The Financial Planner Magazine

Financial The

Issue 40 (1 of 2016)

PLANNER SUPPORTING EXCELLENCE IN FINANCIAL PLANNING

Leading our profession

Financial The

Contents

Issue 40 (1 of 2016)

PLANNER SUPPORTING EXCELLENCE IN FINANCIAL PLANNING

Leading our profession

Letter from FPI 2

Building a movement - Our theme and focus for 2016 Profiles

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4

FPI Approved Professional Practice firms

10

Catching up with an aspiring Certified Financial Planner® professional

TM

FPI CONVENTION

13 Convention programme 2016

FPI NEWS & EVENTS 44

FPI launches Global Consumer Survey results

46

Working with a CFP ® professional means peace of mind

54

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INDUSTRY NEWS & EVENTS 50

South Africa falls short of national savings ‘pass rate’

INVESTMENT

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A presidential case of loss aversion

INTERNATIONAL NEWS 64

FPI membership number:

Number of CFP® professionals worldwide nears 162,000

tax

Company:

68

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Budget 2016 and Retirement Reform

technology

Title: Initial:

74

Adapt or die

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The Financial Planner www.fpi.co.za Tel: 086 1000 FPI (374)

Tsholofelo Dihutso, CPRP Editor Communications Specialist media@fpi.co.za

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Opinions expressed in this publication are those of the authors and do not necessarily reflect those of this journal, its editor or its publishers, CEO Global. 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 products or the reliance of any information contained in this publication.

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1

Letter from FPI

Building a

movement

Our theme and focus for 2016

2

016 is the first of FPI’s new medium-term three year strategy that was recently approved by the Board for the period 2016 – 2018. This strategy, aligned to the tenets of FPI’s 2025 Vision of Leadership, Recognition and Awareness, and Standards Upliftment, calls for strengthening the brand equity of FPI and its certification marks among the public, financial advisors, employers, regulators and policymakers, also expanding FPI’s influence in the broader financial services industry by leading transformation and diversity within the financial planning profession.

As the financial services industry continues to struggle with public trust deficiency issues, we look to stepping up our efforts to educate consumers and present financial planning as a client centric, processdriven professional practice which has “quality of advice” at its core.

We want to encourage our regulators, advisors, firms and corporates to offer a unique solution that can help (re)build trust and restore consumer confidence in financial intermediaries, provide a suitable context for the distribution of products and ultimately support better outcomes for South Africans engaging the financial services marketplace.

It also calls for the prime position of financial planning to be recognised by regulators and policymakers in the midst of all the regulatory changes coming the way of the industry. Lastly, but not the least, it calls for enhanced practice standards as well as certification requirements.

We recognise the critical role that our members as well as firms and corporates that are aligned to FPI’s values, can play in helping achieve this outcome. As such, we have earmarked Engagement as the theme for our 2016 activities. We really want to listen and engage more than ever before so that the policy positions we adopt are more reflective of the professional aspirations of our members, partners and consumers alike. Ultimately, beyond just listening, we want our members, firms, corporates and consumers to join in and help champion the cause of the movement aimed at achieving regulatory recognition of financial planning, as a distinct evolving professional practice.

We strongly believe that with the many regulatory changes coming the way of the financial services industry, there exists a unique and real opportunity for guiding financial planning into attaining strategic parity with other recognised and respected professions such as medicine, engineering and law within the next few years. Such an outcome, which is very much in keeping with FPI’s vision of professional financial planning for all, is not only good for professional financial planners, more importantly, it will be a good day for the South African public that the profession serves.

2

We also look to have a more hands on approach in engaging financial planners, advisors and professional practices by helping them, not only

Letter from FPI

be prepared for the coming regulatory changes, but also assist them on how to excel in the post-world of regulatory change.

Member retention and growth remains a key part of our strategy in order to service the many South Africans who are increasingly being turned off by the all too common practice of product pushing. We want to retain and grow our membership so that top quality financial advice is delivered by professionals, giving consumers peace of mind and a better quality of life.

The winning aspiration of our combined member growth, regulatory and consumer awareness strategies is to position FPI designations, and in particular, the CFP® designation, as a must-have for all providers and consumers of financial planning and financial advice.

We also look to playing a leading role in promoting transformation and diversity in the financial planning profession – a key message and business imperative. In 2016, we will be publishing a specific transformation and diversity programme for the financial planning profession, which we will implement over the coming years.

Importance of the Global Consumer Survey The results of the recent consumer survey that South Africa participated in, alongside 19 other FPSB territories, helped shed light on consumer financial and life aspirations and their expectations from financial planners and advisors helping them achieve their desired outcomes.

We are particularly pleased to see from the results of the survey, that a majority of South Africans are working with a CERTIFIED FINANCIAL PLANNER® professional.

We are also pleased to have noticed that more and more of our members are telling us that some of their new clients come to them with some knowledge of the CFP® designation and that

they found out about it either through a friend, the FPI website or through one of FPI’s many consumer awareness activities. However, a huge dose of work is still required to a get a critical mass of public to fully understand the value of financial planning and the importance of working with CFP® professionals.

We look to fully utilising the results of this survey to help reinforce our message as well as our overall regulatory engagement and consumer awareness programmes.

To view the full findings of the survey go to page 44.

FPI Professionals Convention – 2016 We are ready to engage with delegates at our most exciting convention yet; a convention that will chart the future of the financial planning profession, completely satisfy your quest for more knowledge, best practice insights and networking opportunities. Delegates will join the largest gathering of some of the best brains in the broader financial services industry, celebrating the positive strides that we all are making as a professional community. Delegates will experience what it means to be a professional and shown how we set standards that others follow.

Our 2016 FPI Professionals Convention, themed ‘Leading our Profession’, is all about you, and the valuable work you do to help South Africans improve their lives.

It is about elevating financial planning into a universally respected profession – a goal that we know is close to your heart, as it is to ours. The programme, which features some of the best local and international thought leaders, has been built by practitioners for practitioners and is entirely focused on education and learning. It is designed to give you the tools and practical insights to build your business and further your self-development. It will certainly enable you to serve your clients even better – and of course, by attending, you will earn several all-important continuous professional development (CPD) points which will help maintain your FPI membership.

As mentioned, we are presenting you with an excellent line-up of some of the best local and international thought leaders and to name a few, you can look forward to: • Kate Holmes, CFP®, who will be talking on the topic “Use technology and turn clients into raving fans” • David Haintz, CFP®, talks on “Delivering a world class, profitable and sustainable client value proposition” • Kevin Lings will be a keynote speaker, discussing a political and economic overview • Gerhardt Meyer, CFP® will be talking on “South African Financial Planning in a Global Context” • A panel discussion on Death and Taxes by Professor Matthew Lester, Prem Govender, CFP®, and Judge Dennis Davis • South African Saving and Investing Culture and its impact on Financial Planning by Gerald Mwandiambira, CFP® We trust that you will enjoy the convention!

Godfrey Nti

Chief Executive Officer|Financial Planning Institute of Southern Africa (FPI)

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PROFILE

FPI Approved

Professional

PracticeTM firms

O

ne of FPI’s strategic objectives is to grow the number of professionals within the industry to benefit the South African consumer. The FPI Approved Professional Practice™ firms contribute immensely to this goal.

In this edition, we will be highlighting two FPI Approved Professional Practice™ firms. These two practices demonstrates why being an FPI Approved Professional Practice™ firm is important to help promote the CFP® mark and help deepen engagement efforts with their clients. As it is the Institute’s advocacy to have the financial planning industry as a wellrespected recognised profession.

An FPI Approved Professional Practice™ firm has to embody the values FPI has set in place to always put their clients first, lead with integrity, be fair, be objective, show professionalism, demonstrate competence and portray confidentially and diligence.

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We’re here to insure perfection.

If your clients don’t drink and they turn up their noses at the thought of smoking. If they only drive while the sun is up and have the BMI of a triathlete – we’ll insure them. And if they’re none of these things, we’ll insure them too.

Because perfect means something different to everyone, especially us. That’s why our life insurance policies have the least exclusions in the industry. We’ll actively find reasons to insure your clients, rather than excuses why we can’t. Chat to your Hollard consultant or visit www.hollardbrokers.co.za for more info.

home • car • business •

life

• investments

Hollard Life Assurance Company Limited ( Reg.No. 1993/001405/06 ) is a registered Long Term Insurer and an Authorised Financial Services Provider.

PROFILE

Independent Wealth Managers

Independent Wealth Managers are accountable professionals that focus on creating long-term wealth based entirely on their client’s unique circumstances. With a highly personalised approach ensuring that the practice gains an in-depth understanding of their client’s financial objectives, a necessity to navigate them in what has become a complex, ever-changing economic landscape.

Financial importance Independent Wealth Managers believes that when advising individuals on how to reach their financial goals and dreams, as well as to protect themselves and the ones they love, it is critical that a CERTIFIED FINANCIAL PLANNER® professional follows the process and approach to ensure that these objectives are met in an effective and efficient manner.

Given its proud history Independent Wealth Managers believed that it was important for their processes and level of professionalism to be tested and objectively assessed. They sought external verification and confirmation that the way they run their business and provide advice, satisfies the high standards of the Financial Planning Institute (FPI).

At Independent Wealth Managers it is vital to have a “big picture” plan in place, taking long-term capital and income requirements into account in order to achieve lifelong goals.

With this in mind the practice believed that by applying for FPI accreditation and being recognised as an FPI Approved Professional Practice™, it would affirm their commitment to high standards, while also displaying a standard of excellence towards their clients, product providers and the general advice community.

Seeking out professional advice from an FPI Approved Professional PracticeTM firm represented by CFP® professionals is the first step towards reaching these objectives.

.

Multiple sources show that the percentage of the population that is able to retire with the required funds to be completely financially independent is extremely low, close to 6%.

The practice’s drive is to make an impact through quality financial planning ensuring the preservation, growth and transferral of wealth.

Recognition as an FPI Approved Professional Practice™ firm Independent Wealth Managers strive for the highest standards of ethical, process driven business practices. By applying these high standards, it enables the practice to provide professional and independent financial advice.

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Value provided Independent Wealth Managers’ vision is to be the most respected and trusted financial planning and wealth management practice. They strive to be the leader in independent and objective advice and believe that this accreditation is a vital step towards achieving their vision.

The practice is pleased to be a part of this elite group of practices adhering to the highest standards of professionalism.

Independent Wealth Managers feels that being an FPI Approved Professional Practice™ firm and receiving the accreditation adds a level of trust and comfort for both existing and potential clients, therefore enhancing our credibility.

About Independent Wealth Managers Independent Wealth Managers heritage dates back to 2003. The practice was established in Durban, KwaZulu Natal.

They believe in expanding their practice as well as their business purpose.

To date Independent Wealth Managers advise an affluent base of clientele residing and conducting business throughout South Africa and abroad.

The practice’s clients find comfort that their team-based approach delivers a unique blend of specialist skills linking financial planning and wealth management.

Their services includes: - Investment planning (local and offshore) - Retirement planning - Legacy and estate planning - Personal risk assurance - Business risk assurance - Cash management solutions For more information about Independent Wealth Managers, visit www.iwm.co.za

And perfect imperfection.

Some insurers expect perfection, but we’re not quite sure that it exists. What’s a glass of wine with dinner? And who has time to gym 4 times a week? Our life insurance policies have the least exclusions in the industry. No matter how perfect or perfectly imperfect your client’s lifestyle may be, we’ll actively find reasons to insure your them, rather than excuses why we can’t.

Chat to your Hollard consultant or visit www.hollardbrokers.co.za for more info.

home • car • business •

life

• investments

Hollard Life Assurance Company Limited ( Reg.No. 1993/001405/06 ) is a registered Long Term Insurer and an Authorised Financial Services Provider.

PROFILE

BDO

Wealth Advisors BDO Wealth Advisors boast a host of services suitable for anyone who wants to have financial peace of mind.

Being one of the largest accounting firms globally, BDO sets itself apart with its holistic and client centric approach. With four independent offices across the country, and a staff complement of 40 people - 50% of which are dedicated directly to engaging with the client in an advisory capacity, with the majority of the team being CERTIFIED FINANCIAL PLANNER® professionals. This makes it easy to see why BDO are leading the pack when it comes to financial planning, corporate benefit consultancy, estate administration as well as cash management consultancy.

About BDO South Africa: Financial wellness BDO Wealth Advisors recognises that one size does not fit all and advocates a broad-based advisory approach to financial planning. Being part of a global professional, BDO Wealth Advisors are well positioned to advise their clients, individual or corporate, across a spectrum of business and professional advisory services. The organisation openly acknowledges that people seek financial wellness as individuals who wear different hats; whether it is as a shareholder, executive or parent, BDO will cater to the multi-dimensional financial perspectives we all have as individuals.

mentorship programme. They have greatly benefited through an even wider reach and increase in client advisory capacity by introducing youth to an aging trade through its financial planner trainee and mentorship programme. The company’s focus on the growth and financial wellness and their staff nationally proves its commitment to its people and to the industry by providing trusted advice.

Being recognised as an FPI Approved Professional Practice™ firm, the rigorous process of acceptance into this small group, “separates the great from the good” at a

.

Their team of CERTIFIED FINANCIAL PLANNER® professionals across the country are focused on putting their clients’ interests first and work hard to deliver the best level of service. This accreditation distinguishes their practice from others, endorsing their financial planning services as being of the highest global professional standards and ethics.

Mentorship BDO was encouraged to fast track the implementation of its financial planner trainee

8

time where the global standards informing financial planning are being refocused around the needs of clients. “We have proven that our advisory standards are on a par with the best in the country at a time when the Retail Distribution Review (RDR) will meaningfully refocus what best advice actually looks like in reality for clients. It is within this context that the responsibility of advisors to ensure that their trusted advice takes into account the client’s demand to focus on the short-term and seemingly urgent priorities,” said Ricardo Teixeira.

BDO International: • Winner, Network of the Year 2015, International Accounting Bulletin (IAB) • Winner, International Payroll Award winner, 2015 Payroll Awards BDO South Africa: • Winner, Best Tax Firm of the Year, 2015 Finance Monthly Global Awards • Wealth Advisors: FPI Approved Professional PracticeTM firm BDO in South Africa is the South African member firm of BDO International. BDO is the brand name for the BDO network and for each of the BDO member firms. The global BDO network provides audit, tax and advisory services in 152 countries, with over 59,000 people working out of 1,300 offices worldwide. Service provision within the international BDO network of independent member firms (‘the BDO network’) is coordinated by Brussels Worldwide Services BVBA, a limited liability company incorporated in Belgium with its statutory seat in Brussels.

For more information about BDO, visit www.bdo.co.za

HAVASWW64627/E

HOW A PHYSIO IS HELPING TO STRENGTHEN THE BACKBONE OF A CONTINENT.

2005: A physiotherapist notices that disadvantaged young South Africans are developing scoliosis: a condition exacerbated by carrying heavy school backpacks over long distances.

