1

FinancialIssue 43 (1 of 2017)

PLANNER

Budget

Profound Changes

TaxSavings

Retirement

Investment

Funds

Finances

Growth

The

SUPPORTING EXCELLENCE IN FINANCIAL PLANNING

BudgetInsights

2

The Advantage of Knowing

Introducing Liberty BOLD the freedom to invest in SArsquos top funds with a Liberty return guarantee

Retired and still taking on the world NotDoneInvesting

The day your clients stop working is not the day they stop investing Now itrsquos the day they start

chasing growth with the assurance of a safety net Liberty BOLD is the first and only living annuity

that allows them to invest their retirement savings in any combination of the countryrsquos top performing

funds and change them whenever they like with a return guarantee that increases as their returns do

Speak to your clients about the advantages of Liberty BOLD

Liberty is an authorised FSP (no 2409) Bold Living Annuity is administered by STANLIB an authorised FSP 2610590 Terms and conditions apply

Search LIBERTY BOLD

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The Financial Planner magazine is published by CEO Global wwwceomagcoza

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

Contents

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47

ContentsLETTER FROM FPI

CLIENT ENGAGEMENT

A jobless world The new normal

EMPLOYEE BENEFITS

Divorce order claims against occupational retirement funds ndash getting it right

ESTATES AND TRUSTS

The importance of reviewing a trust

FPI NEWS

Crue Invest announched as FPI Approved Professional PracticeTM

Read and earn CPD points

2017 Events

One-Day Retirement and Investment Mini Convention

Female CFPreg professionals in South Africa now above 30

HEALTHCARE

How will the Final Demarcation Regulation affect you and your clients

INDUSTRY NEWS

A new and growing market for domestic advisors

More than one FPI Approved Professional PracticeTM gets industry recognition in 2016

INTERNATIONAL NEWS

Another year of strong growth

Landmark Legislation Assures Australians

INVESTMENTS

Profound changes in goverment

PRACTICE MANAGEMENT

Threes tees and financial advice fees

RISK MANAGEMENT

How critical is critical illness

BOOK REVIEW

Passion for the Profession

The Financial Planner magazine is now available on the MoneyMail App

The Financial PlannerwwwfpicozaTel 086 1000 FPI (374)

Tsholofelo Dihutso CPRP EditorCommunications Specialistmediafpicoza

Editorial enquiriesmediafpicoza

Postal addressPO Box 6493 Weltevredenpark 1715Street Address84 Sophia Street (Cnr 11th Avenue) Fairland Johannesburg 2170

AdvertisingMichelle Bakermichellebakermediamarxcoza(031) 764 6725 (073) 137 1231

Membership queriesmembershipfpicoza

FinancialIssue 43 (1 of 2017)

PLANNER

Budget

Profound Changes

TaxSavings

Retirement

Investment

Funds

Finances

Growth

The

SUPPORTING EXCELLENCE IN FINANCIAL PLANNING

BudgetInsights

4

LETTER FROM FPI

Financial planningprofession

5

LETTER FROM FPI

more important than ever

The 2017 investment year started much better locally and internationally than 2016 with stronger markets signs of economic growth in some parts of the world and marginal improvements in the economic indicators for South Africa

This did not last as political upheaval again had a negative impact on the local currency and markets the international investor community started to doubt that the US President Donald Trump will be able to deliver on his campaign promises and the Brexit process started to unfold

This creates uncertainty and at times even panic leaving investors feeling bewildered and as one commentator noted after the most recent events in SA ldquopeople get spookedrdquo

Against this background the financial planning community has an important role to play to guide investors through this and to impress upon them how important it is to have a plan and stick to it Beyond that the need for lifting the level of financial literacy amongst all consumers and improving consumer education around personal financial issues is greater than ever It has been reported that South African consumers are deep in debt and many cannot make ends meet

The outlook for the months ahead for the SA economy is not great and commentators have started to bring the dreaded recession term into analysis

Awareness Engagement and Growth StrategiesAs part of our overall strategic objective and to support the highly professional and well developed financial planning profession in South Africa we at FPI have several initiatives in place to address the challenges faced by consumers and financial planning professionals We want to ensure that the profession and the industry continues to grow and drive awareness around the value of financial planning

These initiatives includebull Continuousengagementwithregulatorybodiesaswellas

associations in the financial services industry to contribute to proposed changes to legislation or regulation that may affect the industry and also consumers We actively consult with for instance the Financial Services Board (FSB) National Treasury various Ombudsman offices and similar bodies to remain vigilant about changes under investigation and provide input for the industry

bull ContinuinginourdrivetoactivelypromotetheCERTIFIEDFINANCIAL PLANNERreg CFPreg mark and drive awareness as well as the importance of using a CERTIFIED FINANCIAL PLANNERreg CFPreg professional and the value of financial planning amongst

consumers In the recent report by Financial Planning Standards Board Ltd (FPSB) South Africa was one of the top ten countries (ranked sixth) in terms of total number of CFPreg professionals This does indeed show our commitment in growing the professionals to ensure the public benefits from these highly qualified and ethical individuals (Read more about the global numbers on page 32)

bull Extensiveoutreachandeducationprogrammestodriveconsumereducation This is done with the support of the CFPreg professional community across South Africa These programmes will be stepped up this year with a consumer literacy roadshow planned for mid-September to October CFPreg professionals who have volunteered their time will undertake a nationwide tour to present its educational and financial literacy workshops at universities schools and companies in various cities and towns

bull TheFPIDiversityandInclusionStrategywhichisakeyfocusfor 2017 In terms of encouraging greater diversity within our professional financial planning community we have already achieved success with more women attaining the designation and more black financial planners joining the industry (go to page 22 to read more about our growing numbers) Our engagement with FPI Education Providers is an important aspect of this goal and we believe going forward that we will not only achieve greater diversity in our membership base but also encourage changes in the wider industry

bull AddingmoreFPICorporatePartnertradecompaniesInsupportof our strategic goal to grow the number of financial planning professionals we have to date partnered with nine FPI Corporate PartnertradecompaniesThisisourcommitmenttoup-skillingfinancial advisors into ultimately becoming CFPreg professionals In addition we have in the early parts of 2017 also signed a new FPIApprovedProfessionalPracticetrade(find out more on page 12) To date we have 13 practices in SA that have been recognised and awarded this brand for delivering exceptionally high quality financial planning by placing the needs and objectives of their clients at the heart of their business We are actively working towards adding more partnerships to not only drive financial education and awareness projects but to promote these brands amongst members and consumers

Your continued support is highly appreciated and as partners in the financial planning profession I have no doubt that 2017 will be a successful year irrespective of what the markets will deliver

Godfrey NtiChief Executive Officer|Financial Planning Institute of Southern Africa (FPI)

6

CLIENT ENGAGEMENT

By Dawn Ridler CFPreg

Financial Planning Institutersquos Risk CompetencyCommittee Vice-Chairperson

Jobless worldThe new normal

A

7

Wersquore all brought up to believe that you cannot have your cake and eat it You canrsquot have both loads of family time and a stellar career you canrsquot be wealthy unless you work for yourself both parents have to work ndash or their children wonrsquot be given the best education In

the past this has often been true but just maybe things are changing

Change happens around us all the time most of the time we hardly notice it and only when we compare the life of 10 years ago to today do we actually realise just how radical that change has been There are times though that change happens uncomfortably fast and we try with all our might to stop it usually only postponing the inevitable This rapid change too will pass and our lives go back to a new normal in the interim though it may leave mayhem in its tracks

The credit crisis precipitated a new normal in economic cycles and now 10 years down the line (it started in the second half of 2007) very few people have changed their expectations and adjusting to this new normal of low growth low-interest rates and very low inflation As a financial advisor one of my biggest challenges is managing those expectations especially if asset allocation and the fund mix has to be changed to protect a long-term investment

The rise of populism in politics around the world is an idea that has been dying to break through for a long time now Ironically it has been nurtured by the low growth era in the last decade and the growing disparity between the lsquoone percentrsquo and the lsquoothersrsquo The lsquoothersrsquo are sick to death of politicians pandering to that one percent or even worse using politics to leapfrog into that one percent Unfortunately for those wanting the lsquogoodrsquo change in politics and politicians they have had to hold their noses and accept the lsquobadrsquo To get that political change you may have to swallow nasties like right-wing fascism rampant and confiscatory socialism racism and xenophobia It makes my hair curl even to write that sentence The Americans held their noses on some (most)

CLIENT ENGAGEMENT

The problem is that technology has probably reached the limit where its role is supportive and increases

individual productivity it is now starting to replace jobs in their entirety

8

of the above to get the populism Trump promised (whether or not he will deliver remains to be seen) The Dutch however came out in droves to make sure the right wing did not prevail There was a substantial element of xenophobia in Brexit and very little change in the bureaucracy The EFF [Economic Freedom Fighters] is another lsquohold your nosersquo populist (and make no mistake the ANC [African National Congress] will try and woo them back into their ranks) The low economic growth is feeding into this desire for changeWhether you like it or not technology is behind much of this change For decades we have used technology happily to make our jobs more productive Occasionally that might put you out of a job but it has been fairly easy to for people to find jobs elsewhere ndash even if it is not the job they want Farms for example use a fraction of the workforce they did 50 years ago The problem is that technology has probably reached the limit where its role is supportive and increases individual productivity it is now starting to replace jobs in their entirety and those people may not be able to find alternative employment Without increasing productivity economies cannot grow The rise in stock markets despite the lack of productivity growth is based on hope rather than expectation It is being driven by those lsquoanimal spiritsrsquo which will disappear once reality sets in

So if machines can do jobs cheaper faster and with no vacation days or benefits ndash what about the threat of growing unemployment Finland has just introduced what may be the answer in the future ndash Universal Basic Income At the moment this is only available to the lsquounemployedrsquo ndash but what is the difference between unemployment benefits and Universal Basic Income The philosophy is that with machines doing the lsquoproductionrsquo and thus lsquofreeing uprsquo human capital humans should be paid a basic living wage whether or not they decide to lsquoworkrsquo This is different to ordinary unemployment benefits that usually require the claimant keep looking for a job What are the implications if everyone gets a basic income Who will choose to work One would assume that the basic income is going to be very basic and will have little room for luxuries I guess it will boil down to ambition to do better and to have more The rise in the lsquoGigrsquo economy plays into this ndash One could lsquotop-uprsquo onersquos income without becoming a full time employee in the traditional sense

Post-2008 growth has never been able to get back to the same level again and a decade on it may never get there It has yet to get above 3 (global average) Even Chinarsquos growth is down to mid-single digits Growth has to come from increased productivity and that is going to depend on technological developments and Artificial Intelligence The old assumptions of CPI plus 1 3 5 or 7 may be gone forever All the assumptions that have gone into your retirement planning will have to be reworked and you will have no option to put away more Here in South Africa we are luckier than the West with higher CPI and stock exchange growth but it is still way off what we are used to When you have less growth to work with your asset manager has to get smarter One of the reasons ETFs and Trackers in this country havenrsquot taken off is because asset managers can hide behind the nominal positive growth knowing that most of the public doesnrsquot think in lsquoreal growthrsquo (after inflation) terms That is changing Unit trust fees are going to have to fall or die A unit trust cannot justify 3-4 fees when it is only making you 8-9 before inflation Look at the maths 8 growth less 6 inflation gives you 2 real growth Subtract 3 fees and you get -1 real growth

Single asset class ETFs (like pure equity trackers) unit trusts or share portfolios are under the most pressure To even get CPI plus 3 you have to have a blended portfolio at the moment and it has been like that for at least two years Forget passive investing unless yoursquore watching the market all the time you need an asset manager who will blend the asset classes without charging an arm and a leg

The unit trusts that charge those high fees will still be around for a while yet because the pension funds and advisors are still advising clients to stay in them since they are lsquosafersquo and lsquowell knownrsquo It is CYA (Cover Your Asset) which is doing those millions of small investors no favours What about lsquoguaranteesrsquo These come at a price of at least 2 of the investment sometimes more If you get a provider who will guarantee a certain income in the future have a very hard look at the assumptions What if inflation goes back up to 15-18-20 That will make a guaranteed income using todayrsquos inflation mean nothing The only guarantee that matters is a real return or income linked to inflation

If this lower growth environment persists you are going to have no choice but to increase your retirement savings How can you do that Firstly cut through the pick me cacophony from investment advisors brokers advisors etc and have a comprehensive look at your entire wealth ecosystem The amount you are spending on lsquoriskrsquo is one of those low hanging fruit Medical aid premiums are taking a huge chunk out of your income ndash is there a smarter way to do the same thing Are you spending too much on life cover to leave your kids something and ignoring the possibility of having to depend on them financially in your retirement

CLIENT ENGAGEMENT

Discovery Life Investment Services Pty (Ltd) branded as Discovery Invest is an authorised financial services provider Registration number 200700596907

wwwdiscoverycoza Discovery_SA discoverysouthafrica youtubeDiscoverySA

Discovery Invest can help your clients enjoy the retirement they deserve We can do this in three ways One we boost their pre-retirement savings by up to 15 Two this can either be added to their payout at retirement or used to reduce their admin fees to zero Three if they add more capital to their retirement savings wersquoll boost that too

Should you really be recommending anything else

Speak to your business consultant or visit wwwdiscoverycoza for more information about our retirement plans and the terms and conditions that apply to them

What will your clientsrsquo retirement look like

10

INDUSTRY NEWS EMPLOYEE BENEFITS

occupational retirement funds getting it right

Divorce order claims against

By Ashley Lakey CFPregFPI Risk CompetencyCommittee Member

Divorce is a traumatic life event and often places severe stress and strain upon the affected parties The last thing either of them need is unnecessary additional stress and strain when after weeks months or even years of negotiation and having already incurred considerable legal costs in reaching a settlement agreement they finally obtain the divorce order and then discover that the provisions dealing with the award of pension interest from their respective occupational retirement funds are not

compliant with divorce legislation and therefore not binding on the funds Not only will this cause considerable delay in the payouts which they may be depending on and hence disruption to their financial affairs but it will probably also add another layer of unbudgeted cost in order to get the divorce order amended Sadly this situation has been all too common since the Divorce Act deemed ldquopension interestrdquo to be part of the assets of divorcing parties and even more so since the clean break principle was introduced

The clean break principle applies to marriages in community of property and those out of community of property in terms of an antenuptial contract with the accrual system It does not apply to marriages entered on or after 1 November 1984 which are out of community of property in terms of an antenuptial contract by which community of property community of profit and loss and the accrual system are excluded Whereas prior to the clean break principle a divorce award could only be paid when the member spouse became entitled to the benefits now the processing of the payment of a divorce award can be triggered at any time after divorce by the submission of a compliant divorce order to the fund This principle applies to all divorce orders ie pre and post 13 September 2007

11

INDUSTRY NEWS EMPLOYEE BENEFITS

What then are the main aspects to consider in order to ensure that a divorce award is compliant

1 The member must be an active member of the fund at the date of the divorce If the member exits the fund prior to the divorce being finalised then there will no longer be any concept of pension interest even though the members benefit may not yet have been paid by the fund at that stage

As soon as the parties embark upon divorce proceedings they should notify their funds accordingly so that the fundsrsquo records may be flagged and the funds may be given an opportunity to approve the proposed wording that will be used in the divorce order If all parties are aware of the pending divorce and prepared to co-operate then the chances of errors or surprises later on are greatly reduced Just imagine a situation where the parties complete their settlement agreement in April and have it incorporated in their Final Order of Divorce in May only for the non-member to submit the divorce claim to the fund and be advised that the member withdrew from the fund in March and that the divorce order is consequently not binding on the fund Whether this happens through ignorance on the part of the member or whether it is done deliberately to frustrate the non-memberrsquos claim more legal costs will now be incurred to amend the order or to interdict the fund from paying the benefit to the member or for the non-member to pursue court action against the member by virtue of the fact that there is still a valid claim in terms of a court order albeit that the order cannot be enforced against the fund Now the parties will need to negotiate around the after-tax position of the member in respect of the benefit which will be paid by the fund since it will not qualify as a pension interest award that is taxable in the hands of the non-member spouse

What if the member has left fund X to which he belonged at the date of divorce and now belongs to fund Y If the benefit in fund X was transferred to fund Y then as long as there is a compliant order against fund X it will automatically apply to fund Y Where a transfer between funds occurs after the date of divorce it is important that the member or non-member notifies the transferor fund about a binding divorce order so that this can be recorded as part of the transfer Likewise if the divorce claim has already been settled by the transferor fund it needs to be recorded in the transfer

What about if the member has retired from the fund and is currently receiving a monthly pension As the law currently stands there is no longer any concept of ldquopension interestrdquo in this case and the clean break principle does not apply

2 The fund must be named or capable of being identified It is always best to use the full and correct registered name of the fund together with the fund code and member reference number

Using the Employerrsquos name to identify the fund may not always work if the Employer operates multiple funds or the member belongs to multiple funds of the Employer

If the member belongs to a pension fund and a provident fund then it is important to note that these are two completely separate legal entities and hence the order must clarify whether it seeks to bind both funds or only one If one which one

3 A portionpercentage of pension interest or an actual Rand amount can be awarded Such portion can be anything from 1 to 100 of pension interest

It is not an automatic 5050 split and it is not sufficient for the order to merely refer to the division of the joint estate A recent Supreme Court judgement has been misinterpreted by many to mean that an order merely needs to order the division of the joint estate in order to be binding on a fund This is not the case

The definition of ldquopension interestrdquo amounts to the value of the memberrsquos withdrawal benefit at the date of divorce No interest or growth applies unless there are delays in payment after a valid claim has been submitted

There is no concept of ldquoprovident fund interestrdquo in the Divorce Act and use of this term will be problematic The concept of ldquopension interestrdquo applies to pension and provident funds and only the term ldquopension interestrdquo should be referenced

The divorce award will automatically be taxed in the hands of the non-member spouse and therefore references to ldquoafter tax amountrdquo or ldquonett amountrdquo or ldquoless any taxrdquo or ldquox rand after taxrdquo are not only unnecessary but problematic in terms of the fund needing to interpret what the intended award is

4 The non-member spouse must be the recipient of the award The order cannot bind the fund to pay to anyone other than the non-member spouse eg the children the member the attorney trust account or creditors of the joint estate

The fund cannot be party to a scheme whereby the parties are using the divorce as a mechanism for the member to access his retirement funds Any order in terms of which payment will be made to the member will automatically be problematic and the settlement agreement should avoid it

The non-member spouse may instruct the fund on where to pay the benefit This can be done as part of the claim submission and then the fund will be able to act on the instruction of the non-member in this regard However the order can only make the award to the non-member

It is always best that the parties co-operate openly and honestly to ensure a fair outcome and a divorce order that complies with the points mentioned above Attempts to frustrate the other party by withholding information or providing incorrect or misleading information will only result in unnecessary delays and costs If a party does not want to volunteer essential information required for a compliant divorce order the law does provide recourse but such options should rather be avoided if possible There will still be a valid claim that needs to be settled by the member at the end of the day Settling it by way of a compliant divorce order is the right way and the best way to go

12

ESTATES AND TRUSTS

By Gerald Peter CFPreg Legal Advisor SpecialistOld Mutual

Despite the scepticism with which they are viewed by the revenue authorities and an ever tightening regulatory environment trusts remain powerful tools of estate planning Properly configured trusts can be applied to serve a myriad of legitimate and pragmatic planning purposes

Many financial planners are however under the misguided belief that once their trusts are registered they have free reign to administer and use them as they please As a result many trusts in existence today are invalid due to lack of compliance with either the provisions of the trust deed or prevailing legislation

Trusts are usually created as part of long-term planning During this planning period things inevitably change The plannerrsquos priorities may change as may be needs of the beneficiaries The law may also change It is therefore important that trusts should be reviewed regularly to ensure that they can withstand these changing tides This article identifies some potential problems which could arise if a trust is not reviewed regularly

of ReviewingThe Importance

a Trust

13

ESTATES AND TRUSTS

Minimum number of trustees Trusts are often left to operate for long periods without the prescribed number of trustees as stipulated in the trust deed During these periods of noncompliance the remaining trustees continue to operate as usual binding and committing the trust to all sorts of obligations

The courts have held that a provision requiring a specified minimum number of trustees lays down a prerequisite that must be fulfilled before the trust estate can be bound When fewer trustees than the number specified are in office the trust suffers from an incapacity that precludes action on its behalf

When a trustee vacates (by resignation or death) their office the provisions relating to the quorum for meetings resolutions of the trust and voting rights are affected It follows therefore that a trust cannot continue to transact until the correct number of trustees is restored If there is no mechanism for appointing a new trustee in the trust deed then an application must be made to the Court Any action taken by the trustees outside the scope of their powers is null and void

Appointment and resignation of trusteesOften additional trustees are appointed and commence their duties before their appointments are confirmed by the Master Many planners are oblivious to the rule that a trustee cannot act unless he or she has been duly appointed by the Master of the High Court in terms of Section 6 of the Trust Property Control Act 2

Even if a trustee has been properly appointed in terms of the trust deed he or she may not act on behalf of the trust until authorised to do so by the Master Any such act performed by a trustee prior to receiving Letters of Authority from the Master will be null and void and incapable of ratification The opposite also applies in that a trusteersquos fiduciary responsibilities do not cease unless the Master has expressly withdrawn his authorisation (by removing the trusteersquos name from the Letters of Authority) A personrsquos resignation does not legally relieve him of his duties as trustee The trustee remains legally accountable until the Master has officially removed him from his office as trustee

Section 21 of the Trust Property Control Act states that whether or not the trust deed provides for the trustees resignation the trustee may resign by notice in writing to the Master and the ascertained beneficiaries who have legal capacity or to the tutors or curators of the beneficiaries of the trust under tutorship or curatorship

In practice notice is only given to the Master but not to the beneficiaries In such a case the resignation is deemed to be invalid planners should therefore ensure that all trustee resignations are confirmed by the Master Failure to do so could result in these trustees being held liable for transgressions which occur post their departure The validity of subsequent transactions by the remaining trustees could also be challenged since not all trustees would have been involved (the individual who informally exited will still be regarded as a trustee)

Capacity to act as trustee It is also important to ensure that all the trustees remain fit and competent to continue acting as trustees during the course of the planning period Owing to intervening circumstances such as insolvency during the planning period an individual may be rendered unfit to hold the office of trustee

Section 20 of the Trust Property Control Act for example provides that the Master may remove a trustee if inter alia his or her estate is sequestrated either provisionally or finally The terms of the trust deed may also disqualify a trustee for some other reason All contracts entered into by an incompetent trustee may be also declared null and void

ControlOne of the fundamental tenets of trust law is that the founder or a trustee should not have absolute and unfettered control of the income and property of the trust This occurs frequently in the context of family trusts where trustees are often also beneficiaries of a trust

Unless reviewed regularly the relationship between the founder or a trustee of a trust and the trust assets may become blurred resulting in the rupture of the controlenjoyment divide Without a proper separation of control and enjoyment the trust will offer little in the way of protection as it will be seen as the alter ego of the founder or trustee The trust assets in question will also be lsquodeemed propertyrsquo in the estate of the controlling trustee on death in terms of Section 3(3) (d) of the Estate Duty Act6 It is important to regularly check to ensure that a founder or trustee has not crossed this fundamental rubicon This can be done by ensuring that all decisions and resolutions of the trust are taken at properly constituted sittings and accurately recorded

The courts have also suggested that the Master of the High Court must ensure that an adequate separation of control from enjoyment is maintained in every trust In the Parker case the court suggested that one way the Master can ensure that an adequate separation of control from enjoyment is maintained in every trust is by insisting on the appointment of an independent outsider as trustee to every trust in which the trustees are all beneficiaries and the beneficiaries are all related to one another

The independent outsider does not have to be a professional person such as an attorney or accountant but someone who with proper realisation of the responsibilities of trusteeship accepts office in order to ensure that the trust functions properly that the provisions of the trust deed are observed and that the conduct of trustees who lack a sufficiently independent interest in the observance of substantive and procedural requirements arising from the trust deed can be scrutinised and checked

LegislationChanges in the legislation governing trusts happen all too frequently As a consequence planning strategies that work today will not necessarily work tomorrow Financial planners must ensure that they regularly review their trusts to ensure that they remain in line with prevailing legislation

The recent introduction of a new Section 7C to the Income Tax Act is a good example of how even the best of strategies can be derailed by new legislation For years the use of interest free loans have provided an effective mechanism for wealth transfer and estate planning schemes Section 7C which became effective on the 1st of March 2017 is an anti-avoidance measure the effect of which is to treat interest free or low interest loans made to a trust as donations This provision is retrospective (ie it applies to all new and existing interest free loans) The introduction of Section 7C thus presents an unprecedented challenge which makes it imperative for planners who have made interest free or low interest loans to trusts to urgently review their plans to ensure that they will not be negatively impacted by this new dispensation

Recent changes to legislation have also brought interest free loans made to offshore trusts within the realm of the transfer pricing legislation (Section 31 of the Income Tax Act) Individuals making interest free loans to offshore trusts will be taxed on the uncharged interest as if they had actually received it

Just like a vehicle a trust needs a regular service for it to effectively provide the services for which it was intended As discussed above the failure to review a trust could result in the failure of the trust

14

FPI NEWS

FPI ApprovedProfessional PracticeTM

Crue Invest announced as

In January 2017 Crue Invest became part of an elite group of financial planning businesses when it was recognised as an FPI ApprovedProfessionalPracticetrademakingitthe13thfinancialplanning business in the country to receive this prestigious recognition

The Financial Planning Institute of Southern Africa (FPI) introduced theFPIApprovedProfessionalPracticetradebrandasaninitiativethat will make it easier for consumers to identify financial planning practices that adhere to the pinnacle of global professionalism

Crue Invest which was founded by husband-and-wife-team Sue and Craig Torr in 2004 is owned and managed by a team of legal financial and tax experts all of whom are shareholders in the business Each and every client receives an expertly drafted financial plan ldquoEvery single financial plan is unique to the client and is hand-crafted by our team of professionals We consider each financial plan to be a uniquely customised work of artrdquo explains Craig Torr

ldquoThis accreditation follows a stringent audit of our business by FPI and confirms that our practice meets the highest ethical standards in the pursuance of our profession The accreditation reinforces that our standards in terms of knowledge expertise and ethical conduct are amongst the best in the country We are thrilledrdquo added Torr

This is a proud achievement for the practice and FPI following rigorous approval criteria FPI is confident that Crue Invest will assist in raising the standards of the financial planning profession in South Africa as well as creating the assurance that the quality of service they offer is not dependent on single individuals

About Crue Invest

Crue Invest (Pty) Ltd is one of 13 FPI Approved Professional Practicetradefirmsandafee-basedfinancialplanningcompanywhosemain purpose is to help clients create and protect their wealth through sound and independent financial planning

The company was founded in 2004 by husband-and-wife-team Sue and Craig Torr and has developed into a niche financial planning company with over R500 million of assets under advice Crue Invest is owned and managed by a team of eight directors who are all shareholders in the business

The team of financial and legal experts provide financial advice to individuals who wish to grow and protect their wealth covering the areas of retirement planning investments risk tax estate planning trusts wills and healthcare

For more about Crue Invest visit wwwcruecoza

2

The Advantage of Knowing

Introducing Liberty BOLD the freedom to invest in SArsquos top funds with a Liberty return guarantee

Retired and still taking on the world NotDoneInvesting

The day your clients stop working is not the day they stop investing Now itrsquos the day they start

chasing growth with the assurance of a safety net Liberty BOLD is the first and only living annuity

that allows them to invest their retirement savings in any combination of the countryrsquos top performing

funds and change them whenever they like with a return guarantee that increases as their returns do

Speak to your clients about the advantages of Liberty BOLD

Liberty is an authorised FSP (no 2409) Bold Living Annuity is administered by STANLIB an authorised FSP 2610590 Terms and conditions apply

Search LIBERTY BOLD

3

The Financial Planner magazine is published by CEO Global wwwceomagcoza

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

Contents

SUBSCRIBETODAYR170

One year subscription (4 issues)

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FPI membership number

Company

VAT no

Title

Initial

Surname

Postal address

Code

Tel

Fax

E-mail

Signature

(incl VAT and postage)

SADC regions R27000 (incl VAT and postage)

G L O B A LExpand your business Horizon

2

4

8

10

12

14

16

20

22

24

28

30

32

34

36

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ContentsLETTER FROM FPI

CLIENT ENGAGEMENT

A jobless world The new normal

EMPLOYEE BENEFITS

Divorce order claims against occupational retirement funds ndash getting it right

ESTATES AND TRUSTS

The importance of reviewing a trust

FPI NEWS

Crue Invest announched as FPI Approved Professional PracticeTM

Read and earn CPD points

2017 Events

One-Day Retirement and Investment Mini Convention

Female CFPreg professionals in South Africa now above 30

HEALTHCARE

How will the Final Demarcation Regulation affect you and your clients

INDUSTRY NEWS

A new and growing market for domestic advisors

More than one FPI Approved Professional PracticeTM gets industry recognition in 2016

INTERNATIONAL NEWS

Another year of strong growth

Landmark Legislation Assures Australians

INVESTMENTS

Profound changes in goverment

PRACTICE MANAGEMENT

Threes tees and financial advice fees

RISK MANAGEMENT

How critical is critical illness

BOOK REVIEW

Passion for the Profession

The Financial Planner magazine is now available on the MoneyMail App

The Financial PlannerwwwfpicozaTel 086 1000 FPI (374)

Tsholofelo Dihutso CPRP EditorCommunications Specialistmediafpicoza

Editorial enquiriesmediafpicoza

Postal addressPO Box 6493 Weltevredenpark 1715Street Address84 Sophia Street (Cnr 11th Avenue) Fairland Johannesburg 2170

AdvertisingMichelle Bakermichellebakermediamarxcoza(031) 764 6725 (073) 137 1231

Membership queriesmembershipfpicoza

FinancialIssue 43 (1 of 2017)

PLANNER

Budget

Profound Changes

TaxSavings

Retirement

Investment

Funds

Finances

Growth

The

SUPPORTING EXCELLENCE IN FINANCIAL PLANNING

BudgetInsights

4

LETTER FROM FPI

Financial planningprofession

5

LETTER FROM FPI

more important than ever

The 2017 investment year started much better locally and internationally than 2016 with stronger markets signs of economic growth in some parts of the world and marginal improvements in the economic indicators for South Africa

This did not last as political upheaval again had a negative impact on the local currency and markets the international investor community started to doubt that the US President Donald Trump will be able to deliver on his campaign promises and the Brexit process started to unfold

This creates uncertainty and at times even panic leaving investors feeling bewildered and as one commentator noted after the most recent events in SA ldquopeople get spookedrdquo

Against this background the financial planning community has an important role to play to guide investors through this and to impress upon them how important it is to have a plan and stick to it Beyond that the need for lifting the level of financial literacy amongst all consumers and improving consumer education around personal financial issues is greater than ever It has been reported that South African consumers are deep in debt and many cannot make ends meet

The outlook for the months ahead for the SA economy is not great and commentators have started to bring the dreaded recession term into analysis

Awareness Engagement and Growth StrategiesAs part of our overall strategic objective and to support the highly professional and well developed financial planning profession in South Africa we at FPI have several initiatives in place to address the challenges faced by consumers and financial planning professionals We want to ensure that the profession and the industry continues to grow and drive awareness around the value of financial planning

These initiatives includebull Continuousengagementwithregulatorybodiesaswellas

associations in the financial services industry to contribute to proposed changes to legislation or regulation that may affect the industry and also consumers We actively consult with for instance the Financial Services Board (FSB) National Treasury various Ombudsman offices and similar bodies to remain vigilant about changes under investigation and provide input for the industry

bull ContinuinginourdrivetoactivelypromotetheCERTIFIEDFINANCIAL PLANNERreg CFPreg mark and drive awareness as well as the importance of using a CERTIFIED FINANCIAL PLANNERreg CFPreg professional and the value of financial planning amongst

consumers In the recent report by Financial Planning Standards Board Ltd (FPSB) South Africa was one of the top ten countries (ranked sixth) in terms of total number of CFPreg professionals This does indeed show our commitment in growing the professionals to ensure the public benefits from these highly qualified and ethical individuals (Read more about the global numbers on page 32)

bull Extensiveoutreachandeducationprogrammestodriveconsumereducation This is done with the support of the CFPreg professional community across South Africa These programmes will be stepped up this year with a consumer literacy roadshow planned for mid-September to October CFPreg professionals who have volunteered their time will undertake a nationwide tour to present its educational and financial literacy workshops at universities schools and companies in various cities and towns

bull TheFPIDiversityandInclusionStrategywhichisakeyfocusfor 2017 In terms of encouraging greater diversity within our professional financial planning community we have already achieved success with more women attaining the designation and more black financial planners joining the industry (go to page 22 to read more about our growing numbers) Our engagement with FPI Education Providers is an important aspect of this goal and we believe going forward that we will not only achieve greater diversity in our membership base but also encourage changes in the wider industry

bull AddingmoreFPICorporatePartnertradecompaniesInsupportof our strategic goal to grow the number of financial planning professionals we have to date partnered with nine FPI Corporate PartnertradecompaniesThisisourcommitmenttoup-skillingfinancial advisors into ultimately becoming CFPreg professionals In addition we have in the early parts of 2017 also signed a new FPIApprovedProfessionalPracticetrade(find out more on page 12) To date we have 13 practices in SA that have been recognised and awarded this brand for delivering exceptionally high quality financial planning by placing the needs and objectives of their clients at the heart of their business We are actively working towards adding more partnerships to not only drive financial education and awareness projects but to promote these brands amongst members and consumers

Your continued support is highly appreciated and as partners in the financial planning profession I have no doubt that 2017 will be a successful year irrespective of what the markets will deliver

Godfrey NtiChief Executive Officer|Financial Planning Institute of Southern Africa (FPI)

6

CLIENT ENGAGEMENT

By Dawn Ridler CFPreg

Financial Planning Institutersquos Risk CompetencyCommittee Vice-Chairperson

Jobless worldThe new normal

A

7

Wersquore all brought up to believe that you cannot have your cake and eat it You canrsquot have both loads of family time and a stellar career you canrsquot be wealthy unless you work for yourself both parents have to work ndash or their children wonrsquot be given the best education In

the past this has often been true but just maybe things are changing

Change happens around us all the time most of the time we hardly notice it and only when we compare the life of 10 years ago to today do we actually realise just how radical that change has been There are times though that change happens uncomfortably fast and we try with all our might to stop it usually only postponing the inevitable This rapid change too will pass and our lives go back to a new normal in the interim though it may leave mayhem in its tracks

The credit crisis precipitated a new normal in economic cycles and now 10 years down the line (it started in the second half of 2007) very few people have changed their expectations and adjusting to this new normal of low growth low-interest rates and very low inflation As a financial advisor one of my biggest challenges is managing those expectations especially if asset allocation and the fund mix has to be changed to protect a long-term investment

The rise of populism in politics around the world is an idea that has been dying to break through for a long time now Ironically it has been nurtured by the low growth era in the last decade and the growing disparity between the lsquoone percentrsquo and the lsquoothersrsquo The lsquoothersrsquo are sick to death of politicians pandering to that one percent or even worse using politics to leapfrog into that one percent Unfortunately for those wanting the lsquogoodrsquo change in politics and politicians they have had to hold their noses and accept the lsquobadrsquo To get that political change you may have to swallow nasties like right-wing fascism rampant and confiscatory socialism racism and xenophobia It makes my hair curl even to write that sentence The Americans held their noses on some (most)

CLIENT ENGAGEMENT

The problem is that technology has probably reached the limit where its role is supportive and increases

individual productivity it is now starting to replace jobs in their entirety

8

of the above to get the populism Trump promised (whether or not he will deliver remains to be seen) The Dutch however came out in droves to make sure the right wing did not prevail There was a substantial element of xenophobia in Brexit and very little change in the bureaucracy The EFF [Economic Freedom Fighters] is another lsquohold your nosersquo populist (and make no mistake the ANC [African National Congress] will try and woo them back into their ranks) The low economic growth is feeding into this desire for changeWhether you like it or not technology is behind much of this change For decades we have used technology happily to make our jobs more productive Occasionally that might put you out of a job but it has been fairly easy to for people to find jobs elsewhere ndash even if it is not the job they want Farms for example use a fraction of the workforce they did 50 years ago The problem is that technology has probably reached the limit where its role is supportive and increases individual productivity it is now starting to replace jobs in their entirety and those people may not be able to find alternative employment Without increasing productivity economies cannot grow The rise in stock markets despite the lack of productivity growth is based on hope rather than expectation It is being driven by those lsquoanimal spiritsrsquo which will disappear once reality sets in

So if machines can do jobs cheaper faster and with no vacation days or benefits ndash what about the threat of growing unemployment Finland has just introduced what may be the answer in the future ndash Universal Basic Income At the moment this is only available to the lsquounemployedrsquo ndash but what is the difference between unemployment benefits and Universal Basic Income The philosophy is that with machines doing the lsquoproductionrsquo and thus lsquofreeing uprsquo human capital humans should be paid a basic living wage whether or not they decide to lsquoworkrsquo This is different to ordinary unemployment benefits that usually require the claimant keep looking for a job What are the implications if everyone gets a basic income Who will choose to work One would assume that the basic income is going to be very basic and will have little room for luxuries I guess it will boil down to ambition to do better and to have more The rise in the lsquoGigrsquo economy plays into this ndash One could lsquotop-uprsquo onersquos income without becoming a full time employee in the traditional sense

Post-2008 growth has never been able to get back to the same level again and a decade on it may never get there It has yet to get above 3 (global average) Even Chinarsquos growth is down to mid-single digits Growth has to come from increased productivity and that is going to depend on technological developments and Artificial Intelligence The old assumptions of CPI plus 1 3 5 or 7 may be gone forever All the assumptions that have gone into your retirement planning will have to be reworked and you will have no option to put away more Here in South Africa we are luckier than the West with higher CPI and stock exchange growth but it is still way off what we are used to When you have less growth to work with your asset manager has to get smarter One of the reasons ETFs and Trackers in this country havenrsquot taken off is because asset managers can hide behind the nominal positive growth knowing that most of the public doesnrsquot think in lsquoreal growthrsquo (after inflation) terms That is changing Unit trust fees are going to have to fall or die A unit trust cannot justify 3-4 fees when it is only making you 8-9 before inflation Look at the maths 8 growth less 6 inflation gives you 2 real growth Subtract 3 fees and you get -1 real growth

Single asset class ETFs (like pure equity trackers) unit trusts or share portfolios are under the most pressure To even get CPI plus 3 you have to have a blended portfolio at the moment and it has been like that for at least two years Forget passive investing unless yoursquore watching the market all the time you need an asset manager who will blend the asset classes without charging an arm and a leg

The unit trusts that charge those high fees will still be around for a while yet because the pension funds and advisors are still advising clients to stay in them since they are lsquosafersquo and lsquowell knownrsquo It is CYA (Cover Your Asset) which is doing those millions of small investors no favours What about lsquoguaranteesrsquo These come at a price of at least 2 of the investment sometimes more If you get a provider who will guarantee a certain income in the future have a very hard look at the assumptions What if inflation goes back up to 15-18-20 That will make a guaranteed income using todayrsquos inflation mean nothing The only guarantee that matters is a real return or income linked to inflation

If this lower growth environment persists you are going to have no choice but to increase your retirement savings How can you do that Firstly cut through the pick me cacophony from investment advisors brokers advisors etc and have a comprehensive look at your entire wealth ecosystem The amount you are spending on lsquoriskrsquo is one of those low hanging fruit Medical aid premiums are taking a huge chunk out of your income ndash is there a smarter way to do the same thing Are you spending too much on life cover to leave your kids something and ignoring the possibility of having to depend on them financially in your retirement

CLIENT ENGAGEMENT

Discovery Life Investment Services Pty (Ltd) branded as Discovery Invest is an authorised financial services provider Registration number 200700596907

wwwdiscoverycoza Discovery_SA discoverysouthafrica youtubeDiscoverySA

Discovery Invest can help your clients enjoy the retirement they deserve We can do this in three ways One we boost their pre-retirement savings by up to 15 Two this can either be added to their payout at retirement or used to reduce their admin fees to zero Three if they add more capital to their retirement savings wersquoll boost that too

Should you really be recommending anything else

Speak to your business consultant or visit wwwdiscoverycoza for more information about our retirement plans and the terms and conditions that apply to them

What will your clientsrsquo retirement look like

10

INDUSTRY NEWS EMPLOYEE BENEFITS

occupational retirement funds getting it right

Divorce order claims against

By Ashley Lakey CFPregFPI Risk CompetencyCommittee Member

Divorce is a traumatic life event and often places severe stress and strain upon the affected parties The last thing either of them need is unnecessary additional stress and strain when after weeks months or even years of negotiation and having already incurred considerable legal costs in reaching a settlement agreement they finally obtain the divorce order and then discover that the provisions dealing with the award of pension interest from their respective occupational retirement funds are not

compliant with divorce legislation and therefore not binding on the funds Not only will this cause considerable delay in the payouts which they may be depending on and hence disruption to their financial affairs but it will probably also add another layer of unbudgeted cost in order to get the divorce order amended Sadly this situation has been all too common since the Divorce Act deemed ldquopension interestrdquo to be part of the assets of divorcing parties and even more so since the clean break principle was introduced

The clean break principle applies to marriages in community of property and those out of community of property in terms of an antenuptial contract with the accrual system It does not apply to marriages entered on or after 1 November 1984 which are out of community of property in terms of an antenuptial contract by which community of property community of profit and loss and the accrual system are excluded Whereas prior to the clean break principle a divorce award could only be paid when the member spouse became entitled to the benefits now the processing of the payment of a divorce award can be triggered at any time after divorce by the submission of a compliant divorce order to the fund This principle applies to all divorce orders ie pre and post 13 September 2007

11

INDUSTRY NEWS EMPLOYEE BENEFITS

What then are the main aspects to consider in order to ensure that a divorce award is compliant

1 The member must be an active member of the fund at the date of the divorce If the member exits the fund prior to the divorce being finalised then there will no longer be any concept of pension interest even though the members benefit may not yet have been paid by the fund at that stage

As soon as the parties embark upon divorce proceedings they should notify their funds accordingly so that the fundsrsquo records may be flagged and the funds may be given an opportunity to approve the proposed wording that will be used in the divorce order If all parties are aware of the pending divorce and prepared to co-operate then the chances of errors or surprises later on are greatly reduced Just imagine a situation where the parties complete their settlement agreement in April and have it incorporated in their Final Order of Divorce in May only for the non-member to submit the divorce claim to the fund and be advised that the member withdrew from the fund in March and that the divorce order is consequently not binding on the fund Whether this happens through ignorance on the part of the member or whether it is done deliberately to frustrate the non-memberrsquos claim more legal costs will now be incurred to amend the order or to interdict the fund from paying the benefit to the member or for the non-member to pursue court action against the member by virtue of the fact that there is still a valid claim in terms of a court order albeit that the order cannot be enforced against the fund Now the parties will need to negotiate around the after-tax position of the member in respect of the benefit which will be paid by the fund since it will not qualify as a pension interest award that is taxable in the hands of the non-member spouse

What if the member has left fund X to which he belonged at the date of divorce and now belongs to fund Y If the benefit in fund X was transferred to fund Y then as long as there is a compliant order against fund X it will automatically apply to fund Y Where a transfer between funds occurs after the date of divorce it is important that the member or non-member notifies the transferor fund about a binding divorce order so that this can be recorded as part of the transfer Likewise if the divorce claim has already been settled by the transferor fund it needs to be recorded in the transfer

What about if the member has retired from the fund and is currently receiving a monthly pension As the law currently stands there is no longer any concept of ldquopension interestrdquo in this case and the clean break principle does not apply

2 The fund must be named or capable of being identified It is always best to use the full and correct registered name of the fund together with the fund code and member reference number

Using the Employerrsquos name to identify the fund may not always work if the Employer operates multiple funds or the member belongs to multiple funds of the Employer

If the member belongs to a pension fund and a provident fund then it is important to note that these are two completely separate legal entities and hence the order must clarify whether it seeks to bind both funds or only one If one which one

3 A portionpercentage of pension interest or an actual Rand amount can be awarded Such portion can be anything from 1 to 100 of pension interest

It is not an automatic 5050 split and it is not sufficient for the order to merely refer to the division of the joint estate A recent Supreme Court judgement has been misinterpreted by many to mean that an order merely needs to order the division of the joint estate in order to be binding on a fund This is not the case

The definition of ldquopension interestrdquo amounts to the value of the memberrsquos withdrawal benefit at the date of divorce No interest or growth applies unless there are delays in payment after a valid claim has been submitted

There is no concept of ldquoprovident fund interestrdquo in the Divorce Act and use of this term will be problematic The concept of ldquopension interestrdquo applies to pension and provident funds and only the term ldquopension interestrdquo should be referenced

The divorce award will automatically be taxed in the hands of the non-member spouse and therefore references to ldquoafter tax amountrdquo or ldquonett amountrdquo or ldquoless any taxrdquo or ldquox rand after taxrdquo are not only unnecessary but problematic in terms of the fund needing to interpret what the intended award is

4 The non-member spouse must be the recipient of the award The order cannot bind the fund to pay to anyone other than the non-member spouse eg the children the member the attorney trust account or creditors of the joint estate

The fund cannot be party to a scheme whereby the parties are using the divorce as a mechanism for the member to access his retirement funds Any order in terms of which payment will be made to the member will automatically be problematic and the settlement agreement should avoid it

The non-member spouse may instruct the fund on where to pay the benefit This can be done as part of the claim submission and then the fund will be able to act on the instruction of the non-member in this regard However the order can only make the award to the non-member

It is always best that the parties co-operate openly and honestly to ensure a fair outcome and a divorce order that complies with the points mentioned above Attempts to frustrate the other party by withholding information or providing incorrect or misleading information will only result in unnecessary delays and costs If a party does not want to volunteer essential information required for a compliant divorce order the law does provide recourse but such options should rather be avoided if possible There will still be a valid claim that needs to be settled by the member at the end of the day Settling it by way of a compliant divorce order is the right way and the best way to go

12

ESTATES AND TRUSTS

By Gerald Peter CFPreg Legal Advisor SpecialistOld Mutual

Despite the scepticism with which they are viewed by the revenue authorities and an ever tightening regulatory environment trusts remain powerful tools of estate planning Properly configured trusts can be applied to serve a myriad of legitimate and pragmatic planning purposes

Many financial planners are however under the misguided belief that once their trusts are registered they have free reign to administer and use them as they please As a result many trusts in existence today are invalid due to lack of compliance with either the provisions of the trust deed or prevailing legislation

Trusts are usually created as part of long-term planning During this planning period things inevitably change The plannerrsquos priorities may change as may be needs of the beneficiaries The law may also change It is therefore important that trusts should be reviewed regularly to ensure that they can withstand these changing tides This article identifies some potential problems which could arise if a trust is not reviewed regularly

of ReviewingThe Importance

a Trust

13

ESTATES AND TRUSTS

Minimum number of trustees Trusts are often left to operate for long periods without the prescribed number of trustees as stipulated in the trust deed During these periods of noncompliance the remaining trustees continue to operate as usual binding and committing the trust to all sorts of obligations

The courts have held that a provision requiring a specified minimum number of trustees lays down a prerequisite that must be fulfilled before the trust estate can be bound When fewer trustees than the number specified are in office the trust suffers from an incapacity that precludes action on its behalf

When a trustee vacates (by resignation or death) their office the provisions relating to the quorum for meetings resolutions of the trust and voting rights are affected It follows therefore that a trust cannot continue to transact until the correct number of trustees is restored If there is no mechanism for appointing a new trustee in the trust deed then an application must be made to the Court Any action taken by the trustees outside the scope of their powers is null and void

Appointment and resignation of trusteesOften additional trustees are appointed and commence their duties before their appointments are confirmed by the Master Many planners are oblivious to the rule that a trustee cannot act unless he or she has been duly appointed by the Master of the High Court in terms of Section 6 of the Trust Property Control Act 2

Even if a trustee has been properly appointed in terms of the trust deed he or she may not act on behalf of the trust until authorised to do so by the Master Any such act performed by a trustee prior to receiving Letters of Authority from the Master will be null and void and incapable of ratification The opposite also applies in that a trusteersquos fiduciary responsibilities do not cease unless the Master has expressly withdrawn his authorisation (by removing the trusteersquos name from the Letters of Authority) A personrsquos resignation does not legally relieve him of his duties as trustee The trustee remains legally accountable until the Master has officially removed him from his office as trustee

Section 21 of the Trust Property Control Act states that whether or not the trust deed provides for the trustees resignation the trustee may resign by notice in writing to the Master and the ascertained beneficiaries who have legal capacity or to the tutors or curators of the beneficiaries of the trust under tutorship or curatorship

In practice notice is only given to the Master but not to the beneficiaries In such a case the resignation is deemed to be invalid planners should therefore ensure that all trustee resignations are confirmed by the Master Failure to do so could result in these trustees being held liable for transgressions which occur post their departure The validity of subsequent transactions by the remaining trustees could also be challenged since not all trustees would have been involved (the individual who informally exited will still be regarded as a trustee)

Capacity to act as trustee It is also important to ensure that all the trustees remain fit and competent to continue acting as trustees during the course of the planning period Owing to intervening circumstances such as insolvency during the planning period an individual may be rendered unfit to hold the office of trustee

Section 20 of the Trust Property Control Act for example provides that the Master may remove a trustee if inter alia his or her estate is sequestrated either provisionally or finally The terms of the trust deed may also disqualify a trustee for some other reason All contracts entered into by an incompetent trustee may be also declared null and void

ControlOne of the fundamental tenets of trust law is that the founder or a trustee should not have absolute and unfettered control of the income and property of the trust This occurs frequently in the context of family trusts where trustees are often also beneficiaries of a trust

Unless reviewed regularly the relationship between the founder or a trustee of a trust and the trust assets may become blurred resulting in the rupture of the controlenjoyment divide Without a proper separation of control and enjoyment the trust will offer little in the way of protection as it will be seen as the alter ego of the founder or trustee The trust assets in question will also be lsquodeemed propertyrsquo in the estate of the controlling trustee on death in terms of Section 3(3) (d) of the Estate Duty Act6 It is important to regularly check to ensure that a founder or trustee has not crossed this fundamental rubicon This can be done by ensuring that all decisions and resolutions of the trust are taken at properly constituted sittings and accurately recorded

The courts have also suggested that the Master of the High Court must ensure that an adequate separation of control from enjoyment is maintained in every trust In the Parker case the court suggested that one way the Master can ensure that an adequate separation of control from enjoyment is maintained in every trust is by insisting on the appointment of an independent outsider as trustee to every trust in which the trustees are all beneficiaries and the beneficiaries are all related to one another

The independent outsider does not have to be a professional person such as an attorney or accountant but someone who with proper realisation of the responsibilities of trusteeship accepts office in order to ensure that the trust functions properly that the provisions of the trust deed are observed and that the conduct of trustees who lack a sufficiently independent interest in the observance of substantive and procedural requirements arising from the trust deed can be scrutinised and checked

LegislationChanges in the legislation governing trusts happen all too frequently As a consequence planning strategies that work today will not necessarily work tomorrow Financial planners must ensure that they regularly review their trusts to ensure that they remain in line with prevailing legislation

The recent introduction of a new Section 7C to the Income Tax Act is a good example of how even the best of strategies can be derailed by new legislation For years the use of interest free loans have provided an effective mechanism for wealth transfer and estate planning schemes Section 7C which became effective on the 1st of March 2017 is an anti-avoidance measure the effect of which is to treat interest free or low interest loans made to a trust as donations This provision is retrospective (ie it applies to all new and existing interest free loans) The introduction of Section 7C thus presents an unprecedented challenge which makes it imperative for planners who have made interest free or low interest loans to trusts to urgently review their plans to ensure that they will not be negatively impacted by this new dispensation

Recent changes to legislation have also brought interest free loans made to offshore trusts within the realm of the transfer pricing legislation (Section 31 of the Income Tax Act) Individuals making interest free loans to offshore trusts will be taxed on the uncharged interest as if they had actually received it

Just like a vehicle a trust needs a regular service for it to effectively provide the services for which it was intended As discussed above the failure to review a trust could result in the failure of the trust

14

FPI NEWS

FPI ApprovedProfessional PracticeTM

Crue Invest announced as

In January 2017 Crue Invest became part of an elite group of financial planning businesses when it was recognised as an FPI ApprovedProfessionalPracticetrademakingitthe13thfinancialplanning business in the country to receive this prestigious recognition

The Financial Planning Institute of Southern Africa (FPI) introduced theFPIApprovedProfessionalPracticetradebrandasaninitiativethat will make it easier for consumers to identify financial planning practices that adhere to the pinnacle of global professionalism

Crue Invest which was founded by husband-and-wife-team Sue and Craig Torr in 2004 is owned and managed by a team of legal financial and tax experts all of whom are shareholders in the business Each and every client receives an expertly drafted financial plan ldquoEvery single financial plan is unique to the client and is hand-crafted by our team of professionals We consider each financial plan to be a uniquely customised work of artrdquo explains Craig Torr

ldquoThis accreditation follows a stringent audit of our business by FPI and confirms that our practice meets the highest ethical standards in the pursuance of our profession The accreditation reinforces that our standards in terms of knowledge expertise and ethical conduct are amongst the best in the country We are thrilledrdquo added Torr

This is a proud achievement for the practice and FPI following rigorous approval criteria FPI is confident that Crue Invest will assist in raising the standards of the financial planning profession in South Africa as well as creating the assurance that the quality of service they offer is not dependent on single individuals

About Crue Invest

Crue Invest (Pty) Ltd is one of 13 FPI Approved Professional Practicetradefirmsandafee-basedfinancialplanningcompanywhosemain purpose is to help clients create and protect their wealth through sound and independent financial planning

The company was founded in 2004 by husband-and-wife-team Sue and Craig Torr and has developed into a niche financial planning company with over R500 million of assets under advice Crue Invest is owned and managed by a team of eight directors who are all shareholders in the business

The team of financial and legal experts provide financial advice to individuals who wish to grow and protect their wealth covering the areas of retirement planning investments risk tax estate planning trusts wills and healthcare

For more about Crue Invest visit wwwcruecoza

3

The Financial Planner magazine is published by CEO Global wwwceomagcoza

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

Contents

SUBSCRIBETODAYR170

One year subscription (4 issues)

FREE to FPI members

Email marketingfpicoza to subscribe

FPI membership number

Company

VAT no

Title

Initial

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Tel

Fax

E-mail

Signature

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SADC regions R27000 (incl VAT and postage)

G L O B A LExpand your business Horizon

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34

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47

ContentsLETTER FROM FPI

CLIENT ENGAGEMENT

A jobless world The new normal

EMPLOYEE BENEFITS

Divorce order claims against occupational retirement funds ndash getting it right

ESTATES AND TRUSTS

The importance of reviewing a trust

FPI NEWS

Crue Invest announched as FPI Approved Professional PracticeTM

Read and earn CPD points

2017 Events

One-Day Retirement and Investment Mini Convention

Female CFPreg professionals in South Africa now above 30

HEALTHCARE

How will the Final Demarcation Regulation affect you and your clients

INDUSTRY NEWS

A new and growing market for domestic advisors

More than one FPI Approved Professional PracticeTM gets industry recognition in 2016

INTERNATIONAL NEWS

Another year of strong growth

Landmark Legislation Assures Australians

INVESTMENTS

Profound changes in goverment

PRACTICE MANAGEMENT

Threes tees and financial advice fees

RISK MANAGEMENT

How critical is critical illness

BOOK REVIEW

Passion for the Profession

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The Financial PlannerwwwfpicozaTel 086 1000 FPI (374)

Tsholofelo Dihutso CPRP EditorCommunications Specialistmediafpicoza

Editorial enquiriesmediafpicoza

Postal addressPO Box 6493 Weltevredenpark 1715Street Address84 Sophia Street (Cnr 11th Avenue) Fairland Johannesburg 2170

AdvertisingMichelle Bakermichellebakermediamarxcoza(031) 764 6725 (073) 137 1231

Membership queriesmembershipfpicoza

FinancialIssue 43 (1 of 2017)

PLANNER

Budget

Profound Changes

TaxSavings

Retirement

Investment

Funds

Finances

Growth

The

SUPPORTING EXCELLENCE IN FINANCIAL PLANNING

BudgetInsights

4

LETTER FROM FPI

Financial planningprofession

5

LETTER FROM FPI

more important than ever

The 2017 investment year started much better locally and internationally than 2016 with stronger markets signs of economic growth in some parts of the world and marginal improvements in the economic indicators for South Africa

This did not last as political upheaval again had a negative impact on the local currency and markets the international investor community started to doubt that the US President Donald Trump will be able to deliver on his campaign promises and the Brexit process started to unfold

This creates uncertainty and at times even panic leaving investors feeling bewildered and as one commentator noted after the most recent events in SA ldquopeople get spookedrdquo

Against this background the financial planning community has an important role to play to guide investors through this and to impress upon them how important it is to have a plan and stick to it Beyond that the need for lifting the level of financial literacy amongst all consumers and improving consumer education around personal financial issues is greater than ever It has been reported that South African consumers are deep in debt and many cannot make ends meet

The outlook for the months ahead for the SA economy is not great and commentators have started to bring the dreaded recession term into analysis

Awareness Engagement and Growth StrategiesAs part of our overall strategic objective and to support the highly professional and well developed financial planning profession in South Africa we at FPI have several initiatives in place to address the challenges faced by consumers and financial planning professionals We want to ensure that the profession and the industry continues to grow and drive awareness around the value of financial planning

These initiatives includebull Continuousengagementwithregulatorybodiesaswellas

associations in the financial services industry to contribute to proposed changes to legislation or regulation that may affect the industry and also consumers We actively consult with for instance the Financial Services Board (FSB) National Treasury various Ombudsman offices and similar bodies to remain vigilant about changes under investigation and provide input for the industry

bull ContinuinginourdrivetoactivelypromotetheCERTIFIEDFINANCIAL PLANNERreg CFPreg mark and drive awareness as well as the importance of using a CERTIFIED FINANCIAL PLANNERreg CFPreg professional and the value of financial planning amongst

consumers In the recent report by Financial Planning Standards Board Ltd (FPSB) South Africa was one of the top ten countries (ranked sixth) in terms of total number of CFPreg professionals This does indeed show our commitment in growing the professionals to ensure the public benefits from these highly qualified and ethical individuals (Read more about the global numbers on page 32)

bull Extensiveoutreachandeducationprogrammestodriveconsumereducation This is done with the support of the CFPreg professional community across South Africa These programmes will be stepped up this year with a consumer literacy roadshow planned for mid-September to October CFPreg professionals who have volunteered their time will undertake a nationwide tour to present its educational and financial literacy workshops at universities schools and companies in various cities and towns

bull TheFPIDiversityandInclusionStrategywhichisakeyfocusfor 2017 In terms of encouraging greater diversity within our professional financial planning community we have already achieved success with more women attaining the designation and more black financial planners joining the industry (go to page 22 to read more about our growing numbers) Our engagement with FPI Education Providers is an important aspect of this goal and we believe going forward that we will not only achieve greater diversity in our membership base but also encourage changes in the wider industry

bull AddingmoreFPICorporatePartnertradecompaniesInsupportof our strategic goal to grow the number of financial planning professionals we have to date partnered with nine FPI Corporate PartnertradecompaniesThisisourcommitmenttoup-skillingfinancial advisors into ultimately becoming CFPreg professionals In addition we have in the early parts of 2017 also signed a new FPIApprovedProfessionalPracticetrade(find out more on page 12) To date we have 13 practices in SA that have been recognised and awarded this brand for delivering exceptionally high quality financial planning by placing the needs and objectives of their clients at the heart of their business We are actively working towards adding more partnerships to not only drive financial education and awareness projects but to promote these brands amongst members and consumers

Your continued support is highly appreciated and as partners in the financial planning profession I have no doubt that 2017 will be a successful year irrespective of what the markets will deliver

Godfrey NtiChief Executive Officer|Financial Planning Institute of Southern Africa (FPI)

6

CLIENT ENGAGEMENT

By Dawn Ridler CFPreg

Financial Planning Institutersquos Risk CompetencyCommittee Vice-Chairperson

Jobless worldThe new normal

A

7

Wersquore all brought up to believe that you cannot have your cake and eat it You canrsquot have both loads of family time and a stellar career you canrsquot be wealthy unless you work for yourself both parents have to work ndash or their children wonrsquot be given the best education In

the past this has often been true but just maybe things are changing

Change happens around us all the time most of the time we hardly notice it and only when we compare the life of 10 years ago to today do we actually realise just how radical that change has been There are times though that change happens uncomfortably fast and we try with all our might to stop it usually only postponing the inevitable This rapid change too will pass and our lives go back to a new normal in the interim though it may leave mayhem in its tracks

The credit crisis precipitated a new normal in economic cycles and now 10 years down the line (it started in the second half of 2007) very few people have changed their expectations and adjusting to this new normal of low growth low-interest rates and very low inflation As a financial advisor one of my biggest challenges is managing those expectations especially if asset allocation and the fund mix has to be changed to protect a long-term investment

The rise of populism in politics around the world is an idea that has been dying to break through for a long time now Ironically it has been nurtured by the low growth era in the last decade and the growing disparity between the lsquoone percentrsquo and the lsquoothersrsquo The lsquoothersrsquo are sick to death of politicians pandering to that one percent or even worse using politics to leapfrog into that one percent Unfortunately for those wanting the lsquogoodrsquo change in politics and politicians they have had to hold their noses and accept the lsquobadrsquo To get that political change you may have to swallow nasties like right-wing fascism rampant and confiscatory socialism racism and xenophobia It makes my hair curl even to write that sentence The Americans held their noses on some (most)

CLIENT ENGAGEMENT

The problem is that technology has probably reached the limit where its role is supportive and increases

individual productivity it is now starting to replace jobs in their entirety

8

of the above to get the populism Trump promised (whether or not he will deliver remains to be seen) The Dutch however came out in droves to make sure the right wing did not prevail There was a substantial element of xenophobia in Brexit and very little change in the bureaucracy The EFF [Economic Freedom Fighters] is another lsquohold your nosersquo populist (and make no mistake the ANC [African National Congress] will try and woo them back into their ranks) The low economic growth is feeding into this desire for changeWhether you like it or not technology is behind much of this change For decades we have used technology happily to make our jobs more productive Occasionally that might put you out of a job but it has been fairly easy to for people to find jobs elsewhere ndash even if it is not the job they want Farms for example use a fraction of the workforce they did 50 years ago The problem is that technology has probably reached the limit where its role is supportive and increases individual productivity it is now starting to replace jobs in their entirety and those people may not be able to find alternative employment Without increasing productivity economies cannot grow The rise in stock markets despite the lack of productivity growth is based on hope rather than expectation It is being driven by those lsquoanimal spiritsrsquo which will disappear once reality sets in

So if machines can do jobs cheaper faster and with no vacation days or benefits ndash what about the threat of growing unemployment Finland has just introduced what may be the answer in the future ndash Universal Basic Income At the moment this is only available to the lsquounemployedrsquo ndash but what is the difference between unemployment benefits and Universal Basic Income The philosophy is that with machines doing the lsquoproductionrsquo and thus lsquofreeing uprsquo human capital humans should be paid a basic living wage whether or not they decide to lsquoworkrsquo This is different to ordinary unemployment benefits that usually require the claimant keep looking for a job What are the implications if everyone gets a basic income Who will choose to work One would assume that the basic income is going to be very basic and will have little room for luxuries I guess it will boil down to ambition to do better and to have more The rise in the lsquoGigrsquo economy plays into this ndash One could lsquotop-uprsquo onersquos income without becoming a full time employee in the traditional sense

Post-2008 growth has never been able to get back to the same level again and a decade on it may never get there It has yet to get above 3 (global average) Even Chinarsquos growth is down to mid-single digits Growth has to come from increased productivity and that is going to depend on technological developments and Artificial Intelligence The old assumptions of CPI plus 1 3 5 or 7 may be gone forever All the assumptions that have gone into your retirement planning will have to be reworked and you will have no option to put away more Here in South Africa we are luckier than the West with higher CPI and stock exchange growth but it is still way off what we are used to When you have less growth to work with your asset manager has to get smarter One of the reasons ETFs and Trackers in this country havenrsquot taken off is because asset managers can hide behind the nominal positive growth knowing that most of the public doesnrsquot think in lsquoreal growthrsquo (after inflation) terms That is changing Unit trust fees are going to have to fall or die A unit trust cannot justify 3-4 fees when it is only making you 8-9 before inflation Look at the maths 8 growth less 6 inflation gives you 2 real growth Subtract 3 fees and you get -1 real growth

Single asset class ETFs (like pure equity trackers) unit trusts or share portfolios are under the most pressure To even get CPI plus 3 you have to have a blended portfolio at the moment and it has been like that for at least two years Forget passive investing unless yoursquore watching the market all the time you need an asset manager who will blend the asset classes without charging an arm and a leg

The unit trusts that charge those high fees will still be around for a while yet because the pension funds and advisors are still advising clients to stay in them since they are lsquosafersquo and lsquowell knownrsquo It is CYA (Cover Your Asset) which is doing those millions of small investors no favours What about lsquoguaranteesrsquo These come at a price of at least 2 of the investment sometimes more If you get a provider who will guarantee a certain income in the future have a very hard look at the assumptions What if inflation goes back up to 15-18-20 That will make a guaranteed income using todayrsquos inflation mean nothing The only guarantee that matters is a real return or income linked to inflation

If this lower growth environment persists you are going to have no choice but to increase your retirement savings How can you do that Firstly cut through the pick me cacophony from investment advisors brokers advisors etc and have a comprehensive look at your entire wealth ecosystem The amount you are spending on lsquoriskrsquo is one of those low hanging fruit Medical aid premiums are taking a huge chunk out of your income ndash is there a smarter way to do the same thing Are you spending too much on life cover to leave your kids something and ignoring the possibility of having to depend on them financially in your retirement

CLIENT ENGAGEMENT

Discovery Life Investment Services Pty (Ltd) branded as Discovery Invest is an authorised financial services provider Registration number 200700596907

wwwdiscoverycoza Discovery_SA discoverysouthafrica youtubeDiscoverySA

Discovery Invest can help your clients enjoy the retirement they deserve We can do this in three ways One we boost their pre-retirement savings by up to 15 Two this can either be added to their payout at retirement or used to reduce their admin fees to zero Three if they add more capital to their retirement savings wersquoll boost that too

Should you really be recommending anything else

Speak to your business consultant or visit wwwdiscoverycoza for more information about our retirement plans and the terms and conditions that apply to them

What will your clientsrsquo retirement look like

10

INDUSTRY NEWS EMPLOYEE BENEFITS

occupational retirement funds getting it right

Divorce order claims against

By Ashley Lakey CFPregFPI Risk CompetencyCommittee Member

Divorce is a traumatic life event and often places severe stress and strain upon the affected parties The last thing either of them need is unnecessary additional stress and strain when after weeks months or even years of negotiation and having already incurred considerable legal costs in reaching a settlement agreement they finally obtain the divorce order and then discover that the provisions dealing with the award of pension interest from their respective occupational retirement funds are not

compliant with divorce legislation and therefore not binding on the funds Not only will this cause considerable delay in the payouts which they may be depending on and hence disruption to their financial affairs but it will probably also add another layer of unbudgeted cost in order to get the divorce order amended Sadly this situation has been all too common since the Divorce Act deemed ldquopension interestrdquo to be part of the assets of divorcing parties and even more so since the clean break principle was introduced

The clean break principle applies to marriages in community of property and those out of community of property in terms of an antenuptial contract with the accrual system It does not apply to marriages entered on or after 1 November 1984 which are out of community of property in terms of an antenuptial contract by which community of property community of profit and loss and the accrual system are excluded Whereas prior to the clean break principle a divorce award could only be paid when the member spouse became entitled to the benefits now the processing of the payment of a divorce award can be triggered at any time after divorce by the submission of a compliant divorce order to the fund This principle applies to all divorce orders ie pre and post 13 September 2007

11

INDUSTRY NEWS EMPLOYEE BENEFITS

What then are the main aspects to consider in order to ensure that a divorce award is compliant

1 The member must be an active member of the fund at the date of the divorce If the member exits the fund prior to the divorce being finalised then there will no longer be any concept of pension interest even though the members benefit may not yet have been paid by the fund at that stage

As soon as the parties embark upon divorce proceedings they should notify their funds accordingly so that the fundsrsquo records may be flagged and the funds may be given an opportunity to approve the proposed wording that will be used in the divorce order If all parties are aware of the pending divorce and prepared to co-operate then the chances of errors or surprises later on are greatly reduced Just imagine a situation where the parties complete their settlement agreement in April and have it incorporated in their Final Order of Divorce in May only for the non-member to submit the divorce claim to the fund and be advised that the member withdrew from the fund in March and that the divorce order is consequently not binding on the fund Whether this happens through ignorance on the part of the member or whether it is done deliberately to frustrate the non-memberrsquos claim more legal costs will now be incurred to amend the order or to interdict the fund from paying the benefit to the member or for the non-member to pursue court action against the member by virtue of the fact that there is still a valid claim in terms of a court order albeit that the order cannot be enforced against the fund Now the parties will need to negotiate around the after-tax position of the member in respect of the benefit which will be paid by the fund since it will not qualify as a pension interest award that is taxable in the hands of the non-member spouse

What if the member has left fund X to which he belonged at the date of divorce and now belongs to fund Y If the benefit in fund X was transferred to fund Y then as long as there is a compliant order against fund X it will automatically apply to fund Y Where a transfer between funds occurs after the date of divorce it is important that the member or non-member notifies the transferor fund about a binding divorce order so that this can be recorded as part of the transfer Likewise if the divorce claim has already been settled by the transferor fund it needs to be recorded in the transfer

What about if the member has retired from the fund and is currently receiving a monthly pension As the law currently stands there is no longer any concept of ldquopension interestrdquo in this case and the clean break principle does not apply

2 The fund must be named or capable of being identified It is always best to use the full and correct registered name of the fund together with the fund code and member reference number

Using the Employerrsquos name to identify the fund may not always work if the Employer operates multiple funds or the member belongs to multiple funds of the Employer

If the member belongs to a pension fund and a provident fund then it is important to note that these are two completely separate legal entities and hence the order must clarify whether it seeks to bind both funds or only one If one which one

3 A portionpercentage of pension interest or an actual Rand amount can be awarded Such portion can be anything from 1 to 100 of pension interest

It is not an automatic 5050 split and it is not sufficient for the order to merely refer to the division of the joint estate A recent Supreme Court judgement has been misinterpreted by many to mean that an order merely needs to order the division of the joint estate in order to be binding on a fund This is not the case

The definition of ldquopension interestrdquo amounts to the value of the memberrsquos withdrawal benefit at the date of divorce No interest or growth applies unless there are delays in payment after a valid claim has been submitted

There is no concept of ldquoprovident fund interestrdquo in the Divorce Act and use of this term will be problematic The concept of ldquopension interestrdquo applies to pension and provident funds and only the term ldquopension interestrdquo should be referenced

The divorce award will automatically be taxed in the hands of the non-member spouse and therefore references to ldquoafter tax amountrdquo or ldquonett amountrdquo or ldquoless any taxrdquo or ldquox rand after taxrdquo are not only unnecessary but problematic in terms of the fund needing to interpret what the intended award is

4 The non-member spouse must be the recipient of the award The order cannot bind the fund to pay to anyone other than the non-member spouse eg the children the member the attorney trust account or creditors of the joint estate

The fund cannot be party to a scheme whereby the parties are using the divorce as a mechanism for the member to access his retirement funds Any order in terms of which payment will be made to the member will automatically be problematic and the settlement agreement should avoid it

The non-member spouse may instruct the fund on where to pay the benefit This can be done as part of the claim submission and then the fund will be able to act on the instruction of the non-member in this regard However the order can only make the award to the non-member

It is always best that the parties co-operate openly and honestly to ensure a fair outcome and a divorce order that complies with the points mentioned above Attempts to frustrate the other party by withholding information or providing incorrect or misleading information will only result in unnecessary delays and costs If a party does not want to volunteer essential information required for a compliant divorce order the law does provide recourse but such options should rather be avoided if possible There will still be a valid claim that needs to be settled by the member at the end of the day Settling it by way of a compliant divorce order is the right way and the best way to go

12

ESTATES AND TRUSTS

By Gerald Peter CFPreg Legal Advisor SpecialistOld Mutual

Despite the scepticism with which they are viewed by the revenue authorities and an ever tightening regulatory environment trusts remain powerful tools of estate planning Properly configured trusts can be applied to serve a myriad of legitimate and pragmatic planning purposes

Many financial planners are however under the misguided belief that once their trusts are registered they have free reign to administer and use them as they please As a result many trusts in existence today are invalid due to lack of compliance with either the provisions of the trust deed or prevailing legislation

Trusts are usually created as part of long-term planning During this planning period things inevitably change The plannerrsquos priorities may change as may be needs of the beneficiaries The law may also change It is therefore important that trusts should be reviewed regularly to ensure that they can withstand these changing tides This article identifies some potential problems which could arise if a trust is not reviewed regularly

of ReviewingThe Importance

a Trust

13

ESTATES AND TRUSTS

Minimum number of trustees Trusts are often left to operate for long periods without the prescribed number of trustees as stipulated in the trust deed During these periods of noncompliance the remaining trustees continue to operate as usual binding and committing the trust to all sorts of obligations

The courts have held that a provision requiring a specified minimum number of trustees lays down a prerequisite that must be fulfilled before the trust estate can be bound When fewer trustees than the number specified are in office the trust suffers from an incapacity that precludes action on its behalf

When a trustee vacates (by resignation or death) their office the provisions relating to the quorum for meetings resolutions of the trust and voting rights are affected It follows therefore that a trust cannot continue to transact until the correct number of trustees is restored If there is no mechanism for appointing a new trustee in the trust deed then an application must be made to the Court Any action taken by the trustees outside the scope of their powers is null and void

Appointment and resignation of trusteesOften additional trustees are appointed and commence their duties before their appointments are confirmed by the Master Many planners are oblivious to the rule that a trustee cannot act unless he or she has been duly appointed by the Master of the High Court in terms of Section 6 of the Trust Property Control Act 2

Even if a trustee has been properly appointed in terms of the trust deed he or she may not act on behalf of the trust until authorised to do so by the Master Any such act performed by a trustee prior to receiving Letters of Authority from the Master will be null and void and incapable of ratification The opposite also applies in that a trusteersquos fiduciary responsibilities do not cease unless the Master has expressly withdrawn his authorisation (by removing the trusteersquos name from the Letters of Authority) A personrsquos resignation does not legally relieve him of his duties as trustee The trustee remains legally accountable until the Master has officially removed him from his office as trustee

Section 21 of the Trust Property Control Act states that whether or not the trust deed provides for the trustees resignation the trustee may resign by notice in writing to the Master and the ascertained beneficiaries who have legal capacity or to the tutors or curators of the beneficiaries of the trust under tutorship or curatorship

In practice notice is only given to the Master but not to the beneficiaries In such a case the resignation is deemed to be invalid planners should therefore ensure that all trustee resignations are confirmed by the Master Failure to do so could result in these trustees being held liable for transgressions which occur post their departure The validity of subsequent transactions by the remaining trustees could also be challenged since not all trustees would have been involved (the individual who informally exited will still be regarded as a trustee)

Capacity to act as trustee It is also important to ensure that all the trustees remain fit and competent to continue acting as trustees during the course of the planning period Owing to intervening circumstances such as insolvency during the planning period an individual may be rendered unfit to hold the office of trustee

Section 20 of the Trust Property Control Act for example provides that the Master may remove a trustee if inter alia his or her estate is sequestrated either provisionally or finally The terms of the trust deed may also disqualify a trustee for some other reason All contracts entered into by an incompetent trustee may be also declared null and void

ControlOne of the fundamental tenets of trust law is that the founder or a trustee should not have absolute and unfettered control of the income and property of the trust This occurs frequently in the context of family trusts where trustees are often also beneficiaries of a trust

Unless reviewed regularly the relationship between the founder or a trustee of a trust and the trust assets may become blurred resulting in the rupture of the controlenjoyment divide Without a proper separation of control and enjoyment the trust will offer little in the way of protection as it will be seen as the alter ego of the founder or trustee The trust assets in question will also be lsquodeemed propertyrsquo in the estate of the controlling trustee on death in terms of Section 3(3) (d) of the Estate Duty Act6 It is important to regularly check to ensure that a founder or trustee has not crossed this fundamental rubicon This can be done by ensuring that all decisions and resolutions of the trust are taken at properly constituted sittings and accurately recorded

The courts have also suggested that the Master of the High Court must ensure that an adequate separation of control from enjoyment is maintained in every trust In the Parker case the court suggested that one way the Master can ensure that an adequate separation of control from enjoyment is maintained in every trust is by insisting on the appointment of an independent outsider as trustee to every trust in which the trustees are all beneficiaries and the beneficiaries are all related to one another

The independent outsider does not have to be a professional person such as an attorney or accountant but someone who with proper realisation of the responsibilities of trusteeship accepts office in order to ensure that the trust functions properly that the provisions of the trust deed are observed and that the conduct of trustees who lack a sufficiently independent interest in the observance of substantive and procedural requirements arising from the trust deed can be scrutinised and checked

LegislationChanges in the legislation governing trusts happen all too frequently As a consequence planning strategies that work today will not necessarily work tomorrow Financial planners must ensure that they regularly review their trusts to ensure that they remain in line with prevailing legislation

The recent introduction of a new Section 7C to the Income Tax Act is a good example of how even the best of strategies can be derailed by new legislation For years the use of interest free loans have provided an effective mechanism for wealth transfer and estate planning schemes Section 7C which became effective on the 1st of March 2017 is an anti-avoidance measure the effect of which is to treat interest free or low interest loans made to a trust as donations This provision is retrospective (ie it applies to all new and existing interest free loans) The introduction of Section 7C thus presents an unprecedented challenge which makes it imperative for planners who have made interest free or low interest loans to trusts to urgently review their plans to ensure that they will not be negatively impacted by this new dispensation

Recent changes to legislation have also brought interest free loans made to offshore trusts within the realm of the transfer pricing legislation (Section 31 of the Income Tax Act) Individuals making interest free loans to offshore trusts will be taxed on the uncharged interest as if they had actually received it

Just like a vehicle a trust needs a regular service for it to effectively provide the services for which it was intended As discussed above the failure to review a trust could result in the failure of the trust

14

FPI NEWS

FPI ApprovedProfessional PracticeTM

Crue Invest announced as

In January 2017 Crue Invest became part of an elite group of financial planning businesses when it was recognised as an FPI ApprovedProfessionalPracticetrademakingitthe13thfinancialplanning business in the country to receive this prestigious recognition

The Financial Planning Institute of Southern Africa (FPI) introduced theFPIApprovedProfessionalPracticetradebrandasaninitiativethat will make it easier for consumers to identify financial planning practices that adhere to the pinnacle of global professionalism

Crue Invest which was founded by husband-and-wife-team Sue and Craig Torr in 2004 is owned and managed by a team of legal financial and tax experts all of whom are shareholders in the business Each and every client receives an expertly drafted financial plan ldquoEvery single financial plan is unique to the client and is hand-crafted by our team of professionals We consider each financial plan to be a uniquely customised work of artrdquo explains Craig Torr

ldquoThis accreditation follows a stringent audit of our business by FPI and confirms that our practice meets the highest ethical standards in the pursuance of our profession The accreditation reinforces that our standards in terms of knowledge expertise and ethical conduct are amongst the best in the country We are thrilledrdquo added Torr

This is a proud achievement for the practice and FPI following rigorous approval criteria FPI is confident that Crue Invest will assist in raising the standards of the financial planning profession in South Africa as well as creating the assurance that the quality of service they offer is not dependent on single individuals

About Crue Invest

Crue Invest (Pty) Ltd is one of 13 FPI Approved Professional Practicetradefirmsandafee-basedfinancialplanningcompanywhosemain purpose is to help clients create and protect their wealth through sound and independent financial planning

The company was founded in 2004 by husband-and-wife-team Sue and Craig Torr and has developed into a niche financial planning company with over R500 million of assets under advice Crue Invest is owned and managed by a team of eight directors who are all shareholders in the business

The team of financial and legal experts provide financial advice to individuals who wish to grow and protect their wealth covering the areas of retirement planning investments risk tax estate planning trusts wills and healthcare

For more about Crue Invest visit wwwcruecoza

4

LETTER FROM FPI

Financial planningprofession

5

LETTER FROM FPI

more important than ever

The 2017 investment year started much better locally and internationally than 2016 with stronger markets signs of economic growth in some parts of the world and marginal improvements in the economic indicators for South Africa

This did not last as political upheaval again had a negative impact on the local currency and markets the international investor community started to doubt that the US President Donald Trump will be able to deliver on his campaign promises and the Brexit process started to unfold

This creates uncertainty and at times even panic leaving investors feeling bewildered and as one commentator noted after the most recent events in SA ldquopeople get spookedrdquo

Against this background the financial planning community has an important role to play to guide investors through this and to impress upon them how important it is to have a plan and stick to it Beyond that the need for lifting the level of financial literacy amongst all consumers and improving consumer education around personal financial issues is greater than ever It has been reported that South African consumers are deep in debt and many cannot make ends meet

