Opportunities amidst uncertainty
As the landscape of financial intermediaries evolves, it becomes crucial to explore the growth prospects and challenges anticipated in the year 2024.
In this insightful discussion, Lara Warburton, CFP®, Managing Director of Integral Wealth and FPI Financial Planner of the Year 2023, shares her expertise on the opportunities and obstacles that lie ahead for intermediaries.
Positives and negatives
Warburton said that COVID-19 changed many things for South Africans permanently - in both positive and negative ways.
“More flexible working arrangements have led to better productivity, happier staff and more connected families. The negatives that many families still live with include lost jobs and lost savings, coupled with high interest rates that hamper mortgage and debt repayments. High food, fuel and municipal inflation eats into disposal income and derails many financial plans. The power, and more recently, water crises don’t inspire confidence or encourage fixed investments for growth and job creation. Asset prices are under pressure with weak property markets in most provinces except the Western Cape. The JSE is shrinking as companies delist, and many Top 40 companies are more global than local,” she said.
Global inflation, she mentioned, has remained persistently high as a result of prolonged quantitative easing programs to stimulate economies. “It is hoped that we may see interest rates globally peak and turn during 2024 - this would be a positive for debt-laden households. Investment markets globally have been skittish and directionless, and with two regional wars being waged, this could continue into 2024.”
A word of caution
Financial advisers, Warburton said, should continue to listen to their clients – “make the time to hear what clients are saying and how they are feeling. It's easy to assume and to project what we think they are experiencing - to help them navigate their financial journeys successfully we need to understand their perspectives. It is very easy to generalise.”
“Emigration continues to impact local families - if the whole family isn’t leaving, many young working adults are. This has implications for retirement planning, life assurance, estate planning and medical provision if there is a chance they will return to South Africa. In addition, recent changes to the emigration process are important - especially the triggering of capital gains tax at the time of departure. We must be aware of limitations on where we are registered to give advice, and on which products we can advise on. We need networks of specialists to refer clients to when we have reached the limits of our more general knowledge. Beware of trusting AI-generated solutions without checking their accuracy,” she cautioned.
“There are some legislative changes on the radar including the Two Pot system which comes into effect on 1 September, and the National Health Insurance (NHI) Bill which has recently been passed and now needs to be drafted and approved. A draft of the new OMNI-CBR Report has been published for comment, and this will be time-consuming for us to complete on a quarterly or semi-annual basis. The Joint Standard on Information Technology Governance and Risk Management is also out for consultation and impacts discretionary FSPs (Cat II licenses). The JSE is now harmonising its indices to focus more on domestic stocks, by limiting exposure in the indices to predominantly offshore companies - this will impact portfolio construction as JSE index tracker funds will now have lower offshore weightings (50% vs 65% in the past),” she added.
Opportunity amidst uncertainty
“2024 is an election year for South Africa and the government is pulling out all stops to appeal to its voters for support, which could mean some short-term positives for our economy and stock market. Investment cycles are shorter and less easy to identify, making active asset allocation decisions very difficult. Often when the outlook is not good and there is a lot of uncertainty, markets surprise on the upside and deliver solid returns. The longer-term trend of equity outperformance of all other asset classes should not be forgotten in the doom and gloom of news reports. In volatile times, well-diversified portfolios with exposure to all asset classes is often the safest approach,” she said.
“The number of cyber-attacks on financial service companies is increasing at an alarming rate, and small businesses are no safer than large ones from these attacks. There are already case law and Ombud cases where FSPs have been ordered to repay client funds that have been fraudulently withdrawn from investments and advisers have not been diligent in monitoring fraudulent bank account changes etc. I encourage all firms to look for weak points in their IT systems and business processes – it's easy to make a phone call to a client to confirm an instruction, and it could save a lot of hassle, cost and reputational risk,” she added.
“AI and other technological advances make it easier for everyone to access information online, but it’s often inaccurate. Advisers can use AI to simplify processes, generate documents and streamline procedures, but it’s important to verify the accuracy of anything generated online. This could be one of the biggest opportunities we have if we have the necessary skills and can leverage it effectively,” continued Warburton.
Financial advisory practices providing holistic advice with established client bases are resilient in all market conditions, primarily because of the ongoing annual revenues earned on assets under management. In difficult times, my best advice is to look after and cherish the clients you have. Existing clients are the best source of qualified referrals, and if your clients are not referring friends and family, you should ask them to.
Considering the future of your practice
To build a sustainable business that will increase in value, Warburton said, it's important to focus on including spouses and children in our client meetings. “Young clients are the growth in our practices, and we need to plan early for continuity and succession. The right culture fit is important when considering the future of your practice.”
“The recent BHI Trust debacle creates an opportunity for advisers - use this opportunity to educate existing clients on the importance of regulated products, proper due diligence on investments, and the value of sound advice. Many people have friends or acquaintances who have lost money, and there are many scams out there. This all helps to build trust, and trust is everything in our profession,” she advised.
“When reading gloomy news, remember the resilience of South Africans - we are a ‘can do’ and ‘make it happen’ nation. There are many local and global South Africans who thrive and create opportunities even when times are tough. There is also a vibrant informal economy that continues to provide goods and services to needy customers, and there are businesses and entrepreneurs who are doing well in these difficult times.”
Writer’s thoughts
In the midst of uncertainty and change, Warburton's reflections shed light on the path forward for financial intermediaries in 2024. By prioritising client needs, embracing technological advancements, and staying abreast of regulatory developments, intermediaries can position themselves for success in the year ahead and beyond. Do you agree? Please comment below, interact with us on X at @fanews_online or email me - myra@fanews.co.za
