Blue Chip Issue 91

Blue Chip Journal – The official publication of FPI Blue Chip is a quarterly journal for the financial planning industry and is the official publication of the Financial Planning Institute of Southern Africa NPC (FPI), effective from the January 2020 edition. Blue Chip publishes contributions from FPI and other leading industry figures, covering all aspects of the financial planning industry.

Blue Chip Journal – The official publication of FPI
Blue Chip is a quarterly journal for the financial planning industry and is the official publication of the Financial Planning Institute of Southern Africa NPC (FPI), effective from the January 2020 edition. Blue Chip publishes contributions from FPI and other leading industry figures, covering all aspects of the financial planning industry.


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BLUE<br />

CHIP<br />

0.5 CONTINUOUS<br />



<strong>Issue</strong> <strong>91</strong> • May/Jun/Jul 2024<br />

www.bluechipdigital.co.za<br />

0.5 CONTINUOUS<br />






1.5 CONTINUOUS<br />


1.5 CONTINUOUS<br />







An investor’s perspective<br />

The evolving landscape of<br />


How will COFI impact FSPs?<br />


Sue and Craig Torr, Crue Invest

Century City Conference Centre Cape Town<br />

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13-14 August 2024<br />

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Cultivate Growth, Harvest Excellence

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Complete an<br />

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Postgraduate Diploma in Financial Planning<br />

Postgraduate Diploma in Investment Planning<br />

Postgraduate Diploma in Estate Planning<br />

Financial Coaching Short Learning Programme<br />

Employee Benefits Short Learning Programme<br />

Fundamentals of Short Term Insurance<br />

Short Learning Programme<br />

Advanced Financial Coaching Short Learning Programme

Principles of<br />

the profession<br />

Even with the ongoing emphasis on ethics training for financial service providers (FSPs),<br />

it can still go wrong and controversy sometimes follows. It is a matter of principles. We<br />

cannot go wrong if we stick to the principles of what is ethical. Our column on page<br />

16 reminds FSPs to return to the basics regarding the ethical treatment of clients and<br />

our businesses.<br />

Many business and legal principles in the industry have been firmly shaped over time.<br />

As we move towards promulgating COFI, financial advisors are the beneficiaries of the<br />

entrenched tenets that have sustained FSPs for years. COFI is centred on principles that focus<br />

more on the outcomes within the spirit of the law, rather than a tick-box methodology to<br />

compliance. Principle-based legislation means relying more on broadly stated principles that<br />

set the paradigms by which FSPs should conduct their business. Principles refer to behavioural<br />

standards, for example, “honesty”, “integrity” and “skill, care and diligence” with which FSPs<br />

organise their businesses and treat their customers (page 64).<br />

There are also new principles that are created as the world grows and the next big thing<br />

appears on the horizon. (Don’t miss our article on investment themes on page 30.)<br />

Regulators in South Africa require investment managers to absorb ESG principles into the<br />

responsible management of their clients’ assets. Investment managers’ challenge is maximising<br />

the projected benefits while minimising adherence costs to these ESG-related targets. Clients<br />

must recognise that their ESG goals will have some performance-related consequences in<br />

their portfolio returns. Increased transparency should help manage client expectations and<br />

encourage them to make informed decisions aligning with their values (principles) and<br />

financial goals (page 22).<br />

To abate the risks relating to crypto assets, South African regulators have started<br />

constructing regulatory framework, which includes the deposition of crypto assets as a<br />

financial product for purposes of the Financial Advisory and Intermediary Services (FAIS)<br />

Act. However, the regulatory framework relating to crypto assets will continue to transform<br />

as crypto assets evolve. In this edition, <strong>Blue</strong> <strong>Chip</strong> introduces a series of articles which aim<br />

to provide readers with a more holistic understanding of cryptocurrency and the current<br />

South African regulatory framework (page 54).<br />

On page 78, Reg Thompson, DTB Wealth director, reviews The 7 Pillars of Financial Health by<br />

Rob Macdonald, head of strategic advisory services, Fundhouse. Based on insights garnered<br />

from coaching and consulting with hundreds of financial advisors over his career spanning 25<br />

years, Macdonald delves into why we should completely rethink our approach to money. He<br />

provides seven principles for financial planners to stay relevant in their professions.<br />

These pillars of financial health as well as the principles implemented by the FPI and<br />

the FPI Code of Ethics and Practice Standards guide FSPs in treating customers fairly and<br />

organising their businesses based on sound values.<br />

Stick to your principles!<br />

Alexis Knipe, Editor<br />

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

blue-chip-journal<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®<br />

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Professional Reading.<br />

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

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ISSUE <strong>91</strong> |<br />

MAY/JUN/JUL 2024<br />

BLUE<br />

CHIP<br />

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ISSUE<br />

<strong>91</strong><br />

MAY/JUN/JUL 2024<br />

04<br />

10<br />

12<br />

16<br />


By Alexis Knipe<br />


Message from the CEO of the FPI<br />


Milestones, news and snippets<br />



Column by Rob Macdonald, Head of<br />

Strategic Advisory Services, Fundhouse<br />



Column by Kobus Kleyn, CFP®, Tax and<br />

Fiduciary Practitioner, Kainos Wealth<br />

18<br />


Meet Crue Invest, winner of the FPI’s<br />

2023 Approved Professional Practice of the<br />

Year Award<br />

20<br />



<strong>Blue</strong> <strong>Chip</strong> speaks to the 2023 FPI Student<br />

Financial Plan Competition winners<br />

22<br />



ESG criteria have moved from a “nice idea”<br />

to a cornerstone of current investment<br />

management practices. By Professor Evan<br />

Gilbert, Momentum Investments<br />

25<br />



By Florbela Yates, Head of Equilibrium<br />

26<br />


Should recent history make<br />

us worried? Asks Vongani Masongweni,<br />

Quantitative Research Analyst,<br />

Momentum Investments<br />

30<br />



Matthew Molyneux, Investment Analyst,<br />

Fundhouse, talks about investment themes<br />

34<br />



Jaco Gouws, Head of Proposition and<br />

Business Development, Old Mutual Wealth<br />

tells <strong>Blue</strong> <strong>Chip</strong> about Private Clients<br />

36<br />





By Michelle Noth, Head of Financial<br />

Intermediaries, 10X Investments<br />

38<br />



By Reza Khan, CEO, Lodestar Fund Managers<br />

42<br />



By Warren Ingram, CFP®, Director,<br />

Gallileo Capital<br />

44<br />





Scott Cooper, Investment Professional,<br />

Marriott Investment Managers tells you how<br />

46<br />


PPS Investments speaks about the<br />

investment landscape<br />

48<br />


Rudolph Geldenhuys, CFP®,<br />

WealthUp, gives an alternative perspective<br />

on retirement planning<br />

50<br />




By Chris Willis, Research Analyst, Melville<br />

Douglas Investment Management<br />

6 www.bluechipdigital.co.za


ISSUE<br />

<strong>91</strong><br />

MAY/JUN/JUL 2024<br />

52<br />


Schroders’ experts tell us what to<br />

do as interest rates start to fall<br />

54<br />



First article in the series on cryptocurrency<br />

56<br />



Empathy is a key differentiator in today’s<br />

product, service and journey design, by<br />

Varsha Vala, Principle Officer: Medihelp<br />

Medical Scheme, Medihelp<br />

58<br />


TO HUMAN<br />

Francois du Toit, CFP®, Founder, PROpulsion,<br />

tells us how technology can enhance the<br />

value of financial advice<br />

60<br />



So are your clients, says Tim Slatter, Director,<br />

Slatter Communications<br />

62<br />



COST OF AI<br />

Zeldeen Müller, CEO of AgendaWorx, says<br />

that the real surprise is the true cost of AI<br />

64<br />



By Anton Swanepoel, Founder,<br />

Trusted Advisor<br />

67<br />



There is no “I” in team, says Darren Burns, Head:<br />

Business Development, Graviton<br />

68<br />



A way to help clients take ownership of<br />

their choices, by Rob Macdonald, Head of<br />

Strategic Advisory Services, Fundhouse<br />

70<br />




By Kim Potgieter, CFP®, Director of<br />

Chartered Wealth Solutions<br />

72<br />



Sarah Love, CFP®, FPSA®, TEP, Fiduciary<br />

Practitioner, Private Client Trust, guides<br />

those who answered, “no-one”<br />

74<br />


The proprietary settlement, by<br />

Hannah Wilson, Director, Simplifi Law<br />

77<br />



It is imperative to understand the different<br />

rights that could be given to trust<br />

beneficiaries, by Dr Rika van Zyl, CFP®, FPSA®,<br />

School of Financial Planning Law, UFS<br />

78<br />



Reg Thomson, Director at DTB Wealth, reviews<br />

Rob Macdonald’s latest book<br />

80<br />


<strong>Blue</strong> <strong>Chip</strong> speaks to Nonhlanhla<br />

Nxele, CFP®, Founder and CEO of Esteemed<br />

Financial Solutions who has participated in a<br />

growth support programme run by ASISA<br />

87 PROFILING<br />


Discover how other financial planners run<br />

their practices<br />

8 www.bluechipdigital.co.za

MEET THE<br />

MANAGERS 2024<br />



Register Now:<br />

www.meetthemanagers.co.za<br />

Meet the Managers is considered the “Ted-Talk” in investment management, where financial advisers can access a<br />

vast array of investment managers, covering all types of investment strategies. With a world that is constantly in flux,<br />

financial advisers need to regularly evaluate investment market conditions and strategies to ensure that their clients<br />

assets grow and are protected from volatility and losses.<br />

Meet the Managers is one of the largest gatherings of investment managers in South Africa. It is an effective platform<br />

to learn about the latest investment thinking. By attending the event you will also stand a chance of winning<br />

R50 000.00* in cash at each venue.<br />

*Please note that the terms and conditions of participation are on our registration site.<br />

Why attend Meet the Managers?<br />

• Stay ahead: Keep abreast of the latest investment insights from top managers across all asset classes, both<br />

domestic and global.<br />

• Unmatched access: Gain access to an unparalleled selection of investment managers and strategies. In a single<br />

day, you will have access to a selection of concise 30-minute sessions.<br />

• Expert speakers: Learn from industry experts as they delve into domestic and international strategies, providing<br />

you with invaluable knowledge to share with your clients.<br />

• Explore differences: Understand the distinctions between large investment firms and boutique managers,<br />

empowering you to make informed decisions for your clients.<br />

• Navigate challenges: Hear first-hand how managers are addressing rising global inflation and the impact on “the<br />

famous 7 stocks.”<br />

• Expand your network: Connect with new investment managers and explore potential opportunities for you and<br />

your clients.<br />

• Earn CPD points/hours: Enhance your professional development with valuable CPD points.<br />

MEET THE<br />

MANAGERS 2024<br />

Register Now:<br />


BLUE<br />

CHIP<br />

FPI UPDATES | CEO Message<br />

Lelané Bezuidenhout, CFP®,<br />

CEO, Financial Planning<br />

Institute of Southern Africa<br />

Tomorrow is here<br />

The CEO of Financial Planning Institute of<br />

Southern Africa shares FPI’s latest news.<br />

When I was in primary school, I authored a poem that<br />

started with, “Yesterday is gone, tomorrow is here,<br />

who has done anything here?” This simple verse<br />

still holds a profound truth in my life today: time is<br />

precious, and each moment offers us the chance to be effective,<br />

no matter how big or small.<br />

This sentiment is especially relevant to the financial planning<br />

profession. Time is a currency that never stops flowing, reminding<br />

us to make the most of every moment, especially when it comes to<br />

planning for our clients’ (and our own) financial futures.<br />

The importance of the time value of money and helping clients<br />

to understand this<br />

Understanding the Time Value of Money (TVM) is crucial for clients<br />

to make informed decisions about investing, saving and borrowing<br />

money. A rand today is worth more than a rand in the future. Clients<br />

who grasp TVM are more likely to take a long-term perspective on<br />

their finances, understanding the benefits of starting to save and<br />

invest early, even if the risk and reward seem daunting.<br />

This takes me to the role that financial planners play as<br />

mentors/coaches for their clients<br />

Financial planners play a crucial role as a mentor and coach for<br />

their clients. They focus on key points essential to their clients’<br />

Time is<br />

precious, and each moment offers<br />

us the chance to be effective.<br />

financial well-being, such as understanding TVM, financial goals,<br />

budgeting, savings, debt management and more.<br />

The psychology of financial planning also comes into play here,<br />

as financial planners need to understand their clients’ attitudes,<br />

beliefs and behaviours related to money, demonstrating empathy<br />

and understanding of clients’ unique circumstances.<br />

A great book recommendation based on the above<br />

I recently had the opportunity to catch up with Warren Ingram,<br />

CFP®, and he told me about one of his new books, Small Changes<br />

for BIG Results – How to Improve Your Finances One Step at a Time.<br />

As I left Cape Town via Cape Town International Airport back to<br />

Gauteng, I stopped at Exclusive Books and bought my copy. The<br />

book covers real-life case studies of people who overcame financial<br />

difficulties and highlights the small steps they took to change the<br />

course of their lives. What is interesting is Warren’s own story that<br />

started with... a measuring cup!<br />

10 www.bluechipdigital.co.za

FPI UPDATES | CEO Message<br />

BLUE<br />

CHIP<br />

Highlights at FPI and looking ahead<br />

In February, over 130 candidates sat for the Professional Competency<br />

Examination (PCE) with a 54% pass rate. Over 240 candidates are<br />

registered for the April sitting. The Annual Budget review session<br />

had 1 167 online attendees and the Annual Refresher was a success<br />

with 962 attendees in-person and online.<br />

FPI has secured funding from INSETA for a project focusing<br />

on unemployed youth, a significant step in supporting and<br />

empowering young people in our community.<br />

The FPI Professional’s Convention is coming to Cape Town on<br />

13 and 14 August 2024. With the theme Cultivate Growth, Harvest<br />

Excellence, this event promises to be inspiring. In-person seats are<br />

limited, so do not miss this opportunity to attend in person.<br />

If you are not able to attend, there is an online option as this<br />

is a hybrid event.<br />

On the regulatory front, just high level for now<br />

In case you missed it, there is a new Ombudsman in town. The<br />

National Financial Ombudsman (NFO) came into effect on 1<br />

March 2024 via the amalgamation of four voluntary ombudsman<br />

schemes. The Pension Funds Adjudicator may also in the future be<br />

known as the Retirement Fund Ombudsman (RFO).<br />

The four schemes that merged are the Short-term Ombud, Longterm<br />

Ombud, Banking Ombud and Credit Ombud Association.<br />

For more information on the establishment of the NFO, visit the<br />

Ombud Council website at ombudcouncil.org.za.<br />

National Treasury’s “A simpler, stronger Financial Sector Ombud<br />

System Policy Statement” is also well worth the read – this is on the<br />

Ombud Council’s website.<br />

Enjoy this edition of <strong>Blue</strong> <strong>Chip</strong>, packed with the latest updates<br />

in financial planning and the financial services industry.<br />

Make the best of your time and purposefully choose to make<br />

a positive impact.<br />

Until next time,<br />

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

of Southern Africa<br />


FPI Professional’s Convention 2024<br />

Cultivate Growth, Harvest Excellence<br />

13-14 August 2024<br />

www.bluechipdigital.co.za<br />


BLUE<br />

CHIP<br />

On the money<br />

Making waves this quarter<br />

Embracing tech and the JSE Index Harmonisation<br />


The Nasdaq posting a record high recently underscores why investors need<br />

to embrace tech into their portfolios. The deVere Group’s CEO, Nigel Green<br />

says, “The Nasdaq’s ascent to an all-time high underscores the resilience<br />

and innovation embedded in tech companies. Investors who recognise<br />

and leverage this momentum will be well-positioned to ride the wave of<br />

the tech boom, potentially reaping substantial rewards in the process.<br />

“The transformative impact of AI on various industries is reshaping<br />

the business landscape and propelling tech companies to new heights.<br />

From machine learning and automation to data analytics, AI is unlocking<br />

unprecedented possibilities, creating efficiencies and driving revenue<br />

growth. Investors who are serious about building long-term wealth can’t<br />

afford to overlook the seismic shift that AI is bringing to the forefront of<br />

the tech sector,” comments Green.<br />

He continues, “Tech stocks have consistently demonstrated their ability<br />

to outperform the broader market, contributing significantly to overall<br />

portfolio growth.<br />

“The recent achievement of the Nasdaq Composite, coupled with the<br />

S&P 500’s robust performance, highlights the sustained upward trajectory<br />

of the tech sector.”<br />

As traditional sectors face challenges and uncertainties, tech stands<br />

out due to its invaluable diversification benefits. Embracing tech in<br />

portfolios provides investors with exposure to sectors driving the future<br />

of global economies.<br />

“This global reach of tech diversifies investment portfolios and aligns<br />

them with the broader trends shaping the future of the digital age,”<br />

Green concludes.<br />


The first phase of the JSE’s Index Harmonisation project involves<br />

aligning the weighting methodologies of what the JSE calls its “vanilla”<br />

indices [FTSE/JSE All Share Index (ALSI) and FTSE/JSE Top 40 Index] with<br />

those of its Shareholder Weighted (SWIX) variants. The second phase of<br />

the project will see the termination of the SWIX indices and the effective<br />

collapse of the vanilla and SWIX indices into one set of benchmark<br />

indices. Recent changes to regulations have resulted in several<br />

funds in this category changing their benchmarks from domesticonly<br />

to composite benchmarks of<br />

South African and global equity<br />

benchmarks to better reflect their<br />

new, broader investable universe.<br />

The JSE notes that the process<br />

of harmonisation has naturally<br />

occurred over the last few years.<br />

A significant contributor to the<br />

weighting differences between<br />

the ALSI and the SWIX has been<br />

the “grandfathered” companies<br />

that form part of these indices.<br />

“Grandfathered” companies refer<br />

to local companies that moved<br />

their primary listing offshore before<br />

Michael Dodd, Senior Fund<br />

Analyst, Morningstar<br />

October 2011, and these companies<br />

are weighted differently in the two<br />

index variants. There are only a<br />

handful of remaining grandfathered companies, and so the JSE now<br />

sees it as an opportune time to align the weighting methodologies of<br />

the vanilla and SWIX indices without too much disruption.<br />

Why is this a good thing?<br />

At the culmination of the Index Harmonisation project, the JSE will have<br />

a single set of headline indices all following a consistent weighting<br />

methodology and a single representative benchmark index for the<br />

South African equity market. This is important for the industry for<br />

several reasons:<br />

Uniformity. A single domestic equity index will reduce the confusion<br />

among investors regarding equity market performance. It should also<br />

result in an alignment of benchmark selection among South African<br />

equity managers.<br />

Comparable performance. A standard industry benchmark makes the<br />

comparability of domestic-only South African equity fund performance<br />

more consistent. Out/underperformance of peers should no longer be<br />

able to be explained away by benchmarking differences.<br />

Reduction in the number of products. With a standard industry<br />

benchmark comes a universally agreed upon proxy for market “beta”.<br />

Index Harmonisation should result in a reduction in the number<br />

of index-tracking products being offered on different JSE indices. It<br />

provides the opportunity for product providers to improve economies<br />

of scale and potentially lower fees by merging existing strategies.<br />

By Michael Dodd, Senior Fund Analyst, Morningstar South Africa

BLUE<br />

CHIP<br />

On the money<br />

Making waves this quarter<br />

Retaining top talent<br />


As the international financial sector faces an<br />

ongoing talent crunch, organisations that have<br />

a strongly diverse and inclusive culture are<br />

more likely to attract and retain professionals,<br />

according to the Association of Chartered<br />

Certified Accountants’ (ACCA) annual Global<br />

Talent Trends Survey 2024.<br />

In South Africa, 49% of accounting<br />

and financial professionals said that their<br />

organisations were not inclusive, while 42%<br />

said that they were, and the remaining 9%<br />

were unsure. When asked if their organisation<br />

focused more on some aspects of diversity<br />

than others, 49% of respondents agreed, 36%<br />

disagreed and 15% were unsure.<br />

Portia Mkhabela, market head of ACCA<br />

Southern Africa, says the shortage of talent<br />

and cost of meeting pay rise demands, together with the many job<br />

opportunities available to professional accountants, meant that<br />

attracting and retaining talent presents a huge<br />

ongoing challenge for employers, and it was<br />

not surprising that 64% of African respondents<br />

would look for better opportunities external to<br />

their organisation.<br />

Other findings showed that globally<br />

accounting and financial professionals face<br />

economic strain and are concerned about their<br />

future, the adoption of artificial intelligence<br />

and their mental well-being among many<br />

other things.<br />

As a result, at least half of them will look<br />

for work in a different company, sector, region<br />

or country.<br />

The survey showed that in Africa (including South<br />

Africa) the top three reasons for moving were<br />

improved opportunities abroad, international<br />

experience to add to resume and better remuneration at 29%, 19%<br />

and 14% respectively.<br />

Century City Conference Centre<br />

13 -14 August 2024<br />

Cultivate Growth, Harvest Excellence<br />

’<br />

Cultivate Growth, Harvest Excellence

BLUE<br />

CHIP<br />

On the money<br />

Making waves this quarter<br />

Two-pot, COFI and Morningstar Awards for Investing Excellence<br />


As a prominent stakeholder in South Africa’s retirement funding sector,<br />

Alexforbes has the responsibility of empowering members to understand<br />

the intricacies of the two-pot retirement system, enabling individuals to<br />

make well-informed decisions regarding their savings.<br />

The timing of the two-pot retirement system and access to the savings<br />

pot can be emotional. It becomes more challenging when incorrect<br />

information spreads, creating wrong expectations among members. It<br />

is important to focus on a few of the critical points that members must<br />

be aware of regarding the two-pot retirement system:<br />


Market players eagerly await the Conduct of Financial Institutions (COFI)<br />

Bill enactment and its many benefits, especially with low-risk, rapid<br />

innovation in the fintech space.<br />

“With the introduction of the Bill, the conduct of every institution<br />

that participates in the provision of any financial service product will<br />

fall under the oversight of the regulator,” explains Mpho Sadiki, Group<br />

MD, Merchant Solutions (Africa) at Network International. “By creating<br />

a level playing field, the legislation allows for rapid deployment of new<br />

products that can only benefit the local consumer. The organisations<br />

most likely to benefit from this new environment are those with access<br />

to technology partners who can enable rapid, low-risk deployment to<br />

take advantage of opportunities as soon as they arise.”<br />

A more inclusive approach<br />

“With COFI, more than just the banks can get involved to originate<br />

and receive payments, driving competition in the market and<br />

benefiting the consumers and building trust in the entire financial<br />

system,” he concludes.<br />

This more open approach will help South Africa transition towards<br />

true open banking.<br />

“South Africa has a mature and excellently regulated financial services<br />

sector. By levelling the playing fields and moving towards an activitiesbased<br />

regulatory regime we are preparing an environment primed for<br />

more innovation. And that is where APIs and open banking can shine,”<br />

Sadiki concludes.<br />


Morningstar, Inc (Nasdaq: MORN), a leading provider of independent<br />

investment insights, recently announced the winners for the 2024<br />

Morningstar Awards for Investing Excellence South Africa. The awards<br />

recognise those funds and asset managers that have served investors well<br />

over the long term and which Morningstar’s research team believes will be<br />

able to deliver competitive risk-adjusted returns over time.<br />

Truffle Asset Management won Best Bond Fund for the third year<br />

running, with Fairtree crowned Best Asset<br />

Manager for 2024. Returning 2023 winner,<br />

Nedgroup, was awarded the Best Flexible<br />

Allocation Fund at this year’s awards.<br />

“We’d like to congratulate all 2024<br />

winners and finalists. The Morningstar<br />

Awards for Investing Excellence commends<br />

Truffle Asset Management<br />

won Best Bond Fund.<br />

the industry’s fund offerings and investorcentric<br />

firms. Based on Morningstar’s<br />

forward-looking ratings for funds, the<br />

• The implementation date is 1 September 2024.<br />

• From 1 September 2024, any amounts saved in a retirement fund will<br />

be split into a savings component and a retirement component.<br />

• One-third (about 33%) of retirement savings automatically go into the<br />

savings component.<br />

• The initial amount in the savings component will be 10% of the<br />

amount saved in the vested component, up to a maximum of<br />

R30 000.<br />

• The minimum withdrawal amount is R2 000.<br />

Morningstar research team carefully selects the winners across equity,<br />

fixed-income and multi-asset categories, as the leading funds within South<br />

Africa for investors,” said Tal Nieburg, managing director of Morningstar<br />

South Africa.<br />

Morningstar Category Awards<br />

Best Bond Fund<br />

Best Cautious Allocation Fund<br />

Best Moderate Allocation Fund<br />

Best Flexible Allocation Fund<br />

Best Aggressive Allocation Fund<br />

Best South Africa Equity Fund<br />

Best Global Equity Fund<br />

Best Asset Manager<br />

Winner<br />

Truffle SCI Income Plus Fund<br />

H4 Stable Fund<br />

Ninety-One Opportunity Fund<br />

Nedgroup Investments Global<br />

Flexible Feeder Fund<br />

Denker SCI Balanced Fund<br />

36ONE BCI Equity Fund<br />

Artisan Global Value Fund<br />

Fairtree Asset Management

BLUE<br />

CHIP<br />

On the money<br />

Making waves this quarter<br />

The Financial Advisor’s Playbook, SALTA 2024 and exceptional performance<br />


PROpulsion is proud to announce the release of The Financial Advisor’s<br />

Playbook, an invaluable resource for new and experienced financial<br />

advisors. Authored by a team of seasoned financial professionals, the<br />

playbook offers practical advice across topics crucial for developing a<br />

successful financial advising practice.<br />

The book’s comprehensive advice, ranging from personal branding<br />

to client service and business development, provides a solid foundation<br />

to build a successful practice. For anyone committed to excelling in the<br />

financial advisory field, this playbook is essential. It prepares the reader<br />

to meet today’s market demands and to innovate and lead for tomorrow.<br />

Whether you are establishing your practice or looking to refine it, the<br />

playbook offers relevant, actionable guidance that can be tailored to any<br />

advisor’s needs.<br />

Authors: Hannes Visser, Ignatius Muller, Carol Lenzi, CFP®, Kobus Kleyn,<br />

CFP®, Wouter Snyman, Alice Myburgh, CFP®, Henri le Grange, CFP®, Paula<br />

Berrow, Geoff Noble, Rizanne<br />

Oosthuisen, Kevin Yeh, CFP®,<br />

Louis van der Merwe, CFP®,<br />

Carl van Vuuren, CFP®, and<br />

David Kop, CFP®.<br />

The Financial Advisor’s<br />

Playbook can be purchased<br />

from www.propulsion.co.za<br />

and the digital copy will be<br />

available on Amazon from<br />

May 2024.<br />

WINS AT SALTA 2024<br />

Satrix scooped 10 awards at the annual South African Listed<br />

Tracker Awards (SALTA) held at the Johannesburg Stock Exchange<br />

(JSE) in March 2024 Satrix's full list of SALTA 2024 wins include:<br />

Trading Efficiency (three years)<br />

SA Equity: Satrix RESI 10 ETF<br />

SA Non-Equity: Satrix GOVI ETF<br />

Foreign Equity: Satrix MSCI China Feeder ETF<br />

Capital Raising (three years)<br />

SA Equity: Satrix 40 ETF<br />

Foreign Equity: Satrix MSCI World ETF<br />

Total Capital Raised – by issuing house: Satrix Managers<br />

Tracking Efficiency (three years)<br />

SA Non-Equity: Satrix Multi Asset Passive Portfolio Solutions<br />

Protect ETF<br />

Foreign Equity: Satrix MSCI China Feeder ETF<br />

People’s Choice<br />

Local ETP: Satrix 40 ETF<br />

Foreign ETP: Satrix MSCI<br />

World ETF<br />

ABSA has been recognised at<br />

the Awards for exceptional<br />

performance three years in a row.<br />

This year, the ABSA NewWave<br />

Silver ETN won Capital Raising<br />

(three years): Foreign Non-Equity<br />

ETPs and Tracking Efficiency<br />

(three years): Foreign Non-Equity,<br />

Commodity and Currency and<br />

the ABSA NewWave US Dollar<br />

ETN won the Trading Efficiency<br />

(three years): Foreign Non-Equity,<br />

Commodity and Currency.<br />


Congratulations to <strong>Blue</strong> <strong>Chip</strong> columnist, Kobus Kleyn, CFP®, tax and fiduciary practitioner, Kainos Wealth, for<br />

winning the INN8 Invest Diamond Award for Best Overall Impact and Contribution to the Advice Profession<br />

in South Africa.<br />

The INN8 Invest Diamond Awards serve as a platform to honour individuals and companies that have<br />

demonstrated exceptional performance, innovation and dedication to delivering value to investors.

