aligning your business with values. suitable in cybercrime ......for any third-party-named...
32
First for the professional personal financial adviser Laurium Flexible Prescient Fund. Boutique manager performance at its best. www.lauriumcapital.com 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. CIS’s are traded at the ruling price and can engage in scrip lending and borrowing. A schedule of fees, charges and maximum commissions is available on request from the Manager. There is no guarantee in respect of capital or returns in a portfolio. A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate. CIS prices are calculated on a net asset basis, which is the total value of all the assets in the portfolio including any income accruals and less any permissible deductions (brokerage, STT, VAT, auditor’s fees, bank charges, trustee and custodian fees and the annual management fee) from the portfolio divided by the number of participatory interests (units) in issue. Forward pricing is used. The Fund’s Total Expense Ratio (TER) reflects the percentage of the average Net Asset Value (NAV) of the portfolio that was incurred as charges, levies and fees related to the management of the portfolio. A higher TER does not necessarily imply a poor return, nor does a low TER imply a good return. The current TER cannot be regarded as an indication of future TER’s. During the phase in period TER’s do not include information gathered over a full year. The Manager retains full legal responsibility for any third-party-named portfolio. Where foreign securities are included in a portfolio there may be potential constraints on liquidity and the repatriation of funds, macroeconomic risks, political risks, foreign exchange risks, tax risks, settlement risks; and potential limitations on the availability of market information. The investor acknowledges the inherent risk associated with the selected investments and that there are no guarantees. Laurium Capital (Pty) Limited is an Authorised Financial Service Provider (FSP No.34142). Will low inflation affect investment returns? A short term reduction in inflation should not have a significant impact on investment returns. According to Dave Mohr, chief investment strategist at Old Mutual Wealth, while it is possible that returns on an investment with an inflation-linked benchmark may decline slightly, “to assume that dropping inflation will automatically translate to an equivalent decline in returns demonstrates a lack of understanding of the somewhat tenuous link between inflation and investment performance. “Historically, global equities and REITs, in particular, have performed relatively well in low inflation environments.” 31 March 2015 | R24,00 including VAT | www.moneymarketing.co.za Multi asset funds suitable in testing conditions? Page 16 INSIDE your March issue of MoneyMarketing ... Short-term insurance feature cybercrime and the year ahead. Pages 26 - 29 RDR READY? Activities, services and fees An RDR focus point is remuneration for specific services and activities. It will be critical – in an RDR world – that an adviser knows what services they are offering to whom and what those services cost the adviser and the client. Broad definitions are services provided to the client, the product provider and intermediary services; and types of services offered include financial planning, advice and ongoing service. According to Masthead, the RDR Discussion Paper proposes that a financial adviser can earn, in respect of customer interaction: • A fee for financial planning • A fee for product advice, both upfront and ongoing • Commission from the product supplier for selling the product (upfront) and maintaining the product (ongoing), except for investments RDR may require a change in the business model of an adviser’s business – it may be beneficial to spend time after each client meeting to analyse what took place in this meeting, where those activities fall in an RDR environment and how they would be charged. “It seems clear that interest rates will remain on hold for a number of months at least, despite the forecast for a sharp decline in headline inflation, unless underlying inflation (core inflation) falls meaningfully,” said Lings after the MPC’s first meeting of the year. “In addition, interest rates will also not be cut further in an effort to boost economic growth. ..Furthermore, the inflation benefit of the lower oil price is expected to be relatively temporary. Instead, the outlook for interest rates is more dependent on the rand exchange rate coupled with the path of global interest rates, and SA’s ability to fund our current account deficit.” So far – a cut might seem unlikely. If interest rates are cut how would your portfolio respond and what (if anything) would you need to do? difficult – both can surprise in speed and depth of change – but expectations are for lower inflation numbers in 2015. For the year ahead inflation is forecast to average an impressive 4.5%, says Stanlib chief economist Kevin Lings. It remains a valid investor and retiree argument that the official inflation number is not what many experience – but it does affect interest rates and that directly affects investors and asset class performances. Is your portfolio ready for an inflation surprise and have you factored in the possibility of both an interest rate rise and an interest rate cut? We pose an investor question: Is there a possibility of an interest rate cut? Last year SA experienced two rates increases – and the expectation was for a slow – steady rise. If inflation surprises will interest rates surprise? Inflation watch Compliance aligning your business with values. Page 11 I n 2014, the official inflation figure was 6.1%. This is higher than the 2013 figure of 5.7% and just outside the inflation target (3-6%). As an oil consuming economy, South Africa is affected by the oil price – and the dramatic fall in the price of crude has helped the inflation numbers, although a depreciating rand offsets some of these gains. Forecasting both the oil price and the rand - US dollar exchange rate is notoriously
Transcript of aligning your business with values. suitable in cybercrime ......for any third-party-named...
First for the professional personal financial adviser
Laurium
Laurium Flexible Prescient Fund.
Boutique manager
performance at its best.
www.lauriumcapital.com
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. CIS’s are traded at the ruling price and can engage in scrip lending and borrowing. A schedule of fees, charges and maximum commissions is available on request from the Manager. There is no guarantee in respect of capital or returns in a portfolio. A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate. CIS prices are calculated on a net asset basis, which is the total value of all the assets in the portfolio including any income accruals and less any permissible deductions (brokerage, STT, VAT, auditor’s fees, bank charges, trustee and custodian fees and the annual management fee) from the portfolio divided by the number of participatory interests (units) in issue. Forward pricing is used. The Fund’s Total Expense Ratio (TER) reflects the percentage of the average Net Asset Value (NAV) of the portfolio that was incurred as charges, levies and fees related to the management of the portfolio. A higher TER does not necessarily imply a poor return, nor does a low TER imply a good return. The current TER cannot be regarded as an indication of future TER’s. During the phase in period TER’s do not include information gathered over a full year. The Manager retains full legal responsibility for any third-party-named portfolio. Where foreign securities are included in a portfolio there may be potential constraints on liquidity and the repatriation of funds, macroeconomic risks, political risks, foreign exchange risks, tax risks, settlement risks; and potential limitations on the availability of market information. The investor acknowledges the inherent risk associated with the selected investments and that there are no guarantees. Laurium Capital (Pty) Limited is an Authorised Financial Service Provider (FSP No.34142).
Will low inflation affect investment returns?A short term reduction in inflation should not have a significant impact on investment returns. According to Dave Mohr, chief investment strategist at Old Mutual Wealth, while it is possible that returns on an investment with an inflation-linked benchmark may decline slightly, “to assume that dropping inflation will automatically translate to an equivalent decline in returns demonstrates a lack of understanding of the somewhat tenuous link between inflation and investment performance.“Historically, global equities and REITs, in particular, have performed relatively well in low inflation environments.”
31 March 2015 | R24,00 including VAT | www.moneymarketing.co.za
Multi asset fundssuitable in testing conditions? Page 16
InsIde your March issue of MoneyMarketing...short-term insurance featurecybercrime and the year ahead. Pages 26 - 29
rdr reAdY?
Activities, servicesand feesAn RDR focus point is remuneration for specific services and activities. It will be critical – in an RDR world – that an adviser knows what services they are offering to whom and what those services cost the adviser and the client.
Broad definitions are services provided to the client, the product provider and intermediary services; and types of services offered include financial planning, advice and ongoing service. According to Masthead, the RDR Discussion Paper proposes that a financial adviser can earn, in respect of customer interaction:• A fee for financial planning• A fee for product advice,
both upfront and ongoing• Commission from the
product supplier for selling the product (upfront) and maintaining the product (ongoing), except for investments
RDR may require a change in the business model of an adviser’s business – it may be beneficial to spend time after each client meeting to analyse what took place in this meeting, where those activities fall in an RDR environment and how they would be charged.
“It seems clear that interest rates will remain on hold for a number of months at least, despite the forecast for a sharp decline in headline inflation, unless underlying inflation (core inflation) falls meaningfully,” said Lings after the MPC’s first meeting of the year. “In addition, interest rates will also not be cut further in an effort to boost economic growth. ..Furthermore, the inflation benefit of the lower oil price is expected to be relatively temporary. Instead, the outlook for interest rates is more dependent on the rand exchange rate coupled with the path of global interest rates, and SA’s ability to fund our current account deficit.” So far – a cut might seem unlikely. If interest rates are cut how would your portfolio respond and what (if anything) would you need to do?
difficult – both can surprise in speed and depth of change – but expectations are for lower inflation numbers in 2015. For the year ahead inflation is forecast to average an impressive 4.5%, says Stanlib chief economist Kevin Lings.
It remains a valid investor and retiree argument that the official inflation number is not what many experience – but it does affect interest rates and that directly affects investors and asset class performances.
Is your portfolio ready for an inflation surprise and have you factored in the possibility of both an interest rate rise and an interest rate cut? We pose an investor question: Is there a possibility of an interest rate cut?Last year SA experienced two rates increases – and the expectation was for a slow – steady rise.
If inflation surprises will interest rates surprise?
Inflation watch
Compliancealigning your business with values. Page 11
In 2014, the official inflation figure was 6.1%. This is higher than the 2013 figure of 5.7% and just outside the
inflation target (3-6%). As an oil consuming economy, South Africa is affected by the oil price – and the dramatic fall in the price of crude has helped the inflation numbers, although a depreciating rand offsets some of these gains.
Forecasting both the oil price and the rand - US dollar exchange rate is notoriously
YOU ONLY KNOW TRUST ONCE YOU EXPERIENCE IT
At Auto and General, the opinions and ideas of our brokers have helped to forge a dynamic and solid
relationship. Join the Auto and General familyas a broker, and be part of a strong and
successful partnership.
Call us on 0800 100 011 to join us as a broker partner.
Auto & General is an authorised fi nancial services provider (FSP licence number: 16354).
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31 March 2015
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64% equity long/short
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Unless previously agreed in writing, Money Marketing owns all rights to all contributions, whether image or text. SOURCES: Shutterstock, supplied images, editorial staff.While precautions have been taken to ensure the accuracy of its contents and information given to readers, neither the editor, publisher, or its agents can accept responsibility for damages or injury which may arise therefrom. All rights reserved. © Money Marketing. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, photocopying, electronic, mechanical or otherwise without the prior written permission of the copyright owners.
© Money Marketing is not a financial adviser. The magazine accepts no responsibility for any decision made by any reader on the basis of information of whatever kind published in the magazine.
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Adapt and protectAt the beginning of February the weathermen told us that parts of the country were in a heatwave. I could have told them this.
Apparently the average temperature in Pretoria for February is 28 degrees. For the first few days of the month – the temperature in Pretoria was over 30 – by a few degrees. This - I think - is high. Climate change people tell us that a one degree change is significant. I don’t know when a temporary change becomes a permanent change.
Nasa has a great climate change website. They show a graph of temperatures dating back to the 1880s. 1909 was the coldest year in the past 135 years. There were 1.75 billion people inhabiting our planet. Today there are over 7 billion and we just keep getting hotter.
How do we adapt to heat? We use electricity to cool down. I’m not really finding the win win situation here! Sustainability might become an issue unless we get really creative, innovative and inventive.
Adapt or die. Humans have become very good at adapting – we have surrounded ourselves by convenience and protection against all sorts of events. But some things hit us really hard – some things we cannot control. The tsunami of a few years ago, the earthquake in Japan, floods.
Adaptation is far more than just building protection. And it applies to both environmental and societal events. Crime for example – if we close a road to protect our neighbourhood do we remove crime, move crime or change crime?
Much of what we buy financially is about protection. And protection is really important. But adaptation also needs to be part of our financial plans. Situations and environments and society are so fluid – how different does your world of today look to ten years ago? Twenty? Would you have guessed twenty years on this is what your life would look like? These things are fun and scary - and all part of planning for the future.
Have a wonderful month.
Patricia [email protected]@MMMagzawww.moneymarketing.co.za
The South African hedge fund industry grew its assets under management by a healthy R10.5 billion in the 12 months
to 31 December 2014, ending the year with assets under management of R57 billion.
These assets are invested in 113 hedge funds, which are managed by 55 hedge fund managers.*
These 2014 statistics for the local hedge fund industry come from the Association for Savings and Investment South Africa (ASISA), and show that the industry has enjoyed consistent steady growth of around R10 billion a year over the past three years. At the end of 2012 assets under management amounted to R36 billion and at the end of 2013 assets stood at R46.5 billion.
Robert Foster, convenor of the ASISA Hedge Funds Standing Committee, says the 10 largest hedge fund asset managers are managing 69% of the hedge fund industry’s total assets under management.
The most common hedge fund strategy in South Africa is referred to as ‘equity long/short’. At the end of December 2014, some 64% of hedge fund assets were invested in this type of strategy.
The HedgeNews Africa Long/Short Equity Index delivered a performance
Hedge funds – regulation coming to a growing industry
of 14% for the one year to the end of December 2014, 13.7% over five years and 10.3% over the seven year period ended December 2014. By comparison, the JSE All Share Index (ALSI) achieved a 10.9% return for the 12 months ended December 2014, 15.8% for the five years and 11.3% over the seven year period ended December 2014.
Misconceptions about hedge fundsFoster says a common misperception is that hedge funds are a type of asset class.
“Hedge funds are not an asset class. Instead they manage asset classes such as equities, bonds, cash and property by applying specialist strategies such as equity long/short, fixed interest
hedge and multi-strategy.”Foster says hedge funds
aim to reduce market volatility for investors by applying specialist strategies and should be considered as one of the building blocks of a well-diversified investment portfolio.
According to Foster, South Africa will become the first country in the world to offer comprehensive regulated hedge fund products as soon as the Minister of Finance approves draft regulation under the Collective Investment Schemes Control Act (CISCA).
“Once hedge funds fall under CISCA, they will be deemed regulated collective investment schemes, just like unit trust portfolios.”
*Funds of funds excluded.
Patricia Holburn
YOU ONLY KNOW TRUST ONCE YOU EXPERIENCE IT
At Auto and General, the opinions and ideas of our brokers have helped to forge a dynamic and solid
relationship. Join the Auto and General familyas a broker, and be part of a strong and
successful partnership.
Call us on 0800 100 011 to join us as a broker partner.
Auto & General is an authorised fi nancial services provider (FSP licence number: 16354).
6109 Money Marketing_330x245mm r5.indd 1 2014/09/05 11:18 AM
Your graduate professional clients have spent years developing their unique skill sets. Only they can do what they do – and earn what they earn. They’re specialised people and they need insurance that’s just as specialised. Our reinvented PPS Sickness and Permanent Incapacity Benefi t is unmatched in the market. Not only does it offer your clients the ability to comprehensively insure their most valuable possession – themselves; it also offers you the ability to provide unparalleled advice.
It takes a specialist to understand a product as specialised as ours.
PPS offers unique fi nancial solutions to select graduate professionals with a 4-year degree. PPS is an authorised Financial Services Provider.
