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We are a qualified, client-centered lifestyle financial planners committed to creating sustainable plans which are personally tailored. We enable our clients to live their dream lifestyle through careful planning and coaching.

What We Can Do:
1. Help you clarify and achieve your hopes and dreams
2. Provide an easily understandable financial plan
3. Coach and educate you to make the right financial decisions
4. Be there when you need us
5. Manage all your financial needs under one roof
6. Give clarity on how to build wealth
7. Be there during major (or minor) life decisions
8. Manage your money the same way we do ours

What We Can’t Do:
1. Predict what will happen in the markets
2. Make your plan work without your commitment
3. Promise high returns with low short-term volatility
4. Allow you to do things we wouldn’t do ourselves
5. Manage investments without a comprehensive financial plan
6. Time the market or pick the hottest investment

Here we are nearing the end of 2019, another year nearly over and another year where capital markets have done very little. The only news we hear seems to be bad news be it locally or internationally, it is so easy to get despondent, what are we to do?
In the 28 years I have been in the Financial Planning industry I have only ever experienced this sense of helplessness and frustration once before. It was around 2001/2002. The market was flat and asset managers were not returning my calls. The dotcom bubble was bursting, and the Rand was in free fall.

Lifestyle Financial Planning Found Me

I remember very clearly having the realisation that this industry was broken and feeling that I really added little or no value to my clients, no matter how desperately I wanted to. The industry had let me down and I needed to find a way to change this or I had to get out!
As fate had it, I heard about a business called ipac who had introduced something called “lifestyle financial planning”. Having no idea what to expect, I flew to Cape Town and met Andrew Bradley. I explained my moral dilemma and then he explained what this new concept entailed. It was like a bolt of lightning, a sign from the heavens! I flew back to PE the next day and adopted this new way of doing business immediately and completely. As they say, “the rest is history”.

Why am I telling you this? Well let me explain. The ipac “lifestyle financial planning” concept was completely different to anything I had experienced in that there was a “process” which we followed. It included getting to know and understand our clients and what it was that they wanted to achieve/do in their lives. Once I understood this, their financial data was collected and put into a model which amongst other things would reveal the “real” rate of return that their investments needed to achieve over time for them to achieve their desired lifestyle. We would then place their funds into investment strategies which were specifically built through a thorough “process” to achieve the targeted real return. I didn’t have to pick funds, blend them or time the market anymore.

Stay Invested

Over the years these investment strategies have delivered, and we have many retired clients who are living according to their planned lives because of this. Many of them have been through 9/11, the invasion of Iraq, the global financial crisis, Marikana and now Zupta. On my advice, they were brave enough to stay invested and to continue to invest into the same investment strategies, things always eventually reverted to the norm, the “processes” worked and still do.

Top 5 Things I've Learned over 16 Years in Lifestyle Financial Planning

So many years on I look back and realise that we have been where we are before. I think about what has or has not changed and what lessons we and our clients can learn from the past. Here are things which I know have made the difference:

1. Following the Lifestyle Financial Planning offering meant we followed processes; we had a process for facilitating our clients planning and there was a process on how the investment strategies were managed. Sticking to both is the single most important contributing factor to the success of our client’s outcomes and to our business.
2. When things are at their worst, stay invested as this time will pass.
3. Bad news sells - ignore it.
4. When asset manages are pushing products or funds with guarantees stay away, 90% of the time you will be better off investing in the indices they claim to track.
5. SA is in the top 3 capital markets in the world in US$ over the last 119 years.

Now is the time to be brave, to stay the course and to be patient. As financial planners this is when we earn our keep by helping our clients to stick to proven strategies and to their plan. We are in this together, we are your partner in you achieving your dream lifestyle. It is what we believe in deeply, you are why we exist, and you are our priority.

By Dirk Groeneveld

In our industry, there is a very high focus on returns. If you open the financial magazines you’ll see everyone advertising that they have the best returns over some time - we’re talking about 10, 12, 15, 20% returns. What is important, however, is what this return means to you and your financial plan, and your goals that you are actually trying to achieve.

