Why a rainy day emergency fund is important

By Stefan Janse van Vuuren, Financial Advisor

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A savings account for life’s unexpected emergencies or the proverbial ‘rainy day’ has long been listed by advisors as one of the cornerstones of any successful personal financial plan/strategy. An emergency fund lends investors the comfort of knowing they have a “safety cushion” in case they lose their primary source of income or have unexpected expenses. However, job losses on the scale brought about by the impact of COVID-19 has revealed how few individuals have an emergency fund and how underfunded the savings accounts are of those who do.

Why you need an emergency fund

Lockdown measures, in SA and several other countries, have left many people, families, and businesses with a reduced income and in some instances without any source of income. Leaving those who did not save for the proverbial “rainy day” exposed, regretting their lack of emergency funds as the COVID19 pandemic turned the mostly unexpected “what if” scenario into harsh reality.

Having an emergency fund is vital to any individual’s financial strategy. Apart from losing your job or main source of income, unforeseen expenses such as medical bills, vehicle and household repairs, funeral costs or even a child’s sport tour may place any household budget under pressure if there is nothing left after having paid regular expenses. Yet households living from pay cheque to pay cheque is a common reality. This may force individuals to sell other investments, take out a loan or use credit card debt to fund unexpected expenses, delaying growth on those investments for future consumption.

The required amount saved in an emergency fund differs from person to person, but most advisors have long argued that the ideal amount required to provide security against a sudden loss of income or surprise expenses should be enough to cover  3 to 6 months living expenses. Life is costly and budgets are under pressure in current times, but it is important that you start somewhere, irrespective of the size of your monthly contribution to an emergency fund.

Options for an emergency fund

The act of saving means you choose future consumption over current consumption and ideally you would like to be rewarded for showing discipline and self-control by earning interest on the money saved.

When saving for emergency fund purposes there are a few factors to consider:

Instant Access – The money needs to be kept in liquid investments that allow easy access and limited withdrawal costs.

Stability – Ideally you want to be invested in an account or product that offers stable returns with limited market volatility, as you might need to use these funds during times of market turbulence.

Inflation – As mentioned, the act of saving means deferring expenditure into the future, therefore savings need to outgrow inflation. If not, the purchasing power diminishes as time passes, which defeats the purpose of saving. The opportunity cost is not just the loss of purchasing power but the actual loss of growth if you are saving via investment options that do not offer inflation-beating returns.

What are the options?

  1. Money market linked savings account:

The returns from money market investments closely follow the repo rate. Therefore, thanks to SA’s high repo rate over the last 5 years, conventional money market accounts available at banks have delivered excellent, inflation-beating returns. The South African Reserve Bank (SARB) uses the repo rate to control the inflation rate in SA, increasing the repo rate if inflation increases and cutting the repo rate if inflation falls. The COVID19 pandemic and recent decline of the oil price has decreased SA’s inflation rate, meaning the SARB could cut the repo rate in the hope of stimulating SA’s shrinking economy. And so, it has done – cutting the repo rate by 0.5% to 3.75%, a record low (see graph), at its May meeting, bringing the total rate cuts for the year to 2.75%. Analysist forecasts predicts inflation to remain subdued, with the SARB expecting inflation to remain below 4.5%, the midpoint of its 3-6% target band, at least until 2022. With inflation under control, commentary from SARB suggests two additional 0.25% rate cuts can be expected in the two remaining quarters of 2020.

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Source: TRADINGECONOMICS.COM/ SARB

This does not bode well for money market investments as their returns lag the change in the repo rate. Therefore, we can expect their returns to trend downwards towards the 4% mark as it adjusts for the cut in repo rates. The last time we saw the SARB slash repo rates as aggressively as it has done recently, was during the global financial crisis (GFC) of 2008. The period, thereafter, saw the average money market investment deliver negative real returns, failing to beat inflation up until mid-2014.

The returns from Money Market investments:

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  1. A tailormade fund for emergency savings fund:

Financial management specialists have devised different funds that can offer returns superior to the readily available off-the-shelf or retail offerings. One such fund is an Emergency Savings Fund (ESF) developed by Brenthurst Wealth, which invests in an array of flexible, multi-asset income funds, offering a savings solution that delivers stable, inflation-beating returns.

The aim of the Brenthurst ESF is to provide investors with income growth that outperform money market products with low risk of capital loss in the short term and moderate levels of capital growth in the long term.

The Brenthurst ESF aims to achieve this by investing in actively managed income funds with flexible mandates, that have access to a broad range of interest-bearing instruments (including government and corporate bonds, convertible bonds, debentures, corporate debt, cash deposits and money market instruments) as well as preference shares, equity securities, property securities, assets in liquid form and derivatives.

By diversifying across fund managers and asset classes (within the abovementioned investment universe), the Brenthurst ESF accesses additional sources of returns, whilst also diversifying risks, allowing investors to have the necessary stability and capital availability that is required of an emergency fund.

If there is one lesson that 2020 delivered, it is that the future will surprise and predicting what will happen is near impossible. That does not mean, however, that inaction is the most appropriate response. Even in times of uncertainty, planning for the future remains important.

Read more about how to approach a sound financial strategy here: Investment Planning.

Is it possible to recover from financial mistakes?

By Marise Smit CFP®.

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Financial advisors the world over have been preaching the gospel of eternal wealth creation to its followers for years. History has proved, the proverbial message that “all things come to those who wait” many times over, but despite the numbers adding up the South African people are not buying into it. There is little to no faith in foresight.

