Sensible Finance Magazine Issue 29

NFB

A FREE publication distributed by NFB Private Wealth Management

Eastern Cape's Community...

Issue 29 March 2015

PERSONAL FINANCE Magazine

TurmOIL Investigating the effects of the declining oil price WHAT'S IN A NAME? An update on the NFBPE office

LOADSHEDDING The implications on your short term insurance policy private wealth management

“Based on my calculations, I can retire about 5 years after I die.”

Anonymous, 2014

Are you this “guy”?

Don’t be. Talk to an NFB Private Wealth Manager today to plan your financial future. fortune favours the well advised

Contact one of NFB’s financial advisors: East London s tel no: (043) 735-2000 or e-mail: info@nfbel.co.za Port Elizabeth s tel no: (041) 582-3990 or e-mail: info@nfbpe.co.za Cape Town s tel no: (021) 702-8571 or e-mail: mcollins@nfbct.co.za

web: www.nfbec.co.za NFB is an authorised Financial Services Provider

private wealth management

ED’SLETTER

editor Brendan Connellan bconnellan@nfbel.co.za

Contributors Xolisa Funani (NFB Port Elizabeth), John Kinsley (Prudential Unit Trusts), Michelle Wolmarans (NFB Insurance Brokers), Shaun Murphy (Klinkradt Murphy), Julie McDonald (NFB East London), Nonnie Canham (NFB East London), Alex Grunewald (NFB Port Elizabeth), Matthew Chapman (NFB Gauteng), Glacier Research (Glacier by Sanlam), Grant Berndt (Abdo & Abdo), Zukiswa Sonjica (NFB East London), Bryce Wild (NFB East London), Debi Godwin (IE&T), Travis McClure (NFB East London), Mandy Botha (NVest Securities)

a sensible read

I

n light of recent parliamentary events and in the midst of ongoing load shedding, our editorial this edition will be somewhat different to the usual. In empathy and solidarity with our clients and readers, we dedicate the below as a reminder that even in darkest times when it may seem that there is no reprieve in sight, there is always a beacon of hope and a reason to persevere.

Advertising

layout and design Jacky Horn TA Willow Design jaxx@at-media.co.za

Photos used in this magazine - 123rf.com

Robyne Moore rmoore@nvestholdings.co.za

Address East London Office NFB House, 42 Beach Road Nahoon, East London, 5241 Tel: (043) 735-2000 Fax: (043) 735-2001 E-mail: info@nfbel.co.za

private wealth management

Port Elizabeth Office Ground Floor, Building 6, Ascot Office Park, Cnr. Ascot and Conyngham Roads, Greenacres, 6045 Tel: (041) 582-3990 Fax: (041) 586-0053 Email: info@nfbpe.co.za Web: www.nfbec.co.za The views expressed in articles by external columnists are the views of the relevant authors and do not necessarily reflect the views of the editor or the NFB Private Wealth Management. Š2015 All Rights Reserved.

No part of this publication may be reproduced in any form or medium without prior written consent from the Editor.

Yours in hope and optimism.

Brendan Connellan - Editor and Director of NFB Email your full name to info @nfbel.co.za to subscribe to NFB 's free economic electronic newsletters. another aspect of our comprehensive service

sensible finance march15

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SENSIBLE CONTENTS

nfb sensible finance

March 2015

4 LOADSHEDDING

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The implications on your short term insurance policy. By Michelle Wolmarans, Director, NFB Insurance Brokers.

6 MULTI-ASSET FUNDS OFFER GOOD DIVERSIFICATION IN TESTING CONDITIONS.

By John Kinsley, MD of Prudential Unit Trusts.

8 2015 TAX RELATED BUDGET PROPOSALS

By Shaun Murphy, CA (SA), Partner - Klinkradt.

10 DISCOVERY VITALITY 2015 Some pointers in getting the most out of your benefit. By Julie McDonald, Risk Assurance Specialist - NFB East London.

12 BUY-AND-SELL INSURANCE The importance of a correctly structured policy. By Nonnie Canham, Financial Paraplanner - NFB East London.

13 WHAT'S IN A NAME? An update on the NFBPE office. By Alex Grunewald, MD/Private Wealth Manager - NFB Port Elizabeth.

14 TURMOIL Investigating the effects of the declining oil price. By Matthew Chapman, Representative under Supervision - NFB Gauteng.

17 FIVE THINGS TO CONSIDER WHEN SELECTING A UNIT TRUST

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FUND. By Glacier Research - Glacier by Sanlam.

18 OUR DETAILS ON THE WORLD WIDE WEB Protecting your personal information. By Grandt Berndt - Abdo & Abdo.

20 ATTACKING DEBT Moving towards personal financial freedom. By Zukiswa Sonjica, Financial Paraplanner - NFB East London.

21 WE CAN'T RELY ON THE OIL PRICE STAYING LOW Taking advantage of the decrease while you can. By Bryce Wild, Private Wealth Manager - NFB East London.

24 THE POWER OF COMPOUND INTEREST The eighth wonder of the world. By Xolisa Funani, Financial Paraplanner - NFB Port Elizabeth

26 WHAT SHALL WE DO WITH THE WAYWARD EXECUTOR? A role not to be taken lightly. By Debi Godwin, Director - Independent Executor & Trust.

27 Q &A. You ask. We answer. Advice column answering your investment, personal finance, life and/or risk insurance questions with Travis McClure, Director/Private Wealth Manager NFB East London.

28 SIRIUS REAL ESTATE A new rand hedge prospect. By Mandy Botha, Portfolio Manager - NVest Securities.

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SENSIBLE PROTECTION

LOADSHEDDING The implications on your short term insurance policy. By Michelle Wolmarans, Director, NFB Insurance Brokers.

T

he ongoing electricity crisis in South Africa and the resultant load shedding has profound effects not only on the economy of the country, but compromises the security of individual households and can jeopardize the insurance cover in place.

Security systems in the majority of homes rely on electricity for power. In the absence of electricity electric fences are rendered ineffective and alarm systems default to battery backup.

A large majority of personal insurance policies covering the contents in your home are subject to the Burglar Alarm Warranty.

This warranty states that theft cover on the policy is subject to a radio linked burglar alarm being installed. The alarm system must be maintained in good working order and be monitored by a 24h response security firm. The warranty states that the alarm must be activated whenever the main dwelling is left unattended.

It follows that should a burglary occur whilst the dwelling is unoccupied and the alarm has not been activated there will be no cover for the loss in terms of the policy as the warranty has not been adhered to.

As a home owner you may activate your alarm before you leave your dwelling. While your house is unattended load shedding takes place. Your alarm system will then revert to the backup battery, however, the battery may run flat before electricity is restored leaving your house unprotected and in terms of the Burglar Alarm warranty there will be no cover should a theft occur.

In order to ensure that your insurance cover is not compromised during load shedding the following steps should be followed: < Service your alarm on a biannual basis to ensure that it is maintained in good working order.

Backup batteries have a limited lifespan so it is imperative that they are checked on a regular basis and that faulty or flat batteries are replaced.

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<

Test your alarm on a monthly basis. You need to turn the electricity off and ensure that the backup battery is working on a regular basis. < Ensure that when you activate your alarm that the activation is recorded by the security company's systems. This will enable you to provide the insurance company with proof that the alarm was activated in the event of a burglary occurring and the alarm not being activated as a result of the back-up battery being depleted due to load shedding. If your alarm company is unable to provide you with confirmation of activation, it would be prudent to upgrade your alarm system to enable this feature.

