The FAIS Act was enacted on the 30th of September 2004 and from this date onwards all advice is regulated to protect the consumer and the advisor.

Protection for the consumer

Advice must be qualified and appropriate.
Full disclosure and transparency must be provided throughout the process.
A needs analysis should be conducted in every instance unless the client specifically agrees to single product advice.
If the advice provided does not meet the expectations in that it causes financial loss to the client then there is recourse to complain to the ombudsman which has jurisdiction over the advice, product or service.

There are different ombudsmen for different products and services and you need to find the right one:

FAIS Ombudsman – www.faisombud.co.za

Since 1 April 2005, the FAIS Ombud was granted the authority to act as a Statutory Ombud under the Financial Services Ombud Schemes Act, 37 of 2004 (‘FSOS Act’). This means that the Ombud can deal with complaints against financial institutions, which do not fall within the jurisdiction of any other ombud scheme or where there is uncertainty over jurisdiction. The FAIS Ombudsman is like the wicketkeeper of the industry. If the ball slips past other jurisdictions he is there to catch it.
FAIS ombudsman deals with complaints not exceeding R800 000. If this is exceeded, you will have to legally pursue the case on your own.

Ombudsman for long-term assurance – Life assurance products and services www.ombud.co.za

Our office provides an independent, objective, efficient and free service to policyholders and others regarding their complaints arising from long-term insurance policies.

Pension Funds Adjudicator – Pension-related products and services, including retirement annuities. www.pfa.org.za

The mandate of the OPFA is to ensure a procedurally fair, economical and expeditious resolution of complaints in terms of the ACT,

Short-term Ombudsman www.osti.co.za

Ombudsman for banking services (funded by the banks) – www.obssa.co.za

The process for complaining:

Get everything in writing
The proposal and documentation leading to the advice
Contact the advisor first and get him to respond to your concerns
Contact the company represented by the advisor allowing for 30 days to respond
Then contact the relevant ombudsman detailing the complaint as much as possible

Prevention is better than cure. So take the time to carefully understand the advice and the recommendations provided.
Products can be technical and need explanations.
A competent financial advisor will understand this and should ensure that the solution provided is appropriate for your circumstances.

In a recent interview with National Treasury, the concern was that most of us are not saving our retirement funds when we change jobs. The discussion pointed to fees and the impact the costs have on returns. Fees were singled out as the reason why people are not saving. Perhaps the problem is deeper. We are living beyond our means with the notion that “it will be alright on the night”, so let’s just take care of it now.
Unfortunately, debt does go away by itself. It is far easier to prevent than to cure. I believe it is all about the attitude which starts with a sound financial plan.

Let’s take a look at how fees are applied to investments.

The reality of fees on investment products. When choosing an investment be aware of the pros and cons. It’s about horses for courses. Here are some things to consider:

The period of the contract
Contracts bind you to a predetermined period. The longer the term the more unlikely you are to keep up with the investment.
Let’s face it. It sounds like a great idea to take out a policy for the next 20 years. It gives you the idea that you will be forced to save for that period of time and at the time you probably think that it is quite feasible to keep up with the premiums. However, things get in the way.
Life-changing events:
Getting married
Buying a house
Buying a car
Having children
Unforeseen life-changing events such as:
Losing your job
Death
Disability
Getting divorced

If you stop paying your premiums on traditional policies the cash value before the contractual period is over, you will be charged by having your cash value adjusted to the amount that the service provider would have made on fees to the remainder of the term. These policies have the advantage of providing benefits such as premium waivers at death and disability. Again, you pay for these out of your premiums, which means that for the R100 you invest, you may only have say, R80, invested (depending on age and health), for the assurance.

Policies, as with most other investments, have three main fees:

Admin fee – generally, 0.5% of the value of the policy fund
Asset manager fees – generally, 1,5% of the fund
Advisor fees – 0,5% of the fund value

If the policy is a traditional one then these fees are advanced up at a discounted rate depending on the term of the policy.

If a ‘new generation policy, then these fees are deducted from each premium and the balance is then allocated to the investment.
Example:
R100
Less admin – 05%, less 0,5% for the advisor, less 1,5% for asset manager = 2,5%
Which translates to an R97,50 allocation to your investment.

If you stop this type of product then there are no penalties because the service provider has not advanced any fees in the form of commission.

