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31 August 2018 | www.moneymarketing.co.za
First for the professional personal financial adviser
WHAT’S INSIDE
YOUR AUGUST ISSUE ARE YOU AVOIDING CLIENTS’ INCOME TAX PLANNING? It is critical that financial planners deal with clients’ income tax positions themselves
Page 6 AFRICA FOR AFRICANS – THE UNTAPPED INVESTMENT OPPORTUNITIES Is it not time for Africa to bet on itself?
Page 14 WOMEN’S MONTH We’ve taken this opportunity to focus on some wonderful women in financial services
Pages 18 – 24
Traditional financial advice is no longer enough
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raditional financial advice doesn’t go deep enough to tackle South Africans’ challenges, says Andrew Broadley, Executive at Standard Bank Wealth. “We need financial advisers to really put the client’s best interests at the centre of every action they take. A whole new standard of proactivity and thinking ahead is required,” he adds. There is undoubtedly a savings problem in SA, he says. “Too many people consume more and save less than they should. It doesn’t make sense to assume that the government or the client’s employer will provide sufficient income to maintain a post-retirement lifestyle that might be just as long as the client’s working career.” The burden for securing the future has now shifted strongly to the client and therefore to the financial adviser. “Everyone – rich and poor – has financial goals, but the most prevalent one is the maintenance of an acceptably comfortable lifestyle after retirement.” The financial coach Broadley tells MoneyMarketing that the financial adviser is the relationship manager, the financial coach and the person who ensures that the asset allocation of the investment portfolio and risk cover is appropriate to achieve the wealth goals the client has in mind. “This requires the financial adviser to be the subject matter expert on multiple areas that might be relevant to setting the client on the right path.
“For example, to identify and recommend which structure is most appropriate to hold investments in, such as tax-free savings accounts, endowments, etc., and what other risks are relevant and material, such as life cover and income protection.” Financial planning, he points out, is a respectable and well-regulated profession overseen by professional bodies that require financial planners to upskill themselves. “It’s a career for people who want to improve people’s lives rather than for salespeople to sell financial products.” Financial advice and coaching overlap in risk tolerance, which requires an emotional expression by the client. “That can only be done after the adviser has thought through the financial planning considerations, such as the risk required and risk capacity, which goes to the heart of goals-based financial planning.” For Broadley, it is essential that financial advisers ask their clients to set out their priorities, such as providing quality education for their children, retiring at 55 and living comfortably, or owning a second home at a holiday destination.
Only when clients start with the end in mind and really identify specific lifestyle goals are they really on the right track to a secure financial future. However, he says, the industry challenge is to find the best way to shift away from legacy approaches of delivering financial services towards a truly client-centric model. A goals-based philosophy “The answer lies in adopting a goals-based philosophy to investment advice. One of the key jobs of an adviser is to help the client reconcile the trade-offs between one financial goal and another, and to prioritise the most critical ones. Continued on page 2
FINANCIAL PLANNING MUST BE BUILT AROUND HELPING PEOPLE ACCOMPLISH THEIR GOALS
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NEWS & OPINION
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NEWS & OPINION
31 August 2018
Continued from page 1
“That can be tricky and require skills and courage.” For him, the profession of financial planning should be built around helping people to accomplish their goals. “It’s not only an opportunity for us to provide better advice to individuals, but it is also a way to speak their language and make closer, long-lasting connections with our clients,” he says. Goals will differ widely between individuals and a unique, tailored approach to each goal and related risks is needed. “If an adviser implements a goals-based approach whereby a separate investment portfolio is created for the delivery of each goal, the client will have a much stronger emotional connection to each portfolio. “When someone contemplates withdrawing money away from an education goal to fund a new car or a holiday, for instance, they will think twice. Similarly, clients using goals-based planning are less likely to make dramatic changes to their portfolio when there is market volatility,” he explains. Advisers, however, have not historically played the role of coach and trusted partner very convincingly. “The product commission they would earn from the sale always loomed large in their thinking. They now need to unlearn their traditional sales practices and initiate a very different conversation with the client about the achievement of agreed goals,” he says.
Regulatory changes Broadley sees regulatory changes like the Retail Distribution Review (RDR) and Treating Customers Fairly (TCF) as “hastening the imperative for advisers to reinvent themselves so as to provide valuable advice that is worth paying for”. He finds the principles that underpin RDR and TCF and other regulatory changes “all very sound” as they all point in the direction of ensuring that clients achieve suitable outcomes. Unfortunately, saving for goals and planning for expected and unexpected events is not being done optimally in South Africa at present. “However, by adopting goalsbased thinking, you can have a really meaningful conversation with a client to totally turn the situation around. This entails instilling a disciplined, repeatable process that is customisable for each client,” he explains. “Importantly, clients for the first time get a very real understanding of what ‘risk’ means. Financial advisers have always struggled to communicate the concept of risk effectively, often falling back on investment jargon. “Now the discussion is focused on the risk of not meeting a stated goal within the agreed timescale, and this enhanced awareness of the future impact naturally brings about important behaviour changes.
The consequences of a family falling short of a financial goal can be painful and very real.” Broadley says that clients don’t always initially know what they want, nor how to articulate this in the form of financial goals. And they cannot see the wood for the trees when confronted by a fifty-page financial plan. “A good financial adviser steps up to that challenge and realises that there is a need to understand the client deeply enough so that the wealth journey is initiated and, critically, maintained, despite the ups and downs of stock markets.”
Andrew Broadley, Executive at Standard Bank Wealth
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EDITOR’S NOTE
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ugust is Women’s Month in South Africa and we’ve taken this opportunity to focus on some wonderful women in financial services, (see pages 18 to 24). As women, we live longer than men on average – and while we may be investing by contributing to a company pension fund, one needs to consider the gender pay gap. We earn less, so we contribute less. This is a problem not just in SA but globally. Meanwhile, it must be kept in mind that women have to take breaks from their careers, not because they want to but because they have to. This impacts on their financial situation and when they return to the workplace, they all too often face setbacks in terms of their earning potential and career development. According to behavioural finance studies (see page 18), women are good with investing money in the stock market, when they get the chance. They trade less than men, tending to be buy-and-hold investors. They’re happy to stick to their long-term goals (such as saving for a child’s education) – an attitude that’s ideal for equity market investing. But not all women get the opportunity to build wealth in this way, tending to save in cash due to their cautious nature, meaning their savings will inevitably be hit by inflation. Some women have no idea where to obtain information about investing in the market and others lack confidence because they feel that they don’t understand financial products well enough. Until these problems are addressed, women will be stopped from meaningfully growing their wealth. It may take a long time to set things right – but the investment industry should take note and encourage women to make a start in having their money work for them. Janice janice.roberts@newmediapub.co.za @MMMagza www.moneymarketing.co.za
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NEWS & OPINION
31 August 2018
PROFILE JAMES DOWNIE, HEAD: INSTITUTIONAL ASSET CONSULTING, MITONOPTIMAL SOUTH AFRICA
How did you get involved in financial services – was it something you always wanted to do? In the early 1980s, I thought I was going to be an actuary and started at Old Mutual doing pensions work. Having majored in Maths and Stats, it made sense at the time and I followed it up by moving to an independent pensions consultancy – a new industry then. I established an asset consultancy in the late 1980s, which was only the second one of its kind at the time. Retirement funds typically invested with the insurance companies and the beginning of the boutique firms meant that better returns were available to pension fund members. I have always enjoyed both the human interaction with the trustees and members of the funds, and the ability to make a positive impact on peoples’ retirement plans. Training trustees of retirement funds to be more effective was especially rewarding. What makes a good investment in today’s economic environment? It’s a boring answer but the only good investment ever is one that has been researched properly, due diligence assiduously conducted, the fund manager interviewed personally, and fees negotiated to a reasonable level. A good investment is not measured by gross performance but only by the performance that eventually reaches the investor after all the costs between the fund manager and the investor have been accounted for. Too many players in the chain these days charge fees that are not commensurate with either the effort they make or the value they add, and the investor suffers at the end of it. Currently, investment returns are low and do not look like improving soon, so fees are becoming more critical. What was your first investment, and do you still have it? My first investment was a retirement annuity I bought when I left Old Mutual to preserve my pension fund benefit. I still have it and it has probably been my best investment, for the simple reason that it afforded me an allocation of Old Mutual shares when the company demutualised.
Amazon.com Inc. reported its biggest quarterly profit total in company history last month. The company topped $2bn in quarterly profit due to continuing growth in Amazon Prime subscriptions, cloud computing and its fledgling advertising business. Amazon says it earned $2.5bn in profit for the three months ending in June this year, an enormous jump from the $197m it posted in the same period last year. This is the third consecutive quarter that Amazon has topped $1bn in profit, a significant achievement for a company that was once known for investing so much in its business that it often lost money.
What have been your best – and worst – financial moments? The best moments are when a properly thought-out strategy comes together the way you planned. It justifies the effort one puts in to do the right things. The worst times have been when I’ve thought I could do better with investments that were not mainstream. Dabbling in options and warrants many years ago (only with a tiny proportion of my then meagre accumulated savings) proved disastrous. Another bad time was convincing a client to invest his retirement capital just before the 1987 crash. The next few months were awful, but his investment proved so successful that he eventually bought a property in Knysna. What’s the best book on investing that you’ve ever read – and why would you recommend it to others? Fooled by Randomness by Nicholas Nassim Taleb, closely followed by his Black Swan. Both books demonstrate so many errors made by investors and professional fund managers that allow them to think they’ve been clever when they’ve merely been lucky. There are rules in both books that investors should remember at all times – that markets can move in ways beyond the imagination and, perhaps most importantly, events that the statistics (flawed) tell us happen only once in 200 years, in fact happen much more frequently than that. Do you own Bitcoin? If not, why not? I did dabble in cryptos with a tiny amount of money just to see what it involved. In the same way that I invest all my own savings in my own portfolios alongside my clients, I sometimes investigate other investments, so I can talk more knowledgably about them, (usually so I can tell clients why to avoid them).
UPS & DOWNS
The SA Reserve Bank (SARB) has cut its growth forecast for 2018. After last month’s Monetary Policy Committee meeting, the SARB’s governor, Lesetja Kganyago, announced that GDP would expand 1.2% in 2018, compared with a previous estimate of 1.7%. NWU Business School Economist Professor Raymond Parsons described this as ‘troubling’ as “it confirms similar recent downward revisions of growth expectations by several private sector economists”. He added that weak economic growth had now put a strain on the original 2018 growth targets outlined in the February 2018 Budget Speech and on the fiscal commitments that were made. The SARB expects the growth rate to rise to 1.9% in 2019 and 2% the following year.
VERY BRIEFLY Carrick Wealth has announced the promotion of Mike Potts and Greg Stockton to the positions of Joint Managing Directors, a move seen as utilising their complementary strengths. Carrick Wealth’s CEO, Craig Featherby, says the appointments will hasten the company’s growth and expansion. “Both Mike and Greg have years of experience in building, developing and managing sales teams, but equally so they have complementing strengths. The shift towards a joint MD role will see the existing business flourish with further expansion into Africa.” Prior to the announcement, Potts and Stockton each held the position of Director: Wealth Management and Advisory. Financial services holding company, the Anchor Group, has become the ninth firm to have a secondary listing on A2X. Anchor retains its primary listing on the JSE’s AltX and its issued share capital is unaffected by its secondary listing on A2X. Anchor shares are available for trade on both the JSE and A2X under the code ACG. “A secondary listing on A2X gives brokers more options and supports free market principles,” says Anchor’s CEO, Peter Armitage. “There is no risk or cost to Anchor, and it makes economic sense for us to back people who are bringing down overall costs.” Global private markets investment manager, Partners Group, and African ICT impact investor, Convergence Partners, have joined forces to support the establishment of Helical Capital Partners – a private markets firm that will provide the South African investor community with access to a diversified, global portfolio of private investments. Helical Capital Partners’ South African operations will be based in Johannesburg and will be led by principals Craig Beney (previously Chief Operating Officer of Convergence Partners) and Carlos Ferreira (previously CEO of Fairstone Capital). The focus will be placed on global relative value investing across private equity, private real estate, private infrastructure and private debt. PSG Insure says it has completed the integration of its substantial new team of commercial advisers. These are the professionals that joined the company following the recent transaction with Absa Insurance and Financial Advisers (AIFA). The transaction was announced in September 2017 and saw PSG Insure acquire AIFA’s commercial and industrial insurance brokerage business, with a total of 31 000 new clients. On the back of this, PSG Insure announced in February that it will also acquire the remainder of AIFA’s face-to-face advisory short-term insurance brokerage business, which services a further 32 000 clients. This transaction is currently in progress and will be completed later this year.
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NEWS & OPINION
31 August 2018
FRANCOIS DU TOIT, CFP® Director, Francois du Toit Consulting and Technology
Are you avoiding clients’ income tax planning? ‘Good standing’ – what are the requirements?
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ost financial planners I engage with say they avoid the area of income tax when it comes to their clients’ planning. Why? They believe it is a specialist field that is best left to tax practitioners and accountants. They think it is a high-risk area due to its complexity. Is this an appropriate strategy to follow – or are financial planners losing more than they’re gaining in the process?
Tax complexity Is tax really that complicated? Oh yes. It is complex. I’m not disputing this fact. But so is every other area of financial planning such as investment planning, retirement planning, estate planning – you name it. The one thing all these areas have in common, is that they all impact the client’s income tax position. And vice versa. Any change in the client’s income tax position impacts on his or her financial planning. It is of utmost importance to have the ability to see the entire picture. Avoiding income tax by advising our clients to find a tax practitioner that can help is not the best approach. It is critical that financial planners deal with and consider clients’ income tax positions themselves, or at the very least have an appropriate strategy and process in place to facilitate this. The lost opportunities We tend to focus on risks and finding reasons to avoid certain things. Yet a whole new world of opportunities reveals itself when we focus on more than just the risks. Income tax planning helps to strengthen the trusted relationship with clients, as well as deepen our understanding of clients’ finances. Must we become tax practitioners? Only when one provides advice on the application of any tax act, or completes and submits tax returns, and charges a fee for either of these, is it necessary to be registered as a tax practitioner. If you want to diversify your IT IS CRITICAL THAT FINANCIAL practice’s income stream, have a keen interest in tax PLANNERS DEAL and have the resources to run a tax department for your WITH CLIENTS’ practice, then it can be a good INCOME TAX idea to become a registered POSITIONS tax practitioner. The alternative is not to THEMSELVES become a registered tax practitioner, but to become knowledgeable in the area of income tax in order to provide better advice that is inherently more holistic, enabling you to identify and quantify risks and opportunities with regards to clients’ financial planning. Yet another alternative is to partner with a trusted tax practitioner. Income tax offers many opportunities. The reasons to embrace income tax far outshines the reasons to avoid it. We must determine which option will best address our own unique needs and practices, and follow through with an action plan. Our clients will thank us for it.
