Wednesday, 2 April 2014

Commentary on our current political situation



There is a general feeling that things are bad due to how President Zuma and his click are running our country. I comment here on that and how, even though I agree, it is something that can’t only been blamed on him as the ANC isn’t run by one person. He does, however, wield significant control and as such must be seen as leading this sentiment. South Africa has always been a highly political nation, so let’s look at what is shaping 2014 into an exciting election year.

It all started back in 2007 when Zuma came into power. One can say that it was the way he came into power that set this tone. The recall of Thabo Mbeki created a climate in which respect for recognized hierarchies began to be undermined. Zuma can’t be surprised by this monster which he has created when he gets booed at public events. It was his & his supporters that began this disrespect towards those in power. More evidence of this was displayed at Human Rights events held in Soweto recently. It is shameful that our politics has descended to this level and let’s hope it doesn’t become violent like it was in the late 90’s.

Other emerging markets such as Russia, Brazil, Venezuela and Turkey are concurrent examples of inner turmoil. Some have even experience mass anti & pro-government protests. Creating worse situations then what we have experienced here. Through international media you will see how their political institutions are being put to the test. Turkey is becoming a prime example of how power corrupts to the extent that leaders think they are more important than those that put them in power. Imagine trying to ban Twitter? Their current leadership came in on a wave of democratic principles and governance when it replaced the old order.
These three countries have a direct influence on our own as they are, like SA, seen as emerging economies.  The outfall of all of this is that it has a negative impact on how investors calculate the risk inherent in investing in SA.

Back to our own political situation: I had the pleasure of listening to a talk by Nic Borain (NB), a political analyst. He offered some interesting insight. His one comment, that Zuma is an Induna - a leader or commander. This means that he doesn’t take kindly to being told what to do and so he essentially does what he wants. It is this manner that is isolating the educated, urban voter. He has also empowered his close friends and family members using his position – the Guptas, that Architect, his family. They have a vested interest in keeping him in power and as such are encouraging him to stay for this his second term as president.

Some interesting points raised by Mr Borain - There are moves to bring financial control back under the Minister of Finance and Treasury. When Zuma came into power he farmed some of these duties out to the Department of Trade & Industry (DTI) & Economic Development Department (EDD). (The EDD is, for example, responsible for the New Growth Path & the Youth Wage Bill). The watering down of the DTI & EDD’s powers by of a more coordinated approach controlled by Treasury is probably a positive move. This is also because Treasury, who is responsible for our budget, needs to control spending or it could balloon uncontrollably.

The political parties in SA:
I have always been a fan (in the broadest sense) of Julius Malema. I have respect for his never say die attitude and his humble, grass roots upbringing in the trade union movement. All those that played him for a fool have been found wanting as he is an astute politician. The EFF is a mix of strong personalities and its economic wish list is a nothing more than electioneering (no basis in reality). In its current incarnation, I don’t see it lasting till the next elections.

ANC's answer to EFF would be to bolster empowerment legislation and broaden policies around this to woo lost voters. This could buy back their educated, city based support that they have lost in the last few years. This is especially true in Soweto where the DA under Mmaimane has apparently gained widespread support. You may not know but Mmaimane & his family hail from Soweto. As a homegrown resident he could command a loyal following from Mzansi.

The ANC will focus on the National Development Plan (NDP) to gain votes and growth. It has been said that the IMF and foreign investors favour this far reaching and comprehensive policy. If this policy is implemented effectively it will hold good results for our country and economy.

The NDP along with the Youth wage bill has effectively alienated the ANC’s “in house” COSATU/NUMSA union support. In general any alliance that existed previously is beginning to fall apart. With its tacit support for Amplat’s suing of AMCU, the ANC is creating an environment for a complete split with organised labour in general. We have already seen this with NUMSA going on its own and also with the rise of AMCU. One could possibly see the EFF being sucked into the breakaway unions, forming a new party outside of the alliance. Even if the EFF’s economic policies are completely unrealistic, they are labour friendly and this is where the unions would rather be. This is a worrying prospect as it could create critical mass and staying power for the EFF’s madcap policies. On the other hand, the union turbulence might be a positive development - small and big enterprise need to be able to be flexible with their workforce. This is not going to happen with the unions wielding their power within the Alliance.

