NFB FINANCIAL SERVICES
NFB FINANCIAL SERVICES
Financial Farmers
Continue Growing In Fertile SA Market PRODUCTION: Karl Pietersen
In the past two years, NFB Financial Services has added a further R3 billion to its assets under management, taking its total to R28 billion. It continues to grow organically and through acquisition, and with an upturn in business confidence, NFB’s farming philosophy continues to result in a bountiful outlook.
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In April of 2016, Mike Estment Chairman of NFB Financial Services told Enterprise Africa that he was ‘terribly excited’ about the way the company was moving. He was right to feel positive. At the time, NFB had R25 billion under management and its 150 expert employees were spread around offices across the country from Sandton to East London to Port Elizabeth to Cape Town. This month, Estment again speaks
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to Enterprise Africa to give an update on the company’s performance. He founded the financial advisory business back in ’85 and has steadily grown the size and reputation of NFB, leading it to become one of the country’s most trusted private and institutional wealth partners. “It certainly hasn’t happened without headwinds,” he says. “I like to climb mountains and you remember the party at the top rather than the very difficult bit between base camp and
summit, but it has been challenging.” Asked if he remains excited about the future, Estment is clear in his reply: “I think even more so now. We’re up to R28 billion under management and we’re always growing. Politically, it appears that the better faction has gained control of South Africa and I am extremely positive about the potential for the country.” NFB - which offers private wealth advice, institutional wealth services, investment knowledge and asset
INDUSTRY FOCUS: FINANCE
management – benefits from a healthy economy, where spending is fluid, and with the appointment of Cyril Ramaphosa prompting a turnaround in business confidence, NFB looks set to thrive. Estment classes it as a turning point in the country’s history – a pivotal time where financial advisory services will become all important. “It’s almost like a Rudy Giuliani moment,” he says. “When you take a decade of corruption and malfeasance, it doesn’t take just a couple of weeks to fix. What is very evident is that there is a political will to implement tough decisions and jeopardise potential factions of the populous, who will not understand these decisions but will celebrate when it’s done, and they will celebrate true democracy and true freedom. “I was positive already notwithstanding the storm clouds of corruption and theft taking place all over the economy but now we have a
game changer. He is a leader and a man who comes from organised labour. It’s unique to have the backing of labour, global business and big business in South Africa; and when big business trusts, you’re going to start seeing capital employed instead of people sitting on their hands – economic growth needs a velocity of money.” SA’S SHARE PRICE For many months (and years) business leaders, both local and international, have been crying out for certainty in South Africa so that long-term plans can be made for future investment strategies. Now that some level of certainty has been installed, with Ramaphosa announcing a number of new cabinet members, Estment says that NFB has already seen positivity. “It’s very evident,” he begins. “You just have to look at the currency. I think the share price of a country is its currency, and the Rand was sitting at
around 13 to the Dollar two years ago before blowing out and hitting 15-16 but it’s now at 11. That’s a remarkable correction. It’s a bit of a colloquialism but a currency price is like a share price. It talks about capital flows; the Rand would not strengthen if money was leaving. Obviously people are buying Rand and it allows the Central Bank to consider dropping interest rates as opposed to six-months ago when they were talking about hiking the rates. If rates drop, it should encourage investment into longer-term projects, into borrowing, and investing into companies – and that is all good for employment.” In March, Moody’s revised its credit outlook for South Africa to stable from negative. The country’s treasury welcomed the announcement and suggested that the messages delivered in Ramaphosa’s SONA had started to hit home. NFB agrees: “People are no longer taking a three or six month view, they are starting to take a three to five
// About Investec Asset Management Our strategy at Investec Asset Management is simple. As a global specialist investment manager we want to assist people around the globe to enjoy a dignified retirement and to preserve wealth for future generations. We invest other people’s money, not our own. At our core, we are focused on the long term, investing in people and relationships. We offer investment strategies investing in global, emerging and frontier markets spanning the equity, fixed income, multi-asset and alternative asset classes. Established in South Africa in 1991, our business has been built from a small start-up into an international business managing approximately R1.7 trillion on behalf of clients all over the world. Today, we proudly serve a growing international client base from the Americas, the UK and Continental Europe, Asia, the Middle East, Australia and Africa. As one of the first asset management firms to have built a global franchise from emerging market origins, the journey of our business has uniquely prepared us to navigate a rapidly evolving world. Our global approach, combined with a footprint in the emerging and developed markets, enables us to find the best investment opportunities for our clients. Our clients include some of the world’s largest private and public sector pension funds, insurers and corporates, and range from foundations and central banks to intermediate and direct investors. Our business is still managed by our founding members. This has not only balanced stability with growth but has fostered a culture in which our people have the creative freedom to challenge the status quo and own and develop ideas to the benefit of our clients. Investec Asset Management is an independently managed subsidiary of Investec Group. Our employees are equity stakeholders in the firm.