The outlook for the months ahead for the SA economy is not great and commentators have started to bring the dreaded recession term into analysis

Awareness Engagement and Growth StrategiesAs part of our overall strategic objective and to support the highly professional and well developed financial planning profession in South Africa we at FPI have several initiatives in place to address the challenges faced by consumers and financial planning professionals We want to ensure that the profession and the industry continues to grow and drive awareness around the value of financial planning

These initiatives includebull Continuousengagementwithregulatorybodiesaswellas

associations in the financial services industry to contribute to proposed changes to legislation or regulation that may affect the industry and also consumers We actively consult with for instance the Financial Services Board (FSB) National Treasury various Ombudsman offices and similar bodies to remain vigilant about changes under investigation and provide input for the industry

bull ContinuinginourdrivetoactivelypromotetheCERTIFIEDFINANCIAL PLANNERreg CFPreg mark and drive awareness as well as the importance of using a CERTIFIED FINANCIAL PLANNERreg CFPreg professional and the value of financial planning amongst

consumers In the recent report by Financial Planning Standards Board Ltd (FPSB) South Africa was one of the top ten countries (ranked sixth) in terms of total number of CFPreg professionals This does indeed show our commitment in growing the professionals to ensure the public benefits from these highly qualified and ethical individuals (Read more about the global numbers on page 32)

bull Extensiveoutreachandeducationprogrammestodriveconsumereducation This is done with the support of the CFPreg professional community across South Africa These programmes will be stepped up this year with a consumer literacy roadshow planned for mid-September to October CFPreg professionals who have volunteered their time will undertake a nationwide tour to present its educational and financial literacy workshops at universities schools and companies in various cities and towns

bull TheFPIDiversityandInclusionStrategywhichisakeyfocusfor 2017 In terms of encouraging greater diversity within our professional financial planning community we have already achieved success with more women attaining the designation and more black financial planners joining the industry (go to page 22 to read more about our growing numbers) Our engagement with FPI Education Providers is an important aspect of this goal and we believe going forward that we will not only achieve greater diversity in our membership base but also encourage changes in the wider industry

bull AddingmoreFPICorporatePartnertradecompaniesInsupportof our strategic goal to grow the number of financial planning professionals we have to date partnered with nine FPI Corporate PartnertradecompaniesThisisourcommitmenttoup-skillingfinancial advisors into ultimately becoming CFPreg professionals In addition we have in the early parts of 2017 also signed a new FPIApprovedProfessionalPracticetrade(find out more on page 12) To date we have 13 practices in SA that have been recognised and awarded this brand for delivering exceptionally high quality financial planning by placing the needs and objectives of their clients at the heart of their business We are actively working towards adding more partnerships to not only drive financial education and awareness projects but to promote these brands amongst members and consumers

Your continued support is highly appreciated and as partners in the financial planning profession I have no doubt that 2017 will be a successful year irrespective of what the markets will deliver

Godfrey NtiChief Executive Officer|Financial Planning Institute of Southern Africa (FPI)

6

CLIENT ENGAGEMENT

By Dawn Ridler CFPreg

Financial Planning Institutersquos Risk CompetencyCommittee Vice-Chairperson

Jobless worldThe new normal

A

7

Wersquore all brought up to believe that you cannot have your cake and eat it You canrsquot have both loads of family time and a stellar career you canrsquot be wealthy unless you work for yourself both parents have to work ndash or their children wonrsquot be given the best education In

the past this has often been true but just maybe things are changing

Change happens around us all the time most of the time we hardly notice it and only when we compare the life of 10 years ago to today do we actually realise just how radical that change has been There are times though that change happens uncomfortably fast and we try with all our might to stop it usually only postponing the inevitable This rapid change too will pass and our lives go back to a new normal in the interim though it may leave mayhem in its tracks

The credit crisis precipitated a new normal in economic cycles and now 10 years down the line (it started in the second half of 2007) very few people have changed their expectations and adjusting to this new normal of low growth low-interest rates and very low inflation As a financial advisor one of my biggest challenges is managing those expectations especially if asset allocation and the fund mix has to be changed to protect a long-term investment

The rise of populism in politics around the world is an idea that has been dying to break through for a long time now Ironically it has been nurtured by the low growth era in the last decade and the growing disparity between the lsquoone percentrsquo and the lsquoothersrsquo The lsquoothersrsquo are sick to death of politicians pandering to that one percent or even worse using politics to leapfrog into that one percent Unfortunately for those wanting the lsquogoodrsquo change in politics and politicians they have had to hold their noses and accept the lsquobadrsquo To get that political change you may have to swallow nasties like right-wing fascism rampant and confiscatory socialism racism and xenophobia It makes my hair curl even to write that sentence The Americans held their noses on some (most)

CLIENT ENGAGEMENT

The problem is that technology has probably reached the limit where its role is supportive and increases

individual productivity it is now starting to replace jobs in their entirety

8

of the above to get the populism Trump promised (whether or not he will deliver remains to be seen) The Dutch however came out in droves to make sure the right wing did not prevail There was a substantial element of xenophobia in Brexit and very little change in the bureaucracy The EFF [Economic Freedom Fighters] is another lsquohold your nosersquo populist (and make no mistake the ANC [African National Congress] will try and woo them back into their ranks) The low economic growth is feeding into this desire for changeWhether you like it or not technology is behind much of this change For decades we have used technology happily to make our jobs more productive Occasionally that might put you out of a job but it has been fairly easy to for people to find jobs elsewhere ndash even if it is not the job they want Farms for example use a fraction of the workforce they did 50 years ago The problem is that technology has probably reached the limit where its role is supportive and increases individual productivity it is now starting to replace jobs in their entirety and those people may not be able to find alternative employment Without increasing productivity economies cannot grow The rise in stock markets despite the lack of productivity growth is based on hope rather than expectation It is being driven by those lsquoanimal spiritsrsquo which will disappear once reality sets in

So if machines can do jobs cheaper faster and with no vacation days or benefits ndash what about the threat of growing unemployment Finland has just introduced what may be the answer in the future ndash Universal Basic Income At the moment this is only available to the lsquounemployedrsquo ndash but what is the difference between unemployment benefits and Universal Basic Income The philosophy is that with machines doing the lsquoproductionrsquo and thus lsquofreeing uprsquo human capital humans should be paid a basic living wage whether or not they decide to lsquoworkrsquo This is different to ordinary unemployment benefits that usually require the claimant keep looking for a job What are the implications if everyone gets a basic income Who will choose to work One would assume that the basic income is going to be very basic and will have little room for luxuries I guess it will boil down to ambition to do better and to have more The rise in the lsquoGigrsquo economy plays into this ndash One could lsquotop-uprsquo onersquos income without becoming a full time employee in the traditional sense

Post-2008 growth has never been able to get back to the same level again and a decade on it may never get there It has yet to get above 3 (global average) Even Chinarsquos growth is down to mid-single digits Growth has to come from increased productivity and that is going to depend on technological developments and Artificial Intelligence The old assumptions of CPI plus 1 3 5 or 7 may be gone forever All the assumptions that have gone into your retirement planning will have to be reworked and you will have no option to put away more Here in South Africa we are luckier than the West with higher CPI and stock exchange growth but it is still way off what we are used to When you have less growth to work with your asset manager has to get smarter One of the reasons ETFs and Trackers in this country havenrsquot taken off is because asset managers can hide behind the nominal positive growth knowing that most of the public doesnrsquot think in lsquoreal growthrsquo (after inflation) terms That is changing Unit trust fees are going to have to fall or die A unit trust cannot justify 3-4 fees when it is only making you 8-9 before inflation Look at the maths 8 growth less 6 inflation gives you 2 real growth Subtract 3 fees and you get -1 real growth

Single asset class ETFs (like pure equity trackers) unit trusts or share portfolios are under the most pressure To even get CPI plus 3 you have to have a blended portfolio at the moment and it has been like that for at least two years Forget passive investing unless yoursquore watching the market all the time you need an asset manager who will blend the asset classes without charging an arm and a leg

The unit trusts that charge those high fees will still be around for a while yet because the pension funds and advisors are still advising clients to stay in them since they are lsquosafersquo and lsquowell knownrsquo It is CYA (Cover Your Asset) which is doing those millions of small investors no favours What about lsquoguaranteesrsquo These come at a price of at least 2 of the investment sometimes more If you get a provider who will guarantee a certain income in the future have a very hard look at the assumptions What if inflation goes back up to 15-18-20 That will make a guaranteed income using todayrsquos inflation mean nothing The only guarantee that matters is a real return or income linked to inflation

If this lower growth environment persists you are going to have no choice but to increase your retirement savings How can you do that Firstly cut through the pick me cacophony from investment advisors brokers advisors etc and have a comprehensive look at your entire wealth ecosystem The amount you are spending on lsquoriskrsquo is one of those low hanging fruit Medical aid premiums are taking a huge chunk out of your income ndash is there a smarter way to do the same thing Are you spending too much on life cover to leave your kids something and ignoring the possibility of having to depend on them financially in your retirement

CLIENT ENGAGEMENT

Discovery Life Investment Services Pty (Ltd) branded as Discovery Invest is an authorised financial services provider Registration number 200700596907

wwwdiscoverycoza Discovery_SA discoverysouthafrica youtubeDiscoverySA

Discovery Invest can help your clients enjoy the retirement they deserve We can do this in three ways One we boost their pre-retirement savings by up to 15 Two this can either be added to their payout at retirement or used to reduce their admin fees to zero Three if they add more capital to their retirement savings wersquoll boost that too

Should you really be recommending anything else

Speak to your business consultant or visit wwwdiscoverycoza for more information about our retirement plans and the terms and conditions that apply to them

What will your clientsrsquo retirement look like

10

INDUSTRY NEWS EMPLOYEE BENEFITS

occupational retirement funds getting it right

Divorce order claims against

By Ashley Lakey CFPregFPI Risk CompetencyCommittee Member

Divorce is a traumatic life event and often places severe stress and strain upon the affected parties The last thing either of them need is unnecessary additional stress and strain when after weeks months or even years of negotiation and having already incurred considerable legal costs in reaching a settlement agreement they finally obtain the divorce order and then discover that the provisions dealing with the award of pension interest from their respective occupational retirement funds are not

compliant with divorce legislation and therefore not binding on the funds Not only will this cause considerable delay in the payouts which they may be depending on and hence disruption to their financial affairs but it will probably also add another layer of unbudgeted cost in order to get the divorce order amended Sadly this situation has been all too common since the Divorce Act deemed ldquopension interestrdquo to be part of the assets of divorcing parties and even more so since the clean break principle was introduced

The clean break principle applies to marriages in community of property and those out of community of property in terms of an antenuptial contract with the accrual system It does not apply to marriages entered on or after 1 November 1984 which are out of community of property in terms of an antenuptial contract by which community of property community of profit and loss and the accrual system are excluded Whereas prior to the clean break principle a divorce award could only be paid when the member spouse became entitled to the benefits now the processing of the payment of a divorce award can be triggered at any time after divorce by the submission of a compliant divorce order to the fund This principle applies to all divorce orders ie pre and post 13 September 2007

11

INDUSTRY NEWS EMPLOYEE BENEFITS

What then are the main aspects to consider in order to ensure that a divorce award is compliant

1 The member must be an active member of the fund at the date of the divorce If the member exits the fund prior to the divorce being finalised then there will no longer be any concept of pension interest even though the members benefit may not yet have been paid by the fund at that stage

As soon as the parties embark upon divorce proceedings they should notify their funds accordingly so that the fundsrsquo records may be flagged and the funds may be given an opportunity to approve the proposed wording that will be used in the divorce order If all parties are aware of the pending divorce and prepared to co-operate then the chances of errors or surprises later on are greatly reduced Just imagine a situation where the parties complete their settlement agreement in April and have it incorporated in their Final Order of Divorce in May only for the non-member to submit the divorce claim to the fund and be advised that the member withdrew from the fund in March and that the divorce order is consequently not binding on the fund Whether this happens through ignorance on the part of the member or whether it is done deliberately to frustrate the non-memberrsquos claim more legal costs will now be incurred to amend the order or to interdict the fund from paying the benefit to the member or for the non-member to pursue court action against the member by virtue of the fact that there is still a valid claim in terms of a court order albeit that the order cannot be enforced against the fund Now the parties will need to negotiate around the after-tax position of the member in respect of the benefit which will be paid by the fund since it will not qualify as a pension interest award that is taxable in the hands of the non-member spouse

What if the member has left fund X to which he belonged at the date of divorce and now belongs to fund Y If the benefit in fund X was transferred to fund Y then as long as there is a compliant order against fund X it will automatically apply to fund Y Where a transfer between funds occurs after the date of divorce it is important that the member or non-member notifies the transferor fund about a binding divorce order so that this can be recorded as part of the transfer Likewise if the divorce claim has already been settled by the transferor fund it needs to be recorded in the transfer

What about if the member has retired from the fund and is currently receiving a monthly pension As the law currently stands there is no longer any concept of ldquopension interestrdquo in this case and the clean break principle does not apply

2 The fund must be named or capable of being identified It is always best to use the full and correct registered name of the fund together with the fund code and member reference number

Using the Employerrsquos name to identify the fund may not always work if the Employer operates multiple funds or the member belongs to multiple funds of the Employer

If the member belongs to a pension fund and a provident fund then it is important to note that these are two completely separate legal entities and hence the order must clarify whether it seeks to bind both funds or only one If one which one

3 A portionpercentage of pension interest or an actual Rand amount can be awarded Such portion can be anything from 1 to 100 of pension interest

It is not an automatic 5050 split and it is not sufficient for the order to merely refer to the division of the joint estate A recent Supreme Court judgement has been misinterpreted by many to mean that an order merely needs to order the division of the joint estate in order to be binding on a fund This is not the case

The definition of ldquopension interestrdquo amounts to the value of the memberrsquos withdrawal benefit at the date of divorce No interest or growth applies unless there are delays in payment after a valid claim has been submitted

There is no concept of ldquoprovident fund interestrdquo in the Divorce Act and use of this term will be problematic The concept of ldquopension interestrdquo applies to pension and provident funds and only the term ldquopension interestrdquo should be referenced

The divorce award will automatically be taxed in the hands of the non-member spouse and therefore references to ldquoafter tax amountrdquo or ldquonett amountrdquo or ldquoless any taxrdquo or ldquox rand after taxrdquo are not only unnecessary but problematic in terms of the fund needing to interpret what the intended award is

4 The non-member spouse must be the recipient of the award The order cannot bind the fund to pay to anyone other than the non-member spouse eg the children the member the attorney trust account or creditors of the joint estate

The fund cannot be party to a scheme whereby the parties are using the divorce as a mechanism for the member to access his retirement funds Any order in terms of which payment will be made to the member will automatically be problematic and the settlement agreement should avoid it

The non-member spouse may instruct the fund on where to pay the benefit This can be done as part of the claim submission and then the fund will be able to act on the instruction of the non-member in this regard However the order can only make the award to the non-member

It is always best that the parties co-operate openly and honestly to ensure a fair outcome and a divorce order that complies with the points mentioned above Attempts to frustrate the other party by withholding information or providing incorrect or misleading information will only result in unnecessary delays and costs If a party does not want to volunteer essential information required for a compliant divorce order the law does provide recourse but such options should rather be avoided if possible There will still be a valid claim that needs to be settled by the member at the end of the day Settling it by way of a compliant divorce order is the right way and the best way to go

12

ESTATES AND TRUSTS

By Gerald Peter CFPreg Legal Advisor SpecialistOld Mutual

Despite the scepticism with which they are viewed by the revenue authorities and an ever tightening regulatory environment trusts remain powerful tools of estate planning Properly configured trusts can be applied to serve a myriad of legitimate and pragmatic planning purposes

Many financial planners are however under the misguided belief that once their trusts are registered they have free reign to administer and use them as they please As a result many trusts in existence today are invalid due to lack of compliance with either the provisions of the trust deed or prevailing legislation

Trusts are usually created as part of long-term planning During this planning period things inevitably change The plannerrsquos priorities may change as may be needs of the beneficiaries The law may also change It is therefore important that trusts should be reviewed regularly to ensure that they can withstand these changing tides This article identifies some potential problems which could arise if a trust is not reviewed regularly

of ReviewingThe Importance

a Trust

13

ESTATES AND TRUSTS

Minimum number of trustees Trusts are often left to operate for long periods without the prescribed number of trustees as stipulated in the trust deed During these periods of noncompliance the remaining trustees continue to operate as usual binding and committing the trust to all sorts of obligations

The courts have held that a provision requiring a specified minimum number of trustees lays down a prerequisite that must be fulfilled before the trust estate can be bound When fewer trustees than the number specified are in office the trust suffers from an incapacity that precludes action on its behalf

When a trustee vacates (by resignation or death) their office the provisions relating to the quorum for meetings resolutions of the trust and voting rights are affected It follows therefore that a trust cannot continue to transact until the correct number of trustees is restored If there is no mechanism for appointing a new trustee in the trust deed then an application must be made to the Court Any action taken by the trustees outside the scope of their powers is null and void

Appointment and resignation of trusteesOften additional trustees are appointed and commence their duties before their appointments are confirmed by the Master Many planners are oblivious to the rule that a trustee cannot act unless he or she has been duly appointed by the Master of the High Court in terms of Section 6 of the Trust Property Control Act 2

Even if a trustee has been properly appointed in terms of the trust deed he or she may not act on behalf of the trust until authorised to do so by the Master Any such act performed by a trustee prior to receiving Letters of Authority from the Master will be null and void and incapable of ratification The opposite also applies in that a trusteersquos fiduciary responsibilities do not cease unless the Master has expressly withdrawn his authorisation (by removing the trusteersquos name from the Letters of Authority) A personrsquos resignation does not legally relieve him of his duties as trustee The trustee remains legally accountable until the Master has officially removed him from his office as trustee

Section 21 of the Trust Property Control Act states that whether or not the trust deed provides for the trustees resignation the trustee may resign by notice in writing to the Master and the ascertained beneficiaries who have legal capacity or to the tutors or curators of the beneficiaries of the trust under tutorship or curatorship

In practice notice is only given to the Master but not to the beneficiaries In such a case the resignation is deemed to be invalid planners should therefore ensure that all trustee resignations are confirmed by the Master Failure to do so could result in these trustees being held liable for transgressions which occur post their departure The validity of subsequent transactions by the remaining trustees could also be challenged since not all trustees would have been involved (the individual who informally exited will still be regarded as a trustee)

Capacity to act as trustee It is also important to ensure that all the trustees remain fit and competent to continue acting as trustees during the course of the planning period Owing to intervening circumstances such as insolvency during the planning period an individual may be rendered unfit to hold the office of trustee

Section 20 of the Trust Property Control Act for example provides that the Master may remove a trustee if inter alia his or her estate is sequestrated either provisionally or finally The terms of the trust deed may also disqualify a trustee for some other reason All contracts entered into by an incompetent trustee may be also declared null and void

ControlOne of the fundamental tenets of trust law is that the founder or a trustee should not have absolute and unfettered control of the income and property of the trust This occurs frequently in the context of family trusts where trustees are often also beneficiaries of a trust

Unless reviewed regularly the relationship between the founder or a trustee of a trust and the trust assets may become blurred resulting in the rupture of the controlenjoyment divide Without a proper separation of control and enjoyment the trust will offer little in the way of protection as it will be seen as the alter ego of the founder or trustee The trust assets in question will also be lsquodeemed propertyrsquo in the estate of the controlling trustee on death in terms of Section 3(3) (d) of the Estate Duty Act6 It is important to regularly check to ensure that a founder or trustee has not crossed this fundamental rubicon This can be done by ensuring that all decisions and resolutions of the trust are taken at properly constituted sittings and accurately recorded

The courts have also suggested that the Master of the High Court must ensure that an adequate separation of control from enjoyment is maintained in every trust In the Parker case the court suggested that one way the Master can ensure that an adequate separation of control from enjoyment is maintained in every trust is by insisting on the appointment of an independent outsider as trustee to every trust in which the trustees are all beneficiaries and the beneficiaries are all related to one another

The independent outsider does not have to be a professional person such as an attorney or accountant but someone who with proper realisation of the responsibilities of trusteeship accepts office in order to ensure that the trust functions properly that the provisions of the trust deed are observed and that the conduct of trustees who lack a sufficiently independent interest in the observance of substantive and procedural requirements arising from the trust deed can be scrutinised and checked

LegislationChanges in the legislation governing trusts happen all too frequently As a consequence planning strategies that work today will not necessarily work tomorrow Financial planners must ensure that they regularly review their trusts to ensure that they remain in line with prevailing legislation

The recent introduction of a new Section 7C to the Income Tax Act is a good example of how even the best of strategies can be derailed by new legislation For years the use of interest free loans have provided an effective mechanism for wealth transfer and estate planning schemes Section 7C which became effective on the 1st of March 2017 is an anti-avoidance measure the effect of which is to treat interest free or low interest loans made to a trust as donations This provision is retrospective (ie it applies to all new and existing interest free loans) The introduction of Section 7C thus presents an unprecedented challenge which makes it imperative for planners who have made interest free or low interest loans to trusts to urgently review their plans to ensure that they will not be negatively impacted by this new dispensation

Recent changes to legislation have also brought interest free loans made to offshore trusts within the realm of the transfer pricing legislation (Section 31 of the Income Tax Act) Individuals making interest free loans to offshore trusts will be taxed on the uncharged interest as if they had actually received it

Just like a vehicle a trust needs a regular service for it to effectively provide the services for which it was intended As discussed above the failure to review a trust could result in the failure of the trust

14

FPI NEWS

FPI ApprovedProfessional PracticeTM

Crue Invest announced as

In January 2017 Crue Invest became part of an elite group of financial planning businesses when it was recognised as an FPI ApprovedProfessionalPracticetrademakingitthe13thfinancialplanning business in the country to receive this prestigious recognition

The Financial Planning Institute of Southern Africa (FPI) introduced theFPIApprovedProfessionalPracticetradebrandasaninitiativethat will make it easier for consumers to identify financial planning practices that adhere to the pinnacle of global professionalism

Crue Invest which was founded by husband-and-wife-team Sue and Craig Torr in 2004 is owned and managed by a team of legal financial and tax experts all of whom are shareholders in the business Each and every client receives an expertly drafted financial plan ldquoEvery single financial plan is unique to the client and is hand-crafted by our team of professionals We consider each financial plan to be a uniquely customised work of artrdquo explains Craig Torr

ldquoThis accreditation follows a stringent audit of our business by FPI and confirms that our practice meets the highest ethical standards in the pursuance of our profession The accreditation reinforces that our standards in terms of knowledge expertise and ethical conduct are amongst the best in the country We are thrilledrdquo added Torr

This is a proud achievement for the practice and FPI following rigorous approval criteria FPI is confident that Crue Invest will assist in raising the standards of the financial planning profession in South Africa as well as creating the assurance that the quality of service they offer is not dependent on single individuals

About Crue Invest

Crue Invest (Pty) Ltd is one of 13 FPI Approved Professional Practicetradefirmsandafee-basedfinancialplanningcompanywhosemain purpose is to help clients create and protect their wealth through sound and independent financial planning

The company was founded in 2004 by husband-and-wife-team Sue and Craig Torr and has developed into a niche financial planning company with over R500 million of assets under advice Crue Invest is owned and managed by a team of eight directors who are all shareholders in the business

The team of financial and legal experts provide financial advice to individuals who wish to grow and protect their wealth covering the areas of retirement planning investments risk tax estate planning trusts wills and healthcare

For more about Crue Invest visit wwwcruecoza

5

LETTER FROM FPI

more important than ever

The 2017 investment year started much better locally and internationally than 2016 with stronger markets signs of economic growth in some parts of the world and marginal improvements in the economic indicators for South Africa

This did not last as political upheaval again had a negative impact on the local currency and markets the international investor community started to doubt that the US President Donald Trump will be able to deliver on his campaign promises and the Brexit process started to unfold

This creates uncertainty and at times even panic leaving investors feeling bewildered and as one commentator noted after the most recent events in SA ldquopeople get spookedrdquo

Against this background the financial planning community has an important role to play to guide investors through this and to impress upon them how important it is to have a plan and stick to it Beyond that the need for lifting the level of financial literacy amongst all consumers and improving consumer education around personal financial issues is greater than ever It has been reported that South African consumers are deep in debt and many cannot make ends meet

The outlook for the months ahead for the SA economy is not great and commentators have started to bring the dreaded recession term into analysis

Awareness Engagement and Growth StrategiesAs part of our overall strategic objective and to support the highly professional and well developed financial planning profession in South Africa we at FPI have several initiatives in place to address the challenges faced by consumers and financial planning professionals We want to ensure that the profession and the industry continues to grow and drive awareness around the value of financial planning

These initiatives includebull Continuousengagementwithregulatorybodiesaswellas

associations in the financial services industry to contribute to proposed changes to legislation or regulation that may affect the industry and also consumers We actively consult with for instance the Financial Services Board (FSB) National Treasury various Ombudsman offices and similar bodies to remain vigilant about changes under investigation and provide input for the industry

bull ContinuinginourdrivetoactivelypromotetheCERTIFIEDFINANCIAL PLANNERreg CFPreg mark and drive awareness as well as the importance of using a CERTIFIED FINANCIAL PLANNERreg CFPreg professional and the value of financial planning amongst

consumers In the recent report by Financial Planning Standards Board Ltd (FPSB) South Africa was one of the top ten countries (ranked sixth) in terms of total number of CFPreg professionals This does indeed show our commitment in growing the professionals to ensure the public benefits from these highly qualified and ethical individuals (Read more about the global numbers on page 32)

bull Extensiveoutreachandeducationprogrammestodriveconsumereducation This is done with the support of the CFPreg professional community across South Africa These programmes will be stepped up this year with a consumer literacy roadshow planned for mid-September to October CFPreg professionals who have volunteered their time will undertake a nationwide tour to present its educational and financial literacy workshops at universities schools and companies in various cities and towns

bull TheFPIDiversityandInclusionStrategywhichisakeyfocusfor 2017 In terms of encouraging greater diversity within our professional financial planning community we have already achieved success with more women attaining the designation and more black financial planners joining the industry (go to page 22 to read more about our growing numbers) Our engagement with FPI Education Providers is an important aspect of this goal and we believe going forward that we will not only achieve greater diversity in our membership base but also encourage changes in the wider industry

bull AddingmoreFPICorporatePartnertradecompaniesInsupportof our strategic goal to grow the number of financial planning professionals we have to date partnered with nine FPI Corporate PartnertradecompaniesThisisourcommitmenttoup-skillingfinancial advisors into ultimately becoming CFPreg professionals In addition we have in the early parts of 2017 also signed a new FPIApprovedProfessionalPracticetrade(find out more on page 12) To date we have 13 practices in SA that have been recognised and awarded this brand for delivering exceptionally high quality financial planning by placing the needs and objectives of their clients at the heart of their business We are actively working towards adding more partnerships to not only drive financial education and awareness projects but to promote these brands amongst members and consumers

Your continued support is highly appreciated and as partners in the financial planning profession I have no doubt that 2017 will be a successful year irrespective of what the markets will deliver

Godfrey NtiChief Executive Officer|Financial Planning Institute of Southern Africa (FPI)

6

CLIENT ENGAGEMENT

By Dawn Ridler CFPreg

Financial Planning Institutersquos Risk CompetencyCommittee Vice-Chairperson

Jobless worldThe new normal

A

7

Wersquore all brought up to believe that you cannot have your cake and eat it You canrsquot have both loads of family time and a stellar career you canrsquot be wealthy unless you work for yourself both parents have to work ndash or their children wonrsquot be given the best education In

the past this has often been true but just maybe things are changing

Change happens around us all the time most of the time we hardly notice it and only when we compare the life of 10 years ago to today do we actually realise just how radical that change has been There are times though that change happens uncomfortably fast and we try with all our might to stop it usually only postponing the inevitable This rapid change too will pass and our lives go back to a new normal in the interim though it may leave mayhem in its tracks

The credit crisis precipitated a new normal in economic cycles and now 10 years down the line (it started in the second half of 2007) very few people have changed their expectations and adjusting to this new normal of low growth low-interest rates and very low inflation As a financial advisor one of my biggest challenges is managing those expectations especially if asset allocation and the fund mix has to be changed to protect a long-term investment

The rise of populism in politics around the world is an idea that has been dying to break through for a long time now Ironically it has been nurtured by the low growth era in the last decade and the growing disparity between the lsquoone percentrsquo and the lsquoothersrsquo The lsquoothersrsquo are sick to death of politicians pandering to that one percent or even worse using politics to leapfrog into that one percent Unfortunately for those wanting the lsquogoodrsquo change in politics and politicians they have had to hold their noses and accept the lsquobadrsquo To get that political change you may have to swallow nasties like right-wing fascism rampant and confiscatory socialism racism and xenophobia It makes my hair curl even to write that sentence The Americans held their noses on some (most)

CLIENT ENGAGEMENT

The problem is that technology has probably reached the limit where its role is supportive and increases

individual productivity it is now starting to replace jobs in their entirety

8

of the above to get the populism Trump promised (whether or not he will deliver remains to be seen) The Dutch however came out in droves to make sure the right wing did not prevail There was a substantial element of xenophobia in Brexit and very little change in the bureaucracy The EFF [Economic Freedom Fighters] is another lsquohold your nosersquo populist (and make no mistake the ANC [African National Congress] will try and woo them back into their ranks) The low economic growth is feeding into this desire for changeWhether you like it or not technology is behind much of this change For decades we have used technology happily to make our jobs more productive Occasionally that might put you out of a job but it has been fairly easy to for people to find jobs elsewhere ndash even if it is not the job they want Farms for example use a fraction of the workforce they did 50 years ago The problem is that technology has probably reached the limit where its role is supportive and increases individual productivity it is now starting to replace jobs in their entirety and those people may not be able to find alternative employment Without increasing productivity economies cannot grow The rise in stock markets despite the lack of productivity growth is based on hope rather than expectation It is being driven by those lsquoanimal spiritsrsquo which will disappear once reality sets in

So if machines can do jobs cheaper faster and with no vacation days or benefits ndash what about the threat of growing unemployment Finland has just introduced what may be the answer in the future ndash Universal Basic Income At the moment this is only available to the lsquounemployedrsquo ndash but what is the difference between unemployment benefits and Universal Basic Income The philosophy is that with machines doing the lsquoproductionrsquo and thus lsquofreeing uprsquo human capital humans should be paid a basic living wage whether or not they decide to lsquoworkrsquo This is different to ordinary unemployment benefits that usually require the claimant keep looking for a job What are the implications if everyone gets a basic income Who will choose to work One would assume that the basic income is going to be very basic and will have little room for luxuries I guess it will boil down to ambition to do better and to have more The rise in the lsquoGigrsquo economy plays into this ndash One could lsquotop-uprsquo onersquos income without becoming a full time employee in the traditional sense

Post-2008 growth has never been able to get back to the same level again and a decade on it may never get there It has yet to get above 3 (global average) Even Chinarsquos growth is down to mid-single digits Growth has to come from increased productivity and that is going to depend on technological developments and Artificial Intelligence The old assumptions of CPI plus 1 3 5 or 7 may be gone forever All the assumptions that have gone into your retirement planning will have to be reworked and you will have no option to put away more Here in South Africa we are luckier than the West with higher CPI and stock exchange growth but it is still way off what we are used to When you have less growth to work with your asset manager has to get smarter One of the reasons ETFs and Trackers in this country havenrsquot taken off is because asset managers can hide behind the nominal positive growth knowing that most of the public doesnrsquot think in lsquoreal growthrsquo (after inflation) terms That is changing Unit trust fees are going to have to fall or die A unit trust cannot justify 3-4 fees when it is only making you 8-9 before inflation Look at the maths 8 growth less 6 inflation gives you 2 real growth Subtract 3 fees and you get -1 real growth

Single asset class ETFs (like pure equity trackers) unit trusts or share portfolios are under the most pressure To even get CPI plus 3 you have to have a blended portfolio at the moment and it has been like that for at least two years Forget passive investing unless yoursquore watching the market all the time you need an asset manager who will blend the asset classes without charging an arm and a leg

The unit trusts that charge those high fees will still be around for a while yet because the pension funds and advisors are still advising clients to stay in them since they are lsquosafersquo and lsquowell knownrsquo It is CYA (Cover Your Asset) which is doing those millions of small investors no favours What about lsquoguaranteesrsquo These come at a price of at least 2 of the investment sometimes more If you get a provider who will guarantee a certain income in the future have a very hard look at the assumptions What if inflation goes back up to 15-18-20 That will make a guaranteed income using todayrsquos inflation mean nothing The only guarantee that matters is a real return or income linked to inflation

If this lower growth environment persists you are going to have no choice but to increase your retirement savings How can you do that Firstly cut through the pick me cacophony from investment advisors brokers advisors etc and have a comprehensive look at your entire wealth ecosystem The amount you are spending on lsquoriskrsquo is one of those low hanging fruit Medical aid premiums are taking a huge chunk out of your income ndash is there a smarter way to do the same thing Are you spending too much on life cover to leave your kids something and ignoring the possibility of having to depend on them financially in your retirement

CLIENT ENGAGEMENT

Discovery Life Investment Services Pty (Ltd) branded as Discovery Invest is an authorised financial services provider Registration number 200700596907

wwwdiscoverycoza Discovery_SA discoverysouthafrica youtubeDiscoverySA

Discovery Invest can help your clients enjoy the retirement they deserve We can do this in three ways One we boost their pre-retirement savings by up to 15 Two this can either be added to their payout at retirement or used to reduce their admin fees to zero Three if they add more capital to their retirement savings wersquoll boost that too

Should you really be recommending anything else

Speak to your business consultant or visit wwwdiscoverycoza for more information about our retirement plans and the terms and conditions that apply to them

What will your clientsrsquo retirement look like

10

INDUSTRY NEWS EMPLOYEE BENEFITS

occupational retirement funds getting it right

Divorce order claims against

By Ashley Lakey CFPregFPI Risk CompetencyCommittee Member

Divorce is a traumatic life event and often places severe stress and strain upon the affected parties The last thing either of them need is unnecessary additional stress and strain when after weeks months or even years of negotiation and having already incurred considerable legal costs in reaching a settlement agreement they finally obtain the divorce order and then discover that the provisions dealing with the award of pension interest from their respective occupational retirement funds are not

compliant with divorce legislation and therefore not binding on the funds Not only will this cause considerable delay in the payouts which they may be depending on and hence disruption to their financial affairs but it will probably also add another layer of unbudgeted cost in order to get the divorce order amended Sadly this situation has been all too common since the Divorce Act deemed ldquopension interestrdquo to be part of the assets of divorcing parties and even more so since the clean break principle was introduced

The clean break principle applies to marriages in community of property and those out of community of property in terms of an antenuptial contract with the accrual system It does not apply to marriages entered on or after 1 November 1984 which are out of community of property in terms of an antenuptial contract by which community of property community of profit and loss and the accrual system are excluded Whereas prior to the clean break principle a divorce award could only be paid when the member spouse became entitled to the benefits now the processing of the payment of a divorce award can be triggered at any time after divorce by the submission of a compliant divorce order to the fund This principle applies to all divorce orders ie pre and post 13 September 2007

11

INDUSTRY NEWS EMPLOYEE BENEFITS

What then are the main aspects to consider in order to ensure that a divorce award is compliant

1 The member must be an active member of the fund at the date of the divorce If the member exits the fund prior to the divorce being finalised then there will no longer be any concept of pension interest even though the members benefit may not yet have been paid by the fund at that stage

As soon as the parties embark upon divorce proceedings they should notify their funds accordingly so that the fundsrsquo records may be flagged and the funds may be given an opportunity to approve the proposed wording that will be used in the divorce order If all parties are aware of the pending divorce and prepared to co-operate then the chances of errors or surprises later on are greatly reduced Just imagine a situation where the parties complete their settlement agreement in April and have it incorporated in their Final Order of Divorce in May only for the non-member to submit the divorce claim to the fund and be advised that the member withdrew from the fund in March and that the divorce order is consequently not binding on the fund Whether this happens through ignorance on the part of the member or whether it is done deliberately to frustrate the non-memberrsquos claim more legal costs will now be incurred to amend the order or to interdict the fund from paying the benefit to the member or for the non-member to pursue court action against the member by virtue of the fact that there is still a valid claim in terms of a court order albeit that the order cannot be enforced against the fund Now the parties will need to negotiate around the after-tax position of the member in respect of the benefit which will be paid by the fund since it will not qualify as a pension interest award that is taxable in the hands of the non-member spouse

What if the member has left fund X to which he belonged at the date of divorce and now belongs to fund Y If the benefit in fund X was transferred to fund Y then as long as there is a compliant order against fund X it will automatically apply to fund Y Where a transfer between funds occurs after the date of divorce it is important that the member or non-member notifies the transferor fund about a binding divorce order so that this can be recorded as part of the transfer Likewise if the divorce claim has already been settled by the transferor fund it needs to be recorded in the transfer

What about if the member has retired from the fund and is currently receiving a monthly pension As the law currently stands there is no longer any concept of ldquopension interestrdquo in this case and the clean break principle does not apply

2 The fund must be named or capable of being identified It is always best to use the full and correct registered name of the fund together with the fund code and member reference number

Using the Employerrsquos name to identify the fund may not always work if the Employer operates multiple funds or the member belongs to multiple funds of the Employer

If the member belongs to a pension fund and a provident fund then it is important to note that these are two completely separate legal entities and hence the order must clarify whether it seeks to bind both funds or only one If one which one

3 A portionpercentage of pension interest or an actual Rand amount can be awarded Such portion can be anything from 1 to 100 of pension interest

It is not an automatic 5050 split and it is not sufficient for the order to merely refer to the division of the joint estate A recent Supreme Court judgement has been misinterpreted by many to mean that an order merely needs to order the division of the joint estate in order to be binding on a fund This is not the case

The definition of ldquopension interestrdquo amounts to the value of the memberrsquos withdrawal benefit at the date of divorce No interest or growth applies unless there are delays in payment after a valid claim has been submitted

There is no concept of ldquoprovident fund interestrdquo in the Divorce Act and use of this term will be problematic The concept of ldquopension interestrdquo applies to pension and provident funds and only the term ldquopension interestrdquo should be referenced

The divorce award will automatically be taxed in the hands of the non-member spouse and therefore references to ldquoafter tax amountrdquo or ldquonett amountrdquo or ldquoless any taxrdquo or ldquox rand after taxrdquo are not only unnecessary but problematic in terms of the fund needing to interpret what the intended award is

4 The non-member spouse must be the recipient of the award The order cannot bind the fund to pay to anyone other than the non-member spouse eg the children the member the attorney trust account or creditors of the joint estate

The fund cannot be party to a scheme whereby the parties are using the divorce as a mechanism for the member to access his retirement funds Any order in terms of which payment will be made to the member will automatically be problematic and the settlement agreement should avoid it

The non-member spouse may instruct the fund on where to pay the benefit This can be done as part of the claim submission and then the fund will be able to act on the instruction of the non-member in this regard However the order can only make the award to the non-member

It is always best that the parties co-operate openly and honestly to ensure a fair outcome and a divorce order that complies with the points mentioned above Attempts to frustrate the other party by withholding information or providing incorrect or misleading information will only result in unnecessary delays and costs If a party does not want to volunteer essential information required for a compliant divorce order the law does provide recourse but such options should rather be avoided if possible There will still be a valid claim that needs to be settled by the member at the end of the day Settling it by way of a compliant divorce order is the right way and the best way to go

12

ESTATES AND TRUSTS

By Gerald Peter CFPreg Legal Advisor SpecialistOld Mutual

Despite the scepticism with which they are viewed by the revenue authorities and an ever tightening regulatory environment trusts remain powerful tools of estate planning Properly configured trusts can be applied to serve a myriad of legitimate and pragmatic planning purposes

Many financial planners are however under the misguided belief that once their trusts are registered they have free reign to administer and use them as they please As a result many trusts in existence today are invalid due to lack of compliance with either the provisions of the trust deed or prevailing legislation

Trusts are usually created as part of long-term planning During this planning period things inevitably change The plannerrsquos priorities may change as may be needs of the beneficiaries The law may also change It is therefore important that trusts should be reviewed regularly to ensure that they can withstand these changing tides This article identifies some potential problems which could arise if a trust is not reviewed regularly

of ReviewingThe Importance

a Trust

13

ESTATES AND TRUSTS

Minimum number of trustees Trusts are often left to operate for long periods without the prescribed number of trustees as stipulated in the trust deed During these periods of noncompliance the remaining trustees continue to operate as usual binding and committing the trust to all sorts of obligations

The courts have held that a provision requiring a specified minimum number of trustees lays down a prerequisite that must be fulfilled before the trust estate can be bound When fewer trustees than the number specified are in office the trust suffers from an incapacity that precludes action on its behalf

When a trustee vacates (by resignation or death) their office the provisions relating to the quorum for meetings resolutions of the trust and voting rights are affected It follows therefore that a trust cannot continue to transact until the correct number of trustees is restored If there is no mechanism for appointing a new trustee in the trust deed then an application must be made to the Court Any action taken by the trustees outside the scope of their powers is null and void

Appointment and resignation of trusteesOften additional trustees are appointed and commence their duties before their appointments are confirmed by the Master Many planners are oblivious to the rule that a trustee cannot act unless he or she has been duly appointed by the Master of the High Court in terms of Section 6 of the Trust Property Control Act 2

Even if a trustee has been properly appointed in terms of the trust deed he or she may not act on behalf of the trust until authorised to do so by the Master Any such act performed by a trustee prior to receiving Letters of Authority from the Master will be null and void and incapable of ratification The opposite also applies in that a trusteersquos fiduciary responsibilities do not cease unless the Master has expressly withdrawn his authorisation (by removing the trusteersquos name from the Letters of Authority) A personrsquos resignation does not legally relieve him of his duties as trustee The trustee remains legally accountable until the Master has officially removed him from his office as trustee

Section 21 of the Trust Property Control Act states that whether or not the trust deed provides for the trustees resignation the trustee may resign by notice in writing to the Master and the ascertained beneficiaries who have legal capacity or to the tutors or curators of the beneficiaries of the trust under tutorship or curatorship

In practice notice is only given to the Master but not to the beneficiaries In such a case the resignation is deemed to be invalid planners should therefore ensure that all trustee resignations are confirmed by the Master Failure to do so could result in these trustees being held liable for transgressions which occur post their departure The validity of subsequent transactions by the remaining trustees could also be challenged since not all trustees would have been involved (the individual who informally exited will still be regarded as a trustee)

Capacity to act as trustee It is also important to ensure that all the trustees remain fit and competent to continue acting as trustees during the course of the planning period Owing to intervening circumstances such as insolvency during the planning period an individual may be rendered unfit to hold the office of trustee

Section 20 of the Trust Property Control Act for example provides that the Master may remove a trustee if inter alia his or her estate is sequestrated either provisionally or finally The terms of the trust deed may also disqualify a trustee for some other reason All contracts entered into by an incompetent trustee may be also declared null and void

ControlOne of the fundamental tenets of trust law is that the founder or a trustee should not have absolute and unfettered control of the income and property of the trust This occurs frequently in the context of family trusts where trustees are often also beneficiaries of a trust

Unless reviewed regularly the relationship between the founder or a trustee of a trust and the trust assets may become blurred resulting in the rupture of the controlenjoyment divide Without a proper separation of control and enjoyment the trust will offer little in the way of protection as it will be seen as the alter ego of the founder or trustee The trust assets in question will also be lsquodeemed propertyrsquo in the estate of the controlling trustee on death in terms of Section 3(3) (d) of the Estate Duty Act6 It is important to regularly check to ensure that a founder or trustee has not crossed this fundamental rubicon This can be done by ensuring that all decisions and resolutions of the trust are taken at properly constituted sittings and accurately recorded

The courts have also suggested that the Master of the High Court must ensure that an adequate separation of control from enjoyment is maintained in every trust In the Parker case the court suggested that one way the Master can ensure that an adequate separation of control from enjoyment is maintained in every trust is by insisting on the appointment of an independent outsider as trustee to every trust in which the trustees are all beneficiaries and the beneficiaries are all related to one another

The independent outsider does not have to be a professional person such as an attorney or accountant but someone who with proper realisation of the responsibilities of trusteeship accepts office in order to ensure that the trust functions properly that the provisions of the trust deed are observed and that the conduct of trustees who lack a sufficiently independent interest in the observance of substantive and procedural requirements arising from the trust deed can be scrutinised and checked

LegislationChanges in the legislation governing trusts happen all too frequently As a consequence planning strategies that work today will not necessarily work tomorrow Financial planners must ensure that they regularly review their trusts to ensure that they remain in line with prevailing legislation

The recent introduction of a new Section 7C to the Income Tax Act is a good example of how even the best of strategies can be derailed by new legislation For years the use of interest free loans have provided an effective mechanism for wealth transfer and estate planning schemes Section 7C which became effective on the 1st of March 2017 is an anti-avoidance measure the effect of which is to treat interest free or low interest loans made to a trust as donations This provision is retrospective (ie it applies to all new and existing interest free loans) The introduction of Section 7C thus presents an unprecedented challenge which makes it imperative for planners who have made interest free or low interest loans to trusts to urgently review their plans to ensure that they will not be negatively impacted by this new dispensation

Recent changes to legislation have also brought interest free loans made to offshore trusts within the realm of the transfer pricing legislation (Section 31 of the Income Tax Act) Individuals making interest free loans to offshore trusts will be taxed on the uncharged interest as if they had actually received it

Just like a vehicle a trust needs a regular service for it to effectively provide the services for which it was intended As discussed above the failure to review a trust could result in the failure of the trust

14

FPI NEWS

FPI ApprovedProfessional PracticeTM

Crue Invest announced as

In January 2017 Crue Invest became part of an elite group of financial planning businesses when it was recognised as an FPI ApprovedProfessionalPracticetrademakingitthe13thfinancialplanning business in the country to receive this prestigious recognition

The Financial Planning Institute of Southern Africa (FPI) introduced theFPIApprovedProfessionalPracticetradebrandasaninitiativethat will make it easier for consumers to identify financial planning practices that adhere to the pinnacle of global professionalism

Crue Invest which was founded by husband-and-wife-team Sue and Craig Torr in 2004 is owned and managed by a team of legal financial and tax experts all of whom are shareholders in the business Each and every client receives an expertly drafted financial plan ldquoEvery single financial plan is unique to the client and is hand-crafted by our team of professionals We consider each financial plan to be a uniquely customised work of artrdquo explains Craig Torr

ldquoThis accreditation follows a stringent audit of our business by FPI and confirms that our practice meets the highest ethical standards in the pursuance of our profession The accreditation reinforces that our standards in terms of knowledge expertise and ethical conduct are amongst the best in the country We are thrilledrdquo added Torr

This is a proud achievement for the practice and FPI following rigorous approval criteria FPI is confident that Crue Invest will assist in raising the standards of the financial planning profession in South Africa as well as creating the assurance that the quality of service they offer is not dependent on single individuals

About Crue Invest

Crue Invest (Pty) Ltd is one of 13 FPI Approved Professional Practicetradefirmsandafee-basedfinancialplanningcompanywhosemain purpose is to help clients create and protect their wealth through sound and independent financial planning

The company was founded in 2004 by husband-and-wife-team Sue and Craig Torr and has developed into a niche financial planning company with over R500 million of assets under advice Crue Invest is owned and managed by a team of eight directors who are all shareholders in the business

The team of financial and legal experts provide financial advice to individuals who wish to grow and protect their wealth covering the areas of retirement planning investments risk tax estate planning trusts wills and healthcare

For more about Crue Invest visit wwwcruecoza

6

CLIENT ENGAGEMENT

By Dawn Ridler CFPreg

Financial Planning Institutersquos Risk CompetencyCommittee Vice-Chairperson

Jobless worldThe new normal

A

7

Wersquore all brought up to believe that you cannot have your cake and eat it You canrsquot have both loads of family time and a stellar career you canrsquot be wealthy unless you work for yourself both parents have to work ndash or their children wonrsquot be given the best education In

the past this has often been true but just maybe things are changing

Change happens around us all the time most of the time we hardly notice it and only when we compare the life of 10 years ago to today do we actually realise just how radical that change has been There are times though that change happens uncomfortably fast and we try with all our might to stop it usually only postponing the inevitable This rapid change too will pass and our lives go back to a new normal in the interim though it may leave mayhem in its tracks

The credit crisis precipitated a new normal in economic cycles and now 10 years down the line (it started in the second half of 2007) very few people have changed their expectations and adjusting to this new normal of low growth low-interest rates and very low inflation As a financial advisor one of my biggest challenges is managing those expectations especially if asset allocation and the fund mix has to be changed to protect a long-term investment

The rise of populism in politics around the world is an idea that has been dying to break through for a long time now Ironically it has been nurtured by the low growth era in the last decade and the growing disparity between the lsquoone percentrsquo and the lsquoothersrsquo The lsquoothersrsquo are sick to death of politicians pandering to that one percent or even worse using politics to leapfrog into that one percent Unfortunately for those wanting the lsquogoodrsquo change in politics and politicians they have had to hold their noses and accept the lsquobadrsquo To get that political change you may have to swallow nasties like right-wing fascism rampant and confiscatory socialism racism and xenophobia It makes my hair curl even to write that sentence The Americans held their noses on some (most)

CLIENT ENGAGEMENT

The problem is that technology has probably reached the limit where its role is supportive and increases

individual productivity it is now starting to replace jobs in their entirety

8

of the above to get the populism Trump promised (whether or not he will deliver remains to be seen) The Dutch however came out in droves to make sure the right wing did not prevail There was a substantial element of xenophobia in Brexit and very little change in the bureaucracy The EFF [Economic Freedom Fighters] is another lsquohold your nosersquo populist (and make no mistake the ANC [African National Congress] will try and woo them back into their ranks) The low economic growth is feeding into this desire for changeWhether you like it or not technology is behind much of this change For decades we have used technology happily to make our jobs more productive Occasionally that might put you out of a job but it has been fairly easy to for people to find jobs elsewhere ndash even if it is not the job they want Farms for example use a fraction of the workforce they did 50 years ago The problem is that technology has probably reached the limit where its role is supportive and increases individual productivity it is now starting to replace jobs in their entirety and those people may not be able to find alternative employment Without increasing productivity economies cannot grow The rise in stock markets despite the lack of productivity growth is based on hope rather than expectation It is being driven by those lsquoanimal spiritsrsquo which will disappear once reality sets in

So if machines can do jobs cheaper faster and with no vacation days or benefits ndash what about the threat of growing unemployment Finland has just introduced what may be the answer in the future ndash Universal Basic Income At the moment this is only available to the lsquounemployedrsquo ndash but what is the difference between unemployment benefits and Universal Basic Income The philosophy is that with machines doing the lsquoproductionrsquo and thus lsquofreeing uprsquo human capital humans should be paid a basic living wage whether or not they decide to lsquoworkrsquo This is different to ordinary unemployment benefits that usually require the claimant keep looking for a job What are the implications if everyone gets a basic income Who will choose to work One would assume that the basic income is going to be very basic and will have little room for luxuries I guess it will boil down to ambition to do better and to have more The rise in the lsquoGigrsquo economy plays into this ndash One could lsquotop-uprsquo onersquos income without becoming a full time employee in the traditional sense

Post-2008 growth has never been able to get back to the same level again and a decade on it may never get there It has yet to get above 3 (global average) Even Chinarsquos growth is down to mid-single digits Growth has to come from increased productivity and that is going to depend on technological developments and Artificial Intelligence The old assumptions of CPI plus 1 3 5 or 7 may be gone forever All the assumptions that have gone into your retirement planning will have to be reworked and you will have no option to put away more Here in South Africa we are luckier than the West with higher CPI and stock exchange growth but it is still way off what we are used to When you have less growth to work with your asset manager has to get smarter One of the reasons ETFs and Trackers in this country havenrsquot taken off is because asset managers can hide behind the nominal positive growth knowing that most of the public doesnrsquot think in lsquoreal growthrsquo (after inflation) terms That is changing Unit trust fees are going to have to fall or die A unit trust cannot justify 3-4 fees when it is only making you 8-9 before inflation Look at the maths 8 growth less 6 inflation gives you 2 real growth Subtract 3 fees and you get -1 real growth

Single asset class ETFs (like pure equity trackers) unit trusts or share portfolios are under the most pressure To even get CPI plus 3 you have to have a blended portfolio at the moment and it has been like that for at least two years Forget passive investing unless yoursquore watching the market all the time you need an asset manager who will blend the asset classes without charging an arm and a leg

The unit trusts that charge those high fees will still be around for a while yet because the pension funds and advisors are still advising clients to stay in them since they are lsquosafersquo and lsquowell knownrsquo It is CYA (Cover Your Asset) which is doing those millions of small investors no favours What about lsquoguaranteesrsquo These come at a price of at least 2 of the investment sometimes more If you get a provider who will guarantee a certain income in the future have a very hard look at the assumptions What if inflation goes back up to 15-18-20 That will make a guaranteed income using todayrsquos inflation mean nothing The only guarantee that matters is a real return or income linked to inflation

If this lower growth environment persists you are going to have no choice but to increase your retirement savings How can you do that Firstly cut through the pick me cacophony from investment advisors brokers advisors etc and have a comprehensive look at your entire wealth ecosystem The amount you are spending on lsquoriskrsquo is one of those low hanging fruit Medical aid premiums are taking a huge chunk out of your income ndash is there a smarter way to do the same thing Are you spending too much on life cover to leave your kids something and ignoring the possibility of having to depend on them financially in your retirement

CLIENT ENGAGEMENT

Discovery Life Investment Services Pty (Ltd) branded as Discovery Invest is an authorised financial services provider Registration number 200700596907

wwwdiscoverycoza Discovery_SA discoverysouthafrica youtubeDiscoverySA

Discovery Invest can help your clients enjoy the retirement they deserve We can do this in three ways One we boost their pre-retirement savings by up to 15 Two this can either be added to their payout at retirement or used to reduce their admin fees to zero Three if they add more capital to their retirement savings wersquoll boost that too

Should you really be recommending anything else

Speak to your business consultant or visit wwwdiscoverycoza for more information about our retirement plans and the terms and conditions that apply to them

What will your clientsrsquo retirement look like

10

INDUSTRY NEWS EMPLOYEE BENEFITS

occupational retirement funds getting it right

Divorce order claims against

By Ashley Lakey CFPregFPI Risk CompetencyCommittee Member

Divorce is a traumatic life event and often places severe stress and strain upon the affected parties The last thing either of them need is unnecessary additional stress and strain when after weeks months or even years of negotiation and having already incurred considerable legal costs in reaching a settlement agreement they finally obtain the divorce order and then discover that the provisions dealing with the award of pension interest from their respective occupational retirement funds are not

compliant with divorce legislation and therefore not binding on the funds Not only will this cause considerable delay in the payouts which they may be depending on and hence disruption to their financial affairs but it will probably also add another layer of unbudgeted cost in order to get the divorce order amended Sadly this situation has been all too common since the Divorce Act deemed ldquopension interestrdquo to be part of the assets of divorcing parties and even more so since the clean break principle was introduced

The clean break principle applies to marriages in community of property and those out of community of property in terms of an antenuptial contract with the accrual system It does not apply to marriages entered on or after 1 November 1984 which are out of community of property in terms of an antenuptial contract by which community of property community of profit and loss and the accrual system are excluded Whereas prior to the clean break principle a divorce award could only be paid when the member spouse became entitled to the benefits now the processing of the payment of a divorce award can be triggered at any time after divorce by the submission of a compliant divorce order to the fund This principle applies to all divorce orders ie pre and post 13 September 2007

11

INDUSTRY NEWS EMPLOYEE BENEFITS

What then are the main aspects to consider in order to ensure that a divorce award is compliant

1 The member must be an active member of the fund at the date of the divorce If the member exits the fund prior to the divorce being finalised then there will no longer be any concept of pension interest even though the members benefit may not yet have been paid by the fund at that stage

As soon as the parties embark upon divorce proceedings they should notify their funds accordingly so that the fundsrsquo records may be flagged and the funds may be given an opportunity to approve the proposed wording that will be used in the divorce order If all parties are aware of the pending divorce and prepared to co-operate then the chances of errors or surprises later on are greatly reduced Just imagine a situation where the parties complete their settlement agreement in April and have it incorporated in their Final Order of Divorce in May only for the non-member to submit the divorce claim to the fund and be advised that the member withdrew from the fund in March and that the divorce order is consequently not binding on the fund Whether this happens through ignorance on the part of the member or whether it is done deliberately to frustrate the non-memberrsquos claim more legal costs will now be incurred to amend the order or to interdict the fund from paying the benefit to the member or for the non-member to pursue court action against the member by virtue of the fact that there is still a valid claim in terms of a court order albeit that the order cannot be enforced against the fund Now the parties will need to negotiate around the after-tax position of the member in respect of the benefit which will be paid by the fund since it will not qualify as a pension interest award that is taxable in the hands of the non-member spouse

What if the member has left fund X to which he belonged at the date of divorce and now belongs to fund Y If the benefit in fund X was transferred to fund Y then as long as there is a compliant order against fund X it will automatically apply to fund Y Where a transfer between funds occurs after the date of divorce it is important that the member or non-member notifies the transferor fund about a binding divorce order so that this can be recorded as part of the transfer Likewise if the divorce claim has already been settled by the transferor fund it needs to be recorded in the transfer

What about if the member has retired from the fund and is currently receiving a monthly pension As the law currently stands there is no longer any concept of ldquopension interestrdquo in this case and the clean break principle does not apply

2 The fund must be named or capable of being identified It is always best to use the full and correct registered name of the fund together with the fund code and member reference number

Using the Employerrsquos name to identify the fund may not always work if the Employer operates multiple funds or the member belongs to multiple funds of the Employer

If the member belongs to a pension fund and a provident fund then it is important to note that these are two completely separate legal entities and hence the order must clarify whether it seeks to bind both funds or only one If one which one

3 A portionpercentage of pension interest or an actual Rand amount can be awarded Such portion can be anything from 1 to 100 of pension interest

It is not an automatic 5050 split and it is not sufficient for the order to merely refer to the division of the joint estate A recent Supreme Court judgement has been misinterpreted by many to mean that an order merely needs to order the division of the joint estate in order to be binding on a fund This is not the case

The definition of ldquopension interestrdquo amounts to the value of the memberrsquos withdrawal benefit at the date of divorce No interest or growth applies unless there are delays in payment after a valid claim has been submitted

There is no concept of ldquoprovident fund interestrdquo in the Divorce Act and use of this term will be problematic The concept of ldquopension interestrdquo applies to pension and provident funds and only the term ldquopension interestrdquo should be referenced

The divorce award will automatically be taxed in the hands of the non-member spouse and therefore references to ldquoafter tax amountrdquo or ldquonett amountrdquo or ldquoless any taxrdquo or ldquox rand after taxrdquo are not only unnecessary but problematic in terms of the fund needing to interpret what the intended award is

4 The non-member spouse must be the recipient of the award The order cannot bind the fund to pay to anyone other than the non-member spouse eg the children the member the attorney trust account or creditors of the joint estate

The fund cannot be party to a scheme whereby the parties are using the divorce as a mechanism for the member to access his retirement funds Any order in terms of which payment will be made to the member will automatically be problematic and the settlement agreement should avoid it

The non-member spouse may instruct the fund on where to pay the benefit This can be done as part of the claim submission and then the fund will be able to act on the instruction of the non-member in this regard However the order can only make the award to the non-member

It is always best that the parties co-operate openly and honestly to ensure a fair outcome and a divorce order that complies with the points mentioned above Attempts to frustrate the other party by withholding information or providing incorrect or misleading information will only result in unnecessary delays and costs If a party does not want to volunteer essential information required for a compliant divorce order the law does provide recourse but such options should rather be avoided if possible There will still be a valid claim that needs to be settled by the member at the end of the day Settling it by way of a compliant divorce order is the right way and the best way to go

12

ESTATES AND TRUSTS

By Gerald Peter CFPreg Legal Advisor SpecialistOld Mutual

Despite the scepticism with which they are viewed by the revenue authorities and an ever tightening regulatory environment trusts remain powerful tools of estate planning Properly configured trusts can be applied to serve a myriad of legitimate and pragmatic planning purposes

Many financial planners are however under the misguided belief that once their trusts are registered they have free reign to administer and use them as they please As a result many trusts in existence today are invalid due to lack of compliance with either the provisions of the trust deed or prevailing legislation

Trusts are usually created as part of long-term planning During this planning period things inevitably change The plannerrsquos priorities may change as may be needs of the beneficiaries The law may also change It is therefore important that trusts should be reviewed regularly to ensure that they can withstand these changing tides This article identifies some potential problems which could arise if a trust is not reviewed regularly

of ReviewingThe Importance

a Trust

13

ESTATES AND TRUSTS

Minimum number of trustees Trusts are often left to operate for long periods without the prescribed number of trustees as stipulated in the trust deed During these periods of noncompliance the remaining trustees continue to operate as usual binding and committing the trust to all sorts of obligations

The courts have held that a provision requiring a specified minimum number of trustees lays down a prerequisite that must be fulfilled before the trust estate can be bound When fewer trustees than the number specified are in office the trust suffers from an incapacity that precludes action on its behalf

When a trustee vacates (by resignation or death) their office the provisions relating to the quorum for meetings resolutions of the trust and voting rights are affected It follows therefore that a trust cannot continue to transact until the correct number of trustees is restored If there is no mechanism for appointing a new trustee in the trust deed then an application must be made to the Court Any action taken by the trustees outside the scope of their powers is null and void

Appointment and resignation of trusteesOften additional trustees are appointed and commence their duties before their appointments are confirmed by the Master Many planners are oblivious to the rule that a trustee cannot act unless he or she has been duly appointed by the Master of the High Court in terms of Section 6 of the Trust Property Control Act 2

Even if a trustee has been properly appointed in terms of the trust deed he or she may not act on behalf of the trust until authorised to do so by the Master Any such act performed by a trustee prior to receiving Letters of Authority from the Master will be null and void and incapable of ratification The opposite also applies in that a trusteersquos fiduciary responsibilities do not cease unless the Master has expressly withdrawn his authorisation (by removing the trusteersquos name from the Letters of Authority) A personrsquos resignation does not legally relieve him of his duties as trustee The trustee remains legally accountable until the Master has officially removed him from his office as trustee

Section 21 of the Trust Property Control Act states that whether or not the trust deed provides for the trustees resignation the trustee may resign by notice in writing to the Master and the ascertained beneficiaries who have legal capacity or to the tutors or curators of the beneficiaries of the trust under tutorship or curatorship

In practice notice is only given to the Master but not to the beneficiaries In such a case the resignation is deemed to be invalid planners should therefore ensure that all trustee resignations are confirmed by the Master Failure to do so could result in these trustees being held liable for transgressions which occur post their departure The validity of subsequent transactions by the remaining trustees could also be challenged since not all trustees would have been involved (the individual who informally exited will still be regarded as a trustee)

Capacity to act as trustee It is also important to ensure that all the trustees remain fit and competent to continue acting as trustees during the course of the planning period Owing to intervening circumstances such as insolvency during the planning period an individual may be rendered unfit to hold the office of trustee

Section 20 of the Trust Property Control Act for example provides that the Master may remove a trustee if inter alia his or her estate is sequestrated either provisionally or finally The terms of the trust deed may also disqualify a trustee for some other reason All contracts entered into by an incompetent trustee may be also declared null and void

ControlOne of the fundamental tenets of trust law is that the founder or a trustee should not have absolute and unfettered control of the income and property of the trust This occurs frequently in the context of family trusts where trustees are often also beneficiaries of a trust

Unless reviewed regularly the relationship between the founder or a trustee of a trust and the trust assets may become blurred resulting in the rupture of the controlenjoyment divide Without a proper separation of control and enjoyment the trust will offer little in the way of protection as it will be seen as the alter ego of the founder or trustee The trust assets in question will also be lsquodeemed propertyrsquo in the estate of the controlling trustee on death in terms of Section 3(3) (d) of the Estate Duty Act6 It is important to regularly check to ensure that a founder or trustee has not crossed this fundamental rubicon This can be done by ensuring that all decisions and resolutions of the trust are taken at properly constituted sittings and accurately recorded

The courts have also suggested that the Master of the High Court must ensure that an adequate separation of control from enjoyment is maintained in every trust In the Parker case the court suggested that one way the Master can ensure that an adequate separation of control from enjoyment is maintained in every trust is by insisting on the appointment of an independent outsider as trustee to every trust in which the trustees are all beneficiaries and the beneficiaries are all related to one another

The independent outsider does not have to be a professional person such as an attorney or accountant but someone who with proper realisation of the responsibilities of trusteeship accepts office in order to ensure that the trust functions properly that the provisions of the trust deed are observed and that the conduct of trustees who lack a sufficiently independent interest in the observance of substantive and procedural requirements arising from the trust deed can be scrutinised and checked

LegislationChanges in the legislation governing trusts happen all too frequently As a consequence planning strategies that work today will not necessarily work tomorrow Financial planners must ensure that they regularly review their trusts to ensure that they remain in line with prevailing legislation

The recent introduction of a new Section 7C to the Income Tax Act is a good example of how even the best of strategies can be derailed by new legislation For years the use of interest free loans have provided an effective mechanism for wealth transfer and estate planning schemes Section 7C which became effective on the 1st of March 2017 is an anti-avoidance measure the effect of which is to treat interest free or low interest loans made to a trust as donations This provision is retrospective (ie it applies to all new and existing interest free loans) The introduction of Section 7C thus presents an unprecedented challenge which makes it imperative for planners who have made interest free or low interest loans to trusts to urgently review their plans to ensure that they will not be negatively impacted by this new dispensation

Recent changes to legislation have also brought interest free loans made to offshore trusts within the realm of the transfer pricing legislation (Section 31 of the Income Tax Act) Individuals making interest free loans to offshore trusts will be taxed on the uncharged interest as if they had actually received it

Just like a vehicle a trust needs a regular service for it to effectively provide the services for which it was intended As discussed above the failure to review a trust could result in the failure of the trust

14

FPI NEWS

FPI ApprovedProfessional PracticeTM

Crue Invest announced as

In January 2017 Crue Invest became part of an elite group of financial planning businesses when it was recognised as an FPI ApprovedProfessionalPracticetrademakingitthe13thfinancialplanning business in the country to receive this prestigious recognition

The Financial Planning Institute of Southern Africa (FPI) introduced theFPIApprovedProfessionalPracticetradebrandasaninitiativethat will make it easier for consumers to identify financial planning practices that adhere to the pinnacle of global professionalism

Crue Invest which was founded by husband-and-wife-team Sue and Craig Torr in 2004 is owned and managed by a team of legal financial and tax experts all of whom are shareholders in the business Each and every client receives an expertly drafted financial plan ldquoEvery single financial plan is unique to the client and is hand-crafted by our team of professionals We consider each financial plan to be a uniquely customised work of artrdquo explains Craig Torr

ldquoThis accreditation follows a stringent audit of our business by FPI and confirms that our practice meets the highest ethical standards in the pursuance of our profession The accreditation reinforces that our standards in terms of knowledge expertise and ethical conduct are amongst the best in the country We are thrilledrdquo added Torr

This is a proud achievement for the practice and FPI following rigorous approval criteria FPI is confident that Crue Invest will assist in raising the standards of the financial planning profession in South Africa as well as creating the assurance that the quality of service they offer is not dependent on single individuals

About Crue Invest

Crue Invest (Pty) Ltd is one of 13 FPI Approved Professional Practicetradefirmsandafee-basedfinancialplanningcompanywhosemain purpose is to help clients create and protect their wealth through sound and independent financial planning

The company was founded in 2004 by husband-and-wife-team Sue and Craig Torr and has developed into a niche financial planning company with over R500 million of assets under advice Crue Invest is owned and managed by a team of eight directors who are all shareholders in the business

The team of financial and legal experts provide financial advice to individuals who wish to grow and protect their wealth covering the areas of retirement planning investments risk tax estate planning trusts wills and healthcare

For more about Crue Invest visit wwwcruecoza

7

Wersquore all brought up to believe that you cannot have your cake and eat it You canrsquot have both loads of family time and a stellar career you canrsquot be wealthy unless you work for yourself both parents have to work ndash or their children wonrsquot be given the best education In

the past this has often been true but just maybe things are changing

Change happens around us all the time most of the time we hardly notice it and only when we compare the life of 10 years ago to today do we actually realise just how radical that change has been There are times though that change happens uncomfortably fast and we try with all our might to stop it usually only postponing the inevitable This rapid change too will pass and our lives go back to a new normal in the interim though it may leave mayhem in its tracks

The credit crisis precipitated a new normal in economic cycles and now 10 years down the line (it started in the second half of 2007) very few people have changed their expectations and adjusting to this new normal of low growth low-interest rates and very low inflation As a financial advisor one of my biggest challenges is managing those expectations especially if asset allocation and the fund mix has to be changed to protect a long-term investment

The rise of populism in politics around the world is an idea that has been dying to break through for a long time now Ironically it has been nurtured by the low growth era in the last decade and the growing disparity between the lsquoone percentrsquo and the lsquoothersrsquo The lsquoothersrsquo are sick to death of politicians pandering to that one percent or even worse using politics to leapfrog into that one percent Unfortunately for those wanting the lsquogoodrsquo change in politics and politicians they have had to hold their noses and accept the lsquobadrsquo To get that political change you may have to swallow nasties like right-wing fascism rampant and confiscatory socialism racism and xenophobia It makes my hair curl even to write that sentence The Americans held their noses on some (most)

CLIENT ENGAGEMENT

The problem is that technology has probably reached the limit where its role is supportive and increases

individual productivity it is now starting to replace jobs in their entirety

8

of the above to get the populism Trump promised (whether or not he will deliver remains to be seen) The Dutch however came out in droves to make sure the right wing did not prevail There was a substantial element of xenophobia in Brexit and very little change in the bureaucracy The EFF [Economic Freedom Fighters] is another lsquohold your nosersquo populist (and make no mistake the ANC [African National Congress] will try and woo them back into their ranks) The low economic growth is feeding into this desire for changeWhether you like it or not technology is behind much of this change For decades we have used technology happily to make our jobs more productive Occasionally that might put you out of a job but it has been fairly easy to for people to find jobs elsewhere ndash even if it is not the job they want Farms for example use a fraction of the workforce they did 50 years ago The problem is that technology has probably reached the limit where its role is supportive and increases individual productivity it is now starting to replace jobs in their entirety and those people may not be able to find alternative employment Without increasing productivity economies cannot grow The rise in stock markets despite the lack of productivity growth is based on hope rather than expectation It is being driven by those lsquoanimal spiritsrsquo which will disappear once reality sets in

So if machines can do jobs cheaper faster and with no vacation days or benefits ndash what about the threat of growing unemployment Finland has just introduced what may be the answer in the future ndash Universal Basic Income At the moment this is only available to the lsquounemployedrsquo ndash but what is the difference between unemployment benefits and Universal Basic Income The philosophy is that with machines doing the lsquoproductionrsquo and thus lsquofreeing uprsquo human capital humans should be paid a basic living wage whether or not they decide to lsquoworkrsquo This is different to ordinary unemployment benefits that usually require the claimant keep looking for a job What are the implications if everyone gets a basic income Who will choose to work One would assume that the basic income is going to be very basic and will have little room for luxuries I guess it will boil down to ambition to do better and to have more The rise in the lsquoGigrsquo economy plays into this ndash One could lsquotop-uprsquo onersquos income without becoming a full time employee in the traditional sense

Post-2008 growth has never been able to get back to the same level again and a decade on it may never get there It has yet to get above 3 (global average) Even Chinarsquos growth is down to mid-single digits Growth has to come from increased productivity and that is going to depend on technological developments and Artificial Intelligence The old assumptions of CPI plus 1 3 5 or 7 may be gone forever All the assumptions that have gone into your retirement planning will have to be reworked and you will have no option to put away more Here in South Africa we are luckier than the West with higher CPI and stock exchange growth but it is still way off what we are used to When you have less growth to work with your asset manager has to get smarter One of the reasons ETFs and Trackers in this country havenrsquot taken off is because asset managers can hide behind the nominal positive growth knowing that most of the public doesnrsquot think in lsquoreal growthrsquo (after inflation) terms That is changing Unit trust fees are going to have to fall or die A unit trust cannot justify 3-4 fees when it is only making you 8-9 before inflation Look at the maths 8 growth less 6 inflation gives you 2 real growth Subtract 3 fees and you get -1 real growth

Single asset class ETFs (like pure equity trackers) unit trusts or share portfolios are under the most pressure To even get CPI plus 3 you have to have a blended portfolio at the moment and it has been like that for at least two years Forget passive investing unless yoursquore watching the market all the time you need an asset manager who will blend the asset classes without charging an arm and a leg

The unit trusts that charge those high fees will still be around for a while yet because the pension funds and advisors are still advising clients to stay in them since they are lsquosafersquo and lsquowell knownrsquo It is CYA (Cover Your Asset) which is doing those millions of small investors no favours What about lsquoguaranteesrsquo These come at a price of at least 2 of the investment sometimes more If you get a provider who will guarantee a certain income in the future have a very hard look at the assumptions What if inflation goes back up to 15-18-20 That will make a guaranteed income using todayrsquos inflation mean nothing The only guarantee that matters is a real return or income linked to inflation

If this lower growth environment persists you are going to have no choice but to increase your retirement savings How can you do that Firstly cut through the pick me cacophony from investment advisors brokers advisors etc and have a comprehensive look at your entire wealth ecosystem The amount you are spending on lsquoriskrsquo is one of those low hanging fruit Medical aid premiums are taking a huge chunk out of your income ndash is there a smarter way to do the same thing Are you spending too much on life cover to leave your kids something and ignoring the possibility of having to depend on them financially in your retirement

CLIENT ENGAGEMENT

Discovery Life Investment Services Pty (Ltd) branded as Discovery Invest is an authorised financial services provider Registration number 200700596907

wwwdiscoverycoza Discovery_SA discoverysouthafrica youtubeDiscoverySA

Discovery Invest can help your clients enjoy the retirement they deserve We can do this in three ways One we boost their pre-retirement savings by up to 15 Two this can either be added to their payout at retirement or used to reduce their admin fees to zero Three if they add more capital to their retirement savings wersquoll boost that too

Should you really be recommending anything else

Speak to your business consultant or visit wwwdiscoverycoza for more information about our retirement plans and the terms and conditions that apply to them

What will your clientsrsquo retirement look like

10

INDUSTRY NEWS EMPLOYEE BENEFITS

occupational retirement funds getting it right

Divorce order claims against

By Ashley Lakey CFPregFPI Risk CompetencyCommittee Member

Divorce is a traumatic life event and often places severe stress and strain upon the affected parties The last thing either of them need is unnecessary additional stress and strain when after weeks months or even years of negotiation and having already incurred considerable legal costs in reaching a settlement agreement they finally obtain the divorce order and then discover that the provisions dealing with the award of pension interest from their respective occupational retirement funds are not

compliant with divorce legislation and therefore not binding on the funds Not only will this cause considerable delay in the payouts which they may be depending on and hence disruption to their financial affairs but it will probably also add another layer of unbudgeted cost in order to get the divorce order amended Sadly this situation has been all too common since the Divorce Act deemed ldquopension interestrdquo to be part of the assets of divorcing parties and even more so since the clean break principle was introduced

The clean break principle applies to marriages in community of property and those out of community of property in terms of an antenuptial contract with the accrual system It does not apply to marriages entered on or after 1 November 1984 which are out of community of property in terms of an antenuptial contract by which community of property community of profit and loss and the accrual system are excluded Whereas prior to the clean break principle a divorce award could only be paid when the member spouse became entitled to the benefits now the processing of the payment of a divorce award can be triggered at any time after divorce by the submission of a compliant divorce order to the fund This principle applies to all divorce orders ie pre and post 13 September 2007

11

INDUSTRY NEWS EMPLOYEE BENEFITS

What then are the main aspects to consider in order to ensure that a divorce award is compliant

1 The member must be an active member of the fund at the date of the divorce If the member exits the fund prior to the divorce being finalised then there will no longer be any concept of pension interest even though the members benefit may not yet have been paid by the fund at that stage

As soon as the parties embark upon divorce proceedings they should notify their funds accordingly so that the fundsrsquo records may be flagged and the funds may be given an opportunity to approve the proposed wording that will be used in the divorce order If all parties are aware of the pending divorce and prepared to co-operate then the chances of errors or surprises later on are greatly reduced Just imagine a situation where the parties complete their settlement agreement in April and have it incorporated in their Final Order of Divorce in May only for the non-member to submit the divorce claim to the fund and be advised that the member withdrew from the fund in March and that the divorce order is consequently not binding on the fund Whether this happens through ignorance on the part of the member or whether it is done deliberately to frustrate the non-memberrsquos claim more legal costs will now be incurred to amend the order or to interdict the fund from paying the benefit to the member or for the non-member to pursue court action against the member by virtue of the fact that there is still a valid claim in terms of a court order albeit that the order cannot be enforced against the fund Now the parties will need to negotiate around the after-tax position of the member in respect of the benefit which will be paid by the fund since it will not qualify as a pension interest award that is taxable in the hands of the non-member spouse

What if the member has left fund X to which he belonged at the date of divorce and now belongs to fund Y If the benefit in fund X was transferred to fund Y then as long as there is a compliant order against fund X it will automatically apply to fund Y Where a transfer between funds occurs after the date of divorce it is important that the member or non-member notifies the transferor fund about a binding divorce order so that this can be recorded as part of the transfer Likewise if the divorce claim has already been settled by the transferor fund it needs to be recorded in the transfer

What about if the member has retired from the fund and is currently receiving a monthly pension As the law currently stands there is no longer any concept of ldquopension interestrdquo in this case and the clean break principle does not apply

2 The fund must be named or capable of being identified It is always best to use the full and correct registered name of the fund together with the fund code and member reference number

Using the Employerrsquos name to identify the fund may not always work if the Employer operates multiple funds or the member belongs to multiple funds of the Employer

If the member belongs to a pension fund and a provident fund then it is important to note that these are two completely separate legal entities and hence the order must clarify whether it seeks to bind both funds or only one If one which one

3 A portionpercentage of pension interest or an actual Rand amount can be awarded Such portion can be anything from 1 to 100 of pension interest

It is not an automatic 5050 split and it is not sufficient for the order to merely refer to the division of the joint estate A recent Supreme Court judgement has been misinterpreted by many to mean that an order merely needs to order the division of the joint estate in order to be binding on a fund This is not the case

The definition of ldquopension interestrdquo amounts to the value of the memberrsquos withdrawal benefit at the date of divorce No interest or growth applies unless there are delays in payment after a valid claim has been submitted

There is no concept of ldquoprovident fund interestrdquo in the Divorce Act and use of this term will be problematic The concept of ldquopension interestrdquo applies to pension and provident funds and only the term ldquopension interestrdquo should be referenced

The divorce award will automatically be taxed in the hands of the non-member spouse and therefore references to ldquoafter tax amountrdquo or ldquonett amountrdquo or ldquoless any taxrdquo or ldquox rand after taxrdquo are not only unnecessary but problematic in terms of the fund needing to interpret what the intended award is

4 The non-member spouse must be the recipient of the award The order cannot bind the fund to pay to anyone other than the non-member spouse eg the children the member the attorney trust account or creditors of the joint estate

The fund cannot be party to a scheme whereby the parties are using the divorce as a mechanism for the member to access his retirement funds Any order in terms of which payment will be made to the member will automatically be problematic and the settlement agreement should avoid it

The non-member spouse may instruct the fund on where to pay the benefit This can be done as part of the claim submission and then the fund will be able to act on the instruction of the non-member in this regard However the order can only make the award to the non-member

It is always best that the parties co-operate openly and honestly to ensure a fair outcome and a divorce order that complies with the points mentioned above Attempts to frustrate the other party by withholding information or providing incorrect or misleading information will only result in unnecessary delays and costs If a party does not want to volunteer essential information required for a compliant divorce order the law does provide recourse but such options should rather be avoided if possible There will still be a valid claim that needs to be settled by the member at the end of the day Settling it by way of a compliant divorce order is the right way and the best way to go

12

ESTATES AND TRUSTS

By Gerald Peter CFPreg Legal Advisor SpecialistOld Mutual

Despite the scepticism with which they are viewed by the revenue authorities and an ever tightening regulatory environment trusts remain powerful tools of estate planning Properly configured trusts can be applied to serve a myriad of legitimate and pragmatic planning purposes

Many financial planners are however under the misguided belief that once their trusts are registered they have free reign to administer and use them as they please As a result many trusts in existence today are invalid due to lack of compliance with either the provisions of the trust deed or prevailing legislation

Trusts are usually created as part of long-term planning During this planning period things inevitably change The plannerrsquos priorities may change as may be needs of the beneficiaries The law may also change It is therefore important that trusts should be reviewed regularly to ensure that they can withstand these changing tides This article identifies some potential problems which could arise if a trust is not reviewed regularly

of ReviewingThe Importance

a Trust

13

ESTATES AND TRUSTS

Minimum number of trustees Trusts are often left to operate for long periods without the prescribed number of trustees as stipulated in the trust deed During these periods of noncompliance the remaining trustees continue to operate as usual binding and committing the trust to all sorts of obligations

