Blue Chip| Issue 87 - May/June/July 2023

BLUE
Issue 87 • May/June/July 2023
www.bluechipdigital.co.za
CHIP
THE OFFICIAL PUBLICATION OF THE FPI
ICARUS SYNDROME
The story of the failed
crypto platform
THE HOLY GRAIL
Uncertainty, research and
the financial advisor
SHOULD
FINANCIAL
ADVISORS USE
A DFM?
An exclusive
Blue Chip discussion
PALESA DUBE
The Financial Planner of the Year 2022 on her year so far

The myths, magic
and maths of money
In Greek Mythology, Icarus was told by his father, Daedalus, that if he flew too high
the sun would melt his wings made of wax and he would fall from the sky. Initially,
Icarus had every intention of heeding his father’s advice. However, as he gained
more confidence in his ability to fly, he soared higher and higher, flew too close to
the sun and his wings melted. The story of the failed crypto exchange platform FTX and
its founder, Sam Bankman-Fried, is the quintessential example of what has come to be
known as the Icarus Syndrome (page 30).
The Holy Grail was an enigmatic object that would confer magical powers of healing
and longevity on to its holder. While it is almost certainly a myth, the idea that such a
powerful item exists, and can be found through study and exploration, is very similar
to the way the research process drives an investment manager’s pursuit of the goal of
consistent outperformance, explains Professor Evan Gilbert in his article on page 66. It’s
the way they differentiate themselves from their peers and it allows them to respond
appropriately to a continually changing environment.
An investment manager must have the ability to understand how the world is
changing and what will work in the future to dependably deliver on client outcomes
in an uncertain environment. These insights will come only from the presence of an
effective research capability. Professor Gilbert explains that financial advisors are well
“advised” to understand that the world is indeterminable and to look at investment
managers’ research capabilities to assess their ability to be steadily effective for their
clients in the evolving future.
The outlook is much better for China after the government’s spin around on zero-
Covid policy in late 2022. Early indications are that service sector activity has rebounded
strongly. On the other hand, the positive impact on manufacturing was capped by
weak external demand while housing transactions have only fumbled along after some
preliminary improvement. On page 40, David Rees, Schroders, examines whether China’s
recovery will boost the rest of the world by raising growth or whether it will cause the
return of inflation.
In the first of our Blue Chip Round Table series, we ask if financial advisors should use
a Discretionary Fund Manager (DFM). In this exclusive Blue Chip discussion moderated
by Ian Jones, Fundhouse, three of South Africa’s top investments professionals discuss
DFMs and how advisors can best employ their services (page 52).
Enjoy this issue!
Alexis Knipe, Editor
Blue Chip Journal – The official publication of FPI
Blue Chip is a quarterly journal for the financial planning industry and is the official publication of the Financial
Planning Institute of Southern Africa NPC (FPI), effective from the January 2020 edition. Blue Chip publishes
contributions from FPI and other leading industry figures, covering all aspects of the financial planning industry.
A total of 7 500 copies of the publication are distributed directly to every CERTIFIED FINANCIAL PLANNER®
(CFP®) in the country, while the monthly Blue Chip Digital e-newsletter reaches the full FPI membership base. FPI
members are able to earn three verifiable Continuous Professional Development (CPD) points
per edition of the print journal (four per year) under the category of Professional Reading.
Special advertising packages in Blue Chip are available to FPI Corporate Partners,
FPI Recognised Education Providers and FPI Approved Professional Practices.
blue-chip-journal
ISSUE 87 |
MAY/JUNE/JULY 2023
BLUE
CHIP
Publisher: Chris Whales
Editor: Alexis Knipe
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of any nature arising out of, or in connection with, the contents of
this book. The publishers would like to express thanks to those who
support this publication by their submission of articles and with their
advertising. All rights reserved.

CONTENTS
ISSUE
87
MAY/JUNE/JULY 2023
04
10
12
13
EDITOR’S NOTE
By Alexis Knipe
SA’S SAVINGS CULTURE
Message from the FPI CEO
ON THE MONEY
Milestones, news and snippets
ENSURING YOUR RETIREMENT
SAVINGS LAST
The Glacier Invest Real Income Solutions
18
CHATGPT: THE LEAN MEAN
LEARNING MACHINE
Column by Rob Macdonald, Head of Strategic
Advisory Services, Fundhouse
19
THE IMPORTANCE OF SAVING
Column by Florbela Yates, Head
of Equilibrium
20
USE YOUR DISCRETION
Column by Kobus Kleyn, CFP®, Tax and
Fiduciary Practitioner, Kainos Wealth
22
2022 FPI FINANCIAL PLANNER
OF THE YEAR
Blue Chip speaks to Palesa Dube, CFP®
26
THE ACCOUNTANCY PROFESSION:
TACKLING TOMORROW’S
CHALLENGES, TODAY
Interview with Shahied Daniels, chief executive
at the South African Institute of Professional
Accountants (SAIPA)
30
THE ICARUS SYNDROME
Matthew Molyneux, Fundhouse,
tells us the story of the failed crypto
exchange platform FTX and its founder,
Sam Bankman-Fried
34
IS THIS A RESET?
By Mike Adsetts, Acting Chief
Investment Officer, Momentum Investments
36
HEDGE FUND AWARDS
Old Mutual Multi-Managers
scoops Hedge Fund Award for the fifth
consecutive year
38
CAN YOU EARN AN ATTRACTIVE
RETURN WHILE MAKING A
REAL-WORLD IMPACT?
Here’s how SA investors can tap into
the structural growth opportunity
of a lifetime
40
WILL CHINA’S
REOPENING BENEFIT
THE GLOBAL ECONOMY?
David Rees, Senior Emerging
Markets Economist, Schroders, asks if
China’s recovery will cause inflation to
come roaring back
42
BIODIVERSITY: MEET THE
NEW CLIMATE
Melville Douglas says that biodiversity
preservation is a pressing issue
44
TRANSITIONING TO A
GREENER FUTURE
Onshore gas discoveries are bolstering
Petroleum Agency South Africa’s case for
promoting a switch to gas
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CONTENTS
ISSUE
87
MAY/JUNE/JULY 2023
46
INVESTING WITHOUT A
CRYSTAL BALL
Leon Michaelides, Equity Portfolio Manager,
Matrix Fund Managers says the aim of investing
is to levy the gap between expectations and
underlying activity
48
ZERO EXPOSURE TO
HEDGE FUNDS IS A LOST
OPPORTUNITY
By Nosibusiso Ngqondoyi, Old Mutual
Multi-Managers
50
THE VALUATION-DRIVEN
CONTRARIAN
Blue Chip speaks to Portfolio Manager at M&G
Investments, Yusuf Mowlana
52
ROUND TABLE SERIES: SHOULD
FINANCIAL ADVISORS USE A DFM?
An exclusive Blue Chip discussion with three of
SA’s top investment professionals
57
HOW ADVISORS ARE
BENEFITTING FROM
PARTNERING WITH A DFM
By Methula Sikakana, Business Development
Manager, Equilibrium
58
THERE IS LIGHT AT THE
END OF THE TUNNEL
Dean De Sousa, Portfolio Manager, Equilibrium,
says it is understandable that we are
disheartened about SA
60
TIME, RELATIONSHIPS AND
CONTROL
Rob Macdonald, Fundhouse, talks to us
about the unexpected investment triage of
achieving financial health
62
ENHANCING FUTURE SELF-
CONTINUITY TO IMPROVE
RETIREMENT SAVINGS BEHAVIOUR
By Dr Prince Sarpong, UFS School of
Financial Planning Law
63
THE CAPITAL LEGACY WAY
Blue Chip speaks to Brandon
Garbutt, COO, Capital Legacy, about
estate planning
64
MANAGING DIGITAL ASSETS
THROUGH AN ESTATE
PLANNER’S LENS
By Sarah Love, CFP®, FPSA®, TEP, Fiduciary
Specialist, Private Client Trust
66
THE SEARCH FOR THE
HOLY GRAIL
Uncertainty, research and the financial advisor
by Professor Evan Gilbert, Research Strategist,
Momentum Investments
68
TRUE WEALTH GIVES YOU
FREEDOM
Barry O’Mahony, Founder, Veritas Wealth, writes
about teaching our youth about the importance
of savings
70
By FPI
72
THE FUTURE OF
FINANCIAL PLANNING
EVERY DECISION IS A
FINANCIAL DECISION
A Blue Chip interview with Mulalo Nemataheni,
ImpowerX Advisory
74
THE DECLARATION OF A CRYPTO
ASSET AS A FINANCIAL PRODUCT
By Hildegard Lombard, Luculent Consulting
78
COFI IS FOUNDED ON CULTURE
AND GOVERNANCE
By Anton Swanepoel, Founder, Trusted Advisors
8 www.bluechipdigital.co.za

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BLUE
CHIP
FPI UPDATES | CEO message
South Africa’s
savings culture
Lelané Bezuidenhout, CFP®,
CEO, Financial Planning
Institute of Southern Africa
The CEO of Financial Planning Institute of
Southern Africa shares the key takeaways
from the 2023 FPI Annual Refresher.
As the Financial Planning Institute of Southern
Africa (FPI) NPC prepares for the inclusion of the
Psychology of Financial Planning into our financial
planning competency and curriculum standards, it
is important to reflect on how clients see risk when it comes
to investments and especially retirement planning.
Things we know about the South African savings culture:
• We do not save enough for retirement or we start saving
too late.
• At retirement, we want to draw the maximum income
with the minimum impact on our capital and expect our
post-retirement funds to last for as long as we live.
• We expect financial planners and/or financial advisors
to work miracles during our golden years to ensure that
our annuity income does not decrease, despite the cost
of living continuously rising in the face of escalating
inflation, pandemics and wars.
The above highlights the critical importance of clients
seeking professional financial advice and having financial
planning strategies in place as soon as they start earning
a pensionable income. While benefit counselling has
its place, it is far too late for someone to do something
about their retirement savings when they retire from their
employer at for example the age of 65 years old.
In unpacking the Office of the Ombud for Financial
Services (FAIS Ombud) annual report, it seems that we are
still sitting with the following issues:
• Risk profiling as a component of the suitability of financial
advice is not fully appreciated.
• Living/linked life annuity drawdown rates are in most cases
still higher than the average rate of return of the underlying
investment portfolios, resulting in capital depletion/annuity
income running dry too soon.
What we need to appreciate is the importance of risk profiling
as a component of the suitability of financial advice as well
as understanding the psychology of financial planning. It is
about having tough, relevant conversations with your client
as soon as possible and conducting regular reviews of your
client’s financial planning strategies. It is also about having
a clear understanding of how a client sees risk and not the
completion of a standard “Risk Profile Questionnaire” as
the latter is not a compliance document but a tool to assist
the financial advisor and the client to understand risk. The
financial advisor must also be very careful not to allow his/
her own bias or heuristics to influence the client’s ability to
make an informed decision.
The compliance requirement on the other hand is that
the financial advisor must establish the client’s risk profile
by conducting a proper risk profile analysis to enhance the
suitability of his/her professional advice and recommendations
in the end.
We should not stare ourselves blind against the standard risk
profiling questionnaires out there as they, many a times, contain
inherent strong house views which could obstruct the advisor’s
10 www.bluechipdigital.co.za

Visit www.fpimymoney123.co.za or
contact us on (011) 470 6000 or email us
at membership@fpi.co.za to find out
how you can become a professional
member of the FPI.
own thought process in applying his/her professional mind
in understanding:
• How their client sees risk.
• If their client is willing to accept risk (risk tolerance).
• If their client can accept risk (risk capacity) to achieve their
financial goals and objectives.
All of the above was discussed at length at FPI’s Annual
Refresher that ran during January and February 2023. In case
you missed it, you can still register to listen to the recordings.
Risk profiling as a
component of the suitability
of financial advice is
not fully appreciated.
It is furthermore membership renewal time at FPI – please
and upload your FPI CPD records by 31 May 2023. Please do not
leave this for the last minute as it only adds pressure on you.
Visit www.fpimymoney123.co.za or contact us on (011)
470 6000 or email us at membership@fpi.co.za to find out
how you can become a professional member of the FPI.
Until next time,
Lelané Bezuidenhout, CFP®, CEO,
Financial Planning Institute of Southern Africa
www.bluechipdigital.co.za
11

BLUE
CHIP
BLUE
CHIP
On the money
Making waves this quarter
Round Table series, awards and a trusted advisor
RETIREMENT PLANNING ROUND TABLE
Do not miss Blue Chip Digital’s exclusive Retirement Round
Table brought to you by Momentum Investments. The round
table discussion focuses on retirement planning and guiding
Fareeya Adam,
Momentum
Investments
Tom Brukman,
Chartered Wealth
Solutions
Wouter Fourie,
Ascor Independent
Wealth Managers
Moderator:
Ian Jones,
Fundhouse
clients to financial independence. Panellists
include Fareeya Adam, Head of Retail Product
Solutions, Momentum Investments, Tom
Brukman, CFP®, Director, Chartered Wealth
Solutions, Wouter Fourie, CFP®, Director, Ascor
Independent Wealth Managers and table is
moderated by Ian Jones, CEO, Fundhouse.
Watch the Retirement Planning Round Table
on www.bluechipdigital.co.za or by scanning
the QR code.
MORNINGSTAR FUND AWARDS 2023
Morningstar Fund Awards South Africa 2023 winners: Shaun Anderson (Nedgroup), Rob
Johnson (Nedgroup) and Iain Power (Tuffle Asset Management).
Morningstar, Inc., a leading provider of independent investment
research, announced the winners for the South African 2023 Morningstar
Fund Awards. The awards recognise those funds and asset managers
that have added the most value for investors within key sectors and
across asset classes.
Truffle Asset Management scooped two awards, both for the second
year in a row. The first for its Truffle SCI Income Plus Fund being awarded
the Best Bond Fund under the fund category awards, and the second
being named the Best Fund House: Smaller Fund Range in the fund
house category. Nedgroup Investments also celebrated two fund
category wins this year, receiving the Best Aggressive Allocation Fund
and Best Moderate Allocation Fund awards.
TRUSTED ADVISOR
Lelané Bezuidenhout, CFP®, CEO of the Financial Planning Institute of
Southern Africa, was the keynote speaker at the launch of a new online
training and practice management platform in March 2023, called Trusted
Advisor. Founder and CEO, Anton Swanepoel, explains the objective of the
new platform, www.trustedadvisor.co.za as follows:
“With the Conduct of Financial Institutions Act at our front door,
financial services providers will have to re-set their foundations. Our
purpose is to equip every key individual, advisor and intermediary
who aspires to be a trusted advisor and desires to establish and grow a
successful practice while preparing to transition from being regulated
under FAIS to COFI.
“At the outset, our CPD-accredited modules are aimed at laying
firm foundations for financial services providers to be successful in an
environment that is extremely challenging, highly competitive and
increasingly onerous. We believe that
FSPs will need guidance and support
in four key areas, namely ethics,
suitability of advice, compliance and
practice management.
“We cater for FSPs who render
financial services pertaining to
long-term insurance, non-life
(short-term) insurance, investment
and medical aid products. Our first
modules and courses are aimed at
establishing sound fundamentals in
David Kop, CFP®, FPI, Anton Swanwepoel,
Trusted Advisor and Lelané Bezuidenhout,
CFP®, CEO of FPI.
every area of the business and we will continue to add quality content.
We keep it real; we keep it simple, and we make it practical.”

INVESTMENT | Retirement
The Glacier Invest Real Income Solutions
– ensuring your retirement savings last
BLUE
CHIP
The Glacier Invest Real Income and Real Growth
Solutions were built to focus on reducing the two
most important risks that living annuity investors face
today. The risk of outliving your capital (longevity risk)
and the risk of eroding your retirement capital if you retire
when, or just after, there is a market crash, accompanied by
the risk of timing drawdowns (sequential risk). Both are very
real issues that retirees face. The solutions utilise a portfolio
construction methodology that results in investment portfolios
with asymmetric return profiles, to increase consistency and
predictability of income for retirees.
By focusing on asymmetry, outcomes can be managed
in a more predictable fashion while providing for enhanced
compound annual growth rates. The Real Income and Real
Growth Solutions aim to protect retirement capital during market
downturns, while also enhancing returns by including alternative
higher-return asset classes such as private equity and private
debt in retail client portfolios. They are designed to incorporate
non-traditional investment opportunities such as hedge funds,
smoothing techniques and alternative investments.
The allocations to alternative asset classes not only provide
greater diversification benefits but they also enhance portfolio
returns. This allows investors to be invested in portfolios aligned
to their return objective, but at significantly lower levels of risk
compared to traditional long-only asset classes.
Characteristics of the Glacier Real Income Solutions
An asymmetric approach. The portfolio construction methodology
and the wider range of uncorrelated assets included create an
asymmetric return profile for the portfolio. Asymmetry means that
the portfolio is constructed to provide more protection against
market downturns but still capture most of the upside when
markets rise. This asymmetry aims for higher compound annual
growth rates and lower volatility, ensuring outcomes that are more
consistent and reliable over the long term.
Diversification and return enhancement. The
greater range of asset classes included in the solutions
leads to greater diversification, as well as enhanced
returns. Hedge funds aim to bring diversification to
portfolios, smoothing aims to create more income
stability and a reduction in volatility and alternative
asset classes aim to boost returns. When combined
into one portfolio, the addition of hedge funds,
smoothing techniques and alternatives endeavours
to promote lower drawdowns, less volatility and a
more consistent income journey.
Lehan Kruger,
Portfolio Manager,
Glacier Invest
The Glacier Invest Real Income Solutions include wrap fund portfolios managed by Glacier Financial Solutions (Pty) Ltd, a Licensed Discretionary Financial Services Provider, FSP 770, trading as Glacier
Invest. The Glacier Invest Real Growth Solutions are managed by Glacier Financial Solutions (Pty) Ltd. Sanlam Multi Manager International (Pty) Ltd FSP 845 is a Licensed Discretionary Financial Services
Provider, acting as a Juristic Representative under Glacier Invest. As a Juristic Representative of Glacier Invest, Sanlam Multi Manager International (Pty) Ltd manages the retail investment solutions.
Glacier Invest Real
Income Solutions
A new way to ensure retirement income lasts
Have peace of mind that retirement savings invested in living
annuities will last as long as you need it to, with the Glacier
Invest Real Income Solutions.
Contemporary investment tools and a unique approach to
portfolio construction protect and grow your capital, while also
mitigating the risks posed by market volatility and increasing
life expectancy.
Speak to your financial adviser today about securing your
future with the Glacier Invest Real Income Solutions.
Glacier Financial Solutions (Pty) Ltd is a licensed discretionary financial
services provider, trading as Glacier Invest FSP 770.
Sanlam Multi Manager International (Pty) Ltd FSP 845 is a licensed
discretionary financial services provider, acting as Juristic Representative
under Glacier Invest.
As Juristic Representative of Glacier Invest, Sanlam Multi Manager
International (Pty) Ltd manages the retail investment solutions.

BLUE
CHIP
On the money
Making waves this quarter
Book review and multiple-winning award winner
ACCELERATE YOUR BRAND
Accelerate Your Brand: Mastering
the Power of Personal Branding in
the Financial Services Profession is a
comprehensive guide to personal
branding in the financial services
profession. Accelerate Your Brand has
a practical and insightful approach to
establishing a unique and powerful
personal brand.
The book is organised into 18
chapters, each of which covers a specific aspect of personal branding.
The first few chapters focus on the importance of branding and how it
can be used to differentiate oneself in a competitive market. The author
then delves into establishing an online identity and personalising
one’s brand to create a lasting impression.
The book focuses on how personal recognition can be used to
build brand credibility. The author emphasises the importance of
developing one’s expertise to establish oneself as a thought leader
in the industry. The final chapters provide insight into the future
of branding within the financial profession and offer strategies for
professionalising a brand to ensure long-term success.
The author also delivers valuable
advice on how to promote a brand
through networking, public speaking and
other effective methods. Accelerate Your
Brand is an excellent resource for anyone
looking to establish a powerful personal
brand in the financial services profession.
The book is well-organised, easy to
read, and provides practical advice that
can be implemented immediately. As
a gift eBook, it is a valuable addition
to any financial services professional’s
digital library.
This eBook is a gift as part
of the author’s principles of
paying it forward.
SATRIX WINS AGAIN
Satrix, South Africa’s leading provider of index-tracking products, has
scooped nine awards at the annual South African Listed Tracker Funds
Awards (SALTA) held at the JSE in March 2023. The wins include the
coveted People’s Choice award for the sixth time as well as wins for capital
raising and performance over three, five and 10-year periods.
Fikile Mbhokota, CEO of Satrix, says this recognition has solidified
Satrix’s continued role as the country’s leading indexation investment
business. “Winning the SALTA People’s Choice award for the sixth
consecutive year is such an honour and testament to the popularity of
South Africa’s first and favourite ETF.”
Mbhokota further noted that Satrix’s commitment to financial
inclusion aligns with the SALTA 2023 awards’ objective of rewarding
exceptional ETF products that contribute to the growth of South
Africa’s investment industry. The SALTA Awards is an initiative by
independent service providers to the ETF industry in South Africa to
recognise issuers that provide outstanding index-tracking products
to the local market. It assesses total investment returns and rewards
issuers’ abilities in providing passive ETF products.
The Satrix Top 40 ETF has been a flagship fund since its first listing,
providing investors with local equity exposure at the lowest cost in the
market, however the breadth of awards, which include Satrix’s sector
focused funds demonstrate the company’s success across the spectrum
of opportunities in the ETF space.
SATRIX’S SALTA 2023 WINS
Total Investment Return
SA ETPs – Satrix Capped
INDI ETF
SA Equity ETPs – Satrix RESI ETF
Total Investment Return
Foreign Equity ETPs – Satrix S&P
500 Feeder ETF
Total Investment Return
SA Equity ETPs – Satrix RESI ETF
Tracking Error
SA Non-Equity ETPs – Satrix SA
Property ETF
Trading Efficiency
SA Equity ETPs – Satrix RESI ETF
Capital Raising
SA Equity ETPs – Satrix 40 ETF
ETP Issuing House
Satrix Managers
People’s Choice
Satrix Top 40 ETF

BLUE
CHIP
On the money
Making waves this quarter
Joining forces, HUM conference and Blue Chip thought leading content
CAPITAL LEGACY AND SANLAM TO JOIN FORCES
On 3 February 2023, it was announced that an agreement was
reached between Capital Legacy and Sanlam Life, whereby Capital
Legacy will buy 100% of Sanlam Trust, and Sanlam Life will acquire
a 26% stakeholding in Capital Legacy in a deal worth R1.1 billion.
The merged entity will be managed by Capital Legacy while
leveraging the strengths of both companies. A Sanlam-branded
version of Capital Legacy’s innovative and integrated wills and
estates offering will be available to Sanlam clients via Sanlam’s
distribution channels and partners.
“It is important to note in these economic times that this
deal is driven by the realisation of mutually beneficial growth
opportunities and not cost rationalisation. We believe it will have a
positive impact on the market to benefit
customers and I am excited about what
the future holds,” says Capital Legacy CEO
and founder, Alex Simeonides.
Alex Simeonides, CEO and
founder, Capital Legacy
For the thousands of financial advisors who have entrusted Capital
Legacy with their clients’ wills and estates since the company’s
inception over 10 years ago, this transaction serves as validation of
the trust they have put in the company, and now squarely puts it on
the map as a serious consideration for all advisors. The transaction is
currently pending regulatory approval. Sanlam Private Wealth Fiduciary
Services and Sanlam Corporate’s Beneficiary Fund are not part of the
proposed transaction and will remain with Sanlam.
HUM CONFERENCE SAVE THE DATE
“Financial advice is a noble profession. For too long we have allowed its
path to be dictated by ill-informed commentators who’ve not internalised
the challenge correctly.
“You could say that our guns have been facing the wrong enemy. We
continue to see advancements that are not designed to make people
better investors or have better financial outcomes. The media’s focus is
on selection and timing, which has never been proven to work.
“We know success will be driven by planning and controlling
natural misconceptions and biases (our ‘behaviour’ in one word).“
says Andy Hart, founder of Humans
Under Management.
Launched in 2017, Humans Under
Management (HUM) is the premium
behavioural finance conference for
finacial advisors.
HUM SA will take place in Cape Town
on 19 September 2023.
Andy Hart, Founder, HUM
MitonOptimal South Africa (Pty) Limited is an Authorised Financial Services Provider License No. 28160 regulated by the Financial Sector Conduct Authority (FSCA). Registration No. 2005/032750/07.
INVESTMENT FORUM 2O23
Now in its 13th year, Investment Forum took place in March 2023. The Forum is South Africa’s premier gathering of investment managers, DFMs,
multi-managers, financial advisors and wealth managers to uncover thought leadership content that spans the world of investing.
Blue Chip was the statement accessory-of-choice for delegates at this year’s Investment Forum.