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The Financial Planning Institute of Southern Africa appointed David kop as head: Advocacy and Consumer Affairs, Sherma Malan as head: Membership and Corporate Relations and lelane Bezuidenhout, as Senior Certification manager. S&P Dow Jones Indices announced the launch of the S&P Quality South Africa Index, licenced to Satrix, designed to measure high quality stocks in the South African equity market.
The Cannon investment team and the direct equity team of Citadel merged and Dr Adrian Saville will be assuming the role of Citadel chief strategist.
Financial Planning Standards Board re-appointed Sankie Morata as chairperson. Camargue Underwriting Managers acquired UMA, Synergy XOl (Pty) limited, following the sad and untimely passing of the company’s managing director, Peter Hodgson.
Andrew Brotchie has been appointed MD of Glacier International.
Louis Venter (above) has been appointed as head of Private Client Services in South Africa for Maitland.
GEPF choose Standard Bank to provide Master Custody and Recordkeeping Services for its more than R1.5 trillion of assets.
Investec Asset Management’s funds within its flagship luxembourg-domiciled UCITS Global Strategy Fund range will have the capability to invest in the Chinese domestic equity market using Shanghai - Hong kong Stock Connect.
4
PR
OF
IlE VerY BrIeFLY...
DOWNS
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There are not enough people speaking about the quality of the financial planning industry. Historically the industry has had quite a bad reputation and the consumer still has a lingering negative perception. But there has been so much change in the industry and it is now definitely professional. Being financial planner of the year has given me a great opportunity to talk about the industry and uplift it and the perceptions of it.
The FPA conference in the USA was absolutely fantastic and the presenters were superb; the conference was jam-packed with content. The challenges we face are the same all over the world. It was in Seattle – a place I had never been before – but if I got 2-3 hours a day outside of the conference to explore it that was a lot.
Clients are loyal to good financial advisers. Over time your financial adviser becomes your confidant and friend. You can never really break that loyalty.
I am seeing a lot of people qualifying as financial advisers – this is fantastic. But the barriers to entry are high, it takes time to build revenue streams and we need some sort of model to deal with this. Within six months of entering the industry youngsters can become disillusioned.
New entrants into the industry need opportunity and inseta learnerships could be one of these – although setting it set up is arduous. I would say to new entrants don’t give up too early. It is a great industry and once you have built a client base earnings are sustainable.
I wouldn’t advocate specialising – some specialists are great but it can lead to a very narrow
focus and having one revenue stream is a business risk. I would use specialists where necessary - but the relationship with the client rests with the adviser.
Product knowledge is massively important in the industry and I would like to see the second level REs move along. I was disappointed when they didn’t follow RE1 exams. I believe RE1 made people in the industry, and the industry, better. Legislation has made the industry more professional. Yes, there is a cost element – but if you are looking after someone’s financial affairs – that is a serious obligation.
When I am reading I like to learn at the same time and the Financial Planning handbook is next to my bed. I’ve never stopped studying.
I am terrible at golf – but I persevere because it is really good fun. My handicap is a handicap. I’m not an avid golf or sports watcher – but I would say my favourite golfer is Sergio Garcia. I do enjoy going out to the bush and I love nature. I also love eating out – this tends to show in the waist!
And I love braaing. I braai at least once a week – sometimes twice. It is a great time to spend with family.
When they were quite young we opened bank accounts for our children and put money in the accounts instead of giving them pocket money – they have to manage their own cash flow. It is a good opportunity to educate them on money and money management.
Retirement to me is scaling down – I would still want to be involved in the business and running a practice – my clients are my friends.
We have a great industry Peter Hewett, Financial Planner of the Year 2014, managing director of Efficient Advise, is a braai fan with a golf ‘handicap’
Legislation has made the industry more professional
31 March 2015
UPS
SA Reserve BankWhen it comes to leadership of institutions in SA the Reserve Bank has set a good example. Reserve Bank governors stay their terms, balance the many expectations and stick to their mandate. In a country where leaders come and go, and policies change frequently, the Reserve Bank has continued to stick to its mandate, and provided certainty. They also get kudos when it comes to succession. The Reserve Bank also communicates its decisions and reasons for those decisions on a regular basis. Previous governor Gill Marcus called the SA economy as she saw it – giving SA much to think about. latest governor lesetja kganyago has been clear in his communications and decisions and given clear direction on how interest rates in SA could go in various circumstances.
Policy certaintyThe State of the Nation address delivered on 12 February did little to establish policy certainty around SA Inc. Viewed by ratings agencies and investors as critical, policy certainty is an area where SA has experienced problems. Nationalisation of mines is one well known example. More recently policy certainty seems again unclear. SONA spoke about land rights –
and seemingly disallowed foreign ownership of land by foreign nationals. At the same time,
mention was made of attracting foreign skills to SA, which would involve relooking at Migration policy. Policy certainty is critical if SA is to attract foreign investment and skills – so vital to our economy. It could be an area where we punch above our weight – and this could boost growth – but less confusion and contradiction
is required.
Your graduate professional clients have spent years developing their unique skill sets. Only they can do what they do – and earn what they earn. They’re specialised people and they need insurance that’s just as specialised. Our reinvented PPS Sickness and Permanent Incapacity Benefi t is unmatched in the market. Not only does it offer your clients the ability to comprehensively insure their most valuable possession – themselves; it also offers you the ability to provide unparalleled advice.
It takes a specialist to understand a product as specialised as ours.
PPS offers unique fi nancial solutions to select graduate professionals with a 4-year degree. PPS is an authorised Financial Services Provider.
#joinourtable
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31 March 2015
www.fidsa.org.zaESTATE PLANNING | TRUSTS | WILLS | ESTATES | BENEFICIARY FUNDS
A professional is known by four hallmarks: Education, Examination, Experience and Ethical Behaviour. Since 2011, FISA has offered an annual examination that allows the successful candidate to apply for the Fiduciary Practitioner of SA (FPSA®) designation. Furthermore, our education partner, the Unversity of the Free State, is introducing a programme in fiduciary practice from 2015.
FISA has a strong Code of Ethics, as well as a Continuing Professional Development programme. Our strong reputation has led to:
• Increasedawarenesoffiduciarymattersinthemedia• ClientsdemandingtodealonlywithFISAmembers• Theauthoritiesconsultingusonindustryissues• Membersexperiencingapromotionoftheirinterests
The required standard of professionalism
FISA Money Mkt Ad - 155mm x 105mm.indd 1 2014/11/10 22:32:53
FIdUCIArYMATTers
lESlEY MAMAN
Brought to you by the Fiduciary Institute of Southern Africa (FISA)
Revoking a donation for gross ingratitudeThe law on donation and the
revocation of gifts in South Africa is governed by Roman Dutch Law. There exists a
principle of gross ingratitude, where the donor (of a gift) may revoke the donation made, if the donee acts with gross ingratitude towards the donor. Fiduciary practitioners and financial planners should bear in mind that circumstances may exist where a gift is revocable such as if the donee fails to give effect to a direction for its application or on the ground of the donee’s gross ingratitude.
A donor is entitled to revoke a donation on account of ingratitude if
6
A donation is an agreement
the donee causes the donor to suffer an atrocious injury, willfully causes them great loss of property, makes an attempt on their life or does not fulfill the conditions attached to the gift. There are probably also other equally attributable causes where a donation may be revoked.
According to Potte v Rand Township Register 1945 ad 277 at 290 “a donation is an agreement which has been induced by pure benevolence or sheer liberality whereby a person under no legal obligation undertakes to give something to another person, called the donee, with the intention of enriching the donee, in return for which
neWs &OPInIOn
Law on donation and the revocation of gifts in south africa governed by Roman dutch Law
Principle of gross ingratitude - the donor (of a gift) may revoke the donation made, if the donee acts with gross ingratitude towards the donor
the donor receives no consideration nor expects any further advantage”.
According to Voet, Commentarius 39. 5. 22, one of the grounds on which a donation may be revoked is gross ingratitude on the part of the donee. Under these circumstances, the donor may recover the gift if the donee has shown ingratitude towards the donor. This principle was followed in Mulligan v Mulligan 1925 W.L.d 178 at 180 where the court stated that: “the donee may demand the return of the gift on the basis of any act of ingratitude. It further stated that: “The right to revoke on the ground of ingratitude is recognized in the Roman - Dutch law where a gift has been accepted. Five reasons for revocation are given Voet (39. 5. 22) says it does not seem to admit of doubts that a gift can be revoked for similar and other weighty reasons.”
As an action for revocation of a gift based on gross ingratitude is of a personal nature, the question to ask is whether the cause of action in such a case would survive the death of either party in any proceedings.
If the cause of action dies with the death of the donor, the donee will be enriched to the detriment of the donor. The application based on gross ingratitude for the return of donated property must continue as the property forms part of the deceased’s estate and the benefit should accrue to their heirs. The donee will be unjustly enriched where retaining the property is not supported by acceptable cause. To prevent unjust enrichment it may therefore be a viable option to substitute the deceased with the executor to continue an action instituted for the revocation of the gift.
The principle of revocation of a
donation for gross ingratitude was invoked in an unreported case Fenton v Fenton Case 21384 of 4 May 2006 in the Transvaal Provincial Division (as it was then) which was an outright judgement in favour of the plaintiff whose cause of action was based on gross ingratitude.
Although the detail of the case is beyond the scope of this article, the principle is generally an interesting one and I would encourage those involved in estate planning to bear in mind that while donations are a useful planning tool, there can also be unforeseen consequences.
This article was written by Lesley Maman, a FIsa member and attorney with Friedland hart solomon nicolson The Fiduciary Institute of Southern Africa (FISA) is a non-profit organisation that represents fiduciary practitioners and sets high minimum standards for the industry to protect the public’s interests. FISA is the only professional body focusing solely on fiduciary practitioners in Southern Africa.
Membership is drawn from trust companies and banks, as well as the legal, accounting and financial planning professions.
Activities of FISA members include but are not restricted to estate planning, the drafting of wills, administration of trusts and estates, beneficiary funds, tax and financial advice and the management of client assets.
FISA members collectively manage in excess of R280 billion. They draft several thousand wills each year and administer around 50 percent of deceased estates reported to the Master’s Office.
FISA helps to make processes smoother for members and the public, particularly through its good working relationship with the Master’s Office and SARS.
The world is changing at a rapid pace and keeping abreast of world events, rising food and
fuel prices, inflation, interest rates, workplace pressures and family demands is no easy feat. To help consumers navigate these trends and changes, BrightRock recently hosted a Google Hangout to discuss
how the latest trends are likely to impact South Africa. The hangout was facilitated by radio veteran David O’ Sullivan; and featured trend analyst Dion Chang and micro–economist Trudi Makhaya.
The Google Hangout was hosted as part of one of many conversations taking place on BrightRock’s Change Exchange
How to stay ahead of the trends in 2015(www.changeexchange.co.za), a dynamic online platform that taps into the emotions behind consumers’ biggest life changes.
Trudi Makhaya shared her insights into the economy on how the public stands to benefit from the declining oil price. “We go into 2015 very much enjoying the benefits of a windfall, in the form of a lower oil price. That’s actually been very good news – that consumers now have disposable income. That’s the good news part of it.”
Makhaya added to these sentiments by emphasising that economic growth will remain limited. Dion Chang on the other hand, spoke about the technology trends that 2015 has in store. “You’re starting to see the effect of digitisation in various industries [but] the industries
that are really going to feel the impact are healthcare and financial services.”
Chang is referring to advancements such as remote monitoring, that gauges the type of medical emergency that is being experienced, to ambulance drones. He noted, however, that the main barrier preventing the public from achieving the full scope of what technology has to offer is access to proper, affordable broadband. “Until we’ve got good internet coverage, fast download speeds and low data charges in South Africa, receiving the full scale of technology is going to be a bit of a way off,” adds Chang.
Other trends that Chang identified during the discussion included that of the ‘rise of egg-freezing’ parties, which started in New York last year.This trend applies to
the women who are deciding to have children much later, after having focused on their careers at younger ages. ‘The death of the career – the single career’, people will be more prone to have five, if not more, different career trajectories during their lifetime. Another trend that came up during the hangout was the end of the office era and the beginning of “workstation popcorning” – a form of productivity where employees group tasks into groups and work from different locations throughout the day.
According to Suzanne Stevens, executive director at BrightRock, the aim of sessions like the one with O’ Sullivan, Makhaya and Chang is to get industry leaders, analysts and consumers engaged in a frank conversation about the changes we all face.
Old Mutual Investment Group (Pty) Limited is a licensed financial services provider. Unit trusts are generally medium to long-term investments. Past performance is no indication of future performance. Shorter-term fluctuations can occur as your investment moves in line with the markets. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. Unit trusts can engage in borrowing and scrip lending. Fund valuations take place on a daily basis at approximately 15h00 on a forward pricing basis. The fund’s TER reflects the percentage of the average Net Asset Value of the portfolio that was incurred as charges, levies and fees related to the management of the portfolio. *Performance as at 30 September 2014. Since inception 1994.
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Politicians, stop treating us like fools!
8
PrACTICe MAnAGeMenT
It has been said that ‘Power corrupts, but absolute power corrupts absolutely’, but what is
more subtle is the ability of politicians all over the world to forget almost instantly their previously stated positions on many issues.
At first I felt rather sick listening to the American big guns become instant lovers of free speech, freedom of the press and generally ‘freedom’ of everything. My first impression was that they are just acting like a ‘real Charlie’ rather than relating to anything that Charlie Hebdo actually stands for.
With Julian Assange still holed up in a London Embassy, too afraid to leave in case he ends up part of a little US ‘rendition’ and with Ed Snowden sitting in Moscow too afraid to leave and return to his own ‘land of the free’ it was almost too much to hear Mr Kerry (with the strange hair) tell us how the US is the land of free speech and the greatest bastion of freedom.
Yet as that wonderful reaction unfolded in Paris, as one million people marched for freedom and in protest against those Islamists who would have us all return to the 12th Century, I deduced
that people power, and thus votes, can sway even the most cynical and politically manipulative politicians.
Political hypocrisy has been rampant of late, Cuba is now a decent country and a great nation to ally with according to Mr Obama, which is rather a strange ‘new’ idea because, other than the US who think that anything other than a two party system is ‘communist and subversive’, no one else thought of Cuba in any other way, did they?
Then the Americans urged us all to ‘get Green’ and make climate change our number one priority, thanks again
Mr Kerry but how did your country vote on the Kyoto Protocol? Oh yes, you tried to kill it off, but then they say there is no one as zealous as a convert. I must stop picking on them, but the Americans decided that after torturing detainees in Afghanistan, Iraq and Guantanamo Bay for decades, it really was not a nice thing to do and so they are now acting as though they only found out about it last week. Obviously one or two junior heads will now roll to protect the backsides of everyone from Bush on down, including Mr Obama.
