and these emotions are usua ly counterproductive
from the point of view of their investment returns. These studies a l clearly show tha there
is a “behaviour tax” acro s the world that makes investors’ experiences of their investments
far worse (from a returns perspective) than they could have been if they had simply sat on
their hands. A recent study 1 of the South African experience confirmed these results over the
period 2006 – 2018.
To help understand what behaviour lies behind thi self-destructive behaviour and thus
what we can do to help ourselves (and our clients) a study of 44 815 switches conducted
by 23 390 clients on the Momentum Wealth Linked Investment Services Platform (LISP) was
recently conducted for the period January 2006 – December 2017. The theoretical basis for this
study started with Cumulative Prospect Theory (CPT) – the theory of decision-making under
Humans are
particularly poor at
assessing risks and
can easily be fooled
by something as
simple as the way
a given situation
is framed.
Professor Evan
Gilbert
INVESTOR BEHAVIOUR
W
e a l know that 2020 was a difficult year in a l aspects
of our lives. It was even worse for financial advisors
who did not build an annuity income for their
businesses or practices. It is abou time that we
start doing things differently, the same way we tell our clients to
review their financial planning yearly. We need to apply the same
principles and change the way we do things so we can see different
results in 2021.
You will need to start by reviewing your value proposition to
your clients. Le them know what you stand for and what makes
you unique. There are so many financial advisors ou there, but
your clients work with you for a particular reason. Do you know
wha that reason is? Do you know why they trust and understand
you compared to your other co leagues? If you don’t know that
reason, send a select group of clients questionnaires that wi l give
you a clea reason why they work with you and if it defines you.
Find a mentor or coach that can help you avoid mistakes and
guide you when you feel lost and wan to discu s ideas that wi l
help grow your business. You must look for a mentor or a coach
who is on a higher level than you, so they can be able to share
their wisdom with you. You need a person who you can share your
problems with, and they wi l be able to give you tools to resolve
your problems. They must be able to guide on both personal and
busine s aspects to help you balance your life.
I was privileged to have had a mentor on this path and he
managed to show me my weak and strong points in the business
and how I can work on these to help me grow my business.
I was taugh the difference between working in the busine s and
working on the busine s. Working in the busine s means going out
and seeing clients fu l-time and working on the busine s is working
on growing your busine s by a tending se sions and workshops
tha talk about business development. We need to a locate more
time to working on the busine s than working in the busine s.
Restructure your busine s by reviewing your client base, your
products, sales and review strategy. This wi l help you find your
specialised area that you can focus on and be the best at it. When
you review your client base, you wi l be able to segment your
clients so you know how your book looks and also if you are still on
track working with your target market. When we are building our
busine ses we end up losing focus on our target market as we take
any clients that come our way, which is understandable, but wi l it
grow your busine ses at the pace that we want it to grow?
Work on tha target market and stick to it.
Let us learn to do things differently this year. Start ca ling a l
your existing clients and touch base with them to understand their
cu rent financial goal. This wi l help them rethink their lives and
their financial goals. Ca ling your clients for a check-in wi l make
them even happier about your services. If the conversation persists,
propose a Zoom meeting so you can guide them further. Remember,
clients are looking for more of a financial coach than a financial
advisor. If they receive great service and advice, they wi l pay for it.
Lastly, get a supporting team such as an administrator and
a paraplanner because you cannot handle a l the paperwork by
yourself. You wi l need to delegate activities that are not directly
linked to affecting you results. I know most of us cannot afford
to pay them bu there are programmes in the industry that help
with funding. You can partner with TVET (Technical and Vocational
Education and Training) co leges that need to place learners for 18
months to a sist with administration or
apply for interns with INSETA (Insurance
Sector Education and Training Authority).
INSETA can also help with paraplanners.
Use the resources that are available to us.
With everything you do in 2021, do not
forget to digitise your busine s.
Remember, we are the masters of our
destiny, therefore by taking these first
steps you are building a business that
can self-sustain and survive the next
pandemic, regardless of what it is. The
above-mentioned points ar essential
and wi l redefine your perspective
towards the future. Happy planning for
your succe sful 2021!
2021 PLAN?
Nonhlanhla Nxele,
CEO, Tokoloho
Financial Services
Have you thought
59
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We need to allocate more time
to working on the business
than working in the business.
of your
FINANCIAL PLANNING
FINANCIAL PLANNING
58 www.bluechipdigital.co.za
Master your destiny
SLOWLY UNPACKING
FINANCIAL
EMIGRATION
South African financial planners are
regularly presented by clients with the same
conundrum: should I leave South Africa…
or take a l of my money out of the country?
W
e are members of the Vulintaba Association, a
group of lifestyle financial planners a l of whom are
CFP® Profe sionals. We work together to see how we
can serve our clients by doing financial planning be ter
and also how we can run world-cla s busine ses. Before lockdown,
a number of us were debating the concept of financial emigration.
If you are reading this publication you are in the financial services
industry, but let me be clear from the outset: we at Veritas Wealth
believe that the financial planning proce s comes first, and then when
this planning proce s is finished, and then and only then, we look
to implemen the plan and use financial products. This distinction
is critical because financial emigration is the implementation of a
financial plan. If you just jump straigh to financial emigration, you
are, as they say, pu ting the cart before the horse.
The genesis of financial emigration is based on fear. As financial
planners, our job is no to decide how or where people should
live. Our ski l is to show them the consequences of the lifestyle
decisions tha they have come to discu s with you, their trusted
advisor. A l our advisors recently completed a behavioural
coaching programme. During the course, one starts to pick up
that as financial planners we a l enter conversations with clients
with our personal biases and blinds spots. It is critical to recognise
these and also to try to keep them, as best as po sible, out of the
conversation. Never forget, the meeting is abou the client, not
about you and your opinions. Our job is to help the client unpack
the issue of financial emigration for them and from a family
perspective. Our ski l and value add is in the questions we ask
rather than in the answers we give. Our clients have the answers
themselves; we can only show them the likely consequences of
the decisions they make.
Cu rently, many South Africans are losing faith in the
government and the country. There is a real sense of fear but,
interestingly, many clients have no intention of leaving, either
because they cannot afford to leave or they realise this is a
wonderful place to live.
RULE 1 | Fear se ls
If you want to se l a product or an idea, then fear is a powerful tool.
If you want people to take money offshore so that you can earn
offshore income, then hi the fear bu ton. It wi l se l the product
or service very succe sfu ly. The media regularly use bad news and
fear to capture our a tention, so product houses and advisors are
now too pushing this bu ton more regularly.
The issue is that more clients are saying tha they do not want
to make contributions to retirement annuities (RA) this year.
They also wan to cash in on their pensions and take wha they
can offshore. Some even wan to se l their homes. You hear the
comments around the braai or at sma l gatherings. Prescribed
a sets, sovereign downgrades, tax morality and state capture add
to the long list of othe reasons to get your money out of here.
Your job as a planner is to slow this down and go through the
numbers. Your client must understand the consequences. Also ask
them, if they have considered the fac tha they may be wrong.
RULE 2 | The power of compound interest
We a sume you pay tax at 41% marginal rate. This was to February
2020. The money is invested in a RA pre-tax. When you retire,
your tax rate is lower, probably 25- 30% marginal when you start
drawing a pension. A common conversation is about ge ting as
much money offshore as you can get your hands on. Should you
contribute to you retirement fund? Here are the numbers:
Do not use RA Use RA
Income earned pre-tax R350 000 R350 000
Contribution to RA R0 R350 000
Income tax payable 2020 @ 41% (R143 500) R0
Amount available for investment R206 500 R350 000
Our skill and value add is in
the questions we ask rather
than in the answers we give.
0
Old Mutual Wealth (OMW) is an elite service o fering brough to you by severa licensed Financial Services Providers in the Old Mutual Group. This document is for
information purposes only and does not constitute financial advice in any way or form. It is importan to consult a financial planner to receive financial advice before
acting on any information contained herein. OMW, the Old Mutual Group and its directors, officers and employee sha l not be responsible and disclaim a liability
for any lo s, damage (whether direct, indirect, special or consequential) and/or expense of any nature whatsoever, which may be su fered as a result of, or which may
be a tributable, directly or indirectly, to the use of, o reliance upon any information contained in this document.
OFFSHORE INVESTMENTS
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FINANCIAL PLANNING
33
for the client to answer. As Albert Einstein said (or
attributed to have said), “If I had one hour to solve
and my life depended on the solution, I would spend
minutes trying to find the right question to ask, and
minutes determining the answer.” For the Robo-advi
risk is Garbage In, Garbage Out.
In working with a person directly, the human adviso
to find the right questions to ask. Questions that he
to think through their circumstances, situation, dilem
goals and dreams. A conversation is a fluid process w
think together. The Robo-advisor may think up to
a client. But it will need to be pre-programmed with
of options to help each client think through their ow
coming up with appropriate answers for whatev
their life is being examined.
People in general don’t always have the
insight into their own lives. We don’t know wh
know. We have blind spots. We have hidden un
talents. We may even have hidden or repr
desires, dreams. The Robo-advisor as
client knows what they want. You a
advisor cannot assume that. As a thinking partner, yo
clients think about their lives. To understand their co
relationships with themselves, their relationships with
the world. Having developed that understanding, yo
clients explore their potential choices to deal with the m
in which they find themselves.
Choice architect
My father could’ve instructed his crew to stay with th
It was what he believed was the best course of action
case of life or death, he had to allow each man to mak
decision and live or die with it. If your clients don’
decisions, you rather than they become accountab
decisions. The waters of the future are always murky.
In helping clients make choices, financial planne
role of the choice architect. But anyone who has wor
architect will know, it is not simply a matter of the arch
you what to do. The client always has opinions, wis
and wants. Often there is much emotion that underp
– whether it be fear, desire or even excitement. And un
it seems that when it comes to working with clients’ m
often choices are made in fearful response to the
perceived dangers or threats.
Most often the story we focus on is the story of t
is the way we are wired. Our brains are continually
threats. That’s how we have survived as a species. Iden
and avoid them. It is no surprise that the most com
tool to help with client investment decision-making is
profile. It’s not called an opportunity profile or a ret
it’s called a risk profile. And we use such a profile wh
investment decisions because we as human beings
make rational decisions. We are not always rational.
M
y father was a pilot in the Second World War. He flew
Wellington bombers for the RAF. Their job was to fly
at night and bomb strategic enemy positions. On one
mission my father’s plane had mechanical difficulties
over the Red Sea. They managed to crash-land into the sea. Although
the plane broke apart on impact, three of the crew survived the
crash and managed to hold onto pieces of the fuselage.
It became apparent that there were sharks in the water, circling
them. I’m not sure how the conversation went at that stage, but
their dilemma was whether to hang onto the pieces of wreckage
and hope for the best or swim, hoping to get away from the sharks.
My father was the only one who decided to stay put. The other two
crewmen felt they had more chance of survival by swimming away
from the danger lurking in the water. They were never seen again.
The next morning my father washed up onto the Arabian coast.
He was not in a great state. But fortuitously some Arabian soldiers,
who had been alerted to the crash, were searching the coastline
for any survivors. Miraculously they found my father lying on the
beach. Despite being a bit of wreck himself he had to endure
a two-day journey on the back of a camel to get to the nearest
hospital. For many people, such a journey is a bucket-list activity.
I don’t think he enjoyed it much. But he survived. And after his
recovery was able to return to action.
Many factors led to my father surviving what should have been a
fatal crash. Floating wreckage; the direction of the current; soldiers
remarkably finding him. But before any of those factors could come
into play, he had to make a decision, amidst uncertainty, and in the
face of immediate danger. His crew decided that to act and swim
for safety was the right decision. My father, despite the obvious
dangers, decided that to hang onto some wreckage and let the
ocean take control was the best option for him. They were faced
with a tough choice,
in murky water, in the
dark, with immediate
danger present.
What relevance does this
story have to financial planning?
When a financial planner sits with a
client, the context may be different but
similar challenges are present. The future is uncertain. The waters
are murky. There are often visible and invisible dangers or threats
to consider. And invariably a financial planning meeting involves
difficult decision-making. Whether it be a decision to do something
or not, it is still a decision.
Often with life-changing implications. To save or not. To
spend less or more. To take out life insurance. To prepare a will.
As a financial planner, you help clients make and implement
key decisions about their life and money. If one considers what
goes into making a decision, there are usually three ingredients:
thought, choice and action.
Thinking partner
In the immediate aftermath of their crash, my father and his crew
had to think about what to do. When clients come to you, they
may not know it, but the first thing they need is help to think
about their situation, their dilemmas. As human beings, we have
the unique ability to think together. To share thoughts. To share
how we see ourselves, others and the world. We do this through
communicating, written and verbal. Conversation. Books. Media.
A Robo-advisor can prompt a client to answer questions which
will follow a decision tree pattern that will lead to a solution for the
client. But those questions are not necessarily the right questions
3 ROLES
ROLES
56
Facilitating thoughts,
choices and actions
no surprise, then, that Ricardo Semler, a
highly successful, innovative industrialist
and entrepreneur from Brazil, wrote a
book entitled The Seven Day Weekend. He
encourages employers to think differently
about how they manage their people, and
more importantly, how to get the best out
of people. He argues that technology that
was supposed to make life easier such as
laptops, cellphones and email, has actually
encroached on people’s free time.
But as he says, this can be a good thing
if you have the autonomy to get your work
done on your own terms and to blend your
work life and personal life. He suggests that
innovative employers will eventually realise
that people may be more productive if they
have the flexibility to decide for themselves
when to work and play, rather than the
employer deciding. Rather than time in,
employers ideally should focus on value out.
The importance of value was
highlighted for me recently when I met
with a financial planner who related how
they helped a potential client resolve a
dilemma about their future retirement.
They helped the client assess retirement
options in a more rigorous and creative
way than if the client had simply tried
to do it on their own. No doubt the
experience and thinking that this planner
had done over many years made this
meeting very impactful.
When it came to discussing the financial
planning fee, the planner mentioned that
the upfront financial planning fee was
44 www.bluechipjournal.co.z
PRACTICE MANAGEMENT
of the financial planner
A World War II
Wellington bomber
Please tell us about your academic path. Past and present.
I completed my BSc Actuarial and Financial Mathematics degree at
the University of Pretoria, and after that completed a Post Graduate
Diploma in Actuarial Science at the University of Cape Town. Like
most actuaries, I started with my actuarial board examinations
directly after university and completed these late in 2009 – that
made me a Fellow of the Actuarial Society of South Africa.
What are the defining highlights of your career?
My career in product development gave me incredible
opportunities for exposure to the wider investments business, and
all these experiences contributed to my career path to date. It not
only gave me technical exposure on the products and solutions
– the ins and outs of financial products – but it also allowed me
to gain exposure to a wide range of disciplines – pricing, finance,
consumer behaviour, information technology, marketing,
distribution and service and operations.
The most significant contributors to my career at this point have
been the leaders who have influenced and mentored me into the
person and professional that I became. I truly value the potential
and impact of leadership – I have seen it first-hand in my career.
What do you deem to be the most critical component of
financial success?
Momentum has done extensive research on financial wellness
and the journey to financial success. A common characteristic of
individuals who have achieved financial success is the presence of
a financial plan. This might sound over-simplistic, but it certainly
makes sense – to achieve financial success, you need to know
where you are heading, as well as the journey that will get you
there – hence a plan!
It is in this context that we, at Momentum Investments, really
believe in the value of financial advice. The financial advice process
helps you to identify the goals that you and your family want to set
The wisdom
of wealth
Martin Riekert, Executive Head of Retail Investments at
Momentum Investments, started his career at Momentum
early in 2008. During his first years, he was responsible
for the technical and actuarial function in Momentum
Wealth, where he learned the finer details of the Wealth
offering and product suite. He fulfilled various product
development roles in Momentum Wealth, which gave him
great exposure across the wider business preparing him
to step into his current role. Blue Chip speaks to Martin
about his success and the success that follows him.
for yourself so that you can articulate a clear and implementable
plan to achieve these goals. I want to add that it is quite important
to commit to sticking to the plan. We often see that clients have
the best of intentions when starting the investment journey but
deviating from the plan often results in sub-optimal outcomes.
Please tell us about the industry benchmarks that Momentum
Investments has fashioned.
Many investment solutions in the market provide benchmarks
or targets that are not always aligned with the needs of clients
or the way that financial advisers give advice. We believe that
our approach of outcome-based investing can address this gap
directly. Our core range, therefore, has inflation-related targets –
something we believe fits into the financial advice process, and
helps financial advisers to manage the expectations with their
clients. Although these targets are not guaranteed, our outcomebased
investing approach attempts to maximise the chances
of reaching these targets and the relevant risk metrics that are
associated with each solution.
Outcome-based investing is about placing the client’s goals
at the centre of the investment process. Our approach is more
than an investing philosophy – it’s a belief system defining the
way we manage and grow our clients’ investments. We never take
shortcuts with short-term solutions for their long-term goals, and
we help to show them that future goals cannot be achieved by
relying on past performance.
Momentum offers various solutions that cater to different clients’
needs, such as growth, protection and income.
Please provide an overview of the products that Momentum
Investments offers in this regard.
We recognise that clients have different investment needs
throughout their lifecycle. We often think of ‘capital growth’ as the
only investment outcome that advisers and clients need to solve
for – and our inflation-targeted range of solutions discussed earlier
will certainly address this capital growth need.
But often clients also need to solve for income needs or are
looking for investment opportunities that also provide some capital
protection. Our outcome-based investment range, therefore,
includes additional solutions that also address these needs of
clients. In addition to our market-linked solutions described above,
we also offer a range of guaranteed solutions that can also be
utilised to address these needs of capital protection and income
needs – all of these are also outcome-based, as it directly solves
for the client’s investment outcomes.
In the current economic landscape, uncertainty is the only
certainty – that and the assurances Momentum’s guaranteed
solutions offer. Considering the uncertainty around Covid-19,
please expand on Momentum’s guaranteed solutions range
and the assurances that your products offer.
For many clients, the world of investments can be daunting,
especially if their capacity for risk does not allow them to deal
with the uncertainty of markets. And during uncertain times – of
which Covid-19 pandemic is undoubtedly one example – we see
that these unknowns are affecting investment behaviour and often
result in an increase in demand for guaranteed solutions.
Our guaranteed solutions offer a range of solutions that either
provide a guaranteed return over a fixed period or a guaranteed
level of income. Giving a client exposure to these solutions – even
if it is just a portion of their investment portfolio – helps them
to introduce stability in terms of what the client can expect. This
can provide peace of mind to clients as they know that their
money is safe, even if the markets are volatile or provide
unfavourable returns.
What advice would you give advisers about how to manage
their clients who are currently going through a difficult time?
I believe that financial advisers are becoming so much more
than only individuals who give their clients financial advice.
They will increasingly start to become ‘financial wellness’ to their
clients, and therefore play a meaningful role not only in giving
advice but also in coaching and guiding clients through an everchanging
environment.
At Momentum Investments, our outcome-based investing
philosophy is anchored in a belief of ‘staying invested’, as we have
seen that clients often destroy value by reacting too quickly when
markets are volatile. I will therefore encourage financial advisers
to continuously engage with their clients through volatile and
uncertain times – not to review and react to the markets, but
to give clients comfort that their original financial plans are still
relevant and that there are benefits in sticking to this plan.
Your brand proposition is ‘With us, it’s personal’. How so?
Most people who invest do so for a personal purpose. In some
cases, it is to be able to afford an income during retirement. In other
cases, it’s for a dream of sorts or for leaving a legacy. Regardless of
the why, this is a personal journey, and it matters deeply to each
individual. We want to help people and their financial advisers on
that journey to financial success.
One thing that stands out for me in my career at Momentum is
that collaboration is part of our DNA. We have a proud history of
partnerships with financial advisers, and more recently, we started
A common
characteristic of
individuals who
have achieved
financial
success is the
presence of a
financial plan.
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INTERVIEW
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INTERVIEW
6
* As at 30 June 2019 Source: Old Mutual Limited.
KEY
CONSIDERATIONS
WHEN INVESTING OFFSHORE
T
he cu rent political and economic landscape
in South Africa has led to a surge in interest in
offshore investment from local investors. The
decision to invest o fshore is predominantly
influenced by the search for superio returns, in addition
to stability and security of assets. However, when planning
on moving money abroad, there are a few other crucial
considerations to keep in mind, including mechanisms
to invest offshore, various tax implications of these
investment vehicles, and cu rency fluctuation factors as a
key part of the initial planning process.
DIRECT VS INDIRECT INVESTMENT
In most cases, investor send discretionary money o fshore
while their investments in South Africa satisfy their income
needs on local soil. The question is, when it comes to
o fshore investment vehicles, should you invest directly
or through an indirect vehicle, such as an asset swop or
feeder fund?
Essentially, direct investing involves the converting of
rands to foreign cu rency and investing it abroad in hard
cash. In these cases, an investor wi l have an o fshore bank
account they would use to transfer money to and from the
investment vehicle of their choice. In other words, investing
directly into, say, funds or shares abroad.
One of the key reasons for direct investing is to have money
available in these specific jurisdictions, whether it is for
use when trave ling or to finance your children’s tuition
overseas, as we l as any situation when having money
abroad for immediate use make sense. Other reasons to
invest directly are to hedge against local political instability
in a country of residence and for immigration.
By Wayne Sorour, Head of Old Mutual International: Sales & Distribution
When you decide to invest o fshore indirectly, you
need a mechanism to ge this money abroad, which
is referred to as an asset swop, which is essentia ly an
investment manager’s offshore allowance.
DON’T GET TRIPPED UP BY TAX
There are a myriad of tax considerations that
investors often don’t factor in before taking their
assets o fshore. For example, the US and the UK, and
most other countries, require that non-residents
pay inheritance tax on assets, including property
and direct shares. If you own shares on the NY Stock
Exchange, for example, your heirs are liable for a
40% offshore inheritance tax on all investments
above US$60 000. These jurisdictions also clamp
down heavily on estate duty taxes.
Tax complications can at least be curtailed by
handing ove responsibility to an investment
manager that can place their o fshore investments
in a wrapper, an investment platform that lega ly
entrusts the investment manager to handle a l tax
affairs of the investments therein.
CURRENCY FLUCTUATION
Preoccupation with the short-term volatility of the
rand and the conversion rate in question when
planning to invest abroad is prevalent among local
investors. What they don’ take into account is that
while the rand strengthens, global markets tend to
co rect a the same time, voiding the strong showing
of the rand.
It seldom happens that the rand strengthens while
the markets go down. Therefore, while you wait for
the rand to improve by 10% to send money offshore,
the market can also move by 10%, resulting in zero
gain. Investors would do be ter to phase in these
investments over a set period to account for these
cu rency fluctuations.
The question we are often asked is if you only need
the money in 10 years, why invest now when the
rand is weak, but if you believe the rand is going to
KEY
CONSIDERATIONS
WHEN INVESTING OFFSHORE
devalue further, the bes time to star taking money
offshore is now.
WHERE TO INVEST?
While the South African investment environment is
relatively limited, o fshore investing has the added
complexity of a choice of thousands of companies
and funds to invest in. This is where intimate
knowledge and expertise of the o fshore investment
space plays a crucial role.
If an investor is risk-averse, lumping all their money
into risky o fshore equity markets is futile. An investor
risk and needs analysis must be conducted by
investment managers first and foremos to decide
on the various asset classes to invest in abroad.
This involves keeping in mind that money invested
o fshore should be based on medium-to longterm
horizons and often forms part of investors’
discretionary investments.
There is also the added complexity of geographical
exposure to equity markets in the US, UK, EU or
emerging markets, among many others. It is thus
highly advisable that a client’s investments be
reviewed by an investment manager who can
structure a discretionary portfolio according to the
investor’s risk profile.
Preoccupation with the
short-term volatility of the
rand and the conversion rate
in question when planning
to invest abroad is prevalent
among local investors.
”
Rest of world developed equities
Around 35% of listed equity then sits within Europe, UK and
Japan. This is a more diversified pool of investments compared
with the US, given the geographical spread of companies and
the fact that multiple governments play a role in impacting
the prospects of each market. Europe i sti l rather old-world
(consumer goods, financial services and a l the oil companies –
Total, BP, She l). The UK is largely a global market, with a minority
of revenue sourced domestica ly, and many of its listings based
on commodity companies, much like South Africa. Japan was the
equity powerhouse in the ’80s with the advent of the personal
computer and consumer electronics but has faded over time.
Today it gives us motor manufacturing (Toyota, Mitsubishi and
Honda) and Sony among others.
Emerging markets
These are markets defined as “developing” ie where there are
reasonable infrastructure and governance to support growth and
where the standard of living is in ascendance, cu rently holding
around 15% of world equity exposure. These are genera ly seen
as high-growth sources of return as the underlying economies
are developing at a higher rate than more mature markets like the
US. While this is the theory, the reality has been somewhat more
mixed in many cases. With political volatility and variou social
conflicts, emerging markets are not always a one-way bet. They are
also beholden to the demand created by the developed markets.
China, for instance, could be refe red to as the manufacturer of
the Western world. Looking ahead le so, but certainly looking
backwards. Countries include BRICS (Brazil, Ru sia, India, China and
South Africa) as we l as South Korea, Taiwan and Mexico.
Emerging markets are increasingly dominated by the rise
of China, which now accounts for over
30% of a l listed emerging market equity.
And within this, a huge bias towards
technology via Tencent (the source of
Naspers’ succe s), Baidu and Alibaba – the
Chines equivalent of Facebook, Google
and Amazon respectively. It is becoming
difficult to avoid a Chinese tech bias inside
an emerging markets portfolio. Other
sectors providing opportunity in emerging
markets include commodity producers,
large growing consumer services based on
growing middle cla ses, and the financial
services needed to fund this growth. Many
a set managers avoid investing in emerging
markets given the complexity as we l as the need to resource
significan teams to cover this disparate universe of shares. This
is one of the biases we consider when looking at client portfolios.
Frontier markets
A recently termed market refe ring to lesser developed,
prospective emerging markets. Current exposure is concentrated
acro s Argentina, Kuwait, Vietnam and Nigeria where 60% of a l
listed shares are either in financial services or telecommunications
– the frontier markets provide high-growth opportunities because
they sti l have much to achieve so returns to investors need to
be commensurately high to offset the investment risks of politics,
liquidity and governance.
Sma ler companies
Some companies are sma l for a reason and wi l stay that way,
but others are the “large caps of the future”. These shares are your
typical high-growth companies because they tend to be ro ling
out new, disruptive services to the market. Many of the cu rent-day
disruptors are technology-based, bu this can cover any industry
globa ly. This is another market often underinvested by a set
managers due to the different mindset required and additional
resources required. This a set cla s also tends to be quite US-heavy
due to the focus on innovation which enjoys substantial support
in that market.
Listed property
Unlike loca ly, where property tends to be quite homogenous
– meaning that most of our investment options are bundled
property companies acro s commercial, retail and industrial
options – global counterparts are considerably more specialised.
Companies can have a specific focus (eg data centres fast replacing
retail shops due t online shopping), or a regional focus (for
instance, a property share that only invests in B-grade London
commercial property). This provide substantial diversification
opportunity for investors compared to history.
A l of this results in tens of thousands of listed shares in which
to invest globa ly. In the main markets, this is na rowed down
to around 2 500 to 3 000 shares, once
liquidity has been factored in. This range of
diversification is the primary benefit to local
investors – not being overexposed to a few
shares, singular governments, local cu rency
or othe risk such as te rorism, corporate
fraud or the decline of an industry.
For equity investin going forward, it
pays to think globa ly as part of a client’s
portfolio, and while there ar equivalent
risks globa ly to those which we face in
South Africa, we are le s exposed to any
individual event permanently impacting our
portfolios and the achievement of longerterm
objectives.
advisor’s business. The advisor has the
ability to consistently and e ficiently
implement their investment advice
acro s their client base by using a range
of portfolios through a Discretionary
Category I licence, either that of the DFM,
or their own.
A fourth benefit of outsourcing to a
DFM is one of governance and compliance.
The DFM should be able to ensure that
similar clients are treated consistently
(and therefore reduce TCF concerns), that
the advisor has a documented investment
process, and that comprehensive due
diligence is provided on the funds used.
The RDR discussion paper led to many
claims that independent financial advisors
(IFAs) would struggle to survive and thrive
once RDR is implemented, and that IFAs
would need to either se l their busine s to
a corporate or outsource to a DFM.
We do not agree with that a sertion. We
believe that the majority of investment IFAs
do not have to make material changes in
their busine s to comply with RDR, and
we do not believe tha thi should be the
reason for using a DFM. It is an added
benefit but should not be the key driver.
In summary, the services of a quality
DFM can benefit a financial advisor in the
following ways:
• An evidence-based investment
philosophy and proce s that aligns with
the business’s advice framework
• A sustainable investment range that is
able to cater to different client needs
• Consistently managed portfolio
solutions acro s the client base
• Acce s to a dedicated team of investment
specialists
• Consistent and cost-e fective
implementation across di ferent
investment platforms
• Constant compliance with the various
regulatory requirements.
A l DFMs are not created equal
Advisors are clearly spoilt for choice given
a l the DFMs now operating in South Africa.
However, because they are sti l a relatively
new concept to many advisors, choosing a
DFM can be overwhelming. The right DFM
has the potential to be a transformative,
long-term busine s partner to an advisory
busine s.
We believe that the two most important
factors that advisors need to consider when
choosing a DFM are:
• Understand the unique value proposition
of the DFM given how different the
various DFMs’ offerings are, and how
this value proposition complements the
advice proce s.
• Make sure tha there is a good culture
and philosophy fit between the advisor
and the DFM.
Meeting these considerations wi l decrease
the probability of “buyer’s remorse” from
an advisor who is ge ting something
different from what they expected, and
ensures that when differences of opinion
emerge, there is common ground and
respect between the parties to a low for a
compromise that does not disadvantage
the client.
Key factors to investigate when ca rying
out your due diligence on the DFM options
include:
• Whether the DFM is independent and
how important independence is to the
advisor.
• The investment p

