Let them eat cat food!

I recently had a most disturbing (if not revealing) conversation with a board member of ASISA (the association for savings and investments in South Africa). But before I proceed, a bit of background and history on ASISA. The following is taken directly from the ASISA website www.asisa.co.za. (If you already know all of this then scroll down to “At the beginning of July…”)

ASISA was formed in 2008 by members of the Association of Collective Investments (ACI), the Investment ASISAlogoManagement Association of South Africa (IMASA), the Linked Investment Service Providers Association (LISPA) and the Life Offices’ Association (LOA). These associations have disbanded and their staff, assets and activities have been transferred to ASISA. ASISA was created to help facilitate an environment that promotes a culture of savings and investment in South Africa by unifying some of the key industries active in this space. The aim of this new single association is to:

• Work towards greater level playing fields. • Create an environment enabling of more holistic regulation. • Become more consumer focused. • Collectively engage with Government on policy issues. ASISA will work towards promoting a culture of savings and investment in South Africa by playing a significant role in the development of the social, economic and regulatory framework in which our members operate, thereby assisting members to serve their customers better.

As part of its mission ASISA aims to: • Actively promote a transformed, vibrant, and globally competitive financial sector that reflects the South African demographics. • Develop and actively participate in education, transformation and social development projects. • Continue to build a strong national economy by encouraging and incentivising South Africans to save. • Promote transparency and disclosure. • Endeavour to ensure ethical and equitable behaviour by members by applying a code of ethics and standards. • Help create a simple and efficient regulatory framework that promotes savings and investment. • Engage with Government to ensure the creation of level playing fields for all members while at the same time promoting healthy competition.

At the beginning of July this year, I wrote an article entitled “The Future of the entire unit trust industry hangs in the balance” https://www.thefinancialcoach.co.za/ovation-updates/ . In it I made the assertion that if Ovation investors lose money as a result of the Fidentia curators accessing their unit trust funds, then the unit trust industry as we know it is finished. The so-called legislative protection would have ceased to exist. About 2 weeks after the post, I received a letter from Leon Campher, head of ASISA, in which he expressed an opinion that unit holder’s funds are “safe”. When the Ovation court date was postponed again, I replied to his letter with a series of questions and statements. Almost 6 weeks have past since I wrote to him, but we have still not received any reply from him or anyone else at ASISA (for the record, Bruce Cameron from Personal Finance was copied in on the correspondence from and to Mr Campher – and he has also failed to take up any of the issues on behalf of the investors).

Back to the conversation…I asked the board member (in the light of their mission and aims to promote savings and investments in SA and to promote ethics and transparency etc) what ASISA was doing about Ovation and the fact that there are so many issues that appear not to be being addressed, either by ASISA or by the FSB.

His response was alarming! According to him, the bottom line is that ASISA exists to serve their member’s interests and they “do not care” about a little company called Ovation. At this stage I pointed out to him that as a LISP (linked investment service provider) Ovation would in fact have been a member of ASISA. I also pointed out to him that if investors could lose money from unit trust funds then unit trusts were no longer safe…and here the conversation got really scary. His responses were along the following lines:

• Where else could people invest i.e. was there anything else that was “better” than unit trust funds, banks nor insurance companies were not safe either?

• Ovation investors (and by implication anyone else invested via a LISP) were not actually invested into unit trusts…they were somehow indirectly invested into unit trusts and as a result don’t really have the protection offered to those who are invested directly (it would be interesting to hear LISPA’s views on this).

• Ovation was a small company and as a result it was not really on the ASISA agenda – by implication, ASISA did not really care about it as it is not a significant player.

• It was my fault for investing in a small and rotten company and despite the fact that unit trust companies, apple-rottenLISPS and insurance companies are legislated and regulated by the FSB we could not abdicate our responsibility and as such we are “liable” for investing into this “rotten apple”.

• At this stage I pointed out to him that Ovation was not always “rotten” and that legislation had in fact prohibited us from moving some of the money anywhere else. He had no response to this.

• He was also of the view that as financial planners and advisors we have a duty to investigate every single company where we invest and that we can not rely on the fact that they are “approved” by the FSB. He could not, however, advise on the frequency of the investigation that is needed. When I pointed out to him that this would have to be every time we invested money because a good company today could be a bad company tomorrow he had no reply.

• Ironically too, he is the CEO of a relatively new and relatively small asset management company…just like Ovation once was. His comments about size and new companies obviously do not apply to his operation.

What was overwhelmingly clear from the conversation is that Ovation has not really been on the ASISA agenda. It is too small and they are too busy protecting their own interests to spend time on this matter which is probably also a bit too “difficult” to address. The board members will get back into their Porsches, Mercs and Beemers and drive away to their security estates while the little old ladies eat cat food again! cat food The little guy (investor) is probably going to get screwed again – unlucky for him!

