MONEY
IOL
OCTOBER 2021
FINANCIAL PLANNING
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Your journey to financial freedom
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CONTENTS FEATURES 5 Financial Planners of the Year
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‘Finfluencers’ are on the rise: why you should be wary of financial advice on social media 6 When can you sue your financial adviser for loss? CFP: The most important three letters in financial planning Will you benefit from having a trust?
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Rands and Sense with Buhle Langa
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Money Basics with Martin Hesse: There are advisers and professional planners –- know the difference
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Fact File: Financial Planning Institute
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Planning Perspectives with Palesa Tlholoe
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Important contacts and links
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REGULARS
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FROM THE EDITOR
Stop thinking about what your money can buy. Start thinking about what your money can earn. – J.L. COLLINS Author
CONTACT US PUBLISHER Vasantha Angamuthu vasantha@africannewsagency.com MONEY EDITOR Martin Hesse martin.hesse@inl.co.za DESIGN Mallory Munien mallory.munien@inl.co.za PRODUCTION Renata Ford renata.ford@inl.co.za BUSINESS DEVELOPMENT Keshni Odayan keshni.odayan@inl.co.za SALES Charl Reineke charl@africannewsagency.com ENQUIRIES info@anapublishing.com
IT'S always been a puzzle to me why people generally go to professionals for expert advice on their health or legal issues, but not when it comes to their finances. Your medical practitioner has studied long and hard to build up the expertise needed to diagnose an illness or advise you on health matters. So has your lawyer, whose qualifications ensure he or she is fully competent to deal with any legal problems you may have. But you're quite comfortable following the advice of a friend or relative when chatting around the braai on where to invest your money. That's the same level of discourse as receiving a tip on which horse to back in the main race at Kenilworth on Saturday. Your finances deserve better than that. Your finances and how you manage them are as fundamental to your life – and to the lives of those closest to you – as your health is. Financial planning is financial advice at a professional level. Some planners charge a fee, as a GP would – you can't expect professional advice for nothing. Others will take a percentage of your "assets under management", to use an industry phrase. These fees are negotiable, unlike the fees your GP charges you. However your financial planner gets enumerated, you will recoup those costs over the long term by having a steady, guiding presence beside you, making sure you don't do anything rash with your hard-earned rands while also ensuring you are on track to achieve your financial goals. Go chat with one – you're worth it.
Martin Hesse
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FINANCIAL PLANNERS OF THE YEAR Each year, at its annual convention, the Financial Planning Institute (FPI), the professional body of financial planners in South Africa, announces its Financial Planner of the Year from among its members, holders of the Certified Financial Planner (CFP) accreditation. This is a supreme accolade for these dedicated men and women, who can be proud to be recognised as the top practitioners in their profession. The competition is a gruelling one, and it includes an on-site visit by the judges to the planner’s practice. By Martin Hesse
HESTER VAN DER MERWE CFP
HARDI SWART CFP
Hester van der Merwe is the current Financial Planner of the Year, having won the title in 2020. She will hand over the title to the next Financial Planner of the Year at the FPI’s annual convention this month. She has a law degree from the University of Pretoria, the Postgraduate Diploma in Financial Planning from the University of the Free State, and a Certificate in Advanced Trust Law from the University of Pretoria. Hester is a financial planner at Ultima Financial Planners in Pretoria.
Hardi won the Financial Planner of the Year title in 2019. He has a BCom from the University of Stellenbosch, an International Certificate in Entrepreneurship, Business Consulting and Mentoring from Syracuse University, and holds the Postgraduate Diploma in Financial Planning from the University of Stellenbosch. Hardi is managing director of Autus Private Clients, a family wealth and investment advisory firm in Paarl, Western Cape.
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JANET HUGO CFP Janet won the Financial Planner of the Year title in 2018. She holds the Advanced Postgraduate Diploma in Financial Planning from the University of the Free State, with a focus on investment management and estate planning. She is director of Sterling Private Wealth, with offices in Johannesburg, Cape Town, and Hermanus, where she has her practice. Janet is a passionate advocate in the media for financial literacy and wealth management.
MARK MACSYMON CFP Mark won the Financial Planner of the Year title in 2017. He has a Master of Commerce degree from the University of Stellenbosch (majoring in economics) and holds the Advanced Postgraduate Diploma in Financial Planning from the University of the Free State (majoring in estate planning, asset types and investment instruments). He has been a wealth manager at Private Client Holdings in Cape Town for over 11 years.