FOREWORD
Lelané Bezuidenhout CFP®, CEO,
Financial Planning Institute of
Southern Africa
What’s happening
at the FPI?
At the end of a year like no other, the FPI celebrates
many memorable firsts… Not least successfully hosting
the first-ever digital FPI Professionals Convention
and running its first-ever online exam session.
Wow! Can you believe 2020 is almost behind us?
While the year has had its challenges, with the
benefit of hindsight I can honestly say that it’s
been a positive time for the FPI.
Not only have we seriously upped our technology game
(necessity is the mother of all invention), but – with the
support of our incredible members – we’ve also continued to
enhance the reputation of the financial planning profession
in the eyes of all South Africans.
Read on for a rundown of some of the highlights of Q4, as
well as details of a few upcoming dates to diarise…
Our first digital FPI Professionals Convention was a
great success
One of the biggest challenges posed by the pandemic was
when, how and whether to host our convention. Deciding to
go digital was a massive leap of faith… But judging by the
feedback we’ve received from everyone who attended, it’s
one which has paid off. In many ways, going digital made it
easier for members to attend the convention and learn from
our excellent speakers.
While we’re not planning on going digital for all future
conventions, it’s great to have a new trick up our sleeves.
The gift that keeps on giving
One of the biggest benefits of hosting a digital convention is
that attendees can go back and watch the talks again and/or
catch up on sessions that they missed the first time around.
Attending the convention qualifies you for 11.5 CPD
hours. Remember that you only earn CPD points for
sessions that you watched. All of the recordings and
materials from the live convention will be available on the
Asset TV site until March 2021.
Better yet, even people who didn’t attend the convention
“live”, will still be able to register for the convention – please
contact events@fpi.co.za for more info on how to register.
Online exam session
2020 also saw us run our first-ever online exam session, and
this too went very well. In 2021, we will run three different
exam sessions to give candidates more opportunities to pass
the PCE. The first sitting – which will remain online – has
been moved from February to March to give our educational
providers enough time to wrap up the hectic 2020 year.
Contact certification@fpi.co.za for information on
the format of the exam going forward.
Other events to watch out for
While 2020 has taught us how much video conferencing
has to offer, I think you’ll all agree that nothing can ever
completely replace face-to-face interaction with real
colleagues. Which is why we’re thrilled to announce that our
annual refreshers in the last week of January will – depending
on government regulations – be in-person affairs.
This fantastic one-day event doesn’t just provide you
with the technical updates you need to stay ahead of the
competition, it also earns you much needed technical
verifiable CPD hours.
Watch out for our ever-popular tax update sessions in
February 2021 – dates for these will soon be confirmed on
our CPD site.
Please visit www.fpicpd.co.za for more information.
2 www.bluechipdigital.co.za

Being a member of the FPI doesn’t
just strengthen our collective
bargaining power and heighten our
professional profile, it also comes with
considerable individual benefits.
Don’t forget to renew your membership
now to lock in 2020 prices
In a year of such unremitting financial
pressure, you will be pleased to know that
members who renew their membership
before 31 December will pay 2020 rates
for the 2021 year. From 1 January 2021, a
4% increase will be applied to all membership
categories.
And remember: being a member of the
FPI doesn’t just strengthen our collective
bargaining power and heighten our
professional profile, it also comes with
considerable individual benefits, not
least discounted rates on our excellent
events and CPD offerings and access to
an incredible pool of knowledge, which is
always only a phone call away.
Thank you! Thank you! Thank you!
Of course, none of this would have
been possible without the unflinching
support of our wonderful members who
– despite the challenges of a global pandemic
– continued to give of their time,
their energies and their support to our
collective cause.
A big thank you goes out to every single
one of you… You know who you are.
Now all that remains is for me to wish
each and every one of you a restful and
blessed festive season. I hope you manage
to find the time to truly unwind with your
nearest and dearest. I think we’ve all earned
a proper holiday this year!
Take care, and see you in 2021.
Lelané
CONGRATULATIONS
HESTER
Hester van der Merwe CFP ®
claimed the coveted FPI
Financial Planner of the Year
award 2020
The Financial Planning Institute
of Southern Africa would like to
congratulate Hester van der Merwe
CFP ® . Don't miss the interview
with Hester on page 8.
www.bluechipdigital.co.za
3

EDITOR'S NOTE
Is offshore
the way to go?
As Florbela Yates, Momentum Investment Consulting, says on page 18, in an
economy that is struggling to deliver economic growth and low returns from
the majority of South African asset classes, an increasing number of South
African investors are looking for opportunities offshore in a bid to maximise
their investment returns. This edition of Blue Chip focuses on offshore investing, with a
great collection of articles to make it easier to identify which portfolios are most suited for
your clients for an appropriate blend of local and offshore assets. The comprehensive Old
Mutual Wealth Offshore special feature on page 23 guides you through the complexities
of investing offshore in today’s economic climate.
The recent sharp reversal in both the rand and local shares questions the wisdom
of having a binary view on local vs offshore, as well as highlighting the dangers of
disconnecting an investor’s portfolio from the underlying investment objective it is trying
to achieve says Ian Jones, Fundhouse. On page 20, he takes us through what it means to
be invested offshore by looking at the actual opportunities we are investing in, and the
new risks we are exposed to in the search for returns.
Even though many South Africans are losing faith in the government, interestingly
many clients have no intention of leaving, either because they cannot afford it or they
realise this is a fantastic place to live. In Slowly unpacking financial emigration (page 43)
Barry O’Mahony, Veritas Wealth Management, suggests that once you know your client
has enough assets in South Africa you should slowly build up surplus savings in offshore
assets over time.
Given the economic backdrop in South Africa, it may well be prudent to move some of
your assets overseas from a diversification point of view. On page 46, Ebeth van Heerden,
Schroders, warns us that investors tend to chase performance in currencies as they do in
stock markets, which can be a damaging strategy. She also cautions that the wrong time
to invest offshore is when the rand is weak because one unit of foreign currency is going
to cost more rands than it did before the currency weakened.
Multiple studies have demonstrated that investors’ decision-making is dominated by
their emotions and these emotions are usually counterproductive from the point of view of
their investment returns (page 54). Often there is much emotion that underpins a choice,
whether it be fear, desire or excitement. As a financial planner, you help clients make and
implement key decisions about their life and money. Rob Macdonald, Fundhouse, tells us
that there are usually three ingredients that go into making a decision: thought, choice
and action, and that the role of the financial planner is to facilitate these (page 56).
One financial planner who simplified thought, choice and action – hers and her clients
– into a winning strategy in 2020 was Hester van der Merwe CFP®, who won the illustrious
FPI Financial Planner of Year award last year. Meet her on page 8.
May 2021 be a prosperous year for you.
Alexis Knipe, Editor
blue-chip-journal
Blue Chip Journal – The official publication of FPI
Blue Chip is a quarterly journal for the financial planning industry and is the official publication of the Financial
Planning Institute of Southern Africa NPC (FPI), effective from the January 2020 edition. Blue Chip publishes
contributions from FPI and other leading industry figures, covering all aspects of the financial planning industry.
A total of 10 000 copies of the publication are distributed directly to every CERTIFIED FINANCIAL PLANNER® (CFP®)
in the country, while the Blue Chip Digital e-newsletter reaches the full FPI membership base. FPI members are able
to earn one non-verifiable Continuous Professional Development (CPD) hour per edition of
the print journal (four per year) under the category of Professional Reading.
Special advertising packages in Blue Chip are available to FPI Corporate Partners, FPI
Recognised Education Providers and FPI Approved Professional Practices.
ISSUE 78 | JAN 2021
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express thanks to those who support this publication by their submission of
articles and with their advertising. All rights reserved.

On the money
Making waves this quarter
Tax-free savings accounts or retirement annuities?
A significant aspect of financial
planning is finding a combination
of products in the market that
match your circumstances and
needs, including tax efficiency, fund
availability, value for money, cost
structures, and access to funds. Two
longer-term savings products in
South Africa that could benefit you
are retirement annuities and tax-free
savings accounts.
A retirement annuity (RA) is an investment product that allows
you to make one-off and monthly contributions to bolster your
retirement savings. RAs offer tax efficiency for both income tax and
tax on investment returns. An RA works similar to a company pension
fund. Benefits include:
Income tax: Contributions to retirement annuities are taxdeductible,
up to a limit of 27.5% of your income capped at
R350 000 a year, which includes all contributions made across all
your company retirement funds and retirement annuities. This
benefit becomes more important the higher your current and
future expected tax rates are.
Tax-free returns: Any return earned within the retirement annuity
is tax-free. Over the longer term, this will have a significant benefit
to your savings.
Access only after 55: For many people, having a nest egg without
access is of great value as they may be tempted to pay in-themoment
expenses if they have access, thus sacrificing the longterm
goal.
On retirement from your RA, you can take up to a third in cash
after-tax: the first R500 000 lifetime allowance is tax-free and the rest
is taxed on a sliding scale. The remaining money in the retirement
annuity must provide you with a pension (income for life). This pension
will then attract income tax.
Tax-free savings accounts have grown in popularity since they
were introduced in 2015. Government has provided a strong incentive
within this product: tax-free returns. Over time, this has a significant
benefit on your savings. There are limits to the amount you can
contribute to a tax-free savings account every year and over your
lifetime. These limits are at a reasonable level and cover most people’s
needs. You benefit from the intended longer-term investment growth.
• |Michael Kirkpatrick, head of individual consulting best practice,
Alexander Forbes
Environmental Social and Governance (ESG) integration into the
investment process is one of the preeminent trends in the investment
management industry. Aeon Investment Management, one of the
leading advocates of ESG incorporation, chats with Blue Chip magazine.
What does ESG mean to you?
ESG is investing in companies with the awareness of factors, excluding
financial metrics, that have a significant impact on the valuation of
a stock. Investors should consider how their investments are helping to shape
discussions, actions, and other future investments.
Tinyiko Mabunda
Research Analyst at Aeon
Investment Management
“Integrity is doing the right thing, even when
no-one is watching.” – C.S. Lewis
How do you integrate ESG into your current role?
I research current and potential ESG issues affecting an industry and factor
these risks by the application of an ESG risk premium to the valuation of a
company that is currently being researched.
What ESG trends do you think investors should be considering?
There has been an increasing request for the disclosure of climate-related
risks, and carbon emission reporting from companies that utilise fossil fuels.
Yes, these are important issues; however, we should not forget the “S” in
ESG. Greater focus needs to be placed on socio-economic factors such as the
inequality gap and the gender pay gap in ensuring progress within ESG.

On the money
Making waves this quarter
What’s next for the economy? • Maarten Ackerman, chief economist and advisory partner, Citadel
There is a clear disconnect between market
cheer and the economic situation on the ground,
because many remain under pressure while the
global economic recovery slowly grinds forward.
Unemployment levels have risen worldwide,
placing pressure on consumer income, which
impacts businesses and corporate profitability.
Many companies and consumers will come
under intensified pressure following a second
wave of lockdowns, as seen locally, in Europe,
and the UK.
All is not doom and gloom. Monetary
and fiscal stimulus continue to underpin
markets, buoying sentiment,
and valuations. Joe Biden’s
presidential win has been a
market positive, particularly in
terms of global trade relations.
The speed with which Covid-19
vaccines have been developed
and are being rolled out
represents a significant
psychological victory over the
virus. While the vaccines are
not an immediate cure for the global economy,
their availability has boosted hope for a swifterthan-expected
return to normality.
Will SA finally face its fiscal demons?
Foreign investor support from the local bond
market together with the IMF’s loan has kept
the country from feeling the worst effects of the
pandemic’s devastation. But, government will
need to tighten its belt significantly at the end
of the three-year fiscal framework, or towards
the end 2022/early 2023 period – especially as
its first IMF loan repayment will come due.
If we are to avoid a sovereign debt crisis or
the risk of defaulting on our loans, government
urgently needs to implement long-awaited
structural economic reforms. Markets will be
watching for evidence of action rather than
simply more talk over the next year.
Where can investors turn?
Despite the many headwinds still facing
markets, investors must remember that with the
economic trough behind us, the Covid-19 reset
means that we are now entering the upswing of
a new business cycle. This is positive for global
equity markets, as companies usually only make
sustainable losses during extended recessions
or depressions.
Biden is expected to borrow heavily to
extend support for the US’s social programmes,
resulting in a softer dollar, which should support
riskier assets. And with interest rates and the
discount rate pushed to historic lows, cash and
bonds hold little attraction for investors seeking
growth, thus stimulating further demand and
adding support to equity markets.
Given the amount of debt currently in the
financial system, it is highly unlikely that central
banks will normalise rates over 2021. They are
more likely to keep manipulating the short-end
of yield curves, or to keep interest rates below
inflation or close to 0%, to afford the debt
generated by unprecedented fiscal stimulus.
Investors need to consider investments that
offer some protection while still providing cashbeating
returns. The Swiss franc and Japanese
yen represent some attractive options, as do
gold and potentially cryptocurrencies. Having
a core allocation in global equity markets still
makes sense at current valuations to achieve
portfolio growth above inflation.
SA slow-going as it speeds to the cliff
Locally, it’s important to recognise that South
Africa is currently lagging behind its peer group
economically, and once the risk-on rally has
faded and markets look past global drivers, our
looming fiscal cliff and debt issues are likely to
be reflected in our asset classes.
The majority of earnings produced by
JSE-listed companies is generated outside of
South Africa. However, headwinds in the global
environment could filter through to the local
exchange as well, while a deteriorating fiscal
situation and structural economic issues could
hamper the prospects of those companies which
operate only in South Africa. Investors need to
look for exposure to those companies that offer
some immunity against the local environment.
Investors should also bear in mind that, in
the past, the JSE has acted as a useful proxy
for emerging markets, and as more and more
emerging markets become Asia-Pacific focused,
they should consider adding other emerging
market exposure to achieve true diversification.
While the local bond market is one of the few
in the world that may generate positive returns
for investors in 2021, this should be treated
with caution. Bond yields were trading around
9% in March 2020 and, following the Moody’s
downgrade, these yields exploded to 13% to
compensate investors for the higher risk of
government default.
Since then, yields have returned to 9%,
seemingly indifferent to the fact that our fiscal
situation has deteriorated due to the pandemic,
and that our budget deficit will be twice the size
anticipated at the start of 2020.
Prospects for the rand
The fact that the rand is trading below R15/$
reflects international factors such as the US
election outcome, vaccine developments, and
an abundance of liquidity. The first bump in
the road will be the February Budget Speech,
which will remind investors of our poor local
economic fundamentals. As investors wake to
South Africa’s economic reality, the rand will
come under some pressure again. So, while the
rand is currently enjoying the benefit of global
tailwinds, it is likely to weaken during the course
of the year. The extent of this weakening will
ultimately depend on government’s progress
on fiscal reforms, without which we could see
the local currency head north of R18/$.
6 www.bluechipdigital.co.za