While ASISA might well exist to protect their member’s interests, what they fail to grasp is that without financial planners and investors, they will not have members to protect. It is critical that the integrity of the unit trust industry is maintained and it is critical that ASISA start pro-actively addressing the Ovation issue (if it is not already too late). Failure to act will forever change the way that unit trusts are seen and will change the way the people invest. The future of the LISP industry is also at stake.

I will be writing to each member of the ASISA board individually to ask them for their response to the Ovation issue. If we receive any replies, I will publish them on this site.

Unbelievable!

This just in from FNB online banking!

It seems there is no end to the lengths that some will go to part you from your money! The ethics behind this are questionable at best…

LOTTOfnb-product-ad

We are pleased to introduce the ability to play the LOTTO via Online Banking, providing you with a convenient and secure way of purchasing your LOTTO tickets online. Winnings are paid into the account which you used to purchase the ticket automatically. Options available to play are Play LOTTO, Play QuickPick or replay from history. To play LOTTO please select your services tab and select LOTTO.

My advice to you is to stay far away from this – read the earlier post if you need convincing

Lotto – even if you are in you probably wont win!

There is an old song where the lyrics went something like this “the chances of anything coming from Mars are a million to one, but still they come!”newspic49992a8ac0718

At least the odds were better than the chance of you winning the lotto in SA where your odds are one in 13 983 816 (or 0.000000072%)*.

Let’s put this in perspective: if there are 2 draws per week (104 per year) then you would need to play the lotto every draw for 134459 years to have played it ±14 million times and to be reasonably sure that you would win it just once. The slogan used to be “if you’re not in you can’t win” but it if they are honest it should probably be “even if you are in you probably won’t win”!

Now if the average life span is 75 years then the average person will live for 27375 days and then simply put (and not complicating things with actuarial tables) the chance of dying on any given day is 1 in 27375 or 0.000037%. You have a 511 times greater probability of dying on any given day than you do of winning the lotto!

In June 2003 it was reported that 27% of lottery players were unemployed and that 43% of players earned less than R2 000 a month. 2006 research found that 82% of South Africans played the lottery once a week and that 53% of the population did not engage in any other form of gambling. The average player spent R81 per month on the lottery with the lottery accounting for ±26% of total gambling spend in SA. Those who play slots spend R541 per month on average, and slots constitute ±44% of all gambling expenditure in the country.

Research was also conducted into gambling spend by disposable income groups, and this confirmed that all income groups are playing the lottery regularly. 70% of those who are in the lowest income groups (disposable incomes below R1 400 pm) play the lottery regularly.

lotto-2-balls

So if the odds of winning are so ridiculously low why do people still play it? Can you really gamble with your head? The real motivator for playing is that one very, very small chance that you might just win that jackpot which could change your life forever – although this might be in ways you’ve never contemplated. (More than a few lotto winners have died quite soon after winning, either from natural causes or from crime related incidents).

So if the motivation for playing is the ability to change your life once and for all, why not invest that average lotto ticket money? If you took the R81 per month and invested it into a unit trust fund where you got a return of 5% better than inflation then you would end up with ±R1.1 million after just 17 years**. If you were hoping to get there by playing the lotto then by that stage you would have played 1768 times – still far short of the 14million required to ensure a reasonable chance of winning. (If money spent on the slot machines was invested, it would take just seven years to get to the million).

So how about it? Think twice about buying that lotto ticket and rather put the money to work for your future by investing it. This would be a real chance to change your life for good!

That’s all for now.

Gregg

*the new power-ball lotto has odds of 1 in 24 million.

** assuming a real return of 5% & an inflation linked escalation on the contribution.

Retirement – life event, not just a financial event!

Results from the American Demographics poll showed that retirement is more difficult than becoming a parent or than getting married*. Those that felt retirement was the most difficult adjustment said that they struggle with the monotony, boredom, lack of purpose and lack of intellectual stimulation that traditional retirement offers. So if this is the case, why is there still such a one-dimensional approach to retirement from the financial services industry as a whole?

The focus has traditionally been on the financial side with little thought or emphasis being given to the emotional/psychological side of retirement. This has been largely driven by the financial services industry (insurance companies) and their focus on getting people to put money away (into their products) for retirement. If the stats are to be believed though then it has been hopelessly unsuccessful and very few (South Africans) will retire financially independent…

When the concept of retirement was first introduced (1930’s), the retirement age was older than the average life expectancy and anyone who did make it to retirement was not expected to live for more than 20-24 pay checks. These days, it is expected that many people will live for 20-30 years after retirement and some stats even suggest that some may be retired for almost half of their lives if we continue with the traditional approach to retiring at 60-65! Little wonder that few can afford it financially!41 Pot O Gold 10' x 10'

But what if we never stop working altogether? What if we just work differently or less? What if we continue working after we’ve “officially” retired? Could more of us then “afford” to retire? I recently met an 80+ year old doctor who was studying so that he could specialise further. Was he working because he had to? Nope; because he loves what he does! For him, work is not a means to an end (retirement), it is a way of life (a vocation or calling). While he can, he will always be earning – it might be less than it once was because he works fewer hours per day and fewer days per week, but in this scenario, the “huge pot at the end of the rainbow that he once needed” is no longer a necessity. Not only does he have longer to accumulate that pot, but he will also need to draw off it for a much shorter time period than someone who stopped working at 65!

