nfb sensible finance magazine issue 24
DESCRIPTION
The NFB Sensible Finance Magazine, NFB's quarterly Personal Finance Magazine packed with articles relating to travel, investing, property, insurance, legal and other issues relevant to our everyday lives and finances.TRANSCRIPT
Eastern Cape's Community...
PERSONAL FINANCE
A FREE publicationdistributed Private Wealth Man gementby NFB a
p r i v a t e w e a l t h m a n a g e m e n t
Issue 24July 2013
NFB
PERSONAL FINANCEMagazine
Eastern Cape's Community...
WHOSE ESTATEIS IT ANYWAY?
key questions toask when doing
your estateplanning
WHOSE ESTATEIS IT ANYWAY?
key questions toask when doing
your estateplanning
WHOSE ESTATEIS IT ANYWAY?
key questions toask when doing
your estateplanning
REWARDS PROGRAMShow to make the most of them
REWARDS PROGRAMShow to make the most of them
REWARDS PROGRAMShow to make the most of them
HAVE I MADE SUFFICIENTPROVISION FOR
DEATH,DISABILITY &RETIREMENT?
HAVE I MADE SUFFICIENTPROVISION FOR
DEATH,DISABILITY &RETIREMENT?
HAVE I MADE SUFFICIENTPROVISION FOR
DEATH,DISABILITY &RETIREMENT?
p r i v a t e w e a l t h m a n a g e m e n t
contact one of NFB's :private wealth managers
East London tel no: (043) 735-2000 or e-mail: @nfbel.co.zainfo
Port Elizabeth tel no: (041) 582-3990 or email: @nfbpe.co.zainfo
Johannesburg 11 895 8tel no: (0 ) - 000 or email: [email protected]
Web: www.nfb .co.zaec
NFB is an authorised Financial Services Provider
fortune favours the well-advised
Providing quality retirement,
investment and risk planning
advice since 1985.
“The best way of preparing for the future is to takegood care of the present, because we know that ifthe present is made up of the past, then the futurewill be made up of the present.
Only the present is within our reach. To care forthe present is to care for the future.”
- Buddha
editorBrendan Connellan
ContributorsJulie McDonald (NFB East London),
Grant Berndt (Abdo & Abdo),
Lunga Nkonki (NFB East London),
Tiny Carroll (Glacier by Sanlam),
Bryce Wild (NFB East London),
Nicole Boucher (NFB East London),
Glen Wattrus (NFB East London),
Liberty Life, Shaun Murphy
(Klinkradt Murphy), Zuki Mbekeni
(NFB East London), Nina Joannou
(NFB Gauteng), Debi Godwin
(IE&T), Travis McClure (NFB East
London), Robert McIntyre (NVest
Securities)
AdvertisingRobyne Moore
layout and designJacky Horn DesignTA Willow
AddressNFB Private Wealth Management
East London Office
NFB House, 42 Beach Road
Nahoon, East London, 5241
Tel: (043) 735-2000
Fax: (043) 735-2001
E-mail: @nfbel.co.zainfo
Web: www.nfb .co.zaec
The views expressed in articles by
external columnists are the views
of the relevant authors and do not
necessarily reflect the views of the
editor or the NFB Private Wealth
Management.
©201 All Rights Reserved.3
No part of this publication may be
reproduced in any form or
medium without prior written
consent from the Editor.
sensible finance ED’SLETTERED’SLETTERED’SLETTER
1
Email your full name to @nfbel.co.za to subscribe toinfo
NFB's free economic electronic newsletters.
another aspect of our comprehensive service
sensible finance july13
Ph
oto
.co
ms
use
d in
th
is m
ag
azi
ne
- 1
23rf
a sensible reada sensible read
My usual eternal optimism tends to be balanced by the
realist in me and so it's not always a case of looking at the
world through rose tinted glasses; there are glaring realities
that are difficult to ignore. One of those realities for me is the
neglect that one sees on a daily basis and the seeming lack of
realisation that unless we maintain what is good, and build what we
lack, eventually things will implode, at which stage some quick
patch-up work will no longer be possible.
I refer to the deplorable state of our state hospitals, our tatty
beachfront (shouldn't it be our city's show point?) and decaying
CBD, mammoth potholes, our beleaguered public services, neglect
of parents for their own children (last night I received an email about
a young child that NFB have been sponsoring to attend school to
find out that she has been removed from her family owing to being
repeatedly molested by her brother and the father's view that child
protection should not have been contacted as it is quite the norm
for young girls to be abused in their area) to name but a few.
I recently decided to drive through Bhisho, having not been
there for a number of years. It was there that the reality struck me -
our current provincial leadership are certainly not going to be
making any improvements any time soon. One would expect that
they would ensure that the capital of the Eastern Cape was the
ideal model on which the rest of the province would be based, but
instead there is the same decay, the same litter on the doorsteps of
government buildings and generally the same disrepair.
However, there is hope too and there are the Lindiwe
Mazibuko's, Mamphela Ramphela's and Thuli Madonsela's of the
world that are pillars of strength and beacons of hope. There are
many others out there though, of all races and both genders who
are doing their bit to make this country the place we aspire it to be.
And we need to play our parts too – and not by being arm-chair
critics either!
With that said, don't exacerbate the problem by neglecting
your own finances. A comfortable retirement, and having well
managed finances takes planning and preparation. If you haven't
already, I'd recommend picking up the phone and chatting to one
of our financial advisors, or your financial future could end up
looking like the Bhisho CBD.
Brendan Connellan - Editor and Director of NFB
SENSIBLE CONTENTSSENSIBLE CONTENTSSENSIBLE CONTENTS
nfb sensible finance July 2013July 2013July 2013
2
444
141414888
202020
sensible finance july13
4 REWARDS PROGRAMSAre you making the most of them? By Julie McDonald, Financial Paraplanner - NFBEast London.
6 PAYING FOR POOR SERVICE DELIVERYA blow to many rate payers. By Grandt Berndt - Abdo & Abdo.
7 COSTS OF PROVIDING FOR YOUR CHILDREN'S EDUCATIONHaving a plan in place is a must. By Lunga Nkonki, Trainee Financial Paraplanner - NFBEast London.
8 WHOSE ESTATE IS IT ANYWAY?Key questions to ask when doing your estate planning. By Tiny Carroll, FiduciarySpecialist - Glacier by Sanlam.
9 INVESTING THROUGH UNIT TRUSTSUseful, flexible, affordable. By Zuki Mbekeni, Trainee Financial Paraplanner - NFB EastLondon.
10 BY THE TIME YOU “MISS” ADVICE, IT IS TOO LATEBe fully informed about the “do's and don'ts” of insurance. By Barry Taylor, Chair ofShort term Insurance Executive Committee of the FIA. Source: Cover Magazine.
11 MEDICAL TAX CREDITSThe new system ensuring equality across the tax brackets. By Nicole Boucher, TraineeFinancial Paraplanner - NFB East London.
14 HAVE I MADE SUFFICIENT PROVISION FOR DEATH,DISABILITY AND RETIREMENT?By Glen Wattrus, Private Wealth Manger - NFB East London.
16 LIBERTY'S LIFESTYLE PROTECTOREnhancements which add affordable customisation to income protection.Contributed by Liberty.
18 THE TAX ADMINISTRATION ACTA summary. By Shaun Murphy - Klinkradt Murphy.
20 IS IT TIME TO LOOK OFFSHORE?Looking attractive to the local investor in terms of potential returns. By Bryce Wild,Trainee Financial Paraplanner - NFB East London.
