Investing responsibly is essential for those looking to align their values with their financial goals. We take a look at the growth of this class.
Pg 12-15
With new legislation in the pipeline, it’s essential that FAs stay up to date with the latest happenings in the funeral insurance industry.
Pg 16-18
EDUCATIONAL POLICIES
The rising cost of education means that saving for a child’s future should be a part of everyone’s financial portfolio. We look at an innovative product that offers this and more.
Pg 20-21
OFFSHORE INVESTING
From loop and Shariah investing to trusts and foreign pensions, the latest trends in offshore investing are worth investigating.
Pg 22-25
Investing takeaways from 2024
It’s been a challenging, surprising, unpredictable year. Are there things investors could have done differently? MoneyMarketing asked three industry experts about their experiences in 2024.
Mike Adsetts, Global Chief Investment Officer at Momentum Multi-Managers
The biggest takeaway from 2024 is reflecting on the significant challenges the year brought. Many of these risks were somewhat anticipated as early as the beginning of the year, but while they were identified, no-one knew how they would transpire. The discussion initially focused on whether a recession was looming for the US economy. However, as the months passed, the narrative began to shift toward the possibility of achieving a ‘soft landing’. This led to debates and differing viewpoints, with the central question being whether there were sufficient economic indicators pointing to a feasible soft landing.
Inflation was another critical issue, continuing to run at elevated levels, causing concern across markets. The initial outlook for 2024 included the expectation that interest rates in developed markets might ease. However, the pace and timing of such rate cuts were still uncertain, with central banks being cautious.
The anticipation and response to these evolving conditions highlighted the delicate balancing act central banks faced throughout 2024.
The two elections – South African and US – were always going to be key economic indicators. We were hesitant about the impact of local elections on the markets. It created a difficult situation because South African assets were undervalued but if the results of the election were unfavourable, the risk was that yields would spike up, the rand would weaken, and local equity markets would continue to be under pressure. We positioned our portfolios to be a bit underweighted in South African assets because we were concerned about the outcome of the local election, but it was a little bit moderated. Where we did have an underweight, it wasn't a big underweight. We were cautious. After the elections, the markets rallied quite strongly as the outcome was better than any of us had anticipated. The US election also brought some surprises. While the presidential race was always too close to call, no one predicted the total red wave that emerged. Trump is known as being an unpredictable president, and will probably be a very unpredictable president this time around, looking at the appointments he's made to date. There's also a view by some in the US that Trump will be more interventionist in the Federal Reserve, but that remains to be seen.
We don't foresee the dollar losing its status as the global reserve currency. There's no real potential replacement for the US dollar as a reserve currency in the near, medium and even a couple of decades into the future. We will, however, probably start seeing deglobalisation to a point that it’s replaced by regionalisation. As America becomes more protectionist, other contenders see an opportunity for themselves to stake a place in the world.
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Another thing that surprised us in 2024 was the strong performance of listed property locally. It had a strong run up until the end of last year, so our view was that it was starting to get overvalued. However, it continued to rally over the year, being the best-performing sector by far.
The biggest challenge this year was dealing with a constantly changing macro environment. It’s not just a 2024 issue; it's been ongoing since Covid. This makes predicting market behaviour extremely tough. It reinforced for us that investment strategies based purely on predictions can lead to high anxiety and random outcomes. So, we focus more on maintaining a long-term perspective rather than reacting to short-term changes.
History shows us that unpredictable events happen. This reinforces the importance of a long-term mindset. Trying to chase trends or react to immediate concerns can lead to poor decisions. We avoid being reactive to the uncertainty, staying anchored to our investment philosophy, which focuses on long-term outcomes rather than trying to predict random events.
There have been positive impacts from the recent political changes in South Africa, which is a relief. However, we remain cautious because the GNU is still new and not very robust. We need to factor in that this political arrangement might not be stable long-term, so we keep this in mind while constructing portfolios.
We were more cautious this year because of global uncertainties. There's always pressure on asset managers to outperform, but taking big, speculative bets can be risky in such unpredictable times. It’s important to have a clear, long-term strategy and not rely solely on predicting uncertain outcomes.
The market reaction to the US election has been positive, especially for US stocks, and we have a healthy exposure to them.
“Trying to chase trends or react to immediate concerns can lead to poor decisions”
“Building strong client relationships and maintaining open lines of communication were vital”
However, small-cap stocks have seen the most significant gains, and we haven't heavily invested in that sector. It's still early, and predicting the full impact of this election on the market is difficult. We prefer to remain cautious and focus on the long-term view.
Geopolitical issues are hard to predict. Our approach is to focus on building resilient, globally diversified portfolios that can withstand different scenarios. It’s about ensuring our investments are robust enough to handle unexpected shocks.
The market has become more reactive, especially with the rise of AI and algorithmic trading. The average holding period for US stocks is now less than six months, indicating a shift towards short-termism. We invest in highquality, resilient companies and hold them long-term to avoid short-term volatility.
In 2025, with ongoing geopolitical tensions and economic uncertainties, our strategy remains focused on tuning out the noise, maintaining a long-term view, and constructing robust portfolios.
Hildegard Wilson, Head of Investment Solutions at Glacier by Sanlam
One of the most significant challenges in 2024 was the rapid shift in product mix, moving from protected or guaranteed products to marketlinked options, along with a strong trend towards offshore allocations. This transformation necessitated a keen eye on tracking trends to remain competitive and relevant. In addition, the myriad of global elections posed a unique challenge in managing client expectations. Building strong client relationships and maintaining open lines of communication were vital in addressing the uncertainties of the year.
A key strategy that proved successful was offering a diverse range of products tailored to meet the varied needs of clients. This approach enhanced client satisfaction by aligning investment products with specific client objectives.
One of our focuses was on ensuring clients fully understand new portfolio and investment strategies, and the importance of clear communication and education when introducing new investment concepts was evident.
Global economic and geopolitical events significantly influenced investment decisions and portfolio management in 2024. To address the potential outcomes of these events, having a diversified portfolio became crucial. This strategy ensured that portfolios could withstand various economic and political scenarios, providing resilience and adaptability in an unpredictable world.
As we wrap up an unpredictable year, MoneyMarketing spoke with three investment experts about their experiences in 2025. From our unexpected local election results leading to the formation of a GNU, to a pivotal US election and ongoing conflicts in the Middle East and Ukraine, it’s been a challenging time for investors. ‘Long-term’ and ‘diversify’ remain the guiding principles. While we hope for stability in 2025, the outlook suggests more uncertainty ahead.
As I write this, COP29 is off to a rocky start, with host Azerbaijan’s fossil-fuelbased economy causing controversy and Trump’s re-election threatening another US exit from the Paris Agreement. But how are we doing on ESG commitments closer to home? In South Africa, there’s a noticeable uptick as companies are increasingly focused on ESG, and investors are recognising its benefits. If ESG isn’t on your radar yet, now might be the time to start paying attention.
We’re also looking at education policies in this issue, and why a new way of thinking about them is in order. There’s also some insight into the latest updates on regulations around funeral policies, and how this could affect FAs.
It’s been a busy, eventful 2024, and we hope you can all take a break and have a peaceful and happy holiday season. May we all emerge in 2025 ready for whatever rollercoaster rides the markets have in store for us. Stay financially savvy,
Sandy Welch Editor, MoneyMarketing
Mohamed Mayet CEO, Sentio Capital Management
How did you get involved in financial services?
Fortunately, I found myself in financial services quite early in my career. It wasn’t exactly the result of some grand masterplan; rather, it was a mix of luck and serendipity. From my teenage years, I knew I wanted to be in finance, though I wasn’t entirely sure what that entailed. I was captivated by numbers and business dynamics, and finance seemed the perfect path to combine both passions.
As a student, I would eagerly dive into case studies on institutions like Goldman Sachs and Berkshire Hathaway, dreaming of one day doing similar work. It felt like a far-off aspiration for a young man from inner Johannesburg, with the odds seemingly stacked against me. Still, I was determined. My goal was to work in an investment bank, and eventually, I secured a position in a division of RMB Bank and was part of the early journey of OUTsurance. I contributed to several successful financial start-ups along the way, but my true passion was always in the markets.
This passion led me to work as a sell-side investment analyst, covering the consumer and industrial sectors for a European investment house.
Later, I became Head of Research at Merrill Lynch, focusing on the consumer and global luxury goods sectors. Seventeen years ago, I co-founded Sentio with my business partner and co-principal, Rayhaan Joosub. Reflecting on the journey, it’s clear that financial services have always been my calling – something that has evolved in different forms over time, and I’m grateful for the path it’s taken me on.
What was your first investment –and do you still have it?
My first listed investment took place during the tech bubble of the early 2000s, and, unfortunately, I lost my entire capital. I had put money into a selection of financial and
tech stocks, guided by a rather naïve approach, which quickly taught me some valuable lessons. To make matters worse, I had also convinced my newly inherited father-in-law to co-invest with me. It was a humbling experience that underscored the importance of thorough analysis and research. I certainly don’t hold onto those investments anymore, but I carry the lessons –and a few scars – from that experience.
What have been your best – and worst –financial moments?
That’s a tough question. Plenty of challenging moments come to mind, something inevitable when you’ve been in the industry for a while. Among the best, I recall my early days as an analyst covering the retail sector. I issued a welltimed sell recommendation on Edgars, followed by a buy at the right moment. It felt like a high
significant blind spots. The market has a way of humbling everyone – not ‘if’ but ‘when’. Embracing humility helps you recognise your limitations and opens up an abundance of opportunities.
The second lesson, closely related to humility, is that you’re only as good as your last result. No matter how clever you believe your ideas are, the scoreboard is the ultimate judge. At Sentio, humility is embedded in our culture, guiding our processes and approach to investing. It’s worth noting that true humility can’t be faked; it has to be authentic and part of your ‘investment soul’.
What makes a good investment in today’s economic environment?
In a world dominated by high-frequency data – often just noise – and resulting market volatility, the notion of a ‘good investment’ can easily be mistaken for speculation or chasing high-risk, high-reward ideas. The danger here is becoming a slave to sentiment, which can be a slippery slope.
“It’s clear that financial services have always been my calling – something that has evolved in different forms over time”
point in my career; I thought I was at the top of my game. More recently, my proudest moments have been with the Sentio team, where we successfully navigated around stock ‘bombs’ like Steinhoff, African Bank, EOH and Lonmin. It was a powerful reminder of how a few poor stock choices can quickly undo years of gains.
As for the low points, they’ve often been tied to investing in small caps, especially when liquidity dried up in 2016, and being too early in certain resource stocks that seemed undervalued a couple of years ago.
What are some of the biggest lessons you have learnt in and about the finance industry?
My most valuable lesson is that humility is a competitive advantage in this industry. It’s easy to feel like a superstar investor, but that mindset can lead to
In this environment, successful investing requires a focus on process rather than outcome. A process-driven approach is probability-adjusted, while an outcomefocused one tends to be backward-looking and difficult to replicate. At Sentio, our philosophy is clear: we rely on scientific analysis, not forecasts, to identify the best ways to compound long-term returns. This means seeking out stocks and thematic sectors with resilience against market sentiment, aiming for higher probability returns over time rather than simply chasing what’s currently trending.
What finance/investment trends and macroeconomic realities are currently on your watchlist?
Globally, three significant trends demand our focus:
• An evolving multi-polar and confrontational world is altering geopolitical dynamics and affecting global markets.
Data is emerging as the new oil, generating economic value and transforming various industries.
• A rising disillusionment among young individuals in developed markets reveals their economic disadvantages relative to past generations.
By Prelisha Singh Partner,
The NHI Act: A flawed execution of a laudable idea
Robust contestation on how to best fulfil the fundamental rights of South Africans complements and strengthens our constitutional democracy. Recent debate has centred on the effective realisation of the right to access healthcare, which the state is required progressively to realise for all South Africans, irrespective of their background and income.
Accessing healthcare and the NHI Act
The right to access healthcare came into sharp focus on 15 May 2024, when President Cyril Ramaphosa signed the National Health Insurance (NHI) Act into law, prompting the initiation of constitutional challenges by concerned stakeholders. The most recent of these was filed on 1 October 2024 in the North Gauteng High Court, Pretoria, by the South African Private Practitioners Forum (SAPPF), represented by Webber Wentzel. According to the government, the NHI Act is intended to generate efficiency, affordability and quality for the benefit of South Africa’s healthcare sector.
An assessment of South Africa’s current healthcare landscape shows a stark difference between private and public healthcare. The country has a high-quality, effective private healthcare offering. However, it is currently inaccessible to the many South Africans who cannot afford private care or medical aid payments. Public healthcare, on the other hand, is understaffed, poorly managed, and plagued by maladministration and limited facilities.
A vehicle for universal healthcare?
The NHI Act has been positioned as the vehicle to address this disparity and to realise a desire to take steps towards achieving universal healthcare in South Africa. But a closer reading of the Act highlights numerous problems with its content and implementation design. The absence of clarity, detail or guidance contained in the Act makes it impossible to assess how the Act will actually be implemented (or, by extension, what the effects of this implementation will be).
This is particularly concerning given that years have passed since the economic assessments, on which the Act was based, were undertaken. Also problematic is the apparent lack of consideration given by the government to submissions made by affected stakeholders during multiple rounds of constitutionally required public participation. SAPPF underscores these deficits in seeking both to have the President’s decision to assent to the Act reviewed and set aside, and the Act itself declared unconstitutional.
Presidential obligations and Constitutional requirements
President Ramaphosa was obliged, in terms of sections 79 and 84(2)(a) to (c) of the Constitution, not to assent to the Act in its current form. Section 79 requires the President to refer to Parliament any bill that he or she believes may lack constitutionality. In this case, it is difficult to conceive how the President, or any reasonable person in the President’s position, could not have had doubts regarding the constitutionality of the NHI Bill. The decision by the President to sign unconstitutional legislation into law, instead of referring it back to Parliament for correction, is also irrational.
The President’s duty properly to have referred the NHI Bill back to Parliament is affirmed by the fact that the President is enjoined, by section 7(2) of the Constitution, to respect, protect, promote and fulfil the rights contained in the Bill of Rights.
SAPPF’s application demonstrates that the NHI Act, in its current form, infringes upon the rights to access healthcare services, to practice a trade, and to own property. Patients, including those using private healthcare, will be forced to use a public healthcare system that currently fails to meet its key constituents’ needs. Practitioners’ rights to freedom of trade and profession will be infringed upon, and the property rights of medical schemes, practitioners, and financial providers will be unjustifiably limited.
On its current text, the Act could make South Africa the only open and democratic jurisdiction worldwide to impose a national health system that excludes by legislation private healthcare cover for those services offered by the state –notwithstanding the level or quality of case.
Potential exclusion of private healthcare
Concerns regarding the rights infringements in the NHI Act are exacerbated by its lack of clarity and the fact that crucial aspects of its implementation are relegated to regulations, with no clear guidance provided in the Act itself.