What is a Real Return?

So, what you really should be focused on is the real return that you are getting. A real return is the return you are getting over inflation. Inflation is the greatest enemy for any investor - we need to be outperforming inflation. As an example, if inflation was sitting at 5% and you’re getting a 10% return that equates to a 5% real return. This is what’s important.

Why is it important?

What is also important is that there is a real return after tax. So in other words, if you are saving at a bank and you’re maybe getting a 7 or 8% return, after tax depending on your tax rate you could very well be keeping up with inflation or even falling behind.

Where will I get a real return?

History shows us that, in the long run, the place you will get a real return is in the equity market, that is, in the share market. So, to achieve a real return in the long run you have to have a certain amount of exposure to the equity market, which in turn means there will be some volatility in your portfolio.

Remember, stay invested, don’t try and time the market - it’s time in the market that counts.

"I’m not earning enough to save for retirement”.

“Retirement is so far away; I’ll worry about it closer to the time”

“I’ll start saving once I start earning more”

“I first want to do X, Y, & Z”

These are all some of the common reasons why millennial's are not saving for retirement. In South Africa, only 6% of people are able to retire comfortably. To avoid being part of the 94%, future generations should be aware of what is possible. It’s no secret that millennial's seek instant gratification over long-term potential. Being a millennial myself, I too am incredibly guilty of this. It’s more important for us to give the impression of success even if it means drowning in credit card debts or high interest loans. As long as we get our likes and retweets, we’re happy.

Below I try and demonstrate the importance of starting to save early in life and the overall impact this can have later in life. To illustrate this as simply has possible, we consider four friends and their different stages in life:

Michael

Michael has just turned 22. He has just started at first job which pays a very entry-level salary. Michael was fortunate enough to study a financial degree, so he knows the importance of saving and how compound interest works. Michael is able to save R500 per month at his job. He saves this amount of R500 for 12 years and stops contributing to his investment at age 34, because, by now he has kids and a house to pay for and that R500 pm would be better off paying off debt, so he completely stops the R500 payment per month. For these 12 years, he would have contributed a total of R72,000 into his retirement investment and received a return of 10%*. Michael aims to retire at 55.

For the next 21 years, Michael allows his investment to grow but does not add any more to this investment. He earns 10%** pa annualised for the next 21 years. By the time Michael retires at 55, his total amount for this investment*** would be R1,022,854

So, in summary, he contributed only R72,000 from ages 22-34 and was able to retire with an amount of R1,022,854.

Jason

Jason decided that for his first 10 years after university he is going to use his money to travel the world and not worry too much about saving for later in life. Eventually, at age 34, Jason decides now he has to start thinking about his future.

He decides that from now (age 34) until retirement (him and Michael are friends so he will also retire at 55 so the two of them can hang out together) he will save R1,000 pm. He also receives a 10% pa return. By retirement, Jason would have contributed a total of R252,000 to his retirement pot. By 55, he would have a total of R851,450 in his retirement savings.

In summary, Jason contributed R252,000 total from ages 34 to 55 and was able to retire with an amount of R851,450. So even though he contributed 3.5 times as much as Michael, by starting late, he will end up having R171,404 less.

Pamela

Pamela is Michael’s wife. Up until she was 45, she wanted to look after their kids. But now the kids all grown up and she can go back to work. Pamela understands the importance of saving and from the get-go she saves R2,500 pm for her retirement. She would like to retire with her husband, so her retirement age is also 55. Pamela receives 10% return on her investment over 10 years. By the time she retires, Pamela would have contributed a total of R300,000 but would only have R512,112 in retirement savings by the time she reaches 55.

In summary, Pamela contributed R300,000 from ages 45-55 and was able to retire with an amount of R512,112. So even though her contributions are 4 times as much as her husbands, she will have almost R510,742 less in retirement.

