8 months ago

Blue Chip Issue 86

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Blue Chip Journal is a quarterly journal for the financial planning industry and is the official publication of the Financial Planning Institute of Southern Africa NPC (FPI), effective from the January 2020 edition. Blue Chip publishes contributions from FPI and other leading industry figures, covering all aspects of the financial planning industry. Visit Blue Chip Digital:


BLUE CHIP COLUMN A NOBLE PROFESSION Improving the lives of others. Kobus Kleyn, CFP®, Tax and Fiduciary Practitioner, Kainos Wealth Kobus Kleyn has published over 200 articles and authored three books. He is a multiple award-winning professional and holds eight memberships with professional associations. His most recent awards were lifetime achievements awards from the FPI (Harry Brews), The Million Dollar Round Table (Top of the Table Life Membership) and Liberty Group (Life Membership) in 2021/22. As financial professionals in a noble profession, we must change people’s lives for the better while we, consequently, improve our lives too. In the process, we take care of clients and their families. Taking care of families through their life cycles and during life-changing events can be emotional for us as professionals and our staff. Financial advisors are, in most cases, significantly more stressed than their clients. According to a study by the Financial Planning Association, 63% of clients experience high or moderate stress, while 71% of advisors admit to being stressed. Stress levels year on year are increasing, with 28% of advisors having more stress than a year ago and 44% having more than five years ago. The same questions indicate lower stress levels for clients. The pandemic has played a significant role in advisor stress levels, and there is no doubt that advisors’ health was impacted. Issues like global inflation, market volatility, the new digital virtual world and the cost of running a practice are not helpful. When clients or family members pass away or have a disability or critical illness, it can bring raw emotions to the front and we, as advisors, have to take it all in while staying calm and focused on ensuring we take care of our fiduciary duties in support of the family when most needed. In the last 30 months many of us lost more clients, than during our whole time in our profession. A close bond will form if you have been a custodian of a client’s financial plan and servant for 20 years. If something were to happen to the client or family, you cannot avoid being impacted by the emotions. That conversation during an ugly divorce, a chat about teenage children involved with drugs or the loss of a family member or job will bring emotions and stress to you, your client and your staff. The question that comes to mind is, while you take care of your clients, who is taking care of you? What can you do to ensure self-care? If you do not take care of yourself, you may not be there long enough to keep taking care of your clients! Apart from the emotional part of our profession, many professionals work very long hours in a most challenging profession to build a sustainable practice while achieving minimum qualification and experience, with the most severe financial constraints and income restrictions. If the stress and emotional aspects are not controlled, it can be a disaster waiting to happen with our health and practice survival. We have to mitigate these danger areas by working towards a balanced lifestyle. Fortunately, the pandemic had some silver linings as well and the major one to me is that it pulled the digital virtual world forward by five to 10 years. It did the same with technology and allowed us to create hybrid practices. Concepts like #workingfromhome, #workingfromanywhere and even #workingfromtravel became the new buzzwords. It is now in our hands as entrepreneurs to embrace these concepts where possible to mitigate stress levels by removing some negative stress items (office politics and traffic) and replacing them with positives like a tranquil scenery, more family time, better working hours and efficiency to name but a few, while reducing overheads and financial stress on the practice and family. Find ways and means to take care of yourself through ongoing initiatives to allow you to keep taking care of your clients and our profession. It is important to identify stress issues, control what can be controlled and do not stress about matters outside of your control. Once you have recognised these stresses, you can manage, plan and organise around them in your practice. It is critical to work on the whole person concept and always embrace a balanced lifestyle with a positive attitude. It is about mindset, mindfulness and the pursuit of happiness in your and your family’s lives. “If you don’t make time for your wellness, you will be forced to make time for your illness” - anonymous. 18

The local need for truly global advice The need for truly global investment expertise to support the local advice industry is more pressing than ever, but why? In August 2022, Discovery Group announced the launch of Cogence, South Africa’s first “truly global” discretionary fund manager (DFM) with the ambition of significantly enhancing the business of wealth creation in the country. Speaking at the launch, Discovery CEO Adrian Gore contextualised the rationale for the new business by describing two trends that are fundamentally transforming the global and local investment industry. Firstly, investors need – and have been afforded – greater global reach. However, the global investment landscape is becoming even more vast, complex, sophisticated and volatile. Secondly, the global shift to defined-contribution retirement schemes means that the investment, as well as behavioural and longevity risk associated with long-term investing has been transferred almost entirely to the individual. “Together, these trends create gaps in the local DFM market, necessitating a ‘step up’ in the burgeoning advice industry,” says Gore. To best equip financial advisers and their clients to take advantage of the immense world of opportunity that comes with offshore investing, the local savings industry stands to benefit from truly global asset management expertise. What’s all this global investment interest, anyway? While there are numerous reasons why individual investors might want to gain access to global markets, it ultimately boils down to diversification. By diversifying a portfolio with an appropriate mix of assets, it is possible to maximise expected returns for a given level of risk. Naturally, the wider the choice of assets, funds, management styles, markets, geographies, sectors and so forth available to construct a diversified portfolio, the better the theoretical risk/return balance. With South Africa’s market representing only 1% of the global equity market, it’s easy to see that constructing a portfolio of purely local assets bucks the logic of diversification by limiting choice. In fact, the logic for global diversification holds true, no matter where in the world you might call home. Beyond optimising for risk and return, investing globally further provides investors with access to promising industries and themes that have little or no representation in the local market. Think big tech, healthcare or automobiles. With the offshore limit under Regulation 28 of the Pensions Fund Act having been relaxed to 45%, local investors are afforded an unprecedented opportunity to take advantage of all the world has to offer. Says Gore, “No matter how you look at it, a rational investor would want exposure to global markets.” Why the need for a “truly global” DFM? DFMs assist financial advisers in enhancing the investment outcomes for their clients. In part, they achieve this by performing, or advising, on the strategic and tactical asset allocation required to construct diversified portfolios tailored to the individual risk tolerance and circumstance of the investor. Gore says that while the rapidly growing DFM industry offers some investment choice, control, local advice, reporting and modern technology – there is a “need for change”. The sheer scale of global markets suggests that for any local business to keep fully abreast of the fund and asset choices available abroad would be a daunting, if not impossible, task. While it is possible for a local firm to monitor local opportunities – the local partner to Cogence, RisCura, conducts research on every asset manager in the country to inform its local manager allocations in the Cogence model portfolios – this scale explodes by orders of magnitude when looking abroad. Moreover, global markets are volatile and growing increasingly complex due to the rise of alternative asset classes such as private credit and equity and hedge funds. There are few companies in the world that have the analytic capabilities and global presence required to carry out the research to develop a comprehensive understanding of the risks and opportunities that exist in such a sophisticated investment universe. While some local DFMs have a global footprint, none previously have had a full global reach. It is for this reason that Cogence brought the global model portfolio asset allocation advice of BlackRock, one of the world’s leading asset managers, along with its leading investment and risk management technology platform, Aladdin Wealth, to the service of local advisers. As a truly global asset manager, BlackRock in September 2022 counted the expertise of over 2 600 investment professionals focused on research, portfolio management and trading from its offices in more than 35 countries to administer more than USD8.5-trillion in assets. That is over 45 times the assets under administration of the entire South African unit trust industry. “Cogence will leverage off the full scale of BlackRock’s investment research and global expertise, which is essential in such a complex world,” says Kenny Rabson, Discovery Invest CEO. “BlackRock is uniquely positioned to help clients navigate this complex global environment and evolve client portfolios to aim to maximise the success of future outcomes,” believes Rabson.

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