Yet do not despair, the ‘Je
People power can sway even the most cynical
31 March 2015
THe InsIder CHrOnICLes
IAN kIlBRIDE
Suis Charlie’ and ‘I am not afraid’ march and campaign may add some momentum to the dawning realisation in politicians minds that we listen to what they say, what they promise and their stated convictions, and we will hold them to it all.
For far too long the West and a great amount of its ‘free press’ has allowed politicians, and self-serving billionaires, to get away with talking rubbish and when necessary rewriting their own history. Political power may be more transient than a billionaire’s pot of financial self-protection, but it is not the role of any form of our free press to suck up to, or pat the head of, any politician who seeks publicity, or any billionaire who simply needs petting.
If nothing else let us hope that the mindless killings, in a first world city, will galvanise public resolve, wake up the mainstream Muslim Community to what is being conducted in their own religion’s name and force politicians, those democratically elected at least, to honour their commitments.
Lastly, when little 10 year old girls are used by the ‘brave and fearless’ Jihadist’s in Africa to kill hundreds, possibly even thousands, what will it take to wake up our own continents politicians, a nuclear bomb under their heated limo seats or the threat of losing their car pool and or travel privileges?
If Africa wants to be taken seriously then it needs to act like a modern, democratic and organised continent of progressive nations, not a back water of no go zones and areas with badly trained, equipped and motivated security services. Watching the Nigerian army on the news this week convinced me that they would not last an hour in Liverpool or Manchester on a Friday or Saturday night at throwing out time, let alone take on psycho Jihadists’ in their own back yard.
Ian Kilbride is chairman of Warwick Wealth
9
PrACTICe MAnAGeMenTA core element of authenticity is required
31 March 2015
PrOFessIOnAL POInTs
ERICA STEEMAN-DUNCAN
Gearing compliance for tomorrowTreat Customers Fairly
(TCF), “The 6 TCF Outcomes” and “Risk Based Assessments”
are not buzzwords to be thrown around lightly and merely added to a Financial Services Provider compliance tick list.
The implementation of TCF Principles and Risk Based Assessments requires the core element of authenticity to be compliant and is a reality that cannot be ignored. As such, giving only a cursory acknowledgement to legislation and its regulations, creating generic policy and procedure documents, is not how you want to be conducting your financial services business in 2015 and beyond.
Financial services is a dynamic industry driven by consumer demand, technological advances, global trends and influences, product innovations, to name just a few factors. In response to this, unsurprsingly, the governance of the industry is just as dynamic and demands greater attention now than ever before.
Regulators across the globe
are adapting their legislation to better focus on the conduct of service providers, and are taking a risk based approach. Those providers that have not already shifted operations and strengthened back office support to embrace this risk based approach are going to have to play catch up.
TCF covers every aspect of the business: Culture and Governance; Product and Service Design; Disclosure; Suitable Advice; Performance and Ongoing Service; and last but not least, Claims, Complaints and Changes. Risk Based Assessments cover every aspect of the business, from corporate governance (whether you are a listed company or a sole proprietor) all the way to complaint handling and record keeping.
When one looks in general at the principles behind these “new” trends, one finds basic good business practice principles that have been around since the beginning of, well, the beginning: Assess your risks and focus your attention accordingly; provide a product or service that your customer needs, and can afford; engage with
your customer and add value so that you are chosen above your competitor; make sure your customer can trust you and they will never leave… Clearly, it just makes good business sense to follow the TCF principles and take a risk based approach.
With these basics now becoming part of the regulatory framework, there is an added layer of administration or compliance to meet the requirements: providers need to be able to prove that they are implementing TCF principles and have used a risk based approach. This requires resources, and resources cost money, especially if the job is done well. The mind-set of keeping administrative (and hence compliance) costs to the bare minimum is one old practice that may no longer be valid. The Compliance Function should be seen as part of business and a vital cog in the machine: It may not generate income directly but the costs of not employing adequate compliance resources and thereby not embracing the TCF principles and risk
based approach, could be debilitating.
Those financial services providers willing to take the plunge and engage competent compliance specialists to assist with conducting risk based assessments and then embedding the TCF principles, will certainly reap the financial rewards down the line.
Erica Steeman-Duncan is Head of Risk and Compliance, deVere Investments South Africa (Pty) Ltd
deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients. It has a network of more than 70 offices across the world, over 80,000 clients and USD10bn under advisement.
31 March 2015
0128_Money Market A5 ad_PATHS.indd 1 2014/02/11 9:11 PM
10
COMPLIAnCe
Has TCF made the FAIS Act superfluous?
BY RICHARD RATTUE managing director, Compli-ServeSA
Many advisers are frustrated with the ongoing increase in legislation and regulations they have to comply with
which have seen an inevitable increase in the cost of doing business over the last few years. One of the more comprehensive initiatives has been Treating Customers Fairly (TCF) which seeks to ensure that customers get a fair deal. There appears to be some market sentiment that TCF will be legislated leaving the FAIS Act superfluous to requirements; but is this really the case?
The short answer is ‘of course not’. To begin with, TCF is a regulatory framework, not actual legislation. While it would be wonderful if all that was needed to ensure that customers are always treated fairly is a principles-based framework like TCF, this is hardly the case.
late last year, the FAIS Ombud celebrated its 10th anniversary, and reported that the growth in complaints continues to be concerning. In its first year of operation, the Ombud’s office received 3806 complaints. According to their latest annual report, the Ombud received almost 9439 complaints. The short-term insurance industry contributed close to 3000 of these complaints, and the long-term insurance industry came in second at just over 2500, while
the investment sector contributed close to 1500 complaints.
The high number of complaints shows that the need for redress through avenues like the Ombud is real.
The ongoing increase is not entirely due to increased malfeasance on the part of advisers; it is also a function of the fact that consumers have become more aware of their rights since the advent of FAIS. However, inefficiencies and inequalities in the market that cost people money and time still remain.
Does the increase in complaints suggest that FAIS has failed? Hardly. No piece of legislation is an exact science; FAIS is still important because the foundations it was built on have not changed. There is still a strong need to ensure that customers receive fair, professional services, understand what they’re buying and they’re charged a fair amount.
While it is rumoured that changes to the FAIS Act are being considered, whatever comes out in the end will likely still look and smell like FAIS ie will have fair treatment of clients close to the heart.
The FAIS Act has changed the financial services landscape over the last 10 years and made financial services a safe place for consumers.
1131 March 2015
Re-evaluate your business:
With FAIS being 10 years down the track, the TCF framework being implemented and RDR on the horizon, this is an opportune time to re-evaluate why and how you do things and overhaul your business and compliance processes. With change being a certainty and challenges inevitable, some of the things that need to be done are:
• Understand your business values. Write them down, communicate them and remind yourself and your staff about them regularly.
• Design or re-design systems and processes to be reliable, repeatable and aligned with your values. They should give your customers confidence when they do business with you.
• Find ways to maximise the use of resources to give you and your team the best chance of success and support the growth of your business.
• Optimise the use of your resources so you can efficiently deliver on your promises whilst ensuring your business remains profitable and is sustainable into the future.
• With the help of a professional or expert, test your processes against what is required of you by law and fine-tune these where required.
• Measure and monitor your progress.
Regulation and compliance are here to stay and they form part of financial adviser’s daily tasks. Integrating these requirements with the goals, objectives and values of your business will enable you to secure a sustainable future.
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COMPLIANCE
RISK MANAGEMENT
BUSINESS INTELLIGENCE
PRACTICE MANAGEMENT
COMPLIAnCeBeing fair is an admirable quality
Operating your financial advisory business in line with your value system may mean that complying with regulation is easier than you think.
Having to follow rules or doing something you have been told to do is not always easy.
Understanding the reasons for the required behaviour brings greater acceptance and willingness to do what is required. However, doing something you believe in, which you believe to be right, is not difficult. This is because adherence comes more naturally if it forms part of your value system.
Sometimes a slight shift in perspective can alter the way we see things. For a moment, try to step away from terminology such as compliance and regulation, which may have burdensome connotations or elicit feelings of frustration, and focus on your business. When last did you evaluate what you are passionate about in your business, what you believe to be right? How do you see your customers and the services you provide to them? How would you like your customers to see your business and what would you like them to tell their friends or colleagues about their experience of your service?
By establishing what is important and recalling the business values you believe in, you may be surprised to find that these are already aligned
with the rules and regulations by which you are required to operate. In considering how you would want to be treated and how you would want to treat your customers, you may also find that compliance and the accompanying processes may in fact serve your own business goals and ideals.
Keep in mind that just because something has always been done in a certain way does not mean that it is still the right way or that it should not change. We live in a world that is evolving and we have to be able to adjust. Making changes to align your business operations with regulation may also better serve your business values.
Being fair to the people with whom we interact and those we serve is an admirable quality and we should aspire to do this daily. Do you think you have to be fair in your business because it is formally set out in the Treating Customers Fairly (TCF) outcomes, or because it forms part of how you like to run your business? Although you may achieve the same end result when implementing fairness in your business, your approach may be vastly different if it is something you are passionate about.
Aligning business with values makes for easier compliance
BY NICkY NAIRNhead of compliance, Masthead
PKF South Africa Inc is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms. PKF in South Africa practise as separate incorporated entities.
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12
recent reviews and assessments of the ombud’s schemes have pointed to weaknesses in the current system
customers are not adequately protected in South Africa and the initiatives already made “can be strengthened through structural change.”
Noted weakenesses in the system include fragmentation, inconsistency and incompleteness of regulation across the sector.
What makes an effective Ombud?The discussion paper comments that an effective ombud system will ensure that: • Customers have more
confidence in using financial services as they know disputes can be fairly and independently heard and adjudicated speedily at reasonable or no cost
• Financial institutions will be assisted to resolve
disputes with customers they are unable to resolve themselves
• Unscrupulous and abusive financial institutions that do not treat customers fairly will be held to account
• Feedback from ombuds schemes to policymakers and regulators will indicate where regulation needs to be strengthened and when regulators are not intrusive enough
Under Twin Peaks and the review of regulation in financial services – it is proposed that additional work will be done “to improve and streamline the ombud scheme architecture, so that it efficiently delivers quality outcomes for customers and is a strong pillar in the reformed regulatory system.”
Weaknesses in the current system: According to the document, recent reviews and assessments of the ombud’s schemes have pointed to weaknesses in the current system. “For example in 2007 the FinMark Trust identified certain shortcomings in the present ombudsman structure in its report “Landscape for Consumer Recourse in South Africa’s financial services sector”. Problems which have been identified with the operation of the ombuds schemes include:
• A general lack of knowledge by consumers about ombud schemes
• Inadequate transparency and accountability of ombuds
• Jurisdictional boundaries of the various ombuds and customer confusion
• The need for greater coordination and consistency between ombuds.
It is also confusing to navigate the system for a consumer – for example you may buy a product from a bank – but need to complain via an insurance ombud. “A central call centre has been established to try and address this issue, directing complaints from a central point to the relevant ombud office, but more can – and should – be done.”
“Going forward, the role and effective functioning of the ombud schemes will need to be considered within the Twin Peaks framework. As the landscape for financial sector regulation is consolidated,
consideration must be given to how best develop a streamlined, efficient and coordinated system for ombuds.”
Thus – it is proposed that the FSOS Act is “brought into the overarching FSR Bill, and additional provisions create a much stronger, independent FSOS Council, intended to take over many of the functions currently assigned to the FSB.38.”
Once this council is established – the following in respect of the ombuds will be addressed - as part of the “gradual implementation” of Twin Peaks:
• The need for greater coordination and
consistency between ombuds • Accessibility and the state of consumer
awareness • Transparency and accountability • Jurisdictional boundaries of the
various ombuds
A super ombud?It is not yet clear on the exact role and structure of ombuds in the future. “Questions remain relating to an optimal ombud structure over the longer term, for example whether a ‘chief ombud’ would support greater consistency in approach. As the market conduct policy framework proposed in this document is evolved and measures put in place to consolidate conduct regulation in the financial sector, it is anticipated that the FSOS Council can begin putting in place measures to similarly consolidate the ombuds system, and ensure it is an effective pillar in the reformed market conduct framework.”
South Africa has for the past decade had a number of Ombuds operating in the
financial services industry that have sought fair treatment of clients and offered access to dispute resolution in a convenient, accessible, low cost manner. Ombuds have done some sterling work – and been quick to point out flaws in the industry – and unfair practices. However, a concern has been raised that overall their impact has not been as wide as the South African consumer would like. As SA moves to a Twin Peaks style of regulation – what is the role of Ombuds?
The draft Market Conduct Policy Framework for South Africa discussion document (www.treasury.gov.za) comments that financial
an ombud scheme An ombud scheme is an alternative to, rather than a substitute for, the courts. Such schemes are generally free for the customers entitled to access them. Customers are not required to use the scheme nor be bound by a decision made by the ombud, and may at any time withdraw from the process and take their dispute to court. Ombuds may base decisions on what is considered fair and reasonable rather than the strict legal position. Financial institutions, unlike their customers, are generally bound by the decision of an ombud.
COMPLIAnCe A need for greater coordination and consitency
The future of Ombuds
31 March 2015
Well-established investment platform iTransact has
launched iStructure, an innovative and exciting new series of structured products that will enable financial advisers to bring the world of institutional investing to the individual investor.
iTransact, which currently carries over 70 exchange traded products from 12 index product providers (such as Satrix, Absa Capital, Deutsche Bank and Grindrod Bank to name but a few) has introduced iStructure to stand alongside iSave (ETFs, ETNs and ETF portfolios) and iRetire (ETF retirement products). A linked endowment policy will also be available to
complement the iStructure product range.
The iStructure range provides convenient access to low-cost exchange traded products with higher growth potential and more capital protection than traditional investment products.
Global and local partners By partnering with local banks, Absa Capital/Barclays and Investec, and foreign banks Societe Generale and BNP Paribas, iTransact’s iStructure range will offer multiple index based structured products with capital protection to retail investors. This will make it easy, simple and cost effective for financial advisers and investors to access alternate markets and themes,
which have traditionally been the domain of corporations and the super wealthy. Lump-sum investments start from as little as R10 000.
What are Structured Products and how do they work?Structured products are packaged, fixed term investment products that contain financial instruments such as single securities and/or baskets of securities that are structured to benefit from most markets and market conditions by using a series of options, which power the eventual pay-out. A simple example is where, after investing in the Top 40 index for a fixed term of five years with capital protection, and
where the structured product investment strategy meets the requirements set out in the formula, the pay-out will consist of 100% of the original capital invested, plus an enhanced return, making structured products a relatively certain event in an uncertain world.
