noirmarketing, Author at Oakfield

The Living Risk Plan

noirmarketing — Fri, 21 Apr 2023 12:00:00 +0000

THE LIVING RISK PLAN – NAVIGATING LIFE’S CHALLENGES

One of my all-time favourite movies was the 1986 hit Ferris Bueller’s Day Off starring Matthew Broderick. It was all the buzz during my teenage years, and we all wanted to be as cool and smooth as Ferris Bueller! During one of the key moments in the movie Ferris says, “Life moves pretty fast, if you don’t stop and take a look around once in a while, you could miss it”. In a way that has always been my personal life philosophy and one of the key drivers in my own physical pursuits including three successful Iron Man competitions and a host of local MTB races.

I am no stranger to unforeseen injuries, and I have experienced that life happens all around us, and while most things we experience are amazing, beautiful, and adventurous, nothing quite prepares us for an unfortunate personal health prognosis, or losing our jobs, or even worse waking up in a hospital bed without any recollection of how we got there. Regular readers of my blog might recall a story I told in one of my previous blog posts (Is Income Protection Worth It?), involving a client, and the importance of being prepared for unforeseen circumstances.

It’s life’s unpredictability that makes it necessary for us to ensure that we are as prepared as we can be, and this is precisely the role and purpose of a Living Risk Plan. While our legacy and investment strategies help us grow and protect our income and wealth, our living risk plan is our action plan in case one of life’s eventualities catches us off guard – almost like a shark net safeguards innocent swimmers on a beach.

A key factor in creating an optimal living risk plan is knowing exactly what we are guarding against; essentially, we try to protect ourselves against four main risk-based scenarios namely:

• Disability.
• Severe Illness.
• Hospitalization.
• Insufficient Cover.

In each of the listed scenarios there are a number of related factors and considerations to keep in mind when we help you create your unique Living Risk Plan.

DISABILITY

Disability cover is aimed at protecting the insured’s ability to continue normal day-to-day functioning, specifically where it relates to being able to continue working in order to generate an income.

In the majority of cases insurers refers to this type of cover as Capital Disability. But it doesn’t end here; disability is further sub-divided between physical and occupational disability. In the case of “Physical Disability”, the insured is physically affected but has not lost their ability to work (for example a writer that loses a leg can still write). “Occupational Disability” on the other hand, severely affects the insured’s capacity to work (for example a motor vehicle mechanic that loses both his arms will find it impossible to perform his duties).

Disability cover and benefits will be paid out to the insured on the basis of the severity of the disability and how it impacts the individual. For each of the different benefits and pay out portions, a range of unique qualification criteria will apply. Should you have any questions or if you need any clarification on your unique cover or policy details, please don’t hesitate to contact us.

As mentioned above, I wrote extensively on what income protection entails and why it is worth including this benefit in your portfolio. The importance of being able to earn an income while either recovering from an injury or making the necessary changes at home in order to deal with a disability, is self-evident.

SEVERE ILLNESS

Severe illness cover is similar to disability cover but instead of an accident leading to a diminished capacity to earn an income or to function on a daily basis, the cause of the physical disruption is a dreaded disease or illness. Examples of such illnesses include, among others, heart attacks, strokes, cancer, cognitive impairment disorders (such as Alzheimer’s disease) and many more.

The distribution of monies and benefits are calculated on a unique basis for each illness and will depend on the severity of the illness, the impact on the day-to-day functioning of the insured, the unique composition of the benefit spread and other product benefits.

One important element of severe illness cover is that all payouts and distribution of benefits are dependent on a formal diagnosis being made by a suitably qualified and legally operating health care specialist. Diagnosis will also involve the submission of the necessary pathological tests, screening results, scans, x-rays, or any other medical proof which may be required. Understandably, insurers try to limit the possibility of fraudulent health benefits and claims.

HOSPITALISATION

South African citizens have two basic hospitalization options:
• A public hospital or clinic (depending on the severity of the condition or circumstances that led to the hospitalization).
• A private hospital as prescribed by a medical aid scheme or hospital plan.

Hospitalization is considered to be a living risk factor for both health and financial reasons, especially where the reasons and prognosis leading to the hospitalization are serious and severe. Families and loved ones can quickly end up with a large bill to pay at the end of the stay, without sufficient cover.

The above points are of course the basics, more importantly, especially where it relates to living risk factors, are the myriad of administrative tasks such as obtaining approval for procedures, completing, and submitting claims, negotiating better service and rates, administering co-payments, and overseeing the overall process.

As part of managing this risk on your behalf, Oakfield Health, by virtue of our service level agreement and licensing, will ensure that you receive the necessary administrative support to act on your behalf, ensuring you always get what you pay for. Take the time to review some of our services in this regard.

INSUFFICIENT COVER

Another important living risk scenario we need to look out for is not being sufficiently insured. This is not to be confused with the short term insurance terminology of being over or under-insured. This blog topic specifically refers to insufficient cover as a living risk factor.

In terms of protecting, you against living risks, what we mean with “insufficient cover” is a situation where you have no means to pay for the difference (or “gap”) between the tariffs (medical scheme tariff also known as MST), and the rate charged by the private healthcare professional. Essentially this is where gap cover offers additional protection to your medical aid cover.

Current Medical Aids in South Africa reimburses healthcare professionals at rates of 100%, 200% or 300% of the approved scheme’s rate. But professionals can charge up to as many as five times the base tariff. Gap cover protects you and your family against these exorbitant charges. In case of serious health issues, this amount can quickly balloon into a substantial amount.

CONCLUSION

I have learnt, unfortunately, that we are not immune to life’s little curveballs! Things will go wrong, sometimes suddenly and without warning. During the past number of years, I have advised and continue to advise many of my clients on how best to navigate these uncertainties within their available budgets and financial goals.

In spite of our best efforts though, life remains awfully unpredictable, and our best defense is to be as prepared as we can be. This means we need to take the management of our living risks seriously, and we need to review our strategy and plan at least once or twice per year.

If you suddenly decide to take up horse riding or mountain biking, perhaps you need to ensure you also increase your living risk cover as interesting new ways to injure yourself might be on the cards.

Creating a comprehensive living risk plan helps to make sure we can survive and move forward without losing our income, while also being thoughtful of our available financial means. Keep in mind that creating such plans takes time, patience, and consistency.

I am not a fan of fear mongering (there is certainly more than enough of that going around), but we need to be as best prepared as we can be, as life will trip us up at some point – until then, let’s live our lives to the fullest!

The post The Living Risk Plan appeared first on Oakfield.

Why Perspective Will Be A Vital Commodity This Year

noirmarketing — Thu, 06 Apr 2023 18:38:00 +0000

WHY PERSPECTIVE WILL BE A VITAL COMMODITY THIS YEAR

I can’t help but to laugh at myself sometimes; what a crazy world we find ourselves in. I left at the end of December for a short break and returned only to find that our electrical supply is in utter shambles and daunting predictions about an almost apocalyptic wave of crime that is about to hit us. Talk about a bucket of ice water down one’s spine!

As I felt my chest tighten and my concerns of last year return, I also thought calmy (surprisingly) and contemplatively about, not only our current situation, but the state of the global economy at large. Fortunately, Ian Williamson, Old Mutual’s CEO, gave a refreshing rundown of the past World Economic Forum held in Davos, which brought me much needed respite. According to Williamson, it’s not just us! What a relief, and what a strange thing perspective turns out to be!

Having taken a deeper dive during my first two weeks back at the office, on some of our current internal matters and also looking beyond to what is currently driving a number of our global concerns, I again came to the conclusion that we need to pay special attention on how we interpret what we see, read, hear and experience. How we see the world, determines how we feel, and to an even greater extent, how we react.

Forgive me if I sound a bit like I am playing psychiatrist, but here’s why I think perspective is the one thing we need to keep in check, if we wish to be successful and prosperous in this coming year.

WATCH OUT FOR THOSE HEADLINES

I love a good headline, some are funny, some are scary, but let’s be honest many really don’t deliver the punch they promise. How often do we start reading (mostly out of fear) only to find that the headline was actually a bit misleading.

