Challenges in developing a nation of progressive investors
If we have to look back at the South African investment landscape over the past 20 years, it is undeniable that the country has made significant progress since 1994. Although challenging, the possibility of a comfortable retirement is within reach of a greater section of the population who are now becoming more educated on the need to actively work towards a comfortable retirement from an early age.
The change in the country’s investment landscape over the past 20 years can only be described as progressive, and we will continue to see more change in the future as legislation, implemented by the Financial Services Board (FSB) aims to impose further improvements.
Work towards a perfect goal
Sanelisiwe Gantsho, Customer Experience Analyst at Liberty Investments says, “When looking back at what it took to develop our democracy over the last 20 years; to bring the economy where it is today, we had to focus on reconstruction and development as well as addressing unemployment, poverty and inequality. Currently, we are seeing a trend where dealing with these issues is still vital to the growth of our economy but where growth is also being driven by other factors such as investments and the South African consumer’s active interest in their personal wealth,” said Gantsho.
She added that it becomes important to look at Gross Domestic Product (GDP) per capita – which is an important indicator of individual consumer buying power – as this perspective assists in giving an indication of the investment appetite and needs of the diverse South African population.
Where is the buying power?
She also pointed out that research from the South African Reserve Bank shows that the full effect of GDP per capita over the past 20 years needs to be taken into account. “We look at the years leading to democracy and then democracy to date. The last 20 years have seen our national income per capita increase by 40% since 1994. However, there has been a decline since the world financial crisis.”
South Africa did not feel the full effects of the global financial crisis and benefited from a further cash injection in 2010 when the country hosted the FIFA World Cup. There is a recovery from the global crisis, but it is not as fast and unchallenging as some analysts predicted.
The Barclay Wealth and Ledbury Research of 2012 showed that women globally are estimated to hold about 30% of all wealth; and are responsible for 80% of all purchasing decisions, sharply increasing the participation of women in the area of investment and wealth creation.
Reforming the basics of investing
David Lloyd, Managing Director of Liberty Investments says the ever-expanding investment market makes it increasingly important to understand what the South African investor is looking for in order to continue seeing positive growth in investment trends over the next 20 years.
“Firstly we need to understand the individual we are speaking to. If we had to allocate a persona to an investment savvy individual, he/she is employed or successfully self-employed and is somewhat financially prudent.”
“While some investors may have a high or moderate risk appetite and have time to recover from corrections or fluctuations in the market, it needs to be noted that some may be quite risk averse and would prefer some form of guarantee or limited downside risk. This could be due to a number of reasons one of which could be an individual’s level of indebtedness, their age or whether the investment term is short, medium or long term. So in other words, how soon the funds would be needed by the person investing,” explained Lloyd.
“Keeping the above in mind, investment behaviour amongst South Africans could also be influenced by other factors,” he continues. “South Africans are living longer; have access to better healthcare and education opportunities which enables them to consider investing in their personal wealth. Maintaining a full view of the investor in this regard shows the importance of continuously innovating to capture customer needs and demands and continuously educating the consumer about wealth creation and issues such as retirement,” continued Lloyd.
The role of the adviser and product provider
There is no doubt that the adviser will play an important role in this new outlook. However, what form will this take. The FSB is still in the process of drawing up the White Paper on the Retail Distribution Review (RDR) and Jonathan Dixon, Deputy Executive Officer of Insurance at the FSB, could not commit to when the paper will be published.
The FSB has been consistent in that commissions in the investment space will be scrapped, and that advisers will have to negotiate an upfront fee with clients. This runs the risk of certain advisers targeting higher income earners and high net worth individuals while neglecting middle to lower income earners. This is contrary to government’s desire of providing access to processional financial advice to the greatest possible portion of the population.
Lloyd agrees that this is a danger and rightfully pointed out the need for advisers to avoid neglecting the middle and lower income earners as they can be potential higher income earners.
“Every company will tell you that the ideal time to start investing is as soon as possible. This means that university students, who are able to invest, are technically lower income earners even if they are studying to become doctors. This portion of the population can benefit greatly from advice at an early stage,” says Lloyd.
This also means that product providers also need to be flexible in the way that they design their products. Typically, an adviser does a financial needs analysis and risk assessment at the inception of the policy. If this is done when the investor is young, his needs will change as he gets older and starts a family or has a bond and car payments to meet. Products need to be designed in such a way that investors know what is happening to their capital and will have access to this as and when they need it.
Editor’s Thoughts:
We have begun to be progressive in our thinking, and the industry is designing products which are putting the needs of clients at the heart of their business. To fully embrace this can only benefit the industry and ensure that the mistakes that were made in the UK during the implementation of RDR are not made in South Africa. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