VIR I UAL
EVENTS
Conceptulisation, Design, Design, Creation
Registration:
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• •• Registration platform with with invitation mailers, mailers, confirmation
mailers mailers and and general general informative mailers. mailers. Post Post event
event
certificates and and thank thank you you mailers.
mailers.
• •• Registration portal portal compatible with with various various payment
portals portals e.g e.g e.g Paygate.
• •• Full Full registration analytical information.
Event Event Platform:
• •• Security login login - restricted - - / unrestricted // access.
access.
• •• Branding - Scrolling - - banners, logo, logo, sponsorhip area,
area,
exhibition area area and branded lounges.
• •• Networking capabilities - meetings, - - lounges, chats, chats, social
social
feeds.
feeds.
• •• Reception area area - All - - All All featured sessions and and introduction
to to event. to event.
• •• Agenda - Customised - - to to different to time time zones zones by by delegates. by Full Full viewing viewing of of scheduled of sessions, rating rating systems,
downloadable presentations. Recorded / live // live session
session
viewing.
• •• Sponsorship profiles profiles and and exhibitor profiles profiles with with contact
contact
details, details, CTA’s CTA’s (call (call to to action), to action), company information,
videos, videos, banner banner and and logo.
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• •• Video Video interactive meetings and and chats.
chats.
• •• Limitless number of of attendees. of Technical Support, Analytical Feedback
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production schedule, contact contact information, system
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Analytical Feedback:
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comments on on on event event feed, feed, total total business cards cards dropped,
number of of interactions, of breakdown of of client of client requested
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• •• Sessions / Agenda: // Total Total viewers viewers per per session session along
along
with with their their sign sign in in and in and out out times, times, total total likes likes per per session,
session,
star star rating rating of of sessions of and and number of of presentation
of downloads per per session.
session.
• •• Sponsors and and Exhibitors: Star Star ratings, ratings, number of of CTA of CTA
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info@thecollaborative.co.za | 082 | | 082 568 568 1795 1795 | www.thecollaborative.co.za
| | www.bluechipdigital.co.za
7

FINANCIAL PLANNER OF THE YEAR
HESTER’S
MONEY STORY
Meet the 2020 Financial Planner of the Year, Hester van der Merwe CFP® from Ultima Financial Planners.
The FPI Financial Planner of the Year award is the highest accolade bestowed on financial planners in
South Africa as it represents the very pinnacle of the profession.
Hester, congratulations! After a gruelling competition,
you have been awarded the FP of the Year 2020. What does
winning the award mean to you? Thank you! I want to give all the
honour and glory of winning the award to my Heavenly Father. For
me, it represents such a growth opportunity – even the journey from
entering up to just before the announcement had been amazing – a
constant learning curve! For the practice, this is also a big deal since
I am the third winner of the award from Ultima. Gerrit Viljoen won
the award in 2003 and Jan-Carel Botha won in 2012 (he no longer
works at Ultima).
What was your motivation for entering the FP of the Year
competition? American businessman Max De Pree said: “We cannot
become what we need to be by remaining what we are.” I believe
you cannot grow in any role without pushing yourself out of your
comfort zone. This competition certainly pushed me way out of my
comfort zone and presented a steep learning curve.
You studied law at the University of Pretoria
and then you obtained your Post Graduate
Diploma in Financial Planning as well as
Financial Planning and Services at the
University of the Free State. Why did
you change your field of studies? When
I decided to study law, my objective was to
become a prosecutor. I have always felt the
need to be useful – to add value – and this
career path seemed to offer that. As a student, I
worked at a firm of attorneys in the debt collection
department and after graduating I migrated to the
debt collection department of a bank. I found
the environment very harsh and did not
enjoy the work.
While raising a young family, we
decided that I would work half-day
and that resulted in me entering
the financial industry as an admin
assistant. I was quite reluctant as
I did not have a positive view of
the industry at all! However, I was
fortunate enough to enter the
industry alongside an amazing planner whose attention to detail
and close relationships with his clients made me change my mind
completely and I grabbed the opportunity with both hands.
To better understand the work he was doing, I enrolled for the
Post Graduate Diploma, with no intention of becoming a planner
myself, but only to gain a better understanding of the inner workings
of a financial plan (and to improve my Excel sheets). However,
once the planning bug has bitten you, there is no turning back. So
I persisted until I was able to write CFP® behind my name!
You started your career trajectory as Head of Wealth Planners
at FNB in 2012 and then as Financial Advisor at Ultima Financial
Planners in 2015, where you currently are. Besides winning
the FPI award, what has been the highlight of your career?
Head of Wealth Planners sounds much more impressive than it
was. I headed up a very small but excellent team of Certified
Financial Planners®. There I discovered the beauty of a fixed salary
as opposed to commission-driven advice. Our job description
It is so important for everyone to
understand that they have a unique
money story, which has been written
almost since the day they were born.
simply included making sure clients received the best advice
without offering any products. Clients valued this unbiased advice
and I was able to gain a lot of insight that I can now apply when
dealing with our clients at Ultima. Hence, that experience counts
as a highlight for me.
According to the FPI, you set yourself apart from the
other competitors through your depth of knowledge, the
immeasurable detail of your financial plans, as well as your
extraordinary commitment to clients. How important is each
one of these factors in the financial planning profession? I think
they are all equally important. Without a sound knowledge of the
technical and legal aspects of financial planning, it will be impossible
to do a financial plan without endangering both the client and the
good name of the profession. This goes for an attention to detail
Hester van der Merwe CFP®, Ultima Financial Planners

FINANCIAL PLANNER OF THE YEAR
as well. In financial planning, the adage “the devil is in the detail” is
unquestionably applicable! The last is where my passion lies. The
most rewarding facet of financial planning is the people we work
with. A financial planner should have a heart for people. We need to
be mindful of the fact that the work we do impacts directly on our
clients’ lives and wellbeing.
How were you able to rise above the economic and pandemic
crises facing South Africa and the world, and still manage to
maintain the level of excellence required to win the coveted
title? I would not have been able to accomplish this without a strong
team behind me. At Ultima, we believe in building a diversified team
where each player is allowed to play to his or her strengths. This
meant that we were able to cope with the challenges by making
slight adjustments only and could continue to offer the same level
of service to our clients throughout this difficult year. I, therefore,
felt empowered to tackle the competition and give it my best shot.
It is possible to rewrite our story
and open up new possibilities.
Amid the highly challenging circumstances of Covid-19, what
was the biggest lesson for you? Has the pandemic changed
your approach to financial planning? A tried and tested process
is no guarantee that a super-fast about-turn is not lurking around
the corner. Be forward-looking at all times, identify possible threats
and how to deal with them when the time comes. The pandemic did
not change my approach to financial planning, since I have always
been very client-focused. The heartfelt and enduring relationships
we form when doing lifestyle financial planning is at the centre of
my regard for the industry and this stayed true while dealing with
the pandemic.
What changes would you like to see in the industry? Change is
inevitable as we all know by now, and will be exponential. Now may
be our only opportunity to secure the integrity of financial advice
going forward and this is where my focus lies. We are extremely
fortunate that our industry has had the opportunity to develop
to where we are now – we are skilled professionals, subscribing to
a carefully cultivated professional standard and practically apply
the FPI code of ethics in our everyday dealings with the public.
Development in AI and therefore fintech will undoubtedly change
financial planning as we know it irrevocably.
We have to start asking questions such as: Is it possible to instil
the principles of our Code of Conduct into a Robo advisor? I think
we need to stand together now more than ever before and ensure
that our voice is heard during this time of exponential growth and
development – that our principles and our very humanity do not
get washed away by this tech-driven tsunami.
BLUE CHIP ADVICE
FOR FINANCIAL PLANNERS
• Always be aware of the big picture: how will your
actions impact the reputation of the industry?
• You cannot be everything to everybody. If a client is
not a good fit, walk away firmly but with kindness.
• Work on your listening skills. This may be your most
important action when dealing with clients.
• Do not be afraid to show your vulnerability.
• Always plan for the person, not the portfolio.
As this year’s FPI ambassador, how will you use the platform
to motivate change? I will encourage women from all walks of
life to put on their financial boots and climb the mountain they are
facing. If I can encourage women to tackle their financial affairs, ask
to be included in the decision-making process of the household or
to become a Certified Financial Planner® that will be brilliant!
I would also love to introduce people to their money stories. It is
so important for everyone to understand that they have a unique
money story, which has been written almost since the day they
were born. This personal story gives colour to the way we perceive
money and creates our blind spots, opens certain doors for us and
closes other doors. Once we understand this, it is possible to rewrite
our story and open up new possibilities. The challenge is that very
few people even realise that they have a money story, much less
understand the impact it may have on their lives! If I can accomplish
this I will feel that my year has been turned to good account.
What do you consider as the most important trait of an
accomplished financial advisor? You must have a heart for
people! The qualifications, experience and technical knowledge
should be a given.
What do you deem as the most critical component to financial
success? Set sound long-term goals and work with a financial
partner that can keep you accountable and help to magnetise your
compass when you lose your true north.
Do you have any advice for women that are considering a
financial career? Do not expect it to be easy, but do expect it to
be the most rewarding journey you will ever undertake. Make sure
you are 100% clear on your “why” and focus on that, even when the
going gets tough.
Please share a message of motivation for those that have
considered competing for the FPI award in future. Do not
hesitate! This is such a unique experience and will present you with
a once in a lifetime opportunity to grow and become who you were
meant to be!
On another level, your practice will benefit immensely from this
exercise. You are forced to consider all aspects of your practice once
again and view it from a different perspective while preparing for
every stage of the competition. If you are in earnest, opportunities
for improvement will present themselves regardless of the outcome
of the competition.
Winning brings so many opportunities to you and your practice.
Both existing and prospective clients will feel reassured that their
financial planning will be thorough and tailor-made. Trust is earned
over time, but this award will help clients to gain a measure of
confidence in you and the practice.
Investment philosophy? My philosophy is to be patient and never
make emotional decisions.
FOR CLIENTS
• Choose your financial planner carefully. This is a
partnership that should last and you must feel
secure in the relationship.
• Adhering to the fundamentals will add more
value in the long term, than trying to time
the market.
• Do not lose sight of your long-term goals. Even
when it feels counterintuitive, stick to your plan.

INTERVIEW
The wisdom
of wealth
Martin Riekert, Executive Head of Retail Investments at
Momentum Investments, started his career at Momentum
early in 2008. During his first years, he was responsible
for the technical and actuarial function in Momentum
Wealth, where he learned the finer details of the Wealth
offering and product suite. He fulfilled various product
development roles in Momentum Wealth, which gave him
great exposure across the wider business preparing him
to step into his current role. Blue Chip speaks to Martin
about his success and the success that follows him.
Please tell us about your academic path. Past and present.
I completed my BSc Actuarial and Financial Mathematics degree at
the University of Pretoria, and after that completed a Post Graduate
Diploma in Actuarial Science at the University of Cape Town. Like
most actuaries, I started with my actuarial board examinations
directly after university and completed these late in 2009 – that
made me a Fellow of the Actuarial Society of South Africa.
What are the defining highlights of your career?
My career in product development gave me incredible
opportunities for exposure to the wider investments business, and
all these experiences contributed to my career path to date. It not
only gave me technical exposure on the products and solutions
– the ins and outs of financial products – but it also allowed me
to gain exposure to a wide range of disciplines – pricing, finance,
consumer behaviour, information technology, marketing,
distribution and service and operations.
The most significant contributors to my career at this point have
been the leaders who have influenced and mentored me into the
person and professional that I became. I truly value the potential
and impact of leadership – I have seen it first-hand in my career.
What do you deem to be the most critical component of
financial success?
Momentum has done extensive research on financial wellness
and the journey to financial success. A common characteristic of
individuals who have achieved financial success is the presence of
a financial plan. This might sound over-simplistic, but it certainly
makes sense – to achieve financial success, you need to know
where you are heading, as well as the journey that will get you
there – hence a plan!
It is in this context that we, at Momentum Investments, really
believe in the value of financial advice. The financial advice process
helps you to identify the goals that you and your family want to set
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INTERVIEW
for yourself so that you can articulate a clear and implementable
plan to achieve these goals. I want to add that it is quite important
to commit to sticking to the plan. We often see that clients have
the best of intentions when starting the investment journey but
deviating from the plan often results in sub-optimal outcomes.
Please tell us about the industry benchmarks that Momentum
Investments has fashioned.
Many investment solutions in the market provide benchmarks
or targets that are not always aligned with the needs of clients
or the way that financial advisers give advice. We believe that
our approach of outcome-based investing can address this gap
directly. Our core range, therefore, has inflation-related targets –
something we believe fits into the financial advice process, and
helps financial advisers to manage the expectations with their
clients. Although these targets are not guaranteed, our outcomebased
investing approach attempts to maximise the chances
of reaching these targets and the relevant risk metrics that are
associated with each solution.
Outcome-based investing is about placing the client’s goals at
the centre of the investment process. Our approach is more than
an investing philosophy – it’s a belief system defining the way we
manage and grow clients’ investments. We never take shortcuts
with short-term solutions for their long-term goals, and we help
to show them that future goals cannot be achieved by relying on
past performance.
Momentum offers various solutions that cater to different clients’
needs, such as growth, protection and income.
Please provide an overview of the products that Momentum
Investments offers in this regard.
We recognise that clients have different investment needs
throughout their lifecycle. We often think of ‘capital growth’ as
the only investment outcome that advisers and clients need to
solve for – and our inflation-targeted range of solutions discussed
earlier will certainly address this capital growth need.
But often clients also need to solve for income needs or are
looking for investment opportunities that also provide some capital
protection. Our outcome-based investment range, therefore,
includes additional solutions that also address these needs of
clients. In addition to our market-linked solutions described above,
we also offer a range of guaranteed solutions that can be utilised
to address these needs of capital protection and income – all of
these are also outcome-based, as it directly solves for the client’s
investment outcomes.
In the current economic landscape, uncertainty is the only
certainty – that and the assurances Momentum’s guaranteed
solutions offer. Considering the uncertainty around Covid-19,
please expand on Momentum’s guaranteed solutions range
and the assurances that your products offer.
For many clients, the world of investments can be daunting,
especially if their capacity for risk does not allow them to deal
with the uncertainty of markets. And during uncertain times – of
which Covid-19 pandemic is undoubtedly one example – we see
that these unknowns are affecting investment behaviour and often
result in an increase in demand for guaranteed solutions.
Our guaranteed solutions offer a range of solutions that either
provide a guaranteed return over a fixed period or a guaranteed
level of income. Giving a client exposure to these solutions – even
if it is just a portion of their investment portfolio – helps them
to introduce stability in terms of what the client can expect. This
can provide peace of mind to clients as they know that their
money is safe, even if the markets are volatile or provide
unfavourable returns.
A common
characteristic of
individuals who
have achieved
financial
success is the
presence of a
financial plan.
What advice would you give advisers about how to manage
their clients who are currently going through a difficult time?
I believe that financial advisers are becoming so much more
than only individuals who give their clients financial advice.
They will increasingly start to become ‘financial wellness’ to their
clients, and therefore play a meaningful role not only in giving
advice but also in coaching and guiding clients through an everchanging
environment.
At Momentum Investments, our outcome-based investing
philosophy is anchored in a belief of ‘staying invested’, as we have
seen that clients often destroy value by reacting too quickly when
markets are volatile. I will therefore encourage financial advisers
to continuously engage with their clients through volatile and
uncertain times – not to review and react to the markets, but
to give clients comfort that their original financial plans are still
relevant and that there are benefits in sticking to this plan.
Your brand proposition is ‘With us, it’s personal’. How so?
Most people who invest do so for a personal purpose. In some
cases, it is to be able to afford an income during retirement. In other
cases, it’s for a dream of sorts or for leaving a legacy. Regardless of
the why, this is a personal journey, and it matters deeply to each
individual. We want to help people and their financial advisers on
that journey to financial success.
One thing that stands out for me in my career at Momentum is
that collaboration is part of our DNA. We have a proud history of
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13

INTERVIEW
partnerships with financial advisers, and more recently, we started
to go back to these roots. And the people who work at Momentum
Investments demonstrate this in how we engage with advisers and
their clients. By building these lasting relationships with financial
advisers, we can improve our understanding of the needs of both
advisers and their clients. This enables us to enhance our services
and solutions to truly address their personal needs.
By building these lasting
relationships with financial
advisers, we can improve our
understanding of the needs of
both advisers and their clients.
What would be the typical profile of a client considering a
guaranteed product?
There is no typical profile as it can differ vastly given the
circumstances of the client – as it is personal. This is exactly where
individual financial advice is valuable as it considers each client’s
unique circumstances.
However, guaranteed products typically resonate with clients
who are on the lower end of the spectrum of risk tolerance or
risk appetite. These clients often prefer investment solutions that
provide more defined or predictable returns or proceeds.
This does not mean that only risk-averse clients should be
interested in guaranteed products. We believe that guaranteed
income products like life annuities should form part of most
retirees’ investment portfolio as it provides a portion of
guaranteed income. This guaranteed portion can potentially
be earmarked for the minimum income required during retirement
for living expenses. This portion of a retiree’s income can
therefore be secured with a life annuity, which will then be
unaffected by changes in the markets or interest rates.
Other types of guaranteed products can be used to diversify
a client’s investment portfolio and give a different return profile.
The important thing is to consider it in the context of a specific
client’s needs and circumstances, which again brings us back to
the necessity of individual financial advice.
Historically, guaranteed products have often been regarded
as somewhat opaque. How are your guaranteed products
structured and what is guaranteed?
The main purpose of structured products is to provide certainty
in terms of benefits or investment returns. It attempts to ‘hide the
wires’ of investment complexity, and it should provide simple and
easy-to-understand investment proceeds. The investment outcomes
of these products should therefore be transparent and clear.
Our guaranteed products aim to deliver on exactly this – simple
and predictable investment outcomes that provide more certainty
to clients. The guarantee offered can either be in the form of a
capital guarantee or a minimum return over a predetermined
investment horizon. Alternatively, a life annuity – also a form
of a structured product – can provide certainty on the level
of income that a client can expect over the remainder of the
client’s lifetime.
Do you offer different types of guaranteed products, and if
so, what would the different types be, and their benefits?
There is a wide range of products, but I will focus here on two types
of products. The one category is where the proceeds of the product
are fully guaranteed and predictable. Examples of these solutions
include guaranteed endowments and life annuities. Both products
provide certainty on the benefits and proceeds that are provided
to the invester – either a guaranteed capital return after a five-year
period or a predetermined level of income that is payable for life.
The second category is where a portion of the benefits are
guaranteed, but the client can potentially still benefit from
positive market movements over the lifetime of the investment.
An example of this is Momentum’s Enhanced Growth Option
product where we offer a minimum guaranteed return over a
five-year period, even if markets do not perform over this period.
A client can also potentially receive enhanced returns if markets
do perform well over the investment period. These are therefore
structured products that offer the best of both worlds – a minimum
capital guarantee if markets perform poorly, but also potentially an
improved positive return if markets do provide favourable returns.
There is no such thing as a ‘free lunch’, so what are the
additional charges that a client has to pay in a guaranteed
product versus a conventional market-linked investment
like a balanced unit trust?
There are typically three types of fees on investment products –
administration fees, advice fees and investment management fees.
These are equally relevant for structured products and unit trusts.
We believe in transparency of fee disclosures as it allows advisers
and their clients to make informed decisions. We support the
introduction of the Effective Annual Cost (EAC) disclosure in the
industry as it requires product providers to illustrate the fees on
investment products in the three categories explained above.
I’m sure that you would agree that a financial adviser should
never advise on something that they don’t understand. How
do you ensure that financial advisers who put clients into your
guaranteed products understand them fully?
I fully support that advisers and clients should make informed
decisions – including the choice of investment products. At
Momentum, we conduct product-specific training that is a
requirement before advisers can support the relevant product
range. And because Momentum Investments believes in
partnerships, we also make sure that our consultants and product
specialists are always available to financial advisers should they
need any support on specific aspects of our solutions – whether
it is on our guaranteed product range, or any other solution that
we offer.
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INTERVIEW
A diverse group of friends (and colleagues) always results in
such a rich experience and environment. – Martin Riekert
What time do you like to be at your desk in the morning? I prefer
to gym or run early in the morning, which means I am seldom
the first one in the office. I do, however, prefer to be in the office
at least 30 to 45 minutes before my first meeting as this allows
me to connect with team members before the day gets too busy.
What is your management style? The principles and approaches
as described by Nancy Kline in Time to Think really resonate with
me – not only how I want to engage on a personal level, but also
how I engage with colleagues and team members. Concepts like
diversity, active listening and empowering the people around me
feature highly in my management style.
is developing young talent in our organisation and playing a
positive role in people’s growth. I truly enjoy influencing the
careers and personal development of members of our team and
seeing the impact that leaders can have on others.
How has your career created value in your life? I essentially have
two careers – my professional career at Momentum and lecturing
at the University of Pretoria’s Actuarial Department. My career in
the financial industry allows us to enable our clients to achieve
their investment goals and dreams. And my lecturing career
allows me to grow young talent – something which is very close
to my heart.
The man
behind
Martin
Riekert
Do you want to be liked or respected? I am sure everyone enjoys to
be liked, but being respected for me means there is substance and
depth behind the relationship. My preference would therefore
be respect.
Do you read management books? I don’t read many management
books. If a colleague has a strong recommendation on a specific
book, then I will read the book, but it is seldom my first preference
when I look for a new read.
What would your key management advice be? Build a strong
team – a strong and competent team with aligned values and
attitude is an unstoppable force. And make sure this team
is diverse in skills and views – diversity truly enables better
decision-making.
Personal best achievement? Completing a full marathon in five
minutes less than my personal target!
Professional best achievement? This is a difficult one as there
are many ups (and downs!) in a professional environment. But
one aspect that often leaves me with a sense of accomplishment
What do you love doing the most when you are not at work? I am
a big supporter of the arts, so you will often find me in a theatre
or at an arts festival. And few things allow me to relax as much as
when I am reading a book.
What book are you currently reading? Despite my earlier comment
on business books, I am currently reading a couple of books on
business coaching. And I recently started to systematically read
through a number of the literary classics, including 1984 by
George Orwell and The Grapes of Wrath by John Steinbeck.
Life statement? “Diversity creates a better view of reality”.
Embrace diversity and diverse views – not only in the work
environment but also in your personal life. A diverse group of
friends (and colleagues) always results in such a rich experience
and environment.
Blue Chip advice? Continuously engage with clients when markets
are volatile and give clients comfort that their original financial
plans are still relevant and that they should stick to this plan if
their personal circumstances haven’t changed.
www.bluechipdigital.co.za
15

MEET MOMENTUM’S
NEXT GENERATION LEADERS
FAREEYA ADAM, HEAD OF
RETAIL PRODUCT SOLUTIONS
Fareeya, you have been with Momentum since 1999. Please tell
us about your journey with the company.
I joined Momentum straight out of university and have been here
ever since. I spent a few years in the actuarial valuations team
where I did lots of technical work, but most of my experience has
been in product development and product management. Over
the years, I progressed from being a specialist to managing the
discretionary and retirement solutions team to my current role as
head of retail investment product solutions.
From the outset what I loved most about Momentum was the
culture and the feeling that your colleagues are more than just
people you work with. Rather, they become friends that you trust
and share your journey with.
The underlying resilience and attitude of always doing the right
thing have resonated with me.
Please share with us your academic history.
I did both my undergraduate degree and my honours in actuarial
science at the University of Pretoria. In 2005, I completed all the
exams necessary to become a Fellow of both the Institute of
Actuaries and the Actuarial Society of South Africa.
What does your job as head of retail product solutions entail?
My role, and that of my team, is to help put together solutions for
the clients’ investment needs. This includes discretionary savings
and saving for retirement. At retirement, there are different
income products, both linked and guaranteed. There are also
structured and guaranteed products.
We need to consider solutions from many different angles,
including investment wrappers with the various tax implications,
types of underlying investments, regulation and rules. We also
need to think about how the adviser and client experience a
solution, how we explain and illustrate technical concepts in an
easy-to-understand way, to ensure that advisers and clients can
make appropriate decisions for their circumstances. Lastly, we
balance the needs of business and clients by ensuring that the
fees charged are fair and well disclosed.
How is it possible for a client to achieve high-risk returns in the
current global economy?
Some of our investment professionals say that “time in the market
is more important than timing the market”. I think that this is very
relevant. Also, clients must discuss their circumstances and risk
tolerance with a financial adviser. There are opportunities in the
market, but the best way to find the balance between risk and
reward is to partner with experts and to be able to follow through
with the plan.
How can clients maintain a degree of certainty despite the state
of uncertainty facing the world today – with the US elections,
Covid-19 and the economic slowdown?
One of Momentum’s strengths is the comprehensiveness of our
offering, which includes a range of guaranteed solutions. These
go a long way towards removing uncertainty. In the guaranteed
annuity space, clients will be assured of always receiving a predetermined
income, regardless of how markets perform or how
long they live. In the structured products space, some solutions
offer different return profiles that are secure and predictable. This
allows clients to diversify their portfolio in ways that suit their
individual needs.
Blue Chip advice?
Choose partners who are experts and who you can trust.
Time in the market is more important than timing the market.

