Should my adviser control all my RAs?
Q: I’m due to retire in three years. I have retirement annuities with Old Mutual and Sanlam, as well as a pension to be paid out when I retire. My financial adviser tells me that at retirement I need to give him access to all my retirement policies, so that he can combine them. I’m not happy to give him control of all my monies. I’ve read that it’s not a good idea to retire from your RAs at the same time as your pension fund. What would you advise? NB
A: Dan Hugo, CEO of PSG Distribution, replies: You don’t need to retire from all your retirement funds at the same time. Depending on the level of income you need and the capital available, you can leave some investments to grow while drawing an income from others. Your income needs will dictate whether you can afford to stagger your retirement.
If your income is lower after retirement than before, your marginal tax rate may decline. Each time you retire from a fund the tax is calculated taking into account the lump sum benefits you have taken from a retirement fund previously.
Assessing the amount you should take as a lump sum is an important decision, especially considering that you have multiple retirement funds.
It is worth exploring why you are not happy with the advice you have received and why you do not want to give your adviser sight of your entire portfolio. Your adviser can only render good advice if they fully understand your financial situation and needs. You need a relationship of trust with your adviser. A good adviser should be appropriately registered and hold the certified financial planner qualification. If you are convinced your adviser is not the right match for you, find one who does tick all the boxes, quickly, so that you can benefit from a holistic plan sooner rather than later.
Q: I’m a pensioner. I have about R150 000 to invest. Would you recommend buying shares in Steinhoff? I believe the share price has dropped dramatically. — LP
A: Francois van Wyk, wealth manager at PSG Stellenbosch, replies: It remains impossible to make an informed recommendation on Steinhoff, because of a lack clarity on the facts surrounding the accounting irregularities related to the company. Any investment would therefore be speculative.
Pensioners who want to invest in shares or a share portfolio should rather stick to a few basic principles of investing.
The first is to determine if you can take the risk that comes with an investing in shares. As a rule of thumb, you need to set aside at least between three and five years of income. Capital above this threshold can be allocated towards shares.
Second, when choosing shares, keep it simple and focus on achieving acceptable real growth over the longer term. It is time in the market that is being invested that makes you money rather than choosing speculative investments. Equities offer the greatest potential to earn inflation-beating returns, which are critical to ensure that your capital retains its purchasing power. The problem with shares is that they can fluctuate wildly in the short term, which is why you need to know how much risk you can afford.
Third, focus on the long-term record and quality of the company. Companies with a good long-term record of earnings growth and dividend payments have a competitive advantage, a strong or competent management team and a capital structure that makes them sustainable. Their earnings growth typically outpaces the growth rate of the broad economy and their dividend growth often exceeds their earnings.
Fourth, avoid paying a premium for a share. Individual shares can become overvalued and if you overpay for an asset (even a good one), you cannot hope to achieve a great return. If the industry your targeted share operates in is doing well, the share price may reflect that, or that the current high level of earnings is unsustainable.
Fifth, avoid investing in only one share as the value of your investment will be quite volatile and you run the risk that something bad could happen to that company. Try to always have at least 10 to 12 shares in a portfolio from different sectors of the economy.
Also make sure that you have both rand hedge shares and shares that do well when local interest rates decline. By doing this you will enjoy the only true free lunch that exists, and that is the benefits of diversification.
Q: How long does it take for an estate to be finalised and for assets to be distributed? — Ivan
A: Willie Fourie, head of fiduciary services at PSG Wealth, replies: The estate administration process is often lengthy and it depends on how complex the estate is and if the tax returns of the deceased are up to date.
The executor nominated in your will is the only person who is authorised to deal with the assets and liabilities in the estate. The Master of the High Court must issue a letter of executorship to the executor. This takes about four weeks.
Once the letters of executorship are received, the estate must be advertised in the Government Gazette and a local newspaper and creditors must be given 30 days to lodge their claims against the estate.
The executor then needs to establish what assets are in the estate and to validate all claims against it, the debtors and beneficiaries. This can take up to six months depending on how complex the estate is.
The executor then drafts a liquidation and distribution account listing all the assets and liabilities. The Master checks the liquidation and distribution account before giving permission to advertise it at the magistrate’s office. This process can take up to four weeks. If no objection is lodged, the Master will give permission to distribute the inheritance to the nominated heirs in the will.
A recent amendment to legislation states that all taxes that are incurred in the estate after the death of the deceased must be dealt with in the estate. The executor must register the estate for tax. The executor can only make the final distributions of the inheritances after the South African Revenue Service issues a tax clearance certificate. This can take several weeks, if not months, and causes lengthy delays, especially when estate duty is payable in the estate, as SARS normally audits estates liable for duty.
The Administration of Estates Act requires the executor to submit his liquidation and distribution account six months after the date of death.
However, this is seldom the case. If all goes well and there are no delays, the process normally takes at least a year to finalise.