They face expensive fusion surgery. An unnecessary burden, according to LouAnn Rivett. She develops an exercise programme designed to straighten and permanently strengthen young spines. Her methods are successful. Today, with assistance and funding, she also treats young people from Zimbabwe, Nigeria, Congo, Ethiopia and Mozambique.

LouAnn is just one of the PPS members who uses the power of professional thinking to bring about positive change. Her story highlights just how unique a breed of graduate professionals are.

Through deep understanding of the world, needs and wants of graduate professionals like LouAnn, we’ve been the proud providers of bespoke financial services for 75 years.

For more inspirational stories like this, visit pps.co.za

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PROFILE

Catching up with an aspiring

Certified Financial Planner® professional, 2013 Winner of the Grade 11 KZN Speech contest Bongumusa Nkwanyana

Elmyra Willemse, Junior Coordinator: Marketing and Communications, Financial Planning Institute (FPI)

A

s an aspiring financial planner, in this first issue of 2016, Elmyra Willemse caught up with Bongumusa Nkwanyana. After being announced the winner of the 2013 Grade 11 KwaZulu-Natal Speech Contest on Finance, Bongumusa now a second year student at the University of Free State, decided to further his career and fulfil his dream in financial planning, and to attain the highly sought-after CFP® designation.

Bongumusa visited the FPI offices before embarking back to the Free State and The Financial Planner got to catch up with him and follow up on his journey to becoming a CFP® professional.

PROFILE PROFILE

Godfrey Nti, Chief Executive Officer of Financial Planning Institute (FPI) and Bongumusa Nkwanyana

1. Was winning the competition one of your biggest dreams and importantly what inspired you to enter the competition?

This is a dream come true for me. I was encouraged by Mr Parduman, my grade 11 business studies teacher to enter the competition. My aim was to make him proud.

During my preparation and passing several stages of the competition, my anticipation for the final round grew day by day. I knew I wanted to win and being announced as the winner, changed my life forever − within five minutes.

2. How would you say you have grown from being a grade 11 student, at the time you won, to a second year student at the University of Free State?

My journey from grade 11 until now has definitely been a great experience.

My level of thinking and reasoning from a 16 year old has definitely matured especially being exposed to a completely new and different environment. I have learnt a lot about different cultures and understanding their ways of thinking.

My leadership experience from being deputy head boy at school (amongst others) to being exposed to various leadership roles at

the university has been a great experience.

Spiritually, I found a new church that has played a big role in my edification. I’ve grown to understand my continuously unfolding purpose on earth. And now share an excitingly deeper relationship with Jesus.

3. Moving from high school to varsity is a big step and a huge adjustment, how did you cope with being away from home and a new environment?

It was definitely a big change of environment, a big step indeed.

My parents literally called me twice a day for the 1st three weeks of my time in the Free State. I guess being more than 1200 km away from them was bit more difficult for them than it was for me.

Adjusting to the new environment was not too difficult, except for the language barriers I had to go from isiZulu to seSotho, however, I’m in the process of being fluent in seSotho.

Afrikaans is also a prominent language here, so thanks to Mrs Bentley my high school Afrikaans teacher I can still catch a few words and am able to converse in the language.

I find it very easy to adapt, so the change one has to become accustomed to when embracing university life, was not an impossible hustle.

4. What have been your greatest accomplishments since you have started university?

I would say growth in all spheres of my life.

As a bursary student, good academic results are key in moving forward so I was really chuffed with my efforts; I received seven distinctions.

5. Were there any major changes and is varsity what you’ve expected it to be?

I expected the work load to be greater than high school. However, I could not truly fathom the hard work required until I experienced it.

That being said I enjoy the freedom Varsity offers. It is way better than high school. I always encourage my high school friends to finish strong, because varsity is just way too awesome.

The other experience I appreciate is how my inputs equate to outputs. The varsity environment offers a lot of opportunities. It is really up to you where you choose to invest your time.

6. Financial planning is broad and has different sections, which do you enjoy and want to further enhance your skills on?

Most, if not all disciplines, of financial planning intrigue me. However, I find it most interesting to learn about investments.

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PROFILE

About Bongumusa Nkwanyana

7. After completing university where do you see yourself?

Bongumusa; is the fifth born in a family of seven children and currently a second year financial planning student at the University of Free State with big dreams. He is inspired and largely influenced by his parents. He was brought up in a family where good values were instilled in him

I would like to become a CFP® professional. My energies are directed towards that goal. I am an ambitious person so I think the professional designation will serve as a good springboard for me to reach greater heights within the industry.

He describes himself as a “big picture thinker”, and finds a reason to be motivated in most situations. He sees himself as a protagonist; and receives a good sense of fulfilment when helping others recognise their true potential.

8. Why would you encourage a career in financial planning?

A career in financial planning, besides the possible remuneration, is a wonderful opportunity to help others make smart financial decisions. My personality is pretty much that of a protagonist, so my career choice and my personality definitely merges well.

More than this, I would encourage a career in financial planning because there is so much room for growth. You don’t have to feel trapped in a specific field but the career gives the opportunity to be flexible in most spheres of work since you’d be serving clients from different spectrums in the financial sector.

9. What are your aspirations?

My dream is to gain hands-on experience and I look forward to enhancing my expertise in the financial planning industry and obviously mastering my skills in the profession. I plan on finding a balance between my career and personal life; uniting people around a common goal comes naturally, so opening my own practise one day is also a dream.

I am open to any opportunity and very willing to learn from those who’ve travelled this road before me.

10. Tell me about your visit to Johannesburg, FPI offices and the experience you received when you were here?

My visit at the office was splendid, I enjoyed every moment. An experience I will never forget. It was an even greater opportunity to meet Godfrey Nti, FPI’s CEO. In our brief meeting I learnt something so invaluable which he called “intellectual curiosity”.

I also had the chance to meet up with the family working behind the scenes of “the professional standard” and I witnessed with my own two eyes the amount of hard work that is put in to keep the institute as the leading professional body in financial planning industry.

The visit helped me gain a sense of belonging and I now feel part of a professions family. I find comfort knowing I have support from the Institute.

I am looking forward to paving my way to the qualification, without a doubt. I definitely cannot wait to attain the CFP® designation.

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" Never in the history of financial planning have so many game changers come into play at the same time " Anton Swanepoel, CFP®

Programme

Day l , Tuesday, 14 June 2016

Time

Topic / Speaker

07h00

Registration opens

08h00 - 08h15

Welcome and opening Speaker: FPI Chairperson Topic: Leading our profession

08h15 - 09h15

Opening Keynote Panel Discussion: Thobo Dloti - Liberty Life CEO; Nicolaos Kruger - MMI Holdings CEO and Andrew Bradley, CF� Old Mutual Wealth CEO Facilitator: Godfrey Nti, FPI CEO Topic: Leading your business in extraordinary circumstances

09h15 - 10h15

Keynote Speaker: Kevin Lings Topic: Political and economic overview

10h15 - 10h45

Speaker: Gerhard Meyer, CFI'® Topic: RSA financial planning in o global context

10h45 - 11h15

Tea Break

11h15 - 12h15

Speaker: Ismail Momoniat (National Treasury), Caroline Do Silva, David Kop, CFP® , and David Haintz, CF� (Australia) Facilitator: Ion Middleton, Cfpl\l Tepic: Regulatory update and lessons from abroad

12h15 - 13h15

Speaker: Gerald Mwandiombira, CFp® Topic: South African saving and investing culture and the impact it has on financial planning

13h15 - 14h 00

Lunch

Time

Topic / Speaker

14h00 - 15h00

Speaker: David Heintz, CFPÂŽ Topic: Delivering a world class, profitable and sustainable client value proposition

15h00 - 15h30

Teo Break

15h30 - 16h30

Speaker: Dr. Graeme Codrington Topic: Forward thinking industry analysis

16h30

End of day one

19h00

FPI Awards Galo Dinner (booking required)

No human endeavour happens in isolation.

The benefit of working together and finding the perfect partnership... is Exceptional

Barack and Michelle Obama

175mm x130mm.indd 1

2016/05/30 9:07 AM

Programme Day 2·, Wednesday 15 June 2016

Time

Topic / Speaker

07h00

Registration opens

08h00 - 08h30

Speaker: 2016 FPI Finonciol Planner of the Yeor Topic: My journey ond vision for the future

08h30 - 09h30

Speaker: Kote Holmes, CFP® Topic: Use technology ond turn clients into roving fons

09h40 - 10h40

Breakaway 1 Speaker: Rob McDonald Topic: Professional practice development - building a long-term, sustainable business and increase your profitability

Breakaway 2 Speaker: Peter Hewett, CFP®, Wouter Fourie, CFP® and Notosjo Norval Hort, CFf>® Facilitator: Anton Swonepoel, CFP

®

Topic: Risk Profiling White Paper Second Edition Update (2016) ond industry survey results 1 Oh 4 O - 1 1 h 15

Teo Break

11h15 - 12 h15

Breakaway 1 Speaker: Theo Vorster, Marius Kilian, Magda Wierzycko and Rob Pritchard Facilitator: Ronald King, CFP® Topic: Robo advisors and automation leading the way in SA

Breakaway 2 Speaker: Billy Seyffert, CFP� Ion Middleton, CFF®, and Richard Rottue Facilitator: Lelone Bezuidenhout, CFP ® Topic: The future of compliance and its impact on professional practice management

16

Topic / Speaker

Time 12h25 - 13h25

Speaker: Hywel George Topic: Wealth management - a global perspective

13h25 - 14 h 15

Lunch

14h15 - 15h15

Speaker: Judge Dennis Davis, Professor Matthew Lester and Prem Govender, CFI'® ® Facilitator: Errol Meyer, CFP Topic: Death and taxes

15h15 - 16h15

Speaker: Anton Musgrove Topic: Thriving in the perfect storm

16h 15

Close of convention

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FPI CONVENTION

South African

Saving and Investing Culture and its impact on

Financial Planning

by Gerald Mwandiambira, CFPÂŽ FRANCHISE Principal Sugar Creek Wealth

T

.

he entire financial services industry is based on the premise that individuals and corporates want to save and invest.

There are many definitions of what saving is versus investing but the popular consensus is that saving is putting money aside for short-term use with little capital growth expected, whilst investing involves putting money aside for a longer duration expecting capital growth. Both saving and investing involve a conscious decision and choice by an individual to set money aside. As financial planning professionals, our biggest challenge often comes in the need to convince clients on the merit of saving today, so that you can enjoy the fruits tomorrow.

Savings Statistics The South African Reserve Bank (SARB) quarterly bulletin March 2016, the household debt to income is 77.8% meaning that outside debt, consumers have 21.2% of income to spend on other expenses.

The household saving to debt is -2.4% meaning that most consumers are not saving at all but borrowing to meet daily expenses. This is the primary reason why Treasury introduced savings incentives in the form of Tax Free Savings Accounts (TFSA), and retirement reforms to encourage better savings. It appears that more may need to be done to encourage savings whilst discouraging consumption. The solution may be a hybrid between voluntary savings vehicles and attractive compulsory savings interventions.

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International Comparison South Africa saves 16% of GDP but all this saving can largely be attributed to the corporate sectors as government is currently running a budget deficit as well as individuals. The importance of encouraging domestic saving is that it enables individuals to meet personal goals whilst on a macro level. Domestic savings drive economic growth. There is a strong correlation in countries that have a high retail savings culture being fast growing economies. Examples are China, India and South Korea. According to the GIBS Investec Savings Index, South Africa needs to nearly double its national savings to 30% in order to achieve 5% annual economic growth, without any reliance on foreign direct investment flows. This means that the country needs to start building more factories and less malls in order to curb the country’s appetite to consume.

South African Financial Planning The foundation of Financial Planning in South Africa is enabling clients to save and invest in order to meet agreed financial goals.

These goals are then underpinned by various solutions. Unlike other professions, which do not rely on clients adopting a change in behaviour, financial planners have the dual role of educating clients on financial planning matters whilst also providing a solution.

Professions like the legal field, accountancy and medical practitioners are relied on simply for solutions. This makes it important for the

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According to the GIBS Investec Savings Index, South Africa needs to nearly double its national savings to 30% in order to achieve 5% annual economic growth, without any reliance on foreign direct investment flows.

modern financial planner to show empathy whilst also having strong communication skills. If the education of the client is weak, it may lead to failed proposals or short-term commitment of the client. This will be the case until such a point is reached where every citizen is aware of the need for a financial planner in their life.

Financial Capability According to a 2015 UK-wide survey by RSA Action and Research Centre many people lack the knowledge, motivation or opportunity to make good financial decisions. In other words, they lack financial capability, or the ability to take the actions and decisions that make up positive financial behaviour. For example, over half of respondents to a recent survey say they are struggling to keep up with bills and other financial commitments, nearly a quarter admit they would rather live for today than plan for tomorrow, and more than one in 10 people are unable to identify the balance on a bank statement.

Additionally, recent research found that those in the lowest income quintile are worse off now than before the great financial crisis and,

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on average, have less than six days’ worth of income saved. This research is equally relevant in South Africa, where in many instances it is no longer the lack of knowledge but rather the application of knowledge that is the hindrance to effective financial planning. Many clients know that they need to save, plan their estates, wills, invest, plan for retirement and have risk cover but simply cannot connect this knowledge with lasting action.

Unique South African Perspective The majority of the economically active population have both cultural constraints as well as knowledge challenges to achieving financial capability. This highlights the need for local Financial Planning Professionals, not only to have the expected professional competencies, but an understanding of how to break down objections likely to be rooted in cultural and historic facts. This calls for the use of all media in breaking down these barriers. In order to succeed, Financial Planning Professionals in South Africa need to adapt to our unique environment.

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FPI CONVENTION

ing n n a l p l a i financ

inves tmen t

fina ncia l ne eds

fundamentals of suitable investment advice

A

medical doctor and a financial planner have a lot in common. The one deals with people’s health and the other deals with their money. Most people will tell you that their physical well-being and financial well-being are extremely important building blocks for a good life. Ideally people want to be physically and financially healthy. However, whenever you have a condition or an event occurs that you cannot solve by yourself, you would probably seek advice. At this point it may be a good idea to pause and think…

by Anton Swanepoel, CFP® Co-Founder and Director of Amity Wealth

22

When ill, would you go to a doctor if you had any doubt whether he or she will perform a proper diagnosis in order to understand your condition and then make a suitable recommendation which will solve the problem? For the same reason I believe that investors will not ask for investment advice if he or she does not have the confidence that the financial planner concerned will do a proper diagnosis and offer appropriate advice. Just as a medical doctor is expected to prescribe appropriate medicine to a patient, offering suitable advice to investors is arguably one of the most important aspects that any financial planner should master. In fact, according to the FAIS General Code of Conduct

FPI CONVENTION

(the Code) it is a basic regulatory requirement. Fortunately, the Code does offer sound guidelines to assist financial planners when they provide advice to their clients. Section 8 of the Code prescribes that: (1) A provider… must, prior to providing a client with advice(a) take reasonable steps to seek from the client appropriate and available information regarding the client’s financial situation, financial product experience and objectives (diagnosis)1 to enable the provider to provide the client with appropriate advice; (b) conduct an analysis, for purposes of the advice, based on the information obtained; (c) identify the financial product or products (medicine)2 that will be appropriate to the client’s risk profile and financial needs, subject to the limitations imposed on the provider under the Act or any contractual arrangement.