A recent Retirement Reality report released by the financial services provider 10X Investments suggests that the retirement crisis is getting worse, with even fewer people preparing for their golden years, than the same period last year. The findings were based on online surveys among 10,780 economically active South Africans with a monthly income in excess of R7,600.

It has become normal practice for local employees to cash in their retirement savings when changing jobs and buying things on credit is the purchase plan of choice. Rather than adopting a savings culture, consumers are taking on piles of debt to buy lifestyle niceties, and sometimes even acquiring everyday necessities

The situation in South Africa is rather dire, with a savings rate at almost zero. The lack of retirement planning should be a cause for concern, but it is never too late to begin turning things around.

The reality is that while not everyone has the financial means or discipline to begin saving for retirement in their 20s, the situation does increase in severity with each passing year, so the sooner you start the better.

Many people face a substantial drop in income once they retire – which is o exacerbated by factors such as longevity, inflation and medical costs. “We are living into our 80s and beyond, which means our money has to last us for 20 or more years after retirement; and at an inflation rate of 6%, the purchasing power of money will halve in 12 years’” according to research by one of the large financial services groups in SA.

Adding to this is the likelihood that medical expenses will sky-rocket in old age, with 60% or more medical costs occurring after the age of 60.

For the individuals in the older age band, your trepidation at nearing retirement age with very little saved is understandable, but the good news is that your situation isn’t hopeless.

The first thing all late bloomers need to do, is stop beating themselves up for waking up late to the financial fact. Focusing on the past is a waste of time, it won’t change your situation. The time has come to apply the lessons learnt from mistakes made in the past.

The bad news, however, is that there is no silver bullet to recover the opportunity cost of bad decisions. There is also no concrete formula to know how much each person needs to save to catch up for the future.

Obviously, the more you save the better, and the quicker you start doing it, the best. But to get a clear vision of where you are headed, you need to know what and where the goalposts are. It’s the first step to every person’s financial plan.

Advised clients can improve on their retirement income by up to 31%, according to research, compared to those who are not advised. This is because a professional will assist in determining the capital required to retirement, the progress made over time, and identify the gaps that still need to be covered.

Because of the shortened time frame, the most apt investment strategy in terms of risk would have to be discussed in detail with an advisor, who will also incorporate your unique personal circumstances.

This conversation will include the tax incentives available to you, as well as suggestions on investment schemes and portfolios.

If possible, supplement your income and use this income entirely for savings.
Continuing to work can help in other ways too. You have more years to salt away money for retirement, and your nest egg has more time to rack up investment gains and grow before you tap it.

That is the easy part. To go from saving virtually nothing to saving consistently and diligently and cutting down on some lifestyle comforts will be much harder.
It is imperative to clear debt as soon as possible, especially the high interest-bearing kind like credit cards or vehicle finance. At the same time, increase your contributions to your company pension fund and/or your retirement annuity.

You need to revisit and update your retirement plan at least once a year with your adviser to make sure that your investments are performing as expected, and that everything is on track. You also need to ensure that you keep your adviser up to date with any changes in your life – such as a change in marital status or a new job – as this will impact your retirement plan.

Contact Marise Smit at marise@brenthurstwealth.co.za. Read more about planning for retirement: Retirement Planning

 

 

 

The value of a Living Will

By Malissa Anthony, Legal, Compliance and Fiduciary

Malissa-2017

Having a Last Will and Testament is considered an important part of an overall financial plan and individuals typically invest a lot of thought and time on estate planning. Yet a Living Will is another matter entirely that not many have in place.

As with other risk planning related matters, it makes provision for a ‘what if’ situation that hopefully never transpires.

– Why is it important?

A Living Will is a directive or an advance directive which represents an individual’s wishes to refuse any medical treatment or attention in the form of being kept alive by artificial means. It guides an individual’s family members and doctors in the event that the medical condition of that individual is at a stage that makes recovery unlikely and when the individual can no longer make medical decisions. For instance, being in a vegetative state, irreversibly unconscious or terminally ill and suffering.

A Living Will can also provide for the execution of personal wishes like organ donation.

– How is it different from a Last Will and Testament?

A Last Will and Testament deals with the distribution of a person’s property and assets AFTER death, whilst a Living Will sets out the medical care preferred while the individual is still ALIVE, but unable to competently express their wishes.

– What is required for a valid Living Will?

The validity and use of a Living Will in South Africa is contentious, and whilst it is not a compulsory document, it can play a very valuable role in speaking for you when you are no longer able to.

The National Health Act affirms a person’s right to refuse treatment even if it may result in the shortening of one’s life. In addition, the National Health Amendment Bill anticipates putting an end to doctors’ responses and a family’s consent to withdraw any treatment when an existing Living Will is in place.

Individuals have the right to refuse treatment and many people believe that such directive will be honoured under ALL circumstances. However, this is impossible in the reality of medical practice, which means that a Living Will can be ignored by the family and the attending doctors if there is a slight chance for recovery. It is therefore, up to the doctors to also rely on their professional judgement whether the directive should be honoured or not.

It may arise where doctors may have a conscientious objection to withhold treatment in any circumstance, and by no means are they obliged to comply with an advance directive. It is important that they advise the patient accordingly of their views and offer to step aside or transfer treatment and management of the patient’s care to another practitioner who does not share in the same objections.

