MoneyMarketing October 2021

31 October 2021 | www.moneymarketing.co.za

Page 7

SOFTWARE SUPPLEMENT Software designed with advisers and brokers in mind Page 9

PRUDENTIAL INVESTMENT MANAGERS GETS A NEW IDENTITY The name change reflects its return to being majority-owned

by M&G plc Page 19

URBAN LIVING’S IMPACT ON WELLNESS While people migrate to cities for work, it does have a negative effect on their health Page 27

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First for the professional personal financial adviser

WHAT’S INSIDE YOUR OCTOBER ISSUE WHY DISCOVERY IS MOVING TO A MANDATORY VACCINATION POLICY The group says it’s implementing the mandatory vaccination policy guided by the principle of mutual respect

@MMMagza

trends shaping the future of asset management

BY JANICE ROBERTS Editor: MoneyMarketing

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ight major trends are shaping the future of the asset management industry, says Nedgroup Investments’ Head of Multi-Management, Trevor Garvin. “These trends are something that we at Nedgroup Investments are focusing a lot of our time on in terms of our management meetings, as well as our strategy for the future.”

ESG strategies are gaining traction Environmental, Social and Governance (ESG) principles have been covered regularly by Nedgroup Investments over the last twelve months, Garvin says. “These principles have been set out by the United Nations Principles for Responsible Investment Programme and have been widely accepted within the asset management industry – and I think this is something that, up until now, has been seen as a competitive edge by certain asset managers, but now ESG is becoming the norm, and generally recognised by fund managers when managing their investments.” He adds that companies showing concern for sustainability in their business models

tend to grow profits more consistently into the future.

The rise of enhanced passive funds (rules-based investing) Garvin notes that enhanced passive funds, otherwise known as rules-based investing, have been on the rise for the last decade.

“One of the reasons is that certainly over the last investment cycle, over the last decade, markets have been an interesting and a tough environment. Many active asset managers have struggled to keep up with some of the main indices and this has caused a move into these passive indextracking type funds. With regulation and increased transparency, there’s been greater emphasis on fees, and a wish by clients to pay lower levels of fees. We know passive funds are priced cheaper than active funds, hence the move towards this part of the market.”

Another reason for the rise of passive funds has been that over the last decade or so, there have been periods of lower returns – and in a lower return environment, lower fees play a bigger role, he adds.

disruption in many existing standard fee models. “This isn’t only fees taken by fund managers, as we see this happening across all areas of the chain. It’s also the fees that administrators take, the LISP platform fees, and even the fees that financial planners and wealth planners take in terms of the financial advice they give.”

Continued on page 3

Fees remain in the spotlight The demand for increased transparency has resulted in downward pressure on fees, with Garvin warning that this will cause a

“The demand for increased transparency has resulted in downward pressure on fees”

Consistent excellence has a new name.

Trevor Garvin, Head: Multi-Management, Nedgroup Investments

Becoming

To learn more about this please visit: mandg.co.za PIMSA is a licensed financial services provider.

Money Marketing Strip 220x80mm.indd 1

2021/09/15 15:59

Consistent excellence has a new name.

We’re pleased to announce that we are further strengthening our historic ties with our global parent, M&G Investments (M&G). As of 9 July 2021, Prudential Investment Managers has become a subsidiary of M&G, and we will be changing our identity to M&G Investments before the end of 2021.

As a result, our clients will benefit to an even greater extent from our closer integration with M&G’s large international team of investment experts, global best-practice, and expanded access to the latest global investment ideas and technology, among many other advantages.

The changes will have no impact on the way Prudential’s unit trust funds or institutional mandates are managed. Our local investment team and management structure remain unchanged, as do our consistent, valuationbased investment approach and process.

Becoming

To learn more about this please visit: mandg.co.za

Prudential Investment Managers (SA) (Pty) Ltd is a licensed financial services provider.

31 October 2021

NEWS & OPINION

Continued from page 1 Personalisation of services to meet customer expectations Technology now allows companies to gather data, analyse it and develop a customised solution that is very specific to a client’s needs, Garvin says. “This move towards tailor-made solutions for clients is certainly the way forward.”

Machine learning Machine learning is helping to eliminate cognitive biases in investment decisions and fund management. “Behavioural finance and psychology have taught us how biases can very often negatively affect investment decisions. But if we can get rid of our emotions when it comes to investing, we often make better investment decisions and choices,” Garvin explains.

“And research has shown that by using machine learning to eliminate those emotions and biases out of investment decisions when managing funds, it has actually helped some active managers increase their alpha by between 100 and 250 basis points – this is much needed due to the rise of passive funds.”

Alternative investments will grow The role of alternative investments will increase, with a large uptick in flows seen into private equity, venture capital and sustainable projects. “There are various reasons for this,” says Garvin, “but one of them is the way the COVID-19 crisis in March last year played out when we saw markets fall by between 40% and 60% over a tenday period. Many asset classes were highly correlated during this time, so I think investors are searching for noncorrelated assets, while recognising also that there are certain liquidity issues they may face.”

EDITOR’S NOTE

T “Machine learning is helping to eliminate cognitive biases in investment decisions and fund management” Digital distribution models Digital distribution models will take products directly out to the end customer.

“We’ve seen the rise of robo-advice, artificial intelligence and outcome-based investment products. Both in South Africa and globally, we see this increased use of digitalisation: clients are able to access investments and investment advice directly on the Web, and make many investments on their own.” Garvin adds that intergenerational wealth transfers are helping to drive this behaviour and the move towards digital awareness.

“The baby boomers, who are now in their sixties, seventies or eighties, have a large

amount of wealth they’ve built up over the years, and they’re now passing on their wealth to the millennial generation.

Millennials often use robo-advice to invest their new-found wealth.”

The need for cybersecurity With increased levels of digitalisation and a move towards a flexible working environment, the need for cybersecurity is gaining critical importance. “People working from home need to access their work information and client information that’s very often held centrally on some remote site. To keep this information safe is an important factor,” Garvin says.

There has also been concern that quantum computers that are based on quantum physics rather than more standard electronics, could break most cryptography, becoming a cybersecurity threat. “Keeping client information safe and protected from increased levels of fraud is going to be a key area of focus for many businesses,” he adds.

Nedgroup Investments’ Head of Multi-Management, Trevor Garvin, was speaking at the recent webinar Multi-Manager Insights: Recession, Recovery, Revolt... where to next?

EARN YOUR CPD POINTS The FPI recognises the quality of the content of MoneyMarketing’s October 2021 issue and would like to reward its professional members with 1 verifiable CPD points/hours for reading the publication and gaining knowledge on relevant topics. For more information, visit our website at www.moneymarketing.co.za

here was some badly needed positive news about the economy last month. The better-than-expected GDP figures for the second quarter of 2021 were most welcome, suggesting a steady, albeit slow, recovery. Growth came in at 1.2% quarter-on-quarter, beating consensus expectations of 0.9% quarter-on-quarter. On a year-onyear basis, GDP hit 19.3%. Industries recording positive quarter-onquarter growth were transport & communications, agriculture, personal services, and trade.

Clearly, South Africa is deriving benefit from robust global growth, high commodity prices, and low interest rates. Some economists are putting our 2021 growth rate at around 5%, but they see real GDP reaching the pre-pandemic 2019 level only in 2023.

Concerns remain about the coronavirus and its possible mutations, as well as our population’s vaccine hesitancy. A sharp slowdown in growth is expected in the third quarter, due to the civil unrest in KZN and Gauteng, as well as the level 4 lockdown, with the economy staging a firmer recovery in the last quarter of the year.

Expectations around interest rates appear to remain the same, with the consensus being that rates will remain unchanged throughout this year, although a couple of economists have penciled in a 25bps hike at next month’s SARB MPC meeting.

What’s comforting about the second SUBSCRIBE quarter 2021 GDP TO OUR figure though, is that NEWSLETTER

it should support a better-than-expected bit.ly/2XzZiMV fiscal outlook, which should please the rating agencies. The last thing this country needs is another downgrade.

JANICE ROBERTS janice.roberts@newmedia.co.za @MMMagza www.moneymarketing.co.za

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31 October 2021

NEWS & OPINION

PROFILE

Georgina Smith Head of Distribution and Client Services: INN8

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

Like a lot of people in the industry, I didn’t really plan to end up in financial services. I left university, joined Unilever and trained as an accountant. A couple of jobs later, finance management had given me an excellent grounding and I moved into training and development, specialising in finance. Training and coaching people, as well as personal and team development, is my absolute passion, and in 2006 an opportunity came along for me to put into practice all that I’d taught in the classroom – and walk the walk with my own business.

My husband (a dentist) and I set up our own dental business in the UK and over 10 years we built ourselves up to be the largest independently-owned private dental practice in the South East of England. When we sold the business and moved to SA for a better lifestyle and more family time six years ago, I met the then very small INN8 crew and started working with them, back in my comfort zone of training and development. It soon became apparent that because of my experience owning my own business, I could connect with advisers and understand what their challenges were. The same things used to keep me up at night: certain clients will always be front of mind, staff, compliance, cashflow, new business.

Describe your role at INN8 I’m privileged to run the Distribution and Client Servicing team at INN8. Both these teams I’ve built more or less from scratch, and it has been important to me to hire a diverse range of people from various backgrounds, rather than taking the easy route of poaching people with B.Coms from other product providers. This breadth and depth across the team gives a much broader perspective, better critical thinking and problem-solving skills – and new and different ways of doing things.

Within the team we have three people who used to be advisers, an ex-military man, a well-known podcaster, a chap who did such a good job of selling us our phone and webex service that I hired him, and one guy who used be a high-board clown diver at Sea World! What they all have in common is that they understand it’s not just about great service, it’s about a great endto-end experience. I am proud to have built a team of empathetic problem solvers completely focussed on giving the very best adviser experience.

How have advisers adapted to the changing circumstances around COVID-19 and the subsequent lockdowns?

When COVID-19 first struck, I think most business owners were in panic mode.

What does this mean? Will I survive?

What will markets do? What will happen to my clients during this time? And will I still be able to serve my clients? As the move to digital engagement became the norm, advisers quite rightly started to ask questions of their providers.

Wet signatures and paper trails needed to disappear, and fast.

Providers stepped up with varying success and I’m very proud to say that INN8, with its signatureless,

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straight-through processing – particularly in the offshore world – was able to seamlessly step into the breach that faced advisers.

Then, as lockdown 2 came along, there was a much more practical and predictable approach. Advisers, bolstered by their previous handling of lockdown measures, easily transitioned back to virtual meetings.

Clients were also pragmatic and most welcomed the chance to Zoom. In fact, many advisers enjoyed the improved productivity and business efficiencies brought by not having to travel to see clients. I can see a new hybrid norm developing, which will be a combination of face-to-face meetings and more frequent video engagements with clients.

The success with which advisers have adapted to COVID-19 lockdown restrictions has also depended on the adaptability of their own compliance processes and tech stack present in their offices. Again, I’ve seen varying success across advisers here, with the most innovative and proactive advisers quickly implementing new systems that manage risk in their business, bring business efficiencies and deliver a better experience for their clients.

What do you think advisers are concerned about at the moment – and how can INN8 assist them with solutions?

I would distil that down to two things that I think advisers are concerned about at the moment, and fortunately I know INN8 can help on both fronts: How can I bring efficiencies to my business?

How can I improve my client value proposition?

Traditionally, we’ve thought of running a platform as getting three separate buckets of things right: product offering, service, technology. With INN8, we haven’t thought of those buckets individually. We started with a blank sheet of paper and joined it together to form an exceptional adviser and client experience. From the way you move intuitively through the clean and easy-tonavigate web screens enabling you to place business in a matter of minutes, to the ground-breaking way we fit into the advisers’ own systems and processes, to the person answering the phone who gives consistent, knowledgeable and insightful information, the end-to-end experience is what was front of mind in our design, build and implementation.

The efficiencies brought to an adviser’s business, and the improvements they can make to their own client value proposition, include things like not having to phone call centres to find out when a transaction will be priced or paid – our tech delivers same-day pricing and all the information is right at the adviser’s fingertips. And not having to call someone to try to understand why because of a payment run a client’s switch is delayed – our smart queueing ability means there are no restrictions on when you can trade. And if you do want to speak to someone, having a person who responds immediately and correctly – first call resolution is a primary metric in my team – will save the adviser time and frustration, and I know how important that is.

VERY BRIEFLY Seriti Capital Partners has announced the purchase of 100% of the shares of Cannon Asset Managers from Bidvest Financial Services, with effect from 1 September 2021. “The day-to-day operations of the business will continue as before, under a new executive team who bring a wealth of experience and insights to the business, and will add to Cannon’s already robust investment process,” Cannon Asset Managers says in a statement.

The incoming CEO is Simpiwe Mayekiso, Tshepo Modiba takes over as Chief Investment Officer, while Deshan Naidoo will assume the role of Chairman. “Of significance, this acquisition will create one of the very few black-owned asset management companies that will have a fully-fledged global offering,” Cannon Asset Managers adds.

Simpiwe Mayekiso is an experienced asset management and private equity professional, with over 20 years of experience. His career spans a variety of sectors, managing multi-billion-rand portfolios and funds. He has extensive capability across listed and unlisted equity investments, and has represented private equity funds on various boards, to drive strategy of investee companies. His experience also includes entrepreneurial ventures in his personal capacity, in the mining and manufacturing sectors.

Tshepo Modiba has over 13 years’ experience as an investment professional, three of them at Cannon where he was a Senior Investment Manager responsible for the Cannon Global Equity, Global Best Ideas, Global Diversified, Global High Yield and Global Opportunities funds, Tshepo Modiba as well as heading up Portfolio Construction. Tshepo co-founded Seriti in 2013 where he was a director, CIO, portfolio manager of the Seriti Global Equity Portfolio, and custodian of the investment process.

Deshan Naidoo has nine years’ senior management experience in manufacturing and finance. He is the managing director of Aventure Capital, a boutique management consultancy and investment holding company, which he founded in 2014.

Wealth management company Citadel has acquired a 100% stake in Precept Wealth Solutions (PWS).

“Acquisitions that add value to the company and its clients are an integral part of Citadel’s growth strategy,” says Citadel CEO Andrew Möller. “This strategy has resulted in Citadel becoming one of the most influential leaders in the South African wealth management space.”

In recent years, Citadel has acquired the Wealth Corporation, Consolidated Financial Planning, Purpose Wealth and Point 3. Möller adds that these transactions, coupled with organic growth, have seen Citadel’s assets under management grow to more than R70bn, as at end July 2021, and have created a vertically integrated company that is able to offer a holistic wealth management solution. PWS is a boutique financial services provider, with 450 clients in Gauteng, the Western Cape and KwaZuluNatal, and R2.15bn in assets under management.

“Citadel and PWS share a similar company culture and philosophies, which makes this a good fit. We welcome PWS founder Mandy Stratfold and her team to Citadel and believe PWS clients will greatly benefit from our specialist services,” says Möller.

