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30 June 2018 |

First for the professional personal financial adviser



TAX-FREE INVESTMENT PLANS: TICKING MANY GOOD INVESTMENT BOXES MoneyMarketing's guide to investing offshore in volatile times

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Your clients have enough reasons to deposit a percentage of their income into a savings plan that yields good returns Page 9

INSURANCE REGULATION: MORE CHANGES IN THE COMING MONTHS The Insurance Act will substantially amend the Short-Term and LongTerm Acts Page 16

Poor market outcomes still a reality: FAIS Ombud


n 1 May 2018, Naresh Tulsie assumed the role of Ombudsman for Financial Services Providers (FAIS Ombud), taking over from Noluntu Bam, who had been in the position since 2010. Tulsie is an admitted attorney and holds BCom, LLB and LLM degrees, specialising in Insurance Law.

After practicing as an attorney, he joined Guardian National during 1997 where he was employed as a senior legal adviser. He joined the Office of the Ombudsman for Short-Term Insurance as an Assistant Ombudsman during 2000, where he remained until 2007. He further acted as Legal Director and Group Legal Adviser for the Badger Group of Companies. In December 2013, he was appointed as Head of Compliance for Nedbank Insurance (short-term) and from July 2015 until April 2018, he served as the Legal Manager for Nedbank Insurance. MoneyMarketing spoke to him about his new role.

Do you think enough has now been done in terms of the law – for example, the Twin Peaks regulations – to protect clients in the financial services industry in SA? I am of the view that we are not yet at the point where it could be said enough has been done to protect clients. I think complaints to this office and the other Ombud schemes demonstrate that poor market outcomes are still very much a reality, including the constant need for the Regulator to intervene to ensure more is done by the financial services industry to guarantee fair market conduct outcomes are met.  I do acknowledge the need for consumer protection, but I am also aware of the challenge the costs of regulatory interventions pose to the financial services industry. While I am keen to ensure that there is professionalism and maintenance of the integrity of the financial services industry, this cannot come with any compromise of consumer protection. I am of the view that there is still some work to be done in this respect. Continued on page 2

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We know Investments T +27 11 263 7700 E Laurium is an authorised financial services provider (FSP No 34142).Collective Investment Schemes in Securities (CIS) should be considered as medium to long-term investments. The value may go up as well as down and past performance is not necessarily a guide to future performance. Prescient Management Company (RF) (Pty) Ltd is registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002). CIS’s are traded at the ruling price and can engage in scrip lending and borrowing. Performance has been calculated on the A1 class using net NAV to NAV numbers with income reinvested. Highest rolling 1-year return since inception of 19.8%. Lowest rolling 1-year return since inception of 3.5%. There is no guarantee in respect of capital or returns in a portfolio. A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate. For any additional information such as fund prices, fees, brochures, minimum disclosure documents and application forms please go to *Source: Morningstar 30/04/2018




30 June 2018

Continued from page 1

Consumer education plays a key role. I further believe there needs to be some balance in the regulatory changes being implemented with the concomitant costs of compliance and the end results in enhancing consumer protection. I believe there is a growing recognition from the Regulators for a need to move away from implementing legislation that adopted the ‘one size fits all approach’, to greater integrated regulatory measures which focus on ensuring fair consumer outcomes are met. I believe that only time will tell how much the introduction of Twin Peaks has impacted consumer protection, and how much more needs to be done in future to enhance this.    The FAIS Ombud’s Annual Report for the period 2016/2017 shows that 10 846 complaints were received by the Office of the FAIS Ombud, exceeding 10 000 for the first time in one financial year. Is the Ombud’s office expecting a similar number this year, and if so, would you consider it an indication that the financial services and advice industry is behaving badly? I am not confident that this conclusion is necessarily correct or the only one that can be drawn from the growing number of complaints received by this office. The increasing number of complaints could be due to a more financially savvy consumer, more aware of their rights and more willing to challenge decisions/conduct/ services rendered by financial services providers that do not meet their expectations. I would be keen to examine these trends and numbers in greater detail to properly understand them, instead of reaching any specific conclusion.  

Secondly, getting to grips with the new regulatory regime and understanding its impact on the way this office functions and on the financial services industry. In addition, a growing recognition of the need to meet the expectations of consumers who are more aware of their rights, who are becoming increasingly vocal in expressing dissatisfaction when not receiving the expected levels of service, as well as getting to grips with an evolving financial services industry that face challenges from disruptors, an evolving regulatory environment, changing political climates and so forth.  Do you hope to do anything differently from your predecessors in your position as the newlyappointed FAIS Ombud?  I take up the role with the knowledge that I have big shoes to fill. But I also come with over 20 years’ knowledge of the financial services industry and having worked with insurers, brokers, intermediaries, underwriting managers, cell-captive insurers, as well as having been an Assistant Ombudsman at the Ombudsman for Short-Term Insurance, I have a well-rounded experience and think I can bring a greater understanding of the inner workings of the various financial services industry players. That, together with also being a consumer of financial services, gives me a very balanced perspective in dealing with complaints from consumers of financial services. I hope to utilise this balance in enhancing the way this office functions, and continue to strive to enhance consumer protection and maintain the integrity and good standing of the financial services industry.

What do you view as challenges in your new role? Firstly, living up to the standards set by my predecessors in the role – being the late Charles Pillai and Noluntu Bam – who did a fantastic job in their respective terms of office and the way in which the office assists consumers.

Naresh Tulsie, Ombud for Financial Services

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ast month, I read an article on the Bloomberg website entitled Pope calls derivatives market a ‘ticking time bomb’. While the Holy See often comments on poverty and inequality, it seldom issues an in-depth opinion on financial markets. I was rather curious and so I went to the Vatican Press Office’s website and found a statement, or manifesto if you like, entitled Oeconomicae et pecuniariae quaestiones or in English, Economic and Financial Issues. The document, written by the Vatican’s doctrine office and its social justice department, is particularly scathing when it comes to derivatives, focusing on credit default swaps (CDS) in particular. As you’ll remember, the global financial crisis of 2007/2008 was blamed on these products. “The market of CDS, in the wake of the economic crisis of 2007, was imposing enough to represent almost the equivalent of the GDP of the entire world. The spread of such a kind of contract without proper limits has encouraged the growth of a finance of chance, and of gambling on the failure of others, which is unacceptable from the ethical point of view,” the document states. This is similar to comments made by Warren Buffett a few years ago, when he condemned the expansion of the derivatives market. CDS were meant to be a way of helping investors shield themselves from a company reneging on its debt, providing a warranty in the event of a default. Unfortunately, CDS were used too as a way of speculating on a company’s creditworthiness. Leading up to the financial crisis, banks and investors started to use CDS as a way to expand their bets on a company’s performance. Fortunately, the CDS market is significantly smaller than it was in 2008 and American banks are presently very well capitalised. But it doesn’t hurt to highlight the questionable ethics of this type of investment. In short, this new Vatican manifesto demands that the world never forgets the deep problems revealed by the global financial crisis ten years ago. It also shows that Pope Francis’ condemnation of what he thinks are economic and financial evils is more severe and frequent than that of either John Paul II or Benedict XVI. Janice @MMMagza

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The Discovery Balanced Fund has enjoyed top quartile performance over one, three, five, seven and ten years. Pretty impressive, and consistent, for a ten-year old. Speak to your business consultant or visit for more information about the fund.




Source: Profile data as at 28 February 2018 Discovery Life Investment Services Pty (Ltd), branded as Discovery Invest, is an authorised financial services provider (registration number 2007/005969/07). Product rules, terms and conditions apply.



30 June 2018




How did you first become involved in the long-term insurance industry? Is this something you always wanted to do? When I started my career at FNB, I never thought I would end up working in the life insurance business. However, during my career there I qualified as an actuary, which provided me with the technical expertise for the job and I developed a reputation as an intrapreneur. This is someone who specialises in building new businesses within a bigger corporate environment. Therefore, when the opportunity came up to start FirstRand Life, I was well suited for the role. While preparing for the FirstRand Life job interview, I also realised that the market was broken. Insurers have moved too far from customers and have stopped putting them at the centre of their business. I have since become passionate about disrupting this industry and bringing back real power to the consumers out there. Has the long-term insurance industry managed to stay robust despite SA’s poor economic growth? Although I think the market is broken, the companies themselves have a great foundation. They are built on a strong backbone of a great

I HAVE SINCE BECOME PASSIONATE ABOUT DISRUPTING THIS INDUSTRY AND BRINGING BACK REAL POWER TO THE CONSUMERS OUT THERE regulator, great skills and good fiscal prudence. This means that we could weather the storm well in South Africa.

Furthermore, our offerings are simple to understand (which is quite significant in South Africa where the standard practice is the opposite), they offer great value and are integrated into our leading eBucks rewards programme. We are one of a few insurers who run proactive claims. We actively look for deaths on our books that have not been reported to us and initiate claims procedures. As a result, we have already initiated claims worth over R100m – without a claim being lodged.

Are South Africans beginning to understand the importance of critical illness and disability cover? We are slowly making progress, but you still find that some customers have to be sold this type of cover as opposed to them requesting it. I think we'll know this problem is solved once customers start asking for these products.

Aon Benfield South Africa has announced that Geoffrey Leathem will be joining the executive team with effect from 1 November 2018. His role will be focused on the South African business as well as strategic consulting on business development and broking strategy. Leathem’s most recent position before joining Aon Benfield was Chief Executive Officer of Guy Carpenter South Africa, a role he held since 2014. He previously held senior positions at Hollandia Reinsurance Company (now Hannover Re), Price Forbes Insurance Brokers and Marsh South Africa. He has previously served as Council Member and then President of the IIG between 2002-2004. He holds a BCom degree from the University of the Witwatersrand.

Are there any factors that make FNB Life Insurance distinct? Our product philosophy has been client-centric from the start and that means our offerings are truly multichannel. Customers are allowed to take up products and service them on a channel of their choice.

Mr Jurgen Boyd, the FSCA’s Divisional Executive for Market Infrastructures, has been elected as the Growth and Emerging Markets (GEM) Committee representative on the International Organisation of Securities Commissions (IOSCO) Board as of 30 April 2018 for a two-year term (2018-2020). His term commenced with the inaugural meeting of the new IOSCO Board held on 9 May 2018 in Budapest, Hungary. IOSCO is the leading international policy forum for securities regulators and is recognised as the global standard setter for securities regulation. Its membership regulates more than 95% of the world’s securities markets in more than 115 jurisdictions and it continues to expand.

UPS & DOWNS Internet giant China’s Tencent announced its Q1 2018 results last month, which managed to surpass expectations for both revenue and earnings. Its revenue grew 48.4% yearon-year and 11% quarteron-quarter. Its net profit increased 61% year-onyear, ahead of consensus estimates of about 30%. Tencent’s operating margin improved 3% year-on-year and was up 8% on the quarter to 42%. Tencent’s core business is online games, with consumers rapidly migrating from PC to mobile. Revenue from PC

games was flat, while mobile-game revenues rose 68% year-on-year. The company owns the WeChat social messaging app that is one of the world’s largest standalone mobile apps by monthly active users. Recently, it topped 1 billion users.

JSE-listed workplace solutions group Adcorp Holdings says that for the year ended 28 February 2018, group revenue fell 3% to R15,3bn (FY2017: R15,8m restated). Gross margins remained stable at 14,5% (FY2017: 14,8%) and EBITDA for the year was R137m, 60% down from FY2017 (R373m). “This large drop in earnings was driven mainly by the group clean-up exercise that resulted in a number

Growthpoint Properties and Investec Asset Management, in partnership with the International Finance Corporation, have announced the commencement of operations of their pan-African real estate investment business, Growthpoint Investec African Properties (GIAP), which is managed by Growthpoint Investec African Property Management. GIAP has secured capital commitments in excess of US$212m from several large institutional and international investors, with Growthpoint committing US$50m. GIAP will seek to invest in income-producing commercial real estate assets in select cities across the African continent. Targeted investments will be further diversified by sector, with GIAP’s mandate spanning office, retail and industrial properties. “For Growthpoint, the commencement of GIAP furthers our stated strategy to introduce new revenue streams with our funds management business. The African fund was first announced in 2015 and has taken some time to get to this point on account of economic and property cycles, so we are excited to get started,” says Norbert Sasse, Group CEO of Growthpoint Properties.

of once-off costs,” the company adds. However, excluding the impact of the once-off costs, the underlying EBITDA for FY2018 is R387m, a 4% improvement from the prior year. “This year’s results reflect that we still have a great deal to accomplish to reach our full potential,” says Innocent Dutiro, Chief Executive Officer.

OUTsurance Life is to add funeral cover to its current offering. According to Danie Matthee, CEO of OUTsurance, the new product, which will become available this month, will meet customer demand in South Africa for a dignified funeral, while offering much greater flexibility for policy holders. “Our research on funeral policies revealed that South Africans take out on average between three and four funeral policies in their lifetime, which is not ideal,” he says. “There is a high cancellation rate. OUTsurance addresses the various pain points for consumers that cause these cancellations, and will meet our current client demand for funeral insurance by providing affordable, flexible funeral cover.”