F
it and Proper requirements for individuals in the financial sector are here to stay. Board Notice 194 clarifies the requirements for honesty, integrity and good standing, which apply to key individuals and representatives at all registered financial service providers (FSPs). What does it mean in practice? “Personal character and good standing within corporate entities is demonstrated through their corporate conduct – but it is also demonstrated through the personal behaviour of the persons governing the entity, including directors, members, trustees, partners or key individuals,” says Dr Des Leatt, a skills specialist at Compli-Serve SA. “It is crucial that every FSP has measures in place to ensure that appointed individuals are in fact honest individuals with integrity and good standing.” The onus is on each individual to disclose all relevant information to the FSP demonstrating that they comply with the requirements of Fit and Proper, and likewise to flag any potential issues that may reflect negatively in terms of the requirements for honesty, integrity and good standing. Though good standing is not specifically defined in BN194, there are 23 questions that can be used to assess candidates in terms of honesty, integrity and good standing, and these provide some clarity. “For example, the suspension of a licence for non-compliance will impact on a person’s good standing but not necessarily on the person’s honesty and integrity,” says Leatt. These examples below are a small sample of the kinds of actions or behaviours indicating that a person does not meet the honesty, integrity and good standing requirements. These examples would constitute prima facie evidence that a person does not qualify – and the onus would then be on the individual to provide evidence supporting their case or proving otherwise. “In other words, it is up to the individual to prove their honesty, integrity or good standing, rather than being up to the FSP – or the Financial Sector Conduct Authority (FSCA) – to prove their compliance,” says Leatt. • The person has been found guilty of theft, fraud, forgery, perjury or a similar dishonest or dishonourable act
• The person has been removed from an office of trust for theft, forgery or dishonesty or a similar action • The person has been refused registration or membership of a professional body • The person has been disciplined, reprimanded, disqualified in relation to honesty, integrity, incompetence or business conduct by a professional body or regulatory authority • The person has been found unwilling to comply with legal, regulatory or professional requirements and standards • The person has been found not Fit and Proper by the Commissioner previously • The person has been found to have failed to disclose any information required to be disclosed by the Act • The person has been found to be not Fit and Proper by the Commissioner or ANY other regulatory authority, and the reasons have not been remedied. Failure to comply “Failing to meet the requirements set out in the questionnaire will not result in an automatic disqualification or disbarment for the individual concerned,” says Leatt. “Each case must be evaluated individually, considering the seriousness of the person’s conduct or misconduct, the relevance of their actions or behaviour, and also the passage of time. “It is crucial that the individual concerned discloses any necessary information promptly, fully and accurately, and on their own initiative, to either the FSP or the FSCA,” says Leatt. “The important thing to note is that the onus is on the individual to disclose, and on the FSP to ensure there are sufficient screening mechanisms in place,” says Leatt. “Honesty, integrity and good standing are ongoing requirements of Fit and Proper and it is essential for the individuals in the financial sector, as well as the employers, to ensure they understand the requirements and have plans in place to ensure they meet them.”
Dr Des Leatt, Skills Specialist, Compli-Serve SA
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JONTY SACKS Director, Jaltech
31 August 2018
Is it time to revisit value investing? Could value-based strategies be ready for a comeback? MoneyMarketing spoke to Nick Kirrage, co-head and founding member of the Global Value Team at Schroders.
Are your clients missing the Section 12J boat? Jonty Sacks, Director at Jaltech, tells MoneyMarketing why financial advisers should give their clients the opportunity to consider investing in a Section 12J venture capital company.
S
ection 12J of the Income Tax Act is a powerful tax incentive available to South African individuals and companies who are looking to reduce their taxable incomes. Having worked in the Section 12J tax incentive sector for several years now, I meet daily with accounting firms, financial advisers and CFOs of some of the largest companies in South Africa who simply are unaware that the legislation can benefit their clients or companies. In fact, many of those who don’t know much about the legislation simply remark: “It sounds too good to be true.” Guess what? It’s not too good to be true for the taxpayers, who over the last 18 months have invested more than R2bn into the sector. The sad part of all of this is that the legislation has a sunset clause and unless advisers and CFOs take the time to consider how Section 12J can benefit their clients or employers, time will run out. The Section 12J venture capital company market has matured rapidly over the past few years. There are now well-established Section 12J venture capital companies, managing a significant amount of capital on behalf of investors, across multiple sectors. These Section 12J venture capital companies offer various risk profiles, from capital preservation with guaranteed returns, to riskier asset classes, targeting exceptionally high returns. Treasury introduced this tax incentive to encourage South African taxpayers to invest in the local economy, via a tax deduction on the amount invested, provided the investment is made into an approved Section 12J venture capital company. The benefit of investing in this type of company means that the investor has exposure to a specific asset class and the investor’s exposure is reduced through the write-off of their investment against their taxable income. By way of illustration, if an individual in the highest tax bracket invests R1m in a Section 12J venture capital company, the individual will not be required to pay up to R450 000 in tax at the end of his/her financial year. What this actually means is that an investor will receive a return on 100% of their investment but only have exposure to 55% of their original investment amount, as SARS will be repaying the investor up to R450 000 in tax they already paid in that year. Time is running out for South African taxpayers to take advantage of the tax incentive as the sunset clause provides that only investments made before 30 June 2021 will qualify for the tax incentive. Accordingly, South African taxpayers have three years to wake up and take advantage.
G
rowth investing have to believe humans can still be on and value investing are two the one hand fearful, as well as on the different approaches to equity other hand, greedy. If you think that investing. While growth investors people have become more sensible, look for companies that offer strong sophisticated and rational, then it earnings growth, value investors won’t work. I don’t know about you, seek stocks that appear to be but that’s not my experience of the undervalued relative to their longworld, investment markets or other!” term earnings potential. Kirrage points to periods in the past Traditionally, value stocks have where value investing did very badly tended to outperform growth stocks, versus growth investing, such as the with investors compensated for tech bubble of the 1990s, although he the risk of owning unfashionable says the current situation is worse. companies that are temporarily ‘down At present, growth investing may on their luck.’ When times change, be overdone amidst a more difficult these companies report the best gains, overall economic environment. because they move to being priced “What’s going on right now is as ‘winners’. longer and deeper than any downturn Since the global financial before and therefore it must be a crisis, however, value stocks have buying opportunity. experienced their worst period of “There are two drivers in that value underperformance on record – and is underperforming and growth is the last ten years outperforming. It’s have seen growth not just about value VALUE INVESTING IS stocks doing badly stocks outperform the value style A PSYCHOLOGY, AN but how well growth of investing. stocks are doing EXPLOITATION OF Kirrage, however, and how beloved says that a value and in favour they HUMAN EMOTION strategy should still are. People like the form part of a diversified investment FAANG group of stocks (a reference to portfolio – even though this style may Facebook, Amazon, Apple, Netflix and be out of favour. Google-parent Alphabet) because they “In the end, value is the entry point like consistency, they like businesses into what we do and there have been with wonderful models and they will ways to make money over the last pay very high prices for what they ten years through stock picking. The believe will be quality.” cheapest 20% of all global equity Kirrage presently favours stocks is made up of 2,500 companies - commodity shares, as well as shares but I’ve still got to stock pick forty. of banks that are trading at cheap “We can still find ways to create valuations relative to their history. value and we have – and we’ve done “Banking globally looks very cheap much better than the Value Index has to us. These are businesses that are over the last 10 years. Nonetheless some of the cheapest in the world on it doesn’t make it easy when you’re relative valuation metrics. They also swimming up into the current, and have better balance sheets, in some if constantly your style is taking part due to the fact that regulators perfomance away from you by being have been forcing them to have more an underperforming part of the and more capital safety. I’m not going market. Your stock selection has to be to complain about that!” very keen in order to overcome that, so we’ve had to work very, very hard.” Kirrage believes that at its heart, value investing is a psychology, an exploitation of human emotion, its goal being to identify companies where emotions have separated share prices from long-term reality. Nick Kirrage, “You’re fishing for ideas when Co-head: Global everyone else is scared. In order for Value Team, that to work and be enduring, you Schroders
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*Best Fund House: Larger Fund Range, Morningstar Awards, 2016, 2017, 2018. Prudential Investment Managers (SA) (Pty) Ltd is a licensed financial services provider. Copyright Š 2014 Morningstar. All Rights Reserved. The information, data and opinions expressed and contained herein are proprietary to Morningstar and/or its content providers and are not intended to represent investment advice or recommendation to buy or sell any security; are not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this Rating, Rating Report or Information contained therein.
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INVESTING
31 August 2018
CHRIS WOOD Senior Portfolio Manager, Prudential Investment Managers
KIM HUBNER Head of Business Development and Marketing, Laurium Capital
Can shareholder activism really add value? Sovereign Foods: Fending off a hostile takeover bid Initial period of ownership
2000
Recapitalisation requiring two rights issues
CBH unsolicited offer
Challenging industry conditions
Superior R12 offer from Capitalworks
Share Price
1500
1000
500
Jul-17
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Jul-16
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Jul-15
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Jul-13
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Jul-12
Jan-13
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Sovereign Foods share price
Jan-12
Jul-10
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Jul-07
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Jan-06
0
Average purchase price
Source: Bloomberg
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n the face of Steinhoff and other cases of shareholder value destruction in the past year, we’ve heard much discussion around the effectiveness of shareholder activism. Prudential strongly believes in being an active and engaged shareholder to both protect and unlock value in our clients’ investments. An excellent example of this is the hostile takeover attempt of poultry producer Sovereign Foods by Country Bird Holdings (CBH), a local rival, which we opposed. Sovereign’s journey is illustrated in the accompanying graph. Prudential first bought a small stake in Sovereign in 2005, but when the takeover battle began, we were the company’s largest shareholder with a 23% stake. At the time of CBH’s opportunistic offer in 2016, the (very cyclical) poultry industry had been suffering from oversupply, overcapacity and falling product prices. Some companies, including Sovereign, had high debt levels, and Sovereign had been forced to undertake two rights issues at a discounted price to raise capital. Compounding this, the market was hit by an influx of cheap chicken imports and rising feed costs during the country-wide drought. It was at this point of maximum industry-wide pain that CBH launched its takeover bid at R9 per share. For some shareholders this offered an attractive exit strategy, but we felt that it was the wrong point in the industry cycle to sell, and that the bid materially undervalued the company, especially given the improving industry outlook: profits were forecast to rise on the back of a projected record harvest and falling feed prices. As such, we backed Sovereign’s management in their attempts to remain independent. We were vocal
in the media about our view, engaged with other stakeholders and made a submission to the Takeover Regulation Panel in support of management, which successfully opposed CBH’s unlawful attempt to amend the terms of its offer after it failed to receive the required shareholder approval. The defeat gave Sovereign a 12-month reprieve during which CBH was not allowed to make another offer for the group. It was during this period that private equity company Capitalworks led a R12 per share bid for Sovereign in August 2017. Although we believed this higher offer still undervalued the Sovereign business, we reluctantly accepted it. This was because CBH’s stake in Sovereign had crept up to 34%, and we were concerned that CBH would be able to trigger an offer to minority shareholders and gain control by buying shares in the market at less than R12. The Capitalworks offer was supported by Sovereign’s board and management, and approved by shareholders in October 2017. Although Sovereign was de-listed from the JSE following its buyout (so its recent financial performance has not been disclosed), the poultry industry subsequently experienced a significant turnaround. Chicken feed costs fell substantially, while selling prices rose as some producers cut back their supply, impacting positively on producer margins. This is evidenced by the larger listed Astral Foods, which saw its profit margin rise from 12.5% to nearly 17.5% in the six months to 31 March 2018. This recovery shows that we were correct in holding out for a 33% better – albeit not ideal – price for our investors. When voting on corporate actions, we always aim to protect the long-term value of companies in which we hold shares, to uphold our clients’ interests.