31 October 2021

NEWS & OPINION

POPIA is an opportunity to build customer trust

BY YUDHVIR SEETHARAM Head: Analytics, Insights and Research, FNB Business

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he recent implementation of the Protection of Personal Information Act (POPIA) means that every business or organisation, irrespective of size or type, is now accountable to consumers for the protection and appropriate use of their data. The legislation applies on two levels – businesses that gather and store customer data, as well as those that merely use it without capturing or storing it, fall within the scope of the POPIA. The same is true of the nature of the data that is collected or stored. For example, a business that captures just the name and contact details of people with whom it has one-off dealings (like a security firm logging visitors at the entrance to a gated community) has an equal responsibility to protect and appropriately use that data as a large financial or other corporate that regularly collects information on customer behaviour.

Ultimately, the accountability of all these businesses that capture or handle consumer data can be distilled down to two main responsibilities – to do everything in their power to keep the personal information they gather secure, and then to only use it for the purpose for which it was captured, or for which the customer has granted specific permission.

Given these fundamental ‘rules’ embodied by the legislation, it’s something of a sad indictment on the way business has come to be done – not just in South Africa, but around the world – that this

level of government policing of data security is even required. Most business leaders and owners would undoubtedly agree that customer trust is the single most important foundation on which lasting business success can be built. Most would also agree that the way a business protects and uses the personal information entrusted to it by its customers is central to the establishment and maintenance of this all-important trust.

All of which makes it difficult to comprehend why it is even necessary to implement laws in order to force businesses to deal with their customers’ data in a responsible and ethical way.

Interestingly, when one looks at the correct use of customer data from the point of view of good and ethical business conduct, rather than merely regulatory compliance, the introduction of the POPIA becomes less of an administrative burden and more of an opportunity to build trust with your customers by demonstrating to them just how committed you are to securing, and never misusing, their personal information.

Unfortunately, leveraging POPIA in this way to build or deepen customer trust levels requires much more than sending a standard negative-response-marketing email to everyone on your database in order to confirm that you can keep on communicating with them in the future.

And building a loyal customer base is also never going to happen by simply buying a list from an unscrupulous business and then taking a ‘shotgun’ marketing approach. The fact that many businesses are still trying to grow their markets using this inefficient method, points to a dysfunctional customer data supply-anddemand situation that has, for too long, been a driving force behind unethical use of consumers’ personal information.

Hopefully, the POPIA will help put an end to this list-buying practice, or at least reduce it considerably. And when it does, the importance of trust-based business growth practices will become even more obvious for any business that wishes to remain relevant and sustainable.

More importantly, the growth potential for ethical businesses that can clearly demonstrate to their customers that they don’t need regulation to respect their privacy and protect their data, will be significant. And effective data analytics is key to doing this. This doesn’t necessarily imply that a business intent on building customer trust through good data use practices needs to have a team of data

scientists at its disposal. It just means that the management of the business, irrespective of its size or sector, commits to implementing and adhering to data collection, storage and usage processes that are underpinned by good governance and ethically sound principles.

Having these processes in place will not only ensure that the business engages appropriately with its customers, but also that those engagements can be specifically targeted to align with the needs, preferences and life events of those customers. In other words, good data practices allow your business to meet your customers where they are in their lives, and serve them in ways that enhances their desire to be loyal to you.

More importantly, assuring your customers that you have appropriate, POPIA-aligned data management processes in place is an incredibly valuable source of comfort to them. Quite apart from avoiding the reputational risk of a data breach, when your customers have your sincere promise that their data is safe with you, and that you will never sell their personal information to anyone, at any price, the foundation is in place for a trust-based, long-term relationship that is infinitely more valuable for your business than any possible short-term savings to be had from skimping on data processes or personal information protection.

“The importance of trust-based business growth practices will become even more obvious for any business that wishes to remain relevant”

Deloitte Africa named Africa Tax Firm of the Year

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eloitte Africa was named Africa Tax Firm of the Year at the 2021 International Tax Review (ITR) Europe, Middle East, and Africa (EMEA) Tax Awards ceremony, held virtually last month.

According to ITR, the practice has been awarded this accolade for demonstrating exceptional performance and impact in advising clients on direct and indirect tax matters in its jurisdiction, as part of cross-border matters or as domestic deals, cases or projects.

As part of the EMEA region, Deloitte Africa also won the Tax Technology Provider of the Year (for implementing and integrating new technology-based processes, systems or tools to improve the efficiency of tax teams), and the Tax Compliance and Reporting Firm of the Year award (for displaying exceptional

strength in tax compliance and reporting matters).

“We are thrilled and humbled that our amazing team has been recognised in this way,” Delia Ndlovu, Managing Director for Deloitte Africa Tax & Legal says of the accolades. “It is a tribute to their hard work and the tenacity that they have shown over a very difficult year, considering the pandemic and economic fallout we have faced. It is also a recognition of the investment we have made in our tax technology solution space over the last few years and further reaffirms the strategic view we have taken of tax compliance across Africa. Most of all it is a tribute to our clients, who trust us with the work and allow us to continue to make an impact that matters, together.”

The ITR EMEA Tax Awards are now in their 17th year,

Delia Ndlovu, Managing Director, Deloitte Africa Tax & Legal

celebrating the leading tax and transfer pricing firms as well as practitioners from across the EMEA region. The awards submissions are judged on innovation, level of impact, complexity of matter, and scale of projects completed over a twelve-month period.

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31 October 2021

NEWS & OPINION

SA issues guidance on crypto asset tax

BY THOMAS LOBBAN Legal Manager: Crypto Asset Taxation, Tax Consulting SA

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owards the end of August this year, SARS provided further guidance on the correct tax treatment of crypto assets and how they must be declared in tax returns.

This took place in the form of a webpage published by the country’s revenue service, entitled Crypto Assets & Tax. The publication should perhaps best be seen in context of the various comments made by SARS recently on the taxation of crypto assets, the perceived non-compliance by crypto-asset holders, and how serious SARS is taking non-compliance.

A common misconception is that where you have simply held crypto assets, but have not made any trades, you do not have to make any disclosure to SARS. The 2020/21 tax return requires that you must make a specific disclosure under the Statement of Local Assets and Liabilities section.

The consequence hereof is that all individuals who have acquired and held crypto assets during the tax year must disclose these holdings to SARS in their returns, regardless of whether any taxable events took place. This is easy to get wrong and taxpayers should be sure to tread carefully. Where you do not make this disclosure, even negligently, is now a criminal offence under the Tax Administration Act.

In countries where income tax and capital gains tax are subject to the same rate, the nature of trading vs investment is not important.

In South Africa, the top marginal personal income tax rate is 45% and the top marginal capital gains tax rate is 18%; therefore a point of great significance.

In SARS’ CGT Guide (issued 5 November 2020), it was mentioned that “[g]iven their extreme volatility, cryptocurrencies are likely to be held as a speculative asset of a revenue nature”. This is probably generally true, but not always the case.

Despite this, the webpage information published recently only gives examples of capital gains tax disclosures. There are no examples given of income tax disclosure, which means taxpayers may fall on the wrong side of the law by just following the guidance provided

by SARS. The new publication provides no specific examples or guidelines on how this differentiation between revenue and capital is to be established. The statement is made that the answer will come from existing jurisprudence. This does not mean much, if anything, to a normal individual taxpayer.

Despite popular belief, the determination of revenue vs capital is not merely a function of the length of time for which the asset is held – one must consider various factors, including the taxpayer’s intention. Court judgments have confirmed that there is no single test to be applied.

For example, in ITC 1525 (1991) 54 SATC 209 (C), the taxpayer held Krugerrands for a period of 12 years (for a rainy day), and eventually sold them in order to inject capital into a new business. The Tax Court found that this was subject to tax on revenue and not CGT. This was similarly the case in ITC 1526 (1991) 54 SATC 216 (T), where Krugerrands were held for up to nine years as a store of wealth and protection from inflation.

“There is no legitimate way for crypto asset investors to remain ‘invisible’ from a SARS perspective” There is no legitimate way for crypto-asset investors to remain ‘invisible’ from a SARS perspective and, while many may still be in denial of this, SARS will keep on getting sharper. Even where people fail to disclose correctly now, the non-disclosure is permanent and will come back in a few years to catch up with the taxpayer.

SARS has appointed specialists to deal with crypto assets, yet the market has not seen any prosecutions in this area of tax.

One thing is absolutely certain, however – it is no longer enough to hide in plain sight. Crypto asset holdings (not just gains and losses) must now be declared in your returns, and we will soon start seeing the wheels of justice turn quickly for those who are slow on the uptake.

Fit And Proper competency check – Class of Business Exams

BY CATHERINE COOPER Regional Director, Compli-Serve KZN

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he Financial Services industry seems to have come to grips with the Fit and Proper Continuous Professional Development (CPD) requirements of BN 194 of 2017 and FAIS Notice 86 of 2018, but the same cannot be said for the Class of Business (COB) requirements of these same Notices. As we are already well into the new CPD cycle, commencing 1 June this year, it’s essential to get to grips with what is required, and soon.

COBs are one of the four current pillars of competency relevant to any new representative (rep) of an FSP employed after 1 April 2018, or to an existing rep in respect of any additional license categories. COBs must be completed within a year of that rep’s Date of First Appointment (DOFA) or within a year of the DOFA of the relevant license category.

It is crucial to note that COB competency requirements will only

be met if they are provided by an accredited training provider (i.e. one registered with INSETA, for example).

But there is currently confusion as some training providers are offering CPDs on the subject matter of COB training, and it is important to note that in such instances, you will only be provided with CPD hours, but not be meeting the COB requirements of Fit

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and Proper CPDs. Confusion can arise and it’s important to keep an eye out that your reps are staying on top of their compliance requirements.

If you aren’t sure whether the CPD certificate you are assessing meets the CPD requirements of the abovementioned notices, here is what to watch out for. As a rule of thumb, the following must appear on the CPD certificate: • Verification by a professional body as evidenced by their stamp (for example INSETA, the FPI or SAICA, to name a few) • The full name and ID of the rep • The number of hours that are granted for attendance of the seminar or the test written • The date of the seminar or test.

If you are still unsure about it being either a CPD or COB certificate, you need to do further checks, such as ensuring you obtain proof of training via a registered external accredited training provider.

“FSPs have a duty to debar reps that fail to meet any Fit and Proper competency requirements” FSPs have a duty to debar reps that fail to meet any Fit and Proper competency requirements. It’s a risk to your business otherwise, particularly if any complaints arise against a rep that was not Fit and Proper at the time of giving the advice, as there would be severe ramifications for the FSP in this case.

Working within the rules of compliance with Fit and Proper is always the best way for your business.

As there are many aspects to keep in mind and easy ways to get confused, it may be a good idea to seek external compliance support to assist.

31 October 2021

NEWS & OPINION

Why Discovery is moving to a mandatory vaccination policy

BY JANICE ROBERTS Editor: MoneyMarketing

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inancial services giant, Discovery, intends to implement a mandatory vaccination policy effective 1 January 2022, the company announced last month. “We’ve sought out the advice of leading experts in making our decision, but ultimately, we believe it’s important for corporate South Africa to take a strong position in this regard,” Hylton Kallner, CEO of Discovery Bank, said in a virtual presentation to staff and the media.

Discovery believes its move on mandatory vaccination is consistent with efforts globally, as at the end of July, Walmart and Walt Disney introduced new requirements that some employees be vaccinated. This followed similar announcements from Google, Facebook, and others. And since July 1, only vaccinated employees and visitors to investment giant BlackRock, in New York, have been allowed to return to the office, while beginning last month, the investment bank Goldman Sachs, also head-quartered in New York, requires all individuals entering its offices, including clients and visitors, to be fully vaccinated against COVID-19.

The rationale for mandatory vaccination Framing Discovery’s rationale behind its intention to implement its mandatory vaccination policy, Kallner said the reality in which South Africans are living is unprecedented and “there isn’t a single person who hasn’t been affected to either a smaller or larger degree by COVID-19 – either directly through the loss of colleagues, family or friends, or indirectly, whether it’s in their personal lives or in businesses.” He added that there is unequivocal data from within Discovery, and more broadly, that COVID-19 vaccines are truly effective and very safe.

From a public health perspective, the coronavirus is somewhat unique and obviously reflective of a rapid-spread pandemic. “With mutations like the Delta variant that spread very, very quickly, the cost of not vaccinating is a huge societal burden. And as an employer, we obviously have a significant role to play, and an obligation in that perspective.”

While South Africans were initially highly critical of the country’s vaccine supply, this has been dealt with and a significant supply has now been secured. “Today we have world-leading capacity to deliver vaccines to our population, and therefore the issue that we need to overcome is hesitancy.

From our perspective, as Discovery, we are driven by a core purpose of making people

healthier, and this underpins everything we do in terms of our shared value model. We therefore have a moral and social obligation to act – and to act now.

Kallner explained that, from an occupational health and safety perspective, as an employer with large working areas for its staff, the company has a legal obligation to protect and safeguard all employees from the potential risks they’re exposed to when they come to work. “When you look at the rationale, we believe that it talks squarely to the need for a mandated vaccination policy among our staff – and one that is very well constructed, well thought through and that respects the individual and their perspectives.”

COVID-19 has resulted in an unprecedented health tragedy for the country, Discovery customers and staff, he added. “We’ve been one of hardest hit countries in the world and we’ve had over 230 000 excess deaths since May 2020; and, within our client base, the numbers are significant as well. We made substantial provisions for life insurance claims for our clients that have been impacted by COVID-19, and we’ve had twenty deaths among Discovery staff. We see that as an absolute tragedy and something we have to take action against.”

Safety of vaccines Discovery sees vaccinations as the most significant way of doing this, believing that the safety and impact of the coronavirus vaccines is almost unprecedented.

“Through vaccination, the risk of COVID-19 or death from the coronavirus can be reduced to less than the risk of death from influenza,” Kallner stated.

From a Discovery perspective, data conclusively supports the efficacy of vaccinations, not just in terms of preventing death but in terms of reducing the risk of infections. For those that are infected, the risk of being admitted into hospital, if they are vaccinated, is substantially lower. If they are hospitalised, the chance of being placed in high care or ICU is greatly reduced.

Kallner said that while COVID-19 vaccinations themselves do obviously have some side effects – and all vaccines do – they are incredibly safe. “There are cases of adverse clinical reactions to vaccinations, but the risks are substantially lower than the risk of COVID-19 in respect of the very same events, so if you’re looking at kidney injury or pulmonary embolisms, myocardial infarction or myocarditis, the risk of all these is significantly higher for those who haven’t been vaccinated than for those who have.”

He added that, based on studies to date, there is about a 2% adverse reaction to the vaccinations. “Put another way, there

is a 98% probability that those who are vaccinated don’t have any severe adverse side effects. The vaccine is truly safe when measured across any sort of global standard. The rationale for the vaccine at an individual level is absolutely compelling, but it’s not just the individual efficacy that that’s been proven, since when you’ve been vaccinated there is a significantly reduced rate of transmission as well.”