30 June 2018

GAIL FRY Compliance Officer, Compli-Serve

FRANCOIS DU TOIT, CFP® Director, Francois du Toit Consulting and Technology

Many scrambling to get to grips with changes


win Peaks is our new reality. A brand-new Market Conduct Regulator has taken the helm and “the regulatory approach has been overhauled”, to quote Caroline Da Silva of the Financial Sector Conduct Authority (FSCA). Many of us are still scrambling to get to grips with all the changes, not least of which are the various phases of Retail Distribution Review (RDR) implementation, the new FAIS Fit and Proper requirements, the Insurance Regulations and the Policy Holder Protection Rules. Most of these were introduced at the end of 2017 and the ride is far from over. National Treasury, together with the FSCA and the SA Reserve Bank, is now working on the Conduct of Financial Institutions (COFI) framework. The COFI Act will be the overarching conduct of business regulatory instrument and is expected to repeal several existing financial sector laws. It will have the effect of consolidating all conduct of business regulation – one ‘go-to’ Act to consult on the behaviour expected from financial services firms. Promulgation of the Bill is expected to happen later this year, although with public consultation still to happen, the process could take longer. Once the COFI Act is in place, we are likely to see standards for premium collection being introduced. This move would give effect to Proposal F of the Retail Distribution Review of 2014. We don’t yet know what intermediaries will need to do to comply or how they will qualify to collect premiums on behalf of insurers, but we anticipate a stringent selection process with emphasis on a robust governance framework. Also due this year are further changes to the Policyholder Protection Rules (PPRs).

This seems surprising given that amended PPRs were published in December 2017. However, the proposed amendments will allow for alignment with the Insurance Act, which was enacted on 18 January 2018. This Act has not yet come into effect but amends some of the provisions of both the Long and Short-Term Insurance Acts insofar as the conduct of insurers is concerned. The repealed conduct of business provisions will now find their way into the revised PPRs – the legislative instrument for the fair treatment of policyholders. Finally, we hope for feedback on the segmentation of the types of activities being performed by intermediaries on behalf of product suppliers and customers, respectively, in the short-term space. The analysis will be equally relevant to the long-term insurance sector. A consistent understanding of the nature and type of activities that fall within the scope of binder activities, intermediary activities and other forms of outsourcing is required. This level of clarity will alleviate the current ambiguity around certain remuneration practices in the sector. With a new and improved set of conduct standards entrenching the principles of fair customer outcomes in the proposed new and hopefully final set of PPRs, an overarching Conduct of Business Act in the form of COFI and clarity around the current remuneration landscape, we believe the best is yet to come in terms of a more predictable regulatory landscape over the next 12 to 24 months.

Financial planning wars


re we an industry or a profession? Financial planners or financial advisers? Do we help clients secure their futures or are we only concerned with our own? Over the past few months, I have witnessed different financial services role-players become more and more vocal about their views. I fully support robust debate; what does concern me, however, is what people are saying in an attempt to differentiate themselves from their peers. Back in 1998 I started working in financial services. The very first rule I was taught, was: Never knock your competition. Ever. In the US, competitors frequently take one another on in advertisements, interviews and other media. I get the sense the same is starting to happen in South Africa. For instance, I see statements and articles aimed at promoting “Lifestyle Financial Planning” and “Financial Coaching” over other approaches. It is fantastic to see that engagement and financial planning models are becoming more nuanced. Except that a good portion of these articles focus on knocking those who do not follow this approach. And that is what concerns me. Advisers or planners following other approaches are often labelled as sales-focused, commission-driven or even as not having their clients’ best interests at heart. Have you ever had two friends who did not get along? Neither had anything good to say about the other. Chances are you are no longer friends with either of them. Why? Because being caught in the middle left a bad taste in your mouth. This is what I fear is slowly starting to happen to us. When role-players in an industry or profession consistently criticise each other, clients take note. As clients observe the ongoing finger-pointing, their trust in the industry or profession is likely to decline exponentially, and they will opt out of engaging with us. In my career, I have yet to meet a single financial adviser or planner who does not care deeply about both his or her clients and practice. All advisers want to build sustainable relationships with their clients; want to do things better; want to evolve and grow. And most importantly, all advisers or planners I have met want to do right by their clients. When we run any business, we must be aware of the different environments we operate in, how they change and evolve over time, and what we should do to adapt and ensure we stay abreast with best practices and the changing needs of our clients. It makes sense, it is logical, and it is what all successful businesses do. But when you are a sole proprietor, it is not as easy and as logical as it appears to be. When you are running a practice, managing finances, meeting with clients, giving advice, doing reviews, staying up to date with markets and products, doing prospecting and who knows what else, chances are good that researching new trends, approaches, processes and systems to offer your clients may not easily fit onto your to-do list. Does this reality absolve us from making time for these activities? Absolutely not. So where do leadership and guidance fit in with this? When we start advocating for new ways of doing things, or introducing new approaches for financial planning, we owe it to our peers and clients alike to be generous with new information. We must share resources and knowledge with other financial advisers and planners. We must encourage and guide each other to take action and support one another through the changes. We must tell clients what we are doing to make our industry and profession better every single day so they can trust us and confidently do business with us. Let us come together and join forces for the same purpose: to elevate and transform financial services, financial planning and the insurance industry into a full-blown profession. This can only happen if we have each other’s backs instead of taking a back-stabbing stance.

30 June 2018

INSIDER CHRONICLES MARC WIESE General Manager, Warwick Corporate Services




Is robo-advice the future?

he rise of financial technology throughout the financial services industry has promulgated many new and exciting opportunities, one of them being robo-advice. Robo-advice is a type of financial advice that is provided to the investment and wealth management industry via an online system with limited, or no, human intervention. Often this is done via an online automated investing service. As the investment industry has become more efficient over the years, the focus on cost-cutting has become more prominent, resulting in numerous financial services groups launching an online robo-advice offering. The question, therefore, arises: “Is robo-advice the future?” To answer this question we need to look at significant market trends, as well as the positives and negatives of both personalised financial advice and robo-advice. Robo-advisers generally target younger individuals below the age of 30. These individuals often do not yet have large lump-sum savings and therefore seasoned financial advisers sometimes underservice them. Rather, personalised financial advisers typically remain focussed on high net worth individuals and receive a financial advisory fee for their specialised services. Furthermore, younger people are often more au fait and comfortable with online electronic applications. Yet, an important aspect to this question is whether people are willing to trust computers

to manage and advise on their hard-earned money? There is an enormous amount of unfamiliarity with robo-advice and numerous psychological studies demonstrate that personalised financial advisers provide an important component of the investing process. This speaks to the human trust element, handholding, personalised interaction and financial needs analysis. On the other side of the argument is the fact that robo-advice can be offered at a lower fee rate and, therefore, decreases the overall cost of investing and potentially increases the net return. This assumes, however, that the correct advice (such as that relating to tax) was taken, the correct investment structures were implemented and the correct risk-return analysis appropriate to the individual was concluded. Robo-advice may also assist in removing the ‘emotional’ aspect of financial advice. That being said, in most cases well-qualified personalised financial advisers are in a better position to explain volatile market conditions and the required changes to an investment in a more personalised manner than a robo-adviser. One further factor is that the implementation of the Retail Distribution Review has the potential to significantly decrease the earnings of a personalised financial adviser on smaller investments over the short term, and many

concerns have been raised by the industry relating to who is going to service clients with very basic planning needs or smaller investment portfolios. Often these clients do not necessarily require a fully-fledged financial plan. It is in such circumstances that robo-advice may become an appropriate offering. The Business Insider has reported that, of the $74tn worth of Assets Under Management (AUM) managed by wealth managers, robo-advisers are forecast to be managing around 10% of global AUM by 2020. The conclusion is that roboadvice is expected to grow its market share and as the technology improves and becomes more trustworthy, coupled with millennials growing older and increasing their wealth, inevitably roboadvice will become more prominent. In the short to medium term, however, personal investors tend to trust professional advisers, and human interaction will not be replaced by an artificial intelligence system any time soon. Indeed, the ability of one person to connect with another and understand their needs is still core to most clients seeking to build and consolidate their hard-earned wealth.

Growth and preservation important to wealthy families


tonehage Fleming, the independently-owned international family office, says that wealthy families view growth as equally important as preservation. This is a shift in sentiment as post the 2008 financial crisis, preservation dominated their thinking. In addition to feeling more comfortable with markets, this shift can also be attributed to a rising entrepreneurial spirit and increasing willingness to shoulder greater risk in order to achieve growth.   “Our research suggests a subtle but notable shift in attitude by wealthy families in the long-term management and protection of their wealth and legacies,” Johan van Zyl, CEO of Stonehage Fleming in South Africa, says. “Having weathered the global financial crisis, families are increasingly focused on growing their wealth rather than just preserving it.”  To achieve investment growth, in addition to the principal assets of their family businesses, wealthy families are

turning to alternatives, notably real estate, private equity and collectables such as art. The 2018 South Africa Wealth Report produced by New World Wealth and Afrasia Bank, revealed that real estate was the largest asset class for HNWIs in South Africa in 2017 (30% of total HNWI assets), followed by equities (28%), business interests (21%), cash and bonds (15%), and alternatives (6%).  Direct private investments, potentially alongside wealthy peers, are also cited as having appeal, suggesting that family offices will compete in the domain of private equity funds. Global equities continue to be the asset class offering the best potential upside over the long term, but skilled stock selection is becoming increasingly important as market valuations rise. Some of the key themes investors are finding opportunities in include technology, changing consumer behaviour, and energy and mining. Millennials are far more bullish on alternatives and hedge funds than their parents. 

There is also strong evidence of the importance of ‘social’ capital, which suggests a link between preserving wealth and benefiting society. Private foundations and direct giving are the most common forms of demonstrating their philanthropy, while some families, particularly those with an entrepreneurial mindset, are likely to use impact investing and micro financing as methods of social responsibility with a financial return.  “Many believe that great wealth can only be preserved across generations if it benefits not just those who are inheriting, but society and the community too. This is a view held even more strongly by millennial clients, suggesting that as they take over the reins, this will be applied more visibly. It is also likely to become more relevant as we grapple with the impact of the fourth industrial revolution,” van Zyl adds.  “To achieve their goals, it is important that wealthy families impose a disciplined, strategic investment

approach to investing for the long term if they are to have a wealth strategy for intergenerational success.” As part of this, agreeing on the purpose of their wealth is an important process for families, who often have widely differing views on the subject. At one extreme, there are some entrepreneurs who have left nearly all their money to charity, and at the other extreme, there is a family trying to create a 200-year trust with guidelines for distributions across eight generations.  “Ultimately, wealth is only beneficial if it helps family members to lead more fulfilling lives and has a meaningful impact on society,” van Zyl notes.

Johan van Zyl, CEO of Stonehage Fleming in South Africa




30 June 2018

Is passive investing under threat? Investment techniques that have worked so well in the bull market of the last 35 years will – in the future – no longer deliver acceptable returns. This is the view of Niels Jensen, a Dane based in London and the Chief Investment Officer of Absolute Return Partners, which he founded in 2002. He is also the author of The End of Indexing. He was in South Africa last month and presented his findings at an event held by investment advisory and wealth management company GraySwan.


ensen argues that changes in the economic environment over the coming years will be unsuited to index tracking strategies and that investors may need to modify their approach to earn decent returns. He highlights eight structural mega-trends (when the book was published, he had only identified six mega-trends) that he believes will shape the global economy and finds it difficult to be optimistic about global growth. He argues that index funds which have, in the past, benefitted from long-term bull markets won’t be the best place for investors to put their money when these mega-trends start to bite, because stock market valuations will inevitably fall, and returns will become more modest. Jensen sets out his mega-trends as follows: • End of the debt super-cycle 
 In a debt super-cycle, as the cycle moves ahead, economic growth is increasingly driven by a combination of growth in debt and money supply, but there are limits as to how much spending can be financed by debt and money. “When that point is reached, you’re at the end of the debt super-cycle,” Jansen explains. When debt rises faster than GDP growth, capital that could have been used productively to enhance GDP growth is instead used to service existing debt. “Debt rising faster THE ONLY than GDP RISK FACTOR is a vicious circle. As INVESTORS ARE GDP growth EXPOSED TO slows, WHEN INVESTING more debt is needed PASSIVELY IS to service BETA RISK existing debt, which will cause GDP growth to slow even further. Debt, therefore, continues to grow and GDP growth continues to slow – until it all ends in tears.” • Retirement of Baby Boomers In the OECD, 150 million people will retire in the next 15 years – “a trend that will have massive implications for the world as we know it,” Jensen says. “Servicing the elderly is extremely costly and will further tie up capital that could otherwise have been used to enhance productivity. Longevity in the developed world will improve by about three years between now and 2030 according to the United Nations, but, according to the IMF, debt-to-GDP will increase by 50% as a result.”

• Declining spending power of the middle classes Many countries have not experienced any meaningful growth in real wages for many years. Low or no real wage growth Niels Jensen, negatively affects Chief Investment aggregate demand Officer, Absolute and partly explains Return Partners and author of The why GDP growth is End of Indexing so low everywhere, Jensen points out. “Low real wage growth affects the political landscape. It is no coincidence that Trump became US president, that the UK opted for Brexit, and that Italy’s biggest political party is run by a comedian,” Jensen says. • Rise of the East China has more middle-class families now than the US and will overtake the US as the largest economy in the world (in absolute terms) in the not so distant future. “The first thing people spend more money on when living standards rise is more and better-quality food – almost always more protein-rich food. Around 60% of all water globally is consumed by the agricultural industry. As living standards rise in the East, upward pressure on food and water prices is therefore overwhelmingly likely,” Jensen adds. • Disruption Some disruptive businesses succeed whereas others don’t. It is a misconception that entrants are disruptive by virtue of their success, Jensen says. “Success is not build into the definition of disruption.” He adds that the number of years to fully disrupt incumbents is falling precipitously. Disruption has accelerated because of digitalisation, but it is not at all limited to the technology industry. “Think Amazon and what it has done to bricks-and-mortar retailers globally,” he adds. • Running out of freshwater Between now and 2050, the world must produce more food than it has done in the last 10 000 years put together to meet growing demand. Food production accounts for 70% of all water consumption globally, and as much as 90% in the fastest growing countries. “Water scarcity is widely perceived only to be a major problem in North Africa, Australia and the Middle East, but the reality is quite different,” Jensen says.

