Who are they fooling?
The complexity of Financial advisory never ceases to amaze me. As an Independent Financial Advisor, it is one thing to keep up with all the different unit trusts/collective investments on a daily basis (like most advisors I have several dozen of the 1000 odd available that I watch carefully), but the small print is often exhausting. Regulations keep changing, and just when you thought you had it waxed, a clever tax consultant finds another wrinkle in the amendment (see tomorrow’s blog on retirement fund amendment and estate duty). When it comes to keeping up with all the life products, benefits and bells and whistles the providers keep adding and taking away to their product – if I get confused, how on earth can anyone who isn’t in the industry keep up?
Wealth Ecology ™ – What is it?
In this age of increased specialisation in every facet of our lives, something gets lost. As a botanist, specifically a plant physiologist, I always worked with the entire plant system, because a change in one part of the plant, always effected the entire system. In ecology, these interactions are even more complicated, and the balance more difficult to achieve. If even one plant is removed from an ecosystem, it can have a knock-on effect for the entire ecosystem. Insects that use that plant to feed off, die. The birds that feed on those insects die or leave and so on.
If you load your bird table with fruit, seeds, suet in winter (as I am inclined to do) then every bird in the area will come and feast at your table until it’s all gone. Big birds pushing the little ones out of the way, and the bullies ganging up on everyone. Is financial advisory any different? The food is a finite supply – like the money you’re prepared to spend on risk and investment.
Know where you stand – reduce the stress
Seven years on from the credit crunch and the economy still seems to be limping along. It’s the new normal. Jobs that were lost, are probably gone forever, unemployment is dire and the only real growth is coming from SME’s. Yes, there’s opportunity there, but in the meantime family and budgets alike are under pressure. Interest rates are starting to climb again after a long hiatus, and there is every indication that there are plenty more to come – so for anyone with debt that is bad news.
Enough of the misery. Much of the stress created by uncertain finances is fear of the unknown. There is an automatic assumption that if a job is lost, or there is another calamity, the world is going to fall apart, and you are going to be out on the street. Mostly that panic will pass, but it has a nasty habit of interrupting your beauty sleep.
So how can you keep this stress at bay? Here’s a start:
Medical aid premiums – out of control – what to do
It’s coming to the time of the year where you should be reviewing your medical aid plans with a view to changing from the first of January. The inflation increases of this core part of many of our budgets continues to spiral out of control. Every time an increase comes through that is above inflation, then the problem compounds into the future. Every year thousands of South Africans ‘buy down’ on their schemes – the costs are just unaffordable and unsustainable. So how do you decide what plan to take, and what provider to use?
Medical aids are hamstrung by regulations, and cannot refuse membership to anyone, no matter their health – this is quite different to the ‘life’ industry. The only penalties they can impose is a 3 month claim restriction, 12 month condition specific exclusion and late joiner penalties. In my experience they will use these restrictions almost without exception, making changing providers a nightmare for an individual who is not on a compulsory group scheme. You have to pretty fed-up with your current provider to go down this route – I know, I did it.
August 2014 ALSI – crawling sideways
Where is it going?
One of my favourite quotes is – ‘The bulls win; The bears win; It’s the pigs that lose’. I think this is a great time to revisit that quote. Everyone is on tenterhooks wondering which way the stock market is going to turn, not wanting to leave any ‘money on the table’ by locking in profits too soon. Of course that produces the real risk of missing out, and losing a chunk of those gains. What rises like a feather often drops like a stone.
As a financial advisor, I make investment recommendations based, primarily, on the length of time an investment is going to run. There are half a dozen variable that go into the recommendation of course including risk profile, age, wealth, income requirements etc. At the end of the day though, having made a recommendation in ‘Unit trust’/Collective investment (CI), I let it work its magic, watching in the background to make sure it remains ‘relevant’. I don’t take the kudos when it outperforms the expectations. The market did that, not me. The same applies when it under-performs (but is likely to lead to a fund switch if it hasn’t kept up with its peers.
The low-down on accident cover
Buyer be aware. Your advisor should be able to tell you what the priorities are for your rand. Nobody has a limitless budget to spend on their ‘financial portfolio’ in the broadest sense of the word, and ‘impulse buys’ like this can be tying up valuable spend. There is no such thing as one size fits all, you need someone to help you allocate your money over the “health care, short term insurance, life/disability cover, retirement savings and investments” spectrum – without a vested interest. You need to get ‘independent’ advice – even if you have to pay for it because your broker doesn’t have access to all the various products and platforms.
During the course of the analysis of my client’s portfolios I often come across this ‘accident’ cover. Should this be added to the life cover provision – or is it cheap and nasty and should be junked and the premium reallocated? At certain times during your lifecycle, the chances of you dying in an accident rather than from natural causes is higher than when you are older – specifically the 20’s, and some of the 30’s – so far so good. It boils down to putting it in perspective.