He explained that studies done in Australia, US, the UK and Israel indicate that there’s a 52% to nearly 80% lower transmission risk in the spread of COVID-19 among those who have been vaccinated relative to those who haven’t.

“In the context of an employer setting such as a building or an office, the importance of having everybody vaccinated in order to create a safe working environment is absolutely crucial.”

He noted that, today, South Africans have access to vaccinations they didn’t have six months ago. “I think back then, there was real concern around the ability to meet the demand among our population and whether we would have sufficient supply, but – giving credit to our government – we now have significant supplies, and the supply chain is strong.”

Discovery believes the country has the ability and capacity to deliver in excess of 300 000 vaccine doses per day to the country’s population. “So, if done effectively, efficiently and with velocity, we have the ability to pretty much vaccinate the entire population by the end of the year. And if you look at the stock profile and the projections, what you’ll see is that at any point in time we have around 10 million doses on hand across the country, and therefore supply is available. Importantly, there’s no economic barrier to being vaccinated, and the actual footprint of the access and availability is significant.”

"There may be pockets of criticism, but we won’t shake our responsibility to lead in this context" Kallner added that Discovery was concerned by the levelling off that it had seen in terms of the rollout and take up of vaccinations among younger groups.

“We think that, in the context of a fourth wave and the need to act now, it becomes absolutely crucial to create a real sort of momentum and velocity in terms of the vaccination program.”

Adrian Gore, Discovery Group CEO, wrote in a letter to staff – seen by

Adrian Gore, CEO, Discovery Group

Hylton Kallner, CEO, Discovery Bank

MoneyMarketing – that the group is implementing the vaccination mandatory policy guided by the principle of mutual respect. He said the policy recognises the right of employees to object to the policy and to being vaccinated. “We will implement a process to manage this, including where necessary and possible, exemptions and reasonable accommodation of employees.

Considering the operational and business requirements of Discovery, this process will consider the employees’ health, religious and other legal rights, and will seek to balance these with the rights of all employees across the group.”

Discovery expects questions about this policy and understands that there will be some anxiety, discomfort and concerns.

“For these reasons, we will be engaging and supporting you extensively over the coming months as we navigate this process,” Gore wrote.

“We are living during a devastating infectious disease pandemic that can and must be managed to create safe workplaces and for the socioeconomic benefit of society as a whole. The government-led mass vaccination program now has the capacity to achieve what it set out to do, but it requires cooperation at individual and institutional level. We are proud of our position and are deeply committed to protecting our employees and fellow citizens. Yes, there may be pockets of criticism, but we won’t shake our responsibility to lead in this context, given what is at stake,” Gore concluded.

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31 October 2021

NEWS & OPINION

Act like a planner – think like an entrepreneur

BY GUY HOLWILL Chief Executive, Fairbairn Consult

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s a financial planner, you wear two hats when you are at work. The first is as a professional who advises clients, and the second is as an entrepreneur who runs a business – whether it is just you or a larger business employing many people.

It’s not only about financial planning To be a successful planner, you need to work through the six steps of financial

planning where you identify your clients’ needs and implement solutions designed to help them achieve their financial goals.

You obviously do this in the context of all the relevant regulations.

Given the demands of your clients, and that this is how you generate income, it is no surprise that most planners spend most of their time focusing on financial planning.

But I challenge you to think of any successful business, in any industry, where the people managing the business do not spend time thinking beyond the day-to-day activities of generating income.

compliance and finance (so I’ll exclude these), which leaves the following critical roles: • The CEO creates the vision for the business and oversees all the other managers.

While they are ultimately accountable for everything, a good CEO gets things done through the efforts of others, rather than trying to do everything themselves.

• The Chief Operating Officer ensures you have solid plans in place to recover from any disaster, is responsible for your infrastructure, systems and processes, and manages your support staff.

• The HR Director hires the right people and is responsible for their ongoing Creating a shift in your business training and development. The HR To take your business to the next level, you Director also creates an environment need to ensure you are spending enough where your staff are happy, fulfilled and time thinking like an entrepreneur and deliver really great work. developing all aspects of your business.

• The Marketing Director promotes the To identify all the different things you need business and your services or products, to focus on, it’s helpful to imagine a large building an aspirational brand to ensure company where there are different directors there is a steady flow of new clients. who are dedicated to specific functions. Small • The Customer Experience Director ensures businesses are the same – you just have your clients’ experience is so good that fewer people and most of them will juggle they never think about leaving and, multiple jobs. You probably outsource legal, instead, feel compelled to tell their friends

Meet the next president of the CFA Society SA STANLIB’s head of strategic investments and manager research, Jennifer Henry, has been appointed the next president of the CFA Society SA. She spoke about her new role to MoneyMarketing’s editor, Janice Roberts.

What does it mean for you to be president of the CFA Society SA? Becoming president of such a prestigious organisation raises a range of emotions, but the two that stand out are feeling humbled and challenged. It is humbling to lead a board of well-experienced and respected individuals that elected me to be their president. I am also humbled by the global and local recognition from fellow CFA Charterholders and colleagues, and by the support I have received from the STANLIB Executive. Our society has a great reputation among its members for delivering member value or candidate preparation, and it will be a challenge to take the society to new heights.

It’s been said that the CFA is the most brutal exam in the world of finance – fewer than 50% of people pass the first level. Would you agree with this statement, and how much did you personally have to give up to pass these notoriously gruesome exams?

Exams that are credible must be challenging enough to ensure candidates acquire a deeper understanding of concepts. ‘Brutal’ may be too harsh a word to depict the level of difficulty of the exams. I believe that if you put in the work and engage with investment professionals to help you fully understand the concepts from different perspectives, you stand a better chance of passing. After completing the first two levels before I had children, I wrote the third level when my second child was just eight months old. I had to

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sacrifice a lot of personal time, for example by waking up at 4am to study, because evenings with kids are chaotic. I also had to learn to study in every spare moment, even if it was just for 20 minutes.

For many students, parts of the CFA Program exams that commonly cause the most trouble are those covering Fixed Income and Derivatives. Was this part of your experience?

Derivatives definitely! I think it is challenging because the questions are a lot more varied, and technical derivatives are used most often in daily portfolio management. I found the Fixed Income exams manageable. My real nemesis was the Level II accounting. I think most Charterholders who don’t have a background in accounting would have the same experience.

The CFA Society SA will this month be part of the International Day of the Girl Child, by providing a free online workshop focusing on careers in the investment industry. What do you plan to tell these female Grade 10 and 11 learners about the CFA qualification and how do you plan to encourage them to embark on a career in the investment industry?

First, we are going to provide these young female learners with insights and context on why the investment industry exists, and what types of jobs are available. Next, we will give guidance on subjects, qualifications and the personality

and family about you.

• The Sales Director drives new business and ensures that the focus is on clients who contribute the most value.

When you look at this list, are you certain that someone in your business is giving sufficient attention to each of these items? If you are responsible for all of them, are you taking enough time out from the day-to-day business of generating an income to spend time thinking about this?

If you are not giving sufficient attention to all these items, you must accept you are choosing to run a business that is not as successful as it could be.

Create an exit strategy for yourself Lastly, all entrepreneurs have an exit strategy.

What this means is entirely up to you. It can range from handing the business over to others over several years, to selling the business and moving on to the next one.

Either way, for you to remain in control of your exit, you must remember that the main goal for any entrepreneur is to develop your business to the point that you are redundant.

traits that will help individuals not only to succeed, but also to enjoy a job in finance. Then we will explain more about the CFA programme and showcase the increasing availability of support, across the world, for women in investments and finance from organisations like the CFA Institute.

The CFA Society South Africa 2021 Annual virtual Investment Conference is coming up in November and its theme is Redefining Finance in a PostPandemic World. Tell us a bit about this topic.

The pandemic has opened our minds to new ways of working and creative solutions. Africa needs to use this opportunity to rethink access to finance, SME acceleration, development of women in finance and promotion of innovation. Financial institutions are going to have to redefine how they measure success and re-evaluate their strategies, so that there is joint value creation and finance becomes fit for our future society.

Our country was hit by the coronavirus pandemic at a time when the economy was already struggling, and in July we had the riots in KZN and Gauteng.

How do you feel about South Africa’s future?

The true north that has emerged from the pandemic and the riots is that South Africans are resilient and our sense of community shines through. I believe in SA’s future because of this culture. I have seen this resilience in many investment professionals, Charterholders and candidates, which fills me with confidence that we will rebuild SA to be stronger and more sustainable.

Jennifer Henry, Head: Strategic Investments & Manager Research, STANLIB

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31 October 2021

SOFTWARE SUPPLEMENT

Accurate and reliable financial data indispensable to any financial services provider’s success

BY JOHAN VAN DER WALT Head of Department: Data Sales, Profile Group

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ustomers in the financial services arena have come to expect that their institutions will guide them through volatile and fast-moving financial markets. Institutions have also come to understand that the point of contact is often via their websites, apps and data portals.

It is therefore important that these contain up-to-date and accurate financial data.

Profile DataTM takes pride in being the leading South African financial data feed solutions provider. Our specialised local research teams, together with our relationships with international exchanges and data providers, allow clients access to a wide range of data options for both in-house needs and for on-distribution to their customer base.

Profile’s specialised IT team takes pride in building turnkey solutions that meet the need of customer specifications at a defined cost. Profile’s on- and

off-site IT infrastructure allows cost-effective hosting and solutions management, reducing the need for expensive capital outlay.

As a result, Profile has the unique ability to develop customised solutions combining equity exchange data together with domestic and international unit trusts, including hedge funds data, into any bespoke solution through our ShareDataTM and FundsDataTM platforms.

Client-specified front-ends can be developed to the end-user’s specifications, allowing service provider resources to be focused on their primary business, giving them the competitive edge.

ShareData ShareDataTM aims to provide data clients with a single source of comprehensive listed company information.

The Profile research team strives to capture all aspects of relevant information for every listed company, ranging from address details to comprehensive financial data.

Time-series data for all listed securities is available, covering the JSE, Namibia and the newly established 4AX, ZARX, A2X and EESE exchanges, as well as standardised financial results, which allow for much more efficient analysis of all listed company financial releases.

With the exciting launch of our app, Profile Mobile, we have taken ShareDataTM mobile to Android and iOS devices. Profile Mobile not only integrates market

information containing listed shares, SENS, indices, currencies and commodities into one powerful tool, but also provides charting, with end-of-day as well as intraday pricing.

FundsData With the proliferation in the number of funds now outnumbering listed shares by over fivefold, Profile’s FundsDataTM brings common sense analysis to the fund environment. It is housed in a fully relational database structure designed to facilitate manipulation of the data content. Descriptive content is, wherever possible, backed by field-defined data, allowing filtering, searches, date calculations and complex reporting.

FundsDataTM covers all South African retail and institutional unit trusts. Data contained covers a range of over 1 400 retail unit trusts and over 3 500 institutional funds. In addition, our international partners have the capacity to meet client data needs pertaining to FSCAregistered local domiciled offshore funds.

For more information contact Johan van der Walt, Cell: 072 843 9239, Tel: 011 728 5510 Email: johanw@profile.co.za

INN8 launches local investment platform

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NN8 is proud to announce the official launch of their local investment platform.

After finding success within the independent financial adviser market with their offshore investment platform launched in 2018, INN8 continues to live to up their vision to change the way investments are done in South Africa.

The local investment platform gives advisers the advantage in a new digital world heavily influenced by constant change and regulation. By adopting the platform in their business, advisers can increase their speed and efficiency, and achieve better scale in their businesses, providing better advice and service to more clients.

The platform allows advisers to invest their client’s money to start an

“Advisers can say goodbye to paperwork, wet signatures, and investment delays” 10 www.moneymarketing.co.za

investment, save for retirement, earn a retirement income, or plan their estate via the seven product solutions available on the platform: investment account, tax-free savings account, retirement annuity, preservation fund, living annuity, endowment, and sinking fund.

Simple and elegant technology in a completely digital environment with straight-through processing using language that is easy to understand, advisers can say goodbye to paperwork,

wet signatures, and investment delays.

Says CEO Mickey Gambale: “Unlike legacy technology, we have worked alongside advisers to build a solution fit for purpose – after all, INN8 aims to be Purpose Built. Adviser Inspired. The team uses this insight to reimagine the way an adviser does business and, in turn, we bring future-focused solutions to market.”

INN8 – pronounced innate – invites financial advisers of the future to get in touch.

Mickey Gambale, CEO, INN8

We specialise in customised data solutions

31 October 2021

SOFTWARE SUPPLEMENT

Practice management magic that boosts productivity in your business

BY BARRIE VAN ZYL Head: Account Management, Iress, South Africa

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egulation, innovation and global pandemics influence industries, but what won’t change for financial advisers is how essential relationships are for the success of their business. Longlasting client relationships are based on building trust by: • being transparent • clear consistent communication • optimising workflow processes • meeting client needs.

“While none of these may be new, running a financial advice business in challenging market conditions with increasing regulatory pressures can be complex. A financial adviser is required to add value by educating in a relatable way, providing effective advice, being an empathetic expert, and all the while ensuring that the client experience is shooting the lights out. There’s a lot to consider about what should be prioritised in order to remain competitive,” says Barrie van Zyl, Head of Account Management for Iress, Half_Page_ad.pdf 1 08/09/2021 15:52 South Africa.

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Here’s how you can make the most of your software to help your clients reach their financial goals, and exceed their expectations, through operational efficiency, robust practice management and reduced compliance risks: Compensation cards on the table Show how you’re serving your clients’ interests by offering full disclosure on your compensation structure. CommPay automates all areas of revenue management – from the upload of receipts to sales and pipeline reporting, remuneration models, revenue splits and invoicing. It’s a simple tool to help streamline revenue and remuneration.

Make time to meet Although face-to-face in-depth debriefs are currently challenging, make sure that you’re still meeting your clients beyond the mandatory annual review. Xplan users can create, schedule and launch instant Zoom video meetings with clients – saving time and minimising context switching.

Connect and communicate with your clients No more scrolling through long email threads and sorting by attachments. Make it easy for clients to access information about their investments and financial life. Available through Xplan, Client Portal makes secure information-sharing fast. Deliver a better digital experience, choose the best set-up for your business, and easily add modules.

Reduce your client onboarding complexity Impress your clients with a smooth, automated onboarding process that helps you collect and safely store the right information with a full audit trail. Spend your time where it counts the most to get those satisfied client reviews.

Manage your practice with some software magic Leverage software to reduce manual processing of time-consuming operational activities like backoffice administration, reporting and compliance.

Xplan allows you to save time while increasing productivity by using automated workflows, wizarddriven reporting to prospecting pipelines, and activity management dashboards.

Compliance management is a must The responsibility of satisfying compliance requirements is made easier using Xplan’s in-built features and functions.

