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Blue Chip Issue 85

Blue Chip Journal 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. Visit Blue Chip Digital: https://bluechipdigital.co.za/

Blue Chip Journal 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. Visit Blue Chip Digital: https://bluechipdigital.co.za/

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<strong>Issue</strong> <strong>85</strong> • Oct/Nov/Dec 2022<br />

BLUE<br />

www.bluechipdigital.co.za<br />

CHIP<br />

0.5 CONTINUOUS<br />

PROFESSIONAL DEVELOPMENT<br />

THE OFFICIAL PUBLICATION OF THE FPI<br />

0.5 CONTINUOUS<br />

PROFESSIONAL DEVELOPMENT<br />

01 CONTINUOUS<br />

PROFESSIONAL DEVELOPMENT<br />

01 CONTINUOUS<br />

PROFESSIONAL DEVELOPMENT<br />

1.5 CONTINUOUS<br />

PROFESSIONAL DEVELOPMENT<br />

1.5 CONTINUOUS<br />

PROFESSIONAL DEVELOPMENT<br />

02 CONTINUOUS<br />

PROFESSIONAL DEVELOPMENT<br />

02 CONTINUOUS<br />

PROFESSIONAL DEVELOPMENT<br />

THE VALUE OF A<br />

FINANCIAL PLANNER<br />

Lelané Bezuidenhout, CFP®, CEO of FPI<br />

Hendrik Spies, CFP® Palesa Dube, CFP® Tom Brukman, CFP®<br />

FINANCIAL PLANNER OF THE YEAR: THE TOP THREE FINALISTS


The value of a<br />

financial planner<br />

Lelané Bezuidenhout, CFP®, CEO of the Financial Planning Institute of Southern<br />

Africa (FPI), tells us that the value of a financial planner is crystalised in how<br />

a CFP® professional assists clients in developing strategies to help them<br />

manage their finances and to meet their life goals (page 20).<br />

The role of a financial planner is so much more than writing a prescription for<br />

investments or any other financial product. It is about helping clients achieve<br />

holistic financial health. The two most important professions of the 21st century<br />

are, undoubtedly, the medical profession and the financial planning profession, Rob<br />

Macdonald tells us on page 66. People are going to live longer and they are going<br />

to need their money to last longer. Nobody would entrust their physical health to a<br />

distributor of pharmaceutical products rather than a doctor. Nor should they entrust<br />

their financial health to a distributor of financial products, but to a professional<br />

financial planner who prescribes products rather than sells them.<br />

It can be daunting for a graduate to step into their first workplace and be<br />

expected to learn the ropes of a professional business in a short time span. The<br />

successful learnership programmes focusing on developing talent in our industry<br />

take a minimum of three to four years for candidates who have already completed<br />

a post-graduate qualification. The FPI offers a structured mentorship programme,<br />

designed to run over a minimum period of 12 months to assist in training a new<br />

industry entrant in all aspects required to become a fully-fledged financial planner.<br />

Read more on page 30.<br />

On 19 October 2022, FPI will be hosting the prestigious awards ceremony where<br />

excellence in the financial planning profession is recognised. This event endeavours<br />

to acknowledge extraordinary CFPs® from across Southern Africa that demonstrate<br />

innovation, professionalism and commitment to both their clients and the financial<br />

planning profession. Meet the finalists of the Financial Planner of the Year Award 2022<br />

on page 26. We wish you all the best.<br />

South Africa has one of the most regulated investment industries, which means<br />

advisors are spending more time on compliance and less on doing what matters<br />

most – giving advice and spending time with their clients. By recognising that their<br />

value rests in evaluating clients’ personal circumstances and determining their unique<br />

needs, advisors are increasingly partnering with investment experts to ensure that their<br />

clients’ investment needs are consistently met. The partnership with a DFM not only<br />

saves the advisor an enormous amount of time, but also ensures that all investment<br />

considerations are met. Read more in Choosing a Discretionary Fund Manager (and<br />

platform) by Florbela Yates on page 40.<br />

Enjoy this issue!<br />

Alexis Knipe, Editor<br />

<strong>Blue</strong> <strong>Chip</strong> Journal – The official publication of FPI<br />

<strong>Blue</strong> <strong>Chip</strong> is a quarterly journal for the financial planning industry and is the official publication of the Financial<br />

Planning Institute of Southern Africa NPC (FPI), effective from the January 2020 edition. <strong>Blue</strong> <strong>Chip</strong> publishes<br />

contributions from FPI and other leading industry figures, covering all aspects of the financial planning industry.<br />

A total of 7 500 copies of the publication are distributed directly to every CERTIFIED FINANCIAL PLANNER® (CFP®)<br />

in the country, while the monthly <strong>Blue</strong> <strong>Chip</strong> Digital e-newsletter reaches the full FPI membership base. FPI members<br />

are able to earn one non-verifiable Continuous Professional Development (CPD) hour per<br />

edition of the print journal (four per year) under the category of Professional Reading.<br />

Special advertising packages in <strong>Blue</strong> <strong>Chip</strong> are available to FPI Corporate Partners,<br />

FPI Recognised Education Providers and FPI Approved Professional Practices.<br />

blue-chip-journal<br />

ISSUE <strong>85</strong> |<br />

OCT/NOV/DEC 2022<br />

BLUE<br />

CHIP<br />

Publisher: Chris Whales<br />

Editor: Alexis Knipe<br />

Online editor: Christoff Scholtz<br />

Digital Manager: Charl Daniels<br />

Designer: Tyra Martin<br />

Production: Yonella Ngaba<br />

Ad sales:<br />

Sam Oliver<br />

Gavin van der Merwe<br />

Bayanda Sikiti<br />

Venesia Fowler<br />

Vanessa Wallace<br />

Managing director: Clive During<br />

Administration & accounts:<br />

Charlene Steynberg<br />

Kathy Wootton<br />

Distribution and circulation manager:<br />

Edward MacDonald<br />

Printing: FA Print<br />

PUBLISHED BY<br />

Global Africa Network Media (Pty) Ltd<br />

Company Registration No:<br />

2004/004982/07<br />

Directors: Clive During, Chris Whales<br />

Physical address: 28 Main Road,<br />

Rondebosch 7700<br />

Postal address: PO Box 292,<br />

Newlands 7701<br />

www.bluechipdigital.co.za<br />

Tel: +27 21 657 6200<br />

Email: info@gan.co.za<br />

Website: www.gan.co.za<br />

No portion of this book may be reproduced without written consent<br />

of the copyright owner. The opinions expressed are not necessarily<br />

those of <strong>Blue</strong> <strong>Chip</strong>, nor the publisher, none of whom accept liability<br />

of any nature arising out of, or in connection with, the contents of<br />

this book. The publishers would like to express thanks to those who<br />

support this publication by their submission of articles and with their<br />

advertising. All rights reserved.


CONTENTS<br />

ISSUE<br />

<strong>85</strong><br />

OCT/NOV/DEC 2022<br />

01<br />

08<br />

10<br />

16<br />

EDITOR’S NOTE<br />

By Alexis Knipe<br />

SPRING IS IN THE AIR<br />

Message from FPI CEO<br />

ON THE MONEY<br />

Milestones, news and snippets<br />

HOW FLEXIBLE ARE YOU?<br />

Column by Rob Macdonald, Head<br />

of Strategic Advisory Services, Fundhouse<br />

18<br />

PASSION FOR OUR<br />

PROFESSION<br />

Column by Kobus Kleyn, Tax and Fiduciary<br />

Planner, Kainos Wealth<br />

20<br />

THE VALUE OF A FINANCIAL<br />

PLANNER<br />

<strong>Blue</strong> <strong>Chip</strong> interviews Lelané Bezuidenhout, CFP®,<br />

CEO of FPI<br />

26<br />

WINNERS ALWAYS WIN<br />

Meet the top three finalists of the<br />

Financial Planner of the Year Award 2022<br />

30<br />

THE SMART SOLUTION FOR<br />

FINANCIAL ADVISORS BY<br />

FINANCIAL ADVISORS<br />

By FPI<br />

34<br />

ROCKET FUEL<br />

By Warren Ingram, winner of the<br />

Financial Planner of the Year Award 2011<br />

36<br />

RISKY BUSINESS<br />

Peter Foster, Chief Investment Officer,<br />

Fundhouse, speaks about investment risk<br />

40<br />

CHOOSING A DISCRETIONARY<br />

FUND MANAGER (AND<br />

PLATFORM)<br />

Florbela Yates, Head of Equilibrium, tells us why<br />

financial advisors partner with DFMs<br />

42<br />

IMAGINE THE FUTURE<br />

Matrix Fund Managers says that it is the<br />

sequence of returns that is important<br />

44<br />

GOOD NEWS FOR SA’S ECONOMY<br />

Kickstarting investment and growth, by<br />

Petroleum Agency South Africa<br />

2 www.bluechipdigital.co.za


CONTENTS<br />

OCT/NOV/DEC 2022<br />

ISSUE<br />

<strong>85</strong><br />

46<br />

THE UNLOVED OF THE UNLOVED<br />

By Ben Arnold, Investment Director,<br />

Schroders<br />

48<br />

IS THERE STILL A PLACE<br />

FOR HEDGE FUNDS?<br />

Bateleur Capital tells you why<br />

financial planners should be interested<br />

in them<br />

50<br />

FOR THOSE WHO BELIEVE,<br />

NO EXPLANATION<br />

IS NECESSARY<br />

For those who do not, none will suffice, says<br />

Protea Capital Management<br />

52 HOMEGROWN<br />

Mike Adsetts, Deputy Chief Investment<br />

Officer, Momentum Investments, says that<br />

the investment industry is one that we can<br />

be proud of<br />

54<br />

RETIREMENT INCOME<br />

PLANNING REIMAGINED<br />

By Fränzo Friedrich, Head of Marketing,<br />

Momentum Investments<br />

55<br />

DO YOU HAVE THE WILL<br />

TO SECURE YOUR CLIENT’S<br />

FINANCIAL FUTURE?<br />

By Kobus Wentzel, Head of Distribution, 1Life<br />

Insurance<br />

58<br />

A PARTNERSHIP WORTH ITS<br />

WEIGHT IN GOLD<br />

By SA Gold Coin Shop<br />

60<br />

ETF INVESTING<br />

Michelle Noth tells you why<br />

and how<br />

62<br />

FORGET SOFT LANDINGS<br />

How much of a recession is needed to<br />

tame inflation?<br />

66<br />

WILL FINANCIAL PLANNERS EVER<br />

BE PROFESSIONALS?<br />

By Rob Macdonald, Head of Strategic Advisory<br />

Services, Fundhouse<br />

68<br />

CX CHANGES EVERYTHING<br />

Fairbairn Consult says that customer<br />

experience is of utmost importance<br />

70<br />

IN NEED OF A CRISIS<br />

Why do we wait for a crisis before we<br />

act? By Hannes Viljoen<br />

72<br />

FIVE STEPS TO A<br />

COMFORTABLE RETIREMENT<br />

By Dieter Schmikl, Financial Advisor, NMG<br />

Benefits<br />

74<br />

THE PANDEMIC’S INFLUENCE ON<br />

CANCER DIAGNOSIS<br />

Cancer is one of the leading deaths globally, by<br />

Liberty Corporate<br />

4 www.bluechipdigital.co.za


JEAN MINNAAR – MANAGING DIRECTOR –<br />

OLD MUTUAL WEALTH TRUST COMPANY<br />

HARD QUESTIONS<br />

We ask ourselves about managing your investments, so you<br />

don’t have to.<br />

While investing is certainly rewarding, it can be complex. You will have questions along the way and we’re here<br />

to help you find the answers. Our answers are based on an in-depth understanding of the local and global<br />

economy, financial markets, and the driving forces that will shape tomorrow.<br />

Find out how you can take your wealth further. Scan the QR code or visit www.oldmutual.co.za/wealth<br />

or email us at hardquestions@omwealth.co.za<br />

WEALTH<br />

DO GREAT THINGS EVERY DAY<br />

Old Mutual Wealth is an elite service offering brought to you by several licensed FSPs in the Old Mutual Group.


CONTENTS<br />

OCT/NOV/DEC 2022<br />

ISSUE<br />

<strong>85</strong><br />

76<br />

THE DIVORCE ACT<br />

What the recent judgement means<br />

for you. By Bianca Maritz, Wills and Estates<br />

Sentinel International Advisory Services<br />

78<br />

NAVIGATE YOUR CLIENT’S<br />

COMPLEX WEALTH SOLUTIONS<br />

By Andrew Ratcliffe, CFP®, Director, Private<br />

Client Holdings<br />

80<br />

HOW TO BUILD A<br />

TECHNOLOGY-ENABLED<br />

PRACTICE<br />

Jen McKay tells us its by design<br />

82<br />

2C OR NOT 2C<br />

The University of Free State<br />

explains when to apply Section 2C<br />

of the Wills Act 7 of 1953<br />

86<br />

THE IMPORTANCE OF<br />

NOMINATING BENEFICIARIES<br />

By Adv. Beverly Jubane, Specialist<br />

Customer Service, Liberty Consultants<br />

and Actuaries<br />

88<br />

SHIFTING THE WAY PEOPLE THINK,<br />

FEEL AND BEHAVE WITH MONEY<br />

By Jean Archery<br />

Warren Ingram, CFP®, Co-founder,<br />

Galileo Capital<br />

Peter Foster, Chief Investment<br />

Officer, Fundhouse<br />

Jean-Pierre Matthews, Head of<br />

Product, Matrix Fund Managers<br />

Jen McKay, Director,<br />

Linktank


We look forward to seeing you at the<br />

2023 Financial Planning Institute<br />

of Southern Africa, Professional's<br />

Convention.


BLUE<br />

CHIP<br />

FOREWORD<br />

SPRING IS IN THE AIR<br />

The CEO of the Financial Planning Institute<br />

shares the FPI’s latest news.<br />

Lelané Bezuidenhout, CFP®<br />

CEO, Financial Planning<br />

Institute of Southern Africa<br />

Spring is in the air and so is a lot of excitement<br />

around what is happening at the Financial<br />

Planning Institute of Southern Africa (FPI) and the<br />

financial service industry at large. Some reflection<br />

on what has taken place before we jump into what is<br />

coming for the rest of the year:<br />

Retirement Conference<br />

CPD hours: 5.5 (4 technical and 1.5 ethics)<br />

The FPI hosted a successful Retirement Conference in<br />

partnership with the Actuarial Society of South Africa<br />

(ASSA) and the Institute of Retirement Funds Africa<br />

(IRFA). The conference reflected on over a decade of<br />

regulatory changes due to the retirement reforms<br />

that started back in +-2012. Members and speakers<br />

from the FPI, ASSA and IRFA also reflected on what to<br />

expect from the Financial Sector Conduct Authority’s<br />

(FSCA) harmonisation project (harmonising all sectorial<br />

laws into the Conduct of Financial Institutions (COFI)<br />

environment), especially in the retirement space.<br />

Key Individual Workshop<br />

CPD hours: 4 (ethics and practice standards)<br />

For some time, the FPI has recognised that the world of<br />

the Key Individual (KI) has evolved drastically since FAIS<br />

came into effect. Under the COFI matrix a KI’s role and<br />

responsibilities will expand even further as they are a<br />

key person as defined in the Financial Sector Regulation<br />

Act 9 of 2017 (FSR Act). The KI Workshop took place in<br />

partnership with the Compliance Institute Southern<br />

Africa (CISA) and the Institute of Risk Management<br />

South Africa (IRMSA). Both speakers, Hildegard Lombard<br />

and Christopher Palm, left some great insights for the KIs<br />

that joined us online for the workshop.<br />

If you missed the Retirement Conference and/or the Key<br />

Individual Workshop, you can still register for the events via<br />

www.fpi.co.za.<br />

FPI networking sessions<br />

During August and September, the FPI hosted a series of<br />

in-person member networking sessions that focused on<br />

the 2023-2025 strategy planning and a general update<br />

from the Institute. A massive thank you to the professional<br />

members who attended the sessions – Team FPI gained a<br />

lot of insights into what members need in the profession<br />

over the next three years.<br />

Professional Competency Examinations<br />

Well done to all the candidates who passed the March, June<br />

and September Professional Competency Examinations<br />

(PCE). It is a massive achievement and great recognition of<br />

years of hard work. For those who missed the PCE this year,<br />

the first PCE sitting for 2023 will be in March.<br />

Membership renewal 2023<br />

Membership renewal is opening on 1 November 2022.<br />

Be sure to renew your membership before 31 December<br />

2022 to qualify for the early bird discount. You need to<br />

complete your CPD upload by 31 May 2023 – all you need<br />

to do between 1 November and 31 March 2023 is to renew<br />

your membership (ie complete your declaration and pay<br />

the required membership fee).<br />

8 www.bluechipdigital.co.za


A massive thank you to all our attendees,<br />

sponsors, speakers and the FPI<br />

team for making this year’s convention<br />

yet another roaring success.<br />

Annual refresher 2023<br />

Good news! The annual refresher will be in-person in<br />

February 2023. It is time for FPI professional members<br />

to enjoy the benefit of peer-to-peer collaboration over a<br />

cup of coffee and catch up on the latest technical content<br />

when it comes to professional financial planning. The<br />

in-person events will be followed by an online event for<br />

those members who could not make it across the country.<br />

Registrations will open in November 2022.<br />

Financial Planning Week and WFPD<br />

A big thank you to all who celebrated the sixth annual<br />

World Financial Planning Day (WFPD) on 5 October<br />

with us! The theme this year was Live your Today – Plan<br />

your Tomorrow.<br />

The FPI celebrated Financial Planning Week in<br />

South Africa (3-7 October) that focused on topics such<br />

as children and money; managing risk in your life;<br />

managing your finances in tough times and the benefits<br />

of working with a financial professional. Thank you to all<br />

who contributed to making WFPD and Financial Planning<br />

Week a success.<br />

Convention 2022<br />

The theme for this year’s Professional Convention is The<br />

Time is Now. Thank you to all our local and international<br />

speakers for sharing relevant content with our professional<br />

community. Topics covered at this year’s convention include,<br />

but are not limited to:<br />

• Understanding the psychology of money<br />

• Helping clients through transitions<br />

• FPSB global update<br />

• The need for regulators to understand the value of CFP®<br />

professionals and title protection<br />

• The fight for talent<br />

• Global standards update<br />

• Client engagement via the use of video and other client<br />

platforms<br />

• Resilience and reinvention<br />

• Leadership, mentorship and coaching<br />

• Electronic wills and digital assets<br />

• Ethical investment and the climate emergency<br />

• Investing for impact<br />

• The new world of work and the impact on client engagement<br />

• Start giving back (consumer education)<br />

• FSCA regulatory update<br />

• Motivational talks<br />

A massive thank you to all our attendees, sponsors, speakers<br />

and the FPI team for making this year’s convention yet another<br />

roaring success.<br />

In closing<br />

2022 flew by and so will the last quarter of the year. All the best for<br />

the rest of 2022 and may 2023 be a fantastic year where we all reach<br />

new heights and discover more innovative ways of serving the<br />

profession as well as the communities that the profession serves.<br />

Until next time,<br />

Lelané Bezuidenhout, CFP®<br />

CEO, Financial Planning Institute of Southern Africa<br />

www.bluechipdigital.co.za<br />

9


BLUE<br />

CHIP<br />

BLUE<br />

CHIP<br />

On the money<br />

Making waves this quarter<br />

Retirement, reporting tools and US government bonds<br />

ARE YOU COVERED FOR MEDICAL AID IN YOUR RETIREMENT YEARS?<br />

NMG Benefits has launched SmartAid, a retirement annuity dedicated<br />

to help retirees save towards medical costs during retirement.<br />

SmartAid offers the following unique benefits:<br />

• Assesses each member’s circumstance in determining if members are<br />

on track to meet their specific retirement financial needs.<br />

• Focus is on the member’s need based on their unique circumstances<br />

rather than on the investment return.<br />

• Members who are not on track to meeting<br />

their needs are guided on actions to take<br />

using the projection tool. This is a simple, easyto-use<br />

calculator that translates a member’s<br />

personalised information into a member<br />

specific goalsetting.<br />

smartaid@nmg.co.za<br />

NEW REPORTING TOOL<br />

ProfileData has launched Share Stats and Insights (SSI), an easy-to-use<br />

add-on reporting tool, which provides real-time information for listed<br />

users. “Knowledge of who owns your share, who is buying and who is<br />

selling is strategic to managing value for one’s shareholders,” says Ernie<br />

Alexander, chairman of the Profile Group.<br />

SSI is modelled on the share statistic information requirements of<br />

formal financial reports, including those typically included in board<br />

information packs. It offers tables and charts on two databases:<br />

• Share price movements, market values, liquidity, trade statistics, price/<br />

earnings ratios and dividend yields.<br />

• Institutional holdings, sales and purchases as represented by portfolio<br />

reports from collective investment schemes.<br />

Key features of SSI include:<br />

• User-defined date controls, making it possible to instantly obtain share<br />

statistic data for any calendar range.<br />

• Customisable peer comparisons, making it possible to instantly<br />

compare a company’s share statistics with up to four peers.<br />

• Downloadable bar charts suitable for inclusion in board information<br />

packs or other reports.<br />

• Exportable data tables.<br />

• Detailed quarterly views on asset manager activities.<br />

• Quarterly analysis by fund on share movement and holdings, both for<br />

previous institutional shareholders and new buyers.<br />

• Aggregated analysis across funds by asset manager.<br />

• Institutional trading pattern comparisons with up to four peers.<br />

Analysis of investor classification, location and share allocation as<br />

well as shareholder buying and selling trends, is easily analysed and<br />

condensed into a reporting tool customised to the issuer’s investor<br />

relations needs, saving both time and costs.<br />

ProfileData is a subsidiary of information publisher, Profile Group,<br />

the leading South African supplier of data feeds and customised data<br />

solutions for financial markets clients.<br />

ETF FOR US GOVERNMENT BONDS<br />

Shares in the 1nvest ICE US Treasury Short Bond Index Feeder ETF have<br />

begun trading on the JSE, giving South African investors exposure<br />

to liquid, short-term US government bonds. According to 1nvest, a<br />

specialist index fund manager, the ETFUSD tracks the performance of<br />

the ICE US Treasury Short Bond Index which measures the performance<br />

of US dollar-denominated short-term government bonds issued by<br />

the US Treasury.<br />

The index is market value-weighted and is designed to include US<br />

dollar-denominated, fixed-rate securities with a minimum term to<br />

maturity greater than one month and less than or equal to one year.<br />

Through this ETF (JSE code ETFUSD), South African investors can<br />

invest with rands in the US dollar-based product as an alternative<br />

to USD-denominated money market funds, without affecting their<br />

exchange control limit or going through an externalisation process.<br />

The listing of ETFUSD brings the number of ETF listings on the JSE<br />

to 93 with a total ETF market capitalisation of R114-billion.


Connect with a Momentum<br />

Financial Adviser Today!<br />

SCAN<br />

TO CHAT


BLUE<br />

CHIP<br />

BLUE<br />

CHIP<br />

On the money<br />

Making waves this quarter<br />

Leaders with a clean slate<br />

LEADEREX 2022<br />

The Financial Planning Institute of Southern Africa (FPI) was proud<br />

to be among 300 of the country’s top thought leaders at Leaderex<br />

2022, South Africa’s premier business event which took place in<br />

September at the Sandton Convention Centre in Gauteng.<br />

Designed to provide attendees with insights into industry trends,<br />

Leaderex included 20 conferences and over 100 masterclasses. The<br />

programme was highly relevant to leaders in today’s fractured and<br />

complex socio-political world. The current uncertainty dominating<br />

South Africa across loadshedding, politics and corruption formed part<br />

of the discussions, allowing leaders to connect on real issues.<br />

The event had an impressive list of sponsors that included the<br />

JSE as the primary sponsor, the South African Institute of Chartered<br />

Accountants (SAICA), the Institute of Directors South Africa (IoDSA) and<br />

the FPI.<br />

“At the JSE, educating South Africans about financial markets is a<br />

key focus for us as this creates ownership of one’s financial journey.<br />

The JSE working with platforms such as Leaderex opens doors for<br />

us to educate more South Africans about investing on the stock<br />

exchange and taking the first steps in your investment journey,” says<br />

Vuyo Lee, director of marketing and corporate affairs at the JSE.<br />

Financial planning was an aligned theme. As David Kop, CFP®, HOD:<br />

Policy and Engagement at FPI, says, “FPI has been part of Leaderex since<br />

2016. It is a fantastic platform for us to engage with industry leaders<br />

and for us to showcase what financial planning is. The attendees are<br />

engaging and appreciative of both the talks and the complimentary<br />

financial planning sessions on offer.”<br />

STARTING WITH A CLEAN SLATE<br />

We have recently come across “Slate”, an exciting new Wealth Tech<br />

platform in the advice software market in South Africa. Slate expertly<br />

addresses the concern that planners have been falling short of delivery<br />

expectations in exactly the areas of the advice value chain that clients<br />

have explicitly prioritised as the most important areas to them.<br />

Slate provides a way for the planner to reinvent the first meeting that<br />

a planner has with a client, to accurately capture the information about<br />

the client’s hopes and dreams.<br />

It kicks off with the planner and client playing the digital equivalent<br />

of a board game where each card in the deck is a different potential<br />

life priority.<br />

Cards that are important and relevant to the client are force-ranked<br />

by placing them in areas of the board based on relative importance and<br />

timing. Using the intel provided by the Slate system, it is easy for the<br />

planner and client to then transform each priority into a very visual and<br />

understandable SMART financial goal.<br />

Slate plugs seamlessly into the first part of any planner’s advice<br />

process and can be integrated into existing CRM, compliance and<br />

planning systems. Slate also plays a very strong role in strengthening<br />

the value provided by planners in the ongoing post-sale servicing of<br />

clients. The monitoring module of Slate, powered by Yodlee, allows<br />

planner and client to keep abreast of performance against financial<br />

goals and to act where it is necessary.<br />

The co-creation methodology provided by Slate, underpinned by<br />

its goals-based philosophy and its total focus on customer centricity<br />

and “doing things right”, is what sets it apart from other technology.<br />

After 18 months of testing, Slate launched in Q2 2022 for use by a<br />

limited set of money mentors and is now ready for adoption by the<br />

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BLUE<br />

CHIP<br />

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Based on the same technology as its enterprise counterpart<br />

CommPay, CommPay Lite is designed for independent financial advice<br />

businesses to streamline revenue reconciliation and reporting.<br />

CommPay Lite provides advisor-specific reports, policy and transaction<br />

searches, revenue tracking and forecasting, allowing financial advisors<br />

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Iress Head of Commercial and Client Solutions Shaun Nicholson says,<br />

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“It is challenging running a financial services business. Every day, there<br />

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and extra reporting. CommPay Lite is designed to<br />