21 RETIREMENT INVESTMENTSAn integral part of an investment portfolio. By Nini Joannou, Trainee Financial Advisor -NFB Gauteng.
24 DIVORCE ORDERS AND RETIREMENT SAVINGSAn explanation of the “clean-break” principle. By Julie McDonald, FinancialParaplanner - NFB East London.
25 CALLING ALL NEW PARENTSAdd your Will to your “to do” list today! By Debi Godwin, Director - IndependentExecutor & Trust.
27 Q &A.You ask. We answer. Advice column answering your investment, personal finance, lifeand/or risk insurance questions with Travis McClure, Private Wealth Manager - NFB EastLondon.
24 GET INTO INTUA look at this rand hedge company. By Rob McIntyre, Portfolio Manager - NVestSecurities.
4
So you go to the gym, have regular health
checkups and do assessments online in
order to improve your status on the many
wellness and rewards programs available
such as Discovery's Vitality and Momentum's
Multiply.
But the question is - are you taking full advantage
of the rewards that they offer?
Wellness programs provide tools; information
and incentives to adopt and maintain a healthy
lifestyle, so why not take advantage of these
incentives?
Besides the reduction in your life premiums and
the paybacks on offer from Discovery and
Momentum there is whole world of rewards on
offer!
For example if you are on Discovery Vitality,
have you taken advantage of the extra cash-
backs available from Clicks by activating your
Healthy care benefit? Received your cash back
from buying healthy foods at Pick'n Pay with the
Healthy Foods Benefits? Do you enjoy the lower
movie price at Ster-Kinekor? Have you taken
advantage of the great savings available when
travelling?
Example: on Discovery Vitality and planning a
trip to Thailand? Take advantage of the discounts
along the way! Get in shape for the trip first by
working out at Virgin Active. Get magazine
subscriptions via Vitality Mall giving you reading
material for your trip and buy all your travel
necessities from Clicks. You could fly to
Johannesburg with Kulula, rent a car from Europcar
for the day and stay over at a Southern Sun hotel.
You could then fly with Emirates to Thailand and if
you have the Discovery Card and your
accommodation is booked through World Leisure
Holidays, your whole holiday is sorted every step of
the way with vitality discounts ranging from 5% to
50%. A sure reason to improve your Vitality status!
Having a baby? The Baby benefit offered by
Vitality gives you a free goodie bag with discount
coupons for all those necessary baby items.
If you belong to Momentum Multiply do you
know that you can take advantage of the flight
discounts on Virgin Atlantic and enjoy being royally
treated at Bidvest premier lounge at a discount
while waiting for your flight? While on a business trip
or holiday, look at staying, at a fraction of the
price, at a Protea Hotel or Citi Lodge. There are
great discounts on a wide selection of magazine
subscriptions for the whole family including the
Getaway, Popular Mechanics, Ideas, FinWeek,
House & Garden, Complete Golfer and National
Geographic Kids.
Looking for a great gift? Utilize the discounts by
buying some books, DVD's and CD's online with
Kalahari. For the sports lovers, discounts are
available on certain cricket match tickets.
Wellness programs really do offer an extensive
range of benefits for the whole family.
Remember that increasing and maintaining your
status on the various wellness programs is not
difficult to do:
1. Do a few online assessments
2. Have your health checkups and
3. Have a fitness assessment / keep active and
enjoy the wide range of rewards on offer!
Besides all the discounts and savings, the
underlying benefits such as death, disability and
severe illness by the likes of Discovery and
Momentum are comprehensive and top quality. By
using these wellness programmes and your savings
in premium, you can also look to increase your risk
benefits while at the same time getting some value
back from what is often felt is a grudge payment.
Contact your Private Wealth Manager for more
details on how to enjoy these rewards and improve
your benefits.
Rewards programsRewards programsare you making the most of them?
By Julie McDonald B.Com, CFP®
Financial Paraplanner - NFB East London
sensible finance july13
POORPAYING FOR
SERVICEDELIVERY
SENSIBLE SERVICESENSIBLE SERVICESENSIBLE SERVICE
SERVICE
In the previous edition we commented on a
case, then before the Constitutional Court,
where a Mrs Rademan, a member of the
Moqhaka Ratepayers and Residents Association,
withheld her payment of property rates as a protest
against poor service delivery by the local
Municipality.
The formation of Ratepayers Associations and
the drive to withhold the payment of rates or
making payment of the rates portion of one's
Municipal account into the Association's banking
account, is well established.
The Moqhaka Ratepayers and Residents
Association declared a dispute with the
Municipality and Mrs Rademan withheld her
payment of rates. The Municipality then
disconnected her electricity, despite that portion of
her account being up to date. Mrs Rademan
obtained an Order from the Magistrate's Court
against the Municipality, where they were ordered
to reconnect her electricity. The Municipality then
took the matter to the High Court where the Court
agreed that they had the right to disconnect the
electricity for non-payment of property rates. Mrs
Rademan then took the matter to the Supreme
Court of Appeal where she again lost.
In the Constitutional Court, Mrs Rademan
argued that the Municipality was not entitled to
disconnect her electricity supply due to the
provisions of the Electricity Regulation Act, as none
of the grounds on which the Municipality may cut
off electricity in terms of the Electricity Regulation
Act were applicable to her. She maintained that
there was a conflict between the Electricity
Regulation Act and the Local Government:
Municipal Systems Act and the Municipality's Credit
Control and Debt Collection By-Laws, and that the
Electricity Regulation Act should override the
Municipal Systems Act.
The Constitutional Court found that the matter
dealt with a failure to pay property rates and not a
failure to pay electricity. The Electricity Regulation
Act deals with the supply of electricity on a
national level and gives the basis for termination of
electricity supply. The Municipal Systems Act, deals
with the supply and right to disconnect at a local
level and thus there is no conflict between the two
Acts.
The Municipality also maintained that in terms
of the Municipal Systems Act and its By-Laws, that it
was entitled to consolidate various accounts and
disconnect Mrs Rademan's electricity for non-
payment of the property rates component of the
consolidated account. The Court held that the
consolidation of an account means that the
different components of the accounts belong to
one account and one cannot pick and choose
which component to pay. Thus the Court upheld
the Municipality's right to disconnect electricity for
non-payment of property rates.
This judgment will be a blow to many
Ratepayers Associations who have been
advocating a rates boycott due to poor service
delivery. Unless one has proven in Court that
services have not been rendered, or rendered
poorly or inefficiently, one must settle one's
Municipal account or face the disconnection of
services.
A blow to many rate payers. By
Grandt Berndt - Abdo & Abdo.
6 sensible finance july13
POORPAYING FOR
DELIVERY
COSTS OF PROVIDING FOR YOUR
CHILDRENS' EDUCATION
SENSIBLE EDUCATIONSENSIBLE EDUCATIONSENSIBLE EDUCATION
With South Africa's unemployment rate
currently sitting at just over 25% and
numbers of unemployed youths growing
by the day, there has never been a better time to
think about the costs involved in ensuring your child
doesn't fall victim to circumstance, anchoring them
down to the growing census of the unemployed.
The national unemployment figure, however,
does not reflect the full grimness of the picture.
When you consider how many people currently
have a matric certificate and yet are unemployed,
the figure clocks in at an alarming 27% which sits
roughly at 2% above the national average. So it
becomes interesting to note that the need to
provide for your child's education extends right
through to some level of tertiary education, not just
basic schooling, so as to increase their
employability, thus lessening the financial burden
on yourself as you approach retirement age.