BLUE
CHIP
COLUMN
ChatGPT: the lean mean learning machine
And a reminder of our real superpower.
Rob Macdonald, Head of
Strategic Advisory Services,
Fundhouse
Rob Macdonald has held
several senior positions in
the investment industry.
At Fundhouse, he acts as
a consultant and coach
to financial advisors and
develops and facilitates
training programmes in
behavioural coaching and
practice management. Before
joining the financial services
industry, Macdonald was
MBA director at the UCT
Graduate School of Business.
He is co-author of the book
Rethinking Leadership and has
consulted, written and spoken
widely on a range of topics.
Macdonald has a Master’s
degree in Management
Studies from Oxford University
and is a CFP® Professional.
ChatGPT is the fastest-growing app of
all time, taking two months to reach
100-million active users1. Before that
the quickest app to reach 100-million
was TikTok, achieving this milestone in nine
months. To complicate matters, ChatGPT does
not regard itself as an app, but rather a machine
learning model. But let’s leave that for a
technology publication to debate. The fact is,
ChatGPT has caused a stir very quickly in many
sectors of society. It has passed law and MBA
exams in the US and has been banned in many
universities and schools.
Elon Musk said, “ChatGPT is scary good. We
are not far from dangerously strong AI.”2 This
dangerously strong AI can do anything from
write computer code, do calculations, and
write an essay, poem or a shopping list. If what
you ask ChatGPT doesn’t require information
after 2021, you’ll pretty much get a response
to any question you ask. And no matter the
question, the answer will be generated in a
few seconds. My favourite so far is hearing
a limerick that it came up with to explain
Einstein’s Theory of Relativity.
But ChatGPT is not perfect. AI tools generally
are good at making an answer sound plausible
because they order words based on statistics.
The tool itself cannot understand the meaning
of what it generates, or whether it is correct or
not. As a result, Chat GPT is not always correct
and at times makes use of creative license. For
example, when asked to write an academic
paper on a topic, it covered the topic well, but
created fictitious references because it knows
that references are an important aspect of
academic writing.
Despite these shortcomings, it is no surprise
that financial planners are now asking whether
ChatGPT is a threat or an ally? Recently Boitumelo
Ntsoko of Moneyweb explored the topic in a
podcast conversation with Eric Jordaan of Crue
Invest3. ChatGPT and Jordaan considered three
financial planning questions submitted by
Moneyweb readers. While ChatGPT was able to
convey information that was broadly accurate,
at the end of each of its answers, it advised the
questioner to seek advice and guidance from a
human professional, mentioning specifically a “tax
specialist”, “financial advisor”, “debt counsellor”
and “lawyer”. This is encouraging indeed for
human financial planners.
The more technologically
advanced we become,
the more we need
to go back to the
basic fundamentals of
human connection.
ChatGPT is positioned as a language
model created with the purpose of holding a
conversation with the end user4. But the real
problem for ChatGPT is that this conversation
is one way. Instead of asking for clarification on
ambiguous questions, the model just takes a
guess at what your question means, which can
lead to unintended responses to questions. This
highlights the value of a human financial planner
and the power of having a real conversation with
your clients, helping them clarify exactly what
their dilemma or question is.
Angela Ahrendts, former head of Apple Retail,
said: “The more technologically advanced we
become, the more we need to go back to the
basic fundamentals of human connection.”5
This surely is the work of the 21st-century
human financial planner. Whether you do this
in partnership with ChatGPT or another AI tool
is a secondary consideration.
I believe your humanity remains your
superpower. The real work lies in building the
human skills to harness this superpower, through
connection and genuine two-way conversation,
for your own and your clients’ benefit.
1 According to research by UBS Bank
2 Musk was a co-founder of Open AI who developed ChatGPT
3 Moneyweb: “ChatGPT vs financial advisor: How AI does with money advice”, 3 March 2023
4 Sabrina Ortiz, What is ChatGPT and why does it matter? Here’s everything you need to know, ZDNet.com, 10 March 2023
5 Quoted by Mike Abel, Are Values More Important today than Value? Daily Maverick, 12 March 2023

COLUMN
BLUE
CHIP
The importance of saving
Saving is fundamental to achieve a foundation for financial stability and freedom.
Florbela Yates,
Head of Equilibrium
Florbela Yates is the head of
Equilibrium in the Momentum
Metropolitan group.
Equilibrium is an independent
discretionary fund manager
that partners with financial
advisors to help them enable
their advice outcomes.
Equilibrium brings balance to
an advice practice by delivering
services and investment
solutions to help clients achieve
their defined investment goals.
Whether you’re saving for a particular
goal, setting aside money to cover
unexpected expenses or simply
building wealth for the future,
saving is an important component of a sound
financial plan.
Compound interest is one of the most
compelling reasons why people save. By
starting to save early and consistently, your
clients can harness the power of compound
interest and watch their savings multiply over
time. For example, R10 000 in a savings account
earning an interest rate of 5% per year would
earn R500 in interest after one year, bringing
your total balance to R10 500. If you continue
to save and earn 5% interest each year, after 10
years, your initial R10 000 investment would
have grown to R16 288.95. This compound
interest works regardless of the initial amount
(no matter how small) as well as on both lump
sum and recurring investments.
Saving is also important when it comes to
achieving specific goals. Whether your clients
are saving towards a deposit on a house, a new
car or a dream holiday, saving allows you to
work towards your goals without accumulating
debt. When your client has a specific goal in
mind, it is important to calculate the amount
of money they need to save and set a realistic
timeline for achieving that goal. By doing this,
you can break down the savings plan into
manageable steps and track progress towards
the goal at regular intervals. Setting a goal is
a great way to stay motivated and it can also
help clients resist the temptation to spend
money on other things.
Another important reason to save is to
prepare for unexpected expenses. An emergency
fund can help weather unexpected expenses
ranging from medical emergencies to repair
costs on your home or car, while avoiding going
into debt or the temptation to use your credit
card. Instead, having sufficient money saved in
an emergency account means that your client
can avoid paying high interest rates on loans or
credit card balances.
Apart from these practical benefits of saving ,
there are also psychological benefits from having
a savings pot. It provides people with a sense of
security and control over their financial future,
which can reduce stress and contribute to clients’
overall wellbeing. Knowing that you have been
disciplined about saving not only benefits you in
these ways but can even empower you to make
better decisions that are more aligned with your
values and goals.
Saving is important when it
comes to achieving specific goals.
For example, someone may be more likely
to pursue a career change or choose to spend
more time on hobbies or loved ones, if they aren’t
constantly focused on earning as much money
as possible to realise their goals.
If your clients need a step-by-step process,
then I’d recommend the following:
• Start by creating a budget. This is a useful tool
that can help you to track your income and
expenses and identify areas where you can
cut back and save money.
• Set a savings goal. Whether it is a short-term
or long-term goal, setting a specific target will
help motivate you to save.
• Automate your savings to automatically move
money to a savings account so that you are
consistently saving money.
• Look for ways to reduce your expenses by
cutting down or cancelling unnecessary
subscriptions or luxuries.
• Consider higher yielding options such as fixed
deposits or unit trusts that offer higher returns
allowing your money to grow faster.
• Lastly, stay motivated. Saving money can be
challenging and it requires the discipline to
forgo certain shorter-term items in return for
meeting your longer-term goals.
Whether you have a client that is just starting
out, or a seasoned savings expert, saving is an
essential step in securing their financial future.
Equilibrium Investment Management (Pty) Ltd (Equilibrium) is an authorised financial services provider (FSP32726) and part of Momentum Metropolitan Holdings Limited and rated B-BBEE level 1.

BLUE
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COLUMN
USE YOUR
DISCRETION
The pros and cons of outsourcing investment management
to a discretionary fund manager in South Africa.
Kobus Kleyn, CFP®, Tax
and Fiduciary Practitioner,
Kainos Wealth
Kobus Kleyn has published
over 200 articles and authored
three books. He is a multiple
award-winning professional
and holds eight memberships
with professional associations.
His most recent awards were
lifetime achievements awards
from the FPI (Harry Brews), The
Million Dollar Round Table (Top
of the Table Life Membership)
and Liberty Group (Life
Membership) in 2021/22.
As a financial planner in South Africa,
managing your client’s investments under
your fiduciary duties requires considering
all available options. One option that
can provide significant benefits is outsourcing
investment management to a discretionary fund
manager (DFM).
DFMs are regulated by the Financial Sector
Conduct Authority (FSCA) in South Africa. They
offer financial planners and clients many benefits,
including compliance, due diligence, efficiency,
better long-term growth and more time to focus
on clients’ planning needs. DFMs conduct thorough
due diligence on investment products and regularly
monitor their performance, protecting clients,
especially in regulatory or market disruptions.
DFMs reduce investment risk by diversifying
portfolios across asset classes and products.
This strategy helps protect clients’ investments
against market volatility and downturns. DFMs
can provide access to investment products
and opportunities that may not be available to
individual investors. With their expertise and
resources, DFMs conduct in-depth research and
analysis, allowing them to identify and take
advantage of investment opportunities that may
not be visible to the average financial planner.
DFMs also provide an objective approach to
investing, taking emotion from the equation and
making investment decisions based on thorough
analysis, research and risk profile. This helps to
remove advisor noise from fund selection and
leads to better long-term outcomes for clients
and planners.
DFMs provide a high level of customisation for
planners, tailoring their investment strategies to
meet each client’s needs and goals, considering
their investment amount, risk tolerance, financial
goals and tax position. This level of customisation
can lead to better outcomes for clients and help
to build stronger relationships between financial
planners and their clients.
DFMs are particularly valuable for new advisors
just starting their careers, as DFMs provide them
with access to expertise and resources they may
not have built up yet. This helps to build credibility
with clients and deliver better outcomes for
clients in the early stages of their careers. By
outsourcing investment management to a DFM,
financial planners can shift the responsibility for
conducting due diligence on investment products
to the DFM, providing additional client protection
and maintaining the planner’s reputation while
protecting them against any ombuds office cases.
As I always say, it only takes one client file that is
not compliant, which can abruptly stop your career.
Additionally, working with a DFM allows
financial planners to be a custodian of their clients’
financial plans and spend more time with their
clients. It lets planners focus on clients’ needs and
provide a more comprehensive service. Conversely,
DFMs typically require a minimum investment
amount, making them more appropriate for highnet-worth
individuals or those with substantial
investments. DFMs charge fees for their services,
which can be higher than those charged by other
funds managed by advisors.
Before recommending this option, financial
planners must carefully assess their clients’
investment goals, risk tolerance, financial
position, and the fees and investment process
associated with using a DFM. While DFMs can
provide significant benefits, they may not suit all
clients. Some clients may prefer a more hands-on
investment approach or have goals that do not
align with the DFM’s investment strategies. For
planners, it allows for a passive process, while the
DFM becomes the active manager.
A DFM gives planners more time with their clients
on financial planning, which is the main objective.
Financial planners should consider the do’s and don’ts
of outsourcing investment management to a DFM.
Outsourcing investment management to a DFM in
South Africa can provide significant benefits.
20 www.bluechipdigital.co.za

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OUTvest is an authorised FSP. Ts and Cs apply. OV22/0359/E

BLUE
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FPI | Financial Planner of the Year
A PRICELESS OPPORTUNITY
Palesa Dube, CFP®, Financial Planner of the Year 2022, speaks to Blue Chip about her journey as an FPI
ambassador so far and how winning the award has presented her with so many invaluable opportunities.
Palesa Dube, CFP®, Director and Wealth Manager, Wealth Creed

FPI | Financial Planner of the Year
BLUE
CHIP
Palesa, please share with us your first six months as Financial
Planner of the Year 2022.
It has been an incredible journey thus far. Firstly, the support
that I received from my family, friends, colleagues and clients
was simply overwhelming. This is certainly a victory for all of us.
And of course, I have enjoyed numerous opportunities as a result,
from various media and speaking opportunities to what I enjoy
the most, which is engaging and mentoring young graduates
entering our profession. I look forward to what is yet to come.
What have you learned since you won the award?
A standout lesson since winning the award and engaging
with the public on various platforms is a real hunger to learn
the principles and tools at the core of our profession from a
broad cross-section of the public. Moreover, I have found that
what we often understand to be complex can be distilled into
digestible lessons one can share with the public to encourage
them to kickstart their journey to financial health, wealth
building and transfer.
What have you experienced in the past six months?
I had the wonderful opportunity to join the FPI as they presented
the Annual Refresher Workshops around the country. I joined
a line-up of industry veterans such as Wessel Oosthuizen, Errol
Meyer, Lelané Bezuidenhout and David Kop who presented
on a number of key topics. My presentation was on Practice
Management where I shared the principles we have incorporated
in building our practice. I also used the opportunity to learn from
other success stories from local and international counterparts
where they have experienced success in innovation in client
annual review processes, scaling their practices and other
practice management principles.
On a more personal level, the opportunity to engage deeply
with my fellow panellists on topical industry issues over dinner
or as we commuted around the country proved to be a priceless
opportunity. It has been equally rewarding to have colleagues
engage us directly where the presentations resonated with
them or on a matter they are currently grappling with in
their practice. There was a palpable spirit of sharing. We can
learn so much from each other. I was especially encouraged
by the number of young financial planning professionals who
attended the workshops and are eager to build fruitful careers
in the profession.
Please share some positive advice to other financial planners on
entering the awards.
Firstly, I would say, do put it on your career bucket list to enter
the competition! As I have said before, it is a great opportunity to
assess your financial planning process against the benchmarks set
by the FPI and to implement the Practice Management Standards
into the way you deliver financial planning in your day-to-day
engagements. So whatever the outcome of the competition, you
and your clients stand to gain so much from the experience.
This is a prestigious award that
helps you stand out professionally.
Secondly, this is a prestigious award that helps you stand out
professionally. But more than the award, it is an opportunity to
contribute to the development and future of our profession. I
do encourage you to enter the competition with a mindset and
eagerness to roll up your sleeves and make a difference!
Has the experience changed your business in fundamental way?
One of the principles I spoke about in my presentation is taking
a 25 to 30-year view on your business. It’s amazing how we
readily do this for our clients as we build their financial plans,
but rarely apply the same principle to our businesses and
practices. Doing so immediately changes your perspective and
some fundamental decisions you make today. So yes, the award
is a recognition of excellence and the successes we have been
able to garner thus far. We now need to build on this success
and what this means tangibly is: firstly, building out a clearly
articulated client value proposition in the different segments
we aim to grow the business in and secondly, broadening our
presence nationally. We are excited about the next phase in our
growth trajectory.
At the beginning of the year, you said that putting the
client first in all that you do is the most important trait of an
accomplished financial advisor. Do you still feel this way or has
your perception changed?
Yes, I strongly do. I believe that it is one of the primary reasons
we have been able to enjoy the success we have achieved. Our
clients have many options, including very well-established
companies and brands to whom they can entrust their hardearned
wealth. But what differentiates us are the values and
ethos on which we have built the business. Our “why”, which is
to place the client at the centre of all we do.
I would also like to use this opportunity to thank our clients
that have journeyed with us thus far. Needless to say, it is
because they believed in us, that we are able to stand on the
platforms we enjoy today. Our commitment to their financial
and legacy aspirations remains unwavering.
As the FPI’s ambassador, have you been able to use the platform
to motivate change? How so?
I now serve on the FPI’s Diversity and Inclusion Committee whose
primary purpose is to promote financial sector transformation
by crafting a strategy that addresses the composition of the
FPI member body and spearheads initiatives to promote
societal financial inclusion. The committee is tasked with
developing a resource centre for the membership body and
ultimately developing best-practice standards and guidance
for financial planning and advisory firms. We recognise that for
www.bluechipdigital.co.za
23

BLUE
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FPI | Financial Planner of the Year
The award is a recognition
of excellence and the
successes we have been
able to garner thus far.
the profession to develop and be sustained, there is a need
to focus on future initiatives that encourage new graduates
to enter the profession. The FPI Education Fund is a response
to this and is aimed at facilitating diversity and inclusion in
the financial services industry and profession.
Have you had the opportunity (or time) to make financial
planning more accessible to a broader spectrum of the
community? What are your plans in this regard?
Yes! In addition to speaking to young people at various
university societies and events, I have had the opportunity to
share key insights and lessons across media platforms from the
Bruce Whitfield Show on 702 to segments on Soweto TV. Each
of these media platforms provided an opportunity to present
key financial planning principles and practices in a practical
and relevant way. Importantly, the audience demographic
of each media platform I have become a recurring guest on
is widely varied and captures a broad base of our society.
Together with the anchors, we were able to discuss estate
planning, retirement and various other audience concerns
using accessible language and addressing practical questions
that are relevant to most people.
How has being an FPI ambassador changed you as a person?
While I do not think it has fundamentally changed me as a
person, it has provided me with an invaluable opportunity to
strengthen my own confidence and provide me with a platform
to share what I am most passionate and curious about with a
larger audience. It has enabled me to share knowledge, gain
lessons and build relationships.
Do you have anything that you would like to add?
I would like to strongly encourage all members of our
profession to apply. Especially those who have thought they
couldn’t succeed or limited their views in the past.
Lastly, this journey has affirmed that we have an incredibly
important role to play in our society. We must continue to build
our profession while remembering that it should be open to a
broad range of clients who require our expertise.
24 www.bluechipdigital.co.za

FPI | Financial Planner of the Year
BLUE
CHIP

BLUE
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PROFESSIONAL ACCOUNTANCY | Trends
The accountancy profession:
tackling tomorrow’s challenges, today
Far from its historic reputation as mere financial bean-counting, accountancy has transformed into
a multi-faceted profession that tackles a full range of duties in the world of finance and business.
Shahied Daniels, Chief Executive, SAIPA
According to Shahied Daniels, chief executive at the
South African Institute of Professional Accountants
(SAIPA), the accountancy profession is in the process
of reinventing itself to play a more significant role in
addressing challenges of businesses, economies, society and the
environment. Fittingly, as the accountancy profession continues
to enjoy increasingly wider relevance, several challenges and
opportunities have emerged that Professional Accountants (SA)
are well-equipped to expertly navigate. We spoke to him recently
to gather his insights on what lies ahead for the accountancy
profession as it embraces digitalisation, drives sustainability and
tackles issues of transparency and integrity head-on.
What are the top trends shaping the accountancy profession
that SAIPA believes professional accountants should keep
abreast of in 2023 and beyond?
The biggest trends facing accountancy professionals is the
move towards reporting on non-financial information, especially
sustainability reporting, which includes reporting the impact
on the ESG. While accountants have typically been considered
“number-crunchers”, they have evolved to developing integrated
thinking mindsets to become value officers, and always have
and continue to play an important role in strengthening and
standardising non-financial reporting standards.
A second trend that is increasing is the importance of
the attractiveness of the accountancy profession and talent
retention, which is threatened by advances in technology and
artificial intelligence (AI) because not all future accountancy
professionals are willing to study for the required minimum
period of around seven years. This is something that is
particularly close to my heart as the chair of the Edinburgh
Group as a global body, which has skills development of
professionals high on its agenda.
Thirdly, digital transformation is affecting the profession in
several ways. Digitalisation and AI are disrupting many industries
all over the world. They are not only automating functions
traditionally done by people, but, more optimistically, they are
enabling the evolution of many roles. As financial regulations
tighten around the world, the importance of Professional
Accountants (SA) and the role they play in the line of defence
in fighting corruption and supporting and driving anti-money
laundering (AML) efforts, is also increasing.
As the importance of ESG reporting increases for businesses
and their stakeholders, how can the profession demonstrate
that its practitioners are best placed to deliver assurance?
While sustainability reporting standards are not financial in
nature, Professional Accountants (SA) are well-placed to offer
expert advisory and assurance support in this area. There is a
consensus globally that accountancy professionals have the
skillset to report and provide assurance on sustainability and
ESG, as they are adept at reporting on non-financials as well.
They are well-versed in reporting against standards and are
uniquely skilled at providing assurance.
One of the biggest imperatives to achieving the successful
implementation of sustainability reporting frameworks is the
capacitation of Professional Accountants (SA). Upskilling and
reskilling are key to being able to contribute effectively to this
emerging area of reporting.
Other Service Providers (OSPs) are also operating in this
domain, but what sets Professional Accountants (SA) apart are
the standards against which members can provide advisory
services and assurance. Rather than competing, SAIPA believes
that collaborating with OSPs is in the best interest of bolstering
sustainability reporting.
26 www.bluechipdigital.co.za