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day and their existing Iress software, Xplan,<br />

to maximise their business.”<br />

CommPay Lite enables advisors to<br />

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the business of wealth creation in South Africa. Cogence will bring<br />

asset allocation views from BlackRock, one of the world’s leading asset<br />

managers, together with personalised insights from Vitality to provide<br />

investment solutions including model portfolios. This new investment<br />

solutions offering will be enhanced by Aladdin Wealth technology,<br />

an industry-leading platform from BlackRock which provides portfolio<br />

analytics and risk analysis.<br />

Adrian Gore, Discovery Group Chief Executive, says the impetus<br />

behind entering the DFM space is based on two distinct areas<br />

that have been disrupted: “Firstly, investment markets are more<br />

sophisticated and complex than ever. At the same time, we’re seeing<br />

local investors increasingly looking to invest more globally. For<br />

South Africans it’s been hard to do so but with the recent regulatory<br />

changes, pension funds and mutual funds are now able to invest up<br />

to 45% in offshore assets. This means we can invest nearly half of our<br />

retirement savings in offshore assets – that’s powerful. Research and<br />

understanding of risks and the opportunities that global markets<br />

present is crucial.<br />

“Secondly, more than 90% of people in South Africa can’t afford<br />

retirement, relying on their family or state and often the elasticity<br />

of savings behaviours is more important than investment returns.<br />

Cogence is built upon BlackRock’s asset allocation views and has been<br />

designed to pair Aladdin Wealth technology with Vitality’s data and<br />

analytics to incorporate personalised health and longevity metrics,<br />

which essentially maps out every aspect of a financial plan.”<br />

Cogence combines Discovery’s investment expertise with<br />

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advisors try to realise improved investment outcomes for their<br />

clients. Through Cogence, financial advisors will also have access to<br />

proprietary Aladdin Wealth technology.<br />

Gore concludes, “Our combined behavioural science and global<br />

investment expertise will support local financial advisors to deliver<br />

more timely information, deeper insights and superior service to<br />

clients that can ultimately result in an optimal retirement outcome.<br />

With lifespans extending, clients need the financial means to retire<br />

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BLUE<br />

CHIP<br />

COLUMN<br />

How flexible are you?<br />

And going forward, will you remain flexible?<br />

Rob Macdonald, Head of<br />

Strategic Advisory Services,<br />

Fundhouse<br />

Rob Macdonald has held<br />

several senior positions in<br />

the investment industry.<br />

At Fundhouse, he acts as<br />

a consultant and coach<br />

to financial advisors and<br />

develops and facilitates<br />

training programmes in<br />

behavioural coaching and<br />

practice management. Before<br />

joining the financial services<br />

industry, Macdonald was<br />

MBA director at the UCT<br />

Graduate School of Business.<br />

He is co-author of the book<br />

Rethinking Leadership and has<br />

consulted, written and spoken<br />

widely on a range of topics.<br />

Macdonald has a Master’s<br />

degree in Management<br />

Studies from Oxford University<br />

and is a CFP® Professional.<br />

In a recent LinkedIn post, Martin Lindstrom,<br />

a global leader on organisational and brand<br />

transformation, poses the following conundrum<br />

about two hypothetical companies:<br />

One company says, “Everyone is back in<br />

the office all the time – five days a week. I<br />

expect you to show up at 8am and stay for<br />

the day.” Another company says, “You know<br />

what? We’re going to provide flexibility to<br />

our workforce. There might be certain days<br />

when we decide that we’re all going to come<br />

together because we want to collaborate in<br />

person, but other days, you can work from<br />

wherever you want. You can work from home.<br />

If you want to come into the office, you can,<br />

but you’re not required to. You’re going to<br />

have flexibility.” Now, which company do you<br />

think is a more attractive place to work? My<br />

guess is that the answer is fairly obvious.<br />

Think of your financial planning business.<br />

Which company are you? How much flexibility<br />

do you offer your employees? And very<br />

importantly, how much flexibility do your<br />

employees want? Since the start of the<br />

pandemic, different companies globally<br />

have had different approaches to workplace<br />

flexibility, and of course the nature of the<br />

business has an influence on how much<br />

flexibility is possible.<br />

In the technology sector, Twitter and<br />

Facebook implemented policies at the start of<br />

the pandemic that allowed employees to opt<br />

to work from home permanently. Apple, in<br />

contrast, has been pushing for a return to the<br />

workplace for all employees. Its initial return<br />

to office policy for employees was that they<br />

all had to be back in the office on Mondays,<br />

Tuesdays and Thursdays. Now Apple has<br />

softened this position, requiring employees<br />

to be at the office on Tuesdays and Thursdays<br />

and giving them the flexibility to choose their<br />

third day back in the office.<br />

Apple’s softened stance on flexibility<br />

was still not enough for many employees.<br />

In an open letter, 1 400 of Apple’s 165 000<br />

workers objected to the policy, saying,<br />

“Stop treating us like school kids who need<br />

to be told when to be where, and what<br />

homework to do.” One employee who felt<br />

this way was Director of Machine Learning,<br />

Ian Goodfellow, who resigned in protest at<br />

the return-to-work policy, stating: “I believe<br />

strongly that more flexibility would have<br />

been the best policy for my team.” (Quoted<br />

by Zoe Schiffler on Twitter.)<br />

Goodfellow was no ordinary employee.<br />

He previously worked for Google where<br />

he developed a system enabling Google<br />

Maps to automatically transcribe addresses<br />

from photos taken by street view cars. His<br />

work in artificial neural networks and deep<br />

learning have won him many accolades. In<br />

2017, he was one of MIT Technology Review’s<br />

35 Innovators under 35 and in 2019 he was<br />

included in Foreign Policy publication’s list<br />

of 100 Global Thinkers. After only two years<br />

at Apple, it’s no surprise that he has joined<br />

a company that offers greater flexibility, his<br />

former employer, Google.<br />

And this is not an isolated incident. The<br />

recent 2022 PWC Global Workplace Hopes<br />

and Fears Survey indicates that the Big<br />

Resignation is a reality. In the next 12 months,<br />

PWC predicts that one in five employees will<br />

switch to a new employer and that almost<br />

50% of employees want to be able to choose<br />

where they work.<br />

During the Covid pandemic, professional<br />

financial planning businesses successfully<br />

delivered their services to clients despite<br />

at times extreme lockdowns. Employees<br />

worked remotely, flexibly and most<br />

importantly productively. While there may<br />

be a yearning for more in-person interaction<br />

from many clients and employees, a desire<br />

for greater workplace flexibility is also real.<br />

The dilemma going forward is whether to<br />

remain flexible or not. The answer may lie<br />

with the employees you don’t want to lose,<br />

as Apple found out. <br />

16 www.bluechipdigital.co.za


BLUE<br />

CHIP<br />

COLUMN<br />

PASSION FOR<br />

OUR PROFESSION<br />

We are a profession and not a so-called industry.<br />

Kobus Kleyn, CFP®, Tax<br />

and Fiduciary Practitioner,<br />

Kainos Wealth<br />

Kobus Kleyn has published<br />

over 200 articles and authored<br />

three books. He is a multiple<br />

award-winning professional<br />

and holds eight memberships<br />

with professional associations.<br />

His most recent awards were<br />

lifetime achievements awards<br />

from the FPI (Harry Brews), The<br />

Million Dollar Round Table (Top<br />

of the Table Life Membership)<br />

and Liberty Group (Life<br />

Membership) in 2021/22.<br />

With October month bringing to life<br />

our Financial Planning Institute<br />

conference and associated<br />

professional awards for 2022, it<br />

would be apt for me to touch on my passion<br />

for our profession and drive awareness of our<br />

professionalism. It would be appropriate to start<br />

with a better understanding of an industry and<br />

profession. I hope that at the end of this article,<br />

my fellow financial professionals and all financial<br />

stakeholders will increasingly refer to us as a<br />

profession and not a so-called industry. Let’s review<br />

the definitions of both.<br />

“An industry is an economic activity concerned<br />

with the processing of raw materials and the<br />

manufacture of goods in factories.”<br />

If we consider the creation and selling of financial<br />

products without advice, we may see ourselves as<br />

an industry.<br />

“A profession is a vocation founded upon<br />

specialised educational training, the purpose of<br />

which is to supply objective counsel and service<br />

to others, for direct and definite compensation,<br />

wholly apart from expectation of another<br />

business gain. A profession arises when any trade<br />

or occupation transforms itself through the<br />

development of formal qualifications based upon<br />

education, apprenticeship and examinations,<br />

the emergence of regulatory bodies with powers<br />

to admit and discipline members according to a<br />

code of conduct and ethics.”<br />

As financial professionals in South Africa,<br />

under the FSCA and FAIS Act regulations, we all<br />

must meet minimum requirements after a twoyear<br />

supervision period. We have a professional<br />

body in the Financial Planning Institute of<br />

Southern Africa, that endorses professionals who<br />

want to go well above the minimum standards<br />

and be certified as fully-fledged professionals.<br />

Unfortunately, we do not have as many FPI<br />

members at this time as we should. Still, I am sure<br />

over time, with awareness with publications like<br />

<strong>Blue</strong> <strong>Chip</strong> and the FPI, as well as organisations<br />

like the Financial Intermediaries Association<br />

and Insurance Institute of South Africa, we are<br />

transforming into a fully-fledged profession like<br />

the medical profession.<br />

I attend many webinars, seminars, conferences<br />

and financial events, and I have to admit it feels<br />

like a stab in the back when many still refer to<br />

us as an industry. If you, in your mind, believe<br />

we are an industry, how would we uplift the<br />

status and respect we deserve for changing<br />

people’s lives daily, as we have observed even<br />

more so over the once-in-a-lifetime pandemic?<br />

If anything, the pandemic has confirmed our<br />

status as a noble profession.<br />

Perceptions always tend to become a reality,<br />

and what we do as financial professionals<br />

will define our destiny as a profession and<br />

professionals. Maybe there are sections of our<br />

financial services that would always stay an<br />

industry, but financial planning is not one, and<br />

we need to raise the bar across the board to meet<br />

the requirements set out above in the definition<br />

of a profession.<br />

Sometimes it is all in words,<br />

and words do matter.<br />

As financial professionals, no matter the<br />

advisor category you operate under, it should<br />

always start with financial advice and guidance<br />

long before products. A consequence of<br />

solid advice may lead to selling products or<br />

investments. We need to create an advice<br />

experience for the public and our clients with<br />

the appreciation that we are in a vocation, not<br />

a job. We must make clients’ dreams come true<br />

by considering their long-term needs and advice<br />

with due ethics and conduct.<br />

Sometimes it is all in words, and words do<br />

matter. Allow your passion to become your<br />

purpose, and it will one day become your<br />

profession. Next time you use the word “industry”,<br />

think about it, and update your vocabulary to<br />

include profession. <br />

18 www.bluechipdigital.co.za


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BLUE<br />

CHIP<br />

FPI<br />

THE VALUE OF A<br />

FINANCIAL PLANNER<br />

Lelané Bezuidenhout, CFP®, has been the chief executive officer of Financial Planning<br />

Institute of Southern Africa for three-and-a-half years. <strong>Blue</strong> <strong>Chip</strong>, the official<br />

publication of the Institute, speaks to her about the financial planning profession.<br />

Lelané Bezuidenhout, CFP®, CEO of FPI.


FPI<br />

BLUE<br />

CHIP<br />

Lelané Bezuidenhout has a passion for developing people,<br />

processes and systems. She is a strong believer in turning<br />

stumbling blocks into stepping stones and finds a silver<br />

lining in every situation. Lelané has a positive mindset<br />

and is focused on reaching her goals through careful planning<br />

and aligning with strategic goals and commitments. She<br />

values the standards and principles implemented by bodies<br />

like Financial Planning Institute of Southern Africa (FPI) as<br />

well as the FPI Code of Ethics and Practice Standards as they<br />

guide her in treating customers fairly. She is a proud CERTIFIED<br />

FINANCIAL PLANNER® (CFP®) professional member of FPI.<br />

Lelané, please talk to us about the importance of consumer<br />

education in South Africa.<br />

Consumer education is extremely important as it enables<br />

consumers to make informed decisions around their finances.<br />

Consumer education focuses on financial management (like<br />

budgeting), investing and borrowing, risk<br />

management (insurance and medical aid)<br />

as well as addressing South Africa’s poor<br />

savings culture. There is a massive need for<br />

financial literacy training in South Africa.<br />

Reflecting on the findings of the<br />

Financial Sector Conduct Authority’s<br />

(FSCA) Financial Literacy Baseline Survey,<br />

especially the financial literacy index,<br />

the overall current state of financial literacy in South Africa is<br />

lower than what was found in 2015 – young people seem to have<br />

been negatively affected. We need to introduce more financial<br />

literacy programmes for the youth of South Africa.<br />

As a community of financial institutions, non-profit and<br />

business process outsourcing companies as well as associations,<br />

we need to do more in a collective manner to increase the<br />

overall financial literacy levels in South Africa via robust<br />

consumer education programmes. We already have a few good<br />

programmes like:<br />

• FSCA’s Money Smart Week South Africa<br />

• FSCA’s consumer education website<br />

• FPIMyMoney123 (www.fpimymoney123.co.za)<br />

• Financial Planning Standards Board (FPSB) World Financial<br />

Planning Day<br />

• FPI’s Financial Planning Week<br />

• Association for Savings and Investments South Africa (ASISA)<br />

Consumer Financial Education Practitioner Sprints<br />

There are quite a few financial institutions that, in terms of their<br />

Prudential Authority and Financial Sector Code compliance<br />

requirements, are running consumer education programmes too.<br />

Please speak to us about the value of and need to use the services<br />

of a financial planner.<br />

We need to understand the services of a financial planner first. A<br />

CFP® professional financial planner works in the areas of:<br />

• Financial management (like budgeting, ratio analysis, etc)<br />

• Investment planning<br />

• Retirement planning<br />

• Tax planning<br />

• Risk planning (short-term, long-term, medical and business risk<br />

planning, etc)<br />

• Estate planning<br />

The value and need of a financial planner are crystallised by<br />

how a CFP® professional assists clients in developing strategies<br />

to help them manage their finances and to meet their life goals.<br />

CFP® professionals do all the above within the framework and<br />

ambit of a professional Code of Ethics and Financial Planning<br />

Practice Standards.<br />

A financial planner is a professional that guides you over a<br />

period of years to realise your financial goals and is there when<br />

life happens (birth, death, marriage, divorce).<br />

The financial services industry<br />

must focus on the value of<br />

professional financial advice<br />

and not on selling policies.<br />

One of the big issues facing financial advisors is clients<br />

focusing on their fees and advisors<br />

having to justify their value to<br />

clients. What is FPI doing to support<br />

advisors to transition to a fee-based<br />

model for advice?<br />

This is a real issue and comes from the<br />

stigma that financial advisors are policy<br />

peddlers that just chase commission.<br />

To change this perception, the financial<br />

services industry must focus on the value of professional financial<br />

advice and not on selling policies.<br />

We have seen quite a few Retail Distribution Review (RDR)<br />

proposals implemented via the General Code of Conduct,<br />

specifically the June 2020 amendments. These amendments,<br />

focusing just on fees, changed Section 3A (financial interest and<br />

conflict of interest management policy) quite significantly. It<br />

clarifies that either commission or fees can be charged, and that<br />

the provider/representative cannot be remunerated more than<br />

once for performing a similar service.<br />

Some professionals have moved to a fee-based-only model<br />

for professional advice (ie they do not take any commissions but<br />

only charge fees). FPI has designed a tool that assists members<br />

in charging a fee and taking into consideration the nature of the<br />

service and the resources, skills and competencies reasonably<br />

required to perform the service/s1. This tool is available in the<br />

membership community under member resources (practice<br />

management). Non-members cannot access this tool.<br />

FPI hosts peer collaboration sessions where professional<br />

members of FPI can participate in best practice sharing sessions.<br />

Transformation of the profession is an imperative of FPI. What<br />

does FPI mean when it refers to “transformation” and what is<br />

FPI doing to support its mission of “facilitating transformation<br />

within the profession”?<br />

One of FPI’s business objectives is to participate in the creation<br />

and revision of programmes in support of transformation in<br />

the industry. If the industry lacks diversity and inclusion, so will<br />

1. 3A (d) (i) BN 80 of 2003 as amended in June 2020<br />

www.bluechipdigital.co.za<br />

21


BLUE<br />

CHIP<br />

FPI<br />

FPI as our members are mainly from the financial services<br />

industry. Transformation at FPI refers to the inclusion of a<br />

diverse group of people – including but not limited to people<br />

from various demographic backgrounds, identities, race, age,<br />

beliefs, values, skills and different ways of thinking. This group<br />

of people participates in and forms part of our governance<br />

and committee structures as well as<br />

our staff and membership base.<br />

FPI supports and works with<br />

other associations, networks and<br />

bodies such as the Women in Finance<br />

Network, LeanIn Circle, Association<br />

of Black Securities and Investment<br />

Professionals – ABSIP (MOU in draft<br />

stage) as well as the Insurance Sector<br />

Education and Training Authority<br />

(INSETA) to support individuals with either mentorship or<br />

funding to become members of FPI. Via these programmes,<br />

we aim to transform the profession to a more diverse one.<br />

One challenge the financial planning profession faces<br />

relative to other professions is an inconsistency in the<br />

professional qualification required to give advice. FPI is<br />

the “guardian” of the CFP® professional qualification, and<br />

yet most financial advisors operating in South Africa do not<br />

have this qualification. What is FPI doing to change this?<br />

This question confuses the profession and the industry. There is<br />

consistency with regards to qualifications obtained to become<br />

a professional member of FPI. Our qualifications are aligned<br />

to clear learning outcomes codified in defined curriculums<br />

that are updated every three to five years depending on<br />

the results of the job analysis surveys conducted locally and<br />

internationally. It is rather a CFP® designation2. To become a<br />

CFP® professional, candidates must meet all four points below:<br />

1. An underlying South African Qualifications Authority (SAQA)<br />

registered qualification (eg a Postgraduate Diploma in<br />

Financial Planning — NQF 8)<br />

2. Three years of relevant financial planning experience or a<br />

one-year mentorship programme completed<br />

3. All candidates must write the professional competency<br />

examination (PCE) commonly known as a “board exam” in<br />

other professions<br />

4. Meet the Code of Ethics and Practice Standards on an<br />

annual basis.<br />

Once a CFP® professional, your membership needs to<br />

be renewed on an annual basis by completing an ethics<br />

declaration, paying the required membership fee and<br />

completing 35 Continuous Professional Development (CPD)<br />

hours per annum (20 technical, 10 general as well as five ethics<br />

and practice standards CPD hours).<br />

To give financial advice as defined in the Financial<br />

Advisory and Intermediary Services (FAIS) Act, BN 194 of 2017<br />

(fit and proper requirements), financial services providers<br />

FPI has a fully developed<br />

mentorship programme,<br />

Mentoring the Professional<br />

of Tomorrow, that is free<br />

for anyone to use.<br />

(FSPs), Key Individuals and representatives must have a<br />

relevant underlying qualification. The onus is on the FSP to<br />

ensure that the qualification is relevant.<br />

FPI commented in the Retail Distribution Review (RDR)<br />

Advisor Categorisation Paper3 and confirmed that regulatory<br />

protection of the title, Financial Planner, is desperately needed<br />

as currently anyone can call themselves<br />

a financial planner. This creates massive<br />

consumer confusion.<br />

When it comes to the qualifications<br />

required to be licensed under the FAIS<br />

Act (BN 194) we are working with the<br />

FSCA and INSETA to ensure that, like<br />

other professions, we have qualifications<br />

that are fit for purpose. We acknowledge<br />

that this is not a quick fix, and we should<br />

not forget the history that got us to the point that we are at now.<br />

Given the history of the country and the industry, it seems<br />

that black financial advisors face three key challenges: access<br />

to markets, access to funding and access to skills. It seems<br />

that many industry players focus much energy and resources<br />

on skills training, but the other two challenges seem to<br />

receive less attention. What role can FPI play in helping shift<br />

this dynamic when it comes to access to markets and access<br />

to funding for black financial advisors?<br />

This is a great question. FPI works closely with INSETA to<br />

obtain funding that assists black (as defined in the B-BBEE<br />

Act) financial advisors to gain access to the market, but also<br />

funding needed to pay for their studies and a stipend while<br />

completing a learnership and/or mentorship programme at an<br />

FSP or financial planning practice.<br />

FPI has a fully developed mentorship programme,<br />

Mentoring the Professional of Tomorrow, that is free for anyone<br />

to use. It is important that the mentee finds a mentor that<br />

matches themselves as they must have a good working<br />

relationship that is beneficial to both parties.<br />

We are currently registering an education and training trust.<br />

Delays at the Johannesburg Master’s Office have hampered<br />

the process. The sooner we get the trust off the ground, the<br />

sooner we can help more upcoming, young, unemployed<br />

people to become qualified financial advisors and planners.<br />

FPI states that its mission is “to advance and promote the<br />

pre-eminence and status of financial planning professionals”.<br />

What do you believe still needs to happen in the financial<br />

planning profession for it to achieve the same level of<br />

recognition and respect as other professions such as law,<br />

medicine, accountancy, engineering, etc?<br />

Financial planning is a relatively young profession in<br />

comparison to law and medicine. The profession was only<br />

born in 1969 at an airport in San Francisco when a group<br />

of talented, like-minded people recognised the need to<br />

professionalise financial planning.<br />

22 www.bluechipdigital.co.za<br />

2The FPSB owns the CFP® mark outside of the US. CFP® is also a SAQA registered designation.<br />

3Referring to specifically Proposal T.


FPI<br />

BLUE<br />

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Other professions like law, medicine and engineering<br />

are all statutory professions (established by an act<br />

of parliament) or enjoy some form of regulatory title<br />

protection (like in the accountancy profession). We do not<br />

have this for financial planning yet – well, in South Africa at<br />

least. Regulatory protection of the title Financial Planner is<br />

in draft stage currently and we can only hope, for the sake of<br />

consumer protection, that regulatory title protection comes<br />

in sooner rather than later.<br />

What are the biggest challenges that FPI faces in delivering<br />

its vision of “professional financial planning for all”?<br />

Reflecting on our top two challenges:<br />

• Our biggest difficulty remains growing our numbers<br />

sufficiently across all demographics to provide professional<br />

financial planning and advice for all. We need a more<br />

diverse membership base to serve all South Africans better.<br />

Some of the issues have already been highlighted in this<br />

interview (awareness of the profession, recognition of our<br />

professional members by employers, funding for students<br />

to study and join the profession, to name but a few).<br />

• In most professions, completing the required CPD hours to<br />

remain competent and in good standing within a profession<br />

seems to be problematic. This is because it is seen as a<br />

compliance burden rather than a strategic advantage.<br />

Mindsets around CPD must change: it should not be a<br />

tick-box approach, but an opportunity to set yourself apart<br />

from the rest by ensuring that your personal development<br />

plan speaks to the areas that you need to grow in. CPD should<br />

be strategically aligned to what your financial institution or<br />

practice is trying to achieve.<br />

In achieving its mission, FPI has identified six actions that<br />

it seeks to undertake. We have questions specific to each of<br />

these actions:<br />

1. Improving the quality and accessibility of professional<br />

financial planning for all in Southern Africa. How do you<br />

see people who can’t afford to pay for financial planning<br />

getting access to professional advice for free rather than<br />

becoming victims of “financial advisors” who are just<br />

salespeople wanting to sell products to them?<br />

Financial inclusion and access to quality advice is a global<br />

problem. What we must appreciate is that there will<br />

always be some form of fee that a client will have to pay<br />

to access financial services (products, advice, etc). These<br />

fees present themselves in many shapes and forms – from<br />

regulated commissions to fees for advice to fees for assets<br />

under management (AUM). As per the discussion above, the<br />

regulatory environment has been enhanced to make it clear<br />

what a provider or representative may charge for advice and<br />

related services.<br />

We must look at national models where access to<br />

advice and paying an advice fee could be an allowable tax<br />

deduction, for instance. Another way is to allocate more<br />

www.bluechipdigital.co.za<br />

23


BLUE<br />

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FPI<br />

B-BBEE points to consumer education via the Financial Sector<br />

Charter and relevant B-BBEE scorecards.<br />

FPI members provide pro bono advice from time<br />

to time, especially during Financial Planning week (in<br />

October) and on World Financial Planning Day. FPI was at<br />

Leaderex 2022 where a few of our professional members<br />

assisted the public with pro bono financial advice. These<br />

volunteers are all licenced to provide financial advice as<br />

per prevailing FSCA regulations.<br />

Consumers can visit www.letsplan.co.za for financial<br />

education and literacy to assist them with basic financial<br />

decisions – from budgeting to understanding what saving<br />

and retirement planning are about.<br />

Consumers can also locate FPI professional members here<br />

and also verify FPI memberships.<br />

2. Acting as advocate for professional financial planning,<br />

building a recognition of the importance and need for<br />

such planning by the public. What are your key initiatives<br />

in this regard?<br />

FPI has a set advocacy and public policy strategy where<br />

we actively take part in relevant regulatory discussions to<br />

create awareness of the importance of financial planning and<br />

professional financial advice to the public.<br />

We add well-considered public comment into draft<br />

regulations, with the active support from our highly<br />

competent members, especially our various competency<br />

committees and Advocacy Committee.<br />

In terms of the public recognising the importance of<br />

financial planning and professional financial advice, we offer<br />

our FPIMyMoney123 programme.<br />

The FPI network, which consists of FPI volunteers and<br />

ambassadors, undertakes quite a few media interventions<br />

and writes in a number of publications to assist with financial<br />

planning awareness. We provide a quarterly newsletter that<br />

updates consumers on relevant financial matters.<br />

These are a few of the key initiatives in this space.<br />

3. Providing a framework within which members can achieve<br />

qualifications and maintain competence to create greater<br />

value for their clients, practices and employers. Will<br />

financial planning ever be on the same footing as other<br />

professions if there is no single professional qualification<br />

standard required of anyone giving financial advice?<br />

The above FPI mission statement is with specific reference to<br />

the profession and not the industry at large. The framework<br />

that is referred to here is for anyone that wants to become<br />

a professional member of FPI. The framework consists<br />

of proper qualifications from NQF5 to NQF8 at FPI and<br />

recognised educational providers based on our published<br />

financial planner and financial advisor curriculums. Visit<br />

www.fpi.co.za.<br />

24 www.bluechipdigital.co.za


FPI<br />

BLUE<br />

CHIP<br />

We should not confuse what a financial<br />

planner does with what someone who is not a<br />

member of FPI does. This is the precise reason<br />

FPI is seeking regulatory protection of the<br />

term Financial Planner. Not everyone can call<br />

themselves a financial planner, especially if they<br />

do not meet the stringent global certification<br />

standards that are based on the Financial<br />

Planning Standard Board (FPSB).<br />

It is also important to note Proposal T in the<br />

RDR as well as FSCA’s Advisor Categorisation<br />

paper (Section 5). A financial advisor who is not<br />

a professional member of FPI must be licensed<br />

with FSCA in terms of the FAIS Act. There are<br />

clear competency requirements for someone<br />

who is licenced with the FSCA via BN 194 of<br />

2017. I feel that the regulator has done a lot in<br />

this space, from the days when a mere “30/60<br />

FAIS credits” were needed to currently where<br />

a full relevant qualification is required. We<br />

also need to appreciate the direction that the<br />

Conduct of Financial Institutions (COFI) under<br />

the twin peaks model is moving to. It is about<br />

moving to a more principle-based environment<br />

as COFI is built on the eight Treating Customers<br />

Fairly (TCF) principles.<br />

A financial planner is a<br />

professional that guides you<br />

over a period of years to realise<br />

your financial goals and is<br />

there when life happens.<br />

We are sitting with a legacy problem where there was no<br />

firm framework to ensure that financial advisors obtained<br />

qualifications that were relevant to what a financial advisor<br />

does. The FSCA is revising the competency framework<br />

as part of their harmonisation project that is currently<br />

underway. An interesting study to read is the one FPI did<br />

with SAQA in 2016 around the need for FPI’s financial advice<br />

designations. Since then, FPI has set specific codified<br />

education standards for financial advisors that want to<br />

become members of FPI via our REGISTERED FINANCIAL<br />

PRACTIONER (RFP) or FINANCIAL SERVICES ADVISOR<br />

(FSA) SAQA registered designations.<br />

The second part of the above mission statement refers<br />

to CPD. FPI provides more than 35 hours of complimentary<br />

CPD webinars to FPI professional members to enable them to<br />

remain technically strong in the various fields of financial<br />

planning. We also provide online courses, conferences<br />

and technical workshops to ensure that robust peer<br />

collaboration also takes place.<br />

4. Ensuring that members maintain the highest ethical<br />

standards in the pursuance of their profession –<br />

education is often seen as the way to ensure ethical<br />

standards but the reality is that product providers often<br />

provide incentives (intentional or otherwise) which can<br />

compromise the ethics of financial advisors. What is FPI<br />

doing about this?<br />

I will first focus on a broader industry response, then<br />

an FPI-specific one: Here we need to take note of the<br />

regulatory journey that started with the publication<br />

of 55 RDR proposals that came out in November 2014.<br />

In keeping to the point, Section 3A of the General<br />

Code of Conduct (BN 80 of 2003) was updated quite<br />

significantly in June 2020 to address this behaviour<br />

within the financial service industry.<br />

FPI can only address the behaviour of our professional<br />

members via the FPI Code of Ethics and Practice Standards<br />

as well as our published disciplinary regulations.<br />

Professional members of FPI have a specific duty to ensure<br />

that they always act in the best interest of their client and<br />

do not serve any other ulterior motives such as a cheap<br />

boat cruise to the Bahamas or a free plane ticket.<br />

FPI sits on the market conduct committee at the FSCA<br />

and a few other relevant regulatory committees where<br />

we actively participate in discussions that move the<br />

financial services sector forward and address risks that<br />

face the financial advice sector.<br />

5. Providing a leadership role within financial services by<br />

providing balanced, credible input and commentary to<br />

government and the public. How do you achieve this?<br />

FPI has a specific public policy strategy as well as<br />

advocacy goals that we are driving. We provide wellconsidered<br />

public comment into regulations published<br />

by National Treasury, FSCA, Financial Intelligence Centre<br />

and Council for Medical Schemes, to mention a few. We<br />

do this with the exceptional support of our competency<br />

and advocacy committees.<br />

6. Facilitating transformation within the profession. We have<br />

already asked a question on this. Do you have anything<br />

to add?<br />

FPI facilitates diversity and inclusion in the profession via<br />

the mechanisms mentioned above. It is important that<br />

we focus not just on race, but on male vs female, various<br />

mindsets and different competencies and skills that people<br />

bring to the table for the greater good of all. <br />

www.bluechipdigital.co.za<br />

25


BLUE<br />

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FINANCIAL PLANNER OF THE YEAR<br />

