The Financial Planner

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The Financial Planner www.fpi.co.za Telephone: 086 1000 FPI (374) Tsholofelo Dihutso, CPRP Communications and Events Specialist tsholo@fpimail.co.za Editorial enquiries: Carien Daffue carien@fpimail.co.za Postal address: PO box 6493, Weltevredenpark, 1715 Street Address: Palms Office Court, Block A, Ground Floor, Kudu Avenue Allen’s Nek, Gauteng, South Africa Membership Queries membership@fpimail.co.za Published by COSA media www.comms.co.za Advertising: Michael Kaufmann michaelk@comms.co.za 021 555 3577 Michelle Baker michelle.baker@mediamarx.co.za Fpi magazine, published by COSA Media, a division of COSA Communications (Pty) Ltd.

Opinions expressed in this publication are those of the authors and do not necessarily reflect those of this journal, its editor or its publishers, COSA Communications. The mention of specific products in articles or advertisements does not imply that they are endorsed or recommended by this journal or its publishers in preference to others of a similar nature, which are not mentioned or advertised. While every effort is made to ensure accuracy of editorial content, the publishers do not accept responsibility for omissions, errors or any consequences that may arise therefrom. Reliance on any information contained in this publication is at your own risk. The publishers make no representations or warranties, express or implied, as to the correctness or suitability of the information contained and/or the products advertised in this publication. The publishers shall not be liable for any damages or loss, howsoever arising, incurred by readers of this publication or any other person/s. The publishers disclaim all responsibility and liability for any damages, including pure economic loss and any consequential damages, resulting from the use of any service or product advertised in this publication. Readers of this publication indemnify and hold harmless the publishers of this magazine, its officers, employees and servants for any demand, action, application or other proceedings made by any third party and arising out of or in connection with the use of any services and/or pro-ducts or the reliance of any information contained in this publication.

Contents FPI Convention 2013 | 06 FIVE TOP BOOKS FINANCIAL PLANNERS (AND THEIR CLIENTS) SHOULD READ | 10 An individual’s changing healthcare needs | 12

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Why it matters that a board of trustees has an investment philosophy | 18

06

The allocation consideration | 20 An evolving financial system | 24 Where did the trust go? | 26

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Leadership: a key element for your business | 30 News | 32

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MEANING AND MONEY | 34

06 Sections:

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client engagement

10

HEALTHCARE

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investments

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TRUSTS

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practice management

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NEWS

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meaning and money

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Letter from the FPI The professional standard

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hat makes a person a professional? Is it appearance, behaviour, attitude or knowledge? Most definitions of the word ‘professional’ include one or more of those concepts, and also include meeting technical and ethical standards related to a specific livelihood. The combined effort of individuals committed to professional behaviour supports the emergence of a profession, but it only becomes established when society recognises and values the profession and its practitioners.

The changes and challenges of the financial services industry call for ongoing assessment of skills, career goals and directions by today’s financial services representative. Together with the calling from the FPI to participate in volunteer and pro bono activities, professional members are also expected to participate in growing and developing the industry to attain and maintain the status of a true profession.

Setting the standard Two important events defined the professional era of the financial planning profession: the formation of the CFP Board of Standards in 1985, and the first job analysis study of CFP® practitioners undertaken by the board in 1987. The development of a professional set of competencies can be viewed as providing a benchmark of best practice, a resource for organisational evaluation, and as a framework for exploring relationships between practice, education and training.

In 2009–2010, the FPI conducted its first job analysis survey which laid the foundation for the current competency profile and curriculum framework of the

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FPI. 2013 will earmark the second FPI job analysis survey that will inform the certification standard against which professional members will be benchmarking their knowledge, skills and expertise. Other exciting developments include the expansion the Financial Planning Practice Standards, the development of a practice standard guide and the publication of a detailed topic list for FPI designation categories, as well as the alignment of certification standards to international best practices.

Mentoring the professionals of tomorrow The FPI believes, and various researches have shown, that for new entrants in the profession, engaging in the supervised practice of financial planning, guided by practising experts, is the most effective method of gaining professional experience. Such is the strength of this belief that the FPI has reviewed its certification standards to now incorporate supervised practise of financial planning entrants as an acceptable method of gaining relevant experience towards CFP certification.

The FPI Mentorship Programme, launched in 2012, provides a mechanism for CFP professionals to mentor aspiring financial planners to assist them in meeting the experience requirement of the institute to become certified as a CFP professional member of the FPI.

Continuous Professional Development After an earlier workshop hosted by the Financial Standard Board (FSB) on Continuous Professional Development (CPD), the industry seems hesitant to embrace the necessity and relevance of CPD and a large portion of the industry seems very relieved that they don’t have to meet the CPD requirement yet. However, from a professionalism perspective, the advisors and representatives in the industry should not be doing CPD because they are forced to by a fit and proper standard, but because they see the benefit in remaining up to date with relevant changes in the industry, changes in legislation, latest economic trends and best practices.

Professional financial planners and advisors don’t need regulations to force them to keep up to date with these changes. They actively acquire knowledge in many ways, develop their skills to apply this knowledge and implement their learning in their practices. A dedicated CPD webpage on the FPI website has been developed that contains information regarding FPI CPD requirements, approved providers and approved programmes which will assist FPI members to find valuable information on pre-approved events.

Sherma Malan

FPI Certification Manager

The Financial Planner

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FPI Convention 2013

Neesa Moodley-Isaacs

One of the key events on any financial planner’s annual diary, the 2013 FPI Convention takes place at the Sandton Convention Centre from Tuesday, 11 June to Wednesday, 12 June. Join more than 1 000 financial planners from around the country as they listen to key speakers address issues facing the industry.

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he exciting line-up of speakers this year includes the rector and vice chancellor of the University of the Free State, Professor Jonathan Jansen; the National Treasury Deputy DirectorGeneral, Ismail Momoniat; political analyst, Justice Malala; and business leader, Brand Pretorius. The programme includes practical workshops and panel discussions by leading experts and opportunities to network with likeminded individuals in the exhibition hall.

The Financial Planner chatted to a few of the speakers ahead of the conference to find out what delegates can expect.

Ronald King,CFP® King has had a long and industrious career in the financial services industry and as of earlier this year, serves as chief executive of business development at PSG Konsult.

He serves on the boards of PSG Konsult Financial Planning, PSG Konsult Trust and PSG Konsult Academy. He is also a board member of the FPI and the author of the Easy Guide to Law and Estate Planning.

King says although a highly anticipated rate hike did not materialise during the 2013 Budget Speech, it is clear that the devil is in the detail. “Where the 2011 Budget announced the imminent demise

of estate duties, the 2013 Budget saw an announcement that estate duty evasion through trusts will be curbed,” he says.

King says if the possible changes to the taxation of trusts are considered together with the changes to the taxation of currency gains and the proposed changes to retirement reform, there are quite a number of changes impacting the advice financial planners should provide their clients.