The South African Medical Association (SAMA), has stipulated that in order for a person to make such a directive, such person must be over the age of medical consent and of sound mind (“compos mentis”). This directive will remain valid even if the declarant later becomes “non compos mentis” (of unsound mind), unlike that of a Power of Attorney, which loses its authority once the principal becomes mentally incompetent.

– Why should putting a Living Will in place be considered?

1. A Living Will speaks for you when you cannot speak for yourself.
2. It spares loved ones from the anguish in making life-or-death decisions. It also eliminates any emotionally straining arguments between family members over the present situation.
3. It allows you to have your say in specific medical procedures and organ donation.
4. It assists in containing the financial costs of dying. In the instance of no reasonable prospect of recovery, life-support can be extremely expensive, which could deliver a significant financial burden on family members or reduce the value of your estate that you had bequeathed.
5. It gives you peace of mind.

– Important issues to note:

A Power of Attorney is not valid on becoming mentally incapable
Many believe that a Power of Attorney will suffice in the instance where an individual becomes mentally incapable or for example, falls into a coma following an accident. This is unfortunately not the case, as the Power of Attorney becomes invalid the moment the Principal of the Power of Attorney can no longer exercise his/her judgement.

A Power of Attorney can only be used when you are SOUND of mind, able to communicate and authorise a person to act of your behalf.

This is confirmed in the case of Pheasant v Warne 1922 AD 481 with reference to Molyneux v Natal Land Company 1905 AC 555, where the court held that a power of attorney cannot be granted by someone who, because of her mental faculties have been impaired by old age, had not been in a position to understand what the particular legal proceedings instituted against her were about.

If a Power of Attorney has been drawn up and mentally incapacity is a result, there would be the requirement that an application be brought before the court to appoint a curator bonis, which is time consuming, costly and thus cumbersome.

A Living Will is not the same as an assisted suicide/voluntary euthanasia

A Living Will should not be confused with the concept of “assisted-suicide” or condoning euthanasia, both of which are illegal in South Africa. Therefore, a Living Will cannot include any instructions or directives in respect to either instance. Whilst you can request for specific medical treatments to be withheld or withdrawn, you may not however ask your doctor to end your life.

Living Wills have become an increasingly important part of estate planning in South Africa, although creating one is completely at the discretion of the person considering the same.

It is imperative that a Living Will is reviewed regularly, and that both medical practitioners and family members have access to it. For ease, it is recommended that once drawn up a Living Will should be signed and should be kept in the safe custody of a doctor or attorney/fiduciary specialist. More details about Brenthurst Wealth’s estate planning offering here: Estate Planning

Five things you can do now to improve your money situation, and your life, in retirement

By Suzean Haumann, CFP®

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A guaranteed income for life and leaving an inheritance for loved ones are two of the most important motivators South Africans list when they reach their golden age.

This is according to Just Retirement Insight – independent research commissioned by Just – in which South Africans between the ages of 55 and 85 years in the major metropolitan areas were interviewed.

When it comes to income in retirement, 89% of survey respondents wanted a guaranteed income for life (up from 86% in Just’s 2015 survey).

The second most important aspect for 53% respondents (up from 44% in 2015) is leaving an inheritance for their children and grandchildren.

However, statistics from the Association of Savings and Investments South Africa (ASISA) show that 92% of retirees currently invest in living annuities, which do not cater for both needs as these products typically do not provide a guaranteed income.

This unfortunately means that running out of money becomes a possibility in later years and, as a result, the likelihood of being able to leave a legacy is severely reduced.
However, there are unique retirement solutions which seek to address both these needs simultaneously.

But it is not just the paperwork that has to be filed and reviewing the expected income in retirement to ensure a smooth transition. A dramatic change in lifestyle from working to not working comes as a shock to some. If you’re in the early stages of retirement and feeling somewhat lost, you’re not alone. Many retirees find the transition can be difficult.
Following these tips might help you adjust to retirement better so you can feel fulfilled and happy during this chapter of your life.

Retirees who want to retire on very little or no money are greatly benefited by learning budgeting skills. Whether retirees have only a few hundred rand or tens of thousands of rand, they should make detailed plans to allocate what cash they do have to the things that matter the most.

But prior to that it is also advisable to remain working as long as possible, retiring at 55 or 60 is simply not advisable anymore. So many people get their identities wrapped up in what they do for a living, and once that’s gone, if there’s not something else there to fill the space, that’s when depression and dissatisfaction often kick in.

People who are willing to sit down and discuss their passions and long-term post-retirement goals are the ones who will have a more satisfying, fulfilling retirement. You can’t just leave work and go figure it out.

Without the human interaction and challenges found at an office or workplace, some people suffer mentally and physically. If you’re not working, you may not be engaging in conversation with people daily or getting enough physical exercise.

It is important to take care of your health. In view of higher medical care costs and expected ailments as you get older. The healthier you are the less you need to provide for medical costs.

You must be cautious that you’re still getting out, meeting people and being social. People who are not active tend to decline rather quickly.

Retirees need to find hobbies that interest them and maybe produce goods and/or services that can be sold. Even if retirees don’t make much money from their hobbies, the little money that they do earn can be allocated toward something important.

What is going to motivate you to get out of bed and do something? For everyone it’s going to be different, but do find something that motivates you, excites you and keeps you moving forward.

Also, research and use the many benefits and promotions available to retired persons. It is a waste to miss out on many available discounts. For instance, pensioners can go to the movies for reduced ticket prices on certain days, enjoy lower prices at certain retailers, even some hairdressers and dentists have special offers for retirees.

