Good advice is worth paying for
Certified Financial Planner of the Year, Wouter Fourie, shares his investment philosophy.
Ryk van Niekerk / 1 November 2016
RYK VAN NIEKERK: Welcome to this Financial Advisor podcast, in this series of podcasts I speak to leading South African financial advisors, we talk about the industry, their personal investment philosophies, how they deal with their clients and their views on fees and regulations. My guest today is Wouter Fourie, he is from the Pretoria-based firm, Ascor® Independent Wealth Managers. Wouter, welcome to the show, you’ve recently be rewarded the prestigious title as the Financial Planning Institute Certified Financial Planner of the Year and this award honours the most proficient professional planner in South Africa. Congratulations on the award, what do you need to be to be the most proficient financial advisor?
WOUTER FOURIE: Ryk, thank you for the opportunity to speak with you and also to share with you. Ja, it actually takes a lot, it’s a very tough and very thorough competition that you need to enter to be awarded the Financial Planner of the Year. The competition then entails three different rounds that you need to go through, so the first round is where they provide you with a case study and you’ve got to submit a written report – a financial plan – this plan is then marked by four academic specialists from different universities across the country. Then from the first round the top seven financial planners then go through to round number two and number two is the tough one, they come to your practice, there are four different judges who visit your practice, somebody from the Financial Services Board, somebody from the Financial Planning Institute of South Africa, then also a practice management specialist and then also an external compliance officer. They spend a day or two with you in your practice, going through your processes, looking at your client interaction, looking at your compliance, looking at your contingency plans, even as far as checking the fire extinguisher that it has been serviced on a regular basis. Then, from this audit they choose the top three financial planners and the top three then go through to a final interview in front of four judges at the Financial Planning Institute’s head office and they present you with 12 questions on anything related to our specific field of expertise. It’s very tough. Then the top advisor is chosen from the three rounds and is awarded the Financial Planner of the Year, and also the brand ambassador for the Certified Financial Planner Mark.
RYK VAN NIEKERK: We at Moneyweb get requests for information from normal South Africans, sometimes very affluent South Africans, on a daily basis asking the question: how do I pick, number one, a financial planner and, more importantly, how do I find a good financial planner? If you approach a financial planner in your late 20s, early 30s, when you need to start saving for your retirement, the lifestyle could be a lot different, depending on the quality and the skill of your financial advisor.
WOUTER FOURIE: That’s so true and it’s a very important choice to make. If you look at the recommendations set by the International Financial Standards Board, they do recommend that you approach a certified financial planner. Now just to put this in context, a certified financial planner is somebody who’s written a postgraduate qualification through one of the recognised universities in South Africa and then also needs to pass a board exam presented by the Financial Planning Institute of South Africa. That means that you are qualified similar to a chartered accountant in auditing, you will be a CFP professional in financial planning. To find a CFP professional you can go to the FPI website, where they list the CFPs in South Africa. Also interesting, in South Africa we see that you need to be registered with the Financial Services Board to present financial planning and presently we’ve got about 140 000 people who are registered with the Financial Services Board but only about 4800 of those are Certified Financial Planners.
RYK VAN NIEKERK: But is it not like accountants or lawyers even, you may have the certification but some are better than others, how do you pick the best ones in the financial advisor field?
WOUTER FOURIE: I think it’s important to speak to friends and family members, and ask people for referrals because that’s usually the trade that you can present and also distinguish somebody else from being good or just a salesman and presenting sales advice instead of financial planning advice.
RYK VAN NIEKERK: You have been in the business for nearly two decades, is it more difficult to give financial advice today than, say, 20 years ago?
WOUTER FOURIE: I actually think it’s easier to do it, I think legislation is tougher – that’s the reality – but I think in terms of technology and software and the processes and so on that we’ve got at our disposal and also to utilise in terms of calculations and so on, it should actually become easier and it’s more thorough than I think 20 years ago. Twenty years ago most of the guys just did a calculation on the back of their cigarette packet and that was financial planning. Today it’s a different ballgame but I think technology can actually assist you in presenting a better plan and more accurate financial planning structures.
RYK VAN NIEKERK: The other side of that argument is that the industry is overregulated and that financial advisors follow a tick-box approach just to comply with, does it really benefit the client in that sense?
WOUTER FOURIE: There are advisors who choose to follow a tick-box approach and I think those are the guys you need to avoid. If you are presented with financial advice you need to be able to understand it and you need to also see that it adds value to your life and your lifestyle. It’s very difficult for somebody to be in this industry without complying to tough legislation but our approach in our business is to embrace legislation, make it part of your service offering, embrace it in your business structures and you will actually benefit from it because you’ll have a better business at the end of the day.