King’s tax update at the conference will therefore focus not so much on the changes, but on the impact these changes will have on the advice financial planners provide their clients.

Gerhardt Meyer,CFP® Meyer is currently a member of the regulatory advisory panel of Financial Planning Standards Board (FPSB). He has also previously held the positions of chairperson of the Financial Planning Institute, national president of the Pension Lawyers’ Association, vice chairperson of the FPI and chairperson of FPI’s Tax Committee His talk on the future of financial planning will include: • A n overview of his predictions for the financial planning industry last year and a review of how right or wrong his predictions were.

• An update on regulatory developments in other jurisdictions that South Africa tends to look at, before developing its own financial planning regulation.

• An update on the thinking at FPSB regulatory advisory panel level and the panel’s suggestions as to how FPSB approaches regulators worldwide in its deliberations on the development of such regulation.

• Feedback from the United Kingdom on how things are going under Retail Distribution Review, now that it is in place.

• Some suggestions on potential scenarios that financial planners can take away and consider in their business strategy planning for the next few years.

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Chris Hart Chris Hart joined Investment Solutions as head of market and economic research in August 2007 and has since been appointed the company’s chief strategist. He was previously a senior financial market economist with Absa Capital. Hart’s main research focus is analysing financial markets domestically and abroad with the aim of advising the investment team on enhancing portfolio returns and identifying portfolio risk.

As chief strategist, Hart is also responsible for client liaison and engagement with Investment Solutions and the broader Alexander Forbes group and is one of the country’s leading

commentators on economic issues and financial markets.

Hart studied at the University of the Witwatersrand and has been a volunteer with St John Ambulance, where he has served as its South African commander. Previously a teacher, he has a keen interest in education, social and development issues.

Hart says designing strategies to meet clearly defined investment strategies has wellestablished and deep-rooted methodologies that form part of the financial planner’s tools. “These need to be challenged against a backdrop of shifting risk-management imperatives and also the potential change in

some very long-running secular trends. The behaviour of different asset classes may well be in the process of shifting, which could render standard investment advice incorrect,” he says.

Hart’s presentation, ‘Challenging conventional wisdom: risk assessment and investment objectives in financial planning’ will address some of the following questions: • W hat happens if high inflation returns? Or deflation?

• What effect is escalating monetary policy having on potential investment returns?

• What happens to investors when their government becomes insolvent and how important is jurisdiction when setting investment strategy?

“Hart’s main research focus is analysing financial markets domestically and abroad with the aim of advising the investment team on enhancing portfolio returns and identifying portfolio risk.”

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Tiny Carroll Carroll forms part of a breakaway panel discussion on estate planning and has been involved in estate, tax and financial planning, for clients in one form or another since 1987, as a legal adviser and estate planner at Old Mutual.

In 2005, he decided to follow his passion and specialise in estate planning. He is currently a fiduciary specialist at Glacier

by Sanlam.

Carroll says a client’s marital status and marital property regime impact on almost

every aspect of their estate and financial planning. Knowledge of a client’s status therefore places the financial adviser in the best possible position to provide sound estate and financial planning advice.

He provided two examples: 1. While a life partner may qualify as a spouse for the purposes of income tax and estate duty, he may not necessarily qualify as a spouse for the purposes of intestate succession or the Maintenance of Surviving Spouses Act. Knowledge of this status will enable the financial adviser to plan their estates to ensure that one party is not left destitute in the event

of the death of the other party or the dissolution of the relationship.

2. Spouses in an in-community marriage have joint powers of administration.

In certain instances they will require each other’s written consent to deal with an asset in the common estate.

For example, a spouse married in community of property will not be able to validly nominate a third party, such as a child, as a beneficiary on a policy without their spouse’s consent. A more interesting aspect would be whether a spouse could validly enter into a buyand-sell agreement without the consent of their spouse.

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FIVE TOP BOOKS FINANCIAL PLANNERS (AND THEIR CLIENTS) SHOULD READ Kim Potgieter | CFP® Chartered Wealth Solutions

Within all of us there is an innate desire to constantly improve ourselves.

South African financial planners are legally obligated to maintain and improve their technical knowledge on a regular basis. Don’t forget, however, a large portion of your work as a financial planner involves dealing with other people. In the same way you undergo the financial services industry’s continuing education programmes to improve your technical knowledge, you should also be constantly working on improving the other, equally important, part of your business – the way you communicate with your clients.

After all the way in which you are able to communicate and truly understand your clients’ motivations is often the key to your success as a financial planner.

Everyone communicates few connect – John C Maxwell

To this end, books can be an invaluable resource. Books will educate, motivate and inspire you. For a couple of hundred Rand, a book can change the way you think and the way you run your practice.

For me this book cuts to the heart of my work as a financial planner. The success of my business is dependent on my ability to communicate and truly connect with my clients. As an added bonus you will find the lessons learnt from Maxwell will also help you in your personal relationships and everyday interactions with people.

As a voracious reader I find myself constantly reading a variety of books, across various subjects ... all of which help me directly or indirectly in my work as a qualified financial life planner.

My top five recommendations for financial planners are:

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Maxwell says that the one thing that stands between you and success is not experience and it is not talent. It is the ability to connect with people. And while it may seem that some people are just born with it, the fact is that anyone can learn how to make every communication an opportunity for a powerful connection. In his book Maxwell shares his five principles and five practices to develop the crucial skill of connecting, including: finding common ground, keeping your communication simple, capturing people’s interest, Inspiring people and staying authentic in all your relationships.

Your clients for life – Mitch Anthony

This is a must-read for any financial planner who is passionate about helping their clients improve the quality of their lives. When I became a financial planner, I realised that to

Client Engagement be truly relevant to our clients, and to be viewed as trusted advisor, we need to adopt an holistic approach that connects a clients finances with their lives. Mitch Anthony defines this as financial life planning and this book is the how-to manual.

In his book, Anthony outlines his innovative, lifestyle-centred approach to the revolutionary trend that is dominating the global financial services industry.

In reading this book you will learn how to: • • • • •

Help clients clarify their goals in all areas of their lives.

Design financial strategies to support those goals.

Help clients deal with the challenges of common life transitions.

Move beyond transaction thinking to transition thinking.

Create a more lucrative financial services practice for yourself.

Financial Planning: The next step – Roy Diliberto

Manage your money, live your dream – Sunél Veldtman Sunél Veldtman is a South African financial advisor. Her book is concise and practical, and while not aimed specifically at woman, much of the information contained within relates to woman and their unique financial needs and considerations.

I often refer my clients to this book as it is written in such a way that they do not need a financial background to understand it. She walks the reader through identifying their money style, and explains the importance of goal setting and leaving a legacy. She goes on to explain the various vehicles for saving and gives guidelines on choosing a financial advisor.

For anyone who has expressed a desire to take control of their financial future, Manage your money, live your dream is an excellent place to start.