BRUCE FLEMING CFP Bruce won the Financial Planner of the Year title in 2016. He holds a Bachelor of Commerce and LLB from the University of KwaZulu-Natal and in 2000 attained the Advanced Postgraduate Diploma in Financial Planning from the University of the Free State. He has been involved in the financial services industry for 24 years, having started out as a legal adviser at Old Mutual. Bruce is currently a financial planner at Private Wealth Management in Cape Town.
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‘FINFLUENCERS’ ARE ON THE RISE: WHY YOU SHOULD BE WARY OF FINANCIAL ADVICE ON SOCIAL MEDIA Not all financial advice posts on social media will lead you into a scam, but you need to be able to differentiate between what is in your best interests and what is not, writes VERNON PILLAY THERE are many conversations to be had around how you manage your money. The problem is that opportunists are everywhere and you should arm yourself with the knowledge of what constitutes good advice. On social media, some of the information you receive from online forums will be bad, some of it will be good. But, it’s good to remember that having a large following doesn’t equal credibility. Many investors, whether starting their journey or heading into retirement, fall prey to social media financial advice because they do not have a solid financial plan. A good, independent
financial adviser will explore your unique set of circumstances and implement a long-term investment strategy to help you reach your financial goals. Everyone can benefit from having an adviser as a partner on their financial journey because, while most people are emotional about their own money, a financial adviser will be rational. You need to distinguish between a social media influencer and a financial adviser. There are many wonderful lessons that can be provided on social media platforms. Want to learn how to do the latest viral dance moves? That’s the place to do
it. Want to see how to prepare some simple and delicious meals? Watch a few videos and have a go. However, when it comes to your finances, Janine Horn, a financial adviser at Momentum, says even billions of views don’t necessarily equal good advice. “Social media influencers are a powerful force in today’s economic engine, but there are dangers to seeking financial advice from someone who may not have an understanding of your personal situation, the country you live in, or even the financial challenges that are unique to your life.” Horn says this is backed up by the fact that a leading
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social media platform has recently banned its users from advertising financial services in a move to curb scams and poor financial advice. This is not to say social media can’t prompt younger generations to start thinking critically about their money. “There are good conversations to be had around financial literacy and the promotion of financial responsibility. The problem is that opportunists are everywhere and consumers should arm themselves with the knowledge of what constitutes good advice,” says Horn. How should a younger, more digitally-oriented generation attune themselves to the complexities of personal financial management? Horn says: “Where you are in your life can guide you towards your most important financial goals, to grow your wealth and secure financial freedom. The question is, what are the most suitable financial products in South Africa for your unique needs?” Horn offers some advice on how young people should approach financial
management for different stages of their lives. STARTING A CAREER When you’re young, starting out in life and earning a living is exciting. “The sooner you start saving and investing your money, the sooner you get a head start on your journey to financial success. It’s the best time to set up that muchneeded emergency fund so you have a financial safety net, save for your short- and long-term dreams and goals, start a taxfree savings account, and start investing for your retirement to take advantage of compound growth,” advises Horn. STARTING A FAMILY Making your family circle bigger costs money. Horn says each family’s journey is different, whether you need to save for your child’s education, or to put money away for a family holiday or a bigger car. You also need to relook your life insurance cover. “When it comes to your loved ones, you can’t afford to leave anything to chance. It’s time you started looking at the bigger picture, because now, you have more than just yourself to think about. You can’t predict the future, but you
can rest easy knowing they’ll be financially secure, no matter what life throws your way,” says Horn. PLANNING FOR YOUR TOMORROW Everyone’s journey is unique, but some goals, like a comfortable retirement, are important to everyone. “The current economic climate has led some people to consider dipping into their retirement funds to access capital. “But that shouldn’t stop you from finding a way to invest for your retirement as early as possible. You’ll be able to take advantage of the time you have as well as the power of compound interest. Your future self will thank you,” says Horn. GET INFLUENCED BY THE RIGHT ADVICE Wherever you are on your financial journey to success, Horn says there is plenty of time to make the right decision and do it early enough to ensure your future is secured. “The truth is that it is not easy to always make the right financial decisions, but there are advisers out there who know what they’re doing and can apply their knowledge to your unique situation and goals.”