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INDUSTRY FOCUS: FINANCE
year view and that is critical as projects are never short-term,” details Estment. “I could never, as a top wealth manager, tell people to come into a growth project and expect a six-month out – that’s just not reasonable. These things take a longer gestation period, but when they come good they have a wealth effect and that fuels another slew of employment and spending. “South Africa has a growth rate which needs to return to the mid-single digit growth numbers; it cannot languish around 0.5-1% - that is useless in Africa where growth rates are higher.” LISTING AND BOOMING As a listed business (under the banner NVest Financial Holdings), NFB has managed to grow successfully through acquisitive activity. The company has recently concluded the purchase of two important local businesses, broadening the horizon of the NFB group. “Last year, we acquired a business in Port Elizabeth, Three Oaks Capital, and that has just been merged with NFB Port Elizabeth. It’s basically doubled the size of that business and it’s a very nice network and very complimentary,” explains Estment. The Chairman is extremely excited about another partnership; one which will see NFB become more involved with a top rated BBBEE organisation. “We have partnered with a company called Nations Capital. This is a group of very highly regarded group of black chartered accountants. Together, we have created a group called Nations NFB and the agenda is to fetch assets from black wealthy individuals, black professional firms, universities, unions and mining group’s rehabilitation mandates and that is very exciting. That entity is very progressive in terms of South Africa as the wealth and financial services market has a long way to go in terms of providing advice to the black wealthy and middle market.” NFB will use its scale to train, educate and partner with the already
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reputable leadership of Nations Capital. But growing through acquisition is not always easy. There are many players in the market, and many regulations and pieces of legislation that must be followed. Many of the large South African institutions can enter the wealth management space as part of their acquisitive strategy and this causes prices to boom; “a thorn in the side” is how Estment describes the situation. “They pay inappropriate multiples for businesses just so they can gain momentum. “We are cautious and we are very selective because our agenda is long-term, it’s not just hit and miss, and we want to create long-term
// WHEN YOU TAKE A DECADE OF CORRUPTION AND MALFEASANCE, IT DOESN’T TAKE JUST A COUPLE OF WEEKS TO FIX // partnerships. We don’t want to buy 100% control of the business and then have the principals leave. We want to keep principals involved and take away the compliance, fund selection and administrative burdens and let these quality people do what they are best at which is manage relationships and fetch new money.” Previously, when Estment spoke to Enterprise Africa in 2016, he detailed a big target for NFB being a movement from private wealth management into institutional money. And the partnership with Nations has been completed with exactly this in mind. NATIONS “The creation of Nations NFB is where we will see significant progress. The institutional space is significantly impacted by BBBEE credentials, and
NFB growing the way it has, our rating has suffered. We went from a level three to a six and improvement is very difficult without relinquishing shareholding and management control and that doesn’t make sense for our current client base.” Nations NFB is a level 2 BBBEE company and is 51% owned by Nations management. “The people in that business will absolutely be targeted with increasing our presence in an area we know well - universities, mining rehabilitation spaces, medical aid funds, industrial bargaining councils, and municipal and other pension funds. We will never walk away from private wealth, and there is significant wealth in the black communities. “We have the ability to bring R28 billion of NFB scale and that positively affects the pricing of transactions; and we bring experience, insurance, compliance and all the other parts without having to reinvent the wheel. We keep the costs of Nations as low as possible while focussing spend on human capital.” Estment uses an analogy of NFB being a farmer. This philosophy was also pitched in 2016 when he said that ‘you own the field, you fertilise it, if the rain comes it’s your fault and if it doesn’t come it’s also your fault; you own it and you don’t blame anyone if things don’t go right’. He says, with the strongest degree of certainty, that this mantra that this mind-set continues in the business, and will be unequivocally adopted by all involved going forward. The key driver behind this is one of the baseline pillars of NFB – making clients feel safe. “One of the reasons why Nations NFB is so important is because the growth of the black middle class has resulted in a space for an incubator for private wealth management. We are too small to cover the whole of South Africa, but wherever we touch, I want quality people that are long-term farmers. I see NFB as a farmer and
NFB FINANCIAL SERVICES
// SOUTH AFRICA HAS A GROWTH RATE WHICH NEEDS TO RETURN TO THE MID-SINGLE DIGIT GROWTH NUMBERS; IT CANNOT LANGUISH AROUND 0.5-1% // not a hunter and I want to create that mentality within Nations. “The farming philosophy is absolutely in the DNA of the company. Whilst I’ve moved into that preretirement five-year glideslope, the farming mentality remains engrained in everyone. We have a management team made up of seven people that
look out across the rest of the business and regard everyone as clients - we must first sell our story to them. “Growing from R25 billion to R28 billion under management has not been easy; 30-35% of our clients funds have been overseas and the Rand has been strong and that has impacted our asset prices. Combine that with the JSE not having a great time and it makes for a difficult environment. But we have grown and why is that? Because NFB is good at making people feel safe. That is a profound word and we have thought about it a lot. If you walk into NFB, it’s everyone’s job to make people feel empowered. When they people feel empowered, they feel safe. This results in less risk and this is why our focus on farming is now stronger – I will never stop beating that drum.”