Load shedding may also result in power surges when power is restored. Power surges often damage appliances and electronic goods. Insurers are urging consumers to install surge protection equipment on their distribution board as this can prevent or minimize the damage caused by a power surge. It is important to check your policy to ensure that it covers damage caused by power surges. If the policy does not include cover for a power surge, or has limited cover, it is recommended that you purchase additional accidental damage cover to compensate you for any losses that may arise from a power surge.

With recent media reports suggesting that load shedding will be part of our lives for the next two years it is vital that policyholders take the necessary steps to ensure that they are fully protected against the increased risks that the absence of electricity poses.

insurance brokers (border)(pty)ltd.

Tel: (043) 735-2460

SENSIBLE DIVERSIFICATION

Multi-asset funds offer good diversification in testing conditions

By John Kinsley, MD of Prudential Unit Trusts

E

quity markets started 2015 with some exceptional volatility, and commentators are particularly nervous about weak commodity prices, the timing of rising interest rates in the US and South Africa and generally slow growth around the world. Combined with relatively high equity valuations in many developed markets and exceptionally low yields from sovereign bonds in the US, Europe and Japan, it is shaping up to be a testing year for investment returns.

Diversification across many different assets, like that offered by multi-asset funds like Balanced unit trusts, seems to be a wise option in the current conditions for investors looking for inflation-beating returns while also avoiding excess volatility.

Importantly, multi-asset funds performed well in 2014: for example, while the local equity market (FTSE/JSE All Share Index) returned 10. 9% (before any fees) for the year, Prudential's low-equity Inflation Plus Fund returned 11.8%, and the highequity Prudential Balanced Fund returned 11.7% over the same period (both after fees). Within the funds' holdings, the weaker performance from local equities was offset by good returns from listed property, as well as offshore assets (both foreign equities and bonds).

At the same time, all is not doom and gloom for investors. Lower inflation from the fall in the oil price and slower growth has come at an opportune moment for the South African economy.

With consumer price inflation projected to remain well below the South African Reserve Bank (SARB)'s 6% upper target limit this year, our interest rates may not rise as quickly or as steeply this year as was previously expected. This reinforces our view of lower interest rates for longer, which should help the economy improve in 2015, and in turn support local corporate earnings growth. We may not even see a hike by the SARB this year â&#x20AC;&#x201C; although this will

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depend on how the Federal Reserve's monetary policy evolves, as well as the rand's exchange rate.

Lower inflation also boosts real investment returns â&#x20AC;&#x201C; which is the critical measure for proper financial planning.

Taking the current market conditions into consideration, we believe that the local equity market is slightly expensive, so we are neutral, rather than overweight, South African equities in our global portfolios. Diversification across global equity markets is a good idea, as some offer prospects for better returns than South Africa over the next three years. We are holding near the maximum 25% weighting for offshore equities. In fact, we are overweight certain equity markets in Europe, Eastern Europe and North Asia like Germany and Taiwan.

In our local portfolios, SA equity remains our preferred asset class, and we are overweight equities compared to our benchmarks. Here we believe SA equity will outperform bonds and listed property over the medium term, especially following listed property's strong performance in 2014. We continue to prefer financial shares like Investec and Old Mutual for their attractive valuations, as well as the larger global industrial companies that benefit from improving global growth and the weaker rand, like British American Tobacco and Naspers.

Investment SA Listed Property Foreign Equity Prudential Inflation Plus Fund Prudential Balanced Fund Foreign Bonds SA Equity SA Bonds SA Cash SA CPI

Total Return 2014 26.6% 15.1% 11.8% 11.7% 11.1% 10.9% 10.2% 5.9% 5.8%

SENSIBLE BUDGET

2015 TAX RELATED

BUDGET PROPOSALS Submitted by Shaun Murphy, CA (SA), Partner Klinkradt

T

he following is a summary of the tax related budget proposals announced by the Minister of Finance on 25 February 2015.

BUDGET HIGHLIGHTS The main tax proposals include the following: = The marginal personal income tax rates will be increased by one percentage point for all taxpayers earning more than R181 900. Tax brackets and rebates to account for fiscal drag will be adjusted. = The general fuel levy will increase by 30.5 cents per litre and the Road Accident Fund levy increases by 50 cents per litre on 1 April 2015. The total increase of 80 cents per litre. = Provide a more generous turnover tax regime for small businesses. = Change the transfer duty rates and brackets. = Increase excise duties on alcoholic beverages by between 4.8 and 8.5 per cent and on tobacco products by between 5 and 7 per cent.

Other proposals: = Change to a self-assessment system for income tax. = Taking further steps to combat base erosion and profit shifting such as improved transfer pricing documentation and reporting. = Delinking the diesel refund system from the VAT system from 1 April 2016 and limiting diesel refunds for land mining activities and the generation of electricity. = Consider increasing the electricity levy by 2 cents per

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kWh as a temporary measure until carbon tax is introduced.

INDIVIDUALS Relief for individuals Personal income tax To raise additional tax revenues the marginal personal income tax rates will be increased by one percentage point for all income tax brackets except the lowest, which will remain at 18%.

This also means a one percentage point increase in the tax rate for trusts.

To provide relief for inflationrelated earnings increases (fiscal drag), all income tax brackets and rebates will be increased by 4.2%. The tax-free threshold for individual taxpayers below 65 years will increase from R70 700 to R73 650.

Exemption for interest and dividend income The annual exemption on interest earned by individuals younger than 65 years (R23 800) for individuals 65 years and older (R34 500) remains the same. The tax free investments become effective 1 March 2015 and apply to approved investments of up to R30 000.

Contributions Medical tax credits Monthly medical scheme fee tax credits will, from 1 March 2015, be increased from R257 to R270 per month for the first two beneficiaries. In respect of each additional beneficiary, from R172 to R181.

Employees' tax Employees over 65 are experiencing a decrease in their

take-home pay as a result of the move to medical tax credits, although they may claim back some of these amounts on assessment after the end of the tax year. To alleviate this burden, it is proposed that medical tax credits related to medical scheme contributions be taken into account for both PAYE and provisional tax purposes.

Other tax proposals affecting individuals Employee share schemes The interrelationships in the application of section 8C of the Income Tax Act, including the taxation of directors and employees on vesting of equity instruments; the attribution of capital gains to beneficiaries; the income tax exemption of dividends; and the employees' tax provision related to the return of capital, will be reviewed to remove anomalies.

Income and disposal to and from deceased estates Section 25 of the Income Tax Act provides that no income or disposal is triggered in the deceased's hands upon death, but that income may be recognised in the hands of the deceased estate, heir or legatee. Paragraph 40 of the Eighth Schedule, however, recognises capital gains and losses upon death. To address the anomalies created when the two regimes interact, the provisions will be examined and amendments may be proposed.

Withdrawal from retirement annuity funds by non-residents Non-residents who move to South Africa for a fixed term of employment often contribute to a retirement annuity fund to continue saving for retirement in a tax-efficient manner. The current definition of â&#x20AC;&#x153;retirement annuity fundâ&#x20AC;? does not allow these individuals to withdraw the amounts they have saved over this fixed term if they return to their home countries. In contrast, if South Africans emigrate, they are allowed to withdraw their retirement annuity interest. The mismatch in treatment will be reviewed.

Harmonisation of the treatment of retirement funds The taxation of contributions and the rules on compulsory annuitisation for pension funds, provident funds and retirement annuity funds will change from 1 March 2016. The level of deductible contributions will be limited to 27.5 per cent of the greater of taxable income or remuneration per year. An additional amendment will be investigated to correct an omission in 2013 that inadvertently excludes some retirement funds that enjoy the benefit of higher deductions without being subject to the uniform annuitisation rules.