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WHEN CAN YOU SUE YOUR FINANCIAL ADVISER FOR LOSS? JEAN-PAUL RUDD says you must distinguish between losses arising from risks you were aware of and losses arising from professional negligence. THOUSANDS of South Africans place their trust in financial advisers to professionally manage their money and their futures. Unfortunately, many of these investors lose their money, but it is not always as a result of professional negligence on the side of financial advisers. You need to clearly distinguish between losses arising from market or other risks versus losses arising from professional negligence. INVESTMENT RISK A critical consideration for financial advisers is the level of risk their clients are prepared to take on board when making investment decisions. There are trade-offs to be made between the level of risk and return that one receives and it is important that this is communicated to you in a way that you understand, and accept the implications of the decisions being made. Risk means the chance of a loss in investment, not an actual loss, which is a deviation from your expected return. There are various types of risk: ● Systematic or market risk is the risk impacting all shares, usually coming from national or global economic conditions. ● Unsystematic risk is usually event-based risk affecting
one share only, such as a management change, reputational damage, or fraud. ● Interest rate risk is where a change in interest rate affects value. Bond prices and their yields are inversely related. Thus, if the interest rate increases the bond price falls or drops to a discount, and if the interest rate drops the bond price rises or is considered at a premium. ● Inflation risk comes about from inflation affecting prices and value and the buying power of money. For example, if you buy a bond with an interest rate of 3%, this would be the nominal return of your investment. However, if the inflation rate is at 2%, your purchasing power is only really increasing by 1%. ● Business or financial risk is the risk of deteriorating business conditions due to consumer demand, competition or industry disruption from, for example, new business models. ● Political or social risk is when government policy affects investments, or there is a complete political or security upheaval such as war or a revolution. Investors in Egypt would have encountered this risk in 2012/2013. ● Currency risk comes about through changes in the exchange rate relative to
currencies which are detrimental to the value of the investment. For example, suppose that a US-based investor purchases a German stock for 100 euros. While holding this stock, the euro exchange rate falls from 1.5 to 1.3 euros per dollar. If the investor sells the stock for 100 euros, he or she will realise a loss on conversion of the profits from euros to dollars. ● Credit risk is when credit extended to a borrower or bank may be wholly or partially lost. ● Concentration risk occurs when investments or a business are locked into one region or one industry where the decline of the area or industry will affect value. For example, the price of airline stocks may be influenced by the cost of oil. PROFESSIONAL NEGLIGENCE A financial adviser has a legal duty to exercise reasonable skill and care, and liability may arise as a result of a breach of the duty of care or as a result of breach of contract. Most of the clients of financial advisers have little knowledge of matters relating to finance and investment and place heavy reliance on their financial adviser. In order to establish liability for a financial adviser’s professional negligence, it is necessary to show that you
actually placed reliance on the advice given. Where there is advice but you did not rely on the advice in making an investment decision, no liability arises if loss results from the investment. A financial adviser holds himself out as an expert or specialist. In cases alleging professional negligence where the adviser’s skill and competence are questioned, it is necessary to show that the financial adviser lacked the degree of skill and care ordinarily exercised by a reasonably competent professional adviser.
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Conduct of financial advisers which may amount to professional negligence include: ● Failure to assess your needs and financial situation; ● Failure to establish whether you can afford the investment; ● Advising that you invest in products that are unsuited to your needs; and ● Failure to warn you of the risks of the proposed investments. APPROPRIATE FORUM Investors can claim damages through a court of law, or refer the dispute to the “FAIS Ombud” (Ombudsman for Financial Services Providers) which can award compensation for financial prejudice or damage suffered up to its jurisdictional limit of R800 000. The ombud service is free of charge. Deciding on which forum through which to claim depends entirely on the facts of each case.
Jean-Paul Rudd is a partner at law firm Adams and Adams.
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CONCLUSION Good investments can help people reach their financial goals and create long-term stability for themselves and their families. Yet, there is always some risk when people invest their money. The market fluctuates and high returns on investments cannot be guaranteed. But not all losses are normal or are just the risk of doing business. Unfortunately, sometimes losses may be the result of professional negligence on the part of a financial adviser. Should the cause of your loss not be clear, it is advisable to seek legal advice promptly.