Diliberto’s book is a practical approach to merging your client’s money with their lives. It is an invaluable guide on how to structure your practice in such a way that you are concentrating on your client’s needs. A specialist in financial life planning, Diliberto challenges the notion of asset-centred financial planning in favour of a client-centred approach. He uses stories, personal examples and wisdom gained from his career to discuss how to plan holistically, asking the questions: who is your client and what are their personal goals and needs?

What sets this book apart is that it is not focused solely on your relationship with your clients; it also shines a light on your practice itself. He examines how a firm is structured, who is part of the financial planning team, compensation, and effective and reasonable marketing for the financial planning team.

Although Diliberto writes from an American perspective, his insights and guidelines on how to run your practice are thought provoking and can be easily translated into the South African context.

The Ultimate Financial Plan – Jim Stovall and Tim Maurer Aimed at the investor, this book nevertheless offers financial planners key insights into our often complex relationship with money.

He examines the connection between actions, thoughts and feelings when it comes to all things financial. These insights will no doubt impact on your dealings with clients.

The authors argue that the key to getting the most out of your wealth is not only found in the wise utilisation of tools such as budgets, bank accounts, education savings plans and real estate, but even more so in the contentment found in balancing money’s influence in our lives with regard to our personal values and goals.

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An individual’s changing

healthcare needs Kristin-Ann CronjĂŠ, Healthcare Actuary, Technical and Actuarial Consulting Solutions (TACS), a division of Alexander Forbes Health (Pty) Ltd.

Medical expenses are one of the most unexpected and often crippling costs that individuals may face and it is imperative to ensure that adequate levels of cover are in place at all times of need. But achieving this can be particularly difficult, in fact, almost impossible. How does one go about ensuring that they have the appropriate cover at all times?

Changing medical needs As people grow older, their medical expenses are expected to change according to changes in their personal circumstances and health status.

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healthcare Upon entry to the workforce, basic cover for unexpected medical and emergency events is generally required. This type of cover is typically found in a hospital benefit option within medical schemes. Usually at this age, individuals are single with no dependants.

Lower earning individuals may also choose health insurance products at this stage of their lives. These products are cheaper than full medical scheme cover, although they generally settle only a portion of the actual medical expenses incurred. This payout has no relation to the actual level of expenditure and takes the form of a predetermined fixed amount payable upon admission to hospital.

Once married, and when considering starting a family, it is generally necessary to add some level of day-to-day cover in addition to generous maternity benefits. When children are young, common illnesses typically require regular day-to-day benefits, which are covered by benefit options that offer generous out-of-hospital benefits such as GP visits, dentistry and medicines. This cover can then be reduced as children grow older.

During the middle-aged years, individuals may start developing certain chronic conditions such as high cholesterol and diabetes as a result of either poor lifestyle

choices or genetic predisposition. These chronic conditions require regular medication and monitoring to ensure that they do not cause further complications.

The risk of developing more serious conditions increases further as people move into their retirement years and this requires additional comprehensive cover.

The diagram below illustrates a typical claims pattern of an individual and a family through their lifetime.

Source: Restricted medical scheme client of Alexander Forbes Health (Pty) Ltd, Technical and Actuarial Consulting Solutions, 2011 Data

Our staff members have medical cover Individuals often believe that there is no need to worry about choosing the correct benefit option, because they pay for medical aid and it’s supposed to cover all their expenses.

For many people, this may seem obvious and straightforward, but having medical cover in place is no guarantee that all expenses will be paid.

Many individuals do not know what type of benefit option they are on and whether it covers only hospital expenses or if it will provide cover for some day-to-day expenses. There is also a common concern that the medical scheme will not pay for all the costs involved with serious treatments for cancers or motor vehicle accidents.

The medical schemes industry is flooded with abbreviations and jargon and many individuals are left to wonder about medical scheme rates, tariffs, co-payments and deductibles and how these will have an impact to them. The further complication of trying to manage a self-payment gap or above threshold benefit can leave members feeling that a master’s degree is required in order to understand basic benefit entitlements.

Gone are the days when all expenses were covered by a medical scheme.

It is critical that individuals choose benefit options correctly at each stage of their lives and that the impact of these choices is fully understood.

As advisors, ensuring that employees are equipped to make informed decisions is a significant responsibility.

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An individual’s financial plan An individual’s choice of medical cover should form an integral part of their overall financial planning process.

Inadequate cover could result in significant out-of-pocket expenses when someone falls ill. On the other hand, being over-insured (by participating on a benefit option with excessive cover) results in their income being spent on medical scheme contributions instead of being used for other purposes such as additional contributions to retirement funds or dedicated savings accounts.

Changing levels of income In an ideal world, individuals would be able to choose appropriate medical cover to match their needs at different points in their lives regardless of the cost implications.

But consider the costs and the situation becomes more complicated.

As with the need for medical cover, the level of income earned throughout an individual’s lifetime changes. It does not follow a similar pattern to their medical needs and the corresponding costs of obtaining appropriate cover to satisfy these needs. In fact, the two patterns are almost opposite as illustrated below.

Note: This is a theoretical example to illustrate the different patterns of income and medical expenses over time.

The absolute and relative values are therefore irrelevant.

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“In an ideal world, individuals would be able to choose appropriate medical cover to match their needs at different points in their lives regardless of the cost implications.”

Just when the need for medical benefits increases to its maximum (after retirement), income typically reduces. On average, only nine percent of retirees are expected to retire with sufficient income to cover living expenses, including medical costs, and live comfortably.

Throughout a person’s lifetime, there is a persistent gap between their need for medical cover and the cover that they can afford, with the most prominent problem area being during their retirement years.

Again, it can be seen how medical cover can have an impact on finances and, if not managed correctly through their lifetime, could use up a large percentage of retirement income, leaving them with an unexpected and difficult choice – to continue with the cover they need but have to reduce non-essential expenditure, or reduce this cover and carry the risk that they might be faced with exorbitant medical bills if something does go wrong? The alternative is to use State facilities during these periods of underinsurance, where the quality of care is potentially compromised.

MARY Early detection of cancer saved her life...

“Being able to choose different benefit options from year to year has the advantage of providing flexibility to individuals as well as an opportunity to change the level of cover according to their needs.”

How to find the right balance Medical schemes are priced on an annual basis and members can change their benefit option each year if required, making this a short-term product.

So how should they plan for the long-term use of a short-term product?

Being able to choose different benefit options from year to year has the advantage of providing flexibility to individuals as well as an opportunity to change the level of cover according to their needs. But as mentioned, individuals do not generally have the same flexibility in controlling their income levels.

Assuming they cannot control their medical expenses and that the ultimate goal is to be adequately covered in the time of need, the exercise becomes one of trying to manage income appropriately so that they can always afford a suitable level of cover.

As an example, consider an individual having to fund their lifetime medical expenditure on their own, by setting aside a fixed amount every month for the duration of their working life.