PROFESSIONAL ACCOUNTANCY | Trends
BLUE
CHIP
Although companies are increasingly reporting on ESG and
sustainability, there is fragmentation in terms of which standards
and frameworks are used. What are some of the current efforts
to standardise these frameworks?
While non-financial reporting and the GRI (and similar) Standards
have been on the accountancy profession agenda for a while,
bolstering ESG and sustainability reporting is now a compulsory
imperative within the accountancy profession. Currently, there
are two new reporting standards that have been drafted by the
newly established International Sustainability Standards Board
(ISSB), which forms part of the International Financial Reporting
Standards Foundation. These two standards will officially be
released in mid-2023 and will be a valuable step forward in
standardising ESG reporting.
The rise in sustainability reporting is a clear offshoot of
the United Nations Sustainable Development Goals (SDGs),
particularly goal 13, which is to take urgent action to combat
climate change and its impacts. This demonstrates that
professional accountancy organisations (PAOs) and corporates
are taking the SDGs seriously and are taking steps to support the
achievement of these goals.
Linked to the efforts of the ISSB, the International Audit and
Assurance Standards Board (IAASB) is also in the process of
reviewing auditing standards, a process that has been fast-tracked.
Clarity on sustainability reporting coupled with strengthened
auditing standards will be a boon for formalising ESG reporting
and enabling it to be done effectively.
You mentioned talent retention as being high on the agenda for
accountancy profession. Why is this gaining importance now?
How we attract and retain talent in the profession is a question
on the minds of accountancy professionals the world over.
Internationally, we’ve seen the rates of new entrants into the
industry fall. This is a trend that is not only affecting emerging
economies, but even the developed world, like the US, Europe,
Australia and the like. According to a report from the American
Institute of Certified Public Accountants, the number of American
students completing a Bachelor’s degree in accounting fell by 8%
in the 2019/20 school year compared with the 2011/12 period,
a worrying trend. Accountancy is now competing against other
professions for talent, especially the digital technology industry,
which has become very attractive to young people. We have seen
that accountancy professionals are increasingly migrating to the
technology and non-financial sectors.
Part of attracting and retaining talent is making the different
routes to qualify as a Professional Accountant (SA) much more
widely known. The profession has, unfortunately, had a rigid
way of absorbing talent into the profession. You must have this
qualification, you must have done that degree, etc. But what are
the alternatives? This is a discussion we had recently at the IFAC
Chief Executive’s Forum in New York.
It is well-acknowledged that enhancing the attractiveness
of the accountancy profession is crucial as it forms the basis of
ensuring resilience, relevance and longevity.
How else can the accountancy profession increase its relevance
not only to potential talent, but to its wider stakeholders?
An often-underrated element of ensuring the relevance of
a profession is the power of a strong brand. Our mother
body, which is the voice of the global profession, IFAC, has
acknowledged the importance of how the profession markets
itself to attract dynamic talent.
One of the emerging questions that affect the profession is
the transition from Chief Financial Officer (CFO) and Chief Value
Officer (CVO). In the near term, we are going to see a moving
away from the “ordinary” accountant, in terms of job titles (not
designations). We are going to start seeing more specialised
roles, such as a data analytic accountant or a financial engineer
or a strategic accountant. The actual job titles we are going to
see professional accountants holding are going to reflect the
change from “number crunching” to holistic value creation.
To build that strong brand, the accountancy profession
needs to emphasise the evolution of the value that is created by
Professional Accountants (SA). We are no longer just looking at
historical data to inform the services we perform for clients. SAIPA
members are skilled in becoming forward-looking visionaries
who create growth and future-oriented value. We need to use
this to build our brand as Professional Accountants (SA).
The digitalisation of accountancy professional has been
accelerated in recent years. Some fear that increased digitalisation
will make certain functions done by Professional Accountants (SA)
redundant. What is SAIPA’s view on this concern?
Digitalisation has impacted the profession without question.
This has been especially prevalent within the compliance work
of accountancy professionals, which is increasingly being
occupied by software. Technology and AI can replace the
human characteristics of emotions and human experience that
drive decision-making by entrepreneurs and business owners.
This looks to be a continuing trend, as AI also becomes widely
adopted within the profession.
AI is something the profession has been slow to embrace,
but it is getting there. All of these new tools have affected
the profession and will continue to. There are, however,
two attributes that the profession will always require from
professional accountants which are: professional judgement
and professional scepticism. Regardless of how digitalised the
profession becomes, these two functions will always be there
for the Professional Accountant (SA) to perform.
You’ve mentioned that accountants should embrace the
changing nature of their role in a digital age. With Professional
Accountants (SA) increasingly acting as value-creation
partners, how can they use data and technology to provide
strategic advisory to businesses?
The answer to this question lies in the upskilling and reskilling
of Professional Accountants (SA). Continuous Professional
Development (CPD) is something SAIPA is deeply committed to
because it plays a crucial role in enabling our members to take
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27

BLUE
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PROFESSIONAL ACCOUNTANCY | Trends
advantage of technology advancements and to use it as a tool
to bolster the value they bring.
Rather than being intimidated by data and technology,
Professional Accountants (SA) should look at the strategic
edge these tools provide them in offering more dynamic
strategic advisory. Data is gold, as they say. Data analytics is
a business tool to be used by Professional Accountants (SA)
to elevate and enhance whatever they do, be it preparing
financial statements, auditing reports or value creation reports.
Something that will be affecting the audit side is blockchain
technology. Blockchain has the capability to enable real-time
online audits, which will affect the profession in a big way.
We need to embrace both the opportunities and demands
of technology. Leading by example, SAIPA has added digital
proficiency as a compulsory CPD for our members because,
wherever you practice within the profession, you need to stay
relevant of what is happening in the digital technology space.
Digital tools like ChatGPT and Microsoft’s Copilot will all
likely influence the accountancy profession, and we need to stay
informed to mitigate any risk to the profession, by capacitating
ourselves to integrate these tools into what we do.
With the recent greylisting of South Africa, what role can
Professional Accountants (SA) play in helping business ensure
financial transparency and compliance, and supporting the
efforts of the government to get the country off of the list?
As we all know, South Africa has unfortunately been placed
on the Financial Action Task Force’s FTAF greylist of countries
under special scrutiny regarding money laundering and
terrorism financing. Linked to this, it is important for
Professional Accountants (SA) to note emerging areas of
assurance, as we develop and implement standards to support
compliance in burgeoning industries, such as cryptocurrency,
cybersecurity, data privacy and integrity, as well as AML.
These are areas which the profession needs to put its heads
together in developing assurance and audit standards. SAIPA
recently conducted a CPD on FICA and greylisting, with a
focus that all Professional Accountants (SA) must register in
terms of the legislation.
Professor Wiseman Nkhulu once raised a profound question
for professional accountants: are they enablers or contributors
to corruption? As a member of IFAC, SAIPA and its members are
not just guided by ethics – we proudly adhere to internationallyrecognised
standards of integrity within the profession. It is
our responsibility to collaborate and work with government
and other entities and stakeholders to get South Africa off of
the greylist. We have a hugely important role to play in the
“accountability ecosystem”, as Auditor General Tsakani Maluleke
terms it.
As accountancy takes on sustainability, digitalisation and
challenges of ethics and integrity, what is your hope for
the profession?
South Africa has a doyen in the corporate governance
space, Professor Mervyn King, who is on record saying that
accountants can save the planet. At face value, that may seem
grandiose. But if you drill deeper, Professional Accountants (SA)
play a role in key industries that are driving the world forward, from
the medical to the legal industries and beyond. The increasingly
important role SAIPA members play in sustainability reporting, for
instance, is crucial in combatting climate change.
Our work in financial compliance helps strengthen the
attractiveness of our economy, to the benefit of all citizens.
Accountants can save the planet. But to do so, we must evolve – stop
doing the same thing and stop doing the same thing differently – the
time is now for accountants to do different things.
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SAIPA’s global recognition is evident through its membership in the International Federation
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In line with its commitment to transformation and inclusivity, SAIPA has consistently
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Promoting equality and progress throughout the profession, SAIPA is driven by the
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in business and society, ensuring high standards of professional ethics and service,
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SAIPA is dedicated to the growth of its members by ensuring that they are well-equipped
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INVESTMENT | Cryptocurrency
The Icarus Syndrome
“Exclusive: 30-year-old billionaire Sam Bankman-Fried has been called the next
Warren Buffett. His counterintuitive investment strategy will either build him
an empire – or end in disaster.” – Fortune Magazine, August 2022
In Greek mythology, Icarus was a relatively minor character. His
father, Daedalus, was a famous inventor who produced a great
maze on an island for a king. The maze was so complex that
Daedalus himself couldn’t find a way out of it. After building
the maze, Daedalus fell into disfavour with the king, and he and
his son, Icarus, were forced to live out the rest of their days stuck
in the labyrinth Daedalus had built.
But rather than accept his fate, Daedalus, the great inventor,
built wings of wax and feathers that he and his son would use to
escape the maze by flying over it. Just before takeoff, with their
wings attached, Daedalus gave Icarus two important pieces of
advice. Firstly, he told his son that if he didn’t fly high enough,
his wings would get wet in the ocean and he would drown, and
secondly, if he flew too high, the sun would melt the wax and
he would fall from the sky.
As the two of them took off, flying over the labyrinth, Icarus
had every intention of heeding his father’s advice. However, as
he gained more confidence in his ability to fly, he soared higher
and higher into the sky. Soon, believing he was unstoppable,
and ignoring his father’s advice, Icarus flew too close to the sun
and his wings of wax melted.
In many ways, the story of the failed crypto exchange platform
FTX and its founder, Sam Bankman-Fried (SBF), provide us with
the quintessential example of what has come to be known as the
Icarus Syndrome.
For heavy traders only
Cryptocurrency exchange platforms operate like most
traditional exchange platforms, although, unlike the New
York or Johannesburg stock exchanges, investors buy and sell
cryptocurrency on them as opposed to shares in companies. Two
additional differences between crypto exchanges and regular
stock exchanges are that (1) they often allow investors to store
their cryptocurrency on the exchange and (2) they may offer
investors the ability to invest in a cryptocurrency backed by
the exchange, and in the case of FTX (Futures Exchange), that
cryptocurrency was called FTT (FTX token).
Crypto exchanges have been influential in the growth of the
cryptocurrency market across the world, primarily because prior
to their advent, the only way investors could acquire crypto was
by either mining it or by arranging to buy it from individuals who
already owned it.
In February 2010, a user on the cryptocurrency platform
Bitcointalk.org set up a portal where users could buy and sell
Bitcoin from each other – this is one of the first cryptocurrency
exchanges. Today, there are over 500 cryptocurrency exchanges
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across the world. In comparison, there are roughly 130 stock
exchanges worldwide.
A combination of significant investor demand and a lack of
regulatory oversight has been responsible for much of the growth
in the cryptocurrency exchange market to date. In addition, in a
world with so much optionality, it is tough to make yourself stand
out. So, what did FTX do that made it so successful?
Well, FTX actually stands for “Futures Exchange”, and one of
the reasons the company was able to differentiate itself from
other exchanges was because it was really the first to offer
investors a way to cost-effectively trade in cryptocurrency
derivatives. A derivative is a security with a price that is
dependent on the value of another security. In the case of FTX,
that underlying asset is usually a cryptocurrency. According
to Patrick Gruhn, head of FTX Europe, FTX’s target market was
“heavy traders” and not cryptocurrency newcomers. Allowing
investors to trade “on margin” opened the floodgates and
reduced the barriers for investors to
actively trade in high volumes.
Some of the products FTX offered
to users of the exchange included
derivatives, options, leveraged
tokens and tokenised stocks. It
isn’t really necessary to understand
how these products actually work,
but it is important to recognise that apart from trading in
cryptocurrencies in general, there are a whole host of additional
risks that come with trading in derivatives, especially if they
are being used to speculate. This is an important point worth
elaborating on. Clearly, FTX’s business model is an exceptionally
high risk one. Not only is the company’s revenue linked to
the value of speculative cryptocurrency prices, but users of
the platform can further speculate by taking out derivative
contracts on those cryptocurrencies.
While the purpose of this article is not to delve into the
technicalities of derivative usage and why they can both
increase and mitigate risk for investors, it is important to note
that FTX’s success was largely due to the kind of products it was
offering to investors that allowed them to speculate through
the use of derivatives.
And so, against that backdrop, how did FTX go from hero to
zero in less than a week?
Before we answer that question, it is important to understand
how FTX’s own cryptocurrency, FTT, has played an integral part
in the FTX saga.
Twelve days in November
It isn’t uncommon for crypto exchanges to offer users their own
cryptocurrency, to set themselves apart from their competitors.
These cryptocurrencies are known as “exchange tokens” and
generally offer users of the exchange platform a whole host of
benefits if they choose to transact in that cryptocurrency. Some
of those benefits include fee discounts, rebates and preferential
access to specific token sales.
FTX launched its exchange token, FTT, in 2019 and offered
users many of those benefits. It is difficult to separate out FTT
from FTX, given how integrally linked the exchange token was to
the platform. Ultimately, trading on FTX was cheaper and easier
if you were using FTT. Not only that, but the default collateral1
underlying many of the futures contracts traded on FTX was FTT.
FTT is described as the “backbone of the FTX ecosystem” on FTX’s
website for these reasons.
FTT may have seemed like a solid bet for most crypto
investors. Ultimately, the currency was integrally linked to one of
the fastest-growing crypto platforms out there and at one point
in 2022 one coin was worth $80. However, it is difficult to give
any credence to that valuation given that tens of millions of FTT
tokens were not widely held. In fact, a lot of FTT still belonged
to FTX and was being valued on FTX’s balance sheet using the
publicly traded value of FTT. In addition, FTX’s balance sheet was
also being propped up by tokens that the company had received
from SBF’s hedge fund, Alameda
How does a two-year-old
company get valued at $18-billion
and then have its valuation
double less than a year later?
Research, as collateral for billions
of dollars in loans. Essentially,
there was a giant hole in FTX’s
financial statements.
FTX’s collapse took 12 days. On
2 November, various revelations
came to light suggesting that both
Alameda’s and FTX’s balance sheets were being propped up by a
cryptocurrency that wasn’t worth very much. In addition, many of
those assets were collateral for the derivatives that FTX had issued.
Once those revelations became clear to the market it wasn’t long
before FTT crashed and FTX filed for bankruptcy on 14 November.
A lot of the details surrounding the extent of the rot at FTX
are still coming to the fore and it isn’t worth spending too much
time on those details until the full picture starts to take shape.
However, there are a few important themes worth drawing on
in the interim.
To do that, we first need to understand who exactly SBF is and
how he became the golden child of Silicon Valley.
SBF and the Kimchi Premium
Born in 1992 on the Stanford University campus, where both of
his parents were law professors, from a young age, SBF developed
a keen interest in mathematics and science. From 2010 to 2014,
he attended the Massachusetts Institute of Technology where he
studied mathematics and physics.
After graduating, he went on to work for a high-frequency
trading firm called Jane Street, as an ETF trader. There is no doubt
that SBF was a gifted trader, and during his time at Jane Street he
was so successful that other traders in the firm used to literally
watch him trade. But that wasn’t the only drawcard that set him
apart from his fellow traders – he was also highly ambitious.
In 2017, SBF left Jane Street and co-founded the hedge fund
Alameda Research. It was at Alameda that he really established
his reputation as the golden child of Silicon Valley, by exploiting
something known as the Kimchi Premium.
www.bluechipdigital.co.za
31

get valued at $18-billion and then have its valuation double less
than a year later?
The Kimchi Premium is the name given to the difference in
crypto prices between parts of Asia (mostly South Korea) and the
rest of the world, based primarily on Bitcoin. First identified in
2016, at one point in 2018 the price of one Bitcoin in South Korea
was over 50% higher than it was in other markets.
The reasons for the Kimchi Premium’s existence could form
the basis of an entirely separate article. But essentially, an astute
trader who could pick up that the price of Bitcoin in South Korea
was higher than most other markets could buy Bitcoin in those
markets and sell it in South Korea for a massive profit. In the
world of finance, this is known as an arbitrage opportunity – the
purchase and sale of the same asset in different markets to profit
from pricing differences in those markets.
At the age of 25, in a Berkley apartment, SBF was that astute
trader. SBF was one of the first people to identify and exploit the
Kimchi Premium. Ultimately, the trade was so successful that not
only did it make him a billionaire, but it also paved the way for the
eventual establishment of FTX, which was in part seed funded by
trading profits Alameda had made exploiting the Kimchi Premium.
At this juncture, it is easy to see why FTX may have seemed
like a solid investment option for some of the biggest investors in
Silicon Valley like Sequoia Capital, the Menlo Park-based venture
capital firm that is known as one of the early investors in Google,
YouTube and PayPal.
On the surface, SBF was young, intellectual, had altruistic
ambitions and was wickedly smart. He had also shown his crypto
acumen by successfully profiting from the Kimchi Premium.
At that stage, it would have been easy to draw comparisons
between him and Mark Zuckerberg or even Steve Jobs.
In fact, so enamoured was Silicon Valley by FTX and ultimately
SBF that in July 2021, that company raised $900-million from 60
investors at an initial valuation of $18-billion. A few months later,
the company was able to raise a further $400-million at a valuation
of $32-billion. This for a company barely two years old.
This is an important point and draws on one of the key themes
underpinning the FTX saga. How does a two-year-old company
Heavy hitters and the price of possibility
There are levels of nuance associated with the question above
but ultimately there are two important points to draw on: the
time during which the valuation was performed and the level of
due diligence associated with the investment itself.
Firstly, FTX received most of its funding during a time in which
the price of crypto assets was soaring. This was attributable to
several factors including unprecedented levels of monetary
stimulus that drove the price of speculative growth assets higher
and higher, peaking around August 2021.
Secondly, what has come out in the wash as the FTX saga
has unfolded is that there were glaring operational, risk
management and compliance issues within the FTX business
that largely contributed to the company’s downfall. So much so,
that the current CEO tasked with turning the company around
and who was also tasked with turning Enron around has noted
that FTX is in a worse state operationally than Enron ever was.
Surely then, these issues should have been picked up in the
due diligence when the later funding rounds were completed.
Due diligence is the process followed by investors before they
make an investment in a company to see that the company does
what it says it is doing and that there are real tangible assets
underpinning what they are buying into. So, then what led to a
lack of due diligence being done?
In general, there are two important points worth discussing:
1. The Presence of Heavy Hitters. Some of FTX’s investors are
the most successful venture capital companies in the world
including Sequoia Capital, Temasek and Soft Bank. The fact
that these firms were willing to invest in the company may
have filled other investors with a false sense of confidence
that there were no glaring due diligence failures. After all,
surely if one of YouTube or Instagram’s early investors thinks
FTX is a solid bet then why shouldn’t anyone else? This kind
of herding behaviour is very powerful and has the ability to
thwart critical thinking.
2. Paying for the Possibility. This is something we quite often
see with secular growth investors. Even if the company they
are investing in is not in the best shape they are willing to
pay up just for the possibility that it might become the next
YouTube or Google. In an article that Sequoia published
on SBF which was subsequently removed from its website,
“just the possibility” that FTX could meaningfully compete
with big banks like JP Morgan Chase, Bank of America or
Wells Fargo as a financial sector behemoth, meant that the
$32-billion valuation was justified.
Ultimately, it is always easier to see how in hindsight investing
in FTX implies a level of due diligence failure. However, there
are certain factors that may have led to appropriate due
diligence not being conducted. Recently, Sequoia Capital has
told its investors that it is taking steps to assess where and how
32 www.bluechipdigital.co.za

INVESTMENT | Cryptocurrency
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its own due diligence process failed, although it seems a bit like
closing the barn door after the horse has bolted.
The regulatory failure
It is easy to play the blame game when it comes to FTX. Clearly,
the company’s founders played an integral role in creating an
entity that has ultimately cost a lot of people a lot of money.
You could probably even take the blame game a step further
and rightly question why so few of the company’s investors did
their homework before committing client capital to something
so unstable.
However, it is difficult to holistically assess the FTX debacle
without at least mentioning the regulatory oversight or lack
thereof that was in part responsible for creating this situation.
The cryptocurrency investment case is to such a large degree
dependent on the concept of deregulation and has for a long
time operated under a different set of rules to most capital
markets. One of the main goals of Decentralised Finance,
or DeFi, a concept closely related to cryptocurrencies, is to
create a financial system that is not dependent on traditional
governance structures. DeFi proponents argue that under such
a system, banking and other costs that financial companies
charge will disappear.
However, in the wake of FTX that is not likely to be the case
for much longer. Investors in these types of ventures are likely to
demand greater regulatory scrutiny on a forward-looking basis to
prevent this kind of situation from ensuing in the future.
The Entrepreneur Complex and short-term noise
We started the article by referencing a relatively obscure
segment of Greek Mythology that concerns itself with the
story of Icarus and how his hubris ultimately fuelled his
demise. It is important to note that the US is a country built on
entrepreneurship and ingenuity.
America’s entrepreneurs have built the country and are
heralded as some of the smartest people in the world – from
Henry Ford and the Wright Brothers to Jeff Bezos. The kind of
hype and image that was created around SBF was in many ways
no different and led many smart people to believe his story and
gloss over the cold hard facts that presented themselves in the
investment case.
A few months before FTX unravelled, Sequoia published an
extensive puff piece on him that made him out to be a visionary
of sorts, and there were even murmurs that he may become the
world’s first trillionaire. In addition, headlines like the one that
prefaces this article are not difficult to come across through a
simple Google search.
So then, what were some of those clear red flags that investors
could have picked up on before investing in FTX?
The due diligence red flags
• The Business Model. First and foremost, FTX’s business model
is incredibly risky. Not only does the company generate its
revenue from highly volatile cryptocurrency where prices are
often determined by investor speculation and not grounded
in fundamental reasoning, but the business model was
also inextricably linked to the use of derivatives to further
speculate on something that is already very speculative.
• Crypto Hype. Clearly, in August 2021, crypto prices were
firmly planted in bubble territory. While hindsight is often
twenty-twenty, FTX’s valuation almost doubling from
$18-billion to $32-billion generally defies reason. Even the
fact that this valuation was broadly accepted by the market
should have been a red flag.
• The Due Diligence Gremlins. Due diligence isn’t very fun.
Often, checking that a company or a manager are doing what
they say on the tin involves endlessly pouring over operational
or business processes and procedures to assess if they are
sound and reasonable. However, cases like FTX show us why
it’s such an important part of the investment process. If proper
and rigorous due diligence had been performed, investors
may have spotted a lot of the red flags.
• Deregulation sounds better than it is. As investors, we often
bemoan the cumbersome nature of regulation. However, the
case of FTX shows us why it is needed to protect investor
interests. The mere fact that FTX operated within an industry
that thrives on a lack of regulation means that potential
investors should be aware that their investments have one
less layer of protection.
• The SBF hype. As we have previously mentioned, a lot of hype
was generated around the twenty-something MIT whiz kid
that was on his way to becoming the world’s first trillionaire.
Often, that kind of hype can be seen in hindsight as a red flag.
The future crypto reckoning
Clearly, there were warning signs from get-go that should have
made it very difficult for FTX to pass the sniff test. However,
are there any broader implications for the future of crypto and
crypto exchanges in general?
Well, one of the most obvious is likely to be greater regulatory
scrutiny which is exactly what the industry doesn’t want. It’s all
fine to have decentralised finance, but when the man on the street
loses money, governments step in.
In addition, it seems that the FTX story may
have been the straw that broke the camel’s
back. Investors are likely to approach crypto
investments with more scrutiny than previously,
being more questioning about the kinds of
cryptos they buy and the types of exchanges they
invest on. Ultimately, these are all good things
for an industry that’s in need of a healthy dose
of scepticism.
Ultimately, the basic rules of investing apply no
differently to a crypto investment than they would
to a traditional investment. Investment merit, due
diligence, suitability and value for money are
some of the basic checks which investors can
use to avoid flying too close to the sun.
Matthew Molyneux,
Investment Analyst,
Fundhouse
1 Collateral is the security pledged for a specific futures contract.
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33