• Electrification of everything “Electrification of heating and transportation will largely eliminate the need for fossil fuels, particularly coal and natural gas, both of which will become virtually worthless. Around 20-25% of all oil is used in the chemical industry, and ‘electrification of everything’ won’t reduce the need for plastics. If demand for oil is cut by 75-80%, oil prices will drop quite substantially, though,” Jensen says. The rollout of Blockchain will further accelerate the move towards electrification, he adds. • Mean reversion of wealth-to-GDP Asset prices have grown much faster than GDP for a long time and, in the long run, one cannot outgrow the other, Jensen points out. Every single time US wealth-to-GDP has deviated meaningfully from 3.8 times, it has regressed to that mean. US household wealth is now about five times US GDP, implying that household wealth has to drop 25-30% before the long-term mean has been re-established. Jensen says he can understand why investors want to move away from “expensive and notoriously underperforming” active managers, but he warns that now is not the right time to “go passive”. He adds that the only risk factor investors are exposed to when investing passively is beta risk, and that is the risk one doesn’t want to be overly exposed to, given the mega-trends on the horizon. There are plenty of idiosyncratic investment opportunities around, whereby one may go down the alpha, credit or gamma road instead. In an unconstrained portfolio, Jensen would allocate next to nothing to beta risk, no more than 25% to alpha risk and around 75% to credit and gamma risk.


30 June 2018

Tax-free investment plans: Ticking many good investment boxes


our clients have enough reasons to deposit a percentage of their income into a savings plan that yields good returns: Their children’s higher or tertiary education fees; a financial boost to start a business or to purchase an investment property; or a product to complement their retirement savings. These are some sound reasons for your client to start – and persevere – on the journey of long-term, high-earning savings. Nowadays, the three key elements around long-term savings are tax efficiency, discipline and patience. All are required for a successful investment plan.   “Don’t touch!” Encourage your client to step away from their savings account Encouraging your client to save in a long-term investment account – where early and frequent access is discouraged – is a really good idea for a bunch of reasons. In South Africa, our government thinks so too. Hence, in a bid to encourage longterm, disciplined saving, National Treasury, in 2015, introduced and defined tax-free investments to be savings products where “all returns from such products will be tax-free in the hands of the individual who owns (it)”, provided those products meet the criteria as set out in legislation. With respect to the tax-free savings and investment limitations, an individual may currently contribute up to R33 000 per year with a lifetime contribution limit of R500 000. There are no age limits for the owner of the tax-free account, so it could be a favourable option for parents wanting to start a nest-egg for their minor children. Roenica Tyson, investment product manager at Glacier by Sanlam, believes that tax-free savings and investment accounts tick many positive boxes, as part of a diversified financial plan. She would encourage every investor to consider including one in their portfolio and to take advantage of the opportunity to grow their savings without paying any tax on the interest, dividends or capital gains they earn. Glacier offers access to a wide range of investment funds, catering for all investor risk profiles and a wide selection of top funds in South Africa.

All good things come to those who wait As with all worthwhile things in life, patience and discipline are vital. The longer your client remains invested, the greater the benefit from tax-free growth – so target a term of at least five to 10 years. Also, the limitations on contributions are quite strict. Your clients cannot carry their annual contribution over to another year, and while withdrawals are allowed, any withdrawn amount will be regarded as a contribution when re-invested. So, they need to be disciplined in maximising their contribution each year and avoid dipping into this savings pot as far as possible. “Life happens, and unforeseen events result in us sometimes having to dip into our savings, but I would encourage investors in this product to resist the temptation to withdraw from it to ensure disciplined, lucrative saving,” Tyson advises.   Add-on to retirement savings Perhaps consider tax-free investment plans as complementary savings for your client’s retirement investment. “A tax-free investment plan is a great add-on to a retirement plan,” Tyson points out. The table below demonstrates the sample values (including the tax savings relative to a normal investment plan) based on a monthly investment of R2 750 over a period of two, four, six, eight and 10 years, for an aggressive investor, and with intermediary fees of 0.5%. The noteworthy point is that over a 10-year period, total contributions of R330 000 can grow to R536 048, which is R29 222 more than a similar plan without the tax savings.

The benefits are selfevident. Tax-free investments are a viable long-term option as part of a diversified portfolio. Investment income earned within the Glacier Tax-Free Investment Plan, as well as capital gains are tax-free – and you can adjust your client’s portfolio when their needs and risk appetite change.

Roenica Tyson, Investment Product Manager at Glacier by Sanlam

Assumptions: Return of 11% per annum and marginal tax rate of 35% on investment plan returns.



RUAN KOCH Analyst, Laurium Capital

30 June 2018

Comparing US and SA market valuations using CAPE ratios


ou’ll often see the CAPE, or the Shiller P/E ratio, mentioned in an article with a scaremongering headline like: Is ‘Irrational Exuberance’ Back? CAPE Ratio Looking More Like the 1990s – WSJ, October 2017. Just looking at the longterm chart below will make you see why this is the case:

What is the CAPE ratio, should I care, and what does this mean for SA investors and my clients? The Cyclically Adjusted Price to Earnings (CAPE) ratio, also known as the Shiller P/E ratio, was popularised by Yale University professor Robert Shiller. The argument to use this ratio over the normal Price Earnings (P/E) ratio is that economies are not generally at equilibrium, rather acting more like a pendulum with earnings swinging from one extreme to the next. For example, during the 2008 financial crash earnings for many companies went to zero or negative, completely distorting the traditional P/E ratio (S&P500 P/E ratio peaked at above 120x). Shiller uses 10-year average inflation adjusted earnings as the denominator in the P/E ratio calculation to smooth

JOHNY LAMBRIDIS Portfolio Manager, Prudential Investment Managers


earnings over an entire economic cycle. The aim is to better predict the through-the-cycle future market returns, rather than relying on the point-in-time measure of the normal P/E ratio. From the chart we can easily see that the US markets appear to be expensive at 33x, more than two standard deviations away from the long-term mean of 16.9x. The only higher valuations occurred in 1929 (the Great Depression) and 2000 (the Tech Bubble). However, opponents of the CAPE ratio argue that the global economy has changed so much that comparing the earnings from today’s technology companies to those of the predominantly industrial companies in the early 1900s is senseless. To better reflect the valuation relative to the modern economy, let’s look at the CAPE ratio since the early 1980s.

The metric is still at pronounced levels, but now only one standard deviation away from the mean of 23x. Expensive, but not in the realm of “irrational exuberance”. The recent tax reform in the US has given earnings a boost, and the depressed earnings from the 2008 global financial crisis will start cycling out of the 10-year base, lowering the ratio even further. That said,

prospective returns from this entry point should be relatively muted compared to history. How does this compare to SA, and should we be worried? You’ll find little to no information on the CAPE ratio for South African markets, nor will you be able to easily find the data series on one of the many popular market data providers. So, I compiled the data for SA and prepared the following chart:

You can see that the SA ratio is much less pronounced, showing our market is significantly cheaper than the US market, both in absolute terms and relative to our own history. Our current multiple of 18.8x is only 0.5 standard deviations away from the mean of 16.2x. This suggests better future returns than one can expect from the US markets. There are many valuations metrics to use, each with varying effectiveness of predicting future returns. What remains undeniably true, however, is that the higher the price you pay, the lower your future returns will be. Following from this, the CAPE ratio would suggest SA markets should be preferred over US markets at these levels.

Resilient in the Top 40 Index: Thoughtless indexation

ecause larger companies virtually assure executive management of higher compensation, there exists a perverse incentive for management to grow the absolute size (i.e. the market capitalisation) of their companies, even if this comes at the expense of lower return for shareholders. With the growth in passive investing, which tends to invest in the largest and most liquid companies, there is now an additional – yet still unwarranted – incentive for management to grow the ‘free-float’ market capitalisation, as most tradeable JSE indices use the shares actually available for investment to determine size. The JSE Index Committee is responsible for determining the free-float of each company at the quarterly index rebalancing. One potential problem is that the JSE relies on annual public disclosure by the companies themselves to determine their free-float (even though JSE owns STRATE and could use the shareholder register to verify and update company disclosure). A second potential problem is that the passive providers appear not to verify the JSE calculations, despite pouring billions of their clients’ money to track these indices.

The Resilient group of companies is an example of how corporate managers can arbitrage certain indexation rules to obfuscate reality to the detriment of investors. In addition to the cross-shareholding between Resilient and Fortress (that the companies have now agreed to unwind), the Resilient group may have potentially used the structure of its BEE trusts to inflate the free-float of certain group companies. This – incorrectly, in our opinion – allowed Resilient to be included in the FTSE/JSE Top 40 Index late last year, with significant consequences for passive investors. Resilient entered the Top 40 Index at around R145 per share, which would have required passive managers to actively buy the shares. After its share price lost more than half of its value, Resilient exited the Top 40 Index at around R65 per share in the March rebalancing. This would have required passive managers to actively sell the shares. The net impact at an index level of this active buying and selling by the passive managers was in excess of 0.4% of performance. Passive investors should add this loss of index return to their management fee to determine the ‘true’ costs of passive management. And what other difference could it make if the

BEE shares are not excluded from the free-float? Essentially, passive as well as active managers managing against a free-float benchmark will structurally struggle to find Resilient stock, as at least 13% of Resilient’s weight is tied up in the BEE Trusts but not removed from the free-float. This creates latent demand for Resilient, which is great news if you are a serial equity issuer – and your share price continues to rise. This demand is exacerbated during equity placements, particularly if (as has been alleged by some) the allocation of shares in equity placements by the Resilient Group of companies has unfairly advantaged related entities. We believe investors in passive products should be asking passive providers whether, as a matter of course, they independently check the validity and integrity of the indices they are tracking, including the calculation of each company’s free-float. As an aside, the correct calculation of the free-float appears to be child’s play in comparison to the detection of fraud the active management community is expected to police. The answer that “we rely on the JSE” would be tantamount to active managers arguing that “we rely on the auditors” to detect fraud.




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June 2018 | VOLUME 17


Is a global recession around the corner? (page ii)

Allan Gray lowers offshore minimum (page xi)

Accept short-term volatility as par for the course (page viii) {I}


IS A GLOBAL RECESSION AROUND THE CORNER? Some market commentators say they are spotting cracks in synchronised global growth, with a touch of stagflation. They also say that the last time this level of synchronised global growth took place, it was followed by the events of 2008. GDP growth is already slowing in Europe, with the UK economy rising only 0.1% last quarter and the euro area losing a third of its growth rate from the fourth quarter of 2017. In Canada and Australia, housing bubbles appear likely to burst with a 5% drop in house prices in Australia expected – something considered unthinkable in the past. Given this evidence, some would say that a global recession is just around the corner. Fortunately, the experts MoneyMarketing spoke to don’t agree.

No sign yet of a single major economy falling


he overwhelming evidence is still that the world economy is doing quite well, says Izak Odendaal, Investment Strategist at Old Mutual Multi-Managers. “Some economies are not quite living up to expectations, particularly the Eurozone, but these expectations have crept up unrealistically late last year. Think of a cycling race where the riders are the various major economies. Last year, they were speeding up, and they were all in a bunch (hence synchronised). Surprisingly, the Eurozone seemed to be in the lead. This year, Europe is falling back, and the US is in the lead. This has resulted in the dollar gaining against the euro in recent weeks. The bunch has stretched but Europe is still in it. There is no sign yet of a single major economy falling and causing a pile-up, i.e. a global recession.” Inflation is rising cyclically mainly due to a higher oil price and a low base, he adds, but there is nothing that suggests a sustained move to much higher global inflation rates that will cause 1970s style ‘stagflation’. “Longer-term competitive, demographic and technological forces still place downward pressure on global inflation rates. This in turn means that central banks can proceed very gradually and carefully in terms of returning monetary policy to a more ‘normal’ stance (by increasing interest rates and ending quantitative easing). Put differently, central banks are not hiking rates to reduce demand in order to supress inflation.” Though there appears to be residential property bubbles in major Australian and Canadian cities (and possibly in pre-Brexit London), Odendaal says these are highly unlikely to result in a global financial crisis as the US housing market implosion did in 2008. {II}

“For one thing, the US housing market is much bigger (US mortgage debt peaked at $9.9tn in 2008). But more significantly, many of these mortgages were then turned into further trillions of dollars of complex financial products, often with additional leverage, and sold to investors worldwide.” He points out that things do get tricky with the recent rebound of the dollar which, if sustained, can cause problems across the emerging world. “The previous two big dollar bull markets in the early 1980s and late 1990s also coincided with emerging market crises, and the global economy generally prefers a moderately weak dollar. The real trade-weighted dollar (i.e. comparing the currencies of the US and its main trading partners and adjusting for inflation differences) is still above its longer-term average level. It is therefore still too early to talk about the resumption of the 2011 to 2015 dollar surge that caused havoc across the financial world.” Similarly, he says, previous global downturns have also been preceded with a big run-up in the oil price. “However, even after rising to above $75 per barrel, in real terms crude oil prices are still below the average of the post-Crisis era. Meanwhile, it has incentivised a renewed boom in US shale production, which should cap the geopolitically-induced rally in oil prices.” For Odendaal, the overall backdrop remains favourable for risk assets globally. Companies have exceeded expectations to deliver one of the best earnings seasons on record, but the market has been slow to reward them with rising share prices, the focus seemingly on interest rate and geopolitical concerns.