Megan

Lastly, Megan. Megan is Jason’s wife and although working her whole life, her income went into paying off debt and school fees. Now, at the age of 50, with all her debt paid off, she wants to try and save as much as she can before she turns 55. Megan has a great job at a hospital and is able to save R6,000 pm for the next 5 years. Megan also is able to receive an annualized return of 10% pa over the next 5 years. By the time she reaches retirement, Megan would have contributed a huge amount of R360,000 to her retirement savings, but because she started so late in life, she will only have R464,622 by the time she reaches 55 even though she was contributing R5,500 MORE than Michael per month.

In summary for Megan, she contributed R360,000 from ages 50-55 and therefore only had R464,622 by the time she reaches 55. She contributed 5 times the amount Michael contributed but ended up with almost R560,000 less.

Summary of four friends:

What can be seen from the above scenarios is how important it is to just start! And the earlier you start, the less you have to worry about later in life. What may seem to be an insignificant amount when you start saving can turn into something bigger thanks to the wonders of compound interest. The first 10-12 years of working have the potential to be the most important in terms of your future after work. Often, saving for retirement seems like something that only “old” people have to worry about. But as evident from the above scenarios, the younger you can begin, the greater the benefit can be later in life. It’s time that we, as millennials, start taking control of our finances, both now and in the future.

Disclaimer

* Past returns are not an indicator of future returns. A flat 10% pa return was used for all returns to highlight the principle of starting early and not that of returns.

** Returns are not guaranteed and are purely for illustrative purposes

*** Retirement investments mentioned though out the article are not specified and could be pension or provident funds, retirement annuities, or unit trusts. There are tax benefits and limitations to different investment vehicles. Investment and financial planning should be spoken with a qualified and professional financial planner.

By AN Blumberg

BCom (Hons), PostGrad Diploma: Financial Planning

alex@clientcare.co.za

Original Post: LinkedIn

Traditional Financial Planning

Let’s say you inherit a large sum of money, or win the lottery, and decide to go to a financial planner to assist you with managing those funds. In most cases, they would follow the traditional approach to financial planning and follow four steps to determine what to do with your money.

The first step is to assess your tolerance for risk through a questionnaire, or they would simply profile you based on pre-conceived risk level categories, namely high -, medium -, or low risk. In general, if you were in your early twenties, you would be considered high risk and if you were over 60, you would be low risk.

Once your risk profile has been determined, they would start looking at your Asset Allocation. If you were profiled as high risk, your assets would predominantly be equity, whilst with a low-risk profile the focus would be on conservative assets such as bonds and property.

Your Asset Allocation will then determine the Return you get. In general, a higher risk yields a higher return in the long run, while low risk yields a lower return.

The type of return you get will allow you to lead a specific lifestyle. This means that if you had low risk and more conservative assets, you may not be able to lead the lifestyle you would like to.

At Client Care, we feel that this traditional approach to financial planning is fundamentally flawed as it is based on how you feel on a particular day while filling out a risk assessment questionnaire, or because you categorised based on factors such as age. Unfortunately, this has nothing to do with what you need your money to do for you.

Lifestyle Financial Planning

Client Care follows the Lifestyle Financial Planning approach. We start with you – the client – and we ask certain questions to get to know you better. What is the lifestyle you currently lead? What is your dream lifestyle? What are your values and what is important to you? We uncover this and look at this first.

Once we understand what your ideal lifestyle looks like, we look at the return you would need in order to achieve those lifestyle goals over time and into retirement. At Client Care, we only look at real return, that is, return over and above inflation – that is what’s important.

The next step is to look at your Asset Allocation, which is determined by the return you would need in order to live your dream lifestyle. If you need a higher return, you would need more equity in your portfolio.

Your Asset Allocation will have risk associated with it, although a fairer word would probably be volatility. Risk indicates that you could lose all your money and Client Care would never advocate investing in such assets. Volatility refers to the ups and downs that are to be expected over periods of time.

If you as a client is unhappy with the level of volatility that you would need to be exposed to in order to achieve the desired return, we go back to your lifestyle and consider which trade-offs can be made in order to balance the risk. This could be things like keeping your car for a bit longer or driving a more affordable car.

By using the lifestyle financial planning approach, we help you understand what you really need versus what you might just want. This allows us to help you live your dreams.