Streamline the process and reduce the hassle when dealing with compliance from audit trails to automated exception-based rules on your clients portfolio.

Whether your financial advice practice is large or small, balancing efficiency and profitability while delivering quality client service can be tricky. Work smart by using a single solution to reduce administration, maximise business opportunities and deliver high-impact financial advice. Visit https://www.iress.com/financial-advice to put your clients’ needs first.

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Generational Wealth, powered by 1Life Vantage

You are in the business of creating generational wealth. Let us help you optimise your financial planning process with life and investment options. This is accelerated through one of the first comprehensive financial adviser digital solutions in South Africa, 1Life Vantage.

The old way

The Vantage way

•

•

Lengthy process could take up to

processing and policy acceptance

3-weeks for a life policy to be issued •

Requires face-to-face interaction between

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Excessive paperwork to be completed by

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of advice

Record of advice and additional documents to be completed

Digital financial solution with no paperwork to be completed, that includes the record

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financial adviser and the client •

Real time underwriting, straight through

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Financial adviser onboarding via a one-page application form

Contact us at brokers@1life.co.za to arrange your complimentary demo and stand a chance to win a Miele Coffee Machine, worth R28 000.

1life.co.za/vantage

1Life Insurance Ltd is an authorised financial services provider and life insurer.

31 October 2021

SOFTWARE SUPPLEMENT

A digital solution that fast-tracks sales and underwriting

BY KOBUS WENTZEL Head of Distribution, 1Life

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here is a lot of talk about how you, as a financial adviser, should be tapping into the power of digital solutions to grow your business. And, you should look at two questions before you take the plunge: why, and which partner or solution is best for your practice.

The why It’s simple. Digital solutions speed up the sales and underwriting processes, leaving you with more time to focus on the advice portion. It also gives you time to optimise your planning process, in order to help your clients achieve generational wealth.

A good financial digital solution supports you from financial needs analysis right through to remote acceptance of the policy.

What to look for in a digital solution You first have to consider what your clients require from you. As early as 2016, McKinsey and Company, in a research report entitled Harnessing the power of digital in life insurance, mentioned that “consumers consistently rank underwriting complexity and delays among their top concerns”. This means that by tapping into simpler and faster underwriting, you can add more value to your client proposition.

You also need a digital solution that incorporates remote acceptance and the conclusion of business online. With digital solutions come enormous potential in terms of product and user-experience personalisation, streamlined client interactions, data collection, financial education and even omni-channel communication between the insurer, the client and the financial adviser.

It’s all possible, because computers have become much more powerful, enabling connected devices to observe changing behaviour and make everything more accessible in the here and now.

The partnership and the solution 1Life, as early as 2019, developed its own financial adviser digital solution, 1Life Vantage.

Without Vantage, the sales process can take up to three weeks before a life policy is issued. But Vantage incorporates straight-through processing and policy acceptance with real-time underwriting, within 35 minutes. We realise that digital underwriting might not be the answer for all clients, but it does work for the majority who have relatively uncomplicated underwriting needs.

Digitisation has allowed us to draw on a wide range of structured and unstructured

data to improve risk selection, dramatically simplifying and accelerating the underwriting process. Via this technology, 1Life has had tremendous results, with 97% of our policies on both limited and comprehensive underwriting being accepted. But speed and simplification are not the only benefits. At 1Life we believe in being agile and focused on developing digital solutions that challenge the way in which advisers and consumers look at the insurance industry. So, since launch we have added additional functionality onto Vantage and when lockdown was announced, it took us only three days to supply our financial advisers with a remote acceptance feature within Vantage. Through the use of electronic signatures and two-factor verification via a one-time pin, advisers can conclude business remotely and safely.

Financial adviser registration with 1Life Vantage is available on all smart devices and financial adviser onboarding involves a one-page application form. We have four unique commission models with daily commission payments and the record of advice is built into the policy schedule. Finally, Vantage is available on all smart devices.

At 1Life, we believe that digital solutions speed up processes. Also incorporated into Vantage is our financial needs analysis (FNA), 1Life Plan, ensuring rapid processing and appropriate product selections. 1Life Plan models affordability on top of life stage planning. The outcome: an affordable financial plan. From a claims perspective, robotic process automation (RPA) ensures that the claims process is concluded faster.

Digitisation is here and those who don’t embrace it will simply be left behind.

However, it is important that you choose a partner that complements your business.

If you are interested in partnering with 1Life, email us at brokers@1life.co.za to book a 1Life Vantage demo, before 30 November and stand a chance to win a Miele coffee maker, worth R28 000.

Terms and conditions online.

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Inspire your clients with financial planning

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eing a financial adviser is probably one of the most impactful vocations on the planet.

It’s a calling, not a job. We, along with the rest of the planet, went through quite some staggering changes. Those financial advisers who adopted digital engagement survived and thrived.

A massive transformative purpose If you want to be an adviser who inspires their clients, be certain about your value proposition. A massive transformative purpose means the higher purpose that you strive for in your practice. The need for financial leadership and the role of the adviser has never been more important.

Build your massive transformative purpose around helping your clients discover a remarkable life. To help them achieve this beautiful life, articulate what they need to do financially. An adviser can empower a client to live the life they want to live. The role of the adviser is to help clients consider different lifestyle choices and trade-offs by showing them the financial impact of their decisions.

The life planning narrative A client has two main phases in their life, i.e. an accumulation phase where they rely heavily on their ability to earn an income and to build wealth, and a decumulation phase, where they rely heavily on the wealth they created to provide for them when they are no longer able to be economically active.

The graph below shows a life map of a client showing the two predominant phases and the planning narratives. The numbers are arbitrary and serve as placeholders for specific discussions in goal-based planning.

Advice philosophy in Avalon

We the living Number 1 represents the protection of the client’s ability to earn an income and dealing with the consequences of an untimely death. Numbers 2 and 3 (arbitrary) represents moments that matter in their accumulation phase. This could be about saving for a child’s education, attending the Rio Carnival, and everything in between. Moments that matter are moments that interrupt your client’s life, giving them meaning and joy. It is something they look forward to. The financial adviser should help clients discover what it is they want.

Showing clients a master bucket list will inspire them to add and change their list of goals.

Number 4 is the biggest item that most clients would (or should) be saving for, i.e. saving for retirement. The role of the adviser here is to help clients retire with dignity. Helping clients to connect emotionally to their ‘older self’ will likely cause them to save more.

Some people may lose their purpose when they no longer work, and do not always understand that work is something you do. It is not who you are. Numbers 5, 6 and 7 represent moments that help your client retain meaning and purpose post retirement.

Number 8 represents a dignified and controlled transition of wealth to the next generation. Avalon empowers this advice narrative and is designed to elicit a co-creation journey with a client.

Be a good presence If you want to inspire your clients, and if you want to bring hope, be a good presence. Focus on the client, always be empathetic and positive.

For those advisers who have not been exposed to the goal-based planning capabilities of Avalon, we invite you to try it... but only if you are ready to make a dent in the universe.

Kobus Barnard, CEO, Allegiance

Get to what matters with a goal-based financial planning platform.

Help your clients discover a remarkable life.

www.avalon.co.za

31 October 2021

PRIVATE EQUITY FEATURE

Investing in SA’s alternative lending space

BY MICHELLE GREEN Credit Analyst, Prescient Investment Management

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espite all its positives, South Africa still faces significant problems – including social, economic and political challenges. Of these, everincreasing unemployment, currently at 34.4%1, is seen as the biggest challenge the government has to overcome to address the significant levels of poverty. It’s equally important to address the growing levels of inequality within and across population groups.

Taking this one step further, rapidly increasing youth unemployment is a key challenge that requires significant attention. The youth’s lack of required levels of education and skill to participate in the economy not only places a significant burden on the national government (which is already considerably stretched), but has additional consequences, such as increasing levels of crime. As noted by researcher Eric Pelser in 2008, “Lacking access to legitimate pathways of achieving society’s normative goals, a significant proportion of South Africa’s youth has normalised illegitimate means – crime and violence”.

Given the local unemployment problem, we believe South African Small, Medium and Micro Enterprises (SMMEs) have a key role to play. As noted by Stats SA, we’ve seen growth in the levels of employment provided

by SMMEs. This talks to the view that the SMME sector

provides an attractive, yet largely under-tapped market opportunity; and that, if it’s supported, it could positively impact the country’s economic growth and development trajectory. It’s in line with the National Development Plan, which envisages that SMMEs could contribute meaningfully to job creation, and therefore to GDP growth.

While the above considers appropriate levels of education and skills as inhibitors to successful entrepreneurship in South Africa, financial and business support is another key factor worth noting – particularly access to finance by SMMEs. Under the guise of ‘access to finance’, and in line with our developmental and infrastructure drive at Prescient, we’ve actively considered and invested in various alternative lending opportunities directed towards promoting the development of the SMME sector. While the opportunities have all had their merits, our involvement across these deals highlights that the risk in this space remains high.

Given the need to balance risk and return, our due diligence process has had to remain robust, which speaks to Prescient’s systematic and risk-cognisant investment process. The following details our learnings and key focus areas when considering the provision of capital to alternative lenders: • We consider whether there’s an alignment of interest between us as lender and the borrowing partners.

• We consider who they are and assess whether there’s a willingness and ability to support the business, in the case of financial difficulty.

• We do an in-depth assessment of the business model/ product offering and how appropriate it is within the South African context.

• We consider the growth plans of the business and assess whether we think they’re appropriate given the life cycle of the specific business.

Alternative assets – Investing with purpose

BY KAMINI NAIDOO Portfolio Manager, Alternative Investments, Momentum Investments

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he COVID-19 pandemic and associated market sell-off has reinforced the benefit of a welldiversified portfolio. As a result, investors are rethinking the traditional asset class allocation strategies to ensure their portfolios are diversified to capture other sources of returns.

The pandemic and lockdowns have further exacerbated many inequalities, on both a macro and micro level, and has seen investors redirect focus to the significance of impact investing and its role in addressing some of the global social and environmental challenges. Investors are more actively committing to making meaningful contributions to the United Nations (UN) Sustainable Development Goals (SDGs) in response to the UN’s call to action “to end poverty, protect the planet, and ensure that by 2030 all people enjoy peace and prosperity”.

Impact investments have been traditionally driven by private markets.

Private market strategies are pivotal in channelling private capital towards assets and companies that can help to address these goals, as it is in the private market space that the investor can exercise greater control, finance discrete projects or assets, and invest in smaller, niche companies. The private markets family of alternative investments strategies include asset classes such as private equity, private credit and real assets (which includes infrastructure and direct property). These strategies provide access to assets and income streams typically not available to investors in listed markets. These include exposure to mid-sized growth businesses,

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• We do an operational walk-through to understand the control environment, including – but not limited to – the credit-granting criteria. While the systems backing the product are crucial, we also consider the people behind these systems, and whether they consider growth and risk appropriately. We believe these individuals should have performance metrics that are both growth- and risk-oriented.

Finally, and equally important to any financial due diligence, we undertake a detailed Environmental, Social and Governance assessment.

It’s evident that if SMME financiers can navigate their way through various growth inhibitors, including the ability to raise capital with the appropriate partners, they have the potential to function as a driving force in South Africa’s social and economic development narrative. Given our approach of partnering with businesses that have a shared goal and the appropriate alignment of interest, we can and will successfully contribute to the growth of the SMME sector – while simultaneously delivering the appropriate risk-adjusted returns for our clients’ funds.

• Prescient Investment Management (Pty) Ltd is an authorised financial services provider (FSP 612).

• The value of investments may go up as well as down and past performance is not necessarily a guide to future performance.

• There are risks involved in buying or selling a financial product.

• This document is for information purposes only and does not constitute or form part of any offer to issue or sell or any solicitation of any offer to subscribe for or purchase any particular investments. Opinions expressed in this document may be changed without notice at any time after publication.

We therefore disclaim any liability for any loss, liability, damage (whether direct or consequential) or expense of any nature whatsoever which may be suffered as a result of or which may be attributable directly or indirectly to the use of or reliance upon the information. https://www.news24.com/fin24/economy/sas-unemployment-rate-hitsrecord-344-20210824 1

long-term infrastructure assets, and investment strategies with a targeted social development focus. Many of these investments have the potential to drive multiple social and environment benefits.

For example, investment in an agriculture project can contribute to food security and provide employment in an area of need.

Momentum Investments has a targeted impact funds range that invests across a range of debt, equity and hybrid opportunities, with a targeted social development focus. Through the commitment to the UN SDG framework, the investments are focused on strategies that can make a difference locally, and where the investor has the opportunity to generate strong financial and social returns. Assets in this strategy can include renewable energy assets that span across solar, wind and alternative energy.

Through these assets, the investor can contribute towards the generation of clean energy, the development of much-needed infrastructure, providing decent work and fighting climate change. This demonstrates the broad impact such a project can have.

On the social infrastructure side, the fund invests in student accommodation. Lack of accommodation has been linked to high failure and dropout rates, which highlights the importance of this type of investment in providing quality education for the longterm economic growth of the country.

“Alternative investments play a valuable role in a diversified portfolio” These are examples of investments that can help investors align their investments with their long-term goals and values, as well as targeting financial returns while realising a tangible real-world impact.

We work with individuals and institutions who prefer unconventional investment solutions to deliver on a set of predefined investment objectives. We believe that investing is personal. Our clients’ interests are core to our investing philosophy, and we are able to tailor our investment strategies to specific investment objectives.

Alternative investments play a valuable role in a diversified portfolio as they offer investors improved diversification as a result of low correlations with traditional asset classes, access to a wider menu of investment opportunities, and the potential to generate an enhanced return, often while fulfilling a joint mandate of making a positive social impact.

Momentum Alternative Investments (Pty) Ltd (FSP 34758) is an authorised financial services provider.

Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services and registered credit provider (FSP 6406) (NCRCP173).

We don’t put all your eggs in one basket.

We put each one in the right basket.

Because with us, investing is personal.

Any investment expert will tell clients not to put all their investments ‘in one basket’. But at Momentum Collective Investments, we go much further. We use diverse investing options when constructing our smart beta funds and manage them systematically. Clients can choose the funds that best suit each of their goals to help them increase their chances of achieving their defined goals. So bring your clients the unstoppable force of Momentum. Because with us, investing is personal.

Speak to your Momentum Consultant or visit momentum.co.za Momentum Investments

@MomentumINV_ZA

Momentum Investments

Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services (FSP6406) and registered credit (NCRCP173) provider. Collective investment schemes (unit trusts) are generally medium to long-term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. The terms and conditions, a schedule of fees, charges and maximum commissions, and additional risks are available on the minimum disclosure document (MDD) and quarterly investor report (QIR) for each portfolio (fund), which is available from the manager.

