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The Financial Planner Telephone: 086 1000 FPI (374) Tsholofelo Dihutso, CPRP Communications and Events Specialist (011) 470 6050 Postal address: PO box 6493, Weltevredenpark, 1715 Street Address: Palms Office Court, Block A, Ground Floor, Kudu Avenue Allen’s Nek, Gauteng, South Africa Membership Queries Published by COSA media Advertising: Michael Kaufmann 021 555 3577 Michelle Baker

Contents Foreword | 04 Tribute to Harry Brews | 06 Budget 2013: assessing impact | 10


TCF vs. FAIS |14


From advisors to planners to business people |16 Call centres face challenges under TCF | 18


Consider all possibilities when bequeathing a loan account | 20 Unit trust choices made easier | 22


A values-based approach can attract and retain clients | 30 Fpi magazine, published by COSA Media, a division of COSA Communications (Pty) Ltd.

Opinions expressed in this publication are those of the authors and do not necessarily reflect those of this journal, its editor or its publishers, COSA Communications. The mention of specific products in articles or advertisements does not imply that they are endorsed or recommended by this journal or its publishers in preference to others of a similar nature, which are not mentioned or advertised. While every effort is made to ensure accuracy of editorial content, the publishers do not accept responsibility for omissions, errors or any consequences that may arise therefrom. Reliance on any information contained in this publication is at your own risk. The publishers make no representations or warranties, express or implied, as to the correctness or suitability of the information contained and/or the products advertised in this publication. The publishers shall not be liable for any damages or loss, howsoever arising, incurred by readers of this publication or any other person/s. The publishers disclaim all responsibility and liability for any damages, including pure economic loss and any consequential damages, resulting from the use of any service or product advertised in this publication. Readers of this publication indemnify and hold harmless the publishers of this magazine, its officers, employees and servants for any demand, action, application or other proceedings made by any third party and arising out of or in connection with the use of any services and/or pro-ducts or the reliance of any information contained in this publication.

Probing the POPI Bill | 32

06 Sections:




client engagement








practice management




The Financial Planner


Letter from the FPI


x Africa semper aliquid novi!” Pliny the Elder, the great Roman thinker, observer and scientist could easily have been referring to the South African Financial Services industry when he said, “Out of Africa, always something new!” two thousand years ago.

Back in the late 1990s, we witnessed the start of consultation around what was then called the Financial Advisory Bill, later to evolve into the Financial Advisory and Intermediary Services (FAIS) Act and the first version of the Policy Holder Protection Rules.

These first steps came as a shock to many, but as a vindication to others. Many of those businesses and individuals who had committed themselves to a client-centric, long-term thinking approach were already doing most of, and often more than, the requirements that began to emerge. For example, the CFP® professional was already being examined on the Six Step Financial Planning Process and was required to show the ability to propose both plans and products based on information and priorities provided by clients.

Regulatory Examinations The introduction of the Regulatory Examinations in 2010 were again a shock for many, but was deemed necessary by the regulator to ensure the upgrading of skills and knowledge and the disqualification of inappropriate people who had been offering financial advice. Once again, the skilled professionals stood tall by energetically addressing the examinations and welcoming the enhancement of standards of advice and the reputation of the industry.

Treating Customers Fairly (TCF) It is now three years since the Financial Services Board (FSB) announced its next regulatory project. Using the model of the British system, it released a discussion document in May 2010 in which six desired outcomes were described. The document sought to see the following as a result of this new initiative: • O  utcome 1: Customers are confident that they are dealing with firms where the fair treatment of customers is central


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to the firm’s culture. • O  utcome 2: Products and services marketed and sold in the retail market are designed to meet the needs of identified customer groups and are targeted accordingly. • O  utcome 3: Customers are given clear information and are appropriately kept informed before, during and after the time of contracting. • O  utcome 4: Where customers receive advice, the advice is suitable and takes account of their circumstances.  utcome 5: Customers are • O provided with products that perform well as firms have led them to expect, and the associated service is both of an acceptable standard and what they have been led to expect. • O  utcome 6: Customers do not face unreasonable post-sale barriers to change product, switch provider, submit a claim or make a complaint.

It is well-nigh impossible to find fault with any aspect of these objectives. They are almost axiomatic and any well-run business in any industry – fast food, furniture, motor vehicles, electronic goods, fixed property – should be entitled to expect no less than this attitude from their service providers. The financial services industry should aspire to be if anything more client-centric than other industries.

Where do we go? A thought-provoking and challenging article entitled TCF vs. FAIS appears in this issue. Almo Lubowski, CFP®, has brought together the similar and different aspects of these two core aspects of our industry. You would do well to use it as a blueprint for guiding you into the next phase of our regulatory dispensation.

Other changes Of course, we are not regulated only by the legislation that falls under the FSB. Other matters

which have arrived or are still evolving and will have a longterm impact on our industry are: • T he National Credit Act, in particular its impact on insurance products used to manage the risks after a person has either borrowed money or entered into credit based purchase agreements. • T he Consumer Protection Act and its impact on financial product sales. • N  ational Health Insurance, which has the potential to impact on medical schemes of all varieties. • T hose aspects of the new Companies Act that prescribe the ways in which service providers are to interact and communicate with company clients and the format and contents of documentation used for these purposes. All of these will have to be read and implemented by us in alignment with FAIS and TCF if we are to ensure both

compliance and, even more important, best business practice with a focus on client-centricity.

“The speakers at this year’s FPI Annual Convention will be every bit as exciting as we had last year, and they too will provide a vision of the exciting new landscape that is evolving for us.” Looking ahead The FPI and its members have a long history of embracing change. The many changes we have already experienced and those that will come in the future will, as always, separate the wheat from the chaff. The FPI will be offering many Continuous Professional Development (CPD) events and other training sessions this year. The speakers at this year’s FPI Annual Convention will be every bit as exciting as we had last year, and they too will provide a vision of the exciting new landscape that is evolving for us. The FPI Regional Committees will continue to play a vital role in supporting you and enabling you to break new ground. Best wishes for an exciting, challenging and rewarding year.

Chris Busschau, CFP ® Head of Examination Body, FPI

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The man who transformed South Africa’s life assurance industry


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The Financial Planning Institute pays tribute to the late Harry Brews

Harry Brews transformed South Africa’s life assurance and financial planning industries into what they are today: ethical, respected and knowledgeable. Before, there was little respect for life assurance agents and the industry; with many perceiving them as lacking levels of good service and expertise when guiding clients on making sound decisions in their life assurance policies. “This was in the 1970s and most of us in senior positions in the industry were well aware of the public perception that many life assurance agents were more like used car salesmen than investment advisors. This may well have been the case, with many agents having little knowledge of the nuances of inflation, taxation, investment options, estate duty, wills and the like – in other words ‘personal financial planning’,” said Harry in an interview conducted in 2012.

From good to great Coming from a Liberty Group background in the Natal Region, where he already played a significant role in the insurance business by empowering brokers with more refined and

“A CERTIFIED FINANCIAL PLANNER® professional must have strong morals. He must abide by the Financial Planning Institute’s code of ethics. The interests of his clients must be his absolute priority. A CFP® professional must advise his clients to utilise whatever product is best for his client, not what is best for the CFP professional.” – Harry Brews, CFP® and first president of the then, Institute of Life and Pensions Advisors (ILPA).

improved technical skills, Harry later moved on to become the first president of the Institute of Life and Pension Advisors (ILPA) which was formed in 1980. “Our function was to set up and control the required standards of expertise and ethical standards,” he said. It was here that he became very perturbed by the life assurance industry that was not willing to provide further training to assurance intermediaries. He strived to ensure that they were more skilled, received further education and training in financial planning as well as effective methods of controlling the discipline and ethics of intermediaries.

“This was in the 1970s and most of us in senior positions in the industry were well aware of the public perception that many life assurance agents were more like used car salesmen than investment advisors. In 1981, Harry was instrumental in motivating a team of qualified financial professionals to travel to the United States to study the underlying principles and activities of what was then the American Society of Chartered Life Underwriters. He also helped to set up the education programme combined with a binding code of ethics within the ILPA. This later saw the introduction of CFP certification in South Africa.

But it was a result of all his team efforts that the Financial Planning Institute (FPI) became known as the pre-eminent standards setting body for competent and ethical financial planners, as it is internationally recognised today.

