Your questions answered

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Richus Nel, Financial Advisor at PSG Wealth, Old Oak, responds: It is important to understand that the rendering of financial advisory and intermediary services to clients are regulated by legislation and professional codes of conduct. What we say or write, are often construed as “advice” but the preparation for a big adventure or road trip going “North” can wildly vary when the following becomes apparent: Where does the trip start and who is/will be going on the trip. These two determining factors are often completely unknown when we answer financial questions over the radio or the web.

Advisers are often constrained in terms of information available and time to explain certain fundamental principles so we often just touch on the surface and our feedback should therefore not be construed as holistic advice.

By engaging with a financial planner, clients are in a better position to analyse their personal circumstances in order to reach their own personal goals, and here a financial planner plays a role similar to that of educator and coach. Financial planning is a process and can, most often, not be answered by simply purchasing a product. The duty of a financial planner is to always act in the best interest of the client, after considering the client’s goals and circumstances. No advice should be given until a client mandate exists with clear client objectives and after considering various suitable alternatives, as the advice rendered can be completely inappropriate.

Advisers are generally focused on providing specific client outcomes rather than a “one size fits all” approach. Sweeping advice statements or generic answers generally causes more harm, and also don’t reflect well on our profession. All financial planners are tasked with the responsibility to uphold high ethical values and implement ethical principles in order to further the professionalism of the financial services industry. As such, it is important to point out the constraints of giving advice based on general information – while certain aspects may be helpful or provide food for thought, advice has to be tailored to an individual’s circumstances to be truly helpful. Advice based on generalisations is unlikely to suit the unique aspects of your life.

Getting my finances back on track

I’ve been battling to stick to my financial plan due to unforeseen costs at the start of the year. Where I was able to save a bit of money each month, I’m now unable to save anything due to covering these extra costs. What’s the best thing to do to get back on track?

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Magdeleen Cornelissen, Wealth advisor at PSG Wealth, Menlyn responds: Although there are some months that unforeseen expenses seem to appear all at once, it should never deter you from your long-term financial plan to financial independence. Setting up a budget and keeping a close eye on your cashflow, will help you to understand the nature of your expenses and prioritising them in terms of importance while still maintaining a measure of flexibility in managing your budget. Remember that both credit and debit management are integral to supporting a lifestyle and that not all debt, such as a mortgage bond, is necessarily bad.

It is clear that you understand the importance of prioritising your own financial well-being.

The fact that you already have a financial plan in place immediately puts you ahead of the curve. Reviewing the plan will most definitely add value, ensuring that your goals are still realistic and in line with your requirements.

After prioritising your debt, understand that some types of debt is more expensive than others. Perhaps you can therefore start with repaying the debt that carries the highest interest rate charge, and here the credit card and clothing accounts are often the main culprits.

Setting up an investment into which you make a regular contribution, after addressing the need for an emergency fund and short term insurance, creates disciplined investment behaviour. There are many investment platforms and products available to investors, that allow for a low value monthly contribution. In good months where you either have the benefit of a bonus or less expenses, you should consider making an ad hoc contribution to your investments. Once you start to see the value of your investment portfolio growing, you will realise that you are not only back on track with your financial plan, but one step closer to reaching your goals.

Retirement funds: what to choose?

I started my first job this year and I want to start saving money, but I’m unsure of the difference between a retirement annuity and a pension fund. Which one should I be using to save for my retirement?

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Marzel Swart, Wealth Adviser at PSG Wealth, Pretoria East responds: Congratulations on your first job and good luck for the first year! Your decision to start saving right away is probably one of the most important decisions you will make. The earlier you begin saving, the sooner compound growth can begin working for you. In addition, it is also important to decide on the product and underlying assets you can invest in.

The main difference between a retirement annuity (RA) and a pension fund is that an RA is your own private retirement fund, compared to a pension fund which is offered by an employer. You must be an employee to participate in a specific employer's pension fund, while any person can invest in an RA.

Both RAs and pension funds are regulated by the Pension Fund Act, which entails certain restrictions. Regulation 28 of the Pension Fund Act limits the amount of funds you can invest in high-risk assets such as equities and especially foreign equities. To take advantage of the tax-deductible benefits, you are also limited to a maximum contribution of 27.5% of your taxable income to a maximum of R350 000 per year.

On retirement after the age of 55, you can only take one third of these funds in cash; the remaining two thirds must be used to purchase a pension, through a living annuity or a life annuity if the total value of the retirement interest of the retiring member is at least R247 500 in a fund. If the total value of the retirement interest in a fund does not exceed R247 500, the full amount in that fund can be taken as a lump sum.

So, you can use any of these funds to start saving. If your employer offers the option, you are usually obligated to make a contribution. If your employer does not offer the option, I would suggest that you take out your own RA.

Cover during load shedding

With load shedding becoming a frequent occurrence again, I’m worried about what my short-term insurance covers and what it doesn’t. Will I be covered if someone breaks into my house during load shedding if my alarm system was offline?

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Bertus Visser, Chief Executive of Distribution at PSG Insure, responds: Insurers will only honour claims that arise during load shedding if you can prove that you complied with the terms and conditions of your insurance policy, and if the policy has the relevant cover. This is why it is so important to keep your policy up to date and to be aware of what you have agreed to.

In regard to your alarm, if a burglary takes place during load shedding and it states in your insurance policy that you are a client of an armed response company, it is your responsibility to ensure that the alarm remains functional and connected to the alarm company. For the alarm to remain operational during load shedding, you will have to install a back-up battery. It’s important to regularly check the batteries to ensure they are charged and functional at all times. All policy conditions must be adhered to for an insurance claim to be considered.

Working closely with your adviser to keep all your insurance details up to date and to help you understand what your contractual obligations are is essential to avoid having an insurance claim rejected.

PERSONAL FINANCE