A simple, low-cost investment to achieve hardcurrency returns in either US dollars or sterling; the Global Cautious Fund; maximising a living annuity offshore; and investing in Cyprus.
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TRUSTS
Are you fully up to date with the latest amendments when it comes to Trusts?
Page 20
NATIONAL WILLS WEEK
This annual event is the chance for advisers to touch base with clients to ensure their wills – and succession plans – are in place. Here are our tips to maximise the potential.
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INSURANCE
Are FAs offering clients the best options when it comes to life and funeral policies?
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The Two-Pot System and the value of good advice
BY SIOBHAN CASSIDY MoneyMarketing Contributor
By giving access to some of their retirement savings while enforcing the preservation of the rest, South Africa’s new Two-Pot Retirement System, effective from 1 September, goes some way to reconciling two potential crises (immediate and future) for savers. Much has been said about the dangers of allowing access to a third of savings; less about the benefits of enforced preservation of the remainder. Although, according to some experts, the potential is revolutionary.
After 1 September, retirement fund contributions will be separated into two pots, two-thirds in a Retirement Pot and a third in a Savings Pot. Savers will be obliged to use the Retirement Pot to buy an annuity to provide retirement income; funds in the Savings Pot can be accessed via one withdrawal per tax year of a minimum of R2 000. The changes are not retrospective, which means a third pot, the Vested Pot, for those with savings accumulated before 1 September, will be subject to the old rules.
Withdrawals from the Savings Pot will be taxed at the member’s marginal income tax rate, which could even push an individual into a higher tax bracket. A second potential tax impact is on the R550 000 a saver is allowed to withdraw tax-free at retirement. Depending on withdrawals you have made, this benefit could be reduced.
“Investors need to understand the actual cost of access”
Positive or negative?
Many have warned that allowing access to savings will undermine an already shaky system and potentially encourage an annual raid on the Savings Pot. Jacques Zaayman, Group Director at Prime Investments, the Johannesburg-based fund and product services provider, says, “In an investment where long-term real returns are in the single digits, allowing a double-digit withdrawal annually is akin to borrowing from your future with almost no prospect of being able to repay yourself.”
As Pieter Koekemoer, head of Personal Investments at Coronation Fund Managers, has said: “While it is great to have this option in the event of genuine financial hardship, we believe investors need to understand the actual cost of access.” He explained that every R1 accessed early could cost savers up to R30 at retirement in nominal terms. “While the numbers become less dramatic when you shorten the period between early access and retirement, they remain retirement-defining. Even for an individual making an early withdrawal 10 years before their intended retirement date, it would still cost them R3 in lost retirement benefits for every R1 taken out early.”
The enforced preservation part of the two-pot system means that savers, who have historically been allowed to cash out 100% of their savings in their company fund on leaving a job, will no longer have this self-defeating option. Prime Investments’ Zaayman says this narrows one of the biggest holes (if not the biggest) in a rather leaky system: cashing out when changing jobs.
According to data from Coronation, more than 10% of members of workplace retirement funds withdraw all their savings when changing jobs. “According to National Treasury, the net result of this leakage is that more than 60% of retirement fund members had accumulated pension pots of less than R50 000 in 2020. Put another way, the average fund member resets their retirement savings balance to zero every eight years in a system that enables compound growth to do its magic over three or four decades.”
“This action represents the most significant destruction of value and has a negative multiplier effect,” says Keri-lee Edmond, Analytics and Insights Manager at Old Mutual Corporate Consultants.
Continued
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Continued from page 1
According to Palesa Mokoena, Technical Support Specialist at Glacier Business Development, the resignation rules under the two-pot retirement system present a major change for members of pension and provident funds who have become accustomed to the current system, which allows for full withdrawals each time they change jobs or leave their employer. “Many members may not be familiar with the concept of preservation and the workings of preservation funds,” she says. “Members who resign from their employer will therefore require financial education and support from their employers, funds and financial advisors in order to navigate their options under the two-pot retirement system, understand the implications for retirement savings, and make an informed decision.”
A doomed savings mentality
South Africa’s retirement savings crisis is well documented. Too many workers put off saving as long as they can, save at the lowest possible rate, and cash out their savings at the first opportunity. According to Treasury figures, which are borne out every year by the 10X Investments Retirement Reality Report, only 6% of South Africans can afford to preserve their lifestyle in retirement.
For many living in crisis, this talks to a problem for another time. The Covid-19 pandemic magnified and focused attention on a more immediate crisis. Many South African workers, who were putting their children to bed hungry and could not afford to educate them, were aware of a pot of money somewhere with their name on it: their retirement savings, which they could not access in even the most dramatic of crises.
It is not surprising that, as Edmond says, “in the time of Covid-19, we saw many South African employees resigning from their jobs, or couples going as far as to get divorced, simply to access their retirement funds in order to support their immediate financial needs”. She adds, “The ingenuity of the two-pot system lies in its ability to acknowledge the need for immediate financial access, reflecting our socio-economic reality, while still safeguarding long-term retirement goals. This marks a momentous shift in conventional thinking, and one which we believe will have a significantly positive effect on retirement outcomes into the future.”
Experts recommend saving 10 to 15 times one’s annual salary to provide a retirement income of 70-75% of previous income. Edmond says typical members of provident or pension funds save only 2.7 times their annual salary, and points to Old Mutual’s
analysis showing that the new system could enable workers starting to save at age 25 to amass retirement savings of two to three times more than that. She explains that the research indicates that the two-pot system could enable South Africans to save up to 9.5 times their annual salary by retirement, even if they use the entire savings component. If no withdrawals were made, savings could reach around 14.5 times annual salary, she adds.
Advisers will have a lot more to worry about than persuading people not to dip into their retirement savings. They will need to help clients understand the probabilities, the possibilities and the consequences of various choices. There is also potential for advisors to play a role in expanding the pool of savings. Prime Group’s Zaayman says the change really shines a light on the value of affordable and effective financial advice. And, as Keith Peter, Advice Manager at Old Mutual Personal Finance, has said: “For advisers, this is a chance to deepen customer relationships and improve financial outcomes for retirees.”
What’s the prognosis?
The two-pot system is likely to change the way South African workers view retirement saving. Research by Old Mutual Corporate, for example, shows that 40% of members will consider increasing retirement fund allocations after September 2024 due to the two-pot system. “This suggests that the perceived opportunity cost of investing in a retirement fund is now reduced, and members see the value of investing more, as they can access this money in an emergency,” says Samantha Jagdessi, Head of Advice & Best Practice at Old Mutual Corporate Consultants. John Anderson, Executive for Enablement and Solutions at Alexforbes, has noted that new system “enables saving with specific goals in mind, which has been shown to increase savings commitments”.
Advisers and the industry have their work cut out to encourage clients to leverage the best of the new system while avoiding any pitfalls.
Ideally, workers will save as much as they can in their retirement funds, thereby accessing many benefits. These include tax breaks and tax-free growth and, in the case of corporate funds, lower fees than on individual investment products. Should savers need to access some of their funds for a crisis or, indeed, a priority such as a child’s education, they can do so. If they should happen to not need to access their savings, they get the benefit of a very healthy retirement fund.
ED’S LETTER
September is a big month for the financial services industry this year, as the reformed retirement fund regulations kick in. It’s most certainly going to have an impact on financial advisers. While the industry has been doing an incredible job trying to educate and inform consumers of their options, people tend to believe that most things don’t specifically apply to them until they realise that they do. It’s also a complicated system to initially grasp – especially as although it’s referred to as the “two-pot system”, there are three pots not two, and different regulations apply if you were over 55 on a certain date. There are some false beliefs out there, including that people will be able to withdraw all their retirement savings on 1 September. I foresee advisers having to field a lot of questions and possibly counsel some disappointed clients.
While our cover story is aimed at helping you, as FAs, to fully comprehend what’s happening in the industry, we also want to help you educate your clients. To support this process, together with Glacier by Sanlam we’ve compiled a handy digital booklet that you can download and share with your clients – or even just share the link via email. We’ve tried to break down the new system in as simple terms as possible and provided answers to some of the most asked questions. The booklet will also be available in printed form from the next issue.
We’re also looking at Wills Week in this issue, and specifically the opportunities that exist to engage with your clients around this time to ensure their wills are up to date and their beneficiaries on all policies clearly named. Do your clients fully understand issues such as inheritance tax, succession planning, the job of an executor? Is their life insurance up to date or are there changes that need to be made to meet their current circumstances? It’s a great time for some September policy spring-cleaning.
Stay financially savvy,
SANDY WELCH Editor, MoneyMarketing
RYAN BASDEO
HEAD: INDEX PORTFOLIO MANAGEMENT, 1NVEST
How did you get involved in financial services –was it something you always wanted to do?
My journey into financial services wasn’t planned and neither would I call it a natural progression. I spent a bit of my youth uncertain about my long-term career plans. It was rather difficult trying to decide on a lifelong career path when I was young and had little exposure to the working world. Growing up, I had a vested interest in the environmental and wildlife landscape, which may have been sentimentally driven by my childhood memories. But, as I began to bring the puzzle pieces of my life together, I sought guidance from my parents on a way forward and that is when I started to make sense of my career aspirations. I stayed open to feedback from those with more experience and stayed attuned to the doors that opened. The combination of structured guidance and my natural competitiveness with wanting to do
my best in any task on hand, landed me on the path to building a career in the financial services industry. The industry has been a great fit for me. I am grateful to the efforts, guidance and sacrifices that my parents made to afford me opportunities to explore any path I chose.
What was your first investment – and do you still have it?
I think the typical answer for this question may be the purchase of my home, but I have a slightly different view to what’s perceived as an investment. I do believe that an investment should put money back into your pocket and if we are honest with ourselves, our homes usually demand more money from us initially. If I were to take a different view, I would say that my first investment was the upskilling and continuous education that I undertook. Through this, I was able to remain a valuable asset to the firm.
“South African government bonds look attractive at the moment. These are paying real yields for a less risky asset class”
In terms of a monetary investment, I would say my first rental property – something I was able to get funding for. It was what some may define as a ‘value’ trade. I had pinned it on the potential development that would take place in the area. When that materialised and property prices rose to where there was a high enough opportunity cost to placing proceeds in less admin-intensive and less risky assets class, I sold the property and no longer have the investment.
What have been your best – and worst –financial moments?
Let’s start with the worst. At some point in my career, I used to be a Market Maker, effectively running proprietary trading book s . There was a point in time when the software failed me, which resulted in a very large trading loss that was partly my fault for not monitoring it more tightly. It was a very tense period of investigations to prove the software did not do what it was meant to, which
saved my job. My best would be having worked on a transaction that added a lot of value to the group, where every door was being closed and it had been given up on. I was described as a “bulldog latching on to a bone” and continued to look for a way to get it done – and it did happen eventually. It is a great feeling to provide value to the organisation and, in turn, build a good and credible personal brand in a business.
What are some of the biggest lessons you have learnt in and about the finance industry?
Persistence, along with patience, is key. We all want to have quick leaps in success in everything that we do. I have learnt that one must stay consistent to be able to accept short-term disappointments, but persist in making incremental improvements – and there will be a pinnacle that will eventually emerge. I think one can probably find a few Rocky quotes to better articulate this point.
What makes a good investment in today’s economic environment?
South African government bonds look attractive at the moment. These are paying real yields for a less risky asset class. In the longer term, I have always been a fan of the tech sector. I feel this is where invention occurs and eventually becomes mainstream technology once brought to scale.
What finance/investment trends and macroeconomic realities are currently on your watchlist?
I’m on the lookout for a supportive interest rate cutting cycle, as well as looking at the US economy, which is showing signs of a sustained recession and government debt management. All will determine my risk appetite for the short to medium term.
What are some of the best books on finance/ investing that you’ve ever read — and why would you recommend them to others?
A very novice one, but one that any youngster should start off with, would have to be Rich Dad, Poor Dad by by Robert Kiyosaki. Another would be A Random Walk down Wall Street by Burton G Malkiel. Lasty, one that isn’t directly related to finance but very much linked to encourage good discipline, which is key to good investing, is Atomic Habits by James Clear.
What will it take for foreign investors to overweight South African equities?
BY JAN-DAAN VAN WYK Stonehage Fleming Investment Management Associate Director
The South African euphoria trade is not over yet, and the figures show that foreigners are nibbling in South Africa’s financial market. While the equity market is still experiencing net negative flows this year, the dial shows signs of a shift in the bond market.
South Africa’s foreign investment in the stock market has steadily declined since 2005, when active Global Emerging Market (‘GEM’) investors held 9.3% of their emerging market portfolio in South African assets, according to SBG Securities research and EPFR data. Since then, exposure has declined to less than 2.7% - more than two-thirds lower than the peak almost two decades ago.
When considering this positioning within active strategies, one has to account for the decline in SA equity representation within the MSCI Emerging Markets (‘EM’) index. Changes in active investors’ appetite for South Africa’s assets would signal a fundamental shift in sentiment. Passive investors invest based on the country’s weighting in the underlying index as their performance is intended to mimic that of the index.
Many factors are driving the size of SA within the EM index, but if stronger share price performance begets inclusions into the index and SA grows in significance, this would prompt passive flows into SA equities. This year’s upcoming MSCI index reviews in mid-August and mid-November should provide early indications.
According to Prescient Securities research based on JSE settlements data, the government bond market experienced the strongest net inflows in recent years in July, after treading water in May and June and net selling by foreigners earlier this year. However, National Treasury data reflect that the holdings of outstanding domestic government bonds are still significantly lower (25.0%) than when these holdings averaged around 40.2% in 2018.
So, what will it take to really shift the dial on South Africa?
Over the past decade, the national government has been long on promises and short on delivery. This has given rise to anemic growth weighed down by loadshedding and logistical constraints,
“The government bond market experienced the strongest net inflows in recent years in July”
which the errant implementation of structural reforms has been slow to ameliorate. We believe that a sustained shift in the vector of big-ticket economic data, such as at least two to three quarters of strong economic growth numbers, may start to dent this skepticism.
Ongoing fiscal prudence will also be crucial, and there has been good progress in this regard. For the fiscal year ending March 2024, National Treasury recorded the country’s first primary surplus since 2009. Additionally, national revenue and expenditure continues to meet expectations set by National Treasury during the budget in the first three months of the fiscal year to end June.
An improved growth trajectory combined with continued fiscal prudence should improve national credit metrics, which opens the possibility of a rating upgrade. S&P still has South Africa’s local currency debt rated at two notches below investment-grade status at BB. Credit rating upgrades would significantly enhance the country’s status as an emerging market destination and unlock billions of rand potentially available for investment in South Africa.