KAPIL JOSHI, HEAD OF MOMENTUM
COLLECTIVE INVESTMENTS
Kapil, please tell us about the decade that you have spent with
Momentum. Momentum is the only business I have ever worked
for, and what an amazing journey it has been. As you enter the
corporate arena, you enter with this belief of what your first job in
a big company means and what it will be like. This includes several
things such as meeting new people, the nerves associated with
trying to prove yourself (not just being a number), and I can safely
say Momentum flipped this on its head. In those initial days, I felt
incredibly welcome, almost like I belonged to the family. This did
not change for the ten years I have been here. Think about it, ten
years at on average 12 hours a day (yes we don’t just abide by
contract hours), would need to carry some additional meaning
than just being a job.
I have been fortunate enough to be presented with some
noteworthy career opportunities, from product development
to investment distribution and now more recently, as head of
Momentum Collective Investments (MCI), looking after the unit
trust business, and it has been filled with great memories. But
these great memories also come with tough and open debate,
it comes with hard work, and it certainly comes with sharing a
common purpose and vision. And in this regard, I can say the
people in our business are fiercely competitive, and that has been
something wonderful to witness.
Momentum is a place that you are afforded opportunities to
grow, that accepts challenges and people that challenge the norm,
it is a place that truly cares for its people and I am incredibly proud
of calling it my work-home. We have done some great things over
the last decade, but all of that has just created the foundation for
the legacy we are busy building.
What are the defining highlights of your career?
The first one is the offer I received to join Momentum on 3 May
2010. Fresh on the job market, you hope to get the ball rolling in
your next chapter of starting a career. I joined Momentum Wealth
in the structured product and annuities team where we were a part
of creating some really exciting structured solutions for the South
African retail investments market. These kinds of opportunities
rarely arrive at the door of an inexperienced individual who is fresh
out of university. I spent six years of my career in this environment
in various product development capacities.
Another highlight would be that I got to work with some of
the extraordinary leaders and mentors whom I can also call
friends. We were a part of a team that brought some of the first
innovative protected solutions to the South African market, we
had record sales with some of our products and at the same time,
we had phenomenal personal opportunities for growth with really
outstanding management programmes.
On the personal side, going through two management
programmes and winning cohort business improvement projects
for both is also something I am incredibly proud of.
Please tell us about Momentum Collective Investments.
Momentum Collective Investments is the unit trust
provider to the group's asset management capabilities. It wraps
solutions and single asset capabilities in collective investment
schemes (or unit trusts). But more importantly, it takes our
investing philosophy called outcome-based investing and
packages this in vehicles that the retail and institutional market
can access. We are incredibly proud of our heritage and legacy at
MCI because through our history we still have one of the oldest
registered funds. It is on this foundation that we are now looking
to enhance our proposition and the visibility of our proposition
to established and new market players.
We currently have just under R90-billion assets under
management across our capabilities (at the time of writing in
December 2020). These capabilities include fixed income, smart
beta, property and multi-asset solutions.
Blue Chip advice?
I have seen some market cycles in my time at Momentum. It is
fair to say that I have also seen the trends associated with these
market cycles and particularly investor behaviours. If there is one
thing we know for certain, it is that trying to time the markets
due to pure performance is the worst thing one can do. A sound
investing philosophy that is met with a solution/fund to back it
up in partnership with robust and thorough financial advice can
make for clients truly staying the course to their investment or
savings goals. Forget about the day-to-day comings and goings
in investment markets and rather focus on your goals.
"We are incredibly proud of our heritage and legacy at
MCI because through our history we still have one of
the oldest registered funds."

COLUMN
The role of offshore investments
for South African investors
Sound advice by Florbela Yates, Head of Momentum Investment Consulting
In an economy that is already struggling
to deliver economic growth and low
returns from the majority of South
African asset classes, it is no surprise that
more and more South African investors
are looking for investment opportunities
offshore in a bid to maximise their
investment returns.
At Momentum Investment Consulting,
we believe in building diversified portfolios
across both local and global asset classes
that deliver on our outcome-based
investing philosophy. With this approach
our clients can invest in portfolios that are
best aligned to their personal goals. By
articulating the desired goal, as well as a
relevant time horizon, we believe it’s easier
for clients to remain invested and prevents
them from panicking when markets fall
and making short-term decisions that
could have dire consequences for their
long-term wealth.
Partnering with a reputable financial
adviser with a full overview of their assets,
goals and tax status, allows clients to
determine what their short-, medium- and
longer-term needs are. This, in turn, makes it
easier to identify which portfolios are most
suited to them, including the appropriate
blend of local and offshore assets.
The starting point in our investment
process is to determine the appropriate
allocation to each asset class, which then
allows us to determine the appropriate
allocation to local and offshore investments.
The local and London-based teams
then select the investment managers,
depending on whether the assets are
managed via asset swap (but invested
locally) or true hard-currency portfolios
domiciled elsewhere. This process allows
us to identify and employ specialist asset
managers around the globe, resulting in
globally diversified portfolios with better
investment outcomes for all our clients.
While 2020 was a uniquely challenging
year, we have remained steadfast in our
focus on managing clients’ capital. As
Ferdi van Heerden, CEO of our Momentum
Global Investment Management business
explained: “Where opportunities have
presented themselves, we have sought
to take them. This not only applies to the
client portfolios we manage but also in
our own business. Our recently announced
acquisition in the UK of Seneca Investment
Managers demonstrates our commitment
to expanding our global investment
capabilities. This is indicative of our
investing approach: we take a long-term
view and look through periods of intense
uncertainty to the opportunities, in the best
interests of our clients. We are committed
to delivering on our clients’ investment
goals, and with this acquisition, we now
have an even stronger team to back it up.”
Florbela Yates, Head of Momentum
Investment Consulting
2020 serves as a reminder of the
difficulties in forecasting. We continuously
spend time revaluating our expectations
for the future, rather than doing so as part
of a once-off exercise in December each
year. Still, we are also realistic about the
accuracy of those views, and hence we
build resilience into our portfolios.
Valuations across many asset classes
are high today, but clients need to look
through the current period of depressed
earnings to the prospects for companies
in the future.
As things stand, 2021 promises to be a
year of strong recovery around the world.
While markets have gone some way
towards discounting that already, there’s
considerably more upside potential if we
see a successful vaccine rollout. Clients
should ensure they have enough exposure
to the related ‘value’ stocks, rather than
being overly concentrated in the winners
of the pandemic and the last few years,
namely the US mega-cap tech stocks.
We expect more of the same responses
from policymakers in providing liquidity
and financial support in 2021, twinned with
a gradual reopening of economies and
the businesses that operate within them.
This should support growth asset classes
including global equities, corporate debt,
property and infrastructure. Volatility will
remain high, and we continue to spread
clients’ capital across a range of diversifying
asset classes, sectors and regions.
A more confident forecast for next
year is that clients will continue to pay
more attention to sustainability-related
considerations. Greater integration of
environmental, social and governance
(ESG) research into investment teams
and processes comes up in almost every
conversation we have with asset managers.
Responsible investing practices have
always resonated with our outcome-based
investing philosophy and the alignment of
our clients’ long-term goals to positively
influence the world they will retire to.
We support responsible investing to
help create investments that are good for
clients and the world we live in. Because
when it comes to sustainable investment
growth, for us it’s personal.
18 www.bluechipdigital.co.za

With us, it’s personal
Client needs
Advice
Peace of mind
Guaranteed
solutions
Growth
Protection
Income
Certainty, irrespective of how the market moves. And certainty to plan for the future. Your clients
are seeking comfort and confidence in their finances. Because nothing is more personal to you
than your clients’ investment outcomes. That is why we have a range of guaranteed solutions to fit
your clients’ investment strategy. To give them the peace of mind when it comes to their money.
Because with us, it’s personal.
To find out more, visit momentum.co.za
Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services (FSP6406) and registered credit (NCRCP173) provider.
MI-512-AZ-6085-CL

OFFSHORE INVESTMENTS
The offshore
opportunity set
lA tour of the offshore investment landscape
In the past year, a growing number of voices in the financial
services world have been advocating that South Africans
should externalise all their wealth offshore, even suggesting
that individuals should cash in their retirement savings to do
this. These voices were loudest at a time of peak negativity early
in 2020, with the rand trading in the region of R19 to the US dollar,
and the local stock market struggling. The recent sharp reversal
in both the rand and local shares would question the wisdom of
having a binary view on local vs offshore, as well as highlighting
the dangers of disconnecting an investor’s portfolio from the
underlying investment objective it is trying to achieve.
We believe investing offshore can add significant value to
a portfolio if it allows for the specific circumstances of each
individual. Here we take a tour through what it means to be
invested offshore by looking at the actual opportunities we are
investing in, and the new risks we are exposed to in the search for
returns. To understand offshore better, we start by looking at the
local market.
Local equities
While the JSE is a reasonably large stock exchange by world
standards (17th largest by market capitalisation), we are starting to
outgrow it as an investment market. On an effective basis, around
65% of our listed equity market derives its revenues offshore. This
is concentrated in a relatively low number of shares, but increasing
as domestic shares expand offshore. As listed companies outgrow
their domestic growth prospects, it is natural for them to look
outside of our borders for opportunities. This has been the case
for a long time; however, because our market has a relatively low
number of shares, the composition can change, and has done,
quite frequently.
Ten years ago, we had almost half of our equity market (and
by extension, pension funds!) invested in commodity producers.
Today this is much less, replaced by Naspers (Chinese tech
platform), British American Tobacco (cigarettes), Anheuser (beer)
and until recently, Steinhoff (European furniture). This has meant
that in our “local” investments, our equity market is dominated

OFFSHORE INVESTMENTS
by a select few offshore companies, so in many respects, we are
offshore investors before we even set foot there.
What then are the benefits of investing offshore, if we can
already access it in our home market? There are a few key points:
• Diversification: being a smaller market, it is highly
concentrated in a few shares (eg Naspers is 19% of the market),
whereas offshore markets have a huge range and depth of
opportunities, so we are not beholden to the successes
(Naspers) and failures (Steinhoff) of a few.
• Diversification away from South African-specific risks –
economic, social and political.
• Access to new types of investment opportunity in sectors not
represented locally. Examples would include biotech, energy,
technology and utilities (electricity producers).
• Investment returns that are “hard currency” based – ie returns
earned in currencies that generally appreciate against the
rand such as the dollar, euro and pound sterling.
Looking then at the range of global options available to us,
we take a first step of asking what exactly it is that local investors
require from their offshore portfolios? By doing this we ensure that
they can gain exposure to the full range of opportunities, taking
into account the fact that because the world is a big place, global
managers have quite limiting biases in where they are comfortable
investing. By looking at the world through a wider lens we can
ensure that we correct for these biases.
Broadly, we look at global investing – specifically equities –
as six separate sources of return which provide investors with
alternative opportunities to what we have access to locally.
US-developed equities
“The source of innovation” and the home of the large “old-world
company”. The US accounts for over half of all listed equity on the
planet, so it is hard to avoid a US bias in a portfolio. Not that this
bias is necessarily a negative as companies listed there are subject
to high corporate governance standards, liquid capital markets,
quality management and entrepreneurial culture, which provide
the platform for a broad and deep opportunity set for investors. Of
late, the US has migrated to a tech-biased market with the FAANMS
increasing their share of the market as these new platform/tech
businesses breach their respective tipping points.
A more pragmatic take on this change would be that tech in
itself is less of a sector in the future, and more of a business as usual
underpin for the bulk of industries. Tech will become pervasive
in our portfolios, like it or not. With their size and reach, many US
companies derive their earnings outside the US, with companies
like Unilever as an example reliant on emerging markets for 57%
of its revenues.
Tech will become pervasive in
our portfolios, like it or not.
Around 40% of US company revenues are sourced globally.
So, investing in the US gives us exposure to stable old-world
companies, innovative new-world companies, and a range of
sectors not available locally, many of which are doing business
globally. This is a direct product of the globalisation of trade trend
we have seen over the last couple of decades.

OFFSHORE INVESTMENTS
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Around 35% of listed equity then sits within Europe, UK and
Japan. This is a more diversified pool of investments compared
with the US, given the geographical spread of companies and
the fact that multiple governments play a role in impacting
the prospects of each market. Europe is still rather old-world
(consumer goods, financial services and all the oil companies –
Total, BP, Shell). The UK is largely a global market, with a minority
of revenues sourced domestically, and many of its listings based
on commodity companies, much like South Africa. Japan was the
equity powerhouse in the ’80s with the advent of the personal
computer and consumer electronics but has faded over time.
Today it gives us motor manufacturing (Toyota, Mitsubishi and
Honda) and Sony among others.
markets given the complexity as well as the need to resource
significant teams to cover this disparate universe of shares. This
is one of the biases we consider when looking at client portfolios.
Frontier markets
A recently termed market referring to lesser developed,
prospective emerging markets. Current exposure is concentrated
across Argentina, Kuwait, Vietnam and Nigeria where 60% of all
listed shares are either in financial services or telecommunications
– the frontier markets provide high-growth opportunities because
they still have much to achieve so returns to investors need to
be commensurately high to offset the investment risks of politics,
liquidity and governance.
Smaller companies
Some companies are small for a reason and will stay that way,
but others are the “large caps of the future”. These shares are your
typical high-growth companies because they tend to be rolling
out new, disruptive services to the market. Many of the current-day
disruptors are technology-based, but this can cover any industry
globally. This is another market often underinvested by asset
long-term business partner to an advisory • Global and local portfolio managers construction due to the different mindset required and additional
business. Emerging markets
capabilities. resources required. This asset class also tends to be quite US-heavy
These We believe are markets that the defined two most as “developing” important • ie The where skill there and relevant are due experience to the focus of the on innovation which enjoys substantial support
factors reasonable that advisors infrastructure need to and consider governance when to support core investment growth and team. in that market.
choosing where the a standard DFM are: of living is in ascendance, • currently The DFMs holding back-office compatibility with
• around Understand 15% of the world unique equity value exposure. proposition These are the generally advisor’s seen current Listed processes. property
as of high-growth the DFM given sources how of return different as the underlying • The scale economies of the business. Unlike locally, where property tends to be quite homogenous
are various developing DFMs’ at a offerings higher rate are, than and more how mature • The markets fee structures. like the
US. this While value this proposition is the theory, complements the reality has the been somewhat more
– meaning that most of our investment options are bundled
property companies across commercial, retail and industrial
mixed advice in process. many cases. With political volatility In and our various opinion, social DFMs do options have an – important global counterparts are considerably more specialised.
• conflicts, Make sure emerging that there markets is a are good not always culture a one-way role to bet. play They in are helping Companies advisors can have to a specific focus (eg data centres fast replacing
also and beholden philosophy to the fit demand between created the advisor by the developed professionalise markets. and grow retail their shops businesses; due to online shopping), or a regional focus (for
China, and the for DFM. instance, could be referred to as the ensure manufacturer consistent of investment instance, outcomes; a property share that only invests in B-grade London
Meeting the Western these world. considerations Looking ahead will decrease less so, but improve certainly communication looking commercial to clients property). and This provides substantial diversification
the backwards. probability Countries of “buyer’s include remorse” BRICS (Brazil, from Russia, enable India, advisors China and to focus opportunity on their core for role investors compared to history.
an South advisor Africa) who as well is as getting South Korea, something Taiwan and of giving Mexico. comprehensive All financial of this advice results in tens of thousands of listed shares in which
different Emerging from markets what they are expected, increasingly and dominated to clients. by the rise
ensures of China, that which when now differences accounts of opinion for over
emerge, 30% of all there listed is emerging common market ground equity. and
respect And within between this, the a parties huge to bias allow towards for a
compromise technology via that Tencent does not (the disadvantage source of
the Naspers’ client. success), Baidu and Alibaba – the
Chinese Key factors equivalent to investigate of Facebook, when carrying Google
out and your Amazon due diligence respectively. on the It DFM is becoming options
include: difficult to avoid a Chinese tech bias inside
• an Whether emerging the markets DFM is independent portfolio. Other and
sectors how important providing opportunity independence emerging is to the
markets advisor. include commodity producers,
• large The growing investment consumer philosophy services based and on
growing performance middle history classes, of and the DFM. the financial
• services The depth needed of the to fund DFM’s this global growth. and local Many
to invest globally. In the main markets, this is narrowed down
to around 2 500 to 3 000 shares, once
liquidity has been factored in. This range of
diversification is the primary benefit to local
investors – not being overexposed to a few
shares, singular governments, local currency
or other risks such as terrorism, corporate
fraud or the decline of an industry.
For equity investing going forward, it
pays to think globally as part of a client’s
portfolio, and while there are equivalent
risks globally to those which we face in
South Africa, we are less exposed to any
individual event permanently impacting our
portfolios and the achievement of longerterm
asset research managers capabilities. avoid investing in emerging
Ian Jones, CEO, Fundhouse
objectives.
22 www.bluechipdigital.co.za www.bluechipjournal.co.za
23

OFFSHORE
2021
THE REAL REASON YOU SHOULD
BE INVESTING OFFSHORE
KEY CONSIDERATIONS
WHEN INVESTING OFFSHORE
WHEN DIRECT INVESTING ISN’T AN OPTION
EMERGING AND DEVELOPED
MARKETS – A MIX OF RISK AND REWARD
FINANCIAL EMIGRATION – DO THE COSTS AND
COMPLEXITIES WARRANT THE BENEFITS?
IT PAYS TO PLAN IF YOU’RE
LOOKING OFFSHORE

