Embrace it

Investment advisers should applaud Government for introducing retail bonds. They are an opportunity, not a threat, says Stanlib.

Its view challenges the more defensive attitude of those in the broker community who fear that direct-to-the-public retail bonds will divert savings or income fund business from advisers.

There are two reasons:

1. A simple savings product like this has the potential to grow the market for financial services as it could serve as any entry-point for families who currently make little use of investment products.

All efforts to build a savings ethic should be applauded by industry professionals.

2. A retail bond could serve as the base for a balanced portfolio. Advisers can add value by explaining the role of other product types and the importance of diversification in the quest for the best risk-adjusted returns.

The retail bond could spotlight the adviser’s role as a market educator.

The initial response in some quarters of the industry was one of concern. Retail bonds (with returns of between 7% and 10% across two-, three- or five-year terms) could attract inflows that might otherwise have gone into products marketed via the intermediary channel.

Retail bonds are a dis-intermediated option, available via the post office or over the Internet from the National Treasury website. Government’s embrace of direct selling was seen by some as challenge to financial advisers.

Sean Segar, head of Ventures and Alternative Investments at STANLIB, points out:

oAn intermediary’s existing client-base should be unaffected as retail bonds appear to be aimed at less sophisticated investors who do not have financial advisers.

oEven though advisers don’t market the retail bond they can accommodate it as a low-risk element in a portfolio. In some instances, this will enable a client to show greater appetite for risk in the selection of complementary products.

oThe retail bond is a chance to demonstrate ‘the intermediary difference’.

It is being marketed via channels that exclude the possibility of personal advice and in-depth comparisons across various alternatives. By providing quality service, expertise and the personal touch, advertisers can win ‘converts’ to intermediary-driven marketing.

He adds: “In the long term the retail bond’s introduction is a wonderful opportunity to grow the pool of regular savers. Over time, this will create a growing supply of potential clients for service-driven intermediaries.

“The retail bond is obviously not intended to be the single, silver-bullet solution to all a client’s saving and investment needs. As retail bond-buyers mover up the sophistication curve they will require guidance on the merits of complementary financial products.

“Proactive intermediaries are well placed to benefit from these opportunities.”

Bond-buyers are not the only ones moving along the learning curve. This is government’s first major initiative in the savings market. It will be monitoring uptake and will take stock of developments as it goes along.

Segar notes: “Government’s first sally into the market uses the dis-intermediated model. This does not mean all future interventions will follow the same track.

“In future, Government may see the value of professional advice and personal service and wish to involve intermediaries.