A maximum age for the preservation of retirement assets From 1 March 2015, a retirement fund member may defer the drawing of their retirement income until after their retirement date (if the retirement fund allows). This will provide greater flexibility for retirement fund members and encourage the preservation of retirement assets. However, to limit tax planning opportunities, it is proposed that a maximum age at which withdrawals must be taken be introduced. This is in line with other countries that have similar retirement funding arrangements.

Estate duty and retirement funds Amendments in 2008 removed the upper age limit at which an individual was required to purchase an annuity if they had

an interest in a retirement annuity fund, and excluded retirement fund benefits from the dutiable estate when a member passed away. These two amendments have made it possible for some individuals to avoid estate duty by transferring their assets into a retirement annuity fund before their death.

In the deceased's tax calculation, lump sums paid to the estate are subject to the lump sum retirement tax table.

However, lump sums equal to amounts above the allowable deduction (non-deductible contributions) are not subject to the lump sum tax table or estate duty.

To eliminate the potential to avoid estate duty, government proposes that an amount equal to the non-deductible contributions to retirement funds be included in the dutiable estate when a retirement fund member passes away.

COMPANIES Corporate tax rates No change is proposed to corporate tax rates.

Turnover tax for micro businesses The turnover tax regime was introduced to limit the compliance burden on micro businesses with annual turnover of up to R1 million. These rules eliminate the need for a great deal of paperwork and compliance expenses. The Davis Tax Committee recommended that this incentive be made more generous to improve the participation of small businesses in the economy and the tax system. Government proposes to adjust the rates and thresholds to make the turnover tax more attractive.

ENVIRONMENTAL TAXES Carbon Tax Two discussion documents were published in 2013 and 2014 and the proposed carbon tax has been further refined after a review of the comments received. The potential use of carbon offsets was well received as a cost-effective mechanism to reduce greenhouse gas

emissions and taxpayers' carbon tax liabilities. The tax design seeks to minimise potential adverse effects on low-income households and industry competitiveness. The publication of the draft carbon tax bill later in 2015 will allow for a further period of consultation. This will also allow for the tax to be aligned with the proposed carbon budgets. Amendments to the customs and excise act will be effected to provide for the administration of the carbon tax.

Energy-efficiency savings tax incentive The energy-efficiency savings tax incentive will be increased from 45 c/kWh to 95 c/kWh and extended to cogeneration projects. This incentive was introduced in November 2013 to complement the proposed carbon tax. It encourages firms to support a greener economy.

Businesses can claim deductions based on energy saved. In future, this allowance will be funded through a recycling of revenues from the carbon tax.

Tyre levy South Africa generates an estimated 108 million tonnes of waste each year, of which only 10 per cent is recycled.

Government has designed additional environmental levies on a range of waste streams to help divert waste away from landfills towards reuse, recycling and recovery. Government proposes a tyre levy, with effect from the last quarter of 2015, to be implemented through the Customs and Excise Act and collected by SARS. The existing levy arrangements for tyres as per the Department of Environmental Affairs' regulations will be replaced with the proposed tyre levy. Revenues from the levy will be deposited into the National Revenue Fund, and an on-budget allocation will be made available through the budget of the Department of Environmental Affairs for the recycling of waste tyres and other waste streams. article continued on page 16...

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SENSIBLE BENEFITS

DISCOVERY VITALITY 2015 Some pointers in getting the most out of your benefit. By Julie McDonald, Risk Assurance Specialist - NFB East London.

F

or many Discovery Vitality members the beginning of the year means getting healthier and more active and, of course, getting the family to work on your Vitality status so that you can reach Gold Vitality status.

This will maximize your discounts and cash backs.

Carry-over points were removed from the end of 2013, but there are more ways to earn Vitality points, and partners have been added to the Healthy-Living benefits to give you more choice.

If you have not taken advantage of the benefits on offer – now is the time to start!

First things first: make sure that you have registered on www.discovery.co.za (each member will have their own log-in details) and then go to the 'Vitality' tab.

Changes for 2015: For each of the Healthy-Living categories there are two partner stores where you can earn cash back.

You choose your preferred partner, complete the necessary assessments and you can earn up to 25% cash back at your preferred store. At the other partner store you will still earn 10% back.

HEALTHYFOOD: Pick'n Pay and Woolworths HEALTHYCARE: Clicks and Dis-Chem HEALTHYGEAR: Sportsmans Warehouse and Totalsports All you need to do to get these benefits is log onto the website, go to the Vitality tab, and complete the following steps: Activate all the HealthyLiving benefits giving you up to 10% back at all partners; Choose a preferred partner for each benefit; Complete the necessary assessments (the cash back percentage will increase to up to 15% and up to 25% at your preferred partner once you have done the assessments next):

15%

25%

Vitality Age (online)

Vitality Health Check at a pharmacy or Discovery Wellness Day

Online Fitness Assessment

Vitality Fitness Assessment at a Biokineticist

HEALTHYFOOD

HEALTHYCARE

HEALTHYGEAR

Swipe the relevant card at the partner stores at the till before the cashier rings up your purchases, to earn cash backs. Remember to check the online catalogues to view which items qualify for cash backs.

If you have activated Discovery Miles and you pay at these stores using your DiscoveryCard, your Discovery Miles will be multiplied by up to 10 times based on your Vitality status.

Looking at getting a fitness device? Get up to 25% cash back on a selected range of devices at Clicks or Dis-Chem with the HealthyCare benefit; or Sportsmans Warehouse or Totalsports with HealthyGear.

As a member of a Medical Scheme plan administered by Discovery Health you can claim up to R750 from your day-to-day benefits when buying selected health and fitness devices at Clicks or DisChem. This is limited to one device per member a year, if applicable to your Medical Scheme plan and if you have funds available.

Improving your Vitality status: = Are you a non-smoker? Under the Vitality tab online, there is a non-smokers declaration. Click on that and you can declare yourself a non-smoker – earning you 5 000 Vitality points! If you are a smoker, why not get help in trying to quit? This could reduce your life premiums and you can save

Continued on page 25...

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SENSIBLE STRUCTURE

BUY-AND-SELL INSURANCE The importance of a correctly structured policy. By Nonnie Canham, Financial Paraplanner - NFB East London.

W

hen one takes out a personal life insurance policy, it is generally done in order to provide a solution for the foreseeable financial problems that may arise at the death or disability of the main income earner in the family. Business assurance works in much the same way. It not only provides for business continuity in the event of the death or disability of a key partner or major shareholder of a business, but it can even be used to strengthen the business structure.

A buy-and-sell agreement is one such business assurance option that partners in a business can use to finance their succession plans. An essential element of the contract is, a definite agreement made by the partners obligating one another to sell their interest to the surviving partners upon their own death, and committing the surviving partners to purchase the deceased partners portion of the business at an agreed or determinable price.

It is best to fund the buy-and-sell agreement using life insurance because it is a safe and certain method of coming up with the necessary funds to cover the purchase price agreed upon. It also prevents the business from possibly being drained of its capital resources while eliminating the need to borrow and pay interest on a loan taken out to pay the purchase price.

The proceeds from certain domestic policies on the life of the deceased must be included as deemed property in the deceased's estate. The deeming provision only applies if the proceeds are recoverable under a life policy. This would make the proceeds of a buy-and-sell policy subject to estate duty of 20% in the deceased's estate.

The Estate Duty Act does, however, provide for the exemption of the proceeds of a policy

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instituted under a buy-and-sell agreement. Proviso (iA) to section 3(3)(a) of the Act excludes the proceeds from being deemed property, provided that: the Commissioner is satisfied that the policy was taken out or acquired by a person who on the date of death of the deceased was a partner of the deceased, or held any share or like interest in a company in which the deceased on that date held any share or like interest, for the purpose of enabling that person to acquire the whole or part of â&#x20AC;&#x201C; (aa) the deceased's interest in the partnership concerned; or (bb) the deceased's share or like interest in that company and any claim by the deceased against the company, and that no premium on the policy was paid or borne by the deceased.

