MoneyMarketing February 2024

BUILDING A SUCCESSFUL BUSINESS

Consulting experts give their advice on how to create the best advisory business and provide the information every adviser needs.

Page 14 – 15

EMPLOYEE BENEFITS

The new ways of working means employees have different requirements. Employers need to understand and advise them to ensure they are still properly covered.

Page 16 – 17

SHARI’AH INVESTING

Forget the misconceptions around Shari’ah investing. Here’s everything you need to know about the rise of an investment practice that’s offering the world an ethical option.

Page 18 - 19

29 February 2024

First for the professional personal financial adviser

The erosion of medical scheme benefits and out-of-control specialist fees

BY MARTIN RIMMER CEO of Sirago Underwriting Managers

An analysis of three massive gap insurance claims amounting to R440k paid by Sirago Underwriting Managers during 2023 highlights an alarming reality of just how financially devastating the shortfalls are for in-hospital treatment that medical schemes are not paying for, and secondly, how specialist fees have rocketed in the absence of any price regulation in healthcare provisioning, meaning providers charge any rate they wish, often many more times the medical scheme rates.

Martin Rimmer, CEO of Sirago Underwriting Managers, explains that average gap claims values continue to rise exponentially, and mega gap claims are increasing in frequency, with massive shortfalls ranging anywhere between R50 000 and R191 000 (the regulated overall annual limit for 2023 per beneficiary per annum that gap insurers cover) for in-hospital treatments not paid by medical schemes. Gap insurance covers the difference that arises from the rate that healthcare

specialists charge for in-hospital procedures versus what a medical scheme pays.

“Of the thousands of claims processed in 2023, Sirago paid over 100 mega claims – internally classified as upwards of R40k per claim – in shortfalls not covered by medical scheme benefits on these mega claims alone. Total gap insurance claims paid between January and November 2023 by Sirago amounted to over R106m that policyholders would have to foot from their own pockets had they not had gap insurance in place,” explains Rimmer.

The three biggest gap insurance claims Sirago paid in 2023

Below is a breakdown of the three biggest gap insurance claims paid by Sirago during 2023.

“Of the R958k in specialist charges for these three claims alone, medical schemes only paid out 46% of the total specialist bills, while gap cover stepped in to pick up the 54% shortfall. The standout for anyone analysing these stats is that being on a comprehensive medical scheme option is no guarantee that your bills for in-hospital treatment will be paid for in full

by your medical scheme – in fact, in these three case studies, two members were on the top-end comprehensive medical scheme options, but less than half of the bills from their specialists were paid by the medical scheme.

Continued on next page

We are seeing more frequently that gap cover is paying more than what the medical schemes are paying to doctors for in-hospital treatment. It’s a perverse situation where specialist doctor and hospital fees are now running levels that are many times more than the rate at which medical schemes reimburse. The reality is that even if you’re on a medical scheme benefit option that pays at 200% of tariff, it may very well not be enough, given that healthcare providers are free to charge whatever they want in the absence of any pricing regulation,” he adds.

The main drivers behind escalating costs in private healthcare

High demand for scarce specialist services, emigration and insufficient medical graduates are the most serious contributing factors in this private healthcare cost spiral, with a skills shortage that is guaranteed to remain problematic for many years as the NHI Bill drives uncertainty, disinvestment, and an exodus of healthcare professionals. Gaming of the system by unscrupulous healthcare providers (and in many instances aided by patients) is also a contributing factor, but one that medical schemes are clamping down heavily on, investigating and prosecuting.

“Average gap claims values continue to rise exponentially, and mega gap claims are increasing in frequency, with massive shortfalls”

“In the absence of any legislative overhaul to better protect users and funders (medical schemes), and balance this against proper price regulation for service providers, consumers are left between a rock and hard place, as any alternatives in the public healthcare space all but collapse. In an effort to manage the massive increase and risks related to healthcare costs, medical schemes are left without many alternatives, other than to continue to remove, reduce or even limit benefits related to certain procedures, leaving this burden on members and gap cover providers. The erosion of medical scheme benefits is very real and accelerating, with many of the drivers entirely outside of the control of healthcare funders and their members,” explains Rimmer.

Rimmer adds that if you consider that when gap cover was first introduced as a financial solution to medical scheme shortfalls, gap claims averaged

between R6 000 to R12 000. However, in the last three years or so, large claims of R50k+ are increasingly almost a daily occurrence. The bottom line is that gap cover is a critical part of your healthcare-funding strategy, and that medical scheme membership, whether on a comprehensive or core benefit, simply isn’t enough. For total peace of mind, no medical scheme member should be without gap cover if they want a hand-in-glove solution to protect themselves against the risk of onerous financial shortfalls on inhospital treatment and procedures.

“Consider at an average of just over R50 000 per mega claim, and measured against an average premium of R498/pm per policy on an individual basis, or R566/pm for a family (*Sirago Ultimate Gap, 2023 rates), it means policyholders have claimed approximately eight years’ worth of premiums paid or still to be collected. If you take one of the three massive gap claims paid at an average of R174k –that’s 29 years of premiums, which demonstrates the crucial role that gap insurance plays in your healthcare financial planning, protecting you from large and unexpected costs that you would need to self-fund if you do not have gap cover in place. Very few people, if any, have that sort of money available, unless they go into serious debt.”

Protect yourself from unexpected costs and unethical practices

Sirago provides the following advice to consumers to protect themselves when it comes to unexpected costs and unethical billing practices:

Always negotiate the pricing of any planned surgery with healthcare providers before and ask for a formal quote from all the medical role players – from the surgeon to the anaesthetist. That way there are no surprises or unexpected costs creeping in after the fact, unless there were specific complications during the procedure.

Your gap cover should be of no interest to your doctor, whatsoever. Be wary of doctors asking you upfront whether you have gap cover or not – overbilling based on a client’s insurance portfolio is a growing practice by some unscrupulous medical specialists looking to capitalise on the patient’s insurance cover by overcharging, and in some of the worst cases, scheduling unnecessary procedures, knowing that the patient has the insurance to cover the inflated price. You are not obliged to tell your specialist that you have gap cover, and it should be of no consequence whatsoever to your doctor whether you have gap cover in place.

WEDITOR’S NOTE

e’ve chosen to lead this month’s issue with a story about gap cover because there is no doubt all eyes are going to be on the medical industry this year. Elections are looming and the government is on a path to push through the NHI Bill as quickly as possible, with what could be devastating consequences for the private medical insurance industry. As Andre Jacobs, Marketing Manager at The People Company and Vice Chair of the FIA Health Exco, says: “It will completely disrupt the medical sector in the country and would inevitably reshape the role of medical schemes as well as gap cover.”

But it’s also time now for the industry to take a long, hard look at itself. As our cover story indicates, what happens when the gap cover is no longer covering ‘the gap’, but becomes insurance on insurance? At what point do consumers push back? While inflation in general may have stabilised (for now), food inflation is hurting the middle and poorer classes. Coffee, for example, costs about 20% more than last year, while white rice has gone up 32% year-on-year. And let’s not talk about eggs or canned products. These are the things that affect your clients’ pockets, and having to pay large increases for medical cover is sometimes not an option. They will be looking around for cheaper offerings or cancelling entirely, which makes the NHI look like a viable proposition for them.

In addition, medical aids need to consider their service. You may remember I was hospitalised toward the end of last year and was happy in the knowledge my insurance would cover me. Instead, I spent three long months fighting to prove it was an emergency admission. Luckily, sense eventually prevailed but it didn’t leave me feeling good about my provider. The industry needs to do better to keep consumers onside.

We’ve got more about the industry’s pushback against the NHI and gap cover news towards the back of the magazine. It’s an issue we’re going to be keeping a close eye on throughout the year, and we’ll be keeping you informed.

Happy reading!

SANDY WELCH Acting Editor, MoneyMarketing

WARREN MCLEOD PORTFOLIO MANAGER, OLD MUTUAL INVESTMENT GROUP

How did you get involved in financial services –was it something you always wanted to do?

When speaking informally to friends and people I meet outside of the workspace, upon hearing my profession, a frequent question is, “When and how did you get involved in financial services?” My answer relates to my interest in mathematics at school. I was guided to investigate the field of financial services, particularly life assurance. The suggestions were very broad. Looking at life assurance products, I understood the objective, but I also wished to understand how to use the financial markets to achieve the suggestive guarantees of the products. My subsequent studies at university were in the field of statistics and finance – together they tied the two pieces together.

What was your first investment – and do you still have it?

I knew that being a student, I was likely to start my career in debt. I convinced my father to loan me a small sum of money. I knew the investment would need to cover the money I owed him, but simultaneously I needed it to grow to cover some of the debt I would accumulate.

Consequently, I invested in an Old Mutual endowment policy. The endowment policy matured soon after I began working, which I then used to make a payment on a bond I had taken out to purchase a townhouse and to return the money I owed my father. That was one of my best financial moments!

What have been your best – and worst –financial moments?

I have learned the importance of understanding one’s investment. A highlight has been managing a global equity portfolio based on a quantitative strategy, the Old Mutual Global Managed Alpha Fund. Less so now, but in the past, many people associated a quantitative strategy to a ‘black box’ strategy in which they believed there is little understanding of the reasons for holding a particular stock. My view is that the strategy is a glass box. Many of the measures used by fundamental managers to determine a fair value to pay for a share are the same or similar to measures used in our global quantitative

strategy. The characteristics considered include the quality of a company, the value, the earnings growth of a company, as well as other common measures of a company. Our strategy is a systematic process that enables us to explain the reason for holding the positions in the portfolio. It is a glass box, not a black box. This strategy enables us to manage a global fund locally, with our quantitative systems easily managing the huge quantity of data related to companies that are the shares in international indices that often consist of more than 3 000 shares.

What are some of the biggest lessons you have learnt in and about the finance industry?

I have participated in financial investments for 25 years. There have been difficult times; the most difficult is managing a fund which, at times, is behind expectations. But I have made it through low times by having patience, not being overconfident, and adhering to the investment strategy and not making irrational decisions. Markets are volatile, which results in the ups and the downs in performance. Perfection does not exist in financial markets.

What makes a good investment in today’s economic environment?

In line with our investment strategy, currently, a portfolio that displays the characteristics of value, a strong relationship with the direction of a positive global equity market, and risk diversification is an attractive portfolio. The economy is not static and, accordingly, the characteristics of our portfolio change through time. In February 2022, Finance Minister Enoch Godongwana amended the maximum offshore

investment limit for Regulation 28 retirement fund from 30% of assets to 45%. This gives an investor a greater opportunity to gain returns, since effectively the market has ‘expanded’. Our global managed alpha equity portfolio is a means of expanding an investor’s exposure to the global equity market.

What finance/investment trends and macroeconomic realities are currently on your watchlist?

Expanding one’s understanding of the market and investment strategies requires keeping up to speed with the research and ideas of others, which can be gained from published books and articles. As mentioned, the strategy I employ is based on the relationship between shares’ returns to the measures of value, earnings growth, and further financial characteristics of shares. Many will take the relationship for granted, but is there evidence that such a relationship does exist?

What are some of the best books on finance/ investing that you’ve ever read — and why would you recommend them to others?

Reading Malcolm Gladwell’s book Outliers emphasises the need for evidence and not simply accepting what we believe is logical and obvious. An example he gives, which highlights the need of evidence, is that most Nobel Prize winners in physics have an IQ above a certain level, but from that level, “additional” intelligence does not enhance the probability of obtaining a Nobel Prize in physics, which many of us assume.

What advice would you give to investors?

The financial realm is expanding and, due to technology, it is open to virtually all. We can gain from this opportunity, but we can also be burned. This emphasises the need for understanding our investment decisions.

Ashburton Investments, the FirstRand group’s asset manager, is bolstering its team of investment professionals with key new hires under its CEO Duzi Ndlovu who joined in 2022, and Chief Investment Officer (CIO) Patrice Rassou who joined in 2020. Ashburton currently has R140bn of Assets Under Management (AUM) and plans to grow exponentially in the next three years by scaling its equity, multi-asset, fixed income and global capabilities, while widening its distribution footprint. “The first step in achieving its growth goal was to cement the investment team under Rassou’s leadership. This included the key appointment of Charl de Villiers as Head of Equities in 2021.” De Villiers has a stellar portfolio management track record, and his addition has added significant industry experience to the team,” says Ndlovu, who was previously CIO of Argon.

Vanessa Pillay was appointed as Ashburton Investments’ Head of Corporate and Commercial Distribution in October 2023. She has more than 25 years of financial markets and asset management experience across the corporate and institutional segments of the industry, and is highly regarded for her treasury, global markets and asset management expertise.

Vuyo

Mvulane was appointed as the Head of Institutional Distribution eight months ago. His experience spans manager research, portfolio management, business development and client service. Prior to joining Ashburton Investments, Mvulane was the Head of Business Development and Client Service at Mazi Asset Management.

Investments at the start of 2023. He gained his asset management, asset consulting, short-term insurance, healthcare and financial planning expertise fulfilling senior roles at Discovery Invest, Sasfin, Ninety One and Glacier. With more than 22 years of distribution experience, Amey holds an MCom in Tax and is a Certified Financial Planner (CFP).

These appointments follow the appointment of Kashif Noor to the position of Head of Retail Distribution at Ashburton a year ago. Noor was previously Nedbank’s Head of Wealth Management for the Cape and coastal regions. He also previously worked for ABSA Wealth, Coronation and Lloyds TSB.

Focusing on financial intermediaries, specifically independent financial advisers, Linked Investment Service

Provider (LISP) platforms, as well as discretionary fund managers (DFMs), Steven Amey was appointed as the Head of Intermediated Distribution at Ashburton

Sumendren Naidoo has been appointed Head: Distribution at Sanlam Corporate: Corporate Solutions with a clear vision to steer the company’s growth strategy while delivering holistic solutions for employee benefits. His appointment aligns with the Sanlam Group’s focus on innovation and growth to fuel its purpose of empowering generations to be financially confident, secure and prosperous. “My overarching goal is to fundamentally enhance how we approach employee benefits and financial planning, aligning closely with our client’s evolving needs in the broader South African context,” he says.

Nancy Hossack has been appointed Multiplecounsellor Portfolio Manager on Foord’s medium and high-equity South African multi-asset portfolios, including Foord Conservative and Foord

Balanced unit trust funds. Hossack joined Foord as an equity analyst from Investec Asset Management in 2015. Over her career, she has covered a wide range of JSE sectors as analyst. She was appointed as a portfolio manager on South African equity mandates at the start of 2021 and has built a compelling performance track record in this asset class. Hossack has been running internal multi-asset model portfolios since 2019.

Alexforbes has appointed Mpho Molopyane as chief economist. Molopyane is responsible for formulating the macroeconomic strategy for the business, identifying significant economic opportunities to positively influence the business, benefit our clients, and enhance our investment processes. Molopyane will also play a pivotal role in executing strategic objectives that align with the group’s vision and intent to impact.

She joins Alexforbes from Absa, where she held the position of senior economist, overseeing economic research for multiple African economies.

ensure

What we’ve learned from 2023

BY MIKE TOWNSHEND Foord Portfolio Manager

Despite the very negative market outcomes of 2022, fears of a US-led global recession topped our list of worries at the beginning of last year. We also expected corporate earnings to start to decline and the global consumer to come under increasing pressure due to higher interest rates and the cost-of-living crisis.

Meanwhile, the Russian/Ukrainian war ground on and – in the first damning signs of the toll of higher interest rates – a regional banking crisis developed in America. By the end of March, two US bank failures (Silicon Valley Bank and Signature Bank) and the collapse of Swiss banking icon Credit Suisse spooked markets before central banks intervened with unlimited liquidity lifelines.

