131 October 2016 | www.moneymarketing.co.za

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Johan Minnie

As the fi nancial advice industry gears itself towards operating

under the Retail Distribution Review (RDR), is the South African consumer doing the same? This was one of the questions posed by Johan Minnie, Group Executive: Sales, Distribution & Bancassurance, Liberty, at a recent RDR roundtable hosted by the company.

Minnie said that at the heart of the RDR was the objective to deal with risks that had arisen in the distribution landscape - and which have led to poor customer outcomes.

The RDR proposals, he added, addressed three issues:• The lack of responsibility

taken by product suppliers• The lack of transparency with

respect to different services being provided

• The remuneration paid to intermediaries.

According to Minnie, there was a perception that a disproportionate amount was paid for certain services given to clients.

At the end of the day, the RDR was really about placing the client “in a position to make a rational decision” about what he/

she was receiving in return for what he/she was paying.

At present, the cost of advice is built into

the commission and the cost of advice from the cost of the product are not separated. The RDR will require clients to pay a fee for advice.

However, many consumers wouldn’t see “the value of paying R5 000 for advice”, as the perception was that they used to get it for free – but they’d buy a luxury car, Minnie said.

He added that while the industry might be ready for the RDR, there was a need to educate consumers about the value of advice.

David Kop, a certifi ed fi nancial planner and head of advocacy and consumer affairs at the Financial Planning Institute, said many consumers did not understand the present fee structure i.e. that commission included advice.

The RDR would emphasise that the real value the client received out of consulting a fi nancial adviser was the advice

given and that this was a service that should be paid for.

Kop added that fees payments in terms of the RDR were not about writing a cheque to the adviser before a consultation could take place.

“There are various methods for collecting fees. The difference is that the client will take charge of deciding what the fees will be,” Kop added.

Gerald Mwandiambira, the acting CEO of the South African Savings Institute (Sasi), said the RDR was important for the country.

Although advice had always been part of the equation, many customers hadn’t always had a good financial advice experience.

Mwandiambira said that for years, the industry sold the consumer ‘bags of funeral policies’. When consumers were made aware that only one such policy was needed, this determined their attitude towards advisers.

Consumers had made the point that if they only needed one funeral policy, they could have instead purchased life insurance.

“We need to move a generation away from funeral policies and change the attitude of the public. People want to experience advice,” he added.

“There are six million people in the black middle class. Traditionally this class haven’t had savings products. You’re dealing with a market that hasn’t been exposed to complex products,” Mwandiambira said.

“The funeral policy has been the only product that addressed this class. Now we have a new generation of middle class people. They have a limited amount in their wallets and these customers need to know what they’re getting. Transparency isn’t negotiable.”

INSIDE your October issue of MoneyMarketing...

Are consumers ready for the RDR?Are consumers ready for the RDR?

SA index tracking funds: Know what you’re buyingMake sure to choose an appropriate basket of shares for your risk appetitePage 13

Compliance: The dangers of DIYStaying compliant can be very challengingPage 7

Investment platforms continue to grow in importanceLISPs play an increasingly signifi cant role in the investment decisions of investors and their advisersPage 21

2 31 October 2016

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Dear Reader

There is a lot of public concern around SA’s state-owned enterprises (SOEs) and with

much justifi cation too. Parastatals are funded by our money – and we’re all indirect share holders. We are therefore entitled to question the wisdom of plans to give President Jacob Zuma supervision over all SOEs, as was announced recently. Supporters of Finance Minister Pravin Gordhan, have, after all, said the move was a bid to limit Gordhan’s control.

So what should be done about SOEs? After reading John Kane-Berman’s article in the Institute of Race Relations journal entitled Privatisation or Bust, I’m beginning to believe that he’s right: SOEs should be privatised.

Kane-Berman points out that while privatisation of state-owned companies was once on the ANC’s agenda, “even to suggest it today seems fanciful.” He goes on to explain that as long as President Zuma is in power, privatisation of state companies is unlikely.

“But he will not be there forever. Nor, however, is there any guarantee that a future president or other politicians may not seek control of state companies for their own advantage. The best bulwark against this is to put as many state companies as possible as far beyond the reach of politicians as possible as permanently as possible. This means privatising them.”

Today, when privatisation is mentioned, it is almost always in a disparaging manner. This is unfortunate.

As Kane-Berman says, “the case for capitalism rests not on the greater virtue or integrity of capitalists but on a range of other factors. One is that they take risks with funds provided by themselves or by fellow-shareholders, rather than by taxpayers.”

He makes a valid point.

Janicejanice.roberts@newmediapub.co.za@MMMagzawww.moneymarketing.co.za

NEWS &OPINION Banks are dealing with many challenges and opportunities

South Africa’s major banking groups (Barclays Africa Group Limited, FirstRand, Nedbank

and Standard Bank) have produced a credible set of results for the fi rst half of 2016 despite a challenging operating landscape, both globally and locally. This is according to PwC’s ‘South Africa Major Banks Analysis: Getting the balance right’.

Johannes Grosskopf, Financial Services Industry Leader for PwC Africa, says: “Although there were some differences in the performances of the individual banks, the four major banking groups posted combined headline earnings of R34.6bn, up 5.7% from the comparable period last year. In many ways, this performance refl ects the strength and resilience of their franchises and clear diversifi cation of earnings capacity that exists within their organisations.”

According to the report, banks are dealing with many challenges and opportunities:• Challenges include the

continued regulatory change agenda, specifi cally new capital rules, rules around risk data aggregation and developing new credit impairment methodologies to implement the new accounting impairment standard, IFRS 9.

• Banks’ business models and IT infrastructure are challenged by Fintech startups, continued focus on customer centric approaches

and a relentless focus on costs. • The macro economic situation

globally with Brexit uncertainty prevailing, commodity price volatility and the slow to negative domestic and African GDP growth issues add to these challenges.

SA’s banks are focused on delivering value to shareholders. One of the measures used to depict shareholder value created is the economic spread which is the differential between the return on equity and the cost of equity. Using this measure, SA's major banks’ performance compares very favourably against their European counterparts.

The average economic spread amounted to 3.6% which is marginally down on the second half of 2015, refl ecting on increased cost of equity and lower return on equity (ROE). In comparison, the European Global Systemically Important Banks (G-SIBs) remained in negative territory in the -6% to -10% range.

The most signifi cant change from previous periods, is the increase in the impairment charge, refl ecting the diffi culties in the underlying macro-economic conditions. The major banks’ combined income statement impairment charge grew by 26.8% and 29.3% against the fi rst half of 2015 and the second half of 2015, respectively. This can largely be attributed to latent credit stresses, both realised and

unrealised, within the major banks’ total credit portfolios.

For the fi rst half of 2016, the combined nonperforming loans (NPLs) of the major banks increased 7.5% against the second half of 2015, but by a considerable 14.7% against the fi rst half of 2015. Consistent with PwC’s previous analysis, retail NPLs continue to make up the majority of NPLs, constituting nearly 74% of total NPLs.

The major banks’ combined loans and advances grew 1.3% only, compared to the second half of 2015 and 6.5% against the fi rst of 2015. In many ways, this is consistent with the range of economic headwinds that have prevailed over these periods including lacklustre domestic growth, subdued business confi dence levels and strained South African household balance sheets.

Net fee and commission grew 9.8% when compared to the first of 2015. “This growth is a remarkable achievement in the face of headwinds experienced in the form of lower interchange fees and the generally subdued macroeconomic environment,” adds Grosskopf.

Net interest income growth of 15.9% benefi tted from a continued positive endowment impact as the higher interest rate environment contributed to faster asset repricing relative to fi xed-rate liabilities, equity and non-rate sensitive funding sources.

SA’s major banks post solid results

331 October 2016

WealthAsset Management Insure

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Seeing the bigger picture gives you the advantage.

For more information contact your financial adviser, call 0800 600 168, email assetmanagement@psg.co.za or visit psg.co.za/asset-management

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THABI LEOKAEconomic Strategist, Argon Asset Management

NEWS & OPINION

When the BRICS countries agreed on the

establishment of the New Development Bank in Fortaleza, Brazil in 2014, very few imagined that a year after its establishment, the NDB would have approved four loans and successfully issue a bond a year after opening its doors.

Green Financial BondIn April, the NDB committed $636 million towards the financing of renewable energy projects to its member states and on July 18, the Bank issued its first Green Financial Bond. The five -year renminbi denominated bond is RMB 3bn ($448mn) in size with a yield of 3.07%. The bond was three times oversubscribed, which is a stamp of approval by investors for an entity that has never tested the market. The proceeds of the bond will be used for infrastructure and sustainable development projects in the BRICS countries.

The rational for infrastructure funding for the many Multilateral Development Banks (MDBs) is development, economic growth and poverty reduction. Private financing

Investors give stamp of approval to New Development Bank

is often difficult to secure and funds are often not sufficient to address the huge infrastructure needs of many developing countries. MDBs lending for infrastructure has been on the decline since the late 1990s but the rate of decline appears to have increased after the global financial crisis in 2008.

Development fi nancingAt the First Annual Meeting of the NDB held in July 2016, questions were raised about whether the development financing space is overcrowded. The global infrastructure gap is $1 trillion per year between current spending and the need for emerging and developing countries by 2030. There is obviously more room for new funders. The establishment of the NDB arises from the enormous investment and financing gaps to fund infrastructure development in BRICS states. The objective of the NDB is not to challenge the Bretton Woods institutions, but to improve and complement the multilateral development bank space.

The NDB will help to promote the financing of infrastructure among developing countries,

improve global governance and help propel the revival of the global economy. What sets the NDB apart from other multilateral development banks is that funds come from its member countries. Also, member states are equal partners, which is important because often there is tension between shareholders, (often non-borrower countries and borrower countries).

The NDB will be open to other countries, but at a later stage, which explains why it changed its name from the BRICS Bank to the New Development Bank. This will be important especially for countries that need infrastructure financing the most.

Infrastructure defi citTake the African continent, for instance, where the infrastructure deficit is the widest in the world. According to the World Bank, the cost of redressing Africa’s infrastructure deficit is estimated at $38 billion of investment per year and a further $37 billion per year in operations and maintenance. In total, this means the continent of Africa requires $75 billion per year for infrastructure

development. About 48 countries in sub-Saharan Africa – a combined population of 800 million – generate roughly the same amount of power as Spain, which has a population of 45 million. These statistics highlight the need for infrastructure funding on the African continent. Globally, spending on basic infrastructure amounts to $2.7 trillion a year instead of $3.7 trillion needed.

SA's GDPThe latest GDP figures in South Africa for the second quarter (3.3%) point to this decline in infrastructure investment. Gross fixed capital formation contracted further, but at a slower rate than in the first quarter. Investment from government, SOEs and the private sector all contracted. Despite a slight improvement in the Business Confidence Index

The bond was three times oversubscribed

in the second quarter, the overall index remains far below neutral (50), with the wholesale sector as the only above neutral. In an environment where government is trimming spending, the private sector should come to the party to fill the gap, but the heightened political tension is making investors in the private sector uneasy about the future of South Africa.

EskomThe NDB has extended a loan to Eskom amounting to R2.57bn to enable Eskom to build transmission lines to connect 500MW of renewable energy from independent power producers to the national grid. Let’s hope that the internal political noise does not deter such needed investment from South Africa.

4 31 October 2016

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‘The most notable feature about today’s economic environment is the exceedingly low interest rates around the world’

DELPHINE GOVENDERChief Investment Offi cer and Co-founder, Perpetua Investment Managers VERY BRIEFLY...

How did you become involved in fi nancial markets – was this something you always wanted to do?A career that was based strongly in numeracy, with judgement elements and in the fi nance fi eld was always something I believed was well suited to my own attributes. I was only directly exposed to the details of the world of investing in my fi rst year of articles while training to become a CA. From that initial exposure it became clear to me that the fi nancial markets and building a career in them was exactly what I wanted to do. That moment was 21 years ago and since then I have never doubted it was the right decision!

What makes a good investment in today’s economic environment?The most notable feature about today’s economic environment is the exceedingly low interest rates around the world. This has pushed up asset prices in many markets and in many asset classes (whether it be equity, property or income). In many markets around the globe (including our own) certain assets are trading well

in excess of their fundamental value. In this kind of environment, selected stock-picking based on bottom-up fundamental research is becoming more and more valuable both to preserve wealth and to seek out lower risk real returns. There are definitely pockets of neglected and out-of-favour equities which fit into this camp and in which we are investing our client’s hard earned funds - for non-speculative investors and clients, I believe these will turn out to be the ‘good investments’ in time.

What have been your best and worst fi nancial moments?As an investor it is hard to narrow down fi nancial moments into singular best or worst one. Suffi ce to say every investment journey has a healthy measure of both. As professional investors, however, we tend to (and we are often encouraged to) mainly remember our winners over our losers, yet the lesson to learn from our losers is generally far greater. Losers could be those that are the permanent losers (and I am one of the fortunate few who avoided African Bank completely – so the non-holding ended

up being a ‘winner’) or the temporary losers (I remember the anxiety of buying Telkom around 2011 in the R20-R30 range before it precipitously halved; though it subsequently and eventually went up more than six times from its low). The challenge is always knowing when to see things through while value recovery is opaque but probable, and when to establish whether there has been a permanent decay in value. While errors of commission are often the worst fi nancial experiences for an investor, errors of omission can be equally costly in terms of the opportunity cost of lost returns. For example my bias on African Bank negatively impacted my view on Capitec, which I didn’t own and this ended up being an error of omission.

What was your fi rst investment and do you still have it?Actually, I think my fi rst investment was made when I was at university. I was convinced that I should invest in an endowment policy! Unsurprisingly, I don’t have it today as I soon discovered less ‘costly’ investments like unit trusts and direct share investing, once I became a more knowledgeable investor.

Sasol has released its full year fi nancial results for the year ended 30 June 2016. Earnings attributable to shareholders decreased by 55% to R13.2 billion from R29.7 billion in the prior year. Headline earnings per share (HEPS) decreased by 17% to R41.40 and earnings per share (EPS) decreased by 56% to R21.66 compared to the

prior year. Operating profi t of R24,2 billion decreased by 48% compared to the prior year on the back of challenging and highly volatile global markets. Average Brent crude oil prices moved dramatically lower by 41% compared to the prior year (average dated Brent was US$43/bbl for the year ended 30 June 2016 compared with US$73/bbl in the prior year).

SA’s second quarter GDP rose by a seasonally adjusted annualised 3.3% quarter-on-quarter (q-o-q), markedly better than both the 1.2% contraction recorded in the fi rst quarter and the consensus market forecast of a 2.3% increase.

The major boost came from growth in value added by manufacturing (up 8.1% q-o-q), mining (up 11.8%), fi nance, real estate and business services (up 2.9%), transport and communication services (up 2.9%) as well as the

broader domestic trade, catering and accommodation industries (up 1.4%). In most of the other sectors the pace of activity either remained soft or slowed further.

The improved GDP data was infl uenced by the fi rst quarter’s very low base. This is apparent when one considers that the economy grew by only 0.3% year-on-year (y-o-y) in the second quarter and 0.3% y-o-y in the fi rst half of 2016.

Ashburton’s India Equity Opportunities Fund, which is managed by its Jersey investment team, has reached $100 million assets under management, just ahead of its four year anniversary. The Fund, which has outperformed its benchmark by more than 60% over the past three years, is managed in Jersey by Jonathan Schiessl, Simon Finch and Craig Farley. Schiessl, Chief Investment Offi cer of Ashburton’s international business, is ranked in the top fi ve India equity managers globally and rated AAA by Citywire, the investment publication. Investment research company Morningstar has given the Fund '4 stars' for its three year track record.

The Fund, part of the Ashburton Investments Luxembourg-domiciled SICAV range, also recently launched sterling share classes to provide better investor access via several platforms.