Izak Odendaal, Investment Strategist, Old Mutual MultiManagers

30 June 2018

Fundamentals remain ‘pretty good’


hilip Saunders, co-Head of MultiAsset Growth, Investec Asset Management, says that for the most part, the fundamentals that have been driving markets remain pretty good. “While the frothy bull market mentality has been broken, we believe the recent weakness in equity markets is most likely a correction rather than the start of the next bear market. Both valuations and investor sentiment had become very stretched in January, and the sell-off in the first quarter has gone a long way to addressing this issue. “We don’t believe the threats from trade wars, geopolitical tension and greater regulation of technology companies will escalate materially, although they are risks. Earnings revisions remain supportive and economic growth, although late cycle and slowing somewhat, should stay above trend (the long-term average growth rate) for now.” He adds that Chinese growth is certainly in ‘decent’ shape as their transition to value over volume unfolds, which is good for the rest of the world and reflected in commodity prices. And while their growth rate has decelerated, it is running at a more sustainable level. While US interest rates are going up, they are nowhere near tight. “Real US interest rates remain negative or close to zero, so are not yet at the stage where they are really starting to crimp activity. Similarly, we have a very loose monetary policy in Europe and Japan.” Saunders agrees that the narrative is spreading that with inflation and interest rates rising, the threat of a recession lurks somewhere in 2019 or 2020. “However, during the messy consolidation phase thus far this year, markets have taken the negative macro news and concerns about rising interest rates and inflation reasonably well. As a result, we believe they are likely to grind higher into the Northern Hemisphere summer, as our expectation is that they will be driven much more from a bottom-up perspective (i.e. the fundamentals such as strong earnings growth) than the top-down macro view.  “We therefore do not believe that it is an environment yet where one should be hiding under a rock and hold very high cash balances. However, we recognise that we are in those later stages of the bull market, so we do expect more volatility, certainly

Philip Saunders, co-Head of Multi-Asset Growth, Investec Asset Management

up from the abnormally low levels of recent years.” On balance, Saunders continues to believe that a bias towards growth assets is appropriate with extended valuations and investor sentiment having corrected. “Despite this, we maintain healthy exposure to selective defensive assets where we see value in order to diversify returns. Among defensive assets we continue to favour long-dated US Treasuries, which we believe have discounted the current US interest rate hiking cycle, and the Japanese yen, which we believe has scope to appreciate versus the US dollar.” Saunders’s colleague at Investec Asset Management, Peter Kent, who is co-Head of Fixed Income and manages the Investec Diversified Income Fund, says that market uncertainty is managed by developing a core view for the Fund – making sure that this core view is reflected in the portfolio – and then spending a lot of time checking the mirrors for the risks surrounding that core view. “Additionally, we position the portfolio in such a way that those potential risks’ impact is managed as much as possible.”  Kent sets out the background to this core view: “The globe has benefited from a broad-based cyclical upswing ever since the Chinese started easing both fiscal and monetary policy at the end of 2015. This coincided with a US Fed that started to see the impact of a strong dollar on their local industry and shifted to a more dovish stance. This combination of a topping out dollar and Chinese activity provided a boost to commodity prices and EM exports, and more importantly provided the globe with much needed reflation. “What started as Chinese consumption eventually crowded in capex and investment in the developed world, resulting in a very strong run in European data, among others. This run stalled in Q1 this year, and ultimately our core view for the remainder of the year is dependent on whether you think the Q1 speed bump is temporary or permanent.”  Kent says his core view, supported by very recent global survey data and an improvement in April Chinese activity, is that it is merely a speed bump “and we expect the synchronised global cyclical upswing to continue”.

Peter Kent, co-Head of Fixed Income, Investec Asset Management


30 June 2018



outh African wealth management firm Citadel has developed a global recession scorecard. “We expect reasonable growth from global markets this year but within a more volatile environment,” says Citadel Chief Economist and Advisory Partner, Maarten Ackerman. “We do, however, expect that these headwinds will eventually slow global activity, likely causing growth around the world to disappoint in late 2019 and early 2020. The real risk for global markets is an unexpected global recession. “To monitor this we have developed a global recession scorecard with 10 underlying fundamental indicators. At the moment, 90% of these indicators suggest that a global recession remains unlikely this year.” United States – trade wars or political propaganda? Ackerman says that  the economic recovery is continuing unabated in the United States, with unemployment declining to decade lows and real wages rebounding to pre-crisis levels. This paved the way for the US Federal Reserve to hike interest rates again at their meeting in March 2018 and to confirm the strategy of another three possible hikes this year, in light of the fact that the US economy is operating close to full employment.  “Given this background one needs to ask why the Trump administration has recently announced tariffs on certain imports. Tariffs are normally introduced to protect local jobs from foreign competition or to address structural issues in an economy. Since 1960 the US economy has transformed from a manufacturing- to a servicesbased economy. Today most jobs and companies are services orientated.”  Ackerman explains that the US is not competitive as a manufacturing hub anymore since there are much cheaper labour pools available around the world. Thus, part of US President Donald Trump’s ‘trade war’ rhetoric is aimed at delivering on his election promise of protectionism and bringing jobs back to the US. Many of the (now retired) former manufacturing workers living in the ‘rust belt’ (previously the industrial and steel manufacturing region in the US) voted for Trump.  “Given his unpopularity at the moment, Trump needs to secure these votes again at the upcoming mid-term elections and many of these proposed tariffs are talking directly to these voters’ hearts. “Bottom line: The tariffs cover less than 2% of US trade and were watered down by excluding most of the major

trade partners – so the economic impact should be marginal and retaliation risk at this point seems low.” Ackerman says the tariffs announced specifically on China are also an attempt to address the US’s significant trade deficit with that country and the fact that China is perceived to be responsible for manufacturing job losses in the US. Once again the tariffs cover less than 3% of US imports from China and less than 10% of Chinese exports. Moreover, even if the actual measures continue to fall well short of the rhetoric, these announcements may weigh on investor sentiment and markets will be more affected than the economy.  “Thus, the US economy should still deliver strong growth this year, but the headwinds are picking up, including: tighter monetary policy, late cycle fiscal stimulus, increased inflation concerns and elevated political erosion. The government budget deficit is expected to exceed 5% of gross domestic product by next year, by far the largest while the economy is at full employment since the Second World War. “A combination of these should contribute towards growth in the US economy disappointing during 2019, with a possible recession soon thereafter.”   Europe – sentiment overshadows political uncertainty Notwithstanding the political uncertainties in Europe created by the ongoing Brexit negotiations, Germany coalition talks, unsettled voting in Catalonia and the anti-Europe-populist outcome of the Italian elections, business sentiment remains near record highs, which underpins a strong economic momentum. “This trend should continue as unemployment declines further, pushing consumer confidence to pre-crisis levels and raising inflation expectations to three-year highs,” says Ackerman. “Given these developments, European growth should outpace US growth this year. However, a slowdown in the US will unfortunately disrupt the current momentum in the European economy.”  Taking into account the present economic environment, the European Central Bank has indicated that it is preparing to cut its crisis-era stimulus programme faster than anticipated, joining monetary policymakers in most developed economies in tightening policy.   This should start by reducing and ending quantitative easing as a first step. However, despite the improvement in inflation expectations

overall, inflation will take some time to get to target, so the first interest rate cut seems some way off. “For now, Europe should deliver a strong performance for 2018, which will support global economic growth,” Ackerman adds. China – a second term for Xi Jinping China’s parliament unanimously reappointed Xi Jinping as president while installing one of his most trusted allies as vice president in March 2018. “No president in that country has received a unanimous vote in at least a quarter of a century,” Ackerman says.  Further appointments followed, which saw cabinet being restructured with more reform-minded policymakers. “This affirms the country’s focus on quality growth and the desire to promote China’s integration into global financial markets. Soon thereafter the government announced a significant tax reduction package, including a 1% cut in VAT for manufacturing, transportation and telecoms.  “These and other changes support the initiative to increase the private sector’s contribution to growth and reduce the need for growth to be supported by government debt. As the economy continues to transform, the risk of a major growth disappointment diminishes and the system becomes more sustainable. Given this background, we expect economic growth to remain around 6.5% this year and next.”  Many of Trump’s imposed tariffs are directed towards China. “As already mentioned, so far the tariffs are not a major threat to China’s economy and cover less than 10% of Chinese trade. If these tariffs don’t address the narrowing of the US deficit with China, then more aggressive policy might follow, which should escalate trade tensions between the two countries.”  Ackerman says that in such a scenario the negative impact on growth could also spread to other emerging markets. “But, for now, any talk of trade wars is unlikely to have a major impact on emerging market growth for this year.”

Citadel Chief Economist and Advisory Partner, Maarten Ackerman



30 June 2018

HOW MUCH MONEY SHOULD YOU INVEST OFFSHORE? In Figure 1, we present two efficient frontiers, one inclusive of an offshore allocation and the other excluding any offshore allocation. We have reviewed data from 2003 to 2018 for the four asset classes under consideration. It is clear that the inclusion of a foreign investment in the asset pool resulted in the efficient frontier shifting upwards, implying that the inclusion of an offshore allocation in a portfolio has returnenhancement benefits. We are also able to look at those portfolios that comprise the efficient frontier and consider their composition. This composition of the efficient portfolios is given in Figure 2 below.

ALSI 15%


90% 80%

Annualised Return




Offshore Bonds Offshore Cash

7% Excluding Offshore AllocaKon 5%





Including Offshore AllocaKon


Annualised Risk (% p.a)

Source: Anchor Capital




60% STeFi


ALBI 40%

JSE Top 40 MSCI World

30% 20%


4.3 4.4 4.4 4.5 4.6 4.7 4.9 5.1 5.2 5.5 5.7 6.0 6.2 6.5 6.9 7.2 7.5 7.9 8.3 8.7 9.0 9.4 9.8 10.2 10.6 11.1 11.5 11.9 12.3 12.7 13.2 13.6 14.0 14.5 14.9 15.3


Annualised Risk (% p.a)

We now consider the optimal weight for a lowequity balanced portfolio, a medium-equity balanced portfolio and a high-equity balanced portfolio. PORTFOLIO





Low Equity Balanced Portfolio Weights





Medium Equity Balanced Portfolio Weights





High Equity Balances Portfolio Weights





In Figure 3 we found that the optimal range for offshore allocation over the time-period in question was between 15% and 20% for most portfolios.





Low Equity

Medium Equity

High Equity

MSCI World (ZAR)




Annualised Return








Annualised Risk








Annualised Sharp Ratio (Rf = 6%)








Average Drawdown








Expected Tail Loss (95% C.I)









MSCI World




OPTIMAL PORTFOLIO COMPOSITION Comparison of Efficient FronKers - Impact of an Offshore AllocaKon


This is, in part, because local equities have outperformed global equities over the time frame in question (see Figure 4). This could be attributed to the rise of Naspers, the emerging market premium that is earned on SA assets and the commodity boom (until 2007). These factors have combined to make SA equities more compelling over the period from 2003 until now.

PorColio ComposiFon



revious research in South Africa – at the time when the offshore allowance was capped at 25% (it is now 30%) – showed that it was optimal for investors to fully utilise their offshore allowance (Bradfield, Munro, Silberman & Hendricks, 2010). Looking at the new offshore investment limits, this article considers an optimal offshore allocation for a rand-based investor for three of the most commonly used balanced asset-allocation portfolios, namely low-equity (stable), medium-equity (moderate) and high-equity (growth) balanced portfolios. We begin by considering the strategic role of an offshore allocation in a balanced portfolio. We use the mean-variance efficient frontier framework to explore portfolio enhancement characteristics of foreign investment from a South African investor’s perspective. The efficient frontier framework considers a set of portfolios along the risk spectrum, such that each portfolio gives the best return for each level of targeted risk considered. We consider only the four major asset classes, namely the JSE Top-40 Index (SA equities), the JSE All Bond Index (bonds), the STeFi (money markets) and the MSCI World Equity Index (global equities). For the scope of this analysis, we have excluded investments into Africa, alternative investments such as hedge funds and listed property.

A higher allocation to offshore assets does not necessarily mean a higher return. The riskdiversification benefits of an allocation to offshore investments is obvious, but it does not follow that it is optimal to invest more offshore in an attempt to increase the targeted return. Our view is that an optimal, long-term benchmark allocation towards offshore assets is around 20% of the portfolio. A tactical allocation in times of material offshore equity growth and rand weakness would necessitate a full utilisation of this 30% offshore allocation and can add significant value. However, Anchor Capital’s longterm neutral benchmark remains at around 20%.

18 O F


30 June 2018



s the South African economy shows signs of recovery, the question many investors are asking is, “Is offshore investing still a viable way to increase investment returns?” Henk Appelo, Liberty Actuarial Consultant for Investment Transformation, takes a closer look at the opportunities offshore investing delivers to South African investors. According to Appelo, there are many opportunities in the world of offshore investing, such as the advantages of tax and growing markets, which can significantly grow your clients’ wealth. To help clients take full advantage of international investment opportunities, financial advisers need to ensure that clients have a robust investment strategy in place. “Offshore investing for a South African investor is all about diversification. The world is a big place and by keeping your investments in one country, you’re missing out on more investment opportunities. All this will make for a more diversified investment portfolio that can withstand adverse market events and also take advantage of good opportunities offered elsewhere,” says Appelo. It is always important to understand the risks you are exposing your money to when you take it offshore. There is always additional risk because of different currencies. Currency movements may result in the rand value of the investment fluctuating even though the actual investment has done well. This is why financial advisers should help their client to develop an offshore investment strategy that considers the investor’s risk appetite and investment goals. It is very important that a client understands this dynamic prior to committing to offshore investment. Investors have different reasons for taking their money offshore – these may include things like a child wanting to go to a foreign university, an international holiday or even offshore retirement, just to mention a few. Here offshore investing also presents the ability to invest in the currency and market where you want to go or need to pay for something. {VI}

It is also vitally important for clients to understand the impact of tax legislation on their offshore investments. You need to verify that you have a SARS clearance certificate before transferring money. South African investors that move less that R1m offshore every year don’t require a SARS tax clearance certificate. Amounts of R1m or more require a tax clearance certificate. The financial adviser needs to work closely with the client to ensure that all local and international tax legislation is adhered to. “Your net worth plays a significant role in your offshore investment strategy too. Individuals with a high net worth can look at direct offshore opportunities. Those who can’t afford to risk large portions of their investment capital could consider locally based offshore solutions that don’t require them to go through foreign exchange processes,” says Appelo. Liberty’s Offshore Investment Plan takes the form of a simple endowment that gives clients easy access to the global market via a range of portfolios. Liberty’s Offshore Investment Plan is low cost, which means it delivers maximum benefits on the growth on your assets. For smaller investors, many local portfolio managers will have a component of their balanced portfolios investing in foreign assets. The advantage of this is that investment professionals will make the decision of what offshore assets to invest in and how much of it as a percentage of the investment as a whole. When is a good time to take investments offshore? Appelo concludes, “We often see investors behave in different ways, some fall victim to moving offshore at the worst possible time. This is taking money offshore when the rand is weak and in doing so, paying a lot for their offshore investment. The best time to buy is when things are cheap, that means a good time to buy is when the market is down. A good time to consider offshore investment is when the rand is strong.”