It is vital therefore that amongst other requirements, the deceased should never have paid a single premium on the policy taken out on his own life.

It has happened in practice that due to oversight, the parties to a buy-and-sell insurance policy find themselves as the life assured as well as the premium payer on the same policy. This leads to the proceeds of the life policy falling into their own deceased estate as deemed property and 20% of the proceeds being dutiable in the estate. This would defeat the purpose of acquiring the policy in the first place.

The solution is not as simple as switching the premium payers on the policies. The life assured/deceased, should never have paid a single premium from the inception of the policy.

Continued on page 25...

SENSIBLE BRAND

WHAT'S IN A

NAME? An update on the NFBPE office. By Alex Grunewald, MD/Private Wealth Manager NFB Port Elizabeth.

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ell it has been six months since the merger of Alex Grunewald & Associates and NFB Finance Brokers Port Elizabeth and what an interesting and exciting journey it has been!

Without fail, the question I have been asked by everyone is "why the merger?" The first response, I assume, is always quite obvious, the beauty of leaning on the infrastructure of a larger organization. Prior to the move, due to my limited IT skills, (however, were you to ask me directly, as a true-blooded South African male, I would deny, deny, deny) it would take me at least an afternoon to attempt to sort out a problem. Now, help is a phone call or email away in the form of our extremely competent IT department - no mess, no fuss! This value-add frees me up to spend more time on planning and client interaction.

Compliance in a financial planning practice is a time consuming affair, albeit an extremely important aspect of financial planning, and again I was finding this was taking up far too much valuable time, reducing my interaction with clients.

To now have a compliance department that takes care of every conceivable issue, document or problem is certainly liberating.

However, taking all this into account, I believe the most important reason for my decision to merge was the value of an established strong brand! One of my greatest concerns as a sole proprietor was what would happen to my clients were I to be hit by the proverbial bus. I now have

the peace of mind that were something to happen to me, all our clients would be taken care of, without any change in investment strategies or shift in investment philosophy (Interestingly enough this "succession" strategy has now become a prerequisite by the Financial Services Board).

It has been incredible to be exposed to the amount of work and effort that goes into the research by our investment committees in determining what funds and platforms to recommend to our clients. It is with complete assurance that I can put together a portfolio once we have matched the client's need and risk profile, leveraging off the due diligence that occurred behind the scenes on all the funds we recommend.

The other benefit I believe to the NFB brand are the other divisions we have on offer, allowing clients to receive an holistic all-encompassing benefit from the brand; these include our wills and estate department in the form of Independent Executor &Trust, our stock broking division in NVest Securities and our short term division; throw into the mix our in-house offer of medical aid and employee benefits and one can see that we truly attempt to assist clients with all their financial needs.

I challenge you to come in and experience the brand for yourself...and the coffee is great!

Our contact telephone numbers are: East London 043-7352000 Port Elizabeth 041-5823990 Cape Town 021-7027880 sensible finance march15

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TurmOIL Investigating the effects of the declining oil price.

By Matthew Chapman, Representative under Supervision - NFB Gauteng.

Black gold's black swan?

The rapid decline in the oil price has been a topic of both market commentary and dining room conversation in recent months with the spot price shedding some 55% plus from a 2014 high of over $115 per barrel in June to under $50 per barrel at the time of writing. This extraordinary collapse undoubtedly will have an effect on various macroeconomic indicators, both globally and locally, and thus results in a number of knock-on effects for investors and consumers alike.

In order to understand the effects this anomaly is likely to have on the markets (and our pockets) it is important to take a step back and examine what the likely cause of the decline is.

Oil prices, much like fundamental economic theory teaches us, are predominantly based on the metrics of demand and supply. On the demand side of the equation we have seen a fall in the global demand for oil due to weak economic activity, a gradual shift from oil reliance to other fuels and increased US shale production, curbing their own need for imported oil. In terms of supply, historically this was largely controlled by members of OPEC (Organization of Petroleum Exporting Countries) through production quotas agreed every two years. However, as the US has gradually shifted from an importer to the 2nd largest oil exporter, there has been a weakening of the oligopolistic power of the OPEC nations.

The outcome of the latest OPEC production quota meeting in November was a refusal by Saudi Arabia and those in OPEC aligned to the Kingdom to cut the quotas, thus resulting in an oversupply of oil which subsequently led to a rapid fall in the price of crude. Reasons behind this decision have been attributed to the refusal to lose further market share in global oil exports and the fact that Saudi

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Arabia can continue to produce oil at much lower cost levels than that of their OPEC and non-OPEC oil producing counterparts, partly due to massive stockpiles of both crude and foreign currency reserves. Market speculation suggests that operating at these levels will result in large pressures on US shale drillers and force cutbacks, thus preserving market share for the oligarchs over the medium to long term.

Whilst oil prices affect a broad range of macroeconomic variables and/or policies we've restricted this analysis to the balance of payments and economic growth, inflation and interest rates, equities and taxes.

Balance of Payments and Economic Growth As an oil importing country South Africa benefits from a fall in the price of crude, so much so in fact that a study by UBS, published in December last year, has shown that we are at the upper end of countries with an inverse GDP growth correlation to the oil price, as seen on the graph below.

A declining oil price would allow for (providing no change in import volume occurs) a healthy reduction to the wide current account deficit, although this will be somewhat counteracted by the increased diesel imports needed by Eskom to â&#x20AC;&#x153;keep the lights onâ&#x20AC;? and a potentially weak rand in the face of a strong US dollar and muted local growth.

Holding all else equal, we would expect to see local economic growth figures boosted to a degree by a falling oil price.

Inflation and Interest Rates One of the most tangible effects of inflation in our daily lives is the variation in the number at the bottom of the small white slip we glance at with

bated breath at the petrol station.

Whilst the price of crude has fallen over 50% we do not enjoy this full saving. Currently only 48% of the petrol price consists of BFP (Basic Fuel Price), which itself consists of added external elements such as freighting fees, insurance and storage costs. The remainder of the price is attributable to levies, taxes, mark ups and internal logistics costs.

Furthermore, in its most directly influential form, petrol accounts for just 5.7% of the CPI basket. The knock on multiplier effect of other industries will no doubt have an additional effect on inflation as well, although this is more difficult to accurately measure. That being said, the consensus view is that we will see a fall in inflation to the mid-range of the SARB's (South African Reserve Bank) target of 3% - 6%.

This should allow Reserve Bank Governor, Lesetja Kganyago, to avoid short term interest rate hikes, which in turn should have a further positive effect on local GDP growth.

Equities From a bird's eye view, a lower oil price should result in a healthy boost to the economy by means of improving the terms of trade, allowing for reduced production/input costs and therefore higher profit margins, and increased demand through growth in consumer disposable income.

These factors all in turn should lead to greater corporate earnings and thus a strong local equity market.

However, considering that the JSE is trading at levels considered to be either fully priced, or in some circles overvalued, we would not expect the large scale gains one would ordinarily see in a fairly priced market.

We may, however, holding all else equal, see some strength coming from the unloved gold counters which are some of the most operationally exposed to oil price movements. This could be supported by a low Fed Funds Rate in the US and the probable initiation of quantitative easing in Europe, as global markets attempt to create inflation by

reinvigorating their respective economies.

Taxes In February, Finance Minister, Nhlanhla Nene, will deliver the budget speech for 2015. Much has been written about the need to increase taxes in order to balance the public coffers. Speculation has ranged from increases in the VAT rate to 15%, corporate taxes to 30% and the adjustment of the personal income tax marginal brackets and rates, or a combination of the above.