Global interest rates continued to rise in 2023 as central banks struggled to bring inflation down towards target levels. Tight monetary policy eventually paid off as inflation rates declined steadily throughout the year. By year end, the US Federal Reserve had turned decidedly dovish, signalling that the next interest rate move would likely be down.

In the event, we have not yet seen a US recession despite the fastest pace of interest rate rises in 40 years. In fact, US growth accelerated even as growth in other markets – such as Germany – slowed or reversed. An analysis of all US economic recessions going back 70 years shows that rapidly rising interest rates almost always lead to recession – but often with a lag of almost two years, on average. Economic growth is also always fastest during the interest rate hiking cycle. This makes sense: interest rates are rising because the economy is overheating. We therefore remain concerned about prospects for a US slowdown in 2024.

The final quarter of the year started horrifyingly as Hamas gunmen launched a surprise assault on Israel from the Gaza Strip that led to fierce reprisals from the Israeli Defence Forces. Fraught geopolitical tensions in the Middle East mean this conflict could still escalate into the wider region, with possible implications for commodity and share markets. Oil prices were nevertheless lower for the year on cracks in the OPEC+ cartel and greater US output. Precious metals, including gold, rose on the prospects of lower rates and greater geopolitical stress.

ChatGPT and other Artificial Intelligence (AI) products took the world by storm in 2023. Investors flooded

into stocks with any oblique exposure to AI themes. The tech-heavy Nasdaq Composite Index recovered from its 2022 pummelling to deliver an eye-popping 44.7%. Seven of the largest US tech stocks – dubbed the Magnificent Seven – rose by an astonishing 111%, pulling American and global markets up with them. Incredibly, the Magnificent Seven now have a higher weighting in the MSCI World Index than all UK, Chinese, French and Japanese stocks combined.

Most asset classes comfortably beat inflation in the year and 2023 proved – unexpectedly for us – to be a year of exceptional returns on equity markets. The MSCI World Index returned 24.4% in US dollars, with most regions delivering decent double-digit returns (North America 26.6%, Europe 20.7% and the Pacific region 15.6%).

Emerging markets lagged with a return of 10.3%, but this performance was dragged down by China – which at -11.0% was the worst performing of the world’s bourses.

“The Foord funds in South Africa performed credibly. The multi-asset class funds all delivered meaningful, inflation-beating returns”

In South Africa, performance across all asset classes was broadly similar. Listed property at 10.1% did slightly better than bonds at 9.7% and equities at 9.3%. Cash was the laggard with a still decent 8.0% when inflation averaged 5.6%. Anaemic economic growth of just 1.0% (using latest numbers) constrained the performance of domestic companies. The FTSE/JSE All Share Index return of 1.4% in US dollars was lower than most global markets after the rand weakened by 7.2% against the US dollar over the year.

This tepid overall domestic equity performance masks significant variations between the different sectors. The financials and industrials sectors delivered decent rand returns of 21.5% and 16.6% respectively. However, the resources sector suffered an 11.9% decline as most commodity prices came under pressure. Gold proved its resilience in difficult geopolitical circumstances and returned a solid 13.1% in rand.

Against this backdrop, the Foord funds in South Africa performed credibly. The multi-asset class funds all delivered meaningful, inflation-beating returns. The low weighting to the underperforming resources sector, moderate bond exposure, preference for global assets and a healthy weighting to gold bullion aided this outcome. The Foord Equity Fund was nearly 5% ahead of its benchmark last year and is also showing outperformance for up to three years. The Foord fixed income suite was in line or ahead of their benchmarks for the year.

The Foord global funds performed disappointingly last year amid the market’s AI exuberance. The conservative Foord International Fund was cautiously positioned with a low weight to the expensive US markets and preference for quality Chinese consumer and tech shares trading on very attractive levels. Its hedges against US market declines cost the fund, while its Chinese stocks traded even lower. The managers did well to avoid the bond market rout and then add to its fixed income portfolio as the bond market recovered. In the event, the fund sustained a small negative return – a sobering outcome after the fund’s stellar 2022 outperformance. The Foord Global Equity Fund lagged world equity indices owing to its 25% weight in ultra-cheap Chinese shares.

Looking ahead, we again enter a new year with caution and aware of potential downside risks. Geopolitical tension and high market valuations –especially in the US where bourses are just shy of all-time highs – remain a concern. Well-diversified investors, however, can still anticipate inflation-beating performances from their investments with Foord.

Although equity returns should moderate off a high base, there is opportunity within different geographies, and certain sectors that underperformed in 2023 are now looking particularly cheap. Multi-asset class funds should also benefit from lower risk, inflation-beating returns now available in fixed income markets.

What’s the skinny on ‘miracle drugs’?

BY ROSS YAMMIN Business Development, Distribution and Global Research Analyst at Laurium Capital UK

During the last 18 months, global equity markets have been abuzz with the term ‘GLP-1’. The ‘miracle drugs’ have affected various industries and the debate between the drugs’ current high cost and longer-term benefit is one which continues to rage on in boardrooms and around dining room tables all over the globe. So, what exactly is a GLP-1? And is this money-making opportunity worth all the fuss?

GLP-1 stands for Glucagon Like Peptide-1, a hormone that the human body releases after an individual eats food. The drugs mimic the effects of this hormone, thereby giving an individual the feeling of being full. Initially the drugs were developed to treat diabetes, and what drug producers noticed in testing with their diabetes patients is that they were losing weight, and a lot of it. It didn’t take long for the drugs to be tested and clinically approved for the treatment of obesity, and suddenly the Western world had a

medicinal treatment for its overweight population (it is estimated that more than 40% of the US population is obese). These developments really got the market excited as the pharmaceutical majors who make GLP-1 ’s had an enormous addressable market to treat and saw their share prices soar as a result. Novo Nordisk, the Danish drugmaker who makes one of these GLP-1 drugs , eclipsed luxury goods stalwart LVMH to become Europe’s most valuable company and Eli Lilly, the diabetes leader in the US, soon had a market capitalisation of over half a trillion dollars.

But it isn’t all positive for the drugmakers, who have a major hurdle to overcome if they are to see their share

prices extend their already impressive gains. The major obstacle is price, with list prices in the US standing at around $1 000 per month for the GLP-1s produced by Novo Nordisk and Eli Lilly. To address this, pharmaceutical majors need insurers to come to the party. They are trying to force them to do so by proving that a thinner population is a healthier one, and that overall, the drugs will be a net saver for the European and American economies as they will have a healthier and therefore more productive population. This tussle between insurers and drug producers is one of the key catalysts for Lilly and Novo alike, as if they can make the drugs affordable for end users, it will go a long

“Pharmaceutical majors need insurers to come to the party. They are trying to force them to do so by proving that a thinner population is a healthier one”

SMEs play a crucial role in most economies, and South Africa is no exception. They are also important contributors to job creation and global economic development. According to the World Bank Group, SMEs represent about 90% of businesses worldwide, while the International Finance Corporation revealed that roughly 50% to 60% of South Africa’s workforce finds employment within SMEs.

“A key challenge SMEs face is finding employees who are a good fit for their business and who have the skills required to increase efficiency and business growth,” says Paul Byrne, Head of Data Insights & Customer Success at Pnet.

“Pnet researched the recruitment needs of SMEs over 12 months (Q2:2022 to Q2:2023) and the findings revealed that Finance skills fall within the top five most in-demand skills, alongside skills in Business & Management, Sales, Admin, Office & Support and IT for SMEs.”

Pnet’s research also revealed the top three in-demand roles in the SME sector during the same period, namely Sales Representatives, Accountants and Software Developers. Within the Finance Sector specifically, the most in-demand professionals over the 12-month period were Financial Accountants.

“When comparing hiring activity between September, October and November 2023 with the previous three

way towards them achieving their goals and meeting the market’s lofty profitability expectations.

In our view, the hype around GLP-1s certainly is worth all the fuss, and we believe the opportunity that exists for Novo Nordisk and Eli Lilly is compelling, and one we want to be involved in. Laurium Capital holds positions in Novo Nordisk in its global mandates and some of its multiasset funds.

Should you wish to learn more about the companies’ funds, please visit www.lauriumcapital.com

All Laurium UCITS funds are Section 65 approved, daily dealt and daily priced. Please contact your preferred International LISP to access the funds. Yammin serves a dual role at Laurium Capital and is based in London. His primary focus is on business development, and he also supports the research function of the business focussing on global equities.

Spotlight on SME employment trends in South Africa

BY PAUL BYRNE Head of Data Insights & Customer Success at Pnet

months (June, July, August 2023), Pnet’s findings revealed that hiring activity for Finance professionals (Bookkeeping, Payroll & Wages and Financial/Project Accounting) had increased by 3%,” says Byrne.

A study on “Factors Affecting Small and Medium Enterprises’ Financial Sustainability in South Africa” published in December 2021 emphasised the importance of accounting skills within SMEs: “It was found that financial awareness, budgeting and accounting skills have positive and significant effects on the financial sustainability of SMEs.”

Despite the need to attract and retain skilled talent, SMEs often face various recruitment challenges, such as time-to-hire and the hefty price tag often associated with sourcing suitable candidates.

How SMEs can become more efficient in their recruiting processes

Specialised online recruitment platforms offer SMEs a range of benefits to help them save both time and money during the hiring process, and to find the right candidates for their vacancies – ultimately driving business success.

Reducing time-to-hire

Sourcing candidates directly using job-matching technology streamlines the hiring process so that SMEs can quickly and directly reach more jobseekers.

SMEs can advertise their vacancies directly to active jobseekers, or tap into a database of professional candidates. Sophisticated platforms like Pnet’s online recruitment portal offer a host of easy-to-use tools and features to easily filter and shortlist suitable Finance candidates from their database of over six million jobseekers. What’s more, recruiters’ job ads get further reach from the 100 million Job Alerts that Pnet sends directly to jobseekers’ inboxes every month.

Reducing recruitment costs

By going directly to the source of suitable candidates using specialised recruitment platforms like Pnet, SMEs can save up to 60% on their recruitment costs. Pnet’s online recruitment platform uses advanced algorithms and analytics to target job advertisements to the most relevant candidates. This enables recruiters to find quality candidates using locally relevant filters, and even creates a talent pool to access when they need to hire for similar roles in the future.

Built-for-purpose online recruitment platforms are emerging as powerful tools to help SMEs find the right candidates for their vacant roles, thereby boosting their competitiveness in the market. In fact, these platforms have become a gamechanger for companies of all sizes, allowing them to flourish by attracting and retaining their most important asset – people.

2023: Surprising and unpredictable

BY RORY KUTISKER-JACOBSON Fund Manager at Allan Gray

Global markets continue to be dominated by the announcements and actions of central banks, and expectations around those actions, rather than fundamentals. In 2022, as global inflation spiked and central banks responded by hiking interest rates, we saw a considerable sell-off in speculative, longduration and leveraged assets, as the era of “easy money” appeared to be over. As inflation tapered during 2023, and central banks have begun to signal an end to rate hiking and possible rate cuts, many of these assets have rebounded sharply: After selling off in 2022, global equity markets were once again dominated by US stocks, and in particular large-cap US technology stocks. The largest US stocks (Apple, Alphabet, Meta, Microsoft, Tesla, Nvidia and Amazon) have come to be known as the “magnificent seven”, and in 2023, magnificent they were. The “worst” performing of the group was Apple, up 49%, while the best, Nvidia, buoyed by the excitement around artificial

intelligence and the related demand for their chips, was up over 200%. In absolute terms, the market value of Nvidia increased by over $800bn.

• Cryptocurrencies have also seen a resurgence Bitcoin bounced more than 160% to end the year at $42 085. Remarkably, that is still below where it began in 2022. This mathematical fact highlights how important avoiding large losses is to successful long-term investing. If you buy something that subsequently halves in value, you need it to increase by 100% to get your money back. Bitcoin speculators who bought on 31 December 2021 need to see a price recovery of 178% from 31 December 2022 to get their money back in nominal terms.

One asset class that hasn’t seen as strong a recovery is the bond market.

The JP Morgan Global Government Bond Index fell by 6.5% in 2021 and a further 17.2% in 2022. It failed to recover meaningfully in 2023, returning 4.0%.

Those who held long-duration “safe-

haven” developed market bonds have fared much worse. In 2022, investors in US and UK 30-year bonds lost a third and half of their investments, respectively – only to see further declines in prices during 2023, with a marginal recovery by year end.

Domestically, the economic environment remains challenging, dominated by poor sentiment and record levels of loadshedding. It is not surprising that we have not seen the same resurgence in asset prices:

In rands, the FTSE/JSE Capped SWIX

All Share Index generated a return of 7.9% in 2023, which equates to a decline of 1.1% in US dollars. Within that, though, there was a large divergence in individual sector and stock performance. Within the precious metals sector, for example, Harmony Gold returned 105% for the year, while Impala Platinum fell by 55%, including dividends.

• The FTSE/JSE All Bond Index fared

slightly better, generating a return of 9.7% in rands and 0.6% in US dollars.

Somewhat surprisingly, given the economic landscape, the yield on 10year bonds strengthened marginally from 11.1% at the start of 2023 to 10.9% at the end of the year.

As we consider 2024 and beyond, what should we expect of inflation and how may this impact central banks’ behaviour, interest rates and market returns?

In short: We don’t know. Our only expectation is that events are likely to surprise us, and surprise us in how the market reacts. We navigate this uncertainty by being patient and disciplined, and striving to buy only those assets where the risk-to-reward opportunity is skewed heavily in our favour, with a large margin of safety and the knowledge that we won’t always get it right.

A year in review: South Africa’s ongoing journey after greylisting by the FATF

BY JAMES GEORGE Compliance Manager, Compli-Serve SA

February 2024 marks one year of greylisting by the Financial Action Task Force (FATF) for South Africa, and it continues to grapple with the fallout. As we reflect on the past 12 months, there has been progress, but the path ahead remains challenging.

South African entities, including businesses and government agencies, have struggled to access international finance at competitive or feasible interest rates during this period. The country’s ability to secure favourable international loans and financing for critical infrastructure projects has been compromised to a certain extent.

Reduced access to international markets and finance has hindered development and job creation, while increased scrutiny of cross-border transactions and financial activities affects the smooth flow of goods and services. This has an impact on the competitiveness of South African exports and imports on the global stage.

South Africa has also seen the potential loss of financial business to neighbouring countries or other financial centres that are not facing the same scrutiny. The tarnishing of South Africa’s reputation as a global financial and business centre remains a significant challenge. Rebuilding trust and confidence in our financial system and regulatory framework is an ongoing process, far from an overnight solution.

This extended period of greylisting has deterred investors, both domestic and foreign, from engaging with the South African market. Investors typically seek stability and confidence in the regulatory environment, and South Africa’s status has not been conducive to attracting capital.

To address FATF recommendations and deficiencies, South Africa has had to enact stricter regulations and enforcement measures. While necessary to enhance the anti-money-laundering and combating-funding-ofterrorism framework, these measures have added to the regulatory burden on businesses and financial institutions.

Compliance costs have increased, as local businesses and financial institutions have invested in enhanced antimoney laundering and combating funding of terrorism

“South African regulatory authorities have faced mounting pressure to address deficiencies and work towards international compliance during this year”

compliance measures. This includes implementing advanced technologies for monitoring and reporting suspicious activities. The associated costs have strained corporate budgets and operational efficiency, increasing the cost of doing business in South Africa.