Political risk will remain a factor to contend with, but initial developments post the national elections leave us optimistic. The cabinet may be more bloated than ever, but it is better than it was. There’s a diverse group of decision-
makers hungry to prove themselves, with the broad representation enhancing input, oversight and accountability.
Operation Vulindlela (‘OV’) is the glue for the GNU: should all parties agree with the path ahead and allow it to continue unfettered, investor sentiment would be substantially bolstered. The achievements during the first phase of OV make us optimistic that there will be continued progress towards achieving its policy objectives over the next five years, during the second phase.
SA investment base case improves, but challenges remain We consider the prospects for SA equities attractive, particularly those counters in the ‘lost and found’ bucket. Our analysis shows that, from a valuation perspective, the aggregate SA market remains about one standard deviation cheaper than its long-term average. This backdrop is similar for SA industrials, but within the sector, there is material dispersion – with, for example, Retailers, Construction, and Industrial Transport all trading at a more than 20% discount.
We believe this is the first phase in a multi-phase recovery. Should a capex and credit cycle commence in earnest, the knock-on effects will be significant, leading to a major reversal in trend growth after the lost decade.
This outlook led us to tilt around 2-3% of the equity exposure in our multi-asset growth fund to lean into the SA mid-cap space, specifically the currently unloved sectors of the market where we think there are great opportunities. With our primary focus being on risk diversification, we feel that this positioning reflects our optimism in a prudent manner.
It goes without saying that South Africa remains an emerging market economy, historically subject to volatility and significantly impacted by global events. While there seems to be consensus on the direction of travel for global interest rates (lower), views on the potential paths followed remain fluid and continue to drive much volatility. Uncertainty around global growth remains, and geopolitical risks continue to hold investors’ attention, especially in the Middle East. However, investing is never smooth sailing.
Launch of KPMG’s ‘Clear on Climate Reporting’ hub
Climate change is driving broader stakeholder scrutiny of financial reporting, with regulators, investors and the public focusing on how companies report on climate-related matters – such as net-zero commitments – and they are demanding clarity about climate. That’s why KPMG has launched its Clear on Climate Reporting hub: to provide insights and guidance to help organisations and their stakeholders understand how to be clear on climate in corporate reporting.
Covering key reporting issues companies are facing – through FAQs, podcasts and videos – it’s the first place companies should go when considering how to clearly explain to investors and stakeholders the financial implications of climate-related matters. The resources will constantly grow and be regularly refreshed – for example, a whole new emissions section will be added soon.
Larry Bradley, Global Head of Audit, KPMG International, says, “What’s described in the front of the annual report won’t always be mirrored in the financial statements in the way users expect. This is often true for climate. It is important that companies both comply with the IFRS® Accounting Standards and connect the dots between financial and non-financial information.”
Most, if not all, companies are facing risks arising from the physical effects of climate change and the transition to a lower-carbon economy. They should consider whether these matters are material to the financial statements and ensure users can understand the impact of climate. There is no single standard that addresses everything, and there are a lot of bases to cover to get the accounting right. The essential question for companies is: would an investor make a different decision if a piece of information were included?
Ultimately, investors and regulators want to see clarity and connectivity between a company’s financial and sustainability performance. A lot is happening in the corporate reporting space and companies are at varying stages in their sustainability reporting journey. But one of the first jobs is for companies to address climate in their financial statements today
and ensure they’re complying with the relevant requirements and are clear about the policies applied and judgements made. They should also join the dots to connect all climate-related information in their corporate reporting.
Brian O’Donovan, Global IFRS and Corporate Reporting Leader, KPMG International, adds, “Essentially, companies need to tell investors what the financial implications of their climaterelated plans are; and if they believe there’s no financial impact, tell investors why. Investors are looking for a connected picture of performance, showing the financial implications of sustainability plans and actions.”
Ben April, ESG Leader Africa Financial Services, KPMG in Southern Africa, says: “South Africa and the rest of Africa are witnessing first-hand our extreme vulnerability to the impacts of a changing climate. The storms that hit parts of the Western Cape over the past week have caused devastation to homes, communities, businesses and infrastructure. Climate change is as much an economic issue as it is a nature, social justice, human rights and development issue. It has a direct and material impact on activity across the economy. Climate finance is crucial for Africa’s transition.
“Africa needs substantial investments to build sustainable infrastructure, develop green technologies, and support social programmes. The KPMG Climate Reporting hub assists African companies in disclosing their climate ambitions and improving market access to Sustainable Finance at preferential rates.”
The Clear on Climate Reporting Hub can be accessed at https://kpmg. com/xx/en/home/insights/2021/06/ climatechange-financial-reportingresource-centre.html
MiWayLife’s advancing digital evolution
BY CRAIG BAKER CEO of MiWayLife
MiWayLife has launched its stateof-the-art online platform, offering life and funeral cover that can be conveniently purchased. This move comes in response to the growing demand for digital insurance solutions, accelerated by the changing landscape of consumer behaviour and technological advancements.
MiWayLife first ventured into the digital space last year with MiWayLife Direct, allowing consumers to purchase life insurance online. MiWayLife has now launched MiFuneral, a comprehensive digital-first solution for all end-of-life insurance needs. With this latest digital offering, clients can now secure funeral insurance at their own pace, without the need to interact with an agent. This digital platform is designed to provide optionality for clients to engage via a seamless, hassle-free experience while ensuring clients have access to support when needed during business hours.
Comprehensive benefits and unique selling points
MiWayLife’s digital funeral cover comes with a host of additional benefits: Repatriation of mortal remains: Assists in the transportation of the deceased’s remains to their place of residence or nominated burial site, with respect for cultural and personal preferences.
• Funeral arrangements service: Provides support with burial or cremation arrangements, including legal document assistance and referrals to pathologists for unnatural deaths.
Final expenses cover: Offers up to R100 000 to cover end-of-life expenses, such as outstanding debt, uncovered medical bills, and property maintenance.
Income support: Ensures beneficiaries receive up to R8 000 per month for 12 months, providing financial stability during a difficult time.
Family funeral cover: Extends funeral cover to immediate family members, ensuring comprehensive cover for your loved ones.
Craig Baker, CEO of MiWayLife, explains the strategic decision behind this digital transformation: “We recognise the need for flexibility and convenience in obtaining insurance. By going digital, we empower our clients to take control of their insurance needs, backed by the reassuring support of our dedicated team of agents when required.”
He further adds, “The rise of InsureTech is a positive force driving innovation in the industry, and embracing digital was inevitable. This development is driven by evolving client needs and through understanding some of the limitations that exist for clients in the current offerings. The actual ‘shopping’ experience, however, needs to compete with those that have been created in other retail sectors where the journeys are seamless and hassle free.”
MiWayLife’s new platform offers a user-friendly and supportive digital journey. “Our online journey is simple yet comprehensive. We understand that clients often seek reassurance before making a purchase decision. That’s why we offer continuous assistance through our chat facility and the option to speak directly with a human, if needed,” notes Baker.
Future plans and commitment to innovation
Looking ahead, MiWayLife is committed to further digital advancements, including personalising client experiences and enhancing financial education through their platform. The company also plans to leverage AI technology to automate routine tasks, allowing their team to focus on providing expert guidance and personalised support.
Growing adoption and customer feedback
The strategic launch has already shown promising results. MiWayLife currently sees around 150 quotes per month through its online channel for life insurance, and this number continues to grow daily. The expectation is to see the same, if not more, for the online funeral offering.
“Innovation and client-centricity are at the core of our mission – by offering a wellcrafted digital solution, we empower our clients with control and flexibility, setting new standards in the insurance industry,” Baker concludes.
The great multi-asset athletes
BY MIKE TITLEY Business Development and Marketing at Laurium Capital
Watching the 2024 Olympic Games from the dry comfort of my living room has made the recent wet winter weather in Cape Town much more bearable! I have enjoyed discovering competitive rivalries that I have been completely unaware of in sports that I hardly ever follow, and observing the sometimes surprising and excessive patriotic zeal that seems to grip both athletes and spectators. It probably happens to me at every Olympic Games (which I then forget as our TV screens return to showing the more traditional team sports like rugby, soccer, Formula One and cricket), but I have renewed my profound respect and admiration for the dedication and commitment required by every participant at these Games, in sports as diverse as badminton, weightlifting, free climbing and kayaking.
However, one of my key observations came to me while watching the men’s decathlon event on the athletics track. Most events are defined by an exceptional outlying strength, ability or skill (examples might invite descriptions like ‘fastest woman on the planet’, ‘perfect score’, ‘highest jumper in the world’, etc). In slight contrast, the men’s decathlon/women’s heptathlon winner seems to be defined by a lack of weakness – a holistic athlete, one who is almost certainly a highly competitive athlete in every discipline, but who might not be a gold medallist in any single one, if that’s all they focused on. Instead, what defines them as exceptional athletes is their
all-roundedness and lack of weakness in any one of the events. I drew on this reflection when doing a recent presentation for our multi-asset portfolios, of which we run a high-equity, medium-equity and low-equity mandate.
“These multi-asset funds invest right across the asset spectrum, in shares, bonds, property and cash within SA and abroad”
What a multi-asset fund is really good at, and what Laurium Capital as portfolio managers are employed to do on our investors’ behalf, is protecting investors against market weaknesses, to find a well-balanced and diversified blend of assets that will protect investor capital during periods of stress over shorter time periods of up to a year, and yet also have healthy enough returns that protect investors’ savings against inflation over longer time periods. These funds invest right across the asset spectrum, in shares, bonds, property and cash within SA and abroad. While the funds have a specific mandate to perform ahead of local category Collective Investment Scheme peers, the funds are managed by Laurium Capital with a focus on downside protection. This is achieved by weighing up expected return versus the risk of loss in each investment decision and holding a diverse portfolio of assets that mitigate against ‘known unknowns’ in the market. It is the all-round strength of all parts of the investment team and the portfolio that contributes to exceptional and peer-beating long-term performance.
The recent volatile swings in markets early in August are a great illustration of the multi-asset portfolios in action. A rapid change in the outlook for US growth led investors
APPOINTMENTS
Capital Legacy appoints new Chief Executive Officer
Capital Legacy has appointed Craig Harding as its new Chief Executive Officer, effective 1 January 2025. Harding succeeds founder Alex Simeonides, who has led the company since its inception in 2012. Harding has more than 30 years of financial and operational experience in African financial services markets. For the last seven years, he has been integral to Capital Legacy’s success, initially serving as Chief Financial Officer and more recently in a leadership role of the combined Capital Legacy and Sanlam Trust fiduciary businesses. Prior to joining Capital Legacy, Harding was a shareholder in FMI before its acquisition by Bidvest, CEO of Altrisk, and Executive Director at African Life. His deep understanding of Capital Legacy operations, combined with his extensive leadership experience in the financial sector, make him ideal to steer the company’s next growth phase. Capital Legacy’s rise has been meteoric, with significant investments from African Rainbow Capital, and Sanlam in 2023 – underscoring a bright future for the business.
As founder and major shareholder, Simeonides will remain heavily vested in
the success of the business. His strengths lie in innovation and entrepreneurial thinking where he thrives in driving new business and product development, challenging the status quo, and identifying growth opportunities. His new role will focus on such projects within the group, providing technical input, advice and insights to Harding and the leadership team through his executive role, as director and member of the board. The initiative for this next phase of the business came from Simeonides. He approached Harding and the shareholders and received their full support.
Under Harding, the Capital Legacy core values, principles, and business objectives will remain steadfast. The company’s ambitious goal of reaching one million clients by 2027 continues to drive its strategic initiatives.
Reappointment of Board member at the International Accounting Standards Board (IASB)
The South African Institute of Chartered Accountants (SAICA) has reappointed Bruce Mackenzie CA(SA) as a Board member at the IASB. He will be serving his second term, ending 30 September 2030. Mr Mackenzie also serves as Chair
across the globe to alter their view on the pace and quantum of interest rate cuts likely to be made in the US. While falling interest rates are not necessarily a bad thing for asset prices in the medium term, the shift in view prompted currency volatility in Japan. The upshot was a rapid and sizeable fall in share prices in almost every stock market. Conversely, the forecast reduction in interest rates boosted the value of bonds, whose prices rise when yields/interest rates decline. This rally in bonds largely offset the decline in the share portfolio. In addition, holding a basket of foreign assets helps to cushion local SA investors further when measured in rand.
Many retirement funds are managed by picking different specialists for each asset class and then blending these together into a single fund. While intuitively appealing, there is an alternative. Using a single, multi-asset fund manager with skills in every asset class, such as Laurium Capital, gives the manager the mandate to analyse and sum up the evolving outlook, and reallocate capital within and between assets very rapidly (when and where appropriate). Having the all-round capability in a single manager, and a wellbalanced portfolio, has helped to mitigate risk during volatile shorter time periods, while over the long term, the Laurium Capital investment team strives to produce exceptional, peerbeating performance. Laurium Capital manages four multiasset funds, namely the Laurium Flexible Prescient Fund, the Laurium Stable Prescient Fund, the Amplify SCI Balanced Fund and the PPS Stable Growth Fund. For more information, please visit www.lauriumcapital.com
of the IFRS Interpretations Committee.
The IASB is a global accounting standardsetter responsible for the development and publication of IFRS Accounting Standards.
In the South African context, companies are either required by law, such as the Companies Act, to apply IFRS Accounting Standards in the preparation of financial statements, or they may voluntarily adopt these Standards.
Absa gets new CEO Absa CEO Arrie Rautenbach will take early retirement from the group from 15 April 2025. He will also stop being the CEO and an Executive Director from 15 October 2024. Charles Russon will become Interim Chief Executive Officer of Absa Group and Absa Bank, from 15 October 2024, subject to regulatory approval. He will also become
an executive director on the boards.
Russon has been the Chief Executive of Absa’s Corporate and Investment Bank (CIB) since 2018 and a member of the Group Executive Committee since 2014. He joined Absa Capital in 2006 as CFO and has held several senior roles at the group, such as Regional Head of Finance, Chief Operating Officer, and Chief Executive: Engineering Services.
Yasmin Masithela will then become Interim Chief Executive Officer of Absa’s CIB, effective 15 October 2024, subject to regulatory approval. Masithela is currently Managing Executive Corporate Transactional Banking, CIB and has held the role since May 2019. She previously worked on the Group Executive Committee as Chief Executive of Strategic Services and Chief Compliance Officer, respectively.
Transferring clients: Is buying a client book worth it?