For example, section 49 provides that the NHI will be funded by money appropriated by Parliament, from the general tax revenue,
payroll tax, and surcharge to personal tax. However, this stance does not reconcile with section 2, which provides that the NHI will be funded through ‘mandatory prepayment’, a compulsory payment for health services in accordance with income level. Crucially, the extent of the benefits covered by the NHI’s funding mechanism and its rate of reimbursement, which impact affordability and the provision of quality healthcare, remain unknown.
The Act is, at best, a skeleton framework, seemingly assented to in haste. It is conceptually vague to the extent that the rights it seeks to promote will, in fact, be infringed if implemented. This renders the Act irrational, in addition to its other constitutional defects.
The need for meaningful public participation
The NHI Act represents a radical shift of unprecedented magnitude in the South African healthcare landscape. This should be – and is required to be – underpinned by meaningful public participation, up-to-date socio-economic impact assessments and affordability analyses, and final provisions that provide a clear and workable framework for implementation.
It is not sufficient for these vital issues to be addressed after the fact. Further engagements with stakeholders and the solicitation of proposals by the government cannot be used to splint broken laws. Collaborative engagement, including the solicitation of inputs for meaningful consideration, should take place during the lawmaking process, not after its conclusion.
A shift of the magnitude proposed by the Act – absent compliance with the structures of the law-making process and adherence by the state to constitutional standards, including rights protections – would be detrimental to the entire healthcare sector, public and private, and not in the best interests of patients and practitioners.
Notwithstanding the legal contestation surrounding the Act, it and the laudable goals underlying it can also be a watershed. The achievement of universal health coverage is an opportunity for the different stakeholders in South Africa’s healthcare system to meaningfully collaborate and inform well-supported, factually informed, rational and genuinely progressive legislative steps by the state.
Given the questions surrounding the Act and the evident needs it seeks to address, the space exists for healthcare stakeholders to align around shared goals and values. They can leverage their available resources to design a healthcare system that serves all of South Africa’s people fairly and equitably, using the significant existing resources invested in the country’s healthcare sector.
Martin Versfeld Partner, and
Alexandra Rees
Senior Associate, Webber Wentzel
Angela Ngcemu, CFA Business Development Associate, Laurium Capital
It’s never too late to hedge your investments
The hedge fund industry has grown rapidly globally, with more than $5tn invested in hedge funds (see Figure 1 below), while in South Africa, the hedge fund industry’s assets have lagged, with assets under management (AUM) standing at R138bn in 2023. Retail funds comprise 32% of this figure, while the rest comprises institutional investors. According to Markov Processes International, the top 10 Ivy League endowments had an average of 22% allocation to hedge funds in 2023, indicating the strategic value these institutions place on hedge funds. With this knowledge, one would wonder why local investors have lagged in allocating to hedge in diversified portfolios.
Source: Statista 2024
In South Africa, hedge funds began to gain traction in 1995. By 2003, the industry had grown to R2,3bn and to R26bn in 2007. Historically, hedge funds were primarily available to high-net-worth individuals and institutional investors until the introduction of new regulations in 2015. These regulations brought hedge funds under the Collective
Investment Schemes Control Act (CISCA), finally allowing retail investors to access these funds. In South Africa, hedge funds are overseen by the Financial Sector Conduct Authority (FSCA), who believe their role is to regulate and supervise hedge fund managers with the following aims –
(a) to provide for the protection of investors in hedge funds;
(b) to assist in the monitoring and management of systemic risk;
(c) to promote the integrity of the hedge fund industry;
(d) to enhance transparency in the hedge fund industry and
(e) to promote financial market development.
South African hedge funds are some of the most highly regulated funds in the world. Retail Hedge Funds (RIHFs) are limited to a maximum gross exposure (leverage) of 200%. In contrast, hedge funds in the United States are regulated under the Dodd-Frank Act, which focuses more on transparency and reporting rather than on limiting strategies or exposure. The hedge fund industry dates back to 1949 when Alfred Winslow Jones pioneered the concept by using short selling and leverage to protect his portfolio in declining markets. Over time, hedge funds became perceived as complicated and are often misunderstood. The intense regulatory nature of local hedge funds has also acted as a double-edged sword, bringing relief but also inducing anxiety in investors, with these stringent regulations being seen as a signal of danger. It is time to demystify this misconception.
Following is a risk-return scatter plot that shows that hedge funds’ superior returns do not necessarily come at the expense of additional risk to the investor. Since hedge funds have a broader toolset, they can tailor their return and risk profiles to suit their investors’ needs.
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The FPI recognises the quality of the content of MoneyMarketing’s December 2024 issue and would like to reward its professional members with 2 verifiable CPD points/hours for reading the publication and gaining knowledge on relevant topics. For more information, visit our website at www.moneymarketing.co.za
For both institutional and retail South African investors, hedge funds present a compelling value proposition to diversify portfolios, preserve capital, and achieve superior risk-adjusted returns in a highly regulated environment that protects investors. The outdated perceptions that hedge funds are risky or opaque do not reflect the reality of their benefits in South Africa. As the industry continues to grow, understanding the role of hedge funds can lead to more informed, confident investment decisions.
Local investors have an opportunity to piggyback on the risk-reward research already conducted by global investors and prestigious institutions that focus strongly on sustainable growth and capital preservation and see hedge funds as an essential asset class in their portfolios.
To find out more about Laurium’s hedge fund offering, please visit our website and contact our team: www.lauriumcapital.com
Figure 1: Global Hedge Fund Assets in Billion US Dollars
Figure 2: Laurium Hedge Fund Net Returns in Perspective vs. Market Indices – 1 January 2013 to 31 October 2024
Source: Morningstar Direct (31 October 2024)
CIS tax up for discussion
Adiscussion document has been released by National Treasury in terms of Collective Investment Schemes (CIS). It’s been welcomed by the Association for Savings and Investment South Africa (ASISA). Dr Stephen Smith, consulting senior policy adviser at ASISA, explains the document invites responses from the public, advisory firms and the CIS industry primarily on how a simplification rule might be designed to distinguish between income
versus capital gains when portfolio assets are bought and sold.
The discussion document stems from a commitment by National Treasury in 2020 to review the income tax treatment of amounts received by portfolios of collective investment schemes.
The changes up for discussion primarily address whether income tax or capital gains tax should apply when selling investments in these funds. To explain it simply, income tax (at an investor’s marginal tax rate) applies to shares bought and sold for a profit. However, if the investor can prove that the shares were held as a long-term asset, capital gains tax, which is typically lower, is applied instead.
Currently, interest income exceeding R23 800 (for those under 65) from unit trusts is taxed at the investor’s marginal rate. Additionally, a 20% dividend withholding tax is imposed on dividends paid out from a unit trust (although unit trusts within tax-free savings accounts are exempt from these taxes).
“The document offers several proposals for discussion aimed at implementing a new
New appointments
Sanlam’s new Group Executive
Sanlam has appointed Shadi Chauke as Group Executive: Market Development and Sustainability (MDS). Chauke’s role will support Sanlam’s ongoing commitment to driving sustainable growth, social impact and transformation.
Chauke, a Chartered Accountant, brings over 20 years of finance, creative and social impact experience. Her background includes serving as an Audit Partner at Deloitte & Touche South Africa, as well as holding NonExecutive Director roles on boards across the financial services, insurance, healthcare, retail and microfinance sectors. She is also the founder of Vahluri Advisory Services, a social impact advisory firm. Chauke was also a freelance actress, television and film producer. Chauke will lead Sanlam’s efforts across stakeholder relations, market development, communications, brand and reputation management, corporate social responsibility, sustainability and transformation.
Amplify Investment Partners appoints Head
Wade Witbooi has been appointed as Head of Amplify Investment Partners, effective 1 January 2025. Witbooi will take responsibility for setting and executing the strategy for the business, driving growth and ensuring alignment with overall business objectives. He was previously a Senior Portfolio Manager at Sanlam Investments Multi-Manager.
Witbooi has close to 15 years of industry experience and was previously an investment analyst within the research team at Glacier by Sanlam from 2012 to 2014. He joined Sanlam Investments in 2014 as an investment
analyst within the Retail Strategy and Client Solutions team. Two years later he joined the multi-manager team as a portfolio manager, and during this time he also managed portfolios for the Glacier Invest Discretionary Fund Manager (DFM) business.
New Chief Executive Officer for M&G Investments Southern Africa
Over recent months, M&G Investments Southern Africa has been working purposefully on reinvigorating its strategy. In line with this, the company has appointed Ann Leepile as Chief Executive Officer, with effect from 3 February 2025. Leepile has over 22 years of experience in the investment industry, most recently serving as CEO of AlexForbes Investments. Prior to this, she spent six years as CEO of Absa Asset Management. With a strong track record in portfolio management, global manager research, and responsible investing, Leepile is well positioned to guide M&G Investments Southern Africa into its next phase of growth.
Osmotic Engineering Group strengthens management team
tax regime for CIS portfolios and achieving tax certainty. This does not mean there will be a new tax liability for the millions of South Africans who save through CIS portfolios.”
“This does not mean there will be a new tax liability for the millions of South Africans who save through CIS portfolios”
Smith explains that the CIS industry is strictly regulated, and the investment powers of portfolio managers are stipulated in regulation.
“It is therefore somewhat anomalous that explicit tax certainty should not be afforded these portfolios in law. The National Treasury discussion document offers several optional proxies to achieve this end. ASISA is appreciative of the fact that the document acknowledges that there may be more than one way of improving income definition.”
resilience in Africa, ensuring access to clean, safe water.
Rajnandan highlights the importance of sustainable infrastructure investment:
Sustainable water, energy, telecom, built environment and asset management company
Osmotic Engineering Group (OEG) has announced significant management changes and business expansion. The leadership team has been bolstered by the addition of Lynesha Pillai, a water resource engineer, and Nichal Rajnandan, a specialist in asset management.
Pillai focuses on addressing infrastructure planning and water security related to climate change and
“My role involves ensuring that our infrastructure projects, such as water, energy and telecom systems, etc. are designed and managed for long-term sustainability,” he says. “For our investors, asset management ensures long-term value creation, capital allocation, minimised risk, and diversification, while ensuring Environmental, Social and Governance (ESG) goals are integrated. It ultimately reduces risk and increases return on investment.”
Wade Witbooi
Nichal Rajnandan
Shadi Chauke
Anne Leepile
Lynesha Pillai
By Mike Adsetts Global Chief Investment Officer at Momentum Multi-Managers
A surprise to the upside!
This year was always going to be interesting, with the war in Ukraine grinding on and with the continuous escalation of the conflict in the Middle East –the risk of regional contagion was an everpresent danger. It was not just geopolitics that was spicing up the landscape. More than half of humanity was going to the polls during the year, with the bigticket item being the United States (US) election in November 2024. Add to that sticky inflation and the debate about whether there would be a hard or soft landing in the US: Would the US fall into recession, or not?
What was clear at the start of the year was that as investors we are no strangers to volatility, and this year has certainly delivered the ups and downs with numerous surprises.
In South Africa (SA), we were also facing our national election in May 2024. SA asset classes looked reasonably priced, but a good price does not always mean there is a stream of willing buyers, especially when factoring in uncertainty and political risk.
At the start of the year, we were relatively pro-growth and cautious about what would happen in the SA elections. But what transpired during the year?
The geopolitical conflicts seem to have largely been restrained as localised events, although there continues to be a gradual escalation in the Middle East. This hot spot of conflict has not, so far, materially impacted oil and energy prices, although the risk of escalation and more direct conflict between Israel and Iran remains a real geopolitical risk.
By Tobie van Heerden CEO 10X Investments
The US seems to have been able to engineer a soft landing and avoid a recession. At the same time, inflation slowly continued its downward trajectory, followed by interest rate cuts in major developed economies. These two factors in concert supported the markets. US markets rose to historic highs, albeit dominated by technology heavyweights. Although markets performed well, it still was difficult for active managers to outperform equity market indices.
At home, the ANC performed much worse than expected at the national ballot and we were all on tenterhooks about how this would play out.
The formation of the Government of National Unity was the best possible outcome for the country, significantly improving sentiment in and towards SA. This culminated in a strong rally after May, with SA asset classes outperforming many international asset classes. After many years in the doldrums, the outstanding performer for the year was listed property, despite headwinds in the sector. A strong valuation underpin, a reducing interest rate trajectory, and positive sentiment resulted in the sector being the standout performer locally.
Local was lekker again, which was a great outcome for all of us and we are slowly starting to see the benefits. There continues to be upside potential for SA, with ratings sentiment improving slowly and the possibility that we will be off the grey list towards the end of next year.
All things considered, 2024 has surprised to the upside, notwithstanding the substantial risks that were present at the start of the year and are still present.
As always, when you face an uncertain environment, the best course of action is to focus on the long term, make sure that your portfolio is wellmatched to your objectives, and harness the benefits of diversification. That is what we do at Momentum Investments, and I think this is sound advice on how to best prepare your investments to navigate an uncertain and dynamic world.
Exchange traded funds on the up in SA
According to data from the Association for Savings and Investment South Africa (ASISA), 10X Investments earned 27% of the overall net flows in the index-linked fund market in the last year, giving the company significant traction among specifically retail investors (either direct or via intermediaries).
Exchange Traded Funds (ETFs) are fast becoming a fundamental component of a diversified share portfolio amid 16-year high interest rates in the US and evolving market conditions. Globally, index funds and ETFs account for over a quarter of inflows, and in the US, more than half of inflows are from these products.
“Investors are increasingly turning to costeffective, transparent investment options that expose them to a range of assets,” says 10X Investments CEO Tobie van Heerden. He adds, “Just three years ago, index-driven funds made up 6% of market inflows in South Africa and now we’re at 10%, and we predict that we could reach 20% within the next five years.” According to the JSE, the market capitalisation of listed ETFs has
increased from R68bn in 2019 to R167bn in 2024, a staggering growth of 147%.
10X Investments’ total growth has garnered substantial market attention, thanks to consistently growing assets under management (AUM) and its user-friendly platform. ASISA data from the second quarter of 2024 revealed that more than 55% of the net flows into the country’s market-tracking funds had been allocated to 10X Investments and its competitor Satrix.
Long-term investment growth
10X Investment’s flows have shown consistency for every quarter since Q3 2023 – ranging between R1,5bn to R1,9bn net positive – showing a consistent growth trend. Being the incumbent index-driven ETF provider, Satrix received 28% of these flows, ranging from -R58m to R3,6bn over the same period. It is noted that all other firms lost market share, with Sygnia notably among those, only attracting just over 1% of the total market-linked flows according to ASISA figures.
10X Investments’ success highlights a shift towards digital and cost-efficient investing in South Africa, as investors increasingly prioritise convenience, transparency, and low fees. The ETF product’s design – which allows for lower management fees and broad market exposure – has positioned the company as a prominent player in South Africa’s evolving investment landscape.
“The market condition suggests that South Africa is beginning to follow global investing trends. The country is on a path towards having 20% to 25% of industry AUM held within systematic ETFs and Mutual Funds,” says van Heerden.