The life assurance industry today The combined efforts of Harry have helped to elevate the life assurance industry standards to a degree that it is also widely recognised among professionals, ranging from bankers and lawyers to accountants and investment managers. Harry once said: “Many of them understand that a well-qualified CERTIFIED FINANCIAL PLANNER professional has a wider vision. A CFP professional is intellectually capable of balancing all aspects of personal financial planning – the client’s age, circumstances and objectives, the client’s taxation, what the investment philosophy should be, estate duty considerations, the implications of inflation, the pros and cons of trusts. Professional persons, who do not have the CFP mark behind their name, should understand that they are not qualified to advise on personal finance planning.” “The FPI mourns the recent passing of Harry Brews, a man who made a great contribution to setting the professional standards in the industry and elevating it to the level of other reputable professions,” said Godfrey Nti, CEO of the FPI. “We have no doubt that his legacy will live on as the FPI continues to uphold the ethics and professional standards that Harry stood for.”

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Continuous Professional Development

events Portfolio Construction Workshop In this year’s workshop, facilitator Brandon Zietsman looks at ways in which to integrate the financial personality (willingness to assume risk); financial analysis (ability to assume risk); and financial solutions (portfolio risk and return) elements. Aimed at professional financial planners looking to develop their understanding of integrated wealth management and portfolio construction, the following topics will be covered: • Portfolio optimisation and asset allocation • Scenario and cash flow modelling • Financial personality and portfolio risk.


Members: R800 (incl VAT) Non-members: R1 040 (incl VAT)


13 March – Randpark Club, Johannesburg 18 March – Protea Hotel, OR Tambo, Johannesburg 15 March – Protea Hotel, Willow Lake, Bloemfontein 19 March – Coastlands on the Ridge, Musgrave 11 April – Sorex Estate, Centurion, Pretoria 19 April – Eastern Cape, Premier Hotel, East London 16 May – Crystal Towers, Century City, Cape Town 17 May – Protea Hotel, Stellenbosch Delegates can claim three CPD points in skills and abilities categories for attending this workshop.

For further information on the above events, please contact the FPI events team at


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Retirement Workshop

Estate Planning Workshop

With global trends regarding retirement continually challenging the norm, terms such as ‘refirement’ and ‘retyrement’ are becoming buzz words for baby boomers. Bottom line is that times are changing and, as planning professionals, we should anticipate and react to this reality. Closer to home, retirement reforms dominate the legislative horizon and as the government starts introducing principles and themes to what it deems to be prudent investing, we should examine our own philosophies and value propositions to ensure we don’t become redundant. The annual Budget Speech by the Finance Minister took place on the 27 February 2013 and there is an air of anticipation about what changes may lie ahead regarding tax changes to investments. In this miniworkshop, the tax changes over the last couple of years will be covered and will explore how this could or should be impacting your planning techniques. This will include: • Role of retirement annuities vs. other investment vehicles in pre-retirement planning. • Dealing with lump sums at retirement (tax vs. liquidity). • Post-retirement planning – the good, the bad, the ugly.

The aim of this year’s estate planning event is to bring theory and academics together in a workshop which is designed to be practice focused. Wessel Oosthuizen, CFP® and Marius Botha, CFP® are our highly experienced presenters and will address the following during this full-day interactive workshop:


Early bird price expiry on 10 April Members: R640 (incl VAT) Non-members: R936 (incl VAT) Normal price Members: R800 (incl VAT) Non-members: R1 040 (incl VAT)


17 April – Protea Hotel, OR Tambo, Johannesburg 24 April – Randpark Club, Johannesburg 25 April – Sorex Estate, Centurion, Pretoria 8 May – Coastlands on the Ridge, Musgrave, Durban 9 May – Eastern Cape (venue to be confirmed) 30 May – Crystal Towers, Century City, Cape Town 31 May – Protea Hotel, Stellenbosch

• A  n overview of the most popular estate planning tools. • Three case studies, dealing with the same client at different times in his life. • The effect of proper estate planning throughout the person’s lifetime. • The latest legislation that affects certain estate planning tools which are worked into the case studies. • The interaction between estate planning and other financial planning disciplines which will be discussed in the three case studies. • Presentation of final plans to the three estate planning case studies.


Early bird price expiry on 10 April Members: R640 (incl VAT) Non-members: R936 (incl VAT) Normal price Members: R800 (incl VAT) Non-members: R1 040 (incl VAT)


16 April – Crystal Towers, Century City, Cape Town 17 April – Protea Hotel, Stellenbosch 19 April – Protea Hotel, Willow Lake, Bloemfontein 13 May – Protea Hotel, OR Tambo, Johannesburg 14 May – Randpark Club, Johannesburg 16 May – Sorex Estate, Centurion, Pretoria 28 May – Coastlands on the Ridge, Musgrave Delegates can claim six CPD points (four for knowledge and two for ethics and practice standards) for attending this informative session.

Stand out. Be extraordinary

FINANCIAL SERVICES ADVISOR™ / FSA™ designation A new designation introduced by the Financial Planning Institute (FPI), which represents another level of professionalism in the financial services industry. The designation effectively enables individual financial advisors to once again differentiate themselves as well as provide trusted expert advice to consumers.

One step to the top! Find out more at email: or contact: 086 1000 FPI (374)

FSA™ and FINANCIAL SERVICES ADVISOR™ are trademarks owned by the Financial Planning Institute of Southern Africa.

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Budget 2013: assessing impact South Africa’s economy continues to grow, but at a slower rate than projected at the time of the 2012 Budget. GDP growth reached 2.5% in 2012 and is expected to grow at 2.7% in 2013, to 3.8% in 2015.

This was announced in Finance Minister Pravin Gordhan’s annual Budget Speech in February. According to the Minister, debt will stabilise at just higher than 40 per cent of GDP and it is predicted that the budget deficit will fall from 5.2% of GDP in 2012/13 to 3.1% in 2015/16.

Disappointing revenue growth Arthur Kamp, economist at Sanlam Investment Management The real problem is that the economy is not performing and revenue growth has disappointed. While the Minister has held the line on spending in absolute terms, the Treasury has needed to make use of contingency reserve to achieve this. The options are to cut spending; raise taxes; sell assets; or accept fiscal slippage, run larger deficits and let the debt ratio increase more than previously projected. We are opting for the latter option. There is significant deterioration in the expected deficit outcomes over the medium term compared with previous projections made in February 2012. The consolidated Budget deficit for 2012/13 was projected at 4.6% of GDP in February last year. We have ended up with 5.2%. By 2014/15, the deficit is now budgeted to decline to 3.9% (previously the Treasury expected three %). There is material slippage and the debt ratio continues to increase in the medium term. Gross debt is now expected to increase to 44.6% of GDP (40.3% for net debt) by 2015/16 from 41.8% of GDP (36.3% for net debt) at end 2012/13. The upward trajectory is slowed to a degree in that the Treasury is running down its cash balances.


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budget For funding purposes it is the main budget deficit that is relevant (this excludes the social security funds that run surpluses and is therefore larger than the consolidated deficit). For 2012/13, the main budget deficit is now expected at 5.7% of GDP, followed by 5.2% in 2013/14. This is still high and the borrowing requirement for the year ahead (2013/14) goes up from the R158 billion expected when the Budget was read in February last year to a revised R178 billion. The Treasury has held off on hiking the tax burden this time, probably because it is wary of further burdening an already struggling economy. But, if growth continues to disappoint, then in the absence of cutting spending, it probably can’t hold off on taxes indefinitely. In any event, more taxes (read carbon tax) are already in the pipeline.

Alwyn van der Merwe, director of investments at Sanlam Private Investments A constrained revenue stream and continued political demands meant that the Minister delivered a balanced yet rather conservative budget. The Minister’s plan to reduce the deficit from the current 5.2% to 3.1% in 2015/16 is bold, as it is underlined by annual growth assumptions of 10% a year, although the Minister only has budget for approximately seven per cent per annum growth expenditure over the same period. Containing the wage bill will pose a challenge given reduced room from contingency reserves, an upcoming wage review, and risk of unplanned employment creation. The bond market should expect higher issuance. Net local issuance has been revised higher over the next three fiscal years to around R165 billion for each year, relative to the declining local issuance trend set out in the October mediumterm Budget policy statement. The increase in net issuance is being driven by the revision in the government’s borrowing requirement but also due to a more aggressive decline in the use of cash balances to finance any shortfalls.

Although social grants increased, our view is that the budget did very little to boost consumer spending. The amount of R827 billion budgeted for infrastructure spending is marginally lower. In his speech, however, the Minister emphasised the importance of delivery. Whether this confirmation of the commitment on infrastructure spending is enough to trigger interest in construction shares remains to be seen.

Retirement reform Kobus Hanekom, head of strategy, governance and compliance, Sanlam Employee Benefits Policy proposals introduced defaults in retirement fund or benefit structure design in order to nudge, rather than force, individuals into making decisions which serve their longterm interests.