BY TRACY WRIGHT
Masthead Compliance Officer
Transferring or acquiring a client book can boost your financial advisory business, but it’s not without its challenges. We delve into the intricacies of client transfers and the factors financial service providers (FSPs) should consider before making this decision.
There are many reasons why an FSP would like to expand their client base: increased revenue generation, diversification, and business growth, to name a few. One way to achieve this is through the transfer or acquisition of a client book from one FSP to another. While this strategy can yield substantial benefits, it’s not without its hurdles. Many financial advisers complain that the absence of an industry standard governing this process muddies the water. For instance, some product providers allow bulk transfers if they receive a client bulk transfer declaration, signed by a Compliance Officer, confirming that all clients were notified of and consented to the transfer. Others require proof of individual broker appointments, which include signed broker appointment letters from each client affected by the transfer.
Regulatory requirements
Long gone are the days when client book transfers happened without the client’s knowledge or consent. Now, informing clients and getting their consent upfront, in writing or through other appropriate means like voice recordings, is a legal obligation under the Financial Advisory and Intermediary Services (FAIS) Act. The seller of the client book must inform their clients about the termination of their services, while the buyer must secure
AND SHARREN BHAGWANDIN Masthead Compliance Officer
client consent or broker appointments for each client.
Moving a client book can also mean changing product providers, effectively replacing a financial product. Under Section 8 of the FAIS General Code of Conduct (GCOC), when this happens, an adviser must fully disclose the actual and potential financial implications, costs and consequences of such a replacement to the client. In other words, an advisor can’t move a policy without first getting the client’s consent.
Section 20(a)(i) of the GCOC stipulates that if a client cancels a policy on an advisor’s advice, the advisor must ensure that the client fully comprehends the implications of this decision. Furthermore, Section 4(1) of the GCOC requires FSPs to furnish clients with complete information about the relevant product supplier, making it obligatory for clients to be informed of the new product provider.
Section 3(3) of the GCOC states that an FSP may not disclose confidential client information without the client’s written consent. During a client book transfer, this rule inevitably comes into play, as confidential client information is disclosed to the new advisor or product provider, making the client’s written consent mandatory.
It’s also necessary to consider the obligations placed on FSPs by the Protection
of Personal Information Act (POPIA).
Safeguarding the integrity and security of client data is paramount during the transfer process. Both the seller and buyer must have the necessary processes and procedures in place to protect clients’ data.
Furthermore, client notification is a critical aspect of maintaining trust. Clients need to be appropriately informed about the transition, the reasons behind it, and the potential benefits for them.
Treating Customers Fairly (TCF)
Outcome 1 is also relevant to this process. It requires that customers are confident that they are dealing with firms where the fair treatment of customers is central to the business’s culture. If clients are transferred to a new FSP, they must be assured that the new FSP has their best interests at heart. In addition, TCF Outcome 3 states that customers should be provided with clear information and kept appropriately informed before, during and after the point of sale.
Is it worth buying a client book?
Some advisors may argue against it because of the time-consuming nature of the process. Buyers need to obtain signed broker appointment letters for all affected clients. While some product providers permit bulk transfers, they still require a signed declaration from the FSP’s Compliance Officer, confirming that all clients have been notified and have consented to the transfer. In addition, these product providers usually request a letter from the client book’s seller, permitting the transfer, alongside a product provider transfer form or a letter from the buyer accepting the business transfer.
Buying a client book can also be a compliance risk if signed broker appointment forms can’t be obtained because clients don’t respond to communications or cannot be reached due to outdated contact details. Additionally, some clients may decline the transfer and seek financial advice elsewhere.
On the flipside, acquiring a client book
“An adviser must fully disclose the actual and potential financial implications, costs and consequences of such a replacement to the client”
can drive client base growth and expand the business.
Considerations before acquiring a client book
Before taking the leap, consider the following:
In your own business:
• Does your business have the capacity to ensure a smooth transition? For example, will it be able to inform and obtain consent from all clients while the rest of the business continues to operate optimally?
Does acquiring this client book align with your long-term business objectives? Does it fit into your growth plans? And, importantly, can you financially afford it?
Are the acquired clients a good fit for your business, both in terms of the services you provide and your business culture?
With regards to the client book you wish to buy:
Assess the quality of the clients in the book, such as their revenue potential and the potential for cross-selling other financial products.
Determine a fair valuation for the client book. Factors to consider include the client’s assets under management, recurring revenue, and the potential for future income.
Scrutinise the legal and compliance status of the FSP from which you wish to buy a client book. Do they have any past or ongoing litigation or regulatory issues? What type of reputation do they have in the industry? FSPs with a strong compliance culture are usually more likely to be committed to keeping and updating client records, which will make it easier to contact clients to inform them of the transition.
Buying a client book may be a laborious exercise, and the returns might not always justify the effort. However, by doing your research – both within your own business and in the seller’s business – this strategy can indeed help you expand your horizons and grow your financial services business.
Visit www.masthead.co.za for more information.
Going global
BY MIKE ADSETTS Global Chief Investment Officer at Momentum Multi-Manager
The global investment universe is a big space, and until relatively recently – with limitations on how much a South African investor could invest offshore – the ability to access some of the investment opportunities has been limited.
Over the last few years, historically low interest rates have made the return on global cash and other asset classes related to fixed interest less attractive, especially when compared to the relatively high real rates that could be earned from South African cash and bonds.
Things have changed over the last few years as inflation has trended upward with interest rates eventually following suit. As the risk of runaway inflation now seems to have moderated, global interest rates are expected to trend downwards in the near to medium term. Although inflation has remained stickier than expected and the anticipated interest rate cutting cycle has been delayed in many parts of the world, this has made the global fixed interest universe a far more interesting prospect. If we consider global bonds, especially investment-grade credit and emerging market debt, on a prospective basis decent returns are expected. Relatively stretched valuations in components of global equities, in particular US equities, make these fixed interest assets even more appealing.
Gold has also rallied as global geopolitics has given impetus to central banks to increase their gold holdings as a diversification strategy to reduce their exposure to US dollars. This in the context of increasing polarisation across the globe where there is real concern that access to reserves can be blocked, as we saw in the case of Russian reserve holdings in western banks. This backdrop implies that there will continue to be demand for gold, which should provide an underpinning for the gold price.
“There is a significantly larger universe of investments available globally which quite simply do not exist in South African markets”
Another asset class with which we are familiar, and which is currently topical, is infrastructure. Globally, there has been an extended period of underinvestment in infrastructure in many countries, so this is not only a South African problem. We just need to look at the US to see the significant commitments being made to sectors such as transport and logistics to appreciate that we are in for an extended catch-up period as older infrastructure needs to be replaced and new capacity needs to be brought online. Although not cheap now, infrastructure funds do provide predictable cashflows and a reasonable inflation hedge. Also, a significant benefit of global infrastructure is that there are many listed vehicles available, which enhances their liquidity.
These asset classes are relatively familiar and well-known to South African investors. What is worth bearing in mind is that there is a significantly larger universe of investments available globally, which quite simply do not exist in South African markets.
Then there are a few interesting investments that are totally absent from the South African landscape. A few ones we have come across are investing in music royalties, direct lending and specialist property (e.g. lab space). These are definitely for the more niche investor!
It’s always important to remember the basics of investing, even when considering the far larger global opportunity set. Diversification is important – do not make such a big investment in a single asset that it dominates the risk in your portfolio – and always remember what your investment goals are. Any investment decision needs to be made in the context of your overall goals and needs. A sound investment strategy is to understand the role and contribution that any investment will make to your overall portfolio.
Momentum Investments Group offers a diverse range of investment and retirement solutions, with access to local and global investment markets to suit all investment needs.
Whether you want to create and grow your wealth, protect it, or earn an income from it, we have a personal investment solution for you on your journey to success. Visit our website for more about our offshore investing solutions: https://www.momentum.co.za/momentum/personal/investments/invest
Not all romances have a fairytale ending
BY MAGDELEEN CORNELISSEN Wealth Manager, PSG
Iam a romantic at heart. I can predict the script of any romance within the first five minutes. Somewhere in the middle of the storyline you can expect the main characters to stare soulfully and expectantly into each other’s eyes. Fast forward to the end, you will hear the words “I do”. The realities of life, and especially finances, are less predictable. Financial advisers are constantly faced with life’s reality checks, as we are often confronted with the less glamorous parts of the fairytale – namely, the heartbreak of relationships coming to an end.
The 2022 StatsSA report on divorces in South Africa, published in March 2024, shares data behind the increasing number of marriages ending in divorce. It is interesting to note that more women than men initiate divorce proceedings and that the peak age group of divorce for women is 35 to 39 years.
Although society has improved in empowering women, it is still evident that women are often emerging in an economically less favourable position following a divorce. Quite often the first time that many of these women meet with a financial adviser is in the process of their divorce. At this point, they are faced with the stark reality that their financial position is less than ideal and that the likelihood of them reaching their retirement goals are slim. It does not, however, have to be the end of your financial journey. JK Rowling famously said, “Rock bottom became the solid foundation on which I rebuilt my life.”
Women need to empower themselves to ensure that, regardless of the circumstances, they will be able to go through the process of divorce with the certainty of financial wellbeing.
The foundation of our financial education begins at home. Children, especially girls, should be educated about the power of financial independence from a young age. Not only will that provide them with the ability to play a leading role in their financial journey, but it will also entice them to think critically about the steps they take to create their own wealth.
“No one gets married with the idea of getting divorced, but unfortunately, marriages can end abruptly”
Women must have access to a financial adviser. Men and women do not necessarily have the same needs and objectives when it comes to managing their finances. Women often take leading roles in managing other household affairs at the expense of their own financial position. Lack of financial knowledge and control of financial affairs can be a major obstacle for women who find themselves trapped in a hopeless marriage. Women should actively engage in their household finances, even if they feel that it is not their ‘speciality’. The ability to share dreams and concerns with a financial adviser, without the fear of being judged, is imperative. Realising that discussions about the most appropriate marital regime is just as important as choosing the perfect wedding dress can lead to a better outcome in the event of divorce. These are discussion points that can change the course of a woman’s financial outcome.
No one gets married with the idea of getting divorced, but unfortunately, marriages can end abruptly. As a romantic at heart, I believe that women can indeed leap into the next chapter of their lives, without the shadow of financial troubles
Are your regular outof-office notifications hurting your business?
BY FRANCOIS DU TOIT
CFP® PROpulsion
In today’s fast-paced world, balancing personal time and professional responsibilities is crucial, especially in the financial planning profession. As financial planners, advisers and wealth managers, the trust clients place in us hinges on our availability and reliability. But what happens when you frequently set up an out-ofoffice (OOO) notification? Could it be harming your business, or does it show a healthy respect for work-life balance? Let’s explore.
The role of out-of-office notifications
Out-of-office notifications allow professionals to set boundaries while ensuring that clients and colleagues know when they can expect a response. They serve multiple purposes, such as managing expectations, preventing a backlog of emails, and providing a chance to inform clients about when you’ll be back and who to contact in your absence.
For those in client-facing roles, like financial planners, these notifications can also be a subtle way to reinforce the professionalism and organisation of your practice. However, the frequency and content of these messages matter greatly.
The potential downsides of frequent OOO notifications
Perception of unavailability
In the financial planning profession, where trust and reliability are key, being perceived as frequently unavailable can be problematic. If you regularly set up an OOO notification, clients might start to question your commitment to their financial needs. They may worry that when urgent issues arise, you won’t be there to provide timely advice.
Clients rely on financial advisers to be available, especially during volatile market conditions or significant life and financial events. A pattern of frequent absences could inadvertently send the message that your personal time takes precedence over their financial wellbeing, which could damage the trust you’ve worked hard to build.
Impact on client relationships
Strong client relationships are the bedrock of any successful financial planning business. Regularly informing clients that you’re out of the office, even with a friendly tone, can sometimes strain these relationships. Clients might feel that their needs are secondary, leading them to seek advice elsewhere, where they perceive a more consistent presence. Additionally, clients may start to feel anxious if they believe their financial adviser is not fully engaged. In an industry where confidence in your adviser is paramount, this perception can be particularly damaging.
Your brand and professional image
Your out-of-office messages also contribute to your professional brand. While it’s essential to showcase your commitment to work-life balance, doing so too frequently might lead to an image of someone who is often disengaged from their work. This could be especially harmful if clients or prospects begin to see you as less dedicated or less available compared to other advisers.
Balancing professionalism and personal life
Effective OOO strategies
So, how do you balance the need for personal time with maintaining a strong professional presence? Here are a few ideas:
1. Limit the frequency: Consider reducing the frequency of your OOO notifications. Instead of setting up an OOO message every week or fortnight, you might reserve them for longer breaks or significant holidays.
2. Delegate responsibly: Ensure your clients know who to contact in your absence. Providing an alternative point of contact can reassure clients that their needs will still be met promptly.
3. Tailor your messages: Customise your OOO messages based on your audience. A more formal
“Regularly informing clients that you’re out of the office, even with a friendly tone, can sometimes strain these relationships”
tone might be appropriate for newer clients, while a personalised, friendly message could be reserved for long-standing clients who understand your work style.
4. Communicate proactively: If you know you’ll be out of the office frequently, consider discussing this with your clients in advance. Let them know that you value both your family time and their business, and reassure them of your commitment to their financial wellbeing.
Maintaining trust and availability
Ultimately, the key is to ensure that your clients feel valued and supported, even when you’re not directly available. By carefully crafting your OOO notifications and managing their frequency, you can maintain the delicate balance between professionalism and personal time without compromising your business or your reputation. Remember, it’s not just about being out of the office; it’s about how you manage your absence and communicate your availability to your clients. Raise the bar! Francois created PROpulsion, a dynamic network for financial planners and advisers promoting growth and success. He presents the weekly PROpulsion LIVE show on YouTube, with over 268 episodes delivered, leveraging his 25 years of expertise while hosting guests both domestic and international to educate and motivate. Dedicated to learning and applying new tech, he aims to make a large-scale impact. For further details, go to www.propulsion.co.za.
Index-tracking balances costs and returns in high-fee markets
Investors worldwide are grappling with high investment fees. For example, 34% of global investors surveyed in a recent bfinance Investors’ Costs and Fees poll say their fund servicing costs have increased in the past three years. Yusuf Wadee, Head of Exchange-Traded Products at Satrix , shares insights on these fee trends and how index-tracking investment product providers balance cost-effectiveness and returns in this high-fee landscape.
“The industry is observing pressure on fees across all asset management sectors. However, index-tracking investment product providers balance cost-effectiveness with consistent performance to provide efficient, accessible, and value-driven indextracking solutions that stand the test of time. This balance can help investors harness the full power of compounding returns while minimising the erosive effects of high fees.”
