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31 August 2019 | www.moneymarketing.co.za

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First for the professional personal financial adviser

WHAT’S INSIDE

YOUR AUGUST ISSUE

WHY WE EXTENDED THE CPD DEADLINE: FSCA

CHAMPIONING THE GENDER AGENDA

One of the objectives at the FSCA is inclusion

Women represent 49% of the total industry, yet only 18% are portfolio managers

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Page 13

IS THERE STILL A PLACE FOR SA PROPERTY IN YOUR PORTFOLIO? Investors can still find good opportunities within the property sector Page 20

Pioneering positive change As the first Certified Financial Transitionist® (CeFT) in Africa, Mariette Tappan uses this unique qualification to pioneer positive change and serve her clients better by helping them deal with the emotional side of money.

Allan Gray is an authorised ﬁnancial services provider. 2812_All in good time_80x220.indd 1

beings. “To achieve this requires a change to not only what we are doing but also to how we are doing it as financial advisers,” she adds.

liquidity events, personal injuries, changes to parental situations, marriage, divorce, as well as retirement and inheritances. Changes also extend to the death of a spouse, The impact of life events major career changes and having a Often it is when ‘life happens’ that child. Tappan quotes Susan Bradley, clients need an adviser. They base founder of the Sudden Money their decision on a referral or on an Institute, who says, “When life adviser’s professional designations, changes, money changes, and when education and experience. However, the money changes, life changes.” they forget Advisers need to to consider understand how to WHEN LIFE CHANGES, help clients through the adviser’s ability to help these transitions, MONEY CHANGES, them navigate because they can AND WHEN THE the personal lead to a significant MONEY CHANGES, and emotional shift in their sense challenges they of ‘normal’. ClientsLIFE CHANGES may face. in-transition often During her career, Tappan has struggle with communication, come across clients experiencing decision-making, managing numerous life events that triggered expectations, and even change, along with major financial implementation. These clients require transitions. These have included a different set of tools and protocols serious changes such as business than most advisers are used to.

“That’s when it’s especially important to be able to understand a client’s financial needs and how to take care of them, while also listening, helping them prioritise important decisions, minimising stress and understanding the emotions involved,” says Tappan. “That doesn’t mean that the integrity of the financial planning process isn’t still critical in finding the right solutions for people.” Continued on page 3

Mariette Tappan, Financial Adviser, Liberty

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lanned and unplanned changes happen. Positive and negative changes happen. The only constant is that change is inevitable. It often comes with a financial and an emotional impact. After 25 years as a successful Liberty Financial Adviser and a 5-Star achiever, Mariette Tappan took the next step in her career. Twelve months later, after a significant investment of time, effort and learning, she received her Financial Transitionist certification in January 2019. “As financial planners, we are taught how to deal with the financial aspects of life, but after losing five clients in 2017, I realised that if I wanted to serve my clients better I had to improve my empathy and communication skills,” says Tappan. “That is when I started my journey as a Financial Transitionist.” The Financial Transitionist Institute sees financial advice as a true collaboration between human

All in good time.

2019/06/27 9:20 AM

NEWS & OPINION

31 August 2019

Continued from page 1

A unique skill set Even if you already have a good relationship with a client, having the skills to identify the struggle they are going through when they experience a big change isn’t easy. As a CeFT, Tappan has learned how to step in with a structured conversation that includes a purpose, method and an outcome. It’s a conversation that helps clients stay calm, feel in control and understand why something is important to them. Tappan explains, “As a professional, the importance of using tools that are scientifically founded and well researched is key to ensuring that I can help my clients by being their thinking partner, guide and confidante. I can give them a process to figure things out as we co-create their new journey forward.”

listening more. Getting to know your client is critical, and it’s one of the reasons I decided on this qualification. Transitionist Planning is not a replacement for financial planning – it’s a way of cementing relationships and adding value.”

Advice for young advisers Tappan suggests that advisers need to understand their role as future financial planners, build long-term relationships and invest time into understanding their clients. She says, “Develop the practice of listening to your clients more than speaking; get comfortable not being an expert and using tools that are not part of the traditional side – it takes deliberate practice on the personal side and it takes continuous learning on the technical side.” Using the CeFT Tappan continues, “There THERE HAS NEVER training has never been a better time in to grow your business BEEN A BETTER TIME the industry for young advisers, The way people choose woman. They are IN THE INDUSTRY FOR especially products and get advice is going to enjoy the greatest YOUNG ADVISERS, changing, which means that wave of money in motion and advisers need to change ESPECIALLY WOMAN transition that this planet has too. “For the industry, the ever seen. Young planners move towards fee-based advice means that are going to be the inheritors of this great time we need to find new ways of doing things,” of change and transition, but you have to be she says. With this qualification, Tappan prepared on both sides.” has differentiated herself and opened new possibilities for how to structure her business. Becoming a Certified Financial Many advisers will say they work with people Transitionist in transition but few of them have specialised Advisers need five years of client-facing training in it and can really explain the value experience and an advanced technical it adds. designation like the CFP or CPA/PFS to qualify “When clients know that advisers have this for the year-long CeFT training programme. training, they are more likely to refer friends The course is completed online and includes going through a transition – not because you both theoretical and experiential components. achieved good investment returns or because Certified Financial Transitionists™ are you’re nice, but because you’re a specialist. specially trained to guide clients through life “As a CeFT, you can guide clients in ways transitions using unique processes and tools that no other professional can, combining the that incorporate cutting-edge research in the technical and the human aspects of a transition areas of neuroscience, physiology, sociology and in a way that’s very comfortable for the client.” psychology regarding the human experience of Tappan says that soon people will no longer major life change. want to pay commission for a policy they can buy over the counter, so advisers need to find Liberty Group Ltd is a Registered Insurer and Authorised ways to add value. “I believe the future of the Financial Services Provider (FAIS nr 2409). financial advice industry will revolve around

EDITOR’S NOTE

ugust is Women’s Month in South Africa and MoneyMarketing extends its best wishes to all its female readers. Once again, we’ve taken the opportunity to focus on some wonderful women in financial services. After meeting one of the country’s female asset managers (see page 4), I thought about this male-dominated industry where women are greatly under-represented, in spite of the wellestablished correlation between gender balance and profitability. Clearly, women need to increase their visibility in the industry as well as celebrate their achievements. We need to champion female talent so that, in future, the industry is underpinned by opportunity for all. It’s most encouraging that Boston-based Fidelity Investments has started a mutual fund that invests in companies with a high percentage of women in leadership positions. The actively managed Women’s Leadership Fund invests in companies that have either one-third women board members, a woman on the senior management team or in those firms that meet gender diversity initiatives for the hiring, retention and promotion of women. I think women are making great strides locally, as over the past few years I have seen many more women at investment conferences and seminars. Last month I was present at several conferences, including Meet the Managers, the FPI Convention, and the Allan Gray Investment Summit. Many women not only attended these events, but several made presentations too. We’re definitely making progress. I had the honour of being on the judging panel at the interviews for the FPI’s Financial Adviser of the Year competition (see page 7). The three entrants – Craig Turton, Hardi Swart and Johan Swart – are a credit to the financial planning profession. Congratulations to Hardi for a welldeserved win! Janice janice.roberts@newmedia.co.za @MMMagza www.moneymarketing.co.za

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NEWS & OPINION

ANTHEA GARDNER CEO, CARTESIAN CAPITAL AND AUTHOR OF MAKE YOUR MONEY WORK FOR YOU

How did you become involved in financial services – was this something you always wanted to do?

VERY BRIEFLY

a male environment. I think I had to become more aggressive in my approach. What is interesting is that when I came back to South Africa and I started an asset management business, I felt that women were comfortable investing with me, and that has been a business enabler.

When I was at school, I wanted to avoid financial services completely because my dad was a bank manager. I saw how hard he had to work and he was always studying – I didn’t think that was cool when I was growing up. His sister, my aunt, was a teacher and Why did you write Make she was the cool one. I thought I’d be a teacher but Your Money Work For You? my dad didn’t approve – he suggested when I went I wrote the book with my sister in mind. I manage to varsity, that I study something I could convert into her family’s money and one day when I was a guest teaching if that’s what I really wanted to do later on. on a radio show, I discussed shares and I then got My dad was the first ‘non-white’ bank manager a message from my sister – she had no idea that in South Africa – that’s how the newspaper article my job involves analysing shares. I tried to explain put it. This was around 1979 – and I believe having to her and my brother-in-law what I do, but they him as a role model to show that there are no didn’t know what I was talking about. There was a limitations on what you want to do has stood me in knowledge gap. My sister is in marketing and it’s not good stead today. I started off doing a psychology her everyday job to find out what a unit trust or ETF degree at varsity, but it wasn’t for is – she just needed someone to explain me so I started studying finance. to her. I wanted my sister and my clients I WANTED TO Then I decided that I wanted to to read the book. I know that there are WRITE A BOOK a lot of books on investing out there, go overseas to the UK. My father loaned me money for this (I paid it THAT WOULD BE but I wanted to write a book that would back later!) I was working for a wine easy to read, one that would enable EASY TO READ be company in London that had been investors to have enough information started by traders from a company called Tradition. to know what was going on when they sat down with It was suggested to me that I become a trader as I their financial advisers. was told that I had the right temperament. There are two things that scare people: the world I decided that the world of finance was cool and of investing and numbers. In my book I try to make I came back to South Africa and studied. One day I people feel comfortable with both. I’m saying to was driving home and there was a derivatives trader, readers “don’t let finance scare you”. Mark Khalil, on the radio doing market commentary. I didn’t write the book for women only, but I grew I telephoned him and told him I wanted to have a up thinking that finance and banking were for men similar career. Although he didn’t have a job for me, while teaching was for women. I don’t want my he contacted people he knew at HSBC and that’s how nieces to grow up like that. I got into finance that I now obsessively love. I’m not sure I believe in fate but when I look back I think it Do you own any Bitcoin and what do was meant to be, that I was meant to go into finance. you think of cryptocurrencies? I don’t own any Bitcoin, I’ve avoided it; although I What obstacles did you face on your think that its platform, Blockchain, is brilliant. Half career journey as a women? the attraction of Bitcoin was that people thought it I don’t think the obstacles were obvious but one of was going to change everything! Did we really think the things I became hugely aware of is that women that central banks would sit back and let someone and men are different and that the world of finance else take over the printing of money? is male dominated. For a woman it’s hard to fit into See page 30

UPS & DOWNS

The reappointment of South African Reserve Bank (SARB) Governor Lesetja Kganyago for a further five years as head of the SARB has been seen as a confidencebuilding decision at a tough time for the South African economy. “Not only is Kganyago a

widely respected central banker both nationally and internationally, but his reappointment sends a strong message that the independence of the central bank is being upheld and reinforced,” says Professor Raymond Parsons, economist at NWU Business School.

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ArcelorMittal South Africa is considering cutting over 2 000 jobs as part of restructuring to reduce costs. The company said in a statement that the country’s steel industry is suffering from high costs for electricity and raw materials, and has been

hit by the weak local economy. The steelmaker expects to report a loss in the first half and said earnings excluding some items will fall by around R650m. The company is majority owned by ArcelorMittal, which ranks as the world’s largest steel producer.

Momentum Securities, MMI’s full-suite stockbroking business, has announced the appointment of Steven Schultz as the new Chief Executive Officer. The appointment comes in the wake of former CEO Jan van Staden’s resignation after five years with Momentum Securities, to pursue personal entrepreneurial goals outside of the corporate arena. As the former Head of Investment Distribution at Momentum Intermediary Solutions, Schultz will now assume the role of CEO with Van Staden continuing to provide valued council to the business as Chairman of the Momentum Securities Board in a non-executive capacity. Steven Schultz

Investec Australia Property Fund has announced the appointment of Georgina Lynch as an independent non-executive director of Investec Property Limited, the responsible entity of the Fund. Lynch has over 25 years’ experience in the financial services and property industry. Commenting on the appointment, Richard Longes, chairperson of Investec Property Limited, says, “Georgina brings significant global experience in corporate transactions, capital raisings, initial public offerings, funds management, corporate strategy and acquisitions and divestments to the board. Her skills complement those of other directors and her appointment strengthens the independence of the board. We look forward to Georgina being an active contributor to the continued success of the Fund.”

Absa Corporate and Investment Bank has secondary listed three of its metal ETFs on A2X Markets: NewGold (GLD), NewPlat (NGPLT) and NewGold Palladium (NGPLD). The three ETFs will retain primary listings on the JSE. Chris Edwards, Head of Prime Services and Index Solutions at Absa Corporate and Investment Bank, says, “We are delighted to be the first issuer to offer investors the option of transacting in our metal ETFs on an alternative low-cost platform as well as the traditional JSE. ETFs are cost sensitive and by adding a secondary listing, it allows our investors to capture not only the direct saving of lower transaction fees but also the indirect savings that accrue as a result of narrower spreads and increased liquidity.” These listings follow A2X’s recent licence extension to include the secondary listing and trade of ETFs and ETNs that was granted by the Financial Sector Conduct Authority and the South African Reserve Bank’s Prudential Authority earlier this year. The Newgold ETFs that are being listed on A2X are the largest ETFs in the local market with almost R25bn in assets under management.

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31 August 2019

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4 July - 24 July 2019 EVERY TWO WEEKS EVERY TWO WEEKS 18 April - 08 May 2019

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HOW TO INVEST OFFSHORE D’S SCARED OF THE RAN

cover story debt

DIAGNOSE YOUR FINANCIAL HEALT H WITH THESE TIPS FROM THE PROS VOLATILITY

DEBT: COMMON METRICS DON’T TELL THE FULL STORY

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Good debt, bad debt, no debt? Very few South Africans can live debt-free, and utilising debt facilities like home and car loans are not necessarily poor financial decisions. However, there’s a reason it’s called a debt spiral. And millions of South Africans are struggling to stay out of that spiral.

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STILL A HARD SELL? ■

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IN A SLOW GLOBAL ECONOMY

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WHY YOUR INVESTME NT BIAS CAN COST YOU

he most common metric used by monetary policymakers like the South African Reserve Bank to assess the indebtedness of South African consumers is the household debt-togross income ratio, which stood at 71.9% through 2018. This figure remained unchanged from a year before, some way off an all-time high of 86.4% in 2008, before the global financial meltdown. It is above the long-term average since 1969, which is 57.9%. By comparison with especially developed countries, South Africa’s debt-to-gross income ratio is relatively low, with consumers in the Netherlands wielding an astonishing 209% of debt-to-gross income. So just how indebted are South African consumers and is this worth worrying about? The old aphorism that there are lies, damned lies and statistics is probably worth repeating here because the cost of living – rising fast as the economy struggles to absorb Eskom’s balance sheet woes – is not reflected in the number above, and neither is sluggish wage growth in a stuttering economy. The makeup of this debt is also not reflected, which means a rise in unsecured lending at higher interest rates, which can pressurise consumers’ cash flow, is also not reflected. Another aspect to consider is that debt metrics have typically only measured bank-originated debt, which means both formal sector credit from non-bank lenders and the informal lending sector are not fully taken into account when compiling these figures. The gap in measurement is narrowing for lenders who access credit bureau data to make lending decisions. Although, according to Experian South Africa’s chief data officer, David Coleman, most of the data credit bureaus like Experian receive comes from the South African Consumer Risk and Reporting Association. “That association consists of banks, telcos, insurers, retailers and financial services companies, so we have a wide network of providers who send us this information. For two years we’ve been working to get new credit providers onto the database in a standardised format, once they’re registered with the National Credit Regulator.” According to Coleman, the latest quarterly consumer default index shows 14.3m South African consumers who hold credit cards, personal loans, vehicle loans and home loans hold R1.56tr in outstanding debt as of December 2018.