Taxation of retirement funds Taxation rules and annuitisation requirements will be harmonised across all retirement funds during or after 2015. When this happens, employer contributions to retirement funds will become a fringe benefit in the hands of employees for tax purposes. Individuals will be able to receive an annual tax deduction on employer and employee contributions to a pension fund, provident fund or retirement annuity fund, up to 27.5% of the greater of remuneration and taxable income (excluding retirement annuity or lump sum income). A ceiling of R350 000 will apply. The threshold has been increased from R300 000 and the age distinction in respect of those under 45 years (22.5% and R250 000), referred to in the 2012 budget, has been discarded. It is still unclear how this will affect defined benefit pension plans.

Fund governance Fund governance is high on the Minister’s agenda and he will convene a trustee conference with a view to further strengthening the governance of retirement funds. PF Circular 130 will be elevated to a Directive and a draft published later this year, while the Financial Services Board will monitor trustee appointments and help ensure that trustees meet fit and proper requirements. The current FSB Trustee Toolkit may be elevated into a basic, independent, compulsory and free training kit for trustees. Preservation of withdrawal benefits Preservation rules will change for all retirement funds. It is expected that this will happen in or after 2015. Full vested rights with respect to withdrawals from retirement funds will be protected. Amounts in retirement accounts at the date of implementation and growth on these can be taken in cash, but only from a preservation fund and will be subject to taxation based on the current principles.


- Provident funds A number of annuitisation rules will be introduced when preservation rules are changed. The annuitisation requirements of provident funds and pension funds will be harmonised and members of provident funds will be required to use two-thirds of the benefit to purchase a life annuity. The new rules will apply only to new contributions made to provident funds after this day and growth on these contributions. Existing balances in provident funds and growth on these will not be subject to annuitisation. Members of provident funds who are older than 55 years on the date of implementation will not be required to annuitise any of their balance at retirement, provided they remain in the same provident fund until they retire. To lessen the impact on provident fund members, the means test for the old age grant will be phased out by 2016, and the de minimis requirement for annuitisation will be raised from R75 000 to R150 000.

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- Default arrangements Trustees will be required to guide members through the retirement process; to identify a default retirement product in accordance with a prescribed set of principles; and to automatically shift members into that product when they retire, unless members request otherwise. The fund itself may provide the default product or it may use an externally provided product.

“Trustees who make commission-free financial advice available to members on retirement, paid for out of the fund on a salaried basis, will be given some legal protection in respect of the choice of the default.” Living annuities will be eligible for selection as the default product, provided certain design tests on charges, defaults, investment choice and drawdown rates are met. This is a significant departure from the position taken in the technical discussion paper entitled ‘Enabling a better income in retirement’, in which a fundamental restructure of the annuities market was proposed, one of which was a compulsory guaranteed annuity in respect of the first R1.5 million.

- Member advice and support In this budget addendum, for the first time National Treasury makes the point that “it is the responsibility of trustees to guide members through the process of converting their defined contribution lump sum accumulation into an income”. An FSB directive will be issued to outline minimum requirements. To increase competition, providers other than registered life offices will be allowed to sell living annuities.


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Trustees who make commission-free financial advice available to members on retirement, paid for out of the fund on a salaried basis, will be given some legal protection in respect of the choice of the default. Tax-preferred savings and investment accounts Government intends to proceed with and introduce tax-preferred savings and investment accounts by 2015. All returns accrued within the tax-preferred savings and investment accounts introduced by government by 2015 will be exempt from tax. The account will have an initial annual contribution limit of R30 000 and a lifetime limit of R500 000, to be increased regularly in line with inflation. The new accounts will coexist with the current tax-free interest income dispensation. The current interest exemption has been inflation-adjusted in this budget, possibly for the last time.

Cross-border remuneration and retirement savings South African residents working abroad and foreign residents working in South Africa regularly contribute to local and foreign pension funds, which gives rise to a variety of tax issues. While certain limited rules have long been in place,

these rules are largely ad hoc. With overall retirement reform now in effect, cross-border pension issues need to be fully reconsidered. The main issue is whether the tax focus should rely solely on the national source of the services provided or the national origin of the pension fund serving as the savings vehicle. Disability or income protection policies All non-retirement fund disability and income protection policies are to conform to the overall tax paradigm of non-deductible contributions and will exempt payouts. This would be a very unpopular measure and will reduce the average employee’s take-home pay.

Broader reforms Any biases in retirement fund rules which may discourage individuals from working past the retirement age of their funds will be identified and removed. It appears that Treasury wishes to remove the retirement date from the rules of the fund so that it will be solely determined by the conditions of employment. This might create a couple of challenges in respect of risk benefits. The formal consultation period on these proposals will close on 31 May 2013.





riminals derive profit through illegal activities, such as the sale of banned drugs, counterfeit goods, the trafficking of women and children, and other illegal activities. Criminals use the country’s financial transaction system to launder their illegal profits through various businesses and so make the profits appear legal. Your business could be used in these types of illegal activities. To prevent this from happening and to help turn your business into a partner in the fight against crime, you should ensure that your business complies with the requirements of the Financial Intelligence Centre Act No. 38 of 2001 (the FIC Act), as amended. Financial planners have been identified as being susceptible to abuse by criminals wishing to launder the proceeds of their criminal activities, often referred to as ‘dirty money’. An example of this is where a person wishes to invest a large sum of money and presents the financial planner with the amount in cash. The funds may have been acquired illegally but, once they are invested in a legal investment vehicle, the funds will appear to be legal. Compliance with the provisions of the FIC Act can help to ensure that your business does not play any part in the laundering of money or the financing of terrorism.

Obligations of financial planners in terms of the FIC Act Financial planners are categorised as accountable institutions in terms of the FIC Act. The Financial Services Board (FSB), being the supervisory body for financial planners, is responsible for the enforcement of various compliance requirements, including the terms of the FIC Act.

The obligations of an accountable institution (in this instance, financial planners) are summarised below: 1. You must register your firm with the FIC. This should be done online via the FIC’s website at A manual process for registering is also available and you should contact the FIC should you wish to go this route. 2. You have a duty to identify your clients. 3. You have a duty to keep records relating to your clients and to the transactions carried out with them. 4. You must provide reports to the FIC in the event of these types of situations occurring: a) Any cash transactions of R25 000 or more.

b) A suspicious and unusual transaction report must be submitted if you regard a transaction as in some way suspicious or unusual in comparison with normal business practice. This report is also filed via the FIC website. c) A terror property report must be submitted via the FIC website if you hold property on behalf of someone who may have been involved in carrying out terrorist activities. These reports assist the FIC in identifying transactions in which there may have been an attempt to launder the proceeds of crime. 5. You must introduce certain measures in your business to promote compliance with the FIC Act within the business.

You can access more information on the FIC Act, relevant regulations, exemptions and guidance, at For more information on registering your business with the FIC, contact us via e-mail at or phone 0860 222 200.

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Almo Lubowski, CFP® FPSA(TM), head of technical and advocacy services at The Financial Planning Institute of Southern Africa (FPI)

TCF vs FAIS As an advisor, if you have made FAIS a part of your business and processes then TCF won’t be a massive adjustment – Part 2

This is the second part of the comparison between the six Treating Customers Fairly (TCF) outcomes and how they match up with the FAIS Act. The aim of the comparison is to indicate that if the FAIS Act is being comprehensively applied in your financial advisory practice beyond a mere compliance function, but as a framework for good business practice, there should be very little that needs to change to achieve the TCF outcomes. For part 1 and the first three outcomes you will need to refer to The Financial Planner issue 27 to see those comparisons.

The next outcome is Outcome 4 – “Where customers receive advice, the advice is suitable and takes account of their circumstances.” The Code of Conduct makes provision for the suitability when furnishing advice to a client in section 8 of the Code of Conduct of FSPs. In terms of section 8 of the Code of Conduct an FSP must “take reasonable steps to seek from the client appropriate and available information regarding the client’s financial situation, financial product experience and objectives to enable the provider to provide the client with appropriate advice.” Furthermore an analysis must be conducted based on the relevant information for the purpose of the advice. Following this, a financial product or products can be identified that will be appropriate to the client, in relation to their risk profile and financial needs. The FSP must ensure that it takes all reasonable and necessary steps to ensure the client understands


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the advice given and the client is able to make an informed decision. The management of conflicts of interest is important in receiving suitable advice and product solutions in that an FSP should act in the best interest of the client and not because of a specific incentive or benefit it may be receiving from a product provider or any third party for that matter. This is dealt with in section 3A of the Code of Conduct.