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The ethical treatment of clients<br />

Let’s get back to basics.<br />

Rob Macdonald, Head of Strategic<br />

Advisory Services, 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 training<br />

programmes in behavioural<br />

coaching and practice<br />

management. Before joining<br />

the financial services industry,<br />

Macdonald was MBA director<br />

at the UCT Graduate School<br />

of Business. Business. He has<br />

written the book The 7 Pillars<br />

of Financial Health and is coauthor<br />

of the book Rethinking<br />

Leadership and has consulted,<br />

written and spoken widely on a<br />

range of topics. Macdonald has a<br />

Master’s degree in Management<br />

Studies from Oxford University<br />

and is a CFP® Professional.<br />

Despite an ongoing emphasis on<br />

ethics training for financial services<br />

providers (FSPs) and the importance<br />

of getting ethics CPD points regularly,<br />

the financial planning profession seems never<br />

far from a fresh controversy. The leading wealth<br />

manager in the UK, St James Place (SJP), recently<br />

had to make a GBP450-million provision to pay<br />

back up to 15 000 clients who were charged for<br />

services they did not receive. This hiccup comes<br />

hot on the heels of SJP last year agreeing to<br />

stop their practice of penalising clients when<br />

withdrawing from funds with a 6% exit fee.<br />

In South Africa, a financial advice business<br />

has hit the headlines because it has been<br />

accused by whistle-blowers of paying financial<br />

advisors sign-on bonuses masked as vocational<br />

restraints of trade payments. These bonuses<br />

and enhanced commission incentives were<br />

allegedly paid for advisors to churn their clients’<br />

investments into higher income-generating<br />

The client’s interests<br />

come ahead of the<br />

financial planner.<br />

assets for the company in question. The Financial<br />

Sector Conduct Authority is investigating the<br />

allegations, so the jury is still out on what has<br />

happened, but stories like this and that of SJP<br />

undoubtedly make clients question the ethics of<br />

financial planners.<br />

After all our ethics training, where are we<br />

going wrong? Arguably, if we stick to the basics<br />

of what is ethical, we can’t go far wrong. The first<br />

Financial Advisory and Intermediary Services<br />

(FAIS) Ombud, the late Charles Pillai, once<br />

shared with me what he thought the basics<br />

are: “If a financial planner just acted in a client’s<br />

interests they wouldn’t have to worry about<br />

compliance and regulation”. His view is clarified<br />

in Section 3 (1)d of the FAIS General Code of<br />

Conduct which states that when rendering a<br />

service to a client, “The interests of the client…<br />

must be accorded appropriate priority over any<br />

interests of the provider”. We could debate how<br />

to define “appropriate”, but the word “priority”<br />

is clear: the clients’ interests come ahead of the<br />

financial planner.<br />

The new CEO of St James Place, Mark FitzPatrick<br />

is committed to cleaning up the poor historic<br />

practices at a business which services over 10%<br />

of the UK wealth management market, with<br />

over 900 000 clients advised by around 2 200<br />

financial advisors. New brooms sweep clean. In<br />

so doing, if St James Place was a South African<br />

FSP, FitzPatrick would need to consider the<br />

question: Does SJP give its clients “appropriate<br />

priority”? Despite his South African roots, this<br />

is not a requirement for him, but it is a question<br />

South African FSPs ideally should be asking<br />

themselves on an ongoing basis.<br />

A test that all South African financial<br />

planners could take to help them assess<br />

whether they give clients “appropriate priority”<br />

when giving advice is what may be appropriate<br />

to call the 3 “P” test. First, the “Press” test: Would<br />

you be happy if the advice you give clients; the<br />

products and funds you recommend; and the<br />

fees you charge appeared on the front page<br />

of a national newspaper or made social media<br />

headlines? Second, the “Peer” test: Would you be<br />

happy for your fellow professionals to review<br />

all your advice, products, funds and fees? Third,<br />

the “Personal” test: Would you give yourself,<br />

your family members or close friends the<br />

same advice, products and funds and charge<br />

the same fee?<br />

Ethical hiccups are always helpful reminders<br />

for us to get back to basics when it comes to<br />

the ethical treatment of clients and to consider<br />

whether we give “appropriate priority” to clients. <br />

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Cryptocurrency’s evolution<br />

Navigating the cryptocurrency landscape.<br />

Kobus Kleyn, CFP®, Tax and<br />

Fiduciary Practitioner, Kainos Wealth<br />

Kobus Kleyn has published<br />

over 200 articles and authored<br />

four 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),<br />

The Million Dollar Round<br />

Table (Top of the Table Life<br />

Membership) and Liberty Group<br />

(Life Membership) in 2021/22.<br />

The complimentary publication of<br />

CryptoMania, launched on 1 April 2018,<br />

offered an independent analysis at<br />

a time when digital currencies were<br />

capturing global attention. Six years later, the<br />

sector has matured dramatically, characterised by<br />

technological stability in leading cryptocurrencies<br />

like Bitcoin and Ethereum, regulatory evolution<br />

and economic indicators’ increasing influence on<br />

crypto valuations.<br />

Regulatory landscape within South Africa<br />

In South Africa, the official recognition of<br />

cryptocurrencies as an asset class heralds a new era<br />

of regulation and oversight. The requirement for<br />

traders and advisors to register with the Financial<br />

Sector Conduct Authority (FSCA) introduces<br />

a formal framework, integrating crypto assets<br />

into the financial mainstream and promoting<br />

responsible trading and advisory practices,<br />

with some consumer protection. The irony is<br />

that Bitcoin and other cryptos were designed to<br />

operate in a decentralised ecosystem.<br />

The tax treatment of cryptocurrencies by the<br />

South African Revenue Service (SARS) offers a<br />

clear example of how regulatory bodies are<br />

adapting to the unique challenges presented<br />

by digital currencies. SARS has delineated that<br />

income generated from trading or investing in<br />

cryptocurrencies will be subject to taxation,<br />

with the nature of activities determining<br />

whether capital gains tax or income tax<br />

applies. Specifically, gains realised from the<br />

disposal of crypto assets are liable for capital<br />

gains tax, while income from mining activities<br />

or trading in the ordinary course of business<br />

falls under income tax. This approach ensures<br />

that crypto investments are treated with a level<br />

of scrutiny comparable to traditional financial<br />

assets, promoting transparency and fairness<br />

in taxation.<br />

The convergence of cryptocurrencies<br />

Its responsiveness to traditional economic<br />

indicators, such as interest rates, is an intriguing<br />

development in the cryptocurrency market.<br />

This trend indicates a shift towards mainstream<br />

financial behaviours, challenging the original<br />

decentralisation ethos of cryptocurrencies. The<br />

alignment with economic indicators suggests an<br />

increasing maturity of the market.<br />

Investment strategies<br />

The adage of spending time in the market, rather<br />

than attempting to time it, is particularly relevant<br />

in the volatile crypto market. Historical peaks<br />

and troughs, including the record high in 2021<br />

followed by significant corrections, underscore<br />

the value of patience and strategic investment.<br />

ETF activism<br />

The recent record highs in Bitcoin are attributed<br />

to the activism surrounding cryptocurrency<br />

ETFs. ETFs have played a pivotal role in making<br />

cryptocurrency more accessible and palatable to<br />

traditional investors, enhancing market liquidity<br />

and stability. The halving event, a built-in feature<br />

that reduces the reward for mining Bitcoin, is<br />

keenly anticipated for its potential impact on<br />

supply and, consequently, price.<br />

Looking ahead<br />

The cryptocurrency market’s journey underscores<br />

its transition from a speculative novelty to a<br />

complex financial ecosystem. The regulatory<br />

advancements in jurisdictions like South Africa,<br />

coupled with the market’s responsiveness<br />

to economic indicators and the strategic<br />

involvement of ETF activists, paint a picture<br />

of a maturing market. As the sector continues<br />

to evolve, navigating the interplay between<br />

innovation and regulation, traditional financial<br />

principles and cryptocurrency-specific dynamics<br />

will be crucial for investors seeking to capitalise<br />

on this digital asset class’ opportunities while<br />

mitigating its inherent risks.<br />

For those keen on<br />

delving deeper into the<br />

transformative journey<br />

of the cryptocurrency<br />

market, download a copy<br />

of CryptoMania from<br />

www.bluechipdigital.co.za<br />

or scan the QR code.<br />

www.bluechipdigital.co.za<br />


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FPI UPDATES | Awards<br />

Practice makes perfect<br />

Meet Crue Invest, winner of the Financial Planning Institute of Southern Africa’s (FPI) 2023 Approved<br />

Professional Practice of the Year Award. Crue Invest, founded in 2004, provides expert advice on all<br />

aspects of financial planning. <strong>Blue</strong> <strong>Chip</strong> caught up with managing director and co-founder, Sue Torr.<br />

Congratulations to the team for winning the 2023 FPI Approved<br />

Professional Practice of the Year Award! In your opinion, what<br />

is the fundamental reason for your success?<br />

Thank you. To be honest, winning this award was part of our<br />

strategic plan, and the team has been very focused on achieving<br />

this goal. We have been intentional over many years in our drive<br />

to provide high-quality, fiercely independent advice to consumers,<br />

and I believe this has raised the profile of Crue Invest nationally. As<br />

a full-suite practice that has enjoyed substantial organic growth,<br />

we have remained deliberate about keeping our business highly<br />

personal and client-focused, never losing sight of the fact that it<br />

is our clients who form the basis of our success.<br />

We have been relentless in our pursuit to share much-needed<br />

information with South African consumers on the benefits of<br />

holistic, independent financial planning and the valuable role it can<br />

play in achieving sustainable wealth – and our clients appreciate<br />

this. From an operational perspective, we take compliance, data<br />

protection and cybersecurity very seriously, and have tight<br />

management systems and controls in place.<br />

We have also invested heavily in training, mentoring and<br />

upskilling our people to ensure that our clients have access to<br />

the expertise they deserve. Being intentional about developing<br />

a world-class advisory team, we now have nine CERTIFIED<br />

FINANCIAL PLANNERS®, two legal advisors and several team<br />

members furthering their tertiary education.<br />

How has Crue Invest espoused the principles outlined in the<br />

FPI Code of Conduct?<br />

We place the client at the centre of our business and ensure<br />

that all advice is in the client’s best interests. Being fee-based<br />

and completely independent, we can focus our attention on<br />

fully understanding each client’s needs and goals, and create<br />

bespoke financial solutions designed to help each client achieve<br />

their objectives.<br />

Throughout all our processes, honesty, ethics and integrity<br />

remain front and centre, with a total commitment to full<br />

transparency at all times. Placing client interests above all else<br />

forges trust which is the foundation upon which our client<br />

relationships are built. As a team, we remain committed to ongoing<br />

professional development to ensure that we not only keep pace<br />

Teamwork is at the heart<br />

of what we do.<br />

The Crue Invest team with the award.<br />

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FPI UPDATES | Awards<br />

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with industry advancements and best practices but also push each<br />

other out of our comfort zones. For instance, we’ve developed an<br />

in-house library of some great book titles covering a broad range<br />

of topics and run a weekly book club to discuss and share insights.<br />

We’ve just initiated a weekly current affairs forum to ensure that,<br />

as a team, we remain abreast and objectively informed on what<br />

is happening in the world and how it impacts (or can impact) our<br />

clients. We’ve developed a fantastic ethos of growth and learning<br />

that is fortified by a culture of accountability and excellence in<br />

financial planning.<br />

Why do clients choose Crue Invest? What sets you apart?<br />

We have an incredible team of people with a shared purpose to<br />

help others navigate their personal finances and make their lives<br />

better. I believe that Crue has the “x-factor” – an inimitable team<br />

spirit and shared value system that reflects the soul of the business.<br />

We love what we do. We love coming to work. We love serving<br />

our clients.<br />

What is Crue Invest’s particular area of expertise?<br />

Being a full-suite financial planning practice, our expertise cover<br />

investment advice, retirement planning, tax and estate structuring,<br />

risk protection, business assurance, employee benefits and<br />

healthcare (medical aid and gap cover). Our financial advisory<br />

team of 14 is based in our Pinelands office in Cape Town while<br />

our healthcare team of three operates from our Brackenfell office.<br />

investors, and we are doing great work in this space, especially<br />

through our partnerships with Just Grace (a Langa-based NPO),<br />

the UCT Investment Society and several other organisations. All<br />

South Africans should have access to the mechanisms of wealth<br />

creation, and we believe we have a role to play in creating access.<br />

What did you learn through the process?<br />

Entering the competition afforded us some great opportunities<br />

to examine our business critically and insightfully. As a team, we<br />

thoroughly enjoyed interrogating our systems and processes<br />

and challenging each other to scrutinise our business through<br />

different lenses. The process also provided a great opportunity to<br />

expose the younger team members to the operational aspects of<br />

running a business. In a sense, we spent time as a team “auditing”<br />

our business and sharing ideas for enhancements, improvements<br />

and innovation, which in itself was a team-strengthening exercise.<br />

Finally, I think we came away from the competition having a<br />

deeper appreciation for the incredible profession we find ourselves<br />

working in. There are so many world-class advice practices out<br />

there, and to be counted among them is a privilege. <br />

The other finalists in the 2023 FPI Approved Professional<br />

Practice of the Year were Veritas Wealth and Integral<br />

Wealth Management.<br />

What is Crue Invest’s advice philosophy and mission?<br />

Believing unequivocally in the benefits of holistic financial<br />

planning, we were intentional about building an advice practice<br />

that reflects this belief and that enables us to deliver bespoke<br />

advice of the highest calibre. Each client is allocated a team of<br />

advisors and para-planners who work together to create a highly<br />

personalised financial plan, with each team being supported by a<br />

team of administrators who ensure that all financial solutions are<br />

implemented efficiently. Teamwork is at the heart of what we do.<br />

Why did you enter the FPI Awards?<br />

We wanted to raise the profile of qualified, independent financial<br />

advisors and the incredible value they can add to people’s lives and<br />

believed that winning this award would give us a great platform to<br />

achieve this. There are many excellent financial advisors out there<br />

and we want to encourage consumers to find a trusted advisor<br />

who they can partner with for life.<br />

Being passionate about building the professional standing of<br />

qualified financial advisors in South Africa, we’d love to leverage<br />

this award to attract young talent to the profession so that we can<br />

play a meaningful role in building the base of professional advisors.<br />

And finally, we’d love to use the platform to create greater inclusion<br />

especially when it comes to creating opportunities for first-time<br />

investors to build wealth.<br />

Our in-house education programme, Crue Academy, is a<br />

fantastic initiative designed to break open barriers for first-time<br />

Sue Torr, Managing Director,<br />

Crue Invest<br />

Craig Torr, CFP®, Director,<br />

Crue Invest<br />

www.bluechipdigital.co.za<br />


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FPI UPDATE | Awards<br />

The up-and-coming rising<br />

FPI stars<br />

The FPI Student Financial Plan Competition is designed for finance-related undergraduate students and<br />

aims to promote the financial planning profession as a viable career choice. Meet the 2023 winners.<br />

Teams compete in this competition to advance<br />

through three stages:<br />

- a written financial planning case study<br />

(30% weighting)<br />

- a financial planning case study presentation<br />

(50% weighting)<br />

- an off-the-cuff challenge (20% weighting)<br />

The weighting was determined with an emphasis<br />

on the oral presentation as it indicates the<br />

importance of both the client relationship and the<br />

value of financial planning.<br />

Winners of the 2023 FPI Student Financial Plan Competition, McCallister<br />

Jere, Karabo Huma and Asanda Cele from MSK Financial Services, University<br />

of Johannesburg.<br />


What did you achieve by entering the FPI<br />

Student Financial Plan Competition?<br />

By entering and winning this competition, my team<br />

and I achieved several significant accomplishments.<br />

It demonstrated our understanding and<br />

proficiency in creating a comprehensive financial<br />

plan that not only addresses the technical<br />

and financial aspects but also incorporates an<br />

empathetic understanding of human behaviour<br />

and the emotional attachment people have with<br />

their assets.<br />

This award helped me gain recognition within<br />

the financial planning industry, which can and<br />

will open doors for future opportunities, clients or<br />

professional relationships.<br />

I also experience a sense of achievement and<br />

pride in my team’s hard work, dedication and<br />

willingness to push through. With every meeting,<br />

draft and review we experienced, I saw what can<br />

be achieved when people have a common goal.<br />

The competition supports the next generation of financial<br />

planners by serving as a recruiting opportunity for<br />

potential students who may want to take up a career<br />

in financial planning and engages students in a holistic<br />

financial planning learning experience.<br />

What did you learn through the process?<br />

Working closely with my team taught me the importance of<br />

effective communication, delegation and leveraging each other’s<br />

strengths. Understanding how to filter through a mess of ideas<br />

ensures that the result is what is important.<br />

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I learnt the importance of thorough research, analysing data and<br />

understanding human psychology, which was the winning factor.<br />

Financial planning is more than managing finances but ensuring<br />

that the person behind the money is taken care of regardless of<br />

the fluctuations in their money status.<br />

Lastly, understanding industry knowledge and trends.<br />

Immersing myself in this competition provided insights into<br />

the current industry practices and how the future of financial<br />

This award helped me gain<br />

recognition within the financial<br />

planning industry, which<br />

can and will open doors for<br />

future opportunities, clients<br />

or professional relationships.<br />

planning will look like, I was able to learn how other planners<br />

approach this problem and how we can incorporate these<br />

techniques into future proposals.<br />


What is your understanding of the role of a financial planner?<br />

Financial planners are key, essential professionals who work with<br />

individuals and businesses. The main objective is to help clients<br />

achieve their short-term and long-term financial goals. Like a<br />

medical doctor, who helps patients with their health, a financial<br />

planner fixes and cultivates a client’s financial health. This is done<br />

by understanding the needs of the client.<br />

What do you think was the winning factor of your financial plan?<br />

For the most part, it was understanding our clients’ needs. But<br />

beyond that, we tried to put ourselves in our clients’ position<br />

by asking questions like: How would we feel about the current<br />

situation? What matters most to them? This allowed our approach<br />

to be one of empathy and realism.<br />

Our recommendations were based on our clients' needs and<br />

what matters most to them, supplemented with secondary<br />

recommendations, giving our couple an option and thus<br />

an element of control. We kept a bigger picture in mind<br />

and developed a comprehensive financial plan, covering all<br />

components, this was done by understanding the singular thread<br />

in all the financial planning domains.<br />


How did you espouse the FPI’s Codes of Conduct in your<br />

business plan?<br />

Following the eight principles within the FPI’s Code of Ethics, we<br />

ensured that the client came first and that every recommendation<br />

was based on what would be best for them. This was done<br />

through review sessions showing alternatives and basing our<br />

options on that scale.<br />

We also ensured that the integrity of the plan was maintained<br />

by remaining honest and transparent and approaching each<br />

decision fairly.<br />

The financial analysis was based on thorough research,<br />

unbiased data and an objective assessment of the client’s unique<br />

goals and risk tolerance.<br />

By creating a financial plan that addressed various aspects such<br />

as retirement plans, investment plans, etc we demonstrated a high<br />

level of knowledge and expertise that align with the professional<br />

competence required.<br />

The most important aspect was confidentiality, fair and<br />

diligent treatment and professionalism.<br />

We ensured that our client’s information was safeguarded and<br />

that we followed all the data processing regulations.<br />

Adhering to industry standards and best practices ensures<br />

that we uphold the integrity of the financial planning profession.<br />

What inspired you to become a financial planner?<br />

My passion for financial education stems from witnessing the harsh<br />

realities of my community growing up. Money was merely a tool<br />

for survival, with many families, including my own, lacking access<br />

to proper financial knowledge. This deprivation perpetuated a<br />

cycle of living paycheck to paycheck, unable to build a positive<br />

relationship with money.<br />

From those harsh experiences, I made a commitment to<br />

empowering others, especially within my community, to<br />

cultivate a healthy relationship with money. I recognised the<br />

transformative power of financial literacy, enabling individuals<br />

to break free from the cycle and embrace long-term planning,<br />

saving and investing.<br />

Through education and guidance, I aim to aid individuals<br />

with the fundamental principles of finance, budgeting, saving<br />

strategies and investment planning, empowering them to make<br />

informed decisions and secure their financial futures.<br />

This deeply personal journey, rooted in childhood<br />

experiences, fuels my determination to effect change by<br />

fostering a positive relationship with money and instilling the<br />

value of financial education. <br />


Cultivate Growth, Harvest Excellence<br />

The FPI is seeking a 2024 FPI Student Financial Plan<br />

Competition sponsor. The sponsorship will assist in<br />

paying for the winning students’ accommodation and<br />

travel expenses. The sponsor’s logo will appear on all<br />

marketing materials for the FPI Professional’s Convention<br />

2024 in August 2024. Please get in touch with Lelané<br />

Bezuidenhout, CEO of FPI at lelane@fpi.co.za if you wish to<br />

cultivate growth and harvest excellence for our students.<br />

www.bluechipdigital.co.za<br />


BLUE<br />

CHIP<br />

INVESTMENT | Responsible investment<br />

The cost of carbon: an<br />

investor’s perspective<br />

Environmental, Social and Governance (ESG) criteria have become a cornerstone of current investment<br />

management practices – but there are implications that need to be recognised.<br />

Climate change and carbon emissions matter, but so<br />

does the cost of managing these – particularly in a<br />

concentrated investment universe like the JSE. We<br />

evaluated the effects of managing carbon emission<br />

on the purity of the portfolio factor signal (value,<br />

momentum and quality) and risk-adjusted returns by<br />

either excluding the most carbon-intensive companies<br />

or creating portfolios that achieve a less-thanbenchmark<br />

carbon-intensive level.<br />

The results are clear: it is possible, but the impact on<br />

factor scores and risk-adjusted returns is consistently<br />

negative. These findings suggest that it is more beneficial<br />

and impactful for South African investors to look for<br />

these gains in their offshore portfolios to reduce their<br />

carbon footprint holistically. They should encourage their<br />

investment managers to engage with the management<br />

teams of the most carbon-intensive companies to get<br />

them to focus on carbon emissions reduction targets and<br />

the strategies necessary to get them there.<br />

Regulators in South Africa and the industry-developed<br />

(voluntary) Code for Responsible Investing South Africa<br />

(CRISA) also require investment managers to incorporate<br />

ESG principles into the responsible management of their<br />

clients’ assets. However, it is also important to recognise that any<br />

restrictions on a portfolio will impact its risk and return profile.<br />

Investment managers’ challenge is how to maximise the<br />

expected benefits while minimising adherence costs to these<br />

ESG-related targets. While managers will do their best, their<br />

clients must understand that their ESG goals will certainly have<br />

some performance-related effects on their portfolio returns –<br />

especially in the short term. Increased transparency should help<br />

manage client expectations and empower them to make informed<br />

decisions aligning with their values and financial objectives.<br />

Investing in a smaller carbon footprint<br />

Momentum Investments through its Research Hive conduct<br />

research on the impact of restricting portfolios’ carbon footprints<br />

relative to the benchmark. Carbon emissions are an important<br />

source of greenhouse gases and from an ESG perspective,<br />

Figure 1: WACI levels by super-sector.<br />

Source: MSCI Barra, Momentum Investments<br />

22 www.bluechipdigital.co.za

STRAP: INVESTMENT | Responsible investment<br />

HEAD: The cost of carbon: an investor’s perspective<br />

INVESTMENT | Responsible investment<br />

BLUE<br />

CHIP<br />


<br />

ESG remains at the forefront<br />

of our investment approach.<br />

investors may want to hold portfolios with a smaller carbon<br />

footprint than the benchmark. There are two main ways to do this<br />

– either exclude the most egregious emitters from the investment<br />

universe; or create portfolios using a process that down-weights<br />

them somehow.<br />

The first approach represents a clear and simple commitment<br />

to reducing carbon emissions. It is an unambiguous signal to the<br />

offending companies, but it does result in a smaller investment<br />

universe with a strong anti-resources bias. The second method<br />

pragmatically targets a portfolio's carbon footprint lower than the<br />

benchmark. This is more flexible and nuanced than the first approach.<br />

These two approaches are compared in the context of large,<br />

liquid South African equities for the period 2017 to 2023 using<br />

carbon emissions data provided by MSCI Barra. Both were applied<br />

to three different factor-based investment portfolios (Value,<br />

Momentum and Quality). In each case, 10 increasingly intense<br />

carbon intensity (CI)-related targets were set and the relative<br />

performance of these more binding commitments were identified.<br />

By carbon footprint, we mean the weighted average carbon<br />

Source: MSCI Barra, Momentum investments<br />

intensity (WACI) of a portfolio (or benchmark). The WACI levels<br />

for the resources, financial and industrial super-sectors (using<br />

benchmark weights) are illustrated in Figure 1. The graph clearly<br />

illustrates that resource companies are the most intensive carbon<br />

emitters. Managing them effectively will require under-weighting<br />

this cyclical, but important, part of the market.<br />

Caption: Figure 1. WACI levels by super-sector.<br />

Eliminating carbon-intensive companies from the<br />

investment universe<br />

The first question we asked in the research process was: what<br />

happens to your portfolios if you sequentially eliminate the<br />

top 10 most carbon-intensive companies from the investment<br />

universe? We compared the WACI for these portfolios with the<br />

WACI of the unconstrained portfolio and the average relative<br />

WACIs are summarised in Figure 2.<br />

Excluding these shares reduces the average relative WACIs.<br />

Still, these average results hide that these reductions happen<br />

only when the excluded shares are in the top 20 when ranked by<br />

their factor exposure. In other words, the relative improvements<br />

are not consistent over time.<br />

The next question was: what impact does optimising a portfolio<br />

to (at most) meet a benchmark relative WACI level have? Again, we<br />

evaluated 10 different levels of benchmark-relative WACI targets<br />

(decreasing by 5% each time) and constructed portfolios of at<br />

least 20 shares in a benchmark-cognisant way where we allowed<br />

a maximum of a 5% active position. These portfolios gave us the<br />

desired decrease in WACI, but more consistently this time.<br />

The final research question was: what is the impact of<br />

these improvements in terms of the portfolios’ risk-adjusted<br />

performance? It will have an effect; either it leads to a smaller<br />

universe to invest in (ie one with fewer resources shares as they<br />

are increasingly excluded) or there is an obligation to hold a<br />

portfolio that has a lower average factor score (because we’re<br />

under-weighting the high-CI shares). The relative factor scores<br />

and risk-adjusted returns of the constrained portfolios were thus<br />

also identified. As expected, there was a negative impact on both<br />

the relative factor scores and the resulting risk-adjusted returns.<br />

Eliminating carbon-intensive companies from the investment universe<br />


<br />

Figure 2: Constrained universe factor-based portfolio WACIs (relative to the unconstrained universe portfolio).<br />