The courts have held that a provision requiring a specified minimum number of trustees lays down a prerequisite that must be fulfilled before the trust estate can be bound When fewer trustees than the number specified are in office the trust suffers from an incapacity that precludes action on its behalf

When a trustee vacates (by resignation or death) their office the provisions relating to the quorum for meetings resolutions of the trust and voting rights are affected It follows therefore that a trust cannot continue to transact until the correct number of trustees is restored If there is no mechanism for appointing a new trustee in the trust deed then an application must be made to the Court Any action taken by the trustees outside the scope of their powers is null and void

Appointment and resignation of trusteesOften additional trustees are appointed and commence their duties before their appointments are confirmed by the Master Many planners are oblivious to the rule that a trustee cannot act unless he or she has been duly appointed by the Master of the High Court in terms of Section 6 of the Trust Property Control Act 2

Even if a trustee has been properly appointed in terms of the trust deed he or she may not act on behalf of the trust until authorised to do so by the Master Any such act performed by a trustee prior to receiving Letters of Authority from the Master will be null and void and incapable of ratification The opposite also applies in that a trusteersquos fiduciary responsibilities do not cease unless the Master has expressly withdrawn his authorisation (by removing the trusteersquos name from the Letters of Authority) A personrsquos resignation does not legally relieve him of his duties as trustee The trustee remains legally accountable until the Master has officially removed him from his office as trustee

Section 21 of the Trust Property Control Act states that whether or not the trust deed provides for the trustees resignation the trustee may resign by notice in writing to the Master and the ascertained beneficiaries who have legal capacity or to the tutors or curators of the beneficiaries of the trust under tutorship or curatorship

In practice notice is only given to the Master but not to the beneficiaries In such a case the resignation is deemed to be invalid planners should therefore ensure that all trustee resignations are confirmed by the Master Failure to do so could result in these trustees being held liable for transgressions which occur post their departure The validity of subsequent transactions by the remaining trustees could also be challenged since not all trustees would have been involved (the individual who informally exited will still be regarded as a trustee)

Capacity to act as trustee It is also important to ensure that all the trustees remain fit and competent to continue acting as trustees during the course of the planning period Owing to intervening circumstances such as insolvency during the planning period an individual may be rendered unfit to hold the office of trustee

Section 20 of the Trust Property Control Act for example provides that the Master may remove a trustee if inter alia his or her estate is sequestrated either provisionally or finally The terms of the trust deed may also disqualify a trustee for some other reason All contracts entered into by an incompetent trustee may be also declared null and void

ControlOne of the fundamental tenets of trust law is that the founder or a trustee should not have absolute and unfettered control of the income and property of the trust This occurs frequently in the context of family trusts where trustees are often also beneficiaries of a trust

Unless reviewed regularly the relationship between the founder or a trustee of a trust and the trust assets may become blurred resulting in the rupture of the controlenjoyment divide Without a proper separation of control and enjoyment the trust will offer little in the way of protection as it will be seen as the alter ego of the founder or trustee The trust assets in question will also be lsquodeemed propertyrsquo in the estate of the controlling trustee on death in terms of Section 3(3) (d) of the Estate Duty Act6 It is important to regularly check to ensure that a founder or trustee has not crossed this fundamental rubicon This can be done by ensuring that all decisions and resolutions of the trust are taken at properly constituted sittings and accurately recorded

The courts have also suggested that the Master of the High Court must ensure that an adequate separation of control from enjoyment is maintained in every trust In the Parker case the court suggested that one way the Master can ensure that an adequate separation of control from enjoyment is maintained in every trust is by insisting on the appointment of an independent outsider as trustee to every trust in which the trustees are all beneficiaries and the beneficiaries are all related to one another

The independent outsider does not have to be a professional person such as an attorney or accountant but someone who with proper realisation of the responsibilities of trusteeship accepts office in order to ensure that the trust functions properly that the provisions of the trust deed are observed and that the conduct of trustees who lack a sufficiently independent interest in the observance of substantive and procedural requirements arising from the trust deed can be scrutinised and checked

LegislationChanges in the legislation governing trusts happen all too frequently As a consequence planning strategies that work today will not necessarily work tomorrow Financial planners must ensure that they regularly review their trusts to ensure that they remain in line with prevailing legislation

The recent introduction of a new Section 7C to the Income Tax Act is a good example of how even the best of strategies can be derailed by new legislation For years the use of interest free loans have provided an effective mechanism for wealth transfer and estate planning schemes Section 7C which became effective on the 1st of March 2017 is an anti-avoidance measure the effect of which is to treat interest free or low interest loans made to a trust as donations This provision is retrospective (ie it applies to all new and existing interest free loans) The introduction of Section 7C thus presents an unprecedented challenge which makes it imperative for planners who have made interest free or low interest loans to trusts to urgently review their plans to ensure that they will not be negatively impacted by this new dispensation

Recent changes to legislation have also brought interest free loans made to offshore trusts within the realm of the transfer pricing legislation (Section 31 of the Income Tax Act) Individuals making interest free loans to offshore trusts will be taxed on the uncharged interest as if they had actually received it

Just like a vehicle a trust needs a regular service for it to effectively provide the services for which it was intended As discussed above the failure to review a trust could result in the failure of the trust

14

FPI NEWS

FPI ApprovedProfessional PracticeTM

Crue Invest announced as

In January 2017 Crue Invest became part of an elite group of financial planning businesses when it was recognised as an FPI ApprovedProfessionalPracticetrademakingitthe13thfinancialplanning business in the country to receive this prestigious recognition

The Financial Planning Institute of Southern Africa (FPI) introduced theFPIApprovedProfessionalPracticetradebrandasaninitiativethat will make it easier for consumers to identify financial planning practices that adhere to the pinnacle of global professionalism

Crue Invest which was founded by husband-and-wife-team Sue and Craig Torr in 2004 is owned and managed by a team of legal financial and tax experts all of whom are shareholders in the business Each and every client receives an expertly drafted financial plan ldquoEvery single financial plan is unique to the client and is hand-crafted by our team of professionals We consider each financial plan to be a uniquely customised work of artrdquo explains Craig Torr

ldquoThis accreditation follows a stringent audit of our business by FPI and confirms that our practice meets the highest ethical standards in the pursuance of our profession The accreditation reinforces that our standards in terms of knowledge expertise and ethical conduct are amongst the best in the country We are thrilledrdquo added Torr

This is a proud achievement for the practice and FPI following rigorous approval criteria FPI is confident that Crue Invest will assist in raising the standards of the financial planning profession in South Africa as well as creating the assurance that the quality of service they offer is not dependent on single individuals

About Crue Invest

Crue Invest (Pty) Ltd is one of 13 FPI Approved Professional Practicetradefirmsandafee-basedfinancialplanningcompanywhosemain purpose is to help clients create and protect their wealth through sound and independent financial planning

The company was founded in 2004 by husband-and-wife-team Sue and Craig Torr and has developed into a niche financial planning company with over R500 million of assets under advice Crue Invest is owned and managed by a team of eight directors who are all shareholders in the business

The team of financial and legal experts provide financial advice to individuals who wish to grow and protect their wealth covering the areas of retirement planning investments risk tax estate planning trusts wills and healthcare

For more about Crue Invest visit wwwcruecoza

8

of the above to get the populism Trump promised (whether or not he will deliver remains to be seen) The Dutch however came out in droves to make sure the right wing did not prevail There was a substantial element of xenophobia in Brexit and very little change in the bureaucracy The EFF [Economic Freedom Fighters] is another lsquohold your nosersquo populist (and make no mistake the ANC [African National Congress] will try and woo them back into their ranks) The low economic growth is feeding into this desire for changeWhether you like it or not technology is behind much of this change For decades we have used technology happily to make our jobs more productive Occasionally that might put you out of a job but it has been fairly easy to for people to find jobs elsewhere ndash even if it is not the job they want Farms for example use a fraction of the workforce they did 50 years ago The problem is that technology has probably reached the limit where its role is supportive and increases individual productivity it is now starting to replace jobs in their entirety and those people may not be able to find alternative employment Without increasing productivity economies cannot grow The rise in stock markets despite the lack of productivity growth is based on hope rather than expectation It is being driven by those lsquoanimal spiritsrsquo which will disappear once reality sets in

So if machines can do jobs cheaper faster and with no vacation days or benefits ndash what about the threat of growing unemployment Finland has just introduced what may be the answer in the future ndash Universal Basic Income At the moment this is only available to the lsquounemployedrsquo ndash but what is the difference between unemployment benefits and Universal Basic Income The philosophy is that with machines doing the lsquoproductionrsquo and thus lsquofreeing uprsquo human capital humans should be paid a basic living wage whether or not they decide to lsquoworkrsquo This is different to ordinary unemployment benefits that usually require the claimant keep looking for a job What are the implications if everyone gets a basic income Who will choose to work One would assume that the basic income is going to be very basic and will have little room for luxuries I guess it will boil down to ambition to do better and to have more The rise in the lsquoGigrsquo economy plays into this ndash One could lsquotop-uprsquo onersquos income without becoming a full time employee in the traditional sense

Post-2008 growth has never been able to get back to the same level again and a decade on it may never get there It has yet to get above 3 (global average) Even Chinarsquos growth is down to mid-single digits Growth has to come from increased productivity and that is going to depend on technological developments and Artificial Intelligence The old assumptions of CPI plus 1 3 5 or 7 may be gone forever All the assumptions that have gone into your retirement planning will have to be reworked and you will have no option to put away more Here in South Africa we are luckier than the West with higher CPI and stock exchange growth but it is still way off what we are used to When you have less growth to work with your asset manager has to get smarter One of the reasons ETFs and Trackers in this country havenrsquot taken off is because asset managers can hide behind the nominal positive growth knowing that most of the public doesnrsquot think in lsquoreal growthrsquo (after inflation) terms That is changing Unit trust fees are going to have to fall or die A unit trust cannot justify 3-4 fees when it is only making you 8-9 before inflation Look at the maths 8 growth less 6 inflation gives you 2 real growth Subtract 3 fees and you get -1 real growth

Single asset class ETFs (like pure equity trackers) unit trusts or share portfolios are under the most pressure To even get CPI plus 3 you have to have a blended portfolio at the moment and it has been like that for at least two years Forget passive investing unless yoursquore watching the market all the time you need an asset manager who will blend the asset classes without charging an arm and a leg

The unit trusts that charge those high fees will still be around for a while yet because the pension funds and advisors are still advising clients to stay in them since they are lsquosafersquo and lsquowell knownrsquo It is CYA (Cover Your Asset) which is doing those millions of small investors no favours What about lsquoguaranteesrsquo These come at a price of at least 2 of the investment sometimes more If you get a provider who will guarantee a certain income in the future have a very hard look at the assumptions What if inflation goes back up to 15-18-20 That will make a guaranteed income using todayrsquos inflation mean nothing The only guarantee that matters is a real return or income linked to inflation

If this lower growth environment persists you are going to have no choice but to increase your retirement savings How can you do that Firstly cut through the pick me cacophony from investment advisors brokers advisors etc and have a comprehensive look at your entire wealth ecosystem The amount you are spending on lsquoriskrsquo is one of those low hanging fruit Medical aid premiums are taking a huge chunk out of your income ndash is there a smarter way to do the same thing Are you spending too much on life cover to leave your kids something and ignoring the possibility of having to depend on them financially in your retirement

CLIENT ENGAGEMENT

Discovery Life Investment Services Pty (Ltd) branded as Discovery Invest is an authorised financial services provider Registration number 200700596907

wwwdiscoverycoza Discovery_SA discoverysouthafrica youtubeDiscoverySA

Discovery Invest can help your clients enjoy the retirement they deserve We can do this in three ways One we boost their pre-retirement savings by up to 15 Two this can either be added to their payout at retirement or used to reduce their admin fees to zero Three if they add more capital to their retirement savings wersquoll boost that too

Should you really be recommending anything else

Speak to your business consultant or visit wwwdiscoverycoza for more information about our retirement plans and the terms and conditions that apply to them

What will your clientsrsquo retirement look like

10

INDUSTRY NEWS EMPLOYEE BENEFITS

occupational retirement funds getting it right

Divorce order claims against

By Ashley Lakey CFPregFPI Risk CompetencyCommittee Member

Divorce is a traumatic life event and often places severe stress and strain upon the affected parties The last thing either of them need is unnecessary additional stress and strain when after weeks months or even years of negotiation and having already incurred considerable legal costs in reaching a settlement agreement they finally obtain the divorce order and then discover that the provisions dealing with the award of pension interest from their respective occupational retirement funds are not

compliant with divorce legislation and therefore not binding on the funds Not only will this cause considerable delay in the payouts which they may be depending on and hence disruption to their financial affairs but it will probably also add another layer of unbudgeted cost in order to get the divorce order amended Sadly this situation has been all too common since the Divorce Act deemed ldquopension interestrdquo to be part of the assets of divorcing parties and even more so since the clean break principle was introduced

The clean break principle applies to marriages in community of property and those out of community of property in terms of an antenuptial contract with the accrual system It does not apply to marriages entered on or after 1 November 1984 which are out of community of property in terms of an antenuptial contract by which community of property community of profit and loss and the accrual system are excluded Whereas prior to the clean break principle a divorce award could only be paid when the member spouse became entitled to the benefits now the processing of the payment of a divorce award can be triggered at any time after divorce by the submission of a compliant divorce order to the fund This principle applies to all divorce orders ie pre and post 13 September 2007

11

INDUSTRY NEWS EMPLOYEE BENEFITS

What then are the main aspects to consider in order to ensure that a divorce award is compliant

1 The member must be an active member of the fund at the date of the divorce If the member exits the fund prior to the divorce being finalised then there will no longer be any concept of pension interest even though the members benefit may not yet have been paid by the fund at that stage

As soon as the parties embark upon divorce proceedings they should notify their funds accordingly so that the fundsrsquo records may be flagged and the funds may be given an opportunity to approve the proposed wording that will be used in the divorce order If all parties are aware of the pending divorce and prepared to co-operate then the chances of errors or surprises later on are greatly reduced Just imagine a situation where the parties complete their settlement agreement in April and have it incorporated in their Final Order of Divorce in May only for the non-member to submit the divorce claim to the fund and be advised that the member withdrew from the fund in March and that the divorce order is consequently not binding on the fund Whether this happens through ignorance on the part of the member or whether it is done deliberately to frustrate the non-memberrsquos claim more legal costs will now be incurred to amend the order or to interdict the fund from paying the benefit to the member or for the non-member to pursue court action against the member by virtue of the fact that there is still a valid claim in terms of a court order albeit that the order cannot be enforced against the fund Now the parties will need to negotiate around the after-tax position of the member in respect of the benefit which will be paid by the fund since it will not qualify as a pension interest award that is taxable in the hands of the non-member spouse

What if the member has left fund X to which he belonged at the date of divorce and now belongs to fund Y If the benefit in fund X was transferred to fund Y then as long as there is a compliant order against fund X it will automatically apply to fund Y Where a transfer between funds occurs after the date of divorce it is important that the member or non-member notifies the transferor fund about a binding divorce order so that this can be recorded as part of the transfer Likewise if the divorce claim has already been settled by the transferor fund it needs to be recorded in the transfer

What about if the member has retired from the fund and is currently receiving a monthly pension As the law currently stands there is no longer any concept of ldquopension interestrdquo in this case and the clean break principle does not apply

2 The fund must be named or capable of being identified It is always best to use the full and correct registered name of the fund together with the fund code and member reference number

Using the Employerrsquos name to identify the fund may not always work if the Employer operates multiple funds or the member belongs to multiple funds of the Employer

If the member belongs to a pension fund and a provident fund then it is important to note that these are two completely separate legal entities and hence the order must clarify whether it seeks to bind both funds or only one If one which one

3 A portionpercentage of pension interest or an actual Rand amount can be awarded Such portion can be anything from 1 to 100 of pension interest

It is not an automatic 5050 split and it is not sufficient for the order to merely refer to the division of the joint estate A recent Supreme Court judgement has been misinterpreted by many to mean that an order merely needs to order the division of the joint estate in order to be binding on a fund This is not the case

The definition of ldquopension interestrdquo amounts to the value of the memberrsquos withdrawal benefit at the date of divorce No interest or growth applies unless there are delays in payment after a valid claim has been submitted

There is no concept of ldquoprovident fund interestrdquo in the Divorce Act and use of this term will be problematic The concept of ldquopension interestrdquo applies to pension and provident funds and only the term ldquopension interestrdquo should be referenced

The divorce award will automatically be taxed in the hands of the non-member spouse and therefore references to ldquoafter tax amountrdquo or ldquonett amountrdquo or ldquoless any taxrdquo or ldquox rand after taxrdquo are not only unnecessary but problematic in terms of the fund needing to interpret what the intended award is

4 The non-member spouse must be the recipient of the award The order cannot bind the fund to pay to anyone other than the non-member spouse eg the children the member the attorney trust account or creditors of the joint estate

The fund cannot be party to a scheme whereby the parties are using the divorce as a mechanism for the member to access his retirement funds Any order in terms of which payment will be made to the member will automatically be problematic and the settlement agreement should avoid it

The non-member spouse may instruct the fund on where to pay the benefit This can be done as part of the claim submission and then the fund will be able to act on the instruction of the non-member in this regard However the order can only make the award to the non-member

It is always best that the parties co-operate openly and honestly to ensure a fair outcome and a divorce order that complies with the points mentioned above Attempts to frustrate the other party by withholding information or providing incorrect or misleading information will only result in unnecessary delays and costs If a party does not want to volunteer essential information required for a compliant divorce order the law does provide recourse but such options should rather be avoided if possible There will still be a valid claim that needs to be settled by the member at the end of the day Settling it by way of a compliant divorce order is the right way and the best way to go

12

ESTATES AND TRUSTS

By Gerald Peter CFPreg Legal Advisor SpecialistOld Mutual

Despite the scepticism with which they are viewed by the revenue authorities and an ever tightening regulatory environment trusts remain powerful tools of estate planning Properly configured trusts can be applied to serve a myriad of legitimate and pragmatic planning purposes

Many financial planners are however under the misguided belief that once their trusts are registered they have free reign to administer and use them as they please As a result many trusts in existence today are invalid due to lack of compliance with either the provisions of the trust deed or prevailing legislation

Trusts are usually created as part of long-term planning During this planning period things inevitably change The plannerrsquos priorities may change as may be needs of the beneficiaries The law may also change It is therefore important that trusts should be reviewed regularly to ensure that they can withstand these changing tides This article identifies some potential problems which could arise if a trust is not reviewed regularly

of ReviewingThe Importance

a Trust

13

ESTATES AND TRUSTS

Minimum number of trustees Trusts are often left to operate for long periods without the prescribed number of trustees as stipulated in the trust deed During these periods of noncompliance the remaining trustees continue to operate as usual binding and committing the trust to all sorts of obligations

The courts have held that a provision requiring a specified minimum number of trustees lays down a prerequisite that must be fulfilled before the trust estate can be bound When fewer trustees than the number specified are in office the trust suffers from an incapacity that precludes action on its behalf

When a trustee vacates (by resignation or death) their office the provisions relating to the quorum for meetings resolutions of the trust and voting rights are affected It follows therefore that a trust cannot continue to transact until the correct number of trustees is restored If there is no mechanism for appointing a new trustee in the trust deed then an application must be made to the Court Any action taken by the trustees outside the scope of their powers is null and void

Appointment and resignation of trusteesOften additional trustees are appointed and commence their duties before their appointments are confirmed by the Master Many planners are oblivious to the rule that a trustee cannot act unless he or she has been duly appointed by the Master of the High Court in terms of Section 6 of the Trust Property Control Act 2

Even if a trustee has been properly appointed in terms of the trust deed he or she may not act on behalf of the trust until authorised to do so by the Master Any such act performed by a trustee prior to receiving Letters of Authority from the Master will be null and void and incapable of ratification The opposite also applies in that a trusteersquos fiduciary responsibilities do not cease unless the Master has expressly withdrawn his authorisation (by removing the trusteersquos name from the Letters of Authority) A personrsquos resignation does not legally relieve him of his duties as trustee The trustee remains legally accountable until the Master has officially removed him from his office as trustee

Section 21 of the Trust Property Control Act states that whether or not the trust deed provides for the trustees resignation the trustee may resign by notice in writing to the Master and the ascertained beneficiaries who have legal capacity or to the tutors or curators of the beneficiaries of the trust under tutorship or curatorship

In practice notice is only given to the Master but not to the beneficiaries In such a case the resignation is deemed to be invalid planners should therefore ensure that all trustee resignations are confirmed by the Master Failure to do so could result in these trustees being held liable for transgressions which occur post their departure The validity of subsequent transactions by the remaining trustees could also be challenged since not all trustees would have been involved (the individual who informally exited will still be regarded as a trustee)

Capacity to act as trustee It is also important to ensure that all the trustees remain fit and competent to continue acting as trustees during the course of the planning period Owing to intervening circumstances such as insolvency during the planning period an individual may be rendered unfit to hold the office of trustee

Section 20 of the Trust Property Control Act for example provides that the Master may remove a trustee if inter alia his or her estate is sequestrated either provisionally or finally The terms of the trust deed may also disqualify a trustee for some other reason All contracts entered into by an incompetent trustee may be also declared null and void

ControlOne of the fundamental tenets of trust law is that the founder or a trustee should not have absolute and unfettered control of the income and property of the trust This occurs frequently in the context of family trusts where trustees are often also beneficiaries of a trust

Unless reviewed regularly the relationship between the founder or a trustee of a trust and the trust assets may become blurred resulting in the rupture of the controlenjoyment divide Without a proper separation of control and enjoyment the trust will offer little in the way of protection as it will be seen as the alter ego of the founder or trustee The trust assets in question will also be lsquodeemed propertyrsquo in the estate of the controlling trustee on death in terms of Section 3(3) (d) of the Estate Duty Act6 It is important to regularly check to ensure that a founder or trustee has not crossed this fundamental rubicon This can be done by ensuring that all decisions and resolutions of the trust are taken at properly constituted sittings and accurately recorded

The courts have also suggested that the Master of the High Court must ensure that an adequate separation of control from enjoyment is maintained in every trust In the Parker case the court suggested that one way the Master can ensure that an adequate separation of control from enjoyment is maintained in every trust is by insisting on the appointment of an independent outsider as trustee to every trust in which the trustees are all beneficiaries and the beneficiaries are all related to one another

The independent outsider does not have to be a professional person such as an attorney or accountant but someone who with proper realisation of the responsibilities of trusteeship accepts office in order to ensure that the trust functions properly that the provisions of the trust deed are observed and that the conduct of trustees who lack a sufficiently independent interest in the observance of substantive and procedural requirements arising from the trust deed can be scrutinised and checked

LegislationChanges in the legislation governing trusts happen all too frequently As a consequence planning strategies that work today will not necessarily work tomorrow Financial planners must ensure that they regularly review their trusts to ensure that they remain in line with prevailing legislation

The recent introduction of a new Section 7C to the Income Tax Act is a good example of how even the best of strategies can be derailed by new legislation For years the use of interest free loans have provided an effective mechanism for wealth transfer and estate planning schemes Section 7C which became effective on the 1st of March 2017 is an anti-avoidance measure the effect of which is to treat interest free or low interest loans made to a trust as donations This provision is retrospective (ie it applies to all new and existing interest free loans) The introduction of Section 7C thus presents an unprecedented challenge which makes it imperative for planners who have made interest free or low interest loans to trusts to urgently review their plans to ensure that they will not be negatively impacted by this new dispensation

Recent changes to legislation have also brought interest free loans made to offshore trusts within the realm of the transfer pricing legislation (Section 31 of the Income Tax Act) Individuals making interest free loans to offshore trusts will be taxed on the uncharged interest as if they had actually received it

Just like a vehicle a trust needs a regular service for it to effectively provide the services for which it was intended As discussed above the failure to review a trust could result in the failure of the trust

14

FPI NEWS

FPI ApprovedProfessional PracticeTM

Crue Invest announced as

In January 2017 Crue Invest became part of an elite group of financial planning businesses when it was recognised as an FPI ApprovedProfessionalPracticetrademakingitthe13thfinancialplanning business in the country to receive this prestigious recognition

The Financial Planning Institute of Southern Africa (FPI) introduced theFPIApprovedProfessionalPracticetradebrandasaninitiativethat will make it easier for consumers to identify financial planning practices that adhere to the pinnacle of global professionalism

Crue Invest which was founded by husband-and-wife-team Sue and Craig Torr in 2004 is owned and managed by a team of legal financial and tax experts all of whom are shareholders in the business Each and every client receives an expertly drafted financial plan ldquoEvery single financial plan is unique to the client and is hand-crafted by our team of professionals We consider each financial plan to be a uniquely customised work of artrdquo explains Craig Torr

ldquoThis accreditation follows a stringent audit of our business by FPI and confirms that our practice meets the highest ethical standards in the pursuance of our profession The accreditation reinforces that our standards in terms of knowledge expertise and ethical conduct are amongst the best in the country We are thrilledrdquo added Torr

This is a proud achievement for the practice and FPI following rigorous approval criteria FPI is confident that Crue Invest will assist in raising the standards of the financial planning profession in South Africa as well as creating the assurance that the quality of service they offer is not dependent on single individuals

About Crue Invest

Crue Invest (Pty) Ltd is one of 13 FPI Approved Professional Practicetradefirmsandafee-basedfinancialplanningcompanywhosemain purpose is to help clients create and protect their wealth through sound and independent financial planning

The company was founded in 2004 by husband-and-wife-team Sue and Craig Torr and has developed into a niche financial planning company with over R500 million of assets under advice Crue Invest is owned and managed by a team of eight directors who are all shareholders in the business

The team of financial and legal experts provide financial advice to individuals who wish to grow and protect their wealth covering the areas of retirement planning investments risk tax estate planning trusts wills and healthcare

For more about Crue Invest visit wwwcruecoza

Discovery Life Investment Services Pty (Ltd) branded as Discovery Invest is an authorised financial services provider Registration number 200700596907

wwwdiscoverycoza Discovery_SA discoverysouthafrica youtubeDiscoverySA

Discovery Invest can help your clients enjoy the retirement they deserve We can do this in three ways One we boost their pre-retirement savings by up to 15 Two this can either be added to their payout at retirement or used to reduce their admin fees to zero Three if they add more capital to their retirement savings wersquoll boost that too

Should you really be recommending anything else

Speak to your business consultant or visit wwwdiscoverycoza for more information about our retirement plans and the terms and conditions that apply to them

What will your clientsrsquo retirement look like

10

INDUSTRY NEWS EMPLOYEE BENEFITS

occupational retirement funds getting it right

Divorce order claims against

By Ashley Lakey CFPregFPI Risk CompetencyCommittee Member

Divorce is a traumatic life event and often places severe stress and strain upon the affected parties The last thing either of them need is unnecessary additional stress and strain when after weeks months or even years of negotiation and having already incurred considerable legal costs in reaching a settlement agreement they finally obtain the divorce order and then discover that the provisions dealing with the award of pension interest from their respective occupational retirement funds are not

compliant with divorce legislation and therefore not binding on the funds Not only will this cause considerable delay in the payouts which they may be depending on and hence disruption to their financial affairs but it will probably also add another layer of unbudgeted cost in order to get the divorce order amended Sadly this situation has been all too common since the Divorce Act deemed ldquopension interestrdquo to be part of the assets of divorcing parties and even more so since the clean break principle was introduced

The clean break principle applies to marriages in community of property and those out of community of property in terms of an antenuptial contract with the accrual system It does not apply to marriages entered on or after 1 November 1984 which are out of community of property in terms of an antenuptial contract by which community of property community of profit and loss and the accrual system are excluded Whereas prior to the clean break principle a divorce award could only be paid when the member spouse became entitled to the benefits now the processing of the payment of a divorce award can be triggered at any time after divorce by the submission of a compliant divorce order to the fund This principle applies to all divorce orders ie pre and post 13 September 2007

11

INDUSTRY NEWS EMPLOYEE BENEFITS

What then are the main aspects to consider in order to ensure that a divorce award is compliant

1 The member must be an active member of the fund at the date of the divorce If the member exits the fund prior to the divorce being finalised then there will no longer be any concept of pension interest even though the members benefit may not yet have been paid by the fund at that stage

As soon as the parties embark upon divorce proceedings they should notify their funds accordingly so that the fundsrsquo records may be flagged and the funds may be given an opportunity to approve the proposed wording that will be used in the divorce order If all parties are aware of the pending divorce and prepared to co-operate then the chances of errors or surprises later on are greatly reduced Just imagine a situation where the parties complete their settlement agreement in April and have it incorporated in their Final Order of Divorce in May only for the non-member to submit the divorce claim to the fund and be advised that the member withdrew from the fund in March and that the divorce order is consequently not binding on the fund Whether this happens through ignorance on the part of the member or whether it is done deliberately to frustrate the non-memberrsquos claim more legal costs will now be incurred to amend the order or to interdict the fund from paying the benefit to the member or for the non-member to pursue court action against the member by virtue of the fact that there is still a valid claim in terms of a court order albeit that the order cannot be enforced against the fund Now the parties will need to negotiate around the after-tax position of the member in respect of the benefit which will be paid by the fund since it will not qualify as a pension interest award that is taxable in the hands of the non-member spouse

What if the member has left fund X to which he belonged at the date of divorce and now belongs to fund Y If the benefit in fund X was transferred to fund Y then as long as there is a compliant order against fund X it will automatically apply to fund Y Where a transfer between funds occurs after the date of divorce it is important that the member or non-member notifies the transferor fund about a binding divorce order so that this can be recorded as part of the transfer Likewise if the divorce claim has already been settled by the transferor fund it needs to be recorded in the transfer

What about if the member has retired from the fund and is currently receiving a monthly pension As the law currently stands there is no longer any concept of ldquopension interestrdquo in this case and the clean break principle does not apply

2 The fund must be named or capable of being identified It is always best to use the full and correct registered name of the fund together with the fund code and member reference number

Using the Employerrsquos name to identify the fund may not always work if the Employer operates multiple funds or the member belongs to multiple funds of the Employer

If the member belongs to a pension fund and a provident fund then it is important to note that these are two completely separate legal entities and hence the order must clarify whether it seeks to bind both funds or only one If one which one

3 A portionpercentage of pension interest or an actual Rand amount can be awarded Such portion can be anything from 1 to 100 of pension interest

It is not an automatic 5050 split and it is not sufficient for the order to merely refer to the division of the joint estate A recent Supreme Court judgement has been misinterpreted by many to mean that an order merely needs to order the division of the joint estate in order to be binding on a fund This is not the case

The definition of ldquopension interestrdquo amounts to the value of the memberrsquos withdrawal benefit at the date of divorce No interest or growth applies unless there are delays in payment after a valid claim has been submitted

There is no concept of ldquoprovident fund interestrdquo in the Divorce Act and use of this term will be problematic The concept of ldquopension interestrdquo applies to pension and provident funds and only the term ldquopension interestrdquo should be referenced

The divorce award will automatically be taxed in the hands of the non-member spouse and therefore references to ldquoafter tax amountrdquo or ldquonett amountrdquo or ldquoless any taxrdquo or ldquox rand after taxrdquo are not only unnecessary but problematic in terms of the fund needing to interpret what the intended award is

4 The non-member spouse must be the recipient of the award The order cannot bind the fund to pay to anyone other than the non-member spouse eg the children the member the attorney trust account or creditors of the joint estate

The fund cannot be party to a scheme whereby the parties are using the divorce as a mechanism for the member to access his retirement funds Any order in terms of which payment will be made to the member will automatically be problematic and the settlement agreement should avoid it

The non-member spouse may instruct the fund on where to pay the benefit This can be done as part of the claim submission and then the fund will be able to act on the instruction of the non-member in this regard However the order can only make the award to the non-member

It is always best that the parties co-operate openly and honestly to ensure a fair outcome and a divorce order that complies with the points mentioned above Attempts to frustrate the other party by withholding information or providing incorrect or misleading information will only result in unnecessary delays and costs If a party does not want to volunteer essential information required for a compliant divorce order the law does provide recourse but such options should rather be avoided if possible There will still be a valid claim that needs to be settled by the member at the end of the day Settling it by way of a compliant divorce order is the right way and the best way to go

12

ESTATES AND TRUSTS

By Gerald Peter CFPreg Legal Advisor SpecialistOld Mutual

Despite the scepticism with which they are viewed by the revenue authorities and an ever tightening regulatory environment trusts remain powerful tools of estate planning Properly configured trusts can be applied to serve a myriad of legitimate and pragmatic planning purposes

Many financial planners are however under the misguided belief that once their trusts are registered they have free reign to administer and use them as they please As a result many trusts in existence today are invalid due to lack of compliance with either the provisions of the trust deed or prevailing legislation

Trusts are usually created as part of long-term planning During this planning period things inevitably change The plannerrsquos priorities may change as may be needs of the beneficiaries The law may also change It is therefore important that trusts should be reviewed regularly to ensure that they can withstand these changing tides This article identifies some potential problems which could arise if a trust is not reviewed regularly

of ReviewingThe Importance

a Trust

13

ESTATES AND TRUSTS

Minimum number of trustees Trusts are often left to operate for long periods without the prescribed number of trustees as stipulated in the trust deed During these periods of noncompliance the remaining trustees continue to operate as usual binding and committing the trust to all sorts of obligations

The courts have held that a provision requiring a specified minimum number of trustees lays down a prerequisite that must be fulfilled before the trust estate can be bound When fewer trustees than the number specified are in office the trust suffers from an incapacity that precludes action on its behalf

When a trustee vacates (by resignation or death) their office the provisions relating to the quorum for meetings resolutions of the trust and voting rights are affected It follows therefore that a trust cannot continue to transact until the correct number of trustees is restored If there is no mechanism for appointing a new trustee in the trust deed then an application must be made to the Court Any action taken by the trustees outside the scope of their powers is null and void

Appointment and resignation of trusteesOften additional trustees are appointed and commence their duties before their appointments are confirmed by the Master Many planners are oblivious to the rule that a trustee cannot act unless he or she has been duly appointed by the Master of the High Court in terms of Section 6 of the Trust Property Control Act 2

Even if a trustee has been properly appointed in terms of the trust deed he or she may not act on behalf of the trust until authorised to do so by the Master Any such act performed by a trustee prior to receiving Letters of Authority from the Master will be null and void and incapable of ratification The opposite also applies in that a trusteersquos fiduciary responsibilities do not cease unless the Master has expressly withdrawn his authorisation (by removing the trusteersquos name from the Letters of Authority) A personrsquos resignation does not legally relieve him of his duties as trustee The trustee remains legally accountable until the Master has officially removed him from his office as trustee

Section 21 of the Trust Property Control Act states that whether or not the trust deed provides for the trustees resignation the trustee may resign by notice in writing to the Master and the ascertained beneficiaries who have legal capacity or to the tutors or curators of the beneficiaries of the trust under tutorship or curatorship

In practice notice is only given to the Master but not to the beneficiaries In such a case the resignation is deemed to be invalid planners should therefore ensure that all trustee resignations are confirmed by the Master Failure to do so could result in these trustees being held liable for transgressions which occur post their departure The validity of subsequent transactions by the remaining trustees could also be challenged since not all trustees would have been involved (the individual who informally exited will still be regarded as a trustee)

Capacity to act as trustee It is also important to ensure that all the trustees remain fit and competent to continue acting as trustees during the course of the planning period Owing to intervening circumstances such as insolvency during the planning period an individual may be rendered unfit to hold the office of trustee

Section 20 of the Trust Property Control Act for example provides that the Master may remove a trustee if inter alia his or her estate is sequestrated either provisionally or finally The terms of the trust deed may also disqualify a trustee for some other reason All contracts entered into by an incompetent trustee may be also declared null and void

ControlOne of the fundamental tenets of trust law is that the founder or a trustee should not have absolute and unfettered control of the income and property of the trust This occurs frequently in the context of family trusts where trustees are often also beneficiaries of a trust

Unless reviewed regularly the relationship between the founder or a trustee of a trust and the trust assets may become blurred resulting in the rupture of the controlenjoyment divide Without a proper separation of control and enjoyment the trust will offer little in the way of protection as it will be seen as the alter ego of the founder or trustee The trust assets in question will also be lsquodeemed propertyrsquo in the estate of the controlling trustee on death in terms of Section 3(3) (d) of the Estate Duty Act6 It is important to regularly check to ensure that a founder or trustee has not crossed this fundamental rubicon This can be done by ensuring that all decisions and resolutions of the trust are taken at properly constituted sittings and accurately recorded

The courts have also suggested that the Master of the High Court must ensure that an adequate separation of control from enjoyment is maintained in every trust In the Parker case the court suggested that one way the Master can ensure that an adequate separation of control from enjoyment is maintained in every trust is by insisting on the appointment of an independent outsider as trustee to every trust in which the trustees are all beneficiaries and the beneficiaries are all related to one another

The independent outsider does not have to be a professional person such as an attorney or accountant but someone who with proper realisation of the responsibilities of trusteeship accepts office in order to ensure that the trust functions properly that the provisions of the trust deed are observed and that the conduct of trustees who lack a sufficiently independent interest in the observance of substantive and procedural requirements arising from the trust deed can be scrutinised and checked

LegislationChanges in the legislation governing trusts happen all too frequently As a consequence planning strategies that work today will not necessarily work tomorrow Financial planners must ensure that they regularly review their trusts to ensure that they remain in line with prevailing legislation

The recent introduction of a new Section 7C to the Income Tax Act is a good example of how even the best of strategies can be derailed by new legislation For years the use of interest free loans have provided an effective mechanism for wealth transfer and estate planning schemes Section 7C which became effective on the 1st of March 2017 is an anti-avoidance measure the effect of which is to treat interest free or low interest loans made to a trust as donations This provision is retrospective (ie it applies to all new and existing interest free loans) The introduction of Section 7C thus presents an unprecedented challenge which makes it imperative for planners who have made interest free or low interest loans to trusts to urgently review their plans to ensure that they will not be negatively impacted by this new dispensation

Recent changes to legislation have also brought interest free loans made to offshore trusts within the realm of the transfer pricing legislation (Section 31 of the Income Tax Act) Individuals making interest free loans to offshore trusts will be taxed on the uncharged interest as if they had actually received it

Just like a vehicle a trust needs a regular service for it to effectively provide the services for which it was intended As discussed above the failure to review a trust could result in the failure of the trust

14

FPI NEWS

FPI ApprovedProfessional PracticeTM

Crue Invest announced as

In January 2017 Crue Invest became part of an elite group of financial planning businesses when it was recognised as an FPI ApprovedProfessionalPracticetrademakingitthe13thfinancialplanning business in the country to receive this prestigious recognition

The Financial Planning Institute of Southern Africa (FPI) introduced theFPIApprovedProfessionalPracticetradebrandasaninitiativethat will make it easier for consumers to identify financial planning practices that adhere to the pinnacle of global professionalism

Crue Invest which was founded by husband-and-wife-team Sue and Craig Torr in 2004 is owned and managed by a team of legal financial and tax experts all of whom are shareholders in the business Each and every client receives an expertly drafted financial plan ldquoEvery single financial plan is unique to the client and is hand-crafted by our team of professionals We consider each financial plan to be a uniquely customised work of artrdquo explains Craig Torr

ldquoThis accreditation follows a stringent audit of our business by FPI and confirms that our practice meets the highest ethical standards in the pursuance of our profession The accreditation reinforces that our standards in terms of knowledge expertise and ethical conduct are amongst the best in the country We are thrilledrdquo added Torr

This is a proud achievement for the practice and FPI following rigorous approval criteria FPI is confident that Crue Invest will assist in raising the standards of the financial planning profession in South Africa as well as creating the assurance that the quality of service they offer is not dependent on single individuals

About Crue Invest

Crue Invest (Pty) Ltd is one of 13 FPI Approved Professional Practicetradefirmsandafee-basedfinancialplanningcompanywhosemain purpose is to help clients create and protect their wealth through sound and independent financial planning

The company was founded in 2004 by husband-and-wife-team Sue and Craig Torr and has developed into a niche financial planning company with over R500 million of assets under advice Crue Invest is owned and managed by a team of eight directors who are all shareholders in the business

The team of financial and legal experts provide financial advice to individuals who wish to grow and protect their wealth covering the areas of retirement planning investments risk tax estate planning trusts wills and healthcare

For more about Crue Invest visit wwwcruecoza

10

INDUSTRY NEWS EMPLOYEE BENEFITS

occupational retirement funds getting it right

Divorce order claims against

By Ashley Lakey CFPregFPI Risk CompetencyCommittee Member

Divorce is a traumatic life event and often places severe stress and strain upon the affected parties The last thing either of them need is unnecessary additional stress and strain when after weeks months or even years of negotiation and having already incurred considerable legal costs in reaching a settlement agreement they finally obtain the divorce order and then discover that the provisions dealing with the award of pension interest from their respective occupational retirement funds are not

compliant with divorce legislation and therefore not binding on the funds Not only will this cause considerable delay in the payouts which they may be depending on and hence disruption to their financial affairs but it will probably also add another layer of unbudgeted cost in order to get the divorce order amended Sadly this situation has been all too common since the Divorce Act deemed ldquopension interestrdquo to be part of the assets of divorcing parties and even more so since the clean break principle was introduced

The clean break principle applies to marriages in community of property and those out of community of property in terms of an antenuptial contract with the accrual system It does not apply to marriages entered on or after 1 November 1984 which are out of community of property in terms of an antenuptial contract by which community of property community of profit and loss and the accrual system are excluded Whereas prior to the clean break principle a divorce award could only be paid when the member spouse became entitled to the benefits now the processing of the payment of a divorce award can be triggered at any time after divorce by the submission of a compliant divorce order to the fund This principle applies to all divorce orders ie pre and post 13 September 2007

11

INDUSTRY NEWS EMPLOYEE BENEFITS

What then are the main aspects to consider in order to ensure that a divorce award is compliant

1 The member must be an active member of the fund at the date of the divorce If the member exits the fund prior to the divorce being finalised then there will no longer be any concept of pension interest even though the members benefit may not yet have been paid by the fund at that stage

As soon as the parties embark upon divorce proceedings they should notify their funds accordingly so that the fundsrsquo records may be flagged and the funds may be given an opportunity to approve the proposed wording that will be used in the divorce order If all parties are aware of the pending divorce and prepared to co-operate then the chances of errors or surprises later on are greatly reduced Just imagine a situation where the parties complete their settlement agreement in April and have it incorporated in their Final Order of Divorce in May only for the non-member to submit the divorce claim to the fund and be advised that the member withdrew from the fund in March and that the divorce order is consequently not binding on the fund Whether this happens through ignorance on the part of the member or whether it is done deliberately to frustrate the non-memberrsquos claim more legal costs will now be incurred to amend the order or to interdict the fund from paying the benefit to the member or for the non-member to pursue court action against the member by virtue of the fact that there is still a valid claim in terms of a court order albeit that the order cannot be enforced against the fund Now the parties will need to negotiate around the after-tax position of the member in respect of the benefit which will be paid by the fund since it will not qualify as a pension interest award that is taxable in the hands of the non-member spouse

What if the member has left fund X to which he belonged at the date of divorce and now belongs to fund Y If the benefit in fund X was transferred to fund Y then as long as there is a compliant order against fund X it will automatically apply to fund Y Where a transfer between funds occurs after the date of divorce it is important that the member or non-member notifies the transferor fund about a binding divorce order so that this can be recorded as part of the transfer Likewise if the divorce claim has already been settled by the transferor fund it needs to be recorded in the transfer

What about if the member has retired from the fund and is currently receiving a monthly pension As the law currently stands there is no longer any concept of ldquopension interestrdquo in this case and the clean break principle does not apply

2 The fund must be named or capable of being identified It is always best to use the full and correct registered name of the fund together with the fund code and member reference number

Using the Employerrsquos name to identify the fund may not always work if the Employer operates multiple funds or the member belongs to multiple funds of the Employer

If the member belongs to a pension fund and a provident fund then it is important to note that these are two completely separate legal entities and hence the order must clarify whether it seeks to bind both funds or only one If one which one

3 A portionpercentage of pension interest or an actual Rand amount can be awarded Such portion can be anything from 1 to 100 of pension interest

It is not an automatic 5050 split and it is not sufficient for the order to merely refer to the division of the joint estate A recent Supreme Court judgement has been misinterpreted by many to mean that an order merely needs to order the division of the joint estate in order to be binding on a fund This is not the case

The definition of ldquopension interestrdquo amounts to the value of the memberrsquos withdrawal benefit at the date of divorce No interest or growth applies unless there are delays in payment after a valid claim has been submitted

There is no concept of ldquoprovident fund interestrdquo in the Divorce Act and use of this term will be problematic The concept of ldquopension interestrdquo applies to pension and provident funds and only the term ldquopension interestrdquo should be referenced

The divorce award will automatically be taxed in the hands of the non-member spouse and therefore references to ldquoafter tax amountrdquo or ldquonett amountrdquo or ldquoless any taxrdquo or ldquox rand after taxrdquo are not only unnecessary but problematic in terms of the fund needing to interpret what the intended award is

4 The non-member spouse must be the recipient of the award The order cannot bind the fund to pay to anyone other than the non-member spouse eg the children the member the attorney trust account or creditors of the joint estate

The fund cannot be party to a scheme whereby the parties are using the divorce as a mechanism for the member to access his retirement funds Any order in terms of which payment will be made to the member will automatically be problematic and the settlement agreement should avoid it

The non-member spouse may instruct the fund on where to pay the benefit This can be done as part of the claim submission and then the fund will be able to act on the instruction of the non-member in this regard However the order can only make the award to the non-member

It is always best that the parties co-operate openly and honestly to ensure a fair outcome and a divorce order that complies with the points mentioned above Attempts to frustrate the other party by withholding information or providing incorrect or misleading information will only result in unnecessary delays and costs If a party does not want to volunteer essential information required for a compliant divorce order the law does provide recourse but such options should rather be avoided if possible There will still be a valid claim that needs to be settled by the member at the end of the day Settling it by way of a compliant divorce order is the right way and the best way to go

12

ESTATES AND TRUSTS

By Gerald Peter CFPreg Legal Advisor SpecialistOld Mutual

Despite the scepticism with which they are viewed by the revenue authorities and an ever tightening regulatory environment trusts remain powerful tools of estate planning Properly configured trusts can be applied to serve a myriad of legitimate and pragmatic planning purposes

Many financial planners are however under the misguided belief that once their trusts are registered they have free reign to administer and use them as they please As a result many trusts in existence today are invalid due to lack of compliance with either the provisions of the trust deed or prevailing legislation

Trusts are usually created as part of long-term planning During this planning period things inevitably change The plannerrsquos priorities may change as may be needs of the beneficiaries The law may also change It is therefore important that trusts should be reviewed regularly to ensure that they can withstand these changing tides This article identifies some potential problems which could arise if a trust is not reviewed regularly

of ReviewingThe Importance

a Trust

13

ESTATES AND TRUSTS

Minimum number of trustees Trusts are often left to operate for long periods without the prescribed number of trustees as stipulated in the trust deed During these periods of noncompliance the remaining trustees continue to operate as usual binding and committing the trust to all sorts of obligations

The courts have held that a provision requiring a specified minimum number of trustees lays down a prerequisite that must be fulfilled before the trust estate can be bound When fewer trustees than the number specified are in office the trust suffers from an incapacity that precludes action on its behalf

When a trustee vacates (by resignation or death) their office the provisions relating to the quorum for meetings resolutions of the trust and voting rights are affected It follows therefore that a trust cannot continue to transact until the correct number of trustees is restored If there is no mechanism for appointing a new trustee in the trust deed then an application must be made to the Court Any action taken by the trustees outside the scope of their powers is null and void

Appointment and resignation of trusteesOften additional trustees are appointed and commence their duties before their appointments are confirmed by the Master Many planners are oblivious to the rule that a trustee cannot act unless he or she has been duly appointed by the Master of the High Court in terms of Section 6 of the Trust Property Control Act 2

Even if a trustee has been properly appointed in terms of the trust deed he or she may not act on behalf of the trust until authorised to do so by the Master Any such act performed by a trustee prior to receiving Letters of Authority from the Master will be null and void and incapable of ratification The opposite also applies in that a trusteersquos fiduciary responsibilities do not cease unless the Master has expressly withdrawn his authorisation (by removing the trusteersquos name from the Letters of Authority) A personrsquos resignation does not legally relieve him of his duties as trustee The trustee remains legally accountable until the Master has officially removed him from his office as trustee

Section 21 of the Trust Property Control Act states that whether or not the trust deed provides for the trustees resignation the trustee may resign by notice in writing to the Master and the ascertained beneficiaries who have legal capacity or to the tutors or curators of the beneficiaries of the trust under tutorship or curatorship

In practice notice is only given to the Master but not to the beneficiaries In such a case the resignation is deemed to be invalid planners should therefore ensure that all trustee resignations are confirmed by the Master Failure to do so could result in these trustees being held liable for transgressions which occur post their departure The validity of subsequent transactions by the remaining trustees could also be challenged since not all trustees would have been involved (the individual who informally exited will still be regarded as a trustee)

Capacity to act as trustee It is also important to ensure that all the trustees remain fit and competent to continue acting as trustees during the course of the planning period Owing to intervening circumstances such as insolvency during the planning period an individual may be rendered unfit to hold the office of trustee

Section 20 of the Trust Property Control Act for example provides that the Master may remove a trustee if inter alia his or her estate is sequestrated either provisionally or finally The terms of the trust deed may also disqualify a trustee for some other reason All contracts entered into by an incompetent trustee may be also declared null and void

ControlOne of the fundamental tenets of trust law is that the founder or a trustee should not have absolute and unfettered control of the income and property of the trust This occurs frequently in the context of family trusts where trustees are often also beneficiaries of a trust

Unless reviewed regularly the relationship between the founder or a trustee of a trust and the trust assets may become blurred resulting in the rupture of the controlenjoyment divide Without a proper separation of control and enjoyment the trust will offer little in the way of protection as it will be seen as the alter ego of the founder or trustee The trust assets in question will also be lsquodeemed propertyrsquo in the estate of the controlling trustee on death in terms of Section 3(3) (d) of the Estate Duty Act6 It is important to regularly check to ensure that a founder or trustee has not crossed this fundamental rubicon This can be done by ensuring that all decisions and resolutions of the trust are taken at properly constituted sittings and accurately recorded

The courts have also suggested that the Master of the High Court must ensure that an adequate separation of control from enjoyment is maintained in every trust In the Parker case the court suggested that one way the Master can ensure that an adequate separation of control from enjoyment is maintained in every trust is by insisting on the appointment of an independent outsider as trustee to every trust in which the trustees are all beneficiaries and the beneficiaries are all related to one another

The independent outsider does not have to be a professional person such as an attorney or accountant but someone who with proper realisation of the responsibilities of trusteeship accepts office in order to ensure that the trust functions properly that the provisions of the trust deed are observed and that the conduct of trustees who lack a sufficiently independent interest in the observance of substantive and procedural requirements arising from the trust deed can be scrutinised and checked

LegislationChanges in the legislation governing trusts happen all too frequently As a consequence planning strategies that work today will not necessarily work tomorrow Financial planners must ensure that they regularly review their trusts to ensure that they remain in line with prevailing legislation

The recent introduction of a new Section 7C to the Income Tax Act is a good example of how even the best of strategies can be derailed by new legislation For years the use of interest free loans have provided an effective mechanism for wealth transfer and estate planning schemes Section 7C which became effective on the 1st of March 2017 is an anti-avoidance measure the effect of which is to treat interest free or low interest loans made to a trust as donations This provision is retrospective (ie it applies to all new and existing interest free loans) The introduction of Section 7C thus presents an unprecedented challenge which makes it imperative for planners who have made interest free or low interest loans to trusts to urgently review their plans to ensure that they will not be negatively impacted by this new dispensation

Recent changes to legislation have also brought interest free loans made to offshore trusts within the realm of the transfer pricing legislation (Section 31 of the Income Tax Act) Individuals making interest free loans to offshore trusts will be taxed on the uncharged interest as if they had actually received it

Just like a vehicle a trust needs a regular service for it to effectively provide the services for which it was intended As discussed above the failure to review a trust could result in the failure of the trust

14

FPI NEWS

FPI ApprovedProfessional PracticeTM

Crue Invest announced as

In January 2017 Crue Invest became part of an elite group of financial planning businesses when it was recognised as an FPI ApprovedProfessionalPracticetrademakingitthe13thfinancialplanning business in the country to receive this prestigious recognition

The Financial Planning Institute of Southern Africa (FPI) introduced theFPIApprovedProfessionalPracticetradebrandasaninitiativethat will make it easier for consumers to identify financial planning practices that adhere to the pinnacle of global professionalism

Crue Invest which was founded by husband-and-wife-team Sue and Craig Torr in 2004 is owned and managed by a team of legal financial and tax experts all of whom are shareholders in the business Each and every client receives an expertly drafted financial plan ldquoEvery single financial plan is unique to the client and is hand-crafted by our team of professionals We consider each financial plan to be a uniquely customised work of artrdquo explains Craig Torr

ldquoThis accreditation follows a stringent audit of our business by FPI and confirms that our practice meets the highest ethical standards in the pursuance of our profession The accreditation reinforces that our standards in terms of knowledge expertise and ethical conduct are amongst the best in the country We are thrilledrdquo added Torr

This is a proud achievement for the practice and FPI following rigorous approval criteria FPI is confident that Crue Invest will assist in raising the standards of the financial planning profession in South Africa as well as creating the assurance that the quality of service they offer is not dependent on single individuals

About Crue Invest

Crue Invest (Pty) Ltd is one of 13 FPI Approved Professional Practicetradefirmsandafee-basedfinancialplanningcompanywhosemain purpose is to help clients create and protect their wealth through sound and independent financial planning

The company was founded in 2004 by husband-and-wife-team Sue and Craig Torr and has developed into a niche financial planning company with over R500 million of assets under advice Crue Invest is owned and managed by a team of eight directors who are all shareholders in the business

The team of financial and legal experts provide financial advice to individuals who wish to grow and protect their wealth covering the areas of retirement planning investments risk tax estate planning trusts wills and healthcare

For more about Crue Invest visit wwwcruecoza

11

INDUSTRY NEWS EMPLOYEE BENEFITS

What then are the main aspects to consider in order to ensure that a divorce award is compliant

1 The member must be an active member of the fund at the date of the divorce If the member exits the fund prior to the divorce being finalised then there will no longer be any concept of pension interest even though the members benefit may not yet have been paid by the fund at that stage

As soon as the parties embark upon divorce proceedings they should notify their funds accordingly so that the fundsrsquo records may be flagged and the funds may be given an opportunity to approve the proposed wording that will be used in the divorce order If all parties are aware of the pending divorce and prepared to co-operate then the chances of errors or surprises later on are greatly reduced Just imagine a situation where the parties complete their settlement agreement in April and have it incorporated in their Final Order of Divorce in May only for the non-member to submit the divorce claim to the fund and be advised that the member withdrew from the fund in March and that the divorce order is consequently not binding on the fund Whether this happens through ignorance on the part of the member or whether it is done deliberately to frustrate the non-memberrsquos claim more legal costs will now be incurred to amend the order or to interdict the fund from paying the benefit to the member or for the non-member to pursue court action against the member by virtue of the fact that there is still a valid claim in terms of a court order albeit that the order cannot be enforced against the fund Now the parties will need to negotiate around the after-tax position of the member in respect of the benefit which will be paid by the fund since it will not qualify as a pension interest award that is taxable in the hands of the non-member spouse

What if the member has left fund X to which he belonged at the date of divorce and now belongs to fund Y If the benefit in fund X was transferred to fund Y then as long as there is a compliant order against fund X it will automatically apply to fund Y Where a transfer between funds occurs after the date of divorce it is important that the member or non-member notifies the transferor fund about a binding divorce order so that this can be recorded as part of the transfer Likewise if the divorce claim has already been settled by the transferor fund it needs to be recorded in the transfer

What about if the member has retired from the fund and is currently receiving a monthly pension As the law currently stands there is no longer any concept of ldquopension interestrdquo in this case and the clean break principle does not apply

2 The fund must be named or capable of being identified It is always best to use the full and correct registered name of the fund together with the fund code and member reference number

Using the Employerrsquos name to identify the fund may not always work if the Employer operates multiple funds or the member belongs to multiple funds of the Employer

If the member belongs to a pension fund and a provident fund then it is important to note that these are two completely separate legal entities and hence the order must clarify whether it seeks to bind both funds or only one If one which one

3 A portionpercentage of pension interest or an actual Rand amount can be awarded Such portion can be anything from 1 to 100 of pension interest

It is not an automatic 5050 split and it is not sufficient for the order to merely refer to the division of the joint estate A recent Supreme Court judgement has been misinterpreted by many to mean that an order merely needs to order the division of the joint estate in order to be binding on a fund This is not the case

The definition of ldquopension interestrdquo amounts to the value of the memberrsquos withdrawal benefit at the date of divorce No interest or growth applies unless there are delays in payment after a valid claim has been submitted

There is no concept of ldquoprovident fund interestrdquo in the Divorce Act and use of this term will be problematic The concept of ldquopension interestrdquo applies to pension and provident funds and only the term ldquopension interestrdquo should be referenced

The divorce award will automatically be taxed in the hands of the non-member spouse and therefore references to ldquoafter tax amountrdquo or ldquonett amountrdquo or ldquoless any taxrdquo or ldquox rand after taxrdquo are not only unnecessary but problematic in terms of the fund needing to interpret what the intended award is

4 The non-member spouse must be the recipient of the award The order cannot bind the fund to pay to anyone other than the non-member spouse eg the children the member the attorney trust account or creditors of the joint estate

The fund cannot be party to a scheme whereby the parties are using the divorce as a mechanism for the member to access his retirement funds Any order in terms of which payment will be made to the member will automatically be problematic and the settlement agreement should avoid it

The non-member spouse may instruct the fund on where to pay the benefit This can be done as part of the claim submission and then the fund will be able to act on the instruction of the non-member in this regard However the order can only make the award to the non-member

It is always best that the parties co-operate openly and honestly to ensure a fair outcome and a divorce order that complies with the points mentioned above Attempts to frustrate the other party by withholding information or providing incorrect or misleading information will only result in unnecessary delays and costs If a party does not want to volunteer essential information required for a compliant divorce order the law does provide recourse but such options should rather be avoided if possible There will still be a valid claim that needs to be settled by the member at the end of the day Settling it by way of a compliant divorce order is the right way and the best way to go

12

ESTATES AND TRUSTS

By Gerald Peter CFPreg Legal Advisor SpecialistOld Mutual

Despite the scepticism with which they are viewed by the revenue authorities and an ever tightening regulatory environment trusts remain powerful tools of estate planning Properly configured trusts can be applied to serve a myriad of legitimate and pragmatic planning purposes

Many financial planners are however under the misguided belief that once their trusts are registered they have free reign to administer and use them as they please As a result many trusts in existence today are invalid due to lack of compliance with either the provisions of the trust deed or prevailing legislation

Trusts are usually created as part of long-term planning During this planning period things inevitably change The plannerrsquos priorities may change as may be needs of the beneficiaries The law may also change It is therefore important that trusts should be reviewed regularly to ensure that they can withstand these changing tides This article identifies some potential problems which could arise if a trust is not reviewed regularly

of ReviewingThe Importance

a Trust

13

ESTATES AND TRUSTS

Minimum number of trustees Trusts are often left to operate for long periods without the prescribed number of trustees as stipulated in the trust deed During these periods of noncompliance the remaining trustees continue to operate as usual binding and committing the trust to all sorts of obligations

The courts have held that a provision requiring a specified minimum number of trustees lays down a prerequisite that must be fulfilled before the trust estate can be bound When fewer trustees than the number specified are in office the trust suffers from an incapacity that precludes action on its behalf

When a trustee vacates (by resignation or death) their office the provisions relating to the quorum for meetings resolutions of the trust and voting rights are affected It follows therefore that a trust cannot continue to transact until the correct number of trustees is restored If there is no mechanism for appointing a new trustee in the trust deed then an application must be made to the Court Any action taken by the trustees outside the scope of their powers is null and void

Appointment and resignation of trusteesOften additional trustees are appointed and commence their duties before their appointments are confirmed by the Master Many planners are oblivious to the rule that a trustee cannot act unless he or she has been duly appointed by the Master of the High Court in terms of Section 6 of the Trust Property Control Act 2

Even if a trustee has been properly appointed in terms of the trust deed he or she may not act on behalf of the trust until authorised to do so by the Master Any such act performed by a trustee prior to receiving Letters of Authority from the Master will be null and void and incapable of ratification The opposite also applies in that a trusteersquos fiduciary responsibilities do not cease unless the Master has expressly withdrawn his authorisation (by removing the trusteersquos name from the Letters of Authority) A personrsquos resignation does not legally relieve him of his duties as trustee The trustee remains legally accountable until the Master has officially removed him from his office as trustee

Section 21 of the Trust Property Control Act states that whether or not the trust deed provides for the trustees resignation the trustee may resign by notice in writing to the Master and the ascertained beneficiaries who have legal capacity or to the tutors or curators of the beneficiaries of the trust under tutorship or curatorship

In practice notice is only given to the Master but not to the beneficiaries In such a case the resignation is deemed to be invalid planners should therefore ensure that all trustee resignations are confirmed by the Master Failure to do so could result in these trustees being held liable for transgressions which occur post their departure The validity of subsequent transactions by the remaining trustees could also be challenged since not all trustees would have been involved (the individual who informally exited will still be regarded as a trustee)

Capacity to act as trustee It is also important to ensure that all the trustees remain fit and competent to continue acting as trustees during the course of the planning period Owing to intervening circumstances such as insolvency during the planning period an individual may be rendered unfit to hold the office of trustee

Section 20 of the Trust Property Control Act for example provides that the Master may remove a trustee if inter alia his or her estate is sequestrated either provisionally or finally The terms of the trust deed may also disqualify a trustee for some other reason All contracts entered into by an incompetent trustee may be also declared null and void

ControlOne of the fundamental tenets of trust law is that the founder or a trustee should not have absolute and unfettered control of the income and property of the trust This occurs frequently in the context of family trusts where trustees are often also beneficiaries of a trust

Unless reviewed regularly the relationship between the founder or a trustee of a trust and the trust assets may become blurred resulting in the rupture of the controlenjoyment divide Without a proper separation of control and enjoyment the trust will offer little in the way of protection as it will be seen as the alter ego of the founder or trustee The trust assets in question will also be lsquodeemed propertyrsquo in the estate of the controlling trustee on death in terms of Section 3(3) (d) of the Estate Duty Act6 It is important to regularly check to ensure that a founder or trustee has not crossed this fundamental rubicon This can be done by ensuring that all decisions and resolutions of the trust are taken at properly constituted sittings and accurately recorded

The courts have also suggested that the Master of the High Court must ensure that an adequate separation of control from enjoyment is maintained in every trust In the Parker case the court suggested that one way the Master can ensure that an adequate separation of control from enjoyment is maintained in every trust is by insisting on the appointment of an independent outsider as trustee to every trust in which the trustees are all beneficiaries and the beneficiaries are all related to one another

The independent outsider does not have to be a professional person such as an attorney or accountant but someone who with proper realisation of the responsibilities of trusteeship accepts office in order to ensure that the trust functions properly that the provisions of the trust deed are observed and that the conduct of trustees who lack a sufficiently independent interest in the observance of substantive and procedural requirements arising from the trust deed can be scrutinised and checked

LegislationChanges in the legislation governing trusts happen all too frequently As a consequence planning strategies that work today will not necessarily work tomorrow Financial planners must ensure that they regularly review their trusts to ensure that they remain in line with prevailing legislation

The recent introduction of a new Section 7C to the Income Tax Act is a good example of how even the best of strategies can be derailed by new legislation For years the use of interest free loans have provided an effective mechanism for wealth transfer and estate planning schemes Section 7C which became effective on the 1st of March 2017 is an anti-avoidance measure the effect of which is to treat interest free or low interest loans made to a trust as donations This provision is retrospective (ie it applies to all new and existing interest free loans) The introduction of Section 7C thus presents an unprecedented challenge which makes it imperative for planners who have made interest free or low interest loans to trusts to urgently review their plans to ensure that they will not be negatively impacted by this new dispensation

Recent changes to legislation have also brought interest free loans made to offshore trusts within the realm of the transfer pricing legislation (Section 31 of the Income Tax Act) Individuals making interest free loans to offshore trusts will be taxed on the uncharged interest as if they had actually received it

Just like a vehicle a trust needs a regular service for it to effectively provide the services for which it was intended As discussed above the failure to review a trust could result in the failure of the trust

14

FPI NEWS

FPI ApprovedProfessional PracticeTM

Crue Invest announced as

In January 2017 Crue Invest became part of an elite group of financial planning businesses when it was recognised as an FPI ApprovedProfessionalPracticetrademakingitthe13thfinancialplanning business in the country to receive this prestigious recognition

The Financial Planning Institute of Southern Africa (FPI) introduced theFPIApprovedProfessionalPracticetradebrandasaninitiativethat will make it easier for consumers to identify financial planning practices that adhere to the pinnacle of global professionalism

Crue Invest which was founded by husband-and-wife-team Sue and Craig Torr in 2004 is owned and managed by a team of legal financial and tax experts all of whom are shareholders in the business Each and every client receives an expertly drafted financial plan ldquoEvery single financial plan is unique to the client and is hand-crafted by our team of professionals We consider each financial plan to be a uniquely customised work of artrdquo explains Craig Torr

ldquoThis accreditation follows a stringent audit of our business by FPI and confirms that our practice meets the highest ethical standards in the pursuance of our profession The accreditation reinforces that our standards in terms of knowledge expertise and ethical conduct are amongst the best in the country We are thrilledrdquo added Torr

This is a proud achievement for the practice and FPI following rigorous approval criteria FPI is confident that Crue Invest will assist in raising the standards of the financial planning profession in South Africa as well as creating the assurance that the quality of service they offer is not dependent on single individuals

About Crue Invest

Crue Invest (Pty) Ltd is one of 13 FPI Approved Professional Practicetradefirmsandafee-basedfinancialplanningcompanywhosemain purpose is to help clients create and protect their wealth through sound and independent financial planning

The company was founded in 2004 by husband-and-wife-team Sue and Craig Torr and has developed into a niche financial planning company with over R500 million of assets under advice Crue Invest is owned and managed by a team of eight directors who are all shareholders in the business

The team of financial and legal experts provide financial advice to individuals who wish to grow and protect their wealth covering the areas of retirement planning investments risk tax estate planning trusts wills and healthcare

For more about Crue Invest visit wwwcruecoza

12

ESTATES AND TRUSTS

By Gerald Peter CFPreg Legal Advisor SpecialistOld Mutual

Despite the scepticism with which they are viewed by the revenue authorities and an ever tightening regulatory environment trusts remain powerful tools of estate planning Properly configured trusts can be applied to serve a myriad of legitimate and pragmatic planning purposes

Many financial planners are however under the misguided belief that once their trusts are registered they have free reign to administer and use them as they please As a result many trusts in existence today are invalid due to lack of compliance with either the provisions of the trust deed or prevailing legislation

Trusts are usually created as part of long-term planning During this planning period things inevitably change The plannerrsquos priorities may change as may be needs of the beneficiaries The law may also change It is therefore important that trusts should be reviewed regularly to ensure that they can withstand these changing tides This article identifies some potential problems which could arise if a trust is not reviewed regularly

of ReviewingThe Importance

a Trust

13

ESTATES AND TRUSTS

Minimum number of trustees Trusts are often left to operate for long periods without the prescribed number of trustees as stipulated in the trust deed During these periods of noncompliance the remaining trustees continue to operate as usual binding and committing the trust to all sorts of obligations

The courts have held that a provision requiring a specified minimum number of trustees lays down a prerequisite that must be fulfilled before the trust estate can be bound When fewer trustees than the number specified are in office the trust suffers from an incapacity that precludes action on its behalf

When a trustee vacates (by resignation or death) their office the provisions relating to the quorum for meetings resolutions of the trust and voting rights are affected It follows therefore that a trust cannot continue to transact until the correct number of trustees is restored If there is no mechanism for appointing a new trustee in the trust deed then an application must be made to the Court Any action taken by the trustees outside the scope of their powers is null and void

Appointment and resignation of trusteesOften additional trustees are appointed and commence their duties before their appointments are confirmed by the Master Many planners are oblivious to the rule that a trustee cannot act unless he or she has been duly appointed by the Master of the High Court in terms of Section 6 of the Trust Property Control Act 2

Even if a trustee has been properly appointed in terms of the trust deed he or she may not act on behalf of the trust until authorised to do so by the Master Any such act performed by a trustee prior to receiving Letters of Authority from the Master will be null and void and incapable of ratification The opposite also applies in that a trusteersquos fiduciary responsibilities do not cease unless the Master has expressly withdrawn his authorisation (by removing the trusteersquos name from the Letters of Authority) A personrsquos resignation does not legally relieve him of his duties as trustee The trustee remains legally accountable until the Master has officially removed him from his office as trustee

Section 21 of the Trust Property Control Act states that whether or not the trust deed provides for the trustees resignation the trustee may resign by notice in writing to the Master and the ascertained beneficiaries who have legal capacity or to the tutors or curators of the beneficiaries of the trust under tutorship or curatorship

In practice notice is only given to the Master but not to the beneficiaries In such a case the resignation is deemed to be invalid planners should therefore ensure that all trustee resignations are confirmed by the Master Failure to do so could result in these trustees being held liable for transgressions which occur post their departure The validity of subsequent transactions by the remaining trustees could also be challenged since not all trustees would have been involved (the individual who informally exited will still be regarded as a trustee)

Capacity to act as trustee It is also important to ensure that all the trustees remain fit and competent to continue acting as trustees during the course of the planning period Owing to intervening circumstances such as insolvency during the planning period an individual may be rendered unfit to hold the office of trustee

Section 20 of the Trust Property Control Act for example provides that the Master may remove a trustee if inter alia his or her estate is sequestrated either provisionally or finally The terms of the trust deed may also disqualify a trustee for some other reason All contracts entered into by an incompetent trustee may be also declared null and void

ControlOne of the fundamental tenets of trust law is that the founder or a trustee should not have absolute and unfettered control of the income and property of the trust This occurs frequently in the context of family trusts where trustees are often also beneficiaries of a trust

Unless reviewed regularly the relationship between the founder or a trustee of a trust and the trust assets may become blurred resulting in the rupture of the controlenjoyment divide Without a proper separation of control and enjoyment the trust will offer little in the way of protection as it will be seen as the alter ego of the founder or trustee The trust assets in question will also be lsquodeemed propertyrsquo in the estate of the controlling trustee on death in terms of Section 3(3) (d) of the Estate Duty Act6 It is important to regularly check to ensure that a founder or trustee has not crossed this fundamental rubicon This can be done by ensuring that all decisions and resolutions of the trust are taken at properly constituted sittings and accurately recorded

The courts have also suggested that the Master of the High Court must ensure that an adequate separation of control from enjoyment is maintained in every trust In the Parker case the court suggested that one way the Master can ensure that an adequate separation of control from enjoyment is maintained in every trust is by insisting on the appointment of an independent outsider as trustee to every trust in which the trustees are all beneficiaries and the beneficiaries are all related to one another

The independent outsider does not have to be a professional person such as an attorney or accountant but someone who with proper realisation of the responsibilities of trusteeship accepts office in order to ensure that the trust functions properly that the provisions of the trust deed are observed and that the conduct of trustees who lack a sufficiently independent interest in the observance of substantive and procedural requirements arising from the trust deed can be scrutinised and checked

LegislationChanges in the legislation governing trusts happen all too frequently As a consequence planning strategies that work today will not necessarily work tomorrow Financial planners must ensure that they regularly review their trusts to ensure that they remain in line with prevailing legislation

The recent introduction of a new Section 7C to the Income Tax Act is a good example of how even the best of strategies can be derailed by new legislation For years the use of interest free loans have provided an effective mechanism for wealth transfer and estate planning schemes Section 7C which became effective on the 1st of March 2017 is an anti-avoidance measure the effect of which is to treat interest free or low interest loans made to a trust as donations This provision is retrospective (ie it applies to all new and existing interest free loans) The introduction of Section 7C thus presents an unprecedented challenge which makes it imperative for planners who have made interest free or low interest loans to trusts to urgently review their plans to ensure that they will not be negatively impacted by this new dispensation

Recent changes to legislation have also brought interest free loans made to offshore trusts within the realm of the transfer pricing legislation (Section 31 of the Income Tax Act) Individuals making interest free loans to offshore trusts will be taxed on the uncharged interest as if they had actually received it

Just like a vehicle a trust needs a regular service for it to effectively provide the services for which it was intended As discussed above the failure to review a trust could result in the failure of the trust

14

FPI NEWS

FPI ApprovedProfessional PracticeTM

Crue Invest announced as

In January 2017 Crue Invest became part of an elite group of financial planning businesses when it was recognised as an FPI ApprovedProfessionalPracticetrademakingitthe13thfinancialplanning business in the country to receive this prestigious recognition

The Financial Planning Institute of Southern Africa (FPI) introduced theFPIApprovedProfessionalPracticetradebrandasaninitiativethat will make it easier for consumers to identify financial planning practices that adhere to the pinnacle of global professionalism

Crue Invest which was founded by husband-and-wife-team Sue and Craig Torr in 2004 is owned and managed by a team of legal financial and tax experts all of whom are shareholders in the business Each and every client receives an expertly drafted financial plan ldquoEvery single financial plan is unique to the client and is hand-crafted by our team of professionals We consider each financial plan to be a uniquely customised work of artrdquo explains Craig Torr

ldquoThis accreditation follows a stringent audit of our business by FPI and confirms that our practice meets the highest ethical standards in the pursuance of our profession The accreditation reinforces that our standards in terms of knowledge expertise and ethical conduct are amongst the best in the country We are thrilledrdquo added Torr

This is a proud achievement for the practice and FPI following rigorous approval criteria FPI is confident that Crue Invest will assist in raising the standards of the financial planning profession in South Africa as well as creating the assurance that the quality of service they offer is not dependent on single individuals

About Crue Invest

Crue Invest (Pty) Ltd is one of 13 FPI Approved Professional Practicetradefirmsandafee-basedfinancialplanningcompanywhosemain purpose is to help clients create and protect their wealth through sound and independent financial planning

The company was founded in 2004 by husband-and-wife-team Sue and Craig Torr and has developed into a niche financial planning company with over R500 million of assets under advice Crue Invest is owned and managed by a team of eight directors who are all shareholders in the business

The team of financial and legal experts provide financial advice to individuals who wish to grow and protect their wealth covering the areas of retirement planning investments risk tax estate planning trusts wills and healthcare

For more about Crue Invest visit wwwcruecoza

13

ESTATES AND TRUSTS

Minimum number of trustees Trusts are often left to operate for long periods without the prescribed number of trustees as stipulated in the trust deed During these periods of noncompliance the remaining trustees continue to operate as usual binding and committing the trust to all sorts of obligations

The courts have held that a provision requiring a specified minimum number of trustees lays down a prerequisite that must be fulfilled before the trust estate can be bound When fewer trustees than the number specified are in office the trust suffers from an incapacity that precludes action on its behalf

When a trustee vacates (by resignation or death) their office the provisions relating to the quorum for meetings resolutions of the trust and voting rights are affected It follows therefore that a trust cannot continue to transact until the correct number of trustees is restored If there is no mechanism for appointing a new trustee in the trust deed then an application must be made to the Court Any action taken by the trustees outside the scope of their powers is null and void

Appointment and resignation of trusteesOften additional trustees are appointed and commence their duties before their appointments are confirmed by the Master Many planners are oblivious to the rule that a trustee cannot act unless he or she has been duly appointed by the Master of the High Court in terms of Section 6 of the Trust Property Control Act 2

Even if a trustee has been properly appointed in terms of the trust deed he or she may not act on behalf of the trust until authorised to do so by the Master Any such act performed by a trustee prior to receiving Letters of Authority from the Master will be null and void and incapable of ratification The opposite also applies in that a trusteersquos fiduciary responsibilities do not cease unless the Master has expressly withdrawn his authorisation (by removing the trusteersquos name from the Letters of Authority) A personrsquos resignation does not legally relieve him of his duties as trustee The trustee remains legally accountable until the Master has officially removed him from his office as trustee

Section 21 of the Trust Property Control Act states that whether or not the trust deed provides for the trustees resignation the trustee may resign by notice in writing to the Master and the ascertained beneficiaries who have legal capacity or to the tutors or curators of the beneficiaries of the trust under tutorship or curatorship

In practice notice is only given to the Master but not to the beneficiaries In such a case the resignation is deemed to be invalid planners should therefore ensure that all trustee resignations are confirmed by the Master Failure to do so could result in these trustees being held liable for transgressions which occur post their departure The validity of subsequent transactions by the remaining trustees could also be challenged since not all trustees would have been involved (the individual who informally exited will still be regarded as a trustee)

Capacity to act as trustee It is also important to ensure that all the trustees remain fit and competent to continue acting as trustees during the course of the planning period Owing to intervening circumstances such as insolvency during the planning period an individual may be rendered unfit to hold the office of trustee

Section 20 of the Trust Property Control Act for example provides that the Master may remove a trustee if inter alia his or her estate is sequestrated either provisionally or finally The terms of the trust deed may also disqualify a trustee for some other reason All contracts entered into by an incompetent trustee may be also declared null and void

ControlOne of the fundamental tenets of trust law is that the founder or a trustee should not have absolute and unfettered control of the income and property of the trust This occurs frequently in the context of family trusts where trustees are often also beneficiaries of a trust

Unless reviewed regularly the relationship between the founder or a trustee of a trust and the trust assets may become blurred resulting in the rupture of the controlenjoyment divide Without a proper separation of control and enjoyment the trust will offer little in the way of protection as it will be seen as the alter ego of the founder or trustee The trust assets in question will also be lsquodeemed propertyrsquo in the estate of the controlling trustee on death in terms of Section 3(3) (d) of the Estate Duty Act6 It is important to regularly check to ensure that a founder or trustee has not crossed this fundamental rubicon This can be done by ensuring that all decisions and resolutions of the trust are taken at properly constituted sittings and accurately recorded

The courts have also suggested that the Master of the High Court must ensure that an adequate separation of control from enjoyment is maintained in every trust In the Parker case the court suggested that one way the Master can ensure that an adequate separation of control from enjoyment is maintained in every trust is by insisting on the appointment of an independent outsider as trustee to every trust in which the trustees are all beneficiaries and the beneficiaries are all related to one another

The independent outsider does not have to be a professional person such as an attorney or accountant but someone who with proper realisation of the responsibilities of trusteeship accepts office in order to ensure that the trust functions properly that the provisions of the trust deed are observed and that the conduct of trustees who lack a sufficiently independent interest in the observance of substantive and procedural requirements arising from the trust deed can be scrutinised and checked

LegislationChanges in the legislation governing trusts happen all too frequently As a consequence planning strategies that work today will not necessarily work tomorrow Financial planners must ensure that they regularly review their trusts to ensure that they remain in line with prevailing legislation

The recent introduction of a new Section 7C to the Income Tax Act is a good example of how even the best of strategies can be derailed by new legislation For years the use of interest free loans have provided an effective mechanism for wealth transfer and estate planning schemes Section 7C which became effective on the 1st of March 2017 is an anti-avoidance measure the effect of which is to treat interest free or low interest loans made to a trust as donations This provision is retrospective (ie it applies to all new and existing interest free loans) The introduction of Section 7C thus presents an unprecedented challenge which makes it imperative for planners who have made interest free or low interest loans to trusts to urgently review their plans to ensure that they will not be negatively impacted by this new dispensation

Recent changes to legislation have also brought interest free loans made to offshore trusts within the realm of the transfer pricing legislation (Section 31 of the Income Tax Act) Individuals making interest free loans to offshore trusts will be taxed on the uncharged interest as if they had actually received it

Just like a vehicle a trust needs a regular service for it to effectively provide the services for which it was intended As discussed above the failure to review a trust could result in the failure of the trust

14

FPI NEWS

FPI ApprovedProfessional PracticeTM

Crue Invest announced as

In January 2017 Crue Invest became part of an elite group of financial planning businesses when it was recognised as an FPI ApprovedProfessionalPracticetrademakingitthe13thfinancialplanning business in the country to receive this prestigious recognition

The Financial Planning Institute of Southern Africa (FPI) introduced theFPIApprovedProfessionalPracticetradebrandasaninitiativethat will make it easier for consumers to identify financial planning practices that adhere to the pinnacle of global professionalism

Crue Invest which was founded by husband-and-wife-team Sue and Craig Torr in 2004 is owned and managed by a team of legal financial and tax experts all of whom are shareholders in the business Each and every client receives an expertly drafted financial plan ldquoEvery single financial plan is unique to the client and is hand-crafted by our team of professionals We consider each financial plan to be a uniquely customised work of artrdquo explains Craig Torr

ldquoThis accreditation follows a stringent audit of our business by FPI and confirms that our practice meets the highest ethical standards in the pursuance of our profession The accreditation reinforces that our standards in terms of knowledge expertise and ethical conduct are amongst the best in the country We are thrilledrdquo added Torr

