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Reshaping advice

01 November 2013 Andrew Bradley, Old Mutual Wealth

Changing lifestyle and family structures, increased product complexity and choice, as well as an ever evolving savings and investment environment has resulted in many South Africans seeking greater access to financial advice, in order to make more informed and sound financial decisions.

That is according to Andrew Bradley, CEO of Old Mutual Wealth. Bradley says that the changing nature of client demands, as well as the shifts in the industry, has reshaped the way in which individuals seek financial advice. It has also resulted in a prominent need for a lifestyle-centric and advice-led approach.

Changing viewpoints

"Historically, true wealth was primarily generated via inheritance, then, the industrial revolution enabled individuals to generate wealth via their hard work and enterprise. 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.

"Fast forward to today and individuals are faced with far more complex financial structures and instruments.”

Bradley explains that the more complex world requires far more advice to ensure clients’ 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 full extent of how the products work and what they can and cannot do for them. Sadly, with complexity this is often not the case. This means that an advice-led approach is critical.

Leading through advice

"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. Both of these dynamics call for a change in approach.”

He adds that while there are, according to him, very seldom badly developed financial products, the challenge from an advice perspective is to ensure that the product being considered is appropriate for a specific individual’s needs. Without having a fairly good understanding of the financial structures and complexities, a client could land up with a financial product which is not appropriate for the client’s specific needs, which in turn could result in a potentially disastrous situation for the client’s finances.

Relevant advice

Bradley refers to a Retirement Annuity (RA) as an example. "An RA, in its simplest form, is a good product as all money that an individual contributes receives a great 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. On the other hand, if you 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.”

"This illustrates that while an RA is appropriate for most individuals, the level at which it is appropriate, needs to be assessed.”

Understand the differences

He says that given that there are thousands of products currently available to individuals, each with a number of differences, it is a difficult, but critical task, to fully understand all the differences.

"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.”
Quick Polls

QUESTION

The South African authorities are hard at work to ensure the country is removed from the global Financial Action Task Force grey-list by February or June 2025. What do you think about their ongoing efforts?

ANSWER

But what about the BRICS?
Compliance burden remains, grey-list or not.
End-2025 exit is too optimistic.
Grey-list is the new normal.
Too little, too late.
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