South African regulatory authorities have faced mounting pressure to address deficiencies and work towards international compliance during this year. This has led to more rigorous oversight and enforcement, potentially affecting the operational autonomy of financial institutions.

While progress has been made during this year, there is still much to be done to address and restore the nation’s financial integrity and international standing. Investigating and prosecuting complex money laundering and terrorism financing cases, identifying informal channels for global money remittance, and recovering assets lost to crime and corruption are ongoing challenges.

The financial services industry plays a pivotal role in identifying and reporting suspicious activities, necessitating ongoing capacity building and knowledge sharing. Adopting innovative technologies and data analytics enhances the detection and prevention of illicit financial flows. Continuous education, training, and awareness-raising are essential.

Through ongoing collaboration and commitment, South Africa aims to emerge from the greylist by early 2025, showcasing its dedication to a strong and transparent financial system, and reclaiming its position as a respected and reliable player in the global financial arena.

Citadel’s forex risk trends for 2024

BY BIANCA BOTES Director at Foreign Exchange Experts Citadel Global

With substantial foreign exchange market growth predicted for 2024 and over the next five years, and the world facing another tumultuous year, risks are mounting for forex clients. These are Citadel’s four predictions for forex risk trends in 2024, from elections and geopolitical risks to investment declines and more ups and downs for the rand.

Recently released research indicates that the global forex market size, for North America, Europe, UK, Switzerland, Middle East, Africa, Asia-Pacific, South America, China and Japan combined, is projected to grow by $516.48bn, accelerating at a compound annual growth rate from 2023 to 2028.

Geopolitical and environmental risks are mounting in 2024

The local forex market will certainly be affected by the geopolitical events we’ll be seeing in 2024. South Africa’s shifting position within international affairs is a concern. South Africa’s geopolitical ties have become more relevant considering its trade and political relationships with Russia, China, the United Arab Emirates, the US, Israel and its allies, and its standing in international bodies such as BRICS and the UN. Our financial markets are affected when we engage with sanctioned countries.

“We are likely to see an election-friendly Budget speech delivered on 21 February 2024, rather than the prioritisation of fiscal certainty needed to build investor confidence”

The past four years have taught us that one needs to remain fully aware of how dynamic and unpredictable the global environment is, and how swiftly and dramatically things can change. At the World Economic Forum this week, a lot of attention is being drawn to how the world needs to be ready and prepared for Disease X, the next unknown super-spreader pathogen we are likely to face in our lifetime. Scientists are also warning of accelerated climate change risks. All these global threats could impact our financial and forex markets.

It’s election year in South Africa and 70 other countries

This year the world will see in the region of 70 elections play out, including in the US and South Africa. Election periods typically bring political uncertainty, which can impact the forex markets.

In the local context, we are likely to see an electionfriendly Budget speech delivered on 21 February 2024, rather than the prioritisation of fiscal certainty needed to build investor confidence and implementation plans required to drive economic growth.

The challenges in South Africa are not only numerous but also complex. Ranging from collapsing state-owned enterprises such as Transnet and Eskom, a pressing debt burden, political and policy uncertainty, to South Africa’s geopolitical positioning, which can all contribute to volatile market conditions.

Foreign direct investments are likely to waver

Attracting foreign investment in the current political and economic environment has become harder, with many multinationals withdrawing from South Africa, while foreign investors are no longer the main holders of our bonds. The upcoming election will be closely monitored by foreign investors and will set the tone for the next four years of investment spend, economic growth and policy certainty.

Over the past year we have seen a sustained weak rand, and while it was not solely driven by local factors, additional risk premiums were built into the rand due to various risk factors facing the country.

The rand continues to face headwinds

The rand is displaying sustained weakness as it faces both global and local headwinds, making South Africa one of the worst-performing emerging market currencies in 2023.

We shouldn’t be surprised to see the rand devaluating further this year. A decrease in US interest rates, and the subsequent decline in the USD will assist the rand in gaining back some ground; however, we also need to focus on unwinding the risk premia in the rand, caused by the factors mentioned above.

The best way forward for businesses and individuals who rely on forex is “to prepare for uncertainty and volatility, and to hedge when markets provide opportunities”.

In the interconnected and volatile world of 2024, many ripple effects may be hard to navigate without professional treasury, cash management and risk-hedging solutions and advice.

About Citadel Global

Citadel Global is a holistic treasury solutions company that specialises in optimising, moving, and protecting money across the global marketplace. Citadel Global’s services include foreign exchange, treasury solutions and advice, as well as cash management, risk management and hedging strategies. Disclaimer

Risk and resilience: Unpacking the effects of South Africa’s prolonged hard insurance market

BY CEDRIC MASONDO Chief Executive Officer, PSG Insure

Reinsurers and insurers in the South African market have shouldered massive losses over the past five years. COVID-19 was the first in a series of unexpected disasters, volatile market forces and social instabilities that contributed to the development of a hard market. At the beginning of 2022, conditions in the local insurance markets tightened further –resulting in arguably the most persistent hard market in recent history.

The insurance market in retrospect

Prior to the pandemic years, South Africa’s insurance market was characterised by softer conditions.

A moderately stable climate, both in macro- and microeconomic terms, gave rise to an abundance of capital relative to the size of the market. This, in turn, translated as lower insurance rates and broader policy terms and conditions. This status quo persisted for at least a decade before the arrival of COVID-19 on South African shores, which was a tipping point for the insurance sector.

No one could have predicted the sheer impact the pandemic would have on industries across the board, or foreseen what would come next. 2021 saw a spate of riots break out in parts of the country. This was followed in close succession by torrential flooding in KwaZulu-Natal. For South Africans, these untimely events played out within the broader context of the ongoing and then deteriorating energy crisis, which caused large-scale damage due to power surges, equipment failure and inventory losses.

Things weren’t looking up on the global front either. During this time, Europe saw an increase in natural disasters, and the Russia-Ukraine conflict put further pressure on supply chains. These events triggered

an upsurge in claims – many of which were related to business interruption and property damage. As a result, countless insurers and reinsurers realised that some exposures had not been adequately priced in.

An unavoidable chain reaction

Outside of these hurdles, the local insurance industry also suffered a knock caused by rapidly increasing inflation and a series of steep interest rate hikes. At the level of the state, slow GDP growth and a lack of infrastructure spending has exacerbated this situation.

On the ground, issues such as poverty and the country’s record-high unemployment rate undermined any meaningful progress towards post-pandemic recovery. The culmination of these factors has meant that less disposable income has fallen into the hands of everyday customers. With less income comes reduced buying power and, ultimately, less spend on insurable assets such as property and cars.

Loadshedding, as a single event, has changed the local risk landscape indelibly, with many insurers removing certain kinds of cover, imposing restrictive clauses and increasing exclusions. A greater level of responsibility has fallen on the shoulders of insured parties, who now have to implement tighter, more thorough risk management strategies.

The emergence of the hard market for insurance

For reinsurers, it has been time to batten down the hatches – to increase rates and tighten terms. In an attempt to consolidate and brace for the impact of the hard market, underwriters deemed certain disruptions such as grid failure to be uninsurable. These changes trickled down to insurers, and ultimately, clients, who have contended with getting less comprehensive cover for the same or a higher premium.

Some insurers have seen higher policy cancellation rates as clients look to optimise their disposable income. However, while the emergence of the hard market may have left industry stakeholders reeling, it may be safe to say that the sector has weathered the worst of the storm. Investor appetite, client expectations and the repricing strategies implemented by insurers to manage the impending risks, have reached a plateau. This does not mean that the hard market is a thing of the past. To the contrary, the hard market is likely to persist well into 2024, especially considering the country’s uncertain political outlook.

A more stable foundation

The long-term effects of hard market pricing and the general tightening of policy has reflected positively on the balance sheets of insurers and reinsurers, which is good news for the sector. In fact, many insurers have reported that they have maintained optimal levels of profitability and are now better equipped and prepared to tackle emerging risks with a greater level of foresight and experience.

Green shoots of growth can be seen in several of the country’s largest short-term insurers, many of which have appointed new C-suite executive and leadership teams who are eager to build on the foundation left by their predecessors. A new leadership system may bring a promising change in direction and a refreshed perspective on how to rebuild trust.

For clients, the hard market does mean higher premiums and more stringent underwriting conditions, but there’s another, more positive side to the coin too. The hard market has increased competition sector-wide. Insurers who have reinforced their operational policies and taken swift and decisive action to navigate the prevailing adversities, are now better capitalised and equipped to handle claims and deliver service excellence to their clients. Within this environment, these robust insurers are eager for good business and are poised to meet the needs and demands of the existing customer base. In light of this, clients can expect to negotiate competitive premiums and get real value for their money.

These shifts have also brought the critical nature of insurer-adviser and adviser-client relationships to the fore. Clients can expect to lean on the industry experience and specialist knowledge of their advisers, who are ready to stand alongside their clients every step of the way.

Equipped with better knowledge on market trends and consumer behaviour, advisers need to go beyond service delivery and become partners of their clients and their businesses. In their advisory capacity, they can offer clients invaluable insights and the tools they need to thrive, even in times of turbulence.

“The long-term effects of hard market pricing and the general tightening of policy has reflected positively on the balance sheets of insurers and reinsurers, which is good news for the sector”

The true value of education policies

BY KRESANTHA PILLAY Liberty Chief Specialist for Risk Products and Lifestyle Protector

As scores of South Africa’s 2023 matriculants embark on their tertiary education this year, thousands do so with the benefit of the education policies taken out by their parents to prepare for a time such as this.

Having achieved an impressive 82.9% National Senior Certificate pass rate as announced by Basic Education Minister Angie Motshekga, the 2023 class has been hailed for its resilience in coping with Covid-19’s extremely difficult academic and psycho-emotionally draining years. Many students dealt not only with the loss of their teachers due to the ‘Covid-19 storm’, but also the tragic loss of their parents.

In 2022 alone, Liberty paid over R33m for 732 claims on its EduCator benefit –an increase from the previous year which saw R25m paid out for 569 claims.

“Raising children involves significant costs, particularly when it comes to education. We have seen a good increase in EduCator claims year-on-year as more parents become aware of the available risk cover benefits. More parents are also aware that failing to plan can jeopardise their children’s future,” Kresantha Pillay, Liberty Chief Specialist for Risk Products and Lifestyle Protector says.

According to Pillay, the evolution of education as we know it has also affected the cost thereof and parents have started financially planning for education. Parents start saving for their children’s education sometimes as soon as they learn they are pregnant. “This forward-looking

approach is essentially presenting bigger opportunities and security for the parent and the child’s future,” says Pillay.

This is the kind of life-changing difference Lethabo Molefi*, 32, says she had in mind when she took out an education policy for her 18-month-old daughter this year. Molefi has joined the ranks of many South African parents who are thinking and planning ahead for their children’s education. “When my marriage ended this year, I realised that the weight of the responsibility of parenting is going to be on me,” Molefi, a Senior Social Media Manager based in Johannesburg, says.

“In 2022 alone, Liberty paid over R33m for 732 claims on its EduCator benefit”

She continues, “I thought about what I want her future to look like, and the opportunities I wanted to be able to afford her as she is growing up. Looking at how much daycare costs right now, I compared it to what I thought high school and varsity would cost in future. Because of that, I knew that I don’t ever want to find myself in a situation where she is done with school and can’t go to varsity should she wish to.”

“Education career is no longer linear, predictable, or defined. Though born

in South Africa, a child could end up studying abroad or, as we have now seen, your child is most likely going into a career path that does not exist today, possibly to be formed in the next five or ten years. As a parent, you will need to consider this and ensure you have an education policy that can provide for these possibilities,” elaborates Pillay.

Liberty EduCator has adapted to the growing trend of international communities and emigration by extending its current list of international universities to include more universities in Europe, North America, Australasia, and the Middle East for those looking abroad.

South Africa is notorious as being among ‘ the world’s toughest education systems as listed by MastersDegree.net, which considers factors like the education system’s structure, the country’s most challenging exam, tertiary education attainment, and the prevalence of stress among students – among others.

According to insights from Liberty, for a child who started Grade R in 2023, a complete education – including early childhood development, pre-primary, primary, high school, and three years of university – varies from costing a total of R3m for public school or more than R8m for private school tuition.

Pillay explains that in the past, people would take out additional life, disability, and critical illness insurance to ensure their child can still obtain an education in case of a major life event or change.

“However, if you pass away, there is no

guarantee that the money will be used for your child’s education. In the event of a disability, or critical illness, your coverage will likely focus on paying for rising medical expenses, not your child’s education,” Pillay clarifies.

“ You need to be intentional and know that the money will go towards your child’s education. If it is an education policy, it would then go towards education costs, or even pay the educational institution directly, eliminating the administrative burden and risk of the money being misused,” she states.

Molefi says, “I’ve picked up that my daughter is quite sharp, and I want to get her in the right hands so that it can unlock as many opportunities as possible. I don’t know what that looks like, but I just want her to feel like she’s got options.”

“Education policies are influencing financial products for parents, as more and more people want to secure their children’s educational future. We are also seeing a trend in investment in future planning, especially for young parents who are witnessing the changing educational landscape – one that provides greater choice to learners. As always, it is advised to make these informed decisions with the help of a financial adviser who will be able to assist you to put together a plan to ensure your life goals are achieved,” Pillay concludes.

What financial advisory firms should focus on in 2024

BY JASON BERNIC AND DAVID KOP CFP® Co-founders and Directors of FI Consult (PTY) Ltd

It’s more important now than ever that financial advisory firms stay abreast of local and global changes in the financial world, as these can have severe impacts on their clients. In this article, we follow several trends that are affecting FAs globally, including regulatory changes, shifting consumer behaviour, technology, the environment and adviser demographics, as well as the rise of advice over product sales.

1. Regulation – We have been in a state of change since 2017 with the release of the RDR discussion document. Many of the proposals have been implemented and yet some of the important ones are still outstanding.

2. Consumer behaviour – Consumer behaviour is changing not just in financial services, but in general. They want deeper holistic services. They don’t want to be sold a product, but experience advice. This has led to advisory businesses needing to update their charging methodologies and service models.

3. Technology – The major benefit of technology is that it allows us to free up time and spend that time with the client. It also allows us to broaden the area in which we deliver services. Clients no longer need to find a planner next door to them, but can find the best in the country.

4. The environment – With pandemics, wars and a cost-of-living increases, our jobs have become harder, but also more important. These environmental factors have helped consumers recognise the importance of advice and are actively seeking planners and advisers who can help them with these matters.

5. Adviser demographics – We have both an ageing adviser base and client base. Globally, generational transfer of wealth is one of the biggest risks identified by financial planning firms. The focus should be on a plan for serving a younger and more diverse client base.

6. Importance on advice – Financial advice is expanding from just the financial products we sell. Financial management issues for young professionals, debt burdens and retirement reforms are creating opportunities for advisers and planners

“One thing that financial planning and advisory business owners should focus on in 2024 is to be intentional about their business strategy”

to engage with their clients on these issues. While all these trends impact financial planning businesses differently, there is one thing that financial planning and advisory business owners should focus on in 2024, and that is to be intentional about their business strategy.

Even if you think you do not have a strategy, you do, even if it is unintended. The best thing you can do for your business is to get intentional. Go through an exercise of defining and documenting your strategy to ensure that you can take advantage of the opportunity created by these trends.

Key strategies to build and grow your practice

1. Embrace technology.

2. Systemise your back office and focus on the client experience. Financial planning has moved from a telling and selling industry to a collaborative profession. You need to ensure that non-clientfacing activities are systemised to free up time to do an adviser’s most important role – focus on client interactions.

