Financial Services


“I believe that if you show people the problems and you show them the solutions they will be moved to act.”

– Bill Gates –

Financial Planning – The Process

The term financial planning is broad in context and needs to be broken down into various stages of planning for both individuals and businesses. A one-size-fits-all approach definitely does not apply as every client has different needs and requirements. It is imperative that the planner fully understands the client’s circumstances. A good working relationship with the client is a prerequisite in financial planning.

The following are the recognised six steps in the financial planning process:


1. Establishing and defining a professional relationship

The financial planner should clearly explain or document the services to be provided to you and define both his/her and your responsibilities. The planner should explain fully how he/she will be paid and by whom. You and the planner should agree on how long the professional relationship should last and on how decisions will be made.

2. Gathering data, including goals

The financial planner should ask for information about your financial situation. You and the planner should mutually define your personal and financial goals, understand your time frame for results and discuss, if relevant, how you feel about risk. The financial planner should gather all the necessary documents and information before giving you the advice you need.

3. Analysing and evaluating your financial status

The financial planner should analyse your information to assess your current situation and determine what you must do to meet your goals. Depending on what services you have asked for, this could include analysing your assets, liabilities and cash flow, current insurance coverage, investments or tax strategies

4. Developing and presenting financial planning recommendations and/or alternatives

The financial planner should offer financial planning recommendations that address your goals, based on the information you provide. The planner should go over the recommendations with you to help you understand them so that you can make informed decisions. The planner should also listen to your concerns and revise the recommendations as appropriate.

5. Implementing the financial planning recommendations

You and the planner should agree on how the recommendations will be carried out. The planner may carry out the recommendations or serve as your coach, co-ordinating the whole process with you and other professionals such as attorneys or stockbrokers.

6. Monitoring the financial planning recommendations

You and the planner should agree on who will monitor your progress towards your goals. If the planner is in charge of the process, he/she should report to you periodically to review your situation and adjust the recommendations, if needed, as your life changes.

Financial Planning Options

From the options below, it can be seen that there are a number of different aspects to consider with regard to financial planning. Usually a client will have a particular concern which can be dealt with first, but all areas need consideration, if not immediately, at a future date. The six steps below will ensure that all areas are covered.

Protection Of Wealth (Risk)

Estate Planning

Estate planning is about having your financial affairs in order both before and after you pass away. Leaving your affairs in a tangled mess makes it extremely difficult and time consuming to finalise an estate. It is also hugely unfair on loved ones left behind.

Sir Winston Churchill summed it up like this: “If I had my way, I would write the word ‘insure’ upon the door of every cottage and upon the blotting book of every public man, because I am convinced, for sacrifices so small, families and estates can be protected against catastrophes which would otherwise smash them up forever.”

Life cover is normally used to ensure that there are sufficient funds available for those left behind to maintain their standard of living. Life cover is only purchased for one reason and that is because you love somebody enough to care for them even when you are no longer there.

Read The Last Love Letter

Disability Benefit

Disability refers directly to the inability to work and earn a living. Disability cover pays out in the form of a lump sum or a regular income and should be in place in the event that an accident or illness prevents you from being able to work.

Most employee benefit packages include a 75% of earnings disability cover. Those who are on a cost-to-company package must make their own provision for this.

Severe Illness Benefit

Severe illness cover, otherwise known as critical illness cover or a dread disease policy, is a benefit in which the insurer is contracted to typically make a lump sum cash payment if the policyholder is diagnosed with one of the specific illnesses on a predetermined list as part of an insurance policy.

Critical illness cover was originally sold with the intention of providing financial protection to individuals following the diagnosis or treatment of an illness deemed critical. Critical illness may be purchased by individuals in conjunction with a life insurance or term assurance policy. The finances received could be used to:

  • Pay for the costs of the care and treatment
  • Pay for recuperation aids
  • Replace any lost income due to a decreasing ability to earn
  • Fund a change in lifestyle

This insurance can provide financial protection to the policyholder or their dependents due to the policyholder contracting a critical illness or condition. The full sum assured may be paid on diagnosis of the critical illness, but then no further payment is made on death, effectively making the critical illness payment an ‘accelerated death payment’.

Some employers may also take out critical illness insurance for their employees. This contract would be in the form of a group contract and has become an essential strategy used by employers around the world to both protect their employees financially as well as attract more employees to consider working for the company.