To truly benefit from offshore investing, one has to take a long-term approach instead of chasing fast profits. Expert financial advisers must guide investors through the entire investment process to help plan, prepare and grow their wealth on a global scale. What to consider when looking at offshore investments Do you want your investment to be domiciled offshore? There are different options to look at, for example offshore LISP or an offshore endowment offered by a South African insurer such as Liberty. Invest in rand denominated portfolios that invest your money offshore Here your funds remain in South Africa and will be available to you when you need them locally. Invest in local balanced funds These offer a portion of the investment to be invested offshore as part of the portfolio.

Henk Appelo, Liberty Actuarial Consultant for Investment Transformation

Create a future without boundaries with Liberty Offshore Investment Plan. Are your local investments lacking international diversification?

Do you want to study, travel or retire abroad?

Will you leave a legacy of wealth for your loved ones?

If you’ve answered yes to any of these questions, consider…

US S15 000

minimum investment gets you



A cost efficient investment - no charge to switch between investment portfolios or to access your money. An investment horizon of at least five years and no prescribed end date. Access your investment once in the initial five-year period, for any unexpected financial needs.

This is a simple offshore investment that allows you to choose from a range of international equities, bonds and cash portfolios, including trackers.

(If you need more funds in the first five years, you’ll need to withdraw your full investment).




Global leading asset managers look after your money through direct offshore investments.

Your beneficiaries will receive the value of the investment should you pass away.

Take advantage of growth opportunities on an international scale.

No need to appoint a foreign executor in the event of your death.


The investment proceeds can be paid to any account, locally or abroad. There are additional requirements when the proceeds are paid offshore.

Benefit from an investment subject to income tax at the rate of 30% and capital gains taxed at an effective 12% rate in the hands of Liberty, so your funds have more opportunity for growth. Ensure that you and your financial adviser get your tax certificates and approvals from SARS when investing amounts larger than R1million.

FULFIL YOUR SPECIFIC INVESTMENT GOALS Your Liberty financial adviser or broker can tailor an offshore investment strategy for you through Liberty’s diverse team of qualified investment professionals. or call us on 0860 456 789 ADVICE INVEST INSURE The Liberty Offshore Investment Plan is underwritten by Liberty Group Limited (Jersey Branch). The information contained in this infograph does not constitute advice by Liberty. Any legal, technical, or product information contained in this document is subject to change from time to time. This infograph is a summary of the features of the Liberty offshore investment plan product. If there are any discrepancies between this document and the contractual terms and conditions, the latter will prevail. Any recommendations made must take into consideration your specific needs and unique circumstances. Liberty Group Ltd is an Authorised Financial Services Provider in terms of the FAIS Act (no 2409). ©Liberty Group Ltd 2018. All rights reserved.


DUGGAN MATTHEWS Investment Professional, Marriott Asset Management


30 June 2018


o achieve good long-term returns, investors must accept short-term volatility as par for the course. After a period of steadily rising stock prices, market volatility has returned in 2018. Concerned by the prospects of rising global interest rates, market speculators have rushed to sell stocks in an attempt to lock in gains from previous years. The result has been large market declines, particularly in first-world markets in sectors considered to be safe and steady. Emotions tend to run high in periods such as these. When prices are falling, investors typically doubt their initial investment strategy. Sensationalist journalism and market ‘chatter’ also add to the sense of panic, resulting in many investors moving into the safety of cash. Maintain a long-term perspective To avoid making rash decisions in volatile times, it is advisable to maintain a long-term investment horizon – from this perspective, market volatility is less unsettling. Take, for example, the recent experience of 3M investors. 3M is one of the world’s premier industrial companies with an enviable track record of growing dividends and shareholders’ wealth, yet over the last three months 3M’s share price is down more than 10%. At face value, this may seem like a company in trouble. However, if you look at their share price movement over the last 38 years, similar short-term share price declines have happened many times before.

Despite these short-term price dips, the average annual total return that 3M investors have enjoyed since 1980 has been 12.6%*. Thus, from a longerterm perspective, those disappointing quarters were just brief setbacks in the process of long-term wealth creation. Growing dividends = growing capital Over the long term, share price growth is ultimately driven by dividend growth. As such, large declines in the share prices of companies with the ability to consistently and reliably grow their dividends typically represent very good buying opportunities. When the share price is down, investors pay a cheaper price for the same reliable and growing dividend stream.

(Source: Bloomberg)







Q1’ 88






























































Current Dividend Yield

Historic Av Dividend Yield (20 year)

Procter & Gamble















Johnson & Johnson






(Source: Blomberg)

3M Share Price - Short Term Volatility (Source: Bloomberg)

ndian equities have performed well in recent years, but the country’s macro picture has largely disappointed over the past 18 months – with the dual impact of demonetisation and the implementation of the Goods and Services Tax impacting on growth. However, the tide has seemingly turned as the macro landscape has recently stabilised in the reforming nation, with growth now starting to come through faster than expected. This broad economic growth upswing is also translating to the corporate sector. We expect NIFTY (India’s national stock exchange) earnings growth over the full year, which completed at the end of March, to come in at 14% – near the initial expectations a year ago. This is a far cry from previous years, where initial earnings forecasts were continually revised downwards to the low single digits.

World’s best dividend payers offer good value Since the beginning of the year, the share prices of the world’s best dividend paying companies have come under significant pressure. Although the dividend growth outlook for these stocks remains robust, prices have declined due to negative sentiment. This has caused dividend yields to rise to very attractive levels. The table below highlights the current dividend yields versus the historic averages of seven high-quality and reliable dividend paying companies.

India remains ‘buy and hold’ Irrespective of the recent market volatility, India has always been a ‘buy and hold’ market, with several positive long-term drivers for the country – such as demographics, the multi-generational urbanisation shift, the stability of government and the ongoing reform agenda. However, there have been several sector laggards over the past year or so, such as IT. We are marginally underweight IT, one of the largest sectors in the market, and are looking for windows of opportunity to potentially increase our allocation to this area – particularly if you make the case the US dollar should strengthen from here.  As for financials – the other major weight in the index – there is a clear distinction between the different segments of the space. To us, the public sector banks are flashing a red light, the non-banking sector financials are

In conclusion, the world’s best dividend paying companies are currently trading on high dividend yields and thus offer good value to investors. Although current market volatility is unnerving, when viewed from a longer-term perspective it is likely to represent a good buying opportunity, and we remain of the view that quality global equities should be an investor’s asset class of choice. *Source: Bloomberg

showing amber and it is green for the private sector banks – where we still have exposure to high-quality franchises such as HDFC Bank. India often gets painted with a negative brush when it comes to corporate governance, particularly evidenced by the recent strife witnessed in public sector banks, but we continue to see improving governance standards and levels of disclosure. Importance of domestic drivers  As for the political situation, India’s current backdrop could be argued as calm relative to the rest of the world. Prime Minister Narendra Modi has been in charge for nearly four years and has recently strengthened his power at state level ahead of the next general election, which is likely to come early next year. In fact, political turbulence is much more apparent in other areas of the world right now – evidenced by the current trade tensions between US President Donald Trump and China. It is unlikely Trump will turn his attention to India, with India’s total exposure to the US market as a share of GDP just 3% on a gross basis, or $77bn. The trade surplus is a mere 1% of GDP.

However, while the direct impact of Trump taking on the world with his protectionist mindset is limited in relation to the Indian economy, it would be unwise to discount entirely the indirect consequences – as history suggests protectionist policies damage the entire global economy. As such, Indian businesses will be acutely aware of the possible implications to industries such as steel, IT and healthcare – particularly the generic drug space. Despite the risk, it is important not to forget that India remains a largely domestically-driven economy. For investors who missed out on the strong rise for Indian equities in 2017, the volatility we have witnessed recently could provide an attractive entry point to a market we still believe offers strong potential over the medium to long term. Our focus remains on unearthing the companies able to reap the benefits of the country’s numerous positive fundamental factors.

Simon Finch, Co-manager of the Ashburton Chindia Equity Fund

International Investment Portfolio Personalised Share Portfolio with access to the world’s best companies.

Invest for Income Contact our Communication Centre on 0800 336 555 or visit


30 June 2018



xchange4free is a South African owned global foreign exchange, money transfer and payments company servicing over 50 000 private and corporate clients in over 40 countries worldwide. Exchange4free – an authorised foreign exchange broker (or intermediary) approved by the South African Reserve Bank (SARB) – services the needs of private clients investing offshore, emigrating, buying property abroad or sending regular money transfers overseas. The company was started in London in 2004 and has since traded more than US$10bn globally via offices in the UK, South Africa, Australia, Switzerland, Canada and Israel. Private clients: annual foreign exchange limits explained South African residents (including South Africans living overseas who have not yet formally emigrated) may utilise the following allowances per calendar year to move money out of the country:


• R10m Foreign Investment: SARS tax clearance required (we assist with obtaining SARS tax clearances for free within two to five days) • R1m Discretionary Allowance: No SARS tax clearance required In addition to the above allowances, private clients can also make use of the following to move money out of South Africa: • Formal Emigration: South Africans living overseas – particularly those with funds tied up in retirement annuities, pensionrelated investments or some form of blocked funds – have the option to formally emigrate from South Africa. This involves going through a formal emigration process with SARB and SARS that changes your status from being treated for exchange control purposes only as a ‘non-resident’, to a ‘resident’. This gives South Africans living overseas the freedom to move funds out of the country and access relevant retirement funds without the normal limits and restrictions.

• Non-Resident Funds: Money that has been transferred into South Africa from overseas is freely transferrable back out of the country as long as clients can prove that these funds came into the country from overseas (reasonable ‘source’ of funds). This way to a better foreign exchange service Private individuals in South Africa have traditionally been poorly serviced and pay high foreign exchange premiums and costs to move money out of the country. The industry has typically been characterised by slow, unresponsive and unprofessional service, low levels of product and exchange control knowledge and very high costs (when considering hidden forex margins and international transfer fees). Exchange4free has delivered an international standard forex service for South Africans by developing a simple, transparent, highly competitive and user-friendly solution without you ever having

to leave the comfort of your home or office. This unique, innovative and highly competitive ‘one-stop shop’ solution to South African private clients includes the following: • Bank beating forex rates • No Swift fees or hidden costs • Free SARS tax clearances in two to five days. Apply online at https://exchange4free. Exchange4free also works and partners with leading financial advisers, investment managers, offshore fund platforms, estate agents and emigration firms to offer a value-added service and better deal to their customers. Please visit www.exchange4free. for more information or call Matt Lawson on 011 453 7818 for any assistance. Exchange4free is an approved Foreign Exchange Intermediary by SARB and is an authorized Financial Services Provider (FSP 47434).

30 June 2018




surrounding the offshore investment process and our aim is to make it just as easy for long-term savers to invest with us internationally as it is locally.” Through Allan Gray’s offshore investment platform, investors gain access to a carefully selected range of offshore-based unit trusts from wellestablished international investment managers, including seven of the Orbis international funds. This simplifies fund selection and makes it easier for investors to choose the unit trusts appropriate for their investment objectives. “Investors have a single local point of contact to manage their account. It is simple to switch between funds on the platform and even process instructions for several funds concurrently. Investors can transact via our secure website, which also offers investment reporting that is easy to understand and helps to ensure that your investment is meeting your objectives,” adds Van Zyl. Local offshore investment platforms also make it easier for investors to transfer cash or existing offshore investments to the platform without the need to repatriate them first. Withdrawals can also be made into an investor’s offshore bank account without any further SA exchange controls. According to Allan Gray’s analysis, investors should hold between 30% and 50% of their total investment portfolio offshore. Yet most South Africans likely hold less than 30% exposure to offshore markets if their primary long-term savings are held in retirement

products. This offers insufficient diversification, especially since the South African listed market comprises approximately 1% of the world’s total listed market value. Add to this the concentration of the local listed market (the 10 largest shares on the JSE account for 55% of the FTSE/JSE All Share Index, compared to just 11% for a global index such as the MSCI World Index), and the volatile rand, and it becomes clear why offshore diversification is core to a successful long-term investment plan. “It is vital to invest offshore consistently, rather than trying to time the markets in response to dips in the rand and whatever bad news is making headlines at home. Trying to time your investments generally results in wealth erosion as investors tend to buy and sell at the wrong time. “Rather solicit the help of a reputable independent financial adviser to help decide how much of your portfolio should be invested offshore. Then work towards achieving and maintaining this goal using a disciplined strategy of long-term and consistent investing,” says Van Zyl.