TAKE YOUR WEALTH FURTHER
We believe that you are more than just your money. True wealth means different things to different
people, and how you define it is unique to you. This means having a tailored financial plan that
speaks to your needs, dreams and desires. Our wealth management solution doesn’t just consider
the assets you have, but also having a holistic picture of your wealth today, and for the future. Look to
us to help grow, protect, leverage and ultimately transfer your wealth from one generation to the next.
A WORLD-CLASS INVESTMENT DESTINATION
Our specialist wealth management solutions help you to bring out the best of your investment.
They are geared towards creating a unique experience for you, all while delivering on all your service
needs in a professional and dedicated manner.
OLD MUTUAL WEALTH INTERNATIONAL
Locally based offshore specialists providing you with
access to a wide range of international assets and
investment funds from some of the biggest and most
reputable portfolio managers in the world.
Contact details: +27 21 509 2187
service@omi-int.com
OLD MUTUAL WEALTH PRIVATE CLIENT SECURITIES
Specialising in crafting tailored investment portfolios,
your highly skilled Private Client Portfolio Manager will
work with you to select the best and most suitable
investments (locally and offshore) based on your
strategy, our extensive research and collective insights.
This level of individual attention and interaction is a
defining standard in the personal service we provide
to each of our clients.
Contact details: +27 21 524 4678
pcs@omwealth.co.za
OLD MUTUAL WEALTH TAILORED FUND PORTFOLIOS
Providing financial planners with a range of investment
solutions that targets inflation, diversifies offshore and
offers a sustainable income for life after retirement, while
offering a consistent, reliable thread through the asset
allocation process, managers and investment philosophy.
Contact details:: +27 21 524 4564
tfp@omwealth.co.za
OLD MUTUAL WEALTH FIDUCIARY SERVICES
Making sure your wealth is secure for the next generation,
by providing advice and implementation on estate
planning, wills, estate administration, professional
trusteeship and trust administration. We help you to
simplify complexities and technical elements relating to
legislative, regulatory and compliance requirements, and
commit to help you build a lasting legacy.
Contact details: +27 21 524 4911
fiduciary@omwealth.co.za
OLD MUTUAL WEALTH TREASURY AND
ADVISORY SERVICES
Our experienced team finds the most appropriate
cash and guaranteed rate instruments and expertly
negotiates preferential interest rates with various
financial institutions on your behalf.
Contact details: +27 11 245 3758
tas@omwealth.co.za
OLD MUTUAL MULTI-MANAGERS
A specialist investment boutique within Old Mutual
Wealth that offers you real return portfolios to meet your
specific investment objectives, using skilled investment
professionals and leveraging off vast experience and
insights to bring together a team of local and global asset
managers.
Contact details: 0860 999 199
service@omwealth.co.za

strategy and product suite. It is currently in the
spotlight given the low-return environment we
have seen in SA and the volatility highlighted
above. Therefore, we have used the opportunity to
remind investors of the importance of geographic
diversification.
At Old Mutual Wealth, we offer offshore investment
solutions through our Private Client Securities
business, Old Mutual Multi-Managers and Old
Mutual Unit Trusts, demonstrating our commitment
to providing relevant and market-leading
investment solutions to enable our clients to take
their wealth further.
INTRODUCTION
The levels of investment market volatility and
uncertainty reached in 2020 were significantly
higher than ever before. This was driven by
economies shutting down due to Covid-19,
the resulting economic recession, uncertainty
regarding whether governments were going to
support their economically inactive populations
through stimulus support and a contentious
US presidential election. Volatility can present
significant investment risk. However, when
working with a qualified investment professional
who can correctly harness it, volatility can be used
to generate investment growth and build wealth.
This can be done through diversification - by
investing in different assets or markets that would
react differently when exposed to the same event.
Empirical evidence suggests that diversification
is the most important aspect to reach longterm
investment returns and build wealth, with
minimum risk.
In the case of South Africa (SA), diversification is
important and is further underscored by the fact
that most local investors have an estimated 65%
to 80% of their total wealth invested directly in
the SA economy – an economy that represents
only 0.5% of the global market. Offshore exposure
has always been part of the Old Mutual Wealth
To complement the above, we have recently
increased access to offshore investing with the new
range of Old Mutual International Global Funds.
This range is focused on a unique offering that has
a competitive fee structure, reduced minimum
premiums and increased accessibility thought the
OMI Life Wrapper, which brings its own set of taxefficiency
and estate planning benefits.
Navigating an interesting but often complex
environment of offshore investing can be
challenging. In this publication, our subject experts
answer some of the frequently asked questions
regarding offshore investing:
• Why should I invest offshore?
• What must I consider when investing offshore?
• What are my offshore investment options?
• What is the difference between emerging and
developed markets?
• Should I be considering financial immigration?
• Where do I start?
As with any major financial decision, it is always
advisable to seek professional, expert advice to
ensure that your actions and objectives remain
aligned and that your investment plan is optimally
structured.
We hope you enjoy the read!
Farhad Sader
Managing Director: Old Mutual Wealth

THE REAL REASON YOU SHOULD BE
INVESTING
OFFSHORE
By Chris Potgieter, MD: Old Mutual Wealth Trust Company
Discounting for a moment the state
of the local economy and one’s
particular socio-political view, the
key motivation for any investor to
invest offshore should be to have appropriately
diversified wealth in pursuit of real capital
growth at an acceptable level of risk.
TOO EXPOSED TO SA
It is estimated that between 65% and 80% of South
African investors’ total wealth is exposed directly
to the SA economy. Total wealth includes career,
business and property interests, in addition to
investments such as pensions. With this in mind, we
need to recognise that the majority of South African
investors have too many eggs in one basket. This is
regardless of the economic and political climate
in the country, as the same advice would apply to
investors in most developing countries, were they in
a similar position.
The Afrasia 2019 South Africa Wealth Report shows
that South African high net worth individuals
(HNWI) hold less than 20% of their wealth offshore.
These HNWIs have the means to gain access to
offshore markets more so than the average South
African, which means that offshore exposure will be
even less for the average investor.
Apart from the mitigation of risk through
diversification, from an investment perspective
offshore developed markets offer more depth and
breadth relative to the local market. This allows
an investor to better diversify risk and to access far
more investment opportunities for growth.
THE HUNT FOR GROWTH
Along with risk mitigation through diversification,
growth is the key reason for investing abroad.
Global investment markets – especially developed
markets – present more opportunities to invest in
4

It is estimated that
between 65% and
80% of South African
investors’ total wealth is
exposed directly to the
SA economy.
”
long-term growth sectors such as technology and
healthcare. It’s telling to observe that any one of the
top five listed companies in the world is greater than
the combined market value of all the companies
listed on the JSE. For example, the market value of
Apple is nearly one and a half times the value of all
companies listed on the JSE. Simply put: the world is
a big place and one’s wealth needs to be invested to
grow with the world.
TAILORING TO INVESTORS’ NEEDS
“Failing to plan is planning to fail.” When devising a
global investment strategy, it is essential to consider
an investor’s total wealth. To talk about a portfolio
of investments in isolation to property, business
and career interests would be misguided. Should
an investor have adequate provision in South Africa
for local income requirements and liabilities – for
example through salaries, rental income from fixed
properties or distributions from an SA trust – then
more liquid assets could be invested offshore for
capital growth and capital protection. Such direct
offshore allocations are likely to be important
to supplement the limited offshore exposure
achievable through pension funds. Currently,
offshore investments are seen as a subset of total
wealth, but it should be the other way around, with
the local investment forming a subset of the client’s
total global wealth.
Global diversification involves asset location, asset
allocation and asset selection. Asset location relates
to the tax considerations of where investments are
held and the wrong decision in this regard can lead
to adverse consequences. Fortunately, there are
several viable options available to investors, such
as the Old Mutual International platform and/or
establishing an offshore trust.
An offshore investment portfolio should be created
around a client’s specific needs, but, broadly
speaking, a typical equity portfolio would be heavily
invested in US multinational companies together
with selected UK and European multinationals.
These multinationals, when properly selected, will
provide an investor with exposure to developed and
developing markets. A well-constructed portfolio
will provide a good balance between established
businesses and growth businesses. Exposure
to specialised and fast-growing industries such
as bio-tech can be achieved through exchange
traded funds without placing large, risky bets
on any particular company. Old Mutual Wealth
Private Client Securities (PCS) have established a
commendable track record as managers of bespoke
global portfolios for private clients and trusts.
Political, social and economic risks may be a part of
the argument to invest offshore, but these risks are
not unique to South Africa. Simply put, if you want
to mitigate risk and grow your investments in real
terms over the long term, you’ll do well to adopt the
mindset of a global investor.

KEY
CONSIDERATIONS
WHEN INVESTING OFFSHORE
By Wayne Sorour, Head of Old Mutual International: Sales & Distribution
The current political and economic landscape
in South Africa has led to a surge in interest in
offshore investment from local investors. The
decision to invest offshore is predominantly
influenced by the search for superior returns, in addition
to stability and security of assets. However, when planning
on moving money abroad, there are a few other crucial
considerations to keep in mind, including mechanisms
to invest offshore, various tax implications of these
investment vehicles, and currency fluctuation factors as a
key part of the initial planning process.
DIRECT VS INDIRECT INVESTMENT
In most cases, investors send discretionary money offshore
while their investments in South Africa satisfy their income
needs on local soil. The question is, when it comes to
offshore investment vehicles, should you invest directly
or through an indirect vehicle, such as an asset swop or
feeder fund?
Essentially, direct investing involves the converting of
rands to foreign currency and investing it abroad in hard
cash. In these cases, an investor will have an offshore bank
account they would use to transfer money to and from the
investment vehicle of their choice. In other words, investing
directly into, say, funds or shares abroad.
One of the key reasons for direct investing is to have money
available in these specific jurisdictions, whether it is for
use when travelling or to finance your children’s tuition
overseas, as well as any situation when having money
abroad for immediate use makes sense. Other reasons to
invest directly are to hedge against local political instability
in a country of residence and for immigration.
* As at 30 June 2019 Source: Old Mutual Limited.
6

When you decide to invest offshore indirectly, you
need a mechanism to get this money abroad, which
is referred to as an asset swop, which is essentially an
investment manager’s offshore allowance.
DON’T GET TRIPPED UP BY TAX
There are a myriad of tax considerations that
investors often don’t factor in before taking their
assets offshore. For example, the US and the UK, and
most other countries, require that non-residents
pay inheritance tax on assets, including property
and direct shares. If you own shares on the NY Stock
Exchange, for example, your heirs are liable for a
40% offshore inheritance tax on all investments
above US$60 000. These jurisdictions also clamp
down heavily on estate duty taxes.
Tax complications can at least be curtailed by
handing over responsibility to an investment
manager that can place their offshore investments
in a wrapper, an investment platform that legally
entrusts the investment manager to handle all tax
affairs of the investments therein.
CURRENCY FLUCTUATION
Preoccupation with the short-term volatility of the
rand and the conversion rate in question when
planning to invest abroad is prevalent among local
investors. What they don’t take into account is that
while the rand strengthens, global markets tend to
correct at the same time, voiding the strong showing
of the rand.
It seldom happens that the rand strengthens while
the markets go down. Therefore, while you wait for
the rand to improve by 10% to send money offshore,
the market can also move by 10%, resulting in zero
gain. Investors would do better to phase in these
investments over a set period to account for these
currency fluctuations.
The question we are often asked is if you only need
the money in 10 years, why invest now when the
rand is weak, but if you believe the rand is going to
Preoccupation with the
short-term volatility of the
rand and the conversion rate
in question when planning
to invest abroad is prevalent
among local investors.
”
devalue further, the best time to start taking money
offshore is now.
WHERE TO INVEST?
While the South African investment environment is
relatively limited, offshore investing has the added
complexity of a choice of thousands of companies
and funds to invest in. This is where intimate
knowledge and expertise of the offshore investment
space plays a crucial role.
If an investor is risk-averse, lumping all their money
into risky offshore equity markets is futile. An investor
risk and needs analysis must be conducted by
investment managers first and foremost to decide
on the various asset classes to invest in abroad.
This involves keeping in mind that money invested
offshore should be based on medium-to longterm
horizons and often forms part of investors’
discretionary investments.
There is also the added complexity of geographical
exposure to equity markets in the US, UK, EU or
emerging markets, among many others. It is thus
highly advisable that a client’s investments be
reviewed by an investment manager who can
structure a discretionary portfolio according to the
investor’s risk profile.

WHEN DIRECT
INVESTING
ISN’T AN OPTION
By Wayne Sorour, Head of Old Mutual International: Sales & Distribution
It would be misguided
to compare direct and
indirect offshore investment
mechanisms on the same
scale. Some financial vehicles,
such as trusts, along with specific
individuals, don’t actually have
the option of going the direct
route when it comes to investing
money offshore.
While direct offshore investing is
largely the preferred choice – as
it allows investors to factor out
rand devaluation, offers better tax
outcomes and allows a choice
of whether to bring money
back to South Africa or keep it
in the jurisdiction it resides – for
many investors, indirect offshore
investing may be the most
sensible and accessible route.
For instance, business owners
who want to invest directly are
restricted by legislation. This
stipulates that commercial
entities can only take capital
offshore if the company is
registered in the same jurisdiction
and operating in the equivalent
sector.
Investors with assets in trusts, on
the other hand, run the risk of
exposure to significant taxation
if they used the wrong offshore
vehicle. A local trust, formed and
domiciled in South Africa, cannot
invest offshore directly.
INDIRECT OFFSHORE EXPOSURE
A more sensible option for these
types of investors is therefore
to take their money offshore
through a feeder fund or private
asset swop facility.
There is a lot of terminology
around indirect investing,
including terms like randdenominated
investing, asset
swops or feeder funds, which,
for the most part, are the same
thing. With a feeder fund, which
is essentially a rand-denominated
unit trust fund, asset managers
use their own asset swop capacity
to invest in global assets on
behalf of investors. These feeder
fund options are limited to the
fund range of the particular asset
manager, which is why we, at
Old Mutual International, advise
high net worth clients rather to
invest using what we call a private
asset swop facility. In doing so, we
can invest in the same assets we
would for an individual investing
directly offshore, and structure a
diversified, bespoke investment
portfolio.
Using a private asset swop
facility has tax benefits, in that
the investment is taxed in US
dollar returns only, whereas a
feeder fund is taxed in rand. In
8

In many cases,
indirect investment
vehicles available to
investors can offer
the same diverse
exposure to offshore
markets with
many of the same
benefits.
other words, if you have a US
dollar return of 10% in a global
equity fund, in a private asset
swop facility you will be taxed on
this 10% alone. Were you to be
invested in a rand-denominated
fund and it devalued by 10%, you
would be taxed on the 10% US
dollar returns and lose on the
devaluation of the rand.
Another instance in which
individuals would choose to
invest through an asset swop
facility is to avoid withdrawing
money from a trust where they
would be liable for estate duty.
With a private asset swop,
investors can invest over and
above the foreign investment
allowance of R10 million per
person per annum, and the
R1 million discretionary allowance.
When an investor has exceeded
their R11 million threshold, they
can take out an asset swop to get
extra offshore exposure. At the
end of the year, they can disinvest
from the asset swop and use their
R10 million allowance again the
following year.
WHY GO DIRECT OFFSHORE?
If you have the necessary means
and are in a position to do so,
direct investing is the right option
if you want to hedge against
political instability or make future
provision for your children to
”
study abroad. In these cases
investing directly and having
money available in the relevant
jurisdiction is an advantage. If
you believe the rand is going to
decline in the future, why include
the rand devaluation in the
equation when you don’t
need to?
However, direct investment, while
generally being the preferable
means of investing offshore, is
not for everyone. In many cases,
indirect investment vehicles
available to investors can offer the
same diverse exposure to offshore
markets with many of the same
benefits.

EMERGING AND
DEVELOPED
MARKETS
A MIX OF RISK AND REWARD
Andrew Dittberner, Chief Investment Officer at Old Mutual Wealth Private Client Securities
While we know that investing
offshore should be a crucial
consideration when it comes to
diversification, less straightforward
is the answer to which offshore markets to consider.
More specifically, how much of your money should
be invested in emerging markets versus developed
markets? Are emerging markets still the growth
engine that they used to be? More importantly, are
these markets worth the risks?
Firstly, it is important to consider that most of the
assets that we as South Africans hold (including
our local properties and pension funds) are
predominantly emerging market assets. It is
therefore very likely that most South African investors
already have significant emerging market exposure,
albeit in a single market. However, this is not a
reason to write off emerging markets as a potential
investment destination, but rather an important
consideration when deciding how to allocate capital
offshore.
Against this backdrop, emerging market equities
currently constitute around 10% of the global equity
market, yet emerging market economies contribute
roughly 60% of global GDP. As such, investors are
naturally “light” on emerging market exposure,
unless there is a deliberate attempt to increase one’s
allocation to emerging markets. Importantly though,
investors are able to gain emerging market exposure
by investing in companies that operate in emerging
markets. Obvious examples of this include Diageo,
Starbucks, Walt Disney and Nike, to name a few.
10

otherwise have to do for more well-known,
developed market companies. This often results in
people having to be on the ground in the country to
see and understand the various dynamics, which can
be a costly exercise.
Having said that, emerging market equities have
historically outperformed developed market equities.
In the long run, corporate earnings growth typically
drives equity market returns. And, unsurprisingly,
the key ingredient in driving corporate earnings
growth is economic growth (South Africans will be
acutely aware of this). From there it is a short leap
to arrive at the conclusion that economic growth
plays a vital role in driving longer-term equity
returns, although this is not necessarily the case in
the shorter term. Therefore, when thinking about
emerging market economies and equity markets, it
is easy to understand why emerging markets have
historically outperformed developed markets, given
that emerging market GDP growth has typically
outpaced that of more developed markets.
As we approach the end of the decade, it is quite
apparent that the past 10 years have seen a reversal
of fortunes for emerging market equities, as they
have lagged developed markets by a hefty margin,
There are a number of reasons why investors are
naturally drawn to developed market equities
as opposed to emerging market equities. These
include the obvious points that developed equity
markets are larger (as alluded to above), more
established and more liquid than their emerging
market counterparts, and as such present a
larger opportunity set for investors. Alongside this,
emerging markets are also viewed as inherently
riskier than developed markets given the potential
lack of accounting standards, corporate governance
and transparency issues, volatile currencies, political
uncertainties, a lack of analyst coverage and the
inability to completely trust what is presented in
annual reports and on company websites. In this
way, investing in emerging market companies
requires far more research than what one may
as illustrated in graph 1. There are a few reasons for
this. Firstly, low interest rates in developed markets
have helped bolster developed market equities in
what has been a lower growth environment over the
past decade.
Graph 1: Developed vs Emerging Market
Equity Returns: May 1990 – May 2020
Annualised Total
Returns (%)
12
10
8
6
4
2
0
-2
-4
-6
1 Year
Developed Market Equities
5 Years 10 Years 20 Years 30 Years
Emerging Market Equities

The second main reason for the underperformance
of emerging market equities is that the growth
differential between emerging and developed
markets has reduced significantly over the past
decade (see graph 2). When China is excluded, the
differential is very close to zero over the past five
years. This collapse in emerging market growth
is due to a number of factors. While idiosyncratic
factors have played a role, specifically in various large
emerging market countries, there are also a number
of common factors at play. These include the trade
dispute between the US and China, increasing
debt levels in emerging markets, and a strong US
dollar. These have compounded to ultimately lower
emerging market GDP growth rates to levels closer
to those of developed markets.
Graph 2: GDP Growth Rates
Annual GDP Growth (%)
10
8
If we know one thing
today it is that the
short- to medium-term
economic outlook is as
uncertain as
it has ever been.
”
6
4
2
0
-2
-4
-6
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Advanced Economies Emerging Markets EM ex China
Given the above, it may seem clear-cut that
developed market equities should be prioritised
over emerging market equities. This view is
potentially reinforced by the onset of economic
shutdowns, and the fact that emerging market
economies are likely to be more severely impacted
by economic shutdowns than their developed
market counterparts. Taking a step back, if we know
one thing today, it is that the short- to mediumterm
economic outlook is as uncertain as it has ever
been. We also know that extrapolating recent events
into the future is a sure way of being wrong. Our
memories are often short, and we forget that at the
beginning of the previous decade emerging market
equities were all the craze after their spectacular
returns of the 2000s. Given the resultant poor returns
generated by emerging markets over the 2010s
decade, today that sentiment is completely turned
on its head.
From a pure equity perspective, the emotional
response is that emerging market equities are likely
to deliver more of the same over the next 10 years.
The rational response, however, is to ensure global
diversification across markets and geographies, and
this includes emerging markets. Our experience of
the past decade should teach us that the rational
response is the more prudent one.
12

FINANCIAL
EMIGRATION
DO THE COSTS AND COMPLEXITIES
WARRANT THE BENEFITS?
By Chris Potgieter, MD: Old Mutual Wealth Trust Company
South Africa’s “expat tax” and its potential
implications have caused a great deal
of hype (largely based on inaccurate
information), resulting in many clients
looking to financial emigration as a means of
resolving their issues around paying tax in South
Africa on income earned offshore. Financial
emigration is the application, as part of a formal
emigration process, to the South African Reserve
Bank to change from a resident of South Africa to a
non-resident for exchange control purposes. It does
not by itself impact one’s tax residency, but can be
seen as a related process. Formal emigration and
changing tax residency are complex processes and
may well be the desired outcome for individuals
seeking to live permanently in another country, but
it is certainly not a quick-fix solution for tax relief.
Furthermore, changing tax residency status could
result in immediate tax consequences in the form of
exit charges.
REVISED LEGISLATION
The revised Income Tax Act (effective 1 March 2020)
results in South African tax residents working abroad
temporarily being exempt from paying tax on the
first R1.25 million they earn abroad. Thereafter they
will be required to pay tax on any foreign earnings.
Previously, the foreign employment income earned
by South African tax residents was fully exempt from
tax in South Africa, provided certain requirements
were met. Importantly, the amendment only affects
income received from employment and does not
affect those earning foreign investment income
(which is already taxed) or individuals who are no
longer residents of South Africa for tax purposes.
Much of the misunderstanding around this topic
stems from the fact that financial emigration is a
colloquial term that does not exist in any legislation.
Rather, the key issues are formal emigration and
tax residency, which are two separate (often linked)
processes. Formal emigration entails physically
relocating from one country to another country.
Formal emigration will typically also involve financial
emigration, i.e. changing one’s status to non-resident
for exchange control and tax purposes. The entire
process is lengthy and includes rigorous audit,
and upon South African Reserve Bank (SARB) and
South African Revenue Service (SARS) approval,
the individual will be issued with an Emigration

Formal emigration and
changing tax residency are
complex processes and
may well be the desired
outcome for individuals
seeking to live permanently
in another country, but it is
certainly not a quick-fix
”
Tax Clearance Certificate. Sometimes, financial
emigration needs to be done retrospectively when
people physically emigrate and only subsequently
recognise the requirement to regularise their status
as non-resident for exchange control and
tax purposes.
SUBSTANTIAL EXIT CHARGES
Changing your tax status to non-resident could
have significant capital gains tax consequences, as
your worldwide assets (with the exception of fixed
property situated in South Africa) are deemed as
being disposed of at market values. Therefore, 40%
of any gain would be included in your income and
you will be taxed at your marginal tax rate. This “exit
charge” can be quite substantial and you may need
to raise liquidity to settle your affairs with SARS.
It is important to ensure that your intention to
relocate and your affairs are fully disclosed in your
tax returns in the year of your emigration, as well as
in the proceeding five years. These disclosures could
be key if, at a later stage, your tax residency or ability
to exit funds were to be examined.
COMPLEX RESIDENCY TESTS
South Africa’s tax regime is a residence-based system
and one’s tax residency status is determined by how
much time you spend in the country, where your
assets are based, where your family resides most of
the time, and the location of your primary residence.
In order to become non-resident, individuals must
prove their intention to become ordinarily resident
in another country and demonstrate the steps they
have taken (or are taking) to carry out this intention.
Finally, they will then need to meet requirements of
the physical presence test by being in South Africa
for no more than 91 days in total during the current
assessment year; 91 days in total during each of
the five years of assessment preceding the current
assessment year; and 915 days in total during those
five preceding years of assessment. Contravening
any of these periods will result in an individual’s tax
status being reverted to South African resident. So,
one could have formally emigrated, changed your tax
residency status and then subsequently be classified
as a SA tax resident again.
BE CLEAR ABOUT YOUR OBJECTIVES; SEEK
PROFESSIONAL ADVICE
In conclusion, it is clear that financial emigration is a
highly complex, costly and long-term decision and
pursuing this path solely to avoid tax is ill advised.
Investors should bear in mind that all South Africans
have an annual R1 million single discretionary
allowance and R10 million foreign investment
allowance – both of which can be used for foreign
investment and asset transfer without having to
change tax residency.
While everyone’s circumstances are different, there
are numerous factors to consider and it is important
to understand the real cost and lifestyle implications
before deciding to financially emigrate. As with any
major financial decision, it is always advisable to
seek professional, expert advice to ensure that your
actions and objectives remain aligned and that your
investment plan is optimally structured.
14

IT PAYS
TO PLAN
IF YOU’RE
LOOKING
OFFSHORE
By Kim Rassou, Portfolio Manager at
Old Mutual Wealth Tailored Fund Portfolios
Incorporating an offshore component into an
investment portfolio makes sense for every
investor; doing so provides exposure to the world’s
leading economies and high growth industries
while spreading the investment risk.
even individual stocks and property. Without a plan,
they tend to build their portfolios from the bottom
up, focusing on investments piecemeal rather
than on how the portfolio as a whole is serving the
investment objective.
Amid forecasts of declining domestic growth and
extreme uncertainty, when offshore investing seemed
the obvious choice, the past few months have shown
that no economy is immune to a global crisis.
Many will be enticed by projected returns, the
buzz around tech stocks, or the sense of security of
having dual citizenship that comes with investing in
international property. However, in my professional
experience, decisions that are influenced by fear,
vanity or greed are the worst an investor can make.
Do-it-yourself investors tend to focus on the markets,
the economy, the asset manager’s performance and
The possibility that these decisions are based on an
irrational assessment is exceptionally high. Nonprofessional
investors tend to “trust their gut” – and
generally don’t understand market valuations, nor
the underlying forces driving the performance of
Facebook, Apple, Amazon, Netflix and Google (the
FAANG companies), for example.
It follows that these investors wouldn’t necessarily
understand, for example, the full impact of COVID-19
on the FAANGs, whether these stocks are currently
trading at fair value, or if they’re overpriced or in
bubble territory.