Structured products offer four key investment benefits, namely: capital protection; the potential for absolute returns in all markets and market conditions; tax efficiencies; and reduced market risk and volatility.
iStructure – South Africa’s first structured product platform for financial advisers
Multiple index-based structured products InVesTInG13
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To learn more about our philosophy based on consistency and how it can benefi t you, please speak to your fi nancial adviser or call us on 0860 105775 or visit prudential.co.za/our-funds
Source: Morningstar data for periods ending 31 January 2015. Prudential Portfolio Managers Unit Trusts Ltd (Registration number: 1999/0524/06) is an approved CISCA management company (#29). Assets are managed by Prudential Investment Managers (South Africa) (Pty) Ltd, which is an approved discretionary Financial Services Provider (#45199). Collective Investment Schemes (unit trusts) are generally medium to long-term investments. The value of participatory interest (units) may go down as well as up. Past performance is not necessarily a guide to the future. Unit trust prices are calculated on a net asset value basis, which for money market funds is the total book value of all assets in the portfolio divided by the number of units in issue. Fluctuations or movements in exchange rates may also be the cause of the value of underlying international investments going up or down. Unit trusts are traded at ruling prices. Commissions and incentives may be paid and if so, would be included in the overall costs. Different classes of units apply to the Prudential Collective Investment Scheme Funds and are subject to different fees and charges. A detailed schedule of fees and charges and maximum commissions is available on request from the company. Forward pricing is used. All of the unit trusts may be capped at any time in order for them to be managed in accordance with their mandates. Performance fi gures are sourced from Morningstar and are based on lump sum investments using NAV prices with gross income reinvested. Purchase and repurchase requests must be received by the Manager by 13h30 (11h30 for Money Market and 10h30 for Dividend Income Funds) SA time each business day. All online purchase and repurchase transactions must be received by the Manager by 10h30 (for all Funds) SA time each business day. General market performance data may have been provided for illustrative and explanatory purposes. This information is not intended to constitute the basis for any specifi c investment decision. Investors are advised to familiarize themselves with the unique risks pertaining to their investment choices and should seek the advice of a properly qualifi ed fi nancial consultant or adviser before investing.
Consistency is the only currency that matters.
A LOT CAN CHANGE IN A DECADE.
OUR COMMITMENT TO CONSISTENCY
NEVER WILL. Top quartile 10 year performance:
Source: Morningstar
Prudential Equity Fund
Prudential Dividend Maximiser Fund
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Prudential Global High Yield FoF
14 31 March 2015
The table below of the very best total return performance rankings for Collective
Investment Schemes (CIS) in South Africa over the medium to long-term (3-10 years) indicates that ETFs, often more than one, always feature in the top five performing funds over such periods of time.
This, of course, is quite surprising. After all, ETFs are index tracking products and indices measure the average returns of the market, or a particular market sector, or asset class. In theory, the ETFs should be in the middle rather than top of the class, when it comes to performance.
But clearly this is not the case. To what can this competitiveness of the South African ETF industry be attributed?
There are indices and there are indicesThe consistent appearance of the Satrix INDI 25 ETF, which is a market capitalisation index, amongst the very top performing CIS funds, indicates that this index should really be the benchmark of the South African industry. Of course, it does not contain any mining or financial shares, including property companies, so is a focused, relatively low volatility index. It has a high degree of rand hedge characteristics, as 75% of the index constituents in the INDI 25 are JSE listed companies earning the bulk of their revenue outside of South Africa.
As the number of ETPs available on the JSE grows, the capacity to select specific indices that meet the requirements of the investor
in terms of performance, risk, volatility and concentration levels improves. “Smart ETFs” with the capacity of targeting these above requirements, by using specific “smart beta” or “synthetic alpha” strategies, should lead to even more competitive ETFs in future.
CostsETFs, because they trade on secondary markets, have to have total expense ratios (TERs) that encompass all the stockbrokerage and other transaction charges, including portfolio rebalancing, at all times. The primary issuer of the product is seldom involved, so there is no way to conceal such costs, in daily NAVs or in creation/redemption prices.
The ETF always trades on a stock exchange, with its price fully reflecting the annual TER
Top five Best Performing Collective Investment Schemes in South Africa 3 Years (%)
Old Mutual Global Equity Unit Trust 36,25%
DBX Tracker MSCI USA ETF 33,74%
DBX Tracker MSCI World ETF 32,40%
Satrix INDI 25 ETF 31,82%
Coronation Industrial Unit Trust 31,57%
5 Years
Satrix INDI 25 ETF 26,00%
Coronation Industrial Unit Trust 25,96%
SIM Industrial Unit Trust 25,93%
Old Mutual Global Equity Unit Trust 25,22%
DBX Tracker MSCI USA ETF 24,57%
10 Years
Satrix INDI 25 ETF 22,66%
Coronation Industrial Unit Trust 22,16%
SIM Industrial Unit Trust 22,05%
Investec Property Equity Unit Trust 21,16%
Stanlib Property Income Unit Trust 20,97%
Source: Quarterly Unit Trust survey (31/12/2014)Note: Historical returns may not be repeated in future.
Why are ETFs the top performing retail funds in South Africa?
of the product. This “cum costs” price has, of necessity, to be low enough to discourage investors from exercising the physical swap option applying to all listed ETFs.
If the “tracking error” on an ETF is too high, an arbitrage opportunity to swap the ETF for the underlying basket of index constituent shares is triggered. This keeps ETFs honest and very low cost, to the benefit of their long-term investment performance.
The low cost structure of ETFs has a further advantage in that it enables the great majority of the dividends received from the index companies to be paid out to the ETF unit holders. Capitalising the major portion of the dividends is a key factor contributing to the good long-term performance of ETFs.
Portfolio churnGenerally speaking, indices do not change very much. Quarterly reviews of the index by the index providers seldom result in a more than 1% or so of the portfolio having to be rebalanced. Although the
weightings of the shares in the index change, this is a feature of relative price movements, so if you already own the index, you don’t have to do anything.
The lack of rebalancing transactions associated with passive index trackers, not only saves on costs, but can also reduce the volatility and avoids the scalability issues or tactical asset allocation mistakes often associated with active investment strategies.
ETFs are typically a “commoditised” investment - they deliver the average return of the market. But when this return repeatedly outperforms the majority of active investment managers or even produces the very top returns in a competitive industry, the practice of rigid adherence to active management techniques has to be questioned.
Mike Brown is managing director of etfSA.co.za
14
InVesTInG smart eTFs should lead to even more competition
Multi asset fund investors may focus on the returns
appropriate asset allocation adds, but stockpicking also contributes to performance. This is according to Kim Hubner, head of business development and marketing at Laurium Capital, a leading independent owner-managed alternative asset manager.
In February the asset manager achieved two significant milestones in its small but growing unit trust funds – the Laurium Flexible Prescient Fund and the Laurium Equity Prescient Fund. Funds under management in the two funds surpassed the R1bn mark, and the Laurium Flexible Prescient Fund celebrated its second anniversary.
The Laurium Flexible Fund is a flexible multi asset fund that has achieved annual returns of 27.5%* pa for its
investors. The unconstrained mandate allows the managers flexibility in asset allocation, and Hubner says good asset allocation calls in the past two years have contributed to performance. Equity exposure has been high (80% on average) as have foreign holdings. This allowed the fund and its investors to benefit fully from the bull market – locally and offshore.
Individual stock picks have also added to the strong returns – rand hedge stock holdings were high, and positions in Naspers, Comair and Aspen helped performance. Positions in Billiton and Sasol were slight performance detractors, but with a focus on not losing capital and managing downside risk, these holdings did not significantly detract from the overall performance of the fund.
As a smaller fund, meaningful positions can be taken in large, mid- and small
Flexible funds not always more risky
exCHAnGe enerGY
MIkE BROWN
Asset allocation and stockpicking key to good performance of flexible funds
cap stocks – depending on where the best opportunities lie. The fund considers the top 160 stocks in the local market.
The flexible multi asset category allows for unconstrained investing – a key strength of Laurium Capital. Flexible multi asset funds can be viewed as more aggressive and risky, but with Laurium’s experience in managing money, there is a strong focus on managing risk. Net exposure to the market is constantly monitored, as is the effect of the size of positions taken in various stocks and asset classes. “We don’t like to lose money,” says Hubner. Liquidity is also monitored.
Laurium Capital was launched in 2008, and has a six year track record in managing hedge funds, for which it was recently awarded two prestigious HedgeNews Africa Awards**.
*Returns quoted after fees**The Laurium Aggressive Long Short Fund won the prestigious Long/Short Equity category, and the Laurium Chobe Sub–Saharan Long/Short Fund won the Pan Africa and MENA (hedge) category at the HedgeNews Africa Awards held on 19 February 2015.
1663
7/E
To learn more about our philosophy based on consistency and how it can benefi t you, please speak to your fi nancial adviser or call us on 0860 105775 or visit prudential.co.za/our-funds
Source: Morningstar data for periods ending 31 January 2015. Prudential Portfolio Managers Unit Trusts Ltd (Registration number: 1999/0524/06) is an approved CISCA management company (#29). Assets are managed by Prudential Investment Managers (South Africa) (Pty) Ltd, which is an approved discretionary Financial Services Provider (#45199). Collective Investment Schemes (unit trusts) are generally medium to long-term investments. The value of participatory interest (units) may go down as well as up. Past performance is not necessarily a guide to the future. Unit trust prices are calculated on a net asset value basis, which for money market funds is the total book value of all assets in the portfolio divided by the number of units in issue. Fluctuations or movements in exchange rates may also be the cause of the value of underlying international investments going up or down. Unit trusts are traded at ruling prices. Commissions and incentives may be paid and if so, would be included in the overall costs. Different classes of units apply to the Prudential Collective Investment Scheme Funds and are subject to different fees and charges. A detailed schedule of fees and charges and maximum commissions is available on request from the company. Forward pricing is used. All of the unit trusts may be capped at any time in order for them to be managed in accordance with their mandates. Performance fi gures are sourced from Morningstar and are based on lump sum investments using NAV prices with gross income reinvested. Purchase and repurchase requests must be received by the Manager by 13h30 (11h30 for Money Market and 10h30 for Dividend Income Funds) SA time each business day. All online purchase and repurchase transactions must be received by the Manager by 10h30 (for all Funds) SA time each business day. General market performance data may have been provided for illustrative and explanatory purposes. This information is not intended to constitute the basis for any specifi c investment decision. Investors are advised to familiarize themselves with the unique risks pertaining to their investment choices and should seek the advice of a properly qualifi ed fi nancial consultant or adviser before investing.
Consistency is the only currency that matters.
A LOT CAN CHANGE IN A DECADE.
OUR COMMITMENT TO CONSISTENCY
NEVER WILL. Top quartile 10 year performance:
Source: Morningstar
Prudential Equity Fund
Prudential Dividend Maximiser Fund
Prudential Balanced Fund
Prudential Infl ation Plus Fund
Prudential Global High Yield FoF
16
InVesTInG diversification a wise option
Equity markets started 2015 with some exceptional volatility, and
commentators are particularly nervous about weak commodity prices, the timing of rising interest rates in the US and South Africa and generally slow growth around the world. Combined with relatively high equity valuations in many developed markets and exceptionally low yields from sovereign bonds in the US, Europe and Japan, it is shaping up to be a testing year for investment returns.
Diversification across many different assets, like that offered by multi-asset funds like Balanced unit trusts, seems to be a wise option in the current conditions for investors looking for inflation-beating returns while also avoiding excess volatility.
Importantly, multi-asset funds performed well in 2014: for example, while the
Multi-asset funds offer good diversification in testing conditions
local equity market (FTSE/JSE All Share Index) returned 10. 9% (before any fees) for the year, Prudential’s low-equity Inflation Plus Fund returned 11.8%, and the high-equity Prudential Balanced Fund returned 11.7% over the same period (both after fees). Within the funds’ holdings, the weaker performance from local equities was offset by good returns from listed
property, as well as offshore assets (both foreign equities and bonds).
At the same time, all is not doom and gloom for investors. Lower inflation from the fall in the oil price and slower growth has come at an opportune moment for the South African economy. With consumer price inflation projected to remain well below the South African
portfolios. Diversification across global equity markets is a good idea, as some offer prospects for better returns than South Africa over the next three years. We are holding near the maximum 25% weighting for offshore equities. In fact, we are overweight certain equity markets in Europe, Eastern Europe and North Asia like Germany and Taiwan.
In our local portfolios, SA equity remains our preferred asset class, and we are overweight equities
compared to our benchmarks. Here we believe SA equity will outperform bonds and listed property over the medium
term, especially following listed property’s strong performance in 2014. We continue to prefer financial shares like Investec and Old Mutual for their attractive valuations, as well as the larger global industrial companies that benefit from improving global growth and the weaker rand, like British American Tobacco and Naspers.
Reserve Bank (SARB)’s 6% upper target limit this year, our interest rates may not rise as quickly or as steeply this year as was previously expected. This reinforces our view of lower interest rates for longer, which should help the economy improve in 2015, and in turn support local corporate earnings growth. We may not even see a hike by the SARB this year – although this will depend on how the Federal Reserve’s monetary policy evolves, as well as the
rand’s exchange rate. Lower inflation also boosts real investment returns – which is the critical measure for proper financial planning.
Taking the current market conditions into consideration, we believe that the local equity market is slightly expensive, so we are neutral, rather than overweight, South African equities in our global
31 March 2015
INVESTMENT TOTAL RETURN 2014SA Listed Property 26.6%Foreign Equity 15.1%Prudential Inflation Plus Fund 11.8%Prudential Balanced Fund 11.7%Foreign Bonds 11.1%SA Equity 10.9%SA Bonds 10.2%SA Cash 5.9%SA CPI 5.8%
BY JOHN kINSLEYMD, Prudential Unit Trusts
Source: Deutsche Securities, Morningstar
Interest rates may not rise as quickly or as steeply this year as was previously expected
stop or start premiums when you choose
17
InVesTInG31 March 2015
definitions
ETF or Exchange Traded Fund: Is a financial instrument that is listed on and trades through the Johannesburg Stock Exchange just like a share does, but instead of tracking the performance of a single share, it can track a whole range of shares.
Index: An index measures the performance of a market or a sector of a market. By monitoring an index, you can see if a market or a sector is moving up or down. The best-known South African index is the FTSE/JSE All Share Index.
Total expense ratio (TER): Is what you pay the issuer to administrate the ETF on your behalf. This cost is expressed as a percentage of the value of your portfolio per annum. Much of the benefit of using ETFs is that they are generally on a like-for-like basis much cheaper than using unit trusts.
Itransact launched the first ever low cost Regulation 28 Exchange Traded Fund (ETF) RA Portfolios in South Africa in response to National Treasury’s discussion documents on retirement reform that highlight the historically high cost of retirement products. Costs destroy potential retirement returns. iTransact has lead the way for low cost Regulation 28 portfolios providing investors with advantages they previously did not enjoy such as low total expense ratios (TERs) and administration costs. ETFs are known to regularly outperform actively managed unit trust funds. According to Morningstar most active managers who invest in equities struggled to beat even the most basic South African Indexes over a 1,3 and 5 year period.