The solution, however, or a portion thereof, may well now also be tied to the price of oil: an increase in the fuel levy. As previously mentioned, at present the actual cost of crude accounts for less than 50% of the petrol price, with the second biggest contributor being the fuel tax at approximately 20%. Rather than reducing the price of petrol, the lower basic fuel price saving could be used to increase the fuel levy and thus offset the need for some of the more direct tax hikes.

Of course this would in turn neutralize some of the positive effects of a cheaper spot price, but may well prove a more palatable method of stabilizing the budget deficit.

Conclusion In conclusion, subdued oil prices should lead improved terms of trade, lower inflation, more muted interest rate hikes, economic growth stimulation and sectoral equity strength.

As with all macroeconomic factors, spot oil is just one cog in the complicated mechanics that control the financial markets and anyone who claims to have 100% accurate predictive powers is playing a fools game. The spot price and futures market of crystal balls is, fortunately, uncorrelated to the oil price.

Should you wish to re-look at your financial plan as we head into the new year, please don't hesitate to contact an NFB financial advisor at any one of the NFB offices in Johannesburg, East London, Port Elizabeth, Stellenbosch or Cape Town.

Sasol One stock that has been under particular scrutiny during this period of oil price weakness has been one of the darlings of yesteryear, Sasol (SOL). As this five year graph illustrates, Sasol has a strong correlation to the ZAR oil price, which is a function of the USD/ZAR exchange rate (Yellow) and the US dollar oil price (Green.) The stock has a positive correlation to both the USD price of oil and the USD/ZAR exchange rate (strengthening dollar/weakening rand is positive for Sasol.)

The ZAR weakness of recent years has assisted the stock in making large scale gains, although this has almost been completely undone by the quick fall in oil prices.

sensible finance march15

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SENSIBLE BUDGET

2015 TAX RELATED BUDGET PROPOSALS

...Continued from page 9

INDIRECT TAXES

TAX ADMINISTRATION

VALUE-ADDED TAX (VAT) Educational services Educational services are currently exempt from VAT, but there are uncertainties around the exact definition of “educational services” and the VAT treatment of certain expenditures, such as accommodation and the provision of meals. The Davis Tax Committee is reviewing the VAT implications for educational institutions, and its conclusions will guide potential changes.

Self-assessment system for income tax Amendments to the Income Tax Act are proposed to provide for the move to an income tax self-assessment system.

Thresholds for payment basis To help with cash flow, some vendors with annual taxable supplies below R2.5 million are allowed to account for VAT on a payment basis rather than an accrual basis. These vendors must be natural persons or unincorporated bodies of which all members are natural persons.

The Davis Tax Committee is reviewing this provision. There may be scope to increase the threshold and/or broaden the application to include incorporated businesses under this regime. However, the abuses previously experienced when businesses on the accrual basis transact with businesses on the payment basis will have to be addressed.

Diesel refund system The diesel refund system's implementation has experienced technical and administrative challenges and the system's administration will be comprehensively reviewed.

While the review is under way, steps will be undertaken to deal with some of the immediate challenges. This includes, among others, disputes over refunds for subcontracting in the mining sector through cession mining licences in terms of the Mineral and Petroleum Resources Development Act (2002). In the farming sector, attention will be given to rules for sugarcane contract farming and issues related to small-scale farming.

TAX GUIDE Individuals and trusts Income tax rates for natural persons and special trusts Year of assessment ending 28 February 2016 Taxable income Taxable rates R0 – R181 900 18% of each R1 R181 901 – R284 100 R32 742 + 26% of the amount above R181 900 R284 101 – R393 200 R59 314 + 31% of the amount above R284 100 R393 201 – R550 100 R93 135 + 36% of the amount above R393 200 R550 101– R701 300 R149 619 + 39% of the amount above R550 100 R701 301 and above R208 587 + 41% of the amount above R701 300

Natural persons Tax thresholds Below 65 years of age Aged 65 and below 75 Aged 75 and over

2014/15 R70 700 R110 200 R123 350

2015/16 R73 650 R114 800 R128 500

Tax rebates Primary – all natural persons Secondary – persons aged 65 and below 75 Secondary – persons aged 75 above

2014/15 R12 726 R7 110 R2 367

2015/16 R13 257 R7 407 R2 466

Trusts The tax rate on trusts (other than special trusts which are taxed at rates applicable to individuals) increased from 40% to 41%.

Retirement fund lump sum withdrawal benefits Taxable income R0 – R25 000 R25 001 - R660 000 R660 001 - R990 000 R990 001 and above

Rate of tax 0% of taxable income 18% of taxable income above R25 000 R114 300 + 27% of taxable income above R660 000 R203 400 + 36% of taxable income above R990 000

Retirement fund lump sum benefits Taxable income R0 – R500 000 R500 001 - R700 000 R700 001 – R1 050 000 R1 050 001 and above

Rate of tax 0% of taxable income 18% of taxable income above R500 000 R36 000 + 27% of taxable income above R700 000 R130 500 + 36% of taxable income above R1 050 000

Transfer duty Transfer duty is payable at the following rates on transactions in respect of acquisition of property on or after 1 March 2015 which are not subject to VAT. Value of property R0 – 750 000 R750 001 – 1 250 000 R1 250 001 – 1 750 000 R1 750 001 – 2 250 00 R2 250 001and above

Rate 0% 3% of the value above R750 000 R15 000 + 6% of the value above R1 250 000 R45 000 + 8% of the value above R1 750 000 R85 000 + 11% of the value above R2 250 000

Please note that while every effort is made to ensure accuracy KLINKRADT MURPHY does not accept responsibility for any inaccuracies or errors contained herein.

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SENSIBLE CONSIDERATION

5 things to consider

when selecting a

UNIT TRUST FUND

by Glacier Research, Glacier by Sanlam

W

ith the universe of collective investment schemes, or unit trusts, growing almost daily, it's easy for investors to select a name they know and trust. But not doing enough 'homework' may result in an investor's hard-earned-savings not realising the returns they could.

This article looks at five things investors should be wary of when selecting a fund.

Don't underestimate accessibility and transparency Company and fund information should be readily available. The website should provide contact details, including a landline telephone number and physical address.

Information on the individuals managing the fund, as well as the fund fact sheets, should also be available. The fund manager's qualifications and working experience are important, as is the division of duties. In other words, is there an administrative team backing up the fund management team?

This may affect the length of time taken to process investment requests, and to access your funds when needed.

Don't ignore the fund size

A fund that hasn't accumulated a large asset base may pose a liquidity risk (the risk that you may not be able to sell your units as quickly as you want to), should a large investor want to access their funds at short notice. That's not to say, though, that a large fund is the correct choice. The larger the fund, the more difficult it may become to outperform (in the case of an equity fund), as a larger fund may be less flexible with respect to available investment opportunities.

Deciding on an optimal fund size is not always an easy decision and this is where a qualified financial adviser can play a valuable role.

Don't underestimate past performance It's well-known that past performance is not necessarily an indicator of future performance. Past performance history is important – but doesn't paint a full picture unless viewed in context.

Other things to consider include the experience and qualifications of the investment team. Is the team's philosophy and their process simple and easy to understand? If there are changes in the style or philosophy of the fund, it's important that your own investment objectives still be in alignment with the fund objectives.

Don't ignore costs

When expressed as a percentage, costs may sound insignificant, but can add up to a substantial amount when compounded over a lengthy investment term.

Questions to ask include: is the cost in line with other funds in the same category? Does the fund charge a performance fee and if so, how is this calculated? Is the fee reasonable, given the expected return?