Ombud’s Office always look for evidence that prove that such an analysis was indeed performed. In the absence of such evidence, it constitutes a breach of the Code and if this breach was instrumental to providing inappropriate advice to the complainant and he or she suffered a financial loss as a result, the Ombud normally finds against the advisor.4 In many determinations the Ombud highlights that no record of advice was maintained to explain why the selected product was likely to satisfy the client’s identified needs and objectives.

These determinations frequently refer to the provisions of section 8(1) (c) of the Code, which specifically require that the provider identify the financial product or products that will be appropriate to the client’s risk profile and

The aforementioned provisions contained in the Code of Conduct are very clear and a comprehensive study of FAIS Ombud determinations show that the Office of the FAIS Ombud consistently apply these provisions when investigating and resolving complaints. In their determinations the Office of the FAIS Ombud frequently remind financial advisors that their clients rely on their advice and FSPs are required to act in accordance with the FAIS Act.3 In the majority of FAIS Ombud cases the outcome ultimately depends on whether the facts and evidence support whether the advisor provided appropriate (suitable) advice.

From a suitability point of view the Ombud always refer to the provider’s duty to do a needs analysis in accordance with section 8(1)(a) of the Code and the

financial needs.5 The FAIS Ombud’s Office always pose the same fundamental questions to respondents when investigating complaints in terms of section 27(4) of the Act. These include: 1. Please explain on what basis did you deem the investment product to be a suitable investment for your client?

2. Details of the due diligence you conducted, (if any); and 3. What actually led you to conclude that the risk inherent in the product was suitable to your client’s risk tolerance?6 It is of vital importance for all financial planners to realise that understanding the client’s needs and establishing the client’s risk profile correctly is fundamental to providing sound investment advice.

Financial planners who do not take the provisions of section 8(1)(a), (b) and (c) extremely seriously, may find themselves totally exposed when facing a client complaint.

My insert for purposes of the analogy My insert for purposes of the analogy 3 See Natalina Natali v Impact Financial Consultants, FAIS 04032/12-13/ WC 1: page 5, par 13 4 See Craig Steward Inch v Impact Financial Consultants, FAIS 04971-12/13-MP 1, page 8, par 26 5 See Craig Steward Inch v Impact Financial Consultants, FAIS 04971-12/13-MP 1, page 9, par 27 6 See Craig Steward Inch v Impact Financial Consultants, FAIS 04971-12/13-MP 1, page 22, par 74 1 2

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A Few Global Trends in Wealth Management I

n an increasingly globalised and changing world, a number of global investment-related trends are arising that are shaping the global asset management industry and are making their way into the local investment arena.

1. Continued Shift to Passive Globally, the shift toward passive investing continues to gain momentum. According to Bloomberg, in just five years, the market share of index funds as a percentage of international assets has grown from 17% to 23% over a very short time frame. Fueling this trend has been the increased pressure on fees brought about by legislative changes such as the UK’s Retail Distribution Review (RDR) and the general long-term lack of delivery from a large percentage of global active managers. This poor performance is highlighted in Graph 1, which shows that international index funds have outperformed the average active fund over all time periods (one, three, five and 10 years).

by Hywel George, Director of Investments at Old Mutual Investment Group

Graph 1

14%

ANNUAL AVERAGE RETURN: INDEX FUNDS VS NON INDEX FUNDS

US Non Indexation Funds US Indexation Funds

12%

Return (annuallised)

10% 8% 6% 4% 2% 0%

12 Months

3 Years

In addition, we are starting to see a similar trend emerging in South Africa where the institutional and retail take-up of index products has exploded – albeit off a low base. Old Mutual Investment Group’s Customised Solutions boutique estimates that retail indexation has grown by over 50% per annum over the last five years, yet the share of

5 Years

the overall unit trust market is barely 1%. Clearly there is huge scope for material growth as financial planners consider the implications of our own legislative changes (Treasuries’ Retirement Reform) and the lacklustre relative returns of the SA active management community.

This is borne out in Graph 2, which indicates that over the last

Graph 2 600 South African General Equity ALSI SWIX - Parent Index

500

15.5% p.a

Cumulative Returns

400 12.5% p.a

300

200

100

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Dec-15

Aug-15

Apr-15

Dec-14

Aug-14

Dec-13 Apr-14

Aug-13

Apr-13

Dec-12

Aug-12

Dec-11 Apr-12

Aug-11

Apr-11

Dec-10

Aug-10

Dec-09 Apr-10

Aug-09

Apr-09

Dec-08

Aug-08

Dec-07 Apr-08

Aug-07

Apr-07

Dec-06

Aug-06

Dec-05 Apr-05

Aug-05

0

Source: Morningstar, Old Mutual Investment Group | February 2016

10 Years

decade, the average general equity unit trust fund has lagged the FTSE/JSE SWIX Index by 3% per year.

Although there has been, and will continue to be, a significant shift to indexation, it is important to put this into perspective by considering the fact that international investors still have a substantial percentage of their assets invested with active managers.

Based on global experience, these investors don’t see active and passive as mutually exclusive but rather view the combination of both approaches as a way to create a cost effective, more efficient aggregated portfolio which still exhibits alpha potential. Within the SA environment however, recent research has found that the blending of active equity managers is becoming more and more challenging. Post the financial crisis, the ‘mispriced securities’ opportunity set, previously available to skilled active managers, has reduced. It should be noted that this doesn’t refer to market volatility, but rather to the fact that when stocks gyrate, they are doing so in a synchronised manner.

These stock picking constraints have resulted in active managers seeking to take on more risk in order to drive alpha outcomes but the unintended consequence has been overexposure to certain factors, such as commodity prices. From an active manager blending perspective it therefore stands to reason that financial planners should seek funds which employ processes that produce alpha in very different ways.

2. More Money Allocated To Real Assets Scandinavian asset owners have been at the forefront of global portfolio construction for many years. Their portfolios are hugely

The No. 1 financial planning reference for 2016, now available…

FPI CONVENTION

diversified, with real asset weights ranging from 10% to 20% of the total fund. They have correctly predicted the numerous benefits provided by incorporating asset classes, such as private equity, to their overall blends. These benefits include a lower correlation to listed assets and higher returns as a result of the illiquidity premium.

Graph 3 shows that over the last 10 years, private equity returns have outstripped the FTSE/JSE All Share, FTSE/JSE SWIX and FTSE/ JSE Financial & Industrial Indices.

3. A Recovery in Emerging Markets 2016 has brought significant signs of improvement within Emerging Markets. So far this year, there has been a marked reversal in global flows, with US$40 billion flowing back into Emerging Market funds.

As a result, Emerging Markets have outperformed developed markets by over 6%, year-to-date. We believe that deep valuation discounts, as shown in Graph 4, plus structural consumption shifts will continue to drive the medium-term recovery in emerging markets.

Graph 3 30% 25% 20%

20.7

19.3

15%

14.9

15.6

ALSI

SWIX

10% 5% 0% FINDI

Private Equity

Source: Riscura

Graph 4

EM VS DM PRICE TO BOOK RELATIVE

1.25

1.00

Average

0.75

0.50 02

03

04

Source: Citi Research, MSCI, Datastream

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06

07

08

10

11

12

14

15

16

Make the

robo-advisors

The South African Financial Planning Handbook 2016

2016 Edition at 2015 price

work for your

R1,197

financial advisory practice

by Magda Wierzycka, Chief Executive Officer, Sygnia Limited

R

obo-advisors, or the provision of digital advice, are an unavoidable evolution of the financial services landscape.

Depending on your viewpoint, it can either be a threat or an opportunity for a traditional financial advisor.

The threats it presents are obvious. Essentially, robo-advisors empower investors to circumvent the advice offered by financial advisors and hence a layer of cost. Over time, it may lead to a smaller consumer base for traditional forms of advice. It may lead some existing investors to terminating their financial advisory appointments. As robo-advisory tools become more accepted, advisory fees may come under pressure.

In light of the National Treasury’s Draft Default Regulation, robo-advisors may well assume the role of “retirement benefits councilor” for members of retirement funds, cutting off financial advisors from a potentially lucrative client base.

There is a lot of truth in the above. There is also a lot of superficially optimistic assumption. On the truth side, robo-advisors definitely provide an alternative to traditional advice. This is particularly true for the millennial generation, anyone born after 1990, who now make up a quarter of the world’s population. Millennials are the most educated generation to date.

Widely regarded as the number one reference work for all financial planners, legal advisers, compliance officers and academics. The South African Financial Planning Handbook is also a prescribed textbook for post-graduate studies.

Annually updated and available in print, ebook or online format to suit your preference.

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They are also technology-savvy, confident, quick results-oriented and amazingly cost-conscious, all the pressure-points most easily addressed by robo-advisors. On the downside, they are not, as yet, a massive “savings” force. In fact, they delay becoming significant savers by virtue of the fact that they tend to stay single for longer and have children later in life.

They also currently experience the highest levels of unemployment, again delaying their entry into the workforce and wealth accumulation.

Consequently, the money that has actually been invested through roboadvisors remains small, albeit the actual numbers of investors are large, a little bit like South Africa’s Tax Free Savings Accounts. It is estimated that robo-advisory firms currently manage about US$19 billion in assets in the US. Given the small asset size, in the short-term, profitability is being eaten away by administration costs. Hence many robo-advisors which are launched today are doomed to fail, particularly if they are launched as a stand-alone business, without being backed by large institutions.

The same large institutions are dependent on financial advisors for distribution. Hence it is unlikely that they will promote or launch roboadvisors in a meaningful way.

The “target market” is actually a very important point to unpack.

Robo-advisors do not address the needs of most investors with more substantial assets who have more complex financial needs, who do not understand investments and who require hand-holding and more explanations than can possibly be provided by a website. Most people are also lazy. Hence to expect them to embrace self-education through reading of pages of explanations is unrealistic. They prefer to be told what to do. Most consumers are also used to being “sold” things, with the quality of the service experience, rather than price alone, driving loyalty.

Financial advisors are little bit like medical doctors. As much as websites such as MediPages can replace common advice provided by GPs today, it can not eliminate the need for expert services provided by specialists. Hence every advisor should strive to become that specialist – an expert in his field. Those who have shifted their advice to investments-only practices should reconsider – a more holistic

28

approach to financial advice will make it unlikely for investors to want to move to generalist internet-based advice.

Financial advisors should also start to lobby for some monopolistic tools, such as the prescription pads which make medical doctors indispensable. An example would be to lobby for regulation that makes certain categories of products inaccessible without personal financial advice e.g. investments in private equity or PSPs. Thinking out of the box robo-advisors do not need to be a threat. In the US financial advisors are embracing robo-advisors in creative ways. Some of the largest financial advisory firms have entered into partnerships with robo-advisor providers. Such partnerships involve licensing robo-advisory tools to work with the best house view advice provided by financial advisors.

Others are including links to robo-advisor on their websites with feedback loops in order to capture information about the future generation of savers. Yet another model is to design model portfolios to work with robo-advisory tools offered by LISPs to deliver advice in a remote manner. Financial advisors brave enough are, in fact, encouraging savers below certain minima to work through recommended robo-advisors, thus establishing trust with a future generation of savers. Partnerships with robo-advisors can help in keeping track of such “lost” opportunities so that, when they become meaningful investors in need of comprehensive advice, they come back.

Interestingly, in the US, robo-advice does not typically come for free, with most robo-advisors charging between 0.20% to 0.50% per annum in advisory fees on assets managed using their advice. Most robo-advisors guide investors to passive or index-tracking strategies to contain costs. That works on two levels. It allows to charge for advice while making the whole proposition cost-effective to the end consumer.

There are many more iterations of the above business models. It is up to each practice to determine what suits their target market. Progress is a fact of life. You can either embrace it and harness it, or ignore it and let it disempower you over time. It is entirely your choice.

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Digital

Evolution in the Financial Services Industry

by Marius Kilan, CFP® Director at Independent Investment Partners (2IP)

Globally the financial planning industry is moving from a portfolio centric (performance-based) approach to individualised goal– based investing. The emergence of the “robo-advisor” has become very topical in global financial publications and the media lately.

Thankfully the debate has matured from the initial arguments that contrasted the future of the advisory industry as either being digital or human-only. The inevitable truth is that it will be both.

The “robo-advisor” model has many benefits: • Always available - 24/7 convenience • No sales pressure • Transparency • Low cost • Seamless and easy implementation • Tax loss harvesting (in the US) It does however, for now, have limitations. On closer examination it appears that most of the current offerings do not automate the financial planning process, but are more focussed on automating the investment process.

The process typically involves answering a series of risk tolerance questions that leads to a portfolio suggestion. The principles of Modern Portfolio Theory are used to establish an optimal portfolio (asset allocation) mostly informed by the risk tolerance score. These investment offerings use low cost index-tracking funds for underlying exposure.

SEI has grouped various global offerings in the chart below according to their level of automation of the “investment process” vs. “financial planning”: Technologybased

Folio Investing

Schwab

Wealthfront

SigFig

Jemstep

Wise Banyan

Future Advisor

Betterment

Motif Investing

APPROACH

T

echnology and the web has fundamentally transformed the way people think and do business. Digitalisation of industries has become ubiquitous, and consumers are changing the way they seek and consume advice and other services. The consumer is now more informed, has more choices and demands greater personalisation.

Personal Capital Corp

Covertor

Everbank

Vanguard

Learnvest

Edelman Online Advisorbased OFFERING Investments Publice Private

Investments Recommendation

Size of bubble correlates to fees: Higher fees = larger Lower fees = smaller

Financial Planning

Source: SEI October 2014.

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FPI CONVENTION

Good technology will allow investors to understand when there is a mismatch between their “tolerance for risk” and their “need for risk”.

It is clear that the current offerings do not automate the financial planning process, as the top right quadrant (automation + financial planning) remains empty.

A decision making framework should empower an investor to make better quality decisions as this lead to better quality outcomes. It is accepted that a questionnaire that measures your tolerance for risk is only a part of the answer. Risk tolerance questionnaires focus predominantly on volatility risk – your ability to stomach short-term movements in the market.

Funding your personal lifetime goals will require exposure to a level of risk that will enable you to achieve the required rate of return based on your needs. The focus here is more on inflation risk as opposed to volatility risk. How much risk do I need to take to fund my objectives? What is my capacity to take risk?

It is these two questions that generally go unanswered by the current “robo” offerings. Giving clients a “sleep well portfolio” based on their tolerance for risk could result in them not having a “eat well portfolio” based on their stated needs and objectives. The optimal portfolio (asset allocation) would probably be based on a balance between the risk required, the risk capacity and your risk tolerance.