Income Protection benefit

This benefit is usually for self-employed individuals and professionals working for their own account. Provision can also be made for business overhead expenses in order to keep the business going if the owner in temporarily unable to work and cash flows are severely affected.

Cover can be provided for a temporary period, usually twenty four months, and can be extended to retirement age if one cannot go back to their profession.

Retrenchment Cover Benefit

The risk of finding oneself unemployed today is higher than ever. This benefit gives you the ability to receive an income for a period while you are seeking other employment. It usually carries a waiting period of six months from inception of the benefit before you can submit a claim.

Wills and Trusts

These are both tools that are used in the estate planning process. A last will and testament is a formal set of instructions on what needs to happen to your estate after you have passed away. It can be a complex document and requires a discussion with a person with the necessary skills to assist. It is particularly important when there are minors who need to be cared for. Guardians and co-executors can be appointed and a testamentary trust be put into place to manage the finances for minors until they reach adulthood.

Trusts are used normally to house assets outside of one’s estate so that the growth of the assets does not take place in your personal estate. A good example is when multiple properties are owned or the shares of a business can belong to a trust. It is also a very complex document and must be drawn up by a competent attorney or fiduciary expert. A trust is a separate legal persona and tax is very onerous.

It is critical that a will and a trust deed do not conflict with each other and must always be reviewed simultaneously by a professional.

Creation Of Wealth (Reward)

Retirement Planning

This is probably the most overlooked aspect of financial planning. Retiring too soon combined with medical science keeping us alive for much longer creates the perfect storm! Many folk want to retire at fifty five or sixty but will live to their late eighties thereby requiring an inflation proof (escalating) pension for thirty years! This is a “tall ask” and requires strong discipline in one’s lifestyle.

The rule is to save first and then spend what is left but in today’s world of instant gratification it works the other way around and there is seldom enough salary left to save for retirement.

It is all about time. Start early in life and enjoy the miracle of compounding interest. The longer you wait to start, the more you need to invest each month to reach the same goal.

Tax benefits change substantially in 2016 and it would be prudent to review your contributions to increase your allowable deductions in the next tax year.

Investment Planning

Investment Planning is the process of identifying and implementing appropriate investment strategies to create and accumulate wealth to meet a predetermined goal.

Investment planning seeks to accomplish two equally important goals that naturally conflict with each other. The first goal is to maximise returns on investments. The second is most often to minimise investment risk. Effective investment planning seeks to balance these two goals in all areas of the investment planning process so that the investor can achieve the desired outcomes.

The other important aspect is to consider the effects of tax.

Broadly speaking, every investor seeks to achieve one or a combination of the following objectives:

  • Wealth creation
  • Wealth protection
  • Income generation

Because these objectives are usually not compatible, an investment planning exercise will often involve trying to reach the best compromise or balance.

Education Planning

This is the same concept as investment planning except that there are two considerations to bear in mind. If the parent lives and is able to save in the normal course there is no problem. However, if a parent dies, the education plan may stop being funded. A combination of savings and life cover need to be put into place to cover both eventualities. Most education plans cover these aspects.

Remember, school fees are usually only half the costs of having a child at a good school. Extra mural activities, uniforms, books, computers, tours and sports kits all add to the costs!

Education planning also includes providing for tertiary education, not only at a university but other institutions as well. And then there is the need for students to have wheels…

Tax Planning

It is your right not to pay one cent more than what you are obligated to pay. This aspect is applicable to all elements of financial planning and must be taken into account with your strategies and goals.

The hidden costs of dying can be horrendous with Capital Gains Tax, estate duty and executors fees amounting to over 30% in larger estates. This is always at the expense of the beneficiaries. The choice of an appropriate investment vehicle to use will be part of the process as well as the instructions in your will.

Unit Trusts / Collective Investments

A Collective Investment Scheme (CIS) is a type of investment vehicle used by investment managers to pool investors’ money to enable them to access investments which they might not otherwise be able to access in their individual capacities.

Through a CIS an investor can also achieve a spread of investments in assets such as shares, bonds, deposits, money market instruments and real estate.

One of the main characteristics of a CIS is that investors get to share the risks and benefits of their investment in a scheme in proportion to the participatory interests in the scheme.