It does not make sense to participate on a benefit option that provides greater benefits than necessary at any point in time, as the additional contributions payable for unused benefits will not specifically be set aside to help that individual in later years when more comprehensive cover is required. It rather makes sense for this person to review and adjust their benefits on a regular basis based on their specific needs and to set aside surplus funds generated by choosing less comprehensive and thus cheaper benefit options in some sort of savings vehicle. This could be in the form of additional contributions to their retirement fund, by purchasing a retirement annuity or opening up a personal savings account. These funds can then be used to pay for more comprehensive cover when their medical expenses are expected to be high, and when their income is expected to be insufficient to meet the cost of this additional cover.

This method is a means of supplementing their normal retirement contributions specifically to ensure adequate medical cover in retirement.

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Planning for future medical expenses It is clear that medical needs during retirement should form a substantial part of a client’s financial planning for their retirement years.

As graph 3 shows the funds required in today’s terms in order to pay for medical scheme contributions on various benefit

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options from the age of 60. The graph is based on an average married male, however a similar trend applies for females and single individuals.

As an example, a 40-year-old married male would require approximately R1.2 million in today’s terms in order to fund medical scheme contributions on a comprehensive benefit option for himself and his spouse from age 60 onwards.

Historically, these contributions in retirement were covered by employers as part of postretirement benefits. Most employers no longer offer these types of benefits to new employees and where they are still offered, many companies are choosing to remove them from new employment contracts. At the same time they are investigating options to either manage or eliminate the remaining obligation for eligible employees due to the associated costs and risks.

MARY ...but it nearly ruined her bank balance.

This trend points to two facts: 1. Employers are starting to eliminate these benefits because of the associated risks which include longevity risk (people living longer on average due to advances in medical technology), ever-increasing medical costs and the risks associated with changes to tax and other legislation. Employers generally have experts who can help to minimise and manage these risks.

Given that companies are unable to manage and control these risks themselves, individuals will be even less likely to do so appropriately.

2. Historically, retirement funding has focused on a net replacement ratio of between 65 and 75 percent – saving enough during your working years to be able to provide an income during retirement that is equal to a defined percentage of your last working salary.

This level of 65 to 75 percent, which most individuals are unlikely to reach due to undisciplined behaviour regarding their retirement funding, was historically set with the assumption that medical scheme contributions during retirement would be funded by the employer, but this is no longer the case. In order to be able to maintain a similar standard of living in retirement, the net replacement ratio that we should be targeting is closer to 80 to 90 percent. This figure may seem substantial, but it is also important to remember that medical costs are rising at levels much higher than general Consumer Price Inflation (CPI) and salary inflation and will utilise a greater proportion of a client’s salary each year.

Clearly, managing medical expenses over a lifetime is a difficult balancing act and requires specific focus. To ensure a successful financial plan, it is important that an individual’s healthcare requirements are adequately catered for within the planning process.

Specialist knowledge is usually required in order to assist with the successful implementation of this process and will reduce the risk of unexpected and crippling costs that may arise as a result of inadequate medical cover.

As an advisor, it is extremely important to ensure that your clients, employees and individuals have access to medical cover in some form; but in addition to this, ensure that they are equipped to make informed decisions about their medical cover through their lifetime.

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investments

Why it matters that a board of trustees has an investment philosophy Felix Ubogu, Head: Asset Consulting at Liberty Corporate

Increasing regulation in the financial services industry, particularly retirement reform proposals, has highlighted the importance of the role that a board of trustees plays. Every board should have a clear investment philosophy – a set of core beliefs and principles – about investment markets and investor behaviour.

In formulating its principles, the board may take into consideration issues such as the importance of diversification in reducing risk, of time spent in the market that is required to enjoy the benefits of compound interest, or even the importance of minimising costs. After such consideration, the investment philosophy and principles adopted by the board should subsequently inform the fund’s investment strategy and provide a useful reference for assessing the merits of investment opportunities that present themselves to the board.

The board’s investment philosophy and principles are an essential point of departure for the design of the fund’s investment strategy. An investment strategy refers to the manner in which the board implements its philosophy and principles.

For example, if the board believes that markets are inefficient, market participants are irrational (the emotions of greed and fear drive sentiment in the short term resulting in overand under-reaction to news) and that diversification is an important consideration in the portfolio construction process, a reasonable investment strategy which logically follows from this could involve an actively managed global multi-asset portfolio.

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Of course, the board’s investment philosophy and principles may evolve over time as the board adopts a different view on the behaviour of markets and market participants, for example. In reality, however, if trustee boards take the time and effort to think critically about their investment philosophy and principles at the outset, in essence, the core beliefs that underline their investment decisions should remain consistent over time.

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By having a clearly articulated investment philosophy, it becomes easier to assess the relevance of opportunities that arise. Just because a particular stock, asset class or asset manager is performing well, is not necessarily a sole reason to include it in the fund’s investment portfolio. Any investment decision should always be based on whether opportunities fit in with the fund’s broader investment philosophy, principles and strategy.

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The allocation consideration René Prinsloo, Portfolio Manager at Element Investment Managers

The Financial Planning Institute (FPI) recently invited Element to produce a Continuous Professional Development (CPD) course on its behalf on the topic of asset allocation. We discussed a variety of theoretical ideas on the topic, such as why we believe the asset allocation decision to be the most important decision that an investor faces. We now turn our attention away from investment theory to a more practical discussion of investment themes and considerations that we believe clients should take into account when choosing between asset classes in the current economic climate1.

• Quantitative Easing (QE) and the inflation vs deflation debate. We have highlighted our concerns regarding QE on numerous occasions2. We remain of the opinion that current global, co-ordinated quantitative-easing programmes amount to an unprecedented financial experiment, the outcome of which is uncertain.

It is unclear whether the massive amounts of new money entering the global monetary system will result in runaway inflation at some point in time, or whether the deflationary forces of a deleveraging consumer will be more powerful. However, it certainly seems to us that the risk of inflation is not currently priced correctly, and that bond yields globally are far too low considering the uncertain long-term inflation outlook.

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• T he risks associated with excessive government debt. Again, we have written on this topic on numerous occasions. If the sub-prime crisis has taught us anything it is that excessive debt (whether in the hands of consumers, corporates or governments) is unsustainable and usually results in bad investment outcomes. We remain concerned that governments the world over are indebted to such an extent that it will lead to one of the following outcomes (or a combination):

o o

o

Default/debt restructuring Default by stealth through inflation Sub-average economic growth.

• T he Euro remains at risk of breakup, and as recent events in Cyprus illustrate, this risk is unlikely to go away soon. A break-up could

investments potentially be disorderly as the Maastricht Treaty was not written with a potential break-up in mind, and how this would look is highly uncertain.

This remains a significant risk to global markets.

• I nterest rate normalisation. In a recent note,3 BCA warns about the risks of interest rates normalising, and of this risk being more imminent than most expect. They note that: “The interest rate structure undergirds all financial markets. No asset is valued without reference to interest rates, and the end of secular rate cycles can have seismic consequences. They make the earth move under all asset classes.” They further mention that “all risk assets typically decline sharply at the end of long bond market cycles” and are most concerned about the long-term return outlook for bonds.