Our goals and resources are seldom in sync. We seldom have the resources to live the life that we want. For most people financial planning is about making tough decisions. An informed decision has a clear understanding and awareness of the challenges that you face.

30

The next generation of advice automation currently being developed will allow the investor to gain proper insight into the relationship between their needs and their resources. Is it realistic? If not, what can I do? Clients should then prioritise themselves through a process of discovery which trade-offs are necessary and would be the most sensible for them. This technology already exists.

The introduction of RDR (Retail Distribution Review) in the UK has led to disintermediation of clients by advisors, creating the so-called “advice gap”. The very people that need advice and guidance most will not have access to advisors. Automated advice offerings provide investors that do not have access to an advisor, a framework within which they can make and implement their investment decisions.

Many advisors in the USA have become adopters of the technology developed by the “robo-advisors”. They increasingly prefer platforms that are simple, intuitive and encourages client engagement. Based on client segmentation it creates the opportunity to efficiently and profitably service their smaller clients.

Segmentation within larger financial services firms will in future not be based on net asset value (NAV) but rather on client preference and choice. For larger institutions the opportunities involves scale: taking advantage of smart software and algorithms rooted in “Big Data”, it is possible to customise information for millions of people at low cost. Usually better customer service requires more employees – this trade-off does not exist in the digital world.

FPI CONVENTION

Less

more

by Ian Middelton, CFP® Managing Director of Masthead

common sense I

ntegrating compliance and practice management in financial advisory businesses is not only possible, it’s essential for better business outcomes and, in my view, it’s common sense.

To succeed in this heavily regulated and competitive world, financial advisors not only have to comply with regulation, but have to create a business with a clear competitive advantage that is able to compete and deliver profitably over time.

Creating a competitive advantage in a regulated environment is about being strategic about how one implements the regulatory requirements.

It is about putting the right resources in place, running efficient systems, streamlining processes and effectively managing finances – in essence, it is about practice management.

This article looks at the benefits of integrating compliance and practice management. It looks at moving away from a narrow view that is compliance to a broader, integrated view that is more about risk management.

Integrating achieves growth When your clients are front and centre of your business, when you treat them fairly, your business reaps the rewards. The chances of client complaints are reduced, it builds client loyalty, it boosts referrals, and it also helps you to build a good reputation for your practice. On the other hand, it avoids the negatives associated with poor customer views of your business.

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FPI CONVENTION

Good business practice dictates that business owners periodically review their policies and processes, get client feedback on their service, manage complaints timeously and appropriately, develop good communication channels with product providers, and provide client feedback to product providers. And, despite it being common sense, regulation has started talking about the need for businesses to incorporate the TCF outcomes in their practices, from the culture or mindset of the business to the way you provide financial advice.

Businesses that do not have clients’ interests at heart are likely to suffer, either through direct monetary or reputational loss. When businesses lose the focus on customers, they lose their clients’ trust, loyalty and relationship, they don’t receive referrals and they eventually lose their clients. Ultimately though, they lose the business.

Integrating creates a competitive advantage Regulation aims to deliver fair and better outcomes for customers. While it is important that you stick to the letter of the law, common sense as well as the spirit and intent are what needs to be top of mind. A worthwhile exercise is to take your business values and see how they stack up against the TCF outcomes the regulator is advocating. So, review your business values – what are they? How you see your customers and the services you provide to them? How would you like your customers to see your business and what would you like them to tell their friends about their experience of your service?

Establishing business values that align to the spirit and intent of the law will reinforce behaviours that benefit the business and will create a competitive advantage for your business.

Integrating makes it easier to respond to change It’s fair to say that the advisory world is already highly regulated and that regulation is here to stay. Moreover, changing and increasing regulation is forcing advice practices to continuously adjust their operations and processes. Taking time out to make administrative changes cuts into client-facing time, so any business would be well advised to implement regulatory requirements in such a way that making changes becomes more straightforward and less time consuming. Being able to implement change quickly will also help you to remain relevant and effective.

Integrating saves time With integration, the key is that compliance and operations work together – moving from a narrower compliance view of the regulatory requirements to a broader, integrated risk management approach, leads to good practices permeating far and wide into the operations of the business, embedding themselves in areas such as your operations manual, your annual review process, your record of advice, your financial statements, your client service level agreements, the list goes on.

32

When compliance is effectively entrenched as risk management across your business it enables you to run your business more effectively, saving you time, making you money.

Integration ultimately creates long-term business sustainability A well-run, compliant business grows its value. Utilising resources optimally results in a profitable operation and ensures your business is well positioned to make the most of opportunities. Not only does it make business sense to integrate compliance and practice management in a business, it’s common sense, and it’s easy to implement.

FPI CONVENTION

Important and useful Risk profiling is a topic that raises many hackles in the financial planning industry but, used properly, it can be an effective client-engagement tool and can materially advance Treat Customers Fairly (TCF) objectives.

by Natasja Hart, CFPÂŽ Wealth Manager at GCI

R

isk profiling is something of a hot topic in the financial planning industry at present. The Financial and Intermediary Services (FAIS) Ombud and the Financial Services Board have clearly indicated that they see risk profiling as an important and integral part of the advisory process, and a pillar of the Treat Customers Fairly (TCF) initiative. By contrast, many financial planners see it as a highly problematic exercise, and one that they only undertake in the interests of compliance.

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FPI CONVENTION

While the industry’s reservations are grounded in hard experience, the fact is that risk profiling is here to stay. If we as the industry do not resolve the issues, then we will find the regulator taking action. This is good reason for solving the challenges relating to risk profiling, but even more compelling is the fact that, properly handled, risk profiling is an excellent tool capable of helping financial planners service their clients much better.

At the outset, we need to understand why so many of us had such negative experiences relating to risk profiling. There appear to be two main reasons: the questionnaires/models were flawed, and there was a fundamental disconnect between planners and asset managers.

In respect of the first point, the Ombud has pointed out that many questionnaires were not sufficiently well constructed or phrased, and thus failed to provide a genuine guide to the most appropriate investment portfolio for an individual client.

seen not as something that has to be done in order to protect oneself, but as something that can help you do a much better job of serving your clients.

In particular, undertaking the risk-profiling process as part of the client take-on process is extremely valuable. In particular, it’s an opportunity for both parties to understand the various facets of risk: the client’s appetite for risk, the risk that will have to be assumed in order to achieve the client’s goals and, critically, the client’s capacity for sustaining worse than anticipated investment results.

Considering risk multi-dimensionally like this is never going to be easy, because it forces both the client and advisor to confront the real issues, but no better way of understanding your client’s needs exists— nor of educating him or her about the realities of investing. The end result will be a more fruitful relationship for both parties, with less risk of tears.

It’s worth noting that these issues are not unique to South Africa, and pertain to many other markets. One benefit is that much work has been done on the question of risk questionnaires and modelling, and so financial planners now have access to much better questionnaires. The problem is not completely solved, but the position is better.

On the second reason, it is clear that the definition of risk, the design of risk profile questionnaires and then the design of the investment portfolio itself were left too much to the product suppliers/asset managers. This lack of a single vocabulary often meant that clients, planners and providers were speaking past each other—but the poor planner was the one held accountable for everything.

Again, there has been a clear improvement in the status quo, driven by the impact of TCF. TCF has brought financial planners and product providers/asset managers much closer. As a result, providers are beginning to rephrase their jargon in ways that make it more understandable to the end client.

Financial Thus, for example, “standard deviation” is now being replaced by Planning the plain English “possible temporary or permanent capital loss”.

Profiling Even closer collaboration will enable the two parties to define risk Benefit from the client’s point of view, and develop industry standard terms Collaboration for categorising funds’ risk profiles, making it easier for planners Sustainability and their clients to match the individual’s risk profile with that of the Risk funds chosen.

Management

In other words, a “conservative” fund would be expected to deliver returns within a certain range with a stipulated risk of capital loss, and so on.

How risk profiling can help Very briefly, these are ways in which risk profiling can be made much more useful and accurate, and so prevent financial planners from finding themselves on the wrong side of the regulator. But, as always with governance and compliance issues, adopting a tick-box approach is short-sighted. In my experience, risk profiling should be

35

FPI CONVENTION

Planning Revolution

The Financial

‘If you cannot win on the battlefield you are on…. find a battlefield where you can win, and fight the battle there!’ Sun Tsu - The Art of War

by David Haintz, CFP® Founding Director of Shadforth Financial Group

A

revolution is in full swing. A quiet revolution. But a revolution none the less. So, if you believe what I believe, keep reading.

It’s wake up time. Like it or not, the facts are simple. For years financial advisors have been pawns in the financial “industry’s” game.

Globally, we’ve been used by the “industry“ to distribute its products and investments - the many of which are expensive, unnecessary and in many cases things that clients don’t really need or want. And it continues, even today.

Continually influenced by product providers and the “financial

36

pornography” (the financial trade press and media) - who make fortunes advertising the “industry’s” products - advisor’s unwittingly get sucked into building a service proposition “below the line” that focuses primarily on the products and investments they sell. Any ongoing service (if any) revolves around switching, changing, or otherwise moving client’s money around in order to justify their fees or earn more commission. Sad, but true.

And, in the past, in a world of smoke and mirrors; in a world of commission, it worked. That’s because clients didn’t really understand, or know how much they were paying for “advice” - so advisors got away with it.

But not anymore.

FPI CONVENTION

Globally, we’re now moving to a world of increasingly explicit and transparent fees. What worked in the past won’t work in the future. You can be as qualified as you like, but if your service proposition is “below the line“ and revolves around implementing financial products or relies on the performance of your client’s money then, sooner or later, it is bound to fail. No one can predict or control the markets.

As clients gradually wake up to how much they are paying in fees - as they are now doing - they will question everything: your service, your charges, your performance, your value, everything.

Meanwhile, some other advisors out there, somewhere, will always offer to do what you do cheaper or better - or simply promise to deliver a better return than you. And, of course, many clients will find it easier and easier to take the “DIY“ option, or even move to “Robo“. It’s just a matter of time.

If you cannot win on the battlefield you are on….find a battlefield where you can win, and fight the battle there!

Sun Tsu - The Art of War.

your service totally revolves around your client and what they need, not their money.

Dedicate your service to helping your clients GET and KEEP the life they want. Make your client the centre of your world. Demonstrate, year after year, in an engaging and compelling way, how your value proposition will help them live a better life. Let them see it, feel it, experience it. Do this well and clients will trust you more, pay you more and refer you more. They’ll also let you oversee ALL their assets because they trust you.

This means you can keep your “below the line“ “financial solutions“ - the money stuff - as simple, painless and risk free as possible.

More importantly, it means you can get YOUR life back - and start living the life that YOU want! It’s your life too don’t forget!

I see the keys in the industry going forward are enhancement of the client experience, a focus around goals and objective based advice, and advisers being able to demonstrate and articulate their value.

To secure your future, your service needs to focus, NOT “below the line“ on what the industry wants, but “above the line“ on what CLIENTS need. If you fail to deliver great client outcomes, sooner or later clients won’t pay your fees. And it’s started.

“Above the line“ is why advice businesses do it. “Below the line“ is what and how advice businesses do it.

If clients are already questioning you, keep reading...

All across the world, smart advisers are waking up to the golden opportunity that now lies before them - by offering their clients a completely different approach.

The best way to secure your future is to do the complete opposite to what most financial advisers have done in the past. Instead, make sure

You can join them.

37

FPI CONVENTION

The future is now!

by Anton Musgrave, Senior Partner in FutureWorld International

T

he future is not what we thought it would be‌and every week it seems to change again! The advances in artificial intelligence, virtual reality, smart learning systems, robotics, deep neural learning, renewable energies and many more are reshaping the future landscape for business in exciting ways.

We are witnessing exponential impacts on the business landscape, driven by new innovations that are created by combining ideas across a range of new themes. This combinatorial innovation accelerates the rate and impact of change. A recent example is the breakthrough

40

FPI CONVENTION

in artificial intelligence achieved by Google’s AlphaGo project – which beat the world champion Go player – an event that leading AI and Data scientists thought would still take 10 years to achieve.

Business disruption is rife, across all industries, and yet so many business and business leaders simply think that by focusing on lean operating models, cost reductions and efficiency initiatives will ensure their longterm relevance and success. This is a fallacy.

What resulted in success yesterday will almost certainly not predict future success.

Let me put this another way − industries that succeeded in the past will not necessarily be those that succeed in the future. What was scarce is often becoming abundant and what is abundant has limited value in the future. New materials are being discovered that render old materials less valuable.

Even diamonds can now be created in mere weeks from slithers of real ancient diamonds, using new hi-tech methods that deliver a diamond indistinguishable from those created by millions of years of evolution.

Leaders also need entirely new leadership insights and skills to remain effective and

relevant in the future business context.

Employees are not spared this challenge as old skills become irrelevant and new skills emerge as critical. Our entire educational system needs a full recalibration to educate and prepare children for a very different future workplace.

heavily taxed…way before current new projects have achieved financial payback or full depreciation. This industry will likely see billions written off in stranded assets with accelerated depreciation requirements.

Inherent in remaining relevant, businesses need clarity on which elements of their business will remain valid and valuable and which need to be made strategically extinct.

This debate opens up myriad complexities as incumbents jostle for power, position and share options/bonuses. Nature so easily creates strategic extinction every season, every evolutionary cycle and every change in the external environment. Yet companies struggle with this…and eventually will pay the price of irrelevance as the market moves to a new place whilst they remain embedded in the past.

Leaders in any business or industry will need to be very clear about being strategically relevant in both the short-and longterm – with a clear and aspirational plan for both the Business of Today AND the Business of Tomorrow! Leaders should be careful not to confuse short-term tactical initiatives with strategy! A critical review of how management time is spent will often highlight that the vast majority of intellectual investment is made in to optimising today’s business operations with incremental and evolutionary steps as opposed to thinking about what lies 5 years or more into the future and what that might mean for the business, both now and then.

Thinking strategically remains an almost elusive leadership capability. Even governments are not immune to this.

Why do we persist in our carbon energy generation aspirations when it is very clear that in 20 to 30 years from now, carbon energy will either be banned outright or

In short, the future will demand new and ambitious thinking. This future will be unsympathetic of those who ignore the early warning signals but will offer huge success for those who are attuned to the shifts, and who take clear steps to remain valuable and relevant in its new and very different context.

41

FPI CONVENTION

Building

Sustainable Value in your IFA Business

by Robert MacDonald, CFPÂŽ, Fundhouse

T

here has been much scare mongering in the industry on the back of the Retail Distribution Review (RDR). Many Independent Financial Advisors (IFAs) feel that they are on the back foot, wondering if they will be able to sustain their businesses going forward. Some have been tempted to sacrifice their independence at the altar of larger institutions that promise “peace of mind� after the implementation of RDR. Other IFAs have turned down very tempting price tags offered by institutions, as they do not want to be in a position where they cannot offer their clients independent solutions appropriate to their needs.

Many IFAs remain committed to independence and optimistic about building value in their practices.