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INVESTMENT | Trends
Is this a reset?
How global and local changes will drive the
evolution of portfolio management
The Covid pandemic seems to have marked a transition
point on a global scale. Pre-Covid we became accustomed
to a world of ultra-low interest rates, low inflation and
globalisation.
For me, the lockdown was a strange combination of general
isolation and a sense of shifting tectonic plates, with market
volatility running rampant. As the world has started to reopen, the
full extent of these changes are manifesting and will have profound
implications for how portfolio management is likely to adapt.
On the local front, the continued failure of state delivery,
especially around Eskom and energy security, has dampened the
prospects of economic growth. This together with the relaxation
of exchange control, allowing up to 45% of retirement assets to
be invested offshore, have profound implications for both the
management of portfolios as well as the structure of the South
African investment industry. The relative valuation of South African
assets vs global assets, currency weakness and an expected
slowdown in global growth have limited the extent to which
investment managers have increased their offshore allocations.
However, this is a temporary phenomenon and in time we will see
investment managers materially increasing their offshore exposure
to access the larger global investment opportunity set.
The South African investment industry will need to adjust
away from a home bias and evolve their business models to
credibly manage the offshore portfolios. I fully expect to see a
level of consolidation in the industry, more partnerships with
global asset managers and for those asset managers large
enough, the establishment and expansion of globally focused
teams and offices.
Another fundamental shift will be the need for portfolios to
articulate their objectives more explicitly as the larger investment
opportunity set will lead to higher levels of return dispersion
between investment portfolios. As such, the need for funds to
define and match their liabilities to appropriate mandates and
portfolios more explicitly will become even more important. The
importance of outcome-based portfolios will increase as general
market portfolios may not meet investor needs.
Globally we are seeing a fundamental shift in geopolitics and
economic policy.
Inflation has surged and this has led to the end of the easy
money era. It seems that the TINA acronym no longer applies:
“There is no alternative” is short for saying the best global
investment opportunity set was in growth-orientated asset
classes. This is no longer the case and global bonds and cash
investments present better opportunities.
We expect that global inflation will reduce, but not to levels
seen before the pandemic. This will imply that the allocation
between global asset classes will become more important.
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INVESTMENT | Trends
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Inflation has surged and
this has led to the end of
the easy money era.
Over the last 20 years, we have seen the rise of China and there
are now two global superpowers: China and the United States (US).
This power struggle has implications for globalisation and
we are likely to see tighter integration regionally. This implies
that investment managers will need to be more discerning
about regional allocations. Thinking of the world in terms of
developed and emerging markets will not be adequate to assess
investment opportunities.
The rise of economic, social and governance (ESG) factors
in investing and the challenge that energy security has
posed must also be considered. Over the last year the relative
outperformance of energy has raised the question of whether
ESG is rewarded and in the US, Republican governors have
openly driven an anti-ESG agenda.
I believe that this is a shorter-term phenomenon. The
realities of climate change will continue to be imperative while
considering the need for energy security. This potentially reopens
the door for nuclear energy and in the longer term hydrogenbased
sources of energy. Renewable energy will continue to
grow but we need to be realistic that a swift transition may have
unintended consequences.
In South Africa, we are especially exposed to the reality that a
transition away from coal-powered energy production will be slower,
costlier and more expensive. So how we approach investment
and exposure to carbon-intensive industries will have to be
nuanced, with a differentiated approach between South African
and global investments. Portfolios will
also need to assess the opportunities
and effects of infrastructure investing,
especially South African-based projects,
with an increased exposure to these
investments in portfolios.
Many other trends will also affect
the investment universe, ranging
from demographic trends to the role
of digital and crypto assets as well as
the social implications of increasing
automation and artificial intelligence
(AI). All these factors will result in
investment managers and portfolios
needing to evolve and adapt. This
is both an environment of risk and
opportunity. I, for one, am excited about
this dynamic environment. Ultimately,
what we do is in the interest of and for
the benefit of our clients, and as we say
here at Momentum Investments, with us
investing is personal.
Mike Adsetts, Acting
Chief Investment Officer,
Momentum Investments
Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services and registered credit provider (FSP 6406).
www.bluechipdigital.co.za
35

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INVESTMENT | Hedge funds
Old Mutual Multi-Managers
scoops hedge fund awards for
the fifth consecutive year
The Old Mutual Multi-Managers Long Short Equity
fund of hedge funds won three trophies at the annual
HedgeNews Africa Awards 2022. The fund won the award
as the best fund of funds for its 2022 performance
(+11.9%, with a 1.65 Sharpe Ratio) as well as for best fund over
five years and 10 years. The Old Mutual Multi-Managers Long
Short Equity fund of hedge funds has now received an award
for the best fund of funds over 10 years for the fifth year in
a row. This brings our total awards over various time periods
to 12, since 2013. The awards recognise the best risk-adjusted
returns of alternative strategies and hedge funds in South Africa
and the broader Africa region each calendar year, based on an
established methodology and independently verified data
submitted to the HedgeNews Africa database.
The Old Mutual Multi-Managers Long Short Equity fund of
hedge funds outperformed local equities over all these periods
at a lower level of risk and net of all fees. The addition of hedge
funds in our inflation plus strategies has thus continued to deliver
good risk-adjusted return outcomes for our clients over time.
Clients get exposure to the Old Mutual Multi-Managers Long
Short Equity fund of hedge funds by investing in our inflation
plus strategy range of portfolios offered to retirement funds and
their members via a fund policy.
Hedge funds
Although hedge funds have been around a long time now, they
are still poorly understood, and many investors don’t know enough
to understand what role hedge funds can play in their investment
strategy. They are a valuable alternative type of investment that
can play a role in a well-diversified long-term investment strategy.
What are hedge funds?
Hedge funds are alternative investment portfolios that employ
additional investment trading strategies and specialist techniques
that are not available to traditional collective investment schemes.
In the case of long short equity hedge funds, as used by the Old
36 www.bluechipdigital.co.za

Mutual Multi-Managers Long Short Equity fund, the managers of
the funds can invest in the usual array of shares on the JSE and they
can also take short positions in the same shares. This allows them
to profit from share prices going up as well as down, providing
they have called the right direction of movement. The benefit of
these additional tools in the toolboxes of hedge fund managers
is that they can manage risk more tightly. In the hands of a skilled
hedge fund manager, it’s possible to obtain similar returns to the
stock market, at lower volatility.
“This brings our total awards
over various time periods
to 12, since 2013.“
The benefits of hedge funds in a portfolio
Including an allocation to hedge funds offers the following
advantages:
• Hedge funds, by their nature, earn returns in different
ways to traditional assets. This means they offer valuable
diversification benefits, with the potential to improve the
risk-adjusted performance of a portfolio.
• Local hedge fund managers have extensive skill in managing
hedge funds across a range of investment mandates, with
long short equity having the longest track record.
• Accessing hedge funds through a fund of funds means investors
benefit from the research and due diligence conducted by Old
Mutual Multi-Managers and they benefit from a selection of
top hedge fund managers and not just one.
• Although hedge fund fees are high, like all fees in the asset
management industry, they have been coming down due
to better transparency and pressure from many investors.
When paying attention to returns earned net of fees, instead
of just aiming for the cheapest solution, is also essential to
assess the extra returns that are possible in relation to the
higher fees.
www.bluechipdigital.co.za
37

BLUE
CHIP
INVESTMENT | Responsible investment
Can you earn an attractive return
while making a real-world impact?
The world needs US$4-trillion of annual investment in the energy sector alone to combat climate change. But this is
only part of the net-zero story. Here’s how SA investors can tap into the structural growth opportunity of a lifetime.
Several factors provide the potential for South Africa to
be a future leader in the manufacturing and production
of climate solutions. According to the South African
Department of Energy, most areas in the country average
2 500 hours of sunshine per year, with an average daily solar
radiation level across a year of more than double that of Europe.
We also have an abundance of naturally occurring raw materials
that can be used in the manufacture of electric vehicles, and there
is government support to reach net zero by 2050, with a heavy
emphasis on greening the power sector.
Many South African investment portfolios are exposed to
some of these trends by virtue of holdings in domestic mining
companies as well as traditional energy companies that will be
transitioning their businesses over time. However, exposure
to the globally leading climate solution companies of today
is much more limited. These companies offer the prospect of
attractive returns with a real-world impact, which if accessed
through a high-conviction approach, provide a compelling
addition to both domestic and international portfolios.
The structural growth opportunity of a lifetime
The climate emergency has resulted in a fast-evolving
regulatory and policy backdrop as well as a significant
momentum shift in corporate and public attitudes towards
climate change. For investors, “decarbonisation” matters
because transitioning to a low-carbon economy requires a
radical overhaul of everything we do, and as the International
Energy Agency has highlighted, the transition from a carbonheavy
to a clean-energy global economy has barely begun.
This affords companies that are enabling that transition an
extraordinary growth opportunity.
Achieving carbon neutrality by 2050 requires the following
milestones to be achieved by 2030, a mere seven years away:
• Four times increase in wind and solar capacity
• An 18x increase in electric vehicle (EV) sales
• A 41x increase in annual EV battery production
• US$4-trillion of annual investment in the energy sector alone
efforts to cut carbon emissions are driving vast flows of capital,
fuelling innovation and creating an enduring tailwind for select
companies. If appropriately executed, an investment strategy
based on this opportunity generates compelling returns over
the long term and contributes to a positive real-world impact.
Importantly, this is not prioritising real-world impact at the
expense of returns.
The climate-solutions investment opportunity extends far
beyond the wind and solar farms that spring to mind. It also
spans companies that are helping to decarbonise buildings
and homes, the food we eat, the products we consume and
the transport we use. Moreover, it encompasses not just the
direct beneficiaries of the energy transition, but the entire
related supply chain that needs to be built around them. It is
also global, and we believe emerging markets offer significant
additional potential for investors in decarbonisation.
Finally, contrary to potential misconception, this is not
a small or mid-cap play. The types of companies we seek
for the Ninety One Global Environment Fund, for example
– attractive growth with persistent profitability and robust
competitive advantages – lead to a large-cap orientation.
In fact, approximately 85% of the portfolio was large cap (a
market cap >$10-billion) at the end of 2022
It is not often that an investment opportunity comes along
with strong long-term drivers, providing the potential for
attractive returns while contributing to a positive real-world
impact. Investors should consider exploring investment
strategies that invest in companies driving decarbonisation –
or risk missing out on an unprecedented opportunity.
That is only part of the getting-to-net-zero story. We also require
radical changes to agriculture, food production, industrial
processes, buildings and more. All this is changing the risk and
return potential of industries and individual companies. Global
Deirdre Cooper, Head of
Sustainable Equity,
Multi-Asset, Ninety One
Graeme Baker, Portfolio
Manager, Multi-Asset,
Ninety One
38 www.bluechipdigital.co.za

Calling
ALL
Financial
Advisors
Branded Reporting and Portfolio
modelling at your finger tips
Fund Research
Comparison & Analysis
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Presentations & Reports
A ProfileData / FE fundinfo joint venture
For further information, please contact Tracey Wise
011-728-5510 / 079-522-8953 or email: tracey@profile.co.za
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BLUE
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INVESTMENT | Economy
Will China’s reopening
benefit the global economy?
We look at whether China’s recovery will boost the rest of the world by raising
growth or whether it will cause inflation to come roaring back.
The outlook is decisively better for China after the
government’s pivot on zero-Covid policy (ZCP) late last
year. Early indications from high frequency data and
the January PMI surveys are that service sector activity
has rebounded strongly. By contrast, the positive impact on
manufacturing was capped by weak external demand while
housing transactions have only muddled along after some
initial improvement.
Recovery in China to be driven by services
This is likely to set the tone for the shape of the recovery. After
all, it is China’s service sector that has really been hampered by
ZCP over the past couple of years as restrictions curbed travel.
“Revenge spending” on services has been observed in most
economies around the world that have transitioned away from
measures aimed to contain the spread of Covid, and China is likely
to experience the same release of pent-up consumer demand.
However, a key difference to other economies – certainly major
developed markets – is that households in China do not appear to
be sitting on a huge stock of savings that can be drawn down to
fund a prolonged period of rampant consumption. While China’s
savings rate has risen a bit, fiscal support has focused on helping
the supply side of the economy rather than direct transfers to
households, as was the case in the US, for example.
“Sugar high” recovery likely to fade into 2024
Our baseline forecast for China now assumes three consecutive
quarters of above-trend growth starting in Q1 2023 skewed towards
services. We think that will lift GDP growth from our previous
forecast of 5% to around 6.2% in 2023. However, the “sugar high”
40 www.bluechipdigital.co.za

INVESTMENT | Economy
BLUE
CHIP
will probably fade as the release of pent-up demand is exhausted,
savings are spent and cyclical forces turn less favourable. We think
GDP growth will ease back to 4.5% in 2024.
“Revenge spending” on services
has been observed in most
economies around the world.
Source: Refinitiv, Oxford Analytica, Schroders Economics Group, as at February 2023. Based on data for
2018, except Russia and Vietnam which is based on 2017 data.
Limited spill-over to other economies
The positive spill-overs to other economies may be quite limited.
- Small Asian economies to benefit
The return of Chinese tourists will boost other parts of Asia, but
these are likely to be the small Asian economies that account for
only a fraction of world GDP.
- European exporters may not benefit as much as in the past:
Europe would usually benefit from an upturn in China’s economic
cycle as stronger growth stimulates investment by manufacturers in
response to an increase in demand for goods. However, we expect
the recovery to be skewed towards services, not manufacturing.
Furthermore, prior strong investment and soft external demand
means that the recovery is unlikely to spur a renewed investment
cycle in manufacturing that sucks in imports from Europe and the
rest of the world. Finally, while ZCP may have delayed foreign direct
investment, it is not clear if multinationals will increase investment
in China at a time when geopolitical pressures are pushing for
supply chain diversification.
- Energy exporters could benefit
Commodity exporters may receive some support if prices
rise, but the playbook may be different this time. Whereas
past recoveries driven by construction have buoyed the
prices of industrial metals, benefiting exporters in the likes of
Latin America and Africa, a recovery in services may be more
supportive of energy. This could fire up global inflation again,
putting real incomes back under pressure and leaving less room
for central banks to lower interest rates in 2024. Some emerging
markets would thrive in an environment of higher oil prices, but
most face a period of sluggish growth as higher interest rates
and subdued external demand bite.
China’s reopening won’t benefit the
global economy much
The upshot is that while abandoning
ZCP has clearly improved the outlook
for China this year, the rest of the
world may not benefit much, if at all.
Indeed, while we have also revised up
our expectations for growth in the US
and eurozone this year, the upgrades
are due to domestic factors rather
than a boost from China.
David Rees, Senior Emerging
Markets Economist, Schroders
Important information: For professional investors and advisors only. The material is not suitable for retail clients. We define “professional investors” as those who have the appropriate expertise and knowledge eg asset
managers, distributors and financial intermediaries. Any reference to sectors/countries/stocks/securities are for illustrative purposes only and not a recommendation to buy or sell any financial instrument/securities
or adopt any investment strategy. Reliance should not be placed on any views or information in the material when taking individual investment and/or strategic decisions. Past performance is not a guide to future
performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Exchange rate changes may
cause the value of investments to fall as well as rise. The views and opinions contained herein are those of the individuals to whom they are attributed and may not necessarily represent views expressed or reflected
in other Schroders communications, strategies or funds. Information herein is believed to be reliable, but Schroders does not warrant its completeness or accuracy. Issued in March 2023 by Schroders Investment
Management Ltd registration number: 01893220 (Incorporated in England and Wales) which is authorised and regulated in the UK by the Financial Conduct Authority and an authorised financial services provider in
South Africa FSP No: 48998.
www.bluechipdigital.co.za
41

INVESTMENT | Responsible investment
Biodiversity:
meet the new climate
Biodiversity preservation is one of the most pressing issues
of our time. The loss of biodiversity poses a serious threat
to the stability and resilience of natural systems. These
systems provide essential services and resources for human
wellbeing such as food, water, medicine and climate regulation.
Recently there has been a growing realisation that biodiversity
preservation is at least as important as climate change. In some
regards it may be considered even more critical given that
biodiversity loss is irreversible while some of the effects of climate
change can be mitigated.
Biodiversity is a term that describes the variety of plant and
animal life on earth. Ecosystems, which are communities of
interacting organisms and their environment, are under threat
from human activities such as land use change, overexploitation,
pollution and climate change. For example, deforestation increases
the risk of infectious diseases as human and wild-animal habitats
converge; loss of insects affects global food security and the loss
of biodiverse genetic material limits the development of new
medicines and vaccines. Despite its importance, biodiversity is in
crisis mode. The UN reports that the rate of species extinction is
now 100 to 1 000 times higher than the natural rate, with one in
four species at risk of extinction.
The loss of biodiversity has significant implications for the
economy and society and undermines the livelihoods and
wellbeing of millions. Already, one in five businesses faces
operational risk from the loss of ecosystems. The World Economic
Forum estimates that more than half of the world’s GDP depends
upon nature and its services. Partial biodiversity collapse could
trim global GDP growth by 2.3% per annum, resulting in a
potential economic loss of [US]$18-trillion through to 2030.
Land and oceanic degradation are estimated to cost a further
$6-trillion annually. In addition to the direct economic impacts,
biodiversity loss has indirect financial consequences. The
disruption of ecosystems increases the risk of natural disasters,
such as floods and landslides, which cause significant damage
to infrastructure and property. This impacts insurance premiums
and the cost of financing for businesses and governments.
Biodiversity loss represents one of the greatest global risks
over the next decade. As our planet approaches the brink of
irreversible change, policymakers have acknowledged that
financial systems need to play a role in safeguarding nature. The
main outcome of COP15, the UN Biodiversity Conference held in
Montreal in December 2022, was the adoption of a global action
plan for nature. From an investor focus perspective, COP15 is
expected to represent for biodiversity what the Paris Agreement
(COP21) was to climate change. The conference resulted in 126
financial institutions, representing over $20-trillion in assets under
management (AUM), signing the Finance for Biodiversity Pledge
committing themselves to setting their own biodiversity targets,
with reporting commitments, by 2024.
COP15 aims to reverse biodiversity loss by 2030, and this will
lead to increasing regulation and improved biodiversity reporting
standards. Two key reporting initiatives come to mind. Firstly, the
IFRS Sustainability Disclosure Standards is expected to become
effective on 1 January 2024 and will apply to all entities that report
according to IFRS Accounting Standards. The goal is to elevate
biodiversity disclosure alongside climate disclosure.
The second initiative is the Taskforce on Nature-related
Financial Disclosures (TNFD) developed to meet the growing need
to factor nature into financial and business decisions. The TNFD
framework, expected in September 2023, will include disclosure
recommendations for both impacts and dependencies on nature,
as well as guidance on setting science-based targets for nature.
Currently, most corporates have emission-reduction goals, but only
5% have biodiversity goals.
It is obvious that the impact of biodiversity on society and
the economy is becoming more important and will likely receive
as much attention as climate change. The Paulson Institute
estimates that an incremental annual investment of $0.9-trillion
is needed to improve biodiversity, and that only 10% of the
annual investment needed to reverse nature loss is being met
today. Clearly, the financing needs to restore and sustainably
manage our planet’s ecosystems offers significant opportunities
for investors and society.
Research by Environmental Finance highlights that currently
only $984-million of AUM is invested in biodiversity-focused
funds, compared to $350-billion invested in climate-focused
funds. Given that financial investors are increasingly seeing
its importance, Melville Douglas expects significant growth in
biodiversity focused investments. In the Melville Douglas Global
Impact Fund, our Biodiversity Preservation investment theme
focuses on opportunities in water treatment, sustainable waste
disposal, recycling/the circular economy and resource efficiency.
We estimate that our investment sub-themes together represent
a $90-trillion investment opportunity through to 2050.
With the potential impact of biodiversity loss on the global
economy and investor returns, our world is facing a new set of
risks and associated opportunities, and your investments need
to adapt. The Melville Douglas Global Impact Fund offers you a
unique opportunity to align your values with your investments. By
investing in nature, we can create a more resilient and prosperous
future for ourselves and generations to come.
Join us in delivering on a shared objective of growing your wealth
while making a positive impact, the Melville Douglas way.
42 www.bluechipdigital.co.za

Help us create a
better tomorrow.
Invest with impact.
We know that investing means creating wealth for the
future. We also know that critical issues like the climate
crisis, scarcity of resources, biodiversity loss, and social
insecurity raise serious concerns about what type of
society we will leave behind for future generations.
That’s why we’re focused on the longevity of the planet
and its people when growing your long-term wealth.
Our Global Impact Fund offers you a unique opportunity
to align your values with your investments. We identify
long-term growth themes that seek to solve the world’s
most pressing challenges. Through our proprietary impact
assessment, we invest in quality global companies that
deliver positive, sustainable impact aligned to key social
and environmental UN Sustainable Development Goals.
Join us to deliver on a shared objective to grow your wealth
while making a positive impact, the Melville Douglas way.
To learn more, visit melvilledouglas.co.za
Melville Douglas is a subsidiary of Standard Bank Group Limited. Melville Douglas Investment Management
(Pty) Ltd. (Reg. No. 1987/005041/07) is an Authorised Financial Services Provider. (FSP number 595).

