Wealth ecology™ is the holistic analysis and management of the ‘ecosystem’ of the wealth of a family, a trust or SME to ensure an optimal balance, sustainable growth and protection of risk. It is Financial Advice revisited to make it more transparent and understandable. Ecology is the interaction between organisms and their environment. Nothing exists in isolation and a balanced ecosystem is essential in order for it to thrive. Wealth ecology™ uses this as an allegory to examine the balance between the various elements of a person’s or group’s wealth and risk portfolio in order to create and maintain the optimal balance over the natural life-cycle of the wealth ‘ecosystem’.
All those frequently asked questions on every aspect of Financial Advice from Medical Aids to estate planning are available here – and the opportunity to add your own question or submit your own comments.
Recommendation: Instead of paying for a full premium when you are only getting a fraction of the benefits during the 3 or 12 month waiting periods, join the cheapest plan and upgrade at the end of the year to your optimal plan.
Recommendation: It is solid financial advice to consider joining a medical aid sooner rather than later – it has the potential to financially cripple you if you don’t. Choose a medical plan that suits your lifestyle, and upgrade it if that changes. There is no need to have a fully comprehensive plan when you rarely claim – you are just subsidising someone else. Start with ‘cheap’ hospital cover and upgrade it later when things start to go wrong. At least you won’t be paying a late joiner penalty. The range of plans can be bewildering but simple brochure to help you through this process are available from most of the bigger medical aids. Contact us if you’d like the Discovery brochure <a title=”Contact Us” href=”http://kerenga.com/contact-us/”>contact us.</a>
Recommendations: If you have a chronic condition for which you are having to take medication, go onto your scheme’s website or the Council for Medical Schemes here and check. Then call your scheme’s call centre and investigate further.
Recommendation: Although it is a grind, look at your monthly statements, and start to get an understanding for what the codes mean, and how much you can expect to get paid back. If you have a claim against a code rejected, call the call-centre and ask for an explanation. On an annual basis monitor your claims, savings account, payback and premiums to see if you are on the right scheme.
Recommendation: You need to read through your policy document and keep it at hand so that you know what cover you have in place. Put your scheme’s call centre number on your emergency number list and in your RED FILE because they will be able to quickly answer your queries before you commit yourself to a procedure that won’t be paid for as you hoped.
Recommendation: If you have a savings component to your medical aid, submit every single claim ESPECIALLY if you are in the self-payment gap. Use generics when possible to keep the costs down. Recycle your frames when getting new prescription lenses. Engage with the scheme’s loyalty and wellness programs – they work.
Recommendation: Get the forms filled out ready to go the day the baby is born.
Recommendation: Investigate the providers that are on this list before dismissing this option out-of-hand. When you find someone you might want to use, investigate them, google them. Are you happy with their experience and qualifications? It is your life, your body.
Recommendation: Check your medical aid’s solvency, this is public information. If your scheme fails ( and plenty have done just that I the last 10 years including old Mutual’s Oxygen) it is likely to be taken over by another scheme and your benefits and premiums will change and you are likely to wait a long time for any refund.
Recommendation: The single biggest cause of emergency admission is car or pedestrian accidents. Put the medical aid decal you are sent in your car window so that the ambulance at least have a clue you are on a private scheme. Every member of the family needs to keep a medical aid card in their purse or wallet. This will ensure that medical personnel can contact the medical aid for additional information immediately – or get emergency contact details if you aren’t in a position to give it to them. If you have a life threatening allergy or condition stick this info on the medical aid card too.
Recommendation: Get a quote in writing from specialists, anaesthetists etc. before undergoing an elective procedure ( there is nothing wrong with negotiating either). Find out from the call centre how much of that you are going to have to fund. You can reduce this sort of expense by using participating specialists and doctors. This can be further complicated if the doctor doesn’t work out of participating hospital.