This is a proud achievement for the practice and FPI following rigorous approval criteria FPI is confident that Crue Invest will assist in raising the standards of the financial planning profession in South Africa as well as creating the assurance that the quality of service they offer is not dependent on single individuals

About Crue Invest

Crue Invest (Pty) Ltd is one of 13 FPI Approved Professional Practicetradefirmsandafee-basedfinancialplanningcompanywhosemain purpose is to help clients create and protect their wealth through sound and independent financial planning

The company was founded in 2004 by husband-and-wife-team Sue and Craig Torr and has developed into a niche financial planning company with over R500 million of assets under advice Crue Invest is owned and managed by a team of eight directors who are all shareholders in the business

The team of financial and legal experts provide financial advice to individuals who wish to grow and protect their wealth covering the areas of retirement planning investments risk tax estate planning trusts wills and healthcare

For more about Crue Invest visit wwwcruecoza

14

FPI NEWS

FPI ApprovedProfessional PracticeTM

Crue Invest announced as

In January 2017 Crue Invest became part of an elite group of financial planning businesses when it was recognised as an FPI ApprovedProfessionalPracticetrademakingitthe13thfinancialplanning business in the country to receive this prestigious recognition

The Financial Planning Institute of Southern Africa (FPI) introduced theFPIApprovedProfessionalPracticetradebrandasaninitiativethat will make it easier for consumers to identify financial planning practices that adhere to the pinnacle of global professionalism

Crue Invest which was founded by husband-and-wife-team Sue and Craig Torr in 2004 is owned and managed by a team of legal financial and tax experts all of whom are shareholders in the business Each and every client receives an expertly drafted financial plan ldquoEvery single financial plan is unique to the client and is hand-crafted by our team of professionals We consider each financial plan to be a uniquely customised work of artrdquo explains Craig Torr

ldquoThis accreditation follows a stringent audit of our business by FPI and confirms that our practice meets the highest ethical standards in the pursuance of our profession The accreditation reinforces that our standards in terms of knowledge expertise and ethical conduct are amongst the best in the country We are thrilledrdquo added Torr

This is a proud achievement for the practice and FPI following rigorous approval criteria FPI is confident that Crue Invest will assist in raising the standards of the financial planning profession in South Africa as well as creating the assurance that the quality of service they offer is not dependent on single individuals

About Crue Invest

Crue Invest (Pty) Ltd is one of 13 FPI Approved Professional Practicetradefirmsandafee-basedfinancialplanningcompanywhosemain purpose is to help clients create and protect their wealth through sound and independent financial planning

The company was founded in 2004 by husband-and-wife-team Sue and Craig Torr and has developed into a niche financial planning company with over R500 million of assets under advice Crue Invest is owned and managed by a team of eight directors who are all shareholders in the business

The team of financial and legal experts provide financial advice to individuals who wish to grow and protect their wealth covering the areas of retirement planning investments risk tax estate planning trusts wills and healthcare

For more about Crue Invest visit wwwcruecoza

15

FPI NEWS

CPD pointsRead and earn

The smallest things in life do count by doing something as small as reading an article you can avoid receiving continuous professional development (CPD) shortage reminders By simply reading CPD approved magazines you can add to your CPD record

Below are a number of magazines newsletters and handbooks that are FPI CPD Recognised and by reading these publications you as an FPI member can earn 1 CPD point per hour limited to 50 of your total required CPD points

FPI CPD Recognised Publications

Publications

The Financial Planner (FPI official publication)

RISKAFRICA

Business Brief

Cover MagazineCOVER-on-the-Go

FANewsNuus

Normal price R120

Normal price R490

Normal price R264 (print) and R162

(online)

Normal price R171

Normal price R200

Free for FPI members

FPI member 25 discount

FPI member 50 discount

Free for FPI members

FPI member R50 discount

2 points

1 point

1 point

1 point

1 point

Annual subscription discounts CPD points

FPI NEWS

Visit the member section on wwwfpicoza to find out more about CPD and other member benefits

FPI CPD Recognised Publications

Publications

Money Marketing

Personal Finance

The Moneyweb Investor

Momentarily

Blue Chip Magazine

Healthcare in South Africa handbook

Normal price R250

Normal price R2995

Normal price R102

Free

Free

Normal price R19900 (issued once a year)

FPI member 20 discount

FPI member 100 discount

1 point

1 point

Members can claim CPD points as prescribed in the FPI CPD Policy

1 point

1 point

1 point

Annual subscription discounts CPD points

Exchange4free is a Foreign Exchange Broker regulated by the South African Reserve Bank and an authorised Financial Services Provider FSP - 36093

Giving you and your clients a better dealCall Matt Lawson on 011 453 7818

or visit wwwexchange4freecoza

Best Price Best Value Best Service

Foreign Exchange Servicefreeexchange

Bank beating forex rates with no Swift fees

Free SARS tax clearances in 2- 5 days

Simple Online Application Form

DO YOU HAVE CLIENTSINVESTING OFFSHOREWork with us to add value to your

business and customers

May

Page 1 OF 2

CFPreg Professional Competency Challenge Status Examination

Requirements to gain access to the CFPreg Professional Competency Challenge ExamThe challenge exam is offered to individuals who hold certain advanced degrees or professional credentials but have not completed one of the FPI approved qualifications

FPSB as the licencing authority for the CFPreg designation approved that FPI may accept specific professional credentials as fulfilling the education requirement for CFPreg certification Furthermore FPI may extend the availability of the Challenge Exam to individuals that are performing in senior positions in the industry but that does not necessarily hold the prescribed qualification of study FPI has the right to determine the types of qualifications it will accept for challenge status FPI will be required to verify the qualifications and credentials of candidates for the challenge status with appropriate oversight bodies

(Adapted from FPSB Certification Standard)

The following designations will be considered when allowing for challenge status exams with a minimum of 10 yearsrsquo client facing financial planning experience as a pre-requisite

Designation Awarded by registered with Underlying qualificationMaster Tax Practitioner South African Institute of Tax Practitioners (SAITP) Postgraduate Diploma in Tax Law M Com (Tax) LLM (Tax)

CA(SA) South African Institute of Chartered Accountants (SAICA) B Com Hons (Acc)

Registered Auditor Independent Regulatory Board for Auditors Postgraduate degree diploma accredited by SAICA

Admitted Attorney with relevant qualification

Law Society South Africa or General Council of the Bar of SA

Postgraduate degree equivalent to NQF Level 8

CFA Charter holder Chartered Financial Analyst Society CFA Level 3

Apart from awarding access to the challenge exam to any of the above designation holders the following qualifications will also allow access to the challenge exam

Qualification ExperienceBachelor of Laws (Only if registered on NQF Level 8 with 480 credits)

10 years client facing financial planning related experience

Postgraduate diplomas inbull Finance banking and investment managementbull Financial managementbull Investment bankingplanningbull Insurance lawbull Taxationbull Tax strategy and management

10 years client facing financial planning related experience

Page 2 OF 2

Qualification ExperienceB Com Honours in the following specialisation areasbull accounting or Financial accountingbull actuary actuarial sciencesbull auditingbull Bankingbull economicsbull Finance or Financial Managementbull Financial analysis and portfolio managementbull Financial taxation or Taxationbull generalbull International trade and financebull Investment Managementbull Monetary and Financial economics

10 years client facing financial planning related experience

Masters degrees in business and or finance related areas 10 years client facing financial planning related experience

Doctorate degrees in business and or finance related areas 10 years client facing financial planning related experience

While individuals may be highly qualified in a specialised area of financial practice it does not necessarily guarantee their success on the CFPreg Professional Competency Examination FPI could encourage candidates seeking to sit for the CFPreg Professional Competency Examination via challenge status to consider completing an examination review course or reviewing the currency and completeness of their education against the FPIrsquos Financial Planning Topic List Challenge status candidates may benefit from retaking courses or taking additional courses to improve currency and mastery of specific topic areas

The challenge exam will be exactly the same exam that the current candidates write as the Professional Competency examinationChallenge status exams are limited to two lifetime opportunities If the candidate is not successful in passing the exam it will become a requirement that the person must enrol at an FPI approved education Provider to complete the Postgraduate Diploma in Financial Planning or the B Com Honours in Financial Planning

How to apply to write the examIn order for any candidate to be considered for the CFPreg Professional Competency Challenge Status Examination they are required to submit

bull a motivational letter bull Certified copy of their identity document bull Certified copies of the qualifications which allow them access to the exam andbull Latest updated version of their Curriculum Vitae (CV)

Contact usIf you have any questions please feel free to contact our membership departmentOffice (011) 470-6000 or 086 1000 384 (FPI)email membershipfpicoza

22

FPI NEWS

Retirement and Investment One-day

Mini Convention

In June the FPI Centre of Professional Development will be hosting the third Retirement and Investment Mini Convention The event will be held in Johannesburg Durban and Cape Town This informative session has an excellent line-up of speakers who will ensure that delegates are updated on

trending topics within the retirement and investment arena

DatesJohannesburg Wednesday 7 June 2017Durban Thursday 8 June 2017Cape Town Friday 9 June 2017

Times 0800 to 1615

65 Knowledge CPD points

FPI members R 1 690 Non-members R 2 060

CPD Points

Your Investment

Speakers and topics

SAs Retirement Landscape - How we measure globally and whether reform is neededIn this session Mike Schussler well-known economist will discuss how South Africa measures globally in terms of retirement and investment statistics and whether or not retirement reform is necessary within the South African context

Investment strategies for successful retirement planningThe majority of South Africans remain in their default fund choice with their company provided retirement fund Sydney Sekese CFPreg and member of the FPI Investment Competency Committee will discuss the benefit of a holistic view and investment strategy for retirement and how to manage your clientrsquos funds on their journey to retirement

A debate around life vs living annuities With the majority of retirees opting for living annuities in the current economic environment our panel of experts Craig Gradidge CFPreg Andrew Davison and Wouter Fourie CFPreg will debate why living annuities are not always in the best interest of your client and why so many retirees are so invested in these products

Regulation 28 and risk profilingAnton Swanepoel CFPreg introduced a whitepaper on risk profiling at the FPI Professionals Convention in 2016 In this discussion Anton and Bruce Fleming CFPreg will expand on the impact Regulation 28 has on risk profiling and whether the restrictions of Regulation 28 should be reviewed

The real (tax) benefits of retirement fundsProf Matthew Lester will have a topical presentation on the real benefits of retirement funds not only for the person saving for retirement but also for the South African and global economy Who to contactFor more details or to book for your seat contact the FPI events team on 011 470 6000 or email eventsfpicoza or visit wwwfpicozacpdevents

FPI NEWS

CPD pointsRead and earn

The smallest things in life do count by doing something as small as reading an article you can avoid receiving continuous professional development (CPD) shortage reminders By simply reading CPD approved magazines you can add to your CPD record

Below are a number of magazines newsletters and handbooks that are FPI CPD Recognised and by reading these publications you as an FPI member can earn 1 CPD point per hour limited to 50 of your total required CPD points

FPI CPD Recognised Publications

Publications

The Financial Planner (FPI official publication)

RISKAFRICA

Business Brief

Cover MagazineCOVER-on-the-Go

FANewsNuus

Normal price R120

Normal price R490

Normal price R264 (print) and R162

(online)

Normal price R171

Normal price R200

Free for FPI members

FPI member 25 discount

FPI member 50 discount

Free for FPI members

FPI member R50 discount

2 points

1 point

1 point

1 point

1 point

Annual subscription discounts CPD points

FPI NEWS

Visit the member section on wwwfpicoza to find out more about CPD and other member benefits

FPI CPD Recognised Publications

Publications

Money Marketing

Personal Finance

The Moneyweb Investor

Momentarily

Blue Chip Magazine

Healthcare in South Africa handbook

Normal price R250

Normal price R2995

Normal price R102

Free

Free

Normal price R19900 (issued once a year)

FPI member 20 discount

FPI member 100 discount

1 point

1 point

Members can claim CPD points as prescribed in the FPI CPD Policy

1 point

1 point

1 point

Annual subscription discounts CPD points

Exchange4free is a Foreign Exchange Broker regulated by the South African Reserve Bank and an authorised Financial Services Provider FSP - 36093

Giving you and your clients a better dealCall Matt Lawson on 011 453 7818

or visit wwwexchange4freecoza

Best Price Best Value Best Service

Foreign Exchange Servicefreeexchange

Bank beating forex rates with no Swift fees

Free SARS tax clearances in 2- 5 days

Simple Online Application Form

DO YOU HAVE CLIENTSINVESTING OFFSHOREWork with us to add value to your

business and customers

May

Page 1 OF 2

CFPreg Professional Competency Challenge Status Examination

Requirements to gain access to the CFPreg Professional Competency Challenge ExamThe challenge exam is offered to individuals who hold certain advanced degrees or professional credentials but have not completed one of the FPI approved qualifications

FPSB as the licencing authority for the CFPreg designation approved that FPI may accept specific professional credentials as fulfilling the education requirement for CFPreg certification Furthermore FPI may extend the availability of the Challenge Exam to individuals that are performing in senior positions in the industry but that does not necessarily hold the prescribed qualification of study FPI has the right to determine the types of qualifications it will accept for challenge status FPI will be required to verify the qualifications and credentials of candidates for the challenge status with appropriate oversight bodies

(Adapted from FPSB Certification Standard)

The following designations will be considered when allowing for challenge status exams with a minimum of 10 yearsrsquo client facing financial planning experience as a pre-requisite

Designation Awarded by registered with Underlying qualificationMaster Tax Practitioner South African Institute of Tax Practitioners (SAITP) Postgraduate Diploma in Tax Law M Com (Tax) LLM (Tax)

CA(SA) South African Institute of Chartered Accountants (SAICA) B Com Hons (Acc)

Registered Auditor Independent Regulatory Board for Auditors Postgraduate degree diploma accredited by SAICA

Admitted Attorney with relevant qualification

Law Society South Africa or General Council of the Bar of SA

Postgraduate degree equivalent to NQF Level 8

CFA Charter holder Chartered Financial Analyst Society CFA Level 3

Apart from awarding access to the challenge exam to any of the above designation holders the following qualifications will also allow access to the challenge exam

Qualification ExperienceBachelor of Laws (Only if registered on NQF Level 8 with 480 credits)

10 years client facing financial planning related experience

Postgraduate diplomas inbull Finance banking and investment managementbull Financial managementbull Investment bankingplanningbull Insurance lawbull Taxationbull Tax strategy and management

10 years client facing financial planning related experience

Page 2 OF 2

Qualification ExperienceB Com Honours in the following specialisation areasbull accounting or Financial accountingbull actuary actuarial sciencesbull auditingbull Bankingbull economicsbull Finance or Financial Managementbull Financial analysis and portfolio managementbull Financial taxation or Taxationbull generalbull International trade and financebull Investment Managementbull Monetary and Financial economics

10 years client facing financial planning related experience

Masters degrees in business and or finance related areas 10 years client facing financial planning related experience

Doctorate degrees in business and or finance related areas 10 years client facing financial planning related experience

While individuals may be highly qualified in a specialised area of financial practice it does not necessarily guarantee their success on the CFPreg Professional Competency Examination FPI could encourage candidates seeking to sit for the CFPreg Professional Competency Examination via challenge status to consider completing an examination review course or reviewing the currency and completeness of their education against the FPIrsquos Financial Planning Topic List Challenge status candidates may benefit from retaking courses or taking additional courses to improve currency and mastery of specific topic areas

The challenge exam will be exactly the same exam that the current candidates write as the Professional Competency examinationChallenge status exams are limited to two lifetime opportunities If the candidate is not successful in passing the exam it will become a requirement that the person must enrol at an FPI approved education Provider to complete the Postgraduate Diploma in Financial Planning or the B Com Honours in Financial Planning

How to apply to write the examIn order for any candidate to be considered for the CFPreg Professional Competency Challenge Status Examination they are required to submit

bull a motivational letter bull Certified copy of their identity document bull Certified copies of the qualifications which allow them access to the exam andbull Latest updated version of their Curriculum Vitae (CV)

Contact usIf you have any questions please feel free to contact our membership departmentOffice (011) 470-6000 or 086 1000 384 (FPI)email membershipfpicoza

22

FPI NEWS

Retirement and Investment One-day

Mini Convention

In June the FPI Centre of Professional Development will be hosting the third Retirement and Investment Mini Convention The event will be held in Johannesburg Durban and Cape Town This informative session has an excellent line-up of speakers who will ensure that delegates are updated on

trending topics within the retirement and investment arena

DatesJohannesburg Wednesday 7 June 2017Durban Thursday 8 June 2017Cape Town Friday 9 June 2017

Times 0800 to 1615

65 Knowledge CPD points

FPI members R 1 690 Non-members R 2 060

CPD Points

Your Investment

Speakers and topics

SAs Retirement Landscape - How we measure globally and whether reform is neededIn this session Mike Schussler well-known economist will discuss how South Africa measures globally in terms of retirement and investment statistics and whether or not retirement reform is necessary within the South African context

Investment strategies for successful retirement planningThe majority of South Africans remain in their default fund choice with their company provided retirement fund Sydney Sekese CFPreg and member of the FPI Investment Competency Committee will discuss the benefit of a holistic view and investment strategy for retirement and how to manage your clientrsquos funds on their journey to retirement

A debate around life vs living annuities With the majority of retirees opting for living annuities in the current economic environment our panel of experts Craig Gradidge CFPreg Andrew Davison and Wouter Fourie CFPreg will debate why living annuities are not always in the best interest of your client and why so many retirees are so invested in these products

Regulation 28 and risk profilingAnton Swanepoel CFPreg introduced a whitepaper on risk profiling at the FPI Professionals Convention in 2016 In this discussion Anton and Bruce Fleming CFPreg will expand on the impact Regulation 28 has on risk profiling and whether the restrictions of Regulation 28 should be reviewed

The real (tax) benefits of retirement fundsProf Matthew Lester will have a topical presentation on the real benefits of retirement funds not only for the person saving for retirement but also for the South African and global economy Who to contactFor more details or to book for your seat contact the FPI events team on 011 470 6000 or email eventsfpicoza or visit wwwfpicozacpdevents

FPI NEWS

Visit the member section on wwwfpicoza to find out more about CPD and other member benefits

FPI CPD Recognised Publications

Publications

Money Marketing

Personal Finance

The Moneyweb Investor

Momentarily

Blue Chip Magazine

Healthcare in South Africa handbook

Normal price R250

Normal price R2995

Normal price R102

Free

Free

Normal price R19900 (issued once a year)

FPI member 20 discount

FPI member 100 discount

1 point

1 point

Members can claim CPD points as prescribed in the FPI CPD Policy

1 point

1 point

1 point

Annual subscription discounts CPD points

Exchange4free is a Foreign Exchange Broker regulated by the South African Reserve Bank and an authorised Financial Services Provider FSP - 36093

Giving you and your clients a better dealCall Matt Lawson on 011 453 7818

or visit wwwexchange4freecoza

Best Price Best Value Best Service

Foreign Exchange Servicefreeexchange

Bank beating forex rates with no Swift fees

Free SARS tax clearances in 2- 5 days

Simple Online Application Form

DO YOU HAVE CLIENTSINVESTING OFFSHOREWork with us to add value to your

business and customers

May

Page 1 OF 2

CFPreg Professional Competency Challenge Status Examination

Requirements to gain access to the CFPreg Professional Competency Challenge ExamThe challenge exam is offered to individuals who hold certain advanced degrees or professional credentials but have not completed one of the FPI approved qualifications

FPSB as the licencing authority for the CFPreg designation approved that FPI may accept specific professional credentials as fulfilling the education requirement for CFPreg certification Furthermore FPI may extend the availability of the Challenge Exam to individuals that are performing in senior positions in the industry but that does not necessarily hold the prescribed qualification of study FPI has the right to determine the types of qualifications it will accept for challenge status FPI will be required to verify the qualifications and credentials of candidates for the challenge status with appropriate oversight bodies

(Adapted from FPSB Certification Standard)

The following designations will be considered when allowing for challenge status exams with a minimum of 10 yearsrsquo client facing financial planning experience as a pre-requisite

Designation Awarded by registered with Underlying qualificationMaster Tax Practitioner South African Institute of Tax Practitioners (SAITP) Postgraduate Diploma in Tax Law M Com (Tax) LLM (Tax)

CA(SA) South African Institute of Chartered Accountants (SAICA) B Com Hons (Acc)

Registered Auditor Independent Regulatory Board for Auditors Postgraduate degree diploma accredited by SAICA

Admitted Attorney with relevant qualification

Law Society South Africa or General Council of the Bar of SA

Postgraduate degree equivalent to NQF Level 8

CFA Charter holder Chartered Financial Analyst Society CFA Level 3

Apart from awarding access to the challenge exam to any of the above designation holders the following qualifications will also allow access to the challenge exam

Qualification ExperienceBachelor of Laws (Only if registered on NQF Level 8 with 480 credits)

10 years client facing financial planning related experience

Postgraduate diplomas inbull Finance banking and investment managementbull Financial managementbull Investment bankingplanningbull Insurance lawbull Taxationbull Tax strategy and management

10 years client facing financial planning related experience

Page 2 OF 2

Qualification ExperienceB Com Honours in the following specialisation areasbull accounting or Financial accountingbull actuary actuarial sciencesbull auditingbull Bankingbull economicsbull Finance or Financial Managementbull Financial analysis and portfolio managementbull Financial taxation or Taxationbull generalbull International trade and financebull Investment Managementbull Monetary and Financial economics

10 years client facing financial planning related experience

Masters degrees in business and or finance related areas 10 years client facing financial planning related experience

Doctorate degrees in business and or finance related areas 10 years client facing financial planning related experience

While individuals may be highly qualified in a specialised area of financial practice it does not necessarily guarantee their success on the CFPreg Professional Competency Examination FPI could encourage candidates seeking to sit for the CFPreg Professional Competency Examination via challenge status to consider completing an examination review course or reviewing the currency and completeness of their education against the FPIrsquos Financial Planning Topic List Challenge status candidates may benefit from retaking courses or taking additional courses to improve currency and mastery of specific topic areas

The challenge exam will be exactly the same exam that the current candidates write as the Professional Competency examinationChallenge status exams are limited to two lifetime opportunities If the candidate is not successful in passing the exam it will become a requirement that the person must enrol at an FPI approved education Provider to complete the Postgraduate Diploma in Financial Planning or the B Com Honours in Financial Planning

How to apply to write the examIn order for any candidate to be considered for the CFPreg Professional Competency Challenge Status Examination they are required to submit

bull a motivational letter bull Certified copy of their identity document bull Certified copies of the qualifications which allow them access to the exam andbull Latest updated version of their Curriculum Vitae (CV)

Contact usIf you have any questions please feel free to contact our membership departmentOffice (011) 470-6000 or 086 1000 384 (FPI)email membershipfpicoza

22

FPI NEWS

Retirement and Investment One-day

Mini Convention

In June the FPI Centre of Professional Development will be hosting the third Retirement and Investment Mini Convention The event will be held in Johannesburg Durban and Cape Town This informative session has an excellent line-up of speakers who will ensure that delegates are updated on

trending topics within the retirement and investment arena

DatesJohannesburg Wednesday 7 June 2017Durban Thursday 8 June 2017Cape Town Friday 9 June 2017

Times 0800 to 1615

65 Knowledge CPD points

FPI members R 1 690 Non-members R 2 060

CPD Points

Your Investment

Speakers and topics

SAs Retirement Landscape - How we measure globally and whether reform is neededIn this session Mike Schussler well-known economist will discuss how South Africa measures globally in terms of retirement and investment statistics and whether or not retirement reform is necessary within the South African context

Investment strategies for successful retirement planningThe majority of South Africans remain in their default fund choice with their company provided retirement fund Sydney Sekese CFPreg and member of the FPI Investment Competency Committee will discuss the benefit of a holistic view and investment strategy for retirement and how to manage your clientrsquos funds on their journey to retirement

A debate around life vs living annuities With the majority of retirees opting for living annuities in the current economic environment our panel of experts Craig Gradidge CFPreg Andrew Davison and Wouter Fourie CFPreg will debate why living annuities are not always in the best interest of your client and why so many retirees are so invested in these products

Regulation 28 and risk profilingAnton Swanepoel CFPreg introduced a whitepaper on risk profiling at the FPI Professionals Convention in 2016 In this discussion Anton and Bruce Fleming CFPreg will expand on the impact Regulation 28 has on risk profiling and whether the restrictions of Regulation 28 should be reviewed

The real (tax) benefits of retirement fundsProf Matthew Lester will have a topical presentation on the real benefits of retirement funds not only for the person saving for retirement but also for the South African and global economy Who to contactFor more details or to book for your seat contact the FPI events team on 011 470 6000 or email eventsfpicoza or visit wwwfpicozacpdevents

May

Page 1 OF 2

CFPreg Professional Competency Challenge Status Examination

Requirements to gain access to the CFPreg Professional Competency Challenge ExamThe challenge exam is offered to individuals who hold certain advanced degrees or professional credentials but have not completed one of the FPI approved qualifications

FPSB as the licencing authority for the CFPreg designation approved that FPI may accept specific professional credentials as fulfilling the education requirement for CFPreg certification Furthermore FPI may extend the availability of the Challenge Exam to individuals that are performing in senior positions in the industry but that does not necessarily hold the prescribed qualification of study FPI has the right to determine the types of qualifications it will accept for challenge status FPI will be required to verify the qualifications and credentials of candidates for the challenge status with appropriate oversight bodies

(Adapted from FPSB Certification Standard)

The following designations will be considered when allowing for challenge status exams with a minimum of 10 yearsrsquo client facing financial planning experience as a pre-requisite

Designation Awarded by registered with Underlying qualificationMaster Tax Practitioner South African Institute of Tax Practitioners (SAITP) Postgraduate Diploma in Tax Law M Com (Tax) LLM (Tax)

CA(SA) South African Institute of Chartered Accountants (SAICA) B Com Hons (Acc)

Registered Auditor Independent Regulatory Board for Auditors Postgraduate degree diploma accredited by SAICA

Admitted Attorney with relevant qualification

Law Society South Africa or General Council of the Bar of SA

Postgraduate degree equivalent to NQF Level 8

CFA Charter holder Chartered Financial Analyst Society CFA Level 3

Apart from awarding access to the challenge exam to any of the above designation holders the following qualifications will also allow access to the challenge exam

Qualification ExperienceBachelor of Laws (Only if registered on NQF Level 8 with 480 credits)

10 years client facing financial planning related experience

Postgraduate diplomas inbull Finance banking and investment managementbull Financial managementbull Investment bankingplanningbull Insurance lawbull Taxationbull Tax strategy and management

10 years client facing financial planning related experience

Page 2 OF 2

Qualification ExperienceB Com Honours in the following specialisation areasbull accounting or Financial accountingbull actuary actuarial sciencesbull auditingbull Bankingbull economicsbull Finance or Financial Managementbull Financial analysis and portfolio managementbull Financial taxation or Taxationbull generalbull International trade and financebull Investment Managementbull Monetary and Financial economics

10 years client facing financial planning related experience

Masters degrees in business and or finance related areas 10 years client facing financial planning related experience

Doctorate degrees in business and or finance related areas 10 years client facing financial planning related experience

While individuals may be highly qualified in a specialised area of financial practice it does not necessarily guarantee their success on the CFPreg Professional Competency Examination FPI could encourage candidates seeking to sit for the CFPreg Professional Competency Examination via challenge status to consider completing an examination review course or reviewing the currency and completeness of their education against the FPIrsquos Financial Planning Topic List Challenge status candidates may benefit from retaking courses or taking additional courses to improve currency and mastery of specific topic areas

The challenge exam will be exactly the same exam that the current candidates write as the Professional Competency examinationChallenge status exams are limited to two lifetime opportunities If the candidate is not successful in passing the exam it will become a requirement that the person must enrol at an FPI approved education Provider to complete the Postgraduate Diploma in Financial Planning or the B Com Honours in Financial Planning

How to apply to write the examIn order for any candidate to be considered for the CFPreg Professional Competency Challenge Status Examination they are required to submit

bull a motivational letter bull Certified copy of their identity document bull Certified copies of the qualifications which allow them access to the exam andbull Latest updated version of their Curriculum Vitae (CV)

Contact usIf you have any questions please feel free to contact our membership departmentOffice (011) 470-6000 or 086 1000 384 (FPI)email membershipfpicoza

22

FPI NEWS

Retirement and Investment One-day

Mini Convention

In June the FPI Centre of Professional Development will be hosting the third Retirement and Investment Mini Convention The event will be held in Johannesburg Durban and Cape Town This informative session has an excellent line-up of speakers who will ensure that delegates are updated on

trending topics within the retirement and investment arena

DatesJohannesburg Wednesday 7 June 2017Durban Thursday 8 June 2017Cape Town Friday 9 June 2017

Times 0800 to 1615

65 Knowledge CPD points

FPI members R 1 690 Non-members R 2 060

CPD Points

Your Investment

Speakers and topics

SAs Retirement Landscape - How we measure globally and whether reform is neededIn this session Mike Schussler well-known economist will discuss how South Africa measures globally in terms of retirement and investment statistics and whether or not retirement reform is necessary within the South African context

Investment strategies for successful retirement planningThe majority of South Africans remain in their default fund choice with their company provided retirement fund Sydney Sekese CFPreg and member of the FPI Investment Competency Committee will discuss the benefit of a holistic view and investment strategy for retirement and how to manage your clientrsquos funds on their journey to retirement

A debate around life vs living annuities With the majority of retirees opting for living annuities in the current economic environment our panel of experts Craig Gradidge CFPreg Andrew Davison and Wouter Fourie CFPreg will debate why living annuities are not always in the best interest of your client and why so many retirees are so invested in these products

Regulation 28 and risk profilingAnton Swanepoel CFPreg introduced a whitepaper on risk profiling at the FPI Professionals Convention in 2016 In this discussion Anton and Bruce Fleming CFPreg will expand on the impact Regulation 28 has on risk profiling and whether the restrictions of Regulation 28 should be reviewed

The real (tax) benefits of retirement fundsProf Matthew Lester will have a topical presentation on the real benefits of retirement funds not only for the person saving for retirement but also for the South African and global economy Who to contactFor more details or to book for your seat contact the FPI events team on 011 470 6000 or email eventsfpicoza or visit wwwfpicozacpdevents

Page 1 OF 2

CFPreg Professional Competency Challenge Status Examination

Requirements to gain access to the CFPreg Professional Competency Challenge ExamThe challenge exam is offered to individuals who hold certain advanced degrees or professional credentials but have not completed one of the FPI approved qualifications

FPSB as the licencing authority for the CFPreg designation approved that FPI may accept specific professional credentials as fulfilling the education requirement for CFPreg certification Furthermore FPI may extend the availability of the Challenge Exam to individuals that are performing in senior positions in the industry but that does not necessarily hold the prescribed qualification of study FPI has the right to determine the types of qualifications it will accept for challenge status FPI will be required to verify the qualifications and credentials of candidates for the challenge status with appropriate oversight bodies

(Adapted from FPSB Certification Standard)

The following designations will be considered when allowing for challenge status exams with a minimum of 10 yearsrsquo client facing financial planning experience as a pre-requisite

Designation Awarded by registered with Underlying qualificationMaster Tax Practitioner South African Institute of Tax Practitioners (SAITP) Postgraduate Diploma in Tax Law M Com (Tax) LLM (Tax)

CA(SA) South African Institute of Chartered Accountants (SAICA) B Com Hons (Acc)

Registered Auditor Independent Regulatory Board for Auditors Postgraduate degree diploma accredited by SAICA

Admitted Attorney with relevant qualification

Law Society South Africa or General Council of the Bar of SA

Postgraduate degree equivalent to NQF Level 8

CFA Charter holder Chartered Financial Analyst Society CFA Level 3

Apart from awarding access to the challenge exam to any of the above designation holders the following qualifications will also allow access to the challenge exam

Qualification ExperienceBachelor of Laws (Only if registered on NQF Level 8 with 480 credits)

10 years client facing financial planning related experience

Postgraduate diplomas inbull Finance banking and investment managementbull Financial managementbull Investment bankingplanningbull Insurance lawbull Taxationbull Tax strategy and management

10 years client facing financial planning related experience

Page 2 OF 2

Qualification ExperienceB Com Honours in the following specialisation areasbull accounting or Financial accountingbull actuary actuarial sciencesbull auditingbull Bankingbull economicsbull Finance or Financial Managementbull Financial analysis and portfolio managementbull Financial taxation or Taxationbull generalbull International trade and financebull Investment Managementbull Monetary and Financial economics

10 years client facing financial planning related experience

Masters degrees in business and or finance related areas 10 years client facing financial planning related experience

Doctorate degrees in business and or finance related areas 10 years client facing financial planning related experience

While individuals may be highly qualified in a specialised area of financial practice it does not necessarily guarantee their success on the CFPreg Professional Competency Examination FPI could encourage candidates seeking to sit for the CFPreg Professional Competency Examination via challenge status to consider completing an examination review course or reviewing the currency and completeness of their education against the FPIrsquos Financial Planning Topic List Challenge status candidates may benefit from retaking courses or taking additional courses to improve currency and mastery of specific topic areas

The challenge exam will be exactly the same exam that the current candidates write as the Professional Competency examinationChallenge status exams are limited to two lifetime opportunities If the candidate is not successful in passing the exam it will become a requirement that the person must enrol at an FPI approved education Provider to complete the Postgraduate Diploma in Financial Planning or the B Com Honours in Financial Planning

How to apply to write the examIn order for any candidate to be considered for the CFPreg Professional Competency Challenge Status Examination they are required to submit

bull a motivational letter bull Certified copy of their identity document bull Certified copies of the qualifications which allow them access to the exam andbull Latest updated version of their Curriculum Vitae (CV)

Contact usIf you have any questions please feel free to contact our membership departmentOffice (011) 470-6000 or 086 1000 384 (FPI)email membershipfpicoza

22

FPI NEWS

Retirement and Investment One-day

Mini Convention

In June the FPI Centre of Professional Development will be hosting the third Retirement and Investment Mini Convention The event will be held in Johannesburg Durban and Cape Town This informative session has an excellent line-up of speakers who will ensure that delegates are updated on

trending topics within the retirement and investment arena

DatesJohannesburg Wednesday 7 June 2017Durban Thursday 8 June 2017Cape Town Friday 9 June 2017

Times 0800 to 1615

65 Knowledge CPD points

FPI members R 1 690 Non-members R 2 060

CPD Points

Your Investment

Speakers and topics

SAs Retirement Landscape - How we measure globally and whether reform is neededIn this session Mike Schussler well-known economist will discuss how South Africa measures globally in terms of retirement and investment statistics and whether or not retirement reform is necessary within the South African context

Investment strategies for successful retirement planningThe majority of South Africans remain in their default fund choice with their company provided retirement fund Sydney Sekese CFPreg and member of the FPI Investment Competency Committee will discuss the benefit of a holistic view and investment strategy for retirement and how to manage your clientrsquos funds on their journey to retirement

A debate around life vs living annuities With the majority of retirees opting for living annuities in the current economic environment our panel of experts Craig Gradidge CFPreg Andrew Davison and Wouter Fourie CFPreg will debate why living annuities are not always in the best interest of your client and why so many retirees are so invested in these products

Regulation 28 and risk profilingAnton Swanepoel CFPreg introduced a whitepaper on risk profiling at the FPI Professionals Convention in 2016 In this discussion Anton and Bruce Fleming CFPreg will expand on the impact Regulation 28 has on risk profiling and whether the restrictions of Regulation 28 should be reviewed

The real (tax) benefits of retirement fundsProf Matthew Lester will have a topical presentation on the real benefits of retirement funds not only for the person saving for retirement but also for the South African and global economy Who to contactFor more details or to book for your seat contact the FPI events team on 011 470 6000 or email eventsfpicoza or visit wwwfpicozacpdevents

Page 2 OF 2

Qualification ExperienceB Com Honours in the following specialisation areasbull accounting or Financial accountingbull actuary actuarial sciencesbull auditingbull Bankingbull economicsbull Finance or Financial Managementbull Financial analysis and portfolio managementbull Financial taxation or Taxationbull generalbull International trade and financebull Investment Managementbull Monetary and Financial economics

10 years client facing financial planning related experience

Masters degrees in business and or finance related areas 10 years client facing financial planning related experience

Doctorate degrees in business and or finance related areas 10 years client facing financial planning related experience

While individuals may be highly qualified in a specialised area of financial practice it does not necessarily guarantee their success on the CFPreg Professional Competency Examination FPI could encourage candidates seeking to sit for the CFPreg Professional Competency Examination via challenge status to consider completing an examination review course or reviewing the currency and completeness of their education against the FPIrsquos Financial Planning Topic List Challenge status candidates may benefit from retaking courses or taking additional courses to improve currency and mastery of specific topic areas

The challenge exam will be exactly the same exam that the current candidates write as the Professional Competency examinationChallenge status exams are limited to two lifetime opportunities If the candidate is not successful in passing the exam it will become a requirement that the person must enrol at an FPI approved education Provider to complete the Postgraduate Diploma in Financial Planning or the B Com Honours in Financial Planning

How to apply to write the examIn order for any candidate to be considered for the CFPreg Professional Competency Challenge Status Examination they are required to submit

bull a motivational letter bull Certified copy of their identity document bull Certified copies of the qualifications which allow them access to the exam andbull Latest updated version of their Curriculum Vitae (CV)

Contact usIf you have any questions please feel free to contact our membership departmentOffice (011) 470-6000 or 086 1000 384 (FPI)email membershipfpicoza

22

FPI NEWS

Retirement and Investment One-day

Mini Convention

In June the FPI Centre of Professional Development will be hosting the third Retirement and Investment Mini Convention The event will be held in Johannesburg Durban and Cape Town This informative session has an excellent line-up of speakers who will ensure that delegates are updated on

trending topics within the retirement and investment arena

DatesJohannesburg Wednesday 7 June 2017Durban Thursday 8 June 2017Cape Town Friday 9 June 2017

Times 0800 to 1615

65 Knowledge CPD points

FPI members R 1 690 Non-members R 2 060

CPD Points

Your Investment

Speakers and topics

SAs Retirement Landscape - How we measure globally and whether reform is neededIn this session Mike Schussler well-known economist will discuss how South Africa measures globally in terms of retirement and investment statistics and whether or not retirement reform is necessary within the South African context

Investment strategies for successful retirement planningThe majority of South Africans remain in their default fund choice with their company provided retirement fund Sydney Sekese CFPreg and member of the FPI Investment Competency Committee will discuss the benefit of a holistic view and investment strategy for retirement and how to manage your clientrsquos funds on their journey to retirement

A debate around life vs living annuities With the majority of retirees opting for living annuities in the current economic environment our panel of experts Craig Gradidge CFPreg Andrew Davison and Wouter Fourie CFPreg will debate why living annuities are not always in the best interest of your client and why so many retirees are so invested in these products

Regulation 28 and risk profilingAnton Swanepoel CFPreg introduced a whitepaper on risk profiling at the FPI Professionals Convention in 2016 In this discussion Anton and Bruce Fleming CFPreg will expand on the impact Regulation 28 has on risk profiling and whether the restrictions of Regulation 28 should be reviewed

The real (tax) benefits of retirement fundsProf Matthew Lester will have a topical presentation on the real benefits of retirement funds not only for the person saving for retirement but also for the South African and global economy Who to contactFor more details or to book for your seat contact the FPI events team on 011 470 6000 or email eventsfpicoza or visit wwwfpicozacpdevents

22

FPI NEWS

Retirement and Investment One-day

Mini Convention

In June the FPI Centre of Professional Development will be hosting the third Retirement and Investment Mini Convention The event will be held in Johannesburg Durban and Cape Town This informative session has an excellent line-up of speakers who will ensure that delegates are updated on

trending topics within the retirement and investment arena

DatesJohannesburg Wednesday 7 June 2017Durban Thursday 8 June 2017Cape Town Friday 9 June 2017

Times 0800 to 1615

65 Knowledge CPD points

FPI members R 1 690 Non-members R 2 060

CPD Points

Your Investment

Speakers and topics

SAs Retirement Landscape - How we measure globally and whether reform is neededIn this session Mike Schussler well-known economist will discuss how South Africa measures globally in terms of retirement and investment statistics and whether or not retirement reform is necessary within the South African context

Investment strategies for successful retirement planningThe majority of South Africans remain in their default fund choice with their company provided retirement fund Sydney Sekese CFPreg and member of the FPI Investment Competency Committee will discuss the benefit of a holistic view and investment strategy for retirement and how to manage your clientrsquos funds on their journey to retirement

A debate around life vs living annuities With the majority of retirees opting for living annuities in the current economic environment our panel of experts Craig Gradidge CFPreg Andrew Davison and Wouter Fourie CFPreg will debate why living annuities are not always in the best interest of your client and why so many retirees are so invested in these products

Regulation 28 and risk profilingAnton Swanepoel CFPreg introduced a whitepaper on risk profiling at the FPI Professionals Convention in 2016 In this discussion Anton and Bruce Fleming CFPreg will expand on the impact Regulation 28 has on risk profiling and whether the restrictions of Regulation 28 should be reviewed

The real (tax) benefits of retirement fundsProf Matthew Lester will have a topical presentation on the real benefits of retirement funds not only for the person saving for retirement but also for the South African and global economy Who to contactFor more details or to book for your seat contact the FPI events team on 011 470 6000 or email eventsfpicoza or visit wwwfpicozacpdevents

Conventions

24

South Africanow above 30

Female CFPreg professionals in

The number of people who qualify as CERTIFIED FINANCIAL PLANNERreg professionals continues to grow in South Africa more and more women and black professionals are achieving this demanding designation

FPI NEWS

The number of women with a CFPreg designation was above 30 of the total number of CFPreg professionals in 2016 and now stands at 1 424 female CFPreg professionals in South Africa Also encouraging is the growth of 33 in the number of black financial planners who qualified as CFPreg professionals early in 2017 compared to the same period in 2016

As the profession becomes ever more demanding due to challenges delivered by market volatility and client expectations as well as continued changes to the regulatory environment the Financial Planning Institutersquos (FPI) membership analysis revealed thatbull Professionals between the ages of 40-49 remained

the largest number of professionals for the third year running This proves that the value of retaining the CFPreg designation is of importance even for experienced financial plannersadvisors and also shows dedication to deliver financial planning services of an exceptional standard

bull The second largest number of people that hold the CFPreg designation fall in the 50-59 age group followed by those between the ages of 30 and 39 Together this makes up 80 of the total CFPreg professional members in South Africa

With a 2016 year end figure of 4 660 CFPreg professionals South Africa is ranked at number six in the world in terms of the total number of CFPreg professionals This is according to a report issued by the Financial Planning Standards Board (FPSB) owner of the CERTIFIED FINANCIAL PLANNERreg certification programme outside the USA in February this year

ldquoThe Institute has a number of initiatives in place to encourage people to attain the CFPreg designation and it is pleased with the steady growth achieved in the past five years Although the profession remains dominated by white males these changes in demographics due to the growth in the number of women and black financial planners achieving the qualification is a positive step towards achieving our transformation strategyrdquo said Sherma Malan CFPreg Head Membership and Corporate Relations at FPI

ldquoMore importantly we also actively engage with higher education institutions to promote financial planning as a career among students Beyond building the profession the Institute has also stepped up plans to broaden its consumer education initiatives in 2017 such as theFPIMYMONEY123tradefinancialliteracyoutreachprogramme and other projectsrdquo Malan concluded

25

technicalfpicoza

Our technicalninjas arestanding by

FPI technical helpdesk

Are you in need of financial planningtechnical guidance and help on regulation matters

26

The demarcation boundaries between health insurance policies and medical schemes have been established National Treasury published the final Demarcation Regulations on 23 December 2016 in the Government Gazette The regulations are the outcome of an extensive

consultative process lasting several years between the Ministers of Finance and Health as well as the Council of Medical Schemes (CMS) the Financial Services Board (FSB) and affected stakeholders

The regulations specify what type of contracts are regulated under the LTIA and STIA as health policies and accident and health policies respectively and as a result are excluded from the Medical Schemes Act No131 of 1998 (MSA) despite such contracts meeting the definition of a medical scheme The purpose of the regulations is to clarify the responsibility for the supervision of medical schemes and health insurance products They also ensure that health insurance products do not undermine the social solidarity principles essential to medical schemes and therefore provide greater protection for the consumer

Demarcation Regulations

How will the final

affect you and your clients

Zoe Riley CFPreg FPI Healthcare Competency Committee Member

Anthea Towert CFPregFPI Healthcare Competency Committee Member

Marius de Jager CFPregFPI Healthcare Competency Committee Member

HEALTHCARE

Under the new regulations these policies are no longer allowed to continue Going forward they will be required to transition to Low Cost Benefit Options regulated by the Medical Schemes Act The Minister of Health has requested the CMS to grant a two year exemption to these polices

starting on 01 April 2017 while further research led by the Department develops

the LCBO guideline

HEALTHCARE

Three main health insurance product categories are affected by the regulations and include the following

1 Medical Expense Shortfall policies (Gap Cover products)These policies cover the shortfall between medical scheme benefits and the rates that private medical service providers may charge

11 Policy contract description111 Policy benefits are provided if a health event occurs that

was contemplated in the contract as a risk event This refers mainly to medical and surgical procedures and treatment performed in an in-hospital setting

112 The policy provides cover for the full or partial difference between the amount paid by a medical scheme (medical scheme tariff) and the total costs or expense of relevant healthcare expenses

12 Policy benefit limits121 Policy benefits include one or more sums of money122 Policy benefits may not exceed R150 000 per insured

person per year

28

2 Non-medical expense cover as a result of hospitalisation (Hospital Cash Plans) These policies pay out a stated benefit upon hospitalisation usually per day spent in hospital The stated benefit is unrelated to the actual cost of any medical service as it is aimed at covering incidental costs such as loss of income

21 Policy contract description211 Policy benefits are provided if a health event results in

hospitalisation and is considered to be a risk event under the policy

212 The policy covers non-medical expenses associated with hospitalisation

22 Policy benefit limits221 Policy benefits relate to a fixed amount and limited to a

maximum of R 3 000 per day in hospital or in the case off a lump sum an amount that does not exceed R20 000 per insured per year irrespective of the number of days hospitalised

222 Benefits become payable from day one of hospitalisation where hospitalisation is for a period of longer than three days

223 Benefits are only payable to the insured and not to the healthcare provider

HEALTHCARE

3 Primary healthcare insurance policiesThese policies provide limited medical service benefits often including general practitioner visits acute and chronic medication dentistry optometry and emergency medical care They are often aimed at employer groups or bargaining councils

Under the new regulations these policies are no longer allowed to continue Going forward they will be required to transition to Low Cost Benefit Options regulated by the Medical Schemes Act The Minister of Health has requested the CMS to grant a two year exemption to these polices starting on 01 April 2017 while further research led by the Department of Health develops the Low Cost Benefit Option (LCBO) guideline Once the LCBO framework is in place these policies will be required to transition

4Commissions and Underwriting conditions The new Regulations now impose a sliding scale on the commission payable for accident and health policies where if the monthly premium is more than R300 per month then the maximum commission payable reduces from 20 on a sliding scale to a maximum of 5 for premiums above R1 200 per month

Whilst insurers are required to underwrite these products on a group basis and may not discriminate based on age they can charge policyholders over a specific age category a higher premium Waiting periods very similar to those imposed by medical schemes may also be appliedbullGeneralwaitingperiodofuptothreemonthsandbullCondition-specificwaitingperiodofupto12months

Insurers also need to comply with certain marketing and disclosure requirements to ensure that consumers do not confuse these products with medical scheme benefits as well as to submit all details regarding their product offering and marketing material to the Registrar of Medical Schemes for approval

29

4 Effective date The Regulations come into effect on 01 April 2017 On this date all new health policies and accident and health policies written under the LTIA and STIA will need to comply with the requirements set out in the Regulations

Existing policies will be expected to align with the Regulations as to when such contracts are varied or renewed and by no later than 01 January 2018

5 ConclusionThe intention of the Regulations is to protect consumers from confusing health insurance products with the cover offered by medical schemes These policies are not able to cover the lionrsquos share of health care expenses but only supplement a fraction of the total costs often resulting in significant shortfalls for unsuspecting consumers By exempting Gap Cover products and Hospital Cash Plans the regulators acknowledge that these policies unlike Primary Healthcare policies complement medical scheme cover and provide an additional layer of protection against shortfalls for consumers

Of concern is the position taken by the regulators on the future role of Primary Healthcare insurance policies Whilst it is acknowledged that these products do not offer the same or similar protection to consumers as does medical scheme cover it is also widely accepted that the cost of medical scheme cover prohibits many low income earners from entering the system and exposes this category of consumers to significant risk

Industry stakeholders are generally sceptical as to whether the two year exemption period granted to these products will be used constructively by the Ministry of Health and the Regulator of Medical Schemes to finalise a LCBO framework to replace this category of health insurance A constitutional challenge of this piece of regulation should also not be discounted depending on progress made in over the next two years

INDUSTRY NEWS

A new and growing market for domestic advisors

InternationalEmployee Benefits

By Alf Mcknight CFPregSenior Manager International Pensions

The breakdown of traditional boundaries in commerce means corporations routinely operate ldquocross borderrdquo as an essential part of trade The same is true for the mobility of talent with more skilled people employed outside their country of birth than ever before1

With change comes opportunity and the employee benefit sector is no different The international employee benefit sector is opening up to South African firms and employees International financial solutions can be of significant advantage to both the employer and employee as they cater for the needs of corporates and individuals alike in a world where traditional boundaries and perceptions are disappearing

International employee benefitsA growing number of employees of the global brands that we know and love have benefited from international retirement and pension solutions for decades The role of international benefits solutions is cited by human resource directors as a fundamental tool in attracting and retaining talent2 South Africa is an observer of the OECD and our Constitution adopts international law as domestic law3

South Africarsquos Double Tax Agreements follow the OECD model which defines foreign pension provision4 and the South African Income Tax Act makes allowances for international pension provision SARS has issued guidance on this matter by way of binding rulings5

Residence based taxation sets several key principles that address cross boarder matters of individuals and international employment6

The culmination of these factors makes the use of an international employee a viable option

Client typesThe South African market can be divided into three key target markets each with their own reasons and advantages for utilising

international benefit solutionsa) The multinational These companies can be characterised as firms that

employ staff who are resident both inside and outside the borders of South Africa International staff may be employed via a foreign subsidiary branch or directly through the domestic South African entity

In most cases retirement benefits are provided through the South African system which is often unsuitable Retirement provision is in Rand which can expose the individual to currency risk For others the foreign salary is simply enhanced and the individual must cater for themselves Clearly neither of these solutions is ideal as the former results in these employees carrying unnecessary currency and investment risk and in the latter case they are burdened by additional tax because of their high income There is no protection in place or holding vehicle for such funds opening the individuals to financial risk during and after employment

b) Domestic employee The South African pension reforms of 2016 capped the tax deductibility of membersrsquo total contributions into domestic pension arrangements to R350K per annum For many this will make the South African retirement savings option less attractive This could result in individuals retaining a greater value of assets in their own name rather than in approved retirement plans without the protection that retirement plans provide in the event of a catastrophe such as insolvency

c) Agent based contract worker For agent based contract migrant workers employed under short term contracts in high-income sectors such as security oil and gas engineering shipping mining or airline industry retirement benefit provisions has historically been non-existent However many of these employees have their roots and families based in South Africa and they too require the financial security that pension provision provides This lack of benefit makes the need for financial advice especially prominent as these individuals require significant planning given their cross-boarder commitments

Although these market sectors have very different requirements the use of international employment benefits comes with a range of features that are applicable across all three scenarios enabling specific financial needs to be addressed

The following table captures these benefits at a high level to give some flavour to the application of such solutions to the lsquoSouth Africanrsquo individuals in these scenarios

30

INDUSTRY NEWS

The information in Table 1 is generic and serves to illustrate the kind of features and benefits that can be gained from international employee benefit solutions However these features and benefits may change dependant on the plan type objectives sought and specific legislation

Table 1 Benefits of International Pensions to Employees

Benefits to employersEmployee benefit packages have been used to attract and retain talent and surveys show that retirement solutions are one of the most sought after benefit by employees irrespective of their seniority2

Companies have realised that offering an international retirement solution to staff working cross border can retain key staff and help attract the scarce talents The flexibility inherent in international retirement plans removes the onus that currently resides with the Human Resources department and the individual to find a suitable international retirement solution that caters for cross border employment and global mobility It removes the complexities inherent in having non-tax resident individuals contributing back into a domestic South African retirement plan

Structure of employment solutionsInternational retirement solutions can vary in their design from pension

plans to deferred compensation funds gratuity plans and provident funds and can be structured either as umbrella or bespoke arrangements The plan can be designed around a range of flexible options covering investments membership vesting contributions retirement and end of service benefits whilst ensuring tax efficient succession and probate benefits They can be constructed in line with OECD rules and meet the requirements of foreign territories They cater equally well for companies who are expanding their businesses globally and for those companies who have existing multi-national footprints

Whilst territory dependant these arrangements can be underpinned by solid regulation and legislation with Guernsey being recognised as the leader in the provision of international employee benefit solutions and having the highest regulatory standards world-wide7 Surprisingly international retirement plans are relatively straight forward to set up where the provider is experienced and their processes and service level agreements support the efficient administration of such arrangements

Benefits to financial advisersFor domestic employees international plans provide a complimentary solution to domestic pensions The ability to build foreign wealth in hard currency with unrestricted investments can help clients achieve their financial objectives

Where the employee works outside of the borders of South Africa it is

clear that the international offer is a more efficient solution across a variety of factors including global access geo-political stability tax efficiency probate succession planning investment diversification and currency hedging

The adoption of international pensions will without doubt broaden the advice proposition and open opportunities to better service existing clients and attract new ones

ConclusionSouth African businesses and advisers are well placed to use international employee benefits solutions given the many changes that have taken place in the country and internationally Globalisation and the mobility of the workforce is opening commerce and as such companies need solutions to retain their own competitiveness as an employer and for the benefit of their employees

1 PWC Survey ldquoA Continent on The Move Global mobility in Africa February 2014rdquo2 Tower Watson International Pension Plan Survey Report 20153 South African Constitution CHAPTER 14 GENERAL PROVISIONS International Law 19964 Article 18 OECD Model Convention with Respect to Capital and Income 20145 South African Income Tax Act 59 1962 section 10(1)(gC)(ii) amp South African Revenue

Services BINDING GENERAL RULING (INCOME TAX) NO 25 DATE 14 November 20146 South African Institute of Tax Professionals Principles of Tax Residence 20127 IMF Review of Guernseyrsquos Regulatory Framework 2010

31

Multinational

32

gets industry recognition in 2016

FPI ApprovedProfessional Practicetrade

INDUSTRY NEWS

33

We find ourselves in an industry with no shortage of corporates and professional practices who offer an array of financial products and services So whenanFPIApprovedProfessionalPracticetradegetsrecognised for their contribution to the industry

the Financial Planning Institute of Southern Africa (FPI) stands proud

In2016fouroftheFPIApprovedProfessionalPracticetradefirmsweregiven accolades in various categories The awards received are both local industry honours as well as international accolades

Congratulations go out toAscor Ascor entered the International Best Practice Advisor Competition and won four of the top eight awardsbull ExcellenceinMarketingandCommunicationbull ExcellenceintheUseofTechnologybull ExcellenceinSocialMediaandbull BestAdvisorFirm

BDO BDO won two prestigious global awardsbull AcquisitionFinanceMagazineGlobalAwardsBestTax

Advisory Firm of the Year for Middle East and Africa 2016 andbull PayrollWorldAwardsInternationalPayrollProviderAwardfor

the 2nd year running

Gradidge-Mahura InvestmentsGradidge-Mahura Investments entered the Top Private Bank and Wealth Managers Survey and won second and third place in two categoriesbull SecondPlacePeoplersquosChoiceAwardsbull ThirdPlaceTopWealthManagerBoutiqueCategory

Private Client HoldingsPrivate Client Holdings also entered the International Best Practice Advisor Competition where they scooped up an award that speaks to a standard we hold in high regardbull ExcellenceinProfessionalDevelopment

We are so proud of the good work these organisations are doing in the industry and we celebrate their achievements with them

What is an FPI Approved Professional PracticetradeAnFPIApprovedProfessionalPracticetradestatusisawardedtosmallto medium independent financial services providers who share in our commitment to the greatest standards of financial planning and ethics

FPIApprovedProfessionalPracticetradefirmsareeasilyrecognisedby consumers as financial planning practices that subscribe to the highest levels of professionalism

TobecomeanFPIApprovedProfessionalPracticetradethecompanymust meet stringent criteria set by FPI Through meeting the criteria

these organisations demonstrate collaborative synergy a higher level of service and accountability in the marketSome of the criteria that must be met are

1 [At least] 50 of the organisationrsquos full time financial plannersadvisors must be CFPreg professionals

2 The practice must have a minimum of two full time financial plannersadvisors

3 An additional 25 of the practicersquos advisors must be on the learning pathway to obtaining their CFPreg designation or hold another designation with FPI

4 The practice must have a minimum of two key individuals who are also CFPreg professionals

5 The main business of the practice must be to give financial advice to clients following the Six Step Financial Planning Process

6 The practice must be willing to act as an FPI Mentorship Centre and must mentor at least one person every year

7 The practice must adhere to the FPI Code of Ethics and Practice Standards

Withonly13FPIApprovedProfessionalPracticetradefirmscountry-wide having the status places the company in a very niche community of like-minded professionals The community consists of well-known and respected practices that continuously strive to elevate the standard of financial planning not only to their clients but also to new practices entering the profession

FPI has a strong partnership with the following flagship brands listed in alphabetical order who have been awarded the FPI Approved ProfessionalPracticetradestatus

1 Absolut Wealth Management2 Ascor 3 BDO 4 Brenthurst Wealth Management5 Chartered Wealth Solutions6 Crue Invest (Pty) Ltd7 Efficient Advise8 Gradidge-Mahura Investments9 Independent Wealth Managers10 Netto Invest11 Private Client Holdings12 Quoin Wealth13 Southwood Financial Planning

When a financial planning practice partners with the Institute as anFPIApprovedProfessionalPracticetradetheirclientscantakecomfort in knowing that their business is aligned with a recognised professional body which has international affiliation with over 25 Financial Planning Standards Board (FPSB) member organisations which has the publicrsquos best interest at heart

If you want to find out more about becoming an FPI Approved ProfessionalPracticetradecalltheInstituteon(011)4706000oremailmembershipfpicoza or visit wwwfpicoza for more information

INDUSTRY NEWS

24

South Africanow above 30

Female CFPreg professionals in

The number of people who qualify as CERTIFIED FINANCIAL PLANNERreg professionals continues to grow in South Africa more and more women and black professionals are achieving this demanding designation

FPI NEWS

The number of women with a CFPreg designation was above 30 of the total number of CFPreg professionals in 2016 and now stands at 1 424 female CFPreg professionals in South Africa Also encouraging is the growth of 33 in the number of black financial planners who qualified as CFPreg professionals early in 2017 compared to the same period in 2016

As the profession becomes ever more demanding due to challenges delivered by market volatility and client expectations as well as continued changes to the regulatory environment the Financial Planning Institutersquos (FPI) membership analysis revealed thatbull Professionals between the ages of 40-49 remained

the largest number of professionals for the third year running This proves that the value of retaining the CFPreg designation is of importance even for experienced financial plannersadvisors and also shows dedication to deliver financial planning services of an exceptional standard

bull The second largest number of people that hold the CFPreg designation fall in the 50-59 age group followed by those between the ages of 30 and 39 Together this makes up 80 of the total CFPreg professional members in South Africa

With a 2016 year end figure of 4 660 CFPreg professionals South Africa is ranked at number six in the world in terms of the total number of CFPreg professionals This is according to a report issued by the Financial Planning Standards Board (FPSB) owner of the CERTIFIED FINANCIAL PLANNERreg certification programme outside the USA in February this year

ldquoThe Institute has a number of initiatives in place to encourage people to attain the CFPreg designation and it is pleased with the steady growth achieved in the past five years Although the profession remains dominated by white males these changes in demographics due to the growth in the number of women and black financial planners achieving the qualification is a positive step towards achieving our transformation strategyrdquo said Sherma Malan CFPreg Head Membership and Corporate Relations at FPI

ldquoMore importantly we also actively engage with higher education institutions to promote financial planning as a career among students Beyond building the profession the Institute has also stepped up plans to broaden its consumer education initiatives in 2017 such as theFPIMYMONEY123tradefinancialliteracyoutreachprogramme and other projectsrdquo Malan concluded

25

technicalfpicoza

Our technicalninjas arestanding by

FPI technical helpdesk

Are you in need of financial planningtechnical guidance and help on regulation matters

26

The demarcation boundaries between health insurance policies and medical schemes have been established National Treasury published the final Demarcation Regulations on 23 December 2016 in the Government Gazette The regulations are the outcome of an extensive

consultative process lasting several years between the Ministers of Finance and Health as well as the Council of Medical Schemes (CMS) the Financial Services Board (FSB) and affected stakeholders

The regulations specify what type of contracts are regulated under the LTIA and STIA as health policies and accident and health policies respectively and as a result are excluded from the Medical Schemes Act No131 of 1998 (MSA) despite such contracts meeting the definition of a medical scheme The purpose of the regulations is to clarify the responsibility for the supervision of medical schemes and health insurance products They also ensure that health insurance products do not undermine the social solidarity principles essential to medical schemes and therefore provide greater protection for the consumer

Demarcation Regulations

How will the final

affect you and your clients

Zoe Riley CFPreg FPI Healthcare Competency Committee Member

Anthea Towert CFPregFPI Healthcare Competency Committee Member

Marius de Jager CFPregFPI Healthcare Competency Committee Member

HEALTHCARE

Under the new regulations these policies are no longer allowed to continue Going forward they will be required to transition to Low Cost Benefit Options regulated by the Medical Schemes Act The Minister of Health has requested the CMS to grant a two year exemption to these polices

starting on 01 April 2017 while further research led by the Department develops

the LCBO guideline

HEALTHCARE

Three main health insurance product categories are affected by the regulations and include the following

1 Medical Expense Shortfall policies (Gap Cover products)These policies cover the shortfall between medical scheme benefits and the rates that private medical service providers may charge

11 Policy contract description111 Policy benefits are provided if a health event occurs that

was contemplated in the contract as a risk event This refers mainly to medical and surgical procedures and treatment performed in an in-hospital setting

112 The policy provides cover for the full or partial difference between the amount paid by a medical scheme (medical scheme tariff) and the total costs or expense of relevant healthcare expenses

12 Policy benefit limits121 Policy benefits include one or more sums of money122 Policy benefits may not exceed R150 000 per insured

person per year

28

2 Non-medical expense cover as a result of hospitalisation (Hospital Cash Plans) These policies pay out a stated benefit upon hospitalisation usually per day spent in hospital The stated benefit is unrelated to the actual cost of any medical service as it is aimed at covering incidental costs such as loss of income

21 Policy contract description211 Policy benefits are provided if a health event results in

hospitalisation and is considered to be a risk event under the policy

212 The policy covers non-medical expenses associated with hospitalisation

22 Policy benefit limits221 Policy benefits relate to a fixed amount and limited to a

maximum of R 3 000 per day in hospital or in the case off a lump sum an amount that does not exceed R20 000 per insured per year irrespective of the number of days hospitalised

222 Benefits become payable from day one of hospitalisation where hospitalisation is for a period of longer than three days

223 Benefits are only payable to the insured and not to the healthcare provider

HEALTHCARE

3 Primary healthcare insurance policiesThese policies provide limited medical service benefits often including general practitioner visits acute and chronic medication dentistry optometry and emergency medical care They are often aimed at employer groups or bargaining councils

Under the new regulations these policies are no longer allowed to continue Going forward they will be required to transition to Low Cost Benefit Options regulated by the Medical Schemes Act The Minister of Health has requested the CMS to grant a two year exemption to these polices starting on 01 April 2017 while further research led by the Department of Health develops the Low Cost Benefit Option (LCBO) guideline Once the LCBO framework is in place these policies will be required to transition

4Commissions and Underwriting conditions The new Regulations now impose a sliding scale on the commission payable for accident and health policies where if the monthly premium is more than R300 per month then the maximum commission payable reduces from 20 on a sliding scale to a maximum of 5 for premiums above R1 200 per month

Whilst insurers are required to underwrite these products on a group basis and may not discriminate based on age they can charge policyholders over a specific age category a higher premium Waiting periods very similar to those imposed by medical schemes may also be appliedbullGeneralwaitingperiodofuptothreemonthsandbullCondition-specificwaitingperiodofupto12months

Insurers also need to comply with certain marketing and disclosure requirements to ensure that consumers do not confuse these products with medical scheme benefits as well as to submit all details regarding their product offering and marketing material to the Registrar of Medical Schemes for approval

29

4 Effective date The Regulations come into effect on 01 April 2017 On this date all new health policies and accident and health policies written under the LTIA and STIA will need to comply with the requirements set out in the Regulations

Existing policies will be expected to align with the Regulations as to when such contracts are varied or renewed and by no later than 01 January 2018

5 ConclusionThe intention of the Regulations is to protect consumers from confusing health insurance products with the cover offered by medical schemes These policies are not able to cover the lionrsquos share of health care expenses but only supplement a fraction of the total costs often resulting in significant shortfalls for unsuspecting consumers By exempting Gap Cover products and Hospital Cash Plans the regulators acknowledge that these policies unlike Primary Healthcare policies complement medical scheme cover and provide an additional layer of protection against shortfalls for consumers

Of concern is the position taken by the regulators on the future role of Primary Healthcare insurance policies Whilst it is acknowledged that these products do not offer the same or similar protection to consumers as does medical scheme cover it is also widely accepted that the cost of medical scheme cover prohibits many low income earners from entering the system and exposes this category of consumers to significant risk

Industry stakeholders are generally sceptical as to whether the two year exemption period granted to these products will be used constructively by the Ministry of Health and the Regulator of Medical Schemes to finalise a LCBO framework to replace this category of health insurance A constitutional challenge of this piece of regulation should also not be discounted depending on progress made in over the next two years

INDUSTRY NEWS

A new and growing market for domestic advisors

InternationalEmployee Benefits

By Alf Mcknight CFPregSenior Manager International Pensions

The breakdown of traditional boundaries in commerce means corporations routinely operate ldquocross borderrdquo as an essential part of trade The same is true for the mobility of talent with more skilled people employed outside their country of birth than ever before1

With change comes opportunity and the employee benefit sector is no different The international employee benefit sector is opening up to South African firms and employees International financial solutions can be of significant advantage to both the employer and employee as they cater for the needs of corporates and individuals alike in a world where traditional boundaries and perceptions are disappearing

International employee benefitsA growing number of employees of the global brands that we know and love have benefited from international retirement and pension solutions for decades The role of international benefits solutions is cited by human resource directors as a fundamental tool in attracting and retaining talent2 South Africa is an observer of the OECD and our Constitution adopts international law as domestic law3

South Africarsquos Double Tax Agreements follow the OECD model which defines foreign pension provision4 and the South African Income Tax Act makes allowances for international pension provision SARS has issued guidance on this matter by way of binding rulings5

Residence based taxation sets several key principles that address cross boarder matters of individuals and international employment6

The culmination of these factors makes the use of an international employee a viable option

Client typesThe South African market can be divided into three key target markets each with their own reasons and advantages for utilising

international benefit solutionsa) The multinational These companies can be characterised as firms that

employ staff who are resident both inside and outside the borders of South Africa International staff may be employed via a foreign subsidiary branch or directly through the domestic South African entity

In most cases retirement benefits are provided through the South African system which is often unsuitable Retirement provision is in Rand which can expose the individual to currency risk For others the foreign salary is simply enhanced and the individual must cater for themselves Clearly neither of these solutions is ideal as the former results in these employees carrying unnecessary currency and investment risk and in the latter case they are burdened by additional tax because of their high income There is no protection in place or holding vehicle for such funds opening the individuals to financial risk during and after employment

b) Domestic employee The South African pension reforms of 2016 capped the tax deductibility of membersrsquo total contributions into domestic pension arrangements to R350K per annum For many this will make the South African retirement savings option less attractive This could result in individuals retaining a greater value of assets in their own name rather than in approved retirement plans without the protection that retirement plans provide in the event of a catastrophe such as insolvency

c) Agent based contract worker For agent based contract migrant workers employed under short term contracts in high-income sectors such as security oil and gas engineering shipping mining or airline industry retirement benefit provisions has historically been non-existent However many of these employees have their roots and families based in South Africa and they too require the financial security that pension provision provides This lack of benefit makes the need for financial advice especially prominent as these individuals require significant planning given their cross-boarder commitments

Although these market sectors have very different requirements the use of international employment benefits comes with a range of features that are applicable across all three scenarios enabling specific financial needs to be addressed

The following table captures these benefits at a high level to give some flavour to the application of such solutions to the lsquoSouth Africanrsquo individuals in these scenarios

30

INDUSTRY NEWS

The information in Table 1 is generic and serves to illustrate the kind of features and benefits that can be gained from international employee benefit solutions However these features and benefits may change dependant on the plan type objectives sought and specific legislation

Table 1 Benefits of International Pensions to Employees

Benefits to employersEmployee benefit packages have been used to attract and retain talent and surveys show that retirement solutions are one of the most sought after benefit by employees irrespective of their seniority2

Companies have realised that offering an international retirement solution to staff working cross border can retain key staff and help attract the scarce talents The flexibility inherent in international retirement plans removes the onus that currently resides with the Human Resources department and the individual to find a suitable international retirement solution that caters for cross border employment and global mobility It removes the complexities inherent in having non-tax resident individuals contributing back into a domestic South African retirement plan

Structure of employment solutionsInternational retirement solutions can vary in their design from pension

plans to deferred compensation funds gratuity plans and provident funds and can be structured either as umbrella or bespoke arrangements The plan can be designed around a range of flexible options covering investments membership vesting contributions retirement and end of service benefits whilst ensuring tax efficient succession and probate benefits They can be constructed in line with OECD rules and meet the requirements of foreign territories They cater equally well for companies who are expanding their businesses globally and for those companies who have existing multi-national footprints

Whilst territory dependant these arrangements can be underpinned by solid regulation and legislation with Guernsey being recognised as the leader in the provision of international employee benefit solutions and having the highest regulatory standards world-wide7 Surprisingly international retirement plans are relatively straight forward to set up where the provider is experienced and their processes and service level agreements support the efficient administration of such arrangements

Benefits to financial advisersFor domestic employees international plans provide a complimentary solution to domestic pensions The ability to build foreign wealth in hard currency with unrestricted investments can help clients achieve their financial objectives

Where the employee works outside of the borders of South Africa it is

clear that the international offer is a more efficient solution across a variety of factors including global access geo-political stability tax efficiency probate succession planning investment diversification and currency hedging

The adoption of international pensions will without doubt broaden the advice proposition and open opportunities to better service existing clients and attract new ones

ConclusionSouth African businesses and advisers are well placed to use international employee benefits solutions given the many changes that have taken place in the country and internationally Globalisation and the mobility of the workforce is opening commerce and as such companies need solutions to retain their own competitiveness as an employer and for the benefit of their employees

1 PWC Survey ldquoA Continent on The Move Global mobility in Africa February 2014rdquo2 Tower Watson International Pension Plan Survey Report 20153 South African Constitution CHAPTER 14 GENERAL PROVISIONS International Law 19964 Article 18 OECD Model Convention with Respect to Capital and Income 20145 South African Income Tax Act 59 1962 section 10(1)(gC)(ii) amp South African Revenue

Services BINDING GENERAL RULING (INCOME TAX) NO 25 DATE 14 November 20146 South African Institute of Tax Professionals Principles of Tax Residence 20127 IMF Review of Guernseyrsquos Regulatory Framework 2010

31

Multinational

32

gets industry recognition in 2016

FPI ApprovedProfessional Practicetrade

INDUSTRY NEWS

33

We find ourselves in an industry with no shortage of corporates and professional practices who offer an array of financial products and services So whenanFPIApprovedProfessionalPracticetradegetsrecognised for their contribution to the industry

the Financial Planning Institute of Southern Africa (FPI) stands proud

In2016fouroftheFPIApprovedProfessionalPracticetradefirmsweregiven accolades in various categories The awards received are both local industry honours as well as international accolades

Congratulations go out toAscor Ascor entered the International Best Practice Advisor Competition and won four of the top eight awardsbull ExcellenceinMarketingandCommunicationbull ExcellenceintheUseofTechnologybull ExcellenceinSocialMediaandbull BestAdvisorFirm

BDO BDO won two prestigious global awardsbull AcquisitionFinanceMagazineGlobalAwardsBestTax

Advisory Firm of the Year for Middle East and Africa 2016 andbull PayrollWorldAwardsInternationalPayrollProviderAwardfor

the 2nd year running

Gradidge-Mahura InvestmentsGradidge-Mahura Investments entered the Top Private Bank and Wealth Managers Survey and won second and third place in two categoriesbull SecondPlacePeoplersquosChoiceAwardsbull ThirdPlaceTopWealthManagerBoutiqueCategory

Private Client HoldingsPrivate Client Holdings also entered the International Best Practice Advisor Competition where they scooped up an award that speaks to a standard we hold in high regardbull ExcellenceinProfessionalDevelopment

We are so proud of the good work these organisations are doing in the industry and we celebrate their achievements with them

What is an FPI Approved Professional PracticetradeAnFPIApprovedProfessionalPracticetradestatusisawardedtosmallto medium independent financial services providers who share in our commitment to the greatest standards of financial planning and ethics

FPIApprovedProfessionalPracticetradefirmsareeasilyrecognisedby consumers as financial planning practices that subscribe to the highest levels of professionalism

TobecomeanFPIApprovedProfessionalPracticetradethecompanymust meet stringent criteria set by FPI Through meeting the criteria

these organisations demonstrate collaborative synergy a higher level of service and accountability in the marketSome of the criteria that must be met are

1 [At least] 50 of the organisationrsquos full time financial plannersadvisors must be CFPreg professionals

2 The practice must have a minimum of two full time financial plannersadvisors

3 An additional 25 of the practicersquos advisors must be on the learning pathway to obtaining their CFPreg designation or hold another designation with FPI

4 The practice must have a minimum of two key individuals who are also CFPreg professionals

5 The main business of the practice must be to give financial advice to clients following the Six Step Financial Planning Process

6 The practice must be willing to act as an FPI Mentorship Centre and must mentor at least one person every year

7 The practice must adhere to the FPI Code of Ethics and Practice Standards

Withonly13FPIApprovedProfessionalPracticetradefirmscountry-wide having the status places the company in a very niche community of like-minded professionals The community consists of well-known and respected practices that continuously strive to elevate the standard of financial planning not only to their clients but also to new practices entering the profession

FPI has a strong partnership with the following flagship brands listed in alphabetical order who have been awarded the FPI Approved ProfessionalPracticetradestatus

1 Absolut Wealth Management2 Ascor 3 BDO 4 Brenthurst Wealth Management5 Chartered Wealth Solutions6 Crue Invest (Pty) Ltd7 Efficient Advise8 Gradidge-Mahura Investments9 Independent Wealth Managers10 Netto Invest11 Private Client Holdings12 Quoin Wealth13 Southwood Financial Planning

When a financial planning practice partners with the Institute as anFPIApprovedProfessionalPracticetradetheirclientscantakecomfort in knowing that their business is aligned with a recognised professional body which has international affiliation with over 25 Financial Planning Standards Board (FPSB) member organisations which has the publicrsquos best interest at heart

If you want to find out more about becoming an FPI Approved ProfessionalPracticetradecalltheInstituteon(011)4706000oremailmembershipfpicoza or visit wwwfpicoza for more information

INDUSTRY NEWS

25

technicalfpicoza

Our technicalninjas arestanding by

FPI technical helpdesk

Are you in need of financial planningtechnical guidance and help on regulation matters

26

The demarcation boundaries between health insurance policies and medical schemes have been established National Treasury published the final Demarcation Regulations on 23 December 2016 in the Government Gazette The regulations are the outcome of an extensive

consultative process lasting several years between the Ministers of Finance and Health as well as the Council of Medical Schemes (CMS) the Financial Services Board (FSB) and affected stakeholders

The regulations specify what type of contracts are regulated under the LTIA and STIA as health policies and accident and health policies respectively and as a result are excluded from the Medical Schemes Act No131 of 1998 (MSA) despite such contracts meeting the definition of a medical scheme The purpose of the regulations is to clarify the responsibility for the supervision of medical schemes and health insurance products They also ensure that health insurance products do not undermine the social solidarity principles essential to medical schemes and therefore provide greater protection for the consumer

Demarcation Regulations

How will the final

affect you and your clients

Zoe Riley CFPreg FPI Healthcare Competency Committee Member

Anthea Towert CFPregFPI Healthcare Competency Committee Member

Marius de Jager CFPregFPI Healthcare Competency Committee Member

HEALTHCARE

Under the new regulations these policies are no longer allowed to continue Going forward they will be required to transition to Low Cost Benefit Options regulated by the Medical Schemes Act The Minister of Health has requested the CMS to grant a two year exemption to these polices

starting on 01 April 2017 while further research led by the Department develops

the LCBO guideline

HEALTHCARE

Three main health insurance product categories are affected by the regulations and include the following

1 Medical Expense Shortfall policies (Gap Cover products)These policies cover the shortfall between medical scheme benefits and the rates that private medical service providers may charge

11 Policy contract description111 Policy benefits are provided if a health event occurs that

was contemplated in the contract as a risk event This refers mainly to medical and surgical procedures and treatment performed in an in-hospital setting

112 The policy provides cover for the full or partial difference between the amount paid by a medical scheme (medical scheme tariff) and the total costs or expense of relevant healthcare expenses

12 Policy benefit limits121 Policy benefits include one or more sums of money122 Policy benefits may not exceed R150 000 per insured

person per year

28

2 Non-medical expense cover as a result of hospitalisation (Hospital Cash Plans) These policies pay out a stated benefit upon hospitalisation usually per day spent in hospital The stated benefit is unrelated to the actual cost of any medical service as it is aimed at covering incidental costs such as loss of income

21 Policy contract description211 Policy benefits are provided if a health event results in

hospitalisation and is considered to be a risk event under the policy

212 The policy covers non-medical expenses associated with hospitalisation

22 Policy benefit limits221 Policy benefits relate to a fixed amount and limited to a

maximum of R 3 000 per day in hospital or in the case off a lump sum an amount that does not exceed R20 000 per insured per year irrespective of the number of days hospitalised

222 Benefits become payable from day one of hospitalisation where hospitalisation is for a period of longer than three days

223 Benefits are only payable to the insured and not to the healthcare provider

HEALTHCARE

3 Primary healthcare insurance policiesThese policies provide limited medical service benefits often including general practitioner visits acute and chronic medication dentistry optometry and emergency medical care They are often aimed at employer groups or bargaining councils

Under the new regulations these policies are no longer allowed to continue Going forward they will be required to transition to Low Cost Benefit Options regulated by the Medical Schemes Act The Minister of Health has requested the CMS to grant a two year exemption to these polices starting on 01 April 2017 while further research led by the Department of Health develops the Low Cost Benefit Option (LCBO) guideline Once the LCBO framework is in place these policies will be required to transition

4Commissions and Underwriting conditions The new Regulations now impose a sliding scale on the commission payable for accident and health policies where if the monthly premium is more than R300 per month then the maximum commission payable reduces from 20 on a sliding scale to a maximum of 5 for premiums above R1 200 per month

Whilst insurers are required to underwrite these products on a group basis and may not discriminate based on age they can charge policyholders over a specific age category a higher premium Waiting periods very similar to those imposed by medical schemes may also be appliedbullGeneralwaitingperiodofuptothreemonthsandbullCondition-specificwaitingperiodofupto12months

Insurers also need to comply with certain marketing and disclosure requirements to ensure that consumers do not confuse these products with medical scheme benefits as well as to submit all details regarding their product offering and marketing material to the Registrar of Medical Schemes for approval

29

4 Effective date The Regulations come into effect on 01 April 2017 On this date all new health policies and accident and health policies written under the LTIA and STIA will need to comply with the requirements set out in the Regulations

Existing policies will be expected to align with the Regulations as to when such contracts are varied or renewed and by no later than 01 January 2018

5 ConclusionThe intention of the Regulations is to protect consumers from confusing health insurance products with the cover offered by medical schemes These policies are not able to cover the lionrsquos share of health care expenses but only supplement a fraction of the total costs often resulting in significant shortfalls for unsuspecting consumers By exempting Gap Cover products and Hospital Cash Plans the regulators acknowledge that these policies unlike Primary Healthcare policies complement medical scheme cover and provide an additional layer of protection against shortfalls for consumers

Of concern is the position taken by the regulators on the future role of Primary Healthcare insurance policies Whilst it is acknowledged that these products do not offer the same or similar protection to consumers as does medical scheme cover it is also widely accepted that the cost of medical scheme cover prohibits many low income earners from entering the system and exposes this category of consumers to significant risk

Industry stakeholders are generally sceptical as to whether the two year exemption period granted to these products will be used constructively by the Ministry of Health and the Regulator of Medical Schemes to finalise a LCBO framework to replace this category of health insurance A constitutional challenge of this piece of regulation should also not be discounted depending on progress made in over the next two years