The Financial Planning Institute of Southern Africa (FPI) has recently accredited, and welcomes on board, Absolut Wealth Management and Gradidge-Mahura Investments as FPI Approved Professional Practice™ fi rms after both practices met the highest professional fi nancial planning standards set by FPI. Sherma Malan, CFP®, Head: Membership and Corporate Relations at FPI commented; “We are pleased to partner with both practices to ensure that we continue providing professional fi nancial planning for all. The accreditation also validates that Absolut Wealth Management and Gradidge-Mahura Investments fi nancial planning processes are designed to provide clients with peace of mind as they embark on their journey of fi nancial freedom.”

Mergence Investment Managers has bolstered its Listed Investments team with the appointment of Mukhtar Mustapha as an equity investment analyst specialising in the consumer sector. Mustapha has 10 years of experience in corporate fi nance and equity research. He spent fi ve years at Credit Suisse and Bank of America Merrill Lynch during which he was consistently rated as a top equity analyst. In 2015, he was rated Number One Consumer Analyst in the Extel survey across Eastern Europe, Middle East and Africa (EEMEA). In 2015, he was also rated third in the South African market for the Food Producers sector in the Financial Mail’s Ranking the Analysts survey. Brad Preston, Chief Investment Offi cer at Mergence, said: “Mukhtar has great experience as an equity analyst and expertise in his sector and we look forward to working with him to generate alpha for our clients.”

to shareholders decreased by 55% to R13.2 billion from R29.7 billion in the prior year. Headline earnings per share (HEPS) decreased by 17% to R41.40 and earnings per share (EPS) decreased by 56% to R21.66 compared to the

business services (up 2.9%), transport and communication services (up 2.9%) as well as the

Sasol has released its

NEWS &OPINION Certain assets are trading well in excess of their fundamental value

DOWNSUPS

531 October 2016

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Artist’s impression.

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

THE FURTHER YOU TRAVEL,THE MORE OPPORTUNITIES YOU’LL FIND. With a yearly round trip that stretches over 16 000km, the grey whale has one of the longest migrations of any mammal in the world. � e journey is taxing, but they undertake it to � nd the most favourable conditions for welcoming their progeny into the world. Like us, the grey whale knows that to get the best results, you often have to go a bit further. � is is why, together with our global asset management partner Orbis, we give you access to investment opportunities beyond the 1% of the global equity market represented by South Africa. We know that the choices out there can be overwhelming, so we’ve narrowed down the options to what we think are the most favourable o� shore investment opportunities, in the Orbis Global Equity Fund. If you share the grey whale’s attitude towards the future, call Allan Gray on 0860 000 654 or your � nancial adviser, or visit www.allangray.co.za

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The fi fth edition of the Momentum/Unisa Household Financial

Wellness Index uncovered a large amount of disorder in the personal fi nancial planning and management process that contributed to South Africans being in a poorer fi nancial state than they should have been.

Such disorders, also called negative entropy, combined with a poor macroeconomic performance – where economic growth declined and unemployment remained very high – reduced the average value of the Index from 66.6 points in 2014 to 66.3 points in 2015. Prior to this decline the Index was on an upward trend since its inception in 2011, when it registered an average of 64.2 points.

Consequently, the proportion of Financially Well households declined to 23.2% in 2015 from

Index shows large amount of disorder in personal fi nancial planning

27.9% in 2014. At the same time the share of the Financially Exposed households increased to 42.2% from 38.4% in 2014. The main difference between the Financially Well and Financially Exposed households was that the latter’s fi nancial situation could be compromised by unexpected events such as theft, accidents, disability or death. The proportion of households in the Financially Unstable category increased to 32.2% from 29.4%, while those in the Financially Distressed category decreased to 1.9% from 4.3%.

Based on the fi ndings of the study, there are certain personal fi nance best practices which can be identifi ed to optimise fi nancial wellness:• Households

need to prepare for fi nancial shocksThere is a need to determine

the likelihood of fi nancial risks (i.e. unemployment, illness, divorce) and to take out income protection insurance to mitigate against sudden dips in income.

• Households need to be able to respond to fi nancial emergenciesSuch responses include cutting back on spending, diversifying income streams, taking up appropriate fi nancial products to mitigate against risks and seeking good advice and support. The study found that many households in distress did not respond to shocks because they did not know how.

• Households need to become more fi nancially resilientHouseholds become more

resilient by being prepared, adaptable, responsible and better able to deal with emotions.

• Making time for fi nancial wellnessIt is imperative that households on a continuous basis evaluate their fi nancial wellness and devise strategies to optimise such wellness.

• Wants versus needsHouseholds also need to determine whether their essential expenditures are truly value for money buys; that is, is it possible to buy the same quality essential product at a lower price somewhere else by shopping around?

• Actively planning for retirementIt became clear from the study that over 80% of SA households might be

financially well during the time that their income earners are still active in the labour market but thereafter they will slip into financial distress. A compulsory retirement savings regime will greatly assist in reducing this very high percentage.

• Taking responsibility for your own healthHealthy household members are able to generate income on a sustainable basis for longer as well as to ensure that such income translates into net wealth. In the case of there being healthy individuals in the household, their fi nancial wellness will continue way beyond retirement.

NEWS & OPINION Financially Well households declined to 23.2% in 2015

6 31 October 2016

ADRIAN MEAGERHead of Asset Management, Warwick Wealth

NEWS &OPINION

JACQUES COETZERGeneral Manager of Sanlam Broker Distribution

I N S I D E R C H R O N I C L E S

Emotions can cloud our decision-makingPRACTICE MANAGEMENT

All markets go through different cycles that create different

psychological effects on investors. At the top of the investment cycle, investors feel exuberance and euphoria about the returns they are achieving. However, this is usually followed by a sense of fear and despair when the cycle begins to decline with returns slowly turning into losses.

Why does this happen? One reason is simply because some investors do not fully understand the risks associated with investing and are therefore captive to their emotions, with fear and greed causing them to sell low and buy high. Emotions can cloud our decision-making and prevent us from acting in a rational way. By understanding the range of emotions we experience as investors, however, and the way these affect our decision-making, this can help tame the emotional roller coaster of investing.

The graphic and cycle depicts the psychology of investment during turbulent times:

Taming the emotional roller coaster of investing

We are now back where we started, optimism, as our emotions have gone through the full investment cycle.

It’s all about discipline. Should we succumb to the emotional roller coaster of investing, we will undoubtedly end up with diminished wealth. Understanding that we may never truly conquer our inherent emotional biases, we should rather understand the emotions experienced and how we react to each stage as an attempt to tame the emotional roller coaster called investing. So remember; when the market comes down next time, don’t overreact because it will surely go back up.

A well-defi ned value proposition is a critical success factor for

independent brokers in a post-RDR world, as is an effective business model to ensure consistent delivery of the value proposition to a chosen client segment. A further crucial consideration concerns the fi nancial viability of the broker practice. Jacques Coetzer, General Manager of Sanlam Broker Distribution, says there are four main questions brokers need to ask when assessing their potential future fi nancial success:

What is the implementation of your value proposition going to cost? You need to have a clear idea of all the costs related to the sustainable delivery of your offering to the segment of the market with which

you want to do business. For some brokers, this may mean small tweaks to their existing business, but it could also mean major, costly changes. In this regard, it is important to distinguish between costs from an accounting perspective (for example, depreciation of an asset), and those related to cash fl ow of the business.

Can your business generate enough income to remain viable in the long run? Your business income will be earned through a combination of fees and commissions, as well as other sources of revenue. “This of course depends on the category of clients you have chosen to provide your services to, and whether they offer you the best long-term value,” says Coetzer. “It also depends on your business emphasis – is your

focus on managing relations with existing clients, or are you running mainly a transactional business?”

What kind of fees can you realistically charge your clients? Your fee model will largely be a function of your value proposition within the context of clients you are targeting. “You need to understand your value proposition from the perspective of your clients. The value that your clients see and believe they will receive is the basis for what they will be prepared to pay for your service,” he says.

He adds that this depends mainly on your reputation in the market, and to what extent you are differentiated from your competition. The more your clients perceive that they are receiving a unique service,

the more they may be willing to pay premium for that service.

What other factors may also affect your fi nancial viability? There are a number of other variables that need to be considered in conjunction with your fee structure, including the number of clients you are planning to service, and the number of transactions your business is likely to complete on a monthly basis. “For example, if you realise that limiting your client base to 200 may affect your fi nancial viability, you may need to up this number to 400. But you may then need to increase your staff complement, which will impact your monthly expenses.”

Coetzer says Sanlam has spent a fair amount of time and energy helping independent brokers prepare themselves for

the post-RDR world and ensure the economic viability of their businesses. Sanlam has also been actively participating in debates on the RDR and other regulatory and compliance issues with the Regulator and other parties.

“Given the risks broker practices have to take in a changing environment, we want to ensure they remain meaningful and relevant in tough economic times. Ultimately, the industry has to be viable and sustainable both for brokers and their clients,” he concludes.

Ensuring broker practice viability in a post-RDR world

Optimism – a positive outlook on the market leading to an investment being placedExcitement – the initial value of our investment increases and we have complete confi dence; with this confi dence we invest more funds Thrill – the investment value continues to increase and we start to feel very clever about our decisionEuphoria – this is the point of maximum gain and maximum

fi nancial risk with markets fl ying too high to be sustainableAnxiety – the market pulls back somewhat with the investment value declining. Here we need to remind ourselves we are long-term investorsDenial – the market continues to decline and we consider selling, however we hope for a short-term improvement in valuesFear – this is a normal reaction to the market declining as we believe our investment will never

increase in value againDesperation – we start to look for any solution to try to reverse the losses Panic – we are now fl oundering and feeling completely helpless, selling the investment in panic and locking in the lossesCapitulation – after selling the investment we wonder why we did not sell it sooner Despondency – we decide to never invest again as investing is not for us. This is often the

moment of greatest fi nancial opportunity to investDepression – we start to analyse what went wrong and ask why we invested Hope – we ask is the market stabilising, realising markets move in cycles. We start to analyse new investment opportunitiesRelief – the investment turns positive again and we regain our faith in investing as markets recover further.

731 October 2016

The danger of trying to do compliance yourself could be high

DEBRA GILLCompliance Offi cer, Compli-Serve SA

FEATURECOMPLIANCE

C OM P L I A N C E C OR N E R

Compliance and the dangers of DIYFinancial advisory practices

face a myriad of compliance requirements in terms of

fi nancial legislation governing their business. Confronted with a list of different deadlines, reporting requirements, as well as a host of administrative obligations can be overwhelming to manage.

For the small advisory business, or those comprising of a single key individual, staying compliant can be very challenging. On any given day, it is already demanding to make time to see numerous clients, run the business operationally, and make enough money to keep the doors open, let alone tackle reams of compliance issues.

Thinking of DIY?The danger of trying to do compliance yourself could be high. In the event of something slipping through the cracks, the fi nancial impact on your business could be detrimental, with costly fi nes, which the Financial Services Board could levy on your business for non-fulfi lment of an obligation imposed by law.

To keep abreast of new and ever changing legislation is onerous on a small business as well as understanding the impact of any changes. Missing any new amendments or board notices places a business at risk, where worst case scenario, your licence could be lost. In the event of receiving penalties, your reputation would also be impacted through negative publicity, all of which could easily be avoided by seeking professional compliance support.

Hire a professional Making use of an external compliance offi cer could address these responsibilities facing the business. Compliance offi cers are of course equipped to focus on what needs to be done to stay compliant; they are aware of all the pertinent requirements, reporting obligations, due dates and endeavour to ensure they, and their clients, are informed of relevant industry and legislative changes.

There are so many elements to consider in fi nancial services regulation.The constantly changing landscape of legislation does create the need for fi nancial businesses to have professional assistance when it comes to remaining compliant.

Avoid costly mistakesListed below are some of the more typical compliance issues that could result in serious consequences for your business.• Failure to submit reports

information, which can result in fi nes of R1000 per day until the required information is provided

• Failure to display a licence at the business premises

• Failure to ensure a reference to your licence is featured across all business documents and marketing material

• Failure to maintain client records for the prescribed time (fi ve years)

• Failure to have fi nancials audited and reported on.

Some of the above failures could lead to fi nes of up to R1 million or imprisonment of up to ten years, or both.

Keep your business running effectivelyThere are numerous aspects to running a business successfully over and above staying compliant. These include IT systems, storage and fi ling solutions for client data, adequate insurance cover, capital adequacy and fi nancial requirements that need to be met. Having a strong compliance resource and support in place would certainly remove one vital element of business risk and stress.

Delegating complex administrative, legal and compliance tasks to a professional can be an additional expense some advisers do not wish to take on, but avoiding the risk of falling out of favour with the regulator is priceless.

8 31 October 2016

NEWS &OPINIONFEATURECOMPLIANCE

DAVID GLUCKMANHead of Special Projects at Sanlam Employee Benefi ts

FEATURECOMPLIANCE

The South African retirement fund landscape has seen

a massive growth of the umbrella fund market over the past few years. However, as new-generation umbrella funds evolve in response to regulatory infl uences and changing client needs, the debate around consulting fees has also intensifi ed – giving rise to an important question: do consultants still have a role to play?

David Gluckman, Head of Special Projects at Sanlam Employee Benefi ts, argues that they do. Gluckman maintains that in ensuring effective competition in the umbrella fund market, independent consultants must continue to play a vital role as the trusted face-to-face confi dants of clients.

Gluckman says; “Much of the recent debate has centered around whether consultants introduce an extra and unnecessary layer of costs – or whether they actually add value to umbrella fund members. It has been asked if the major commercial umbrella fund sponsors could not provide these advisory services instead, thus saving costs for members.”

He says that good consultants can and do add signifi cant value to their clients, and represent an important balance of

power when it comes to the protection of members’ interests and investments.

“There are, of course, both good and bad consultants or intermediaries, and we need to find a model where existing market forces will push in the direction where intermediaries will continually have to up their game in order to be competitive,” notes Gluckman.“There are many good intermediaries who not only fight for the rights of their clients, but also serve as an effective means to ensure that product providers are continually aware of the need to provide quality service in an increasingly competitive environment.”

Gluckman is of the opinion that commission should be deregulated – in an environment of unregulated commission scales, intermediaries would be forced to demonstrate their true value-add to fund members. This would include demonstrating their degree of independence from product providers. “Certainly the market we would end up with is very different to how it looks today – I would argue that we would end up with a better, more efficient market, with fewer but more effective intermediaries – each forced to continually focus on delivery to their clients.”

He says the Sanlam Umbrella Fund has developed a governance model in which the services to be provided by consultants are clearly defi ned and contracted in writing. These services are remunerated on a monthly fee-for-service basis, and not on a commission basis. “The services might evolve and differ from the traditional intermediary services provided to pension funds, but it is our fi rm view that consultants will always remain pivotal when

it comes to advisory and communication services.”

According to Gluckman, Sanlam could in theory step in and provide similar services to those offered by consultants, but there would be no cost saving to clients in instances where the identical level of services were provided. “Worse still, we believe this would represent a signifi cant backward step to building a commercially competitive umbrella fund industry,” he adds.

‘There are, of course, both good and bad consultants’

Do consultants still have a role to play in the umbrella fund market?

931 October 2016

FEATURECOMPLIANCE

FEATURECOMPLIANCEA minority of IFAs are upbeat about the RDR

Insight Discovery’s second South African Investment Panorama

(SAIP) 2016 seeks to answer one key question: What is it that South Africa’s independent fi nancial advisers (IFAs) want from the asset management companies, Linked Investment Services Providers (LISPs) and other fi nancial services companies that they deal with? MoneyMarketing looks at several aspects of the survey.