BLUE
CHIP
INVESTMENT | Economy
Transitioning
to a greener
future
Productive onshore gas
discoveries and investment
in production studies are
bolstering Petroleum Agency
South Africa’s case for
promoting a switch to gas.
As things stand, natural gas supplies just 3% of South
Africa’s primary energy. A significant challenge
facing the development of a major gas market is the
dominance of coal. Opportunities for gas lie in the
realisation of South Africa’s National Development Plan (NDP)
and the Integrated Resource Plan (IRP).
Petroleum Agency South Africa (PASA), the custodian of the
country’s oil and gas resources, and which facilitates and promotes
responsible investment into the sector, sees a major role for gas in
helping the country transition to cleaner energy sources.
Recently, there have been exciting developments in the oil
and gas sector. The application by TotalEnergies for the right to
produce off the south coast of South Africa signals an exciting
new phase. Extensive exploration has confirmed that a significant
resource lies off the coast of Mossel Bay.
In 2022, Tetra4, a wholly-owned subsidiary of Renergen, started
commercial production of liquid natural gas (LNG) from it's plant
in the northern Free State. In January 2023, the company’s helium
plant became the eighth place on the planet to produce that gas.
These are initiatives and investments in which PASA has played
a vital role, in assessing the exploration bids, in granting bids, in
checking the environmental impact assessments to ensure that
they comply with standards and liaising with developers in many
other ways.
Helium onshore potential
When the SpaceX rocket launched in 2021, 11 tons of helium
was used to propel it off the ground. Every computer microchip
in the world is produced in the presence of helium and the
world uses 85 tons of it every day. Although it’s a very useful
element, it’s also a very difficult element. The result of that is
that Renergen, the owner of the Tetra4 company that holds
the first onshore petroleum production right issued by the
Department of Mineral Resources and Energy (DMRE), has had to
import much of its equipment and many of the skilled personnel
it needs to commercialise the gas field.
However, as the project ramps up production, employment
numbers will increase over time.
The field covers 187 000ha in the region of Virginia, Theunissen
and Welkom. Hiring has increased rapidly since 2019 as the project
ramps up from the first phase in which a pilot compressed natural
gas (CNG) plant was constructed in 2016. The second phase, referred
to above, encompasses LNG and helium. Production of helium is
expected to grow from 350kg per day to five tons in the second
phase. LNG for the domestic market and helium for export from
this project will create an entirely new stream of energy options
for South Africa.
The first sector to respond to the potential of this gas find was the
logistics sector. Bulk Hauliers International Transport (BHIT) signed
an agreement to take LNG to fuel 50 of its trucks, which should
lead to lower operating and maintenance costs. Renergen has
signed an agreement with TotalEnergies
for distribution and sales and other
manufacturers have since come on board.
The economic spinoff of the work
done by PASA is clear to see in these
developments. Tetra4 has a loan from
the Industrial Development Corporation
to build a 107km pipeline network
from Virginia and the Overseas Private
Investment Corporation (OPIC), an
agency of the US government, will lend
Renergen $40-million (more than R600-
million) over 12 years, further evidence
of the positive economic benefits of this
brand new subsector.
44
www.bluechipdigital.co.za
Dr Phindile Masangane,
CEO, PASA

INVESTMENT | Economy
BLUE
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Onshore exploration prospects are opening up new
possibilities in the Free State and the Karoo.
The International Energy Association (IEA) has published a report,
Africa Energy Outlook 2022, which deals with the balancing of Africa’s
developmental needs and the urgent imperative to move away from
fossil fuels. The report concludes that a balance can be achieved.
A key factor in allowing Africa to continue to industrialise will be an
uptick in the discovery and use of gas. If all the gas so far discovered
in and off Africa was used, the continent’s share of global emissions
would rise by 0.5% to 3.5%.
Petroleum Agency South Africa has welcomed the report.
PASA has consistently argued that South Africa’s road to net zero
emissions will be via gas. As PASA CEO, Dr Phindile Masangane,
noted in the context of major discoveries of oil condensate off the
southern coast, “The development of these discoveries has the
potential to replace more than 2 300MW of diesel-fired electricity
generation in Gourikwa, Dedisa and Ankerlig, thereby reducing
the carbon emissions from these plants by more than 50% while
eliminating sulphur oxide and nitrogen oxide emissions, which are
also harmful to the environment. Gas is therefore an obvious
bridge to a lower-carbon future in South Africa.”
There are other onshore areas showing promise. The
Department of Forestry, Fisheries and the Environment (DFFE) in
2022 issued draft regulations to govern the process of hydraulic
fracking because the underground resources of the Karoo are
again in the spotlight.
Various environmental studies are being done, including
groundwater and geological studies. The geo-environmental
baseline study for gas in Beaufort West undertaken by the
Council for Geoscience has been completed and showed
significant resources of shale gas. The study did not encompass
any economic modelling.
PASA will be responsible for the granting of any licences once
the draft regulations are finalised.
Three natural gas exploration permits have been awarded to
Tosaco Energy for the sandstone-rich area between Amersfoort
and Balfour in the western part of Mpumalanga by Petroleum
Agency South Africa. Two methane-gas exploration rights have
been granted to Highland Exploration in the Evander area.
In 2022 a successful bid was made to drill for gas at the site
of the Majuba Power Station. Kinetiko Energy aims to supply
Majuba’s 20MW gas generator with fuel. Majuba is one of
Eskom’s many coal-fired power stations which are facing closure
in the province of Mpumalanga and one of several that might
be switched to gas.
Kinetiko has a further two sites where it will do exploratory
drilling: one near Sasol’s Secunda synthetic fuel plant and one
to the south of that.
PASA will continue to promote, facilitate and regulate
exploration and development of South Africa’s oil and gas
resources, ensuring that sustainable development is promoted
in a responsible way.
A key objective is to move increasingly to development and
production phases, beyond just exploration.
The offshore TotalEnergies project and the onshore Renergen
project encapsulate the kind of work that PASA wants to move
towards, in search of economic benefit for South Africa.
The Virginia Gas Project, a project licensed and approved by PASA, has the potential to create an entirely new subsector within the
South African oil and gas sector. The helium plant pictured here started producing that gas in January 2023.
petroleumagencysa.com Petroleum Agency SA @sa_petroleum Petroleum Agency of South Africa @petroleumagency
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45

BLUE
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FINANCIAL PLANNING | Investment
Investing without
a crystal ball
“It’s tough to make predictions, especially about the future.” - Yogi Berra
Leon Michaelides,
Equity Portfolio Manager,
Matrix Fund Managers
The main purpose of investing is to take advantage of
differences between market participants’ expectations
and underlying economic activity. Traditional approaches
to asset management have evolved very little, still
using the same methods, be it single-period metrics like price
to earnings ratios or multi-period valuations such as discounted
cash flows to arrive at price targets.
We see the following issues with the traditional approach to
asset management:
• Single-point estimates lead to overconfidence and assumed
precision. In reality, we cannot predict the future.
• There is a bias to overweight short-term news flow and as
a result, analyst earnings revisions tend to follow reported
earnings in an incremental fashion.
• Discounted cash-flow valuations suffer from a large sensitivity
to arbitrary assumptions.
• Traditional financial statements do a poor job of separating
operating activities from financing activities, thereby
muddying the waters when trying to determine what longterm
sustainable returns could be.
Annie Duke, ex World Series of Poker champion, points out in
her book, Thinking in Bets: Making Smarter Decisions When You
Don’t Have All the Facts that the better you are with numbers,
the better you are at spinning those numbers to conform to and
support your beliefs. In our view, this typifies some of the issues
with traditional approaches to investing where biases can easily
get in the way of providing clean investment signals.
We believe that investors need a different approach to
fundamental research, one that acknowledges that we cannot
“Wall Street, even to this day, is replete
with lots of rules of thumb and sort of
old wives’ tales and shorthands for how
to do things. And some of these things,
when I would sit there and listen to them
and try to cobble it all together, just didn’t
make sense.” – Michael Mauboussin
tell the future. Successful investing is more about managing
uncertainties as well as understanding “skews” in outcomes
and ranges of possible distributions of stock returns rather than
black box valuation models which produce a single answer to a
complex problem.
We infer what expectations are built into share prices by
using our valuation framework. This process illustrates what
needs to happen with a company’s key value drivers to justify
where the share price is trading. Our fundamental research
then concentrates on industry dynamics and developing an
understanding of the likely scenarios of how that key value driver
could evolve going forward.
Using private hospital operator Netcare as an example, the key
value driver we identify for the stock is utilisation of its asset base,
best tracked by paid patient days (PPDs). The stock price of Netcare
is still trading at 25% below where it was trading prior to Covid
while the JSE Shareholder Weighted Index (SWIX) is 15% above
its pre-Covid levels.
OPERATING PERFORMANCE
Returns from core business
FINANCING EFFECT
Returns from efficient balance
sheet structure
RETURN ON
SHAREHOLDER FUNDS
Reinvest, Retain, Distribute
PROFITABILITY
Selling prices
Cost pressures
EFFICIENCY
Sales volumes
Efficiency Capex
Capacity utilization
LEVERAGE
Capital efficiency
SPREAD
Borrowing cost
Source: Matrix Research
46 www.bluechipdigital.co.za

FINANCIAL PLANNING | Investment
BLUE
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Range of ROE outcomes vs price implied ROE
Source: Matrix Research
Our reading of the expectations embedded in the share price
is that PPDs need to continue falling into perpetuity to justify the
current share price. In our view, the market has extrapolated the
weakness in margins which Covid created as volumes and case mix
deteriorated in what is essentially a fixed-cost business. However,
volumes have been improving, despite a second dip as Omicron
hit and we see continued declines as highly unlikely.
Avoiding the forecasting trap by looking for asymmetry in
likely return outcomes, we look for “skews” in likely return
distributions. Using our analysis framework with scenarios can
help when faced with unforecastable variables. Understanding
range of likely distributions has significantly more value that
just a single price target.
In addition to our differentiated approach to fundamental
analysis we also believe in a strong process to help against
behavioural biases where we screen to identify for strong earnings
momentum and valuation to look for opportunities.
We use earnings momentum to build further conviction in
our investment case. Valuation is obviously an important part
of security analysis; however, as we have highlighted above it is
susceptible to numerous sources of inaccuracy. We believe that a
robust investment process is well served by an additional overlay
to tilt the odds in our favour.
Business cycles tend to grow in strength, autocorrelation
effect of forecast revisions provide more support for the
investment through time as markets struggle to forecast the
full impact of cycles on day one as market participants tend to
only make changes in views in small incremental moves.
Our process uses a disciplined approach to screening to
help us direct our research efforts to where likely opportunities
are in the market, as opposed to working on stocks only when
they report.
Our philosophy in embracing the uncertainty in markets is
also echoed further by a view Duke shares in Thinking in Bets
where she argues, “We are discouraged from saying ‘I don’t know’
or ‘I’m not sure’.
“We regard those expressions as vague, unhelpful and even
evasive. But getting comfortable with ‘I’m not sure’ is a vital step
to being a better decision-maker. We have to make peace with
not knowing.”
www.bluechipdigital.co.za
47

BLUE
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INVESTMENT | Hedge funds
Zero exposure to
hedge funds is a
lost opportunity
48 www.bluechipdigital.co.za

INVESTMENT | Hedge funds
BLUE
CHIP
The South African hedge fund industry boasts a
successful track record since the launch of the very
first hedge fund more than 25 years ago. Over the
last decade, the median equity long-short hedge
fund has outperformed traditional equity funds by close to
2% per annum, raising questions about the low exposure
that retail investors have to this alternative, listed asset class.
In this context, widening the hedge fund offering to retail
investors could allow ordinary South Africans to benefit from
a different source of return, largely uncorrelated with the other
asset classes in their portfolios. The Old Mutual Multi-Managers
Long Short Equity fund of hedge funds (FoHF) was awarded, for
the fifth consecutive year, the best fund of funds over 10 years
at the HedgeNews Africa Awards 2022, with a net annualised
return of 11.9% and a Sharpe Ratio of 0.90.
Although South Africa’s hedge fund industry has over
R80-billion in assets under management, it has made little
headway in attracting individual investors, with around
95% of the industry’s assets held by institutional investors,
predominantly pension funds. Much still needs to be done to
educate retail investors about hedge funds before the status
quo can change.
The first step is to gain a basic understanding of hedge funds,
described as funds that allow fund managers to generate returns
from both buying or selling of various asset classes. In the longshort
equity hedge fund space, fund managers can thus profit
from increases in share prices, and from selling shares that they
expect to fall in price, also known as “short selling”.
During periods of consistent market decline, long-short
equity hedge fund managers enjoy distinct advantages over
traditional long-only equity managers because they can profit
from declining share prices. To illustrate this, over the period
June to September 2022, the JSE All Share Index was down
almost 10% compared to the median return of local long-short
equity hedge funds which was up more than 1% over the same
period, while the Old Mutual Multi-Managers Long Short FoHF
delivered a 4% return, an almost 15% outperformance compared
to equities over the same period, net of fees. This is because the
mechanisms of short selling create other value opportunities for
hedge fund managers.
So how do hedge funds generate alpha or excess returns
for clients? When you short a share, you effectively borrow that
share and sell it in the open market with the hope that the share
price will fall and later buy it back at a lower price. The fund
manager can use the cash generated from the sale to amplify
fund returns by, for example, increasing exposure to shares that
are expected to increase in value. Put another way, hedge fund
managers can fund high-conviction views using the capital that
they free up from shorting activities.
Retail investors are unlikely to succeed unassisted in the
complex world of hedge funds, which is why it is important
for independent financial advisors (IFAs) to provide professional
advice on how hedge funds could enhance their overall
investment portfolios.
Hedge funds are topical at the moment and we have seen a
notable uptick in asset managers pushing their solutions in this
space. We must, however, balance our marketing efforts with
consumer education to ensure that retail investors have realistic
expectations from this asset class as those who buy into hedge
funds for the wrong reasons may be disappointed.
Much still needs to be done
to educate retail investors
about hedge funds before
the status quo can change.
Financial advisors and fund managers have three motivations
to encourage retail investors to increase exposure to hedge funds.
First, the hedge fund industry is mature and well-regulated. Hedge
funds have been available locally for almost three decades and
have been regulated alongside traditional unit trust funds since
2015 when they were included under the Collective Investments
Schemes Control Act.
This framework allows for two types of hedge funds to be
created, namely retail investor funds (RIFs) and qualified investor
funds (QIFs).
Second, local managers have extensive skill in managing
hedge funds across a range of investment mandates. And third,
fees have come down significantly since the early days.
Due to asset managers reaching critical mass we have seen
a halving of the base fee, with increased competition driving
down the performance fee when fund managers exceed their
targets. Fund of hedge funds are usually able to negotiate even
lower fees with hedge fund managers. Unit trusts can take
advantage of this because they pool
clients’ investments which sets them up
perfectly to take advantage of the above.
Rather than be deterred by the fee,
investors should focus on the return net
of fees delivered by hedge funds and the
diversification benefits that they offer.
The performance that we have seen
from the hedge fund space has been
stellar and is reported net of fees; while
fees are a key consideration, it makes
sense to focus on the value added by a
well-diversified fund of hedge funds to
an investor’s portfolio. The fact that some
investors have zero exposure to hedge
funds is a lost opportunity.
Nosibusiso Ngqondoyi,
Head of Hedge Funds,
Old Mutual Multi-Managers
www.bluechipdigital.co.za
49

BLUE
CHIP
INVESTMENT | Fund management
THE
VALUATION-
DRIVEN
CONTRARIAN
M&G Investments believes that the consistent
application of its philosophy and process will
lead to sustainable investment performance
for its clients over time. Blue Chip speaks
to portfolio manager Yusuf Mowlana.
What prompted you to choose a career in investments?
I was fortunate to be exposed to the stock market at an early age
by a close family member. Learning about PE ratios, dividend
yields and earnings growth was a good start to understanding
investments. The appeal of being able to grow my savings
prompted me to open a brokerage account at university
while completing my accounting and finance studies. While at
university, I read a number of investment-related books which
cemented the idea that a career in investments would be an
interesting one to pursue as it is intellectually stimulating and
I felt it suited my temperament.
How would you describe your investment philosophy?
Valuation-driven contrarian. The best returns can potentially
be had from buying investments where one has a different
view compared to the market. To be a successful contrarian,
one has to be both different to the market and better. To guard
against the risk of being wrong and the downside risk to a
portfolio, an investment idea would need to also make sense
on its valuation metrics.
The M&G Equity Fund you co-manage has won several industry
awards and was nominated as the Morningstar Best SA Equity
Fund in 2022. What is the secret to your success?
The last three years has been a period of significant valuation
dislocation within equity markets, with the JSE being no different.
We were able to uncover and exploit opportunities in large, liquid
stocks such MTN, Glencore and Sasol where our assessment of
the fundamentals was vastly different to what was reflected in the
share prices of these companies, and in more neglected areas of
the market.
The valuation gap or dispersion between the most expensive
and the cheapest stocks in the market was at extremes. This
was true even within specific sectors and across them. This
valuation dispersion proved to be fertile ground for stockpicking
in companies where the fundamentals were at odds
50 www.bluechipdigital.co.za

INVESTMENT | Fund management
BLUE
CHIP
The JSE is not a proxy
for the economy at all.
with the valuations at which the companies changed hands on
the stock market.
What in your opinion are the best characteristics to look for
in a company in the current environment for an investor to
be successful?
Regardless of the market environment at any particular point in
time, the best companies generally have strong pricing power, can
reinvest their earnings at high rates of return on capital without
the use of excessive leverage and have management teams
which act rationally when making capital allocation decisions.
An investor wouldn’t want to overpay for these characteristics in
case one’s assessment of the durability of these characteristics
proves to be incorrect.
What impact do you believe the woes at Eskom will have on
South African equity returns over the next decade?
A range of outcomes is possible. On the one hand, if the
government were to fully liberalise the electricity sector, the
ingenuity of the private sector could be unleashed such that the
problems at Eskom need not be problems for the economy as
a whole, as they are now. On the other hand, a continuation of
the current situation would mean an environment in which the
country would struggle to grow real GDP.
Importantly for South African investors, the JSE is not a
proxy for the economy at all. Approximately only one-quarter
of revenue earned by JSE-listed companies is earned in South
Africa. Problems at Eskom would likely affect domestic-focused
company returns adversely, but it is by no means a guarantee
that equity market returns as a whole will be poor.
Financial planners often must deal with clients who are
extremely pessimistic about South Africa and investing in local
assets. What is your message to these financial planners?
South Africa isn’t the only country in the world with significant
political, social and economic challenges to overcome. While it
is important to ensure that your client holdings are sufficiently
diversified, the South African market provides one with
access to a number of global companies which offer the same
diversification benefits one would seek by investing offshore.
The most compelling argument in favour of South African assets
currently (both equities and bonds) is that they are inexpensive,
with South African-focused companies trading on single-digit
price-to-earnings ratios. This arguably provides one with adequate
downside protection for the risks.
What key lessons would you share from your experience with
a young investment analyst starting their first job?
The learning process never stops. The most experienced
and prominent investors ensure that they continue learning.
Therefore, ensure that you read widely when it comes to
investment literature and news. Secondly, it is important to
maintain a flexible mindset. This manifests in being able to
change your mind on an investment when your assessment of
the facts, or the facts themselves, change.
What implications, if any, will Artificial Intelligence have on
your job and investor outcomes going forward?
Artificial Intelligence (AI) will likely play a role in augmenting
human judgement and input into the investment process.
Whether it can completely supplant human involvement is a
matter of debate as the AI is likely only to be as good as the
dataset it has access to, and potentially the algorithm written
by a human or another computer.
Interestingly, the M&G Global Equity Fund is run on an
AI model, combined with human judgement, and has been
successful in generating outperformance.
What do you like most about your job?
Being able to make a tangible difference to the lives of clients
saving for retirement is a great motivator. It is a privilege to
be trusted by clients enough to look after their savings and
to do so in an intellectually challenging job.
What frustrates you the most about your job?
Being “wrong” on a company despite having done appropriate
work to ensure that one had assessed all the risks and pitfalls.
Investing is not necessarily deterministic, as events outside
of one’s control and “unknown
unknowns” may affect outcomes
adversely – think of the Covid
pandemic or the war in Ukraine
as recent examples. This is,
however, entirely part of the
job and is what can make the
job interesting.
What is one thing you would
change in the investment
industry to improve outcomes
for clients?
I am not sure there is an easy
way to achieve it, but it would
be to guard against clients
switching out of investments at
a point of poor performance, as
this has the potential to destroy
a great deal of value.
Yusuf Mowlana, Portfolio
Manager, M&G Investments
www.bluechipdigital.co.za
51