INCOMING CHALLENGES? No one can predict the future, and in an ever-changing economy like that of South Africa, it is increasingly important to be prepared wherever possible. NFB is experienced in this regard and calls on many very knowledgeable minds to evaluate the future of finance and wealth solutions. Previously, Estment has discussed the use of AI and robo-advisors to streamline communication, and while strategy in this field is still being developed, it certainly remains a part of NFB’s thinking for the future. “Robo-advising remains a very light component of what we do. AI is a critical component and in five years’ time will be the only ticket to the game. As a business, we are trying to become paperless but we are way off that just now. Robo-advising is still in
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INDUSTRY FOCUS: FINANCE
// WE ARE CAUTIOUS AND WE ARE VERY SELECTIVE BECAUSE OUR AGENDA IS LONG-TERM, IT’S NOT JUST HIT AND MISS, AND WE WANT TO CREATE LONG-TERM PARTNERSHIPS // its early days because so many clients still need face-time. We are slick in our processes but old fashioned in terms of face-time and client care and that all comes back to us being safe and making people feel safe.” In the future, referral business (often a result of successful customer interaction) and traditional marketing will be combined to push the NFB portfolio to new audiences. “We are currently in the process of consolidating our marketing across
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the country. We never lose the personal touch and we create networks at sporting events, golf clubs, dinners, and at boardroom lunches. They’re very targeted events where we bring in very influential people to talk to our clients and help deepen relationships. We are now embarking on a national marketing agenda where we are trying to identify the niches for growth and put into words what it is that NFB does so well and has resulted in our material growth and position of dominance in the private wealth market.” But there are potential banana skins in the road. Coming in the form of new and changing regulation, NFB must navigate a quickly changing landscape in the short-term future. “Recent changes in regulation have been significant,” admits Estment. “We’ve had an amendment to FICA (Financial Intelligence Centre Act) which has made the processing of transactions more tricky. There is now much more information required to satisfy security and everyone is cast in the same light regardless of history. In
America, FATCA (Foreign Account Tax Compliance Act) was introduced and the world caught on to that, introducing the Common Reporting Standard (CRS) which can be a real pain. The UK has introduced MiFID II (Markets in Financial Instruments Directive II) which is total overkill and is yet to impact us but it’s on its way. Locally, we have RDR (Retail Distribution Review) and TCF (Treating Customers Fairly). RDR touches all of our relationships with institutions and is a legal framework – the way people are incentivised and rewarded is under review. TCF is more to do with behaviour and the industry has to embrace it.” But he remains confident that changes in legislation will not cause NFB any problems as the experience and scale of the company has resulted in it being well-prepared for change. “Businesses of our size are heavy on administration – if you look at our entire operation, only around 20 people are market facing. So we have a massive administration centre which is good for compliance and has resulted in us being ahead of the curve.”
NFB FINANCIAL SERVICES
// WE HAVE PURCHASED THE 11TH FLOOR OF ILOVO POINT TO GIVE NFB A NEW HEAD OFFICE IN GAUTENG // NFB: WINNERS To cap off a very productive 2017, and start 2018 on a strong footing, NFB was pleased to receive a host of awards earlier in the year. The company was commended at the Raging Bull Investment Summit and the Morningstar investment management awards ceremony. “I’m very proud as Chairman of the business to say that we won two Raging Bull awards and two Morning Star awards which are globally assessed,” says Estment. “There are only seven Morning Star awards and little old NFB beat all competitors to two of the seven which is fabulous. We received the Morning Stars on February in Cape Town and three weeks before that we were also in Cape Town to collect the Ranging Bulls, which we also won last year. “My job as Chairman is to make sure I can report on winning these
awards at the same time next year!” The future for this expert business is nothing short of exciting. As one of the most prominent financial advisory and asset management businesses in the country, NFB remains extremely busy but Estment confirms there is always time for talk on long-term growth – always with clients in mind. “There’s always conversations and we are engaged consistently as a business that targets acquisition. Financial services is a key asset of any economy and it is scalable. We continue as entrepreneurs to deliver for our clients and that is service and advice that we like to believe is without peer. We continue to look beyond ourselves for businesses that would fit.” NFB’s ongoing growth is testament to the mind-set and mentality instilled by management. Since its inception, everything has been
about delivering quality and helping clients succeed with their financial goals. Each individual active in the company embraces the ‘farming’ ideal exemplified by Estment, and so, even through challenging times, the company’s development gathers pace. “We are lucky but not by fluke. We continue to work hard and we have some really good people who are very capable, and we will always continue to look for new talent. “We have recently purchased the 11th floor of Ilovo Point to give NFB a new head office in Gauteng in the next six to eight months. It’s all go, you cannot sit back.,” he concludes. If you require financial advisory services or asset management expertise, if you are a private individual or institutional fund manager, awardwinning NFB is now South Africa’s onestop-shop.
WWW.NFB.CO.ZA
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April 2018
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EXCLUSIVE INTERVIEW WITH OASIS WATER MANAGING DIRECTOR, MYNHARDT OOSTHUIZEN
Taking Finest Quality Purified And Oxygenated Water
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ALSO IN THIS ISSUE:
Rolfe Laboratories / Wonga SA / NFB Financial Services / RussellStone Group
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APR IL 2018