In the SAIP, specifi c challenges that were identifi ed by IFAs include: the limitations of the Financial Services Board (FSB); time required to fulfi l administrative duties that are mandated by the regulator; competitive pressures; delays in the fi nalisation of the Retail Distribution Review (RDR); and reputational risks for the industry arising from the actions of inexperienced or incompetent IFAs.

There is near unanimity among IFAs that unregulated schemes and products are tarnishing the image of the industry and that the FSB should do more to monitor such schemes and products.

What IFAs want

Discretionary investment management servicesTraditionally, IFAs have made asset allocation decisions for their clients. More recently, IFAs have looked to outsource the asset allocation decision to third party asset managers – providers of discretionary investment management (DIM) services. Providers of DIM services are, in some respects, similar to providers of separately managed accounts in other countries. However, DIM services may include managed funds as well as direct investment in stocks and bonds.

Elsewhere, managed account services are normally available to investors who are High Net Worth Individuals, or at least mass affl uent individuals. In South Africa, they are available to all clients of the IFAs.

Currently, 27% of IFAs offer DIM solutions to their clients. However, another 21% of IFAs are considering doing so. Some 41% of IFAs feel that they are being pushed towards offering DIM solutions to their

Robo-adviceAmong IFAs, some 31% see robo-advice (i.e. the automated identifi cation of strategies and products for clients on the basis of answers that they provide through online tools) as an opportunity.

Another 19% of these IFAs see robo-advice as a threat. The remainder – 49% – see robo-advice as being neither an opportunity nor a threat. Among younger IFAs, there are fewer who are indifferent. Among the 30-39 year olds, for instance, 43% see robo-advice as an opportunity, while 25% see it as a threat.

Proponents of robo-advice highlight:• The likelihood that it will

result in a better-informed decision by the client

• The facilitation of doing business for smaller clients

• The possibility that it will generate new business.

Conversely, detractors highlight:• Clients’ preference, or need,

for face-to-face contact with an adviser

• The inability of the robo-adviser to properly understand the client’s needs

• Some clients’ lack of access to, or unfamiliarity with, technology.

Senior IFAs – whose titles are CIO, CEO or Board Director – tend to be more upbeat about robo-advice than are other IFAs. Of the senior IFAs, 58% see robo-advice as an opportunity. Only 12% see robo-advice as a threat, while 30% see it as being neither an opportunity nor a threat.

Retail Distribution ReviewConversely, there is an extraordinary range of views in relation to the RDR. Senior IFAs – whose titles are CIO, CEO or Board Director – tend to range from having neutral views to positive views.

A minority of IFAs are upbeat about the RDR with one or two seeing it as ‘brilliant’, and consistent with higher standards for the industry. Detractors, who are numerous, allude to:• The benefi ts not being

commensurate with the costs, relative to the previous

regime: RDR is a ‘champagne system for a Coca-Cola country’

• The complexity of the RDR, which will likely result in ‘confusion’ - for both IFAs and clients

• The slow progress in the introduction of RDR and the

lack of clarity about its impact• The high costs and

administrative burden that will be borne by smaller advisory groups

• The possibility that the FSB has not properly thought through the ramifi cations of the RDR.

clients by the FSB’s RDR. IFAs who use providers of DIM services seek organisations that combine a number of attributes. The most important attributes appear to be: the fund selection process (mentioned by 25% of IFAs); fees/ charging structure (22%); independence of the DIM services provider from its own funds (18%); manager research capability (17%); and general research capability (12%). Smaller numbers of IFAs mentioned the past performance record, reporting, global reach, the numbers of asset classes handled, marketing support, strength of brand, eligibility for a Category 2 licence and the scale of the business. In relation to the four attributes that were mentioned by the greatest number of IFAs, all were identifi ed as being of the highest importance by 40 -50% of the IFAs that mentioned them.

The South African Investment Panorama 2016 is based on interviews with 255 IFAs in South Africa.

10 31 October 2016

NEWS &OPINION

SIBONISO NXUMALO Joint-Head of Global Emerging Markets boutique, Old Mutual Investment Group

We take governance risk very seriouslyINVESTING

The importance of prioritising good corporate governance

was recently highlighted by the fact that ‘failure of national governance’ was fl agged as a broad emerging market risk in the World Economic Forum’s Global Risks Perception Survey 2016. As investment managers, of all the many factors that we take into account when analysing companies within our emerging market universe, corporate governance is arguably the most important, given the chequered track record emerging market companies have in managing this risk.

Going beyond typical ESG factorsAlthough we do analyse factors such as ethics, social responsibility and environmental issues, as asset managers our analysis goes beyond typical Environmental, Social and Governance (ESG) factors. We assess companies based on Value Creation and Capital Management, Board and Shareholder Structure, Fair Information Disclosure and Management Access as well as Representation of Data. This enables us to identify and assess risks, evaluate whether

company management and/or majority shareholders’ interests are aligned with minority investors and to benchmark governance standards across various countries and sectors that the Fund invests in.

To understand how our corporate governance analysis process works, we have selected two company case studies. Both companies appear to be high quality companies – another pillar in our investment philosophy – as measured by their Cash Flow Returns on Investment (CFROI). However, as unpacked below, we only invested in one of them, based on Corporate Governance reasons.

Case study 1:NMC Health – healthcare provider in the United Arab Emirates The company offered the following shortcomings:• The founder is the

Chairman and CEO• Only six of the 12 Board

members are independent• There is no specifi c disclosure

of remuneration policies.

Despite these shortcomings, we invested client money in the company based on the following positives:

• The founder owns 26% and is aligned with our interests

• The Audit and Remuneration committees are fully independent, providing us with protection as minority shareholders

• Total Shareholder Return is a key part of the remuneration structure of top executives

• The company has very strong policies and practices around Information Disclosure, Management Access and Representation of Data.

Case Study 2:BEC World – media company in Thailand We decided not to invest because:• The founding family

controls 57% of the shareholder vote and

seven of the 14 members of the Board are family members, providing limited protection to minority shareholders

• The father is the Chairman and his son is the CEO and thus there is no real separation of the CEO and Chairman functions

• The level of disclosure on remuneration policies is low and the remuneration committee is not suffi ciently independent

• They have very poor policies and practices around Information Disclosure, Management Access and Representation of Data. For instance: – There is no investor relations (IR) section on their website or IR contact details– There are no interim earnings releases, only an Annual Report

Prioritising good corporate governance

As a fund manager entrusted with other people’s money, we don’t want to wake up one day and fi nd that the value of a company in which we have invested has been adversely impacted by a failure of corporate governance

– They only give ad hoc presentations to shareholders, with very few key performance initiatives (KPIs) against which to measure the company. Our assessments of these two companies, and resultant investment decisions, have worked in our clients’ favour, as NMC Health’s share price is up by 27% YTD, whilst BEC World is down 17% (both in local currency terms).

We are fi rm believers that certain minimum governance standards need to be in place in order to protect minority shareholders (i.e. our clients) and that it is not suffi cient to discount governance risks into fundamental stock valuations – where the governance tail risk of a stock is signifi cant, we would rather avoid it completely.

Considering the above case studies, one of the challenges we need to take into account is that emerging markets are relatively immature and there tends to be a lot of family, government and individual infl uence in the private sector. These groups all have different intentions and their actions could undermine shareholder value. As a result, we take governance risk very seriously because, as a fund manager entrusted with other people’s money, we don’t want to wake up one day and fi nd that the value of a company in which we have invested has been adversely impacted by a failure of corporate governance.

To mitigate against this risk in our portfolios, the development of an internal, proprietary framework became necessary to help us determine whether the corporate governance environment of a company is adequate enough for us to invest our clients’ money in. We also rely on an independent, quantitatively-based assessment of companies that was developed by our Responsible Investment team, which uses different sources and comes up with a corporate governance score against which we can compare our own qualitative assessment.

1131 October 2016

Old Mutual Investment Group (Pty) Limited is a licensed financial services provider, FSP 604, approved by the Registrar of Financial Services Providers (South Africa) (www.fsb.co.za) to provide intermediary services and advice in terms of the Financial Advisory and Intermediary Services Act 37 of 2002. Old Mutual Unit Trust Managers (RF) (Pty) Ltd (OMUT) is a registered manager in terms of the Collective Investment Schemes Control Act 45 of 2002. The fund fees and costs that we charge for managing your investment is accessible on the relevant fund’s Minimum Disclosure Document (MDD) or Table of fees and charges, both available on our public website, or from our contact centre. Past performance is not a guide to future performance.

Start by investing where the fund managers invest.

This year Old Mutual Investment Group is proud to celebrate the 50th anniversary of South Africa’s longest-running unit trust fund: Old Mutual Investors’ Fund. With 50 years of resilient investing through all market conditions, we’ve been helping South Africans to answer their most important investment questions and realise their dreams and life goals.

To invest where the fund managers invest, speak to an adviser or your broker or call 0860 INVEST (468378)

www.50years.co.za

WHEN IT COMES TO INVESTING IN YOUR FUTURE, THERE’S ONLY ONE QUESTION TO ASK:

“WHERE DO I START?”

FCB10019565JB/E

Celebrating50 years

of answeringyour investment

questions

10019565JB_OMIG 50th 330x245.indd 1 2016/09/05 4:57 PM

12 31 October 2016

PRESCIENT AD

JOHAN STEYNPortfolio Manager and Analyst, Prescient

INVESTING

The ‘Africa Rising’ narrative from a few years ago has increasingly become

an ‘Africa is dead’ storyline. The negative image currently portrayed in the media is probably not completely without merit. The continent faces some tough challenges, from macro-economic headwinds resulting from lower commodity prices and a generally weaker external environment to a shortage of hard currency and weaker currencies. Furthermore, the drought in Southern Africa regions is causing higher infl ation and putting pressure on consumer discretionary incomes. Despite the persistent fl ow of negative news, we believe there are a number of reasons to be optimistic about the longer term investment potential of Africa.

NigeriaMuch of the negative news fl ow has been concentrated on Nigeria. Many of Nigeria’s current economic problems

Africa, looking for good news

The continent faces some tough challenges

stem from the shortage of hard currency in the country. The demand for dollars has outstripped the supply ever since the oil price started falling in September 2014. It probably doesn’t help that oil is by far the major forex earner making up more than 75% of exports. The rebound in the oil price this year hasn’t really brought relief as oil production has been impacted by militant attacks in the Niger delta. However, the passing of the budget in May, the fl exible exchange rate and signs that dialogue with the militants in the Delta could yield positive results, would all be supportive of growth. For the supply of dollars in the economy to increase, there needs to be a sustained increase in the oil price as well a speedy resumption of production at full capacity. Investment in the upstream oil sector, to increase total oil production, would certainly help.

However, it is on the demand side where the potential to relieve the imbalance of supply and demand of hard currency lies. Although Nigeria is a country that imports a variety of products ranging from cars and manufacturing equipment to chemicals and food related items, the most recent imports are led by refi ned petroleum

which represents about 15% of the total

imports of Nigeria. This is

something Africa’s richest man, Aliko

Dangote, is aiming to address with a massive $14 billion refi nery project. The refi nery is expected to be completed by mid-2018 and is projected to refi ne 650 000 barrels of crude oil per day.

Cement, however, is the industry where Dangote has built his empire. He has increased cement production to take Nigeria from a cement importing country to producing enough cement locally to export cement to neighbouring countries. The potential of the cement industry in Nigeria lies in the fact that it has approximately 187 million inhabitants driving demand for housing and infrastructure. Nigeria’s current cement consumption is 119kg per capita compared to a global average of 513kg per capita. From an investor perspective, Dangote Cement is an attractive investment due to its higher quality characteristics. It is trading at decent valuations given its growth potential and whilst delivering a return on equity of 25%.

Staying with cement and housing demand, there has been an increasing willingness of cement producers to team up with fi nancial institutions like Lafarge Africa and microfi nance bank, LAPO, in Nigeria; and Bamburi cement and Commercial Bank of Africa in Kenya, to help reduce the housing shortage. The aim of the corporate partnerships is to provide low-cost, quality housing solutions at

affordable fi nancing rates for the low-income segment of the population.

KenyaIn Kenya, and in the broader East Africa region, banks have increasingly pursued alternative banking channels to capture more of the unbanked population. Equity Bank, for instance, is set to introduce its mobile banking platform Equitel in fi ve new markets within the East Africa region where it has a presence.

Safaricom in Kenya has already proven the willingness of Kenyan consumers to utilise their mobile phones for peer-to-peer fi nancial transactions with their hugely successful money transfer platform, MPesa. Leveraging off this success the company has extended the service to person-to-business and business-to-business transactions with Lipa na M-Pesa. By March 2016 over Sh20 billion had been made in payments on the Lipa na M-Pesa platform, with more than 44 000 merchants accepting the service, an increase of 74% from the previous year.

EgyptIn Egypt, our preferred holdings are in companies that are able to pass on price increases to customers in an infl ationary environment. Companies like Eastern Tobacco are relatively resilient with inelastic demand for their product.

This allows them to pass on price increases to customers without experiencing large declines in volumes. Integrated Diagnostics Holdings, an Egyptian company listed in London, also has defensive qualities which make it attractive in the current environment. The real estate developers listed in Egypt tend to perform well during times of higher infl ation. Following on the recent currency devaluation, the resultant infl ationary pressure has continued to drive the demand for real estate property in Egypt.

MoroccoMaroc Telecom is our largest holding in Morocco as well as in the Telco space. As the main telecommunication company in Morocco, it has a market share of more than 60%. It has the best quality of service thanks to a decent 2G/3G/4G network and a large coverage, as well as a large commercial network and a decent loyalty programme called Fidélio.

The long-term growth outlook for Africa continues to remain positive with the Prescient Africa Equity Fund providing investors with diversifi cation benefi ts, through lower correlation relative to other markets and access to non-traditional global exposure. The Prescient Africa Equity Fund currently has a historical price/earnings ratio of 9 and a return of earnings of 21%.

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WHILE OTHERSZIG AND ZAG,WE STAY IN FORMATION.Your money i s sa fe a t P resc ient . That ’s because our fund managers

cons i s tent ly fo l low a re l iab le process ca l led QuantP lus ®. I t ’s the

p ro v e n w a y t o re d u c e i n v e s t m e n t r i s k , a n d i n c re a s e w e a l t h .

To know more about any of

our products and services,

v i s i t www.presc ient .co .za .