Global trends also indicate that the index-driven investment market is one where the leaders make the market. Having achieved consistent growth in recent quarters, 10X Investments aims to further expand its offerings, providing more options that reflect investor demand for highperforming, low-cost products – helping its clients grow their wealth through innovative investment services.
“Investors are increasingly turning to cost-effective, transparent investment options that expose them to a range of assets”
Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services and registered credit provider (FSP 6406).
Simple ways to use AI and data analytics to transform your business
By Warren Bonheim Managing Director of Zinia
If you’ve heard a lot of buzz about artificial intelligence (AI) and data analytics but felt like it’s only for tech experts, think again! The truth is these tools are no longer reserved for large companies or IT wizards. AI and data analytics are becoming easier to use, offering powerful ways to improve your business without requiring advanced technical skills. You don’t need to be a tech genius. From automating everyday tasks to making smarter decisions based on real-time data, AI and data analytics can have a huge impact on your company’s success.
Make better decisions
Every business gathers data, whether it’s sales numbers, customer preferences or website traffic. The challenge? Turning that raw data into something meaningful. That’s where data analytics comes in, helping you make smarter decisions based on facts, not just gut feelings.
Imagine being able to predict what your customers want before they even tell you. Data analytics tools can analyse patterns in your sales and customer behaviour, giving you insights that let your business stay ahead of trends.
"AI and data analytics are becoming easier to use, offering powerful ways to improve your business”
Tools like Google Analytics or Power BI make this process super easy, offering visual reports and dashboards that help you see what’s working – and what isn’t. You don’t need any special training; the tools do the heavy lifting for you.
Automate routine tasks with AI
One of the best things about AI is its ability to automate repetitive tasks, freeing up time for you and your team to focus on more important things. Take customer service, for example. AI chatbots can handle common questions, such as order tracking or appointment scheduling, instantly. This means your team can focus on resolving more complex issues. These chatbots are smart enough to learn from each interaction, so they get better over time, providing even better service to your customers.
Another big benefit of AI is how it can streamline your operations. From automating data entry to handling inventory management, AI tools can take care of the day-to-day tasks that often slow you down. With platforms like Zapier or Automate.io, you can easily set up these automations without needing to write a single line of code.
Personalise your customer experience
We all know how important it is to deliver a personalised experience to customers. AI makes this not only possible but easy. By analysing customer data, AI can help you tailor marketing messages, product recommendations, and promotions to fit each person’s preferences.
For example, tools like HubSpot can track customer interactions and deliver personalised content at the right time, improving engagement and sales. Whether you’re running a small business or a larger operation, this level of personalisation can help you build stronger relationships with your customers, keeping them loyal to your brand.
Save time and money
One of the greatest advantages of AI and data analytics is how much time and money they can save your business. With AI automating tasks and data analytics providing insights that help you make better decisions, you’ll reduce inefficiencies and cut unnecessary costs.
Data analytics can also show you where you can optimise costs, whether that’s reducing energy consumption or cutting down on waste. It’s like having a personal business consultant that works around the clock, analysing every aspect of your operations.
Scale as you grow
Another great thing about AI and data analytics is how they can grow with your business. Whether you’re expanding your team, opening new locations or entering new markets, these tools can easily scale up to meet your needs.
AI-powered tools are often cloud-based, meaning you can adjust them as your business changes. For example, if you’re suddenly handling more customer queries than usual, you can easily scale up your AI chatbot service to handle the influx, ensuring smooth operations without overwhelming your team.
Getting started is
easier than you think If all of this sounds great but you’re still unsure where to begin, don’t worry. Getting started with AI and data analytics is easier than ever. Most platforms come with easyto-use interfaces, and many offer free trials or demos, so you can explore them before fully committing.
Start by identifying one or two areas in your business where you could use some extra help. Maybe you want to improve your customer service, or maybe you’re looking to make more informed decisions based on data. Once you’ve identified the areas to focus on, explore platforms that align with your needs. Tools like Google Analytics, Power BI, and HubSpot are popular choices that don’t require a technical background.
AI and data analytics aren’t just for techsavvy people. These tools have become user-friendly and accessible to businesses of all sizes, providing practical ways to improve efficiency, make smarter decisions, and deliver a better customer experience.
By Francois du Toit CFP® PROpulsion
WBuilding trust, enhancing experiences and growing communities
e’re constantly juggling a range of challenges in today’s environment – from adapting to virtual meetings to balancing marketing and prospecting. Let’s look at some practical solutions to common issues that can raise the bar for your practice, improve client experiences and create lasting value.
Your virtual meeting setup
Virtual meetings are here to stay, but unfortunately, many professionals still rely on the basic built-in cameras and microphones of their laptops. For large businesses, this is a missed opportunity to represent their brand with professionalism and polish. As independent advisers, investing in a quality setup doesn’t have to break the bank – excellent webcams, microphones and lighting solutions can all be achieved within a budget of around R5 000 to R 10 000. Consider the client’s perspective: clear video, crisp audio and a well-organised background immediately improve their experience. In a world where people expect quality in everything they see and hear online, a good virtual setup can set you apart, showing clients that you take every interaction seriously.
“It’s essential to go beyond credentials and educate clients on what our role entails and how we can help them”
The power of titles: clarifying your role The financial planning profession has a fascinating mix of titles – financial adviser, financial planner, wealth manager, broker and more. But do clients actually understand the differences between them? Titles matter because they shape client perception and trust.
As an industry, we may know what differentiates a financial planner from a broker, yet clients often do not. And while designations like CERTIFIED FINANCIAL PLANNER® / CFP® are valuable, it’s essential to go beyond credentials and educate clients on what our role entails and how we can help them. This clarity not only strengthens trust but also empowers clients to choose the professional who best fits their needs.
Marketing vs prospecting
Marketing and prospecting are two distinct approaches, each essential to building a sustainable practice. Marketing is a long-term game; it’s about building brand awareness and credibility. This includes producing content, hosting webinars or even speaking at events – all designed to keep your name top of mind with your target audience. On the other hand, prospecting is a more immediate, hands-on approach. It involves identifying specific clients, reaching out, and creating opportunities for engagement. Where marketing might attract potential clients over time, prospecting is what keeps your revenue flowing in the short term.
Supporting the next generation of advisers
Bringing fresh talent into financial advice and planning isn’t just about hiring; it’s about nurturing, mentoring and sharing our hard-earned knowledge. It’s disheartening to see new advisers and planners drop out early in their careers. Many complete all their qualifications only to find the practical reality daunting, often due to a lack of support and mentorship.
If you’re considering hiring for succession or expanding your team, consider providing clients to newer advisers or involving them in client interactions gradually. Support them with regular feedback and training, helping them build confidence. Taking an active role in their development can lead to a more motivated, loyal team and ultimately ensure the longterm success of your practice.
Turning clients into community
A ground-breaking way to think about client relationships is to see them as part of a community rather than a collection of individuals. Community brings people together, creating connections among clients who share common values and goals. By building a sense of community within your practice, you can offer clients more than just advice – you provide a platform for them to connect, share insights and even collaborate.
One approach is to host client events, workshops, or webinars that allow clients to interact. This strengthens client loyalty and enriches their overall experience. In the long run, clients who feel part of a community are more likely to remain with you, trust your advice, and recommend your services to others.
Small changes make a big difference
As financial advisers and planners, we are in a unique position to shape not just financial outcomes but also our clients’ experiences and perceptions. Small changes, like upgrading your virtual setup or clarifying your role, can significantly impact client satisfaction and trust. Meanwhile, balancing marketing and prospecting, supporting new talent, and fostering community can all contribute to building a practice that’s resilient, engaging, and ready for the future.
Embrace these practical steps, and you’ll be well on your way to creating a practice that clients value, where team members thrive, and where the power of community strengthens every interaction.
Stay curious and raise the bar!
Francois Du Toit created PROpulsion, a dynamic community for financial planners and advisers promoting growth and success. He presents the weekly PROpulsion LIVE show on YouTube, with over 275 episodes delivered, leveraging his 25 years of expertise while hosting guests both domestic and international to educate and motivate. Dedicated to learning and applying new tech, he aims to make a large-scale impact. For further details, go to www.propulsion.co.za.
Why ESG investing makes sense
By Sandy Welch Editor, MoneyMarketing
Incorporating ESG (Environmental, Social and Governance) factors into investment strategies helps manage risks, improve long-term outcomes, and uncover opportunities, making it an essential element of contemporary investment approaches.
It’s important to note that ESG is not just about the climate and environment, it’s also about ethical business practices, ethnicity and diversity. Roger Eskinazi, Managing Partner at Tickmill, explains: “Environmental focuses on reducing carbon emissions, waste, and adopting renewables. Social examines fair labour practices, diversity and community impact. Governance assesses ethical leadership, transparency and shareholder treatment.”
Eskinazi goes on to say that for traders, having a firm handle on each of these ESG factors is crucial for identifying quality sustainable investments. “ESG not only helps to minimise risk, but also supports companies that are having a positive impact on the world. Sustainable investments are becoming increasingly mainstream, and we expect this trend to continue as awareness and interest in the asset class grows.”
The rise of sustainable investing Sustainable investing has grown exponentially in recent years as both institutional and retail investors realise that they can align their financial goals with their values. According to a recent Morgan Stanley report, more than half (54%) of individual investors planned to boost their allocations to sustainable investments in 2024, while more than 70% believe strong ESG practices can lead to higher returns. The importance of ESG considerations in investment management has been a topic
of growing debate, with some global asset managers questioning their effectiveness, says Conway Williams, Head of Credit at Prescient Investment Management (PIM). “Critics argue ESG integration may be overstated, but evidence shows it enhances risk management and drives long-term financial performance. At Prescient, we view ESG as essential for addressing risks and creating client value,” he says. “It has evolved into a crucial component of modern risk management.”
In its recently released Responsible Investing Report for 2024, PIM reiterated its call for a sustainable approach to investment management. Highlighting its three-pillar approach – integrating ESG into investment, product development, and corporate culture – PIM underscores its mission to foster both financial stability and impact.
“ESG is not an add-on but a critical part of modern investment strategy, enabling us to navigate a rapidly-evolving world with confidence and resilience,” explains Michelle Green, Credit Analyst and Chair of the ESG Committee at Prescient Investment Management.
Mike Adsetts, Global Chief Investment Officer at Momentum, says responsible investment practices are embedded into Momentum’s investment thinking and management. “Integrating environmental, social and governance (ESG) issues into investment decision-making and applying stewardship practices are two key parts of our role as a responsible investor, also known as Responsible Investing (RI),” he explains. Momentum prioritises industry participation to foster a responsive environment for societal sustainability. A key achievement is Momentum Global Investment Management’s approval as a UK Stewardship Code signatory, showcasing rigorous commitment to sustainability and responsible investing practices. “As a sustainability-focused business, we believe that integration of ESG
practices is the most appropriate way to ensure that our portfolios authentically address the challenges and opportunities of ESG.”
Know your facts
In South Africa, the regulatory environment supports ESG integration. Regulation 28 of the Pension Funds Act mandates that fiduciary investors consider both financial and nonfinancial risks, including ESG factors, in their decision-making processes. This ensures that asset managers are required to account for environmental, social, and governance risks when managing retirement funds, further underscoring the importance of ESG in South Africa’s investment landscape.
Closely connected to ESG, the green taxonomy is another critical tool for identifying sustainable investments. It provides clear guidelines to assess whether an investment is truly environmentally sustainable, helping to differentiate between genuinely sustainable assets and those engaged in ‘greenwashing’ – a practice where companies falsely present their products or activities as environmentally friendly.
For traders looking to invest sustainably, thorough research is essential, as is considering ESG factors and utilising tools like the green taxonomy. “Investing sustainably will allow traders to not only seek financial returns, but also to make a meaningful contribution to the planet’s future. It’s a way to invest in both profit and purpose,” says Eskinazi.
Are the returns there?
Multiple studies have highlighted ESG’s role in delivering superior investment returns. Morningstar research revealed that over a 10-year period, 58.8% of sustainable funds outperformed their traditional counterparts. Similarly, the NYU Stern Centre for Sustainable Business analysed 1 000 studies conducted between 2015 and 2020 and found that ESG and financial performance were positively linked in 58% of the corporate research papers. Critics sometimes accuse asset managers of ESG scepticism or ‘greenwashing’, but this doesn’t define the industry. Williams emphasises that at PIM, ESG is integral to the investment process. Through rigorous, datadriven methods, PIM ensures ESG practices are authentic, creating and preserving value for clients rather than being superficial. ESG’s role goes beyond simply promoting ethical practices – it provides an analytical framework that helps investors identify risks that could materially impact financial performance.
The global picture
Globally, we find ourselves at the threshold of irreversible climate change. Global warming has been an immediate and growing threat for some time. It is largely being driven by greenhouse gas emissions from energy consumption and industrial activities. At the recently held Conference of the Parties to the Convention (COP29), which refers to the United Nations Framework Convention on Climate Change (UNFCCC), a key goal was to increase the amount currently paid by developed countries to the developing world to combat climate change impact, as per the 2015 Paris Agreement. With the US probably going to pull out of the agreement under a Trump presidency, this mission became even more difficult. Without US payments to the UNFCCC or to the Green Climate Fund, it will be impossible for Europe to
make up the shortfall. The impact of this could be seriously damaging to developed countries. Mark Lacey, Head of Thematic Equities at Schroders, acknowledges US election challenges for the energy transition sector but emphasises that the long-term need to shift away from fossil fuels remains. Despite potential US climate policy reversals, global renewable energy demand is accelerating, driven by AI-related data centres, heating/ cooling needs, and corporate goals for fossilfree operations. Renewable power is a critical solution for global energy security, with rapid deployment in economies like India and the Middle East offsetting potential US weakness.
In contrast to the US, China, once one of the worst air polluters, reported its clean energy capacity reached 1 206 gigawatts (GW) in August 2024, according to the National Energy Administration. In 2020, China set a target to reach 1 200GW of renewables power by 2030, which was more than double the renewables capacity of the country at the time. The early achievement of this goal highlights the energy sector transformation of the world’s largest emitter of greenhouse gasses.
What’s happening in Africa?
Andries Rossouw, PwC Africa Energy Utilities and Resources Leader, predicts clean power in Africa will reach 25% by 2025, driven by solar, wind, and hydro growth. While capacity rose, actual power generation in 2023 grew less than 1% due to ageing coal plants and lowerefficiency, weather-dependent renewables. Southern Africa has positioned itself as a leader in renewable energy development, particularly in solar and wind, with South Africa dominating the region’s investments. Namibia is focusing on renewable buildout to support green hydrogen production, capitalising on its abundant solar and wind resources, with its oil and gas finds likely to make it a new regional energy hub.
Evaluating biodiversity
Ninety One’s Sovereign Biodiversity Index is a tool that enables investors to assess biodiversity and nature-related risks at the national level. Over half of global GDP relies on ecosystem services, making this vital for sovereign debt investors. Peter Eerdmans, Co-Portfolio Manager, EM Sustainable Blended Debt, highlights the importance of evaluating governments’ impacts on biodiversity, particularly in emerging markets, where economies heavily depend on natural resources like agriculture.