10-year milestone for Laurium Capital Laurium Capital, the independently owned asset manager based in Johannesburg, celebrated its 10th birthday on 31 July this year. The company was founded and started in July 2008 by Murray Winckler and Gavin Vorwerg, who remain the majority shareholders and portfolio managers across all funds. Laurium’s core process across its funds is bottom-up fundamental stock selection combined with top-down macro views, and the key differentiator of an added focus on special situations, market inefficiencies, capital raises and crossborder activity in Africa. Laurium started out with R100m in assets, and has since grown to around R22bn, and has also added to its headcount over the years, bringing the investment team to 11 out of a total staff complement of 20. Its flagship hedge fund, the Laurium Long Short Prescient RI Hedge Fund, has added a net 11.5% per annum since its launch in August 2008 (versus ALSI TR return of 10.9% – which is 0.5% ahead of the South African equity market each year at less than half the volatility). The fund is 5.8% higher this year to the end of June, which is significantly better than the JSE ALSI (-1.7%) and the FTSE/JSE Capped SWIX All Share Index (-5.9%). The aggressive version of the fund, the Laurium Aggressive Long Short Prescient QI Hedge Fund, has added a net annualised 19.2% since inception in January 2013 and is a net 7.3% higher this year to the end of June. Laurium added long-only funds to its product range in 2013, which have raised meaningful assets, replicating its long books as standalone strategies. It started with the Laurium Flexible Prescient Fund in February 2013, which has gained a net annualised 14% since inception. The fund is ranked number one in the South African Multi Asset Flexible Sector since inception (Source: Morningstar Direct 30/07/2018) and continues to provide investors with meaningful outperformance against the South African equity market, with much less downside capture. This illustrates Laurium’s hedge fund qualities and experience, filtering into the long-only strategies. SUPERIOR RETURNS AT LOWER VOLATILITY: LAURIUM FLEXIBLE PRESCIENT FUND VS. FTSE/JSE ALL SHARE TR (1 FEB 2013 TO 30 JUNE 2018) Laurium Capital has a team of experienced investment professionals that invest alongside the funds. The team also manages the Laurium Balanced Prescient Fund, a regulation 28 compliant multiasset product, and the Laurium Equity Prescient Fund, which are both comfortably ranked in the top quartile in the relevant sectors since their inceptions. Source: Morningstar 30 June 2018 Despite having different mandates, benchmarks, risk profiles and therefore portfolio construction, the management of all our funds is underpinned by a common investment philosophy. One of the key differentiators as a firm has been our ability to take advantage of special situations and trading opportunities, as well as our Pan-Africa research capability. The rest of the African continent has an exciting long-term growth story underpinned by attractive demographics and the rise of a middle class. Laurium Capital (Pty) Limited is an authorised financial services provider (FSP 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. CISs are traded at the ruling price and can engage in scrip lending and borrowing. Performance has been calculated using net NAV to NAV numbers with income reinvested. The performance for each period shown reflects the return for investors who have been fully invested for that period. Individual investor performance may differ as a result of initial fees, the actual investment date, the date of reinvestments and dividend withholding tax. Full performance calculations are available from the manager on request. There is no guarantee in respect of capital or returns in a portfolio. The Manager retains full legal responsibility for any portfolio hosted on its CIS platform. Prescient Management Company (RF) (Pty) Ltd is registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002). For any additional information such as fund prices, fees, brochures, minimum disclosure documents and application forms please go to www.lauriumcapital.com.
INVESTING 11
31 August 2018
INSIDER CHRONICLES TIM HUGHES Director Corporate Affairs, Warwick
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Ramaphosa deserves better
fter the brief euphoria of Cyril Ramaphosa’s victory in December 2017 resulting in business confidence reaching a two-and-a-half year high in January, the shocking -2.2% GDP decline in the first quarter of 2018, uncertainty about property rights and global economic turbulence has resulted in a fifth successive monthly decline in South African business confidence. Of course, the markets don’t lie, asset managers are well-informed and ratings agencies exist to measure and forecast risk accurately. Those in the know are adopting a cautious, wait-and-see approach to the South African economy and, indeed, President Ramaphosa’s leadership. But are we really seeing the bigger picture? Surely things are significantly better than they were and indeed could have been? Picture the scene: December 2017, presidential hopeful Cyril Ramaphosa courteously walks off the stage of the Nasrec convention centre, disconsolate, defeated, a never-hasbeen, yesterday’s man, back to running McDonalds, but not the country. Scratching his head, CR17 reflects, “If Trump can be elected leader of the free world, why can’t I be elected president of a free South Africa?” Meanwhile, panning back to Nasrec centre stage, a beaming President Jacob Zuma embraces his highlyaccomplished President-elect ex-wife on ‘his’ vicarious victory, allowing him to run down the country for another 18 months. Dr Dlamini-Zuma’s reward is her own Airbnb room on the Nkandla estate, with free tuck shop vouchers, use of the fire pool outside of emergency hours and a secret shortcut through the chicken run. While the ANC Premier League lead their followers in a raucous celebration of the intoxicating prospect of further patronage, position, Gupta gifts and state capture, the markets react negatively. The rand goes into free-fall, touching R20/$, futures traders drive down the JSE by 10%, ratings agencies downgrade the country’s debt to double minus junk and organised business gives up on SA Inc. BA, Qantas and Air New Zealand flights are, once again, overbooked. It gets worse. Zuma’s victory finally hands control of the Treasury to the Guptas, SARS descends into a mad hatter’s tea party, Russian engineers arrive to commence work on unaffordable nuclear power stations, even while Medupi and Kusile continue to clock-
up unrecoverable overruns. Meanwhile, the Hawks croak, the police are sapped, the courts collapse and the media is muzzled. Impossible? Maybe. Plausible? Undoubtedly. So let’s develop some perspective here. Despite Cyril Ramaphosa’s wafer-thin margin, his December 2017 victory at Nasrec has pulled the country back from the brink. In six short months he has achieved, inter alia, the following: • Ousted the most corrosive, inept and catastrophic president of the democratic era, who now finally faces his day in court. A successful prosecution will send the clearest warning that nobody is above the law. • Ditched and demoted dilatory ministers, while binding his political opponents under him. • Suspended the SARS Commissioner, appointed a new Hawks head and ensured the appointment of new boards at state-owned enterprises. • Set up business and jobs summits. • Embarked on an international roadshow to attract $100bn of investment into the country. • Donned his tracksuit to run, jog and walk among ordinary people and listen to their concerns and aspirations. • Above all, he has delivered hope and promised a ‘New Dawn’. So, what’s the problem? The problem is that our collective challenges are greater in scale and scope than just one man. For most, Zuma was our national problem, but as catastrophic as the past nine years have been, they merely exacerbated and disguised the deeper economic, social and political pathologies confronting our country. Although these will take years to ameliorate, there are encouraging indications that the interim Ramaphosa presidency is not shirking its responsibilities, but rather, is applying itself to tackling these challenges. Unemployment, land ownership, access to primary healthcare, education, rampant crime and pervasive corruption are all fully acknowledged by the Ramaphosa administration as priority challenges to be addressed not only by government, but in partnership with the private sector. It is this latter acknowledgment that is most encouraging: that the private sector is key to the future development of our country. As the first South African president with significant business experience and one who appreciates the central role the business sector plays, now is the time for us to answer his invitation to ‘call me’.
Japan and Singapore top Henley Passport Index Japan and Singapore share first place on the latest Henley Passport Index, enjoying visa-free or visa-on-arrival access to 189 destinations. Both countries gained access to Uzbekistan earlier this year, knocking Germany off the top spot and kicking the latter into second place for the first time since 2013. 2018 is the first year in the index’s 13-year history that either Japan or Singapore has had the most powerful passport in the world. The rest of the top 20 on the Henley Passport Index – based on exclusive data from the International Air Transport Association (IATA) – remains fairly stable, with no new visa-waivers processed for the UK and the US, who both remain in fourth place. Nationals of these countries, like nationals of most EU member states, have not seen any improvement in their global access since 2017. South Korea shares third place with six EU member states: Sweden, Finland, Italy, Spain, Denmark and France. And Austria, Luxembourg, the Netherlands and Portugal share fourth place with the US and the UK. Russia has not yet gained reciprocal access to any new destinations, but it nonetheless rose one place to 46th position, benefitting from an upward climb by the Pacific islandnation of Tuvalu, which gained visa-free access to Taiwan. The UAE has again improved and gained access to four new destinations since May, rising to 21st place globally on the Henley Passport Index. Despite gaining access to two new destinations, China has fallen one place to 69th on the index: improved scores for countries such as Nauru, Belarus and Indonesia, which sit directly above China, have made it difficult for the country to ascend the ranking.
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INVESTING
E XCH A NGE T R A DED PRODUCTS
31 August 2018
Millennials flock to ETFs
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xchange Traded Funds (ETFs) are the investment vehicle of choice for 91% of Millennial investors, according to the latest ETF Investor Study* by US bank and brokerage firm, Charles Schwab & Co., Inc. Millennials say 42% of their portfolios are currently in ETFs, and over half (56%) of investors in that generation say they have already replaced all individual securities in their portfolios with ETFs. Almost 80% of Millennials see ETFs as their primary investment vehicle in the future. Looking ahead, nearly three quarters (74%) of Millennials surveyed expect to increase their ETF investments in the next year, while 54% say they would consider placing their entire portfolio in ETFs in the same timeframe. “It is striking after eight years of conducting this study to see investor appetite for ETFs still going strong,” says Heather Fischer, Vice President, ETF & Mutual Fund Platforms at Schwab. “Within a decade, we’ve seen ETFs grow to the point where investors now see them as a foundational investment vehicle. While this sentiment is particularly pronounced among Millennial investors, it is reflected strongly across generations and genders.” The return of volatility to financial markets in 2018 has so far not dampened investor interest in ETFs – just the opposite. More than 80% of all investors surveyed say they believe ETFs provide the flexibility they need to react to short-term market swings, and more than two-thirds (67%) say they expect to allocate more to ETFs during periods of market volatility. Taking a generational view, Millennials report significantly higher levels of activity and interest in ETFs during periods of market volatility. Additionally, investors overall are more interested in exploring smart beta ETFs during periods of market volatility (73%). Examining the results by gender showed that often men and women are closely aligned in their views about and adoption of ETFs. Male and female investors report that about a third of their portfolios are currently invested in ETFs, and they plan to increase ETF investments in the next year at about the same rate. Slightly more men (32%) than women (29%) say they would consider placing their entire investment portfolio (excluding cash holdings) in ETFs within the next year. But over the next 10 years, women (56%) are somewhat more likely than men (52%)
to consider such a move. Meanwhile, in South Africa, Exchange Traded Products (ETPs) continue to be well supported and at the end of June 2018, the total market capitalisation of all ETFs and Exchange Traded Notes (ETNs) listed on the JSE totalled R84.1bn, only a slight decline on the market capitalisation of R85bn at the end of 2017. “There was some rebound from the total market capitalisation of R80.1bn as at the end of March 2018, reflecting the recovery in rand hedge ETF
number of products, but also in terms of market capitalisation. Absa’s 23 ETPs have a combined market capitalisation of R25 755m (R25.7bn). However, Absa’s position as the dominant provider of ETFs/ETNs in South Africa is coming under threat. Absa has always benefitted from large institutional investment in its commodity-based ETFs. But NewGold, for instance, now has a market capitalisation of only R12,5bn, compared with over R20bn in 2012. The same decline in market
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securities on the JSE, particularly those tracking global equity markets,” says Mike Brown, MD at etfSA.co.za. The total number of ETFs and ETNs in issue rose from 82 at the end of 2017 to 94 by the end of June 2018. No new ETNs were listed, so the rise in the number of products was purely in ETFs, which is the preferred structure for many investors, particularly institutional managers. Of the twelve new ETFs listed to date in 2018, ten track foreign bond and equity indices and two provide South African smart beta coverage. “Clearly, the volatility of the rand and its recent weakening against major currencies has rekindled interest in offshore assets,” adds Brown. Absa Bank, with 18 ETFs and 5 ETNs, remains the largest issuer of ETPs on the JSE, not only in the
capitalisation has occurred for the platinum- and palladium-based ETFs. Sygnia/Itrix has now moved into a clear second place in the SA ETP industry, based on size. Sygnia Itrix only entered the ETF market in June 2017, when it purchased five offshore index trackers from Deutsche Bank, but it has added a further five ETFs to its JSE listings in the past year. “Total market capitalisation of the Deutsche Bank ETFs was just under R12bn in June 2017, the current market capitalisation of the Sygnia Itrix ETFs is now R18.7bn, just one year later – a gain of over 55% in a short period of time,” says Brown. Satrix Managers has given up its place as the second biggest ETF provider to Sygnia, in recent months. Satrix, which introduced ETFs to the South African market in November 1999, remains the most well-known
brand in the SA ETF industry. “This positions it well in the retail market, whereas other ETF issuers tend to concentrate on the institutional market,” he points out. Standard Bank, like Absa, has suffered from its focus on commoditybased ETFs and ETNs, and in the first six months of 2018 redeemed over R1.6bn in such ETFs that were delisted on the JSE. However, it remains the fourth largest issuer of ETFs/ETNs in South Africa, with a total market capitalisation of R6.8bn. Standard Liberty has been active in issuing new ETFs in the first half of 2018. It has listed five new ETFs, all tracking global indices and using iShares ETFs as the feeder funds for its local listings. This method, now also used by CoreShares and Satrix, simplifies the creation/ redemption process and helps manage costs efficiently. The strategy of listing ETPs that focus on tracking certain investment factors or themes (Smart Beta), rather than being based purely on market capitalisation criteria, has been a feature of global ETF markets in recent years. “South Africa has not lagged in this respect,” Brown says. There are 13 listed smart beta ETFs in South Africa, with a total market capitalisation amounting to R3 535m (R3.5bn), at end June 2018. ETFs that track future dividend payments or historic dividend consistency are the most popular smart beta products, accounting for 58% of all funds invested in smart beta ETFs. This mirrors the experience elsewhere in the world, where selecting portfolios of shares, based on high dividend payments, is a proven investment strategy. “ETFs, based purely on risk factors, have been less successful to date in South Africa as the investment public presumably has difficulty selecting which factors are likely to be optimal at any period in time,” says Brown. “This suggests that multi-factor ETFs, which have proven popular in certain global markets, might find better favour with SA investors.” *The 2018 ETF Investor Study by Schwab is the eighth instalment of an annual online survey of 1 500 individual investors between the ages of 25-75 with at least $25 000 in investable assets who have purchased ETFs in the past two years. Conducted by Koski Research from April 28 – May 15, 2018, the study has approximately a three percent margin of error.
