In terms of FAIS, (the act that regulates financial advisors) an advisor is required to do a ‘risk profile’ for a client, specifically when it comes to investment. This regulation was clearly put in place to safeguard inexperienced clients from gung-ho brokers who had previously taken the life savings of little old ladies and put them into high risk investments, usually with the expressed desire to get their claws on fat upfront commissions. So… It’s a vital component of a financial plan – right? It isn’t that simple, and in fact can come with risks of its own.
Most of the ‘cookie cutter’ risk profiles that brokers use (Robo-Advisors) quite frankly do nothing more than cover the broker’s ass with the Financial Services board if the investment goes pear shaped and the client lays a formal complaint.
So what is important to consider?
High profile doesn’t equal great product.
I spent many years in marketing, and understand that brand awareness is the holy grail of market share, but we all know that doesn’t necessarily equate to a quality product. One way or another you’re paying for that label, that glossy packaging, those premium time advertisements. Financial products are no different, just much harder to compare. We are human, we equate high profile ‘noise’ with success and quality.
So, just out of interest let’s compare the performance of some high profile Equity Unit Trusts (Collective investments) with the ‘cheap’ SATRIX ETFs, and see how much bang you’re getting for your buck. Coming off the first equities snot-klap of the year (over 3% drop in the JSE yesterday) the timing couldn’t be better as investors reconsider the ‘asset allocation’ of their investments.
Year on year, as of 5/1/2015 (and thanks to yesterday’s ( 6/6/2015) nasty little correction) the ALSI is sitting at 5%.
Discovery Equity -5.4% (yes, that is a negative sign in front of it)
Allan Gray Equity 5.3% (before fees)
Coronation Equity 5.4% (before fees)
SATRIX ALSI 5%.
This is interesting. Obviously Discovery equity is the outlier here, and frankly has been for far too long. I don’t like placing my clients on insurance platforms, preferring to use LISPs, so Discovery Equity has never been one of my fund choices, but this performance is ‘disappointing’.
All the others are about the same right? Not so fast… That is performance before fees that start at around 2.5%, and are usually closer to 3% – except for the ETF of course, those fees are closer to .5%. It’s those fees that pay for the heavy advertising campaigns. So now the Collective investments are giving you a return of around 2.5%, and ETF around 4.5%.
You’ve all heard that story about a plumber’s client riling at the R1000 call-out fee for a problem that was resolved in less than a minute by one quick tap of a hammer – right? R1 was for the hammer tap, the other R999 was for his expertise in knowing where to tap. The same is true of your investment advisor. You should be paying them to pick the right combination of investments for you, and monitor them.
Changing entrenched spending patterns
Often the biggest gap between getting by and accumulating real wealth – irrespective of what you earn – is the gap between your ears. It is a small gap, and it is often very difficult to forge a new path, and stop the steady trickle of money out of your pockets.
One of the reasons for this is that change of any sort is deeply uncomfortable. If you want your New Year’s resolutions to be more than January’s to do list, then start thinking about wealth differently.
We all work hard for our money, so changing spending habits is almost always is seen as a sacrifice. It’s not unlike trying to lose weight or quitting smoking, it has that nasty emotion attached that you’re going to have to do without. It is complicated by the fact that you can’t stop doing it altogether (not unlike eating) so it’s not as though you can go cold turkey and tough it out like smoking or drinking.
When can you do it yourself?
When it comes to managing one’s personal finances, there are a number of different strategies, some more effective than others. Trying to navigate the murky waters of policy benefits, tax structuring or investment choices is increasingly difficult, and it makes sense to get some help. I am a ‘DIY queen’ so I can relate to the desire to do as much as I can myself, especially if I can save a buck or two. This inevitably has grown out of years of being ripped off. We’ve all been there; the electrician who insists everything is broken and quotes thousands of rand for a ten rand job; the doctor that writes up a prescription for flu instead of patting your hand and telling you that ‘this too will pass’; the broker who sells you an investment, with a chunk of upfront commission and you ever heard from them again with the added bonus of a nasty penalty if you try and stop it. Once you have had one bad experience it is sorely tempting to do it yourself in future – and just like other DIY, there are things that you can easily do yourself, others not.
So let’s have a look what you can do yourself, and more importantly where you can save money by doing it yourself:
Make your intentions more than stepping stones on the road to regret
It’s the time of year where we fill ourselves with positive intentions for the year ahead. Feels good doesn’t it? For most people, those resolutions rarely survive January and bring the sting of failure with it.
So… Assuming that resolutions are a good thing, and you want that feel good factor to last longer than the benefits of the xmas break – how do you break the cycle? Here are some hints and tips from the gurus on this subject:
- Don’t have lists and lists of meaningless intentions. Distil it down to a few, preferably in different areas of your life (finance, career, health etc.) Look at the list carefully, is there an overall theme? Could that them be summarised in a single word or phrase? That ‘one word’ can be put on small ‘post-its’ around the house to remind you every day.
- Turn the intentions into actions. Don’t say “have a financial safety net”; be specific. “Put away R250 a week until I have R10 000 in a savings account” is an action.
- How about using an app to track your progress on those goals? I have looked at a few of them in the last couple of weeks and the most useful one I found is GOOD HABITS (link to the USA store). You can put in your habits, check them off daily/weekly, get the app to remind you, and track your ‘winning streak’.