The widespread phenomenon of global fee pressures
Ever-reducing asset management fees have become a global phenomenon affecting active management and rulesbased investment strategies. Wadee notes, “The fee pressures are playing out almost everywhere in the industry. However, the driving forces behind this trend differ across investment disciplines.”
He says in the active management space, the trend of investment outflows has persisted. This exodus has intensified the downward pressure on
fees in this market, particularly given the traditionally higher fee base associated with active management.
Conversely, the indexation space, which includes rules-based strategies, has experienced consistent inflows into our markets. “Here, the fee pressures among competing product providers are more related to players trying to capture more of the market and new inflows via aggressive fee positioning,” he explains.
The compounding effect of fees on returns
Understanding the long-term impact of fees is crucial for investors. Wadee draws a compelling parallel between the power of compounding returns and the eroding effect of compounded fees.
“Much has been written on the power of compounding. The fact that a simple (but consistent) investment strategy – involving investing early in the market and staying invested – yields profound results after many years, is powerful. This is due to the effect of compounding; simply put, you get growth on your growth.”
However, he adds that this same principle works in reverse concerning fees. “The eroding effect of high fees works similarly – but in the opposite direction. The long-term impact of high fees consistently levied year after year on investment portfolios over time is also driven by the same compounding force – the only difference is that the compounding force of higher fees acts in the opposite direction to the
“Satrix has been able to reach a significant scale of assets needed to effectively operate an indexation business in a very competitive market”
compounding of being invested in the market.
Wadee says even minor differences in annual fees can significantly affect wealth accumulation over time.
Balancing cost reduction and performance
In response to fee pressures, Wadee says Satrix has had the benefit of having the first mover advantage in the South African indexation market.
As such, Satrix has been able to reach, very early on, a significant scale of assets needed to effectively operate an indexation business in what is a very competitive market.
“Past a certain scale, indexation firms can extract economies of scale and efficiency benefits that allow us to ensure performance and quality for our investment strategies, despite market fee pressures.”
The case for index tracking in a challenging investment landscape
Wadee says index tracking offers significant value to investors in the evolving investment landscape, particularly in the current high-fee environment. For instance, Satrix research shows that in South Africa, almost 90% of active manager returns result from market performance, which they can track using simple, low-cost index tracker funds.
“This raises an important costbenefit question for investors: how differentiated, consistent, and successful
are actively managed funds’ returns versus how much investors are paying in fees to achieve those returns? The higher costs of active management compared to index tracking means that the median performing active fund almost always underperforms an index tracking fund on a net of fees basis.”
Minimising the effects of compounding costs
Wadee emphasises that the impact of fees is less pronounced in index tracking than in active management, particularly over the long term. “The effect of higher costs compounds over the medium to long term and creates a significant headwind for active managers and investors to overcome. In contrast, index tracking’s lower fee structure allows investors to benefit more fully from market returns, minimising the erosive effect of fees on long-term wealth accumulation.”
He says for investors, the message is clear – while low fees are essential, they should consider them in the context of overall value, performance, and alignment with investment goals.
“In an environment where every basis point counts, index-tracking investment product providers must strive to optimise their offerings and ensure investors can harness the full power of compounding returns, minimising the erosive effects of fees, and maximising long-term wealth creation potential,” concludes Wadee.
Yusuf Wadee, Head of Exchange-Traded Products at Satrix *
Celebrating the best of the best in the insurance industry
This year’s 2024 FIA Intermediary Experience Awards took place on 15 August at the Sandton Convention Centre. Widely acknowledged as the highest accolade in South Africa’s financial services sector and held for the past 20 years, this award honours insurers and product providers who excel in providing outstanding products, solutions and services through intermediaries and financial advisers.
“The FIA Awards go beyond recognising merit in the financial services sector; they highlight the crucial role our members play in ensuring sustainable financial outcomes for businesses and households,” said Lizelle van der Merwe, CEO of the Financial Intermediaries Association of Southern Africa (FIA). “The brands that rise to the top at this annual event do so through a combination of hard work and innovation – and by consistently recognising the importance of human advice in delivering needs-appropriate financial and risk management solutions for consumers.”
Winners are selected through a meticulous process that involves a thorough and unbiased evaluation of thousands of responses from FIA members. The intermediary experience survey evaluates financial product providers on various criteria, including overall satisfaction with brand, product, and service; business enablement; regulatory compliance; and trust. High scores in each of these areas are crucial for maintaining the service standards expected by FIA members.
The FIA Awards serve as a critical benchmark for assessing the integrity, innovation, and client-centricity of financial brands within the industry. According to Van der Merwe, the awards not only celebrate the recipients but also help
establish their credibility and trust within the broader financial advice community. This recognition reflects the brands’ commitment to excellence and their role in enhancing the overall experience for both FIA members and financial consumers. The overall service results for 2024 were consistent with last year, underscoring the competitive nature of the insurance and investment sectors. “The competitive nature of the industry – and the value that financial services brands place on these awards – is evidenced by how closely run the various categories are,” Van der Merwe said. She highlighted encouraging signs of a reversal in the multi-year decline in service levels within the non-life insurance cluster.
“The brands that rise to the top at this annual event do so through a combination of hard work and innovation”
The winners of the 2024 FIA Intermediary Experience Awards are:
Non-Life Insurance
Non-Life Insurer of the Year –
Personal Lines: Santam
Non-Life Insurer of the Year –
Commercial: Western National
Non-Life Insurer of the Year –
Corporate: Santam
Underwriting Manager of the Year: iTOO
Life & Investment
Long-Term Insurer of the Year –
Risk: Sanlam
• Product Supplier of the Year –
Investment Product, Lump Sum: Allan Gray
Product Supplier of the Year –
Investment Product, Savings: Allan Gray
Healthcare
Product Supplier of the Year –
Healthcare: Discovery
Non-L ife Insurer of the Year –
Non-Life Insurer of the Year –Personal Lines: Santam
Product Supplier of the Year –Investment Product, Savings: Allan Gray
The FIA wished a heartfelt congratulations to all winners for their exceptional work in supporting intermediated distribution in South Africa, saying that the achievements highlight the power of partnership and the importance of delivering the best outcomes for consumers.
On their win as Non-Life Insurer of the Year – Commercial, Western National’s CEO Jurgen Hellweg said, “To receive this recognition for three consecutive years is a testament to the excellence we strive for at Western. We are very proud of our team. Receiving this accolade at the most prestigious event in the South African financial services industry is no small feat. We are here today because of the team’s
dedication and commitment to ensuring that our clients always come first.”
iTOO Special Risks were thrilled to win the Managing Agency of the Year award.
“This incredible honour is a testament to the dedication and expertise of our team and the invaluable partnerships we have built with our brokers,” said iTOO CEO Justin Naylor.
“At iTOO,” he said, “our vision is to be an EPIC partner in speciality insurance. For us, EPIC stands for Expert, Partnership, Innovation and Commitment. We believe that partnering with our brokers is not just fundamental – it is the cornerstone of our success. We are committed to delivering quality and expert service, always.”
Taking home the coveted Managing Agency of the Year award underscores the fact that iTOO is a unique company that provides specialist insurance and a brand that pushes the boundaries of traditional insurance.
“I would like to extend a big thank you to our amazing brokers, clients and partners for your trust and support. I also want to extend a special thank you to our iTOOers for their relentless commitment to delivering expert service to our brokers and clients. Here’s to many more years of collaboration and shared success,” said Naylor.
Sanlam was once again recognised for its excellence in the financial services industry, winning the 2024 Intermediary
Underwriting Manager of the Year: iTOO
Product Supplier of the Year –Healthcare: Discovery
Experience Award in the Long-Term Insurer Life/Risk category. This is the third consecutive year that Sanlam has received this accolade, highlighting its consistent commitment to empowering South Africans through financial security.
Jean Lombard, Chief Executive at Sanlam Risk and Savings, reflected on the significance of this achievement, saying, “We are proud to be acknowledged by independent intermediaries across the country for the third year running. This award underscores our position as an industry leader. By consistently pushing the boundaries of innovation, we have redefined customer expectations.”
Santam was similarly excited for being recognised as the Best Personal Insurer and Best Corporate Insurer.
“Our success in these categories is a testament to Santam’s commitment to excellence, innovation, and customercentric service delivery,” said Santam.
“We extend our heartfelt thanks to every member of the Santam family who made this achievement possible. From those on the frontlines, engaging with our intermediaries and clients daily, to those working tirelessly behind the scenes to support us and fulfil our promises, and to the leadership teams who guide and enable seamless collaboration – this success is a testament to hard work and dedication,” added Santam.
“As we move forward, Santam will continue to build on this momentum, striving to set even higher standards in the industry.”
Congratulations to all the winners, from MoneyMarketing!
Non-L ife Insurer of the Year – Commercial: Western National
Five key considerations for your offshore investment strategy
BY MAARTEN ACKERMAN Citadel Chief Economist and Advisory Partner
South African investors who are serious about long-term wealth creation need to pay special attention to their offshore allocation. To be successful, this goes beyond picking the next Nvidia or Amazon; rather, it involves the adoption of a structured and holistic investment philosophy.
As a wealth management specialist, we have centred our investment approach around some core principles that would be applicable irrespective of where you invest. Our departure point is always that the future is uncertain, and you need to diversify. When you do diversify, you need to do so at a time when valuations make sense, and you need to ensure you have the right asset allocation.
The first key consideration for offshore investment is the investment instrument that you will be using. Is it a technology share in the United States (US)? Perhaps it is an exchange-traded fund (ETF), unit trust or structured product? Are you looking to bolster the income portion of your portfolio through global property or a combination of emerging market and developed market bonds?
If one considers the structure of the South African market, investors have a primary bourse with around 400 companies listed. The number of actual investment vehicles, whether exchange-traded funds or unit trust funds, are multiples of these. This might sound significant, but when you consider that South Africa makes up less than 1% of global assets, you realise the diversity of the global investment universe.
While the last few years have been characterised by outperformance in US technology shares, we are increasingly seeing opportunities in markets like Europe, the United Kingdom and Japan.
This brings us to our second consideration, which is understanding the objective of the investment. A key driver of offshore investment activity is protecting your wealth against rand depreciation, but we would argue that the currency is simply a tool in your investment toolbox. Instead, we believe that investors should view themselves as global citizens.
If you are earning your salary in rand but buying your car, mobile phone, or television from overseas, then you need to utilise your investment portfolio to preserve your hard currency buying power, since all of these are priced in US dollars.
Your third consideration will be around governance and compliance, which can be highlighted through two examples. The first is Russia, which was part of the BRICs grouping – characterised by well-
capitalised banks and valuable commodity assets. Investors here have been frozen out and lost money due to sanctions applied by the Western economic powers in the form of the US and Europe.
Closer to home, South Africa’s greylisting has seen the cost of compliance rise as international regulators demand additional information from South Africans moving money offshore. This additional cost of compliance and administrative burden has discouraged many people from enhancing their offshore asset allocation – something that could negatively impact their long-term risk-adjusted returns.
Understanding the investment jurisdictions and compliance requirements should not be a reason not to invest offshore.
Our fourth consideration is around the platform you will be utilising to make your investments offshore. There are two primary ways in which you can facilitate offshore investments. The first is the direct route where you move money offshore and make investments, and the second is where you make use of an asset swap arrangement. While the direct route has become far more popular as exchange control regulations have eased, investors in companies or trusts may need specialist advice when making use of asset swap arrangements.
This leads us to the fifth consideration, which is around advice and the associated fees. New platforms have made it easier for investors to go the direct or do-it-yourself route, but this should never discount the value of expert wealth management advice. Whether it is assisting with the compliance costs of the greylisting, more specific tax structuring advice, or providing you with an independent set of eyes and ears, a high-quality advisor can be an asset when deciding to go offshore.
Investors who are serious about long-term wealth creation will recognise that they cannot limit their investment universe to South Africa. By incorporating these key considerations, they can tackle an uncertain future from an informed perspective. Investors can also pair this informed perspective with a wealth management specialist who can assist them with their offshore needs. An example of this is Citadel, where the people and solutions are in place.
Protect against volatile markets with a low-risk investment
BY SCOTT COOPER Investment Professional, Marriott Investment Managers
As the year has unfolded, many central banks have faced increasingly difficult interest rate decisions. On one hand, cutting too soon could lead to increased optimism, accelerating economic activity, and risk the reemergence of the inflation. On the other hand, maintaining restrictive monetary policy for too long could trigger a recession.
Although economic activity in the USA has remained resilient over the past four years, the first cracks began to emerge at the beginning of August this year when headline unemployment increased to 4.3% – its highest level since October 2021. This, coupled with low consumer confidence and disappointing job creation figures for the month of July, sent shudders through global markets, led by Japan’s Nikkei 225 stock index which fell more than 12% in a day. However, markets have since rebounded as subsequent US economic data has provided some much-needed reassurance of a ‘soft landing’.
The timing and steepness of potential interest rate cuts will continue to be a key focus of global markets as the year progresses. Although the European Central Bank and Bank of England have each implemented one 0.25% cut (in June and August respectively), monetary policy remains firmly in restrictive territory. Further, despite expectations at the end of 2023 that interest rates in the US would fall by 1.75% during 2024, the Federal Open Market Committee is yet to act. As a result, global rates have remained at 15-year highs in all three regions.
These elevated rates have presented investors with an opportunity that has not been seen since the Global Financial Crisis – the ability to earn attractive hard-currency returns with far less risk. To help investors take advantage of this opportunity, and in the most tax- and cost-efficient way possible, Marriott has launched the Smart International Income Portfolio (SIIP) – a simple, low-cost investment for conservative investors looking to achieve hard-currency returns above bank deposits in either US dollars or sterling. Pleasingly, both the Smart Dollar and Smart Sterling portfolios have performed strongly since inception and currently have a gross weighted average yield to maturity of approximately 5.4% and 5% respectively.
Importantly, all interest-bearing assets are held via accumulating ETFs and funds. This is highly tax-efficient for South African investors as the income is automatically retained within the portfolios without incurring tax. If capital is required, the investor can simply repurchase the required amount. Although a tax charge is triggered at this point, it will be subject to capital gains tax as opposed to income tax – providing a large tax saving (up to 27%) for individual South African investors.
Looking forward, although major central banks are likely to take steps to reduce rates in the second half of 2024, the trajectory is likely to be gradual, with interest rates remaining in restrictive territory until inflation is sustainably back at their 2% targets. As a result, Marriott’s SIIP is well placed to provide investors with attractive hard-currency yields in a highly cost and tax-efficient way for the foreseeable future.