PRESCIENT GROUP OFFERING: LOCAL AND OFFSHORE INVESTMENT MANAGEMENT / UNIT TRUSTSSTOCKBROKING / RETIREMENT PRODUCTS / UMBRELLA FUNDS / ADMINISTRATION / PLATFORM SERVICES

GLOBAL EXECUTION SERVICES / AUTHORISED FINANCIAL SERVICES PROVIDER (FSP 612)

INVESTMENT MANAGEment

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Prescient Money Mktg 1-4 Goose Ad_r1.pdf 3/17/16 4:12:39 PM

1331 October 2016

Concentration of top 10 FTSE/JSE index shares2008 vs 2016

0

10

20

30

40

50

60

70

80

ALSI 2008 ALSI 2016 CAPI 2008 CAPI 2016 SWIX 2008 SWIX 2016

AmplatsAngloAmericanStandard Bank

AngloAmericanBHP Billiton

Naspers

MTNBAT

SAB

SasolSteinhoff

Richemont

Old Mutual

AngloAmerican

BHP Billiton

Sasol

MTN

Richemont

SAB

Impala Platinum

AngloAmerican

BHP Billiton

Sasol

MTN

Richemont

SAB

Impala Platinum

AmplatsAngloAmericanStandard Bank

Remgro

RemgroFirst Rand

AngloAmericanBHP Billiton

Naspers

MTNBAT

SAB

SasolSteinhoff

Richemont

Old Mutual

Naspers

MTN

BAT

SABSasol

Steinhoff

AspenAmplatsAngloAmerican

AngloAmerican

AngloAmerican

BHP Billiton

Sasol

MTN

RichemontSAB

Impala Platinum

Source: Bloomberg; BAT = British American Tobacco

Concentration of top 10 FTSE/JSE index shares2008 vs 2016

0

10

20

30

40

50

60

70

80

ALSI 2008 ALSI 2016 CAPI 2008 CAPI 2016 SWIX 2008 SWIX 2016

AmplatsAngloAmericanStandard Bank

AngloAmericanBHP Billiton

Naspers

MTNBAT

SAB

SasolSteinhoff

Richemont

Old Mutual

AngloAmerican

BHP Billiton

Sasol

MTN

Richemont

SAB

Impala Platinum

AngloAmerican

BHP Billiton

Sasol

MTN

Richemont

SAB

Impala Platinum

AmplatsAngloAmericanStandard Bank

Remgro

RemgroFirst Rand

AngloAmericanBHP Billiton

Naspers

MTNBAT

SAB

SasolSteinhoff

Richemont

Old Mutual

Naspers

MTN

BAT

SABSasol

Steinhoff

AspenAmplatsAngloAmerican

AngloAmerican

AngloAmerican

BHP Billiton

Sasol

MTN

RichemontSAB

Impala Platinum

Source: Bloomberg; BAT = British American Tobacco

NEWS &OPINION

CLARE LINDEQUEQuantitative Analyst, Prudential Investment Managers

Concentration of top 10 FTSE/JSE index shares2008 vs 2016

0

10

20

30

40

50

60

70

80

ALSI 2008 ALSI 2016 CAPI 2008 CAPI 2016 SWIX 2008 SWIX 2016

AmplatsAngloAmericanStandard Bank

AngloAmericanBHP Billiton

Naspers

MTNBAT

SAB

SasolSteinhoff

Richemont

Old Mutual

AngloAmerican

BHP Billiton

Sasol

MTN

Richemont

SAB

Impala Platinum

AngloAmerican

BHP Billiton

Sasol

MTN

Richemont

SAB

Impala Platinum

AmplatsAngloAmericanStandard Bank

Remgro

RemgroFirst Rand

AngloAmericanBHP Billiton

Naspers

MTNBAT

SAB

SasolSteinhoff

Richemont

Old Mutual

Naspers

MTN

BAT

SABSasol

Steinhoff

AspenAmplatsAngloAmerican

AngloAmerican

AngloAmerican

BHP Billiton

Sasol

MTN

RichemontSAB

Impala Platinum

Source: Bloomberg; BAT = British American Tobacco

SHAUN LE ROUXFund Manager at PSG Asset Management

For investors considering adding equity exposure to their portfolios by

simply buying an index tracking fund, it’s important to know exactly what you’re buying. That’s because your holdings – and the risk you take – can end up being quite different, depending on which JSE equity index you choose.

The three main market indices for the JSE are the headline All Share (ALSI), the Capped All Share (CAPI), and the Shareholder Weighted Index (SWIX). These indices have identical stocks as constituents, but their weightings differ. Importantly, they all contain a handful of stocks with very large weights, and a high number of very small stocks whose weights are virtually negligible. This concentration makes index investing more risky in South Africa than many developed markets, where this option is increasingly popular.

Historically, our equity indices have always been very concentrated in the resources sector. In recent

South African index tracking funds: Know what you’re buying

The ALSI is a basic market capitalisation-weighted index INVESTING

years, however, the meteoric rise of global media giant Naspers has made it the dominant company: the weight of Naspers alone in the SWIX is currently larger than entire sectors like Healthcare, Consumer Goods, and even Resources.

So what do you get when you buy the three indices now? The table shows the top 10 shares in each index and how they have changed over time.

The ALSI is a basic market capitalisation-weighted index, where each stock is held in proportion to its market capitalisation, which is the share price of the company multiplied by the number of shares in issue. Naspers is the ALSI’s largest share with a 13.3% weighting, followed by SABMiller at 11.5%.

The SWIX weights stocks according to the amount of their shares included on the South African shareholder register, and excludes those on foreign exchanges. So dual-listed companies have lower weights in the SWIX than in the ALSI. For example, as at 30 June 2016 the weight

of BHP Billiton was 5.3% in the ALSI and only 1.2% in the SWIX. Naspers, meanwhile, has grown to a hefty 17.3% weighting – the next largest company is British American Tobacco at 5.1%.

Finally, the CAPI is a capped version of the ALSI, where stock weights are limited to a maximum of 10% each. The impact of this is that smaller shares get a higher weighting in the CAPI compared to the ALSI, giving

this index a slight small-cap bias. This fl uctuates over time as share prices change between the CAPI’s quarterly rebalancings. Its current Naspers weighting is 10.1%, followed by SABMiller at 9.3% and Richemont at 6.3%.

For investors concerned about the dominance of Naspers, regardless of whether the share might be overpriced, the CAPI could represent a less risky alternative. Interestingly,

the JSE plans to introduce a capped version of the SWIX in the near future which will give investors another less-concentrated option to choose from. So if you do opt for an index tracker for some of your equity exposure, make sure to choose an appropriate basket of shares for your risk appetite. Unit trust managers, meanwhile, will actively limit risk in the equity funds they manage according to the fund’s risk mandates.

Unpacking BrexitWhile the direct

consequences for businesses operating

in the UK or Europe are very diffi cult to predict, it is clear that a disorderly resolution of the terms of Brexit could have a very negative effect on a number of companies and sectors globally.

“Fear and uncertainty typically create an opportunity to buy at distressed prices and we have been actively screening for opportunities to buy quality UK or European assets, including looking in to the UK property market,” says Shaun le Roux, Fund Manager at PSG Asset Management.

“The sharp decline in listed UK property has caught the eye, with the likes of JSE-listed Capital and Counties trading 50% lower than where it was in December. The plunging stock prices refl ect the change in sentiment that accompanies

Is there opportunity in the UK listed property market and what does it mean for SA investors?

the uncertain outlook for the UK economy, and London property, in particular.”

Though the major listed UK property groups are now trading at discounts to their published net asset values, le Roux says PSG has yet to fi nd attractive opportunities within the UK property sector.

The assumptions baked into the valuations extrapolate the recent lucrative environment for UK landlords many years into the future. “Over and above very rosy rent assumptions, the rates at which the properties are capitalised are, in our view, a function of artifi cially low interest rates and result in unrealistic values,” he adds.

As an example, consider Capital and Counties, which has dropped from a premium of 22% to a discount of 18% relative to its published NAV over the last six months. “Our

estimate of fair value, however, comes in below the current share price. More generally, we will be interested when these property companies are trading at discounts to net asset values, which have been marked down to more reasonable levels.”

Where is PSG fi nding value locally? Le Roux would argue that the poor shape of the South African economy and the fear around potential debt downgrades demonstrates similar characteristics to the Brexit fears. The difference is that a dire outcome is priced into many of the fi nancial and industrial shares on the JSE and as a result PSG has been an active buyer of good businesses at very good prices.

Since the political events of December last year, a specifi c opportunity has

arisen to buy well-managed and highly-capitalised banks in South Africa. For example, Firstrand offered a dividend yield comfortably in excess of 5% for the fi rst time since the fi nancial crisis.

PSG sees risk in expensive stocks including SA listed property “As far as the JSE is concerned, we feel there is currently less risk in owning good businesses that are economically-cyclical, but very cheap and much more risk in owning expensive stocks that are pricing in very high expectations.” le Roux adds.

“We think the sell-off in listed UK property should serve as a warning to investors in expensive stocks in SA. Similarly, we would be very cautious of the local listed property sector. The yields

offered by SA REITS continue to come down as investors continue to pay up for predictable distributions.”

The dividend yield on the JSE Property Index has reduced by 280 basis points over the last three years despite the supply/demand fundamentals for the sector deteriorating. Low borrowing rates and booming property prices have resulted in a continuous addition to offi ce and retail space, which will result in increased vacancies and lower rent increases.

14 31 October 2016

Where smart money works.

GARETH STOBIEMD of CoreShares Asset Management

INVESTING Three of the four funds are ‘Smart Beta’

CoreShares has announced the launch of four new, low cost, unit trusts for the South African market. CoreShares is well known within the Exchange Traded Funds (ETF) market,

where its ETFs are traded on the Johannesburg Stock Exchange. These new funds will be specifi cally targeted at the fi nancial adviser market and linked investment service providers (LISPs).

The four funds are:

• CoreShares S&P SA Dividend Aristocrat Tracker Fund • CoreShares S&P SA Low Volatility Tracker Fund • CoreShares S&P SA Top 50 Tracker Fund • CoreShares Property Top Ten Tracker Fund

CoreShares already manages the above four index strategies in ETF format, with over R500m under management, and is now making them available through the more ‘traditional’ unit trust structure. Three of the four funds are ‘Smart Beta’, meaning that they are not based on market cap alone but rather other investment principles or factors. The funds are all low fee with service charges between 0.2% and 0.425% (ex VAT).

“Dividend and low volatility strategies have been hugely successful within the smart beta space – not only from a performance perspective but also from a perspective of gathering the most assets”, Gareth Stobie, MD of CoreShares says.

“This is because they fulfi l a function and are outcomes orientated. They are intuitive and easy to understand”.

The key difference between the unit trusts and the ETFs lies in the accessibility to existing distribution channels such as some LISPs which are mostly unable to host ETFs. Advisers will be able to use passive tools when providing advice. This drops the overall cost of investing for the client.

CoreShares continues to work extensively with S&P Dow Jones Indices – one of the world’s leading index providers.

Vinit Srivastava, Senior Director, Strategy and Volatility Indices, at S&P Dow Jones Indices, comments: “South Africa is a key emerging market for investors and we are delighted to work with CoreShares to offer our indices to South African investors. We offer broad market benchmarks, from essential equity indices to innovative strategy indices which are fully investable and help bring greater transparency to the market and its investors.”

CoreShares will be working with wealth fi rms, discretionary fund managers and multi-managers in the distribution of the products. Retail investors will be encouraged to access the CoreShares strategies via ETFs.

Smart beta unit trusts

A llan Gray retained its position as the leading domestic collective

investment scheme (CIS) management company at the end of June 2016, according to the PlexCrown Unit Trust Survey: Second Quarter 2016. Allan Gray’s overall rating decreased slightly to 4.304 PlexCrowns from 4.306 in the fi rst quarter.

The investment house’s top rating was characterised by solid investment profi ciencies across all the broad asset classes. The company shared the third place in the broad South African Equity & Real Estate category with 4.000 PlexCrowns and was ranked third in the broad Global & Worldwide category with 4.283 PlexCrowns.

Allan Gray had the third-highest ranking in the broad South African Multi-asset Non-Income category with 4.738 PlexCrowns and house shared the fourth place in the broad South African Interest Bearing & Income category with 4.000 PlexCrowns.

Six (75%) of Allan Gray’s eight rated funds had above-average ratings of four or more PlexCrowns, while Allan Gray-Orbis Global Fund of Funds A and Allan Gray Balanced Fund A achieved fi ve PlexCrowns. Allan Gray-Orbis Global Fund of Funds A was the top-rated fund in the Global-Multi Asset-High Equity subcategory and Allan Gray Balanced Fund A ended the quarter in second spot in the South African-Multi Asset-High Equity subcategory.

Nedgroup Investments was runner-up to Allan Gray at the end of the second quarter of 2016. Nedgroup Investments’ overall rating declined slightly to 3.909 from 3.972 PlexCrowns in March 2016.

The investment house was in third place in the broad South African Interest Bearing & Income category with 4.326 PlexCrowns, shared the fi fth spot in the Global & Worldwide category with 4.000 PlexCrowns and had the sixth-highest ranking in the broad South African Multi-asset Non-Income category with 4.092 PlexCrowns.

Fourteen (70%) of Nedgroup Investments’ 20 rated funds had above-average ratings of four or more PlexCrowns, while seven funds achieved fi ve PlexCrowns, namely Nedgroup Investments Financials Fund A, NGI Private Wealth Equity Fund A, Nedgroup Investments Entrepreneur Fund A, Nedgroup Investments Core Diversifi ed Fund B, Nedgroup Investments Flexible Income Fund A, Nedgroup Investments Core Guarded Fund B and Nedgroup Investments Opportunity Fund A. Nedgroup Investments Entrepreneur Fund, NGI Private Wealth Equity Fund A and Nedgroup Investments Financials Fund were the top-rated funds in their respective subcategories.

Nedgroup Investments Global Cautious Feeder Fund A, Nedgroup Investments Flexible Income Fund A and Nedgroup

Investments Mining & Resources Fund were runners-up in their subcategories. Nedgroup Investments Opportunity Fund A achieved its maiden rating and was ranked second in the South African-Multi Asset-Medium Equity subcategory.

Marriott continued to climb up the ladder and held the third-highest management company rating at the end of the second quarter of 2016. Marriott’s overall rating improved to 3.743 PlexCrowns from 3.397 PlexCrowns in the fi rst quarter and up from 3.046 PlexCrowns at the end of 2015 when it was ranked eleventh overall.

Marriott had the second-highest rating in the broad South African Equity & Real Estate category with 4.675 PlexCrowns.

The investment house also had the second highest rating of 4.304 PlexCrowns in the broad Global & Worldwide category. Six (50%) of Marriott’s 12 rated funds had above-average ratings of four or more PlexCrowns.

Marriott Global Income Fund A and Marriott International Growth Feeder Fund A were the leading funds in their respective subcategories. Marriott Worldwide Flexible Fund of Funds A was runner-up in the Worldwide Multi Asset Flexible subcategory.

For more on the latest PlexCrown Unit Trust Survey visit www.plexcrown.co.za

Allan Gray remains on top of PlexCrown survey

1531 October 2016

1810

4

PROOF THAT CONSISTENCY

THRIVES IN TIMES OF CHAOS

Source: Morningstar data for periods ending 31 August 2016. Prudential Portfolio Managers Unit Trusts Ltd (Registration number: 1999/0524/06) is an approved CISCA management company (#29). Assets are managed by Prudential Investment Managers (South Africa) (Pty) Ltd, which is an approved discretionary Financial Services Provider (#45199). Collective Investment Schemes (unit trusts) are generally medium to long-term investments. The value of participatory interest (units) may go down as well as up. Past performance is not necessarily a guide to the future and the manager provides no capital or return guarantees. Unit trust prices are calculated on a net asset value basis, which is the total book value of all assets in the portfolio divided by the number of units in issue. Fluctuations or movements in exchange rates may also be the cause of the value of underlying international investments going up or down. Unit trusts can engage in borrowing and scrip lending. Unit trusts are traded at ruling prices. All of the unit trusts may be capped at any time in order for them to be managed in accordance with their mandates. Commissions and incentives may be paid and, if so, would be included in the overall costs. Different classes of units apply to the Prudential Collective Investment Scheme Funds and are subject to different fees and charges. A Collective Investment Schemes (CIS) summary with all fees and maximum initial and ongoing adviser fees is available on our website. One can also obtain additional information on Prudential products on the Prudential website. Performance fi gures are based on lump sum investments using NAV prices with gross income reinvested. This information is not intended to constitute the basis for any specifi c investment decision. Investors are advised to familiarise themselves with the unique risks pertaining to their investment choices and should seek the advice of a properly qualifi ed fi nancial consultant or adviser before investing.

Source: Morningstar

Prudential Global High Yield Bond FoF

Prudential Dividend Maximiser Fund

Prudential Enhanced SA Property Tracker Fund

Prudential Equity Fund

Prudential Infl ation Plus Fund

Prudential Balanced Fund

THESE FUNDS ARE ALL TOP QUARTILE PERFORMERS OVER 10 YEARS

If you aren’t already investing with us, speak to your Financial Adviser, contact our Client Services team on 0860 105 775, or visit:

prudential.co.za

Consistency is the only currency that matters.