I will give you an example. BusinessTech published an article (State Disaster Declared in Gauteng). For someone unaware of the current heavy downpours, it’s easy to think the reason for the emergency is due to incidents of crime of vandalism (purely based on our perceptions of crime in the province), when it is in fact due to unprecedented torrential rains.

All publications, either in print or online, are on the hunt for eyeballs – it relies on your fear to click and read the article, your click represents money, don’t forget that. Headlines are seldom an honest representation of the facts.

INFLUENCE VS CONCERN VS CONTROL

One of my old-time favorites is Stephen Covey’s famous circles of concern, influence, and control. In short, our lives play out in three circles. The outer most circle (known as your circle of concern), a second circle inside the outer circle (known as your circle of influence) and a small circle right at the centre (known as your circle of control).

Your circle of concern contains a wide range of general things you don’t control (economy, war, weather). Your circle of influence contains the things you can do something about (your energy levels, your diet, how you spend your time). Your circle of control are the things you have a direct control over (how much you sleep, your weight, your attitude).

Perspective comes when we keep ourselves busy with those issues we control and have an influence over, but to also let go of our concerns as these are things, we can do very little about. Spending time on our concerns are just exhausting and leave us feeling depressed and powerless.

BALANCE CAN TIP THE SCALES

In 2010, famous actress Julia Roberts featured in a Sony Entertainment movie called Eat, Pray, Love. A story about healing and discovering the important things about our own lives. What I think we often lack is a sense of balance between working, living and being ourselves.

Instead of making huge commitments like I am going to run a marathon or do the Cape Argus cycle race (not that there is anything wrong with that!), try for small victories such as eating better (less coffee, no sugar), getting a good night’s sleep and getting a little bit of exercise. Success is not found in the big things, but in the small daily wins. Adjust your sights to achieve more of the small steps each day. Soon those small wins starts to add up!

FIND A CAUSE

One of the reasons I think we feel so utterly frustrated with many of the problems we experience, is that we feel powerless. Like we can’t do anything to change it. No democracy can survive without an active and participatory citizenry.

Find a cause or a project or something you feel very passionate about and start making a difference in people’s lives. If you like reading, go to your local library and see if you can assist with anything. If you like cycling, see if you can’t get one other person to take up cycling as well.

Like gardening, how about adopting a neglected corner or park close to where you stay and beautifying it with your neighbors. The list goes on; we are social creatures, and we need to live lives that have a sense of meaning. Making money and being successful is important, but giving of yourself for the love of it, brings about a very special sense of purpose to our lives. Find your cause!

HALF FULL; HALF EMPTY OR NEITHER?

We are who we are; research confirms that our personalities start emerging between the age of 3 to 5, and from there on, we are pretty much set in our ways, as they say. So, whether we see the glass half full or half empty isn’t so much a case of relevance as it is a case of personality.

Some of us are tense and high strung by nature; some people just never seem to get upset about anything. Some of us can stand up and speak openly to a group of people, others might have an immediate heart attack at the mere thought of public speaking! Whatever the nature of our personality, we need to learn how to work within the framework of who we are.

Be aware of your assumptions; make sure you have all the facts. If you know you are an over-thinker and that your mind can run away with you; is it a good thing to run through your twitter feed just before you go to sleep? Learn how to be kind to yourself and remove the negative elements from your life that interferes with your perspective and clarity.

CONCLUSION

If I can believe our ancestral stories, then we all used to live in caves and small groups and food was scarce. Our instincts were programmed to make us believe that it was a case of eat or be eaten! Fear is an essential by-product of that era. But fear unchecked, can also disempower us, make us freeze with in-action, and thus, what is supposed to protect us, actually leads to our demise.

Let us all help each other to see the good and the positive in this coming year. Let’s plan, but also celebrate and enjoy; let’s save and be prudent, but let’s also allow the sun to shine on our skins; let’s work hard this coming year, but let’s also remember that we can be better tomorrow.

Good luck in overcoming all your challenges this year, let’s improve our perspectives, together!

The post Why Perspective Will Be A Vital Commodity This Year appeared first on Oakfield.

What Is A Personal Financial Plan And How Do I Create One (Part 2 Of 2)

noirmarketing — Mon, 06 Mar 2023 12:03:00 +0000

WHAT IS A PERSONAL FINANCIAL PLAN AND HOW DO I CREATE ONE? (PART 2 OF 2)

The browning of the leaves, the slight chill in the evenings and the lethargic rising of the sun, like snippets from a familiar tale, reminds us that – life goes on! We are truly well on our way as they say, working our way through multiple daily challenges, many of which I wrote about quite extensively towards the close of last year.

You may recall that we kicked off the new year by reflecting and reminding ourselves about the importance of having the right perspective on what is happening all around us. As we are about to enter a new financial year, I wanted to reframe the conversation around the two priority functions we offer to all our clients at Oakfield, namely wealth management and leaving a longstanding legacy. Both important building blocks in the development of a personal financial plan and strategy.

The more volatile the world becomes, the more I am convinced that we simply have to be closely involved in the creation and management of our wealth in order to secure the financial future wellbeing of our offspring. Here is a quick link if you would like to do a quick recap of How to Create a Personal Financial Plan (Part 1 of 2).

This article focuses entirely of the second part of the personalised financial plan, namely the creation of a legacy for future generations. But before we get to the key components, I want to define the word legacy as a concept of wealth management.

Legacy, among others, is defined from an online resource as:

1. an amount of money or property left to someone in a will.

2. the long-lasting impact of particular events, actions, etc. that took place in the past, or of a person’s life.

So, to summarize, creating a legacy plan involves respecting and protecting your life’s work, financial efforts, and wealth, by making sure it transfers successfully to your loved ones.

At Oakfield we manage your legacy by asking 3 hard-hitting questions:

1. WHAT WOULD HAPPEN IF YOU DIED IN THE NEXT TWENTY MINUTES?

Some years ago, there was an industry joke that all brokers start the conversation with “suppose you died”. While we can all see the humor, the reality is less funny. As harsh as it might seem to ask someone what would happen if they died in the next twenty minutes, it is quickly evident who knows the location and status of their last will and testament and who doesn’t.

Where it relates to the last will and testament of our clients, we need to make sure all avenues are securely checked, and we cover a number of pertinent questions including:

• Is your last will and testament up to date?

• Is it easily accessible?

• Is it signed, dated, and witnessed correctly?

• Did you make provisions for testamentary trust, in case if minor children?

• Do you have appointed trustees for a testamentary trust?

• Do you have appointed guardians for minor children?

• Do you have a trust termination plan in place?

The courts are filled with sad stories of cases where the finalization of an estate is caught in the throws of legal red tape and court processes, just because a simple document has not been put in place. Don’t be caught in this needless situation!

2. WHO WILL TAKE CARE OF THOSE YOU LOVE AND LEAVE BEHIND?

We have all experienced death in some form or another. We want the world to stop; we want everyone to mourn with us; we want some form of acknowledgement that our emotions mean something; yet, the sun will rise and set, and life will go on.

What won’t change is the emotional pain and loss your family and loved ones will experience in your absence. Since there is no alternative, you simply have to make sure your loved ones are taken care of, and that they don’t fall on uncalled hard times.

We make sure of this by addressing three critical elements with our clients:

• Has sufficient provision been made for your spouse and or partner to maintain the current standard of living? Did you base this on the correct calculations, and did you also consider inflationary factors?

• Have you made sufficient provision for liquidity in the estate – in other words have you made provision for cash in the estate to pay for items such as capital gains tax, estate duty, income taxes, executor’s fees and so forth.

• Are all the beneficiaries on your policies up to date, and correct? Will the correct people receive the appropriate portions and allocations of the policy proceeds?

Do these questions make you uneasy? Don’t delay this conversation – it will do no harm to make sure this is in fact covered, and if it isn’t, it can be resolved, or we can put in place a plan to make sure it is resolved in due time.

3. HOW DO WE BEST PROTECT YOU AGAINST DAILY THREATS?

Of course, we don’t call them daily threats, as in my case, this may also include my spouse! Jokes aside, we actually define daily threats more accurately as Living Risks and we deal with this in a separate session with our clients to create a specific Living Risk Plan based on each client’s unique profile.