The two SIIP portfolios can be accessed via the International Investment Mandate (using your annual individual offshore allowance).
An offshore solution for the more cautious investor
BY NSHALATI HLUNGWANE Manager: Institutional Clients at Allan Gray
We have recently added the Orbis SICAV Global Cautious Fund (Global Cautious) to the Allan Gray Offshore Investment Platform. The Fund meets the needs of more conservative investors looking to balance investment returns and risk of loss while investing offshore. This low-equity, globally diversified, multi-asset class fund broadens the range of funds offered to South Africans by our offshore partner, Orbis.
Who is the fund for?
Global Cautious is suitable for investors who seek US dollar returns with lower risk of capital loss and lower variability of returns than a pure equity or balanced mandate. It meets the needs of investors looking to invest in a diversified portfolio of securities, across asset classes and across countries. The Fund is managed in the same way as the other Orbis multi-asset class funds, using Orbis’ contrarian investment philosophy and bottom-up security selection process.
How Global Cautious invests
The Fund has been designed to allow for flexibility in exposure to different asset classes, as shown in Table 1. This helps ensure that Orbis delivers on the Fund’s objective over the long term and in different market environments. In addition to having exposure to equities and fixed income, the Fund can invest in commoditylinked instruments. It can also adjust its equity and currency exposures using hedging. Table
Source: Orbis
Like all Orbis funds, Global Cautious is built from the bottom up, with the risk and return characteristics of the various securities being compared with each other and competing for inclusion in the portfolio. This is managed to achieve the appropriate balance of risk and reward, given the Fund’s objective.
Benchmark
The Fund’s performance fee benchmark is US dollar bank deposits plus 2%, which is an absolute benchmark, meaning it cannot generate a negative return. This also means that, irrespective of the market environment, the Fund can only charge performance fees when delivering positive returns in excess of US dollar bank deposits plus 2%. For investors with a lower risk tolerance, this aligns well with the Fund’s objective.
Fees*
The performance fee structure comprises a base fee of 0.60% per annum plus 25% sharing in out-/underperformance. Unlike traditional performance fee structures, a unique feature of Orbis’s fee is the ability to refund investors for periods of underperformance. This means Orbis shares in both the upside and downside of performance and is focused on generating long-term outperformance for clients.
Performance
Global Cautious is not risk-free, and returns have not been and will not come in a straight line. Since its inception in 2019, Global Cautious has navigated a volatile global market environment and delivered an annualised US dollar return of 4.5%. This compares favourably with the average of other global cautious funds that returned 3.2% per annum, and it has performed roughly in line with the Fund’s performance fee benchmark return of 4.6% per annum over the same period.
Looking ahead
While it is unclear what markets will do over the next 10, 20 or 50 years, with Global Cautious, Orbis continues to execute on its investment philosophy to find securities that trade at a discount to intrinsic value, and from there build a portfolio that balances capital appreciation, risk of loss, and income generation for investors seeking a lower-risk fund.
Long-term investment migration strategies support higher returns
BY ERICA-ANNE STRYDOM Business Development Consultant at the Sovereign Group
Investment migration is a crucial strategy for high-net-worth individuals seeking to diversify their assets, reduce exposure to regional and global volatility, plan their succession, and gain citizenship or residency in a foreign country.
Increased offshore exposure and more diverse assets lower the risk of impact by market volatility. However, as with all investment strategies, to gain optimal returns it’s important to have a long-term vision and commitment.
The benefits of long-term investments across diversified offshore asset classes:
• Benefitting from favourable returns: Historical data shows that equities outperform other asset classes over time. Share values can never fall into the negatives, but they can show
infinite gains. A diversified strategy that is designed to support specific goals can maximise returns over the long term.
• Reducing market risk: Investors who act without guidance often time markets poorly, due to their decisions being led by their emotions. Taking market timing out of the equation reduces investment risk, lessens the potential for lost opportunities, and ensures that investments benefit on the upswings.
• Outstripping inflation: Typically, longterm investments involve a greater share of a portfolio being allocated to growth assets, which carry higher risks but also hold the potential for greater rewards. Keeping your investments untouched for longer periods helps to outpace inflation and thus increase the purchasing power of the invested capital.
• Riding out market fluctuations: Markets do not only go in one direction; they fluctuate continuously in response to economic, political, and global events. If you exit a market in a
downturn, you effectively lock in your losses. On the other hand, if you remain invested during the drops, you stand to benefit when the tide inevitably turns.
• Compounding interest: The longer you remain invested, the longer your money will grow as a result of the exponential effects of compounding. Taking a long-term view also offers an opportunity to reinvest profits, which in turn increases the potential for further profit.
• Diversifying assets: By diversifying from domestic investments, offshore investments hedge against economic and currency risks.
• Gaining global opportunities and enhanced mobility: Gaining a secondary citizenship or residency enables investors who are otherwise limited by their primary citizenship to access new markets and more favourable tax regimes.
• Planning for succession: Offshore trusts are an excellent vehicle for growing
and protecting wealth and transferring assets to future generations. However, building wealth with the goal of leaving a financial legacy requires strategic planning. Wealth preservation and succession planning go together.
Investors looking to grow wealth, structure their estate optimally, start a company, or obtain citizenship or residency should only do so after consulting with professionals who are familiar with the investment and trust structures, legislation, and tax regimes in destination countries. By adopting a well-informed, long-term investment migration strategy, high-networth individuals can secure their financial future, protect their assets, and create a lasting legacy for future generations.
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Offshoring, reduced drawdowns and reduced fees: How to maximise the longevity of your living annuity
BY KELIN POTTIER 10X Investments’ Solutions Strategist
In the savings and investment space, most attention is given to retirement. Rightly so, too. If you’re going to maintain your standard of living for two, three, or even four decades after you stop working, you need to have as much money saved up as possible.
Unfortunately, less attention is given to ensuring your money keeps growing postretirement. But that’s also really important. At the very least, you want your retirement savings to keep up with inflation. Even more ideally, you want them to be resilient enough to get you through major ‘black swan’ economic events.
Living versus guaranteed annuities
“There are two options facing investors,” says Pottier. “A guaranteed annuity and a living annuity. A guaranteed annuity is an insurance-type product where you hand over the retirement savings you’ve earned over your career. The insurer then guarantees that it will pay you a fixed amount every month until you pass away. A living annuity, on the other hand, is more of an investment-style product where you get to continue investing your hard-earned savings,” Pottier adds. “You also get to continue growing that money tax-free, and you get to draw an income from the returns on your investments.”
While there is undoubtedly greater flexibility and room for growth with a living annuity, he pointed out, it does mean investors take on all the risk themselves. With a guaranteed annuity, on the other hand, the insurer takes on all the risk.
There is, however, a clear preference for living annuities in the wider market.
“We’ve seen time and time again from our research that more than 75% of retirees actually choose to go with the living annuity because of the flexibility benefits,” Pottier says. “Another big difference is that you get to bequeath whatever capital may be left over to beneficiaries.”
AND BRETT MCKAY 10X Investment Consultant
Maximising longevity
With that clear preference for living annuities, how can investors maximise the longevity of this investment tool? One option, as McKay points out, is to have more than one living annuity. “For example, you could have two different annuities with different drawdown rates and different asset allocations. You can also stagger them into guaranteed annuities as time goes on.”
Another strategy is to keep drawdowns from the lump sums in your annuity (or annuities) as low as possible. “Obviously, the lower the drawdown, the more sustainable the fund will be over time,” McKay says. “As a general rule of thumb, we look at a four to five percent drawdown as a sustainable level. Above six percent, you start to put pressure on the funds in terms of long-term sustainability.”
Maximising the tax-free portion of a living annuity, particularly within the first couple of years, can further extend its longevity. Investors looking to maximise the longevity of their living annuities should also carefully look at what fees they’re being charged on their living annuities. If you’re drawing down four percent and your fees are four percent, you’re effectively drawing down eight percent.
Fees are one of the biggest destroyers in terms of wealth over time. A small fee of one or two percent might not sound like a lot now but if you compound it over 20 to 30 years, it’s a massive difference in what you get out at the end of the day. Fortunately, investors don’t have to be saddled with those kinds of fees. Inflation is out of our control, but fees are something we can control. It’s very important to understand what your effective annual cost (EAC) is. An EAC summarises all the fees and charges associated with your investment. It’s great to know what your cost is and do a comparison.
Going offshore
Perhaps the most significant action any investor can take when it comes to maximising their living annuity’s longevity, however, is to ensure that it has the right offshore weighting. And here, there are some widespread misconceptions that must be addressed. In particular, people can allocate a much greater percentage of their living annuity to offshore assets than they realise.
A living annuity is not governed by Section 28 of the Pension Fund Act. So you’re not limited to allocating 45% of your assets offshore. You can invest up to 100% offshore with a living annuity, and some investors choose to do so. The most common reasons for wanting to invest offshore are broader exposure to investment opportunities and mitigating in-country risks, particularly if they have to move at any stage. There are also investors who are spending more and more time outside the country, where their income and expenses are more in hard currency rather than rands. As a result, they’re looking to match their assets and liabilities.
As to how much of their living annuities investors should hold offshore, there is no magic number. The answer is not zero and the answer is not necessarily a hundred percent. Often, the answer lies somewhere in between. A lot depends on where the bulk of your expenses are and how much time, if any, you spend living abroad. So, for example, if most of your expenses are in rands, the majority of your assets should be too.
Enjoy the fluctuations
Investors must also accept a degree of risk when allocating the offshore segments of their living annuities. That’s particularly true in the South African context, where rand volatility can interact with market performance to affect your investments across a broad range of negative and positive scenarios. That does not, however, mean you should be volatile in your own investment choices.
Ultimately, it’s time that drives the investment risk. It’s easy to get distracted, but part of our job is to guide clients and redirect them to the long-term objective they’re trying to achieve.
“The most significant action any investor can take when it comes to maximising their living annuity’s longevity is to ensure it has the right offshore weighting”
Time is running out to get residency in Europe
BY JENNY ELLINAS Founder and CEO, Cypriot Realty
Many countries have closed their permanent residency programmes, or increased the investment criteria to be more expensive. This mean there are less options available to secure a Plan B.
We have seen the following substantial changes:
Portugal: closed their Golden Visa programme for investors purchasing real estate
• Greece: increased the minimum real estate investment amount to €800 000
Ireland: abolished the Residency by Investment scheme
• Malta: requires proof of assets of at least €500 000 with at least €150 000 in financial assets
• Spain: either doubling the minimum investment amount to €1m or abolishing the programme altogether
Even Australia has recently scrapped its Golden Visa.
But Cyprus is still open!
Cyprus is an English-speaking country in the Med, and a full member of the EU. It’s not part of Greece, but is an ex-British colony and a very popular European destination for investors. Cyprus has been voted as offering the best permanent residency programme in Europe and because of this, huge investment is pouring into the economy.
The three main benefits of investing in Cyprus are:
1. To secure permanent residency through property investment to realise a Plan B
2. The lifestyle options on offer
3. The peace of mind that Cyprus is a secure investment destination.
The country is regarded as one of the safest in the world, and year on year sees an increase in property sales to overseas buyers, especially in the western part of the island. Now is the time to chat to your clients about how we can work together to help them realise their Plan B in Europe... before Cyprus also changes its residency programme.
It’s easy to fall in love with Cyprus, especially with the first-world lifestyle aspects available, intertwined with authentic Mediterranean island living. It’s the excellent quality of life on offer that is driving investors in their droves to look seriously at Cyprus as their new home.
Not only does Cyprus represent an excellent Plan B investment destination, but the property prices are affordable. The choice of where to buy is very personal and the type of property depends on lifestyle requirements, budget and longterm plans. We will help your clients find their ideal home.
Properties in Cyprus offer excellent value for money when compared to other European countries – especially homes right on or near to the Med. As an ex-pat, your clients are not restricted to buying only in Special Designated Areas (SDAs), nor prescribed to stay in the country every year to retain their residency.
Property inspection trips
We organise personalised property inspection trips for investors to come to Cyprus to look at the property options and to experience the lifestyle on offer. We arrange meetings with taxation and legal specialists; and we hold your client’s hand every step of the way. Why don’t you speak to your clients about coming on one of our last three inspection trips for 2024?
Your trusted partners
Cypriot Realty – an offshore investment company in operation for more than 16 years with offices in Sandton, Cape Town and Cyprus – is your trusted partner to realise your client’s Plan B in Europe. Contact us for a confidential meeting to discuss how Cyprus can fit in with your client’s offshore plans. We will enrol you in our very successful referral programme and gladly assist and guide your client on their exciting offshore investment journey!
The good, the bad and the ugly of trust distribution
BY BOBBY WESSELS Senior Manager, AJM Tax
Before the introduction of section 7C in the Income Tax Act, trusts were used as an effective planning tool for various tax and commercial advantages for individuals. One of the tax advantages that trusts held before the amendments to the Income Tax Act was that trusts could be funded with interest-free loans, thereby avoiding future estate growth in the hands of the lender. Section 7C has since (to some extent) limited this advantage. These amendments sparked a wide range of conversations around the utility of trusts, much like the latest amendments that have been introduced.
National Treasury recently amended section 25B of the Income Tax Act to effectively (for tax purposes) prevent the flow-through principle from applying to non-tax residents. Usually, where distributions from a South African trust are made during the same year of assessment, the distribution is not taxed ‘in the trust but rather in the hands of the person
receiving the distribution. For non-resident beneficiaries of a South African trust, this is no longer possible. Much like paragraph 80 of the Eight Schedule to the Income Tax Act (which deals with the distribution of capital gains by trusts), income received by a trust will first be taxed in the hands of the trust (at 45%) before it can be distributed to nonresident beneficiaries.
Importantly, the amendment has not prevented the distribution to non-resident beneficiaries from taking place, as South African trusts can still distribute funds to non-resident beneficiaries; it simply prevents the distribution from being taxed in the hands of the non-resident beneficiaries. While this amendment caught everyone off guard (and unsettled the industry), it is perhaps unsurprising, given that the principle entrenched in paragraph 80 has been around for quite some time.
There is, however, some nuance to this rather simple amendment. The most
important one being double taxation. Where a trust is treated as transparent (i.e. the flow-through principle applies) the non-resident receiving the distribution would also be the person liable for the tax bill in South Africa. Where the trust is treated as opaque (i.e. distributions are taxed in the trust), the person paying the tax liability in South Africa and the person receiving the distribution are not the same person. This leads to a so-called hybrid mismatch arrangement. This is important because the non-resident beneficiary would ideally like to claim a tax credit against the tax due in the foreign country. If they are unable to do so, they would suffer double taxation.