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Rands & Sense
Adapting your attitude towards money as you age
Buhle Langa
HAVING a financial plan is the first step you need to take when setting out your goals and how you plan to reach them. Your financial plan will change at different stages of your life – it should not remain static. Your needs will look different as you move through various phases of your life: from your early years in your career, to becoming established in your career, preparing for retirement, and your life in retirement. The younger years Investors in their 20s will have at least 40 years over which to accumulate their retirement savings and should focus on growth. In this stage of your life, aim to keep your savings invested in the most suitable investment vehicle for you. Look for consistent long-term performance and keep your retirement savings invested between jobs to benefit from compound interest over the long term. A high allocation towards growth assets such as shares and property and an allocation to global markets could benefit you greatly. During this stage you will focus on planning for and creating your wealth. The choices you make will decide where you ultimately end up in the most vulnerable time of your life, retirement. Consider a healthy contribution rate to your retirement fund of a minimum of 13 to 15% of your salary and investing in more aggressive investments or portfolios. In turn, this should help you reap the rewards of the highest possible returns, compounded over the years leading up to retirement. Middle-age investors People in this phase are starting to earn and spend more and are most likely trying to pay off debt. Because of higher earnings and possible tax savings, first try to top up your compulsory investments (money going into retirement
funds) as much as possible before building on discretionary investments, such as unit trust funds. The retirement years Retired investors want to minimise risk and keep up with inflation. Your main objective would be to choose an appropriate income annuity option (either a life annuity or living annuity) that would best suit your retirement income needs. Two to five years before retirement, your focus needs to shift towards protecting your savings that you have accumulated over the years. This also highlights why withdrawing your retirement savings before retirement is seldom a good idea and can be detrimental to your quality of life during your retirement years. Discretionary investing for rainy days In any life stage, make sure you have enough emergency savings so that any unplanned and urgent expenses do not derail your longterm goals. Being prepared financially makes the world of a difference when you have to deal with a car breakdown, the death of a loved one, or the birth of a child. With the correct financial planning advice, you can structure your investments and insurance without being caught off guard. A Certified Financial Planner can assist in building your financial wellness by analysing your unique financial situation and offering a holistic approach to finding the appropriate solutions for you. The perfect financial plan will not only look at making you financially well during your lifetime, but should also look at making sure that your affairs are taken care of even in the event of death. Langa is a financial well-being consultant at Alexander Forbes.
SPONSORED CONTENT
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22seven goes #datafree with a brand new financial management tool Jikku Joseph (pictured) and Gour Lentell The popular budgeting app 22seven has launched 22seven lite, a datafree version that will give thousands more South Africans the tools to manage their finances so that they can plan better and save more. ● 22seven lite is released in collaboration with popular messaging super app, Moya. ● It is totally free to use, requiring no airtime or mobile data. ● It is 100% safe and secure, using bank-level encryption to protect users’ privacy. 22seven was launched in 2012, with the ambition of empowering people to take control of their finances. Users can see all their money in one place, and the advanced transaction categorisation engine generates a personalised budget based on actual spending, which allows users to manage their money with confidence. “More than 400 000 people currently use 22seven,” says Managing Director Jikku Joseph. “But the app requires wi-fi or mobile data. Research
showed that millions of South Africans don’t want to download another app or spend more money on data, which makes them reluctant to use 22seven. “That’s why we built 22seven lite. Our goal has always been to offer financial tools to all South Africans and we believe that our new, datafree platform will help us achieve that goal.” 22seven lite is accessed via Moya, a datafree messaging super app. Moya is free to download from the Android app store: look for 22seven lite in the “Discover Money Services” section of the app. Users only need an email address to sign up for 22seven lite. Once signed up, they can link bank accounts, store cards, investment and loan accounts. 22seven lite then uses this information to help users track their spend and budget much more easily. “We are very pleased to partner with Moya. They share our vision of making our life-changing service widely accessible, and they are committed to help us grow a financially confident South Africa,” says Joseph.