Nor do investors realise that owning offshore
property often comes with a massive cash obligation,
leaving them at the mercy of changes in legislation,
economic instability, tax implications and ongoing
costs that are often US dollar-euro hedged.
It is important to point out that these asset classes
are not a problem in themselves, as they are
essential components in principle. However, without
guidance, investors may inadvertently expose
themselves to an unnecessary gamble.
In my experience, going offshore requires some
strategic thought and planning on behalf of both
the client and the financial adviser to ensure that the
journey that is meant to lower risk doesn’t result in
the exact opposite. Without guidance, investors can
easily make ill-advised decisions unless they follow
fundamental investment principles.
The first rule, in my view, is to set a clear goal that
will guide the client’s offshore investment strategy.
With the help of an expert, this way, the client
is in a better position to build a portfolio that’s
appropriately structured to meet their specific goals,
and not the other way around.
However, allowing the strategy to deliver on
the investment goal through asset allocation,
diversification and rebalancing the portfolio requires
the client to stick to the plan. The adviser adds value
by helping clients avoid reacting to the news, yet
continue to make the best long-term investment
decisions despite market volatility.
The second principle is to manage risk through
the choice of markets invested in. Developed and
emerging markets, for instance, have different risk
profiles and characteristics that influence whether
certain markets are more or less of a risk.
The way this may influence investment decisions
is that developed markets tend to be highly
competitive, efficient and highly liquid in such a
scenario. A low-cost index strategy might be more
suitable for capturing global market performance
because of the broad exposure and lower fees.
Emerging markets, by contrast, tend to have more
risk concentration and are generally less efficient.
Given these risks, stocks that score highly in
environmental, social and corporate governance
(ESG) criteria are good investment targets.
Incorporating ESG considerations could even
become a source of outperformance, as
there is some guidance on how to avoid
potential bad apples.
The pros and cons of different geographies
considered, the next guiding principle investors
need to bear in mind is asset allocation.
A well-structured offshore portfolio should be based
upon reasonable expectations for risk and returns,
and diversified sufficiently to limit exposure to
unexpected events. The asset allocation exercise is
Investing is often about
discipline and patience
and having the control
not to panic or change
our investment strategy
based on market
volatility.
”
16

a fine balancing act that aims to escape volatility
and short-term losses, while still growing faster than
inflation.
Should a portfolio lack investment with higher
growth potential, it’s likely to fall short of long-term
financial goals. What people often forget is that
inflation can be particularly damaging, because its
effects compound over longer time horizons.
The final fundamental principle that investors
need to bear in mind when planning their offshore
portfolio is the management and transaction costs
involved. Costs create an inevitable gap between
what the markets return and what investors earn, but
keeping expenses down can help narrow
that gap.
Markets are unpredictable and cannot be controlled.
However, you can manage your costs. Failure to do so
can significantly depress a portfolio’s growth over the
long term.
In conclusion, successful investing is often about
discipline and patience and having the control not
to panic or change our investment strategy based on
market volatility.
Whether you are bearish on South Africa or not,
the reality is that South Africa represents less than
1% of global investable assets, which means that
limiting your investment universe to pure South
African investments, limits your opportunity.
However, regardless of the market, following some
fundamental principles could help manage key risks,
as financial advisers strive to help clients reach their
financial goals.

THE AUTHORS
Chris Potgieter
MD: Old Mutual Wealth
Trust Company
Chris joined Old Mutual Wealth at inception and was responsible for establishing
Old Mutual Wealth Private Client Securities (PCS). He also heads up our Treasury
and Advisory Services and Fiduciary capabilities. Chris is passionate about
investments and is a lead portfolio manager of the PCS Global Equity Portfolio.
He has over 20 years of experience in the financial services industry and fulfilled
senior and diverse roles within a number of investment businesses. Chris is a
CFA Charterholder, Fellow of the Association of Chartered Certified Accountants
(UK) and holds a Bachelor of Mechanical Engineering (Cum Laude) from the
University of Stellenbosch and an MBA (Cum Laude) from the University of
Stellenbosch Business School.
Andrew Dittberner
Chief Investment Officer:
Private Client Securities
Andrew joined PCS in 2017 and was previously employed at Cannon Asset
Managers. He joined Cannon in 2007 as a research analyst. During his
tenure, he rose through the ranks to become a portfolio manager in 2011
and was then appointed CIO in 2014. Andrew has extensive knowledge
and insight into valuing businesses across multiple industries and
identifying suitable investment opportunities. He holds a Master’s Degree
in Economic Science from the University of the Witwatersrand, where he
lectured for a while. He also holds a PhD in Investments and Securities
from the University of Pretoria.
Wayne Sorour
Head of Old Mutual
International: Sales &
Distribution
Wayne matriculated at Grey College in Bloemfontein. He obtained his
BProc LLB at the University of the Free State and is an admitted attorney.
He joined Old Mutual as a legal adviser and has spent many years in the
financial services industry where he gained vast experience in sales, wealth
management and the distribution side of asset management. Wayne
currently holds the position of Head of Old Mutual International in South
Africa and has been working in the offshore market for over 15 years. He
also holds a CFP® qualification.
Kim Rassou
Portfolio Manager: Old
Mutual Wealth Tailored
Fund Portfolios
Kim has been in the investment management industry for 16 years and
her experience includes both active and passive management. Prior to
joining the team, Kim was a portfolio manager in the Indexation team at
Old Mutual Customised Solutions. In addition to her portfolio management
responsibilities, she was responsible for the team’s retail business
development. Kim has completed an MBA at the University of Stellenbosch.
18

PROUDLY SOUTH AFRICAN OR A GLOBAL
CITIZEN? SMART INVESTORS ARE BOTH.
Diversity is the key to a well-balanced portfolio and with over 30 years
of global experience, Old Mutual Wealth can offer the expertise
you need to expand your portfolio offshore and reduce your risk.
Take your wealth further with our wide range of expertly managed
offshore solutions, built around your unique needs.
Stay connected to expert advice. Speak to your planner today.
www.oldmutual.co.za/wealth
WEALTH
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Old Mutual Wealth is brought to you through several authorised Financial Service
Providers in the Old Mutual Group who make up the elite service offering.

20
Old Mutual Wealth (OMW) is an elite service offering brought to you by several licensed Financial Services Providers in the Old Mutual Group. This document is for
information purposes only and does not constitute financial advice in any way or form. It is important to consult a financial planner to receive financial advice before
acting on any information contained herein. OMW, the Old Mutual Group and its directors, officers and employees shall not be responsible and disclaim all liability
for any loss, damage (whether direct, indirect, special or consequential) and/or expense of any nature whatsoever, which may be suffered as a result of, or which may
be attributable, directly or indirectly, to the use of, or reliance upon any information contained in this document.

SLOWLY UNPACKING
FINANCIAL
EMIGRATION
South African financial planners are
regularly presented by clients with the same
conundrum: should I leave South Africa…
or take all of my money out of the country?
OFFSHORE INVESTMENTS
We are members of the Vulintaba Association, a
group of lifestyle financial planners all of whom are
CFP® Professionals. We work together to see how we
can serve our clients by doing financial planning better
and also how we can run world-class businesses. Before lockdown,
a number of us were debating the concept of financial emigration.
If you are reading this publication you are in the financial services
industry, but let me be clear from the outset: we at Veritas Wealth
believe that the financial planning process comes first, and then when
this planning process is finished, and then and only then, we look
to implement the plan and use financial products. This distinction
is critical because financial emigration is the implementation of a
financial plan. If you just jump straight to financial emigration, you
are, as they say, putting the cart before the horse.
The genesis of financial emigration is based on fear. As financial
planners, our job is not to decide how or where people should
live. Our skill is to show them the consequences of the lifestyle
decisions that they have come to discuss with you, their trusted
Our skill and value add is in
the questions we ask rather
than in the answers we give.
advisor. All our advisors recently completed a behavioural
coaching programme. During the course, one starts to pick up
that as financial planners we all enter conversations with clients
with our personal biases and blinds spots. It is critical to recognise
these and also to try to keep them, as best as possible, out of the
conversation. Never forget, the meeting is about the client, not
about you and your opinions. Our job is to help the client unpack
the issue of financial emigration for them and from a family
perspective. Our skill and value add is in the questions we ask
rather than in the answers we give. Our clients have the answers
themselves; we can only show them the likely consequences of
the decisions they make.
Currently, many South Africans are losing faith in the
government and the country. There is a real sense of fear but,
interestingly, many clients have no intention of leaving, either
because they cannot afford to leave or they realise this is a
wonderful place to live.
RULE 1 | Fear sells
If you want to sell a product or an idea, then fear is a powerful tool.
If you want people to take money offshore so that you can earn
offshore income, then hit the fear button. It will sell the product
or service very successfully. The media regularly use bad news and
fear to capture our attention, so product houses and advisors are
now too pushing this button more regularly.
The issue is that more clients are saying that they do not want
to make contributions to retirement annuities (RA) this year.
They also want to cash in on their pensions and take what they
can offshore. Some even want to sell their homes. You hear the
comments around the braai or at small gatherings. Prescribed
assets, sovereign downgrades, tax morality and state capture add
to the long list of other reasons to get your money out of here.
Your job as a planner is to slow this down and go through the
numbers. Your client must understand the consequences. Also ask
them, if they have considered the fact that they may be wrong.
RULE 2 | The power of compound interest
We assume you pay tax at 41% marginal rate. This was to February
2020. The money is invested in a RA pre-tax. When you retire,
your tax rate is lower, probably 25- 30% marginal when you start
drawing a pension. A common conversation is about getting as
much money offshore as you can get your hands on. Should you
contribute to your retirement fund? Here are the numbers:
Do not use RA Use RA
Income earned pre-tax R350 000 R350 000
Contribution to RA R0 R350 000
Income tax payable 2020 @ 41% (R143 500) R0
Amount available for investment R206 500 R350 000
www.bluechipdigital.co.za 43

OFFSHORE INVESTMENT
So now you can take R206 500 (after-tax) directly offshore or
R350 000 (pre-tax) into an RA. How long will it take to make back
the 41% paid in tax?
The second scenario is to withdraw as much money as possible
out of your retirement funds and take the proceeds out of South
Africa as soon as possible. We will use the extreme example of a full
withdrawal of a preservation provident fund. We will assume there
is R10m invested in the fund. We have chosen this as you can access
all the funds in this vehicle, which are then taxed according to the
retirement withdrawal table.
Preservation provident fund withdrawal (100%)
Capital withdrawal Tax rate % Tax paid Capital withdrawn
R0–R25 000 0%
R25 001–R660 000 18%
R660 001–R990 000 27%
R990 001–R10 000 000 36%
Total R3 447 000 R6 553 000
In summary, you have to take a -34% loss to take retirement
money offshore. This is equivalent to the bottom of the stock market
crash in 2008 or March 2020.
Now here is the point. Assume you are invested in a run of the
mill balanced fund. Every manager in the country has already taken
30% directly offshore. Conservatively, they are invested in large rand
hedge stocks that do not count towards the 30% offshore allowance
(Naspers, Richemont, all commodities stocks, BAT, etc). You could
assume there is another 20% invested in these types of shares,
granted to varying degrees of success.
If this is true you could have had 50% (R5m) in your RA or
preservation fund offshore already. You would have had another R5m
exposed to South Africa and, yes, potentially to prescribed assets.
The question to ask currently is: are global equity prices presently
quite high? Are global bond markets overpriced? Is the dollar very
strong against most currencies? Most commentators believe all of
these to be so. Is history about to repeat itself?
RULE 5 | You never know what is going to happen
This article does not suggest that you should invest all of your
clients’ money in South Africa. It is not saying that you should invest
all their assets in South Africa. It is not saying that South Africa, as a
country, is a certainty to bounce back.
What we are saying is that if you as a financial planner get caught
up in the fear of the moment and are listening to the herd, then the
numbers show that you better get this one absolutely right! You
have created a stock market crash in your clients’ retirement savings
that you will never ever recover from, unless, of course, South Africa
INTERGENERATIONAL WEALTH MANAGEMENT
is doomed forever.
Wisdom in financial advice
If your client wants to live in South Africa and/or has very little
chance to be able to afford to move overseas, then we think that you
should approach this with a solid framework. As a CFP® Professional,
you need to find out how much capital the client will need in his
or her retirement funds to afford their lifestyle. (Remember these
funds will have 30-50% in offshore assets.) You want to make sure
your client will be able to meet their liabilities in South Africa and to
do this you as the advisor need to have assets facing this economy.
When giving advice to clients we have found that it is not about
binary moves (eg choosing between leaving or staying) it is about
knowing you don’t know and then leaning into a move rather than
jumping completely. Once you know the client has enough assets
in South Africa, then build up any surplus savings in offshore assets
slowly over time, whether feeder funds or directly offshore.
RULE 3 | You should also learn from history
Your client will have achieved your goal of getting the money
offshore, but hold on, could they be running into other trouble?
You might remember 2001 when Thabo Mbeki was president. He
thought that some players in the ANC were plotting against him,
and there was a run on the rand. It was a scary time to be in South
How do you hold on to the next
Africa. The rand went to R13.53/USD. The brightest
generation of
business
your client
people
base?
bonded their big houses to the hilt and took the money offshore.
Phew, you are safe now. Or are you?
RULE 4 | Never sell at the bottom
From that point they bought into offshore equity, primarily US equity
(S&P Index: 1140), and then, surprisingly out of nowhere, the rand
strengthened (December 2002 – R8.58/USD), the offshore equity
cycle turned and the dollar prices collapsed (December 2002 – S&P
Index: 899). It took around nine years for the S&P to recover these
losses. It took the rand 14 years (September 2015) for this market
PLANNER® certification, would help.
to recover to the same dollar basis. The rand also strengthened to
R5.68 in December 2004 (a 42% loss in currency and a stock market
loss in dollars of -4%). Just to rub more salt in the wounds, interest
rates on home loans were at 15% at the time.
44
www.bluechipdigital.co.za
can get money to work for them instead
of the other way around. It is the ability
to help them steer their way through the
information overload and show them what
all the various options ultimately will mean
to them – beyond their bank balances.
Listening. Giving the impression that you
are saying to a young client “Now listen
here boy” ain’t going to cut it. You need
to listen to the client and treat him or her
with respect. Energy levels. Speaking to
a young client who has still not inherited
assets can be difficult. If you feel you are
unable to relate to a younger client or lack
the empathy and energy to do so, you
need to bring in someone who is more
suited to this role. A younger advisor,
someone doing their CERTIFIED FINANCIAL
Learn a different approach. See it as a
challenge to understand this generation
and how you can be on the cutting edge in
your interactions. Go out and understand
how the 22seven app works. Read Sam
Beckbessinger’s Manage Your Money like
a F*ckin Grownup to give you an insight
into how this generation is thinking and
Get the call right!
approaching money. It also shows you the the constitution, but economically tying
Although a terrible idea, we don’t think prescribed assets can lose as
tools available out there. More importantly, people together is where my issue lies.
much this as sense a permanent that you yourself 35% are now growing
cashing Bring them out up or as best not you contributing
can and then
is empowering. That enthusiasm will be set them free!
to a retirement fund. After watching the news about state capture
endearing to the younger generation.
Multi-generational planning is a highly
and mismanagement Fee income. Consider of state charging enterprises a creative activity it feels and like should you energise need you to
take monthly swift action service fee as payable some by people debit order suggest. and your But team. you If it don’t doesn’t, necessarily
then the end
for the advice you give them until they is nigh!
have
grow
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their
make
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big
base
calls.
with you.
You might
just need Administration. to adjust We your are witnessing tactics,
how more and more product providers
knowing full well that you do not
are moving towards electronic, paperless
know implementation what is about of advice… to happen. Hallelujah!
It Don’t is important make the mistake to first of doing unpack this
yourself; it is not your business. Let others
what
spend
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and
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feeling
time on this,
and
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wants choose to the achieve. best solutions Your as they job emerge. as
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place
family
constitution which spells out the values
and of then family make as the the patriarch incremental
or matriarch
adjustments sees them and needed. sets certain Don’t rules for concentrate
on the right call, rather Barry O’Mahony, Founder,
future
management of wealth.
I have a personal bias against holding
focus adults on the and best future call. generations to a Veritas Wealth Management
particular course of action and conduct
that denies them the freedom to make
their own choices. I support the values of
Barry O’Mahony, CERTIFIED FINANCIAL
PLANNER® professional and founder of
Veritas Wealth Management
www.bluechipjournal.co.za
31

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RCK_77636DI_07/12/2020_V1

OFFSHORE INVESTMENTS
Your offshore investing
questions answered
What holds South Africans back
from investing offshore?
Think of a country’s currency as its share price. When
there’s negative sentiment about a country the local
currency weakens and overseas currencies become more
expensive. It seems an inopportune time to sell your rands
and yet many investors do just that: when the domestic currency
loses values against peers, spooked investors tend to move their
money abroad. Those investors who did this when the dollar was
at R18 will be sitting with their heads in their hands now that it’s
strengthened to R15-odd.
In short, investors tend to chase performance in currencies as
they do in stock markets and this can be a damaging strategy.
Often investors pursue this route because it feels “safer” or less
“scary”. As with all investments, fear is never a great strategy. A
sound, solid financial plan looking at all aspects of your investment
goals can help you stay the course and chart the “unknown”. And
if anything, this year has been a pretty stark reminder of how little
control we have over predicting the future.
The level of comfort or terror you derive from watching the rand
move up or down in line with most foreign currencies is part of the
emotional roller-coaster that tends to follow markets, and then
investors. Investing offshore, like all investment allocations, should
be done in with a holistic view of your financial plan in mind.
Local funds can invest up to
30% of their assets overseas
and an additional 10% across
the African continent.
What should I invest offshore?
How much you can invest offshore will depend very much on
your financial circumstances, your risk profile and your investment
horizon. Most importantly, you should consider how well your
assets and liabilities match. Your assets should, for the most part,
be in the same currency as your expenses.
It might be that you want to send your children to an overseas
university or perhaps that you want to retire abroad. To fund these
expenses, it’s a good idea to own assets in the right currency to
avoid being unnecessarily impacted by unfavourable movements
in the exchange rate. That’s not to say that if you plan on staying in
South Africa you don’t need to be taking your money offshore. It’s
completely the opposite. Given the economic backdrop in South
Africa, it may well be prudent to move some of your assets overseas
from a diversification point of view.
46
www.bluechipdigital.co.za