They expect rate normalisation to lead to short-term equity losses but expect long-term returns from equities to be healthy. We would tend to agree with them – with the current yield on a 10y US government bond close to its 200year low (refer to the graph below), US bonds have very little margin for safety and that the long-term outlook for bonds globally is weak.

• T he Rand outlook. Our models suggest the fair value for the Rand/ Dollar exchange rate to be around R8.50 at present, therefore we consider the Rand to be undervalued. As far as offshore investments go, we think the easy money from Rand depreciation has been made. Given the close proximity to fair value (the current deviation is not significant in the context of history), we expect long-term returns from currency depreciation to be insignificant.

However, there is always a risk of a further sell-off in the short term, due to concerns around the current account and terms of trade.

• D emographical forces. The United Nations Population Division expects world population growth to start slowing from the current rate of around 1.2 percent per annum and for the world population to potentially plateau by around the end of this century. The more than two percent per annum rate of growth reached at the start of the baby-boomer era has provided the global economy with a tailwind that appears to be fading. In the 1950s, fertility rates for the world stood at close to five and the rate has since then halved to around 2.5. Currently there are very few countries in the world with fertility rates of above five (Nigeria being an example of an exception)

The Financial Planner

21

and many with fertility rates well below the replacement rate of 2.1 (such as Europe at a current rate of around 1.5).

Slower population growth is generally negative for equities, as it results in slower labour force growth which ultimately results in slower GDP growth.

However, it is also negative for bonds as it means fewer taxpayers and more pensioners, thereby putting a strain on government finances.

• T he shale gas wildcard. One potential positive theme is the technological advances that have been made in US shale gas extraction in recent years. According to Niall Ferguson, “The United States is one of the global Big Five in terms of mineral wealth, with known reserves of fossil fuels and minerals worth at least $30 trillion – more than Australia, Saudi Arabia and China, though less than Russia.” Some go as far as labelling North America as the new Middle East. Furthermore, in its World Energy Outlook report of 2012, the International Energy Agency projects that the United States will become the largest global oil producer by around 2020 and a net oil exporter by around 2030. The prospect of significantly cheaper energy prices for North America may well lead to a revival

of US manufacturing and a boost to global GDP prospects.

• V aluations. As mentioned, all asset classes globally are priced in reference to the US treasury bonds. Through quantitative easing, the US Federal Reserve has directly distorted and artificially inflated the value of this benchmark instrument. As a result, globally, most (if not all) asset classes are currently overvalued relative to history. For some time now we have maintained that there are few attractive asset classes available today; investors are left with unattractive alternatives and can at best seek out the least unattractive ones.

With equity dividend yields currently exceeding long bond yields in many countries, equities are clearly relatively undervalued and should outperform bonds in the long term. In SA, even though dividend yields on equities do not exceed bond yields, the current spread (at around four percent, i.e. bond yields minus the ALSI dividend yield) has historically been consistent with equities outperforming bonds by around 11 percent per annum. So locally the equity market also appears the more attractive alternative from a valuation perspective.

Most of these discussion points suggest that tough times lie ahead. Although there are clear risks to equity markets, bond markets appear more exposed with less margin for error. At Element, we will therefore maintain our very low allocation to bonds and restrict it to individual opportunities that are more attractively priced. Although our allocation to equities is significant, we are well below our maximum allowable allocation due to valuation concerns. We remain significantly invested in cash and cash-type instruments in anticipation of more attractive entry points into equities. We also recommend investors maintain diversification via asset class, geography and currency through the current uncertain environment.

Please note that the online CPD course referred to in the introduction will be published shortly on the following website: https://financialservices.ecpd.co.za.

1) It goes without saying that an investor’s asset allocation should always primarily be a function of that investor’s risk tolerance, financial objectives and financial situation. These matters will not be considered here.

2) Refer for example to the following newsletters by Element Investment Managers: ‘Debt, more debt and downgrades’, Q4 2011, ‘The illusion of stability’, Q2 2012 or ‘A tale of two shares’, Q4 2012.

3) ‘What happens when rates normalise’, BCA, 18 Feb 2013 4) Note that the scenario mentioned here is their base-case forecast, and their other scenarios with different fertility assumptions result in very different population projections.

5) The fertility rate is the average amount of children born to a woman over her reproductive lifetime. A fertility rate of roughly 2.1 is required to maintain a population size, as this would result in two children replacing their parents (and make an allowance for some children not surviving to a reproductive age), while a rate of below this will lead to population decline, ceteris paribus.

“The United States is one of the global Big Five in terms of mineral wealth, with known reserves of fossil fuels and minerals worth at least $30 trillion – more than Australia, Saudi Arabia and China, though less than Russia.”

22

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The Financial Planner

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An evolving financial system Murray Anderson, MD Atlantic Asset Management

When I started to study towards the CFP® certification, the first subject I had to tackle was personal financial management. I recall this being a pretty interesting subject in that I could relate to it as well as apply some of the principles to my own life.

The first important lesson and the obvious departure point for any financial plan is to have a budget; how can you plan to save if you don’t know how much you can afford?

To many of us in the savings and investment industry, this is an obvious starting point; but to the financially less astute, it’s a big problem.

Remember the old adage: “If you fail to plan, you plan to fail.” This has to change.

According to the results of the first national survey of financial literacy commissioned by the Financial Services Board and carried out by the Human Sciences Research Council (July 2012), South Africa’s overall financial literacy score is 54 percent. This doesn’t seem very low, but the survey does show that there are inequalities in financial literacy in South Africa. It also shows that people who have better income levels and access to some form of financial education have a much better chance at saving since they recognise and appreciate the importance of having long-term financial goals.

So to state the obvious: education is the key to an improved savings culture in South Africa since better income levels drive higher savings rates. However, we all know that knowing about saving doesn’t really help with the many other important financial decisions that have to

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form part of a successful savings plan. As such, it is clear that there is an important role for financial planners to play and that the savings and advice industry will grow as people’s financial literacy improves.

But putting a plan in place and sticking to it for 20 to 30 years is not where it ends. I believe the role of the advisor is even more relevant at retirement since the importance of the decisions at this time in your life is often more important, yet frequently overlooked. A new level of complexity is introduced which investors on average are not equipped to deal with on their own – the ability to generate income, coupled with the preservation of capital is required to insure comfortable retirement.

Financial advisors therefore play an important role in guiding the investor through a rigorous process to determine the appropriate level of retirement income which can be earned given the sum of assets available for investment at the time of retirement. Included in the decision is the choice of utilising a fixed or flexible annuity vehicle. Explaining the pros and cons of either is way beyond the scope of this article, but you really need to be aware of the fundamental difference.

investments A fixed annuity provides more security in terms of the income but has limited upside growth potential. When you invest in a variable or living annuity, you accept more volatility but you have the added benefit of earning a higher return over time, or rather a growing capital base which should overcome effects of inflation. The growth in such a portfolio is typically achieved via equity component; hence it is important to have the appropriate allocation to equities in your retirement income portfolio. This does not exist in a typical fixed annuity portfolio.

