Fast little loans
This article was first published in the fourth-quarter 2012 edition of Personal Finance magazine.
All the winners of the Financial Planner of the Year award are exceptional in their field. Jan-Carel Botha stands out for two particular reasons: his youth and his extraordinary capacity to plan his life.
Aged 28 when his achievement was announced in June, Botha is the youngest winner in the 12-year history of the award.
Although Botha says he is still “nat agter die ore” (wet behind the ears), his path to this prestigious recognition of his talents shows he has a head on his shoulders far wiser than his years may suggest.
Botha is a farm boy – his parents grew vegetables, mainly tomatoes, near Tzaneen in Limpopo province. Straight after school Botha started studying for his BCom in economics at the University of Pretoria.
“I grew up in an increasingly difficult economic environment for the agricultural community. I soon realised that when I left school I’d be on my own financially. I had no time to waste or to experiment with options. I had to earn my way and make things work from the start.
“Looking back, this was the best driver for me to get going. Working hard, way harder than your boss expects of you, proper budgeting and planning – this was the result and has worked for me.”
After only one year at Tuks, Botha’s student loan stood at R47 000.
“It simply didn’t make sense to me to continue with this and to start life after being a student with more than R200 000 in debt. I switched to Unisa and completed my economics degree in the following four years for less than R20 000.”
Working full time, Botha paid off his student loan, paid for his Unisa studies in cash, bought his first car and his first house, and married his high school sweetheart, Maretha.
Botha also saved money so that he could afford to take a drop in salary when he graduated and moved into a career in financial services.
“I took a tremendous salary sacrifice when I moved into financial planning,” he says. “So many people are in the position that they cannot move into a better long-term position because they haven’t saved. They stress themselves to the limit; they put themselves at the mercy of their employer or the banks.”
Botha sold sports supplements while he was studying through Unisa. Not only was he building his financial foundation (and tapping into his love of sport), he was gathering work experience.
“I had to manage clients in the form of pharmacies and retailers. As a rep, you have to earn trust and build long-term relationships. It’s similar to the financial planning process.
“I got four years of life and work experience while my peers were still enjoying the ‘good student life’. Through this, I learnt about economics and financial planning in a very practical way.”
After graduating, Botha expected that his next step would be at a desk in one of the large financial services firms. He turned for advice to Gerrit Viljoen, the founder of Ultima Financial Planners in Pretoria and winner of the Financial Planner of the Year award in 2003. Botha was a client of Viljoen’s at Ultima and wanted to know what to expect from the corporate world he was about to enter. As it turned out, Botha never spent time in a big corporation.
Viljoen phoned Botha after the meeting and asked if he wanted to start work as a financial planner at Ultima at the end of the month.
Botha has been there ever since. In the past six years, he has received his Certified Financial Planner accreditation and been a finalist in the Financial Planner of the Year competition in 2010 and 2011. This year, three months before his 29th birthday in September, he scooped the award.
“My time at Ultima and Gerrit’s mentorship have made a big difference,” he says.
“I’ve been given a chance like none other in the industry. I’ve really been able to tap into Gerrit’s mistakes and his successes; it’s a tremendous benefit.”
Although planning and taking charge of his financial circumstances have been central to Botha’s success so far, he distinguishes between factors that are in a person’s control and those that are not.
This was perfectly summed up in his tweet during National Savings Month in July: “Markets – the stuff we can’t control. Behaviour – the stuff we can. You have no excuse not to save!” (You can follow him on @JanCarelBotha.)
This is the reason Botha isn’t stressed by eurozone turmoil, unsustainable indebtedness abroad and a sluggish economy at home.
“There is really nothing we can do about the situation in Europe. I spend my time with clients focusing on those variables that we can influence, like financial discipline. What I do discuss with clients is that uncertainty has always been with us.”
He points out that the worst investment and planning strategy possible is to act only when things look better or feel better.
Financial planners are helpful for exactly that reason. “If there was certainty all the time, I would not have had a role to play in a client’s life.”
With the right attitude, the vision to succeed and the help of a professional financial planner, he says, you should be able to understand and manage your financial behavioural patterns.