Outcome 5 – “Customers are provided with products that perform as firms have led them to expect, and the associated service is both of an acceptable standard and what they have been led to expect.” Once again, this outcome would point mainly to a responsibility that would be carried by product suppliers that are creating the products. However, it points back again to what information is given to the client and what was disclosed in this regard. The requirement of suitability of advice and products as outlined above would also play a significant role in meeting this outcome due to the fact that unsuitable products will certainly not perform in line with the specific needs that the client may have. As an FSP is more concerned and involved with the service that is extended to clients, it would be prudent to begin with the ability to provide that service. According to the Fit and Proper requirements certain operational abilities are required of all FSPs. These requirements would

Client Engagement therefore ensure that the service delivered to the client is of an acceptable standard.

Outcome 6 – “Customers do not face unreasonable post-sale barriers to change product, switch provider, submit a claim or make a complaint.” Again this outcome is aimed mainly at product providers. However, often the customer’s link to the product supplier is the financial advisor and specifically if there is a form of agreed ongoing service between the parties, there is an obligation to assist the customer when they need to deal with the product supplier. This can be implied by the fact that an advisor is obliged to give yearly information (at a minimum) to the client on their product portfolio in terms of section 7 the Code of Conduct. There may well be a desire to cancel, switch or change aspects of the current portfolio at this point, and naturally the advisor or intermediary would need to assist with this.

“The FSP must ensure that it takes all reasonable and necessary steps to ensure the client understands the advice given and the client is able to make an informed decision.”

The principles and stringent requirements of the FAIS Act, if applied adequately and not just as a compliance exercise by an FSP, fair outcomes would certainly be achieved. It must be noted that the comparisons in part one and two were a very brief comparison between TCF and the FAIS Act and was adapted from the writer’s dissertation in partial completion of his LLM degree.

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From advisors to planners to business people Phil Billingham, CFP®, Chartered Financial Planner, Director, TCF Partnership

Most of us are advisors

The Regulator’s viewpoint

First, the good news. There are over 145 000 licensed CFP® professionals in the world, in around 24 territories. And that number is growing.

There are two main issues. The first is that regulators globally have made their distrust of the commission system absolutely clear. South Africa is no different to India, the United Kingdom, Australia and Holland in this regard. Others will follow. It seems prudent that the management of your business should move away from a system of payment that regulators dislike – commission – to one they do like – whether we call that fee, fee offset or advisor charging.

Now the bad news. Only a minority these carry out financial planning. By this, I mean those who carry out an explicit six-step process, and routinely use cash flow or scenario analysis to inform their recommendations and help clients come to an informed choice. In particular, using these tools to help clients reduce risk and cost in the portfolio is rare. But why is this the case? Why don’t financial planners do financial planning? Any one answer will, of course, be simplistic at best. Perhaps it is because many of us actually don’t know how In most countries – and South Africa is no exception – the CFP certification is designed to fully equip entrants with the technical skills required to be a planner. That will include the ability to analyse products and investment, the appropriate use of trusts and a variety of other critical areas of competence. What it does not really do is equip individuals to act as planners. It does not equip individuals to understand that the first step is not about regulatory disclosure, but it is the critical client engagement stage. Step 2 is not about fact finding, but discovery. And as for building a plan with valid assumptions, and creating client interaction with their goals, hopes, dreams and fears, hmmm… As long as the advice is sound and we earn a good living, what is the problem? Are we being too purist? The issue is that traditional advice, however technically competent and ethical, is product-centric. It is about selling the product as professionally as possible, and tellingly, being paid by the product provider for doing so. In short, the commission system.


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The second is that the financial planning process has the following attributes. • It is client-centric rather than product-centric. This means products are simply a solution to be considered in Step 5, rather than considered as filling the gap or a needs-and-wants process. Indeed, a new product may well not be needed, and it is important that the planner is still remunerated in this case. • It is holistic. It considers all the clients circumstances, even if the actual focus of the planning is narrow – at retirement for example. • It is focused on empowering the client to give informed consent, and places the role of trusted advisor on the planner. • It is a process, a discipline, the way we do business. This is the key challenge. The other reason that planners do not do planning is that as business owners

Client Engagement

“The good news is that financial planning is an established and robust business model.”

we naturally have a need to get paid and maintain an income stream to pay staff, premises and taxes. The financial planning process can be seen as a threat to that model, and so a commercial threat to our businesses. We therefore have a natural reluctance to change our model, as change is risky, and can be a threat to everything we hold dear. The good news is that financial planning is an established and robust business model. But the firm has to look and behave differently. As they say, putting go-faster stripes and alloy wheels on a car does not change the performance. You actually have to change something; be it the engine, gearbox or the brakes. In short, whatever you need to do in order to produce the required outcome.

Here, the focus is on ongoing client relationships and services and building in profit – at least 20% of turnover after costs and commercial salaries for everyone are taken into account. Another way to look at this structure is as per figure 3:


The old model looked a bit like figure 1:

IT Hunters went out and found cases, and dragged it back to the office to be complianced. They ate what they ‘killed’, and the clients belonged to them, as did most of the income. These firms have little real value, especially upon the death or retirement of the advisor. The new financial planning model looks rather more like figure 2:

Here, the client has a relationship with all the roles, and all roles interact and communicate with the clients and each other. The client is the client of the firm, and the firm delivers services and value. Essentially the difference is that in figure 1, the advisor has a job, and you can’t really sell a job. In figures 2 and 3, there is a proper business model, with proper business disciplines and real roles and responsibilities. That has value. It is scalable and allows for succession planning. It is proven; attractive to younger people looking for a career; it is capable of adding value to clients at different parts of their life; and it is capable of dealing with a variety of clients, not just the wealthy. If it is so perfect, why doesn’t everyone do it?

The finders’ role is to be rainmakers for the rest of the firm, where the minders fulfil the finders’ promises, supported by paraplanners, administration and technology.

The answer is simple. We were never taught how. We were taught to be hunters, and some of us became very good hunters. It never suited the product providers, who trained most of us, to show us how to run planning firms. But there is a growing body of evidence and best practice in this area and the journey is now well signposted. When are you going to start your transition: after the regulator pushes or before?

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Call centres face challenges under TCF You know the drill. The phone rings and is answered on the other end by an automated response that prompts your next move. After one or two (sometimes several) prompts requesting an action on your part (such as, ‘dial 3 for claims handling’) you may eventually reach a living, breathing human being – if that was your initial intention and you dialled the right number, of course. Call centres and the agents who fill them are a fundamental element of many sectors of the South African economy, insurance and financial services not least among them. But will these modern-day icons survive under the Treating Customers Fairly (TCF) regime? Dan Berglund, certified financial planner® and TCF workgroup chairperson at the Financial Planning Institute (FPI), thinks that call centres undoubtedly transgress TCF outcomes. “Call centres are not distinctive on the fair treatment of customers the way they currently operate. However, the more relevant question is whether they are providing sufficient advice,” he notes. “When direct insurers call customers attempting to sell them a product, they don’t consider whether the customer actually needs the product and seldom enquire about what cover they already have.” Even though exemptions do exist for direct sales under FAIS legislation, in a direct model it is far more likely that consumers will buy products that are not commensurate with their needs. “The call-centre model will have to change substantially as a result of this legislation and I hope that there won’t be many exemptions granted,” he adds.

Rethinking product design and distribution One of the most significant changes that insurers using call centres may have to make, certainly direct insurers, will be in product design. Head of TCF at the Financial Services Board (FSB), Leanne Jackson, says that direct insurers arguably have a far greater responsibility to ensure that the product is appropriately designed for the target market and product features are clear. “Insurers that market their products through telesales call centres should be particularly careful to ensure that customers do indeed understand the information provided to them and the financial, disclosure and other obligations imposed on them, before concluding a telesale,” she says. “It is not good enough to simply end the call by asking the customer whether they understood the conversation; few people are likely to admit to a stranger that they feel confused and unsure. If a customer has difficulty understanding a telephonic explanation, simply sending them the same information again in writing after the call will probably not help.” TCF asks whether the product is appropriately targeted and delivers on the reasonable customer expectations that the firm created when the product was marketed to them. Insurers need to consider the suitability of the distribution model they use, taking into account their identified


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target market when they design their products, including whether the product is an appropriate one to market on a no-advice basis. “Companies need to understand the markets they are selling into and whether the products are appropriate to these markets. In some cases, certain features of a product will need to be reconsidered, but in other cases it might just be a case of communicating more clearly and appropriately on what the product does and doesn’t do,” explains Jackson. This depends on a combination between the product features and the market to which it is targeted. “Financial services providers need to communicate with customers and manage their expectations. One of the big risks is that all the disclosure happens up front and then none takes place further down the line,” she adds. The importance of clear communication raises the question of whether call centre agents will need to be able to converse in all 11 of South Africa’s official languages in order to ensure that any and every customer has understood the product. Although the FSB does not at this stage have any plans to prescribe the use or availability of specific languages in which insurers must communicate with their customers, firms must nonetheless ensure that customers are provided with clear information and kept appropriately informed before, during and after the point

Client Engagement of sale. “The insurer would need to satisfy itself that customers are able to understand the communications provided to them. This in turn would mean that they would need to take into account their target market’s level of understanding of the language used by the insurer,” notes Jackson. “For example, it would be difficult for an insurer to justify limiting its communications to, say, English only, if it were operating in a target market that it knows has low levels of English language capability.” By implication then, multi-lingual call centres across South Africa will need to be a reality. But regardless of whether a product has been sufficiently explained and understood, outcome two of TCF stipulates that it must be designed to meet the needs of the customer group to which it is targeted. It’s unclear whether this will extend as far as a case-by-case basis, but if it does, call-centre agents will need to go some way to assessing the financial needs of the person on the receiving end of their sales pitch.

