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Financial planners play a key role

09 March 2016 Jonathan Faurie

When it comes to household debt, it seems that South Africans really know how to be trendsetters. According to a recent report by Fin24, the average South African pays as much as 79% of every rand on repaying debt.

This is staggering if one considers the implications of this. According to, the current average monthly wage in South Africa (correct as of the last quarter of 2015) is R17 387/m; and if we apply the 79% payment logic, the average South African spends about R13 735/m on debt.

This leaves little room to breathe. After debt the average South African has R3 652 to get them through the month. One then wonders why there is no savings culture in the country.

The root of the problem

Despite this, there is a mind-set in South Africa that more needs to be done when it comes to savings. Sankie Morata, Chairperson of the Financial Planning Institute, feels that South Africans know that they need to reach their financial goals, but this does not translate into higher savings rates.

If we look at the above scenario, one cannot help but ask how a person who has R3 652/m is expected to save.

“We need to do some serious studies into the phycology around spending. Why is it that we talk about this only when we are in dire situations? We need to sit with our children and make them financially savvy,” says Morata.

This sentiment was echoed by Lyndwell Clarke, Head of Department Consumer Education at the Financial Services Board. He feels that a lot of education also needs to take place at school level. There is no financial orientation at Grade 11 or 12 levels where students are ready to focus on furthering their education or entering into the workplace.

It’s all about the bling

Coupled with this is the fact that South Africa has a culture of instant gratification. Clarke points out that some South Africans like to show off their wealth by purchasing luxury vehicles or living lifestyles that are beyond their financial means.

There is legitimacy to this thought pattern. Karen Muller, Head of Growth Market Solutions at Sanlam, says that financial education without understanding behavioural economics is problematic. How are people going to work with money if they are not taught how to?

While we like to stand back and say that we are not the offending party in this situation, more people live on credit than we would care to admit. This is evidenced by a recent report in the media which said that some South Africans are three months behind on their debt repayments. While compound interest can be used in your client’s favour, cumulative interest on debt is nothing but the enemy. In this situation, clients have to pay off three month’s of interest on debt before even getting to paying off the debt.

Ripple out

So how do we start to encourage a culture of savings? I often use Bruce Lee’s famous quote: drop a pebble in the ocean, you don’t know where the ripples travel to. If clients are going to start savings towards retirement, be it among lower income earners or higher income earners, they have to realise that they are in it for a sustained period of time and that they need to save within their means.

The first thing that needs to change is how clients view retirement. While a house and a car are your client’s most valuable tangible assets, they won’t be possible if their most intangible asset – their ability to earn an income – is compromised. This is true for their working life and it should be true for their retirement.

So now we have presented the thought to the client, and we have the goal clear in our minds. How do we get there? For most people, it is through investments and purchasing a retirement product.

But what do lower income earners do? Are there products focused on the portion of society that exists on the fringes of the financial services industry? How do we bring them in?

While there are very few products focused on lower income earners, insurers are working on improving this. Muller says that there is no reason why insurers can’t focus on this, insurers need to focus on developing a product that will ultimately add value to the market that they want to capture. Distributing this has been a problem in the past, but with technology, this is becoming easier and more cost effective.

The bottom line is that the cliché of you are the master of your own destiny is more pertinent now than before. Society has just lost focus on their savings goals and how detrimental debt is to saving towards ones future.

Editor’s Thoughts:
Some debts (such as mortgage and vehicle finance) are unavoidable. Other debts such as credit cards and personal loans are. Financial planners have a key role to play in the future of the country and creating a savings culture. How do we work with clients to support this? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts


Added by Oswell, 11 Mar 2016
Yes we need to create a saving culture in our country to enable banks to lend money to small businesses which ultimately will tackle unemployment.

However a large number of the youth in this country are unemployed. How do we except them to save money, taking in account the fact that our country is 70% youth.

The working class is mostly people over 35 years and they have close family and extended family to take care of. It is difficult for the to save.

We have unions in our country because of low wages and harsh working environment. Earning R3500 a month, how much can you really save? A large number of the working class do not earn R10000 a month and buying on credit makes it easy for them.

However the culture of saving is needed, we need to address other issues that lead to conspicuous consumption by low income class.

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Added by JS, 10 Mar 2016
Thank you for this article. I enjoyed the stats particularly.
I will keep it for future reference.

It brings me to a seemingly unrelated subject: Remuneration of Intermediaries.

The same question can be asked: How can the bulk of SA's population afford to pay for much needed (yet low on the priorities list) financial advice? It’s a situation of pay now, enjoy financial freedom later. Humans don't function like this.

Yet this is exactly the way that the FSB intends to forge ahead: People in desperate need of financial advice are going to have to pay a professional a fee (with money that they don't have), to get advice (which they will only partly follow, at best) that will require them to suffer now (which they don't want to do and most probably won't see through), so that they might (not guaranteed) be able to just modestly get by (not live like the rich and famous).

I have this problem because I am that intermediary, and have been for almost 19 years now. I've seen a lot of people come (make a killing) and go.
I've built my practice not as aggressively as I could / should have, but ALWAYS with integrity and the client's interest as my moral guide. I have made mistakes over the years, where I should have pushed a client harder to do something that I know is right. (I ALWAYS do a thorough FNA. In our office, I hold the record for 17 years running, for conducting an FNA on 100% of all submitted business and changes.) But I didn’t always push the clients to do what I know they should do. Occasionally this lead to clients suffering, because they didn’t follow my advice.

The benefit of my long term approach is that I have a loyal client base that I regularly revisit.
I have stayed with one company for the most of my 19 years. But I have decided that it is time for me to move on and start my own practice. That means that I will have to employ admin staff, compliance officers, and all other overhead expenses associated with running your own practice.

Now I have the same problem with the FSB and proposed changes on both sides of the spectrum: Long term and short term insurance...

On the life side, the commission will most probably be halved, with a trail commission payable on an as and when basis. We all know that this was done a couple of years back with the investment / savings plans.

On the short term side, the as and when commission will most probably stay, but the broker admin charges "are currently under scrutiny".

So I will have to carry all my overhead expenses over and above my current monthly and annual expenses with less income.

(Life side:) The false hope / dream that clients will magically have money to dish out for something that they used to get in the past and which was included in the product fee (i.e. commission) is something that only a person that have never spent years in the field will believe.

(Short term side:) I agree with the FSB's argument that brokers need to define their services for which they charge the "additional" broker admin fee. But I don't agree with the FSB that assisting a client with a claim is not a reasonable reason to charge the client said fee on a monthly basis, because they may or may not use the service, as they may or may not actually claim!
I argue that this logic defies the very reason for insurance in the first place: A client cannot pay his monthly insurance premium to the insurer, and at the end of the month demand that his premium should be refunded, because he didn't claim for that month!
On the other hand, I cannot NOT charge an admin charge and then when a client does claim after 4 months, only then quickly recruit a competent admin person, train and appoint this person, let this person handle the claim and provide excellent service to the client and deliver on the expected outcomes of the client, and then charge the client for the entire set of expenses incurred.
No, I have to permanently employ a competent and motivated admin staff to handle all clients’ queries, claims, changes on a permanent basis.
But I will have to if I want to start my own practice.

So what am I saying in a nutshell?
Only the wealthy will afford additional fees payable. This will assuredly lead to more wealth for them.
The rest will have to take what they can get.
All of this will give rise to the robo advisor (with its own set of short-comings), but more probably an ever increasing gap between those that have and those that have not.

I have a simple alternate solution. Include any fees payable as as-and-when fees in the premium. The company collects it from the client and pays it over to the intermediary as a standard.

Thank you for listening.
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