Source: MSCI Barra, Momentum Investments<br />

Caption: Figure 2. Constrained universe factor-based portfolio WACIs (relative to the<br />

unconstrained universe portfolio).<br />

Source: MSCI Barra, Momentum investments<br />

www.bluechipdigital.co.za<br />


BLUE<br />



1<br />

| Responsible investment<br />

CHIP<br />

Table 1. Average changes in portfolio WACI and related impact on relative risk-adjusted returns.<br />

Average change in<br />

relative WACI<br />

Average change in relative<br />

risk-adjusted return<br />

Factor Exclusion<br />

BM-<br />

Cognisant<br />

Exclusion<br />

BM-Cognisant<br />

Quality -4.44% -4.95% -7.72% -7.29%<br />

Value -4.81% -2.67% -42.26% -4.39%<br />

Momentum -5.83% -4.39% -7.52% -13.37%<br />

Table 1: Average changes in portfolio WACI and related impact on relative risk-adjusted returns.<br />

Source: MSCI Barra, Momentum Investments<br />

Source: MSCI Barra, Momentum investments<br />

The average impact of these WACI improvements for each method<br />

over the 10 different constrained factor portfolios is summarised in<br />

Table 1. A comparison of these average WACI decreases across the<br />

various factors shows that you can constrain the carbon footprints<br />

of the portfolios and that the portfolio construction methodology<br />

does not seem to matter too much (on average).<br />

When looking at the impacts on the risk-adjusted returns the<br />

most important point to take away from this is that in every case<br />

the decrease in risk-adjusted returns is larger than the decrease in<br />

the WACI. This decline is not an increase in risk levels, but rather<br />

a decline in the average returns from the constrained portfolios.<br />

How to effectively manage ESG in the SA market<br />

To summarise, our research clearly shows that while a South<br />

African equity portfolio’s WACI can be significantly improved, there<br />

are costs associated with it (lower risk-adjusted returns). The higher<br />

the desired change, the lower the risk-adjusted portfolio return no<br />

matter what method or factor considered. This is directly a result of<br />

the limited and concentrated nature of the resource-heavy equity<br />

universe that investment managers have access to in South Africa.<br />

There are a couple of important points to note. Firstly, this<br />

exercise is limited as it is only focused on the carbon component<br />

of the E in the ESG. As an investment management firm, we believe<br />

that you can manage ESG effectively in the South African market,<br />

but as pointed out above, the nature of the South African equity<br />

market constrains the management of carbon emissions in this<br />

specific way.<br />

Secondly, it is important to remember that this specific way<br />

of managing carbon emissions is not meant to be the only,<br />

or necessarily the most effective, way to change the desired<br />

behaviour. There is greater scope for more effective impact via<br />

active engagement with management teams by investment<br />

managers on behalf of their clients. These engagements should<br />

focus on requiring them to produce targets for ESG outcomes,<br />

develop strategies to achieve these and then hold them to account<br />

in terms of progress. As a company, we are actively engaged in<br />

these discussions through our responsible investing team.<br />

Finally, we believe that investors need to be conscious of the<br />

potential impacts of this approach and so we remain cautious<br />

of its application in South Africa. We know that the global<br />

equity markets are a much more effective way to reduce carbon<br />

footprint by adjusting portfolio holdings as there are much greater<br />

opportunities for substituting highly CI companies. <br />

The Research Hive was set up within Momentum Investments<br />

to provide research insights and we will continue to<br />

monitor the situation as new data arrives. ESG remains at<br />

the forefront of our investment approach. As such, we will<br />

continue to conduct these kinds of research activities. They<br />

are important to gauge what is practical for our clients as<br />

we continue to try to improve the environment and society<br />

through better portfolio management decision-making and<br />

levels of active ownership.<br />

For more information on The Research Hive, visit<br />

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

Professor Evan Gilbert, Research Strategist,<br />

Momentum Investments<br />

Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services (FSP 6406) and registered credit (NCRCP173) provider.<br />

24 www.bluechipdigital.co.za

FINANCIAL PLANNING | Investment<br />

BLUE<br />

CHIP<br />

Removing the jargon from your<br />

investment goals<br />

Clients encounter a lot of jargon in the financial services<br />

industry which may add more anxiety regarding<br />

their investments. Some people may use big terms to<br />

convince clients to think they have the right answers<br />

without first trying to explain the underlying principles.<br />

After seeing an answer a friend received about the security of<br />

his unit trust versus that of his bank deposit, my colleague Rowan<br />

Burger, head of strategic finance at Momentum Metropolitan<br />

Holdings explained the security of a bank, life insurance company<br />

and unit trust investment without the jargon.<br />

A bank collects deposits and provides loans. It tries to balance<br />

loans with deposits by taking a client’s deposits and issuing them<br />

to someone as a loan. The risk to the bank (and the client) is that<br />

its deposits dry up or its loan book fails. It then cannot honour<br />

the other side of the transaction. A bank fails when there is a loss<br />

of faith in its ability to do this, for example, if a large number of<br />

depositors want their cash back and the bank cannot cancel loans<br />

to effect payment. They hold capital as protection against this, but<br />

the write-downs deplete their capital.<br />

An insurance company, however, is fully funded as the investment<br />

products underwritten by a life insurer will have all the assets of a<br />

life insurer on the balance sheet. In the event of an influx of claims<br />

by clients, they can disinvest these assets and make payments.<br />

However, a life insurer integrates its investment business with its risk<br />

business. The risk in the event of a pandemic, for example, is that the<br />

loss on the risk side of the business could leave insufficient capital<br />

available to pay out the claims in full. In South Africa, insurance<br />

companies have always paid out 100% of their liabilities.<br />

On the other hand, companies that are only asset managers<br />

don’t have large balance sheets for protection. Accordingly,<br />

South African investments are structured so that the company<br />

never holds its clients’ assets. These are held in a trust. The client<br />

owns a portion of the trust, broken up into units, hence the name<br />

“unit trust”. The trust contracts the asset manager to manage the<br />

funds according to the mandate. The trustee is usually a bank<br />

or a financial institution not affiliated with the asset manager.<br />

This means that if there are any financial concerns at the asset<br />

manager, this does not impact the assets invested in the unit<br />

trust. If the asset manager goes bankrupt, the trustees have<br />

the power to appoint a new manager or arrange for liquidation<br />

of the underlying investment holdings and make payments to<br />

unit holders. The transaction costs would marginally reduce the<br />

value of the investment, for example, the sale of the equities for<br />

cash. However, the assets are secure in this trust, governed by the<br />

Collective Investment Scheme Control Act (CISCA).<br />

It would be painful to invest your assets across many managers and<br />

track these holdings, so investors typically use Linked Investment<br />

Service Provider (LISP) platforms to buy, sell and report on their<br />

holdings across these multiple unit trusts. This is legislated under<br />

the Financial Advice and Intermediary Services (FAIS) Act.<br />

Trusts and asset managers typically have insurance to protect<br />

against fraud and loss. The LISP platforms hold capital in the event<br />

of a failure to perform their duty or go into financial difficulty. This<br />

capital ensures that the fund can continue operating and be wound<br />

down if necessary without additional cost to the unit holders.<br />

LISPs were specifically designed to protect investors in the<br />

event of failure of the asset manager (or the related companies<br />

performing other parts of the investment process). The key risk<br />

is measured by the choice of asset manager and their ability to<br />

manage the performance delivery.<br />

Cash deposits are considered safer regarding capital protection,<br />

while unit trusts offer the potential for higher returns that come<br />

with market risk. The security of unit trusts versus bank deposits<br />

depends on a client’s risk tolerance and investment goals. In<br />

general, conservative unit trusts are less risky than more aggressive<br />

unit trusts as they have less exposure to growth asset classes that<br />

tend to be more volatile. <br />

Florbela Yates, Head of Equilibrium<br />

Equilibrium Investment Management (Pty) Ltd (Equilibrium) is an authorised financial services provider (FSP32726) and part of Momentum Metropolitan Holdings Limited and rated B-BBEE level 1.<br />

www.bluechipdigital.co.za<br />


BLUE<br />

CHIP<br />

FINANCIAL PLANNING | Investment<br />

Listings on the JSE: Should recent history make us worried?<br />

The JSE has undergone a notable transformation over the<br />

past two decades, marked by a significant reduction in<br />

the number of listed companies from its peak of 484<br />

companies in 2002 to 275 as of Q1 2024. This decline<br />

reflects a structural change rather than a temporary fluctuation,<br />

not unique to the JSE but part of a broader global trend observed<br />

in major equity markets worldwide.<br />

Despite fewer listed companies, the JSE’s overall market<br />

capitalisation increased over the same period. This indicates a<br />

concentration of value among select companies. Notably, the<br />

proportion of companies with a foreign primary listing on the<br />

JSE has risen significantly to 20.4% of total listings. This increase<br />

highlights the JSE’s global integration, offering local investors<br />

diversification opportunities.<br />

While delistings are inevitable and are a natural part of market<br />

dynamics, the imbalance between new listings and delistings is<br />

the main concern, with reluctance from new companies to enter<br />

the market being the main issue. This imbalance is evident in the<br />

steady net decline in the number of shares entering and exiting the<br />

JSE All Share Index (ALSI) since 2018 (Figure 1). Without a steady<br />

stream of new listings, the JSE may face limitations in its ability to<br />

adapt to evolving market conditions and provide investors with a<br />

diverse set of investment opportunities.<br />

Figure 1: Annual changes in the number of constituents on the<br />

JSE (2004-2023).<br />

Source: MSCI Barra Portfolio Manager, Momentum Investments<br />

The trend in the number of ALSI constituents (see Figure 2)<br />

reveals a notable 22% decrease from 161 companies to 127<br />

over the same period. Concurrently, the market capitalisation<br />

of the index exhibited an upward trajectory, highlighting a<br />

consolidation of market value among fewer entities. Despite<br />

fluctuations in the composition of the index, the proportion<br />

of total market capitalisation lost due to companies exiting<br />

remains modest.<br />

For asset managers and investors tracking the ALSI index,<br />

this suggests that while changes in index constituents may<br />

occur, the broader market’s stability and performance are<br />

not as severely affected. For example, in 2023 the JSE saw 23<br />

Figure 2: Number of ALSI constituents and their total market<br />

capitalisation.<br />

Source: MSCI Barra Portfolio Manager, Momentum Investments<br />

companies delist while only 11 companies exited the ALSI,<br />

meaning that over 52% of companies delisted are not part<br />

of the opportunity set as defined by asset managers. This<br />

discrepancy highlights the selective nature of the opportunity<br />

set, with smaller companies that do not meet the typical size<br />

and liquidity requirements of the average asset manager<br />

comprising a significant portion of delisted companies. The<br />

modest decrease in annual market capitalisation resulting<br />

from exits also suggests that the downward trend primarily<br />

stems from exits among smaller to mid-cap companies that<br />

fall outside the scope of the opportunity set.<br />

The shrinking investment universe presents both challenges<br />

and opportunities. While it limits diversification and investment<br />

options, it also concentrates the opportunity set among larger and<br />

more established companies, offering the potential for stability<br />

and liquidity.<br />

By understanding and<br />

addressing the implications<br />

of these trends, Momentum<br />

Investments can optimise<br />

investment strategies and<br />

drive long-term growth in<br />

an increasingly competitive<br />

global market. The Research<br />

Hive was set up within<br />

Momentum Investments to<br />

provide research insights, like<br />

the shrinking opportunity set<br />

on the JSE, to assist financial<br />

advisors in helping their clients<br />

achieve their financial goals.<br />

For more information<br />

on The Research Hive, visit<br />

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

Vongani Masongweni,<br />

Quantitative Research Analyst,<br />

Momentum Investments<br />

Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services (FSP 6406) and registered credit (NCRCP173) provider.<br />

26 www.bluechipdigital.co.za

’<br />

The 2024 FPI Professional’s Convention<br />

themed ‘Cultivate Growth, Harvest<br />

Excellence’, will be taking place on the<br />

13th and 14th of August 2024. The<br />

event will be hosted at Century City<br />

Conference Centre in Cape Town.<br />

www.fpi.co.za<br />

Cultivate Growth, Harvest Excellence

Century City Conference Centre Cape Town

BLUE<br />

CHIP<br />

INVESTMENT | Themes<br />

There is always the next big thing<br />

Every December, financial journalists sharpen their pencils<br />

and write about the biggest themes that will drive market<br />

returns over the next year. Thinking about and rationalising<br />

investment markets through a set of themes is a powerful<br />

way to convey some very succinct messages. For instance, the<br />

theme that the Internet would change the world founded favour<br />

with many investors leading up to the turn of the millennia.<br />

Globalisation and the idea of an interconnected economy is<br />

another theme that has been relatively popular in the financial<br />

market discourse for decades.<br />

These themes provide us with investment narratives that we<br />

can believe and understand. Being able to identify and take<br />

advantage of them can lead to positive investment outcomes.<br />

For that reason, recognising even one of the factors that<br />

may lead to the next big thing is a prized skill in the world of<br />

investment management. So, when investment managers or the<br />

media present us with what seem to be compelling investment<br />

themes, we are often inclined to believe them. After all, now and<br />

again, some of those themes do end up driving markets, but not<br />

necessarily in the way you may think.<br />

Let’s say, for instance, that in 1999 you believed that the Internet<br />

would change the world we live in, you would have been right.<br />

But had you chosen to buy a range of newly listed US companies<br />

that would benefit from that theme, you would have lost a lot<br />

of money in the Dot Com Crash. Recognising and accepting the<br />

Matthew Molyneux, Investment Analyst, Fundhouse<br />

investment theme as being correct wasn’t enough, you would also<br />

have needed to know when to access it.<br />

Often, investors buy compelling investment themes at the<br />

wrong times, but it isn’t always easy to see that when you’re<br />

caught up in the market hype. To that end, let’s use hindsight<br />

to our advantage and look at three themes of old, how they<br />

played out, and why the line between great investment themes<br />

and overpriced assets isn’t always that easy to see. Although<br />

each theme is quite different, they have some important<br />

commonalities that may help us navigate another theme that<br />

has a powerful grip on financial markets today.<br />

Theme #1: The (Still) Sleeping Dragon – China<br />

The positives. Over the past few years, we have written extensively<br />

about China, its economy and the investment opportunity that the<br />

world’s second-largest economy represents. Certainly, China and<br />

the country’s path to global supremacy has been one of the most<br />

common investment themes of the past decade.<br />

First and foremost, Chinese equities have only been available<br />

to purchase by foreign investors since 2012, when the Stock<br />

Connect programmes were launched. These programmes,<br />

sanctioned by the Chinese government, connected mainland<br />

Chinese exchanges with Hong Kong for the first time.<br />

Over the ensuing decade, more and more “good news” polished<br />

up the Chinese investment case – robust GDP growth, a nascent<br />

technology sector that would bring Chinese consumers online<br />

and strong regulatory support from the Chinese government to<br />

name a few. In 2020, the Covid-19 pandemic further accelerated<br />

a lot of these trends and the price of many Chinese shares rose<br />

meaningfully. In the investment management world, China could<br />

do no wrong with many investors calling for specific Chinese<br />

allocations in addition to their emerging market exposure.<br />

The negatives. However, since 2021, a crackdown on the<br />

technology sector by the Chinese government has led many<br />

to question how investor-friendly the state is. In addition, the<br />

country’s complex real estate sector and trade issues with the<br />

US mean that transitioning the economy is going to be trickier<br />

than once thought. And lastly, the robust economic growth that<br />

underpinned the entire investment case is slowing.<br />

The CSI 300, which is an equity index that tracks 300 companies<br />

listed on the Shanghai and Shenzhen stock exchanges, reached<br />

an all-time high on 18 February 2021. Today, it’s down 40% from<br />

that peak. In the investment management world, investors have<br />

started calling for China to be excluded from their emerging<br />

market exposure and we have seen several “emerging markets<br />

ex-China” funds being launched.<br />

Aside from the positives and negatives of the investment case,<br />

let’s look at when many investors started to access the Chinese<br />

30 www.bluechipdigital.co.za

INVESTMENT | Themes<br />

BLUE<br />

CHIP<br />

Often, investors buy compelling<br />

investment themes<br />

at the wrong times.<br />

2020 and 2021 off the back of strong performance from many<br />

ESG funds.<br />

Ultimately, ESG investing considers the impact that a company<br />

or entity’s operations may have on the planet, its employees and<br />

society more generally in addition to the company’s financial<br />

performance. As society has become more aware of climate<br />

change, how companies are governed and how companies treat<br />

their employees, ESG investing has gained popularity.<br />

ESG investing is based on the premise that a combination<br />

of risk mitigation, long-term value creation and alignment<br />

with long-term market trends means that companies that<br />

adopt appropriate ESG practices are likely to benefit more than<br />

companies that do not.<br />

The negatives. Since 2021, several factors have changed the<br />

ESG investment theme. For instance, most ESG metrics are still<br />

evolving and accurately gauging whether companies are ESG<br />

compliant is more difficult than previously thought.<br />

In part, this has been driven by the fact that ESG-scoring<br />

methodologies have tended to focus on how established<br />

a company’s internal processes are inclined to be and not<br />

necessarily on the impact that the company’s operations have<br />

on its external environment. For example, a company like Pepsi<br />

generally scores highly when it comes to disclosing its board<br />

investment theme. Ultimately, when we start to consider investor<br />

<br />

behaviour an interesting trend emerges, regardless of the theme<br />

we are looking at. We show this in Figure 1.<br />

The orange line on the graph tracks the performance of the<br />

iShares MSCI China ETF over the last decade which serves as a<br />

proxy for the China investment theme. This is then compared to<br />

the number of units that have been created for that ETF over the<br />

same period. As more capital flows into the ETF, more units are<br />

created so the Total ETF Units serve as a proxy for investment flows<br />

INVESTMENT into the ETF. | Economy<br />

A meaningful uptick in flows into this ETF only started to<br />

HEAD: occur after There the MSCI is always China Index the next peaked big in thing late 2021. While it is<br />

important to note that this only relates to one ETF, it does illustrate<br />

an important point – investors started to access this theme after<br />

Figure the assets 1. associated ETF performance with it had vs experienced unit creation a significant until February price 2024 – iShares MSCI China ETF<br />

increase. Ultimately, the theme and resultant growth that many<br />

PLACE Figure 1. FIGURE ETF performance 1 GRAPH vs unit creation until February 2024 – iShares MSCI China ETF.<br />

Source: Thomson Reuters Reuters<br />

investors were buying had already been priced into the market. composition, health and safety policies as well as climate targets.<br />

This is a Figure common 2. trend ETF across performance another two vs themes unit creation of old that until we February For that reason, 2024 – it iShares may score Global highly Sustainable<br />

according to some scoring<br />

will also Development look at. Goals ETF<br />

metrics. However, when the impact of Pepsi’s operations on the<br />

broader environment is considered, it may not necessarily score<br />

Theme #2: ESG investing<br />

as highly according to other metrics. Ultimately this leads to<br />

The positives. Environment, Social and Governance (ESG) inconsistencies relating to how ESG investing is interpreted.<br />

investing is a form of investing that incorporates non-financial In addition, several companies have been engaged in a practice<br />

factors into the investment decision-making process. ESG known as greenwashing for promoting their ESG credentials falsely<br />

investing first came about when the UN Principles of Responsible which has cast a negative light on the practice more broadly. For<br />

Investment were developed in 2006 and became very popular in example, recently the German asset manager DWS came under<br />

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Source: CHIP Thomson Reuters<br />

INVESTMENT | Themes<br />

Figure 2. ETF performance vs unit creation until February 2024 – iShares Global Sustainable<br />

Figure 2. Development ETF performance Goals vs unit ETF creation until February 2024 – iShares Global Sustainable Development Goals ETF.<br />

Source: Thomson Thomson Reuters Reuters<br />

investigation from regulators for engaging in greenwashing by<br />

promoting some of its funds as “green funds” when they weren’t.<br />

More specifically, from August 2018 to late 2021, the company<br />

marketed itself as a leader in ESG investing but failed to adhere<br />

to its own ESG investment processes that it said it followed in its<br />

communication with clients.<br />

Taking all of this into account, it is interesting to again assess<br />

how investor capital flowed into the ESG investing theme after<br />

the assets associated with that theme experienced a strong run<br />

in performance, similar to the China case. In Figure 2, we look<br />

at this.<br />

The red line shows the performance of the iShares Global<br />

Sustainable Development Goals ETF from 2016 until February<br />

2024 and the number of units created for that ETF is also shown. In<br />

a very similar way to the iShares China ETF, flows into this ETF only<br />

started to occur after a period of strong performance. Ultimately,<br />

this again illustrates an important point – many investors bought<br />

into this theme after it had been priced into markets.<br />

Like the China and ESG investing themes, one last theme of<br />

old has experienced a similar journey to these two.<br />

Theme #3: Cryptocurrency<br />

The positives. Simply put, a cryptocurrency is a digital global<br />

currency created outside of the well-regulated confines of the<br />

global monetary system. It exists only in the online world, and<br />

not in the physical world. This puts it out of reach of central banks,<br />

regulators and other watchdogs, making it the first independent,<br />

global currency.<br />

For the better part of a decade, the price of cryptocurrencies<br />

like Bitcoin boomed. Largely because of many factors, including<br />

the scope and power of blockchain technology and the fact that<br />

they could act as an alternative means of banking in the future.<br />

We do not view Bitcoin as an asset, but rather as an alternative<br />

currency that in part promotes cross-border transactions more<br />

efficiently than traditional currencies do.<br />

A large part of the reason for the rise in the prices of<br />

cryptocurrencies like Bitcoin has been a result of traders looking<br />

It would be difficult to find an<br />

investment outlook that doesn’t<br />

speak about Artificial Intelligence<br />

(AI) as the next big thing.<br />

to profit from short-term price movements and not necessarily<br />

because of a strong underlying investment case. This can be<br />

considered a form of momentum investing which argues that<br />

assets that have experienced strong price increases will continue<br />

to experience more price increases as investors drive up prices.<br />

The negatives. Since 2021, cryptocurrencies have experienced<br />

a difficult time. Primarily because of a reversal in macroeconomic<br />

circumstances worldwide, a regulatory crackdown exposed<br />

unscrupulous businesses like FTX and technical limitations<br />

associated with various cryptocurrencies. Ultimately, the momentum<br />

trade on cryptocurrencies like Bitcoin reversed strongly.<br />

Obtaining flow data on cryptocurrencies like Bitcoin is<br />

difficult, mainly because the first Bitcoin ETFs were only launched<br />

this year by Blackrock. A similar pattern shown in Figures 1 and<br />

2 has meant that many investors bought Bitcoin and similar<br />

cryptocurrencies after they experienced a very strong run in<br />

prices. In summary, many investors accessed the theme after it<br />

had already been priced into markets.<br />

All three themes discussed are still playing out to this day.<br />

Ultimately, we don’t know how they will develop going forward and<br />

if history has taught us anything, the price they are bought at is often<br />

the differentiator between investment success and disappointment.<br />

So, what of the next theme?<br />

Echoes of the past – Theme #4: Artificial Intelligence<br />

We have explicitly positioned each investment theme by showing<br />

both the positives and the negatives associated with them and,<br />

where possible, illustrating how many investors accessed these<br />

themes after their growth had been priced into markets, and were<br />

left disappointed.<br />

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INVESTMENT | Themes<br />

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Over the past year, another investment theme has stolen a lot<br />

of the limelight from China, ESG investing and cryptocurrency.<br />

Indeed, it would be difficult to find an investment outlook that<br />

doesn’t speak about Artificial Intelligence (AI) as the next big thing.<br />

However, what is interesting about AI is that we seem to be at<br />

a point where the theme itself is still in its nascency.<br />

The positives. On 30 November 2022, OpenAI, a research<br />

organisation, launched ChatGPT publicly, an AI-powered chatbot.<br />

Although talk of AI and how it may impact the world we live<br />

in has been around for decades, ChatGPT acted as one of the<br />

first tangible pieces of technology that evidenced the power and<br />

potential power of AI.<br />

From new scientific discoveries to increasing supply chain<br />

efficiencies, throughout 2023, markets got very excited about<br />

the potential growth in company earnings that AI could unlock.<br />

In that process, seven companies were identified in part because of<br />

the role that they are playing in driving AI forward – today they are<br />

known as the Magnificent 7 (Apple, Microsoft, Alphabet, Amazon,<br />

Meta, Nvidia and Tesla) and for 2023, their market capitalisation in<br />

total increased by $5-trillion.<br />

The negatives. As of today, the story has not yet been fully<br />

written and there may not be a negative story. However, it is<br />

important to note that while all seven companies are seen as<br />

market leaders in the AI space, most aren’t generating profits from<br />

AI yet. Many investors have bought future earnings growth and, in<br />

the process, bid up the price of these seven companies substantially.<br />

Ultimately, if yesterday’s themes have taught us anything, we<br />

should at the very least be asking ourselves whether or not many<br />

investors are again buying a compelling investment theme after<br />

the positives have been reflected in the price. <br />

www.bluechipdigital.co.za<br />


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FINANCIAL PLANNING | Investment<br />

The pinnacle<br />

of wealth curatorship<br />

True wealth management is a subtle transformative process that connects a unique combination of<br />

elements to create a powerful outcome. It requires a specific mindset, a distinct philosophy and a true depth<br />

of expertise. Private Clients by Old Mutual Wealth has mastered these elements. We speak to the Head of<br />