Low cost, penalty free retirement annuity
Choice of risk adjusted
portfolios
Low TER and administration
fees
Online reporting and daily portfolio return analysis
Stop or start your premiums
when it suits you best
No penalties
Affordable entry levels –
R300 per month and R5000 for
lump sum
The Itransact RA is perfectly suited for investors who are looking for product simplicity and transparency and who are no longer interested in expensive investment managers who fail to beat their benchmarks.key Benefits:
PORTFOLIO PERFORMANCEETF Retirement Annuity Portfolio 1 Year 3 Years 5 YearsItransact Conservative ETF RA Portfolio 8.13% 8.00% 7.52%
Itransact Cautious ETF RA Portfolio 12.60% 12.41% 12.28%
Itransact Moderate ETF RA Portfolio 14.35% 15.78% 14.84%
Itransact Growth ETF RA Portfolio 18.44% 24.32% 20.33% Source: Sunstrike Capital. As at end of December 2014
PORTFOLIO COSTS & FEESETF RETIREMENT PLATFORM FEE * INVESTMENT TERANNUITY PORTFOLIO MANAGEMENT FEEItransact Conservative ETF RA Portfolio 0.40% – 0.70% 0.15% 0.31%Itransact Cautious ETF RA Portfolio 0.40% – 0.70% 0.15% 0.31%Itransact Moderate ETF RA Portfolio 0.40% – 0.70% 0.15% 0.31%Itransact Growth ETF RA Portfolio 0.40% – 0.70% 0.15% 0.31%* 0.70% on the first R500K, 0.55% on the next 500K, and 0.40% on the amount over R1m , Fees Excl Vat
31 March 2015
BY MEYER COETZEEhead of Retail, Prescient Investment Management
18
InVesTInG returns can be volatile in the short term
Growth seeking non-retirement savers, who typically invest in pure equity funds
expected to deliver the highest real returns over the long term, should also consider specialist funds like those focusing on specific sectors, or regions where growth is expected to be superior to South Africa.
Meyer Coetzee, head of Retail at Prescient Investment Management, says there are several reasons for more astute investors to consider non-traditional offshore exposure through funds like these.
“The expected future returns from an investment into an equity fund depend on a number of factors. Two important ones are the current average market valuation of the companies held in the fund (the price you pay) and the underlying growth of the economy or region in which the companies in the fund operate (the future earnings growth you buy).
“Markets trading at a discount price to their long term averages and to other markets tend to outperform, and companies doing business in vibrant economies tend to grow their earnings more aggressively, all other things being equal.”
Diversification and correlationAlso important are the potential benefits of diversification. By investing in regions like Africa and China, there is the benefit of currency diversification as well as exposure to markets that exhibit lower correlations in returns to our domestic market.
Diversification benefits are achieved when different markets perform at different times, making the correlation of returns between them low, or even negative. For example, the historic correlation between the JSE and the MSCI World Index is above 70%, whereas the JSE and the MSCI Africa excluding South Africa Index is below 50%.
Consider non-traditional offshore exposure
Benefits include currency diversification and exposure to markets with lower correlations
“Investors are able to diversify portfolio risk by having exposure to funds like the Prescient Africa Equity Fund because the returns are expected to show lower correlation to local market returns, resulting in a ‘smoother ride’ when combined with local equities. Likewise, with an option like the Prescient China Balanced Fund, which is essentially an equity fund investing in mainland China,” says Coetzee.
Not for the faint heartedThat said, Coetzee acknowledges that both the Prescient Africa Equity Fund and the Prescient China
Balanced Feeder Fund are not for the faint hearted.
“The returns of both funds can be quite volatile over the shorter term. Both invest in dollar denominated assets, so the rand dollar exchange rate directly affects their return profiles. During 2014 they both benefitted from the 10% devaluation of the rand to the US dollar, but that can obviously swing around.
“Although both funds hold a well-diversified portfolio of equities across sectors and industries, and in the case of Africa, countries, and both manage risk actively by avoiding excessive exposures to individual stocks, the nature of the markets they invest in means that performance, in local currency terms, can be quite volatile. Being 30% up one year and 10% negative the next is theoretically quite possible.”
However, he says investors can mitigate or manage this risk by limiting the total exposure in their overall portfolio to these markets. While there’s no hard and fast rule, generally exposure of 10% to 15% in a broader balanced portfolio to Africa and China combined could be considered reasonable.
Track record and future returnsIn terms of track record, the Prescient China Balanced Feeder Fund, the rand denominated China equity fund, returned just over 46% after fees for calendar year 2014. This made it the top performing fund in the South African unit trust market for 2014.
For the first nine months of 2014 to end of September last year, the Prescient Africa Equity Fund delivered a gross return of 21.1% in rand terms versus the JSE All Share‘s 5%. However as the oil price fell sharply the Nigerian market took a heavy beating, ending the year down 27% in US dollar terms. The Ebola outbreak also tempered sentiment. This detracted from the Fund’s performance.
Negating this, Egypt returned around 30% in US dollar terms for 2014, helping the Prescient Africa Equity Fund end the calendar year up 5.5% in rand terms.
Looking at expected future returns, it’s worth noting that China’s equity market is currently trading at a discount of some 22% to the US market, with consensus earnings growth at least double that of the US.
According to Coetzee: “Admittedly, there are risks to the China market but we believe that a sound philosophy and robust investment process, as embedded in the Prescient China Balanced Fund over the last three years, can continue to extract tremendous value from the world’s soon-to-be largest economy.
“Similarly, expected high economic growth, positive demographics, urbanisation, infrastructure development, mobile and other technology penetration, amongst others, will continue to support the investment case for Africa and maintain Africa as an investment destination of choice.”
Market returns In the fourth quarter of 2014 (us$ returns)
US market - a positive return of just less than
5%UK market - down
4%Europe fell
6%Emerging markets dropped
4.5% JSE Top 40 was off
2%China returned an impressive positive
43%!China
Africa
1931 March 2015
Fixed or flexible?
BY MAHESH COOPER, head of institutional client services, Allan Gray
Within a multi-asset class balanced portfolio, there are different ways to manage the asset allocation. Some managers prefer to follow
a ‘top-down’ strategy, others a ‘bottom-up’ approach. It is also possible for a manager to implement a combination of a ‘top-down’ and ‘bottom-up’ approach.
Top-downInvestors tend to be more familiar with a ‘top-down’ process. This process typically begins with an assessment of the overall economic (macro) environment. Variables such as inflation, interest rates and economic growth are forecast and then, based on this information, a decision is taken as to which asset classes to invest in – and in what proportions. As a result, one team (or individual) is responsible for the asset allocation and another team (or individual) for selecting securities within the asset class. The team selecting the securities can only do so to the extent of their allocation, as determined by the asset allocation team. As a result, there may be dissociation between stock selection and asset allocation.
Bottom-upA bottom-up asset allocation process, on the other hand, focuses on building a portfolio of assets based on the attractiveness of those assets. The asset allocation is the result of the individual securities that the manager finds attractive from a bottom-up perspective. This process links the asset allocation process to the stock selection process and the portfolios have a higher weighting to those securities that the manager finds attractive and less to those they don’t. This is different to the ‘top-down’ approach where the asset allocation is determined by a ‘top-down’ view rather than a view of the attractiveness of the individual securities.
It is important to note that because a ‘bottom-up’ process is driven by the attractiveness of individual securities, it is possible that there may be times when for example, despite the stock market being expensive on the whole, a manager may still have a high weighting in equities if they can identify sufficient shares that are still cheap relative to the other securities.
an equity perspective: The manager’s overall equity weighting would be the result of the number of shares that they find attractive in the market at a point in time rather than a macro view on equity markets• A portfolio will have a higher exposure to
equities if the manager can find attractively priced equities relative to other securities.
• When equities are expensive relative to other securities, the manager will ‘retreat’ to those securities that they believe are more attractive than equities
Sector weightingsBottom-up stock selection also influences the manager’s relative sector weightings. If the manager is able to find a number of attractively valued stocks in a particular sector, they will naturally have an overweight position in that sector. This won’t be a result of an active decision to have an overweight position relative to a particular benchmark; rather, it will be the result of the bottom-up stock selection process finding attractive investment opportunities in that sector relative to others.
This bottom-up approach allows a manager the freedom to pay little attention to benchmarks and starting from a clean sheet, to pursue investment opportunities in which they have the highest conviction. This process works well for multi-asset class portfolios as the manager is able to invest in those individual securities that he or she believes are the most attractively priced. Where a manager is given a specialist mandate, their ability to select the most attractive assets across all asset classes is removed. In an equity-only mandate for instance, the manager is forced to hold the equities he or she finds most attractive on a relative basis, even if he or she believes equities do not offer fundamental value or are expensive relative to other asset classes such as bonds or cash.
Asset allocation funds and portfolios range from fully flexible to strict limits. Flexible funds offer the investor the advantage of being in a fund that can take any asset
allocation – from a zero to 100% weighting in a particular asset class (some of these funds may have liquidity – cash requirements). This gives a fund manager complete control of the asset allocation decision – and they can take big bets. It can pay off – but not all investors want or need the risk it can bring – and opt for the more popular fund with a fixed asset allocation.
Herman van Velze is head of multi asset at Stanlib Asset Management and says that in flexible asset allocation funds you can be more aggressive and use all the opportunities available as they arise. “Over time this can add value.”
But these funds can be more risky if big calls are taken – getting a big call wrong can impact performance.
In the local collective investment schemes market – asset allocation funds with asset class weighting constraints are more popular than the flexible funds - and accounted for R768 361mn, compared to the R63 374 million in flexible funds at the end of 2014. Typically fixed asset allocation funds will have a range for each asset class or an upper limit – for example 0 – 20% cash for a high equity multi asset fund. Within these ranges managers are free to allocate funds according to where they see the best potential for returns. Van Velze says they will often have a benchmark – with some leeway in asset allocation on either side of that benchmark.
Managing asset allocation is a unique skill – because while it may seem easy in theory – it involves many factors and the skill in knowing how to use those factors, and combine assets to achieve end results. In an asset allocation fund with ranges you have to think about how much exposure the fund takes. For example, in current market conditions with the SA equity market very exuberant, Van Velze says earnings may not match expectations. This has led to moderating equity exposures to the local market.
How do you measure an asset allocation fund’s success? Nothing beats results, says Van Velze. “At the end of the day it is results.”
And when looking for a good asset allocation fund manager – look for someone with experience and a good knowledge of asset allocation in South Africa and the macro trends, he observes.
How do you select an asset allocation fund? Assess whether its objective is in line with the investor’s objective. Does it have a specific targeted return, what are the risks, what assets can it invest in and how are these managed?
asset allocation is the most important decision
that you make in investments. The ultimate value added
by good asset allocation decisions dwarfs the alpha that can be delivered in the underlying
building blocks. This is the big call and you need to get it right. I think
it makes sense to leave the asset allocation decision to someone
who has the appropriate skill set and then to hold them accountable
for those decisions. This will be even more important in the years
ahead, if our expectations of lower real returns are correct. In such
an environment, alpha becomes a ‘must-have’ and not
a ‘nice to have’.kARL LEINBERGER, Coronation Fund Managers
Asset allocation – top-down, or bottom-up?
AsseT ALLOCATIOnAsset allocation is a unique skill
nedgroupbeneficiarysolutions.co.za Nedbank Limited Reg No 1951/000009/06. Authorised financial services and registered credit provider (NCRCP16).
Call centre: 0800 220 290 Toll-free fax: 0808 222 468 Email: [email protected]
Earning your employees’ trust takes time, that’s something we are well aware of. As part of the first trust company in the world, Nedgroup Beneficiary Solutions has a wealth of knowledge that has gained unprecedented respect and trust over the years. This is assuring when choosing someone to help you take care of your employees’ best interests.
Nedgroup Beneficiary Solutions specialises in managing section 37C death benefits on behalf of children – it’s what we do best.
MAKE
HAPPEN
TRUST
Coronation remains sa’s top Management Company
Coronation Fund Managers was named South African Management Company of the Year for a third consecutive year at the Raging Bull awards ceremony. The award recognises the SA-domiciled unit trust company with the most consistent overall risk-adjusted performance* across a range of five or more rand-denominated unit trust funds (each with a minimum performance history of five years).
Pieter koekemoer, Coronation’s head of Personal Investments says: “Earning our clients’ trust is a key priority for us at Coronation, and we are delighted to again be named Management Company of the Year. As a long term manager, we aim to consistently deliver outperformance for our clients over all meaningful periods (which we define as five years or more) and across the various investor needs. We are particularly pleased that the strength of our track record in managing global assets was again recognised in its consistent ability to meet key investor needs.”
*as measured by the Plexcrown methodology system
Top Management Companies South African Management Company of the yearCoronation Fund ManagersSecond best company of the year: PSGThird best company: Nedgroup Investments
Offshore Management Company of the year Oasis
Top outright performers 3 years, straight performance Best South African General Equity Fund: Harvard House BCI General Equity FundBest South African Interest Bearing Fund: Harvard House
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delivered over the internet, which means you can access your account and allyour research 24 hours a day, and from any location
we manage all installation, maintenance and updates relieving pressure onyour IT resources
incredibly easy to navigate, despite the depth of data and the range ofsophisticated tools
your gateway to a vast array of valuable data in a product that is continuallybeing developed with your needs in mind
automatically updated daily – no downloads or CD updates
the most up to date source of fund performance and factsheet data in SouthAfrica
full of excellent, intuitive features – line graphs, scatter charts, performancetables, ratio data, factsheets, list builders and universe filters and portfoliomodelling
the output options give you the flexibility to generate professional reports andpresentations
fully supported by a professional, knowledgeable and friendly Helpdesk
A ProfileData / Financial Express joint venture
For further information, or to arrange a personal demonstration, please callTracey Wise: Cell: 079-522-8953 or email: [email protected]
Raging Bull Award Winners 2014BCI Flexible Income FundBest South African-domiciled Global Equity General Fund: Old Mutual Global Equity FundBest Offshore Global Equity Fund: Contrarius Global Equity Fund (Ireland)
Top performers on a risk adjusted basis (passive funds not rated)
Best South African General Equity Fund: Sasfin MET equity fundBest South African Multi-Asset Fund: 27Four Stable Prescient Fund of FundsBest South African Multi-asset Flexible fund: ClucasGray Future Titans Prescient fund Best Offshore Global Asset Allocation Fund: lloyds Multi Strategy Fund limited (Growth Strategy)
Raging Bull Certificate Winners Top Outright performers over three yearsCoronation Industrial FundCoronation Financial FundInvestec Commodity FundNedgroup Investments Entrepreneur FundAutus BCI Opportunity FundStringfellow BCI Stable Fund of Funds S Bro BCI Balanced Fund of FundsMET Odyssey Balanced Fund of FundsCommunity Growth Gilt FundSIM Enhanced Yield FundHarvard House BCI Flexible Income FundABSA Property Equity FundOld Mutual International Growth Fund of FundsCoronation Global Capital Plus (ZAR) Feeder FundCoronation Global Managed (ZAR)
Feeder FundCatalyst Global Real Estate Feeder Fund Imalivest MET Worldwide Flexible FundTempleton Euroland Fund STANlIB Offshore America FundSarasin IE Real Estate Equity - Global (GBP)STANllIB Global Bond FundCoronation Global Managed (USD) Fund
Top performers on a risk adjusted basis over five years27Four Stable Prescient Fund of Funds27Four Balanced Prescient Fund of Funds PSG Balanced Fund ABSA Multi-Managed Bond FundCoronation Jibar Plus Fund Coronation Strategic Income Fund Absa Property Equity Fund Old Mutual Global Equity Fund Coronation Global Capital Plus
(ZAR) Feeder Fund Coronation Global Managed (ZAR) Feeder FundCatalyst Global Real Estate Feeder Fund Old Mutual International Growth Fund of FundRootstock MET Worldwide Flexible Fund Franklin European Growth Fund STANlIB Offshore America Fund Oasis Crescent Global Property Equity FundSTANlIB Global Bond Fund Investec GSF Global Strategic Equity Fund
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Above Left: Laura de Preez (Personal Finance), Ryk de Klerk (PlexCrown), Ellis Mnyandu (Business Report),
Chris Rogerson (PSG), Pieter Koekemoer (Coronation) and Nic Andrew (Nedgroup Investments) Above right: Ellis
Mnyandu (Business Report), Shaheen Ebrahim (Oasis), Ryk de Klerk (PlexCrown) and Ernie Alexander (Profile)
The past three years in the market have not been easy and to be recognised as a top performer indicates we have done the basics right.MICHAEL PORTER, Harvard House chief investment officer
These awards are testament to the depth of our global footprint and the skill of our colleagues at both Old Mutual Investment Group and Old Mutual Global Investors.OLD MUTUAL INVESTMENT GROUP
20
AWArds Consistency counts
31 March 2015
nedgroupbeneficiarysolutions.co.za Nedbank Limited Reg No 1951/000009/06. Authorised financial services and registered credit provider (NCRCP16).