31 October 2021

RETIREMENT

SA’s current retirement conundrum

BY PAUL LEONARD Advisory Partner, Citadel

I

n the weeks prior to the Medium-Term Budget Policy Statement (MTBSP), South Africans await more clarity from National Treasury on their proposal for limited preretirement withdrawals and the logistics required to make this happen. Now is the ideal time to take a closer look at why this proposal arose and which key questions we need Treasury to answer.

There are many things in life that are ‘easier said than done’ – and for many, saving adequately for retirement falls into that category. We know that to retire successfully, we should simply start saving as early on as our first pay day, get inflation-beating returns and never touch our savings until we reach retirement age – but, for many of us this is not a priority in our 20s. Unfortunately, however, this oversight can have a profound effect on our long-term savings.

A nudge in the right direction In most aspects of our lives, the likelihood of success dramatically increases if our immediate environment encourages and enables us to make good choices. This is the very premise of what National Treasury is attempting to achieve with their proposal for limited pre-retirement withdrawals.

The notion of ‘libertarian paternalism’ describes rules that have been established to ‘nudge’ people towards making decisions that are in their best interest, while still giving them alternatives if the default options do not suit them.

For example, the default rules that were enacted recently will automatically preserve our retirement funds if we change jobs, but also give us the option to take the cash

immediately. Pension, pension preservation and retirement annuity funds must have a default annuity strategy (living annuity or life annuity which converts our savings into an income), however it is a ‘soft default’ where we will be given the option to choose which type of annuity we prefer.

In theory, these paternalistic rules create an environment that is in our best interest, but if the recent past year has taught us anything, it’s that retirement savings seem futile when we cannot currently put food on the table. This is what led to the current discussion around allowing us to dip into our retirement savings in “particular unexpected circumstances, extraordinary circumstances or emergencies”.

Clear next steps required For early retirement withdrawal to become a reality, both our laws and our retirement funds’ fund rules and systems will need to change. However, the Government Employees Pension Fund (GEPF) is not covered by the Pension Funds Act and GEPF members are understandably upset that they may be ineligible for such withdrawals. National Treasury is considering allowing withdrawals from retirement annuities and legislation would have to be ‘harmonised’ to enable retirement annuity fund members to access their retirement savings.

National Treasury indicated recently that Government is consulting with unions, retirement funds and regulators “to work out how to increase savings and improve preservation and allow limited withdrawals without creating liquidity and investment risks.” Changes are unlikely to come into effect before 2022.

Questions awaiting answers: Some of the questions financial planners hope to receive clarity on in the near future include: • If members are given access to their retirement savings, how much will be accessible? Will it be a percentage of savings or a rand-based amount?

• Aside from a global pandemic, what will constitute “particular unexpected circumstances, emergencies or extraordinary circumstances” to justify early withdrawals?

• How will the mandatory preservation, upon resignation from a job, work?

• How will the split between the ‘two buckets’ be determined?

We will need to find a way forward that has citizens’ best interests at heart without draining our pension funds and fiscus to disastrous effect for the economy.

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SA is a shared responsibility, and your choices have an impact

BY MALCOLM FAIR MD, RisCura

T

he issues among those that fall under the ESG ambit are everyone’s concern, and this cannot be ignored, especially if we are to work towards building a better South Africa for all who live in it.

The COVID-19 pandemic has easily outstripped the previous global economic crises in its impact on the global economy, and on the livelihoods of millions of people worldwide. South Africa has its own set of fiscal and monetary issues that have compounded the impact of the crisis. A paradigm shift in the way we think, save and invest is needed if we are going to recover and build a sustainable and inclusive economy. If we don’t act, then what we see today, or worse, might be a snapshot of our future and the environment we retire to.

Alternative thinking (and action) required from pension funds For long-term investors, of which pension funds are the quintessential example, sustainability is an important concern. Without a thriving, sustainable and inclusive economy, investors and asset owners will be hardpressed to achieve their required returns over the long term.

Investing for impact means investing in our real economy where capital is desperately needed to enable economic growth and to drive change at a grassroots level.

In past decades, simply by investing in traditional South African asset classes, there was no compelling reason for pension funds to look further afield; however, it’s time to think out of the box and to consider alternative investment strategies. Investors are also increasingly interested in the effects of their investments on people and the planet.

“A paradigm shift in the way we think, save and invest is needed if we are going to recover”

Impact investing has transformed from a mere concept a decade ago It is now a formalised investment strategy and mandate throughout the investment industry.

According to the Global Impact Investing Network (GIIN), impact investing has a current estimated market size of $715bn. Impact investments are made with the intention to generate positive, measurable social and environmental impact alongside financial return.

An impact investing strategy offers a potentially powerful lever for retirement funds to diversify, spread their risk and enhance returns, all in a way that positively contributes to our struggling South African economy.

It allows us to utilise the full mandate of Regulation 28, which allows up to 15% of assets under management to be allocated to unlisted ‘alternative’ vehicles. Not only will mobilising just a small portion of institutional capital in South Africa have a ground-breaking effect on driving the UN’s Sustainable Development Goals and South Africa’s National Development Plan, but it will catalyse the impact investment industry in South Africa.

Successful impact investing has the potential to re-ignite the economy Investing for developmental impact can drive sustainable returns, help tackle the imbalances that characterise South Africa, and can pave the way to change our story for the better. Despite South Africa’s economic hardship, inequality issues and very real unemployment and debt statistics, investing in the right assets can make a difference in the real economy and provide upliftment for all South Africans, both in the short and the long term.

31 October 2021

INVESTING

Prudential Investment Managers gets a new identity

BY BERNARD FICK CEO, Prudential Investment Managers

W

e’re very pleased to announce that after a very successful 27-year history of operating in Southern Africa, Prudential Investment Managers will be changing our name to M&G Investments before the end of 2021.

The name change reflects our return to being majority-owned by M&G plc, the London-listed global investment manager that has been our largest shareholder since

our founding. We will be working even more closely with M&G going forward to take greater advantage of their global scale and expertise, with the goal of further enhancing our clients’ investment outcomes. M&G has around R7.3tn (GBP370bn) in assets under management, serves over five million clients and operates in 28 markets around the world.

Our ownership and identity changes will have no impact on the way Prudential’s unit trusts or institutional mandates are managed. Our consistent investment process and philosophy remain the same.

Equally, our local investment team and management structure remain unchanged.

Our existing teams of experienced portfolio managers continue to be backed by a team of analysts focusing on specific sectors and companies. Now, however, they will benefit increasingly from M&G’s global experience.

The small 0.13% increase in M&G’s ownership (to 50.12%) has not impacted our black empowerment rating – in fact at the end of July we received our first-ever FSC Level 1 B-BBEE rating.

Prudential’s B-BBEE shareholding is now 31.4%, and when M&G’s strategic

stake is excluded, 63.0% of our South Africa-resident shareholding is now owned by black people across our black empowerment partner Thesele Group and staff shareholders.

M&G and Prudential share a similar fundamental and valuation-based active investment process. These days, successful investing requires global expertise with a global perspective.

Return opportunities come from myriad sources that can best be identified by teams of experts who combine their knowledge to deliver outperformance for clients. These changes will give our clients access to global best investment ideas and solutions that have proven to be successful, including broad global investment themes and cutting-edge, technology-driven solutions.

Examples of these span areas as diverse as: Machine-learning (AI)-driven funds; sustainability- and impact-focused funds; international private equity; funds targeting global listed and unlisted infrastructure and credit; and ESG-centric, positive impact and climate-focused solutions, among others.

Our corporate names throughout the

“The name change reflects our return to being majorityowned by M&G plc” Prudential Southern Africa group will be changing, including subsidiaries in Namibia. For example, our main investment management company, Prudential Investment Managers (South Africa) (Pty) Ltd, is in the process of being renamed MandG Investment Managers (Pty) Ltd. Our website and email domains will also change, from prudential.co.za to mandg. co.za (in South Africa) and from prudential. com.na to mandg.com.na (in Namibia).

We are proud to have been operating under such a historic and globally successful brand as Prudential for the past 27 years in Southern Africa. As this chapter closes and a new one opens, however, we are looking forward to taking advantage of the new opportunities open to us through M&G, which is an equally respected business around the world. As always, our aim remains to deliver even better returns to investors going forward.

New structured product offers growth and capital preservation

V

olatility has characterised the global investment landscape since COVID-19 first emerged in early 2020. This global uncertainty heaped additional pressure on local investor returns amid weak domestic fundamentals and legacy structural impediments to economic growth. In response, Investec has launched International Titans Basket Limited, a structured fiveyear investment that will offer local investors global equity exposure for diversification and growth, along with a USD capital preservation benefit.

The company, which is incorporated in Guernsey and is listed on the Bermuda Stock Exchange, aims to return at least 100% unlimited upside participation at maturity in US dollars derived from growth in the MSCI World 4% Decrement Index.

“This structured investment offers a suitable rand hedge for sophisticated investors who want to protect their capital in US dollars by the acceptance of the credit risk of the issuing Bank and reference entities,” explains Japie Lubbe, Consultant at Investec.

The principal preservation in International Titans Basket Limited is in

“Decrement indexes have gained popularity following the COVID-19 outbreak”

US dollars by means of an Investec Bank Limited US dollar-denominated credit-linked note (CLN), which proportionately references the subordinated tier 2 debt of seven reference entities, which are four offshore and three local banks. This credit reference to subordinated debt represents a claim that ranks behind all depositors and other senior creditors.

Decrement indexes have gained popularity following the COVID-19 outbreak as a way to remove some of the dividend forecast risk experienced during the pandemic after dividend yields fell significantly.

“Utilising this index results in enhanced option pricing, while also minimising overall costs, which ultimately benefits investors as they can get unlimited upside to the index performance with principal protection,” adds Lubbe.

Furthermore, the index includes a broad range of large and mid-cap companies across 23 developed market countries, predominantly from North America, which accounts for over 70% of the index’s country weight, and Europe.

“This index composition provides investors with diversification across multiple geographies and industries, which offers access to numerous growth opportunities and a spread of risk,” continues Lubbe.

“And US and European markets remain at record highs as economic activity continues to ramp up on the back of more advanced vaccination rollouts.”

There is significant liquidity in the market, with

Japie Lubbe, Consultant, Investec

extremely low prevailing interest rates making cash and bond investments limited alternatives.

Amid the prevailing uncertainty and potential volatility related to the COVID-19 pandemic’s progression around the world, investors also want an element of capital protection in their diversified portfolios.

“The threat posed by new variants and an uneven global recovery necessitates a defensive slant in every investment strategy, without compromising potential returns,” says Lubbe.

Investors require a minimum investment of $19 000 for B Class USD shares, or AUD25 000 for A Class AUD shares.

“Local investors can leverage various offshore investment avenues to access the investment, including their SARB-approved offshore allowances, or via asset swaps that make use of the foreign portfolio investment allowance,” he adds.

The closing date for investments is 11 October 2021.

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31 October 2021

INVESTING

Laurium launches its first active global equity fund

BY KIM ZIETSMAN Head: Business Development and Marketing, Laurium Capital

L

aurium has been investing in global markets for many years as a key component of our multi-asset franchise, with Murray Winckler leading

the team on global strategy, given his previous experience as head of global markets (equity and debt) at Deutsche Bank. This has been done mostly through active asset allocation to passive indices, with the team focussed on stock picking in South Africa and the rest of Africa.

As global allocations become an increasingly large part of multi-asset funds in South Africa, it is important to develop a dedicated global capability. Major shifts in the global research environment have provided a boost to smaller teams in South Africa analysing the global equity universe.

From a macro perspective, there has been a globalisation of industry trends, boosted by technology and knowledge transfer, and we have seen increased global capital flows and market (and sector) correlations. There is a greater access to information through the formalisation of investor relations roles at listed companies, improved comparability of financial reporting standards, and raw data availability with vast computing power and resources (Bloomberg etc) that allows improved quantitative screening.

The Laurium team combines this strong base of information with deep industry knowledge and economic understanding to seek out the best investment opportunities. The investment process identifies companies with a greater ‘growth and quality’ bias than the SA local equity selection process.

Laurium Global Active Equity Fund The section 65 Laurium approved Global Active Equity Fund is an actively managed, concentrated portfolio of 20-25 global shares that aims to outperform the MSCI All Country World Index (ACWI) over the long term. Portfolio construction is not constrained by reference to either geography or benchmark. Position size is based purely on the combination of the expected return from each position and the degree of confidence and conviction gained from the investment research process. Laurium’s modest base of assets allows the manager to include special situations and shorter-term trade ideas without compromising the core long-term focus of the fund.

Rob Oellermann, Portfolio Manager, Laurium Capital

About the Portfolio Manager – Rob Oellermann The Laurium Global Active Equity Fund is managed by Rob, with support from the rest of the combined Laurium team. Rob began managing international equities in 2000 as part of Coronation’s initial foray into offshore markets. Over his career, Rob has more than seven years of experience investing in global equities. He was a founding member of Tantalum Capital where he was CIO. Laurium acquired Tantalum Capital in December 2020. The Tantalum team, led by Rob Oellermann, had been building its global equity capability, which complements Laurium’s efforts in this area.

Lower interest rates can lead to risky investor behaviour

BY KATHY DAVEY Investment Manager, Ashburton Investments

federal funds rate peaked – and now account for almost as much equity trading volume as mutual and hedge funds markets combined.

S

ince the start of the Coronavirus (COVID-19) pandemic, we have seen an unprecedented response from central banks globally, and the use of monetary policy tools to stimulate growth.

Although interest rates in developed markets were already very low going into the pandemic, we have seen further cuts, and the notion that interest rates will be ‘lower for longer’ is now widely accepted. These stimulus efforts work in part because they encourage more risk-taking, and low interest rates are generally very positive for equities for a couple of reasons. Firstly, lower interest rates reduce the discount rate used to assess the present value of a company’s future cashflows, thereby increasing the value of the company. Secondly, a company’s future profits are likely to be higher if consumers have more money to spend due to lower interest rates.

However, we need to be aware that investors who are discouraged by the lower returns offered by safer asset classes due to lower interest rates may be taking excessive risks or even fall prey to fraudulent activities as they attempt to achieve higher returns in riskier assets.

As indicated in the accompanying graph, retail traders have been growing their share of United States equity trading volumes continuously since 2019 – when the US

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such as social media sites. In addition to this, retail investors tend not to consider the benefits of a diversified portfolio, and may make big and leveraged bets (through options as indicated in the chart below) on individual stocks, putting their future savings at risk as the long-term nature of equity investing is less of a consideration.

Source: Bloomberg Intelligence, Financial Times

The lure of stronger equity returns against a backdrop of declining interest rates has no doubt been a factor for this. However, increased retail activity in equity markets has been further compounded by the COVID-19 pandemic, as individuals in many countries have received stimulus cheques and have increased savings due to having fewer activities on which to spend money.