The Index helps sovereign investors allocate capital to issuers safeguarding biodiversity and preserving natural capital. It is the third tool in Ninety One’s ESG assessment framework, complementing the Climate and Nature Sovereign Index (2020) and Net Zero Sovereign Index (2021).
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Left to right: Conway Williams, Head of Credit and Michelle Green, Credit Analyst and Chair of the ESG Committee both from Prescient Investment Management; Mark Lacey, Head of Thematic Equities, Schroders; Andre Nepgen, Head of Discovery Green; MIke Adsetts, Global Chief Investment Officer at Momentum.
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South Africa’s new Climate Change Act was signed into law by President Ramaphosa in July 2024. It aims to create a low-carbon economy and society that is resilient to climate change, and ensure the transition to green economy doesn’t increase existing inequalities. This Act is important – we saw an increase in our carbon intensity by just under 3% and an increase in our fuel factor by just under 4% from 2022 to 2023. “This indicates that our efforts to reduce emissions still have some way to go,” Lullu Krugel, PwC Africa Sustainability Platform Leader, says. “While this is contrary to expectations, given the levels of loadshedding and record numbers of solar PV installed in 2023, it is important to recognise that beyond electricity generation, the fuel factor figures we looked at include the energy used to drive our cars and trucks, diesel to keep generators on during loadshedding, as well as wood, coal and paraffin for heating and cooking in homes.”
“We are a resilient nation, but we are not yet climate resilient,” says Matt Muller, PwC South Africa Climate and Nature Specialist. “The effects of climate change are increasing the cost of living, threatening food and water security, and affecting livelihoods. The flooding event in KwaZulu-Natal in 2022 exemplifies the severe impact that a changing climate can have on our society and its most vulnerable members.”
The cost of non-compliance
It is important, however, that the situation changes. By 2034, some South African businesses could be paying an additional 60% of their electricity generation costs in carbon taxes.
This is according to research by Discovery Green, in partnership with EY’s Africa Sustainability Tax division, which highlights the significant financial risk local businesses face. South African carbon taxes alone are projected to increase by 143% by 2030. Tax allowances, which offer up to 85% relief, depending on the industry, may be phased out within the decade.
The core of the problem is South Africa’s heavy reliance on coal for electricity generation, emitting roughly 1 tonne of CO2e for every megawatt-hour of electricity consumed. This makes our electricity twice as carbon intensive as the global median. “The only way to mitigate the financial risk of carbon taxes is to consider high coverage renewable energy strategies that limit the reliance on coal-generated electricity to zero,” says Andre Nepgen, Head of Discovery Green.
Bridging the green funding gap
Hloolo is an innovative platform that connects green SMEs to the necessary opportunities, knowledge, finance and resources. It’s the third phase of the Circular Economy Accelerator (CEA), an ambitious multi-year initiative designed and implemented by Fetola in partnership with Nedbank, JP Morgan Chase and the Embassy of Finland. CEA was launched in 2021 to create a thriving circular economy ecosystem in South Africa. Phase three (Hloolo) is dedicated to closing the gap between green businesses and the world of finance and market opportunities.
“By 2034, some South African businesses could be paying an additional 60% of their electricity generation costs in carbon taxes”
The impact of EU taxes on South African exporters
From 2026, South African exporters to the EU could face higher costs under the Carbon Border Adjustment Mechanism (CBAM), paying the carbon tax difference between regions. Discovery Green estimates CBAM could raise electricity generation costs for energy-intensive industries like aluminium, iron, and steel by 70% by 2034. As CBAM’s scope expands, more industries may be affected, Nepgen warns.
The role of private capital
At COP29, British International Investment (BII) announced investments and partnerships to mobilise private capital into climate finance. Highlights included investments in India’s renewable sector, a major Asia initiative, and a blended finance facility in West Africa for renewable projects. BII also launched de-risking tools like concessionary capital facilities and green bonds to attract private investors to climate-vulnerable nations.
Private investors, which collectively manage trillions of dollars in assets, have been reluctant to commit capital to climate finance in emerging economies because of the perceived level of risk that such investments entail.
Macro factors such as local currency volatility, political instability and regulatory restraints are often cited as embedded reasons for not investing in countries that are most vulnerable to the impacts of the climate emergency.
But these fears might be obscuring the opportunities that exist. The International Finance Corporation (IFC) and the European Investment Bank (EIB) recently unveiled new credit risk data from the IFC’s Global Emerging Markets Risk Database spanning more than 30 years and 15 000 private-sector loans worth more than $500bn to companies in developing economies. It showed that default rates in emerging markets are much lower than commonly perceived.
Globally and locally, there’s a long way to go to achieve all the ESG goals but at least there are promising green shoots. South Africa’s pathway to true ESG compliance may require a more gradual adoption of renewables, prioritising first the economic and social pillars of ESG by stabilising the economy and reducing unemployment, says Energy Partners’ Johan Durand. This would lay the foundation for a successful transition to renewable energy, meeting environmental goals in a way that supports the country’s long-term growth and development.
By Oyena Mtuzula Head of Credit and ESG Analyst, Terebinth Capital
Skills gap hindering the implementation of ESG commitments
ESG integration in investment decision making is no longer a niche practice. It keeps gaining prominence on the back of tighter regulatory intervention, increased demand for ESG products, and supply of sustainability-related instruments. In a Harvard Law School Forum on Governance article titled the ‘The Seven Sins of ESG Management’,* which discusses the most common misconceptions and problematic practices among companies when dealing with ESG matters, lack of board and management oversight features strongly. The issue of not having enough ESG expertise on company boards has become a vital recurring one.
Why it matters
An effective ESG strategy needs to be driven by the highest level of authority (management and board of directors), bringing it to full alignment with the broader business strategy. ESG should be a core part of the values and vision of a company. We need board members with relevant credentials to ensure ESG is incorporated at a strategic level and that firm-wide commitment is achieved. ESG strategies are sometimes outsourced to other smaller departments. For example, if is handed to
the marketing and business development divisions, it could arguably be for demonstrative purposes and not necessarily a core part of operations. Closing the gap between commitments and operational realities matters.
Do boards have enough ESG knowledge to make proper decisions?
As financial institutions, one of our key fiduciary duties is that of stewardship, which involves ensuring active ownership and company engagements. Our responsibility is to promote the best governance practices that will yield long-term industry-beating and sustainable returns within our investee companies. One of the ways companies can show long-term public commitment is through ESG training and education. It is also important as a catalyst for countries to hasten the transition to a low carbon economy.
It has become evident that there are not enough ESG skills/expertise among senior decision makers and company boards. Further to this, some companies do not disclose or have insufficient disclosures when it comes to relevant education/experience related to ESG. The Responsible Investing momentum has been accompanied by a surge in demand for skills. According to the UNPRI, the demand for ESG skills is outpacing supply, creating a sustainability skills shortage. Positively,
there has been an increase in corporate boards ESG skills in the past five years, meaning they are better prepared for tackling financially material sustainability issues than in 2018, but major weaknesses persist.
Asset managers’ involvement
With ESG gaining traction, asset managers need to do a thorough analysis of sustainability reports and board credentials. Director elections can be used to leverage dissatisfaction. After voting against a resolution, post-filing actions are important in that there are steps in holding companies accountable. That is why at Terebinth Capital sustainability forms a key part of our investment process, as investing responsibly remains a primary responsibility to all our clients. We hold boards accountable and exercise our fiduciary duty to vote with care. We take the time to understand board composition and effectiveness, which means understanding the extent the individuals who serve as board members are appropriately independent, capable, and experienced. ESG fluency of corporates needs to be observed at various levels and functions to ensure ESG commitments are met.
*Papadopoulos, K and Araujo, R, 2020, ‘The Seven Sins of ESG Management’, Harvard Law School Forum on Corporate Governance, https://corpgov.law.harvard. edu/2020/09/23/the-seven-sins-of-esg-management/
By Siobhan Cassidy MoneyMarketing contributor
AHigh-level review aims to reduce tears over funeral policies
review of regulation governing the distribution of funeral policies in South Africa, announced in early November, promises to bring much-needed clarity to the industry and relief for millions of consumers who value these products for both financial and cultural reasons. In a joint statement issued on 6 November, the Financial Sector Conduct Authority (FSCA) and the Prudential Authority (PA) announced a review that aims to go beyond improving the sector’s regulatory framework to supporting small and emerging businesses and empowering consumers through a financial literacy programme.
The review is a response to concerns raised by the funeral parlour industry “around potential issues in the current regulatory framework that may be hampering the ability of the market to achieve meaningful long-term growth and effectively serve its historically under-served customer base”. The joint statement also pointed to concerns about “the existence of an unlicensed funeral insurance market and prevailing poor practices in relation to the distribution of funeral insurance, even within the licensed market”.
The ASISA release adds layers of importance and complexity, and some intrigue, to this review of a sector, where the lack of regularity and transparency seem to be at odds with its relevance and value to consumers.
Cultural importance
News of the review will be welcomed by consumers because of the practical and cultural importance of funeral insurance. It’s often a ‘must-have’ in a country where a large proportion of drivers are uninsured and only a small minority of people are prepared financially for retirement. Funeral cover is the most held insurance product in South Africa, according to the FSCA Financial Sector Outlook Study 2022, and “inflates the number of South Africans who are insured”. The study said that 42% of adults claim to have an insurance product, but when funeral cover is excluded, the share of South Africans with an insurance product drops to 19%.
According to ASISA figures, at the end of June 2024, of the 35.2 million risk policies held by life insurers for policyholders paying monthly premiums, 15 million were funeral policies against 13 million life, disability, severe illness and income protection policies, and 7 million credit life policies. Noting that funeral insurance
“holds a unique and prominent place in South Africa, driven by a mix of cultural, economic and social factors”, Mfanafuthi Mlungwana, Head of Mass Market Distribution at Discovery, pointed to a 2020 study by UK insurer SunLife that ranked South Africa as the fourth most expensive country in the world to die in. South Africans spend approximately 13% of their average salary on funerals.
When people don’t have a policy or savings, they will often take out a loan rather than skimp on a funeral. The burden of having to repay the loan is set off against enormous cultural pressure to give the deceased a dignified ‘sendoff’. According to Xolani Buthelezi, Managing Director of Scarlet Capital, the cultural importance of a dignified funeral cannot be overstated: “Funerals are viewed not only as a personal or family matter but as a community event where one’s respect for the deceased is on display.”
The costs often extend beyond the basic funeral, and may include livestock for traditional ceremonies, food for guests and transportation, adds Buthelezi, who traces his own interest in insurance to when, as a young man, he borrowed money to pay funeral expenses for an uncle who had been a father figure to him.
The popularity of funeral insurance in South Africa is also a function of accessibility. Unlike life insurance, funeral policies are simple and don’t require medical examinations or proof of income. This can also lead to ill-informed consumers treating funeral cover as a savings product or life cover. Theo Bohlale Head: Actuarial Group Benefits, Sanlam Retail Mass, says he has seen cases where clients hold “multiple funeral policies to cover needs better suited to life policies”. He adds that he encourages clients to discuss their needs with advisers.
Family connection
Funeral policies can include anyone with a family connection, subject to the insurer’s limits, says Anna Rosenberg, Senior Policy Adviser at ASISA. “Funeral policies are designed to cater for one’s immediate family, as well as extended families where one person is likely to be expected to pay for the funerals of several family members.”
Buthelezi says the ease of obtaining funeral policies and the straightforward claims process can lead to misuse, including cases of ‘murder
for money’. “Because it’s so easy to insure multiple family members and the payouts are quick, some see this as a means to a financial windfall,” he says.
Nceba Sihlali, Manager Adjudication: Life Insurance Division at National Financial Ombud Scheme, confirms consumers can buy as many policies from different financial service providers as they like. The overall limit is R100 000 per individual per funeral policy, although policies may have their own limits. “It often happens that one family member is covered in more than one policy with the same insurer. For instance, a person may be covered by both his brother and his son under different policies. Such policies may have a limitation on the total cover payable in respect of any one life assured.”
He says duplication is sometimes only discovered at claims stage when, for example, names don’t correspond. “The practice by insurers in those cases is to pay out in full to the first claimant proving a claim, and refund the other claimants whatever premiums may have been paid in respect of the other policy. This often causes dissatisfaction among policyholders.” Saying insurers had adjusted policies and practices to avoid such issues, Sihlali noted the ombud rarely received complaints about over-insurance now. Still, he says, “it would be good to have regulatory certainty”.
Bohlale, of Sanlam Retail Mass, says working with an adviser helps to ensure there are no surprises at the payout stage. He adds that an adviser would “typically do a needs analysis that considers the client’s financial needs, life stage, suitable products, existing product holding and affordability, which helps to identify any risk of over-insurance”. Buying
“Funeral insurance holds a unique and prominent place in South Africa, driven by a mix of cultural, economic and social factors”
multiple policies was also the consequence of a historical mistrust of insurance companies due to past experiences where claims were frequently denied, and recourse options were limited. “While ombudsman bodies and consumer protection laws have evolved, the lingering perception of unreliability means people often ‘double up’ on policies across different providers to hedge against the possibility of a claim being declined.”
Many South Africans view funeral insurance as a form of family savings. It’s accessible, readily available and relatively inexpensive. For lower-income households, funeral insurance may serve as the only financial instrument providing a semblance of financial security, even if it is an inefficient one. Bohlale notes financial literacy is a major issue. “People may purchase multiple small policies, some even unknowingly, through retail accounts, banks, or other channels. Without clear guidance, individuals assume that more policies equal more security, leading to duplication and excess expenditure on premiums.”
Promising to cover regulation, consumer education, as well as supporting small businesses in this complex, crucial and culturally important sector, the FSCA and PA review has its work cut out for it. Workshops will be set up for stakeholders input in the first half of 2025.
A 46% surge in insurance fraud and dishonesty
One challenge that faces the funeral and life insurance industry is fraud, and it’s growing. According to the comprehensive fraud statistics for the industry, released by the Forensic Standing Committee of the Association for Savings and Investment South Africa (ASISA) in November, the increase in fraud is concerning. But it’s not all bad news.
South African life insurers and investment companies detected 13 074 cases of fraud and dishonesty in 2023, a 46% increase from the previous year when 8 931 cases were detected. The industry lost at least R175.9m to fraud and dishonesty in 2023, a 128% increase from the R77m lost in 2022. Early detection of fraud and dishonesty prevented losses worth R1.5bn in 2023, compared to R1.1bn in 2022.
Following a complete overhaul last year, the statistics also cover fraud reported by investment companies in addition to the fraudulent and dishonest claims statistics reported by life insurers. Jean van Niekerk, convenor of the ASISA Forensic Standing Committee, attributes the steep increase in fraud detected in 2023 to a combination of the following:
Ongoing innovation of detection methods by forensic departments
• Increasingly desperate consumers willing to commit a crime for extra money
Criminal syndicates who see life insurers and investment companies as lucrative soft targets.
