Fund names and benchmark changes

Fund names and benchmark changes

Keeps you updated with news and changes within STANLIB Multi-Manager.

We have recently completed a review of the STANLIB Multi-Manager Equity Fund and the STANLIB Multi-Manager All Stars Equity Fund of Funds’ mandates and have determined that there is a need to change the current fund names and benchmark to better align with the funds’ respective mandates.

Current fund name
STANLIB Multi-Manager
Equity Fund

New fund name
STANLIB Multi-Manager
SA Equity Fund

The current name could be misinterpreted to imply that the fund may also invest in direct offshore assets, which is not the case. The name change will provide clarity that the fund may only invest in South African domiciled assets. This includes inward listed securities and secondary listings of global companies on the JSE.

The benchmark will change from the South African Equity General Sector average to FTSE/JSE Capped Shareholders Weighted All Share Index (FTSE/JSE Capped SWIX). The fund’s current benchmark restricts its holdings to 10% of any single stock which may result in sub-optimal portfolio construction. Changing the benchmark to an index will enable the fund to hold more optimal exposure to specific stocks when market conditions are favourable.

Current fund name
STANLIB Multi-Manager
All Stars Equity Fund of Funds

New fund name
STANLIB Multi-Manager
Diversified Equity Fund of Funds

The current name could be misinterpreted to imply that the fund may only invest in certain underlying funds. The fund’s construction has evolved to the point where it has become a diversified fund of domestic equity, offshore equity and domestic property.

Fund manager changes – effective 30 June 2017

In addition, we completed a review of the STANLIB Multi-Manager Defensive Balanced Fund and STANLIB Multi-Manager Real Return Fund, and we have decided to terminate our mandate with ABSA and move these allocations to the STANLIB Asset Management and Investec Asset Management, respectively.

STANLIB Multi-Manager Defensive Balanced Fund

Current fund manager
ABSA

New fund manager
STANLIB Asset Management

Following the recent departure of Errol Shear from ABSA (the incumbent portfolio manager to our mandate), we decided to terminate our mandate with ABSA. We have subsequently replaced the ABSA allocation in the fund with the STANLIB Absolute Plus Fund managed by Marius Oberholzer and Peter van der Ross, the fund managers for the STANLIB Absolute Return team.

The STANLIB Absolute Plus Fund brings a different dimension to the overall portfolio with its flexible approach, exploring areas of the market often overlooked. The manager is innovative and cost efficient in achieving the fund’s CPI+4% target and has used various strategies to protect capital in the short-term.

Given that the new STANLIB mandate typically invests in more growth assets, including offshore, we have had to make additional adjustments to the fund structure to ensure we remain comfortable with the overall balance of the portfolio.

These adjustments comprise:

  • Prudential remains our core position, with its relative value approach. We have increased its allocation to 25%.
  • Coronation’s mandate has a medium-equity risk profile with an absolute return focus. The new STANLIB mandate increases the portfolio’s exposure to growth assets and we therefore slightly reduced Coronation’s weighting to obtain the required balance to growth assets within the portfolio.
  • The STANLIB Multi-Manager global allocation has been marginally reduced to accommodate the global mandate allotted to STANLIB Absolute Return.

The table below provides a breakdown of the old and new *strategic (manager) allocations.

Underlying ManagersFund ManagersNew Strategic AllocationChange in Allocation
STANLIB Absolute ReturnMarius Oberholzer17%New
Investec (Global Balanced)Clyde Rossouw20%-
Coronation (Domestic only)Charles de Kock17%(3%)
Prudential (Domestic only)Charles de Kock25%(5%)
STANLIB Multi-Manager (Global only)Kent Grobbelaar21%(4%)

The strategic allocations are a construction guideline to achieve the fund’s long-term return and risk objectives. In the short-term the manager allocations may differ from the strategic allocations.

STANLIB Multi-Manager Real Return Fund

Current fund manager
ABSA

New fund manager
Investec Asset Management

We have decided to terminate our mandate with ABSA. We have replaced the ABSA allocation in the Fund with Investec Asset Management – a segregated mandate with Clyde Rossouw built on the same portfolio guidelines as the Investec Strategic Opportunity Fund.

Given that Investec’s mandate typically invests in more growth assets over time compared to ABSA (in that it takes on more risk), we had to make additional adjustments to the Fund structure to ensure we remain comfortable with the overall balance of the portfolio. These adjustments comprise:

  • Investec will also be responsible for a global mandate (i.e. global balanced mandate). As a result, the strategic allocation to the STANLIB Multi-Manager global funds was reduced to remain within its foreign limits. The new Investec mandate takes on moderate risk on a relative basis and invests in high quality shares that have long-term sustainable return on invested capital. The focus on quality is more pronounced with Investec and provides additional diversification to the overall fund. Clyde Rossouw and Sumesh Chetty are the fund managers and have a reputable long term track record;
  • Prescient’s allocation was increased from 15% to 20%. Prescient uses various techniques to protect capital and is a key mandate as part of the fund’s overall risk management budget;
  • Following our decision to change the Coronation mandate (i.e. from Coronation Domestic Absolute to Coronation Domestic Balanced) at the end of last year we further reduced the Coronation weighting down to 15%; and
  • The Prudential (i.e. relative value) strategic allocation remains unchanged and together with the Coronation mandate (i.e. valuation based) provides the fund with the required growth assets necessary to achieve its long-term return objectives.