Many banks are more generous with interest payments on certain savings plans for the older guard and additional tax allowances are available on income earned. Furthermore, some public services like bus rides are also available at reduced prices.

Financial advisors actively advocate the importance of having a financial plan and investment strategy in place while working. Once retired adapted plans and a new life strategy are as important. Want to know if your retirement plan is on track? Consult a qualified, accredited advisor. Details of our offering here: Brenthurst Wealth Retirement Planning

Offshore investing … let’s get practical

By Renee Eagar, CFP®

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With local markets providing historically low returns, there has been an increased interest in investing offshore. Many articles have been written over the last year or two about why protecting your wealth by investing offshore is a good idea, along with the potential for greater returns on investments. What many articles fail to address is the practical side of investing offshore. How does an investor go about taking money out of South Africa, and what are the investment options available? Here we unpack some of the practicalities of investing offshore.

Probably the most straightforward option is opening a bank account in a foreign country. It does not even need to be in an interest-bearing account. If, for example, you have a dollar denominated bank account and you invest the equivalent of R100 in the account when the rand is at R10 to the dollar; if the rand weakens to R12 to the dollar, your R100 investment has increased to R120 effectively. When considering opening a bank account offshore it is very important to consult with a foreign exchange expert.

There are several factors to take into consideration when opening a bank account offshore including minimum deposits, tax requirements (both in South Africa and offshore), which countries to consider and, of course, the fee structures that these accounts may incur. A foreign exchange expert will be able to assist you in navigating through the options. If you are a South African working overseas then this would be an ideal starting point for you, especially if you are being paid in a foreign currency. Just keep in mind that foreign earnings above R1 million will no longer be tax exempt for South African tax residents from next year (March 2020).

A second option is to invest directly in an investment product that is not rand denominated. These investments are typically housed offshore through offices in countries such as Mauritius or Bermuda. Brenthurst Wealth established its own fund, the Brenthurst Global Equity Fund for this purpose, but there are others to consider, from the likes of USD cash funds all the way to high risk, sector specific themes. The options offshore are endless and especially in comparison to the local JSE. This balance of investments needs to suit the investor’s risk profile and a longer-term view needs to be taken. With these investments the investment is made in a foreign currency and the investment is housed offshore, which means that there may be exchange controls to consider should the investor want to bring the money back to South Africa. These investments typically have larger minimum lump sums in dollars and are not very flexible when it comes to ongoing contributions, unless the investor can meet a high enough monthly deposit amount. In practice this option is ideal for investors who have a large lump sum that they wish to move offshore, or another option is to save a monthly amount locally then take it offshore when it meets the minimum requirements

An often-overlooked option is to buy a property in a foreign country. Property can be a volatile asset, and it is advisable to consult with experts in the property industry in the area where you wish to purchase. While there has been an increasing trend of South Africans purchasing properties in countries such as Mauritius and Malta in order to acquire residence in those countries, others are considering it purely for diversification and attractive returns. The SA property market has underperformed for several years while in countries like Portugal, Spain and other European countries investors receive good rentals and can also expect healthy gains in the capital value of the property. A local property news service recently reported that Berlin’s housing market was the fastest price growth market in the world in 2018 and that the city continues to enjoy double digit growth year-on-year. “Property prices rose by 15% in 2018,” according to the report. Before making a property purchase investors should make sure that they understand property trends prevalent in the selected region as well as any local laws relating to property ownership. For those hesitant to take the plunge due to the many unknown variables, it may be a good idea to consult with a South African company that has set up operations in other countries – like Brenthurst Wealth’s Mauritius office – for assistance. Also note, if you are still a South African tax resident, you need to be mindful of Capital Gains Tax and Estate Duty, so speaking to a person who specializes in tax and estate planning is recommended if you are looking at purchasing property offshore.

Another option is to invest in a local fund that invests in international assets. The investment is still made by the investor in rand; however, the investment is made into offshore products. These are called rand denominated offshore asset swaps funds or one can also make use of ETF’s, for example. The major benefit here is that the investor is transferring risk offshore and removing local market risk from their investment. These international funds typically have a global mandate, so speak to your financial advisor if this is something you would like to consider. This option is often not considered as many investors are under the impression that you must invest in foreign currencies in order to have offshore exposure.

Investing offshore provides investors with an opportunity to reduce their exposure to local risk and allows investors to access the vast investment opportunities available globally. We have touched on four ways in which South Africans can invest offshore, including investing in offshore investments, via local portfolios that then invest offshore, opening a bank account overseas, and purchasing property overseas. All these options have risks and require the knowledge and expertise of financial advisors with skills in foreign exchange, Capital Gains Tax, estate planning, and property. Before you explore how to move money offshore you should speak to an expert. At Brenthurst we pride ourselves with our in-house knowledge base and experience. For more about investing offshore and forex services, visit here: Brenthurst Wealth Offshore Investing

Consider your options as the state eyes your pension

By Brian Butchart, Managing Director and CFP®

10 October 2019

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While speculation abounds and scare tactics surface every now and then, details are scant about the State’s plan to prescribe SA’s pension funds, there are however options each investor should consider to protect their retirement benefits.

Anyone 55 years of age and older, could potentially retire from their retirement annuities, preservation, provident or pension fund (depending on the rules of the fund), draw a lump sum and convert a portion to a living annuity. In so doing an investor can protect his/her savings, converting pre-retirement products governed by regulation 28 to a post retirement living annuity. Once converted to a living annuity the investor has full flexibility with regards to asset allocation without any interference from government. This together with the freedom to invest their tax free and or after-tax lump sum wherever they choose, without being subject to prescription or regulation 28.