Van Niekerk says it is vital for the savings and investment industry to ensure that fraud remains in check to prevent fraud-related losses from spiralling out of control and higher claims rates from driving up premiums for honest policyholders. “Seen in isolation, the fraud statistics paint a bleak picture. However, they should be considered as part of the bigger industry picture, which shows that most policyholders and beneficiaries are honest. This is evidenced by the 95.9% payout rate in 2023 to the beneficiaries of 892 817 life and funeral cover policies to a value of R39.9bn.”
Van Niekerk explains that many life insurers and investment companies have dedicated forensic departments focused on clamping down on fraud and dishonesty by identifying criminal trends as they emerge. “A loss of R175.9m to fraud and dishonesty is significant, and our industry is focused on clamping down on criminal activity through continuous evolution and adaptation.”
“Two concerning trends that have emerged in recent years are murder for insurance payouts and deceased estate fraud”
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According to Van Niekerk, preventative measures deployed by life insurers and investment companies include using digital technology such as artificial intelligence, improved industry collaboration, and enhanced authentication mechanisms such as biometric customer identification.
In addition, forensic departments share data on criminal activity via industry bodies geared to facilitate data sharing to combat fraud and financial crime, including the ASISA Forensic Standing Committee.
Fraud and dishonesty in 2023
The ASISA fraud statistics are divided into five categories:
• Remuneration fraud: Fraudulent attempts by call centre agents, tied agents or independent financial advisers (IFAs) to benefit from commission and/or fees
• Fraudulent applications: Fraud and dishonesty committed at the application stage through misrepresentation, nondisclosure, impersonation or identity theft
• Fraudulent and dishonest life insurance claims: Fraudulent or dishonest attempts to claim benefits from risk policies such as life and disability cover
• Fraudulent withdrawals and disinvestments: Accessing investments by fraudulent means from linked investment service providers (LISPs), collective investment schemes (CIS), and retirement funds
• Other fraud: Examples include fraudulent attempts to obtain investment policy benefits and bribery and corruption.
Van Niekerk says more than half of all fraud cases recorded by ASISA members in 2023 were classified as remuneration fraud. Fraudulent and dishonest life insurance claims were the second-highest contributors to fraud cases in 2023. “Unfortunately losses jumped From R17m in 2022 to R69,8m in 2023, driven largely by fraudulent death claims,” he explains.
According to Van Niekerk, there was also some good news in the 2023 statistics.
“The numbers show a welcome decline in fraudulent applications and actual losses.”
Van Niekerk also reports a decrease in fraudulent withdrawals and investments, but a concerning increase in actual losses recorded, which jumped from R23,7m in 2022 to R40,5m in 2023.
New and concerning trends
Van Niekerk says two concerning trends that have emerged in recent years are murder for insurance payouts and deceased estate fraud. “We have requested ASISA members to report on these cases separately, starting with the 2023 statistics, to help our industry find ways to clamp down on these cases with urgency.”
Murder for insurance payouts
Van Niekerk says murder is an incredibly serious crime, and committing insurance fraud to benefit financially from someone’s death is not only highly callous but also premeditated to the extreme. He adds that while criminals often see insurance as a highly lucrative target, cases involving premeditated murder to benefit from an insurance payout are not that common. Out of the 4 130 insurance fraud cases reported for 2023, 14 cases related to the involvement of a beneficiary in the insured’s death. “Every death is one too many, and life companies are constantly updating their processes to ensure that risk policies are taken out only by honest policyholders to provide for their families. Unfortunately, someone with criminal intent will always find a way of cheating the system and hope to get away
with it. Sadly, their modus operandi often involves family members or vulnerable or desperate members of society.”
Van Niekerk points out that the recent case involving a police officer in Limpopo and others like the Rosemary Ndlovu case have shown that criminals are highly unlikely to get away with this type of crime. “While life companies pick up on this type of crime very quickly through their datasharing initiatives, the process of gathering evidence and building a case that will stand up in court is often a slow process. While the Limpopo arrest has occurred recently, the investigation was prompted by an alert from life companies many months ago.”
Deceased estate fraud
Life insurers and investment companies have noticed a new trend whereby criminals target deceased estate benefits and investment accounts. In 2023, life insurers reported 20 cases and investment companies 34 cases. Van Niekerk says deceased estate fraud is committed by impersonating legitimate parties and fabricating letters of executorship and other documents, as well as opening fraudulent bank accounts in the names of beneficiaries by impersonators and false executors.
Fraudulent and dishonest claims across the provinces
Most fraudulent and dishonest claims in 2023 were uncovered in KwaZulu-Natal (KZN), followed by Gauteng, the Western Cape and the Eastern Cape. Van Niekerk says the biggest increase in cases was recorded in the Western Cape.
Why structured products should be a consideration
Structured products are becoming increasingly available to individual clients, as opposed to just the very wealthy. MoneyMarketing spoke to Luvhani Makoni, Lead, Specialist Investment Propositions at Standard Bank, to get the lowdown on these investments, so you can decide if they are worth considering in your portfolios.
What are the key components of a structured product and how do they work together?
A structure is an investment vehicle that gives investors three things:
Market-linked exposure
A level of capital protection
• Predetermined returns.
“Structures are usually suitable for clients who are looking for market-linked exposure with a degree of capital protection”
To achieve this, the investment vehicle combines a bond/debt type obligation with a derivative component. Market-linked exposure is achieved through the derivative component and could give clients access to an equity index, bond index, a basket of a single or basket of stocks, commodities or currencies. The degree of capital protection is achieved through the bond/debt type of obligation. The combination allows clients to participate in market-linked returns while protecting their capital if markets turn negative.
How liquid are structured products, and what are the options in terms of selling before maturity?
Structured products are a fixed term investment and are not considered ‘liquid’ for this reason. Structured products/portfolios are issued by financial institutions – usually an investment bank – and can be provided to retail clients
either through direct listings on the JSE, through bank deposit structures, or through insurance products like an endowment. The options of disinvesting before maturity would depend on how the client accesses the structured product or portfolio, and given the fixed-term nature of structured products/solutions, early termination fees are common.
What are the potential risks associated with investing in structured products, and how do they compare to other investment options?
There is always a degree of risk when investing and it’s important for clients to understand these risks before investing. Some of the risks associated with structured products include but are not limited to credit risk, default risk of the issuer, low liquidity in the market, and market risk (like a big market event taking place at maturity date, which may have an impact on the pre-determined investment return/payoff).
How is the return on a structured product determined, and what factors influence its performance?
This depends on how the structured product is constructed. But typical things to consider:
• Dividend expectations
• Interest rate expectations
• Views on the exchange rates
Sentiment of issuers
Volatility in the market.
How do structured products fit into a broader investment strategy, and what types of investors are they most suitable for?
Structures are usually suitable for clients who are looking for market-linked exposure with a degree of capital protection, and clients who won’t need immediate access to their funds. For a more affluent client with a higher tax rate, and specifically from a Liberty perspective where clients access structured portfolios via our endowment (the Evolve Investment Plan including Sinking Fund), a structure would fit into a client’s financial plan where:
They want to invest or even get offshore exposure but don’t want to worry about currency fluctuations
Want attractive yield, certainty, and capital protection
• Have a tax rate that is higher than 30% (they benefit from lower tax rates as tax is calculated based on five funds tax in an endowment)
They want to leave a legacy for their loved ones as they can nominate beneficiaries.
How has this specific structured product performed in the past under similar market conditions?
Liberty re-entered into the structured portfolios market in 2018, and since then there have been two structured portfolios that have matured – one in 2023 and another in August this year. Both structures delivered on their promised return at their respective maturity dates.
How do structured products compare to other investment options like ETFs, mutual funds, or bonds in terms of risk, return and fees?
Fees: The costs of a structure depend on various factors:
• How the structured product/portfolio is accessed (e.g. bank deposit structure or endowment)
The underlying asset
The issuer
The distribution channel (there may be advice fees to consider)
• Market conditions at the time the structure is issued. Given the nature of the product, these fees may or may not be higher. This depends on the structure.
Risk: Structured products have a few more risks associated to them (highlighted above).
Return: The return potential for structured products/portfolios is usually attractive as investors benefit if markets perform badly (level of capital protection) and get to still participate in market-related growth (when markets perform well).
Futurewise tackles rising education costs with innovative insurance plan
By Sandy Welch Editor: MoneyMarketing
Recent research shows that 20% of those who withdrew funds from the TwoPot System used the money to cover education costs. “This makes perfect sense,” says Arno Jansen van Vuuren, Managing Director at Futurewise. “Education costs are growing faster than inflation and CPI, so people are falling behind. Their incomes aren’t keeping up.”
He goes on to explain how education expenses are so often underestimated. Recent research by Old Mutual showed that public school and local university costs can reach between R1m and R1,5m. For private schooling, it could be as high as R3,5m. Add inflation, stagnant household income and rising debt, and it’s a lot to handle.
“People are struggling to fund even basic education, let alone tertiary,” says Jansen van Vuuren. “Many kids are dropping out of school due to economic pressures. When the economy worsens, school dropout rates increase. People can’t afford school fees.
“This links directly to NEET rates – where people are not in education, employment or training. Many drop out to find work but struggle due to high unemployment. This lack of opportunity creates a drag on the economy. Unemployment exacerbates the issue, creating a cycle with significant economic impact.”
Jansen van Vuuren believes strongly that education is key to solving many issues in South Africa. “If we can improve access to education and lessen the impact of economic downturns on it, we can break the cycle,” he says. However, as he points out, the crisis is substantial. Education is an underserved category. While the life and funeral insurance markets in South Africa are well-established, education planning is often only addressed at the highest income levels, typically through group schemes or savings plans. In terms of the middle and emerging markets, most options focus on savings or investment plans.
To address this gap, Futurewise launched its three-tier offering in October 2022, so it’s been active for a little over a year and a half. “We’re a startup in a competitive market, working hard to establish our brand and build awareness,” says Jansen van Vuuren.
“Since education insurance is a relatively new category, we need to show people that this is an essential part of a well-rounded financial plan. We’re targeting both the mass and middle markets, encouraging people to go beyond basic funeral policies to include education, and eventually extending to savings and traditional life insurance.”
How the product works
Futurewise offers a retail product directly to consumers, particularly targeting the middle and emerging markets, to ensure access to education. It’s essentially an insurance plan specifically tailored for education costs. If a parent dies, suffers permanent disability or a terminal illness, the policy covers educationrelated expenses annually from when a child is five until they are 22. The funds are dedicated to education, ensuring children stay in school, complete secondary education, and have access to tertiary education. This way, by age 22, they are positioned to enter the workforce.
“Our solution has two components: an insurance plan for education costs and a savings plan,” explains Jansen van Vuuren. “The insurance includes cash-back options, allowing parents to save alongside the insurance policy. If no claim is made, the policy still provides value, ensuring families benefit even if the worst doesn’t happen.”
The third part of the solution is about providing value today, through a learning hub that offers access to tutors, curriculum support and online coding courses.
What sets Futurewise apart
These educational resources are online support available to all policyholders. “If you have an insurance policy with us, you get free access to our education hub, which has both a parent and a student section,” says Jansen van Vuuren. “In the parent hub, there are discounts on tech and online learning, including a 20% discount on a platform called GetSmarter for parent learning and upskilling. The student hub offers even more value, including 12 months of free online coding courses for kids. This benefit alone is valued at around R8 000.”
Advantage Learn is a partner, providing tutoring support, which is an incredible benefit for parents. “As our business grows, we aim to expand the learning hub, adding even more value for parents,” he says.
“Our online resources provide something unique. It’s immediate value for policyholders. Parents can see tangible benefits today. This focus on immediate educational value is central to our offering, as we know parents care deeply about their children’s education. It’s what we’re most passionate about, and we’re committed to sharing that message widely.”
“Since education insurance is a relatively new category, we need to show people that this is an essential part of a well-rounded financial plan”
What lies ahead
The journey has been incredible and full of learning, says Jansen van Vuuren. “We’re continuously engaging with clients to understand what resonates with them and experimenting with new strategies to grow the brand. We feel a strong sense of purpose in making a difference in South Africa, and we’re passionate about reimagining life insurance as ‘next-generation insurance’.” This concept focuses on education insurance for the next generation and elevates the role of insurance to make it more meaningful and relevant for our clients. Futurewise was initially launched as a direct-to-customer offering but is now starting to work with field agents to
generate leads and customers. The roadmap includes expanding into group schemes and collaborating with financial advisers and brokers to integrate our offerings into their plans.
“Currently, our services are accessible through our website, where customers can sign up for a policy in about five minutes. Everything they need is available online. We’re also adding a WhatsApp option, making it even easier for users to engage through familiar channels. This aligns with our goal of making the process straightforward and accessible. As we prepare to enter the intermediated market, this addition will be a positive step forward,” explains Jansen van Vuuren.
“Our policies cover both university education and vocational training, like trade schools, as we aim to prepare people for the future job market, regardless of the educational path they choose. We cover registered, accredited institutions, so whether someone pursues a
university degree or vocational training, they’re eligible, provided the institution is recognised. This support is available up to age 22.”
In the South African context, it’s crucial to meet the diverse needs of customers, and this aligns with the target market’s expectations.
“We strongly believe a balanced financial plan should include an education-focused insurance policy tailored specifically to this need,” says Jansen van Vuuren. “We advise starting with a policy as early as possible, whether the child is a newborn or a teenager. While early savings benefit from compounding, our insurance plan is risk-based, depending on the ages of the parents and child. Life is unpredictable, and this policy provides peace of mind for educational costs if something happens to the parent. Many don’t realise that, after settling debts and estate costs, day-to-day expenses – like education – can suffer. Often, parents end up compromising on their children’s education
because they didn’t plan specifically for it.”
Futurewise believes the time for education insurance has arrived, and is excited to see how the industry responds.
“Our focus on this niche allows us to make a meaningful impact, especially in South Africa. There’s tremendous potential to make a difference in our country,” says Jansen van Vuuren.
Arno Jansen van Vuuren,
Managing Director at Futurewise
Rising demand for student loans
As the year draws to a close, parents are feeling the pressure to help secure university placements and financial aid for their children. South African public universities saw over 1,2 million students enrolled in 2023, which means admission was highly competitive. In addition, government grants are not guaranteed to cover all admissions, including the so-called ‘missing middle’. That’s why it’s important to alert your clients to other options that are available to them.
According to the Department of Higher Education and Training, the volume of full-time university students grew by 2,5% annually from 2010 to 2021, outpacing the growth in academic staff. Student loan applications have surged, with Standard Bank seeing a 10% increase in new disbursements since 2023. “This rise may be due to the increased difficulty of self-funding amid high unemployment and living costs, prompting more students to seek alternative funding,” says Tshiamo Molanda, Head of Youth and Mass Market Clients at Standard Bank.