The ANC does have a problem if it loses its majority in provinces such as Gauteng (GP). This would mean that it would effectively lose control as it could not push its agenda. It would then have to look to coalitions to ensure continuity. But forming a coalition with smaller parties would be difficult as the competition, the DA, who would never ally itself with the ruling party. Besides the EFF there are no other parties that could get the necessary significant percentage in GP to provide the needed backing.  Nic Borain in his discussion suggested that if a DA takeover does occur in GP, power would revert to the street and those that command support therefrom. Effectively creating a Cairo or Kiev type scenario where it is the mobilised mass that control policy.

The ANC as a brand is deteriorating due to Zuma’s personality.  There are persons within the party that are looking to remove him and offer him a smooth exit. This is a likely scenario if the ANC loses support in this election as the ANC elders and the NEC (National Executive Committee) will not like a further erosion of their majority. The ANC’s support has decreased in three elections in a row, so any continuation of this trend will ensure Zuma’s removal. It remains to be seen if this is a smooth or volatile exit as his personal support base will resist this change. They would not want to give up the power that they have amassed.

The EFF’s campaigning has been effective and widespread. They are pushing key points and have captured emotions that the disaffected black aspirational class is feeling. This space has been created by ANC policies and Zuma’s Induna mentality. The EFF has caught on to what people want and especially what they want from their rulers. Julius’ persona is selling this. Their votes will, also, come from those ANC members that are alienated by current policies and personalities. They may not support the EFF afterwards but for this election it is their only option outside of other smaller parties.
My take on this is that the DA will consolidate itself further in the Western Cape and may take another province but this is a long shot. They are still seen as a white, pro-capitalist movement and in our country’s short history; old allegiances are hard to break. However this is changing as the majority start to realise that their ANC is no longer the movement for the people. If there isn’t a quantum shift within the ANC’s upper echelon to bring back respect, trust and order within its ranks I see the forthcoming election as heralding a new age in SA politics. If the ANC sees the writing on the wall and returns to its original values we may yet see a reversion to the status quo but I feel it is too late. Nkandla was the turning point and South Africans are growing weary of excess.

Tuesday, 25 March 2014

What you should know about your Retirement fund death benefits



These are important to know as it affects anyone who has a retirement fund or is part of a workplace Pension/Provident fund. This feels like it is completely out of your hands as even if you nominate beneficiaries the Trustees may decide to pay your benefit out differently to your instructions. The point of this matter is that if your affairs aren’t in order when you pass, it is highly likely that your estate will not be wound up the way you want it to be.

This article is from Saturday Star's Personal Finance section – I have extracted points that I see are most pertinent from this bullet point article. I have included a link to the full article at the bottom and if this does affect you I would consider reading it.
  1. The decision on who gets your retirement fund benefits when you die in service is not yours to make, but rather…  by the trustees of your retirement fund.
    You can and should nominate beneficiaries, but your retirement fund trustees are obliged to determine if you have dependants and to distribute your benefits to those dependants in a way that they determine is equitable (see 6)
  2. Only if your fund cannot trace any dependants, can it pay your benefits to someone you have nominated. However… only… if the estate is solvent. If there is a deficit in the estate, then that liability must be settled first, before the nominees can be paid.
  3. … benefits (must be paid) within 12 months of your death…
  4. Your dependants can be legal in nature - such as spouses, children, parents (in certain circumstances) – or people you have no duty to maintain but who are factually dependant on you… This means the trustees could consider distributing your benefits to… people not related to you.
  5. Determinations issued by the Pensions Funds Adjudicator… have stated that trustees must consider: 
    1. Age of dependants;
    2. Their relationship with you;
    3. The extent of their dependency on you;
    4. The amount available for distribution;
    5. The financial affairs of the dependants;
    6. The wishes of the deceased (as a guide only); and
    7. The future earning potential and prospects of the dependants.
  6. Your trustees can also decide how the amounts should be paid….
  7. If you leave the service of your employer and you die before the withdrawal benefit is paid to you, your beneficiaries are not entitled to a death benefit. Instead, the withdrawal benefit must be paid into your estate.