OFFSHORE INVESTMENTS
Economic theory is not a perfect science. It does make some
suggestions on how to think about the level of offshore exposure
you need in your portfolio. In comparison to most trading partners
for South Africa (Inc), we have higher inflation numbers (even at
these low levels), which means we could expect our currency to
depreciate over time. The fact that we’ll be importing goods in our
shopping baskets at a weak or weakening currency, will over time
increase inflation and the cost of living. Common advice suggests
that the first rule to wealth creation is wealth preservation – or
the ability to protect the purchasing power of your money in
the future. This is a more noble goal than it receives credit for – a
common goal that applies to all investors.
When should I invest offshore?
The wrong time to invest offshore is when the rand is weak because
one unit of foreign currency is going to cost more rands than it did
before the currency weakened. Trying to time the movement of
the rand, like trying to time the markets, has proven to many to
be a futile undertaking. Sure you can make an educated guess,
but it’s far better to consistently move your money over time. This
way your gains from exchanging at a good rate, and your losses
from exchanging at a bad rate, should balance each other out.
The principle remains that it’s the long-term effects that matter
most and these are the most deserving of your focus and planning.
How should I invest offshore?
It can be quite overwhelming deciding where to start offshore
investing, but it needn't be. Broadly speaking, there are two
approaches: the direct offshore investment using your investment
allowance, or investing indirectly by accessing a fund manager’s
institutional allowance.
Direct. You can convert your rands into foreign currency by
physically moving your money from a South African bank
account into an offshore account if you are over the age of 18 and
a taxpayer in good standing. This is most suitable for investors
who are happy to leave assets offshore for the long term, perhaps
because they plan on a lot of international travel or they expect
to incur expenses overseas.
The South African Reserve Bank (SARB) allows individuals
to take up to R1-million out of the country a year without tax
clearance. A further R10-million can be moved offshore each year
with the approval of the SARB and a tax clearance certificate. These
funds can then be used to invest directly in offshore assets of your
choosing. There’s a lot of flexibility associated with this approach
and you can choose the currency you receive your proceeds in.
Indirect. The alternative is to invest in rands through:
• A locally-administered unit trust that is mandated to invest a
portion of the fund in international markets. Local funds can
invest up to 30% of their assets overseas and an additional 10%
across the African continent.
• A foreign-administrated rand-denominated local unit trust that
invests entirely offshore. These are known as “feeder funds”.
How do you genuinely assess the
merits of any international market
from as far away as South Africa?
Both structures can give you access to international markets
without physically moving your money abroad and you are not
restricted by how much you can invest in the unit trust (it doesn’t
count as part of your personal R11-million offshore allowance). This
can be a straightforward option if you are happy that the proceeds
from any divestment are paid to you in local currency again. And
importantly, this route can be the most accessible way to access
offshore markets as investors could start saving with R500 a month
via debit order in some of these funds.
All investors should be sure to understand the tax considerations
and differentiations involved with these routes, as well as the
estate planning consequences for owning assets abroad. While
it is potentially simpler then you thought, we would suggest you
surround yourself with trusted professionals and sound advice
when drafting a financial plan, or any investment strategy.
Where should I invest offshore?
Investors can be faced with a daunting choice of offshore options. Do
you look to the well-known developed markets, where companies
are potentially better recognised and understood but economic
growth is subdued (with consequences for earnings potential)? Or
do you look to the emerging East, where companies are perhaps
less familiar but economic growth is better and earnings prospects
may be brighter? How do you genuinely assess the merits of any
international market from as far away as South Africa?
The best way to navigate these challenges is to partner with
a seasoned international fund manager
that has local presence and in-depth
knowledge of the intricacies and
idiosyncrasies of most global markets.
There is an increasing number of global
asset managers with funds on offer in the
South African market so it’s becoming
easier every day for investors to invest
offshore. As with most things in life, be sure
you do so with the right objectives and
rational reasoning. Emotions are powerful
motivators, but often not the long-term
investment partners you can count on.
The views and opinions contained herein
are those of the author.
Ebeth van Heerden,
Head of Intermediary
South Africa, Schroders
www.bluechipdigital.co.za 47

ASSET MANAGEMENT
Shooting for
the NORTHSTAR
Blue Chip speaks to Rory Spangenberg, CIO and Director of Global Equities at Northstar Asset
Management, a specialist boutique asset manager investing in South Africa and abroad
Please give us an overview of Northstar and its offerings.
Northstar is a research-led boutique asset manager with a focused
offering of domestic and global investment solutions, suitable
for clients requiring income, retirement savings or long-term
capital growth.
What makes Northstar different from other asset managers?
Northstar has an obsessive focus on fundamental research, which
provides differentiated insights, builds conviction and over time
translates to superior performance. Our size means that we
provide a credible and competitive investment offering, combined
with exceptional and personalised levels of client service.
What are Northstar’s principles?
Our core principle is “closer to the truth”. This, in essence, refers
to Northstar having an obsession for research which guides
independent thought and is key to outperforming peers over the
long term. Our investment in research skills rivals that of the larger
managers. Northstar focuses on being led by investment rather
than size and thus can nimbly navigate markets. Furthermore,
our principles include growing our clients’ capital while managing
risks, to always act honestly and
provide excellent client service.
What is Northstar’s investment
philosophy?
Our mantra is to hold longterm
exposure to quality assets
where value exceeds price. In
practice, this means that we
seek to invest in a relatively
small group of companies, which
exhibit a strategic competitive
advantage, evident in superior
and sustainable return on capital
and free cash flow measures.
Rory Spangenberg, CIO,
Northstar Asset Management
What is your investment process?
The departure point of our process is a quantitative screen and
relative ranking of companies based on various return on capital,
free cash flow, earnings quality, and balance sheet criteria. Over time
we have found that advantaged companies exhibit a high degree
of stability and persistency in these measures, enabling us to settle
on a master list of companies meeting our fundamental criteria.
Our initial analysis would be aimed at ensuring data integrity and to
develop an understanding of the valuation opportunity.
Our fundamental process follows a four-pillar approach, aimed
at understanding industry landscape and a company’s competitive
position, the source, and durability of any competitive advantage,
the sustainability of a company’s business practices, and the track
record and strategy adopted by the management team, as well as
the alignment of their incentives with ours, as minority shareholders.
We combine this qualitative assessment of business fundamentals
with a long-term, scenario-driven, proprietary valuation, which
directly informs portfolio construction and position sizing.
Our mantra is to hold longterm
exposure to quality assets
where value exceeds price.
Please provide an overview of your equity investment focus.
We consider bottom-up stock selection to be our core skill and the
team has a long and successful track record and hit rate in both
domestic and global equity.
Identifying, analysing, and valuing companies for potential
inclusion in our portfolios is, however, only half the job. We think
a real differentiator of the Northstar equity process is our scenario
and probability-based valuation framework and the ability this
affords us to optimise portfolios for both return and risk.
A stock offering a high Base Case return may be significantly
less attractive than a lower return alternative if a higher probability
exists of its Bear Case becoming a reality. Equally, a pre-investment
Bull Case scenario (to avoid narrative creep) typically results in
longer holding periods and lower turnover and avoids the risk
inherent in continuously having to find new ideas.
48 www.bluechipdigital.co.za

OFFSHORE INVESTING
Emerging markets
Why you should consider other emerging markets (EMs) when investing offshore
Don’t let historical biases put you off investing in other EMs.
Throughout the 2010s, there were long periods when moves in
EM currencies, which include the rand, were highly correlated.
Given our history of foreign exchange controls, many investors
concluded that it’s a waste using up scarce global exposure to
invest in other EMs.
As a South African, it is true that your access to global investment
opportunities is still normalising. While government continues to
liberalise exchange control, some restrictions remain. However, the
correlation between EM currencies broke down in 2020, primarily
due to much better management of Covid-19 in Asia. In addition,
increasing political instability in some of the major developed
democracies has further undermined the popular notion that
developed markets (DMs) are the only option if you are looking
for stability and uncorrelated investment returns.
Here are the reasons why you should consider a healthy
exposure to EM assets, specifically equities, in your global portfolio:
EMs are still considerably underrepresented in benchmark
world equity indices. 80% of the globe’s population lives in
EMs, which now represent half of global economic output, but
EM equities make up less than 20% of the global benchmarks
frequently tracked by investors. Economic and demographic
dynamics suggest that EM businesses will have, in aggregate,
higher earnings growth than DMs and this should allow stock
exchange market caps to grow faster than DM caps, ultimately
increasing their relative size.
Investors in EMs stand to benefit from a demographic tailwind
not found in DMs. Just think, the Chinese upper middle class is
roughly the same size as the US middle class and the Indian middle
class is approaching the size of the European middle class – and
if current growth rates are maintained, both are set to become
significantly larger.
Also, many industries in EMs are not as developed or
consolidated as their equivalents in DMs, which gives them longer
runways for earnings growth. Given local political and cultural
requirements, local champions are more likely to remain the big
beneficiaries of technological disruption in their home markets.
There have been deep structural changes in the compositions
of EM stock markets. Back when Coronation launched its first
EM fund in December 2007, more volatile commodity-producing
countries heavily dominated the EM universe, with energy and
commodities making up more than 40% of the index market
capitalisation. Now, however, the combined weight of China,
Taiwan, Korea and India – none of which are particularly commodity
dependent – are almost 75% of the total EM universe.
Putting all these factors together, we believe there is a
convincing argument in favour of including EMs in your global
investment exposure mix.
Investing in EMs through the Coronation Optimum Growth
Fund. You can gain access to EMs through investing in Optimum
Growth, a long-term portfolio of the best investment ideas
Coronation can find around the world. The fund is unconstrained,
so it can invest anywhere in the world and across all available listed
asset classes. It currently has 70% exposure to equities, which in
turn consists of 45% EMs and 55% DMs.
Optimum Growth is managed by an exceptionally accomplished
investment team, which decides on the optimal allocation
between growth and income, as well as EM and DM assets. The
fund is aggressive and aims to achieve a long-term return of at
least 5% above inflation, so it is best suited to those investing for
periods of 10 years-plus and willing to deal with a higher level of
risk than a classic 60/40 global equity/bond multi-asset portfolio.
The fund’s average historical equity exposure was between 70%
and 80%. So you shouldn’t expect this fund to deliver a smooth
double-digit annual return, but, if you are seeking meaningful real
wealth creation and you are patient, then Optimum Growth could
be the right fund for you. Here is how it has performed over time:
More than double the index over 20 years. Investors who
have remained in Optimum Growth since its launch in 1999 have
achieved returns more than double that of the MSCI World Index
at end November 2020. As the fund marked its 21st birthday last
year, it was certainly something for them to celebrate.
Can this performance be repeated over the next two decades?
The same factors that have driven the remarkable performance
of Optimum Growth remain in place at Coronation today. For 27
years, the company has remained single-minded in the pursuit
of creating wealth for clients, while responding to ever-changing
market conditions with acuity. Active long-term investing is about
focus, agility and conviction. While no-one can predict the future,
when it comes to investing, you can prepare by building robust
and resilient portfolios.
To find out more about investing with Coronation,
visit www.coronation.com
The information contained in this article is not based on
the individual financial needs of any specific investor.
Reference to specific funds should be read in conjunction
with the minimum disclosure documents available on
www.coronation.com. To find out more, speak to your financial
advisor. Coronation is an authorised financial services provider.
50 www.bluechipdigital.co.za

ailout
blackout
Brexit
Despite the world’s biggest headlines,
our Optimum Growth Fund has doubled
the returns of the global index over 21 years.
Start your offshore investment journey by speaking to your
Financial Adviser or visit coronation.com today.
Coronation is an authorised financial services provider. Please refer to the fund’s MDD for full details.

ASSET MANAGEMENT
New
horizons
The dominant asset management model in South Africa is going to change
An expanded investment universe, competition from
cheap passives, lumpy performance and increasingly
sophisticated demands from advisors pose challenges
to the local asset management industry. The incumbent
“single-manager” model in South Africa, which has dominated
for the last several decades, will be placed under pressure. It is
increasingly difficult to accept the case for an “in-house” investment
team driving global asset allocation decisions, while also conducting
securities-level research in all asset classes. In a market where
portfolios are progressively becoming more internationalised,
asset managers in South Africa will need to find a niche.
The story of modern retail asset management in SA
In the early 1990s, the traditional insurance savings industry was
being disrupted by emerging platform (LISP) insurgents, which
symbiotically propelled the unit trust industry’s assets into the
stratosphere. These were halcyon days for freshly minted CFAs and
spawned a plethora of new asset management firms.
Platform choice had turned advisors into fund pickers and
market timers. The Emerging Market Crisis in 1998, followed in
quick succession by the bursting of the Dotcom bubble in 2000
and the catastrophic collapse of the rand in 2001 put paid to many
advisors’ sense of adventure. This heralded in the ascendency of
the ubiquitous multi-asset fund – the venerable income, cautious,
moderate and balanced funds. This was asset management’s first
recognition of the critical role of risk-profiled funds and of the
intermediary as an advisor as opposed to salesman. Advisors,
bruised, were equally happy to outsource these decisions as the
ambit of professional advice services expanded.
CHANGES AND CHALLENGES
Globalisation of portfolios
As SA-specific risks became more concentrated, so investors’
portfolios have become more global. South African asset managers
have traditionally offered their standard risk-profiled ranges
as Regulation 28-compliant, but pitch them for discretionary
and living annuity assets too. This domestic concentration is an
anomaly that is becoming harder to support, especially as one can
build portfolios with similar volatility characteristics with higher
offshore weights.
As SA-specific risks became
more concentrated,
so investors’ portfolios have
become more global.
The need for specialisation
The breadth and depth of the global investment universe is
mind-boggling. Outside South Africa, you have developed
market equities across North America, Western Europe and the
Pacific Rim; emerging equities in Asia, Europe, Latin America
and Africa; global sovereign, inflation-linked, corporate, high
yield and emerging market bonds. Then there’s property,
commodities and infrastructure – and the list goes on. In each of
these asset classes there are specialists that you can put through
52 www.bluechipdigital.co.za

ASSET MANAGEMENT
the wringer in a way you can’t in a job interview.
If you fire them, it is a decision, not a labour process.
The simple point is that the team you need for
modern, multi-asset portfolios cannot be housed
under one roof.
Passive and the separation of alpha and beta
The market is polarised between adherents of an
active approach and passive investment acolytes.
Both have their role and multi-managers sensibly
exploit this. However, it cannot be that the incumbent
asset management model is one or the other, which
it currently is. In unconflicted fee models, the
specialist multi-manager is spending the investor’s
money to achieve the best outcome and resists being
boxed by ideology.
The costs of lumpy performance
Many traditional active managers treat asset
classes as an extension of securities, something
you are required to take strong directional
view on. However, macro calls are hard to get
right consistently and are a massive driver of
performance variability. Large fluctuations in
performance affect investor composure, who
predictably then make poor decisions. Many
incumbent firms experience protracted periods
of out- and underperformance, often accompanied
by large inflows and outflows of assets, damag-
-ing money-weighted returns. There is not a
great deal of evidence that this extra active risk is
sufficiently rewarded.
The role of engineering
While tactical asset allocation as a core
competency is losing its lustre, the importance
of asset class optimisation, portfolio construction
and risk management is gaining ascendency.
This has ushered in a whole new breed of
investment professionals who never need to
look at a company’s income statement (there are
super-specialists around the world who can be
appointed to do that). Instead of managing an
individual multi-asset fund, their job is to get
a range of risk-profiled portfolios to predictably
“fly in formation”.
Outcome-based investing
As advice has become more specialised, what
advisors demand of asset managers has changed
too. Instead of identifying single manager
multi-asset funds that can be cobbled together,
they are increasingly seeking a fund toolkit that
can be linked to the advice process. Individual
funds are no more than numbered wrenches.
There will be a far greater focus on mapping
advice to predictable portfolio characteristics.
Quo vadis
South Africa has great asset managers and
the number and quality of our investment
professionals relative to AUM must be world
leading. But the day of reckoning is out there,
and firms will need to decide what they are and
find their niche.
Being a South African single asset class
specialist appealing to a global market of
investors seems more sustainable than aspiring
to being a global asset manager in South
Africa appealing to domestic investors. Really
understanding your core competency and
doubling down on it is a good strategy.
The team
you need for
modern,
multi-asset
portfolios
cannot be
housed under
one roof.
Brandon Zietsman CEO of
PortfolioMetrix, a global
asset management firm
www.bluechipdigital.co.za
53

INVESTOR BEHAVIOUR
Being Spock
(AND NOT BEING HOMER)
How understanding investor switching behaviour can help you improve your investment returns
When we make decisions, we would all like to think that we are more like
Mr Spock from Star Trek (who uses relentless, emotionless logic) than Homer from
The Simpsons (who doesn’t). Unfortunately, it is sad, but true, that the opposite
is usually correct. Multiple studies have demonstrated that investors’ decisionmaking
is dominated by their emotions and these emotions are usually counterproductive
from the point of view of their investment returns. These studies all clearly show that there
is a “behaviour tax” across the world that makes investors’ experiences of their investments
far worse (from a returns perspective) than they could have been if they had simply sat on
their hands. A recent study 1 of the South African experience confirmed these results over the
period 2006 – 2018.
To help understand what behaviour lies behind this self-destructive behaviour and thus
what we can do to help ourselves (and our clients) a study of 44 815 switches conducted
by 23 390 clients on the Momentum Wealth Linked Investment Services Platform (LISP) was
recently conducted for the period January 2006 – December 2017. The theoretical basis for this
study started with Cumulative Prospect Theory (CPT) – the theory of decision-making under
Humans are
particularly poor at
assessing risks and
can easily be fooled
by something as
simple as the way
a given situation
is framed.
54 www.bluechipdigital.co.za

INVESTOR BEHAVIOUR
risk that Nobel Laureate Daniel Kahneman developed with Amos
Tversky 2 . CPT highlights firstly, the importance of a reference point
for individuals when they make decisions – they hate losses more
than they like gains; and secondly, decision-makers’ inability to
correctly assess probabilities – they overweight extreme outcomes.
Sitkin and Pablo 3 extend this work by proposing that while
investors each have a “risk preference” or character trait of being
attracted or repelled by risk, this preference is mediated by our
“risk perceptions” or assessment of risk in any given situation and
our “risk propensity” to take risk, which is a function of recent
experience in this space. In short, humans are particularly poor
at assessing risks and can easily be fooled by something as
simple as the way a given situation is framed. Investors typically
underestimate risk when experiencing losses and often look for
excess risk at the opportunity of negating
such painful losses. Moreover, our propensity
to assume risk is significantly affected by prior
outcomes (recent successes or failures).
These insights guided our choice of the
explanatory variable for what is a first for
South Africa: a segmentation of South African
investors based on a risk-based analysis of the
switching of their holdings in discretionary
unit trusts. Switches were grouped based
on the relative historical performance of
the funds being switched out of and those
being switched into; the relative risk profiles
of these funds and finally, the average number of switches and
their frequency. The use of the Hierarchical Clustering technique
showed that there are five clearly defined groups (or archetypes)
of switching behaviour inside this large sample of investors:
1) Risk Avoiders. These switches are made by investors who
tend to have a low-risk appetite and rather avoid risk altogether.
They therefore stick to a more conservative asset allocation and
do not switch often. Keeping with avoiding risk and avoiding
change, they are likely to remain in funds with similar (low) risk.
They are relatively likely to chase past performance when current
performance is below inflection. This behaviour seems to be
more common in older investors and slightly more common with
females compared to other archetypes.
2) Contrarians. As the name suggests, these switches are made
by investors who are seemingly showing the opposite behaviour
than that of the other archetypes. They have a seemingly high
risk preference and a high tolerance for downside risk. Whether
performance is high or low, these investors rarely chase past
performance: they are more likely to switch to funds with worse
past performance. Keeping with the title of this archetype, this was
the only cluster which realised a positive behaviour tax.
3) Market Timers. The main driver here is switch frequency since
market timers constantly move between funds in an attempt to
1 “Nixon, P.P., Barnard, M., Bornman, R., and Louw, D.J.D. 2019. The
South African investor behaviour tax and helping investors count
what counts. Momentum Investments.
beat the market and maximise returns. These investors show a mix
of fear and greed driving switches. We see that such behaviour
leads to high behaviour tax during periods of crisis and periods
of fluctuating markets.
4) Anxious. Investors with this type of switching behaviour
seem to have a low risk appetite; however, they do not avoid risk
altogether. These investors are very sensitive to downside risk and
are likely to act out of fear when underperformance looms. They
are very likely to down-risk and chase past performance when
current funds are performing below inflection. Such behaviour led
to high behaviour tax, especially during periods of growth where
they would be “missing out” on performance.
5) Assertives. Investors with this type of switching behaviour are
more risk-tolerant and set on chasing past performance. When
chasing past performance, it is mostly between funds with similar
risk profiles. We expect these investors to be overconfident and
to follow their ways and not be influenced as much by advisors.
The distribution of the occurrence of these switches through time
is presented in the graph (above). As expected, the “Anxious” and
“Risk Avoiders” switches dominate in times of crisis and poor market
returns. The “Market Timer” switches peak after the crisis period.
Why is this segmentation important? A better understanding
of the compromising nature of myopic risk behaviour (which
places too much emphasis on the transient present and its related
emotions) is key to understanding your behaviour, and, if you’re an
advisor, your clients’ behaviour. More importantly,
it can provide a proper basis for intervening at
the right time to avoid the associated negative
implications of these behaviours. Ultimately, the
point is to help all investors avoid the harmful
outcomes of them “being Homer”. These empirical
insights are key to achieving this outcome.
* This article is a summary of a white paper:
“Understanding the great forces that rule the
world. A study on South African investor behaviour”
written by Paul Nixon, Evan Gilbert and Dirk Louw of
Momentum Investments in October 2020.
Professor Evan
Gilbert
2 See Kahneman and Tversky, 1979, and Tversky and Kahneman, 1992.
3 Sitkin, S.B. and Pablo, A.L. 1992. Reconceptualizing the determinants
of risk behavior. Academy Of Management Review, 17(1), pp.9-38.
www.bluechipdigital.co.za
55