While parents want to provide the best form of
education, the rising cost of education is putting an
increasing strain on family finances. Figures from
Stats SA show that the cost of education has
increased well above that of ordinary inflation.
Since 1990, inflation for day-to-day living expenses
has climbed by about 7% per annum. Education
costs, however, have increased by 13% per annum
over the same period. Meaning if your salary
increased in line with inflation, which is a
reasonable assumption, you would be around 6%
short each year in terms of providing adequate
funding for your child's education.
Here are a few ways to go about lessening the
financial load:
Have a structured savings plan in place: it is
important to start early and to stay committed to
the cause. Also important to keep in mind is
education inflation when considering the growth
rate that the particular savings vehicle offers. If you
are saving for 5 or 10 years before you will need the
money, ensure that you invest in a fund that will
grow faster than the increases in school fees. Very
vital that you entrust your savings to well- managed
corporations.
Set realistic goals: it is extremely difficult to pay
for your child's secondary or tertiary education in
full. Rather focus on targeting the gap between
your salary increases and increases in school fees.
In other words, have savings to supplement school
fees. Important to cater also for the jump in school
fees when your child moves into high school as the
difference in fees between primary and high
school can be as much as 20%.
Determine the total cost of education today:
remembering to include all costs such as travel,
study material, pocket money and boarding if
applicable.
Make use of government initiatives: there are
initiatives in place provided by government to
enable you to save for or fund your child's studies
towards an accredited qualification at either a
public college or university; Fundisa and the
National Student Financial Aid Scheme (NSFAS)
being prime examples of such.
Study loans: not the most attractive form of
action, but can be necessitated by circumstance.
Parents can assist by paying off the interest portion
each month so that when the child graduates they
only have to pay off the capital and not the
accumulated interest.
Today, more than ever, affording your child's
education requires active planning, diligence and
commitment. By having a plan in place, you can
find a way to put the money away.
Should you need assistance with your plan or
need more information on how to save for your
child's education, contact one of NFB's Private
Wealth Managers.
7
COSTS OF PROVIDING FOR YOUR
sensible finance july13
CHILDRENS' EDUCATIONHaving a plan in place is a must. By
Lunga Nkonki, Trainee Financial
Paraplanner - NFB East London.
Whose estate is it anyway?
An estate planning process involves
aligning your estate planning instruments
for your benefit during your lifetime and
the benefit of your ultimate beneficiaries.
These are some of the key questions you should
be asking yourself when doing your estate
planning:
1. Do you have a strategic estate plan in place?
Does the plan meet the long-term wishes you hold
for your estate? Is the plan flexible enough to allow
you to change the structure should your
circumstances change?
2. Do you have a signed and up-to-date will?
This is the pivotal point of a successful estate plan.
A will must express your wishes, be valid, signed
and up-to-date. It can only deal with your personal
assets; it cannot deal with trust assets.
3. Is “my” family trust at risk?
Trustees are required to:
~ give effect to the provisions of the trust deed
~ perform their duties with care, skill and diligence
which can be expected of a person who manages
the affairs of another
~ exercise their discretion with the necessary
objectivity and independence.
Often in family trust situations these
requirements are ignored. The control, ownership
and benefits become so mixed up that there is no
trust and the risk exists that the trust assets actually
vest in the “planner/client” thereby doing away
with most of the benefits of the trust as an
instrument in your estate planning.
Experience has shown that the validity of
almost 80% of trust deeds can be questioned.
Trustees have often not kept pace with current
legislation or the trust has not been properly
established. Often, the planner or client has been
given too many powers, taking away from the
independence of the trust. It is always advisable to
submit the trust deed for a full legal audit.
At Glacier, we see many cases where a trust
has not met with the necessary requirements. As a
result assets have been attached by creditors or
taken into account for division on divorce. Using
the services of a professional trustee, with the
relevant experience and qualifications, helps
mitigate this risk. A professional trustee will be able
to guide the decision-making process, bring
independence to the trust deed decisions and
provide guidance with regard to record-keeping.
4. Are my buy & sell agreements going to protect
my family?
Research shows that 75% of buy & sell agreements
don't work to the benefit of the client. Typical
problems include agreements not properly signed,
agreements in conflict with a client's will, or in-
community of property marriages not taken into
account.
5. Are my policy beneficiary nominations up to
date?
It's important to note that nominating a beneficiary
can save on executor's fees, but won't save on
estate duty (as the policy still forms part of the
estate).
6. Have I made sufficient provision for liquidity?
An estate plan should also provide for expenses
incurred in winding up the estate, to prevent
dependants having to sell off assets to meet these
expenses. A life assurance policy is a reliable and
convenient way to provide for liquidity within the
estate.
7. How will my retirement fund benefits be dealt
with?
Whilst you are still a member of a retirement fund
you can nominate a beneficiary, but you need to
make sure that you know how the benefits will be
dealt with in terms of the fund rules.
8. Will my family know what to do in the event of
my death?
Make sure that you, your spouse and family build a
relationship with a good financial adviser who will
be able to walk a surviving spouse through the
financial intricacies of the death of a family
member. Also make sure that your family knows
where to access a copy of your will.
8
SENSIBLE PLANNINGSENSIBLE PLANNINGSENSIBLE PLANNING
Key questions to ask when doing your estate
planning. By , Fiduciary Specialist -Tiny Carroll
Glacier by Sanlam.
Whose estate is it anyway?
sensible finance july13
Investing Through
Unit TrustsUseful, flexible, affordable. Zuki MbekeniBy , Trainee
Financial Paraplanner - NFB East London.
SENSIBLE DIVERSIFICATIONSENSIBLE DIVERSIFICATIONSENSIBLE DIVERSIFICATION
Investing Through
9
Unit Trusts are investments in which investors'
funds are pooled and managed by
professional managers. They are useful
products that cater for individuals of different
financial capacity and various financial goals at
different stages of life. Whether you want to save up
for an overseas trip, your child's education or more
importantly, to attain long term capital growth to
fund your retirement, there will be a unit trust or a
combination of unit trust funds suitable for you.
Unit trusts are different from money market
bank accounts, as they do not offer a set rate of
interest at any given time. They introduce 'savers' to
the world of 'investing' by bringing in the element of
market risk. Unit trust products offered on the
market have different levels of market risk which
depends mainly on the underlying asset classes
that the unit trust holds. In most instances, greater
risk is rewarded by greater return over the long
term. Investors should, however, be prepared for
the possibility of losing some value in their
investments in the shorter term periods if invested in
unit trust funds of an aggressive nature.
There is a vast range of unit trusts. Some invest
in different geographical locations, some in
different market sectors. Others specialise only in
certain sectors, like property stocks, resource
companies, small market capitalisation companies,
or corporate bonds. As the phrase of “putting all
your eggs in one basket” suggests, funds that
specialise in one area of the market tend to be
high risk funds, depending on the underlying assets
held. This is because a negative impact in the
economic drivers of that particular asset class will
inevitably result in the poor performance of that
specialist unit trust. Unit trusts that invest in different
sectors and asset classes are seen as taking on a
more balanced view and a medium risk approach,
as the performance of the unit trust does not rest
on the health of one aspect of the economic
environment.
Unit trusts are safe
investments. They are regulated by
the Financial Services Board. The Collective
Investment Schemes Control Act requires that all
investments in a unit trust be kept separate from
the assets of the management company. Daily
transactions are closely administered by the unit
trust fund trustee to safeguard investors'
investments from mismanagement by the asset
management company.