For those persons, there are essentially three potential remedies. The first comes in the form of a unilateral tax credit mechanism. This would be where the foreign country unilaterally provides for such a credit. The opaque nature of the trust makes it unlikely that such
relief would exist. The second potential option is that a double tax agreement between South Africa and the foreign country provides that the foreign country must treat the non-resident as being the person who paid the tax in South Africa, despite factually the trust being the person that paid the tax in South Africa. If such a clause is absent in the relevant double tax agreement, the last resort for such a taxpayer is to consider the multilateral instrument (‘MLI ‘) as a basis for providing relief. The MLI will, however, only be of assistance to the extent that the foreign country has ratified the MLI and elected for the clause providing relief to apply.
Overall, the Income Tax Act amendments affecting trusts have raised various questions for taxpayers and have caused non-resident beneficiaries to think carefully about how they structure and manage their wealth in South Africa. For more information visit https://ajmtax.co.za/
“Importantly, the amendment has not prevented the distribution to non-resident beneficiaries from taking place”
We offer the following programmes through distance learning: from the UFS School of Financial Planning Law. C
Advanced Diploma in Estate and Trust Administration
Postgraduate Diploma in Financial Planning
Postgraduate Diploma in Investment Planning
Postgraduate Diploma in Estate Planning
Financial Coaching Short Learning Programme
Employee Benefits Short Learning Programme
Fundamentals of Short Term Insurance
Short Learning Programme
Advanced Financial Coaching Short Learning Programme
Inspiring excellence, transforming lives through quality, impact, and care.
Transferring wealth between generations
BY KEN NEWPORT
National Manger of Succession Planning at Capital Legacy
Wealthy and high-net-worth individuals who want to pass wealth successfully from one generation to the next, and beyond, would be well advised to place succession planning high on their list of priorities.
Avoid the ‘wealth trap’
Despite access to significant resources, one of the most common financial missteps by high-net-worth individuals and families is to delay discussions about succession planning. They should avoid this ‘wealth trap’ by starting these conversations sooner rather than later. With a succession plan in place, they can revisit and adapt it over time to make sure it always meets their needs and objectives.
‘Succession planning’ in the corporate sense is about setting out succession paths and follow-up plans for senior executives’ job roles. ‘Succession planning’ in the financial sense is a holistic solution that can structure every aspect of assets and estates, minimise taxes and create a lasting legacy across many generations. It also has value beyond that because it can maintain family harmony by helping to avoid drama and conflict, and it can also make life better for others through philanthropy and supporting charitable causes.
What to consider
Understanding the main reasons why wealth does not make it from one generation to the next is a great place to start succession planning. The answer is simple: a lack of
“A succession plan should structure every aspect of the assets and estate by making use of different financial and fiduciary vehicles”
strategic thinking. That’s why the best succession plans are tailored to take every set of unique circumstances, needs and objectives into account. Because no two individuals and no two families are alike!
A succession plan should structure every aspect of the assets and estate by making use of different financial and fiduciary vehicles. These tools include a well-drafted last will and testament, an offshore or international will for assets outside the country, trusts, companies, gifting, and tax mitigation.
Aspects to consider when thinking about your succession plan include business interests, trust provisions and objectives, succeeding trustees, outstanding loan accounts, and the separation of entities and their respective assets.”
An estate plan sits within the succession plan, so wills and trusts are two of the most effective legal structures for transferring wealth and assets, as well as strategic gifting and charitable contributions or philanthropy.
The most important point is not to leave succession planning until it’s too late. Once all the structures and vehicles of a succession plan are in place, they must be reviewed at least once a year. This will ensure compliance with the latest legislation, while maximising the tax- and risk-mitigation strategies available.
Trust(s) in the future
Trusts can be highly instrumental in future-proofing a succession plan, provided they are structured and run correctly. Trusts can enable generational wealth to grow by transferring it not only from one generation to the next, but across many generations, making a legacy more impactful by extending it across multiple generations.
Professional advice is essential to make sure trust(s) are correctly set up and sufficiently future-proofed by making provision for succeeding trustees, who must take responsibility after the person who originally set up the trust passes away.
Tax tactics
The two major tax considerations in succession planning are estate duty and capital gains tax, because they could
significantly erode what is left behind. Capital gains tax applies because one is considered to have disposed of assets when they die.
In South Africa, estate duty is levied at 20% on estates up to R30m, and at 25% over R30m. Assets in other countries or jurisdictions could mean further inheritance tax, but our country has double-taxation agreements with many other jurisdictions. Where this applies, a person may not be liable for estate duty in South Africa if inheritance tax abroad is paid.
Capital gains tax is calculated by deducting the base cost of assets from their market value. The base cost is the acquisition cost of the asset, plus improvements or enhancements to it. The difference between the base cost and market value is the net capital gain, and that is taxed at an effective rate of between 7.2% and 18%.
Every estate and its assets and investments are unique. However, it’s important not to procrastinate when it comes to succession planning and to seek professional advice to ensure correct structuring.
Paying it forward
While succession planning can make sure that there is an efficient transfer of wealth from one generation to the next, and beyond, it can also be highly impactful in giving expression to a family’s values through philanthropy, and by supporting individual family members’ favourite charitable causes.
This is becoming more prevalent with worldwide shifts in how wealth is used among younger generations – no longer predominantly for personal gain, but increasingly in support of causes that look after people, animals or our natural environment. Many young consumers see themselves as more values-driven than previous generations, and look for opportunities to use wealth for the sake of positive change.
It is worthwhile having open and frank discussions about attitudes to wealth as part of succession planning, because younger outlooks on how to use wealth can understandably cause alarm among older family members who don’t want to see their hard-earned assets squandered. By including philanthropy in your thinking and consulting with professional experts who can advise on putting the necessary safeguards in place, it is possible to strike the right balance between older generations’ (often more cautious) approaches, and what younger family members would like to prioritise and pursue.
Wills Week 2024: A crucial initiative for financial advisers
The Law Society of South Africa (LSSA) will be holding its annual Wills Week from 9 to 13 September 2024. It’s a significant event that offers a unique opportunity for financial advisers to engage with their clients on the critical subject of estate planning. Wills Week aims to provide free will-drafting services to the public, promoting the importance of having a valid and professionally drafted will. This initiative addresses a significant gap, as many South Africans either do not have a will or have outdated wills that don’t reflect their current circumstances. For financial advisers, this initiative is not just a public service but a strategic touchpoint to enhance client relationships and ensure comprehensive financial planning.
Why Wills Week matters to financial advisers
• Client education and engagement
Wills Week presents an excellent opportunity for you to educate clients about the importance of having a valid will. Many clients may not fully understand the implications of dying intestate or the benefits of having a professionally drafted will. By leveraging Wills Week, you can initiate meaningful conversations about estate planning. It’s the opportunity to explain to clients that a will is a fundamental component of estate planning. It provides clear
instructions on how an individual’s assets should be distributed after their death, preventing potential disputes among beneficiaries. Explain to clients that without a valid will, an estate is distributed according to the Intestate Succession Act, which may not align with the deceased’s wishes. This can lead to unintended consequences, such as assets being allocated to estranged family members or not being distributed in a tax-efficient manner.
• Comprehensive financial planning
Estate planning is a critical aspect of comprehensive financial planning. A well-drafted will ensures that a client’s financial plan is complete and that their assets are protected and distributed according to their wishes. Financial advisers can use Wills Week to review their clients’ existing wills and estate plans, identify any gaps or outdated provisions, and recommend necessary updates.
Strengthening client relationships
Participating in Wills Week allows financial advisers to demonstrate their commitment to their clients’ longterm financial wellbeing. By offering to facilitate the drafting of a will or reviewing an existing one, you can build stronger, more trusting relationships with clients. This proactive approach can lead to increased client loyalty and referrals.
“Participating in Wills Week allows financial advisers to demonstrate their commitment to their clients’ long-term financial wellbeing”
Collaboration with legal professionals
Wills Week fosters collaboration between financial advisers and legal professionals. Advisers can refer their clients to participating attorneys for the free willdrafting service, ensuring that the wills are legally sound and professionally drafted. This collaboration can also lead to a network of trusted legal partners, enhancing your service offering.
• Leveraging the opportunity
It’s a great chance to proactively communicate with clients about their wills. This can be done through newsletters, emails, social media, and personal meetings. Advisers should explain the benefits of having a valid will and encourage clients to take advantage of the free will-drafting service.
In addition, hosting workshops or seminars during Wills Week can be an effective way to educate clients about estate planning. Think about inviting legal professionals to speak about the importance of wills and the process of drafting one. These events can provide
valuable information and encourage clients to take action. Also, take this opportunity to review clients’ existing wills and estate plans. This can identify any outdated provisions or changes in the client’s circumstances that necessitate an update. Clients can then be referred to participating attorneys for the necessary revisions. Offering personalised estate planning services during Wills Week can differentiate an adviser’s practice. This can include a comprehensive review of the client’s financial situation, identification of estate planning needs, and coordination with legal professionals to draft or update the will.
The Law Society of South Africa’s Wills Week is a vital initiative that underscores the importance of having a valid will. For financial advisers, it is an opportunity to engage with clients on a critical aspect of financial planning, strengthen client relationships, and collaborate with legal professionals. By leveraging Wills Week, you can ensure that clients’ estate plans are complete, legally sound, and reflective of their wishes, thereby providing peace of mind and financial security.
We are leaning towards optimism
BY SANDY WELCH Editor, MoneyMarketing
Peregrine Capital’s fund results for the first half of the year were positive, with net returns of 8% and 6% for High Growth and Pure Hedge qualified funds, respectively. MoneyMarketing spoke to Justin Cousins to find out more about the company’s outlook for the year going forward.
What has this very unpredictable year been like for you?
It’s been a difficult one for us. We are very bottom-up focused, so we worry about company fundamentals and how the businesses are performing on the ground. This year, we had a watershed election in South Africa, the likes of which we haven’t seen in 30 years. The actual election outcome was mind-blowing, with the MK taking more share away from the ANC than we anticipated.
How did you manage your portfolio during this period?
We had to balance our optimism on South African valuations with the top-down election risk factor, which was difficult to quantify. While we were buying South African bonds and equities, we also bought protection in the form of currency derivatives to hedge against potential negative outcomes.
We didn’t have any greater insights than anyone else about the potential partnership arrangements with the ANC. Our fear was an outcome with the EFF, but President Ramaphosa’s decision to partner with the DA, IFP, and other reform-minded parties was unbelievable. This gave us confidence to continue investing in South Africa.
What has been the impact on foreign and local investments?
Year to date, there has been R80bn worth of foreign outflows in the equity space, which hasn’t come back post-elections. However, there has been foreign interest in our bonds, leading to a tightening of the yield from just north of 12% on the 10-year to just below 11%. Local balance funds have also been selling South African domestic equities and taking their exposure offshore, contributing to the derating of South African equity prices over the last 12 months.
stress disorder among investors, due to years of stagnation. Many asset managers want to see evidence of improvement on the ground before changing their asset allocation in favour of South African equities. However, the valuations are still very supportive from our perspective.
What are your thoughts on the future?
We are tilting towards a more favourable view. There are many small and big wins that can be achieved with little effort. For example, Eskom has shown strong improvements in plant performance and maintenance. We need to see similar improvements in rail, policing and water. There is unprecedented collaboration between the government and the private sector, which is positive. The continuation of reforms and the reduction of loadshedding should boost GDP. Additionally, a stronger currency and tighter bond yields could put downward pressure on inflation, potentially leading to interest rate cuts. This would provide more cash to consumers and lower funding costs for businesses, generating higher economic growth and job creation. We are leaning more towards optimism at this point.
What is the current mood among businesses and clients in South Africa?
There is a growing sense of optimism among businesses and clients. Interactions with major retailers and property companies indicate a cautious but positive outlook. Despite concerns about issues like loadshedding, there is a belief that the worst may be behind us. However, it will take time for confidence to fully rebuild, given the history of broken promises by the government.
“Factors like interest rate reductions due to moderating inflation are expected to stimulate the economy”
What are the short-term and long-term economic prospects for South Africa?
In the short term, factors like interest rate reductions due to moderating inflation are expected to stimulate the economy. Structural reforms in sectors such as rail, ports and water are also in progress, which should further boost confidence. In the medium term, these reforms are anticipated to drive significant economic growth. While immediate excitement is tempered, there is a sense that momentum is building.
How might the upcoming US election impact South Africa and the global economy?
higher taxation rates in the US, but foreign policy toward countries like South Africa would not change meaningfully.
The South African government has encouragingly chosen to adopt a a more conciliatory approach towards the US of late, recognising its importance as a trading partner. We are hopeful that relations will improve and trade will flourish, regardless of who occupies The White House. These high level political relationships are difficult to evaluate.
What is the outlook for South African companies in the global market?
We think South African companies should focus on what they do best, which is growing their per share earnings through disciplined capital allocation where investment decisions are focused on the local economy. Many South African companies have fared poorly when venturing offshore as the competitive advantage that they enjoy at home is not transferrable to other jurisdictions. The positive election outcome will drive inflation and funding costs lower, reduce input prices for many goods and, should stimulate the broader consumer environment. Conversely, export-focused businesses like mines and farms will find life more challenging given the impact of the strong Rand on their revenue bases.
How are Peregrine Capital’s investment strategies adapting to global economic trends?
rise of technologies like artificial intelligence (AI) is also attracting significant capital, presenting new investment opportunities.
What is the perspective on the valuations of major tech companies?
Companies such as Meta, Google, Amazon and Microsoft are supported by real earnings, strong cash generation, powerful balance sheets and better than average growth rates. Unlike the tech bubble of 2000, the current performance is driven by earnings growth rather than excessive valuations, so the price appreciation we have witnessed for the shares of these companies may prove to be justified. The size and scale of these companies does attract far more scrutiny than in the past. We have seen a raft of terrible regulations drafted in Europe to curb the growth of these businesses and depending on the outcome of the US elections, similar regulatory overreach might develop there. Over in China, valuations of their tech giants remain at rock-bottom levels, despite a significant improvement in earnings growth and capital allocation in recent years. These companies continue to suffer from the weak economy and concern about regulatory incursions as we saw in 2021.
What is the overall sentiment towards the future economic landscape?
Do you foresee companies that pulled money out returning?