Earl van Zyl, Head of Product Development at Allan Gray


llan Gray is reducing the barriers to entry for South African investors who want to invest offshore by significantly reducing the minimum amount required to invest via its offshore investment platform. “It’s important for investors to maintain a well-diversified portfolio, which includes offshore exposure above what local South African funds are generally able to achieve,” says Earl van Zyl, Head of Product Development at Allan Gray. To better enable investors to do this, we have lowered the minimum lump sum investment for our offshore platform to $1 500 from $10 000 previously.” Platforms offer unit trusts from a range of different investment managers – a one-stop service through which you can access any of these unit trusts in one investment account, while dealing with only one service provider such as Allan Gray. A locally-administered offshore investment platform suits investors who wish to invest directly in offshore funds but prefer to use a local business instead of opening accounts with several offshore managers in different jurisdictions. Van Zyl notes: “Simplicity, choice, flexibility and cost efficiency are the key benefits of investing via Allan Gray’s offshore investment platform. We offer investors ease of administration and convenient service across a selection of offshore funds to reduce the hurdle of direct international investing. Our platform removes the anxiety and mystique

Why limit yourself to only 1%? Discover the full picture by investing offshore with Allan Gray and Orbis. Most investors tend to focus their attention on seeking opportunity locally, but with South Africa representing only around 1% of the global equity market, we understand the importance of seeing the full picture and unlocking investment opportunities beyond the local market. That’s why Orbis, our global asset management partner, has been investing further afield since 1989. Together we bring you considerably more choice through the Orbis Global Equity Fund and Orbis SICAV Global Balanced Fund.

Invest offshore with Allan Gray and Orbis by visiting or call Allan Gray on 0860 000 654, or speak to your financial adviser.

Allan Gray Unit Trust Management (RF) Proprietary Limited (the ‘Management Company’) is registered as a management company under the Collective Investment Schemes Control Act 45 of 2002. Allan Gray Proprietary Limited (the ‘Investment Manager’), an authorised financial services provider, is the appointed investment manager of the Management Company and is a member of the Association for Savings & Investment South Africa (ASISA). Collective Investment Schemes in Securities (unit trusts or funds) are generally medium- to long-term investments. Except for the Allan Gray Money Market Fund, where the Investment Manager aims to maintain a constant unit price, the value of units may go down as well as up. Past performance is not necessarily a guide to future performance. The Management Company does not provide any guarantee regarding the capital or the performance of the unit trusts. The Orbis Global Equity Fund invests in shares listed on stock markets around the world. Funds may be closed to new investments at any time in order for them to be managed according to their mandates. Unit trusts are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees, charges and maximum commissions is available on request from the Management Company.

1870_ORBIS 1%_Sailor_155x220.indd 1

2018/05/18 9:58 {XI}AM






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30 June 2018


Does low cost mean low value?


ultiple studies over the years have shown that cost is one of the most important determinants of investment performance over the long term. The most famous of these studies was written by Vanguard founder and former CEO Jack Bogle in a 2003 contribution to the CFA Magazine in the US. Bogle showed that his theory of the Cost Matters Hypothesis (CMH) was a substitute for Eugene Fama’s 1960s Efficient Market Hypothesis (EMH) as a way of setting out the task facing investors hoping to beat the market. “We need only the CMH. Whether markets are efficient or inefficient, investors as a group must fall short of the market return by the amount of the costs they incur. And since the cost of our intermediation system is relatively stationary over short periods, the impact of that cost is inversely correlated with the returns on stock prices (i.e. a 3% annual cost would consume one-fifth of a 15% market return, but fully one-half of a 6% return). Even for investors who incur more modest costs (say, 1% per year), the odds are that 95% of them will fail – often by huge amounts – to earn the stock market’s return over an investment lifetime.” Bogle wrote that both the academic and financial communities had dedicated enormous intellectual and financial resources to studying past returns on stocks, to regression analysis, to modern portfolio theory, to behaviourism, and to the EMH. “It’s high time we turn more of our attention to the CMH. We need to know just how much our system of financial intermediation has come to cost, to know whether high turnover pays, to know the real net returns that managers deliver to investors, and to evaluate the perverse impact on investors of the irrational investment choices offered by the mutual fund industry.” He added that investment professionals needed to figure out how to take a major chunk of costs out of the system of financial intermediation – “eliminating excess capacity, as the economists would say – to reduce the burden of costs and taxes on our clients. And it is high time we become more serious about accepting the merits of passive all-stock-market investing as a separate and distinct asset class.”

South Africans – according to the default regulations for retirement funds published by the National Treasury in August 2017 – often retire without adequate benefits due to the high cost of access within the retirement ecosystem. Mxolisi Siwundla, Investor Relations and Product Analyst at CoreShares Asset Management, says that only 6% of South Africans retire comfortably. “The other 94% generally depend on some form of societal or familial welfare.”

traditional case, the investment shortfall is covered by the employer while in the modern case, the employee covers their own investment shortfall, he adds. As someone saving for retirement, you are more likely to be saving within a DC scheme (unless you work for the South African government, in which case you are most likely still in a DB scheme). “This places a greater emphasis on the choices you make to ensure that you secure a comfortable retirement.”

IMAGINE AN INVESTMENT YOU CAN MILK YEAR AFTER YEAR. Following the successful launch of our South African S&P Dividend Aristocrats® ETF in 2014, we’re excited to bring you the global version of this reliable, sound and very popular cash cow. With exposure to US, Canada, Europe and Pan Asia markets, the CoreShares S&P Global ® Dividend Aristocrats ETF is an excellent rand hedge which will provide an ongoing positive dividend. As global investment opportunities go, this one’s the cream of the crop. CoreShares Index Tracker Managers (RF) (Pty) Ltd is an approved manco in terms of CISCA.

He points out that most companies across the globe have shifted from traditional defined benefit (DB) pension schemes to defined contribution (DC) schemes. “In the former, the employer calculates a defined pension benefit that the employee will receive upon retirement (the criteria used to determine the actual benefit includes years of service, pension contributions, final salary, etc). In the latter case, the pension benefit that the employee receives at retirement is predominantly defined by the contributions the employee makes during their years of service.” The most important distinction between the traditional DB scheme and the modern DC approaches to pension schemes is that in the

According to Siwundla, there are four important decision areas to be aware of: 1. The choice to start saving toward retirement 2. The decision to remain invested (instead of withdrawing) when changing jobs 3. The types of assets your retirement savings will be allocated toward 4. The fees charged by your default (or individually selected) investment manager – and this cost conversation matters more than most people care to realise. Siwundla points out that Bogle’s CMH means that the costs paid in gaining access to the market will always matter. “A 2% fee charged

on your savings will always have a 2% reduction in your savings regardless of the market environment. Essentially, what you pay your investment manager goes to your investment manager. What you don’t pay your manager goes to you.” To test this, he took the universe of unit trust funds in South Africa’s largest and most popular multi-asset category (ASISA MA High Equity category) and ranked them by the Total Expense Ratios (TER) that they each charge. “What was clear was that the more expensive funds tend to have lower net returns compared to the less expensive funds (7.6% 10-year return in the most expensive quartile versus 9.6% in the cheapest). According to research from Morningstar, costs are the most important determinant of the future success of a fund. This makes the point that the more expensive a fund or retirement solution tends to be, the more the manager gets to keep. And what the manager keeps, the client does not.” With lower costs, South Africans would undoubtedly be in a better position to meet their goals of a comfortable retirement. “All else equal, the less you pay in fees, the higher the probability of achieving your retirement goals. Paying lower fees does not ensure that one gets lower value for money, particularly if this lower fee is achieved by making an allocation to index/passive funds. In fact, the difference in your retirement savings by the age of 65 when you pay 2% less in fees would result in more than 65% more value.” On a slightly different – but related – note, MoneyMarketing is delighted to learn that the inaugural ETF Annual Awards are taking place this month at the Johannesburg Stock Exchange, hosted by Thomson Reuters, Profile Data and etfSA., who provide services to the ETF industry in South Africa. The awards ceremony will honour and reward leaders in this burgeoning industry for the best total investment returns for various time periods; efficiency in tracking indices; tradability; and the raising of new and additional capital. More on the winners in the July issue of MoneyMarketing.



30 June 2018

VEENESH DHAYALAM Head: Asset Manager Research, Sasfin Wealth

Investing in a lowreturn environment


ocal investors have probably become familiar with the double-digit returns that traditional asset classes have provided through time. Over the past two decades, asset classes have also surpassed their long-term realised real returns, driven by many factors such as low interest rates and quantitative easing – to name a few – and investors should have benefitted in their investment strategies. One does, however, wonder whether these returns are likely to be similar going forward and what the overall return profile of investors would be. Although this could be debated, there has been some consensus that investors should prepare themselves for a potentially low-return environment. One must look at recent asset class returns over a shorter timeframe and realise how quickly any scenario can change, where the same asset classes are now delivering single-digit returns. One can also assess the current tough return environment by gauging the funds relative to their CPI targets. So, what are investors to do? Ideally, don’t panic. At a minimum, investors should reassess their asset allocation or building blocks to determine whether their required objectives can still be met. Sticking with the basics such as staying invested and being diversified is important, as this is often viewed as the first line of defence. Trying to time the market or making radical decisions based on emotion could result in an unfavourable outcome. Other decisions that investors can consider are investment strategies that may enhance or offer higher return potential. These include but are not limited to: • Low-cost options • The employment of alternative-type assets that use unique approaches • Strategies that capture specific risk-premia • Investing in instruments that are positioned to perform well in certain markets.

As with any investment decision, the risks associated with these investment strategies must be understood and kept in mind, as unique strategies can introduce unique risks. Costs in a low-return environment are magnified; all associated costs to be borne must be understood, as every basis point gained or not lost will count in the overall long-term outcome, since costs reduce returns over time.

PORTFOLIOS FOR THE FUTURE SHOULD BE DIFFERENT TO THOSE BUILT IN THE PAST What is certain in the future is that there will be uncertainty Active management could also play a role, as a low-return environment does not translate to a low-volatility environment. Although not all managers are equal, active managers potentially have the ability of taking advantage of opportunities, being adaptive and flexible to adjust to volatile environments, or reducing risk to assist investors in this type of environment. Investors should remain invested, diversified and focused on their long-term objective, with sensible risk management. With investment returns potentially facing challenges and a low-return environment expected in the foreseeable future, investors who want to maintain higher returns may take on additional, greater or unintended risk without really understanding that not all investments are created equal. Portfolios for the future should be different to those built in the past. Investment strategies that manage risk and reduce drawdowns play an important role in investor portfolios. Notwithstanding, investors should try and maximise the use of all investment levers, but with the understanding of the risks that accompany these investments.

DR ANTON HAY Director at Ecsponent Financial Services

Young bucks taming the industry


he generation born between 1980 and 2000, better known as millennials, is changing our world with their new attitude to money and by demanding more from investment providers. While challenging, these mind-sets present myriad opportunities to those open to change. Also known as Generation Y, millennials are breaking away from the investment attitudes of the Baby Boomers (born between 1946 and 1964) and Generation X (born between 1965 and 1979) and ironically, follow the example of their great grandparents, who lived more frugally during the depression years. Starting young On average, Generation Y starts saving and investing as early as age 22. This is unlike the Baby Boomers who, on average, only started saving around the age of 35. This is partly because they do not want to repeat the mistakes caused by the previous generations’ poor money management skills. Financial literacy Contributing to the tendency to start investing earlier, is the fact that this generation has had the best education in history. Around 43% of millennials are financially literate and understand the benefits of compounded interest and starting young. According to Fidelity, one out of five millennials is already saving at least 15% of their earnings, meaning they could one day retire with massive retirement portfolios. Taking responsibility In South Africa, however, younger millennials don’t have much money and are struggling to find their feet. Many have study debt, are struggling to establish their own businesses and are more likely to lose their jobs. Additionally, while previous generations often spent decades working for one employer and relied on earning a fixed income and pension, millennials do not have that security and protection. Despite this, they accept responsibility for their financial destiny and 71% of millennials in South Africa believe they will achieve greater financial success than their parents. Certainty instead of speculation Many millennials started their careers during the 2008/9 market collapse and are therefore relatively risk averse. The older millennials are also aware of the dotcom bubble of 2000. As result, this group seeks financial stability in an unstable world. They are very aware of the value of money, the implications of costs and prefer fixed investment rates from stable companies, instead of exotic investment structures. Not attached to property This generation has caught many market sectors off guard by showing little or no interest in some asset classes, like property. Assets like furniture or cars have only utility value and access is important rather than ownership. Technology is their friend Companies that offer poor service will meet their match with this generation of savvy social media users. They are glued to their cell phones/technology (90% of millennials will open their mobile phone every 15 minutes) and will not hesitate to share their views about poor service/products. To adequately meet the needs of this group, investment products should therefore be technologically accessible. Preferably, they should provide access to robo-advice and credible advisers that share their pragmatic investment attitudes and value their preferences.


30 June 2018


Profit loss doesn’t have to be a total loss

n trying economic times, many businesses – particularly SMMEs – cannot afford to suffer losses in profit, which may be crippling to recover from financially. Fortunately, however, insurance cover against such losses exists; it’s called Loss of Profits Insurance or Consequential Loss cover. In essence, this insurance sees you through the time it may take to get your business back up and running after an unforeseeable event.