INDUSTRY NEWS

A new and growing market for domestic advisors

InternationalEmployee Benefits

By Alf Mcknight CFPregSenior Manager International Pensions

The breakdown of traditional boundaries in commerce means corporations routinely operate ldquocross borderrdquo as an essential part of trade The same is true for the mobility of talent with more skilled people employed outside their country of birth than ever before1

With change comes opportunity and the employee benefit sector is no different The international employee benefit sector is opening up to South African firms and employees International financial solutions can be of significant advantage to both the employer and employee as they cater for the needs of corporates and individuals alike in a world where traditional boundaries and perceptions are disappearing

International employee benefitsA growing number of employees of the global brands that we know and love have benefited from international retirement and pension solutions for decades The role of international benefits solutions is cited by human resource directors as a fundamental tool in attracting and retaining talent2 South Africa is an observer of the OECD and our Constitution adopts international law as domestic law3

South Africarsquos Double Tax Agreements follow the OECD model which defines foreign pension provision4 and the South African Income Tax Act makes allowances for international pension provision SARS has issued guidance on this matter by way of binding rulings5

Residence based taxation sets several key principles that address cross boarder matters of individuals and international employment6

The culmination of these factors makes the use of an international employee a viable option

Client typesThe South African market can be divided into three key target markets each with their own reasons and advantages for utilising

international benefit solutionsa) The multinational These companies can be characterised as firms that

employ staff who are resident both inside and outside the borders of South Africa International staff may be employed via a foreign subsidiary branch or directly through the domestic South African entity

In most cases retirement benefits are provided through the South African system which is often unsuitable Retirement provision is in Rand which can expose the individual to currency risk For others the foreign salary is simply enhanced and the individual must cater for themselves Clearly neither of these solutions is ideal as the former results in these employees carrying unnecessary currency and investment risk and in the latter case they are burdened by additional tax because of their high income There is no protection in place or holding vehicle for such funds opening the individuals to financial risk during and after employment

b) Domestic employee The South African pension reforms of 2016 capped the tax deductibility of membersrsquo total contributions into domestic pension arrangements to R350K per annum For many this will make the South African retirement savings option less attractive This could result in individuals retaining a greater value of assets in their own name rather than in approved retirement plans without the protection that retirement plans provide in the event of a catastrophe such as insolvency

c) Agent based contract worker For agent based contract migrant workers employed under short term contracts in high-income sectors such as security oil and gas engineering shipping mining or airline industry retirement benefit provisions has historically been non-existent However many of these employees have their roots and families based in South Africa and they too require the financial security that pension provision provides This lack of benefit makes the need for financial advice especially prominent as these individuals require significant planning given their cross-boarder commitments

Although these market sectors have very different requirements the use of international employment benefits comes with a range of features that are applicable across all three scenarios enabling specific financial needs to be addressed

The following table captures these benefits at a high level to give some flavour to the application of such solutions to the lsquoSouth Africanrsquo individuals in these scenarios

30

INDUSTRY NEWS

The information in Table 1 is generic and serves to illustrate the kind of features and benefits that can be gained from international employee benefit solutions However these features and benefits may change dependant on the plan type objectives sought and specific legislation

Table 1 Benefits of International Pensions to Employees

Benefits to employersEmployee benefit packages have been used to attract and retain talent and surveys show that retirement solutions are one of the most sought after benefit by employees irrespective of their seniority2

Companies have realised that offering an international retirement solution to staff working cross border can retain key staff and help attract the scarce talents The flexibility inherent in international retirement plans removes the onus that currently resides with the Human Resources department and the individual to find a suitable international retirement solution that caters for cross border employment and global mobility It removes the complexities inherent in having non-tax resident individuals contributing back into a domestic South African retirement plan

Structure of employment solutionsInternational retirement solutions can vary in their design from pension

plans to deferred compensation funds gratuity plans and provident funds and can be structured either as umbrella or bespoke arrangements The plan can be designed around a range of flexible options covering investments membership vesting contributions retirement and end of service benefits whilst ensuring tax efficient succession and probate benefits They can be constructed in line with OECD rules and meet the requirements of foreign territories They cater equally well for companies who are expanding their businesses globally and for those companies who have existing multi-national footprints

Whilst territory dependant these arrangements can be underpinned by solid regulation and legislation with Guernsey being recognised as the leader in the provision of international employee benefit solutions and having the highest regulatory standards world-wide7 Surprisingly international retirement plans are relatively straight forward to set up where the provider is experienced and their processes and service level agreements support the efficient administration of such arrangements

Benefits to financial advisersFor domestic employees international plans provide a complimentary solution to domestic pensions The ability to build foreign wealth in hard currency with unrestricted investments can help clients achieve their financial objectives

Where the employee works outside of the borders of South Africa it is

clear that the international offer is a more efficient solution across a variety of factors including global access geo-political stability tax efficiency probate succession planning investment diversification and currency hedging

The adoption of international pensions will without doubt broaden the advice proposition and open opportunities to better service existing clients and attract new ones

ConclusionSouth African businesses and advisers are well placed to use international employee benefits solutions given the many changes that have taken place in the country and internationally Globalisation and the mobility of the workforce is opening commerce and as such companies need solutions to retain their own competitiveness as an employer and for the benefit of their employees

1 PWC Survey ldquoA Continent on The Move Global mobility in Africa February 2014rdquo2 Tower Watson International Pension Plan Survey Report 20153 South African Constitution CHAPTER 14 GENERAL PROVISIONS International Law 19964 Article 18 OECD Model Convention with Respect to Capital and Income 20145 South African Income Tax Act 59 1962 section 10(1)(gC)(ii) amp South African Revenue

Services BINDING GENERAL RULING (INCOME TAX) NO 25 DATE 14 November 20146 South African Institute of Tax Professionals Principles of Tax Residence 20127 IMF Review of Guernseyrsquos Regulatory Framework 2010

31

Multinational

32

gets industry recognition in 2016

FPI ApprovedProfessional Practicetrade

INDUSTRY NEWS

33

We find ourselves in an industry with no shortage of corporates and professional practices who offer an array of financial products and services So whenanFPIApprovedProfessionalPracticetradegetsrecognised for their contribution to the industry

the Financial Planning Institute of Southern Africa (FPI) stands proud

In2016fouroftheFPIApprovedProfessionalPracticetradefirmsweregiven accolades in various categories The awards received are both local industry honours as well as international accolades

Congratulations go out toAscor Ascor entered the International Best Practice Advisor Competition and won four of the top eight awardsbull ExcellenceinMarketingandCommunicationbull ExcellenceintheUseofTechnologybull ExcellenceinSocialMediaandbull BestAdvisorFirm

BDO BDO won two prestigious global awardsbull AcquisitionFinanceMagazineGlobalAwardsBestTax

Advisory Firm of the Year for Middle East and Africa 2016 andbull PayrollWorldAwardsInternationalPayrollProviderAwardfor

the 2nd year running

Gradidge-Mahura InvestmentsGradidge-Mahura Investments entered the Top Private Bank and Wealth Managers Survey and won second and third place in two categoriesbull SecondPlacePeoplersquosChoiceAwardsbull ThirdPlaceTopWealthManagerBoutiqueCategory

Private Client HoldingsPrivate Client Holdings also entered the International Best Practice Advisor Competition where they scooped up an award that speaks to a standard we hold in high regardbull ExcellenceinProfessionalDevelopment

We are so proud of the good work these organisations are doing in the industry and we celebrate their achievements with them

What is an FPI Approved Professional PracticetradeAnFPIApprovedProfessionalPracticetradestatusisawardedtosmallto medium independent financial services providers who share in our commitment to the greatest standards of financial planning and ethics

FPIApprovedProfessionalPracticetradefirmsareeasilyrecognisedby consumers as financial planning practices that subscribe to the highest levels of professionalism

TobecomeanFPIApprovedProfessionalPracticetradethecompanymust meet stringent criteria set by FPI Through meeting the criteria

these organisations demonstrate collaborative synergy a higher level of service and accountability in the marketSome of the criteria that must be met are

1 [At least] 50 of the organisationrsquos full time financial plannersadvisors must be CFPreg professionals

2 The practice must have a minimum of two full time financial plannersadvisors

3 An additional 25 of the practicersquos advisors must be on the learning pathway to obtaining their CFPreg designation or hold another designation with FPI

4 The practice must have a minimum of two key individuals who are also CFPreg professionals

5 The main business of the practice must be to give financial advice to clients following the Six Step Financial Planning Process

6 The practice must be willing to act as an FPI Mentorship Centre and must mentor at least one person every year

7 The practice must adhere to the FPI Code of Ethics and Practice Standards

Withonly13FPIApprovedProfessionalPracticetradefirmscountry-wide having the status places the company in a very niche community of like-minded professionals The community consists of well-known and respected practices that continuously strive to elevate the standard of financial planning not only to their clients but also to new practices entering the profession

FPI has a strong partnership with the following flagship brands listed in alphabetical order who have been awarded the FPI Approved ProfessionalPracticetradestatus

1 Absolut Wealth Management2 Ascor 3 BDO 4 Brenthurst Wealth Management5 Chartered Wealth Solutions6 Crue Invest (Pty) Ltd7 Efficient Advise8 Gradidge-Mahura Investments9 Independent Wealth Managers10 Netto Invest11 Private Client Holdings12 Quoin Wealth13 Southwood Financial Planning

When a financial planning practice partners with the Institute as anFPIApprovedProfessionalPracticetradetheirclientscantakecomfort in knowing that their business is aligned with a recognised professional body which has international affiliation with over 25 Financial Planning Standards Board (FPSB) member organisations which has the publicrsquos best interest at heart

If you want to find out more about becoming an FPI Approved ProfessionalPracticetradecalltheInstituteon(011)4706000oremailmembershipfpicoza or visit wwwfpicoza for more information

INDUSTRY NEWS

26

The demarcation boundaries between health insurance policies and medical schemes have been established National Treasury published the final Demarcation Regulations on 23 December 2016 in the Government Gazette The regulations are the outcome of an extensive

consultative process lasting several years between the Ministers of Finance and Health as well as the Council of Medical Schemes (CMS) the Financial Services Board (FSB) and affected stakeholders

The regulations specify what type of contracts are regulated under the LTIA and STIA as health policies and accident and health policies respectively and as a result are excluded from the Medical Schemes Act No131 of 1998 (MSA) despite such contracts meeting the definition of a medical scheme The purpose of the regulations is to clarify the responsibility for the supervision of medical schemes and health insurance products They also ensure that health insurance products do not undermine the social solidarity principles essential to medical schemes and therefore provide greater protection for the consumer

Demarcation Regulations

How will the final

affect you and your clients

Zoe Riley CFPreg FPI Healthcare Competency Committee Member

Anthea Towert CFPregFPI Healthcare Competency Committee Member

Marius de Jager CFPregFPI Healthcare Competency Committee Member

HEALTHCARE

Under the new regulations these policies are no longer allowed to continue Going forward they will be required to transition to Low Cost Benefit Options regulated by the Medical Schemes Act The Minister of Health has requested the CMS to grant a two year exemption to these polices

starting on 01 April 2017 while further research led by the Department develops

the LCBO guideline

HEALTHCARE

Three main health insurance product categories are affected by the regulations and include the following

1 Medical Expense Shortfall policies (Gap Cover products)These policies cover the shortfall between medical scheme benefits and the rates that private medical service providers may charge

11 Policy contract description111 Policy benefits are provided if a health event occurs that

was contemplated in the contract as a risk event This refers mainly to medical and surgical procedures and treatment performed in an in-hospital setting

112 The policy provides cover for the full or partial difference between the amount paid by a medical scheme (medical scheme tariff) and the total costs or expense of relevant healthcare expenses

12 Policy benefit limits121 Policy benefits include one or more sums of money122 Policy benefits may not exceed R150 000 per insured

person per year

28

2 Non-medical expense cover as a result of hospitalisation (Hospital Cash Plans) These policies pay out a stated benefit upon hospitalisation usually per day spent in hospital The stated benefit is unrelated to the actual cost of any medical service as it is aimed at covering incidental costs such as loss of income

21 Policy contract description211 Policy benefits are provided if a health event results in

hospitalisation and is considered to be a risk event under the policy

212 The policy covers non-medical expenses associated with hospitalisation

22 Policy benefit limits221 Policy benefits relate to a fixed amount and limited to a

maximum of R 3 000 per day in hospital or in the case off a lump sum an amount that does not exceed R20 000 per insured per year irrespective of the number of days hospitalised

222 Benefits become payable from day one of hospitalisation where hospitalisation is for a period of longer than three days

223 Benefits are only payable to the insured and not to the healthcare provider

HEALTHCARE

3 Primary healthcare insurance policiesThese policies provide limited medical service benefits often including general practitioner visits acute and chronic medication dentistry optometry and emergency medical care They are often aimed at employer groups or bargaining councils

Under the new regulations these policies are no longer allowed to continue Going forward they will be required to transition to Low Cost Benefit Options regulated by the Medical Schemes Act The Minister of Health has requested the CMS to grant a two year exemption to these polices starting on 01 April 2017 while further research led by the Department of Health develops the Low Cost Benefit Option (LCBO) guideline Once the LCBO framework is in place these policies will be required to transition

4Commissions and Underwriting conditions The new Regulations now impose a sliding scale on the commission payable for accident and health policies where if the monthly premium is more than R300 per month then the maximum commission payable reduces from 20 on a sliding scale to a maximum of 5 for premiums above R1 200 per month

Whilst insurers are required to underwrite these products on a group basis and may not discriminate based on age they can charge policyholders over a specific age category a higher premium Waiting periods very similar to those imposed by medical schemes may also be appliedbullGeneralwaitingperiodofuptothreemonthsandbullCondition-specificwaitingperiodofupto12months

Insurers also need to comply with certain marketing and disclosure requirements to ensure that consumers do not confuse these products with medical scheme benefits as well as to submit all details regarding their product offering and marketing material to the Registrar of Medical Schemes for approval

29

4 Effective date The Regulations come into effect on 01 April 2017 On this date all new health policies and accident and health policies written under the LTIA and STIA will need to comply with the requirements set out in the Regulations

Existing policies will be expected to align with the Regulations as to when such contracts are varied or renewed and by no later than 01 January 2018

5 ConclusionThe intention of the Regulations is to protect consumers from confusing health insurance products with the cover offered by medical schemes These policies are not able to cover the lionrsquos share of health care expenses but only supplement a fraction of the total costs often resulting in significant shortfalls for unsuspecting consumers By exempting Gap Cover products and Hospital Cash Plans the regulators acknowledge that these policies unlike Primary Healthcare policies complement medical scheme cover and provide an additional layer of protection against shortfalls for consumers

Of concern is the position taken by the regulators on the future role of Primary Healthcare insurance policies Whilst it is acknowledged that these products do not offer the same or similar protection to consumers as does medical scheme cover it is also widely accepted that the cost of medical scheme cover prohibits many low income earners from entering the system and exposes this category of consumers to significant risk

Industry stakeholders are generally sceptical as to whether the two year exemption period granted to these products will be used constructively by the Ministry of Health and the Regulator of Medical Schemes to finalise a LCBO framework to replace this category of health insurance A constitutional challenge of this piece of regulation should also not be discounted depending on progress made in over the next two years

INDUSTRY NEWS

A new and growing market for domestic advisors

InternationalEmployee Benefits

By Alf Mcknight CFPregSenior Manager International Pensions

The breakdown of traditional boundaries in commerce means corporations routinely operate ldquocross borderrdquo as an essential part of trade The same is true for the mobility of talent with more skilled people employed outside their country of birth than ever before1

With change comes opportunity and the employee benefit sector is no different The international employee benefit sector is opening up to South African firms and employees International financial solutions can be of significant advantage to both the employer and employee as they cater for the needs of corporates and individuals alike in a world where traditional boundaries and perceptions are disappearing

International employee benefitsA growing number of employees of the global brands that we know and love have benefited from international retirement and pension solutions for decades The role of international benefits solutions is cited by human resource directors as a fundamental tool in attracting and retaining talent2 South Africa is an observer of the OECD and our Constitution adopts international law as domestic law3

South Africarsquos Double Tax Agreements follow the OECD model which defines foreign pension provision4 and the South African Income Tax Act makes allowances for international pension provision SARS has issued guidance on this matter by way of binding rulings5

Residence based taxation sets several key principles that address cross boarder matters of individuals and international employment6

The culmination of these factors makes the use of an international employee a viable option

Client typesThe South African market can be divided into three key target markets each with their own reasons and advantages for utilising

international benefit solutionsa) The multinational These companies can be characterised as firms that

employ staff who are resident both inside and outside the borders of South Africa International staff may be employed via a foreign subsidiary branch or directly through the domestic South African entity

In most cases retirement benefits are provided through the South African system which is often unsuitable Retirement provision is in Rand which can expose the individual to currency risk For others the foreign salary is simply enhanced and the individual must cater for themselves Clearly neither of these solutions is ideal as the former results in these employees carrying unnecessary currency and investment risk and in the latter case they are burdened by additional tax because of their high income There is no protection in place or holding vehicle for such funds opening the individuals to financial risk during and after employment

b) Domestic employee The South African pension reforms of 2016 capped the tax deductibility of membersrsquo total contributions into domestic pension arrangements to R350K per annum For many this will make the South African retirement savings option less attractive This could result in individuals retaining a greater value of assets in their own name rather than in approved retirement plans without the protection that retirement plans provide in the event of a catastrophe such as insolvency

c) Agent based contract worker For agent based contract migrant workers employed under short term contracts in high-income sectors such as security oil and gas engineering shipping mining or airline industry retirement benefit provisions has historically been non-existent However many of these employees have their roots and families based in South Africa and they too require the financial security that pension provision provides This lack of benefit makes the need for financial advice especially prominent as these individuals require significant planning given their cross-boarder commitments

Although these market sectors have very different requirements the use of international employment benefits comes with a range of features that are applicable across all three scenarios enabling specific financial needs to be addressed

The following table captures these benefits at a high level to give some flavour to the application of such solutions to the lsquoSouth Africanrsquo individuals in these scenarios

30

INDUSTRY NEWS

The information in Table 1 is generic and serves to illustrate the kind of features and benefits that can be gained from international employee benefit solutions However these features and benefits may change dependant on the plan type objectives sought and specific legislation

Table 1 Benefits of International Pensions to Employees

Benefits to employersEmployee benefit packages have been used to attract and retain talent and surveys show that retirement solutions are one of the most sought after benefit by employees irrespective of their seniority2

Companies have realised that offering an international retirement solution to staff working cross border can retain key staff and help attract the scarce talents The flexibility inherent in international retirement plans removes the onus that currently resides with the Human Resources department and the individual to find a suitable international retirement solution that caters for cross border employment and global mobility It removes the complexities inherent in having non-tax resident individuals contributing back into a domestic South African retirement plan

Structure of employment solutionsInternational retirement solutions can vary in their design from pension

plans to deferred compensation funds gratuity plans and provident funds and can be structured either as umbrella or bespoke arrangements The plan can be designed around a range of flexible options covering investments membership vesting contributions retirement and end of service benefits whilst ensuring tax efficient succession and probate benefits They can be constructed in line with OECD rules and meet the requirements of foreign territories They cater equally well for companies who are expanding their businesses globally and for those companies who have existing multi-national footprints

Whilst territory dependant these arrangements can be underpinned by solid regulation and legislation with Guernsey being recognised as the leader in the provision of international employee benefit solutions and having the highest regulatory standards world-wide7 Surprisingly international retirement plans are relatively straight forward to set up where the provider is experienced and their processes and service level agreements support the efficient administration of such arrangements

Benefits to financial advisersFor domestic employees international plans provide a complimentary solution to domestic pensions The ability to build foreign wealth in hard currency with unrestricted investments can help clients achieve their financial objectives

Where the employee works outside of the borders of South Africa it is

clear that the international offer is a more efficient solution across a variety of factors including global access geo-political stability tax efficiency probate succession planning investment diversification and currency hedging

The adoption of international pensions will without doubt broaden the advice proposition and open opportunities to better service existing clients and attract new ones

ConclusionSouth African businesses and advisers are well placed to use international employee benefits solutions given the many changes that have taken place in the country and internationally Globalisation and the mobility of the workforce is opening commerce and as such companies need solutions to retain their own competitiveness as an employer and for the benefit of their employees

1 PWC Survey ldquoA Continent on The Move Global mobility in Africa February 2014rdquo2 Tower Watson International Pension Plan Survey Report 20153 South African Constitution CHAPTER 14 GENERAL PROVISIONS International Law 19964 Article 18 OECD Model Convention with Respect to Capital and Income 20145 South African Income Tax Act 59 1962 section 10(1)(gC)(ii) amp South African Revenue

Services BINDING GENERAL RULING (INCOME TAX) NO 25 DATE 14 November 20146 South African Institute of Tax Professionals Principles of Tax Residence 20127 IMF Review of Guernseyrsquos Regulatory Framework 2010

31

Multinational

32

gets industry recognition in 2016

FPI ApprovedProfessional Practicetrade

INDUSTRY NEWS

33

We find ourselves in an industry with no shortage of corporates and professional practices who offer an array of financial products and services So whenanFPIApprovedProfessionalPracticetradegetsrecognised for their contribution to the industry

the Financial Planning Institute of Southern Africa (FPI) stands proud

In2016fouroftheFPIApprovedProfessionalPracticetradefirmsweregiven accolades in various categories The awards received are both local industry honours as well as international accolades

Congratulations go out toAscor Ascor entered the International Best Practice Advisor Competition and won four of the top eight awardsbull ExcellenceinMarketingandCommunicationbull ExcellenceintheUseofTechnologybull ExcellenceinSocialMediaandbull BestAdvisorFirm

BDO BDO won two prestigious global awardsbull AcquisitionFinanceMagazineGlobalAwardsBestTax

Advisory Firm of the Year for Middle East and Africa 2016 andbull PayrollWorldAwardsInternationalPayrollProviderAwardfor

the 2nd year running

Gradidge-Mahura InvestmentsGradidge-Mahura Investments entered the Top Private Bank and Wealth Managers Survey and won second and third place in two categoriesbull SecondPlacePeoplersquosChoiceAwardsbull ThirdPlaceTopWealthManagerBoutiqueCategory

Private Client HoldingsPrivate Client Holdings also entered the International Best Practice Advisor Competition where they scooped up an award that speaks to a standard we hold in high regardbull ExcellenceinProfessionalDevelopment

We are so proud of the good work these organisations are doing in the industry and we celebrate their achievements with them

What is an FPI Approved Professional PracticetradeAnFPIApprovedProfessionalPracticetradestatusisawardedtosmallto medium independent financial services providers who share in our commitment to the greatest standards of financial planning and ethics

FPIApprovedProfessionalPracticetradefirmsareeasilyrecognisedby consumers as financial planning practices that subscribe to the highest levels of professionalism

TobecomeanFPIApprovedProfessionalPracticetradethecompanymust meet stringent criteria set by FPI Through meeting the criteria

these organisations demonstrate collaborative synergy a higher level of service and accountability in the marketSome of the criteria that must be met are

1 [At least] 50 of the organisationrsquos full time financial plannersadvisors must be CFPreg professionals

2 The practice must have a minimum of two full time financial plannersadvisors

3 An additional 25 of the practicersquos advisors must be on the learning pathway to obtaining their CFPreg designation or hold another designation with FPI

4 The practice must have a minimum of two key individuals who are also CFPreg professionals

5 The main business of the practice must be to give financial advice to clients following the Six Step Financial Planning Process

6 The practice must be willing to act as an FPI Mentorship Centre and must mentor at least one person every year

7 The practice must adhere to the FPI Code of Ethics and Practice Standards

Withonly13FPIApprovedProfessionalPracticetradefirmscountry-wide having the status places the company in a very niche community of like-minded professionals The community consists of well-known and respected practices that continuously strive to elevate the standard of financial planning not only to their clients but also to new practices entering the profession

FPI has a strong partnership with the following flagship brands listed in alphabetical order who have been awarded the FPI Approved ProfessionalPracticetradestatus

1 Absolut Wealth Management2 Ascor 3 BDO 4 Brenthurst Wealth Management5 Chartered Wealth Solutions6 Crue Invest (Pty) Ltd7 Efficient Advise8 Gradidge-Mahura Investments9 Independent Wealth Managers10 Netto Invest11 Private Client Holdings12 Quoin Wealth13 Southwood Financial Planning

When a financial planning practice partners with the Institute as anFPIApprovedProfessionalPracticetradetheirclientscantakecomfort in knowing that their business is aligned with a recognised professional body which has international affiliation with over 25 Financial Planning Standards Board (FPSB) member organisations which has the publicrsquos best interest at heart

If you want to find out more about becoming an FPI Approved ProfessionalPracticetradecalltheInstituteon(011)4706000oremailmembershipfpicoza or visit wwwfpicoza for more information

INDUSTRY NEWS

HEALTHCARE

Three main health insurance product categories are affected by the regulations and include the following

1 Medical Expense Shortfall policies (Gap Cover products)These policies cover the shortfall between medical scheme benefits and the rates that private medical service providers may charge

11 Policy contract description111 Policy benefits are provided if a health event occurs that

was contemplated in the contract as a risk event This refers mainly to medical and surgical procedures and treatment performed in an in-hospital setting

112 The policy provides cover for the full or partial difference between the amount paid by a medical scheme (medical scheme tariff) and the total costs or expense of relevant healthcare expenses

12 Policy benefit limits121 Policy benefits include one or more sums of money122 Policy benefits may not exceed R150 000 per insured

person per year

28

2 Non-medical expense cover as a result of hospitalisation (Hospital Cash Plans) These policies pay out a stated benefit upon hospitalisation usually per day spent in hospital The stated benefit is unrelated to the actual cost of any medical service as it is aimed at covering incidental costs such as loss of income

21 Policy contract description211 Policy benefits are provided if a health event results in

hospitalisation and is considered to be a risk event under the policy

212 The policy covers non-medical expenses associated with hospitalisation

22 Policy benefit limits221 Policy benefits relate to a fixed amount and limited to a

maximum of R 3 000 per day in hospital or in the case off a lump sum an amount that does not exceed R20 000 per insured per year irrespective of the number of days hospitalised

222 Benefits become payable from day one of hospitalisation where hospitalisation is for a period of longer than three days

223 Benefits are only payable to the insured and not to the healthcare provider

HEALTHCARE

3 Primary healthcare insurance policiesThese policies provide limited medical service benefits often including general practitioner visits acute and chronic medication dentistry optometry and emergency medical care They are often aimed at employer groups or bargaining councils

Under the new regulations these policies are no longer allowed to continue Going forward they will be required to transition to Low Cost Benefit Options regulated by the Medical Schemes Act The Minister of Health has requested the CMS to grant a two year exemption to these polices starting on 01 April 2017 while further research led by the Department of Health develops the Low Cost Benefit Option (LCBO) guideline Once the LCBO framework is in place these policies will be required to transition

4Commissions and Underwriting conditions The new Regulations now impose a sliding scale on the commission payable for accident and health policies where if the monthly premium is more than R300 per month then the maximum commission payable reduces from 20 on a sliding scale to a maximum of 5 for premiums above R1 200 per month

Whilst insurers are required to underwrite these products on a group basis and may not discriminate based on age they can charge policyholders over a specific age category a higher premium Waiting periods very similar to those imposed by medical schemes may also be appliedbullGeneralwaitingperiodofuptothreemonthsandbullCondition-specificwaitingperiodofupto12months

Insurers also need to comply with certain marketing and disclosure requirements to ensure that consumers do not confuse these products with medical scheme benefits as well as to submit all details regarding their product offering and marketing material to the Registrar of Medical Schemes for approval

29

4 Effective date The Regulations come into effect on 01 April 2017 On this date all new health policies and accident and health policies written under the LTIA and STIA will need to comply with the requirements set out in the Regulations

Existing policies will be expected to align with the Regulations as to when such contracts are varied or renewed and by no later than 01 January 2018

5 ConclusionThe intention of the Regulations is to protect consumers from confusing health insurance products with the cover offered by medical schemes These policies are not able to cover the lionrsquos share of health care expenses but only supplement a fraction of the total costs often resulting in significant shortfalls for unsuspecting consumers By exempting Gap Cover products and Hospital Cash Plans the regulators acknowledge that these policies unlike Primary Healthcare policies complement medical scheme cover and provide an additional layer of protection against shortfalls for consumers

Of concern is the position taken by the regulators on the future role of Primary Healthcare insurance policies Whilst it is acknowledged that these products do not offer the same or similar protection to consumers as does medical scheme cover it is also widely accepted that the cost of medical scheme cover prohibits many low income earners from entering the system and exposes this category of consumers to significant risk

Industry stakeholders are generally sceptical as to whether the two year exemption period granted to these products will be used constructively by the Ministry of Health and the Regulator of Medical Schemes to finalise a LCBO framework to replace this category of health insurance A constitutional challenge of this piece of regulation should also not be discounted depending on progress made in over the next two years

INDUSTRY NEWS

A new and growing market for domestic advisors

InternationalEmployee Benefits

By Alf Mcknight CFPregSenior Manager International Pensions

The breakdown of traditional boundaries in commerce means corporations routinely operate ldquocross borderrdquo as an essential part of trade The same is true for the mobility of talent with more skilled people employed outside their country of birth than ever before1

With change comes opportunity and the employee benefit sector is no different The international employee benefit sector is opening up to South African firms and employees International financial solutions can be of significant advantage to both the employer and employee as they cater for the needs of corporates and individuals alike in a world where traditional boundaries and perceptions are disappearing

International employee benefitsA growing number of employees of the global brands that we know and love have benefited from international retirement and pension solutions for decades The role of international benefits solutions is cited by human resource directors as a fundamental tool in attracting and retaining talent2 South Africa is an observer of the OECD and our Constitution adopts international law as domestic law3

South Africarsquos Double Tax Agreements follow the OECD model which defines foreign pension provision4 and the South African Income Tax Act makes allowances for international pension provision SARS has issued guidance on this matter by way of binding rulings5

Residence based taxation sets several key principles that address cross boarder matters of individuals and international employment6

The culmination of these factors makes the use of an international employee a viable option

Client typesThe South African market can be divided into three key target markets each with their own reasons and advantages for utilising

international benefit solutionsa) The multinational These companies can be characterised as firms that

employ staff who are resident both inside and outside the borders of South Africa International staff may be employed via a foreign subsidiary branch or directly through the domestic South African entity

In most cases retirement benefits are provided through the South African system which is often unsuitable Retirement provision is in Rand which can expose the individual to currency risk For others the foreign salary is simply enhanced and the individual must cater for themselves Clearly neither of these solutions is ideal as the former results in these employees carrying unnecessary currency and investment risk and in the latter case they are burdened by additional tax because of their high income There is no protection in place or holding vehicle for such funds opening the individuals to financial risk during and after employment

b) Domestic employee The South African pension reforms of 2016 capped the tax deductibility of membersrsquo total contributions into domestic pension arrangements to R350K per annum For many this will make the South African retirement savings option less attractive This could result in individuals retaining a greater value of assets in their own name rather than in approved retirement plans without the protection that retirement plans provide in the event of a catastrophe such as insolvency

c) Agent based contract worker For agent based contract migrant workers employed under short term contracts in high-income sectors such as security oil and gas engineering shipping mining or airline industry retirement benefit provisions has historically been non-existent However many of these employees have their roots and families based in South Africa and they too require the financial security that pension provision provides This lack of benefit makes the need for financial advice especially prominent as these individuals require significant planning given their cross-boarder commitments

Although these market sectors have very different requirements the use of international employment benefits comes with a range of features that are applicable across all three scenarios enabling specific financial needs to be addressed

The following table captures these benefits at a high level to give some flavour to the application of such solutions to the lsquoSouth Africanrsquo individuals in these scenarios

30

INDUSTRY NEWS

The information in Table 1 is generic and serves to illustrate the kind of features and benefits that can be gained from international employee benefit solutions However these features and benefits may change dependant on the plan type objectives sought and specific legislation

Table 1 Benefits of International Pensions to Employees

Benefits to employersEmployee benefit packages have been used to attract and retain talent and surveys show that retirement solutions are one of the most sought after benefit by employees irrespective of their seniority2

Companies have realised that offering an international retirement solution to staff working cross border can retain key staff and help attract the scarce talents The flexibility inherent in international retirement plans removes the onus that currently resides with the Human Resources department and the individual to find a suitable international retirement solution that caters for cross border employment and global mobility It removes the complexities inherent in having non-tax resident individuals contributing back into a domestic South African retirement plan

Structure of employment solutionsInternational retirement solutions can vary in their design from pension

plans to deferred compensation funds gratuity plans and provident funds and can be structured either as umbrella or bespoke arrangements The plan can be designed around a range of flexible options covering investments membership vesting contributions retirement and end of service benefits whilst ensuring tax efficient succession and probate benefits They can be constructed in line with OECD rules and meet the requirements of foreign territories They cater equally well for companies who are expanding their businesses globally and for those companies who have existing multi-national footprints

Whilst territory dependant these arrangements can be underpinned by solid regulation and legislation with Guernsey being recognised as the leader in the provision of international employee benefit solutions and having the highest regulatory standards world-wide7 Surprisingly international retirement plans are relatively straight forward to set up where the provider is experienced and their processes and service level agreements support the efficient administration of such arrangements

Benefits to financial advisersFor domestic employees international plans provide a complimentary solution to domestic pensions The ability to build foreign wealth in hard currency with unrestricted investments can help clients achieve their financial objectives

Where the employee works outside of the borders of South Africa it is

clear that the international offer is a more efficient solution across a variety of factors including global access geo-political stability tax efficiency probate succession planning investment diversification and currency hedging

The adoption of international pensions will without doubt broaden the advice proposition and open opportunities to better service existing clients and attract new ones

ConclusionSouth African businesses and advisers are well placed to use international employee benefits solutions given the many changes that have taken place in the country and internationally Globalisation and the mobility of the workforce is opening commerce and as such companies need solutions to retain their own competitiveness as an employer and for the benefit of their employees

1 PWC Survey ldquoA Continent on The Move Global mobility in Africa February 2014rdquo2 Tower Watson International Pension Plan Survey Report 20153 South African Constitution CHAPTER 14 GENERAL PROVISIONS International Law 19964 Article 18 OECD Model Convention with Respect to Capital and Income 20145 South African Income Tax Act 59 1962 section 10(1)(gC)(ii) amp South African Revenue

Services BINDING GENERAL RULING (INCOME TAX) NO 25 DATE 14 November 20146 South African Institute of Tax Professionals Principles of Tax Residence 20127 IMF Review of Guernseyrsquos Regulatory Framework 2010

31

Multinational

32

gets industry recognition in 2016

FPI ApprovedProfessional Practicetrade

INDUSTRY NEWS

33

We find ourselves in an industry with no shortage of corporates and professional practices who offer an array of financial products and services So whenanFPIApprovedProfessionalPracticetradegetsrecognised for their contribution to the industry

the Financial Planning Institute of Southern Africa (FPI) stands proud

In2016fouroftheFPIApprovedProfessionalPracticetradefirmsweregiven accolades in various categories The awards received are both local industry honours as well as international accolades

Congratulations go out toAscor Ascor entered the International Best Practice Advisor Competition and won four of the top eight awardsbull ExcellenceinMarketingandCommunicationbull ExcellenceintheUseofTechnologybull ExcellenceinSocialMediaandbull BestAdvisorFirm

BDO BDO won two prestigious global awardsbull AcquisitionFinanceMagazineGlobalAwardsBestTax

Advisory Firm of the Year for Middle East and Africa 2016 andbull PayrollWorldAwardsInternationalPayrollProviderAwardfor

the 2nd year running

Gradidge-Mahura InvestmentsGradidge-Mahura Investments entered the Top Private Bank and Wealth Managers Survey and won second and third place in two categoriesbull SecondPlacePeoplersquosChoiceAwardsbull ThirdPlaceTopWealthManagerBoutiqueCategory

Private Client HoldingsPrivate Client Holdings also entered the International Best Practice Advisor Competition where they scooped up an award that speaks to a standard we hold in high regardbull ExcellenceinProfessionalDevelopment

We are so proud of the good work these organisations are doing in the industry and we celebrate their achievements with them

What is an FPI Approved Professional PracticetradeAnFPIApprovedProfessionalPracticetradestatusisawardedtosmallto medium independent financial services providers who share in our commitment to the greatest standards of financial planning and ethics

FPIApprovedProfessionalPracticetradefirmsareeasilyrecognisedby consumers as financial planning practices that subscribe to the highest levels of professionalism

TobecomeanFPIApprovedProfessionalPracticetradethecompanymust meet stringent criteria set by FPI Through meeting the criteria

these organisations demonstrate collaborative synergy a higher level of service and accountability in the marketSome of the criteria that must be met are

1 [At least] 50 of the organisationrsquos full time financial plannersadvisors must be CFPreg professionals

2 The practice must have a minimum of two full time financial plannersadvisors

3 An additional 25 of the practicersquos advisors must be on the learning pathway to obtaining their CFPreg designation or hold another designation with FPI

4 The practice must have a minimum of two key individuals who are also CFPreg professionals

5 The main business of the practice must be to give financial advice to clients following the Six Step Financial Planning Process

6 The practice must be willing to act as an FPI Mentorship Centre and must mentor at least one person every year

7 The practice must adhere to the FPI Code of Ethics and Practice Standards

Withonly13FPIApprovedProfessionalPracticetradefirmscountry-wide having the status places the company in a very niche community of like-minded professionals The community consists of well-known and respected practices that continuously strive to elevate the standard of financial planning not only to their clients but also to new practices entering the profession

FPI has a strong partnership with the following flagship brands listed in alphabetical order who have been awarded the FPI Approved ProfessionalPracticetradestatus

1 Absolut Wealth Management2 Ascor 3 BDO 4 Brenthurst Wealth Management5 Chartered Wealth Solutions6 Crue Invest (Pty) Ltd7 Efficient Advise8 Gradidge-Mahura Investments9 Independent Wealth Managers10 Netto Invest11 Private Client Holdings12 Quoin Wealth13 Southwood Financial Planning

When a financial planning practice partners with the Institute as anFPIApprovedProfessionalPracticetradetheirclientscantakecomfort in knowing that their business is aligned with a recognised professional body which has international affiliation with over 25 Financial Planning Standards Board (FPSB) member organisations which has the publicrsquos best interest at heart

If you want to find out more about becoming an FPI Approved ProfessionalPracticetradecalltheInstituteon(011)4706000oremailmembershipfpicoza or visit wwwfpicoza for more information

INDUSTRY NEWS

HEALTHCARE

3 Primary healthcare insurance policiesThese policies provide limited medical service benefits often including general practitioner visits acute and chronic medication dentistry optometry and emergency medical care They are often aimed at employer groups or bargaining councils

Under the new regulations these policies are no longer allowed to continue Going forward they will be required to transition to Low Cost Benefit Options regulated by the Medical Schemes Act The Minister of Health has requested the CMS to grant a two year exemption to these polices starting on 01 April 2017 while further research led by the Department of Health develops the Low Cost Benefit Option (LCBO) guideline Once the LCBO framework is in place these policies will be required to transition

4Commissions and Underwriting conditions The new Regulations now impose a sliding scale on the commission payable for accident and health policies where if the monthly premium is more than R300 per month then the maximum commission payable reduces from 20 on a sliding scale to a maximum of 5 for premiums above R1 200 per month

Whilst insurers are required to underwrite these products on a group basis and may not discriminate based on age they can charge policyholders over a specific age category a higher premium Waiting periods very similar to those imposed by medical schemes may also be appliedbullGeneralwaitingperiodofuptothreemonthsandbullCondition-specificwaitingperiodofupto12months

Insurers also need to comply with certain marketing and disclosure requirements to ensure that consumers do not confuse these products with medical scheme benefits as well as to submit all details regarding their product offering and marketing material to the Registrar of Medical Schemes for approval

29

4 Effective date The Regulations come into effect on 01 April 2017 On this date all new health policies and accident and health policies written under the LTIA and STIA will need to comply with the requirements set out in the Regulations

Existing policies will be expected to align with the Regulations as to when such contracts are varied or renewed and by no later than 01 January 2018

5 ConclusionThe intention of the Regulations is to protect consumers from confusing health insurance products with the cover offered by medical schemes These policies are not able to cover the lionrsquos share of health care expenses but only supplement a fraction of the total costs often resulting in significant shortfalls for unsuspecting consumers By exempting Gap Cover products and Hospital Cash Plans the regulators acknowledge that these policies unlike Primary Healthcare policies complement medical scheme cover and provide an additional layer of protection against shortfalls for consumers

Of concern is the position taken by the regulators on the future role of Primary Healthcare insurance policies Whilst it is acknowledged that these products do not offer the same or similar protection to consumers as does medical scheme cover it is also widely accepted that the cost of medical scheme cover prohibits many low income earners from entering the system and exposes this category of consumers to significant risk

Industry stakeholders are generally sceptical as to whether the two year exemption period granted to these products will be used constructively by the Ministry of Health and the Regulator of Medical Schemes to finalise a LCBO framework to replace this category of health insurance A constitutional challenge of this piece of regulation should also not be discounted depending on progress made in over the next two years

INDUSTRY NEWS

A new and growing market for domestic advisors

InternationalEmployee Benefits

By Alf Mcknight CFPregSenior Manager International Pensions

The breakdown of traditional boundaries in commerce means corporations routinely operate ldquocross borderrdquo as an essential part of trade The same is true for the mobility of talent with more skilled people employed outside their country of birth than ever before1

With change comes opportunity and the employee benefit sector is no different The international employee benefit sector is opening up to South African firms and employees International financial solutions can be of significant advantage to both the employer and employee as they cater for the needs of corporates and individuals alike in a world where traditional boundaries and perceptions are disappearing

International employee benefitsA growing number of employees of the global brands that we know and love have benefited from international retirement and pension solutions for decades The role of international benefits solutions is cited by human resource directors as a fundamental tool in attracting and retaining talent2 South Africa is an observer of the OECD and our Constitution adopts international law as domestic law3

South Africarsquos Double Tax Agreements follow the OECD model which defines foreign pension provision4 and the South African Income Tax Act makes allowances for international pension provision SARS has issued guidance on this matter by way of binding rulings5

Residence based taxation sets several key principles that address cross boarder matters of individuals and international employment6

The culmination of these factors makes the use of an international employee a viable option

Client typesThe South African market can be divided into three key target markets each with their own reasons and advantages for utilising

international benefit solutionsa) The multinational These companies can be characterised as firms that

employ staff who are resident both inside and outside the borders of South Africa International staff may be employed via a foreign subsidiary branch or directly through the domestic South African entity

In most cases retirement benefits are provided through the South African system which is often unsuitable Retirement provision is in Rand which can expose the individual to currency risk For others the foreign salary is simply enhanced and the individual must cater for themselves Clearly neither of these solutions is ideal as the former results in these employees carrying unnecessary currency and investment risk and in the latter case they are burdened by additional tax because of their high income There is no protection in place or holding vehicle for such funds opening the individuals to financial risk during and after employment

b) Domestic employee The South African pension reforms of 2016 capped the tax deductibility of membersrsquo total contributions into domestic pension arrangements to R350K per annum For many this will make the South African retirement savings option less attractive This could result in individuals retaining a greater value of assets in their own name rather than in approved retirement plans without the protection that retirement plans provide in the event of a catastrophe such as insolvency

c) Agent based contract worker For agent based contract migrant workers employed under short term contracts in high-income sectors such as security oil and gas engineering shipping mining or airline industry retirement benefit provisions has historically been non-existent However many of these employees have their roots and families based in South Africa and they too require the financial security that pension provision provides This lack of benefit makes the need for financial advice especially prominent as these individuals require significant planning given their cross-boarder commitments

Although these market sectors have very different requirements the use of international employment benefits comes with a range of features that are applicable across all three scenarios enabling specific financial needs to be addressed

The following table captures these benefits at a high level to give some flavour to the application of such solutions to the lsquoSouth Africanrsquo individuals in these scenarios

30

INDUSTRY NEWS

The information in Table 1 is generic and serves to illustrate the kind of features and benefits that can be gained from international employee benefit solutions However these features and benefits may change dependant on the plan type objectives sought and specific legislation

Table 1 Benefits of International Pensions to Employees

Benefits to employersEmployee benefit packages have been used to attract and retain talent and surveys show that retirement solutions are one of the most sought after benefit by employees irrespective of their seniority2

Companies have realised that offering an international retirement solution to staff working cross border can retain key staff and help attract the scarce talents The flexibility inherent in international retirement plans removes the onus that currently resides with the Human Resources department and the individual to find a suitable international retirement solution that caters for cross border employment and global mobility It removes the complexities inherent in having non-tax resident individuals contributing back into a domestic South African retirement plan

Structure of employment solutionsInternational retirement solutions can vary in their design from pension

plans to deferred compensation funds gratuity plans and provident funds and can be structured either as umbrella or bespoke arrangements The plan can be designed around a range of flexible options covering investments membership vesting contributions retirement and end of service benefits whilst ensuring tax efficient succession and probate benefits They can be constructed in line with OECD rules and meet the requirements of foreign territories They cater equally well for companies who are expanding their businesses globally and for those companies who have existing multi-national footprints

Whilst territory dependant these arrangements can be underpinned by solid regulation and legislation with Guernsey being recognised as the leader in the provision of international employee benefit solutions and having the highest regulatory standards world-wide7 Surprisingly international retirement plans are relatively straight forward to set up where the provider is experienced and their processes and service level agreements support the efficient administration of such arrangements

Benefits to financial advisersFor domestic employees international plans provide a complimentary solution to domestic pensions The ability to build foreign wealth in hard currency with unrestricted investments can help clients achieve their financial objectives

Where the employee works outside of the borders of South Africa it is

clear that the international offer is a more efficient solution across a variety of factors including global access geo-political stability tax efficiency probate succession planning investment diversification and currency hedging

The adoption of international pensions will without doubt broaden the advice proposition and open opportunities to better service existing clients and attract new ones

ConclusionSouth African businesses and advisers are well placed to use international employee benefits solutions given the many changes that have taken place in the country and internationally Globalisation and the mobility of the workforce is opening commerce and as such companies need solutions to retain their own competitiveness as an employer and for the benefit of their employees

1 PWC Survey ldquoA Continent on The Move Global mobility in Africa February 2014rdquo2 Tower Watson International Pension Plan Survey Report 20153 South African Constitution CHAPTER 14 GENERAL PROVISIONS International Law 19964 Article 18 OECD Model Convention with Respect to Capital and Income 20145 South African Income Tax Act 59 1962 section 10(1)(gC)(ii) amp South African Revenue

Services BINDING GENERAL RULING (INCOME TAX) NO 25 DATE 14 November 20146 South African Institute of Tax Professionals Principles of Tax Residence 20127 IMF Review of Guernseyrsquos Regulatory Framework 2010

31

Multinational

32

gets industry recognition in 2016

FPI ApprovedProfessional Practicetrade

INDUSTRY NEWS

33

We find ourselves in an industry with no shortage of corporates and professional practices who offer an array of financial products and services So whenanFPIApprovedProfessionalPracticetradegetsrecognised for their contribution to the industry

the Financial Planning Institute of Southern Africa (FPI) stands proud

In2016fouroftheFPIApprovedProfessionalPracticetradefirmsweregiven accolades in various categories The awards received are both local industry honours as well as international accolades

Congratulations go out toAscor Ascor entered the International Best Practice Advisor Competition and won four of the top eight awardsbull ExcellenceinMarketingandCommunicationbull ExcellenceintheUseofTechnologybull ExcellenceinSocialMediaandbull BestAdvisorFirm

BDO BDO won two prestigious global awardsbull AcquisitionFinanceMagazineGlobalAwardsBestTax

Advisory Firm of the Year for Middle East and Africa 2016 andbull PayrollWorldAwardsInternationalPayrollProviderAwardfor

the 2nd year running

Gradidge-Mahura InvestmentsGradidge-Mahura Investments entered the Top Private Bank and Wealth Managers Survey and won second and third place in two categoriesbull SecondPlacePeoplersquosChoiceAwardsbull ThirdPlaceTopWealthManagerBoutiqueCategory

Private Client HoldingsPrivate Client Holdings also entered the International Best Practice Advisor Competition where they scooped up an award that speaks to a standard we hold in high regardbull ExcellenceinProfessionalDevelopment

We are so proud of the good work these organisations are doing in the industry and we celebrate their achievements with them

What is an FPI Approved Professional PracticetradeAnFPIApprovedProfessionalPracticetradestatusisawardedtosmallto medium independent financial services providers who share in our commitment to the greatest standards of financial planning and ethics

FPIApprovedProfessionalPracticetradefirmsareeasilyrecognisedby consumers as financial planning practices that subscribe to the highest levels of professionalism

TobecomeanFPIApprovedProfessionalPracticetradethecompanymust meet stringent criteria set by FPI Through meeting the criteria

these organisations demonstrate collaborative synergy a higher level of service and accountability in the marketSome of the criteria that must be met are

1 [At least] 50 of the organisationrsquos full time financial plannersadvisors must be CFPreg professionals

2 The practice must have a minimum of two full time financial plannersadvisors

3 An additional 25 of the practicersquos advisors must be on the learning pathway to obtaining their CFPreg designation or hold another designation with FPI

4 The practice must have a minimum of two key individuals who are also CFPreg professionals

5 The main business of the practice must be to give financial advice to clients following the Six Step Financial Planning Process

6 The practice must be willing to act as an FPI Mentorship Centre and must mentor at least one person every year

7 The practice must adhere to the FPI Code of Ethics and Practice Standards

Withonly13FPIApprovedProfessionalPracticetradefirmscountry-wide having the status places the company in a very niche community of like-minded professionals The community consists of well-known and respected practices that continuously strive to elevate the standard of financial planning not only to their clients but also to new practices entering the profession

FPI has a strong partnership with the following flagship brands listed in alphabetical order who have been awarded the FPI Approved ProfessionalPracticetradestatus

1 Absolut Wealth Management2 Ascor 3 BDO 4 Brenthurst Wealth Management5 Chartered Wealth Solutions6 Crue Invest (Pty) Ltd7 Efficient Advise8 Gradidge-Mahura Investments9 Independent Wealth Managers10 Netto Invest11 Private Client Holdings12 Quoin Wealth13 Southwood Financial Planning

When a financial planning practice partners with the Institute as anFPIApprovedProfessionalPracticetradetheirclientscantakecomfort in knowing that their business is aligned with a recognised professional body which has international affiliation with over 25 Financial Planning Standards Board (FPSB) member organisations which has the publicrsquos best interest at heart

If you want to find out more about becoming an FPI Approved ProfessionalPracticetradecalltheInstituteon(011)4706000oremailmembershipfpicoza or visit wwwfpicoza for more information

INDUSTRY NEWS

INDUSTRY NEWS

A new and growing market for domestic advisors

InternationalEmployee Benefits

By Alf Mcknight CFPregSenior Manager International Pensions

The breakdown of traditional boundaries in commerce means corporations routinely operate ldquocross borderrdquo as an essential part of trade The same is true for the mobility of talent with more skilled people employed outside their country of birth than ever before1

With change comes opportunity and the employee benefit sector is no different The international employee benefit sector is opening up to South African firms and employees International financial solutions can be of significant advantage to both the employer and employee as they cater for the needs of corporates and individuals alike in a world where traditional boundaries and perceptions are disappearing

International employee benefitsA growing number of employees of the global brands that we know and love have benefited from international retirement and pension solutions for decades The role of international benefits solutions is cited by human resource directors as a fundamental tool in attracting and retaining talent2 South Africa is an observer of the OECD and our Constitution adopts international law as domestic law3

South Africarsquos Double Tax Agreements follow the OECD model which defines foreign pension provision4 and the South African Income Tax Act makes allowances for international pension provision SARS has issued guidance on this matter by way of binding rulings5

Residence based taxation sets several key principles that address cross boarder matters of individuals and international employment6

The culmination of these factors makes the use of an international employee a viable option

Client typesThe South African market can be divided into three key target markets each with their own reasons and advantages for utilising

international benefit solutionsa) The multinational These companies can be characterised as firms that

employ staff who are resident both inside and outside the borders of South Africa International staff may be employed via a foreign subsidiary branch or directly through the domestic South African entity

In most cases retirement benefits are provided through the South African system which is often unsuitable Retirement provision is in Rand which can expose the individual to currency risk For others the foreign salary is simply enhanced and the individual must cater for themselves Clearly neither of these solutions is ideal as the former results in these employees carrying unnecessary currency and investment risk and in the latter case they are burdened by additional tax because of their high income There is no protection in place or holding vehicle for such funds opening the individuals to financial risk during and after employment

b) Domestic employee The South African pension reforms of 2016 capped the tax deductibility of membersrsquo total contributions into domestic pension arrangements to R350K per annum For many this will make the South African retirement savings option less attractive This could result in individuals retaining a greater value of assets in their own name rather than in approved retirement plans without the protection that retirement plans provide in the event of a catastrophe such as insolvency

c) Agent based contract worker For agent based contract migrant workers employed under short term contracts in high-income sectors such as security oil and gas engineering shipping mining or airline industry retirement benefit provisions has historically been non-existent However many of these employees have their roots and families based in South Africa and they too require the financial security that pension provision provides This lack of benefit makes the need for financial advice especially prominent as these individuals require significant planning given their cross-boarder commitments

Although these market sectors have very different requirements the use of international employment benefits comes with a range of features that are applicable across all three scenarios enabling specific financial needs to be addressed

The following table captures these benefits at a high level to give some flavour to the application of such solutions to the lsquoSouth Africanrsquo individuals in these scenarios

30

INDUSTRY NEWS

The information in Table 1 is generic and serves to illustrate the kind of features and benefits that can be gained from international employee benefit solutions However these features and benefits may change dependant on the plan type objectives sought and specific legislation

Table 1 Benefits of International Pensions to Employees

Benefits to employersEmployee benefit packages have been used to attract and retain talent and surveys show that retirement solutions are one of the most sought after benefit by employees irrespective of their seniority2

Companies have realised that offering an international retirement solution to staff working cross border can retain key staff and help attract the scarce talents The flexibility inherent in international retirement plans removes the onus that currently resides with the Human Resources department and the individual to find a suitable international retirement solution that caters for cross border employment and global mobility It removes the complexities inherent in having non-tax resident individuals contributing back into a domestic South African retirement plan

Structure of employment solutionsInternational retirement solutions can vary in their design from pension

plans to deferred compensation funds gratuity plans and provident funds and can be structured either as umbrella or bespoke arrangements The plan can be designed around a range of flexible options covering investments membership vesting contributions retirement and end of service benefits whilst ensuring tax efficient succession and probate benefits They can be constructed in line with OECD rules and meet the requirements of foreign territories They cater equally well for companies who are expanding their businesses globally and for those companies who have existing multi-national footprints

Whilst territory dependant these arrangements can be underpinned by solid regulation and legislation with Guernsey being recognised as the leader in the provision of international employee benefit solutions and having the highest regulatory standards world-wide7 Surprisingly international retirement plans are relatively straight forward to set up where the provider is experienced and their processes and service level agreements support the efficient administration of such arrangements

Benefits to financial advisersFor domestic employees international plans provide a complimentary solution to domestic pensions The ability to build foreign wealth in hard currency with unrestricted investments can help clients achieve their financial objectives

Where the employee works outside of the borders of South Africa it is

clear that the international offer is a more efficient solution across a variety of factors including global access geo-political stability tax efficiency probate succession planning investment diversification and currency hedging

The adoption of international pensions will without doubt broaden the advice proposition and open opportunities to better service existing clients and attract new ones

ConclusionSouth African businesses and advisers are well placed to use international employee benefits solutions given the many changes that have taken place in the country and internationally Globalisation and the mobility of the workforce is opening commerce and as such companies need solutions to retain their own competitiveness as an employer and for the benefit of their employees

1 PWC Survey ldquoA Continent on The Move Global mobility in Africa February 2014rdquo2 Tower Watson International Pension Plan Survey Report 20153 South African Constitution CHAPTER 14 GENERAL PROVISIONS International Law 19964 Article 18 OECD Model Convention with Respect to Capital and Income 20145 South African Income Tax Act 59 1962 section 10(1)(gC)(ii) amp South African Revenue

Services BINDING GENERAL RULING (INCOME TAX) NO 25 DATE 14 November 20146 South African Institute of Tax Professionals Principles of Tax Residence 20127 IMF Review of Guernseyrsquos Regulatory Framework 2010

31

Multinational

32

gets industry recognition in 2016

FPI ApprovedProfessional Practicetrade

INDUSTRY NEWS

33

We find ourselves in an industry with no shortage of corporates and professional practices who offer an array of financial products and services So whenanFPIApprovedProfessionalPracticetradegetsrecognised for their contribution to the industry

the Financial Planning Institute of Southern Africa (FPI) stands proud

In2016fouroftheFPIApprovedProfessionalPracticetradefirmsweregiven accolades in various categories The awards received are both local industry honours as well as international accolades

Congratulations go out toAscor Ascor entered the International Best Practice Advisor Competition and won four of the top eight awardsbull ExcellenceinMarketingandCommunicationbull ExcellenceintheUseofTechnologybull ExcellenceinSocialMediaandbull BestAdvisorFirm

BDO BDO won two prestigious global awardsbull AcquisitionFinanceMagazineGlobalAwardsBestTax

Advisory Firm of the Year for Middle East and Africa 2016 andbull PayrollWorldAwardsInternationalPayrollProviderAwardfor

the 2nd year running

Gradidge-Mahura InvestmentsGradidge-Mahura Investments entered the Top Private Bank and Wealth Managers Survey and won second and third place in two categoriesbull SecondPlacePeoplersquosChoiceAwardsbull ThirdPlaceTopWealthManagerBoutiqueCategory

Private Client HoldingsPrivate Client Holdings also entered the International Best Practice Advisor Competition where they scooped up an award that speaks to a standard we hold in high regardbull ExcellenceinProfessionalDevelopment

We are so proud of the good work these organisations are doing in the industry and we celebrate their achievements with them

What is an FPI Approved Professional PracticetradeAnFPIApprovedProfessionalPracticetradestatusisawardedtosmallto medium independent financial services providers who share in our commitment to the greatest standards of financial planning and ethics

FPIApprovedProfessionalPracticetradefirmsareeasilyrecognisedby consumers as financial planning practices that subscribe to the highest levels of professionalism

TobecomeanFPIApprovedProfessionalPracticetradethecompanymust meet stringent criteria set by FPI Through meeting the criteria

these organisations demonstrate collaborative synergy a higher level of service and accountability in the marketSome of the criteria that must be met are

1 [At least] 50 of the organisationrsquos full time financial plannersadvisors must be CFPreg professionals

2 The practice must have a minimum of two full time financial plannersadvisors

3 An additional 25 of the practicersquos advisors must be on the learning pathway to obtaining their CFPreg designation or hold another designation with FPI

4 The practice must have a minimum of two key individuals who are also CFPreg professionals

5 The main business of the practice must be to give financial advice to clients following the Six Step Financial Planning Process

6 The practice must be willing to act as an FPI Mentorship Centre and must mentor at least one person every year

7 The practice must adhere to the FPI Code of Ethics and Practice Standards

Withonly13FPIApprovedProfessionalPracticetradefirmscountry-wide having the status places the company in a very niche community of like-minded professionals The community consists of well-known and respected practices that continuously strive to elevate the standard of financial planning not only to their clients but also to new practices entering the profession

FPI has a strong partnership with the following flagship brands listed in alphabetical order who have been awarded the FPI Approved ProfessionalPracticetradestatus

1 Absolut Wealth Management2 Ascor 3 BDO 4 Brenthurst Wealth Management5 Chartered Wealth Solutions6 Crue Invest (Pty) Ltd7 Efficient Advise8 Gradidge-Mahura Investments9 Independent Wealth Managers10 Netto Invest11 Private Client Holdings12 Quoin Wealth13 Southwood Financial Planning

When a financial planning practice partners with the Institute as anFPIApprovedProfessionalPracticetradetheirclientscantakecomfort in knowing that their business is aligned with a recognised professional body which has international affiliation with over 25 Financial Planning Standards Board (FPSB) member organisations which has the publicrsquos best interest at heart

If you want to find out more about becoming an FPI Approved ProfessionalPracticetradecalltheInstituteon(011)4706000oremailmembershipfpicoza or visit wwwfpicoza for more information

INDUSTRY NEWS

INDUSTRY NEWS

The information in Table 1 is generic and serves to illustrate the kind of features and benefits that can be gained from international employee benefit solutions However these features and benefits may change dependant on the plan type objectives sought and specific legislation

Table 1 Benefits of International Pensions to Employees

Benefits to employersEmployee benefit packages have been used to attract and retain talent and surveys show that retirement solutions are one of the most sought after benefit by employees irrespective of their seniority2

Companies have realised that offering an international retirement solution to staff working cross border can retain key staff and help attract the scarce talents The flexibility inherent in international retirement plans removes the onus that currently resides with the Human Resources department and the individual to find a suitable international retirement solution that caters for cross border employment and global mobility It removes the complexities inherent in having non-tax resident individuals contributing back into a domestic South African retirement plan

Structure of employment solutionsInternational retirement solutions can vary in their design from pension

plans to deferred compensation funds gratuity plans and provident funds and can be structured either as umbrella or bespoke arrangements The plan can be designed around a range of flexible options covering investments membership vesting contributions retirement and end of service benefits whilst ensuring tax efficient succession and probate benefits They can be constructed in line with OECD rules and meet the requirements of foreign territories They cater equally well for companies who are expanding their businesses globally and for those companies who have existing multi-national footprints

Whilst territory dependant these arrangements can be underpinned by solid regulation and legislation with Guernsey being recognised as the leader in the provision of international employee benefit solutions and having the highest regulatory standards world-wide7 Surprisingly international retirement plans are relatively straight forward to set up where the provider is experienced and their processes and service level agreements support the efficient administration of such arrangements

Benefits to financial advisersFor domestic employees international plans provide a complimentary solution to domestic pensions The ability to build foreign wealth in hard currency with unrestricted investments can help clients achieve their financial objectives

Where the employee works outside of the borders of South Africa it is

clear that the international offer is a more efficient solution across a variety of factors including global access geo-political stability tax efficiency probate succession planning investment diversification and currency hedging

The adoption of international pensions will without doubt broaden the advice proposition and open opportunities to better service existing clients and attract new ones

ConclusionSouth African businesses and advisers are well placed to use international employee benefits solutions given the many changes that have taken place in the country and internationally Globalisation and the mobility of the workforce is opening commerce and as such companies need solutions to retain their own competitiveness as an employer and for the benefit of their employees

1 PWC Survey ldquoA Continent on The Move Global mobility in Africa February 2014rdquo2 Tower Watson International Pension Plan Survey Report 20153 South African Constitution CHAPTER 14 GENERAL PROVISIONS International Law 19964 Article 18 OECD Model Convention with Respect to Capital and Income 20145 South African Income Tax Act 59 1962 section 10(1)(gC)(ii) amp South African Revenue

Services BINDING GENERAL RULING (INCOME TAX) NO 25 DATE 14 November 20146 South African Institute of Tax Professionals Principles of Tax Residence 20127 IMF Review of Guernseyrsquos Regulatory Framework 2010

31

Multinational

32

gets industry recognition in 2016

FPI ApprovedProfessional Practicetrade

INDUSTRY NEWS

33

We find ourselves in an industry with no shortage of corporates and professional practices who offer an array of financial products and services So whenanFPIApprovedProfessionalPracticetradegetsrecognised for their contribution to the industry

the Financial Planning Institute of Southern Africa (FPI) stands proud

In2016fouroftheFPIApprovedProfessionalPracticetradefirmsweregiven accolades in various categories The awards received are both local industry honours as well as international accolades

Congratulations go out toAscor Ascor entered the International Best Practice Advisor Competition and won four of the top eight awardsbull ExcellenceinMarketingandCommunicationbull ExcellenceintheUseofTechnologybull ExcellenceinSocialMediaandbull BestAdvisorFirm

BDO BDO won two prestigious global awardsbull AcquisitionFinanceMagazineGlobalAwardsBestTax

Advisory Firm of the Year for Middle East and Africa 2016 andbull PayrollWorldAwardsInternationalPayrollProviderAwardfor

the 2nd year running

Gradidge-Mahura InvestmentsGradidge-Mahura Investments entered the Top Private Bank and Wealth Managers Survey and won second and third place in two categoriesbull SecondPlacePeoplersquosChoiceAwardsbull ThirdPlaceTopWealthManagerBoutiqueCategory

Private Client HoldingsPrivate Client Holdings also entered the International Best Practice Advisor Competition where they scooped up an award that speaks to a standard we hold in high regardbull ExcellenceinProfessionalDevelopment

We are so proud of the good work these organisations are doing in the industry and we celebrate their achievements with them

What is an FPI Approved Professional PracticetradeAnFPIApprovedProfessionalPracticetradestatusisawardedtosmallto medium independent financial services providers who share in our commitment to the greatest standards of financial planning and ethics

FPIApprovedProfessionalPracticetradefirmsareeasilyrecognisedby consumers as financial planning practices that subscribe to the highest levels of professionalism

TobecomeanFPIApprovedProfessionalPracticetradethecompanymust meet stringent criteria set by FPI Through meeting the criteria

these organisations demonstrate collaborative synergy a higher level of service and accountability in the marketSome of the criteria that must be met are

1 [At least] 50 of the organisationrsquos full time financial plannersadvisors must be CFPreg professionals

2 The practice must have a minimum of two full time financial plannersadvisors

3 An additional 25 of the practicersquos advisors must be on the learning pathway to obtaining their CFPreg designation or hold another designation with FPI

4 The practice must have a minimum of two key individuals who are also CFPreg professionals

5 The main business of the practice must be to give financial advice to clients following the Six Step Financial Planning Process

6 The practice must be willing to act as an FPI Mentorship Centre and must mentor at least one person every year

7 The practice must adhere to the FPI Code of Ethics and Practice Standards

Withonly13FPIApprovedProfessionalPracticetradefirmscountry-wide having the status places the company in a very niche community of like-minded professionals The community consists of well-known and respected practices that continuously strive to elevate the standard of financial planning not only to their clients but also to new practices entering the profession

FPI has a strong partnership with the following flagship brands listed in alphabetical order who have been awarded the FPI Approved ProfessionalPracticetradestatus

1 Absolut Wealth Management2 Ascor 3 BDO 4 Brenthurst Wealth Management5 Chartered Wealth Solutions6 Crue Invest (Pty) Ltd7 Efficient Advise8 Gradidge-Mahura Investments9 Independent Wealth Managers10 Netto Invest11 Private Client Holdings12 Quoin Wealth13 Southwood Financial Planning

When a financial planning practice partners with the Institute as anFPIApprovedProfessionalPracticetradetheirclientscantakecomfort in knowing that their business is aligned with a recognised professional body which has international affiliation with over 25 Financial Planning Standards Board (FPSB) member organisations which has the publicrsquos best interest at heart

If you want to find out more about becoming an FPI Approved ProfessionalPracticetradecalltheInstituteon(011)4706000oremailmembershipfpicoza or visit wwwfpicoza for more information

INDUSTRY NEWS

32

gets industry recognition in 2016

FPI ApprovedProfessional Practicetrade

INDUSTRY NEWS

33

We find ourselves in an industry with no shortage of corporates and professional practices who offer an array of financial products and services So whenanFPIApprovedProfessionalPracticetradegetsrecognised for their contribution to the industry

the Financial Planning Institute of Southern Africa (FPI) stands proud

In2016fouroftheFPIApprovedProfessionalPracticetradefirmsweregiven accolades in various categories The awards received are both local industry honours as well as international accolades

Congratulations go out toAscor Ascor entered the International Best Practice Advisor Competition and won four of the top eight awardsbull ExcellenceinMarketingandCommunicationbull ExcellenceintheUseofTechnologybull ExcellenceinSocialMediaandbull BestAdvisorFirm

BDO BDO won two prestigious global awardsbull AcquisitionFinanceMagazineGlobalAwardsBestTax

Advisory Firm of the Year for Middle East and Africa 2016 andbull PayrollWorldAwardsInternationalPayrollProviderAwardfor

the 2nd year running

Gradidge-Mahura InvestmentsGradidge-Mahura Investments entered the Top Private Bank and Wealth Managers Survey and won second and third place in two categoriesbull SecondPlacePeoplersquosChoiceAwardsbull ThirdPlaceTopWealthManagerBoutiqueCategory

Private Client HoldingsPrivate Client Holdings also entered the International Best Practice Advisor Competition where they scooped up an award that speaks to a standard we hold in high regardbull ExcellenceinProfessionalDevelopment

We are so proud of the good work these organisations are doing in the industry and we celebrate their achievements with them

What is an FPI Approved Professional PracticetradeAnFPIApprovedProfessionalPracticetradestatusisawardedtosmallto medium independent financial services providers who share in our commitment to the greatest standards of financial planning and ethics

FPIApprovedProfessionalPracticetradefirmsareeasilyrecognisedby consumers as financial planning practices that subscribe to the highest levels of professionalism

TobecomeanFPIApprovedProfessionalPracticetradethecompanymust meet stringent criteria set by FPI Through meeting the criteria

these organisations demonstrate collaborative synergy a higher level of service and accountability in the marketSome of the criteria that must be met are

1 [At least] 50 of the organisationrsquos full time financial plannersadvisors must be CFPreg professionals

2 The practice must have a minimum of two full time financial plannersadvisors

3 An additional 25 of the practicersquos advisors must be on the learning pathway to obtaining their CFPreg designation or hold another designation with FPI

4 The practice must have a minimum of two key individuals who are also CFPreg professionals

5 The main business of the practice must be to give financial advice to clients following the Six Step Financial Planning Process

6 The practice must be willing to act as an FPI Mentorship Centre and must mentor at least one person every year

7 The practice must adhere to the FPI Code of Ethics and Practice Standards

Withonly13FPIApprovedProfessionalPracticetradefirmscountry-wide having the status places the company in a very niche community of like-minded professionals The community consists of well-known and respected practices that continuously strive to elevate the standard of financial planning not only to their clients but also to new practices entering the profession

FPI has a strong partnership with the following flagship brands listed in alphabetical order who have been awarded the FPI Approved ProfessionalPracticetradestatus

1 Absolut Wealth Management2 Ascor 3 BDO 4 Brenthurst Wealth Management5 Chartered Wealth Solutions6 Crue Invest (Pty) Ltd7 Efficient Advise8 Gradidge-Mahura Investments9 Independent Wealth Managers10 Netto Invest11 Private Client Holdings12 Quoin Wealth13 Southwood Financial Planning

When a financial planning practice partners with the Institute as anFPIApprovedProfessionalPracticetradetheirclientscantakecomfort in knowing that their business is aligned with a recognised professional body which has international affiliation with over 25 Financial Planning Standards Board (FPSB) member organisations which has the publicrsquos best interest at heart

If you want to find out more about becoming an FPI Approved ProfessionalPracticetradecalltheInstituteon(011)4706000oremailmembershipfpicoza or visit wwwfpicoza for more information

INDUSTRY NEWS

33

We find ourselves in an industry with no shortage of corporates and professional practices who offer an array of financial products and services So whenanFPIApprovedProfessionalPracticetradegetsrecognised for their contribution to the industry

the Financial Planning Institute of Southern Africa (FPI) stands proud

In2016fouroftheFPIApprovedProfessionalPracticetradefirmsweregiven accolades in various categories The awards received are both local industry honours as well as international accolades

Congratulations go out toAscor Ascor entered the International Best Practice Advisor Competition and won four of the top eight awardsbull ExcellenceinMarketingandCommunicationbull ExcellenceintheUseofTechnologybull ExcellenceinSocialMediaandbull BestAdvisorFirm

BDO BDO won two prestigious global awardsbull AcquisitionFinanceMagazineGlobalAwardsBestTax

Advisory Firm of the Year for Middle East and Africa 2016 andbull PayrollWorldAwardsInternationalPayrollProviderAwardfor

the 2nd year running

Gradidge-Mahura InvestmentsGradidge-Mahura Investments entered the Top Private Bank and Wealth Managers Survey and won second and third place in two categoriesbull SecondPlacePeoplersquosChoiceAwardsbull ThirdPlaceTopWealthManagerBoutiqueCategory

Private Client HoldingsPrivate Client Holdings also entered the International Best Practice Advisor Competition where they scooped up an award that speaks to a standard we hold in high regardbull ExcellenceinProfessionalDevelopment

We are so proud of the good work these organisations are doing in the industry and we celebrate their achievements with them

What is an FPI Approved Professional PracticetradeAnFPIApprovedProfessionalPracticetradestatusisawardedtosmallto medium independent financial services providers who share in our commitment to the greatest standards of financial planning and ethics

FPIApprovedProfessionalPracticetradefirmsareeasilyrecognisedby consumers as financial planning practices that subscribe to the highest levels of professionalism

TobecomeanFPIApprovedProfessionalPracticetradethecompanymust meet stringent criteria set by FPI Through meeting the criteria

these organisations demonstrate collaborative synergy a higher level of service and accountability in the marketSome of the criteria that must be met are

1 [At least] 50 of the organisationrsquos full time financial plannersadvisors must be CFPreg professionals

2 The practice must have a minimum of two full time financial plannersadvisors

3 An additional 25 of the practicersquos advisors must be on the learning pathway to obtaining their CFPreg designation or hold another designation with FPI

4 The practice must have a minimum of two key individuals who are also CFPreg professionals

5 The main business of the practice must be to give financial advice to clients following the Six Step Financial Planning Process

6 The practice must be willing to act as an FPI Mentorship Centre and must mentor at least one person every year

7 The practice must adhere to the FPI Code of Ethics and Practice Standards

Withonly13FPIApprovedProfessionalPracticetradefirmscountry-wide having the status places the company in a very niche community of like-minded professionals The community consists of well-known and respected practices that continuously strive to elevate the standard of financial planning not only to their clients but also to new practices entering the profession

FPI has a strong partnership with the following flagship brands listed in alphabetical order who have been awarded the FPI Approved ProfessionalPracticetradestatus

1 Absolut Wealth Management2 Ascor 3 BDO 4 Brenthurst Wealth Management5 Chartered Wealth Solutions6 Crue Invest (Pty) Ltd7 Efficient Advise8 Gradidge-Mahura Investments9 Independent Wealth Managers10 Netto Invest11 Private Client Holdings12 Quoin Wealth13 Southwood Financial Planning

When a financial planning practice partners with the Institute as anFPIApprovedProfessionalPracticetradetheirclientscantakecomfort in knowing that their business is aligned with a recognised professional body which has international affiliation with over 25 Financial Planning Standards Board (FPSB) member organisations which has the publicrsquos best interest at heart

If you want to find out more about becoming an FPI Approved ProfessionalPracticetradecalltheInstituteon(011)4706000oremailmembershipfpicoza or visit wwwfpicoza for more information

INDUSTRY NEWS

INTERNATIONAL NEWS

Another year of

170101 CFPreg Professionals in 26Territories Worldwide

2016 year-end figures

Financial Planning Standards Board Ltd (FPSB) owner of the international CERTIFIED FINANCIAL PLANNERreg certification programme outside the United States reported another year of strong growth in 2016 as the FPSB network added 18 435 CFPreg professionals and a total number of CFPreg professionals rose to 170 101 worldwide With a net increase of 8 280 CFPreg professionals FPSB and its member organisations including South Africa experienced robust annual growth of 51 almost double that of the previous year

18435 new CFPreg professionals 8280 net gain 51 growth rate

INTERNATIONAL NEWS

stronggrowth

34

6 FPSB member organisations added

gt200 CFPreg professionals

FPSB member organisations who added over 200 CFPreg professionalsOf note in 2016 was the considerable growth in the Netherlands The territory ended the year with 3 649 CFPreg professionals through a smartly planned consolidation strategy that merged two organisations to embrace CFPreg certification and elevate the financial planning profession as a whole FPSBrsquos member organisation in the United States which boasts the longest running CFPreg certification programme continued its strong showing with a net growth of 3 076 professionals last year FPSBrsquos member organisation in Japan a territory offering CFPreg certification for 25 years had net growth of 389 for a total of 20 683 CFPreg professionals at the end of last year

Within the 26 non-profit member organisations of FPSB member organisations in developing markets such as Brazil Chinese Taipei and Indonesia experienced impressive growth FPSBrsquos member organisation in Brazil remains a standout performer for the third year in a row with both solid net growth (615 CFPreg professionals) and rate of growth (267) FPSBrsquos member organisation in Chinese Taipei added a net number of 211 CFPreg professionals for a growth rate of 273 while the CFPreg certification body in Indonesia added 164 CFPreg professionals for a growth rate of 132 over the previous year

The Netherlands +3532

Rank

12345678

10

111213

9

United StatesJapanChinaCanadaAustraliaSouth AfricaHong KongRep of Korea

BrazilMalaysiaIndia France

The Netherlands

767602068316878165825601466046203957

2919259820051670

3649

1415161718192021

23242526

22

GermanyIndonesiaChinese Taipei

UKSingaporeIrelandAustria

SwitzerlandNew Zealand

IsrealThailandColombiaTurkey

14741405983962888474320304

22418110-

294

RankTerritory TerritoryCount Count

United States +3079

Brazil +615

Japan +389

China +353

Chinese Taipei +211

CFPreg professionals by territoryGrowth both in terms of adding more CFPreg professionals in existing territories and expanding CFPreg certification to new territories is a key focus area for FPSB The sustained CFPreg professional growth year-to-year along with increased interest in CFPreg certification from new territories greatly supports FPSBrsquos vision to establish financial planning as a recognised global profession

To establish financial planning as a recognised global profession FPSB has set itself an ambitious goal to have 250 000 CFPreg professionals in 40 territories by 2025 With a global CFPreg professional growth rate of 51 last year the FPSB network has made great progress in increasing the publics access to competent and ethical financial planners who work in their clients interest

INTERNATIONAL NEWS

35

INTERNATIONAL NEWS

Landmark legislation assures

will need to be qualified and subject to Code of Ethics

Australians thatfinancial planners

The Financial Planning Association of Australia (FPA) has been commended by local and international affiliates for its role in the introduction of landmark legislation to cement financial planning as a recognised profession in Australia

Promoted for several years by FPA Australia as necessary to benefit consumers and raise professional standards Australiarsquos Parliament passed the Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016 which enshrines the term financial planneradviser in law and restricts use of the term to those who are properly licensed As such any person claiming to be a financial planner in Australia without having the appropriate qualifications to do so will be breaking the law

The legislation package significantly raises the professional standards and education level required of financial planners in Australia upgrading those standards from a short course to includebulladegreequalificationbullcompletionofaprofessionalyearbullsuccessfulcompletionofaregistrationexambullcompletionofongoingcontinuingprofessionaldevelopmentandbulladherencetoacodeofethicsforfinancialplanners

Commenting on the passing of the legislation Noel Maye CEO of Financial Planning Standards Board Ltd (FPSB) owner of the international CERTIFIED FINANCIAL PLANNERreg certification programme outside the United States of America said ldquoThis is a tremendous outcome for the financial planning profession in Australia and yet another step forward in establishing financial planning as a recognised global profession FPSB congratulates FPA Australia on its years of hard work and determination to secure this fantastic recognitionrdquo

ldquoConsumers have long been able to rely on the fact that FPA members and CFPreg professionals subscribe to a Code of Professional Practice and Code of Ethics and meet rigorous education and competency standards Now the public can be assured that everybody holding themselves out as financial planners in Australia will need to be similarly trained experienced and subject to an enforceable code of ethics We are delightedrdquo said Dante De Gori CFPreg CEO of FPA Australia

The legislation will be effective from 1 July 2017 and will involve the establishment of an independent standards setting body to determine the new education standards for any practicing or aspiring financial planner

The Financial Planning Association of Australia (FPA) represents the interests of the public and Australiarsquos professional community of financial planners The Association is unrivalled in its reach of the financial planning market influence on government and regulators standards set through a world-class Code of Professional Practice unique position as the certification body in Australia for the global CFPreg designation and reputation for quality professional development With a growing membership of more than 12 000 members and affiliates FPA is home to Australiarsquos 5 500 CFPreg professionals Building on a 20-year legacy FPA represents the changing face of financial planning from industry to a profession For more information visit wwwfpacomau

About FPA

38

INVESTMENT

By Gavin WoodChief Investment OfficerKagiso Asset Management

ProfoundChanges

in governments

Fiscal stimulus to be pursued by the Trump administration impacts on economic activity and inflation is inherently linked to the types of measures applied and their duration They are generally more impactful when there is large excess capacity

unlike at present Although fiscal stimulus is seldom an enduring boost to growth the change in sentiment its prospect seems to be supporting could be powerful

39

INVESTMENT

2016 marked the beginning of profound change in the world order It was an inflection point for governments central bank power policy stimulus and potentially also for economic growth and inflation

Profound changes in governmentsVoters in the United States and Europe are railing against lsquothe establishmentrsquo and are demanding substantial changeThe new US government will be different to that of the last eight years in material respects Regressive policies on protectionism immigration and global relations will likely be economically negative but will be somewhat balanced by a more favourable US corporate taxation dispensation lighter touch regulations a less repressive environment for the financial sector and potentially increased infrastructure spendingImportantly the new US government should be far more effective at implementing policy given the Republican clean sweep and a cabinet likely to be filled with experienced businessmenIn Europe the Brexit negotiations will bring substantial change The UK has voted for separation from the EU and against immigration and globalisation The UK and the EU face great uncertainties and risk as a result Upcoming elections in important EU countries may also bring anti-establishment surprises and will at the very least see governments sympathising with some of the lsquopopulistrsquo concerns