It it therefore a trade-off between:
your probability of keeping up with the policy for the duration of the term and adding benefits

Generally speaking, when you make a financial decision the outcome is only realised some time in the future.
Your advice should not be taken in isolation and as a once-off decision. You need to keep in touch with the advice given by frequently reviewing to ensure it is keeping track of your expectations.
At the outset, you need a good relationship with your financial advisor. This relationship, like any other, should be based on transparency and trust.
So it stands to reason that you should get to know your financial advisor as much as possible before taking his advice.
Here are some questions you should have answered.

Who do you work for?
If your advisor is independent he does not work for anyone but himself. If your advisor is an agent he works for a company.

Independents answer to themselves. They work for their reasons and are not accountable to any company. They have their own business objectives and expenses for that matter which translate into the
fees they charge for the advice provided.

Agents/broker representatives are accountable to the companies they work for. Therefore, they work towards targets and objectives set by these entities.

Independent advisors need a succession plan to ensure their clients will be looked after if the advisor moves on. This places the client in a vulnerable position if their advisor is not there to review the performance of the financial plan in the future.

Agents have the backing of the company they work for. The entity will be able to provide continuity by assigning a new representative to the plan.

When dealing with either an independent or a representative trust and transparency will always be the order of the day. It boils down to liking your advisor in the light of believing that he has your interests at heart.

What license do you have?
Advisors need to be licensed to provide certain levels of advice.
The licenses are controlled by the FSB and they need to be maintained by the advisor through some stringent compliance which includes continuous development on the part of the advisor to keep up to date with the ever-changing industry.
FSB regulatory exams are compulsory for all advisors and they cannot do business without having completed them.

How do you ensure that the advice you give is appropriate?

The advisor should in every instance provide objective advice that suites your situation and lifestyle needs.
He should conduct a comprehensive financial needs analysis before making any recommendations. A need is a difference between what you have and what you want. So how can anyone know what you need without establishing what you have? A financial needs analysis is a discovery process which comprehensively looks at what you have in relation to what you need. Only then can an appropriate recommendation be given. Sound advice?

What’s in it for you?
How do you get paid?
Commissions and fees. What do you actually pay for? You should be aware of the initial fees applied to your investments as well as the ongoing annual fees applied. These are generally negotiable and should be explained.

A huge windfall of winning a lotto or power ball is a lot more difficult to handle than you might think.
Statistics point to over 70% of people who have won large lotteries having spent everything within seven years and some even filing for bankruptcy. How devastating it must be to be the
most envied and the most stupid person in the eyes of your friends and family all in one lifetime. Just because you didn’t manage your luck the way you should have and could have.

It must be an overwhelming shock to win a large amount of money. This week an unbelievable 232 Million was won off a chance of one in a zillion.
Yes, you win it and your life changes.

So what should you do?
Treat yourself like you would for shock.

Breathe deeply and slowly and take your time. When the win has been confirmed and is in the bank perhaps you should go away to a remote and small place somewhere local and with you spouse have a long hard think about what has happened.
Take your time to think about what it means to you. Financial Independence – doing things because you want to and not because you have to. Maslow in his hierarchy of needs called it self-actualisation. A place most people only dream of and now you have been catapulted into this rare and most marvellous space. The trick is to be able to stay there.

Think as wealthy people do

The wealthy invest first and then spend from their gains.
They are always conscious of growing their wealth. So they don’t spend time on how to spend and splurge. They value their wealth realising it is the source of funding which maintains their elevated lifestyle.
So, your first consideration is your and your family’s lifestyle and how best you can invest your winnings in maintaining yourselves for the rest of your lives.
Wealthy people have financial planners to help them make informed decisions. They don’t take advice from buddies over the bar counter or at the weekend braai.
Your financial planner will address key financial aspects such as:

A contingency fund which will provide for 6 months of your monthly income needs. This fund will be available for any emergencies and should be accessible on short notice.

Paying off all your debts which in turn reduces the monthly amount you need to maintain your lifestyle. You will effectively be earning interest from here onwards rather than paying it to a bank.

Investing in inflation beats assets over the short, medium and long term which will provide your monthly income for as long as possible and lump sum amounts for the future, such as education for the kids, holidays, cars etc.

Managing expectations. A good financial planner will help you to realistically evaluate the money you have and how it reasonably translates into your financial freedom. It might not be worth as much as you think when you take into account the number of years needed to provide an inflation-beating income. If you win the lotto at age 30 you will probably need to provide for the next 60 years. I you need an income of say R20 000 for 60 years protected against inflation then you will need about R15 000 000 depending on certain assumptions.