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NEWS & OPINION

DEIRDRE PHILLIPS Partner, Bowmans

31 August 2019

Retirement funds must check that a dependant is still dependent

he allocation and distribution of death benefits is the point of contention in the vast majority of pension fund disputes in South Africa. One issue that has now been settled, hopefully once and for all, is that before paying out a death benefit, a board of a retirement fund must check that the person concerned is still a dependant entitled to a death benefit. When a member dies, Section 37C of the Pension Funds Act, 1956 (PFA) places an onerous duty on the board of a retirement fund to identify the potential class of ‘dependants’ and distribute the death benefits equitably among both them and nominated beneficiaries (if any). This process should be a lot less open to differences in interpretation – and hence to disputes – following the Supreme Court of Appeal’s (SCA) ruling on 31 May 2019 in Fundsatwork Umbrella Pension fund v Guarnieri and Other. In resolving the disputed death benefits in the Guarnieri case, the SCA had to consider two key issues: the meaning of ‘dependant’ as defined in the PFA, and the question of when a fund must identify dependants for the purpose of distributing death benefits.

member’s mother was still a dependant. This time the High Court set the decision aside in favour of the widow and children. The fund then approached the SCA, which dismissed the appeal.

Date of member’s death is When is as important as who not the deciding factor In this case, the member was survived The fund argued that the determining by his wife, two children and his criterion for qualifying as a mother. Prior to the distribution dependant should be the date of the of the member’s death benefit, his member’s death. Any subsequent mother also passed away. The fund’s changes in circumstance should be board, which was not aware of her ignored, it said. death, allocated 42% of the death The SCA disagreed. It observed benefit to her. The mother had that the aim of Section 37C of the completed an election form prior to PFA is to provide some protection her death, requesting for dependants, an advance payment existing or potential FUNDS HAVE UP TO (as in the case of of the death benefit and that the balance 12 MONTHS AFTER an unborn child). be used to purchase Protecting the THE MEMBER’S an annuity in interests of the her favour. The deceased member’s DEATH TO TRACE beneficiary of that dependants DEPENDANTS annuity was her means they would daughter, who was living in Australia be less likely to be a drain on the and was not a dependant of the State’s resources. deceased member. The SCA said the only way to The deceased member’s widow ensure that the people identified as lodged a complaint with the Pension dependants are those whose interests Funds Adjudicator, which set aside Section 37C seeks to protect, is the the board’s initial allocation and proper timing of this determination: remitted the matter back to the board. a dependant should be a dependant The board then made the same when the death benefit allocation is allocation as before – without made and should still be a dependant satisfying itself that the deceased when the benefit is paid.

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Accordingly, to qualify as THE BOARD MADE AN a dependant and receive a portion of the death benefit, ALLOCATION IN FAVOUR OF the person concerned has SOMEONE WHO WAS NOT A to be a beneficiary at the time the allocation is made; DEPENDANT AT THE TIME and the person must still be a beneficiary at the time the to her. And it made the exact same distribution is made (i.e. when decision when the Adjudicator payment is made). ordered it to reconsider. The onus is on funds to check In essence, the board made an accuracy of information. allocation in favour of someone In weighing up a beneficiary’s who was not a dependant at the eligibility as a dependant, the SCA time and therefore did not qualify to said the board is obliged to carefully participate in the distribution of the consider whether the information death benefit. it has to hand when it makes its It is important to note that financial allocation is still accurate when it or factual dependency is a key makes distributions. consideration in the allocation and After all, funds have up to 12 distribution of death benefits. To months after the member’s death to simply allocate and distribute death trace dependants, and the factual benefits to those who fall within the circumstances could change from ambit of ‘dependant’ (i.e. spouse or a the date of death to allocation child, etc.) is not sufficient and does and distribution. not align with the object of Section For example, a deceased member’s 37C of the PFA. spouse may have been financially dependent on the date of his death; Implications for however, six months into the retirement funds investigation as to who qualifies as For some funds, the SCA judgment a dependant, the spouse may have may not have an impact on how they won the lottery and no longer be allocate and distribute death benefits financially dependent on the date the as their practice (and interpretation board distributes the death benefit. of Section 37C) may already have In the Guarnieri case, the deceased been aligned with the Guarnieri member’s mother died four days judgment. Those funds that are not before the board made its decision aligned should take careful note of to distribute 42% of the death benefit the judgment.

NEWS & OPINION

31 August 2019

Hardi Swart scoops FPI’s Financial Planner of the Year award

early 250 financial luminaries gathered last month for a dose of glitz and glamour at the FPI’s gala dinner, sponsored by Alexander Forbes and hosted by Ursula Chikane. Amid much suspense, the FPI’s 2019 award winners were announced. The biggest prize went to Hardi Swart, who was crowned Hardi Swart is the 2019 FPI Financial Planner of the Year

Financial Planner of the Year at his 3rd attempt, but he was by no means the only winner. • The Diversity and Inclusion Award, which recognises an individual’s tireless efforts to foster diversity in the financial planning profession, had a worthy winner in Amanda John, the Business Transformation Coach at Old Mutual and author of Financial Fitness to Financial Freedom. • The Harry Brews Award, which honours a remarkable individual for a lifetime of service to both the FPI and the financial planning profession in general, was awarded to Gerhardt Meyer. In his roles in the private sector – most recently at Old Mutual and PSG – and his service to both the FPI and the FPSB, Gerhardt has worked tirelessly to promote the profession. • The It Starts with Me Award – which recognises a Certified

Financial Planner® who works to promote the CFP® certification – went to Gail Gibson. Gibson, who has dedicated her career to training others at institutions, including the Moonstone Business School, the FPI and Naked Mindz, stood out from the competition for the way in which she entrenches the CFP® mark in her work life and invests in her personal brand by letting others know that she is a CFP® professional. • The Top Candidate Award, which goes to the top-performing candidate in the FPI’s CFP® Professional Competency Examination across the August 2018 and February 2019 sittings, was won by Barbara Jakob. The evening culminated with the announcement that Hardi Swart is the 2019 Financial Planner of the Year. The award is the highest accolade bestowed on financial planners in South Africa, and it represents the very pinnacle of the profession. The rigorous selection process requires candidates to submit a detailed case

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study; to undergo a laborious practice visit; and to show off their skills and expertise on topics as varied as legislation, industry trends and technical information in the crucible of a panel interview. Swart, who has worked at Autus Private Clients and Family Office since 2012, set himself apart from the competition through the depth of his knowledge, the immense detail of his financial plans and his exceptional personal commitment to his clients. “This award is a recognition that financial planning is about more than excellent advice – that is the given,” said Swart, before adding that he sees himself as “a lifeline and coach to friends, not clients”. Lelané Bezuidenhout, the CEO of the FPI, described handing out the awards as a humbling experience, “I am in awe of the years of dedication and hard work it has taken for each winner to get where they are,” she said, before adding, “there is no such thing as luck – only hard work, dedication and professionalism.”

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The following entities are licensed Financial Services Providers (FSPs) within Old Mutual Investment Group (Pty) Ltd Holdings approved by the Financial Sector Conduct Authority (www.fsca.co.za) to provide advisory and/or intermediary services in terms of the Financial Advisory and Intermediary Services Act 37 of 2002. These entities are wholly owned subsidiaries of Old Mutual Investment Group Holdings (Pty) Ltd and are members of the Old Mutual Investment Group. Old Mutual Investment Group (Pty) Ltd (Reg No 1993/003023/07), FSP No:604. | Old Mutual Alternative Investments (Pty) Ltd (Reg No 2013/113833/07), FSP No:45255. | African Infrastructure Investment Managers (Pty) Ltd (Reg No 2005/028675/07), FSP No:4307. | Futuregrowth Asset Management (Pty) Ltd (Reg No 1996/18222/07), FSP No:520. Figures as at 31 December 2018 unless otherwise stated. Sources: Old Mutual Alternative Investments; African Infrastructure Investment Managers (AIIM); Old Mutual Specialised Finance; Futuregrowth Asset Management.

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NEWS & OPINION

31 August 2019

Giving back on Mandela Day MoneyMarketing takes a look at how two corporates marked Mandela Day 2019

Liberty employees unite against hunger

ince its partnership with Rise Against Hunger in 2016, Liberty’s employees have united and dedicated 67 minutes to pack food parcels on International Nelson Mandela Day. The food parcels are distributed to underprivileged Early Childhood Development Centres across the country. This year, Liberty employees from Johannesburg, Durban, Cape Town, Port Elizabeth and Pretoria collaborated in teams and successfully packed 250 000 meals that will feed 780 children for an entire year. This brings the total number of food parcels packed over the last four years to 850 000, feeding 3 120 children. Tracey Unser, Divisional Executive: Corporate Citizenship at Liberty, says, “In an inspiring show of team spirit and a passion for doing good, hundreds of Liberty employees, including our executive team, rolled up their sleeves to embrace this initiative. We would not have achieved this success without their

commitment, and collectively, we Liberty pioneered the Maths and managed to heed the call of helping to Science Learning Channel by making alleviate hunger in South Africa.” Maths and Science accessible outside The food parcels are critical to of the classroom, on television. The improving the nutrition of children and show was hosted by Professor William helps them to achieve better learning Smith, who was recently honoured with outcomes, which in turn improves the Order of the Baobab by President their future prospects. Liberty supports Cyril Ramaphosa, for his excellent Nelson Mandela’s belief that education contribution to the teaching and is a powerful weapon that we can use to demystification of Maths and Science. change the world. Unser says, “Our It is important investment in Maths EDUCATION IS and Science helps us that learners receive A POWERFUL support as soon as honour our commitment they start school, and WEAPON THAT in contributing to the all the way to their broader sustainable WE CAN USE TO development goals. tertiary education level. CHANGE THE Liberty’s Corporate It helps us to address Social Investment socio-economic issues in WORLD strategy places a the country from cradle strong focus on education – offering stage, where the opportunity exists to support from cradle to career will lay a solid foundation of growth.” ensure that children are given all the Liberty continues to make Maths opportunities to become successful and Science accessible outside of the members of society. classroom. A recent innovation is “At Liberty we are passionate about Liberty’s partnership with Mindset education because it’s the bedrock of Network, which offers free multiachieving a sustainable future for our format extra lessons and curriculum country. In addition to Mandela Day, support on mobile devices via the this year close to 5 000 pairs of shoes Tenfold Education App. were donated to learners in nearly 30 “Long-term, sustainable value schools. With so many families not growth can only be achieved through being able to afford shoes for their the development and success of the children, we’re so proud that our communities in which we operate. employees heeded the call to improve This notion is premised on our belief lives... one shoe at a time.” that an organisation cannot thrive in

a failing society, and as a result our entire Liberty community has a part to play in building and sustaining the kind of society we all wish to live in,” says Unser.

Charities benefit from Marriott’s Mandela Day donations

mbracing the charitable nature and community spirit that characterised Madiba, the staff of Marriott chose to buy a range of ‘wishlist’ products for a number of local charity organisations. These items were then distributed from Monday, 15 to Friday, 19 July in honour of Mandela Day, celebrated annually on 18 July. The Marriott staff visited the chosen charities, distributing the collected items to grateful staff and recipients. This year’s beneficiaries included The Hillcrest AIDS centre, The Kloof & Highway SPCA, The Hillcrest Government Hospital and

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The Upper Highway Baby Home. In addition to this, Marriott provided snacks for the volunteers and staff working at all of the charities. “Mandela Day is such a special time on the South African calendar, a chance to truly embrace the legacy of Mandela and continue the work he started,” said Sally Anderson of Marriott. “The staff are always looking to do something innovative, something that will have an impact on those around them. On this Mandela Day, we decided to show our appreciation for all the staff and volunteers who so tirelessly serve our local community daily.”

NEWS & OPINION

31 August 2019

AMANDA SMIT Managing Partner, Head: South, Central and East Africa, Henley and Partners

Improving the power of your passport

ot all travel documents are created equal. While some passports grant their bearers visa-free access to a veritable bounty of destinations, others do more to limit travel freedom than to enhance it. This ‘strength’ of global passports is captured by the latest Henley Passport Index, which has revealed that the strongest passports in the world (Singapore and Japan) grant visa-free access to almost 190 destinations. For those who possess a ‘strong’ passport, the difference in global passport strengths may seem like interesting trivia. For those in possession of a ‘weak’ passport, however, the consequences are painfully far-reaching. Africa’s passport problem African passport holders understand the limitations of a weak passport better than most. The recent visa disappointments around the attendance of the Africa Cup of Nations (AFCON) tournament is testament to those limitations. With Seychelles and Mauritius being the exception, the Sub-Saharan African countries’ visa-free access is to just 99 destinations. A ‘weak’ passport indiscriminately restricts not only travel, but also residence; access to business opportunity as well as education. Countries around the world increasingly NO MATTER view visa-openness as critical to economic growth and mutual trust. Asian countries’ WHERE YOU ARE dominance of the ranking shows the impact FROM, THERE ARE that progressive diplomacy has on global WAYS TO IMPROVE passport power. A shift in visa-openness is beginning to emerge in Africa and might YOUR PASSPORT have significant impact in the future. Benin has granted visa-free access to all African countries, showing recognition of the power of flexible visa policies to economic growth and development. Time for an upgrade? No matter where you are from, there are ways to improve your passport. One of the best and quickest methods is through citizenship-by-investment (CBI). This is in a form of an investment in government bonds, or a real estate purchase above a certain threshold and an investor may acquire life-long citizenship of another jurisdiction. Investing in an alternative passport provides the right to travel, trade and settle in an expanded set of countries and regions, as well as access to all the benefits (education, healthcare, voting rights) enjoyed by citizens of the state in question. CBI options in the EU start from €1m and offer applicants and their families the right to live, work and study in all the 28 EU member states and enjoy safety and security under the protection of EU law. While a number of European countries have citizenship-by-investment programs in place, those offered by Malta and Cyprus are the most popular and reputable worldwide. Many Caribbean nations also offer CBI programs that include unrestricted Schengen access. For example, for under $200 000, investors can acquire a Grenadian passport that not only provides access to the 26 countries in the European Schengen Area but to another 115 destinations besides, including China, Hong Kong, Singapore and the UK.

