Momentarily | January 2012 by Brett Rothmann

Momentum Health Delivers More health returns, improved solvency & extra trauma benefits

Momentum Wealth Investment Summit Whatâ&#x20AC;&#x2122;s next for the current economic environment?

PROFILE NEW MOMENTUM RETAIL CEO MARK VAN DER WATT Investment Think Tank Momentum Global Investment managers collaborate

THE TIME IS NOW

Planning for the year ahead: Momentum puts your future in perspective.

financial adviser mouthpiece January 2012

contents

12 New retail CEO 20 Momentum health boasts positive outlook 28 Think tank 2011

32 Momentum Wealth investment summit

14 MMI Holdings Charts New Vision 16 Financial advisorâ&#x20AC;&#x2122;s role in changing society 18 Dealing with debt 22 Momentum 94, 7 Cycle Challenge 24 Staying active in the New Year 26 Investment platforms face headwinds

22 26

I n v e s t m e n t p l at f o r m s in t h e U S an d Au s t ra l ia ar e at an a d van c e d s ta g e o f t h e ir d e v e lo pm e n t, an d c e r tain p r o v i d e r s h av e b e e n v e ry s u cc e s s f u l in t h e i m p l e m e n tat i o n o f t h e ir s t rat e g i e s to g ain mar k e t s h ar e .

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contents In most cases, especially if there are children, there will be a maintenance order, and in some cases a spouse may also be awarded maintenance. For the payer, it is important to provide for this future maintenance liabilit y in his/her will, either by way of a testamentary trust for minors, or a direc t bequest in the case of a spouse.

34 Momentum short-term insurance 36 Impact of divorce on financial planning 40 Approaching asset allocation 42 The truth about living together

50 Momentum Positive Return Fund 56 New Year, new beginnings

Note from the editor

Foreword: CEO

10 Travel guide 11 Taste test 54 Cutting edge

55 Revved up

JANUARY 2012

Note from the editor

Partnerships that reflect Momentum’s vision

Nosipho Damane I trust that you enjoyed a welldeserved break with your loved ones, had the time to reflect on the past year’s events, successes and challenges and were able to set aside some time to think about how you plan to make 2012 a great success.

Welcome to our very first edition of Momentarily for 2012. This is also my very first time as editor for Momentarily magazine, and I must say I am ecstatic about this new role and am looking forward to bringing you relevant and up-to-date information, tips and topical news that affect you in your business – directly or indirectly. I trust that you enjoyed a well-deserved break with your loved ones, had the time to reflect on the past year’s events, successes and challenges and were able to set aside some time to think about how you plan to make 2012 a great success. If the festivities were too much to take or the holiday too short, resulting in you not being able to spend time pondering on your goals for this year, you can find practical tips on how to plan for the New Year and how to stick to your New Year’s resolutions on page 24 and 56. These articles should help lessen the burden and anxiety that accompanies panic associated with setting out new goals for a new year. Also covered in this edition are two legal articles; ‘The impact of divorce on financial planning’ on page 36, and ‘The truth about living together’ on page 42 and the consequences thereof when one partner dies. Going forward, we will have regular features dealing with topical legal matters such as these in order to keep you informed and to add extra value to your financial planning. Regulatory Examination Level 1 (RE1) The Deputy Registrar of Financial Services Providers (FSP) G E Anderson, has

PUBLISHER Bernard Hellberg bernard@tcbgroup.co.za EDITOR Nosipho Damane nosipho.damane@momentum.co.za +27 12 671 8936 MANAGING EDITOR Nicola Weir nicola@tcbgroup.co.za DESIGN & LAYOUT Renier Keyter renier@virtualdavinci.co.za Language Sugnet Kannemeyer Distribution Lebogang Tefo

SALES MANAGER Estelle van der Westhuizen +27 84 821 7257 estelle@tcbgroup.co.za REPRODUCTION Virtual Da Vinci Creative Room +27 12 425 5800 info@virtualdavinci.co.za www.virtualdavinci.co.za COVER IMAGE © Gallo Images/AFP PRINTING Business Print Centre, Pretoria CONTRIBUTORS TO THIS ISSUE Nosipho Damane, Bertus Visser, Bronwyn Burns, Lebogang Tefo, Frank Magwewe, Magan Travers, Damian McHugh, Karishma Bhima, Serele Baker, Kevin Hinton, Mickey Gambale,

extended the deadline for the completion of RE1 to 30 September 2012. This extension will only be applicable to advisers who have already written RE1 before 30 June 2012, but were unsuccessful or did not complete the examination. Please note the current deadline for advisers who have not set for this examination remains 30 June 2012.

Other News Towards the end of last year, the Minister of Finance Pravin Gordhan presented the medium-term policy budget statement (MTPBS) in parliament. Key issues such as growth, inflation, taxes, spending, job creation, current account and budget deficits were addressed. Here are some of the highlights from his medium-term budget policy statement: Relaxation of local listing rules; Gross domestic product (GDP) expectations downgraded; Higher budget deficits; Implications for local bond issuance; More focused spending The MTPBS was well-received in parliament, as it emphasised efficient use of resources and spending restraints against a worsening global and local economic backdrop. Be sure not to miss the Minister of Finance when he delivers this year’s budget speech on 22 February 2012. Enjoy the read!!

Nosipho

Thabiso Mantyi, Ryan Jamieson, Sharon Teubes. AFRICAN SPIRIT MEDIA / TCB GROUP 343 Lynnwood Road, Lynnwood, Pretoria, 0081 Tel: 021 876 3137 Fax: 0866 790 006 mail@tcbgroup.co.za www.tcbgroup.co.za Momentum Head Office: +27 12 671 8911 268 West Avenue, Centurion, Gauteng, 0157 www.momentum.co.za Momentarily is a quarterly publication for financial professionals. This edition of Momentarily will be published on our intermediary website www.mdsonline.co.za and on www.momentarily.co.za. Please note that in this publication, the terms financial planner and financial adviser are used interchangeably – both meaning a professional who renders investment advice and financial planning services to individuals and businesses.

Momentarily magazine is published monthly by African Spirit Media, part of the TCB Group, on behalf of the Momentum Group. Opinions expressed in this publication are not necessarily those of African Spirit Media, the TCB Group, FirstRand, MMI Holdings, the Momentum Group, or any of the subsidiaries of the aforementioned companies, their strategic partners or their clients. Information has been included in good faith by the publisher and is believed to be correct at the time of going to print. No responsibility can be accepted for errors and omissions. No material (articles or photographs) in this publication may be reproduced or transmitted, in whole or in part, in any form by any means electronic or mechanical, including a storage and retrieval system, photocopying or recording without prior written permission of the Editor. Submissions of articles and photographs for publication are welcomed, but the publisher, while exercising all reasonable care, cannot be held responsible for any loss or damage. Please ensure that all material is sent by e-mail to alisea.chetty@momentum.co.za. Copyright © 2012. All copyright for material appearing in this magazine belongs to African Spirit Media, part of the TCB Group, and/or the individual contributors. All rights reserved.

Foreword

“Our goals can only be reached through a vehicle of a plan, in which we must fervently believe, and upon which we must vigorously act. There is no other route to success.” – Stephen A Brennan

Bertus Visser Head of Momentum Distribution Services As you se t your goals for this year, I want to encourage you to gather your thoughts and be aware of the recent developments in our industry

Welcome to 2012, a year that I am optimistic will be a good one for all of us! I hope you are well rested, revitalised and ready to make this year a great success. As per usual, the majority of us have set personal goals for the New Year and I would like to take this opportunity to wish you the very best in achieving them. Bear this in mind: in order to achieve your goals, you need to draw up a detailed plan of how and when you want to achieve them. Having done that, you need to evaluate your plans to see if your goals will be attainable within the time you allocated. If need be, go back to the drawing board and ensure that you align your plans with your goals accordingly. A very important fact to consider is being realistic and honest with yourself when you draw your plans to ensure that you are able to execute them. The recent worldwide economic recession has prompted a need for regulations in the South African insurance industry. Such regulations are meant to protect the consumer and the industry as demonstrated below: • Regulatory Exams for intermediaries – introduced to protect consumers from dishonest advisers and to maintain professional standards in the insurance industry; • Solvency Asset and Management (SAM) – capital rules for insurers intended to protect consumers and strengthen the insurance industry; • The Consumer Protection Act (CPA) – affects a wide range of consumers and transactions, providing an overarching framework for consumer protection; • The National Health Insurance (NHI) – will be introduced to provide all South Africans, from all income brackets, with access to healthcare. WHAT LIES AHEAD... As you set your goals for this year, I want to encourage you to gather your thoughts and be aware of the recent developments in our industry. Recently, the Financial Services Board (FSB) called for contributions from industry stakeholders on possible refinements to the definition of intermediary services and remuneration structures for both longand short-term insurance in South Africa. They believe that the time has come to make progress on the issues of intermediary status and related remuneration in the interest

JANUARY 2012

of regulatory certainty and strengthened consumer protection. The objectives of the review are to: • promote appropriate, affordable and fair advice and services to potential and existing policyholders; and • support a sustainable business model for financial advice. In light of the above, it is now crucial that there be a clear definition of what should be considered an intermediary and the appropriate remuneration thereof. As this is what will be making headlines in the insurance industry this year, and since you are our key partner, we will ensure that you are always updated and informed of industry changes and developments. The FSB will also ensure a smooth and sustainable introduction of the Treating Customers Fairly (TCF) initiative. The intention behind the introduction of TCF is to ensure that: • Products and services (including distribution models) rendered will be appropriate to the needs of the target market; • advice will be appropriate to the client’s specific needs; and • products will be delivered according to the client’s reasonable expectations.

ON A LIGHTER NOTE... Last year we covered topics that showcased how Momentum continually endeavours to improve our value proposition by embracing technology. This year we will be empowering our Marketing Advisers with smart phone technology (MDS Messenger) in order to improve their communication with you and your clients. This tool will enable MAs to communicate efficiently and swiftly with you via SMS or MMS. As you will have already experienced, our MAs are able to send you personalised messages, ranging from product information to greeting cards. The tool will also allow MAs to manage bulk marketing campaigns. In conclusion, I want to assure you that Momentum is committed to supporting and partnering with you and your clients. Together we can make a great success of 2012. Enjoy reading our first issue of Momentarily for 2012.

Bertus Visser

Travel guide

The Saxon Spa

A n n oun ce s C o n ve n i e n t Op e r ati n g H ou r s

The Saxon Boutique Hotel, Villas and Spa has great news for Johannesburg residents seeking a pampering experience after a long day at the office. The spa at the Saxon has announced new operating hours and will be open from 07h00 to 21h00. The Saxon Boutique Hotel, Villas and Spa has been awarded the Best Boutique Hotel in the World, every year since 2001 and is one of the Leading Hotels of the World. For more information on The Saxon Boutique Hotel, Villas and Spa please log on to www.saxon.co.za.

T o E n d s of t h e

Earth

The Mantis Collection is allowing travellers a unique opportunity to join White Desert on a day trip to Antarctica to experience the last wilderness on earth! For one day only, White Desert is offering passengers the chance to set foot on the continent of Antarctica. The experience starts in Cape Town with an overnight stay and a full briefing on what to expect. Flying in from Cape Town, you will have eight hours to experience the real Antarctica – a place usually reserved for scientists and the odd polar explorer. A five hour flight takes you across the South Ocean and over the icebergs as you fly into 24 hours of continuous sunlight. Guests will be met by the White Desert guides and taken to the ‘Guesthouse’ which lies perched on the edge of an immense sea of ice. From here your Antarctic adventure will begin! After a day to remember you will be flown back to Cape Town, arriving late in the evening. No specific fitness level is required and some items of polar clothing will be provided. For more information call +27 71 298 8216.