At this stage the official line is that membership of the NHI will be compulsory, and the deduction will be made at employer level rather like the UIF. It is likely that you will not get ‘credit’ for your private medical aid and the existing tax credit may also fall away. If you want private health care you are still going to have to pay for it. For most middle class South African families this is likely to make private medical aid membership unaffordable. The biggest medical aid schemes are working with the government on the rolling out of the NHI which is very positive, but whether the medical aid premiums are going to come down as a result remains to be seen. One potential positive outcome is that the NHI will put a lid the medical aid inflation which has been hitting double digits for decades and in many respects is out of control. Incorrectly handled though it may well accelerate the emigration of the top health care professionals. It is also going to require a change of ‘habit’ for many middle and upper income South African who never use community or primary health care professionals that aren’t ‘doctors’ – even if it is a waste of their skills.
Take childbirth for example.In the UK a delivery by a doctor let alone a gynae is the exception, not the rule – here it is the rule and midwives are under-qualified and underutilised. Because there are so many unknowns at this point and it is likely that the deadline date will be pushed out, there is not a lot one can do at this point – except perhaps engage in wellness programs to reduce your need for the service at all. In time, and once the costs and specifics are known, it is likely that new product offerings will emerge to plug the gap at a more affordable rate than the full blown offerings we have become accustomed to. More info in the blog HERE.
Recommendation: Stay informed and worry about it when it is a certainty. Reduce the potential for claims in the long term by managing your health now. It may be prudent to put ‘dread disease’ cover in place while you are insurable that will pay you out a lumpsum for a condition that can then be used to buy private care and fund shortfalls.
Recommendation: Get comparative quotes every couple of years.Decide what is important – price, quality or service and choose accordingly. Take any bonus out of the decision if you might lose it if you claim.
Recommendation: Full disclosure. If you are using a call centre, listen to the questions very carefully. The calls are recorded and if you have a dispute they will be used. If you or your broker are filling out the form, read the questions carefully. One of the questions asked that has caused the most problem is “ Have you had any accidents in the last 5 years” , i.e whether or not you have claimed – as opposed to the question “ have you claimed any time in the last 5 years”.
Recommendation :get a comparative quote – see what benefits you get and make the decision from there.
Recommendation : Do a full house audit ( that can be easily updated every year) and put in the replacement cost. That is what you need to declare to the insurance company if you don’t want a nasty surprise at claim time. Find the value of the items in the top 10% – the plasma TVs, electronics – anything that would be very expensive to replace all at once – and compare that to your annual premium that is what you are most likely to be claiming for.
Recommendation: Read the small print and discuss this with your broker or the call centre agent.
Recommendation : Do the math and then pick your broker’s brain. Let him/her help you custom-make cover that suits you, not a mass produced product someone tries to shoe-horn you into with no flexibility.
Recommendation: Do a full audit of your ‘stuff’, get comparative quotes then decide what you really want/need and what you don’t. Don’t try and save money by undervaluing your items. Revaluing your jewelry every year can be very expensive – see if there isn’t an alternative. If your jewelry is only valued if it is in a safe then it’s not much use to you.
Recommendation : Take a holistic view of your family’s security as a completely separate issue to your insurance. Having armed response at the touch of a button can lull you into a false sense of security. I was in a house invasion where my daughter was assaulted and tied up and my face cut open – the high pitched alarm of the panic button frightened them off – the armed response never pitched up. Look at putting early warning/panic alarms in place ( electric fence, door alarms, motion sensors and plenty panic buttons) – they don’t necessarily have to be linked to an armed response. Technology has evolved to the stage where you can personally be notified of an intrusion and view your house on CCTV over the internet. The cost of all that is going to be less than a year’s subscription to an armed response company. My favourite deterrent is ( you’ve guessed it) a huge German Shepherd who sleeps next to my bed and is not an ‘outside’ dog ( I walk her extensively in parks instead). I have a simple philosophy – put enough external deterrents in place so that the intruder would rather choose a less secure property.