What builds sustainable value in a financial planning business is not a secret formula to which only a few have access. This information is widely available. However IFAs face the challenge of working on their business to put in place the factors that are likely to build value in their practices. .

42

There are probably 10 key factors that form the foundation of sustainable value. These are: 1.

2.

3.

4.

5.

6.

7.

A clearly articulated value proposition; A rigorous and consistent advice and implementation process; Employing the right people in your business; A brand that is distinct from the founders of the business; The marketing capability to build that brand; A diverse and profitable client base; An institutionalised client base where clients attach to the business rather than to any one individual; 8. Sound corporate governance and effective management structures; 9. An unwavering commitment to compliance; and 10. Willingness to reinvest in the business on an ongoing basis.

In running an 18-month Practice Management Programme to help IFAs build sustainable value, we see the biggest issue they face is making change happen. Change is difficult, especially for the owner and founder of a successful financial planning business.

The top five challenges that advisors probably face when making changes are:  Articulating a distinctive value proposition.

Many advisors struggle to do this. Some have taken the whole 18-month programme to do so. Once the value proposition has been completed the rest of the changes needed for the business become clear and easier to implement.  Institutionalising the client base.

This requires the founding advisors of a business to pass on their clients to other advisors in the business. But most advisors feel that their clients would never want to form a relationship with another advisor and this becomes a big hurdle for them to overcome.

Advisors who have done this are witnesses to the fact that none of us are indispensable, and that clients invariably are happy to form a relationship with another advisor.  Transitioning to a fee-based practice.

This shift on how to charge for services rendered is a huge challenge to overcome. Previously advisor fees have been “built into” a product so advisors did not always have to justify their fee. RDR will change the way fees are charged and being able to articulate and demonstrate value to the clients will become a fundamental requirement in a fee-based system.  Recruiting the right people.

Employees in any financial planning business are often the biggest cost. It is a consistent challenge that advisors face when they are employing people to ensure that they have the right people for their businesses, whether they are advisors recruited for succession, para-planners or administrators. But the challenge doesn’t end at recruitment. Management and retention of employees are vital and an ongoing challenge.  Building a brand.

Often advisors see brand as simply their logo, or their name or a website. Exploring how everything that a business does, who the business engages with and how they are viewed in public will either build or detract from their brand. A strong brand helps build value and makes succession and transition easier.

Research indicates that support is integral for successful change. The support to build value and make change, through a facilitated process, that involves engaging with peers and working systematically on their business, is readily available for financial advisors. I believe no IFA needs to be afraid of the challenges that RDR will bring to the industry.

IFAs that make the changes needed to build sustainable value in their businesses and stay committed to professionalism and independence will thrive in the post RDR world.

FPI NEWS & EVENTS

Survey of 1,000 South Africans shows those working with

by Tsholofelo Dihutso, CPRP Communication Specialist, Financial Planning Institute (FPI)

T

he latest results from a nationwide study, we conducted in conjunction with Financial Planning Standards Board (FPSB), owner of the international CERTIFIED FINANCIAL PLANNER® certification programme outside the United States, and GfK, a global research firm with extensive experience in the financial services sector, has revealed that consumers in South Africa, those working with a CFP® professional, are more prepared and reported feeling more strongly confident in achieving their financial goals. The research also showed that some consumers feel challenged by their finances, with relatively few saying they are very knowledgeable about financial matters or highly successful at sticking to their financial goals.

The study, the first global research project of its kind, was conducted in 19 countries around the world with a total of 19,092 participants who were either primary or shared household financial decisionmakers.

The aim of the research was to understand behaviours that motivate consumers

44

to seek, and the barriers that prevent consumers from seeking, the advice of a financial planner.

The survey revealed the following key findings: • Home ownership and support for loved ones are top financial priorities.

Consumers in South Africa cite home ownership and providing financial support to loved ones as their top financial priorities (82% for each vs.

52% globally for home ownership and 46% globally for providing financial support to loved ones). Other very important priorities include being free of major debt (81% vs. 55% globally), retiring in their desired lifestyle (78% vs.

49% globally) and managing finances to achieve life goals (78% vs. 47% globally).

• Consumers in South Africa have moderate to low confidence when it comes to their finances. They have higher confidence than the global average when it comes to achieving their financial life goals. However, 38% of the respondents are strongly

confident that they will achieve their goals (22% globally), 27% feel strongly confident when it comes to their “financial know-how” (17% globally), or feel highly successful about sticking to their financial strategies (27% vs.

19% globally).

• Working with a CFP® professional can help consumers feel more knowledgeable about financial matters. In South Africa, 37% of consumers who work with a CFP® professional report feeling strongly confident in their financial know-how (39% globally). 29% of consumers in South Africa who work with any financial professional feel this confident (24% globally) and only 25% who don’t work with any financial professional feel this confident (12% globally).

• South Africans are interested in financial planning services to help them get on track financially. They say the most helpful services are retirement planning (64% vs. 50% globally), budgeting, cash flow and debt management (56% vs.

36% globally), and investment planning (53% vs. 38% globally).

FPI NEWS & EVENTS

• Knowing whom to trust is the biggest barrier to working with a financial professional. Well over eight in 10 consumers believe trustworthiness is a very important consideration when choosing a financial planner (87% vs. 68% globally), yet 70% (66% globally) say they don’t know whom to trust when it comes to financial planning.

• Most consumers think financial planning should be regulated.

While 43 % of respondents in South Africa are unsure whether financial planning is regulated (vs. 41 % globally), 67 % believe it’s important for financial planning to be regulated, compared to 79 % globally.

With more than 4,500 CERTIFIED FINANCIAL PLANNER® professionals in South Africa and nearly 160,000 globally, we and our fellow FPSB member organisations have an incredible opportunity to connect individuals and families with competent, ethical and trustworthy financial planners who can help them take control of their finances and be more confident and secure in their financial decisions.

To access the full South African report, visit www.fpi.co.za or email media@fpi.co.za to request the report

greater optimism and preparedness among Certified Financial Planner® professionals

Their portfolio.

Your solution.

Deliver guided, scaled or comprehensive advice to your clients, through any channel. enquiries@iress.co.za · +27 (0)10 492 1111 · iress.com

John and Meryl Arnesen

Working with a

CFP

®

professional

W

hen South Africans get asked about major reasons they would consider working with a financial planner, they most often cite that financial planners help consumers by demonstrating how consumers could save money (78%), coming up with a tailored long-term plan (76 %), and providing peace of mind (76%). This is according to the recent Global Consumer Survey conducted by the Financial Planning Institute of Southern Africa (FPI) The Financial Planner recently spoke to John Arnesen who shared his experience about how he found that “peace of mind” when he opted to work with a CFP® professional.

means peace of mind

retirement. As a result, at the time, I responded to a Southern Life advert and bought some polices that sounded ideal for my needs.

The advice advantage What was missing then − and remained missing until 2006 − was proper financial planning. For nearly 30 years, I arranged my finances myself and trusted a number of commission-driven product salesmen to get the best return on my investments. I now realise that I lost out heavily in the process and, sadly, had no recourse.

A lingering memory from my childhood is being encouraged by my father to save. Earnest young man that I was, I took his advice to heart, and was a diligent saver even while at school.

My approach to my future financial security changed when I joined the Financial Planning Institute in 2005. I quickly realised the very significant difference between what is known as a broker – more of a salesperson − and a qualified financial planner or advisor … or as FPI refers to these professionals: a CERTIFIED FINANCIAL PLANNER® professional. By 2006, when I had just turned 50, I recognised that I would have to do something drastic were I going to be able to consider retiring by the time I was 60.

Very early on in my working life, at age 23, I also learnt that standard pension contributions would not be enough for a comfortable

It was in 2008 that FPI awarded John Campbell, CFP®, the accolade of FPI Financial Planner of the Year. I decided then that John was my “man”,

Planning means peace of mind

46

and asked him to help me take control of all my financial planning affairs.

The process was painful as my wife, Meryl, and I had to face up to the realities of having been gullible and far too trusting, and, in addition, not having given our retirement planning sufficient focus.

John helped us by putting a very clear and focused retirement plan together. We had to transfer monies out of non-performing products and carry “losses” in the short-term to consolidate the portfolio. In the process, we paid planning fees only. John was very clear that Chartered Wealth Solutions would not take any product commission whatsoever.

Meryl and I also underwent the life planning intervention with Kim Potgieter, CFP®, – another challenging process, but, as our lives have borne out, an equally valuable one. We struggled with the incredibly tough questions, but I have no doubt that this process helped us to get through many other difficult moments in the subsequent 10 years.

More recently, the real value of our first proper financial plan and subsequent

financial plans (always incorporating retirement and life goals) compiled by John and, following him, senior financial planner at Chartered, Pat Blamire, CFP®, have proved to be spot on. In fact, as anyone would hope, every annual plan was exceeded year by year.

Empowered by choice So it was, after 10 years, I was able to meet up with Pat on my 60th birthday and hear these absolutely fantastic words: “Based on your financial needs and looking at your graph, you and Meryl can retire …

Congratulations!”

The reason why this was exciting news was not the fact that we could stop work, but rather that retiring was a real option for us, when we wanted it.

In 10 years, Chartered had brought our financial affairs into order and set them on a solid path for the rest of our hopefully long lives!

Far more than that, Chartered had, over that decade, helped us prepare ourselves for retirement; now we feel ready to negotiate that transition when the time is right.

The lesson is clear: every couple or person must get the help of a professional financial planner, one that has no interest in securing revenue from anything other than the costs related to compiling and managing a financial plan.

The challenge is to shift the perception that is deeply engrained in the ordinary person’s conscious and sub-conscious mind that somehow they should not need to pay for a financial plan.

My advice is simple: pay for the plan and let your professional financial planner take the worry out of your future retirement security and help you achieve your dreams...

I leave you with this thought-provoking question: why are you happy to pay an architect, engineer, lawyer, accountant, doctor, but think you don’t need to pay a financial planner? Especially when you consider that, second to health, wealth must be the most important thing for one to take care of.

FPI NEWS & EVENTS

Make a difference during

Financial Planning Week 2016

A

s CFP® professionals we have a duty to educate the public about financial planning related matters. From 5 – 9 September 2016 it is Financial Planning Week and time for you to get into action and make a difference in the lives of all South Africans. Financial Planning week has to be a joint effort between the FPI and its members. This will ensure that the program can reach its goals, promoting the CFP® mark, financial education and emphasising the importance of financial planning in general.

Take part in financial planning week.

Get involved by hosting information sessions about financial planning topics such as: Financial Wellness for families.

Retirement planning.

Wills and estate planning.

Understanding basic cash flow and Money Management.  Business Succession Planning.  Educating parents on how to educate their children about money.    

Get involved by:  Providing free financial planning consultations to consumers through scheduled appointments.  Informing your family, friends and colleagues about the importance of proper financial planning and the benefits of Financial Planning Week (FPW).

Encourage them to spread the word.  Emailing your clients the link to the Financial Planning Week website.  Using social media to share our posts and retweet our messages with your followers and join the discussion groups.  Ensuring your family, friends, colleagues and clients understand the value that a CFP® professional can add to their personal financial planning.

Start preparing for financial planning week by following these steps: 1 Make sure you save the date, 5 – 9 September 2016.

2 Send your volunteer form to volunteer@fpi.co.za.

3 Create awareness that you will be participating in Financial Planning Week amongst your staff.

4 Publish information on your website, email signature and social media to indicate your participation in financial planning week and promoting your workshops.

5 Encourage your clients and followers to make use of the opportunity.

FPI MYMONEY123™ initiative If you have identified a particular group, church, community, employer etc. you can volunteer to host an FPI MYMONEY123™ session. The aim of the programme is to engage all South Africans to consider their personal financial planning responsibilities and goals. You can contact FPI’s office for the FPI MYMONEY123™ training material.

For more information and to invest your time during Financial Planning Week 2016 (FPW), you can visit our website at www.financialplanningweek.co.za or get in contact with Riana at volunteer@fpi.co.za.

Professional Wealth Management Elite Wealth is a financial planning and management software company that provides a web-based solution which enables financial planners to manage their practices effectively.

We provide comprehensive, user-friendly tools.

Elite Wealth, in partnership with Cutting Edge Business Solutions, is integrating the FPI Practice Standards with supporting compliance documentation and efficiencies, into your process.

Client Management Financial Planning Document Storage Consolidated Reporting Management Information Financial Needs Analysis Process Management Portfolio Information

Elite Wealth- helping you to set new standards for professionalism and business efficiency www.elitewealth.co.za email: sales@elitewealth.co.za Contact: 012 990 8780

FPI NEWS & EVENTS

Continuous Professional July

September

October - November

50

Risk Management

Retirement and Investment Planning (2 day workshop)

Annual Refresher Workshop

Bloemfontein

19 July

Durban

20 July

Port Elizabeth

21 July

Cape Town

25 July

Pretoria

26 July

Johannesburg

27 July

Johannesburg

19 – 20 September

Durban

21 – 22 September

Cape Town

26 – 27 September

Durban

26 October

East London

27 October

Port Elizabeth

28 October

Bloemfontein

2 November

Polokwane

7 November

Pretoria

8 November

Johannesburg

9 November

Johannesburg

10 November

Nelspruit

11 November

George

16 November

Cape Town

17 November

Cape Town

18 November

FPI NEWS & EVENTS

Development Events 2016 when

Topic

June

Tax Planning: Estate Duty

Format Online course

28 July 16h00-17h00

Employee Benefits

11 August 16h00-17h00

Communication

Webinar

25 August 16h00-17h00

Investment Planning Risk Profiling

Webinar

August

Risk Management- Planning with Business Assurance

Online course

8 September 16h00-17h00

Personal Risk and Insurance

Webinar

29 September 16h00-17h00

Financial Planning and Trusts

Webinar

October

Retirement Planning

Online course

Webinar

51

FPI NEWS & EVENTS

FPI Commentary on DHET’s -A call for public comments on NSLP-2015

T

he Financial Planning Institute of Southern Africa (FPI), and a SAQA recognised professional body in terms of the National Qualifications Framework Act, is pleased to provide comments on the Department of Higher Educations and Training’s (DHET) call for public comments on the document titled “proposal for the new national skills development strategy (NSDS) and sector education and training authorities (SETA’s) landscape within the context of an integrated and differentiated post-school education and training system (nslp2015)”.

These objectives, for the sake of completeness are: a) Create a single integrated national framework for learning achievements; b) Facilitate access to, and mobility and progression within, education, training and career paths; c) Enhance the quality of education and training; and d) Accelerate the redress of past unfair discrimination in education, training and employment opportunities.

It was therefore in the interest of the profession and the financial sector, that FPI responded to the abovementioned proposal.

52

Our response includes the following: i. FPI as a professional body and the role a professional body plays in the National Qualifications Framework

The FPI is a non-statutory Professional Body as recognised by the South African Qualifications Authority (SAQA) in terms of chapter 6, section 29 of the National Qualifications Act 67 of 2008 (NQF Act).