JANUARY 2012

Essque Zalu Zanzibar Zalu Zanzibar, part of the Essque Hotels Group, is a recently launched boutique hotel situated in a natural cove on the north east coast of Zanzibar. This boutique hotel boasts views over the Indian Ocean to one side and lush green forest to the other. The hotel has just 40 suites and 9 three and fourbedroom villas, making it easy for staff to offer a bespoke and personalised service to their guests. Each suite has a large ensuite master bedroom, a generous lounge and outside terrace or balcony overlooking the gardens, pool or ocean. Each villa has its own private pool and massage room as well as dining facilities, where guests can prepare their own meals, or ‘dial a chef’ to create an in-room masterpiece. The three distinctive restaurants include The Gourmet Deli, which will serve fresh local organic produce; the A La Carte restaurant and the more relaxed Jetty where guests can dine al fresco on the shoreline and enjoy an Arabic menu theme. For more information, visit www.essquehotels.com.

Taste test

KWV’s Café Culture Voted Best Red Wine KWV’s Café Culture 2010, the sociable Coffee Pinotage, was awarded Best Red Wine on Show at this year’s ninth RMB WineX which took place in Cape Town. Café Culture is excellent enjoyed on its own or as an accompaniment to meat and pasta dishes; as well as chocolate and berry desserts. The 750ml is available at leading retail outlets as are the I-Tube and the 375ml four pack. Visit www.kwv.co.za for more information.

The Restaurant @ Clos Malverne Means Business Want to get that contract signed or touch base with your client over a quick lunch? The new 60 Minute Business Lunch Menu at The Restaurant @ Clos Malverne offers just that – a light yet wholesome lunch experience in the tranquil Devon Valley outside Stellenbosch, that will have you inspired, relaxed and back at the office in no time. On offer from Tuesdays till Fridays, the 60 Minute Business Lunch Menu changes on a regular basis and each dish on the menu is served with a glass of matching Clos Malverne wine. For more information and reservations, call +27 21 865 2022. Bookings essential.

Bottle of Green BOTTLED Thunder Unequalled and unique, Thunder Toffee Vodka is all about style and simplicity of taste. Thunder is the only Toffee Vodka on the market free of additives and preservatives. It is made from triple distilled premium vodka and completely natural toffee syrup. Best served cold as a shot, over ice or in a cocktail. Thunder is the culmination of many years of mixing and meticulous preparation to find the perfect consistence of toffee vodka which could then be bottled, branded and introduced to the market. Infamously popular amongst the skiing fraternity, toffee flavoured vodka mixes have been rife in their experimentation in the bars of the French Alps for decades, but it is not until now that a recipe has been developed that satisfies the taste buds in both vodka strength and toffee syrup delicacy. Available at all reputable licensed liquor outlets.

Coca-Cola has launched the innovative new PlantBottle packaging for Valpre Spring Water. This packaging has revolutionised the beverage industry as the first-ever recyclable PET plastic beverage bottle made from up to 30 percent plant material that is 100 percent recyclable. This is the 10th market to launch the bottle in the world and the first in Africa. PlantBottle™ packaging has a lighter footprint on the environment due to its reduced dependence on non-renewables such as petroleum. Visit www.valpre.co.za to watch Michelle Garforth’s documentary on the PlantBottle and Valpre’s new green production plant.

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Profile

Mark van der Watt Decisions Enabled From Head of Insurance at Momentum to CEO of Momentum Retail, Mark van der Watt starts the New Year with a new challenge as he steps up to this role.

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Mark replaces Johann le Roux, who concluded his tenure on a high note with key merger decisions finalised and business strategies set in motion as 2011 came to a close. As Johann heads off on a well-earned sabbatical, Mark is ready to take on his new responsibilities. Mark has been with Momentum for 16 years, during which time he has assumed various leadership roles across a number of disciplines, including valuations, as well as investment and risk products. As a result, he has developed an in-depth knowledge of the products, systems and distribution channels in Momentum Retail. Momentum Retail provides wealth creation and protection, savings and income products to the upper-income retail market. Momentum Myriad (life insurance/risk protection), Multiply (client rewards), Momentum Short-term Insurance, Momentum Wealth (lumpsum investments), Investo (recurring investments), as well as distribution and sales reside in Momentum Retail. Under Johann’s leadership, Momentum Retail underwent a seamless merger process, which means operations are now at the top of Mark’s to-do list. He says: “MMI has set clear strategies for the next three to five years. It is now about looking at what we need to do operationally. We need to consider what steps we have to take over the next year to ensure we stay on target and reach our greater strategic goals.” He says this will be achieved through dialogue and then ensuring that the responsible people do it right. Regarding the industry and the challenges that lie ahead, he adds: “I will spend time gaining an in-depth understanding of my colleagues’ businesses, their challenges and what I have to do to enable them to make their businesses successful.” Mark is undoubtedly a leader and he values people. His philosophy around business is: “If the building was to burn down, another one would be easily acquired, but it is the people who are the core of Momentum.” In Mark’s case, these are not empty words, since he

knows that Momentum is a business of team players and he plans to keep it that way. This not only includes internal staff, but also external intermediaries. “Momentum’s DNA is strongly based on the strength of financial advisers. They are key partners. If we do not have financial advisers, we really do not have a business.” “We therefore have a dynamic group of people, both within the company and as intermediaries for the products and services we offer. Together, they have a huge amount of knowledge about the industry, think refreshingly differently about the way we do business, are strategically strong and embrace change,” Mark adds. “I’ve come across many other companies where the people are not comfortable with change, while at Momentum we work with change. That, to me, is a major advantage – being able to move quickly and adapt when the need arises.” Mark believes that diversity encourages different thinking, challenges the way things are done and promotes better solutions to business needs. However, he also strongly believes that it is important to have a shared vision that everybody works towards. There are different ways to achieving this vision and in this lies one of his guiding principles, which is set to take Momentum Retail to greater heights: “Once you have a strategy in place, the direction is there. How you operationalise and put the strategy in action is where we encourage people to think differently.” This is why attracting and retaining diverse talent are also high on Mark’s list of priorities. He believes it is important that Momentum transforms as a business and that it is imperative that Momentum should represent the community it serves. While Momentum values accountability and the spirit of entrepreneurism, Mark is aware of the need to grow people from within the business, and to ensure that the systems, processes and leadership support this. “Momentum has the ability to attract people, but then it is vital to ensure that

they stay and grow with us.” Mark believes one of the things that keep many CEOs awake at night is what will happen to the economy over the next year or two. “I think we are still going through rough times for a while, particularly in our target market. The upper end of the market has been hard hit, but there are positive signs, such as decreasing policy lapses. However, innovation is essential now.” By innovation he means not only product innovation, but also thinking innovatively about how Momentum attracts and processes business, and being able to encourage staff and intermediaries to think innovatively. Mark adds that people think of innovation as something revolutionary, but it is often the small things that can cause massive changes in a business. In the age of movers and shakers, where up-and-coming leaders are inclined to job hop as they fast track their careers, Mark’s view of Momentum’s culture is evident not only in what he says, but also in practice. “Momentum has a unique culture and many opportunities exist within the company. We do things differently, from the ground up. I have been able to gain experience in many different fields without moving companies. These are some of the reasons that keep me here, even though outside opportunities have presented themselves over the years.” Mark leads by example, and commitment, excellence, integrity and team work come naturally to him, yet he is not oblivious to the challenges he will face. Mark has a tough role to fill as the new CEO, but he has the Momentum values at heart and will undoubtedly turn Momentum Retail’s strategy into action. Step by step.

Text: Bronwyn Burns Financial Features Writer Image: © Momentum MDS

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Special Feature

MMI Holdings

Charts New Vision

JANUARY 2012

MMI Holdings Limited (MMI) communicated its group strategy to be a leader in meeting financial services needs on the back of a good set of maiden full-year results to June 2011, with core headline earnings increasing by 12% to R2,6 billion. Born from the merger of Metropolitan and Momentum, MMI listed on the Johannesburg Stock Exchange (JSE) on 1 December 2010. It now has six operating divisions, offering a wide range of financial products and services to all market segments in South Africa, as well as chosen African and other selected international markets. Speaking at the presentation of MMI’s full year results, Chief Executive Officer Nicolaas Kruger, said that the group had charted a way forward to maximise the benefits of bringing Metropolitan and Momentum together. “As a group, we have identified four strategic pillars, being the areas in which we have to excel if we are to achieve our strategic objectives. These pillars - indepth market knowledge, innovative solutions, effective distribution and an entrepreneurial culture - are the solid foundation on which MMI will build,” said Kruger. “These pillars will be the key to success in attaining our six strategic objectives, which we have defined as: developing strong client relationships; building market-leading divisions; maximising integration benefits; optimising capital management; competing in profitable markets; and growing our people,” continued Kruger. The year-end results that accompanied the release of the MMI strategy were good, despite a continued volatile economic environment. These MMI statutory results are made up of Momentum’s results for the 12 months ended 30 June 2011 and Metropolitan’s results for the 7 months ended 30 June 2011. “In order to provide a meaningful basis for comparison, the full year results for the combined MMI reflect the performance of the Group for the year ended 30 June 2011, compared with the corresponding previous year

ended 30 June 2010. These results have been prepared on the basis that Metropolitan and Momentum had been combined since 1 July 2009,” said Kruger. The group’s value of new business grew by 35% to R632 million, while its new business annual premium equivalent was 15% higher at R5,8 billion, and core headline earnings increased by 12% to R2,6 billion. “Thanks to prudent capital management, MMI remains in a sound financial position. The Capital Adequacy Ratio (CAR) cover of both of our life companies stands at 2,3 times, ahead of the implementation of the Financial Services Board’s risk-based solvency assessment and management (SAM) regime in 2014,” said Kruger. The robust results were underpinned by balanced contributions from all six MMI operating divisions. “Both our retail businesses posted strong results, with Metropolitan Retail achieving significantly improved new business margins, and Momentum Retail remaining responsible for the largest share of the group’s value of new business and operating profit. Our decision has paid off to keep the Metropolitan Retail and Momentum Retail distribution channels separate, so that they would be able to focus on delivering and developing products that meet the unique needs of their respective target markets,” said Kruger. The investments division has just concluded a rebranding to unite its various business units under the Momentum brand. “With R275 billion assets under management, I believe Momentum Investments has taken a significant step forward in bedding down what I believe will become a strong player in traditional asset management, alternative assets, collective investments, properties and as a manager of managers,” said Kruger. Momentum Employee Benefits saw very strong growth in its umbrella fund and risk offerings of 38%, and total new business volumes grew by 15% on an annual premium equivalent basis. “The division also realised some cost savings

in its systems, and an improvement in its operating efficiencies as a result of the merger,” said Kruger. MMI has an extensive African footprint, with Metropolitan International offering both health and life insurance in 12 countries outside South Africa. The international health business saw a 7% increase in lives covered, but recorded negative results, primarily due to higher than expected claims experience. New life insurance business grew 28% on an annual premium equivalent basis, with large new business contributions from Botswana and Nigeria. “The recent release of the National Health Insurance (NHI) green paper is a positive step forward in providing affordable healthcare for a greater proportion of the South African population. Metropolitan Health has a wealth of expertise and experience in servicing and managing risk for most of the country’s largest medical schemes at low cost, and a proven track record of delivery, with a total client base of more than three million lives,” said Kruger. “The integration processes within the group as a whole, as well as within the various divisions, are progressing well. Reorganisation, restructuring and the finalisation of business and information technology strategies are on track. Merger synergies have also been identified that will enable us to achieve cost savings of R500 million over the next three years. We remain acutely aware of the people challenges posed by change, and continue to engage with our staff in a concerted effort to confront these challenges head on and deal with them expeditiously. MMI has, however, been infused with new energy and excitement, and our people are united behind us in our striving to take the group to where we want it to be. We are currently undergoing processes to define our core values to help achieve MMI’s vision of becoming a leader in meeting financial services needs,” concluded Kruger.