We are hopeful. While there hasn’t been much interest in the domestic equity space yet, there is a sense of post-traumatic
The US election is challenging to predict, but a Trump presidency could bring probusiness policies, a more inwardly focused USA and domestic tax cuts, potentially stimulating US growth. A Harris presidency could introduce greater regulation and
Our investment strategies are flexible, allowing for investments both domestically and internationally. For instance, investments in companies like Tencent have proven beneficial. Despite potential unfavourable outcomes in the US, opportunities in other markets, such as China and Europe, remain promising. The
We are cautiously optimistic, especially in South Africa. While there are challenges and uncertainties, there is also a belief in the potential for growth and positive change. The focus is on building confidence, leveraging short-term wins, and pursuing structural reforms to drive long-term economic growth. The journey may be unpredictable, but there is a sense of resilience and hope for the future. We remain on the lookout for attractively priced opportunities in South Africa, and abroad.
Every month is a good month to invest if you are a long-term investor
BY RONÉ SWANEPOEL Head of Sales at Morningstar SA
Amonth is a good month to invest long-term investor…
s humans, we tend to see patterns everywhere. It’s important when making decisions, judgments, and acquiring knowledge. Pattern recognition is crucial to learning and incredibly important from an evolutionary perspective. Unfortunately, that same tendency to see patterns in everything can lead to seeing patterns that might be completely random in nature, especially when it comes to investment markets.
AND ABIGAIL WILSON Business Development Manager at Morningstar SA
“October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.” Mark Twain
Some of the most well-known investment adages/patterns include, “sell in May and go away”, “the October effect”, as well as the “January effect”. These are all common patterns when it comes to investing but do they offer any value when we look at the data?
In the chart below left , we compare the investment journey of two investors who both invested $1 000 at the beginning of 1936 in the S&P 500. The “Sell in May and go away” investor moved to cash on the 1st of May every year and returned to the stock market on the 30th of September every year, while the “Remain invested” investor left his $1 000 to compound throughout the entire investment period and made no changes to his strategy during the years.
As humans, we tend to see patterns everywhere. It’s important when making decisions, judgments, and acquiring knowledge. Pattern recognition is crucial to learning and incredibly important from an evolutionary perspective. Unfortunately, that same tendency to see patterns in everything can lead to seeing patterns that might be completely random in nature, especially when it comes to investment markets.
Should you sell in May and go away? “Sell in May and go away” is an adage that average stock market returns tend to be lower during the period from May to October compared to the period from November to April, due to various summerrelated economic slowdown factors (specifically in the Northern Hemisphere). Whatever reasons there may have been to ‘sell in May’ in the past, the most important thing for investors is whether it would work in today’s world. Let’s examine the numbers.
We can see the large outperformance of the investor who remained invested throughout his journey with an ending value of more than $9m, while the “Sell in May and go away” investor ended up with roughly $2m.
What about doubling up in January and avoiding October?
Some of the most well-known investment adages/patterns include, “sell in May and go away”, “the October effect , as well as the “January effect”. These are all common patterns when it comes to investing but do they offer any value when we look at the data?
Should you sell in May and go away?
“Sell in May and go away” is an adage that average stock market returns tend to be lower during the period from May to October compared to the period from November to April due to various summer-related economic slowdown factors (specifically in the Northern Hemisphere).
Whatever reasons there may have been to 'sell in May' in the past, the most important thing for investors is whether it would work in today's world. Let's examine the numbers.
The January effect is the supposed seasonal tendency for stocks to rise in the first month of the year as investors sell their losing stock in December for taxloss harvesting, while the October effect refers to the psychological anticipation that financial declines and stock market crashes are more likely to occur during this month than any other. We can look back to the Bank Panic of 1907, the Stock Market Crash of 1929, and Black Monday
Even
of 1987 – all happened during October.
So, with this in mind, should we double up our investments in January and refrain from investing in October? Let’s look at the numbers.
If we look at 10-year annualised returns,
The table above looks at the average annualised returns had you invested at the beginning of each calendar month, and the data goes all the way back to January of 1937.
In summary
Even if we look at one-year returns, the divergence between starting months is almost negligible.
If we look at 10-year annualised returns, the average is either 11.3% or 11.4%. So there really is no month that stands out as the best (or worst) entry point.
A long-term investor need not be concerned with the month they enter the markets. Instead, they should shift their focus to remaining fully invested, so that they don’t miss out on the best days, which could randomly occur at any given moment of their investment lifetime.
Just consider the graph below showing the value of staying invested, reminding us of the fact that missing only the best 10 days in the market can cost you close to 50% of your ending value after 25 years Patterns are important when making decisions, judgments, and acquiring knowledge. But they might not be as helpful when it comes to your investments.
A long-term investor need not be concerned with the month they enter the markets. Instead, they should shift their focus to remaining fully invested, so that they don’t miss out on the best days, which could randomly occur at any given moment of their investment lifetime.
Just consider the graph below showing the value of staying invested, reminding us of the fact that missing only the best 10 days in the market can cost you close to 50% of your ending value after 25 years.
when it comes to
The social imperative in deciding investments
BY LAURENCE RAPP Vukile CEO
At the recent launch of RMB’s Where to Invest in Africa 2024 report, the importance of considering human and social development indicators when evaluating markets for investment was emphasised.
“The social and human capital development component brings a fundamental lens to think about the performance and the longevity of your business in-country. It is society that gives you the ability to operate. This social dimension is a critical component. If your business is doing well, but society is stumbling and stuttering, you’re running an extractive enterprise, and you’ll run out of runway in the fullness of time.”
These comments by Boundless World Founder, Professor Adrian Saville, also highlight the ongoing social responsibility of business after initial investment decisions have been taken. Businesses that place social advancement at the core of their strategies will reap the benefits for years to come.
In the retail property sector, we understand this well. Retail is an inherently social industry and is deeply intertwined with the wellbeing of society. A healthy and stable society is critical for business and asset sustainability.
At Vukile, our strategy revolves around cultivating centres of growth that build communities and grow value. Our responsible investments in the township and rural towns within South Africa have supported economic and social development within these markets, which have in turn underpinned our solid performance throughout the years.
A thriving community has the economic means to support retail, and a community that feels understood and supported is likely to want to preserve malls in their area.
Our social development investments have centred around emerging retailer mentorship and funding programmes, knowledge-sharing campaigns and community initiatives run in collaboration with our tenants – supporting skills development, entrepreneurship, youth empowerment, crime prevention, and community health and wellness.
Social investment is not a one-size-fits-all approach and for it to be beneficial to your business, it needs to be beneficial to the community. There is an old adage about the people from the city building a community garden for the people in rural areas. When the city folk returned a year later, the country folk were feeding the
vegetables from the garden to the hippos – it wasn’t food they needed. When doing business and developing communities, we need to be clear on the links to the needs of the community, their culture, and their social currency.
At Vukile, we invest significant resources in engaging our communities and gathering customer data to better understand communities’ needs. Greater alignment with community forums and deeper involvement in local issues around our shopping centres has also fostered a sense of partnership.
We have seen tangible benefits in developing the communities in which we operate and earning our social license to operate. The support we received from our shopping centre communities during the KZN unrest in July 2021 is a case in point.
The link and mutual benefit between business and community cannot be underestimated as it can make or break an investment.
Quality insights: Navigating an increasingly concentrated market
BY CLYDE ROSSOUW Head of Quality at Ninety One
Recent dynamics in the equity markets have been unprecedented. Headline figures suggest that equities marched on upwards in the first half of 2024, driven predominantly by US tech euphoria as we move towards a future dominated by artificial intelligence. However, while this is completely accurate, a closer examination helps understand the full extent of this narrow market and unveils some warning signs that investors should be cognisant of.
When looking at the global equity benchmark, the MSCI ACWI – which captures close to 3 000 companies across nearly 50 developed and emerging markets – it rose by 11% in the first six months of the year. On an equal weighted basis – stripping out the effect of market capitalisation – it was up closer to 1%, and fell in the second quarter. Analysis of the predominant drivers of the index paints an even more stark picture. The IT sector within the ACWI is up close to 25% this year; however, this becomes 1% on an equal-weighted basis, with similar dynamics at play in communication services.
Closer inspection of the core drivers – a handful of megacaps – also illustrates the extraordinary nature of today’s market.
During the famed dotcom bubble at the turn of the century, the top 10 of the S&P accounted for just over 25% of the full 500-member index. Following its collapse, this drifted down to about 15% about a decade ago, but since 2014, the concentration has crept higher again, before surging up above 35% in the past couple of years. This leaves any investors exposed to the full index – or an overweight towards these tech behemoths – open to a significant amount of concentration risk should sentiment turn.
“Recent dynamics in the market have strongly favoured momentum, growth and cyclicality, proving to be a headwind for purist quality exposure”
of June, up from US$12.3tn at the turn of the year (with much of this down to NVIDIA). The cohort added more than US$5tn in 2023. That figure alone would comfortably place them as the third largest economy in the world, behind the US and China. For context, Germany – the third largest economy – generates about US$4.6tn of GDP each year.
However, for all this momentum, it is important to establish what is happening with the fundamentals.
with GDP for the first quarter missing expectations. In addition, there have been negative earnings revisions year-to-date for the S&P 500, if one excludes the top five performers (Microsoft, Nvidia, Amazon, Alphabet and Meta). There is also underlying weakness in the US consumer coming through; retail sales have weakened, and excess savings accumulated following Covid-19 have been eroded from US$2.1tn in August 2021 to negative US$72bn in March 2024.
The move in the past two years has been especially striking. The total market capitalisation of the Magnificent Seven stocks was US$16tn at the end
After all, earnings and free cashflow growth is what drives long-term share price performance. While inflationary pressures are certainly easing, the market has revised its outlook for rates, which are expected to stay higher for longer. This will impact both businesses and consumers alike. We are seeing signs of moderation in the US economy,
Recent dynamics in the market have strongly favoured momentum, growth and cyclicality, proving to be a headwind for purist quality exposure. Proven earnings resilience is likely to become more important in this stretched near-term market, with an increasingly uncertain outlook. Portfolios consisting of resilient compounders that have successfully compounded cashflows at sustainably high levels of profitability should be well placed to outperform in the coming years. Strong fundamentals have been the bedrock of returns over time. We believe it’s only a matter of time before the market returns to this historical norm.
OUR 220 MILLION SHOPPER VISITS A YEAR CREATE SUSTAINABLE GROWTH AND SUPERIOR VALUE .
This is Lebo J, aged 19. He shops twice a month, usually at weekends. He arrives at our mall in the mid-afternoon when it’s really buzzing. Many of his friends are there too.
On average, after 2.3 hours of shopping and browsing, Lebo leaves from the east wing and takes a taxi home to his family, a drive of around 40 minutes.
Lebo’s mother will ask him about the discounts and special offers he spotted as he ambled around both floors of the centre. This helps her to plan her weekly grocery shop, which she does before lunch on Mondays.
We know all this and more about Lebo J and our other visitors too. Our multi-faceted consumer behaviour research, combined with our deep understanding of the needs and desires of the communities we serve, leads us every step of the way.
Our unique focus on a superior customer experience ultimately benefits all our key stakeholders: customers, tenants and investors.
As a Vukile stakeholder, you too will benefit from our extensive analysis of shopper behaviour and the factors that drive continuously evolving retail trends.
There has never been a better time to invest in people like Lebo J.
BUILDING COMMUNITIES, GROWING VALUE.
Weather indexbased products a game-changer
BY RONALD RICHMAN Chief Actuary at Old Mutual Insure
Old Mutual Insure welcomes the recent move by the Prudential Authority (PA) of South Africa to allow insurers to develop innovative weather indexbased products.
“We commend the PA for strengthening our nation’s resilience against climate catastrophes. By doing so, the PA is helping to address the significant issue of the insurance protection gap, helping South Africa manage the challenge of underinsurance,” says Ronald Richman, Chief Actuary at Old Mutual Insure.
While weather index-based products or parametric insurance products have gained prominence globally, in South Africa they have posed regulatory and supervisory challenges as these products do not, strictly speaking, indemnify policyholders against loss. This complicated their classification under the Insurance Act and the ambiguity prompted significant regulatory debate. However, the interim approach by the PA will allow insurers to offer weather index-based products.
Richman says that this is a step in the right direction for the country, as it will allow insurers to offer innovative solutions to complicated loss events brought on by extreme weather and climate change.
“Parametric insurance can significantly improve people’s quality of life as they automatically trigger payouts based on this predefined weather condition, providing a system-driven and cost-effective solution,” says Richman. “This is something that will help drive resilience of low-income households to weather-related catastrophes, especially those in informal settlements, who are often hardest hit by climate disasters.”
He says that with parametric policies, insurers can use geolocation and satellite data to identify flooded areas, for example, and promptly provide financial relief. “Cover can be cheaper than is the case with traditional insurance products due to the different basis for settling losses.” He explains that traditional insurance is often too expensive and inflexible for effectively managing widespread climate events.
“For instance, when a flood devastates a particular region, loss adjusters must travel to the affected areas to assess the damage, an expensive and time-consuming process that ultimately burdens clients with higher premiums. Parametric insurance, however, sidesteps this issue.”
He explains that in countries where many people work outdoors in extreme heat, such as India, parametric insurance can mitigate risks by offering coverage during deadly heatwaves.
Richman says that given that parametric insurance is emerging as a game-changing solution for managing climate-related risks, combined with the recent news by the PA, Old Mutual Insure is considering its options in line with its commitment to developing products that speak to having a broad societal impact and positively influencing the insurance protection gap in the country. This coverage could be an addon to other products, helping communities recover more quickly and effectively from disasters.
According to Swiss Re data, 71% of the South African population remains uninsured by the short-term insurance industry, leaving personal property unprotected against climate damage. It attributes this significant protection gap to disparities in purchasing capacity and willingness to buy insurance. Globally, protection gaps vary, with developed countries showing gaps from 21% in the UK to 56% in Germany, while India has one of the highest at 91%.
“A large protection gap hampers economic recovery following disasters, reducing an economy’s resilience. We remain committed to enabling a sustainable insurance industry and increasing societal resilience in the face of climate change,” concludes Richman.
Partially occupied offices a risk for business owners
BY THABO TWALO Chief Underwriting Officer at Santam Broker Solutions
While several large companies have spearheaded a gradual return-towork, the hybrid working model has remained sticky for many South Africans. The latest BrandMapp survey indicates that as of 2023, 54% of ‘mid-market-and-up’ South Africans are either following the hybrid work trend or working permanently from home.
According to Thabo Twalo, Chief Underwriting Officer at Santam Broker Solutions, the reality is offices still aren’t at full capacity. “Every business owner needs to be a risk manager – prevention is always better than cure,” he says. He shares some of the potential risk management considerations resulting from partially occupied office spaces.