16 31 October 2016

KIM HUBNERHead: Business Development and Marketing, Laurium

INVESTING

Why has the popularity of multi-asset funds, especially fl exible funds, increased over the last few years?Investors in the South African collective investments industry are spoilt for choice when it comes to the range of multi-asset funds that are available. With R988 billion invested in multi-assets funds, they constitute 51% of total industry assets, more than double the assets of equity funds. (Source: ASISA Stats, June 2016).

South African multi-asset funds have gained in popularity due to investors requiring a ‘balanced’ or Regulation 28 compliant solution. Financial advisers have to a large extent driven assets into multi-asset funds where the investment manager makes the investment decisions around asset allocation and stock selection, rather than the fi nancial adviser having to select the building blocks to construct a balanced solution. There are some excellent balanced funds in South Africa, and clients invested over the long term have been well rewarded on a risk-return basis by having their money invested in these funds.

What is interesting to note though, is the increase in popularity of multi-asset fl exible funds, which may not be Regulation 28 compliant. The good fl exible funds in

Advisers should consider adding funds from boutique managers

Multi-asset fl exible funds increase in popularity

PerformanceThe 1st graph shows the investment growth of the Laurium Flexible Fund, the SA general equity sector, and the SA multi asset fl exible sector since inception of the Laurium Flexible Fund, till end August 2016. (01/02/2013 – 31/08/2016).

Risk vs ReturnThe 2nd graph shows the risk vs return numbers, over the same period. The Laurium Flexible Fund clearly outperforming both sectors, at lower risk than the equity sector. And the multi asset fl exible sector with very similar returns to that of the equity sector, but at 60% of the risk.

Which factors should an adviser consider when deciding on the allocation to a multi-asset fund?Many advisers have done well to select good balanced funds for their clients, but often fall short when it comes to looking at the correlation of the funds that they have chosen. It is very common to see the largest or ‘big 4’ balanced funds being

How has the Laurium Flexible Fund performed vs equity funds and peers?the industry have managed to protect capital without sacrifi cing performance on the upside and have done much better than general equity funds, but with lower risk. More and more, investors are seeing the benefi t of including fl exible funds in their overall client portfolios.

What are the advantages of multi-asset funds?In terms of the traditional low, medium and high equity funds, the benefi t for advisers is that they can assess their clients’ needs and risk profi les, which can then be easily matched to a Regulation 28 compliant fund that has a defi ned holding for each asset class. However, for investors looking for a fund that can move between different types of investments in search of strong risk adjusted returns, and that can fully benefi t from whichever asset class offers the best opportunities, then fl exible funds may have an edge over balanced and equity funds.

How do fl exible funds perform in times of economic turmoil?With the ability to keep up in bull markets, combined with superior risk management, this will lead to outperformance in the longer run, especially during times of high volatility.

combined in portfolios for clients, where due to their huge size and our limited investment universe in South Africa, they are highly correlated, so diversifi cation benefi ts are negligible. Advisers should consider adding funds from boutique managers, whether they be balanced or fl exible, to enhance the diversifi cation and hence the risk adjusted return profi le for their clients. When evaluating a fund manager, skill set, team experience and track record are key. You also want to put your money with managers that have skin in the game by having most of their own investable assets in the funds they manage.

Multi asset fl exible funds have fewer constraints, dynamic asset allocation, and more optionality and fl exibility. Portfolios are able to be actively managed with assets being shifted between various markets and asset classes to refl ect changing economic and market conditions, resulting in low downside capture.

GRAPH 1Investment Growth

GRAPH 2Risk-Reward

1731 October 2016

Miton strip

MitonOptimal South Africa (Pty) Ltd, registration no 2005/032750/07, is an authorized Financial Services Provider, License No. 28160. MitonOptimal South Africa (Pty) Ltd complies with all the requirements of the Financial Advisory and Intermediary Services (FAIS) Act (Act 37 Of 2002). The value of investments and the income from them may vary and you may realise less than the sum invested. Past performance is not necessarily a guide to future performance and no guarantees are offered in respect of investment returns and/or capital invested.

021 689 3579www.mitonoptimal.com

AdvisoryServices

FundManagement

Talk to the asset allocation experts

ROELOFF HORNE Director & Head of Portfolio Management (SA), MitonOptimal

NEWS &OPINION

Informed intuition vs technical indicators

We do not profess to know what will happen to ZAR INVESTING

At MitonOptimal we use three main drivers that can infl uence

the investment team to adjust our short-term asset allocation away from our dynamic strategic asset allocation process in all of our solutions: • Change in domestic or

global macro-economic conditions (fundamentals)

• Change in valuations of all asset classes

• Technical indicators.

It is normally accepted that ongoing volatility in capital markets, in a ‘lower for longer’ global interest rate environment, generates more shorter term movements in asset classes, as investors start to realise that the ‘TINA’ (there is no alternative) effect squeezes investors into risky investments to generate longer term absolute returns. Our team also understand that economic fundamental analysis is of little assistance, in what Allan Gray politely describes as a ‘Global Monetary Experiment’, as global central banks are

attempting to boost economic growth with ongoing monetary and fi scal stimulus. That allows us to focus more on asset class valuations and give more attention to technical indicators.

An example of using technical indicators is the movement in the SA rand (ZAR) this year. Our long term PPP (purchasing power parity) estimate for ZAR indicated sell signals at R16.65 to the US Dollar in January 2016. Technical indicators and a fundamental team decision motivated us to sell global assets in our local funds and portfolios, as the local political and fi scal policy changes appeared more stable and predictable with Minister Pravin Gordhan at the helm. We decided to sell one of the asset classes we really enjoy having in our local portfolios, Global Listed Real Estate. We were pleased with this decision for the vast majority of the following six months. Two weeks ago ZAR traded at R13.39 to the US dollar – once again our

PPP indicator calculated that the long term median level for ZAR was exactly 13.39, while another medium-term technical indicator indicated 13.39 as the bottom of the latest trading channel.

These technical indicators led the portfolio manager to have higher conviction and start a process of buying back offshore exposure. We were an underweight global property at the time and decided that the current forward distribution yield of 3.9% p.a. makes global listed real estate an attractive asset class (despite trading at a 10% premium to net asset value) in a ‘lower for longer’

interest rate environment. At this stage we had no idea of what was to follow, as local political gyrations and a weakening in emerging market currencies vs the US dollar followed soon after we executed the trade.

We expect ongoing volatility in global capital markets due to Zero Interest Rate Policy (ZIRP). We do not profess to know what will happen to ZAR or our local political consequences. We do however pay attention to technical indicators, to intervene and buy or sell asset classes, but it pays to use our informed intuition too. Market indicators

signalled bullish signals a day ahead of the Brexit vote, which easily may have infl uenced positive trading action on that day. One should also use one’s informed intuition (some may call it ‘gut’) to intervene at potentially important junctures within markets. Fortunately our process remains fl exible enough to enable a portfolio or fund manager to justify his/her convictions to buy/sell asset classes, fund managers and ETFs based on three simple disciplines: • Fundamentals • Valuations • Technical Analysis.

These technical indicators led the portfolio manager to have higher conviction

18 31 October 2016

KENT GROBBELAARHead of Portfolio Management (Offshore), STANLIB Multi-Manager

The South African market is smallINVESTING

• Hedging against currency depreciation should not be the sole purpose of offshore investing

• Gaining access to diversifi ed sectors and accessing opportunities across multiple industries and countries is a key benefi t to investing offshore

• Multi-Manager provides exposure to a range of strategies which follow a set mandate with diversifi cation and exposure parameters aimed at meeting the investor’s objectives.

As South African investors, our fi rst thought when considering offshore investments is, “I need to protect my portfolio from currency depreciation.” However, it’s actually the wrong way to think about offshore investing. Or, at least, currency depreciation shouldn’t be the sole focus of investing offshore.

Limited local opportunity setThe South African market is small. Investors need to look beyond what South Africa has to offer to achieve diversifi cation and higher returns.

South Africa’s economy is roughly US$268 billion in size, according to a report in The Economist by Bank of America Merrill Lynch. By comparison, the global market capitalisation of JP Morgan Chase is US$249 billion, Johnson&Johnson has a market cap of US$282 billion, and Google and Amazon have a market cap of US$838 billion.

The JSE, which represents the listed equity market in South Africa, makes up a mere 0.63% of the global investable universe.

South Africa’s bond market represents only 0.20% of global debt indices, as measured by the Barclays Multiverse Index.

When you consider some of these fi gures, you see why a balanced portfolio with measureable offshore exposure is important to achieve diversifi ed returns. Investing in South African stocks alone is not enough to achieve the diversifi cation and balance

How to lower portfolio risk while increasing investment returns

needed in a portfolio.South African pension fund

investors are only able to invest up to 25% of their portfolio in offshore assets. Many investors, however, have offshore exposure considerably less than that.

Discretionary investors are able to allocate up to 100% of their capital to offshore assets. The exact level of offshore exposure recommended depends on the investment objective.

An investor planning to retire in South Africa is predominantly looking for their investments to grow in excess of local infl ation. An investor looking to retire overseas or to fund children’s university expenses overseas, has a different cost base and target return objective.

Enhanced portfolio outcomeOne thing all investors are looking for is the highest level of returns for the lowest level of risk.

Graph 1 shows a portfolio exposed to only South African equities and bonds. The more a portfolio extends to the left of the graph, the lower the volatility (and therefore risk) of the portfolio. The higher it extends to the top of the graph, the higher the portfolio return.

Graph 2 shows the same portfolio with foreign equities and bonds added. Here the portfolio extends to the left (indicating less volatility) and it extends higher (indicating higher returns).

Essentially, this graph shows that the inclusion of offshore equities and bonds creates a lower risk, higher return portfolio. One key reason is that global indices are highly diversifi ed with less sector-specifi c concentration and risk.

South Africa tends to have highly concentrated industries where some sectors are simply not well represented. The IT sector, for example, does not have the depth and variety of technology companies as those on indices in the US and Europe. Other sectors that are either virtually non-existent or that lack depth are healthcare and utilities. In the US, healthcare is one

of the leading sectors where drug development, technological healthcare advances and expanding healthcare facilities are growing strongly, and set to continue due to a global ageing population.

The South African listed market is highly concentrated with a strong bias to resources companies. It makes sense considering South Africa’s history as a commodity exporter. But for the average investor, having 50% exposure to resource shares is not generally what they want in their portfolio.

Investors should ideally aim for a balance of local and offshore exposure. Diversifying an investment portfolio is one of the simplest ways to protect the portfolio should one sector perform badly.

Every sector is impacted by macro-economic changes. When interest rates go up, property portfolios tend to perform poorly. When interest rates go down, consumer stocks generally outperform. A diversified portfolio aims to protect investors’ capital by not having high concentration exposure that leaves the portfolio exposed to just one or two sectors, which when those perform badly, results in the portfolio performing badly.

Effi cient exposure through multi-managementOne of the best ways for investors to gain exposure to a balance of local and offshore assets is through multi-manager investing.

A multi-manager selects underlying funds to invest into and, through regular oversight, ensures that those funds remain within their mandate to provide the optimum balance of sector and country exposure.

Importantly, investors should choose a multi-manager with a long history of investing locally and offshore, and with sizeable assets under management as a demonstration of their investment experience.

GRAPH 1Real Return vs. Volatility (Annualised)

GRAPH 2Real Return vs. Volatility (Annualised)

Cash

Domestic ILB

Domestic BondForeign Bond

Foreign Cash

Foreign Equity

Domestic Equity

Domestic Property

Foreign Equity

Foreign Bond

Foreign CashCash

Domestic Equity

Domestic Property

Domestic Bond

This implies:Higher returns for the given level of risk and a greater number of lower risk portfolio combinations

By including Foreign, the effi cient frontier moved higher and to the left.

Domestic ILB

1931 October 2016

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20 31 October 2016

Africa needs more large companiesINVESTING

Six years ago when the McKinsey Global Institute (MGI) fi rst

looked in detail at Africa’s diverse economies, almost all of them were experiencing accelerating growth. The picture today is more mixed. MGI’s new report Lions on the move II: Realising the potential of Africa’s economies fi nds that Africa’s economies’ growth paths have diverged.

Growth in the 11 economies accounting for 60% of African GDP – the continent’s oil exporters and the three countries involved in the Arab Spring (Egypt, Libya, and Tunisia) – slowed sharply. But the remaining economies generating 40% of African GDP accelerated their annual growth rate from 4.1% in 2000-10 to 4.4% in 2010-15. The overall outlook is positive; with the IMF projecting that Africa will be the world’s second-fastest-growing region in the period to 2020.

Big business opportunities ahead in Africa

Big opportunities lie ahead as consumer and business spending continue to grow• The new report identifi es

opportunities for growth in African economies

• Spending by consumers and businesses in Africa today totals $4 trillion By 2025, the total could be $5.6 trillion

• Household consumption is expected to grow by 3.8% a year to 2025 to reach $2.1 trillion. Spending on discretionary items is likely to grow fastest, refl ecting an expanding African consuming class. Just under half of all consumption growth in the period to 2025 will be in 75 cities

• Business spending is expected to grow from $2.6 trillion in 2015 to $3.5 trillion by 2025

• Africa has an opportunity to nearly double manufacturing output from $500 billion today to $930 billion in 2025. Africa’s

economies are no longer a story about exporting commodities – but about tapping into vibrant domestic demand. Three-quarters of this potential could come from Africa-based companies meeting fast-growing demand within Africa. Today, Africa imports one-third of food, beverages, and similar processed goods it consumes. The other one-quarter of the growth could come from more exports

• Accelerated industrialisation could lead to a step change in productivity and the creation of six million to 14 million stable jobs over the next ten years – making realising this a priority for governments.

Acha Leke, a McKinsey senior partner and report co-author, said: “Our new research shows how in coming years Africa will benefi t from strong fundamentals including a young and growing population, the world’s fastest urbanisation rate, and accelerating technological change. These will help drive rapid growth in consumer markets and business supply chains, and will offer opportunities to build large, profi table industrial and services companies. Tapping Africa’s consumer markets will require companies to have a detailed understanding of income, demographic, and category trends. Thriving in business markets will require businesses to offer products and develop sales forces able to target the relatively fragmented private sector. But what our research also shows is how much work needs to be done both by companies themselves and by Africa’s governments to translate opportunity into tangible economic benefi ts.”

To make the most of the opportunities, Africa needs more large companiesMGI’s new database of corporate Africa – which is believed to be the fi rst of its kind – shows that the continent has 700 companies with revenues of more than $500 million, of which 400 companies have revenue of more than $1 billion. Africa’s large companies are growing faster and are generally more profi table than global peers.

However, Africa (excluding South Africa) has only 60% of the large fi rms one would expect if compared with other emerging regions. And average annual revenue of $2 billion is half that of the large fi rms in Brazil, India, Mexico, and Russia. No African-owned company is in the Fortune 500.

Africa’s top 100 companies have achieved success by developing strong positions at home, staying the course to build their businesses over decades, integrating what other companies would usually outsource, and investing in building and retaining talent. Further success is possible in six high-potential sectors with high growth, high profi tability, and low consolidation: wholesale and retail, food and agri-processing, health care, fi nancial services, light manufacturing, and construction.

Governments need to play a stronger role in unleashing renewed dynamismSix priorities emerge from this research:

1 Mobilise more domestic resources, taking bold steps

to mobilise more of its own funding to fi nance development

2 Aggressively diversify economies, encouraging

growth in high-potential sectors in close cooperation with business, based on a clear understanding of their countries’ comparative advantages

3 Accelerate infrastructure development

4 Deepen regional integration

5 Create tomorrow’s talent, ensuring that educational

and training systems build work-relevant skills, and that students are aware of, and encouraged to enter, these vocations – and that the private sector builds on best practice

6 Ensure ‘healthy’ urbanisation, so that cities

grow with the infrastructure required to make the biggest positive economic and social impact possible.