Proposition and Business Development, Jaco Gouws.<br />

In 2023, Old Mutual Wealth consolidated its high-net-worth<br />

business behind a unified proposition, Private Clients. Despite<br />

challenging market conditions, the unrelenting weak currency and<br />

muted business activity in South Africa, Private Clients witnessed<br />

remarkable growth over the last year.<br />

Please provide an overview of Private Clients.<br />

We offer bespoke and holistic global wealth and investment solutions<br />

that are tailored to high-net-worth individuals’ (HNWI) complex needs.<br />

Importantly, we forge quality, long-term partnerships with financial<br />

planners and their clients.<br />

Partnerships are key because a team is required to identify and<br />

understand clients’ needs and cater to them in a personalised way.<br />

In this way, our approach is deeply tailored to individual needs and<br />

our process is streamlined, refined and integrated. We are agile and<br />

responsive because our clients lead busy lives and it’s crucial that<br />

everything runs seamlessly.<br />

Please outline your services.<br />

HNWIs live and invest as global citizens and their wealth and solutions<br />

therefore need to come from a trusted partner who is geared towards<br />

helping them navigate the intricacies of global citizenship.<br />

Investment management is at the heart of our business and<br />

we currently have a team of 30 dedicated portfolio managers<br />

who manage portfolios around the globe. Our clients need<br />

exclusive market access to unique investment opportunities and<br />

industries worldwide.<br />

In addition to managing funds, we also ensure that our clients’<br />

structures, or how they have set themselves up, are appropriate,<br />

efficient and effective. If the structure that owns the investment,<br />

whether an individual, company or trust, is not properly set up,<br />

fees will be wasted, taxes will be exorbitant and there are multiple<br />

other risks too.<br />

We also focus on providing our clients with premium fiduciary<br />

services. Our fiduciary specialists have several decades of<br />

experience and offer advanced estate planning, drafting of wills,<br />

professional executorship as well as setting up and running local<br />

and international trusts as independent trustees.<br />

Our approach is deeply<br />

tailored to individual needs<br />

and our process is streamlined,<br />

refined and integrated.<br />

In my experience of working with planners over the last two<br />

decades, clients often seek guidance in setting up specific<br />

structures that were recommended to them, particularly foreign<br />

structures. An example would be a client wanting to set up a trust<br />

in Mauritius. However, upon closer review, we often find that the<br />

respective structure will not necessarily help the client achieve his/<br />

her desired outcome. This is why the first, and most important, step<br />

is to help clients identify and unpack the actual need or objective<br />

they are trying to address. In such a scenario, our dedicated and<br />

experienced fiduciary specialists and portfolio managers are key<br />

partners in helping planners unpack this with their clients. Once<br />

this has been done, we, together with the planner, are then able<br />

to create and implement an appropriate solution for the client by<br />

tapping into our global network of specialist partners.<br />

What do you attribute Private Clients’ success to?<br />

Partnerships. The partnership we offer helps a financial planner<br />

transition from one person trying to solve multiple complexities<br />

to a team with the planner as the captain.<br />

The world has changed and so too have HNWIs’ needs, which<br />

extend beyond geographies and generations. We work closely<br />

with planners to identify, plan and address clients' needs, going<br />

beyond traditional asset allocation and portfolio management,<br />

and offer global opportunities that ordinarily cannot be accessed<br />

in South Africa. The global economy has various exciting prospects<br />

in terms of growing and diversifying.<br />

So your success lies in the value that your partnership brings<br />

to financial planners?<br />

Planners know and understand their clients intimately through<br />

relationships that have been built for years. We want planners to<br />

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FINANCIAL PLANNING | Investment<br />

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elevate and grow their practices, unlocking value by partnering<br />

with the best in various industries. This enables them to navigate<br />

around the complexities of different countries, tax jurisdictions<br />

and structures, which are continuously changing.<br />

What gives Private Clients its edge?<br />

You’ve got to do what the label says so if you want to manage<br />

wealth, you need to do it well. We have a very strong track record as<br />

our global equity, global balanced and local portfolios have done<br />

exceptionally well over the past five years. In this way, financial<br />

planners have confidence knowing that their clients’ portfolios are<br />

being managed superbly.<br />

Our true north is that we are very clear that the client relationship<br />

and the custodian of that relationship remains with the planner.<br />

It’s this partnership with well-defined roles and responsibilities<br />

that gives planners comfort in the daunting task of introducing<br />

someone new (us) into their client relationship.<br />

As a team, you can do so much more. Planners can access their<br />

ideal clients because they understand HNWIs’ needs, provide<br />

bespoke solutions and have the confidence to answer questions<br />

and exceed expectations. Our edge is our clear-cut partnerships,<br />

supported by a network of best-of-the-best global specialists.<br />

Many financial planners are focused on the big drive for<br />

passive income and with us they’re gaining access to those<br />

clients. Premiumisation is a pricing strategy that leverages the<br />

unique characteristics of a product to influence the perceptions<br />

of clients so that they are willing to pay more for that product. Our<br />

partnership enables planners to premiumise their practices, attract<br />

their ideal clients and feel confident to charge an appropriate and<br />

professional fee.<br />

How does Private Clients help financial planners to premiumise<br />

their practices?<br />

Private Clients helps planners to premiumise by making them:<br />

A safe bet. When you partner with us, you are partnering<br />

with a business that has demonstrated its ability to deliver<br />

investment returns worldwide no matter where we invest.<br />

We have almost two centuries’ worth of experience and our<br />

fiduciary business turns 100 in 2025. If you’re going to partner<br />

with us as a custodian, continuity will be there for your children<br />

and their children because that is important for high-net-worth<br />

clients. Global citizens want the peace of mind that in 30 years<br />

their great-great-grandchildren will be secure with their trust<br />

and finances. They are already very wealthy, and we look after<br />

their wealth.<br />

A memorable experience. We partner with planners to create<br />

engagements with clients whether it’s a personal wine-tasting<br />

experience at home or in a very niche spot. We are invested in<br />

arts and we’re in all the places where HNWIs socialise. We create<br />

that platform for a planner to offer their clients a comfortable<br />

environment to spend time with the planner.<br />

This raises the planner’s social image as they can solve their<br />

clients’ complex needs around the globe, which elevates the<br />

social image of the practice and when the practice elevates, other<br />

clients will want to deal with that practice – a self-fulfilling loop.<br />

Simple and easy. We offer planners a dedicated portfolio<br />

manager, fiduciary specialist and client relationship manager,<br />

a whole team that’s always going to make business as easy as<br />

possible for them.<br />

Innovative. We’re continuously bringing unique investment<br />

opportunities, themes and all those topics that are very relevant<br />

to high-net-worth individuals. We offer exclusive investments such<br />

as private equity to planners to take to their clients. <br />

Contact Private Clients by Old Mutual Wealth at<br />

+27 (0)21 524 4678 or privateclients@omwealth.co.za or visit<br />

wealthprivateclients.co.za.<br />

Jaco Gouws, Head of Proposition and Business Development,<br />

Private Clients by Old Mutual Wealth<br />

www.bluechipdigital.co.za<br />


BLUE<br />

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Diversifying personal share<br />

portfolios in a growing $12-trillion<br />

global ETF opportunity<br />

Amid multi-decade-high US interest rates and evolving<br />

market conditions, exchange-traded funds (ETFs) are<br />

emerging as integral components in personal share<br />

portfolios managed by professionals. These innovative<br />

investment vehicles have gained significant traction in recent<br />

years, revolutionising how wealth managers and portfolio<br />

managers approach the construction of portfolios.<br />

The beauty of ETFs lies in their ability to allow investors to<br />

buy a broad range of securities in a single trade, and the most<br />

sophisticated portfolio managers in South Africa are already using<br />

ETFs alongside traditional stock picking to increase diversification<br />

and address macroeconomic shifts.<br />

With the almost $12-trillion global ETF industry poised for<br />

exponential growth, it’s crucial to understand their role in<br />

enhancing portfolio diversification and managing risk. ETFs<br />

can deliver simple, long-term exposure to a whole asset class,<br />

geographic region, sector or theme, particularly in the bond<br />

market, which was previously hard to access.<br />

Personal share portfolios<br />

Actively managed ETFs (AMETFs) are the latest addition to the<br />

investment landscape in South Africa. While some market<br />

participants may be confused, having always associated ETFs<br />

with index-tracking (also known as “passive”) investment<br />

strategies, the new regulations allow multi-asset solutions,<br />

traditional active mandates and many other types of strategies<br />

to be listed in the efficient and convenient ETF fund format,<br />

being labelled as an AMETF.<br />

Multi-asset income AMETFs offer investors a comprehensive,<br />

managed income solution in the listed format. The 10X Income<br />

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AMETF, for example, offers a strategic asset allocation spreading<br />

the investment across money markets, government bonds and<br />

corporate credit, locally and abroad. The fund is designed to deliver<br />

returns that beat inflation by 2.5 percentage points over rolling<br />

three-year periods while controlling volatility for a smoother<br />

ride. With a maximum duration of three years and an attractive,<br />

steady yield, this ETF presents a compelling opportunity for<br />

investors seeking consistent, low-risk returns while navigating the<br />

complexities of the fixed-income markets.<br />

Integrating ETFs, especially fixed-income ETFs, into traditionally<br />

stock-dominated portfolios reflects a notable trend. This strategic<br />

allocation approach emphasises the importance of blending<br />

individual stocks with ETFs to achieve optimal diversification<br />

and risk management. By combining the stability and income<br />

potential of fixed-income ETFs with the growth potential of<br />

individual stocks, investors can create a well-rounded portfolio<br />

that balances risk and return.<br />

Defensive global equity exposure<br />

In recent years, market-cap weighted global benchmarks have<br />

become heavily concentrated in US equities and the technology<br />

sector respectively. With the tech mega-caps trading at eyewatering<br />

multiples and US valuations causing concern, many<br />

investors are now seeking different indices. For example, in light<br />

of the geopolitical and economic worries facing global markets<br />

and the associated investor preference for more defensive global<br />

allocations, one strategy in focus is an index that screens for<br />

companies that have demonstrated reliable earnings through<br />

the cycle, the S&P Global Dividend Aristocrats index. This strategy<br />

selects companies with a long history of paying and growing<br />

their dividends. These businesses are robust, cash generative, or<br />

as the Boston Consulting Group would<br />

call them – “cash cows” – and are wellplaced<br />

to weather challenging economic<br />

conditions. By comparison to marketcap-weighted<br />

global indices, this index<br />

offers a more diversified geographic<br />

spread (with a lower US weighting). It is<br />

underweighting the technology sector<br />

while being overweight on the resilient<br />

consumer staples sector.<br />

An ETF based on this benchmark, for<br />

example, is a convenient and attractive<br />

“building block” that can be added to local<br />

share portfolios as a diversified, quality,<br />

global equity allocation. It is well-suited<br />

to investors who want to participate in<br />

equity markets with a defensive tilt due<br />

to the quality and robust nature of the<br />

companies that make up the strategy.<br />

While we could extend this article<br />

to unpack many other interesting JSElisted<br />

exposures, the point worth noting,<br />

in summary, is that ETFs have become indispensable tools for<br />

investors navigating the complexities of today’s investment<br />

landscape. Their simplicity, accessibility and cost-effectiveness<br />

make them valuable assets in constructing diversified share<br />

portfolios. As the ETF landscape evolves, including ETFs in share<br />

portfolios will be essential for achieving superior outcomes in<br />

personal investments. By staying informed and embracing the<br />

benefits of ETFs, investors can position themselves for long-term<br />

success in an ever-changing market environment. <br />

Michelle Noth, Head of Financial Intermediaries, 10X Investments<br />

www.bluechipdigital.co.za<br />


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INVESTMENT | Portfolio construction<br />

Replace luck with<br />

fact not feelings<br />

Towards the end of December, there’s a part of me that<br />

misses the pace and energy of a normal workday. I<br />

habitually check my phone every few minutes despite<br />

knowing that there’s little going on. Every year I promise<br />

myself that it’ll be different this time but somehow last year I was<br />

worse than the years before. I even went as far as to send myself<br />

a test mail to confirm that my inbox was still working. After this I<br />

needed a distraction, so I wandered over to YouTube.<br />

Their algorithm suggested that I watch a video by Neil<br />

deGrasse Tyson (the director of the Hayden Planetarium in<br />

New York and part of the team that demoted Pluto from planet<br />

status) about why clocks run clockwise. Spoiler: in the northern<br />

hemisphere, it’s the direction that a shadow cast by the sun<br />

moves. This took me down a deGrasse Tyson wormhole until a<br />

short video caught my attention. He stated, with his inimitable<br />

enthusiasm, that eyewitness accounts don’t carry any weight<br />

in science. Science requires evidence and saying that you saw<br />

or heard something is not evidence. In science, evidence is<br />

something that can be measured in a controlled and repeatable<br />

manner. Contrast this view to the investment industry where<br />

we often rely on the art of persuasion and piece together a<br />

hypothesis with incomplete information.<br />

Investing isn’t a hard science like physics with its deterministic<br />

equations that can predict outcomes precisely. This, as we operate<br />

in an environment that incorporates human nature, complex<br />

interactions and feedback loops and we need to extrapolate these<br />

into future expectations. But applying the rigours of scientific<br />

evidence is key, even if it may seem daunting, and it’s easy to<br />

instead fall back onto how we feel to rationalise a decision, not<br />

fact. It doesn’t have to be this way. While we must accept that there<br />

are limits to what we can know we also need to maximise the use<br />

of the information available to us.<br />

I believe that the market is all-knowing; it never forgets and<br />

punishes the complacent. That sounds like a cult leader but unlike<br />

gurus in pyjamas, the market will reward your patience if you follow<br />

a few simple principles. We need to apply rigour and discipline to<br />

areas that we can control and exercise our best judgement in areas<br />

that we can’t.<br />

The first and most obvious place to apply rigour is to fees. We<br />

all know that low fees are better, and that costs must be managed<br />

tightly, but it’s more nuanced than that. Where you save fees is as<br />

Investing isn’t a hard science<br />

like physics with its deterministic<br />

equations that can predict<br />

outcomes precisely.<br />

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INVESTMENT | Portfolio construction<br />

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important as how much you save. It is more important to manage<br />

costs on the highest-performing asset classes because the savings<br />

are compounded on a larger return. Lowering equity investing<br />

costs has a much greater impact than the same saving would have<br />

on cash or bonds.<br />

Assume that you have R1-million to invest for 10 years and<br />

that the expected net annual return on bonds and equities is 8%<br />

and 14% respectively. Then, let’s measure the impact of a 0.2%<br />

pa cost saving pa on both portfolios. The cost-saving compounds<br />

to an extra 4% on bonds and 7% on equities. If we extend the<br />

period things get interesting; over 15 years<br />

the savings compound to 9% vs 19% and<br />

over 20 years 18% vs 49%. This is the power<br />

of compounding, and its implications are<br />

clear: managing fees, especially the pernicious<br />

effects of performance fees, has an outsized<br />

effect when applied to the highest-returning<br />

assets. This is the simplest yet most effective<br />

way to guarantee value-add to a portfolio.<br />

Another area that is often underappreciated<br />

and punishes the complacent if it is ignored,<br />

is risk management. It is tempting to start<br />

portfolio analysis with return comparisons, especially to peers,<br />

but past returns can be the least dependable indicator of future<br />

outcomes. Returns are calculated using only two data points, the<br />

start and the end and ignore the rest. Risk measures are concerned<br />

with the journey and not just the outcome and make use of all data<br />

points between the start and end points.<br />

Even something as simple as a three-year volatility number<br />

would use all 36 monthly returns and is thus far more informationally<br />

dense than the return over that period. Over a full market cycle, this<br />

information density can provide meaningful insights about how a<br />

fund manager has behaved under different scenarios and is a better<br />

foundation for inferences about the future than a return ranking table.<br />

Effective diversification is also often neglected. Diversification<br />

is an efficient and effective way to reduce losses. Counter to<br />

what is typically believed, owning many different assets does not<br />

automatically imply that you are diversified. This is especially true<br />

in the South African context where it can feel like we have more<br />

fund managers than investable securities.<br />

Compound Savings Bonds: 8% pa Equities: 14% pa<br />

Cost Saving pa 0.2% 0.2%<br />

10 Years 4% 7%<br />

15 Years 9% 19%<br />

20 Years 18% 49%<br />

Calculating the Effective Number of Constituents (ENC) value is<br />

a better metric than counting portfolio contents. This measures<br />

the amount of concentration in the portfolio and expresses this<br />

as a notional portfolio count. Imagine an equally weighted twostock<br />

portfolio: the ENC would be two, ie the same as the count.<br />

The same portfolio with 99% in one stock and 1% in the other<br />

would have an ENC of close to one even though the count is<br />

still two.<br />

Portfolio 1 Portfolio 2<br />

Share 1 Share 2<br />

Share 1 Share 2<br />

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INVESTMENT | Portfolio construction<br />

An even better measure would be the similar-sounding Effective<br />

Number of Bets (ENB). This is more computationally intensive but<br />

considers portfolio weight as well as how constituents interact<br />

with each other. Once again, imagine an equally weighted<br />

25%<br />

20%<br />

15%<br />

10%<br />

5%<br />

0%<br />

Portfolio 1: Effective Number of Bets = 1<br />

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6<br />

Share 1 Share 2<br />

two-stock portfolio. If those two assets behave the same then<br />

the ENB would be one, despite the count being two, ie there is<br />

no diversification. If the assets have inverted behaviour (ie are<br />

perfectly negatively correlated) then the ENB would be two and<br />

the portfolio is diversified.<br />

These are metrics that measure<br />

portfolio characteristics in a manner<br />

that rises towards scientific standards<br />

and provides an objective base from<br />

which we can add more colour. This<br />

is not an exhaustive list, just a place<br />

to start. Adding rigour to portfolio<br />

construction means that we rely less<br />

on chance and allows us to replace<br />

luck with something more absolute<br />

and enduring.<br />

As 2024 gains momentum and my<br />

phone is beeping constantly again, I<br />

believe it is prudent to keep a scientific<br />

approach in mind when creating<br />

portfolio constructions. While science<br />

cannot forecast the future, it can mitigate<br />

against it. This is why we should take a<br />

rational, scientific approach to building<br />

and managing clients’ portfolios. <br />

Portfolio 2: Effective Number of Bets = 2<br />

25%<br />

20%<br />

15%<br />

10%<br />

5%<br />

0%<br />

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6<br />

Share 1 Share 2<br />

Reza Khan, CEO, Lodestar<br />

Fund Managers<br />

Lodestar Fund Managers is a Level 1 B-BBEE provider. 100% Black owned. 100% Black managed. Lodestar Fund Managers (Pty) Ltd is an authorised financial services provider, FSP 49808.<br />

40 www.bluechipdigital.co.za

BLUE<br />

CHIP<br />


Property investing and<br />

financial planning<br />

One key element of financial planning is dealing with property investments. Holistic financial plans must<br />

consider property, as it is a cornerstone asset for most people.<br />

Simply ignoring property might be a disservice to clients.<br />

At the same time, many financial planners are not<br />

property experts and could feel uncomfortable making<br />

recommendations beyond generic advice, eg trying to pay<br />

down your mortgage.<br />

There are many types of property investments to consider<br />

To complicate matters for financial planners, clients are offered a<br />

variety of property investments. These range from their primary<br />

residence to listed property companies, unit trusts, offshore<br />

property schemes (golden visa anyone?) and many other offerings.<br />

Financial planners might be best served by offering advice based<br />

on a few fundamental principles rather than specific advice on<br />

investments outside their expertise.<br />

Concentration risk<br />

Diversification of investments is a sound principle and a proper<br />

diversification strategy is an excellent antidote to economic,<br />

political and stock market uncertainty. When discussing property<br />

investments with clients, it is critical to determine how much of<br />

their wealth will be tied up in their property investment(s). For<br />

most people, they must own their home. It might be correct<br />

to advise them to pay down their mortgage and build up nonproperty<br />

investments simultaneously to compensate for the<br />

concentration risk.<br />

Cost of transactions and ongoing cost of ownership<br />

It is worth highlighting the total cost of property ownership before<br />

allocating money to this asset class.<br />

Offering a cost comparison might be helpful, for example, compare<br />

the cost of buying a property vs buying a unit trust or ETF. Property<br />

transaction costs include transfer duties, mortgage registration,<br />

agent’s commissions, etc. In addition, the cost of ownership and<br />

maintenance must be factored into any calculation, including<br />

property taxes, levies (for apartments or clusters) and maintenance<br />

(even apartments must be repainted). I have run some simulations<br />

and believe the ongoing cost of property ownership (excluding<br />

transaction costs) averages more than 2% per year. This excludes<br />

the cost of a mortgage repayment.<br />

Complexity: syndications/fractional ownership<br />

Many investors like property as an asset class because it is simple,<br />

easy to identify and visible. However, some product providers have<br />

created complex property structures that are not transparent,<br />

simple or easy to understand. Unfortunately, many of these<br />

structures have imploded in the past (please search Sharemax or<br />

Masterbond for two examples) and some new structures might be<br />

headed in the same direction.<br />

One significant benefit of a listed share, ETF or unit trust is that<br />

it can be sold quickly. Still, selling your portion of a property via<br />

a syndication or fractional ownership structure is very difficult. I<br />

prefer a listed property company, property ETF or unit trust for<br />

investors who want to be part-owners of a property portfolio.<br />

Merits of leverage<br />

Investors often argue about the potential for outsize returns if<br />

they borrow money to invest in a property. This type of leverage<br />

is not readily available on shares, ETFs or unit trusts. This is a valid<br />

42 www.bluechipdigital.co.za


BLUE<br />

CHIP<br />

Potential returns<br />

While property investments can sometimes yield attractive returns,<br />

some property sectors have not been great historical performers.<br />

For instance, residential property growth rates have been modest<br />

compared to the stock market – even over very long periods. In<br />

South Africa, capital growth on residential property has delivered<br />

half the stock market’s growth over the long term.<br />

Listed property used to be a star performer in South Africa, but<br />

the economic decline in the country combined with the move<br />

away from offices after the Covid pandemic has caused real<br />

damage to investors. More recently, some industrial properties<br />

that suit logistics operators have done well, and some pockets<br />

of residential property in the Western Cape have been great for<br />

investors. In summary, property returns will always be patchy<br />

and focusing on historical returns to predict future growth could<br />

be harmful.<br />

argument in favour of property. Financial planners need to remind<br />

clients that the flip side of this benefit is the potential for implosion<br />

if the investment goes wrong.<br />

Rental income<br />

Many investors favour property as they can earn a stable and<br />

predictable rental income from the investment. A well-chosen<br />

property with a reliable tenant can provide a steady and increasing<br />

rental income. In an ideal scenario, rental income can even cover<br />

mortgage payments in the long term, effectively allowing the<br />

tenant to pay off the investor’s mortgage.<br />

However, if the tenant cannot pay and decides not to move out,<br />

the landlord could be in trouble. On average, it takes six months to<br />

evict a non-paying tenant legally. The landlord must still pay the<br />

mortgage and monthly property ownership costs. If the tenant is<br />

unscrupulous, there might be damage to the property that must<br />

be repaired before a new tenant can be found.<br />

Stability against market fluctuations<br />

Unlike investments in shares, ETFs and unit trusts, physical<br />

property prices are less susceptible to short-term market<br />

fluctuations. The tangible nature of real estate often provides<br />

a sense of stability and security to investors, shielding them<br />

from short-term volatility. This can be a powerful psychological<br />

benefit to skittish investors who cannot sell their property<br />

quickly in a market downturn. The slow pace of transactions<br />

can help nervous investors to stop panicking and think more<br />

rationally. Sometimes, the best decision in personal finance is<br />

to do nothing.<br />

Conclusion<br />

While property’s passive income and long-term appreciation<br />

potential may seem enticing, financial planners must remind their<br />

clients to carefully weigh the pros and cons before diving into this<br />

asset class. Financial planners do not need to become property<br />

experts to offer a sounding board for their clients. Providing a<br />

perspective based on financial planning principles might be a real<br />

benefit. In addition, there is a real lifestyle value for some people<br />

who can afford to own multiple properties and it is the job of a<br />

financial planner to enable these clients to enjoy their lives if it is<br />

viable. The best financial planning decisions are not always driven<br />

by return on investment.<br />

Warren Ingram, CFP®, Director, Galileo Capital<br />

www.bluechipdigital.co.za<br />


BLUE<br />

CHIP<br />

FINANCIAL PLANNING | Investment<br />

Do you want to take advantage<br />

of the highest first-world interest<br />

rates in decades?<br />

Fresh from a market rally in the final six weeks of last year,<br />

markets began the first quarter of 2024 optimistic that<br />

declining inflation would lead to meaningfully lower<br />

interest rates. As the quarter progressed, however, it<br />

became evident that inflation was sticky and interest rates would,<br />

therefore, need to remain higher for longer.<br />

Jerome Powell confirmed this at the latest Federal Open<br />

Market Committee (FOMC) meeting where the benchmark<br />

interest rate was kept unchanged at a two-decade high. At the<br />

meeting, it was noted that interest rates would only be lowered<br />

when the committee had gained sufficient confidence that<br />

inflation was moving sustainably toward 2%.<br />

Similarly, the Bank of England’s Monetary Policy Committee<br />

(MPC) opted to maintain the bank rate at 5.25%. As a result, First<br />

World interest rates will remain elevated for some time, particularly<br />

in the US where economic growth remains robust. Investors are<br />

therefore still able to achieve attractive hard currency returns from<br />

low-risk investments – an investment opportunity that has been<br />

missing for the past 15 years.<br />

To help investors take advantage of this opportunity in the<br />

most tax- and cost-efficient way possible, Marriott has launched<br />

the Smart International Income Portfolio (SIIP) – a simple, lowcost<br />

investment for conservative investors looking to achieve<br />

hard currency returns in excess of bank deposits in either US<br />

Dollars or Sterling.<br />

The two portfolios only hold liquid, investment-grade<br />

instruments and yield 5.6% and 5.1% respectively.<br />

Importantly, all interest-bearing assets are held via<br />

accumulating ETFs and funds. This is highly tax efficient for<br />

South African investors as the income is automatically retained<br />

Scott Cooper, investment professional, Marriott<br />

Investment Managers<br />

within the portfolios without incurring tax. If capital is required,<br />

the investor can simply repurchase the required amount.<br />

Although a tax charge is triggered at this point, it will be subject to<br />

capital gains tax as opposed to income tax – providing a large tax<br />

saving (up to 27%) for individual South African investors.<br />

Looking forward, although major central banks are expected<br />

to begin cutting rates later this year, the trajectory is likely to<br />

be gradual, with interest rates remaining in restrictive territory<br />

until inflation is sustainably back at their 2% targets. As a result,<br />

Marriott’s SIIP is well-placed to provide<br />

investors with attractive hard currency<br />

yields in a highly cost- and tax-efficient<br />

way for the foreseeable future.<br />

The two SIIP portfolios can be<br />

accessed via the International Investment<br />

Mandate (using your annual individual<br />

offshore allowance).<br />

Smart International Income Portfolio<br />

• Smart Dollar Portfolio (USD)<br />

• Smart Sterling Portfolio (GBP) <br />

44 www.bluechipdigital.co.za

Take advantage of decades-high<br />

US and UK interest rates.<br />

Smart International Income Portfolio<br />

• High Income<br />

• Less Risk<br />

• Tax Efficient<br />

• Low Cost<br />

More Predictable<br />

Investment Outcomes<br />

Contact our Client Relationship Team on<br />

0800 336 555 or visit www.marriott.co.za

BLUE<br />

CHIP<br />

FINANCIAL PLANNING | Investment<br />

Navigating a changing landscape<br />

<strong>Blue</strong> <strong>Chip</strong> chats with David Crosoer, Chief Investment Officer at PPS Investments,<br />

about the opportunities and challenges investors are having to navigate across the<br />

