Collaboration is the key

Lesley-Ann Morgan

Now, more than ever, in a low return environment, investment intelligence is a prized commodity. As an adviser, you are tasked with creating, crafting and managing people’s investment dreams and expectations on a daily basis.

“The task ahead is not an easy one,” Glacier Insights Chief Executive Khanyi Nzukuma told the advisers that were gathered at the recently held Glacier Idea Labs. However, with persistence, these dreams can be realised. 

A small effort over a sustained period can achieve great things. 

Poor understanding

One would be forgiven for thinking that retirement challenges are only present within the South African market. However, Lesley-Ann Morgan, Head: Multi Asset Strategy at Schroders UK, pointed out that retirement on a global scale is at a tipping point with several factors driving the challenges that are present in the market. 

The need for professional advice is urgent and pertinent. Advisers are not losing their relevance amidst the industry noise regarding change. 

“It is not all champagne and cruises when it comes to retirement. There are retirees who are facing frightening realities. This is primarily driven by the fact that they simply have a poor understanding of how much cash they will need to fund their retirement and what their lifestyles during retirement will actually be,” said Morgan. 

A study done by Schroders painted a perfect example of this lack of understanding. Survey participants were asked what percentage of their retirement income would be spent on essentials (food, clothing, housing and accommodation) on a monthly basis. 

People responding to the survey felt that they would be spending 34% of their monthly retirement income funding essentials. The reality is that they were spending 59% of this income. That is a shortfall of 25%. Over time, this causes catastrophic damage. 

No easy solution

The understanding that retirees can be resolved through professional advice and a relationship with advisers whereby expectations can be managed on an effective basis.

There are other challenges which are not so easily resolved. “Economic activity is driven by a combination of a growing labour force and productivity growth. There is a major challenge in both factors. There is a declining labour force which is a function of decreasing fertility rates or parents rethinking their decisions about having large families. It is very common to now find families that not only have one child, but no children at all. This means that aging populations are growing more steadily than younger populations,” said Morgan. 

Tech worries

In addition, technology is having a growing influence on the declining labour force. 

Mechanisation is becoming common in the manufacturing sector as machines are proving to be efficient when it comes to basic tasks and mostly circumvents the human error challenge. 

While technology is improving the world that we live in, it needs to be managed responsibly. 

“Technology is changing business models and is forcing companies to make major investments. From an investment perspective, this needs to be managed on an active basis and fund managers tend to stay away form larger companies who need to make major investments into technology because of the time it takes to adjust to the technology controlling their processes. Production during this time will not be as high as with smaller companies who are not working with massive scale,” said Morgan. 

Environmental concerns

One of the other global investment challenges, which directly impacts companies, are environmental concerns. 

Environmental, social and governance (ESG) investing is gaining major momentum on a global scale. Investors are putting pressure on fund managers to move their investments away from companies who have questionable ESG practices in favour of funds/portfolios that are ESG centric. 

If we consider this within the South African context, this has major implications as the mining industry has long been the backbone of our economy and major coal mining companies are now being forced to divest in the assets which are at the very heart of their business or face decreased to zero investments. 

“Schroders has done a lot of modelling when it comes to environmental factors surrounding investments. Our model implies that 10 to 15% of the value of global companies could be lost to the stipulations which are set out by the Paris Accord which governs carbon emissions. Countries are going to move away from fossil fuels which has major implications for the mining industry,” said Morgan. 

The price of progress

The price of progress was always going to leave some casualties in their wake. 

The movement towards ESG investing is currently gaining momentum and will only be more aggressive as younger investors are forcing companies to become more accountable on issues such as ethics and carbon footprints. Companies need to reassess and readjust business models. 

In addition, a solution for the technology conundrum needs to be found where the labour force does not decrease significantly. Emerging markets are currently five years behind developed markets, so this is not really an issue yet. The benefit of this is that if interventions are made now, it may never be an issue. 

Clients are becoming more demanding when it comes to their relationship with advisers as they do not want to suffer during retirement. Clients want to consult with advisers on an ongoing basis but want to do it in innovative ways. Again, technology will play a role here and advisers will need to adjust advice models. 

Editor’s Thoughts:
There are a lot of positives about being on the precipice of change. This is where innovation thrives, and solutions are found. Let’s talk to our clients about the realities that they face and the drivers of value or challenges. Collaboration is the key to success. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.