Investing in a unit trust is flexible and
affordable. Investors have the option of making ad
hoc lump sum investments, and/or investing
through a monthly debit order. A unit trust
investment can be started with a minimal monthly
or lump sum amount that may be stopped and
resumed at any time. Should the need arise,
investors may also make withdrawals from their unit
trust investment.
A financial advisor can add value by helping
investors identify the appropriate unit trust portfolio
to achieve financial goals without taking on
unnecessary risk. Once an investor commits to an
investment, it is advisable and most rewarding to
practice discipline by staying invested for at least 5
years. This gives the capital invested the
opportunity to grow to a significant figure.
DID YOU KNOW:
· R1 000.00 invested monthly in a moderate return
fund of 8% p.a. for 30 years will grow to
R1 192 288.00.
· Balanced funds of three top fund managers have
averaged a return of 19% over the last 10 years.
Should you require further information on investing
in unit trusts contact one of NFB's Private Wealth
Managers on 043 – 735 2000.
sensible finance july13
Unit Trusts
The Court upheld the direct insurer's decision
to repudiate a claim for R609 000 for accident
damage to an Audi R8 Quattro on the
grounds that the insured, Sherwin Jerrier, had
failed to notify Outsurance of two previous
accidents events. Jerrier self funded R15,000.00 for
a wheel replacement in April 2008 and a further
R200,000.00 in accident damages in April 2009, but
in each case, chose not to lodge a claim nor report
the incident to his insurer.
This case delves into the insurance concepts of
materiality and disclosure, and again highlights the
importance of contracting for insurance with the
assistance of an intermediary. Insurance brokers
are an essential link in the communication process
between consumers and insurers; they possess the
necessary skill and experience to advise consumers
to disclose events that may have an impact on
their insurance premium, whether from a claims
history perspective or due to increased moral risk.
The events following on from the Court decision
indicate how quickly damage can be done to the
image and reputation of the short term insurance
industry. National treasury has already indicated its
desire to meet with the South African Insurance
Association (SAIA) to ensure that the Court decision
will not negatively impact on other insurance
clients. Although Treasury's concerns are valid, we
should not lose sight of the fact that the domestic
short term insurance industry protects the personal
assets - motor vehicle and household contents - of
millions of insured South Africans.
Sound financial advice could have keptthis out of the courtroomThe material non-disclosure finding of the high
Court should not be misrepresented as an injustice
to consumers. All insurance clients should learn a
positive lesson from this case. To be fully informed
about the Do's and Do Not's of insurance, you
need a registered and qualified intermediary.
You should discuss accident or damage events
involving your insured property with your insurance
advisor whether you decide to claim or not - and
no matter how insignificant you believe the
incident to be. Your intermediary will be able to
advise you on appropriate action, including
notifying the insurer. More importantly, you should
always transact for insurance with the assistance of
an independent financial intermediary. You do not
appreciate the value of good advice until disaster
strikes.
Educating consumers on disclosureThe Jerrier versus Outsurance case confirms that
the insurance industry still has some way to go with
regards educating consumers on disclosure. It is our
view that the mandate and relationship between
an intermediary and his/her clients go a long way
towards preventing confusion and uncertainty
where an insurer's disclosure requirements are
concerned. The regulatory requirements
introduced by the FAIS Act already require that
intermediaries interact with their clients in a
professional manner, including conducting a
proper needs analysis and giving specific product
and service advice. These requirements do not
currently extend to the non-intermediated
segments of the market, but hopefully the Treating
Customers Fairly (TCF) will address the shortcoming.
Earlier Ombud rulings have suggested that the
unroadworthy state of a vehicle may not be the
cause of the loss or damage, and the claim could
therefore not be repudiated. We are talking about
different principles - on the one hand, disclosure
and materiality of disclosure versus causality on the
other. What policyholders should be made aware
of are the conditions contained in their policy and
the duty of due care that they assume for the
assets insured on the policies. If the insured assets
are not kept in a good state of repair, this could
prejudice the consumer in the event of a claim.
Once again, this raises the issue of what the
individual policy wordings require of the
policyholder, with some requirements being more
onerous than others. It begs the question: Where
does the consumer get the proper guidance and
advice, if not from an intermediary?
SENSIBLE ADVICESENSIBLE ADVICESENSIBLE ADVICE
Be fully informed about the “do's and don'ts” of
insurance. By Barry Taylor, Chair of Short term
Insurance Executive Committee of the FIA.
By the time you advice, it is too late'miss'
Source: Cover Magazine
i n s u r a n c e b r o k e r s ( b o r d e r ) ( p t y ) l t d .
MEDICAL TAX CREDITS
11
The new system ensuring equality across the tax brackets. By Nicole
Boucher, Trainee Financial Paraplanner - NFB East London.
SENSIBLE SAVINGSSENSIBLE SAVINGSSENSIBLE SAVINGS
MEDICAL CREDITSTAX
Contributing to a medical aid scheme is
seen as an unnecessary expense to many.
Some individuals pay a couple of thousand
rand per month and don't use their medical aid at
all. There are hospitals and clinics that one can visit
and not have to pay, so why contribute hard
earned income to a medical aid scheme?
Being able to go to a private hospital is seen as
something that only the wealthy can do, due to
the high premiums charged on medical aids. There
are, however, cheaper options that are offered by
companies that work according to income levels,
thus making it more affordable to lower income
earning individuals.
So, as a means of encouragement – I'm sure -
the government gives a form of tax relief to
individuals who contribute to medical aid schemes
because this takes the pressure off of the
overcrowded government hospitals.
Previously the tax benefit on medical aid
schemes benefited the higher income earners as
the amount of tax relief was calculated according
to an individual's marginal tax rate. With this tax
system, a monthly tax deduction of R720.00 each
for the first two members and then R440.00 per
additional beneficiary was allocated to a tax
payer. Someone (with his spouse and say two
beneficiaries) would receive a monthly tax
deduction of R2,320.00. This would then be subject
to the members' tax rate. Therefore, an individual
with a 40% tax rate would get a higher tax benefit.
This was seen as “the rich get richer”; therefore,
from 1st March 2012 the MEDICAL TAX CREDITS
system was implemented, for taxpayers below the
age of 65, to achieve greater equality. For
taxpayers above the age of 65 the old tax system
applies. However, from 1st March 2014 they will
convert to the new tax credit system.
Under the new system, a monthly tax credit of
R242.00 each for the first two members and R162.00
per additional beneficiary will be allocated to the
tax payer. This means that someone who (with his
spouse and say two beneficiaries) belongs to a
medical aid scheme will be allocated a total credit
of R808.00. This credit will be the same irrespective
of the taxpayers' marginal tax rate.
If you are below the age of 65, in addition to the tax
credit, you will be granted a deduction based on:
� A deduction in respect of contributions made
by you that exceeds four times the medical tax
credit determined.
� A deduction in respect of contributions and out-
of-pocket medical expenses paid by you – all
contributions as exceeds four times the medical
tax credit as determined and other medical
expenditure not recoverable from the medical
scheme that, in aggregate, exceeds 7.5% of
your taxable income. The out-of-pocket
expenses include:
� Payments to medical practitioners, nursing
homes and hospitals
� Payments to pharmacists for prescribed
medicines
� Payments for physical disabilities, including
remedial teaching and expenditure incurred
for mentally handicapped persons.