But while high equity exposure does subject the portfolio to higher volatility, low equity exposure could also subject the portfolio to the risk of not being able to keep up with inflation. Optimal equity exposure for retirees is probably in the order of 40 to 60 percent and the actual exposure you select will depend on a number of circumstances which are based on risk tolerance and alternative sources of income to name a few. One of the other main benefits of a flexible living annuity is that the level of income can be adjusted to satisfy the income requirements.

In addition to the equity exposure, retirees will invariably hold a large portion of the portfolio in fixed income assets. Fixed income funds primarily provide the capital stability and income that retirees require. The trend over the last number of years has been to invest into a well-diversified flexible fixed income fund, which allocates assets across the broader fixed income spectrum. Portfolio managers of such funds therefore make dynamic use of a spread of instruments, from money market and nominal government bonds to corporate bonds, inflation-linked bonds and listed property companies in order to achieve the investment objective.

Income funds have further evolved to incorporate a level of equity exposure in order to provide higher degrees of inflation protection and these hybrid income funds provide an additional benefit to the portfolio in that that they offer the potential of delivering higher returns with lower volatility than what we would experience from pure equity funds. These funds typically target a CPI + a margin and are ideal in creating protection against too much conservatism or optimism in a retirement income portfolio. Professional fund managers make the fixed income asset allocation decision on behalf of the client and tactically expose the income portfolio to the appropriate areas of the markets given the prevailing economic conditions. A well thought through flexible retirement income portfolio spread between equities and fixed income will certainly deliver the desired effect of capital stability, suitable levels of income and the potential to have a growing capital base in your retirement years.

The horrifying statistic that only six percent of South Africans can afford to retire comfortably has to change and the many discussions that are going on in the industry and at government level at the moment are all aimed at dramatically improving this. But an evolving financial system will bring financial innovation and hence there will always be the need for professional financial advice to guide the not-so-informed through the myriad important and often life-changing financial decisions that need to be taken by investors.

“I believe the role of the advisor is even more relevant at retirement since the importance of the decisions at this time in your life is often more important, yet frequently overlooked.�

The Financial Planner

25

Where did the trust go?

Franscois van Gijsen, CFP®, FPSA® Director Legal Services at Finlac Risk and Legal Management

The question regarding trusts that clients most frequently ask me is: do you think that trusts still have a role to fulfil in estate planning?

An interesting question and one I anticipate hearing frequently in the coming weeks as the proposals contained in the Budget Speech start siphoning through to all who wish to use trusts as a financial planning tool. It is a concern that is better understood if we take a look at recent history and the tax treatment of trusts, excluding special trusts.

I would imagine, when it was found in the case of the Trustees of the Philip Frame Will Trust vs CIR1 that a trust was not a person for income tax purposes, that a number of aspiring estate planners couldn’t start using a trust soon enough. What I do know is that as a result the legislature took no time at all to change the Income Tax Act in order to include trusts in the definition of a “person”2 and the tax net.

Further, a look at the SARS Guide for Tax Rates/Duties/ Levies3 shows the following: • B etween 1999 and 2011 trusts, excluding special trusts, have consistently paid transfer duty at a higher rate than individuals.

• F rom 1998 to the present, trusts have consistently paid income tax at a higher rate than individuals.

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The Financial Planner

• F rom the inception of CGT in 2001, trusts have consistently paid CGT at a higher rate than individuals.

We could easily draw the conclusion that trusts are disliked (or maybe liked too much) by the South African Revenue Service. What is more, in his 2012 Budget Speech, Minister Pravin Gordhan has issued a warning to trustees, advisors and tax practitioners, saying: “Poor tax compliance is also apparent in respect of trusts and in parts of the construction sector, and the role of tax practitioners and other intermediaries will come under scrutiny.” I would hazard a guess that it is this poor compliance and the association on the part of the SARS that trusts are used for tax avoidance that is the reason for SARS’s most recent scrutiny of trusts.

The following quote from the judgement of Thorpe vs Trittenwein4 also reveals a growing impatience on the part of the courts with regard to the fast and loose manner in which those using trusts treat the trust form: “Those who choose to conduct business through the medium of trusts of this nature do so no doubt to gain some advantage, whether it be in estate planning or otherwise. But they cannot enjoy the advantage of a trust when it suits them and cry foul when it does not. If the result is unfortunate, Thorpe has himself to blame.”

trusts It seems though that the Treasury has decided to put an end to the abuse of the trust form for the purposes of tax avoidance once and for all. In the Budget Review, 27 February 2013, the following comments with regard to trusts can found: “To curtail tax avoidance associated with trusts, government is proposing several legislative measures during 2013/14. Certain aspects of local and offshore trusts have long been a problem for global tax enforcement due to their flexibility and flow-through nature. Also of concern is the use of trusts to avoid estate duty, which will be reviewed.

The proposals will not apply to trusts established to attend to the legitimate needs of minor children and people with disabilities.”5

In the past one of the main ways in which trusts were used to obtain a tax advantage has been through the use of the conduit effect codified by section 25B7 and Paragraph 808. This was done by vesting the trust income or capital gain for the tax year in the trust beneficiaries and in so doing ensuring their taxation in the hands of the beneficiary rather than the trust. The Treasury, however, intends to, in future prevent trusts from acting as conduits in this manner.

“Discretionary trusts should no longer act as flow-through vehicles.

Taxable income and loss (including capital gains and losses) should be fully calculated at trust level with distributions acting as deductible payments to the extent of current taxable income.

Beneficiaries will be eligible to receive tax-free distributions, except where they give rise to deductible payments (which will be included as ordinary revenue).”9

Many people associate good financial planning/estate planning with obtaining a tax saving and it is a great pity that they have managed to bastardise the trust concept to such an extent that, for many people now, the only consideration as to whether or not a trust is a viable financial planning tool seems to be its tax treatment.

But why is the use of a trust tax purposes a bastardisation of the trust form? The following characteristics of a trust can be gleaned from the definition of a trust in the Trust Property Control Act6, the common law and case law. Firstly, it requires you to hand over your assets to the trustees and to fully divest yourself of the ownership.

Secondly, the assets handed to the trustees are not to be used by them for their own benefit, but to be administered for the benefit of a beneficiary or group of beneficiaries. Thirdly, the trust is to be administered in accordance with the terms of the trust agreement.

The trust form then is intended as a means to care for/benefit someone other than the donor or the so-called financial planner.

To return then to the original question: if the trust is to be used in an attempt to avoid tax, then it is doubtful that trusts will in future satisfy the planner’s expectations.

“To curtail tax avoidance associated with trusts, government is proposing several legislative measures during 2013/14. Certain aspects of local and offshore trusts have long been a problem for global tax enforcement due to their flexibility and flowthrough nature.”