US advisers remain wary of cryptocurrencies

hen it comes to investing, advisers in the United States remain wary of crypto-currencies, although clients continue to be curious about this emerging asset class. This is according to the 2019 Trends in Investing Survey, conducted by the Journal of Financial Planning and the Financial Planning Association (FPA) Research and Practice Institute. Virtually no advisers surveyed (less than 1%) are currently using or recommending crypto-currencies in client portfolios. And yet, one-quarter of advisers reported that clients have inquired about investing in crypto-currencies in the last six months. Clients are also asking advisers about investing in marijuana or cannabis stocks/companies. The majority of advisers surveyed (55%) reported that clients have asked about investing in such stocks or companies in the last six months. Meanwhile, advisers remain steadfast in their use/ recommendation of ETFs, which once again, was the most popular investment vehicle used or recommended from a list of 22 options. The survey showed that 88% of advisers surveyed currently use or recommend ETFs with clients, and 70% currently use or recommend mutual funds (non-wrap). Prior to 2015, more advisers were using/recommending

ADVISERS REMAIN STEADFAST IN THEIR RECOMMENDATION OF ETFs

mutual funds than ETFs. Since ETFs ‘overtook’ mutual funds four years ago as a preferred investment vehicle, their use/recommendation has continued to dominate. The 2019 survey also showed that 80% of advisers are using/ recommending cash and equivalents with clients, similar to the 85% reported in 2017, and 83% reported in 2018. “This is, perhaps, an indication that advisers are continuing to be somewhat cautious when investing,” the survey says. “The reliance on cash and equivalents in 2019 is a significant increase from the 53% of advisers surveyed in 2006 who used or recommended this category.” The FPA’s annual Trends in Investing Survey was first conducted in 2006. Year-over-year results illustrate the effects of the 2007– 2008 financial crisis, with a clear shift out of individual stocks and into index products, including ETFs and mutual funds, as well as cash and equivalents. The list of investment vehicles has evolved since the first 2006 survey, with ESG funds, crypto-currencies, and separately managed accounts now included. With the 2019 survey showing clear client interest in marijuana/cannabis investments, this category will be added to the list of possible investment vehicles in the 2020 survey. The 2019 Trends in Investing Survey, conducted in the US by the Journal of Financial Planning and the FPA Research and Practice Institute was fielded in April 2019 and received 392 online responses from financial advisers who offer clients investment advice and/or implement investment recommendations.

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NEWS & OPINION

31 August 2019

Why we extended the CPD deadline: FSCA

he deadline for the first 12-month cycle your right to entry into the market. If you had not requiring financial advisers to achieve earned the CPD points required by the deadline, you their continuous professional development would have had to stop selling and advising. If you (CPD) points was initially May 31st this year. At didn’t stop you would have had to have been debarred – the last minute, the Financial Sector Conduct and this would have had an impact across the industry Authority (FSCA) offered a two-month exemption for people not properly organised.” from June 1 to July 31. Not everyone was happy and Da Silva referred to a remark made on social media some in the industry took to social media to voice platform, Twitter, signaling disappointment with their disappointment. the extension of the CPD cycle. The tweet stated “The decision to extend the CPD deadline was a hard that “everyone had 12 months to comply and there one to make,” Caroline da Silva, Divisional Executive was no lack of opportunity or content to fulfill the for Regulatory Policy at the FSCA, told last month’s FPI requirement … there is simply no excuse or reason Convention held in Johannesburg. to justify this decision from a “I know it was a decision a lot of compliance perspective.” ONE OF OUR you saw negatively. You’d worked Da Silva apologised for the so hard to get your CPD points and extension of the deadline. “It was, OBJECTIVES wanted to see implementation – and however, necessary as one of our AT THE FSCA IN you were right. The decision wasn’t objectives at the FSCA in terms of TERMS OF THE made lightly.” the new Twin Peaks Act is inclusion.” Da Silva explained that while the She explained that in “typical NEW TWIN PEAKS FPI has 6 000 members that are well South African style”, there had been ACT IS INCLUSION a last-minute rush to earn CPD informed about CPD hours, the FSCA has 138 000 representatives in the country. points. “A lot of people could have been out of work, “Not all of them are as well connected as you,” she so we gave two months extension to comply with the told the Convention. previous cycle – and I want to make it very clear that It was the consequences of not complying with CPD we did not extend the cycle.” that the FSCA saw as significant. “A lot of people don’t Another criticism was that the FSCA extended the realise that CPD is part of your holistic qualification, CPD deadline because it did not have the ability to

supervise CPD. “This is not true,” she said. “This is something that should come from the industry as all these representatives have been supervised by their financial services providers and it’s their responsibility to make sure that their people are competent.” Turning to the Retail Distriution Review (RDR), da Silva stated that people continuously asked her when RDR would be passed, as if it was as set of laws. “This is not the case and I want to make it very clear that RDR is a set of proposals – initially 55 proposals were made. As we work through each of these proposals and engage with the industry, we pass laws to implement the proposals.” She added that five proposals had been withdrawn after consultation as they were seen as unnecessary or no longer applicable, leaving 50 RDR proposals. While several proposals were complete, some were subject to future expansion (Table 1). The FSCA was currently consulting both formally and informally on other proposals (Table 2).

Caroline da Silva, Divisional Executive: Regulatory Policy, FSCA

TABLE 1: COMPLETED RDR PROPOSALS (SOME SUBJECT TO TRANSITION PROVISIONS / FUTURE EXPANSION) Proposal

Status

Standards for sales execution (D)

Defined in new FAIS F&P standards

Outsourced services obo product suppliers more clearly regulated (J,AA)

Insurance binder regulations finalised

Insurer tied advisers cannot provide advice on another insurer’s products (V)

Insurance regulations definition of “intermediary” amended

Product supplier responsibility for RFAs (insurance perspective) (CC)

Dealt with in various parts of new PPRs

Product supplier responsibility for customer data (insurance) (FF)

Dealt with in new PPRs

Standards for product replacements (interim non-remuneration measures) (OO)

PPRs will introduce new replacement disclosure template, to be vetted by insurers; no commission unless disclosure adequate

Commission anomalies on legacy insurance policies (PP)

Insurance regulations amended to deal with variable premium increases

Special commission dispensation for low income market (risk policies) (TT)

New insurance regulations confirm commission standards for funeral and micro-insurance policies

Remuneration for short-term policies (s.8(5) fee aspect) (UU)

Section 8(5) fees removed, replaced with PPR provisions re when fees can be charged

Conditions for insurance cover cancellations (VV)

Dealt with in new PPRs

Binder fees to be capped (ZZ)

Dealt with in new Insurance regulations

Commission cap for credit life “with admin” to be removed (AAA)

Dealt with in new Insurance regulations

TABLE 2: RDR PROPOSALS BEING CONSULTED ON (FORMALLY OR INFORMALLY) Proposal

Status

Standards for wholesale advice (C)

Dealt with in draft FAIS GC amendments

Standards for ongoing servicing (E)

Aspects in PPRS and draft FAIS GC amendments; to be further informed through the intermediary activity segmentation process

Insurance premium collection (F)

Aspects dealt with in draft Insurance regulations; further consultation in parallel with IGF termination

Outsourcing other than binders (J,AA)

Investment aspects dealt with in Investment Matters discussion document; other aspects to be informed by activity segmentation process

Adviser categorisation (various)

Further consultation planned through Adviser Categorisation discussion document

Remuneration disclosure standards (HH)

General principles in draft FAIS GC amendments

Criteria for adviser to use term “independent” (N)

Dealt with in draft FAIS GC amendments

Juristic reps may not provide advice (W)

Further consultation planned through Adviser Categorisation discussion document

Product supplier responsibility for advice (BB,CC,DD)

Further consultation planned through Adviser Categorisation discussion document

Standards for advice fees (JJ)

General principles in draft FAIS GC amendments; investment aspects in Investment Matters discussion document

Products suppliers to facilitate advice fees (LL)

Investment aspects dealt with in Investment Matters discussion document

Remuneration for investment products (MM)

Dealt with in Investment Matters discussion document

Remuneration for risk policies (NN)

To be informed by actuarial impact model testing and intermediary activity segmentation processes

Review of Equivalence of Reward (RR)

Research planned into current tied adviser remuneration practices

Remuneration for low income investment policies (TT)

Update published end 2018, research into current offerings planned

Remuneration for short-term policies (UU)

To be informed by intermediary activity segmentation process

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WOMEN'S MONTH

31 August 2019

CFA designation almost ‘a rite of passage’ in investment industry

elphine Govender, CFA, probably is) one of the most complete Co-founder and Chief business qualifications in terms of the Investment Officer at grounding it provides.” Perpetua Investment Managers, says It was during her university years that as a child, she had little exposure and accounting articles that she became to the field of financial services. exposed to the world of investing. “I had two academics as parents, “Once I discovered this world, I realised with neither of them in finance or exactly where I was heading.” business-oriented fields (my dad was Govender explains that it is only in science and my mum in education, hindsight that reveals tough patches language and the that may have been arts in general). obstacles in her GOVENDER IS Even the school I career journey. attended offered “While I remain INSPIRED BY THE no usual business on my career MANY INTELLIGENT, journey I experience subjects like accountancy, etc. DRIVEN, PRINCIPLED various challenges, “I decided YET HUMBLE PEOPLE none of which are around age 15 that insurmountable.” She SHE MEETS I could see myself says that in a malein a finance-based dominated industry field and wanted to develop commerce – like the investment industry – the and business-related expertise after challenge of unconscious bias towards school. I did some research into women is a very real one. this and decided back then on the “It is so frustrating for women CA qualification, which was (and to have to spend time dealing with

situations in which this bias is at play. I call this distraction the ‘woman tax’. Ironically, men don’t see how they benefit from not having to waste time dealing with this issue.” Govender is inspired by the many intelligent, driven, principled yet humble people she meets throughout the spheres of her life (especially those on a genuine journey of continuous learning among family and colleagues). “I am motivated by my own deep sense of curiosity and desire to be of service to those around me,” she adds. She was introduced to the Chartered Financial Analyst (CFA) credential at university back in the mid-90s as she learned about a career in investing and what qualifications would be the most relevant to pursue. “If you are committed to a career in investments, the CFA designation is almost a rite of passage. The reality about the exam is that in and of itself I do not believe it qualifies

you to do something specific, but it is a necessary leveller for all in the industry or for those who wish to enter. “Often I encourage colleagues who write this exam to obsess less about how tough it is and concentrate more on what it is equipping them to do. In this way the content becomes relatable. When a profession has a strong fiduciary element, which investments does, it becomes essential that a robust framework to govern behaviour, actions and thought-processes exists – and the CFA designation is excellent at providing this common base to all.”

Delphine Govender, CFA, Co-founder and Chief Investment Officer, Perpetua Investment Managers

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WOMEN'S MONTH

31 August 2019

Fund management is her interest and passion

n April 2000, Charolyn Pedlar set up boutique fund management company Platinum Portfolios, and is today a fifty percent equity partner in the business. She is joint manager of the Platinum Portfolios Global and Local Funds and Investment Solutions. Charolyn’s career in the financial services industry started in 1983 when she joined the Prudential Life Assurance Company as a broker consultant. Soon after, the company was taken over by Liberty Life, and she was transferred to Johannesburg from Pietermaritzburg. She became the youngest female branch manager in Liberty Life’s Broker division, running the Wits branch of 10 broker consultants and two junior managers. Charolyn joined Clerical Medical International in 1993 as the Marketing Manager for Southern Africa and a year after, she was appointed as Regional Manager Africa. Her function was to establish master distributor networks throughout Africa, including South Africa. In 1996, she joined asset management company Appleton as the National

Manager – International Marketing, investment positions for longer.” and was tasked with setting up a For Charolyn, fund management is network of IFAs nationally, as well as her interest and passion. “I enjoy what providing offshore investment training I do. I understand that results do not to the company’s sales managers. appear overnight; you must be patient When she founded Platinum and wait for the results to develop and Portfolios in 2000, her initial mature. I don’t have ‘creative moments’, experience was to lead the offshore nor do I have dramatic moments of investment management. Today, she insights, or eureka moments – these drives the investment process that are myths.” She explains that her determines the ongoing asset allocation ongoing daily hard work is made up and stock selection of of processes, “lots of small, the Platinum Funds. ongoing activities that are “According to a developed and improved”. MEN TRADE Morningstar report Dealing with the perception 45% MORE on fund managers and that you need to be a man THAN WOMEN to get some recognition and gender, women are under-represented in credibility in the industry has fund management ranks globally, and been one of her biggest professional there has been little improvement in challenges. “However, the challenges the situation since the financial crisis,” that I have faced often presented she says. opportunities. Leaving the corporate “Several popularised articles suggest environment and redirecting my women make better fund managers energy into starting my own business than men because they do not suffer has allowed me to create my own brand from overconfidence,” she adds. “Barber and do it my way.” & Odean (2001), for example, found When asked who has inspired her that men trade 45% more than women, along the way, she says that she was indicating that women tend to hold their lucky to work with some incredible

TANYA VAN ASWEGEN General Manager, Compli-Serve SA

ompliance is an analytical and adminintensive field. Financial services compliance is even more niche, and attention to detail is key in navigating the rules of the regulator. “Managing the operations of a busy compliance practice is a rewarding job utilising my organisational and time management skills, and I get to work with a great network of people, many of whom are women,” says Tanya van Aswegen, General Manager of Compli-Serve SA. A portion of compliance work relates to implementation and women in business generally tend towards strong administration and WHAT IS delegation skills. These attributes could tie IT ABOUT why the role of COMPLIANCE into compliance officer THAT IS SO (CO) is a good career FULFILLING? for women specifically. With most of CompliServe’s COs mirroring this fact, what is it about compliance that is so fulfilling? “The devil is in the detail in compliance and the implementation of it,” says Catherine Cooper, Compliance Officer and Director of Compli-Serve KZN. “I enjoy the interactive working relationship with my clients – effective communication is very much a required skill and an ongoing challenge in the current environment.”

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people who guided and inspired her, but the person that inspired her the most was her father. He has always been available with wise advice and guided her in the belief that she could do anything that she set her mind to, no matter what the obstacles. Charolyn is involved in various charity activities. She plays tennis, enjoys hiking, swimming and loves to travel.

Charolyn Pedlar, Investment Manager, Platinum Portfolios

A feminine approach Commonalities when chatting to some female COs in the team at Compli-Serve included meaningful relationships with clients, flexibility around work and family commitments, as well as being an admin-pro. Anel Naude enjoys the flexibility her role as CO allows, being the mother of a small child. A compliance job in a corporate entity (the alternative to consulting independently as an external CO) may not provide the same perks, but it really comes down to a stable client base and deeply valuing relationships built over years. “I constantly interact with knowledgeable, energetic individuals who are passionate about their businesses and careers, which in turn motivates and inspires me,” she says. The career path of compliance, Naude notes, is best paved with the help of a mentor. “Legislation and regulations are but one side of the coin. Industry experience in any form goes a long way.”

A pure legal or compliance background might make it challenging for recruits into financial services, as you must be able to understand your clients’ businesses and the associated risks. But, says Elzabe Botha, it’s so diverse as every client is different. “I learn something new every day, and the best part is how grateful clients are for the assistance – so you can see and feel the benefit of your efforts.” Compliance could be a career choice if you’re not scared of a challenge or constant learning and you have a thick skin. “This is by no means a job where you’re loved by all,” Theresa van Diggelen notes, but the rewards far outweigh any negative elements. “We are forever learning, which is great. I enjoy the challenge of change, and I also love working with different types of people.” Cooper echoes the flexibility of working in compliance as a great career for women, full of professional growth, particularly as a consultant, though it takes a lot of hard work. “You also need to be innovative and intuitive to assess how the requirements of new legislation affect – or even help – an FSP.” Van Aswegen concludes, “Compliance wasn’t a field for some of our COs when they first joined the industry, but today it is an essential, dedicated resource. As the world of compliance evolves, with innovation a serious consideration within legislation, it is an interesting time to be in financial services”.