Lifestyle Financial Planning and Our Onboarding Process

Client Care follows the philosophy of Lifestyle Financial Planning. This involves getting to know our clients well, understanding how they got to where they are now and their future goals and aspirations in order to tailor a Lifestyle Financial Plan that is unique to the way they want to live their lives. Client Care offers a unique client experience from when a client first walks through our doors.

We initially have a friendly informal coffee chat with a potential client. Here, we get a brief background of the client and what they are looking for from a financial planner. We explain how our process works and at the end of this meeting, the potential client will either agree to go through Client Care’s Lifestyle Financial Planning process or not.

What To Expect from Your Lifestyle Financial Planning Journey with Client Care

The first meeting of the Client Care process is the Initial Engagement Meeting. This meeting is about finding out broadly where the client is from, their background and why the client is seeking help. Client Care will share what our values are, our Why, What, and How. We explain the concept of Lifestyle Financial Planning and have a transparent discussion on fees and costs to investing and working with us. At the end of this meeting we would agree on whether to move forward or not.

The second meeting of the Client Care Process is the Goal Setting Meeting. Here, Client Care will quickly recap what the outcomes were of the first meeting followed by reiterating the values and approach to Lifestyle Financial Planning. The main purpose of the Goal Setting Meeting is to find out what the client’s goals, dreams and aspirations out of life are. What does the client want to achieve in certain stages of their lives and why? Client Care explores in more detail the client's background and how they got to the point they are now in life. We learn about the client's spending habits and why they spend money on the things that they do. Specific goals relating to the client’s family, home, retirement, work, cars, travel, education, recreational activities and others are laid out and discussed.

Your Tailored Lifestyle Financial Plan from Client Care

The next meeting in the Client Care Process is all about developing your personal Lifestyle Financial Plan. After gathering all the data and info from the client (budgets, incomes, expenses, assets, liabilities etc.) we develop various scenarios for our clients. In this meeting, we work through what trade-offs would need to be made for our client to live their dream lifestyle. This can include things such as saving more, spending less, or targeting a higher investment return, among other things. By the end of this meeting we would reach consensus on how our client would like to move forward with their plan.

Client Care will implement any of the changes that need to be made in order to align our client's plan and finances with what we have agreed. This includes all the admin work and behind-the-scenes actions. We also agree on how often we will meet over the next 12 months and other aspects such as reporting and regular contact.

Client Care's Unique Approach Leaves You In Safe Hands

By allowing clients the time to go through this process, Client Care is assured that our client is knowledgeable and has more certainty around their finances. This process further allows Client Care to understand each client and their unique life and to provide a service that they are proud of and are able to make a difference in people’s lives.

In April 2018, Dirk Groeneveld wrote an opinion piece titled "More than 150 clients? Chances are you are not doing Financial Planning". This article gained a lot of traction on LinkedIn and sparked a debate in the financial planning community. Several months later, Jason Bernic wanted to discuss the topic further via Skype.

Know What You’re Paying For

Fees. The one word that sends shivers down the spine of any crooked, sly or cunning financial professional. The one topic that is conveniently “forgotten” in discussions, often hidden away in the fine print and between over-complex terms, containing conditions that the client (and even some advisors) struggle to understand. Do you know how much you are paying and what you are getting for it?

There are three building blocks that should make up the “fee pyramid”. Each layer will be explored below in order for clients to understand what they are getting in return for trusting someone with their money.

1.) Asset Management Fees

The asset management fees form the base of the pyramid. The financial advisor or planner has no control over this amount which is paid. This is the fee that is paid to the asset managers who make all the decisions within the fund that you are invested in e.g. Allan Gray, Old Mutual, Coronation etc. These asset managers are responsible for picking the right stocks in which to invest on behalf of the client, in order to obtain the targeted return. Asset managers perform the vital role of determining the asset allocation for funds which ultimately determines which strategies planners should use.