“Emotions are always present, and in uncertain times emotions can run high. It is how we deal with them that matters.”
Planners at Ultima help their clients to recognise their emotions and understand why they react in certain ways or make certain decisions.
“We help our clients to manage their financial behaviour and decision-making in a healthy way,” he says. “This is fundamental to financial success.
“Clients are ultimately in control of their own behaviour. In our consultation process we discuss these issues in depth and communicate clearly what our respective roles and responsibilities are.
“The financial plan is not ours, it is our client’s; they need to own it. We do a lot of financial coaching and maintain contact with our clients to ensure that they remain comfortable with their plans.
“However, should the client choose to divert from the plan, or fall back into destructive patterns, we cannot prevent the client from carrying out his or her decision. We do, however, advise strongly against any diversion that will ultimately lead to financial loss.
“Our clients become like our family, and it’s very sad to see a family member suffer due to their own mistakes and consistent bad behaviour.
“We are in the people business just as much as we are in the financial business. However, we are not psychologists. But, knowing this, we at Ultima do a lot to upskill and equip ourselves to handle any such cases, offering our clients the best help possible.”
The financial planner who took his career by the scruff of the neck and refused to start his working life with the burden of a huge student loan comes from a background where the financial future is always uncertain and profit is ploughed back into the land, season after season.
“The whole economy of Tzaneen is really driven by local agriculture. In general, farmers have a different approach to financial planning from the rest of society, and rightly so, because most of their lifetime assets are tied up in their land and business. It’s not a way of planning as such but more a way of living,” Botha says.
The input costs are very high, so most farmers plough back their profit into the new crop. This cycle is most pronounced among vegetable farmers, such as his parents and parents-in-law, who live in three-month cycles of sowing and reaping.
“For me to be a farmer would be very tough. There are few things I dislike more than uncertainty.
“The uncertainty of a farmer’s life is much worse than a bit of market volatility.
“When 70 percent of your life savings is planted under the sun and you risk losing all of it in half an hour, you can understand the fundamental benefits of giving what you have got.”
When he refers to the benefits of giving, Botha means tithing – donating a tenth of his income. It is a practice he embraces as part of his Christian faith.
“Giving is always better than receiving,” he says.
Some people, though, believe quite the reverse; they believe that taking is best. It’s a major concern to Botha that people in farming areas and small towns are often the targets of bad financial advice, as well as of frauds such as property syndications and pyramid schemes.
“Coming from a rural community, I see this all the time. It’s not only as a result of limited financial knowledge, but people from these communities are often the salt of the earth and believe the best of everyone. Unfortunately, this is fertile ground for the launch of schemes as we have seen in the past and for lazy advisers to take advantage of situations and milk people for ridiculously high commissions.”
Botha says that, as consumers in urban areas have become more alert to fraud and more aware of their rights, the attention has shifted to the easy pickings of rural areas.
“People in rural areas neglect the fact that they need to take responsibility for themselves. There has been a mind shift and they are becoming more aware, but the problem is that rural areas are targeted.”
Botha’s wife understands all about the uncertainty and complexity of the farming life. Botha describes Maretha as “a farm girl” who is now a stay-at-home mom to their son, Dail. Before she stopped work, Maretha was a photographer, working for six years with children.
How do two personalities – a creative one and a financially trained one – manage a household harmoniously? “I am blessed with an awesome wife,” Botha says. “If it wasn’t for her, I might have been like a robot with pre-set opinions and methodologies to dictate my views of the technically correct financial decisions.”
Maretha provides balance, reminding Botha that, when a decision needs to be made, sometimes the family’s belief system needs to carry more weight than the technically correct option.
“It’s all about balance and being open to each other’s views and needs. It’s not always easy, though, and I experience this with clients on a daily basis.”
Botha believes that ultimately one person in the family needs to take responsibility for finances.
“I have found that some men could dominate and in some cases without the necessary love and tenderness that they should. The danger in this is that it could result in women not being committed and even rebellious, and if this happens, gone is any hope of constructive planning.
