This article was first published in the fourth quarter 2016 edition of Personal Finance magazine.
Bruce Fleming’s convivial manner is, no doubt, one reason his clients keep going back to him. The others are more profound: a passion for his profession and an obsession with putting his clients’ interests first – which, even if it wasn’t enshrined in his profession’s code of conduct, would be fundamental to his character.
Fleming is this year’s Financial Planner of the Year, the annual award of the professional body for financial planners in South Africa, the Financial Planning Institute (FPI). The accolade hasn’t come his way for lack of trying – he was runner-up in both 2014 and 2015 – and the way he pursued the award says a lot about his sheer tenacity. Fleming is the first to recognise the huge benefits the award brings, in terms not only of personal recognition and achievement, but also of professional development.
Fleming has been in the financial planning industry for 21 years, and, although it took him a few years to find his niche, he has never looked back. He hails from Durban, and completed a BCom LLB at the University of Natal in the 1990s. When he arrived in Cape Town in 1994, he took the first job he could get, as a bookkeeper for a commercial diving operation. Then he spotted an opening at Old Mutual as a financial planner and the die was cast. That early foray into planning did not work out, and he moved over to Old Mutual Trust as a wills consultant and then to Old Mutual’s legal department as a legal adviser.
Four years later, he was approached by Andrew Bradley, who was establishing the Acsis financial planning group and who would become the group’s chief executive. Bradley invited Fleming on board as a compliance officer. When Fleming turned that down, he was offered practice development manager, with the job of identifying top financial planning businesses in South Africa and bringing them into the Acsis fold as strategic partners.
One of the financial planning companies Fleming identified was Betty & Dickson Financial Services, which evolved into the Consolidated group. On visiting the company’s managing director in Johannesburg, Fleming was invited to open an office in Cape Town, which he did, and there he built his experience and profile as a financial planner. By then he was a fully qualified Certified Financial Planner (CFP), having completed his Postgraduate Diploma in Financial Planning at the University of the Free State in 1999. He followed this with the Advanced Postgraduate Diploma in Financial Planning in 2001.
Fleming has now come full circle: he is back at Old Mutual as part of its Private Wealth Management division, practising as a financial planner. At the beginning of the year, Consolidated was bought out by the Citadel group and, soon after receiving the Financial Planner of the Year Award at the FPI’s gala dinner in July, he left Citadel to move back to Old Mutual. A few years ago, Old Mutual absorbed Bradley’s Acsis group, so Fleming is intimately connected with Old Mutual Wealth’s people and completely attuned to its business philosophy.
It’s a philosophy that was pioneered in South Africa by Bradley at Acsis: lifestyle financial planning. Essentially, this involves a fee-based structure, meaning there are no commissions on financial products, because they tend to deflect a financial planner’s attention from providing for your best interests. More importantly, it is a holistic approach, in which your finances are not dealt with in isolation from all the other aspects of your life.
As a result, Fleming gets to see people from all walks of life and at all stages of life, unlike some financial planning practices, which focus on individuals who have already made copious amounts of money and don’t know what to do with it. Many of his clients are what he calls “accumulators”: people starting out in their careers, or in mid-career, who are in the accumulation stage of building wealth.
“The beauty about what we do is that every client is regarded as unique. Some practices segment their clients into age groups, or the amount of funds under management, but I find that quite a funny thing. Every person is different. It’s like going to a doctor with a problem: just because I’m sick, it doesn’t mean I’ve got the same disease as you.
“Lifestyle financial planning is first about finding out your lifestyle objectives,” Fleming says. “For accumulators, these might be that you want to retire one day and to maintain your lifestyle in retirement – you may want to travel every two years (you might have children overseas), and that will cost you XYZ in today’s terms. You may want to change your car every five years. So it’s nuts-and-bolts objectives that you can touch and feel.
“Then you match the investment process with those lifestyle objectives. What return do we need to meet those lifestyle goals? We haven’t even talked investment yet. We’ve looked at what the client wants, what they need, and then at what returns they need in order to attain those objectives.