From the said chapter of the NQF Act, it is evident that a professional body must: • co-operate with the relevant Quality Councils in respect of qualifications and quality assurance in its occupational field.

• apply to SAQA in the manner determined by SAQA in terms of section 13(1)(i)(ii) to register a professional designation on the NQF.

ii. FPI’s shared interest with DHET

A key characteristic of a profession is that the professional must be educated, rather than merely trained in a narrow sense. As a professional body in financial planning, we therefore share DHET’s view that there is a learning pathway from school to work which must be traversed.

FPI NEWS & EVENTS

iii. Why it is important that FPI as a professional body respond to NSLP-2015 In addition to the points described above FPI also fulfils the six characteristics required to traverse the learning pathway in the following manner: • FPI works in close collaboration with Quality Councils and SETAs when it comes to inter alia determining the skills needed in the financial sector (cluster 2) and developing occupational qualifications via communities of expert practitioners (CEPS) for instance.

FPI furthermore already has close relationships with employers in Cluster 2 and is in constant liaison with the employers in our sector regarding specifically: • Training needs of the employers, employees, students and candidates.

• Mentorship programmes.

• Learnerships, bursaries and internships as provided for in the Skills Development Act in liaison and collaboration with the SETAs. • Building pathways between TVET colleges and higher education institutions and by doing so, ensures that there is access for all to higher education.

iv. FPI’s response to the Executive summary of NSLP-2015

We agree that the SETAs should have a more focused mandate to improve their understanding of skills needs and supply of the required skills. This is however where the functions of the National Skills Authority (NSA) becomes vital as the NSA must liaise with SETAs on various aspects as per section 5 (1) (b) and (c) of the Skills Development Act 97 of 1998. The NSA therefore has a much bigger role that they can play in this regard if the SETAs are expected to have a more focused mandate as mentioned above.

v. FPI’s response proposals around Sector Education and Training Authorities (SETAs) and DHET

Points to consider re: the SETAs to be located as specialised service delivery units within the DHET:

We have to bear in mind the fiscal budget as released by the Minister earlier this month. Will there be funds, considering the “fees must fall” campaigns, to restructure the SETAs to SETABS within the near future? To this we propose that we look at the SETAs, especially the SETAs that are successful – we cannot and

must not lose sight of what the SETAs are doing right. SETAs that have so far implemented best practice in the management of grants should be analysed to develop standardised processes for grant applications.

vi. The language of occupations

We propose that the language for Trades, Occupations and Professions be as per the Constitutional right quoted on page 1 of this document and not just “occupations”. There is definitely room to have pathways within all three spheres. Workplaces and learning institutions should map jobs (careers?) and qualifications to broad categories for trades, occupations and professions. We specifically use the word “jobs” and this is the word this proposal (NSLP – 2015) uses.

vii. National Skills Development Strategy IV

The various proposed levels is a good idea, but it should be done for trades, occupations and professions and not just “occupations”.

It is suggested, that whilst DHET is drafting NSDS IV, that they do so in consultation before and during drafting stage with current SETAs, workplaces/employers and professional bodies and other interested parties as the said parties know their respective economic sectors when it comes to skills in place and skills etc. not in place.

Consultation during the process, instead of just before its adoption, may lead to a better informed and fairer document and support from the various sectors and employers/private sector.

viii. Closing/general comments • FPI in principle supports the proposal, subject to the following caveats: Current SETAs that are performing in accordance with best practice and adhering to SLAs etc. should be considered/ analysed – what makes them operate efficiently? This gathered information should then be considered in the integrated system.

• The NSAs capacitation and monitoring and evaluation roles are strengthened, especially if the SETAs are expected to have a more focused mandate to improve their understanding of skills needs and supply of the required skills.

• That the language of trades, occupations and professions become the accepted terminology for workplaces and learning institutions.

To read the full response to DHET, contact FPI at media@fpi.co.za or on 011 470 6000 to provide you with the full report.

53

HEALTHCARE

Healthcare Broker

by Zoe Riley, CFP® Financial Advisor, Riley Financial Solutions(Pty)Ltd

earning a maximum monthly commission of R80, what is expected of you?

.

F

inancial planners advising clients on healthcare have many stakeholders with different requirements and expectations. This article serves to address what is expected of you from the various role players in return for the monthly commission payable.

Regulators Healthcare brokers are regulated in terms of the provisions of Medical Schemes Act 1998 and the Financial Advisory and Intermediary Services Act (FAIS) of 2002. These Acts require accreditation with the Council of Medical Schemes and approval as an authorised financial services provider with the Financial Services Board.

Organisations was published in March 2013, the reference to the Code of Conduct was removed from the Act since compliance therewith vests with the FSB.

The minimum service levels included the following: 





In order to give advice on healthcare and medical schemes, an advisor has to meet the requirements as set out in the FAIS Act and to ensure that they are licensed correctly and to have a valid FSP number. A healthcare broker therefore has to comply with both the requirements of the FAIS Act and the Council of Medical Schemes and can be held accountable by both the FAIS ombudsman and the Registrar of Medical Schemes.

The Council of Medical Schemes published a Broker Code of Conduct, Minimum Service Levels and Code of Ethics in February 2002 that it expected healthcare brokers to comply with. When the Policy Document on the Requirements for and the Process with Regard to the Accreditation of Health Care Brokers and Broker

54



Interpretation and application of the scheme’s rules to the client’s situation and to explain any aspect of the Rules about which the client may be uncertain or ignorant.

Analyse the client’s needs and advise which benefit option is best suited based on the client’s financial status and individual circumstances.

Facilitate the relationship between the scheme and the client.

This may involve; o Making all reasonable efforts to resolve any problem which the client experiences with the scheme promptly and efficiently. o Advising and assisting the client to gauge the impact any proposed or actual change in the scheme rules may hold. o Making himself available to attend at least one meeting per year at the request of the client, in meeting between client and the scheme or its administrators to provide expert advice and support.

Maintain complete and accurate records of all interactions, including key points of advice given and action taken from each interaction.

HEALTHCARE







Respond to client correspondence without delay, no more than 14 days from receipt.

Return calls or faxes within 3 days unless on vacation/incapacitated in which case within 3 days of getting back to work.

If absent for more than 1 week, make reasonable efforts to inform clients of absence.

The Code of Ethics detailed the standard that healthcare brokers are expected to adhere to and this included that the advisor should: 



  

  

  





Act honesty, fairly with due skill, care and diligence in the best interest of his client and the integrity of the medical scheme industry.

Compliance with all laws regarding broker activities and the conduct of business generally.

No unfair discrimination.

Fair treatment to all clients equally.

Will not act in a way that undermines the Council of Medical Schemes, Medical Schemes Act, Registrar of Medical Schemes or encourage clients to flout or contravene the provisions of the law.

Shall not exploit clients for own personal gain.

Shall not give out false, inaccurate or misleading information.

When communicating with clients or potential clients be respectful of their wishes.

Take into account consequences for client when giving advice.

Make clients aware of their rights and obligations.

Maintain confidentiality of client before, during and after termination of the relationship, no discussions with any party regarding a client and the advice given.

No communication, advertisement or announcement that is unfair, misleading or ambiguous.

Avoid conflicts of interest.

Medical Schemes A healthcare broker must apply for a contract with the registered medical scheme

that they wish to work with. These contracts normally include provisions that the healthcare broker: 





  

 

Encourages the client to pay premiums, no collection of premiums by the healthcare broker themselves.

Not to change the wording of any document, not publish any material without consent of the scheme, uphold the image reputation of the scheme, use electronic mediums professionally.

Not to accept non-compliance, to conduct oneself in an ethical and distinguished manner, maintain confidentiality.

Completes initial and ongoing product training.

To be familiar with rules of scheme and benefit options.

Ensure that they have the required skills and knowledge.

Compliance with all regulatory and statutory requirements.

Advise the scheme when CMS accreditation is no longer active.

options and terminology used by the schemes confusing. Perhaps their greatest need is in understanding how the various options work and assistance in making the right decision when choosing a scheme and an option within the scheme.

Clients may expect the following from you as their chosen healthcare broker: 









The service that the scheme expects the healthcare broker to provide may include: 



Introduction of members – solicit the enrolment of prospective members, recording of information, delivery of initial administrative forms, explanation to members, presentation of service and products to members, keeping concise and accurate records of enrolment of members.

Interpret and apply the rules of the scheme to members individual situation and explain any aspect members are unsure of. Facilitate relationship between the members and scheme, resolve problems, advise and assist any proposed or actual change, reply to members without unnecessary delay.

Clients Most clients do not understand the complex healthcare environment and find the various

 

 

They will expect to deal with someone who is licensed and accredited correctly with all statutory bodies.

They will expect you to be professional in all your dealings, to disclose conflicts of interest and to make the relevant introductory disclosures.

They will expect you to respond timeously to any queries and to assist them in resolving any issues with the scheme.

Clients will expect that you are knowledgeable about the schemes you represent in terms of the key statistics, benefit options, pricing and processes.

Adequate disclosure of relevant material information, including disclosure of actual or potential own interests, in relation to dealings with clients as well as by the requirements for adequate and appropriate record keeping.

Assist them in getting value for money and understanding the benefits on offer.

Explanation of the application process, underwriting and membership acceptance.

Unbiased, independent advice, in their best interest.

To be kept informed of their options and communication at year end revision time to evaluate the best option for the coming year.

Provision for healthcare is important and expensive and for many families this cost is the first or second on their list of monthly expenses.

By employing the services of a financial advisor who has expertise as a healthcare broker they can ensure that their medical scheme choice is supported by sound advice, proper guidance as well as post sale support.

55

INDUSTRY NEWS & EVENTS

South Africa falls short of

National Savings ‘pass rate’ first Savings Index launched .

I

n a first for South Africa (SA), a national Savings Index was launched, on Wednesday, 27 January 2016, to measure the country’s state of savings against international counterparts, providing the real facts about savings.

The structural decline of SA’s national savings rate over the last two decades has been no secret, however, the importance of savings to fuel investment for sustained economic growth is less understood.

This is the impetus for the partnership of Investec and the Gordon Institute of Business Science (GIBS) to develop the Investec GIBS Savings Index, an aspirational

56

national savings benchmark to support SA’s economic growth objectives.

The Investec GIBS Savings Index assesses SA’s savings performance based on three pillars, namely:  The extent of SA’s stock of savings or savings pool: to fund the economy’s installed investment base;  The savings rate, represented by the flow of savings into the savings pool; and  The changes to environmental factors that influence savings.

René Grobler, Head of Investec Cash Investments said that the Savings Index was created from them recognising the

importance of raising awareness of South Africa’s current state of saving and to stimulate the discussion on savings from a corporate, economic, academic and social perspective. Only once they have the facts, can they begin to measure the performance of our economy in terms of its critical savings components.

A score of 100 represents SA’s pass mark for national savings measured against the country’s structural high watermark or the average scores of 13 countries termed the “savings stars”. These countries – namely Botswana, Brazil, China, Hong Kong, Indonesia, Japan, Malaysia, Malta, Oman, Singapore, South Korea, Taiwan and Thailand – have sustained

INDUSTRY NEWS & EVENTS

an average economic growth rate of 7% per year for 25 uninterrupted years or more.

These countries also have five common attributes: a high rate of investment, outward economic orientation, macroeconomic stability, market allocated resources and a competent government. The Investec GIBS Savings Index for 2015 produces a score of 63.4.

According to Adrian Saville, Professor in Economics and Competitive Strategy at GIBS and Chief Strategist at Citadel, at below two-thirds of the way towards “passing” the savings test, the results of the Investec GIBS Savings Index make it clear that South Africa is stuck in a low savings trap. If the South African economy is to achieve elevated and sustained growth that translates into social inclusion and development, it is a necessary condition that the country closes this gap.

Among the key insights derived from the Investec GIBS Savings Index, are the following:  SA’s stock of savings (the extent of saving versus other dynamic economies) needs to expand permanently by about one-third.

 The research suggests that the South African economy’s flow of savings needs to almost double to achieve its growth objectives.  Environmental factors and forces are predominantly to blame for the inadequate savings result – an integral insight in the search for remedies to this poor savings performance. The three main obstacles to higher savings are sluggish growth in per capita income; slow growth in productivity; and a high rate of unemployment.

Savings behaviour in SA has regressed steadily over the last 26 years.

The intention of the Investec GIBS Savings Index is to help facilitate a call to action for all sectors of SA’s society to focus on the importance of savings and finally turn the tide.

Grobler highlighted that the research indicates that there are at least three ways that South Africa can escape the ‘savings trap’ – by:  reducing consumption to bolster savings;  attracting non-resident savings to promote portfolio investment ; and  attracting foreign direct investment.

The promotion of domestic savings – especially among households – holds the greatest prospect for the promotion of elevated economic growth. The index also identifies a number of microeconomic examples that promote savings even in low income environments.

These interventions and innovations include initiatives that promote financial education and incentives to save. This kind of insight is critical to exploring possible solutions and with on-going measurement now possible, stakeholders have a place to start.

57

INDUSTRY NEWS & EVENTS

Workshop to reflect on the 2014

National Qualifications Framework Impact Study fruitful

G

athering at the Midrand Conference Centre on the 9 February 2016 was a mix of stakeholders in education and training to reflect on the National Qualifications Framework (NQF) Impact Study conducted in 2014.

The focus of the workshop came after a comprehensive report on the impact of NQF was circulated to NQF leadership during March and May 2015.

The report, titled, “the 2014 NQF Impact Study”, was aimed at looking at the impact of NQF following the 2009 promulgation of the NQF Act. “The study shows how the NQF has impacted the understanding and developments in the education and training system,” says Heidie Bolton, Reseach Director at SAQA “The findings demonstrates that in some instances, the trends are in the desired directions and need to be monitored to ensure that they continue as desired. In other instances it is clear that interventions are needed.” Bolton added

In his opening address at the NQF Impact Study Collaborative Workshop, SAQA CEO Joe Samuels promised delegates that the seminar provides an opportunity to celebrate the gains made since the NQF was launched in 1998.

58

During the workshop Joe Samuels, CEO at SAQA, who presented the opening speech noted that: “The purpose of the workshop was to reflect on the future of NQF in South Africa. When we first established NQF 20 years ago, we were one of the first generation NQFs; now there are over 157 NQFs across the world and there are also regional qualification frameworks.”

A key question Mr Samuels pointed out was “What kind of form has the NQF taken since its inception and how will it be going forward?. We want South Africans to reflect with us at the series of meetings hosted to mark SAQA’s 20th birthday this year.”

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INDUSTRY NEWS & EVENTS

Moreover the three Quality Councils namely Umalusi, the Council on Higher Education, and the Quality Council for Trades and Occupations, shared with the delegates the changes NQF had brought about in their three Sub-Frameworks namely, General and Further Education and Training Qualifications Sub-Framework (GFETQSF).

The General and Further Education and Training Qualifications Sub-Framework (GFETQSF), Higher Education Sub-Framework (HEQSF) and the Occupational Qualifications Sub-Framework (OQSF) respectively.

