HOW MUCH IS ENOUGH?
Wealth managers’ quest is for real returns as their clients fear the erosion of wealth and longevity of their capital, writes Colin Anthony
Erosion of wealth and concerns about whether clients’ capital will have the longevity to provide for their living years are listed by 11 of the 13 wealth managers and private banks that participated in this year’s survey.
PSG Wealth is the Top Wealth Manager of the Year: Large Institutions for the fourth consecutive year and dominates this year’s awards with three archetype awards: lump-sum investor, retiree and young professional. That shows that it is pulling ahead of its competitors, which are all banks with wealth management divisions.
Centric Wealth Advisory similarly dominates this year’s rankings among the smaller wealth manager players, taking top honours as Top Wealth Manager of the Year: Boutiques as well as the coveted People’s Choice: Wealth Manager Award, determined solely by client satisfaction ratings. It also wins the top entrepreneur archetype award and is ranked second in the young professional and third in the retiree archetypes awards.
Efficient Wealth, making its debut in our survey, wins the executive archetype award.
Nedbank Wealth Management SA wins the Top Wealth Manager Award: Wealthy Families, which recognises wealth managers who cater to the top end of the wealth spectrum with a typical family office service for those with complex business interests spanning multiple jurisdictions. For this award, rankings are based solely on judges’ scores for the firms’ responses to a case study, while the other five archetypes are determined purely by client rankings.
Investec Private Bank wins both the Top Private Bank of the Year Award and the People’s Choice for Top Private Bank.
Wealth preservation
Wealth managers are focusing primarily on preserving the purchasing power of their clients’ investments. Certainly, clients have other concerns. These include political risk domestically and a global economy whose Covid recovery has hit numerous obstacles including supply chain disruptions, Russia’s invasion of Ukraine and fastrising inflation.
But it is the latter that is sparking client consternation over preserving their wealth, not only in their lifetimes but for the next generation. It’s about “preserving the purchasing power of their investments”, says Charles McAllister, executive director of Centric Wealth.
Clients have experienced a new wave of volatility in
2022, says Ruan Bye of Mosaic Family Office. “With the onset of war in Eastern Europe, extremely high levels of inflation and the perceived slowdown in tech earnings, they need constant reassurances that their investment strategy will produce the required longterm investment returns.”
Those factors are all the more difficult to contend with because the economy is struggling to recover from the devastation caused by Covid, while network infrastructure such as our energy and transport systems remain dysfunctional, blocking all chances of a swift recovery.
Clients have had to get used to living in a vastly different world, says PSG Konsult CEO Dan Hugo. “They’ve been faced with previously unheard-of uncertainties. Previous solutions typically applied to financial concerns were no longer found to carry the same degree of certainty in relation to longer-term planning and solutions.”
BDO Wealth Advisers COO Ricardo Teixeira says the longevity of capital and having enough money for their living years are “the predominant concerns across a broad cross-section of our clients”.
He adds: “Families are beginning to live with ageing parents and are witnessing first-hand the impact of their parents running out of money and relying on their children to fund their living.”
Johan Gouws, Sasfin’s head of advice, says a major concern for clients is low economic growth and what it means in the context of the rising cost of living. “Clients are thus looking for sources of real returns that will assist them in maintaining their standard of living in the long run.” Because of political uncertainty, clients continue to look for more diversified investments outside SA, he says.
Finding sources of real return in such a difficult economic environment to ensure “one runs out of life before one run out of money”, as Teixera puts it, is the primary challenge of the investment houses. He says developing and maintaining a financial plan to ensure that happens is not only about the investment yield, tax structuring and insurance management.
“A large aspect of a successful financial plan is helping the family change entrenched money behaviours and habits that erode wealth and increase the risk of running out of money or not being able to live the life you want.” He sees changing behaviours as part of the value BDO provides to clients.
On more specific concerns, Gouws says the pandemic has made clients realise they need to have their estate planning in place as well as the necessary life, disability and dread disease insurance cover.
Carrick Wealth operations director Rashay Makan says clients are also querying whether their wealth is sufficient to meet their desired lifestyles while they are fit and healthy.
“Will their wealth allow them access to first-class medical treatment and medical facilities if they get ill and when they are older and frail? Will there be wealth left over to pass to their children to live a life with less financial stress? Uncertainty has become an overriding factor with respect to clients and their wealth.”
Centric’s McAllister says an important part of addressing such issues lies in helping clients identify “how much is enough” and implementing strategies and structures to achieve the lifestyle goals and facilitate the transfer of intergenerational wealth. “Once clients are able to visualise their current lifestyle requirements, it opens conversations around discretionary funds, aspirational funds and leaving legacies.”