WOMEN'S MONTH

31 August 2019

Championing the gender agenda

Christine Lagarde, former Managing Director, IMF

Culture can make to help other women achieve similar or break your career positions. Sponsorship is globally The most common contributing factor cited as the most important factor in t RMI Investment Managers, to the success of these women is a bringing about meaningful change we are passionate about company culture supportive of their through becoming personally invested playing a meaningful part careers as women in financial services. in another woman’s career path by in cultivating a savings culture in These corporate cultures tend to opening doors, introducing them to South Africa and transforming the be inclusive, offer flexible working relevant and influential people, raising investment management industry arrangements and discourage the their profile and trying to connect to better reflect the society we view that women face a binary choice them to growth opportunities that will serve. In addition, we view the between career and motherhood. develop their careers. promotion of gender diversity and Another way these cultures the empowerment of women in encourage women to stay the Bravery rather than perfection financial services as a key part of this course is to provide them with the Studies show that women are more transformation agenda. opportunity to reduce responsibility likely to strive to perfectionism than In our quest to improve our or change roles for a period of time. men, particularly in a work context. understanding of the gender This non-linear career Speaking up does not challenges within the investment progression or ‘jungle always come naturally to WOMEN management industry, we invited gym’ career path is most women, whether REPRESENT 12 female Chief Investment Officers not viewed as taking a it is to make their voices from South Africa’s prominent multistep back but rather as heard or to admit when 49% OF managers, and our female portfolio an alternative path to they are struggling. Firms THE TOTAL managers within our affiliate stable, to reaching your ambition today should mindfully INDUSTRY, share their experiences and and full potential. encourage all employees what they believed were to participate and freely YET ONLY the major catalysts in Role models, express their views in front 18% ARE their own careers that mentors and of other people. You do paved the way to their sponsors not need to have 100% of PORTFOLIO current roles. A further contributing the knowledge to make an MANAGERS factor for many women insightful or meaningful in deciding to opt out of a decisioncontribution, you just need to have the making role, is the lack of visibility confidence that what you say matters. of women who have successfully achieved these positions. According to Changing the narrative 27four’s 2018 BEEconomics Report, There is no doubt that women have women represent 49% of the total many strengths that make them industry, yet only 18% are portfolio valuable investment decision-makers; managers. While it was pleasing to the question is how do we encourage see a 21% increase in female portfolio more of them into these roles? We managers between 2010 and 2018, need to alter the narrative around there are still almost five times as women in leadership positions but, many men in this role as women. importantly, we need men to help Acting as a role model, mentor drive this agenda. Through concrete, and sponsor is probably the most relatable and impactful action, we important responsibility women in are determined to shift this dial for investment executive roles can take women in investment management. Final print artwork.pdf 1 2019/03/11 14:18 ALIDA DE SWARDT CEO, RMI Investment Managers

Two women nominated for top EU positions Two women have been nominated to take top positions in the European Union. President of the European Council, Donald Tusk, said in a statement last month, “We have proposed Germany's Ursula von der Leyen as the next President of the European Commission and nominated France's Christine Lagarde as the candidate for President of the European Central Bank.” He added, “It will now be for the European Parliament to consider Ursula von der Leyen for Commission President. If elected, she will be the first woman to lead the European Commission.” He described Lagarde, with her international background and standing as Managing Director of the International Monetary Fund, as “a perfect President of the European Central Bank”. Lagarde has now resigned from her post as Managing Director at the International Monetary Fund (IMF), following this nomination. “I am honoured to have been nominated for the Presidency of the European Central Bank,” she said in a statement. “In light of this, and in consultation with the Ethics Committee of the IMF Executive Board, I have decided to temporarily relinquish my responsibilities as Managing Director of the IMF during the nomination period.”

There was a time when investment management was about more than just business.

We pride ourselves in bringing back these values by investing in and partnering with South Africa’s best investment talent.

IDENTIFY. PARTNER. GROW.

CMY

+27(0)11 282 4462 | info@rmiim.co.za | www.rmiim.co.za

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WOMEN'S MONTH

31 August 2019

The women of Satrix

atrix is a strong South African brand in an investment management industry so dominated by men, it’s a welcoming fact that not only is the CEO a woman, but women make up about 50% of this team. This dynamic group of ladies have a depth of experience, qualifications and perceptivity that brings a very special angle to a business. All are members of the WE initiative (Women in ETFs) and Helena Conradie, CEO, serves on the board of WE for the EMEA region. Helena and COO, Jenny Albrecht, each have more than twenty years of investment industry experience, most of which spans specialised indexed investments. While their current focus is on driving the Satrix business, they have been involved in all aspects of index investing, from product development to portfolio management. They have passionately guided the direction of the Satrix brand over time, so that when the Satrix 40 ETF was awarded “The People’s Choice” for two consecutive years, it was certainly a highlight. This reflects the considered and empathetic approach the company has taken when positioning products and speaks to the very feminine quality of care which runs through the entire team. Surprisingly, most of these women

didn’t choose finance, it’s more likely that finance chose them. But once introduced, they knew that working in this fast-paced and rewarding environment was where they wanted to be. It isn’t, however, without its drawbacks and South Africa, like many countries, has a way to go before women feel complete equanimity in the workplace. When asked how it feels to be a woman in the workplace, Lauren Jacobs, Portfolio Manager and a mother of two, replied, “I saw a cartoon once where women and men, dressed in work attire, are at the starting block on a race track. The lanes in front of the men are clear but the lanes in front of the women are littered with various obstacles like laundry, cooking utensils, etc. Working women have much more to do than just attend to their work at the office and not all men have an appreciation for the mental load women carry other than their work efforts, yet women are as productive and efficient even with the challenges we face outside of the workplace.” There is an unspoken understanding among this ‘sisterhood’ that they bring empathy into the workplace and a deeper understanding of the unseen challenges women and men alike face outside of the office. This can bring a

level of much needed tolerance into a pressured environment. They all feel women may be better equipped to bring cohesion into teams of distinct individuals. Demands and joys of family and friends are also very important to these ladies as they strive for better work-life integration. Most of them would like more flexibility in the workplace without the concomitant scrutiny but they all have ways of letting off steam that are as diverse as they are. You would be surprised to

learn there’s a photographer, a flower arranger, an interior decorator and maybe not so surprising, a few readers among them too. So next time your ETF dividends arrive, you’ll know they have been invested, calculated, paid over and reinvested by these ladies! Left to right: Sunita Takurpersadh (Head of Operations), Thembeka Khumalo (Client Relationship Manager), Helena Conradie (CEO), Jenny Albrecht (COO), Lauren Jacobs (Portfolio Manager), Nonhlanhla Mphelo (Portfolio Manager)

What women would change about work if they could

new report by Deborah Hargreaves of British think tank, High Pay Centre, entitled Women at work – designing a company fit for the future, seeks to determine what corporations would look like if designed from a woman’s perspective. “We seem to be waking up to the fact that the female approach, women’s views and characteristics such as inclusion and empathy are just as important as those of men and it is high time they were recognised,” Hargreaves says in the report’s introduction. Here are the report’s main findings: Gender stereotypes: Women encounter prejudice about the roles they adopt: men are seen as leaders and women as assistants. Current career structures can encourage women to adopt male behaviour to get on at work. The lack of representation of women in the tech industry is a particular concern as it means the male outlook becomes embedded in the algorithms that increasingly run our lives. Pay gap: The difference between men’s and women’s earnings remains 9.6% across the British economy, often because of job segregation – women are most represented at the lower levels. This means women are most exposed to the insecure employment conditions endemic for low-paid roles. Childcare costs in England are the highest in the OECD at 40% of a couple’s after-tax income. Caring and flexibility: Women are the main

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carers for children, elderly parents or spouses, which makes them more likely to work parttime, in job shares or flexibly. Flexible working is foisted on some women in low-paid roles while those in better-paid jobs can struggle to squeeze full-time work into part-time hours. Job-sharing is one answer, but this is not for everyone. The right to request flexible working has been enshrined in British law since 2014, although take-up has tailed off – women fear their careers will suffer. But some question whether jobs have to be this big or whether responsibilities could be divided differently. Different values: Younger women and men are demanding more from the workplace; their motivations vary from those of their parents. They are questioning the company culture that puts profits and shareholder returns as the main outcome of business. Progression: Women often do not get noticed for promotion to the top of companies and organisations because their male bosses are not looking their way. Some organisations are introducing mentors and a chance to try a top role. Women running their own businesses are already taking a different approach. But many are told a prerequisite for raising finance is to install a male chief executive. Biology: Menstruation and menopause are two of the great taboos in the workplace. The failure of managers to recognise their impact can lead to women feeling vulnerable at work.

The report’s conclusions: “The feminine corporation would put caring at its heart and work would fit around it, rather than the other way around,” says Hargreaves. “My manifesto for change would see a more human face put on the workplace.” 1. The organisation would put caring for children, relatives and parents at its heart. 2. It would offer a carer’s passport for all staff – including agency workers. 3. The workplace would help provide affordable childcare – either with an in-house creche or vouchers towards outside provision. 4. There would be a focus on agile working with a four-day week, flexible rotas, home working and job-sharing encouraged and facilitated at all levels. 5. The workplace would be inclusive and open to people from all heritages, disabilities and identities. 6. There would be no gender pay gap and mentoring would be available for all. 7. Equal numbers of men and women (with diverse backgrounds) would be promoted to all layers of management and senior roles. 8. Similarly, the same number of men and women would be on the board of directors. 9. The organisation would encourage a more ethical and sustainable way of working rather than a focus purely on profits and growth. 10. Rewards would be based on the broad values of the company rather than just individual performance.

SATRIX BALANCED INDEX FUND. NOT AS PASSIVE AS YOU THINK.

A TOP-PERFORMING BALANCED FUND. Morningstar performance data â€“ Ranked 14th of 157 funds for 3 years and 9th of 100 funds for 5 years to 30 June 2019 in the ASISA South African Multi-Asset High Equity Category. For more information visit www.satrix.co.za.

Satrix Managers (RF) (Pty) Ltd is an authorised financial services provider and a registered and approved manager in terms of the Collective Investment Schemes Control Act. Maximum fund charges (including VAT): Manager Annual Fee 0.40%. Transaction Costs (TC) 0.25%. Total Expense Ratio (TER) at 31 March 2019, 0.47%.

INVESTING

31 August 2019

TAMRYN LAMB Head of Retail Distribution, Allan Gray

here are many commonly held beliefs when it comes to investing and not all of them are true, says Tamryn Lamb, Allan Gray’s head of retail distribution. Myth #1: If it is too simple, it won’t work “One of the most common mistakes that investors make is underestimating the power of simplicity. Simple methods, rules and techniques go a long way in enabling investors to reach their goals. Yet, many investors think that if something is too simple, it surely can’t work as everyone would be doing it. But, this isn’t true, especially when investing,” says Lamb. She adds that the secret to becoming wealthy over the long term is not complicated. This doesn’t mean it is easy, as it often requires patience, discipline and staying rational when

Four investment myths busted

others are panicking. “The most successful investors are those that over time, consistently spend less money than they make, save the difference, invest in undervalued assets, and are patient. Yet this sounds too boring to be true, which makes investors susceptible to getting distracted or falling for things that seem to promise faster or greater growth, taking them off the right path.” Myth #2: Economic forecasts will help me find the next best thing Investors looking for the next opportunity often turn to macroeconomic factors to determine whether markets will or won’t deliver strong returns. Lamb says that there are two problems with this. “Firstly, the problem with forecasting is that no one has a crystal

ball. Yet, we constantly overestimate our ability to predict the future. This is true for many things, and particularly so for a field as complex as economics which is driven by multiple underlying variables and factors.” And even if we could reliably predict, research suggests that there is no correlation between economic growth and share returns. “Sometimes, strong, growing economies attract lots of competition, which lower price levels. This may be good for consumers, but not necessarily for the value of companies operating in that space.” Lamb says it is a far safer strategy to invest based on fact rather than guess work. “What determines the success of your investment is the price that you pay for an asset, and how much you ultimately sell it for. Consider working with a reputable investment manager to help you identify the right opportunities, and do not pay undue attention to predictions,” says Lamb. Myth #3: Rely on your gut when you invest Lamb believes that one of the biggest culprits in making poor decisions is our emotions. When performance dips, investors often throw out their carefully considered investment strategies and change tack. Alternatively, they hold back on making investment decisions until there is enough positive movement

to reassure them of not getting hurt. But basing investment decisions on emotions often leads to taking action that will permanently lock in losses, or missing the best time to invest. “The most appropriate time to make changes to your portfolio is if your investment goal or risk appetite changes, or there has been a change in your circumstance. Tune out the noise, listen to your head not your heart and stick to your plan, to achieve longterm success.” Myth 4: Quick wins will make me wealthy Another mistake investors make is not being committed to the long term. When you invest, time allows your invested money to grow and compounding makes your money work harder for you. Given a long enough period to work, compounding can dramatically multiply the value of your investment so that less of your total investment will be from your contributions and more from growth. “The key to successful investing is staying invested for long enough to reap the benefits from the potential returns, ride out the inevitable short-term ups and downs and allow the power of compound interest to increase the value of your money. “Don’t judge the daily performance of your investments. Successful investors have the patience to stick it out,” she says.

Watch Boris Johnson carefully! Investors in UK financial assets need to be ‘aware “There will inevitably be winners and losers as and alert’ as Boris Johnson pursues his agenda Mr Johnson’s administration policies and ambitions as Britain’s new Prime Minister, says Nigel Green, are pursued. As such, this is a time for investors founder and chief executive of deVere Group. to be aware and alert to mitigate the risks and take The warning from Green followed Johnson’s advantage of the opportunities as they arise.” first statement to parliament as PM. A survey carried out by deVere in May found “Financial markets – and therefore investor more than 20% of clients had sought advice on returns - are often driven and influenced by moving UK assets out of Britain since the Brexit geopolitical factors,” Green adds. vote in 2016. “Britain’s political shake-up with its Now, with the Brexit situation likely to intensify in unpredictable new Prime the run-up to the 31 October Minister, the ongoing deadline, Green says, “The THERE WILL INEVITABLY deadlock in parliament, pace of this trend can be BE WINNERS AND LOSERS expected to pick up over the the slowing economy, the possibility of another next few months. AS MR JOHNSON’S general election, the “A growing number of ADMINISTRATION increasing likelihood of domestic and international crashing out of the EU investors in UK assets will POLICIES AND with no-deal or another AMBITIONS ARE PURSUED respond to the uncertainties extension to Brexit, by considering removing their amongst many other issues, will contribute to this wealth from the UK. becoming a volatile next few months for investors “For many, the current landscape will be a good in UK assets. excuse to start a rebalancing in favour of global

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equities, bonds and perhaps property.” Green concludes, “With Sterling and UK assets to be directly and indirectly impacted by Boris Johnson’s decisions, investors need to monitor the developments carefully in order to create, build and safeguard their wealth.”