WINNERS ALWAYS WIN<br />

The Financial Planner of the Year Award was launched in 2000 and is the most<br />

prestigious award in the industry. It recognises the country’s top CERTIFIED<br />

FINANCIAL PLANNER® – a stellar professional who exhibits revolutionary ideas,<br />

consummate skill and unimpeachable ethics when dealing with clients.<br />

On 19 October 2022, the Financial Planning<br />

Institute of Southern Africa (FPI) will be hosting<br />

the prestigious awards ceremony where excellence<br />

in the financial planning profession is recognised.<br />

This event endeavours to acknowledge extraordinary CFPs®<br />

from across Southern Africa that demonstrate innovation,<br />

professionalism and commitment to both their clients and<br />

the financial planning profession.<br />

Meet the finalists of the Financial Planner of the Year<br />

Award 2022.<br />

PALESA DUBE, CFP®<br />

Director and Wealth Manager, Wealth Creed<br />

How has the process of applying for the Financial Planner<br />

of the Year Award benefitted your business? Have you<br />

made any significant changes to your business during the<br />

application process?<br />

The application process was a wonderful opportunity<br />

to assess our financial planning approach as well as our<br />

internal processes. It was also a great affirmation that we<br />

are certainly on the right track and that our client centricity<br />

is key.<br />

It did, however, also highlight the extent to which our<br />

industry remains fragmented, resulting in clients typically<br />

having to consult several professionals to address all aspects<br />

of their financial and risk management. To tackle this, our<br />

approach is to collaborate with other professionals in aspects<br />

we are not licensed to give advice on or if another skill set<br />

is required. This is an area we will be<br />

focusing on so that clients receive a<br />

more seamless value proposition.<br />

Do you believe that the FPI can improve<br />

the selection process in any way?<br />

For practicing financial planners, it is<br />

always a challenge to strike a balance<br />

between the information that the<br />

regulations require us to disclose to<br />

clients in the advice proposal document<br />

versus what clients can meaningfully<br />

grasp. A key take-away for me was to<br />

find a good balance between the two<br />

and importantly still use a format and<br />

language that clients can understand.<br />

Palesa Dube, CFP®, Director<br />

and Wealth Manager,<br />

Wealth Creed<br />

26 www.bluechipdigital.co.za


FINANCIAL PLANNER OF THE YEAR<br />

BLUE<br />

CHIP<br />

it was to use my expertise for the benefit of the community from<br />

which I emanate. With this mission, our goal is to continue to grow<br />

our practice and ultimately have a presence nationally.<br />

I also believe that one of the most important contributions we<br />

can make as professionals is to place people in a position to make<br />

informed financial decisions for themselves. It’s vital therefore<br />

that we contribute our time and efforts to financial literacy and<br />

inclusion initiates, which is an area our practice and I, personally,<br />

are passionate about.<br />

One of the most important contributions<br />

we can make as professionals is to place<br />

people in a position to make informed<br />

financial decisions for themselves.<br />

What are the changes you would like to see in the financial<br />

planning industry?<br />

I think we need to take pride in the strides we have made in the<br />

industry over the years. When I started my career 18 years ago, the<br />

conversation was around moving from a product-led to a clientcentric<br />

industry with professionals that adhere to high ethical<br />

standards and use their technical skills to positively impact the<br />

lives of the clients we serve. The CFP® designation as well as the<br />

more recent RFP TM and FSA TM designations are a clear indication<br />

of our commitment to further professionalising the industry. The<br />

ball is now in our court as practising members to increase the<br />

prominence of these designations by proudly associating with<br />

them and living up to the high standards required of us by our<br />

peers and importantly the broader community we serve.<br />

What are your long-term objectives – including those on<br />

diversity and inclusion?<br />

One of the pivotal reasons for us starting an independent wealth<br />

management firm was so that we would be able to provide holistic<br />

financial planning services of a high standard to a broader base of<br />

the community, where our eye would remain solely on improving<br />

the lives of our clients. More importantly, for me as a black female,<br />

TOM BRUKMAN, CFP®<br />

Retiremeant Specialist and Director, Chartered Wealth<br />

Solutions<br />

How has the process of applying for the Financial Planner of the Year<br />

Award benefitted your business? Have you made any significant<br />

changes to your business during the application process?<br />

The process of applying for the Financial Planner of the Year Award<br />

has benefitted my business immensely. It has really allowed me<br />

to see “the wood from the trees” in that you start to view every<br />

aspect of your business with a different lens.<br />

One of the most significant changes I have made in my business,<br />

during the application stage, has been to really define what<br />

my succession planning strategy entails. Not only has this been<br />

important to detail in writing but it is important to communicate it<br />

(once defined) to staff and clients. The clarity on continuation and the<br />

growth of the business, for both staff and clients, has been hugely<br />

positive.<br />

Do you believe that the FPI can<br />

improve the selection process in<br />

any way?<br />

I do think there are benefits to holding<br />

panel interviews in person. I know<br />

this comes with a cost, but I think<br />

a deeper understanding of who the<br />

candidate is and what they stand for<br />

can come across more authentically<br />

in person. The FPI could potentially<br />

work on turnaround times to help<br />

the candidates plan ahead if they do<br />

make it further into the competition.<br />

Tom Brukman, CFP®,<br />

Retiremeant Specialist and<br />

Director, Chartered Wealth<br />

What are the changes you would<br />

Solutions<br />

like to see in the financial planning industry?<br />

I would like to see a more legal definition for a financial<br />

planner that incorporates the CFP® designation. This will<br />

www.bluechipdigital.co.za<br />

27


BLUE<br />

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FINANCIAL PLANNER OF THE YEAR<br />

help the consumer-at-large understand the difference in<br />

professionalism and quality that is available to them in the<br />

advice space. I also think that the role of a financial planner<br />

is extremely diverse, and it is important that this gets more<br />

defined for both financial planners and clients. Financial<br />

planners and clients need to know where to draw the line<br />

from an advice perspective.<br />

What are your long-term objectives – including those on<br />

diversity and inclusion?<br />

My long-term objectives are to continue building a financial<br />

planning practice that always puts the client first. To do<br />

this, I am driven to build an inclusive and diverse team of<br />

passionate colleagues who learn that the role we hold in<br />

someone’s life is so valuable and important.<br />

I believe that I need to set our business clear and<br />

achievable diversity and inclusive goals from a staff,<br />

provider and client perspective, if we want to see this<br />

business grow and flourish in the long term. Upskilling,<br />

mentoring and sponsoring will always be a cornerstone of<br />

how we manage all staff that join my business.<br />

I am driven to build an inclusive<br />

and diverse team of passionate<br />

colleagues who learn that the<br />

role we hold in someone’s life is<br />

so valuable and important.<br />

HENDRIK SPIES, CFP®<br />

Chartered Accountant (SA), Principal of Spies & Associates,<br />

Old Mutual PFA<br />

How has the process of applying for the Financial Planner<br />

of the Year Award benefitted your business? Have you<br />

made any significant changes to your business during the<br />

application process?<br />

Applying for the award has given me an opportunity to<br />

step back and reflect on how far I have come as a CFP®<br />

professional. At the same time, it has also given me an<br />

opportunity to envision an even brighter future for my<br />

practice. The application process has once again made<br />

me appreciate the importance of the CFP® professional<br />

credentials. It has also inspired my three partners to enrol<br />

for the qualification next year.<br />

Do you believe that the FPI can improve the selection process<br />

in any way?<br />

I believe that all CFP® professionals should automatically be<br />

included in the selection process. I am convinced that there<br />

are many more amazing CFP® professionals out there with<br />

strong practices from whom we can learn a great deal. If the<br />

FPI can visit some of these practices in person and spend time<br />

with them, I believe it would further enhance the prestige<br />

Ours is not simply an industry; it is a<br />

profession which can and should be<br />

ranked amongst the best of professions.<br />

that is already connected to this fantastic award. It will be my<br />

absolute privilege to be part of such a process in future.<br />

What are the changes you would like to see in the financial<br />

planning industry?<br />

For me, it all comes down to education. One obviously<br />

needs an education to become a CERTIFIED FINANCIAL<br />

PLANNER®, but I believe education is much more than that.<br />

As CFP® professionals, we have a duty to educate the public<br />

on why it is so important to use a CERTIFIED FINANCIAL<br />

PLANNER®. We also have a duty to show the wider financial<br />

planning industry that ours is not simply an industry; it is a<br />

profession which can and should be ranked among the best<br />

of professions. In 2018, I joined two clients to start a school in<br />

my area. Today our school educates more than 150 learners.<br />

My dream is to see CFP® professionals rise from the ranks of<br />

these learners in 20 years from now.<br />

What are your long-term objectives – including those on<br />

diversity and inclusion?<br />

My team and I are on a drive to grow our practice over the next<br />

two years by employing young planners and assisting them on<br />

their journey to qualify as CERTIFIED FINANCIAL PLANNERS®. I<br />

know there are many young planners out there who, with the<br />

right guidance, can become successful<br />

CERTIFIED FINANCIAL PLANNERS®, and<br />

my team and I see it as our responsibility<br />

to assist this next generation of CFP®<br />

professionals. Our goal is to help these<br />

young planners build their own practices<br />

– an initiative which obviously benefits the<br />

younger planners, but more than that: it<br />

also paves the way to a future where more<br />

clients can be reached and given access to<br />

quality financial advice.<br />

This is especially important in a country<br />

like South Africa where we have a very<br />

diverse population, both economically and Hendrik Spies, CFP®,<br />

socially. To ensure that every South African Chartered Accountant<br />

has access to quality financial advice, it is (SA), Principal of Spies &<br />

our responsibility to help create a diverse Associates, Old Mutual PFA<br />

group of CERTIFIED FINANCIAL PLANNERS®.<br />

At the end of the day, this is what financial planning is<br />

all about – changing people’s lives. How fortunate are we<br />

to be in a position where we can make a real difference. My<br />

dream is for more people to understand this and make it<br />

their daily goal. <br />

28 www.bluechipdigital.co.za


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The smart solution for financial<br />

advisors by financial advisors<br />

What does the future of financial planning look like? If you ignore all the noise, the changes,<br />

the regulations and the economic environment, one thing becomes very clear: the upcoming<br />

generation of financial planners is passionate about the industry, clients and the profession.<br />

By Nici Macdonald, CFP®, HOD: Certifications and Standards, Financial Planning Institute of Southern Africa<br />

We are, however, finding that not enough<br />

young planners are entering the industry<br />

and some of those who do come through<br />

the pipeline get lost to other industries.<br />

This means that diversity, in terms of age and race, of the<br />

financial planning community is suffering. If you consider<br />

that only 30% of professional FPI members are under 40<br />

years old, and only 6% of those are younger than 30, this<br />

fact is clearly illustrated.<br />

I was told a story the other day of a bright young<br />

financial planning student at one of our local universities<br />

who graduated with honours and started his career with<br />

enthusiasm. His lecturers had high hopes that he would<br />

be wildly successful and make a big impact in the industry.<br />

A year later, his lecturer bumped into him at a club where he<br />

was a DJ.<br />

It turned out that his first job in financial advice was a<br />

horrible experience. He was given very little training, high<br />

targets and no support. This student, now completely<br />

disillusioned, will never practice financial planning again.<br />

What a loss for our industry.<br />

Two of the main reasons why these young planners do<br />

not stay in the industry is lack of support and opportunity.<br />

To successfully start a financial planning or financial advisor<br />

practice, you need to either have a solid client base or<br />

a network to build one from. Alternatively, you need the<br />

capital to buy into an existing practice or succeed a retiring<br />

financial planner. In many cases, these young planners<br />

30 www.bluechipdigital.co.za


There are very few things more rewarding<br />

than seeing someone grow and<br />

knowing that you had a part in it.<br />

are first-generation graduates without<br />

many of the resources needed to build a<br />

business in this manner.<br />

Support for a young financial planner<br />

should not just be financial, but also<br />

professional and emotional. It can be<br />

quite daunting for a graduate to step into<br />

their first workplace and be expected to<br />

learn the ropes of a professional business<br />

in a very short time span. The successful<br />

learnership programmes focusing on<br />

developing talent in our industry take<br />

a minimum of three to four years for<br />

candidates who have already completed<br />

a post-graduate qualification. This is a<br />

long time.<br />

How can the FPI assist in addressing this<br />

issue?<br />

We are passionate about mentorship. We<br />

need to use the existing skills, knowledge<br />

and abilities in the industry to help build<br />

the next generation of financial planners,<br />

via knowledge transfer.<br />

The FPI has a fully developed and<br />

structured mentorship programme,<br />

designed to run over a minimum period<br />

of 12 months to assist in training a new<br />

industry entrant in all aspects required to become a fullyfledged<br />

financial planner. This programme is based on the<br />

FPI Practice Standards (the six steps of financial planning),<br />

combined with the six areas of financial planning (financial<br />

management as well as estate, tax, retirement, investment and<br />

risk planning).<br />

The programme is available to our CERTIFIED FINANCIAL<br />

PLANNER® (CFP) professionals free of charge. The FPI assists<br />

in implementing the programme into your practice and<br />

guides you on the process to be followed. Completing<br />

the mentorship programme can be instrumental in<br />

ensuring that a young entrant in your practice attains all<br />

the knowledge, skills and abilities needed to become a<br />

successful financial planner.<br />

Another benefit of this programme is that a young entrant<br />

who does not yet qualify to apply for the CFP® professional<br />

designation due to not meeting the experience requirement<br />

(three years) can overcome this by formally completing the<br />

mentorship process. This is attained through structured<br />

feedback to the FPI at regular intervals and submitting a<br />

portfolio of evidence to be assessed by the FPI (at a fixed cost)<br />

on completion of the programme. Should this assessment<br />

show that the candidate is competent in the tasks assigned in<br />

the programme, he or she will be deemed to have attained the<br />

experience needed to become a CFP® professional.<br />

What is expected from a mentor?<br />

The process takes time and commitment from both the mentor<br />

and mentee. The words “deliberate mentorship” come to mind. A<br />

plan must be put in place, goals need to be set and progress has<br />

to be tracked.<br />

In your practice, the mentorship can form part of the office<br />

structure. Leverage the knowledge your assistants, practice<br />

manager or other financial planners have. Harness the time of<br />

your product provider consultants and specialist consultants.<br />

Use Continuous Professional Development (CPD) opportunities<br />

to instill learning. Spend time with your mentee to teach them<br />

the soft skills that you have learnt over the years.<br />

Why do I do this?<br />

There are very few things more rewarding than seeing<br />

someone grow and knowing that you had a part in it. Not<br />

only will you be transferring the knowledge, skills and abilities<br />

you have acquired, but you will also strengthen your own<br />

skills and maybe learn some new ones through the process.<br />

Should you mentor a new entrant into your practice, you<br />

will obtain a valuable resource to help your own business<br />

grow and have more efficient and productive employees. The<br />

mentees can also continue the mentorship process, which will<br />

exponentially increase the benefit to the industry and to the<br />

clients we serve.<br />

I want to encourage everyone to start today to make<br />

this industry better by practicing deliberate mentorship.<br />

Ask yourself what you can share, put a plan together and<br />

set the time aside to make sure it happens. By doing this,<br />

we will consciously and intentionally grow the financial<br />

planning industry.<br />

Contact us today at certification@fpi.co.za or 011 470 6000<br />

to find out how you can get involved.<br />

www.bluechipdigital.co.za<br />

31


Tax Planning<br />

2022


For more information call us on +27 (11) 470-6000 or email: events@fpi.co.za<br />

www.fpi.co.za


BLUE<br />

CHIP<br />

FINANCIAL PLANNER OF THE YEAR<br />

ROCKET FUEL<br />

A reflection on winning the FPI Financial Planner of the Year Award.<br />

Winning the FPI’s Financial Planner of the Year in 2011<br />

was one of the best experiences I have ever had.<br />

The award profoundly changed my personal and<br />

professional life. It remains a mystery to me that we<br />

don’t see many more CFPs® entering the competition every year<br />

– my experience is that if you put in the work, you stand an equal<br />

chance of winning. Even if you don’t succeed in your first year, you<br />

learn so much about yourself, your practice and your professional<br />

abilities that the effort is worthwhile.<br />

OUTSIDERS CAN WIN<br />

In the years before I entered, most of the winners had come<br />

from large practices or had links to a particular product provider<br />

that greatly assisted them in preparing for the competition. The<br />

cynic in me made me feel that the competition was a bit of a<br />

closed shop to financial planners who were not part of the “club”.<br />

In addition, our business was relatively small, quite new and we<br />

were not heavily involved in the financial planning community –<br />

we were outsiders in every sense.<br />

John Campbell of Chartered Wealth, who won the competition<br />

before me, told me I was being silly not to enter because I stood<br />

a good chance of winning if I prepared adequately, so I finally<br />

took the leap in 2011. This gave me the push I needed and I was<br />

thrilled to win on my first attempt. The format of the competition<br />

has changed over the years, but one fundamental principle has not<br />

changed: anyone can win if they do the work.<br />

PREPARATION IS KEY<br />

I realised that our financial planning practice would be a significant<br />

component of the competition once I started investigating what<br />

was required of me to enter the contest. Every aspect of our<br />

business needed to be competition-ready as the judges were not<br />

solely focused on me but also our practice. It took a lot of hard work<br />

to prepare our practice to be battle-ready.<br />

I had many doubts because we were not a big business and I was<br />

not sure we would be able to compete with the more prominent<br />

players in the industry. However, I had great faith in my colleagues,<br />

our clients and the high-quality financial planning processes we<br />

had built since we started the business. Fortunately, the judges<br />

were extremely fair, and our size was no disadvantage.<br />

ROCKET FUEL<br />

There were some surprising benefits to winning. Our existing<br />

clients seemed to delight in the award because they felt party to<br />

the success. The increased confidence instilled in my colleagues<br />

was also surprising; they realised we could compete with the “big<br />

boys” on an equal footing. Media houses started calling to ask for<br />

interviews and I was even profiled in You magazine. This turned out<br />

to be vital because it impressed my mother-in-law’s friends, winning<br />

me many brownie points at home. Our business flourished; a more<br />

prominent media profile and greater self-confidence in our planners<br />

was a dream combination. We were able to convince many new<br />

clients to partner with us on their financial journeys.<br />

REFLECTION<br />

We must be proud of our profession and Financial Planner of<br />

the Year shines a spotlight on the best professionals in our<br />

country. I firmly believe we compete with the best financial<br />

planners in the world. While awards are not a destination, they<br />

are a valuable way of benchmarking yourself and your practice.<br />

Knowing if you run a great business without opening yourself<br />

up to external scrutiny is impossible. I can think of no better<br />

benchmark than Financial Planner of the Year. I encourage anyone<br />

who aspires to be a high-quality professional to enter. There are<br />

so many benefits and so few downsides that the time spent on<br />

preparation is rewarded many times over. It is essential to know<br />

that this competition is a group effort; you cannot win without a<br />

brilliant team to support you.<br />

ONLY ONE DISAPPOINTMENT<br />

People ask if there are downsides to being the Financial Planner<br />

of the Year. I cannot think of any. You need to budget some extra<br />

time for public talks to raise the public profile of our profession.<br />

This helps you, our profession<br />

and the public to know more<br />

about us. In the years since I<br />

won, my only disappointment<br />

is watching some winners use<br />

the award to find themselves a<br />

better job or build their business<br />

without taking the time to give<br />

back. If you win this, please<br />

allocate some time to talk to<br />

other financial planners about<br />

our profession and encourage<br />

more people to become CFPs®<br />

so we can continue building our<br />

great profession. <br />

Warren Ingram CFP®, Co-founder,<br />

Galileo Capital<br />

34 www.bluechipdigital.co.za


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BLUE<br />

CHIP<br />

INVESTMENT<br />

RISKY<br />

BUSINESS<br />

Shopping for a new car, iPhone or laptop is a relatively<br />

straightforward affair. You generally know what you are<br />

looking for, you have a budget in mind, and you can set<br />

off on your search and narrow down the options quite<br />

quickly. Upon selecting the desired product of choice, you would<br />

have clear expectations around performance and function, which<br />

are captured in a product warranty.<br />

Should any feature of your recent purchase fail to meet<br />

expectations there is a clear path to evaluate where your<br />

product has failed to deliver. In this case, the provider<br />

should hopefully back up their product with a remedy or a<br />

replacement. It’s not always as simple a process as this, but<br />

for the most part, consumers are empowered to make choices,<br />

to evaluate performance and have recourse should things not<br />

turn out as expected.<br />

The investment industry does not work like this. The<br />

key distinction is that while the industry offers “investment<br />

products” such as unit trusts, retirement funds and the like, it<br />

is in fact a service and not a product which investors receive.<br />

The main implication which we are focusing on here is that the<br />

investor assumes the risk of success, rather than the product<br />

provider. There is no recourse should a particular fund or<br />

product fail to meet expectations over time.<br />

This highlights the topic of “investment risk”. Where the<br />

investor is taking on the burden of putting their own capital at risk<br />

to meet their objectives, guided and serviced by the industry,<br />

the concept of risk can be a vague and mis-used term which can<br />

serve to undermine good investment outcomes. In the absence<br />

of a sound understanding of risk, it is likely that investors will<br />

be more conservatively invested than they otherwise should<br />

be. In the short term, it may seem like this is a small trade-off;<br />

however, it is only over extended horizons that this cost can be<br />

fully observed.<br />

SIMPLIFYING RISK<br />

To help ground this concept of risk, it is helpful to start by<br />

clearing up the use of the term “risk”. For different participants,<br />

risk can mean:<br />

• The potential to lose money permanently. An example here would<br />

be through insolvency (African Bank) or even fraud (Steinhoff or<br />

Ponzi schemes such as Sharemax). This is contrasted with losing<br />

money temporarily – a very normal occurrence in investing<br />

where share prices move up and down on a continuous basis.<br />

• A length of time, where “low risk” is often linked to short time<br />

periods such as 12 months and “high risk” is linked to long time<br />

periods such as five years.<br />

36 www.bluechipdigital.co.za


INVESTMENT<br />

BLUE<br />

CHIP<br />

• The variability of returns. How much portfolio values change each<br />

day, month or year. Shares on the JSE for example fluctuate wildly<br />

compared with the return earned on a bank deposit.<br />

The term “risk” is often used as a catchall. Yet, the three<br />

examples above have materially different interpretations and<br />

understanding the implications for each is critical to maintaining<br />

a proper investment plan.<br />

CAPITAL AT RISK<br />

When we consider portfolio construction, we are assessing the<br />

potential to lose capital permanently. In a perfect world, capital<br />

loss would be avoided in its entirety, yet this is probably an<br />

unrealistic expectation. With thousands of listed companies,<br />

debt instruments, property REITs and the like, there is always<br />

the potential for a company to face severe financial pressures<br />

that can result in capital loss. So how can we mitigate this? There<br />

are several ways, the most effective of which is diversification.<br />

Spreading your capital over an extended range of assets, so that<br />

if any individual breaks rank it does not have an oversized impact<br />

on the total portfolio.<br />

The second way we can mitigate this is by using strong<br />

investment managers who have robust research and due diligence<br />

processes to mitigate or avoid any of these financial failures. With<br />

a properly diversified portfolio, the potential for small capital<br />

losses can be tolerated and offset with a much broader set of<br />

instruments which add value. And this is the key point: you<br />

need to be able to stomach some permanent losses to be able<br />

to access the types of investments which ultimately do the job<br />

of building wealth. Over a 10-, 20- or 30-year investment horizon<br />

it is likely you will experience some permanent capital loss. It is<br />

worth pointing out though, that by far the biggest “loss” would<br />

be an approach to investing which tries to avoid any form or loss<br />

whatsoever, and where the investor is underinvested in higher<br />

return assets such as shares for long periods of time.<br />

TIME IS YOUR FRIEND<br />

Extended investment time horizons are the primary fallback for any<br />

investment portfolio. The ability to let investment returns average<br />

out over long periods of time means that you increase your odds<br />

of success just by remaining invested, as any short-term anomalies<br />

(eg Russia/Ukraine conflict, Nenegate, rising inflation) are overrun<br />

in time by the return generators underpinning a portfolio: earnings,<br />

dividends and income yield.<br />

As an industry though we don’t do ourselves any favours here.<br />

“Long term” is often perceived as five years, for instance. This is not<br />

a long period of time: five years ago, we were uncovering the Gupta<br />

leaks, Jacob Zuma was still president and Steinhoff was about to<br />

make the headlines. Tested properly, “long term” should rather be<br />

defined as 30 years. This is a period which allows the short- and<br />

medium-term dynamics which shift portfolio values to average<br />

out to a more “reliable” outcome – something closer to what a<br />

product provider offers with their warranty system. The trouble<br />

is most investors are not aligned to this period in holding their<br />

financial service provider accountable.<br />

When we consider portfolio<br />

construction, we are assessing the<br />

potential to lose capital permanently.<br />

More often it is short-term, recent events which raise questions<br />

around performance. This can induce investment decisions<br />

without fully considering the real long-term implications.<br />

It is easy to agree that longer-term horizons are safer or<br />

lower risk, than shorter-term horizons, particularly when<br />

considering investments such as shares. The difficult part is<br />

acknowledging as such, and factoring this in when evaluating<br />

portfolio returns.<br />

For instruments such as bank deposits or money market<br />

funds, there is relative certainty in terms of investment outcome<br />

over short horizons such as six or twelve months, which is<br />

distinct from the capital risk within (these assets are tied to just<br />

a handful of banks for example – a poorly diversified portfolio<br />

structure which would be higher risk in that sense).<br />

WHAT GOES UP DOES COME DOWN, AND THEN GOES UP AGAIN<br />

A particularly cryptic investment term is that of “volatility”. Risk<br />

is often equated with this term to demonstrate how unreliable<br />

returns are. This is not really an accurate way to define risk either.<br />

Given two options, which is the higher risk portfolio?<br />

1. A portfolio consisting exclusively of rand-based loans<br />

to Eskom which only require paying back in a decade’s<br />

time, or<br />

2. A portfolio consisting of 2 000 global shares ranging<br />

from Microsoft to Apple to Alibaba?<br />

Eskom bonds run at around half of the volatility of the global<br />

equity portfolio. Does this mean they are half as risky? No, it<br />

doesn’t. The diversification of a wide range of equities, held<br />

across different geographies and industries provides substantial<br />

risk management benefits, provided you have the longer-term<br />

perspective to recognise as such. Relying on a single issuer, such<br />

as Eskom, can spell disaster for an investment portfolio.<br />

There are numerous other examples here as well: investors<br />

looking for low risk often end up invested in local income funds,<br />

where the return profile is consistent and appears to provide<br />

stability; ultimately the underlying assets rely on South Africa<br />

trading as a going concern, the rand maintaining a decent level<br />

of value, and the economy continuing at a sufficient pace to<br />

www.bluechipdigital.co.za<br />

37


BLUE<br />

CHIP<br />

INVESTMENT<br />

Upside without the<br />

downside is the perfect<br />

sales pitch for any<br />

investor, but rarely<br />

does this ring true.<br />

allow debt issuers to repay their loans. This is quite a narrow set<br />

of major events which all need to remain intact, unlike the global<br />

equity portfolio which can weather many a storm and still retain<br />

value for investors.<br />

It is not the short- or medium-term variability of portfolio<br />

values which characterises risk, but rather the likelihood that<br />

you, as an investor, get to earn the return you seek. The higher<br />

that likelihood, the lower the risk.<br />

BEWARE THE FREE LUNCH<br />

Unfortunately, while the industry does not offer warrantees<br />

as standard fare on its investment services, it does tend to<br />

create attractive products which rely on the risk aversion/<br />

wealth-seeking investor desires. Upside without the downside<br />

is the perfect sales pitch for any investor, but rarely does this<br />

ring true. Products such as hedge funds and many structured<br />

products can sound attractive at first, by promising positive<br />

returns without the downside. If this were the case, wouldn’t<br />

all investor assets have migrated there by now? Most often<br />

the risks are just a little opaquer, and the costs higher, often<br />

offsetting what benefit there may be.<br />

LIVING WITH RISK<br />

Back to our service versus product conundrum. The investment<br />

industry offers a long-term service, best measured over three<br />

decades to provide a warranty-level of comfort to investors.<br />

Investors are hoping for shorter-term certainty and are often<br />

poorly communicated to by the industry. This conflict is the<br />

source of enormous amounts of industry effort to help align<br />

expectations, but “never the twain” shall meet.<br />

As service providers to investors, we can start by<br />

communicating better and the topic of “risk” is one such<br />

example of a potentially damaging concept which, when used<br />

without due regard for its impact, can cause harm to portfolios.<br />

As a financial planner, asking yourself and your client simple<br />

questions can help mitigate the real risk in investing:<br />

• Is your client’s portfolio adequately<br />

diversified?<br />

• Do you and your client recognise<br />

the potential cost of being too<br />

conservative?<br />

• Are you and your client being<br />

objective about your client’s<br />

portfolio when markets are behaving<br />

erratically?<br />

• Does your client fully understand the<br />

implications of changes they or you<br />

wish to make to their portfolio?<br />

Better awareness of, and co-existence<br />

with, investment risk will result in better<br />

investment outcomes. Guaranteed. <br />

Peter Foster, Chief Investment<br />

Officer, Fundhouse<br />

38 www.bluechipdigital.co.za


TBWA\HUNT\LASCARIS 935099<br />

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or visit our website.