Delivering on these six priorities will require the vision and determination to drive far-reaching reforms in many areas of public life – and capable public administration with the skill and commitment to implement such reforms.

Four fundamentals are likely to underpin Africa’s economic growth

1 Africa has the fastest urbanisation rate in the world. Over the next ten years,

187 million more Africans will live in cities – equivalent to half the US population today.

2 Africa could have the biggest working-age population in the world of 1.1

billion in 2034 - larger than in either China or India.

3 Africa has the largest reserves in the world of many key natural resources

(e.g., 60% of the world’s unutilised but potentially available cropland, and the largest global reserves of vanadium, manganese, and many others).

4 Africa has the chance to leapfrog old technologies using mobile and digital

(e.g., penetration of smartphones expected to hit 50% in 2020 vs 18 % in 2015).

2131 October 2016

NEWS &OPINION

ROENICA TYSONInvestment product manager at Glacier by Sanlam

YOUR EXPERTISE AND OURS: A POWERFUL COMBINATION

Not all LISPs have the same offering FEATURELISPs

Investment platforms – or linked-investment service providers (LISPs) – play an

increasingly signifi cant role in the investment decisions of investors and their advisers.

Roenica Tyson, Investment Product Manager at Glacier by Sanlam, says the main attraction of LISPs is the fact that there’s a single access point and consolidated reporting for a variety of investments.

Instead of investing with each individual institution, with a LISP investors can mix and match all products and a variety of underlying investment options in one place.

Wider investment choice“With Glacier, the choice is wider than just collective investment schemes, as we also offer stockbroking options within our products,” Tyson adds.

The solutions on the platform can be housed within a number of investment wrappers while giving investors a wide choice of fund managers and stockbrokers. Investment products such as retirement annuities and endowments provide tax advantages, creditor protection after a certain time period as well as estate planning advantages. Other wrappers, such as the investment-linked living annuity, provide income in retirement with the added benefi t of being able to leave a legacy to dependants.

Not all LISPs have the same offering, so it’s important to consider the clients’ investment needs. This includes the range of

investment products and underlying investment options, enabling clients to get access not only to the big names, but also to the smaller investment managers as well. Clients may not only want to invest with active managers, but also have some passive investment exposure.

Investors shouldn’t only consider their immediate needs, but also what they may need in the future. While there may only be a need for a single fund or manager today, the investor may want to expand their investments in future – at which point it will be easier to add extra funds from different managers if the investor is already on the platform. Similarly access to a more tax effi cient wrapper may become important as the client’s fi nancial position changes over time.

A recent development is that Glacier now also offers single premium investments under both the Glacier and Sanlam brands. “This not only allows us to meet the investment needs of a broader market, but also means we can be more innovative in adding fl exibility to investment solutions. Many investors may, for example, benefi t by using a market-linked investment in combination with a guaranteed product. By offering both through Glacier, we’re able to meet a wider set of client needs for various market conditions.

Tools and educationPlatforms also provide tools and education that help advisers and investors understand what they’re

buying and the tax benefi ts of various products. From a reporting perspective, for example, Glacier enables investors and their advisers to check the capital gains tax liability before proceeding with a transaction.

Tyson says that while Glacier has a large range of funds, each fund must go through a strict due diligence process to make sure it meets all criteria. Given the wide range of choice, Glacier also has an independent research team that provides guidance to advisers.

Clients who invest via the Glacier platform have access – via their adviser – to the research produced by the Glacier Research team. The quantitative and qualitative research, which culminates in their fl agship Shopping List document, is completely independent and no fund manager is given preference over any other. All funds on the Shopping List document go through a stringent and robust selection process.

Transparent FeesFees in the LISP industry have always been transparent and over time LISPs have sought to improve their levels of disclosure.

“LISPs are clear in terms of how much you pay and what it is for. We not only show the percentage or rand amount of charges, but also show what the impact of this is on the return of the investor over time.

The new Effective Annual Cost (EAC) disclosure that came into effect on 1 October now standardises the disclosure of fees across the

industry and breaks down all elements of the cost an investor incurs. This includes investment management, administration and advice costs.”

LISPs are often able to obtain cheaper classes of funds than those available directly via the unit trust companies, due to the fact that they’re buying these units in bulk. The investor therefore needs to look at the difference in cost between the various fee classes.

Effi cient and secure transactingPlatforms provide timeous, effi cient and safe administration. Instead of multiple reports from different management companies, clients have access to online consolidated reporting, including consolidated tax reporting. Investors can switch timeously between unit trusts across different management companies as well as between unit trusts and shares – online at their convenience and with minimal time out of the market. Glacier does not charge clients switching fees regardless of how many switches are done. Clients can also easily transfer units between different products – for example moving money from a savings plan to a retirement annuity whilst staying fully invested in the market.

The savings challengeThere is, however, a general challenge for LISPs and that is South Africa’s poor savings rate.

“The industry is attempting

to take on the role of encouraging saving and to provide investors with easy access and guidance about savings products, especially around providing suffi ciently for retirement. Glacier recently launched its FutureFWD campaign with a powerful message: Few people save enough for their retirement, and most of them realise it too late. The campaign offered three South Africans the chance to live their perfect life – the only proviso being they could have no other income other than the amount revealed to them in an envelope. All three turned down the offer, not realising that the amount they’d been shown was the amount they’d receive in retirement, based on their current savings. But even though it was bad news, it was revealed early enough for them to do something about it.

“We launched this campaign and the online calculator to highlight the importance of knowing today what your monthly retirement salary will be, and to help South Africans understand exactly what they’ll have every month in today’s value, at retirement,” Tyson says.www.glacier.co.za

Investment platforms continue to grow in importance

22 31 October 2016

CRAIG SHERHead of Research and Development, Discovery Invest

MICKEY GAMBALECEO: Group Investment Platform, Head: STANLIB LISP

LISPs offer ‘everything under one roof’

Platforms are the equivalent of fi nancial supermarket storesFEATURELISPs

Instead of investing with each individual institution, with a linked-

investment service provider (LISP), investors can mix and match all products in one place. This is according to Mickey Gambale, CEO: Group Investment Platform, Head: STANLIB LISP.

“Basically platforms are the equivalent of financial supermarket stores. You can buy quality, internal and external investment brands without the need to go to different suppliers. In short a LISP platform offers everything under one roof,” he adds.

With a linked-investment service provider (LISP), clients get access to a wide range of collective investment schemes (unit trusts) on a single platform, says Craig Sher, Head of Research and Development, Discovery Invest.

“This streamlines the investment process and simplifies the administration involved. Clients receive an investment statement to view a variety of investments and also have the opportunity to mix and match a variety of their products in one place.”

With a LISP, the unit trusts can all be housed in tax structures, for example, retirement annuities which benefit investors further due to their tax advantages, Sher adds.

“The Discovery LISP further provides a range of

benefits that enhance the unit trusts that a client may invest in. For example, if the unit trusts that a Discovery client invests in are not in the top 25% of all unit trusts in their sector, the Discovery LISP will provide a boost to the unit trusts to help protect them against relative fund underperformance. Another unique feature is the ability lock in growth through a range of Escalator Funds.”

LISP platforms give investors access to better priced fee classes of collective investment schemes (CIS) or even access to investment choices that typically would not be available to a standalone direct investor, Gambale says.

“The linked range of collective investment or unit trust funds available on the STANLIB platform are all clean priced, rebate free fund classes meaning STANLIB has negotiated the best deal for its investors.

“In addition, STANLIB offers investors and their financial advisors a place where they can invest through the various life

stages of clients.” While extremely attractive

for retail investors, platforms also offer financial advisors administrative benefits, Gambale adds.

“STANLIB has made a range of free tools available to assist financial advisers through the planning and advice process.”

Sher says most LISPs in South Africa have negotiated clean-priced unit trusts; therefore they get the unit trusts at a cheaper cost relative to that when investing directly.

“This means that a LISP might be more affordable than investing directly in a unit trust. Generally, LISP fees are transparent and easily comparable.”

Some LISPS have complex fee structures switch fees, minimum fees and fixed fees, Gambale says.

“STANLIB has simplified their offering. An easy to understand fee structure based on investment size means it’s easy for investors to understand exactly what their costs will be. STANLIB does not tier its fee scale – as investors’ assets increase, STANLIB steps down the fee. In this manner you don’t continue to pay a higher fee in the first part of your investment and a lesser fee on the balance. With STANLIB you benefit from the lowest fee immediately across your total investment when your assets reach a certain size.”

LISP platforms expected to growLooking at the period from the start of 2008, until the end of 2015, Sher says there has been considerable growth in investments into LISP platforms.

“In 2008, R65 billion was invested into LISPs. In 2015, this number increased to R265 billion, which is equivalent to a consistent 22% increase year-on-year. Recurring business in particular increased by seven times over this period.

“After taking into account the effect of withdrawals, to prevent possible double counting of reinvestments into other LISP platforms, the growth between 2008 and 2015 jumps to 400%, albeit off a smaller base. Altogether an additional R470 billion was added to the LISP sector between the start of 2008 and the end of 2015.”

Gambale says platforms are expected to grow even more in future.

“Currently around R1.1 trillion finds its way from retail investors into LISPS in SA.

“With the introduction of the RDR in South Africa and other legislative changes expected in the FAIS Act, platforms are uniquely positioned to assist investors and financial advisers in the future.”

He adds that scale platforms such as STANLIB will have the ability to absorb the costs associated

with regulatory change without passing these costs on to the end investor.

“This, together with our solution based approach to investing, means we don’t sell products, we offer solutions. STANLIB’s model or wrap fund capability also means we are able to offer discretionary fund managers the ability to further assist in investment and administrative capabilities to offer investors and fi nancial advisers even better solutions and value.”

Gambale expects that as retail investors demand more choice and flexibility, LISP Platforms in SA will expand their offerings.

“We believe that the one-size-fits-all approach actually fits no one, so we continually look at ways of improving and expanding our offering to further enhance our solution capability to investors and their financial advisers.”

Most LISPs in SA have negotiated clean-priced unit trusts

2331 October 2016

DARYLL WELSHHead of Product at Investec Investment Management Services

JEANETTE MARAISDirector of Distribution and Client Service, Allan Gray

Linked investment service providers (LISPs), make investing easier by giving

clients access to multiple investment products and unit trusts through one service provider, while benefi ts vary from one provider to the next. That’s the word from Jeanette Marais, Director of Distribution and Client Service, Allan Gray.

She says the primary aim of the Allan Gray platform is to offer investors choice and ease of administration at a reasonable cost, along with consistently great service.

There are various ways in which Allan Gray tries to make investing easier for advisers and their clients:

Not all LISPs are created equal

• Invest in multiple investment managers but get one point of contact

• Consolidated reporting• Transparent, competitive

fees• Online record keeping• Online transacting• Online tools for

advisers, including fund comparison tool and fi nancial planning tools

• Bulk switching capabilities• Fund ratings to help with

investment decisions• Ability to manage clients’

investments through model portfolios which increases effi ciency and scale and decreases costs in the long run; less admin means more time to see clients.

Not all LISPs are created equal, so advisers should do their homework. “It’s important to understand what you are paying for. Some platforms charge an initial or set-up fee, an annual fee, fees for your specifi c transactions, product-specifi c fees and may even charge exit fees or ‘penalties’.

“Transparency is key: If you can’t see and easily work out what you are paying for, you are probably being charged more than you think. A transparent platform, with clear disclosure, should be preferable to an opaque one every time,” Marais adds.

Allan Gray is presently working on offering an

Umbrella Fund via its platform in future.

“A great opportunity exists to ‘retailise’ traditional self-managed pension funds to offer a transparent, unbundled, simplifi ed umbrella fund with great investment choice to employers and their employees – done the Allan Gray way,” she says.

Allan Gray tries to keep the selection on its platform relatively contained – offering around 50 unit trusts.

“The selection of unit trusts on our platform is driven by independent fi nancial advisers. We regularly survey fi nancial advisers to ascertain demand for both local and offshore funds. We aim to ensure that our range offers adequate choice and remains manageable.

“We also have a tight range of products available through our LISP platform, including a retirement annuity, pension and provident preservation funds, a living annuity, an endowment and a tax-free investment. In the group savings space we have a group retirement annuity, which is essentially a way for employers to manage individual RAs on a group basis. We also offer an offshore platform for investors who want to diversify their investments offshore.”

Marais says all of the Allan Gray products offered are suitable for most investors, depending on their personal needs and objectives.

“In an evolving industry with increasing legislation and product overpopulation our overriding focus remains on investor need and the support and service to meet those needs. We are constantly researching our investors and the broader market and will consider expanding our range only if it is in the best interests of our clients. We aim for our offering to always be simple, transparent and cost effective.”

Marais adds that LISPs are growing in popularity: “Most independent fi nancial advisers use platforms to help them diversify their clients’ investments while getting the benefi t of a simplifi ed investment and administration process, and only deal with one fi nancial services provider.”

FEATURELISPs

Linked investment service provider (LISP) platforms are becoming more popular, because if one looks at the published industry statistics, there has been tremendous

growth in assets over the past fi ve years. This is according to Daryll Welsh, Head of Product at

Investec Investment Management Services. “Total Assets under administration at the end of 2010

amounted to R400 million. As at the end of June 2016 this fi gure stood at R1.2 billion. New infl ows into the LISP industry in 2010 amounted to R110 billion; for the 12 months ending June 2016 this fi gure came in at R265 billion.”

Welsh says one of the main benefi ts of a LISP is that it offers a one-stop solution for the client.

At the most basic level, it means that a client can hold a number of unit trust funds from different asset managers on one administration platform. That means one application form, one tax statement, one transactional website to access all information and one point of contact.

Clients can also switch between funds without having to deal with each unit trust company separately.

“At the product level it means the client can also choose to have all products administered on one platform. For example, the client may have a preservation fund, a tax-free savings account and their unit trust investments housed all on one platform. Where the client has a fi nancial adviser the platform also makes it easy for the adviser to quickly get a holistic view

of all the client’s affairs at the press of a button.” Welsh adds that most platforms also offer a wide range of

investment options, including personal share portfolios which further add to the consolidation argument.

“Because platforms operate a single bulked account with the underlying unit trust managers, they have in most cases negotiated preferential fees with the underlying managers, meaning that the client is able to access the funds at a fee far lower than they would pay if they went directly to the manager.”

Although LISPs started out by only offering unit trusts, most are now able to also offer share portfolios and other listed instruments.

“At a product level, LISPs cater for both retirement type products such as RAs and living annuities, as well as discretionary investment products such as tax free savings accounts and endowment policies. Most platforms also have product options for clients wanting to invest offshore by using their R10m annual allowance.”

Welsh says LISP products are suitable for a wide range of clients, from a young investor who wants to start building an investment portfolio for the long term, to someone looking to preserve their retirement fund when moving from one job to another, to clients looking to retire and invest their savings in a living annuity.

“Today there is almost no investment need that cannot be catered for by the LISP,” he adds.

LISPs suitable for wide range of clients

LISP platforms make investing easier

24 31 October 2016

WALTER VAN DER MERWECEO, FedGroup Life

In order to encourage South Africans to save more, employers need

to focus on more than just retirement savings when it comes to employee benefi ts for South African employees.

This is according to Quaniet Richards, the Head of Institutional at Nedgroup Investments. Richards says employee benefi ts packages that include introducing greater choice in terms of how employees pensions savings are structured and more fl exibility to allocate funds to medium-term savings goals, are more likely to win the approval of South African employees.

“The bottom line is that most of the employed population in our country are still struggling to meet their daily living expenses.

Laying the foundation for a sustainable savings culture

Full scrutiny on retirement savings

EMPLOYEE BENEFITS Employers need to focus on more than just retirement savings

By identifying with everyday fi nancial pressures, employers are more likely to encourage employees to save for retirement.