Beyond products Max Ebrahim, partner at Webber Wentzel, says that the crucial difference between the TCF policy and current legislation is precisely this. Most current legislation, such as the Policyholder Protection Rules (PPR) in the Long and Short-term Insurance Acts and Consumer Protection Act, address the fair treatment of customers extensively. But under the basic rules for direct marketers in the PPR there are no clear requirements for a thorough needs analysis of a person. However, under TCF it can no longer be assumed that a generic product, such as a funeral policy, will be suitable for any person on the other end of the line. “This requires a massive pre-sale shift as, in order to ensure the suitability of a product for the person on the other end of the phone, the agent needs to find out about the life of the individual that they are dealing with. This requires full and frank discussion and the direct marketer would need to explain what all the relevant terms mean, too. They will then need to assess whether the product is suitable for the person before issuing the relevant documentation. Essentially, this is converting the advisor’s role to that of the direct marketer,” says Ebrahim. This would mean that call centre agents would need to be FAIS-compliant under TCF, which will be a massive cost burden for direct insurers where this is not already the case. And the net could be wider than they think. “Even

where a call centre does not provide advice to customers (e.g. so-called execution-only models), if their activities can result in the sale of a financial product, they will in most cases still be rendering intermediary services for FAIS purposes, and thus still need to comply with all aspects of the FAIS Act other than those that relate specifically to giving advice,” explains Jackson. In this sense, TCF speaks to product suppliers, as well as advisers. “Most regulation has targeted advisers, but now product suppliers will have to re-examine the information they distribute and ensure that it is completely understandable,” says Berglund. “This will undoubtedly lead to some standardisation of products and companies will be deterred from creating overly complex products to outwit their competitors.” TCF will ensure that customers understand what they are buying and that as far as possible it is commensurate with their needs. This is certainly in line with National Treasury’s policy document, ‘A safer financial services sector to serve South Africa better’, and is no doubt a principle that most insurers would agree to. Yet there have there been grumblings from the industry.

Reality check? As an outcomes-based policy, TCF is aimed at encouraging corporate citizens to embed client-centricity in their culture, methodology and processes. In other words, it’s a question of culture rather than compliance. In her presentation at last year’s Insurance Conference, an annual event in the short-term insurance industry hosted by the Insurance Institute of South Africa (IISA), Jackson was critical of insurers that think adopting the six outcomes is a compliance function only, as it does not illustrate that they are embedding it into every area of their business.

a sophisticated financial services industry, we are an 18-year-old country and have far bigger battles to fight.” You only need to watch the news to know that this is true. In addition to countrywide challenges, insurers and financial institutions have a host of regulation to comply with, such as Solvency Assessment and Management (SAM) and Basel III, not to mention employment equity targets and an unforgiving BEE Scorecard. In this light, it’s perhaps understandable why they are shrugging their shoulders and concerned only with compliance. However, the flipside of this is that TCF can help create a sustainable financial services industry, in line with Treasury’s aims, thereby tackling some of the so-called bigger problems. The TCF roadmap explains that delivery of the six TCF outcomes will in turn ensure the supply of appropriate financial products and services to customers and enhanced transparency and discipline in financial institutions, resulting in improved customer confidence. “The final desired outcome is that customers’ financial services needs are appropriately met through a sustainable industry,” says Jackson. The FSB is clear that TCF will be explicitly included in the legislative and regulatory framework. This framework will further provide the FSB as market conduct regulator with the power to take enforcement action against firms that fail to deliver the TCF outcomes for their customers. Whatever your view, TCF is here to stay.

This speaks to the heart of TCF and that it should be self-driven, rather than driven by a regulator with a big stick. But is this realistic? TCF has been adopted from the United Kingdom; a First World country. Our reality is different to theirs and it could be argued that we have more pressing challenges to focus on. The fact that the First World has been grappling with this principle only recently is telling. “The irony is that as sophisticated as the United Kingdom market is and has been for many years, it only started implementing TCF seven years ago,” remarks Ebrahim. “Despite having

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Consider all possibilities when bequeathing a loan account Louis van vuren, CFP®, FPSA®, TEP, Director of Finlac, Member of the Fiduciary Institute of South Africa

In the wake of the proposed repeal of paragraph 12(5) of the Eighth Schedule to the Income Tax Act, 58 of 1962, estate planners will do well to carefully consider all options available when dealing with an outstanding loan account to a trust in the planning and drafting of a will for the creditor to the trust.

In one of the popular estate planning structures, estate owners were advised over the years (in appropriate circumstances) to sell growth assets to an inter vivos trust on outstanding loan account. Prior to the ABC case mentioned below, the outstanding amount of the loan on date of death of the seller was then bequeathed in his/her will to the trust, thereby completing the transfer of the full value of the asset(s) to the trust. Anybody who has been active in or keeping an eye on estate planning since 2006 will be aware of the absurd situation created by certain interpretations of par 12(5). This will now be a thing of the past for years of assessment ending after 1 January 2013. The notorious case of the ABC Trust v the Commissioner for the South African Revenue Service has been discussed in numerous articles and on numerous occasions at conferences and seminars over the years. In short, the Gauteng Tax Court (Bertelsman J) found for SARS that a bequest of “… Any amount that the ABC Family Trust may owe me, to the mentioned trust …” (my translation) was a reduction or discharge of a debt for no consideration as envisaged by the mentioned sub-paragraph. The mental gymnastics to get to this was mindboggling enough. According to the judgement, the estate’s asset (the loan) was “… extinguished by the operation of law, namely the set-off, which in turn was created by a disposition by the testatrix(the bequest) …”. Forget the fact that all


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other bequests dispose of value from the estate for no consideration. The absurd situation arising from this interpretation and application of par 12(5) was even worse as it created a special class of bequest from a deceased estate – special in the sense that it was the only type of bequest causing capital gains tax in the hands of the heir or legatee.

“In our law, interest on a loan is not assumed. If the loan agreement is silent on the issue of interest on the loan, the common law position is that no interest is payable, i.e. an interestfree loan. This has been almost the automatic option in typical estate structuring situations.” Various ways of avoiding this sprang up, the most popular being a bequest of an amount of cash equal to the outstanding balance of the loan, with an instruction to the executor to collect all debts and not award any debt to a legatee or heir. More absurdity to cover the original one.

estate planning Then came the judgement in XXX Trust v the Commissioner for the South African Revenue Service where the Kimberley Tax Court (Lacock J) held for the trust in similar circumstances. The marked difference here was that the outstanding loan was not bequeathed to the trust as a legacy, but formed part of the residue of the estate of which the trust was the only heir. This did not prevent counsel for SARS to argue, equally absurdly, that the reason why par 12(5) should apply was that the executor in the deceased estate did not collect the outstanding amount of the loan from the trustees before paying it back to them as part of the residue in the estate, but awarded it to the trust as part of the residue. Quite rightly the court did not fall for this argument.