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INVESTING

31 August 2019

MICHAEL KRUGER Investment Analyst, Morningstar Investment Management SA

Are fees a good predictor of fund performance?

outh African investors haven’t Costs are perhaps the easiest been rewarded for taking on risk, ‘process win’ of all, as higher fees act especially in the form of equity or as a frictional force and detract from property investments. As an example, the performance that an investor the average fund in the ‘conservative’ experiences over the long term. An South African Multi-Asset Income extra percentage point in fees can make category generated an annualised a huge impact to the return an investor return of 7.3% over the past five experiences when compounded years, whereas the average fund in over extended periods of time. As an the ‘assertive’ South African Multiexample, we can use a portfolio with Asset High Equity a 60% allocation to category generated equities (using the FTSE/ WHAT WE CAN an annualised return JSE All Share as a proxy) CONTROL ARE of only 4.9% over the and 40% to bonds (using same period. Investors the All Bond Index as THINGS LIKE have therefore not a proxy). The idea is to THE FEES THAT been compensated for track the performance investing in a fund WE PAY TO FUND differential over the long with a maximum term based on different MANAGERS equity exposure of fee levels (we have used 75% versus a fund that can invest a the last 10 years in our example below), maximum of 10% in equities. to see the negative effect that fees can Disappointing returns from risk have on performance. assets (largely driven by the ebbs It therefore makes sense that and flows of news events) are not, minimising costs is something that we however, in the control of an investor. focus on extensively at Morningstar What we can control are things like Investment Management South Africa. the fees that we pay to fund managers Price is one of the five pillars that and making sure the underlying asset we consider when evaluating a fund mix has a high probability of getting during the research process. We have us to our goals. published numerous studies which

60% EQUITY/40% BOND PORTFOLIO R1M INVESTED SINCE 30 JUNE 2009

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show that fees are one of the better predictors of a fund’s potential for long-term outperformance. Logically and practically, the evidence is clear. So, if a fund manager charges higher fees, they will need to demonstrate that their process can produce meaningful outperformance relative to their peers. We therefore spend a lot of time evaluating whether the fee that a fund charges is justified. This is not an active versus passive debate, but rather, whether we are getting value for money. To bring this into everyday life, we can think about why people buy a BMW as opposed to a Toyota. It is because they believe that the additional features they get justifies the additional fee they pay. The same can be said of fund fees. We may feel that due to the experience of a portfolio manager or the strength of the analyst team behind a fund, we are willing to pay a premium to gain access to their process. Unfortunately, this is a largely subjective exercise and requires a lot of judgement from an investor. From our experience, however, we believe that investing in cheap funds increases our chances of long-term outperformance. Let’s look at the predictive power of fees over the past five years in the SA environment. We have created a scatter plot (right) of the annualised returns of funds in the SA Multi-Asset Income, SA Multi-Asset Low Equity, SA Multi-Asset Medium Equity and the SA Multi-Asset High Equity categories. We have mapped the annualised return of each fund in the category over the past five years against the current historical Total Investment Charge (TIC) for that fund. What is evident from the trendlines is that in all categories on average, funds with lower fees tended to outperform those with higher total

SA MA INCOME

SA MA LOW EQUITY

SA MA MEDIUM EQUITY

SA MA HIGH EQUITY

Data as at 30/06/2019. Source: Morningstar Direct. Past performance is not a guide to future returns.

costs, supporting the thesis that investing in cheap funds increases the chance of long-term outperformance. So how would we implement an investment strategy based on such findings? A good start is to be aware of what fees you are paying and to whom. As with most things in life, the key is to focus on the process rather than the outcome – and fees must form part of this conversation.

Data as at 30/06/2019. Source: Morningstar Direct. Past performance is not a guide to future returns.

Tim Slatter

CMY

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INVESTING

31 August 2019

A unique approach to investing around the world

edgroup Investments has announced the launch of the Global Diversified Equity Fund (GDE). Rob Johnson, Head of Investments at Nedgroup Investments, says the new fund is ideal for investors looking for long-term capital growth through investment in a global equity portfolio that is broadly diversified across investment style, region, country, sector and individual securities. The fund will be managed by Ardevora Investment Partners (Ardevora), who adopt a unique investment approach based on cognitive behavioural bias observed in the capital markets. Their investment strategy has delivered investors a 15% annualised return (ZAR currency base) since its launch in 2013 and is run by a highly experienced investment team. The investment manager: Ardevora Investment Partners Ardevora is an independent, London-based boutique with a single investment team focused on managing a single investment process. The firm was founded in 2010 by Jeremy Lang and William Pattison, who have worked together in various portfolio management roles since 1986. Together with Ben Fitchew, who also joined in 2010, they are responsible for the management and performance of all the firm’s strategies. As a boutique, owner-managed business with a specialised focus on their investment strategy, Ardevora is aligned to the

FUND PERFORMANCE SINCE-INCEPTION PERFORMANCE TO 31 MAY 2019 1 (ZAR BASED RETURNS)

Source: Ardevora, Bloomberg, Link, Portfolio Evaluation. As at 31st May 2019

success of investors into this fund and an appropriate selection within our Best of Breed™ philosophy. What’s unique about their approach? Ardevora have a unique and commonsense investment approach that builds on traditional fundamental investment techniques to identify unusual behaviour in the market. In particular, they look at the way company management, analysts and investors make decisions, the circumstances in which they tend to make mistakes and where opportunities to invest emerge. Ardevora have developed an approach to exploit or protect

investors from these behaviours. They look for companies where overconfident management teams are restricted from taking excessive risks. These lower-risk businesses can be either misunderstood by equity analysts or out of investor favour due to a particular event. When these factors align, Ardevora will conduct fundamental analysis to ascertain the attractiveness of the investment case.

HERE FOR YOU, THERE FOR YOU

A truly diversified portfolio Ardevora is fully aware that behaviour bias can also affect asset manager decisions. To limit the impact of this bias, they construct equally weighted portfolios consisting of a high number

of stocks, which has ranged between 150 and 250 individual holdings. There is no regional bias as portfolio construction mirrors the weightings within the MSCI ACWI benchmark. As the strategy is style and sector agnostic, the portfolio will move shift exposure as different industries experience attractive dynamics. They achieve stock-level diversity by equally weighting buy-list companies within each region and restrict the exposure to any individual stock to 2%. This will prevent the strategy from suffering from an unexpected idiosyncratic event in any one company. The result is a diversified portfolio of global companies, selected using a truly unique investment approach that seeks to benefit from the bias of market participants and builds on traditional fundamental analysis to identify investment opportunities. Note 1 - The performance shown above represents the long-only portion of the Ardevora long/short Global Equity portfolio, since its inception on the 18th February 2011, rather than an actual long-only portfolio (the Global Long-only Equity portfolio was launched on the 29th November 2013). We refer to this portion as the Global Long-only Equity carve-out. Returns shown are actual returns for the Global Long-only Equity carve-out, including transaction costs. As is the case for all historical performance, carve-out returns are no guarantee of future returns and should not be solely relied upon. All returns are in ZAR. Gross returns on the carve-out are shown above. 1

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HERE FOR YOU, THERE FOR YOU PARTNER WITH TOP INTERNATIONAL INVESTMENT EXPERTS, HAND-PICKED FROM THE BEST, WORLDWIDE.

see money differently

| RETIREMENT SA’s Top Offshore Management Company for the past four years FUNDS UNIT TRUSTS |Rated INTERNATIONAL Rated SA’s Top Offshore Management Company for the past four years

Nedgroup Collective Investments (RF) Proprietary Limited is the company that is authorised in terms of the Collective Investment Schemes Control Act to administer the Nedgroup Investments unit trust portfolios. Unit trusts are generally medium to long term investments. The value of your investment may go down as well as up. Past performance is not necessarily a guide to future performance. Nedgroup Investments does not guarantee 911281 Nedgroup NotePad_232Hx148W.indd 1 2019/06/28 10:46 the performance of your investment and even if forecasts about the expected future performance are included you will carry the investment and market risk, which includes the possibility of losing capital. Unit trusts are traded at ruling prices and can engage in borrowing and scrip lending. Certain unit trust funds may be subject to currency fluctuations due to its international exposure. Nedgroup Investments has the right to close unit trust funds to new investors in order to manage it more efficiently. A schedule of fees and charges and details of our awards are available on request from Nedgroup Investments.

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2019/07/22 13:50

INVESTING

31 August 2019

JON DUNCAN Head of Responsible Investment, Old Mutual Investment Group

Shareholder resolutions on climate change and other ESG risks gather steam

n May we saw South Africa’s first ever climate risk-related resolutions tabled at the Standard Bank Annual General Meeting. The first resolution called on the bank to prepare a report on its exposure to climate risk in its lending, financing and investment activities. The second resolution called on the company to adopt and publicly disclose a coal power and mining lending policy. These resolutions, the first of their kind to be tabled by a South African listed company at its AGM, are a significant step in local shareholder activism on climate change. While the majority of shareholders voted against the first resolution (62%), the second resolution received the support of 55% of the shareholders and is therefore binding on the company. The move may have set a new precedent and the industry can expect to see more shareholder resolutions and activism of this kind this year, as well as on other environmental, social and governance (ESG) related issues. This is already evident in the recent news that Absa will become SA’s first bank to voluntarily develop a comprehensive policy on climate change. Despite the first resolution not being passed, the listed markets will nevertheless be forced to contend with one aspect of climate risk through the newly gazetted Carbon Tax Bill, which came into effect on 1 June. Ten years in the making, the Carbon Tax Bill sends an important signal to the markets that the direction of travel is towards long-run decarbonisation of growth. The Standard Bank resolutions and Absa’s voluntary development of a climate change policy indicate

VUYO NOGANTSHI Head: Institutional Client Services, Allan Gray

outh Africa has a relatively small equities market with a handful of dominant shares, spread across a few sectors, which are available to invest in. This presents a significant risk for investors: a highly concentrated portfolio. When compared to global markets, the Johannesburg Stock Exchange (JSE) is relatively small, comprising less than 1% of the total global investing universe. It is also highly concentrated, with the top 10 shares on the FTSE/ JSE All Share Index (ALSI) making up between 50% and 60% of the index. In contrast, the top 10 shares in one of the world’s major indices, the S&P 500, make up just over 20% of the index. Most of the ALSI’s concentration comes from one share: Naspers, which currently makes up approximately 20% of the index. Naspers’ dominance in recent years has increased concentration risk for investors, making portfolios overly sensitive to the factors that drive its value. While most investors are happy to

ESG issues will increasingly be showing up on the corporate agenda. The fact that climate risks were raised at a large corporate’s AGM shows that stakeholders and shareholders alike recognise that the risk associated with transitioning business models to align with a two degree Celsius future are material. For longterm investors, having transparency on this risk is not an unreasonable request, and so we expect that the climate change debate in SA will gain further traction going forward. The risks posed by climate change can be seen through the lenses of physical risk, technology/ disruption risk and tax/legal risk. Importantly, climate risk is a social risk multiplier and given the triple social challenges faced by SA of poverty, inequality and unemployment, it’s critical that these knock-on risks are considered. The climate models for South Africa predict that the country will generally get drier in the west and wetter in the east, with higher intensity weather events. We have witnessed the effects of the droughts in Western Cape and recent flooding in the KZN/Eastern Cape and so have first-hand experience of how these events impact the vulnerable, let alone industry. In Old Mutual Investment Group’s recently published Responsible Investment Report, we penned an article which flagged that the remainder of 2019 will see a greater amount of shareholder proposed resolutions at company annual general meetings coupled with more vocal pushback from civil society organisations to corporate responses on ESG issues.

Following the events relating to the Standard Bank AGM, the pressure that was applied to Standard Bank is sure to flow over to other companies and, from an ESG perspective, this should be seen as a positive move for the entire country. Ultimately, the industry is starting to realise that the large asset owners will need to transition their asset registers and pay greater attention to the carbon intensity of their investment portfolios. While it might seem like applying climate risk factors into investment portfolios are timely and costly, the longer-term costs of not implementing this approach are far higher. It simply has to be done in terms of long-term portfolio returns. The retail market in SA is also waking up to the fact that they can, and should have, a choice when it comes to how their investments are managed. Our expectation is that there will be growth in demand for ESG-themed investment products and coupled with this, innovations in this area. As a large asset manager, we recognise that the new paradigm of investing requires a shift from balancing risk and return to balancing risk, return and impact. We have embraced this shift and embedded it as a part of our fiduciary commitment to our clients across all our investment capabilities. The climate change debate is an important one and we will continue to actively engage with investee companies to reduce investment risk and, additionally, seek further opportunities to build out our already substantial investments in the low carbon and renewable energy sectors.

Is your client’s portfolio overly concentrated?

manage the exposure in the context of positive returns, what happens when the proverbial goose stops laying the golden eggs; when the dominant share(s) in your client’s portfolio begins to perform poorly?

indicates a strong positive relationship, i.e. the two assets tend to have higher and lower returns at the same time – this is indicative of an undiversified portfolio. A negative correlation implies the opposite, i.e. Mitigating returns of the two assets move in concentration risk opposite directions at any given time. The best way to reduce concentration A correlation of zero implies that no risk, without losing out on the potential relationship (positive or negative) to earn good returns, is to invest in a exists between the returns of the two combination of assets that have little assets. By adding assets with zero, correlation to one another or negative correlation, a – essentially, having a portfolio becomes more diversified portfolio where diversified. WHEN returns are generated from Look at the overall COMPARED a wider spread of assets, volatility of the investment TO GLOBAL to gauge how well the industries and markets with an acceptable level of risk. portfolio is diversified. MARKETS, To construct a Intuitively, a portfolio THE JSE IS diversified portfolio, consisting of correlated RELATIVELY assets should show a larger consider correlation and volatility. Correlation deviation in its overall SMALL measures the strength of returns (i.e. high volatility), the relationship between the returns while a portfolio that has uncorrelated of two assets. A positive correlation or negatively correlated assets should

show smaller deviations in its overall returns (i.e. low volatility). A welldiversified portfolio, taking into account offshore investments, should generate returns at lower levels of volatility over the long term. It can be tempting to ignore concentration risk when the going is good, and returns are attractive. However, an undiversified portfolio can quickly become a problem if your most concentrated shares begin to perform poorly. The Allan Gray Investment Summit, recently held in Johannesburg and Cape Town, discussed how investors and financial advisers should look at investing during tough economic times. For more, visit www.investmentsummit.co.za

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INVESTING

31 August 2019

RUAN KOCH Property Analyst, Laurium Capital

Is there still a place for SA property in your portfolio?

he South African property physical property assets. market was particularly tough Factors that impact negatively on for investors during the last the growth and valuation outlook 18 months. The best performing are: low GDP growth; above inflation SA asset class over the last decade increases in electricity, rates and perhaps lulled investors into a false taxes; Eskom loadshedding woes; sense of security. Higher returns the Edcon issues and subsequent come with higher risk, a truism recapitalisation; land expropriation often forgotten in good times but policy talks; and lower business and a financial reality that nonetheless consumer confidence levels. proved true in 2018. Price corrections In such a weak environment, of some overvalued stocks, property supply outstrips demands corporate governance concerns and and vacancies inevitably creep up. concurrent deterioration in property Low job creation and retail sales fundamentals led growth eventually the sector to a also lead to existing INVESTORS CAN 25% decline. rental contracts Current valuation escalating to above STILL FIND GOOD levels for the sector market rental rates. OPPORTUNITIES show investors are In current leasing WITHIN THE extremely bearish on negotiations, the growth outlook. PROPERTY SECTOR tenants end up The SA property having more sector dividend yield is higher than bargaining power than their the SA government bond yield for landlords, as landlords want to retain the first time since the financial tenants at almost any cost. The net crisis, where on average over time it effect is that new rental agreements traded at a slight discount because of are now often being struck at lower implicit dividend growth. The income than previous rental rates and with component of property investment lower future contractual escalations, is largely still intact; however, placing further pressure on investors are questioning the growth property income growth, and hence in dividends and the valuations of dividend growth.