Don't put off obtaining professional, independent advice In addition to helping investors to set objectives and determine their risk profile, a qualified financial adviser can be invaluable in cutting through the plethora of information and making sense of the complexity. Not only is the number of available funds constantly increasing, but tax complexity is increasing globally too. Financial advisers can help to mitigate these risks for clients. They also have their ears to the ground when it comes to legislation and other changes in the industry.

With increasing longevity many people can expect to spend as long, if not longer, in retirement than they did working. This means there is no room for mistakes. A qualified financial adviser can add value as a lifestyle and longevity consultant. sensible finance march15

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SENSIBLE PROTECTION

OUR DETAILS ON THE WORLD WIDE WEB

Protecting your personal information.

By Grandt Berndt - Abdo & Abdo.

T

he protection of our personal information was dealt with previously in the light of the Protection of Personal Information Act, which has been promulgated, but not yet come into effect. It should, however, come into effect in the foreseeable future. In this article we will deal specifically with our personal details on the internet.

There are various search engines one can use on the World Wide Web in order to obtain information on any person or subject, with Google being the most popular of these search engines.

We have all probably done a search on our name to see what comes up on the internet, but what if that information about us is negative?

A recent matter arose in Spain which was considered under European Union Law, which is very similar to that of our proposed Protection of Personal Information Act. In the Spanish matter, when the complainant's name was entered on Google, the user received the links to a newspaper article advising of a property auction for the recovery of debt due by the complainant.

The complainant requested amongst other things, that Google be instructed to delete or change the personal information relating to the property auction from any search on his name. This claim was upheld because the operators of internet search engines are subject to data protection laws and they can be ordered to remove data if it infringes the privacy and dignity of a person.

The data did not, however, have to be deleted from the World Wide Web, in this case the newspaper's website in which the article regarding

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sensible finance march15

the property auction appeared, but only from that of the search engine, Google.

It was held that a person can thus oppose the dissemination of personal information through a search engine if such information is detrimental to him or her and his or her right to privacy overrides the interests of the search engine and the interests of freedom to information. It was also found that initial lawful processing of information may over time become irrelevant for the purpose for which it was initially published and should then be removed from any such search engine.

Once the Protection of Personal Information Act comes into force, Google and other search engines will need to comply with the provisions of this Act. The Act requires personal information to be processed lawfully, in a way that does not infringe ones privacy and for a specific purpose.

The Act also requires data collectors, such as Google, to collect personal information directly from the person and that they must obtain our consent when processing personal information. Our personal information may already be loaded on social media sites such as Face Book or LinkedIn. It will be practically impossible for search engines to obtain such consents. It thus appears that we as South Africans may, once the Protection of Personal Information Act comes into law, have the right to require search engines to remove us from their data base or at least limit the information they disclose about us.

“Managing success into the future” Our services include: Accounting • Auditing • Taxation Planning Estate Planning • All Statutory Registration • Business Structuring Concessions • Due Diligence • Business Succession Planning

Contact us on 043 726 9555 for all your queries. partners: Gary Klinkradt ca (sa) and Shaun murphy CA (SA)

SENSIBLE DEBT

ATTACKING

DEBT Moving towards personal financial freedom. By Zukiswa Sonjica, Financial Paraplanner - NFB East London.

W

ith the decrease in the oil and petrol prices, and interest rates staying fairly low, the first impressions when it comes to finances in 2015, is that it will be a kinder year to the South African consumer. Discretion will be left to the individual to either use the money to satisfy selfindulgent tastes, or be more watchful when spending and move closer towards personal financial freedom.

South African consumers contemplating 2015's economy and where to direct the excess funds they find in their pockets need to approach this year of concession with a good plan in order to have it work in one's favour. Those with debt should consider unleashing an attack on their debt in order to gain some ground in their financial matters before the economy turns around, and the interest rate cycle makes an upward turn.

The first step towards wiping out debt is to stop making further credit purchases. The next step is to get the balance owed to each creditor. Once that is done, there are different strategies that can be applied to paying off the debt: g Snowballing effect - this is a psychological strategy where all energy and extra money is directed towards the smallest debt owed. As debt is conquered in the order of size, this strategy relies on building confidence to eliminate debt. All creditors are paid monthly as before, with all extra funds remaining from your budget directed towards the smallest debt owed. Once the smallest debt has been cleared, the amount that was paid towards it is added to the payment amount of the next debt in line. This process is applied until the final and largest debt is tackled. The snowball gathers momentum spurring on bigger and bigger payment amounts towards to the next debt in line

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sensible finance march15

for attack.

g Paying High Interest Debt First - this is proven as being the cheaper option as it shortens the payment period of the higher interest debt. The personal loans, revolving credit facilities, clothing accounts, credit card debt that have a minimum amount are misleading as they keep the consumer indebted for longer, while you end up paying much more than the price marked on the tag of the item purchased. With the higher interest debt eliminated first, the lower interest debt will be easier to tackle as more of the amount paid will go towards reducing the principal owed. g Debt Tsunami - money habits are largely governed by emotions. This method focuses on debt according to which one features mostly on the mind when sleep wanes in the early hours of the morning. It could be the loan from a father inlaw or the home loan that must be paid off before retirement in order to have more money to attend to the medical needs of a recently diagnosed chronic disease.

Once all debt is paid off, the funds that were previously passed on to creditors can be used to start a savings plan for emergencies, children's education or boost a retirement savings plan. For those consumers already free from debt in 2015, it seems to be a good year to enhance existing investment accounts, and explore the best investments to meet various objectives. Please contact your financial advisor to assist in drawing up a tactical financial plan for 2015, on one of the following numbers: East London 043-7352000 Port Elizabeth 041-5823990 Cape Town 021-7027880

SENSIBLE ADVANTAGE

WE CAN'T RELY ON THE OIL PRICE STAYING LOW Taking advantage of the decrease while you can. By Bryce Wild, Private Wealth Manager - NFB East London.

South Africa has many structural issues it is facing at the moment, including: g Possible tax increases; g Rising debt levels, food costs, medical expenses and interest rates; g Productivity being hit by labour strikes and load shedding; g Electricity prices set to increase by double digit figures for the next 5 years.

As a result of the cumulative pressure that all of these challenges have put on the average consumer, we have desperately turned to the lower oil price for some respite in our ailing economy. The hope is that this lower oil price will assist in keeping consumers' disposable incomes afloat, as they desperately attempt to maintain the standard of living they have become accustomed to.

The price for a barrel of Brent Crude dipped to $45.19 in January this year. With oil making up approximately 6% of the consumer price inflation basket, this was a material drop and it is predicted that if oil prices were to remain around the $50 per barrel mark for this year, inflation would come down from the 6.1% average last year to an average of 3.8% this year. Since August last year, the lower oil prices have been largely passed onto the consumer in the form of a cumulative petrol price cut of R4.16 per litre (a saving of approximately R208 to fill up a 50 litre tank).

However, just as it seemed that the lower oil prices were set to counter the abovementioned problems (at least for 2015), the oil price rose to

nearly $62 a barrel on Monday the 16th of February. The main reasons for this were the concerns over escalating conflicts with Islamic state militants in Libya, another drop in the US rig count and predictions that oil supply may be lower in the second half of the year. In addition to this, government has indicated that it is considering increasing the fuel levy significantly, but we will have to see what happens when this is announced next Wednesday, 25th February, during the Budget Speech.

This sudden increase in the fuel price indicates that just as quickly as the fuel price came down, it can also go up again and it is important for the South African consumer to do a reality check and not to get a false sense of security from the lower than usual fuel prices. There are many external factors at play when it comes to determining the oil price, including government's fuel levy, OPEC's (Organization of the Petroleum Exporting Countries) vested interest to keep oil prices higher and maintain market share, and the USA's attempt to become self-sufficient with oil and gas. While the US has seemed to have found its way to its feet again after the 2008 â&#x20AC;&#x201C; 2009 financial crisis, there are still fundamental issues in our economy which are likely to take longer to play themselves out.