INVESTING 13
31 August 2018
PETER ARMITAGE CEO, Anchor Group
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SE market drivers seem to have conspired against each other with frustrating regularity for some time now. When SA Inc. has rallied, the rand has strengthened (and vice versa); when Naspers was running, SA Inc. was battling; when we were getting some momentum, Steinhoff and Resilient happened. The net result has been a spluttering, stalling, frustrating sideways slog. Remember that eventually some of these factors (except for Steinhoff) will combine in a favourable manner to produce an outsized positive surprise. Let’s think about what drives our market and assess each of the factors. Each of these tend to have differing levels of impact, depending on the mood of Mr Market. It must also be borne in mind that many of these factors are interlinked: • Global markets and more specifically emerging markets (EMs) • Commodity markets • Rand/US$ exchange rate • Tencent and, to a lesser extent, Naspers management • Prospects for SA local economic growth and earnings prospects for SA-Inc. companies • Valuation of SA companies and company-specific prospects. Global markets and more specifically EMs A stronger dollar, rising global interest rates and intensifying trade tensions have conspired to create a new mood of uncertainty. Ironically, this has had a negative impact on EMs, while the US market has remained firm. In times of risk, investors take refuge in the US (more so for bonds than equities). One of the key questions therefore is whether Trump is embarking on political posturing, or whether he is
The JSE: Finding the horizon amid the desert really prepared to take the world down the route of a damaging trade war. We are moderately optimistic on global markets and this offers the prospect of an EM bounce-back in the second half of the year. Commodity markets A large component of our stock market is driven by commodity prices, and thus commodity prices (and demand), in turn, have a material impact on the SA economy. The shares of the big diversified miners are all pricing in a decline in commodity prices. BHP Billiton and Glencore are trading at free cashflow yields above 10% and Anglo American in the region of 15% – if prices do not decline materially, these shares are especially cheap. Unless global economic growth gets derailed, the shorter-term (at least) prospects of commodity prices look fairly positive. Rand/US$ exchange rate Our view is that in 12 months’ time the rand is more likely to be firmer than softer; that’s after a strong rout from around R11.50/US$1 to R13.80/ US$1. YTD, the currency is 11% weaker. There’s a sweet spot range for the rand – that’s where exporters can make a margin, imported goods are less competitive and the impact on inflation is muted. Based on our collective assessment of the performance of SA companies in different scenarios, our estimation is that this rate is in the region of R12.75 - R13.25/US$1. So, if the rand strengthens a few percentage points, we are back in this region and local companies should benefit. Tencent and Naspers management We believe Tencent is one of the best
businesses in the world and it is also one of the world’s top-ten businesses by market cap. Its share price has dropped 17% from its highs and, while the 34x forward PE is optically expensive, we have a relatively high conviction in strong earnings growth for the next three years. Naspers will take most of its direction from Tencent in the short term. However, the recent Naspers results confirmed that its businesses outside of Tencent are all growing rapidly. Naspers trades at over a 40% discount to its sum-of-the-parts (SoTP) valuation. Frustratingly, its management is not doing any of the obvious things to unlock the discount – they have never taken action to divest of core assets. Their ‘unlock’ actions will be incremental, which means Tencent will be the guiding star for shortterm performance, and the growth in the core business should result in a gradual move to a lower discount. Prospects for SA local economic growth and earnings prospects for SAInc. companies It’s been a rollercoaster ride for SA GDP growth expectations over the last nine months. From despair in November 2017, to euphoria in December and January, to the current phase of uncertainty. There is no doubt that prospects have improved, but a negative 2.2% quarter on quarter GDP growth rate for 1Q18 rocked market confidence. Most economists still forecast a steady recovery from here, but recent sharp rand weakness poses risks to the interest rate outlook and the share market is not giving SA the benefit of the doubt.
The future outcome for local shares looks fairly binary. They have reduced to price levels that don’t factor in much optimism, with most SA-Inc shares 20%-40% off their highs. If economic growth accelerates, they could deliver 20%-plus returns over the next 12 months, but if the economy remains muted, they could very well linger around current price levels. Our positioning is to have reasonable exposure to this category of shares, but not to ‘bet the house’. Valuation of SA companies and company-specific prospects The weighted forward PE multiple for SA shares is 14.5x. Within that, resource companies are cheap (if commodities hold up), SA-Inc. shares are now attractive and there are specific shares that have retreated firmly into good-value territory. For example: Vodacom has declined from R180 to R120/share and now trades at a forward 12x PE and 7.7% DY, and the implied PE of Outsurance in RMI is now 10x – a bargain for a great quality company. JSE earnings were up over 10% in the last 12 months and we expect earnings growth of 12% and 16% over the next 12 and 24 months, respectively. If SA economic growth accelerates, 2019 could see even higher growth rates. Following the 6% YTD decline in the Capped Swix, many shares and sectors have moved into attractive territory. Risks have certainly increased, but there is the potential for more positive returns than we have experienced over the last few years. In our 1Q18 strategy document we nudged equities to overweight (a 14% projected return) and we retain this positioning.
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INVESTING
31 August 2018
SA needs to unlock its ‘demographic dividend’
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outh Africa needs to stop looking to government spending as the catalyst for economic growth and should instead foster a more conducive environment for private sector investment to capitalise on its ‘demographic dividend’, Stanlib economist Kevin Lings told the recent Allan Gray Investment Summit. Government has borrowed approximately R1tn over the last eight years, yet has not been able to dent a youth unemployment rate of 52.4%, which rises to 65.7% when one includes discouraged job seekers. Lings said the “scary thing” is that this borrowing figure excludes the debt of state-owned entities, which pushes government debt to approximately 70% of gross domestic product (GDP) when included to the central government borrowing figure. By contrast, corporate South Africa is sitting on record cash deposits of about R810bn, an amount that could help boost economic growth if it were reinvested in the economy. “Government can’t lift growth by spending money because there simply is no more money,” said Lings. “The biggest thing holding South Africa back is that the private sector is just not happy. Private spending is not engaging with this economy.” Lings said South Africa needs to create 600 000 jobs a year if it wants to reduce unemployment, something that is particularly crucial given that the country has an average age of around 24 years. Part of the problem, he added, is that private sector
TERENCE GREGORY CEO, Ecsponent Limited
investment has languished far below the 20% of GDP yardstick targeted by the National Development Plan and crucial to getting economic growth to 5% a year. In addition, fixed investment spending in manufacturing, a sector that is critical to jobs growth, has declined by a massive 33% since 2008. “Business confidence for the last eight years has been below average,” said Lings. In the wake of Ramaphoria, the majority of analysts lifted their economic growth forecasts to between 2% and 2.5% for the year. “However, the reality is that it is going to take a lot longer to rectify the structural imbalances in the economy,” he added. Lings noted that the United States economy has been able to reignite economic growth in the wake of the 2008 financial crisis – much to do with buoyant US business confidence, which has soared to an all-time high since Trump’s election victory. This has helped propel US employment to a record high of over 10 million jobs more than its previous peak. “The US economy has created 200 000 jobs a month since its previous low in 2010,” said Lings. “Right now, the US is advertising for 6.8 million jobs. They’ve employed over 18 million people since the financial crisis ended, yet they’re advertising for more.” Nevertheless, Lings pointed out that the US has a key demographic weakness. The vast majority of the new jobs it has created are for people 55 and older, with the fastest jobs growth for people 70 years and older. Lings said this is why economic growth in the
US has struggled to rise above 2.5% in recent years, as older people tend to save rather than spend. This demographic handbrake is similar in other developed economies like Europe and Japan, which together with the US account for 49.5% of global GDP. By contrast, India and Sub-Saharan Africa account for just 5.2% of world GDP, despite accounting for approximately a third of the world’s population. While the US alone accounts for 24% of the world economy and Europe a further 15.8%, additional economic growth in these two regions will struggle to increase without technological innovation. This grants emerging economies like South Africa, India and other African countries with youthful populations an opportunity to capitalise on their demographics to spur economic growth, which Lings said will increasingly become a premium for investors faced with growth constraints in an ageing industrialised world. “Job creation is the most powerful factor you can have in an economy,” said Lings. “Just give people a job and you can go forward from there.” Kevin Lings, Economist, Stanlib
Africa for Africans – the untapped investment opportunities
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frica is widely touted as a continent with frontier markets ripe for investment. However, Africans’ investment in the continent is lagging and could result in missed opportunities. While higher than in 2010, intra-African trade still only accounts for 15% of Africa’s total trade, compared to 51% in Asia and 59% in Europe. If we consider that trade in sub-Saharan Africa alone is expected to quadruple by 2030, is it not time for Africa to bet on itself?
economic effects of their ageing populations that will shrink workforces, slow economic growth and lead to further declining population growth rates. By contrast, Africa is home to over 1.2 billion people. It is projected that the population will double by 2050 and that the population growth rate will surpass those of China in 2025 and India in 2030. Additionally, more than 60% of the population is younger than 25 years, meaning Africa is potentially the manpower reservoir for the world economy.
Africa is open for business Historically, Africa’s richness in natural resources has been a key growth driver. Countries that catalysed growth through government spending (from natural resource-generated income) have experienced structural reforms, the winding down of many conflicts and civil wars, and economic diversification across many sectors. These reforms, coupled with progressive African leadership that strives for open business and actively pursues economic reforms, are creating opportunities for agile and African-focused companies to reap the benefits of investing in their proverbial backyards. For the citizens of Africa, it has the potential to relieve poverty and improve living conditions.
Africa for Africans For African investors to be part of the continent’s rise, greater focus must be placed on growing intraAfrican trade and investment. The opportunities for Africans to capitalise on the continent’s growth are vast, especially where the opportunities are aimed at reducing some of the continent’s obstacles to growth. We see opportunity specifically in sectors like:
A young population drives growth Another driver of growth in Africa is its population, which is creating a pool of labour and consumers. Elsewhere in the world, governments and economists are concerned about the harmful
• Fintech In a region where just 17% of the population have banking accounts but 80% have mobile phones, the breeding ground for fintech innovations to bank the unbanked has never been more fertile. • SME funding While Africa’s population growth holds many advantages, employment in the region is not keeping up with economic growth, which has hindered poverty reduction, affecting mainly women and youth, but also increasing the risks of social unrest or discontent. Providing
entrepreneurs with access to capital will not only contribute to stimulating economic participation but will create jobs and much-needed financial inclusion too. • Renewable energy Africa offers some of the world’s largest concentration of alternative energy resources in the form of solar, wind, hydro and biomass energy. Emerging concerns for carbon emissions and sustainable development, and Africa’s growing population, have created opportunities for renewable energy on the continent. • Agri-processing Food sustainability is a major focus for the continent with a growing and increasingly more connected and banked population. • Infrastructure development Development of infrastructure, especially transport and logistics, is crucial for prosperity and competitiveness. The overall infrastructure gap in Africa is estimated at $90bn per annum. • Education A more connected, mobile and economically participative population demands education. • Property By 2025, it is projected that African cities will account for up to 85% of the population, creating myriad opportunities in the property sector. Africa presents excellent risk-reward returns for those with reliable information and trusted partners who will help guide investors.
INVESTING 15
31 August 2018
Latest trends to be showcased at IFA Symposium 2018
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he IFA Symposium 2018 He will analyse the global economy promises to be even better and how to spot financial bubbles than last year’s event. before they burst. Brought to you by Alexander Forbes Jacques Pauw, investigative journalist Investments, the IFA Symposium and author of The President’s Keepers, 2018 will take place in Johannesburg will take a candid look at the legacy on the 18th of September, giving of Jacob Zuma: hollowed-out lawfinancial advisers the opportunity to enforcement agencies, a failing taxengage with international headline collector, land expropriation without speakers and economists as well as compensation and the EFF’s Julius thought leaders. Malema on the rise. He’ll also give his Bhupinder Anand, the UK’s #1 thoughts on President Ramaphosa’s financial adviser, will tell you how next move as policy uncertainty he acquires clients by the bucketcontinues and as weaker-than-expected load, while Rob Macdonald, adviser Q1 GDP hurts growth potential for the consultant at remainder of the year. Fundhouse will There will also AN OPPORTUNITY be two panel explain how advisers can increase the TO ENGAGE WITH discussions, the first multiple that will on why some of the INTERNATIONAL be paid for their world’s smartest HEADLINE businesses when they asset managers are do eventually exit. using AI, big data SPEAKERS AND Anne Cabotand alternative data. ECONOMISTS AS Alletzhauser, Head There will also be of the Alexander WELL AS THOUGHT a discussion on the Forbes Research adoption in South LEADERS Institute, and Africa of the use Andrew Darfoor, Group Chief of discretionary fund managers Executive of Alexander Forbes Group (DFMs). Should IFAs turn to external Holdings, will outline how making experts for investment proficiency? the family your client makes good Does their value proposition really business sense. add value to the investment process? Clients continue to ask financial This year’s IFA Symposium is a advisers how long the current bull not-to-be missed chance to catch up market in global equities will last. on the latest trends in the financial Does it still have room to run? planning space. Don’t miss it! What about rising interest rates and trade war fears? Will the US As a media partner of the IFA growth outlook remain strong, given Symposium, MoneyMarketing would the tax cuts and a fiscal spending like to offer the first 25 readers to stimulus that carries well into 2019? respond the opportunity to register What about Brexit? Fortunately, for a complimentary ticket. To take up the Symposium features Harvard this offer go to www.ifasymposium. lecturer and economist, Dr. Vikram co.za, click tickets, and enter the Mansharamani, as one of its speakers. voucher code: Money2018.
Andrew Darfoor, Group Chief Executive, Alexander Forbes Group Holdings
Brandon Zietsman, CEO and Head of Investments, PortfolioMetrix
Andries Kotzee, Chief Investment Officer, Analytics Consulting
David Kingsley, Loyiso Gola, MC UK Managing and comedian Director, Man Group
Dr. Vikram Mansharamani, USA Global trendwatcher, Harvard lecturer and author
Anne CabotAlletzhauser, Head of Alexander Forbes Research Institute
Deb Clarke, UK Global Head of Investment Research, Mercer
Dr. Vladimir Nedeljkovic, Chief Investment Strategist, Alexander Forbes Investments
Bhupinder Anand, UK financial adviser
Jacques Pauw, Dr. Seth Weingram, investigative USA Senior Vice journalist and author President, Acadian
SYMPOSIUM 2018 Sandton Convention Centre
18 September 2018 Highlights
Speakers
John Kinsley, Chairman, SAIFAA
Rob Macdonald, Adviser Consultant, Fundhouse
Tavonga Chivizhe, Chief Investment Officer, Boutique Investment Partners
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INVESTING
31 August 2018
Offshore living annuity launches Many South Africans living overseas have their retirement annuities tied up in South African pension funds, with little or no offshore investment and ultimately with their pension paid out locally in rand. In response to this predicament, Sable International, together with its preferred investment partners, has launched an offshore living annuity, which is essentially a South African living annuity product completely invested in offshore funds. Mike Abbott, Director of Wealth, Sable International, discusses how the need for the product arose.