“I coach couples and work towards the realisation that both will benefit from a successful plan. Thus, working together, achieving their objectives as a team, will allow them to enjoy the fruits of years of investments so much more.”
Botha is already teaching his son, who is almost three years old, to count. Dail was able to count to 10 by the time this article was written, but he will have no doubt gone much further by the time you read this. As soon as Dail is able to do maths, Botha will teach him the principles of financial planning. “One also needs to do this in a practical manner – giving him a monthly allowance, for example, and teaching him to do this practically.”
The underlying principle is not financial planning for its own sake but practising responsible stewardship of resources.
“Firstly, none of what you ever earn is really yours. The principle of tithing (or giving) is critical. With money matters, get this first principle in place – it is liberating. What remains is not yours either. You need to apply responsible stewardship.”
At the same time, he says, it’s very dangerous to say: “The Lord will look after me.” Botha believes this is often a lazy escape route.
Choosing to be a fee-based financial planner is part of Botha’s moral worldview, and it is no coincidence he joined Ultima, which was one of the first firms in South Africa to implement fee-based planning.
“I believe that transparency and a fair price are fundamental to an honest long-term relationship with clients. Fair price is also not a legislative issue but a moral one.
“Not that we have the perfect recipe – in fact we are constantly debating and refining this. But our business is ultimately accountable to the Lord, and we view it in this light.”
The Ultima website (at www.ultimafa.co.za) spells out how the firm charges its fees.
The cost of drawing up a financial plan depends on the complexity of your circumstances. At the time of writing, fees ranged between R5 000 and R12 500 (although the website points out this is indicative only). Fees for portfolio management are based on the value of assets invested through Ultima and are determined on a sliding scale between 0.2 percent and one percent a year, with a minimum of R8 000 a year. The management fee is paid monthly.
Botha says independent, fee-based financial planning is not just for the wealthy.
“Financial planning comes at a cost. However, we do not charge more than clients would pay in the form of commissions via financial products, and in most cases our fees are much less.
“Commissions are not always transparent, whereas our fees are upfront and totally transparent.
“It is a wrong perception that the fee makes financial planning expensive. Our fees were introduced to do quite the opposite.
“Our minimum fee can be enough to obtain a customised financial plan that can dramatically improve the client’s personal financial situation and future outlook. Potential clients should keep an open mind and find the right financial planner to develop an appropriate financial plan that will result in savings and valuable assets. It might be the most valuable rands anyone can ever spend.”
South Africans are apparently not willing to spend very much. Botha mentioned in a tweet that recent research has shown that more than 90 percent of South Africans are prepared to pay for a financial plan. The average amount with which they are willing to part is R800.
“For R800 you can’t even hire a plumber, although most people would say they can see what a plumber is doing,” Botha says.
The work a financial planner does is intangible, and the results may not be tangible for quite a while. “It’s a step of faith to engage in the process,” he says.
“In general, people – and I am mostly referring to the public – do not understand the financial planning process and the value of a financial plan. This is where the expectation gap in terms of financial consulting fees originates.
“Another misconception is that clients expect financial advisers to pick the best-performing fund or stock. Financial planners are not and should not be fund-pickers. Unfortunately, this is what many clients expect, so this is what many advisers promise and sell as their value add.
“With 900 unit trusts available, this is a promise that cannot be fulfilled.
“Before we get close to any recommendation, we clearly communicate our role to clients. We conduct financial planning with specific lifestyle objectives and craft investment strategies to ensure that these goals are achieved over time.”
* The Financial Planner of the Year award is jointly sponsored by Personal Finance and the University of the Free State’s Centre for Financial Planning Law.
JAN-CAREL BOTHA ON ... PLANNING’S MOST PRESSING ISSUES ...
“We are expecting a lower-growth environment in the next five to 10 years with increasingly higher life expectancies. People saving for retirement, and especially those in retirement, need to plan for the worst and hope for the best,” Jan-Carel Botha says.
“Those in retirement and the retirement income phase (when you typically spend your savings and receive a retirement payout, such as an annuity) need to know and understand that the medium-term future is likely to be much tougher than what we have seen over the past 10 years.