Text: MMI Corporate Communications Images: © iStockphoto.com

JANUARY 2012

Special Feature

Financial advisers can help change society for the better

JANUARY 2012

South Africa has a dismal savings rate, especially at household level (0,2% of GDP). The low household savings rate contributes to consumers not having enough money to maintain their standard of living levels after retirement, and requiring the state to provide them with safety nets. The Global Competitiveness Report for 20102011 notes that South Africa’s gross savings rate was 16% of GDP in 2009, compared with that of its BRICS counterparts: Brazil (15%), Russia (22%), India (37%) and China (52%). A high savings rate is essential for sustainable growth of a nation, and to fight poverty and inequality. Yet, research suggests that households reduce their savings rates when consumer sentiment is high (a reflection of future good times and prosperity). For financial advisers, the importance of understanding household behaviour and its relationship to household savings cannot be overstated. The financial adviser, in designing financial plans for clients, makes clients aware of this tendency to reduce the percentage of income devoted to savings today when people believe that the future is economically bright. Furthermore, financial advisers closely watch events that affect consumer sentiment, and advise their clients to stick to their financial plans. For example, sudden stock market rallies or corrections, as well as the Reserve Bank announcements about the economy, have the potential to change consumer sentiment and thus influence household savings rates. Financial advisers play a critical but often unappreciated role in encouraging savings, instead of consumption, when households experience permanent increases in real disposable income. This is because increases in real disposable income typically accompany declines in savings rates, suggesting that households continue to save the same rand amount (e.g. R1 000 a month to savings), even when their real disposable income goes up.

Financial advisers and their industry body, the Financial Planning Institute (FPI), play a significant role in increasing financial literacy (the general understanding of financial and economic concepts) in South Africa. Research suggests that there is a direct link between financial literacy and financial behaviour. The benefits of financial literacy span a number of areas, including retirement planning, savings, home ownership and credit use. Credit bureaus’ records show there are 18,6 million credit active consumers, across the various age categories. Of these, 46,4% consumers have impaired records. Through actively encouraging financial literacy, financial advisers can assist clients in avoiding unnecessary credit, as well as in consistently paying off any credit that they take on. A financially literate population understands financial and economic concepts and takes actions that improve its own and the country’s financial health. Nevertheless, when we look at South Africa’s low household savings rate, it’s clear that financial advisers must do much, much more. Above all, I believe that financial advisers need to look urgently for new ways to provide financial advice to middle-income households, particularly the emerging black middle class. To my mind, this is a deep, unsullied “blue ocean” (as described by W. Kim and R. Mauborgne in their influential management book Blue Ocean Strategy) where they can create new demand in an uncontested market space. Addressing the financial needs of the middle class enables financial advisers to expand their scope and potential client base dramatically and, naturally, this allows them to enlarge their role in changing society for the better by contributing to the increase in household savings rates.

For financial advisers, the importance of understanding household behaviour and its relationship to household savings cannot be overstated.

Text: Frank Magwegwe Momentum Wealth Image: © iStockphoto.com

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Dealing with Debt Nothing is more daunting than debt. As South Africaâ&#x20AC;&#x2122;s reputation plunges due to shocking debt figures, it is time to stop, face the facts, and take steps to get ourselves on the right financial track.

JANUARY 2012

Wealth

consumer

debt

report

published in 2011 by debt counselling agency Credit Matters reported that over 8,9 million people are trapped in a debt nightmare, with bad credit records and accounts in arrears mounting. The basis for the report was the findings of financial industry experts, debt counsellors, media reports, Statistics SA and the National Credit Regulator (NCR). At the time of the report, Roger Brown, chief executive of Credit Matters, said: “We are in the midst of a debt tsunami. The sirens have rung, the wave has come and now it is simply sink or swim.” The report also revealed that South Africans pay 75% of their salaries to debt; more than 16,4 million accounts, from electricity to retail store accounts, were impaired and more than six million were more than a month or two in arrears. It also showed that household debt, which was at R952 billion in 2008, had reached the R1,2-trillion mark. This is money owed to financial institutions for house bonds (more than half the total), overdrafts, leases, instalment sales and credit cards. The report painted a daunting picture, and Brown cautions: “Life has become a lot less affordable. It is becoming extremely difficult for many South Africans to get themselves out of debt.” The bottom line is that we need to take active steps to getting out of bad debt and into real wealth acquisition. Debt is a feature of our modern consumer society, and if used wisely, it can form part of your wealth creation plan. The ultimate goal is to find the balance between good debt and bad debt, while not letting monthly expenses exceed your means. Unfortunately, the effects of bad debt actually hit many of us less like a tsunami and more like a dripping tap. Expenses accumulate slowly, credit accounts get out of hand and the rise in cost of living only compounds the problem.

Face the fear Debt is more than just a financial problem; it often becomes an emotional one with feelings of shame, guilt, fear and helplessness. The first

step for anyone to build their financial future is to acknowledge the reality of their current situation. Gather all bank statements, account records and other financial papers. Take note of account balances, monthly expenses, loan interest rates, fees, fines and all contractual obligations. Make a list of how much is owed on each account. Financial advisers at Debtors Anonymous start by subtracting the sum of debts and monthly expenses from the monthly income. This figure indicates the true extent of debt.

Prioritise payments Ted Connolly, American finance lawyer and author of The Road Out Of Debt, contends that the next step is prioritising debts and paying for essential life needs first. Avoiding bond instalments, car payments, taxes and municipal bills to cope with other debt will become a one-way ticket to jail. Rather cut back on non-essential purchases and redirect the spending to accounts that are in arrears. Find out which debts have the least favourable terms, and focus on paying off those with the highest interest rate first, while still ensuring you cover minimum payments for others each month. Where possible, consolidate debt into one account that offers a more favourable interest rate. Find out how much of each payment goes to interest, whether interest rates are fixed or variable, and whether there are tax benefits.

Personal budgets Any successful company relies heavily on its budgets and financial plans, and there is no reason why this should apply to personal finances. Work out what portion of income you can spend on debt repayment each month. Financial coach Greg Sneddon says: “Debt is the most expensive thing you can buy!” One of the reasons we end up in debt, is because we fail to plan and budget. Budgeting can be as simple as calculating monthly income against monthly expenses. Categorise expenses and record actual spending against the budget. This is also an opportunity to assess spending habits and cut back on luxuries. Simple steps such as taking a

packed lunch to work and/or giving up your morning cappuccino could ease the pressure. “Because there are so many different variables that impact on a financial plan, it needs to be seen as dynamic. Financial planning is a process and not an event,” adds Sneddon. The budget should adjust as debts are paid, and the financial plan should be revisited annually.

Debt review While the National Credit Act clamped down on credit providers, it also introduced debt review to provide relief to the over-indebted whose combined living expenses and debt repayments exceed their monthly takehome income. The debt review provides an in-depth, free-of-charge financial assessment with a registered debt counsellor who calculates financial obligations and sends a proposed repayment plan to creditors. Existing debit orders to creditors are stopped and a new debit order to an accredited payment agency is established for a single amount, which then pays creditors reduced instalments.

Start saving The relief of getting out of the debt trap should not be a reason to relax future financial planning. The steps are not over, but should still be taken toward building a savings fund and creating real wealth. The rule of thumb is to save 10% of each pay cheque in order to build an emergency fund on which to fall back if something unexpected happens in future. Stick to the plan. Make saving a habit, and always remember it is the path to financial freedom.

Text: Bronwyn Burns Financial Features Writer Image: © iStockphoto.com

JANUARY 2012

Health

Get well and stay well with Momentum Health Our financially healthy scheme delivers more HealthReturns, improved solvency and extra trauma benefits for 2012. 22

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Innovative product design, financial austerity measures and our product philosophy have put Momentum Health in an ideal position to prosper in a fastchanging South African healthcare field. The scheme’s average contribution increase for 2012 has been set at 8,8%. Not only has Momentum Health retained existing benefits, but it has added features like additional trauma aftercare. This stability flows from proven consumer satisfaction with the scheme’s benefits, and bodes well for its members in the future. We, working with our administrator, are confident that we are ideally positioned to benefit from impending changes in our field. “The recent release of the National Health Insurance (NHI) green paper, has set the scene for a period of constructive debate and dialogue with Government and the various healthcare stakeholders in South Africa,” says Damian McHugh, Head of Marketing and Sales for Momentum Health. “The challenges are many, but the green paper is a starting point from which our industry can work with Government towards a solution that is fit for South Africa. It is a given that the implementation of the NHI will require substantial funding, and the burden in terms of taxation is a point that still requires significantly more clarity in order to ensure the buy-in and support of taxpaying South Africans. Other issues, such as exactly what healthcare benefits we can expect from this system, and how the government is planning to fill the more than 80 000 vacant positions for healthcare professionals also remain unanswered,” he continues. “In countries across the world where an NHI system has been adopted, the additional need for top-up private healthcare cover has remained. We are confident that there will still be ample room and opportunities for additional private healthcare benefits to supplement the basic level of cover envisaged under the NHI. The schemes and administrators that have proven their ability in providing complementary product solutions to date will thus have an advantage in ensuring the best fit for healthcare consumers in future.” Through continued consolidation, the number of medical schemes in South Africa has halved from 202 in 1994 to only 100 at the end of 2010, and this trend is expected to continue. The medical scheme administrator market has also seen significant change over the past two decades. Where a model of selfadministration proved most popular in the early 90s, a move towards multischeme administration specialists followed.

Through the merger of Momentum and Metropolitan, the new combined medical scheme administrator business currently represents a market share of more than 30%. This gives it the biggest administrator footprint in South Africa. “With a future-focused benefit philosophy in place, as well as a constantly improving solvency ratio and a growing member base, we are confident that we will remain the best fit for private healthcare consumers in future,” says McHugh. “Momentum Health’s provider choice model aligns well with the positioning of the scheme to meet the future demands and diverse needs of medical aid consumers. During 2010, 70% of all the families on our Custom, Incentive and Extender options chose to take advantage of our affordable provider choices.” Healthcare consumers want solutions that suit their unique needs, not products designed for general population groupings. Flexible complementary products, like Momentum’s HealthSaver, have a very prominent role to play in supplementing access to private healthcare cover, as it covers any services rendered by a registered healthcare provider, including treatment that is excluded by the scheme. HealthSaver’s popularity stems from the fact that cover can be engineered to fit every family on an individual level. Momentum also offers members of Momentum Health up to R3 600 in HealthReturns per adult per year, access to a wellness programme with over 30 partners, and a variety of add-on products and services that are seamlessly integrated. In fact, from 2012 Momentum Health members who are also on Multiply and who choose to have their HealthReturns paid into their HealthSaver account, can receive as much as R5 400 in HealthReturns per adult per year. Finally, the scheme has added a new trauma benefit for 2012 that will cover certain day-to-day benefits that form part of the recovery following specific traumatic events, such as conditions resulting from near drowning, poisoning, severe allergic reaction, external and internal head injuries, burns and post-traumatic stress events.