If you would like guidance on how to take advantage of the lower oil prices, please contact an NFB financial advisor for assistance on one of the following numbers: East London 043-7352000 Port Elizabeth 041-5823990 Cape Town 021-7027880

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SENSIBLE INTEREST

THE POWER OF COMPOUND INTEREST The eighth wonder of the world. By Xolisa Funani, Financial Paraplanner - NFB Port Elizabeth “Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn't… pays it.” ~ Albert Einstein So let us help you understand it; thus, you can start earning it.

In simple terms compound interest is interest earned on interest that is reinvested. The interest is added to the initial investment or principal amount so that one can earn additional interest on a higher investment value.

The effect of compounding depends on the frequency of which the interest is compounded; the frequency of the compounding could be yearly, half-yearly, quarterly, monthly, daily, etc.

Example of how compound interest can work for you: We have three clients of different ages (a new born, an 18 year old and a 40 year old) who all invest an amount of R50 000.00 until they reach the earliest retirement age of 55, under current legislation. All the investments earn a return of 10% per annum, compounded monthly.

Client age Term of investment/till retirement Investment Value at age 55

Client 1

Client 2

*New born (0)

18

40

55 years (660 months)

37 years (444 months)

15 years (180 months)

R11 958921.68

R1 991 595.70

R222 695.98

The graph illustrates the above table

As you can see the power of compound interest is very compelling, but you need to be aware that it sensible finance march15

Example of how compound interest can work against you: John Doe has a credit card balance of -R30 000.00 with “Low interest Bank” at a rate of 20% (compounded monthly). How much interest will he owe at the end of the year?

John Doe takes a student loan of R90 000.00 with “Low interest Bank” at a rate of 15% (compounded monthly) and the bank tells him he only has to start paying back the loan when he starts working. How much will he owe “Low Interest Bank” after three years of university?

Client 3

*If parents or grandparents were to invest for the new born

24

can also work against you; this is the case when you have loans or credit card debt that carry very high interest rates.

Present Value : R30 000.00 - Credit card balance owing Term : 1 year (12 months) Interest Rate : 20% (20/12) Balance Owing : R36 581.73 Interest due is R6 581.73 for the year or R548.48 per month.

Present Value : R90 000.00 - Student Loan Term : 3 years (36 months) – assuming that he is able to get employment immediately after university Interest Rate : 15% (15/12) Balance Owing : R140 754.94 Interest accumulated by the loan is R50 754.94 after three years.

Compound interest could well indeed be the eighth wonder of the world, but time and patience also play a very important role in making it work for you.

Should you require further information about finding a structure in order to reap the benefits of compound interest, please don't hesitate to contact an NFB financial advisor at any one of the NFB offices in East London, Port Elizabeth or Cape Town. East London 043-7352000 Port Elizabeth 041-5823990 Cape Town 021-7027880

SENSIBLE BENEFITS

DISCOVERY VITALITY 2015 80% with Allen Carr's Easyway to stop smoking. = There are four Mental Wellbeing Assessments online. Not only are these quick and easy to do, earning you 500 Vitality points per an assessment, they also provide useful articles to read. Plus, if you complete all four assessments within 30 days you get an additional 500 Vitality points. = If you would like advice on your eating habits and how to eat healthily, contact one of the dietitians on the Vitality Wellness Network where you can earn up to 10 000 Vitality points for completing Vitality Nutrition Consultations. You could also save 30% if you join Weight Watchers S.A. or Weigh-Less and earn Vitality points in the process. = Get active! You can save up to 80% at Virgin Active or Run/Walk For Life, while earning 150 Vitality points per workout, per day. If you activate Vitality Fit you can earn 25% cash back at a range of other fitness facilities including selected CrossFit affiliates. At Curves you get up to 100% off the joining fee. If gym is not for you, you can link your fitness device to Vitality and earn points. You can register on the Parkrun website and get 500 Vitality points for completing a Parkrun event. Or, if you are a golfer, with the Handicaps Network Africa you can earn Vitality points for every round of golf you play, per day. = Go for health checks relevant to you, based on age and gender – HIV test (all Vitality members 18 years and older), Pap smear (female members 65 years and younger), Mammogram (female members over 40), Prostate screening (male members over 50) and Glaucoma screening (all

...Continued from page 10

Vitality members over 40). = Use a range of wellness tools to help you tack

your wellness journey. Track your nutrition intake and earn 100 Vitality points a week, track your glucose readings and earn up to 50 Vitality points a day or monitor your asthma by recording your peak flow rate and earn 10 Vitality points for each Peak Flow Rate reading. Yearly limits apply. = Take up an online Vitality challenge and earn 250 points for completing it. Invite a friend and earn 50 Vitality points if they complete the challenge.

Utilising the benefits: = Get up to 35% off on local and international flights through kulula.com, British Airways, Emirates and Qantas. = Get up to 35% off at over 500 hotels, lodges, resorts and B&B's. = Get up to 25% off car rental through Europcar. = Book all of these travel benefits through kulula.com. = Get useful information, discounts on essential baby products and a gift pack with Vitality Baby. = Get discounts on magazine subscriptions through the discovery/mall. = If you have a DiscoveryCard there are even more discount stores available.

NFB hold Vitality days around April / May to assist our clients to increase their Vitality status, so look out for the email to book a time slot. Our contact numbers are as follows: East London 043-7352000 Port Elizabeth 041-5823990 Cape Town 021-7027880

SENSIBLE STRUCTURE

BUY-AND-SELL INSURANCE Available solutions include Increasing the life cover to accommodate the 20% reduction in payout that will be caused by the payment of estate duty.

Cancel the policies and re-apply for new policies that are correctly structured in order to avoid the estate duty consequences. However, the new policies would be subject to new underwriting which might result in higher premiums being paid.

Request that the insurer issue new policies without the necessity of new underwriting.

However, the possibility of success is very slim unless it can be proven that the incorrect structure of the

...Continued from page 12

policy was as a result of the insurer's negligence.

It is best that one always seeks competent advice when taking out a risk assurance policy in order to ensure that it is correctly structured from inception so that the consequences of a simple error are not discovered when it is too late.

To check that your policies are correctly structure, speak to your NFB financial advisor on one of the following numbers: East London 043-7352000 Port Elizabeth 041-5823990 Cape Town 021-7027880

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SENSIBLE ADVICE

What shall we do with the wayward executor?

A role not to be taken lightly. By Debi Godwin, Director Independent Executor & Trust.

O

ne of the more frequent issues on which I have recently been consulted is the problem executor. This can range from the overwhelmed executor who is innocently delaying the administration of the estate to the more troubling cases where one suspects deliberate subterfuge.

An executor is a person placed in a position of trust and control by a testator. They are given the responsibility of dealing with a person's estate after they have passed away. This will normally require them to apply for Letters Of Executorship; submit any tax returns and pay any tax due; gather in the deceased's assets (perhaps selling shares or property in the process); pay the deceased's debts; and then to distribute the estate in accordance with the terms of the will. The role of an executor is, therefore, not one to be taken lightly. If not done properly, it can attract a personal liability to make good any loss to the estate.

Each administration is different and timescales depend on a multitude of factors. Communication is key. In an ideal world, an executor will keep beneficiaries informed of progress and be transparent. If an estate administration seems to be taking too long, as a first step consider approaching the executor to ask the reason behind the delays; there may be an innocent explanation. However, in a minority of cases, there are those who refuse to correspond with beneficiaries, answer their questions, or deal with the estate administration as they should. In those circumstances, a beneficiary will understandably want to take some steps to ensure matters are

properly progressed.