2.) Admin./Platform Fees

Like asset management fees, the advisor or planner has limited control over the admin/platform fees. Admin./platforms are exactly that: these platforms perform all the admin. work for the planners. From generating statements and valuations, to determining the internal rate of returns, and providing a platform for planners to submit all client documentation. Planners cannot directly control the price of these fees, but what they can control is which platform to use on behalf of their clients. There are also different reasons why planners use different platforms. It could be because the planner has a good relationship with the admin./platform so that any queries or concerns can be rectified quicker. Alternatively, it could be from a cost saving point of view. Different platforms offer different fees for clients with some platforms lowering their platform fee depending on the size of a client’s investment.

3.) Advisor/Planner Fees

Without a doubt, the most important fees of which clients should be aware is the advisor fee. Here, the advisor can determine how much is paid directly to him/her. The advisor can charge anywhere from 0% to 3% in upfront fees (simply taking over client assets). What you need to question is the value which the planner adds to the client in order to warrant whatever these fees are. I urge every client to ask their broker/planner/advisor this question. It is of the utmost importance that clients understand for what they are paying. If a client finds out that they are paying a 1% ongoing advisor fee but don’t see their broker at least 2-3 times a year, a huge value of the investment is being lost. If a client is paying this fee but receiving no real financial advice, would it not be more advisable that a client simply access this information online and do it themselves, saving that 1%? This ongoing advice fee is exactly that. Advice. Not simply investing a client’s money into a product or fund and never seeing them again. A financial planner/advisor should be paid for their expertise in creating a Lifestyle Financial Plan that helps clients with their tax planning, estate planning, retirement planning, investment planning, and risk planning. All these services should form part of the advice fee being offered.

Fees should be a transparent talking point and brought up often in discussion. They should be simple, easy to understand and not hidden away in the last line of the fine print. Financial planners should revel in the opportunity to promote the work that they do for their clients. And likewise, clients should call out unscrupulous “advisors” and make them answer the abovementioned questions. If you don’t feel that you’re getting what you paid for, perhaps it’s time to start looking elsewhere.

“In opera, as with any performing art, to be in great demand and to command high fees you must be good of course”- Luciano Pavarotti

Having been in the Financial Planning industry for over 26 years it is wonderful to see how we are moving from a sale driven approach to one where the clients needs take centre stage. We as Financial Planners, are moving from transactional to transitional relationships with our clients.

There are many reasons why this change is taking so long and hopefully RDR will expedite this. While we can blame Life Companies etc for not wanting to change, perhaps looking at what a Financial Planning business in an ideal world should look like, is a good starting point?

There is much talk of robo advice, direct marketing etc leading to the disintermediation of Financial Planners but does this apply to all Financial Planners? I believe there are two types of advisers, firstly what I would call “brokers” and secondly “Lifestyle Financial Planners” and they add vastly different value. What is the difference between these two?

A broker is your traditional salesman. Rewarded and lauded for selling lots of product to lot of “clients” making lots of commission. Life companies have for ages bowed down to these master salesmen, taken them on cruises, hunts, golf tours etc; basically, treated them as demi-gods (all life companies in SA have a few of these). These brokers have thousands of clients on their books although they know precious little about most of them. They have huge backup staff who respond to client queries and setup new appointments for their sales icon to keep the flows coming in!

These brokers see themselves often as fund pickers and many setup their own white label funds and see this as their value add. Conversations with clients are around world markets, the economy etc even though these brokers are not CFA’s and sometimes not even CFP’s. Most clients will not be seen by the broker even once a year in person. Every other broker is seen as competition and the whole brokerage revolves around the broker and production.

Advice here is mostly once off and has at the end of it a sale for the broker, there is very little real planning done except for maybe a few “special” clients who are special because of the revenue they bring the broker. The reason given for the little bit of planning done is lack of time as there are too many new “clients” to be seen. Birthday cards are sent by admin staff or automated and that’s about as personal is it gets for 90% of these clients.

A Lifestyle Financial Planner (LFP) uses a completely different approach. A LFP spends time getting to know his/her client; everything about him or her, their family, their background, their business, their dreams and aspirations and much more. This takes time, a lot of time initially and on an ongoing basis. What is key to a LFP is getting to understand how they can help their client achieve real success in their lives. Studies have been done that a true LFP can not look after more than 150 relationships and in fact the ideal number is around 100. Due to this a LFP must build a proper business which revolves around the client.