The table below provides a breakdown of the old and new *strategic (manager) allocations. The transition process commenced this month (May 2017) and is expected to be completed during the month of June 2017.

Underlying ManagersFund ManagersNew Strategic AllocationChange in Allocation
Investec (Global Balanced)Clyde Rossouw20% domestic + 5% globalNew
Prescient (Domestic only)Guy Toms20%5%
Coronation (Domestic only)Charles de Kock15%(10%)
Prudential (Domestic only)Michael Moyle20%-
STANLIB Multi-Manager (Global only)Kent Grobbelaar20%(5%)

The strategic allocations are a construction guideline to achieve the fund’s long-term return and risk objectives. In the short-term the manager allocations may differ from the strategic allocations.



Embracing a new financial planning landscape

Embracing a new financial planning landscape

The financial advisory landscape has changed remarkably over the past decade.

Increased regulation

The financial advisory landscape has changed remarkably over the past decade. The start of this new “era” came in 2002 with the publication of the FAIS Act which set minimum standards of qualifications and professionalism for financial advisers.

The Retail Distribution Review (RDR) discussion paper released in South Africa in November 2014 and the planned change to a “Twin Peaks” model of financial sector regulation further aim to enhance professionalism and improve investor outcomes. The “Twin Peaks” model of financial sector regulation will see the creation of a prudential regulator – the Prudential Authority – housed in the South African Reserve Bank (SARB), while the Financial Services Board (FSB) will be transformed into a dedicated market conduct regulator known as the Financial Sector Conduct Authority.

The financial advisory landscape looks significantly different now than it did even five years ago. Financial advisers looking to build a successful business for the future should aim to find opportunities among this ever-changing regulatory landscape.

Too much regulation or not – Embrace the opportunity

The South African financial planning industry is one of the most established in the world. Highly skilled financial advisers have spent decades building successful businesses based on robust investment advice, processes, trust and reputation. For these advisers increasing regulation has required minimal changes to their business models.

Over the past 10 years, there has been a natural tightening of standards across the broader advice fraternity. This has resulted in more comprehensive financial planning and improved advice to investors. However, the final outcome of the RDR proposals is still expected to have a profound impact, specifically on financial advisers who have yet to make the paradigm shift in how they execute their advice models and reposition their businesses for this new era.

There is a lot to consider when RDR is finally implemented. Will there be a big drop in adviser numbers? Will clients be reluctant to embrace the concept of advice fees? How can clients be persuaded to pay for advice? How will financial advisers build a profitable business? Will there be an increasing gap between clients able to pay for advice, and those who aren not able to?

Despite the uncertainty and challenges, one thing is certain, financial advisers with strong relationships and the willingness to adapt and improve will remain relevant to clients.

Opportunities – The need for financial advice is greater than ever

There remain several primary challenges to clients’ financial security in the context of today’s economic and demographic environment. These reinforce the importance of the role of the financial adviser and the need for suitable financial planning.

The key challenges that clients are facing include but are not limited to:

Increasing longevity – Average life expectancy has increased significantly since most retirement systems 

were first established. Today, life expectancy in South Africa is close to 70, and more than one in three South Africans who are 65 today will live past 80 years old. Meanwhile, only 6%1 of South Africans save enough for retirement, according to the World Bank.

High debt levels at retirement In South Africa only 33%2 of retirees are debt-free once they stop working. The country’s national savings makes up just 15.5% of GDP. The fact that people are not saving enough is highlighted in the latest Momentum/Unisa Household Liabilities index3 that shows the real value of household assets continue to fall because of lower contributions towards savings and a lack of investment growth on savings.

Lack of preservation In addition to South Africans not saving for retirement at all, there are many who aren’t saving enough or who don’t preserve their retirement benefits between jobs. Many South Africans have been tempted to access their retirement savings when changing jobs so they go back to a zero base in terms of retirement savings and, significantly, wipe out the years of compound interest they had previously earned.

Lack of engagement and financial literacyAt a time when the need for financial advice is so great for so many, levels of engagement with financial advisers are disappointingly low. According to BlackRock’s September 2016 Viewpoint4, only 17% of individuals in the United Kingdom (UK) and Germany, and only 14% in the Netherlands, use the services of a financial adviser. The levels of adviser engagement in South Africa is expected to be even lower due to our high unemployment rate and lower levels of financial literacy.

If anything, the above highlights the significant opportunity for financial advisers, as many people need professional financial advice. However, some of the new challenges facing financial advisers include:

  • The arrival of a new competitor – the digital wealth manager
  • Clients questioning the quality of advice as they struggle to link the value of advice given with their needs and outcomes.