In short a Living Risk Plan aims to protect our clients against a broad range of scenarios by offering the following types of cover:

• Disability.

• Severe Illness.

• Medical Aid / Hospital Cover.

• GAP Cover / Medical Assurance.

In many cases, we address some of the above items under existing products, but the insurance and life cover industry has come a long way in providing more bespoke solutions. Many of our clients are involved in jobs and industries that have particular stress profiles or they work with dangerous materials or in high-risk geographical locations. There are numerous permutations and options to choose from to offer the best cover.

CONCLUSION

I will be exploring, in more detail, the different components of effective management of Living Risks in future blogs, as it is quite a comprehensive number of items. For example, just depending on your health, emotional wellbeing, income, and risk profile, we can create a Living Risk Plan in as much detail as you like, and this can easily be more than five line-items alone. The old adage of how long a piece of string is, applies here.

I trust that you will now possess a detailed understanding of what the important components of a financial plan entail and how we go about developing unique and personal financial plans with our clients. Besides this, I also propose you read 5 Essential Things you Need to Discuss with Your Financial Advisor to create a deeper understanding and a bit of context.

If you are new to our blog and you would like to take a closer look at how we work, please visit our website and secure a no-obligation visit with one of our financial planners. Our website also offers important reasons why we believe we are a suitable financial partner in helping you create your personal financial plan.

Enjoy the last few days of summer and let us know if we can be of service to you in any way.

The post What Is A Personal Financial Plan And How Do I Create One (Part 2 Of 2) appeared first on Oakfield.

The Tranquility Of Volatility

noirmarketing — Mon, 19 Dec 2022 12:00:00 +0000

I recently watched one of those hilarious slingshot videos where the occupants of the famous slingshot-ride, scream, then pass out, wake up, and pass out again. This continues for practically the entire ride; bobbing heads, flowing hair, followed by panicked screams. It’s funny and frightening at the same time. You can probably see where I am going with this…

2022 saw the dawn of the post pandemic global economy and it had all the scary trademarks we expected – supply chain issues culminating in empty shelves in certain classes of goods and products (like petfood and baby milk formulae); civil unrests and strikes; the great resignation as workers realised there are alternative life and work models; diminishing household incomes as pandemic funding started to dry up; further global energy and crude oil pressure with the war in Ukraine; inflationary pressure and fear of a recession in the US; and a current humanitarian burnout which seems to manifest itself in the so-called quiet quitting phenomena.

The world really does seem to be on its head. Domestically, we’ve had no short supply of our own unique list of problems including rife political corruption; ESKOM with its ever-increasing operational problems and financial woes, aggravating our energy crisis; the closing down and consequent buyouts of numerous SOE’s leading to huge financial and job losses; and the list seems to be growing by the day.

One can hardly be blamed for feeling punch drunk and like we live trapped inside a looped horror movie to say the least. What then is our best approach in this current unpredictable market?

I would like to propose 5 practical considerations as a starting point:

• Keep what you have and don’t make any hasty decisions, especially not without your financial advisor. Now might not be the best time to make serious changes to your portfolio (especially where it relates to pension and disability cover).

• Take a decent break from work and also from the influence of social media and all kinds of technology. Consider taking a technology sabbatical for a few weeks during the holiday season.

• Maintain (or begin) a healthy lifestyle – eat healthy greens, cut down on alcohol and caffeine intake, sleep at least 8 hours uninterrupted sleep, participate in some form of exercise for at least 30 to 45 mins per day.

• Beware the debt monster and cultivate good spending habits – keep your debt under control and pay off high interest debt like credit cards and clothing accounts as soon as possible. Try to stay clear of overdrafts and other kinds of long-term debt, especially with Christmas around the corner.

• This too shall pass – all economic cycles, commodities and investment prices tend to go up, and down again. What we are currently seeing is not the first or the last. Stay committed to your investment plan, strategy, and products.

I will end this piece with a tiny soapbox moment as they say. As I get older, I have also learnt throughout my years as a CFP and independent broker, that life happens, and sometimes in the madness all around us we can find tranquility and peace if we look for it.

Try to be less reactionary and accept that for the time being the world we live in is volatile and unpredictable and accept that it will stay like this for a while.

Let’s do our best to weather the storm, to remain positive about our tenacity as South Africans, and to be brave enough to have faith in our efforts.

Find your tranquility in the volatility!

The post The Tranquility Of Volatility appeared first on Oakfield.

What Is A Personal Financial Plan And How Do I Create One (Part 1 Of 2)

noirmarketing — Thu, 08 Dec 2022 12:00:00 +0000

WHAT IS A PERSONAL FINANCIAL PLAN AND HOW DO I CREATE ONE? (PART 1 OF 2)

In difficult financial times history shows us that people are always tempted into investing in schemes that promises high rates of return on capital, and above average profit margins, which in many cases exceed what can be considered reasonable and fair market value. This is not to say that good investment vehicles and investment opportunities don’t exist, but rather that, in tough economic times, people tend to be more susceptible to flagrant promises of unparalleled profits and payouts. I wrote extensively on how to spot such investment scams in a previous blog post, which you can read here.

A random video search on some of the countless investment videos by Warren Buffet, some dating as far back as the seventies and eighties, will quickly give you a snapshot of what can be considered to be good investment advice. Fundamentally good investment principles and methodologies of making money, remains stable and fairly unchanged. These methodologies ring as true today as they did many years ago and have stood the test of time.

One prime example of a good investment principle is to make sure you have a personal financial plan. But what exactly is a financial plan, and how do you create one?

In this two-part blog series, I will unpack this question in greater detail and create a framework to assist you to define your personal financial goals and to ask yourself a number of critical questions to achieve greater clarity of where you wish to take your financial future. In our diverse world today, although investment principles have remained the same, people’s individuality and preferences certainly have not!

ONE ROAD – TWO DESTINATIONS

Essentially a financial plan is a practical step-by-step plan, on how to manage your available funds, to achieve specific financial goals and, measured against a pre-determined time frame. At this point it’s important to note that while we travel along one road we need to try and achieve two important outcomes namely; wealth creation and, ensuring financial continuity. We will just look at these two concepts briefly.

Wealth creation is the process of using your total income (which can be made up of a salary, interest on investments, emoluments, profits, bonuses, inheritance, and many other sources of revenue), and investing a portion thereof by means of a range of tools and instruments, to create an ideal lifestyle and to realise a personal dream and vision.

Financial continuity is the process of creating a realistic number of real-life “what-if” scenarios and securing financial continuity accordingly. This is done to ensure that, those left behind in case of an unanticipated death, serious personal injury, unexpected or sudden loss of income, are looked after and that the originally planned legacy is continued to the next generation.

But how can we achieve these two critical outcomes? In this article we will focus our discussion specifically on wealth creation, and how this is achieved with our personal and systematic approach.

TAKING A SYSTEMATIC APPROACH ON WEALTH CREATION

What is a systematic approach to wealth creation? In simple terms; it’s a process of discussing seven key components and asking a range of pertinent questions at each of these components.

1. What are your financial dreams?

The very first step is to be clear about what exactly you consider to be your ideal financial dream scenario. Clients often think they know until they have to create a clear picture for themselves about what this entails.

You should be clear, at the onset, irrespective of which investment tool, instrument, product, or vehicle you and your financial planner select, about the following two questions:

• How does this (any) particular investment fit into your overall portfolio?
• What do you want this investment to do for you?

2. How do you get to your goal?

If you earned R 1 000 000 per month, it would be fairly easy to create a substantial investment portfolio in no time. On the contrary that plan would look completely different if you earned R 15 000 per month.

Income matters, and without a realistic view of what you have available to spend per month, it is almost impossible to go to the next step in the process.

A proper cashflow analysis of all your income and expenses will give you a clear indication of the available amounts. This amount will then form the starting point of the wealth plan development process.

3. How do you feel about money and risk?

The next important step is to understand your own investment personality. This is not simply to be skimmed over as just another step. Your investment personality plays a vital role in the kind of investment products your financial planner will select, and which will appeal to you. Where couples are involved, it may very well be that each party to the relationship may have fundamentally different investment personalities, and investment approaches.

