This article was first published in the fourth-quarter 2014 edition of Personal Finance magazine.
Just five years ago, there was one … now there are 81 (and counting) financial planners working for Efficient Advise, forming a countrywide network from the various metropoles of South Africa to small towns such as Kuruman and Jeffrey’s Bay.
This is the work of managing director Peter Hewett, the 2014 Financial Planner of the Year, who wakes up thinking of the nation’s deficit in financial planning (my guess) and goes to bed (his confession) with nothing more distracting than the latest Financial Planning Handbook. He laughs about that, but is happy to admit to his single-mindedness – at least during the week. Weekends are reserved for his wife, Erika, two young sons aged 16 and 11, and the family’s passion for nature and the bush.
The opportunity to develop a financial planning business from the ground up for JSE-listed asset management and asset finance company Efficient Group (EFG) came as a surprise at the mid-point of a career that was progressing along more conventional lines. Cape Town born and bred, Hewett did a BCom, majoring in economics and business management, through the University of South Africa and then gathered broad experience with big players in the financial services industry. At what was then Volkskas (now incorporated into Absa), he specialised in estates and insolvencies; at First National Trust, he served the bank’s Private Clients as head of trusts and managed portfolios; and at BoE/Syfrets/Nedbank, he broadened his management experience as regional manager of private banking in Gauteng and, ultimately, general manager: home loans distribution. He also had a two-year stint in the property sector with Independent Initiatives, before becoming a financial adviser with Old Mutual Private Wealth.
He is a Certified Financial Planner (CFP), a Certified Associate of the Institute of Bankers and a member of the Financial Planning Institute (FPI).
It was 2009 and he was not yet 40 when he was approached to play a more strategic role in the financial advice industry by setting up Efficient Advise. He leapt at the challenge – but not without reservation. Instead of withdrawing from face-to-face financial planning entirely, he continues to work with 24 client families with total assets under advice of R124 million. He stresses the importance of these relationships, both personally and professionally, despite his focus, for the time being, on growing the business.
So far, Efficient Advise has a staff of 138, thanks partly to EFG’s acquisition of Verso Investment Services at the end of last year and the subsequent merging of the two operations. Apart from 81 advisers, the company consists of a business development team, an operations team, and a product and investment committee infrastructure, serving 12 000 clients around the country. Hewett says he is hugely motivated by this rare opportunity to create employment, set the ethical tone for the financial planning services offered by the company, make sure planners are well trained and supported and see them forming relationships with individuals and communities.
Financial planning has an elite image, and Hewett admits that the barriers to entry are high for both prospective planners and prospective clients. Planners face daunting regulatory constraints and may be held financially liable for advice that backfires, while clients may feel they cannot darken a financial planner’s door without very substantial assets that might qualify as that well-used word in the industry: “wealth”.
Pressed about who, exactly, can afford to become a client of Efficient Advise, Hewett says his company, unlike many financial planning businesses, has no “asset test” for new clients; the only requirements are the need for a plan and some disposable income to fund it.
“Everyone who is employed, and/or has specific financial aspirations, or any liabilities or dependants, should have a financial plan and is welcome to contact Efficient Advise,” he says.
“The cost of not having an appropriate plan in place, managed by a suitably qualified FPI-accredited financial adviser, will always be far more significant over time than the cost of the initial planning exercise and the subsequent management of that plan,” Hewett says.
“Many people believe that planning is only required later in life, but very often, deferring planning has a significant negative long-term impact on the achievement of clients’ goals and objectives.”
At Efficient Advise, the way the service works (based on a standard service level agreement, adapted to the needs of the client) and the related fee structure are agreed with the client in advance, Hewett says. But the key to the whole future relationship is the first, high-level consultation – which could be face-to-face, electronic or telephonic, depending on the circumstances, but is provided at no initial cost.
“After that, the cost/benefit can be evaluated by both the client and the adviser,” he says. “The bottom line is that we will not decline any request for an initial investigative consultation to assess the needs of a prospective client.
“There are a host of business models available in the market, many of which offer a free initial consultation and a rebate of some sort on the cost of the planning exercise if the proposed solutions are implemented,” Hewett says.
At Efficient Advise, the first meeting is used to clarify the client’s objectives and gather information for a comprehensive needs analysis, including provision for retirement, death and possible disability and/or critical or severe illness, Hewett says. At the second meeting, the adviser provides a comprehensive plan, covering those needs and extending to estate planning, will options, tax planning and investment solutions.