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urrently in South Africa, once a retirement annuity or pension fund is transferred into a living annuity, it can’t leave the country as a lump sum – there is no mechanism to transfer a living annuity abroad other than when it has reduced to a prescribed amount (usually R50 000). Clients who have already left South Africa and who are living in a different currency zone and economic environment are not keen to have a previously saved pension pot remaining in South Africa. Sable has developed a solution that invests 100% of the living annuity offshore, using the asset swap mechanism and globally diversified offshore funds. Surprisingly, there is currently no other product like this freely available in South Africa – no doubt because the large providers have limitations on their asset swap capabilities and generally use this capacity for corporate clients and high net-worth individuals. A mass market offering for this kind of product is not something that would work for the institutions. We built this solution because we were unable to find one that ticked all the required boxes. Most people are not aware that when funds move from a retirement annuity or a pension (covered by the Pensions Fund Act and pension regulations) into the living annuity, such funds are not constrained by Regulation 28, which prescribes certain asset allocation levels. While your pension funds
in South Africa are accumulating, they are bound by this investment restriction, which means only 30% of the fund can be invested offshore. Once the funds go into the living annuity environment, you start to draw and you’ve ‘retired’ the pot as such and are no longer bound by Regulation 28. At that point you can invest 100% offshore. You just need a mechanism to do so. You need a provider that’s going to give you a proper investment solution built for offshore funds, built for hopefully the entire investment universe outside of South Africa. You need the asset swap mechanism to be able to do this and importantly, it needs to be cost effective. Offshore living annuity and taxation The double tax treaties around the world usually operate on the same principle. The OECD model double tax treaties usually allow the tax to fall on the individual wherever they are resident, so they end up paying tax on their pension where they live, be that UK, Australia, wherever. Expats can obtain a tax directive from SARS to indicate to the living annuity provider that they are nonresident and therefore can receive the full gross amount and allow the tax to be calculated in the country where they are resident. Alternatively, they can suffer the tax in SA and claim a tax credit in the country of residence. It is important to note the provisions of the specific treaty as there are several exceptions to the general rule. Offshore living annuity and global investment The investment models are globally diversified. On average there are approximately 14 000 global securities and instruments in the portfolios. We, in conjunction with our investment managers, have developed several
different portfolio ranges to suit a broad range of clients who are resident abroad. Minimum portfolio size for the offshore living annuity Realistically, the product probably requires a minimum of about R1 000 000 for us to be involved and facilitate this. The total running costs of the product usually comes in at a range from around 1.9% to 2.1% per annum, depending on the size of the portfolio. In the UK, we’re used to investment solutions for clients coming in somewhere between 1% and 1.5%, so, while these percentages feel high to us, it typically still comes in lower than the client’s existing SA-centric solutions, including all the fee layers, i.e. administration, asset swop, advice and fund management fees. An important thing to remember is that – although the product is invested 100% in an offshore set of funds – to draw income, that income has to be disinvested from those funds, returned to the South African provider, paid in South Africa to a South African bank account and then sent back out of the country. Foreign exchange risks on that transfer of the money remains, but is mitigated, and the money is not invested in the South African stock market and not limited in its offshore exposure. There is still a risk if the South African government were to revise exchange controls and require asset swaps to be switched out and all the money returned to South Africa – that risk doesn’t go away and there isn’t a way to remove that risk. We think it’s an improvement for anyone with substantial assets in their living annuity that wants full offshore exposure. It’s a whole lot better than just having a completely captured living annuity in South Africa. Ideal client for the offshore living annuity This product typically suits a 55-60-yearold-plus former South African resident.
These are clients who are considering the option of cashing in and taking their pension out of South Africa (through the financial emigration process) or retiring into the living annuity structure. At that point I think it’s very important to consider the various tax options. There are also a range of clients that are already in living annuities, and not aware of broadened offshore investment options. Generally, they are invested in local funds that have offshore exposure within them, which is a very rudimentary and expensive way of obtaining offshore exposure. We prefer to do it directly in the offshore funds. This can be a significant portion of a client’s wealth, which effectively is captured in a country that they’ve chosen not to live in. For that market, the Sable Offshore Living Annuity is a solution. Criteria for the offshore living annuity Key criteria are living abroad and having a South African living annuity, or being close to retirement age and looking at options to access those funds. Proper, regulated advice should be obtained to ensure the best outcome, taking into account both countries’ pension legislation and tax treaties. Does age affect the offshore living annuity? Expat South Africans living abroad have a decision to make at retirement age. Do I emigrate and cash in the pot and pay tax at withdrawal rates, or do I retire the pension into the living annuity and invest it offshore? That’s an important decision because it’s irreversible. We can provide advice around that key decision as we offer both the offshore living annuity and the financial emigration service, which includes the withdrawal of the pensions, the tax clearance work and the foreign exchange to transfer the funds offshore. The offshore living annuity process The initial process is having us assess whether the offshore living annuity is suitable for clients with all options considered. We start our client interactions with a discovery meeting where we explore their circumstances, objectives and risk profiles. From here we can advise on the most appropriate solution.
Mike Abbott, Director of Wealth, Sable International
INVESTING 17
31 August 2018
South Africans underestimate cost of living in retirement
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chroders Global Investor Study 2018 reveals a significant gap between people’s expectations and the financial realities of a life in retirement. Retirees are receiving a lower income in retirement than people approaching retirement currently expect, the study – which surveyed over 22 000 investors from 30 countries, including South Africa – found. Around 15% of retirees globally do not have enough income to live comfortably. While the widening gap between expectations and the financial realities of life in retirement is an issue that faces people across the globe, the situation appears to be particularly dire for South Africans. Non-retired South Africans’ expectations may be in line with the global average when it comes to the percentage of their retirement income they expect to spend on basic living expenses (34%), but
Survey findings in a nutshell
Lesley-Anne Morgan, Global Head of Defined Contribution and Retirement, Schroders
People aged 55+ expect to need more income to live comfortably in retirement than retirees actually receive. This is particularly true in Asia, where non-retired people in this age group expect to need 76% of their current income to live comfortably, but retirees are only receiving an average of 59% of their final salary.
the reality for South African retirees is that they require nearly 60%, which is 10% higher than the global average for retirees. “This is particularly worrying in the current environment of low returns and increasing inflation,” says Lesley-Anne Morgan, Global Head of Defined Contribution and Retirement at Schroders. “There is a real danger that South Africans are underestimating the proportion of their retirement income that will need to be allocated to basic living expenses and the amount of money they will need to live comfortably in retirement.” Morgan adds that South Africans closer to retirement – those aged 55 or over – may also be in for a shock by expecting too much of their retirement income. “According to the survey, South African retirees
On retirement, people allocated more of their financial resources to investments than nonretired people expect to. Retired people in the UK, Spain, Austria, Australia, South Africa and Belgium allocated around three times as much of their retirement savings to investments as their non-retired counterparts expect to. Retirees in Asia allocated marginally more than the other continents on average (20%, compared to 18% in Europe and 19% in the Americas).
The cost of living in retirement takes up more income than expected. The Americas show the greatest misalignment, with the non-retired anticipating that they will spend 32% of their income on living costs, while retirees actually spend 53%. The majority of retired people consider their income to be sufficient, but most could do with more. The countries where people feel most in need of increasing their income in retirement include Poland, South Africa, Japan, Chile, Russia and South Korea.
are receiving a much lower proportion of their final salary in retirement (59% on average) than people approaching retirement think they will need to live comfortably in their golden years (80% on average). “This contrast is far greater than what is being experienced globally, on average, where retirees predicted that they will need an average of 74% of their current salary or income to live comfortably in retirement, but are receiving 61% (on average) of their final salary annually.” Perhaps an indication that their final income may not stretch far enough, South African retirees are continuing to invest significantly, allocating 27% of their entire retirement savings to investments. “This contrasts significantly with those yet to retire, who only anticipate investing 10% of their retirement savings,” says Morgan.
People’s top two sources of information when making decisions about investments for retirement are their own research from independent sources and insight from financial advisers. Only in three of the countries surveyed were financial advisers considered the most important source. Younger generations consider their friends, family and colleagues as a more important source of information than older people do. Expectations for financial allocation at retirement matures as people approach the age of retirement. Millennials expect to allocate 23% of their retirement savings and investments to their retirement income, while nonretired Baby Boomers expect to allocate 38%. In reality, retired people globally allocate, on average, 36%.
Globally, people feel they should be saving more of their income for retirement. This sentiment is most acute in Chile and South Africa, where respondents think they need to be saving 6% more of their income than they currently are. The global average is 2% more of current income. There is little difference across generations. The level of investment knowledge people feel they have, correlates with particular retirement expectations and behaviours. Those claiming more knowledge and who are not retired have a smaller gap between what they save and what they think they will need than respondents who rated themselves as having lower levels of knowledge. Those who are retired and claim high levels of investment knowledge are significantly more likely to say they have enough to live comfortably.
WOMEN'S MONTH
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WOMEN'S MONTH
31 August 2018
Women pick the best performing shares: Survey
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omen are better at investing, according traded nine times a year on average, compared to the latest analysis of 2 800 Barclays to 13 times for men – the biggest difference, and Smart Investor customers in the the one that impacted their returns, came in their United Kingdom. The survey found that not appetite for the type of stocks they invested in. only did the female investors outperform the When surveyed by Professor Stewart’s team, FTSE 100 over the last three years, but they also female investors were less likely to indulge in the outshone their male counterparts. ‘lottery style’ of investment that appealed to men, While annual returns on investments1 for men according to the research. The Warwick Business were on average a marginal 0.14% above the School analysis defines ‘lottery style’ investing performance of the FTSE 100, annual returns on as a tendency to invest in more speculative, the investment portfolios held by women were lower priced shares that might increase in value 1.94% above it. This means substantially, along with a desire to returns for women investing keep to shares that show a loss while with Barclays outperformed selling off their winners – the ones MEN ARE JUST men by 1.8%. that have actually increased in value. A LITTLE MORE The analysis2 was carried Clare Francis, Director for LIKELY TO BE out by Professor Neil Stewart Savings and Investments at at Warwick Business School, DRAWN TO MORE Barclays Smart Investor, says the University of Warwick, which difference in performance reveals SPECULATIVE compared male and female a more considered approach from investors through Barclays women, rather than caution. She STOCKS and their trading behaviour explains: “The stock market is often over a 36-month period. This looked at a range portrayed as a high-energy, risky environment, of criteria, including the type of investments but this analysis shows that taking a more held, age, trading frequency and the amount of long-term view about what to invest in, rather money invested. than picking eye-catching and potentially more While there were significant differences volatile shares, is actually likely to provide a between the genders – women, for example, only better return on your money.
Women urged to take responsibility for financial wellness
Dr Dominique Stott, Chief Medical Officer, Liberty
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r Dominique Stott, Liberty’s Chief Medical Officer, has built a career in both medicine and financial services. “I decided during my medical studies that treating patients was not necessarily the best avenue for me,” she says. “Choosing to treat patients is an individual choice – and at that point there were limited opportunities outside clinical medicine available.” By chance, during her internship, she was told of a job that was being advertised at Liberty in Johannesburg. “I weighed up my options and applied. I got the job, starting at Liberty in 1991, and I’ve loved it ever since. It just happened to be the niche for a doctor who doesn’t necessarily practice – and it meant working office hours with no patient responsibility but rather responsibility to the company.” According to Dr Stott, there is a general opinion in the insurance industry that women are underinsured. “Women often do not have their own insurance or investments in place. They rely on their husbands or male partners – or their employers if they’re unattached. That’s not the right way – they should have a deep understanding of their financial situations.” Should a woman fall ill or become disabled and is unable to work, she needs to have a plan in place that can assist her – or her dependents – to pay for their monthly expenses. Women are becoming increasingly financially independent and are the main breadwinners in some households. Dr Stott adds that across the industry around 60% of policies are taken out by men and only 40% by women, indicating the gap that exists.
“The research shows that you really don’t have to be a stock market genius to invest. Opting for funds, rather than individual shares, can help reduce the overall risk and over time, hopefully result in good returns that will be better than you’d have achieved if you’d kept all your money in cash, albeit that cash provides certainty. It cannot fall in nominal value.” Professor Stewart adds that the tendencies displayed by people, such as investing in more speculative stocks and not wanting to let go of shares showing a loss, are no real surprise. “If you have ever watched a bad movie to the end, you are having trouble letting go of a loss. If you have ever bought a lottery ticket, you have been attracted to big wins, but wins that are very unlikely. “Men are just a little more likely to be drawn to more speculative stocks whereas women are more likely to focus on shares that already have a good track record. Women also take a more long-term perspective, trading less frequently. This possibly means women are investing more to support their financial goals, whereas men are attracted to what they see as the thrill of investing,” he says. Annualised portfolio returns Analysis of trading data (2012 to 2015) and customer survey (2017) 1 2
A lack of confidence or a lack of knowledge means that most women do not take on financial responsibility themselves. “Female dread disease policies have been developed but women are not grasping these opportunities and using them to their advantage,” she adds. Among women, cancer is the major dread disease by far – breast cancer, colon cancer and lung cancer. “There isn’t an awful lot you can do to prevent cancer, apart from not smoking and not being obese, unlike cardiovascular disease. Cancer is happening in all age groups among women.” Dr Stott is adamant that women should have their own financial advisers and consider taking out policies in their own right. “There’s a tendency for women to have the same financial advisers as their husbands, but if there’s difficulty in the marriage, the husband moves on and the policies taken out aren’t necessarily the best thing for the wife. It really is better for women to seek out their own financial advisers.” She cautions that it’s important for women to take out dread disease cover when they’re young and healthy. “Once there is a change in health, it becomes hard to get the cover needed.” Dr Stott adds that the role of a housewife is an undervalued occupation. “This is a role that is often taken for granted and is more financially valuable than its given credit for, considering the burden of household duties and childcare. In this instance, a husband should make sure his wife has sufficient cover in place, so that if she becomes seriously ill or dies, cover is provided.”