We make use of the FINAMETRICA® Risk Tolerance Questionnaire to determine your investment personality. Here we seek to find answers to questions such as:

• What is your investment return expectation?
• What is your capacity for risk?
• What is your risk tolerance?
• How do you feel about money and investments in general?

4. How do we bridge the gap?

There is a strong possibility that there will be a difference between your current financial (investment) position, and where you ideally need to be. To bring these two scenarios closer together will require time and funds.

Depending on your desired comfort levels, it may be possible to free-up a monthly investment amount, but no amount of money will expedite the rate at which your investment will grow in value; this will require patience and a realistic expectation of the investments selected.

If our analysis reveals a significant gap, then we need to answer the following pressing questions:
• Do we take on more risk?
• Do we invest more capital?
• Do we adjust your goal?

5. Selecting an investment vehicle?

At this juncture, we now possess a good enough understanding of a number of important things such as your life goals, your investment personality, your available funds and more or less how far we are from our intended investment target.

Next, we need to select an appropriate investment vehicle taking into consideration things like tax efficiency, administrative support, value for money, market comparisons and so forth

6. Selecting the funds with the correct asset balance.

The vast majority of investment products are closely tied to investment funds. We are fortunate that within the South African landscape we have a multitude of successful investment funds to choose from.

What are looking for is an investment fund that meets our client’s growth and defensive asset ratio (essentially a fund with a good balance between low and high yield assets). In principle growth assets tend to have higher volatility but deliver higher returns over the long terms, at opposite ends, defensive assets are generally providing a more steady income stream but with a lower investment risk and lower returns.

The main task of the financial planner at this stage of the process is to find the appropriate balance, based on the client’s unique goals, investment risk profile and available funds.

7. Review and Rebalancing

A financial plan, like most long-term projects in our lives (think about obtaining a degree, raising kids, paying off a property bond and many more), requires from us to regularly assess and evaluate where we stand, and if we are tracking our goals and time lines.

The same applies to our investment plan and forms a critical part of the financial planning value proposition. The continued monitoring of investments and managing and coaching our clients through cyclical market fluctuations will be some of the most prominent contributing factors to their investment success and wellbeing.

Undeniably, life also happens, and things can quickly change, as we know all too well. While we tend to always think about negative outcomes, there are also positive changes, such as career success (meaning higher-paying promotional opportunities, good returns on previous investments made, profitable business ventures and so forth). In such instances it is also critical to adjust the financial plans accordingly.

CLOSING REMARKS

Clearly, a well-developed financial plan addresses both the creation of wealth, as a first main step, and secondly, secures financial continuity. The first step mainly deals with bringing about a specific lifestyle, realizing a dream, or achieving a goal, with the influx of current funds and earnings, while the second, deals with leaving a legacy. We will deal with financial continuity as a step towards leaving a legacy, in the second part (Part 2 of 2) of this two-part blog series.

It should be fairly evident by now, that a financial plan is, first and foremost, created around real people with real dreams, wishes and aspirations. The task of the financial planner is to develop a client’s portfolio in such a way that it encompasses all the tools, instruments, and products necessary to create a balanced portfolio.

Truly gone are the days where a client’s portfolio and financial plan is only a carefully selected summary of insurance products with high premiums, low payouts, and abundant sales commissions.

Instead, the new era of financial planning requires the Financial Planner to play a pivotal role in providing clients with sound financial coaching, realistic scenario planning and financial wisdom to create a well-balanced financial strategy, which is regularly measured and evaluated against defined financial goals.

A sound financial plan involves many pertinent questions, actions, discussions, and moving parts, but, most of all, it involves the main character of the story – you.

The post What Is A Personal Financial Plan And How Do I Create One (Part 1 Of 2) appeared first on Oakfield.

Is Income Protection Worth It?

noirmarketing — Mon, 26 Jul 2021 12:00:00 +0000

IS INCOME PROTECTION WORTH IT?

One of my clients[1] is married with two children, in his mid-forties and an avid cyclist. He is also a freelance photographer working on a range of projects. A few weeks ago, while out on a long ride with his bike, his front wheel tire popped off the rim leading to a nasty fall. Fortunately, he suffered no serious injuries and there was no need for hospitalization. But he did get a nasty shot on his left elbow, resulting in great discomfort, some much needed physiotherapy, and as a result made it near impossible to take any photographs or to do even the most menial of tasks.

While my client agrees it could have been worse, he now also had zero income for a couple of weeks. Under normal circumstances it would be acceptable to dip into savings or to make use of an overdraft facility for the time being, but in the Covid strained economy and with many people already running on low or zero cash reserves, for many this is simply not an option. Fortunately, my client had an income protector, and he is also a good businessman, so he was able to weather the short-term storm, get some of his income back (thanks to his income protector). This incident again underscored the importance of the income protector as part of a financial management strategy.

LET’S AGREE ON A DEFINITION

Insurers offer a kaleidoscope of income protection products to consumers. Each of these products have their own unique terms, conditions, and requirements, but there is a universal definition in principle we can all agree on.

In a nutshell, income protection is a long-term insurance product designed to replace or supplement the policy holder’s income in the event of illness or injury which temporarily or permanently prevents the holder from earning an income.

THE IMPORTANCE OF THE DEFERRAL PERIOD

The deferral period is similar to a waiting period before one receives an income protection pay-out. A client can select 7 days, a month, or 3 months as a deferral period. The longer the deferral period, the cheaper the monthly premium, and vice versa.

It is important to keep in mind is that you have to be able to provide your own income during the deferral period. Don’t elect a 3-month deferral period to save on your monthly premium if you aren’t able to cover this period’s income.

One simple way to cover the deferral period, is to have a separate savings account with an equal value of cash invested. Be disciplined with this money, it is not to be used as normal income, else it would defeat the purpose entirely.

THE DEVIL’S IN THE DETAILS

The principle of an income protector product is reasonably plain and straightforward and the majority of the main insurers also offers more or less the same range of income protection products and benefits, with a number of exclusive benefits to try and compete against each other.

In spite of all the benefit, it’s the specific circumstances under which a policy holder will be paid out, that makes all the difference between either receiving an income or facing a financial challenge.

So be wary and read the fine print – remember that the devil is in the details as they say. Some products cover retrenchment, many don’t. Some insurers cover dangerous employment conditions (such as working under ground, with explosives or with heights) while others won’t provide such protection. Other examples of exclusions are professional athletes, or a stay-at-home parent. Make sure you know what the exclusions are!

HORSES FOR COURSES

Within the insurance industry, and considering all the elements of a well-developed investment and life insurance portfolio, there are a number of different types of insurance, each with their own role and purpose. Income protection is simply one of those instruments and it has a particular place within a portfolio.

As such the monthly premium structures also differ for each type of insurance, and many insurance elements are sometime bundled together under one product. For example, one can select a life cover product which offers both death and disability protection, as well as an income protection benefit. In many such cases insurers offer substantial discounts on premiums for bundles products in comparison with separate policies and products.

Income protection can be offered to both paid employees and business owners. Cover can be adjusted for fixed period, until the age of 65 or until the policy holder’s death, at a price.

While it sounds like a simple topic, the question of the appropriate duration of income protection cover is a rather technical decision. It is best to consult with your financial advisor when making this decision.

THE IMPORTANCE OF HAVING A FINANCIAL STRATEGY AND PLAN

In a previous article I wrote about five essential things you need to discuss with your financial advisor. One of them being the importance having a financial plan and strategy. A financial strategy is aimed at providing you with a diverse portfolio across a number of assets classes. Income protection is one of those elements needed in a balanced financial investment strategy.

Income protection is also a risk management tool and ensures that your investment portfolio, and other risk cover, is not jeopardised due to a loss of income. A period of intermittent income should not cause harm to future investment growth and earnings.

In short, income protection is not a stand-alone solution, but forms part of a greater financial plan.

THE BENEFITS OF HAVING AN INCOME PROTECTOR

Income protection products affords policy holders the opportunity to pay for monthly expenses.

Income protection offers the following benefits:

• Secure housing by being able to settle mortgage or rent payments.

• Settle monthly household bills such as essential services and food.

• Pay for university, college, school and other essential childcare costs.