“Only then do we look at investments. So, in order to achieve that return, we say, ‘This is what your investment will look like; this is the level of risk. Are you prepared to stomach that risk?’ And if they’re not prepared to stomach it, then we go right back to their objectives and say, ‘Okay, then instead of retiring at 60, you retire at 65, and instead of going overseas every two years, what about every five years?’
“If it is a retiring client, you may mitigate risk by putting some of their money into a type of guaranteed investment for the next four or five years, so they are guaranteed that income, and then they can take a bit more risk with the money they’re going to need only in five or six years’ time. It’s a different scenario if you’ve got a guy who is 25 who is prepared to take a long-term view. He can take a lot more risk, because he’s got the time.”
The younger generation
Given the nature of young people, would a freewheeling, partying 22-year-old just out of university make the effort to see a planner?
“They do if their parents tell them to,” Fleming says. “A lot of them will come kicking and screaming to see me, but by the time they walk out, their eyes are as big as saucers, because they have typically just finished varsity and have 35 or 40 years of working life ahead of them. What happens if they have an accident and their earning power disappears overnight? We use those scenarios. You’re drinking at night; you’re driving; you’ve got a high-octane lifestyle; what happens if you can’t work tomorrow?
“With someone who’s just out of varsity, who has a student loan, who’s looking at buying a house and getting a car, we don’t even talk finance at the first meeting. We talk, ‘What do you want? What do you want to achieve? Do you want to be debt-free by 30? Do you want to get married and have a family?’
“So first, we look at short-term goals, such as paying off short-term debt and taking out disability cover. Then we look at medium-term goals, and typically that would be saving up for a deposit on a house, getting married.
“And then we look at long-term goals, which are a moving target as you earn – and we don’t talk inflation-linked increases as far as these guys are concerned; we talk promotional increases (a lot higher than inflation), especially if they are graduates. So we need to be seeing these guys regularly, at least once a year, to bring them back on track.”
Ultimately, Fleming says, it’s about building a long-term relationship so that a client who comes to you as a 22-year-old keeps coming for the next 40 or 50 years. Unfortunately, Fleming says young people tend to accumulate bad debt and often need a good dose of financial education. “This generation is interested in instant gratification,” he says. “They will go to Tafelberg Furnishers and buy a fridge on hire purchase. So a lot of that initial talk to clients is educational. It’s explaining to them the expense of debt and the opportunity costs of paying 20-percent interest on hire purchase, as opposed to saving up and paying cash, delaying your gratification.”
As part of their education, clients need to know certain investment basics, so that they don’t panic when the markets go awry. “I’ve got a client who is an engineer, and at our first or second meeting we were going through the whole [investment] thing … engineers are very analytical, so it takes a bit longer. I said to him, what I’m going to do is to educate you, and continually coach you, and he turned round and said, ‘Are you telling me I’m not educated?’
“He’s a structural engineer, so I said, ‘Yes, I know you’re very educated, because you build bridges and roads, and stuff like that. Well, I’m also educated, but there’s no way I’d be able to build a bridge. I’m going to educate you about what I do, so that when we have our annual meeting you ask me relevant questions that I actually have to tackle. So I’m not just coming to you and saying, “Here’s your portfolio, it’s done, XYZ, now you’re on track, thanks” and off you go. You’re going to be asking educated questions, because you now understand what’s going on.’
“What you find with a lot of clients is that they’re too intimidated to ask questions, because they think they’re going to come across as stupid,” Fleming says.
The investment process
Unlike many financial planners, Fleming does not get involved in the nitty-gritty of investments and investment products. Once he has established what return you need, according to the lifestyle planning process, he uses the services of an investment manager who structures a portfolio according to the required return profile.
“I do everything right up to targeting the required return. I’m not a CFA (Certified Financial Analyst), I’m a CFP professional, but I need to be comfortable that whoever I am partnering with can achieve the targets.