22seven has stringent data privacy controls, which are shared by 22seven lite. The same bank-level encryption is used to protect users’ private information. “The user connects accounts by entering their account login details, but those details are never seen by human eyes. It’s read-only, nobody can transact on the accounts in 22seven lite,” says Joseph. 22seven is also backed by Old Mutual and is insured like a bank, so your money is safe. Since launch in 2012, South Africans have securely linked more than 1.3 million accounts to 22seven. “By offering more people the tools to take control of their finances, we hope to grow a money management culture in South Africa – and hopefully in other African countries one day,” says Joseph. “We want to help more people make better financial decisions through knowledge and awareness.” Jikku Joseph is Managing Director at 22seven, and Gour Lentell is CEO at Datafree
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THERE ARE ADVISERS AND PROFESSIONAL PLANNERS – KNOW THE DIFFERENCE
MONEY BASICS
with MARTIN HESSE
NOT that long ago, “financial advice” was essentially a euphemism for the aggressive selling of financial products by life insurers. You went to an adviser or broker if you wanted to invest or take out an insurance policy. The adviser chose a product from the limited range available, convinced you that it was right for you, and you signed on the dotted line. The dotted line, in the case of investment products, was a contract that bound you to contribute a specified amount over a specified term. This business model enabled the life company to offer the adviser, who had some product training, but needed very little in the way of financial qualifications, a lucrative commission based on the
whole amount contributed over that period, which was a huge incentive for the adviser to sell as many products as possible. And if you broke the contract by stopping your contributions or wanting to withdraw your savings early, that pre-paid commission would be clawed back from you, in the way of a penalty. It was a recipe for disaster: advisers mis-sold financial products on a massive scale because they were operating in their best interests, not yours. Many things have changed. Investing has become democratised through, among other things, the emergence of the asset management industry, which offers a mind-boggling choice of non-contractual collective investments. And it
has become easier to invest directly in the stock market, through low-cost, accessible online platforms. Importantly, the regulators clamped down on advice and the sale of financial products, through the Financial Advisory and Intermediary Services Act of 2002 and, more recently, the Treating Customers Fairly regime. This has made it harder for an adviser to sell you a product without first properly assessing your circumstances and financial situation. However, the scenario I described at the outset persists. There are still far too many advisers who have minimal qualifications and are, to put it bluntly, little more than salespeople. Fortunately for you, the
LISTEN TO PODCAST Listen to the full interview with the FPI’s David Kop about the benefits of financial planning on the IOL Personal Finance webpage here.
consumer, a new breed of adviser has taken financial advice to the level of a profession – where it should have been in the first place. The financial planner (and I’ll use this term to distinguish such a person from a regular adviser) has a postgraduate qualification, offers a level of service similar to what you would expect from a family doctor or lawyer, and is bound by a professional code. This is someone with whom you can establish a long-term relationship and who acts in your best interests to help you achieve your financial goals. The top echelon of financial planners in South Africa have the internationally recognised Certified Financial Planner (CFP) designation and are members of the Financial Planning Institute of
Southern Africa (FPI). (Read more about the FPI on page 18) David Kop, executive director: relevance at the FPI, says a major tell-tale sign an adviser is not working in your best interests is that the adviser’s focus is on the product, not you. “One must be aware that financial planning is not about the product. The product is a tool that a planner will use to help you meet your goals. So if you find that the adviser’s conversation with you is all about the product, and not about you, that is probably the first tell-tale sign that somebody is just there to sell you a product. “Financial products are vitally important and are needed in our ecosystem, but from an advice and planning viewpoint, the first step is to understand more about
you – what you want to achieve, what your goals and dreams are. Then the planner will apply his or her skills in order to achieve your goals. If that is the approach your planner is taking, you know you’re on a financial planning journey. But if the approach is just trying to get you to buy into a product and worry about the advice second, then you’re in a product-sell environment.” Another indication you may be being persuaded to invest in a product that is unsuitable for you is if the adviser pressurises you into signing immediately, without giving you time to mull things over. Always ask if you can have a day or two to examine the terms and conditions of the product more closely, in the comfort of your home. If there is still pressure to sign, walk away.
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CFP: THE MOST IMPORTANT THREE LETTERS IN FINANCIAL PLANNING There are financial advisers and financial advisers. If you expect a professional level of service with your finances and investments, you should choose a financial planner with the internationally recognised Certified Financial Planner designation. PREPARING for an uncertain future has never been so important. Financial wellness is the cornerstone of a healthy society and should be the goal of every individual. But achieving financial wellness is easier said than done. There are thousands of financial products on the market, and it seems that everybody has an opinion about what you should do with your savings. This is why the Certified Financial Planner (CFP) professional designation is so valuable. It is awarded by the Financial Planning Institute of Southern Africa (FPI), a recognised professional body for financial planners, and it indicates that a financial planner has the necessary skills, knowledge and competencies
to give advice impartially, professionally and ethically. “The CFP designation is internationally recognised as the standard for financial planning professionals,” says FPI chief executive Lelané Bezuidenhout. “It gives consumers confidence that the financial planner they’re dealing with is suitably qualified and gives assurance that they remain up to date with developments in the industry.”
CFP professional by obtaining a Postgraduate Degree or Diploma in Financial Planning from an accredited institution. An advanced degree or designation in economics, taxation, law or finance, in addition to a more onerous experience requirement, can serve as an alternative to gain entry to the professional examination through the Challenge Examination process.
THE FOUR Es OF BEING A CFP professional. To qualify as a CFP professional – and to retain that status – financial planners must meet the four Es of the profession:
2. Examination The Professional Competency Examination (PCE) is a rigorous competency test administered by FPI. A financial planner can only qualify to apply for the CFP designation if they pass the PCE.