A LFP will charge fees rather than commission and the focus is on building long term, mutually beneficial relationships rather than transactional ones. The relationships a LFP builds are real, honest and most times end up as friendships. The LFP’s business has a real value proposition which is written down and has no linkage to any product or sales process. Advice here is based on the clients’ unique personal circumstance and is ongoing. A good LFP does not need to prospect as his/her clients refer their friends and associates to the LFP because the LFP is referable. LFP’s share and learn from other LFP’s to uplift themselves and the overall industry. They do not see each other as competition.

In closing, the industry is changing, what clients want, and demand is changing. No matter how long you have been in business, even if it is generations, the future in our wonderful industry will look very different to what it looks like today. Robo advice already does all of what the “broker” offers at a far cheaper cost and more efficiently. LFP as is exists today is a great start if you want to be a player in our industry in the future, but even LFP must continue to evolve. The client’s best interests must be at the centre of every decision made in our business and the money will take care of itself.

Anyone who did basic accounting at school or an “Introduction to Business” module at university will be able to tell that an Asset is something that brings value to a company or is seen as something good for a business. They will list things such as buildings, computers, desks, chairs, company cars etc., and they would be 100% correct. However, in the investment world, an Asset or an Asset Class is seen as something a little bit different and, for the purpose of this article, the only principle you need to remember is the cliché “more risk, more return”.

Different Asset Classes make up the different funds in which individuals invest. The weighting of these asset classes will determine whether the fund is low risk or high risk, as each Asset Class has a different risk factor associated with it. The four main Asset Classes we will investigate briefly are direct shares (equities), property, cash, and bonds. We will also look at how this will affect your investments over time.

Equities

Equities are direct shares that investors invest into companies that they believe will perform well. They obtain value when the price of the share rises as well as when the company pays a dividend. Equities carry the most risk of the four Asset Classes but also can achieve the highest return. An example would be buying shares in companies like Naspers, MTN, Standard Bank or Mr Price.

Property

The South African Financial Planning Handbook explains it best when it states that the return from property is made up of two elements. The first element of return is the rental income earned on the property. The second element is the increase in the capital value of the property. Investing in property is medium to high risk depending on whether the property increases in value and whether the property owners can find the right tenants to pay rent.

Cash

Investing in cash is a complicated explanation which requires a high level of understanding of how money markets work. The most important thing to know for this Asset Class, however, is that it is very low risk and offers lower returns than equities and properties.

Bonds

Bonds are like cash in that they are boring to explain and yet, complicated. But like cash, bonds offer a lower return than equities and properties but are also lower in risk.

Managers who run the funds will determine how much of each Asset Class will make up the fund and will thus determine the risk of the fund and who the ideal client investing in that fund should be.

The graph below shows the expected risk and real return of each Asset Class:

The table below shows the return of each Asset Class in that respective year.

What must be noted above is the number of times there has been a negative return for each Asset Class as well as what that return is.

The graph below shows what the expected risk and return of a low risk fund is. This fund will have a higher weighting of cash and bonds (low risk) compared to equities and properties. To interpret the graph below, in any one year the investor can expect a maximum of 17.2% return or a maximum -2.4% return. As it can be seen, the chances of getting a negative return greatly diminishes and this is due to it being a low risk fund.

The graph below now shows a fund with a greater weighting of equites and property (high risk). It must be noted how the expected returns are higher, but as mentioned, with more risk comes higher returns and that is evident in the graph.

To summarise, Asset Classes have different expected real returns with different risk factors. Everyone is different with some being able to handle high risk while others can’t and are happy with the lower returns that lower risk funds provide. One thing is evident: the longer you stay invested, the higher the chance you’ll see high returns.

The question remains, can you stomach it?

“If you take no risk you must expect a low return. Just don’t let anyone fool you into thinking you can get a high return with low risk.”- Paul Clitheroe.

By: AN Blumberg
BCom (Hons), PostGrad Diploma: Financial Planning