While business owners tend to understand the importance of insuring physical assets against loss, the potential and consequential impact such a loss may have on revenue and profits of the business is very often overlooked – ss well as the additional costs that could be incurred to ensure business operations continue. While the building you operate in, or your stock, is adequately covered should there be a fire or another disaster, what happens in the time it takes it to restore things to ‘business as usual’? Imagine for a moment a retail store in a shopping centre. A fire burns down the building and the retail store in question has now lost all its stock. The building is insured by the property agent or owner of the centre and, fortunately, there is adequate fire cover in place for the stock. The restoration of the building could take up to 12 months, during which time the retail store cannot trade. The property agent may try to find alternative space, though this will still have an impact on trade and the retail store would need to adjust to a new area. Perhaps there is no alternative space available until the shopping centre is rebuilt. The reality is that the retail store would

Western National Insurance Company (Pty) Ltd, affiliates of the PSG Konsult Group, are authorised financial services providers. (FAIS: Juristic Reps under FSP 9465)

probably have to temporarily close, unless there is cover in place against lost profits. While many costs may directly reduce as turnover reduces, there are some expenses that will remain regardless. Costs such as staff, insurance, interest on loans and the like will still need to be paid to keep the business afloat. Where new or additional costs come in, such as marketing to keep the brand alive, a Loss of Profits policy is literally a life saver. Moving temporarily will require communicating with customers and advertising, and these costs can be difficult to fund, particularly for smaller businesses with limited cash flow. If a business cannot trade, regardless of how adequate its stock cover is, it may still go out of business. Loss of Profits Insurance ensures your business is adequately covered, no matter what. It is important to consult a qualified adviser to guide you and make sure you get the right amount of cover, such as calculating the appropriate sum insured value. The good news is that this cover is relatively inexpensive compared to the loss you might suffer without it. All too easily accidents can happen – and it is better to prepared, or it could be really bad news for your business.


JURGEN HELLWEG CEO, Western National Insurance



30 June 2018

CLAUDIA JACKSON Senior Associate, Norton Rose Fulbright

Insurance regulation: More changes in the coming months


ver the past few months there has been significant regulatory change in the insurance sector: Significant provisions of the Financial Sector Regulations Act (FSR Act) came into force over the Easter weekend, disestablishing the familiar Financial Services Board (FSB) and forming in its stead the twin peaks of the new regulatory regime – the Prudential Authority (PA) and the Financial Sector Conduct Authority (FSCA). More changes are imminent. The Insurance Act, signed into law last year, is expected to come into force for the most part on 1 July 2018, together with several Prudential Standards regulating insurers’ prudential soundness, governance and operations. The Insurance Act will also substantively amend the current Short-Term Insurance Act and Long-Term Insurance Act (Short- and Long-Term Acts). The FSR Act and Insurance Act are complex pieces of legislation, which require thoughtful analysis and application by insurers, intermediaries and the new regulators. The main purpose of the PA is to promote and enhance the financial soundness of financial institutions, whereas the FSCA is created to enhance the efficiency and integrity of financial markets and to protect financial services customers. In practice, there is not always a clear line between the two authorities’ functions. Currently, the PA and FSCA are the responsible authorities for various sections of the Short- and Long-term Acts. The PA is responsible for the registration, business administration and financial integrity of insurers, including compromises, amalgamations, business transfers, business rescue and windings up. The FSCA is responsible for business practices, insurance policies and policyholder protection. The Insurance Act will substantially amend the Short-Term and Long-Term Acts, predominately by deleting those sections that are currently under the

PA’s purview. The FSCA will be the only responsible authority for the Shortand Long-Term Acts, whose surviving provisions relate to business practices, insurance policies and policyholder protections only. The FSCA will also be responsible for enforcing compliance with policyholder protection rules. The PA will regulate the prudential soundness of insurers under the Insurance Act and the various Prudential Standards. Final drafts of the first set of Prudential Standards were published for public consultation in March 2018, and the PA is currently reviewing the comments received and preparing final versions to be placed before Parliament shortly. The Prudential Standards comprise two series: The Financial Soundness series and the Governance and Operational series. Each series has five subcategories relating to insurers generally, insurance groups, micro-insurers, Lloyd’s and branches of foreign reinsurers. The Financial Soundness series sets out the principles, methods and application of the Solvency Assessment and Management (SAM) method of prudential regulation. Insurers have been applying the principles of SAM for some time and will be familiar with most of the provisions. The Governance and Operational series are focused on the risk management and operational controls, regulating far-ranging matters such as Own Risk and Solvency Assessment (ORSA) and other risk transfer strategies, internal controls, fitness and propriety, outsourcing and transfer of businesses. Although there are similarities between many of the Governance and Operational Standards and the directives formerly issued by the FSB that currently regulate the same subject matter, there are differences which must be carefully identified and incorporated into insurers’ practices and procedures. The PA will be issuing guidance notes and forms to enhance some of the substantive provisions of the new regime and the administrative processes that will be adopted by the PA. Of immediate interest will be the guidance and forms for the relicensing insurers (and licensing of branches of foreign reinsures), which must be published by the PA before September 2018.

Playing an away game requires serious homework


port coaches all around the world understand that playing a match on foreign soil requires different preparation and a different game plan than when playing on home territory. Whether the team involved is Bafana Bafana or Barcelona, the All Blacks or the Indian Cricket team, thorough preparation, informed by an understanding of foreign conditions, is necessary to determine the winning tactics required to compete in foreign climes. This means that world-class coaches are needed when playing away. In the same way, South African brokers need to be on top of their game when preparing their clients for an ‘away game’, particularly when it comes to health insurance for South African expatriates operating elsewhere in Africa. So says David van der Kooij, Hollard Cigna Health Head of Sales in Southern Africa. “The availability BROKERS of healthcare infrastructure, the WORTH THEIR quality of medical attention and the price of treatment differs SALT MUST vastly among African countries, APPROACH and health insurance plans that AFRICAN don’t take these differences into account often produce sub-optimal EXPATRIATE for insured and employers INSURANCE AS results alike. Brokers worth their salt AN AWAY GAME must approach African expatriate insurance as an away game, do their homework thoroughly and evaluate alternative strategies,” says Van der Kooij. “It’s here that Hollard Cigna Health offers real solutions. We think of ourselves as the away game experts for companies with employees in Africa. Besides having access to the best medical networks in each African country in which we operate, we also have processes that have been honed over many years of operating in Africa, as well as world-class technology and systems. This enables us to provide the highest standard of care wherever expatriates find themselves.” Because Hollard Cigna Health’s products cater for the treatment of insureds in-country wherever possible, there are likely to be cost and administrative advantages over plans which evacuate members to countries such as South Africa in any emergency. Explains Van der Kooij: “There are certain countries that have better facilities for the treatment of particular conditions and we do not hesitate to evacuate patients to the best possible centre for treatment where this becomes necessary. However, the difference between our plans and those of most other international health insurers operating on the continent, is that we look to evacuate patients to the nearest possible expert treatment centre – rather than merely defaulting to South Africa – thus saving time and unnecessary expense.” Google-inspired initiative C-Squared, which has its headquarters in Kenya and representation across three African countries, is one of the increasing number of multinationals using Hollard Cigna Health for its health insurance. “The Hollard Cigna Health product provides us with access to the best local medical care and appropriate evacuation benefits,” says Phillipe Sakwa, Human Resources Manager for C-Squared. “It really did address our relatively complex needs in the most cost-effective manner.” Says Van der Kooij: “Hollard Cigna Health plans provide brokers playing an away game in Africa with the best possible chance of winning when it David van der Kooij, Hollard Cigna Health comes to solving the health Head of Sales in insurance challenges of their Southern Africa multinational clients.”


30 June 2018

How brokers can use social media to open the door to new markets


or the past few years, social media has been changing the way we all communicate and do business. The insurance industry is no exception. FMI recently hosted a nationwide social media workshop for brokers, to assist them in using social media tools specifically in the insurance market. The importance of social media and why brokers need to ensure they are present on these platforms for their businesses was discussed.  Tips for growing your broker business using social media As a financial services broker, building and protecting your personal brand equity is vital to the success of your business. Social media is a way to enhance your personal brand and shouldn’t be seen as simply a disruption. The trend of using social media as part of a digital marketing strategy for business has increased significantly. With nearly half of the world’s population spending time on a social media platform every day, it makes sense to capitalise on the trend to grow your business.    Where to post and what to share The success of B2B marketing is primarily based on knowledge sharing and client relationships. The following channels are best suited to achieving this: • LinkedIn: Seen as a business-focused networking

platform, LinkedIn attracts forward-thinking professional users. Other than showcasing their businesses and achievements, users also share insights about industry trends. With beneficial features such as recommendations you receive from satisfied customers and clients, your business earns credibility, which can generate more leads and sales. • Facebook: Facebook for Business gives you access to a wide audience to which you can showcase your value proposition in a creative way using text, visuals and videos. Facebook advertising is a valuable sales tool for brand awareness and reaching targeted clients to generate sales leads. Services and products sold by brokers are emotive in nature, so authenticity and honesty are vital to a successful social media strategy. Once you have established an online presence, consistent engagement and prompt response times will set you apart from the competition.  • Website/Blogs: According to research conducted by CGI, more than 55% of consumers look for financial experts and wealth-building tips online. As a broker, providing your community with relevant financial and product-related information is key. Use a blog to share industry and personal insights, which can then be shared on other social platforms. Positioning yourself as a thought leader in your industry enhances your credibility. • Twitter: While it may not be everyone’s cup of tea,

Twitter is one of the most popular resources for sharing up-to-date information. In addition, it’s a powerful engagement tool for brand awareness and for disseminating information to users. It is critical to keep up with evolving content trends. A healthy mix of content will engage your users and encourage sharing within your current community to grow your reach. In recent years, video content has surpassed both text-based and image/visual content. According to the American Marketing Association, video content will be the driving factor behind 85% of search traffic in 2019. Not to be ignored is the growing community of podcast listeners. A 2017 podcast consumer report by Edison Research showed that 24% of people aged between 18 and 54 listen to podcasts monthly, and these listeners tend to be affluent, educated consumers.  FMI knows that online/digital marketing opens a world of benefits and, unlike traditional marketing, is very cost effective. Not only do you get access to a wide and varied network you can mine for clients, you receive valuable insight into a potential market through the analytic tools and filtered search results provided by each platform. Employing strategic advertising tactics will provide unique opportunities to display your products and services to the right audience to ensure you get the best return on your advertising spend.



30 June 2018

RONALD KING Head: Public Policy & Regulatory Affairs, PSG Konsult

Don’t dread disease, be prepared

Momentum sees 25% rise in critical illness claims paid


or the period spanning January to December 2017, Momentum paid more than R3.7bn in individual life insurance claims. The total individual claims pay-out is 42% higher than the pay-out in 2013, a mere five years ago. “We think we’ve done our job really well,” says George Kolbe, Head of Marketing for Life Insurance. In 2017, Momentum saw a 25% increase in the number of critical illness claims paid and a 21% increase in sum assured pay-outs. Kolbe says that critical illness cover usually focuses on the four most common critical illness events: cancer, strokes, heart attacks and coronary artery bypass grafts. However, other critical illnesses like dementia and Parkinson’s disease can have the same financial impact on clients’ lives. The World Health Organisation reported that Alzheimer’s disease killed 1.54 million people in 2015, which CANCER WAS THE is more than twice the LEADING CAUSE number of OF CRITICAL deaths from ILLNESS CLAIMS the disease in 2000. FOR CHILDREN Alzheimer’s Disease International states that around the world, a new case of dementia is diagnosed every three seconds. On the local front, the 2011 Census report indicated that there are approximately 2.2 million people in SA with some form of dementia. “Momentum Myriad keeps its finger on the pulse of new medical developments and disease trends,” says Kolbe. “This is one of the reasons we develop products that meet the need of those suffering a critical illness event. To complement this, we have Longevity Protection benefits that address the ongoing funding needs of clients suffering an event with a long-term lifestyle impact, like dementia and Alzheimer’s disease. If one of our clients suffers from one of these debilitating diseases, they will benefit

from regular pay-outs for as long as they live.” The statistics also show that in 2017, cancer was the leading cause of critical illness claims for children. “There are a number of genetic and environmental causes for cancer in children, but leukaemia remains the most prevalent kind of cancer among children in SA,” Kolbe adds. “This is very much in line with Momentum’s claim pay-outs for 2017, where 54% of child critical illness pay-outs were for cancer.” Kolbe points out that Momentum’s range of critical illness benefits automatically includes child cover that equals 10% of the parents’ benefit amount, with a maximum pay-out of R250 000 per parent policy for child critical illness, at no additional cost to the parents. There was no ruling by the Ombudsman for Long-Term Insurance against Momentum in 2017, Paddy Padyachee, Head of Claims and Risk Management says. And during the year, the life insurer paid out 94.9% of all claims submitted across all benefits, with 4.7% not meeting benefit definitions and those repudiated at 0.4%. “Since we always look for reasons to pay valid claims we are confident that our claim decisions meet all industry requirements,” Padyachee adds. Kolbe says that regarding the issue of nondisclosure, clients often do not wish to share personal information with their advisers when taking out a policy. “There isn’t any easy way afterwards to supply the information omitted, so we do provide the opportunity to do so when we send out contracts to clients.” He adds that while fewer new policies were sold last year, premium sizes were higher. “We also saw a significant number of policy alterations coming through.”