But how high is the probability of prescription? Especially concerning for investors not yet 55, locked into their retirement benefits until then.

The ruling party’s 2019 manifesto refers to prescribed assets, – the proportion of financial institutions’ resources that would be assigned to socially productive assets – as a key priority.

The easiest way to do this is to change regulation 28, currently governing all pre-retirement products such as pension, provident, preservation funds and retirement annuities.

The most important limitations of regulation 28 in its current form are equities 75%, listed property 25%, offshore assets 30% and alternative assets 10%.

This could mean if prescribed assets are implemented, it could become government policy for the local pension fund industry, to invest a portion of its more than R4-trillion in assets into state-owned enterprises that have social and economic development mandates like Eskom and Transnet.

If pushed ahead, regulation 28 will be altered forcing asset managers with regulation 28 compliant mandates across retirement assets to buy a certain amount of government institutional bonds.

The fact that this will be at higher yields, could soften the blow, and most South African pension funds currently have some exposure to government bonds anyway.

But constant bailouts of these government-run institutions, and state capture revelations has created much uncertainty, even concern in the market, especially around prescribed asset requirements that could force all fund managers to invest in government-approved instruments, regardless of the underlying economic circumstances of the underlying entities.

The concern is understandable, the country has burnt its fingers with similar policies before. Prescribed assets were first introduced in South Africa in 1956, by the National Party, when pension funds were required to invest more than half of their assets into state bonds.

The Prudential Investment Guidelines during that time required that 53% of retirement fund assets, 33% of assets of long-term insurance companies and 75% of the Public Investment Commissioners’ (now Public Investment Corporation (PIC)) managed assets be invested into government and SOE bonds.

And In 1977, the stipulation was as high as 77%. If the ANC institutes similar allocations, this poses a massive risk to retirement members savings.

Regulation 28 was imposed to protect retirement benefits from excessive risk. Prescribed assets as proposed goes against the intention of this prevailing legislation and the requirements of retirement fund trustees. Trustees have a fiduciary duty to act in the best interests of members and prescribed assets will limit the extent to which they can ‘safeguard and grow member benefits.’
Regulation 28 is only applicable to pre-retirement funds – so any changes would not give government access to discretionary assets or post retirement products such as living annuities. Although this too could change, but unlikely.

There’s no need to panic, but perhaps a critical discussion with a financial advisor, especially for those over the age of 55 (qualifying age for most pension benefits) and the potential impact on your retirement funds, depending on how government intends to implement prescription is necessary.

As it stands now, the plan for prescribed assets have been proposed – but not yet formalised. It will, however, only be a regulation and not an Act of Parliament so it could be realised sooner than later.

Although Enoch Godongwana, head of economic transformation for the ANC recently stated the party has not made a decision on the prescribed assets proposal, he indicated the importance of directing SA’s domestic savings to achieve developmental goals. Among those goals would be growth, employment and transforming the economy to reflect the demographics of the country.

The President, Cyril Ramaphosa, also recently stated in parliament: “Our resources are now depleted.” The state is broke, looking for solutions and eyeing your pension!

The advisory and asset management industries as well as various lobby-groups are voicing their opinions on the proposals, intentions and potential impact of prescription to oppose any such moves.
Be proactive and seek advice from a financial advisor, in order to discuss how best to protect your retirement benefits. Concerned about retirement planning, read here: Brenthurst Wealth Retirement Planning

No will in place? It will have consequences

By Malissa Anthony

WILLS, ESTATES, LEGAL ADVISOR AND COMPLIANCE OFFICER

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Whatever the size of your personal fortune and assets owned, a will is an important aspect of an overall strategy to manage financial affairs. Yet, many South Africans – close to 70%, based on statistics available from the Master of the Courts – do not have a valid will. There is a lingering misconception that a will is something only wealthier individuals with lots of assets or many dependents and heirs need. This is totally incorrect and one of the drivers of National Wills Week, an annual awareness project by the legal fraternity about the importance of having this key document in place. For everyone.

Not having a will can have detrimental consequences for dependents, whether minor children, a spouse or family members. By having a will in place, individuals are able to plan their estates according to their own, personal wishes and needs and it will ensure that the process of distribution of assets to the beneficiaries is a quick and painless one.

Who needs a will?

South Africans are afforded with the right to freedom of testation, which essentially means that we can decide, within limits, exactly where our assets shall devolve on our demise.

Therefore, every person who has something to leave behind, should have a valid will in place to ensure that their estate is allocated to the beneficiaries of their choice, after having taken into consideration the various estate planning objectives.

What happens if you die without leaving a valid will?

  1. If a person dies without leaving a valid will, or where their will is declared partially or completely invalid, their estate will be distributed in accordance with the laws of the Intestate Succession Act 81 of 1987, as amended. Whilst the provisions of this Act are generally fair, ensuring that assets are transferred to spouses and children, there are several problems that may arise, namely: –
  2. Assets may not be left to the deceased’s person of choice;
  3. It may take some time for an executor to be appointed, and in addition may not be someone you would have chosen for yourself – this person will be responsible for the winding up of your estate;
  4. Extra and unnecessary costs are involved;
  5. Any inheritance due to a minor must be deposited into the Guardian’s Fund, a government run fund that safeguards the inheritance of a minor until they have reached the age of majority, currently set at 18 years of age; and
  6. Conflicts may arise between family members as no clear instructions have been made regarding the division of an estate.