3. Change your mindset about regulations. The legislation is not something to be blindly complied with; in fact, blind compliance is what can hurt a business. If you rather try and understand why the regulations are in place, and then focus on how this can help you develop the client experience, you will naturally be compliant and be more client-centric.

4. Build a niche – there is a saying that you cannot make all the people happy all the time. If you look at your existing client base, you may find that many of them share a common trait. This is what attracted them to you and you to them. A client exercise where you examine the traits of your most loyal clients will help you in creating a niche.

Staying competitive in the digital space Technology has completely changed the financial planning landscape over the past 25 years and generously lent itself to improving both the client experience and the administrative function. Highspeed computing power and cloud-based solutions have sped up processes and created previously unimaginable convenience. This means:

• Advisers can work from many different devices from anywhere in the world, at any time Advisors can manage and process information at scale

• Advisors can communicate in many ways, maintaining professional distance or creating intimate connection Advisors have moved from manual calculations and spreadsheets to world-class scenariomodelling software that can be used in real time, in-person and online.

Neither advisor nor client needs to travel anywhere anymore; however, one thing that will always remain is the power of connection. Robo-advice services many clients, to a point, but where bigger clients have more complicated problems, the personal touch continues to be essential. Where in-person meetings are possible, especially with higher-value clients, it is important to create such a touchpoint at least once, if not every so often.

For advisers to remain competitive, they need to embrace technology, both on the front end (financial planning and client engagement) and the back end (administration and processing).

Advisers need to...

• Keep up with and be able to talk about technology with clients, business associates or anyone involved in and with your business.

Failing to ‘be in the know’ around technology unfortunately represents a disconnection with the world. Imagine not knowing what Chat GPT is. Own and use relatively up-to-date technology. It helps with business functions and processes,, takes a lot of administrative pain away, and lends itself to improved client experiences. There’s also the perception factor, e.g. iPhone 15 versus Sony Ericsson flip phone from 2003.

Bring technology into your business and financial planning processes, from CRMs to financial planning software, online applications and straight-through processing.

Go digital in terms of meetings and general communications. Create beautiful digital experiences, especially with virtual meetings, the most important factors being quality of video, clarity of sound, position of camera, lighting and background. Exactly as you would prepare a room for an in-person meeting.

How to acquire new clients

From a business’s point of view...

Financial planning businesses should spearhead the marketing and communications process to create opportunities for their advisers to benefit from. The business is responsible for branding, reputation management and the opening of markets. The marketing activity of the business is more general than that of the respective advisors, but puts the advisors in a position to either create, or respond to, potential new clients more easily.

There are three tiers to a business’s approach:

1. Foundational: website, socials, blogs, articles

2. Beneficial: public relations, paid media, Google ads, partnerships, funnels and retargeting, events webinars, podcast

3. Optional: community work, exhibitions, sponsorship, charities, endorsements, collaborations

From an adviser’s point of view...

If the business has a strategy, and any lead sources, advisers need to lean heavily into everything that is on offer. We came up with at least 171 different ways to get in front of potential new clients. These approaches span across 15 categories, some of which are: digital, thought leadership, social, community, networking and existing clients.

Advisers would do well to consider what they have done in the past, whether it worked or not, and what they have considered doing, whether done or not. This is a starting point to explore the number of potential prospecting strategies. Add to this any new ideas, and anything else that has been seen or done. Advisers should then consider which of these ideas they could enjoy, shortlist them to one or two, and create a plan, which should include targets, activity and milestones, placed on a timeline, with a pipeline and an accountability function.

Differentiating a business in a crowded market

Focus on your clients’ goals, needs and circumstances. Most of the industry is still selling product for commission, so when a professional financial planner places a client at the centre of his planning process, value unravels.

• Lead reviews with goals and circumstances –products, costs and performances are secondary.

• Create a differentiating experience through:

› How you show up. Who you are, how you communicate, commitments, promises and follow-ups

› Upskilling technically and also keeping up with markets and what’s happening in the world

› Thinking like an economist and having economics-based conversations

› Communicating with clients regularly and on special occasions

› Having support staff that are client-centric and service-driven

› Be a thought leader – write, post, blog, get on radio and podcasts.

FI Consult provides information to financial institutions on strategy, operations and human engagement. Its mission is to help advice businesses unlock potential and lock in value. Visit www.ficonsult.co.za

› Your financial planning philosophy –what you do, how you do it and why you do it

› Your financial planning process – following the sixstep financial planning process and standardising it throughout the business

› Using financial planning software for modelling and scenario planning

How a DFM can help build a successful financial advisory firm

BY FLORBELA YATES Head of Equilibrium

It is becoming increasingly difficult and costly for financial advisers to keep abreast of all the changes to legislation that affect their practices. Compliance and reporting are taking up a significant portion of an adviser’s time. Add to that the average age of the industry of 57 years –with younger advisers not yet experienced enough to take over their practices – and you soon realise why so many experienced advisers are choosing to partner with a discretionary fund manager (DFM).

The relationship between an adviser and a DFM should essentially lead to a longterm partnership. However, not all DFMs offer the same services, and selecting the right one is a process. Advisers should make a list of the issues they want solved and then ensure that the DFM has the skills and capacity to solve them.

At Equilibrium, we spend time getting to know our adviser partners and to understand the challenges facing their practices. For those who are looking for assistance with their portfolio

management, we build portfolios that align to their advice process, ensuring that the outcomes (or benchmarks) solve for what they are trying to achieve for their clients over the time horizon they have agreed with clients. By understanding the risk tolerance of their clients, we can allocate our risk budget appropriately to ensure that clients remain invested and don’t opt out at the first sign of market volatility.

“Many experienced advisers are choosing to partner with a discretionary fund manager (DFM)”

Advisers who partner with us receive monthly consolidated investment reports showing the look-through into percentages in all their underlying funds, the combined asset allocation at the portfolio level, and the overall performance of the portfolio

David Kop and Jason Bernic are co-founders of FI Consult, a Business Management Consultancy that works with financial planning businesses to help them grow and scale.

Kop has two and a half decades experience in financial planning, including roles in para planning, advising (independent and tied), owning his own business and working at FPI, the professional body for financial planners.

Bernic is a Certified Financial Planner professional and has over two decades of experience in financial services, from financial planning and international wealth management to coaching and consulting.

versus the benchmark over regular periods. They also participate in quarterly report backs, and those advisers with bespoke portfolios participate in quarterly investment committees where they have input into their portfolio construction and manager selection. With the proposed licensing changes for Category I and II financial services providers, this is one of the biggest reasons we now see so many advisers appointing DFMs to ensure they maintain these licenses.

Advisers looking to sell or merge their books with other advisers, looking to join a network, planning for succession, or wanting to grow assets can also benefit from appointing a DFM to ensure the offering across various books or their underlying clients is streamlined. By having fewer underlying funds and more overlap between clients, advisers can segment their clients more easily, get access to preferential fees (both with underlying fund managers and platform providers), better reporting and reduced compliance

burden on the practice, allowing them to spend more time with their clients.

Other benefits of partnering with a DFM include bulk switching capability across all clients simultaneously, and access to institutional and segregated mandates, as well as alternative asset classes, which are not usually available to retail advisers.

At Equilibrium, we partner with advisers throughout their journey. We’ve also seen a recent increase in advisers applying for their Category II licences. If you find yourself at this junction, we also offer supervisory services to help you achieve the goals you have set for your business.

The next step on your career ladder

GERRIE VAN DER MERWE HOD: Financial Planning –School of Financial Services

There are many ways to start a career in the financial services industry: in telesales, as part of a learnership programme, as an administrator, or by joining an internship programme hosted by a financial planning practice. Regardless of how you begin, you will reach a point in your career when you become aware of a deep void that cannot be filled by earning more money.

This innate human need for fulfilment can be satisfied in various ways, such as becoming involved in a charity, pursuing a personal goal like running a marathon, or simply by spending more time with your children. But to achieve a sense of fulfilment and greater happiness, you also need to develop professionally. For someone in the financial services industry, this will most likely mean wanting to become a financial planner.

The Financial Planning Institute (FPI) has set rigorous academic, experience and ethical standards that must be met before qualifying for the prestigious Certified Financial Planner® (CFP®) designation. Although it is fulfilling to achieve CFP professional status, its main benefit lies in an individual’s metamorphosis into a true professional with a wide set of skills that are used to meet the needs of others. The role of experience and ethical standards in an individual’s transformation is apparent, but the academic component is less easily understood. Its usefulness is sometimes questioned, as the naysayers

claim that it does not prepare you for industry work and that software does most of the analysis for you. Such sentiment ignores the continuous development of the academic learning process by tertiary institutions and standard-setting bodies to remain relevant and practical.

Besides that, academic study is also a faster way of gaining competence, and it protects clients from the errors inherent in a purely experiential learning process. Imagine if Christiaan Barnard, the South African cardiologist who performed the first heart transplant, had to develop his technique through trial and error. Many people would have suffered and died until he found the optimal way to carry out the operation. Academic (not practical) study informed his learning, until he could carry out the operation without loss of life. Similarly, by studying financial planning, you can transform into a professional with the ability to safely treat your clients well, without putting them at risk of financial ruin.

The often-overlooked fact about academic study is that deep insight into the nature of the financial process is gained by wrestling with the underlying knowledge base, like a complex calculation. It helps the financial planner to develop an instinct and feel for what to expect in the analysis process. Anomalies, such as capturing

errors, stand out to someone with the right academic background. And this deep understanding of financial planning also enables a financial planner to develop bespoke solutions to meet the unique needs and circumstances of their clients.

“Academic study is also a faster way of gaining competence, and it protects clients from the errors inherent in a purely experiential learning process”

Lastly, the academic learning process changes you as a person. In a good way. The rigour needed to develop your thinking skills and understanding, with the goal of better helping others, is a recipe for achieving greater happiness and, ultimately, self-fulfilment. It’s also the reason why so many in the industry aspire to become a Certified Financial Planner® professional.

10 things to know about becoming a financial adviser

BY FRANCOIS DU TOIT, CFP®, PROpulsion

Iwant to share 10 things that will set you apart from most right from the start.

That said, it will always come down to you, your habits and your actions, but these things will give you a springboard launching you towards a great future.

1It is about people, not money

You might think this is strange, but being a financial adviser is not really about money. Or finding products that fit needs. It is about people. It is about knowing their goals, their fears, their dreams, and their challenges. It is about creating trust, empathy and rapport. It is about listening more than talking. It is about helping them make wise decisions with their money that match their values and aspirations. Money is just a tool, a way to achieve something. But people are the core of your business, and their lives matter more to them than their money.

2 Mindset

Everything starts and ends with mindset. The story we tell ourselves daily becomes our reality. Your mindset influences your attitude, behaviour and performance, and ultimately, your impact and value. By adopting a growth mindset, you can learn from feedback, embrace change, and pursue excellence. By adopting an abundance mindset, you can create more value, serve more clients, and generate more income. By adopting a gratitude mindset, you can appreciate what you have, celebrate your achievements, and share your success. Mindset is the foundation of your business and your life.

3 Financial advice is not financial planning

Financial advice and financial planning are often confused, but they are different.

Financial advice is any kind of moneyrelated guidance or suggestion. It can be general or specific, and it may or may not consider your personal situation.

Financial planning, however, is a particular kind of financial advice that involves crafting a complete and comprehensive plan for the client’s financial future. It is customised and holistic. Financial planning is more than just advice; it is a process that helps clients reach their financial goals

4 Choose your learning ground well

The type of firm you join can have a big impact on your career path, your income potential, and your client base. Look for a firm that has a strong reputation, a clear vision, a supportive culture, and a high standard of ethics. Look for a firm that can provide you with the right training, tools, systems, and processes that can help you deliver quality financial advice and planning to your clients. Find a firm that offers you mentorship, guidance and feedback from experienced and successful financial advisers. By choosing your learning ground well, you will learn from the best and grow faster.

5 Have a mentor

A mentor is someone who has more experience and expertise than you and can guide you, advise you, and support you. A mentor can help you avoid common mistakes, overcome challenges, and achieve your goals. They can introduce you to new contacts, opportunities, and best practices. Find someone who you respect, trust and admire. Be clear about your expectations, goals and needs. Communicate regularly, listen actively, and act on feedback. Appreciate, respect and reciprocate your mentor’s time and

effort. The right mentor will accelerate your learning, growth and success.

6 Be patient, play the long game Success won’t happen overnight. Be patient, persistent and consistent. Work hard, learn continuously, and improve constantly. Build trust, reputation and relationships. You will face challenges, setbacks and failures. Overcome them, learn from them, and move on. Set realistic and achievable goals and measure your progress and performance. Celebrate your achievements, but also plan for the future. Approach your career as a longterm journey, not a quick destination. By being patient, playing the long game, and enjoying the process, you will reap the rewards of your efforts and become a better financial adviser.

7 Approach it as a business from day one

When starting out, you will be able to easily handle all aspects of being a financial adviser yourself. Most new financial advisers will work like this until they wake up wondering what hit them. They have become a slave ‘overnight’. Focus on building systems, processes, and a team from day one. Or fully adopt the systems and processes provided by the firm you join. Outsource to their team as much as possible. Focus on building a recurring revenue stream from the start. This is a critical strategy that will enable you to expand your value proposition down the line and to enable innovation.

8 Be a life-long learner and student

Become qualified and certified by pursuing relevant education and training programmes. Meet ethical and professional standards and maintain your competence

and currency through continuing education and professional development. Becoming a CFP® Professional and a member of the Financial Planning Institute of Southern Africa is a non-negotiable in my humble opinion and should be your first goal. And don’t forget personal development.

Learn something new every day.

9 Embrace technology

Technology is a tool that enables you to do what you would not otherwise be able to do. It unlocks efficiency and gives you back your time. However, before it can do that, you need to invest time and effort into the process of building and fully adopting your selection of tools. The right technology is not a cost, it is an investment.

10Make regulation and compliance your ally

I have a different view on regulation and compliance than most. By adopting regulation and compliance as best practices, you can enhance your processes, systems and policies, and reduce your risks, errors and liabilities. Instead of viewing regulation and compliance as constraints and costs, you should see them as benefits and assets for your business. And likewise, you should position it as a benefit to your clients.

A final thought

As you can see, being a successful financial adviser is not only about having the right skills, knowledge and tools. It is also about having the right habits, strategies and mindset.

About Francois du Toit : Du Toit founded PROpulsion, a thriving community for financial planners and advisers focused on helping them belong, grow, and thrive. He hosts the PROpulsion LIVE podcast (every Friday at 8am live on YouTube) with more than 244 episodes and counting, sharing his 2.5 decades of experience and engaging with guests to inspire and inform. Committed to learning and utilising new technology, he is on a mission to change lives at scale. Visit www.propulsion.co.za for more information.

Hybrid may be the new norm, but are employees benefitting?

BY ANDREW BOURNE Regional Head - Africa at Zoho Corp

The information and communication technologies (ICT), finance and real estate sectors, while not the largest industries in South Africa, are still heavyweights. In 2021, the country’s ICT sector recorded R243.6bn in revenue, while finance, real estate and business services sectors contributed an estimated R1.09tn to the country’s GDP in 2022.

In the coming years, these industries will have a pivotal role to play in South Africa’s economic development and growth, as well as the country’s ability to compete at a global level. However, a major technological bottleneck that the businesses in these sectors are facing today are modern collaboration and productivity issues that are emerging due to remote work environments maturing and turning into a permanent work option.