1. Education Candidates can start the journey towards becoming a
3. Experience Before they write the PCE, the
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candidate must have three years’ experience in the field of financial planning. Qualified CFP professionals must also stay in touch with developments in the financial planning profession and must complete 35 hours of continuous professional development (CPD points) each year. 4. Ethics Ethics is the glue that holds the CFP designation together. Professionals must display high ethical standards at all times and complete at least five CPD hours each year on professional ethics and financial planning practice standards. A CAREER IN FINANCIAL PLANNING “After I completed my undergraduate degree, I did some research and decided
that financial planning was the ideal career for me,” says Katlego Mei, CFP. “I obtained my Postgraduate Diploma in Financial Planning in 2017 and attempted the PCE for the first time in 2019. “I did not pass the PCE on the first attempt, but I did not let that get me down because I really wanted to be a professional. I wrote the PCE for the second time in 2021 and passed. Stay positive and focus. “The earlier you start with your preparations, the better it will be for you.” “The journey to becoming a CFP was my journey of selfdiscovery,” adds fellow FPI candidate Chantay Dlamini. “The best way forward for me was to pack away all workrelated material and focus on the studying. Communicate with your family and friends.
“Your focus is going to shift for some time. Many of the candidates have spouses, life partners, children and parents – take them on this journey with you.” The PCE consists of two case studies, written over consecutive days, that will test candidates’ financial planning skills, knowledge and competencies. These examinations are conducted online and can be completed from the comfort of one’s home or office. From 2021, FPI has introduced a rewrite option, which affords certain candidates an extra opportunity to pass a case study. | Supplied by the FPI. For more information on finding a CFP in your area or on taking the journey to become a CFP professional, go to www.fpi.co.za
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WOULD YOU BENEFIT FROM HAVING A TRUST?
TRACY MULLER looks at the circumstances under which it may be favourable to transfer some of your assets into a trust. TRUSTS are tools to protect and grow wealth for your beneficiaries during and after your lifetime. A trust is an important financial and estate-planning tool that, together with your will and other structures, can help protect your personal and business assets for your beneficiaries. It is critical to get expert advice so that you can choose the right trust for your needs, as different trusts have different purposes, benefits and limitations. Generally, trusts provide flexibility and continuity, facilitate effective distribution of your assets when you die, enable the protection of dependants and vulnerable beneficiaries, and can protect assets from being seized. You can also set up a trust for charitable purposes. WHAT IS A TRUST? A trust is an arrangement into which the ownership of one’s assets is transferred to be administered for the benefit of others. There are three key parties to a trust: 1. Founder/donor/settlor: the founder creates the trust and transfers all ownership and control of identified assets to the trust. 2. Trustees: the trustees administer and control the assets on behalf of the beneficiaries.
3. Beneficiaries: these are the people who benefit from the trust.
TYPES OF TRUSTS Generally, there are two types of trusts: 1. A testamentary trust formed in terms of your will. The terms of this trust are set out in your will and the trust comes into existence only after your death. Your will becomes the trust instrument. In many instances this type of trust seeks to protect
the interests and inheritance of minors or vulnerable members of the family (such as elderly parents or spendthrift children who are over 18) after the death of their parents or financial provider. It does not provide any protection for your assets during your lifetime. 2. An inter vivos trust (also called a living or family trust) formed during your lifetime. You can set up this type of trust at any time. The trust instrument will be a trust deed that contains the terms of the trust. It is a wealthstructuring tool that is used for various purposes and protects assets across generations if you want to leave such a legacy. It can also support beneficiaries financially during and after your lifetime. DO YOU NEED A TRUST? Here are some situations where trusts may or may not be the answer. What we suggest are mere illustrations. It is important to get proper advice that considers your circumstances and needs and that unpacks the costs of transferring assets to a trust, such as capital gains tax, transfer duty, and securities transfer tax. Muller is head of fiduciary advice at Nedbank Wealth Management.
EXAMPLE 1: JANE AND JOHN Circumstances and needs
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Jane and John are married under an antenuptial contract with the accrual system. They have two children under the age of 18. During their marriage Jane acquires a business interest in her personal capacity and a share portfolio. John owns a share portfolio and is a salaried employee. What are the benefits of an inter vivos trust for them? If they transfer the share portfolios into a trust, they will achieve the following: ● Separation of assets. ● Protection against insolvency. ● Continuity – assets will not form part of their estates. ● Pegging of the growth in the value of assets. ● Protection for dependants. ● Generational planning. EXAMPLE 2: ALFONSO Circumstances and needs Alfonso is 28, single and does not have any children. He owns a primary residence valued at R2 million. He has spent his bonuses on travel and has no investments. Does Alfonso need a trust? No, Alfonso would not benefit from the primaryresidence exclusion if the trust disposed of the property. The costs of establishing and funding a trust, together with the ongoing costs, do not warrant the establishment of a trust at this stage.