Changes in central bank powerThe major global central banks played a vital role in stabilising the financial system during and just after the 20082009 financial crisis

Subsequently their actions have been highly unconventional and largely counterproductive Average developed economy policy rates have fallen by nearly 4 while their balance sheets have roughly tripled relative to GDP as a result of aggressive quantitative easing

Directly and materially intervening in financial markets via quantitative easing has boosted asset prices (especially bonds and defensive equities) and disproportionately benefited the wealthy in society Such buying of risky assets below intrinsic value amounts to redistribution from taxpayers to asset sellers

In addition since the crisis many central banks have gained power in areas well outside of their core mandate ndash expanded regulatory scope and greater influence in shaping economic policy They have exhibited a very damaging asymmetric responsiveness to financial market movements and volatility Reacting more to downward moves amounts to an inherent subsidy to financial market risk-takers

Not surprisingly these central banks are perceived by the populist masses as a key part of the establishment and the elite They are symbols of rule by technocrats and experts This hostile sentiment will likely lead to a reduction in central bank power and may even lead to threats to their independence

Change in policy stimulusGiven the perception that monetary policy is increasingly ineffective it is likely that current aggressive monetary stimulus measures will be reined in

Fiscal stimulus to be pursued by the Trump administration impacts on economic activity and inflation are inherently linked to the types of measures applied and their duration They are generally more impactful when there is large excess capacity unlike at present Although fiscal stimulus is seldom an enduring boost to growth the change in sentiment its prospect seems to be supporting could be powerful

Together with tightening monetary policy developed economy yield curves are likely to rise and steepen - a change already underway - with material implications for most financial assets

Inflation may be returningAfter the financial crisis inflation has been stubbornly low in developed economies and there have been fears of Japan-style deflation The trend now seems to be turning with a decline in economic slack particularly in labour markets and energy prices moving higher In addition the populist policy direction is mostly inflationary protectionism raises imported goods prices curbing immigration boosts local wages and fiscal stimulus is inflationary if there is little economic slack

Importantly central banks seem inclined to lag the improvement in global growth and after fighting hard against deflation they may tolerate inflation rebounding to levels above target

Economic growth may be picking upThe current global expansion has been particularly weak on an annualised growth rate basis but of relatively long duration Some have feared a structurally lower growth environment due to the dampening effects of the excessive saving of ageing populations financial sector over-regulation a lower propensity to consume in emerging economies and waning technology innovation for businesses

We believe many of these forces are not permanent A much larger portion of the drag on economic growth was due to households deleveraging after a 20-year credit binge up to the crisis and the private sector sentiment dampening effects of extreme central bank actions Corporates have been eschewing capital expenditure and favouring dividends buybacks and mergers and acquisitions (with inevitable cost cutting and job losses) Consumers have been worried about the low return outlook stagnant incomes economic uncertainty and rising inequality

Global economic growth looks to now be improving after slowing in 2016 to a post-crisis low of 23 it is expected to rise to 27 in 2017 Forward-looking economic surveys are signalling much better times ahead (chart below) with a meaningful recent shift in both the US and the euro area consumer and business confidence A self-sustaining rise in lsquoanimal spiritsrsquo that boosts especially the investment side of the economy could be very good for economic growth

40

INVESTMENT

Developed economy confidence reboundsSouth Africa is differentIntriguingly South African changes under way are mostly in the opposite directions to the developed world

Here there are also likely to be large changes in government in the years ahead The African National Congressrsquo (ANC) elective conference in December 2017 should bring substantial change in leadership as a result of voter pressure to address corruption and general government ineffectiveness We believe these changes will be incrementally positive for the country There may be political and currency volatility in the interim however as the current regime fights to maintain power

In contrast to developed economy central banks the South African Reserve Bank (SARB) has been a shining example of an effective independent central bank Having tightened policy over recent years counter to developed economy trends SARBrsquos next move is likely to be a reduction in rates Also in contrast to developed economy trends the South African government has just ended a countercyclical fiscal stimulus programme which has resulted in large fiscal deficits and rising debt issuance and is now in fiscal consolidation mode as weak economic growth inhibits its ability to grow expenditure

Sentiment is depressed and economic activity is weak and the economy may only expand by 11 in 2017 (despite drought non-recurrence) and 18 in 2018

Global fault linesAmidst the generally positive sentiment around major potential threats include

o Populist nationalistsrsquo election gains in EU electionso Instability from China facing high debt balances and global

trade curbso The unpredictability of the new US president

Outlook for marketsThe lsquoregime changersquo described above of improving sentiment and potentially stronger growth and inflation is a good environment for global equities However on most measures stock market valuations are very high and the continued outperformance of equities is reliant on any economic uptick translating into meaningful company earnings growth and enduring for years [Still] very low bond yields continue to portend very low returns for all asset classes priced with low risk discount rates in mind

The lsquoregimersquo of the past five or six years in financial markets has seen central bank interventions reduce the significance of economic fundamentals and price-insensitive investing strategies (such as passive and momentum) outperform as large caps have dominated and correlations have been high

Quality South African domestic stocks have been particularly strong as price-insensitive global emerging market investors have fed a powerful rerating virtuous cycle

Style analysis shows that value has outperformed growth by a large margin in 2016 for the first time since 2006 We are seeing greater asset price dispersion (chart below) and thus great opportunities for stock picking strategies The lsquoregime changersquo seems to be impacting financial markets and particularly seeing long-term fundamental investing re-emerging as a very lucrative investment inefficiency to exploit

Share price correlation have fallen

41

INVESTMENT

42

By Brian Foster Co-founder Beyond RDR

Threes teesand financial advice fees

always hook up play golf and chat about whatrsquos going on in the world Inevitably the conversation turns to financial stuff and they ask me how itrsquos going here in South Africa Theyrsquove been paying retainer fees for advice since about 2010 and believe that paying a percentage of their assets for financial planning is nuts

If you donrsquot know me or didnrsquot already guess Irsquom a fan of retainer fees and this weekrsquos conversations have led me to write about how and why this happened to me

It just didnrsquot feel rightIn 2009 I was scratching my head and having a frustrated conversation with myself At that time I was charging a percentage of AUM Like most advisers my clients had different amounts of money which meant they paid wildly varying amounts for the services I provided Like many advisers I adjusted the percantage rates for some of those clients to compensate for the difference in wealth levels and what I thought was lsquorightrsquo but it wasnrsquot making sense Irsquod experimented with tiered pricing but making it fit and keeping tabs on everyone was a challenge It was sitting uncomfortably with me It just didnrsquot feel right

There were other challenges too

Some of my clients really wanted and valued the great financial planning services but didnrsquot have that much accumulated capital Must I turn them away because they werenrsquot wealthy enough That didnrsquot feel right

One of my clients had a long-standing relationship with her stock-broker who was holding all the investment money Must I now break this relationship in order to get paid for the financial planning work that he couldnrsquot deliver That didnrsquot feel right

Is financial planning about investment assetsIn order to be commercially successful it seemed I was required to gather and keep the clientsrsquo investment assets If I somehow lsquolostrsquo the assets my fees would go down so this created a whole bunch of challenges and conflicts

Three things happened over the last week which has led me to reflect on charging fees for financial advice

First up were two separate conversations with advisers When I asked what they were seeking to achieve of all the things they could have said they both said ldquoIrsquove got R500m in Assets under Management (AUM) and I want to get to R1bnrdquo When I asked ldquoWhy was this importantrdquo the answers generally amounted to ldquoI want to earn more money and sell my business one dayrdquo

Next was a great membersrsquo webinar held by Paul Armson as part of his Inspiring Advisers community Paul organised the webinar with Alan Smith from Capital Asset Management in the UK to talk about fees for advice or more specifically why Alan had changed from percentage AUM to a retainer fee modelIt created lots of debate Some agreed some disagreed and it ruffled a few feathers and had many advisers vehemently defending percentage AUM for all the reasons wersquove heard beforehellip of course

TeesThe third thing that happened was that I played golf and had dinner with a couple who were clients of my UK financial planning firm for 20 years They come to South Africa every year for a month and we

PRACTICE MANAGEMENT

If markets fell in value my fees would go down Why should I get paid less for delivering great financial planning advice and services And how much control did I actually have over investment values anyway None

bullWhatiftherightthingwasforthisclienttoexitdrawdownandbuyan annuity The money walks

bullWhat if the right thing was for this client tomake gifts to theirchildren or a charity The money walks

bullWhatiftherightthingwasforthisclienttopayofftheirmortgageor other debt The money walks

bullWhat if the right thing was for this client to spend money notaccumulate it The money walks

I figured that if I was truly client-centric and my role was to help clients live the life they really wanted (which is what I said I was doing) then I should not be conflicted by needing to have their money Itrsquos their money not mine

Therersquos a crucial question to consider when thinking about all this ldquoWhat is my rolerdquo As a financial planner is it my role to force people to accumulate money Is it my role to sell people financial products Is it my role to tell people what to do to make or not lose money Is it my role to tell people how they should live their lives

Irsquove tried all those things and they either didnrsquot sit well with me or they didnrsquot sit well with my clients

If yoursquove heard me speak yoursquove probably heard me ask the question ldquoIs the client the client or is the clientrsquos money the clientrdquo ndash The truth is that many of us are distracted by or focused entirely on our clientrsquos money or how WE can benefit from having THEIR investment assets

We define successful firms by how much AUM they have not by the fantastic lives their clients enjoy We describe people as a pound1 million client We set minimum investment thresholds to become a client and we talk about one day selling lsquoourrsquo investment book in order to retire

Think about that last one for a second Are we selling our business Are we selling our client relationships Or are we selling our clientsrsquo money and the revenue it generates

Thinking differentlyWhen I thought about this in 2009 and confronted it the conclusion seemed blindingly obvious to me and I developed two specific services for two sets of clients that solved two specific problems One was for people who didnrsquot know whether they had enough money to live the life they wanted and the other was for people who knew they had too much (or at least more than they needed) Then I worked out what each problem cost the business to solve and then I added a profit margin Finally I removed any element of charging for moving the money around

Then I spent the next God-knows-how-long trying to understand it myself and articulate it with confidence

The first three clients I pitched it to thought it was a great idea and signed up

To be fair I started with clients who were already financially wealthy (including the one mentioned above) but what surprised me were the less wealthy clients who subsequently chose to pay more than they had previously paid when on a percentage basis One of my clients was effectively paying around 2 a year Imagine that Why would anyone in their right mind pay 2 of their investment assets for financial planning advice They could easily have said no and gone somewhere lsquocheaperrsquo but they didnrsquot

But herersquos the question 2 pa of how much And what did they get for that The numbers arenrsquot important Itrsquos the context

The point is it wasnrsquot positioned as 2 of their investment assets and the proposition wasnrsquot about investing investment performance asset allocation and fund selections It was about helping them understand the life they really wanted what trade off decisions they were facing and how to manage them It was priced on the basis of cost of delivery plus a decent margin

Other advisors thought I was barking mad I had moments when I thought so too But it felt like the right thing to do for me and for my clients Clearly Alan Smith feels the same way Hersquos taken it one step further and posted his firmrsquos retainer fees on his website And he doesnrsquot seem to be short of clients

Pressure on pricingTherersquos a stack of pressure on transparency of costs in financial services and a huge amount of this pressure is at the lsquowealth managementrsquo end Vanguard Group in the US is already offering investment management and advice for less than 50 bps Many advisors are trying to get from 05 up to 1 at a time when the market is heading in the other direction so itrsquos going to take more than a conversation about asset allocation and fund selection to make that stack up

Focus on the right thingsAs a final thought how do you get your AUM from R500m to R1bn You either have to gather more assets from your existing clients or more likely bring in new clients Does your business have the capacity and the resources to deliver your service to double the number of clients If it doesnrsquot will you just lsquowing itrsquo anyway

Maybe what you really need to focus on is increasing the profitability of your business revenues And you donrsquot necessarily need to double your AUM to achieve that

Think about ithellip

PRACTICE MANAGEMENT

44

CriticalIllness

How critical is

RISK MANAGEMENT

By Barbara Mundell CFPreg Technical Specialist Financial Planning Institute (FPI)

70 percent of the South African population will be diagnosed with a critical illness during their lifetime With so many critical illness solutions in the market place this is often a complex area of financial planning What do you plan for how much do you need should it be a lump sum or should

it be an income Should your existing disability products not provide for this The sad reality is that most people do not know what to expect from a severe illness Medical enhancements make it possible for more and more people to survive severe illnesses However the question remains what scars will it leave behind not only on the person suffering from a severe illness but hisher families too

When assisting a client with a comprehensive financial plan the clientrsquos affordability to certain solutions are often a problem

Priority of severe illness solutionsSevere illness planning is complex due to different impact the different diseases have With the pressure that medical aid schemes are under with the rising health costs in South Africa how do we determine the value of cover a client needs Do you plan for severe illness as a substitute of income or a lump sum to fund medical costs or both Due to severe illness products that have up to 340 claim events the risks to the insurers is tremendous and hence this tends to be the most expensive financial solution in a clientrsquos portfolio

Should critical illness be prioritised in a financial plan According to Kobus Kleyn CFPreg Chairperson of the FPI Risk Competency Committee critical illness is more than a necessity ldquoThere is absolutely no doubt that any financial plan could never be perceived as comprehensive or holistic if critical illness proposals and cover are not included into the plan over the long term The cover should form part of the plan and should be prioritised according to clientrsquos needs and affordability as well as understanding the importance of this cover as part of the clientrsquos plan I would always structure my clientrsquos plan to incorporate critical illness cover No matter how small or large the cover is cover must be in That way I will be assured that most of my clients have some critical illness cover and importantly it will receive priority no matter the clientrsquos or his familyrsquos health history as critical illness is not pickyrdquo

that the full cover will not pay out There are just too many product providers out there offering so many bells and whistles rather than simple and comprehensive critical illness cover productsrdquo Kleyn added

How should financial planners approach the planning for a critical illness event Ridler commented ldquoThere are many factors to take into account including the clientrsquos personal circumstances The clientrsquos medical aid should play a vital role in the critical illness planning for a clientrdquo

Bruce Fleming CFPreg FPI Financial Planner of the Year 20162017 said that the single most important consideration for critical illness planning is the short- to medium-term financial ramifications of suffering from a dread disease that your medical aid and disability cover will not cover and if the client is financially covered for this

Critical illness at claim stageThis is where most financial planners find joy in their work However the role of the financial planner at claim stage should never be underestimated Kleyn said ldquoWe as human advisors versus robo-advisors is the differentiating factor out there and our noble role as financial planners comes to the fore during our clientsrsquo life events This is when we are there with empathy to help our clients and their families through very tough times Most importantly when we take charge and ensure claims are paid out in full and if not take up the case with product providers and make sure no stone is unturned to the best interest of TCF and our clientrsquos interestrdquo

ldquoOnce the claim is paid out we have a huge role to make sure the quality of life for such a client is taken care of and provide skilful advice on investment for their unique health situation as well as sustainability to make the changes in a clients life following such a critical illness claimrdquo he concluded

The cover pay out can bring a certain level of financial freedom to the client According to Fleming some of the freedoms that the cover can provide includebullNottohavetoreturntoworkimmediatelyandallowyoutorecover

not only physically but also emotionally from your illnessbullAffordnursingcareatyourownhomeshouldthisberequiredbullGetassistanceinandaroundthehousetorecoverproperlybullChildcaretomakesureyourlovedonesarelookedafter

when you cannot shoulder the responsibility andbullGetcounsellingtohelpyoudealwithwhatyouaregoing through

ldquoSuffering a severe illness is taxing physically emotionally and financially There can be a range of unexpected costs including the cost of scaling down

after the illness the probability that the client may want to retire earlier and the need to possibly make significant

changes to their lifestylerdquo says Fleming

In conclusionAs a financial planner critical illness can no longer be regarded as a luxury in a clientrsquos financial plan but rather as a critical component ensuring the best possible outcome for the client in the event of an illness At the time of diagnosis the clients have

more than enough to be concerned about The right critical illness solution can alleviate some of the financial

pressure allowing the client and hisher family to process the emotional and physical trauma

45

RISK MANAGEMENT

Medical aid and gap coverWith the changes in the demarcation regulations clients have lost parts of their piece of mind A majority of medical aid schemes only cover cancer up to a certain point and from there a co-payment applies Since gap cover is limited to R150 000 per insured per event clients are now left exposed to high medical costs

How do the changes in regulation change the way financial planners need to plan for critical illness solutions ldquoThe new demarcation regulations emphasise the three prong approach required to mitigate dread disease risk Medical aid to cover hospitalisation (the biggest risk) gap cover to cover those out-of-pocket expenses that can run to tens of thousands and dread disease cover to provide a lump sum for premium care not covered by medical aid

and recuperation as well as lifestyle changesrdquo said Dawn Ridler CFPreg member of the FPI Risk Competency Committee

Should financial planners consider solutions that have 100 pay-outs on critical illness ldquoI regard it as a priority

and would rather pay more for a comprehensive top up cover policy with less cover than paying less for a lot of cover but not comprehensive It is key for product developers to ensure 100 pay outs rather than tier payments at claim stage It is very disappointing under emotional circumstances to advise a client

46

47

48

BOOK REVIEW

PassionProfession

for the

Mastering the 9 Psto Professionalism

The 9Ps to Professionalism

ldquoWith a vision of a financial services industry that is fully transformed into a profession like so many of its peers To embrace this vision each of us need to give back to the financial advice profession by creating awareness of what we do and sharing best operating practices with our peersrdquo

said Kobus Kleyn CFPreg author of the book

He wrote this book which was launched on 18 March 2017 to share his personal experience as a CERTIFIED FINANCIAL PLANNERreg professional and the lessons learned from his involvement with various affiliations professional bodies and fellow financial planning professionals

The book was written for financial planningadvisory professionals or those aspiring to be across financial disciplines worldwide It outlines a step-by-step process through the nine Prsquos he identified (refer to the diagram below) to transform you from a ldquoproduct selling intermediaryrdquo into a financial planning professional with a strong value proposition code of conduct and ethics as well as a personal brand of note and inclusive of a passive income

49

ProfileData takes pride in being the leading South African financial data feed solutions provider

Our specialised local research teams together with our relationships with international exchanges and dataproviders allow you access to a wide range of data options for both in-house needs and for on-distribution toyour customer base

Profilersquos specialised IT team takes pride in building turnkey solutions that meet the need of the customerspecification at a defined cost Profilersquos on- and off-site IT infrastructure allows cost-effective hosting andsolutions management reducing the need for expensive capital cost

wwwfundsdatacozawwwsharedatacoza wwwsharemagiccoza

Contact Lionell Wobben

082-559-8283 | 011-728-5510

Financial Data Solutions

About the authorKobus Kleyn CERTIFIED FINANCIAL PLANNERreg professional and director at Kainos Financial Services a Liberty Group Affiliate obtained his Postgraduate Degree in Financial Planning at the University of Free State as well as a Management Development Programme (MPD) and AEP from UNISA Business School

He is the current chairperson of the Financial Planning Institutersquos (FPI) Risk Competency Committee Financial Intermediaries Associationrsquos (FIA) RDR Intermediary Workgroup and Liberty Group FA Ethics Committee Kobus serves on the Million Dollar Round Table (MDRT) Income Replacement Committee FPI Annual Convention Committee 2017 and holds the assistant-director for the MDRT PGA Annual Convention 2017 Task Force Committee position

He is also a member of the South African Institute of Tax Professionals (SAIT) FIA and Fiduciary Institute of South Africa (FISA) the Society of Trust and Estate Practitioner (STEP- with a TEP Designation) Financial Intermediaries Association of Southern Africa (FIA) and Ethics SA Kobus has a passion for the financial services profession and works purposefully with other like-minded professionals and stakeholders to transform the industry into a fully-fledged profession through the power of social media print media as well as presenting at industry events

He has authored the book ldquoPassion for the profession- Mastering the 9 Prsquos to Professionalismrdquo as a non-profit publication to the financial profession to give back

Volunteering and recognitionFor the past two years Kobus has been awarded the FPI It Starts with Me Award (2015 and 2016 respectively) for his dedication in promoting and supporting the CFPreg mark and entrenching the CFPreg mark into his work life as well as personal brand The award launched in 2015 also recognised his contribution to the industry by volunteering his time to educate consumers about the value of financial planning and providing valuable input in various FPI committees to make the profession better

Apart from his involvement with FPI he is also an FIA and MDRT volunteer who likes to do pro-bono work wherever possible Kobus was awarded the MDRT Leadership Award in 2014

Godfrey Nti (right) congratulating Kobus Kleyn (left) on his new book Passion for the Profession

BOOK REVIEW

Throughout this book Kobus provides examples of professional behaviour whether it be through enhancing competence professional courtesy or just ensuring that the right thing is done He explains the tenets of being a professional through his own life experiences He further describes how becoming a professional can go a long way in not only enhancing onersquos standing pride respect from peers as well as delivering tangible dividends but also how this can significantly contribute in helping (re)build public trust and thus achieving the ever illusive public recognition of financial services as a profession

This is what Godfrey Nti CEO of the Financial Planning Institute had to say after reading the bookldquoBeing a professional goes beyond a profit motive it speaks to a greater calling to do good to the greater society while changing onersquos own life in the process If you just want to know the value of pro bono and volunteerism for a good cause and how this is key to not only a profession but being a professional then follow Kobusrsquos life journey as passionately narrated in this book This book paints a portrait of the interplay of these major stakeholders in creating the desired outcome a recognised and respected financial planning and advisory profession While we have made significant progress with the first three stakeholders there is still work to be done with respect to gaining public recognition Seeing that all professions have a public service ideal progress on aspect is a must if we are ever going to be recognised as a professionrdquo

ldquoKobusrsquo effortless passion for the profession shines right through in this book His rich life experiences on the journey to becoming a professional are admirable and something that we can all learn from

This book is indeed a must-read for all financial planners and advisors as well as anyone who hopes to fit into the financial services profession of the near futurerdquo Nti added If you are serious about becoming a professional as I am sure you are you will find this book very is interesting and most importantly informative And if you already are a professional in your own right and would like to know how to help create a bigger movement towards establishing a recognised as well as respected financial planning and

advisory profession this book is also for you If you are a student of history and would like to witness the creation of a profession this book is definitely for you as well

FPI members can claim CPD points as prescribed in the FPI CPD Policy for reading this informative book

Need a copyThe book is available directly from Kobus and his team at Kobuskleynliblinkcoza or phone Susan de Goede on (011) 207 7906 The ldquoPassion for the Profession Mastering the 9Ps to Professionalismrdquo book is also available on Amazon Kindle

For the full launch article including cost of this not-for-profit book visit wwwlinkedincompulselaunch-passion-profession-kobus-kleyn-cfp--1

6 FPSB member organisations added

gt200 CFPreg professionals

FPSB member organisations who added over 200 CFPreg professionalsOf note in 2016 was the considerable growth in the Netherlands The territory ended the year with 3 649 CFPreg professionals through a smartly planned consolidation strategy that merged two organisations to embrace CFPreg certification and elevate the financial planning profession as a whole FPSBrsquos member organisation in the United States which boasts the longest running CFPreg certification programme continued its strong showing with a net growth of 3 076 professionals last year FPSBrsquos member organisation in Japan a territory offering CFPreg certification for 25 years had net growth of 389 for a total of 20 683 CFPreg professionals at the end of last year

Within the 26 non-profit member organisations of FPSB member organisations in developing markets such as Brazil Chinese Taipei and Indonesia experienced impressive growth FPSBrsquos member organisation in Brazil remains a standout performer for the third year in a row with both solid net growth (615 CFPreg professionals) and rate of growth (267) FPSBrsquos member organisation in Chinese Taipei added a net number of 211 CFPreg professionals for a growth rate of 273 while the CFPreg certification body in Indonesia added 164 CFPreg professionals for a growth rate of 132 over the previous year

The Netherlands +3532

Rank

12345678

10

111213

9

United StatesJapanChinaCanadaAustraliaSouth AfricaHong KongRep of Korea

BrazilMalaysiaIndia France

The Netherlands

767602068316878165825601466046203957

2919259820051670

3649

1415161718192021

23242526

22

GermanyIndonesiaChinese Taipei

UKSingaporeIrelandAustria

SwitzerlandNew Zealand

IsrealThailandColombiaTurkey

14741405983962888474320304

22418110-

294

RankTerritory TerritoryCount Count

United States +3079

Brazil +615

Japan +389

China +353

Chinese Taipei +211

CFPreg professionals by territoryGrowth both in terms of adding more CFPreg professionals in existing territories and expanding CFPreg certification to new territories is a key focus area for FPSB The sustained CFPreg professional growth year-to-year along with increased interest in CFPreg certification from new territories greatly supports FPSBrsquos vision to establish financial planning as a recognised global profession

To establish financial planning as a recognised global profession FPSB has set itself an ambitious goal to have 250 000 CFPreg professionals in 40 territories by 2025 With a global CFPreg professional growth rate of 51 last year the FPSB network has made great progress in increasing the publics access to competent and ethical financial planners who work in their clients interest

INTERNATIONAL NEWS

35

INTERNATIONAL NEWS

Landmark legislation assures

will need to be qualified and subject to Code of Ethics

Australians thatfinancial planners

The Financial Planning Association of Australia (FPA) has been commended by local and international affiliates for its role in the introduction of landmark legislation to cement financial planning as a recognised profession in Australia

Promoted for several years by FPA Australia as necessary to benefit consumers and raise professional standards Australiarsquos Parliament passed the Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016 which enshrines the term financial planneradviser in law and restricts use of the term to those who are properly licensed As such any person claiming to be a financial planner in Australia without having the appropriate qualifications to do so will be breaking the law

The legislation package significantly raises the professional standards and education level required of financial planners in Australia upgrading those standards from a short course to includebulladegreequalificationbullcompletionofaprofessionalyearbullsuccessfulcompletionofaregistrationexambullcompletionofongoingcontinuingprofessionaldevelopmentandbulladherencetoacodeofethicsforfinancialplanners

Commenting on the passing of the legislation Noel Maye CEO of Financial Planning Standards Board Ltd (FPSB) owner of the international CERTIFIED FINANCIAL PLANNERreg certification programme outside the United States of America said ldquoThis is a tremendous outcome for the financial planning profession in Australia and yet another step forward in establishing financial planning as a recognised global profession FPSB congratulates FPA Australia on its years of hard work and determination to secure this fantastic recognitionrdquo

ldquoConsumers have long been able to rely on the fact that FPA members and CFPreg professionals subscribe to a Code of Professional Practice and Code of Ethics and meet rigorous education and competency standards Now the public can be assured that everybody holding themselves out as financial planners in Australia will need to be similarly trained experienced and subject to an enforceable code of ethics We are delightedrdquo said Dante De Gori CFPreg CEO of FPA Australia

The legislation will be effective from 1 July 2017 and will involve the establishment of an independent standards setting body to determine the new education standards for any practicing or aspiring financial planner

The Financial Planning Association of Australia (FPA) represents the interests of the public and Australiarsquos professional community of financial planners The Association is unrivalled in its reach of the financial planning market influence on government and regulators standards set through a world-class Code of Professional Practice unique position as the certification body in Australia for the global CFPreg designation and reputation for quality professional development With a growing membership of more than 12 000 members and affiliates FPA is home to Australiarsquos 5 500 CFPreg professionals Building on a 20-year legacy FPA represents the changing face of financial planning from industry to a profession For more information visit wwwfpacomau

About FPA

38

INVESTMENT

By Gavin WoodChief Investment OfficerKagiso Asset Management

ProfoundChanges

in governments

Fiscal stimulus to be pursued by the Trump administration impacts on economic activity and inflation is inherently linked to the types of measures applied and their duration They are generally more impactful when there is large excess capacity

unlike at present Although fiscal stimulus is seldom an enduring boost to growth the change in sentiment its prospect seems to be supporting could be powerful

39

INVESTMENT

2016 marked the beginning of profound change in the world order It was an inflection point for governments central bank power policy stimulus and potentially also for economic growth and inflation

Profound changes in governmentsVoters in the United States and Europe are railing against lsquothe establishmentrsquo and are demanding substantial changeThe new US government will be different to that of the last eight years in material respects Regressive policies on protectionism immigration and global relations will likely be economically negative but will be somewhat balanced by a more favourable US corporate taxation dispensation lighter touch regulations a less repressive environment for the financial sector and potentially increased infrastructure spendingImportantly the new US government should be far more effective at implementing policy given the Republican clean sweep and a cabinet likely to be filled with experienced businessmenIn Europe the Brexit negotiations will bring substantial change The UK has voted for separation from the EU and against immigration and globalisation The UK and the EU face great uncertainties and risk as a result Upcoming elections in important EU countries may also bring anti-establishment surprises and will at the very least see governments sympathising with some of the lsquopopulistrsquo concerns

Changes in central bank powerThe major global central banks played a vital role in stabilising the financial system during and just after the 20082009 financial crisis

Subsequently their actions have been highly unconventional and largely counterproductive Average developed economy policy rates have fallen by nearly 4 while their balance sheets have roughly tripled relative to GDP as a result of aggressive quantitative easing

Directly and materially intervening in financial markets via quantitative easing has boosted asset prices (especially bonds and defensive equities) and disproportionately benefited the wealthy in society Such buying of risky assets below intrinsic value amounts to redistribution from taxpayers to asset sellers

In addition since the crisis many central banks have gained power in areas well outside of their core mandate ndash expanded regulatory scope and greater influence in shaping economic policy They have exhibited a very damaging asymmetric responsiveness to financial market movements and volatility Reacting more to downward moves amounts to an inherent subsidy to financial market risk-takers

Not surprisingly these central banks are perceived by the populist masses as a key part of the establishment and the elite They are symbols of rule by technocrats and experts This hostile sentiment will likely lead to a reduction in central bank power and may even lead to threats to their independence

Change in policy stimulusGiven the perception that monetary policy is increasingly ineffective it is likely that current aggressive monetary stimulus measures will be reined in

Fiscal stimulus to be pursued by the Trump administration impacts on economic activity and inflation are inherently linked to the types of measures applied and their duration They are generally more impactful when there is large excess capacity unlike at present Although fiscal stimulus is seldom an enduring boost to growth the change in sentiment its prospect seems to be supporting could be powerful

Together with tightening monetary policy developed economy yield curves are likely to rise and steepen - a change already underway - with material implications for most financial assets

Inflation may be returningAfter the financial crisis inflation has been stubbornly low in developed economies and there have been fears of Japan-style deflation The trend now seems to be turning with a decline in economic slack particularly in labour markets and energy prices moving higher In addition the populist policy direction is mostly inflationary protectionism raises imported goods prices curbing immigration boosts local wages and fiscal stimulus is inflationary if there is little economic slack

Importantly central banks seem inclined to lag the improvement in global growth and after fighting hard against deflation they may tolerate inflation rebounding to levels above target

Economic growth may be picking upThe current global expansion has been particularly weak on an annualised growth rate basis but of relatively long duration Some have feared a structurally lower growth environment due to the dampening effects of the excessive saving of ageing populations financial sector over-regulation a lower propensity to consume in emerging economies and waning technology innovation for businesses

We believe many of these forces are not permanent A much larger portion of the drag on economic growth was due to households deleveraging after a 20-year credit binge up to the crisis and the private sector sentiment dampening effects of extreme central bank actions Corporates have been eschewing capital expenditure and favouring dividends buybacks and mergers and acquisitions (with inevitable cost cutting and job losses) Consumers have been worried about the low return outlook stagnant incomes economic uncertainty and rising inequality

Global economic growth looks to now be improving after slowing in 2016 to a post-crisis low of 23 it is expected to rise to 27 in 2017 Forward-looking economic surveys are signalling much better times ahead (chart below) with a meaningful recent shift in both the US and the euro area consumer and business confidence A self-sustaining rise in lsquoanimal spiritsrsquo that boosts especially the investment side of the economy could be very good for economic growth

40

INVESTMENT

Developed economy confidence reboundsSouth Africa is differentIntriguingly South African changes under way are mostly in the opposite directions to the developed world

Here there are also likely to be large changes in government in the years ahead The African National Congressrsquo (ANC) elective conference in December 2017 should bring substantial change in leadership as a result of voter pressure to address corruption and general government ineffectiveness We believe these changes will be incrementally positive for the country There may be political and currency volatility in the interim however as the current regime fights to maintain power

In contrast to developed economy central banks the South African Reserve Bank (SARB) has been a shining example of an effective independent central bank Having tightened policy over recent years counter to developed economy trends SARBrsquos next move is likely to be a reduction in rates Also in contrast to developed economy trends the South African government has just ended a countercyclical fiscal stimulus programme which has resulted in large fiscal deficits and rising debt issuance and is now in fiscal consolidation mode as weak economic growth inhibits its ability to grow expenditure

Sentiment is depressed and economic activity is weak and the economy may only expand by 11 in 2017 (despite drought non-recurrence) and 18 in 2018

Global fault linesAmidst the generally positive sentiment around major potential threats include

o Populist nationalistsrsquo election gains in EU electionso Instability from China facing high debt balances and global

trade curbso The unpredictability of the new US president

Outlook for marketsThe lsquoregime changersquo described above of improving sentiment and potentially stronger growth and inflation is a good environment for global equities However on most measures stock market valuations are very high and the continued outperformance of equities is reliant on any economic uptick translating into meaningful company earnings growth and enduring for years [Still] very low bond yields continue to portend very low returns for all asset classes priced with low risk discount rates in mind

The lsquoregimersquo of the past five or six years in financial markets has seen central bank interventions reduce the significance of economic fundamentals and price-insensitive investing strategies (such as passive and momentum) outperform as large caps have dominated and correlations have been high

Quality South African domestic stocks have been particularly strong as price-insensitive global emerging market investors have fed a powerful rerating virtuous cycle

Style analysis shows that value has outperformed growth by a large margin in 2016 for the first time since 2006 We are seeing greater asset price dispersion (chart below) and thus great opportunities for stock picking strategies The lsquoregime changersquo seems to be impacting financial markets and particularly seeing long-term fundamental investing re-emerging as a very lucrative investment inefficiency to exploit

Share price correlation have fallen

41

INVESTMENT

42

By Brian Foster Co-founder Beyond RDR

Threes teesand financial advice fees

always hook up play golf and chat about whatrsquos going on in the world Inevitably the conversation turns to financial stuff and they ask me how itrsquos going here in South Africa Theyrsquove been paying retainer fees for advice since about 2010 and believe that paying a percentage of their assets for financial planning is nuts

If you donrsquot know me or didnrsquot already guess Irsquom a fan of retainer fees and this weekrsquos conversations have led me to write about how and why this happened to me

It just didnrsquot feel rightIn 2009 I was scratching my head and having a frustrated conversation with myself At that time I was charging a percentage of AUM Like most advisers my clients had different amounts of money which meant they paid wildly varying amounts for the services I provided Like many advisers I adjusted the percantage rates for some of those clients to compensate for the difference in wealth levels and what I thought was lsquorightrsquo but it wasnrsquot making sense Irsquod experimented with tiered pricing but making it fit and keeping tabs on everyone was a challenge It was sitting uncomfortably with me It just didnrsquot feel right

There were other challenges too

Some of my clients really wanted and valued the great financial planning services but didnrsquot have that much accumulated capital Must I turn them away because they werenrsquot wealthy enough That didnrsquot feel right

One of my clients had a long-standing relationship with her stock-broker who was holding all the investment money Must I now break this relationship in order to get paid for the financial planning work that he couldnrsquot deliver That didnrsquot feel right

Is financial planning about investment assetsIn order to be commercially successful it seemed I was required to gather and keep the clientsrsquo investment assets If I somehow lsquolostrsquo the assets my fees would go down so this created a whole bunch of challenges and conflicts

Three things happened over the last week which has led me to reflect on charging fees for financial advice

First up were two separate conversations with advisers When I asked what they were seeking to achieve of all the things they could have said they both said ldquoIrsquove got R500m in Assets under Management (AUM) and I want to get to R1bnrdquo When I asked ldquoWhy was this importantrdquo the answers generally amounted to ldquoI want to earn more money and sell my business one dayrdquo

Next was a great membersrsquo webinar held by Paul Armson as part of his Inspiring Advisers community Paul organised the webinar with Alan Smith from Capital Asset Management in the UK to talk about fees for advice or more specifically why Alan had changed from percentage AUM to a retainer fee modelIt created lots of debate Some agreed some disagreed and it ruffled a few feathers and had many advisers vehemently defending percentage AUM for all the reasons wersquove heard beforehellip of course

TeesThe third thing that happened was that I played golf and had dinner with a couple who were clients of my UK financial planning firm for 20 years They come to South Africa every year for a month and we

PRACTICE MANAGEMENT

If markets fell in value my fees would go down Why should I get paid less for delivering great financial planning advice and services And how much control did I actually have over investment values anyway None

bullWhatiftherightthingwasforthisclienttoexitdrawdownandbuyan annuity The money walks

bullWhat if the right thing was for this client tomake gifts to theirchildren or a charity The money walks

bullWhatiftherightthingwasforthisclienttopayofftheirmortgageor other debt The money walks

bullWhat if the right thing was for this client to spend money notaccumulate it The money walks

I figured that if I was truly client-centric and my role was to help clients live the life they really wanted (which is what I said I was doing) then I should not be conflicted by needing to have their money Itrsquos their money not mine

Therersquos a crucial question to consider when thinking about all this ldquoWhat is my rolerdquo As a financial planner is it my role to force people to accumulate money Is it my role to sell people financial products Is it my role to tell people what to do to make or not lose money Is it my role to tell people how they should live their lives

Irsquove tried all those things and they either didnrsquot sit well with me or they didnrsquot sit well with my clients

If yoursquove heard me speak yoursquove probably heard me ask the question ldquoIs the client the client or is the clientrsquos money the clientrdquo ndash The truth is that many of us are distracted by or focused entirely on our clientrsquos money or how WE can benefit from having THEIR investment assets

We define successful firms by how much AUM they have not by the fantastic lives their clients enjoy We describe people as a pound1 million client We set minimum investment thresholds to become a client and we talk about one day selling lsquoourrsquo investment book in order to retire

Think about that last one for a second Are we selling our business Are we selling our client relationships Or are we selling our clientsrsquo money and the revenue it generates

Thinking differentlyWhen I thought about this in 2009 and confronted it the conclusion seemed blindingly obvious to me and I developed two specific services for two sets of clients that solved two specific problems One was for people who didnrsquot know whether they had enough money to live the life they wanted and the other was for people who knew they had too much (or at least more than they needed) Then I worked out what each problem cost the business to solve and then I added a profit margin Finally I removed any element of charging for moving the money around

Then I spent the next God-knows-how-long trying to understand it myself and articulate it with confidence

The first three clients I pitched it to thought it was a great idea and signed up

To be fair I started with clients who were already financially wealthy (including the one mentioned above) but what surprised me were the less wealthy clients who subsequently chose to pay more than they had previously paid when on a percentage basis One of my clients was effectively paying around 2 a year Imagine that Why would anyone in their right mind pay 2 of their investment assets for financial planning advice They could easily have said no and gone somewhere lsquocheaperrsquo but they didnrsquot

But herersquos the question 2 pa of how much And what did they get for that The numbers arenrsquot important Itrsquos the context

The point is it wasnrsquot positioned as 2 of their investment assets and the proposition wasnrsquot about investing investment performance asset allocation and fund selections It was about helping them understand the life they really wanted what trade off decisions they were facing and how to manage them It was priced on the basis of cost of delivery plus a decent margin

Other advisors thought I was barking mad I had moments when I thought so too But it felt like the right thing to do for me and for my clients Clearly Alan Smith feels the same way Hersquos taken it one step further and posted his firmrsquos retainer fees on his website And he doesnrsquot seem to be short of clients

Pressure on pricingTherersquos a stack of pressure on transparency of costs in financial services and a huge amount of this pressure is at the lsquowealth managementrsquo end Vanguard Group in the US is already offering investment management and advice for less than 50 bps Many advisors are trying to get from 05 up to 1 at a time when the market is heading in the other direction so itrsquos going to take more than a conversation about asset allocation and fund selection to make that stack up

Focus on the right thingsAs a final thought how do you get your AUM from R500m to R1bn You either have to gather more assets from your existing clients or more likely bring in new clients Does your business have the capacity and the resources to deliver your service to double the number of clients If it doesnrsquot will you just lsquowing itrsquo anyway

Maybe what you really need to focus on is increasing the profitability of your business revenues And you donrsquot necessarily need to double your AUM to achieve that

Think about ithellip

PRACTICE MANAGEMENT

44

CriticalIllness

How critical is

RISK MANAGEMENT

By Barbara Mundell CFPreg Technical Specialist Financial Planning Institute (FPI)

70 percent of the South African population will be diagnosed with a critical illness during their lifetime With so many critical illness solutions in the market place this is often a complex area of financial planning What do you plan for how much do you need should it be a lump sum or should

it be an income Should your existing disability products not provide for this The sad reality is that most people do not know what to expect from a severe illness Medical enhancements make it possible for more and more people to survive severe illnesses However the question remains what scars will it leave behind not only on the person suffering from a severe illness but hisher families too

When assisting a client with a comprehensive financial plan the clientrsquos affordability to certain solutions are often a problem

Priority of severe illness solutionsSevere illness planning is complex due to different impact the different diseases have With the pressure that medical aid schemes are under with the rising health costs in South Africa how do we determine the value of cover a client needs Do you plan for severe illness as a substitute of income or a lump sum to fund medical costs or both Due to severe illness products that have up to 340 claim events the risks to the insurers is tremendous and hence this tends to be the most expensive financial solution in a clientrsquos portfolio

Should critical illness be prioritised in a financial plan According to Kobus Kleyn CFPreg Chairperson of the FPI Risk Competency Committee critical illness is more than a necessity ldquoThere is absolutely no doubt that any financial plan could never be perceived as comprehensive or holistic if critical illness proposals and cover are not included into the plan over the long term The cover should form part of the plan and should be prioritised according to clientrsquos needs and affordability as well as understanding the importance of this cover as part of the clientrsquos plan I would always structure my clientrsquos plan to incorporate critical illness cover No matter how small or large the cover is cover must be in That way I will be assured that most of my clients have some critical illness cover and importantly it will receive priority no matter the clientrsquos or his familyrsquos health history as critical illness is not pickyrdquo

that the full cover will not pay out There are just too many product providers out there offering so many bells and whistles rather than simple and comprehensive critical illness cover productsrdquo Kleyn added

How should financial planners approach the planning for a critical illness event Ridler commented ldquoThere are many factors to take into account including the clientrsquos personal circumstances The clientrsquos medical aid should play a vital role in the critical illness planning for a clientrdquo

Bruce Fleming CFPreg FPI Financial Planner of the Year 20162017 said that the single most important consideration for critical illness planning is the short- to medium-term financial ramifications of suffering from a dread disease that your medical aid and disability cover will not cover and if the client is financially covered for this

Critical illness at claim stageThis is where most financial planners find joy in their work However the role of the financial planner at claim stage should never be underestimated Kleyn said ldquoWe as human advisors versus robo-advisors is the differentiating factor out there and our noble role as financial planners comes to the fore during our clientsrsquo life events This is when we are there with empathy to help our clients and their families through very tough times Most importantly when we take charge and ensure claims are paid out in full and if not take up the case with product providers and make sure no stone is unturned to the best interest of TCF and our clientrsquos interestrdquo

ldquoOnce the claim is paid out we have a huge role to make sure the quality of life for such a client is taken care of and provide skilful advice on investment for their unique health situation as well as sustainability to make the changes in a clients life following such a critical illness claimrdquo he concluded

The cover pay out can bring a certain level of financial freedom to the client According to Fleming some of the freedoms that the cover can provide includebullNottohavetoreturntoworkimmediatelyandallowyoutorecover

not only physically but also emotionally from your illnessbullAffordnursingcareatyourownhomeshouldthisberequiredbullGetassistanceinandaroundthehousetorecoverproperlybullChildcaretomakesureyourlovedonesarelookedafter

when you cannot shoulder the responsibility andbullGetcounsellingtohelpyoudealwithwhatyouaregoing through

ldquoSuffering a severe illness is taxing physically emotionally and financially There can be a range of unexpected costs including the cost of scaling down

after the illness the probability that the client may want to retire earlier and the need to possibly make significant

changes to their lifestylerdquo says Fleming

In conclusionAs a financial planner critical illness can no longer be regarded as a luxury in a clientrsquos financial plan but rather as a critical component ensuring the best possible outcome for the client in the event of an illness At the time of diagnosis the clients have

more than enough to be concerned about The right critical illness solution can alleviate some of the financial

pressure allowing the client and hisher family to process the emotional and physical trauma

45

RISK MANAGEMENT

Medical aid and gap coverWith the changes in the demarcation regulations clients have lost parts of their piece of mind A majority of medical aid schemes only cover cancer up to a certain point and from there a co-payment applies Since gap cover is limited to R150 000 per insured per event clients are now left exposed to high medical costs

How do the changes in regulation change the way financial planners need to plan for critical illness solutions ldquoThe new demarcation regulations emphasise the three prong approach required to mitigate dread disease risk Medical aid to cover hospitalisation (the biggest risk) gap cover to cover those out-of-pocket expenses that can run to tens of thousands and dread disease cover to provide a lump sum for premium care not covered by medical aid

and recuperation as well as lifestyle changesrdquo said Dawn Ridler CFPreg member of the FPI Risk Competency Committee

Should financial planners consider solutions that have 100 pay-outs on critical illness ldquoI regard it as a priority

and would rather pay more for a comprehensive top up cover policy with less cover than paying less for a lot of cover but not comprehensive It is key for product developers to ensure 100 pay outs rather than tier payments at claim stage It is very disappointing under emotional circumstances to advise a client

46

47

48

BOOK REVIEW

PassionProfession

for the

Mastering the 9 Psto Professionalism

The 9Ps to Professionalism

ldquoWith a vision of a financial services industry that is fully transformed into a profession like so many of its peers To embrace this vision each of us need to give back to the financial advice profession by creating awareness of what we do and sharing best operating practices with our peersrdquo

said Kobus Kleyn CFPreg author of the book

He wrote this book which was launched on 18 March 2017 to share his personal experience as a CERTIFIED FINANCIAL PLANNERreg professional and the lessons learned from his involvement with various affiliations professional bodies and fellow financial planning professionals

The book was written for financial planningadvisory professionals or those aspiring to be across financial disciplines worldwide It outlines a step-by-step process through the nine Prsquos he identified (refer to the diagram below) to transform you from a ldquoproduct selling intermediaryrdquo into a financial planning professional with a strong value proposition code of conduct and ethics as well as a personal brand of note and inclusive of a passive income

49

ProfileData takes pride in being the leading South African financial data feed solutions provider

Our specialised local research teams together with our relationships with international exchanges and dataproviders allow you access to a wide range of data options for both in-house needs and for on-distribution toyour customer base

Profilersquos specialised IT team takes pride in building turnkey solutions that meet the need of the customerspecification at a defined cost Profilersquos on- and off-site IT infrastructure allows cost-effective hosting andsolutions management reducing the need for expensive capital cost

wwwfundsdatacozawwwsharedatacoza wwwsharemagiccoza

Contact Lionell Wobben

082-559-8283 | 011-728-5510

Financial Data Solutions

About the authorKobus Kleyn CERTIFIED FINANCIAL PLANNERreg professional and director at Kainos Financial Services a Liberty Group Affiliate obtained his Postgraduate Degree in Financial Planning at the University of Free State as well as a Management Development Programme (MPD) and AEP from UNISA Business School

He is the current chairperson of the Financial Planning Institutersquos (FPI) Risk Competency Committee Financial Intermediaries Associationrsquos (FIA) RDR Intermediary Workgroup and Liberty Group FA Ethics Committee Kobus serves on the Million Dollar Round Table (MDRT) Income Replacement Committee FPI Annual Convention Committee 2017 and holds the assistant-director for the MDRT PGA Annual Convention 2017 Task Force Committee position

He is also a member of the South African Institute of Tax Professionals (SAIT) FIA and Fiduciary Institute of South Africa (FISA) the Society of Trust and Estate Practitioner (STEP- with a TEP Designation) Financial Intermediaries Association of Southern Africa (FIA) and Ethics SA Kobus has a passion for the financial services profession and works purposefully with other like-minded professionals and stakeholders to transform the industry into a fully-fledged profession through the power of social media print media as well as presenting at industry events

He has authored the book ldquoPassion for the profession- Mastering the 9 Prsquos to Professionalismrdquo as a non-profit publication to the financial profession to give back

Volunteering and recognitionFor the past two years Kobus has been awarded the FPI It Starts with Me Award (2015 and 2016 respectively) for his dedication in promoting and supporting the CFPreg mark and entrenching the CFPreg mark into his work life as well as personal brand The award launched in 2015 also recognised his contribution to the industry by volunteering his time to educate consumers about the value of financial planning and providing valuable input in various FPI committees to make the profession better

Apart from his involvement with FPI he is also an FIA and MDRT volunteer who likes to do pro-bono work wherever possible Kobus was awarded the MDRT Leadership Award in 2014

Godfrey Nti (right) congratulating Kobus Kleyn (left) on his new book Passion for the Profession

BOOK REVIEW

Throughout this book Kobus provides examples of professional behaviour whether it be through enhancing competence professional courtesy or just ensuring that the right thing is done He explains the tenets of being a professional through his own life experiences He further describes how becoming a professional can go a long way in not only enhancing onersquos standing pride respect from peers as well as delivering tangible dividends but also how this can significantly contribute in helping (re)build public trust and thus achieving the ever illusive public recognition of financial services as a profession

This is what Godfrey Nti CEO of the Financial Planning Institute had to say after reading the bookldquoBeing a professional goes beyond a profit motive it speaks to a greater calling to do good to the greater society while changing onersquos own life in the process If you just want to know the value of pro bono and volunteerism for a good cause and how this is key to not only a profession but being a professional then follow Kobusrsquos life journey as passionately narrated in this book This book paints a portrait of the interplay of these major stakeholders in creating the desired outcome a recognised and respected financial planning and advisory profession While we have made significant progress with the first three stakeholders there is still work to be done with respect to gaining public recognition Seeing that all professions have a public service ideal progress on aspect is a must if we are ever going to be recognised as a professionrdquo

ldquoKobusrsquo effortless passion for the profession shines right through in this book His rich life experiences on the journey to becoming a professional are admirable and something that we can all learn from

This book is indeed a must-read for all financial planners and advisors as well as anyone who hopes to fit into the financial services profession of the near futurerdquo Nti added If you are serious about becoming a professional as I am sure you are you will find this book very is interesting and most importantly informative And if you already are a professional in your own right and would like to know how to help create a bigger movement towards establishing a recognised as well as respected financial planning and

advisory profession this book is also for you If you are a student of history and would like to witness the creation of a profession this book is definitely for you as well

FPI members can claim CPD points as prescribed in the FPI CPD Policy for reading this informative book

Need a copyThe book is available directly from Kobus and his team at Kobuskleynliblinkcoza or phone Susan de Goede on (011) 207 7906 The ldquoPassion for the Profession Mastering the 9Ps to Professionalismrdquo book is also available on Amazon Kindle

For the full launch article including cost of this not-for-profit book visit wwwlinkedincompulselaunch-passion-profession-kobus-kleyn-cfp--1

INTERNATIONAL NEWS

Landmark legislation assures

will need to be qualified and subject to Code of Ethics

Australians thatfinancial planners

The Financial Planning Association of Australia (FPA) has been commended by local and international affiliates for its role in the introduction of landmark legislation to cement financial planning as a recognised profession in Australia

Promoted for several years by FPA Australia as necessary to benefit consumers and raise professional standards Australiarsquos Parliament passed the Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016 which enshrines the term financial planneradviser in law and restricts use of the term to those who are properly licensed As such any person claiming to be a financial planner in Australia without having the appropriate qualifications to do so will be breaking the law

The legislation package significantly raises the professional standards and education level required of financial planners in Australia upgrading those standards from a short course to includebulladegreequalificationbullcompletionofaprofessionalyearbullsuccessfulcompletionofaregistrationexambullcompletionofongoingcontinuingprofessionaldevelopmentandbulladherencetoacodeofethicsforfinancialplanners

Commenting on the passing of the legislation Noel Maye CEO of Financial Planning Standards Board Ltd (FPSB) owner of the international CERTIFIED FINANCIAL PLANNERreg certification programme outside the United States of America said ldquoThis is a tremendous outcome for the financial planning profession in Australia and yet another step forward in establishing financial planning as a recognised global profession FPSB congratulates FPA Australia on its years of hard work and determination to secure this fantastic recognitionrdquo

ldquoConsumers have long been able to rely on the fact that FPA members and CFPreg professionals subscribe to a Code of Professional Practice and Code of Ethics and meet rigorous education and competency standards Now the public can be assured that everybody holding themselves out as financial planners in Australia will need to be similarly trained experienced and subject to an enforceable code of ethics We are delightedrdquo said Dante De Gori CFPreg CEO of FPA Australia

The legislation will be effective from 1 July 2017 and will involve the establishment of an independent standards setting body to determine the new education standards for any practicing or aspiring financial planner

The Financial Planning Association of Australia (FPA) represents the interests of the public and Australiarsquos professional community of financial planners The Association is unrivalled in its reach of the financial planning market influence on government and regulators standards set through a world-class Code of Professional Practice unique position as the certification body in Australia for the global CFPreg designation and reputation for quality professional development With a growing membership of more than 12 000 members and affiliates FPA is home to Australiarsquos 5 500 CFPreg professionals Building on a 20-year legacy FPA represents the changing face of financial planning from industry to a profession For more information visit wwwfpacomau

About FPA

38

INVESTMENT

By Gavin WoodChief Investment OfficerKagiso Asset Management

ProfoundChanges

in governments

Fiscal stimulus to be pursued by the Trump administration impacts on economic activity and inflation is inherently linked to the types of measures applied and their duration They are generally more impactful when there is large excess capacity

unlike at present Although fiscal stimulus is seldom an enduring boost to growth the change in sentiment its prospect seems to be supporting could be powerful

39

INVESTMENT

2016 marked the beginning of profound change in the world order It was an inflection point for governments central bank power policy stimulus and potentially also for economic growth and inflation

Profound changes in governmentsVoters in the United States and Europe are railing against lsquothe establishmentrsquo and are demanding substantial changeThe new US government will be different to that of the last eight years in material respects Regressive policies on protectionism immigration and global relations will likely be economically negative but will be somewhat balanced by a more favourable US corporate taxation dispensation lighter touch regulations a less repressive environment for the financial sector and potentially increased infrastructure spendingImportantly the new US government should be far more effective at implementing policy given the Republican clean sweep and a cabinet likely to be filled with experienced businessmenIn Europe the Brexit negotiations will bring substantial change The UK has voted for separation from the EU and against immigration and globalisation The UK and the EU face great uncertainties and risk as a result Upcoming elections in important EU countries may also bring anti-establishment surprises and will at the very least see governments sympathising with some of the lsquopopulistrsquo concerns

Changes in central bank powerThe major global central banks played a vital role in stabilising the financial system during and just after the 20082009 financial crisis

Subsequently their actions have been highly unconventional and largely counterproductive Average developed economy policy rates have fallen by nearly 4 while their balance sheets have roughly tripled relative to GDP as a result of aggressive quantitative easing

Directly and materially intervening in financial markets via quantitative easing has boosted asset prices (especially bonds and defensive equities) and disproportionately benefited the wealthy in society Such buying of risky assets below intrinsic value amounts to redistribution from taxpayers to asset sellers

In addition since the crisis many central banks have gained power in areas well outside of their core mandate ndash expanded regulatory scope and greater influence in shaping economic policy They have exhibited a very damaging asymmetric responsiveness to financial market movements and volatility Reacting more to downward moves amounts to an inherent subsidy to financial market risk-takers

Not surprisingly these central banks are perceived by the populist masses as a key part of the establishment and the elite They are symbols of rule by technocrats and experts This hostile sentiment will likely lead to a reduction in central bank power and may even lead to threats to their independence

Change in policy stimulusGiven the perception that monetary policy is increasingly ineffective it is likely that current aggressive monetary stimulus measures will be reined in

Fiscal stimulus to be pursued by the Trump administration impacts on economic activity and inflation are inherently linked to the types of measures applied and their duration They are generally more impactful when there is large excess capacity unlike at present Although fiscal stimulus is seldom an enduring boost to growth the change in sentiment its prospect seems to be supporting could be powerful

Together with tightening monetary policy developed economy yield curves are likely to rise and steepen - a change already underway - with material implications for most financial assets

Inflation may be returningAfter the financial crisis inflation has been stubbornly low in developed economies and there have been fears of Japan-style deflation The trend now seems to be turning with a decline in economic slack particularly in labour markets and energy prices moving higher In addition the populist policy direction is mostly inflationary protectionism raises imported goods prices curbing immigration boosts local wages and fiscal stimulus is inflationary if there is little economic slack

Importantly central banks seem inclined to lag the improvement in global growth and after fighting hard against deflation they may tolerate inflation rebounding to levels above target

Economic growth may be picking upThe current global expansion has been particularly weak on an annualised growth rate basis but of relatively long duration Some have feared a structurally lower growth environment due to the dampening effects of the excessive saving of ageing populations financial sector over-regulation a lower propensity to consume in emerging economies and waning technology innovation for businesses

We believe many of these forces are not permanent A much larger portion of the drag on economic growth was due to households deleveraging after a 20-year credit binge up to the crisis and the private sector sentiment dampening effects of extreme central bank actions Corporates have been eschewing capital expenditure and favouring dividends buybacks and mergers and acquisitions (with inevitable cost cutting and job losses) Consumers have been worried about the low return outlook stagnant incomes economic uncertainty and rising inequality

Global economic growth looks to now be improving after slowing in 2016 to a post-crisis low of 23 it is expected to rise to 27 in 2017 Forward-looking economic surveys are signalling much better times ahead (chart below) with a meaningful recent shift in both the US and the euro area consumer and business confidence A self-sustaining rise in lsquoanimal spiritsrsquo that boosts especially the investment side of the economy could be very good for economic growth

40

INVESTMENT

Developed economy confidence reboundsSouth Africa is differentIntriguingly South African changes under way are mostly in the opposite directions to the developed world

Here there are also likely to be large changes in government in the years ahead The African National Congressrsquo (ANC) elective conference in December 2017 should bring substantial change in leadership as a result of voter pressure to address corruption and general government ineffectiveness We believe these changes will be incrementally positive for the country There may be political and currency volatility in the interim however as the current regime fights to maintain power

In contrast to developed economy central banks the South African Reserve Bank (SARB) has been a shining example of an effective independent central bank Having tightened policy over recent years counter to developed economy trends SARBrsquos next move is likely to be a reduction in rates Also in contrast to developed economy trends the South African government has just ended a countercyclical fiscal stimulus programme which has resulted in large fiscal deficits and rising debt issuance and is now in fiscal consolidation mode as weak economic growth inhibits its ability to grow expenditure

Sentiment is depressed and economic activity is weak and the economy may only expand by 11 in 2017 (despite drought non-recurrence) and 18 in 2018

Global fault linesAmidst the generally positive sentiment around major potential threats include

o Populist nationalistsrsquo election gains in EU electionso Instability from China facing high debt balances and global

trade curbso The unpredictability of the new US president

Outlook for marketsThe lsquoregime changersquo described above of improving sentiment and potentially stronger growth and inflation is a good environment for global equities However on most measures stock market valuations are very high and the continued outperformance of equities is reliant on any economic uptick translating into meaningful company earnings growth and enduring for years [Still] very low bond yields continue to portend very low returns for all asset classes priced with low risk discount rates in mind

The lsquoregimersquo of the past five or six years in financial markets has seen central bank interventions reduce the significance of economic fundamentals and price-insensitive investing strategies (such as passive and momentum) outperform as large caps have dominated and correlations have been high

Quality South African domestic stocks have been particularly strong as price-insensitive global emerging market investors have fed a powerful rerating virtuous cycle

Style analysis shows that value has outperformed growth by a large margin in 2016 for the first time since 2006 We are seeing greater asset price dispersion (chart below) and thus great opportunities for stock picking strategies The lsquoregime changersquo seems to be impacting financial markets and particularly seeing long-term fundamental investing re-emerging as a very lucrative investment inefficiency to exploit

Share price correlation have fallen

41

INVESTMENT

42

By Brian Foster Co-founder Beyond RDR

Threes teesand financial advice fees

always hook up play golf and chat about whatrsquos going on in the world Inevitably the conversation turns to financial stuff and they ask me how itrsquos going here in South Africa Theyrsquove been paying retainer fees for advice since about 2010 and believe that paying a percentage of their assets for financial planning is nuts

If you donrsquot know me or didnrsquot already guess Irsquom a fan of retainer fees and this weekrsquos conversations have led me to write about how and why this happened to me

It just didnrsquot feel rightIn 2009 I was scratching my head and having a frustrated conversation with myself At that time I was charging a percentage of AUM Like most advisers my clients had different amounts of money which meant they paid wildly varying amounts for the services I provided Like many advisers I adjusted the percantage rates for some of those clients to compensate for the difference in wealth levels and what I thought was lsquorightrsquo but it wasnrsquot making sense Irsquod experimented with tiered pricing but making it fit and keeping tabs on everyone was a challenge It was sitting uncomfortably with me It just didnrsquot feel right

There were other challenges too

Some of my clients really wanted and valued the great financial planning services but didnrsquot have that much accumulated capital Must I turn them away because they werenrsquot wealthy enough That didnrsquot feel right

One of my clients had a long-standing relationship with her stock-broker who was holding all the investment money Must I now break this relationship in order to get paid for the financial planning work that he couldnrsquot deliver That didnrsquot feel right

Is financial planning about investment assetsIn order to be commercially successful it seemed I was required to gather and keep the clientsrsquo investment assets If I somehow lsquolostrsquo the assets my fees would go down so this created a whole bunch of challenges and conflicts

Three things happened over the last week which has led me to reflect on charging fees for financial advice

First up were two separate conversations with advisers When I asked what they were seeking to achieve of all the things they could have said they both said ldquoIrsquove got R500m in Assets under Management (AUM) and I want to get to R1bnrdquo When I asked ldquoWhy was this importantrdquo the answers generally amounted to ldquoI want to earn more money and sell my business one dayrdquo

Next was a great membersrsquo webinar held by Paul Armson as part of his Inspiring Advisers community Paul organised the webinar with Alan Smith from Capital Asset Management in the UK to talk about fees for advice or more specifically why Alan had changed from percentage AUM to a retainer fee modelIt created lots of debate Some agreed some disagreed and it ruffled a few feathers and had many advisers vehemently defending percentage AUM for all the reasons wersquove heard beforehellip of course

TeesThe third thing that happened was that I played golf and had dinner with a couple who were clients of my UK financial planning firm for 20 years They come to South Africa every year for a month and we

PRACTICE MANAGEMENT

If markets fell in value my fees would go down Why should I get paid less for delivering great financial planning advice and services And how much control did I actually have over investment values anyway None

bullWhatiftherightthingwasforthisclienttoexitdrawdownandbuyan annuity The money walks

bullWhat if the right thing was for this client tomake gifts to theirchildren or a charity The money walks

bullWhatiftherightthingwasforthisclienttopayofftheirmortgageor other debt The money walks

bullWhat if the right thing was for this client to spend money notaccumulate it The money walks

I figured that if I was truly client-centric and my role was to help clients live the life they really wanted (which is what I said I was doing) then I should not be conflicted by needing to have their money Itrsquos their money not mine

Therersquos a crucial question to consider when thinking about all this ldquoWhat is my rolerdquo As a financial planner is it my role to force people to accumulate money Is it my role to sell people financial products Is it my role to tell people what to do to make or not lose money Is it my role to tell people how they should live their lives

Irsquove tried all those things and they either didnrsquot sit well with me or they didnrsquot sit well with my clients

If yoursquove heard me speak yoursquove probably heard me ask the question ldquoIs the client the client or is the clientrsquos money the clientrdquo ndash The truth is that many of us are distracted by or focused entirely on our clientrsquos money or how WE can benefit from having THEIR investment assets

We define successful firms by how much AUM they have not by the fantastic lives their clients enjoy We describe people as a pound1 million client We set minimum investment thresholds to become a client and we talk about one day selling lsquoourrsquo investment book in order to retire

Think about that last one for a second Are we selling our business Are we selling our client relationships Or are we selling our clientsrsquo money and the revenue it generates

Thinking differentlyWhen I thought about this in 2009 and confronted it the conclusion seemed blindingly obvious to me and I developed two specific services for two sets of clients that solved two specific problems One was for people who didnrsquot know whether they had enough money to live the life they wanted and the other was for people who knew they had too much (or at least more than they needed) Then I worked out what each problem cost the business to solve and then I added a profit margin Finally I removed any element of charging for moving the money around

Then I spent the next God-knows-how-long trying to understand it myself and articulate it with confidence

The first three clients I pitched it to thought it was a great idea and signed up

To be fair I started with clients who were already financially wealthy (including the one mentioned above) but what surprised me were the less wealthy clients who subsequently chose to pay more than they had previously paid when on a percentage basis One of my clients was effectively paying around 2 a year Imagine that Why would anyone in their right mind pay 2 of their investment assets for financial planning advice They could easily have said no and gone somewhere lsquocheaperrsquo but they didnrsquot

But herersquos the question 2 pa of how much And what did they get for that The numbers arenrsquot important Itrsquos the context

The point is it wasnrsquot positioned as 2 of their investment assets and the proposition wasnrsquot about investing investment performance asset allocation and fund selections It was about helping them understand the life they really wanted what trade off decisions they were facing and how to manage them It was priced on the basis of cost of delivery plus a decent margin

Other advisors thought I was barking mad I had moments when I thought so too But it felt like the right thing to do for me and for my clients Clearly Alan Smith feels the same way Hersquos taken it one step further and posted his firmrsquos retainer fees on his website And he doesnrsquot seem to be short of clients

Pressure on pricingTherersquos a stack of pressure on transparency of costs in financial services and a huge amount of this pressure is at the lsquowealth managementrsquo end Vanguard Group in the US is already offering investment management and advice for less than 50 bps Many advisors are trying to get from 05 up to 1 at a time when the market is heading in the other direction so itrsquos going to take more than a conversation about asset allocation and fund selection to make that stack up

Focus on the right thingsAs a final thought how do you get your AUM from R500m to R1bn You either have to gather more assets from your existing clients or more likely bring in new clients Does your business have the capacity and the resources to deliver your service to double the number of clients If it doesnrsquot will you just lsquowing itrsquo anyway

Maybe what you really need to focus on is increasing the profitability of your business revenues And you donrsquot necessarily need to double your AUM to achieve that

Think about ithellip

PRACTICE MANAGEMENT

44

CriticalIllness

How critical is

RISK MANAGEMENT

By Barbara Mundell CFPreg Technical Specialist Financial Planning Institute (FPI)

70 percent of the South African population will be diagnosed with a critical illness during their lifetime With so many critical illness solutions in the market place this is often a complex area of financial planning What do you plan for how much do you need should it be a lump sum or should

it be an income Should your existing disability products not provide for this The sad reality is that most people do not know what to expect from a severe illness Medical enhancements make it possible for more and more people to survive severe illnesses However the question remains what scars will it leave behind not only on the person suffering from a severe illness but hisher families too

When assisting a client with a comprehensive financial plan the clientrsquos affordability to certain solutions are often a problem

Priority of severe illness solutionsSevere illness planning is complex due to different impact the different diseases have With the pressure that medical aid schemes are under with the rising health costs in South Africa how do we determine the value of cover a client needs Do you plan for severe illness as a substitute of income or a lump sum to fund medical costs or both Due to severe illness products that have up to 340 claim events the risks to the insurers is tremendous and hence this tends to be the most expensive financial solution in a clientrsquos portfolio

Should critical illness be prioritised in a financial plan According to Kobus Kleyn CFPreg Chairperson of the FPI Risk Competency Committee critical illness is more than a necessity ldquoThere is absolutely no doubt that any financial plan could never be perceived as comprehensive or holistic if critical illness proposals and cover are not included into the plan over the long term The cover should form part of the plan and should be prioritised according to clientrsquos needs and affordability as well as understanding the importance of this cover as part of the clientrsquos plan I would always structure my clientrsquos plan to incorporate critical illness cover No matter how small or large the cover is cover must be in That way I will be assured that most of my clients have some critical illness cover and importantly it will receive priority no matter the clientrsquos or his familyrsquos health history as critical illness is not pickyrdquo

that the full cover will not pay out There are just too many product providers out there offering so many bells and whistles rather than simple and comprehensive critical illness cover productsrdquo Kleyn added

How should financial planners approach the planning for a critical illness event Ridler commented ldquoThere are many factors to take into account including the clientrsquos personal circumstances The clientrsquos medical aid should play a vital role in the critical illness planning for a clientrdquo

Bruce Fleming CFPreg FPI Financial Planner of the Year 20162017 said that the single most important consideration for critical illness planning is the short- to medium-term financial ramifications of suffering from a dread disease that your medical aid and disability cover will not cover and if the client is financially covered for this

Critical illness at claim stageThis is where most financial planners find joy in their work However the role of the financial planner at claim stage should never be underestimated Kleyn said ldquoWe as human advisors versus robo-advisors is the differentiating factor out there and our noble role as financial planners comes to the fore during our clientsrsquo life events This is when we are there with empathy to help our clients and their families through very tough times Most importantly when we take charge and ensure claims are paid out in full and if not take up the case with product providers and make sure no stone is unturned to the best interest of TCF and our clientrsquos interestrdquo

ldquoOnce the claim is paid out we have a huge role to make sure the quality of life for such a client is taken care of and provide skilful advice on investment for their unique health situation as well as sustainability to make the changes in a clients life following such a critical illness claimrdquo he concluded

The cover pay out can bring a certain level of financial freedom to the client According to Fleming some of the freedoms that the cover can provide includebullNottohavetoreturntoworkimmediatelyandallowyoutorecover

not only physically but also emotionally from your illnessbullAffordnursingcareatyourownhomeshouldthisberequiredbullGetassistanceinandaroundthehousetorecoverproperlybullChildcaretomakesureyourlovedonesarelookedafter

when you cannot shoulder the responsibility andbullGetcounsellingtohelpyoudealwithwhatyouaregoing through

ldquoSuffering a severe illness is taxing physically emotionally and financially There can be a range of unexpected costs including the cost of scaling down

after the illness the probability that the client may want to retire earlier and the need to possibly make significant

changes to their lifestylerdquo says Fleming

In conclusionAs a financial planner critical illness can no longer be regarded as a luxury in a clientrsquos financial plan but rather as a critical component ensuring the best possible outcome for the client in the event of an illness At the time of diagnosis the clients have

more than enough to be concerned about The right critical illness solution can alleviate some of the financial

pressure allowing the client and hisher family to process the emotional and physical trauma

45

RISK MANAGEMENT

Medical aid and gap coverWith the changes in the demarcation regulations clients have lost parts of their piece of mind A majority of medical aid schemes only cover cancer up to a certain point and from there a co-payment applies Since gap cover is limited to R150 000 per insured per event clients are now left exposed to high medical costs

How do the changes in regulation change the way financial planners need to plan for critical illness solutions ldquoThe new demarcation regulations emphasise the three prong approach required to mitigate dread disease risk Medical aid to cover hospitalisation (the biggest risk) gap cover to cover those out-of-pocket expenses that can run to tens of thousands and dread disease cover to provide a lump sum for premium care not covered by medical aid

and recuperation as well as lifestyle changesrdquo said Dawn Ridler CFPreg member of the FPI Risk Competency Committee

Should financial planners consider solutions that have 100 pay-outs on critical illness ldquoI regard it as a priority

and would rather pay more for a comprehensive top up cover policy with less cover than paying less for a lot of cover but not comprehensive It is key for product developers to ensure 100 pay outs rather than tier payments at claim stage It is very disappointing under emotional circumstances to advise a client

46

47

48

BOOK REVIEW

PassionProfession

for the

Mastering the 9 Psto Professionalism

The 9Ps to Professionalism

ldquoWith a vision of a financial services industry that is fully transformed into a profession like so many of its peers To embrace this vision each of us need to give back to the financial advice profession by creating awareness of what we do and sharing best operating practices with our peersrdquo

said Kobus Kleyn CFPreg author of the book

He wrote this book which was launched on 18 March 2017 to share his personal experience as a CERTIFIED FINANCIAL PLANNERreg professional and the lessons learned from his involvement with various affiliations professional bodies and fellow financial planning professionals

The book was written for financial planningadvisory professionals or those aspiring to be across financial disciplines worldwide It outlines a step-by-step process through the nine Prsquos he identified (refer to the diagram below) to transform you from a ldquoproduct selling intermediaryrdquo into a financial planning professional with a strong value proposition code of conduct and ethics as well as a personal brand of note and inclusive of a passive income

49

ProfileData takes pride in being the leading South African financial data feed solutions provider

Our specialised local research teams together with our relationships with international exchanges and dataproviders allow you access to a wide range of data options for both in-house needs and for on-distribution toyour customer base

Profilersquos specialised IT team takes pride in building turnkey solutions that meet the need of the customerspecification at a defined cost Profilersquos on- and off-site IT infrastructure allows cost-effective hosting andsolutions management reducing the need for expensive capital cost

wwwfundsdatacozawwwsharedatacoza wwwsharemagiccoza

Contact Lionell Wobben

082-559-8283 | 011-728-5510

Financial Data Solutions

About the authorKobus Kleyn CERTIFIED FINANCIAL PLANNERreg professional and director at Kainos Financial Services a Liberty Group Affiliate obtained his Postgraduate Degree in Financial Planning at the University of Free State as well as a Management Development Programme (MPD) and AEP from UNISA Business School

He is the current chairperson of the Financial Planning Institutersquos (FPI) Risk Competency Committee Financial Intermediaries Associationrsquos (FIA) RDR Intermediary Workgroup and Liberty Group FA Ethics Committee Kobus serves on the Million Dollar Round Table (MDRT) Income Replacement Committee FPI Annual Convention Committee 2017 and holds the assistant-director for the MDRT PGA Annual Convention 2017 Task Force Committee position

He is also a member of the South African Institute of Tax Professionals (SAIT) FIA and Fiduciary Institute of South Africa (FISA) the Society of Trust and Estate Practitioner (STEP- with a TEP Designation) Financial Intermediaries Association of Southern Africa (FIA) and Ethics SA Kobus has a passion for the financial services profession and works purposefully with other like-minded professionals and stakeholders to transform the industry into a fully-fledged profession through the power of social media print media as well as presenting at industry events

He has authored the book ldquoPassion for the profession- Mastering the 9 Prsquos to Professionalismrdquo as a non-profit publication to the financial profession to give back

Volunteering and recognitionFor the past two years Kobus has been awarded the FPI It Starts with Me Award (2015 and 2016 respectively) for his dedication in promoting and supporting the CFPreg mark and entrenching the CFPreg mark into his work life as well as personal brand The award launched in 2015 also recognised his contribution to the industry by volunteering his time to educate consumers about the value of financial planning and providing valuable input in various FPI committees to make the profession better

Apart from his involvement with FPI he is also an FIA and MDRT volunteer who likes to do pro-bono work wherever possible Kobus was awarded the MDRT Leadership Award in 2014

Godfrey Nti (right) congratulating Kobus Kleyn (left) on his new book Passion for the Profession

BOOK REVIEW

Throughout this book Kobus provides examples of professional behaviour whether it be through enhancing competence professional courtesy or just ensuring that the right thing is done He explains the tenets of being a professional through his own life experiences He further describes how becoming a professional can go a long way in not only enhancing onersquos standing pride respect from peers as well as delivering tangible dividends but also how this can significantly contribute in helping (re)build public trust and thus achieving the ever illusive public recognition of financial services as a profession

This is what Godfrey Nti CEO of the Financial Planning Institute had to say after reading the bookldquoBeing a professional goes beyond a profit motive it speaks to a greater calling to do good to the greater society while changing onersquos own life in the process If you just want to know the value of pro bono and volunteerism for a good cause and how this is key to not only a profession but being a professional then follow Kobusrsquos life journey as passionately narrated in this book This book paints a portrait of the interplay of these major stakeholders in creating the desired outcome a recognised and respected financial planning and advisory profession While we have made significant progress with the first three stakeholders there is still work to be done with respect to gaining public recognition Seeing that all professions have a public service ideal progress on aspect is a must if we are ever going to be recognised as a professionrdquo

ldquoKobusrsquo effortless passion for the profession shines right through in this book His rich life experiences on the journey to becoming a professional are admirable and something that we can all learn from

This book is indeed a must-read for all financial planners and advisors as well as anyone who hopes to fit into the financial services profession of the near futurerdquo Nti added If you are serious about becoming a professional as I am sure you are you will find this book very is interesting and most importantly informative And if you already are a professional in your own right and would like to know how to help create a bigger movement towards establishing a recognised as well as respected financial planning and

advisory profession this book is also for you If you are a student of history and would like to witness the creation of a profession this book is definitely for you as well

FPI members can claim CPD points as prescribed in the FPI CPD Policy for reading this informative book

Need a copyThe book is available directly from Kobus and his team at Kobuskleynliblinkcoza or phone Susan de Goede on (011) 207 7906 The ldquoPassion for the Profession Mastering the 9Ps to Professionalismrdquo book is also available on Amazon Kindle

For the full launch article including cost of this not-for-profit book visit wwwlinkedincompulselaunch-passion-profession-kobus-kleyn-cfp--1

38

INVESTMENT

By Gavin WoodChief Investment OfficerKagiso Asset Management

ProfoundChanges

in governments

Fiscal stimulus to be pursued by the Trump administration impacts on economic activity and inflation is inherently linked to the types of measures applied and their duration They are generally more impactful when there is large excess capacity

unlike at present Although fiscal stimulus is seldom an enduring boost to growth the change in sentiment its prospect seems to be supporting could be powerful

39

INVESTMENT

2016 marked the beginning of profound change in the world order It was an inflection point for governments central bank power policy stimulus and potentially also for economic growth and inflation

Profound changes in governmentsVoters in the United States and Europe are railing against lsquothe establishmentrsquo and are demanding substantial changeThe new US government will be different to that of the last eight years in material respects Regressive policies on protectionism immigration and global relations will likely be economically negative but will be somewhat balanced by a more favourable US corporate taxation dispensation lighter touch regulations a less repressive environment for the financial sector and potentially increased infrastructure spendingImportantly the new US government should be far more effective at implementing policy given the Republican clean sweep and a cabinet likely to be filled with experienced businessmenIn Europe the Brexit negotiations will bring substantial change The UK has voted for separation from the EU and against immigration and globalisation The UK and the EU face great uncertainties and risk as a result Upcoming elections in important EU countries may also bring anti-establishment surprises and will at the very least see governments sympathising with some of the lsquopopulistrsquo concerns

Changes in central bank powerThe major global central banks played a vital role in stabilising the financial system during and just after the 20082009 financial crisis

Subsequently their actions have been highly unconventional and largely counterproductive Average developed economy policy rates have fallen by nearly 4 while their balance sheets have roughly tripled relative to GDP as a result of aggressive quantitative easing

Directly and materially intervening in financial markets via quantitative easing has boosted asset prices (especially bonds and defensive equities) and disproportionately benefited the wealthy in society Such buying of risky assets below intrinsic value amounts to redistribution from taxpayers to asset sellers

In addition since the crisis many central banks have gained power in areas well outside of their core mandate ndash expanded regulatory scope and greater influence in shaping economic policy They have exhibited a very damaging asymmetric responsiveness to financial market movements and volatility Reacting more to downward moves amounts to an inherent subsidy to financial market risk-takers

Not surprisingly these central banks are perceived by the populist masses as a key part of the establishment and the elite They are symbols of rule by technocrats and experts This hostile sentiment will likely lead to a reduction in central bank power and may even lead to threats to their independence

Change in policy stimulusGiven the perception that monetary policy is increasingly ineffective it is likely that current aggressive monetary stimulus measures will be reined in

Fiscal stimulus to be pursued by the Trump administration impacts on economic activity and inflation are inherently linked to the types of measures applied and their duration They are generally more impactful when there is large excess capacity unlike at present Although fiscal stimulus is seldom an enduring boost to growth the change in sentiment its prospect seems to be supporting could be powerful

Together with tightening monetary policy developed economy yield curves are likely to rise and steepen - a change already underway - with material implications for most financial assets

Inflation may be returningAfter the financial crisis inflation has been stubbornly low in developed economies and there have been fears of Japan-style deflation The trend now seems to be turning with a decline in economic slack particularly in labour markets and energy prices moving higher In addition the populist policy direction is mostly inflationary protectionism raises imported goods prices curbing immigration boosts local wages and fiscal stimulus is inflationary if there is little economic slack

Importantly central banks seem inclined to lag the improvement in global growth and after fighting hard against deflation they may tolerate inflation rebounding to levels above target

Economic growth may be picking upThe current global expansion has been particularly weak on an annualised growth rate basis but of relatively long duration Some have feared a structurally lower growth environment due to the dampening effects of the excessive saving of ageing populations financial sector over-regulation a lower propensity to consume in emerging economies and waning technology innovation for businesses

