Financial planning industry has to adapt to the needs of South Africans

● The financial planning industry is at a tipping point and requires an about-turn in the way it operates if it is to serve the needs of South Africans and provide a sustainable business for advisers going forward.

“We haven’t even begun to understand that solving the issues of retirement is far more than simply trying to come up with the right amount of money,” says Alexander Forbes head of research Anne CabotAlletzhauser.

At the Morningstar Investment Conference recently she said up to now the role of financial planning had centred on the idea that if you stick to your financial plan and achieve it everything else will fall into place, but this is not so.

The role of the financial adviser of the future will not be about picking the best investments for you but rather to help you improve your financial capability within the context of, and with the participation of, your broader family.

Typically used first-world calculations to determine the income you will need at retirement assume your income will cover your housing, education, medical and physical requirements of your spouse and average 2.2 children and that by the time you are 60 they will be on their own, leaving you with only the need to provide an income in retirement equal to 75% of your preretirement income for your spouse and yourself.

But, Cabot-Alletzhauser said, South African families simply do not look like that and the same methodology cannot be applied to every family. For example, 74% of South Africans over the age of 60 live in multigenerational households and their income needs to provide for anything up to 25 people in the broader family.

The income earner is possibly paying for siblings who still need to complete tertiary education, grandparents living in the same household or other extended family members who are still dependent in some way on that income.

There is a complex interplay of social accords within families and the more that financial planners can start addressing those dynamics, the higher the likelihood that they can help South Africans at all income levels to resolve the challenges they face in providing for their retirement.

This means the nature of advice is potentially hugely variable — no matter what income level or socioeconomic level, she said.

Planning for life

The challenge of the future will be less about planning for retirement and more about planning for life, Cabot-Alletzhauser said.

Cabot-Alletzhauser added that your mental mindset to financial decisionmaking plays a role in the financial decisions you make but, importantly, people rarely make significant financial decisions in a vacuum.

“The impact of other family members’ financial decisions on your plans overshadows everything else,” she says.

Planning for retirement is one of the most desperate needs but it’s not about what annuity or investment to choose. It is about finding collaborative solutions among your broader family or community on how you or a family member, as a retiree, will be cared for, and how to optimally manage that impact on the family, she said.

Financial planning really involves not talking just about money but how people can organise themselves to solve what matters to them in their lives. It’s about having the conversation about how we help each other solve the complex problems we face, she said.

How advisers can add value

Financial advisers can add value in how they design solutions for you to solve the unique problems you face, how they can help you manage the trade-off decisions about what financial needs to prioritise at what point in your journey and how to manage that delicate balance between managing assets and managing debt or other funding obligations, Cabot-Alletzhauser says.

She says in recent workshops hosted by Alexander Forbes the services most in demand were self-help groups to deal with family-related financial-planning problems such as how to own a home or what to do about numerous dependants.

Mindset change

For many South Africans, addressing the big financial challenges will demand a collaborative approach, whether we are talking about families, or communities or simply a group of individuals who want to chip in together to fund a large purchase.

That means that if financial advisers want to stay relevant to their emerging client base, they will need to shift their mindset from working with individuals to working with this collaborative solution.

But, she says, collaborative approaches also demand that there is a sense of group accountability for them to be effective. In SA, stokvels are a particularly successful model to that end.

But families themselves can also contribute to ensuring that their kids get off to the right start there.

Teaching financial responsibility cannot be done through financial education alone, the right behaviour needs to be instilled, Cabot-Alletzhauser says.

While your genetic makeup might explain as much as 33% of your behaviour towards saving and financial prudence, the bulk of it, 66%, is social context and training. A sense of group accountability instilled with children from an early age can make a significant impact.

Solving the issues of retirement is more than trying to come up with the money Anne Cabot-Alletzhauser Alexander Forbes head of research