Your financial planner will also address the issues of tax and risk in your investments and structures such a trust should your plan necessitate it.

Don’t give your family and friends a hand out. Rather a hand up.

Once you are absolutely sure that your provisions have been invested wisely for the future you can then take some of what’s left over and help your friends and family. Settle their debts on condition that they re-invest the newfound disposable income into investments for themselves which in turn improve their wealth into the future.

Financial freedom needs responsibility

Your luck needs to be managed responsibly because it will probably never happen again. It is a once-in-a-lifetime opportunity to improve your lifestyle and maintain it for many years into the future. Financial freedom is only enjoyed by a few, so if you don’t hold onto the win with white knuckles it will slip through your fingers quicker than you think leaving you like most previous winners wishing that they had handled things differently.

It’s a crazy world…..of all the living species on the planet we humans are the only ones who pay to live and pay to die.
The topic of death and its financial consequences are probably not considered that often in the family.
Yet it is inevitable for all of us and we need to take a close look at it from time to time.

A way to understand the cost of dying is to follow the calculation used to wind up an estate.
The costs which the executor will apply are:

Liabilities – all the things you owe
Masters fees- R 600
Executors fees – 3.5% plus VAT on all your assets executed in the estate
( this excludes policies with a nominated beneficiary)
Funeral costs
Capital gains tax above R300 000
Estate duty – above the residue over R3 500 000

The amount of life assurance you need should cover the total costs of dying as well as a sufficient amount which will maintain the lifestyle of your dependents.
This amount depends on the monthly amount needed and how long the they need to be provided for.
A financial planner will be able to calculate a more accurate amount.

Your life assurance policy then should be set against this amount including all the costs of dying as well.

Useful financial planning sites on the web

There is a lot of information on the internet. Here are some sites which I found useful for those wanting to understand aspects of financial planning.

Investment Planning

www.marriot.co.za
Investment tools for retirement
Easy to use and practical in understanding the dynamics of how investments perform to provide the required income.

Budgeting

www.octogen.co.za
Great budget calculator which you compare yourself with the average of other South Africans.
Useful ideas on how to manage your budget.

www.mylifemymoney.co.za
Great budget tool as well as some useful calculators for your bond and your car repayments

Where to find an qualified financial advisor

www.fpi.co.za
Find a Certified Financial Planner

www.findanadvisor.co.za
Find an advisor in your area. You view the profile of their operation. How they charge and what areas of expertise they offer.

Debt

www.transunion.co.za
Free credit reports available as well as an explanation of how credit reports are compiled and used in the industry.

Information
www.statssa.gov.za
sources and methods manual which explains how CPI is compiled and calculated
History of CPI data

www.moneyasyougrow.org
Useful money information for various age group of young people

www.moneyvista.com
An online financial planning tool. It runs in British Pounds but follows the planning process. Provides useful personal finance money guides.

Direct investing

www.etfsa.co.za
A platform which offers all the exchange-traded funds available in South Africa for as little as R300 per month. Has online functionality where you can transact and view your fund performance.
All you need to know about ETFs is found on the site together with fact sheets on each fund. Needs research to understand but has value if you can go direct.

Your net worth is a key measurement in your financial plan. Technically speaking if you were to sell everything you own and pay off everything you owe the amount left over is your worth.

It is easy to be lulled into a false sense of worth with assets such as houses and cars. They are the largest purchases that we make in our lives and create the largest debts on our balance sheets. No problem if you can comfortably afford the debt. Comfortably means that at the beginning of every month, you have set aside a portion of your income for savings and still have enough money to pay the instalments even if interest rates go up by a few percentage points.

Just as a company manages it’s business with a balance sheet we should with a pen and paper create our own personal balance sheet. Simply make two columns – one for assets (things you own) and one for your liabilities (things you owe). The difference in the totals of these is your net worth. The bigger the difference the better off you are.

Measuring your net worth from time to time will give you a clearer picture of how you are growing financially. Your balance sheet will also give you a snapshot of where your opportunities lie in allocating your income. For example, it could show that paying more into your bond could benefit you by reducing your liabilities column and at the same time creating accessibility to cash for emergencies.

Your path to financial freedom is investing over the longest possible time taking full advantage of compound interest. The more you save over time in assets which beat inflation the wealthier you will become as the magic of interest on interest takes its course. Getting your debts behind you as quickly as possible will free up more money for savings. Instead of paying interest to the bank you start to compound your own interest which increases your net worth.