It is clear when we compare before and after that
the higher income earners benefited with the
previous tax system. The new Medical Tax Credit
System ensures that everyone gets the same
subsidy from the state with regards to their medical
contributions.
FYI – the 1st July 2013 is the start of the 2013
Personal Income Tax Filing Season.
sensible finance july13
There is never an easy answer to the question
as there are so many factors that need to be
taken into account when arriving at a
possible solution. Furthermore, this answer is
never a line in the sand as a multitude of factors
influence the outcome and the end result is a
shifting goalpost. There is never a once-size-fits-all
answer, but I will visit a number of aspects that I
would take into account when trying to provide a
client with an answer at that particular point in
time. Ideally, one's financial position should be
revisited every two years to ensure that any
intervening factors have not significantly altered
your planning.
To arrive anywhere near a satisfactory answer,
a client would need to do a fair
bit of homework on nett
amount required to live
according to their lifestyle on a
monthly basis, preferably after
taking income tax and medical
aid into account. In my
calculations I prefer to exclude these two: tax for
obvious reasons, but medical aid is excluded as the
inflation rate on this grudge purchase is significantly
higher than the usual rate of inflation. A recent
article in this publication highlighted the silent killer
that is inflation, but even more so inflation on
medical expenses. A 2% variation over a life span
of 30 years for medical aid needs has a
mindboggling effect on the end result of capital
required. Thus a client would need to do a detailed
analysis of expenses such as bond repayments,
education requirements, rates and taxes, as well as
water and electricity, groceries, travel and
entertainment, tithes and any other expenses
beyond the obvious.
14
Have I MadeSufficient Provision
for Death,Disability and
?Retirement
Have I MadeSufficient Provision
for Death,Disability and
?Retirement
Ima
ge
cre
dit: 123R
F S
toc
k P
ho
to
The heading to this article is a
question often posed to
financial planners, often
expecting an answer
based more on a hope
than one based on
facts. GlenBy
Wattrus, NFB East
London, Private
Wealth Manager
sensible finance july13
Morbid as it may sound, is the easiestdeath
aspect for which to plan and the easiest to
implement. One merely needs to establish the level
of cover required and then shop around for the
most appropriate quote. costing, overLife cover
time, has become progressively more competitive
and a policy that was purchased 10 years ago
may be significantly more expensive than one sold
at current rates. Be aware, though, that premiums
may escalate at a higher rate than the original
policy and there may be exclusions relating to
certain medical conditions.
Disability is somewhat more problematic to
address as it would encapsulate ensuring that any
monthly income does not exceed 75% of what the
client was receiving prior to becoming disabled.
This is an industry-related matter and is basically
implemented to “disincentivise” (if there is such a
word) people from claiming to be disabled and
being in the same position as if they were working.
The level of capital disability required would only
be realistically ascertainable when the client's
special needs have been determined after the
disabling event. For instance, a specially adapted
vehicle may be required or alterations made to the
home to accommodate any physical needs.
Certainly in cases like these it is better to prepare
for the worst, but trust for the “best”. Although
strictly speaking provision does notdread disease
fall into this category I would urge every reader of
this article to seriously consider adding this cover to
their policy. Yes, it is usually frightfully expensive, but
one should bear in mind that this type of cover is
usually unobtainable after a dread disease illness
has surfaced, or it is available at prohibitive rates
thereafter.
The final aspect to consider, and certainly the
most problematic, is ensuring that one has made
sufficient provision for the years or, ifretirement
those are already upon you, to ensure that they
are sustainable for the remainder of your life. How
often does one hear that the answer to a happy
retirement devoid of worry is Property, Property,
Property.............This may well be true if the person
making the statement has a particularly large
property portfolio that is well diversified across
office, commercial and possibly residential areas,
but no asset class can claim to be devoid of risk.
Particularly in the residential market there is a
particular risk of a tenant defaulting on payments
and upkeep of this class of property is usually more
intense than the other types. In our planning we do
favour property exposure, but certainly in a
diversified asset class offering instead of in an
exclusive one. Along with property we would prefer
our client has exposure to asset classes that offer a
good income stream, along with the probability of
an increase in capital value should the client be a
retiree.
How then should we approach retirement
provision for the client in the accumulation phase
of their life? Number-crunching can lead to a
feeling of despair when the client looks at the
“here” picture and sees how much capital is still
required to get to a position where a sustainable
income can be expected upon retirement.
Inflation and expected returns are assumptions,
nothing more than that, in planning for the future.
One should view any answer to the question posed
at the beginning of this article as a starting point to
achieving the respective goals. More often than
not the amounts required may seem unachievable,
but start with whatever is possible in terms of your
budget and make a concerted effort to cut out
any unnecessary expenses. Older clients will be
familiar with the term “a penny saved is a penny
earned” and this is particularly apt in the area of
financial planning where the effects of compound
interest are most evident. Remember that
knowledge is power and it is crucial that you know
where you stand in terms of your financial planning
and do something about it rather than fear where
you may be and avoid the issue as best you can as
you are certain that you will not like the answer.
To obtain clarity on your position please talk to
your NFB financial advisor.
sensible finance july13 15
Tax Administration Act, 2011(Act No. 28 of 2011)
A summary. Shaun MurphyBy - Klinkradt Murphy.
The Tax Administration Act came into operation
on 01 October 2011 and the purpose of the act
is the effective and efficient collection of
revenue for SARS.
The Act only deals with tax administration and
seeks to regulate the administration of all tax Acts
by simplifying administrative provisions between the
tax Acts into a single Act. It removes duplication
and aligns the various obligations that currently
exist in the different tax Acts. These tax Acts
include, among others, the Income Tax Act, 1962;
Value-Added Tax Act, 1991; Transfer Duty Act,
1949; and Estate Duty Act, 1955. The taxpayer may
be familiar with many of the provisions contained in
the Act as it refines and modifies a number of
provisions that were contained in other tax Acts
and it introduces various new provisions. It is easier
for a taxpayer to fully comply with law he or she
understands.
The Act also strives to promote a better
balance between the powers and duties of SARS
and the rights and obligations of taxpayers, which
would greatly contribute to the equity and fairness
of tax administration. If taxpayers perceive and
experience the tax system as fair and equitable,
they will be more inclined to fully and voluntarily
comply with it.
It is important that taxpayers and SARS officials
alike are aware of the provisions of the Act so as to
ensure that the provisions of the Act are complied
with. It is provided that SARS is responsible for the
administration of the Act under the control or
direction of the Commissioner. The burden of proof
generally lies with the taxpayer. The Act intends to
ensure that every person pays his or her fair share
by enhancing tax compliance. It is important to
ensure that a person's tax affairs are kept in order
to avoid any penalties that SARS may charge.
Where a taxpayer has understated their tax liability
to SARS, they will incur an understatement penalty,
which would be in addition to the tax payable. For
the understatement penalty percentage, please
see the table below.
Should a taxpayer believe that he or she is
aggrieved by an assessment issued by SARS, they
have a right to dispute it. There is legal framework
for these disputes across all tax types found in the
relevant tax Acts and requirements to follow to
ensure the dispute remains valid.
The Act also contains a permanent voluntary
disclosure programme whereby taxpayers can
approach the Commissioner to rectify previous
defaults under various tax acts. However, taxpayers
will still be liable for interest due to SARS, and,
depending on their particular circumstances, may
remain liable for an understatement penalty.