BLUE<br />

CHIP<br />

DFM<br />

Choosing a<br />

Discretionary<br />

Fund Manager<br />

(and platform)<br />

Florbela Yates, Head of Equilibrium<br />

Advisors are continuously partnering<br />

with discretionary fund managers<br />

(DFMs) for a variety of reasons. The<br />

main reason cited by advisors being<br />

the lack of time. South Africa has one of the<br />

most regulated investment industries, which<br />

means advisors are spending more time on<br />

compliance and less on doing what matters<br />

most – giving advice and spending time<br />

with their clients. By recognising that their<br />

value rests in evaluating clients’ personal<br />

circumstances and determining their unique<br />

needs, advisors are increasingly partnering<br />

with investment experts to ensure that their<br />

clients’ investment needs are consistently<br />

met. The partnership with a DFM not only<br />

saves the advisor an enormous amount of<br />

time, but also ensures that all the investment<br />

considerations are met.<br />

At Equilibrium, our range of services<br />

includes strategic and tactical asset allocation,<br />

strategy optimisation, risk management,<br />

manager research, fund and mandate design,<br />

portfolio optimisation, as well as consolidated<br />

reporting. We take care of everything to do with<br />

investments for our advisor partners. By using


DFM<br />

BLUE<br />

CHIP<br />

our consolidated monthly fact sheets and quarterly investment<br />

reports advisors can speak with conviction about the performance<br />

and expected returns from the various portfolios. Essentially, we<br />

become an extension of their advice practice.<br />

Advisors often cite the fact that we save them time as one<br />

of the key advantages of using a DFM. This is because we<br />

essentially become their personal investment team – taking<br />

on all the investment functions, from constructing portfolios,<br />

getting them loaded on their preferred platforms, managing<br />

both the rebalancing and compliance, as well as running the<br />

investment committees. The industry has a huge shortage of<br />

key individuals (KIs), and this is one of the biggest challenges<br />

that the regulator is facing with the proposed licensing<br />

requirements under the Retail Distribution Review (RDR). To<br />

have full oversight, KIs cannot be “rented” out. They need to<br />

have sufficient time to ensure that they really can provide<br />

oversight. Therefore, the days of a KI on multiple licences will<br />

soon be over. At Equilibrium, we are delighted to be able to<br />

contribute to the industry as a whole by offering supervision<br />

for other Category II businesses who want to get their own<br />

licences. Does this mean we are growing<br />

competitors? Yes, it does. But in our<br />

experience, these Category II advisors<br />

do not always have the full set of<br />

capabilities necessary to cater for their<br />

client needs. They benefit from being<br />

able to use their own Category II licence<br />

to create certain efficiencies (for example moving from model<br />

portfolios to funds, or fund of funds, to specifically address their<br />

CGT issues) and other investment needs.<br />

One of the most pleasing trends that we have seen, is how our<br />

clients have remained invested and have not de-risked despite<br />

the volatility in markets. But still a concern is that advisors in<br />

general are using too many LISP platforms. Partnering with a<br />

DFM may simplify their practices to a certain extent, but unless<br />

they consolidate the number of platforms on which they load<br />

their solutions, they will battle to harness the benefits that come<br />

from partnerships. The two key issues being advisors’ ability to<br />

access better platform pricing and to ensure that the platforms<br />

they use deliver on their clients’ objectives.<br />

As an independent DFM, we are available on nine platforms<br />

– Glacier, Allan Gray, Momentum Wealth, Ninety One, Stanlib,<br />

INN8, Old Mutual, PPS and AIMS. There are others on our watch<br />

list, and we would consider adding them provided they meet<br />

two main criteria: the first is our ability to execute effectively and<br />

the second is the demand for that platform from independent<br />

financial advisors.<br />

The open architecture platforms (like Glacier, Stanlib and<br />

Momentum Wealth) give us access to a larger range of funds,<br />

We take care of everything<br />

to do with investments<br />

for our advisor partners.<br />

making it easier to add additional funds that we want to use,<br />

which is essential to our function as a DFM. Being part of a<br />

larger group allows us to approach Momentum Collective<br />

Investments (the group MANCO) to package solutions for us<br />

that are not available to the average retail investor. Having<br />

said this, we have great relationships with some of the more<br />

closed platforms, like Allan Gray and Ninety One, who load our<br />

preferred funds.<br />

But from an advisor perspective, it makes sense to partner<br />

with one or two platforms. Advisors are then in a position to<br />

negotiate better fees and limit the complexity that comes with<br />

different constructs and fee classes across platforms. We have<br />

recently seen another bout of consolidation across the advisor<br />

industry both locally and globally, especially in the UK. Advisors<br />

who use fewer platforms are getting higher multiples on the sale<br />

of their practices. I believe that using more than three platforms<br />

is a disadvantage. For advisors with smaller assets, it makes<br />

sense to limit to one or a maximum of two platforms.<br />

It is also important to ensure that the platform strategy<br />

aligns with the advisor’s strategy. Succession planning is<br />

important not only for the advisor’s<br />

practice but for future generations of<br />

investors. How is your chosen platform<br />

positioned for the future, and to be<br />

future-proof? Is their technology built<br />

in-house or have they partnered with<br />

external technology experts, and can<br />

the technology cater for your needs and future scalability?<br />

Ninety One and Allan Gray are examples of platforms<br />

building technology themselves, whereas Momentum Wealth<br />

have partnered with a leading global wealth management<br />

provider, FNZ.<br />

I recently asked Hymne Landman, head of Momentum<br />

Wealth and Momentum Wealth International, why they<br />

chose to partner with FNZ. The main reason is to leave the<br />

commoditised functions of a platform to the experts like FNZ,<br />

and rather focus on the additional value that Momentum<br />

Wealth can add to the lives of our advisors and DFMs, now<br />

and in the future. This allows us to focus on understanding<br />

and meeting the ever-changing needs of advisors and their<br />

practices, and doing this exceptionally well, says Landman.<br />

Combine this with international best practice and you have a<br />

winning formula.<br />

Regardless of which platform or DFM you choose, as an<br />

advisor it is important that you truly buy into the partnership<br />

and that it is going to be sustainable. Make sure that your<br />

partners have the tools available to help you keep your clients<br />

invested, offer competitive pricing and the level of reporting<br />

that meets your needs. <br />

Equilibrium Investment Management (Pty) Ltd (Equilibrium) (Reg no 2007/018275/07) is an authorised financial services provider (FSP32726)<br />

and part of Momentum Metropolitan Holdings Limited, rated B-BBEE level 1.


BLUE<br />

CHIP<br />

INVESTMENT<br />

Imagine the future<br />

Albert Einstein famously once said, “Imagination is<br />

more important than knowledge.” He emphasised<br />

the fact that great physicists often had to draw on<br />

their imagination, in addition to knowledge, to help<br />

make sense of the world.<br />

This holds true in the world of investing as well. We live in<br />

a world where an over-abundance of knowledge is available<br />

at our fingertips. We spend an inordinate amount of effort<br />

analysing past and current market information to make<br />

sense of what is going on in the world around us. But it is the<br />

application of our knowledge to manage risk and return in an<br />

uncertain future that really matters most.<br />

It’s the future which is key to everything concerning our<br />

investments. How that future plays out will determine whether<br />

we will have adequate savings when we retire… or not. Moreover,<br />

the future path of investment returns will also determine the<br />

longer-term income prospects of many retirees such as owners<br />

of Investment Linked Living Annuities (ILLAs).<br />

We might not be able to foretell the future, but we can<br />

imagine it. In doing so, we need to build retiree portfolios that<br />

aim to protect their hard-earned savings as far as possible and<br />

provide investment returns that beat inflation over the short to<br />

medium term. Consistent real returns (above inflation) at lower<br />

levels of volatility are important for most retirees, especially in<br />

the early years of retirement.<br />

Not all investors have the luxury of taking a long-term view<br />

We all agree that, over time, one would expect more volatile asset<br />

classes (such as equities) to provide higher real returns than less<br />

volatile asset classes (such as bonds or money market deposits).<br />

When we are young and in the early stages of our retirementsaving<br />

careers, market volatility can mean buying assets such<br />

as shares at lower prices whenever the market takes a dip, so<br />

early-stage savers can afford a long-term view to help accumulate<br />

retirement savings.<br />

However, things change as we approach or enter retirement<br />

and become net sellers of assets. During a market downturn,<br />

many ILLA owners may need to sell some of their investments<br />

at lower-than-expected prices to maintain a desired level of<br />

income. Selling more assets than expected leaves one with less<br />

capital to fund future income. Even if markets rebound, you<br />

may still experience a lasting negative impact on the ability to<br />

maintain your planned levels of income.<br />

It is the sequence of returns that is important. By this, we<br />

mean that the order of up markets and downturns matters when<br />

you are in the early stages of retirement.<br />

Let’s look at the example of two hypothetical ILLAs that are<br />

invested in two investment portfolios with the same average<br />

performance and standard deviation over a 15-year period, but<br />

with a different sequence of returns.<br />

In both examples we assume an initial 100 lump-sum<br />

investment, with the following additional assumptions:<br />

• Investment portfolios. 5% per annum inflation (CPI), 9% per<br />

annum return (ie CPI+4% per annum), 9% per annum standard<br />

deviation.<br />

• ILLAs. 7% income draw in year one, increasing by CPI+1% every<br />

year thereafter.<br />

Chart 1: Portfolio A<br />

Chart 1: Porolio A<br />

400<br />

350<br />

300<br />

250<br />

200<br />

150<br />

100<br />

50<br />

0<br />

Portfolio A has better returns in the early years followed<br />

by a patch of mediocre returns. This means that the income<br />

drawdowns in the ILLA are initially able to be funded by selling<br />

Portfolio A assets at higher prices, resulting in a higher-thanexpected<br />

ILLA balance after 15 years.<br />

Chart 2: 2: Porolio Portfolio B B<br />

400<br />

350<br />

300<br />

250<br />

200<br />

150<br />

100<br />

50<br />

0<br />

0.0<br />

0.5<br />

1.0<br />

1.5<br />

2.0<br />

2.5<br />

3.0<br />

3.5<br />

4.0<br />

4.5<br />

5.0<br />

5.5<br />

6.0<br />

6.5<br />

7.0<br />

7.5<br />

8.0<br />

8.5<br />

9.0<br />

9.5<br />

10.0<br />

10.5<br />

11.0<br />

11.5<br />

12.0<br />

12.5<br />

13.0<br />

13.5<br />

14.0<br />

14.5<br />

15.0<br />

0.0<br />

0.5<br />

1.0<br />

1.5<br />

2.0<br />

2.5<br />

3.0<br />

3.5<br />

4.0<br />

4.5<br />

5.0<br />

5.5<br />

6.0<br />

6.5<br />

7.0<br />

7.5<br />

8.0<br />

8.5<br />

9.0<br />

9.5<br />

10.0<br />

10.5<br />

11.0<br />

11.5<br />

12.0<br />

12.5<br />

13.0<br />

13.5<br />

14.0<br />

14.5<br />

15.0<br />

By contrast, in spite of the same risk and return over the<br />

15-year period, Portfolio B has weak returns in the early years<br />

followed by more robust returns. In this instance, the ILLA<br />

income was generated by selling Portfolio B assets at lower<br />

prices in the early years, resulting in a much lower-thanexpected<br />

ILLA balance after 15 years. Once again, please note<br />

that these are two hypothetical examples to help illustrate<br />

the potential impact of sequence risk. To manage this<br />

sequence risk, the underlying investment portfolio should<br />

aim to achieve consistent inflation-beating returns. One way<br />

364<br />

86<br />

62<br />

28<br />

364<br />

86<br />

62<br />

28<br />

CPI+4 : Portfolio<br />

CPI+4 : ILLA<br />

A:Portfolio<br />

A:ILLA<br />

B : Portfolio<br />

B : ILLA<br />

CPI+4 : Portfolio<br />

CPI+4 : ILLA<br />

A:Portfolio<br />

A:ILLA<br />

B : Portfolio<br />

B : ILLA<br />

42 www.bluechipdigital.co.za


INVESTMENT<br />

BLUE<br />

CHIP<br />

to achieve this is through a lower-risk multi-asset portfolio<br />

with active asset allocation. When we have an inflation-plus<br />

targeted return over a shorter term, such as three years, we<br />

need to look beyond strategic asset allocation models that<br />

are typically based on long-term return expectations. With<br />

active asset allocation we adopt a dynamic, shorter-term<br />

and forward-looking process. Ranges of expected asset class<br />

returns are considered, based on current market knowledge<br />

and projections into the foreseeable future. Asset class<br />

exposure is then composed in such a way that we believe<br />

we have the best likelihood of meeting our near-term real<br />

return targets, while best avoiding potential downside risks.<br />

Expected asset class return ranges and asset allocation are<br />

consistently reassessed and adjusted as our knowledge of<br />

the markets change.<br />

How to imagine the future<br />

Unfortunately, we are not clairvoyant and, on top of that, we are<br />

all prone to the usual human behavioural biases that tend to<br />

push us all towards herd mentality. When considering the future,<br />

it therefore becomes highly important to follow a rigorous and<br />

unbiased process. Scenario analysis is a great way to imagine<br />

the future.<br />

When implementing a scenario analysis framework for asset<br />

allocation, you would typically start off by identifying the<br />

primary drivers of return for any particular asset class. Based<br />

on your knowledge of these drivers, you can then formulate a<br />

positive, negative and base case scenario for changes in these<br />

drivers and asset classes over the foreseeable future.<br />

It is important to keep your scenarios within the realm<br />

of reasonability and to consider both positive and negative<br />

outcomes. Scenario analysis is a robust and elegant way to<br />

formulate and stress test your<br />

expectations of the future.<br />

It is difficult to make your money<br />

grow under all market circumstances,<br />

but we believe that the ability to<br />

understand sequencing risk combined<br />

with regular stress testing of asset<br />

allocation can assist in producing<br />

consistent real returns over time.<br />

Matrix manages a range of<br />

multi-asset funds with real return<br />

targets. Please consult your<br />

financial advisor to evaluate their<br />

suitability for your portfolio. <br />

Jean-Pierre Matthews, Head of<br />

Product, Matrix Fund Managers<br />

Our comments are of a general nature and cannot consider your specific risk profile or your legal, tax or investment requirements.


BLUE<br />

CHIP<br />

OIL AND GAS<br />

Good news<br />

for the<br />

South African<br />

economy<br />

Petroleum Agency South<br />

Africa is enabling oil and<br />

gas discoveries to kickstart<br />

investment and growth.<br />

Massive new gas finds off the coast of South Africa<br />

and the positive interest shown by international<br />

investors in the oil and gas sector have brought<br />

good news for country’s citizens.<br />

In the shadow of loadshedding and global energy price<br />

spikes brought on by domestic state capture and Russia’s war<br />

on Ukraine respectively, South Africans can be pleased that<br />

new resources are being found nearby and there is a plan to<br />

use them effectively.<br />

The economic effect of the most recent finds off the coast<br />

of Mossel Bay alone will be significant if they are marshalled<br />

in a coordinated manner (see box).<br />

New certainty in the regulatory environment and hard work<br />

by Petroleum Agency South Africa (PASA), the agency which<br />

evaluates, promotes and regulates oil and gas production<br />

in the country, has seen increased interest in South Africa’s<br />

potential as a destination for investment dollars.<br />

The fact that TotalEnergies was willing to bring an expensive<br />

oil exploration rig all the way to Mossel Bay from Norway more<br />

than once is an indicator of the seriousness with which this<br />

oil major is treating the South African project. TotalEnergies<br />

is a 45% shareholder alongside Qatar Petroleum (25%),<br />

CNR international (20%) and Main Street, a South African<br />

consortium (10%).<br />

Actually drilling the gas and delivering it via a pipeline to<br />

PetroSA (the national oil company which runs Mossgas) and<br />

Eskom (the national utility) will cost a lot more money, and<br />

that is where several subsectors within the national economy<br />

will benefit the most. In effect, the decision to go ahead and<br />

commercialise the gas find will create a new market for gas in<br />

South Africa.<br />

The massive resources of natural gas that Renergen has been<br />

working on for the last few years reached commercial production<br />

in October 2022 in the northern Free State. Renergen, through<br />

its subsidiary Tetra4, is the only holder of an onshore petroleum<br />

production licence issued by the Department of Mineral Resources<br />

and Energy through the PASA. The production rights area covers<br />

187 000 hectares around the towns of Welkom, Virginia and<br />

Theunissen.<br />

Liquid natural gas for the domestic market and helium<br />

for export from this project will create an entirely<br />

new stream of energy options.<br />

Most offshore exploration interest tends to<br />

come from foreign investors because of the high<br />

costs but within South Africa, there is a growing<br />

number of local participants.<br />

A women- and black-owned company,<br />

Imbokodo, is making a name for itself as a<br />

participant as a shareholder in a number<br />

of licensing rounds.<br />

False narrative<br />

“I wish that as South Africans we can have a<br />

holistic debate around our energy mix,” says Dr<br />

Phindile Masangane, CEO of Petroleum Agency<br />

44<br />

www.bluechipdigital.co.za


OIL AND GAS<br />

BLUE<br />

CHIP<br />

n and right and environmental authorisation<br />

in Mossel Bay to full production and<br />

t jobs. applications when the exploration<br />

n and right and environmental authorisation profitability, saving about 1 200 direct jobs.<br />

ment right expires, or earlier. The agency<br />

t jobs. applications when the exploration A complete shutdown and abandonment<br />

ad to expects the licensee to use worldclass<br />

technologies and standards to<br />

ment right expires, or earlier. The agency of this refinery would not only lead to<br />

ffects<br />

ad to expects the licensee to use worldclass<br />

technologies and standards would to reverberate throughout the town of<br />

job losses at the refinery, but the effects<br />

wn of minimise the effects of the gas and<br />

ffects<br />

egion, gas condensate production on the<br />

wn of minimise the effects of the gas Mossel and Bay and the Southern Cape region,<br />

ut R2- environment, while maximising the incountry<br />

benefit or local content from<br />

egion, gas condensate production on since the the refinery contributes about R2-<br />

el Bay<br />

ut R2- environment, while maximising the billion incountry<br />

benefit or local content economy, from and 6% to the Southern Cape<br />

a year, or 26% of the Mossel Bay<br />

Cape this development to support South<br />

el Bay<br />

acity. Africa’s economic recovery.<br />

Cape this development to support South economy when producing at full capacity.<br />

Africa These discoveries could indeed support<br />

acity. Africa’s economic recovery. The Petroleum Agency South Africa<br />

gas both the country’s economic recovery and<br />

Africa These discoveries could indeed support awaits the licensee of these gas<br />

ction its transition to a clean energy future.<br />

gas both the country’s economic recovery discoveries and submitting its production<br />

ction its transition to a clean energy future.<br />

ors<br />

ors<br />

OIL AND GAS<br />

right and environmental authorisation<br />

applications when the exploration<br />

right expires, or earlier. The agency<br />

expects the licensee to use worldclass<br />

technologies and standards to<br />

minimise the effects of the gas and<br />

gas condensate production on the<br />

environment, while maximising the incountry<br />

benefit or local content from<br />

this development to support South<br />

Africa’s economic recovery.<br />

These discoveries could indeed support<br />

both the country’s economic recovery and<br />

its transition to a clean energy future.<br />

International investors<br />

INTERNATIONAL BRANDS SHOWING AN INTEREST IN SOUTH AFRICAN OIL AND GAS<br />

South Africa, of the heated debate about sources of energy<br />

OIL AND GAS<br />

supply. “We do need to OIL diversify AND GAS our energy mix.”<br />

A binary choice is often presented between renewable<br />

energy technologies and fossil fuels. A recent report published<br />

by the International Energy Association (IEA) argues against<br />

framing the debate in that way.<br />

Both can and should be used, according to Africa Energy<br />

Outlook 2022. A key factor in allowing Africa to continue to<br />

industrialise will be an uptick in the discovery and use of gas.<br />

If all the gas so far discovered in and off Africa was used, the<br />

continent’s share of global emissions would rise by 0.5% to 3.5%.<br />

“We should not be brought into a false narrative and a<br />

false choice,” says Dr Masangane, in agreeing with the report’s<br />

conclusions. “It can be both and that is what this report is<br />

in Mossel Bay to<br />

calling<br />

full production<br />

for.”<br />

and right and environmental authorisation<br />

profitability, saving about<br />

Dr<br />

1 200<br />

Masangane<br />

direct jobs. applications<br />

points<br />

when<br />

out that<br />

the exploration<br />

Mossel Bay to full with production South and Africa’s excellent<br />

A complete shutdown and abandonment right expires, or earlier. The agency<br />

profitability, saving about 1 200 direct jobs.<br />

of this refinery would solar not resources only lead to expects it makes the licensee sense to use localise worldclass<br />

technologies and standards to<br />

the solar value chain<br />

A complete shutdown and abandonment<br />

job losses at the refinery, but the effects<br />

to boost manufacturing, of this refinery but would the not country only lead to<br />

would reverberate throughout the town of minimise the effects of the gas and<br />

should not ignore<br />

job losses at the refinery, but the effects<br />

Mossel Bay and the Southern what Cape it has. region, “At gas the condensate same time, production we on know the<br />

would reverberate throughout the town that of the gas value<br />

since the refinery contributes about R2- environment, while maximising the incountry<br />

benefit in or local country, content from so let’s also capitalise<br />

Mossel Bay and the Southern Cape region,<br />

billion a year, or 26% chain of the is Mossel well Bay established<br />

since the refinery contributes about R2-<br />

economy, and 6% to the Southern Cape this development to support South<br />

on that.”<br />

billion a year, or 26% of the Mossel Bay<br />

economy when producing at full capacity. Africa’s economic recovery.<br />

economy, and 6% to the Southern Cape<br />

The Petroleum Agency The South multiple Africa uses These discoveries of gas could indeed play support<br />

economy when producing at full a capacity. major role in helping<br />

awaits the licensee of these gas both the country’s economic recovery and<br />

The Petroleum Agency South Africa<br />

discoveries submitting South its production Africa its transition to a away clean energy from future. fossil fuels while at the<br />

awaits the licensee of these gas<br />

same time boosting discoveries economic submitting growth. its production “We need gas not<br />

just in electricity and transport,” noted Dr Masangane, “but<br />

International investors<br />

importantly for South Africa, which is in desperate need<br />

International investors<br />

of an economic turnaround, is for us to use this gas for our<br />

manufacturing industry.” <br />

right and environmental authorisation<br />

applications when the exploration<br />

right expires, or earlier. The agency<br />

expects the licensee to use worldclass<br />

technologies and standards to<br />

minimise the effects of the gas and<br />

gas condensate production on the<br />

environment, while maximising the incountry<br />

benefit or local content from<br />

this development to support South<br />

Africa’s economic recovery.<br />

These discoveries could indeed support<br />

both the country’s economic recovery and<br />

its transition to a clean energy future.<br />

HOW GAS DISCOVERIES CAN BOOST SOUTH AFRICA’S ECONOMY<br />

The gas discoveries that have been made off the coast of South Africa (near Mossel Bay), when linked with the massive finds off<br />

the coast of Mozambique and the enormous potential that exists in fields off the Namibian coast, amount to what could become<br />

a seachange in the regional economy. TotalEnergies and its partners have deployed the Deepsea Stavanger offshore drilling rig,<br />

pictured passing Table Mountain on its way to work off the coast of Mossel Bay, and they have achieved significant successes. The<br />

two fields where finds have been made are called Luiperd (where 2.1-trillion feet of contingent gas resources has been found,<br />

enough to power a medium-sized city for five years) and Brulpadda (1.3 Tef), which are part of Block 11B/12B.<br />

If this gas were to be piped to the existing gas-to-liquid plant at Mossel Bay, Mossgas, then instead of spending about<br />

R12-billion on decommissioning the plant, the facility could instead start generating R22-billion in taxes and royalties and<br />

save South African taxpayers R26.5-billion through not having to import oil and refined products.<br />

PASA estimates that the gas found in these blocks could produce 560-million cubic feet per day of gas for more than 15<br />

years. TotalEnergies’ expenditure on stream phase one could amount to $3-billion in 2027 and create 1 500 direct jobs, 5 000<br />

indirect jobs and increase the country’s gross domestic production by R22-billion.<br />

The plan is to run the gas via a pipeline to a new fixed steel platform, and from there to use the existing pipeline to get<br />

the gas to Mossgas. Up to 18 000 barrels per day of condensate and 210-million cubic feet per day (MMcfd) are expected to<br />

be pumped to the facility. Gas condensate is a hydrocarbon liquid stream separated from natural gas and is used for making<br />

petrol, diesel and heating oil.<br />

Credit: Anton Swanepoel<br />

petroleumagencysa.com Petroleum Agency SA @sa_petroleum Petroleum Agency of South Africa @petroleumagency


BLUE<br />

CHIP<br />

INVESTMENT<br />

THE UNLOVED<br />

OF THE<br />

UNLOVED<br />

Why bargain hunters should be<br />

shopping in Europe, not the US.<br />

Value stocks in Europe are the “unloved of the unloved”,<br />

but they have offered more growth than growth<br />

stocks. Here, three charts tell the story.<br />

The value investor has become something of an<br />

endangered species over the last decade, pushed to the sidelines<br />

of a market fixated on seeking never-ending growth in areas<br />

such as technology.<br />

The underperformance of the value investment style has been<br />

much discussed, and – barring a relatively short rally this year –<br />

mostly painful for deep value investors such as us on the value<br />

investment team at Schroders.<br />

The result is a wide chasm in the valuations of the cheapest<br />

shares and the most expensive. This has not gone unnoticed.<br />

Indeed, one of our favourite columnists in the FT recently,<br />

Robert Armstrong, said, “Value stocks look like a heck of a value<br />

right now!” He pointed out that the ratio of the price/earnings<br />

(P/E) multiples of growth and value stocks in the US was now<br />

at a 20-year low. This is true and compelling. But there is a place<br />

where the differential is even more pronounced: Europe. And<br />

what’s most surprising of all, is that – counterintuitively – Europe’s<br />

cheapest companies have been delivering higher profit growth<br />

than Europe’s most expensive companies.<br />

Three charts that tell the story<br />

The first chart looks at the valuation dispersion between growth<br />

and value in Europe, using data from Morgan Stanley that combines<br />

three valuation measures: price/earnings, price/book (P/BV) and price/<br />

dividend (P/Div).<br />

While the similar value spread in the US is undoubtedly cheap,<br />

the data in Europe is eye-wateringly so. Europe has gone lower<br />

than the dotcom nadir around the turn of the century and the<br />

recent bounce still leaves a very long way to go.


