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BLUECHIPPRACTICE MANAGEMENT | OperationsA home for independentfinancial plannersThere is a real concern that independent financial planning is dying while product-driven consolidators buyup small, independent financial planning businesses to bulk up their product factories, where profits arejuicy, and scale is possible.Regulators are partly responsible for this trend as theyexponentially increase the complexity and cost of doingbusiness. This disproportionally affects smaller firms,driving business owners into the arms of the aggregatorswho are only too willing to buy them out. My concern is thatregulators seem to prefer a small number of large firms thatthey can monitor more easily. While this consolidation trend isconvenient for regulators and rewarding for product factories, Iworry that clients will lose out through higher fees and reducedservice levels.This is a biased opinion piece meant to voice some frustrationsand transparently inform you that we are entering the struggleto preserve independent financial planners while regulators,industry bodies and even the supposedly pro-independent fundmanagement houses dither or actively work to push independentsout of the industry.Consolidation is happeningThe days of small independent financial planners are ending unlesswe collectively work to protect them. As a shareholder of a mediumsizedfinancial planning business, I am less concerned aboutour firm’s survival than I am about the future of sound financialplanning. I wonder how a handful of large, bureaucratic firms willlook after clients when primarily focused on their managementbonuses and shareholder returns.If you think a few large financial planning firms will result inbetter service, I encourage you to consider the level of service youreceive from your bank. The drive by banks to improve profitabilityby reducing client service is evident for all to see. Banks want you toservice yourself via your smartphone or a web portal. They certainlydon’t want you to come into a branch and speak to a qualifiedperson unless you are there to buy something. I suspect that willhappen in financial planning if the industry is reduced to a handfulof behemoths.What is best for clients?Clients generally receive better quality and more personalisedservice from owner-managed financial planning firms. Many clientswant to form a long-lasting relationship with their financial planner.This is relatively easy to ensure in a smaller firm, whereas largerfirms employ career-oriented go-getters who are there to buildtheir careers and climb the corporate ladder.Client service is not the core function of a large firm; profitdrivenproduct aggregation is the goal, and clients are seen asthe route to more assets. At the very least, regulators and industrybodies should find ways to protect the future of small independentfinancial planners so that clients have a choice. Some clients arecomfortable dealing with large brands because they value thebrand more than the relationship, but this is not universally truefor all clients.A home for independent financial plannersWe decided to start a new partnership model to partner withfinancial planners who want to focus on client service and retainindependence of advice. We are not aiming to consolidatetheir client assets into our product factory; we want to enablefinancial planners to provide objective and independent adviceto their clients. We want to spread the regulatory, technology andcompliance costs across a larger number of advisors to limit theimpact of these costs while continuing to provide world-classprocesses, systems and support.Independent financial planners can outcompete big productfactories using shared resources such as FICA monitoring toolsand policies, consolidated statements, compliance monitoring andinternational CRM systems. We don’t think there is a better recipethan an independent financial planner who provides great serviceand uses shared operational tools and processesto implement and monitor client outcomes.ConclusionSome financial planners will beattracted by the lucrative pricesoffered by product factories for theirclients. In some instances, clientsmight be better off, but in most cases,financial planners who care abouttheir clients will feel uncomfortablethat they are selling out their clients andstaff. I don’t think we have all the answers,but I am not keen to sell out my clientsfor some extra money. Warren Ingram, CFP®, Co-founder, Galileo Capital60 www.bluechipdigital.co.za

FINANCIAL PLANNING | Estate planningBLUECHIPThe hidden complexities of trustbeneficial ownership complianceFinancial advisors frequently recommend the use of trusts as an estate planning tool and in some instances,they serve as the professional trustee on client trusts.Commencing from 1 April 2023, the Trust PropertyControl Act, 1988 requires trustees to create andkeep up-to-date and lodge a beneficial ownershipregister (BoR) of each trust on the International CostManagement Standard (ICMS) web portal maintained by theMaster of the High Court. Section 1 of the Act defines a trust’sbeneficial owner as the trust’s founder/donor, trustees and anynatural person who directly or indirectly ultimately owns therelevant trust property or who exercises effective control ofthe trust, and each beneficiary referred to by name in the trustdeed. Non-compliance attracts fines of up to R10-million and/orup to five years’ imprisonment. While this requirement appearsstraightforward from a superficial/textual reading of the Act, thiswrite-up provides a high-level summary of some of the hiddencomplexities of complying with the obligation.Trustees have a fiduciaryduty to exercise due care,skill and diligence in theiradministration of a trust.Trustees must avoid assuming that merely because anindividual is named/mentioned as a beneficiary in the relevantclause of the trust deed that such person is in fact a beneficiaryof the trust. The beneficiary clause of some trust deeds merelysets out a “pool” of potential beneficiaries from which the trusteesmay from time to time select individuals on whom they mayconfer a benefit. The individuals in the “pool”, although named,only become beneficiaries from the date on which trustees vestor distribute a benefit or permit them to use a trust asset. Itwould thus be incorrect to include such individuals’ names in therelevant trust’s BoR before they receive a benefit from the trust.The wrongful inclusion of the details of such potential beneficiaryin the trust’s BoR could constitute a breach of their constitutionalright to dignity and privacy and as such could expose the trusteesto a claim for damages.Ordinarily, where an official (such as a trustee) performs aparticular act in compliance with a statutory duty, they wouldbe indemnified by the relevant legislation from any potentialliability towards third parties. However, the Act does not grantany indemnity to trustees for any errors they might commit incomplying with their BoR submission obligations. Trustees mayhave to look to the asset base of the trust or their professionalindemnity cover for any protection in this regard.It is interesting to observe that the South African RevenueService (SARS) requires that one of the supporting documentsthat trustees need to submit together with a trust’s income taxreturns is the BoR for the trust concerned, which must matchthe BoR lodged with the Master of the High Court. However,SARS’s definition of a trust “beneficial owner”, which extendsto so-called “trust protectors”, is broader than that in section 1of the Act (summarised above). Trustees must, accordingly, bemindful of this difference in definitions when submitting thetrust’s tax returns and avoid being inadvertently in default ofSARS’s requirements. This is complicated by the fact that thereis no legal basis for SARS’s broader definition, yet SARS expectstrustees to comply with its requirements.Trustees have a fiduciary duty to exercise due care, skill anddiligence in their administration of a trust. The latter duty entailscompliance with all relevant laws that impact trusts, one of whichis the BoR submission as provided for in the Act. However, it isarguable that this duty does not extend to laws that are invalidor unconstitutional.In my view, the BoR regime is irrational and thusunconstitutional as there is no rational connection betweenthe creation and maintenance of a BoR and government’s fightagainst money-laundering and the financing of terrorism andproliferation of weapons of mass destruction.The BoR compliance obligation presents a minefieldof constitutional and interpretational issues that are notimmediately apparent from a superficial reading of the Act. It isthus highly advisable that where financial advisors recommendthe use of a trust as part of a financialplanning solution, the client and/ortrustees be advised to seek competentlegal advice on whether and/or to whatextent they need to comply with the BoRsubmission obligation. Sandile Khumalo, LLM (Unisa),FPSA®, GTP(SA), FiduciaryPractitioner, Lex24www.bluechipdigital.co.za61