Certain provisions contained in the Act do
enhance the protection of taxpayers' rights for the
compliant taxpayers by way of new, modified
administrative procedures which were not found in
the other tax Acts. However, with the introduction
of the Tax Administration Act, SARS's collection
powers have been significantly strengthened,
which highlights the importance of ensuring that
tax affairs are kept in order with SARS.
Based on the above Act, the taxpayer needs
to be doubly sure that their submissions for all taxes
have been done so with due care, of particular
importance would be your estimates of taxable
income for provisional tax. My advice would be if
you are responsible for the submission of any taxes
and something appears to be out of sorts in any
small way, contact your accountant to verify your
submission - the extra cost could land up saving
you substantially more in penalties.
For more information contact me on 043 7269555
or drop me an email at [email protected]
SENSIBLE SUBMISSIONSSENSIBLE SUBMISSIONSSENSIBLE SUBMISSIONS
Item Behaviour Standard
Case
If obstructive
or 'repeat
case'
Voluntary disclosure
after notification of
audit
Voluntary disclosure
before notification
of audit
(i)‘Substantial
understatement'25% 50% 5% 0%
(ii)Reasonable care not taken
in completing return50% 75% 25% 0%
(iii)No reasonable grounds for
'tax position' taken75% 100% 35% 0%
(iv) Gross negligence 100% 125% 50% 5%
(v) Intentional tax evasion 150% 200% 75% 10%
“Managing Success into the future”
Our services include:
Accounting • Auditing • Taxation PlanningEstate Planning • All Statutory Registration • Business Structuring
Concessions • Due Diligence • Business Succession Planning
Contact us on 043 726 9555 for all your queries.
partners: Gary Klinkradt ca (sa) and Shaun murphy CA (SA)
Is it Time to look ?Offshore
Positive sentiment has crept into the global
economy as the recovery from the 2008
financial crisis has started to gain
momentum. For anyone who has previously burnt
their fingers investing abroad or has only been
around long enough to catch the local equity bull
run of the past decade, the case for investing
offshore looks more promising than it has in a long
time.
Even though local equities and local property
have shot the lights out over the past decade
(giving investors returns of 21.4% pa and 25.6% pa
respectively), the general consensus fund
managers have reached, is that South African
equities are overvalued on a global basis. This view
is backed by the fact that the MSCI World Index
has beaten the JSE All Share Index for the past
three years and the number of JSE listings has also
been in decline. With other emerging markets
offering higher fundamental growth than South
Africa and developed economies offering better
value from an investment point of view, there is no
doubt that offshore investment is looking attractive
to the local investor in terms of potential returns.
Coronation predicts that the next decade will see
global equities giving investors returns of between
10% pa and13% pa, followed by local equity and
local property, both predicted to give returns of
between 7% pa and 10% pa.
It must be remembered that there are
essentially two drivers of offshore return: namely the
performance of the underlying asset class and the
movement of the Rand. Issues such as the growing
current account deficit, spiralling increases in petrol
and electricity prices, lower labour productivity and
higher wage demands, make the fundamentals of
the Rand weak and thus the chances are, that
over the long term, the Rand is set to depreciate
against other major currencies. This currency play
presents an opportunity to boost the returns
achieved from underlying asset classes.
Another major obstacle in the past has been
the effort required to obtain tax clearance, in order
to take funds abroad. Government addressed this
issue at the beginning of last year and now one
can invest R1 million per year outside South African
borders, without having to obtain a tax clearance
certificate.
As a developing economy (making up 0.7% of
Global GDP), we are extremely susceptible to
global capital flows, exogenous shocks and the
movement of money between a limited range of
industries and investment sectors. Applying the
principle of diversification, looking offshore makes
sense in more ways than one.
The most important decision an investor can
make is to choose an asset allocation that is in line
with their risk profile, especially as alpha becomes
critical in a low-return environment. If you are
needing assistance with making this decision or
require further information do not hesitate to
contact an NFB financial advisor.
Is it Time to look ?Offshore
Looking attractive to the local investor in terms of potential returns. By
Bryce Wild, Trainee Financial Paraplanner - NFB East London.
20
SENSIBLE RETURNSSENSIBLE RETURNSSENSIBLE RETURNS
sensible finance july13
Retirement Investments
ConsiderationsLiquidity:
Retirement assets are illiquid prior to age 55 thus there
should be sufficient liquidity elsewhere in a portfolio
before considering an investment into retirement
assets. Upon retirement, up to one third may be
withdrawn as a lump sum whilst the remainder will be
transferred to a living annuity to generate a regular
income for the annuitant (the investor).
Asset Allocation:
Retirement annuities are governed by Regulation 28 of
the Prudential Investment Guidelines of the Pension
Funds Act in terms of asset class exposure. These assets
cannot have an equity exposure of more than 75%, a
property exposure of more than 25% and a foreign
exposure of more than 25%. This limitation can easily be
managed in conjunction with your advisor. If necessary,
one could adjust other investments to set off the
impact of the Regulation 28 requirements.
Beneficiary Nominations:
Although the investment allows for nominated
beneficiaries, the fund has trustees who must sanction
these, giving consideration to other dependants of the
investor.
FeaturesCompounded Returns:
Retirement investments are not subject to any tax on
the growth generated by the underlying investment
portfolios. This means that there will be no income tax,
no capital gains tax and no dividend withholding tax
applicable. For the high net worth individual, this can
be translated into a 40% saving on income tax, a 13.3%
saving on capital gains tax and a 15% saving on
dividend withholding tax. Below is a simulated example
of a ten year investment of R5 million into a unit trust
and a retirement annuity. The underlying investment
portfolio and platform fee is identical for both
investments. This is solely the result of the favourable
tax treatment and the powerful impact of
compounding.
*The example assumes that there is a 40/60 split between
income and capital growth and that income, within the unit
trust, has been taxed on an annual basis at 40%.
Within the retirement annuity, the investor has
generated approximately R7.2 million more than within
the unit trust, which represents almost 145% of the
original investment.
Estate Efficiency:
Retirement assets are not subject to estate duty or the
associated costs on death. This translates into a 20%
saving on estate duty, up to 3.99% saving on executor's
fees and up to 13.3% saving on capital gains tax.
Revisiting the example we used previously, these
savings are illustrated as follows:
* The example assumes that the estate duty abatement of R3.5
million has already been used and that, within the unit trust,
capital gains tax has been applied at 13.32%.
The net value available to the investor's family is
approximately R14 million more in the retirement
annuity. The impact of the tax efficient compounded
returns as well as pro-active estate planning has thus
saved the investor approximately 280% of the original
investment amount.
What's next?New legislation has recently been promulgated which
will further enhance the impact of retirement
investments. The impact of these changes, in
conjunction with current practice, potentially
represents a material saving to you and your family. To
learn more about this exciting opportunity, please
contact your NFB Private Wealth Manager.
Retirement InvestmentsRetirement investments are an integral part of an investment portfolio.The rationale behind these investments has often been criticised, however,when their features and considerations are understood in conjunction witheach other, these investments are an enhancement when appropriatelystructured into a portfolio. By , Trainee Financial Advisor - NFB GautengNina Joannou
Year Unit TrustRetirement
Annuity
Investment R 5 000 000 R 5 000 000
1
2
3
4
5
6
7
8
9
10 R 23 406 484 R 30 624 927
Variables Unit TrustRetirement
Annuity
Original Value R 5 000 000 R 5 000 000
Value @date of death R 23 406 484 R 30 624 927
CGT -R 1 751 245 R 0
Executor’s Fees -R 933 919 R 0
Estate Duty -R 4 144 264 R 0
Net Value R 16 577 056 R 30 624 927
With the introduction of the 'clean-break'
principle when the Pension Funds Act was
amended in 2007, non-member spouses can
get access to their award of their ex-spouses retirement
savings (pensionable interest) as indicated in the
divorce order immediately after divorce. The non-
member no longer has to wait for the retirement
benefit to accrue to their ex-spouse, whether that
being on retirement or exit from the fund - which may
still be years away.