• Cover additional healthcare costs (especially in cases where the injury or reason for the interruption of income).

• Secure transportation by being able to settle monthly vehicle finance.

• Pay for any short-term household alterations that me be required.

CLOSING REMARKS

We live in unpredictable times and according to a prominent insurance company in South Africa, one is nine times more likely to have a temporary disability than to have your car stolen or be hijacked, and 70% of people will experience at least one injury or illness during their working lives that will prevent them from earning an income.

Life comes at us fast and our own safety is not always guaranteed. We should always aim to sufficiently protect our financial portfolio and that we can at least maintain a reasonable lifestyle in case of serious injury or ill health over a short-term period.

At Oakfield Wealth Management we promote and advise the majority of our clients to opt for some form of income protection. The client I mentioned in the opening paragraphs was extremely fortunate to have an income protection product and had enough funds on hand for the interim, many families are not so lucky.

Protecting one’s income is especially important in a difficult economy where market conditions are tough, and businesses find it hard to continue operating. It is the responsible thing to do.

Local insurers offer great value for money in terms of benefits, and premiums are reasonably priced. In the long run, it’s well worth the effort to put sufficient income protection in place. [1] Real identity changed for protection of personal information purposes.

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What Are Some Of The Most Common Financial Planning Mistakes

noirmarketing — Mon, 14 Jun 2021 18:38:00 +0000

WHAT ARE SOME OF THE MOST COMMON FINANCIAL PLANNING MISTAKES?

I don’t often refer to other articles or blogs, but I recently read a well-written CNBC article about fifteen of Warren Buffet’s most regrettable investment mistakes. I can highly recommend the article; you can read it here.

Warren Buffet, also known as “The Oracle of Omaha” explains a number of his investment oversights, how he explained it to his shareholders, and how the mistake impacted his investment strategies, but one mistake stands out for me;

Buffet admits that the dumbest stock he ever bought was Berkshire Hathaway. He explained that he first invested in Berkshire Hathaway in 1962 when it was a failing textile company. He thought it would make a profit when managed more closely and he increased his shares.

The firm later on tried to make more money out of Buffet. A spiteful Buffett bought control of the company, fired the manager, and tried to keep the textile business running for another 20 years. Buffett estimated that this emotional decision cost him close to $200 billion. Buffet’s investment advice? Do not allow your emotions to influence financial decisions. Certainly, timeless investment advice if ever there was!

If we, like Buffet, are really honest with ourselves for a moment, we can all admit that we have been guilty of making financial mistakes at some point or another. As a Certified Financial Planner, I often caution investors and clients against poor investment and financial decisions. Part of my task is also to educate and mentor good financial decision making.

Having been involved in the independent financial advisory services industry for more than two decades I can honestly say that I have seen quite a range of financial planning mistakes. In this month’s blog post I share some of these most common mistakes and how best to avoid making them. Here are 5 common financial planning mistakes which can be overcome if managed more effectively:

SPENDING MORE THAN YOU EARN

I enjoy reading, and one of the most profound lessons on money came from a Charles Dickens novel named DavidCopperfield. In the novel, one of the characters, Mr Micawber, says the following:

‘My other piece of advice, Copperfield,’ said Mr. Micawber, ‘you know annual income twenty pounds, annual expenditure nineteen ninety-six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery”.

We can’t effectively work towards financial goals if we can’t keep our monthly expenses in check. Work according to a budget and spend your money wisely. Stay away from overdrafts, purchasing on credit or even worse making use of short-term loans to service existing debt.

Many people think this means not being able to own a beautiful home or nice things, but this is simply not true, spending your money wisely means that you save the money and purchase luxury goods once you have saved enough money to do so, in other words we have to learn to be patient when we cannot afford something right now.

As you near retirement age you also need to reduce your existing debt. Certain retirement benefits may also offer upfront lump sum payments which should be invested and not used for settling debt, paying for overseas trips or any other purpose, other than increasing your pension portfolio.

AGE EVENTUALLY CATCHES UP WITH ALL OF US

Albert Einstein once famously said “Compound interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t…pays it”. In the long-term it’s clearly better to start working towards a financial plan, rather than waiting too long, and allow the compound interest to work towards your financial benefit.

But there is no need to be despondent if you haven’t been able to put together a financial plan yet. Higher living expenses, increased housing prices and tertiary education costs, means that finding your financial feet so to speak, does takes a bit longer than it did in earlier years.

Start with a written plan with realistic and achievable savings goals and compile a monthly budget to keep better track of how you spend your money. Stay true to your budget and learn to spend in a disciplined way. Starting sooner rather later remains your best choice.

HAVING NO FINANCIAL PLAN

Having no financial plan is akin to committing financial suicide with clear risks and dire consequences. A well-balanced financial plan makes provision for your daily financial needs (protecting you in case of death or disability) but also securing your long-term investments for retirement purposes. Your financial plan should aim to beat inflation and offer you a diversified portfolio inclusive of a range of asset classes.

A financial plan also considers your current circumstances, earnings and aims to meet your financial goals and realise your dreams. Your financial advisor should help you develop a plan, a target rate of return, and help you select investments and products with appropriate risk levels, to help you meet your goals.

Besides the importance of having a sound financial plan, you also need to meet with your financial planner at least once or twice a year to review how well your plan is tracking and if there have been any significant changes in your family or personal life. Things like a promotion, a new business, an expanding family or being retrenched can have a severe impact on your long-term sustainability if not discussed with your financial planner.

NOT MAKING PROVISIONS FOR YOURSELF

Families are often caught in what is known as the “sandwich phase”. This is where families experience both aging parents on the one end, and children who are becoming young adults on the other, present in the same family. Both these groups place tremendous financial strain on the core family who are sandwiched between these two poles.

While caring for your parents and your children are both acts of love, they can be financially draining on your monthly income and retirements savings. Resist the urge to draw on your savings! In the sandwich phase you are most likely to be in a C-suite executive position and your earnings are also in the top tiers. Be very watchful of how you go about spending your salary, performance bonusses, emoluments and any additional monies.

It will be a good idea to discuss retirement funds, retirement home and homebased care settings as well as making provisions for continuous healthcare for aging parents. These expenses can be excessive and suddenly place your finances under immense pressure.

Lastly, as your children move out the house and become more independent, you should take any additional funds and make it part of your financial plan. It is important that you continue to be prudent in your spending and that you have regular discussions with your financial planner. You may wish to unlock additional benefits by increasing your monthly contributions and possible downscaling your home and by purchasing a smaller home and selling additional vehicles or un-used holiday homes, timeshare and so forth.

POOR RISK MANAGEMENT

In this section, we are not referring to your own investment risk profile as such, but rather to the real risks which exist in the greater scheme of things. A financial plan which is not protected from external risks can potentially be completely wiped out and mean the loss of a life’s worth of savings in the blink of an eye. I am referring specifically to failing to make provisions for things like proper healthcare, personal liability insurance, or failing to procure all-encompassing medical aid, or even not having sufficient short-term cover and home insurance.

But is also extends to how you structure your estate and how you plan to manage and safeguard your loved ones against potential estate duty taxes and executor’s costs. One way of making sure one’s affairs are in order is to make sure you have an updated last will and testament and that your financial planner is always in possession of the latest copy. Make sure you have an updated I.C.O.D. (in case of death) file and that your family and financial planner knows where to find it. In this file you can, for example, place amongst other things the following documents:

A copy of your last will and testament.
Your living trust.
Power of attorney.
Life insurance policy.
Birth certificate.
Marriage license.
Bank and credit card account details.
Loan documents.
Internet accounts and log-ins.
Telephone numbers of financial planners, lawyers, family members etc.

An I.C.O.D. file can truly be a lifesaver for loved ones who have to deal with the death of a family member and will make it easier to have access to emergency funds, initiate any post-mortem actions required by law and current legislation, and to commence with burial arrangements.

IN CONCLUSION

What I appreciate and admire most of Warren Buffet (besides his investment wizardry), is his humanity and willingness to admit his mistakes. He makes no excuses, blames no one else, and face his investors head on. He acknowledges his active role in making the mistakes and he owns up to his responsibilities.