investment landscape.<br />

How investable is South Africa right now?<br />

South African assets are priced cheaply, partly because investors<br />

are not convinced that government has the appetite to drive<br />

through the necessary structural reforms, and nominal economic<br />

growth remains far below the cost of government funding. The<br />

question investors would be asking is does this make South Africa<br />

a good investment opportunity?<br />

Clearly, if structural reforms do take place, then investors will<br />

be handsomely rewarded for taking on South African risk at these<br />

valuation levels. We think this scenario is unlikely, at least in the<br />

short term, because the most probable election outcome either<br />

leaves the ANC in a coalition or with the majority neither of which<br />

is likely to create an environment of lasting structural reform.<br />

However, a lot of bad news is already in the price, and the bar<br />

for positive surprises is quite low. This should make one cautious<br />

about writing off South Africa completely, as we could benefit<br />

significantly if a few things go in our favour.<br />

Overall, we are still cautious about South African assets in our<br />

portfolios, despite their attractive valuations, and tend to favour<br />

South African cash over other South African assets where we have<br />

discretion relative to our strategic asset allocation.<br />

This also does not mean there aren’t attractive investment<br />

opportunities on the JSE, or unlisted companies that can generate<br />

outsized returns for investors. But it does mean that the general<br />

environment is still not favourable for South Africa.<br />

Investors expect risk premiums associated with emerging<br />

markets like South Africa, so are investors being compensated<br />

and is the ROI worth it?<br />

The returns on offer in South Africa are significant. Five or 10 years<br />

ago, if we were told that we could get 5% real returns on South<br />

African bonds, most of us would have banked that immediately.<br />

The challenge is whether our debt is on a sustainable path –<br />

there has been no evidence so far that government has got a grip<br />

46 www.bluechipdigital.co.za

FINANCIAL PLANNING | Investment<br />

BLUE<br />

CHIP<br />

Investors need to look at<br />

both sides of the coin.<br />

on this – but in five or 10 years’ time one can easily see a scenario<br />

where investors challenge us for not having taken more advantage<br />

of the opportunity on offer today.<br />

On a medium- to long-term view (10 to 15 years), I don’t<br />

think it is outlandish to think that we will be able to implement<br />

economic reforms. We will then be able to pick up growth and<br />

start performing. If that is the case, this is a great entry point for<br />

South African assets. However, if we have another 10 years like<br />

we’ve had up until now, we aren’t getting enough compensation<br />

for holding South African assets, even at these high yields.<br />

Today, it is difficult to say with conviction which scenario will<br />

materialise. When we build portfolios, we try to consider both<br />

outcomes, as we don’t want to take on a binary call where we are<br />

backing one view. Having said that, if we had greater conviction<br />

in the reform agenda in South Africa we would have a higher<br />

weighting to South African assets than we do currently.<br />

Please tell us how your view on local assets impacts your<br />

offshore allocation.<br />

One does not want all one’s portfolio exposed to South Africanspecific<br />

risk, and an allocation to offshore can help reduce that. So<br />

even though South African assets are inexpensive, it still makes<br />

sense to allocate offshore to help diversify one’s portfolio.<br />

When the regulations changed a year and a half ago to allow<br />

45% offshore in retirement funds, it was a big change for South<br />

African investors. It allowed us to hold a lot more offshore than we<br />

have held in the past; in a multi-asset high portfolio where most<br />

retirement savings are for example, our strategic asset allocation<br />

now splits our 70% equity allocation equally between South<br />

African equities and offshore equities.<br />

Some might argue that this is still a high allocation to South<br />

African equities, given how small and concentrated the South<br />

African market is, but it is a lot less South African equity than we<br />

would have held in the past.<br />

Offshore, we have tended to favour global equities over other<br />

asset classes, but today we also have an allocation to offshore<br />

bonds and cash in most of our portfolios. The allocation to<br />

global bonds is relatively recent, as valuations until recently<br />

have been underwhelming.<br />

Locally, relative to our strategic asset allocation, we are only<br />

overweight South African cash, as we remain concerned with<br />

South African-specific risk. In contrast, our global allocation is<br />

overweight offshore cash and bonds, as equity valuations are not<br />

inexpensive. So, overall, our portfolios are cautiously positioned.<br />

While we are holding more cash than typical, we would look to<br />

deploy cash in times of market weakness, which is our base case for<br />

this year given the potential for short-term volatility in the market.<br />

Lastly, please elaborate on how being a mutual impacts your<br />

investment process and solution.<br />

PPS has been around for more than 80 years and one thing we have<br />

learnt is thinking long-term differentiates us from everybody else.<br />

Our profit-share is available to qualifying members at retirement<br />

to help augment their life savings, and our investment solution<br />

mindset aims to cater for different eventualities on the road to<br />

financial freedom.<br />

As the mutual that serves the professionals that serve South<br />

Africa, we are very much focused on education as the most<br />

effective way of building resilience for South Africa, and it’s a critical<br />

component of ensuring South Africa will be a good investment in 10<br />

or 20 years. At PPS, we are focused on ensuring that we have a big<br />

stream of professionals who continue to help grow the economy in<br />

our country. As a mutual, we can take a long-term perspective on<br />

that because we can look at the whole education ecosystem and<br />

where we should best intervene to try to help sustain it.<br />

So, I think that the most important thing about a mutual is it takes<br />

a long-term perspective. We are an intergenerational mutual. We are<br />

owned by our members and we are owned by the professionals that<br />

serve South Africa – today’s and tomorrow’s professionals. By its very<br />

nature, a mutual needs to look long-term and that impacts how we<br />

invest and how we think about investing because we realise we<br />

are playing an infinite game. <br />

David Crosoer, Chief Investment Officer, PPS Investments<br />

www.bluechipdigital.co.za<br />


BLUE<br />

CHIP<br />

FINANCIAL PLANNING | Retirement<br />

Life after work<br />

An alternative perspective on retirement planning.<br />

I<br />

have been in the financial services profession since 2013 and<br />

my experience has taught me that clients have one central<br />

question they need help answering: “Am I going to be okay?”<br />

In the context of retirement planning, the capital available<br />

vs capital required calculation should be enough to answer this<br />

question. A surplus in the calculation would mean yes, you will<br />

probably be fine, and a shortfall means no, you’re not going to be<br />

completely okay. Simple.<br />

I have found, however, that the longer I work as a financial<br />

planner, the more difficult this question is to answer. Even with<br />

a pretty cool tool that helps me illustrate the capital available vs<br />

capital required calculation. I guess that is the normal evolution<br />

of any vocation.<br />

As a financial planner, I would’ve been better equipped to deal<br />

with this question if I had a psychology class in my commercebased<br />

undergraduate and postgraduate studies. For the<br />

psychology students turned financial planners, we envy you. The<br />

answer to the question, I believe, requires the courage to leave<br />

your technical skills at the door.<br />

Have you ever found yourself emotionally charged about a<br />

situation? Am I the only one who has mistakenly told my wife to<br />

calm down, when she wasn’t calm and then expected her to calm<br />

down? For context, we have two kids under the age of seven and<br />

some days it is like the Wild West in our house. I should know better.<br />

A few years ago, I received an email from a client that accused<br />

me of missing, and thus not taking action on a crucial instruction.<br />

After reading and re-reading the client’s email and reviewing all<br />

our historic email correspondence (and to be safe, I also checked<br />

my WhatsApp chat history, my Facebook messages and even<br />

my Twitter DMs – fun fact, I had no DMs), I was able to confirm,<br />

thankfully, that I did, in fact, not miss their instruction. But from<br />

the email I read multiple times, the client was adamant that I<br />

made a mistake. The client even pointed out in their email that<br />

they remember telling me how important this new retirement<br />

annuity account with its monthly debit order was to them and that<br />

it was a top priority to implement.<br />

After writing and rewriting my reply trying to absolve myself<br />

from the mistake that wasn’t mine, I re-read the client’s initial email<br />

and (finally) caught a glimpse of something more. Having reflected<br />

on this story more than a few times, I could have managed my<br />

emotional response better, I could’ve potentially picked up the<br />

distressed or panicked response from the client’s email sooner.<br />

After a quick pep talk with my colleague and friend, Louis, we<br />

decided to phone the client instead of responding via email. And<br />

this was the best lesson I have ever learnt about the presentation<br />

of left-brain fact vs right-brain feeling. To cut a long story short, the<br />

client had just separated from their spouse, and they were starting<br />

their divorce proceedings. So, an email that I understood to be an<br />

accusation of my inability to execute the clearly expressed wishes<br />

of my client was a symptom of the root cause which, now with<br />

hindsight, was my client’s search for certainty, security and safety<br />

given that their world had just turned upside down.<br />

I know this story might seem to have nothing to do with<br />

retirement planning or life after work, but honestly, it has<br />

everything and more to do with retirement planning. And let me<br />

tell you why. Retirement planning is an example of one of life’s<br />

many transitions and is not simply a discipline on its own. By only<br />

focusing on a client’s money during a transition – solely providing<br />

a retirement income funding plan for example – and not on the<br />

client’s life that is changing, we could miss an opportunity to<br />

provide our client with the much-needed certainty, security and<br />

safety they seek.<br />

I’m sure you will agree that journeying with a client through<br />

any life transition, whether retirement or something else, can be<br />

uncomfortable. But I believe when you are feeling uncomfortable<br />

or out of your depth, that is where the magic happens. When you<br />

are not in the driver’s seat, it forces you to focus on your client<br />

and not on your ability to flex your technical financial planning<br />

48 www.bluechipdigital.co.za

FINANCIAL PLANNING | Retirement<br />

BLUE<br />

CHIP<br />

muscles. This is key for your client’s life to be changed in the<br />

best way.<br />

This approach to tackling a client’s transition into retirement<br />

(including any other transition) has been a game-changer for me.<br />

I believe it can significantly impact your planning process, business<br />

and most importantly your clients.<br />

The framework we use when walking a client through a<br />

life transition, including that of retirement, is built around the<br />

following three key areas:<br />

• Create a safe space<br />

• Move to the balcony<br />

• Give the work back<br />

Creating a safe space<br />

The essence of a safe space is that “during times of transition when<br />

the client is immersed in uncertainty and important aspects of<br />

their life are shifting, they need an anchor. They need someone<br />

they trust who tells them that what they are experiencing is<br />

normal. They need that person not to rush them or make them feel<br />

incompetent if they’re uncomfortable with the idea of a timeline<br />

for their work. They need to feel like they’re not ‘crazy’, that it is okay<br />

to feel ‘numb’, and they need to know that there isn’t some giant,<br />

life-altering decision that they might miss or mess up. And if there<br />

is a giant, life-altering decision to be made, they need to know that<br />

they will have help making it. They want what we all want during<br />

a tumultuous time: to feel safe and protected”. [1]<br />

To become a safe space for a client, we must sharpen our<br />

emotional intelligence (EQ) skills to counteract our intelligence<br />

quotient (IQ), which at least for me is my (unfortunate) default<br />

mode. The work of Daniel Goleman in his theory of social<br />

intelligence helped me come to terms with the skills I needed to<br />

add to my toolkit to be the best financial planner for my clients. And<br />

these skills will improve your relationship with those closest to you<br />

too. Win-win. Goleman’s theory of social intelligence has two parts:<br />

social awareness and social facility. Social awareness is the ability<br />

to accurately notice the emotions of others and “read” situations<br />

appropriately. Social facility builds upon social awareness to allow<br />

smooth and effective interactions. Social awareness coupled with<br />

social facility (and a healthy dose of self-awareness) is one of the<br />

quickest and most authentic ways to build trust with someone.<br />

And it should be no surprise that trust is the foundation upon<br />

which deep, lasting and impactful relationships are built. When<br />

working out your social awareness and social facility abilities, your<br />

humanity will be highlighted along with your technical skills.<br />

Moving to the balcony<br />

If you have successfully created a safe space for your clients, they<br />

will trust you enough to follow you as you move from the garden<br />

bench to the balcony overlooking the stunning garden with views<br />

as far as the eye can see. This analogy is all about perspective.<br />

If you decide, based solely on your experience of sitting on<br />

the garden bench, you can easily make a wrong decision because<br />

what you can see from your seated position is limited. That said,<br />

you can also make a wrong decision based solely on your view<br />

from the balcony, as you would not consider what it is like to be in<br />

the garden. So with that in mind, managing the tension between<br />

being seated on the garden bench and viewing the garden from<br />

the balcony up high and the fluidity with which you move between<br />

the two, will be a skill that adds significant value to the financial<br />

planning process.<br />

Giving the work back<br />

As a financial planner, “giving the work back” was the most difficult<br />

part of adopting our new transitions-focused framework. It has also<br />

been the most liberating part. “Giving the work back” has allowed<br />

me to remove many unnecessary and unfair responsibilities I<br />

placed upon my shoulders in my client relationships. Is it fair<br />

that we are expected to take sole responsibility for creating the<br />

financial plan and adopting advice given within that financial plan?<br />

By “giving the work back” we accept that “it is not our job to<br />

mysteriously solve our client’s problems and create a plan of action<br />

from behind a curtain”. [2] If we move from creators of our client’s<br />

financial plans to co-creators by “giving the work back” to them,<br />

they discover what they want, what they value most, what kind of<br />

life they want to lead and what kind of legacy they want to leave.<br />

By doing this we will, without a doubt, see our clients flourish as<br />

they move through their different transitions.<br />

By walking alongside our clients, we will help them move<br />

towards living a life of significance. My clients, your clients, our<br />

clients will be able to do that because we’ve shown them that once<br />

the dust has settled, they will be okay. They might even reflect that<br />

something good has come out of the previous season of their life<br />

even though it was difficult. And that will help them move a bit<br />

lighter into their next season. <br />

[1]<br />

Financial Transitionist Institute Core Training Course Curriculum<br />

[2]<br />

Financial Transitionist Institute Core Training Course Curriculum<br />

Rudolph Geldenhuys, Certified Financial Planner®, WealthUp<br />

www.bluechipdigital.co.za<br />


BLUE<br />

CHIP<br />

FINANCIAL PLANNING | Technology<br />

AI: an approach that will power<br />

change in almost every industry<br />

There is no doubt what the most popular investing theme of the day is. Artificial intelligence (AI) has been<br />

more than a buzzword for several years but confined to AI researchers it felt far away for most of us. That<br />

all changed in 2023.<br />

Generative AI models such as ChatGPT and Google<br />

Bard have made AI accessible to the public for the first<br />

time, which led to a surge of interest in the potential<br />

applications. Public enthusiasm for AI has been<br />

unprecedented, with ChatGPT reaching 100-million users in under<br />

two months – seven months faster than TikTok and more than two<br />

years ahead of Instagram.<br />

The enthusiasm to talk about AI is not limited to the public.<br />

Executives across industries have used the opportunity to discuss<br />

their own AI plans. According to Bank of America, mentions of AI<br />

were up more than 85% in 2023, and seemingly every business<br />

must now have an AI strategy.<br />

This excitement has translated into returns, too. Consider the<br />

performance of companies building large language models (LLMs)<br />

and the hardware that runs them. In the first half of 2023, the likes<br />

of Amazon, Alphabet, Meta Platforms, Nvidia and Microsoft beat<br />

all comers. This technology is the foundation on which most AI<br />

is built. The market soon recognised the important and prolific<br />

change that was underway.<br />

However, past performance is no guarantee of future<br />

performance. As long-term investors, we need to pause and evaluate<br />

the substance behind the hype.<br />

Here, it may be apt to remind ourselves of Amara’s law.<br />

This is the observation that, when forecasting the impact of<br />

technology, we tend to overestimate the effect in the short run<br />

and underestimate the effect in the long run.<br />

This fits with intuition. We tend to want better, faster computers<br />

and gadgets – and want them now. History suggests that the first<br />

few generations of new technology will look antiquated within<br />

just a few years. Think of the initial versions of the iPhone.<br />

So, applying Amara’s law, investors will do well to consider the<br />

bigger picture with AI, rather than media hype. But what is the<br />

bigger AI picture?<br />

For starters, AI is demonstrating its ever-increasing capabilities<br />

by passing tangible tests, literally. It is passing – and excelling at –<br />

tests that no technology could until recently. For example, GPT-4<br />

achieved a score in the top 10% of test-takers in a simulated legal<br />

bar exam. By contrast, GPT-3.5’s score was in the bottom 10%.<br />

Secondly, AI is not just one technology. It is an approach that<br />

will power change in just about every industry, those in tech and<br />

more traditional sectors of the economy. From self-driving cars and<br />

factory robots to filmmaking and cloud computing, AI is set to be<br />

a key part of the future, not just a sector or two.<br />

Finally, multiple sources have made impressive forecasts on<br />

the future of AI. One recent study by the McKinsey Global Institute<br />

found that AI could boost global GDP by up to $13-trillion by<br />

2030. An additional 1.2% of global GDP per year. The equivalent<br />

of adding a UK-size economy every two years.<br />

Morgan Stanley estimates that 25% of all labour will be<br />

impacted by current AI technology. With advancements in AI, this<br />

is expected to grow to 44% in just three years. Forecasts like this<br />

speak to the product breadth and economic endurance of AI.<br />

Is there hype? Absolutely. The question to ask is: is the excitement<br />

justified? There is compelling evidence that it is.<br />

This sort of thinking contributes to our strategy for the Melville<br />

Douglas Global Equity Fund, whose constituent companies are<br />

positioned to play significant roles in bringing AI technology to<br />

fruition in the years to come. <br />

Chris Willis, Research Analyst, Melville Douglas<br />

Melville Douglas Investment Management (Pty) Ltd is a subsidiary of Standard Bank Group Limited. Melville Douglas Investment Management (Pty) Ltd (Reg. No.1987/005041/07) is an Authorised<br />

Financial Services Provider. (FSP number 595).<br />

Any information, illustrative prices, disclosure materials or analyses provided to you have been prepared on assumptions and parameters that reflect good faith determinations by Melville Douglas and<br />

do not constitute advice by Melville Douglas it should not be relied upon as such.<br />

50 www.bluechipdigital.co.za

If it’s personal to you,<br />

it’s personal to us.<br />

To do things the right way requires a<br />

personal commitment. A considered<br />

approach. That’s why we use decades<br />

of expertise and market knowledge<br />

combined with fundamental research<br />

to guide all our investment decisions.<br />

Because when it comes to managing your wealth, it’s not<br />

just a job, to us: it’s personal.<br />

We care for our clients’ assets like our own because<br />

we never forget who they really belong to. If you’re an<br />

individual, family, charity, trust or corporate looking for<br />

a global investment manager with diversified investment<br />

solutions, choose the one that is personally committed<br />

to your future. The one who does things the right way.<br />

The Melville Douglas way.<br />

melvilledouglas.co.za<br />

Melville Douglas is a subsidiary of Standard Bank Group Limited. Melville Douglas Investment Management (Pty) Ltd. (Reg. No. 1987/005041/07) is an authorised Financial Services Provider.<br />

(FSP number 595). STANLIB is a registered representative in terms of CISCA. For any additional information and basis for the award please contact Melville Douglas.

BLUE<br />

CHIP<br />

FINANCIAL PLANNING | Investment<br />

Life after cash<br />

What to do as interest rates start to fall.<br />

Inflation is moderating, and market expectations are building for<br />

the US Federal Reserve (Fed), European Central Bank and Bank<br />

of England to all cut interest rates in June. Should deposit rates<br />

continue to come down, cash will become less attractive, while,<br />

at the same time, a falling interest rate environment has typically<br />

been supportive of both bonds and equities.<br />

Remi Olu-Pitan, head of multi-asset growth and income, Roberta<br />

Barr, head of value ESG and fund manager, Equity Value, and head<br />

of strategic research, Duncan Lamont, discuss how investors<br />

should respond to the changing investment environment.<br />

How have bonds and equities performed in past ratecutting<br />

cycles?<br />

Duncan Lamont: On average, the stock market does very well<br />

once the Fed starts to cut interest rates. The average return above<br />

inflation 12 months after rate cuts begin is 11%. Government<br />

bonds outperformed by 5% and corporate bonds by 6%, versus a<br />

Over the next few months the<br />

cash rate is coming down and, so,<br />

to achieve a higher rate of return,<br />

it is time to put cash to work.<br />

2% real (inflation-adjusted) return from cash. So, investing in the<br />

stock market and bonds has produced pretty good real returns,<br />

handsomely beating cash in the process.<br />

Remi Olu-Pitan: The concern of a lot of investors is that the<br />

market has already priced in the expected interest rate cuts,<br />

with the S&P 500 up 23% since October.* While the market has<br />

recovered from what was a very challenging 2022, the idea of<br />

equities still doing very well post-cuts is very important. When<br />

the cuts happen, that opportunity cost of finding places to move<br />

into really takes over.<br />

How should we look at markets outside the US?<br />

Roberta Barr: Beneath the massive outperformance of the S&P<br />

500, you have a lot of companies in normal cyclical troughs on<br />

huge valuation discounts. There’s the saying that it’s always<br />

“darkest before the dawn” and, as a value investor, we are<br />

beginning to see some amazing opportunities. There are quite<br />

high quality, cash-generative, pretty robust businesses, which<br />

you’re getting at a real discount today.<br />

Remi Olu-Pitan: Some clear macro and secular trends have<br />

driven the outperformance of the US relative to other markets, the<br />

large representation of technology stocks and the emergence of<br />

AI are key reasons for this and this theme will continue to support<br />

performance. However, this year, markets in Taiwan and Korea<br />

are doing just as well because of the high representation of<br />

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FINANCIAL PLANNING | Investment<br />

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Sometimes it might feel like<br />

cash is the safe, sensible option,<br />

but it’s value destructive.<br />

technology and semiconductors, which links them to AI. That link<br />

is important and something investors can’t ignore. It is getting<br />

expensive, but the trend is significant.<br />

Outside of the US, the floor for inflation is likely to be much<br />

higher than what we’re used to, which tends to be quite good for<br />

the industrials, the companies focused on activity and trade. This<br />

supports Europe and is one of the reasons why Europe is coming<br />

back, despite all the pessimism around European growth. This<br />

trend supports Japan, so I think we need to focus on the secular<br />

trends and identify the companies that are linked to them.<br />

Markets at all-time highs – a red flag?<br />

Duncan Lamont: It feels uncomfortable to invest with the S&P 500<br />

hitting all-time highs. Intuition says returns are higher when the<br />

markets are cheaper, but it’s wrong, based on my analysis of the<br />

historical data. Over the long term, the market goes up, which<br />

means it is hitting all-time highs on a regular basis. So, while it<br />

feels hard, you would have done better if you’d invested when<br />

the market was high than if you hadn’t.<br />

If you had sat in cash whenever the US stock market was at an<br />

all-time high, waiting for it to fall back before investing, it would<br />

have destroyed 90% of your wealth (over the entire nearly 100-year<br />

study period going back to 1926). Over 10 years, such a strategy<br />

would have destroyed about a quarter of your wealth, over 20<br />

years about a third of your wealth, over 30 years it would have<br />

destroyed about 50%.<br />

Roberta Barr: All-time highs, as a value investor, mean all-time<br />

opportunities given everything else which is going on in a market.<br />

Investing in markets in general is a great idea and investing in a<br />

balanced and diversified way is an even better idea.<br />

In summary<br />

Remi Olu-Pitan: Over the next few months the cash rate is<br />

coming down and, so, to achieve a higher rate of return, it<br />

is time to put cash to work. While equities might seem quite<br />

scary given the current levels, just looking outside of the US or<br />

under the surface is key, as well as investing in other asset classes,<br />

including corporate bonds, commodities, and real assets.<br />

Roberta Barr: Sometimes it might feel like cash is the safe,<br />

sensible option, but it’s value destructive. If you’ve got a longtime<br />

horizon, history suggests you’ll do well by investing in the<br />

markets. Within that, diversify and add a bit of value.<br />

Duncan Lamont: If you’re sitting in cash waiting for the perfect<br />

time to invest you could be waiting forever. It will always feel<br />

uncomfortable. Any knee-jerk reaction to go all in or all out of<br />

the market is risky, to think you can call those tops and bottoms.<br />

A more systematic way of investing will lead to better long-term<br />

returns over time. <br />

*Total return of S&P 500 between close on Friday 29 September<br />

2023 and 20 March 2024, LSEG Datastream, Schroders.<br />

Duncan Lamont, Head of Strategic<br />

Research, Schroders<br />

Roberta Barr, Head of Value ESG and<br />

Fund Manager, Equity Value, Schroders<br />

Remi Olu-Pitan, Head of Multi-asset<br />

Growth and Income, Schroders<br />

www.bluechipdigital.co.za<br />


BLUE<br />

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FINANCIAL PLANNING | Technology<br />

Crypto assets:<br />

an evolving landscape<br />

Part One<br />

In January 2023, I wrote an article for<br />

bluechipdigital.co.za titled The declaration<br />

of a crypto asset as a financial product: how<br />

does it affect financial planners? (The article<br />

is linked to QR1.) The article dealt with the<br />

declaration of crypto assets as a financial product<br />

under the Financial Advisory and Intermediary<br />

Services (FAIS) Act 37 of 2002.<br />

As noted in that article, consumers have a<br />

poor understanding of crypto assets and the<br />

risks relating to investing in crypto assets.<br />

In addition, crypto assets have created<br />

new opportunities for scammers as is evident<br />

from numerous news reports, and Netflix<br />

documentaries like Trust No One: The Hunt for<br />

the Crypto King and Bitconned.<br />

Cryptocurrencies have no inherent value.<br />

Their perceived value is based largely<br />

on supply and demand in the market.<br />

The Financial Sector Conduct Authority (FSCA) continuously warns consumers<br />

against scams and urges consumers to act with care when investing their funds.<br />

Recently, the FSCA warned consumers against transacting with certain persons and<br />

entities, who are using Telegram to render unauthorised financial services, some<br />

who are purporting to be agents or representatives of the Johannesburg Stock<br />

Exchange, or that there is a FSCA guarantee in respect of the transactions.<br />

To mitigate the risks relating to crypto assets, South African regulators have<br />

started creating a regulatory framework around crypto assets, which includes the<br />

declaration of crypto assets as a financial product for purposes of FAIS. However,<br />

the regulatory framework relating to crypto assets is much broader than that, and<br />

it will continue to evolve and adapt as crypto assets evolve.<br />

This is the first part of a series of articles in which I will attempt to provide readers<br />

with a more holistic understanding of crypto assets and the current South African<br />

regulatory framework.<br />

What are crypto assets?<br />

Most crypto assets use blockchain technology. There are several types of crypto<br />

assets. The most common are:<br />

• Cryptocurrencies and stablecoins<br />

• Crypto tokens<br />

• Central Bank Digital Currencies<br />

Hildegard Lombard, Governance, Legal, Risk<br />

and Compliance Management Consultant and<br />

Founder, Luculent Consulting<br />

Cryptocurrencies and stablecoins<br />

A cryptocurrency is a digital or virtual currency. Most cryptocurrencies use<br />

blockchain technology. (To understand blockchain technology, watch the video<br />

linked to QR2.). It is secured by cryptography which makes it nearly impossible<br />

to counterfeit or double spend. Cryptocurrencies are generally not issued by any<br />

central authority, like a central bank. This theoretically allows them to be free of<br />

government interference or manipulation.<br />

Cryptocurrencies have no inherent value. Their perceived value is based largely<br />

on supply and demand in the market. Cryptocurrency architecture decentralises<br />

existing systems and makes it possible to transact independently of intermediary<br />

institutions, like banks, making transactions faster and cheaper.<br />

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FINANCIAL PLANNING | Technology<br />