BLUE
CHIP
ROUND TABLE SERIES | DFM
Should financial
advisors use a DFM?
An exclusive Blue Chip discussion with three of the country’s top investment and financial planning
professionals focused on Discretionary Fund Managers and how advisors can best utilise their services.
EXPERT PANEL
Our three panellists come at the topic of DFMs from different perspectives.
Barry O’Mahony, CFP®, Founder,
Veritas Wealth Management
Barry O’Mahony came from Ireland
to South Africa in 1993. He joined
Appleton as a portfolio manager
and later moved to Brait Unit Trusts
and ipac SA. O’Mahony was the 2013
FPI Financial Planner of the Year.
Veritas Wealth is a Category I (Cat I)
advisor business with an outsourced
Discretionary Fund Manager (DFM).
Dean De Sousa, Portfolio Manager,
Equilibrium
Dean De Sousa started his career as an
analyst in healthcare actuarial consulting
before moving to Equilibrium (previously
Momentum Investment Consulting)
as an investment analyst in 2017. After
two years, he moved into a portfolio
manager role and is responsible for the
construction and ongoing management
of various bespoke multi-assetclass
client portfolios. Equilibrium is
Momentum’s DFM.
Ebrahim Moola, Senior Financial
Advisor, Bobats Wealth Solutions
Ebrahim Moola is the founder of
Sterling Invest (a Cat II discretionary
investment manager) where he fulfils
a senior portfolio manager role. He is
also MD and senior FA at Bobats Wealth
Solutions (a 94-year-old wealthmanagement
business). Sterling Invest
makes use of an external DFM advisory
business that assists in putting
together its model unit trust portfolios
for Bobats clients.
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ROUND TABLE SERIES | DFM
BLUE
CHIP
DFMs free up time
and build a better
process that is a
deeply researched
and properly
implemented part
of your business.
MODERATOR
IAN JONES (IJ): What do you see a DFM as in our industry?
EBRAHIM MOOLA (EM): For us, partnering with a DFM felt like we could focus on
what we were getting paid to do as a Cat I financial planning (FP) business, and that’s
putting together proper financial plans; really understanding and helping our clients
achieve their financial planning goals. DFM solutions or the services they offer are
quite specialised within the investment management field of the broader financial
planning landscape.
We very quickly realised that the complexities involved within the FP process
necessitated us to work with an investments partner to do the specialised work
required for putting investment solutions together. And we didn’t necessarily want
to have to make additional investment decisions, given that in the 21st-century,
investment management has become quite sophisticated. We felt we’d rather partner
with an outsourced DFM to help us with this investment solutions aspect of what we
need to put together for our clients.
IJ: Dean, as a DFM, how would you describe what you do? How does a DFM differ
from the traditional multi-manager?
DEAN DE SOUSA (DDS): There is no one-size-fits-all definition that applies to all DFMs.
It depends on the value proposition that a DFM has. We see ourselves as a partner to
advisors to enhance the investment advice value proposition offered to clients. This
comes in many forms depending on what that advisor’s primary value proposition
to their clients is. Where we (and most DFMs) primarily differ from traditional multimanagers
is that it is more of a service rather than an off-the-shelf product. Where
wrap funds or model portfolios are offered as off-the-shelf solutions, this would be
very similar to traditional multi-managed fund of fund (FoF) solutions. But typically,
we take it a step further by creating a much closer relationship with an advisor,
developing a good understanding of their advice proposition and then tailoring our
offering to align to and integrate into the advisor’s value proposition to generate the
most value for the clients.
Ian Jones, CEO, Fundhouse
Ian Jones has been with Fundhouse for
10 years. He is a qualified actuary who
started in the investment industry in
2001. Jones has extensive experience in
fund research, portfolio construction as
well as the broader asset management
and financial advisory industries, globally.
IJ: Ebrahim, when you first decided to partner with a DFM, was there an aha
moment when you realised it was the right thing to do?
EM: The aha moment probably came when going through the painstaking initial
process with our outsourced DFM partner in putting together the various models for
our clients. There’s so much nuance and specifics that came up. The DFM raised issues in
coming up with these mandates that we hadn’t even considered. From that point on, I
can say with confidence that the decision-making (by the outsourced DFM partner) that
went into selecting the fund managers, into the asset class allocation, into the various
investment styles incorporated into these baskets of funds, that a lot of work had been
done behind the scenes. I can hand-on-heart say that we’re putting the client in the
best possible position from an investment perspective by working with an outsourced
DFM partner.
We can add value as financial planners on the fluffy stuff of relationships and
partner with investment specialists (outsourced DFM partners) whose life’s work is
building model portfolios in the context of our client base and business.
We’re fortunate to have our own Cat II business so we are still the final triggerpuller
on what gets into the models and any changes that are made. But 99.9% of
the decisions that are used within the model portfolios are the DFM’s decisions and
we know the work has been done behind the scenes by experts in fund manager
selection, asset class allocation and review of macro-economic data to understand
which style of investment is best suited for the medium to longer term.
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53

BLUE
CHIP
ROUND TABLE SERIES | DFM
We have that comfort that we’ve partnered with experts and
in this complex environment that we find ourselves in where
there are countless investment options available for clients, our
outsourced DFM helps us demystify and simplify them into one
of our 12 model portfolios. An overwhelming majority of client
objectives can be catered for within these model portfolios that
we’ve created.
IJ: What are the core factors an advisor should consider when
looking to partner with a DFM?
DDS: An advisor should first understand their own business,
their investment advice proposition and where they can possibly
improve. Understanding the components you can and want to
improve simplifies the process of identifying an appropriate
DFM. Then it comes to selecting a credible partner, which
goes back to those five Ps of selecting an asset manager:
People. Their qualifications, experience in the industry
and through different market cycles, the depth and breadth
of the team.
Philosophy and Process. From a philosophy perspective,
do you believe in their philosophy of investing? From a
process perspective, how do they model asset classes/do they
follow a balanced fund construction versus more specialised
funds, depth and breadth of their manager research etc? Does
this align to my financial advice philosophy and process?
Performance. Are they successful in what they have been
trying to do? Don’t just chase the supposed best-performing
DFM because a lot of DFMs purport to be the best but their
54 www.bluechipdigital.co.za

ROUND TABLE SERIES | DFM
BLUE
CHIP
There’s a range of services
that the client ultimately
pays for, and they get
a significant amount of
value from that fee.
access to restricted funds/fee classes and the tools they offer to
make an FA’s life easier.
performance comes in the context of a range of factors.
Performance must therefore be appraised appropriately and that
the profile of returns is aligned to what the DFM says they do.
Price. There’s a range of services that the client ultimately
pays for, and the fee must be commensurate with the value
received, otherwise client returns are eroded to a certain extent.
Then perhaps more broadly, with the changes to Regulation
28, a DFM that has a global presence is increasingly important.
If roughly 30%+ of your assets are going to sit outside of
South Africa you would want a DFM that can select the best
opportunity set from the global space. Finally, consider the
operational benefits that enhance your value proposition, such
as institutional levels of reporting, frequent communication,
the ability to bulk switch investments within a model portfolio,
IJ: Fees are a prickly issue when returns are low and fees across
the value chain have come under pressure. How does a DFM fit
into the value chain with the amount of pressure on fees now?
EM: Historically, the DFM’s layout fees weren’t there and
now there’s a new entity that’s taking a sliver of the fee that
the client pays. For the discerning or fee-sensitive client, the
appropriateness of the fee is questioned, but it has never been a
case of, “I don’t want to use the DFM because I am not willing to
pay 20 or 30 basis points for the services they offer”.
DDS: DFMs play a big role in driving down that overall total
investment charge and the total charge is what the advisor
should focus on. Although there is an additional fee line, it does
not necessarily translate into a higher level of fees for clients
because the DFM does a lot to push the investment management
fees down, and so bringing down the total fees for clients.
Trends in the UK show the use of DFMs has allowed advisors to
focus on their main value proposition (being financial advice) and
to charge more for it given the lower overall investment charge.
Clients are thus benefitting from the better fee experience and so
are the advisors.
EM: In my opinion, the FA fee should be the highest as a
percentage of total followed by the DFM and thirdly the asset
manager with the platform fee last. So just in this value chain, I
feel the DFM fees are reasonable relative to their value.
Barry O’Mahony (BOM): And the value, the reason that the FP
fee is higher, is because an FA is limited in the amount of clients
that they can deal with. A DFM allows us to receive rather than
investigate information. Because they are ahead of the game, we
receive that information much earlier. DFMs allow us to spend
more quality time with our clients in the FP area and that is where
the value is added.
EM: The value proposition that you advertise to your client
base is probably the biggest factor in deciding whether or not
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55

BLUE
CHIP
ROUND TABLE SERIES | DFM
to work with a DFM. If you purport to be an investment
specialist and want to be involved in the investment
decision on behalf of your clients, an outsourced DFM may
not be a good idea.
But then I look at what we’ve done. We set out within the
industry wanting to be inherently involved in the investment
decision. Within the model portfolio space, there’s a certain
skillset of choosing fund managers, asset class allocation
and reporting on model portfolios. We weren’t comfortable
making a group of decisions on behalf of our clients.
We focused our investment management capabilities
on stock-picking, where our Cat II business develops its
process. On the model portfolio side, which is a very different
skillset to individual stock-picking, we felt that a third-party
outsourced DFM was the better solution.
It comes back to that value proposition you’re purporting
to your clients and how you want to add value. An FP
business is not that scalable, only a specific number of
clients can be serviced within a limited amount of time
each day.
The best FP practices truly understand and engage with
clients in meaningful ways that add value to their long-term
goals, help them achieve their ambitions and invest in the
right products. We believe in working with partners who do
it better than us and act in the clients’ best interests.
BOM: A DFM it is not the panacea for all investment problems.
EM: I don’t necessarily want to say it’s the flavour of the
month but right now, based on all the tools and options
available to the independent FA, it does feel like the DFM
solution makes the most sense for our practice. It could be
that a multi-manager solution or choosing your own funds
works best for you but right now, for us, the DFM solution
makes the most sense.
IJ: Does a DFM impinge on the FA’s independence?
DDS: I would argue the opposite is true – DFMs allow FAs
to potentially be more independent. Given their level of
expertise and the breadth and depth of coverage, DFMs
can appraise asset managers more objectively and find the
most appropriate asset manager or fund for the solution as
opposed to an advisor sticking to the few managers/funds
they know well due to limited time/capacity.
If advisors themselves particularly strive for independence,
then that should be made apparent from the start. There is
a commercial argument for a DFM tied to a life office/asset
manager/manco, for example, to use their own funds. You
need to understand from the outset to what extent that will
be the case and if you are comfortable with that.
I speak for Equilibrium here – there are solutions and funds
that we have access to, being tied to Momentum, that aren’t
offered to the greater industry and which we believe give us
an edge within our solutions.
So sometimes that tied nature works to the advantage of the
clients, but the advisor must ensure that it is not to their detriment.
Advisors should continuously interrogate the DFM’s independence
and make sure that anything that makes its way into your client
solutions is there on merit rather than for a commercial reason.
BOM: I don’t think independence is a big issue. Most DFMs are
smart enough to know that if they start overusing their own funds,
they’ll blow themselves out of the water.
It’s still the advisor that must continually reassess if they made
the right decision. Should I use a multi-manager/share portfolio/
property trust/passive balance funds/this DFM? Does it all add up
or am I falling behind here? And if you are falling behind then stand
up and address it.
EM: As long as we remain independent internally or as an FP
business, that we’ve done our checks and balances to confirm
the outsourced DFM we’ve selected is independent and if I have
the option to dismiss the DFM at any point, independence is not
an issue.
IJ: Any advice for those considering a DFM?
DDS: Understand your value proposition first and foremost, know
where it is in your business you can improve and then set up a
meeting with a DFM (or a few DFMs) to see if they can add value to
your practice. They can even highlight areas to improve you may not
have been aware of. The investment and regulatory environments
are becoming increasingly complex and cumbersome, so if you can
make your life easier by partnering with a DFM you should consider
doing so.
EM: Ideally, it needs to make sense for you as a practice to partner
with a DFM. Once you’re at a certain scale or looking to grow and
you need more time to meet with more clients, it may be time to
consider an outsourced DFM.
If I consider the impact it has had on our practice, I feel totally
justified working with an outsourced DFM. In 2023, it’s the right
thing to do based on the complexity of our work.
BOM: The overarching focus in your job is giving advice. DFMs
free up time and build a better process that is a deeply researched
and properly implemented part
of your business. For example, as
a Cat I if we decide to switch out
of a fund that all our clients have,
who do we start with? The biggest
clients, the smallest ones?
If we do nothing else except
switch our clients out, it will
probably take two months to
solidly review our client base.
That’s ridiculous, it’s not a value
add. It could take two years by
the time we get all our clients
out of that fund, whereas DFMs
bulk-switch.
Scan the QR code to watch the full
DFM Round Table online.
56 www.bluechipdigital.co.za

How advisors are benefitting
from partnering with a DFM
FINANCIAL PLANNING | DFM
A growing number of financial advisors in South Africa are starting to use discretionary fund
managers to help them manage their clients’ funds in the complex world of fund management.
BLUE
CHIP
At Equilibrium, we have found that financial advisor
practices prefer partnering with a discretionary fund
manager (DFM) because of an increasingly challenging
regulatory and compliance environment.
When weighing up the options of which DFM to use, many
financial advisors consider performance a significant factor to
determine the overall success of a DFM portfolio. This should,
however, not be the only reason for choosing a DFM. In today’s
turbulent market conditions, factors such as risk profiling
and asset allocation should form a far greater part of any due
diligence process.
Other details such as location, access to the investment
manager, transparency of fees and how much control the advisor
retains over their client relationship should be the foundation
from which to conduct a comprehensive appraisal of a potential
DFM partner. Once an advisor has selected the most suitable DFM
partner, some of the advantages of this collaboration are:
Partnership
We have an outcome-based investing philosophy and craft
solutions based on client outcomes, which allows us to build
solutions for your advice practice. This is done through our
continuous engagement with advisors and learning about their
businesses. It is about the relationship: our approach is focused
on collaboration and establishing a long-term, mutually beneficial
relationship with our financial advisors.
For us, the advisor is the author of clients’ financial plans.
However, you do not have to worry about where to invest, about
timing the markets or about the latest regulatory requirements. You
can focus on your practice, building your business and spending
more time with your clients to give them the best financial advice.
Risk
When partnering with a specialist investment manager, you, the
advisor, sit on the same side of the table as the client (as the author
of their plan) and pass on the risk of investment outcomes to the
investment manager. This provides the best possible solution for
both you and your client, as you can hold the DFM accountable
and the client benefits from your independence in constructing
and analysing portfolio performance.
Resources
Both you, as a financial advisor and your DFM have unique
specialist skills. When clients understand the different skillsets and
responsibilities then they are also more at ease, knowing that their
advisor who knows them is planning for their future needs while
their investments is safeguarded by the DFM.
At Equilibrium, we offer a range of services to advisors. You
can select the services that offer you the best value and that
would scale your practice. We also give you access to resources
and insights that are usually not available to you when you select
funds yourselves.
Many DFMs have been in the business of fund management for
a long time and have a great wealth of expertise and resources
to pour into their investment process. But not all DFMs are equal,
so selecting one that meets your requirements is crucial to the
success of your advice practice and your clients’ investment goals.
Equilibrium is an independent DFM that partners with financial
advisors to help them enable their advice outcomes. Email me
at Methula.Sikakana@eqinvest.co.za to find out how a DFM can
help your advice practice or visit our website at eqinvest.co.za.
Freedom
Advisors get to deal with experts who are dedicated to investment
management. The investment mandate that an investor signs
allows the DFM the freedom to fire or replace the investment
manager if they do not meet the strict criteria that the DFM sets.
This allows advisors to focus on their primary role of financial
planning while leaving the job of selecting investment funds to
the DFM and their investment managers.
This gives advisors more time to spend with clients to plan
their journey to financial success in a tax-efficient and flexible
manner as and when their plans change. Advisors are expected
to be the gatekeeper between the DFM and the client. Partnering
with a DFM makes this process seamless.
Equilibrium Investment Management (Pty) Ltd (Equilibrium) is an authorised financial services provider
(FSP32726) and part of Momentum Metropolitan Holdings Limited and rated B-BBEE level 1.
Methula Sikakana, Business Development Manager, Equilibrium

BLUE
CHIP
INVESTMENT | Economy
There is
light at the
end of the
tunnel
After months of constant
loadshedding, it is understandable
that South Africans are disheartened
about the future viability of Eskom.
This extends itself to the fear of the country becoming a
failed state. Against this backdrop, you may feel anxious
about your clients’ investments here. However, it is
important to know that risk is not always a negative. In
fact, understanding and managing risk can lead to greater longterm
success.
In the case of Eskom, while the situation is dire, some lights
are beginning to appear at the end of this dark tunnel. Firstly, in
his February 2023 budget speech, Minister Enoch Godongwana
announced a debt relief package of R254-billion (60% of Eskom’s
current debt) over the next three years. This action removes a big
hurdle in the way of the much-anticipated break-up of Eskom
which would enable greater private-sector participation.
Secondly, Eskom and government are aware of the gap in
generation capacity required and steps have already been
taken, in line with the National Energy Plan, to bridge this gap.
Examples include the increase in the private generation threshold
to 100MW as well as the awarding of renewable energy projects
under bidding windows one to five, with more than 100 projects
in the pipeline1. National Treasury has also allowed for R9-billion1
in tax incentives for domestic solar installations and commercial
renewable energy projects. Even though it may be a couple years
before we see these actions relieving capacity constraints, they
are a step in the right direction and take a much shorter time to
implement than coal-powered alternatives.
Finally, government is more committed to ease the shortterm
pressures on loadshedding. Not only has our army been
deployed to mitigate sabotage, but the recent declaration of
a State of Disaster in President Cyril Ramaphosa’s State of the
Nation Address, along with the announcement of a new Minister
of Electricity, may lead to more barriers to private generation
being removed.
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INVESTMENT | Economy
BLUE
CHIP
With all this in mind, a total grid collapse is not our base
case. Rather, we anticipate a muddle-through scenario where
loadshedding becomes a part of our lives for the next two years
until greater capacity can be added to the grid.
The question remains: what does this mean for your local
investments? Given our expectations around loadshedding,
economic growth in South Africa will come under severe pressure,
a point that the South African Reserve Bank (SARB) made clear
when they revised growth forecasts for 2023 down to 0.2%.
However, despite this bleak macroeconomic outlook, we remain
positive about the outlook for our local asset classes. Starting with
equity, the South African market is still cheap relative to global
counterparts and to our own history.
While equity markets globally may come under pressure due
to a potential global recession and the delayed economic impact
of interest rate hikes, the compelling local valuations may help
our market fare better. The dire local growth outlook also does not
necessarily translate into poor equity returns. This is perhaps more
relevant when you consider that, based on an analysis that RMB
Morgan Stanley did in 2020, less than one-third of the aggregate
operating performance of companies in the JSE Top 40 index
originate from South Africa.
Like local equities, the local bond market also offers compelling
valuations, with some of the highest real yields relative to peers
and our own history. Taking this into account, we believe a lot of
the bad news and fiscal risks locally are already priced in. With the
SARB having done a good job on managing inflation and staying
ahead of the curve, we expect to see inflation come down this
year, which should benefit local bonds. Therefore, investors who
stomach the risks and stay invested stand to benefit greatly in the
long run.
Although we have painted an optimistic picture of Eskom
and local markets, we are aware that
salient risks remain. The dire financial
state of other state-owned enterprises,
specifically Transnet, could significantly
impair South Africa’s fiscal position.
Similarly, the potential for further
sabotage and Eskom’s infrastructure
deteriorating mean that the risk of more
loadshedding remains. When dealing
with these unquantifiable risks, our
primary defence is sound investment
principles. To this end, well-diversified
portfolios with a range of local and global
asset classes, constructed to deliver on a
risk and return profile, should be top of
mind, and partnering with a discretionary
fund manager such as Equilibrium can
assist financial advisors in this regard.
Dean De Sousa, Portfolio
Manager, Equilibrium
The information in this article is for general information purposes and not an invitation or solicitation to invest. The information is not intended to be accounting, tax, investment, legal or other professional
advice or services as set out in the Financial Advisory and Intermediary Services Act 37 of 2002 (FAIS), or otherwise. The information in this article, including opinions expressed, is derived from proprietary
and non-proprietary sources that Equilibrium deems reliable, and is not necessarily all-inclusive but is accurate at the publication date. While we make all reasonable attempts to ensure the accuracy of the
information in this article, neither Equilibrium or Momentum Metropolitan Holdings Limited nor any of their respective subsidiaries or affiliates make any express or implied warranty about the accuracy of
the information in this document. Equilibrium Investment Management (Pty) Ltd (Equilibrium) is an authorised financial services provider (FSP32726) and part of Momentum Metropolitan Holdings Limited
and rated B-BBEE level 1.
1 National Treasury, Budget speech, February 2023
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59

Time, relationships and
control – the unexpected
investment triage
What if I said to you that there are three things more important than financial
assets for you to help your clients invest in to achieve financial health?
I
am sure you’re already thinking that would be crazy. Now we
might debate what defines financial health but suffice to say
that money is not the only indicator thereof. After all, I’m sure
you have wealthy clients who are miserable, and less well-off
clients who are happy. In an article in the previous edition of
Blue Chip, I referred to Morningstar research which highlighted
that financial health has at least two dimensions, psychological
wellbeing and economic stability, neither of which is guaranteed
by money1. This explains why helping your clients invest in time,
relationships and control may impact their financial health more
than how much money they invest.
Time
We often think of time as something we spend. “I spent my time
doing…” is commonly how we describe our relationship with
time. But according to research by Prof Hal Hershfield and Prof
Cassie Holmes of UCLA’s Anderson School of Management, if we
say rather, “I invested my time doing…”, we have the potential
to shift our thinking about time from an expenditure to an
investment and will give ourselves more chance of allocating
time towards the things that are more closely linked to our
longer-term wellbeing2.
The research suggests that those who think about time over
longer time horizons tend to be happier and more satisfied with
life. This assertion has strong parallels with the Morningstar
research which found that the further into the future a person
can envision their lives, the greater their economic stability.
To test this, people were asked the question: “When it comes
to your money, how far ahead do you tend to think and plan?”
The range of options that respondents to this question could
choose included days, weeks, months, years, decades and
generations. The research found that the relationship between
mental time horizon and savings behaviour was significant,
irrespective of factors such as age, income and education level.
The longer one can think into the future, the better one’s savings
behaviour and ultimately the greater one’s net wealth. It seems
then that thinking longer into the future is not just good for
your personal happiness, but for your economic stability too.
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CLIENT ENGAGEMENT | Coaching
BLUE
CHIP
Relationships
A long-running Harvard University study3 which began in
1938 explores the question: What makes us happy in life? In
the ongoing study people from all over the world are asked
detailed questions about their lives at two-year intervals. As
participants enter mid- and late life they are often asked about
their biggest challenges in retirement. We may anticipate that
their biggest concerns have to do with having enough money,
being able to afford healthcare or having access to care in their
later years. Yet based on their responses, the number one
challenge people faced in retirement was not being able to
replace the social connections that had sustained them for so
long when they worked. As the leaders of this research suggest,
“to retire happy, invest in your relationships now”.
Control
According to the Morningstar research, a key indicator of
psychological wellbeing is the extent to which someone feels
in control of their finances. Do they feel confident about their
money? To test this people were asked to what extent they
agree or disagree with the statement: “I can handle whatever
comes my way, financially.” This statement says nothing about
how much money a person has, but rather tries to assess how
resilient a person feels about their finances, and how well they
think they can handle catastrophe or unexpected success, like
winning the lottery. It says more about their relationship with
money, than the money itself. We can interpret this as saying a
healthy relationship with your money is one where your money
is serving you, rather than the other way around.
The interesting aspect of control is that it is about perception
of control. It is not saying that a person shouldn’t be working
with a financial planner to help them manage their financial
life. Rather, the research suggests that if a financial planner
can encourage their client to feel as if they are in control,
they will achieve greater financial health. This means helping
clients take ownership for their financial decisions (rather
than blaming you!) and it explains why a coaching approach
to financial planning is so important.
Coaching at its essence is about helping someone find their
own answers to their own questions. This will determine the
extent to which a client takes ownership of their financial plan
rather than just “renting” the plan from you because you put
it together.
So what?
If clients can achieve financial health by making these three
investments, what does it mean for financial planners?
The further into the future
a person can envision
their lives, the greater their
economic stability.
Firstly, helping clients to be clearer about their future and
getting them to think in decades rather than years is likely to
impact their economic stability more than a great investment
strategy. Secondly, encouraging clients to reflect on their social
connections and relationships will raise their awareness of the
importance of being proactive in this aspect of their life. Thirdly,
helping clients recognise where and how they have control
over their finances will give them a sense of empowerment and
confidence in their financial life.
How then can you practically help clients to begin making
these three investments? A starting point for clients may be a
self-audit of each aspect of their life:
• Time. You could get clients to reflect on questions like: Where
do you currently spend your time? How would you like to spend
it? What would you like to be doing in 10, 20, 30 years?
• Relationships. You could encourage
clients to consider questions like: What
relationships or connections are you
missing that you want more of? How can
you make those happen?
• Control. You could ask clients: When have
you felt in control of your money? How
did that feel? What support could you
get, emotional or financial, if things went
wrong with your money?
Clients are unlikely to have immediate
clarity about how to invest in their time,
their relationships, or their control of money.
But if you could help them achieve that
clarity through engaging and meaningful
conversations, what greater value could
you bring to a client than enhanced personal
happiness and improved financial health?
Rob Macdonald, Head of
Strategic Advisory Services,
Fundhouse
1 Sarah Newcomb, “When More is Less: Rethinking Financial Health”, Morningstar Behavioural Science Research, 2016
2 Hal E. Hershfield, Cassie Mogilner (Holmes) and Uri Barnea, “People Who Choose Time Over Money Are Happier,” Social Psychological and Personality Science 7, no. 7 (2016): 697-706.
3 The Harvard Study of Adult Development, Director: Dr Robert Waldinger
www.bluechipdigital.co.za
61