But there is one other thing that Buffet is a master of – he learns from his mistakes. I am almost willing to say that this is Buffet’s most prized character trait. He always goes back and tries to understand what he did wrong, and then he makes sure he never repeats those mistakes again.

We can all take a lesson from Mr Buffet in this regard. Making financial planning mistakes are inevitable, sometimes we will be able to avert a crisis and other times we won’t. But we must always learn from our mistakes.

There is a humorous saying that goes: “Some of us learn from other people’s mistakes – and some of us have to be the other people”. Good financial planning and investments is an ongoing cycle and process. If we think through our financial decision and do a proper analysis and sense check our ideas with those we hold in high regard, we are taking steps in the right direction.

Talk to your financial advisor and do so regularly. Interact with your investment plan and stay connected to your financial goals, dreams, and independence.

The post What Are Some Of The Most Common Financial Planning Mistakes appeared first on Oakfield.

5 Essential Things You Need To Discuss With Your Financial Advisor

noirmarketing — Wed, 28 Apr 2021 18:38:00 +0000

5 ESSENTIAL THINGS YOU NEED TO DISCUSS WITH YOUR FINANCIAL ADVISOR

In his well-known book Principles, Ray Dalio, founder of Bridgewater Associates, wrote the following: “I learned a great fear of being wrong that shifted my mindset from thinking “I am right” to asking myself “How do I know I’m right?” and I saw clearly that the best way to answer this question is by finding other independent thinkers who are on the same mission as me and who see things differently from me”.

I consider this to be a profound statement and what Dalio is actually alluding to is that we shouldn’t simply trust our own thinking and that we need someone to challenge our thinking – to just we are right, is risky business. Considering the complexity of today’s investment markets and the fact that we’ve had to face two global events, the financial recession in 2008 and the ongoing global pandemic which started in 2020, the question we really need to ask ourselves is if we can really afford to go about navigating the choppy investment seas on our own?

In this article I will explore 5 essential investment elements that you need to discuss with your Financial Advisor to allow for critical conversations, to plot your future financial needs, and to identify the most appropriate investment vessels you need to employ in order to get there.

Here are 5 essential conversation you need to have with your Financial Advisor.

1. WHAT IS YOUR CURRENT FINANCIAL STATUS?

Your first appointment is important as this will set the tone for the relationship and be an opportunity to clarify expectations from your and your advisor’s perspectives. In order to do this well you will need to do some essential preparations including:

Listing your current asset and debt-levels.
Giving a brief career overview and a rundown of your career goals.
Summarising your current retirement timelines and investment plans.
Clarify your ideal financial position and lifestyle.

2. WHAT IS YOUR VISION FOR YOUR FUTURE WEALTH?

People tend to shy away from this discussion because in most cases it means being really honest with yourself and your advisor. This is what we call a heart-to-heart discussion.

If your Financial Advisor is tasked with the responsibility of helping you plan and grow your wealth, it’s fair to expect you to be realistic about your own expectations and financial limitations. What makes this particularly hard is that we have to be honest about our own spending habits (good and bad) and the true status of our finances. This can be a difficult conversation so be prepared for some tough comments and observations. Remember you are trying to rectify and align your finances to achieve your long-term goals and dreams.

Your financial advisor will also, in time, become the steward of your financial investment and wealth plan, which means you have to create a relationship based on integrity and trust. To be true to this relationship also means you have to articulate your financial dreams to your advisor, and work together on an agreed plan, to give flight to your vision of your future wealth. Make sure you explain and communicate precisely what that vision means in real terms, and that the plan to get you there is regularly assessed and reviewed.

3. WHAT ARE YOUR SPECIFIC FINANCIAL GOALS?

In many aspects of our lives, we are told by personal development gurus to break down our main goals into smaller sub-goals. It’s no different when it comes to your financial and investment goals. Start with the macro goals such as owning a number of investment properties at retirement age, and then break that down into smaller goals such as owning at least one paid off bedroom flat in the next three to five years, as a first step. Commit to these goals in writing and let your advisor add this to your investment action plan.

Goals have to be SMART (specific, measurable, attainable, relevant, and time-bound) and should be regularly assessed. A goal such as “having lots of investments” isn’t really a measurable goal. Without clear goals it’s unreasonable to expect your financial advisor to develop an effective action plan. Clear goals also make it easier to measure your progress which should be measured two to three times per annum as this will quickly highlight poor performing areas or unrealistic investment goals.

The extent of your financial goals and dreams will greatly influence the kind of investment plan your financial advisor will develop. If your goals are bold, it will require a bold investment plan, if your goals are more tempered a more measured investment plan might be the answer. A critical factor to the investment plan is therefore to understand one’s investment risk and tolerance profile. In many instances Financial Advisor can do an investment risk profile analysis which will explain the kind of investment profile you possess and propose investments that are interpretive of your appetite for risk.

4. WHAT IS YOUR FINANCIAL ADVISOR’S INVESTMENT PHILOSOPHY?

This is a two-part question and covers two key issues; firstly, your financial advisors’ qualifications and experience, and secondly your advisor’s investment philosophy. Both these matters will have a direct influence on your investment plan and the way your financial advisor will go about investing your funds.

Make sure that your financial advisor is equipped with the necessary qualifications to act as a financial advisor. Regulatory bodies and institutions as well as certain professional financial professions (such as actuaries, auditors, and accountants) need to meet minimum qualifications, compulsory accreditations, and registration with formal bodies. The Financial Planning Institute (FPI) and the Financial ServicesConduct Authority (FSCA) are two specific bodies that regulate Financial Planners and Advisors and provide you with the minimum required qualifications. Make sure you vet these qualifications and try to obtain at least one personal referral before settling on a specific Financial Advisor.

The second matter, which is equally important, is understanding your financial advisor’s investment philosophy and to ensure that it also resonates with your own tolerance to risk and investment approach. This will become important as you need to select investments and as your wealth and investment plan grows over time. An initial mismatch between you and your advisor need not be a concern but needs to be addressed sooner rather than later. Make sure you select a financial advisor, from the start, who resonates with your own investment philosophy. A significant role of the new generation of financial advisors is to act as educator, mediator, and mentor when it relates to financial investment decisions. Make sure your financial advisor is somebody who you will listen to when it matters, especially when your finances come under pressure.

5. HOW WILL YOUR MONEY BE INVESTED?

Once again, the answer to this question will depend to a great degree to the kind of investor you are. Certain types of investors want to be part of the investment process and would like to know what kind of investment vehicles the financial advisor is currently considering. For the most part, clients rely on the financial advisors’ expertise and knowledge of the markets to select the appropriate investment vehicles and products.

The more informed investor with a good working understanding of technical analysis and investment vehicles, is more likely to get involved in key questions such as the appropriate asset allocation and investment spread between securities, fixed property, investment funds, derivatives, bonds, commodities, or other asset classes.

Another essential element of the investment cycle is to assess the selected investment vehicle and product performances. The logical question to ask is what financial benchmarks your financial advisor uses to make these assessments? In other words, how do you and your Financial Advisor know whether your investments have performed good or bad? It’s also important that the benchmark used is relative to the kind of investments your financial advisor has selected for your portfolio. It might be a promising idea to ask a number of financial advisors to share their investment philosophies and the type of benchmarks they use, before appointing your Financial Advisor.

CLOSING COMMENTS

Your relationship with your Financial Advisor is based on trust, integrity, accurate financial information, and up to date trends and performance data. But it’s more than just that, it’s also a personal relationship, based on a mutual respect for each other’s thinking and philosophy on life. Ideally, you should be working towards the same outcome, which is financial independence and wealth creation, over time, which is why it is so important that there’s a good match between client and Financial Advisor from the beginning.

There is a well-known joke about the client asking his financial advisor “is all my money really gone?” “No, of course not,” the adviser replies. “It’s just with somebody else!”.

Although said tongue in cheek, this is precisely the kind of scenario which we are trying to prevent at all costs; the gradual loss and erosion of our investments, savings, capital, and funds. It is critical therefore, that we continue to review and assist our wealth creation and wealth protection strategies. Try to secure a couple of detailed conversation per year with your Financial Advisor, even if just to test your own thinking or to discuss new investment ideas, it will be a worthwhile investment (pun intended) and will bear fruit over the long-term.