[2005] ZATC 3 “Enige bedrag wat die ABC Familie Trust onder leningsrekening aan my verskuldig mag wees, aan gemelde trust.” 3 [2008] ZATC 3 4 Par 2.9(III)(B)(1) on p 45 of the EXPLANATORY MEMORANDUM ON THE TAXATION LAWS AMENDMENT BILL, 2012 published on 10 December 2012. 1 2

Now, more than seven years after the ABC case, the 2012 Taxation Laws Amendment Bill proposes the repeal of par 12(5). The Explanatory Memorandum published by SARS explains that “… Debt reductions or cancellations of this nature can be treated as a donation (potentially subject to the donations tax), as part of the bequest from an estate (potentially subject to the estate duty) or as disguised salary.” Finally, the absurdity seems to be coming to an end. But before all planners start reviving the old will clauses simply bequeathing the outstanding loan account to the trust without a second thought, it would be worthwhile to think about what other options are available in the typical situation where the original owner of the assets is owed an outstanding amount on loan account in the trust representing the whole or portion of the original purchase price of the assets now held in trust. In our law, interest on a loan is not assumed. If the loan agreement is silent on the issue of interest on the loan, the common law position is that no interest is payable, i.e. an interest-free loan. This has been almost the automatic option in typical estate structuring situations. However, it may be worthwhile to consider including a term in the loan agreement stating that interest may be charged at a stage and rate agreed by the lender (the original estate owner or his successor/s in rights) and the borrower (the trust, or more correctly, the trustees from time to time). Instead of just automatically bequeathing the outstanding amount to the trust, it could be bequeathed to the surviving spouse, or any other heir who may develop a need for income, to enable him/her to invoke such a term as an additional source of income in need. Obviously there will have to be an agreement reached with the trustees at the time, but there could be various possibilities to clear the way to such an agreement. Somebody asked the question recently whether the fact that part of the explanation in the explanatory memorandum is based on the potential estate duty liability caused by such a bequest could be an indication that SARS does not foresee an abolishment of estate duty in the near future. Let us hope not, as estate duty has been a nonsensical tax for some time now as capital gains tax becomes more and more effective upon death of the estate owner.

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Unit trust choices made easier Leon Campher, CEO of ASISA (Association for Savings and Investments South Africa),

1. The geographic exposure 2. The type of investment holdings that make up the fund. The funds are therefore no longer classified based on investment styles, such as value investing or growth investing. This fund structure will make it easier for both investors and advisers to: • U  nderstand and analyse the various fund types so that it’s clear exactly where their money is invested. • Select the appropriate funds for specific investment needs • Compare funds across and within categories.

The foundation of the new system According to Leon Campher, CEO of ASISA (Association for Savings and Investments South Africa), it took the organisation three years to revise the old fund classification standard inherited from the Association of Collective Investments (ACI) in 2008. “Not only did we have to ensure complete buy-in from our members, but we also had to test the proposed new fund classification structure with the Financial Services Board, since it regulates collective investment schemes against our fund classes.”

Easier to make and compare investment choices From 1 January 2013, retail investors will benefit from a revised unit trust classification system that makes it easier to understand, compare and select funds. Unit trusts will be classified according to the geographic location of the fund’s investments and the nature of the underlying investment holdings, for example whether it invests in equities, bonds or real estate.

Unit trusts groupings will improve understanding The new fund classification structure organises all unit trust funds according to:


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1. Funds are classified according to the geographic focus of the underlying investments Table 1: Geographical classification of funds from January 2013. Type of portfolio

Where the fund invests

South African portfolio

•At least 70% in South African investment markets. •A maximum of 25% outside of Africa. • An additional 5% in African countries excluding South Africa.

Worldwide portfolio

•Invests in both South African and foreign markets. • No limits for either domestic or foreign asset holdings.

Global portfolio

• At least 80% outside South Africa. • No more than 80% exposure to any specific geographical region.

Regional portfolio

•At least 80% outside South Africa, in a specific geographical region. Includes African countries other than South Africa.

investments Different geographical funds are organised in subcategories based on their underlying investments Each of the four geographical fund categories in Table 1 will be subcategorised according to the nature of their underlying investments – equity, multi-asset, interest-bearing and real estate portfolios – and then according to the main investment focus of the specific underlying investments. The details of these categories are set out in Tables 2.1 to 2.4.

Table 2.1 Equity portfolios Equity funds must invest a minimum of 80% of the market value of the portfolio in equities at all times.


Where the fund invests

a) General portfolio

Selected shares across all industry groups and across the range of large, mid and smaller cap shares.

b) Large cap portfolio

Large market capitalisation shares that have a market capitalisation greater than or equal to the company with the lowest market capitalisation on the FTSE/ JSE Top 40 Index or an appropriate foreign index published by an exchange.

c) Mid and small cap portfolio

Shares that have a market capitalisation smaller than the company with the lowest market capitalisation on the FTSE/JSE Top 40 Index or an appropriate foreign index published by an exchange.

d) Resources portfolio

Shares listed in the FTSE/JSE Oil and Gas and Basic Materials industry groups or in a similar sector of an international stock exchange.

e) Financial portfolio

Shares listed in the FTSE/JSE Financials industry group or in a similar sector of an international stock exchange.

f) Industrial portfolio

Industrial shares listed on the Johannesburg Stock Exchange or in a similar sector of an international stock exchange.

g) Unclassified portfolio

These are equity funds that do not fall into any of the above equity sub-categories. These funds invest in a single industry or sector or in companies that share a common theme or activity as defined in their mandates. Should it be considered appropriate, where five or more funds focus on a common industry, sector, theme or activity a new category will be created and the funds will be transferred to the appropriate category. It is important to note that the performance of funds in this category cannot be compared to others in this category because they have varying focal points and have different approaches.

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Table 2.2 Multi-asset portfolios

Table 2.4 Real estate portfolios

Multi-asset funds hold a variety of investments in the equity, bond, money and property markets.

These portfolios invest in listed property shares, collective investment schemes in property and property loan stock and real estate investment trusts.


Where the fund invests

a) Flexible portfolio

A flexible combination of investments in the equity, bond, money and property markets.

b) High equity portfolio

c) Medium equity portfolio

A maximum effective equity exposure (including international equity) of up to 75%. A maximum effective property exposure (including international property) of up to 25%. A maximum effective equity exposure (including international equity) of up to 60%. A maximum effective property exposure (including international property) of up to 25%.

d) Low equity portfolio

A maximum effective equity exposure (including international equity) of up to 40%. A maximum effective property exposure (including international property) of up to 25%.

e) Income portfolio

A maximum effective equity exposure (including international equity) of up to 10%. A maximum effective property exposure (including international property) of up to 25%.

Table 2.3 Interest-bearing portfolios Interest-bearing funds invest exclusively in bond, money market investments and other interest-earning securities. These portfolios exclude equity securities, real estate securities or cumulative preference shares. Sub-categories

Where the fund invests

a) Variable term portfolio

Bonds, fixed deposits and other interestbearing securities. May invest in short, intermediate and longdated securities.

b) Short-term portfolio

Bonds, fixed deposits and other interestearning securities. To provide relative capital stability, the weighted average modified duration of the underlying assets is limited to a maximum of two years. The weighted average duration is the average length of time to maturity of all the underlying securities in the portfolio, weighted to reflect the relative holdings of each instrument.

c) Money market portfolio

A maximum effective equity exposure (including international equity) of up to 60%. A maximum effective property exposure (including international property) of up to 25% of the market value of the portfolio.


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Where the fund invests

General portfolio

At least 80% of the market value of the portfolio in shares listed on the FTSE/JSE Real Estate industry group or a similar sector of an international stock exchange. May include other high-yielding securities from time to time.

Reclassified trusts will fall in the domestic category Most of the funds that will be reclassified are in the domestic equity growth, domestic equity value, domestic asset allocation targeted absolute and real return, and domestic fixed-interest varied specialist sub-categories. There are just under 1 000 domestically registered unit trust funds in South Africa, with assets under management of over R1 trillion. About 800 of these funds are South African funds that are invested in the Johannesburg Stock Exchange or the South African Bond Exchange. The remaining funds invest in other countries.

Regulation 28 funds will also be categorised by the new system Unit trust funds that comply with Regulation 28 of the Pension Funds Act and are suitable for retirement fund investments have in the past mostly been classified in the domestic asset allocation prudential subcategories. Regulation 28 places certain limits on where retirement funds can invest, and in what proportions. From January these funds will be labelled as complying with Regulation 28 of the Pension Funds Act, and then classified in their relevant sub-categories according to the ‘where’ and ‘what’ principle.

Make better decisions Prudential firmly believes in making the world of investing and financial planning as easily understandable and accessible as possible. When you understand something you have more power to make the right choices. In this context, the new unit trust fund classification structure is another step in the right direction to equip investors with the right tools to navigate the investment scene. However, Prudential recommends consulting a financial advisor when you have to decide when and where to invest.


FPI receives accolades on affiliate status and increase in CFP® professionals The Financial Planning Institute of Southern Africa (FPI) has been highly commended by Financial Planning Standards Board (FPSB) towards the award on Tier 1 Affiliate Status and increase in the South African CFP® professionals by 346 new members in 2012. The FPI has been a member of FPSB, owner of the international CERTIFIED FINANCIAL PLANNER® certification programme, since 2004 and the affiliation has been a rewarding one simply because of both the organisations common vision for the CFP designation and the financial planning industry. The institute is pleased about the recognition and the continued efforts at increasing the number of CFP professionals in South Africa, growing the designation’s visibility and bringing the financial planning literacy benefits to consumers.