Recommendation : Personal items that leave the house need to be specified separately, and valued properly. They are also among the items most claimed for ( cell phones, laptops, jewelry etc). When it comes to jewelry – especially bespoke designs – read the small print. Excesses usually apply and be aware of what they are. Many of these items will not be covered if they aren’t stolen either from a locked boot of your car or snatched off your person. The wave of jamming thefts that do not damage the boot of the car, making it almost impossible to prove that the items was stolen from the boot has created many problems. Check with your broker (or call-centre agent … yay) on how this would be handled. How will jewelry be replaced? Will your one of a kind, emerald and diamond engagement ring designed by a top designer be replaced by an off-the-shelf mass produced piece of rubbish from a mass-market jeweler? (Yup, store point).
Recommendations: Make full disclosure on your application without having a pity party. If you occasionally wake up in a bad mood that is not the same as clinical depression. Be aware that one of the biggest red flags and reason for outright decline is recreational drug use.
Recommendations : Don’t accept a loading or exclusion without investigation and approaching other providers. (
Recommendations: Make full disclosure and inform your advisor of any major changes in lifestyle, ask another provider to assess if you feel the loading or exclusion is unreasonable.
Recommendations: Full disclosure, ask for a summary of the medical questions if the underwriting was done on the phone.
Recommendations: Think carefully before taking out termed assurance, you will save substantially but may end up with no cover later in life and need it.
Benefit increase versus premium increase. Logically one might assume that for every 1% increase in benefit you would get a 1% increase in premium. Not so. Although the difference between these two will vary significantly from provider to provider, the increase in premium is usually at least 2 to 3% above the benefit increase. This is because you are more expensive to insure as you get older ( greater chance of dying and all that) so that small percentage ‘extra” cover you are getting is costed at your new, older age. Some providers claim to have a one to one increase, but will then admit that the ‘underwriting’ differential is just factored into the initial premium so in an ‘apples for apples’ quote they will be more expensive. The only time you get a direct one to one correlation is when the benefit increase is zero. It is important to get clear financial advice on the implications of this from your advisor or broker. More about premium patterns HERE.
Level premium. This premium, if set at zero benefit increase, will have the same premium for the entire term.
Age rated :This premium will start below the level of a level premium ( for the same benefit) but increase every year. The increase is usually between 5 and 7%. When you plot the premium increases in a level versus age rated premium on the same graph, the age rated premium equals the level premium after about 7 years (on average) and thereafter continues to increase.
Stepped : This is similar to level but with a substantial increase of around 25% or so every 5-10 years. This premium pattern is not popular.
Recommendations: Be aware of the premium pattern on your policies. Most providers will have a table showing you what the premium increases will look like over 10-20 years – without the percentages. Work out the percentage increase or ask your advisor to help. If the increase is way above inflation, they could well become affordable. If you are obliged to take out life assurance for your bond, make it separate from your family policy and consider making it termed and with no benefit increase.
Recommendations : Your financial portfolio analysis done by your financial advisor will identify if any of your existing life policies have an investment component. make sure you understand the loyalty bonuses you may get from the provider – and more importantly how you can lose them.
The maximum executor’s fee of 3.99% (inc VAT) doesn’t sound like much. Think on this: The proceeds will only be paid out to your dependents after the estate has been wound up – usually some 18 months later. The average life policy will pay out directly to a beneficiary within weeks. By turning the policy into property from deemed property by leaving it to the estate – on say a R2m policy – you will be increasing the fees to the executor by about R80 000, for doing nothing ( except making his life easier). It is a good idea to create ‘liquidity’ in the estate to pay for outstanding debt, income tax, CGT, estate duty etc. One can get around the automatic fee levy by the executor by leaving that decision up to your surviving spouse or children who can then negotiate a flat fee with an executor – then leave the amount required as identified by your estate plan to the estate. Leave these instructions in your RED FILE. If you have an undertaking that you or your children will be nominated in a life policy ( following a divorce for example), be aware that it takes minutes to change the beneficiary and you may be none the wiser. Total cession of the policy is a much safer idea, then no changes can be made without your permission and you will be informed of premium lapses.