A shifting workforce in need of technological reform

Nearly every organisation in every industry has undergone significant workplace transformation over the last few years. According to Zoho’s Collaboration and Productivity Trends report , 42% of South African enterprises currently employ a hybrid work model, while 2% have adopted a fully remote model in 2023. Only the ICT, finance, and real estate sectors seem to offer fully remote roles in the country. Additionally, 53% of employees within the ICT sector, and 46% in the finance and real estate sectors, work within a hybrid environment.

This shows businesses in these sectors are adopting hybrid or remote work models to meet the changing expectations of employees. Some of the typical benefits of these newer work models include reduced distractions, time optimisation, greater creativity, and improved employer value proposition for companies.

However, remote work environments come with their own challenges. In order to build a hybrid or remote workplace that truly works for distributed teams, organisations are pushed to employ several applications that enable employees, teams, and the company leadership to communicate easily and collaborate with one another. In fact, the Zoho report found that in the ICT sector, 50% of employees used between one and five apps, 44% used six to ten different apps, and 6% used over 11 apps daily to conduct work. Within the finance and real estate sectors, 69% of employees used one to five apps, 26% used six to ten and 6% used more than 11.

This kind of a ‘too many apps’ situation can often lead to a fragmented communication and collaboration ecosystem, leaving employees overwhelmed with digital fatigue, redundant apps, context switching, disjointed user experiences, and too much information siloed across numerous platforms. When asked about the most effective measure that can help improve the productivity of their teams, 23% and 31% of the employees from the finance and real estate industry and the ICT sector, respectively, said that having quick access to contextual, crossapplication data is important. Furthermore, 36% of the employees from the ICT sector said that switching between too many apps to get work done puts their business at a competitive disadvantage.

That’s why it’s important for organisations in these industries to gain a holistic view and understanding of how time is used, how people communicate and share information, and how teams function to understand what their employees truly need and identify the right tech that can help workforces collaborate effectively, hold asynchronous communication and sustain productivity levels.

Enabling meaningful engagement

When your teams are distributed and collaborating remotely, it is critical that their well-being is prioritised to prevent mental fatigue and burnout that would drive down productivity, creativity and innovation. Rather than requiring them to always be online and available, businesses should focus on, for instance, allowing them the space and trust to finish their tasks at a convenient time before the deadline.

Asynchronous communication (communication that does not occur in real time), has a key role to play in building an effective remote collaboration setup that’s also considerate towards employees’ time and availability. For example, business teams should have the option to respond to requests as and when they can, and share information when it’s ready. Using the right tools that offer such provisions allow employees more flexibility at work and the facility to create their own schedules that strike a balance between collaboration and independent work so that they’re not bogged down by constant communication.

Identifying and using the right collaboration tools can positively impact business productivity.

“Some of the typical benefits of these newer work models include reduced distractions, time optimisation, greater creativity and improved employer value proposition”

Typical tools that a remote worker needs for their everyday work include project management systems for effective time management, digital whiteboards for spontaneous brainstorming, document storage and management systems for organised file-keeping, instant messaging tools, and other asynchronous communication tools that allow employees to share their thoughts through text chats, voice recordings, screen recordings and action items as and when they want. However, it’s crucial that all these tools seamlessly interoperate to provide the user with a unified experience and smooth flow of information across different apps to enable work continuity and context.

With the right collaboration and communication tools, organisations in industries like ICT, finance and real estate can facilitate more focused work with fewer interruptions and better planning, thereby empowering their workforce to unlock higher productivity levels. This can also enable increased agility and innovation for these businesses and help them transform into power growth engines for the South African economy.

Affordable healthcare coverage benefits: The competitive edge

BY REO BOTES Managing Executive at Essential Employee Benefits

Competitive advantage is essential for business success; however, finding that ‘edge’ can be challenging, especially when technology levels the playing field between organisations. It is proven, though, that happier, healthier employees are more productive and therefore help businesses to be more profitable. Access to quality healthcare is an essential component of an employee’s overall wellness. Including options such as affordable medical cover into the employee benefits offered, can help to extend healthcare access to lower income segments, which can lead to improved retention rates, increased productivity, less absenteeism, and enhanced engagement. This all contributes to staff retention and satisfaction, improving the bottom line, and thus bolstering your competitive edge.

The cost factor

Medical aid is a common employee benefit; however, even if subsidised, lower income earners cannot always afford these options. Costs could be as high as a quarter or more of their monthly income. Without healthcare cover, private healthcare is often unattainable, and the cost and stress can deter people from seeking treatment when they need medical attention. The result is over-stressed and unhappy employees, who may be struggling with mental and physical health issues, which could lead to less productivity.

Offering different healthcare options, including affordable solutions for health insurance as part of the benefits package, will enable more employees to access quality private healthcare, easing their stress, improving productivity levels and at the same time helping organisations to attract and retain talent.

It’s critical for employers to encourage their employees to assess and fortify their long-term insurance on at least a yearly basis. A thorough examination of these policies ensures that they evolve in correlation with the changes in their lives, from the addition of new family members to shifts in income and the inevitable passage of time.

Long-term insurance, encompassing life, disability, and income protection policies, forms the backbone of financial security. Events such as marriage, the birth of children, the loss of a loved one, or fluctuations in income necessitate adjustments to ensure comprehensive coverage.

Life changes, policy adjustments

Marriage and family expansion: As

A complex landscape

The entire medical aid landscape can also be extremely complex, intimidating and overwhelming, and many people simply do not know where to start. Adding uncomplicated health insurance options not only reduces financial pressure, but it can also improve uptake as the benefits are often easier to understand, and these products can be a stepping stone as people progress in their careers toward more comprehensive healthcare cover options.

If part of corporate culture and strategy is placing value on the people component, having additional healthcare cover options is essential and health insurance is a simple and cost-effective way of increasing the scope of benefits available. There are highly affordable products in the market from as little as R400 a month, and if companies subsidise 50% of this cost, it becomes far more affordable for employees and the company. Health insurance offers benefits in line with lower costs, and gives people access to quality private healthcare they could not previously afford, which can improve their overall wellbeing.

“Catering for a wider variety of employees helps to foster increased diversity and inclusivity, which are both linked to better business outcomes”

Benefits with purpose

As with all employee benefits, it is essential to find the right basket of solutions for the specific employees of a business, so it is important to sit down with specialist advisors and engage with employees as they grow. This will enable organisations to offer the right benefits for every point in their journey. Benefits need to be approached with purpose, and brokers or specialist advisors can help to engage and deliver the appropriate solutions.

Explore and compare various providers to get a strategic advantage when it comes to aligning rates and benefits to your risk and needs. South Africa is a diverse nation and there is no ‘one size fits all’ approach to healthcare. Catering for a wider variety of employees helps to foster increased diversity and inclusivity, which are both linked to better business outcomes.

It is important to remember that the inclusion of healthcare benefits is strategic and should support your long-term vision for the company and its employees. Businesses may not see an immediate increase to the bottom line, but rather an increase in overall wellbeing and productivity, which will translate to a return on investment in the long term.

Advise your employees to update their policies

BY VELMAH NZEMBELA Chief Marketing Officer, at Assupol Life

families grow, so do responsibilities. Evaluate life insurance to account for new dependents and ensure that the coverage aligns with your family’s current and future needs.

Loss of a loved one: In the unfortunate event of the death of a family member, reassess life insurance coverage to determine if adjustments are needed to provide adequate financial support for the remaining members.

Changes in income: Whether it’s a promotion, career change, or a period of reduced income, your long-term insurance should reflect your financial status. Adjust coverage to safeguard your loved ones against unexpected financial challenges.

Disability and income protection: A disability can have long-term financial

implications. Review disability and income protection policies to ensure they offer sufficient coverage, considering potential changes in your ability to generate income.

Tips for an effective long-term insurance review

• Regular updates: Periodically update personal information, including beneficiaries, to ensure accuracy and alignment with your current circumstances.

Assess coverage adequacy: Evaluate the adequacy of your coverage based on changes in your life. Consider whether your current policies sufficiently protect your family’s financial future. Explore policy riders: Some policies

offer riders (commonly known as additional benefits) that can be added to enhance coverage. Explore options like accelerated death benefits or additional income protection riders to customise your policy according to your needs.

Understand policy terms: Familiarise yourself with the terms and conditions of your policies. Understand any exclusions, waiting periods, or limitations to avoid surprises during critical moments.

Remind employees that reviewing long-term insurance policies is not just a prudent financial practice but a commitment to securing their family’s future. By staying proactive, they can rest assured that their long-term insurance will stand as a steadfast guardian, providing peace of mind for the years to come.

What you need to know about Shari’ah investing

Shari’ah investing is gaining significance globally, not only among Muslim investors but also among those who appreciate its ethical foundation. It’s an investment approach guided by Islamic principles and adheres to the ethical and moral standards outlined in Shari’ah law. Understanding the importance of Shari’ah investing involves delving into its principles, advantages and its broader impact on both the financial industry and society.

Foundations of Shari’ah Investing

• Ethical and moral standards: Shari’ah investing is rooted in Islamic ethics, emphasising honesty, transparency and social responsibility. Investments must avoid involvement in activities prohibited by Shari’ah, such as gambling, alcohol, tobacco, and speculative trading.

• Risk and uncertainty: Shari’ah investing places importance on avoiding excessive uncertainty (Gharar) and speculative transactions. Investments must be based on tangible assets and clear business structures, reducing the risk associated with uncertainty.

• Interest-free finance (Riba): One of the core tenets of Shari’ah investing is the prohibition of usury or interest. Investments must adhere to interest-free principles, promoting equitable and fair financial transactions.

• Asset-backed investments: Shari’ah-compliant investments are typically asset-backed, ensuring that investments are linked to tangible assets and services. This principle enhances transparency and reduces the likelihood of speculative bubbles.

Advantages

of Shari’ah Investing

• Ethical alignment: Shari’ah investing allows individuals to align their investments with their ethical and moral values. Investors appreciate knowing that their money is not involved in activities that go against their beliefs.

• Long-term stability: The emphasis on real economic activity and asset-backed investments often leads to a more stable and resilient investment portfolio. This can be particularly appealing during economic downturns when speculative investments may be more vulnerable.

• Socially responsible: Shari’ah investing encourages socially responsible investments, contributing to the

betterment of society. Investments in sectors such as healthcare, education and renewable energy are often favoured.

• Risk mitigation: By avoiding speculative and highly leveraged investments, Shari’ah-compliant portfolios tend to be more risk-averse. This approach aligns with the broader goal of preserving wealth and avoiding excessive risk-taking.

• Inclusive approach: Shari’ah investing is not exclusive to Muslims; it offers an inclusive and ethical investment framework that can appeal to a diverse range of investors. Many non-Muslim investors appreciate the principles of fairness and transparency inherent in Shari’ah-compliant finance.

• Diversification opportunities: Shari’ah investing opens unique diversification opportunities, especially in sectors and industries that align with Islamic principles. This diversification can contribute to a more resilient and balanced investment portfolio.

“Shari’ah investing allows individuals to align their investments with their ethical and moral values”

Impact on the financial industry

The increasing popularity of Shari’ah investing has led to the growth of Islamic financial institutions and products, contributing to the overall expansion of the financial industry. This growth is not limited to Muslim-majority countries; it is a global phenomenon. It has also spurred innovation in financial products and services that comply with Islamic principles. The development of Sukuk (Islamic bonds), Shari’ah-compliant mutual funds, and Islamic banking products reflects the adaptability and creativity within the financial sector.

Major financial centres around the world, including London, New York and Singapore, have recognised the importance of Shari’ah-compliant finance. This recognition has led to the establishment of Islamic finance hubs and increased collaboration between

conventional and Islamic financial institutions. Governments and regulatory bodies have introduced frameworks to accommodate Shari’ah-compliant financial products. This regulatory support enhances the credibility and acceptance of Shari’ah investing within the broader financial ecosystem.

Broader societal impact

This type of investing often directs funds towards sectors that contribute to economic development, such as infrastructure, healthcare and education. This has a positive impact on job creation and overall economic growth. What’s more, its ethical principles promote wealth distribution and discourage concentration of wealth in a few hands. This aligns with the broader goal of fostering economic inclusivity and reducing income inequality.

ESG is an important part of Shari’ah-compliant investments, which encourages positive contributions towards sustainability, community development and corporate social responsibility. The risk-averse nature of Shari’ah investing can contribute to the resilience of financial systems during economic crises. The focus on ethical and sustainable investments may reduce the likelihood of financial imbalances and speculative bubbles.

Challenges and considerations

Shari’ah investing may limit investment opportunities, as certain sectors and financial instruments are considered non-compliant. This limitation could pose challenges in achieving optimal diversification. In addition, achieving global standardisation in Shari’ah compliance is an ongoing challenge. Differences in interpretation and methodologies among Shari’ah scholars can result in variations in permissible investments.

Increasing education and awareness are essential to foster broader acceptance and participation in this investment approach. The importance of Shari’ah investing lies in its ethical foundation, aligning investments with principles of fairness, transparency and social responsibility. Beyond individual portfolios, it has a profound impact on the financial industry and society, contributing to economic development, innovation and a more inclusive approach to wealth creation.

More reasons to choose Shari’ah investing

BY GONTSE TSATSI Head of Retail Clients at Old Mutual Investment Group

One of the prevalent misconceptions about Shari’ah compliant funds is that they are exclusively tailored for members of the Muslim community. However, this couldn’t be further from the truth. In fact, investing in any of the four Shari’ah unit trust funds offered by Old Mutual Investment Group can yield two significant benefits for investors, irrespective of their religious background: first, portfolio diversification, and second, the opportunity to make a positive impact on environmental, social and governance outcomes.

Shari’ah investing principles have historically been interpreted by scholars to determine the minimum standards that an investment must satisfy to meet the requirements of Islamic Law. Islamic Law is centred on the preservation and protection of life, natural resources and the environment, among other principles. The Shari’ah investment approach actively incorporates ESG principles and the United Nations’ Sustainable Development Goals, such as responsible consumption and production, climate action, clean water and sanitation, among others.

The growing popularity of Shari’ah investing is proof that focusing on shared values rather than differences leads to resilient and sustainable outcomes for all market participants. Global Islamic finance is growing ahead of core markets, offering investors a broader choice of funds than before, making it easier to create a diversified portfolio with ESG overlap/influences.

According to the State of the Islamic Global Economy Report 2022/3, nations outside the traditional Islamic Finance hubs, such as Australia, Canada, Mexico and Russia, among others, are exploring the sector’s benefits to cater for their Muslim citizens. In addition, there is an increase in integrating Islamic finance principles within the broader financial ecosystem to strengthen finance in general.

Old Mutual Investment Group’s range of Shari’ah unit trusts comprises four funds, including the Old Mutual Albaraka Income Fund (Regulation 28 compliant), Old Mutual Albaraka Balanced Fund (Regulation 28 compliant), Old Mutual Albaraka Equity Fund, and the Old Mutual Global Islamic Equity Feeder Fund. Each of these funds provides exposure to specific investment opportunities or themes, with three of the four funds managing over R1.6bn in assets. The fourth fund, launched late in 2022, is still in the asset accumulation stage.

Investors with a long-term horizon focused on growth can choose between global or South Africa-focused equity funds, which invest in a wide range of local and offshore listed companies. The Global Islamic Equity Feeder Fund benefited from both local and global equities over the quarter, being fully invested as of 30 September 2023. Having quality at the core of the investment philosophy should help investors weather a potential slowdown in developed markets.

All four Shari’ah funds, including the equity funds, strictly adhere to Shari’ah law and do not invest in companies involved in alcohol, gambling, non-Halal foodstuffs, or interest-bearing instruments. Old Mutual ensures compliance across its Shari’ah range through a Shari’ah Supervisory Board, responsible for ensuring that the funds adhere to the standards of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI).