BLUE
CHIP
FINANCIAL PLANNING | Retirement
Enhancing future self-continuity
to improve retirement
savings behaviour
Most of us are aware that we should save a portion of our incomes during our working years to
fund our retirement when we no longer work to receive a steady income. In principle.
One of the main reasons for the low retirement savings
is that “there is nothing left after living expenses have
been incurred”. While this is a legitimate reason, the
age-old economic saying that “human needs are
insatiable” means that we will never have enough, therefore, even
if we make more money, we will spend more and likely end up in
the same situation we are in.
Studies have found that some retirees regret not saving more
during their working years and would have saved more towards
retirement if there were to be a second chance. However, in one
study titled Saving Regret, the researchers concluded that it is
easy for people to wish they had saved more; it takes no effort
to regret it, compared to reducing consumption.
Since the hand of time cannot be reversed, to avoid saving
regret, the question to ask future retirees is: will you reduce your
current consumption to provide for a comfortable retirement?
In this regard, action speaks louder than words, and the current
low rate of savings means the answer to such a question is likely
a resounding “no”. But why?
Studies have shown that we sometimes think of the future
self as a stranger and when this happens, we tend to disregard its
needs, pains and pleasures. How we perceive our future self, ie
whether as a stranger or a close other, influences how we make
decisions across time. According to Professor Allen McConnell,
programme director at the National Science Foundation, the
self is not a unitary entity. Instead, it is a collection of separate
identities that, to varying degrees, overlap with each other over
time. Therefore, future self-continuity, the subjective feeling of
connectedness between a person’s present and future self, is
influenced by time, so one is likely to be more in harmony with
one’s potential self in the near future, than in the distant future.
And if a person travels too far into the future, the psychological
connectedness with one’s future self may be completely lost,
and the future self will appear more as a stranger.
Results from brain imaging have shown that when we think
about our present self, the parts of the brain that are activated
are different from the parts that are activated when thinking
about other people. The same parts that are activated when
thinking about other people are also activated when we think
of our future selves.
The emotional disconnection with the person one will be
in the distant future may explain why many people do not
save enough for retirement. Studies on present-future selfcontinuity
have revealed that when connections between a
person’s current and future self are strengthened, temporal
discounting reduces and saving increases.
In an experiment on how to increase saving behaviour,
Professor Hal Hershfield and his colleagues invited participants to
interact with realistic computer renditions of their future selves,
and in all cases, those who interacted with their virtual future
selves displayed an increased propensity to accept delayed
monetary benefits over immediate ones.
Exposure to one’s elderly appearance
enhances the connection between the
current and future self and improves the
likelihood of planning for the future self.
The drive to encourage people to
save towards retirement may be more
successful if it also includes a strategy
to enhance future self-continuity. Apps
such as FaceApp, Oldify and AgingBooth
can be used to improve the connection
between the present and future self, to
help younger people develop empathy
for their 60-year-old or 80-year-old
selves. This can engender the desire to
save towards retirement to secure their
financial future in retirement.
Dr Prince Sarpong, Senior
Lecturer, UFS School of
Financial Planning Law
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FINANCIAL PLANNING | Estate planning
BLUE
CHIP
THE CAPITAL LEGACY WAY
Capital Legacy is a formidable wills and estate administrator which has 14 offices countrywide, more than 1 000 staff
members, and has exceeded half a million wills drafted. Blue Chip speaks to Brandon Garbutt, COO of Capital Legacy.
Please share Capital Legacy’s trajectory that led to its success
of today.
Capital Legacy was founded in 2012 when Alex Simeonides,
current CEO, identified a problem in the estate planning
arena. The problem was that more than 75% of South Africans
pass away without a valid will in place, causing devastating
consequences for their loved ones. He also learnt from first-hand
experience as a financial advisor that most people don’t plan for
the unexpected costs of dying, particularly winding up an estate.
These legal fees and costs erode the liquidity of an estate,
resulting in heirs receiving much less inheritance than was
intended. In some cases, the executor must auction off assets to
cover the legal fees and costs, leaving the family with a mess and
having to rebuild their lives. This is how our Legacy Protection
Plan was born. In 2019, African Rainbow Capital acquired a 25%
shareholding in our business, and more recently we concluded
a transaction that will see Capital Legacy purchasing Sanlam
Trust and Sanlam Life purchasing a strategic minority in Capital
Legacy. We are extremely proud of our growth.
Why should financial planners trust Capital Legacy with their
clients’ legacy?
We have helped nearly 600 000 clients get their wills drafted
and saved families R306 million in fees. We’ve been specialising
in wills and estates for more than a decade. Over 12 000
financial advisors trust us to help their clients. I think what’s also
important to note is that although we’ve grown exponentially
over the last 10 years, we still have our nimble, innovative, and
entrepreneurial culture and approach to everything we do.
Why use Capital Legacy for estate administration?
Winding up the estate of a loved one can be an emotional,
stressful, and time-consuming process. There can be
many legal, financial, and procedural hurdles. Our estate
administration team takes care of the entire process from
beginning to end, removing this pressure and burden from
our client’s family members.
We don’t outsource our estates and trusts operations, but
rather we have built our own in-house capability which is
integrated into our will-drafting service. So essentially, the same
people who draft the will also wind up the estate. Also, because
we’ve integrated insurance into our offering through the Legacy
Protection Plan, we don’t have to worry about liquidity issues
as all legal fees and costs are indemnified, making the process
smoother and hassle-free.
Please tell us more about the innovations that have made Capital
Legacy a pathfinder in the wills and estates market in South Africa.
We pioneered cover to indemnify the legal fees and costs at death
with our Legacy Protection Plan. At first, the idea was met with some
scrutiny but now some of our competitors have tried to create similar
offerings. We have also taken our learnings and created additional
innovative solutions, such as cover for children’s education and care,
as well as the first-of-its-kind Shari’ah-compliant wills and estates
solutions. We will continue to innovate to bring real solutions to the real
problems we experience when drafting wills and winding up estates.
Capital Legacy recently had some exciting news about joining forces
with Sanlam. Please tell us about the deal.
In February, we concluded a strategic deal that will see Capital
Legacy and Sanlam Limited joining forces by combining our fiduciary
operations to create an even more compelling wills, estates, and trusts
business together. The transaction is subject to regulatory approval.
In a nutshell, Capital Legacy is buying 100% of Sanlam Trust (Sanlam
Life’s wills and estates business) to create an enlarged Capital Legacy
Group. To enable this, Sanlam Life will be acquiring a 26% strategic
stake in Capital Legacy. Through this, the Legacy Protection Plan will
also be available to Sanlam’s advisors.
How will this deal impact your clients? And financial planners?
We believe this transaction will have a positive impact on our clients,
financial advisors, and the industry as a whole. Over the last 10 years,
our clients and partners have came to know “the Capital Legacy way”
of doing things. None of this will change. It’s the same brand, the same
delivery, and the same service, same delivery and same service. Due to
the size and scale of the merged operations, we will offer even greater
efficiencies. The merged entity will be managed by Capital Legacy
while leveraging the strengths of both businesses. We believe this
transaction will make quality wills and estates services more accessible
in South Africa, in line with Capital Legacy’s mission
“to make the loss of a loved one easier”, by helping
more South Africans to have a valid will in place.
Is there anything else that you would like to add?
Insurance in South Africa has been done the
same way for the past 40 years, but the world has
changed. We’re constantly looking to find new ways
of doing financial planning that will truly make a
difference in people’s lives. Alex and I look forward
to continuing this incredible journey with both our
existing and new clients and partners.
Brandon Garbutt, COO,
Capital Legacy
www.bluechipdigital.co.za
63

BLUE
CHIP
FINANCIAL PLANNING | Estate planning
Managing digital assets through
an estate planner’s lens
When you think of digital assets, you may be inclined
to think only of cryptocurrencies. Bitcoin was the
first digital asset created in 2009, designed to be
a digital currency or digital form of cash. Today, a
digital asset is anything in a digital form that can create, or has,
value and includes a right to use the asset. Digital assets are
commonplace in our lives and include photo files, video files, audio
files and graphic files. They also include everything from your social
media accounts to cryptocurrency keys.
“Digital assets, particularly cryptocurrencies, tend to be more
volatile than physical assets so they can increase the risk profile
of your portfolio. The security of your investment is limited by
your skills and the skills of a hacker and once compromised, they
can be very difficult to retrieve,” cautions Sarah Love, a fiduciary
specialist at Private Client Trust.
So, how should you treat your digital assets when it comes
to estate planning? “It helps to think of digital assets in two
categories: those with sentimental value and those with
economic value,” says Love.
Sentimental digital assets
Physical photo albums for many people have been replaced by
Google Photos on a phone or a computer while a library may be in
Kindle form as opposed to a bookshelf crammed with best sellers.
Similarly, you may file your statements and policy documents
digitally as opposed to a physical paper format.
Password protection and terms-of-service agreements can
make it difficult for loved ones to access these accounts when
you’re no longer here or able to manage them. With Google, you
can appoint someone to take control of your Google account
including Gmail, Google Photos, Google Keep, etc. You specify who
can access which parts of your account and there is also an option
to delete your account completely.
Google refers to this as an “inactive account manager”. Many
social media platforms have similar tools available, so a good
starting point is to check what each of the online platforms you use
offers. This will ensure that both you and the person you nominate
to take on this function are acting within your specific terms and
conditions with that provider.
Where this kind of access is not available, you can consider
using a family package, which allows you to share access among a
trusted group of people. As an alternative, you can use password
managers or lockers, but you must ensure that you keep them
up to date.
Digital assets with economic value
Digital assets that have economic value and which could include a
right to use (such as eBooks) include assets such as cryptocurrencies,
non-fungible tokens (NFTs) or gaming tokens. In some instances,
these service providers offer a built-in inactivity or legacy
management tool. “If you have digital assets with commercial
value, you are advised to consult a professional, such as a fiduciary
practitioner registered with the Fiduciary Institute of South Africa
(FISA). In certain instances, your digital assets may be lost or be
difficult to administer,” advises Love.
If you have digital assets with
commercial value, you are advised
to consult a professional.
Three things you may not know about digital assets:
1. While emails, text messages, word processing documents as
well as online utility, credit card and financial accounts are
digital assets, these do not generally include the underlying
asset. For example, an online bank statement is a digital asset,
but the money is not.
2. Digital assets can be included in your will. You should list all
your digital assets so your loved ones know what you have
and where they can find them. Include all important online
accounts (including email and social media accounts) and
digital property (including domain names, virtual currency
and money transfer apps).
3. You can inherit any digital assets that are fully owned and
transferable. The executor of the estate would need these
details to enable them to execute the transfer
from the estate to the beneficiary/heir.
With technology playing a far greater role in
our lives than it did 20 years ago and with the
advent of digital assets, managing your digital
assets when it comes to estate planning can be
a minefield to navigate.
If you need help with your digital assets or have
any fiduciary needs, please contact Sarah Love,
CFP®, FPSA®, TEP on sarah@privateclient.co.za or
visit www.privateclient.co.za.
Love is an active member of the Society of Trust
and Estate Practitioners (STEP).
Sarah Love, CFP®, FPSA®,
TEP, Fiduciary Specialist,
Private Client Trust
PRIVATE CLIENT HOLDINGS IS AN AUTHORISED FINANCIAL SERVICES PROVIDER. FSP 613. Private Client Trust has taken care to ensure that all the information provided herein is true and accurate. Private Client
Trust will therefore not be held responsible for any inaccuracies in the information herein. The above article does not constitute advice and the reader should contact the author for any related concerns.
64 www.bluechipdigital.co.za

PRIVATE CLIENT HOLDINGS IS AN AUTHORISED FINANCIAL SERVICES PROVIDER.
The licenses we hold with the Financial Sector Conduct Authority (FSCA) are: Private Client Holdings – FSP 613,
Private Client Portfolios – FSP 399 78 and Private Client Wealth Management – FSP 399 79.
PRIVATE CLIENT TRUST . BLUE CHIP MAGAZINE 2022

BLUE
CHIP
INVESTMENT | Research
The search for
the Holy Grail
Uncertainty, research and the financial advisor.
We live in a world that is continuously evolving. This creates uncertainty and
makes giving advice challenging, especially if the investment managers you have
recommended to your clients do not perform in line with expectations.
An investment manager must have the ability to
understand how the world is changing and what will
work in the future (this is not necessarily what worked
yesterday) to consistently deliver on client outcomes in
an uncertain environment. These insights will come only from
the presence of an effective research capability. This means
that financial advisors are well “advised” to understand that the
world is uncertain and to look at investment managers’ research
capabilities to assess their ability to be consistently effective for
their clients in the evolving future.
The Holy Grail is a mysterious object1 that would confer
magical powers of healing and longevity onto its holder. There
are many stories detailing the search for this desired object. While
it is almost certainly a myth, the idea that such a powerful object
exists, and can be found through diligent study and exploration, is
very similar to the way the research process drives an investment
manager’s pursuit of the goal of consistent outperformance (or
“alpha”). It’s the way they differentiate themselves from their
peers and it allows them to respond appropriately to a continually
changing environment.
Research can informally be defined as the process of deriving
new knowledge about the world that is relevant to the task at
hand. Investment managers need to make decisions about where
to allocate their (clients’) capital in an environment that is both
risky and uncertain2. Careful research into the past, linked with the
development of theoretical models of the current environment,
offers the ability to navigate the future more reliably. Research is
thus fundamental in terms of determining the future success of
any investment manager.
Research’s importance becomes very clear if we distinguish
between risk and uncertainty. While these terms both refer to a
lack of knowledge about the future, the nature of this missing
knowledge is fundamentally different between them.
Risk relates to situations that can be described in terms of
probabilities. For example, the specific outcome of the roll of a
roulette wheel is not known in advance, but there is a very clear
set of (fixed) rules which define the set of outcomes, and this
allows for a set of probabilities to be applied to each of them. In a
risky world research involves the estimation of these probability
distributions and the testing of different strategies to deal with
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INVESTMENT | Research
BLUE
CHIP
Risk relates to situations
that can be described in
terms of probabilities.
them. While this is a challenging task it is potentially solvable
in the sense of developing and implementing investment
strategies that should work well enough over multiple rolls of
the roulette wheel.
Unfortunately, we live in an uncertain, not a risky world.
Uncertainty refers to an environment where the set of outcomes
is not (or in fact cannot be) defined, and thus cannot be described
completely in terms of probabilities. Taking the roulette wheel
example above, we might find, in an uncertain world, that after
the wheel has been spun, that there are a different number of
slots in the wheel to the 37 that we assumed to be the case
(maybe because that was what it was last time). In this world you
not only have to estimate the distributions, but you also have to
work out how they are going to evolve into the future.
This suggests that risk-based analysis is not sufficient as it is
based on data drawn from the past – which may no longer be
relevant. It implicitly assumes that the current environment is
sufficiently like those that we have observed in the past. In other
words, it assumes history will keep repeating itself, whereas in
reality, at best it only rhymes. We live, manage money and must
give advice in an uncertain world as it is continuously developing.
The investment in an effective research capacity is thus
a fundamental part of an investment management firm’s
success. Consistent investment performance requires the
ability to correctly evaluate the world from both a structure
and risk assessment perspective, and then correctly update this
evaluation as the external world changes. Using the roulette
wheel metaphor: investment managers need to know both how
many slots on the roulette wheel are there currently and what
number it will be tomorrow.
The Holy Grail, in this context, is doing this in advance of
such changes to make sure that you are correctly positioned
for them. While this is effectively impossible, it is still worth
searching for the Holy Grail because it is the only way to
continue to succeed in an uncertain environment. There is no
guarantee that yesterday’s perfect strategy will continue to
work as perfectly today.
From an advice perspective, financial advisors need to be
able to effectively understand and communicate to their clients
the reality that we live in an evolving and
therefore fundamentally uncertain world.
They need to be able to guide their clients
through this world. Firstly, clients need
to know that what worked yesterday is
unlikely to work the same way tomorrow.
This is part of life and must be expected.
Secondly, understanding and assessing
the research capabilities of investment
firms will lead to more effective investment
management choices. Sharing these
insights with your clients should help
them understand that the investment
managers you have advised them to
invest in will be more likely to be successful
in the future as the world evolves.
Professor Evan Gilbert,
Research Strategist,
Momentum Investments
1 This was purported to be the cup that Jesus Christ used at the last dinner and which would later be used to collect his blood during his crucifixion.
2 While it is common for these terms to be used interchangeably, they do not mean the same thing. The key differences between these terms is explained later in this article.
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FINANCIAL PLANNING | Saving
True wealth gives
you freedom
Our focus as financial planners should be on more than
our key clients in the families that we serve. After all,
the youth of today are the clients of tomorrow.
If the foundation of sound financial habits can be shared
with the children of our current clients, before they reach
adulthood, our job as financial advisors will be made simpler
and our impact on their lives more significant.
I recently had to ponder how to get across the concept of
financial planning to a group of young adults in a way that would
resonate with them. My 18-year-old son recently finished writing
matric and a group of parents chose to give an hour of their time
to share their skills with some of the school leavers. Among the
parents, one was good at etiquette, another was a braai master,
another was a chef and my expertise is financial planning.
I spent a considerable time mulling over how to approach the
very broad area of personal financial planning with the young
adults. I considered telling them about the different funds and how
to open a stockbroking or unit trust account; the importance of
investment or tax planning; or the need to have risk cover in place
for catastrophic events such as a disability or cancer. None of these
seemed particularly inspirational or insightful… particularly to
18-year-olds chomping at the bit for their independence.
I started thinking about the concept of wealth and what
it means to people. At the time I was reading a brilliant book
called The Psychology of Money: Timeless lessons on wealth, greed
and happiness by Morgan Housel. He believes that people’s
behaviour with money largely determines how well they
manage their finances.
I pointed out how people who achieve success in their
work and greater financial means, rush out to buy luxury cars,
houses and boats to show off to their family and friends as
a demonstration of how well they have done. So many of us
believe that this is wealth, but it’s not. This view is compounded
by social media.
Housel says this type of spending is driven by EGO and
PRIDE and behind it sits a yearning for recognition and respect
of family, friends and the broader community. They spend
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FINANCIAL PLANNING | Saving
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True wealth is the freedom to
change your career, country,
relationship or job at any time.
money on material goods to try to earn respect. The irony is
that you cannot earn respect this way. Acting with humility,
integrity and being respectful to others are more likely to earn
you respect.
So I decided to talk to the young adults about the true meaning
of wealth.
TRUE WEALTH is the freedom to change your career, country,
relationship or job at any time.
It’s about having the financial resources to deal with the
many curveballs that life tends to throw at us, such as leaving a
relationship that has turned sour or quitting that job with a toxic
boss. It is about being able to weather the unpleasant surprises
that life will throw at you, such as redundancy, disease, divorce,
recession, market dips or a major health upset.
True wealth will also spare you from the severe anxiety of
not having the money to deal with life’s blows when they arrive.
Wealth gives you freedom to make choices: it allows you to spend
time with who you want, where, when and how you want. So
how do you achieve true wealth?
You can only build wealth if you can stop the urge to have fun
with all your money today. This involves an important balancing
act… a balance between what you spend today and what you
save for the future. It is built on suppressing the urge to buy
something today to have more options/choices in the future.
Many of the school leavers were planning to enter tertiary
education and their parents would likely give them an
allowance. I urged them to make a budget and stick to it and
reminded them that this would involve trade-offs – such as
foregoing a night out with friends to pay for books or food. For
those that were planning to take holiday jobs, I encouraged
them to save a portion of the money they earned. Then, by the
time they earned their first paychecks, they would already have
built the habit of saving a portion of all the money they earned.
In recent years, there has been a
move from quantity in life to quality of
life; from spending money on things
to spending time with loved ones. In
this way you can have fun and enjoy a
quality life, without overspending.
Following the talk to the school
leavers, I invested some money for my
son in a tax-free savings account. I told
him that this was the start of his freedom
fund. I told him he was not allowed to
spend the money on buying a car, or a
property or even to pay for a wedding.
This fund is to give him the freedom
to make life choices in future.
Barry O’Mahony, Founder,
Veritas Wealth
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The future of financial
planning: aspects
and solutions
A group of 13 financial planners met in 1969 in Chicago and started what is now known as the CFP Board in the US.
Over the years, this profession and the related designation of CERTIFIED FINANCIAL PLANNER® professional,
has gained international recognition. By Nici Macdonald, CFP®
The profession of financial planning and advice is
new, if compared to professions such as medical,
engineering and accounting. In South Africa, the first
formal qualifications in the field of financial planning
were only developed from the early 2000s.
Since then, the profession has been steadily growing across all
levels of education and experience. However, there is still a long
way to go to create awareness on financial planning as a career
path with the younger generations.
Many scholars have never heard of financial planning or
advice during their school years. Financial literacy in South
Africa is not receiving enough attention, despite the best efforts
of many industry bodies. Financial literacy goes hand in hand
with the value of proper financial advice, and the difference
financial planning can make in customers’ lives. Awareness
needs to be created at school level, and I am dreaming of a
day when financial literacy will be covered comprehensively
in the Grade 1 to 12 school curriculums. It is also important to
note how the South African education landscape is affecting the
pipeline for professions.
In 2021, around 537 700 learners passed matric. Less than
30% of these learners had mathematics as a subject, of which
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There needs to be an
investment in education
and training in the right
skills in the industry.
only 50% passed the subject. Only 13% of learners passed the
subject with 60% or more to gain access to certain educational
streams. This equates to around 20 000 learners to fill the
positions where these subjects are required.
Further to that, the South African school system is deeply
unequal. According to a 2020 Amnesty International report,
children in the top 200 South African schools achieve more
distinctions in mathematics than children in the next-ranking
6 600 schools combined, with the latter group being prevalent
in rural areas.
Three quarters of children in Grade 4 cannot read for
meaning in South Africa, with this rate at 91% in the Limpopo
province and 85% in the Eastern Cape province, as opposed
to lower rates in the more predominantly urban provinces.
However, there are some solutions to this problem.
There needs to be an investment in education and training in
the right skills in the industry. Structured mentorship programmes
and internships together with funding for obtaining qualifications
can help to address the shortfall. Recognition of prior learning
should be a focus for industry players in the case of career changers
and where a qualification may be lacking but experience, skills
and abilities can be proven. The Financial Planning Institute of
Southern Africa has invested resources in developing consumer
education programmes, mentorship programmes, opportunities
for internships and other mechanisms to address these issues.
Contact us today at mymoney123@fpi.co.za to see how you can
get involved.
From the Financial Planning Institute of Southern Africa and a
FPIMyMoney123 Initiative.
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FINANCIAL PLANNING | FP profile
“Every
decision is
a financial
decision”
Mulalo Nemataheni is a CERTIFIED
FINANCIAL PLANNER® by profession
with over 10 years’ experience
in the financial services industry.
Blue Chip caught up with her.
Mulalo Nemataheni, CFP®, Founder and CEO,
ImPowerX Advisory Services
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FINANCIAL PLANNING | FP profile
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Empowerment through education
is our core focus, because financial
planning is a journey.
Please provide a brief career history to this point.
My current role is founder and CEO of ImPowerX Advisory
Services, a financial services provider with the mission of taking
financial literacy education to communities. I started my career
in private banking, where I got the opportunity to study financial
planning and go further to practice as a financial planner. After
passing the professional competency exams with the Financial
Planning Institute of Southern Africa (FPI), I went back to private
banking and then business banking, where I gathered a wealth
of knowledge on banking products and credit applications. This
allows me to assist clients to make better money decisions.
What prompts clients to come to you? Do you have a niche or
distinctive value offering?
At ImPowerX Advisory Services, we believe in our clients’ ability
to manage their finances and we walk the financial journey with
them. Our focus is on the client, and we ensure that we empower
them with financial education before they make any financial
decision. Empowerment through education is our core focus,
because financial planning is a journey. This is why clients do
business with us.
What are the biggest mistakes that you see clients make?
The biggest mistakes clients make when it comes to their
finances is not thinking ahead when making financial decisions.
Instant gratification and “vhathu vha dori mini” [what will
people say] syndrome also play a major role in making people
do things that only serve them now and not in the future, and
not for the benefit of future generations. It is for this reason that
we pride ourselves on being advocates for financial literacy, so
that our people can make informed financial decisions.
How do you charge for your services?
We offer flexible financial planning, and work on a consultation
fee basis. Our fees are in line with the needs of the client.
What role does technology play in your practice?
We live in a digital world, and technology allows us to be able
to better serve our clients. These tools help our clients make
informed financial decisions. Technology also allows us to reach
new markets by advertising our offerings to a larger audience.
The role technology plays is that of a partner, who brings with
simplicity and convenience to the relationship.
What are the biggest challenges you face as a financial planner?
Some people do not value financial advice, or they have had
previous bad experience with advisors in the industry. Some
clients are too busy to make time to plan their finances, some
fear managing their finances, while others have been burnt before.
It becomes a challenge to position oneself as a financial planning
professional who is for the needs of the clients, when dealing with
a community that has dealt with those that wanted to serve their
own needs at the expense of clients.
What is the biggest change you have seen in financial planning
during your career?
The biggest change that I am seeing in financial planning is
that our people are seeking financial wellness for themselves,
and companies are also doing their part to address concerns
they have when it comes to the financial wellbeing of their
employees. We must continue to share the knowledge, build
the skills and confidence when it comes to money matters,
as this allows for a generation that is not ashamed of having
money conversations.
What advice would you give a young graduate considering
entering the profession?
I believe that every decision is a financial decision. There will
always be a need for financial planning as it is part of our
everyday life decisions. Financial planning is a rewarding
profession which allows you to change people’s financial
destinies. Take time to find a CERTIFIED FINANCIAL PLANNER®
and hear their story and what they like the most about the
profession. Most people will say that it is all about the client,
and I say, “It is about everything.” There is no limit in terms of
who you can work with, where you can work, and it is a perfect
opportunity for you to craft the kind of future you want.
What’s your one wish for the future of the financial planning
profession?
My one wish for the future of the financial planning profession is
for financial planning professionals and financial institutions to put
communities at the centre of what they do. Our “big crazy idea”,
as Phil Knight calls it on Shoe Dog, is to teach financial literacy
education to one-million people. I am a literacy activist who runs
ImPower’d Woman Book Club, and financial literacy is the answer
to empowering our people economically.
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FINANCIAL PLANNING | Cryptocurrency
The declaration of a crypto asset as a financial
product: how does it affect financial planners?
In October 2022, the Financial Sector Conduct Authority declared a
crypto asset as a financial product under the Financial Advisory and
Intermediary Services Act 37 of 2002. The declaration has been widely
publicised, but what does this mean, especially for financial planners?