Numerous wealth managers mentioned increasing client communication as another aspect of dealing with client concerns. “Client webinars have seen record attendance,” says Nedbank Wealth Management’s Francois
Moller. PSG’s Hugo says keeping clients informed and managing client expectations “is always critical during any crisis and period of vast uncertainty”.
Political risk is a major consideration and one that clients need to take seriously
Then there’s the politics …
In tandem with the challenges posed by the factors discussed above is SA ’ s unique set of political complexities, with the environment becoming increasingly volatile the closer we get to the ANC’s elective conference in December, and with the 2024 national elections looming.
Political risk is “a major consideration and one that clients need to take seriously”, says Carrick’s Makan. Asked if it was lower or higher than last year, he said: “It’s always the same — high. Unfortunately, what we are experiencing in SA really does seem like the analogy of frogs boiling slowly in a pot.”
While most participating firms said political risk was higher this year than last, some did see improvements. One is Efficient Wealth’s Alé le Roux. “The ruling party continues to nudge itself in the correct direction to foster an environment that is conducive to economic growth, capital attraction and market certainty.”
Other gains include arresting the growth in the civil service wage bill, privatising SAA and “drawing a line in the sand against wasteful expenditure and on poor-performing state-owned enterprises [SOEs]. Now there is also talk about privatising Transnet and portions of Eskom.”
Centric’s McAllister also believes the local political risk is “slightly better” this year. “Last year there were a large number of unknowns, specifically about government debt and SOEs. We have, once again, benefited from factors beyond our control, predominately commodity prices. Combine this with a more efficient revenue service, and revenue collection has increased more than originally projected — bringing our debt-to-GDP levels down to the 70% region.”
He says global political risks, however, “have increased dramatically, not only from the war in Ukraine but also political interference such as China’s crackdown on tech and Covid restrictions in Asia restricting supply chains”.
But those who see the political glass being half-full are outnumbered, with numerous wealth managers identifying infighting between factions within the ANC as a serious risk.
Sasfin’s Gouws says: “Political concerns are worse as the ANC continues to lose power and a stronger divide exists between factions in the party. The internal focus of the ANC is causing the governing
party to drop the ball on key policies to the detriment of the local economy and it runs the risk of having to make populist decisions to keep its support base.” He emphasises that political uncertainty and other socioeconomic problems are a great concern for clients.
Mosaic’s Bye says: “The political spectrum is more divided than ever, resulting in a definite increase in political risk, both locally and internationally.” He notes the positive impact of rand strength, positive GDP and the commodities boom, but says sentiment is down due to the high unemployment rate, the civil unrest last July and “ongoing negative media reports relating to corruption”.
Reforms and corruption
Asked what the government needed to do to boost local and international investment, there was no shortage of responses, but most were remarkably similar. The measures to get SA onto a sustainable growth path are well known to everyone, even the government, yet it appears incapable of delivering.
The most commonly cited measures are to accelerate structural reforms — particularly renewing efforts to stabilise the energy supply and end load-shedding, to slash red tape and to improve the ease of doing business.
Efficient Wealth’s Le Roux’s task list for the government touches on a range of other important issues: “They should bring about structural reforms in fiscal policy and labour policy while eradicating corruption to ultimately improve the ease of doing business in SA. Considering fiscal policy, this includes getting rid of nonperforming assets and SOEs; it also includes a further reduction in the civil service wage bill. But mostly it includes effective spending on education and health care to improve key metrics in life expectancy, maths, science and literacy.
“Considering labour policy, this includes getting rid of policies that deter the employment of the best possible candidate and to favour the employment of accountable leaders in all levels of government and society. It also includes making it easier to hire and fire employees in SA to reduce the barrier to entry.”
An internal cleanup by the governing party is another necessity, says Sasfin’s
Gouws. “The ANC needs to stabilise its leadership structure, provide clarity on key policies and root out corruption in government to create more confidence in SA as an attractive investment destination for foreign and local investors. Investing in infrastructure and accelerating energy-related initiatives will be key to solving the biggest stumbling blocks for local economic growth and to address the unemployment crisis, which is causing potential social unrest concerns.”
Ultimately, the government needs to pursue an important goal: “Faith needs to be restored,” says Carrick’s Makan. “The government needs to restore trust in the system to really make a meaningful impact.”
The ANC needs to stabilise its leadership structure, provide clarity on key policies and root out corruption