Text: Damian McHugh Head of Marketing and Sales Momentum Health Image: © iStockphoto.com

JANUARY 2012

Special Feature

Ride for a Purpose

Momentum 94.7 Cycle Chalenge Highlights

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Now in our third year of sponsoring the Cycle Challenge, the recent Momentum 94.7 Cycle Challenge enjoyed overwhelming support by local and international professional cyclists who not only wanted to flex their competitive muscles, but also did it in support of the theme: â&#x20AC;&#x153;Ride for a Purposeâ&#x20AC;?.

Ride for a Purpose encouraged cyclists to sign up with a greater goal in mind. Whether it was fundraising for a cause that was important to them, or simply riding in memory of a loved one. The cycle challenge focused attention on a variety of worthy causes, ranging from children with cancer, breast cancer awareness to anti-animal cruelty. The list is endless. About 25 000 cyclists took to the road in November last year. Four top international professional cyclists joined in this year’s race, among them Dan Martin from Team Garmin Cervelo who is one of the top 10 International Cycling Union-ranked cyclist worldwide. He was joined by brothers Dean Downing from Team Rapha-Condor-Sharp and Russ Downing from Team Sky. Completing the quartet was cycling legend Stephen Roche, who is a Triple Crown winner, which means he won the Tour de France, Giro D’Italia and World Championship in one year. Momentum’s Head of Brand Danie van den Bergh said: “We wanted to bring some of the glamour of the European tour to the Momentum 94.7 Cycle Challenge, which is one of the biggest and most prestigious in Africa.” Winners: Arran Brown won his second Momentum 94.7 Cycle Challenge. He was followed in second place by MTNQhubeka* teammate Reinardt Janse van Rensburg. In last year’s race Brown had finished second. The two were followed by Tyler Day of Team Bonitas Medscheme. Ashleigh Moolman-Pasio of Nashua Toyota took the women’s title, followed by Cherise Taylor of USN. *Qhubeka is MTN’s social responsibility initiative that gives bikes to kids in return for community work.

Text: Karishma Bhima Communication Momentum: Brand Image: © Momentum MDS

JANUARY 2012

Easy Energy for the

Healthcare

New Year

It seems every new year reminds us of changes we need to make and new habits we need to form, yet somehow we let our best intentions slide. Starting the new year with your best foot forward starts with looking after your health â&#x20AC;&#x201C; and there is no reason to think you need to make big changes.

November built up to a mad panic to get everything done before the close of business. It was all about long hours, tight deadlines, high stress and then a few year-end parties thrown into the mix. By December, you felt that it was time to let go a bit and reward yourself for a year of hard work. You overdid the celebrations and indulged through the festive season with one too many mince pies. Now, it is the new year, and we are back at the grindstone. At least you are rested, refreshed and enthusiastic about achieving greater successes and unlocking new opportunities. Whether or not your new yearâ&#x20AC;&#x2122;s resolution is to be fitter, healthier or simply happier, making just a few changes in your life can make a huge difference to what you put out at the end of the day. The key to sticking to resolutions

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is in making those changes as easy as possible. Being in a better mood and having more energy is the fastest way to make your world a little rosier, as well as making it easier to handle the challenging year ahead. Here are a few tips to tackling 2012 with a smile.

Avoid manic mornings Most of us are in the habit of a quick rush to get to work each morning, effectively starting the day with the mindset of stress and mild panic. Putting aside a few minutes to eat breakfast is the first step to setting a calmer pace and keeping your metabolism running through the day. Without a breakfast kick-starter, your mind and body become lethargic as the hours pass. By lunchtime, you realise you are fighting against feeling tired and your concentration is slipping.

Instead of being in a rush to get out the door every morning, slow down to eat your breakfast, and you will find your body wonâ&#x20AC;&#x2122;t slow you down later.

Walk it off Thinking you can go from couch slouch to fitness freak in a month is one reason we often fail to get out the door. It becomes an overwhelming goal that seems too far out of reach. Take the time each week just to get some fresh air and raise your heart rate just a little. Walking helps you sleep better, ensures longterm bone density, relieves emotional stress, burns fat and, as an added bonus, is far more cost-effective than hitting the gym. A 70kg person burns roughly 650 kilojoules on a brisk 30-minute walk. Done three times a week for a year, that works out to almost seven kilograms of fat loss (or fat not gained)!

Ever heard of crashing? Cut down on sugars. They are high in calories and not very filling, which means it is all too easy to have far more than you should. Never mind the long-term effects, your energy spikes and then drops drastically, leaving you cranky and tired. Denying yourself sugar altogether is a tall order, so it is best to avoid being extreme. The World Health Organisation suggests that your daily intake of added sugar should not exceed 10% of what you eat. This means you can enjoy a small treat without feeling guilty, even if it is a teaspoon of sugar in your coffee, or a Swiss chocolate ball after lunch.

Rest is best Studies have shown that sleep is more vital than food. At age 74, Mahatma Ghandi survived a 21-day hunger strike without any ill effects, yet the Guinness World Record for the longest period without sleep is just 11 days. If your goal is to become a happier you, get to bed earlier just one or two nights a week. You don’t have to go to sleep early every night, because one or two top-ups to your sleep bank can

improve your state of mind throughout the week – which means you can still enjoy those mid-week dinner parties.

Slow-burning fuel Choose snacks and meals with a low Glycaemic Index (GI). Maintaining optimal efficiency throughout the day is entirely dependent on your ability to sustain your energy levels. The Glycaemic Index is a system used to rate the effect that every food has on your blood glucose levels. The slower the food is absorbed into your blood the better, and the lower the GI score. Low GI foods (those scoring under 55) ensure that you stay fuller for longer, and inevitably help you lose weight. Low GI foods slowly release the energy that you need into your system, keeping your blood sugar levels more stable, which means you keep your “get-up-and-go” for longer. As a rule of thumb, the more natural the food, the lower the GI score. Wholegrains, fruits, and vegetables are best, while anything refined is more than likely on the upper end of the GI scale. In five easy steps, you can prime your

body to be the best that it can be. You will be more prepared for the big changes that your new year’s resolutions bring. And even if festive resolutions aren’t for you, these simple and easy adjustments will help you tackle anything that 2012 throws at you.

Studies have shown that sleep is more vital than food. At age 74, Mahatma Ghandi survived a 21-day hunger strike without any ill effects, yet the Guinness World Record for the longest period without sleep is just 11 days.

Text: Bronwyn Burns Financial Features Writer Images: © iStockphoto.com

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Wealth Investments

Competing for the consumerâ&#x20AC;&#x2122;s wallet Investment Platforms face headwinds

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Investment platforms have been growing rapidly across the globe. They have taken their place in the “mainstream” of financial services as they entice consumers with greater transparency and investment flexibility in the way in which they conduct their affairs. However, they are facing numerous headwinds as competition heightens for a share of the client’s wallet and financial advisers become more discreet about the way in which they strategically align with key platform providers. The international experience Investment platforms in the US and Australia are at an advanced stage of their development, and certain providers have been very successful in the implementation of their strategies to gain market share. Charles Schwab in the US is probably the best international proxy for platform evolution globally. Launched in 1971, the company started as a “broker-dealer” with a strong focus on retail equities. It shortly afterwards launched an institutional division to drive scale efficiencies, while sharing back-office functions. Their equity offer is highly sophisticated in terms of functionality, research and margin lending and accounts for 40-50% of platform assets. They spend an enormous amount of time on screening mutual funds and the development of their preferred fund families. Today, they have approximately $900 billion in funds under administration and run a very profitable business. They have also capitalised in the fallout of stock brokers from the leading US-based investment banks with the debt crisis. They have offered these advisers a functional investment platform to execute all types

of investment trades, without the “tag” of being associated with the dysfunctional dealings of Wall Street brokers. In Australia, many platforms have been successful. FirstChoice is the platform of Colonial First State, originally a fund manager, but which CommonWealth Bank now owns. Although the company was a late entrant to the market, targeting compulsory assets from mass affluent clients with a simplified proposition focused on investment costs, it has more recently taken its proposition to the IFA market with some success. FirstChoice offers a range of insurance and cash type products, and has commonly adopted a “guided architecture” environment to drive down costs and improve efficiencies. It currently has about AU$45 billion under administration and has decent profit margins. In the UK there are numerous investment platforms, of which the first platform was CoFunds which launched with the backing of a consortium of asset managers. Subsequently, Legal and General invested in CoFunds and brought with it the integration of life and pension fund wrappers. While it now has about £30 billion under administration, the company has struggled with support for the longerterm business case from shareholders, as its expense margins versus revenue margins have meant that the business has been marginally profitable.

select fewer platforms to strategically align with. This change in behaviour has come about for a few reasons: •The complexity of the financial advisers’ back-office and advice risk associated with changes to regulation; •Margin compression associated with volatile investment markets and relatively poor investment returns; •Complexities associated with the licensing of financial advisers and the accompanying implications in not securing licences to offer discretionary investment management services; •The desire for some parties to own the full value chain and provide advice, investment management and administration services for their clients. They are thus no longer happy to outsource previously determined “non-core” functions. Therefore, the South African platform marketplace is going through earthshattering challenges, where the fight for the right to attract investment assets is at an all-time high. The market is healthy in that competition is fierce and consumers will benefit from this “dislocation”. However, there is likely to be fundamental shifts in adviser patterns that will test the robustness of South Africa’s platform operating models and operating margins.

The South African landscape Investment platforms in South Africa have been largely adopted by financial advisers as their preference for placing clients’ funds with. However, platforms are grappling with changes to the landscape, where financial advisers will

Kevin Hinton Head: Investment Marketing Images: © iStockphoto.com

JANUARY 2012

Wealth Investments

Momentum ‘Think Tank’ 2011 Momentum’s International Investment Conference (known as the Think Tank) took place in London in September. Leading financial advisers from South Africa, the Far East and from UK-based asset consulting firms attended. Momentum Wealth International (which provides platform solutions to IFAs) and Momentum Global Investment Managers (which provides international multimanager solutions) collaborate to present the Think Tank. Below is a brief summary of some of the speakers’ presentations.’