Call centre: 0800 220 290 Toll-free fax: 0808 222 468 Email: [email protected]
Earning your employees’ trust takes time, that’s something we are well aware of. As part of the first trust company in the world, Nedgroup Beneficiary Solutions has a wealth of knowledge that has gained unprecedented respect and trust over the years. This is assuring when choosing someone to help you take care of your employees’ best interests.
Nedgroup Beneficiary Solutions specialises in managing section 37C death benefits on behalf of children – it’s what we do best.
MAKE
HAPPEN
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Bigger returns, lower feesFedGroup, South
Africa’s leading independent financial services group,
recently announced the re-launch of Distinction Umbrella, a simplified, transparent employee benefit retirement offering for small- to medium-sized businesses.
According to Walter van der Merwe, CEO of FedGroup Life, the retirement industry has become extremely complex since marketing and product differentiation strategies introduced
concepts such as ‘member choice’ or ‘life-staging’, which often increase costs in the long run.
“This eats into the ultimate returns a person realises on retirement, which is why our aim has always been to maximise the final pay-out a member receives by keeping our fees low, and operating in a completely transparent manner.”
Enter FedGroup’s Umbrella Fund “We understand that every business is unique, so we
aim to treat them that way,” continues Van der Merwe. Companies are therefore able to choose from two retirement fund options in the Umbrella Fund offering: Core and Distinction.
“The key differences between the two are the degree of tailoring, and the level of interaction with the FedGroup team.”
The Core option is available to companies with five to a hundred employees, and offers simple self-help online functionality to keep administration costs low.
The Distinction option gives companies access to all the features in the Core option, with additional features such as exclusive costing, email data submission, a data manager to assist with administrative requirements, and uncapped risk cover.
“With the online integration and functionality offered in both options, businesses and their employees have the tools to easily track their investment and its performance. This level of transparency also extends to the statements
provided to members, which clearly illustrate the rand value of pay-outs, with a granular, line-by-line analysis of fees. This ensures that our clients know exactly where their money is, what they›re paying for, and how their investment is working for them,” he explains.
FedGroup also offers a range of award-winning group risk products to complement the offering, including life, illness, disability, funeral and education cover - depending on the option selected.
eMPLOYee BeneFITs Most pensions below r10 000
Many employers have employer-owned group policies to provide disability income benefits to their employees, “The employer usually
pays the premium for this benefit,” says Hettie Joubert, legal adviser, Momentum Employee Benefits. “Up to 28 February 2015, the employee will pay tax on the premium, which they can claim back at the end of the tax year. The employee’s tax position for the premium is consequently neutral. If the employee becomes disabled and receives a benefit, that benefit is taxed. The employer gets a deduction for the premiums paid on behalf of the employee.”
From 1 March 2015, this will change and the employee will no longer be able to claim a tax deduction on the premium paid for a disability income benefit. For employees whose salaries are under the tax threshold, currently R70 700, there will be no change. Employees earning more than the tax threshold may see an impact on their take home pay.
“We need to remember,” says Joubert, “that at the same time as this change happens the tax tables also adjust to avoid bracket creep. This means that a portion of the reduction in take home pay is absorbed by the higher tax margins. For most of the taxpaying employees, the impact will be negligible.”
Africa’s largest automated payments clearing house, BankservAfrica, launched its BankservAfrica Private Pension Index (BPPI), at the end of January. The index provides an income gauge of monthly private pension payments paid into bank accounts of those 60 years of age and over.
“Despite having the sixth highest pension assets to GDP ratio in the world in 2012, very little is currently known about how much South African private pensioners get paid in monthly income,” says Dr Caroline Belrose, head of Fraud and Data Analytics at BankservAfrica.
Pensioners struggling to make ends meet:
There were a total of 621 523 pension payments in December 2014, slightly fewer than in November and October. The latest BPPI for December 2014 stands at R5 722 on average, making this the fourteenth month where the ‘take-home pension’ has been over R5 000 per month. However, the median pension reveals that the typical pensioner only earns R3 559 per month, while 53.3% earn less than R4 000 per month.
The December 2014 average pension payment was 8.7% higher than December 2013, which means that on average pensioners receiving a private
pension saw real income growth of 2.8% for the year to December 2014. For the year as a whole, the average increase in the BPPI was 8% - nearly 2% higher than the average consumer inflation for 2014. Almost every month in 2014 saw pension payments rise above the inflation rate, with the exception of February 2014.
According to Mike Schüssler, chief economist at Economists.co.za, this is most likely the result of a fast-rising equity market which rose 17.8% over the year of 2014 (average until 31 December 2014) compared to the year of 2013.
The average pension for 2014 is less than 45% of the average BankservAfrica disposable salary index (BDSI). It is quite clear that
despite fast increases in pensions, both the percentage increases in pensions and their actual level lags behind figures for disposable salaries from the formal sector. More than 85% of all pensions are below R10 000.
Beware average figuresWhile the average pension has kept up with inflation, the median or typical pensioner had a nominal increase of just 2% over the last year, with many pension payments seemingly stagnant. Pension payment growth for those at the upper end is much better than for the typical pensioner.
Employers, are you ready?
The examples show the impact discussed aboveCOST-TO-COMPANY R60 000 PA R400 000 PA R2 000 000 PAInsurance salary 80% 80% 80%Income disability benefit 75% 75% 75%Replacement ratio 60% 60% 60%Monthly premium R45 R340 R1 500Tax-change impact R0 pm - R120 pm - R600 pmTake-home impact R0 pm R170 pm -R165 pmNew replacement ratio 60% 75% 90%
“If the employee becomes disabled and receives the benefit, that benefit will be tax free. This means that they will get a higher disability income benefit, which will somewhat decrease their insurance gap. The insurance gap is the gap between what the employee should have as an insurance benefit and what they actually have. As it is, most South Africans are vastly under-insured. It will not be prudent to adjust their cover downwards.”
The employer’s position remains the same – they will still get a deduction for the premiums paid on behalf of the employee.
Employees who will be receiving a disability income benefit on 1 March 2015 and who would have been paying tax on those benefits up to that date will see an immediate increase in their benefits. They will have the best of both worlds, as they will have been entitled to a deduction on the tax on their premiums before 1 March 2015, and will also pay no tax on their benefits after 1 March 2015.
Joubert says it is expected that the incidence of disability income benefit claims will rise. “If the disability benefits are not going to be taxed anymore, employees might be more likely to claim this benefit than they are now. And employees who are receiving a disability income benefit might be more reluctant to return to work because of the higher benefit.”
South Africa’s first Private Pension Index
Average take home pension
R5 772
Median pension
R 3 559
Pensions below R10 000
85%
22 31 March 2015
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12336 Disability MoneyMarket 245x330 D8.indd 1 2015/02/10 9:58 AM
Lifestyle choices can have statistical consequencesAccording to the World Health Organisation (WHO), diseases linked to lifestyle choices such as diabetes and some cancers are responsible for killing 16 million people world-wide prematurely, every year. These diseases can either be prevented or managed if people avoided bad habits such as alcohol abuse, excessive calorie intake, not exercising, consuming too much salt and the use of tobacco. On the local front it is estimated that there are 7.2 million smokers in South Africans who smoke over 60 million cigarettes per day.
Also, during 2012 an extensive health and nutrition study was conducted by the Human Science Research Council and Medical Research Council and they found that almost 80 per cent of South African woman had a waist circumference of more than 80 centimetres. The study also showed that South Africans were developing diseases from a younger age with diabetes, high blood pressure and cholesterol starting to peak from as early as 25 years, as a possible result of being overweight or obese.
Along with this, the most common critical illnesses in South Africa consist of cancers, heart disease and strokes. In fact:
The likelihood of cancer:
The likelihood of heart disease:
The likelihood of a stroke:
Before 65 is 1 in 10 Before 65 is 1 in 6 Before 65 is 1 in 50
Before 75 is 1 in 4 Before 75 is 1 in 4 Before 75 is 1 in 20
Before 85 is 1 in 2 Before 85 is 1 in 3 Before 85 is 1 in 6
Stephen van Niekerk, Head of Momentum Myriad states that “These facts are echoed in Momentum’s 2014 claim statistics because 71 per cent of all critical illness claims were a result of either cancer, cardiovascular, or nervous system related conditions. However, compared to 2013, there was a decrease in claim amounts related to specifically cancer and cardiovascular conditions.
Looking at the big picture
From a holistic point of view, Van Niekerk highlights that “Momentum Retail Insurance paid over R1.9 billion in death claims and more than R2.7 billion across all benefit types from January to December 2014, including death benefits. We are in the business of paying valid claims and we always look for reasons to do so. Therefore, we make every effort to ensure that our benefit definitions are as comprehensive and objective as possible to ensure that clients enjoy a positive claim experience.
This is why Momentum has paid in excess of R34 billion in risk claims since the inception of Myriad in 2002. Subsequently, more than 500 000 people entrusted us with their cover which is why the total sum assured
on the Myriad book amounts to over R930 billion; a clear indication that our policyholders believe in our diverse, yet focussed approach to life insurance.”
Stephen continues to explain that “Besides paying claims, Myriad gives back to clients in many other ways. Over the past 12 years, Myriad awarded more than R1 billion in Momentum Interactive discounts. This revolutionary incentive rewards clients with discounts of up to 60 per cent on their insurance premiums, for living balanced lifestyles based on factors such as body mass index, cholesterol, blood pressure or for engaging with Momentum’s rewards programme called Multiply.
With Multiply, these guaranteed discounts starts at 10 per cent with an entry level at Bronze status and increase to 50 per cent if clients are on Private Club status. In addition, clients can also qualify for a 10 per cent fitness discount.
In addition, Momentum has already allocated R450 million towards clients’ Retirement Booster values. The allocations are made to clients who have both a qualifying Momentum Retirement Annuity and a Myriad life insurance policy in place. Furthermore, Momentum continuously finds innovative ways to allow existing clients to benefit from future product enhancements. As a result, the cost of these enhancements that have been introduced to existing clients, to date, have cost Momentum in excess of R200 million. This amounts to R1.65 billion that was given back to Momentum Myriad policyholders, over and above claims that have been paid.”
Protecting our own
However, treating our clients fairly is always top-of-mind and therefore we will never discourage clients from taking their cases to the office of the long-term insurance Ombudsman. During 2014, the office of the Ombudsman received approximately 11023 long-term insurance complaints. During the same period there were 98 cases that involved Momentum Retail Insurance and once again none of these cases transpired in a ruling against Momentum.”
In closing
Stephen concludes by saying that “claim statistics are not just about crunching numbers and highlighting trends. Claim statistics tells the stories of so many people that thought ahead and realised that maybe one day they will need the help of a solid and trustworthy risk partner that makes it their business to support me and my family when it matters most, at claim stage.”
Terms and conditions apply. Momentum, a division of the MMI Group Limited, is an authorised financial services and credit provider. Reg.No. 1904/002186/06.
Lifestyle choices.indd 1 2015/02/18 9:09 PM
31 March 2015
Natural and unnatural causes of deathStats SA refer to non-natural causes – and note that the age group most affected by non-natural causes was 15–19, with 43,6% of the deaths in this group due to non-natural causes. Other ages with higher proportions of deaths due to non-natural causes were age groups 20–24 (41,5%) and 5–9 (30,8%). Ages least affected by non-natural deaths were infancy (less than 0) and older ages (60 years and older) where less than 5% of the deaths in each age group were due to non-natural causes of death.
Classifying causes of deathAs with medical classifications when we are alive, ICD-10 codes are also used to classify deaths. There are three groupings:
Group I – communicable diseases (TB, measles, pneumonia, malaria for example), affects the very young (0 years) the most
Group II – non-communicable diseases (heart disease, cancer, stroke, diabetes, 50+ year old males are most affected, 45+ year old females. Deaths due to Group II causes were highest for males in age group 80–84 (81,3%) whereas for females they were highest in age group 75–79 (82,7%).
Group III – external causes (accidents, suicides, homicides)
“South Africa is going through an epidemiological change with deaths resulting mainly from non-communicable diseases. In the past four years, there has been a notable shift in the
causes of death away from infectious diseases towards non-communicable diseases.”
This period is also characterised by increases in the proportion of deaths due to external causes of mortality, affects more males than females, 45% of deaths of 15–29 year old men were due to external causes.
Leading causes of death in 2013• Non-Natural causes
(10.3%)• TB (8.8%)• Influenza and
pneumonia (5.2%)
• HIV (5.1%)• Cerebrovascular
diseases (4.9%)
• Diabetes mellitus (4.8%)
• Other forms of heart disease (4.6%)
• Hypertensive diseases (3.7%)
The ten leading causes of death in 2013 showed that tuberculosis was still the leading natural cause of death, followed by influenza and pneumonia . The most notable change in rank was for human immunodeficiency virus (HIV) disease which moved from being ranked sixth in 2012 and accounting for 3,9% to third rank in 2013 and accounting for 5,1% deaths. It is the first time in South Africa that HIV disease was in the top five ranked causes. This may be suggestive of better reporting of the disease. HIV disease was the leading cause of death in Northern Cape; the second leading cause of death in Eastern Cape and KwaZulu-Natal; and the third leading cause of death in Western Cape. Among those aged 15–44, HIV disease was the second leading cause of death.