Sunday, 14 July 2013

Sustainable investing - is it possible?



I was asked by a potential client to look into ways that they could invest on a more sustainable or 'green' manner. Firstly those terms are seriously overused and distracting. Many products and providers will put those words in their products and it might not be what you, as a consumer, needs from it. So my first bit of advice would be to investigate the definitions of these words in your product if you want to be a discerning consumer. I must thank him for requesting this and it is these sorts of questions and advice requests that make my career so rewarding. Learning new things and exploring individual solutions ensures I am always on the cutting edge of what we as financial planners do.

I use the word 'green' to encompass everything that is sustainable and environmentally friendly in this discussion. Broad but simple enough to understand!

Being green or looking to create sustainability in things we do is more a lifestyle philosophy then anything else. And as with most things in life, one might have to moderate your desires and find a balance between one's goals & needs and this philosophy. This is my view towards how one could create an investment portfolio that includes a goal of creating wealth while at the same time taking a responsible line. Responsible in that we would like the companies that you invest into to take their mandate of ‘green & sustainability’ seriously.

Firstly I must state that it is not possible to be green with every aspect of a portfolio. Please also remember that when investing there is nothing you can’t change, move or cash-out at any time! You have full control & flexibility. I have discussed constructing a portfolio in previous posts - if you are interested here is a link to one - . I also think we shouldn't lose sight of what our main purpose of investing is and that is wealth creation. Whether that be for your retirement, kids education or another goal you have for your capital. Either that or one would have to dissect each Annual report for what a company's record is. Even those are biased so you will have to go and dig a lot more to unearth the real record of a company's sutainable and green initiatives.

Sustainability & ‘Green’
There is only really one ‘green’ fund out there – the Nedbank Capital BettaBeta Be Green ETF (see attached). This bases its investments on a number of factors and an overriding one is for the companies to be environmentally friendly. Another option to look at would be Shariah funds. These funds are based on Shariah, or Islamic, law. This is, however, not entirely a ‘green’ mandate. They are prohibited from investing in companies that do financial services, entertainment & alcohol (I have condensed this list). So one of their large investments is mining and we all know that mining houses can be anything but beneficial to our environment and health. As another example a Shariah fund would not invest in the likes of SAB Miller (Beer producer) which has a solid record of sustainability and corporate/social investments.

It is arguable as to whether the criteria used on the Nedbank fund is actually a good measure of what we would consider ‘green’. There are some commentators out there that say their methodology is flawed. It is a step in the right direction though. There will definitely be more of these types of funds coming out as our reporting and compliance with emission targets and global norms is enforced. How far away this is is anyones guess. We need strong & brave leadership to make these types of changes and that is a global comment.

So what I advise is incorporating Green funds/company's into your portfolio. It is not possible, yet, to be completely green in your investment choices. This shall change as our demand for these types of investments increases. You can always change or choose to avoid certain industries or company's if you so wish. As an example - my Grandfather refused to invest in British American Tobacco (BAT) because he hated smoking. It is a strong rand hedge stock that is a basis for many portfolios and is often punted yet he avoided it. It is a choice one can make!

There is a serious matter underyling all of this and that is whether a company can make super-profits without sacrificing some underlying ethical or green basis. Most blue-chips company's rely on some measure of ruthlessness to maintain their place at the pinnacle of their industries. In the end it is up to our legislation and law enforcement to ensure that Company's that do step out of line are brought to book. We, as individuals, can encourage this by buying sustainable produce or by supporting those industries that are Green. This will encourage those businesses to go where the money is being spent. If we all chose to buy free range or non-gm foods, those companies who sell or produce sub-standard food would go out of business.