BLUE<br />

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Bitcoin and Ether are examples of cryptocurrencies. (To understand<br />

more about how cryptocurrencies work, watch the video linked to<br />

QR3, and to understand more about cryptocurrency wallets, watch<br />

the video linked to QR4.)<br />

The US Securities and Exchange Commission authorised the first<br />

crypto exchange-traded funds (ETFs) early in 2024. Cryptocurrency<br />

ETFs track the price performance of one or more cryptocurrencies.<br />

These funds enable retail investors to gain direct exposure to<br />

cryptocurrency prices without having to own the assets directly.<br />

Stablecoins are cryptocurrencies of which the value is pegged<br />

to that of another currency or commodity, for example, the USD<br />

or gold. Stablecoins provide an alternative to the high volatility of<br />

other cryptocurrencies. The most popular stablecoin is Tether. It is<br />

pegged 1:1 to the USD and backed by gold reserves.<br />

Crypto tokens<br />

Crypto tokens are a digital representation of an asset or interest<br />

in something and are built on a blockchain. They may be used to<br />

raise funds for projects and are usually created and distributed<br />

through an initial coin offering process.<br />

The term “crypto token” is often used interchangeably with<br />

cryptocurrency. However, a cryptocurrency is used for making or<br />

receiving payments using a blockchain. Crypto tokens are used<br />

to facilitate transactions on a blockchain but can also represent<br />

an investor’s stake in a company or serve an economic purpose.<br />

In 2024, BlackRock launched a tokenised investment fund,<br />

the BlackRock USD Institutional Digital Liquidity Fund on the<br />

Ethereum blockchain. The fund pays dividends as new tokens.<br />

There are several types of crypto tokens, like non-fungible<br />

tokens, tokenised equity, security and utility tokens.<br />

Non-fungible tokens (NFTs). Non-fungible tokens are assets<br />

that were tokenised via a blockchain. The connection between<br />

the token and the asset makes them unique. Every NFT also<br />

contains a unique digital signature. Earlier NFTs were mostly<br />

digital art. However, NFTs these days can also include, for instance,<br />

photographs, music and in-game experiences.<br />

The person who holds the private key to the token owns the<br />

rights assigned to the token. Two cryptocurrencies from the same<br />

blockchain are fungible, ie interchangeable, but even though<br />

two NFTs from the same blockchain can look identical, they are<br />

not interchangeable.<br />

The most expensive NFT sold to date is The Merge by Murat Pak,<br />

which sold for US$<strong>91</strong>.8-million. (An image of The Merge is linked<br />

to QR5.)<br />

Tokenised equity. A business can issue shares in the form of<br />

a crypto token to raise capital. This is usually done through an<br />

initial coin offering. The tokens are issued, bought and sold on<br />

blockchain platforms and held in digital wallets.<br />

Security tokens. A security token represents rights of<br />

ownership, tokenised on a blockchain. It transfers value to<br />

whoever holds the private key to the token. For example, one can<br />

create a security token on the blockchain for the ownership and<br />

registration of a car by using the vehicle identification number<br />

with the owner’s name and address. The token could be sold and<br />

purchased, transferring ownership of the car.<br />

Utility tokens. Utility tokens give the holders access to a<br />

service or product. Even though these tokens can be bought on<br />

cryptocurrency exchanges, they are not designed to be a currency<br />

or a store of value, but rather to provide utility to users of the<br />

platform. For example, the Binance Coin, a utility token, grants<br />

traders discounts on trading fees when using the Binance exchange.<br />

Central Bank Digital Currencies (CBDCs)<br />

A CBDC is the digital form of a country’s fiat currency, issued by<br />

the country’s central bank. They are similar to cryptocurrencies,<br />

but their value is fixed by the central bank and equivalent to the<br />

country’s fiat currency. CBDCs increase transaction efficiency,<br />

promote financial inclusion, reduce costs and provide increased<br />

security and privacy for users.<br />

By the end of 2023, the Bahamas, Jamaica and Nigeria had<br />

already introduced CBDCs, and more than 100 countries are in<br />

the exploration stage, with Brazil, China, the Euro area, India and<br />

the United Kingdom at the forefront.<br />

The above is only a brief overview of the types and nature<br />

of crypto assets. In the next article, I will start unpacking the<br />

regulatory framework relating to crypto assets in South Africa. <br />

QR1 QR2 QR3 QR4 QR5<br />

www.bluechipdigital.co.za<br />


BLUE<br />

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FINANCIAL PLANNING | Medical aid<br />

Medihelp is deeply invested<br />

in members’ health<br />

Empathy is a key differentiator in today’s product, service<br />

and journey design. Putting yourself in the shoes of your<br />

clients – or in our case, our members – enables a translation<br />

of empathy into a meaningful experience. This, we believe,<br />

is what will differentiate and sustain organisations that provide<br />

insurance solutions.<br />

The ability to design and deliver solutions tailored to human<br />

needs is a skill needed in the medical aid industry in particular. By<br />

its very nature, it’s an emotional industry. We interact with members<br />

when they are most vulnerable, when they feel overwhelmed<br />

and when they are stressed, facing critical health conditions.<br />

These feelings are compounded when multiple friction points<br />

hinder their access to healthcare. Overlaying this is Medihelp’s<br />

responsibility to look after the mutual interests of all its members<br />

when allocating funding.<br />

South African businesses are at varying levels of delving<br />

deeper into this science of human connection and understanding<br />

how emotions play a pivotal role in the client journey and user<br />

experience. I don’t think we fully understand yet how to harness<br />

empathy to resonate with our target audiences, create products<br />

that respect consumers and their feelings, and mould touchpoints<br />

to speak to their emotions.<br />

We truly need to understand our clients’ feelings of anxiety and<br />

frustration. Their physical must-haves. Their aspirations. Only<br />

then can we craft bespoke, personalised interactions, services<br />

and incentives to retain customers and turn them into loyal<br />

brand ambassadors.<br />

For the past 118 years, Medihelp has been adapting to<br />

changing circumstances and needs. We have proven that we can<br />

reinvent ourselves time and again by understanding the value<br />

of connection with our stakeholders. To keep meeting the everevolving<br />

requirements, wants and values of South Africans, we’re<br />

now also crafting experiences that will match the emotional and<br />

aspirational necessities – both physical and spiritual – of the human<br />

of today and the future. A personal, empathetic commitment to<br />

our members’ health is what makes Medihelp’s heart-centred,<br />

purpose-driven experience designers different. <br />

For the past 118 years, Medihelp<br />

has been adapting to changing<br />

circumstances and needs.<br />

Journey design with people in mind<br />

The answer, of course – founded in empathy – is human-centred<br />

design. It is, however, in stark contrast to the traditional approach<br />

to designing products and services. For a long time, taking<br />

products to market has entailed designing them and manipulating<br />

consumers to buy through clever marketing. This is regardless of<br />

whether the product or service addressed the consumers’ needs.<br />

Human-centred journey design is different. It goes beyond<br />

satisfying wants and needs and also considers the values and<br />

motivations of consumers and the wider membership’s interest.<br />

For example, a growing number of people – of all ages, not only<br />

millennials – want to see companies give back to communities<br />

and care for the environment. If your target audience has personal<br />

values that align with your business’s values and behaviours, they’ll<br />

support you irrespective of price.<br />

Varsha Vala, Principal Officer: Medihelp Medical<br />

Scheme, Medihelp<br />

56<br />


No matter your industry,<br />

Medihelp understands that the<br />

health of your employees is a<br />

priority.<br />

Our hands-on approach<br />

allows us to meet each<br />

employee’s unique needs.<br />

With our 11 medical aid<br />

plans, we can provide your<br />

personnel with quality<br />

healthcare cover nationwide.<br />

We’ve got a plan<br />

for everybody<br />

Our basic, savings, and<br />

comprehensive plans cover<br />

Jacks and Jills of all trades<br />

All our plans offer:<br />

• Premiums to suit everybody<br />

• Private hospital cover with no<br />

overall limit<br />

• Cover for health tests,<br />

screenings, and immunisation<br />

• Access to everyday medical care<br />

Medical Aid<br />

in Action<br />

Scan the QR<br />

code to read<br />

more about<br />

our plans.<br />

Medihelp is an authorised financial services<br />

provider (FSP No 15738)

BLUE<br />

CHIP<br />

PRACTICE MANAGEMENT | Technology<br />

Where to tech, and<br />

when to human<br />

How technology can enhance the value of financial advice.<br />

Technology is transforming the financial advice<br />

industry and the financial planning profession. From<br />

robo-advisors and Artificial Intelligence (AI) to digital<br />

platforms and cloud-based solutions, technology<br />

offers new opportunities and challenges for financial advisors,<br />

financial planners and financial advisory business owners,<br />

from small independent businesses to corporates. Technology<br />

can help financial advisors and planners deliver more efficient,<br />

personalised and holistic advice to clients. It can also help<br />

them streamline their processes, reduce costs and comply with<br />

regulatory requirements. Technology can also help financial<br />

advisors and planners reach new markets, expand their services<br />

and differentiate themselves from competitors.<br />

However, technology is not a substitute for human interaction<br />

and relationship-building. Technology can complement, but not<br />

replace, the human element of financial advice. Financial advisors<br />

and planners need to balance the use of technology with the need<br />

to connect with their clients on an emotional and behavioural<br />

level. They need to know where to tech, and when to human.<br />


Technology can enhance the value of financial advice in several<br />

ways. Here are some ideas of where to tech:<br />

• Gather and analyse data from various sources, such<br />

as bank accounts, investment portfolios, tax returns<br />

and social media. This can help create a comprehensive<br />

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PRACTICE MANAGEMENT | Technology<br />

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Technology can complement,<br />

but not replace, the human<br />

element of financial advice.<br />

and accurate picture of a client’s financial situation, goals,<br />

preferences and risk tolerance.<br />

• Create and present customised and interactive financial<br />

plans for clients. Use tools such as cash-flow modelling, goalsbased<br />

planning, scenario planning and visualisation to illustrate<br />

the impact of different strategies and options on a client’s life<br />

and financial outcomes.<br />

• Monitor and review clients’ progress and performance.<br />

Tools such as dashboards, alerts and feedback mechanisms<br />

help advisors and planners track clients’ financial behaviour,<br />

provide timely and relevant advice, and adjust plans as needed.<br />

• Communicate and collaborate with clients and other<br />

stakeholders. Use tools such as video conferencing, chatbots,<br />

client portals and digital signatures to provide convenient<br />

and secure access to their services and to enhance client<br />

engagement and satisfaction.<br />

Tech is great for boring, repetitive and time-consuming tasks<br />

and processes.<br />


Technology can improve the quality and efficiency of financial<br />

advice, but it cannot replace the human touch. Human<br />

interaction is essential for building trust, rapport and loyalty<br />

with clients. It is also crucial for understanding and influencing<br />

their financial behaviour and decision-making. Here are some<br />

touchpoints and when to human:<br />

• Understand clients’ personal and emotional needs, values<br />

and motivations. Ask open-ended and probing questions,<br />

listen actively and empathetically and show genuine interest<br />

and care.<br />

• Educate and empower clients to make informed and<br />

confident financial decisions. Explain complex and technical<br />

concepts in simple and relatable terms, provide clear and<br />

unbiased guidance and address clients’ doubts and concerns.<br />

• Motivate and influence clients to act and follow your advice.<br />

Appeal to clients’ emotions and aspirations, provide positive<br />

reinforcement and encouragement and help them overcome<br />

their fears and biases.<br />

• Deal with sensitive and challenging situations, such as<br />

market volatility, life transitions or financial crises. Provide<br />

emotional support and reassurance, show empathy and<br />

compassion and help clients cope and adapt.<br />

Humans are great for creating safe spaces and accountability, two<br />

important aspects for changing and managing behaviour.<br />


Technology and human interaction are not mutually exclusive,<br />

but complementary. Financial advisors and planners must<br />

leverage the best of both worlds to deliver optimal value to their<br />

clients. They need to adopt a hybrid approach that combines<br />

technology and human interaction in a way that suits their clients’<br />

needs, preferences and expectations. Here are some tips on how<br />

to balance technology and human interaction for financial advice:<br />

• Assess clients’ level of digital literacy, comfort and trust. Tailor<br />

the use of technology to clients’ capabilities and preferences and<br />

provide them with adequate training and support.<br />

• Segment clients based on their needs, goals and complexity.<br />

Allocate time and resources accordingly, use technology to<br />

automate and standardise the routine and low-value tasks and<br />

focus on the high-value and high-touch tasks.<br />

• Integrate technology and human interaction throughout<br />

the financial advice process. Use technology to enhance data<br />

collection, analysis and presentation, and use human interaction<br />

to enhance client understanding, education and influence.<br />

• Evaluate and measure the impact of technology and human<br />

interaction on client outcomes and satisfaction. Collect and<br />

analyse feedback from clients and other stakeholders and use it<br />

to improve service delivery and the value proposition.<br />


It is easy to ignore an app, but it isn’t easy to ignore a human.<br />

Then again, tech can do what humans can’t. Technology is a tool<br />

that helps us do what we could not do otherwise so we can have<br />

the time to do the things technology can’t and that truly matters.<br />

Stay curious!<br />

Visit www.propulsion.co.za for more information. <br />

Francois du Toit, CFP®, Founder, PROpulsion<br />

www.bluechipdigital.co.za<br />


BLUE<br />

CHIP<br />

PRACTICE MANAGEMENT | Communication<br />

Tired of<br />

playing broken<br />

telephone?<br />

So are your clients<br />

When did you last zone out during a telephone or<br />

video call? If it was within the last few days, you’re<br />

not alone! The Harvard Business Review shared<br />

this not too long ago: “... it’s more pertinent than<br />

ever. In the past two years, most of our work conversations have<br />

moved online – and while meeting times have increased by<br />

10%, research shows that most of them actually decrease the<br />

productivity of employees”. .[1]<br />

But even if we are paying attention, it’s still tough! When I was<br />

a kid, we used to play this game called “Broken Telephone” – I am<br />

sure you know it. I was always amazed and amused that a message<br />

that was whispered ear-to-ear, with no interference, could end<br />

up so different after having passed through 12 to 16 kids. As a<br />

communication strategist, I still think of those kindergarten<br />

memories as I help our clients with their communication because<br />

we still find ourselves getting it wrong occasionally.<br />

And often, it’s the technology that is letting us down. In<br />

the foresty suburb where I live and work, cellular reception is<br />

downright shockingly vacant. I frequently find myself, phone in<br />

hand, wandering around the pool in my backyard, trying to catch<br />

a signal. It is tricky because the water in my pool always looks<br />

so enticing; I spend a lot of time keeping it crystal clear. If it’s a<br />

gorgeous day, and I’m outside on my phone, the glittering ripples<br />

under the sun’s gaze are a quick distraction. I wonder if I should add<br />

more chlorine or wait until I see the subtle traces of light yellow<br />

The clarity of our online<br />

communication should reflect<br />

the depth of our commitment<br />

to those we serve.<br />

and green glinting off the walls. I try to spot goggles, hairbands<br />

and stones left in there by my kids. And this is all while trying to<br />

focus on a call that keeps going in and out of reception.<br />

If the call is clearer than the water, and the conversation<br />

coherent and unbroken, the pool offers little distraction and I have<br />

a productive phone call.<br />

Similar episodes unfold during virtual meetings, where a<br />

poor Internet connection or unplanned loadshedding can turn<br />

discussions into a maddening puzzle. Catching every second<br />

word isn’t just annoying; it is a barrier to genuine connection and<br />

understanding. And this is in a short, focused conversation. What<br />

about communication that happens over weeks, months or years?<br />

What about the conversations we’re trying to spark through our<br />

website, blogs, email campaigns and social media?<br />

In an increasingly digitised communication landscape, the clarity<br />

and consistency of your online communication are paramount. For<br />

60 www.bluechipdigital.co.za

PRACTICE MANAGEMENT | Communication<br />

BLUE<br />

CHIP<br />

If there is no sustainable online communication strategy in place,<br />

you’re playing Broken Telephone with your clients and prospects.<br />

When it comes to your online brand, your digital avatar, consistency<br />

is your lifeline. It’s what keeps your online brand buoyant and<br />

visible, relatable and relevant.<br />

Whether it’s through insightful blog posts that spark conversation<br />

rather than sell products or regular email updates that keep your<br />

audience informed and engaged, your online efforts should strive<br />

to keep the communication lines clear and uninterrupted.<br />

Your ability to communicate consistently and effectively is not<br />

just about maintaining a signal; it is about making meaningful<br />

connections. As we stride further into the digital age, the clarity<br />

of our online communication should reflect the depth of our<br />

commitment to those we serve. In the art of financial planning,<br />

being fully present – in every blog, email, social media post, video<br />

call and conversation – is the truest form of connection. <br />

[1]<br />

https://hbr.org/2022/07/how-to-lead-better-virtual-meetings<br />

[2]<br />

https://blog.hubspot.com/sales/live-chat-go-to-market-flaw<br />

independent financial advisors (IFAs) in South Africa, where the<br />

digital realm is a vital bridge to clients and prospects, sporadic or<br />

outdated communication can be likened to a broken telephone<br />

line. If your last blog update was a distant memory or your LinkedIn<br />

profile a relic of your past, you are standing in a communication<br />

dead zone.<br />

Recent stats underscore this point, revealing that an<br />

overwhelming majority of consumers now expect digital<br />

engagement from the brands and professionals they trust. A 2021<br />

survey by HubSpot indicated that 82% of consumers expect an<br />

immediate response to sales or marketing questions. [2] For IFAs,<br />

this digital expectation translates to a clear mandate: maintain<br />

consistent, engaging and up-to-date communication or risk losing<br />

connection with your audience.<br />

But what does effective online communication look like for<br />

financial advisors? It goes beyond mere presence; it’s about<br />

crafting and deploying sustainable strategies that resonate with<br />

the who, what and why of your brand. It’s about ensuring your<br />

website and social profiles authentically reflect the current you,<br />

engaging with your audience through regular lifestyle-focused<br />

blogs, monthly email campaigns and daily (or at least tri-weekly)<br />

social media interactions. This multi-channel approach is not just<br />

about broadcasting your message; it’s about creating a space for<br />

two-way engagement where clients and prospects feel heard<br />

and valued.<br />

Tim Slatter, Creator of Contatto and Director,<br />

Slatter Communications<br />

www.bluechipdigital.co.za<br />


BLUE<br />

CHIP<br />

FINANCIAL PLANNING | Technology<br />

Unbelievable savings: discover the<br />

true low cost of AI<br />

Are you hesitant to embrace AI for your business, fearing it might escalate costs in a challenging financial<br />

landscape? It’s a common concern among many business owners and managers. However, the real surprise<br />

lies in the true cost of AI – or rather, how little it is.<br />

Today, we talk to Zeldeen Müller, CEO of AgendaWorx, an<br />

online board pack tool utilising AI, about a real-world case<br />

study of how much time AI can save companies versus the<br />

surprisingly low cost of AI.<br />

Please explain to our readers how AI is priced.<br />

We will use ChatGPT as an example when discussing the pricing<br />

structure, as I think most of our readers have heard about this<br />

model. Other AI models such as Claude and LLaMA will have<br />

different pricing models.<br />

OpenAI’s ChatGPT operates on a usage-based pricing model,<br />

where users are charged based on the number of tokens processed.<br />

A token is equivalent to a word or a few characters.*<br />

For example, OpenAI’s ChatGPT charges approximately $0.0005<br />

per 1 000 tokens for input, $0.0015 per 1 000 tokens for output and<br />

$0.002 per 1 000 tokens for API usage.<br />

Please provide a real-life example of how much this cost will<br />

be for a typical process.<br />

AI can be used for many<br />

different applications and uses.<br />

Today, we will focus on a case<br />

study where a small business<br />

used AI to create minutes of<br />

meetings, which, for them,<br />

was a time-consuming, and<br />

therefore non-profitable,<br />

Zeldeen Müller, CEO,<br />

AgendaWorx<br />

service provided to clients.<br />

Their current process:<br />

When creating minutes of the<br />

board meetings for its clients,<br />

its secretary would listen to the<br />

two-hour meeting recording<br />

and transcribe what happened<br />

during the meeting. This was a<br />

slow and meticulous process<br />

that took 10 to 16 hours for<br />

every two-hour meeting,<br />

depending on the complexity<br />

of the discussions. After<br />

completing the minutes, she corrected grammar and typos,<br />

and the manager reviewed them for content and grammar. This<br />

cycle of editing and reviewing continued, including layout and<br />

font adjustments and PDF conversion, until the minutes were<br />

ready for distribution.<br />

The true cost for the company was in the time spent by the<br />

secretary and manager, which could be better spent on other<br />

tasks that would boost profitability.<br />

Understood. So how did AI streamline this process? What was<br />

the AI cost?<br />

The AI process involves transcribing the meeting from the video<br />

recording with 99% accuracy for South African accents and<br />

converting the transcription into professionally written minutes.<br />

A rough estimate of the AI costs per set of minutes is:<br />

Process one: Getting the transcription of the video<br />

recording: R1.37**<br />

Process two: Converting the transcription to a set of minutes:<br />

R0.87. Time-saving is 10 to 16 hours for the secretary and one to<br />

three hours for her manager.<br />

This company saved 19 hours of work with one process at a<br />

meagre AI cost of only R2.24.<br />

Yes, that is quite a saving. And the company does five sets of<br />

minutes for clients every month. That is 100 hours saved per month<br />

at a cost of only R11.20. It is a no-brainer.<br />

That sounds great; you mentioned the API costs. Why should<br />

companies use an API as a secure platform rather than allow<br />

their staff to chat with AI directly?<br />

It ensures better control over data privacy and security. When<br />

employees interact directly with AI, they can enable history and<br />

allow AI to train on their prompts and responses, potentially<br />

exposing sensitive information. On the other hand, when using<br />

a secure API, the prompts and responses are kept confidential.<br />

They are not used to train other AI models, providing a safer<br />

environment for handling sensitive data. This approach ensures<br />

that the company’s information remains secure. <br />

* These rates are estimates.<br />

** The length and complexity of the recording determines the transcription cost.<br />

62 www.bluechipdigital.co.za


YOU - upload video recording<br />

AI<br />

- will:<br />

1. Transcribe (99% accuracy with SA accents);<br />

2. Create your minutes from your agenda;<br />

3. Fix formatting (fonts, justification, spacing,<br />

indentation and more); and<br />

4. Number pages, & add hyperlinked bookmarks.<br />

Online Board Packs &<br />

Secure Board Portal<br />

Your minutes done and dusted!<br />

Can you afford not to see a demo?<br />


BLUE<br />

CHIP<br />

FINANCIAL PLANNING | Legislation<br />

How will COFI impact<br />

FSP representatives?<br />

As highlighted in some of my earlier articles, the Conduct<br />

of Financial Institutions Act (COFI) will significantly<br />

impact financial services providers (FSPs) and key<br />

individuals when the new market conduct legislation<br />

is implemented. However, key individuals and representatives<br />

will be relieved to know that, apart from technology innovation,<br />

very little will change in the lives of representatives when they<br />

transition from the Financial Advisory and Intermediary Services<br />

Act (FAIS) to COFI.<br />

This is mainly because many business and legal principles in<br />

our industry have been firmly cemented over the decades. If one<br />

considers that Old Mutual was established in Cape Town in 1845<br />

as South Africa’s first mutual life assurance society, the financial<br />

services industry has been around for almost 180 years.<br />

This means that, as we approach the promulgation of COFI, we<br />

are the beneficiaries of well-established, sound and even timeless<br />

business and legal principles that have sustained successful<br />

FSPs for decades. In addition, under FAIS, legal and compliance<br />

principles that apply to representatives have been tried and tested<br />

over close to 20 years. The same principles will continue to apply<br />

under COFI.<br />

Principles-based market conduct legislation<br />

COFI is based on a set of key principles that will focus more on<br />

outcomes within the spirit of the law (Treating Customers Fairly)<br />

rather than a tick-box approach to compliance according to the<br />

letter of the law (rules-based). Principles-based regulation means<br />

moving away from reliance on detailed, prescriptive rules and<br />

relying more on high-level, broadly stated principles that set the<br />

standards by which FSPs must conduct their business. A classic<br />

example of a principle-based provision is found in section 2 of<br />

the General Code of Conduct, which states that a provider must at<br />

all times render financial services honestly, fairly, with due skill, care<br />

and diligence, and in the interests of clients and the integrity of the<br />

financial services industry.<br />

Principles refer to behavioural standards, for example, “integrity”,<br />

“skill, care and diligence” and “reasonable care” with which FSPs<br />

conduct and organise their businesses and the fairness with which<br />

they treat customers and manage conflicts of interest.<br />

Key issues that will not change for representatives when COFI<br />

is implemented<br />

A few fundamental, timeless principles will never change,<br />

regardless of whether services have been rendered before FAIS,<br />

during FAIS, under COFI or beyond. I highlight some of the most<br />

important ones:<br />

Firstly, trust will remain part of an advisor’s job description.<br />

Regardless of legislation, trust has always been and will always<br />

be the most important ingredient of any relationship between<br />

advisors and their clients. It has always been and will always<br />

remain an economic necessity for advisors to build, establish and<br />

maintain trusted relationships with their clients because every<br />

relationship and every transaction is based on trust. This principle<br />

cannot be over-emphasised.<br />

Secondly, every transaction between advisors and clients in<br />

terms of the common law and under any legislation is based on the<br />

law of contract (agreement) – offer and acceptance. It is a timeless<br />

principle that the law of contract fundamentally underlies the<br />

rendering of all financial services under FAIS, [1] and it, therefore,<br />

comes as no surprise that this principle has already found its way<br />

into the COFI Bill. [2]<br />

It is of fundamental importance for every representative to<br />

understand that advisory and intermediary services in terms<br />

of the FAIS Act and COFI necessarily imply the existence of an<br />

agreement or contract between the person who furnishes the<br />

advice or renders the intermediary services and a client as defined<br />

64 www.bluechipdigital.co.za

FINANCIAL PLANNING | Legislation<br />

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Collectively, all the political,<br />

