13 months ago

Blue Chip Issue 82

  • Text
  • Financial
  • Advisors
  • Investments
  • Equity
  • Wealth
  • Offshore
  • Asset
  • Portfolio
  • Investing
  • Global
  • Momentum
Welcome to our Investing Offshore Special Edition of Blue Chip. a quarterly journal for the financial planning industry and the official publication of the Financial Planning Institute of Southern Africa NPC (FPI). Blue Chip publishes contributions from FPI and other leading industry figures, covering all aspects of the financial planning industry.

COLUMN Why goals are

COLUMN Why goals are better than resolutions By Florbela Yates, Head of Momentum Investment Consulting Florbela Yates Florbela Yates started her career in 1993 as a consultant at Alexander Forbes. Her career has spanned over several leading businesses offering investment solutions to clients both locally and internationally. Since January 2017, Yates’ role has been as head of Momentum Investment Consulting (MIC) where she is responsible for Momentum Retail’s advisory business. She has a BCom degree (Economics, Business Finance and Marketing) and is a Certified Financial Planner (CFP). I have a daughter going to university this year and she asked if I would run a budget workshop for her and her friends. I started off by getting them to understand the importance of budgeting and the power of saving. One of the young men wanted to make saving his new year’s resolution. The problem with resolutions is that resolving to do something doesn’t necessarily mean you follow through. I suggested that he rather set a goal and start saving towards achieving that goal. Whether it’s a compulsory or discretionary saving that you are looking for, the first step should always be to determine the goal of the investment so that you have something to measure against as you work towards that goal. Secondly, you should determine the appropriate time period for the investment and a financial advisor should help you stay committed to that goal. We believe in the value of financial advice. A financial advisor can guide clients in determining what their most appropriate investment vehicle is, the time period you need to cater for and also whether to invest a lump sum or monthly recurring amount. Investing is personal and each client’s unique circumstances should be considered. For clients with a short-dated investment term, it makes sense to invest in a lower-risk option so that you aren’t disinvesting at a time when the investment is down. A money market or conservative portfolio would then make sense. For those with a longer time horizon, a diversified portfolio of underlying investments in equities, listed property and fixed-income asset classes provides diversification while catering for personal risk preferences. Those looking for maximum growth may be willing to take higher risk along with some short- or medium-term volatility to get them to their longer-term goal. And then there is the consideration about the currency your client’s goal is going to be financed from. If it’s in an offshore currency, you have the additional complication of ensuring that you are getting real returns in that currency. Whatever your personal goal, your investment time horizon or your tax bracket, I would recommend that you measure your investment returns after investment fees and make sure that you are still obtaining real returns (ie returns above inflation) after fees. At Momentum Investment Consulting (MIC), we partner with financial advisors to ensure that our clients follow a similar process. It’s slightly more complicated, but the principles remain the same. Start with a budget to ensure that you aren’t living beyond your means. Set an investment goal and time horizon and then make sure your client stays invested. That is the only way to protect your clients from themselves. I don’t know what 2022 has in store for us. I hope that we see some return to normality and more stable investment returns. To protect myself from myself, I start the year by setting investment goals to help me meet my shortterm, medium-term and long-term objectives. For my discretionary money, I invest in diversified portfolios made of local and offshore underlying investments. We are hoping to be able to do an overseas ski trip this year and will need some offshore currency for this. I took advantage of my offshore allowance and the rand strength to take money offshore and invested in a combination of offshore money market and equity investments. We also take advantage of the yearly tax-free savings amount to invest towards our longterm goals. In 2022, forget about resolutions, but focus on goals. Speak to us at MIC. We can help you to make sure your clients stay invested so that they can achieve their goals. 16 Momentum Investment Consulting (Pty) Ltd is an authorised financial services provider (FSP32726) and part of Momentum Metropolitan Holdings Limited and rated B-BBEE level 1.

COLUMN Every Client is an Exception to the Rule Rob Macdonald, Head of Strategic Advisory Services, Fundhouse Rob Macdonald has held several senior positions in the investment industry. At Fundhouse, he acts as a consultant and coach to financial advisors and develops and facilitates training programmes in behavioural coaching and practice management. Before joining the financial services industry, Macdonald was MBA director at the UCT Graduate School of Business. He is co-author of the book Rethinking Leadership and has consulted, written and spoken widely on a range of topics. Macdonald has a Master’s degree in Management Studies from Oxford University and is a CFP® Professional. The world seems to be getting more complex almost daily. We are experiencing an exponential growth in the availability of information and, sadly, misinformation. Arguably our knowledge and insight to handle this complexity is growing. Or perhaps not. Our brain is a sense-making machine. But when faced with overwhelming complexity, the brain takes short-cuts, a habit that results in many cognitive biases. One such short cut for example is in the question many financial planners ask: “How can I best ‘type’ my clients?” Our profession’s answer to the investment complexity that we and clients face is the risk profile questionnaire. It’s so much easier to label a person as “aggressive” or “conservative” and then put them into an appropriately labelled investment. But is this really solving the investment complexity we face? Or more importantly, is it solving the human complexity that is your client? There are many personality typing tools designed to help us understand the complexity of people better. Probably the most widely used personality test in the world is the Myers-Briggs Type Indicator. The test tries to answer four questions about you and determine where you lie between two preferences: 1. Are you outwardly or inwardly focused? Extraversion (E) or Intraversion (I)? 2. How do you prefer to take in information? Sensing (S) or Intuition (N)? 3. How do you prefer to make decisions? Thinking (T) or Feeling (F)? 4. How do you prefer to live your outer life? Judging (J) or Perceiving (P)? The full test includes 93 questions and allocates you into one of 16 different discrete personality types. You may recognise labels like ENJF or ISTP as examples of personality types. The marketing blurb for the test suggests that an understanding of your type offers you a “a powerful framework for building better relationships, driving positive change, harnessing innovation, and achieving excellence”. With outcomes like that, it’s no wonder it’s such a popular personality assessment. The test was developed in the 1940s based on personality theories offered by Carl Jung in his 1921 book Psychological Types. He suggested the four categories used in the Myers-Briggs test, but he also indicated that these were “approximate”. Adam Grant, an organisational psychologist who is particularly critical of the Myers-Briggs test, points out that Jung’s work was based on his own experiences of people, not on any empirical science. Grant suggests that the test is meaningless, that there is no evidence behind it, and that the characteristics measured have virtually no predictive power of how a person will behave in any situation, be it work or personal. Jung had warned that his personality “types” were just rough tendencies he’d observed, rather than strict classifications, but his most telling observation was, “Every individual is an exception to the rule.” And herein lies the real lesson for us as financial planners. Whatever “test” or “tool” you use to “type” your client, you are only touching the tip of the iceberg in really getting to know them. An assessment may provide some insight into a client, but if every individual is an exception to the rule, then an assessment’s best role is as a catalyst for a conversation. I would argue that having a conversation is the most powerful means of getting to know a client. Not just any conversation. A structured conversation with skillful questioning, speaking and most importantly listening; all skills which require ongoing practice and refinement. This is hard work, but important if we are to treat each client as an individual. The starting point is also challenging, to overcome our inherent bias for short cuts. 17

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