Blue Chip Issue 96

BLUECHIPOn the

BLUECHIPOn the moneyMaking waves this quarterThe financial advice gap and taking your wealth offshoreTHE CULTURAL SHIFT NEEDED TO CLOSE THE FINANCIAL ADVICE GAPMomentum’s recently released Financial Advice Research 2025 report,conducted in partnership with the Bureau of Market Research, revealedthat only 9% of South African households have a professional financialadvisor. This is despite the average amount of investments for householdswith 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 andcommunications for Momentum Advice, closing this gap requires a majorshift akin to a cultural reset. “This isn’t just a financial gap,” said Zibi. “It’s aconfidence 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 – somethingpowerful happens,” says Zibi.“If we want to replace the advice gap withan advice culture, we need to get three things right: the relationship withthe 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, activelistening and asking the right questions, for example: “What keeps youup at night?” and “What does successlook like for you in the next five years?”“A good advisor doesn’t just sell,they serve,” says Zibi. “They want tounderstand your life before they talkabout products.”Lastly, trust isn’t built throughpitches – it’s built through transparency,honest communication and clearexpectations. “You should never walkaway from a financial conversationfeeling 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 – especiallyfor individuals earning income abroad or running a business withinternational exposure. Setting up an offshore trust is a next-levelstep. It becomes appropriate when your wealth reaches a certain scaleor when estate planning, intergenerational wealth transfer or assetprotection become key priorities.Key considerationsWealth accumulation. The benefits of asset protection, estate planningand structured wealth transition can justify the setup costs of trusts.Circumstances. Having a high tax burden, exposure to litigationrisk or the need to ensure generational wealth may prompt earliertrust structuring. In these cases, an offshore trust offers pre-emptiveprotection of assets.Choice of jurisdiction. Political stability, legal robustness, taxtreaties, regulatory transparency and the financial services environmentshould all be considered when assessing a jurisdiction’s suitability.Offshore bank and investment accountsWhile many South Africans make use of foreign currency accountsto manage foreign payments, these accounts remain subject toexchange control regulations and lack true independence. InCebile Zibi, ExecutiveHead of Trade Marketingand Communications forMomentum Advicecontrast, offshore transactional accounts allow for the receipt offoreign funds, execution of global payments and access to fundsbeing 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 capitalgains. Tax compliance is increasingly being automated underCommon Reporting Standards, meaning that balances, interest anddividends are automatically reported to SARS via offshore banks.Offshore trustsKnowing when to move from simply holding funds offshore to placingthem in an offshore trust is an important strategic decision. Whileoffshore accounts offer flexibility and convenience, trusts are designedfor long-term wealth protection and legacy planning.Trusts are also useful when it comes to assets that cannot be easilysplit – like property – or when there is a need to separate personalwealth from business interests. If you are considering setting up atrust, it is essential to weigh the returns of the underlying investmentagainst the annual trustee and administration fees. If the returns on youroffshore assets do not comfortably cover such costs, it may be worthwaiting 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 | OperationsBLUECHIPA new era of wealthadvisory partnershipsThe financial services industry is undergoing a profound transformation.Historically, independent financial advisors (IFAs) operatedunder the 80/20 principle – devoting 80% of their timeto client relationships and marketing and only 20% toadministrative and compliance responsibilities. Today, thisbalance has effectively reversed. Regulatory demands, operationalcomplexities and rising costs have significantly reduced the timethat advisors can dedicate to client engagement, impacting bothbusiness growth and client service.From an operational standpoint, running an independent practicehas become increasingly challenging. Regulatory frameworks suchas the Financial Advisory and Intermediary Services Act (FAIS), Conductof Financial Institutions Bill (COFI) and Retail Distribution Review(RDR) have added layers of complexity and cost. Maintaining acompliant and competitive practice now requires investmentin professional indemnity insurance, CRM platforms, securecommunication systems (including recorded lines and databackups), regular client reviews and sophisticated financial needsanalysis (FNA) tools. These are burdens that disproportionately strainsmaller practices.Another critical challenge lies in the fund selection process.Conducting thorough due diligence on unit trust funds is a dauntingtask, given the limited and often outdated information providedin fund fact sheets and minimum disclosure documents (MDDs).These documents offer historical data and partial portfoliodisclosures but provide little guidance on forward-lookingperformance or strategy. With more than 1 800 unit trust funds listedby the Association for Savings and Investment South Africa (ASISA),selecting the right options for clients is increasingly complex andfraught with uncertainty.As a result of these pressures, the market has seen awave of consolidation, with many IFAs affiliating withlarge corporates in the hope of easing operationalburdens. However, this often comes at a substantialcost, having to split up to 30% of the IFA’s revenue. Crucially, suchpartnerships do not guarantee an increase in client acquisition asthe responsibility for building and maintaining a client base remainssolely with the advisor. Lower margins and reduced control also makebusiness growth and long-term asset accumulation increasinglydifficult, weakening the advisor’s overall value proposition.Succession planning is another growing concern. Advisors arefrequently presented with unattractive internal succession offers,often at price-to-earnings (P/E) multiples of just 1.5 to 2.5 – far belowthe P/E ratios of listed financial institutions, which can reach P/Emultiples of 15 to 20. This disparity forces many advisors to remainin practice long past their preferred retirement age simply to sustaintheir financial security and business value.In response to these challenges, Warwick Wealth has developedan advisory partnership model designed to solve these industrywidechallenge points. Our model offers IFAs a 100% revenuesplit while also providing full operational support – includingcompliance, administration and investment management – throughour established Warwick Wealth platform and the expertise ofOrion Investment Managers. In addition, our partnership includesa market-leading succession plan with a far more attractive P/Emultiple of 10, ensuring that advisors and their families receive truevalue for their life’s work in the event of retirement, disability orunforeseen circumstances.For many advisors, this may represent the finalopportunity to make a strategic career decision orlicensing change. We encourage you to explore whatWarwick Wealth can offer – for the benefit of yourbusiness, family, and, most importantly, your clients.Deon Myburgh, Director: Mergers and Advisory,Warwick Wealthwww.bluechipdigital.co.za 15