3FINANCIAL PLANNING
ROLES
of the financial planner
Facilitating thoughts,
choices and actions
A World War II
Wellington bomber
My father was a pilot in the Second World War. He flew
Wellington bombers for the RAF. Their job was to fly
at night and bomb strategic enemy positions. On one
mission my father’s plane had mechanical difficulties
over the Red Sea. They managed to crash-land into the sea. Although
the plane broke apart on impact, three of the crew survived the
crash and managed to hold onto pieces of the fuselage.
It became apparent that there were sharks in the water, circling
them. I’m not sure how the conversation went at that stage, but
their dilemma was whether to hang onto the pieces of wreckage
and hope for the best or swim, hoping to get away from the sharks.
My father was the only one who decided to stay put. The other two
crewmen felt they had more chance of survival by swimming away
from the danger lurking in the water. They were never seen again.
The next morning my father washed up onto the Arabian coast.
He was not in a great state. But fortuitously some Arabian soldiers,
who had been alerted to the crash, were searching the coastline
for any survivors. Miraculously they found my father lying on the
beach. Despite being a bit of wreck himself he had to endure
a two-day journey on the back of a camel to get to the nearest
hospital. For many people, such a journey is a bucket-list activity.
I don’t think he enjoyed it much. But he survived. And after his
recovery was able to return to action.
Many factors led to my father surviving what should have been a
fatal crash. Floating wreckage; the direction of the current; soldiers
remarkably finding him. But before any of those factors could come
into play, he had to make a decision, amidst uncertainty, and in the
face of immediate danger. His crew decided that to act and swim
for safety was the right decision. My father, despite the obvious
dangers, decided that to hang onto some wreckage and let the
ocean take control was the best option for him. They were faced
with a tough choice,
in murky water, in the
dark, with immediate
danger present.
What relevance does this
story have to financial planning?
When a financial planner sits with a
client, the context may be different but
similar challenges are present. The future is uncertain. The waters
are murky. There are often visible and invisible dangers or threats
to consider. And invariably a financial planning meeting involves
difficult decision-making. Whether it be a decision to do something
or not, it is still a decision.
Often with life-changing implications. To save or not. To
spend less or more. To take out life insurance. To prepare a will.
As a financial planner, you help clients make and implement
key decisions about their life and money. If one considers what
goes into making a decision, there are usually three ingredients:
thought, choice and action.
Thinking partner
In the immediate aftermath of their crash, my father and his crew
had to think about what to do. When clients come to you, they
may not know it, but the first thing they need is help to think
about their situation, their dilemmas. As human beings, we have
the unique ability to think together. To share thoughts. To share
how we see ourselves, others and the world. We do this through
communicating, written and verbal. Conversation. Books. Media.
A Robo-advisor can prompt a client to answer questions which
will follow a decision tree pattern that will lead to a solution for the
client. But those questions are not necessarily the right questions
56
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for the client to answer. As Albert Einstein said (or is famously
attributed to have said), “If I had one hour to solve a problem
and my life depended on the solution, I would spend the first 55
minutes trying to find the right question to ask, and the last five
minutes determining the answer.” For the Robo-advisor the real
risk is Garbage In, Garbage Out.
In working with a person directly, the human advisor should try
to find the right questions to ask. Questions that help the client
to think through their circumstances, situation, dilemmas, plans,
goals and dreams. A conversation is a fluid process where people
think together. The Robo-advisor may think up to a point with
a client. But it will need to be pre-programmed with multitudes
of options to help each client think through their own life before
no surprise, then, that Ricardo Semler, a
coming up with appropriate answers for whatever aspect of
highly successful, innovative industrialist
their life is being examined.
and entrepreneur from Brazil, wrote a
People in general don’t always have the privilege of
book insight entitled into The their Seven own Day lives. Weekend. We don’t know He what we don’t
encourages know. We employers have blind spots. to think We differently
have hidden undiscovered
about how talents. they We manage may even their have people, hidden and or repressed goals,
more importantly, desires, dreams. how to The get Robo-advisor the best out assumes your
of people. client He argues knows that what technology they want. that You as a human
advisor was cannot supposed assume to make that. As life a thinking easier such partner, as you help your
clients laptops, think cellphones about their lives. and email, To understand has actually their context, their
relationships encroached with on themselves, people’s free their time. relationships with others and
the world. Having developed that understanding, you can help
But as he says, this can be a good thing
clients explore their potential choices to deal with the murky water
if you have the autonomy to get your work
in which they find themselves.
done on your own terms and to blend your
Choice work architect life and personal life. He suggests that
My father innovative could’ve employers instructed will his eventually crew to stay realise with the wreckage.
It was that what people he believed may be was more the productive best course if of they action. But in that
case have of life the or flexibility death, he had to decide to allow for each themselves man to make their own
decision when and to live work or and die with play, it. rather If your than clients the don’t own their
decisions, employer you deciding. rather than Rather they become than time accountable in, for those
decisions. employers The waters ideally of should the future focus are on always value out. murky.
In helping The clients importance make choices, of value financial was planners play the
role of the choice architect. But anyone who has worked with an
highlighted for me recently when I met
architect will know, it is not simply a matter of the architect telling
with a financial planner who related how
you what to do. The client always has opinions, wishes, desires
they helped a potential client resolve a
and wants. Often there is much emotion that underpins a choice
– whether
dilemma
it be
about
fear, desire
their
or even
future
excitement.
retirement.
And unfortunately,
it seems They that helped when the it comes client to assess working retirement with clients’ money, very
often options choices in are a more made rigorous in fearful and response creative to the obvious or
perceived way than dangers if the or threats. client had simply tried
Most to do often it on the story their we own. focus No on doubt is the story the of the threat. It
is the experience way we are and wired. thinking Our brains that this are planner continually looking for
threats. had That’s done how over we have many survived years as made a species. this Identify threats
and meeting avoid them. very It impactful.
is no surprise that the most commonly used
tool to help with client investment decision-making is called a risk
When it came to discussing the financial
profile. It’s not called an opportunity profile or a return profile,
planning fee, the planner mentioned that
it’s called a risk profile. And we use such a profile when making
the upfront financial planning fee was
investment decisions because we as human beings struggle to
make rational decisions. We are not always rational.
improved by 40%. Operational costs
with 23% less electricity and 90%
FINANCIAL paper PLANNING
used.
Perpetual Guardian, a New Zeala
based financial services firm, moved t
four-day week in late 2018. Producti
Would my father’s crew have swum off into the dark, supposedly
improved 20% over an eight-week per
to get away from the sharks if they were rational? No. They made
an independent survey showed staff str
a decision based on fear. Probably more like terror. Rationally, the
levels reduced and work-life bala
chances of swimming off into the open ocean with sharks around
and surviving are very low. In this improved case, it was from zero. dramatically.
The rational
decision would have been to stay with As you the floating think about wreckage. innovating to k
Despite trying to think through their up situation with constant and consider change, the don’t get st
options that faced them, my father’s on crew technology did not act and rationally. forget about y
They made a decision based on their people. emotions. They You may face just the end same up working f
challenge with your clients, all the business time. that has found a real way to m
a dent in traffic congestion!
Your client’s actions start with
how well they think and the
R20k, and that the process usually involved References
four meetings. The potential client had David Rock, The Neuroscience of Leadershi
experienced so quality much value of in just choices one – Improving they Organisations make. by Understand
aspect of the Behavioural first meeting coach that they were the Brain, Talk at FPI Convention, 2012
moved to ask After if this his was two R20k crew per members meeting had Morgan swum off, Housel, I’m sure The advantage my father of being a
– not because considered they didn’t whether want to or pay not the had little made underemployed, the right choice. www.collaborativefu
He was
fee but because alone. they His thought mind must given have wandered the com, and 17 wondered. May 2017 Perhaps he
value they had was already tempted experienced, at some point this to swim Ricardo off. But Semler, he stuck The to his Seven original Day Weekend,
was a possibility. decision, and it saved his life. Your Penguin clients face Publishing, similar challenges
2004
when making choices. They may second Robert guess Booth, themselves. Four-day week: Or be trial finds low
The value in people swayed by friends and family. Or stress by news and headlines increased productivity, or market www.
sentiment. Enter the role of the behavioural coach. A decision is a
In a knowledge-based economy, when you theguardian.com, 9 February 2019
form of behaviour. An action. Not only does your client need your
are providing a professional service based McKinley Corbley, Microsoft Japan Recently
help to make a decision, but to stick to it, and only change it for
on knowledge, experience, thinking and Gave their Employees a 4-day Week – and
the right reasons. Clients who own their decisions are more likely
interpersonal to skills, do this. to But quantify they will anything still need your Productivity help as a behavioural Skyrocketed coach. by 40%, www.
in terms of time Vanguard – be it your defines employees’ behavioural coaching goodnewsnetwork.org, as a process that, 8 November “… 2019
working hours facilitates or the thinking time spent such with that a the client LinkedIn succeeds Talent Solutions, in changing 2019 a Global Tale
client – is a disservice behaviour to which the would value that otherwise Trends prevent Report, him 2019 or her from
financial planners achieving and their staff goals”. potentially You facilitate Samantha your client’s McLaren, thinking How these as a 4 Compan
can add to their thinking clients’ partner. lives. But as we have seen are Embracing this is not Flexible enough. work They – and Why Yo
So the opportunity need your is ripe guidance for the as picking a choice Should architect Too, to www.businesslinkedin.com, make the most
22
to innovate with appropriate respect choices to how for you themselves. get May And 2019 they need your gentle but
firm challenging as a behavioural
and keep people and make them more
coach when they begin to wonder
productive. LinkedIn’s 2019 Global Talent
or wander.
Trends Report indicates that over 30% of
Your client’s actions start
job-seekers will
with
turn
how
down
well
a job
they
if there
think
are
and
not flexible work the arrangements. quality of choices Computer they
giant Dell implemented make. Attending flexible to your work client’s
practices in 2009. thoughts, US healthcare choices and company actions
Humana did consistently the same in and 2016, systematically using
technology to will enable give them call-centre the best workers chance of
to work from home. dealing with the challenges of an
More recently uncertain Microsoft future. in Japan
experimented with a four-day week for
References: The Vanguard Advisor
their employees. Without an adjustment Rob Macdonald, Head of Strategic Advis
Alpha guide to proactive behaviour- Rob Macdonald, Head of
in remuneration. The result? Productivity Services at Fundhouse
al coaching; Donald G. Bennyhoff, Strategic Advisory Services
CFA; November 2018
at Fundhouse
44 www.bluechipjournal.co.za
www.bluechipdigital.co.za
57

FINANCIAL PLANNING
Have you thought
of your
2021 PLAN?
Master your destiny
We all know that 2020 was a difficult year in all aspects
of our lives. It was even worse for financial advisors
who did not build an annuity income for their
businesses or practices. It is about time that we
start doing things differently, the same way we tell our clients to
review their financial planning yearly. We need to apply the same
principles and change the way we do things so we can see different
results in 2021.
You will need to start by reviewing your value proposition to
your clients. Let them know what you stand for and what makes
you unique. There are so many financial advisors out there, but
your clients work with you for a particular reason. Do you know
what that reason is? Do you know why they trust and understand
you compared to your other colleagues? If you don’t know that
reason, send a select group of clients questionnaires that will give
you a clear reason why they work with you and if it defines you.
58 www.bluechipdigital.co.za

FINANCIAL PLANNING
Find a mentor or coach that can help you avoid mistakes and
guide you when you feel lost and want to discuss ideas that will
help grow your business. You must look for a mentor or a coach
who is on a higher level than you, so they can be able to share
their wisdom with you. You need a person who you can share your
problems with, and they will be able to give you tools to resolve
your problems. They must be able to guide on both personal and
business aspects to help you balance your life.
We need to allocate more time
to working on the business
than working in the business.
I was privileged to have had a mentor on this path and he
managed to show me my weak and strong points in the business
and how I can work on these to help me grow my business.
I was taught the difference between working in the business and
working on the business. Working in the business means going out
and seeing clients full-time and working on the business is working
on growing your business by attending sessions and workshops
that talk about business development. We need to allocate more
time to working on the business than working in the business.
Restructure your business by reviewing your client base, your
products, sales and review strategy. This will help you find your
specialised area that you can focus on and be the best at it. When
you review your client base, you will be able to segment your
clients so you know how your book looks and also if you are still on
track working with your target market. When we are building our
businesses we end up losing focus on our target market as we take
any clients that come our way, which is understandable, but will it
grow your businesses at the pace that we want it to grow?
Work on that target market and stick to it.
Let us learn to do things differently this year. Start calling all
your existing clients and touch base with them to understand their
current financial goal. This will help them rethink their lives and
their financial goals. Calling your clients for a check-in will make
them even happier about your services. If the conversation persists,
propose a Zoom meeting so you can guide them further. Remember,
clients are looking for more of a financial coach than a financial
advisor. If they receive great service and advice, they will pay for it.
Lastly, get a supporting team such as an administrator and
a paraplanner because you cannot handle all the paperwork by
yourself. You will need to delegate activities that are not directly
linked to affecting your results. I know most of us cannot afford
to pay them but there are programmes in the industry that help
with funding. You can partner with TVET (Technical and Vocational
Education and Training) colleges that need to place learners for 18
months to assist with administration or
apply for interns with INSETA (Insurance
Sector Education and Training Authority).
INSETA can also help with paraplanners.
Use the resources that are available to us.
With everything you do in 2021, do not
forget to digitise your business.
Remember, we are the masters of our
destiny, therefore by taking these first
steps you are building a business that
can self-sustain and survive the next
pandemic, regardless of what it is. The
above-mentioned points are essential
and will redefine your perspective
towards the future. Happy planning for
your successful 2021!
Nonhlanhla Nxele,
CEO, Tokoloho
Financial Services
www.bluechipdigital.co.za
59

FINANCIAL COACHING
Are you, the financial advisor,
STILL RELEVANT?
Momentum Intermediary Coaching Programme
The Covid-19 pandemic has not only impacted people’s
health and livelihoods; it has also had a dramatic impact
on clients’ finances, global investment markets and the
world economy. South Africans are uncertain of the
future and their family’s health. Budgets are tighter and many
families have had to make tough tradeoffs between adjusting their
financial policies and cutting out non-essential expenses from their
budgets. Clients will need practical help from their trusted financial
advisors to think through all these factors, needs and tradeoffs
and decide what’s best for them in their circumstances. On the
investments side, we have been here before. 1929. 1987. 2000.
2008. Investors who panicked at the wrong time and switched to
cash missed out.
Similar to previous recoveries, the key was and will always be
about time in the market not timing the market. But it is not easy
to convince clients of this. Advising your clients with a coaching
approach will help your clients reevaluate their priorities and
finances sustainably and holistically. It will ensure that they don’t
give in to short-term emotional discomfort at the cost of their longterm
financial health and growth.
With that backdrop in mind, Momentum is launching a 12-month
financial coaching programme for independent financial advisors
starting in February 2021 that will run over the digital platform
Zoom with a total of 18 contact sessions including six practical
group coaching sessions. The Momentum Intermediary Coaching
Programme will empower independent financial advisors with the
60
www.bluechipdigital.co.za

FINANCIAL COACHING
insights, knowledge and power skills to, in turn, have empowering
conversations with their clients about their finances, helping
them in their journey to success. The programme aims to equip
financial advisors with the necessary skills to support, influence
and guide their clients to integrate their money and life decisions
seamlessly and to stay focused on their long-term financial health
and personal growth.
Advising your clients with
a coaching approach will
help your clients reevaluate
their priorities and finances
sustainably and holistically.
According to the Centre for Applied Research (CAR), the financial
services industry faces a “crisis of faith”: clients have a growing
distrust in financial advisors, often voicing their dissatisfaction with
what they deem to be costly advice, which they could have gotten
on the Internet for free. They mistakenly believe they are capable
of managing their personal finances better than professionals.
On top of this, research indicates that millennial’s prefer digital
touchpoints and Robo advice above getting advice from a human
advisor. This trend has been accelerated by the Covid-19 pandemic
and the recent rapid adoption of technology in every aspect of our
lives, including our personal finances.
The programme seeks to plug this gap and help financial
advisors of the future to remain relevant, not just in terms of
helping their clients to navigate their finances but to navigate that
critical intersection of where their life and money meet. Financial
advisors that want to remain relevant in a post-Covid-19 world
will need to reimagine their roles by rethinking and inventing
themselves to future-proof their client value propositions and to
have a better connection with their clients through coaching their
clients.
Simply knowing and understanding the financial services
industry and investment landscape no longer suffices in our
modern technologically filled world. At Momentum, we believe
that there is a science to success and helping your clients to meet
their life and money goals by having the ability to speak not only
to your clients’ head (rational thoughts), but also to their heart
(emotions) and hands (actions).
The programme will help financial advisors adopt a “coaching
approach” when engaging with their clients. As a financial advisor
of the future, you will understand the “money psyche” of your
clients and, with your highly developed interpersonal power skills,
you will be able to listen, question, guide, counsel, empathise and,
most importantly, coach your clients to financial success. It is from
this need that a new field within financial planning has grown
called “Life Planning” or “Financial Life Planning” and herein lies the
future and endless possibilities and value of the advice profession.
Throughout all the programme modules, there will be
theoretical and practical input in six key areas, namely:
• Coaching theory and practice
• Behavioural finance and investments
• Communication theory and practice
• Human psychology
• Life planning
• Financial planning
In addition to supporting the overall transition of the financial
services industry from a product-led to an advice-led and
client-centric industry, the Momentum Intermediary Coaching
Programme has also added an enterprise and supplier development
(ESD) angle by providing funding support and assistance
to qualifying enterprises in terms of applicable ESD legislation.
This funding assistance has been facilitated through our
partnership with ASISA as Momentum’s ESD partner in supporting
SMEs while Fundhouse will independently facilitate the virtual
delivery of the programme.
We believe this direct funding support and assistance for
qualifying and deserving applicants to join the programme will
enable and facilitate increased diversity, inclusion and indeed the
transformation of the financial services industry for the benefit
of all. Over time this intervention aims to support the growth
and incubation of a younger, more gender-balanced and racially
diverse industry that will be able
to reach an equally diverse and
growing consumer base.
Momentum has always believed
in the power of partnerships and
we are excited to launch this
industry transformative Programme
in partnership with ASISA and
Fundhouse to unlock the value
and relevance of independent
financial advisors while supporting
overall inclusive growth and
progressive client outcomes for
the end consumer.
Visit www.momentum.co.za for
further information.
Bekithemba Mafulela, CFA,
CFP®, Head of Retailisation and
Strategic Markets, Momentum
Distribution Services
www.bluechipdigital.co.za
61

ETHICS
How conflicted
are professional
FINANCIAL PLANNERS?
Appreciating the psychological factors that lie behind conflicts of interest
When asked, financial planners believe they are objective and impartial
during the advice-giving process and are seldom aware of how frequently
their self-interests conflict with acting in the best interests of their clients.
However, literature and research on the psychology of conflicts of
interest (COIs) highlight that we are regularly conflicted in our daily activities and our
brains need to work hard to avoid conflicts that may negatively impact on the interests of
others. Most financial planners tend to think of COIs in terms of the disclosure requirements
found in the FAIS General Code of Conduct and the FPI Code of Ethics and Professional
Standards. However, many planners do not fully appreciate the underlying psychological
factors behind COIs that are often subtle but hugely influential on their attitude and
decision-making, as well as the awareness necessary to minimise the negative effects of
giving clients biased advice.
COIs fall within the realm of moral standards and decision-making and are loosely
defined as a clash between the proper exercise of professional judgement and personal
A conflict only
becomes unethical
when it negatively
influences the
professional judgement
of a financial planner
and damages the
interests of a client.
62 www.bluechipdigital.co.za

ETHICS
(often material) interests. As financial products and advice are
intangible and due to the asymmetry in the client-planner
relationship, clients must trust that the advice they are receiving
is unconflicted and in their best interests. Although there are
manageable conflicts present in the relationship, they are lowertier
conflicts that do not impair professional judgement. They arise
regularly and merely require a refocus of attention and effort to
overcome and maintain sound professional judgement. Therefore,
a conflict only becomes unethical when it negatively influences
the professional judgement of a financial planner and damages
the interests of a client.
Although our rational, thinking brains believe that our
professional judgement is always unbiased, conflicts are an
inherent part of any profession and all professionals are influenced
by subtle psychological factors. Decision-making, when conflicts
are present, is subconscious and is based on both emotion and
cognition (the ability to think). Although we think our decisions
Decision-making, when
conflicts are present,
is subconscious and
is based on both
emotion and cognition
(the ability to think).
are made based on rational thinking, the
reality is that our emotions often distort our
judgement. We are genetically primed to put
our interests (and those of people closest to us)
before the interests of others – this is known as
our self-serving bias and is usually based on our
emotions. To avoid the influence of this bias, we
need to use our rational, thinking brain; however,
this takes thinking work and energy. Without conscious awareness
of this bias or a tendency towards it, planners can easily fall prey to
the unconscious influence of a COI without realising it.
To manage their self-serving bias, a planner will rationalise their
conduct. When making a compromised decision, they construct
self-serving explanations for their actions, insisting they are doing
their job, or that the product they recommended is in the client’s
best interests (subtly ignoring the commission or fees received)
or that they acted under their professional obligations. It can be
challenging for a planner to be objective and to take responsibility
regarding the influence of a conflict. The opposite is true: they find
it easy to persuade their brains that they acted in their client’s best
interests even when the evidence is stacked against them.
This form of self-deception is not a matter of lying to oneself;
it consists of the unexamined acceptance of a belief that is
dubious to an objective outsider. Another psychological factor
Lee Rossini CFP®, Co-Author,
SA Financial Planning Handbook
that may be present in COI situations is ethical fading. This occurs
when moral issues are pushed into the background or even
removed from the decision-making process and business or
personal issues are pushed to the fore, for example, when faced
with the pressure to meet business targets or pay bills.
Unfortunately, the self-regulatory mechanisms that govern
moral standards do not operate unless they are activated, and
hence a planner may not view a COI as a moral dilemma. Many
psychological processes are used to selectively disengage from
moral self-sanction in a process known as moral disengagement.
This is not a sudden process as it creeps up on the person and
gradually erodes any self-imposed sanctions. Moral disengagement
includes planners minimising, distorting and denying the harm
that flows from being influenced by a conflict.
Clients are dehumanised and blamed for making the wrong
financial decisions while planners justify the conflict and obscure
their accountability. Currently, disclosure is used to manage COIs
and in a perfect world filled with rational
people, it would be an effective remedy.
However, research shows that disclosure can
have the opposite effect. The rationale is that
if a conflict is disclosed to a client, they should
consider it when making their financial
decisions. However, even if the potential
conflict is pointed out or disclosed, clients
do not necessarily discount the conflicting
advice as they are willing to overlook it
based on the trust they have in their planner.
Furthermore, planners may give even more
biased advice because they have disclosed
the conflict to their client.
In summary, COIs are not only associated
with intentionally self-interested financial
planners but also with well-meaning
professionals who succumb to the unintentional
psychological factors at play.
Due to the complexities in the financial
services environment, conflicts are on the increase and they
cannot be avoided. To ensure they do not damage their
relationships with clients, planners should be aware of the
subconscious factors underpinning COIs, and that they need to
be managed appropriately. Clients rely on their planners for
unbiased advice that is in their best interests. Therefore, taking
on the mantle of being a professional includes making moral,
independent, objective and impartial decisions that transcend
all self-interest.
References:
Sah, J. Conflicts of Interest and Disclosure, Research Paper, Cornell
University [2018]. Commissioned by the Royal Commission into
Misconduct in the Banking, Superannuation and Financial Services
Bearden, FC. The Subtle Influence: Conflicts of Interest in Financial
Planning. iUniverse Inc. [2010].
64 www.bluechipdigital.co.za

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