Recommendations: Only leave money to the estate as a last resort or if your beneficiaries are the executors. Rather have an estate plan which is kept with the will so that your beneficiaries clearly understand how you want your estate to be wound up, and where the liquidity has been created. If your broker has recommended you put ‘in terms of my will’ on your policy AND they are the executor this could be construed as blatant conflict of interest and perhaps not the greatest financial advice.
Recommendations: Review your policy’s beneficiaries annually. If there a death in the family, or you get divorced, change the beneficiary immediately. It is one form and only takes a day or two to reflect. The last thing you want is a nice life policy going to your ex spouse because you forgot to change it.
Income protection is also referred to as Temporary Disability and is usually paid out as an ‘income’ after the waiting period until you recover or the condition is deemed permanent. At the moment the structure of most income protection policies allows for this premium to be deducted from tax, because the income will be taxed. This is currently being reviewed by SARS and in the future it is likely that this deduction will be removed, and the income will become tax free. If and when this occurs your policy should be reviewed as it may have been adjusted for tax.
Recommendations: It is usually a good idea to pay off debt on the diagnosis of a permanent disability for the simple reason that interest payments are linked to the repo rate and can fluctuate. If you are going to be on a fixed income for the rest of your working life then certainty is a good idea. Lump sum permanent disability cover is ideal for this, and the cover is relatively cheap. An temporary and permanent income for the rest of your working life, increasing at inflation, makes a lot of sense. Obviously this amount can be ‘capitalised’ fairly easily, then the lump sum invested to produce an income if that is your preference. The obvious downside to this method is that your income will be dependent on the market and investments and may be at a time where you don’t have the inclination or experience to keep a good eye on those investments.
Recommendations: After providing death cover for your dependents, disability cover is a vital part of any risk portfolio. My recommendation is usually to combine a lump sum permanent disability equal to your debts plus the lifestyle changes you might need to make, then add temporary disability income which converts to permanent disability and lasts to at least age 65, if not 70. The cover should not exceed 100%, including the capital amount and your group benefits that have continuation options must be included.
Recommendations: Ask your advisor or the call centre agent. If you still don’t understand ask for the technical specifications and get a second opinion. The small print will probably not tell you enough for you to know what it is you are buying but your advisor will probably be able to give you an electronic brochure that gives you more detail. If you have an old policy with ‘own or similar’ definitions, look at upgrading it.
Recommendations: If you are self employed or a large component of your income is from commissions then get your advisor to find cover that suits your needs and spelled out the small print. Specifically ask : Do you require proof of loss of income? Is this underwritten upfront or at claim stage? How do you take residual (historical) income into consideration and how do you determine permanent disability? This cover is relatively expensive, when in doubt get a second opinion even if you have to pay a fee for it.
Recommendations: This varies so much from provider to provider you need to ask this question of your advisor. If you aren’t happy with the answer ask your advisor for quotes from other providers who handle this differently. Although statistically it is unlikely that you will become disabled, the effects are so devastating it is an important component of your peace of mind.
Recommendations: Accelerated life cover may make sense when it comes to disability cover (as your life expectancy unfortunately is likely to have been reduced), but not necessarily in the case of dread disease (where the likelihood of living a long life if you are ‘cured’ is good). Check the ‘reinstatement clause’ in other words if you have made a dread disease claim – whether stand alone or not – and die in less than ( say) 14 -30 days later, you may not be paid both even if the benefit is stand alone.
Recommendations: If you come across a loading or decline discuss how this would be handled by other providers before signing a counter offer letter.
Recommendations: If you are self employed or a business owner and have no intention of retiring, then it makes sense to take out cover for whole of life or age 70. Some providers have the option to convert this into dread disease cover. If you want the option to convert, which seems like good sense, be aware that by the time you are (say) 65 the cost of the dread disease cover is going to be very high and the switching of your premium to dread disease is going to translate into a disappointingly small amount.