We believe many of these forces are not permanent A much larger portion of the drag on economic growth was due to households deleveraging after a 20-year credit binge up to the crisis and the private sector sentiment dampening effects of extreme central bank actions Corporates have been eschewing capital expenditure and favouring dividends buybacks and mergers and acquisitions (with inevitable cost cutting and job losses) Consumers have been worried about the low return outlook stagnant incomes economic uncertainty and rising inequality

Global economic growth looks to now be improving after slowing in 2016 to a post-crisis low of 23 it is expected to rise to 27 in 2017 Forward-looking economic surveys are signalling much better times ahead (chart below) with a meaningful recent shift in both the US and the euro area consumer and business confidence A self-sustaining rise in lsquoanimal spiritsrsquo that boosts especially the investment side of the economy could be very good for economic growth

40

INVESTMENT

Developed economy confidence reboundsSouth Africa is differentIntriguingly South African changes under way are mostly in the opposite directions to the developed world

Here there are also likely to be large changes in government in the years ahead The African National Congressrsquo (ANC) elective conference in December 2017 should bring substantial change in leadership as a result of voter pressure to address corruption and general government ineffectiveness We believe these changes will be incrementally positive for the country There may be political and currency volatility in the interim however as the current regime fights to maintain power

In contrast to developed economy central banks the South African Reserve Bank (SARB) has been a shining example of an effective independent central bank Having tightened policy over recent years counter to developed economy trends SARBrsquos next move is likely to be a reduction in rates Also in contrast to developed economy trends the South African government has just ended a countercyclical fiscal stimulus programme which has resulted in large fiscal deficits and rising debt issuance and is now in fiscal consolidation mode as weak economic growth inhibits its ability to grow expenditure

Sentiment is depressed and economic activity is weak and the economy may only expand by 11 in 2017 (despite drought non-recurrence) and 18 in 2018

Global fault linesAmidst the generally positive sentiment around major potential threats include

o Populist nationalistsrsquo election gains in EU electionso Instability from China facing high debt balances and global

trade curbso The unpredictability of the new US president

Outlook for marketsThe lsquoregime changersquo described above of improving sentiment and potentially stronger growth and inflation is a good environment for global equities However on most measures stock market valuations are very high and the continued outperformance of equities is reliant on any economic uptick translating into meaningful company earnings growth and enduring for years [Still] very low bond yields continue to portend very low returns for all asset classes priced with low risk discount rates in mind

The lsquoregimersquo of the past five or six years in financial markets has seen central bank interventions reduce the significance of economic fundamentals and price-insensitive investing strategies (such as passive and momentum) outperform as large caps have dominated and correlations have been high

Quality South African domestic stocks have been particularly strong as price-insensitive global emerging market investors have fed a powerful rerating virtuous cycle

Style analysis shows that value has outperformed growth by a large margin in 2016 for the first time since 2006 We are seeing greater asset price dispersion (chart below) and thus great opportunities for stock picking strategies The lsquoregime changersquo seems to be impacting financial markets and particularly seeing long-term fundamental investing re-emerging as a very lucrative investment inefficiency to exploit

Share price correlation have fallen

41

INVESTMENT

42

By Brian Foster Co-founder Beyond RDR

Threes teesand financial advice fees

always hook up play golf and chat about whatrsquos going on in the world Inevitably the conversation turns to financial stuff and they ask me how itrsquos going here in South Africa Theyrsquove been paying retainer fees for advice since about 2010 and believe that paying a percentage of their assets for financial planning is nuts

If you donrsquot know me or didnrsquot already guess Irsquom a fan of retainer fees and this weekrsquos conversations have led me to write about how and why this happened to me

It just didnrsquot feel rightIn 2009 I was scratching my head and having a frustrated conversation with myself At that time I was charging a percentage of AUM Like most advisers my clients had different amounts of money which meant they paid wildly varying amounts for the services I provided Like many advisers I adjusted the percantage rates for some of those clients to compensate for the difference in wealth levels and what I thought was lsquorightrsquo but it wasnrsquot making sense Irsquod experimented with tiered pricing but making it fit and keeping tabs on everyone was a challenge It was sitting uncomfortably with me It just didnrsquot feel right

There were other challenges too

Some of my clients really wanted and valued the great financial planning services but didnrsquot have that much accumulated capital Must I turn them away because they werenrsquot wealthy enough That didnrsquot feel right

One of my clients had a long-standing relationship with her stock-broker who was holding all the investment money Must I now break this relationship in order to get paid for the financial planning work that he couldnrsquot deliver That didnrsquot feel right

Is financial planning about investment assetsIn order to be commercially successful it seemed I was required to gather and keep the clientsrsquo investment assets If I somehow lsquolostrsquo the assets my fees would go down so this created a whole bunch of challenges and conflicts

Three things happened over the last week which has led me to reflect on charging fees for financial advice

First up were two separate conversations with advisers When I asked what they were seeking to achieve of all the things they could have said they both said ldquoIrsquove got R500m in Assets under Management (AUM) and I want to get to R1bnrdquo When I asked ldquoWhy was this importantrdquo the answers generally amounted to ldquoI want to earn more money and sell my business one dayrdquo

Next was a great membersrsquo webinar held by Paul Armson as part of his Inspiring Advisers community Paul organised the webinar with Alan Smith from Capital Asset Management in the UK to talk about fees for advice or more specifically why Alan had changed from percentage AUM to a retainer fee modelIt created lots of debate Some agreed some disagreed and it ruffled a few feathers and had many advisers vehemently defending percentage AUM for all the reasons wersquove heard beforehellip of course

TeesThe third thing that happened was that I played golf and had dinner with a couple who were clients of my UK financial planning firm for 20 years They come to South Africa every year for a month and we

PRACTICE MANAGEMENT

If markets fell in value my fees would go down Why should I get paid less for delivering great financial planning advice and services And how much control did I actually have over investment values anyway None

bullWhatiftherightthingwasforthisclienttoexitdrawdownandbuyan annuity The money walks

bullWhat if the right thing was for this client tomake gifts to theirchildren or a charity The money walks

bullWhatiftherightthingwasforthisclienttopayofftheirmortgageor other debt The money walks

bullWhat if the right thing was for this client to spend money notaccumulate it The money walks

I figured that if I was truly client-centric and my role was to help clients live the life they really wanted (which is what I said I was doing) then I should not be conflicted by needing to have their money Itrsquos their money not mine

Therersquos a crucial question to consider when thinking about all this ldquoWhat is my rolerdquo As a financial planner is it my role to force people to accumulate money Is it my role to sell people financial products Is it my role to tell people what to do to make or not lose money Is it my role to tell people how they should live their lives

Irsquove tried all those things and they either didnrsquot sit well with me or they didnrsquot sit well with my clients

If yoursquove heard me speak yoursquove probably heard me ask the question ldquoIs the client the client or is the clientrsquos money the clientrdquo ndash The truth is that many of us are distracted by or focused entirely on our clientrsquos money or how WE can benefit from having THEIR investment assets

We define successful firms by how much AUM they have not by the fantastic lives their clients enjoy We describe people as a pound1 million client We set minimum investment thresholds to become a client and we talk about one day selling lsquoourrsquo investment book in order to retire

Think about that last one for a second Are we selling our business Are we selling our client relationships Or are we selling our clientsrsquo money and the revenue it generates

Thinking differentlyWhen I thought about this in 2009 and confronted it the conclusion seemed blindingly obvious to me and I developed two specific services for two sets of clients that solved two specific problems One was for people who didnrsquot know whether they had enough money to live the life they wanted and the other was for people who knew they had too much (or at least more than they needed) Then I worked out what each problem cost the business to solve and then I added a profit margin Finally I removed any element of charging for moving the money around

Then I spent the next God-knows-how-long trying to understand it myself and articulate it with confidence

The first three clients I pitched it to thought it was a great idea and signed up

To be fair I started with clients who were already financially wealthy (including the one mentioned above) but what surprised me were the less wealthy clients who subsequently chose to pay more than they had previously paid when on a percentage basis One of my clients was effectively paying around 2 a year Imagine that Why would anyone in their right mind pay 2 of their investment assets for financial planning advice They could easily have said no and gone somewhere lsquocheaperrsquo but they didnrsquot

But herersquos the question 2 pa of how much And what did they get for that The numbers arenrsquot important Itrsquos the context

The point is it wasnrsquot positioned as 2 of their investment assets and the proposition wasnrsquot about investing investment performance asset allocation and fund selections It was about helping them understand the life they really wanted what trade off decisions they were facing and how to manage them It was priced on the basis of cost of delivery plus a decent margin

Other advisors thought I was barking mad I had moments when I thought so too But it felt like the right thing to do for me and for my clients Clearly Alan Smith feels the same way Hersquos taken it one step further and posted his firmrsquos retainer fees on his website And he doesnrsquot seem to be short of clients

Pressure on pricingTherersquos a stack of pressure on transparency of costs in financial services and a huge amount of this pressure is at the lsquowealth managementrsquo end Vanguard Group in the US is already offering investment management and advice for less than 50 bps Many advisors are trying to get from 05 up to 1 at a time when the market is heading in the other direction so itrsquos going to take more than a conversation about asset allocation and fund selection to make that stack up

Focus on the right thingsAs a final thought how do you get your AUM from R500m to R1bn You either have to gather more assets from your existing clients or more likely bring in new clients Does your business have the capacity and the resources to deliver your service to double the number of clients If it doesnrsquot will you just lsquowing itrsquo anyway

Maybe what you really need to focus on is increasing the profitability of your business revenues And you donrsquot necessarily need to double your AUM to achieve that

Think about ithellip

PRACTICE MANAGEMENT

44

CriticalIllness

How critical is

RISK MANAGEMENT

By Barbara Mundell CFPreg Technical Specialist Financial Planning Institute (FPI)

70 percent of the South African population will be diagnosed with a critical illness during their lifetime With so many critical illness solutions in the market place this is often a complex area of financial planning What do you plan for how much do you need should it be a lump sum or should

it be an income Should your existing disability products not provide for this The sad reality is that most people do not know what to expect from a severe illness Medical enhancements make it possible for more and more people to survive severe illnesses However the question remains what scars will it leave behind not only on the person suffering from a severe illness but hisher families too

When assisting a client with a comprehensive financial plan the clientrsquos affordability to certain solutions are often a problem

Priority of severe illness solutionsSevere illness planning is complex due to different impact the different diseases have With the pressure that medical aid schemes are under with the rising health costs in South Africa how do we determine the value of cover a client needs Do you plan for severe illness as a substitute of income or a lump sum to fund medical costs or both Due to severe illness products that have up to 340 claim events the risks to the insurers is tremendous and hence this tends to be the most expensive financial solution in a clientrsquos portfolio

Should critical illness be prioritised in a financial plan According to Kobus Kleyn CFPreg Chairperson of the FPI Risk Competency Committee critical illness is more than a necessity ldquoThere is absolutely no doubt that any financial plan could never be perceived as comprehensive or holistic if critical illness proposals and cover are not included into the plan over the long term The cover should form part of the plan and should be prioritised according to clientrsquos needs and affordability as well as understanding the importance of this cover as part of the clientrsquos plan I would always structure my clientrsquos plan to incorporate critical illness cover No matter how small or large the cover is cover must be in That way I will be assured that most of my clients have some critical illness cover and importantly it will receive priority no matter the clientrsquos or his familyrsquos health history as critical illness is not pickyrdquo

that the full cover will not pay out There are just too many product providers out there offering so many bells and whistles rather than simple and comprehensive critical illness cover productsrdquo Kleyn added

How should financial planners approach the planning for a critical illness event Ridler commented ldquoThere are many factors to take into account including the clientrsquos personal circumstances The clientrsquos medical aid should play a vital role in the critical illness planning for a clientrdquo

Bruce Fleming CFPreg FPI Financial Planner of the Year 20162017 said that the single most important consideration for critical illness planning is the short- to medium-term financial ramifications of suffering from a dread disease that your medical aid and disability cover will not cover and if the client is financially covered for this

Critical illness at claim stageThis is where most financial planners find joy in their work However the role of the financial planner at claim stage should never be underestimated Kleyn said ldquoWe as human advisors versus robo-advisors is the differentiating factor out there and our noble role as financial planners comes to the fore during our clientsrsquo life events This is when we are there with empathy to help our clients and their families through very tough times Most importantly when we take charge and ensure claims are paid out in full and if not take up the case with product providers and make sure no stone is unturned to the best interest of TCF and our clientrsquos interestrdquo

ldquoOnce the claim is paid out we have a huge role to make sure the quality of life for such a client is taken care of and provide skilful advice on investment for their unique health situation as well as sustainability to make the changes in a clients life following such a critical illness claimrdquo he concluded

The cover pay out can bring a certain level of financial freedom to the client According to Fleming some of the freedoms that the cover can provide includebullNottohavetoreturntoworkimmediatelyandallowyoutorecover

not only physically but also emotionally from your illnessbullAffordnursingcareatyourownhomeshouldthisberequiredbullGetassistanceinandaroundthehousetorecoverproperlybullChildcaretomakesureyourlovedonesarelookedafter

when you cannot shoulder the responsibility andbullGetcounsellingtohelpyoudealwithwhatyouaregoing through

ldquoSuffering a severe illness is taxing physically emotionally and financially There can be a range of unexpected costs including the cost of scaling down

after the illness the probability that the client may want to retire earlier and the need to possibly make significant

changes to their lifestylerdquo says Fleming

In conclusionAs a financial planner critical illness can no longer be regarded as a luxury in a clientrsquos financial plan but rather as a critical component ensuring the best possible outcome for the client in the event of an illness At the time of diagnosis the clients have

more than enough to be concerned about The right critical illness solution can alleviate some of the financial

pressure allowing the client and hisher family to process the emotional and physical trauma

45

RISK MANAGEMENT

Medical aid and gap coverWith the changes in the demarcation regulations clients have lost parts of their piece of mind A majority of medical aid schemes only cover cancer up to a certain point and from there a co-payment applies Since gap cover is limited to R150 000 per insured per event clients are now left exposed to high medical costs

How do the changes in regulation change the way financial planners need to plan for critical illness solutions ldquoThe new demarcation regulations emphasise the three prong approach required to mitigate dread disease risk Medical aid to cover hospitalisation (the biggest risk) gap cover to cover those out-of-pocket expenses that can run to tens of thousands and dread disease cover to provide a lump sum for premium care not covered by medical aid

and recuperation as well as lifestyle changesrdquo said Dawn Ridler CFPreg member of the FPI Risk Competency Committee

Should financial planners consider solutions that have 100 pay-outs on critical illness ldquoI regard it as a priority

and would rather pay more for a comprehensive top up cover policy with less cover than paying less for a lot of cover but not comprehensive It is key for product developers to ensure 100 pay outs rather than tier payments at claim stage It is very disappointing under emotional circumstances to advise a client

46

47

48

BOOK REVIEW

PassionProfession

for the

Mastering the 9 Psto Professionalism

The 9Ps to Professionalism

ldquoWith a vision of a financial services industry that is fully transformed into a profession like so many of its peers To embrace this vision each of us need to give back to the financial advice profession by creating awareness of what we do and sharing best operating practices with our peersrdquo

said Kobus Kleyn CFPreg author of the book

He wrote this book which was launched on 18 March 2017 to share his personal experience as a CERTIFIED FINANCIAL PLANNERreg professional and the lessons learned from his involvement with various affiliations professional bodies and fellow financial planning professionals

The book was written for financial planningadvisory professionals or those aspiring to be across financial disciplines worldwide It outlines a step-by-step process through the nine Prsquos he identified (refer to the diagram below) to transform you from a ldquoproduct selling intermediaryrdquo into a financial planning professional with a strong value proposition code of conduct and ethics as well as a personal brand of note and inclusive of a passive income

49

ProfileData takes pride in being the leading South African financial data feed solutions provider

Our specialised local research teams together with our relationships with international exchanges and dataproviders allow you access to a wide range of data options for both in-house needs and for on-distribution toyour customer base

Profilersquos specialised IT team takes pride in building turnkey solutions that meet the need of the customerspecification at a defined cost Profilersquos on- and off-site IT infrastructure allows cost-effective hosting andsolutions management reducing the need for expensive capital cost

wwwfundsdatacozawwwsharedatacoza wwwsharemagiccoza

Contact Lionell Wobben

082-559-8283 | 011-728-5510

Financial Data Solutions

About the authorKobus Kleyn CERTIFIED FINANCIAL PLANNERreg professional and director at Kainos Financial Services a Liberty Group Affiliate obtained his Postgraduate Degree in Financial Planning at the University of Free State as well as a Management Development Programme (MPD) and AEP from UNISA Business School

He is the current chairperson of the Financial Planning Institutersquos (FPI) Risk Competency Committee Financial Intermediaries Associationrsquos (FIA) RDR Intermediary Workgroup and Liberty Group FA Ethics Committee Kobus serves on the Million Dollar Round Table (MDRT) Income Replacement Committee FPI Annual Convention Committee 2017 and holds the assistant-director for the MDRT PGA Annual Convention 2017 Task Force Committee position

He is also a member of the South African Institute of Tax Professionals (SAIT) FIA and Fiduciary Institute of South Africa (FISA) the Society of Trust and Estate Practitioner (STEP- with a TEP Designation) Financial Intermediaries Association of Southern Africa (FIA) and Ethics SA Kobus has a passion for the financial services profession and works purposefully with other like-minded professionals and stakeholders to transform the industry into a fully-fledged profession through the power of social media print media as well as presenting at industry events

He has authored the book ldquoPassion for the profession- Mastering the 9 Prsquos to Professionalismrdquo as a non-profit publication to the financial profession to give back

Volunteering and recognitionFor the past two years Kobus has been awarded the FPI It Starts with Me Award (2015 and 2016 respectively) for his dedication in promoting and supporting the CFPreg mark and entrenching the CFPreg mark into his work life as well as personal brand The award launched in 2015 also recognised his contribution to the industry by volunteering his time to educate consumers about the value of financial planning and providing valuable input in various FPI committees to make the profession better

Apart from his involvement with FPI he is also an FIA and MDRT volunteer who likes to do pro-bono work wherever possible Kobus was awarded the MDRT Leadership Award in 2014

Godfrey Nti (right) congratulating Kobus Kleyn (left) on his new book Passion for the Profession

BOOK REVIEW

Throughout this book Kobus provides examples of professional behaviour whether it be through enhancing competence professional courtesy or just ensuring that the right thing is done He explains the tenets of being a professional through his own life experiences He further describes how becoming a professional can go a long way in not only enhancing onersquos standing pride respect from peers as well as delivering tangible dividends but also how this can significantly contribute in helping (re)build public trust and thus achieving the ever illusive public recognition of financial services as a profession

This is what Godfrey Nti CEO of the Financial Planning Institute had to say after reading the bookldquoBeing a professional goes beyond a profit motive it speaks to a greater calling to do good to the greater society while changing onersquos own life in the process If you just want to know the value of pro bono and volunteerism for a good cause and how this is key to not only a profession but being a professional then follow Kobusrsquos life journey as passionately narrated in this book This book paints a portrait of the interplay of these major stakeholders in creating the desired outcome a recognised and respected financial planning and advisory profession While we have made significant progress with the first three stakeholders there is still work to be done with respect to gaining public recognition Seeing that all professions have a public service ideal progress on aspect is a must if we are ever going to be recognised as a professionrdquo

ldquoKobusrsquo effortless passion for the profession shines right through in this book His rich life experiences on the journey to becoming a professional are admirable and something that we can all learn from

This book is indeed a must-read for all financial planners and advisors as well as anyone who hopes to fit into the financial services profession of the near futurerdquo Nti added If you are serious about becoming a professional as I am sure you are you will find this book very is interesting and most importantly informative And if you already are a professional in your own right and would like to know how to help create a bigger movement towards establishing a recognised as well as respected financial planning and

advisory profession this book is also for you If you are a student of history and would like to witness the creation of a profession this book is definitely for you as well

FPI members can claim CPD points as prescribed in the FPI CPD Policy for reading this informative book

Need a copyThe book is available directly from Kobus and his team at Kobuskleynliblinkcoza or phone Susan de Goede on (011) 207 7906 The ldquoPassion for the Profession Mastering the 9Ps to Professionalismrdquo book is also available on Amazon Kindle

For the full launch article including cost of this not-for-profit book visit wwwlinkedincompulselaunch-passion-profession-kobus-kleyn-cfp--1

39

INVESTMENT

2016 marked the beginning of profound change in the world order It was an inflection point for governments central bank power policy stimulus and potentially also for economic growth and inflation

Profound changes in governmentsVoters in the United States and Europe are railing against lsquothe establishmentrsquo and are demanding substantial changeThe new US government will be different to that of the last eight years in material respects Regressive policies on protectionism immigration and global relations will likely be economically negative but will be somewhat balanced by a more favourable US corporate taxation dispensation lighter touch regulations a less repressive environment for the financial sector and potentially increased infrastructure spendingImportantly the new US government should be far more effective at implementing policy given the Republican clean sweep and a cabinet likely to be filled with experienced businessmenIn Europe the Brexit negotiations will bring substantial change The UK has voted for separation from the EU and against immigration and globalisation The UK and the EU face great uncertainties and risk as a result Upcoming elections in important EU countries may also bring anti-establishment surprises and will at the very least see governments sympathising with some of the lsquopopulistrsquo concerns

Changes in central bank powerThe major global central banks played a vital role in stabilising the financial system during and just after the 20082009 financial crisis

Subsequently their actions have been highly unconventional and largely counterproductive Average developed economy policy rates have fallen by nearly 4 while their balance sheets have roughly tripled relative to GDP as a result of aggressive quantitative easing

Directly and materially intervening in financial markets via quantitative easing has boosted asset prices (especially bonds and defensive equities) and disproportionately benefited the wealthy in society Such buying of risky assets below intrinsic value amounts to redistribution from taxpayers to asset sellers

In addition since the crisis many central banks have gained power in areas well outside of their core mandate ndash expanded regulatory scope and greater influence in shaping economic policy They have exhibited a very damaging asymmetric responsiveness to financial market movements and volatility Reacting more to downward moves amounts to an inherent subsidy to financial market risk-takers

Not surprisingly these central banks are perceived by the populist masses as a key part of the establishment and the elite They are symbols of rule by technocrats and experts This hostile sentiment will likely lead to a reduction in central bank power and may even lead to threats to their independence

Change in policy stimulusGiven the perception that monetary policy is increasingly ineffective it is likely that current aggressive monetary stimulus measures will be reined in

Fiscal stimulus to be pursued by the Trump administration impacts on economic activity and inflation are inherently linked to the types of measures applied and their duration They are generally more impactful when there is large excess capacity unlike at present Although fiscal stimulus is seldom an enduring boost to growth the change in sentiment its prospect seems to be supporting could be powerful

Together with tightening monetary policy developed economy yield curves are likely to rise and steepen - a change already underway - with material implications for most financial assets

Inflation may be returningAfter the financial crisis inflation has been stubbornly low in developed economies and there have been fears of Japan-style deflation The trend now seems to be turning with a decline in economic slack particularly in labour markets and energy prices moving higher In addition the populist policy direction is mostly inflationary protectionism raises imported goods prices curbing immigration boosts local wages and fiscal stimulus is inflationary if there is little economic slack

Importantly central banks seem inclined to lag the improvement in global growth and after fighting hard against deflation they may tolerate inflation rebounding to levels above target

Economic growth may be picking upThe current global expansion has been particularly weak on an annualised growth rate basis but of relatively long duration Some have feared a structurally lower growth environment due to the dampening effects of the excessive saving of ageing populations financial sector over-regulation a lower propensity to consume in emerging economies and waning technology innovation for businesses

We believe many of these forces are not permanent A much larger portion of the drag on economic growth was due to households deleveraging after a 20-year credit binge up to the crisis and the private sector sentiment dampening effects of extreme central bank actions Corporates have been eschewing capital expenditure and favouring dividends buybacks and mergers and acquisitions (with inevitable cost cutting and job losses) Consumers have been worried about the low return outlook stagnant incomes economic uncertainty and rising inequality

Global economic growth looks to now be improving after slowing in 2016 to a post-crisis low of 23 it is expected to rise to 27 in 2017 Forward-looking economic surveys are signalling much better times ahead (chart below) with a meaningful recent shift in both the US and the euro area consumer and business confidence A self-sustaining rise in lsquoanimal spiritsrsquo that boosts especially the investment side of the economy could be very good for economic growth

40

INVESTMENT

Developed economy confidence reboundsSouth Africa is differentIntriguingly South African changes under way are mostly in the opposite directions to the developed world

Here there are also likely to be large changes in government in the years ahead The African National Congressrsquo (ANC) elective conference in December 2017 should bring substantial change in leadership as a result of voter pressure to address corruption and general government ineffectiveness We believe these changes will be incrementally positive for the country There may be political and currency volatility in the interim however as the current regime fights to maintain power

In contrast to developed economy central banks the South African Reserve Bank (SARB) has been a shining example of an effective independent central bank Having tightened policy over recent years counter to developed economy trends SARBrsquos next move is likely to be a reduction in rates Also in contrast to developed economy trends the South African government has just ended a countercyclical fiscal stimulus programme which has resulted in large fiscal deficits and rising debt issuance and is now in fiscal consolidation mode as weak economic growth inhibits its ability to grow expenditure

Sentiment is depressed and economic activity is weak and the economy may only expand by 11 in 2017 (despite drought non-recurrence) and 18 in 2018

Global fault linesAmidst the generally positive sentiment around major potential threats include

o Populist nationalistsrsquo election gains in EU electionso Instability from China facing high debt balances and global

trade curbso The unpredictability of the new US president

Outlook for marketsThe lsquoregime changersquo described above of improving sentiment and potentially stronger growth and inflation is a good environment for global equities However on most measures stock market valuations are very high and the continued outperformance of equities is reliant on any economic uptick translating into meaningful company earnings growth and enduring for years [Still] very low bond yields continue to portend very low returns for all asset classes priced with low risk discount rates in mind

The lsquoregimersquo of the past five or six years in financial markets has seen central bank interventions reduce the significance of economic fundamentals and price-insensitive investing strategies (such as passive and momentum) outperform as large caps have dominated and correlations have been high

Quality South African domestic stocks have been particularly strong as price-insensitive global emerging market investors have fed a powerful rerating virtuous cycle

Style analysis shows that value has outperformed growth by a large margin in 2016 for the first time since 2006 We are seeing greater asset price dispersion (chart below) and thus great opportunities for stock picking strategies The lsquoregime changersquo seems to be impacting financial markets and particularly seeing long-term fundamental investing re-emerging as a very lucrative investment inefficiency to exploit

Share price correlation have fallen

41

INVESTMENT

42

By Brian Foster Co-founder Beyond RDR

Threes teesand financial advice fees

always hook up play golf and chat about whatrsquos going on in the world Inevitably the conversation turns to financial stuff and they ask me how itrsquos going here in South Africa Theyrsquove been paying retainer fees for advice since about 2010 and believe that paying a percentage of their assets for financial planning is nuts

If you donrsquot know me or didnrsquot already guess Irsquom a fan of retainer fees and this weekrsquos conversations have led me to write about how and why this happened to me

It just didnrsquot feel rightIn 2009 I was scratching my head and having a frustrated conversation with myself At that time I was charging a percentage of AUM Like most advisers my clients had different amounts of money which meant they paid wildly varying amounts for the services I provided Like many advisers I adjusted the percantage rates for some of those clients to compensate for the difference in wealth levels and what I thought was lsquorightrsquo but it wasnrsquot making sense Irsquod experimented with tiered pricing but making it fit and keeping tabs on everyone was a challenge It was sitting uncomfortably with me It just didnrsquot feel right

There were other challenges too

Some of my clients really wanted and valued the great financial planning services but didnrsquot have that much accumulated capital Must I turn them away because they werenrsquot wealthy enough That didnrsquot feel right

One of my clients had a long-standing relationship with her stock-broker who was holding all the investment money Must I now break this relationship in order to get paid for the financial planning work that he couldnrsquot deliver That didnrsquot feel right

Is financial planning about investment assetsIn order to be commercially successful it seemed I was required to gather and keep the clientsrsquo investment assets If I somehow lsquolostrsquo the assets my fees would go down so this created a whole bunch of challenges and conflicts

Three things happened over the last week which has led me to reflect on charging fees for financial advice

First up were two separate conversations with advisers When I asked what they were seeking to achieve of all the things they could have said they both said ldquoIrsquove got R500m in Assets under Management (AUM) and I want to get to R1bnrdquo When I asked ldquoWhy was this importantrdquo the answers generally amounted to ldquoI want to earn more money and sell my business one dayrdquo

Next was a great membersrsquo webinar held by Paul Armson as part of his Inspiring Advisers community Paul organised the webinar with Alan Smith from Capital Asset Management in the UK to talk about fees for advice or more specifically why Alan had changed from percentage AUM to a retainer fee modelIt created lots of debate Some agreed some disagreed and it ruffled a few feathers and had many advisers vehemently defending percentage AUM for all the reasons wersquove heard beforehellip of course

TeesThe third thing that happened was that I played golf and had dinner with a couple who were clients of my UK financial planning firm for 20 years They come to South Africa every year for a month and we

PRACTICE MANAGEMENT

If markets fell in value my fees would go down Why should I get paid less for delivering great financial planning advice and services And how much control did I actually have over investment values anyway None

bullWhatiftherightthingwasforthisclienttoexitdrawdownandbuyan annuity The money walks

bullWhat if the right thing was for this client tomake gifts to theirchildren or a charity The money walks

bullWhatiftherightthingwasforthisclienttopayofftheirmortgageor other debt The money walks

bullWhat if the right thing was for this client to spend money notaccumulate it The money walks

I figured that if I was truly client-centric and my role was to help clients live the life they really wanted (which is what I said I was doing) then I should not be conflicted by needing to have their money Itrsquos their money not mine

Therersquos a crucial question to consider when thinking about all this ldquoWhat is my rolerdquo As a financial planner is it my role to force people to accumulate money Is it my role to sell people financial products Is it my role to tell people what to do to make or not lose money Is it my role to tell people how they should live their lives

Irsquove tried all those things and they either didnrsquot sit well with me or they didnrsquot sit well with my clients

If yoursquove heard me speak yoursquove probably heard me ask the question ldquoIs the client the client or is the clientrsquos money the clientrdquo ndash The truth is that many of us are distracted by or focused entirely on our clientrsquos money or how WE can benefit from having THEIR investment assets

We define successful firms by how much AUM they have not by the fantastic lives their clients enjoy We describe people as a pound1 million client We set minimum investment thresholds to become a client and we talk about one day selling lsquoourrsquo investment book in order to retire

Think about that last one for a second Are we selling our business Are we selling our client relationships Or are we selling our clientsrsquo money and the revenue it generates

Thinking differentlyWhen I thought about this in 2009 and confronted it the conclusion seemed blindingly obvious to me and I developed two specific services for two sets of clients that solved two specific problems One was for people who didnrsquot know whether they had enough money to live the life they wanted and the other was for people who knew they had too much (or at least more than they needed) Then I worked out what each problem cost the business to solve and then I added a profit margin Finally I removed any element of charging for moving the money around

Then I spent the next God-knows-how-long trying to understand it myself and articulate it with confidence

The first three clients I pitched it to thought it was a great idea and signed up

To be fair I started with clients who were already financially wealthy (including the one mentioned above) but what surprised me were the less wealthy clients who subsequently chose to pay more than they had previously paid when on a percentage basis One of my clients was effectively paying around 2 a year Imagine that Why would anyone in their right mind pay 2 of their investment assets for financial planning advice They could easily have said no and gone somewhere lsquocheaperrsquo but they didnrsquot

But herersquos the question 2 pa of how much And what did they get for that The numbers arenrsquot important Itrsquos the context

The point is it wasnrsquot positioned as 2 of their investment assets and the proposition wasnrsquot about investing investment performance asset allocation and fund selections It was about helping them understand the life they really wanted what trade off decisions they were facing and how to manage them It was priced on the basis of cost of delivery plus a decent margin

Other advisors thought I was barking mad I had moments when I thought so too But it felt like the right thing to do for me and for my clients Clearly Alan Smith feels the same way Hersquos taken it one step further and posted his firmrsquos retainer fees on his website And he doesnrsquot seem to be short of clients

Pressure on pricingTherersquos a stack of pressure on transparency of costs in financial services and a huge amount of this pressure is at the lsquowealth managementrsquo end Vanguard Group in the US is already offering investment management and advice for less than 50 bps Many advisors are trying to get from 05 up to 1 at a time when the market is heading in the other direction so itrsquos going to take more than a conversation about asset allocation and fund selection to make that stack up

Focus on the right thingsAs a final thought how do you get your AUM from R500m to R1bn You either have to gather more assets from your existing clients or more likely bring in new clients Does your business have the capacity and the resources to deliver your service to double the number of clients If it doesnrsquot will you just lsquowing itrsquo anyway

Maybe what you really need to focus on is increasing the profitability of your business revenues And you donrsquot necessarily need to double your AUM to achieve that

Think about ithellip

PRACTICE MANAGEMENT

44

CriticalIllness

How critical is

RISK MANAGEMENT

By Barbara Mundell CFPreg Technical Specialist Financial Planning Institute (FPI)

70 percent of the South African population will be diagnosed with a critical illness during their lifetime With so many critical illness solutions in the market place this is often a complex area of financial planning What do you plan for how much do you need should it be a lump sum or should

it be an income Should your existing disability products not provide for this The sad reality is that most people do not know what to expect from a severe illness Medical enhancements make it possible for more and more people to survive severe illnesses However the question remains what scars will it leave behind not only on the person suffering from a severe illness but hisher families too

When assisting a client with a comprehensive financial plan the clientrsquos affordability to certain solutions are often a problem

Priority of severe illness solutionsSevere illness planning is complex due to different impact the different diseases have With the pressure that medical aid schemes are under with the rising health costs in South Africa how do we determine the value of cover a client needs Do you plan for severe illness as a substitute of income or a lump sum to fund medical costs or both Due to severe illness products that have up to 340 claim events the risks to the insurers is tremendous and hence this tends to be the most expensive financial solution in a clientrsquos portfolio

Should critical illness be prioritised in a financial plan According to Kobus Kleyn CFPreg Chairperson of the FPI Risk Competency Committee critical illness is more than a necessity ldquoThere is absolutely no doubt that any financial plan could never be perceived as comprehensive or holistic if critical illness proposals and cover are not included into the plan over the long term The cover should form part of the plan and should be prioritised according to clientrsquos needs and affordability as well as understanding the importance of this cover as part of the clientrsquos plan I would always structure my clientrsquos plan to incorporate critical illness cover No matter how small or large the cover is cover must be in That way I will be assured that most of my clients have some critical illness cover and importantly it will receive priority no matter the clientrsquos or his familyrsquos health history as critical illness is not pickyrdquo

that the full cover will not pay out There are just too many product providers out there offering so many bells and whistles rather than simple and comprehensive critical illness cover productsrdquo Kleyn added

How should financial planners approach the planning for a critical illness event Ridler commented ldquoThere are many factors to take into account including the clientrsquos personal circumstances The clientrsquos medical aid should play a vital role in the critical illness planning for a clientrdquo

Bruce Fleming CFPreg FPI Financial Planner of the Year 20162017 said that the single most important consideration for critical illness planning is the short- to medium-term financial ramifications of suffering from a dread disease that your medical aid and disability cover will not cover and if the client is financially covered for this

Critical illness at claim stageThis is where most financial planners find joy in their work However the role of the financial planner at claim stage should never be underestimated Kleyn said ldquoWe as human advisors versus robo-advisors is the differentiating factor out there and our noble role as financial planners comes to the fore during our clientsrsquo life events This is when we are there with empathy to help our clients and their families through very tough times Most importantly when we take charge and ensure claims are paid out in full and if not take up the case with product providers and make sure no stone is unturned to the best interest of TCF and our clientrsquos interestrdquo

ldquoOnce the claim is paid out we have a huge role to make sure the quality of life for such a client is taken care of and provide skilful advice on investment for their unique health situation as well as sustainability to make the changes in a clients life following such a critical illness claimrdquo he concluded

The cover pay out can bring a certain level of financial freedom to the client According to Fleming some of the freedoms that the cover can provide includebullNottohavetoreturntoworkimmediatelyandallowyoutorecover

not only physically but also emotionally from your illnessbullAffordnursingcareatyourownhomeshouldthisberequiredbullGetassistanceinandaroundthehousetorecoverproperlybullChildcaretomakesureyourlovedonesarelookedafter

when you cannot shoulder the responsibility andbullGetcounsellingtohelpyoudealwithwhatyouaregoing through

ldquoSuffering a severe illness is taxing physically emotionally and financially There can be a range of unexpected costs including the cost of scaling down

after the illness the probability that the client may want to retire earlier and the need to possibly make significant

changes to their lifestylerdquo says Fleming

In conclusionAs a financial planner critical illness can no longer be regarded as a luxury in a clientrsquos financial plan but rather as a critical component ensuring the best possible outcome for the client in the event of an illness At the time of diagnosis the clients have

more than enough to be concerned about The right critical illness solution can alleviate some of the financial

pressure allowing the client and hisher family to process the emotional and physical trauma

45

RISK MANAGEMENT

Medical aid and gap coverWith the changes in the demarcation regulations clients have lost parts of their piece of mind A majority of medical aid schemes only cover cancer up to a certain point and from there a co-payment applies Since gap cover is limited to R150 000 per insured per event clients are now left exposed to high medical costs

How do the changes in regulation change the way financial planners need to plan for critical illness solutions ldquoThe new demarcation regulations emphasise the three prong approach required to mitigate dread disease risk Medical aid to cover hospitalisation (the biggest risk) gap cover to cover those out-of-pocket expenses that can run to tens of thousands and dread disease cover to provide a lump sum for premium care not covered by medical aid

and recuperation as well as lifestyle changesrdquo said Dawn Ridler CFPreg member of the FPI Risk Competency Committee

Should financial planners consider solutions that have 100 pay-outs on critical illness ldquoI regard it as a priority

and would rather pay more for a comprehensive top up cover policy with less cover than paying less for a lot of cover but not comprehensive It is key for product developers to ensure 100 pay outs rather than tier payments at claim stage It is very disappointing under emotional circumstances to advise a client

46

47

48

BOOK REVIEW

PassionProfession

for the

Mastering the 9 Psto Professionalism

The 9Ps to Professionalism

ldquoWith a vision of a financial services industry that is fully transformed into a profession like so many of its peers To embrace this vision each of us need to give back to the financial advice profession by creating awareness of what we do and sharing best operating practices with our peersrdquo

said Kobus Kleyn CFPreg author of the book

He wrote this book which was launched on 18 March 2017 to share his personal experience as a CERTIFIED FINANCIAL PLANNERreg professional and the lessons learned from his involvement with various affiliations professional bodies and fellow financial planning professionals

The book was written for financial planningadvisory professionals or those aspiring to be across financial disciplines worldwide It outlines a step-by-step process through the nine Prsquos he identified (refer to the diagram below) to transform you from a ldquoproduct selling intermediaryrdquo into a financial planning professional with a strong value proposition code of conduct and ethics as well as a personal brand of note and inclusive of a passive income

49

ProfileData takes pride in being the leading South African financial data feed solutions provider

Our specialised local research teams together with our relationships with international exchanges and dataproviders allow you access to a wide range of data options for both in-house needs and for on-distribution toyour customer base

Profilersquos specialised IT team takes pride in building turnkey solutions that meet the need of the customerspecification at a defined cost Profilersquos on- and off-site IT infrastructure allows cost-effective hosting andsolutions management reducing the need for expensive capital cost

wwwfundsdatacozawwwsharedatacoza wwwsharemagiccoza

Contact Lionell Wobben

082-559-8283 | 011-728-5510

Financial Data Solutions

About the authorKobus Kleyn CERTIFIED FINANCIAL PLANNERreg professional and director at Kainos Financial Services a Liberty Group Affiliate obtained his Postgraduate Degree in Financial Planning at the University of Free State as well as a Management Development Programme (MPD) and AEP from UNISA Business School

He is the current chairperson of the Financial Planning Institutersquos (FPI) Risk Competency Committee Financial Intermediaries Associationrsquos (FIA) RDR Intermediary Workgroup and Liberty Group FA Ethics Committee Kobus serves on the Million Dollar Round Table (MDRT) Income Replacement Committee FPI Annual Convention Committee 2017 and holds the assistant-director for the MDRT PGA Annual Convention 2017 Task Force Committee position

He is also a member of the South African Institute of Tax Professionals (SAIT) FIA and Fiduciary Institute of South Africa (FISA) the Society of Trust and Estate Practitioner (STEP- with a TEP Designation) Financial Intermediaries Association of Southern Africa (FIA) and Ethics SA Kobus has a passion for the financial services profession and works purposefully with other like-minded professionals and stakeholders to transform the industry into a fully-fledged profession through the power of social media print media as well as presenting at industry events

He has authored the book ldquoPassion for the profession- Mastering the 9 Prsquos to Professionalismrdquo as a non-profit publication to the financial profession to give back

Volunteering and recognitionFor the past two years Kobus has been awarded the FPI It Starts with Me Award (2015 and 2016 respectively) for his dedication in promoting and supporting the CFPreg mark and entrenching the CFPreg mark into his work life as well as personal brand The award launched in 2015 also recognised his contribution to the industry by volunteering his time to educate consumers about the value of financial planning and providing valuable input in various FPI committees to make the profession better

Apart from his involvement with FPI he is also an FIA and MDRT volunteer who likes to do pro-bono work wherever possible Kobus was awarded the MDRT Leadership Award in 2014

Godfrey Nti (right) congratulating Kobus Kleyn (left) on his new book Passion for the Profession

BOOK REVIEW

Throughout this book Kobus provides examples of professional behaviour whether it be through enhancing competence professional courtesy or just ensuring that the right thing is done He explains the tenets of being a professional through his own life experiences He further describes how becoming a professional can go a long way in not only enhancing onersquos standing pride respect from peers as well as delivering tangible dividends but also how this can significantly contribute in helping (re)build public trust and thus achieving the ever illusive public recognition of financial services as a profession

This is what Godfrey Nti CEO of the Financial Planning Institute had to say after reading the bookldquoBeing a professional goes beyond a profit motive it speaks to a greater calling to do good to the greater society while changing onersquos own life in the process If you just want to know the value of pro bono and volunteerism for a good cause and how this is key to not only a profession but being a professional then follow Kobusrsquos life journey as passionately narrated in this book This book paints a portrait of the interplay of these major stakeholders in creating the desired outcome a recognised and respected financial planning and advisory profession While we have made significant progress with the first three stakeholders there is still work to be done with respect to gaining public recognition Seeing that all professions have a public service ideal progress on aspect is a must if we are ever going to be recognised as a professionrdquo

ldquoKobusrsquo effortless passion for the profession shines right through in this book His rich life experiences on the journey to becoming a professional are admirable and something that we can all learn from

This book is indeed a must-read for all financial planners and advisors as well as anyone who hopes to fit into the financial services profession of the near futurerdquo Nti added If you are serious about becoming a professional as I am sure you are you will find this book very is interesting and most importantly informative And if you already are a professional in your own right and would like to know how to help create a bigger movement towards establishing a recognised as well as respected financial planning and

advisory profession this book is also for you If you are a student of history and would like to witness the creation of a profession this book is definitely for you as well

FPI members can claim CPD points as prescribed in the FPI CPD Policy for reading this informative book

Need a copyThe book is available directly from Kobus and his team at Kobuskleynliblinkcoza or phone Susan de Goede on (011) 207 7906 The ldquoPassion for the Profession Mastering the 9Ps to Professionalismrdquo book is also available on Amazon Kindle

For the full launch article including cost of this not-for-profit book visit wwwlinkedincompulselaunch-passion-profession-kobus-kleyn-cfp--1

Inflation may be returningAfter the financial crisis inflation has been stubbornly low in developed economies and there have been fears of Japan-style deflation The trend now seems to be turning with a decline in economic slack particularly in labour markets and energy prices moving higher In addition the populist policy direction is mostly inflationary protectionism raises imported goods prices curbing immigration boosts local wages and fiscal stimulus is inflationary if there is little economic slack

Importantly central banks seem inclined to lag the improvement in global growth and after fighting hard against deflation they may tolerate inflation rebounding to levels above target

Economic growth may be picking upThe current global expansion has been particularly weak on an annualised growth rate basis but of relatively long duration Some have feared a structurally lower growth environment due to the dampening effects of the excessive saving of ageing populations financial sector over-regulation a lower propensity to consume in emerging economies and waning technology innovation for businesses

We believe many of these forces are not permanent A much larger portion of the drag on economic growth was due to households deleveraging after a 20-year credit binge up to the crisis and the private sector sentiment dampening effects of extreme central bank actions Corporates have been eschewing capital expenditure and favouring dividends buybacks and mergers and acquisitions (with inevitable cost cutting and job losses) Consumers have been worried about the low return outlook stagnant incomes economic uncertainty and rising inequality

Global economic growth looks to now be improving after slowing in 2016 to a post-crisis low of 23 it is expected to rise to 27 in 2017 Forward-looking economic surveys are signalling much better times ahead (chart below) with a meaningful recent shift in both the US and the euro area consumer and business confidence A self-sustaining rise in lsquoanimal spiritsrsquo that boosts especially the investment side of the economy could be very good for economic growth

40

INVESTMENT

Developed economy confidence reboundsSouth Africa is differentIntriguingly South African changes under way are mostly in the opposite directions to the developed world

Here there are also likely to be large changes in government in the years ahead The African National Congressrsquo (ANC) elective conference in December 2017 should bring substantial change in leadership as a result of voter pressure to address corruption and general government ineffectiveness We believe these changes will be incrementally positive for the country There may be political and currency volatility in the interim however as the current regime fights to maintain power

In contrast to developed economy central banks the South African Reserve Bank (SARB) has been a shining example of an effective independent central bank Having tightened policy over recent years counter to developed economy trends SARBrsquos next move is likely to be a reduction in rates Also in contrast to developed economy trends the South African government has just ended a countercyclical fiscal stimulus programme which has resulted in large fiscal deficits and rising debt issuance and is now in fiscal consolidation mode as weak economic growth inhibits its ability to grow expenditure

Sentiment is depressed and economic activity is weak and the economy may only expand by 11 in 2017 (despite drought non-recurrence) and 18 in 2018

Global fault linesAmidst the generally positive sentiment around major potential threats include

o Populist nationalistsrsquo election gains in EU electionso Instability from China facing high debt balances and global

trade curbso The unpredictability of the new US president

Outlook for marketsThe lsquoregime changersquo described above of improving sentiment and potentially stronger growth and inflation is a good environment for global equities However on most measures stock market valuations are very high and the continued outperformance of equities is reliant on any economic uptick translating into meaningful company earnings growth and enduring for years [Still] very low bond yields continue to portend very low returns for all asset classes priced with low risk discount rates in mind

The lsquoregimersquo of the past five or six years in financial markets has seen central bank interventions reduce the significance of economic fundamentals and price-insensitive investing strategies (such as passive and momentum) outperform as large caps have dominated and correlations have been high

Quality South African domestic stocks have been particularly strong as price-insensitive global emerging market investors have fed a powerful rerating virtuous cycle

Style analysis shows that value has outperformed growth by a large margin in 2016 for the first time since 2006 We are seeing greater asset price dispersion (chart below) and thus great opportunities for stock picking strategies The lsquoregime changersquo seems to be impacting financial markets and particularly seeing long-term fundamental investing re-emerging as a very lucrative investment inefficiency to exploit

Share price correlation have fallen

41

INVESTMENT

42

By Brian Foster Co-founder Beyond RDR

Threes teesand financial advice fees

always hook up play golf and chat about whatrsquos going on in the world Inevitably the conversation turns to financial stuff and they ask me how itrsquos going here in South Africa Theyrsquove been paying retainer fees for advice since about 2010 and believe that paying a percentage of their assets for financial planning is nuts

If you donrsquot know me or didnrsquot already guess Irsquom a fan of retainer fees and this weekrsquos conversations have led me to write about how and why this happened to me

It just didnrsquot feel rightIn 2009 I was scratching my head and having a frustrated conversation with myself At that time I was charging a percentage of AUM Like most advisers my clients had different amounts of money which meant they paid wildly varying amounts for the services I provided Like many advisers I adjusted the percantage rates for some of those clients to compensate for the difference in wealth levels and what I thought was lsquorightrsquo but it wasnrsquot making sense Irsquod experimented with tiered pricing but making it fit and keeping tabs on everyone was a challenge It was sitting uncomfortably with me It just didnrsquot feel right

There were other challenges too

Some of my clients really wanted and valued the great financial planning services but didnrsquot have that much accumulated capital Must I turn them away because they werenrsquot wealthy enough That didnrsquot feel right

One of my clients had a long-standing relationship with her stock-broker who was holding all the investment money Must I now break this relationship in order to get paid for the financial planning work that he couldnrsquot deliver That didnrsquot feel right

Is financial planning about investment assetsIn order to be commercially successful it seemed I was required to gather and keep the clientsrsquo investment assets If I somehow lsquolostrsquo the assets my fees would go down so this created a whole bunch of challenges and conflicts

Three things happened over the last week which has led me to reflect on charging fees for financial advice

First up were two separate conversations with advisers When I asked what they were seeking to achieve of all the things they could have said they both said ldquoIrsquove got R500m in Assets under Management (AUM) and I want to get to R1bnrdquo When I asked ldquoWhy was this importantrdquo the answers generally amounted to ldquoI want to earn more money and sell my business one dayrdquo

Next was a great membersrsquo webinar held by Paul Armson as part of his Inspiring Advisers community Paul organised the webinar with Alan Smith from Capital Asset Management in the UK to talk about fees for advice or more specifically why Alan had changed from percentage AUM to a retainer fee modelIt created lots of debate Some agreed some disagreed and it ruffled a few feathers and had many advisers vehemently defending percentage AUM for all the reasons wersquove heard beforehellip of course

TeesThe third thing that happened was that I played golf and had dinner with a couple who were clients of my UK financial planning firm for 20 years They come to South Africa every year for a month and we

PRACTICE MANAGEMENT

If markets fell in value my fees would go down Why should I get paid less for delivering great financial planning advice and services And how much control did I actually have over investment values anyway None

bullWhatiftherightthingwasforthisclienttoexitdrawdownandbuyan annuity The money walks

bullWhat if the right thing was for this client tomake gifts to theirchildren or a charity The money walks

bullWhatiftherightthingwasforthisclienttopayofftheirmortgageor other debt The money walks

bullWhat if the right thing was for this client to spend money notaccumulate it The money walks

I figured that if I was truly client-centric and my role was to help clients live the life they really wanted (which is what I said I was doing) then I should not be conflicted by needing to have their money Itrsquos their money not mine

Therersquos a crucial question to consider when thinking about all this ldquoWhat is my rolerdquo As a financial planner is it my role to force people to accumulate money Is it my role to sell people financial products Is it my role to tell people what to do to make or not lose money Is it my role to tell people how they should live their lives

Irsquove tried all those things and they either didnrsquot sit well with me or they didnrsquot sit well with my clients

If yoursquove heard me speak yoursquove probably heard me ask the question ldquoIs the client the client or is the clientrsquos money the clientrdquo ndash The truth is that many of us are distracted by or focused entirely on our clientrsquos money or how WE can benefit from having THEIR investment assets

We define successful firms by how much AUM they have not by the fantastic lives their clients enjoy We describe people as a pound1 million client We set minimum investment thresholds to become a client and we talk about one day selling lsquoourrsquo investment book in order to retire

Think about that last one for a second Are we selling our business Are we selling our client relationships Or are we selling our clientsrsquo money and the revenue it generates

Thinking differentlyWhen I thought about this in 2009 and confronted it the conclusion seemed blindingly obvious to me and I developed two specific services for two sets of clients that solved two specific problems One was for people who didnrsquot know whether they had enough money to live the life they wanted and the other was for people who knew they had too much (or at least more than they needed) Then I worked out what each problem cost the business to solve and then I added a profit margin Finally I removed any element of charging for moving the money around

Then I spent the next God-knows-how-long trying to understand it myself and articulate it with confidence

The first three clients I pitched it to thought it was a great idea and signed up

To be fair I started with clients who were already financially wealthy (including the one mentioned above) but what surprised me were the less wealthy clients who subsequently chose to pay more than they had previously paid when on a percentage basis One of my clients was effectively paying around 2 a year Imagine that Why would anyone in their right mind pay 2 of their investment assets for financial planning advice They could easily have said no and gone somewhere lsquocheaperrsquo but they didnrsquot

But herersquos the question 2 pa of how much And what did they get for that The numbers arenrsquot important Itrsquos the context

The point is it wasnrsquot positioned as 2 of their investment assets and the proposition wasnrsquot about investing investment performance asset allocation and fund selections It was about helping them understand the life they really wanted what trade off decisions they were facing and how to manage them It was priced on the basis of cost of delivery plus a decent margin

Other advisors thought I was barking mad I had moments when I thought so too But it felt like the right thing to do for me and for my clients Clearly Alan Smith feels the same way Hersquos taken it one step further and posted his firmrsquos retainer fees on his website And he doesnrsquot seem to be short of clients

Pressure on pricingTherersquos a stack of pressure on transparency of costs in financial services and a huge amount of this pressure is at the lsquowealth managementrsquo end Vanguard Group in the US is already offering investment management and advice for less than 50 bps Many advisors are trying to get from 05 up to 1 at a time when the market is heading in the other direction so itrsquos going to take more than a conversation about asset allocation and fund selection to make that stack up

Focus on the right thingsAs a final thought how do you get your AUM from R500m to R1bn You either have to gather more assets from your existing clients or more likely bring in new clients Does your business have the capacity and the resources to deliver your service to double the number of clients If it doesnrsquot will you just lsquowing itrsquo anyway

Maybe what you really need to focus on is increasing the profitability of your business revenues And you donrsquot necessarily need to double your AUM to achieve that

Think about ithellip

PRACTICE MANAGEMENT

44

CriticalIllness

How critical is

RISK MANAGEMENT

By Barbara Mundell CFPreg Technical Specialist Financial Planning Institute (FPI)

70 percent of the South African population will be diagnosed with a critical illness during their lifetime With so many critical illness solutions in the market place this is often a complex area of financial planning What do you plan for how much do you need should it be a lump sum or should

it be an income Should your existing disability products not provide for this The sad reality is that most people do not know what to expect from a severe illness Medical enhancements make it possible for more and more people to survive severe illnesses However the question remains what scars will it leave behind not only on the person suffering from a severe illness but hisher families too

When assisting a client with a comprehensive financial plan the clientrsquos affordability to certain solutions are often a problem

Priority of severe illness solutionsSevere illness planning is complex due to different impact the different diseases have With the pressure that medical aid schemes are under with the rising health costs in South Africa how do we determine the value of cover a client needs Do you plan for severe illness as a substitute of income or a lump sum to fund medical costs or both Due to severe illness products that have up to 340 claim events the risks to the insurers is tremendous and hence this tends to be the most expensive financial solution in a clientrsquos portfolio

Should critical illness be prioritised in a financial plan According to Kobus Kleyn CFPreg Chairperson of the FPI Risk Competency Committee critical illness is more than a necessity ldquoThere is absolutely no doubt that any financial plan could never be perceived as comprehensive or holistic if critical illness proposals and cover are not included into the plan over the long term The cover should form part of the plan and should be prioritised according to clientrsquos needs and affordability as well as understanding the importance of this cover as part of the clientrsquos plan I would always structure my clientrsquos plan to incorporate critical illness cover No matter how small or large the cover is cover must be in That way I will be assured that most of my clients have some critical illness cover and importantly it will receive priority no matter the clientrsquos or his familyrsquos health history as critical illness is not pickyrdquo

that the full cover will not pay out There are just too many product providers out there offering so many bells and whistles rather than simple and comprehensive critical illness cover productsrdquo Kleyn added

How should financial planners approach the planning for a critical illness event Ridler commented ldquoThere are many factors to take into account including the clientrsquos personal circumstances The clientrsquos medical aid should play a vital role in the critical illness planning for a clientrdquo

Bruce Fleming CFPreg FPI Financial Planner of the Year 20162017 said that the single most important consideration for critical illness planning is the short- to medium-term financial ramifications of suffering from a dread disease that your medical aid and disability cover will not cover and if the client is financially covered for this

Critical illness at claim stageThis is where most financial planners find joy in their work However the role of the financial planner at claim stage should never be underestimated Kleyn said ldquoWe as human advisors versus robo-advisors is the differentiating factor out there and our noble role as financial planners comes to the fore during our clientsrsquo life events This is when we are there with empathy to help our clients and their families through very tough times Most importantly when we take charge and ensure claims are paid out in full and if not take up the case with product providers and make sure no stone is unturned to the best interest of TCF and our clientrsquos interestrdquo

ldquoOnce the claim is paid out we have a huge role to make sure the quality of life for such a client is taken care of and provide skilful advice on investment for their unique health situation as well as sustainability to make the changes in a clients life following such a critical illness claimrdquo he concluded

The cover pay out can bring a certain level of financial freedom to the client According to Fleming some of the freedoms that the cover can provide includebullNottohavetoreturntoworkimmediatelyandallowyoutorecover

not only physically but also emotionally from your illnessbullAffordnursingcareatyourownhomeshouldthisberequiredbullGetassistanceinandaroundthehousetorecoverproperlybullChildcaretomakesureyourlovedonesarelookedafter

when you cannot shoulder the responsibility andbullGetcounsellingtohelpyoudealwithwhatyouaregoing through

ldquoSuffering a severe illness is taxing physically emotionally and financially There can be a range of unexpected costs including the cost of scaling down

after the illness the probability that the client may want to retire earlier and the need to possibly make significant

changes to their lifestylerdquo says Fleming

In conclusionAs a financial planner critical illness can no longer be regarded as a luxury in a clientrsquos financial plan but rather as a critical component ensuring the best possible outcome for the client in the event of an illness At the time of diagnosis the clients have

more than enough to be concerned about The right critical illness solution can alleviate some of the financial

pressure allowing the client and hisher family to process the emotional and physical trauma

45

RISK MANAGEMENT

Medical aid and gap coverWith the changes in the demarcation regulations clients have lost parts of their piece of mind A majority of medical aid schemes only cover cancer up to a certain point and from there a co-payment applies Since gap cover is limited to R150 000 per insured per event clients are now left exposed to high medical costs

How do the changes in regulation change the way financial planners need to plan for critical illness solutions ldquoThe new demarcation regulations emphasise the three prong approach required to mitigate dread disease risk Medical aid to cover hospitalisation (the biggest risk) gap cover to cover those out-of-pocket expenses that can run to tens of thousands and dread disease cover to provide a lump sum for premium care not covered by medical aid

and recuperation as well as lifestyle changesrdquo said Dawn Ridler CFPreg member of the FPI Risk Competency Committee

Should financial planners consider solutions that have 100 pay-outs on critical illness ldquoI regard it as a priority

and would rather pay more for a comprehensive top up cover policy with less cover than paying less for a lot of cover but not comprehensive It is key for product developers to ensure 100 pay outs rather than tier payments at claim stage It is very disappointing under emotional circumstances to advise a client

46

47

48

BOOK REVIEW

PassionProfession

for the

Mastering the 9 Psto Professionalism

The 9Ps to Professionalism

ldquoWith a vision of a financial services industry that is fully transformed into a profession like so many of its peers To embrace this vision each of us need to give back to the financial advice profession by creating awareness of what we do and sharing best operating practices with our peersrdquo

said Kobus Kleyn CFPreg author of the book

He wrote this book which was launched on 18 March 2017 to share his personal experience as a CERTIFIED FINANCIAL PLANNERreg professional and the lessons learned from his involvement with various affiliations professional bodies and fellow financial planning professionals

The book was written for financial planningadvisory professionals or those aspiring to be across financial disciplines worldwide It outlines a step-by-step process through the nine Prsquos he identified (refer to the diagram below) to transform you from a ldquoproduct selling intermediaryrdquo into a financial planning professional with a strong value proposition code of conduct and ethics as well as a personal brand of note and inclusive of a passive income

49

ProfileData takes pride in being the leading South African financial data feed solutions provider

Our specialised local research teams together with our relationships with international exchanges and dataproviders allow you access to a wide range of data options for both in-house needs and for on-distribution toyour customer base

Profilersquos specialised IT team takes pride in building turnkey solutions that meet the need of the customerspecification at a defined cost Profilersquos on- and off-site IT infrastructure allows cost-effective hosting andsolutions management reducing the need for expensive capital cost

wwwfundsdatacozawwwsharedatacoza wwwsharemagiccoza

Contact Lionell Wobben

082-559-8283 | 011-728-5510

Financial Data Solutions

About the authorKobus Kleyn CERTIFIED FINANCIAL PLANNERreg professional and director at Kainos Financial Services a Liberty Group Affiliate obtained his Postgraduate Degree in Financial Planning at the University of Free State as well as a Management Development Programme (MPD) and AEP from UNISA Business School

He is the current chairperson of the Financial Planning Institutersquos (FPI) Risk Competency Committee Financial Intermediaries Associationrsquos (FIA) RDR Intermediary Workgroup and Liberty Group FA Ethics Committee Kobus serves on the Million Dollar Round Table (MDRT) Income Replacement Committee FPI Annual Convention Committee 2017 and holds the assistant-director for the MDRT PGA Annual Convention 2017 Task Force Committee position

He is also a member of the South African Institute of Tax Professionals (SAIT) FIA and Fiduciary Institute of South Africa (FISA) the Society of Trust and Estate Practitioner (STEP- with a TEP Designation) Financial Intermediaries Association of Southern Africa (FIA) and Ethics SA Kobus has a passion for the financial services profession and works purposefully with other like-minded professionals and stakeholders to transform the industry into a fully-fledged profession through the power of social media print media as well as presenting at industry events

He has authored the book ldquoPassion for the profession- Mastering the 9 Prsquos to Professionalismrdquo as a non-profit publication to the financial profession to give back

Volunteering and recognitionFor the past two years Kobus has been awarded the FPI It Starts with Me Award (2015 and 2016 respectively) for his dedication in promoting and supporting the CFPreg mark and entrenching the CFPreg mark into his work life as well as personal brand The award launched in 2015 also recognised his contribution to the industry by volunteering his time to educate consumers about the value of financial planning and providing valuable input in various FPI committees to make the profession better

Apart from his involvement with FPI he is also an FIA and MDRT volunteer who likes to do pro-bono work wherever possible Kobus was awarded the MDRT Leadership Award in 2014

Godfrey Nti (right) congratulating Kobus Kleyn (left) on his new book Passion for the Profession

BOOK REVIEW

Throughout this book Kobus provides examples of professional behaviour whether it be through enhancing competence professional courtesy or just ensuring that the right thing is done He explains the tenets of being a professional through his own life experiences He further describes how becoming a professional can go a long way in not only enhancing onersquos standing pride respect from peers as well as delivering tangible dividends but also how this can significantly contribute in helping (re)build public trust and thus achieving the ever illusive public recognition of financial services as a profession

This is what Godfrey Nti CEO of the Financial Planning Institute had to say after reading the bookldquoBeing a professional goes beyond a profit motive it speaks to a greater calling to do good to the greater society while changing onersquos own life in the process If you just want to know the value of pro bono and volunteerism for a good cause and how this is key to not only a profession but being a professional then follow Kobusrsquos life journey as passionately narrated in this book This book paints a portrait of the interplay of these major stakeholders in creating the desired outcome a recognised and respected financial planning and advisory profession While we have made significant progress with the first three stakeholders there is still work to be done with respect to gaining public recognition Seeing that all professions have a public service ideal progress on aspect is a must if we are ever going to be recognised as a professionrdquo

ldquoKobusrsquo effortless passion for the profession shines right through in this book His rich life experiences on the journey to becoming a professional are admirable and something that we can all learn from

This book is indeed a must-read for all financial planners and advisors as well as anyone who hopes to fit into the financial services profession of the near futurerdquo Nti added If you are serious about becoming a professional as I am sure you are you will find this book very is interesting and most importantly informative And if you already are a professional in your own right and would like to know how to help create a bigger movement towards establishing a recognised as well as respected financial planning and

advisory profession this book is also for you If you are a student of history and would like to witness the creation of a profession this book is definitely for you as well

FPI members can claim CPD points as prescribed in the FPI CPD Policy for reading this informative book

Need a copyThe book is available directly from Kobus and his team at Kobuskleynliblinkcoza or phone Susan de Goede on (011) 207 7906 The ldquoPassion for the Profession Mastering the 9Ps to Professionalismrdquo book is also available on Amazon Kindle

For the full launch article including cost of this not-for-profit book visit wwwlinkedincompulselaunch-passion-profession-kobus-kleyn-cfp--1

Developed economy confidence reboundsSouth Africa is differentIntriguingly South African changes under way are mostly in the opposite directions to the developed world

Here there are also likely to be large changes in government in the years ahead The African National Congressrsquo (ANC) elective conference in December 2017 should bring substantial change in leadership as a result of voter pressure to address corruption and general government ineffectiveness We believe these changes will be incrementally positive for the country There may be political and currency volatility in the interim however as the current regime fights to maintain power

In contrast to developed economy central banks the South African Reserve Bank (SARB) has been a shining example of an effective independent central bank Having tightened policy over recent years counter to developed economy trends SARBrsquos next move is likely to be a reduction in rates Also in contrast to developed economy trends the South African government has just ended a countercyclical fiscal stimulus programme which has resulted in large fiscal deficits and rising debt issuance and is now in fiscal consolidation mode as weak economic growth inhibits its ability to grow expenditure

Sentiment is depressed and economic activity is weak and the economy may only expand by 11 in 2017 (despite drought non-recurrence) and 18 in 2018

Global fault linesAmidst the generally positive sentiment around major potential threats include

o Populist nationalistsrsquo election gains in EU electionso Instability from China facing high debt balances and global

trade curbso The unpredictability of the new US president

Outlook for marketsThe lsquoregime changersquo described above of improving sentiment and potentially stronger growth and inflation is a good environment for global equities However on most measures stock market valuations are very high and the continued outperformance of equities is reliant on any economic uptick translating into meaningful company earnings growth and enduring for years [Still] very low bond yields continue to portend very low returns for all asset classes priced with low risk discount rates in mind

The lsquoregimersquo of the past five or six years in financial markets has seen central bank interventions reduce the significance of economic fundamentals and price-insensitive investing strategies (such as passive and momentum) outperform as large caps have dominated and correlations have been high

Quality South African domestic stocks have been particularly strong as price-insensitive global emerging market investors have fed a powerful rerating virtuous cycle

Style analysis shows that value has outperformed growth by a large margin in 2016 for the first time since 2006 We are seeing greater asset price dispersion (chart below) and thus great opportunities for stock picking strategies The lsquoregime changersquo seems to be impacting financial markets and particularly seeing long-term fundamental investing re-emerging as a very lucrative investment inefficiency to exploit

Share price correlation have fallen

41

INVESTMENT

42

By Brian Foster Co-founder Beyond RDR

Threes teesand financial advice fees

always hook up play golf and chat about whatrsquos going on in the world Inevitably the conversation turns to financial stuff and they ask me how itrsquos going here in South Africa Theyrsquove been paying retainer fees for advice since about 2010 and believe that paying a percentage of their assets for financial planning is nuts

If you donrsquot know me or didnrsquot already guess Irsquom a fan of retainer fees and this weekrsquos conversations have led me to write about how and why this happened to me

It just didnrsquot feel rightIn 2009 I was scratching my head and having a frustrated conversation with myself At that time I was charging a percentage of AUM Like most advisers my clients had different amounts of money which meant they paid wildly varying amounts for the services I provided Like many advisers I adjusted the percantage rates for some of those clients to compensate for the difference in wealth levels and what I thought was lsquorightrsquo but it wasnrsquot making sense Irsquod experimented with tiered pricing but making it fit and keeping tabs on everyone was a challenge It was sitting uncomfortably with me It just didnrsquot feel right

There were other challenges too

Some of my clients really wanted and valued the great financial planning services but didnrsquot have that much accumulated capital Must I turn them away because they werenrsquot wealthy enough That didnrsquot feel right

One of my clients had a long-standing relationship with her stock-broker who was holding all the investment money Must I now break this relationship in order to get paid for the financial planning work that he couldnrsquot deliver That didnrsquot feel right

Is financial planning about investment assetsIn order to be commercially successful it seemed I was required to gather and keep the clientsrsquo investment assets If I somehow lsquolostrsquo the assets my fees would go down so this created a whole bunch of challenges and conflicts

Three things happened over the last week which has led me to reflect on charging fees for financial advice

First up were two separate conversations with advisers When I asked what they were seeking to achieve of all the things they could have said they both said ldquoIrsquove got R500m in Assets under Management (AUM) and I want to get to R1bnrdquo When I asked ldquoWhy was this importantrdquo the answers generally amounted to ldquoI want to earn more money and sell my business one dayrdquo

Next was a great membersrsquo webinar held by Paul Armson as part of his Inspiring Advisers community Paul organised the webinar with Alan Smith from Capital Asset Management in the UK to talk about fees for advice or more specifically why Alan had changed from percentage AUM to a retainer fee modelIt created lots of debate Some agreed some disagreed and it ruffled a few feathers and had many advisers vehemently defending percentage AUM for all the reasons wersquove heard beforehellip of course

TeesThe third thing that happened was that I played golf and had dinner with a couple who were clients of my UK financial planning firm for 20 years They come to South Africa every year for a month and we

PRACTICE MANAGEMENT

If markets fell in value my fees would go down Why should I get paid less for delivering great financial planning advice and services And how much control did I actually have over investment values anyway None

bullWhatiftherightthingwasforthisclienttoexitdrawdownandbuyan annuity The money walks

bullWhat if the right thing was for this client tomake gifts to theirchildren or a charity The money walks

bullWhatiftherightthingwasforthisclienttopayofftheirmortgageor other debt The money walks

bullWhat if the right thing was for this client to spend money notaccumulate it The money walks

I figured that if I was truly client-centric and my role was to help clients live the life they really wanted (which is what I said I was doing) then I should not be conflicted by needing to have their money Itrsquos their money not mine

Therersquos a crucial question to consider when thinking about all this ldquoWhat is my rolerdquo As a financial planner is it my role to force people to accumulate money Is it my role to sell people financial products Is it my role to tell people what to do to make or not lose money Is it my role to tell people how they should live their lives

Irsquove tried all those things and they either didnrsquot sit well with me or they didnrsquot sit well with my clients

If yoursquove heard me speak yoursquove probably heard me ask the question ldquoIs the client the client or is the clientrsquos money the clientrdquo ndash The truth is that many of us are distracted by or focused entirely on our clientrsquos money or how WE can benefit from having THEIR investment assets

We define successful firms by how much AUM they have not by the fantastic lives their clients enjoy We describe people as a pound1 million client We set minimum investment thresholds to become a client and we talk about one day selling lsquoourrsquo investment book in order to retire

Think about that last one for a second Are we selling our business Are we selling our client relationships Or are we selling our clientsrsquo money and the revenue it generates

Thinking differentlyWhen I thought about this in 2009 and confronted it the conclusion seemed blindingly obvious to me and I developed two specific services for two sets of clients that solved two specific problems One was for people who didnrsquot know whether they had enough money to live the life they wanted and the other was for people who knew they had too much (or at least more than they needed) Then I worked out what each problem cost the business to solve and then I added a profit margin Finally I removed any element of charging for moving the money around

Then I spent the next God-knows-how-long trying to understand it myself and articulate it with confidence

The first three clients I pitched it to thought it was a great idea and signed up

To be fair I started with clients who were already financially wealthy (including the one mentioned above) but what surprised me were the less wealthy clients who subsequently chose to pay more than they had previously paid when on a percentage basis One of my clients was effectively paying around 2 a year Imagine that Why would anyone in their right mind pay 2 of their investment assets for financial planning advice They could easily have said no and gone somewhere lsquocheaperrsquo but they didnrsquot

But herersquos the question 2 pa of how much And what did they get for that The numbers arenrsquot important Itrsquos the context

The point is it wasnrsquot positioned as 2 of their investment assets and the proposition wasnrsquot about investing investment performance asset allocation and fund selections It was about helping them understand the life they really wanted what trade off decisions they were facing and how to manage them It was priced on the basis of cost of delivery plus a decent margin

Other advisors thought I was barking mad I had moments when I thought so too But it felt like the right thing to do for me and for my clients Clearly Alan Smith feels the same way Hersquos taken it one step further and posted his firmrsquos retainer fees on his website And he doesnrsquot seem to be short of clients

Pressure on pricingTherersquos a stack of pressure on transparency of costs in financial services and a huge amount of this pressure is at the lsquowealth managementrsquo end Vanguard Group in the US is already offering investment management and advice for less than 50 bps Many advisors are trying to get from 05 up to 1 at a time when the market is heading in the other direction so itrsquos going to take more than a conversation about asset allocation and fund selection to make that stack up

Focus on the right thingsAs a final thought how do you get your AUM from R500m to R1bn You either have to gather more assets from your existing clients or more likely bring in new clients Does your business have the capacity and the resources to deliver your service to double the number of clients If it doesnrsquot will you just lsquowing itrsquo anyway

Maybe what you really need to focus on is increasing the profitability of your business revenues And you donrsquot necessarily need to double your AUM to achieve that

Think about ithellip

PRACTICE MANAGEMENT

44

CriticalIllness

How critical is

RISK MANAGEMENT

By Barbara Mundell CFPreg Technical Specialist Financial Planning Institute (FPI)

70 percent of the South African population will be diagnosed with a critical illness during their lifetime With so many critical illness solutions in the market place this is often a complex area of financial planning What do you plan for how much do you need should it be a lump sum or should

it be an income Should your existing disability products not provide for this The sad reality is that most people do not know what to expect from a severe illness Medical enhancements make it possible for more and more people to survive severe illnesses However the question remains what scars will it leave behind not only on the person suffering from a severe illness but hisher families too

When assisting a client with a comprehensive financial plan the clientrsquos affordability to certain solutions are often a problem

Priority of severe illness solutionsSevere illness planning is complex due to different impact the different diseases have With the pressure that medical aid schemes are under with the rising health costs in South Africa how do we determine the value of cover a client needs Do you plan for severe illness as a substitute of income or a lump sum to fund medical costs or both Due to severe illness products that have up to 340 claim events the risks to the insurers is tremendous and hence this tends to be the most expensive financial solution in a clientrsquos portfolio

Should critical illness be prioritised in a financial plan According to Kobus Kleyn CFPreg Chairperson of the FPI Risk Competency Committee critical illness is more than a necessity ldquoThere is absolutely no doubt that any financial plan could never be perceived as comprehensive or holistic if critical illness proposals and cover are not included into the plan over the long term The cover should form part of the plan and should be prioritised according to clientrsquos needs and affordability as well as understanding the importance of this cover as part of the clientrsquos plan I would always structure my clientrsquos plan to incorporate critical illness cover No matter how small or large the cover is cover must be in That way I will be assured that most of my clients have some critical illness cover and importantly it will receive priority no matter the clientrsquos or his familyrsquos health history as critical illness is not pickyrdquo

that the full cover will not pay out There are just too many product providers out there offering so many bells and whistles rather than simple and comprehensive critical illness cover productsrdquo Kleyn added

How should financial planners approach the planning for a critical illness event Ridler commented ldquoThere are many factors to take into account including the clientrsquos personal circumstances The clientrsquos medical aid should play a vital role in the critical illness planning for a clientrdquo

Bruce Fleming CFPreg FPI Financial Planner of the Year 20162017 said that the single most important consideration for critical illness planning is the short- to medium-term financial ramifications of suffering from a dread disease that your medical aid and disability cover will not cover and if the client is financially covered for this

Critical illness at claim stageThis is where most financial planners find joy in their work However the role of the financial planner at claim stage should never be underestimated Kleyn said ldquoWe as human advisors versus robo-advisors is the differentiating factor out there and our noble role as financial planners comes to the fore during our clientsrsquo life events This is when we are there with empathy to help our clients and their families through very tough times Most importantly when we take charge and ensure claims are paid out in full and if not take up the case with product providers and make sure no stone is unturned to the best interest of TCF and our clientrsquos interestrdquo

ldquoOnce the claim is paid out we have a huge role to make sure the quality of life for such a client is taken care of and provide skilful advice on investment for their unique health situation as well as sustainability to make the changes in a clients life following such a critical illness claimrdquo he concluded

The cover pay out can bring a certain level of financial freedom to the client According to Fleming some of the freedoms that the cover can provide includebullNottohavetoreturntoworkimmediatelyandallowyoutorecover

not only physically but also emotionally from your illnessbullAffordnursingcareatyourownhomeshouldthisberequiredbullGetassistanceinandaroundthehousetorecoverproperlybullChildcaretomakesureyourlovedonesarelookedafter

when you cannot shoulder the responsibility andbullGetcounsellingtohelpyoudealwithwhatyouaregoing through

ldquoSuffering a severe illness is taxing physically emotionally and financially There can be a range of unexpected costs including the cost of scaling down

after the illness the probability that the client may want to retire earlier and the need to possibly make significant

changes to their lifestylerdquo says Fleming

In conclusionAs a financial planner critical illness can no longer be regarded as a luxury in a clientrsquos financial plan but rather as a critical component ensuring the best possible outcome for the client in the event of an illness At the time of diagnosis the clients have

more than enough to be concerned about The right critical illness solution can alleviate some of the financial

pressure allowing the client and hisher family to process the emotional and physical trauma

45

RISK MANAGEMENT

Medical aid and gap coverWith the changes in the demarcation regulations clients have lost parts of their piece of mind A majority of medical aid schemes only cover cancer up to a certain point and from there a co-payment applies Since gap cover is limited to R150 000 per insured per event clients are now left exposed to high medical costs

How do the changes in regulation change the way financial planners need to plan for critical illness solutions ldquoThe new demarcation regulations emphasise the three prong approach required to mitigate dread disease risk Medical aid to cover hospitalisation (the biggest risk) gap cover to cover those out-of-pocket expenses that can run to tens of thousands and dread disease cover to provide a lump sum for premium care not covered by medical aid

and recuperation as well as lifestyle changesrdquo said Dawn Ridler CFPreg member of the FPI Risk Competency Committee

Should financial planners consider solutions that have 100 pay-outs on critical illness ldquoI regard it as a priority

and would rather pay more for a comprehensive top up cover policy with less cover than paying less for a lot of cover but not comprehensive It is key for product developers to ensure 100 pay outs rather than tier payments at claim stage It is very disappointing under emotional circumstances to advise a client

46

47

48

BOOK REVIEW

PassionProfession

for the

Mastering the 9 Psto Professionalism

The 9Ps to Professionalism

ldquoWith a vision of a financial services industry that is fully transformed into a profession like so many of its peers To embrace this vision each of us need to give back to the financial advice profession by creating awareness of what we do and sharing best operating practices with our peersrdquo

said Kobus Kleyn CFPreg author of the book

He wrote this book which was launched on 18 March 2017 to share his personal experience as a CERTIFIED FINANCIAL PLANNERreg professional and the lessons learned from his involvement with various affiliations professional bodies and fellow financial planning professionals

The book was written for financial planningadvisory professionals or those aspiring to be across financial disciplines worldwide It outlines a step-by-step process through the nine Prsquos he identified (refer to the diagram below) to transform you from a ldquoproduct selling intermediaryrdquo into a financial planning professional with a strong value proposition code of conduct and ethics as well as a personal brand of note and inclusive of a passive income

49

ProfileData takes pride in being the leading South African financial data feed solutions provider

Our specialised local research teams together with our relationships with international exchanges and dataproviders allow you access to a wide range of data options for both in-house needs and for on-distribution toyour customer base

Profilersquos specialised IT team takes pride in building turnkey solutions that meet the need of the customerspecification at a defined cost Profilersquos on- and off-site IT infrastructure allows cost-effective hosting andsolutions management reducing the need for expensive capital cost

wwwfundsdatacozawwwsharedatacoza wwwsharemagiccoza

Contact Lionell Wobben

082-559-8283 | 011-728-5510

Financial Data Solutions

About the authorKobus Kleyn CERTIFIED FINANCIAL PLANNERreg professional and director at Kainos Financial Services a Liberty Group Affiliate obtained his Postgraduate Degree in Financial Planning at the University of Free State as well as a Management Development Programme (MPD) and AEP from UNISA Business School

He is the current chairperson of the Financial Planning Institutersquos (FPI) Risk Competency Committee Financial Intermediaries Associationrsquos (FIA) RDR Intermediary Workgroup and Liberty Group FA Ethics Committee Kobus serves on the Million Dollar Round Table (MDRT) Income Replacement Committee FPI Annual Convention Committee 2017 and holds the assistant-director for the MDRT PGA Annual Convention 2017 Task Force Committee position

He is also a member of the South African Institute of Tax Professionals (SAIT) FIA and Fiduciary Institute of South Africa (FISA) the Society of Trust and Estate Practitioner (STEP- with a TEP Designation) Financial Intermediaries Association of Southern Africa (FIA) and Ethics SA Kobus has a passion for the financial services profession and works purposefully with other like-minded professionals and stakeholders to transform the industry into a fully-fledged profession through the power of social media print media as well as presenting at industry events

He has authored the book ldquoPassion for the profession- Mastering the 9 Prsquos to Professionalismrdquo as a non-profit publication to the financial profession to give back