INVESTMENT<br />

BLUE<br />

CHIP<br />

Valuations of value vs growth are still near all-time lows<br />

The two points above show that there are similar broad<br />

themes in the US and Europe, but that they’re more extreme in<br />

the latter. However, the chart below is what makes the first two<br />

points seem completely crazy. It shows the earnings-per-share<br />

growth of Eurostoxx value and growth indices.<br />

Value shares have outgrown growth<br />

Source: Morgan Stanley. 21 June 2022.<br />

While this makes the relative case for value in Europe, let’s not<br />

forget the absolute one. Taking the MSCI Europe indices as a blunt<br />

proxy for European value and growth, we see that the broad MSCI<br />

Europe index is trading on 12-month forward P/E ratio of 15.4,<br />

MSCI Europe Growth is on 20.1 and MSCI Europe Value is on just<br />

10.8 (according to data from Bloomberg).<br />

A forward P/E ratio is a company’s share price divided by its<br />

expected earnings per share over the next 12 months. Using<br />

slightly different data from Eurostoxx, we see value shares in<br />

Europe are currently trading on lower PEs than they were five years<br />

ago (see below).<br />

Source: Schroders<br />

It has been a brutal few years for cheap stocks in Europe.<br />

There are very few, if any, parts of developed market equities<br />

that the market is so pessimistic about that they’ve de-rated<br />

over the last five years – whether in absolute or relative terms.<br />

(A derating is when the P/E ratio of a stock contracts due to a<br />

bleak or uncertain outlook.)<br />

Just to really put the boot in, the US’s Russell 1 000 value index<br />

is on a 12-month forward P/E of 16.5, while the equivalent in<br />

Europe is on around 11. This enormous differential shows that<br />

a cheap stock in the US is held in much higher regard than a<br />

cheap stock in Europe; value stocks in Europe are the unloved<br />

of the unloved.<br />

Source: Bloomberg. Schroders as at 13 January 2022.<br />

Over the last five years, Europe’s cheapest companies have<br />

delivered more profit growth than their growth counterparts.<br />

This is a distinctly European phenomenon and isn’t what you<br />

see in other developed markets such as the US, where you have<br />

some premium profit growth from growth stocks.<br />

Cynics could say that this is down to the effect of starting from<br />

a low base, as the chart starts in 2017 just as the mining cycle<br />

turned positive. But we’ve ran this over multiple time periods,<br />

and you get the same result.<br />

It is also worth noting that the favourable earnings profile<br />

for value was in place before the Covid-19 pandemic.<br />

It’s not all driven by the profit rebound, commodity inflation<br />

and interest rate benefits that have boosted value following<br />

the pandemic.<br />

So over that five-year period the real growth stocks in Europe, in<br />

terms of fundamentals at least,<br />

have been the value stocks.<br />

Bring this all together and<br />

there’s a compelling reason<br />

to believe value in Europe<br />

is looking attractive, almost<br />

through absolute valuations,<br />

record levels of relative<br />

valuation discount to growth<br />

and positive relative earnings<br />

momentum. This isn’t really a<br />

widely shared view, however.<br />

Indeed, looking at investor<br />

flows and allocations, Europe<br />

is one of the most overlooked<br />

equity markets in the world.<br />

Perhaps not for long. <br />

Ben Arnold, Investment Director,<br />

Schroders<br />

For professional investors and advisors only. The material is not suitable for retail clients. We define “professional investors” as those who have the appropriate expertise and knowledge eg asset managers, distributors and<br />

financial intermediaries. Any reference to sectors/countries/stocks/securities are for illustrative purposes only and not a recommendation to buy or sell any financial instrument/securities or adopt any investment strategy.<br />

Reliance should not be placed on any views or information in the material when taking individual investment and/or strategic decisions. Past performance is not a guide to future performance and may not be repeated. The<br />

value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Exchange rate changes may cause the value of investments to fall as well as rise.<br />

The views and opinions contained herein are those of the individuals to whom they are attributed and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.<br />

in England and Wales) which is authorised and regulated in the UK by the Financial Conduct Authority and an authorised financial services provider in South Africa FSP No: 48998


BLUE<br />

CHIP<br />

HEDGE FUNDS<br />

Is there still a<br />

place for Hedge<br />

Funds and<br />

why should FPs<br />

be interested<br />

in them?<br />

Bateleur Capital1 was founded 18 years ago<br />

in 2004 as a fund management company. In<br />

January 2005 we launched our first hedge<br />

fund with R11-million in invested capital.<br />

The reason we opted for a hedge fund as our initial<br />

investment offering was twofold – firstly, the<br />

overriding objective was to protect investor capital<br />

and the hedge fund structure was the most suitable<br />

vehicle to achieve this; and secondly, the flexibility afforded by<br />

a hedge fund meant we were largely unconstrained in terms<br />

of our investment opportunity set.<br />

Since inception in January 2005, the Bateleur Long Short<br />

Fund2 has exceeded its investment objectives. The fund has<br />

compounded at 14.6%3 per annum net of all fees, well ahead<br />

of the JSE All Share Index total return of 13.3% before fees. To<br />

put this into context, R1-million invested in the Bateleur Long<br />

Short Fund in 2005 is worth R11.1-million today.<br />

Importantly, these returns were generated at significantly<br />

lower levels of volatility than the overall equity market. The<br />

Bateleur Long Short Fund‘s volatility has averaged 7.8%4 since<br />

inception compared to 17.7% for the JSE All Share Index. The<br />

fund’s worst single calendar year was during the financial crisis<br />

in 2008 when it declined 4.8%. In the same year, the JSE All<br />

Share Index fell 23.2%. Although Bateleur Capital has over time<br />

expanded its product offering beyond hedge funds and now<br />

directly manages more than R9-billion of assets across flexible,<br />

long only and global mandates, the attractiveness of hedge<br />

funds as an investment vehicle is more relevant and compelling<br />

today than back in 2005. Some of these reasons include:<br />

Capital preservation<br />

If managed according to their strict definition, hedge funds<br />

are designed to protect capital. This can be achieved in many<br />

ways, but the most common approach for equity hedge funds<br />

48 www.bluechipdigital.co.za


HEDGE FUNDS<br />

BLUE<br />

CHIP<br />

is through managing the net equity exposure so that the<br />

hedge fund’s returns are not overly correlated to the equity<br />

market. The net exposure is managed via the use of shorting<br />

individual equities, shorting indices or by using a wide range<br />

of derivative structures. Shorting individual equities is not<br />

readily available to most conventional long only equity funds<br />

and is a key competitive advantage for hedge funds. Our<br />

experience is that capital preservation in periods of market<br />

stress leads to outperformance over the long term.<br />

Flexibility<br />

Depending on their approved mandates, hedge funds offer the<br />

investment manager an unconstrained opportunity set. For<br />

example, if the manager was optimistic on the South African<br />

equity market, the hedge fund might have more than 100% of<br />

the fund’s NAV invested in local equities (by using leverage).<br />

Conversely, if the manager was negative on South African<br />

equities as an asset class, the fund may be net short local<br />

equities. These are extreme examples but highlight the flexibility<br />

available to hedge funds.<br />

Of course, it is critical that this flexibility does not jeopardise<br />

the overriding capital preservation objective of the hedge<br />

fund. The two objectives should be managed symbiotically<br />

and not individually.<br />

Diversification<br />

Advisors can access a multitude of hedge funds across several<br />

asset classes such as equities, fixed income and commodities.<br />

Each fund offers unique risk, return and capital preservation<br />

profiles which in many instances have low correlation to<br />

traditional long only funds. Having access to funds with low<br />

correlated returns will help advisors build portfolios for all<br />

market conditions.<br />

Established industry with full regulatory oversight<br />

The industry has grown up. There are several funds, like ours, that<br />

have been around for 15 to 20 years which allows investors to<br />

evaluate performance through numerous macro events such as<br />

the global financial crisis and the Covid pandemic. These funds<br />

are run by established and respected investment managers<br />

backed by sizeable teams and significant infrastructure. In<br />

addition, since 2015, hedge funds have been regulated under<br />

the Collective Investment Schemes Control Act. Investors should<br />

accordingly have as much confidence in the oversight and<br />

protection of assets as they do any traditional unit trust.<br />

Liquidity and platform availability<br />

Another key difference between 2005 and now is that hedge<br />

funds are becoming more readily available on LISP platforms<br />

with daily pricing and liquidity. Back in 2005 they were not<br />

available on any platforms and there was only monthly pricing<br />

and liquidity available. In addition to accessibility, the LISPs<br />

also provide an additional filter/due diligence on the broader<br />

funds in the market.<br />

If managed according to their<br />

strict definition, hedge funds are<br />

designed to protect capital.<br />

Fees<br />

In 2005, hedge funds were renowned globally for charging<br />

high management and performance fees. The key allocators to<br />

the industry in South Africa were the hedge fund of funds, who<br />

charged additional fees. The net result was the underlying investor<br />

was incurring sizable annual management and performance fees<br />

when expressed as a percentage of the fund’s total return. This<br />

practice has changed materially led by the shift away from the<br />

hedge fund of funds industry. Presently, many South African<br />

hedge funds can be accessed at management fees like traditional<br />

unit trust funds. While performance fees are still common, they are<br />

often only generated after surpassing far stiffer hurdle rates than<br />

historically, with a high-water mark principle applied.<br />

Caveat emptor<br />

Despite the positive points highlighted above, it is important<br />

to emphasise that not all hedge funds are created equal. It<br />

is crucial for advisors to do their homework on the different<br />

range of hedge funds available, their approved mandates, their<br />

appointed fund managers and their long-term track record. It<br />

is especially key to understand how the historical hedge fund<br />

returns have been generated – was it through fund manager skill<br />

or leverage? If it was through high or excessive leverage, then it<br />

could indicate that the fund may suffer significant drawdowns<br />

in a challenging market environment.<br />

Conclusion<br />

At Bateleur Capital, we are firm supporters and proponents of<br />

hedge funds. Almost 18 years of history operating in this space<br />

supports our positive stance. We are currently appointed as the<br />

fund manager for three different regulated hedge funds: the<br />

Bateleur Long Short Fund referred to earlier, the Bateleur Market<br />

Neutral Fund5 and the Bateleur Special<br />

Opportunities Fund6. While all three<br />

of these hedge funds have different<br />

mandates and risk/return profiles, they<br />

all have an overriding objective of<br />

protecting investor capital.<br />

From inception to the date of writing,<br />

all three funds have generated strong<br />

absolute net returns in excess of the JSE<br />

All Share Index at substantially lower<br />

volatility. This clearly advocates our longheld<br />

view that the right hedge fund has a<br />

relevant role to play for financial advisors,<br />

especially in the current uncertain<br />

investment environment. <br />

Kevin Williams, CEO and<br />

CIO, Bateleur Capital<br />

1. Bateleur Capital (Pty) Ltd is an authorised financial services provider, FSP No. 18123 2. Bateleur Long Short Prescient RI Hedge Fund 3. Returns have been calculated using the<br />

published fee class from January 2005 to August 2022. The growth of R1m invested in 2005 is based on the published fee class with distributions reinvested. Past performance is not<br />

necessarily a guide to future performance. 4. 30-Day rolling volatility as calculated by Bateleur. 5. Bateleur Market Neutral Prescient QI Hedge Fund 6. Bateleur Special Opportunities<br />

Prescient QI Hedge Fund


BLUE<br />

CHIP<br />

HEDGE FUNDS<br />

For those who<br />

believe, no<br />

explanation<br />

is necessary<br />

For those who do not, none will suffice.<br />

A<br />

significant amount of progress has been made since<br />

hedge funds first became regulated under CISCA in<br />

2015. The regulatory overhaul did not bring about an<br />

immediate increase in the popularity of hedge funds,<br />

however, especially considering the benefits they can offer<br />

investors. At first it was mostly due to their inaccessibility, but<br />

nowadays one can choose between a list of leading hedge funds<br />

on LISP platforms.<br />

Scepticism among financial advisors remains, with fees<br />

and complexity at the top of the list of concerns for those<br />

advisors who haven’t made an allocation to hedge funds yet.<br />

The mere fact that these concerns have been voiced, means<br />

that we are at least having the dialogues necessary to get to<br />

the next step – debunking the myths and misconceptions<br />

regarding hedge funds.<br />

Deciding which hedge fund to invest in is similar to choosing<br />

what type of car to buy. Just like you get sedans, SUVs,<br />

hatchbacks, trucks, etc., there are many different hedge fund<br />

strategies to choose from. Some of the different hedge fund<br />

strategies include fixed income arbitrage, macro, event-driven,<br />

commodity trading, market neutral and long/short equity. The<br />

latter strategy makes up the lion’s share of hedge funds, both in<br />

South Africa and globally. It is also the most “vanilla” of all hedge<br />

fund strategies – long/short equity funds buy the shares they<br />

expect to go up in price (like traditional equity funds), and, in<br />

addition, short the shares they expect to fall in price.<br />

One misconception that still exists, is that all hedge funds<br />

following the same broad strategy are comparable. In practice,<br />

even if two funds both follow a long/short equity strategy,<br />

there might still be a difference in terms of their risk profile.<br />

Some hedge funds will rise more than the market during a<br />

bull market cycle but might have deeper drawdowns during<br />

a bear market. Others attempt to deliver equity-like returns<br />

with lower volatility, participating in most (but not all) of the<br />

upside during a bull market, while limiting deep drawdowns<br />

in a bear market. In other words, some hedge funds are return<br />

enhancers, while others are risk diversifiers. It is therefore<br />

imperative to understand what the specific hedge fund’s<br />

objective and risk profile is before investing, to avoid an<br />

expectation gap.<br />

South African hedge funds are arguably the most<br />

regulated in the world, which means information regarding<br />

FSCA-approved hedge funds is readily available. Minimum<br />

disclosure documents for hedge funds are generally<br />

available on the hedge fund manager’s website and include<br />

transparency on fees and performance. Another benefit to<br />

financial advisors who want to include hedge funds in their<br />

client solutions or model portfolios, is that a LISP platform<br />

would have performed additional due<br />

diligence on those hedge funds available<br />

on the platform.<br />

The South African hedge fund industry<br />

passed the R100-billion mark in June<br />

2022, but it is still only a fraction of the<br />

size of the traditional unit trust industry.<br />

Nonetheless, broader adoption of hedge<br />

funds is growing, as investors become<br />

more comfortable with the nuances of the<br />

industry. By educating themselves about<br />

the benefits hedge funds can offer, financial<br />

advisors are solidifying the key role they<br />

play in ensuring better client outcomes.<br />

If you aren’t a believer yet, now’s the time<br />

to take another look at hedge funds – feel<br />

free to contact Protea Capital Management<br />

if we can assist in this regard. <br />

Edrich Jansen, Head:<br />

Business Development,<br />

Protea Capital Management<br />

50 www.bluechipdigital.co.za


BLUE<br />

CHIP<br />

INVESTMENT<br />

Homegrown<br />

The South African investment industry is a dynamic and world-class<br />

industry that we as South Africans can rightly be proud of.<br />

Over the years, it has evolved and adapted to be the<br />

custodian of the savings and investments of a broad array<br />

of citizens and businesses and as such plays a critical role<br />

in shaping the South African economy and landscape.<br />

As part of the broader world of global investments, the local<br />

industry has evolved in consequence to global developments but<br />

also importantly in service of our homegrown needs.<br />

Over the last few decades, we have seen the rise of boutique<br />

and specialist asset managers, and tracking and index funds<br />

have taken off. Over the last few years there has also been<br />

an increase in smart beta funds, which are funds that are<br />

managed passively but are based on algorithms to pick stocks<br />

and investments that have specific characteristics, including<br />

value, growth and momentum.<br />

During this period, we have also seen the systematic relaxation<br />

of exchange control and as a result different approaches have<br />

developed to manage the offshore portion of South Africanbased<br />

funds.<br />

The announcement by the finance minister in the February<br />

2022 budget speech, further relaxing exchange controls<br />

whereby up to 45% of retirement funds can be invested in<br />

offshore assets, is both a continuation of a longer-term trend<br />

but also now makes offshore assets one of the most material<br />

exposures within a portfolio.<br />

As a result of the changes to exchange control over the<br />

years, we have seen asset managers adopting and evolving<br />

their models of managing their offshore assets, from a<br />

simple allocation to an offshore mandate and manager,<br />

to setting up offices overseas and partnering with global<br />

investment managers.<br />

I fully expect that, with the current levels of permissible<br />

global exposure, the need for offshore partnerships will increase<br />

materially as the global investment landscape dwarfs the local<br />

investment arena. It is unlikely that a local asset manager<br />

can realistically manage the offshore component of their<br />

assets without setting up substantial offshore operations and<br />

52 www.bluechipdigital.co.za


INVESTMENT<br />

BLUE<br />

CHIP<br />

partnering with a global player that has the requisite strength<br />

and resources to create a credible offshore offering.<br />

At Momentum Investments, we have done both. Our<br />

global operations are based in London under the brand<br />

Momentum Global Investment Management (MGIM) and we<br />

have partnered with Robeco, based in Amsterdam, to give us<br />

access to their well-known and regarded financial engineering<br />

and smart beta skillsets.<br />

We will see the details of how the South African investment<br />

industry adapts to the relaxation of exchange control, which<br />

poses both an opportunity and a threat to the local industry.<br />

At the moment, based purely on geopolitical risk and slightly<br />

better valuations in the South<br />

African market, there has not yet<br />

been a large-scale movement of<br />

assets offshore. Over time as global<br />

geopolitics stabilises or achieves<br />

some form of new normal and the<br />

current inflationary and growth<br />

risks subside, I expect that asset<br />

managers will start to allocate<br />

more capital offshore.<br />

This will reduce the size of the pool of domestic-based<br />

investable assets in the South African markets, which are<br />

likely to impact how our local markets operate. Over the<br />

years we have seen a significant uptick in the ownership of<br />

local assets by foreign investors and their continued support<br />

and investment in our markets will be a critical factor to the<br />

continued health of our markets. As such, maintaining the<br />

highest standards and reputation of the local financial industry<br />

is critical as we navigate through the implications of this.<br />

In this process there will be winners and losers. As an<br />

investor, it will be important to keep an eye on the sustainability<br />

of the asset managers that are used.<br />

Sustainability is the other trend that has gripped the global<br />

and local industry. I prefer to use the word sustainability as it<br />

encapsulates the environmental, social, and governance (ESG)<br />

trend that is currently all the rage. Just reading or watching<br />

the news gives an insight into why ESG is so important.<br />

The floods in the US and droughts in Europe are placing<br />

a key focus on the challenge of climate change. The term<br />

sustainability captures the broader scope of what we<br />

need to balance when considering ESG factors. The real<br />

impact of ESG is to balance the various facets in a way<br />

that considers the practical realities of what we need to<br />

prioritise and achieve.<br />

We are the custodians of our clients’ money first and<br />

foremost and need to deliver returns. To do this responsibly,<br />

we need to make sure that our business is sound and in good<br />

financial health and also take into account the sometimesconflicting<br />

aspects of ESG. For example, a singular focus on<br />

one factor, the environment, can have social impacts over the<br />

As an investor, it will be<br />

important to keep an eye on<br />

the sustainability of the asset<br />

managers that are used.<br />

short term on communities that depend on traditional power<br />

production methods for their livelihoods. This is why we<br />

support the Just Transition, which means that as we consider<br />

climate action, we also need to take into account the social and<br />

people implications of the needed energy transition.<br />

Clearly not addressing climate change has significantly<br />

longer-term social implications, that absolutely do need to be<br />

addressed. Europe was at the forefront of climate action until<br />

the roll-over effects of the Russia/Ukraine war posed risks to<br />

European energy security. As a result the role of nuclear and<br />

coal is being reconsidered, at least in the short term, which risks<br />

undoing the progress made. Hence the need for a sustainable<br />

and considered approach to<br />

addressing ESG.<br />

Another area that is a focus for<br />

the asset management industry is<br />

that of infrastructure investment.<br />

There is a dire need for significant<br />

investment in infrastructure in our<br />

local economy. The government<br />

does not have sufficient resources<br />

to realise the scale of development required and as such needs<br />

to crowd in the private sector.<br />

There are many considerations that must be taken into<br />

account when we invest in infrastructure. Our investors need<br />

an appropriate return on investment, there is a trust deficit with<br />

government and a new compact and way of work needs to be<br />

established, and with the relaxation of exchange control a big<br />

chunk of South African-based assets is going to be invested<br />

offshore, thereby reducing the available capital.<br />

Another consideration is liquidity – infrastructure investments<br />

are illiquid. This means that the level of exposure that we invest<br />

in our portfolios needs to be carefully calibrated taking into<br />

account a wide variety of portfolio management considerations.<br />

We need to invest in accordance with our mandates that<br />

reflect the needs and desires of our clients. This requires a<br />

spread of asset classes and appropriate diversification within<br />

asset classes to achieve a prudent spread<br />

of desired risks and sufficient levels of<br />

liquidity. The consequence is that the<br />

level of infrastructure investments in<br />

portfolios will likely be conservative.<br />

The South African asset management<br />

industry is an exciting, dynamic and everevolving<br />

industry. There are a myriad of<br />

challenges and opportunities that we<br />

need to consider when investing our<br />

clients’ money with the due care and<br />

skill that has been entrusted to us. This<br />

is a charge that the industry, Momentum<br />

Investments and myself take very seriously,<br />

because with us, investing is personal. <br />

Mike Adsetts, Deputy<br />

Chief Investment Officer,<br />

Momentum Investments<br />

Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services and registered credit provider (FSP 6406).


BLUE<br />

CHIP<br />

RETIREMENT<br />

Retirement income<br />

planning reimagined<br />

The biggest financial decision that many people face when they retire is how best to use their accumulated<br />

retirement savings from approved retirement funds to provide them with a sustainable income in retirement.<br />

Traditionally, the choice was between a life annuity and<br />

a living annuity, each with its own unique features<br />

and rules. Even if people decide to use some of their<br />

retirement savings to purchase a life annuity and some<br />

to invest in a living annuity, they may end up with two separate<br />

retirement income products that can make it difficult to manage<br />

their income during retirement. There is a better way for financial<br />

advisors to help their clients plan and structure their finances<br />

when they retire to solve the need for certainty and flexibility.<br />

ENHANCED RETIREMENT INCOME OPTION<br />

We have enhanced our living annuity product, the Retirement<br />

Income Option on the Momentum Wealth platform, to help clients<br />

structure their retirement income plan better. They no longer<br />

have to choose between the certainty of a life annuity and the<br />

flexibility of a living annuity – clients can have the best of both in<br />

one retirement income solution.<br />

NUMEROUS BENEFITS<br />

This hybrid structure introduces richer advice opportunities for<br />

financial advisors. With traditional solutions, the relationship<br />

between the advisor and client in many cases reaches the<br />

end phase once the client chooses the life annuity. There is<br />

therefore a single point in time where advice is required.<br />

Contrast this with a world where clients’ needs can be better<br />

met by blending a life annuity with a living annuity. In this structure<br />

the life annuity becomes one of many components that a client<br />

can choose from within a living annuity. Financial advisors can<br />

continue to be involved in advising clients during their retirement<br />

years – for example about how to manage expenses in the context<br />

of returns, when to protect income and how much to protect. By<br />

allocating a portion of their retirement savings to a life annuity<br />

component within their living annuity, financial advisors can help<br />

their clients personalise their income plan by helping them decide:<br />

• How much of their retirement savings they want to use to cover<br />

their essential “life expenses”.<br />

• How much they want to use for flexible “living expenses”.<br />

This product enhancement will help financial advisors and<br />

their clients make more informed decisions about their retirement<br />

income planning.<br />

Clients can choose to allocate a portion of their retirement<br />

savings to the new Guaranteed Annuity Portfolio that will pay a<br />

guaranteed income for as long as they live. At the same time, they<br />

have the investment flexibility to benefit from potential growth<br />

from investment markets and the possibility to leave a legacy, all<br />

in one living annuity.<br />

The Guaranteed Annuity Portfolio is a life annuity, which is<br />

available as an optional investment component to clients starting a<br />

new Retirement Income Option or who already have a Retirement<br />

Income Option.<br />

INVESTING IS PERSONAL<br />

We understand that a client’s investment is not just another<br />

investment – it’s something personal – and it helps them<br />

to achieve their financial goals on their life journey. When<br />

something is personal, it really matters. That is why with us,<br />

investing is personal.<br />

By blending the best of both worlds<br />

– the income certainty of a life annuity<br />

and the investment flexibility of a living<br />

annuity – we are partnering with financial<br />

advisors to help clients:<br />

• Structure and implement suitable<br />

income solutions when they retire.<br />

• Optimally manage their income during<br />

retirement to cater for changing<br />

income needs.<br />

THE BEST OF TWO WORLDS<br />

Our blended product solution gives<br />

people the best of two worlds: the<br />

flexibility of a living annuity that can<br />

give clients investment growth and<br />

the certainty of a life annuity that pays<br />

them a guaranteed income for life.<br />

With our new Guaranteed Annuity<br />

Portfolio financial advisors can help their<br />

clients make the rest of their life, the best<br />

of their life.<br />

It’s retirement reimagined. <br />

Fränzo Friedrich, Head of Marketing,<br />

Momentum Investments<br />

Momentum Wealth (Pty) Ltd (FSP 657) is an authorised financial services provider. Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services and registered<br />

credit provider (FSP 6406). The Retirement Income Option and the Guaranteed Annuity Portfolio are life insurance products, underwritten by Momentum Metropolitan Life Limited, a licensed life insurer<br />

under the Insurance Act and administered by Momentum Wealth (Pty) Ltd. The information in this article is for general information purposes and not intended to be an invitation to invest, professional advice<br />

or financial services under the Financial Advisory and Intermediary Services Act, 2002. Momentum Investments does not make any express or implied warranty about the accuracy of the information herein.


ESTATE PLANNING<br />

BLUE<br />

CHIP<br />

Do you have the Will<br />

to secure your client’s<br />

financial future?<br />

There is much talk about building generational wealth<br />

as a society, yet very little guidance on how to do<br />

so. As a wealth manager and life insurer, we have a<br />

dire responsibility towards providing these guiding<br />

principles and ensuring that consumers have access to the right<br />

tools, products and services to enable such wealth and that they<br />

are given the right advice to build their wealth.<br />

More so, we are intrinsically “liable” to ensure that the<br />

wealth we are helping create for our clients can be passed<br />

on responsibly to their future generations. Traditionally, this<br />

has meant providing the right products – whether that’s<br />

investment, long-term insurances or the like. However, we<br />

must think deeper – clients have worked hard for their wealth<br />

so how do we ensure that we help them decide now, what will<br />

happen to it later?<br />

Estate planning is a crucial consideration in the wealth mix<br />

and is often overlooked by consumers.<br />

It is our responsibility to enforce good estate planning<br />

principles, such as ensuring clients have a valued, signed and<br />

securely stored will. Not only does this guide loved ones on<br />

how assets should be distributed, avoiding a stressful process<br />

for the family, but also ensures that they can avoid wealth<br />

leakage through exorbitant inheritance taxes. The updating<br />

of their will at key life stages is crucial, ensuring it is valid and<br />

correct so that assets are split according to their wishes and<br />

that the document is safely stored and accessible for when<br />

the family needs it. Too often, wills are tucked away but today<br />

technology offers us the opportunity to digitally store it with<br />

other important documents and to provide access for the<br />

family to these documents.<br />

It is not just about the paper though – when it comes to estate<br />

planning, the costs of winding up an estate and the immediate<br />

costs that are associated with death are often overlooked. For<br />

example, the average cost of winding up an estate is around<br />

3.5% plus VAT of the gross value of the assets. This type of cost<br />

needs to be worked into the investment planning to ensure that<br />

the money a consumer thinks their family is getting is realistic.<br />

Furthermore, with death comes funeral costs and today these<br />

start at around R15 000 and go all the way up to R100 000 or<br />

more. Even if you are at the upper end of the earning spectrum,<br />

let’s be honest… a R100 000 funeral can set most people back.<br />

Therefore, we need to encourage consumers to ensure<br />

that they are planning properly for the unforeseen – that<br />

they have life and funeral cover in place to protect their<br />

family’s financial future. This aids with not only living costs<br />

and obligations but with creating a buffer for the wealth one<br />

has created.<br />

We are now seeing growth in products that offer a “bit of<br />

both” ie life and funeral insurance together in one product<br />

(Pure Life Plus), with this combination in the more affluent<br />

market witnessing a higher sum assured. We have also<br />

identified the need for more tailored products specific to<br />

certain diseases – ensuring that customers are paying for<br />

something that is more likely to happen instead of paying a<br />

premium for products that are unlikely to result in claims. This<br />

will significantly change the status quo in certain product<br />

lines and those insurers who get it right will then have very<br />

unique and competitive products to offer the market – based<br />

on actual needs.<br />

As consumers are pressed to conserve their budgets<br />

while still delivering on their families’ financial futures<br />

– a combination product such as 1Life’s Pure Life Plus is<br />

creating a more cost-effective yet suitable way to manage<br />

their wealth. Some policies that allow<br />

for multiple covers and benefits may<br />

also offer savings on premiums for<br />

additional covers. For example, in our<br />

environment, consumers can save up<br />

to 28% on their premium compared to<br />

taking multiple stand-alone policies.<br />

Today, estate planning is not a nice<br />

to have, it is fundamental if we hope to<br />

preserve wealth for future generations.<br />

As a financial advisor and life insurer, we<br />

can play an active role in ensuring that<br />

we are a) providing the right products<br />

to meet changing budgets b) providing<br />

the right advice and c) creating access<br />

to technology and tools that enable<br />

effective and sound financial planning<br />

and that future-proofs their families’<br />

generational wealth. <br />

Kobus Wentzel, Head of<br />

Distribution, 1Life Insurance<br />

www.bluechipdigital.co.za<br />

55


When it Comes to Conviction<br />

Investment, “Quality Will Out”<br />

Attractive returns with risk control can be a reality.<br />

But it requires conviction investing, bottom-up analysis<br />

for quality and a rigorous discipline in valuation.<br />

Global Equity investing is about setting the widest possible horizons,<br />

freeing yourself from artificial boundaries and following your strategies<br />

wherever they lead.<br />

Nomura Asset Management (NAM) is a leading global investment<br />

manager and, with $463 billion¹ assets under management, we take<br />

a truly global view – a vision which lies at the heart of our flagship equity<br />

fund – the Global High Conviction Strategy (GHC).<br />

The fund is managed on a day-to-day basis by the London-based investment<br />

team. The team manages $4.5 billion 2 in global equities.<br />

We define our Nomura Global High Conviction Fund as a ‘Quality-Core’ strategy,<br />

with a bottom-up approach. This is to say the investment style is agnostic and<br />

not restricted or defined by sectors or geographies; nor is it distracted by short-term<br />

market trends or fluctuations. The team is driven by one thing only, to seek out Quality<br />

companies trading below their intrinsic values.<br />

Our Philosophy of Conviction<br />

The GHC philosophy of quality investment is underpinned by four key criteria – companies<br />

must meet all these metrics to be considered for the GHC portfolio:<br />

• Competitive advantage<br />

• Consistent cash returns<br />

‘Companies that meet these criteria can sustain strong returns over long time periods and they are far less likely to suffer<br />

irreversible declines in profitability. We use a proprietary model to identify stocks with strong and robust cash flow. This<br />

quality is often missed by the wider market and this creates the opportunity for our philosophy,’ says Francis Paxton, who<br />

oversees distribution of GHC into the South African market.<br />

The quality philosophy means GHC looks across the global universe of stocks, applying a ‘core’ approach, and<br />

unconstrained by any growth vs value overlay. ESG (Environmental, Social and Governance) factors are embedded in<br />

the selection process and unsustainable investments are screened out entirely. Quality, as an investment philosophy, is<br />

distinct from Growth and Value approaches, and allows GHC to function as a ‘Core’ style, combining both Value and<br />

Growth stances.<br />

Refining for Quality<br />

• Skilled management<br />

• A history of attractive returns on capital<br />

These filters narrow down the global equities markets to about 250 stocks that are in the NAM investment list. GHC then<br />

goes a step further and identifies only those stocks with significant upside to fair value. The team discusses in detail the<br />

profile of every potential investment and pinpoints a highly concentrated portfolio of about twenty stocks selected as<br />

high conviction quality investments.<br />

GHC buys into these equities at discount valuations – when prices are below long-term fair value. The<br />

strategy then realises profits as the equities return to exceed that fair value, generating cash to reinvest in<br />

the next quality opportunity. The aim is to be fully equity invested, but GHC does not shy away from<br />

temporarily holding cash when necessary – the philosophy is to buy quality stocks when<br />

they are under-priced, not to buy for the sake of buying.