At the third meeting, final arrangements are made for implementing the plan and a review strategy is put in place to make sure that the plan is adjusted as often as necessary to take account of any changes in the client’s personal circumstances or the legal, regulatory and/or investment environment.
As this service model suggests, the company resists “single needs” – the industry’s term for a client’s need for individual financial products, such as life assurance, a retirement savings product, an investment portfolio, and so on. Even single needs require a full needs analysis, Hewett says, and no need, once identified, is cast in stone.
“The regulatory, tax, investment and risk environment is fluid and changes continually, as do individual client circumstances, so the achievement of longer-term goals and objectives calls for long-term management,” he says.
“No financial plan can be implemented over the very long term without adjustments. Qualified and accredited advisers have to maintain an acceptable level of continuous professional development, so that they are equipped to respond to the changes clients are exposed to.”
Hewett believes that the Efficient Advise network of branches and satellite offices makes advice (or planning – the word he prefers, because it suggests interaction and continuity) more accessible to less affluent sections of the population, because it reaches out to communities. Local branches host events in small towns, and planners meet clients in their homes rather than remaining aloof in their offices.
There are various remuneration packages available to the planners, incorporating commissions, salary and fees in different proportions. Hewett sums up the fee structure as “primarily commission-driven on the insurance side and fee-driven on the investment side”.
Eliminating conflicts of interest
“Commission” has become something of a dirty word in financial services recently, and I am bound to raise this with Hewett.
The unscrupulous operators who channel clients into inappropriate investments without disclosing the enormous commissions involved (exposed regularly in the pages of Personal Finance newspaper) are by no means exclusive to South Africa. In fact, the Daily Telegraph reported in 2012 that the term “financial adviser” made most British people think of the character Del Boy in the television sitcom Only Fools and Horses: a scheming market trader whose name has become a byword for dodgy wheeling and dealing. Since then, the United Kingdom has taken action to ensure greater transparency in the industry by implementing something called the Retail Distribution Review (RDR), and the Financial Services Board (FSB) in South Africa is following suit by instituting its own RDR.
The UK’s RDR has been operating for nearly two years and regulates the way advisers present themselves to prospective clients, so that there is no ambiguity about their qualifications and/or affiliation to certain product providers. It also outlaws the payment of large, undisclosed commissions to financial advisers, which deplete clients’ investment returns and entice advisers to be biased towards certain products and providers. Instead, payment for advice must come from fees: either negotiated in advance with clients, or openly and transparently added to the cost of investment products, or both.
The reforms are not without risk: in the UK, the restrictions on remuneration are blamed for a 20-percent drop in the financial adviser population. This may explain why, getting on for three years after the FSB’s commitment, South Africa was at the time of writing still waiting for its own RDR: the regulatory authority may be trying to find a formula that will stop businesses closing and jobs being lost.
Hewett says he is reassured by the fact that there has been – and continues to be – plenty of consultation with the financial services industry around the structure and implementation of the RDR.
“I believe that a pragmatic approach will be followed in South Africa that will ensure the sustainability of any business that has a well-established business model and infrastructure and that has a diversified revenue stream.
“The proposed changes are likely to have an impact on remuneration in the insurance environment, but it is expected to be transitory. Fees for investment business, where payment is facilitated through the product providers, is unlikely to change in any fundamental way, so the impact will be limited,” he says.
Another aspect of financial services reform in South Africa is the proposed Treating Customers Fairly (TCF) regime – again being developed by the FSB along the lines of a similar regime in the UK. There will be six specific outcomes by which the industry and customers can measure performance, with the ultimate goal to embed the fair treatment of customers into the culture of the industry. How does Hewett see this development affecting his business?
“TCF is likely to have a more significant impact on product providers and tied advisory businesses or businesses that have specific associations with product or service providers,” he says. “Most independent practices, like Efficient Advise, already operate within the framework required. We have a specific TCF action plan across all businesses within the group and progress against the plan is reported to the group board.”
No preference
“Independence” is considered the best guarantee of objectivity and integrity in financial planning, so it might raise an eyebrow here and there that the EFG houses both advice and asset management. The asset management arm of the company, Efficient Select, can offer Advise clients a range of investments for all levels of risk, from a money market fund that aims to match the Consumer Price Index (CPI), to a high-risk equity fund that aspires to returns of CPI plus six percent.
Planners earn commission on these investment products and clients benefit by paying lower fees. Can either side make the best unbiased choices about investments in these circumstances?