RYK VAN NIEKERK: Many clients look at advisors and one of the first things they look at is the fees that they charge, what is your position regarding fees for financial advisors?
WOUTER FOURIE: First of all, we are an independent wealth management business and we charge a professional fee for our services and this is done in consultation with a client and explained and quoted in writing. It’s always challenging to keep the balance between good value proposition and to be paid for quality advice and service. We believe it’s better to pay for quality advice and good service, rather than getting cheap advice and service that does not pass muster. It’s always important to ask the question, how do people stay alive if they give you advice for free. The old saying that if you pay peanuts you will get monkeys is definitely a reality in terms of financial planning.
RYK VAN NIEKERK: What are your fees?
WOUTER FOURIE: Our fees are based on the complexity of the specific plan that we need to present and also on the qualifications and the experience of the specific advisor that addresses this plan. So also what we try and do is break the plans into three categories, so we have a standard plan, a complex plan and then a very complex plan. The difference between the three is a normal plan would be for somebody who is employed, they earn a salary, they have one last will and testament and they’ve got a few assets. Compared to someone with a complex structure, you will have someone who is a business owner with a trust, multiple companies, multiple assets, local and offshore.
RYK VAN NIEKERK: Wouter, in you experience, how informed are prospective investors or prospective clients of fees and costs, is it such a big issue as many in the media or some advisors make it out to be?
WOUTER FOURIE: I think it’s very important to talk about fees, it’s also part of our approach when we speak to clients to address the structure of fees and then also explain that there are different fee levels that need to be paid at different stages. So I think fees are very important to discuss from the word go and also that fees need to add value to your process.
RYK VAN NIEKERK: Wouter, let’s talk about investments, what is your investment philosophy?
WOUTER FOURIE: Our approach is that it’s all about the clients, our philosophy begins and ends with the clients’ goals and objectives, and our clients’ lifestyle, and not a prescribed check list, that you referred to, determines the asset allocation. My approach is to keep it simple and to make sure that the clients understand and know what they are investing in. This is where I believe a professional financial planner has a very important role to play. My passion is to enable clients to make an informed decision through advice based on experience, sound knowledge and in-depth analysis of relevant options. I follow two simple rules when I do financial planning and investments, rule number one is never lose a client’s money and rule number two is never forget rule number one. In offering our services to clients we have the benefit of also being independent and being independent means that we are not forced by one-sided incentive structures or employed by a product provider to sell their specific products or investments. Being independent also helps us to always put the interests of our clients first in everything that we do. We make sure that our clients sleep well at night because they know they are being cared for by a great team of professionals.
RYK VAN NIEKERK: It’s easy to say never lose a client’s money, I think everybody strives to do that but it happens; you invest in a certain share, what we saw in the UK recently where the Brexit vote saw a lot of South African based investments plummet in value, how do you communicate with clients or interact with clients to make sure that they understand that this is reality?
WOUTER FOURIE: I think the basis of any investment approach is to have a well-diversified portfolio, number one and also, number two, not to react to market fluctuations. Taking the UK as a good example, a lot of those reactions were driven by market sentiment, a company that’s worth R1 billion today can’t be worth half the amount tomorrow. A lot of times you just need to have time in the market and not try to time the market, to sell at the bottom and try to buy at the top. So it’s very important to have a very well-diversified portfolio and then also not to react on market fluctuations.
RYK VAN NIEKERK: Do you get many clients who interact with you when there is political noise in the air? Currently in South Africa we see a lot of political instability, the market reacts, especially the exchange rate. How often would a client phone you and say, Wouter, the rand has just depreciated significantly or appreciated significantly, how does it affect my portfolio?
WOUTER FOURIE: I think that’s one of the successes of our approach with our clients, is the first few consultations we have with a client we actually spend time educating the clients in terms of how to react in those specific situations and also to realise that a lot of those situations actually provide us with opportunity to make money for our clients because when do you buy shares, when there is blood on the streets and that’s very important. What I’ve found is that even if there are market pullbacks or fluctuations I don’t receive calls from my clients every day because they’re concerned about it, because they know they have got a well-structured plan, they understand the markets and they also understand that we make use of those opportunities to add value to the portfolios.
RYK VAN NIEKERK: Wouter, let’s talk about asset managers, there are many asset managers in South Africa, big ones and small ones, who are the ones you really trust with your clients’ money?
WOUTER FOURIE: That’s a dangerous question to ask because it can change as well. So the top fund manager at the moment might not be the top fund manager to tomorrow. But, once again, our approach is not to switch in and out of portfolios, so what we do as a company is we’ve got an external company that does all our fund analysis for us because we do realise that we are financial planners, we don’t have time to analyse 1400 funds every day, so we appoint professionals to do that on our behalf and with their assistance we build structured portfolios to assist our clients to get to their long-term goals
RYK VAN NIEKERK: But who are these companies that you direct the majority of the money to?