EXAMPLE 3: EMILY Circumstances and needs
Should Emily consider establishing a trust? Yes, Emily can either leave the assets to a testamentary trust in terms of her will or create an inter vivos trust during her lifetime. Victor would be a discretionary beneficiary of the trust. The assets would be protected in the trust, and Emily will be protecting Victor from himself and anyone that may influence him.
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Emily is 45, single and has a son, Victor, who is not financially responsible. He has not been able to stay employed for long periods and is easily influenced by his friends. Emily is concerned that Victor may not be able to manage his inheritance when he receives it.
FACT FILE
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The Financial Planning Institute THE Financial Planning Institute of Southern Africa (FPI) has been offering the Certified Financial Planner (CFP) accreditation to South African financial planners for over 20 years. A nonprofit body, it is a founding and affiliate member of the Financial Planning Standards Board (FPSB), a global network of organisations in 27 countries and owner of the CFP mark outside the US. According to the FPSB’s website, there are more than 181 000 CFP professionals worldwide. There are about 4 700 CFP professionals in South Africa, of which 3 800 are practising. Of the practising CFPs, about half are employed by the large product providers and the remainder are independent. FPI members must uphold the institute’s values and, importantly, adhere to its Code of Ethics and Practice Standards. The FPSB’s sixpoint planning process:
how you will pay for the service provided. 2. Collect your information The more comprehensive the details of your finances and personal history you provide, the more detailed and relevant the resulting advice will be. This step also involves you defining your needs, concerns and goals. 3. Analyse the information It’s now up to the planner to analyse what you have provided and do the necessary numbercrunching. 4. Prepare and present the plan, with recommendations The planner prepares a plan for you, with proposed ways for you to reach your goals.
A CFP professional should:
5. Implement the plan This is the active part of the process, which is usually ongoing. You may decide to carry out the planner’s recommendations by yourself.
1. Establish and define his or her professional relationship with you This involves, among other things, establishing what the planner is qualified and licensed to advise you about and sell you, and what and
6. Monitor and revise the plan The planner should ensure you are on track and be on hand to make necessary changes or revisions if there are changes in your personal circumstances.
ETHICAL CODE FPI members must ask themselves the following eight questions as related to the principles underlying their Code of Ethics and Practice Standards: 1. Clients first: Did I act in the best interest of the client? 2. Integrity: Am I prepared to read about my actions in tomorrow’s newspaper? 3. Objectivity: Am I convinced that I did not allow any emotions to cloud my judgment? 4. Fairness: Have I done what any reasonable person would have done under the same circumstances, or if I had the power of hindsight at some point in the future, would I have given the same advice? 5. Competence: Do I have the collective and sufficiently updated knowledge and skills to render the best advice and service? 6. Confidentiality: Am I sure that I have made all efforts to protect confidential information? 7. Diligence: Have I applied all my skill and motivation to act in the best interest of the client in a timely manner? 8. Professionalism: Have I inspired trust in myself as a professional and in the profession as a whole through dignity and respect in all my actions?