NOMURA ASSET MANAGEMENT<br />

Beating the Benchmark<br />

The outperformance of quality stocks has been a feature of global markets for decades.<br />

The MSCI’s Quality Index has outperformed the MSCI World Index by 2.5x over the last 40 years 3 .<br />

Market prices have regularly under-valued quality stocks in periods of turbulence.<br />

Performance of MSCI World Quality relative to MSCI World<br />

300<br />

250<br />

200<br />

150<br />

100<br />

50<br />

0<br />

1981<br />

1982<br />

1983<br />

1984<br />

19<strong>85</strong><br />

1986<br />

1987<br />

1988<br />

1989<br />

1990<br />

1991<br />

1992<br />

1993<br />

1994<br />

1995<br />

1996<br />

1997<br />

1998<br />

1999<br />

2000<br />

2001<br />

2002<br />

2003<br />

2004<br />

2005<br />

2006<br />

2007<br />

2008<br />

2009<br />

2010<br />

2011<br />

2012<br />

2013<br />

2014<br />

2015<br />

2016<br />

2017<br />

2018<br />

2019<br />

2020<br />

2021<br />

Source: Bloomberg and Nomura Asset Management. This chart shows MSCI world Quality total return index divided by MSC World total return index<br />

rebased to 100.<br />

‘It is this market inefficiency that gives us the opportunity to buy at a discount valuation for all of the $5bn our team<br />

manages. We invest at below the intrinsic value of companies and the result is attractive alpha with strong risk controls,’<br />

says Francis Paxton. The team has a quality bias, and they never move away from that. Clients know what they have<br />

invested in, which Nomura believes is very important.<br />

The team’s shared philosophy, underpinned by a rigorous analysis and valuation discipline, allows GHC to target threeyear<br />

rolling average returns of 3-5% (gross of fees) above the benchmark MSCI All Country World Index.<br />

‘Our team never lose sight of the core quality factor, because behind the markets’ fluctuations and the trends for sectors<br />

and geographies it is quality that counts in the end,’ says Francis Paxton.<br />

Notes:<br />

1) As at end of June 2022, Nomura Asset Management.<br />

2) As at end of July 2022.<br />

3) Source: Bloomberg, Nomura Asset Management.<br />

Disclosures<br />

This document was issued and distributed by Prime from sources it reasonably believes to be accurate.<br />

The information in this report is not intended in any way to indicate or guarantee future investment results as the value of investments may go down as well as up. Values may also be affected<br />

by exchange rate movements and investors may not get back the full amount originally invested. Before purchasing any investment product, you should read the related risk documentation in<br />

order to form your own assessment and judgement and, to make an investment decision.<br />

The fund is a sub-fund of Nomura Funds Ireland plc, which is authorised by the Central Bank of Ireland as an open-ended umbrella investment company with variable capital and segregated<br />

liability between its sub-funds, established as an undertaking for Collective Investment in Transferable Securities under the European Communities (Undertakings for Collective Investment in<br />

Transferable Securities) Regulations 2011. The UCITS fund is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be<br />

contrary to law or regulation.<br />

This is a marketing communication. Please refer to the prospectus and to the KIID before making any final investment decisions.<br />

The prospectus, key investor information document (KIID) and other fund related materials are available in English and, for the KIID, in the official language of the countries in which the fund is<br />

available for distribution on the Nomura Asset Management U.K. Ltd. website at https://www.nomura-asset.co.uk/fund-documents/<br />

Nomura Asset Management U.K. Ltd. is authorised and regulated by the Financial Conduct Authority.<br />

A summary of investor rights in English and information on collective redress mechanisms are available at https://www.nomura-asset.co.uk/download/funds/how-to-invest/Summary_of_<br />

investor_rights.pdf. Nomura Asset Management U.K. Limited may at any time decide to terminate arrangements it may have made for the marketing of units of a fund in a state other than its<br />

home member state.<br />

The sub fund has been approved by the Financial Services Conduct Authority (FSCA) as a section 65 fund. Prime Collective Investment Schemes Management Company (RF) (Pty) Ltd (“Prime CIS”)<br />

is a registered Collective Investment Schemes Manager in terms of Section 5 of the Collective Investment Schemes Control Act (CISCA) and the South African representative office for this fund.<br />

Please refer to the MDD of the fund on the Prime Website (www.primeinvestments.co.za) for more information about the fund and a full disclaimer specifically related to South African investors.<br />

SFDR Disclosure<br />

The EU Sustainable Finance Disclosure Regulation (“SFDR”) requires investment firms to formalise how sustainability is integrated into their business and processes, and to make new public<br />

and client-facing disclosures on sustainability matters. The aforementioned disclosures relating to Nomura Asset Management U.K. Limited are published on our website at https://www.<br />

nomura-asset.co.uk/responsible-investment/esg-sustainable-investment/. Product related disclosures regarding Nomura Funds Ireland Plc and its sub-funds can be found in the prospectus.<br />

Nomura Funds Ireland – Global High Conviction Fund is an Art. 8 fund according to SFDR.


BLUE<br />

CHIP<br />

DFM COMMODITIES<br />

A partnership worth its weight in gold<br />

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with state-of-the-art technology taking gold out of the dark and into the light.<br />

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bullion and numismatic (collection of coins) products<br />

to South Africa, and we are constantly evolving to<br />

find a future that redefines gold ownership for all. In<br />

2021, we recognised the innovation of Troygold’s Fractional<br />

Ownership Technology, which allowed clients to access their<br />

gold holdings on an app and save and spend with a single tap.<br />

As a result, we have continued to build our relationship with<br />

Troygold, the non-bank for gold believers.<br />

This collaboration was motivated by Troygold aligning with<br />

our belief that gold is for everyone. Troygold is building financial<br />

tools for gold owners, allowing customers to save, spend and now<br />

access liquidity. Co-founders, Dane and Bastiat Viljoen, saw a gap<br />

for a technology-led solution that would extend financial services<br />

to physical gold owners.<br />

Troygold is shaking up the gold value chain by introducing the<br />

Troygold Loan Facility. Holders of physical gold can now transact<br />

and borrow within the secure ecosphere of the Troygold app and<br />

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gold standard, with the client in control.<br />

How does this work? Troygold clients will be able to access cash<br />

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Gold has a 6 000-year track record as a<br />

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and payment platform. This cheque account is sponsored by<br />

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What does this mean for The South African Gold Coin Exchange<br />

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new solutions to our clients who have become accustomed to<br />

gold coin collecting, introducing continued innovation to reshape<br />

the industry and advance the relevance of gold in the digital age.<br />

Gold has a 6 000-year track record as a safe store of value<br />

and is the only money that carries no<br />

counterparty risk. In a volatile world,<br />

gold offers a haven asset that always<br />

maintains value. However, most gold sits<br />

in the dark in vaults and in safety deposit<br />

boxes. Troygold has engineered a way to<br />

“light up” that gold with utility and turn<br />

it into something gold owners can use<br />

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This agreement will enable a broader<br />

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especially since gold is a finite resource<br />

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African Gold Coin Exchange &<br />

The Scoin Shop<br />

58 www.bluechipdigital.co.za


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CALL 011 784 <strong>85</strong>51 OR EMAIL CEO@SAGOLDCOIN.COM


BLUE<br />

CHIP<br />

INVESTMENT<br />

ETF investing:<br />

why and how?<br />

The Johannesburg Stock Exchange (JSE) announced<br />

in early September that actively managed exchangetraded<br />

funds (ETFs) will be allowed to list from October<br />

2022. This is a notable milestone for the ETF industry in<br />

South Africa. ETFs are an efficient wrapper that can make a wide<br />

range of investments easily accessible to all types of investors.<br />

This news once again reminds us why we describe the rise of<br />

ETFs as “the democratisation of investing”.<br />

The market for ETFs has exploded in recent years as<br />

institutional and retail investors seek to diversify their<br />

portfolios while keeping costs in check. However, given the<br />

wide range of funds available, many investors are apprehensive<br />

about how these funds work and where to start.<br />

In this article, we’ll unpack some of the ways that wealth<br />

managers use ETFs in their clients’ portfolios.<br />

For example, an investor may choose to have a core exposure<br />

to South African equities while boosting yield income by adding<br />

South African property and bonds as satellite investments.<br />

They can then enhance diversification by including satellite<br />

investments into global equities, global property and global<br />

bonds. This example is illustrated below, however there are<br />

many more possible iterations. For example, an investor may<br />

want to have meaningful allocations towards Asian equities, the<br />

US tech sector or a theme such as electric vehicles.<br />

CoreShares Investment Managers<br />

CoreShares Investment Managers<br />

ETFs are generally liquid funds, which means that multi-asset strategists<br />

can tilt their portfolios to express tactical views cheaply and easily. Broad<br />

market exposures can also be upweighted or replaced by sector-specific<br />

views and/or thematic ETFs as needed.<br />

ETFs are simple, accessible and appropriate for all types of<br />

investors and can play a number of important roles in all<br />

portfolio types.<br />

ETF USE CASE 1: THE MULTI-ASSET STRATEGIST<br />

When constructing a portfolio with financial goals in mind,<br />

the first place to start is asset allocation – deciding how<br />

much to allocate towards different types of assets. In this case,<br />

ETFs focused specifically on the individual exposures can be<br />

used as building blocks to create a bespoke portfolio. These<br />

products offer a simple, efficient and cost-effective way to gain<br />

exposure to entire asset classes, sectors, themes or regions.<br />

ETF USE CASE 2: CORE-SATELLITE<br />

Passive ETF in the core<br />

Another common approach to using passive ETFs in a portfolio<br />

is the “core-satellite” model. By using ETFs in the “core” of their<br />

portfolio, an investor instantly achieves low-cost, broad-market<br />

exposure and diversification. This is a cost-effective and simple way<br />

to accurately implement asset allocation decisions, while avoiding<br />

any style drift that might creep in when using an active manager.<br />

Once the core investment – or building block – is in place,<br />

the investor may seek outperformance by adding satellite<br />

investments – for example, high-conviction stock picks or even<br />

actively managed funds.<br />

60 www.bluechipdigital.co.za


INVESTMENT<br />

BLUE<br />

CHIP<br />

CoreShares Investment Managers<br />

MORE ETF USE CASES<br />

In addition to forming long-term holdings in the core, the<br />

satellite or as building blocks in a multi-asset global strategy<br />

(as seen in the use cases 1 to 3 in this series), ETFs can also be<br />

used very effectively as portfolio management tools for other<br />

purposes. For example:<br />

• Tactical tilting<br />

• Short-term equitisation of smaller cash flows<br />

• Transition management<br />

• Liquidity sleeve<br />

• Immediate and/or short-term access to theme or geography<br />

while completing the research to make high-conviction single<br />

stock or active manager selections<br />

• And many more…<br />

Under this approach, the investor blends both active (stock<br />

picking) and passive investment strategies (ETFs) to build a lowercost<br />

portfolio that can deliver outperformance (alpha) relative to<br />

pure market returns.<br />

ETF USE CASE 3: CORE-SATELLITE<br />

Passive ETF in the satellite<br />

By contrast, many portfolio managers find themselves<br />

managing a long-term basket of high-conviction stock picks for<br />

an investor; however, for a variety of reasons, the portfolio may<br />

not be entirely suitable for current market conditions or the<br />

immediate needs of the investor. In these situations, ETFs form<br />

handy satellite investments which are built around the longterm<br />

share portfolio in the core, to tweak the overall portfolio<br />

for the desired purpose. For example, an investor may require<br />

a higher yield than that currently offered by the long-term<br />

share portfolio, in which case the portfolio manager can add<br />

higher yielding asset classes such as bonds or property ETFs<br />

for example. Alternatively, the portfolio manager might have<br />

a high-conviction tactical market view on a particular asset<br />

class, sector or theme, which can easily be accessed via an<br />

ETF and added to portfolio as a satellite investment.<br />

The market for ETFs has exploded in<br />

recent years as institutional and retail<br />

investors seek to diversify their portfolios<br />

while keeping costs in check.<br />

Credit: CoreShares Investment Managers<br />

CoreShares Investment Managers<br />

In summary, ETFs are used by<br />

a wide variety of investors in<br />

many ways. Research shows<br />

that investors who start to<br />

use ETFs will, in almost all<br />

cases, go on to use them more<br />

extensively, in larger sizes and<br />

in more ways than one. They are<br />

efficient and cost-effective tools<br />

that “do what they say on the<br />

tin” and we will continue to see<br />

widespread adoption in South<br />

Africa, as we have globally. <br />

Michelle Noth, CFA, Client<br />

Coverage Executive, CoreShares<br />

Investment Managers<br />

www.bluechipdigital.co.za<br />

61


BLUE<br />

CHIP<br />

INFLATION<br />

FORGET SOFT LANDINGS<br />

How much of a recession is needed to tame inflation? We look back at how inflation<br />

responded in previous downturns to help gauge the scale of the adjustment<br />

in growth and unemployment needed to tame it this time around.<br />

Since the last interest rate move by the Federal Reserve<br />

(Fed) on 27 July, investors have taken a more optimistic<br />

view of when the central bank can bring monetary<br />

tightening to a close. Markets are now pricing in a “Fed<br />

pivot” in late 2023, when the central bank is expected to cut<br />

interest rates. Two factors have supported the move.<br />

First, Jerome Powell, chair of Federal Reserve of the United<br />

States (US), has said that US interest rates are now neutral,<br />

indicating that the initial adjustment from the ultra-easy<br />

pandemic policy is over and that future rate decisions will be<br />

taken on a meeting-by-meeting basis depending on the data.<br />

Second, that data shows the economy cooling as retail<br />

spending and housing slow. The latest GDP figures showed the<br />

US economy contracted in the first two quarters of the year and<br />

although they overstate the weakness of the economy, final<br />

demand clearly softened.<br />

However, despite signs of slowdown the likelihood of a more<br />

pessimistic outcome on policy, where interest rates must remain<br />

higher for longer, has significantly increased in our view. The<br />

obstacle to a Fed pivot is the high level of underlying inflation<br />

and the strength of the labour market, as evidenced by the<br />

latest employment report which showed a significant increase<br />

in payrolls and a further fall in unemployment.<br />

An analysis of past cycles shows that it would be a rare<br />

achievement for an economy which is so late in its cycle to bring<br />

inflation back to target without a fall in activity, or an outright<br />

recession. In our view, it would be better if the Fed took a leaf<br />

out of the Bank of England’s playbook and acknowledged this,<br />

rather than projecting soft landings.<br />

CYCLES AND INFLATION: A LOOK BACK AT THE PEAK<br />

The rapid rebound in the US since the economy reopened from<br />

Covid restrictions last year has taken activity above its long-run<br />

trend, as evidenced by a tight labour market and high-capacity<br />

utilisation rates in industry. At 3.5% the unemployment rate is<br />

well below estimates of equilibrium, or the Non-Accelerating<br />

Inflation Rate of Unemployment (NAIRU) (the lowest level of<br />

unemployment that can occur in the economy before inflation<br />

starts to rise). The Congressional Budget Office (CBO) put this at<br />

4.4% in the second quarter. Meanwhile, CPI inflation has risen<br />

to 9.1%, its highest level for 40 years. Relative to previous peaks<br />

since 1960, the current position compares with an average CPI<br />

inflation rate of 6.1% and an unemployment rate 0.5% below the<br />

NAIRU (Chart 1).<br />

Chart 1: US inflation and unemployment – today versus previous cycles<br />

Source: Refinitiv, NBER, Schroders, 1 August 2022. 605742<br />

62 www.bluechipdigital.co.za


INFLATION<br />

BLUE<br />

CHIP<br />

Chart 2: Growth – inflation trade-offs during recessions<br />

Source: Refinitiv, NBER, Schroders, 1 August 2022. 605742<br />

The US is clearly late in its cycle and as signs of slower growth<br />

come through, we would argue that the economy probably<br />

reached a peak relative to trend in the current quarter.<br />

How much of a slowdown in activity is needed to bring the<br />

inflation down?<br />

To help answer this we have looked back at previous peaks in<br />

the cycle to gauge the effect of the subsequent contraction in<br />

output on unemployment and inflation.<br />

According to the NBER, there have been nine previous<br />

occasions since 1960 where the economy has been at a peak.<br />

In each case the economy then went into recession, before<br />

troughing out several months later. The last such contraction took<br />

place between February and April 2020 – the shortest recession<br />

on record.<br />

Prior contractions in the US since 1960 have lasted between<br />

six and 18 months and are more typical of what we might expect<br />

going forward. Looking at those eight cycles, the average fall<br />

in GDP was 1.6% from peak to trough and the unemployment<br />

rate rose by 2.5 percentage points (pp), moving from below to<br />

above the NAIRU. On the CPI measure, inflation fell by 1.5 pp<br />

on average.<br />

There was a wide range of experience, with inflation falling<br />

by more than average during the “Great Recession” of 2007-09<br />

and the second “Volcker” recession of 1981-82, when GDP fell<br />

3.8% and 2.5% and inflation by 5.5 and 6.2 pp respectively. The<br />

worst outcome in terms of the growth-inflation trade-off was<br />

1973-75 when, despite a contraction of 3.1% in GDP, inflation<br />

rose 2%, a severe case of stagflation (see Chart 2).<br />

So how does this relate to the current position? So far, we<br />

have seen that a significant fall in GDP has been needed to bring<br />

a major fall in inflation. For example, a six pp fall in CPI inflation<br />

from current levels to 3% would require a decline in GDP of just<br />

over three pp based on the two major recessions mentioned<br />

above. In terms of the impact on jobs, the unemployment rate<br />

would rise by around four pp to 7½%.<br />

From this perspective, the Fed’s projected soft landing<br />

where growth slows to just below 2% and inflation falls below<br />

3% in 2023 looks like wishful thinking. However, before we<br />

dismiss the Fed’s forecasts completely, we need to dig deeper<br />

into the current high CPI inflation rate. Are there reasons to<br />

believe that inflation may come down more easily, ie with less<br />

output loss or a smaller increase in unemployment?<br />

To start, commodity prices have played a significant role in<br />

boosting inflation. If we strip these out, then inflation on the<br />

Fed’s preferred measure (the core PCE deflator) is running at<br />

5.2%. A fall in inflation back to 2% from here would be less<br />

onerous. However, the sensitivity of core PCE inflation to changes<br />

in GDP is also lower. For example, in the two major recessions<br />

cited earlier the impact of GDP on inflation is more than halved,<br />

so we would still need a three pp fall in GDP to generate a fall in<br />

core inflation of just over 2%.<br />

Nonetheless, that would still bring inflation closer to target.<br />

Would such a downturn in the US also lead to lower commodity<br />

prices, helping to drive headline inflation down further? In the<br />

past a US recession could be expected to trigger just such a<br />

fall as global demand weakens, but today the outcome would<br />

be very dependent on how the world economy adjusts to the<br />

www.bluechipdigital.co.za 63


BLUE<br />

CHIP<br />

INFLATION<br />

potential loss of Russian supply. It is possible that shortages<br />

keep oil (and commodity prices in general) elevated, even<br />

with a US recession.<br />

So far it looks as though a significant slowdown<br />

in GDP will be needed to hit the Fed’s inflation goals.<br />

However, our historical comparison does not capture the<br />

structural changes in the world economy over the past<br />

60 years. The success in keeping inflation low and stable<br />

for a considerable period of time means that inflation<br />

expectations remain well anchored.<br />

One of the reasons inflation proved so stubborn during<br />

the 1970s and early ’80s was the pick-up in wages which<br />

followed the initial spike in inflation. Subsequent secondround<br />

effects kept inflation high as wages and costs rose.<br />

To a large extent this reflected a lack of belief in the ability<br />

of the authorities to bring inflation down.<br />

Chart 3 shows that inflation expectations (both short<br />

and medium term) were elevated in the late 1970s<br />

and when combined with strong trade unions and<br />

labour bargaining power, it was not surprising that pay<br />

accelerated and the economy entered a wage price spiral.<br />

Consequently, unemployment had to rise significantly to<br />

bring wage growth down.<br />

Chart 3: Faith in the Fed? Inflation expectations rise short term but not further out<br />

Source: Refinitiv, University of Michigan, Schroders, 2 August 2022. 605742<br />

Today the picture is different, although short-run<br />

inflation expectations and wage growth have picked<br />

up with the tight labour market, medium-term price<br />

expectations remain stable. Short-run expectations,<br />

which tend to be sensitive to the price of gasoline, have<br />

risen, but over five years households expect inflation to<br />

be close to target. If sustained, this bodes well for the<br />

labour market adjustment; unemployment need not rise<br />

as much if wage growth is contained.<br />

Greater central bank credibility<br />

and possibly lower commodity<br />

prices could help bring inflation<br />

down faster than in the past and<br />

at less cost in terms of output<br />

and employment. However, the<br />

fundamental problem remains:<br />

the US economy and much<br />

of the world is late cycle and<br />

overheating.<br />

Monetary policy is a blunt<br />

instrument in these circumstances,<br />

with central banks being forced to<br />

tighten until unemployment rises<br />

and sufficient slack is created. In<br />

our view, this would point to a fall<br />

in GDP of around 2% from peak<br />

to trough, less than in the Great<br />

Recession or Volcker era, but still<br />

significant and more than the<br />

current consensus of economists.<br />

Keith Wade, Chief Economist and<br />

Strategist, Schroders<br />

FORGET THE SOFT LANDING<br />

To achieve this the Fed will have to tighten further and take<br />

interest rates above their current view of neutral. Rates will be<br />

higher for longer, but that does<br />

not mean tightening relentlessly<br />

until unemployment is 6% or 7%,<br />

for example. The lags from higher<br />

rates to the economy mean that the<br />

Fed should proceed cautiously as<br />

the full impact is not felt for many<br />

months later. In this respect there<br />

is scope for a Fed pivot toward the<br />

end of next year, with rates likely<br />

to be easing as the economy falls<br />

into recession.<br />

Although the Fed’s options<br />

are limited, it could take a leaf<br />

out of the Bank of England’s<br />

(BoE) book. The BoE has taken<br />

considerable flack for forecasting<br />

a significant recession in the UK<br />

with inflation only moving slowly<br />

towards target. However, no-one could argue that they have<br />

not warned people, giving households and businesses a signal<br />

to what is ahead.<br />

In this respect it would be helpful if chair Powell and the Fed<br />

stopped projecting a US soft landing. A look back at history shows<br />

that such forecasts only give false hope and create a further<br />

misallocation of resources. Politically this is difficult, but the earlier<br />

households and firms can start to make the inevitable adjustments<br />

the better. <br />

64 www.bluechipdigital.co.za


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www.bluechipdigital.co.za 65