“When planning for retirement, financial planners and clients often rely too much on past averages. This counts for both investment returns and life expectancies.
“I’m not saying that we should ignore the fundamental basics of investment asset classes, but we need to understand that the probability of averages repeating themselves over the medium term is very low. For example, say the actual after-inflation return on cash was about 2.5 percent on average for the past couple of years, we will surely be disappointed if we expect a repeat of this average over the next three to five years.
“I would advise people to plan for a 30-percent lower return on investment, while you could take into account a life expectancy of an additional 10 years or so.”
... PRESCRIBED ASSETS ...
“It is not a new thing that a portion of pension fund assets is prescribed for investment in developmental projects – years ago, the policy of prescribed assets existed,” Jan-Carel Botha says.
“If proposals in ANC policy discussion documents are eventually implemented, it would be a re-introduction. Furthermore, not all development products would necessarily be bad investments.
“However, as soon as one legislates this, the investments will most probably default to the lowest possible yield, as there would be little drive for excellence and sustainability. The same is applicable to the nationalisation of mines and other assets.
“If a minimum of, say, 10 percent of these funds must be invested into development projects, there will be an opportunity cost to the investor, because this 10 percent of the fund will lag the investment yield. (An opportunity cost is the difference between the actual investment return and the return you could have earned in another investment.)
“Actually, I am 100-percent for development projects, but we should find natural ways to make these projects attractive, and once we’ve done so, investments will automatically follow.”
... PASSIVE INVESTMENTS
“I am neutral about the managed investments versus passive investments debate. There are some brilliant arguments for and against each,” Jan-Carel Botha says.
“The great argument for passive is cost. However, the first major misconception is that passive investments are free. On average, passive investments cost about 0.5 percent of the investment value a year, whereas the costs for active solutions (broadly speaking and depending on asset allocation) range from 0.8 percent to 1.5 percent a year. We are talking of a difference of between 0.3 percent and one percent a year. Investors in passive products think they are saving more than they are.
“What I would rather like to see is a debate on how these investment styles affect the behavioural aspects of investors, because cost, within these types of parameters, is not the biggest driver of investment success.
“For example, I’ve had a client come to me lately with more than 10 exchange traded fund investments, with no idea of why he’s got them other than the cost element as promulgated in the media.
“On top of this, the combination of investments was also terrible. Even the worst of fund managers, cost included, would have beaten the returns. This just underlines the importance of proper planning and structuring to ensure optimum yield. Where cost is the only issue, this may lead to a mind-set of ‘I have eliminated the cost issue, so I will be a successful investor’.
“People who are not doing the proper homework by looking at both costs and asset allocation, and who are not sticking with an investment, are likely to make mistakes.”
FIVE TIPS FOR LIVING EFFICIENTLY
The Ultima website says that 80 percent of millionaires in the United States share the same seven characteristics. One of these is to “allocate their time, energy and money efficiently in ways that are conducive to building wealth”.
Jan-Carel Botha says that by focusing on your long-term vision, you are able to make effective decisions in the here and now.
“Plough back your energy and time,” he says. “I am very strict about being efficient in everything I do.”
At a practical level, this has immediate benefits. For example, by submitting medical scheme claims timeously, you ensure they do not lapse. By paying your commitments by the due date, you avoid penalties and the effort sometimes involved with late payments.
Botha’s five tips for living efficiently are:
1. Plan before you start. “I could not stress this enough,” he says.
2. Set realistic and achievable goals. This is not always as easy as it seems. Many people realise when they sit down to formalise goals that they need to talk to someone with insight. A sounding board – a person to provide objectivity – is always advisable.
3. After setting your goals, increase that by about 50 percent. “We can always perform a little better, and we should strive for it. Don’t be afraid to stretch yourself a little – it pays off.”
4. It is important to focus first on the fundamentals for success. Get these in place and then move on.
5. Constantly monitor yourself and make sure you stay on track.
You can find the Ultima website at www.ultimafa.co.za