A CIS does not have the contractual obligations of investments such as endowments and retirement annuities and is therefore very flexible in nature. The negative aspect to this is that investors tend to withdraw funds prematurely or panic when the markets turn. It is vital with this type of investment to stick to the plan or time horizon.

Stocks and Shares

Stocks and shares are bought through a stock brokerage. An extremely good knowledge of this asset class and all that goes with it, is needed. It is an aggressive (high risk) type of investment and the time frames need to be understood.

It is one of a number of asset classes (i.e. property, bonds and endowments) and should be seen as having some diversification within an overall investment portfolio.

I can facilitate the purchase and sale of shares through the likes of Sasfin (Pty) Ltd and ideally, not less than a million rand should be invested, otherwise it greatly limits the opportunities to buy reasonable parcels of shares, especially blue chips.

For The Business

Does the business have more than one owner?

A buy-and-sell agreement is an agreement between the members of a business entity, obligating themselves to sell on their deaths (or disability) their interest to the survivors of the entity and likewise obligating the survivors to purchase the deceased member’s interest. It is simply a swap of shares for cash and allows the survivors of the business to formally buy back the deceased’s share in the business at a predetermined price thereby paying the deceased’s family a fair price. Failing this, the survivors could inherit a partner that cannot add value to the business, but is entitled to a share in the profits without lifting a finger!

Buy-and-sell agreements are funded by life policies on the lives of the owners to create the cash needed. This should also include the loan accounts as they would form part of the deceased’s estate and need to be paid out.

This agreement must not be confused with a partnership agreement which deals with the day-to-day running of the business.

Have you signed surety for the business?

It is standard practice for business owners to sign sureties (guarantees) in their personal capacities when entering into credit arrangements with financial institutions and suppliers. This means that the personal estate of the owner is at risk in the event of an untimely death and the family could lose their home. No business owner wants this situation!

To prevent this from happening, the company takes out a life policy on the owner’s life so that it would have the necessary funds to pay creditors without the creditor needing to call up the sureties. An important aspect to consider and the company pays the contributions.

Does one person influence the profits of the business?

This plan is put into place when an individual’s (key person) demise will have a negative financial effect on the profitability of the company. The company owns a life policy on the key individual in order to keep the business running whilst a suitable replacement can be found. This can take months, and headhunting the right person can also cost money. The funds are kept in the business and not paid to outside beneficiaries.

Do you need to replace assets from time to time?

Businesses need to plan for the replacement of machinery and equipment. The allowable deductions granted for depreciation in the income tax calculations should be set aside for this purpose. Companies can own their own investments (sinking funds where there is no individual life assured) to accumulate funds over time. If this is not implemented, companies have to borrow in order to acquire new assets. It is more prudent to plan forward but the tax aspect must again be considered.

Do you care about your employees’ welfare?

Companies normally provide compulsory employee benefits for the financial well being of their staff. This includes life cover, disability and retirement savings into a pension or provident fund. The contributions of these benefits are shared in an agreed split between the company and the employees. The company, however, will always pay the costs relating to the administration of the scheme and not the employee.

Companies not offering this benefit will have a cost-to-company arrangement with the employees and they need to seek their own protection and retirement saving benefits. Sadly, this is badly neglected and salaries are spent on lifestyles instead.

Do you have star performers whom you can’t afford to lose?

Where there are no benefits offered to an employee, it is much easier for the employee to be persuaded to move to another company for more money resulting in the loss of years of training and expertise in that employee.

Companies enter into an agreement (preferred compensation) with staff that they need to retain. This is done by offering the employee a lump sum pay-out after a period of time, normally five years. In return the employee needs to adhere to the terms of the agreement or forfeit the pay-out. This plan usually deters staff from leaving for bigger salaries. An endowment investment or unit trust investment can be used as the vehicle for this fund.

5 Tips For Savvy Retirees

Start Saving As Soon As You Can

Four years can make a massive difference in the way you retire. Retirees who save for 33 years retire in style as opposed to those whom only save for 29 years.

Save All You Can

Financially sound retirees saved 8% of their salary, excluding employer’s contributions.

Take Matters Into Your Own Hands

Almost 40% of financially stable retirees have both a company pension fund and personal retirement annuity.

Don’t Touch Those Savings!

Less than 15% of people who retire comfortably ever dip into their retirement savings.

Talk To The Professionals

Almost 90% of well-to-do retirees consulted a financial adviser before they retired.

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