The trends in causes of death show that diseases of the respiratory system has declined between 2011 and 2013, whilst diseases of the
circulatory system , external causes of morbidity and mortality, neoplasms and endocrine, nutritional and metabolic disorders have increased in the three years. The continual increase in the proportion of deaths due to non-natural causes is fuelled by deaths among those aged 15–24, which show higher levels in these ages compared to 2012.
Age at deathThe median ages at death continue to indicate a shift from mortality at young ages to mortality at older ages for both males and females, according to the report. For 2013 deaths, male deaths peaked at age group 60–64 compared to 35–39 in 2012. The majority of female deaths occurred in the 80–84 age group in 2013. In 2012, the proportions of female deaths followed the same pattern with older ages contributing higher percentages to the total number of female deaths.
Death in South AfricaAt the beginning of the year Stats SA released their report - Mortality and causes of death in South Africa, 2013: Findings from death notification. The report contains details of ages at death, the causes of death, and looks at trends in death in SA.
025 9935.7%
1-49 101 2%
5-93 3820.7%
10-1910 3272.2%
20 – 2939 9398.7%
30 – 3962 73013.7%
40 – 4961 80413.5%
50 – 5963 58413.8%
60 – 6963 69913.9%
70 – 7959 03712.9%
80 – 8942 8499.4%
90+14 7053.2%
age group
number of deaths in 2013
%
Death in SA at all ages based on deaths in SA in 2013, Stats SA
rIsKLOnG-TerM
24
The 2013 Mortality and Causes of Death release shows that HIV disease has moved from being ranked sixth in 2012 to being ranked third in 2013. Of the 458 933 deaths registered at the Department of Home Affairs in 2013 and processed by Statistics South Africa (Stats SA), 5.1% were due to HIV disease, an increase from the
3.9% in 2012.Stats SA say that the change
in the ranking of HIV disease was driven by increases in the number of deaths due to HIV reported by three provinces: Western Cape, KwaZulu Natal and Northern Cape.
In addition, the age groups 15 – 44 and 45 – 64 showed clear signs of increasing proportions
in HIV deaths compared to HIV-related deaths.
“Trend analysis between HIV deaths and HIV-related deaths suggest that the decline in tuberculosis, influenza and pneumonia, intestinal infectious diseases and other viral diseases could have also contributed to the rising numbers and
proportions in HIV deaths.”“Without a detailed study
looking into this pattern and additional time points to assess the pattern, we can only speculate that there seems to be a decline in the stigma or discomfort of reporting HIV as a cause of death. Thus moving to the era of calling a spade a spade!”
HIV still an issue Calling a spade a spade: deaths due to HIV moves into top 5
dramatic change in median ages at death
Lifestyle choices can have statistical consequencesAccording to the World Health Organisation (WHO), diseases linked to lifestyle choices such as diabetes and some cancers are responsible for killing 16 million people world-wide prematurely, every year. These diseases can either be prevented or managed if people avoided bad habits such as alcohol abuse, excessive calorie intake, not exercising, consuming too much salt and the use of tobacco. On the local front it is estimated that there are 7.2 million smokers in South Africans who smoke over 60 million cigarettes per day.
Also, during 2012 an extensive health and nutrition study was conducted by the Human Science Research Council and Medical Research Council and they found that almost 80 per cent of South African woman had a waist circumference of more than 80 centimetres. The study also showed that South Africans were developing diseases from a younger age with diabetes, high blood pressure and cholesterol starting to peak from as early as 25 years, as a possible result of being overweight or obese.
Along with this, the most common critical illnesses in South Africa consist of cancers, heart disease and strokes. In fact:
The likelihood of cancer:
The likelihood of heart disease:
The likelihood of a stroke:
Before 65 is 1 in 10 Before 65 is 1 in 6 Before 65 is 1 in 50
Before 75 is 1 in 4 Before 75 is 1 in 4 Before 75 is 1 in 20
Before 85 is 1 in 2 Before 85 is 1 in 3 Before 85 is 1 in 6
Stephen van Niekerk, Head of Momentum Myriad states that “These facts are echoed in Momentum’s 2014 claim statistics because 71 per cent of all critical illness claims were a result of either cancer, cardiovascular, or nervous system related conditions. However, compared to 2013, there was a decrease in claim amounts related to specifically cancer and cardiovascular conditions.
Looking at the big picture
From a holistic point of view, Van Niekerk highlights that “Momentum Retail Insurance paid over R1.9 billion in death claims and more than R2.7 billion across all benefit types from January to December 2014, including death benefits. We are in the business of paying valid claims and we always look for reasons to do so. Therefore, we make every effort to ensure that our benefit definitions are as comprehensive and objective as possible to ensure that clients enjoy a positive claim experience.
This is why Momentum has paid in excess of R34 billion in risk claims since the inception of Myriad in 2002. Subsequently, more than 500 000 people entrusted us with their cover which is why the total sum assured
on the Myriad book amounts to over R930 billion; a clear indication that our policyholders believe in our diverse, yet focussed approach to life insurance.”
Stephen continues to explain that “Besides paying claims, Myriad gives back to clients in many other ways. Over the past 12 years, Myriad awarded more than R1 billion in Momentum Interactive discounts. This revolutionary incentive rewards clients with discounts of up to 60 per cent on their insurance premiums, for living balanced lifestyles based on factors such as body mass index, cholesterol, blood pressure or for engaging with Momentum’s rewards programme called Multiply.
With Multiply, these guaranteed discounts starts at 10 per cent with an entry level at Bronze status and increase to 50 per cent if clients are on Private Club status. In addition, clients can also qualify for a 10 per cent fitness discount.
In addition, Momentum has already allocated R450 million towards clients’ Retirement Booster values. The allocations are made to clients who have both a qualifying Momentum Retirement Annuity and a Myriad life insurance policy in place. Furthermore, Momentum continuously finds innovative ways to allow existing clients to benefit from future product enhancements. As a result, the cost of these enhancements that have been introduced to existing clients, to date, have cost Momentum in excess of R200 million. This amounts to R1.65 billion that was given back to Momentum Myriad policyholders, over and above claims that have been paid.”
Protecting our own
However, treating our clients fairly is always top-of-mind and therefore we will never discourage clients from taking their cases to the office of the long-term insurance Ombudsman. During 2014, the office of the Ombudsman received approximately 11023 long-term insurance complaints. During the same period there were 98 cases that involved Momentum Retail Insurance and once again none of these cases transpired in a ruling against Momentum.”
In closing
Stephen concludes by saying that “claim statistics are not just about crunching numbers and highlighting trends. Claim statistics tells the stories of so many people that thought ahead and realised that maybe one day they will need the help of a solid and trustworthy risk partner that makes it their business to support me and my family when it matters most, at claim stage.”
Terms and conditions apply. Momentum, a division of the MMI Group Limited, is an authorised financial services and credit provider. Reg.No. 1904/002186/06.
Lifestyle choices.indd 1 2015/02/18 9:09 PM
90+14 7053.2%
Short-term insurance – the road ahead
rIsKsHOrT-TerM
26
demonstrate the benefits of what you are offering
31 March 2015
Insurance has traditionally been seen as a grudge purchase – this makes it easier for clients to cancel covers during tougher economic times, particularly if it is viewed as expensive.
The insurance market is largely to blame for the negative view the public has of insurance, yet nothing is being done to correct this view.
The industry is in dire need to reinvent itself and could make giant strides towards changing negative perceptions of insurance by creating meaningful partnerships with their clients.
A meaningful partnership is where both parties enjoy reciprocal benefits and insurance is regarded as an important financial tool that enhances profits, efficiencies, and productivity.
Deon Grobbelaar, regional manager: sales at Aon, says that we need to look at insurance with fresh eyes. “We should be partnering our clients and enhancing productivity and efficiency, finding ways for clients to reduce costs; rather than just looking to sell insurance. This is when we truly add value to our clients.”
He says insurers and brokers need to partner with companies to reduce their operating costs- “that is when broker services become irrelevant.”
Grobbelaar says it is critical that an insurer understand the client and their business if this is to happen. This is moving beyond the world of insurance - and into the world of the client. It makes intuitive sense – and business sense. And it means looking at insurance as a business tool. It’s a new approach – outside the conventional role of an insurer – where Grobbelaar says the focus has been on the sell.
“If we can’t add value to your business, as a broker, we shouldn’t be partnering with you.”
Partnering clients also means establishing trust – and exciting the client about what you can offer. Grobbelaar says clients must want to do business with you and that will happen when they know, like and trust you.
How to establish these? You have to be honest and ethical in your transactions with clients – and know and believe that
you can add value on an on-going basis. It needs a personal and professional
service. “When we approach our clients we need to have a share attitude – and demonstrate the benefits of what we are offering.”
Grobbelaar says there are many new and innovative tools in the market that can be used to add value. An example of such an approach is by blending the latest in risk management technologies with insurance products, where fleet operators can reduce their maintenance and fuel costs by as much as 12%, within a very short period of time. This will interest your client and you will most certainly get their attention.
This results in a meaningful partnership with your client, breaks away from the conventional and places the broker in a meaningful business relationship with their client. This is a real value add and one the client will recognise and appreciate.
For the past few years, the short-term insurance industry has been impacted by
surplus insurance capacity, low economic growth and consumer disposable income coming under pressure. Insurers have not been able to increase premiums at the rate at which claims costs have increased, as consumers are very price sensitive and the market is highly competitive. However, this is slowly changing, says Rikus Visser, CEO of PSG Insure.
“The large insurers are putting through more realistic increases on their premiums, which will provide some relief for insurers. However, margins are still being squeezed, as the cost of claims continues to increase,” he says.
While there were no major weather catastrophes in 2014 – unlike in 2013, the cost of claims remained high, mainly due to the devaluation of the rand. There were still periods of intense rains, resulting in more accidents on the motor side.
In addition, as vehicles become more and more advanced, repairing them becomes more complex and more expensive, to the point where insurers are writing off
more vehicles than they used to. Of course, replacement costs are also increasing, which is expected to continue in 2015.
Claims due to crime are growing, both in number and in value. This includes stolen vehicles and trucks, as well as household goods theft. Shopping mall heists were a chilling feature of 2014, resulting in more claims in the retail sector.
“Unfortunately it does not appear that the trend is changing. Some of these incidents can be attributed to South Africa’s economic circumstances, especially the lack of sufficient employment,” Visser says.
ConsolidationVisser expects that consolidation will be a feature of the industry going forward, particularly on the distribution side. This will be driven primarily by the regulatory environment, which is moving into an implementation phase.
“The major regulatory shifts are on the table in one form or another: the wave hitting us now is implementation. Deadlines are getting shorter and the Regulator is getting more insistent.”
From the insurer’s point of view, for example, there will be greater capital requirements and risk management processes as
a result of SAM (Solvency Asset Management). From the intermediary’s point of view, there are the FAIS requirements and initiatives like RDR (Retail Distribution Review), which, if the proposals outlined in November last year are enacted, will put pressure on the margins of firms. This will have a damaging impact on small-to medium-size brokerages in particular.
OpportunitiesChallenges aside, there are opportunities for insurers and intermediaries alike, according to Visser. For insurers there is the emerging market which, traditionally,
has not been that comfortable with the concept of short-term insurance. “The opportunity is to increase educational and awareness programmes about the benefits to your personal balance sheet of having your risks covered.”
For intermediaries, there is the opportunity to continually identify different risks and highlight solutions to their clients. Cyber-crime, for example, is a fairly new area that intermediaries need to understand and help clients with commercial cover buy risk products for.
Companies can also be insured against more intangible losses such as loss of reputation.
The future is partnership
No major weather catastrophes in 2014
Consumer disposable income
under pressure
Meaningful partnerships increasingly important
Large insurers are increasing premiums
Cost of claims remains high due to devaluation of the rand.
Companies need to be insured for intangibles such as ‘reputation’ Cyber-crime
is a new area to cover
a mind-set change
If we want to see change, then we must become the change that we want to see. It requires a mind-set change, a break from the ‘’old’’ with a desire to understand your clients’ needs and to offer solutions that add value in a meaningful manner.
Fortunately, the industry has “incredible skills and forward thinkers” who can do this. “We need to refresh and renew ourselves, in order to remain valued and relevant” concludes Grobbelaar
2731 March 2015
A short-term insurance contract generally consists of a lot of specifics. Clients have cover on specific items for specific events for specific amounts. This can be quite confusing to a client who does not understand the types of risks insured, or the difference between all risk items and specified items.
BY RUDOLF BRITZchief actuary: Momentum Short-term Insurance
The first step for clients to insure their possessions is to determine which
assets would be dearly missed if something had to happen to them. These usually include the home’s entire contents and things we often carry around with us, such as a cellphone or sunglasses. The next step is to consider where these items would be taken to and what they will be exposed to. For example, the living room set will stay at home, so it will only be exposed to fire and theft at the property; while the cellphone or sunglasses will move around and therefore be exposed not only to theft at the property, but also to theft away from the main address. Similarly, fire or accident damage is not only limited to occurring at the main address but everywhere the possessions are taken.
In some cases, it is possible and even advisable to specify a certain item separately. One would do this if the item is of particular value – either
A specific topic
sHOrT-TerM InsUrAnCe
Some short-term insurance providers require that specific items – usually expensive and high-demand theft items – be specified explicitly if cover is required as part of general household goods cover. This usually applies to cellphones and other electronic devices. Clients need to ensure that
they know which items their short-term insurance provider want to know about in order to avoid any unpleasant surprises
at claim stage.
financial or sentimental – where replacement thereof would be more difficult than the rest of the items covered. To specify an item separately would ensure that the short-term insurance provider can replace the item, and where this is not possible, the insurer can then exclude it from cover and refer the item to a specialist underwriter, if required. This sometimes happens with art collections or other inherited articles.
In principle, though, it remains the client’s choice to cover items they believe make sense to cover. If there are items that a client would unlikely replace in the event of a theft or fire,
it’s best to try and exclude them from cover so as to avoid over-insuring. If this option does not exist, it is critical to conduct a thorough assessment of the items on cover to ensure that the total value is not understated.
Insuring one’s personal belongings can be tricky and rather daunting if one doesn’t fully understand all the details in an insurance contract. Because of this, the role of the financial adviser cannot be emphasised enough. As the intermediary between insurer and client, the financial adviser can assist clients to cover their precious possessions in the most appropriate way.