ARNO LAWRENZ Global Investment Strategist, Ashburton Investments

Low growth? Running out of options? Global multiasset funds are a solution

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We expect this situation to continue in the foreseeable future as demand growth for property space tends to lag economic growth. The South African economy will need to see growth return before we turn bullish on SA property in general. That said, Laurium Capital still believes property makes sense as part of a prudent asset allocation process. The five-year correlation of SA REITs to the JSE All Share is only 0.28, even lower against the Top 40 at 0.19. For superior results, however, investors need to filter through the noise to find the property companies that will continue to deliver in a tough environment. Certain property sub-sectors, like highend logistics and self-storage, offer some respite from the weakening office and retail property fundamentals.

There are also some attractive opportunities in offshore property for those with longer time horizons. Laurium Capital prefers to get most of its exposure from companies in these sub-sectors. We advise investors to practice patient opportunism. Investors can still find good opportunities within the property sector, but they must remain cognisant of where we are in the cycle.

ecent economic releases have pointed to a In a slowing growth world, there may well be world in which growth rates are either already times where exposure to global equities needs to be slow or starting to slow, and importantly, lessened or even mitigated by exposure to safe haven where interest rates are no longer expected to rise. assets, such as cash or bonds. Just as importantly, Where then does global investing fit in a South it is also required that currency overlays are African investor’s portfolio? implemented optimally to ensure that an investor is It would be easy to point to South Africa’s own able to efficiently obtain exposure to areas where the gross domestic product (GDP) growth rate, which, most likely growth will occur. The vehicle for such as we now know, was a shocking a portfolio lies in the ambit of global -3.2% for the first quarter of this year. multi-asset funds. INVESTING We are one of the few countries in In this context, Ashburton the world who are in an economic Investments has managed global GLOBALLY IS contractionary phase. This points to multi-asset portfolios for over 36 years REALLY THE an economy where it is increasingly in a range of base currencies, such as ONLY LONGdifficult for corporates to flourish, the US dollar, euro and sterling. The and given all of the other constraints TERM GROWTH most flexible solution in our stable of and headwinds, profit margins are is the Ashburton Global Growth SOLUTION FOR funds under pressure. What this points to Fund, denominated in US dollars. This INVESTORS is unfortunately a lack of meaningful fund allows global equities content to earnings growth among a large fluctuate between 40-75%, while fixed swathe of companies listed on the Johannesburg income is restricted to a maximum of 60%. Stock Exchange (JSE). It is designed as a moderate to higher-risk strategy How then can investors access meaningful avenues for investors who have an appetite for an increased to have a growth component to their portfolios? level of risk. In a context where South Africa currently By investing in the Ashburton Global Growth represents only 0.6% of global GDP, it is clear that Fund, investors are able to access global growth investing globally is really the only long-term growth opportunities through a fund which has access to solution for investors. Firstly, we already know that extensive global research, coupled with Ashburton currency volatility points to having some component Investments’ long-term track record in managing of one’s funds exposed. multi-asset portfolios.

INVESTING

31 August 2019

A post-retirement solution designed to meet client needs

personal finance discussion with most retirees will reveal the obvious, yet highly complex, challenges they face. How should they manage their portfolio to achieve enough income and will this income keep up with inflation? How do they protect their nest egg from major shocks to financial markets? What if they live to be a hundred? As rules-based managers at CoreShares, we’ve looked at this challenge through the lens of an evidence-based investment framework. In doing so, we’ve been able to minimise the moving parts, eliminate human error, reduce costs and offer full portfolio transparency. To address the needs of retirees (income, inflation protection of CPI+3% and capital protection), we’ve homed in on and researched four key pieces of the portfolio puzzle: asset allocation, diversification, active stock selection where required, and how to structure the portfolio cost effectively. Asset allocation By analysing long-dated (100 years +) historical data, we can determine the strategic asset allocation that meets the retirement goal with the highest level of predictability. When deliberating on whether to manage this asset allocation tactically, we looked to global research, which paints a dim view on asset managers’ forecasting and timing abilities that are vital to successful tactical asset allocation. To better understand the local scenario, we conducted research and assessed the long-term results of multi-asset funds that use tactical asset allocation. We found that, on average, these deliver worse results

Controlling for cost Many retirees probably wish they’d heard this quote in their mid-twenties: “A person saving for retirement who chooses low-cost investments could have a standard of living throughout retirement more than 20% higher than that of a comparable investor in highDiversification cost investments” – William Sharpe. When managing risk (capital But it’s not too late! Costs matter protection), diversification is a key in post-retirement too! Because tool. Despite the temptation to load the income that clients draw is net up solely on asset types and securities of costs, all cost savings remain most heavily aligned with the goal of important. Put simply, lower costs delivering income, it mean higher value remains fundamentally delivered to clients. LOWER important to ensure To understand the COSTS MEAN importance of costs in enough spread across geographies, asset HIGHER VALUE a portfolio’s delivery of classes and securities. income, we looked at the DELIVERED TO (ASISA) South African Stock selection Multi-Asset Low Equity CLIENTS via Smart Beta category. Here, we split the It’s important that we look for funds into quartiles based on their fees portfolio characteristics that support (from lowest average TER to highest the client’s goal of ensuring a growing average TER). Next, we looked at the income stream. For this reason, actual average net income delivered in active managers position their ‘equity each category over a ten-year period. income’ stock-picking skills as a key The data showed a direct negative value-add for retired clients. In reality, relationship between fees charged and this approach can be implemented income delivered – on average, funds systemically and at much lower cost through Smart Beta. So, the fund invests a portion of its equity using a quality dividend investment strategy known as S&P Dividend Aristocrats. The index invests in quality companies with a track record of paying and growing their dividends – which means the client’s main objective is delivered on. We’ve been running this strategy at CoreShares since 2014, outperforming 82% of our ASISA peers on a total return basis and delivering more net income than 94% of this peer group. than an otherwise strategic asset allocation portfolio. By using a strategic asset allocation (SAA) that is evidence-based and stress-tested, we’re able to construct a portfolio that stays aligned with the long-term client objective.

that cost less deliver more income. If two funds deliver a similar gross yield of 6% p.a., and one charges a total fee of 1.55% and the other 0.5%, the client in the more expensive fund will draw an annual income of R445 000. The client paying the lower fee will receive R550 000 (both assuming a capital amount of R10 million). By delivering our solutions at approximately 71% lower cost than the average option available in the market, we’re structurally better positioned to deliver higher income and better long-term cumulative returns. Conclusion The CoreShares Stable Income Fund is focussed on income generation, capital protection and inflation protection. The fund allocation is balanced between defensive assets (53%) and growth assets (47%) and aims to meet the benchmark of inflation plus 3% with a high level of probability over any three-year rolling period. The fund is suitable for living annuity investors and has a management fee of only 0.35%.

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INVESTING

31 August 2019

DAVID CROSOER Executive: Research & Investments, PPS Investments

PIETER HUGO MD, Prudential Unit Trusts

What SA investors should The real costs of deknow about the cash risking when you retire versus equity debate should lead to a focus of SA cash over SA equities. In any given period, equities could woefully underperform SA cash but if the return requirement is more than cash can deliver, holding cash will guarantee that it will fall short of its objective. The starting point for PPS Investments is establishing whether the return objective requires taking on equity market risk, and then incrementally increasing the equity market exposure for every additional level of required return. Our investment process presupposes that equities need to be held to achieve any return objective greater than CPI+2%. Here the risk of not investing in equities is that the return expected from the other asset classes might be insufficient to deliver on the overall return objectives. For every 1% additional return, an additional 22.5% equity market risk needs to be taken on. In other words, we expect equities to outperform cash and bonds by approximately 4.5% per annum. This is demonstrated in the table below. Importantly, at CPI+2% per annum, our process suggests we don’t need to take on any equity market risk. Here our process would try to mitigate other risks, including the reinvestment risk from cash by holding longerdated bonds. It must be remembered that the performance of SA equities over the past five years is not unusual, and there will be more periods where SA equities underperform SA cash. The poor performance of SA equities meant that all portfolios with some exposure were likely to have fallen short of their return objectives. This does not, however, mean investors would be better off investing in cash. Investing in cash is more than likely to cap the potential upside to expected real returns to no more than 2% per annum. Investors that require returns greater than what cash can realistically deliver do need to take on equity market risk.

CPI+2% p.a.

CPI+3% p.a.

CPI+4% p.a.

CPI+5% p.a.

CPI+6% p.a.

Equities

22.5%

45.0%

67.5%

90%

Other (incl. cash)

100%

77.5%

55.0%

22.5%

10%

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Graph 1: The real cost of de-risking at retirement R18m R16m

INVESTMENT PHASE

WITHDRAWAL PHASE

R14m Investment Value

enerally, equity is expected to perform significantly better than cash but over the last five years, SA cash has outperformed SA equities. This begs the question: is cash a better investment option in South Africa right now? The CPI+2% per annum return clients received from SA cash over the past five years is consistent with PPS Investments’ long-term expectation for this asset class. It is unlikely that the return from SA cash will deviate from this, unless there are exceptional circumstances or a change in the mandate of the South African Reserve Bank (SARB). As an example, SA cash gave a return less than CPI+2% per annum in the five years following the global financial crisis, where interest rates were deliberately kept low by most central banks. We would expect it to be threatened should the independence of the SARB be compromised. Other deviations are likely to be temporary, given the SARB would adjust shortterm interest rates to unexpectedly low – or high – for inflation. In contrast, the CPI+1% per annum return from SA equities over the past five years has been substantially less than the long-term expectation for this asset class. Unlike with SA cash, however, we expect considerable variability around this long-term expectation, given the volatile nature of this asset class, and therefore this return is also not entirely unexpected. There is considerable empirical support that the equity-risk premium (i.e. the additional return equities should give over cash or bonds) should be at least 4% per annum, but also that this relationship need not hold for any given period. This has certainly been the case over the past five years where SA cash has outperformed SA equities! Our investment process strives to deliver consistent outcomes for our clients by diversifying risks where possible, and only taking on as much risk as we believe is necessary to achieve our objectives. However, we do not believe that the current situation

he sad truth in South Africa is that many people face a high risk of running out of money in retirement. However, what most people don’t realise is that, ironically, what is increasing their risk of running out of money in retirement is their fear of losing money, which is driving them to invest more conservatively when they reach retirement. Here we examine the true costs of investing conservatively after you retire. The premise of this strategy is to de-risk your portfolio at (or even before) retirement, in order to avoid any big losses. Investors choose less volatile fixedincome assets (such as cash and bonds) as they move into retirement in order to minimise volatility or their risk of capital loss over the short term. One of the major drawbacks of this approach is that it limits your investment’s growth potential exactly at the time when your retirement capital is typically at its highest-ever value. By design, at retirement clients are choosing what they believe are low-risk assets (cash and bonds); but these assets will not provide them with sufficient inflation-beating returns throughout their retirement. Over the past 40 years, bonds and cash have historically delivered real returns of 2.9% and 2.0% respectively per year. Meanwhile, equities have outperformed inflation by 7.2% per year over the same period. Combining these assets in a typical ‘balanced’ portfolio of around 25% in fixed income and 75% in equities and property have generally produced a real return of around 5% per year. For investors who haven’t saved enough for retirement, these potentially higher returns, plus the extra years spent in growth assets, can both play a crucial role in extending the longevity of their retirement income. This is particularly important these days given people’s longer life spans, where you can easily spend 30-plus years in retirement.

R12m R10m R8m

5% Real return

R6m 2% Real return

R4m R2m

11 years less

R0m 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 Age Pre-retirement (5% real) Source: Prudential Investment Managers

Post-retirement (5% real)

Post-retirement (2% real)

Retirement Value

15% allocation/6.8% Income/68% replacement ratio

To illustrate this point, Graph 1 shows the length of time your money would last if you de-risked your investment from a typical balanced portfolio earning a real 5% p.a. to a cash portfolio earning a real 2% p.a. when you retire at age 60, compared to remaining invested in a balanced fund throughout your life. We can see that your investment value of around R10m at age 60 lasts to age 79 as you withdraw an income while earning only a real 2% return (shown by the light grey area). However, by continuing to earn a 5% real return (depicted by the darker grey-green area), you build up much more value in your retirement pot over the years, and it lasts to age 90, or 11 years longer, while still drawing the same income. Put differently, staying exposed to equity and listed property can dramatically reduce the probability of outliving your money. In conclusion, if you’ve saved enough to retire comfortably and you’re more concerned about reducing volatility, then a conservative approach might be a viable option for you. However, if you haven’t saved enough and are concerned about outliving your retirement savings, you should seriously consider holding more growth assets to help build that retirement pot further into your retired years. Of course you will experience more ups and downs in your investment value, and your reaction to this needs to be managed carefully, hopefully with the help of a financial adviser. However, if you save some of the higher returns from good months to make up for the lower returns from bad months, this could go a long way towards overcoming the fear of volatility.

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Momentum is a part of MMI Group Limited, an authorised financial services (FSP6406) and registered credit (NCRCP173) provider. MMI Holdings Limited is a level 1 B-BBEE insurer.

EMPLOYEE BENEFITS

31 August 2019

How to give greater effect to workplace gender parity

omen make a significant contribution to the South African economy, often bringing valuable skills and expertise to the workforce. As employers are increasingly recognising the value that gender representativity contributes to workplace diversity and dynamics, ensuring staff have access to good maternity benefits as part of their company healthcare cover is gaining further credence in the war for talent. “In recent decades, the value of the labour, skills and expertise of South African women has come to be rightfully recognised and respected,” says director of Agility distribution, Bianca Viljoen. “To achieve true gender parity in the workplace – over and above such obvious principles as equal pay for work of equal value and policies that support career progression – it is important that women’s health, including their reproductive health, is adequately supported.” She notes that as employers seek to attract and retain female talent, employee benefits and healthcare cover that are relevant to the needs of women are factors that are particularly attractive to this segment of the job market. “Often, women tend to be astute in evaluating employment benefits and are frequently the healthcare decision-makers in their families. When deciding between various job opportunities, women will often weigh employee benefits, life cover and healthcare cover offerings as significant factors in the total employment packages on offer. “When choosing healthcare cover for employees, it is therefore well worth employers taking the time to consider factors such as maternity benefits available for staff members – from the factory floor to executives,” Viljoen adds. “Corporates that are serious about providing meaningful employee benefits should not underestimate the value proposition that can be delivered through supporting women’s health concerns. For example, medical scheme benefit options should offer cover that provides preventative healthcare benefits, including those that are directly relevant to women’s health, such as pap smears to screen for early signs of cervical cancer, general health checks like blood pressure, blood sugar and cholesterol testing.” The Agility StaffCare programme is an adaptable offering that provides for the healthcare needs of lower-income employees, with the option to add both child and adult dependants at highly affordable rates. “Many of the most common healthcare needs are provided for on the entry-level Agility StaffCare Flexicare option, which is available for as little as R340 per employee per month and includes access to network private healthcare providers,” she explains. This offering ensures that staff have access

to private healthcare, including unlimited general practitioner (GP) consultations per year, confirmation of pregnancy, two sonar scans per pregnancy and referral for maternity care, as well as basic dentistry, radiology, optometry, and access to GPdispensed acute medication. “Health Squared Medical Scheme, which can be seamlessly integrated with the Agility Corporate solution, provides for genderspecific health needs as well as general health conditions in its benefit design, and equally emphasises aspects relevant to men’s health, such as prostate checks.” Pregnant women registering on the Health Squared maternity programme unlock benefits specific to their needs, and receive a baby gift voucher that they can use to buy baby products of their choice for up to a year. “For ease of administration and the savings that can be achieved, employers should consider the advantages of an integrated risk management solution that includes healthcare cover, group risk benefits and employee wellness, while rewarding staff members for healthy behaviours.” Customisable additional cover is available through Agility Gap and Co-Pay, which allows employees across the entire workforce to build their own cover to meet their unique needs in line with their preferred price range. “There is considerable freedom of choice from an extensive range of benefits, including maternity lump sum and emergency room benefits, and no sub-limit on co-payment cover. The convenience of the innovative integrated Agility offering means that clients submit one claim to access both their medical scheme and Gap and Co-Pay cover.” Staff members enrolled on any of these options have the benefit of belonging to Agility Rewards, which provides access to special deals and discounts on a wide range of products and services. The programme also provides access to free telephonic advice services, including advice from qualified nurses, which any first-time mother caring for a new baby will appreciate, as well as financial counselling. “Women fulfil multiple roles in society, and their reproductive health should not be considered as something entirely separate from their economic participation. Progressive companies realise that taking care of employees’ health and wellness holistically leads to more engaged and productive staff members, which ultimately benefits the company’s bottom line,” Viljoen says.