Asking them to now focus only on saving for their retirement is unrealistic and is creating disconnect between fi nancial services and would-be clients. It’s important that the industry shows an understanding of the fi nancial struggles that many people are dealing with now, before they will be open to investing for the long-term,” he says.

Richards adds that many South Africans do not see saving for retirement as a priority because they can only focus on meeting their immediate fi nancial obligations.

Urgent fi nancial goalsHe believes that, to create a sustainable savings culture, fi nancial services companies need to create opportunities for South African employers

to allow employees to address more urgent fi nancial goals before, or in conjunction with, retirement goals.

“By allowing employees to allocate some portion of their retirement savings towards other, more immediate savings goals, employees will be able to breathe easier every day. This can have a very positive impact on the workplace by creating goodwill with the employer which leads to easier fi nancial negotiations when necessary and a higher likelihood that long-term savings will become a priority going forward.”

Richards says retirement fund trustees can play a vital role in fostering a more holistic savings culture in South Africa.

“The fi nancial industry is in the process of going through a huge change and many providers are starting to think out of the box in terms of how to identify better with the market. Trustees, by using their connection between employer and employee,

can assess the employee benefi t offerings available to them and consider savings structures that help foster overall fi nancial well-being for employees. This could include considering ways to reduce the fi nancial stress of employees on a daily basis.”

Savings culture Richards also recommends negotiating with service providers to fi nd an optimal mix of retirement savings plans, funeral policies, and other shorter-term fi nancial benefi ts such as tax-free unit trust investments and group banking benefi ts. “This sends a message to employees that their employer understands the pressures they are exposed to every day, and could go a long way to creating buy-in for other, less tangible investments such as

retirement,” he says. “Encouraging a savings

culture in South Africa is paramount and government has made great strides towards enabling this. However, it’s unrealistic to force people to only consider the long-term goal of retirement without acknowledging that life today also comes with some very pressing fi nancial stress. Employers who can offer benefi ts that help employees address both of these fi nancial concerns, are laying the foundations for a sustainable savings culture in South Africa.”

When it comes to the ultimate success of retirement savings,

every rand invested over time will have a meaningful impact on the fi nal outcome thanks to the power of compound interest.

Excess, often unnecessary fees, particularly upfront fees and percentage-based admin fees, can therefore have a deleterious effect on the ultimate value of an investment and the returns an investor will enjoy on retirement, as it reduces the impact of compounding interest.

Unfortunately the modern-day retirement investment industry is characterised by complexity – complicated, tiered products that supposedly offer greater returns, that are accompanied by complicated fee structures.

While these fees are often

stated in the total expense ratio of collective investment funds, few everyday investors take the time to read these documents or fail to understand the full impact that these fee structures have on their investments.

Various funds today also apply differing cost structures, with some charging asset-based management and administration fees that increase in relation to the sum invested, which penalises those who save or invest more. These investment fee structures also tend to look cheap at quotation stage when there is no asset, but become excessively high as the fund accumulates over time.

It is also not uncommon for funds to attract other fees such as portfolio-based multi-manager fees and performance-based fees. In many of these instances it is often only the top-line costs

that are disclosed, not the underlying asset manager fees. These so-called hidden fees also erode fund value as they add up over time.

The lack of transparency with regard to these upfront fees often leaves investors unsure of what they’ll get in return for their lump sum investment or monthly contributions. Therefore, the fi rst step to improving investment returns and the creation of long-term wealth is to understand the impact that differing upfront fees can have on fund value. This would enable investors to select advisers and investments based on performance and the associated costs to determine real returns.

As an example of how high upfront fees can impact investment returns, take two investors who both invest a lump sum of R100 000 at the same rate of return over a period of 10 years. Based on different upfront fee structures

they would realise vastly different returns when the investment matures. Assuming an annual growth rate of 7%, the investor who was charged a lower upfront fee of 1% would realise a return of R194 747.98 after 10 years. Investor B, on the other hand, who was charged a 5% upfront fee, would only receive R186 879.38 over the same period.

In this example, investor B would only recoup his initial lump sum investment after 11 months following the upfront fee deductions. This means he spends almost the entire fi rst year effectively paying his returns to the administrator. Conversely, investor A starts making positive returns in the second month having already recouped the fees. In addition, investor A will earn over 9% extra on his original investment because of the small upfront fee that barely affected his initial lump sum investment.

In the case where both

investors choose to make a monthly contribution of R1 000 to a fund that delivers a 7% return per annum on investments that mature in 10 years, when investor A, who was charged an annual fee of just 1%, would receive R163 879.35. Investor B, who was charged a 5% annual fee, would get back only R132 719.66, a substantial difference of R31 159.69.

In this example, the higher upfront fees effectively eroded 31 months worth of contributions. In the context of retirement savings, this effectively means that investor B would need to work for almost an additional three years to continue making contributions to achieve the same outcome as investor A, just because he didn’t query or understand the upfront fees. Add additional monthly admin fees and other hidden charges and it’s easy to see how quickly fund value can be eroded further over time.

The fee structure requires careful consideration when considering overall returns

2531 October 2016

MPUMELELO TYIKWEManaging Director of Alexander Forbes Insurance

RISKSHORT-TERM Drones can cost anything from R1 000 to more than R100 000

Insuring a droneD rones, or unmanned

aircraft, have become a common

phenomenon for the military, meteorologists as well as hobbyists, with the latter category quickly seeing these toys become incorporated into the lifestyles of many South Africans.

Drones can cost anything from R1 000 to more than R100 000, meaning that should a drone go missing on a fl ight, the owner can expect to suffer a substantial fi nancial loss. Many insurance companies offer household insurance for suitable hobby users.

Mpumelelo Tyikwe, Managing Director of Alexander Forbes Insurance, says liability is a real issue when fl ying a drone. “The risk factors involved are collision

with 3rd party property, collision with a person causing injury or death and the collision with airborne objects. Many insurance companies offer household insurance for suitable hobby users. Read your policy wording carefully as this insurance often does not cover the aircraft while in use (fl ying),” Tyikwe adds.

“If you are a hobby drone pilot taking pictures purely for fun or personal use, you do not need a licence or registration for the craft. Invasion of privacy remains a concern – obtain consent prior to video recording or when fl ying over an area that does not belong to you.

“Check with your insurer or broker what cover is available for loss and damage of the drone as well as what cover

there is for liability.”Alexander Forbes provides

cover for hobbyist drone enthusiasts under the home contents section, providing for loss or damage of the drone in their homes, as well as third party liability for injury, loss or damage when the drone is being used. “However, covering loss or damage of the drone away from home would come at an extra cost and policy holders should discuss this with their brokers.” says Tyikwe.

Drone enthusiasts should familiarise themselves with

the regulations for operating drones in South Africa, introduced in 2015, by visiting www.safedrone.co.za

To name a few of the regulations, the drone must keep out of restricted, prohibited and controlled airspace and stay 50m away from people, buildings and roads. For private use or operation the drone can weigh up to 7kg.

W hen you’re in the thick of running your business

and tending to day-to-day work responsibilities, it’s easy to leave aspects such as insurance simply to ‘tick’ over, but that could leave you compromised as your business evolves and its needs and exposures change.

AON South Africa offers ten important considerations to help get your business insurance cover into top shape.

1 Get Cyber SavvyCybercrime is a very real

threat to any business or institution, regardless of the size or nature of that business. If your business has a network, an internet connection and holds sensitive or personally identifi able data, then your business is at risk.

2 Vehicle insurance Whether you run a

handful of cars or a fl eet network, make sure your vehicle insurance is fi t for purpose with suffi cient liability cover. From an asset replacement perspective, your business vehicles should be insured at no less than retail value, which is what a car dealer would sell them

for taking into consideration age, mileage and condition. Don’t forget to add extras such as tracking systems, tow bars and so on.

3 Business interruption If your business premises

burned down, your assets cover will take care of replacing the lost items, but what happens if you are unable to trade for weeks, even months and your income stops coming in as a result? Business interruption insurance is vitally important to tide your business over in terms of lost income as a result of physical damage, until your business is back to operating as usual.

4 Directors and Offi cers Insurance

The main purpose of a D&O policy is to offer fi nancial protection for company executives in addition to providing legal coverage in the event of a claim. The cover that a D&O liability insurance policy provides is an absolute necessity when it comes to the protection of the personal interests of directors, offi cers and other employees that are charged with supervisory and managerial responsibilities, and who can be held liable for wrongful acts which may

occur in their day-to-day management activities.

5 White collar fraudIn the current tough

economic environment, fraudsters are becoming ever more creative and syndicates are also at play, which means companies are facing ever increasing risk from white collar crimes in areas such as credit payments, EFT transfers, debtors, petty cash abuse, cash theft, international transfers, payroll fraud (ghost employees) and stock theft. The fundamental solution is a commercial crime framework, incorporating indemnity for losses resulting from employee dishonesty, forgery or alternation, fraudulent transfer instructions and third party computer crime.

6 Check your sums insured

Check that the sums insured on your building and contents are suffi cient. Have you made alterations to the building and bought new assets such as laptops or machinery that adds to the value you need under the sum insured? Don’t forget to factor in the impact of infl ation and the volatile rand exchange rate.

7 Fire insuranceDespite the risk to

business continuity, fi nancial security and brand reputation, many business owners remain indifferent to the domino effect that a fi re poses to their business sustainability. Make sure you have enough cover to protect you in a worst case scenario in terms of contents, building, business interruption and any liability that may arise due to injuries or loss of life.

8 Insurance for keys and locks

Advances in technology and security have seen us graduate from standard metal keys to smarter devices, many complete with transponders and programmed microchips. Loss or theft of such keys can cost a lot more than your business bargained for. Check to see whether the sums allowed for replacement of locks and keys is sufficient.

9 Trade creditTrade credit insurance

indemnifi es a seller against losses from non-payment of trade debt arising from insolvency of or delayed/slow payment by a buyer.

It offers protection of accounts receivables against non-payment due to slow payers, insolvency or foreign non-transfer risk. Coverage is designed to prevent disruptive losses, reduce risk of key account concentration levels, and provide risk transfer of bad debt issues.

10 Employee benefi tsTalent retention

remains a key objective for SA companies and the best approach is to increase the attractiveness of a position by implementing a comprehensive compensation and benefits solution that is properly communicated to the employee. The support of a professional consultant or broker with experience across the spectrum of benefits will prove invaluable in formalising the benefits programme for your business.

Reviewing your business insurance

26 31 October 2016

ATTIE BLAAUW Head of Personal Lines Underwriting, Santam

RISKSHORT-TERM Completing the driver section of a vehicle insurance policy is obligatory

M any South Africans rely on their own transport to get

from point A to B and as a result, there are more than 10 million vehicles on South African roads according to recent statistics by the electronic national administration traffi c information system (eNaTIS). In many cases, people share vehicles or pass them on to family members as they upgrade, thereby changing the profi le of the regular driver of the insured vehicle.

“Completing the driver section of a vehicle insurance policy is obligatory because it affects the way a client’s risk profi le is rated, but sometimes claims get repudiated as a result of misrepresentation of the regular driver on the policyholder’s part,” says Attie Blaauw, Head of Personal Lines Underwriting at Santam. Santam insures more than 400 000 personal vehicles and paid out R849 million in personal vehicle claims in the six months to June 2016.

“When someone other than the policyholder drives the insured vehicle regularly, you should be aware that this affects your vehicle’s insurance cover. If the regular driver is not correctly or truthfully declared in your insurance policy and a different individual who drives the vehicle regularly is involved in an accident, your claim may be rejected or not paid in full,” says Blaauw.

Having dealt with a number of such cases in the past, the Ombudsman for short-term insurance, Deanne Wood, warns that vehicle policyholders should fully understand and appreciate the basis upon which motor vehicle insurance is taken out and the category of people who are insured while driving the vehicle belonging to an insured. Wood says consumers should take heed of the fact that if a vehicle is incorrectly insured, or if incorrect information is furnished to an insurer concerning either a regular driver or a nominated driver, the insurance policy could be declared void from inception.

“Listing the regular driver incorrectly on your insurance policy can have far-reaching implications,” says Blaauw.

Handing over your car keys could be costly

What is a regular driver?A person is considered to be a regular driver of a vehicle if they drive the vehicle more often than any other person in a 12-month period.

Why does this matter?Insurance companies calculate your premium based on the risk profile of the regular driver. If anyone other than the regular driver operates the car frequently, the risk profile of insuring that vehicle changes as there is likely to be different risk associated with that driver. An example of this would be when a father is the policyholder but hands his car over to his student son. The son then becomes the regular driver, changing the risk profile on the insured vehicle.

An individual’s age, gender, job and history are all factors that determine a risk profile. Any undisclosed information means that the risk was unaccounted for and not factored into the premium. This could result in the insurer electing not to pay the claim, or they may only pay a portion of it, due to the vehicle not being properly insured.

What happens if the non-regular driver is involved in an accident?If somebody else uses the vehicle on a once-off basis or on an infrequent basis and they are involved in an incident with your vehicle, you as the policyholder will be covered. This cover also includes any ‘drive-assist’ taxi services that drive your car home on your behalf after a night out on the town.

Are you able to add multiple drivers to an existing vehicle policy?This depends on your insurer. “Santam does not limit the number of irregular drivers that can operate the vehicle, so there is no need to disclose this information, unless one of them becomes the regular driver,” says Blaauw.

What is best practice?The rule of thumb is to understand the conditions of your policy and cover and ask for clarifi cation at the outset when taking out cover. Insurance contracts require you to disclose all details affecting the risk associated with insuring the vehicle, including the details of the regular driver. You should inform your broker immediately should the regular driver on your vehicle change. If you fail to inform your insurer of the correct details of the regular driver, at any stage over the life of the policy, this would be viewed as a breach of contract. In such instances and depending

Listing the regular driver incorrectly on your insurance policy can have far-reaching implications

on the facts, the insurer could reject your claim or declare your policy invalid.

“Should the driver of a private vehicle change from time to time – or over an extended period, the policyholder should inform their insurer or broker as soon as possible so as to avoid any complications that could arise in the event of an untimely accident,” says Blaauw.

2731 October 2016

PETER DEMPSEYDeputy CEO of the Association for Savings and Investment South Africa (ASISA)

C onsumers received R422 billion in benefi t payments

from South African life insurers in the 12 months to the end of June 2016.

Releasing the long-term insurance industry statistics for the year ended 30 June 2016, Peter Dempsey, deputy CEO of the Association for Savings and Investment South Africa (ASISA), comments that these benefi t payments would have come at a time of great fi nancial need, whether planned or unplanned, for thousands of consumers.

He adds that in addition to providing policyholders and benefi ciaries with fi nancial support following life-changing events, the R422 billion in benefi t payments also represents a signifi cant boost for the sluggish South African economy.

Benefi ts paid as a result of individual risk claims showed the highest year-on-year increase of 20%. In the 12-month period to the end of June 2016, life insurers paid R36.5 billion for risk claims submitted by benefi ciaries of life insurance policies and policyholders with disability, income protection and/or dread disease cover in place.

Dempsey points out that life insurers exist primarily

The long-term insurance industry remains robust

Life insurers pay consumers R422 billion in benefi t payments

to help consumers insure against risks such as death, disability and critical illness.

“These statistics show that our industry is doing exactly that. Consumers often say they don’t buy life insurance because life insurers try to avoid paying claims, but our statistics paint a different picture. In 2015, for example, 99% of death claims made against fully underwritten life policies were paid.”

Dempsey adds that the certainty of a benefi t payout from a life company is critical for consumer confi dence since it provides benefi ciaries with a fi nancial lifeline in a time of loss.

