Building Wealth through Investment���

P R E S E N T A T I O N B Y

Daniël Kriel

CEO, Sanlam Private Investments

W E A L T H S U M M I T

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Silvana BottegaGHIJKLM!"#"

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“The Red Sun” Stefan Ampenberger (1908 - 1983)

Sanlam Art Collection

building wealth through investment March 2012

quick facts

  change is the reality

  the cost of living in South Africa is increasing

  the tax burden on individuals is increasing

  SA personal savings rate as % of disposable income - 0%

  70% of retirement fund members who left their jobs in 2010 cashed in their savings

  <10% of South Africans could retire without financial assistance

  a loaf of bread is expected to cost around R52 in 30yrs’ time a doctor’s visit should cost around R2,500

financial issues of high concern Source: Affluent Insights Quarterly Survey, Merrill Lynch

  rising health care costs or expenses (75%)

  the impact of the economy on my ability to meet financial goals (58%)

  preserving an inheritance for my children and/or grandchildren (54%)

  the current state of my retirement plan (50%)

the good news ...

  Global wealth has increased to $230 trillion from $195 trillion in 2010, led by growing wealth in South Africa, India, Australia, Chile and Singapore.

  The number of dollar millionaires in South Africa will increase by 242% to 243,000 by 2016

Credit Suisse: Global Wealth Report 2011

… exponential growth

the good news ... projected annual personal income growth

R1m - R2m R2m - R5m R5m+

2010 75 589 22 230 4 720

2011 89 201 26 233 5 570

2012 111 997 32 937 6 994

2013 146 133 42 976 9 126

Source: BMR 2010, SARS 2008

but, whatever the categorisation, the credit crunch has had a major impact

made for Tribune in the UK – hackcartoons.com

1: never lose money

2: never forget the first rule

the rules of investment

critical factors

1.  choice of wealth manager

2.  choice of asset mix

3.  traps to avoid

4.  good habits

1 choice of wealth manager

remember him?

and these institutions?

what do the wealthy want? Source: Affluent Insights Quarterly Survey, Merrill Lynch

Top 6 Priorities of HNW Clients

what do the wealthy want?

the needs of wealth management clients are hugely diverse depending on demographics, how their wealth was created, geography, attitude to risk…

but there are broad common themes:

  {excellent} service

  trust

 personal relationships …

Branding and Segmentation in Wealth Management

what do the wealthy want? Affluent Insights Quarterly, Merrill Lynch 2011

the importance of relationship is stems from the correlation between ‘satisfaction with your financial advisor’ and following attributes:

  responsive to requests 84%

  someone to trust 81%

  understand needs and personal values 84%

  being proactive 77%

  offering personalised advice 78% re. specific needs & challenges

what do the wealthy want? Branding and Segmentation in Wealth Management

a relationship extends beyond the wealth manager or the brand itself, many clients make choices based on affinity & affirmation

“a feel of exclusivity”

“a club that not anyone can join”

“knowing that someone cares”

“connectivity with the organisation”

“advice one can trust”

why clients chose wealth managers

78% 83%

TIMELY AND APPROPRIATE CONTACT

82% 93%

QUALITY OF SERVICE

72% 87%

STRENGTH OF RELATIONSHIP WITH RM

74% 69%

PORTFOLIO PERFORMANCE

62% 54%

INDEPENDENCE OF WEALTH MANAGER

66% 65%

OVERALL STRENGTH OF ORGANISATION

44% 19%

EXTERNAL FINANCIAL FACTORS (E.G., PROFITABILITY)

REGULATORY COMPLIANCE 69%

53%

40% 51%

STRONG BRAND

46% 27%

QUALITY OF ONLINE SERVICES

22% n/a

ACCESS TO CONCIERGE/CARD SERVICES

CLIENTS WEALTH MANAGERS

significant differences remain between what clients and wealth

managers consider important

Source: Weatherill Executive Consulting

what do the wealthy want?

client service replaces investment performance as the critical quality

historically, performance was king, and primary reason cited for leaving an organisation

in the aftermath of the financial crises, client loss now results from poor customer service and overall lapse in client relationship management

PwC Global Private Banking and Wealth Management Survey 2011

question: what is the single most important thing that your wealth manager does well that helps them to be your “trusted advisor”?

some tips in making your choice

  get references from clients

  registration / regulatory issues

  quality and experience of staff

  check the staff turnover

  remuneration / incentivisation model

  … do your homework

  remember: past performance is no guarantee for future performance

2 choice of asset mix

importance of asset allocation

Balanced: Proxy for a diversif ied portfolio : 60% J203T | 10% ALBI | 10% STeFI | 12.5% MSCI World Equity | 7.5% JP Morgan Global Bond SA Real Estate: J255T Source: Sanlam Investment Management

SA returns & risk of asset classes since 1900

Volatility less important over the long term

SA asset class performance since 1900

SA 20 year asset class returns

10 year returns – selected markets vs SA

of affluent non-retirees cited:

having a diversified portfolio

gives confidence in ability to meet long-term goals

69 %

Affluent Insights Quarterly, Merrill Lynch 2011

some tips

  inflation is the real enemy of building wealth

  asset allocation determined by:   investment goals   investment horizon   risk appetite

  continuously revisit – change when necessary

  portfolio should be well diversified between geographic and asset classes

3 traps to avoid

  not following integrated / coordinated approach – have products with different providers, don’t keep track etc.

  ignorance of the available investment vehicles

  emotions:   panic / overreaction to chance events   over confidence bias   anchoring   complacency

Denial

Dismissal

investors ‘rational’

Confidence

Caution

Doubt & Suspicion

Capitulation & Contempt

Fear

Concern

Indifference

Greed: Conviction of new era

Enthusiasm

Confidence

Panic

Despair

“buy” “sell”

5 good habits

  re-invest

  avoid short-termism / apply patience

  don’t jump around

  ensure the right structure / wrapper

  be meticulous and take ownership

the importance of compounding dividends R1.00 invested in 1960

378

1325

0

200

400

600

800

1000

1200

1400

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

All Share All Share - dividends reinvested

compound vs simple return R1000 over 30 years at 10% return

value of $10 000 invested S&P500 Berkshire Hathaway

1971 $10 000 $10 000

1974 $7 456 $5 708

1975 $10 229 $ 5422

1976 $12 643 $13 392

1991 $92 940 $1 361 805

2008 $259 068 $14 387 737

Source: Berkshire Hathaway / Sanlam Investment Management  

Victory awaits him who has everything in order – luck, people call it. Defeat is certain for him who has neglected to take the necessary precautions in time; this is called back luck. - from The South Pole, by Roald Amundsen

in closing

thank you!

“The Red Sun” Stefan Ampenberger (1908 - 1983)

Sanlam Art Collection