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27

It is of course impossible, at this stage, to know what amendments will be made to the Act in the process of bringing about these changes, but it seems reasonable to assume that both section 25B and Paragraph 80 will be deleted.

It is a matter of concern that within two days of the Budget Speech, I have heard of a broker who is advising his clients that to circumvent these changes they simply need to ensure that the deeming provisions of section 710 and paras 68 – 7311 are applicable, thereby ensuring taxation of receipts in the hand of the donor, presumably at his lower tax rate.

Besides the risk that decisions based purely on considerations of tax avoidance may be attacked under the General Anti-avoidance Provisions, this solution is still flawed. It will largely be too late for the tax planner to avail himself of this supposed solution in respect of his existing trusts as the gratuitous nature, or not, as well as the purpose of the disposition in trust will already be determined. It is only in respect of new trusts where it will be possible to still define the trust object in such a way as to place the resulting donation in trust within the ambit of the aforementioned sections.

I would think too that there is a very real chance that, along with the potential removal of section 25B and Paragraph 80, section 7 and paras 68 – 73 may likewise be removed. This will certainly be in keeping with Treasury’s stated intention of ensuring that trusts’ taxable income and loss are “fully calculated at trust level”.

28

The effectiveness of trusts as a means of reducing your tax liability has largely been curtailed. However, should the planner wish to use the trust for its intended charitable purpose, it is still a useful estate planning tool. It offers the planner a means of benefiting his beneficiaries, while the trustees who administer the assets on their behalf offer a measure of protection, both from their own profligate tendencies and from potential creditors. Simultaneously, their ability to allocate trust income and capital, affords the trustees a large amount of flexibility to adapt to the changing circumstances and needs of beneficiaries thereby offering the planner considerable peace of mind.

It seems then that the trust is indeed still a useful tool.

Friedman and others NNO vs CIR: In re: Philip Frame Will Trust vs CIR (1991 (2) SA 340 (WLD), 53 SATC 166) – Later confirmed in CIR vs Friedman NO 1993 (1) SA 353 (A) 2 Sec 1 Income Tax Act 58 of 1962 3 (2010/11 And Prior Years) 4 2006 SCA 30 RSA at par 17 5 Budget Review, 27 February 2013, Chapter 4: Revenue Trends and Tax Proposals under the heading ‘Protecting the tax base.’

6 Act 57 of 1988 7 Income Tax Act, 1962 (Act 58 of 1962) 8 Eighth Schedule to the Income Tax Act, 1962 (Act 58 of 1962) 9 Budget Review, 27 February 2013, Chapter 4: Revenue Trends and Tax Proposals under the heading ‘Protecting the tax base.’

10 Income Tax Act, 1962 (Act 58 of 1962) 11 Eighth Schedule to the Income Tax Act, 1962 (Act 58 of 1962) 1

The Financial Planner

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2013/05/03 4:25 PM

practice management

Leadership: a key element for your business Mimi Pienaar, head of business development at Masthead

Growing your independent financial advisory business is not simply about being good at filling the two key roles in your business but, in essence, leadership. The greater your growth in leadership, the more your business will grow.

business owner (working on the business) and technician.

Consider that your business is all about meeting needs: the needs of clients, employees, product providers, investors and, in some cases, members of the community. The best businesses understand this and do their best to meet those needs. To be able to meet others’ needs, a business must first satisfy its own needs. These are to attract, satisfy and retain clients; recruit, hire and train employees; generate and manage money; and, most importantly, offer good leadership. As a business owner, you thus carry a significant burden of responsibility and must strive to fully understand your roles and how to balance them.

Whether or not you employ staff, you inevitably wear two hats within your business at one time or another. If you have staff, in the event of employee absence you will need to move from business owner to technician, in other words become a worker in your business. If you operate alone, you spend your day balancing the roles of

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Most business owners are specialists in the technical aspects of their profession, while few are specialists in the technical aspects of running a profitable business. Therefore, you need to consider the tactical and strategic work of your business and the two roles you play in making your business profitable and sustainable. Tactical work involves the delivery of advisory services. Since many business owners fulfil the role of financial advisor, this function requires them to wear their ‘technician’ hat and work in the business. Strategic work is what shapes the tactical work. A business cannot thrive without active management so, as a business owner, you are required to wear your ‘business owner’ hat and focus on your business by planning, forecasting and measuring profitability and sustainability.

Your real work is therefore about rising to the constant challenge of developing the leader within and balancing both roles. If you do not develop the skills and attributes of a leader, your business will stagnate. It’s only a matter of time before your business will be sold or the doors are closed for good. Until that time, it will slowly drain the life out of the people who come into contact with it, including you. Yet it doesn’t have to be that way. Even a stagnant business can be brought back to life with effective leadership.

Leadership involves setting clear strategic direction and driving superior execution across

all aspects of operations and technology. Leaders define the direction and market placement of their businesses. They determine how to achieve competitive advantage and with whom to partner to meet clients’ needs. Leaders have their sights set on where their business should be headed and how the idea will be executed.

A good leader also understands that specialised tasks are done better by people with specialised training. Keeping in mind that a business grows faster and with a higher degree of quality when the time and talents of others are used, leadership is about appointing staff members, training them to effectively perform their tasks and supervising those tasks to completion. It includes inspiring your staff to feel excited about your business and their work and encouraging them to excel.

In light of this, take a look at your business and yourself from a new perspective. How can you use your business to get more out of your life? Do you view your business as separate from yourself?

Do you understand that the business is a product of yourself? Will you be able to reinvent it? Can you take a step outside of your business and look at it objectively?

Leadership is a key element in the overall success of your business and the secret to realising the vision requires you to balance the work that must be done both on the business and in it. With this balanced approach you can become a better entrepreneur, a stronger leader and the owner of a far more successful business that you really enjoy running.

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news

Financial Planning Institute’s new offerings to its members The Financial Planning Institute of Southern Africa (FPI), an accredited professional body by SAQA, has widened its designation portfolios by introducing a new formal designation which will be a wide qualification package for financial advisors.

The FINANCIAL SERVICES ADVISOR™/FSA™ designation forms part of the mandate and appeal by the institute to broaden its member base through value adds.

The introduction of FSA™ professional designation is to ensure that practitioners have a recognisable industry qualification. The role of advisors is regarded as an essential part in building their career paths in financial planning. Most importantly, it will permit the institute to step into the financial advisors’ segmentation.

Taking this exciting news into consideration, the FPI is moving towards a six-year plan that will ensure that the ASSOCIATE FINANCIAL PLANNER™/AFP™ and REGISTERED FINANCIAL

PLANNER™/RFP™ designations are gradually phased out. As a result, these two designations were officially relinquished on 31 December 2012.

The multiple designation levels were presented to members on the basis of suitable competency layers and the values attached to them. However, the well-considered decision to regress these designations will make progression towards the CERTIFIED FINANCIAL PLANNER® certification more accessible.

