“How do you quantify the value of peace of mind, professional and qualified advice, and the help of someone who stops you from making costly mistakes and coaches you to realising your dreams and goals?” This is the question that unlocks the true value of financial planning, according to Jan-Carel Botha, the 2012 Financial Planner of the Year.
“Many people, especially analytical types, associate better investment returns with good financial advice,” Botha says. But how do you define “better financial returns” and why are you investing if not to achieve your goals?
You have to plan to achieve a goal and implement an appropriate investment strategy, Botha says. “The core value of financial planning is taking a client by the hand, and getting them from point A to point B,” he says.
“A good financial planner will have systems and structures in place to support you in the process. These structures include the necessary qualifications and experience, a structured review process, a solid financial planning practice, support staff, due diligence on product providers, and compliance with the Financial Advisory and Intermediary Services Act, the Financial Intelligence Centre Act, Treating Customers Fairly and all other relevant laws and regulations,” he says.
Botha says clients who have experienced the benefits of a professional financial planner value the certainty that they will achieve their financial goals above that of investment performance. His point is that if you achieve your financial goals, you don’t have to worry about whether someone somewhere might have earned a better return than you.
Shaun Latter says robust planning is central to the work he does with his clients. This planning results in a wealth-building strategy that not only addresses key investment objectives but also ensures clients’ financial resources are deployed in a way that supports their desired lifestyle.
He says educating and guiding his clients by way of ongoing consultation and advice is key. “Very few people fail at their long-term financial goals due to one or two mammoth mistakes. Rather, they are swayed emotionally and make small mistakes year in, year out, with sobering outcomes.”
Latter says a more “tangible” way that he adds value for his clients is by ensuring that they maximise tax benefits and cut investment costs where possible.
“Very few investors take full advantage of the many tax deductions, exemptions and concessions available. The result is that they end up with a ‘tax drag’ on their portfolio. By making some simple yet intelligent changes, we are often able to add an ‘extra’ two-percent return to our clients’ portfolios,” he says.
Costs are also a big issue and many investors are saddled with old – and generally expensive – investment products which also create a drag on their returns, he says.
“Many investors shy away from engaging a financial planner for fear of how much it may cost. However, quite often it would cost less to work with a planner who has access to newer investment solutions with far leaner cost structures. I am often able to add between 0.5 percent and one percent to a portfolio, just by reducing costs, even after advice fees are accounted for,” he says.
Risk mitigation is another way of adding value, Latter says.
Most people focus on market risk (volatility) only, he says, but inflation risk, the risk of not being diversified enough, longevity risk and the risk of jeopardising your investment by behaving irrationally all need to be dealt with in a well-structured wealth strategy.
As part of the planning process, Latter highlights for clients where and how they should be invested, from an asset allocation perspective, to achieve their lifestyle goals. He says this must be done with as little risk and as much certainty as possible.
For some clients, a change in asset allocation will result in better returns, while others may experience much the same returns but with reduced volatility risk.
“For others, however, it may allow us an opportunity to lessen their exposure to the equity market, especially if we have been able to boost net returns as a result of lessening or even eliminating any tax drag or cost burden,” Latter says.
Like Latter, Colin Long also highlights how education and managing a client’s “behavioural risk” can add significant value.
“Educating clients about investing and managing their expectations is the best thing we planners can do to help them to become better investors.
“During the credit crisis and subsequent market crash of 2007/8, many clients were fearful and thought that cash was the safest place to be. If a client had R1 million before the crash and moved this into cash when the JSE hit rock bottom, the client’s investment would now be worth about R1.3 million. However, if the client had remained invested in the market, the portfolio would now be worth about R2 million,” Long says.
Helping clients cut out excessive risk cover and put wasted funds to better use is another way that Long adds value.
“I often find that clients who belong to retirement funds (pension funds or provident funds) have an excess of risk cover. This is usually because the client’s previous planner ignored the risk benefits the client had through his or her retirement fund, probably so that they could sell the client more cover.”
By doing proper financial planning, Long says he can reduce clients’ risk cover and save them money, which they can invest to grow their wealth.
There is no substitute for solid advice, and Long demonstrates this by helping his clients make tax-efficient choices.