Volunteering and recognitionFor the past two years Kobus has been awarded the FPI It Starts with Me Award (2015 and 2016 respectively) for his dedication in promoting and supporting the CFPreg mark and entrenching the CFPreg mark into his work life as well as personal brand The award launched in 2015 also recognised his contribution to the industry by volunteering his time to educate consumers about the value of financial planning and providing valuable input in various FPI committees to make the profession better

Apart from his involvement with FPI he is also an FIA and MDRT volunteer who likes to do pro-bono work wherever possible Kobus was awarded the MDRT Leadership Award in 2014

Godfrey Nti (right) congratulating Kobus Kleyn (left) on his new book Passion for the Profession

BOOK REVIEW

Throughout this book Kobus provides examples of professional behaviour whether it be through enhancing competence professional courtesy or just ensuring that the right thing is done He explains the tenets of being a professional through his own life experiences He further describes how becoming a professional can go a long way in not only enhancing onersquos standing pride respect from peers as well as delivering tangible dividends but also how this can significantly contribute in helping (re)build public trust and thus achieving the ever illusive public recognition of financial services as a profession

This is what Godfrey Nti CEO of the Financial Planning Institute had to say after reading the bookldquoBeing a professional goes beyond a profit motive it speaks to a greater calling to do good to the greater society while changing onersquos own life in the process If you just want to know the value of pro bono and volunteerism for a good cause and how this is key to not only a profession but being a professional then follow Kobusrsquos life journey as passionately narrated in this book This book paints a portrait of the interplay of these major stakeholders in creating the desired outcome a recognised and respected financial planning and advisory profession While we have made significant progress with the first three stakeholders there is still work to be done with respect to gaining public recognition Seeing that all professions have a public service ideal progress on aspect is a must if we are ever going to be recognised as a professionrdquo

ldquoKobusrsquo effortless passion for the profession shines right through in this book His rich life experiences on the journey to becoming a professional are admirable and something that we can all learn from

This book is indeed a must-read for all financial planners and advisors as well as anyone who hopes to fit into the financial services profession of the near futurerdquo Nti added If you are serious about becoming a professional as I am sure you are you will find this book very is interesting and most importantly informative And if you already are a professional in your own right and would like to know how to help create a bigger movement towards establishing a recognised as well as respected financial planning and

advisory profession this book is also for you If you are a student of history and would like to witness the creation of a profession this book is definitely for you as well

FPI members can claim CPD points as prescribed in the FPI CPD Policy for reading this informative book

Need a copyThe book is available directly from Kobus and his team at Kobuskleynliblinkcoza or phone Susan de Goede on (011) 207 7906 The ldquoPassion for the Profession Mastering the 9Ps to Professionalismrdquo book is also available on Amazon Kindle

For the full launch article including cost of this not-for-profit book visit wwwlinkedincompulselaunch-passion-profession-kobus-kleyn-cfp--1

42

By Brian Foster Co-founder Beyond RDR

Threes teesand financial advice fees

always hook up play golf and chat about whatrsquos going on in the world Inevitably the conversation turns to financial stuff and they ask me how itrsquos going here in South Africa Theyrsquove been paying retainer fees for advice since about 2010 and believe that paying a percentage of their assets for financial planning is nuts

If you donrsquot know me or didnrsquot already guess Irsquom a fan of retainer fees and this weekrsquos conversations have led me to write about how and why this happened to me

It just didnrsquot feel rightIn 2009 I was scratching my head and having a frustrated conversation with myself At that time I was charging a percentage of AUM Like most advisers my clients had different amounts of money which meant they paid wildly varying amounts for the services I provided Like many advisers I adjusted the percantage rates for some of those clients to compensate for the difference in wealth levels and what I thought was lsquorightrsquo but it wasnrsquot making sense Irsquod experimented with tiered pricing but making it fit and keeping tabs on everyone was a challenge It was sitting uncomfortably with me It just didnrsquot feel right

There were other challenges too

Some of my clients really wanted and valued the great financial planning services but didnrsquot have that much accumulated capital Must I turn them away because they werenrsquot wealthy enough That didnrsquot feel right

One of my clients had a long-standing relationship with her stock-broker who was holding all the investment money Must I now break this relationship in order to get paid for the financial planning work that he couldnrsquot deliver That didnrsquot feel right

Is financial planning about investment assetsIn order to be commercially successful it seemed I was required to gather and keep the clientsrsquo investment assets If I somehow lsquolostrsquo the assets my fees would go down so this created a whole bunch of challenges and conflicts

Three things happened over the last week which has led me to reflect on charging fees for financial advice

First up were two separate conversations with advisers When I asked what they were seeking to achieve of all the things they could have said they both said ldquoIrsquove got R500m in Assets under Management (AUM) and I want to get to R1bnrdquo When I asked ldquoWhy was this importantrdquo the answers generally amounted to ldquoI want to earn more money and sell my business one dayrdquo

Next was a great membersrsquo webinar held by Paul Armson as part of his Inspiring Advisers community Paul organised the webinar with Alan Smith from Capital Asset Management in the UK to talk about fees for advice or more specifically why Alan had changed from percentage AUM to a retainer fee modelIt created lots of debate Some agreed some disagreed and it ruffled a few feathers and had many advisers vehemently defending percentage AUM for all the reasons wersquove heard beforehellip of course

TeesThe third thing that happened was that I played golf and had dinner with a couple who were clients of my UK financial planning firm for 20 years They come to South Africa every year for a month and we

PRACTICE MANAGEMENT

If markets fell in value my fees would go down Why should I get paid less for delivering great financial planning advice and services And how much control did I actually have over investment values anyway None

bullWhatiftherightthingwasforthisclienttoexitdrawdownandbuyan annuity The money walks

bullWhat if the right thing was for this client tomake gifts to theirchildren or a charity The money walks

bullWhatiftherightthingwasforthisclienttopayofftheirmortgageor other debt The money walks

bullWhat if the right thing was for this client to spend money notaccumulate it The money walks

I figured that if I was truly client-centric and my role was to help clients live the life they really wanted (which is what I said I was doing) then I should not be conflicted by needing to have their money Itrsquos their money not mine

Therersquos a crucial question to consider when thinking about all this ldquoWhat is my rolerdquo As a financial planner is it my role to force people to accumulate money Is it my role to sell people financial products Is it my role to tell people what to do to make or not lose money Is it my role to tell people how they should live their lives

Irsquove tried all those things and they either didnrsquot sit well with me or they didnrsquot sit well with my clients

If yoursquove heard me speak yoursquove probably heard me ask the question ldquoIs the client the client or is the clientrsquos money the clientrdquo ndash The truth is that many of us are distracted by or focused entirely on our clientrsquos money or how WE can benefit from having THEIR investment assets

We define successful firms by how much AUM they have not by the fantastic lives their clients enjoy We describe people as a pound1 million client We set minimum investment thresholds to become a client and we talk about one day selling lsquoourrsquo investment book in order to retire

Think about that last one for a second Are we selling our business Are we selling our client relationships Or are we selling our clientsrsquo money and the revenue it generates

Thinking differentlyWhen I thought about this in 2009 and confronted it the conclusion seemed blindingly obvious to me and I developed two specific services for two sets of clients that solved two specific problems One was for people who didnrsquot know whether they had enough money to live the life they wanted and the other was for people who knew they had too much (or at least more than they needed) Then I worked out what each problem cost the business to solve and then I added a profit margin Finally I removed any element of charging for moving the money around

Then I spent the next God-knows-how-long trying to understand it myself and articulate it with confidence

The first three clients I pitched it to thought it was a great idea and signed up

To be fair I started with clients who were already financially wealthy (including the one mentioned above) but what surprised me were the less wealthy clients who subsequently chose to pay more than they had previously paid when on a percentage basis One of my clients was effectively paying around 2 a year Imagine that Why would anyone in their right mind pay 2 of their investment assets for financial planning advice They could easily have said no and gone somewhere lsquocheaperrsquo but they didnrsquot

But herersquos the question 2 pa of how much And what did they get for that The numbers arenrsquot important Itrsquos the context

The point is it wasnrsquot positioned as 2 of their investment assets and the proposition wasnrsquot about investing investment performance asset allocation and fund selections It was about helping them understand the life they really wanted what trade off decisions they were facing and how to manage them It was priced on the basis of cost of delivery plus a decent margin

Other advisors thought I was barking mad I had moments when I thought so too But it felt like the right thing to do for me and for my clients Clearly Alan Smith feels the same way Hersquos taken it one step further and posted his firmrsquos retainer fees on his website And he doesnrsquot seem to be short of clients

Pressure on pricingTherersquos a stack of pressure on transparency of costs in financial services and a huge amount of this pressure is at the lsquowealth managementrsquo end Vanguard Group in the US is already offering investment management and advice for less than 50 bps Many advisors are trying to get from 05 up to 1 at a time when the market is heading in the other direction so itrsquos going to take more than a conversation about asset allocation and fund selection to make that stack up

Focus on the right thingsAs a final thought how do you get your AUM from R500m to R1bn You either have to gather more assets from your existing clients or more likely bring in new clients Does your business have the capacity and the resources to deliver your service to double the number of clients If it doesnrsquot will you just lsquowing itrsquo anyway

Maybe what you really need to focus on is increasing the profitability of your business revenues And you donrsquot necessarily need to double your AUM to achieve that

Think about ithellip

PRACTICE MANAGEMENT

44

CriticalIllness

How critical is

RISK MANAGEMENT

By Barbara Mundell CFPreg Technical Specialist Financial Planning Institute (FPI)

70 percent of the South African population will be diagnosed with a critical illness during their lifetime With so many critical illness solutions in the market place this is often a complex area of financial planning What do you plan for how much do you need should it be a lump sum or should

it be an income Should your existing disability products not provide for this The sad reality is that most people do not know what to expect from a severe illness Medical enhancements make it possible for more and more people to survive severe illnesses However the question remains what scars will it leave behind not only on the person suffering from a severe illness but hisher families too

When assisting a client with a comprehensive financial plan the clientrsquos affordability to certain solutions are often a problem

Priority of severe illness solutionsSevere illness planning is complex due to different impact the different diseases have With the pressure that medical aid schemes are under with the rising health costs in South Africa how do we determine the value of cover a client needs Do you plan for severe illness as a substitute of income or a lump sum to fund medical costs or both Due to severe illness products that have up to 340 claim events the risks to the insurers is tremendous and hence this tends to be the most expensive financial solution in a clientrsquos portfolio

Should critical illness be prioritised in a financial plan According to Kobus Kleyn CFPreg Chairperson of the FPI Risk Competency Committee critical illness is more than a necessity ldquoThere is absolutely no doubt that any financial plan could never be perceived as comprehensive or holistic if critical illness proposals and cover are not included into the plan over the long term The cover should form part of the plan and should be prioritised according to clientrsquos needs and affordability as well as understanding the importance of this cover as part of the clientrsquos plan I would always structure my clientrsquos plan to incorporate critical illness cover No matter how small or large the cover is cover must be in That way I will be assured that most of my clients have some critical illness cover and importantly it will receive priority no matter the clientrsquos or his familyrsquos health history as critical illness is not pickyrdquo

that the full cover will not pay out There are just too many product providers out there offering so many bells and whistles rather than simple and comprehensive critical illness cover productsrdquo Kleyn added

How should financial planners approach the planning for a critical illness event Ridler commented ldquoThere are many factors to take into account including the clientrsquos personal circumstances The clientrsquos medical aid should play a vital role in the critical illness planning for a clientrdquo

Bruce Fleming CFPreg FPI Financial Planner of the Year 20162017 said that the single most important consideration for critical illness planning is the short- to medium-term financial ramifications of suffering from a dread disease that your medical aid and disability cover will not cover and if the client is financially covered for this

Critical illness at claim stageThis is where most financial planners find joy in their work However the role of the financial planner at claim stage should never be underestimated Kleyn said ldquoWe as human advisors versus robo-advisors is the differentiating factor out there and our noble role as financial planners comes to the fore during our clientsrsquo life events This is when we are there with empathy to help our clients and their families through very tough times Most importantly when we take charge and ensure claims are paid out in full and if not take up the case with product providers and make sure no stone is unturned to the best interest of TCF and our clientrsquos interestrdquo

ldquoOnce the claim is paid out we have a huge role to make sure the quality of life for such a client is taken care of and provide skilful advice on investment for their unique health situation as well as sustainability to make the changes in a clients life following such a critical illness claimrdquo he concluded

The cover pay out can bring a certain level of financial freedom to the client According to Fleming some of the freedoms that the cover can provide includebullNottohavetoreturntoworkimmediatelyandallowyoutorecover

not only physically but also emotionally from your illnessbullAffordnursingcareatyourownhomeshouldthisberequiredbullGetassistanceinandaroundthehousetorecoverproperlybullChildcaretomakesureyourlovedonesarelookedafter

when you cannot shoulder the responsibility andbullGetcounsellingtohelpyoudealwithwhatyouaregoing through

ldquoSuffering a severe illness is taxing physically emotionally and financially There can be a range of unexpected costs including the cost of scaling down

after the illness the probability that the client may want to retire earlier and the need to possibly make significant

changes to their lifestylerdquo says Fleming

In conclusionAs a financial planner critical illness can no longer be regarded as a luxury in a clientrsquos financial plan but rather as a critical component ensuring the best possible outcome for the client in the event of an illness At the time of diagnosis the clients have

more than enough to be concerned about The right critical illness solution can alleviate some of the financial

pressure allowing the client and hisher family to process the emotional and physical trauma

45

RISK MANAGEMENT

Medical aid and gap coverWith the changes in the demarcation regulations clients have lost parts of their piece of mind A majority of medical aid schemes only cover cancer up to a certain point and from there a co-payment applies Since gap cover is limited to R150 000 per insured per event clients are now left exposed to high medical costs

How do the changes in regulation change the way financial planners need to plan for critical illness solutions ldquoThe new demarcation regulations emphasise the three prong approach required to mitigate dread disease risk Medical aid to cover hospitalisation (the biggest risk) gap cover to cover those out-of-pocket expenses that can run to tens of thousands and dread disease cover to provide a lump sum for premium care not covered by medical aid

and recuperation as well as lifestyle changesrdquo said Dawn Ridler CFPreg member of the FPI Risk Competency Committee

Should financial planners consider solutions that have 100 pay-outs on critical illness ldquoI regard it as a priority

and would rather pay more for a comprehensive top up cover policy with less cover than paying less for a lot of cover but not comprehensive It is key for product developers to ensure 100 pay outs rather than tier payments at claim stage It is very disappointing under emotional circumstances to advise a client

46

47

48

BOOK REVIEW

PassionProfession

for the

Mastering the 9 Psto Professionalism

The 9Ps to Professionalism

ldquoWith a vision of a financial services industry that is fully transformed into a profession like so many of its peers To embrace this vision each of us need to give back to the financial advice profession by creating awareness of what we do and sharing best operating practices with our peersrdquo

said Kobus Kleyn CFPreg author of the book

He wrote this book which was launched on 18 March 2017 to share his personal experience as a CERTIFIED FINANCIAL PLANNERreg professional and the lessons learned from his involvement with various affiliations professional bodies and fellow financial planning professionals

The book was written for financial planningadvisory professionals or those aspiring to be across financial disciplines worldwide It outlines a step-by-step process through the nine Prsquos he identified (refer to the diagram below) to transform you from a ldquoproduct selling intermediaryrdquo into a financial planning professional with a strong value proposition code of conduct and ethics as well as a personal brand of note and inclusive of a passive income

49

ProfileData takes pride in being the leading South African financial data feed solutions provider

Our specialised local research teams together with our relationships with international exchanges and dataproviders allow you access to a wide range of data options for both in-house needs and for on-distribution toyour customer base

Profilersquos specialised IT team takes pride in building turnkey solutions that meet the need of the customerspecification at a defined cost Profilersquos on- and off-site IT infrastructure allows cost-effective hosting andsolutions management reducing the need for expensive capital cost

wwwfundsdatacozawwwsharedatacoza wwwsharemagiccoza

Contact Lionell Wobben

082-559-8283 | 011-728-5510

Financial Data Solutions

About the authorKobus Kleyn CERTIFIED FINANCIAL PLANNERreg professional and director at Kainos Financial Services a Liberty Group Affiliate obtained his Postgraduate Degree in Financial Planning at the University of Free State as well as a Management Development Programme (MPD) and AEP from UNISA Business School

He is the current chairperson of the Financial Planning Institutersquos (FPI) Risk Competency Committee Financial Intermediaries Associationrsquos (FIA) RDR Intermediary Workgroup and Liberty Group FA Ethics Committee Kobus serves on the Million Dollar Round Table (MDRT) Income Replacement Committee FPI Annual Convention Committee 2017 and holds the assistant-director for the MDRT PGA Annual Convention 2017 Task Force Committee position

He is also a member of the South African Institute of Tax Professionals (SAIT) FIA and Fiduciary Institute of South Africa (FISA) the Society of Trust and Estate Practitioner (STEP- with a TEP Designation) Financial Intermediaries Association of Southern Africa (FIA) and Ethics SA Kobus has a passion for the financial services profession and works purposefully with other like-minded professionals and stakeholders to transform the industry into a fully-fledged profession through the power of social media print media as well as presenting at industry events

He has authored the book ldquoPassion for the profession- Mastering the 9 Prsquos to Professionalismrdquo as a non-profit publication to the financial profession to give back

Volunteering and recognitionFor the past two years Kobus has been awarded the FPI It Starts with Me Award (2015 and 2016 respectively) for his dedication in promoting and supporting the CFPreg mark and entrenching the CFPreg mark into his work life as well as personal brand The award launched in 2015 also recognised his contribution to the industry by volunteering his time to educate consumers about the value of financial planning and providing valuable input in various FPI committees to make the profession better

Apart from his involvement with FPI he is also an FIA and MDRT volunteer who likes to do pro-bono work wherever possible Kobus was awarded the MDRT Leadership Award in 2014

Godfrey Nti (right) congratulating Kobus Kleyn (left) on his new book Passion for the Profession

BOOK REVIEW

Throughout this book Kobus provides examples of professional behaviour whether it be through enhancing competence professional courtesy or just ensuring that the right thing is done He explains the tenets of being a professional through his own life experiences He further describes how becoming a professional can go a long way in not only enhancing onersquos standing pride respect from peers as well as delivering tangible dividends but also how this can significantly contribute in helping (re)build public trust and thus achieving the ever illusive public recognition of financial services as a profession

This is what Godfrey Nti CEO of the Financial Planning Institute had to say after reading the bookldquoBeing a professional goes beyond a profit motive it speaks to a greater calling to do good to the greater society while changing onersquos own life in the process If you just want to know the value of pro bono and volunteerism for a good cause and how this is key to not only a profession but being a professional then follow Kobusrsquos life journey as passionately narrated in this book This book paints a portrait of the interplay of these major stakeholders in creating the desired outcome a recognised and respected financial planning and advisory profession While we have made significant progress with the first three stakeholders there is still work to be done with respect to gaining public recognition Seeing that all professions have a public service ideal progress on aspect is a must if we are ever going to be recognised as a professionrdquo

ldquoKobusrsquo effortless passion for the profession shines right through in this book His rich life experiences on the journey to becoming a professional are admirable and something that we can all learn from

This book is indeed a must-read for all financial planners and advisors as well as anyone who hopes to fit into the financial services profession of the near futurerdquo Nti added If you are serious about becoming a professional as I am sure you are you will find this book very is interesting and most importantly informative And if you already are a professional in your own right and would like to know how to help create a bigger movement towards establishing a recognised as well as respected financial planning and

advisory profession this book is also for you If you are a student of history and would like to witness the creation of a profession this book is definitely for you as well

FPI members can claim CPD points as prescribed in the FPI CPD Policy for reading this informative book

Need a copyThe book is available directly from Kobus and his team at Kobuskleynliblinkcoza or phone Susan de Goede on (011) 207 7906 The ldquoPassion for the Profession Mastering the 9Ps to Professionalismrdquo book is also available on Amazon Kindle

For the full launch article including cost of this not-for-profit book visit wwwlinkedincompulselaunch-passion-profession-kobus-kleyn-cfp--1

If markets fell in value my fees would go down Why should I get paid less for delivering great financial planning advice and services And how much control did I actually have over investment values anyway None

bullWhatiftherightthingwasforthisclienttoexitdrawdownandbuyan annuity The money walks

bullWhat if the right thing was for this client tomake gifts to theirchildren or a charity The money walks

bullWhatiftherightthingwasforthisclienttopayofftheirmortgageor other debt The money walks

bullWhat if the right thing was for this client to spend money notaccumulate it The money walks

I figured that if I was truly client-centric and my role was to help clients live the life they really wanted (which is what I said I was doing) then I should not be conflicted by needing to have their money Itrsquos their money not mine

Therersquos a crucial question to consider when thinking about all this ldquoWhat is my rolerdquo As a financial planner is it my role to force people to accumulate money Is it my role to sell people financial products Is it my role to tell people what to do to make or not lose money Is it my role to tell people how they should live their lives

Irsquove tried all those things and they either didnrsquot sit well with me or they didnrsquot sit well with my clients

If yoursquove heard me speak yoursquove probably heard me ask the question ldquoIs the client the client or is the clientrsquos money the clientrdquo ndash The truth is that many of us are distracted by or focused entirely on our clientrsquos money or how WE can benefit from having THEIR investment assets

We define successful firms by how much AUM they have not by the fantastic lives their clients enjoy We describe people as a pound1 million client We set minimum investment thresholds to become a client and we talk about one day selling lsquoourrsquo investment book in order to retire

Think about that last one for a second Are we selling our business Are we selling our client relationships Or are we selling our clientsrsquo money and the revenue it generates

Thinking differentlyWhen I thought about this in 2009 and confronted it the conclusion seemed blindingly obvious to me and I developed two specific services for two sets of clients that solved two specific problems One was for people who didnrsquot know whether they had enough money to live the life they wanted and the other was for people who knew they had too much (or at least more than they needed) Then I worked out what each problem cost the business to solve and then I added a profit margin Finally I removed any element of charging for moving the money around

Then I spent the next God-knows-how-long trying to understand it myself and articulate it with confidence

The first three clients I pitched it to thought it was a great idea and signed up

To be fair I started with clients who were already financially wealthy (including the one mentioned above) but what surprised me were the less wealthy clients who subsequently chose to pay more than they had previously paid when on a percentage basis One of my clients was effectively paying around 2 a year Imagine that Why would anyone in their right mind pay 2 of their investment assets for financial planning advice They could easily have said no and gone somewhere lsquocheaperrsquo but they didnrsquot

But herersquos the question 2 pa of how much And what did they get for that The numbers arenrsquot important Itrsquos the context

The point is it wasnrsquot positioned as 2 of their investment assets and the proposition wasnrsquot about investing investment performance asset allocation and fund selections It was about helping them understand the life they really wanted what trade off decisions they were facing and how to manage them It was priced on the basis of cost of delivery plus a decent margin

Other advisors thought I was barking mad I had moments when I thought so too But it felt like the right thing to do for me and for my clients Clearly Alan Smith feels the same way Hersquos taken it one step further and posted his firmrsquos retainer fees on his website And he doesnrsquot seem to be short of clients

Pressure on pricingTherersquos a stack of pressure on transparency of costs in financial services and a huge amount of this pressure is at the lsquowealth managementrsquo end Vanguard Group in the US is already offering investment management and advice for less than 50 bps Many advisors are trying to get from 05 up to 1 at a time when the market is heading in the other direction so itrsquos going to take more than a conversation about asset allocation and fund selection to make that stack up

Focus on the right thingsAs a final thought how do you get your AUM from R500m to R1bn You either have to gather more assets from your existing clients or more likely bring in new clients Does your business have the capacity and the resources to deliver your service to double the number of clients If it doesnrsquot will you just lsquowing itrsquo anyway

Maybe what you really need to focus on is increasing the profitability of your business revenues And you donrsquot necessarily need to double your AUM to achieve that

Think about ithellip

PRACTICE MANAGEMENT

44

CriticalIllness

How critical is

RISK MANAGEMENT

By Barbara Mundell CFPreg Technical Specialist Financial Planning Institute (FPI)

70 percent of the South African population will be diagnosed with a critical illness during their lifetime With so many critical illness solutions in the market place this is often a complex area of financial planning What do you plan for how much do you need should it be a lump sum or should

it be an income Should your existing disability products not provide for this The sad reality is that most people do not know what to expect from a severe illness Medical enhancements make it possible for more and more people to survive severe illnesses However the question remains what scars will it leave behind not only on the person suffering from a severe illness but hisher families too

When assisting a client with a comprehensive financial plan the clientrsquos affordability to certain solutions are often a problem

Priority of severe illness solutionsSevere illness planning is complex due to different impact the different diseases have With the pressure that medical aid schemes are under with the rising health costs in South Africa how do we determine the value of cover a client needs Do you plan for severe illness as a substitute of income or a lump sum to fund medical costs or both Due to severe illness products that have up to 340 claim events the risks to the insurers is tremendous and hence this tends to be the most expensive financial solution in a clientrsquos portfolio

Should critical illness be prioritised in a financial plan According to Kobus Kleyn CFPreg Chairperson of the FPI Risk Competency Committee critical illness is more than a necessity ldquoThere is absolutely no doubt that any financial plan could never be perceived as comprehensive or holistic if critical illness proposals and cover are not included into the plan over the long term The cover should form part of the plan and should be prioritised according to clientrsquos needs and affordability as well as understanding the importance of this cover as part of the clientrsquos plan I would always structure my clientrsquos plan to incorporate critical illness cover No matter how small or large the cover is cover must be in That way I will be assured that most of my clients have some critical illness cover and importantly it will receive priority no matter the clientrsquos or his familyrsquos health history as critical illness is not pickyrdquo

that the full cover will not pay out There are just too many product providers out there offering so many bells and whistles rather than simple and comprehensive critical illness cover productsrdquo Kleyn added

How should financial planners approach the planning for a critical illness event Ridler commented ldquoThere are many factors to take into account including the clientrsquos personal circumstances The clientrsquos medical aid should play a vital role in the critical illness planning for a clientrdquo

Bruce Fleming CFPreg FPI Financial Planner of the Year 20162017 said that the single most important consideration for critical illness planning is the short- to medium-term financial ramifications of suffering from a dread disease that your medical aid and disability cover will not cover and if the client is financially covered for this

Critical illness at claim stageThis is where most financial planners find joy in their work However the role of the financial planner at claim stage should never be underestimated Kleyn said ldquoWe as human advisors versus robo-advisors is the differentiating factor out there and our noble role as financial planners comes to the fore during our clientsrsquo life events This is when we are there with empathy to help our clients and their families through very tough times Most importantly when we take charge and ensure claims are paid out in full and if not take up the case with product providers and make sure no stone is unturned to the best interest of TCF and our clientrsquos interestrdquo

ldquoOnce the claim is paid out we have a huge role to make sure the quality of life for such a client is taken care of and provide skilful advice on investment for their unique health situation as well as sustainability to make the changes in a clients life following such a critical illness claimrdquo he concluded

The cover pay out can bring a certain level of financial freedom to the client According to Fleming some of the freedoms that the cover can provide includebullNottohavetoreturntoworkimmediatelyandallowyoutorecover

not only physically but also emotionally from your illnessbullAffordnursingcareatyourownhomeshouldthisberequiredbullGetassistanceinandaroundthehousetorecoverproperlybullChildcaretomakesureyourlovedonesarelookedafter

when you cannot shoulder the responsibility andbullGetcounsellingtohelpyoudealwithwhatyouaregoing through

ldquoSuffering a severe illness is taxing physically emotionally and financially There can be a range of unexpected costs including the cost of scaling down

after the illness the probability that the client may want to retire earlier and the need to possibly make significant

changes to their lifestylerdquo says Fleming

In conclusionAs a financial planner critical illness can no longer be regarded as a luxury in a clientrsquos financial plan but rather as a critical component ensuring the best possible outcome for the client in the event of an illness At the time of diagnosis the clients have

more than enough to be concerned about The right critical illness solution can alleviate some of the financial

pressure allowing the client and hisher family to process the emotional and physical trauma

45

RISK MANAGEMENT

Medical aid and gap coverWith the changes in the demarcation regulations clients have lost parts of their piece of mind A majority of medical aid schemes only cover cancer up to a certain point and from there a co-payment applies Since gap cover is limited to R150 000 per insured per event clients are now left exposed to high medical costs

How do the changes in regulation change the way financial planners need to plan for critical illness solutions ldquoThe new demarcation regulations emphasise the three prong approach required to mitigate dread disease risk Medical aid to cover hospitalisation (the biggest risk) gap cover to cover those out-of-pocket expenses that can run to tens of thousands and dread disease cover to provide a lump sum for premium care not covered by medical aid

and recuperation as well as lifestyle changesrdquo said Dawn Ridler CFPreg member of the FPI Risk Competency Committee

Should financial planners consider solutions that have 100 pay-outs on critical illness ldquoI regard it as a priority

and would rather pay more for a comprehensive top up cover policy with less cover than paying less for a lot of cover but not comprehensive It is key for product developers to ensure 100 pay outs rather than tier payments at claim stage It is very disappointing under emotional circumstances to advise a client

46

47

48

BOOK REVIEW

PassionProfession

for the

Mastering the 9 Psto Professionalism

The 9Ps to Professionalism

ldquoWith a vision of a financial services industry that is fully transformed into a profession like so many of its peers To embrace this vision each of us need to give back to the financial advice profession by creating awareness of what we do and sharing best operating practices with our peersrdquo

said Kobus Kleyn CFPreg author of the book

He wrote this book which was launched on 18 March 2017 to share his personal experience as a CERTIFIED FINANCIAL PLANNERreg professional and the lessons learned from his involvement with various affiliations professional bodies and fellow financial planning professionals

The book was written for financial planningadvisory professionals or those aspiring to be across financial disciplines worldwide It outlines a step-by-step process through the nine Prsquos he identified (refer to the diagram below) to transform you from a ldquoproduct selling intermediaryrdquo into a financial planning professional with a strong value proposition code of conduct and ethics as well as a personal brand of note and inclusive of a passive income

49

ProfileData takes pride in being the leading South African financial data feed solutions provider

Our specialised local research teams together with our relationships with international exchanges and dataproviders allow you access to a wide range of data options for both in-house needs and for on-distribution toyour customer base

Profilersquos specialised IT team takes pride in building turnkey solutions that meet the need of the customerspecification at a defined cost Profilersquos on- and off-site IT infrastructure allows cost-effective hosting andsolutions management reducing the need for expensive capital cost

wwwfundsdatacozawwwsharedatacoza wwwsharemagiccoza

Contact Lionell Wobben

082-559-8283 | 011-728-5510

Financial Data Solutions

About the authorKobus Kleyn CERTIFIED FINANCIAL PLANNERreg professional and director at Kainos Financial Services a Liberty Group Affiliate obtained his Postgraduate Degree in Financial Planning at the University of Free State as well as a Management Development Programme (MPD) and AEP from UNISA Business School

He is the current chairperson of the Financial Planning Institutersquos (FPI) Risk Competency Committee Financial Intermediaries Associationrsquos (FIA) RDR Intermediary Workgroup and Liberty Group FA Ethics Committee Kobus serves on the Million Dollar Round Table (MDRT) Income Replacement Committee FPI Annual Convention Committee 2017 and holds the assistant-director for the MDRT PGA Annual Convention 2017 Task Force Committee position

He is also a member of the South African Institute of Tax Professionals (SAIT) FIA and Fiduciary Institute of South Africa (FISA) the Society of Trust and Estate Practitioner (STEP- with a TEP Designation) Financial Intermediaries Association of Southern Africa (FIA) and Ethics SA Kobus has a passion for the financial services profession and works purposefully with other like-minded professionals and stakeholders to transform the industry into a fully-fledged profession through the power of social media print media as well as presenting at industry events

He has authored the book ldquoPassion for the profession- Mastering the 9 Prsquos to Professionalismrdquo as a non-profit publication to the financial profession to give back

Volunteering and recognitionFor the past two years Kobus has been awarded the FPI It Starts with Me Award (2015 and 2016 respectively) for his dedication in promoting and supporting the CFPreg mark and entrenching the CFPreg mark into his work life as well as personal brand The award launched in 2015 also recognised his contribution to the industry by volunteering his time to educate consumers about the value of financial planning and providing valuable input in various FPI committees to make the profession better

Apart from his involvement with FPI he is also an FIA and MDRT volunteer who likes to do pro-bono work wherever possible Kobus was awarded the MDRT Leadership Award in 2014

Godfrey Nti (right) congratulating Kobus Kleyn (left) on his new book Passion for the Profession

BOOK REVIEW

Throughout this book Kobus provides examples of professional behaviour whether it be through enhancing competence professional courtesy or just ensuring that the right thing is done He explains the tenets of being a professional through his own life experiences He further describes how becoming a professional can go a long way in not only enhancing onersquos standing pride respect from peers as well as delivering tangible dividends but also how this can significantly contribute in helping (re)build public trust and thus achieving the ever illusive public recognition of financial services as a profession

This is what Godfrey Nti CEO of the Financial Planning Institute had to say after reading the bookldquoBeing a professional goes beyond a profit motive it speaks to a greater calling to do good to the greater society while changing onersquos own life in the process If you just want to know the value of pro bono and volunteerism for a good cause and how this is key to not only a profession but being a professional then follow Kobusrsquos life journey as passionately narrated in this book This book paints a portrait of the interplay of these major stakeholders in creating the desired outcome a recognised and respected financial planning and advisory profession While we have made significant progress with the first three stakeholders there is still work to be done with respect to gaining public recognition Seeing that all professions have a public service ideal progress on aspect is a must if we are ever going to be recognised as a professionrdquo

ldquoKobusrsquo effortless passion for the profession shines right through in this book His rich life experiences on the journey to becoming a professional are admirable and something that we can all learn from

This book is indeed a must-read for all financial planners and advisors as well as anyone who hopes to fit into the financial services profession of the near futurerdquo Nti added If you are serious about becoming a professional as I am sure you are you will find this book very is interesting and most importantly informative And if you already are a professional in your own right and would like to know how to help create a bigger movement towards establishing a recognised as well as respected financial planning and

advisory profession this book is also for you If you are a student of history and would like to witness the creation of a profession this book is definitely for you as well

FPI members can claim CPD points as prescribed in the FPI CPD Policy for reading this informative book

Need a copyThe book is available directly from Kobus and his team at Kobuskleynliblinkcoza or phone Susan de Goede on (011) 207 7906 The ldquoPassion for the Profession Mastering the 9Ps to Professionalismrdquo book is also available on Amazon Kindle

For the full launch article including cost of this not-for-profit book visit wwwlinkedincompulselaunch-passion-profession-kobus-kleyn-cfp--1

44

CriticalIllness

How critical is

RISK MANAGEMENT

By Barbara Mundell CFPreg Technical Specialist Financial Planning Institute (FPI)

70 percent of the South African population will be diagnosed with a critical illness during their lifetime With so many critical illness solutions in the market place this is often a complex area of financial planning What do you plan for how much do you need should it be a lump sum or should

it be an income Should your existing disability products not provide for this The sad reality is that most people do not know what to expect from a severe illness Medical enhancements make it possible for more and more people to survive severe illnesses However the question remains what scars will it leave behind not only on the person suffering from a severe illness but hisher families too

When assisting a client with a comprehensive financial plan the clientrsquos affordability to certain solutions are often a problem

Priority of severe illness solutionsSevere illness planning is complex due to different impact the different diseases have With the pressure that medical aid schemes are under with the rising health costs in South Africa how do we determine the value of cover a client needs Do you plan for severe illness as a substitute of income or a lump sum to fund medical costs or both Due to severe illness products that have up to 340 claim events the risks to the insurers is tremendous and hence this tends to be the most expensive financial solution in a clientrsquos portfolio

Should critical illness be prioritised in a financial plan According to Kobus Kleyn CFPreg Chairperson of the FPI Risk Competency Committee critical illness is more than a necessity ldquoThere is absolutely no doubt that any financial plan could never be perceived as comprehensive or holistic if critical illness proposals and cover are not included into the plan over the long term The cover should form part of the plan and should be prioritised according to clientrsquos needs and affordability as well as understanding the importance of this cover as part of the clientrsquos plan I would always structure my clientrsquos plan to incorporate critical illness cover No matter how small or large the cover is cover must be in That way I will be assured that most of my clients have some critical illness cover and importantly it will receive priority no matter the clientrsquos or his familyrsquos health history as critical illness is not pickyrdquo

that the full cover will not pay out There are just too many product providers out there offering so many bells and whistles rather than simple and comprehensive critical illness cover productsrdquo Kleyn added

How should financial planners approach the planning for a critical illness event Ridler commented ldquoThere are many factors to take into account including the clientrsquos personal circumstances The clientrsquos medical aid should play a vital role in the critical illness planning for a clientrdquo

Bruce Fleming CFPreg FPI Financial Planner of the Year 20162017 said that the single most important consideration for critical illness planning is the short- to medium-term financial ramifications of suffering from a dread disease that your medical aid and disability cover will not cover and if the client is financially covered for this

Critical illness at claim stageThis is where most financial planners find joy in their work However the role of the financial planner at claim stage should never be underestimated Kleyn said ldquoWe as human advisors versus robo-advisors is the differentiating factor out there and our noble role as financial planners comes to the fore during our clientsrsquo life events This is when we are there with empathy to help our clients and their families through very tough times Most importantly when we take charge and ensure claims are paid out in full and if not take up the case with product providers and make sure no stone is unturned to the best interest of TCF and our clientrsquos interestrdquo

ldquoOnce the claim is paid out we have a huge role to make sure the quality of life for such a client is taken care of and provide skilful advice on investment for their unique health situation as well as sustainability to make the changes in a clients life following such a critical illness claimrdquo he concluded

The cover pay out can bring a certain level of financial freedom to the client According to Fleming some of the freedoms that the cover can provide includebullNottohavetoreturntoworkimmediatelyandallowyoutorecover

not only physically but also emotionally from your illnessbullAffordnursingcareatyourownhomeshouldthisberequiredbullGetassistanceinandaroundthehousetorecoverproperlybullChildcaretomakesureyourlovedonesarelookedafter

when you cannot shoulder the responsibility andbullGetcounsellingtohelpyoudealwithwhatyouaregoing through

ldquoSuffering a severe illness is taxing physically emotionally and financially There can be a range of unexpected costs including the cost of scaling down

after the illness the probability that the client may want to retire earlier and the need to possibly make significant

changes to their lifestylerdquo says Fleming

In conclusionAs a financial planner critical illness can no longer be regarded as a luxury in a clientrsquos financial plan but rather as a critical component ensuring the best possible outcome for the client in the event of an illness At the time of diagnosis the clients have

more than enough to be concerned about The right critical illness solution can alleviate some of the financial

pressure allowing the client and hisher family to process the emotional and physical trauma

45

RISK MANAGEMENT

Medical aid and gap coverWith the changes in the demarcation regulations clients have lost parts of their piece of mind A majority of medical aid schemes only cover cancer up to a certain point and from there a co-payment applies Since gap cover is limited to R150 000 per insured per event clients are now left exposed to high medical costs

How do the changes in regulation change the way financial planners need to plan for critical illness solutions ldquoThe new demarcation regulations emphasise the three prong approach required to mitigate dread disease risk Medical aid to cover hospitalisation (the biggest risk) gap cover to cover those out-of-pocket expenses that can run to tens of thousands and dread disease cover to provide a lump sum for premium care not covered by medical aid

and recuperation as well as lifestyle changesrdquo said Dawn Ridler CFPreg member of the FPI Risk Competency Committee

Should financial planners consider solutions that have 100 pay-outs on critical illness ldquoI regard it as a priority

and would rather pay more for a comprehensive top up cover policy with less cover than paying less for a lot of cover but not comprehensive It is key for product developers to ensure 100 pay outs rather than tier payments at claim stage It is very disappointing under emotional circumstances to advise a client

46

47

48

BOOK REVIEW

PassionProfession

for the

Mastering the 9 Psto Professionalism

The 9Ps to Professionalism

ldquoWith a vision of a financial services industry that is fully transformed into a profession like so many of its peers To embrace this vision each of us need to give back to the financial advice profession by creating awareness of what we do and sharing best operating practices with our peersrdquo

said Kobus Kleyn CFPreg author of the book

He wrote this book which was launched on 18 March 2017 to share his personal experience as a CERTIFIED FINANCIAL PLANNERreg professional and the lessons learned from his involvement with various affiliations professional bodies and fellow financial planning professionals

The book was written for financial planningadvisory professionals or those aspiring to be across financial disciplines worldwide It outlines a step-by-step process through the nine Prsquos he identified (refer to the diagram below) to transform you from a ldquoproduct selling intermediaryrdquo into a financial planning professional with a strong value proposition code of conduct and ethics as well as a personal brand of note and inclusive of a passive income

49

ProfileData takes pride in being the leading South African financial data feed solutions provider

Our specialised local research teams together with our relationships with international exchanges and dataproviders allow you access to a wide range of data options for both in-house needs and for on-distribution toyour customer base

Profilersquos specialised IT team takes pride in building turnkey solutions that meet the need of the customerspecification at a defined cost Profilersquos on- and off-site IT infrastructure allows cost-effective hosting andsolutions management reducing the need for expensive capital cost

wwwfundsdatacozawwwsharedatacoza wwwsharemagiccoza

Contact Lionell Wobben

082-559-8283 | 011-728-5510

Financial Data Solutions

About the authorKobus Kleyn CERTIFIED FINANCIAL PLANNERreg professional and director at Kainos Financial Services a Liberty Group Affiliate obtained his Postgraduate Degree in Financial Planning at the University of Free State as well as a Management Development Programme (MPD) and AEP from UNISA Business School

He is the current chairperson of the Financial Planning Institutersquos (FPI) Risk Competency Committee Financial Intermediaries Associationrsquos (FIA) RDR Intermediary Workgroup and Liberty Group FA Ethics Committee Kobus serves on the Million Dollar Round Table (MDRT) Income Replacement Committee FPI Annual Convention Committee 2017 and holds the assistant-director for the MDRT PGA Annual Convention 2017 Task Force Committee position

He is also a member of the South African Institute of Tax Professionals (SAIT) FIA and Fiduciary Institute of South Africa (FISA) the Society of Trust and Estate Practitioner (STEP- with a TEP Designation) Financial Intermediaries Association of Southern Africa (FIA) and Ethics SA Kobus has a passion for the financial services profession and works purposefully with other like-minded professionals and stakeholders to transform the industry into a fully-fledged profession through the power of social media print media as well as presenting at industry events

He has authored the book ldquoPassion for the profession- Mastering the 9 Prsquos to Professionalismrdquo as a non-profit publication to the financial profession to give back

Volunteering and recognitionFor the past two years Kobus has been awarded the FPI It Starts with Me Award (2015 and 2016 respectively) for his dedication in promoting and supporting the CFPreg mark and entrenching the CFPreg mark into his work life as well as personal brand The award launched in 2015 also recognised his contribution to the industry by volunteering his time to educate consumers about the value of financial planning and providing valuable input in various FPI committees to make the profession better

Apart from his involvement with FPI he is also an FIA and MDRT volunteer who likes to do pro-bono work wherever possible Kobus was awarded the MDRT Leadership Award in 2014

Godfrey Nti (right) congratulating Kobus Kleyn (left) on his new book Passion for the Profession

BOOK REVIEW

Throughout this book Kobus provides examples of professional behaviour whether it be through enhancing competence professional courtesy or just ensuring that the right thing is done He explains the tenets of being a professional through his own life experiences He further describes how becoming a professional can go a long way in not only enhancing onersquos standing pride respect from peers as well as delivering tangible dividends but also how this can significantly contribute in helping (re)build public trust and thus achieving the ever illusive public recognition of financial services as a profession

This is what Godfrey Nti CEO of the Financial Planning Institute had to say after reading the bookldquoBeing a professional goes beyond a profit motive it speaks to a greater calling to do good to the greater society while changing onersquos own life in the process If you just want to know the value of pro bono and volunteerism for a good cause and how this is key to not only a profession but being a professional then follow Kobusrsquos life journey as passionately narrated in this book This book paints a portrait of the interplay of these major stakeholders in creating the desired outcome a recognised and respected financial planning and advisory profession While we have made significant progress with the first three stakeholders there is still work to be done with respect to gaining public recognition Seeing that all professions have a public service ideal progress on aspect is a must if we are ever going to be recognised as a professionrdquo

ldquoKobusrsquo effortless passion for the profession shines right through in this book His rich life experiences on the journey to becoming a professional are admirable and something that we can all learn from

This book is indeed a must-read for all financial planners and advisors as well as anyone who hopes to fit into the financial services profession of the near futurerdquo Nti added If you are serious about becoming a professional as I am sure you are you will find this book very is interesting and most importantly informative And if you already are a professional in your own right and would like to know how to help create a bigger movement towards establishing a recognised as well as respected financial planning and

advisory profession this book is also for you If you are a student of history and would like to witness the creation of a profession this book is definitely for you as well

FPI members can claim CPD points as prescribed in the FPI CPD Policy for reading this informative book

Need a copyThe book is available directly from Kobus and his team at Kobuskleynliblinkcoza or phone Susan de Goede on (011) 207 7906 The ldquoPassion for the Profession Mastering the 9Ps to Professionalismrdquo book is also available on Amazon Kindle

For the full launch article including cost of this not-for-profit book visit wwwlinkedincompulselaunch-passion-profession-kobus-kleyn-cfp--1

that the full cover will not pay out There are just too many product providers out there offering so many bells and whistles rather than simple and comprehensive critical illness cover productsrdquo Kleyn added

How should financial planners approach the planning for a critical illness event Ridler commented ldquoThere are many factors to take into account including the clientrsquos personal circumstances The clientrsquos medical aid should play a vital role in the critical illness planning for a clientrdquo

Bruce Fleming CFPreg FPI Financial Planner of the Year 20162017 said that the single most important consideration for critical illness planning is the short- to medium-term financial ramifications of suffering from a dread disease that your medical aid and disability cover will not cover and if the client is financially covered for this

Critical illness at claim stageThis is where most financial planners find joy in their work However the role of the financial planner at claim stage should never be underestimated Kleyn said ldquoWe as human advisors versus robo-advisors is the differentiating factor out there and our noble role as financial planners comes to the fore during our clientsrsquo life events This is when we are there with empathy to help our clients and their families through very tough times Most importantly when we take charge and ensure claims are paid out in full and if not take up the case with product providers and make sure no stone is unturned to the best interest of TCF and our clientrsquos interestrdquo

ldquoOnce the claim is paid out we have a huge role to make sure the quality of life for such a client is taken care of and provide skilful advice on investment for their unique health situation as well as sustainability to make the changes in a clients life following such a critical illness claimrdquo he concluded

The cover pay out can bring a certain level of financial freedom to the client According to Fleming some of the freedoms that the cover can provide includebullNottohavetoreturntoworkimmediatelyandallowyoutorecover

not only physically but also emotionally from your illnessbullAffordnursingcareatyourownhomeshouldthisberequiredbullGetassistanceinandaroundthehousetorecoverproperlybullChildcaretomakesureyourlovedonesarelookedafter

when you cannot shoulder the responsibility andbullGetcounsellingtohelpyoudealwithwhatyouaregoing through

ldquoSuffering a severe illness is taxing physically emotionally and financially There can be a range of unexpected costs including the cost of scaling down

after the illness the probability that the client may want to retire earlier and the need to possibly make significant

changes to their lifestylerdquo says Fleming

In conclusionAs a financial planner critical illness can no longer be regarded as a luxury in a clientrsquos financial plan but rather as a critical component ensuring the best possible outcome for the client in the event of an illness At the time of diagnosis the clients have

more than enough to be concerned about The right critical illness solution can alleviate some of the financial

pressure allowing the client and hisher family to process the emotional and physical trauma

45

RISK MANAGEMENT

Medical aid and gap coverWith the changes in the demarcation regulations clients have lost parts of their piece of mind A majority of medical aid schemes only cover cancer up to a certain point and from there a co-payment applies Since gap cover is limited to R150 000 per insured per event clients are now left exposed to high medical costs

How do the changes in regulation change the way financial planners need to plan for critical illness solutions ldquoThe new demarcation regulations emphasise the three prong approach required to mitigate dread disease risk Medical aid to cover hospitalisation (the biggest risk) gap cover to cover those out-of-pocket expenses that can run to tens of thousands and dread disease cover to provide a lump sum for premium care not covered by medical aid

and recuperation as well as lifestyle changesrdquo said Dawn Ridler CFPreg member of the FPI Risk Competency Committee

Should financial planners consider solutions that have 100 pay-outs on critical illness ldquoI regard it as a priority

and would rather pay more for a comprehensive top up cover policy with less cover than paying less for a lot of cover but not comprehensive It is key for product developers to ensure 100 pay outs rather than tier payments at claim stage It is very disappointing under emotional circumstances to advise a client

46

47

48

BOOK REVIEW

PassionProfession

for the

Mastering the 9 Psto Professionalism

The 9Ps to Professionalism

ldquoWith a vision of a financial services industry that is fully transformed into a profession like so many of its peers To embrace this vision each of us need to give back to the financial advice profession by creating awareness of what we do and sharing best operating practices with our peersrdquo

said Kobus Kleyn CFPreg author of the book

He wrote this book which was launched on 18 March 2017 to share his personal experience as a CERTIFIED FINANCIAL PLANNERreg professional and the lessons learned from his involvement with various affiliations professional bodies and fellow financial planning professionals

The book was written for financial planningadvisory professionals or those aspiring to be across financial disciplines worldwide It outlines a step-by-step process through the nine Prsquos he identified (refer to the diagram below) to transform you from a ldquoproduct selling intermediaryrdquo into a financial planning professional with a strong value proposition code of conduct and ethics as well as a personal brand of note and inclusive of a passive income

49

ProfileData takes pride in being the leading South African financial data feed solutions provider

Our specialised local research teams together with our relationships with international exchanges and dataproviders allow you access to a wide range of data options for both in-house needs and for on-distribution toyour customer base

Profilersquos specialised IT team takes pride in building turnkey solutions that meet the need of the customerspecification at a defined cost Profilersquos on- and off-site IT infrastructure allows cost-effective hosting andsolutions management reducing the need for expensive capital cost

wwwfundsdatacozawwwsharedatacoza wwwsharemagiccoza

Contact Lionell Wobben

082-559-8283 | 011-728-5510

Financial Data Solutions

About the authorKobus Kleyn CERTIFIED FINANCIAL PLANNERreg professional and director at Kainos Financial Services a Liberty Group Affiliate obtained his Postgraduate Degree in Financial Planning at the University of Free State as well as a Management Development Programme (MPD) and AEP from UNISA Business School

He is the current chairperson of the Financial Planning Institutersquos (FPI) Risk Competency Committee Financial Intermediaries Associationrsquos (FIA) RDR Intermediary Workgroup and Liberty Group FA Ethics Committee Kobus serves on the Million Dollar Round Table (MDRT) Income Replacement Committee FPI Annual Convention Committee 2017 and holds the assistant-director for the MDRT PGA Annual Convention 2017 Task Force Committee position

He is also a member of the South African Institute of Tax Professionals (SAIT) FIA and Fiduciary Institute of South Africa (FISA) the Society of Trust and Estate Practitioner (STEP- with a TEP Designation) Financial Intermediaries Association of Southern Africa (FIA) and Ethics SA Kobus has a passion for the financial services profession and works purposefully with other like-minded professionals and stakeholders to transform the industry into a fully-fledged profession through the power of social media print media as well as presenting at industry events

He has authored the book ldquoPassion for the profession- Mastering the 9 Prsquos to Professionalismrdquo as a non-profit publication to the financial profession to give back

Volunteering and recognitionFor the past two years Kobus has been awarded the FPI It Starts with Me Award (2015 and 2016 respectively) for his dedication in promoting and supporting the CFPreg mark and entrenching the CFPreg mark into his work life as well as personal brand The award launched in 2015 also recognised his contribution to the industry by volunteering his time to educate consumers about the value of financial planning and providing valuable input in various FPI committees to make the profession better

Apart from his involvement with FPI he is also an FIA and MDRT volunteer who likes to do pro-bono work wherever possible Kobus was awarded the MDRT Leadership Award in 2014

Godfrey Nti (right) congratulating Kobus Kleyn (left) on his new book Passion for the Profession

BOOK REVIEW

Throughout this book Kobus provides examples of professional behaviour whether it be through enhancing competence professional courtesy or just ensuring that the right thing is done He explains the tenets of being a professional through his own life experiences He further describes how becoming a professional can go a long way in not only enhancing onersquos standing pride respect from peers as well as delivering tangible dividends but also how this can significantly contribute in helping (re)build public trust and thus achieving the ever illusive public recognition of financial services as a profession

This is what Godfrey Nti CEO of the Financial Planning Institute had to say after reading the bookldquoBeing a professional goes beyond a profit motive it speaks to a greater calling to do good to the greater society while changing onersquos own life in the process If you just want to know the value of pro bono and volunteerism for a good cause and how this is key to not only a profession but being a professional then follow Kobusrsquos life journey as passionately narrated in this book This book paints a portrait of the interplay of these major stakeholders in creating the desired outcome a recognised and respected financial planning and advisory profession While we have made significant progress with the first three stakeholders there is still work to be done with respect to gaining public recognition Seeing that all professions have a public service ideal progress on aspect is a must if we are ever going to be recognised as a professionrdquo

ldquoKobusrsquo effortless passion for the profession shines right through in this book His rich life experiences on the journey to becoming a professional are admirable and something that we can all learn from

This book is indeed a must-read for all financial planners and advisors as well as anyone who hopes to fit into the financial services profession of the near futurerdquo Nti added If you are serious about becoming a professional as I am sure you are you will find this book very is interesting and most importantly informative And if you already are a professional in your own right and would like to know how to help create a bigger movement towards establishing a recognised as well as respected financial planning and

advisory profession this book is also for you If you are a student of history and would like to witness the creation of a profession this book is definitely for you as well

FPI members can claim CPD points as prescribed in the FPI CPD Policy for reading this informative book

Need a copyThe book is available directly from Kobus and his team at Kobuskleynliblinkcoza or phone Susan de Goede on (011) 207 7906 The ldquoPassion for the Profession Mastering the 9Ps to Professionalismrdquo book is also available on Amazon Kindle

For the full launch article including cost of this not-for-profit book visit wwwlinkedincompulselaunch-passion-profession-kobus-kleyn-cfp--1

46

47

48

BOOK REVIEW

PassionProfession

for the

Mastering the 9 Psto Professionalism

The 9Ps to Professionalism

ldquoWith a vision of a financial services industry that is fully transformed into a profession like so many of its peers To embrace this vision each of us need to give back to the financial advice profession by creating awareness of what we do and sharing best operating practices with our peersrdquo

said Kobus Kleyn CFPreg author of the book

He wrote this book which was launched on 18 March 2017 to share his personal experience as a CERTIFIED FINANCIAL PLANNERreg professional and the lessons learned from his involvement with various affiliations professional bodies and fellow financial planning professionals

The book was written for financial planningadvisory professionals or those aspiring to be across financial disciplines worldwide It outlines a step-by-step process through the nine Prsquos he identified (refer to the diagram below) to transform you from a ldquoproduct selling intermediaryrdquo into a financial planning professional with a strong value proposition code of conduct and ethics as well as a personal brand of note and inclusive of a passive income

49

ProfileData takes pride in being the leading South African financial data feed solutions provider

Our specialised local research teams together with our relationships with international exchanges and dataproviders allow you access to a wide range of data options for both in-house needs and for on-distribution toyour customer base

Profilersquos specialised IT team takes pride in building turnkey solutions that meet the need of the customerspecification at a defined cost Profilersquos on- and off-site IT infrastructure allows cost-effective hosting andsolutions management reducing the need for expensive capital cost

wwwfundsdatacozawwwsharedatacoza wwwsharemagiccoza

Contact Lionell Wobben

082-559-8283 | 011-728-5510

Financial Data Solutions

About the authorKobus Kleyn CERTIFIED FINANCIAL PLANNERreg professional and director at Kainos Financial Services a Liberty Group Affiliate obtained his Postgraduate Degree in Financial Planning at the University of Free State as well as a Management Development Programme (MPD) and AEP from UNISA Business School

He is the current chairperson of the Financial Planning Institutersquos (FPI) Risk Competency Committee Financial Intermediaries Associationrsquos (FIA) RDR Intermediary Workgroup and Liberty Group FA Ethics Committee Kobus serves on the Million Dollar Round Table (MDRT) Income Replacement Committee FPI Annual Convention Committee 2017 and holds the assistant-director for the MDRT PGA Annual Convention 2017 Task Force Committee position

He is also a member of the South African Institute of Tax Professionals (SAIT) FIA and Fiduciary Institute of South Africa (FISA) the Society of Trust and Estate Practitioner (STEP- with a TEP Designation) Financial Intermediaries Association of Southern Africa (FIA) and Ethics SA Kobus has a passion for the financial services profession and works purposefully with other like-minded professionals and stakeholders to transform the industry into a fully-fledged profession through the power of social media print media as well as presenting at industry events

He has authored the book ldquoPassion for the profession- Mastering the 9 Prsquos to Professionalismrdquo as a non-profit publication to the financial profession to give back

Volunteering and recognitionFor the past two years Kobus has been awarded the FPI It Starts with Me Award (2015 and 2016 respectively) for his dedication in promoting and supporting the CFPreg mark and entrenching the CFPreg mark into his work life as well as personal brand The award launched in 2015 also recognised his contribution to the industry by volunteering his time to educate consumers about the value of financial planning and providing valuable input in various FPI committees to make the profession better

Apart from his involvement with FPI he is also an FIA and MDRT volunteer who likes to do pro-bono work wherever possible Kobus was awarded the MDRT Leadership Award in 2014

Godfrey Nti (right) congratulating Kobus Kleyn (left) on his new book Passion for the Profession

BOOK REVIEW

Throughout this book Kobus provides examples of professional behaviour whether it be through enhancing competence professional courtesy or just ensuring that the right thing is done He explains the tenets of being a professional through his own life experiences He further describes how becoming a professional can go a long way in not only enhancing onersquos standing pride respect from peers as well as delivering tangible dividends but also how this can significantly contribute in helping (re)build public trust and thus achieving the ever illusive public recognition of financial services as a profession

This is what Godfrey Nti CEO of the Financial Planning Institute had to say after reading the bookldquoBeing a professional goes beyond a profit motive it speaks to a greater calling to do good to the greater society while changing onersquos own life in the process If you just want to know the value of pro bono and volunteerism for a good cause and how this is key to not only a profession but being a professional then follow Kobusrsquos life journey as passionately narrated in this book This book paints a portrait of the interplay of these major stakeholders in creating the desired outcome a recognised and respected financial planning and advisory profession While we have made significant progress with the first three stakeholders there is still work to be done with respect to gaining public recognition Seeing that all professions have a public service ideal progress on aspect is a must if we are ever going to be recognised as a professionrdquo

ldquoKobusrsquo effortless passion for the profession shines right through in this book His rich life experiences on the journey to becoming a professional are admirable and something that we can all learn from

This book is indeed a must-read for all financial planners and advisors as well as anyone who hopes to fit into the financial services profession of the near futurerdquo Nti added If you are serious about becoming a professional as I am sure you are you will find this book very is interesting and most importantly informative And if you already are a professional in your own right and would like to know how to help create a bigger movement towards establishing a recognised as well as respected financial planning and

advisory profession this book is also for you If you are a student of history and would like to witness the creation of a profession this book is definitely for you as well

FPI members can claim CPD points as prescribed in the FPI CPD Policy for reading this informative book

Need a copyThe book is available directly from Kobus and his team at Kobuskleynliblinkcoza or phone Susan de Goede on (011) 207 7906 The ldquoPassion for the Profession Mastering the 9Ps to Professionalismrdquo book is also available on Amazon Kindle

For the full launch article including cost of this not-for-profit book visit wwwlinkedincompulselaunch-passion-profession-kobus-kleyn-cfp--1

47

48

BOOK REVIEW

PassionProfession

for the

Mastering the 9 Psto Professionalism

The 9Ps to Professionalism

ldquoWith a vision of a financial services industry that is fully transformed into a profession like so many of its peers To embrace this vision each of us need to give back to the financial advice profession by creating awareness of what we do and sharing best operating practices with our peersrdquo

said Kobus Kleyn CFPreg author of the book

He wrote this book which was launched on 18 March 2017 to share his personal experience as a CERTIFIED FINANCIAL PLANNERreg professional and the lessons learned from his involvement with various affiliations professional bodies and fellow financial planning professionals

The book was written for financial planningadvisory professionals or those aspiring to be across financial disciplines worldwide It outlines a step-by-step process through the nine Prsquos he identified (refer to the diagram below) to transform you from a ldquoproduct selling intermediaryrdquo into a financial planning professional with a strong value proposition code of conduct and ethics as well as a personal brand of note and inclusive of a passive income

49

ProfileData takes pride in being the leading South African financial data feed solutions provider

Our specialised local research teams together with our relationships with international exchanges and dataproviders allow you access to a wide range of data options for both in-house needs and for on-distribution toyour customer base

Profilersquos specialised IT team takes pride in building turnkey solutions that meet the need of the customerspecification at a defined cost Profilersquos on- and off-site IT infrastructure allows cost-effective hosting andsolutions management reducing the need for expensive capital cost

wwwfundsdatacozawwwsharedatacoza wwwsharemagiccoza

Contact Lionell Wobben

082-559-8283 | 011-728-5510

Financial Data Solutions

About the authorKobus Kleyn CERTIFIED FINANCIAL PLANNERreg professional and director at Kainos Financial Services a Liberty Group Affiliate obtained his Postgraduate Degree in Financial Planning at the University of Free State as well as a Management Development Programme (MPD) and AEP from UNISA Business School

He is the current chairperson of the Financial Planning Institutersquos (FPI) Risk Competency Committee Financial Intermediaries Associationrsquos (FIA) RDR Intermediary Workgroup and Liberty Group FA Ethics Committee Kobus serves on the Million Dollar Round Table (MDRT) Income Replacement Committee FPI Annual Convention Committee 2017 and holds the assistant-director for the MDRT PGA Annual Convention 2017 Task Force Committee position

He is also a member of the South African Institute of Tax Professionals (SAIT) FIA and Fiduciary Institute of South Africa (FISA) the Society of Trust and Estate Practitioner (STEP- with a TEP Designation) Financial Intermediaries Association of Southern Africa (FIA) and Ethics SA Kobus has a passion for the financial services profession and works purposefully with other like-minded professionals and stakeholders to transform the industry into a fully-fledged profession through the power of social media print media as well as presenting at industry events

He has authored the book ldquoPassion for the profession- Mastering the 9 Prsquos to Professionalismrdquo as a non-profit publication to the financial profession to give back

Volunteering and recognitionFor the past two years Kobus has been awarded the FPI It Starts with Me Award (2015 and 2016 respectively) for his dedication in promoting and supporting the CFPreg mark and entrenching the CFPreg mark into his work life as well as personal brand The award launched in 2015 also recognised his contribution to the industry by volunteering his time to educate consumers about the value of financial planning and providing valuable input in various FPI committees to make the profession better

Apart from his involvement with FPI he is also an FIA and MDRT volunteer who likes to do pro-bono work wherever possible Kobus was awarded the MDRT Leadership Award in 2014

Godfrey Nti (right) congratulating Kobus Kleyn (left) on his new book Passion for the Profession

BOOK REVIEW

Throughout this book Kobus provides examples of professional behaviour whether it be through enhancing competence professional courtesy or just ensuring that the right thing is done He explains the tenets of being a professional through his own life experiences He further describes how becoming a professional can go a long way in not only enhancing onersquos standing pride respect from peers as well as delivering tangible dividends but also how this can significantly contribute in helping (re)build public trust and thus achieving the ever illusive public recognition of financial services as a profession

This is what Godfrey Nti CEO of the Financial Planning Institute had to say after reading the bookldquoBeing a professional goes beyond a profit motive it speaks to a greater calling to do good to the greater society while changing onersquos own life in the process If you just want to know the value of pro bono and volunteerism for a good cause and how this is key to not only a profession but being a professional then follow Kobusrsquos life journey as passionately narrated in this book This book paints a portrait of the interplay of these major stakeholders in creating the desired outcome a recognised and respected financial planning and advisory profession While we have made significant progress with the first three stakeholders there is still work to be done with respect to gaining public recognition Seeing that all professions have a public service ideal progress on aspect is a must if we are ever going to be recognised as a professionrdquo

ldquoKobusrsquo effortless passion for the profession shines right through in this book His rich life experiences on the journey to becoming a professional are admirable and something that we can all learn from

This book is indeed a must-read for all financial planners and advisors as well as anyone who hopes to fit into the financial services profession of the near futurerdquo Nti added If you are serious about becoming a professional as I am sure you are you will find this book very is interesting and most importantly informative And if you already are a professional in your own right and would like to know how to help create a bigger movement towards establishing a recognised as well as respected financial planning and

advisory profession this book is also for you If you are a student of history and would like to witness the creation of a profession this book is definitely for you as well

FPI members can claim CPD points as prescribed in the FPI CPD Policy for reading this informative book

Need a copyThe book is available directly from Kobus and his team at Kobuskleynliblinkcoza or phone Susan de Goede on (011) 207 7906 The ldquoPassion for the Profession Mastering the 9Ps to Professionalismrdquo book is also available on Amazon Kindle

For the full launch article including cost of this not-for-profit book visit wwwlinkedincompulselaunch-passion-profession-kobus-kleyn-cfp--1

48

BOOK REVIEW

PassionProfession

for the

Mastering the 9 Psto Professionalism

The 9Ps to Professionalism

ldquoWith a vision of a financial services industry that is fully transformed into a profession like so many of its peers To embrace this vision each of us need to give back to the financial advice profession by creating awareness of what we do and sharing best operating practices with our peersrdquo

said Kobus Kleyn CFPreg author of the book

He wrote this book which was launched on 18 March 2017 to share his personal experience as a CERTIFIED FINANCIAL PLANNERreg professional and the lessons learned from his involvement with various affiliations professional bodies and fellow financial planning professionals

The book was written for financial planningadvisory professionals or those aspiring to be across financial disciplines worldwide It outlines a step-by-step process through the nine Prsquos he identified (refer to the diagram below) to transform you from a ldquoproduct selling intermediaryrdquo into a financial planning professional with a strong value proposition code of conduct and ethics as well as a personal brand of note and inclusive of a passive income

49

ProfileData takes pride in being the leading South African financial data feed solutions provider

Our specialised local research teams together with our relationships with international exchanges and dataproviders allow you access to a wide range of data options for both in-house needs and for on-distribution toyour customer base

Profilersquos specialised IT team takes pride in building turnkey solutions that meet the need of the customerspecification at a defined cost Profilersquos on- and off-site IT infrastructure allows cost-effective hosting andsolutions management reducing the need for expensive capital cost

wwwfundsdatacozawwwsharedatacoza wwwsharemagiccoza

Contact Lionell Wobben

082-559-8283 | 011-728-5510

Financial Data Solutions

About the authorKobus Kleyn CERTIFIED FINANCIAL PLANNERreg professional and director at Kainos Financial Services a Liberty Group Affiliate obtained his Postgraduate Degree in Financial Planning at the University of Free State as well as a Management Development Programme (MPD) and AEP from UNISA Business School

He is the current chairperson of the Financial Planning Institutersquos (FPI) Risk Competency Committee Financial Intermediaries Associationrsquos (FIA) RDR Intermediary Workgroup and Liberty Group FA Ethics Committee Kobus serves on the Million Dollar Round Table (MDRT) Income Replacement Committee FPI Annual Convention Committee 2017 and holds the assistant-director for the MDRT PGA Annual Convention 2017 Task Force Committee position

He is also a member of the South African Institute of Tax Professionals (SAIT) FIA and Fiduciary Institute of South Africa (FISA) the Society of Trust and Estate Practitioner (STEP- with a TEP Designation) Financial Intermediaries Association of Southern Africa (FIA) and Ethics SA Kobus has a passion for the financial services profession and works purposefully with other like-minded professionals and stakeholders to transform the industry into a fully-fledged profession through the power of social media print media as well as presenting at industry events

He has authored the book ldquoPassion for the profession- Mastering the 9 Prsquos to Professionalismrdquo as a non-profit publication to the financial profession to give back

Volunteering and recognitionFor the past two years Kobus has been awarded the FPI It Starts with Me Award (2015 and 2016 respectively) for his dedication in promoting and supporting the CFPreg mark and entrenching the CFPreg mark into his work life as well as personal brand The award launched in 2015 also recognised his contribution to the industry by volunteering his time to educate consumers about the value of financial planning and providing valuable input in various FPI committees to make the profession better

Apart from his involvement with FPI he is also an FIA and MDRT volunteer who likes to do pro-bono work wherever possible Kobus was awarded the MDRT Leadership Award in 2014

Godfrey Nti (right) congratulating Kobus Kleyn (left) on his new book Passion for the Profession

BOOK REVIEW

Throughout this book Kobus provides examples of professional behaviour whether it be through enhancing competence professional courtesy or just ensuring that the right thing is done He explains the tenets of being a professional through his own life experiences He further describes how becoming a professional can go a long way in not only enhancing onersquos standing pride respect from peers as well as delivering tangible dividends but also how this can significantly contribute in helping (re)build public trust and thus achieving the ever illusive public recognition of financial services as a profession

This is what Godfrey Nti CEO of the Financial Planning Institute had to say after reading the bookldquoBeing a professional goes beyond a profit motive it speaks to a greater calling to do good to the greater society while changing onersquos own life in the process If you just want to know the value of pro bono and volunteerism for a good cause and how this is key to not only a profession but being a professional then follow Kobusrsquos life journey as passionately narrated in this book This book paints a portrait of the interplay of these major stakeholders in creating the desired outcome a recognised and respected financial planning and advisory profession While we have made significant progress with the first three stakeholders there is still work to be done with respect to gaining public recognition Seeing that all professions have a public service ideal progress on aspect is a must if we are ever going to be recognised as a professionrdquo

ldquoKobusrsquo effortless passion for the profession shines right through in this book His rich life experiences on the journey to becoming a professional are admirable and something that we can all learn from

This book is indeed a must-read for all financial planners and advisors as well as anyone who hopes to fit into the financial services profession of the near futurerdquo Nti added If you are serious about becoming a professional as I am sure you are you will find this book very is interesting and most importantly informative And if you already are a professional in your own right and would like to know how to help create a bigger movement towards establishing a recognised as well as respected financial planning and

advisory profession this book is also for you If you are a student of history and would like to witness the creation of a profession this book is definitely for you as well

FPI members can claim CPD points as prescribed in the FPI CPD Policy for reading this informative book

Need a copyThe book is available directly from Kobus and his team at Kobuskleynliblinkcoza or phone Susan de Goede on (011) 207 7906 The ldquoPassion for the Profession Mastering the 9Ps to Professionalismrdquo book is also available on Amazon Kindle

For the full launch article including cost of this not-for-profit book visit wwwlinkedincompulselaunch-passion-profession-kobus-kleyn-cfp--1

49

ProfileData takes pride in being the leading South African financial data feed solutions provider

Our specialised local research teams together with our relationships with international exchanges and dataproviders allow you access to a wide range of data options for both in-house needs and for on-distribution toyour customer base

Profilersquos specialised IT team takes pride in building turnkey solutions that meet the need of the customerspecification at a defined cost Profilersquos on- and off-site IT infrastructure allows cost-effective hosting andsolutions management reducing the need for expensive capital cost

wwwfundsdatacozawwwsharedatacoza wwwsharemagiccoza

Contact Lionell Wobben

082-559-8283 | 011-728-5510

Financial Data Solutions

About the authorKobus Kleyn CERTIFIED FINANCIAL PLANNERreg professional and director at Kainos Financial Services a Liberty Group Affiliate obtained his Postgraduate Degree in Financial Planning at the University of Free State as well as a Management Development Programme (MPD) and AEP from UNISA Business School

He is the current chairperson of the Financial Planning Institutersquos (FPI) Risk Competency Committee Financial Intermediaries Associationrsquos (FIA) RDR Intermediary Workgroup and Liberty Group FA Ethics Committee Kobus serves on the Million Dollar Round Table (MDRT) Income Replacement Committee FPI Annual Convention Committee 2017 and holds the assistant-director for the MDRT PGA Annual Convention 2017 Task Force Committee position

He is also a member of the South African Institute of Tax Professionals (SAIT) FIA and Fiduciary Institute of South Africa (FISA) the Society of Trust and Estate Practitioner (STEP- with a TEP Designation) Financial Intermediaries Association of Southern Africa (FIA) and Ethics SA Kobus has a passion for the financial services profession and works purposefully with other like-minded professionals and stakeholders to transform the industry into a fully-fledged profession through the power of social media print media as well as presenting at industry events

He has authored the book ldquoPassion for the profession- Mastering the 9 Prsquos to Professionalismrdquo as a non-profit publication to the financial profession to give back

Volunteering and recognitionFor the past two years Kobus has been awarded the FPI It Starts with Me Award (2015 and 2016 respectively) for his dedication in promoting and supporting the CFPreg mark and entrenching the CFPreg mark into his work life as well as personal brand The award launched in 2015 also recognised his contribution to the industry by volunteering his time to educate consumers about the value of financial planning and providing valuable input in various FPI committees to make the profession better

Apart from his involvement with FPI he is also an FIA and MDRT volunteer who likes to do pro-bono work wherever possible Kobus was awarded the MDRT Leadership Award in 2014

Godfrey Nti (right) congratulating Kobus Kleyn (left) on his new book Passion for the Profession

BOOK REVIEW

Throughout this book Kobus provides examples of professional behaviour whether it be through enhancing competence professional courtesy or just ensuring that the right thing is done He explains the tenets of being a professional through his own life experiences He further describes how becoming a professional can go a long way in not only enhancing onersquos standing pride respect from peers as well as delivering tangible dividends but also how this can significantly contribute in helping (re)build public trust and thus achieving the ever illusive public recognition of financial services as a profession

This is what Godfrey Nti CEO of the Financial Planning Institute had to say after reading the bookldquoBeing a professional goes beyond a profit motive it speaks to a greater calling to do good to the greater society while changing onersquos own life in the process If you just want to know the value of pro bono and volunteerism for a good cause and how this is key to not only a profession but being a professional then follow Kobusrsquos life journey as passionately narrated in this book This book paints a portrait of the interplay of these major stakeholders in creating the desired outcome a recognised and respected financial planning and advisory profession While we have made significant progress with the first three stakeholders there is still work to be done with respect to gaining public recognition Seeing that all professions have a public service ideal progress on aspect is a must if we are ever going to be recognised as a professionrdquo

ldquoKobusrsquo effortless passion for the profession shines right through in this book His rich life experiences on the journey to becoming a professional are admirable and something that we can all learn from

This book is indeed a must-read for all financial planners and advisors as well as anyone who hopes to fit into the financial services profession of the near futurerdquo Nti added If you are serious about becoming a professional as I am sure you are you will find this book very is interesting and most importantly informative And if you already are a professional in your own right and would like to know how to help create a bigger movement towards establishing a recognised as well as respected financial planning and

advisory profession this book is also for you If you are a student of history and would like to witness the creation of a profession this book is definitely for you as well

FPI members can claim CPD points as prescribed in the FPI CPD Policy for reading this informative book

Need a copyThe book is available directly from Kobus and his team at Kobuskleynliblinkcoza or phone Susan de Goede on (011) 207 7906 The ldquoPassion for the Profession Mastering the 9Ps to Professionalismrdquo book is also available on Amazon Kindle

For the full launch article including cost of this not-for-profit book visit wwwlinkedincompulselaunch-passion-profession-kobus-kleyn-cfp--1

About the authorKobus Kleyn CERTIFIED FINANCIAL PLANNERreg professional and director at Kainos Financial Services a Liberty Group Affiliate obtained his Postgraduate Degree in Financial Planning at the University of Free State as well as a Management Development Programme (MPD) and AEP from UNISA Business School

He is the current chairperson of the Financial Planning Institutersquos (FPI) Risk Competency Committee Financial Intermediaries Associationrsquos (FIA) RDR Intermediary Workgroup and Liberty Group FA Ethics Committee Kobus serves on the Million Dollar Round Table (MDRT) Income Replacement Committee FPI Annual Convention Committee 2017 and holds the assistant-director for the MDRT PGA Annual Convention 2017 Task Force Committee position

He is also a member of the South African Institute of Tax Professionals (SAIT) FIA and Fiduciary Institute of South Africa (FISA) the Society of Trust and Estate Practitioner (STEP- with a TEP Designation) Financial Intermediaries Association of Southern Africa (FIA) and Ethics SA Kobus has a passion for the financial services profession and works purposefully with other like-minded professionals and stakeholders to transform the industry into a fully-fledged profession through the power of social media print media as well as presenting at industry events

He has authored the book ldquoPassion for the profession- Mastering the 9 Prsquos to Professionalismrdquo as a non-profit publication to the financial profession to give back

Volunteering and recognitionFor the past two years Kobus has been awarded the FPI It Starts with Me Award (2015 and 2016 respectively) for his dedication in promoting and supporting the CFPreg mark and entrenching the CFPreg mark into his work life as well as personal brand The award launched in 2015 also recognised his contribution to the industry by volunteering his time to educate consumers about the value of financial planning and providing valuable input in various FPI committees to make the profession better

Apart from his involvement with FPI he is also an FIA and MDRT volunteer who likes to do pro-bono work wherever possible Kobus was awarded the MDRT Leadership Award in 2014

Godfrey Nti (right) congratulating Kobus Kleyn (left) on his new book Passion for the Profession

BOOK REVIEW

Throughout this book Kobus provides examples of professional behaviour whether it be through enhancing competence professional courtesy or just ensuring that the right thing is done He explains the tenets of being a professional through his own life experiences He further describes how becoming a professional can go a long way in not only enhancing onersquos standing pride respect from peers as well as delivering tangible dividends but also how this can significantly contribute in helping (re)build public trust and thus achieving the ever illusive public recognition of financial services as a profession

This is what Godfrey Nti CEO of the Financial Planning Institute had to say after reading the bookldquoBeing a professional goes beyond a profit motive it speaks to a greater calling to do good to the greater society while changing onersquos own life in the process If you just want to know the value of pro bono and volunteerism for a good cause and how this is key to not only a profession but being a professional then follow Kobusrsquos life journey as passionately narrated in this book This book paints a portrait of the interplay of these major stakeholders in creating the desired outcome a recognised and respected financial planning and advisory profession While we have made significant progress with the first three stakeholders there is still work to be done with respect to gaining public recognition Seeing that all professions have a public service ideal progress on aspect is a must if we are ever going to be recognised as a professionrdquo

ldquoKobusrsquo effortless passion for the profession shines right through in this book His rich life experiences on the journey to becoming a professional are admirable and something that we can all learn from

This book is indeed a must-read for all financial planners and advisors as well as anyone who hopes to fit into the financial services profession of the near futurerdquo Nti added If you are serious about becoming a professional as I am sure you are you will find this book very is interesting and most importantly informative And if you already are a professional in your own right and would like to know how to help create a bigger movement towards establishing a recognised as well as respected financial planning and

advisory profession this book is also for you If you are a student of history and would like to witness the creation of a profession this book is definitely for you as well

FPI members can claim CPD points as prescribed in the FPI CPD Policy for reading this informative book

Need a copyThe book is available directly from Kobus and his team at Kobuskleynliblinkcoza or phone Susan de Goede on (011) 207 7906 The ldquoPassion for the Profession Mastering the 9Ps to Professionalismrdquo book is also available on Amazon Kindle

For the full launch article including cost of this not-for-profit book visit wwwlinkedincompulselaunch-passion-profession-kobus-kleyn-cfp--1

51

Stand out Be extraordinarywwwfpicoza

FINANCIAL SERVICES

ADVISORtrade FSAtrade designation

A designation introduced by the Financial

Planning Institute (FPI) which represents

another level of professionalism in the

financial services industry

The designation effectively enables individual

financial advisors to once again differentiate

themselves as well as provide trusted expert

advice to consumers

One step to the top

Find out more at

wwwfpicoza

email membershipfpicoza

or contact 086 1000 FPI (374)

Join us on Facebook LinkedIn amp twitter

FSAtrade and FINANCIAL SERVICES ADVISORtrade are trademarks owned by the Financial Planning Institute of Southern Africa

52

OUR TAX-FREE FUNDS SATISFY A DIVERSE RANGE

OF NEEDS AND THEY HAVE ONE THING IN COMMON

CONSISTENT INVESTMENT PERFORMANCE

Prudential Investment Managers (SA) (Pty) Ltd is a licensed financial services provider

If you arenrsquot already investing with us contact our Client Services team on 0860 105 775 or visit

prudentialcoza

Consistency is the only currency that matters

1856

0

52

OUR TAX-FREE FUNDS SATISFY A DIVERSE RANGE

OF NEEDS AND THEY HAVE ONE THING IN COMMON

CONSISTENT INVESTMENT PERFORMANCE

Prudential Investment Managers (SA) (Pty) Ltd is a licensed financial services provider

If you arenrsquot already investing with us contact our Client Services team on 0860 105 775 or visit

prudentialcoza

Consistency is the only currency that matters

1856

0