Threats of fire
Fires are considered the number one risk to businesses. One large fire could tragically be the catalyst to close a struggling business permanently. A lapse in fire-safety maintenance could increase the risk of a fire. For example, if a generator isn’t maintained, the automatic sprinkler system could fail, which means flames could spread quickly. This becomes even more important as the potential for early detection by employees is reduced, as offices are not always fully occupied.
Poor maintenance and adherence to policy conditions
Business owners face numerous challenges, such as dealing with stressed staff and managing tight cashflow. Despite these challenges, it is crucial to ensure that maintenance and security costs are covered. Some insurance policies may have specific conditions, such as requiring regular servicing of equipment or testing alarm systems. Failure to meet these requirements could potentially impact a claim in the event of an accident.
A changing risk environment
Not only does one need to evaluate the impact of new and emerging risks, like cyber and increasing severe weather events, but one also needs to consider how their own business risk profile has changed due to employees working from home (with company assets) and the extent to which their premises are now partially occupied. Intermediaries play a vital role in advising clients on new emerging risks and can also assist with reviewing policies to align with changing circumstances.
Business
processes and reliance on business partners Risk management needs to include consideration of reliance on business partners
and supply chains. If their risk environment is changing, are they adequately protected, and risk managed? Business owners should have contingency plans in place, which they can discuss with their intermediaries and purchase insurance where necessary.
Ways to mitigate risk when an office is partially occupied:
Maintain equipment: Ensure regular maintenance and servicing of equipment, such as fire-fighting equipment and plant and machinery, are undertaken if due. Alarms need to be tested, function properly, and be activated when needed.
Ensure sprinkler systems have been inspected and certificates issued.
• Obtain gas compliance certificates if due.
Ensure electrics are in good order – these are the most common ignition sources of fire. Should there be any doubt, get an external contractor to conduct thermographic infrared imaging of the electrics of the building.
• Ensure all the certificates of compliance are in order and safely stored should anything happen at the premises.
Ensure your fire teams are in place and arrange firefighting training for new staff from an accredited provider.
Ensure your insurance policies are up to date. Work with an intermediary who can advise you appropriately, especially where your risk circumstances have changed.
The shifting risk landscape has increased awareness of the need for business owners to review their policies more frequently and keep their intermediary abreast of any changes in circumstances. “A large part of any business owner’s risk management function is to disclose all pertinent changes to your intermediary,” says Twalo. “While most businesses tend to renew and review their policies every 12 months, the pace of change has escalated in the last four years – making it clear that a more regular review of policies is paramount,” says Twalo.
How the life insurance industry can provide better death cover to more South Africans
BY NIC SMIT
Product and Pricing Executive at Bidvest Life
Once you have people who depend on you financially, life insurance becomes crucial because it ensures that your dependants are provided for after your death. According to ASISA, South African life insurers paid out nearly 900 000 death claims worth R39.9bn in 2023.1 That is R39.9bn that will provide school fees for children who lost a parent, ensure that widows and widowers are able to provide for themselves after losing a spouse, and help provide care for elderly people who lost a child that may have cared for them. The payouts on life insurance policies provide material value to society.
As an industry, we should strive to ensure that this cover is accessible to as many people as possible. In South Africa today, most of the death cover sold to individuals is either in the form of a funeral policy or a more comprehensive underwritten policy. Far more South Africans have death cover through a funeral policy than an underwritten policy – in 2021 the FSCA’s Financial Sector Outlook Study reported that 42% of adults reported owning a funeral policy, compared to only 10% who own any other kind of life insurance policy. 2
While these two types of products provide a payout on death, how the cover
works is fundamentally different. Our view is that an underwritten policy provides far better cover than a funeral policy, for several reasons:
Cover on funeral policies is limited. Many people take multiple funeral policies to access the amount of cover that they need (the average South African has four funeral policies according to specialist funeral insurance underwriter, KGA Life).
In comparison, underwritten policies allow far more cover than funeral policies and the overwhelming majority of South Africans would be able to secure the amount of cover they need on a single underwritten policy.
Funeral cover is expensive. When you consider what you pay per rand of cover on a funeral policy compared to an underwritten policy, an underwritten policy provides far better value for money. The Swiss Re Individual Volume Survey revealed that for cover sold in 2023, funeral cover was on average eight times more expensive per rand of cover than the underwritten death cover sold.
Funeral cover doesn’t provide immediate cover. Because applicants for funeral cover are not underwritten, there is typically a six-month waiting period for deaths by natural causes. This is a significant gap in cover that leaves the life
insured’s dependants facing a significant risk of being left nothing.
Funeral Policies only provide a payout on death. Death is not the only risk we face – underwritten policies allow you to take out benefits that also pay out if you are temporarily or permanently disabled, or diagnosed with a critical illness. Underwritten policies allow you to protect yourself against the major risks you face outside of death. This is not an option on funeral policies.
“As an industry, we should strive to ensure that this cover is accessible to as many people as possible”
Fortunately, some financial advisers recognise this issue and are actively working to address it. These advisers assist clients with existing funeral policies, helping them replace those policies with an underwritten one. This allows clients to maintain the same amount of cover for less, or get more cover for the same premium, all while being insured from
day 1, as well as enjoying access to other life insurance benefits. Additionally, for many of these customers this will be the first time they receive a Financial Needs Analysis to help them understand their needs and select the best product to meet those requirements.
This is a great example of the incredible value of financial advice and the transformational impact financial advisers can have on peoples’ lives by giving them access to guidance and to products that were previously inaccessible to them.
However, it’s not just advisers who can help to address this issue. While we believe that underwritten policies offer material advantages over funeral policies, there is one area where funeral policies offer better cover than an underwritten policy – they allow customers to easily cover their immediate family members on a single policy. Customers who have existing funeral policies that cover both themselves and their immediate family members lose the cover for their family if they replace their existing funeral policies with an underwritten policy. To remove this trade off, we believe that life insurers can come to the party by adding the option for the life insured to also cover their spouse and children when taking out death cover on their underwritten products. This is exactly what we at Bidvest Life did with our July 2024 product update.
The benefit of this change extends beyond just giving existing funeral policies one less issue when converting their cover. In 2022, over one in five Bidvest Life critical illness claims paid out were for the life insured’s child rather than the life insured themselves. 3 We are confident that none of those policies were taken out with the intention of covering the life insured’s children, but ultimately the decision to automatically build in cover for their children helped our customers when they needed it.
At the end of the day, life insurance products are meant to provide financial assistance during difficult times. The traditional approach to life insurance product design is to focus solely on events affecting the life insured. By extending cover to include the life insured’s immediate family, life insurers can broaden the range of events for which they offer support and become more relevant in their customers’ lives.
Flexicare brings more accessible and affordable healthcare
Discovery Health and Auto&General have added enhanced benefits to their current day-to-day private healthcare offering, Flexicare, at a more affordable rate, starting from R350 per month.
“We are thrilled to introduce a broader suite of services to the Flexicare offering, over and above the existing benefits, in the form of nurse-led journeys and a digital clinic,” says Maria Makhabane, Chief Growth Officer at Discovery Health. “Flexicare is now available at a new affordable price point, from R350 per month, making it on average between 13%-19% more affordable than other equivalent products currently available in the market for employers and individuals respectively.”
Flexicare offers high value healthcare at an affordable price
Flexicare, which is administered by Discovery Health and underwritten by Auto&General, was introduced in 2017 with the aim of bridging the gap by making private healthcare cover available at an affordable premium.
Flexicare is available to corporate employers wishing to provide affordable private healthcare cover for employees. Individuals can also purchase this health insurance as an important benefit for themselves, their household employees, or other employees who may be working with them in a small home-office business.
“We are seeing a promising uptake of the product, with a 77% growth in members over the past 30 months. Flexicare currently provides primary healthcare to more than 120 000 members,” says Makhabane.
“This growth is attributed to the high value that members are receiving from Flexicare, with rich benefits at the most affordable price point.”
Currently, Flexicare is funding nearly 22 000 GP visits per month – which means that one in every five Flexicare members are consulting with a GP each month. One in 10 members are also getting a script filled per month.
Nurse visits and digital clinic consultations now available
Flexicare funds primary healthcare at an extensive national network of more than 12 000 providers. Flexicare members can easily locate their nearest healthcare provider through the Flexicare website, app or WhatsApp channel.
“Early this year, we introduced new partners and providers to further increase accessibility to primary healthcare. We’re excited to incorporate a network of nurse-led, digitally enabled primary care clinics as part of a new partnership with Intercare, Netclinic and Unjani Clinics.”
Members can start their healthcare journey using a Flexicare clinic with digital capabilities to facilitate a virtual GP consultation and, if necessary, an onward referral to a physical GP consultation.
“They will be able to conveniently access their primary healthcare benefits through either a nurse visit and online GP consultation facilitated by the nurse, or by completing a digital consultation with a GP through the online clinic platform. Both care pathways will result in a referral for an in-person GP consultation when this is required.”
Introducing Flexicare and Flexicare Plus
Significant investment has also been channelled into providing Flexicare members with a differentiated
“We are seeing a promising uptake of the product, with a 77% growth in members over the past 30 months”
servicing experience, with the offering of swift claims processing and user-friendly digital tools and servicing channels.
Members can choose between two Flexicare plan options – Flexicare and Flexicare PLUS – both offering a basket of primary healthcare benefits. Here’s a breakdown of benefits available on each plan option:
• From R350, the Flexicare plan gives members access to:
• Unlimited face-to-face consults with a network GP when referred by a network nurse or online consultation with a GP
Unlimited network clinic or online GP consultations
• A defined list of procedures in a network GP rooms, when referred by a network nurse
A defined list of prescribed acute medicine
HIV treatment, counselling and education
• Over-the-counter medication from a network pharmacy of up to R150 per policy per year
Basic radiology and pathology (GP referral required)
• Two pregnancy scans, relevant blood tests and supportive prescribed medicine within the network Cover for an annual flu vaccine from a network pharmacy
• Cover for an annual wellness screening at a network pharmacy
Access to Netcare 911 road ambulance services for emergencies.
• From R469, Flexicare Plus members have access to all above benefits PLUS these additional benefits: Unlimited face-to-face consults with a network GP Cover for a defined list of 27 prescribed chronic medicines
• Fillings, extractions, pain and sepsis scaling at a network dentist
An annual eye test, and a new frame and lenses every two years at a network optometrist
• Over-the-counter medication from a network pharmacy of up to R440 per policy per year.
Find out more on: https://www.discovery.co.za/morehealth-cover/flexicare
Flexicare is also available to consumers through Clicks’ extensive retail presence, allowing more individuals to purchase quality, affordable, healthcare cover – almost anywhere. Clicks Clubcard members can earn 10% cashback.
Expanding affordable private cover to millions “Flexicare reflects our commitment to expanding cover to millions more South Africans, and it’s made possible by the strengths of excellent partners who share this vision,” says Makhabane.
Head of Auto&General, Ricardo Coetzee, agrees, “It is wonderful to see this partnership grow from strength to strength. It’s also fantastic to see such significant growth placing Flexicare in a prominent position to bring more affordable healthcare to more South Africans, anytime it’s needed and from anywhere in the country.”
“We look forward to making even more of a significant impact on people’s lives through Flexicare and through our network of dedicated healthcare providers,” concludes Makhabane.
Let’s talk about the rising cost of medical aid
BY SHAUN MEINTJES
Franchise Principal and Financial Adviser at Consult by Momentum
South Africans are grappling with yet another financial challenge: the relentless rise in medical aid costs. Over the past decade, the cost of medical aid premiums and out-of-pocket expenses has surged, placing immense pressure on individuals and families. This trend is not only troubling for consumers but also poses significant implications for the broader healthcare system and the economy.
What’s driving this?
One primary driver of the escalation of costs is the rising prices of medical services and treatments. Advancements in medical technology, while beneficial, come at a high cost. New diagnostic tools, surgical procedures, and treatments are often expensive, and these costs are passed on to consumers. Additionally, the increasing burden of chronic diseases, such as diabetes and hypertension, requires ongoing and costly management, further driving up expenses.
The ripple effect of these rising costs is profound. Many South Africans are finding it increasingly difficult to afford comprehensive medical aid coverage. This has led to individuals downgrading their plans or opting out of medical aid entirely. Those who downgrade their plans may find themselves inadequately covered in times of medical need, facing high out-ofpocket expenses that can be financially crippling. Those who leave medical aid
schemes altogether must rely on the public healthcare system, which is already under significant strain.
A lose-lose situation
As medical aid premiums rise, they consume a larger portion of household income, leaving less money available for other essential needs such as education, housing and savings. This is particularly concerning in a country like South Africa, where many households are already struggling. Wage growth has not kept pace with the increase in medical aid costs, widening the affordability gap. Employers are also feeling the pinch. Many companies provide medical aid benefits as part of their employee compensation packages. However, the rising cost of these benefits is becoming unsustainable. Employers face difficult choices: absorbing the higher costs, passing them on to employees, or reducing coverage. Absorbing costs can strain company finances, passing them on to employees can lead to dissatisfaction and decreased morale, and reducing coverage can leave employees vulnerable to high medical expenses.
Rising costs must be addressed
The implications for the healthcare system are also significant. As more people downgrade their plans or leave medical aid schemes, the risk pool within these schemes becomes less healthy. This leads to a vicious cycle where costs
“Policymakers need to work closely with medical aid providers, healthcare providers, and other stakeholders to find sustainable solutions”
continue to rise, prompting more people to leave, and further driving up premiums for those who remain. Additionally, increased reliance on the public healthcare system places further strain on already limited resources, potentially compromising the quality of care.
Addressing rising medical aid costs requires a multi-faceted approach. Policymakers need to work closely with medical aid providers, healthcare providers, and other stakeholders to find sustainable solutions. This could include regulating the pricing of medical services, promoting cost-effective healthcare practices, and ensuring that medical aid schemes provide adequate coverage without becoming prohibitively expensive.
Better education needed
Moreover, there is a need for greater transparency in the pricing of medical services and the operations of medical aid schemes. Consumers should be empowered with the information needed to make informed decisions about their healthcare coverage. Education and awareness campaigns can also play a role in helping people understand the importance of maintaining adequate coverage and managing their health proactively to avoid costly medical interventions.
The rising cost of medical aid is a pressing issue that requires urgent
attention. Ensuring that healthcare remains accessible and affordable is not only a matter of financial stability but also a fundamental aspect of social equity and wellbeing. It is time for all stakeholders to come together to address this challenge and secure a healthier future for all South Africans.
