Personal investing

Q&A: Advice in a changing landscape

Advisers are facing a number of challenges at present, including how best to respond in a low return environment and a spike in emigration and queries about cross-border financial planning. Alongside these current issues remain important longer-term considerations such as how to plan appropriately for succession in their businesses. Tamryn Lamb shares some of her take-aways from an adviser-led panel covering some of these issues.

How should you deal with questions around formal or financial emigration?

Background: South Africans who live and work abroad are currently not subject to income tax on the income they earn outside of South Africa, provided they spend more than 183 full days (including a continuous period of more than 60 full days) working outside of the country in any 12-month period. A proposed legislative amendment, set to come into effect on 1 March 2020, states that South African tax residents living and working abroad will be required to pay tax of up to 45% on their foreign employment income, if they earn more than R1 million during the year of assessment. But the government intends to offer tax relief in South Africa where the person’s income has already been taxed in a foreign jurisdiction. Read more here.

This imminent legislation change, along with deteriorating conditions in and negative sentiment towards South Africa, has led to an uptick in the number of South Africans considering formal or financial emigration – although we believe the trend is not quite as strong as anecdotal evidence would suggest. In this environment, it remains just as important as ever to distill the facts from the noise and not make any kneejerk decisions.  This applies to whether your clients are considering emigrating, or just moving more assets offshore – the diversification benefits of which should always be seen in the longer-term context of your financial plan. 

When it comes to formal or financial emigration, the devil does seem to be in the detail of these new rules. It is important to upskill in a number of areas to be able to effectively advise and guide your clients on this journey, including but not necessarily limited to, the tax implications of formal emigration, the South African Reserve Bank’s requirements for formal emigration, and visa requirements. Your clients will need someone to walk them through this complicated and potentially long-winded process.    

Behavioural coaching seems to be the new “buzz word”. Is this really new and how important is this approach?

Humans are ruled by their emotions. This is particularly true when it comes to making financial decisions. In fact, studies have shown that losing money activates a part of our brain that is also triggered when experiencing physical pain or fear. Understanding and managing clients’ emotions and, consequently, their financial lives and wellbeing, is an integral component of the adviser-client relationship. While this aspect of financial advice is not new, advisers globally are adapting their value proposition to focus more on “life planning” than simply financial planning. If you can encourage your clients to be open and honest about their goals, demonstrate real empathy and build trusted connections, you can help them “coach” them to filter out the day-to-day noise and get the most out of their investments.

Allan Gray’s Behavioural Coaching Programme helps equip advisers to apply this philosophy in their practices. Read more here.

How should an advice firm approach succession planning?

Time has a way of marching forward without asking and sometimes without us noticing. Concentrating on building a highly profitable, transferable business with reduced dependency on the owner is one of the most important aspects of building value in a practice. It’s crucial to start the succession planning process early on and to have an idea of the route you want to take so that you can have more control over the outcome. Options for succession planning include recruiting internally and building up talent, having a buy/sell or merger agreement in place with another “like-minded” adviser or selling to a larger corporate.

Every firm needs to choose their own path for succession, and it might make sense to have more than one iron in the fire.  For example, the preference might be for internal succession, as opposed to a sale or a merger with another adviser, but the pipeline of talent that you have lined up to take over one day, could leave the business before your plans come to fruition. So it is important to have a plan B.

Regardless of the route you decide to go, you will need to calculate the value of your practice. Ideally, this should be an objective assessment of the key value drivers of your business and should be externally tested or validated.

All succession approaches have pros and cons and it is worthwhile to think hard about these considerations while time is still on your side. How important is it to you and your clients that the practice remains “independent”? If a slow exit is planned, how long will the founding adviser remain involved and how will they be compensated? Can the new adviser adequately service your clients if you die or when you retire?

Internal succession has many important benefits for both employees and clients. For this to work well, it’s important to take a holistic, long-term approach, which includes looking at compensation models and incentives. Younger advisers in the business typically need to source funding in order to buy a stake in the business. One option is to redirect a portion of their fees and commission towards investing in the business over time. Another option is for the retiring adviser to continue drawing an income from the business in lieu of receiving a once-off lump sum.

What impact is technology likely to have on advice firms and what can you do about it?

While some have feared that technology may disrupt the advice landscape in such a way that human advisers become obsolete, this has not transpired and, to date, robo-advice has turned out to be largely a loss-making venture. Rather than fearing change, advice firms that embrace technology and apply it in the right way can create efficiencies in their businesses and gain a competitive advantage. There is no substitute for human connection, but technology can help you free up time, enabling you to spend less time on those easily repeated, manually-intensive administrative tasks and to focus more on the higher-value interactions that help you develop your relationships with your clients.

How can advice firms assist in transforming the industry in South Africa?

The Association for Savings and Investment South Africa (ASISA) offers two programmes that are focused on nurturing broad-based black independent financial advisers (IFAs) and facilitating transformation within the industry:

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