What renders a will valid?

The Wills Act 7 of 1953 stipulates certain formalities that need to be met for a will to be rendered as valid. In summary, a valid will must be in writing, a testator must be over the age of 16 and be capable of appreciating the nature of the effect of the act, the testator and witnesses must sign the will in the presence of each other and the testator, and the witnesses must be over the age of 14 and not receive any benefit in the will. A will requires specific and necessary clauses. Anyone drafting their own should have it reviewed by a professional to make sure the requirements are met. For instance, it must include clauses like the revocation of all previous wills, the exclusion of collation, naming of a residuary heir and exempting the executor from providing security, to name a few.

What factors should be taken into consideration when drafting a will?

There are strict legal requirements that need to be adhered to when drafting a will, failing which could have an impact on the validity of the will.

  1. Who will take care of a minor child (younger than 18 years)? Also, be cautious about leaving assets to children under the age of 18, as they will require a guardian to sign any documents on their behalf. In this instance one should consider a testamentary trust to be created to administer assets in the child’s best interests, whilst avoiding having their inheritances being placed in the Guardians Fund, which is administered by the Master of the High Court and which is only released to them on reaching the age of 18 years.
  2. Make an effort with effective estate planning, which if done right could reduce estate duty tax and ensure liquidity in the estate. Always ensure that you can provide for your loved ones in respect to immediate expenses that they would need to settle, e.g.: funeral and household expenses and medical bills.
  3. Changes to personal circumstances – marriage/divorce, birth of a child or death of a loved one.
  4. Know where the will is located and tell a trusted person where it can be found or who they are to notify in the case of your demise.
  5. The possibility of negotiating a reduced executors fee.

Why should you allow qualified professionals assist you in drafting your will?

A qualified professional will have the required experience and knowledge in this field in order to ensure that your will adheres to the strict requirements with respect to drafting a valid will, and keep up to date with estate planning information, changes to tax rules and trends on a global scale that may be relevant to your estate. Qualified professionals are also able to identify issues that may arise and advise you accordingly to avoid such issues or mitigate them as far as possible, whilst also ensuring that the will complies with your express wishes and that your assets of your estate are allocated as you have intended.

By also nominating a qualified professional you can negotiate a reduction in executors fees, as opposed to imposing the maximum executors fee which is prescribed by the Master of the High Court, being a fee of 3,5% excluding VAT.

What role does the executor play and why are they paid a fee?

An executor is responsible for the effective winding up of deceased estates, and their role includes, but is not limited to the following: –

  1. Meeting with family, reading of the will, establishing and verifying the identity of beneficiaries – obtaining relevant documents necessary for submission to the Master and for estate management and distribution.
  2. Responsibility of carrying out the directives in terms of the deceased’s last will and testament.
  3. Preparing and lodging all documentation in order to report the estate to the Master of the High Court and obtain Letters of Executorship.
  4. Placing relevant advertisements in the local newspapers and Government Gazette in accordance with the Administration of Deceased Estates Act 66 of 1965, as amended.
  5. Once Letters of Executorships obtained – an estate last bank account needs to be opened.
  6. Pay Creditors.
  7. Executor will also be required to pay out any special bequests to legacies and to pay any debts and obligations as an when they become due
  8. The executor may need to undergo selling assets in the event that there is not enough liquidity.
  9. Dealing with SARS, registering the estate.
  10. Calculate and pay relevant estate tax and ensure correct documentation is filed with SARS and the Master.
  11. Drawing up of the Liquidation and Distribution account – which details all assets and liabilities and how the estate has been divided and distributed – this is then lodged with the Master and submitted to SARS, where it is assessed and thereafter lies open for inspection.
  12. Another advertisement is then placed in the local newspaper and Government Gazette – notifying the public that the account is lying open for inspection.
  13. Attending to any of the Master’s queries during the finalisation stages and requesting for permission to distribute.
  14. Finalisation and distribution of the estate.
  15. Closing of estate.

It is important to note that the winding up of a deceased estate, is no easy task, no matter how simple or complex the estate may be. A great deal of time is dedicated by the executor in trying to effectively wind up the estate as quickly and smoothly as possible and therefore their fees are well justified. A simple estate can take roughly 16 months to two years to finalise.

Brenthurst Wealth offers its clients assistance with the drawing up new wills, reviewing of existing wills and safekeeping of wills, estate planning and the winding up of deceased estates.

Read more about our offering and meet our legal and fiduciary experts, Malissa Anthony and Rozanne Heystek-Potgieter here: Brenthurst Legal and Fiduciary services

 

Tax returns: what you need to know

By Gavin Butchart, Financial Director and Tax Consultant

TaxMan-Art-John-Royle

The 2019 income tax filing season is in full swing and the South African Revenue services has also implemented their new look online eFiling system.

Taxpayers who use SARS eFiling service or the SARS MobiApp to file their income tax returns can do so from 1 July until 4 December 2019. Taxpayers who wish to use online filing for the first time may also register from 1 July.

Those who prefer to file their income tax return at a SARS branch will be able to do so from 1 August 2019 until 31 October 2019.

Provisional taxpayers have until 31 January 2020 to file via eFiling.

Taxpayers do not need to submit an income tax return if they meet all the following criteria:
• Their total employment income for the year before tax is not more than R500,000.
• They only receive employment income from one employer for the full tax year.
• They have no other form of income (e.g. car allowance, business income, rental income, taxable interest or income from another job).
• They don’t have any allowable tax-related deductions to claim (e.g. medical expenses, retirement annuity contributions and travel expenses).

