Blue Chip Issue 96

BLUE CHIP On the money

BLUE CHIP On the money Making waves this quarter The financial advice gap and taking your wealth offshore THE CULTURAL SHIFT NEEDED TO CLOSE THE FINANCIAL ADVICE GAP Momentum’s recently released Financial Advice Research 2025 report, conducted in partnership with the Bureau of Market Research, revealed that only 9% of South African households have a professional financial advisor. This is despite the average amount of investments for households with an advisor being 9.5 times larger than households without advisors, illustrating what a staggering difference a financial advisor makes. According to Cebile Zibi, executive head of trade marketing and communications for Momentum Advice, closing this gap requires a major shift akin to a cultural reset. “This isn’t just a financial gap,” said Zibi. “It’s a confidence gap. It’s a clarity gap. And ultimately, it’s a gap in opportunity. “When people connect with advice that understands their context - their struggles, aspirations, and cultural nuances - something powerful happens,” says Zibi.“If we want to replace the advice gap with an advice culture, we need to get three things right: the relationship with the financial advisor, how we engage and focus on building trust.” Firstly, advice needs to focus on relationships not transactions. Professionally backed financial advice doesn’t start with a product. It’s rooted in experience and industry knowledge, empathy, active listening and asking the right questions, for example: “What keeps you up at night?” and “What does success look like for you in the next five years?” “A good advisor doesn’t just sell, they serve,” says Zibi. “They want to understand your life before they talk about products.” Lastly, trust isn’t built through pitches - it’s built through transparency, honest communication and clear expectations. “You should never walk away from a financial conversation feeling more confused,” Zibi says. “Jargon erodes trust. Clarity builds it.” WHEN IS THE RIGHT TIME TO TAKE YOUR WEALTH OFFSHORE? Opening an offshore bank account makes sense early on - especially for individuals earning income abroad or running a business with international exposure. Setting up an offshore trust is a next-level step. It becomes appropriate when your wealth reaches a certain scale or when estate planning, intergenerational wealth transfer or asset protection become key priorities. Key considerations Wealth accumulation. The benefits of asset protection, estate planning and structured wealth transition can justify the setup costs of trusts. Circumstances. Having a high tax burden, exposure to litigation risk or the need to ensure generational wealth may prompt earlier trust structuring. In these cases, an offshore trust offers pre-emptive protection of assets. Choice of jurisdiction. Political stability, legal robustness, tax treaties, regulatory transparency and the financial services environment should all be considered when assessing a jurisdiction’s suitability. Offshore bank and investment accounts While many South Africans make use of foreign currency accounts to manage foreign payments, these accounts remain subject to exchange control regulations and lack true independence. In Cebile Zibi, Executive Head of Trade Marketing and Communications for Momentum Advice contrast, offshore transactional accounts allow for the receipt of foreign funds, execution of global payments and access to funds being held in foreign jurisdictions via debit, credit or prepaid cards. While offshore earnings might not incur tax in their local jurisdiction, South Africans are taxed on worldwide income, interest and capital gains. Tax compliance is increasingly being automated under Common Reporting Standards, meaning that balances, interest and dividends are automatically reported to SARS via offshore banks. Offshore trusts Knowing when to move from simply holding funds offshore to placing them in an offshore trust is an important strategic decision. While offshore accounts offer flexibility and convenience, trusts are designed for long-term wealth protection and legacy planning. Trusts are also useful when it comes to assets that cannot be easily split - like property - or when there is a need to separate personal wealth from business interests. If you are considering setting up a trust, it is essential to weigh the returns of the underlying investment against the annual trustee and administration fees. If the returns on your offshore assets do not comfortably cover such costs, it may be worth waiting until your portfolio has grown before establishing a trust. By Coreen van der Merwe, Director, Sovereign Trust (SA) 14 www.bluechipdigital.co.za

PRACTICE MANAGEMENT | Operations BLUE CHIP A new era of wealth advisory partnerships The financial services industry is undergoing a profound transformation. Historically, independent financial advisors (IFAs) operated under the 80/20 principle - devoting 80% of their time to client relationships and marketing and only 20% to administrative and compliance responsibilities. Today, this balance has effectively reversed. Regulatory demands, operational complexities and rising costs have significantly reduced the time that advisors can dedicate to client engagement, impacting both business growth and client service. From an operational standpoint, running an independent practice has become increasingly challenging. Regulatory frameworks such as the Financial Advisory and Intermediary Services Act (FAIS), Conduct of Financial Institutions Bill (COFI) and Retail Distribution Review (RDR) have added layers of complexity and cost. Maintaining a compliant and competitive practice now requires investment in professional indemnity insurance, CRM platforms, secure communication systems (including recorded lines and data backups), regular client reviews and sophisticated financial needs analysis (FNA) tools. These are burdens that disproportionately strain smaller practices. Another critical challenge lies in the fund selection process. Conducting thorough due diligence on unit trust funds is a daunting task, given the limited and often outdated information provided in fund fact sheets and minimum disclosure documents (MDDs). These documents offer historical data and partial portfolio disclosures but provide little guidance on forward-looking performance or strategy. With more than 1 800 unit trust funds listed by the Association for Savings and Investment South Africa (ASISA), selecting the right options for clients is increasingly complex and fraught with uncertainty. As a result of these pressures, the market has seen a wave of consolidation, with many IFAs affiliating with large corporates in the hope of easing operational burdens. However, this often comes at a substantial cost, having to split up to 30% of the IFA’s revenue. Crucially, such partnerships do not guarantee an increase in client acquisition as the responsibility for building and maintaining a client base remains solely with the advisor. Lower margins and reduced control also make business growth and long-term asset accumulation increasingly difficult, weakening the advisor’s overall value proposition. Succession planning is another growing concern. Advisors are frequently presented with unattractive internal succession offers, often at price-to-earnings (P/E) multiples of just 1.5 to 2.5 - far below the P/E ratios of listed financial institutions, which can reach P/E multiples of 15 to 20. This disparity forces many advisors to remain in practice long past their preferred retirement age simply to sustain their financial security and business value. In response to these challenges, Warwick Wealth has developed an advisory partnership model designed to solve these industrywide challenge points. Our model offers IFAs a 100% revenue split while also providing full operational support - including compliance, administration and investment management - through our established Warwick Wealth platform and the expertise of Orion Investment Managers. In addition, our partnership includes a market-leading succession plan with a far more attractive P/E multiple of 10, ensuring that advisors and their families receive true value for their life’s work in the event of retirement, disability or unforeseen circumstances. For many advisors, this may represent the final opportunity to make a strategic career decision or licensing change. We encourage you to explore what Warwick Wealth can offer - for the benefit of your business, family, and, most importantly, your clients. Deon Myburgh, Director: Mergers and Advisory, Warwick Wealth www.bluechipdigital.co.za 15