Investing in the stock market is clearly not limited to professional investors. There are different levels of sophistication when it comes to retail investors. However, many retail investors may be less inclined to consider the fundamentals of the companies they are investing in, and can often trade on speculation gathered on platforms

Source: Bloomberg Intelligence, Financial Times

For all these reasons, we encourage investors who are looking to achieve higher returns through investing in riskier asset classes (such as equities) to put their money into diversified portfolios such as the Ashburton Global Leaders Equity Fund, where each individual stock has been chosen for its ability to generate sustainable, compounding returns over the longer term. The fund invests in quality megacap companies that offer exposure to attractive thematic themes of the future, such as electrification, technology and healthcare.

31 October 2021

INVESTING

Will the smart money keep flowing into smart beta products?

Market cap weighted index funds are widely used in South Africa, but a lesser-heard-of peer, smart beta funds, have recently showed impressive asset growth – potentially making this the next fund category to watch.

BY LOFTIE BOTHA Portfolio Manager, Momentum Investments

S

mart beta investing is an investment approach in which decisions are based on objective data, rather than on subjective opinions.

Smart beta portfolio managers rely more on quantitative techniques than on fundamental analysis. A smart beta portfolio may follow a single style, such as momentum, value or quality, or it may be diversified over a combination of styles, where it would be referred to as a multi-factor portfolio.

A few interesting trends come to the fore if Morningstar figures on the general equity unit trust category are analysed: • Of the R380.5bn invested assets by the end of June 2021, only R15.2bn was invested in smart beta funds • The growth trajectory of these funds makes it clear that powerful forces are at play – while the general equity category grew assets by 11% p.a., the smart beta segment grew assets by 31% p.a. in the past decade • Its market share expanded from 1.3% to an impressive 4.0%, and the number of funds increased from five to 25 over the same period.

Looking at these numbers, the global trend of exponential smart beta growth is firmly in place in the local market, albeit from a low base.

delivered by the rest of the funds in the universe.

At the upper end of the spectrum, smart beta funds performed in line with other funds in the general equity category: 25% 1 in 5 delivered top quartile performance.

However, 35% delivered second quartile performance, meaning they were over-represented by 10% in this stillappealing quartile. Only 15% of smart beta funds delivered bottom quartile performance, meaning they were underrepresented by 10% in the least appealing quartile.

Source: Morningstar; Momentum Investments

This should not come as a surprise as the main drivers of global smart beta growth – return enhancement, risk reduction/diversification and cost savings – are also present in South Africa.

Return enhancement Of the 179 South African general equity unit trusts that had three-year performance track records as of 30 June 2021, 20 can be considered smart beta funds. A simple analysis of the performance quartile dispersion of these funds shows that smart beta investors generally received performance that was either in line with or better than what was

Size (R’m)

Satrix Smartcore Index

357

Aeon Smart Multi Factor Equity Prescient

233

Quantum BCI Factor Equity

159

STANLIB Core Multi Style Equity

114

Absa Smart Alpha Equity

100

CoreShares SciBeta Multi Factor Index

2

Total

8 758

Source: Momentum Investments & Morningstar, June 2021

Source: Morningstar; Momentum Investments

Looking at the five smart beta funds that delivered top quartile performance, we see that four are single-factor funds and one is a multi-factor fund: Smart Beta funds with top quartile performance

Return (% p.a.)

3 years, to June 2021

Peer group rank out of 180 funds

Momentum Trending Equity A

11.1

12

Sygnia Divi Index A

8.4

36

Momentum Value Equity A

8.2

39

Satrix Dividend Plus Index A1

8.1

40

STANLIB Enhanced Multi Style Equity A1

8.1

41

Peer group average

5.5

Source: Morningstar; Momentum Investments

Source: Morningstar; Momentum Investments

Multi-factor unit trusts

Risk reduction via diversification There is a growing consensus that the best way to achieve a targeted investment outcome is not about deciding whether a traditional, smart beta or index tracking approach is superior, but rather about diversifying over multiple product types. This allows the construction of an optimised solution that gives clients exposure to the strengths of each approach, while simultaneously ensuring smoother returns and lower risks via proper diversification. Such a process involves deciding how much smart beta exposure should be included in a blended solution, and thereafter deciding which specific smart beta funds should be selected.

Because smart beta funds don’t have their own unit trust category, the distinction between smart beta, tracker and traditional funds is blurred and the classification of a specific fund may admittedly be open for interpretation.

However, an analysis of Morningstar data based primarily on fund names suggests that there were 12 multi-factor and 12 single-factor smart beta funds by the end of June 2021.

Smart beta unit trust investors are spoilt for choice.

Multi-factor unit trusts

Size (R’m)

Momentum Core Equity

2 708

Old Mutual Managed Alpha Equity

1 777

Ninety One Active Quants

1 233

STANLIB Enhanced Multi Style Equity

1 146

Citadel SA Multi Factor Equity

515

Colourfield BCI Equity

416

Single-factor unit trusts

Size (R’m)

Momentum Trending Equity

2 758

Momentum Value Equity

1 720

Old Mutual RAFI 40 Index

1 052

Satrix Dividend Plus Index

283

Satrix Momentum Index

167

Satrix Quality Index

155

Satrix Rafi 40 Index

79

Sygnia Divi Index

67

1nvest Sector Neutral Value Index

53

1nvest Sector Neutral Growth & Quality Index

48

1nvest Sector Neutral Momentum Index

47

Absa Dividend Plus Index

28

Total

6 456

Source: Momentum Investments & Morningstar, June 2021

In line with what is happening elsewhere in the world, based on assets under management, investors appear to favour multi-factor funds. However, investors may also invest in single-factor (single style) funds, or in a combination of single-factor funds with value, momentum and quality styles on offer. Diversifying across different styles often provides better risk reduction than diversifying over different traditional funds that may follow the same investment approach.

Another distinction between smart beta funds is that some follow a process in which a rules-based index is designed upfront and, from then onwards, the fund is managed as a tracker fund that tracks this index on a continuous basis. Other funds follow a more hands-on approach, making new investment decisions daily, while still ensuring they are in line with the fund’s philosophy.

Cost savings Smart beta funds are also value-for-money, based on our analysis. While they are slightly more expensive than capweighted tracker funds, they offer the opportunity to deliver superior performance just like traditional funds do – but at a lower fee: Investment approach

Annual report net expense ratios Median

10th percentile

90th percentile

Index Tracker Funds

0.57%

0.30%

0.67%

Smart Beta Funds

0.63%

0.54%

0.99%

Traditional Funds

1.30%

0.59%

2.01%

Source: Momentum Investments & Morning Star, June 2021

Domestic outlook From an asset manager’s perspective, it makes business sense to offer smart beta products. While these products offer the same benefits as traditional funds, they can be run at a fraction of the cost because a small number of properly skilled individuals may well deliver the same performance as an expensive fundamental research team.

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31 October 2021

INVESTING

The benefits of going global with ETFs

BY WEHMEYER FERREIRA Executive Director, 1nvest

G

iven that South Africa’s equity market is fairly small compared to global standards, few can deny the argument for investing offshore. For some, it is about building a defence against the lacklustre local economy while for others, investing offshore may be about incorporating a balanced approach into one’s portfolio.

Most balanced funds that South Africans can buy into are Regulation 28 compliant, which is the pension fund regulation that determines what assets you can invest in and how much money you can take offshore – currently limited to 30%. For a lot of people, that is too little, and they seek additional offshore exposure.

There are two broad ways of doing this: either by converting rand into foreign currency, and depositing those funds into a foreign bank account, or by buying into offshore investment vehicles such as shares, offshore mutual funds or offshore exchange traded funds (ETFs).

Those who take physical cash offshore will need to get tax clearance from SARS first. The limit for individuals externalising physical cash sits at R10m, however you can take R1m out as part of your travel allowance, which does not require tax clearance.

It is important to note that taking physical cash offshore can be an admin intensive process and fees associated can eat into the sum of money that you have to work with. The conversion of those funds into foreign currency will attract forex spreads, and the opening of an offshore bank account comes with fees, including the brokerage or platform fee. All the fees and slippage add up.

provides the type of offshore exposure that they may be seeking. Most of these instruments are set up as feeder funds: either unit trust funds or ETFs. This route is both cost efficient and less admin intensive compared to taking your money offshore directly. The local fund is priced in rand, which omits the need for tax clearance and these vehicles can be easily bought into via a traditional broker or online platform.

It is no secret that South Africa’s economy has been struggling over the last decade. Further to that, the local equity market lacks depth in terms of sector exposure. Those who are looking for technology or oil and gas sector exposure, for example, really only have one or two options to work with.

Whereas going beyond SA shores, the options are endless.

This does, however, present a conundrum for the South African investor going global: with so many options available, where do you begin?

In South Africa, there are around 1 600 unit trusts to choose from. And if you decide to go with an offshore fund manager, the options become endless.

That is why index tracking products can be an attractive route for going offshore because investors don’t need to overthink or monitor the fund manager or worry about underperformance.

Accessing offshore markets through ETFs An alternative for South Africans is to buy into an instrument locally that

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“What you are going to get through a tracker is exactly what that benchmark index returns offshore”

What you are going to get through a tracker is exactly what that benchmark index returns offshore. Investors can get additional sector exposure and exposure to other economies that drive stock market returns by investing in a single ETF. The MSCI World, for example, which is an index that tracks the developed market, includes around 1 600 constituents and around 60% of those companies reside in the US. Broad exposure to offshore markets without the effort But the reality is that many US listed companies derive less than 50% of their revenue from that region. They may be listed in the US but actually have exposure to global and emerging market economies. Apple’s sales in the US, for example, make up less than 50% of the tech company’s sales globally, as demand for its products grow elsewhere, such as in China and across the African continent.

That said, one of the best ways for local investors to achieve broad-based global exposure without having to think about which country, currency or sector to select is to then buy the MSCI World Index via a feeder fund or ETF. There are, however, more niche products available to investors who have a specific view they wish to express. Let’s say that you are not confident in the European economy, or don’t understand Asia, and only want US exposure, then you might want to consider an S&P 500 index tracking fund, which will give you exposure only to the US. It may be that you want to express that view even further. Standard Bank’s specialist index tracking provider 1nvest has an S&P 500 Info Tech fund, for example, which gives investors exposure

only to technology companies in the US. So, if you are a millennial tech junkie and believe that tech will only become more integrated in our society in the years to come, then this fund may not be a bad place to be long term.

The point is that there are various views one can take with global investing through ETFs. There is the buy-andforget view of going into the likes of a broad index like the MSCI World, but there is also the view of considering your preferences as an individual and aligning your investments to those beliefs and preferences.

A cost-effective offshore investment One of the key benefits of ETFs is that they are cost effective. In an actively managed fund, a whole floor of analysts looks at stocks to come up with a view and those managers need to be paid. This is not to say that there isn’t a place for both passive and active in an individual’s portfolio.

Essentially, an ETF tracks an index, which means it is a fairly cost-effective implementation mechanism. South African investors can buy the 1nvest MSCI World ETF, which is listed on the JSE, and pay a full product fee of about 0.4% per annum. There will of course be other costs associated, which will depend on your broker’s fee or the platform fee.

Investors need to determine the reasons behind what they are buying. If you are investing for something specific, you need to make sure that the ETF you buy is appropriate for that something you are investing for. If you are speculating or trading to express a view on what is happening globally, you do need to go in with your eyes wide open because it does come with risks.

31 October 2021

INVESTING

New Pan Africa Debt Fund provides institutional investors with more choice

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TANLIB has announced the launch of its Pan Africa Debt Fund that will allow investors to tap into the attractive dollar yields, geographic diversification and fast-growing economies presented by the African continent.

The open-ended Pan Africa Debt Fund aims to generate stable income and capital growth with a target return of three-month US dollar Libor plus 6% over a three-year rolling period. Managed by STANLIB’s Credit Alternatives team, the Fund will invest in hard currency debt predominantly listed on global exchanges issued

by African sovereigns and corporates. The Fund will always hold at least 60% of assets under management in sovereign Eurobonds and can include up to 30% in unlisted credit.

Johan Marnewick, Head of STANLIB’s Credit Alternatives, commented: “We see tremendous value for our clients in the launch of a pan-Africa strategy. The Pan Africa Debt Fund will meet the longstanding demands of South African and international institutional investors for well-diversified and attractive exposure on the continent, packaged in a compelling vehicle. Our Fund will appeal to institutional investors seeking returns that are less correlated with the performance of other global and emerging market assets.”

Until now, institutional investors, both in South Africa and other territories, have had limited choice in accessing funds that offer broad exposure to Africa’s high-growth frontier and emerging market debt. The Pan Africa Debt Fund offers investors access to attractive yields available in the wider African market, through a vehicle that is managed within a comprehensive risk management

framework designed to minimise downside risk.

African debt has a low correlation with global bond and equity markets, which makes it an important tool for diversification within asset portfolios. Additionally, the Fund’s investments will be largely dollar-denominated offering South African investors hard currency exposure.

Adding his voice to the launch of the Fund, STANLIB CEO Derrick Msibi said: “We are extending our capability from being a leading fixed income manager to include growing exposure to emerging markets. We are offering investors carefully curated exposure to African credit through the Pan Africa Debt Fund, which not only offers attractive investment opportunities but also builds and deepens financial markets. Over the next five years, Africa is forecast to be one of the fastest-growing regions globally, which will require financial capital.

The investments in the Fund will play a role in funding the continent’s post-pandemic recovery, while offering investors exposure to attractive opportunities.”

Africa is expected to have a robust post COVID-19 recovery, with growth averaging above 4% from 2022 to 2026. Sub-Saharan Africa specifically will remain the second fastest growing region in the world after Emerging Asia. The continent’s long-term growth is underpinned by

“African debt has a low correlation with global bond and equity markets”

structural tailwinds that are expected to drive economic activity for decades, including an increasingly developed, burgeoning and youthful population.

Africa is also experiencing higher levels of investment in energy, transport and telecommunications infrastructure, a steady rise in urbanisation and increasing Johan Marnewick, Head: Credit Alternatives, STANLIB regional integration.

These long-term trends should provide the backdrop for Africa’s attractiveness as an investment destination to continue to improve. By adhering to the ESG framework, this Fund will result in an enhanced ecosystem that will contribute to improving standards of governance, and will help to broaden economic development opportunities. Investors in the African Eurobond market have experienced returns in excess of 8% annualised over the last 15 years.

STANLIB Credit Alternatives has a successful eight-year track record of investing in African US Dollar debt assets. In sourcing and risk managing Fund assets, STANLIB will continue to leverage its longstanding relationships with banks and other financial institutions active on the continent.

SA debt crisis is avoidable, despite rising risks

BY SANDILE MALINGA Portfolio Manager, Prudential Investment Managers

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here’s no question that South African investors are facing an increasing risk that the South African government might, at some point, be unable to repay its debt, and therefore spark a sovereign debt crisis. This is if nothing is done in terms of narrowing the government budget deficit and implementing more structural reforms to spur economic growth.

In emerging markets like South Africa, research has found that investors’ tolerance for high sovereign debt/ GDP levels reaches a breaking point at around 80% or so (or lower in the case of countries with high debt service costs).