FINANCIAL PLANNING | Cryptocurrency
BLUE
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The buying and selling of crypto assets have become
increasingly popular. Clients often ask their financial
planners about investing in crypto assets, like Bitcoin,
and many financial planners have advised their clients
to invest in crypto assets.
Many clients and financial planners have been caught in the
hype surrounding crypto assets, without truly understanding
the nature and risks of these assets, which in many cases
resulted in capital losses for clients. In consumer research
conducted by the UK’s Financial Conduct Authority in 2021,
it was found that even though 78% of UK adults had heard
of cryptocurrencies (increasing from 42% in 2019), there is a
decline in the understanding of cryptocurrencies, suggesting a
risk of consumers engaging with cryptocurrency without a clear
understanding of it. With the continuous emergence of new
crypto and digital assets, it is difficult for anyone to keep track
of, up to date with, and always fully understand, these assets
– much less clients who may not be financially or tech-savvy.
In the past, National Treasury and the financial sector
regulators have issued several communications to alert
consumers about the risks involved in transacting and investing
in crypto assets. The absence of a regulatory framework to
regulate the rendering of financial services in respect of crypto
assets has left clients vulnerable to poor or incorrect financial
advice. It has also resulted in a significant increase in crime
involving crypto assets. It is estimated that scammers stole
$14-billion in crypto assets in 2021.
Financial services before the declaration of a crypto asset as a
financial product
The Financial Advisory and Intermediary Services Act 37 of 2002
(FAIS Act) defines a financial services provider (FSP) as any person
who furnishes advice, renders an intermediary service or does
both. These activities are collectively referred to as “financial
services”. A representative is employed or mandated by the FSP
to render financial services to clients on behalf of the FSP.
The FAIS Act contains detailed definitions of advice and
intermediary services. Both the definitions refer to activities that
the FSP or representative undertakes in respect of a financial
product. For example, advice is any recommendation, guidance
or proposal in respect of the investment into any financial
product and an intermediary service is an act resulting in a client
entering into a transaction with a product supplier. These are
activities performed by many financial planners daily.
Financial product is also defined in the FAIS Act, and it
includes a wide range of security, instrument and benefit
types. It also includes other products similar in nature to
those listed declared as financial products, products issued
by foreign product suppliers and combinations of the listed
product types.
The reference to financial product in the definitions of advice
and intermediary services links financial products inextricably
to the rendering of financial services. Though it must be noted
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FINANCIAL PLANNING | Cryptocurrency
that a recommendation, guidance or proposal in respect of a
financial product, as described in the definitions, will still constitute
advice under the FAIS Act, even if the advice does not result in a
transaction or name a specific product of a product supplier.
In other words (and very simplistically), the financial services
rendered by an FSP or a representative will only be subject to the
provisions of the FAIS Act if it involves a product which has been
included in the definition of financial product in the FAIS Act.
Bringing this back to crypto assets, these were previously
not listed in the definition of financial product in the FAIS Act.
Therefore, any financial services rendered relating thereto were
not regulated in terms of the FAIS Act.
That meant that a person who gave advice and rendered
intermediary services in respect of crypto assets was under no
obligation to, among other requirements:
• Be authorised as an FSP or be appointed as a representative
of an FSP.
• Meet any of the compliance officer, financial accounting or
audit requirements prescribed in the FAIS Act.
• Meet any fit and proper requirements applicable to FSPs and
their representatives.
• Make any of the disclosures, manage any conflicts of interests,
risks, advertising and complaints or comply with the provisions
relating to the custody of financial products and funds,
professional indemnity or fidelity insurance and guarantees,
as prescribed in the FAIS General Code of Conduct.
• When giving advice, obtain information about the client’s
needs and objectives, financial situation, risk profile and
financial product knowledge and experience, do a suitability
analysis, or a record of advice, or, when replacing an existing
product with a crypto asset, give the client a comparison
between the replacement and terminated products.
This left the field wide open to all and sundry, whether competent
and above board, or not, to “render financial services” to the public
in respect of crypto assets. Naturally, this left clients vulnerable to
poor or incorrect financial advice, investing into high-risk products,
possibly unsuitable for the clients, and scams, with none of the
regulatory protection or recourse afforded by the FAIS Act, against
those persons, available to the clients. The only recourse clients
possibly had was contractual or delictual claims through expensive,
drawn-out litigation or other court processes. But it does not only
affect clients; it also damages the financial services and planning
industry’s reputation when clients suffer material losses or fall
victim to scams, as a result of these unauthorised, unregulated
and sometimes incompetent persons’ actions.
Declaration of a crypto asset as a financial product
Declaring crypto assets as a financial product under the FAIS Act
was a critical interim step towards protecting customers in the
crypto asset environment, pending the conclusion of broader
developments surrounding crypto assets through, for example,
the Conduct of Financial Institutions (COFI) Bill.
If you, as a financial
planner, intend to render
financial services in respect
of crypto assets ensure
that you understand the
product and its risks fully.
Drafts of the COFI Bill list the categories and subcategories
of activities that will require licensing. It specifically references
crypto assets in the descriptions of the activities of sales and
execution, financial advice, investment management, general
administration and crypto asset custodial services. Once the
COFI Bill has been enacted, the FAIS Act will be repealed and
crypto asset-related financial services will be addressed under
the COFI Act.
However, in the interim, the declaration of a crypto asset as
a financial product, under the definition of financial product in
the FAIS Act, now brings financial services rendered in respect
of crypto assets (subject to a few exemptions discussed below)
within the scope of the FAIS Act and its subordinate legislation.
This means that any person, including a financial planner, giving
advice or rendering an intermediary service in respect of crypto
assets, unless specifically exempted, must be authorised as an FSP
for crypto assets, or be appointed as a representative of an FSP in
respect of crypto assets, and must comply with the requirements
of the FAIS Act.
It is important to note that:
• Crypto assets themselves are not being regulated, but rather
the persons or entities that provide financial services in
relation to such products.
• FSPs providing financial services in relation to crypto asset
derivatives are already subject to the requirements of the FAIS
Act and are not subject to the general exemption.
The declaration also brings complaints about financial services
rendered in respect of crypto assets within the jurisdiction of the
Ombud for Financial Services Providers and customers will now
have recourse to the Ombud for their complaints against FSPs
and representatives.
Even though some crypto asset service providers previously
voluntarily complied with the Financial Intelligence Centre Act 38
of 2001 (FIC Act), if they now fall within the scope of the FAIS Act
as FSPs, they will be accountable institutions in terms of item 12
of Schedule 1 to the FIC Act, and therefore must comply with the
FIC Act and its subordinate legislation.
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FINANCIAL PLANNING | Cryptocurrency
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Exemptions
At the same time as publishing the declaration, the FSCA also
published a general exemption.
Persons, who as a regular business feature, rendered financial
services in relation to crypto assets at the time that the declaration
took effect may continue to do so without contravening the FAIS
Act, if they:
• One can submit a licence application between 1 June 2023
and 30 November 2023.
• Immediately comply with the fit and proper requirements of
honesty, integrity and good standing.
• Immediately comply with the general duty to, at all times,
render financial services honestly and fairly with due skill, care
and diligence, as well as in the interests of clients and the
integrity of the financial services industry.
• Comply with the FAIS General Code of Conduct (excluding
section 13) by 1 December 2023.
• Provide the FSCA with any information that it requests.
Accordingly, the FSCA issued FSCA Information Request
7 of 2022 (FAIS): Request for Information – Crypto Asset
Related Activities Performed by Crypto Asset FSPs, requesting
information. Responses were due by 15 February 2023.
Crypto asset miners, node operators and persons rendering
financial services in respect of non-fungible tokens are exempt
from the provisions of the FAIS Act.
The FSCA has also considered the extent to which the existing
requirements in the FAIS Act and its subordinate legislation can
be applied to FSPs rendering financial services in relation to
crypto assets and proposed for public comment (which was due
on 1 December 2022).
The FAIS Act will apply as is:
• Except for a general exemption in respect of section 13
(guarantees, professional indemnity or fidelity insurance
cover), the FAIS General Code of Conduct will apply.
• The fit requirements will apply, except for a few exemptions
(some of them temporary) in respect of the competency
and continuous professional development requirements.
What does this mean for persons or FSPs who want to render
financial services in respect of crypto assets?
Persons who are not currently authorised as FSPs will have
to go through the full FSP application process. This includes
appointing Key Individuals, compliance officers and accountants
or auditors. Persons who are currently authorised as FSPs but
who want to add crypto assets as a product category to their
licences will follow the application process for adding new
product categories to existing licences.
If you, your entity or FSP, as a regular business feature,
already rendered financial services in relation to crypto assets
on 19 October 2022, the exemption conditions discussed earlier
will apply but some of the below may also pertain to you.
Persons who plan to render financial services in relation to
crypto assets, in future, should:
1. Apply to the FSCA for authorisation for crypto assets. The
FSCA will be updating application forms FSP2, 4C, 4D and 5
to provide for a crypto asset product category. The updated
forms are not available yet.
2. While your application is in progress, be extremely careful
not to render any financial services in respect of crypto
assets, especially advice. Keep in mind that advice includes
any recommendation, guidance or proposal of a financial
nature furnished, by any means or medium, to any client, in
respect of the purchase, investment, variation or termination
of a financial product.
3. Once authorisation for crypto assets is granted, ensure
that crypto assets are added to FSP and representative
appointment and disclosure documents, the representative
register is updated, updated licences are displayed, and that
applicable fit and proper requirements are met.
4. Keep a look out for the final exemption and further guidance
with regards to the application of certain provisions of the
FAIS Act, the General Code of Conduct, and fit and proper
requirements.
5. Draft or review existing FSP and representative policies,
procedures, disclosures, template documents (eg records of
advice) and client mandates or service level agreements to
provide for crypto assets.
6. Draft or review the FSP’s business plan and governance
framework, including its risk profile, register, appetite and
controls to take into account any risk brought about by the
rendering of financial services in respect of crypto assets.
7. Draft or review the FSP’s Risk and Compliance Programme
in terms of the FIC Act, to determine whether it requires
amendment, and if not already registered, register as an
accountable institution with the Financial Intelligence Centre.
8. Engage with the FSP’s compliance
officer for further advice, guidance and
monitoring feedback.
9. Ensure that all the FAIS Act and FIC Act
requirements relating to crypto assets
have been implemented.
Lastly, if you as a financial planner intend to
render financial services in respect of crypto
assets ensure that you understand the product
and its risks fully, and that you can explain it
to the client, to enable the client to make an
informed decision, whether to invest in crypto
assets or not. Financial planners who would
like to understand these requirements in more
detail, or need assistance with their applications
or document drafting or reviews, please contact
HLombard@Luculent-Consulting.com.
Hildegard Lombard,
Director, Luculent
Consulting
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FINANCIAL PLANNING | Legislation
COFI is founded on
culture and governance
Over the next months, as National Treasury prepares
to submit the Conduct of Financial Institutions (COFI)
Bill to Parliament for approval, more and more will
be written about it. Financial service provider (FSP)
business owners, Key Individuals (persons) and managers will do
well to follow the developments on the COFI front because the
promulgation of this new market conduct legislation will have
a significant impact on all financial services providers. As most
industry stakeholders know by now, the COFI Act will replace
the FAIS Act as we know it, and therefore the leadership of FSPs
must make every effort to familiarise themselves with the key
provisions of the Bill, as it is currently referred to.
There are a few key principles that one could potentially
prioritise when considering the provisions contained in COFI but
in my view, none are as important as the principles supporting a
culture of ethical conduct and good corporate governance. The
reason: these are the fundamental principles that have sustained
successful businesses for decades.
Long before the King Committee on Corporate Governance
published its first report in 1994, the late Peter F Drucker, a
leader in the development of management education, and often
described as “the founder of modern management”, asserted
that the culture of your company always determines success
regardless of how effective your strategy may be. He stressed
the importance of the human factor in any company and held
that, no matter how detailed and solid your strategy is, if the
people executing it do not nurture the appropriate culture, your
projects will fail. Drucker famously stated: “Culture eats strategy
for breakfast.”
According to sociologists, culture consists of the values,
beliefs, communication and practices that people have in
common. Simply put, culture is about the way you and your
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SAIPATM
Y OUR WEA L T H
Professional Accountant (SA) is not
just a professional designation.
IT’S A SEAL OF TRUST.
SAIPA members aim to
provide the highest level
of expertise and service
to clients and are bound by
the Institute’s Professional
Conduct Standards and Ethical
Pledge. They also act as trusted
business advisors, assisting and
driving businesses to not only
survive but thrive.
SAIPA – DEVELOPING FUTURE-READY PROFESSIONALS
www.saipa.co.za
info@saipa.co.za

BLUE
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FINANCIAL PLANNING | Legislation
people treat other people, how you act in critical situations,
how you manage pressure in the business as well as how
you respond to the myriad challenges you face in this highly
competitive and onerous environment. When values such as
honesty, integrity, fairness, transparency and putting clients
first are entrenched in the DNA of the people in the business,
studies show that long-term success will follow.
At the same time, there is ample evidence that where these
values are mere words on a company wall but not evident in the
day-to-day practices of its people, the company will eventually
fail. Legislation aside, history continues to repeat itself when we
witness how the greatest business strategies are doomed if they
are not underpinned by an ethical culture.
It is for this reason that the following provisions in COFI
should not only be welcomed but also be fully embraced by
all businesses:
A financial institution must identify and promote a culture
within the financial institution that supports ethical behaviour
and aims to ensure that the matters referred to in Part 1 are central
to the values and practices of the financial institution.
Part 1 refers to the provisions contained in sections 12 and
13 of the latest version of the Bill but for the purpose of this
article I am only going to highlight some of the key sections
that apply to ethical conduct by advisors and intermediaries
when they engage with clients. However, before I share these
key requirements, it may be helpful to read it, not from an
advisor’s point of view but rather from a customer’s point of
view. In other words, when you read these provisions, ask
yourself whether these provisions would serve you if you
were the customer. Often, when we are the customer, we
expect to be treated fairly and that the people in the business
will act honourably and serve our best interests but when we
read the legislation as advisors, we deem these obligations
to be too onerous.
According to section 12 of the COFI Bill, a financial institution
must adhere to the following:
(a) Act in good faith and in the interests of its financial
customers, and treat them fairly.
(b) Conduct its business transparently, with integrity, honestly,
fairly and with due skill, care and diligence.
(c) Observe proper standards of conduct.
(d) Ensure that financial products and financial services and
information relating to financial products and financial
services are provided, promoted and marketed to financial
customers in a way that is clear, unambiguous and not
misleading or fraudulent.
(f) Deal with conflicts of interest effectively and fairly and in
accordance with any prescribed requirements relating to the
avoidance or mitigation of conflicts of interests.
these provisions, they will earn my trust. Therefore, perhaps we
should not consider these provisions as regulatory requirements
but rather as principles that, if we demonstrate them when we
engage with our clients, will lead to trusted relationships with
them. When regulatory provisions help providers to earn the trust
of their clients, the principles become a set of values, which, when
embraced and applied, creates a win-win for all the stakeholders.
COFI further states that:
The governing body of a financial institution must commit to the
identified culture of the financial institution and is responsible for
ensuring that the culture is embedded in the financial institution.
To which I respond, “Why would anyone not commit to these
values and embed them into their culture if the outcome is trust?”
COFI contains many provisions that are good for business, and I
encourage the leadership of every FSP to stress-test the values
and culture in their business because it will ultimately trump
the best strategy. COFI calls FSPs to rejuvenate their values and
culture as these will be key to their future success or failure.
Who you are, what your values are, what you stand for…
They are your anchor, your north star.
You won’t find them in a book.
You’ll find them in your soul.
- Anne Mulcahy, Chairman and CEO, Xerox
The provisions in the COFI Bill, as highlighted in this article, set an
ethical standard of conduct that will help you to earn and retain
your clients’ trust. All that remains is the will to execute it well –
consistently, which will become your culture.
There are really only two important points
when it comes to ethics.
The first is a standard to follow.
The second is the will to follow it.
- John C Maxwell
If I must be perfectly honest, when I consider these requirements
as a customer, I expect nothing less from a company that I do
business with. If any company deals with me in accordance with
1 See section14(1) of the Conduct of Financial Institutions Bill.
2 Covey 2006: The Speed of Trust: Simon & Schuster; p70
Anton Swanepoel, Founder, Trusted Advisors

2033
2032
2031
2030
2029
2028
2027
2026
WON .
BUT
2024
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2021
2020
2019
2025
NEVER
DONE .
2018
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2015
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2009
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Earning our stripes with you everyday.