Pension Interest is defined as the following in the
Divorce Act:
In the case of a Pension Fund, Provident Fund or
Preservation fund:
The benefits to which a member would have been
entitled to had he/she withdrawn from the fund on the
date of divorce.
In the case of a Retirement Annuity:
The total amount of the member's contributions to the
fund up to the date of divorce, together with a total
amount of annual simple interest on those contributions
up to that date, calculated at the rate as imposed by
the Prescribed Rate of Interest Act. The maximum
simple interest may not exceed the fund return on the
pension interest assigned to the non-member spouse.
Because of the change in legislation and amendments
thereof, there are differing scenarios with regards to the
tax payable.
If your Divorce Order was granted/dated 13before
September 2007:
Date of deemed accrual:
� Accrual date is the date of deduction from the
fund.
� Date of deduction is the date of election by non-
member spouse to take cash or transfer to another
fund.
Tax position:
� If your ex-spouse elected to make a deduction
between 1 November 2008 & 1 March 2009, you
were regarded as the taxpayer. The divorce award
would have been taxed at your average rate of tax
and you could claim back the tax from your ex-
spouse.
� However, if the deduction was/is made after 1
March 2009, no tax is payable by either parties
which is a very favourable position.
If your Divorce Order is granted/dated 13after
September 2007:
Date of deemed accrual:
� Date of deduction from the fund.
Tax position:
� Where the deduction is made after 1 March 2009,
the non-member is the tax payer and the retirement
cumulative withdrawal table applies if a lump sum is
taken (see below)
� Upon retirement (after age 55) by the non-member,
if they took a lump sum, the taxed divorce award
would be aggregated with other lump sums
according to the retirement tax tables.
Taxable portion of Tax Rate
withdrawal
R0 – 22 500 0%
R22 501 – R600 000 18% on the amount over
R22 500
R600 001 – R900 000 R103 950 + 27% on the
amount over R600 000
R900 001 + R184 950 + 36% on the
amount over R900 000
� The non-member may transfer to an approved
retirement fund and such a transfer is tax-free
(which is recommended). And then on retirement
from age 55 onwards the cumulative retirement tax
tables would apply to all of their retirement
products.
Taxable Portion on Rates of Tax
lump sum
R 0 - R315 000 0% of taxable income
R315 001 - R630 000 R0 plus 18% of the amount
exceeding R315 000
R630 001 - R945 000 R54 000 plus 27% of the
amount exceeding R630 000
R945 001 + R135 000 plus 36% of the
amount exceeding R945 000
The GEPF (Government Employees Pension Fund) has
also recently been amended to make allowance for
the clean-break principle.
Therefore, if you currently have a divorce order
that still requires a portion of your retirement savings to
be given to your ex-spouse this can be done now: a
'clean-break'.
Remembering that if your retirement savings have
been reduced by a divorce order against it, this could
leave you with less than sufficient retirement savings
when you do retire and therefore you would need look
at additional retirement savings.
RETIREMENT SAVINGSAn explanation of the “clean-break”
principle. Julie McDonaldBy , Financial
Paraplanner - NFB East London.
DIVORCE ORDERS AND
CALLINGALL NEWPARENTS
CALLINGALL NEWPARENTS
Add your Will to your “to
do” list today! DebiBy
Godwin, Director -
Independent
Executor
& Trust.
So you were probably woken up far too early,
struggled to find something to wear that
wasn't covered in baby dribble and now
there is the “to do list” to tackle that just keeps
getting longer. With small children there are not
enough hours in the day to get things done (at
least while they are asleep), but if you add
anything new to your “to do list” it must be to
ensure you have wills in place which provide for
your family, especially your children, if anything
should happen to you.
First it is important that your children are
named as beneficiaries in your will and it is natural
that, subject to making provision for your spouse,
your children are next in line to inherit. If you have
children from a previous relationship then we can
advise you how best to provide for all of your
family.
Another important factor to consider is the
appointment of guardians to look after your
children when you cannot. If both mother and
father have parental responsibility for the child,
then the survivor of them would continue the
parental role. But you should consider who you
would like to appoint as guardians should
something happen to both of you.
Guardians can be an awkward topic. You
may have a strong preference as to who you
would rather care for your children. By appointing
guardians you make known your wishes. But don't
forget to discuss it with your proposed guardian
first, to ensure that they are willing and able to take
on the role!
Wills are not always a subject that younger
people automatically think of, particularly when
they are busy raising a young family. However, it is
important and when it is done it will give you
peace of mind.
So go on, add it to your “to do list” today.
SENSIBLE TO DOSENSIBLE TO DOSENSIBLE TO DO
49 Beach Road, Nahoon, East London, 5241 | PO Box 8081, Nahoon, 5210
Telephone: Fax: ( ) | e-mail:(043) 735 4633 086 693 3356 / 043 735 3942 [email protected]
At Independent Executor Trust we are committed to personalized service and&
individual attention. With combined experience of 65 years, we specialize in the
Drafting of Wills, Administration of Estates Testamentary Trusts.&
sensible finance july13 25
27
Q: I realise that not every asset class performs the
best each year, but what asset class has been the
most consistent performer over the longer period?
Does it pay off to just choose a well balanced
portfolio or should one try and pick the asset class
winners each year?
A: A tough question to answer. It is always easy
looking at yesterday's winners, but much more
difficult to pick the winners of the future. Having
had a look at asset class performances over the
past 10 years it is clear that each year is different
and often the winners of last year are the losers of
the next year.
One theme that does ring true through these
periods is that a diversified portfolio will give you
the most consistent returns. It will never be the top
performing asset class, but it has also never been
the bottom. Over the past 10 years of data of year
on year returns, SA Real Estate (Commercial listed
property) and SA Equities have dominated the top
spots. This is no surprise as SA has experienced a
bull market in both these assets. It is not always the
case, however, as often the second position is
another asset class like bonds or cash. A case in
point would be 2008 when Inflation and SA Cash
were the top two performers with SA Real Estate at
the bottom with a negative 15.7% return.
The last 2 years we have seen foreign equities
make a comeback and the top spot is occupied
by Foreign Equity for 2013 with a return of 48.8%.
Over the past 5 years and 10 years it has been SA
Real topping the charts with returns of 19% and 21%
p.a. respectively. SA Equities would have given you
a similar return over the 10 years. A Balanced or
Diversified portfolio would have come in third and
given you on average around 11% and 14% p.a.
over 5 and 10 years. This return is well above the
inflation and cash returns which averaged closer to
6% and 7%.
A diversified portfolio will also give you good
returns at a much lower risk or volatility than an
equity portfolio. There are some excellent fund
managers who have achieved even better returns
with their portfolios than the average diversified
fund. These portfolio managers are able to actively
manage their portfolios within a risk mandate that
suits the client. This allows them to take advantage
of the opportunities that the various asset classes
provide. In a bear or risky market they can allocate
more funds to more stable assets like cash and
bonds. In an environment when things are going
well they can take advantage of equities and
properties. These mandates restrict the manager
from being too aggressive in any one asset class
and therefore ensure that returns are less volatile.