George Kolbe, Head of Marketing for Life Insurance, Momentum


he National Institute on Aging in the US found that South Africa’s life expectancy is the lowest worldwide – at only 49,7 years. However, the picture changes dramatically if you manage to survive until the age of 65. Sanlam’s research revealed that the life expectancy of this group has reached almost 90. This has a major impact on retirement planning and insurance, including medical aid, gap cover and dread disease cover. Momentum’s data showed that 50% of South Africans reaching age 80 are diagnosed with cancer during their lives. The chances of having a heart attack or stroke before this age are also much higher than we would expect. However, where dread diseases used to be a death sentence, today more people are surviving them thanks to early diagnoses and medical advances. There is no way anyone can face the future without a medical aid, but developments in medicine are taking place at a pace medical aids can’t keep up with. A medical aid will only cover a medication once it has clear statistics collected over several years. So, when it comes to diseases involving extensive research, it may happen that medical aid won’t cover the cost of the latest treatments. According to Momentum, the difference in costs charged for cancer treatment and costs covered by a medical aid may easily amount to R1m. This is enough to ruin most financial plans. Gap cover may compensate for some of the shortfalls but will also fall short when it comes to these treatments. This is where dread disease cover plays an important role. This cover pays a predetermined amount on diagnosis of a dread disease. As with any insurance, not all types of dread disease cover are the same. Standalone versus accelerator options With standalone dread disease cover, your life cover is not reduced after a claim for a heart attack. Accelerator options are cheaper, but they do reduce your life cover, so standalone cover is preferable. Limited versus comprehensive cover Some insurers cover only 20 major diseases, while others include more than 400 conditions. As a matter of interest, insurance for the 20 major diseases covers 94% of all claims, which means you might pay twice as much just to obtain 6% additional cover. If you have a family history of a condition not in the 20 major diseases, more comprehensive cover is a better option. If not, rather make sure the amount of cover is sufficient. Reinstatement options Some types of dread disease cover offer a reinstatement option. This means cover will be paid out again if you suffer a second dread disease that is not a result of the first disease. This benefit may become invaluable. Pay-out stage All dread diseases have levels of severity. The more severe the illness should be for the cover to pay out, the cheaper the cover will be – so make sure that cover is not paid out only when nothing can be done anymore.

life insurance

Putting your clients at the centre of our world

When a claim is submitted, your client has experienced loss and their world has been turned upside down. With this in mind, we make sure that every step of the claims process is guided by our client-centric approach. Our definition of ‘client-centricity’ is not based on a vague concept or just an idea, but on the passionate belief that your clients should be at the centre of our world. We are in the business of paying your clients’ valid claims; hence, we always look for reasons to do so. This dedicated commitment to your clients is reflected in our 2017 claim statistics:

Claims paid over the last five years have exceeded R15 billion.

A death claim of RIP

R36.7 million

Cause: Motor vehicle accident

A critical illness claim of

Some of our largest claims during 2017 include

R5.4 million

Cause: Heart attack

A disability claim of

R9.9 million

42% The total individual claims pay-out is 42% higher than the pay-out in 2013, a mere five years ago.


Longevity is a reality of our time and this served as inspiration when we designed our unique longevity benefits that specifically protect your clients against the financial risks that are associated with an extended lifetime.

2017 was the seventh consecutive year during which we paid claims for people older than 100 years. The oldest person, for whom Momentum paid a death claim during 2017, was a 104-year-old-man. We are in the business of paying valid claims and our 2017 pay-outs to your clients once again demonstrate how our partnership improves the financial wellness of clients at a time when they need it most.

Cause: Mental disorder

An income protection claim of

R321 000 per month Cause: Kidney disease

Terms and conditions apply. Momentum, a division of the MMI Group Limited, is an authorised financial services and credit provider. Reg. No. 1904/002186/06.

As a testament to our claim decisions, the Ombudsman for Long-term Insurance has only ruled against us once, since Myriad’s inception in 2002.




30 June 2018

Changing the game with the right financial planning system


ime is the great equaliser. Every single financial adviser out there has the exact same amount of time in a day. Why is it then that some financial advisers get so much more from a day than others? The difference starts with the market. For your financial advice practice to thrive, choose an appropriate market, says Kobus Barnard, CEO of Allegiance Consulting. Once you have selected the right market, you need to articulate a value proposition that fits that market. The right market The right market has a greater propensity to pay for advice and holds significantly more income for the financial advice practice than the middle or low-end markets. The professional, affluent and business markets are highly profitable for the advice practice, but they demand quality client-centric advice. To thrive in these markets, you first need to have a proper advice narrative that speaks to the needs of these markets. A suitable advice narrative A financial adviser’s product is his/her advice narrative. A proper advice narrative is clientcentric and driven by the objective needs of the client. It is not driven by the intended sale of a product.

Market leaders in financial planning practices do the following things differently: • They work in the higher-end markets • Their products and services meet the expectation of that market • They have a very clear advice narrative that supports their market. Your financial planning system is key to enable your advice narrative Once you have a clear view of your advice narrative, the next step is to select the right system to support your value proposition. A business reality is that your market, systems and products/services must align to define your value proposition. Your financial planning system is either enabling your main revenue driver, i.e. your advice, or it is hindering your advice narrative. Find a system that can enable and support your advice in your selected target market. If you wish to challenge the boundaries of financial planning, select a system that allows you to co-create your client’s financial journey. Avalon is a system that allows financial advisers to connect with their clients in a deep and meaningful way, using a model called Advanced Financial Reality Modelling (AFRM™).

Financial planning systems are evolving at a rapid rate. The fourth-generation financial planning systems are about empowering advisers with an advice narrative to ultimately help their clients make better financial decisions. Financial planning systems should enable coplanning, i.e. it should allow the client to co-create his/her financial plan with the financial adviser. The system should allow for solutions for the specific market segments in a coherent and integrated way. Final thoughts Financial advisers will continue to play a foundational role in financial planning, but they will not be the only ones dispensing products. We expect to see a higher rate of adoption of embedded products and the continued rise of robo-advisers. The message to financial advisers is to pick a system that can enable and empower their businesses.

Kobus Barnard, CEO, Allegiance Consulting

How technology can help you with GDPR If you do any business with companies or persons in the European Union (EU) , or process any data from the EU – particularly personal information of EU citizens – you should take a very close interest in General Data Protection Regulation (GDPR) as this is a benchmark law aimed at tightening data control around personal data involving EU citizens. Not complying with GDPR can see a company excluded from any European business, while companies found in contravention of the regulation can face startlingly serious penalties, ranging from €20m (almost R300m) to 4% of annual global turnover – whichever is higher. GDPR casts a wide net: anything from a name or photo to an IP address can qualify as protected data. Yet even though the law came into effect last month, nearly half of companies surveyed by analyst firm Gartner will not be compliant even by the end of the year.  “A remarkable number of businesses haven’t yet prepared for GDPR, or for that matter other new regulations such as POPI,” says Riaan Bekker, Force Solutions Manager at thryve, a supplier of risk integration and management technologies.

“It’s tempting to blame negligence, but I think often businesses are intimidated by the complexity. One way to address this is to get specialists in, but that will be expensive and doesn’t always introduce a new capability. Using technology, on the other hand, can cut through the red tape and also create a platform that the business can use to improve its competitiveness.”  GDPR readiness can demand some formidable preparation, not to mention analysis and visibility of company processes. Specifically, one of GDPR’s requirements is to have a risk-based approach to data protection, with policies that reflect this. Companies should have an inventory of the processes that are impacted and changed accordingly. At the very least, GDPR is a good example of how companies need to be agile as new regulations appear.  The right technology can help tremendously to identify the right processes, create appropriate workflow automation and keep a business ready for any future changes in the law. Riskonnect, a leading risk aggregation platform, recommends these nine features you should look for in technologies that can address the challenge:

1. Process and systems inventory: The platform should be able to identify your various processes and systems, and establish data ownership over them. 2. Internal audits: Risk managers should be able to create questionnaires, workflows and notifications that help them audit the business and its third parties. 3. Issue and action management: The technology should help the process of creating detailed action plans in case of events such as a data breach. 4. Regulatory interaction: Confidently interact with both regulatory and internal stakeholders while ensuring you have a single truth of the data. 5. Management of contracts and corporate policies: Know what all the related contracts and policies are by giving them a central home within the platform. 6. Ongoing data sharing request management: The sharing of specific data can be automated while within regulatory limits. 7. Data request management and governance: Using the right platform, any request for information can be processed within the approved regulations.

8. Vendor risk management: Best of breed risk aggregation platforms should extend to third parties and help manage their own data security access needs. 9. Reports and dashboards: From analytics to audit trails, the platform should provide clear and reliable visibility of data security activities.  There are many different parts of GDPR, including the creation of key data-related roles and a clear will from leadership to implement the changes. But without visibility and control, there can be no strategy.   “Such an investment plays into the future. Data regulation is only set to expand as societies come to grips with this new era. At the same time, the speed of business is accelerating, but with high speed comes more risk,” says Bekker.

Riaan Bekker, Force Solutions Manager, thryve




30 June 2018


EDGE OF CHAOS WHY DEMOCRACY IS FAILING TO DELIVER ECONOMIC GROWTH AND HOW TO FIX IT BY DAMBISA MOYO Around the world, people angry at stagnant wages and growing inequality have rebelled against established governments and turned to political extremes – from the revolutions of the Arab Spring to Brexit and the election of Donald Trump. Liberal democracy, history’s greatest engine of growth, now struggles to overcome unprecedented economic headwinds – whether it’s aging populations, scarce resources or unsustainable debt burdens. Hobbled by short-term thinking and ideological dogma, democracies risk falling prey to nationalism and protectionism that will deliver declining living standards. In Edge of Chaos, economist Dambisa Moyo shows why economic growth is essential to global stability, and why liberal democracies are failing to produce it today. Rather than turning away from democracy, she argues, we must fundamentally reform it. Calling for an aggressive retooling of our political system, Moyo proposes new constraints on both elected officials and voters, including: extending politicians’ terms to better match economic cycles, increasing minimum qualifications for candidates, introducing mandatory voting and implementing a weighted voting system to empower the most knowledgeable and engaged citizens.

50 BUSINESS CLASSICS YOUR SHORTCUT TO THE MOST IMPORTANT IDEAS ON INNOVATION, MANAGEMENT AND STRATEGY BY TOM BUTLER-BOWDON What do great enterprises have in common? What sort of person leads them? This book answers these and other questions. 50 Business Classics is a mix of intriguing theories, real-life examples and salutary stories aimed at getting the reader to think


more deeply about business. From genuine historical classics that still carry meaning, to the best of recent writings, the aim is to pick out the most important thoughts that can help the reader come up with a worthy idea, turn it into a business and strategise the way to success. Butler-Bowdon points out that the book is not an alternative to doing a comprehensive course of business study, but it may save the reader a lot of time trawling though many of the texts they feel they should have read but haven’t. “Business may not be rocket science, but it is full of ideas, any one of which could transform how you do things or help you discover the next big thing. This book is a shortcut to those ideas.”

POWERED BY CHANGE HOW TO DESIGN YOUR BUSINESS FOR PERPETUAL SUCCESS BY JONATHAN MACDONALD In a business environment where change is the only constant, the stark reality is that it has never been harder to see what’s happening around us, interpret information efficiently or develop successful strategies. This is down to both the increasing speed of change and the prevalent mindset about change, where change is seen as the enemy. Powered by Change presents a radical new methodology for using change as a fuelling mechanism to generate outstanding business success: The Windmill Theory.  The Windmill Theory enables leaders and organisations to think and act in a way that capitalises on a constantly changing environment. Constructed of four blades working in perpetual harmony with one another, like a windmill, this methodology creates an empowered business that turns the winds of change into business success.  Filled with examples and stories from around the world, from global corporates to start-up ventures, the book delivers some astonishing insights and clear, actionable steps to achieve the ultimate competitive advantage.

DEMYSTIFYING TRUSTS IN SOUTH AFRICA BY PHIA VAN DER SPUY Some years ago, author Phia van der Spuy was approached by a client who needed guidance in terms of handling his various trusts. While Van der Spuy was a qualified accountant, her knowledge on trust matters at the time was limited. She consulted her network of attorneys, estate planners, accountants and other professionals for guidance, only to find their knowledge was equally limited. She then decided to make it her personal mission to empower herself and others with as much knowledge about trusts as possible, by writing this book. Demystifing Trusts in South Africa guides the reader through the process of setting up the right kind of trust, as well as in the administration of trusts, so assets can be protected not only during a lifetime but long after death. Trusteeze, a company she co-founded, is the first all-inone solution for complete trust structuring and compliance. It demystifies trusts, reduces reliance on attorneys and accountants, and gives some control back to the trust owner in this digital era.

In a chaotic world, what do you want from your investments?

Stable, predictable returns of up to 11.2% p.a.* 100% investment allocation JSE-listed security Redeemable preference shares from a company with a track record of sustainable, exponential growth All of the above

Let us help you grow. For more information about our history of growth and investment options, visit

* Terms and Conditions apply. Ecsponent Limited’s preference shares are offered to the public through Ecsponent Financial Services, a registered financial services provider.

Investing with the times

Sasfin Wealth offers you one asset classthe world. We don’t just talk bespoke. Our vastly experienced Institutional team believe in doing things right the first time so that they only need to be done once. This unique ‘measure twice, cut once’ approach is what defines everything we do and ensures we craft the best solutions spanning a single asset class – the world. | 0861 SASFIN

Sasfin Wealth comprises Sasfin Securities (Pty) Ltd, JSE member and NCA credit provider – NCRCP 2139; Sasfin Asset Managers (Pty) Ltd, FSP No. 21664 and Sasfin Financial Advisory Services (Pty) Ltd, FSP No. 5711. This advert is general in nature and is not advice. Sasfin Wealth accepts no liability for errors or changes. All data and examples are given as indicators only and are not guaranteed unless confirmed in writing. Past performance is not necessarily indicative of future performance. As clients are responsible for their decisions, they should obtain independent advice before taking any action.

MoneyMarketing June 2018  

The June issue of MoneyMarketing includes the publication’s second OffShore Supplement for 2018. It also features dread disease and disabil...

MoneyMarketing June 2018  

The June issue of MoneyMarketing includes the publication’s second OffShore Supplement for 2018. It also features dread disease and disabil...