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Bianca Viljoen, Director: Distribution, Agility

NASHALIN PORTRAG Head of FundsAtWork at Momentum Corporate

Divorce and the negotiation for pension benefits

ivorce can be a painful experience for everyone involved. During the turmoil of negotiating the splitting of assets, maintenance and the custody of children enjoy priority, but an area that is often neglected is the negotiation to claim a portion of the former spouse’s retirement savings. In terms of the Divorce Act, retirement benefits generally form part of the assets and must be considered when dividing marital assets. This is especially important for a spouse who has put their career on hold to take care of the children, and in doing so has not built up sufficient savings for retirement. However, when couples are living together as ‘husband and wife’ without getting married under a legal Act of Parliament such as the Marriages Act, Recognition of Customary Marriages Act and the Civil Union Act, there cannot be a pension interest transfer as there is no marriage to dissolve in terms of the Divorce Act, which enables the transfer of a pension interest benefit. The Pension Funds Act, which regulates all private funds, was amended to allow for a pension interest transfer on the dissolution of an Islamic marriage by an order of court. The legal terms of a marriage will determine the guidelines for financially exiting the union. In terms of the law, if people THE LEGAL TERMS are married in community OF A MARRIAGE of property or out of community of property, WILL DETERMINE with the accrual system, they THE GUIDELINES may be entitled to a portion of their former spouse’s FOR FINANCIALLY EXITING THE UNION pension interest. In a pension or provident fund, pension interest is the amount of money that a spouse would have received if they had theoretically resigned on the date of the divorce. This does not mean that the retirement fund member needs to split their pension interest in half to pay their former spouse. They have the choice to pay the amount that the former spouse would have received from the retirement fund, from the other assets in the estate. Also note that the pension interest claim is not limited to 50% as, in terms of the law, the parties can claim anything from 0.1% to 100% of the pension interest benefit of the former spouse. The benefit allocated to the non-member spouse is payable from the date of divorce. When it comes to pension interest, poorly drafted divorce orders can drag out divorce proceedings or result in non-member spouses not receiving their intended entitlements. There are four key requirements, which must be included in a divorce order in terms of the law, in order to facilitate a speedy pay out: 1. A client must still be a member of their particular retirement fund on the date of the divorce order. 2. The name of the fund must be in the divorce order or the fund must be identifiable from the order. 3. The divorce order must specify the amount that the former spouse should get. 4. The divorce order must specifically order the fund, and not for instance the member, to pay a part of the pension interest to the former spouse. It’s important for members to seek help from a financial adviser who will offer appropriate advice during this time of financial adjustments.

EMPLOYEE BENEFITS

31 August 2019

KOBUS HANEKOM Editor and co-author of The Manual on South African Retirement Funds published by LexisNexis

he retirement industry has seen a number of important shifts over the past few decades, with the shift from DB pension funds to DC provident funds most probably having the biggest impact. The current shift is a shift to commercial umbrella funds. The Financial Sector Conduct Authority (FSCA) is committed to the consolidation of retirement funds and the majority of small, medium and increasingly large employers have transferred to, or are in the process of transferring to, commercial umbrella funds (for all the right reasons). However, there is currently no clear supportive umbrella fund legislation, nor is there industry consensus on the most appropriate and desirable management structures for umbrella funds. Many market commentators who looked at the Conduct of Financial Institutions (COFI) Bill for guidance and direction were disappointed to find that it contained no clear reference to these funds. On closer investigation, however, I am optimistic about the possibilities offered by the current wording of the Bill. The COFI Bill, once promulgated, will deal with the conduct-related requirements of a wide range of financial institutions, such as asset managers and financial service providers, as well as retirement funds. When it comes to retirement funds certain provisions of COFI are important.

Will COFI Act be effective in regulation of commercial umbrella funds?

the legislator to create a new breed of independent trustees for commercial funds. They will be required to be properly qualified, be independent of the sponsor and may even have to be licenced in terms of COFI. The trustees nominated by the employer and the members will not be required to register but the FSCA may prescribe conduct standards regulating and imposing requirements on all board members and sponsors of pension funds. Sponsors are defined in COFI as “the entity that establishes a pension fund for the benefit of the members of the pension fund”. This definition can be used to distinguish between various types of pension funds such as those established by the state, an employer, an industry (union/bargaining council) and commercial sponsors. The definition of ‘pension fund’ in the COFI Bill specifically includes state funds and – but for technicalities – should also incorporate the following retirement funds: Umbrella (pension and provident) funds, preservation

(pension and provident and unclaimed benefit) funds, beneficiary funds and retirement annuity funds. It is therefore possible that retirement funds can be identified and regulated in some broad categories. Categorising retirement funds as set out in the diagram below makes it much easier to see the new requirements that may apply to them in terms of COFI. Employer sponsored funds, for example, are unlikely to be affected by the new requirements relating to ‘marketing, distribution and post-sale barriers’ because they do not perform those activities. Commercial funds, however, do and will have to comply with the new requirements. New requirements issued relating to “financial products, reporting and communications”, on the other hand, may require all funds to adjust their practices and comply in one or another way. There may be other ways to identify and regulate the various types of retirement funds. One of them is to consider their activities. The guiding

principles of COFI allows the following approaches: • Activity-based rather than institution-based • Principles-based rather than narrow rules • Risk-based and proportionate • Outcomes-focussed The massive shift to commercial umbrella funds is coinciding with the introduction of the Twin Peaks regulatory approach. The latter was kick-started with the promulgation of the Financial Sector Regulation Act in 2018. The extent of all these new measures will only be clear once the conduct standards have been published in terms of the Conduct of Financial Institutions (COFI) Act, in the next three years or so. Much is expected to change. We should for the first time see more dedicated legislation in respect of commercial funds such as commercial umbrella funds. We should also see dedicated requirements for union and bargaining council umbrella funds. These requirements should recognise the commercial or other relationships between the sponsor and the board on the one hand, and the sponsor and the members on the other hand. New requirements will be laid down relating to the use and application of the latest technology, the protection of data and the way in which funds contact and communicate with members.

THE CURRENT SHIFT IS A SHIFT TO COMMERCIAL UMBRELLA FUNDS Retirement funds will constitute financial institutions and will be defined as product providers. The benefits provided by retirement funds will therefore constitute financial products subject to the approval of the FSCA. This means that although a fund will be registered and approved and fully compliant with the Pension Funds Act, it will at some point in the future have to register in terms of the COFI Act as well. When it does, its benefits will have to comply with a range of new requirements designed to ensure adherence with the fair treatment of customers and the other conductrelated principles. It appears to be the intention of

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RISK

31 August 2019

Four pillars of lifestyle protection

iberty understands that a onesize-fits-all insurance solution is no longer relevant in this day and age. Each of us have a unique life, family and financial needs that must be tailored to our personal situations. In addition, it’s relevant to understand that Liberty’s Claim Statistics for 2018 show an important shift in the long-term insurance market: A significantly higher proportion of claims are paid to survivors of lifechanging, traumatic events. Johan Minnie, Managing Executive of Customer & Adviser Experience at Liberty, says, “Traditionally, life insurance has been more appropriately described as death insurance because the policy pays money to beneficiaries at the policyholder’s death. However, advances in medical technology and early diagnosis of critical illness are seeing more people recovering from adverse events. Now claimants and their beneficiaries need to manage the cost of survival, and it is time that the

industry changes the conversation.” Liberty’s Lifestyle Protector policy is based on the four lifestyle protection pillars that cover a different set of risks faced on the journey through life. Each of the four pillars holds a different weighting of importance, depending on the person’s age, life stage or income. This means that cover can be adjusted as life changes. LIBERTY’S FOUR PILLARS OF LIFESTYLE PROTECTION Pillar One: Life Protection • Covers the risk of death and the financial impact of surviving family • Sometimes deals with expensive terminal illness • Alleviates the cost of family funerals. Pillar Two: Loss of Income Protection • Covers the risk that you lose your income • Provides loss of income for disability or impairment

• Allows you to maintain financial responsibilities. Pillar Three: Lifestyle Protection • Covers the risk and costs of recuperating from critical illness or trauma • Options exist to extend this cover to family • Specific female and child related critical illness benefits.

• Maintain cover when you are unable to make premium payments • Considers that your health circumstances may have changed. Liberty Group Ltd is a Registered Long-Term Insurer, the insurer of Lifestyle Protector and an authorised Financial Services Provider (FAIS nr 2409). Terms and Conditions apply.

Pillar Four: Policy Protection • Covers the risk of losing cover due to temporary financial strain

Johan Minnie, Managing Executive: Customer & Adviser Experience, Liberty

Africa’s changing insurance customers For forward thinking insurers, Africa is up for new prudential and market conduct regulations, as grabs. Escalating urbanisation, coupled with a rising well as the introduction of the IFRS 17 Accounting middle class and a growing younger population, Standard, have put financial and regulatory makes for an increased need for protection for pressure on insurers. However, as Lombard points both life and assets. While the effects of the global out, “These new regulations are progressive and financial crisis are still being felt, the African allow for new entrants and innovation into the Development Bank predicts a growth in Africa’s GDP market.” to 4%in 2019 and 4.1% in 2020, creating significant He adds that the new framework will foster financial opportunities for insurers to enter this largely inclusion and promote competition in the market. untapped market. A PWC report on the African insurance industry According to Herman Lombard, Founder and estimates that the population on the continent will Executive Director of African Unity, grow by 114.4% by 2050 to about two Africa’s insurance industry accounts billion people. Furthermore, because AFRICA’S for just 1.2% of insurance premiums the population of Africa is the youngest INSURANCE written globally, with South Africa in the world, with an average age of accounting for about 75% of that. just 19.7 years in 2010, there will be a INDUSTRY “The potential for doing business in large working-age population. ACCOUNTS FOR “For insurers this is good news Africa is enormous, and companies JUST 1.2% OF are coming up with innovative because a younger population is linked and efficient ways to meet the to GDP growth, which in turn makes for INSURANCE expectations of this market,” he says. a wealthier population and an increase PREMIUMS According to reports, only 8% of in insurable lives and assets,” says low-income earners have full life Lombard. He stresses that a younger WRITTEN insurance and most are not able to population also means a more techGLOBALLY afford the premiums for their most savvy population who are connected dominant risk – loss of job or income. Coupled 24/7 and have expectations of customised solutions with the fact that the informal economy in South and an entirely virtual, paperless relationship with Africa has a spend of R280bn, rivalling the formal their insurer. economy’s R300bn, Lombard believes there are “This will force many insurers into a paradigm huge incentives for insurers to move away from shift away from their legacy infrastructure and traditional models to products that are accessible systems to adopting technology to suit the and affordable to the under- and uninsured. needs of the customer and to offer competitive Understanding the regulatory regime of a region pricing.”Innovative insurers who have taken on is critical to compliance and growth. In South Africa, board emerging technologies are now able to

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quickly analyse customer data, enabling them to understand their customer’s needs and rapidly develop new products. In Africa, partnerships with insurtech companies are becoming increasingly popular, enabling greater innovation and a faster response to customer expectations. “Ultimately, all insurers should be optimising their digital capacity to meet customer expectations and add value and efficiencies to the business,” says Lombard. Attracting and retaining talent remains a key risk for insurers in the region and the industry will have to upscale its investment into training, especially in the technology and actuarial fields, if it is to entice young talent. Lombard believes that many organisations will have to rethink their traditional, rigid approach to working hours and focus on outputs and deliverables if they are to draw millennials into the business. “Although there are many regulatory and environmental challenges in the region, globalisation and the emergence of the global citizen makes for a conducive environment in which to innovate new customer-centric products,” he says.

Herman Lombard, Founder and Executive Director, African Unity

RISK

31 August 2019

LEE NAIK CEO, TransUnion South Africa

nsurance has been given a bad rap. This isn’t exactly new. Back when fire insurance first started, insurance providers had their own fire brigades that would watch a building burn if they arrived and found it wasn’t insured. The industry has come a long way since then, but the perception that insurers are ‘out to get you’ remains. How many people complain of exorbitant policy charges or wholeheartedly believe that insurance companies will find any excuse to reject a claim? Not exactly fertile ground for nurturing brand love. And yet, this image problem shouldn’t exist at all. The insurance industry’s very foundation is based on helping people through the challenging moments of their lives, yet it’s seen as the ultimate grudge purchase for consumers. For years, the local insurance industry has been laser-focused on customer-centricity, often adopting new technologies and distribution channels before the rest of the world. Like the banking industry, insurance providers are at the forefront of digital transformation and data analysis. So why is it that around 70% of cars in SA are uninsured? Why do fewer than 20% of South Africans have medical aid? Simple is just the start There’s a universal recognition that insurance needs to lose the complexity and offer simpler, frictionless products to shed its reputation. Seamless on-boarding and sign-up is quickly becoming the

Getting the world to fall in love with insurance industry norm as a result. themselves aren’t necessarily designed In 2017, Simply launched an to support the people at the other end online platform for life, disability of the claim. And until that changes, and funeral cover that enables customers are still going to treat customers to buy insurance insurance like a grudge purchase. products in just three minutes. Meanwhile, aggregators like Hippo I’ll be there for you have played a huge role in bringing What does a more human-centric transparency and simplicity to the insurance model look like? For some quotation process. providers, it means reimagining their In the United States, start-up revenue models to take advantage of Lemonade is getting rid of the the possibilities of digital. Naked, an paperwork altogether, allowing AI-based car insurance start-up, puts customers to sign up for insurance its premiums into a pool to cover via an app in as little as 90 seconds. claims. At the end of the year, any Customers have a conversation with money left over in the pool is given a chatbot, which creates a tailored to charities nominated by customers, policy for them based on their which means the company’s profits responses. The use of AI doesn’t just don’t depend on whether claims are stop there as Lemonade uses machine paid or not. learning to assess claims. Pineapple’s model works along the It’s not just customer touchpoints same lines, with premiums going that need to change, however. The into a network of wallets belonging problem with the to members. This traditional model network pays for THE INSURANCE of insurance is that any claims and the profit depends on money that is left INDUSTRY’S VERY paying out as few in each members’ FOUNDATION IS claims as possible, wallets at the end of BASED ON HELPING the year is kept by which is often at odds with the needs the members. PEOPLE of the customer. Others are It doesn’t matter how simple the redesigning their entire value process is or how personalised your propositions to play a more premium is: if a customer feels central role in their customers’ they’re getting nailed when they try lives. The obvious example of this to claim, all your brand-building is the Discovery Group, which work will be for nothing. continuously finds ways to bring This is the hard truth that the value to its customers’ lives outside constant conversations of customerof the traditional area of claims. centricity in the insurance industry Discovery is using technology to doesn’t always acknowledge: that bring its Vitality model outside of just the revenue and operational models health and wellness. Insuring your

car, for example, offers the possibility to add a device to your vehicle that tracks your driving for fuel rewards and warns you of bad weather. In other words, the insurer you fall in love with is a value aggregator rather than a faceless entity that pays out (or rejects) claims when things go wrong. This means embracing three key approaches: • Inclusiveness is a win-win scenario: Minimising risk for the customer means minimising risk for the business, and the best way to avoid paying out a costly claim is to prevent it in the first place. Insurers need to welcome customers and use the rich data available to them to reduce risk and encourage good behaviour rather than exclude customers. • People like someone they can count on: Financing a vehicle or taking out a home loan may be just as complex a process as taking out an insurance policy, but the reward is a car or a house at the end of the day. Insurance needs to advocate for its own value outside of the moment of paying out claims, offering on-demand living services. • The opportunities of everyday insurance: Becoming value aggregators in different aspects of their customers’ lives means insurers have a much more diversified ecosystem from which they can find revenue. Whether it’s offering new value-adds as part of their offerings or creating valuable partnerships with supermarkets, petrol stations, financial service providers and more, there’s an enormous amount of profit to be made. Bringing the insurance industry into the future is about more than just offering tailored premiums or allowing people to claim using an app. It’s about creating a unique and ongoing value proposition for each and every customer. It’s about finding smarter, more proactive ways to minimise risk through technologies and business models. It’s about creating positive experiences as much as minimising the negative. Isn’t it time we found the humanity at the heart of the industry and reminded everyone why insurance is such a force for good in the first place?