On the other end of the risk spectrum, investors with a low-to-moderate risk tolerance can consider the Old Mutual Albaraka Income Fund. This fund offers capital stability through local and international equities, liquid assets, and non-equity securities such as sukuks or Islamic bonds, while limiting equity exposure to 10% and property exposure to 25%.

Our income fund aims to offer investors an ethical investment vehicle providing income and relative capital stability over time, offering an attractive yield with a duration of approximately two years, and all our funds share the common goal of protecting capital while delivering returns per the stated fund mandates.

“All four Shari’ah funds, including the equity funds, strictly adhere to Shari’ah law and do not invest in companies involved in alcohol, gambling, nonHalal foodstuffs, or interestbearing instruments”

According to the State of the Islamic Global Economy Report 2022/3, from a structural perspective, Islamic finance is merging with global sustainability initiatives eco-projects. Indeed, the shared values between ESG and Shari’ah provide investors with a wider variety of ethical investments, and more opportunities for diversification, which could partly explain the growth in Islamic finance and Shari’ah investments worldwide.

Portfolio implications of JSE de-listings

BY SEAN NEETHLING Head of Investments at Morningstar South Africa

The increased number of companies de-listing from the JSE has elevated investor concerns about the investment outlook for SA Equities. The shortage of new listings, the relatively weak performance of local shares, and depressed levels of business confidence have further exacerbated fears among market participants. While the de-listing trend is concerning, the debate is less about the number of de-listings and more about the level of market concentration and its impact on investment portfolios.

The graph below shows new listings have dropped off significantly since 2002, while de-listings have averaged more than 10 per year over the same period. The number of listed companies has reduced by almost half over that period, with less than 300 companies listed today. It can also be seen that the market capitalisation of the FTSE/JSE All-Share Index (ALSI) has generally continued to increase. The ALSI today remains highly concentrated, with the Top 40 shares accounting for approximately 85% of the index.

Reframing the debate

De-listings have had minimal impact on JSE trading and liquidity given the high levels of index concentration and size of the main index constituents. The direct impact of smaller companies exiting the market is also less meaningful when viewed through the lens of how equity funds are currently constructed.

Most of the companies that have de-listed were not core holdings in benchmark-cognisant domestic equity portfolios. Approximately 70% of de-listings over the last five years would be categorised as small-cap or fledgling companies with market caps

of less than R300m, placing them largely outside the investable universe of fund managers tracking the index. There are exceptions but, on average, domestic equity funds holding the majority of pension and retirement assets have remained relatively unaffected by the shrinking opportunity set. In aggregate, investors have already been allocating capital as if the market is narrower than it actually is.

South Africa is also not unique in this matter, with net listings in developed European and UK markets also trending downwards as merger and acquisition (M&A) activity has largely outpaced initial private offerings (IPOs) in recent years. De-listings should be considered a normal part of the economic and capital cycles and are not necessarily negative events, especially where private markets are better at unlocking shareholder value.

Taking a company private allows management to focus on the long-term sustainability of the business and steer away from short-term sentiment and incentives of external passive minority investors.

De-listings may also unlock value in a way that the traditional market mechanism failed to. For more active managers, identifying companies likely to be acquired at a premium to the current share price could potentially be a secondary part of the investment thesis.

De-listings may also improve market integrity. It could be argued that companies with less robust business models should not be listed in the first place. The incentive for companies to list is to unlock shareholder value through access to a wider pool of investors. However, the purpose of publicly listed markets is to create long-term shareholder wealth, not

incubate companies that should be privately owned. These are very different from companies with stronger business models that happen to be too small for concentrated markets to unlock per-share value for shareholders.

Much ado about nothing then? Not quite.

A narrower market crowds out active management. While the decline in the number of holdings is not necessarily especially significant for the average manager tracking the index, the shrinking universe does potentially constrain more benchmark-agnostic managers with a particular focus on small and mid-cap domestic equities. These companies trade with relatively less liquidity than the larger companies that make up the index and may take longer to attract the level of investor demand to generate expected returns.

Domestic small and mid-cap companies delivered exceptional returns in the two years following the COVID-19 pandemic market lows and do provide a differentiated payoff profile to larger index constituents. An acceleration of de-listings into more of these companies will limit the ability of more active managers to deliver alpha over time.

A continuously shrinking local investment universe will only serve to increase market concentration. Too much money ends up chasing too few investable opportunities , which contributes to companies trading at inflated prices relative to fundamentals. At extremes, these companies become “too big to fail”, given ownership in retirement and pension savings pools. A narrower opportunity set also potentially increases the volatility of returns at the index level. While increased volatility does not necessarily imply higher risk, it does expose client portfolios to large swings in investor sentiment.

“De-listings have had minimal impact on JSE trading and liquidity given the high levels of index concentration and size of the main index constituents”

EXHIBIT 1: JSE MARKET CAPITALISATION VERSUS NEW LISTINGS AND DE-LISTINGS

Market concentration forces managers to seek more diversified investment ideas that may potentially be outside their circle of competence. The increase in Regulation 28 maximum offshore exposure to 45% is generally a good thing but exposes portfolios to both direct and indirect risks. Fund managers seeking diversified exposure can widen the investable universe by allocating to different countries, sectors and currencies, but may not have the internal resources to adequately research these markets. The key drivers of risk and return shift away from local markets where they may have a competitive advantage.

Managing risk in concentrated markets

Portfolio construction is exceedingly important in an environment where market concentration has the potential to atypically skew investment performance, both in local and global markets.

Below are three parts of Morningstar’s investment process we use to mitigate the risk of market concentration in client portfolios.

1 Understand the key drivers of risk and return Applying a valuation-driven approach allows us to shift allocations in line with our best global research ideas. Implementing these ideas through asset class building blocks gives us the ability to be more granular in tilting portfolios away from pockets of risk and towards pockets of opportunity. Deconstructing the underlying components of risk and return enables the investment thesis to be tracked relative to expectations, and adapted should market conditions materially change.

2 Maintain a forward-looking view. Using backwards-looking risk and return metrics is not especially useful where markets have detached from fundamentals. Understanding the expected risk and return profile of the underlying assets, as well as the forward-looking correlation of those assets, provides an additional layer of robustness to complement our valuation work. Our investment process also uses a broader reward-for-risk framework that assesses market conditions across several key metrics. The aim is to construct portfolios that are resilient enough to withstand a wide range of potential outcomes.

3 Understand sources of manager alpha. In concentrated markets undergoing both cyclical and structural change, historical track records may not capture manager skill. An example in the local market is the higher 45% offshore allocation that potentially provides increased diversification benefits but not without increased risks. Identifying managers with the right people, process and incentive structures is likely to be a key differentiator in driving future returns. Combining local and global managers in a portfolio is even more important. It’s not as simple as buying SA managers to manage SA assets and global managers for global assets. Our manager research and

selection process leverage significantly off a global investment team that collaborates to bring our best ideas into client portfolios and specifically considers forward-looking alpha expectations.

In conclusion

The debate around the increase in JSE de-listings is less about the number and more about the size of the companies exiting. The trend is also not unique to South Africa, with net listings across the developed world declining, and high levels of market concentration playing an outsized role in driving investment performance. De-listings are not necessarily a bad thing but both investors and regulators have a role to

play in not crowding out shareholder value creation in companies outside the larger index constituents.

At Morningstar, we follow a valuation-driven investment approach, where portfolio construction combines low-cost passive strategies with more active allocations identified through fundamental research. While recent de-listings have had negligible impact on client portfolios, we continue to review our active share positions to both funds and companies where lower levels of liquidity could impair the investment thesis.

Most importantly, our investment process focuses on forward-looking portfolio construction that leverages a global research and investment team and is stress-tested across a wide range of potential outcomes.

In search of well-rounded investment capability

BY DIRK JOOSTE Fund Manager at PSG Asset Management

The waters investors have had to navigate over the past three years have been exceptionally choppy. Since 2020, we have seen a brutal market correction, global bonds and equities going into retreat at the same time in 2022, a banking crisis, and more recently, yet another fallout in bond markets, coupled with stock markets turning negative. Locally, it feels like we have been buffeted by one wave of bad news after another. So, amid this uncertainty, investors may be forgiven for wondering if any assets are making the cut. Is it not perhaps safer to simply hold cash?

As price-sensitive, bottom-up stock pickers, at PSG Asset Management we put a great deal of thought into the assets we include in our portfolios, and determining at what price we are happy to do so. In our world, it is not a case of ‘any’ asset (or index constituent) will do! We are comfortable holding cash where the mandate allows us to do so, if we do not believe we can find an asset that will adequately compensate our investors for the risk they are taking on. To cut a long story short, we set a high bar on the assets we include in our portfolios.

Looking at our portfolios, however, we see that they have not retreated to cash, with high allocations to equities in, for example, the PSG Flexible Fund , which has considerable freedom when it comes to how assets are allocated (for more insights into this fund, watch this video). One reason for this is that we often find great opportunities during periods of market turmoil, when the market pricing mechanism is prone to breaking down. When it comes to finding overlooked gems, periods of market stress provide fertile hunting grounds for those who apply a selective lens and scrutinise assets closely before making the call on including them – or not.

“The local stock market is not a linear reflection of the local economy, and there are always opportunities for excellent companies driven by sound management teams to excel”

However, for investors – who need to look ahead and commit money in uncertain markets – the decision is often fraught with anxiety and fear. Investment processes and philosophies sound lovely on paper, but how do you know they ‘work’ in practice, and are they worth the ‘hype’ the investment community often bestows on them? To put it in investment speak, how do you know a specific manager can reliably tilt the odds of success in your favour over time, and across asset classes, especially when we all know that “past performance does not guarantee future performance”?

The SA stock market provides a test case in harsh investment conditions. GDP growth has been muted, consumers have seen their real incomes decline over the past few years, energy supply is unreliable, infrastructure is eroding and concerns around social instability remain. Yet, despite these hardships, selected local shares have delivered handsomely for investors in our portfolios (not only since the Covid-19 reset, but also over the past year). The local stock market is not a linear reflection of the local economy, and there are always opportunities for excellent companies driven by sound management teams to excel, even in difficult conditions.

PERFORMANCE OF SELECTED SA SHARES

Sources: Bloomberg

Nevertheless, some investors may still be sceptical, wondering how a bottomup selection process can translate into outperformance at the aggregate level, especially in multi-asset portfolios where asset allocation decisions are often perceived as being key.

However, taking a step back and getting a broader view by looking at the performance of the various asset classes within our portfolios over the long term, we find evidence that our tried and tested bottom-up 3M investment process has reliably succeeded in adding value to our investors over time. It is especially pleasing that our process is also able to deliver alpha in global equities – perhaps one of the most challenging mandates in which to demonstrate reliable capability. It is indicative of the fact that our focus on quality and price, driven by independent thinking and in-depth research, enables us to reliably replicate our process – not only across asset classes, but also across territories.

PSG BALANCED FUND 10-year alpha analysis

To answer the question posed above: yes, investment processes and philosophies matter materially to the outcomes investors ultimately achieve.

Looking at the current investment environment, we believe this question is becoming even more relevant, as we consider our investment approach to be a key differentiator in terms of client outcomes in the years ahead. This is because we believe the market is in the process of undergoing a structural inflection and, as long-held imbalances start unwinding, different types of assets are set to become the market leaders of the future. These are most likely to be found outside the major indices, in areas of the market that are currently overlooked and often unloved. It is an environment where bottom-up stock pickers who are driven by robust research and who set high bars on the assets they invest in, are poised to excel.

Sources: PSG Asset Management as at 30 September 2023. Indices used are the JSE Capped SWIX, MSCI ACWI, JSE SAPY, JSE ALBI and the ASISA MA High Equity peer average. The graph shows the performance of various asset classes within the PSG Balanced Fund versus indices typically used to track performance for those asset classes/portfolios in that sector.

Offshore investing risks in 2024

BY MICHAEL MOYLE Head of Multi-Asset at M&G Investments

At M&G Investments, we don’t pretend to have a crystal ball to be able to forecast the future, instead building our portfolios based on current asset valuations. In our view, these valuations are telling us that South Africa is the place to be in 2024, rather than offshore, and particularly not in US equities.

Of course, strong portfolio diversification is required across markets and asset types to achieve an appropriate risk/return balance, but local asset valuations are compelling versus their offshore counterparts.

South African equities started off the year at a very cheap 12-month forward price/earnings (P/E) ratio of 8.9X, and this has remained low during the year, currently at 9.5X. Compare this to US equities at over 19.0X, the MSCI All Countries World Index (ACWI) at 16.8X, and the MSCI Emerging Markets Index at 11.4X at present. The US is quite expensive versus other markets and has kept the ACWI elevated as well, largely due to the handful of companies whose future growth is being driven by the application of artificial intelligence (AI) – the socalled ‘magnificent seven’.

Based on these starting valuation points, we would expect SA equities to have a better chance of outperforming global equities over the medium term. Sentiment towards South Africa is very pessimistic, in our view, with the

yields are more attractive than those of many other countries and are elevated relative to their estimated long-run fair value of 3%.

Our view is that SA nominal bonds offer much better prospects of delivering positive real returns than global bonds. While local bonds do present elevated risks, current yields are pricing in an unlikely scenario of local inflation remaining above the SA Reserve Bank’s 3-6% target range, despite the SARB’s strong track record combatting inflation. In our view, current yields more than compensate investors for the associated risks, and patient investors will be well rewarded.

However, global bonds are now offering relatively attractive real yields compared to recent history, and serve as effective diversifiers for SA equity risk. As in global equities, we are neutrally positioned due to the risks associated with global inflation and high interest rates. More specifically, we have been holding 30-year US Treasuries, German bunds and UK gilts now that yields have risen to more appropriate levels, as well as selected sovereign emerging market bonds where the real yields are high and the currency trading at fair-tocheap levels.

“South Africa’s 10-year government bonds give investors a real yield of over 6%, much more attractive than that of 10-year US Treasuries at under 3%”

market pricing in outcomes more in line with previous periods of global recessions and financial crashes than what is justified in the current conditions. This is adding a degree of safety to local equity investments that is not present in global equities.

Turning to bonds, currently South Africa’s 10-year government bonds give investors a real yield of over 6%, much more attractive than that of 10-year US Treasuries at under 3%. SA real bond

PortfolioMetrix income fund set to list ETF version on JSE

BY PHILIP BRADFORD PortfolioMetrix, Head of Investments for South Africa

Global investment manager

PortfolioMetrix has listed an actively managed exchange-traded income fund on the JSE.

ETFs are pooled investments that operate much like a unit trust but can be bought and sold on a stock exchange the same way equities can. While they offer the diversification benefits of unit trusts, they are traded with the same ease as stocks.

Philip Bradford, the firm’s Head of Investments for South Africa, says the fund will predominantly invest in interest-bearing securities and aim to achieve a high level of sustainable income while also prioritising capital preservation.

“With a current gross yield of 11.8%, we are positioned to do well in a falling interest rate environment, which we expect to be the case over the next few years,” he says. Named the PortfolioMetrix Active Income Prescient AMETF, it is essentially a listed version of the PortfolioMetrix BCI Dynamic Income Fund, the top performing fund across all SA income categories for three years to the end of December 2023.

“The decision to offer the portfolio in a listed version was made against the backdrop of huge investor demand for high-income paying investments, as well as SA’s shrinking equity market but flourishing bond market,” says Bradford.