Dr Shirley Lloyd, Director at NQF at the Department of Higher Education and Training responded to the 2014 NQF Impact Study on behalf of the department. She acknowledged SAQA for the work done on the 2014 study and noted that the report does not go far enough in answering the difficult questions about the NQF. There are challenges around Recognition of Prior Learning, articulation and lack of certification in the Technical and Vocational Training Colleges.

Chairing the session on how to take the 2017 NQF Impact Study forward was Julie Reddy, Deputy CEO at SAQA, whereby she noted that Mr Samuel Isaacs, former CEO at SAQA indicated that we create the NQF road by walking. She then extended gratitude to all the delegates for their attendance and participation in the workshop and noted that their contributions will be taken into account in the next impact study.

The 2014 NQF Impact Study was the third study of its field. The first two were done in 2002 and 2005 respectively.

The objectives for the workshop were to: • Present and engage around the processes followed, as well as discuss the findings from the 2014 NQF Impact Study; • Abtain delegate comments on the proposed plan for the 2017 NQF Impact Study and; • Develop common understandings and relational agency in the NQF community.

“The question that we need to ask in the 2017 NQF Impact Study is ‘are we as a nation expecting too much of the NQF. She added that perhaps some of the challenges experienced in the education and training landscape require another intervention other than the NQF. Mr Antonio Hercules, Director at Evaluation at the Department of Planning, Monitoring and Evaluation (DPME) in the Presidency explained the elements that constitute a DPME impact study to the delegates. He made suggestions on how to take forward the 2017 NQF Impact Study.

Delegates at the NQF Impact Study Collaborative workshop had an opportunity to discuss the plan for the imminent 2017 NQF Impact Study.

*The presentations made at the workshop as well as the full 2014 NQF Impact Study report, a 100-page Report on Data Highlights, and a short paper summarising the study are available on the SAQA website.

INVESTMENT

A Presidential Case of

Loss Aversion E

by Paul Nixon, CFP® Technical Marketing, Barclays Global Investment and Solutions

conomics is all about scarcity and choice, the study therefore of how rational agents make decisions is a keystone of the field. In order to understand this, Von Neumann and Morgenstern proposed a utility function in the late 1940’s, which basically stated that a rational decision must lead to the best outcome or expected value; sounds simple enough. The breakthrough in the field of behavioural economics however arrived in the late 1970’s where Kahnemann and Tversky highlighted that utility theory only applies when we are in the “gain zone”. When we find ourselves in the loss zone however, we evaluate outcomes differently – so differently in fact that our behaviour almost appears perverse. In the gain zone we are risk averse (we prefer to avoid risk when we have realised a gain). In the loss zone however we actually seek risk in order to avoid the possibility of a loss. The reason is simple; we feel losses 2x to 2.5x as intensely as the equivalent gain. Finding a R100 note in the street versus finding two R100 notes and losing one on the way home are not the same, the latter leaving us in a net state of pain even though the economic outcome is identical.

This principle is known as loss aversion and may be of particular interest in a market where the Top 40 South African Volatility Index (SAVI) has almost surpassed its 2015 peak.

61

INVESTMENT

The purpose of this piece is to bring the principle to life with, arguably, the most famous case documented (Wright, Smithers et al, 2007: A Practical History of Financial Markets). Our story begins with Bill and his wife, in their early thirties, and having recently celebrated the birth of their first child. A close family friend, James, has been building quite a reputation for being able to spot real estate bargains – the formula being buying up undeveloped land, subdividing and reselling the “parcels” for up to double what he paid for them. A couple of years back James presented Bill with an opportunity to invest in a small rural development, Bill obliged and was able to sell his investment for a 75% return on capital. The family are having dinner one evening and bump into James who appears jovial about a new opportunity. Coincidentally, Bill and his wife have been thinking about the cost of education and how to fund the very best thereof for their daughter. Over a drink James divulges that a new development, Whitewater, would be ideal for retirees, set on a picturesque rural estate with a number of prime riverside stands possible from the subdivision.

The price tag is a hefty $200,000 and Bill and James will go in as equal partners ($100,000 each). James presents his usual plan which would present an opportunity to sell off the subdivided plots for $459,000 (beginning in a year or so). Bill and his wife have managed to save around $17,000 so far, but James argues that the leverage (borrowing $83,000 for 12 to 18 months) will assist in offsetting the effect of inflation and taxes. Before we continue, as Bill’s financial advisor, what would your input have been at this point? Time passes and economic conditions change causing a change in bank lending policy. Bill arranges a meeting with James who appears immediately uncomfortable. An error with the surveying means the process must be repeated. In the interim no plots can be sold and the bank has decided to renew only $75,000 of the loan (Bill needs to find the rest). Fortunately the family has managed to save the requisite funds in the last few months. James remains upbeat and positive about the development in spite of the economic downturn and assures the family that all projects encounter

expenses

glitches, better small ones than large ones right? What would your advice be at this point? Would your recommendation be different as James’ advisor?

Almost a year has passed since the initial investment. James calls with some news, things are finally on the move, but there hasn’t been as much interest in the development as predicted. James feels terrible about bringing his good friend into the venture and decides to put up his own capital to build a “spec home” designed to appeal to a broad market and generate interest. Another six months passes and James calls an emergency meeting. The speculative home was sold, but no further interest in the plots has resulted. Feeling guilty, James offers to buy Bill out of the partnership for enough to settle his bank loan; the family savings however of $27,000 invested to date would be lost. Bill asks James for his honest assessment being a real estate professional. James indicates that he intends to see it through and Bill and his wife agree stay the course.

So, how did this all play out? Bill and Hillary Clinton were able to send Chelsea to Stanford in 1997, but it wasn’t thanks to the investment in Whitewater, which completely soured the relationship between Bill and his adviser, Jim McDougall and led to a chain of events that would end his career. It was Clinton’s inability to admit a bad call and insist on a thorough investigation of the Whitewater development coinciding with the media hype around the lead investigator (Vincent Foster) committing suicide, which leaves Clinton with a choice to incur personal and political costs or appoint an independent inquiry that would cast a wide investigative net. Kenneth Star would investigate the Whitewater deal and uncover much more in what would eventually lead to Clinton’s impeachment from the Monica Lewinsky scandal. Remember also that Clinton was offered more than one opportunity to admit the affair and suffer the immediate embarrassment (which may have saved his career) or take his chances. What remains etched into our memory however is a stern finger pointed at the camera and the infamous statement, “I want you to listen to me... I did not have sexual relations with that woman, Miss Lewinsky.” Losing everything to avoid a loss.

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INTERNATIONAL NEWS INTERNATIONAL NEWS

Number of

CFP professionals ®

worldwide nears 162,000

G

athering The recent report by Financial Planning Standards Board Ltd. (FPSB), owner of the international CERTIFIED FINANCIAL PLANNER® certification programme outside the United States, has shown that the number of CFP® professionals has reached a global high of 161,821 at year-end 2015.

     

Global growth within FPSB’s network, representing 26 nonprofit financial planning standards-setting, certification and professional bodies in as many territories, produced a net increase of 4,235 CERTIFIED FINANCIAL PLANNER® professionals, a 2.7% increase over the previous year-end total of 157,586.

Due to strong support for CFP® certification among Brazil’s banks, FPSB’s Brazilian member organisation had the distinction of being second overall both in terms of the number of CFP® professionals added and in the growth rate of CFP® professionals last year, moving Brazil into 10th place overall for CFP® professional population per territory (with 2,304 CFP® professionals). Asociación Colombiana de Planeación Financiera (ACPF) in Colombia certified the first CFP® professionals in Colombia in 2015.

Of the 25 FPSB member organisations authorised to administer the CFP® certification programme (FPSB’s Member in Turkey joined as an Associate Member in 2014),19 (or 76%) saw the number of CFP® professionals in their territory increase last year, with the five territories adding the most CFP® professionals during 2015 being:  Malaysia – 213  Indonesia – 222  Japan - 518  Brazil -563  United States - 2,388 These five territories, representing a spectrum of market types and CFP® certification programme maturities, account for 92% of the global CFP® professional growth, with the United States, the longest-running CFP® certification programme, accounting for 56% of global growth in 2015.

Some of FPSB’s newer member organisations that are ramping up delivery of their CFP® certification programmes showed the largest rates of growth in the number of CFP® professionals last year. The top six territories in terms of rate of growth for CFP® professionals in 2015 were:

64

Israel – 56% Brazil – 32% Ireland – 28 % Indonesia – 22% Chinese Taipei – 15% Thailand – 14%.

The territories representing the five largest CFP® professional populations in 2014 – namely, the United States, Japan, Canada, China and Australia – remained at the top of the leader board again this year. FPSB’s member organisation in Japan, Japan Association for Financial Planners (JAFP), exceeded 20,000 CFP® professionals for the first time. (Refer to the infographic on the opposite page) FPSB is pleased to see that the message about the value of CFP® certification, and of working with a CERTIFIED FINANCIAL PLANNER® professional, is being heard around the world. The number of territories where CFP® certification is offered has increased by 50 % in the last 12 years, and the global number of CFP® professionals has doubled in the same time period. Much of this growth can be attributed to the value the public places on CFP® certification and the benefits firms experience from hiring CFP® professionals.

FPSB and the global network of professional bodies offering CFP® certification have set a target of 250,000 CFP® professionals in 40 territories by 2025 and the momentum gained from the 2015 growth keeps them on track for that goal.

INTERNATIONAL NEWS INTERNATIONAL NEWS

Wessel Oosthuizen, CFP®,

is the Chairperson of the 2016 FPSB Professional Standards Committee

F

inancial Planning Standards Board Ltd. (FPSB), owner of the international CERTIFIED FINANCIAL PLANNER® certification programme outside the U.S, has appointed Wessel Oosthuizen, CFP®, as the chairperson of the 2016 FPSB Professional Standards Committee. Oosthuizen has served on this committee since 2007.

The committee will develop and maintain competency, ethics and practice standards for the global financial planning profession (as defined by FPSB’s Financial Planner Competency Profile, Financial Planner Code of Ethics and Professional Responsibility and Financial Planning Practice Standards).

Other duties and responsibilities include:  Developing, maintaining and modifying FPSB’s certification scheme;  Monitoring trends in applying or adapting FPSB’s standards and certification requirements and making recommendations to FPSB’s Board of Directors for modification or enhancement;  Advising FPSB’s Board of Directors about the impact of changes suggested by FPSB’s staff or other stakeholders to FPSB standards or certification requirements; and  Approving policies for FPSB’s certifications to ensure consistency and fair treatment of FPSB member organisations, candidates for certification and certification holders.

66

“FPSB’s Professional Standards Committee will focus on the evolving global body of knowledge for the financial planning profession, connecting to the global academic community, updating FPSB’s CFP® certification requirements, and establishing a framework to promote financial planning as a globally-recognised profession”, said Wessel Oosthuizen, CFP®.

Wessel added: “I’m looking forward to serving FPSB, in conjunction with its member organisations, CERTIFIED FINANCIAL PLANNER® professionals and subject-matter experts from around the world, to create standards and certification requirements to benefit the consumers of financial planning advice globally.”

About Wessel Oosthuizen, CFP® Wessel is currently managing director of Verso Wealth (Pty) Ltd. and previously served as the director for the Centre for Financial Planning Law, University of the Free State (CFPL), which provides postgraduate financial planning training and courses to students through in-person and online classes. He is an Advocate of the High Court of South Africa and has worked at the Master of the High Court. Wessel currently assists FPI as general manager to develop the FPI Centre for Professional Development to its full potential. He was awarded the FPI Harry Brews’ Award (then the Chairman’s Award) in 2011 for his lifelong contribution to the financial services industry.

TAX

Budget 2016 and

Retirement Reform

by David Kop, CFP® HOD: Advocacy and Consumer Affairs, Financial Planning Institute (FPI)

T

he 2016 Budget Speech did not hold much excitement from a financial planning point of view.

We received the usual increase is sin taxes, minor bracket creep and some adjustment to the medical fees tax credit. There were no changes to the interest allowance, lump sum tax tables or contribution limits to the tax free savings account.

The major tax change that could affect clients was the increase in the inclusion rate for CGT from 33.3% to 40% for individuals and from 50% to 80% for everyone else. This increased rate may require a review of some your client’s holdings and estate plans.

While the budget itself may not have held many surprises, the 312-page budget review held some interesting figures and points. The shenanigans surrounding retirement review that started on 8 January 2016, when the Tax Laws Amendment Act 2015 was signed into law and culminated on 25 February 2016, when the Revenue Laws amendment Bill 2016 was tabled, also provided some interest to budget 2016.

Retirement Reform – Tax Harmonisation Believe it or not tax harmonisation of pension and provident funds started nearly 20 years ago with the Third Katz Commission report.

The recommendation was: “As part of a general review of the legislation applicable to pension and provident funds, the relevant tax legislation should be revised. The distinction between pension and provident funds in the Income Tax Act should be abandoned in favour of reference to “approved retirement funds”.

It was also in this report that the rand cap for contributions was recommended.

Pension Fund Tax Deduction

Withdrawal Benefits

The Tax Laws Amendment Act 2015, addressing both tax deductions and benefit pay-outs, was signed into law on 8 January 2016, giving effect to the changes contacted in the Tax Laws Amendment Act 2013 with an implementation date of 1 March 2016.

That should have been the end of the matter.

However, as a result of more pressure an announcement was made days prior to the budget speech that annuitisation of provident funds would be delayed until 1 March 2018, but the tax deductibility would go ahead.

The Revenue Laws Amendment Bill 2016 will give effect to this change and at date of writing was still being debated. The table contains a summary of the relevant changes.

Provident Fund None

Retirement Annuity • 15% of non-retirement funding income or • R 3,500 less pension fund deduction or • R 1,750 Whichever is greater

Current Position

• 7.5% of retirement funding income or • R 1,750 Whichever is greater

New Position – 1 March 2016

27.5% of the higher of taxable income or remuneration across all three funds

Current Position

Can be withdrawn as cash lump sum

New Position – 1 March 2016

68

18 Years later The Tax Laws Amendment Act 2013 signed into law the tax harmonisation rules for Pension, Provident and Retirement Annuity Funds. The effective date for these changes was 1 March 2015. However, unions were not happy with the proposed changes resulting in further consultation and delaying the implementation date.