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RISK

31 August 2019

Technology and cyber risk dominate insurer’s business risks

echnology, cyber and change few surveys. The insurance industry management risks have been faces a barrage of attacks from pinpointed as the three biggest criminals and other perpetrators, concerns for insurers across the globe, many of who are extremely according to a poll of more than 900 sophisticated, the report suggests. senior industry experts. Difficult investment markets The Centre for the Study of feature heavily in the outlook for the Financial Innovation’s (CFI) latest insurance industry, more so among Insurance Banana Skins 2019 survey, South African insurers who ranked in association with PwC, polled over this risk 3rd, compared to the global 900 insurance practitioners and ranking of 5th. industry observers in 53 countries, to While technology was only rated find out where they saw the greatest 4th by South African insurers, relative risks over the next two to three years. to the global ranking of 1st, it has There were 28 responses from South risen significantly relative to the African insurers. The biennial survey previous ranking at 11th in 2017. identifies the risks, or ‘banana skins’, This is the first year that technology facing the global insurance industry. risk has topped the global Banana “Given our very difficult economic Skins rankings. It received the highest environment, it is not surprising that score of any risk that has been macroeconomic risk was ranked the surveyed since 2011. number one concern in South Africa, The unrelenting heavy agenda compared to a global ranking of of regulatory change continues 9th,” says Victor Muguto, Long-term to keep regulatory risk at the top Insurance Leader for PwC Africa. end of the risk rankings, with “South African respondents South Africa ranking this risk 5th, pointed out the almost negative GDP compared to the global ranking of growth rates, low disposable income, 4th. Survey respondents expressed and persistent high unemployment frustration with the cost and levels as significant contributing distraction of compliance and warned factors. Socioof the potentially economic and damaging effects that political uncertainty disproportionate AFRICA’S have also slowed requirements could INSURANCE down the pace have in areas such of economic and MARKETS REMAIN as capital, consumer insurance sector protection and product SOME OF THE growth across the availability. LEAST PENETRATED The risk that rest of Africa. “Despite the inadequate response to IN THE WORLD uncertainty, Africa’s change management insurance markets remain some of will damage insurers continues to the least penetrated in the world be seen as urgent, taking 6th spot and the opportunities for growth are in South Africa, and 3rd on the immense. The need for insurers to global rankings. The pressure for be more agile and innovative in an change is being driven or enabled environment where insurers and their by technologies such as artificial customers are rapidly becoming more intelligence, the impact of new technologically empowered has never entrants, the formidable agenda been more critical.” of digitisation as well as radically Threats posed by cybercrime were different customer expectations. The cited as the second biggest concern main concern is that insurers do not by South African insurers, which is have sufficient resources to manage consistent with the global rankings. and implement the required changes. This is a rising risk for those brokers, Insurers continue to find it difficult insurers and reinsurers involved in to attract and retain technologically under-writing this emerging risk, empowered talent. This risk continues with some very difficult pricing to rise, with South Africa ranking this decisions. It also is becoming a huge at 7th relative to 8th on the global risk across the entire insurance value list. Demand was urgent in those chain, given that the various industry technical roles where there already are players are custodians of customer severe skills shortages – such as data information and data. Cyber concerns scientists, actuaries, and regulatory have intensified rapidly over the last specialists. Emigration and the loss

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of experienced talent to competing industries were also cited as major contributing factors in South Africa. It is notable that the overall tone of the responses this year is the most negative since the Banana Skins analysis began. This is mainly due to the scale of challenges facing the industry through technological and structural change, and concerns about the industry’s ability to manage change successfully. Despite the drop in sentiment, the overall view on insurers’ ability to handle these risks is that they are becoming better prepared to respond to the changing environment. While the table below highlights some of the differences between South African and overall global rankings, the main themes, including the rising significance of technology, cyber risks and change management, as well as the persistence of regulation at the top, are consistent. The previous survey rankings are shown in brackets.

Victor Muguto, Longterm Insurance Leader for PwC Africa

Global Ranking

South Africa Ranking

1. Technology (3)

1. Macro-economy (1)

2. Cyber risk (2)

3 Change management (1)

3. Investment performance (5)

4. Regulation (6)

4. Technology (11)

5. Investment performance (5)

5. Regulation (4)

6. Climate change (-)

6. Change management (6)

7. Competition (8)

7. Human talent (3)

8. Human talent (9)

8. Credit risk (-)

9. Macro-economy (7)

9. Reputation (9)

10. Interest rates (4)

10. Political risk (13)

11. Political risk (11)

11. Cost reduction (17)

12. Cost reduction (13)

12. Competition (12)

13. Reputation (17)

13. Climate change (-)

14. Guaranteed products (10)

14. Quality of management (15)

15. Business practices (12)

15. Business practice (8)

16. Quality of management (14)

16. Corporate governance (20)

17. Credit risk (-)

17. Guaranteed products (19)

18. Social change (16)

18. Interest rates (10)

19. Corporate governance (19)

19. Social change (16)

20. Capital availability (20)

20. Brexit (22)

21. Brexit (22)

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HEALTH

31 August 2019

First ever medical aid comparison mobile broker app Online medical aid comparison website, MedQuote, has released a new mobile application which is expected to simplify the medical aid comparison and price check process for both brokers and their customers. The MedQuote Mobile Broker App, available on both Android and Apple smart devices, is the first application of its kind in the industry and offers current and prospective medical scheme members instant access to information about South Africa’s top medical schemes, in one place. This new App grants brokers – and their customers – access to a variety of scheme, option, benefit and price information in a comparative format from the palm of their hand. “For the first time, medical brokers will be able to give their customers a comprehensive overview of their options instantly, no matter where they are, which will help them to make informed decisions when choosing a suitable medical scheme,” says Werner Coetzer, CEO of MedQuote. There are endless medical aid plans and options available to choose from – hospital plans, hospital plans with a savings account, traditional plans, comprehensive plans or network plans. The selection thereof can be daunting and complicated especially as each option and plan differs in cost. “Previously, before the MedQuote App, brokers would have been required to do extensive research to assist their clients in finding the best medical aid that meets both their health and budget needs. Now, after completing the once-off, simple registration process on the MedQuote Broker App, brokers are able to compare other similarly designed benefit options and do a medical scheme price comparison with their customer in under five minutes, all on their phone,” adds Coetzer. MedQuote is already well known and trusted in the industry for assisting its network of brokers with detailed comparison information on its website. Through a simple online referral process, MedQuote helps its broker network to connect customers with accredited medical scheme experts. “With the new MedQuote Broker App, this referral process has become 100 times easier. We know that questions about medical aids can pop up anywhere and at any time. Our broker network is now equipped with the tools and information they need to consult with and refer their customers whenever and wherever the need arises,” he says. Werner The application is available to download now Coetzer, CEO, on both the App Store and Google Play. MedQuote

MEDICAL BROKERS WILL BE ABLE TO GIVE THEIR CUSTOMERS A COMPREHENSIVE OVERVIEW OF THEIR OPTIONS INSTANTLY

TONY SINGLETON CEO, Turnberry Management Risk Solutions

Has the ‘gap’ grown between medical expenses and pay outs?

ver the past few years, medical maximum amount possible, a sum of inflation has outstripped R15 303.60, significantly reducing the the inflation of medical aid burden on the new parents. premiums, resulting in year-onIn another case, a young couple’s year increases in medical expenses new-born child was diagnosed shortfalls and co-payments. Gap cover with hyperostosis of the skull, a providers are now paying out more rare condition in which the skull than medical aids in certain instances. thickens. The baby underwent Moreover, gap cover is an essential extremely complex surgery, under component of any financial portfolio the care of a neurosurgeon and an to protect one against potentially ear, nose and throat surgeon, which crippling medical expense shortfalls. attracted a medical expense shortfall The situation is only going to worsen, of R110 448.13. Without gap cover in which means that using gap cover has place, payment for this amount would become essential. As a result, financial have fallen to the parents, creating planning for medical needs, with the significant stress and hardship. assistance of a financial adviser, is Moreover, cancer is often a recommended. sudden and unexpected diagnosis, As medical aids are under constant and the medical expense shortfalls pressure to balance benefits with can be significant. We have seen affordable contributions, they have a case of a breast cancer survivor had to resort to creative strategies who experienced a medical expense to attempt to maximise coverage. shortfall of R49 186.01, which was This means that copaid by her gap cover. payments now exist Accidents are also where previously there something that can FINANCIAL were none, including on PLANNING FOR result in large out-ofprocedures at doctors’ pocket payments. For MEDICAL NEEDS example, a mountain offices and not just at hospitals for certain biking enthusiast IS ESSENTIAL procedures. In addition, suffered an unfortunate members are now being restricted accident on a trail. MRIs and other to using certain providers at certain tests showed severe cracks in his networks, with penalties applied if C7 vertebrae and damage to the they go outside of these networks. surrounding nerves. He was then Further compounding the problem, referred to a neurosurgeon for urgent there is an increasing disparity surgery on his cervical spine. With between what providers charge and his medical aid implementing cowhat medical aids will pay. These payments and other restrictions on factors together could easily result in his cover, the total medical expense a scenario where you will have to pay shortfall was R54 470, which was a sizeable co-payment, a non-network covered by his gap cover offering. provider penalty, and then further The vast majority of claims we see medical expense shortfalls on top of result from providers charging more medical aid rates. The cost of medical than the medical aid rate, with coprocedures these days means that payments and non-network hospital these additional expenses could add charges also forming significant up to significant sums that you will be percentages of claims. The reality is liable for out of pocket if you do not that medical expense shortfalls are have gap cover in place. not only something that the frail or Childbirth is one area where we are ill need to consider. Often, it is the seeing frequent and large gap cover unforeseen that can result in the most claims. In one instance, we saw a claim significant medical expense shortfalls. where the provider charged 7.95 times With the cost of everything going the Medical Aid rate. The gynaecologist up, out-of-pocket medical expense claimed R30 405 for a Caesarean shortfalls can be crippling. Gap cover section, and medical aid paid just is a necessity to protect your financial R3 825.90. Gap cover paid out to the future and wellbeing.

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EDITOR’S BOOKSHELF

BOOKS ETCETERA

31 August 2019

NON-BULLSHIT INNOVATION RADICAL IDEAS FROM THE WORLD’S SMARTEST MINDS BY DAVID ROWAN

MAKE YOUR MONEY WORK FOR YOU: THINK BIG, START SMALL BY ANTHEA GARDNER In Make Your Money Work for You, investment specialist Anthea Gardner shows South Africans how to grow their wealth to achieve their dreams of a future free of financial stress – and they don’t even need a degree. Gardner makes the world of investing accessible by: • Illustrating why it’s important to know the difference between saving and investing • Explaining key terms, from ‘unit trusts’ and ‘retirement annuities’ to ‘compound interest’ • Clarifying the role of different players, such as financial advisers and asset managers • Describing how easy it is to buy shares on the stock market.

David Rowan travels the globe in search of the most exciting and pioneering startups building the future. He’s got to know the founders of WhatsApp, LinkedIn, Google, Spotify, Xiaomi, Didi, Nest, Twitter and countless other ambitious entrepreneurs disrupting businesses in almost every sector. And yet too often the companies they’re disrupting don’t get it. They think they can innovate through jargon: with talk of change agents and cocreation gurus, ideas portals and webinars, make-a-thons and hackfests, paradigm shifts and pilgrimages to Silicon Valley. It’s mostly pointless innovation theatre – corporate nonsense that has little to do with delivering real change. But during this quest, Rowan has also discovered some genuinely exciting approaches to innovation. Case studies include the airline that rewards passengers for walking their dogs, the bank that performs surgery, the country that’s an app store – and many more. Packed full of tips for anyone looking for radical ways to thrive in the digital age, this selection of stories reveals ideas for creating genuine innovation from some of the world’s most inspiring leaders.

MAKE, THINK, IMAGINE ENGINEERING THE FUTURE OF CIVILISATION BY JOHN BROWNE

The author explains that you don’t need millions to start. You can launch your financial future by investing just R100 per month. See page 4.

SUDOKU ENTER NUMBERS INTO THE BLANK SPACES SO THAT EACH ROW, COLUMN AND 3X3 BOX CONTAINS THE NUMBERS 1 TO 9.

Today’s unprecedented pace of change leaves many people wondering what new technologies are doing to our lives. Has social media robbed us of our privacy and fed us with false information? Are the decisions about our health, security and finances made by computer programs inexplicable? Will these algorithms become so complex that we can no longer control them? Are robots going to take our jobs? Will better healthcare lead to an ageing population that cannot be cared for? Can we provide housing for our ever-growing urban populations? And has our demand for energy driven the Earth’s climate to the edge of catastrophe? John Browne argues that we need not and must not put the brakes on technological advance. Civilisation is founded on engineering innovation; all progress stems from the human urge to make things and to shape the world around us, resulting in greater freedom, health and wealth for all. Drawing on history, his own experiences and conversations with many of today’s great innovators, he uncovers the basis for all progress and its consequences, both good and bad. He argues that the same spark that triggers each innovation can be used to counter its negative consequences. Browne’s book is an eloquent blueprint for how we can keep moving towards a brighter future.

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Platinum BCI Worldwide Flexible fund wins Best Flexible Allocation fund. Platinum Portfolios was also nominated as a finalist for the best fund house – small fund range. The annual awards recognise funds and fund houses that added the most value for investors within the context of their relevant peer group in 2018 and over longer time periods. Morningstar selects the finalists using a quantitative methodology with a qualitative overlay that considers the one-, three-, and five-year performance history of all eligible funds, and adjusts returns for risk using Morningstar Risk, a measure that imposes a higher penalty for downside variation in a fund’s return than it does for upside volatility.

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