BLUE<br />

CHIP<br />

FINANCIAL PLANNING<br />

Will financial planners<br />

ever be professionals?<br />

In a recent article in Citywire, Stephen Cranston states that<br />

“Financial advisors are not, and never will be, professionals<br />

like doctors, lawyers and accountants.” He suggests that<br />

financial planners don’t “go through years of university<br />

training and articles” and that most financial planners join the<br />

industry from one of the large agency forces where they have<br />

received “great training” from the life offices in “sales and client<br />

service skills”.<br />

As a CFP® professional, I am disappointed by Cranston’s<br />

comments. I work closely with many financial planners who<br />

were lawyers or accountants in a previous career or have<br />

completed their MBA, CFA or other postgraduate qualifications<br />

and are CFP® professionals. Furthermore, universities now<br />

offer degrees in financial planning and the CFP® professional<br />

designation requires post-graduate study and work experience<br />

akin to articles. But we only have around 3 500 practicing<br />

CFP® professionals in South Africa, whereas according to<br />

PI Financial Intelligence Services there are 11 750 financial<br />

service providers (FSPs) and 197 000 representatives in South<br />

Africa. Clearly there are many salespeople out there peddling<br />

financial products under the guise of financial advice, which<br />

provides some rationale for Cranston’s comments.<br />

His comments are made in the broader context of an<br />

article which considers the merits of financial advisors using<br />

discretionary fund managers (DFMs). Cranston does suggest<br />

that “realistically it makes sense for financial advisors to<br />

outsource fund selection and asset allocation – unless they<br />

belong to larger integrated practices which have a strong<br />

investment management competence in their own right”.<br />

However, for those financial planners who do use a DFM, he<br />

questions their professionalism.<br />

As Cranston says, “Financial advisors love to use the<br />

analogy of the family doctor or GP. Following that logic, GPs<br />

can write a script prescribing the medicine patients need<br />

when they have flu, so equally advisors should be able to<br />

take out their pad and ‘prescribe’ the medicines, or funds,<br />

their clients need.” He goes on to say, “You would be puzzled<br />

if you arrived at the GP’s office and he or she said: ‘We don’t<br />

66 www.bluechipdigital.co.za


FINANCIAL PLANNING<br />

BLUE<br />

CHIP<br />

The two most important professions of the<br />

21st century are, undoubtedly, the medical<br />

profession and the financial planning profession.<br />

believe in this practice that we have the competence to pick<br />

prescription drugs, so I have hired a third party to do that<br />

for us.’”<br />

The analogy of the GP is wholly appropriate. Financial<br />

planners require knowledge and skills to advise clients not<br />

just on investments, but a range of matters from budgeting,<br />

tax and estate planning, to long- and short-term risk<br />

planning and healthcare. And these are just the technical<br />

aspects of a financial planner’s job. The important human<br />

aspect of financial advice, where a financial advisor helps<br />

a client integrate their life and money decisions, is gaining<br />

recognition with the inclusion of Financial Psychology in<br />

CFP® curriculums around the world.<br />

When a financial planner uses a DFM, it’s not like a<br />

GP saying they don’t have “the competence to pick<br />

prescription drugs”. Rather it’s like a GP using a specialist,<br />

be it a cardiologist, physician or nutritionist. The financial<br />

planner will determine what is needed from a client’s<br />

investment and what would be an appropriate portfolio<br />

to invest in, but it will be structured and implemented<br />

using a specialist. In the same way, a GP may pick up<br />

an anomaly in their client’s heartbeat, but they won’t<br />

intervene in an area where a cardiologist is the specialist.<br />

As most financial planners are GPs, they may use<br />

specialists in other areas beyond investments, such as<br />

tax consultants or fiduciary specialists. Importantly, in<br />

the same way that a GP will collaborate with a medical<br />

specialist about a patient’s condition, much collaborative<br />

work happens between the financial planners and the<br />

specialists they use. After all, the financial planner remains<br />

the guardian of the client’s financial health.<br />

As a follow-up to his Citywire article, Cranston tweeted, “I<br />

hear the core job of the financial advisor is to talk you off the<br />

ledge for 100 basis points a year. My psychologist can do the<br />

same job for the equivalent of 0.05 basis points a year.” There<br />

are many potential ledges that a client can find themselves<br />

on, but I am assuming in this instance talking a client “off<br />

the ledge” means preventing a client from capitulating when<br />

markets are down, rather than doing something stupid with<br />

their money like buying a fancy car they can’t afford.<br />

If a financial planner can prevent a client from cashing in<br />

their investments to lock in losses, then they are likely to be<br />

saving a client a lot more than 100 basis points a year. Since<br />

1984, independent investment research firm Dalbar Inc. has<br />

published its annual Quantitative Analysis of Investor Behavior<br />

report, which studies the returns that investors get versus<br />

the returns of their investments. The study consistently finds<br />

investor returns are materially lower than their investments.<br />

The gap between the two is often referred to as the “behaviour<br />

penalty” which according to the 2022 Dalbar study, was 3.5%<br />

per annum over the last 30 years. In the short term, the gap<br />

can be higher, as in 2021 when the number was closer to 10%.<br />

No surprise given the uncertainty and stress that many clients<br />

experienced during the Covid pandemic.<br />

The 2022 edition of the Dalbar report concludes that<br />

investment results are more dependent on investor behaviour<br />

than fund performance. It seems there is some value to talking<br />

clients off the ledge. I believe influencing a client’s behaviour<br />

is a key part of a financial planner’s role but is most effective<br />

once a long-term financial plan funded by a sound longterm<br />

investment portfolio is in place. How much value does<br />

influencing behaviour add? Vanguard estimates that a financial<br />

planner adds about 3% per annum to a client’s portfolio, half<br />

of which is through behavioural coaching while a 2021 paper<br />

by Russell Investments puts the number at 2.02% per annum.<br />

Ironically, the World Economic Forum (WEF), in its 2018<br />

Future of Jobs Report, predicts that technology will make<br />

accountants and lawyers redundant, as well as sales agents<br />

and brokers. Financial and investment advisors on the other<br />

hand are predicted by the WEF to be stable professions. This<br />

is of course only if a key part of their role is “talking their<br />

clients off the ledge”. Technology after all will do much of the<br />

technical work for financial planners. In fact, Michael Kitces,<br />

a leading US financial planner and commentator, has stated:<br />

“The future of financial planning is not about dispensing<br />

expert financial advice, but helping clients engage in financial<br />

behaviour change.”<br />

The role of a financial planner is so much more than writing<br />

a prescription for investments or any other financial product.<br />

It is about helping clients achieve holistic financial health<br />

and this is where the analogy with the GP comes full circle.<br />

The two most important professions of the 21st century are,<br />

undoubtedly, the medical profession and<br />

the financial planning profession. People<br />

are going to live longer and they are going<br />

to need their money to last longer. Nobody<br />

would entrust their physical health to a<br />

distributor of pharmaceutical products rather<br />

than a doctor. Nor should they entrust their<br />

financial health to a distributor of financial<br />

products, but to a professional financial<br />

planner who prescribes products rather than Rob Macdonald, Head of<br />

sells them. That’s of course when they are not Strategic Advisory Services,<br />

talking their clients off the ledge! <br />

Fundhouse<br />

REFERENCES<br />

Dalbar Inc, Quantitative Analysis of Investor Behavior, 28th Edition<br />

Stephen Cranston, “Investor Notes: How I’ve come around on DFMs”, Citywire, 9 September 2022<br />

World Economic Forum, “The Future of Jobs Report”, 2018


BLUE<br />

CHIP<br />

CUSTOMER EXPERIENCE<br />

CX changes everything<br />

Unless you have a monopoly, customer experience, or<br />

CX as it is sometimes referred to, is the single most<br />

important thing that you need to get right for your<br />

business to thrive. The difficulty is that it is pervasive<br />

to your business and covers everything from your first contact<br />

with the client to the last.<br />

Think about your own experiences as a customer. Start<br />

with companies where you had a poor experience. There are<br />

many things that drive poor experience, but they are usually<br />

tangible like bad products or shoddy service. Because of your<br />

bad experience, you probably have not gone back to those<br />

companies and, more importantly, you may have told your<br />

friends and family about the poor experience.<br />

By contrast, think of companies where you had a fantastic<br />

customer experience. In these instances, it is possible that<br />

it was something tangible that made it exceptional, but it is<br />

equally likely that it was the way that you felt that made all<br />

the difference. And I’m pretty sure that you returned to those<br />

companies and referred some of your friends.<br />

If you want to create great experiences for your customers,<br />

all you need to do is think about your business from their<br />

perspective. There isn’t sufficient space in this article to cover<br />

all aspects of your CX, but let’s make this real by considering the<br />

example of the first meeting with a potential new client who<br />

has been referred by an existing client.<br />

Are your offices easy to find? Is there parking nearby? Did<br />

someone offer them tea, coffee or water? Was it good tea or<br />

coffee? You don’t want their first experience to be awful coffee<br />

– remember, your goal is for the client to want to return to your<br />

office. Did you explain all the services that you offer?<br />

By far the most important thing in a first meeting is whether<br />

the client felt that you made an effort to understand their context<br />

and the problems that they are trying to solve. Did you listen<br />

or were you merely waiting to continue talking about yourself?<br />

You need to apply the same logic when looking at every<br />

touchpoint with the client. In some instances, your CX needs<br />

to be very good, while in others it merely mustn’t be bad. That<br />

If you want to create great<br />

experiences for your customers, all<br />

you need to do is think about your<br />

business from their perspective.<br />

might sound strange, but you must remember that this all<br />

comes down to a return on investment, and you’ll find that the<br />

return on a very expensive carpet is poor.<br />

Even if you work through your entire business, you may<br />

have blind spots that are important to your clients. Just think<br />

of the famous example of the advisor who unexpectedly lost a<br />

few older clients because they found his sofa too soft and were<br />

too embarrassed to say that they couldn’t stand up. Therefore,<br />

it is always a good idea to ask your clients for feedback on what<br />

they do/don’t like about your practice.<br />

A final thought is that you do not have enough time or<br />

money to give all your clients the same fantastic experience.<br />

This means that you need to segment your clients and ensure<br />

that your C and D clients get a good<br />

experience, your B clients get a<br />

better (more expensive and timeconsuming)<br />

experience, and your A<br />

clients get the best experience.<br />

In conclusion, great CX improves<br />

client retention, increases referrals,<br />

grows profit and enhances the<br />

value of your business. In some<br />

cases, you’ll need to implement the<br />

right technology to do things like<br />

communicating effectively with all<br />

your clients. But the biggest changes<br />

will come when you implement<br />

new processes, upskill your staff and<br />

change some of your habits. <br />

Guy Holwill, Chief Executive<br />

Officer, Fairbairn Consult<br />

Fairbairn Consult is an authorised Financial Services Provider and a member of the Old Mutual Group.


YOUR BUSINESS IS ABOUT CREATING AND<br />

PROTECTING WEALTH FOR YOUR CLIENTS,<br />

OURS IS ABOUT HELPING YOU DO THE SAME<br />

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and member of the Old Mutual Group.


BLUE<br />

CHIP<br />

FINANCIAL PLANNING<br />

In need of a crisis<br />

Why do we so often wait for a crisis before we act?


BLUE<br />

CHIP<br />

PORTFOLIO FINANCIAL PLANNING CONSTRUCTION<br />

Why do we wait for the day we get a health scare<br />

like a heart attack or cancer before we decide to<br />

change our lifestyle? Why do we push to the point<br />

of burnout before we scale back a bit? Why do we<br />

wait until our 60th birthday before we decide to start planning<br />

for retirement?<br />

When the oil magnate John D Rockefeller’s doctor was asked<br />

to comment on how he lived to the age of 97 he revealed a skill<br />

many of us can envy: “[he] gets up from the table while still a<br />

little hungry”.<br />

There is more than one reason why we don’t act. The<br />

procrastination tendency is one for sure. What are the reasons<br />

we procrastinate? Might it be because we do not know when<br />

an event will happen?<br />

If you knew without doubt that the next unhealthy meal<br />

would be the last before a heart attack struck, would you<br />

consume it? If an F1 driver knows that if he keeps on pushing,<br />

his tyres will fail and he will be out of the race during the next<br />

lap, will he keep on pushing? If we know that markets will<br />

come crashing down after a big rally, would we leverage up<br />

and buy more?<br />

Deep down inside I would desperately like to think that all<br />

of us would answer a resounding “no” to the questions posed,<br />

I am not sure that will always be the case.<br />

Even if we know something will happen, if we have not<br />

experienced So, it before, will the even US still if we be have the largest read it, economy it is the exceptional over the next few<br />

self-disciplined decades? that Will will China act take rather their than crown? react Will and Europe reach or for Japan more. wake up<br />

Another again? reason And will why their we respective do not act markets when follow? it is so No-one clear knows, we even<br />

need to, though doesn’t many come has down an opinion. to, “I just Either didn’t way, have buy a time low-cost to get index that<br />

to it today.” references It simply the comes major stock down markets to priorities. and economies of the world. An<br />

In essence, example, what the you Vanguard are saying Total World when Index you with are “so a fee busy, of only that 0.08% per<br />

I just do annum. not have Buy the and time,” hold is for “this as long is not as possible. a priority at this point<br />

of my day or The life, overall I will asset get to allocation it later when and in it particular is”. But, alas, the we allocation<br />

rarely do. to bonds is a bit trickier. The average US 10-year bond yield in<br />

If we 1980 redefine was 11.43%, the consequences versus the average of not prioritising, yield in 2020 we of 0.89%.<br />

might be Remember able to change if yields the decrease, way we think bond about prices the increase, future and so this was<br />

hopefully a aid phenomenal us in our decision-making bond bull market. process Could of rates when go to lower act. still?<br />

Grant Possibly. Statham Are is an rates avalanche going forecaster to go consistently at Parks Canada. lower for His the next<br />

title is descriptive few decades? in that Probably his job not. is to try to predict when, and<br />

the severity The of, avalanches allocation to in bonds the park. and Statham bond alternatives has a definition versus equity<br />

of risk that depend is worth on two contemplating. aspects that are intertwined. He describes Firstly, risk your as “the investment<br />

likelihood period of something and secondly, happening your ability times to stomach the consequence volatility. The of longer<br />

that event”. your He time goes horizon, on to ask, the “Are lower you your skiing allocation a large, to open bonds slope should be<br />

or a short, and narrow the lower one? your Are volatility you skiing absorption in the trees threshold, or out the in higher the your<br />

open? How allocation exposed to bonds are you should if an be. avalanche A quality occurs?” financial advisor should be<br />

able to assist here with ease.<br />

What are the There avalanches are alternatives you or your to traditional clients should sovereign heed bonds more in highyield<br />

to? corporate bonds. Although the probability of default is<br />

attention<br />

Will the higher avalanche than of their having sovereign no life counterparts, insurance cause so too a is family the expected<br />

to be in return. enormous If, however, financial offshore difficulty bonds if it does are not happen? expected Small to provide<br />

likelihood an on inflation-beating any given day, return but large in the consequence.<br />

medium to perhaps even the<br />

Will you long be term, in trouble are there at age other 60 tools if you a private have not investor spent any can access<br />

time, up that until provide then, on some planning sort of for downside the future? protection High likelihood, with a higher<br />

large consequence.<br />

probability than bonds to deliver inflation-beating returns?<br />

Will your investment portfolio suffer destructive consequences<br />

if it is well diversified, and another Enron or Steinhoff event<br />

happens? Low likelihood, low consequence.<br />

One of the world organisations (not named here out of the<br />

respect of the great work they do we), has a “top priority list” of<br />

more than 100 priorities it aims to focus on. Having 100 focus<br />

points is not a priority list, it is not even a shopping list, it is<br />

more like a wish list.<br />

Incrementalism is a philosophy<br />

we should all have as<br />

part of our arsenal.<br />

What if we started to focus, but really focus our priorities<br />

when it comes to dealing with clients?<br />

What if we focus a particular year on just making sure the family<br />

will be looked after if something happens with the primary<br />

breadwinner? A laser focus. Will the probability that this task is<br />

completed at the end of the year increase or decrease?<br />

What if we make sure, this year, that our primary focus is<br />

on making sure that the asset allocation of our investments<br />

reflects our objective and ability to tolerate volatility? If that<br />

is our primary focus, how likely is it to be “sorted” at the end<br />

of the year? I believe the answer is yes.<br />

Incrementalism A unit trust is portfolio a philosophy has the we obligation should to all provide have as liquidity part to unit<br />

of our arsenal. holders whenever required. If I want to withdraw my funds, I put in a<br />

The basis redemption of incrementalism request and have is to access improve, to my even funds if a it few is only days later (in<br />

by a small most measure, cases). Hence, during management a particular of period, these funds and needs that this to be done<br />

small improvement in such a way that will liquidity lead to big is readily changes available. over An time. individual What on the<br />

would your other outcome hand has, be with if you the could right financial increase coach, returns, the through ability to take on<br />

cost savings illiquid or positions. a better return, by something small as 5bps a<br />

year, that is Structured 0.05%? notes that are designed to provide a high probability<br />

If you of invest coupon R100 payments at 8% per year (quarterly, for 40 years, semi-annual your investment or annual) and<br />

would be provide worth some R2 172.45 downside at the protection end of the can period. be a If, great however, alternative to<br />

you earned traditional 8% in bonds. the first Individuals year, 8.05% have in the the option second, to take 8.1% advantage in of<br />

the third, the etc, illiquidity your premium investment that would most retail be portfolio worth R3 managers 110.51 cannot.<br />

at the end Constructing<br />

of the investment the<br />

horizon. core A 43% of any higher strategy outcome is<br />

by improving literally net the returns centre by of a<br />

minute the 5bps investment each year. process. (Given,<br />

nothing The goes next up in steps a straight are the line,<br />

except Bernie satellites Madoff’s that can fund, provide this<br />

is however exposure to prove to some a point.) totally<br />

The five-basis unique assets. point analogy Think is<br />

not restricted infrastructure, to investments the green and<br />

can be applied economy, to innovation various aspects and<br />

of life. If disruption you sharpen and health your focus, and<br />

concentrate wellness on to the name top a priority few.<br />

for today perhaps With the even right this advice, year,<br />

you will you not can need build a crisis something before Hannes Viljoen, CFA, CFP®,<br />

starting truly to improve. special and Even unique if it is Hannes CEO and Viljoen, Head of CFA, Investments, CFP®, CEO and<br />

only 0.05% to your this personality. year. Head Kudala of Wealth Investments, Kudala Wealth<br />

71<br />

www.bluechipdigital.co.za<br />

www.bluechipdigital.co.za<br />

35


BLUE<br />

CHIP<br />

RETIREMENT<br />

Five steps to a<br />

comfortable<br />

retirement<br />

According to the South African Treasury, only six out of<br />

every 100 South Africans will be able to retire comfortably.<br />

And a recent BusinessTech poll shows more than a<br />

third of middle-class South Africans aren’t putting any<br />

money at all away for their retirement.<br />

As a result, growing numbers of consumers are turning to<br />

direct investments on online trading platforms to try to boost<br />

their retirement savings – but it’s a high-risk strategy that<br />

ignores the fundamentals of proper retirement planning, says<br />

Dieter Schmikl, a financial advisor at employee benefits firm,<br />

NMG Benefits.<br />

“As more consumers get educated and digital, we hear many<br />

stories of people making quick money trading forex or shares<br />

online. But that’s not how you plan for retirement. The fact is<br />

that if something sounds too good to be true, it probably is,”<br />

says Schmikl.<br />

So how do you get yourself on the road to good financial<br />

health and a comfortable retirement? It’s a smart, measured<br />

five-step process that looks after your priorities.<br />

Step 1: Spend less than you earn<br />

“Find a lifestyle that gives you the capacity to breathe financially,<br />

and to enjoy the quality of life that you’re looking for, with<br />

some money left over every month to save or put away for your<br />

retirement,” says Schmikl.<br />

Step 2: Take care of risk<br />

If you can’t earn an income because of injury or illness, who’s<br />

going to pay your bills and monthly obligations? Before you<br />

save for anything else, make sure you have income protection<br />

in place. It’s a critical part of any balanced financial plan, with a<br />

long-term view to a secure retirement.<br />

Step 3: Make provision for retirement<br />

The biggest reasons that most South Africans can’t retire<br />

comfortably is that they start putting away money too late<br />

for their retirement, or they don’t put the right amounts away.<br />

“Retirement funding is a numbers game. It’s critical to sit down<br />

with an advisor and work out how much money you’ll need in<br />

your retirement, how much you’ve got, and what the difference<br />

is,” says Schmikl.<br />

The rule of thumb is that of you start putting away 15%<br />

of your earnings at the age of 28, you’ll be able to retire<br />

comfortably at 65, with 75% of your earnings. The later you<br />

start, the higher this percentage becomes.<br />

If you don’t have enough retirement savings, crunch the<br />

numbers. For every million rand you have in retirement savings,<br />

you’ll get around R4 000 a month at sustainable draw-down<br />

levels, increasing with inflation. “Ask yourself how much you<br />

will you draw down per month to support your lifestyle. Can<br />

you put away more every month? Or do you need to carry on<br />

working for a few extra years? If your house and car are paid off,<br />

you probably need less than you think,” says Schmikl.<br />

Step 4: Look at short-term investments<br />

“When, and only when, you have taken care of your risk and<br />

your retirement, you’ll be able to start looking at short-term<br />

investments, like unit trusts. But be focused on which investments<br />

you want to invest in and try to diversify your portfolio to smooth<br />

out the bumps along the road,” explains Schmikl.<br />

Step 5: If you still have money left, go high risk<br />

We’re bombarded daily with advertisements that promise<br />

exponential returns through trading forex, cryptocurrency or<br />

equities. If you have some spare<br />

cash, feel free to dabble. But where<br />

many of these platforms offer high<br />

rewards, but they generally come<br />

with high risks too, warns Schmikl.<br />

“You’re not going to turn R10 000<br />

into millions in the space of three<br />

years. That’s not how it works.”<br />

“Ultimately, retirement is all<br />

about diversification, spreading<br />

your risk and beating inflation on an<br />

annual basis. If you get that right,<br />

you’ll be able to retire comfortably<br />

at the age you choose.” <br />

Dieter Schmikl, Financial Advisor,<br />

NMG Benefits<br />

72 www.bluechipdigital.co.za


Independent Specialist Advisers<br />

Speak to our team of professional experts on your<br />

employee benefits porfolio<br />

Connect with us today<br />

info@nmg.co.za<br />

+27 11 509 0000<br />

www.nmg.co.za<br />

Finding a Beer Way for #StrongerFutures<br />

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| Actuarial | Short-term Risk Insurance<br />

T&Cs apply. The NMG SA Group of Companies are authorised financial services providers t/a NMG Benefits


BLUE<br />

CHIP<br />

ESTATE PLANNING<br />

The importance of nominating<br />

your beneficiaries<br />

Retirement fund members who are entitled to death benefits<br />

must keep their nomination of beneficiary forms up to<br />

date to ensure their beneficiaries receive these benefits<br />

timeously in the event of a member’s death.<br />

A valid nomination of beneficiary form completed by<br />

a member plays a critical role in facilitating the speedy<br />

payment of the death benefit to the ultimate beneficiaries.<br />

Without a valid, up-to-date form, investigating who is entitled<br />

to the benefits could take much longer and some potential<br />

beneficiaries might even end up being excluded.<br />

Members of retirement funds are typically covered for death<br />

benefits through a group life assurance policy that is either<br />

owned by a retirement fund (“approved”) or by an employer<br />

(“unapproved”). The terms “approved” or “unapproved” refer to<br />

the vehicle (retirement fund or insurance policy) which pays the<br />

death benefit out to beneficiaries and its tax treatment.<br />

An “approved” benefit is recognised by the Registrar of Pension<br />

Funds and approved by the South African Revenue Service for tax<br />

deduction purposes. An “unapproved” benefit is not offered under<br />

a tax approved retirement fund in terms of the Pension Funds<br />

Act. Instead, unapproved benefits are offered through a separate<br />

insurance policy. Whether you are dealing with an approved or<br />

unapproved policy, a valid nomination of beneficiary form helps<br />

to ensure dependants are not excluded from the distribution of<br />

death benefits in the event of a member’s death.<br />

Death benefits under approved policies<br />

In the event of death of a member under an approved policy, the<br />

deceased member’s savings accumulated in the fund plus the<br />

death benefit are paid to the member’s beneficiaries as a fund death<br />

benefit. Fund death benefits are subject to Section 37C of the<br />

Pension Funds Act, which means that the fund trustees need to<br />

investigate to determine who the beneficiaries are and distribute<br />

the benefit to those beneficiaries in an equitable manner, based<br />

on among other factors their extent of dependency on the<br />

deceased member. A completed nomination of beneficiary form<br />

guides the fund trustees in their investigation to determine<br />

the member’s beneficiaries. The ultimate decision on who to<br />

distribute the death benefit to, and in what proportions, lies<br />

with the trustees, with the nomination of beneficiary form<br />

74<br />

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ESTATE PLANNING<br />

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savings accumulated in the fund are paid as a death benefit from<br />

the fund and Section 37C applies to this portion. Therefore, in the<br />

case of an unapproved policy, the death benefit due from the<br />

policy is dealt with slightly differently to the death benefit due<br />

from the fund itself.<br />

With unapproved benefits such as a benefit payable under<br />

an employer-owned group life policy, a member may nominate<br />

anyone who they wish to receive the benefit, including nondependants<br />

and payment will be made accordingly. There is<br />

no Section 37C investigation which takes place and payment<br />

is strictly made according to the completed nomination of<br />

beneficiary form.<br />

What happens to unapproved policy benefits if there is no valid<br />

nomination form in place?<br />

In the absence of a signed, valid nomination of beneficiary form,<br />

the insurer is required, in terms of policy terms and conditions<br />

as well as legislation, to pay the benefit to the deceased's estate<br />

(or according to a written instruction by an authorised person<br />

confirmed by a letter of authority issued by the Master of the High<br />

Court where applicable).<br />

Having a valid nomination of beneficiary form in place,<br />

particularly in the case of benefits from an unapproved<br />

policy, makes it easier for death benefits to paid timeously<br />

to beneficiaries.<br />

serving as a good guide in identifying beneficiaries. It is also<br />

important to note that financial dependency on the member is<br />

one of the key elements considered by the trustees during the<br />

Section 37 investigation and distribution of the death benefit.<br />

What happens to approved policy benefits/fund death benefits<br />

if there is no valid nomination form in place?<br />

If the fund has not been given a completed nomination<br />

of beneficiary form, the trustees will have to conduct their<br />

investigation without an expression of the deceased member’s<br />

wishes. This could delay the investigation process and so delay<br />

the ultimate payment of the benefit to beneficiaries who may<br />

be in desperate need of financial support. It could also result in<br />

other dependants being omitted from the distribution of the<br />

death benefit (eg a child born out of wedlock and not known to<br />

the deceased’s family).<br />

Death benefits under unapproved policies<br />

Section 37C of the Pension Funds Act does not apply to<br />

unapproved policy benefits, although the deceased member’s<br />

Nomination of beneficiaries and funeral policies<br />

Nomination of beneficiary forms are also required for the<br />

payment of benefits from employer-owned funeral policies.<br />

When the main member of a funeral benefit policy passes away,<br />

the benefit will be paid out in terms of the signed nomination<br />

of beneficiary form.<br />

If the nomination of beneficiary form has not been<br />

completed, the payment will be made to the deceased’s estate.<br />

Payment of the benefit cannot<br />

be made to the employer or any<br />

other person with control over the<br />

deceased’s affairs. This could result<br />

in hardship as the funeral policy is<br />

meant to assist with the cost of the<br />

funeral and the money to cover the<br />

costs is normally required urgently.<br />

When preparing for the future and<br />

for unforeseen circumstances such<br />

as death, the main priority is that<br />

members can care for their families<br />

and ease the burden on them. Ensuring<br />

that members have completed the<br />

necessary nomination of beneficiary<br />

forms and keeping them up to date is<br />

the best way to ensure members are<br />

able to care for their loved ones. <br />

Adv. Beverly Jubane, Specialist<br />

Customer Service, Liberty<br />

Consultants and Actuaries<br />

www.bluechipdigital.co.za<br />

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LEGAL<br />

Divorce Act:<br />

what the recent<br />

judgement<br />

means for you<br />

On 11 May 2022, the Pretoria High<br />

Court made a revolutionary judgement<br />

declaring section 7(3) of the Divorce Act<br />

to be inconsistent with the Constitution.<br />

But what does this mean for you? Bianca<br />

Maritz, Wills and Estates Specialist<br />

at Sentinel, has all the answers.<br />

Section 7(3) currently provides that spouses<br />

married out of community of property before<br />

1984, may apply to the court for a redistribution<br />

of assets, despite their marital regime being<br />

out of community of property.<br />

What’s so special about 1984?<br />

It’s the year in which the Matrimonial Property Act<br />

introduced the accrual system for marriages out<br />

of community of property. Couples married out of<br />

community of property before 1984 didn’t have the<br />

option of accrual so it’s not applicable to their marriage<br />

– unless they subsequently applied to change their<br />

marital regime.<br />

The public are generally familiar with accrual being<br />

the ability to have the best of both worlds. It allows you<br />

to retain separate property and act independently of<br />

your spouse, while still enjoying a form of joint estate<br />

whereby anything accrued during the marriage is shared<br />

between the spouses. We commonly hear of there<br />

being an “accrual claim” (meaning a claim to split assets<br />

acquired during the marriage) by one of the spouses,<br />

either on death or divorce.<br />

Now that’s settled, let’s return to the judgement<br />

at hand<br />

First things first, it’s important to bear in mind that<br />

this judgement doesn’t deal with the question of<br />

spousal maintenance, but rather with overriding the<br />

76 www.bluechipdigital.co.za


LEGAL<br />

BLUE<br />

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If you fail to plan, you plan to fail.<br />