31 August 2018
WOMEN'S MONTH
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Momentum Corporate celebrates two inspiring women making a difference RIGITTE VAN ZYL Head: Client Value Propositions, Momentum Corporate
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he financial services sector has changed in terms of gender equality. New opportunities for women are opening at all levels. This is the word from Rigitte Van Zyl, Head: Client Value Propositions at Momentum Corporate. Rigitte’s current perspective is vastly different to her very first experience of the industry. She recalls how, as an aspiring actuarial science student 15 years ago, she visited an insurer to gain a better understanding of the profession before embarking on her studies. During her visit, a senior manager at the company told her that “this job is difficult for women since it’s difficult to maintain a work-life balance”. This did not deter Rigitte from pursuing a career in financial services. She qualified as an actuary a few years later and joined Momentum, who supported her studies with a bursary. Here Rigitte worked hard, gaining valuable experience in Momentum Health and Momentum Africa. She spent the last five years in Momentum Corporate, rising through the ranks to a position on the Momentum Corporate Executive team. “Companies nowadays recognise the unique qualities and valuable skill sets women bring to the workplace,” says Rigitte.
“Greater diversity in a workforce leads to more balanced decisionmaking and results in products and services that are flexible and cater for different customers’ needs.” When it comes to inspiration, Rigitte needs to look no further than her parents. Both are hard-working educators whose exceptional work ethic and passion for education has been a major source of inspiration through the years. She is a strong believer that education and life-long learning has the ability to change lives and transform societies. She also marvels at her parents’ ability to maintain a healthy worklife balance. With a two-year-old daughter, Rigitte knows the challenges of work-life balance only too well. She fully appreciates the support of her husband, family and a working environment that makes a healthy work-life balance achievable. She says: “Fortunately, companies nowadays are more family-oriented and flexible than in the past. Technology also adds to the flexibility that working moms need in order to create a balance. “Women in financial services can really achieve anything they set their minds to,” adds Rigitte. Her advice to young women entering the financial services sector is to never let other peoples’ perceptions cloud your judgement or self-belief. “Take time to figure out who you are and then be authentic. It may take time to get there but once you’re there, it’ll be easier to navigate through the inevitable rapid and on-going change that characterises the modern workplace.”
The mother of a beautiful little boy, Katherine works hard to achieve a good work-life balance. She says all ender equality in the financial working mothers need to have a strong services sector has improved support network in place. Fortunately, significantly. Women are more companies are offering flexible influencing key decisions and the working hours and the opportunity workplace has become far more gender- to work remotely, which goes a long inclusive. So says Katherine Barker, way towards creating a more genderHead of Momentum FundsAtWork. equitable workplace. Katherine says that her unrelenting When it comes to an inspiring role desire to make a difference in this model, the first person to come to mind dynamic sector motivates her daily. is Katherine’s mother. At times her After receiving a bursary to study mom held down three jobs and worked actuarial science, she qualified as an tirelessly to provide her children with actuary and entered the financial financial, emotional and spiritual services sector, driven support. Her mom’s by the belief that she resilience, hard work WOMEN BRING could have a real and ethic and focus on the UNIQUE SKILL positive impact on needs of her children people’s lives by helping SETS AND FRESH continue to inspire them to improve their PERSPECTIVES TO Katherine daily. financial wellness. She has some advice THE WORKPLACE for young women She strives to achieve this in her starting a career in current role, working hard to embed financial services: high levels of flexibility so that the • Take your studies very seriously. FundsAtWork range of solutions solves A solid academic track record can the vastly different retirement and open many doors. insurance needs of all members. • Know that what you will be doing in Katherine believes women this sector is very important. You will bring unique skill sets and fresh be helping South African families to perspectives to the workplace. She improve their financial wellness and says: “Collaboration comes naturally reach their financial goals. to women. Intuitively they tend to be • Believe in yourself, be resilient and the community builders. This bodes don’t allow your gender or personal well for team-building and creating a circumstances to define your career cohesive organisational culture aligned aspirations or hold you back. behind a common purpose. • Think carefully about your purpose “The female perspective in financial and what you stand for. What impact services is essential as women tend to do you want to have in the industry? be more empathetic in their approach • Start with something and stick with to product and solution construction. it. Don’t give up easily. Be ready to This creates a healthy balance show real grit and determination. between perspectives from both The most successful people are not genders, resulting in products and the most talented but rather the processes that are more customerhard workers who are inspired by a centric and relevant.” purpose and refuse to give up. KATHERINE BARKER Head: Momentum FundsAtWork
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Make beautiful music for your clients…
…Bring your best advice solution to life. You know your clients’ and their employees’ needs, inside and out. This is why, at Momentum Corporate, we create flexible and innovative solutions which you can combine and tailor around your clients’ diverse needs. In this way, you can compose your best advice’ solution for every client. • Retirement solutions • Flexible insurance • Health solutions
• Post-retirement annuities • Rewards and incentives • Retirement administration
momentum.co.za Momentum is part of MMI Group Limited, an authorised financial services (FSP6406) and registered credit provider (NCRCP173)
• Financial and benefit counselling • Asset and benefit consulting • Specialised actuarial consulting
Let’s harmonise. Contact your Momentum Corporate Specialist.
corporate
22
WOMEN'S MONTH
31 August 2018
A passion for diversity in the workplace
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and Merchant Bank (RMB) is a place where exceptional people are encouraged to challenge the boundaries, question the norm and seek solutions beyond the obvious. RMBers are innovative in their thinking and turn challenges into opportunities. They call themselves Solutionist Thinkers who deliver on the bank’s business philosophy of Traditional values. Innovative ideas. Emrie Brown is one such a Solutionist Thinker. She is the Co-Head of RMB’s Investment Banking Division (IBD) and has for the past 20 years carved a successful career in a typically male-dominated industry. Brown and the IBD team boast an impressive track record with the M&A advisory team at the top of the Dealmakers League Table by deal value in 2017, and the lending businesses being market leaders in their respective industries. Her leadership style is an inclusive one that is built on connections and ensuring that “we take what we do seriously but we don’t take ourselves too seriously”. She says to be a true leader, one must be able to motivate people to rally behind a common goal, one of which should be diversity in the workplace. As a female in a management role, Brown realised that she could help to ensure true diversity is achieved at RMB. “The stereotypes about women in leadership are the same worldwide and present in all male-dominated industries,” says Brown.
“And although I bring a good dose of so-called male attributes to the table – a high-risk appetite, a healthy level of confidence, resilience, tenacity and the ability to not back down in the face of adversity, feminine traits such as intuition and adaptability are just as vital as traditionally male traits, and females shouldn’t have to ‘man-up’ to be successful.” Brown says gender is an important pillar within the overall diversity and transformation strategy at RMB. “At RMB, we’ve recognised that a diverse, genderneutral talent pool enables us to create innovative solutions, boost profits, enhance our reputation as an employer of equal opportunities and our ability to attract and maintain top talent. In 2015 RMB launched a gender equality initiative Athena, which aims to create an environment where women feel empowered to achieve their individual career goals and to grow the number of women in financial services. Athena is, however, not a women’s conversation; instead it is a business imperative with a clear agenda to focus on both men and women for gender equality. "Athena, with an exco of 16 individuals including three men, is however not a 'women's conversation' - instead it is a business imperative and a lifestyle conversation with the clear agenda to focus on both men and women for gender equality. True diversity is a key enabler for a company's success in the fast-changing world and it is through the power of
collective, diverse thinking that we will ensure that RMB remains a market leader. Through Athena we seek to make the circle bigger, and there are currently far more women at exco level than in 2014," adds Brown. While Emrie is passionate about diversity in the workplace, she is very comfortable being the only woman at home with her husband, two boys and a stubborn male Swiss Alsatian that she takes dog training over weekends.
Emrie Brown, Co-Head Investment Banking, Rand Merchant Bank
Media speaks differently to women about money
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he way women are spoken to about money differs from the way men are spoken to, reveals new research commissioned by Starling Bank – the digital, mobile-only bank based in the United Kingdom – as part of its campaign #MAKEMONEYEQUAL. The linguistic study assessed 300 articles from a mix of outlets aimed at men and women readers and reveals that when it comes to finance, women are considered less productive than men. Nearly two thirds (65%) of financial articles in women’s magazines define women as excessive spenders, advising them to limit, restrict and take better control of shopping ‘splurges’.
Anne Boden, CEO & Founder of Starling Bank
To combat this, they are encouraged to save small sums, earn small amounts, or to depend on financial support. Many articles therefore root women’s economic contributions to forms of thrift. Nearly 90% of femaletargeted articles focus on small ways to save money, often by creating hobby revenue streams or by ‘cutting back’ on outgoings. A further 71% encourage women to specifically seek out vouchers, discounts, bargains and coupons to save money. Nearly half (47%) of articles aimed at women look at combined income issues, such as shared expenses and reliance on parents or partners, tying women’s economic participation to the domestic sphere and obligations to the family or household. The articles also strongly imply that women are not legitimate earners, suggesting they could
contribute more by spending less money made by men, rather than making their own. Anne Boden, CEO and Founder of Starling Bank, says: “Money is an issue. Especially if you’re a woman. There is a myriad of factors at play when it comes to women and our finances – but gender inequality doesn’t just start with lower salaries or tokenism in the boardroom. It starts with the way we’re taught and the way we’re spoken to.” She adds that language is separating us into spenders and earners, into the frivolous and the empowered. “Let’s talk about money in the same way to everyone. And let’s start now.” The ‘thrifty-splurger’ motif in women’s magazines contrasts to the image of the ‘adept financier’ portrayed in magazines aimed at men. In the latter, the economic participation of men is directed towards work, productivity and autonomy. Financial articles aimed at male
FINANCIAL ARTICLES AIMED AT MALE AUDIENCES HAVE A LESS MORALISTIC TONE
audiences have a less moralistic tone and tend to speak to men as if they’re savvy financiers. 70% emphasise that making money is a masculine ideal. They suggest monetary success and financial literacy are essential to enhancing personal status and getting ahead of colleagues or peers. Half of the articles aimed at men also use fear propositions to trigger actions such as investing or saving. Articles will rely on masculine stereotyped aspirations, leveraging codes of combat, strength, power, competition and performance. For example, the financial landscape is depicted as easily ‘conquered’ by those ‘daring enough’ to give it a go. Boden believes the gender gap starts with the way both genders are spoken to about money. “There are negative implications for both genders, trapping men and women into negative relationships with their finances,” she adds.
13146/MM
ALWAYS ON OUR AGENDA
Celebrating women in business. Through Athena, our gender equality initiative, we have taken a Solutionist Thinking approach to attracting, developing and retaining female talent. By creating an environment in which women feel empowered to achieve their individual career goals, we are growing the number of women within the greater financial services sector – harnessing the power of diversity to unlock unique opportunities for our clients.
RMB. Solutionist Thinking. www.rmb.co.za/athena Rand Merchant Bank is an Authorised Financial Services Provider
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WOMEN'S MONTH
31 August 2018
Two female CFA Charter Holders with inspirational stories to tell MoneyMarketing speaks to Jenny Albrecht, COO of Satrix Investment Team, Cape Town and Nicola Gubb, CIO of WDB Investment Holdings. Both women are CFA Charter Holders, having passed what some call ‘the world’s toughest exams’. JENNY ALBRECHT, CFA, COO, Satrix Investment Team, Cape Town
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enny Albrecht joined Sanlam Investments as a young graduate following UCT’s Graduate Recruitment Programme. “I knew I wanted to be in asset management, but at that stage I didn’t realise there were so many aspects to it,” she says. After spending a few years in the Client Services department, she was selected for Sanlam Investments’ first Investment Professional Development Programme at the start of 2003. In 2004 she joined the Satrix team and really found her niche. “My journey at Satrix has been rewarding as I’ve been able to operate across many spectrums of the business – first within the very structured and processdriven environment of index portfolio management and in more recent years combining that knowledge with fintech and brand strategies. I find opportunities to engage personally with direct investors to be very rewarding, especially women who are looking to take control of their finances.” Albrecht has been in the industry for 21 years and finds that the changes involving opportunities for women have been too slow. “Although more women are in senior leadership and board positions, investment management is largely still male-dominated – let’s just say men don’t have to work as hard to be heard or seen. I’ve been fortunate to be part of an investment team that is diverse in all aspects (including gender balance), but this is not the norm.” She adds that women are tired of taking a backseat in all respects and are finding their voice. “I see more women of all ages who are determined to take charge of their finances and are hungry for knowledge on how to do this. As an industry we need to encourage and facilitate this by breaking down the barriers that keep all investors out. Part of our role is to provide that financial education, but this must be done in a digestible way – nobody wants, or needs, all the graphs and technical jargon!” While women may make decisions to invest in the stock market, this is often stalled by them not knowing where to start or which funds to choose. “This is where, even if you want a DIY solution, you can always consult with a financial adviser to point you in the right direction as more and more advisers are willing to be financial guides only.”
NICOLA GUBB CFA, CIO, WDB Investment Holdings
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icola Gubb didn’t always know she’d want to work in the financial services industry. “As a teenager I had a dream of becoming an aeronautical engineer as I loved flying and the whole space race. Later in my high school career I thought of becoming an architect, but in matric I decided to study for a B Com degree as the stock markets had always interested me. “My dad has been an investor his whole adult life, making it his personal goal to outperform his pension fund, and my grandfather was a stockbroker, so I guess some of the love of the markets and investing had rubbed off on me! “After University I joined RMB Fund Managers, the retail unit trust arm of RMB Asset Management, and was completely drawn into the financial services industry.” It was at RMB that Gubb was introduced to the CFA Charter Holder qualification. “Most of the team members were encouraged to study for the qualification and it was something that the company paid for.” A job at HSBC’s Equity Capital Markets division followed and it was around this time that she decided to apply to become a CFA candidate and to write the three levels of exams. Gubb joined WDBIH in 2005 as an Investment Executive and become the Chief Investment Officer in 2012. “I do believe that being a CFA Charter Holder enabled me to become the CIO at WDB Investment Holdings,” she says. WDB Investment Holdings is a broad-based, women-owned and -managed business. The company is 89% owned by the WDB Trust, which is a public benefit organisation, and is mandated to bring about economic upliftment and social advancement of poor rural women and their households. Since its inception 22 years ago, WDBIH has built a portfolio of investments across sectors such as consumer goods and services, financial services, diversified industrials, property and TMT. “WDB Investment Holdings is a long-term, patient capital investor that seeks to play a strategically active role in its investee companies through Board participation and consultancy in transformation – particularly gender transformation and empowerment. To date, WDBIH has total assets under management of R6bn and has repatriated approximately R200m of dividends to the WDB Trust,” Gubb says.