Kevin Hinton Head: Investment Marketing Images: © iStockphoto.com

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Dirk Schumacher of Goldman Sachs opened proceedings by stating that there is no silver bullet for the eurozone, as the problems are structural. Of all the peripheral European states, only Greece has a solvency problem, while the others have liquidity problems. The decrease in eurozone gross fixed investment is consistent with a normal recession and recovery. European corporates have strong balance sheets, with many private sector companies sitting on large volumes of cash. However, the present uncertainty has left these firms unsure of what to do with it. Ultimately, Ireland provides the blueprint for the rest of Europe, meaning that deleveraging is the key. However, the periphery needs to improve its competitiveness through wage restraint, which carries political risk, while cuts in nominal wages are extremely difficult. Overall, Goldman Sachs does not expect global GDP growth to slow significantly in 2012, predicting growth of 4,3% for the year in line with consensus. Ian Lance of RWC introduced a popular theme for the two-day conference, namely equities as an income-producing asset class. The main thrust of developed markets’ monetary policy had been pushing asset prices up, and this was ultimately good for the global economy. Over-reliance on non-cyclically adjusted price-earnings (PE) ratios was dangerous. By the measure of cyclically adjusted PEs, equity markets are not particularly cheap and from a historical perspective, current valuations implied below-average future returns. Bond yields are at their lowest in 220 years. Now Government bonds are only attractive if you believe in deflation. Deflation is unlikely, as falls in the aggregate price level have become a relatively rare phenomenon since the abolition of the gold standard (of the 24 largest economies in the world, only

Switzerland has averaged inflation below 3% since 1900). We are nearing the end of the debt super cycle which began in the post-war period, but has increased significantly following the deregulation of the financial sector in the 1980s and beyond.

Bruno Paulson of Morgan Stanley focused on quality stocks. Not losing money is difficult in an uncertain world. Bond yields are not attractive, while forecast corporate margins are high. While corporate profitability is at an all-time high, this is not sustainable if end demand falls. Investment has to focus on quality equities as a midpoint between fixed income and the broader equity markets. Investors need a tighter definition of “quality” and an insistence on high and stable profitability at a decent price. This is true of companies that enjoy pricing power, visible earnings and a sustainable, high return on invested capital. Investors should focus on return on capital, rather than return on equity, because ROE emphasises leverage and this can be dangerous when companies are losing money. High quality is not currently being rewarded, and the liquidity pumped into the markets by central banks has largely overtaken the uncertainty that would otherwise abound. Overall, high quality companies remain relatively undervalued compared to the rest of the market. Quality companies also appear relatively attractive compared to bonds. The highquality approach to investing need not simply provide exposure to the “old” economies. By buying blue-chip companies, an investor can get exposure to a large proportion of earnings in emerging markets.

Andries Kotzee of Momentum Global Investment Management said serious headwinds for growth were corporate and public sector over-indebtedness. Unwinding

this debt bubble will cause less aggregate demand, which will influence equity returns. The yields available on bank deposits has been subsumed by levels of inflation across the developed world, and from a relative perspective, investors cannot rely on cash; to do so would result in erosion of the real (inflation-adjusted) value of their capital. Investors who want to beat inflation must take on more risk in their investments. Market research that Momentum GIM commissioned recently identified key topics of concern to wealth managers globally. It highlighted an expected shift to outcomes-based investing gaining traction over traditional strategies. Product providers that could create target-dated investment models might benefit as a result. In a low-returns environment, the research highlighted the potential for a squeeze of margins throughout the industry, with a client’s total fee experience - including asset management, structuring, platforms and financial advice - expected in aggregate to fall over time. One symptom of this margin pressure is a growing preference for passive investments. There is a growing willingness among advisers to demand a partnership role in the investment process, and investment managers need to work flexibly enough to accommodate their client’s specific needs.

Mike Allen of Momentum Global Investment Management said that, despite the initial attractiveness of some modern passive investments, the use of these vehicles was not a holy grail for investors. Passive investments leave the investor with much work to do. For example, to outperform their objectives, investors have to get their asset allocation decisions right. Blanket use of passive vehicles is guaranteed to underperform due to

JANUARY 2012

Wealth Investments

fee drag. Certain asset classes are not well suited to passive investment. Not all passive solutions are equal, and therefore only thorough due diligence would discover potential pitfalls. Passive products are not always “cheap”. Some markets are more suitable to passive investments due to their innate efficiency, thereby providing little potential value for active management. Use active management in markets where the added value from this approach was likely to be highest.

Brian Morandi of Tradewinds began the Think Tanks’ second day, he suggested that emerging markets equity investment was more than a mere commodity play. Emerging markets had to contend with significant outflows in recent months, yet there remained inflow into certain sectors of the markets. Investors must start to think of global emerging market equities differently now, since they are more than just a homogeneous grouping. An unrelenting focus on valuation is a prerequisite for investment. Definitions of emerging markets are too narrow, and should include frontier markets in the investable universe to increase opportunities. By excluding the frontier markets, you ignore one third of the world’s population (but only 1% of the market cap). Emerging markets have huge potential for a growing middle class, as well as other demographic benefits (for example, 40% of Chinese people are under the age of 25).

Old Mutual Asset Managers’ Stewart Cowley said that recent years saw emerging markets asserting themselves on the world stage for the first time. Emerging markets have significant levels of disposable cash; they have assets to support their banking system, which is in stark contrast to the West. All the major bond markets offer negative real yield and this is counterintuitive, because it means Government bonds are currently without value. Over the next five years, US government spending on interest needs will exceed spending on welfare. There is a similar picture across much of the developed world. The growth

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in wealth in the emerging world is providing competition for resources as seen in the developed world, despite a recession because people in other parts of the world are able to buy resources from under the noses of the West. The most effective technique to take advantage of these global imbalances is to invest with companies situated at “pinch points” in the supply chain. Investors must exploit the slow growth in developed markets, while benefiting from the global emerging markets.

Gerios Rovers of Cohen & Steers provided insight into whether investors could rely on listed real estate as a property investment. Essentially, there are two different business models when making an investment: the incomegenerating type and the developer type. The former is more popular, as it is less speculative and provides a reasonably stable income. Three reasons to select listed property over direct real estate holdings are: liquidity, diversification and an exit strategy. The benefit of daily pricing of real estate investment trusts (REITs) is the ability to trade whenever the holder wishes. In the low-interest rate, but inflationary environment, prudent investors should move from a fixed income stream to dynamic income streams. This is because many global money printing measures will surely lead to inflation, and therefore income streams that contain a degree of inflation protection will be valuable to investors. REITs enjoy contractual income streams for several years in the future, and are generally linked to inflation or upward only revisions. Despite the gloom, the fundamentals for property are reasonable at present.

Glyn Owen of Momentum Global Investment Management placed the various threads from the earlier speakers’ views in the context of the broader markets and Momentum GIM’s present asset allocation policy. The recent bout of market weakness began on 22 July, when European policymakers tried to provide further financial assistance to peripheral

Europe. This led to the removal of risk from portfolios and, in a clear risk aversion move, investors bought government debt “safe havens”, despite the unattractive yield levels available. Consequently, asset classes such as equity, commodities and high yield have sold off, while high-quality investmentgrade bonds have rallied. Much of the pricing revisions in the equity markets go back to the start of 2011 when analysts’ forecasts for GDP growth and corporate performance were high, but as 2011 wore on, analyst expectations were reset to a more reasonable level. While the outlook for global economies remain uncertain, equity market valuations are reasonably attractive, especially when compared to the high-quality debt markets. MomentumGIM’s stance is that high tail risks persisted in both the global economies and therefore in financial markets, and that when investing, capital preservation remain very important to investors. Genuine diversification remains the key to efficient portfolios, and investors should increasingly rely on dynamic asset allocation to take advantage of valuation opportunities when volatile conditions inevitably throw them up. When the economic picture is muddied, investors should rely on a strict valuation discipline.

Wealth Investments

Momentum Wealth

Investment Summit The tenth annual Momentum Wealth Investment Summit, entitled “The Global Crisis of Confidence Market Madness: What’s Happening and What’s Next”, took place in Cape Town in October 2011. Over 120 delegates from the investment and wealth management community and the media listened to an impressive line-up of eight international and local speakers during the full-day summit. “We pulled out all the stops to make the agenda a thought-provoking collection of influential thoughtleaders, whose diverse viewpoints were engaging and accurately representative of these times,” said event host, Kevin Hinton, Head of Investment Marketing at Momentum Wealth, in summing up the programme. The theme of the event was the current global economic environment and the resulting impact on advisers and wealth managers. After four years of international economic meltdown, and now in a season of escalating global disruption chief investment officers are being asked to function in a matrix of uncertainty. The aim of the conference was to help wealth management professionals gain insight into the situation, so that they can move forward with confidence. The day kicked off with keynote speaker, John Mauldin, renowned financial expert, multiple New York Times best-selling author and pioneering online commentator with his e-newsletter “Thoughts from the Frontline”, which reaches over 1,2 million weekly readers. He presented, “The Global Crisis Four Years On”, a pragmatic view of how to succeed during this cycle. It is critical that money managers have a concept of what is realistic in realising returns. That realism translates into getting clients “through the next five years as intact as possible”. Mauldin’s predictions for economic global stability within the next five years remain pessimistic. He summed up the situation: “A financial crisis occurs when

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debt is excessive relevant to income, whether public, private or both. It doesn’t make any difference to whom the debt is owed.” On a conversely positive note, Mauldin has a bullish outlook for absolute returns for bio- and nanotechnology and robotics over a 20-year horizon. Mauldin feels that by investing in advanced and cutting-edge technology, we all have a chance of being at the beginning of the bubble. Mauldin says that patents are being filed under the radar, with thousands working in their “garages”, and by fluke someone will get it right: “Get your surfboards out and ride with it.” The second speaker, Karl Leinberger, CIO Coronation Asset Management, said the company’s outlook remained steadfastly offshore-centred, as it offered greater value with this strategy. The investment strategy of patience, discipline and character justified beating the offshore drum consistently over the last two years. Leinberger concluded with the approach that in uncertain times, it was crucial to focus on long-term, seeking value and not momentum, as the fundamentals ultimately trump sentiment. His sound advice was to be aware of emotive arguments and not to react to news flows. Sebastion Dovey, managing partner at the Scorpio Partnership from the UK, strongly advocated the importance of understanding the changing environment. The wealth industry was undergoing a business revolution and consumer habits were forcing change. As fund inflows remained flat, he posed the question: “Is the wealth model figured correctly for these conditions? It is not that the money is not out there, but we are not looking in the right way.” The wealthy are looking for more relevance, and are clear about what they want from those managing their wealth. When making decisions, investors are more focused on the experience and the identity (vision, brand awareness, communications) presented, rather

than on product details and service capabilities. Director of Citigroup Global Markets Johann Steyn’s presentation on gold unpacked recent meteoric moves of the metal. Gold’s amazing rally has outperformed all comparable indexes, rallying 489% since 2000. Steyn, however, cautions against overconfidence and relying too heavily on gold going forward. With a comparative historic overview, the 1970s peak or R5 000 an ounce has no correlation with the current bullish trajectory. It is a speculative bet to rely on a trend that happened 30 to 40 years ago. Gold is up substantially, but is still below the previous mark at the same correlation point. Downside risks have become significant. Sage advice from Steyn is: “The danger is that you don’t know when it’s going to change. If you have it, hold it. But don’t buy now, it’s too late”. Arno Lawrenz, CIO of Atlantic Asset Management, started his presentation by quoting Richard Russel, author of the Dow Theory newsletters since 1958: “I’ve never studied or worked with a market like this one. It’s truly one for the history books.” Lawrenz noted that if someone who had been commenting since 1958 was grappling with current markets, what chance do the rest of us have? Echoing the general theme of the Summit, Lawrenz urged investors not to forget about the prevailing credit risk, where indebtedness was excessive in relation to available GDP. Solutions of increasing taxation or increasing inflation offer short-sighted reprieve to the inevitability of a downward debt spiral. On reflection, Lawrenz adeptly noted that for politicians coming up with economic solutions, their only job was to get re-elected, and they may not have the political will to follow through on what needed to be done. Simon Pearse, CEO of Marriott, looked at the opportunities in property investment over the next decade. Factors that influence this sector include the steady increase in inflation,