Recommendations:If you need a nanny, then this is the best option for you.
Recommendations: Because many critical illnesses you can recover from completely and live a long life, my recommendation is that critical illness cover be stand alone. Although you may recover from the condition you are likely to be ‘uninsurable’ for a long time, maybe for the rest of your life – so that life cover needs to be protected.
Recommendations : Because this cover is the ‘least’ important when money is tight, my recommendation is to go straight for the best cover, not tiered, even if it has to be for a smaller amount. Even better have cover that re-instates for new events on different body parts. In other words if you fully claim for cancer then have a heart attack, they pay you out again. /spoiler]
Recommendations: Decide what you want and why. Is there a family history of a certain disease that worries you? Critical illness cover is more about getting over it and making the lifestyle changes than financial hardship. Choose carefully and think twice before taking out an inferior product that just covers cancer for example.
Recommendations: Find out the small print with your provider and make sure the claim procedures are easily accessible. The front page of your Red File should include basic details on what to do in the event of a death, disability or dread disease claim.
Recommendation: My recommendation is to put this brochure in your Red File along with the policy paperwork.
Recommendations: Only place RAs on a LISP platform unless there is a compelling reason not to – for example if the broker structures the insurance RA so there are no penalties ( usually by commission sacrifice). Make sure you have a broad range of funds to choose from and ensure the total expense ratio is low.
Recommendations: Your advisor should check the compliance of your retirement funds on an annual basis.If your portfolio has been built up on an individual asset allocation basis – in other words separate funds for the equity/property/cash/bond allocations then it is highly likely that these will be out of balance in 3-6 months and your advisor may need to sell off some of the equity for example to bring it back in line. One of the best ways round this is to use a Reg 28 compliant managed fund.
Recommendations: The lump sum taxation that is imposed on withdrawal of funds is onerous and impacts on your tax free portion at retirement, so preserving the funds is always the preferred route. It is highly likely that the government is going to stop the withdrawal of funds in future and enforce preservation to retirement. Make sure the platform you use is transparent, has a low TER and wide choice of funds ( with a reasonable number of free choices per annum). Because of the amount of admin required to effect this transfer, expect to pay an upfront fee to your advisor to manage this transfer and an annual servicing fee.
Recommendations:Your broker can design a portfolio based on asset allocation principles which are updated at least once a year or you can choose a managed fund that is already Reg 28 compliant and all those decisions will be made for you by the fund manager. This is a slightly more expensive alternative but unless you have a highly experienced financial advisor it is the preferred option.
Recommendations: You need to strike a balance between TER and performance. Have this discussion with your advisor and perhaps look at a variety of alternatives, ideally with some sort of portfolio analysis in comparison to their peers and benchmark.
Recommendations : My preference is to use an interactive graphic model where you can go through as many different scenarios as is necessary with a client until you find one that is reasonable, sustainable and affordable. What ever method your advisor chooses, to come up with a scenario and recommendation for retirement be aware that with so many variables there is not just one answer. The variables that you can adjust that will have the biggest impact on the scenario are : reducing your projected expenses at retirement, increasing your monthly contributions or tweaking your portfolio’s asset allocation
Recommendations: Watch for changes to the legislation, your provider or advisor may notify you. You can sign up for our newsletter which will give you just this sort of information – click here Sign up→[/service]
Recommendations: Before you decide to withdraw your funds, ask your advisor to give you the tax implications and alternatives first.
Recommendations: Make sure you have the flexibility to retire from the fund at any time after 55.
Recommendations: These change annually so please check with your advisor. If you would like a copy of the latest tax tables (as supplied by Momentum in February every year) please contact us <a title=”Contact Us” href=”http://kerenga.com/contact-us/”>contact us.</a>.
Recommendations: Pension funds can be a good way to reduce a potential estate duty liability. To speed up the payout of your estate the nominees should include all your dependents. If any of your dependents are minors make sure this is catered for in the will by way of a testamentary trust – avoid having to use the Guardians Fund at all costs.