It is also interesting to read that over 1/3 of male retirees in the US go back to some form of work within one year of retirement and over 2/3 of them take full-time jobs. Far too much emphasis is being placed on the financial aspect of retirement and not nearly enough is being given to the “other” aspects of retirement. Retirement is not a financial event, it is a life event and we need to plan accordingly!

That’s all for now…

Gregg

*41% of people polled said retirement was the most difficult adjustment of their lives compared to 23% who said it was parenthood and 12% who said it was marriage.

Comparative banking

After having been a client of Std Bank for 19 years I finally had enough of the ridiculous bank fees that I was paying (R185 flat fee) and moved to Nedbank (R65 for the same thing and an annual saving of R1440!). The process was a lot easier than I had anticipinternet_banking_250x251ated and is something that I should have done years ago.

I did quite a bit of shopping around and apart from Capitec Bank, Nedbank was the cheapest option that I could find. They offer a flat fee of R65 per month for what appears to be unlimited transacting on a current account. I dont get a cheque book and I dont get any paper statements (big deal). The best that Std Bank could offer was R87 and then it was not unlimited transacting. At the time, FNB’s option was R79 pm and ABSA had nothing to offer in that price range.

So I moved to Nedbank and so far so good, except for internet banking.

I am in the fortunate position to be able to compare all of the major banks’ internet banking offerings. I have used Std Bank for years (and still use it for a business account), I am now using Nedbank and I do internet banking for 2 ABSA clients and 1 FNB client.

Sadly, Nedbank is the worst. It seems their site was developed when computers were developed – it is archaic, restrcitive and not very user friendly. ABSA and Std Bank are good and pretty user friendly but I think that from an internet banking experience, FNB has got to be tops. It feels good, looks good and it is easy to use! You appear to be able to do just about anything.

For example you can set up a monthly payment to someone else with no end date. At Std Bank you can load it for 12 months at a time while at Nedbank you can only do it 1 month at a time – still need to get used to that but am hoping too that they will “get with it” soon!

All of the internet offerings have similar secuirty levels to log in (FNB only requires a user name and password) but all of them require you to enter a one-time password to add or amend beneficiaries. Nedbank has a very frustrating “terms and conditions” page which you need to accept each time you log in. I guess the danger is that you get so used to it that you dont read it and miss them making changes to it…let the banker beware!free-vector-skull-vectorsto

One very concerning feature about ABSA internet banking is the amount of “phishing” that I am subject to. Each time I use their internet banking I get an email the next day advising me that there has been “unusual” activity on my account and that I need to login in to sort out some or other details – it is quite clearly a scam but what is very worrying is that “they” know that I have been on the ABSA site.

All in all I am still happy at Nedbank and will give it a few more months. What this whole experience has taught me is that it is a mission to move bank accounts, but not nearly as much of a mission as we think and not even close to what the banks would have us believe. If you are not getting the service and fees you think you should then vote with your feet – it is the only way that the banks will take notice.

That’s all for now!

Gregg

Best interest rate?

With interest rates having fallen so far and the possibility of still more cuts onimages the horizon, anyone looking for interest income is pretty hamstrung at this stage. Money market rates are 7% per annum and many of the banks are offering “exceptional rates” for 1 year fixed deposits. They will even “enhance” this if you are over 55.

For anyone who is prepared to be locked in for a while there is an even better option that has been overlooked while short term interest rates have been high and that is the RSA Retail Savings Bond. It is a 2, 3 or 5 year option that is being offered by the SA Government (National Treasury) directly to the public and the interest rates are far better than anything else out there (and there are no fees to get in).  The only “catch” as I can see it is that you are locked in for the period (you can exit after 12 months but there will be an exit penalty). The rates are in the table below but for more information on this go to www.rsaretailbonds.gov.za

CURRENT INTEREST RATES

FIXED RATES
2 Year Fixed Rate 9.25%
3 Year Fixed Rate 9.50%
5 Year Fixed Rate 9.75%

They also have an inflation linked option which is also quite attractive.

That’s all for now

Gregg

Dont get caught!

I have recently received quite a few “phishing” emails (i.e. emails from people trying to get info they are not entitled to and usually involving internet banking). This is nothing new and has been happening for ages, but what is incredible is how “legitimate” these emails now appear.