“Recently I met a client who sold some of his share options and wanted some investment advice. Based on his current tax situation, we proposed he donate the proceeds to his wife by investing the money in her name in a unit trust structure targeting a particular return.
“This simple reallocation of his funds resulted in an immediate tax saving of about R16 000, but more importantly, the tax saving in the long term resulted in him and his wife having an additional R2 000 a month net of tax at retirement,” Long says.
TOP THREE ADVISERS SHARE PASSION FOR HELPING PEOPLE
Financial Planner of the Year 2012
Botha has a BCom in economics from the University of South Africa and a postgraduate diploma in financial planning from the University of the Free State. He is a member of the Financial Planning Institute (FPI).
Botha has been a fee-based professional financial planner ever since he joined Ultima Financial Planners in 2007.
He was a finalist for the Financial Planner of the Year award in 2010 and 2011, before winning it this year.
He is regularly invited to be a guest speaker on numerous platforms, addressing the public, large corporations and members of pension and provident funds on various financial planning topics. He is also often quoted in national and local broadcast and print media, from CNBC and Summit Television, to Classic FM and Radio 2000, to Personal Finance and Sake24.
Botha is committed to his clients’ financial wellbeing. His goal is to change the lives of his clients through sound financial planning, assisting them to reach their financial and lifestyle goals.
He is a dedicated family man and father, and is an avid golfer with a single-digit handicap, and he dreams of retiring early to play the PGA Tour.
Finalist, Financial Planner of the Year 2012
Latter has a diploma in business management from the University of South Africa and a postgraduate diploma in financial planning from the University of the Free State. He is a member of the FPI.
He also has two additional postgraduate diplomas: one in estate planning and one in asset types and investment instruments.
Latter has extensive experience in the financial services industry. In May 2010 he founded Quaestor Wealth Management – a fee-based financial planning and wealth management practice. He is based in Bryanston, but Quaestor also has offices in Durban and Cape Town.
He was a finalist for the Financial Planner of the Year award in 2011.
Latter is passionate about providing sound advice and simple, robust solutions.
He is actively involved in investor education and in addition to having hosted the popular money show “Financially Speaking” on CNBC Africa, he has a media presence on television, radio, in print and online.
Long has a postgraduate diploma in financial planning from the University of the Free State and is a member of the FPI.
He began his career in 1996 as a financial planner with Old Mutual. In 2002 and in 2012 he was a finalist in the Financial Planner of the Year competition.
In 2004 Long left Old Mutual and co-founded Consolidated Financial Planning, one of the first fee-based financial planning businesses in South Africa.
In 2007 Consolidated Financial Planning merged with another leading financial planning business to become Consolidated, which has offices in Durban, Cape Town, Johannesburg, Tshwane and Port Elizabeth.
Long is vice-chairman of the KwaZulu-Natal chapter of the FPI, and has served as a committee member for the past nine years.
He is passionate about financial planning and believes that educating his clients about financial matters is one of the best things he can do to help them to become better investors.
He enjoys spending time with his family, hiking, cycling and the outdoors.
SEARCH ON FOR NEXT YEAR’S BEST
The Financial Planner of the Year Award is the highest accolade a professional financial planner can achieve. The annual award, which is sponsored by the Financial Planning Institute (FPI) and Personal Finance, recognises the top professional financial planner in the industry.
Although entries for the 2013 competition officially open in January, entrants are urged to start preparing their submissions now. Entrants must present a portfolio of evidence consisting of three detailed financial plans.
The competition is open only to FPI members. There are three rounds in the competition:
1. Submission of the entry form (in January next year, together with a portfolio of evidence. Scoring is based on content and must include the six-step financial planning process. Submissions will be marked by an independent panel of judges.
2. Panel site visit. The panel of judges will visit the entrant’s business premises to authenticate the financial plans submitted in round one. The business will be assessed on all aspects of compliance and practice management, as well as all client documentation and financial planning processes.
3. Panel interview. Finalists will be required to do a presentation to a panel on a selected topic and will be questioned on industry trends, technical information and changes in legislation.
At each round entrants are required to demonstrate their talents and abilities to qualify to go through to next round.