economic, loadshedding, crime<br />

and corruption challenges in<br />

South Africa have harmed the<br />

general productivity of advisors.<br />

in the legislation. Transactions are either based on a proposal by<br />

a representative and acceptance of the proposal by the client,<br />

a request or an instruction (offer) by the client and acceptance<br />

by the representative to execute the instruction. It is for this<br />

reason that the following provision in the FAIS General Code of<br />

Conduct is regarded by legal experts as the foundation of FSP and<br />

representative accountability under the Act, as it states:<br />

The service (advice and/or intermediary service we render to<br />

clients) [3] must be rendered by the contractual relationship and<br />

reasonable requests or instructions of the client, which must be<br />

executed as soon as reasonably possible and with due regard to the<br />

interests of the client which must be accorded appropriate priority<br />

over any interests of the provider. [4]<br />

This principle was further confirmed and recorded by the<br />

Financial Services Tribunal:<br />

The liability of an FSP is usually based on a breach of contract. The<br />

rule is that failure to execute a mandate with the necessary diligence,<br />

skill and care required of a reasonable professional person has to be<br />

resolved on the principles of contract, not delict. [5]<br />

Thirdly, some activities in the client engagement process also<br />

stand the test of time. The 10-step process of professional client<br />

engagement, as illustrated below, has been followed by advisors<br />

in one form or another long before FAIS and during FAIS. They will<br />

continue to do so under COFI and even beyond.<br />

One would think, with the imminent and significant changes<br />

in market conduct legislation, that the compliance standards in<br />

the client engagement process would also change significantly.<br />

Fortunately for representatives, over the last 19 years, the FAIS<br />

Ombud’s office and the Financial Services Tribunal have provided<br />

the industry with many determinations and decisions based on<br />

well-researched and well-debated principles of law.<br />

Therefore, The COFI Act has a library full of supporting material<br />

that contains well-established and tried-and-tested principles that<br />

will be as important for representatives under COFI as they have<br />

been for the last two decades under FAIS. Based on these tested<br />

principles, I do not foresee that the conduct standards under<br />

COFI will differ materially from the provisions contained in the<br />

FAIS General Code of Conduct. My thumb-suck estimate is that<br />

90% to 95% of the principles published in the General Code of<br />

Conduct will find their way into the conduct standards, leaving no<br />

more than 10% of the conduct standards to impact representatives<br />

when COFI is implemented.<br />

In the fourth place, the principles and rules in the FAIS fitand-proper<br />

requirements, as published in Board Notice 194 of<br />

2017, will also be included in the COFI conduct standards with<br />

minimal changes expected. The FAIS subordinate legislation has<br />

laid a sound foundation for the COFI conduct standards still to<br />

be published.<br />

Representatives to embrace technology<br />

Taking a leaf out of Gary Keller’s number one Wall Street Journal<br />

bestseller book, The One Thing, apart from establishing trusted<br />

relationships with clients, the single most important thing that<br />

The 10 steps of professional client engagement and compliance framework<br />

Process Activity Professional Compliance Automation Advisor Client<br />

Standard Standard Digitalisation Experience Experience<br />

Step 1<br />

Step 2<br />

Step 3<br />

Step 4<br />

Step 5<br />

Step 6<br />

Step 7<br />

Step 8<br />

Step 9<br />

Step 10<br />

Prospecting<br />

Setting up appoinment<br />

Professional introduction<br />

Share info and gather client information<br />

Agree on services to be rendered<br />

Conduct an analysis and prepare report<br />

Present proposal/ recommendation/(s)<br />

Agree on financial plan and/or product(s)<br />

Implement financial plan and/or product(s)<br />

Ongoing rendering of (financial) services<br />

www.bluechipdigital.co.za<br />


BLUE<br />

CHIP<br />

FINANCIAL PLANNING | Legislation<br />

It has always been and will<br />

always remain an economic<br />

necessity for advisors to build,<br />

establish and maintain trusted<br />

relationships with their clients.<br />

representatives will have to do if they want to excel during the<br />

transition from FAIS to COFI and beyond, is to embrace technology<br />

innovation fully. The reason for this statement can be found in the<br />

book, Practice Made Perfect, which was published almost 20 years<br />

ago, when authors Mark C Tienergien and Rebecca Pomering<br />

identified the lack of capacity to service clients as the number one<br />

challenge of advisors, and I firmly believe that this is still the biggest<br />

challenge for advisors today.<br />

Collectively, all the political, economic, loadshedding, crime and<br />

corruption challenges in South Africa have harmed the general<br />

productivity of advisors. In addition, the significant increase in<br />

compliance administration over the years has put further pressure<br />

on advisors’ capacity to service clients. Yet, at the same time, we are<br />

all facing one constant factor, namely, we still only have 24 hours<br />

in a day. When the number of hours in your day is the constant<br />

factor in your practice, and all the other variables and regulatory<br />

requirements escalate, logically, the lack of capacity to service clients<br />

increases. At the risk of stating the obvious, in these circumstances,<br />

the need to find “the one thing” that can close the gap is essential.<br />

Technology has been and will continue to be the game changer<br />

for representatives who want to be more efficient and create better<br />

client experiences in a highly competitive industry. Few successful<br />

advisors, if any, will disagree that technology plays an essential part<br />

in managing an effective, efficient and profitable practice.<br />

Unfortunately, many representatives must still make the paradigm<br />

shift to optimise technology to ensure that they will be able to cope<br />

and excel before, during and after COFI is implemented.<br />

In closing<br />

Although there may be aspects in the client engagement process<br />

that will always remain constant and highly relevant regardless of<br />

legislation, technology innovation, which is always evolving, is here<br />

to stay. Embracing it and keeping up with continuous innovation<br />

must be a key priority for representatives as we face the forthcoming<br />

implementation of COFI. For those, like me, who know that you are<br />

not using technology optimally, I want to encourage you to make<br />

every effort to enhance your skills in this area. We are going to need<br />

it to remain competitive.<br />

[1] Dr Franso van Zyl, Financial Advisory and Intermediate Services Manual<br />

[2] See section 20(2) of the COFI Bill<br />

[3] My insert<br />

[4] See section 3(1)(d) of the FAIS General Code of Conduct<br />

[5] Pieter Cronje Makelaars and Carel Jacobus van Zyl, Hester Dorethea van Zyl and Ombud of<br />

Financial Services Providers and CS Brokers CC and Others v lan Marais and Others Case No.<br />

FAB5/2016<br />

Anton Swanepoel, Founder, Trusted Advisor<br />

66 www.bluechipdigital.co.za

FINANCIAL PLANNING | Support structures<br />

BLUE<br />

CHIP<br />

It is the team that wins<br />

the tournament<br />

There’s no “I” in a team. Teamwork makes the dream work.<br />

Together Everyone Achieves More (TEAM). There is no<br />

shortage of clichés around why being part of a team is<br />

better than trudging forward alone. I was reminded of this<br />

in the second release of the very popular Chasing the Sun.<br />

For those unfamiliar with this docuseries, it focuses on the<br />

Springbok rugby team’s journey to claim their fourth World Cup<br />

title in France in 2023. More importantly, it gives couch coaches<br />

an inside perspective of the meticulous and intense planning and<br />

training that goes into facing each upcoming challenge.<br />

When the coach and player are<br />

on the same team, the greater<br />

goal will be within reach.<br />

What position do you play in the field of investments?<br />

Finance and sport, for most individuals, do not go hand in<br />

hand, if looked at from a slightly unfamiliar perspective, there<br />

are far more similarities than meets the eye. What is the role of<br />

a financial advisor, if not some form of a financial coach for their<br />

clients, keeping track of the latest rules and regulations, playing<br />

conditions and executing a winning formula? The players, or in this<br />

case the clients, need to be able to stick to the game plan and not<br />

deviate from the intended strategy.<br />

For investors, saving towards retirement can be likened to<br />

training. Not one of the Springboks arrived at the World Cup<br />

without training or experience, and managed to hold up the<br />

trophy when the dust had settled. It took them years of hard work<br />

and discipline to reach that point. There was no overnight success.<br />

Investors need to treat their future in the same way. It takes<br />

a long-term vision and years of disciplined saving to eventually<br />

reap the rewards of a successful financial future; however, the<br />

coach’s role in guiding them along the way and ensuring they stay<br />

on the correct path is fundamental to this success. There will be<br />

difficulties, key players get injured, tax laws change and you may<br />

lose a game. Markets crash, but, if the coach and player are on the<br />

same team, the greater goal will still be within reach.<br />

Key support to cover our blind sides<br />

Just like coaches, financial advisors benefit massively from<br />

critical support structures. There are specialists in their fields<br />

Darren Burns, Head: Business Development, Graviton<br />

providing insight and solutions so that wealth managers can<br />

sidestep distractions, ensuring their full, undivided attention<br />

is on their clients.<br />

Big teams employ video analysts, laws advisors, strategy experts,<br />

talent scouts and assistant coaches. In the same way, financial<br />

advisors should be able to rely on the latest systems and technology,<br />

compliance and legal experts, investment solutions, fund managers,<br />

new client lead providers and most importantly, a succession plan<br />

to ensure that their clients are never without support.<br />

Choose your team with the final in mind<br />

Advisor networks, Graviton being an example, provide these types<br />

of specialised support. The financial industry is an increasingly<br />

complex field to navigate and being part of a team ensures<br />

continued alignment across various areas. Financial advisors,<br />

wealth managers and financial planners need to be supported<br />

from start to finish and empowered to grow while always<br />

maintaining their unique, personal look and feel –just ask Kwagga.<br />

Clients expect the best level of service for their investments, and<br />

most importantly, being part of a winning team allows investors<br />

to receive the undivided attention of their leader and the absolute<br />

best financial advice for their unique financial journey. <br />

www.bluechipdigital.co.za<br />


BLUE<br />

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INVESTMENT | Behavioural finance<br />

Financial planner as<br />

Choice Architect<br />

A way to help clients take ownership of their choices.<br />

Professor Albus Dumbledore advised Harry Potter, “It is our<br />

choices, Harry, that show what we truly are, far more than<br />

our abilities.” While the wisdom from Prof Dumbledore<br />

comes from one of the greatest fantasy stories of modern<br />

literature, the power of his words is in their application to real<br />

life. We are a product of our choices, good and bad. And when<br />

it comes to our life and money, we face choices daily. The same<br />

applies when a client goes to see a financial planner. Invariably<br />

they are faced with a choice. It may be a choice to do something<br />

or to do nothing. It may have to do with money. It may have to do<br />

with their life: past, present or future.<br />

A key role of a professional financial planner is to help clients<br />

make such choices. In doing so, I believe that financial planners<br />

are playing the role of Choice Architect, a label I first came across<br />

in the book Nudge, in which the authors Richard Thaler and Cass<br />

Sunstein suggest that a Choice Architect “has the responsibility for<br />

organising the context in which people make decisions”. In the last<br />

edition of <strong>Blue</strong> <strong>Chip</strong>, I suggested that financial planners play the<br />

role of Thinking Partner to help clients gain insights. As a Choice<br />

Architect, you help them make choices based on those insights. The<br />

role of the Choice Architect builds on that of the Thinking Partner.<br />

The challenge is that humans make choices in both simple<br />

and complex ways. Our limbic system drives quick choices, while<br />

our prefrontal cortex enables us to make considered choices. The<br />

problem is that we often make a limbic-based decision thinking<br />

we are using our prefrontal cortex. We think we’ve thought about<br />

68 www.bluechipdigital.co.za

INVESTMENT | Behavioural finance<br />

BLUE<br />

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something when all we did was act on a cognitive or emotional<br />

bias. Often it’s not just greed or fear that drives our decisions,<br />

even those to do with investments. We can make cognitive errors<br />

without even knowing we’ve done so. A well-thought-out financial<br />

plan serves as a powerful tool to limit the influence of emotional<br />

and cognitive biases. Developing a financial plan forces clients to<br />

engage their prefrontal cortex.<br />

In helping clients as a Choice Architect, financial planners can<br />

help their clients craft their choices so that their financial plan<br />

matches their ideal life. The challenge with drawing up a plan for<br />

a client’s life is that they are the real experts in their own life. As<br />

such they need to participate actively in the process if they are<br />

to take ownership of the plan. Anyone who has been involved<br />

in renovating or designing a new home or office knows that the<br />

decisions that need to be made seem endless. The architect guides<br />

these decisions, helping the client understand the implications of<br />

each decision from a cost, comfort, functional and aesthetic point<br />

of view. As a Choice Architect, financial planners do the same for<br />

their clients. Each decision the client makes has costs and benefits.<br />

Helping them find the trade-off between the two is central to the<br />

role of the professional financial planner.<br />

The challenge for clients is that they may be exposed to<br />

different types of financial advisors.<br />

Rob Macdonald, Head of Strategic Advisory Services, Fundhouse<br />

For example, we know that robo-advisors make decisions based<br />

on the information provided and their algorithm engine. Financial<br />

advisors who see themselves as salespeople are likely to cheerlead<br />

whatever their client decides if this results in some form of transaction.<br />

An advisor who regards themselves as a technical expert may be<br />

tempted to make the choices for their clients. They may listen to what<br />

the client wants or needs, but ultimately, they see themselves more<br />

as a choice specialist rather than a Choice Architect. They know best.<br />

Ideally, the truly professional financial planner accepts that they work<br />

in that middle ground between technical expertise and the need for<br />

the client to take ownership of their choices.<br />

Professional financial planners advise clients on their choices,<br />

without making decisions on behalf of their clients. They may use<br />

their technical skill to help clients make informed choices, but if they<br />

want the client to take ownership of their choices, the key ingredient<br />

for success is working collaboratively with clients. Collaboration is at<br />

the core of the work of a Thinking Partner. It helps mitigate against<br />

cognitive biases and if done well collaboration harnesses the reality<br />

that each of us sees the world uniquely. Collaborating is recognising<br />

and committing to the possibility that two minds are better than one.<br />

Thaler and Sunstein confirm that if you influence other people's<br />

choices, you are a Choice Architect. But very importantly, they point<br />

out that “since the choices you are influencing are going to be<br />

made by humans, you will want your architecture to reflect a good<br />

understanding of how humans behave”. Being an effective Choice<br />

Architect depends more on good human understanding and skill<br />

than technical knowledge and expertise. This can only be good<br />

news in a world where technology and AI threaten to eat the<br />

lunch of professions (like financial planning) that are built on the<br />

foundation of technical expertise. <br />

www.bluechipdigital.co.za<br />


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FINANCIAL PLANNING | Mental wellness<br />

Enhancing client well-being<br />

through holistic planning<br />

As financial planners, we often start our conversations<br />

with clients by asking, “What does your ideal life look<br />

like?” and “Do you have a plan for how your money will<br />

enable this?” I propose a third conversation starter: “How<br />

would you describe your relationship with money?” or “If you had to<br />

go to couples therapy with money, what would you say and what<br />

would money say about you?”<br />

These are simple questions, but not ones our clients readily think<br />

about or discuss with others. Our work would be so much more<br />

rewarding if we could guide our clients through these conversations<br />

to give money – and their lives – proper attention. To be adequately<br />

equipped for a life that is financially and mentally wealthy.<br />

Money habits sabotage financial plans<br />

The role of planning is no longer purely based on retiring<br />

successfully but rather on guiding clients to make purposeful<br />

and intentional changes to managing transitions and their holistic<br />

wellness. You cannot move clients forward to personal and financial<br />

well-being if you do not understand the foundation of their money<br />

relationship. It can either be constructive and healthy or boycott<br />

their overall wellness. Unfortunately, many people don’t understand<br />

their relationship with money and most of the clients I meet are<br />

hampered by their money beliefs and habits – how they see, feel<br />

and think about money sabotages their goals and dreams.<br />

I recently met a client who constantly lives in fear, worrying about<br />

money. Gail’s fear is so overwhelming that she continuously invests<br />

in property, driven to see her money grow and accumulate. At the<br />

same time, she overcompensates by spoiling her children and buying<br />

them everything they want, whether they need it or not. This<br />

client is not living her best life. To be so fixated on watching your<br />

money grow, to the detriment of your current circumstances, is<br />

just not healthy.<br />

There is so much value in investing time in understanding (and<br />

then changing) our relationship with money. As Gail and I uncovered<br />

the root cause of her behaviour, we discovered that it all stems from<br />

a severe lack in her childhood. This realisation can help Gail create<br />

a money story and habits to serve her better – and her children.<br />

Separating beliefs from reality<br />

Your money mindset is not always based on reality. You don’t have<br />

to be poor for poverty to be your mindset. Many of my clients have<br />

a sizeable amount invested, but that does not stop this irrational<br />

fear that they can lose it all. That’s because a mindset has to do<br />

with your perception of your reality, not necessarily reality itself.<br />

I recently had a life planning meeting with a client who inherited<br />

a significant amount following her husband’s passing at 35. Tracey,<br />

the client, shared that she felt reluctant to use any portion of her<br />

inheritance and that she constantly fears losing the money that<br />

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her husband left in her care. I prompted Tracey to share the money<br />

stories that have shaped her life and relationship with money,<br />

reflecting on her childhood experiences. She remembered her<br />

father’s financial ruin and reflected on how this experience instilled<br />

a fear of spending and mismanagement. She also struggles with a<br />

sense of detachment from the inherited wealth, feeling that it’s a<br />

burden rather than an asset to be used for her well-being.<br />

As planners, no matter how well we strategise and plan, nothing<br />

will change unless we can help clients understand what their money<br />

beliefs are and what money habits have been formed. The key is<br />

to help clients change money behaviours and beliefs that do not<br />

serve them, and very often, these beliefs are based on fiction rather<br />

than reality.<br />

Tracey needs to separate her money beliefs from reality and let<br />

go of her fear of loss and being poverty-stricken. The reality is that<br />

with careful planning, she can start a fresh chapter, supported by her<br />

inheritance and financial planning.<br />

The meaning of money<br />

I have written about the meaning of money before, and it’s an<br />

interesting topic. We all have clients who attach different meanings<br />

to money and use money for various reasons: control, power, status<br />

symbol or something to be feared and avoided.<br />

I met Lily at a conference last week and this conversation<br />

profoundly impacted her. Lily’s father grew up in poverty, and<br />

as soon as he started achieving financial success, he embraced<br />

a lavish lifestyle. For him, money embodied success and status,<br />

resulting in extravagant expenses on fancy cars, excessive parties<br />

and generous gifts for the community. Unfortunately, this left<br />

Lily responsible for caring for her father in his retirement years.<br />

Lily now finds herself pressured by the community to follow the<br />

same patterns of lavish spending to support her family, extended<br />

relatives and the community.<br />

Your client’s commitment is the true measure of success in a<br />

financial plan. They have to buy into the plan, which often means<br />

changing their money habits and behaviours. The plan will not<br />

be impactful if we, as planners, cannot guide our clients towards<br />

putting money in its rightful place – as an enabler of their lives.<br />

It’s about more than the money<br />

Some clients are so fixated on increasing their wealth that they<br />

overlook the present moment – the life they’re meant to live right<br />

now, not just someday in retirement. Kathleen devoted 10 years<br />

to saving diligently and investing her funds overseas. She held<br />

a deep-seated belief that South Africa was not a safe place for<br />

her life savings and looked for security abroad. After a decade<br />

of putting her life on hold, she moved overseas, only to be<br />

overwhelmed by the isolation and a profound lack of belonging.<br />

As her planner, I must recognise the significance of Kathleen’s<br />

sacrifices to invest her money outside South Africa. While I cannot<br />

expect her to bring the money back, I can help her live her best<br />

life with the money she has. Our life planning meetings included<br />

a vision board, and through this exercise, Kathleen realised her<br />

wish to return to South Africa. This meeting helped her define her<br />

dreams and enable clear goals and intentions for her life ahead.<br />

Conversation starters for planners<br />

I believe helping clients improve their relationship with money will<br />

enhance their wealth and mental wellness. It’s about understanding<br />

their money script and guiding them to reshape their beliefs and<br />

habits to serve them better.<br />

A meaningful conversation starter with a client involves<br />

encouraging reflection on their childhood experiences with money.<br />

In most cases, our money mindset is shaped by the experience and<br />

messages we receive about money throughout our lives, primarily<br />

from our parents. These experiences become internal beliefs that<br />

create self-imposed limitations, often not based on reality. For<br />

example, if you grew up hearing that you would never succeed<br />

because you are not smart enough or have seen a parent struggle<br />

due to financial manipulation by their partner or observed lavish<br />

spending to flaunt wealth, you would have numerous beliefs to<br />

challenge to foster positive money habits.<br />

Our relationship with money is multifaceted, often interwoven<br />

with complex emotions, unspoken beliefs and unconscious habits.<br />

Recognising that beliefs drive behaviour and behaviour drives actions<br />

emphasises the importance of understanding and addressing both<br />

beliefs and behaviours to reshape a money relationship.<br />

Kim Potgieter CFP®, Director, Chartered Wealth Solutions, ICF<br />

Professional Certified Coach, New Money Story® Mentor Coach,<br />

Certified Dare to Lead Facilitator<br />

www.bluechipdigital.co.za<br />


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FINANCIAL PLANNING | Estate planning<br />

Who do you trust with your<br />

digital information?<br />

“<br />

Digital technology is so broad today that it encompasses<br />

almost everything. No product is made, no person moves<br />

and nothing is collected, analysed or communicated<br />

without ‘digital technology’. Given its overwhelming ‘value’,<br />

digital technology has become an integral part of our lives,” says Louis<br />

Rossetto, founder and former editor-in-chief of Wired magazine.<br />

Before the digital age, we maintained paper records in a file<br />

in a filing cabinet or desk drawer. When someone passed away,<br />

all a family member had to do was locate the file and hand it to<br />

the appointed executor. And, important documents, investment<br />

statements and policy documents were delivered by post, for<br />

easier filing.<br />

Given the ubiquity of digital technology, these documents<br />

are now either emailed (with password protection), available on<br />

a password-protected app or retrieved from a service provider’s<br />

platform, which requires login credentials. As a result, most of us<br />

store our information either on our laptops or via a cloud storage<br />

facility, tax information is accessed via our e-filing profiles and<br />

banking information on banking apps or personal profiles.<br />

It is easy to see how quickly one can amass a long list of<br />

usernames and passwords – the average person has between 10<br />

and 50 credentials to maintain. This is in addition to the passwords<br />

or biometric access protection on our phones or iPads.<br />

Who do you trust to access your digital information, if something<br />

happens to you?<br />

What impact has digital technology had on estate planning?<br />

Without access to records and information that is digitally stored, it<br />

can be difficult for an executor to know who to contact regarding<br />

a client’s assets and potential claims against an estate. In some<br />

instances, an executor may overlook an asset if a record cannot<br />

be found.<br />

Safe password storage can be challenging, and we know it is<br />

not a good idea to write your passwords down at the back of a<br />

notebook, but who can, or should access this vital information<br />

if you are not able to? With the introduction of dual-factor<br />

authentication, your password and username may not even be<br />

enough to give someone access to your information.<br />

There are several password lockers, such as OnePass, Enpass,<br />

Authenticator or you can store your credentials in your Apple,<br />

Google or Microsoft account. Most of these lockers allow you to<br />

export data, but then what? How does an executor access this<br />

information, which is critical for efficient estate administration?<br />

“You could create a shared folder to store what we at Private<br />

Client Trust call your ‘going away file’ information, which contains<br />

the important information to be accessed on your death and<br />

how to access it (where to find the correct passwords, etc). We<br />

do, however, advise great caution when it comes to who this file<br />

is shared with,” says Sarah Love, a Fiduciary Specialist at Private<br />

Client Trust.<br />

An alternative that the fiduciary team at Private Client Trust<br />

recommends is a comprehensive estate planning exercise with<br />

a fiduciary professional. “In this way, we can ensure that all your<br />

affairs are in order and that access to information is shared with<br />

the right people on your death,” says Love.<br />

During the estate planning process, a fiduciary professional<br />

will collect all the necessary information regarding a client’s<br />

assets, liabilities and policies. “This puts us in a sound position<br />

to administer the estate as we know what is included. This also<br />

provides the client with a solid base for drafting their Will,” says<br />

Love. Private Client Trust regularly<br />

partners with CERTIFIED FINANCIAL<br />

PLANNERS®, enabling them to<br />

effectively assist their clients with<br />

their estate planning needs in a<br />

digital age.<br />

“While saving and storing<br />

important information digitally is<br />

highly appropriate, don’t forget<br />

that your Will must still be signed<br />

with a pen on paper and must<br />

comply with the formalities of<br />

the Wills Act for it to be valid,”<br />

cautions Love. <br />

If you would like to speak to a<br />

fiduciary professional about your<br />

client’s estate planning needs,<br />

please contact Sarah Love, CFP®, at<br />

sarah@privateclient.co.za or visit<br />

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

Sarah Love, CFP®, FPSA®,<br />

TEP, Fiduciary Practitioner,<br />

Private Client Trust<br />

PRIVATE CLIENT HOLDINGS IS AN AUTHORISED FINANCIAL SERVICES PROVIDER. Private Client Holdings – FSP 613, Private Client Trust has taken care to ensure that all the information provided herein<br />

is true and accurate. Private Client Trust will therefore not be held responsible for any inaccuracies in the information herein. The above article does not constitute advice and the reader should contact<br />

the author for any related concerns. Private Client Trust shall not be responsible and disclaims all loss, liability or expense of any nature whatsoever which may be attributable (directly, indirectly or<br />

consequentially) to the use of the information provided.<br />

72 www.bluechipdigital.co.za


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 />


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FINANCIAL PLANNING | Legislation<br />

Money issues in divorce<br />

The proprietary settlement.<br />

Divorce statistics are rising, so most financial planners will<br />

find themselves with a divorcing client at some stage.<br />

While the divorce process is regarded as the domain<br />

of lawyers, in practice it’s often the financial aspects of<br />

divorce that create the complications.<br />

Financial planners who familiarise themselves with some of the<br />

financial complexities that inevitably arise from divorce can add<br />

immeasurable value to their clients’ lives at a difficult time.<br />

In any divorce, three money issues have to be addressed and<br />

resolved: the proprietary settlement; maintenance for the children<br />

and possible spousal maintenance.<br />

In this article, I intend only to deal with Money <strong>Issue</strong> 1: the<br />

proprietary settlement. I will deal with the Money <strong>Issue</strong>s 2 and 3<br />