Loan applications have surged back to pre-pandemic levels, and approved loan amounts have grown in response to tuition fee increases, which have averaged 10% per year over the past three years. Loan applications typically peak from January to March and again from June to August, with the latter period often driven by demand from students seeking additional funding. The increasing cost of education can hinder the dreams of many young South Africans, particularly those from middle-income families who may have limited financial resources.
To help students overcome these challenges, Standard Bank offers affordable student loans – including options that don’t require a surety – to help students achieve their educational aspirations. “We understand that finding a surety or qualifying for a loan on your own can be challenging. To address this, we offer eligible students loans that do not require surety for certain courses at our partner institutions nationwide,” says Molanda.
Degrees in health sciences, including Bachelor of Medicine and Surgery, as well as Economics and Management qualifications, are the most popular among these students. Molanda adds, “We’ve seen an increase in requests for postgraduate degrees in recent months too.”
Financial considerations
When a client applies for a student loan, the credit record of parents or guardians who sign as surety is crucial, affecting the loan’s approval and terms. People who sign as surety should consider repayment responsibilities and the impact on their budget, as they remain liable if the student defaults, which can also harm their credit record.
Standard Bank offers a calculator to estimate monthly repayments and recommends borrowing only what is needed. “Understand the total cost of the credit agreement,” advises Molanda.
How a child’s education impacts estate planning
It’s important to alert clients to the fact that their children’s education should be included in estate planning. In 2022, the Master of the High Court reported that fewer than 15% of South Africans had a will. Standard Trust Limited echoes this concern, holding only about 500 000 wills for Standard Bank’s 1,5 million clients, with most drafting their first will around age 47.
“Clients with a will often set aside funds for their children’s education through a testamentary trust or provision for inheritance in their estates,” says Shaka Zwane, Head of Insurance & Fiduciary at Standard Bank. Zwane emphasises the need to verify that the estate can cover future education costs, regardless of whether children choose public or private universities. This includes evaluating the estate’s value and addressing any liquidity issues. If assets are insufficient, insurance options like life insurance or education protection plans can help cover these expenses and student loan debt.
Younger families should make provision for their children’s education, living expenses and housing, in case something happens to the parents. Parents of minor children must nominate guardians and include a testamentary trust in their will to ensure that the funds they leave behind are used correctly for their children’s benefit. Families with older children can use testamentary trusts to cover tertiary educational expenses, if necessary.
What to consider when deciding to trade locally or offshore
By Wendy Myers Head of Securities, PSG Wealth
Ray Dalio, the Chief Investment Officer of Bridgewater Associates, is quoted as saying, “Diversifying well is the most important thing you need to do in order to invest well.” The experienced investor understands the importance of diversification when considering portfolio construction. Diversification is not simply about spreading risk across multiple asset classes and sectors. Investors should also contemplate exposure to local and offshore shares (assuming their risk appetite supports this).
Is offshore still a good option?
There is no one-size-fits-all solution. Shares continue to deliver inflationbeating returns over the long term and clients with money to invest should ideally start with investing in shares on the Johannesburg Stock Exchange (JSE). This provides access to inflation-beating returns and passive dividend income that is taxed at a lower level than marginal tax rates. They can here also access offshore markets by investing in dual-listed stocks without the need to set up an offshore stockbroking account. In a recent PSG Think Big webinar, CEO of the JSE Dr Leila Fourie highlighted that more than 30% of its listed companies are also listed internationally.
Investors who want further offshore exposure can open an offshore account with their broker, which will provide them with access to multiple offshore markets. For example, PSG Wealth offers investors access to 19 different offshore markets, with ample opportunity for portfolio diversification.
A 60:40 split (local:offshore) is a good guideline for investors to follow when considering investable assets, but the decision is personal and financial advisers are essential to guide clients to make holistic investment decisions.
What’s different about offshore investing?
Currency risk is the key differentiating factor. Investors who view their returns in rands will be impacted by the strength or weakness of the rand, which is why a 60:40 local/offshore split is recommended.
We have seen solid local share returns since the formation of the Government of National Unity, together with a strong rand. Investors who invested offshore and externalised rands at R19,50 to the US dollar (a rate seen last year when we experienced stage 6 loadshedding) are seeing their overall rand investment returns depleted. As such, it is important for investors to understand how the rand’s volatility can impact overall portfolio performance.
Another key difference between investing locally and investing offshore is that offshore investors can access shares that are not available on the local exchange. For example, the ‘Magnificent Seven’ – Apple, Microsoft, Alphabet (Google’s parent company), Meta, Nvidia, Amazon and Tesla – have all delivered strong results for more than five years and have delivered handsomely for investors.
Key considerations for constructing offshore share portfolios
As is the case when constructing a local portfolio, offshore portfolios must cross various sectors to avoid volatility. Ensuring that portfolios are well balanced across sectors can help to counter this. Different fees must also be considered. Investors in shares will be well positioned to benefit from capital gains over the long term. A portfolio that is diversified across market and currency risk will be well positioned to earn passive dividend income and capital gains over the long term.
By Coreen van der Merwe Director at Sovereign Trust SA
IMaximising offshore wealth with loop structuring
nvesting offshore has long been a strategy of choice for high-networth individuals seeking to diversify their portfolios, capitalise on favourable tax treatments, and leverage unique estate planning options. For South African investors, one such offshore investment vehicle, known as a ‘loop structure’, offers the opportunity to reinvest back into South African assets. Legalised in 2021, loop structures allow investors to tap into the benefits of offshore vehicles while retaining links to local assets – a significant development with farreaching financial planning implications and benefits.
Coreen van der Merwe, Director at Sovereign Trust SA, says that investing in loop structures has multiple advantages. “Offshore structures enable access to international markets, and can yield enhanced asset protection and optimise tax obligations over the long term. Sheltering a portion of an estate outside of South Africa can also present unique estate planning options and mitigate the tax burden on heirs, preserve wealth, and ensure smooth generational transitions.”
Loop structures specifically allow South Africans to streamline cross-border flows of income. South African businesses can transfer income streams abroad in the form of dividends. This sidesteps the constraints of personal investment allowances, which are capped at R11m annually. By routing dividend payments to an offshore trust or company in a jurisdiction with a favourable double taxation agreement, local investors could reduce their dividend withholding tax rate from the domestic rate of 20% to as low as 5%.
Historically, South Africans wishing to invest offshore needed to create duplicate local and foreign structures, leading to increased costs and administrative complexities. Now, investors can hold their assets in a single offshore structure. This simplification minimises compliance obligations and cuts down on management expenses. Further, loop structures offer the benefit of maintaining direct links to South African assets while enjoying the protections and advantages of an offshore trust or company.
To benefit from the legal advantages of a loop structure, investors must follow specific reporting and compliance steps to satisfy the regulatory requirements of the SA Reserve Bank (SARB). For instance, if a foreign entity acquires shares in a South African company, the share certificates must be endorsed as ‘non-resident’ within 30 days. Failure to endorse shares correctly and in good time may result in a restriction to distribute dividends to offshore shareholders.
In addition, an annual audit report validating the arm’s-length nature of the transaction must be presented to an Authorised Dealer, and a comprehensive report detailing the transaction must be submitted to SARB’s Financial Surveillance Department. These reports ensure regulatory compliance and protect investors against potential financial or tax-related complications down the line.
“Given the complexity and nuanced legal requirements surrounding loop structures, it is essential to work with investment professionals who specialise in cross-border vehicles. Experts can tailor these investments to suit individual financial goals, ensuring that investors capitalise on efficiencies and regulatory advantages to build wealth across generations,” says Van der Merwe.
Yusuf Wadee
Head of Exchange Traded Products at Satrix
Satrix launches SA’s first Shariahcompliant ETF with offshore exposure
Satrix has introduced the Satrix MSCI
World Islamic Feeder ETF, South Africa’s first exchange-traded fund (ETF) with global exposure, designed to adhere to Shariah investment principles. This innovative ETF, listed on the Johannesburg Stock Exchange (JSE), tracks the MSCI World Islamic Index.
This index reflects Shariah investment principles and is designed to measure the performance of large- and mid-cap companies across 23 developed market countries relevant to Islamic investors. The fund is registered as a Collective Investment Scheme and is listed on the JSE under the code STXWIS.
“This ETF is perfect for investors with a longterm
horizon, seeking to
their portfolios with Islamic law”
Yusuf Wadee, Head of Exchange Traded Products at Satrix, says, “We are proud to launch South Africa’s first Shariah-compliant ETF with offshore exposure, providing investors with a unique opportunity to access a globally diversified portfolio while adhering to Islamic investment principles. This ETF represents a significant milestone for Satrix and the broader South African investment community.”
Why invest in the Satrix MSCI World Islamic ETF?
This ETF is perfect for investors with a longterm investment horizon, seeking to align their portfolios with Islamic law. It offers exposure to developed markets and allows investors to build a diversified global equity allocation. Advantages include:
• Shariah-compliant investing: Transparent screening based on MSCI’s methodology
• Cost-efficiency: Low fees with a targeted total expense ratio of 0.55%
• Flexibility and transparency: Easy access and efficient trading on the JSE
• Portfolio diversification: Exposure to largeand mid-cap stocks across 23 developed markets.
About the MSCI World Islamic Index
The MSCI World Islamic Index offers a transparent and robust methodology, endorsed by MSCI’s Shariah Advisory committee. The index excludes companies involved in non-compliant activities and applies business activity and financial ratio screens to ensure adherence to Islamic law:
• Business activity screening: Excludes companies engaged in prohibited activities such as adult entertainment, alcohol, conventional financial services, defence/weapons, gambling, pork-related products, and tobacco.
• Financial ratio screening: Ensures no investment in companies with significant interest income or excessive leverage.
Top 10 Constituents of the Index as at 30 September 2024: Microsoft Corp: 17.53%
Tesla: 4.33%
• Exxon Mobil Corp: 3.03%
• Procter & Gamble Co: 2.36%
• Johnson & Johnson: 2.25%
Novo Nordisk B: 2.19%
Salesforce: 1.53%
Advanced Micro Devices: 1.53%
• Chevron Corp: 1.49%
• SAP: 1.37%
Dividend purification process
In line with Shariah principles, any income derived from interest or prohibited activities will be deducted from dividends and donated to a charity. The MSCI World Islamic Index includes a ‘dividend-adjustment factor’ to purify dividends. Satrix will ensure the purification of dividends received within the fund where such dividends have accrued any prohibited income.
How
to
invest
Wadee adds, “The new ETF is readily accessible through the SatrixNOW platform. Investors can easily locate and invest in it, thanks to our streamlined process designed to simplify the management of their investments. It’s also accessible via the JSE and other investment platforms.”
Offshore trusts stand the test of time
By Rudi Bodenstein Partner and Senior Trustee, Stonehage Fleming Jersey
Succession planning structures have come and gone, but trusts have stood the test of time. They have proven to be the most robust, tax-effective and flexible vehicle for intergenerational wealth creation, enabling families to achieve their desired financial outcomes, no matter how complex these may be.
Why establish an offshore trust?
For families who want to live in the sun and have their money in the shade, offshore trusts provide multi-generational, taxneutral asset protection from political risk and emerging market volatility. They also facilitate the diversification of portfolios across currencies and access to the global investment universe and cater for the complexities of families that may span the globe.
Which are the best jurisdictions to consider establishing an offshore trust?
Deciding where and how to set up a trust will depend on the outcomes you want to achieve and the trust’s purpose. Jersey and Switzerland are the most popular jurisdictions because of their history, depth, and breadth of wealth planning and legal expertise. Mauritius is building its reputation as an attractive offshore trust jurisdiction.
“Deciding where and how to set up a trust will depend on the outcomes you want to achieve and the trust’s purpose”
How do they compare?
• Switzerland: Switzerland has justifiably built a reputation as one of the foremost financial safe havens. The benefits of setting up a trust in this jurisdiction are that it is a country with a stable political and economic environment; the legal framework is predictable and the legal and regulatory system is well-developed, which is crucial for trusts because they usually have such long lifespans; and it has a stable currency and relatively low interest rates in a global context.
• Jersey: Jersey is a well-established and highly rated international financial centre with a strong track record in succession planning, wealth management and trusts. In fact, Jersey trust law is based on English law, where trusts originated. The shared language and time zone supports an efficient relationship between Jersey and South Africa, and the breadth and depth of skill and quality of service providers have always provided clients with confidence in the jurisdiction. It offers the advantage of robust financial regulatory oversight and accountability, a strong local legal framework, and a sophisticated banking sector.
• Mauritius: This is an up-and-coming trust jurisdiction that may meet the needs of South Africans familiar with the destination. It has the advantage of its proximity to South Africa and other African countries, making it easy to travel there if needed. However, it is not tried and tested in jurisprudence and lacks the same depth of expertise and experience as the other two global trust centres.
Getting the most out of trusts
It’s always advisable to prioritise simplicity and certainty when establishing successionplanning structures. Different strategies have been considered to achieve successful succession planning and efficient funding of offshore trusts.
The funding of an offshore trust with an interest-bearing loan remains a
well-established and acceptable method that has proved effective. With wealth creation and asset protection, time in the market is your friend, and the future generations benefit from the compounding effect that comes with long periods of investing. A lender to the trust will pay tax on interest on the loan, but over time the tax-free capital gains in the trust should outweigh the tax on interest.
Given the costs of setting up and maintaining a trust and the tax consequences of dismantling it, families will get the full benefit of trusts if the assets are held within the trust for at least 10 years, and ideally across generations.
Ultra-high-net-worth families should also consider protecting future generations from gaining access to substantial wealth too early when they likely won’t have the experience to deal with it. To do so, the trust should be structured so that the entirety of the wealth is not immediately accessible to the beneficiaries upon the settlor’s death.
The bottom line
One of the most crucial succession-planning decisions a family will make is who they partner with to protect and grow their wealth and ensure it is passed on smoothly to future generations. That partner should ideally have access to a global team of experts who can consider all the potential tax, legal, and investment cross-border consequences of globally dispersed families and the associated financial and tax complexities.
By Rex Cowley Director and Co-Founder of Overseas Trust and Pension
Foreign pensions can build South Africans global wealth
As global financial markets
evolve, South African investors are increasingly drawn to opportunities beyond their borders, seeking diverse portfolios and protection against currency risks. Foreign pensions offer a pathway to internationalise future wealth and secure assets across jurisdictions.
“For South Africans considering retirement abroad, understanding foreign pensions is key to a successful, compliant financial strategy and future,” explains Rex Cowley, Director and Co-founder of Overseas Trust and Pension, a specialist provider of international trust, retirement and pension solutions.
“These pensions provide unique advantages for those looking to maintain global wealth while adhering to South African legal and regulatory standards.”
Foreign pensions: Types and key benefits
Foreign pensions can be categorised into three main types: social security, occupational, and personal pensions. Each option carries unique benefits and is open to individuals under different circumstances.
While social security pensions provide government-mandated benefits and occupational pensions are employment-linked and feature contractual benefits, personal pensions offer distinct advantages for investors.