So in summary, currently it is difficult when investing to create wealth objectively by choosing only ‘green’ companies. This is also a factor of our country, which is still resource (mining) based and a growing economy as well. We do have legislation and rules (JSE/listing regulations/Companies Act etc…) that encourage companies to be responsible in what they do to provide shareholders returns. So be aware of what you are investing in and if you feel strongly against something avoid it. In the end it is up to us to choose.

Thursday, 11 October 2012

Important updates - Short-term, Medical aids & Regulation 28



It is Important to update your short-term policy
I recently had a scare when I lost my wedding band and began to institute a claim from my short-term policy. I say almost as I managed to find it after three weeks, my insurance provider was just as pleased to hear that news. My point is to bring your attention to the value of your jewelry on your short–term policies.
Jewelry values on a short-term policy are set at the time you take it out. These values do not, annually, increase in line with inflation or a massively over-valued gold price. Using me as an example, I got married in 2010 and between this date and today the gold price has risen from R 1,155 to R 1,760. This is an increase of over 50 % on the value of my ring. Great thing if I want to sell it but what if I need to replace it due to a loss or theft? Luckily I didn’t have to but if I had had to buy the same ring it would have cost me 50 % more than it did in 2010. Who wants to downgrade their ring if they lose it?
Make sure that when we look at your portfolio of products and policies we update your short-term policy in this manner. It is the same for all your financial planning; ensure that it is up-to-date and pertinent to your current life situation. Too often we don’t look at these things till we have to and then it is often too late.
Just be aware that the opposite is true for platinum. If we had gone for this more fashionable option when we were married it would have stayed pretty much the same as when we first bought them. Diamonds are the same: there are great deals on diamonds currently so if you are planning on getting married soon – go for platinum and diamonds. Save the gold for the anniversary!
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Medical aids
Now is the time to consider changing medical aids or upgrading your current option to be effective 1 Jan 2013. If you don’t change your medical aid will automatically default to the same plan you are on currently.  If you would like to up/down grade your medical aid, please inform us or your medical aid soon. This process needs to be completed by the end of November.

Thinking of changing your medical aid provider?
Medical aids cannot refuse you entry, however they can ‘underwrite[1]’ anyone that is joining them.  This may involve questionnaires, queries or a full medical report & relevant tests that go along with this.  Once they have undertaken this process they are entitled, under South African legislation, to impose 3 restrictions on your joining their medical aid:

1.     A 3 month-general waiting period can be imposed during which you will have limited or no cover. Limited cover will be for life threatening conditions and the prescribed minimum benefits. &/OR

2.     A condition-specific 12-month waiting period can also be applied; &/OR

3.     Late joiner penalties – otherwise known as LJPs; are only applied to members older than 35 years of age and only if you have not been a member of a medical aid over the age of 30. 

Generally, if you are under the age of 40 and are completely healthy, you should not have any waiting periods or penalties enforced on your membership of a medical aid.  This is a rule of thumb and is not a definitive declaration on all medical aid schemes out there. If you are considering it do your homework.

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Regulation 28


A number of notices have gone out regarding your Retirement investments compliance with Regulation 28. You may have gotten a generic document or one specific to your investment. This should not alarm you as it is a legislated requirement to ‘protect’ your investments from yourselves and uneducated advisors.

This section from the Pension Funds Act restricts your exposure to certain asset classes. If your investment exceeds these restrictions than your investment house/policy provider, may choose to switch you automatically into Cash, thereby brining you in line with Reg 28 and avoiding any risk on their side. This is often not the best thing for your investment and if you have a long time to go to your retirement is actually the worst thing for your returns. It is, however, a regulation that now has to be followed and all the companies we represent are enforcing it in one way or another.

Regular rebalancing of your portfolio is an important part of your financial planning. If you have any concerns about this or would like to discuss your Reg 28 letters or investment portfolios please get in touch with me. It is important for us to meet regularly to ensure these types of alterations are discussed and actioned where necessary.