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With its 24 member organisations around the world, FPSB reported that the total number of CFP professionals increased from 139 818 at year-end 2011 to 147 822 as of 31 December 2012. The FPI has contributed to an overall growth rate of 5.7% in the number of CFP professionals globally, ensuring that more South Africans are guaranteed a chance to consult with the CFP professionals through various corporates or independent practices. Furthermore, according to the latest assessment by FPSB, FPI has been awarded Tier 1 Affiliate Status. At 96%, this is the highest score ever achieved by an FPSB affiliate. Three years ago in 2009, FPI was awarded Tier 3 status after it had scored only 79% overall in the FPSB assessment.

MARY Early detection of cancer saved her life...

Paul Rabenowitz

Paul Rabenowitz among the top 10 bloggers for 2012 Financial Planet, the global online gathering place for the financial planning profession, has published a number of successful blogs in 2012. To celebrate this success, FPSB has compiled the 10 mostread blogs into an e-book and Paul Rabenowitz, CFP®, is among the top most-read authors who have contributed tremendously to this informative platform. To read Rabenowitz’s Growing Literature of the Financial Planning Profession and other blogs, please download the Financial Planet’s Top 10 Financial Planning Blogs of 2012 e-book at If you are interested in joining Financial Planet’s editorial team or know someone who is, please send an e-mail to

FPI strikes a deal with SAIT As part of the recently signed agreement, FPI professional members who are registered as tax practitioners with the South African Revenue Service (SARS), in terms of the provisions of the Act, will soon qualify for the South African Institute of Tax Practitioners’ (SAIT) affiliate membership. This is subject to the provisions of this agreement and the relevant certification requirements determined by SAIT and the Act. This includes: •

T he opportunity to complete an online SAIT Competency Assessment which may, subject successful completion of the test, entitle the FPI professional member to be awarded SAIT’s designation at no charge.

 PI professional members recognised as affiliate members of SAIT F will enjoy the full range of SAIT’s member benefits and will qualify for a 50% discount on the annual SAIT membership fee. Those who are existing members of SAIT will also qualify for a 50% credit towards their annual SAIT membership fee.

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inernational news

Social media guide Certified Financial Planner Board of Standards, Inc. has recently released the results of a comprehensive survey of CERTIFIED FINANCIAL PLANNER® professionals’ use of social media along with a new guide to help navigate the everchanging world of social media. Almost three-quarters of those surveyed say they use social media, though only about 45% use it for professional purposes. The top reasons CFP professionals cited for not using social media for professional purposes included: • C  ompliance prohibitions and limitations (37%) • Uncertainty over compliance and regulatory requirements (33%)


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• Lack of time (20%). These results indicate that CFP professionals are interested in using social media as a platform to educate the public about the value of financial planning and why they should use a CFP professional in addition to using it as a tool to network. To help CFP professionals and others to better understand the rules when it comes to the use of these communications tools, the CFP Board has developed a guide for CFP professionals, which can be found at The guide provides tips and best practices for getting started with social media or enhancing a current social media strategy.

MARY ...but it nearly ruined her bank balance.

CPD points for the Annual Refresher Workshop DVD Our national annual Refresher Workshop hosted in November 2012 was a huge success with record-breaking attendance. Due to popular demand, the Annual Refresher Workshop pack, which includes a DVD and a workbook, is now available on the FPI e-store. Upon final viewing of the DVD, you will be entitled to register 4.5 CPD points for Knowledge for the CPD period ending 31 December 2013. This DVD covers various topics which will update financial planning professionals on developments in the industry and the impact that it has on their business. Some of the topics include: • F  uture conversion of medical expenses to the Income Tax Act. • Important FAIS Ombud determinations of the past year. • Wills and administration of estates. • The new Companies Act and business insurance. This DVD, presented by Wessel Oosthuizen, CFP® and Marius Botha, CFP®, will be beneficial to all financial planners who need a refresher or those studying towards a career in financial planning. The Annual Refresher Workshop pack will be available only until August 2013. For further information, please e-mail or

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practice management

A values-based approach can attract and retain clients Mimi Pienaar, head of business development at Masthead

Your business values – often expressed as your belief, mission or philosophy – are more significant than you may think and can ultimately make a difference to your market share. Your business values send a message to your clients, prospective clients and staff members about what you consider as important. They communicate information such as ‘this is how we want to spend our time’ and ‘this is how we treat our clients’. They define your relationships and contribute to your success in attracting and retaining clients to your independent advisory business. Every business has one or more values, whether you are aware of them or not. They can be thought of as a statement of your business’s intention and commitment to achieve a high level of performance on a specific qualitative factor.


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Advisory businesses generally rate client satisfaction as their top value, as they understand the value of client relationships and are singlemindedly dedicated to appropriately meeting their clients’ needs. This entails knowing who their clients are, what they need and how their circumstances will affect their financial decisions. Other values that may be included are being ethical and truthful, striving for continuous improvement, loyalty and trust. Some advisers may also list openness, resourcefulness, service to society and respect for the individual.

“Your business structure should facilitate the implementation of the values and each job position, activity and system should be linked to your values.” Your values should enable your clients and staff to flourish and your business to succeed in the

marketplace. When you and your clients share the same values, you can move forward together and enjoy fruitful, long-term relationships. By recognising what motivates your clients to seek your advice and services, you are better able to determine how to ethically, professionally and effectively meet their needs. You are also better positioned to deliver advice and services in line with your business values and your clients’ values. In this way you have a greater chance of increasing client loyalty and referrals, while safeguarding your ‘trusted advice’ status. To ensure that you and your clients share the same values, use your values as a guideline when determining whether to do business with a prospective client. If the prospective client’s values are aligned with your business values, the relationship has long-term potential. However, if you and the prospective client have divergent views on the right approach, or if he/she wants you to make changes that would violate your value system, it is better not to initialise the relationship. The first step to ensure you’re on the path to

QUITE CONTRARY Tell Mary about Altrisk’s Early Cancer Cover.

Your business structure should facilitate the implementation of the values and each job position, activity and system should be linked to your values. To make the results measurable, there should be a set of standards for each value. You should be committed to your selected values and be prepared to work at maintaining them. This means you need to set an example from the top, together with the other managers in your business.

“To ensure that you and your clients share the same values, use your values as a guideline when determining whether to do business with a prospective client. If the prospective client’s values are aligned with your business values, the relationship has long-term potential.” Staff members need to understand the values, their responsibility to implement each value and how they can do so. Each one should have the skills required to fulfil their responsibilities for the value. If necessary, their skills should be upgraded through training to make value implementation possible. In everything you and your staff do, and in every decision you make as a team, make sure you remain true to your business values. Every time your staff members discuss and help one another better lean into your shared aspirations, your values become engrained in your business culture.

For more information speak to your Altrisk broker consultant or go to

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The next step is to describe each value in detail. Client satisfaction could be expressed as: we seek to transform clients’ interaction with our business into a memorable and enjoyable experience.


success is to write down your values. Think of four to six values that you regard as the top priorities in your business, such as high-quality service, ethics and teamwork. Include values that already exist in your business, as well as those you would like to embrace.

Contrary to what she may have thought, Mary wouldn’t have had to wait for her cancer to become advanced before claiming. In this industry first of early detection cover for just about every kind of cancer, she may have qualified for a payout of up to R100 000 to help with expenses during this traumatic time.


By growing a strong, identifiable business culture that is also in line with your clients’ values, your clients will be able to identify more strongly with your business, enjoy what they experience and have even more reason to stay with you. Even a slight improvement in customer retention will cascade through your business and the benefits will multiply over time.

Altrisk is a division of Hollard Life Assurance, an authorised financial services provider (FSP 17697).

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Probing the POPI Bill The Protection of Personal Information Bill was passed by the National Assembly in September last year and comes into effect in March 2013. It promises to radically alter the landscape of the right to information privacy in South Africa.