Looking at data from Prudential (source: I-Net
Bridge) over the past 30 years, equities have given
the best real return (the return over and above
inflation) at 7.7% p.a., but this also comes with the
highest Standard Deviation or risk at 20.2%. Property
would have given you 6.6% p.a. at a Standard
Deviation of 19.1%. It is interesting to note that
Residential Property has only given a real return of
0.7%. Gold would have given you 2.6%, but with a
Standard Deviation close to equities at 18%. Cash
and Bonds would have given you a real return of
3% p.a. and 4.7% p.a. respectively.
In the end it is best to seek advice and select a
portfolio that is best suited to your needs. It is no
good chasing past winners. Pick a champion who
can manage money consistently well over all asset
classes and who is able to adapt to the changing
economic environment.
Travis McClure
Please address all Questions to: Travis McClure,
NFB Sensible Finance Q&A, Box 8132, Nahoon,
5210 or email: @nfbel.co.zainfo
SENSIBLE Q A&SENSIBLE Q A&SENSIBLE Q A&
“Sensible Finance - Questions and Answers” is an advice columnthat will allow our readers the opportunity to write to a professionaland experienced financial advisor for advice regardinginvestments, personal finance, life and/or risk cover. TravisMcClure will be answering any questions that you may have.
sensible finance july13
Get into INTU
28
Get into INTUGet into INTUGet into INTU
Listed property is an important asset class for
our income investors. The universe comprises
property loan stocks and property unit trusts,
all of which are in the process of converting to a
Real Estate Investment Trust (REIT) regime. These
units trade on (taxable) gross yield of between
5.5% and 9.5%, and comprise stocks such as
Growthpoint, Redefine, Capital, Vukile, Emira, SA
Corporate and Vividend.
Listed property also has a place in general
equity portfolios, but the candidates that we would
seek for inclusion would typically be international
property development and owning companies
such as Redefine International, New Europe
Property Investments and Capital and Counties.
One such company that we will discuss today is
INTU Properties PLC.
INTU is the new name for Capital Shopping
Centres (CSC). CSC traces its roots to the old
Liberty International PLC structure that the founder
of Liberty Life, Donny Gordon created. At its peak,
Liberty International was a large UK based property
owning and development company listed on the
London Stock Exchange. A few years ago,
following the effects of the global financial crisis,
Liberty International was split into two separate
companies, one being Capital and Counties
(which focused on property development around
the Covent Gardens area) and the other being
INTU Properties (which is an owner of some of the
largest regional shopping centres in the UK). Both
companies remain listed in London and
Johannesburg. The Gordon family still owns 9.5% of
INTU. Other significant South African shareholders
include Coronation Asset Management at 15.08%
and the Public Investment Corporation at 5.71%.
Capital and Counties has done very well the
past few years and this has been reflected in the
share price, whilst the share price performance of
INTU has lagged behind its sibling; however, the
profile and investment proposition are very
different.
INTU owns some of the very best centres in the
strongest locations right across the UK, offering easy
access to great places for shopping and socialising
to more people than anyone else; INTU attracts
over 320 million customer visits each year. Given
the level of urban development in the UK and the
planning permission processes, many of these
centres simply cannot be replicated without
extraordinary effort, costs and time.
Given that INTU owns and operates some of
the largest shopping centres in the UK, the foot
traffic, trading patterns, basket sizes and tenant
failures that drive the performance of the tenants
and therefore INTU has been under some pressure
due to the recession that the UK has been in. This
has placed downward pressure of the carrying
amount of the properties in INTU and on INTU's net
rental income and therefore its distributions.
We believe that the trading environment has
stabilised, that property valuations should begin to
grow again and that INTU has built a base for future
growth.
INTU has also taken advantage of acquiring
further centres, albeit by the issue of equity over the
past few years.
INTU is trading at about 90% of its net property
value and has a forward gross distribution of 4.4%.
We have based this distribution on 15 pence per
unit and an exchange rate of R15 to the Pound.
Increases in the distribution are likely to be muted
for some time, until the recovery gains traction in
the UK. For the quality of its business and in relation
to its London listed peers, this is an attractive entry
point.
For the patient investor, who wishes to
accumulate a long term holding in a London listed
property company that is well capitalised and with
better prospects than the past few years, you would
do well to buy this Rand hedge company.
A look at this rand hedge company.
Stockbroker/By , Portfolio Manager - NVest Securities.Rob McIntyre
SENSIBLE INVESTMENTSENSIBLE INVESTMENTSENSIBLE INVESTMENT
sensible finance july13
NFB has a separate specialist Short Term Insurance Division, as well as now offering specialist groupcompanies in the fields of stock broking, wills and the administration of deceased estates.
Anthony Godwin (RFP™, MIFM) - ManagingDirector and rivate ealth anager, yearsP W M 25experience;
Gavin Ramsay (BCom, MIFM) - ExecutiveDirector and rivate ealth anager, yearsP W M 20experience;
Andrew Kent (MIFM) - Executive Director andShare Portfolio Manager, years experience;20
Walter Lowrie - rivate ealth anager,P W M 28years experience;
Robert Masters (AFP™, MIFM) - rivate ealthP WM 28anager, years experience;
Bryan Lones (AFP™, MIFM) - rivate ealthP WM 22anager, years experience;
Travis McClure (BCom, CFP ) - rivate ealth® P WM 15anager, years experience;
Marc Schroeder (BCom Hons(Ecos), CFP ) -®
P W M 9rivate ealth anager, years experience;
Phillip Bartlett (BA LLB, CFP ) - rivate ealth® P WM 11anager, years experience;
Gordon Brown (CFP ) - ,® Regional Manager – PE7 years experience;
Mikayla Collins (BCom Hons , CFP ) - rivate( ) P®
W M 2ealth anager, years experience;
Glen Wattrus (B.Juris LL.B CFP ) – Private Wealth®
Manager, 1 years experience6 ;
Leona Trollip (RFP™) - Employee BenefitsDivisional Manager and Advisor, 3 years7experience;
Leonie Schoeman (RFP™) - Healthcare DivisionalManager and Advisor, 1 years experience;6
J (BCom, CFP®) – Financialulie McDonaldParaplanner, 3 years experience;
Nonnie Canham (LLB) – Healthcare Advisor, 2years experience.
NFB have a STRONG, REPUTABLE TEAM OF ADVISORSwith a between them:WEALTH OF EXPERIENCE
NVest Securities (Pty) Ltd
NFB House, 42 Beach Road,
Nahoon East London 5241
PO Box 8041, Nahoon 5210
(043) 735-1270,Tel:
(043) 735-1337Fax:
www.nvestsecurities.co.za
The Eastern Cape's first home-grown
STOCK BROKERAGE
fortune favours the well advised
You’ve worked hardfor your money...
“It requires a great deal of
boldness and a great deal of
caution to make a great
fortune...but when you have got
it, it requires 10 times as much wit
to keep it”
Nathan Rothschild, 1834
contact one of NFB’s financial advisors
East London • tel no: (043) 735-2000 or e-mail: @nfbel.co.zainfo
• tel no: or e-mail: @nfbpe.co.zaPort Elizabeth (041) 582 3990 info
• 11 895 8Johannesburg tel no: (0 ) - 000 or e-mail: [email protected]
NFB is an authorised Financial Services Provider
Web: www.nfb .co.zaec
p r i v a t e w e a l t h m a n a g e m e n t
now let NFBmake your money
work for you.