The post 5 Essential Things You Need To Discuss With Your Financial Advisor appeared first on Oakfield.

The Fine Art Of Smelling A Rat

noirmarketing — Tue, 23 Mar 2021 18:38:00 +0000

THE FINE ART OF SMELLING A RAT

Of all the many tragic things that can befall us, few things come close to the heartbreak and desperation of losing all of one’s life savings in an investment scam. In spite of the volumes of news articles, investigative journalism, and financial documentaries warning us about the pitfalls of investment fraud, innocent and trusting people are still being conned out of their hard-earned funds by swindlers.

In recent financial news, yet another investment scam, this timeinvolving cryptocurrency Bitcoin, have come to light and investors have lost millions of dollars after the scheme have been found to be involved in fraudulent activities and operating illegally. The battle to recover investor funds is now being waged in courts, but not surprisingly, the kingpins are long gone, and investors will be lucky to recover any of their missing funds. Sad – but certainly not unique.

It is tempting to speculate that individuals who end up being conned out of their money should have known better or should have seen the warning signs, but the reality is, when returns are high and payouts continuous, caution is thrown to the wind, which is exactly why the irregularities at Enron and the Bernie Madoff Pyramid scheme went on undetected for so long.

But why are investment scams so prevalent in our society, and how do reasonable and intelligent people get caught up in them? Research offers two key explanations. Firstly, global markets have been performing poorly for a number of years and most people are eager to listen to promises of greater returns on their investments, even if those claims are sometimes ridiculous and beyond what the average investor can expect to earn.

Secondly, the investment world is shrouded in a plethora of investment jargon, concepts and principles, clever financial terms and unique product permutations which can quickly confuse and put to shame even the most proficient investor. Being human we don’t like to admit when we don’t understand something. A bruised ego doesn’t ask questions and we are ultimately ruled by our psychology. We would rather accept an illogical explanation instead of voicing our disagreement or asking for clarification; in short, we would rather keep quiet and trust the process than to opt out.

Before we discuss investment scam red flags, it is important that we familiarize ourselves with the types of investment scams that defrauders and conmen employ to lure unsuspecting investors.

Here are 6 of the more prevalent investments scams and how they work in principle:

1. Pyramid Schemes

A pyramid scheme starts off with an initial member (or group of members) who present themselves as investors. Other investors are then coaxed into investing, who in turn need to recruit more investors and placed in a hierarchical structure (hence the name pyramid) underneath the initial investor. Individuals joining later in the scheme, pay the person who recruited them to join in the first place. The pyramid keeps on growing, and investors joining lower down in the hierarchy, are less likely to receive the full benefit. By the time the scheme stops growing, the top tier “investors” have all made substantial amounts of money, and the investors who joined last, end up with empty pockets.

2. Ponzi Schemes

A Ponzi Scheme is a type of scam that creates credibility for a false (non-existing) trading enterprise. The credibility and hype is fostered and amplified by the quick and high returns to investors, but in actual fact early investors are paid “profits” from the money invested by later entering investors. All funds are usually paid over to an intermediary or so-called portfolio manager, who moves the money around and ensures that profit payments are paid out on time. The scheme collapses when no new investors are sourced and when existing investors can’t get their money out of the scheme anymore. Ponzi schemes go to great lengths enhance their credibility by referring to other known professionals and well-known enterprises in the investment world with a solid financial track record.

3. Pump and Dump Scheme

A pump-and-dump scheme is a type of fraud in which the offenders accumulate a specific commodity over a period of time. The price is then artificially inflated by means of misinformation (referred to as pumping) and then sold (referred to as dumping) at the higher premium to unsuspecting investors. Since the price was artificially inflated to begin with, it inevitably returns or drops below its original market price, leaving the investors at a loss. Pump-and-dump schemes are sometimes cleverly marketed under the disguise of fractional or syndicate investment schemes.

4. Boiler Room Schemes

A boiler room scheme refers to an operation using high pressure sales tactics to sell stocks to randomly called individuals. These names are either bought or simply taken from telephone directories. Boiler room operations are usually setup in low-cost office blocks where large numbers of telemarketers make the calls. The stocks on sale might be legit but the sales information, statistics and projected growth of these stocks are usually false and designed to mislead investors. The main objective is to close the sale and make a commission. These stocks are referred to as over-the-counter stock as they are not sold on the formal exchanges and not subjected to standard disclosure, regulations, or oversight.

5. Pay-to-Play Schemes

A pay-to-play scheme, as the name suggests, requires investors to make a substantial upfront deposit before joining the scheme, but only once they managed to spark the would-be investor’s interest with false marketing jargon. The financial investment is often referred to as the buy-in premium or payment. All investments requiring investors to pay upfront fees (pay-to-play) in order to participate in the scheme, should be viewed with caution. Besides being based on deception and lies, many of these so-called brokers are not qualified to work in the securities sector. Be wary of excessive and extravagant reference to wealth, possessions, importance, or a lavish lifestyle.

6. Cold Call Investment Schemes

Cold-call investment schemes starts with a phone call that offers investors a once in a lifetime opportunity to be part of a lucrative investment. Once a specific number of investors have been locked in, the company closes up shop, and re-emerges somewhere else under a new name, in search of new investors. Although similar to a boiler room scam, the key difference is that a cold-call investment scam, have no real investment opportunity to begin with, or little hope of the investment ever getting off the ground. In most cases all the investment capital is lost, and investors have no hope or means of recouping their losses.

The above schemes are just some of the most prominent scams doing the round to lure investors to the table. Sometimes investment scams can be a combination of different elements of each type of scheme to appear more credible. To pinpoint or expose an investment scheme as a scam operation requires investors to get into the detail, and to look for red flags or any irregularities that cause alarm bells to ring, and most important to report it to the authorities.

Below is a list of 5 of the most important telltale signs (red flags) that an investment scheme is likely to be a scam in action:

1. Attractive Investment Presentations

Who doesn’t want to make more than enough money to live a comfortable life or retire in style? One hallmark red flag on investment fraud is promises of above market returns, guaranteed profits, and investments with practically no risk and no efforts required. The presentation is aimed at weakening our senses by means of focusing on our desires, fears, and materialism to ensure we are primed to making a rushed decision.

2. Confusion and Jargon

Hiding the truth and obscuring the obvious by means of clever phrases, industry terms and made-up jargon are all tactics used to create a front of sophistication and complexity to ensure investors don’t ask questions and to intimidate all actions around the table. Investment articles, technical analysis, detailed commentaries, and clever graphs are all used to create the impression that the investment is backed by experts and people in the know. A detailed due diligence is your best bet to peek behind the proverbial curtain and to see if there are any real investment value or substance.

3. Unverifiable Claims

Boiler room scams, for example, often rely on making the ordinary sound out of this world. Claims such as pending patent rights, new technological breakthroughs, conspiratory claims, secret calculations, special formulas, and algorithms are all the stuff of smoke-and-mirrors and are difficult to verify. Check all claims by means of a third-party due diligence and keep all emotions out of the investment decision.

4. Controlling Sales Process

This red flag is far more than just dealing with a pushy salesman. Here we refer to tell-tale signs that something is amiss. In includes insufficient or unverifiable disclosures, unknown or unfamiliar payment or investment methods, non-traditional asset allocation or bundling together of funds, all presented on the basis of a trust relationship, hearsay or by simply applying sales muscle, or being intimidating to get you to decide on the spot.

Manipulative techniques or pushing a client for an on-the-spot decision is not in line with ethical practices and professional investment customs.

5. Unlimited Financial Control and Disclosure

Investment accounts, products, or funds should always be invested in your name with some oversight by a third party or a licensed entity. Transactions on your investment portfolio must be verifiable and clear to review daily or by means of an investment statement of account. Pooled funds with no record of transactions, or unlimited financial control by a fund or portfolio manager should be concerning. Make sure the account activity statements are reliable and issued independently from the investment entity.

CONCLUSION

In spite of all the useful articles, tips, and information to safeguard us against the unscrupulous attacks of thieves and scamsters, we are bound to be confronted with promises of never-ending wealth and unheard of returns, at some point in our lives. One of our best forms of defence is to educate ourselves on these foul tactics and to make sure we know how best to avoid them.