provisions of an antenuptial contract in order to allow a<br />

spouse to share in their spouse’s actual assets. There will,<br />

accordingly, be a plethora of influential factors in each<br />

spouse’s attempt to make their claim.<br />

In the case at hand, the estranged wife of a wealthy<br />

farmer sought the court’s assistance in declaring section<br />

7(3) unconstitutional as it didn’t allow for a redistribution of<br />

assets in her circumstances. The parties were married in 1988<br />

out of community of property, without accrual. One would<br />

be inclined to argue that the wife had a choice of accrual at<br />

the time.<br />

However, she claims she was forced into signing an<br />

antenuptial contract, without accrual and now has no<br />

claim to the empire her husband built with her help.<br />

(And what an empire. You can read all about it in the<br />

bestselling book Fortunes – The Rise and Rise of the<br />

Afrikaner Tycoons where he is described as a “megafarmer<br />

ultrapreneur”.)<br />

Core to her argument was that the provision only<br />

allowed spouses married out of community of property<br />

to seek a redistribution order if their marriage was entered<br />

into prior to 1984. This, coupled with a very convincing<br />

argument centred around the wife’s contribution to the<br />

marriage, the household, working on the farm and raising<br />

the children, is what led the court to take exception with<br />

the words “prior to 1984” used in section 7(3).<br />

The court declared this phrase to be inconsistent with<br />

the Constitution as it afforded the option only to those<br />

married out of community of property prior to 1984, while<br />

excluding those married out of community of property<br />

after 1984. It’s this imbalance in equal opportunity that<br />

the court took issue with.<br />

The fight is not yet won<br />

All eyes will now turn to the Constitutional Court to see if<br />

the highest court in the land agrees with the Pretoria High<br />

Court. If they do, this will then pave the way for all spouses<br />

married out of community of property without accrual<br />

to seek some form of relief when they’ve contributed to<br />

a marriage in non-financial ways. Alternative means of<br />

contribution to a marriage have long been recognised<br />

during South African divorce proceedings. This, coupled<br />

with the fact that the core objective of our Constitution<br />

is equality before the law, is why legal professionals are<br />

largely anticipating that our Constitutional Court will<br />

agree with the Pretoria High Court’s views.<br />

What does this mean for me?<br />

Generally, if you’re married out of community of property,<br />

your estate planner will note it and move on. If you’re<br />

married subject to the accrual system, further discussions<br />

with your estate planner and/or financial advisor might<br />

centre around who has a potential claim – and attempting<br />

to try to plan for that by providing for some liquidity.<br />

With this judgement so fresh, it’s too early to issue<br />

general rules of thumb about planning for the possibility of<br />

a redistribution. One can only deal with the possibility on a<br />

case-by-case basis until more generally accepted forms of<br />

guidance are available. After evaluating the case, your estate<br />

planners and financial advisors can determine whether<br />

you’re at lower or higher risk of a redistribution.<br />

What about deceased estates?<br />

Although the Divorce Act is currently the focus, there’s<br />

a possibility that a spouse will see this judgement as an<br />

opportunity to make a claim against a deceased estate.<br />

Death is, after all, an event that annuls a marriage. Allowing<br />

this would surely be seen as providing equal opportunity<br />

– a core objective of our Constitution.<br />

If this were to happen, executors would have to be<br />

guided by the court order that would set out what relief<br />

must be awarded or not awarded. Bear in mind that<br />

litigation in the estate will result in delays in the finalising<br />

of your estate and might even see a rise in executor fees,<br />

or the disallowance of any dispensations previously offered<br />

by the relevant executor on their fees.<br />

The bottom line<br />

It’s never a bad idea to plan ahead. As Benjamin Franklin<br />

said, “If you fail to plan, you plan to fail.” It’s crucial to have<br />

comprehensive estate planning if you<br />

discover that you might be at higher<br />

risk of falling victim to things like a<br />

potential redistribution in terms of<br />

section 7(3). At Sentinel, our estate<br />

planners have hugely symbiotic<br />

relationships with your financial<br />

advisors, making this a dream team<br />

for you and your estate planning<br />

needs. For more information, or to<br />

sit down with a professional, contact<br />

Sentinel International Advisory<br />

Services today. <br />

Bianca Maritz, Wills and<br />

Estates Sentinel International<br />

Advisory Services<br />

www.bluechipdigital.co.za<br />

77


BLUE<br />

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PRIVATE WEALTH<br />

Navigate your client’s<br />

complex wealth solutions<br />

with a trusted partner<br />

Total private wealth in Africa is expected to rise by 30%<br />

over the next eight years, reaching $2.6-trillion by 2030<br />

with South Africa home to an estimated 182 000 dollar<br />

millionaires. Given this backdrop, wealth creators, such<br />

as independent financial advisors and CERTIFIED FINANCIAL<br />

PLANNERS®, are increasingly required to draft and implement<br />

complex wealth solutions and integrated wealth management<br />

strategies to grow their clients’ wealth. The recent increase in<br />

people emigrating from South Africa means that advisors must<br />

have a broad knowledge of offshore tax and fiduciary matters in<br />

several jurisdictions or face real risk.<br />

“We regularly partner with independent financial<br />

advisors to manage these complexities, which includes<br />

advice and support around tax and fiduciary matters,<br />

particularly for wealthy clients with multi-jurisdiction assets<br />

and investments,” says Andrew Ratcliffe, a director at Private<br />

Client Holdings (PCH), a multi-family office based in Cape<br />

Town, that has been managing high-net-worth individuals’<br />

(HNWI) wealth for over 30 years.<br />

Ratcliffe cautions that complex wealth management often<br />

results in complex fiduciary requirements despite executorship<br />

and deceased estate administration being highly regulated in<br />

South Africa. “Leaving a legacy is a wonderful gift; however,<br />

poor planning often means this doesn’t happen. Thorough<br />

estate planning is critical as it provides a solid platform for<br />

wealth management and minimises unforeseen risk,” he says.<br />

“Our fiduciary team is very experienced in fiduciary matters<br />

domestically and abroad, which enables us to draft estate<br />

plans and handle deceased estates, no matter how complex,<br />

timeously and with the greatest care and professionalism at a<br />

time when a family needs it the most.” The PCH team also offers<br />

advice and support to independent financial advisors when it<br />

comes to drafting wills, forming trusts and trust administration<br />

for their clients.<br />

Similar complexities arise when it comes to global taxation.<br />

PCH initially started as a tax consultancy in 1990 and tax<br />

planning remains one of its core competencies. “Our goal is<br />

to legitimately minimise tax payments and maximise after-tax<br />

returns by structuring customised solutions for clients,” says<br />

Ratcliffe. The company provides both local and offshore tax<br />

advice regarding dealing with Capital Gains Tax, Provisional<br />

Tax, Employees' Tax, Estate Duty Tax and<br />

Offshore Tax matters. “We strive to support<br />

independent financial advisors who may<br />

not have the capacity in their practices to<br />

navigate the complexities of compliance by<br />

creating a solution that meets their clients’<br />

needs,” adds Ratcliffe.<br />

Ratcliffe firmly believes that “good advice<br />

at the right time can save you money”. If you’re<br />

looking for a partner to navigate your clients’<br />

complex wealth management strategies,<br />

with demanding fiduciary and tax structuring<br />

requirements, contact Andrew Ratcliffe CFP®<br />

on andrew@privateclient.co.za or visit our<br />

website www.privateclient.co.za. <br />

Andrew Ratcliffe CFP®, Director,<br />

Private Client Holdings<br />

PRIVATE CLIENT HOLDINGS IS AN AUTHORISED FINANCIAL SERVICES PROVIDER (LICENSE #613)<br />

Private Client Holdings has taken care to ensure that all the information provided herein is true and accurate. Private Client Holdings will therefore not be held responsible for any inaccuracies<br />

in the information herein. The above article does not constitute advice and the reader should contact the author for any related concerns. Private Client Holdings shall not be responsible and<br />

disclaims all loss, liability or expense of any nature whatsoever which may be attributable (directly, indirectly or consequentially) to the use of the information provided.


PRIVATE CLIENT HOLDINGS IS AN AUTHORISED FINANCIAL SERVICES PROVIDER.<br />

The licenses we hold with the Financial Sector Conduct Authority (FSCA) are: Private Client Holdings – FSP 613,<br />

Private Client Portfolios – FSP 399 78 and Private Client Wealth Management – FSP 399 79.<br />

PRIVATE CLIENT TRUST . BLUE CHIP MAGAZINE 2022


BLUE<br />

CHIP<br />

TECHNOLOGY<br />

How to build a technology-enabled<br />

practice? By design, that’s how<br />

It’s virtually impossible to run a financial advice business<br />

without technology these days. What might a truly<br />

technology-enabled practice look like? More to the point, is<br />

it possible?<br />

The right tools for the right job at the right time<br />

The most obvious starting point is the toolkit of software and<br />

technology services that a business could use to fulfil its needs,<br />

wants, and obligations. There are more than ever to choose from.<br />

The bottom line is that, despite the breadth of<br />

features offered by any piece of tech, it’s tough<br />

to find an advice business that uses a single<br />

solution for everything.<br />

So, if we accept that most advisors use<br />

multiple systems for distinct purposes, and that<br />

the one-stop-shop model steadily continues<br />

to lose popularity, a business that prioritises<br />

technology-enablement would invest in making<br />

good choices about appropriate combinations<br />

of technology as well as when and how to<br />

implement each component.<br />

Is it possible? Absolutely. With some solid<br />

research, clarity of purpose, sensible planning<br />

and regular review, it’s not that difficult for<br />

even the smallest independent financial advisor<br />

(IFA) practice to come up with a technology<br />

strategy that allows one to make software buying decisions<br />

with the end in mind, enabling the most appropriate selections,<br />

implementing the basics first and growing a complementary<br />

toolkit over time.<br />

Integrated and efficient<br />

The downside of using multiple technology tools is lack of<br />

integration between systems and, by all accounts, it’s an oftnoted<br />

frustration in our industry. Nevertheless, the best-of-breed<br />

• 30+<br />

• 12+<br />

CRM, ERP,<br />

Compliance,<br />

Practice<br />

Management<br />

Data<br />

Aggregation,<br />

Consolidated<br />

Reporting, MI<br />

Wealth<br />

Management,<br />

Financial<br />

Planning<br />

Revenue<br />

Administration,<br />

Financial<br />

Management<br />

• 15+<br />

• 6+<br />

80 www.bluechipdigital.co.za


TECHNOLOGY<br />

BLUE<br />

CHIP<br />

approach is valuable because it allows advisors greater flexibility<br />

in delivering compelling and differentiated, rather than just<br />

compliant, services. An integrated model improves both the<br />

business and client experience by reducing duplication and<br />

manual data maintenance and by enabling access to pertinent<br />

information via different front-end applications by different<br />

types of users.<br />

74% 89% 58%<br />

Three quarters of financial<br />

advisors in South Africa<br />

use multiple<br />

applications<br />

to serve different needs<br />

across their businesses<br />

Of those, almost all use<br />

overlapping systems<br />

with no<br />

integration<br />

between applications and<br />

data sources<br />

More than half identify<br />

“lack of integration options”<br />

as their single<br />

greatest<br />

technology<br />

challenge<br />

Is it possible? Definitely. If effort has been applied to<br />

planning and balanced purchasing decisions regarding the<br />

selection of tools, integration options will already have been a<br />

key consideration in designing the most optimally connected<br />

model possible. Many technology providers recognise the<br />

value of seeking standard integrations with complementary<br />

solutions and the options for users are growing. Connectors are<br />

increasingly available to help financial service providers (FSPs)<br />

to connect commonly used applications and data sources more<br />

easily and cost-effectively than via complex in-house custom<br />

integration pursuits.<br />

The limitation? Duplication of effort and information<br />

exchange between advice businesses and product providers<br />

are still a challenge, such as for digital onboarding and straightthrough-processing<br />

purposes, but there’s more action than ever<br />

in the application programming interface (API) space among<br />

forward-thinking institutions.<br />

True client-centricity<br />

This is really the point, isn’t it? All technology considerations<br />

ultimately boil down to being able to offer better financial advice<br />

to more clients.<br />

If the ideal client is connected and engaged, understands<br />

the worth of financial advice and enjoys a trusted relationship<br />

with an advisor, then surely technology should be harnessed<br />

to augment an appropriate level of engagement that suits the<br />

client’s journey, not an arbitrary A/B/C sliding scale of attention.<br />

It may not be in the best interests of an advisor, much less his<br />

or her clients, to blanket offer “high-touch” (which – let’s face it<br />

– typically translates to “manual”) services to high-value clients<br />

and “low-touch” services to less profitable ones. Automation in<br />

servicing is becoming so well-developed in daily online life that<br />

high-tech/low-touch approaches are arguably more effective<br />

in many ways because they are designed to deliver<br />

the right information at the right time and to simplify<br />

complex things, allowing people the opportunity of<br />

self-service in areas where it makes sense.<br />

Client portals have been<br />

a bit of a buzz-thing for<br />

the last few years.<br />

No advisor who has a strong relationship with clients<br />

can easily be “disintermediated”, so it’s somewhat<br />

counter-intuitive for advisors to intentionally disconnect<br />

from the lower 80% of client relationships based only<br />

on perceived profitability. A truly technology-enabled<br />

business, I think, would aim to use technology to best facilitate<br />

the automation of functions that are not primarily valuable to<br />

the relationship, thus being able to spend more time on human<br />

connection and allow clients to have some choice in just how<br />

digital their relationship is. Clients should be able to participate<br />

in the planning process in more meaningful ways than over a<br />

coffee and a pile of papers once a year.<br />

Is it possible? Sure – with a bit of design thinking. Client<br />

portals have been a bit of a buzz-thing for the last few<br />

years, though it’s tricky to get it right without the use of<br />

appropriately selected tools<br />

and, more importantly, access<br />

to aggregated data. Everything<br />

from onboarding to ongoing<br />

financial education to tracking<br />

against financial goals can<br />

be digitised and placed in<br />

clients’ hands in such a way<br />

as to enhance advisor-client<br />

relationships without the need<br />

to intercept every action.<br />

A tech-enabled business<br />

would consider the best ways<br />

to curate its digital customer<br />

journey and empower both the<br />

client and the advisor. Jen McKay, Director, Linktank<br />

www.bluechipdigital.co.za<br />

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BLUE<br />

CHIP<br />

ESTATE PLANNING<br />

2C or not 2C<br />

When to apply Section 2C of the Wills Act 7 of 1953 and when not to.<br />

Uncertainty has always been the pet peeve of any legal<br />

system. This is even more so in the case of an inheritance<br />

or legacy being made in a will to family or friends, where<br />

the will has not provided substitutions and the deceased<br />

testator cannot be called in to clarify.<br />

Let us consider the following scenario for some context.<br />

Christof bequeathed his estate in equal shares to Elsa and Anna.<br />

Elsa repudiated the inheritance. Elsa has two sons.<br />

It must be noted first that in terms of section 24 of the General<br />

Law Amendment Act 32 of 1952, a provision was made for implied<br />

substitution. This had the result that if Elsa was Christof’s daughter<br />

and she passed away, her two sons would have been entitled per<br />

stirpes to their mother’s benefit unless the will stated otherwise.<br />

Section 24 has been repealed by section 1 of the Law of Succession<br />

Amendment Act 43 of 1992. However, the effect of this implied<br />

substitution was adopted by Section 2C of the Wills Act 7 of 1953.<br />

The first subparagraph (1) of the section has the effect that<br />

if the descendant renounced and there is a surviving spouse of<br />

the testator, the renounced benefit will go to the spouse of the<br />

testator. The second subparagraph (2) has the effect that the<br />

legacy or inheritance of a descendant of a testator that is still alive<br />

but had been disqualified or renounced (and there is no surviving<br />

spouse) will go to the descendants of that descendant per stirpes<br />

unless the context of the will indicates otherwise.<br />

In this scenario, Elsa renounced her benefit after her<br />

father’s passing. This would mean that in terms of Section<br />

2C (2), Elsa’s two sons will substitute her per stirpes for the<br />

benefit that she renounced.<br />

How would the outcome differ if Christof was not Elsa and<br />

Anna’s father, but merely a friend that made a bequest to them<br />

in terms of his will? Firstly, it should be noted that Section 2C<br />

only applies to descendants of the testator and consequently,<br />

that Section 2C will not apply in this scenario. If the will is<br />

silent on what should happen to the repudiated benefit, the<br />

person who repudiated shall be deemed to have predeceased<br />

the testator.<br />

This will have the effect that in the case of a legacy, the benefit<br />

will fall into the residue of the estate and devolve however the<br />

residue is bequeathed in the will. In the case of an inheritance, it<br />

will devolve upon the remaining heirs “unless the jus accrescendi<br />

has been excluded so that the testator will have died intestate in<br />

respect of that portion of his estate” (Meyerowitz 2010: para 5.29<br />

and para 18.11).<br />

The benefit of Elsa would consequently<br />

fall into the intestate portion of Christof’s<br />

estate and devolve upon his intestate<br />

heirs. This will also be the case if Elsa was<br />

a descendant of Christof but did not have<br />

any children of her own to substitute her.<br />

In an intestate estate, the person who<br />

renounced their intestate share would<br />

also have been deemed predeceased and<br />

fall back into the intestate estate.<br />

Evidently, the best course of action<br />

is not to leave your will open for other<br />

interpretations that the legal rules will<br />

attempt to clear up after your passing. It is,<br />

therefore, best practice to make provision<br />

for all contingencies in your will to clear up<br />

any possible future confusion. <br />

Dr Rika van Zyl CFP®, FPSA®,<br />

School of Financial Planning<br />

Law, UFS, (member of FPI<br />

and FISA)<br />

82 www.bluechipdigital.co.za


Momentum Financial<br />

Planning is recruiting<br />

for a new future for<br />

the industry and the<br />

country<br />

outh Africans are in a financial tunnel, and the<br />

only way many of them are going to see the light<br />

is by increasing their level of financial literacy.<br />

The vast majority of the population doesn’t<br />

have medical aid, over 65% of vehicles on our<br />

roads are uninsured and 9 out of 10 retirees<br />

have to continue working just to get by. Add in the reality of a<br />

skyrocketing price of life, and it becomes clear that financial<br />

literacy has never been more important.<br />

This begs the question: How can a new generation rise to meet<br />

the demands of a challenging economy? Who will be there to<br />

guide them on their journey to success?<br />

According to the head of human capital at Momentum<br />

Financial Planning (MFP), Marina Karstel, this duty will fall on<br />

expert financial advisers. However, she says true economic<br />

empowerment requires a drastic reformation of the financial<br />

adviser landscape.<br />

“To relate to most South Africans, we need to empower an<br />

emerging young financial adviser workforce and close the age<br />

gap” says Karstel.<br />

This is exactly what MFP did. In a recent and ongoing<br />

recruitment drive, MFP has been on a mission to fire up<br />

financial planning and make it known to all success seekers,<br />

go-getters and trend-setters to join the financial revolution and<br />

kickstart their careers.<br />

“By embarking on a purposeful and meaningful drive to build<br />

a more inclusive and relatable industry, we are confident that<br />

financial planning as a practice will evolve to meet the needs<br />

and ambitions of younger South Africans,” says Karstel.<br />

To create an accessible mountain of potential, Karstel had to<br />

acknowledge the need to evolve the recruitment process. “It is<br />

well-known that the reliability of an interview as the only medium<br />

of selection is very low. In fact, it is around 12% and a change was<br />

needed to grow our footprint sustainably in the market.”<br />

By adopting digital attraction, screening and assessment<br />

tools, partnering with international thought leaders to develop<br />

customised competency-based assessment specific to the role<br />

of a financial adviser and integrating this in a comprehensive<br />

battery of psychometric assessments, MFP attracted over<br />

22,000 aspirational, young financial advisers. Up to date, just<br />

below 300 have been successfully appointed. The scale of this<br />

process was made possible by partnering with Trending Talent<br />

and Wamly; two forward-thinking digitally-based companies in<br />

the field of HR services.<br />

In the end, Karstel said MFP had identified three overarching<br />

characteristics of a successful young adviser. These included:<br />

• All the competencies of an entrepreneur and self-starter.<br />

• A customer advocate who could align advice with<br />

customer needs.<br />

• A social networker able to build a network of clients<br />

both online and face-to-face.<br />

“The environment is changing, and therefore, so should the<br />

competency requirements of a financial adviser,” says Karstel.<br />

“How can we expect people to seek out advice when they<br />

don’t see themselves in the adviser that they put their trust in?<br />

How can they believe that the adviser knows what they want


out of life? A younger population requires a credible youthful<br />

perspective and drive.<br />

Along with the MFP recruitment drive, the Momentum Institute<br />

of Financial Planning (MIFP) was established in July 2021<br />

and has served to upskill new-to-industry financial advisers,<br />

enabling them to thrive in a competitive environment. The<br />

MIFP is fully virtual, allowing students to engage with content<br />

and study materials online, from anywhere in the world and at<br />

any time. Courses are completed by performing assessments<br />

which require an 80% pass rate, and each course carries a<br />

CPD point rating, allowing existing financial advisers to fulfil<br />

their obligations to develop professionally and improve their<br />

performance in the workplace. The Momentum Institute of<br />

Financial Planning further serves as an educational initiative,<br />

providing planning and advice that is accurate, using<br />

information that is current and most importantly, providing<br />

practical application to further increase the value they offer<br />

to their clients.<br />

According to Karstel, “This is an opportunity for young people<br />

as well as career changers with work experience who are<br />

inclined towards starting their own businesses. We simply<br />

give them a platform to join the market and turn their passion<br />

into power by assisting them with their business needs and<br />

requirements. It’s a win-win for MFP, we get to tap into an<br />

unmet need, and young advisers get to tap into the future of<br />

a nation.”<br />

For Karstel, this new recruitment process is set to make a<br />

vast difference in the South African financial landscape.<br />

“This is our purpose, and it is the north star which guides us.<br />

Financial services have a huge role to play in building a stronger<br />

economic future, and the onus is on us to make it work.”<br />

Momentum, here for your<br />

journey to success.<br />

SCAN<br />

FOR MORE


BLUE<br />

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RISK MANAGEMENT<br />

THE PANDEMIC’S INFLUENCE<br />

ON CANCER DIAGNOSIS<br />

Cancer is one of the leading causes of death globally, causing one<br />

in six deaths as stated by the World Health Organization.<br />

It has been shown that early diagnosis, treatment and<br />

constant monitoring of cancer patients is crucial in order<br />

to achieve higher survival rates. Hence, cancer is one of<br />

the diseases with high monitoring and awareness across<br />

the globe. However, in the recent years, the world’s attention<br />

was redirected to another deadly threat in the form of the<br />

Covid-19 pandemic. With the numbers of cases and deaths<br />

increasing exponentially from Covid-19 infections, the<br />

pandemic took centre stage, while all other serious illnesses<br />

took a back seat.<br />

Number of cancer cases<br />

A study on the initial impact of the Covid-19 pandemic on the<br />

diagnosis of new cancers at a large pathology laboratory in<br />

Cape Town presented the results below. The changes represent<br />

the number of new diagnoses in the different cancer types,<br />

from 1 April 2020 to 30 June 2020, compared with the prepandemic<br />

period 2019:<br />

• Prostate cancer cases decreased by 58%<br />

• Oesophageal cancer cases decreased by 44%<br />

• Breast cancer cases decreased by 33%<br />

• Gastric cancer cases decreased by 33%<br />

• Colorectal cancer cases decreased by 7%<br />

The number of new cancer cases combined decreased by<br />

36.3% from the year 2019 to 2020. This trend was also seen<br />

in the data collected by Cancer Research UK that showed in<br />

the first year of the pandemic, one-million fewer screening<br />

invitations were sent, 380 000 fewer people saw a specialist<br />

after a suspected cancer referral and 45 000 fewer people<br />

started their cancer treatments.<br />

Reduction in cancer cases<br />

We have seen a similar trend on our group risk critical illness<br />

claims, where claims reduced by 30% from 2019 to 2020.<br />

The level of reduced claims continued into 2021 as well. The<br />

reduction in cancer cases diagnosed during the pandemic, seems<br />

to be prevalent in many countries. However, the decline is not<br />

because of fewer people contracting cancer, but due to delays<br />

in diagnosis and treatment.<br />

There are many factors that resulted from the global response<br />

to the pandemic that may have caused this phenomenon,<br />

including but not limited to:<br />

• The decision to implement national lockdowns in many<br />

countries, which restricted the daily movement of many citizens<br />

• Many people became less likely to visit their physicians for<br />

routine check-ups, out of fear of contracting Covid-19. Fewer<br />

86 www.bluechipdigital.co.za


RISK MANAGEMENT<br />

BLUE<br />

CHIP<br />

individuals went for screening and thus, if they had cancer, it<br />

would not have been detected at an early stage<br />

• Hospitals were saturated with Covid-19 patients and there<br />

were not enough resources to be redirected to cancer patients.<br />

As such, individuals that were a high risk could not get the<br />

required treatment in certain instances<br />

employees, if they are diagnosed with a critical condition. There<br />

are a range of products that provide payouts to assist with the<br />

added financial burden, should an individual be diagnosed with<br />

a critical illness. <br />

The long-term implications<br />

As we move out of the pandemic, we expect to see more cancer<br />

diagnoses as more people return to their routine check-ups.<br />

However, the long-term implications resulting from the delay in<br />

diagnosis is a major concern as with cancer treatments, delayed<br />

treatment may likely lead to lowered rates of recovery. The<br />

population, at large, must be encouraged to visit their physicians<br />

for routine check-ups to ensure early diagnosis.<br />

As more and more people go for routine check-ups, there<br />

may be a surge in cancer cases. Being diagnosed with cancer has<br />

a significant financial impact on any family and most individuals<br />

will need financial assistance to deal with the additional costs<br />

associated with treatment.<br />

Critical illness insurance is one of the least taken up-types of<br />

insurance cover for individuals. Group critical illness products<br />

enable employers to provide comprehensive cover for their<br />

Sinethemba Khoabane,<br />

Actuarial Manager: Risk Product<br />

Development, Liberty Corporate<br />

Blessing Soxa, Specialist:<br />

Actuarial Analyst Risk Product,<br />

Liberty Corporate<br />

1 http://www.samj.org.za/index.php/samj/article/view/13301<br />

2 https://www.cancerresearchuk.org/sites/default/files/cancerpathwaykeystats_jan22.pdf<br />

www.bluechipdigital.co.za<br />

87


BLUE<br />

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COACHING<br />

Shifting the way people think,<br />

feel and behave with money<br />

Convincing my 14-year-old to hug me is as frustrating<br />

as getting my name removed from a cold-calling<br />

sales database. I am beginning to wonder if either<br />

is worth fighting for. Raising my teen to become her<br />

own person, and satisfying my own parental needs is a balance<br />

I am yet to master. Everything is a negotiation or requires some<br />

sort of explanation. So, how do I even convince her to give me<br />

a simple hug?<br />

I decided to approach this challenge by reflecting on some<br />

of the lessons I have learnt when trying to shift my own clients<br />

to change their behaviour and thinking.<br />

Persuading others is not as easy as I thought<br />

One thing is clear and that is my passion for what I do. This is<br />

evident when I walked away from a secure income as a single<br />

mom amidst a pandemic to pursue my passion. My naivety<br />

made me realise that not everyone is as enthusiastic about<br />

this topic as I am, people have different priorities and are<br />

motivated by their own agendas. I realise that passion must<br />

be accompanied by persistence and patience.<br />

Authenticity and vulnerability are key to building trust<br />

Strong connections are forged when others can resonate<br />

with you. It took me a long time to embrace being vulnerable<br />

and share my money story openly. As Brené Brown says,<br />

“Imperfections are not inadequacies; they are reminders<br />

that we’re all in this together.” Clients prefer to learn from<br />

someone they can relate to, someone who they share common<br />

experiences with and someone who has erred and overcome.<br />

Real success stories are easier to sell. As I continue to share my<br />

feelings and experiences, I know it gives others the courage<br />

and permission to do the same.<br />

Coaching is by far the most effective tool in shifting behaviour<br />

While my proposition includes a range of solutions to suit client<br />

needs, learning styles and affordability, I am reminded of the<br />

irreplaceable value of human conversation and engagement.<br />

Changing behaviour is reliant on the individual’s level of drive.<br />

Coaching is the most effective approach in yielding results.<br />

However, the limited hours in a day makes coaching difficult<br />

to scale.<br />

Cut-and-paste approaches are ineffective<br />

To change behaviour, we must consider the individual’s<br />

personal circumstances, needs and goals. Cut-and-paste<br />

solutions are tick-box approaches that provide a false sense of<br />

satisfaction that we are performing our fiduciary responsibility<br />

as financial service providers to improve financial wellness, but<br />

are we really? We need to adapt our approach. My approach<br />

initially focused on teaching the technical skills required to<br />

manage money and now includes our emotional relationship<br />

with it. I am now including a third dimension, the spiritual<br />

connection we have with money.<br />

Shifting mindsets is<br />

not an easy task.<br />

Prevention is better than cure, but ignorance is still bliss<br />

We all know that smoking is bad and over-indulging will cause<br />

health problems down the line, yet we still do it. We also know<br />

that not saving adequately will prevent us living our dream<br />

retirement, yet we continue to delay this.<br />

While many are living below the breadline they simply<br />

cannot afford to save for tomorrow when they are struggling<br />

to survive today. But there are also those who can afford to save<br />

but the rewards of instant gratification are far more appealing<br />

than saving for something that will only occur decades down<br />

the line. Shifting mindsets is not an easy task.<br />

Not all clients can be helped, or can they?<br />

The market I deal with is primarily those who do not have<br />

access to financial advice or cannot afford financial advice.<br />

Fortunately for them, my services are funded by their<br />

employers. The toughest part of my day is dealing with those<br />

clients who are doing all they can with the little they have. It<br />

is these clients that need our help the most. While many of<br />

these clients’ situations are dire, they are<br />

not helpless or hopeless and we need to<br />

find creative solutions that will help them.<br />

Changing behaviour requires constant<br />

engagement, persistent action and various<br />

approaches. Each of us are motivated by<br />

different drivers. And while I may never<br />

convince my teen to give me a hug, I know<br />

that I love her enough to continue to meet<br />

her where she is at.<br />

And when it comes to my clients, I pray<br />

that my journey is made sustainable by<br />

those who see value in what I do so that<br />

I can continue to help those that need it<br />

the most. <br />

Jean Archary CFP®, Author,<br />

Speaker, Founder, Financial<br />

Wellness Coach<br />

88 www.bluechipdigital.co.za


Let our people<br />

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