31 August 2018
EMPLOYEE BENEFITS
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he introduction of default in-fund options within retirement funds is a positive step towards ensuring that it costs less for pension fund members to transition into their financial retirement products. This, though, shouldn’t detract from holistic retirement planning – an element which is still largely lacking for millions of South Africans. That’s the word from Sabir Bacus, Employee Benefits Consultant at financial advisory firm GTC. Bacus believes that while default regulations are likely to help many fund members, the industry, trustees and employers should actively encourage members to take a real interest in their retirement fund and not simply revert to default options as the answer to their retirement needs. The National Treasury has introduced regulations – which must be implemented across all funds by 1 March 2019 – whereby all retirement funds must provide default in-fund options for investment, preservation and annuity strategies, best suited for the fund’s members. These regulations are part of a broad range of measures announced over the past few years, aimed at minimising costs and thereby improving retirement outcomes for members.
“These regulatory changes should encourage more members to preserve their retirement benefits upon leaving employment, as they will be provided with an option recommended by their board of trustees, relieving some of the pressure associated with deciding on appropriate alternative investment, preservation and annuity options themselves, which have, up to now, been independent of the retirement fund,” says Bacus. While these options will help some members, he cautions that they should not be seen as an alternative to professional retirement planning. “We cannot emphasise enough that every individual’s optimal retirement outcome is different and will therefore be achieved differently. This is determined by a number of factors, including one’s future needs, liabilities, risk appetite, current means and ability to work up to and beyond stipulated retirement age.” He explains that default options are selected according to their suitability for the wide range of pension fund members, based upon their specific fund’s demographic data. “Boards of trustees elect options they deem most suitable for the members they represent. However, even with the best information available to them – and best intentions – trustees cannot guarantee an optimal outcome for every member according to the requirements of each of their individual needs.” It is particularly challenging for trustees of umbrella funds – where several diverse participating employers are housed in a single fund structure – to decide on an appropriate option for a wide diversity of members.
According to Bacus, there is concern that the availability of default options could cause increased complacency among members, relying solely on trustees’ in-fund choices. “It is understandable that many members may suffer from ‘decision fatigue’ due to the number of choices they must make relating to several aspects of their financial planning. For others, the retirement landscape is still too daunting and complex to understand, so they may opt for the course of least resistance and rely on their trustees’ choices,” he adds.
EVERY INDIVIDUAL’S OPTIMAL RETIREMENT OUTCOME IS DIFFERENT “If an option is pre-selected for members, these same members are less likely to apply the same degree of research they would otherwise have undertaken, adopting the view that the default must obviously be the best option for them. But, while the default option should not lead to a poor cost outcome, it is very likely that an optimal financial planning outcome would be best achieved with the assistance of a professional financial adviser.” Bacus says it’s an unfortunate reality that many retirement fund members still naïvely believe their monthly pension fund contributions are enough to meet their retirement needs. “In recent years there have been significant moves, both regulatory and industry practice, towards empowering retirement fund members with the knowledge to understand their retirement fund benefits, yet many members still fail to take an active interest in what is in all likelihood their most important contractual savings.” Retirement fund regulation has seen evolving industry reform in the form of the introduction of principles regarding treating customers fairly, transparency on
fees and investment selection, as well as greater accountability on the part of trustees – to name a few. “While this has indeed helped, it is unwise for members to solely rely on trustees to deliver retirement outcomes which may be better suited to the broad base of a fund’s members’ needs and goals. There is no perfect science to choosing a suitable default option for a fund, especially considering the possible biases identified in behavioural investing that trustees may harbour – such as an overly conservative outlook – which may influence their decision-making process,” says Bacus. Other possible detracting influences on trustees’ decisionmaking may include an overreliance on strategies or managers that have delivered good performance in the past and choosing strategies that are popular among many other retirement funds at a particular time in the investment cycle. Bacus also welcomes the regulatory introduction of compulsory counselling for members upon retirement or resignation, but believes that proper financial advice should be offered at the start of a career, coupled with ongoing and regular assessments. “There should be a much greater focus on holistic financial planning from early in an employee’s working life. This would ensure that one’s retirement funding is optimised relative to one’s retirement plan. “Members must also appreciate that an occupational retirement fund is only one element of a holistic long-term financial plan, which ought to be complemented by other investments aimed at remedying shortfalls and satisfying their individual strategy – based upon their unique circumstances.”
Sabir Bacus, Employee Benefits Consultant, GTC
EMPLOYEE BENEFITS
Defaults shouldn’t detract from holistic retirement planning
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EMPLOYEE BENEFITS
31 August 2018
Independent industry awards signal shift in status quo
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ecommending a provider to manage a client’s employee benefits is a critical decision for brokers. The implications are significant as these benefits are more than just a job perk – they provide employees with financial security, they make staff feel valued, and can offer a competitive advantage to attract and retain the best people. Sticking with the big incumbents can seem like an obvious, rational and safe choice. Size, after all, has become a proxy for competence and value. “Thankfully, though, more industry experts are questioning this convention. They’re asking if there isn’t, perhaps, a better alternative, because they clearly understand that bigger isn’t always better,” states Grant Field, CEO at independent financial services provider Fedgroup. “Big brings complexity. Big is inefficient. It creates inertia and reduces agility. Big increases costs, opacity, complacency and apathy. Big isn’t better. Better is better. But how do you define better? Well, impartial and independent recognition is a solid place to start,” suggests Field. For five consecutive years, Fedgroup has emerged from the PMR.africa Awards as a standout performer. However, 2018 proved to be a particularly momentous year as Fedgroup was named the best provider in the country, in both the Group/Life Risk Products and in the Group Pension
and Provident Fund subcategories. Normally a Gold Arrow award is bestowed on winners. However, in exceptional circumstances, a Diamond Arrow can be awarded if a category winner receives an outstanding score from industry experts. It’s a rare feat, but one that Fedgroup achieved this year – not once, but twice. In the remaining Employee Benefits subcategory, Investment Products, Fedgroup took home a gold award, again beating much larger competitors. It’s a telling endorsement of Fedgroup’s unique and innovative approach, because winners are awarded based on nominations and votes from intermediaries, brokers and financial advisers – providers cannot enter, motivate for or nominate themselves; they must be selected. “These are the people working in the field, at the industry coalface, where products and services are measured against their ability to address real-world needs and meet customer expectations,” explains Field. “These industry experts also deal across providers and are therefore perfectly positioned to make informed comparisons.” For Fedgroup to be voted number one in the country ahead of the big incumbents therefore speaks volumes. “Our awards prove that our independently-minded approach, which puts people ahead of obscene profits, results in excellence.”
Moreover, Fedgroup combines these traditional values with cutting-edge technology to contain costs and improve efficiencies, and offers transparent fees. “Placing the needs of policyholders above those of shareholders in this way delivers better, more responsive and personalised service, which has a beneficial influence on the lives of our clients,” adds Field. It’s abundantly clear then why South Africa’s industry juggernauts are no longer the experts’ first choice when it comes to delivering exceptional employee benefits. “Our most recent PMR.africa Awards affirm that our unique approach works and that it’s resonating with industry professionals. Ultimately, we hope this industry recognition prompts greater introspection within the market and brings into question whether the traditional profit-driven and sometimes arrogant approach of big business is still relevant in today’s customercentric market,” says Field.
Grant Field, CEO, Fedgroup
RISK 27
31 August 2018
oo many South Africans don’t realise the true value that adequate long-term insurance has in their financial lives. However, if you’ve had to lodge a claim, you understand that insurance is not simply a grudge purchase – it’s an absolute necessity. The unfortunate reality is that when your insurance claim is rejected, it can cause irreparable damage to your wealth-building journey. Henk Meintjes, Head of Risk Product Development at Liberty, says: “When you consider that Liberty paid out all valid claims to the value of R4.46bn in 2017, the need for long-term insurance cover becomes clear. Just more than R525m was paid for loss of income protection, including both lump sums at R375m and monthly income payments at R151m.” These claim payments help clients make lifestyle changes and pay monthly expenses following a disability, retrenchment or any impairment that prevents them from earning their normal income. Unfortunately, not every claim submitted was valid and as a result, these invalid claims were not paid. This is largely due to the occurrence of non-disclosure. When looking across all benefits of all claims received by Liberty in 2017: • 8.6% of submitted claims were for conditions that did not meet claims requirements • 1.6% of claims were declined due to non- disclosure.
PAUL DANGERFIELD Competition Manager, Hollard Highway Heroes, Hollard Insure’s Trucking Centre of Excellence
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eet Phillip Mhlaolo Mtembu. He’s a hero. Mtembu is the 2017 Hollard Highway Hero, the title he bears for being judged South Africa’s best truck driver. He worked hard for the privilege, beating 890 fellow truckers to the top spot. It’s a remarkable achievement, made even more significant because he’s not the only winner. We all are, because Hollard Highway Heroes manages to do what most corporate competitions cannot: it benefits everyone, not just the sponsor and the winner. Highway Heroes certainly does promote the Hollard brand, as it should, and the prizes are lucrative, but the real beauty of this competition is that all of South Africa benefits, too. By promoting better and safer driving on our roads, we’re doing our bit to keep commodities moving and the economy working. On an individual level, we’re helping to make the road network safer for all road users – in other words, every single one of us.
Meintjes explains non-disclosure: “When important medical, financial, lifestyle or occupational questions are answered incorrectly or where important information is omitted when cover is first bought, this is nondisclosure. It ranges from deliberate fraud to innocent omissions where certain information is simply forgotten.” In some cases, the insurer may find that clients failed to reveal important conditions when the benefit was underwritten. If this happens, the insurer reserves the right to reconstruct the policy at claim stage based on the newly discovered information. If the information was relevant to the underwriting of the new policy at time of inception, the cover may be declined or offered on different terms, including medical loadings, exclusions or limits on the sum assured. The most common areas of non-disclosure are related to occupation, financial standing and, most frequently, medical disclosure. When new policyholders fail to reveal full medical and financial information at application, this could delay the underwriting process and lead to the cancelation of a specific benefit, a reduced payment at claim stage or could even result in the entire policy being cancelled. For this reason, it is vitally important for new clients to carefully consider all the questions in the insurance policy application documents.
“The temptation to withhold sensitive information to reduce premiums is simply not worth it. If clients are concerned about revealing private information to a financial adviser, they are encouraged to use teleunderwriting services instead,” says Meintjes. Once the application has been processed and the policy documents are issued, the insured client needs to thoroughly check the policy documents with particular attention being paid to the summary of disclosures. If any information needs to be amended, the client should contact their financial adviser or the insurer directly to address these inaccuracies. As a client’s life changes, so do their insurance needs. Because of these changes, clients should take the time to regularly review their insurance cover to ensure it remains in line with their individual needs. Liberty encourages clients to familiarise themselves with the claims criteria and to check in with their financial advisers to ensure they have the correct cover in place.
Henk Meintjes, Head of Risk Product Development, Liberty
South Africa needs heroes
This aspect to Hollard Highway Heroes satisfies an important element of the way Hollard does business: it strives to make the world a better place. Hollard’s Better Futures marketing campaign aims to make a positive difference in the lives of people, and there’s no doubt that Highway Heroes does that by promoting better driving habits. The first Highway Heroes competition was held in 2015, under the auspices of Regent Insurance, a specialist trucking insurer. Starting out as a driver training initiative, it quickly became a competition in which drivers are monitored according to parameters such as speeding, harsh braking and stops. Staging a competition made a lot of sense commercially. By getting truckers to drive better, there were immediate financial benefits for both fleet owners and Regent, in the form of lower fuel and maintenance costs, fewer accidents and consequent insurance claims, and lower premiums in the long run. What it signalled to fleet owners
was that we cared – that we were concerned with the success of their businesses and wanted the best outcomes for them and their employees. And they responded very positively. With Hollard’s acquisition of Regent, which was finalised and approved by the competition authorities in 2017, Highway Heroes was rebranded as a Hollard property. The match is a good one. The competition’s intentions and Hollard’s way of doing business dovetail very neatly, and Hollard has consequently thrown its considerable weight behind Highway Heroes, with the aim of growing it substantially and publicising it more widely. The most significant change is the competition structure, which allows for more winners and bigger prizes. In the past there was only one winner but now there are four categories and 30 winners in total; and the 2018 winner drives
away with R100 000 in cash and prizes – a 25% increase on the 2017 overall prize. The three category winners (besides the overall winner) each take home R25 000 in cash and prizes. The remaining six of the top 10 entrants each pocket R2 500, and the rest of the top 30 – those placed 11 to 30 – each receive R1 000. As part of his 2017 prize, Mtembu’s truck has been branded so that the motoring public can see they’re sharing the road with a hero. To find out more about Hollard Highway Heroes, please visit https://www.hollard.co.za/ highway-heroes.