This is the debt/GDP level where we found ourselves in FY 2020/21, and National Treasury’s projections show it reaching 88% by 2025/26. This upward trajectory has been caused by unexpected pandemic costs and rising government budget spending, combined with disappointingly low growth since 2015.

The government is now spending far too much on wages and debt servicing costs as a percentage of its revenue, leaving it significantly less for funding more productive investments like infrastructure, healthcare and education improvements that will boost economic growth. We are at the point where debt is ‘crowding out’ investment and impacting negatively on our growth rate.

If we are unable to implement budget spending cuts, as well as successful structural reforms, and attract investments that increase the economy’s capacity for growth, South Africa could face a vicious circle of rising debt and deteriorating growth that results in a debt crisis. But is this scenario inevitable?

“SA’s external finances, a key element of our sovereign credit rating, have performed well during the pandemic” The government is making efforts to reduce its debt levels through negotiating public sector wage cuts and planning for lower spending in its Medium-Term Budget plan. It is embarking on important structural reforms, among them including: liberalising the energy sector by allowing companies to generate electricity from multiple sources (so-called embedded generation); reducing the red tape facing new companies by cutting the time required to approve a start-up business to only 48 hours; and securing much-needed domestic and foreign investment totaling around R780bn through its series of investment summits.

One example of this has been the new Amazon data centre set up in Cape Town.

Although these investments will take time to be realised, they will create even more business opportunities and new jobs that will spur economic growth.

On another positive note, South Africa’s external finances, a key element of our sovereign credit rating, have performed well during the pandemic, with the country

achieving its first current-account surplus since 2002 at 2.2% of GDP. At Prudential, our view is that a sovereign debt crisis is avoidable – all of these efforts should help South Africa avert it. In fact, there has been no better time to buy South African assets than the present, due to the extreme pessimism weighing on local markets. The current very high yields on government bonds are compensating investors well for the risk involved in owning them; for example, 20-year bonds offer equity-like returns. As an asset class, SA bonds have the potential to deliver a real return of 4.6% over the next three to five years. At the same time, South African equity valuations are also very attractive relative to their own history and versus offshore equities, offering a potential real return of 10.1% over the medium term, based on our calculations. By constructing well-diversified portfolios, including local asset classes as well as global assets, investors should be well-positioned to achieve higher-than-average returns in the next three to five years.

www.moneymarketing.co.za 23

31 October 2021

INVESTING

The growth and inflation argument continues

BY STEPHEN DOVER Head: Franklin Templeton Investment Institute

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ur macro economists agree that developed world economies seemed to be on the path to economic normalisation in the first half of 2021, but the question remains: what’s next? Critical variables in play include potential impacts from inflation, the pace of vaccination rollout globally and central banks’ approach to monetary easing policies. I had the opportunity to get the perspectives of five economists from Franklin Templeton’s specialist investment teams on inflation, interest rates and growth.

Inflation, especially inflation expectations, continues to be a significant focus for our investment teams.

Inflation figures continued to rise in several countries in June and July, driven by a combination of factors that included cyclical upswings associated with either resurgent sustainable economic activity or pent-up demand paid for by the spending of excess savings. Because of this, there is a debate among our economists on whether inflation will remain transitory or continue to remain at high levels into 2022. Alternative measures such as the volume of news stories on shortages in categories such as autos, furniture, electronics and apparel peaked in April/ May, indicating that there may be evidence of inflation

24 www.moneymarketing.co.za

abating in the future. However, reported data continue to show sharply rising prices, which put pressure on fiscal and monetary authorities to adjust policy to prevent economic overheating.

Our economists’ views also diverge on what economic growth will look like in the second half of the year. The global economic recovery rolled forward through the second quarter, most notably in developed markets, as business activity reopened, coordinated monetary and fiscal policy provided a healthy tailwind, and growing levels of vaccine coverage moved parts of the world closer to normalisation. However, there is uncertainty about the pace of economic recovery for countries that lag behind in vaccinations or experience the proliferation of various COVID-19 variants.

“Inflation, especially inflation expectations, continues to be a significant focus for our investment teams” The initial expectations for how economies would recover based on the shape of the COVID-19 peaks have been tested even in countries with high vaccination rates. For example, Israel has seen cases and hospitalisations rise even with high levels of vaccinations (93% of adults with nearly all receiving the Pfizer vaccine) and has already ordered boosters for its citizens. The volatile nature of how governments and consumers will respond from a policy and behavioural perspective creates a wide range of potential outcomes.

Below are summaries of our economists’ current views: Western Asset We expect to see a meaningful pickup in global growth in the second half of 2021 as economies continue to reopen; however, we are cautious about extrapolating short-term cyclical boosts into a presumption of a higher secular trend rate of growth or inflation.

Sonal Desai, Ph.D., Chief Investment Officer of Franklin Templeton Fixed Income Optimism and consumer confidence have rebounded sharply, with a sustained global recovery now the baseline expectation. Uncertainty remains as the pace

of economic recovery is diverging between those countries that have been able to bring infections under control, have accelerated vaccination campaigns, and have supported the economy with ample amounts of liquidity via exceptionally loose fiscal and monetary policy, and those that continue to lag behind. We believe investors should be prepared for increased volatility as the market tries to interpret the changes in policy regime.

Michael Hasenstab, Ph.D., Chief Investment Officer of Templeton Global Macro We expect inflation figures to remain elevated in 2021 in many countries, driven by a combination of factors that include cyclical upswings associated with resurgent economic activity, supply bottlenecks in certain sectors, and base effects off of the pandemic shocks in 2020. These factors should be largely transitory, in our view, with inflation levels eventually moderating to secular trends in 2022, given elevated unemployment and automation factors that continue to dampen wage pressures.

Gene Podkaminer, Head of Research, Franklin Templeton Investment Solutions We remain confident that a stimulative mix of easy monetary policy and generous fiscal support should build an increasingly synchronised global expansion – certainly among developed markets. However, this move may be close to its peak. In absolute terms, the strongest period of expansion may have been in the second quarter of this year. The United States may be approaching the point of ‘peak fiscal stimulus’ and is perhaps on the downslope for quarterly growth in gross domestic product (GDP).

Francis Scotland, Director of Global Macro Research at Brandywine Global The normalisation of the world’s major economic regions – at least in terms of real GDP levels – marks the end of the second phase and peak economic growth. The current trajectory should moderate, and growth should slow; what is ambiguous is by how much. Currently, markets seem priced for the middle road – a soft landing. If there is any tilt to the bias in the outlook, it is probably that the world runs too hot.

For more, see Macro Perspectives: A second-half surge, or pause? https://bit.ly/3AdF6n0

31 October 2021

MEDICAL AID SCHEMES

Is National Health Insurance a national disaster?

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edical scheme Profmed recently hosted a webinar in which it tackled the issue of the impending National Health Insurance (NHI), which poses massive implications for the future of healthcare in South Africa.

“Healthcare access is a problem and we need a partnership approach between private and public sector healthcare to work in unison to remove the inefficiencies in the current system for the good of all South Africans,” Profmed CEO Craig Comrie told the webinar.

The question remains, how can all the various stakeholders be pulled together to deliver better healthcare for all South Africans? Comrie indicated that the NHI program must provide space and not threaten the role of medical schemes as depicted in a single payer model policy. This would create a number of constitutional challenges that would delay essential healthcare reforms that could benefit individuals who belong to medical schemes and those that do not.

NHI versus medical schemes In Comrie’s opening presentation, he stated that successful national health systems across the world have always been supported by private healthcare insurance. “Around 15% of South African citizens are covered by medical schemes, so we see that there is R220bn spent in the private sector of which most is spent by medical schemes to provide healthcare to those who pay for insurance.”

Regarding the short-term future of schemes within the NHI, he believes the NHI will only be able to cover a small range of primary healthcare benefits in its infancy – which provides space for schemes to continue to provide a service. “This is provided for in the NHI Bill and the so called ‘complementary’ role that medical schemes will play will remain the dominant role until additional budgets are found within the fiscus to broaden what is covered by the NHI. This budgetary gap, not out of design but due to economic pressures and low tax collections, will effectively ensure that medical schemes are still going to play a critical role for the foreseeable future. Any consideration of increasing the tax burden for this concentrated group of taxpayers, specifically to fund NHI, is completely unrealistic. These taxpayers are dominantly professionals who have vast global

opportunities and contribute significantly to employment in South Africa. We can ill afford to lose them.”

Medical practitioners – Are we heading for a brain drain?

The next major challenge South Africa faces is the narrowing healthcare resources such as doctors and specialists who are migrating to developed countries.

Comrie said that a key asset within the healthcare sector is the healthcare professionals who are fundamental to the success of any reforms within the healthcare system, illustrating that just from Profmed’s own membership, which covers around 60% of healthcare professionals, South Africa is losing around 260 doctors a year. “This number is not the full picture if you consider doctors with other medical schemes and those that are retiring. From a Profmed perspective, the number one reason for people leaving our scheme over the past five years is emigration. An essential part missing from the current NHI Bill is a plan to retain and produce more doctors and specialists; without this NHI is dead in the water.”

When asked how Profmed proposes to solve this issue, Comrie responded by highlighting the need to provide the security of income, giving doctors an indication that they aren’t going to lose their independence in an NHI scenario that seems to nationalise their futures and narrows their choices of where in the healthcare value chain they prefer working.

Comrie said how the NHI secures services in a way that provides healthcare professionals with an income and suitable job security, should be solidified. “A careful change management process is one of the missing rungs in how we develop the overall NHI process.”

“An essential part missing from the current NHI Bill is a plan to retain and produce more doctors and specialists”

A desperate need for both public and private provision Dr Nicholas Crisp, now the Acting Director General at the Department of Health, described the NHI as a financing system at its core. He believes the single-payer model is the only way to roll out the NHI and this is why medical schemes, as funders, are more concerned about it than the providers themselves. However, this shouldn’t detract from the fact that South Africa desperately needs the NHI. With just over R250bn dedicated to public healthcare, Dr Crisp noted that these funds will be the first port of call and bring the private contributions of R220bn

into one space to create efficiencies in purchasing healthcare services. “There is a long way to go and initially this may be threatening to provincial governments as it represents one third of their budgets that are allocated for healthcare. The bulk of these funds will also need to be centralised under the NHI.” He noted that the same kind of pain would occur in the private sector. “Instead of making voluntary contributions to our medical aids, we need to raise this money as tax. If I pay R5 000 a month to a medical scheme, I should then rather pay it to the NHI, unless I want to cover something that is not covered by the NHI for which I can seek medical scheme cover.”

To allay concerns, Dr Crisp provided reassurance that this would be an incremental process. He said the NHI development processes will start to become operational at the end of this year, but that didn’t mean everything would change next year. “Small things will start to change. Systems will come online. Patient records will start coming right and Covid’s Electronic Vaccine Data System already provides a database of possible future NHI participants. NHI will only happen once there is an Act to establish it.”

Dr Crisp ended his address to the webinar by stating, “When my health matters to you as much as your health matters to me, then we will have equity.

We need this as citizens, so that everyone can get proper healthcare. I believe that we have the resources.”

Understanding the role of medical aids in funding General Manager at the Health Funding Association of South Africa, Daisy Seakgoe, said in her address that the restrictions of medical schemes to provide complementary cover in a future NHI is tenuous.

“There is a great opportunity to apply the Health Market Inquiry recommendations to improve the way that medical schemes function as part of a coordinated health system. This will create a more integrated medical scheme system capable of supporting the NHI fund and will support access to quality healthcare for all South Africans,” she said.

She added that there is a widespread misunderstanding that private medical scheme contributions will automatically be rerouted to the NHI fund. “This is not the case as medical scheme contributions are private expenditure. A key concern is that medical scheme beneficiaries will now be drawing on state resources, adding to the State’s burden, and that this has not been properly interrogated yet and shouldn’t be assumed.”

Foundation before funding Chairperson of the South African Medical Association (SAMA), Dr Angelique Coetzee, told the webinar she doubted that the NHI could be initiated in 2026 as the challenges are too vast.

She listed these challenges as: • Quality failings in delivery and infrastructure • Shortage in human resources and misdistribution of these resources • Acute shortages of management skills • Poor access to healthcare • Provinces failing to address their own challenges.

“We do not know how these issues will be addressed in the run-up to the implementation of the NHI. That is going to be an issue,” Dr Coetzee said.

She listed the challenges that are posed by the private healthcare sector, which include: • Widespread failures in regulation • Expensive and financial risk exposure to users • Quality is essentially unmeasured • Fraud, waste and abuse • Fragmented delivery, funding and clinical governance.

“We are talking about funds, but how can you discuss funding when you don’t know what you are going to fund. We know its primary healthcare, but will the money be enough to address all the challenges I mentioned?”

Dr Coetzee suggested that the regulations first be examined, and then the available funds. “Yes, we need a funding model, but we need to get the numbers right first. If we don’t fix the foundation of the home we want to build here, we are not going to get anywhere.

Not in this lifetime.”

Craig Comrie, CEO, Profmed

www.moneymarketing.co.za 25

31 October 2021

MEDICAL AID SCHEMES

Don’t cut your medical aid when times are tough There hasn’t been much good news doing the rounds lately. In fact, as a nation we are collectively fatigued by all the bad news... from load shedding to work-from-home challenges and home-schooling. We don’t even have to spell out the starring role COVID-19 has played in all of this. Luckily, Fedhealth Medical Scheme has some good news lined up for 2022.

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he pandemic has again emphasised how precious our health is – and how important having quality medical aid cover is to protect it.

Especially when you consider that, according to Fedhealth statistics, the average cost per COVID-19 hospital admission in 2021 has been R163 000 so far, with the average length of stay in-hospital of 10 days per COVID-19 admission. To date, the largest single COVID-19 hospital account has been R4m.

Not many of us can carry these types of costs out of our own pocket, which is where good quality medical aid will make all the difference when you need it most.

By mid-July 2021, Fedhealth had paid out R375m towards COVID-19 claims – with hospitalisation costs amounting to R240m, and pathology (i.e. tests) totalling R55m.

So, while the aftermaths of this global challenge will reverberate for many years, when it comes to cutting expenses out of necessity just to make it to the end of the month, with Fedhealth, South Africans won’t have to cut their medical aid in 2022. And that’s a promise.

“The average cost per COVID-19 hospital admission in 2021 has been R163 000 so far”

Observations around medical aid membership in the time of COVID-19 Here are some trends that Fedhealth has noted amongst its own members as a result of the COVID-19 pandemic: • During the 2021 renewal period, 5% of Fedhealth

members downgraded. This is just marginally higher than what the Scheme usually sees in pre-pandemic years.

• A decrease in the number of members cancelling their membership was also noted.

These two observations suggest that Fedhealth members are prioritising medical aid as they see the value of it, in the midst of a pandemic that shows no signs of significantly slowing down anytime soon.