“The key principle of remuneration at Efficient Advise is that no adviser is incentivised to offer in-house products, and remuneration structures are standard regardless of the solution offered to clients,” explains Hewett.
“This is intentional, to ensure totally unbiased advice. There are no preferential commission agreements or market-share agreements with any product or service provider, and advisers have absolute discretion, in line with clients’ requirements and subject to appropriate due diligence on products.”
Efficient Advise investment solutions and products are designed, approved and managed by an investment/product committee, Hewett says, tasked with ensuring that clients are provided with cost-effective, independent solutions through a range of collective investment (unit trust and exchange traded fund) service providers, assurance and short-term insurance companies, medical scheme providers, and so on. Two EFG subsidiaries, Boutique Investment Partners and Boutique Collective Investments, work with the committee as the asset consultant and a provider of collective investment schemes respectively.
“Product performance is monitored on a quarterly basis and adjustments are made where required to ensure delivery against benchmarks over the relevant investment terms, regardless of whether a component is managed by internal or external providers,” Hewett says.
Client confidence
In the spirit of customer-focused financial services, Hewett’s clients should have the last word. Wibo Schipolt, retired managing director of Nedlloyd Lines SA, and his wife, Sue, have been clients of Hewett for four years and have complete confidence in the value they are getting for their money. “Peter has always been fully upfront about the costs/commissions, but the service and results – not to mention our trust in him personally – are such that, quite frankly, we consider costs immaterial to this particular exercise,” Schipolt says. “We only have to monitor the results for our investment portfolio and family trust – which are discussed in detail at every meeting – to know that we are getting value for money.
“We expect a financial adviser to have a sound knowledge of the financial markets, so he or she can assist with all aspects of investments, but also to be able to advise on other matters, such as tax and trusts. My wife and I attend the meetings, and when it comes to the family trust, my eldest son is involved, too. He is also a client of Peter’s in his own right, as he has his own company.
“Meetings are held quarterly, and preparations by Efficient Advise are meticulous. These include detailed schedules of all our investments, showing their progress since the last meeting, and market reviews by the investment companies.”
Danie Oosthuizen, a retired engineer and client of Hewett for two years, has this advice for anyone who is sceptical about the value of financial advice: “If you are not an expert in financial planning, get someone qualified to assist you. This person will – or should – advise you not to live beyond your means, assist you with your estate planning and guide you towards tax-efficient investments that will ensure an income for the rest of your life. Obviously, this kind of advice comes at a cost.
“If I have learnt one thing from the experience, it is that financial planning and a good planner are worth their weight in gold.”
THE PICK OF THE PLANNERS
The Financial Planning Institute (FPI) explains the assessment process from which Peter Hewett emerged the winner.
The financial planner of the year evaluation process consists of three stages, each conducted by different people, to ensure that it is thorough and objective, Tsholofelo Dihutso, the FPI’s communications manager, says.
At the first stage, which accounts for 45 percent of the final score, a panel of people who have the Certified Financial Planner (CFP) accreditation evaluates a financial plan submitted by the candidate, assessing how well the candidate communicated with the client through the six-part planning process, how accurate his or her analysis and synthesis of the client information was and how effectively he or she presented recommendations to the client. Comments by the judges on Hewett’s plan included: “Good structure”, “excellent implementation and review process” and “clear evidence of a solid financial planning process”.
The second stage is a visit to the offices of all the shortlisted candidates by specialists in compliance and practice management, accounting for 25 percent of the ultimate score. The evaluators said Hewett had been “instrumental in establishing a well-equipped and resourced business that is providing a professional service to clients.
“The business has excellent processes that extend to all its branches countrywide. The compliance management is well documented and of a future-thinking environment. Peter’s practice management style is based on sound business management principles and strategic thinking, which permeate through to the way financial planning is practised throughout the company.”
Finally, the candidates are interviewed by a panel of judges, with this assessment accounting for 30 percent of the final score. The judges were impressed by the fact that Hewett was running a business, setting standards in his business, making financial planning accessible (even in small towns) and still managing to practise financial planning conscientiously without stinting on the time given to his clients. “In doing all of these things simultaneously, he promotes professionalism and leads from the front as far as his employees are concerned,” the judges said.
The runners-up in the 2014 Financial Planner of the Year competition were Bruce Fleming of Consolidated Financial Planning and Donovan Adams of Chartered Wealth Solutions, both CFP professionals and members of the FPI.
The award is co-sponsored by Personal Finance and the Financial Planning Institute.