In similar vein, we also need to accept that, at times, the markets will be volatile and difficult to navigate, especially during uncertain times such as the current global pandemic. Consistently creating investor value is somewhat of an artform. We must also be reasonable in our expectations of what constitutes fair returns on our investments and make sure we live within in our financial means.

There is a famous Wallstreet saying that goes “This time it will be different”, but, as history proves time after time, it usually isn’t. We can all do our part by performing due diligences and consulting with unbiased third parties such as licensed financial advisors, Certified Financial Planners, or independent brokers, before investing our money. To report any illegal or suspected investment scams please contact the Finance Intelligence Centre (FIC) and follow the on-screen prompts.

Be vigilant, guard your funds and make use of reliable and established investment entities – but most of all, trust your instincts and learn the fine art of smelling a rat!

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Why Relationship Beats Spreadsheets

noirmarketing — Sun, 10 Jan 2021 18:38:00 +0000

WHY RELATIONSHIP BEATS SPREADSHEETS

The Financial Advisory and Intermediary Services Act 37 of 2002 (FAIS) was promulgated in 2002 and one of its intended outcomes was to regulate the rendering of certain financial advisory and intermediary services to clients. This came in the wake of local and international incidents of investment fraud such as Enron’s collapse in 2001 and Bernie Madoff’s Pyramid scheme of 2008, all coinciding with a global recession in the same year. The investment, insurance, and finance world, as it has been many times before, needed to recalibrate its moral compass.

Part of the new act was the establishment of a national regulator, at the time referred to as the Financial Services Board (FSB) and which has since been renamed the Financial Services Conduct Authority (FSCA). The legislator’s main objective, in respect of the insurance sector, was to hold intermediaries, insurers, and financial advisors accountable for the investment advice they presented to their clients, in order to prevent the sale of products (at lucrative commissions) at premiums clients can’t afford.

The FAIS act, although challenging, brought about a new approach to the rendering of financial advisory services. The traditional advisor-model of selling policies made way for a new client-advisor relationship which evolves around behavioural coaching, clearly defined wealth management and financial planning, all within an honest and personal relationship with the client. Essentially the new model proposed a fee-based model, where the advisor receives monthly payments instead of large up-front commissions, as one would expect from a purely commission-based model.

It is now almost twenty years since the promulgation of this ground-breaking act, and the industry sees continuous reform and amendments being made to improve the client-advisor relationship. As much as this is celebrated, and as much as many insurers are now being held accountable for their actions, it is far from perfect and new products and remunerative models are being tested and proposed. But what does all of this essentially mean for the client?

At its most fundamental basic, new relationship goals and responsibilities have been assigned to the advisor, and the client is the direct beneficiary of these changes. Relationship clearly outweighs the days of poor performing products presented on lively spreadsheets. But how has the change impacted the services rendered by the advisor, and how do they benefit the client?

Below are five value propositions, or areas of service, proposed by some influencers such as the Vanguard Advisor’s Alpha[1] concept, on how advisors can add more consistent value through financial planning, behavioural coaching, and guidance.

MARKET VOLATILITY

Advisors often base their value proposition on delivering better returns for the client, but relative to what? In most cases one can give a one-dimensional answer and say better than the market. But a more appropriate answer would be to say, a better return than the client would have generated on their own without the advice from a financial advisor. This is a good example where, through education and support, the advisor possesses the ability to inform and caution the client against undisciplined and emotional decision making, and that far outweighs claims of simply being able to beat the market.

Outperforming the market consistently is not only exceedingly rare, but it also depends largely on factors beyond the control of the advisor. If the anticipated performance of a range of products or funds fall short of the client’s expectations, the client may very well decide to walk away, based on this non-performance, and will have no further vested interest in the product, or see the need to keep the specific intermediaries involved.

CUSTODIANSHIP

Charlie Munger once said, “The big money is not in the buying or selling, but in the waiting”. Left to their own devices investors can get carried away by flashy presentations and inflated numbers about beating the markets. What follows in most cases is un-contested thinking and decision making. Besides the obvious efforts to attract new investors, the ever-present emotional drivers of fear and greed, create hopes and dreams of unmatched returns in no time, rather than proposing rationality and long-term gains.

A custodian is defined as a person entrusted with guarding or maintaining a property, money, or assets. It becomes clear that, once we put the advisor’s investment capabilities aside, the true value of the advisor lies in the experiences and custodianship which the individual brings to the relationship.

Like a personal trainer, the newly defined relationship between client and advisor, the advisor acts as a behavioural coach and assists the client to work through emotive investment decisions and provides the necessary support and reasoning to make the best investment decisions by balancing all the pros and cons in such a decision. Like a true caretaker, the advisor brings much needed clear thinking while considering the repercussions and making sure that the best proposed outcome is achieved.

COMPILATION OF AN INVESTMENT STRATEGY

The advisor focused on relationship is uniquely positioned to obtain a clear understanding of the client’s current goals, overall concerns, familial composition (current and planned), future and long-term dreams and ideals (bucket-list items) through inquiring dialogue and intimate discussions.

The relationship-focused advisor, considering the intimate details shared by the client, will in turn compile a long-term investment and short-term continuation strategy, which will guide and determine the best types of products, investment options and asset classes for the client. This is referred to as a bottoms-up orientated investment approach.

In contrast a top-down philosophy, simply lists top performing products and funds (for example) and bundle them together, based on historical and projected performance figures. Once these products don’t achieve the projected returns, the advisor ends up having to defend investment volatility and performance, instead of being able to place the client’s goals and ideals and the center of the discussion and standing as a conscious reminder, to the client, of the intended end-game and investment plan.

COMMITMENT AND SERVICE DELIVERY

There exists a relationship commitment [2] between the advisor and the client. If both parties wish for the relationship to last, it will require maximum effort to maintain it. If both parties are committed, it means the relationship is well worth working on, and it promotes the longevity thereof.

The critical success factors in a relationship commitment are consistency and tenacity. The quality of the relationship will lead to good cooperation, if trust and commitment work in unison, and will create the space required for successful relationship management – place where mutual conversation and the sharing of thoughts can take place.

One specific way of showing this commitment and building the trust-relationship is by rendering good quality service, which is defined by two elements, namely technical quality (what is being rendered), and functional quality (how it is rendered). In essence it comprises all elements that define the quality of the interaction between the client and the advisor.

TAXATION STRATEGIES

The financial advisory relationship, all things being equal, is not a short-term relationship. It spans many years that can lead well into retirement including the eventual passing of a client or one of the core family members. Where there are retirement, death or disability benefits which need to be paid out, there will also be complex tax implications and will be another major consideration for many clients.

This then underscores another area where the advisor’s involvement can be of incalculable value since the advisor is skilled in effective and beneficial tax structuring and management of a portfolio. The advisor needs to ensure that investor returns are not eroded and will apply tax conscious financial planning and tax-efficient portfolio construction, to ensure proportionately larger benefits being paid out to the client. Other financial experts and professionals are often part of the consultative process to ensure all legislative actions are adhered to and correct.

CLOSING COMMENTS

The legislator should be lauded for having identified the need for change and for successfully changing the client-advisor relationship by means of the improvements made in the insurance industry, ongoing monitoring of legislation, studying world events and by placing greater accountability on investment specialists. All of this has been done to the benefit of consumers to keep financial services free from corruption and to protect client’s hard-earned money.

The new name of the personal advisory and financial planning world is partnership; that making good financial investment decisions is a matter of understanding the markets and being educated in several important investment principles, products, and services.

You have the right to know what is going on in your investment portfolio and you deserve a financial advisor that values such a relationship more than spreadsheets. With the possibility of remunerating advisors on a spread commission basis over a period, instead of all commissions paid up front, it becomes easy to consider an advisor as a financial and investment expert and the bond with clients can truly be called a relationship.

[1] https://personal.vanguard.com/pdf/ISGAA.pdf

[2] https://www.researchgate.net/publication/233565767_Insurance_advisor-client_relationships_An_assessment_of_quality_and_duration

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