Your net worth forms an important base for your financial plan. Measure it often to really understand if your worth is growing.

If you are fortunate enough to be paid a 13th cheque or receive a year end bonus then here are some ideas on how to spend it wisely this festive season:

Save First then spend the rest
Save a portion. For as little as R1000 you can invest in the Top 40 shares listed on the JSE. Re-invest the dividends over time and take full advantage of compound interest over the next 10 years.

Debt is a good starting point
Have a look at your expenses and short list your debts. Make a pact with yourself that no matter what you will not go deeper into debt this holiday season.
Over draft, credit card outstanding shortfalls in tax, personal loan, bond
Any expenses which are high interest bearing debt need to be targeted first.
Pay a portion of your bonus towards debt

Gifts
Try and contain yourself this season by buying smaller and more interesting gifts. On-line buying is cheaper and less impulsive as you can carefully consider each purchase in the comfort of your home. You save on petrol, parking and that meal you normally have at the mall during your shopping. Think about a mall voucher…. this can be used to snap up the bargains after the Xmas rush when shops go on sale across the mall.

Credit Card
Use you credit card wisely this season. Budget an amount you will be spending on gifts this season and put this amount into your credit card. You will save on transaction fees and be able to control spending by keeping an eye on the balance. Remember the rule you set that you will not go further into debt. Watch your balance and make sure it does not increase.

Look for discounts on offer if you pay up front
School fees
Golf fees
Store accounts

Watch out for the early sales
Often stores go on sale just after the festive season.
If you hold back a bit with some money then you will have opportunities to pick up some bargains.

Take your holiday when everyone gets back
Out of season rates are a lot cheaper. So perhaps staying at home whilst the madding crowds are queuing for ice creams on the the packed beaches is a more sane option. Then booking a quiet week or two when the schools start will give you so much more of a decent break. There are so many local places where you can holiday. Space bank you unused time share and prepare to take up some of the late offers. Some weeks are ridiculously cheap if you are prepared to take off at short notice.

Buy your basics in bulk with friends and family and save
Plan some household items amongst yourselves and buy them through a wholesaler.
The unit price will be much cheaper than buying at the local stores.

It boils down to ATTITUDE. Holidays are much more pleasurable if you are in control.

It all begins with a plan. Financial planning is a process of measuring where you are now relative to where you would like to be somewhere in the future and implementing the necessary steps to get you there.

Peace of Mind

The main benefit of a successful financial plan is not really found in how much money you have or will accumulate. Money after all is just money. It is what money does and can do for you that makes the difference. If you had enough money to support your lifestyle no matter what life changing event occurs, then the ultimate benefit to you is peace of mind. Peace of mind now and along the way into the future that should you encounter a life changing event you can maintain the lifestyle that your plan sets out to cater for.

Life Changing Events

Life is not perfect and is unpredictable. At times when you least expect it a life -changing event can occur. Lets take a look at some of the typical events, which could affect you.

• Death – the death of someone upon whom you depend for income. The impact could be disastrous as funds required for maintenance of your day- to- day needs comes to a sudden halt.

• Disability – if you are temporarily or permanently disabled through an accident or even an illness, you have yourself and your family to provide for.

• Retrenchment – losing your job can be devastating. The pressure of find a new income gets worse the longer it takes to find a new position.
• Retirement – This is an inevitable life-changing event, which is very difficult to avoid. We are living longer and the pressure is on all of us to save as much as we can for our retirement years. The longer you live the more you will need.

• Marriage – Taking on the commitment to build a life together needs careful financial planning to ensure that financial independence is achieved early

• Divorce – Successful marriages are hard to come by with two thirds ending in divorce. This life changing event has a devastating financial implication on the family.

• Economic crisis – Whether this is brought about by weather or politics or a global melt down, can your financial plan with stand the correction and sustain the recovery.

Financial Planning questions

In relation to your financial provisions you need to answer the following questions:

Where am I now?
Where do I need to be now and in the future?
How do I get there?
The main principle to follow is “If you can measure it, you can manage it.”

The process of financial planning starts with calculating the net worth of your current financial provisions and measuring this against what provisions you need now and into the future should a life-changing event occur. The shortfalls and/or the surpluses that are identified provide areas in the plan where you should be allocating your disposable income.