(child and spousal maintenance) in future articles.<br />

this gives rise to a manifestly unfair result on divorce, a court can<br />

now order the spouse with the bigger pot to share some assets –<br />

see my article in <strong>Blue</strong> <strong>Chip</strong> <strong>Issue</strong> 90, titled “Some important changes<br />

in the world of divorce law”.<br />

Out of community of property with accrual. The accrual<br />

system creates a financial partnership between spouses, where<br />

they agree that whatever wealth is created during the marriage<br />

MONEY ISSUE 1: the proprietary settlement (who gets what<br />

out of the marriage)<br />

In simple terms, this issue turns on understanding:<br />

- What’s in the pot (that must be shared)?<br />

- What’s not in the pot for sharing?<br />

- What’s the pot for sharing worth?<br />

- How many other pots are there?<br />

- Who ultimately gets what out of which pot?<br />

What’s in the pot, what’s not in the pot and how many pots<br />

are there?<br />

The starting point here is the couple’s marital regime. Are they<br />

married in community of property (the default regime under South<br />

African law) or did they sign an antenuptial contract (also known as<br />

an “ANC” or “pre-nup”) excluding community of property? If they<br />

have an ANC, does the accrual system apply?<br />

In community of property. If the couple is married in<br />

community of property, then the marriage creates one big<br />

common pot (or “joint estate”) and everything owned or owed by<br />

the parties falls into it, irrespective of the date or manner the assets<br />

were acquired (so assets and liabilities arising before the marriage<br />

come into the pot too, as do inherited assets). Each party owns a<br />

50% undivided share of everything in the common pot and this<br />

pot has to be divided equally upon divorce.<br />

Out of community of property without accrual. If the couple<br />

is married out of community of property without the accrual<br />

system, then the parties have specifically agreed to opt out of any<br />

kind of financial partnership in their marriage. They each have<br />

their own “pots” of assets and liabilities in their own names and<br />

neither gets to claim anything from the other’s pot at the end of<br />

the marriage. (It’s not quite as simple as this any more, because if<br />

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Financial planners who are<br />

prepared to engage with their<br />

clients on these kinds of issues<br />

can add enormous value.<br />

will be shared between them at the end. Within the marriage, each<br />

party has their own pot of assets and liabilities (which they don’t<br />

have to share) but when the marriage ends, a notional third pot<br />

is created (let’s call it the “accrual pot”) representing the wealth<br />

created during the marriage. The value in the accrual pot is what<br />

must be shared between the spouses on divorce, according to the<br />

accrual calculation. This usually means that there has to be some<br />

transfer of assets between the spouses’ pots on divorce, to give<br />

effect to their agreement that wealth created in the marriage is<br />

to be shared.<br />

In theory, the accrual calculation is quite straightforward. In<br />

practice, it can get tricky. Two respects in which it can get tricky<br />

are listed below:<br />

Trickiness #1 – dealing with excluded assets<br />

The Matrimonial Property Act 88 of 1984 (“the MPA”) sets out a<br />

couple of things that it stipulates should not fall into the accrual<br />

pot. Inheritances and gifts exchanged between the parties are two<br />

examples referred to in the MPA. In addition to these standard<br />

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FINANCIAL PLANNING | Legislation<br />

exclusions, the parties’ ANC may stipulate other things the parties<br />

agreed would be excluded from the accrual pot.<br />

Problems arise in divorce when one spouse wants to argue for<br />

the exclusion of a particular asset from the accrual pot (based either<br />

on the provisions of the MPA or the terms of the ANC) but does<br />

not have the proper records to prove the basis for the exclusion<br />

of that asset or the value of the exclusion. Many an acrimonious<br />

battle has been fought (and lost) by spouses unable to provide a<br />

satisfactory paper trail with assets they were hoping to exclude<br />

from the accrual calculation.<br />

Financial planners who are alive to the various categories of<br />

possible exclusions from the accrual pot can help their clients<br />

enormously:<br />

- By making sure they are familiar with the provisions of the<br />

client’s ANC as well as the relevant provisions of the MPA<br />

(specifically with assets to be excluded from the accrual)<br />

- By reminding clients of the relevance of those exclusions when<br />

it comes to dealing with excluded assets in their personal<br />

financial plans, as well as investment decisions relating to<br />

those excluded assets<br />

- By helping and reminding clients to keep detailed records of<br />

any and all transactions relating to excluded assets<br />

- Where possible helping clients avoid unnecessary co-mingling<br />

of excluded assets with assets falling into the accrual pot<br />

- If co-mingling of excluded assets with other assets is<br />

unavoidable, by advising and helping clients to keep a proper,<br />

detailed paper trail of the extent and terms of any co-mingling.<br />

Trickiness #2 – compiling a comprehensive schedule of all the<br />

assets and liabilities<br />

Spouses are obliged by law to disclose all their assets and liabilities<br />

in divorce proceedings (including those they claim should be<br />

excluded from the accrual pot). Financial planners can play an<br />

important role by helping their clients to compile comprehensive,<br />

up-to-date schedules of their assets and liabilities. Our courts take<br />

a dim view of divorcing parties who fail to make full disclosure<br />

of all their assets, so you definitely don’t want to find yourself<br />

in a situation where you are aiding and abetting a client’s<br />

non-disclosure.<br />

What’s the stuff in the pot worth?<br />

Irrespective of whether a divorcing couple is married in community<br />

of property or out of community of property, current values must<br />

be attributed to all assets and liabilities. This can be another cause<br />

of conflict in divorce proceedings. The following sorts of issues<br />

often arise:<br />

- Deciding on a fair basis for valuing immovable property (and<br />

then whether that value should be adjusted for, among other<br />

things, unrealised Capital Gains Tax)<br />

- Deciding on what exchange rate to apply to offshore<br />

investments and obligations<br />

- Identifying an appropriate basis for valuing business interests<br />

and/or shareholdings in private companies<br />

- Deciding how to treat and value share options of various kinds<br />

- Valuations of loan claims<br />

- The adjustment of valuations of pension interests and<br />

retirement annuities to make provision for tax<br />

- Deciding how to deal with and value investments in<br />

cryptocurrencies, non-fungible tokens and other poorly<br />

understood asset classes<br />

Financial planners who are prepared to engage with their clients<br />

on these kinds of issues can add enormous value to their divorcing<br />

clients by offering sensible, reasonable and practical financial<br />

advice, insight and information on these topics, helping the<br />

client make informed, measured decisions about their position<br />

and conduct in divorce proceedings.<br />

Who gets what?<br />

Once a divorcing couple has identified all the assets and liabilities<br />

in the various pots and settled upon appropriate valuations, the<br />

actual calculation of what they should each be entitled to take<br />

away from the marriage shouldn’t be too difficult to calculate. If<br />

they are married in community of property, they are each entitled<br />

to walk away with 50% of the joint estate; if they are married<br />

with the accrual system, the actual accrual calculation is pretty<br />

straightforward (once you have all the figures). The challenge<br />

usually is that the calculation only spits out a number: it’s how<br />

that number practically gets settled between the parties that is<br />

often the trickiest financial step of all in a divorce.<br />

An astute financial planner can add immeasurable value to<br />

their divorcing clients by helping clients devise financially sound,<br />

practical mechanisms for dividing up their assets equitably and<br />

effectively upon divorce, in line with the financial calculations<br />

prescribed by their marital regime. <br />

Hannah Wilson, Director, Simplifi Law<br />

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The rights of trust beneficiaries<br />

High expectations of trust beneficiaries to demand<br />

benefits from a trust are unrealistic, as in the common<br />

type of trust, a trust beneficiary is not given any rights<br />

to the property or benefits thereof.<br />

Suppose the trust is a discretionary trust (which is the most<br />

common type of trust in South Africa). In that case, the trustees<br />

have the discretion when, with how much, and if they want to<br />

benefit a particular beneficiary. It will be within their powers to<br />

offer a benefit to one of the beneficiaries and not to another. The<br />

beneficiary can only hope that the trustees will decide in their<br />

favour and offer a benefit.<br />

If the beneficiary previously received a benefit from the trust, it<br />

further does not mean that they can demand another benefit. They<br />

only had a right to the benefit they previously accepted. Again,<br />

they can only hope that another benefit will be distributed to<br />

them. The trustees would be free to amend the trust as stipulated<br />

in the trust deed without the consent of the beneficiaries, as they<br />

have no say in the trust administration (see R van Zyl 2019 SALJ<br />

Vol. 136(4). “The question of rights, acceptance and amendments<br />

of inter-vivos trust in terms of the stipulatio alteri”).<br />

If a trustee offers a benefit to a beneficiary, the beneficiary<br />

can decide to decline or accept the benefit. If he/she accepts<br />

the benefit, the beneficiary gets a vested right to that particular<br />

benefit. No changes can be made by the trustees to the trust that<br />

would affect the pending benefit that the beneficiary accepted<br />

while the benefit is made over.<br />

Trustees must be cautious if the benefit offered to the<br />

beneficiary is a recurring benefit, such as a “monthly” payment<br />

(Crookes v Watson 1956 (1) SA 277 (A)) or a “rotational” visit (Griesel<br />

v De Kock 2019 (5) SA 896 (SCA)) to a farm. Once the beneficiary<br />

accepts this recurring benefit, they get a vested right to the<br />

recurring nature of the benefit as well. This cannot be taken away<br />

from them without their consent.<br />

In a vested or a bewind trust, a beneficiary would have vested rights<br />

at the creation of the trust, and the trustees are bound to deliver<br />

the benefits to them as stated in the trust deed. The trustees, in<br />

this case, do not have the discretion as to how much or when the<br />

benefits must be delivered but are bound by the proportion or<br />

description stated in the trust deed.<br />

If a condition is set in a trust deed for an uncertain future event<br />

to occur before the beneficiary can receive the benefit, ie turning<br />

It is imperative to understand<br />

the different rights that could<br />

be given to trust beneficiaries.<br />

a certain age or getting a certain qualification, the beneficiary<br />

has more than a hope to benefit. The beneficiary now has a<br />

“contingent right” that must be protected while the condition<br />

plays out. The trustees would not be free to handle the benefit<br />

in a way that would negatively affect the beneficiary’s right to<br />

the benefit. In these cases, the beneficiary’s consent would be<br />

needed to make any amendments to the trust that would affect<br />

their particular benefit.<br />

In drafting a trust deed, it is, therefore, imperative to understand<br />

the different rights that could be given to trust beneficiaries. The<br />

intended rights should correspond with the aim of the trust to<br />

prevent trust beneficiaries from gaining control of the trust, which<br />

may never have been the intention of the trust founder. <br />

Dr Rika van Zyl, CFP®, FPSA®, School of Financial Planning Law, UFS<br />

www.bluechipdigital.co.za<br />


BLUE<br />

CHIP<br />

INVESTMENT | Book review<br />

The 7 Pillars of Financial Health<br />

Reg Thomson, director at DTB Wealth, reviews Rob Macdonald’s latest book about how we need to rethink<br />

our approach to money.<br />

Based on insights gleaned from coaching and consulting<br />

with hundreds of financial and investment advisors over<br />

a career spanning 25 years, Rob Macdonald, Head of<br />

Strategic Advisory Services at Fundhouse, has recently<br />

published a book, The 7 Pillars of Financial Health.<br />

Macdonald outlines why we need to radically rethink how<br />

we approach money in this compelling read, which is highly<br />

recommended for advisors who want to remain relevant in their<br />

professions. Similarly, it contains practical information that clients<br />

could use in the process of dealing with investment concerns. As<br />

Warren Ingram writes in the foreword, The 7 Pillars of Financial<br />

Health is not only aimed at professional planners: “Whether you’re<br />

a seasoned investor, a young professional just starting out, or<br />

simply an individual seeking financial well-being, this book will<br />

revolutionise your understanding of money and its role in shaping<br />

a fulfilling life.”<br />

Macdonald suggests that money ranks as a leading source<br />

of relational conflict and household stress in surveys worldwide<br />

despite the abundance of information and technology to help us<br />

manage it. In the introduction, he says that we go wrong by failing<br />

to recognise how completely interconnected and interdependent<br />

our lives and our money are.<br />

Macdonald uses the analogy of our physical health. We all<br />

know what to do to be physically healthy – eat healthily, exercise<br />

regularly, get enough sleep and limit our stress levels. But we<br />

struggle to do this because we are human. We are tempted by<br />

chocolate cake, delicious wine and the fact that Netflix is much<br />

more fun than going to the gym. He says, “The foibles of being<br />

human are summed up by the quip that ‘we spend our health<br />

to gain our wealth then spend our wealth to regain our health’.”<br />

To overcome the challenges of being human while developing<br />

financial health, he enlarges seven skills that we need to work on<br />

throughout our lives.<br />

Pillar 1. Clarity<br />

Two succinct CS Lewis quotes underpin this principle. First, “If you<br />

don’t know where you’re going, any road will get you there” and<br />

second, “You can’t go back and change the beginning, but you can<br />

start where you are and change the ending”.<br />

For Macdonald, the primary pillar is that of clarity. Clarity is both<br />

the starting point and the ending point of financial health. One<br />

needs to be clear on what one wants from your life and money.<br />

This enables a financial planner to craft a sound financial plan and<br />

be able to give the required appropriate advice. Financial planning<br />

is more dynamic than simply setting goals and meeting them. It is<br />

an ongoing process of not only making decisions about our lives<br />

and money but also implementing them. Because our lives change<br />

all the time, clarity will need to be revised constantly.<br />

Macdonald addresses the issue as to how we get the clarity we<br />

need. Three trends influence this issue. First, there is the misplaced<br />

concept that technology will replace financial planners. Secondly,<br />

financial planning as a discipline is evolving. Money is not the sole<br />

preoccupation. Life is now a vital consideration. Thirdly, when it<br />

comes to money, human behaviour is unfortunately not evolving.<br />

Attention needs to be paid to behaviour modification rather<br />

than pure money management in isolation.<br />

As to the areas in which we need clarity, Macdonald sets out<br />

some sound principles. These include a better understanding<br />

of how our perception of time influences us. Together with this,<br />

our relationships are important, as well as our sense of control<br />

in making decisions. But to gain clarity, we need the other six<br />

essential skills for financial health.<br />

Pillar 2: Confidence<br />

This principle brilliantly addresses how confidence is relevant to<br />

financial advice. Importantly, as humans, according to Anais Nin,<br />

78 www.bluechipdigital.co.za

INVESTMENT | Book review<br />

BLUE<br />

CHIP<br />

The resultant collaboration is a masterpiece. Macdonald attests<br />

that it is helpful to understand what drives our decision-making.<br />

Given the complexity of us as human beings and our need to<br />

simplify our complex worlds, Macdonald uses The Bermuda<br />

Triangle of Financial Behaviour framework to help us understand<br />

what’s at the core of the three key influencers on our decisionmaking:<br />

cognitive biases, emotional responses and social pressure.<br />

This helps advisors to get a clear sense of our relationship with<br />

money because, as Macdonald says, “We all have a money story.”<br />

Rob Macdonald holds an MPhil (Management Studies) from<br />

Oxford University and is a former MBA programme director<br />

at the Graduate School of Business. Macdonald is Head of<br />

Strategic Advisory Services at Fundhouse, co-organiser of the<br />

Humans Under Management South Africa conference and is<br />

the editorial advisor to <strong>Blue</strong> <strong>Chip</strong>. He is a sought-after speaker<br />

and writer and a qualified coach and counsellor.<br />

we don’t see things as they are. We see them as we are. This is<br />

an example of the hidden jewels contained in this book.<br />

Macdonald develops the notion that confidence is key for<br />

a financial advisor to see their value in giving advice and not<br />

simply offering a financial product. Concomitant with this, he<br />

sets out four kinds of financial advisors. Any serious advisor<br />

needs to try to understand where they are positioned: the<br />

salesperson, the technocrat, the computer (robo-advisor)<br />

and the professional (trusted advisor). Confidence requires<br />

a coaching approach. The future of financial planning is not<br />

expert advice only. It is helping clients engage in financial<br />

change, guided by the concept that financial health is both<br />

behavioural and emotional.<br />

Pillars 3, 4 and 5. Connection, Curiosity and Collaboration<br />

These pillars interrelate perfectly. The key quote here that sets the<br />

framework is from a distinguished economist, Minouche Shafik, “In<br />

the past jobs were about muscles, now they are about brains and<br />

in the future, they are about the heart.”<br />

According to Brené Brown, connection is “the energy that exists<br />

between people when they feel seen, heard and understood”.<br />

Macdonald believes that the starting point is for the financial<br />

advisor to establish a connection, and this is enhanced by<br />

developing the concept of curiosity.<br />

For curiosity, he uses another powerful quote, this one by<br />

Charles Mackesy in The Boy, the Mole, the Fox and the Horse: “Isn’t it<br />

odd we can only see our outsides, but nearly everything happens<br />

on the inside.” Some wise discussion is given of the various types<br />

of conversational flow that facilitate curiosity.<br />

Pillars 6 and 7. Communication and Courage<br />

These final principles offer practical insight into the skills that<br />

financial advisors need to attend to. Communication with<br />

clients needs to be consistent, relevant, concise, clear, timely<br />

and transparent. Some good practical insight is of great value<br />

to advisors.<br />

Lastly, all the pillars require courage. This principle is the<br />

crowning apex of Macdonald’s book. He explains that our money<br />

and lives are inextricably linked so when we consider how to<br />

ensure our financial plan suits our life, it is important to have the<br />

courage to engage with our life and our money in equal measure<br />

and to work out what we want from each.<br />

However, when it comes to our lives and money, we can<br />

sabotage ourselves and this is why working with a professional<br />

financial planner is important. Macdonald argues that financial<br />

planners protect us against self-sabotage and prevent us from<br />

making the decisions we later regret.<br />

From gaining clarity on our priorities to building strong<br />

connections with trusted advisors, Macdonald demonstrates<br />

how the seven skills (pillars) empower individuals to manage their<br />

financial health. The best gift any advisor can buy for themselves is<br />

this book. A volume of astute insight, captivating anecdotes and<br />

practical strategies that will enhance your practice, your skill and<br />

most importantly, your relationship with money.<br />

Reg Thomson, Director, DTB Wealth<br />

www.bluechipdigital.co.za<br />


BLUE<br />

CHIP<br />


Making a positive impact<br />

<strong>Blue</strong> <strong>Chip</strong> speaks to Nonhlanhla Nxele, CFP®, founder and CEO of Esteemed Financial Solutions, who has<br />

participated in a business development and growth support programme run by the Association for Savings<br />

and Investment South Africa (ASISA).<br />

Please provide a brief career history to this point.<br />

After finishing my degree, I secured a permanent position at<br />

Investec Private Bank. Subsequently, I ventured into a financial<br />

advisor role at Liberty to accumulate experience. Later, I joined<br />

Investec Asset Management, now known as Ninety-One, and<br />

then returned to Liberty as an employee financial advisor.<br />

Eventually, I transitioned to entrepreneurship and established<br />

my own business.<br />

What inspired you to become a financial planner?<br />

My journey into financial planning began at a young age when<br />

I played the role of the minister of finance within my family. My<br />

mother entrusted me with overseeing her savings and sought<br />

my advice on various financial matters. This early responsibility<br />

sparked my interest in understanding and navigating the details<br />

of managing money. Witnessing the impact of informed financial<br />

decisions on my family’s well-being inspired me to pursue a career<br />

as a financial planner. I am motivated by the opportunity to help<br />

others achieve financial security and make informed choices to<br />

shape their financial futures positively.<br />

What prompts clients to come to you? Do you have a niche or<br />

distinctive value offering?<br />

Clients are drawn to our services for several reasons. Firstly, the<br />

appeal lies in the convenience of having all their financial needs<br />

addressed in one place. Our one-stop solution eliminates the need<br />

for clients to navigate through multiple service providers. This<br />

streamlined approach saves them time and effort.<br />

Secondly, clients seek us for the peace of mind that comes<br />

with knowing their entire portfolio is managed cohesively. Our<br />

comprehensive financial planning ensures that every aspect<br />

of their financial situation is considered, reducing the stress of<br />

managing various financial components separately.<br />

I am motivated by the<br />

opportunity to help others<br />

achieve financial security.<br />

How would you describe your ideal client?<br />

Our ideal clients value a personalised and strategic approach<br />

to financial planning, irrespective of their life stage or financial<br />

situation. I aim to assist them in achieving their unique goals,<br />

whether it be accumulating wealth, preparing for retirement,<br />

managing a business or securing their family’s financial future.<br />

How do you charge for your services?<br />

Consultation and implementation fees.<br />

What role does technology play in your practice?<br />

Technology plays a vital role in our practice, serving as a<br />

cornerstone for our processes and contributing significantly to<br />

their seamless execution. Our reliance on advanced tools and<br />

technologies enables us to stay ahead in our industry, providing<br />

efficient solutions and maintaining a high standard of service for<br />

our clients.<br />

80 www.bluechipdigital.co.za


BLUE<br />

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What do you enjoy most about being a financial planner?<br />

The opportunity to make a positive impact on individuals’ lives.<br />

I enjoy working closely with clients to understand their unique<br />

financial goals and challenges. Crafting personalised financial<br />

plans that align with their aspirations and witnessing tangible<br />

improvements in their financial well-being brings me great<br />

satisfaction. Building strong relationships with clients and being<br />

a trusted partner on their financial journey is another aspect of<br />

the job I value.<br />

What is the biggest change you have seen in financial planning<br />

during your career?<br />

The technological transformation has improved the speed and<br />

accuracy of financial planning and enhanced accessibility<br />

for clients. Online portals and mobile apps now empower<br />

individuals to monitor their financial portfolios in real time,<br />

fostering a more collaborative and transparent advisor-client<br />

relationship. While the human element remains crucial in<br />

understanding the aspects of individual financial situations,<br />

the incorporation of technology has undeniably reshaped and<br />

elevated the financial planning profession.<br />

provided by the programme. Building connections with peers,<br />

mentors and industry experts can significantly contribute to your<br />

growth as a financial planner or business owner. It is a valuable<br />

investment in your professional development. <br />

The ASISA IFA Programme is designed to invest in the<br />

strategic growth and development of selected blackowned<br />

IFAs in order to equip their businesses with practical<br />

practice management toolkits, skills and knowledge.<br />

The main programme sponsors are: Coronation Asset<br />

Managers, M&G Investments, Allan Gray and Ninety One.<br />

What advice would you give a young graduate considering<br />

entering the profession?<br />

This profession can be rewarding therefore it requires dedication,<br />

continuous learning and effective communication skills. You need<br />

to grow or have a strong professional network that will be the<br />

foundation of building your career.<br />

What’s your wish for the future of the FP profession?<br />

The industry needs to start creating case studies or content that<br />

speak to the black community so they can relate to this financial<br />

planning process we keep telling them about.<br />


You have completed the ASISA IFA Practice Management<br />

Programme. How did you benefit from the programme?<br />

The programme has equipped me with the knowledge and skills to<br />

streamline our practice management, enhancing efficiency and<br />

effectiveness. The support provided by experienced coaches<br />

has been invaluable in guiding us through these practices.<br />

I have learned to leverage various tools and strategies to<br />

optimise day-to-day operations, ultimately contributing to the<br />

success of our business.<br />

What advice would you give to other financial planners<br />

considering this programme?<br />

They must embrace this opportunity to enhance their proficiency<br />

in practice management, as it forms the foundation for a<br />

thriving business. The programme offers valuable insights into<br />

client relationship management, compliance, governance and<br />

operational efficiency. Take advantage of networking opportunities<br />

Nonhlanhla Nxele, CFP®, Founder and CEO, Esteemed<br />

Financial Solutions<br />

www.bluechipdigital.co.za<br />


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BLUE<br />

CHIP<br />

Profiling financial planners<br />

Ever wondered how others in the profession think, what their perspectives are or how they charge their<br />

clients? <strong>Blue</strong> <strong>Chip</strong> speaks to CERTIFIED FINANCIAL PLANNERS® and gives you the inside scoop.<br />


What do you believe is the most important thing you do<br />

for clients?<br />

The most important thing we can do for our clients is to try our best<br />

to understand them before we give advice. I believe that financial<br />

planning is a two-way street. My role is not to make decisions for<br />

my clients but to be their thinking partner. For me, building a<br />

collaborative relationship with my clients is the key to a successful<br />

financial plan.<br />

How do you charge for your services?<br />

In our practice, we’ve adopted a tailored fee structure that<br />

combines initial financial planning and ongoing fees, based on a<br />

client’s financial needs and the complexity of their financial plan.<br />

What role does technology play in your practice?<br />

We use technology in every aspect of our business. It allows us to<br />

operate more efficiently, be more client-centric in our processes<br />

and provides valuable insights into our business on a practice level.<br />

Overall, it helps us to be better financial planners. Our focus is<br />

always to improve and personalise the experience for our clients.<br />

We use technology to empower<br />

our people and allow them to<br />

get on with their work without<br />

being told what to do.<br />

Rudolph Geldenhuys, CFP®, Senior Financial Planner, WealthUp<br />

What do you believe is the most important thing you do<br />

for clients?<br />

We are accessible, responsive and engaged.<br />

Accessible. Our clients can reach us when they need to.<br />

Responsive. We are emotionally and physically consistent<br />

when we respond to our clients’ requests or needs.<br />

Engaged. We take an interest in our clients and we are present<br />

with them.<br />

How do you charge for your services?<br />

We have split our value offering into two parts and charge<br />

differently for each.<br />

Jana Human, CERTIFIED FINANCIAL PLANNER®, JWR Group Rudolph Geldenhuys, CFP®, Senior Financial Planner, WealthUp<br />

www.bluechipdigital.co.za<br />


BLUE<br />

CHIP<br />


• The first part of our value offering is to take clients on a four-step<br />

journey to create their personalised financial plan. We charge an<br />

upfront financial planning fee via invoice.<br />

• The second part of our value offering comes into play when clients<br />

want to appoint us as their ongoing financial planning partner to<br />

help implement their financial plan and to help keep their lives in<br />

order. For this, we charge an assets-under-advice fee.<br />

What role does technology play in your practice?<br />

Technology adds significant value to our business and our clients.<br />

We are more efficient because of technology and thus more<br />

available to better serve our clients.<br />

Tom Brukman, CFP®, Director, Chartered Wealth Solutions<br />

What do you believe is the most important thing you do<br />

for clients?<br />

I provide them with an unbiased and honest perspective of their<br />

transitions. Communicating this to suit everyone is where a lot of<br />

this value lies.<br />

How do you charge for your services?<br />

We charge an ongoing financial planning fee on the assets we help<br />

manage for the client. We also charge for our time when it comes<br />

to tax, trust, legal, etc advice.<br />

What role does technology play in your practice?<br />

Technology is crucial in us being able to deliver all our value and<br />

services to our clients. Our clients want instant communication<br />

and as much detail as they need within a few clicks and at all times<br />

of the day.<br />

Without technology working for us, this is not possible.<br />

In saying this, technology cannot replicate the human connection<br />

and interaction that is the heartbeat of our roles.<br />

Barry O’Mahony, CFP®, Founder, Veritas Wealth Management<br />

What do you believe is the most important thing you do<br />

for clients?<br />

I believe I give them a sense of understanding of their financial<br />

affairs and put them in control of their money. Importantly, I help<br />

them achieve their desired lifestyle by putting their hard-earned<br />

money to the best use possible.<br />

How do you charge for your services?<br />

We charge a rand-based fee for a financial plan and then charge<br />

a percentage of assets under management which is based on a<br />

sliding scale.<br />

What role does technology play in your practice?<br />

We use technology to empower our people and allow them<br />

to get on with their work without being told what to do. We<br />

believe this helps develop a much healthier culture in our<br />

business, so that everyone knows they are trusted, valuable<br />

and respected.<br />

Visit www.bluechipdigital.co.za for the full financial<br />

planner profiles. <br />

Tom Brukman, CFP®, Director, Chartered Wealth Solutions<br />

Barry O’Mahony, CFP®, Founder, Veritas Wealth Management<br />

88 www.bluechipdigital.co.za

A Multi Asset Approach: Achieving Real Returns<br />

The overarching objective of the multi-asset team is to achieve real (i.e., inflation-adjusted) returns of<br />

three to five percent over the medium term, while also limiting negative returns over a rolling thirty-sixmonth<br />

period.<br />

A multi-asset approach to achieve this objective offers two potential avenues for generating returns.<br />

Firstly, it enables tactical allocation among asset classes (such as equities, fixed income, and cash) when<br />

disparities in relative valuations emerge. Secondly, it allows for the selection of the top-performing assets<br />

within each asset class. When constructing portfolios, the team is largely unconstrained by benchmarks.<br />

Each individual security included must significantly contribute to performance while also maximising the<br />

number of independent or non-correlated positions in the portfolio to mitigate concentration risk.<br />

Delivering through diversity<br />

An authorised financial services provider (FSP 46405)

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