There are also some cases in which the executor is up to no good, perhaps benefitting himself from the estate or siphoning off assets. The good news is that there options available to the beneficiary dealing with a wayward executor. The court has the jurisdiction to intervene and make orders compelling an executor to take certain steps, or desist from taking a particular step. This can be enough to allow the estate administration to be finalised. An alternative option is to apply to have the problem executor removed and replaced with a more suitable candidate. Again, the court has the discretion to do so and will consider the facts of each individual case to determine whether such a step is appropriate.

Where a beneficiary suffers a loss as a result of an executor's improper conduct, steps can be taken to seek to recover that loss. However, the above options involve litigation and the attendant costs and risks. It is therefore important to obtain specialist legal advice when considering taking steps to deal with an ineffective, difficult or obstructive executor to ensure that the course of action is appropriate for the individual circumstances.

At Independent Executor & Trust we are committed to personalized service and individual attention. With combined experience of 65 years, we specialize in the Drafting of Wills, Administration of Estates & Testamentary Trusts.

49 Beach Road, Nahoon, East London, 5241 | PO Box 8081, Nahoon, 5210 Telephone: (043) 735 4633 Fax: 086 693 3356 / (043) 735 3942 | e-mail: info@iet.co.za

Port Elizabeth clients can call 041-582 3990 and you will be re-directed accordingly

SENSIBLE Q&A

Travis McClure

“Sensible Finance - Questions and Answers” is an advice column that will allow our readers the opportunity to write to a professional and experienced financial advisor for advice regarding investments, personal finance, life and/or risk cover. Travis McClure will be answering any questions that you may have.

Q: Within the last week I have had a few clients expressing their concerns around the state of our nation and whether it was time to cash in on assets and sit tight for a while?

A: After starting up the generator to put the lights on I tried to respond to clients via my cellular phone, but the network was blocked. When I did get through to complain all I heard was laughing and when I called the police to take it further they were not available as they were all in Parliament!!

Although never good to mix politics with markets and economics, one can't but help be frustrated with the state of the nation at present. It obviously does not look good, but all countries have their issues and one needs to look past the noise and emotion and look at the underlying fundamentals.

We continue to find ourselves in a low interest rate environment which continues to be good for growth. Oil prices have dropped and hence our inflation rate has come down. We still have a very good financial system and we have some excellent companies that can compete on the global stage.

The easy option is to bail and put the money in the bank and sit tight. The problem with this option is that you start to lose against inflation and then when does one get back into the game? That is also not to say that the bank is the best guarantor of your funds.

The old saying of “once invested stay invested” always rings true. If one misses the top 10 days of a market recovery over a 10 year period this would have eroded 43% of the value, compared to someone who stayed fully invested for the same period. Miss the top 20 days and this becomes a 63% difference and 40 days would lead to an 81% difference in the final value.

Over the last 115 years our stock market has returned a real return of 7.4% p.a. above inflation.

This was in spite of wars, global financial crises, a volatile currency, apartheid, international isolation, the transition to democracy, strikes and electricity

blackouts. (source: Credit Suisse Yearbook) The above, however, should not imply that we just ignore everything going on around us. There are times where you need to review your portfolio and see if it still matches your risk profile. There may be the need to trim asset allocations where certain asset classes have outperformed. There is nothing wrong with diversifying your portfolio and taking some profits here and there. The important thing when diversifying or taking profits is to still keep the proceeds invested in other growth assets. To sit back and try and time the perfect re-entry is a dangerous game.

We live in a world of instant and constant information flow. The world is a much smaller place, but the investment universe is that much bigger. If you are worried about our economy then there is the option of diversifying offshore. It is a lot easier to invest overseas in more developed markets where currently we feel there is more relative value offered. Investors can use their R1 million travel allowance to invest or via their R4 million tax clearance allowance. This gives each investor R5 million per calendar year to invest. So you can have exposure to offshore alternatives like Heineken, Nestlé, Google and Shell instead of SAB, Tigerbrands, Di Data and Sasol. The access to these portfolios are also done via very tax efficient administration platforms. The investments are based offshore, but managed locally.

We forget that a lot of our assets are based in SA: our businesses, our pensions, our houses. There is definitely a case to diversify. Live local, but think and invest globally. However, don't overreact and try to time it. Rather review your portfolio with your advisor and make rational investment decisions.

Please address all Questions to: Travis McClure NFB Sensible Finance Q&A, Box 8132, Nahoon, 5210 or email: info@nfbel.co.za

sensible finance march15

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SENSIBLE ADVICE

SIRIUS REAL ESTATE A new rand hedge prospect. By Mandy Botha, Portfolio Manager - NVest Securities.

I

n this article we shift our focus from the local heavyweights towards a newly listed offshore real estate company with properties well spread geographically across Germany, Sirius Real Estate.

Primarily listed on the alternative investment market (AIM) of the London Stock Exchange, Sirius is the owner and operator of mixed-use business parks, offices and industrial complexes throughout Germany. With over one million square metres of lettable space, the Sirius brand offers workspace and services aimed at small and medium sized enterprises. This is achieved by transforming and upgrading older industrial property and offices into modern workspaces with additional new services, better logistics and ancillary products (secure self storage, meeting rooms etc.). Sirius listed in London in May 2007 at the height of the property boom using the funds raised to purchase 38 business parks. The share had a difficult 2009/2010, when debt restructuring and friction amongst former shareholders saw Sirius' share price plummet 70%.

Despite this, after a series of successful debt and capital raisings, the stock staged a strong recovery over 2013, positioning the company for its next challenge.

With approximately 40% of the company owned by South Africans at the time, including a number of boutique asset managers such as ClucasGray and Coro Capital, listing in South Africa seemed like an obvious choice. Sirius listed with the intention to increase the liquidity and tradability of its shares, to give South African investors an opportunity to participate in the company's growth, to provide its existing South African shareholders with an additional platform to invest and trade, and lastly, to further diversify its shareholder base. The JSE's first ever fast-track listing saw Sirius obtain its secondary listing on the Alternative Exchange (Alt-X) of the JSE on the 5th December 2014. The €40 million raised in the listing supported the acquisition of an additional five business parks at a cost of €75.6 million.

The dividend policy set out in Sirius' pre-listing presentation is to distribute 65% of flows from operations annually with a scrip dividend option.

Consensus market forecasts for the full 2015 year

28

sensible finance march15

anticipate 1.6 euro cents per share or R0.208 per share in dividends for the year, generating a yield of 3.7% based on the current trading price of 43 euro cents or R5.65 per share.

Six years ago investors seeking exposure to offshore real estate without having to take their money out of the country had a single option, Liberty International. In what is fast becoming a bountiful sector, local investors have had the opportunity to invest in rand hedge property stocks including UK mall owner Intu Prop, Romanian focused New Europe Property Investments and Redefine International. Sirius presents a new rand hedge prospect generating 100% of its earnings in a hard currency and with 100% of its properties located in Germany. It has a stabilised and robust capital structure in place and is positioned to deliver strong dividend streams and capital returns for an investor with a long-term investment horizon.

With a market capitalisation that has grown from €50 million just over two years ago to €250 million today, at NVest we feel Sirius can be included in a larger, diversified, growth-focused share portfolio with a weighting of between 3-5%.

Please note, market data used in this article was correct as at the 4th February 2015 and an exchange rate of R13.00/€1 was used for illustrative purposes.

Graphics correct as at 30 September 2014

Source: JSE Listing & Capital Raise Presentation – Sirius Real Estate

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