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• Further investigations into Fedhealth members who downgraded, show that 56% of them have benefited from paying less in contributions without actually downgrading to a less comprehensive option.

This is as a result of Fedhealth’s unique product design which allows members on the flexiFED range to take advantage of either an 11% or 25% discount on their contribution by opting for the GRID or Elect variants. The GRID and Elect variants are available on all flexiFED plans, and offer the exact same level of benefits as the non-discounted rates, but members must make use of certain network facilities for planned procedures requiring hospitalisation.

• Towards the end of 2020, 93% of Fedhealth members were content with their Fedhealth plans, choosing to not change their option at all – which goes to show that Fedhealth’s product range and benefit structure do appeal to its members.

Good news for 2022, brought to you by Fedhealth • Have plans of your own? You don’t have to put the baby bump on hold because of medical aid costs.

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Only Fedhealth allows you to upgrade to a higher option anytime of the year once you’re actually pregnant. This means you can choose a more affordable option now to save on your monthly medical aid expenses, and only upgrade when you absolutely need to, within 30 days of a life-changing event, such as a pregnancy or a serious disease diagnosis.

Don’t give up on your medical aid in the COVID-19 economy, control it. Only Fedhealth offers you quality hospital cover that covers you for accidents and emergencies, and optional day-to-day benefits you only pay for if you use them. Our entire flexiFED range can be used as hospital plans on steroids, which can mean much lower contributions without compromising on the quality of your cover.

Create your aid and pay for what you need. With Fedhealth, you can get quality medical aid for emergencies, without paying for the bells and whistles too. Our Elect variant allows you to pay 25% less without compromising on quality – by choosing to pay a fixed co-payment on all planned procedures at any private hospital. A great option if you’re healthy and not foreseeing procedures of this nature in the near future.

Or, another alternative is choosing our GRID variant – which lets you save 11% on your monthly contribution by using one of the more than 100 hospitals on our Fedhealth GRID network for planned procedures.

In this job market, your grown-up kids are studying for longer... which means eating you out of house and home. Switch to the only medical aid that allows you to pay child rates up to the age of 27 if your kids are financially dependent on you.

While job security might be out the door due to the pandemic, Fedhealth’s flexiFED range puts you in control to create the aid that’s affordable for you without ever compromising on the quality of cover.

Let’s face it, add-ons are pretty useless in a pandemic.

With Fedhealth, you don’t pay for the expensive rewards or extras you can’t even use. Switch to Fedhealth and create the aid you need. Get the best value medical aid and pay less.

Many of us have neglected preventative screenings and healthcare assessments over the last two years.

This was mainly to avoid exposure to the coronavirus, and of course, to not overburden an already strained healthcare system. Fedhealth remains concerned about the impact of the pandemic on preventative care and the reduction in the number of members having their annual check-ups and screenings. The good news is that Fedhealth offers members a comprehensive screening benefit, which should help them to get back on track and up to date in no time – without putting additional strain on their pockets.

Switch to Fedhealth for affordable medical aid that you create and you control. Visit fedhealth.co.za or call us on 0860 002 153 today.

“Many of us have neglected preventative screenings and healthcare assessments over the last two years” 26 www.moneymarketing.co.za

31 October 2021

MEDICAL AID SCHEMES

Urban living’s impact on wellness

BY DR MORGAN MKHATSHWA Head of Operations, Bonitas Medical Fund

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outh Africa is urbanising rapidly: 63% of South Africans are already living in urban areas. Stats indicate this will rise to 71% by 2030 and by 2050, eight in 10 people will be living in urban areas. While it is unavoidable that people migrate to cities for work, it does have a negative effect on people’s health. The most significant effect is the increase in non-communicable or lifestyle diseases. 80% of these are the result of lifestyle risk factors.

“It is common knowledge that COVID-19 and NCDs interact to create a perfect storm” Our research shows that the main problems associated with changes in lifestyle and behaviour, due to urbanisation, are: Increased alcohol and tobacco use, lack of exercise and poor nutrition, more processed and refined food, an increase in high-fat and highsugar diets, fewer fruit and vegetables, complex carbohydrates and fibre.

Analysis shows that lifestyle diseases and hypertension are the most prevalent non-communicable diseases (NCDs) followed by type two diabetes. Obesity, high cholesterol, type two diabetes and hypertension are all symptoms of metabolic syndrome, caused by poor nutrition and a sedentary lifestyle.

Other conditions include susceptibility to blood clotting, underactive thyroid and depression. Oncology is also becoming more and more prevalent. The number of Bonitas members with cancer has more than doubled since 2016.

Socio-economic factors also play a role – the poorest people live in underserviced inner-city areas or informal settlements and are the most exposed to unhealthy urban environments. With urbanisation, the double burden of NCDs will increase if no effective health systems and policies are put in place to prevent, detect and treat these.

Air pollution in cities is responsible for a range of lung and respiratory diseases, heart conditions and cancers. Chronic Obstructive Pulmonary Disease (COPD) and asthma are two of the most prevalent respiratory diseases.

We have the expertise to respond to these risks and lifestyle diseases by providing comprehensive, integrated care every step of the way. Our Managed Care programme equips members to take responsibility for their health by providing information and education, encouraging wellness, paying for preventative care and providing cover for medical costs incurred.

“The pandemic has everyone more aware of having to take responsibility for their health”

COVID-19 and NCDs It is common knowledge that COVID-19 and NCDs interact to create a perfect storm. The pandemic has everyone more aware of having to take responsibility for their health. Comorbidities have an impact on those who contract COVID-19 and there is possibly a synergistic issue with the coronavirus and these co-morbidities that exacerbates the prognosis and burden of disease.

The GP is pivotal There needs to be coordination of care with the GP as the first port of call for all healthcare needs, who can refer patients to a specialist or auxiliary provider as the need arises.

To tackle the rising burden of disease, medical schemes need to work together with public health authorities, particularly in the context of the challenges of urbanisation, lifestyle diseases and the COVID-19 pandemic.

Managed Care Measuring, reporting and comparing outcomes is perhaps the most important step towards unlocking rapid outcome improvement, making better choices and achieving good patient health.

We believe that proactive intervention

and working with members to prevent or control lifestyle diseases is the only way forward. Because when ‘I’ becomes ‘we,’ illness can become wellness.

Enjoy the safety net of day-to-day benefits, but don’t pay until you use them.

Times are tough, but don’t give up your medical aid when you can control it. Fedhealth gives you comprehensive hospital cover, WITH optional day-to-day benefits that you only pay for if you use them.

Switch to Fedhealth for affordable medical aid that you create and control.

www.moneymarketing.co.za 27

31 October 2021

MEDICAL AID SCHEMES

Cash strapped consumers need more flexibility for their healthcare and overall financial needs

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omentum Health Solutions has made the commitment to offer more health to more South Africans for less, and provides truly flexible solutions to ensure that members can use their health benefit options and related savings facilities to place more focus on where their financial needs matter the most.

As the economy continues to experience challenges as a result of the COVID-19 pandemic, flexibility is a priority for consumers who have taken a financial knock. More focus has been placed on cost reduction as the livelihood of many consumers has been affected. Momentum Health Solutions has a vast range of cost-saving health options that were developed with the needs of the low-income consumer in mind. These solutions offer financial protection, industry-leading benefits, wellbeing assistance, and costeffective day-to-day benefits.

According to media reports, South Africa’s economy is only expected to recover to pre-pandemic levels in 2025.

Stats SA has shown that the economy grew by 1.1% in the first three months of 2021. Low consumer spending as a result of elevation in basic needs prices and daily unemployment has increased in an economy that was

already in a recession before the COVID-19 pandemic struck. This has left consumers under tremendous pressure to reduce expenses. It is therefore imperative that organisations drive awareness and create cost-saving health options for the cash-strapped consumer.

“Cash-strapped consumers are under considerable pressure and as such, we have ensured that we provide our members with options that are best suited for them. These offer quality, flexibility and affordable health insurance solutions that give them more health for less,” says Damian McHugh, Momentum Health Solutions Executive.

Momentum Health Solutions prides itself in providing integrated healthcare solutions and benefits ranging from medical aid cover to health insurance, savings accounts for healthcare expenses, and lifestyle improvement incentive programmes.

• Find cover that is affordable: Momentum Health4Me is an industry-leading healthcare insurance solution. Join more than 100 000 members and get healthcare cover that is more affordable than traditional medical aid.

• Be prepared for any unexpected shortfall: Momentum GapCover is another affordable way to add cover to, for instance, a hospital plan.

• Get cover that offers more: Low-income earners are offered benefits such as More4Me, which rewards them with free data for performing simple health-related tasks.

• Find cover that is flexible: 24-hour access to affordable networks of healthcare providers that deliver quality care.

• Rewarding you along the way: The Momentum Multiply programme is a rewards programme that guides, motivates and rewards you for taking everyday steps to live a better and happier life on your journey to success.

• Look out for cover that offers additional saving

facilities: The HealthSaver account can be used not only to fund healthcare-related expenses, such as co-payments, cosmetic surgery, refractive eye surgery, and vitamins, but also members’ monthly medical aid contributions, provided they have accumulated sufficient funds to do so. Members can earn up to 10% interest on their positive HealthSaver balances, based on a combination of their Healthy Heart Score and Active Dayztm. These funds can also be used to cover medical treatments and procedures, not covered by a medical aid option.

• Lead an active, healthy lifestyle and be rewarded: HealthReturns enables families to earn savings by practising a healthy lifestyle. Family members can earn up to R3 000 per month in HealthReturns if they comply with treatment protocols, go for an annual health assessment, and are physically active.

“Momentum Health Solutions is committed to taking action that improves the health of its members, and provides peace of mind to employees, flexibility in health solutions, as well as provides optimum care at affordable prices. Our health benefit options and related savings facilities enable consumers to use their medical savings to sweep into their Retirement Annuity or even use this to fund their children’s education,” Damian McHugh, Executive, says McHugh.

Momentum Health Solutions

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Does your medical aid suit your family?

Move to the medical scheme that fits your journey and visit momentummedicalscheme.co.za

28 www.moneymarketing.co.za

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RANDOM PRICE INCREASES LEAVING YOU OUT IN THE COLD? YOU SHOULD SWITCH TO BONITAS INSTEAD PLANS FROM R1 452

SMS SWITCH TO 33035 OR VISIT BONITAS.CO.ZA TO JOIN SMSs CHARGED AT R1.50. FREE SMSs DO NOT APPLY. Ts & Cs APPLY.

31 October 2021

MEDICAL AID SCHEMES

Contribution increases in medium and long term to be kept at ‘reasonable level’

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edshield Medical Scheme has announced a 5.2% increase on specified benefits across all options with no benefit cuts. The Scheme applied a member weighted average contribution increase of 6.3%, following “due consideration for sustainable contribution consistency and long-term value certainty.”

Thoneshan Naidoo, Principal Officer of Medshield Medical Scheme says, “Annually we adjust and enhance benefits when it matters the most and continue to provide real value to our members.”

He adds that Medshield has refined its product offering for 2022 to address the gaps raised by brokers, and to improve the Medshield basket of options for future membership growth, including the new hospital plan targeted at sportswomen and sportsmen at an affordable price, and Low-Cost Benefit Options (LCBOs), both subject to CMS approval.

“We have applied a 5.2% enhancement on specified benefits across all options with no benefit cuts, whilst unlocking additional GP consultations for chronic members, among others. In the interest of our members, we have repackaged some of the benefits for better value and added ease of access to care, including our Medshield Mom and Toddler benefits.”

As a not-for-profit organisation, Medshield’s only form of paying members healthcare claims is through members’ contributions. “When setting the annual contribution increases, we must estimate what is going to happen in the next year, especially against the COVID-19 backdrop and the requirements it will hold in a case of a fourth or fifth infection wave. There

are many unknowns, and we have a duty to ensure we can financially cover our members for the years ahead,” says Naidoo.

Medshield will keep its contribution increases in the medium and long term at a reasonable level as opposed to going with a smaller increase now and clawing it back with huge future contributions. “When applying a member weighted average contribution increase of only 6.3%, we had to consider if we should have a lower increase now, which could result in above 15% increases in the future, or to opt for a manageable increase this year and aim for a sustainable single-digit increase next year,” Naidoo explains. “We had to ensure that we have a smooth, consistent, steady increase for next year and the year after.”

In real terms, the monthly contribution increases on MediCurve resulted in a monthly increase of only R87 per month per member and R228 on MediPlus Prime. “Consumers must not only focus on the percentage increase but rather on the actual monthly contributions in rand value,” he emphasises.

South Africa has experienced one of the worst economic downturns in the country’s recent history and COVID-19 has caused individuals to cut back on household expenses, while some members prioritised medical aid cover over short-term insurance.

“At Medshield, like in many companies in our industry, there was trepidation that many of our members would reconsider their cover but with hindsight, one realised in a healthcare pandemic you need medical aid cover, and need

Thoneshan Naidoo, Principal Officer, Medshield Medical Scheme

to be confidently covered. Since the onset of COVID-19, we have paid more than R500m in member COVID-19 claims and vaccinated around 40 000 of our members. We also continue to confidently reassure our members that they have always been the driving force behind Medshield. With a firm solutionsfocused mindset, we looked at how we could assist our members through innovation,” Naidoo says.

The past year saw many membercentric innovations with the launch of MediCurve, a revolutionary digital plan, as a highlight. The efficiencies of technology enabled Medshield to offer it at a very affordable rate and it is now the Scheme’s lowest priced plan.

“We built on our SmartCare Digital Healthcare Ecosystem and opened the

“When setting the annual contribution increases, we must estimate what is going to happen in the next year”

30 www.moneymarketing.co.za

door for virtual consultations during the pandemic to unlock quicker access to quality healthcare to save lives. It can be conveniently accessed via computer, smartphone or tablet from the comfort of your home or private space. We have also enhanced our self-service functionality on the Medshield App and Interactive website for 24/7 self-service to include Virtual GP consultations.

Members can also easily manage their day-to-day healthcare through these channels while benefiting from our health and wellness portal, Medshield Movement and our loyalty programme.”

Naidoo advocates for a more equitable healthcare system. “In South Africa, the conversation around equality in many boardrooms, households and workplaces is centred around finances, race and gender. Equality extends further into healthcare, and we need to unlock equality in healthcare for all and I believe it is possible through NHI. Building a better country should encompass building a better healthcare system. Unlocking an enabling NHI is a part solution, but it must coexist with private healthcare and medical schemes.

“South Africans are blessed with the benefit of a world-class private medical sector, on par with first world countries.

Our private healthcare sector is a national treasure and, as such, should be protected and nurtured. South Africa should be finding ways to supercharge NHI given that it will benefit the country as a whole.”

Only 15% of the country’s population is covered by medical schemes due to affordability, but more than 30% of the population access private healthcare. “Our 2022 product design strategy is aimed at addressing some of these affordability and access challenges that we are facing collectively as medical schemes.”

EDITOR’S

31 October 2021

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