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Planning Perspectives
Financial planning demystified
Palesa Tlholoe
WITH October being Financial Planning Awareness Month, this is a chance to understand why it’s important to have a comprehensive financial plan and how to choose the best financial partner to help you create and implement it. A financial plan is like a road map that shows you where you are, where you want to go, and the best way to get there. Your current financial position reflects your assets and liabilities, and your income and expenses. Where you want to go involves your dreams, your goals, and your aspirations. If, for example, you want to buy an investment property that will give you extra income at some stage in your life, your financial plan should show how you’ll raise funds to buy the property. When I first started as a financial adviser, my coach used to say, “we all have five problems in life that we have to face at some point”. They are: dying too soon, living too long, the loss of income due to an illness or incapacity, inflation, and taxes. Most life decisions we make every day have an impact on our finances, and most financial decisions we make can be affected by any of these five problems. Deciding to get married and having children will have a financial impact, and your family’s finances can be affected by any of the five problems. A Certified Financial Planner (CFP) can help you to put together a customised and comprehensive plan by performing a financial needs analysis. This analysis will make certain assumptions about the future, taking into account your current financial resources and potential risk, compare those to your needs or aspirations, factor in inflation, taxes, your time horizon, and your
risk ability, and ultimately make a recommendation, which will include financial products that will fit your plan. CHOOSING THE BEST PLANNER FOR YOU It’s often said that knowledge is power. You need to have a good idea of the difference between a financial adviser and a professional financial planner with the CFP designation. A financial adviser should meet the minimum qualification and experience requirements, and be registered with the Financial Sector Conduct Authority. He or she should also achieve a minimum of 18 Continuing Professional Development (CPD) points per year, and be registered for the products they recommend. A CFP professional, on the other hand, has been awarded a formal designation by the Financial Planning Institute after passing rigorous board exams. To write the exams, the individual needs to hold an NQF8 qualification in a recognised field and meet the required number of years of experience in the profession. This is over and above the requirements for a financial adviser, and the CPD requirements are higher, at 35 CPD points per year. A CFP professional is therefore trained to handle more complex financial portfolios, and this training is ongoing, because legislation changes all the time, and financial plans need to be updated. For a list of all practising CFP professionals, visit www.fpi.co.za To verify that your financial adviser is registered with the regulator for the products recommended to you, visit www.fsca.co.za Tlholoe CFP, is co-founder and wealth manager at Imvelo Wealth
INFORMATION
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click on the links to visit the website
Here are sources that can help you with financial education, give you more information on savings and investments, and afford you recourse if you have a consumer complaint or a complaint against a financial services provider
FINANCIAL EDUCATION Financial Sector Conduct Authority MyMoney Learning Series https://www.fscamymoney.co.za South African Savings Institute #WaysToSave https://waystosave.co.za/ BANKING Ombudsman for Banking Services ShareCall: 0860 800 900 or phone: 011 712 1800 Email: info@obssa.co.za www.obssa.co.za CONSUMER ISSUES National Consumer Commission Toll-free: 0860 003 600 or phone: 012 428 7000 Email: complaints@thencc.org.za www.thencc.gov.za Consumer Goods and Services Ombud ShareCall: 0860 000 272 Email: info@cgso.org.za www.cgso.org.za
FINANCIAL ADVICE Ombud for Financial Services Providers phone: 012 470 9080 or 012 762 5000 Email: info@faisombud.co.za www.faisombud.co.za INVESTMENTS Financial Sector Conduct Authority ShareCall 0800 110 443 or 0800 202 087 info@fsca.co.za www.fsca.co.za LIFE INSURANCE Ombudsman for Long-term Insurance ShareCall 0860 103 236 or phone: 021 657 5000 Email: info@ombud.co.za www.ombud.co.za MEDICAL SCHEMES Council for Medical Schemes MaxiCall: 0861 123 267 Email: complaints@medicalschemes.com or information@medicalschemes.com www.medicalschemes.com
Credit Ombud MaxiCall: 0861 662 837 or phone: 011 781 6431 Email: ombud@creditombud.org.za www.creditombud.org.za
RETIREMENT FUNDS Pension Funds Adjudicator ShareCall: 0860 662 837 or phone: 012 346 1738 Email: enquiries@pfa.org.za www.pfa.org.za
National Credit Regulator ShareCall: 0860 627 627 or phone: 011 554 2600 Email: complaints@ncr.org.za or (debt counselling) dccomplaints@ncr.org.za www.ncr.org.za
SHORT-TERM INSURANCE Ombudsman for Short-term Insurance ShareCall 0860 726 890 or phone: 011 726 8900 Email: info@osti.co.za www.osti.co.za
TAX Tax Ombud ShareCall: 0800 662 837 or phone: 012 431 9105 Email: complaints@taxombud.gov.za www.taxombud.gov.za PROFESSIONAL ORGANISATIONS Fiduciary Institute of Southern Africa (FISA) phone: 082 449 2569 Email: secretariat@fisa.net.za www.fisa.net.za Financial Planning Institute of South Africa (FPI) Phone: 011 470 6000 Email: info@fpi.co.za www.fpi.co.za South African Institute of Tax Professionals (SAIT) Phone: 012 941 0400 Email: info@thesait.org.za www.thesait.org.za FINANCIAL DATA ◆For ◆ the latest financial market indicators, go to https://www.iol.co.za/businessreport/market-indicators ◆For ◆ the latest quarterly unit trust performance, go to https://www.iol.co.za/ personal-finance/collective-investments ◆To ◆ look up performance of a particular unit trust fund go to https://www.iol.co.za/ personal-finance/fund-look-up