Free from the restrictions of social security and employment-based pensions, personal pensions allow investors to self-fund their retirement in an unconstrained way and with investment and currency freedom.
“Personal pensions are particularly appealing for those who want a hands-on approach,” says Cowley. “With a self-funded model, investors have significant input into the assets held and the freedom to customise the pension portfolio according to their requirements – essential criteria for those planning a retirement abroad with the security of global assets.”
Cowley adds that these personal pensions allow South Africans to invest in various asset classes and provide tailored solutions that evolve with changing financial needs, international aspirations, and the client’s life stage.
A strong regulatory framework ensures peace of mind
For South Africans, investing in foreign pensions must be undertaken with a clear understanding of the local legal landscape. To this end, the South
African legislation and regulation establishes specific standards that foreign pensions must meet to be recognised as legitimate retirement funds. This robust framework ensures that investors’ pensions meet stringent requirements for structure, contributions, and payouts.
“To qualify as a foreign pension in South Africa, the scheme must be established by law, have the sole purpose of providing retirement benefits, and be structured to serve its members exclusively,” notes Cowley. “Regulatory oversight by the Financial Sector Conduct Authority (FSCA) in respect of foreign products and foreign financial service providers protects South Africans by setting a clear framework for the promotion and advice relating to foreign pensions in South Africa, allowing clients to make informed decisions with confidence.”
While foreign pensions do not qualify for tax relief on contributions in South Africa, income tax exemptions are available on benefits paid, where the pension was funded by an employer in respect of services rendered abroad by the individual. This tax benefit is valuable for South African expatriates who build foreign pension reserves as they don’t get South African tax relief on the contribution, but then get relief at the point of taking benefit.
As such, foreign pensions can play a very important role for South Africans working abroad, who will return to South Africa.
Maximising investment potential within exchange control regulations
South Africans looking to invest offshore face exchange control regulations that impact how much they can contribute to foreign pensions. Here, the South African Reserve Bank (SARB) permits up to R1m under the discretionary allowance, and up to R10m with a tax clearance, allowing for favourable contributions while ensuring compliance with national financial policies.
“These regulations ensure that South Africans can participate in global investment opportunities, keep their wealth in the secure environment of a pension, and have exposure to hard currency and access to international investments, all while remaining aligned with South African laws.”
Exchange control allowances are vital for helping South Africans build wealth in international markets, empowering investors to retain assets in foreign currency or convert them as needed – a notable benefit for those concerned about currency fluctuations and market stability,” adds Cowley.
“Understanding foreign pensions is key to a successful, compliant financial strategy and future”
Tailored benefits for different types of investors
From currency diversification to asset protection, foreign pensions provide a strategic retirement solution for a variety of South African investors:
• Domestic residents: Many South Africans living in the country are drawn to foreign pensions for currency hedging and access to international investments. However, these pensions provide a safe and streamlined way to hold assets internationally while simplifying the succession of wealth on death by mitigating the complexity of cross-border inheritance and foreign tax laws. This means that an individual only has to consider their local position, which simplifies their affairs on death and can save significant costs and time during a difficult period for a family.
• South African expatriates: For South Africans working abroad, foreign pensions are a smart way to accumulate wealth in hard currency. Contributions made by foreign employers often qualify for tax exemptions on withdrawal, allowing expatriates to grow their wealth taxefficiently while still working overseas.
• Permanent emigrants: For South Africans relocating permanently, foreign pensions offer a flexible way to consolidate and protect wealth internationally at emigration. These pensions allow them to hold wealth internationally, which is often beneficial when considered against transferring all assets to their new country of residence. This helps emigrants retain control over their international wealth while benefiting from specific foreign tax exemptions on foreign pensions in territories like Australia, New Zealand, the UK, and European destinations such as Portugal and Spain. Foreign pensions also form an essential tool in securing visas and residency in many territories, such as Mauritius, Malta and Cyprus, as well as in Asian countries like Thailand and Malaysia.
Creating a lasting legacy
Foreign pensions offer South African investors a strategic gateway to global markets, combining wealth preservation with growth opportunities. By diversifying retirement portfolios and accessing hard currency and global markets, these pensions lay the foundation for long-term financial security.
“A foreign pension is more than just a retirement plan; it’s a solution for building a legacy, allowing investors to protect their wealth and leave a lasting impact, or provide certainty to those left behind. With the right expert guidance and strategy, South Africans can confidently pursue a global wealth-building plan – a powerful path to prosperity that transcends borders and endures for generations,” concludes Cowley.
By Eugene Botha Head: Research Hive at Momentum Investments
What is behind the slow expansion of passive investments in South Africa?
Passive investing is a popular option for global investors, but this is not evident in South Africa. Historically, the popularity of passive investment funds has varied by region. Globally over the last couple of years, we have seen an enormous shift in the market away from active funds to passive investment vehicles.
This shift has been largely due to the infamously low success rate of active managers outperforming the market index, but other factors also drive the growth in passive investing.
The share concentration in the global equity market has increased significantly, mainly due to the abnormally large difference in growth in a select few stocks versus the rest of the market.
The Top 10 shares now contribute to a larger cumulative weight in the index (10.62% in 2018 to 18.36% in 2023). This increase in concentration is mainly because of seven technology shares that have grown immensely over the past couple of years relative to the rest of the market, making it extremely difficult for active managers to outperform if they do not favour those companies from an investment perspective. Given the breadth beyond the top 10 shares, it remains difficult to pick winning stocks in an active portfolio that will consistently outperform the market.
According to SPIVA research*, only 12.58% of all large cap funds in the US have managed to outperform the S&P 500 over the past 10 years and only 21.32% over the past five years. This explains, in part, why passive investing makes good sense and, therefore, the resultant growth of passive investing on the back of this phenomena.
While passive investing has also grown in South Africa, the trend has been less pronounced. Passive investing has been prevalent globally for decades and is mature, with a broad range of products and substantial assets under management (AUM) in passive funds. In South Africa, the market is still in a relatively early stage compared to its global counterparts. The range of available products is expanding, but it is not yet as comprehensive. There are a couple of possible interrelated reasons for this trend:
Market structure and size
The South African stock market is small and concentrated compared to major global markets. A significant portion of the market capitalisation is dominated by a few large companies (like Naspers, BHP Billiton, and Anglo American), making it challenging for passive funds to offer the same level of diversification available in developed markets.
With 10 shares contributing to 41% of the overall market capitalisation, this hyper-concentration in the equity market index suggests that investors may not be willing to put all their proverbial eggs in a very small basket. An active management approach is therefore preferred to deliver better risk-adjusted return outcomes.
South Africa’s market is also characterised by less liquidity compared to more developed markets. Concentration and illiquidity often lead to the market being more volatile and less efficient, providing opportunities for active managers to exploit mispricing and generate alpha.
Costs and fees
Although passive funds generally have lower fees, the cost structures in South Africa for setting up and managing these funds can be higher than in other regions, making passive investing relatively less attractive to both providers and investors.
At the same time, there is a very strong view that passive investors will lag the benchmark performance on a net of fee basis. Active management with higher fees might still make sense as better-rated and skilled active managers have shown evidence that they can outperform the market on a net of fee basis.
Investment culture, preferences and performance
Active management has been the dominant investment strategy for decades in South Africa. South African investors have traditionally favoured active management due to the belief that fund managers can better navigate the market’s unique characteristics and achieve higher returns. Many investors and institutions have long-standing relationships with active managers and a deep-seated trust in their expertise.
Some active managers in South Africa have established strong track records of outperforming the market, reinforcing confidence in their abilities. According to SPIVA Research**, 29.41% of South African equity funds have managed to outperform the Capped SWIX over the past 10 years, compared to 12.6% in the US over the same period. Over a five-year window, this number increases to 51% (vs. 21.3% in the US), reinforcing the belief that active management can yield better returns and make passive investing seem less attractive.
Institutional influence
Large institutional investors, including pension funds, have traditionally allocated significant portions of their portfolios to active management. Their influence and investment practices have a substantial impact on the market. Some institutional mandates and investment policies may still favour active management due to historical performance or specific investment objectives. While passive investing continues to slowly grow in popularity in South Africa, traditional active management strategies continue to hold significant influence in this country due to historical precedence, our local market’s characteristics, investor preferences, relatively higher fees for passives in SA, and strong marketing and distribution networks of active managers. However, as the market evolves and investor education improves, we believe that the balance between active and passive investing should change in the way that it has globally.
By Grant Alexander Founder and Director of Private Client Holdings
GTiming (time in) is everything: Wealth generation and wealth preservation
iven current longevity trends, it’s not unusual for people to live to 95. This means that they can spend up to 30 years living off the capital they spent 40 or so years generating. For many investors, this wealth preservation phase is likely to be a longer term than they have planned for. It’s important therefore that investors do not derisk their portfolios too early and reduce their potential returns as they could face financial shortfalls in their later years.
The following example highlights the benefit of not derisking too soon:
A person starts his wealth-generation journey in his 20s and builds his savings nest egg until age 60. He invests in high equity funds throughout the wealth accumulation phase and preservation phase. This allows him to draw 5% p.a. of his capital to fund his lifestyle until he reaches 90.
This scenario only works if he remains invested in high equity funds. If he had derisked at retirement (65 years) or suddenly got nervous about the markets and wanted to move from high equity to a typical income or defensive fund, he would have earned returns of inflation + 2%. While he may feel comfortable for a while by not experiencing the volatility in the markets, he will run out of money 11 years sooner than if he had remained invested in high equity funds.
The switch from high to low equity or income funds usually happens at the time when Retirement Annuities are transferred into Living Annuities. The reason for the underperformance is because most returns are realised after retirement. In fact, 87% of investment returns are generated during this phase. Unfortunately, most people think they should derisk at the point of retirement, which may be a monumental mistake.
It is advisable to have at least 60% of a portfolio invested in equities and between 25 and 55% in offshore assets to ensure that you maximise the probability of achieving successful lifestyle goals. From an investment perspective, investors must really take care not to derisk too much or too early.
This is where wealth managers are worth their weight in gold. It is important that your clients understand the importance of
establishing a relationship with an adviser during their wealth-creation phase. You should meet regularly so that you understand one another and know what keeps your clients awake at night, their dreams and fears, so you can ensure they remain on track with their wealth goals.
“Even the wealthiest of families are often resource constrained in their capacity to allocate financial, intellectual and social capital to their aspirations,” says Grant Alexander, a director at Private Client Holdings, a boutique multi-Family Office in Cape Town. “Sophisticated cashflow modelling software helps to represent client goals graphically, which enables us to track progress and the probability of success over time. We have regular check-ins to ensure that the client remains aligned as their goals evolve over time.
The power of this process is that it keeps clients engaged and invested,” adds Alexander.
The industry generally treats the wealthgeneration and preservation phases differently and manages them according to a client’s risk profile, which may shift from growth to balance over time. Private Client Holdings treats both phases as a whole journey and not as two separate parts. The wealth-creation mindset continues throughout the wealth-generation and preservation journey, with defensive assets only used to fund relatively short-term (i.e. < five years) cash requirements, while the balance of capital remains invested in growth assets.
The company applies a Goals-Based Wealth Management (GBWM) approach, which involves spending time with a wealth manager or financial adviser to establish financial goals and priorities. In most cases, the lifestyle goals (primary residence cost, food, living expenses, etc.) are the most important, with any excess capital applied to other goals, like buying a second property, setting up a charitable trust or leaving a legacy. “We evaluate the timeline as to when the capital will be required and apply a risk and return profile and optimise the mix of assets to suit each goal independently. These strategies then run side by side, so the focus is on the journey towards the goals and not on short-term noise,” says Alexander.
Some people fear dying too soon, but in fact we should all fear living too long! Outliving capital is a daunting prospect, which is why it’s essential that clients manage the transition from wealth generation to wealth preservation and receive assistance from wealth managers who understand the implications of derisking too much and too soon.
“Most people think they should derisk at the point of retirement, which may be a monumental mistake”
By Aadil Omar Head of Equity Research, M&G Investments
The power of sustained success
When we think about breakout success, we often envision a phenomenon characterised by sudden and rapid changes – a rocket launching into orbit, for example. The default condition of a rocket is to be stationary on the ground, but in a relatively short period, it leaves the Earth’s atmosphere. To achieve this, the rocket must overcome Earth’s gravitational force, requiring an extraordinary amount of energy. To reach escape velocity, the rocket needs to travel at 11.2 kilometers per second or 40,234 kilometers per hour.
Let’s consider the definition of velocity for a moment. Velocity is defined as displacement per unit of time – a measure of how much work has been done (distance covered) in a given amount of time. This concept of work done over time is pervasive across many fields, including commerce and economics, where the equivalent is production or yield over a given period. Since time is the most static of variables (we cannot change it in any way), the focus often shifts to magnitude – how much work has been done.
We compete on the top speeds of performance vehicles, debate the profitability of various industries, and rank the annual performance of investment professionals. In a time-scarce world, it’s reasonable to emphasise (and even celebrate) the magnitude of achievement. But are we missing something equally potent by not giving the same degree of focus to how long something can be sustained?
Duration: force majeure
“You can be an extraordinary investorby earning average returns foran above-average period oftime.” - Morgan Housel
The figure above, sourced from ‘Excess Returns’ by Frederik Vanhaverbeke, offers a valuable comparison of the excess returns achieved by several rockstar investors (relative to the S&P 500) and the length of time over which those excess returns were sustained.
One might notice a general negative relationship between the magnitude of excess returns and the number of years they were upheld. The twodimensional nature of an x-y plot implies equal importance between these two variables, but this depends on the underlying investor and the opportunity set. However, it does appear, based on how few investors have achieved it, that sustaining excess returns for a long period is rare. The benchmark return against which all these investors are measured is running at 10% per annum, in line with the long-term average return of the S&P 500. While this isn’t entirely accurate, it doesn’t detract from the point being made. The charts depict three time periods: 20 years, 35 years, and 55 years.
Visualising investment track records in this way is enlightening. A few observations stand out:
• Over any given period, higher excess returns lead to better track records, even when the differential between investors is small (see the difference between Soros and Buffett when compared over the 35-year period).
For all time periods, return series seem to start slowly and then accelerate. This is most pronounced for the 55-year duration, particularly with Warren Buffett’s track record. This reflects a wellknown but still unintuitive feature of compounding returns.
The most striking observation is how shorter-term track records seem to ‘melt’ into the horizontal axis when compared with longer-term track records. Despite stellar outperformance in the short term, the power of compounding, when allowed to operate over the fullness of time, is beyond intuition.
Sustained success
Achieving excess returns above a competitive benchmark like the S&P 500 is challenging. Doing so over decades is remarkable. But when we start talking about sustaining excess returns for half a century – as seen with investors like Warren Buffett, Walter Schloss, and Philip Carret –these outcomes are unprecedented. While following such track records is nearly impossible, the lesson here is clear: let time do its work.