“Returns above inflation are non-negotiable. We’ll approach a manager on whom we’ve done a due diligence and say: ‘The client needs to achieve a return of four percent above inflation. Can you do it?’ And they will tell us what the portfolio will look like: 50 percent equities, 20 percent property, and so on. And they’ll tell us the risk associated with the port-folio – for example, that the chance of a negative year is one in five. I go back to the client and say, ‘This is the portfolio, and the chances are pretty good that you will have a negative year once in every five or so years. Can you live with that?’
“Very few clients say they’re not prepared to.
And the beauty about doing things this way is that when there is a bear run, such as the one in 2008, the clients don’t come running to us to change our strategy, but say: ‘Is this the negative year you were telling us about?’”
But are minor adjustments made to portfolios according to the changing investment environment?
“The fund managers tweak the portfolios all the time. And if there’s a major change in long-term outlook, there may be major changes to your asset allocation as well. But as long as you’re communicating that all the time to the clients, they’ll be happy. You’ve got to have tactical changes.”
Fleming gives a good example of how the lifestyle approach can benefit even someone with relatively little accumulated wealth: “One of my very first clients retired in 2000, when we met by chance. He had R650 000; that’s all he had. It was quite early in the days of living annuities, so the question was, ‘Do we go living or guaranteed?’. We did the lifestyle planning process, and it was clear that, if he went for a guaranteed annuity, he would never have maintained his lifestyle. So we targeted specific lifestyle requirements, [put him into a living annuity], and he’s maintained his lifestyle for the past 16 years, just by monitoring his lifestyle objectives annually. He would never be where he is today had we not had that chance meeting back in 2000. He’s one person who would shout from the rooftops about lifestyle financial planning.
“I spend a lot of time with my retired clients – that’s just the way it is, because their potential to earn is gone. That’s why I take financial planning so seriously: if we mess it up, the client is history. If a doctor makes a mistake while you’re on the operating table and you die, well, you’re dead. If we make a mistake and the client is 65, the client has another 20 years to go. What are they going to do? Land up with their kids, or in a home? I think financial planners are as important as doctors.”
Raising the profession
Fleming’s passion for his profession is particularly evident in his support of the FPI’s objective to raise financial planners to the level of the established professions, such as doctors and accountants.
“Part of my job as brand ambassador for the institute, as the FPI Financial Planner of the Year, is to raise the level, first of financial planning, but even more so of the CFP designation. Again, the doctor analogy: if you’re sick, you don’t go to your mate who is a medical rep and get a pill from him. You go to a doctor. It should be the same if you need financial help: you go to the professionals, and they are the CFP professionals. So part of my job this year, together with the guys at the FPI, is to raise the status of the CFP mark, not only for the public, but within the industry as well.”
First on Fleming’s busy agenda as Financial Planner of the Year was a trip to the United States in September for the annual conference of the Financial Planning Association (the FPA, which is the FPI’s international affiliate) in Baltimore. Chatting before he left, he said: “These are the top financial planners in the world, so I’m going to try to bring back a lot of information about new developments and trends in the financial planning industry.
“Then I’m going on an FPI road show throughout October and November to all the regions in South Africa, and I’m going to talk about the new international trends, as well as my journey to becoming Financial Planner of the Year. I don’t see it as a pinnacle, because I think there’s still a long way to go, but I want more CFP professionals to enter the Financial Planner of the Year competition.
“Even if you don’t win, it can be the most rewarding thing you’ve ever done in your career, because it stretches you to places you don’t think you could go. And it means you’re getting the best minds in the industry looking at a financial plan of yours, and that can be intimidating. Then they come into your business and do a complete audit on it. And then you’re sitting in front of a panel for an hour, with the top minds in the industry firing questions at you. I mean, it can’t get any better than that. After the interview, I said to one of the FPI people: ‘I don’t need drugs, just put me in front of a panel and I come out on the biggest high you’ve ever seen.’
“Half of the presentation to fellow CFP professionals will be: I’m just a normal guy like you, I started in the industry without a cent to my name. I’ve been through exactly what you guys have been through and I’m now the FPI Financial Planner of the Year. Why don’t you do it?
“The other half of the presentation will be about what I learn in Baltimore.”