the unlikelihood of further currency appreciation of the rand, and the prevailing consumer pinch of being over-indebted and under-saved. These factors, as well as that the debt-tosavings ratio is as high as it’s been in our lifetime, has an impact on the demand and use of real estate. Pearse gives a positive outlook for the international real estate experience over the next 10 years where yields are favourable. Overseas behemoths exert significant influence in the property sector: Three companies own 50% of investable property and, expanding that, seven companies own 80% of investable property. Holly Mackay, CEO of The Platforum, gave insight into what’s happening with investment platforms in the UK. “There are currently 26 platforms or wrap players in the independent financial adviser (IFA) market in the UK.” Besides the complication of many platforms, regulators require IFA’s to be independent. The resulting requirement of due diligence puts an onerous burden on IFA’s to present a compliant viewpoint. The shift towards banning

commission and moving to fee-based operations increases the burden. Advisers now also have to be VAT compliant. Justifiably, Mackay described the situation in the UK as a “grumpy market”. An increasing trend is to segment clients on various platforms according to the input required and then to charge accordingly. Clients can either be placed on an execute-only platform, advancing to direct client and advice client platforms as the needs arises. Costing will correspond accordingly, depending on whether fund managers, advisers or administrators have been involved. This shift gives greater appreciation for professional advice as opposed to just administrative capabilities, which can be sourced and outsourced easily and inexpensively. This seems like a viable option for clients. Geraint Anderson finished the agenda with an irreverent, yet hysterical look at his time as one of the highest ranked investment analysts in London in 2006. He began his “whistle-blower” career by writing an anonymous weekly column exposing the secretive world of

banking. The disillusion continued and in 2008 Anderson left the Square Mile and subsequently penned the bestseller memoir Cityboy. Anderson is now a regular commentator on finance. Besides acknowledging his own shortcomings and lack of experience, Anderson credited his success to being an expert at office politics and manipulation. Although amusing, his anecdotes about corruption, moral decay and manipulation were also a dire look at the politics of finance. It was certainly illuminating to hear objective criticism and insight into an industry fuelled by “corruption, egotism, arrogance and semi-criminal behaviour”.

Serelé Baker Manager: Marketing & Fund Manager Relationships

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Short-term insurance

Make Sure

You are covered Welcome to 2012. Itâ&#x20AC;&#x2122;s a brand new year, and we trust that you are all well rested after the holiday season. Momentum Short-Term Insurance is ready to take on the new year with commitment to their intermediaries and clients with a goal to provide them with excellent service and products suited to the needs of each individual.

JANUARY 2012

During the festive season, many of you would have travelled far and wide. And have been lucky to escape the latest ploy of criminals who are very alert and always on the look-out for new ways to target victims. The newest tool that they have started using is Google Earth. This is a very handy tool for finding locations all over the country, as well as in the rest of the world. It provides you with a looking glass into locations and areas that you would only see otherwise on arrival at the location. This handy tool has, however, become a means by which criminals spy on potential victims. Because of the detailed images that Google Earth provides, criminals can see details such as whether a house has burglar bars on windows and doors, accessibility to main routes such as highways and to the property itself, making the planning of escape routes that much easier. This rapidly emerging threat to privacy is called “cybercasing” and is occurring all over the world. Recent developments that make systematic search for geo-located data from multiple sources easier than ever before increase the threat. Momentum Short-Term Insurance is always researching and developing new ways to offer clients the best short-term insurance packages available. We also want to be certain that, if your clients face a situation where they are victims of cybercasing, they have comprehensive insurance. Make sure your clients start this year with comprehensive insurance solutions and peace of mind for the rest of the year. Momentum Short-Term Insurance offers cover for home contents, buildings and vehicles. Some other great benefits and products include: Momentum Assist, Momentum Explorer, tailormade commercial products, as well as Momentum Responsible Driving. Momentum Assist offers your clients emergency assistance when they are on the road, at home or at the office, as well as on the medical or legal front. Roadside assistance applies to each vehicle that is noted on your client’s schedule. Home/ Office Assistance applies when your

client has their contents or buildings cover noted on their schedule. Medical/ Legal Assist is an optional cover and we charge an additional premium for it. Momentum Explorer is specifically designed for 4x4 enthusiasts, and includes an optional extension of cover for those who intend travelling to neighbouring countries. It includes wider geographical cover, as well as certain additional benefits. The vehicle is covered in South Africa, Angola, Botswana, Kenya, Lesotho, Malawi, Mozambique, Namibia, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe. Cover of up to R7 500 for one incident is provided for mechanical and electrical breakdown of the vehicle. Emergency accommodation while outside South Africa of up to R1 000 per person per day to a maximum of R16 000 for one insured incident forms part of the benefit. Return of the vehicle and its occupants to South Africa is limited to R65 000 for one incident (loss or damage to the vehicle and medical costs are also covered). In line with providing comprehensive insurance solutions, Momentum ShortTerm Insurance also offers a wide range of specialised products in its commercial lines. These include products specifically focused on the hospitality, medical and food and catering industries, as well as body corporates. Momentum Short-Term Insurance has also developed a product called Responsible Driving. This product is for a niche group of clients who feel that they will reap the benefits if they commit to driving responsibly. For more information on Momentum Short-Term Insurance’s products and added benefits, contact your Marketing Adviser or Business Development Manager, who will provide you with product specific marketing material, or send an e-mail to brokerenquiries@momentumsti.co.za.

In line with providing comprehensive insurance solutions, Momentum ShortTerm Insurance also offers a wide range of specialised products in its commercial lines.

Text: Pieter Erasmus Head: Marketing, Sales and Distribution at Momentum Short-term Insurance Image: © iStockphoto.com

JANUARY 2012

Legal

The Impact of Divorce on Financial Planning Divorce demands a financial planning review

Text: Sharon Teubes Senior Legal Advisor Business & Personal Solutions Images: ÂŠ iStockphoto.com

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It is important to understand the impact divorce may have on one’s financial planning. Financial plans are dynamic and you should review and amend them when personal circumstances change. When going through a divorce, the financial planner should assist the client in answering the following questions: What impact can divorce have on your retirement funds? To answer this question, one should review the legislation applicable to divorces (Divorce Act) and retirement funds (Pension Fund Act) and the impact on the division of retirement benefits after divorce. In addition one has to consider the tax implications of decisions made as a result of divorce. The legislation The Divorce Act was amended in 1989 to make provision for the division of “pension interest” between parties in a divorce (excluding those married out of community of property without the accrual system). At that time, the nonmember spouse had to wait until the pension benefit accrued to the member, before he or she could get their share (no growth accrued on that amount). The amendment of Section 37D(1)(d) (effective 13 September 2007) introduced the “clean break” in the Pension Fund Act to allow a retirement fund to deduct the following from the member’s benefit or minimum individual reserve: • Any amount assigned to a nonmember spouse in terms of a divorce order granted under the Divorce Act; and • employee’s tax required to be deducted or withheld as per the Income Tax Act. A further amendment in 2008 made the “clean break” applicable to all divorce orders granted after 1989. The amount allocated to the nonmember spouse, in terms of the divorce

order, has to be paid to that person or to an approved retirement fund of his/her choice. Tax implications If the divorce order was granted before 13 September 2007 and the benefit is deducted from the individual reserve on or after 1 March 2009, the amount will be tax-free. If the divorce order was granted after 13 September 2007 and the benefit was deducted from the individual reserve: before 1 March 2009, the member is liable for the tax (he/she could claim it back from the non-member spouse); after 1 March 2009, the non-member spouse is liable for the tax (The tax table applicable to retirement fund withdrawals will apply.) The nonmember spouse can choose to have the amount transferred to another approved fund tax-free. Where a benefit accrues to a nonmember spouse (if the non-member spouse never instituted a claim against the fund in terms of the divorce order) due to the death, resignation or retirement of the member, the member will be liable for the tax and he/she will be able to claim it back from the nonmember spouse.

In prac tice, payment to the non-member spouse is often hampered due to the incorrec t wording in the divorce order.

The divorce order In practice, payment to the nonmember spouse is often hampered due to the incorrect wording in the divorce order. To avoid this take note the following guidelines: • The retirement fund must be identifiable from the divorce order (name the fund by its registered name and indicate the number of the fund member policy); • reference should be made to an amount or percentage pension interest as defined in the Divorce Act to be deducted from the member’s benefit or

JANUARY 2012

Legal member’s minimum individual reserve; • the fund must be instructed in the settlement agreement to make payment or transfer of the amount assigned to the non-member spouse; • the fund member policy cannot be ceded to the non-member spouse, so this instruction should not be made in the divorce order. Note: When a member/non-member of a retirement fund has obtained a divorce decree from a foreign court and wants to claim his/her portion of the pension interest in a South African fund, the member must apply to a South African court to have the order recognised and enforced in South Africa. Has the will been updated? When a person gets a divorce, one of the first things that need attention is the will. If the testator dies in the first three months from the date of divorce without amending the will, it is executed as if the ex-spouse is predeceased. The ex-spouse will not receive any benefit from the deceased’s estate. However, if the testator neglect to amend his/her will within the threemonth period after the divorce date, it will be assumed that the will is intended to remain unchanged. If the will still nominates the ex-spouse as the heir of the estate, that will be honoured as the testator’s last will and wishes and it will be enforceable. Review and change the beneficiary nominations on all policies and group benefits When nominating a beneficiary on policies, a contractual obligation is placed on the insurance company to make payment to that nominated person. The insurance contract generally provides for amending this obligation only by giving a written instruction to the company.

JANUARY 2012

Regarding group life benefits, if attached to the pension benefits, the trustees will review the deceased’s personal situation and dependants, before making a final decision on where the benefits should go (in terms of the Pension Fund Act). Therefore, if you have minor children, it is likely that they will receive the benefits, rather than an ex-spouse that is nominated as a beneficiary. If there are no dependants, it is likely that the trustees will honour the written nomination. This will also be the case if the group life is not linked to the pension fund. Is there a liability for maintenance? In most cases, especially if there are children, there will be a maintenance order, and in some cases a spouse may also be awarded maintenance. For the payer, it is important to provide for this future maintenance liability in his/her will, either by way of a testamentary trust for minors, or a direct bequest in the case of a spouse. The best way to provide for maintenance is to take out a life insurance policy for an amount equal to the present value of the future liability. Should this not be done, the maintenance order will be enforceable against the estate, which could result in the possible sale of assets. This is not the ideal situation. For the recipient, it is important to ensure that the payer is able to meet his/her obligations, even after death. In conclusion, it is important to review a financial plan at least once a year, and more often if personal circumstances change. Neglecting to do so can have dire consequences for the estate owner and his/her family, especially in the case of divorce where a new family exists after a divorce. Financial planners should take charge of this process, and clients should be educated on the circumstances that warrant extraordinary financial planning reviews.

JANUARY 2012

Wealth

Approaching Asset Allocation Are traditional risk profile questionnaires accurate?