Cannot withdraw prior to retirement, unless experiencing ill health or upon emigration No Change

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TAX

Retirement Benefits

Current Position

Maximum one third in cash, remaining two thirds must purchase an annuity. If value less than R 150,000 can take full amount in cash

New Position – 1 March 2016 except for the provident fund which is delayed until 1 March 2018

Maximum one third in cash, remaining two thirds must purchase an annuity. If value less than R 247,500 can take full amount in cash

Can take full amount in cash

Maximum one third in cash, remaining two thirds must purchase an annuity. If value less than R 150,000 can take full amount in cash

Over 55 and on same fund No change Under 55 Contributions and growth there on made prior to 1 March 2018. – No change

Maximum one third in cash, remaining two thirds must purchase an annuity. If value less than R 247,500 can take full amount in cash

Contributions and growth there on made after 1 March 2018 - Maximum one third in cash, remaining two thirds must purchase an annuity. If value less than R 247,500 can take full amount in cash

Budget 2016

Other 9.8%

Who pays the tax and how is it spent?1 The budget highlights document and chapter 4 of the budget review provide some interesting reading in terms of who pays the tax, and how the tax collected is spent

Fuel levies 5.5%

TAX REVENUE 2016/17

Custorms and excise duties 4.6%

Low Tax Base 64% of personal income tax is paid by 926,895 (13%) of registered taxpayers. This means that less than 1,000,000 people pay approximately 24% of total tax revenue.

Personal income tax 37.5%

Corporate income tax 16.9%

VAT 25.6%

Table 4.7 Estimates of individual taxpayers and taxable income, 2016/17 Registered individuals

Taxable Income

Taxable bracket Number

%

R billion

Income tax payable before relief

R0 - R70 000

6 619 854

R70 001 - R150 000

2 583 046

36.3

271.9

12.5

12.6

R150 001 - R250 000

1 733 463

24.4

338.8

15.6

R250 001 - R350 000

1 071 789

15.1

317.9

14.6

R350 001 - R500 000

800 990

11.3

330.7

R500 001 - R750 000

497 722

7.0

R750 001 - R1 000 000

197 813

R1 000 001 - R1 500 000

136 782 94 578

R1 500 001 + Total Grand total

7 116 192 13 736 046

178.2

70

%

R billion

---

%

R billion

---

%

---

2.8

0.6

9.1

12.0

35.7

8.0

1.2

17.7

34.5

7.8

49.5

11.1

1.3

20.0

48.2

10.9

15.2

66.1

14.8

1.5

22.5

64.6

14.6

300.7

13.9

75.9

17.0

1.1

16.3

74.9

17.0

2.8

169.8

7.8

50.3

11.2

0.4

6.6

49.9

11.3

1.9

163.4

7.5

53.6

12.0

0.3

4.6

53.3

12.1

1.3

276.5

12.7

104.0

23.2

0.2

3.2

103.8

23.5

100.0

2 170

100.0

447.6

2 348

1. Registered indivduals with taxable income below the income-tax threshold

Source: National Treasury

Income tax payable after relief

% R billion

1

Income tax and medical tax credits relief

447.6

100.0

6.6 6.6

100.0

2.7

441.0 100.0 441.0

TAX

Other R153.7 Bn

Tax proposals that you may have missed Basic Education R228.8 Bn

Social Protection R167.5 Bn General Public Services R73.7 Bn Human Settlement and Municpal Infrastructure R182.6 Bn

HOW IT WILL BE SPENT

Health R168.4 Bn

Defence, Public Order and Safety R181.5 Bn

This article is not covering the usual review of the budget and the standard changes (bracket creep and allowance adjustments) that came through. I have rather focused on some of the more obscure changes that are contained in the budget review

Trusts Both the 2013 Budget Review and the Davis Tax Commission have recommended that the conduit principle for trusts be abandoned, with the trust bearing the full tax liability and tax free distributions to beneficiaries. The 2016 budget review once again has raised concerns with regards to tax treatment of trusts and suggest:

“An important role of the tax system is to reduce inequality. Some taxpayers use trusts to avoid paying estate duty and Post-School Education Economic Affairs and Agriculture and Training donations tax. For example, if the founder of a trust R238.4 Bn R68.7 Bn sells his or her assets to the trust, and grants the trust an interest-free loan as payment, donations tax is not triggered and the assets are not included in his or her estate at death. To limit taxpayers’ ability to transfer wealth without being taxed, government proposes to ensure that the assets transferred through a loan to a trust are included in the estate of the founder at death, and to categorise interest free loans to trusts as donations.

Further measures to limit the use of discretionary trusts for income-splitting and other tax benefits will also be considered.”2 The above may very well spell the end of the tax free loan account, however it is not wise to start taking action based on the above. We have not seen the recommendations of the 2013 budget speech or the David’s Tax Commission materialise in a bill. However, you will need to watch the developments very closely as I suspect that there will be some legislative changes in the Tax Laws Amendment Bill 2016.

Some Corrections Define benefit funds The deduction for the fringe benefit of employer contributions to a defined benefit fund is limited to the actual contribution made by the employer. However, the formula to calculate the fringe benefit, may result in a fringe benefit higher than the actual contribution and thus leading to a taxable amount. The legislation did not intend this and the deduction will be amended to be equal to the value of the fringe benefit from 1 March 2016.

Passive income The current wording of section 11(k) of the Income Tax Act does not allow for contributions to any retirement fund to be set off against passive income. It is proposed that section 11(k) of the act be amended to allow for retirement contributions to be deducted against passive income, subject to the available limits.

Order of deductions It is proposed that the allowable deduction under section 11(k) of the Income Tax Act be determined before the allowable deduction under section 18A.

Conclusion From the changes to the tax harmonisation rules it is clear that tax proposals can be changed at any time, even after they are signed into law. A financial planner needs to make sure that they stay close to the ever changing world of tax and while changes should not be made on proposals planning for the scenarios should be done, so that clients can be correctly advised as and when the law changes.

72

Private Travel The wording of private travel in section 8 and the Seventh Schedule of the Income Tax Act are different and will be aligned to confirm what is considered private travel.

Transfer of tax free accounts The ability to transfer between service providers has been delayed from 1 March 2016 to 1 November 2016.

Why become an

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eing an FPI Approved Professional Practice™ makes you stand out amongst your peers and sends a clear message to your clients that your practice adheres to the highest levels of standards and ethics.

It also validates that your practice is following the six step financial process and that you place the needs and objectives of your clients at the heart of your business.

The professional statuses of our members are elevated on many levels; not only do they stand out in a group of financial advisors who do not carry the designation, but they can confidently deliver their services with the highest standards of knowledge, expertise and ethical conduct.

10 reasons to become an FPI Approved Professional Practice™ 1 By displaying the FPI Approved Professional PracticeTM brand, your business will be recognised as a professional financial planning practice offering financial services of the highest standard.

2 You’ll get higher community recognition among your peers and consumers by actively promoting and using FPI Approved Professional PracticeTM branding in your business.

3 You will have increased exposure through advertising and article opportunities on various FPI platforms, many times at no cost to your practice.

4 Your practice will be listed on the FPI website as an FPI Approved Professional PracticeTM, giving you more than R50 000 worth of free advertising.

5 You will benefit from participating in FPI consumer awareness campaigns that will create a demand for your practice and the professionals employed by you.

8 By upholding the rigorous standards of this brand, you will play a pivotal role in transforming the standards of financial planning in South Africa.

9 Your practice will be an FPI Mentorship Centre by mentoring new financial planning employers and students. Your practice will receive free mentorship training to enable you to incorporate the FPI Mentorship programme into your supervision practices.

10 By partnering with us through co-branding initiatives, we will promote your business to your clients, confirming your professional practice status and approval.

If you would like to apply to be an FPI Approved Professional Practice™, please contact:  Patrick De Nation on (011) 470 – 6101 or patrick@fpi.co.za

6 You will become an employer of choice; your commitment to the highest standards will help you attract the industry’s top talent.

You can advertise for potential employees through FPI on various platforms, at a reduced rate.

7 You and your staff can network in professional forums, creating the opportunity to showcase your practice to other like-minded professionals.

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TECHNOLOGY

Adapt

or die

I had a dream; to build a successful company and then to successfully fail at it – said no one ever!

by Wende Davids, Customer Experience Officer, Financial Planning Institute (FPI)

T

his however is the harsh reality of so many businesses.

The dream was big, the intentions were good and business was booming; until that dreadful day when their consumer’s needs starting changing. Technology has been one of the biggest contributors to the change in consumer behaviour and companies have either soared to new heights or unwillingly found themselves in a six foot deep grave.

The case of leaders taking a plunge…

.

It’s not enough to be a product leader; Motorolla is a classic example of a leader who missed out on an opportunity to meet a consumer need fast enough. In 1973 they blew everyone away having introduced the very first mobile phone. They continued dominating market share until as recently as 2003 when their last spoken of mobile phone the “Razr” was launched.

As leaders in the mobile industry, Motorolla introduced consumers to the value technology can add to their lives; and consumers became wiser to the fact that communication could be made easier. As technology evolved, their needs evolved and suddenly they were dependent on a phone that could not only make phone calls, but one that could send messages, take photos, store their music and much more.

Competitors in the market, were investing money in developing software to meet the elaborate needs of consumers and so was born the era of smart phones; Motorolla however couldn’t keep up and their market share went on a steady decline; by 2012 their market share in mobile phone sales had dropped to 1.9%.

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“The digital revolution is marching on and entering every aspect of life.” – Ernst Raue The digital revolution has enabled consumers to do more than just purchase; it has given them the ability to be critics and creators. The difference between a company that gets to the top, and a company that stays there, is their ability to adapt to an ever changing consumer. This truth can be applied to every industry, including the financial services industry.

Generation Y have come of age and now have a lot of buying power. Love them or hate them, they are here to stay! If your business is not feeding their needs and adapting to the characteristics that define this generation; you may find your business take a very sudden turn for the worst.

Let’s take a look at their appetite for the financial services industry Generation Y are tech savvy, in fact, technology has become a very important and functional aspect of their lives. Companies who embrace communicating through less traditional channels like snail mail are usually a huge attraction for Generation Y. They prefer communication over email, social media platforms and text messaging.

Generation Y are looking for financial services that allow them to access their portfolio at the click of button. They don’t have time

TECHNOLOGY

to call in and “wait for the next available agent because you are experiencing high call volumes”; they want an app that can give them all the necessary information they may need.

They want to know the performance of their investment or update the beneficiaries on their funeral and life policies, without the hassle of filling in forms, faxing it back and waiting for a response which could take 24 to 48 hours.

Technology rocks, seriously!

To truly understand the behaviour of your consumer, you have to take technology seriously. You must learn how to integrate it into your business and how to use it to generate an even stronger stream of income.

Tips to improve your customer experience using technology 1. Create an online social presence. Consumers take to social media when they are not happy about something. Without a social profile, you will not be in a position to monitor the negative publicity you may be receiving, which could have an involuntary effect in revenue loss. Consumers are much more forgiving when they get an immediate response after venting their frustrations on social media.

2. Survey your client, using online survey tools, to find out what they perceive as value. Don’t force-feed them a value proposition that they do not want to chew on. By truly understanding them, you can improve your service offering, leaving your clients with a good taste in their mouths.

Technology doesn’t come without unintended side effects, much like everything else in this life; but Buckminster Fuller says “You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete”.

I for one cannot imagine life without my banking application; I could never go back to queuing at a branch. The banking app has saved me money (because the fees are minimal), it has saved me petrol (because I don’t have to drive to a bank) and it’s saved me time (which is the one thing I can never get back, so why waste it standing in a queue?).

Customer experience is a battlefield where a company’s competitive edge is either lost or won. Give yourself and your business a fighting chance to survive the rapid growth in technology. Explore the endless possibilities that come along with it.

Let customer experience be your product – let technology be your packaging.

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BOOK REVIEW

My Money

A financial planning guide for ordinary people.

“I

mali Yami, Chelete Yaka, My Geld, My Money”, launching his first book author Gerald Mwandiambira, CFP®, highlights that money in any language is still yours. He explains that money is a tool, which you need to be trained on and without adequate training money can be difficult to handle, understand and can even be considered dangerous.

Gerald described the book as not your typical text book on how to deal with your financial matters but its more on a personal level as he understands what you are dealing with. The book is not a “get rich quick book” but a guide to help you find your confidence, and see money as it really is, a tool that anyone can use; some can use it better than others, but you too have the potential to become a money master.

“I was inspired to write this book after writing different financial articles for different consumer as well as financial industry publications. Observing the need to have a simple, easy to read, personal finance and financial capability book for the majority of the previously disadvantage. The book aims to be a tool that will help many South Africans to start wealth creation and not fear the subject of personal financial planning,” said Gerald Mwandiambira, CFP®.

Tsholofelo Dihutso, Communications Specialist at FPI commented: “When Gerald first mentioned that he was working on a financial planning book aimed at every man on the street, I was not surprised considering the valuable work he does promoting financial planning in the media; which led to him winning the FPI Media Award for two consecutive years; and his passion for educating consumers on financial planning matters.

Gerald has written this book, relating to his personal financial planning story, in such a way that any consumer; with or without financial planning knowledge; will understand and implement the tips provided in the book with ease.”

About the author Gerald Mwandiambira, CFP®, holds a Postgraduate Diploma in Financial Planning Law. He owns a wealth planning practice and has experience in banking, stockbroking, tax planning, health insurance, investment products, fiduciary services and insurance. Gerald is active in the media as a freelance financial journalist, providing expert commentary to various online and print publications.

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@fpi.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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PROOF THAT CONSISTENCY THRIVES IN TIMES OF CHAOS THESE FUNDS ARE ALL TOP QUARTILE PERFORMERS OVER 10 YEARS Prudential Balanced Fund Prudential Inflation Plus Fund Prudential Equity Fund Prudential Enhanced SA Property Tracker Fund Prudential Dividend Maximiser Fund Prudential Global High Yield Bond FoF Source: Morningstar

If you aren’t already investing with us, contact our Client Services team on 0860 105 775 or visit: prudential.co.za Consistency is the only currency that matters.

Source: Morningstar data for periods ending 31 March 2016. Prudential Portfolio Managers Unit Trusts Ltd (Registration number: 1999/0524/06) is an approved CISCA management company (#29). Assets are managed by Prudential Investment Managers (South Africa) (Pty) Ltd, which is an approved discretionary Financial Services Provider (#45199). Collective Investment Schemes (unit trusts) are generally medium to long-term investments. The value of participatory interest (units) may go down as well as up. Past performance is not necessarily a guide to the future and the manager provides no capital or return guarantees. Unit trust prices are calculated on a net asset value basis, which is the total book value of all assets in the portfolio divided by the number of units in issue. Fluctuations or movements in exchange rates may also be the cause of the value of underlying international investments going up or down. Unit trusts can engage in borrowing and scrip lending. Unit trusts are traded at ruling prices. All of the unit trusts may be capped at any time in order for them to be managed in accordance with their mandates. Commissions and incentives may be paid and, if so, would be included in the overall costs. Different classes of units apply to the Prudential Collective Investment Scheme Funds and are subject to different fees and charges. A Collective Investment Schemes (CIS) summary with all fees and maximum initial and ongoing adviser fees is available on our website. One can also obtain additional information on Prudential products on the Prudential website. Performance figures are based on lump sum investments using NAV prices with gross income reinvested. This information is not intended to constitute the basis for any specifi c investment decision. Investors are advised to familiarise themselves with the unique risks pertaining to their investment choices and should seek the advice of a properly qualifi ed financial consultant or adviser before investing.