Somehow, they have now managed to get it to look like the email has come directly from the bank with the bank address in the email address line. The give away though is when you follow the link to the “so-called” bank site or just scroll your mouse over the URL you will notice straight away that it is not the real thing…and in fact it is pointing you to some other site (where they will phish your information).

I guess though, that it is probably just a matter of time before they somehow manage to disguise that as well. In the light of this, I came across the following warning on the ABSA internet banking site – it is well worth reading.

Absa Internet Banking Confirmation

Don’t Forget…

Absa, and in fact no bank, will ever send you an email or an SMS asking you to click on an Internet link to confirm or update your Internet Banking login details. Remember to regularly change your Internet Banking PIN number and PASSWORD, and do not divulge this information to anyone.

So the bottom line is – dont get caught – if you are going to use internet banking, make sure you always access it via the bank’s home page and not via some email or other link. Also make sure that you never use any computer other than your own.

That’s all for now!

Gregg

This is just wrong!!!

I came across a 76 year old lady this morning who was sold a 10 year endowment at the age of 71 (through Old Mutual Horizons) for R10000 per month (yes, ten thousand rand!). 5 years later her situation has changed, she cant afford the premium anymore and needs to make a change…surprise, surprise, she is going to receive huge penalties for doing this.stealing_3673

This is just wrong and I dont care how anyone might try to justify this, there is no reason that this should have happened and the company should never have accepted a 10 year term when a 5 year term would have achieved the same goal.

There is, unfortunately, only 1 reason that a 10 year term was taken – fees and commission. Under the “new” commission regulations (which are the only ones I can get to generate a quote) a 5 year term would earn the broker R28000 in commission and a 10 year term would generate R52800 in commission. The company admin fees would not be that different from these figures so it is not hard to see why the broker made the term 10 years and why the internal compliance officer at the company could not see any “issue” with the case. This is just theft! and it is the kind of thing that continues to give our industry a bad name.

If the term was 5 years she could have had access to her funds and could always extended the policy on an as-and-when basis…better still, she could have been in unit trusts where there are never any penalties (but the commission is much lower and takes longer to earn).

Stay away from insurance companies if you want to invest money!

Gregg

Medical aid or glorified hospital insurance?

medical_bag2There was a lot of information about medical aids in the weekend press, a lot of it was very critical of the many schemes. While some of it is certainly warranted, what most people dont seem to grasp is that while many of us think that we are members of a medical aid, we are actually just members of glorified hospital insurance schemes. And even then, not all our “in hospital” expenses will be covered by the schemes.

Once we make peace with this fact, we will start to understand what is and what is not covered. We have opted for the plan which is just above the basic plan with Discovery and have been on it for more than 10 years now. We understand that all of our day-to-day medical expenses and even some of our in-hospital expenses will be for our own pockets. Other than that, the scheme covers just about everything (at 200% of medical aid rates) and to be fair to them, when we have claimed, they have paid. So there is no disappointment when they dont pay for things – we knew all along that this was the plan that we had chosen – we dont have a medical aid, we have hospital insurance.

Nor do we make use of their savings plan – I know that there are some advantages to it, especially if you use their network of prescribed doctors. But the kid’s doctor is not part of their scheme and is not likely to be any time soon. So, we put away funds each month into a money market unit trust account to cover those “day-to-day” expenses and I know that we get a much better interest rate on our money in the money market than any medical scheme pays on the savings account. At the end of the day, whether the money comes from the savings account at the medical scheme or from our money market account, it is all money that we have had to pay in and I would rather earn a decent interest rate and have full control over the funds than not know what I am earning and also not be able to use the funds as we want/need.

Perhaps the most interesting bit of information that I picked up was that a family of 4 would need at least R20000 in discretionary funds to pay for their out of hospital expenses – that’s a significant sum of money and certainly puts healthcare out of reach for most people in SA. Clearly there is a need for national health insurance of some sort!

Be wary of 1life direct’s advertising campaign…

1life610

Saw the TV advert for 1life direct recently…watch out, the cover they are offering is incredibly expensive. Far from cutting out the middle man and therefore being cheaper, it is significantly more expensive than you could get even if you went through a broker who was charging full commission.

For example: A quote from 1life direct (with no commission) is as follows:

Policy Information
Product: 1Life Elevated
Life Cover Amount: R 1,000,000.00
Term of Policy: Whole life
Total Monthly Premium R 322.99

The same amount of cover through another insurance company, with full commission on it would cost me R183 per month. Far from being “22% cheaper by cutting out the middle man”, 1lifedirect is in fact about 77% more expensive. Now if we remove the commission from the quote then the premium for R1million life cover for me would be R138 per month and 1life direct are about 135% more expensive.

As I have said before, watch out for insurance companies and dont underestimate the value of good, independent financial advice.

That’s all for now

Gregg