Recommendations: Properly structured Retirement Annuities backed by a retirement plan are going to be a better option for most people.
Recommendations: Use the tax incentives you can get to boost your retirement funds
Recommendations: If you are the spouse looking to attach a portion of your husband’s pension make doubly sure the wording is correct. If it is your pension that is being attached – try to settle this amount in another way. If you have a creditor wanting to get their hands on the funds don’t retire from it.
Recommendations: If you don’t have a big enough portfolio to get personalised reporting from your financial advisor, consolidating your investments on one platform where possible may make sense.
Recommendation: Get a feel for the different TERs incurred by the different funds on the platform you have chosen.If you want to use an insurance platform make sure you are aware of the fees and more importantly the potential penalties.
Recommendations: Before jumping into an endowment make sure you have looked at the different tax implications and accessibility.
Recommendations: This is one of the considerations you need to make when choosing funds in your portfolio. If your platform has a small choice of funds, and most of those are their own funds, when compared to the rest of the market they come up short.
Recommendations: If your personal life cover has exclusions or loadings, or you don’t have additional cover this can be very useful. The cover usually has to be taken out with the original company which takes much of the element of choice of benefits out of it but could save you thousands.
Recommendations: Discuss how this fits into your personal financial plan with your advisor, if you are in effect ‘paying’ for this cover (section 11w, ‘perks’ tax) and don’t need it then keep it at the free cover limit.
Recommendations: One personal retirement Annuity, on a LISP platform, even if you are in a corporate environment will make your retirement more flexible – you can delay the retirement from one of the funds if you have ‘part-time income coming in in early retirement.
Recommendations: Make sure the beneficiaries/nominees are updated frequently with your HR department
Recommendations: Irrespective of the size of your estate a will is vitally important. This can be done by a lawyer, Certified Financial Planner or the bank. Do not try to do it yourself unless you are qualified to do so.
Recommendations: If there is a chance any of your beneficiaries are minors it is imperative to specify a testamentary trust with the conditions under which the proceeds may be distributed to keep the funds out of the Guardian’s fund.
Recommendations: Consider nominating a savy friend or family member as the executor and give them the power to negotiated the actual work with a professional independent executor. If your advisor recommends an executor, ensure that any conflict of interest and financial incentives are disclosed.
Recommendations: Nominate a spouse or family member as an executor or joint executor giving them the power to appoint a professional executor and negotiate a reasonable rate.Let me give you an real example of the effect this can have on an estate. If the only asset a spouse has in her name is a R10m house which is left to the spouse on her death – then all the executor has to do to effect this is call a conveyancing attorney to effect the transfer (which he will charge for). Simple, however he/she is entitled to charge R399 000 for this simple act. Nice work if you can get it
Recommendations: The use of usufructs and other complicated mechanisms are no longer required to maximise the 4q deductions to the spouse as these now roll over.
Recommendations: Once the value of your primary home is in excess of R2m and you have other property an estate plan is in order. keep all invoices related to major renovations to your properties ( keep in the RED FILE) as these can be used to reduce the CGT.
Recommendations: The most common way to get round this punitive donations tax in a trust is to create a loan account which can be whittled away R100k at a time.
Recommendations: There are better places to cut corners than your will. Keep it simple but make it legally correct. Don’t try and rule from the grave.
Recommendations: Make sure the executor’s fee can be negotiated (above)
Recommendations: If you are married in the accrual system and considering leaving assets to someone other than your spouse get an estate plan done to find out if there are potential liquidity issues. These can be mitigated with buy-and-sell agreements (and/or policies), or by placing businesses in trusts from the outset.
Recommendations: Have an up to date estate plan in your RED FILE so your executor knows exactly what he/she needs to do and where the liquidity has been planned. This will cut the amount of work required by an executor substantially.
Because shares are sold usually sold in lots of 100 which would make the equivalent share portfolio very pricey, this gives the average investor the best of both worlds.Enlighten me…→