JANUARY 2012

Using a traditional risk profile questionnaire may work in some instances to establish an appropriate asset allocation for a client, but in most instances a questionnaire based on feedback or input on a particular day or a client’s frame of mind on that day will be insufficient for more comprehensive future investment planning. So it is necessary to explore various approaches for establishing a suitable asset allocation for clients and finally settling on an appropriate combination of assets as part of a multi-asset class strategy. Regulation 28 already means that it is necessary to differentiate the approach to the asset allocation for retirement annuities and preservation plans, as opposed to the modelling for investment planning purposes of discretionary or voluntary investments. An important starting point in the asset allocation framework is therefore to define clearly the source and intention of the investment at the outset and to establish the purpose of the investment, that is, retirement planning in an appropriate retirement product or investing discretionary investments for a particular goal or strategy. This will drive the appropriate product selection. Regulation 28 will apply to the combination of asset classes within retirement products that are essentially created as part of a wealth creation strategy over time, and aimed at a future retirement date. Asset allocation modelling for discretionary investments is broader than the approach planners adopt for retirement investments, as Regulation 28 does not apply and limitations around asset class exposures are not cast in stone. A useful starting point when approaching strategic asset allocation is to establish the length of time or the term for the client’s investment, as well as the purpose of the investment. Generally speaking,

clients typically invest for capital growth or income, or a combination of the two. It is then important to decide on a required return in order to lay down and address return expectations of the investment. You can do this in real terms (after taking inflation into account) or nominal terms, that is, a return requirement before inflation enters the equation. This should be a realistic, reasonable return expectation. To construct a strategic asset allocation for a client one uses the combination of a specific investment objective, timeline and required investment return. This could be done by using purely historic information, or by using stochastic modelling. Stochastic modelling produces probable return outcomes for a combination of asset classes. A stochastic investment model is based on forecasting how investment returns on different assets will vary over time. Stochastic modelling takes useful data from the past and combines it with the present to model the future, and as a result is predictive. There is no guarantee of future investment returns, but the model produces asset class return probabilities. The combination of assets within a multi-asset class strategy results in exposure to various asset classes and ends in a particular level of risk at a strategic asset class level. This level of risk is then the outcome of the investment objective. It is based on reasonable, required investment return and applies to the investment itself. It is not based on how a client feels on a particular day, their frame of mind or other influence that could sway the outcome of a simple risk profile questionnaire. The risk of the investment can then be visually demonstrated to a client. It is possible, using stochastic modelling, to assign probabilities to the way in which the combination of assets could perform, and to actually apply probability return

assumptions to the investment. This will demonstrate that the investment could get off to a great or poor start during the early years, but that a return to the norm is likely to occur over time. Two additional visual, riskreturn demonstrations for the client include: • an illustration of the risk of capital loss during the investment term, that is, the probability of achieving a negative return and • the probability of underperforming inflation, which is the probability that the investment will underperform inflation and that the purchasing power will be diminished over the time. A client can then see by way of two illustrations what the combination of assets means in terms of risk-return analysis. Should the client be uncomfortable with the risk-return outcomes of the strategic asset allocation, then one of two factors (or both) has to change. The investment term can be increased or decreased, and/or the required investment return can be increased or decreased. This will create a new set of riskreturn information, and the same visual demonstration can be used to work through the probability of returns, the risk of capital loss and the risk of underperforming inflation over time. The appropriate fund selection process only takes place on completion of this step and on establishing the important strategic asset allocation of the investment. The strategic asset allocation and risk-return analysis also form the basis of the regular, annual investment reviews with the client, and provide important context to the investment plan and strategy.

JANUARY 2012

Legal

The Truth about Living Together You can compare the “common law marriage” to the Loch Ness Monster: Everybody knows about it, some believe in it, but very few really understand the facts about it.

JANUARY 2012

At social gatherings one often hears discussions about the legal consequences of living together as husband and wife without being married. Debates abound about the period for living together before a relationship can be termed a “common law marriage”. Some will argue that a relationship of five to ten years is, for all intents and purposes, a marriage. Others emphatically argue that it is when the respective families meet and accept the parties as being in a “common law marriage”. In some communities the provision of life amenities, like entertainment and holidays, is regarded as a “common law marriage” free from the bonds of matrimony.

All of these conclusions are incorrect Unlike a marriage, there are no formal legal requirements before parties can live together. There are no terms and conditions and no legal rights and responsibilities either. No legislation governs cohabitation (a formal term for living together) and there is no legal framework offering protection to parties in a cohabitation relationship. At the end such a cohabitation relationship, whether due to the separation of the parties (owing to mutual consent or not) or the death of one of the parties, the property is either divided according to the parties’ agreement, or each party will walk away with what he or she brought to the relationship. This can lead to unhappiness and conflict, especially in the case of death, where the parties’ wishes and intentions are not known. Where there is an aggrieved party, he/ she will have to approach the court in

order to claim what he/she feels entitled to. The court will then decide the case based on its merits. This article aims to demystify the legal standing in South Africa of cohabitation and relationships.

No formal between parties

agreement

Problems often arise when the relationship comes to an end without any legal document to guide the proprietary consequences of such dissolution. Over the years, the courts have been called upon to give meaning to a live-in relationship, and due to the informal nature of these relationships, the courts continue to do so. A recent Supreme Court decision of McDonald vs Young, dismissed the duty of maintenance at the end of a cohabitation relationship. Mr McDonald wanted the court to order Ms Young to pay him maintenance after their relationship had ended. He based his application on the following factors: The parties had lived together for seven years, as if they were legally married, in a stable and permanent relationship. During this time Ms Young had supported him and he had been dependent on such support. Ms Young had given him an allowance, provided for transport and paid for entertainment and overseas holidays. She had also made provision for his support in her will. She is a wealthy woman, while he has no assets and very limited income. He contended that he had contributed to the maintenance of and the increase in value of Ms Young’s estate, often at the expense of his own business interests. He also argued that he was reliant on an income from employment and could not, due to his advanced age, guarantee

for how much longer he would be able to earn a living. He concluded by saying that Ms Young advised him that she had sufficient funds to support both of them. The parties did not have a cohabitation agreement regulating their relationship. The court held that a tacit agreement of support could not be inferred and dismissed the request of Mr MacDonald. One can deduce from this case that “cohabitants” need to enter into a written agreement to secure their rights, duties and obligations. A cohabitation relationship can also end due to death. Where parties are married under the Marriage Act, the surviving spouse is entitled to claim maintenance – subject to the provisions of the Maintenance of Surviving Spouses Act 27 of 1990 – from the estate of the deceased, if he/she is not able to maintain themselves. The Constitutional Court had to consider whether the rights conveyed in this Act could also apply to parties in a cohabitation relationship. This was considered in the case of Volks No vs Robinson and Others in 2005. The facts were as follows: Mrs Robinson was in a permanent life partnership with the late Mr S, from 1985 until the latter’s death in 2001. They were never married and no children were born of their relationship. During the lifetime of the deceased, they had jointly occupied a flat situated in Cape Town on a continuous basis from early 1989 until Mr S’s death. She stated that, to a large extent, Mr S had supported her financially. He gave her R5 000 per month in order to cover household necessities and would deposit money into her account whenever she needed it. He also gave her petrol money and paid for her car maintenance. She had been accepted as a dependant on his medical aid scheme from January 2000.

JANUARY 2012

Legal

The majority of the Court held that the Act could not be applied in this case. They concluded that extending the provisions of the Act to the estate of a deceased person who did not have an obligation to maintain his partner during his lifetime, would result in the creation of such a duty after death. This, they found, was not justified or reasonable. The court held that while there was a reciprocal duty of support between married persons, “no duty of support arises by operation of law in the case of unmarried cohabitants”. The Court emphasised that circumstances of each cohabitation relationship would be treated differently depending on its merits.

The Cohabitation agreement Cohabitation is defined (in the Oxford Dictionary) as “a stable, monogamous relationship where a couple live together and have a sexual relationship without being married.” This includes same-sex couples. Due to the potential pitfalls at the dissolution (either by mutual agreement or death) of such relationships, it is suggested that a cohabitation agreement be entered into by the parties to govern the relationship. The agreement will, among other things, stipulate the following: • the financial contribution by each party; • ownership of assets bought during the relationship (where the asset is not registered in both parties’ names); • distribution of assets acquired during the relationship at the end of the relationship; • and the maintenance obligations towards each other at the end of the

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relationship. Other means of protecting each other – especially in the case of death – would include: • Life insurance to provide for the settlement of debt and maintenance requirements, etc; wills should be drafted to give effect to their wishes and also to coincide with any provisions of cohabitation agreements. Note: Where children are born from this union, a maintenance obligation will automatically exist toward the minor child as each parent has an inherent obligation to maintain their children.

Domestic Partnership Bill The lack of regulations for domestic partnerships has led to the formulation of the Domestic Partnership Bill, which is expected to become law soon. Grounds for such a law are that: • the partners have no legal duty to support each other during and/or after the termination of their relationship. • the property rights of the partners are not adequately protected. • when the relationship ends the contributions made by the partners are ignored, and • the surviving partner has no legal remedy to claim maintenance from the deceased partner’s estate. The objectives of this Bill are to ensure the rights of equality and dignity of the partners in domestic partnerships and to reform family law. The Bill strives to provide recognition of the legal status of domestic partners, the regulation of the rights and obligations of domestic partners, and the protection of the interests of both domestic partners and interested parties on the termination of the domestic partnerships. As with the Civil Union Act and the

Recognition of Customary Marriages Act, the Bill requires parties to register their partnership. It is important to note that the Bill creates a duty of support between the registered domestic partners, and gives the courts power to grant equitable maintenance orders where there has been no maintenance agreement. It also broadens the interpretation of the definition of a “spouse” in the Maintenance of Surviving Spouses Act and the Intestate Succession Act, to include a registered domestic partner.

Conclusion Even though the Domestic Partnership Bill does not provide the same legal framework as the Marriage Act and its related pieces of legislation, it does provide parties with a framework in which to formalise live-in relationships. Parties opting not to get married under the Marriage Act should pay attention to the options available to them, and make sure they choose the alternative best suited to their personal situation. When deciding to live together, parties should consider the various alternatives available, which include entering into a cohabitation agreement, registering a domestic partnership once the Bill is enacted, registering a union in terms of the Civil Union Act, or to register a customary marriage in terms of the Customary Marriages Act. There is no reason for parties to be financially exposed when this relationship comes to an end. By implementing a proper plan at the start of the relationship, the parties can secure an equitable situation at the end of the relationship.

JANUARY 2012

Wealth

Momentum Positive Return Fund Hedging your bets to benefit from No Negative Returns The concept of compounding return is quite remarkable, but one that the ordinary man in the street usually knows very little about. Albert Einstein once called it â&#x20AC;&#x153;the greatest mathematical discovery of all timeâ&#x20AC;?.