Therefore current members who hold the AFP and RFP designations and do not immediately qualify for the FSA designation, will be subjected to current re-certification processes until they meet the FSA certification requirements, within the scheduled six-year period. Members who qualify for promotion to FSA designation have the option to convert their designations within the stipulated deadline.

FPI partners with Milpark Business School Another inspiring initiative from FPI that warrants its RFP and AFP professional members further education in the financial planning was a negotiated special offer with Milpark Business School. This offer involves approved qualifications on NQF Level 5 to 8, for members who meet the minimum registration requirements and qualify to further their careers in the financial planning industry.

Active AFP and RFP professionals will qualify for an eight percent discount on the study fees of any of the approved courses at Milpark Business School. This amounts to a saving of R1 152.

Any person formerly affiliated with FPI, but not an active member, will qualify for a five percent discount, a saving of R720.

Gap analyses for member information on FPI website In March 2011, the Financial Services Board (FSB) released a document entitled ‘The Treating Customers Fairly (TCF) Road-map’.

This paper explains how the Regulator will introduce and implement a TCF programme designed to regulate the market conduct of financial services firms in South Africa. The TCF approach seeks to ensure that fair treatment of customers is embedded within the culture of financial firms. TCF will use a combination of market conduct principles and explicit rules to drive the delivery of clear and measurable fairness outcomes, and will enforce the delivery of these outcomes through a range of deterrents. In response to this paper, the FPI formed its own internal TCF Working Group, comprised of volunteers and tasked with representing and communicating the interests of our members to the Regulator. FPI internal staff is actively involved with the Regulator in the current finalisation of the TCF Regulations and these staff members are assisted by our internal Working Group. The Working Group continues to assist, monitor and act where necessary. For more information, please visit www.fpi.co.za and access all documents from the resource centre section.

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news

Centre for Professional Development – upcoming events Practical Ethics for Investment and Financial Planning

• • • • •

The ethical conduct of the financial services industry has been under the spotlight for a number of years. Join us in gaining an overview on the development of ethics in financial services and a practical approach to handling ethical dilemmas through interactive case studies based on real-world issues and how to use your code of ethics as a problem-solving tool.

Proposed dates 16 July 17 July 18 July 19 July 25 and 26 July 30 July 1 August

KwaZulu-Natal Johannesburg Pretoria Johannesburg Western Cape Eastern Cape Free State

Determination Disposals Proceeds Exclusions Foreign currency

Your skills will be honed by a refresher on the calculation of normal tax as well as exemptions and deductions.

Proposed dates 13 14 15 21

August August and 16 August

August

KwaZulu-Natal Pretoria Johannesburg Western Cape

Annual Refresher Workshop This annual event is not to be missed and will highlight all relevant legislative changes. Marius Botha and Wessel Oosthuizen will share new developments in the financial planning arena and will make this an informative, structured sharing session.

Tax Calculations and Administration

Proposed dates

During this interactive full-day session we will delve into the Tax Administration Act and how this legislation impacts on financial planners and how business is conducted.

We will scrutinise capital gains tax and in particular: • Persons liable

12 13 18 19 20 21

November to 15 November November November November and 22 November

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PSG Asset Management Limited is an authorised financial services provider, FSP 29524.

PSG Asset Management Limited is an authorised financial services provider, FSP 29524.

PSG Asset Management Limited is an authorised financial services provider, FSP 29524.

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The Financial Planner

33

Meaning and money Sunél Veldtman, CFP®, CFA

There is a remarkable man who directs the morning traffic and parking at my son’s school. One morning, after attending the school for only a week, this man caught me by surprise, “Good morning Mrs Veldtman and how are you this morning, Mrs Veldtman? Have a good day, Mrs Veldtman!” He knew my name. He also knew my son’s name. He had made it his business to learn every parent and child’s name at the school.

it have to do with regarding others valuable enough to want to influence their lives for the better?

Here is a man who probably doesn’t have much in life. But he has something – his life has meaning. He regards his existence as valuable enough to enliven the parents and boys who walk past him in the morning. He is consistently cheerful and eager to help.

In contrast, I meet many wealthy people who have everything, but no meaning. People who travel, own luxury homes and lead exciting lives. I often walk away from these meetings feeling utterly depressed. I search for elements of meaning in their lives, and feel disappointed when they do not recognise their ability to add value, to contribute and bring positive change.

We cannot talk about meaning without referring to the work of Viktor Frankl, a holocaust survivor and great thinker. In his book, The Unheard Cry for Meaning, he writes: “For too long we have been dreaming a dream from which we are now waking up: the dream that if we just improve the socio-economic situation of people, everything will be okay, people will become happy. The truth is that as the struggle for survival has subsided, the question has emerged: survival for what? Ever more people today have the means to live, but no meaning to live for.”

In his autobiography, Frankl writes: “As early as 1929, I developed the concept of three groups of values, three possibilities to find meaning in life – up to the last moment, the last breath.

These three possibilities are:

This is not an attack on the wealthy. I am merely observing that money does not translate into meaning.

“1) A deed we do, a work we create.

Have you ever wondered what secret ingredient causes life to hold great meaning for some, and so little for others? Does it have to do with regarding yourself as valuable enough to have an influence on others? Does

3) When confronted with an unchangeable fate (such as an incurable disease, an inoperable cancer), a change of attitudes.

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The Financial Planner

2) An experience, a human encounter and love.

In such cases we still can wrest meaning from life by becoming witness of the most human of

all human capacities: the ability to turn suffering into human triumph.”

Frankl emphasises that finding meaning in life inevitably requires what he calls “selftranscendence”. The more one forgets oneself – by giving oneself to a cause, to serve another person, to love – the more human one is and the more actualised.

You may very well ask what this has to do with finance. I think, much. If we elevate money as the ultimate goal, we miss the point of being human. If our highest goal is to maximise earnings, savings and investments, we create an environment for life without meaning.

As financial planners, we have the opportunity to talk to our clients about the meaning in their lives, in addition to their money. Writing bucket lists is not enough, not if the lists entail only more entertainment and adventure. We can help our clients develop an understanding of what will bring true meaning to their lives. We are positioned to ask the right questions, which lead them to think about the meaning their money brings. We also have the opportunity to simply be human to people who are often entertained only for their money.

If we are in financial planning for the money, will we look back at our careers with regret? Will we regret not stepping up to the opportunity to challenge people, to live meaningful lives? Will we regret not even showing up as human beings?

Stand out.

Be extraordinary www.fpi.co.za

FINANCIAL SERVICES ADVISOR™ / FSA™ designation A new designation introduced by the Financial Planning Institute (FPI), which represents another level of professionalism in the financial services industry.

The designation effectively enables individual financial advisors to once again differentiate themselves as well as provide trusted expert advice to consumers.

One step to the top!

Find out more at

www.fpi.co.za email: membership@fpimail.co.za or contact: 086 1000 FPI (374)

FSA™ and FINANCIAL SERVICES ADVISOR™ are trademarks owned by the Financial Planning Institute of Southern Africa.

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2013/05/09 4:14 PM