Looking ahead, several factors have the potential to provide tailwinds for SA equities and bonds in the new year, including lower inflation, a continuation of responsible fiscal policy, infrastructure improvements, and the start of interest rate cuts both globally and locally. The local bond market’s rally following the better-than-expected Medium-Term Budget Policy Statement, and its outperformance of global bonds in the recent global rally, are examples of how SA assets have the potential to rebound as a result of any good news.

“Professional and retail investors simply can’t buy most of the instruments we hold in the fund. There are over 2 200 bond instruments listed on the JSE, but availability and liquidity are limited to specialist institutional investors. This ETF gives investors easy access to the full range of instruments available, e.g. higher yielding bonds issued by SA’s major banks.”

Bradford says that bonds continue to be a misunderstood and underappreciated asset class, yet SA bonds are offering some of the highest yields in the world.

“Current bond yields of over inflation +6% creates the potential for equity-like returns going forward, but with much lower risk. Our new Active Income ETF will give professional and retail investors a convenient vehicle to cost-effectively access these high-yielding instruments in a diversified portfolio.”

Reg 28-compliant, the fund is also suitable for compulsory investments such as pension and provident funds, and retirement annuities.

It will be managed by the same award-winning team, led by Bradford, that has been managing income funds with the same mandate for almost a decade.

Prescient Investment Management releases 2023 Responsible Investing Report

BY CONWAY WILLIAMS Head of Credit at PIM MICHELLE GREEN Chair of the PIM ESG Committee

Systematic investment firm, Prescient Investment Management (PIM), has released its Responsible Investing Report for 2023, which provides insight into the changing world of Environmental, Social and Governance (ESG) frameworks as many industry participants ask tough questions around its applicability for investment decision-making.

The report unpacks the concepts of Responsible Investing, how PIM embeds ESG into its investment process, and talks to PIM’s approach to sustainable investing. It also references some of the key projects in which PIM have

participated during 2023. Aimed at both institutional and retail investors, as well as trustees and other stakeholders, the report offers key insights into navigating the realm of responsible investment.

Conway Williams, Head of Credit at PIM, emphasises the global significance of the ongoing ESG discourse, “We are cognisant of the global debate around ESG, and we believe it’s an incredibly important discussion. Too many people are simply equating ESG with ‘doing good,’ rather than recognising it as an integral part of a formal investment process.”

Renowned as one of South Africa’s leading systematic investment houses, PIM distinguishes itself with a datarich investment process. This process combines data-driven insights, empirical evidence, and a team of experts that aim to deliver on client promises. Notably, PIM developed its own responsible investment approach, which included a decision to build its own ESG methodology instead of adopting off-the-shelf products, utilising this proprietary approach across its investment universe, including its infrastructure debt funds.

The first is the Prescient Clean Energy and Infrastructure Debt Fund (CEIDF), which invests in initiatives that facilitate infrastructural, environmental, and socioeconomic impact and development in southern Africa. To date, this fund has deployed over R4bn in 28 renewable energy projects and infrastructure opportunities.

The second is the Prescient Infrastructure Debt Fund that was launched in September 2021 and currently manages R1.6bn in assets. The offering follows a broad infrastructure mandate, giving investors access to generally inaccessible clean energy and infrastructure assets that offer

OMAI fuels South Africa’s renewable energy drive

BY MUJAAHID HASSAN Co-head of Hybrid Equity at OMAI

In a significant boost to South Africa’s renewable energy sector, Old Mutual Alternative Investments (OMAI) recently announced a substantial investment of approximately R158m in the country’s energy infrastructure through its Hybrid Equity division.

This deal comes hot off the heels of the world’s largest congress on climate change, COP28, where African leaders emphasised the need for significantly increased climate action and green growth financing across the continent.

“OMAI’s investment in the project is not just a financial endorsement but a strong statement of support for South Africa’s renewable energy ambitions”

Mujaahid Hassan, Co-head of Hybrid Equity at OMAI, says, “Our investment in the Hydra Storage Project is a testament to our commitment to fostering sustainable energy solutions in South Africa. This project addresses the immediate challenges of loadshedding and aligns with our nation’s climate change objectives.”

Old Mutual Hybrid Equity has committed preference share funding to Hydra HoldCo, enabling the acquisition of a 35% equity stake in the TotalEnergies Hydra Storage Project. The Hydra Storage Project, a hybrid 216 MWp solar photovoltaic (PV) facility with 497 MWh Battery Energy Storage (BESS), promises substantial social and economic benefits, including increased dispatchable renewable power generation, job creation, and reductions in greenhouse gas emissions.

The Project comprises three co-located sites in the Northern Cape that will have a contracted capacity of 75 MW at the delivery point, from which energy is dispatched to the national transmission grid.

“The project is on track for construction to begin this side of the year,” says Hassan.

“This venture marks a significant milestone in South Africa’s journey towards sustainable energy,” says Christopher Aberdein, Director of Hydra HoldCo. “The Hydra Storage Project represents more than an investment; it’s a leap forward in our country’s energy independence and sustainability.”

OMAI, a key player in the investment landscape, has driven innovative and impactful solutions across various sectors. With this latest venture, OMAI reiterates its commitment to advancing South Africa’s renewable energy capabilities.

returns uncorrelated to South African equity and capital markets.

Williams further notes, “We continue to highlight the pivotal role of ESG as a risk management tool, affirming that recognising and integrating ESG considerations into investment practices are essential steps towards fostering longterm sustainability. The report underscores that viewing ESG through the lens of risk management is crucial, as it allows stakeholders to make informed decisions that align with both financial objectives and sustainable principles.”

Michelle Green, Chair of the PIM ESG Committee, concludes, “ESG is here to stay, but for ESG to enact meaningful change, however, the industry must make a collective effort – there should be a common assessment methodology: a framework that ensures ESG is rigorously evaluated and implemented across the investment spectrum in a standardised and consistent manner.”

PIM reiterates its commitment to championing the integration of ESG principles, not merely as a moral imperative but as a strategic approach for creating enduring value in the investment landscape.

The sponsor’s first bid on the RMIPPPP was issued by the Department of Mineral Resources and Energy on 24 August 2020. The Project was granted Preferred Bidder status on 18 March 2021 and reached Financial Close in December 2023. The RMIPPPP was designed to alleviate supply constraints by procuring 2000 MW from a range of technologies that could be bid together to form one project.

Aberdein says OMAI’s investment in the project is not just a financial endorsement but a strong statement of support for South Africa’s renewable energy ambitions.

“As the country continues to navigate the challenges of loadshedding and climate change, such strategic investments are crucial in shaping a sustainable and resilient energy future. We are proud to be part of the solution that will not only support our energy security but also show our commitment to economic development and growth in the country,” Aberdein concludes.

Bitcoin’s ETF has arrived: What’s next?

BY SEAN SANDERS

Founder and CEO of Altify

Bitcoin’s recent surge beyond $42 000 ignited discussions about the cryptocurrency’s potential in 2024. But one recent development stands out as an even greater pivotal moment – the approval of Bitcoin exchange-traded funds (ETFs) by the United States Securities and Exchange Commission (SEC) in January.

The crypto industry seems to have weathered its most recent storm and is now poised for further growth. With traditional investors showing renewed interest as the sector purges itself of problematic leaders, the ETF regulatory milestone is now poised to reshape the landscape for Bitcoin, opening new avenues for investors and institutions alike. So what does this approval mean for the future of Bitcoin, and what other factors are set to shape the market in the year to come?

Democratised access leading to more mainstream adoption

The SEC’s approval of Bitcoin ETFs represents a significant step towards democratising access to the cryptocurrency. It does so by opening the door to a broader investor base, allowing individuals and institutions to invest in Bitcoin through traditional stockbroking accounts. This move is especially important for institutional investors, such as hedge funds and pension funds, that were previously restricted from entering the crypto space. The approval of Bitcoin ETFs provides a more secure and accessible entry point for a wider range of investors, potentially unlocking billions of dollars in new capital for the crypto market.

The introduction of a Bitcoin ETF is particularly noteworthy, as it eliminates the reliance on derivative

markets. Unlike derivatives, a spot ETF directly holds the underlying asset, reducing costs and offering a more authentic exposure to Bitcoin’s market movements. This development marks a crucial step towards mainstream acceptance and could significantly boost investor confidence in the cryptocurrency market.

Boosting market liquidity and stability

The introduction of Bitcoin ETFs is expected to enhance market liquidity and stability. The ETF structure allows for the creation of a diversified and regulated investment product tied to Bitcoin’s performance. This, in turn, could mitigate some of the price volatility associated with direct cryptocurrency investments. As institutional investors and a broader retail audience participate through ETFs, the market may experience a more balanced and sustainable growth trajectory.

The macroeconomic factor of lowering interest rates

One of the critical macroeconomic factors influencing the crypto market in 2024 will be the anticipated decrease in interest rates by the United States’ Federal Reserve. Historically, high interest rates have created headwinds for risk assets, including cryptocurrencies. As rates are expected to trend downward over the next 18 months, the broader economy and investment landscape may experience a positive shift. Lower interest rates generally favour assets with future payoffs, such as cryptocurrencies, as the present value of their potential gains increases. This macroeconomic tailwind could contribute to sustained growth in the crypto market.

The next Bitcoin halving event

Bitcoin’s unique protocol includes a mechanism known as the halving event, occurring approximately every four years (or every 210 000 blocks), where the rewards for miners are halved. This results in a reduced rate of new Bitcoin entering circulation. Historical data suggests that previous halving events have been bullish for Bitcoin, attracting media attention and igniting interest among investors. The logic is straightforward – with a decrease in the supply of new Bitcoin and stable or increasing demand, prices are likely to rise. As the next halving event approaches, it could serve as a catalyst for renewed enthusiasm and drive further price appreciation.

Overall, the outlook for Bitcoin in 2024 appears promising, with a confluence of macroeconomic, protocol-driven, and regulatory factors poised to drive continued growth. As interest rates decline, the next halving event approaches, and Bitcoin ETFs gain traction, the crypto market may find itself on the brink of a renaissance, attracting a diverse array of investors and solidifying its role as a legitimate and mainstream asset class. While risks always accompany the crypto space, the evolving landscape presents compelling opportunities for those willing to navigate the digital frontier.

“The SEC’s approval of Bitcoin ETFs represents a significant step towards democratising access to the cryptocurrency”

What 2024 has in store for crypto

BY CHRISTO DE WIT Luno’s SA country manager

Bitcoin blasted into 2024 on a high note, touching a 21-month peak and the groundbreaking approval of spot exchange traded funds (ETFs) for Bitcoin, according to Luno, South Africa’s largest crypto investment app*.

“Bitcoin ETFs are significant as they open the way for greater institutional investment and adoption. The first licences for crypto asset service providers are imminent in South Africa, the fifth Bitcoin halving is expected in April, there are elections in the US and in South Africa, and tokenisation is growing,” says Christo de Wit, Luno’s SA country manager. De Wit unpacks a few significant developments anticipated for crypto this year.

Bitcoin halving

While price history is not an indication of future price movements, the Bitcoin halving is one of the events on the crypto calendar that investors follow very closely.

The next halving is expected in April 2024.

Roughly every four years, Bitcoin rewards paid to miners are cut in half to avoid flooding the market. These events are known as Bitcoin halvings, and each event has historically had a major impact on the price as they decrease the supply of new Bitcoin into the market.

After the first halving, Bitcoin increased more than 8,000%. After the second

halving in 2016, Bitcoin jumped roughly 3,000%. The last halving in 2020 was followed by a bull run that ended in an all-time high price of almost $69 000 (current price is $43 109).

Altcoins potential

The altcoin market cap has surpassed $847bn and several commentators believe that the altcoin market is poised to potentially surpass $2tn in the next 24 months, led by altcoins like Solana (SOL) and Ethereum (ETH).

Ethereum has an upcoming upgrade that could significantly reduce transaction fees and enhance scalability. In addition, the recent rally in altcoin prices following the approval of Bitcoin ETFs is fuelled by rising expectations within the crypto community about the SEC’s potential approval of spotbased ETFs for alternative cryptocurrencies such as Ethereum (ETH), Cardano (ADA) and Avalanche (AVAX).

Crypto licensing in South Africa

Crypto was declared a financial product by the Financial Services Conduct Authority (FSCA) in 2022. Consumer protection was boosted by the inclusion of crypto asset service providers as accountable institutions by the Financial Intelligence Centre and Luno submitted its application to operate as a financial

service provider as soon as applications opened in June 2023.

It is groundbreaking that crypto is now part of the mainstream financial services sector in South Africa as a regulated financial product. It should allow financial advisors to formally advise their clients on crypto investments. Until now, financial advisors could not provide advice on unregulated investment opportunities.

Africa uses crypto for utility and investment

In SA, the licensing of crypto asset service providers opens the door to heightened institutional interest and access to crypto through licensed financial service providers.

According to blockchain analysis firm Chainalysis, crypto investment in subSaharan Africa tends to be more retaildriven than other regions. Nigeria ranks second overall on the Chainalysis Global

“The outcome of the US election in November 2024 could have profound implications for the crypto industry”

Crypto Adoption Index and also leads the region in raw transaction volume.

US elections

The outcome of the US election in November 2024 could have profound implications for the crypto industry.

A crypto-friendly administration might foster regulatory frameworks, encouraging innovation while providing clarity and legitimacy to the industry.

US regulatory and financial decisions tend to have a marked impact on the global crypto industry and, increasingly, government officials are playing into crypto for voter support.

James Ovenden, Head of Product Marketing at Luno, says that crypto began to enter the conversation during the last US elections. “Several senators and congresspeople, even outsider presidential candidates, are avowed crypto supporters, and more crypto talk could herald a more positive approach to crypto.”

AI is coming for everything

AI development has had some of the most significant breakthroughs in human history, according to some commentators. It seems like the technology will leave no industry unturned, including crypto. From AI-driven chatbots to automated trading bots, the technology seems a natural fit for crypto as programmable money.

Tokenise it all

Last year saw several blockchain use cases play out in the financial space, most notably tokenisation, which turns an asset into a crypto token immortalised on a blockchain. The asset could be a house, a fraction of a house, music royalties, gold, bonds, stocks, and many other applications.

JP Morgan created its own blockchain and started trading tokenised assets on it during 2023. Banks and asset managers are always searching for almost instant transfers and transactions of assets, which bodes well for the growth of tokenisation.

Tokenisation could also open up unique investment opportunities for investors who previously didn’t have access to property investment or investing in music royalties.

“We continue to see signs that crypto is maturing. The crypto industry is still in its early phase and additional use cases will continue to come to the fore. In 2024, we’ll continue to track the innovative ways crypto will continue to shake up the traditional financial system,” concludes De Wit.

*Largest crypto app by number of retail customers in South Africa

South Africa’s shifting risk landscape

BY

TAVAZIVA MADZINGA Santam Group CEO

Insuring risk is not a modern-era concept. The age-old practice became a common business security instrument to the burgeoning English shipping industry in the 17th century, and the first insurance ‘contracts’ can even be traced as far back as Babylonian times around 133 AD. The industry has evolved and withstood centuries of evolving risks. Just as steps needed to be taken to address rapid urbanisation and international trade in the 1600s and 1700s, the industry is again facing an escalating risk landscape.

Climate change, infrastructure concerns and socioeconomic challenges have created a tough environment for local insurers, who have a responsibility to ensure their business is strong and able to sustainably withstand the cost of the risks that are dominating the environment, and to protect the financial wellbeing of clients and the safety of communities.