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Compound interest may be a miracle, but negative compounding is misery. Many investors who followed “conventional wisdom” of only long equity investments, ran into the devastating effect of negative compounding of 2008-2009. There is no reason to assume future returns will be as high as in the past (before 2008). The Dow showed zero growth from the late 1890s to the 1930s. Could the late 2010s be a similar predictor? Will the Dow in the 2030s be lower than today? Japan has had negative index “growth” over the last 25 years. If it can happen in the two largest economies, it can certainly happen elsewhere! The question investors must ask, is: Should you wait years for the socalled equity risk premium or upward drift of the equity markets to reassert itself, or would you rather make positive returns in the meantime? Negative periods can destroy value and diminish returns severely. As Warren Buffett puts his investment strategy: 1. Don’t lose money; and 2. Don’t forget rule no.1. So why is positive compounding so important and how does it work? Well, it only really gets interesting at higher return levels. Over 20 years at 4% compounded, R100 grows to just R219, while at 8% to R466. However, at 15% it grows to R1 636, and at 30% to the princely sum of R19 004, which is why positive return investors such as Warren Buffett are billionaires. As usual, the story is more complex than simply letting compounding do miraculous work. Negative years following a previous negative year severely impacts on long-term planning. If you lose 50%, you need 100% performance to just break even. Positive compounding is a convex function; it gets much more effective at higher numbers, but of course sadly also for negative compounding.

Contrary to what we are led to believe, investors can only spend positive compound returns, not average returns. Nevertheless, the average returns are often mentioned by those seeking to promote an investment approach. This practice can often mislead investors who don’t understand how money is made and lost over a period of time, due to compounding, in markets that move up in one year and down in the next. There are two factors that can have a significant impact on the realised returns experienced by investors: the dispersion of returns, and the impact of negative returns. Avoiding negative compounding is the key to successful investing. One of the best ways for investors to achieve target returns and avoid negative compounding, is a strategy of an allocation to well-managed, protected equity. So how do you hedge your bets, benefit from positive market performance, catch the upswings, and soften the downswings? The Momentum Positive Return fund is ideally positioned for investors who are concerned with market performance and preserving capital. The fund is a modern strategy fund that pursues positive returns with lower volatility than traditional funds, to help diversify portfolios for all kinds of investors.

The fund has two distinct objectives: Firstly, to preserve your investment capital. Capital preservation is a key investment principle. Preserving capital ensures that you do not lose the benefits of compounding. Suppose you invest R100 in an equity fund, and the first year it is up 20%, and the next year it loses 20%. This up/down cycle then repeats for 20 years. (Such a scenario is not as unlikely as it sounds. Just look at the US stock market performance since 1995).

How much will you have at the end? The surprising answer is you would have a grand total of R66 and inflation kills whatever purchasing power R66 will have 20 years from now. Maybe a stick of gum, a can of soda or a litre of petrol? Avoiding major drawdowns is critical for future long-term wealth creation. Capital preservation is therefore an extremely important investment principle. This fund aims to preserve capital by having no negative returns over a rolling 12-month period. Secondly, for your investment to achieve “real returns”, that is, returns that beat inflation, you need equity-type exposure. In an uncertain and highly volatile economic environment, cash alone is not able to provide returns that keep up with inflation. To achieve real returns, you typically need to take on higher risk than cash. This fund adds protected equity exposure so that you have exposure to equities, but with protection built in, should equities perform poorly. This prevents your investment from being fully exposed to equity volatility. Having worked hard to accumulate savings, the last thing you want to do is put your capital at risk. Now you have the opportunity to grow your investment steadily in rising markets through protected equity exposure. The Momentum Positive Return Fund provides an opportunity to invest in a fund that will preserve your investment capital, and give you growth when markets rise. The combination of capital preservation and cautious equity exposure can help you achieve your investment goals.

JANUARY 2012

Peak Hours The following periods are the peak periods during business days (Monday - Friday): • The morning peak period will last for three hours, beginning at 05:30 and ending at 08:30. • The afternoon peak period will also last for three hours, beginning at 16:00 and ending at 19:00. Services Intervals During Peak/Off Peak/ Weekends and Public Holiday Periods • Service intervals are 12 minutes at peak periods. • Service intervals are 20 minutes at off peak periods. • Service intervals are 30 minutes on weekends and public holiday periods. Opening/Closing of the Stations • All stations will be opened 15 minutes before the arrival of the ﬁrst train. • All stations will be closed 15 minutes after the arrival of the last train. • No Bus services on weekends and public holidays. One Gautrain Gold Card Per Passanger (Cost R10) • Gautrain Gold Card valid for 5 years (same card can be re-used over and over again). • Remember to add enough “Pay-As-You-Go” value on your Gautrain Gold Card for your parking and bus fares. • Children under 3 years of age travel free of charge. Carry non-paying children or ask attendant for assistance. • The same Gautrain Gold Card can be used to board both the Bus and Train.

Cutting edge

Kindle Fire Sets Online Content Ablaze The new Kindle Fire will allow users to access more online content than ever before. Over 100,000 movies and TV shows will be available from Amazon Instant Video, including thousands of new releases and popular TV shows, available to stream or download, purchase or rent – all just one tap away. Amazon also offers users over 17,000,000 songs from Amazon MP3 and over 1,000,000 Kindle books, including thousands of bestsellers, children’s books, comic books and cookbooks in rich colour. 100 exclusive graphic novels, hundreds of magazines and newspapers and all the most popular Android apps and games will be available. Weighing in at approximately 410 grams, the Kindle Fire is small and light enough to hold in just one hand. Its content comes alive on a 7-inch full colour LCD touch screen and this display is chemically strengthened to be 20 times stiffer and 30 times harder than plastic, which means it will stand up to accidental bumps and scrapes. www.amazon.com.

JVC Introduces Hybrid Camera JVC’s new digital camera uses a high speed imaging engine to shoot both high quality digital still images and stunning Full HD video. The JVC GC-PX10 is a true hybrid camera that shoots 12 megapixel stills and Full HD 1920 x 1080/60p video. In addition, it offers professional-level capabilities as 60 shots per second still image shooting and 300 frames-per-second video recording for high-quality super-slow motion capturing. At the heart of the GC-PX10 is JVC’s new Falconbrid high speed imaging engine – a single-chip technology with the processing power to allow the GC-PX10 to record Full HD progressive video at 36Mbps for rich, detailed images. The camera can also shoot 8.3 megapixel stills while recording Full HD video for clear, high-quality still images from recorded video. With 32GB of internal memory, its features also include optical image stabilization with JVC’s Advanced Image Stabilizer, 10x optical zoom, 19x Dynamic Zoom, Konica Minolta HD Lens, microphone output and headphone input. www.jvc.com.

JANUARY 2012

Great Sounds from Bowers & Wilkins The Bowers & Wilkins P5 headphones are designed for use on the move – offering access to the best sound quality wherever you are. Many mobile headphones can be tiring when listened to over extended periods, but the P5 headphones boast a natural performance designed not to tire listeners. The use of specially developed ultralinear neodymium magnets and highly optimised mylar diaphragms provide the best sound quality possible. The speakers are made from materials that remove a lot of external noise, providing an enveloping listening experience without completely removing the user’s sense of place. To offer the perfect user experience – the leatherclad headband has been designed for extreme comfort. Recognising the dominance of Apple’s iPod and iPhone in the portable media market, the P5 comes supplied with a “Made For iPod”approved cable, which allows for speech and device control. The Bowers & Wilkins P5 Headphones are distributed locally by HFX Systems – visit www.bwloudspeakers.co.za for a retailer closest to you.

Revved up

Powerfest

The return of the Johannesburg International Motor Show South Africans car fans recently celebrated the return of Africa’s only International Automobile Association endorsed motor show. Petrolheads simply call it, JIMS, but the 2011 Johannesburg International Motor Show was anything but that. Local passenger and heavy commercial vehicle brands brought it on in a big way with new model previews and some mind blowing concepts straight from the Frankfurt Motor Show. Although more modest than Frankfurt in size, JIMS 2011 punched well above it’s weight in the excitement stakes, and we take a look at some of the hottest wheels heading your way in 2012.

Audi RS 3 Sportback As the latest in a long line of Audi RS performance cars, the RS 3 is the ultimate iteration of the popular A3 Sportback, and is powered by the same 250 kW five-cylinder turbo engine also found in the blisteringly fast TT-RS. The RS 3 Sportback features a seven-speed S tronic dualclutch transmission with shift paddles, as well as Audi’s Quattro all-wheel dive system. It runs on bespoke 19” alloy wheels. The benchmark 0-100 km/h sprint time is despatched in just 4.6 seconds. Remarkably, fuel consumption is just 9.9 litres/100 km, thanks to the engine’s efficient direct-injection technology.

Range Rover Evoque

As the most exciting new model from Land Rover in just about forever, the Range Rover Evoque pulled the crowds at JIMS 2011. It is the smallest and most fuel efficient Range Rover ever produced and heralds a new dawn for the luxury SUV brand. Available in either a coupé or 5-door configuration, the Evoque offers many personalisation options and innovative tech add-ons such as the dual-view 8-inch touch-screen display. The Range Rover Evoque will be sold in 160 countries worldwide and will be available in South Africa in November 2011. Expect a starting price of R582,995.

Hyundai Veloster 2+1 Coupé There seems to be no stopping Korea’s mighty Hyundai Motor Company as it marches toward the goal of becoming the world’s best loved car brand. Already the fourthlargest globally, Hyundai Motors South Africa boosted its already comprehensive range of cars with the unveiling of the Veloster fourdoor compact coupé, with its unique third door on the passenger side of the car. This all-new stunner will be available in 2012 and is rumoured to be endowed with a 1.8 litre turbo charged four-cylinder mated to Hyundai’s first EcoShift dual-clutch transmission. Totally unique, the Veloster’s 2+1-door coupé design adds the functionality of a hatch back and should lure younger power-hungry buyers to Hyundai showrooms. Also seen at JIMS were the all-new Elantra and Accent sedans and their bigger sibling, the Sonata, the i10, i20 and i30 hatchbacks, as well as the ix35 and Santa Fé SUVs.

January 2012

Feature

New Year, new beginnings “A journey of a thousand miles must begin with a single step.” – Lao Tzu

A new year brings with it many opportunities, dreams, desires and renewed hope. At the beginning of the year, it is crucial to decide on the priorities for the year ahead. There’s another opportunity to start afresh and approach 2012 differently.

Make a balanced plan with goals in each area of your life to move your physical, social, educational, financial, mental and emotional self forward. Make sure that your goals are reachable by making them very specific and measurable. There are often things we leave undone in our lives. Things we wish we had done, things that are always sitting at the back of our minds and draining our energy. These are “energy leaks”. Let 2012 be a unique year symbolising a new beginning of a better tomorrow. Focus on eliminating distractions, spread happiness and be ready to celebrate new hopes and dreams. Here are some tips to help keep New Year resolutions: Be realistic • Set attainable goals.

Plan ahead • Ideally, you should have already set

JANUARY 2012

your goals and objectives a while back.

Outline your plan • Decide how you’ll deal with temptation.

Make a “pro” and “con” list • This helps to keep you motivated, strong and enthusiastic, as well as prioritising your goals.

Stick to it • Keep striving towards reaching your goals.

Keep trying • If your plans run out of steam during the first quarter of the year, don’t despair. There’s absolutely no reason you can’t make a New Year’s resolution any time of year.

Talk about it • Share your New Year’s resolutions.

Reward yourself • Recognise your efforts with small rewards, thereby strengthening your resolve to keep on track.

Track your progress

This is a chance to start on a clean slate, an opportunity for introspection and anticipation. Let us welcome the new year with a positive attitude. Happy New Year

• Keep track of each success; every little achievement counts.

Don’t beat up yourself • Obsessing over defaults won’t help you achieve your goal. Do the best you can each day, and take it one day at a time.