The arrival of the digital wealth manager

Financial advisers are competing against the newest player in the market, the robo-adviser. The term robo- adviser implies that an element of advice is included in the process. However, it is provided without the intervention of a traditional (human) financial adviser.

Two factors are likely to drive consumer use of robo-advisers. Regulatory changes will be too onerous for some financial advisers to continue in business, leading to a likely contraction in the number of financial advisers operating in the sector. Quality advice comes at a price, one that the South African investor is not used to paying for. A large portion of customers could be priced out of the market due to a reluctance to pay for advice.

Since 2008, nearly 140 digital advisory firms have been founded in the US, with over 80 of those started in the past two years alone5 . A robo-adviser, in its uncontaminated form, provides a certain degree of advice, although on a more limited basis. Younger generation Y and millennial customers are likely to be attracted to the new digital wealth manager because of the anytime, anywhere opportunity to transact. This poses a further challenge to financial advisers who are trying to diversify their client base beyond its current predominantly aging customer profile.

According to the Investor Pulse Survey6 clients are contemplating robo-advice for convenience (42%), the appearance of simplicity (33%) and because there is no deliberate product push (31%).

Although the model may simplify the investing process, clients overestimate the effectiveness of robo-advisers in replacing the holistic advice given by traditional financial advisers. Non-comprehensive financial needs analyses and single-needs selling can result in detrimental financial planning shortfalls, which a client may only discover many years later.

Many clients in the 2015 Accenture7 report indicated their preference for continued access to traditional advisers. Despite this, financial advisers need to consider new ways of reaching, engaging, and connecting with clients through digital technology.

A hybrid business model that combines digital-user interfaces and client-relevant digital content (i.e. knowledge sharing), with face-to-face financial adviser interactions provides a far more compelling offering and a way to remain relevant to clients’ needs.

Quality of advice centred on holistic financial planning

Many financial advisers have adopted a “wait-and-see” approach to the new RDR legislation. Based on changes in the post-RDR UK market, there is likely to be a move away from investment planning (i.e. product pushing) to a more clearly defined focus on financial planning.

In the post-RDR era of increased scrutiny and higher professional requirements, financial advisers cannot afford to provide investment advice without rigorous and up-to-date investment research and analysis. The costs of setting up and maintaining a quality in-house research team are simply too high for many advisory businesses. In addition, advisers will want to mitigate the risks involved in defending, explaining and taking responsibility for all investment decisions. As a result, outsourcing investment research and portfolio construction to an independent provider has become an increasingly attractive solution for adviser businesses that want to focus on providing high-level financial planning and demonstrate value-add through quality advice.

Robust financial advice (i.e. a well-designed strategy) is based on an individual or family’s clearly defined financial and life goals. These could include education funding, buying a larger home, starting a business, providing for retirement or creating a legacy. The power of a goal-based approach to financial planning lies in its ability to highlight how realistic a goal is relative to a client’s risk preferences and the investment opportunities available.

As the ethos of goal-based investing gains traction with financial advisers and clients, it makes the principle of investing more tangible and relatable. It also helps to prevent rash investment decisions by providing a clear process for identifying goals and choosing investment strategies to match those goals.

Financial advisers looking to enhance and differentiate their value proposition as well as better equip themselves to deal with sometimes irrational and counter-productive investor behaviour will do well to adopt a goal-based approach. Key to the approach is shifting the focus from generating the highest possible portfolio return or beating the market, to investing with the objective of attaining specific life goals. Measuring investment performance is important, but measuring up to the goals set by a client as part of their financial plan is a more effective measure of financial success.

Conclusion

More stringent regulation, together with the outcome of RDR, will change the face of the financial adviser in what is seen as “a new era”. Financial advisers have an opportunity to embrace the changes despite current uncertainty. The need for financial advice is greater than ever but increased competition from robo–advisers along with increased scrutiny of the quality of advice, presents many challenges for financial advisers.

To succeed will require a focus on the real needs of clients to help them achieve their life goals. Helping clients invest according to their unique needs, objectives and time horizons encourages them not to view risk as something to fear and avoid, but rather as a barrier not to fully achieve their goals. By remaining highly relevant to clients’ investment and financial planning needs, financial advisers can truly differentiate themselves and strengthen client trust at the same time – There is no substitute for the trusted financial adviser.

Footnotes:  1   www.enca.com   2   www.enca.com  3   www.businesslive.co.za – South Africans do not have enough saved to see them through an emergency (23 January 2017)  4   BlackRock – Viewpoint (September 2016)  5   Tracxn Report – RoboAdvisers (Feb 2016) 6  BlackRock – Viewpoint (September 2016)  7  Accenture – The Rise of Robo-Advice: Changing the Concept of Wealth Management (2015)

By Albert Louw,

Head of Business Development,
STANLIB Multi-Manager