Nicolette Dirk, finance writer, justmoney.co.za
South Africa’s evolving savings and investment environment has changed the way in which consumers seek financial advice according to Andrew Bradley (pictured), CEO of Old Mutual Wealth.
“The changing nature of client demands, as well as the shifts in the industry, has reshaped the way in which individuals seek financial advice,” said Bradley.
How financial advice was given in the past
In the past true wealth was primarily generated via inheritance but the industrial revolution made it possible to generate wealth through hard work.
“Only since the 1960s did individuals really have the required ‘vehicles’ to generate wealth through savings and investments by giving their money to someone else to generate wealth on their behalf. This phase of wealth creation was however relatively simple, with most investments going into public companies or listed property,” said Bradley.
How it’s done today
Today individuals are faced with far more complex financial structures and instruments.
Bradley explained that more advice is needed to ensure needs are appropriately taken care of. The typical product-led approach tasks financial planners to sell various products to the market, and assumes that both the clients and the financial planners fully understand the extent of how the products work and what they can and can’t do for them.
“Sadly with complexity this is often not the case. This means that an advice-led approach is critical. This is further exacerbated by the reality that the lifestyle choices available and current demands of life on individuals have changed dramatically, as the financial services arena has evolved,” said Bradley.
Which product suits you?
“A Retirement Annuity (RA) is a good product as all money that an individual contributes receives a tax break, all growth is tax free and there is also a favourable tax dispensation when the money is paid out. It can be a useful tool in financial planning, as money can be accessed when you are 55 and support you during your retirement years,” said Bradley.
Mike Brown, managing director of eftSA retirement annuity, said a retirement annuity will give you access to the top 40 shares.
“With a retirement annuity fund you build your fund as it suits you,” said Brown.
But a retirement annuity isn’t for everyone and is not an ideal vehicle for all your savings. If you, for example, are 30 and put all your savings into an RA, it will mean that if you need money for some reason before the age of 55, this money can’t be accessed - which could potentially lead to financial distress.
“While an RA is appropriate for most individuals, the level at which it is appropriate needs to be assessed,” said Bradley.
He added that people are also no longer satisfied with living mundane simple lives – they demand it all, and they demand it now. This creates a host of complexities when it comes to developing and implementing an investment strategy. “Given the evolving savings and investment environment, as well as each individual’s complexities, a ‘product-led approach’ is simply no longer appropriate,” said Bradley.
How can advice-led approach help?
Bradley said advice-led approach results in financial planners first engaging with clients to ascertain and understand their needs and tasks the financial planner to ask the right questions and to deal with the relevant dynamics unique to the client.
“By using this framework, the financial planner is in a position to make the most appropriate recommendations relating to the individuals specific investment strategy and investment vehicle utilisation that will create the greatest likelihood of the client achieving their set objectives,” said Bradley.