The local situation

The last three years have shown that South African insurers are no longer insulated against the large catastrophe experience of the Asia-Pacific, Europe and the United States of America. Globally, the 2020 COVID-19 pandemic rewrote the record books on insurer and reinsurer exposures to systemic risks. Locally, rioting and looting caused an estimated R50bn in economic losses in July 2021, with the April 2022 KwaZulu-Natal flood losses estimated at R54bn. Half that total was carried by the insurance industry. Climatechange-related extreme weather events also dominated the insurance industry’s claim statistics in 2022 and 2023.

Dealing with instability

The growing number of large catastrophe reinsurance claims locally, coupled with rising global losses, has caused reinsurance premiums to increase significantly. This volatility in the reinsurance market will likely become the ‘new normal’.

“The growing number of large catastrophe reinsurance claims locally, coupled with rising global losses, has caused reinsurance premiums to increase significantly”

Entering 2023, Santam added global geopolitical developments to its monitoring agenda, with a focus on determining how the BRICS expansion, China-US trade relations, and the Russia-Ukraine War will affect the global reinsurance market. The resurgence of Middle East conflict has also become a focus. There are concerns that global supply chains will be further impacted by these tensions, contributing to significant claims inflation.

Climate change makes its mark

Another key area contributing to the increased volume of catastrophe claims globally is the impact of climate change. Changing weather patterns is evidenced by the number of fires, storms, floods and volume of rain – such as the KZN floods in 2022, and more recently in the Western Cape.

To address the risks posed by escalating climate shifts, we have aligned our approach with global standards such as recommendations set out by the Task Force on Climate-related Disclosures (TCFD) and are in the process of conducting climate risk assessments to guide our climate change response. An example is the adoption of geocoding technology to better understand our weather-related risk exposure by creating a risk-based view of property locations in South Africa. Climate-related data is mapped with co-ordinates to identify areas that have increased exposure to climate change – these are then managed accordingly through underwriting and pricing actions. Additionally, attritional weather losses – weather-related claims that are not associated with a catastrophic event –also threaten the sustainability of the insurance industry.

According to the 2022/2023 Santam Insurance Barometer Report, Santam experienced a spike in flood-related claims across all lines of business during 2022, and the trend continued into the first half of 2023, as the April 2022 KwaZulu-Natal (KZN) floods were followed by flooding along the Orange and Vaal Rivers in early 2023, and extensive flooding in the Western Cape around June.

Crumbling infrastructure

Each of these events revealed an additional layer of risk in that South Africa’s infrastructure degradation increases the extent and severity of flood-related losses. This is a major challenge that will have severe consequences. Worsening road conditions, fire-fighting capabilities, sewerage systems, and floodwater drainage are becoming increasingly vulnerable to disasters. Damages following disasters are extensive, the cost of repairs exorbitant. And downtime is lengthy. Most importantly, infrastructure that is not structurally sound also has an impact on the number of lives that are lost in a disaster. To ensure sustained insurability, significant focus and financial resources from government are required, as well as a collaborative effort by the private and public sector.

One example of this collaboration is through our Partnership for Risk and Resilience (P4RR) programme – where we assist municipalities with firefighting, flood defence, and other risk mitigation efforts. The aim is to work together towards proactive risk management outcomes within municipalities countrywide.

Energy in crisis

In addition to increasing infrastructure degradation, loadshedding also poses a major risk to consumers and businesses – including the insurance industry. For the full 2022 financial year, we experienced an increase of approximately 67% in claims (compared to 2021) for damage of sensitive electronic items because of power surges across our personal insurance and commercial insurance portfolios, totalling R609m. We still believe loadshedding is an insurable risk via a combination of cover exclusions, higher excesses, and a ‘repair rather than replace’ policy for certain claim types.

Crime in all its forms

From a socio-economic perspective, the steady increase in crime has also become a systemic risk we are tracking closely. According to the 2022/2023 Santam Insurance Barometer Report, South Africa is seeing a big shift in vehicle crime, with Santam’s Commercial and Personal Lines claims experience confirming a significant jump in high-value vehicle hijackings and thefts. Through our ongoing tracking of emerging risk trends, we were able to implement several corrective actions to ensure that these high-value vehicles remain insurable.

Additionally, the report found that a growing number of industry stakeholders believe cybercrime to be the next potential black swan loss event for the insurance industry – with a 12% increase in commercial and corporate respondents citing it as a top risk as compared to the 2020/21 report. Despite this, there seems to be an inertia in both risk mitigation and risk transfer efforts in this space. The challenge for insurers and insurance brokers is to offer more hands-on assistance to businesses at both the underwriting and claim stage.

The current high-risk environment presents many challenges for insurers who must prioritise ensuring they can carry these risks sustainably so that more people can prosper. A thriving insurance sector is a critical cog in a healthy economy, as insurance empowers individuals and businesses with the freedom to be more resilient.

Addressing healthcare inequities for persons with disabilities

BY RACHEL O’NEALE Country Head at Novartis South Africa

The World Health Organisation (WHO) estimates that one in six people globally experience a significant disability. Worryingly, many of these individuals continue to suffer unmet health needs – especially those living in developing countries such as South Africa, and particularly in impoverished and rural areas. So, as we resume to our working organisations, it is vital for all sectors of society to join in ensuring that persons with disabilities receive the highest possible standards of healthcare and accommodation, state medical experts at Novartis South Africa.

As the United Nation’s Convention on the Rights of Persons with Disabilities describes, “Persons with disabilities include those who have long-term physical, mental, intellectual or sensory impairments which, in interaction with various barriers, may hinder their full and effective participation in society on an equal basis with others.”

Rachel O’Neale, Country Head at Novartis South Africa, notes that this description points to the diverse range of needs that healthcare providers and industry stakeholders must be cognisant of as they work together to eliminate gaps and inequities.

“Creating a more equitable world for persons with disabilities and promoting greater access to healthcare and working opportunities begins by acknowledging and being sensitive to the diverse needs of persons with disabilities. By promoting greater awareness and prioritising these needs, we can break down the walls impeding people from receiving adequate healthcare, and significantly improve their overall health and life expectancy,” she says.

“O’Neale further adds that 32% of the cohorts that have graduated from the Novartis South Africa Learnership Programme are persons with disabilities. Inclusively creating opportunities for people with disabilities to gain work experience is important to support new graduates and future leaders to find employment in leading organisations such as Novartis.

Healthcare challenges

Notably, persons with disabilities are often more vulnerable to certain comorbidities or health conditions such as depression and obesity, which may detract from their wellbeing. However, health inequities, or avoidable and unfair factors that negatively impact access to and quality of healthcare, can also play a significant role in poor treatment outcomes.

For example, lack of transportation and high transportation costs can play

major roles in preventing persons with disabilities from seeking health services and receiving preventative care or timely diagnoses, especially in rural areas where they may be required to travel further distances to health facilities. Additionally, persons with disabilities often encounter inaccessible healthcare facilities that lack ramps, lifts, wheelchair-accessible doors, bathrooms for individuals with mobility impairments, and tactile signage for people with visual impairments.

Healthcare providers also require additional training to become better sensitised to the needs of persons with disabilities, and to communicate with and treat them more effectively.

In the healthcare industry, this may result in a more holistic approach to accommodating and advocating for their needs. Facilities could, for instance, implement systems to prevent persons with disabilities from being forced to wait in long queues, as this may put

these patients under undue physical strain and place added stress on their transportation arrangements – especially if they are dependent on a family member for assistance.

Likewise, this training may help to dispel misunderstandings and myths regarding patients with disabilities among healthcare providers for improved health services. In South Africa, for example, research suggests that some healthcare providers mistakenly believe persons with disabilities to be asexual, preventing patients from receiving the necessary sexual and reproductive education and health services. This leaves patients with disabilities at greater risk of contracting HIV and sexually transmitted diseases.

Finally, the medical industry must work together to ensure that persons with disabilities receive the necessary communications and information to safeguard their health.

“Both pharmaceutical companies and

“The medical industry must work together to ensure that persons with disabilities receive the necessary communications and information to safeguard their health”

healthcare providers must join hands to ensure that persons with disabilities fully understand their treatment plans and are able to take their medications as prescribed. This means ensuring that information is available in braille for patients with visual impairments, or digitally for patients with auditory impairments, for example,” says O’Neale.

“It’s also important to treat all patients with dignity and respect. When speaking with a person with a disability, this means avoiding patronising them, listening to their concerns, and communicating clearly. Through actively engaging with persons with disabilities, we can promote a more equal and tolerable world that provides a high standard of care for all.”

NHI Bill threatens all citizens’ constitutional rights

BY CRAIG COMRIE HFA Chairperson

The NHI Bill presented to President Cyril Ramaphosa cannot be permitted, in its current form, as it will infringe the rights of all South Africans by destroying the South African healthcare system. The Health Funders Association (HFA) has petitioned the President to withhold assent of the Bill on constitutional and procedural grounds, and intends to take the matter as far as necessary, and to

“Our action in opposing the NHI Bill being signed into law protects the interests of ALL South Africans who will require healthcare in future”

the Constitutional Court if need be.

We have taken a strong stand by respectfully urging the President to withhold assent of the Bill, citing constitutional and procedural concerns that pose a significant threat to the integrity of the country’s healthcare system.

Should the need arise, the HFA is prepared to escalate the matter to the courts. Our goal is to meticulously align the legislation with the authentic objectives of Universal Health Coverage and the principles enshrined in the South African Constitution.

Our action in opposing the NHI Bill being signed into law protects the interests of ALL South Africans who will require healthcare in future, including the people we are duty-bound to safeguard through the medical schemes and healthcare administrators we represent.

While expressing unwavering support for achieving Universal Health Coverage

(UHC) in South Africa, the HFA questions Parliament’s endorsement of a bill that raises significant constitutional and procedural concerns and fundamentally cannot achieve a sustainable system of UHC.

Some of the primary concerns outlined in the letter include:

• Constitutional concerns:

The NHI Bill’s clear infringement on constitutional rights, particularly the right to access healthcare and freedom of choice for South Africans, and by implication, the right to life. The Bill is seriously flawed in that regard, undermining the rule of law.

Procedural concerns:

Questioning the extent and effectiveness of public consultation during the drafting and review of the NHI Bill, where thousands of submissions resulted in no meaningful changes to the Bill, the HFA advocates for a more inclusive and consultative approach.

THE FINER DETAILS

The letter implores President Ramaphosa to exercise the powers granted by the Constitution to refer the NHI Bill back to Parliament for review.

In addition to petitioning the President directly as guardian of the Constitution, the HFA will oppose the NHI Bill in its current form through every possible avenue, including approaching the courts to set aside the Bill on constitutional and procedural grounds.

The HFA will also seek a High Court interdict against implementation of the NHI Act until the merits of our case have been heard and ruled upon by the High Court.

It is with a heavy heart that we make this plea, urging the President to secure the rights and wellbeing of our people. We will persist to ensure that what is right triumphs in our nation. South Africa deserves leadership that prioritises the welfare of all its citizens, above all.

As the Bill stands, any procedure or service listed as being covered by the NHI, cannot be paid for privately or with medical scheme cover. Everyone will be at the mercy of a single state funding system for these services, and this greatly diminishes the right to freedom of choice in how and where a person can access healthcare in South Africa.

Consider that under the proposed NHI model, patients requiring standard procedures such as tonsillectomies and hip and knee replacements, among others, would have no option but to live in discomfort until their turn comes up on the NHI’s waiting lists.

If we look at the United Kingdom’s comparatively well-funded National Health Service (NHS), which has been held up as a model for SA’s NHI, procedures such as these typically have significant waiting lists, often longer than a year, while patients receive ongoing pain management treatment. Then again, UK patients still retain the right to go the private route to access life-enhancing procedures sooner outside the public health system. Many other European countries struggle with the same issue of growing costs, and where national budgets can’t keep up, queuing becomes a national pastime.

At this juncture, it is worth pointing out that the UK’s GDP per capita to support the NHS is $46 510, compared with South Africa’s being a mere $7 055. The public health system of Denmark, which has a GDP per capita of some $68 007, is another country that has been held as an example of what South Africa’s NHI aspires to achieve.

We must be realistic about how we get closer to Universal Health Coverage as a society, and we cannot afford to put all our eggs in one untested basket and hope for the best. Bringing the public health system closer to the private system to improve access to quality healthcare for everyone, while maintaining the option for additional funding mechanisms, would advance the aims of UHC more speedily.

Navigating the 2024 medical scheme hikes for the gap cover business

BY ALEESHA REDDY Head: Product Development at NetcarePlus

The escalating costs of healthcare in South Africa poses challenges for both medical schemes and their members, necessitating innovative solutions for managing affordability without compromising on quality care.

Understanding the landscape

In the face of the 2024 medical scheme contribution increases, it is crucial for intermediaries to guide clients through the intricacies of healthcare financing. The diverse drivers of these increases, as illustrated below, demand a strategic approach to balance solvency, financial requirements, and member needs.

The graph on the right shows the following:

The starting point for medical schemes is the Consumer Price Index (CPI) to serve as the basis for inflation.

While being an apparent metric to start off with, the determination thereof is not so clear. The Council for Medical Schemes published a recommended 5.0%, but each medical scheme can take a different approach, whether considering backward-looking CPI or forecasting forward-looking CPI. As a result, we have seen medical schemes using a CPI assumption in the range of 5.0% to 6.0%.

• Tariff increases are in most cases negotiated and we have seen these ranging from 1% to 3% above CPI, depending on the negotiation strength of the medical scheme and the healthcare service providers.

• Utilisation increases must be incorporated in the medical scheme contribution increases, adding an increase of 2% to 3%, to allow for the additional healthcare demand as the membership profile ages.

• Contribution increases are also influenced by financial requirements, adding an additional 1% to 3% to the contribution increase, to cater for solvency adherence,

“Tariff increases are in most cases negotiated and we have seen these ranging from 1% to 3% above CPI”

loss-making benefit options and/or historically insufficient contribution increases.

• When medical schemes introduce new benefits, the associated cost is allowed for in the contribution increase, and we have seen a few schemes enhancing their benefit packages, contributing to an additional 1% to 3% increase.

• Although a rare occurrence, medical schemes can reduce benefits to soften the blow on the contribution increase, and this particular year we have seen medical savings account allowances reduced, eroding the value for money.

Addressing affordability challenges

With industry-average contribution increases ranging from 7.5% to 16.0%, members are grappling with affordability concerns, prompting potential downgrades and benefit limitations. These limitations, such as sub-limits and network restrictions, lead to inevitable out-of-pocket expenses for members.

In response to these challenges, gap cover has emerged as a practical solution to restore the value

of members’ money. Businesses that provide gap cover services must provide a comprehensive safety net, offering benefits such as coverage for approved admissions, shortfalls for specialist consultations, and access to a wide network of facilities.

Financial intermediaries’ role

Recognising the challenging economic climate, financial intermediaries play a pivotal role in advising medical scheme clients. Rather than abandoning or switching schemes due to affordability constraints, the recommended approach is to supplement medical aid with gap cover. This strategic move ensures uninterrupted coverage with no waiting periods or breaks in cover.

Despite the rising cost of healthcare, maintaining coverage is paramount. Intermediaries are instrumental in helping clients strike the right balance between affordability and comprehensive coverage. By staying informed about healthcare funding market developments and working closely with clients, intermediaries ensure their clients remain healthy and financially secure.

Money isn’t everything. Time is.

Time is the greatest gift of all. And we all want more time to spend on the things that are important to us. Whatever those things may be, the good news is that if you invest early, time gives you money. And then, money gives you more time to spend on the things you love. Speak to us to make the most of your time. Call Allan Gray on 0860 000 654, or your financial adviser, or visit www.allangray.co.za.

Allan Gray is an authorised FSP.