RISK
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Why insurers don’t pay claims
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RISK
31 August 2018
Making sure Airbnb property is insurance compliant
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irbnb, the service that allows homeowners to turn their residential properties into guesthouses, has enjoyed phenomenal growth in South Africa over the last few years. However, many budding Airbnb entrepreneurs could be inadvertently falling foul of their insurance policies, says Standard Insurance Limited. What many people don’t realise is that their standard residential or personal lines insurance policies typically only cover the property if it is being used for private residential purposes. It is important to note that while Airbnb does offer a ‘host guarantee’, which protects hosts against damage to personal possessions, the unit or home by guests, the guarantee is not insurance and doesn’t replace the homeowner’s contents insurance. Airbnb’s host protection insurance, in contrast, is insurance, and is designed to cover hosts in the event of third-party claims of bodily injury or property damage, but will only act as primary insurance coverage for incidents related to an Airbnb stay. Regardless of these offerings, renting property out for short-term holiday rentals, whether over Airbnb or an alternative service, will likely require a commercial lines insurance policy, with cover that adequately reflects the different risk profile of such rental arrangements. “Policyholders who rent out rooms in their houses or their properties need to be aware of their obligations under their insurance policies,” says Louis Hay, Head of Short-Term Insurance Propositions at Standard Insurance Limited. “It is the duty of the policyholder to disclose to their insurer that they are
Providing insurance to affluent individuals Elite Risk Acceptances, a specialist underwriter and wholly-owned subsidiary of Old Mutual Insure, is a new entry into the high-net-worth insurance market. The company will provide bespoke short-term insurance and personal risk solutions to wealthy individuals. Christelle Colman has returned to the short-term insurance sector to head up the new entrant. South Africa’s wealthy population is on the increase, according to New World Wealth’s 2018 South African Wealth Report, which reveals that at the end of
renting out their rooms or properties to tourists. Failure to make such disclosures may prejudice the policyholder in the event of a claim.” Hay adds that traditional personal lines insurance policies don’t provide cover for incidents and theft that may occur while the home is being rented to holiday makers, tourists or travellers. “The owner must ensure that what they are doing is legal and be aware of the city regulations and municipal by-laws, which often don’t allow blocks of flats to be used for tourist accommodation. Then there are also other considerations, like adhering to the appropriate zoning, as well as the insurance implications and security risks involved.” Hay says policyholders must take the time to fully understand the limitations and conditions that apply to their policies to avoid any heartache in the event of a claim. Airbnb hosts will need a commercial lines insurance policy, which would cover the building and contents, the rental income as well as the property owner’s liabilities. The following items require consideration when policyholders opt to insure their property on a commercial lines insurance policy: • Building and contents In addition to the usual cover for fire and special perils (water, storm, hail damage, etc.) a policyholder needs to ensure that the cover provided is extended to include malicious damage and accidental damage. It is important that the policyholders ensure they comply with any specific warranties, conditions or exclusions the insurer may have in respect of the rental property. An example of an exclusion would be that theft of contents cover would only apply if there are signs of forcible and violent entry into the buildings (i.e. disappearance of items would not be covered). Most policies would exclude, or at least limit, cover for loss or damage to guests’ or tenants’ property. It is therefore recommended that the rental agreement
2017 there were 43 600 high-net-worth individuals (HNWI) in South Africa – up 8% from 40 400 in 2016. HNWIs are categorised as people who have a total wealth of more than $1m. Colman says this market has very specific needs and while there are several players currently in the segment, the market is seeking a more comprehensive offering underwritten by a blue-chip insurance brand such as Old Mutual Insure. “We also did extensive market research into the distribution model required for this segment. Following our findings, Elite Risk Acceptances will follow an intermediated omni-channel business model, ensuring that our brokers and customers have highly skilled professionals to advise them in the most efficient manner possible, with the added benefit of broker and client interaction at claims stage.” Colman adds that the biggest value
specifically excludes liability for any loss of or damage to the tenant’s property. • Loss of income If the property is damaged and therefore cannot be rented out, the policyholder would incur a loss of income (business interruption) for the duration of the repairs. Some policies provide loss of income until the property is repaired to a tenantable condition and other policies may extend the benefit to the point of the property being tenanted. Separate rental guarantee insurance policies are available from specialist insurers to cover the policyholder in the event of a tenant not meeting their rental payment obligations. • Public liability Property owners are required to keep their premises free of defects. Should such a defect lead to a third party, such as a tenant, being injured or their property being damaged, the property owner may be faced with a legal liability to provide compensation to the third party. Some premises are rented out with meals included and therefore, the public liability policy should be extended to include the products liability extension to cover exposures relating to, for example, food poisoning. The above items highlight only some of the risk exposures policyholders may face when renting out their properties. Standard Insurance Limited therefore strongly recommends that an insurance broker be consulted to assist with the structuring of an appropriate insurance policy to cater to a prospective policyholder’s specific needs.
proposition of the offering is that it will be taking a proactive approach to risk management and will be providing a full asset valuation service. Elite will appoint independent professional assessors to visit each client to determine the accurate insurance replacement values of both buildings and contents at policy inception. This will alleviate many of the challenges typically encountered at claims stage, as the current application of average condition is a complex insurance calculation not always understood by policyholders. “We understand that with larger assets, the complexity of determining adequate insurance coverage increases, so we built our business model around addressing this issue,” adds Colman. One of the key characteristics of this segment is that they are highly mobile and spend a lot of their time traveling, be it for business or leisure.
Louis Hay, Head of ShortTerm Insurance Propositions, Standard Insurance Limited
“We identified this trend and realised there was a real opportunity in the market for a new, more refined and competitive travel insurance offering within the South African market. Elite clients will be able to take out annual travel insurance cover for their business and personal travel needs as part of their personal insurance policy.” The international travel cover will not only be for the insured, but for the whole family. Medical assistance will be provided through partner Europ Assistance, and policyholders will have the added benefit of concierge assistance services anywhere in the world.
Christelle Colman, Managing Director, Elite Risk Acceptances
HEALTH 29
31 August 2018
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onitas Medical Fund reported a surplus of R730.20m for 2017, recouping the R16.9m deficit from 2016. Gerhard Van Emmenis, Principal Officer of Bonitas says: “2017 was an exceptional year for us in terms of financial results. This was largely due to several key cost-saving strategies and initiatives implemented during the 2016-2017 period.” This increased Bonitas’ reserves to R4bn from R3.2bn. “This surplus will be invested back into the Scheme and will allow us to offer our members access to healthcare of the highest quality,” Van Emmenis adds.
“Medical schemes need to be proactive in curtailing costs. Even though healthcare inflation continues to outpace general inflation by about 5% (12.5 % in 2017), we cannot simply say: ‘It’s not our fault or our problem.’ We need to constantly be looking for different methods to contain costs and offer our members maximum value for money.” Although Bonitas took a multipronged approach to cost saving, the focus was on: • Hospital negotiations, which delivered savings of R242m • Fraud, Waste and Abuse initiatives
were also a significant focus and delivered recoveries of R31.2m, with a potential preventative savings of R75m • Other cost savings initiatives of R59m (examples of this included the benefit adjustments) • A return on investments of 8.9% also contributed to the healthy fiscal outlook for Bonitas Medical Fund. “The net healthcare results of R345.9m and investment income of R394.3m underpin the Scheme’s ability to implement strategies in order to remain resilient during
difficult financial periods,” Van Emmenis says. “This not only helps to limit contribution increases, but also delivers on our mandate of making healthcare affordable for all South Africans.”
Gerhard Van Emmenis, Principal Officer, Bonitas
Timing vital in establishing a progressive health system
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he release of the National Health Insurance Bill, the Medical Schemes Amendment Bill and the provisional findings of the Health Market Inquiry, all within the space of only weeks, have provided much food for thought about the future of South African healthcare. “A considerable amount of time, resources and expertise have been invested in the Competition Commission’s Health Market Inquiry [HMI],” says Mark Arnold, Principal Officer of Resolution Health Medical Scheme. “In the four-and-a-half years since the HMI began, it has had input from every relevant stakeholder. The inquiry represents the most comprehensive assessment of the private healthcare sector ever undertaken in our country. “With the HMI’s final report due for release in November, however, there is a risk that the full benefit of these insights could be lost due to the timing of these interrelated developments, as the period for submissions on the Medical Schemes Amendment Bill (MSAB) and the National Health Insurance (NHI) Bill closes in September.” Arnold points out that there is significant risk that the regulatory environment being created through the legislative amendment process currently underway could conflict with the lessons learned in the course of the HMI’s work, which will only be fully apparent on the release of its final report. “As it stands, the HMI findings might be considered when finetuning the proposed amendments to medical schemes law. However, far greater value could be added if the final HMI findings and recommendations are embraced and incorporated as the foundation for the amendments in the creation of a fresh approach to healthcare for the country. “Closing the submission period on the MSAB – which specifically deals with the private healthcare sector – before the HMI’s final report is available, is analogous to putting the cart before the horse.
“Such an approach squanders the opportunity to strengthen legislation with the full benefit of wisdom garnered during the lengthy and expensive inquiry and the best chance we have of making informed decisions that will shape the future of healthcare in South Africa for all,” says Arnold. Andre Jacobs, executive at ASI Financial Services, adds: “The Minister of Health requested that the Competition Commission conduct the HMI, which, after several delays, published its preliminary report for public comment on 5 July 2018, and the public and stakeholders have until 7 September 2018 to make comments. The HMI Panel will then consider all the recommendations and comments and is expected to publish its final recommendations by 30 November 2018. “Considering public comment on the MSAB must be provided before 20 September 2018, this not only eliminates the opportunity to include the relevant HMI findings in the MSAB but also duplicates effort and threatens to fundamentally weaken public comment. “In addition, the Constitution and the Promotion of Administrative Justice Act prescribe that this process needs to be fair and there is a concern that excluding the findings of the HMI may not be aligned to this. “It is our view that it may be prudent for the Minister to consider withdrawing the MSAB Amendment Bill until the findings and recommendations of the HMI are finalised,” Jacobs asserts. “Market experts have been involved in, and unanimously commended the HMI’s work in reviewing the private healthcare market. Even if certain commentators dispute some of the specific conclusions and recommendations, overall appreciation of the inclusive and comprehensive process is widely accepted. “Therefore, the attention of society and stakeholders should be to focus on the HMI report and the comment leading up to 7 September 2018. This will enable society to
further participate in a meaningful debate on the industry as access to healthcare is of national importance,” Jacobs adds. Acknowledging that there is significant political pressure for legislative certainty that will pave the way for the full implementation of the NHI, Arnold notes that a better integrated process would be more likely to achieve a successful and sustainable new healthcare paradigm in the long run. “If we are to overcome the challenges facing private healthcare – some of which also threaten to derail the goals of universal health coverage – we need to develop a balanced and well-informed piece of legislation, and this is a process that should not be rushed. “More haste in finalising the MSAB is likely to result in a framework that could hold up progress towards a truly progressive health system that will benefit generations to come,” Arnold says.
Mark Arnold, Principal Officer, Resolution Health Medical Scheme
HEALTH
2017 ‘exceptional year’ for Bonitas
BOOKS ETCETERA
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BOOKS ETCETERA
31 August 2018
EDITOR’S BOOKSHELF
100 BOOKS THAT CHANGED THE WORLD SCOTT CHRISTIANSON AND COLIN SLATER In 100 Books That Changed the World, authors Scott Christianson and Colin Salter combine an extraordinary collection of groundbreaking books – from scriptures to scientific treatises to novels. “So how do you choose? Where do you start?” the authors ask in the book’s introduction. “This book starts at the very beginning, with a 4 800-year-old text, the divinatory I Ching, which predicts the future based on the toss of six coins. We end 99 books later in the twenty-first century with another prediction, Naomi Klein’s This Changes Everything, which forecasts the end of the planet if we don’t act collectively to mend our ways. On the pages in between, our list is drawn from every age, in every style and on every subject. All of them have changed their readers’ worlds and ours.” Books chosen include The Iliad and The Odyssey, Homer (750 BC), The Gutenberg Bible (1450s), The Quran (AD 609–632), On the Revolutions of the Heavenly Spheres, Nicolaus Copernicus (1543), Philosophae Naturalis Principia Mathematica, Isaac Newton (1687), The Wealth of Nations, Adam Smith (1776), The Vindication of the Rights of Woman, Mary Wollstonecraft (1792), On the Origin of Species, Charles Darwin (1859), Das Kapital, Karl Marx (1867), The Interpretation of Dreams, Sigmund Freud (1899), The Diary of a Young Girl, Anne Frank (1947), and A Brief History of Time, Stephen Hawking (1988).
SUDOKU ENTER NUMBERS INTO THE BLANK SPACES SO THAT EACH ROW, COLUMN AND 3X3 BOX CONTAINS THE NUMBERS 1 TO 9.
THE ULTIMATE GUIDE TO RETIREMENT IN SOUTH AFRICA BRUCE CAMERON AND WOUTER FOURIE Most people are rich for a single day in their lives: the day they retire and receive their retirement savings. This moment is more critical than many people realise – it marks the change from saving for retirement to drawing an income from savings that will ideally sustain them until they die. All too often, pensioners end up struggling financially because they make the wrong decisions after they retire. It is crucial for retirees to apply themselves to securing a sustainable income. This book provides a comprehensive overview of the vital issues that impact on retirement, such as taxation, investments, healthcare, estate planning and where to live when retired. It also identifies warning signs to look out for to avoid financial troubles. Written in clear and straightforward language by journalist Bruce Cameron and financial planner Wouter Fourie, this is the ultimate guide to help you achieve a secure and successful retirement.
CRUSHING IT GARY VAYNERCHUK Bestselling author Gary Vaynerchuk offers new lessons drawn from the experiences of dozens of influencers who rejected the predictable corporate path in favour of chasing their dreams by building extraordinary businesses and personal brands. In his 2009 international bestseller Crush It, Vaynerchuk insisted that a vibrant personal brand was crucial to success. In Crushing It, the author explains why that’s even more true today, offering his unique perspective on what has changed and what principles remain timeless. He also shares stories from other entrepreneurs who have grown wealthier by following Crush It principles. The secret to their success has everything to do with their understanding of social media platforms, and their willingness to do whatever it took to make these tools work to their utmost potential. That’s what Crushing It teaches readers to do. In this practical book, Vaynerchuk dissects every current major social media platform so that anyone will know exactly how to amplify his or her personal brand on each. He offers both theoretical and tactical advice on how to become the biggest thing on old standbys like Twitter, Facebook, YouTube, Instagram, Pinterest and Snapchat; podcast platforms like Spotify, Soundcloud, iHeartRadio and iTunes; and other emerging platforms such as Musical.ly.
DEATH AND TAXES: HOW SARS MADE HITMEN, DRUG DEALERS & TAX DODGERS PAY THEIR DUES JOHANN VAN LOGGERENBERG Former tax sleuth and bestselling author of Rogue, Johann van Loggerenberg, was at the centre of several high-profile SARS cases that spanned many years. He offers a riveting insider’s view on some of these cases, like the investigations into Dave King, Billy Rautenbach, Barry Tannenbaum, as well as Jacob Zuma, Julius Malema and others. Since the early days of democracy, a small but determined band of people at SARS who fulfilled various investigative functions came to know every trick and scam in the book, and developed the expertise on how best to hold tax dodgers to account. Their cases often dragged on for years, with many of the defendants using every legal trick to fight back – but SARS never gave up. Van Loggerenberg also revisits events around the hollowing out of the tax authority post-2014 and brings the reader up to date on the extraordinary occurrences at SARS since the new dawn of the Cyril Ramaphosa era.
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