SARS has been on a drive to step up its efforts for taxpayers to be compliant and to combat outstanding and late returns, SARS said that it will also crack down on taxpayers who do not declare rental income from properties.

It’s important to declare all relevant and correct information when submitting your annual income tax returns, as serious consequences may arise should you not declare all the information or incorrect information which could result in criminal charges and penalties and interest being levied.

The penalty amount that will be charged depends on a taxpayer’s taxable income and can range from R250 up to R16 000 a month for each month that the non-compliance continues.

If you are unsure of the new eFiling system you can always go into your nearest SARS office for assistance or obtain the assistance of a tax practitioner.

Have a question? To contact Gavin send email to gavinb@brenthurstwealth.co.za. For details about the comprehensive financial planning, investing, risk planning and tax advisory services of Brenthurst Wealth, view all details here: Brenthurst Wealth

How to invest in volatile times

By Johan Burger, Director and CFP® professional

Johan Burger2017(2)

During volatile times, many investors get spooked and begin to question their investment strategies and portfolios.

Some are even tempted to pull out of the market altogether and wait on the sidelines until it seems safe to dive back in. The thing is, volatility is inevitable. It’s the nature of the beast. It moves up and down over the short term.

Trying to time or read the market perfectly or avoid most of the risk is impossible. Many have tried and failed. Part of the solution is to maintain a long-term horizon and ignore the short-term fluctuations.

For most investors this is a solid strategy, but even long-term investors should know about volatile markets and the steps that can help them to better weather erratic market behavior, especially now that market experts predict an increasingly bumpier ride in the near future.

I am sure you have read that several international experts have warned about a global economic slowdown – the International Monetary Fund included – and there is even talk about a recession in the USA. Trade tensions continue between the US and China; political risk is on the increase and debt levels remain elevated across global governments.

These challenges and the uncertainty it brings has led to volatility in worldwide equity, commodity and currency markets and falling bond yields, and the rising threat of interest rate hikes.

A high-quality approach is one of those investment strategies that seems smart, but only works well on certain occasions. It seems that occasion has arisen.

In industry jargon — quality has no single, strict definition. But the common traits are sturdy businesses or industries not reliant on a strong economy; high and resilient profitability; and strong balance sheets unburdened by debt.

Locally, Brenthurst Wealth has opted the use of more conservative asset classes. We have been reducing SA equity exposure and increased bond exposure in the form of income funds. Two major funds that Brenthurst have been using are; The Counterpoint Enhanced Income and the Mi-Plan Enhanced Income fund. We also have a low equity cautious fund namely the Brenthurst Cautious fund of fund where the local equity exposure is less than 10%. These funds are suited for investors with a low risk tolerance, that are redeeming income from their investments and the objective is to preserve capital with very low volatility.

Regulation 28 funds have underperformed severely the last five years due to the slow growth in the SA economy. Investors with retirement annuities and preservation funds could consider the following options. Either move their exposure to above income funds to more conservative asset classes or in certain cases to redeem and retire from these funds after the age of 55. Last mentioned option should be considered only for certain investors and aspects such as taxable income, total overall offshore exposure in their personal portfolios and tax consequences should be considered.

Offshore, there are several exchange-traded funds built to isolate quality stocks, here and abroad. Brenthurst Wealth launched its Global Equity ETF Fund late last year, the first SA-approved fund offering local investors exposure to the top index trackers in the world; including Vanguard, Black Rock and other global giants. It offers investors exposure to global stock markets at the lowest possible cost. The fund will become a central building block of our global investment portfolios.

In a dynamic investment universe, with increased global volatility and a stagnant local economy, Brenthurst Wealth is continuously adapting and innovating its investment offering to ensure we continue to offer value and new investment opportunities to investors, at competitive prices. We have been advocating a healthy exposure to foreign markets to local investors for more than eight years now and it continues to be a cornerstone of our investment strategy.

Depending on individual circumstances, we are strategically advising between 50% and 80% offshore allocation across discretionary portfolios, in some cases more. Once again, this will vary from one investor to another, based on their personal circumstances, risk profile and objectives. The primary reason for this bullish push abroad is the concentration risk the South African market poses to portfolios. The JSE is a tiny market, representing less than 1% of the global investable universe. Only 10 shares listed on the local bourse make up between 50% and 60% of the JSE All Share Index.

Taking money offshore offers access to a multitude of diverse industries, listed stocks, geographies and themes not available back home. And thus, access to much and many more quality companies and related investment schemes.

This “quality’ approach aims to provide low volatility returns by investing in attractively priced, high quality global businesses and investment products.

We aim to locate investment options with exposure to companies with strong and consistent track records with embedded identifiable strategies, low levels of leverage, strong management teams and good governance structures.

These are companies that have clear and trusted brands, are income-oriented and have high free cash flows, which we believe can compound shareholder wealth through many market cycles.

In times of uncertainty, the quality attributes we seek do not change. Rather, they provide the necessary ingredients for our companies to continue to compound shareholder wealth, and weather the storms the market will bring.

Brenthurst Wealth also launched a worldwide flexible portfolio in 2017, the Brenthurst Worldwide Flexible Fund of Fund. This fund is ideal for investors who want to increase their offshore exposure in local portfolios. This portfolio consists of a wide variety of asset swap funds and key holdings include, the Global Ip Opportunity fund, Investec Global Franchise fund and The Sygnia 4th Industrial Revolution fund. This is a very easy way to gain access to companies not available in SA and include, but not limited to, companies such as Amazon, Apple and Google.