Conduct a thorough assessment of items on cover
It remains the client’s choice to cover items they believe make sense to cover
www.momentum.co.za/short-termMomentum Short-term Insurance is an authorised financial services provider. A division of MMI Group LimitedTs & Cs Apply
Earn a cash-back bonus on your short-term insurance premium
If you’re with Momentum Short-term Insurance, you can!Simply complete the Safety Score assessment by visiting Momentum.co.za. Reap your rewards!
rIsKsHOrT-TerM
Cyberspace presents huge opportunities but serious threats to both businesses and governments
Global threats to cyberspace are rapidly increasing - at the same pace as the explosive growth in the use of the Internet. These constitute significant
risks to individuals as well as organised business and governments, heard delegates attending a cyberspace security seminar held at Wits Business School recently.
While highlighting the potential of cyberspace to promote social and economic growth, Dr Uri Rosenthal, a former Dutch foreign minister, said it would be folly to underestimate the harm that cyberspace criminals cause to companies and governments through hacking and similar forms of criminal activities.
Dr Rosenthal painted both a positive and negative picture of the internet. The positives were clear - economic and social development – but the negatives include cybercrimes and other threats to commercial or national security.
Prof Steve Bluen, head of WBS, said that while technology accelerates economic and social growth, recent high profile cases have shown that companies can come under significant risk too.
“The entry into the digital age and the growth of disruptive technology has presented us with significant tension between security, regulation, freedom and growth,” said Prof Bluen.
“Everyone who is connected to the internet can be (potentially) hacked. Cyber shocks are in the offing and that is a statement of fact,” said Dr Rosenthal. He identified three key themes that were shaping the debate on threats and opportunities of cyberspace: the speed within which internet transactions and communication takes place; the difficulty in pinpointing the person or persons behind hacking; and the level of public and private sector partnership to combat cyberspace crime.
Cybercrime is crime that comes out of not having enough security measures. This is according to Reshana Pillay, partner at Hogan lovells in Johannesburg. And despite being near the top of the cybercrime pyramid, South Africa doesn’t have enough of these security measures.
Cybercrime can result not only in physical damage but also reputational damage - and the aftermath of a data breach can be devastating for a business. High profile cases are known internationally – late last year Sony was one example and early in 2015 in the US details of clients of a health provider were breached.
The profile cases known about may be international, but cybercrime is ongoing and SA is affected, says Pillay.
Education is critical – cybercrime is ongoing, ever changing and costly – and it’s not just affecting big business – that, says Pillay, is a myth. Another one
is that it’s only syndicates involved in cybercrime – it’s not, says Pillay.
Cybercrime has been assisted by mobile technology and devices. It may seem that at times companies are at the mercy of hackers but there are measures that can be put in place.
Identify the risksFirst of all, says Pillay, identify the risk. look for weak links, is there adequate training, are there data protection rules – that are known and followed, where could negligence occur (often a simple mistake like an employee not knowing can cause a breach), how strong are passwords – are they changed and protected. Some of these risks can be mitigated – for example proper staff training.
Protection and insurance Put measures in place – knowing the risks and managing them is one part of protection against cybercrime, cyber liability insurance is another. These need
to be tailored to each specific business, says Pillay, as each business will have different needs. But consider both first and third party cover, include data recovery, loss of business income, security liability, and reputation damage.
Regularly assess risks and protectionRegular assessment of risks and insurance needs to take place. Again how often you do this will depend on the business, - but keep in mind that cybercrime is a new area – and as case law and precedent grow, and type and style of crime, it may be necessary to reassess fairly often. Pillay says as a guide think about a bi-annual assessment.
Responsibility at the topTake responsibility at boardroom level. This is critical – cybercrime is not just an IT thing or for the IT department – it’s a business imperative.
Geopolitical risks are high on the agenda for multinational business, both in terms of likelihood and severity. And it’s expected to continue over the next decade, according to the recent World Economic Forum Global Risks 2015 report.
The four most likely geopolitical risks, according to the report, are:• Interstate conflict, such as
Russia’s annexation of Crimea• Failure of national governance• Weapons of mass destruction• State collapse or crisis
But what should you do if your company does business or has operations in developing and/or less stable parts of the world? The Marsh global trade credit and political risks team has some advice.
Put simply, be prepared for everything. That may sound trite, but risk professionals are charged with protecting company assets, investments, and people around the world from all possible threats — including political risk, which can often emerge in countries that were previously seen as relatively risk-free.
Here are three strategies to help manage geopolitical risk in 2015 and beyond.
1 Political hotspots exist in every corner of the world, driven by a variety of underlying
political, economic, and societal factors. Instead of purchasing single-country insurance policies, consider multi-country credit and political risk programs.
2 Protect your balance sheet, not just physical assets Credit or non-payment risk closely follows political risk. When a government collapses or descends into crisis, it often loses its ability to honor financial obligations. This can quickly spread to the private sector, creating a chain reaction of default. If you are a supplier or lender to buyers based in less stable markets, consider purchasing structured credit insurance.
3 Build resiliency plans before trouble begins As we saw in Sydney and Paris, terrorist or politically motivated attacks can happen without warning. So it’s important to engage in effective crisis management and resiliency planning ahead of a potential event. Identify essential functions and assess the potential impact of a crisis on your customers, employees, and other stakeholders. Developing and testing crisis plans that ensure effective communication with employees can better protect them during an emergency.
Prepare and protect
The cyberspace threat
In South Africa,
41% of the population
has access to the internet
SA is the
5thmost targeted
country in the world
strategies to Better Manage Geopolitical risk3
28
Anyone connected can be hacked
31 March 2015
Mobile phone penetration in South Africa is
estimated at over
100%
Current estimates show there are over
6 billion mobile phone users globally
LORRAINE BRADLEYCorporate powerhouse. Wife. Wellness enthusiast.
My colleagues are in safe hands.
FE
DH
2797
MM
2 T
he C
hees
e H
as M
oved
Call our contact centre on 0860 002 153, your Broker Consultants or visit fedhealth.co.za
REAL Medical Aid for REAL people:
What sets us apart is that, along with our superb medical aid options, we offer your employees value-added benefits such as unlimited GP visits to Network GPs; child rates for financially dependent children up to 27 years of age; professional and extreme sports cover; post-hospitalisation treatment for up to 30 days after discharge from hospital; and the dedicated Fedhealth Baby Programme. With some of these tangible benefits we pay more from Risk than other schemes to ensure that members’ day-to-day medical spending goes further, keeping your clients’ employees in safe hands.
HeALTH
By definition, the term Centres of Excellence (COE) refers to a team or shared facility
that provides research, best practice and training in a specific medical field. While the number of COEs has diminished locally, the need for these is increasing in South Africa’s public sector.
Graham Anderson, CEO and principal officer at Profmed, says that COEs present life-changing medical assistance to those who need access to top quality healthcare at affordable prices. However, he notes that funding in the public sector has suffered, resulting in many of these medical hubs closing down and therefore creating a noticeable void in the medical field.
One such example is Folateng, a private wing at Johannesburg Academic Hospital, which closed down recently due to lack of funding.
While COEs tend to have more longevity in the private sector, they have also shown exceptional success in the public sector when funded privately and run on the correct model. One example is the Baragwaneth Burn Unit, which is privately funded by Johnson & Johnson and
successfully treats about 400 paediatric burn victims a year.
According to Anderson, Private Public Partnerships (PPPs) present a good opportunity to establish COEs in South Africa’s public sector. He adds that services of excellence should be available to the country as a whole and not just in the private sector. “Currently treatment for high cost diseases and other specialised treatment
are only available in COEs that are privately owned and funded,” he explains. “However, the need for COEs in the public sector is far greater, as individuals within the lower income communities cannot afford the high cost of private healthcare.”
Anderson notes that the Nelson Mandela Children’s Hospital (NMCH), currently being built in Johannesburg, serves as an excellent example of an upcoming COE in South Africa which will be made available to the public. “The establishment of a hospital on this scale, expected to be
completed in 2016, is unlike anything South Africa has encountered and it will be one of only four specialist children’s hospitals in Africa.”
The hospital plans to house centres of excellence in the cardiothoracic, neurosciences, haematology and oncology, pulmonology, renal, general paediatric surgery and craniofacial surgery fields.
“This project also sets a benchmark for other
COEs that may be established in the country in future. The excellent global funding structure which is driving the development of the NMCH spans across three continents, and has led to the project raising about R 580
million of the R1 billion goal so far,” continues Anderson.
“PPP’s in the field of Centres of Excellence in South Africa may have some way to go, particularly in terms of funding and support, however high profile establishments such as the Nelson Mandela Children’s Hospital will no doubt set a standard of best-practice internationally and locally. This will encourage both government and the private sector to engage in the much-needed conversation, eventually bringing COEs back to the forefront of the South African healthcare system,” concludes Anderson.
Private healthcare in 2015 and beyondAon Hewitt shares some thoughts on the key issues facing medical aid membersCost to company A key trend that is set to continue in 2015 is that of a ‘cost to company’ (CTC) approach to employee remuneration and benefits, and in particular moving away from the subsidising of medical scheme costs on a 50/50 basis of employer/employee contributions.
“In the face of continued economic constraints, many companies are looking at cost saving exercises and the subsidisation of medical scheme expenses is one aspect that is being focused on,” says Gavin Griffin, business unit head of Employee Benefits Solutions at Aon Hewitt.
Although there are advantages for both employees and employers operating on a CTC basis, the advantage of being part of a company subsidised medical scheme becomes apparent when there are annual medical aid increases, which in South Africa have been significantly greater than inflation and average salary increases for over a decade now.
Price Aon Hewitt remains concerned about the increases in healthcare prices experienced by consumers. “The Competition Commission of SA reported at the end of 2013 that the real per capita increase in expenditure from 2003 until 2012 for hospitals and medical specialists were 40.7% and 55.7% respectively. Furthermore, according to Statistics SA the increases experienced by households in healthcare prices exceeded headline CPI inflation by an annual average of 4.3% between 2009 and 2013. It was also estimated that 15.1% or R18.2 billion of private health expenditure in 2012 was paid by consumers on an out-of-pocket basis. These expenditure trends are not surprising, given the fact that the healthcare industry has been without a tariff benchmark for years,” says Griffin.
Competition Commission inquiryThe Competition Commission inquiry into the private health sector will evaluate the various explanations for cost, price and expenditure increases. It will also aim to identify all factors that prevented, distorted or restricted competition, including any evidence of market failure, regulatory failure or competition concerns.
“The full spectrum of inter-relationships in the private health sector, including the funding and supply side of healthcare products and services, will be evaluated,” says Griffin. “The intention is to obtain a factual basis upon which the Commission can make recommendations to promote competition in the private health sector that will result in more affordable, accessible, innovative and good quality private healthcare.”
The inquiry officially started on 1 August 2014 and is envisaged to conclude by November 2015.
Buying downMany members are opting to buy down on their medical cover in order to offset the difference between what they can afford, and the above inflationary cost increases of their medical aid cover.
“But the danger here is that members can end up compromising on their benefits and end up with significant costs in the event of hospitalisation and/or day-to-day care that they would have to self-fund. If you are considering buying down, it’s essential to consult with a financial adviser in order to analyse exactly what you are covered for, and that you don’t compromise on what you and your family needs from a medical perspective,” advises Griffin.
Gap cover“The approval of gap insurance cover during 2014, in principle, as part of the ongoing demarcation debate that is aimed at regulating the demarcation between health insurance products and medical schemes has been a welcome decision. The final regulations on the demarcation between health insurance policies and medical schemes are however only expected to be released in the second quarter of 2015,” comments Griffin.
Centres of excellence benefit private and public sectors
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Buy downs can compromise benefits
31 March 2015
COes tend to have more longevity in the private sector, but they also shown exceptional success in the public sector
LORRAINE BRADLEYCorporate powerhouse. Wife. Wellness enthusiast.
My colleagues are in safe hands.
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Call our contact centre on 0860 002 153, your Broker Consultants or visit fedhealth.co.za
REAL Medical Aid for REAL people:
What sets us apart is that, along with our superb medical aid options, we offer your employees value-added benefits such as unlimited GP visits to Network GPs; child rates for financially dependent children up to 27 years of age; professional and extreme sports cover; post-hospitalisation treatment for up to 30 days after discharge from hospital; and the dedicated Fedhealth Baby Programme. With some of these tangible benefits we pay more from Risk than other schemes to ensure that members’ day-to-day medical spending goes further, keeping your clients’ employees in safe hands.
31 March 201532
CLOsInG Jse performance a big player in household wealth
A LOnG HArd THInK...
How the JSE affects wealthHousehold wealth declined by R88.5bn from 1 July 2014 to 30 September 2014 – along with a decline in the JSE All Share from 50 945 to 49 345. 33% of the decline is attributed to the increase in liabilities, 66% to the decrease in value of assets
JSE DROPS 1600 POINTS LIABILITIES GO UP R30BNHOUSEHOLD WEALTH FALLS R88BN
Household wealthThe most important thing – uncommon sense for the Thoughtful InvestorFast Fact: Author Howard Marks’ book is based on memos he sent to investors – each one containing the most important thing.Quick Quote: You simply cannot create investment opportunities when they’re not there.knowledge Necessary: Common sense and an ability to read and listen – and an interest in investments. Basic financial knowledge – not extensive or technical.Neat Note: Marks founded Oaktree Capital with five other partners in 1995, in the 2008 crisis
raised a USD10.9bn distressed debt fund – buying distressed assets.Required Reading: What makes a successful investor and what do you need to know? If this interests you the book is for you. Rate it: Good – an informally written book that makes for easy reading and accessibility. There is a value bias.
MoneyFast Fact: Author Eric lonergan is familiar to SA audiences – presenting at several Prudential Fund Manager’s presentations.Quick Quote: Money lacks intrinsic value, and it requires social acceptance and trust in the institutions that control it. knowledge Necessary: Conventional thinking is challenged – what is money? An interest in money and the thinking behind it is required. Neat Note: lonergan first wrote the book in 2009 and updated it in 2014 with more thoughts in the Eurozone crisis. A great further reading section at the back.Required Reading: We are still dealing with the great financial crisis – anything that enables us to understand it better is welcome. An interest in economies and markets required – but also at a very base level – how do we think about, perceive and use money – what is our money language and its effects?Rate it: A very thoughtful read - and enlightening in the spend – thrift debate. Got a book you think deserves a review - email us at [email protected]
What drives the value of liabilities and assets?Key drivers of liabilities• real durable goods
(impact of volume purchases)
• real debt service costs (impact of interest rate and past debt burden)
• consumer price index (impact of price changes) and
• nominal investment in private residential buildings (impact of new capital outlays)
R7 844 billion
net value of SA household wealth
In good credit standing? 93% of household credit was in good standing
key drivers of assets• Jse all share index
(impact of sentiment and investment performances)
• household disposable income and contributions to retirement funds and
• real investment in residential property (impact of additional investment volumes)
Source: Momentum/UNISA South African
Household Wealth Index, Q3 2014
AssetsThe bulk of financial assets comprise households’ investments in retirement funds, while the largest portion of non-financial assets is the value of residential property.