Sustained success is not about explosive, short-term gains. It’s about consistent, persistent performance over the long haul. Just like the concept of escape velocity in physics, the real power lies not only in the initial burst of speed but in the sustained force that carries an object into orbit and beyond. Similarly, in investing and other areas of life, the true measure of success is often found not in the magnitude of a single achievement but in the enduring power of sustained effort and patience. It’s not just about how fast you can go – it’s about how long you can keep going.
New emergency cover range for casualty and emergency admissions
Discovery Health has introduced a new Discovery Emergency Cover range, available from 1 January 2025. This range of non-medical scheme products will include cover for treatment in casualty and emergency-related hospital admissions and is designed to remove the financial burden associated with unexpected medical emergencies.
The Discovery Emergency Cover range provides cover of up to R1 million for emergency healthcare services and associated hospital admissions, offering peace of mind to clients and enabling them to seek private care without delay.
Addressing the growing demand for emergency care
Globally, millions of people require emergency medical attention each day. In 2021, the US Centre for Disease Control and Prevention (CDC) reported 139.8 million emergency department visits, with 13% of cases requiring critical care.
In South Africa, the demand for emergency services is similarly high. In 2023, more than 780 000 casualty cases were recorded across the various medical schemes and health insurance products administered by Discovery Health.
Maria Makhabane, Chief Growth Officer at Discovery Health, underscores the importance of accessible, high-quality emergency care, “When faced with an accident or medical emergency, people need prompt access to quality healthcare without the burden of significant out-of-pocket expenses.”
A study published by the South African Family Practice found that trauma-related conditions were the most common reason for visits to the emergency department, accounting for 36.5% of cases at a South African hospital. Road accidents, in particular, play a significant role in the need for emergency care in South Africa – a country with one of the highest road fatality rates globally. Additionally, the Heart & Stroke Foundation reports that 10 strokes occur every hour in South Africa.
Managing the costs of emergency healthcare
Accessing private emergency care can be costly, and Makhabane points out that financial concerns often deter people from seeking medical care, even when this is most needed. “One of the greatest challenges individuals face during emergencies is the unexpected cost of in-hospital or casualty visits,” she says.
Discovery Health’s data reveal that the average casualty visit at a private facility costs R3 000, while the average in-hospital care for emergencies ranges from R68 000 to R405 000. In some instances, costs can exceed this, with one Discovery Emergency Cover member’s emergency claim exceeding R500 000.
These costs can cause emotional distress and significant financial strain, often preventing people from seeking the medical attention they urgently need.
Discovery Emergency Cover: Enabling access to emergency care
To address these financial challenges, Discovery Health has introduced three emergency care packages:
• Emergency Core: Priced at R90 per month, this package covers emergency healthcare services, including casualty and in-hospital treatment for a wide range of accidents and trauma.
• Emergency Plus: For R140 per month, this package offers coverage for accidents and trauma, as well as the stabilisation and treatment of emergency medical conditions, including heart attacks and strokes.
• Emergency Max: At R190 per month, the Max package provides coverage for accidents and trauma, as well as the stabilisation and treatment of emergency medical conditions, with additional in-hospital coverage for nine critical medical conditions, including heart attacks and strokes.
The Emergency Core package is available as a standalone product, while Emergency Plus and Emergency Max are designed to complement the Flexicare day-to-day health insurance plans, offering a robust combination of coverage for primary and emergency care.
By James White Director of Sales and Marketing at Turnberry Management Risk Solutions
Why gap cover is essential in 2025
As South Africans prepare to review their medical aid plans, many are grappling with the difficult decision of whether to downgrade their cover. Rising costs and ongoing economic pressures have led an increasing number of individuals and families to seek more affordable medical aid options. However, while downgrading may be an immediate cost-saving measure, it is crucial to understand how this decision impacts overall coverage and why adding gap cover should be a vital part of your strategy.
The consequences of downgrading medical aid plans
In 2025, medical aid contributions are expected to rise significantly, with many schemes projecting increases in the 10-15% range, far outstripping the Consumer Price Index (CPI) and most people’s salary increases. These hikes pose a major financial challenge, especially for the average family whose income growth may not keep pace with the rising costs of healthcare. As a result, many are choosing to downgrade from comprehensive plans to more affordable options, often focusing on hospital cover while choosing to manage day-to-day medical expenses out-of-pocket.
However, downgrading often comes with hidden costs. Lower-tier medical aid plans may only cover 100-200% of the scheme rate, while medical specialists and healthcare providers frequently charge significantly more than this. This leaves you vulnerable to substantial out-of-pocket expenses, particularly for specialist care or hospital procedures. As a result, gap cover, which is designed to cover the shortfall between what medical schemes pay and what healthcare providers charge, becomes increasingly essential when downgrading your medical aid.
“People need prompt access to quality healthcare without the burden of significant out-of-pocket expenses”
The vital role of gap cover
Clients need to be made aware that when they downgrade their medical aid plans, they may face more co-payments, reduced benefits and sub-limits on procedures that previously had unlimited coverage. Gap cover serves as a critical financial buffer, protecting them from these unexpected medical expense shortfalls. However, it is important to note that many medical aids are making changes to existing plans for 2025, with increased co-payments and reduced benefits, and potential sub-limits on procedures that previously had full coverage. This means clients need to be more informed than ever – not only if they are thinking of downgrading, because changes may affect an existing plan as well.
By incorporating gap cover, they can safeguard against these potential shortfalls and ensure they are not caught off-guard by additional expenses. This safety net can help them navigate the complex and evolving healthcare landscape in South Africa, ensuring they remain adequately covered, even in challenging economic times, particularly as medical schemes change the way their cover operates.
Evaluating medical aid and gap cover options
When reviewing medical aid policies, it’s essential to assess how well it meets current and future needs, including factors such as affordability and coverage limits. Navigating the complexity of this often requires expert advice, which is why brokers are an invaluable resource. Brokers have an in-depth understanding of the medical aid landscape and can assist clients to make the most informed decision for their unique needs, whether they are downgrading their plan or considering other options.
It’s your role to help clients understand the potential shortfalls that come with a downgrade and ensure they have the right gap cover to supplement their plan. You need to assist in reviewing policy schedules, interpreting medical aid terminology, and comparing plans to ensure they are fully aware of the benefits and changes heading into 2025. You need to identify a medical aid plan and gap cover that aligns with their life stage, financial situation and healthcare needs. Ultimately, ensuring clients have the right medical aid plan and gap cover will provide peace of mind and protect their financial wellbeing in an ever-changing healthcare environment.
By Mark Neil Chief Distribution Officer at Bidvest Life
Be sure to ask the right questions
With numerous life insurers offering a wide range of benefits, finding the best products for your clients can be challenging. After completing a thorough Financial Needs Analysis (FNA), the next step is a comparison of the available products to single out the best solutions. This goes beyond just comparing prices; it means ensuring that the products meet your client’s real needs and risks.
According to Mark Neil, Chief Distribution Officer at Bidvest Life, when comparing quotes and differentiating which life insurer has the most comprehensive cover that offers real solutions that meet their clients’ expectations, financial advisers should ask themselves insightful questions regarding product features they might not previously have considered.
When comparing different products, what questions should you be asking?
Who qualifies for a seven-day waiting period?
In 2023, 42% of the income protection claims that Bidvest Life paid on a seven-day waiting period were for periods of disability that lasted 30 days or less.1 This means that 42% of the claims paid on a seven-day waiting period would not have resulted in a claim had the life insured selected a 30-day waiting period. Consider how your clients earn their income. Whether they own a business, are self-employed, are employed in a traditional structure, are independent contract workers or commission earners, do they qualify for a sevenday waiting period?
Are common cancer risks covered?
One in 26 South African women will experience breast cancer in their lifetime.2 Check for comprehensive cover for breast and cervical cancers, and query whether breast reconstruction is included. One in 15 men have a lifetime risk for prostate cancer3 but most insurers only start paying from stage 2 (T2) or T1 if the Gleason Score is more than 7. A product that pays from stage 1 (T1a) and does not require a Gleason Score as part of its definition ensures that your client’s real risks are covered.
Does the product address critical illness shortfalls?
Traditionally, income protection does not cope well with the intermittent periods of disability commonly caused by critical illnesses. Claims on most temporary income protection benefits in the market are triggered by occupational disability, meaning they terminate when the person is deemed fit to return to work. In the case of a client who is diagnosed with cancer and is undergoing intermittent treatment, they would only receive a portion of their income if
they continued to work part-time during this time. In most cases, this would leave them unable to take time off for mental and emotional recuperation. In addition, the payout on income protection does not cover unexpected additional monthly expenses like changes to diet, specific medication, and travelling to and from treatments. This is where a benefit like Critical Illness Income (CI Income), which guarantees uninterrupted monthly payments for up to 12 months on diagnosis, irrespective of whether your client continues working during treatment, would meet their real needs.
Take Bidvest Life policyholder Nandi* as an example. After her Stage 3 breast cancer diagnosis, Nandi underwent a double mastectomy and breast reconstruction. Her policy provides her with three benefits so that she can focus on her recovery instead of worrying about lost income: a lump sum payment of 100% of her sum assured on diagnosis; a monthly income for the 12 months postdiagnosis through her CI Income benefit; and an additional 15% payout on her Critical Illness Lump Sum (CILS) benefit (over and above the 100% of benefit already paid) specifically for her reconstructive surgery.
Is there a Commutation Option?
Many people view lump sum disability and income protection as substitute benefits – if you take enough lump sum disability cover you don’t need income protection, and vice versa. However, this view is inaccurate as income protection benefits pay out for both temporary and permanent disabilities, while lump sum disability cover only pays out for permanent disabilities. Being able to add a Commutation Option (which enables clients to commute a portion of their monthly payout into a onceoff lump sum on permanent disability) to an Extended Income Protection policy ensures that your client is covered for both temporary and permanent impairments, but still has access to a once-off lump sum in the event of a permanent disability.
Are children covered?
When a child is diagnosed with a serious illness or disability, it takes a massive emotional toll on the family, not to mention the financial burden that accompanies a critical illness diagnosis. A critical illness policy that automatically covers a policyholder’s children will assist with the additional costs required to provide for the needs of these children during this difficult time. Policyholders should also have the option to add life cover for their children – and their spouses – to their Life Lump Sum benefit.
Does the product provide for dependents in the long-term?
Traditionally, life insurance pays out a lump sum on death. However, while lump sums are ideal for settling once-off commitments, like debt, executors’ fees and estate duties, they are not without risk: calculating a lump sum amount is subject to assumption-based risks, and behavioural risks after payout cannot be safeguarded against. A Life Income benefit provides nominated beneficiaries with a monthly income stream, ensuring that a client’s family has a consistent source of financial support after the client’s death.
Are changing circumstances allowed for?
Automatic future insurability benefits provide a degree of flexibility as a client’s insurance needs change. The drawback is that these benefits may not necessarily align with the timing of the changing needs, leaving your client vulnerable to gaps in their cover. A product like Future Cover Protector ensures that a client who anticipates significant changes in their insurance requirements at specific points in time, independent of policy anniversaries or life events, can make the necessary updates and additions free of medical underwriting.
“Financial advisers have ethical obligations to prioritise their clients’ interests, and to make recommendations that are aligned.4 This means interrogating the various life insurance products to identify which ones solve real problems and deliver tangible value, rather than choosing from a bucket of similar products whose only real differentiating factor is price,” says Neil.
By Khensane Mangwane Claims Specialist at SHA Risk Specialists
The township economy: A misunderstood insurance market
Township businesses are an
integral part of South Africa’s economy. However, a lack of access to insurance distribution channels and inadequate knowledge about suitable insurance options have left many township businesses without protection.
This is according to Khensane Mangwane, Claims Specialist at SHA Risk Specialists, who says the stark reality is that commercial insurance coverage levels in townships are significantly lower than in other regions, leaving township businesses vulnerable to the many risks they face daily. To bridge this gap, insurers need to engage more directly with these communities and offer tailored solutions that address their specific challenges and risk exposures.
Understanding the needs of township businesses
The needs of businesses in township economies differ substantially from those in more formal sectors. “One of the key issues is a lack of business and insurance knowledge. Many business owners in township areas do not fully comprehend the risks their businesses face or the financial implications of being uninsured or underinsured. Without this understanding, insurance is often viewed as an unnecessary cost,” he says.
Mangwane elaborates that inadequate infrastructure in many townships compounds the problem, as businesses often operate without access to reliable electricity, internet, or other essential services. “This limited infrastructure not only hinders business growth but also makes it difficult for owners to budget for insurance premiums.”
He highlights that effective risk management is critical for these businesses, especially considering the ever-present security risks. The
right insurance policy can protect them from the financial impact of theft, asset loss, or liability claims, helping them to resume operations swiftly after an incident. The rise of criminal syndicates, high crime rates, and protection rackets have forced some businesses to close their doors. Those that remain open face higher insurance premiums due to their high-risk environment. Adequate security measures are essential to keep these businesses safe, yet they often lack the resources to invest in such solutions.
Addressing misconceptions in underwriting
According to Mangwane, one of the fundamental challenges for the insurance industry is that many underwriting models do not account for the unique characteristics of businesses operating in townships. Instead, insurers often apply generalised assumptions that label these businesses as high risk without thoroughly assessing the specific circumstances on the ground.
“A more personalised risk and needs analysis is required in these cases. Insurers must spend time understanding the operations, structures, and environments of township businesses before determining risk profiles and appropriate coverage. Such assessments can reveal that many businesses, while operating in high-risk areas, do not pose the same level of risk as others. This would allow for more accurate pricing and coverage tailored to the real risks these businesses face,” he adds.
Improving accessibility and affordability
Increasing access to insurance for township businesses requires simplifying distribution channels, says Mangwane. “Digital models that allow business owners to access and sign up for policies via internet-enabled devices would provide a much-needed solution. Furthermore, community programmes and educational
initiatives are essential to raise awareness and help business owners understand the importance of insurance. By tailoring products to the size and needs of these businesses, insurers can offer affordable cover that reflects their true risk exposure.”
One of the primary barriers to implementing insurance in township economies is the informal nature of many businesses. Without formal registration, bank accounts, or proper record-keeping, many township businesses are considered ‘uninsurable’.
Opportunities for growth and stability
Despite these challenges, the township economy represents a significant opportunity for insurers and the broader economy. Effective risk management and insurance solutions can help township businesses grow sustainably, ensuring they are resilient in the face of economic instability. With the right cover, businesses can continue contributing to job creation and economic growth while ensuring their operations are safeguarded.
To facilitate this, insurers need to develop offerings that cater to the specific needs and structures of businesses operating in these informal economies. A shisanyama, for example, would need fire and liability cover due to the nature of its operations. Educational initiatives that demonstrate the value of such cover would go a long way in helping owners appreciate the protection that insurance can offer.
As Mangwane concludes, “Three decades into democracy, South Africa’s township economy stands as a vital engine for economic growth, yet it remains largely overlooked by the insurance industry. Now is the moment for insurers to reimagine their offerings, refine their distribution models, and engage more meaningfully with these businesses. By doing so, they can tap into a growing market and help secure the future of the township economy.”