There’s no way to know what the future holds for stocks or a particular segment but becoming more cautious could be the best strategy of all after the run-up of the past decade. Markets are confusing and the investment universe is vast.

It remains highly advisable to consult an experienced, qualified financial advisor to devise a strategy suited to an investor’s personal circumstances. Have a question for Johan Burger? Send email to johan@brenthurstwealth.co.za. For details of our offering, the location of our offices and our team visit our website here: Brenthurst Wealth

Trusted partnerships deliver results

By Brian Butchart, Managing Director and CFP®

Brian Butchart

Trust has always been an integral part of professional financial advice. But as disruptive technologies fundamentally change the way business is done, trust is increasingly becoming the trait that differentiates personal interaction from its automated counterpart and astute investors value this.

Furthermore, investors are more likely to trust an advisor when he/she believes their functional, emotional and ethical needs are being met. Especially if an advisor delivers on their objectives and has the investor’s best interest at heart.

Brenthurst Wealth has taken this a step further, and in another direction for that matter.

We are actively involved and familiar with every ventricle of the funds we invest our client’s money in, building professional relationships with the asset managers we select. The communication lines are open, the strategies are transparent, and we are united in our ultimate investment objectives.

This, we see as a strategic advantage, as it provides our advisors with insights that the average advisor does not generally have access to.

Whilst we may not always agree on the investment thesis, the debate is a critical extension of our intellectual armoury, adding further value.

We see the alignment of asset management and advisory services as a growing trend, as advisors take increasing responsibility for the outcome of investment decisions.

As such we need to have a thorough understanding of our asset managers’ positioning, in order to offer comprehensive advice. This is becoming increasingly difficult with large investment houses where access to decision makers is restricted and communication more generic.

Our close association with Momentum Global Investment Management (MGIM), Mi-Plan and Counterpoint Asset Management, for example, illustrates this clearly and the results speak for themselves.

MOMENTUM GLOBAL INVESTMENT MANAGEMENT

The Brenthurst Global Equity Fund, managed by MGIM since its inception in 2010, outperformed the median manager in its peer group1 by more than 4% over the last 5 years.

The recently launched Brenthurst Global Equity fund, managed by MGIM provides a unique opportunity to invest solely in international ETF’s and index trackers and is one of the most cost-effective global funds approved by the FSCA. The fund delivered stellar returns YTD and since inception just over a year ago.

MGIM has a stable, energetic investment team that understands what investors really need and provide a hands-on approach to Brenthurst with insight and accessibility to their process and research which is in turn conveyed to clients.

MI-PLAN

The Global IP Opportunity Fund2 and the Mi-Plan IP Global Macro Fund2 are managed by Mi-Plan and are Multi Asset flexible global funds, investing primarily in foreign markets. The objective of the portfolios is to achieve capital appreciation over the medium to long term and there are no limitations on the relative exposure of the portfolios to any asset class.

The investment case for us is their focused exposure to the world’s equity markets with the aim of achieving capital growth. We also appreciate their ability to tactically allocate to bonds, property and cash to exploit market conditions and mitigate risk, using diversification by investing across the world’s major exchanges.

The Global IP Opportunity Fund delivered exceptional returns and in a very competitive investment category, with the Mi-Plan IP Global Macro Fund winning the Best (South African- domiciled) global multi-asset flexible fund Raging Bull award for three consecutive years (2016, 2017 and 2018), beating more established and well-known asset managers in this category.
Global IP Opportunity Fund beat the MSCI World Index and JSE ALSI annualised over 5 Years:

Mi-Plan IP

Source: Financial Express

In addition, the local Mi-Plan IP Enhanced Income Fund2 used within our local strategy delivered stellar returns (11.95% over 12 months to end June 2019) beating money market and inflation by a handsome margin.

COUNTERPOINT ASSET MANAGEMENT

Similarly, our relationship with Counterpoint Asset Management is deeper than simply an advisor-asset manager, as we have a direct line to the fund managers and use Counterpoint’s acumen to provide our team with input in terms of asset allocation and investment opportunities. The boutique fund manager boasts a team of very experienced professionals and has delivered an impressive set of results for our clients over the past few years.

The full suite of domestic funds (Balanced, Fixed Income and Equity Funds) remain ahead of their peers, with the Balanced Plus Fund deserving special mention for achieving top quartile performance over 1 and 3 years annualised. Consequently, this year the Counterpoint SCI Cautious and Balanced Plus Funds have regularly featured in the widely read Corion Report, featuring in the top 5 performing funds in their respective categories over multiple periods.

Selecting and establishing professional relationships with these top performing asset managers have proved rewarding for both Brenthurst Wealth and its clients. We are, however, cognizant of the level of risk taken to achieve these results and are wary of managers that have outsized positions that yield impressive returns only to collapse once the position unwinds and therefore tend to focus on managers that consistently deliver.

Brenthurst is well aware of the current global risks posed to investment strategies and therefore value and will continue to build professional relationships such as these, to enable the successful navigation of extreme political, economic and market volatility with the objective of mitigating risk and delivering consistent long-term returns to clients.

* As independent advisors we select investment opportunities from the entire global investment universe across several providers, asset managers and geographies. The funds highlighted here are only a few of the well-established relationships used to construct portfolios; dependent on a client’s particular financial objectives and investment plan. Details about our offering and our team here: Brenthurst Wealth