50 pages and 12 chapters unpack the POPI Bill, including eight information protection principles that cover everything from limitations on processing, issues of consent and collection of information to purpose specification, the need to retain records and the importance of security safeguards to protect the integrity of data. We found out how it will impact the insurance industry and, by implication, financial planners. Christine Rodrigues, an associate at Norton Rose South Africa, explains that one of the most important requirements of the POPI Bill is the need to obtain consent. Individuals need to provide express consent to their personal information being shared. “When a person enters into an insurance contract, they consent to the use of their personal information for the purposes of the insurer using the information for underwriting and claims. However, the methods of obtaining personal information may require modification where the insurer intends to use the information for other means,” explains Rodrigues. “Under POPI, the processing may be done if the use of the personal information is to carry out the performance of a contract with the affected individual. The information processed by the insurers must therefore be relevant to performing underwriting and claims.” “Where an insurer uses a binder holder, for example, agreement has been obtained by virtue of the insurance contract between the individual and insurer to the transfer of the information to the binder holder required in performance of the insurance contract. However, the personal information cannot be used for any other purpose unless the individual consents to their information being used for such a reason,” Rodrigues continues. “It is important to ensure that each party in the value chain has consent to use the personal information for any function other than for which it is required. If consent is not obtained, each party in the chain could be found in contravention of POPI. The insurer must ensure it is not placed in the position that it is liable to an affected person.”


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Updating data management Daniella Kafouris, manager at Deloitte Legal, says that where an insurance company outsources any part of the life cycle of data, the third party (such as broker, advisor or UMA) must ensure that it has put measures in place that are the same or similar to the privacy compliance principles adopted by the insurance company. “This is usually enforced through an agreement, and assessment for compliance is carried via privacy impact assessments,” she explains. “Any aspect of the insurer/advisor or insurer/UMA relationship that involves the processing or collection of personal information will require attention.” Insurers may have to upgrade their systems in relation to the protection of data. “Insurers need to have security processes in place to ensure that no unauthorised person can access client information,” notes Rodrigues. Kafouris adds that insurance companies cannot assume that they comply with the bill by virtue of the way in which they currently process personal information. “Each insurer’s data management practices must be reviewed in isolation

in order to ascertain their level of compliance with each of the identified principles,” she explains. “Perhaps, due to the nature of the industry that the insurance company operates in, there may be areas within the organisation that contain pockets of excellence; however, POPI brings in some very new requirements with which all organisations need to align. For example, the outsourcing requirement, in terms of the relationship that advisors have with insurers and the manner in which they process personal information for the insurer, will need to be adhered to.”

Mind your marketing The POPI Bill could have unpleasant implications for direct insurers. Insurance companies cannot sell client information to a marketing database that will contact its clients to sell other services or products, unless the individual has given consent. The insurer would need to get the consent of the individual that it may contact them at a future date to market and sell other unrelated insurance products. If consent has been given for the purposes of underwriting and administrating an insurance policy only, then the information cannot be used.

regulations This works both ways. “Wherever leads are obtained, these must have been consented to. For example, if an insurance company buys leads, it needs to make sure that the entity which sells the information has obtained the consent of all the people to utilise their information for insurance marketing purposes. The insurance company must be mindful that it may be held to be in contravention of POPI if a complaint is lodged against it and it is unable to prove that the complainant gave consent for their information to be sold or used for marketing purposes,” says Rodrigues.

“The bill centres on protecting peoples’ rights, especially in instances where personal information is abused in terms of receiving unsolicited communication.” Ensuring compliance Kafouris says that the first step any organisation should take in ensuring compliance is to undergo an analysis to identify any gaps in their processing of information and ascertain any requirements to bridge that gap. This will also help to identify the pockets of excellence within an organisation. “Processes will need to change from an internal as well as external perspective. Most legal documentation, policies, processes and technical structures would need to be reviewed and amended in order to be in line with POPI. How the insurance company will interact with its clients may change as a result,” she says. Rodrigues notes that much of what exists under the POPI Bill exists in the common law, but that POPI codifies and extends the common law. “The bill centres on protecting peoples’ rights, especially in instances where personal information is abused in terms of receiving unsolicited communication,” she

says. The heavily regulated nature of the insurance industry will certainly count in its favour, as there is some overlap between the current legislation and the POPI Bill. At any rate, many of the processes that are codified in the bill should already be in place in insurance companies, as part of good risk management. The bill provides for a one-year compliance period, but Kafouris does not think that this is sufficient for organisations such as insurance companies, due to the nature and volume of personal information processed by them. In fact, Deloitte said in a report that the full compliance procedure could typically take up to three years.

grounds to our constitutional right to privacy. This will bring South Africa in line with similar measures adopted by the European Union.

Why should we care? If you’re a financial planner, advisor, an insurance company or administrator, you handle what is classed as personal information. Since the bill has been enacted into law, noncompliance will be dealt with harshly and an information regulator will be established with significant powers to ensure compliance.

Glass half full Nevertheless, in the same report, Deloitte explains that organisations can gain significant business performance improvements by approaching the bill as a strategic opportunity rather than a compliance cost. For example, companies can select technology that supports more than just data integration, while data security upgrades are likely to add value when linked with the overall business strategy. Digging deeper into existing customer data can enhance a company’s customer focus. By conducting data analyses of personal information for PPI compliance, valuable information can be obtained regarding customers and markets. “Organisations that lead the market in becoming PPI compliant will earn customer respect and loyalty,” notes the report.

The POPI Bill for dummies We know that you don’t have time to read 12 chapters and 50 pages, so here is a brief summary.

What’s the point of the bill? The aim of the bill is to promote the protection of personal information processed by public and private bodies, giving legal

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“The regulator has significant regulatory powers and may authorise the breach of an information protection principle.” What counts as personal information? Anything from contact details, ID numbers and blood type, to race, gender, marital status and ethnic origin. Education, criminal or employment history, the personal opinions and views of a person and the views or opinions of another individual about the person are included. The term personal information is dealt with in eight separate points and some include extensive lists.

Are there any exclusions? There are a few exclusions. Some of these include personal information that is processed in the course of a purely personal or household activity; personal information that involves national security or is related to the judicial functions of a court; and personal information for exclusively journalistic purposes.

What is a record? A record refers to any recorded information, regardless of form or medium. This includes books, maps, graphs, drawings, labels, taperecorders, photographs and films. Information that is derived from other information stored on computer hardware or software is also included. Any recorded information that is in the possession or under the control of a responsible party, whether or not it was created by a responsible party and regardless of when it came into existence counts as a record.

What is a responsible party? A responsible party means a public or private body or any other person who, alone or in conjunction with others, determines the purpose of and means for processing personal information.

And processing? Processing includes anything from collection, collation and storage, to retrieval, updating, distribution and destruction. In other words, any operation or activity that handles personal information. Personal information may be processed only by a responsible party that has notified the Information Protection Regulator.


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Sounds scary. What’s that? The Information Protection Regulator is an independent body, subject only to the Constitution, consisting of a fulltime chairperson and four parttime members. These individuals are to be properly qualified and experienced and will likely be practicing advocates, attorneys or law professors. The regulator has significant regulatory powers and may authorise the breach of an information protection principle. It also has the power to conduct audits of public or private bodies that possess personal information and investigate complaints about the alleged violation of the protection of personal information. According to the bill, the regulator “is not civilly or criminally liable for anything done in good faith in the exercise or performance or purported exercise or performance of any power, duty or function of the regulator in terms of this act or the Promotion of Access to Information Act”. The regulator may issue industryspecific codes of conduct that prescribe how the information protection principles are to be applied or complied with, given the particular features of that

sector. Failure to comply with a code that is in force is deemed to be a breach of an information protection principle. Approximately R17 million will be required to establish the office of the Information Protection Regulator.

Penalties Any person convicted of an offence in terms of the act is liable to a fine or imprisonment or both. Obstructing the regulator in the performance of its duties could lead to a 10-year imprisonment, while in any other case of non-compliance with POPI principles imprisonment cannot exceed 12 months. Administrative fines could be as high as R10 million.

Information protection officers Information protection officers must be appointed in organisations and are responsible for encouraging compliance with the act and working with the regulator in relation to investigations it may need to conduct. Officers must be registered with the regulator and responsible parties must notify the regulator before commencing the processing of personal information.


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Coronation Asset Management (Pty) Ltd is an authorised financial services provider. Coronation is a full member of the Association for Savings & Investment SA. Trust is EarnedTM. Morningstar Awards 2013 ©. Morningstar, Inc. All Rights Reserved. Awarded for Best Large Fund House, South Africa.

Independent advisers don’t just tick boxes.

They think about their clients and the real risks they face, especially when it comes to income. With three out of ten people likely to suffer some kind of temporary disability before the age of 60, specialist income protection that balances temporary, permanent and capital needs is essential to your clients’ financial security.

FMI is for independent financial advisers who have the freedom to choose what’s really best for their clients. For more information contact our Financial Adviser Distribution Team on 0860 10 52 08, or Underwritten by Lombard Life Ltd. FMI Ltd is an authorised Financial Services Provider, FSP 2717.

The Financial Planner | Issue 28  

Issue 29 (1 of 2013) | Supporting excelence in financial planning