ASISA’s long-term insurance statistics also indicate that consumers are grasping at straws for fi nancial survival in a tough economic environment, with many policyholders resorting to surrendering their savings policies to access much needed cash. Benefi ts paid as a result of individual savings policies surrenders increased by 18%, from R63.4 billion at the end of June 2015 to R74.6 billion at 30 June this year.

Dempsey says irrespective of the reason for the benefi t payments made to consumers, the reality is that there was a risk or savings policy that

provided a fi nancial back-up to these South Africans when they most needed it.

The health of the industryDempsey says since the long-term insurance industry is recognised as the custodian of a signifi cant portion of the country’s savings pool, the fi nancial health of the industry is critically important.

The life insurance industry held assets of R2.6 trillion at the end of June 2016, a solid increase of 5% from the R2.5 trillion held at the end of June 2015.

This means that at 30 June 2016, long-term insurance industry assets exceeded liabilities by more than four times the legal reserve buffer required.

Dempsey says these numbers show that despite a tough operating environment, the long-term insurance industry remains robust and in good fi nancial health and therefore well positioned to honour future policy claims.

New premium infl owsTotal new premium income (recurring and single premiums) increased by a healthy 14% to R148.8 billion at the end of June 2016 from the R130.4 billion collected to the end of June 2015.

He points out that that single premium investments continue to make up the bulk of new premium income. Total new single premium income amounted to R127.8 billion at the end of June 2016, while new recurring premium income stood at R20.9 billion.

Dempsey comments that while the value of new premiums increased, the actual number of policies sold decreased by 8%, mainly due to a drop in new retirement annuity policies. He comments that this is to be expected given that consumers are under increasing financial pressure.

The exception to this trend was the strong growth of 33% in recurring premium savings business over the 12 months to the end of June 2016, which could be as a result of the introduction of tax free savings and investment accounts.

Lapses A policy is lapsed when the policyholder stops paying premiums before the policy has accumulated a value. The majority of lapses are therefore recorded for risk policies.

Dempsey says the good news is that the number of policies lapsed within the fi rst year of being written increased by only 1% in the 12 months to the end of June 2016.

He was particularly pleased that the overall lapse rate for risk policies recorded a decrease of 5%, which showed that consumers were holding on to their life and disability cover despite the tough economic climate.

“While the lapsing of a risk policy does not result in the destruction of a policy value, it does remove the fi nancial risk protection buffer leaving the policyholder and benefi ciaries fi nancially vulnerable in case of a life changing event like death or disability. The immediate benefi t of saving the premium comes at the cost of an asset in the future, namely the policy payout.”

Dempsey reminds consumers that lapsing or surrendering a policy should always be a last resort. “If you are struggling to make ends meet and need a lifeline for a month or two, rather speak to your insurer about the option of taking a premium holiday. And since reduced cover is better than no cover, you could also speak to your adviser about reducing your premiums.”

RISKLONG-TERM

28 31 October 2016

HEALTH We were mindful that regulation of this industry was an onerous task

T he measure of a medical scheme’s liquidity is dependent

on a constellation of factors, and the combination of these are unique to each individual scheme. With the issue of reserve requirements making headlines again recently, Agility Health Chief Executive Offi cer Patrick Masobe, who also served as the founding CEO of the Council for Medical Schemes, shares his perspective on this ponderous issue.

Masobe recalls that when the Medical Schemes Act (131 of 1998) was being drafted, the Department of Health had the task of establishing the guidelines that would underpin the healthcare funding industry for our fl edgling constitutional democracy. At that time, the fi nancial soundness of the medical schemes industry was somewhat uncertain.

Council for Medical Schemes“In founding the Council for Medical Schemes (CMS), as

established in terms of the Act, we were mindful that regulation of this industry was an onerous task to be approached with meticulous caution,” he notes.

“Now, almost 20 years later, the country and its socio-economic situation have evolved, and the healthcare environment as we knew it back then has altered signifi cantly. Since then much has been achieved in terms of healthcare innovations and accessibility the world over. Yet, in South Africa, medical schemes are still labouring under the weight of the 25% solvency level requirement; it is a relic refl ecting the uncertainty of those early days.

Schemes' fi nancial health“In recent weeks medical scheme reserves, as a percentage of gross annual contributions, have once again come under scrutiny, against the backdrop of an industry buckling under soaring claims costs.”

Masobe notes that observers who are trying to make sense of trends affecting

the medical schemes industry often erroneously gauge schemes’ fi nancial health against this 25% solvency yardstick, taking this as a one-size-fi ts-all barometer, generally without due consideration for the complex interrelated factors that together constitute liquidity and sustainability.

“Having had the benefi t of experience across regulatory and corporate lines, I believe there are more practical measures of solvency requirements that could be adapted to our current context. In my view, we need a framework that evaluates the nuances of different risk management philosophies, membership profi les and pertinent factors affecting the liquidity position, and management thereof, for each individual medical scheme.”

According to Masobe, such a risk-based capital approach, which the CMS explored in a discussion document last year, qualitatively weighs a number of factors infl uencing individual schemes’ capacity to meet liabilities. “The accumulated assets necessary to comfortably meet a scheme’s obligations to members are contemplated in light of the sum risks that are particular to the individual profi le of each scheme; be it larger or somewhat smaller, open or closed.”

A holistic, individualised solvency framework of this nature has been adopted in Australia, incorporating a two-tier approach that looks

at liquidity in the short term and long-term sustainability of medical schemes.

“How could we make a similar model work within the context of the South African medical schemes industry, and in a country where broadening healthcare access is of such tremendous importance?” Masobe asks.

Solvency paradigmHe suggests that careful and judicious management of a scheme’s core liquidity would need to be at the centre of this solvency paradigm. “The most effi cient and practical approach would involve each medical scheme’s Board of Trustees developing their own liquidity management strategy, which is informed by the particular scheme’s inherent risks and details the amount of liquid assets required to fulfi l its obligations.

“This plan could be periodically approved by the CMS, in much the same manner as the Council currently approves business plans for medical schemes that are under fi nancial monitoring. Trustees’ estimates of the necessary liquidity level could be presented to the CMS for moderation as part of a participatory process, allowing for adjustments to ensure there is suffi cient protection built in to cushion the scheme against unforeseen risks,” Masobe observes.

“The merits of such a solvency framework are numerous. It reinforces a

medical scheme’s governance responsibilities with respect to its claims contingencies. It focuses supervision on the inherent risks within a medical scheme. And it leaves suffi cient scope for the Regulator to respond to uncertainties that may arise in the estimations.

“While such a framework could be critiqued on the basis that assessment measures for the different players in the industry would not be consistent, I would argue that this in fact is where the strength of this proposal lies. This is because the membership profi les, inherent risks and approach to medical scheme management are not uniform throughout the industry, and should not be assessed using a single, rigid standardised measure.”

While a risk-based capital framework would introduce certain complexities to the measurement of liquidity and solvency of medical schemes, Masobe suggests that it would present a more accurate picture of schemes’ distinct circumstances, refl ecting the stage of maturity the industry has reached.

“If in the years preceding the fi nal implementation of the National Health Insurance plan, accessibility and affordability are what we are all striving for, then it is imperative that we rethink our current reserve policy,” Masobe includes.

Time for a rethink of medical schemes’ solvency requirements?Agility Health CEO questions whether reserve requirements have kept pace with industry developments

Medical schemes are still labouring under the weight of the 25% solvency level requirement

PATRICK MASOBEChief Executive Offi cer, Agility Health

2931 October 2016

HEALTHAll four schemes reported sound net results

T he rating stability in the medical schemes sector continues to

be underpinned by strong levels of reserves displayed by many participants that has given rise to sustained solvency strength, according to a report from Global Credit Ratings (GCR).

This has resulted in statutory solvency margins tracking comfortably above the 25% regulatory minimum. In terms of the latter, Medshield and Bankmed continued to evidence very high solvency metrics, registering respective statutory solvency margins of 53% and 43% in FY15. Margins for Fedhealth (36%) and Momentum Health (29%) again refl ect healthy solvency buffers.

Claims ratioIn 2015, there was a general trend of rising claims evident in the industry, which placed upward pressure on the claims ratio. In this respect, Fedhealth, Bankmed and Medshield continued to report comparatively elevated claims ratios in FY15 (>90%). Although Momentum Health’s claims ratio increased by 2% to 86% in FY15, it remains well contained relative to industry peers. Common factors contributing to the rise in claims included higher benefi t utilisation by members, coupled with competitive annual average contribution increases resulting in decelerating net premium income growth rates. The claims ratio was also impacted by increased burden of disease leading to higher PMB costs, and increasing specialist costs.

In terms of the aforementioned annual average contribution increase, the trend observed across the industry has been similar, with schemes maintaining

low contribution increases in 2015 (in the region of medical infl ation + 3% to 4%), and carried through into the 2016 benefi t cycle. The competitive contribution increases have been implemented as a means of alleviating affordability constraints and mitigating member losses (a trend which is likely to persist over the short term at least).

Nonetheless, buoyed by sound investment returns, all four schemes reported sound net results. In this regard, cognisance is taken of the strong reserve position of the schemes, where all four schemes continue to utilise excess reserves as a means of passing some cost benefi t to members (through the absorption of claims pressure). Accordingly, earnings capacity is viewed to be sound across the schemes in light of reserve

management objectives that seek to optimise reserves in a sustainable manner.

Membership growthMembership growth metrics have been somewhat mixed across the industry, with Momentum and Bankmed displaying high growth (11% and 8% respectively) in FY15, while there was an observed contraction in the membership bases of Fedhealth and Medshield (-4% and -2% respectively). In terms of the former, consistent membership growth has allowed Momentum Health to increase its market share throughout the review period, with the scheme accounting for approximately 5.5% of total open scheme principal members in FY15.

On an industry wide basis, much of the

membership growth evident among schemes can be attributed to existing insured individuals moving between schemes, while a small portion is facilitated through previously uninsured individuals. This highlights the industry wide challenge of attracting younger members to the scheme to offset the ageing profi le of the existing risk pool.

In view of the above, Momentum Health’s member profi le consistency and retention is aided by cover fl exibility and voluntary membership on the Momentum Multiply wellness and rewards programme. Similarly, Bankmed’s large and stable membership base supports its member risk profi le and provides a level of predictability for risk management. Furthermore, Bankmed’s membership base refl ects a favourable age profi le – averaging 41 years – with

60% of the scheme’s principal members falling below the 40 year old age bracket.

AffordabilityAffordability continues to be cited as the main factor contributing to members’ option buy-down behaviour, which manifested primarily on the schemes’ comprehensive options. As a result, the low- to mid-tier options continue to gain prominence within the option mix, further supported by new member gravitation towards value proposition options.

LiquidityLiquidity metrics measured at adequate, albeit reduced, levels. Asset allocations towards financial assets have been undertaken, as schemes have sought to utilise balance sheet resources to enhance investment returns. While this resulted in an increased risk appetite for market instruments, investment allocations remain within prudent regulatory stipulations.

Accordingly, two of the schemes, Bankmed and Medshield, registered lower net cash coverage ratios of two months in FY15 (FY14: four months and three months respectively). Medshield’s net cash coverage ratio also decreased to one month in FY15 from four months previously. Note is taken of these schemes’ fairly liquid equity and bond portfolios, which provide a high degree of liquidity support.

When considering all the factors above, the strength of these schemes is encompassed in the claims paying ability rating which GCR has accorded. All four schemes refl ect ratings of AA-(ZA) or higher, with Bankmed’s rating of AA+(ZA) being the highest rating that a medical scheme in South Africa can achieve. Momentum Health’s current rating of AA(ZA) also attests to its fi nancial soundness.

Membership growth metrics have been somewhat mixed across the industry

GCR gives four medical schemes stable rating

30 31 October 2016

fedgroup.co.za FedGroupFedGroup Life Ltd (Reg. No. 2007/018003/06)

An authorised financial services provider. FAIS No. 40607

We’re not going to brag about the fact that we’ve won another prestigious industry

award, this time at the Institute of Retirement Funds’ national

showcase*.

OK, maybe just one more time.

* FedGroup walked away with gold in the Stakeholder Communication Project

category at the 2016 Best Practices Industry Awards.

BOOKS ETCETERA Elite group feels outpriced by foreign buyers

THE BOOK NOOK

Enter numbers into the blank spaces so that each row, column and 3x3 box contain the numbers 1 to 9.

Mmusi Maimane – Prophet or Puppet?By: S’thembiso Msomi Mmusi Maimane’s anointment as leader of the DA made history, marking the completion of this political party’s transformation from ‘white’ political party to one whose new leader shared similar experiences to those of the majority voters. Yet there are those, even within the party, who denounce Maimane as nothing more than a puppet dancing to the tune of white masters.

So who is the real Maimane? Experienced political reporter S’thembiso Msomi goes behind the scenes to examine how and why Maimane rose to head up the opposition party. He delves into Maimane’s

formative years, his time at the pulpit in the church, and his family, to bring substance to the man.

Msomi also examines Maimane’s fi rst year as head of the DA in the run-up to the local government elections, assessing how this young man has negotiated the often treacherous waters of political power. Finally, the author attempts to answer these burning questions: is Maimane his own man, and can he deliver the electorate that the DA so fervently desires?

Personal Brand IntelligenceBy Timothy Maurice Webster

Each chapter in this book is inspired by real experience with some of the most phenomenal women and men in Africa. Personal branding has

taken on many layers throughout its short history. On these pages, you’ll engage three critical brain and brand dimensions of personal branding. The Unseen – the internal, foundational aspect of your identity, skills, values, knowledge and spiritual dimension – makes up the unseen elements of your brand. Secondly, there is the Seen

or Observed – the external area of your personal brand, which includes the way you dress, your overall aesthetic (from hairstyle to make-up and shoes) and the etiquette informing your behaviour. Finally, the Network dimension comprises associations and actions which give your brand patterns and history by which others can measure your identity. So, from the work you do to the colleagues you have and the person you marry, your associations offer a map of expectations and potential for your brand. The author’s goal is for you to interrogate each of the three dimensions so that by the time you’ve reached the last page, you have a fi rm grasp of the way your identity is framed and how to begin constructing a brand that serves your goals and dreams intelligently and effectively.

From Chelsea to Hampstead to Mayfair, London’s wealthiest families feel that they are

being pushed out by people with even more money, according to new research from the London School of Economics (LSE).

Dr Luna Glucksberg, of the International Inequalities Institute at the LSE, says wealthy and infl uential individuals and families living in the most exclusive areas of London feel they are being displaced by a new group with global money.

In recent years, London’s prime real estate market has become an increasingly attractive destination to international investors – with international buyers purchasing 60% of prime property in 2014 according to international estate agency Strutt and Parker.

Dr Glucksberg’s research found that wealthy individuals and families living in London’s most exclusive postcodes feel priced out of their neighbourhoods.

This established elite group – which includes lawyers, business people, and ‘old’ money families – feel they are being outpriced by foreign buyers and are responding by either selling and moving out or buying fl ats for their children in

London’s wealthy ‘priced out’ of their neighbourhoods

surrounding areas. Dr Glucksberg said: “The study

shows that the wealthy individuals and families that live in London’s most exclusive areas no longer feel able to compete at the top end of the capital’s property market. Instead they feel like they are being pushed out of elite neighbourhoods.

“For the fi rst time, this elite group are buying fl ats for their children in areas they never would have previously considered. Families from Chelsea are buying fl ats for their children south of the river because they feel they cannot afford to buy anything nearby.

“The implications of this are enormous. Locally, what this group is experiencing is a loss of control – something they are not used to – and, perhaps more importantly, a loss of community.

“These are powerful individuals who are used to getting things their way. But if you live in a property next to one owned by an overseas buyer who rarely lives there or an international investor, there is little you can do to make them fi x the gutter if they don’t wish to, even if it’s your house or fl at that ends up rotting,” Dr Glucksberg added.

SUDOKU

3131 October 2016

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