WOUTER FOURIE: So what we do is our approach is we look at companies with assets under management of more than R250 million in their portfolios, we also go through a structure that we look at the quantitative, as well as qualitative analysis that we do on these portfolios and, yes, we do prefer using the well-known brands, the bigger companies. As I explained previously, we don’t want to lose our clients’ money, so we stick to the big guns and we make sure that we know exactly who manages their funds and also understand their philosophy in terms of their portfolio structures.
RYK VAN NIEKERK: Let’s talk about other asset classes, currently the cash market seems to be one of the preferred asset classes, what is your perspective on the money market and if a client is really serious about you putting their money into a money market account, which type of funds would you look at?
WOUTER FOURIE: You’ll always find that money market funds are attractive on the short-term period, especially in fluctuating markets, as we have at present. But just remember that a money market only provides you with a stable income over short periods. If you look at money markets and you look at a longer period you have got to diversify your portfolio because a money market will provide you with a return of maybe 1.5% above inflation and in real terms over the long term if you deduct your tax liabilities from that you are actually not making money with a money market. So it’s a good place to park your money for a short term. Also when we do build investment structures and portfolios you will also a money market for a shorter period of your investment but if you look at longer-term investment periods you need to diversify into other asset classes.
RYK VAN NIEKERK: Property, South Africans are in love with property, especially residential property and the buy-to-let market, do you think that should form part of a diversified investment portfolio?
WOUTER FOURIE: I’ve got to be honest, I’ve made some good gains myself out of property, especially in the property boom period that we had. I don’t think that residential property is a very attractive asset class at the moment, I prefer listed properties myself, as well as commercial properties. Do you need a property in your portfolio? I think it’s a basic necessity for everybody to have ownership of property and I would recommend that people invest in their primary residence but I would not exceed exposure to too many residential properties. I don’t think there is a lot of value at present in residential properties.
RYK VAN NIEKERK: I also think there is a lot of risk, which people don’t really take into account in residential properties. Just lastly, what are your views on the exchange rate and whether people should take money offshore at the current exchange rate?
WOUTER FOURIE: That’s probably the most difficult target to focus on is the exchange rate but we need to look at history and we need to look at the long-term perspective. If we look at history, excluding last year’s spikes that we saw in the exchange rate, the rand weakens against the dollar at an average of about 7% per year and even if you do long-term planning for holidays and so on, we advise clients always to bring into their calculation a 7% decline in the rand. Do you need offshore exposure in your portfolio? Yes, we totally support that.
RYK VAN NIEKERK: Why 7%?
WOUTER FOURIE: That’s the average over the period.
RYK VAN NIEKERK: Usually the theory is the difference between the inflation rate of typically South Africa and the US, and that’s not 7%.
WOUTER FOURIE: Not currently but if you look long term, if you look at a ten-year period, it plays out to 7%.
RYK VAN NIEKERK: So you would advise taking that into account, don’t try and time the market?
WOUTER FOURIE: Yes, I totally do. Also if you take offshore, the idea is not to time the market to go out, bring back, go out, bring back, the reality is we need to diversify our investments. Offshore gives us a lot of opportunities that we don’t have locally and I also think it gives you growth opportunities across a broader spectrum of currencies, as well as industries. We don’t have a Microsoft in South Africa, we don’t have an Apple in South Africa, that gives you an opportunity to invest in those global companies.
RYK VAN NIEKERK: My next question is you make the decision, yes, I want to take money offshore, what do we invest in because the investment environment north of the Limpopo is dramatically different to what we have south of the Limpopo.
WOUTER FOURIE: That’s very true and that’s why you need professional advice when you look at structuring these portfolios. Presently my personal choice would be to move offshore and also to use a money market type of investment at present and also to stick to the big guns in the industry.
RYK VAN NIEKERK: Money market in South Africa?
WOUTER FOURIE: No, offshore.
RYK VAN NIEKERK: But those yields are at all-time lows.
WOUTER FOURIE: At the moment just to give a stable investment portfolio to work from, as we said, money markets currently, locally as well as offshore, is probably your safest place to be in but if you’re looking at longer term then you need to move into shares in offshore portfolios.
RYK VAN NIEKERK: Your advice now is if you go offshore have a combination of money market and equity investments?
WOUTER FOURIE: Yes, let me just clarify that, when you move into an investment you have got a choice to go full into an investment or you can expose yourself into the investment over a specific period. So if you’ve got a lump sum at the moment I would park it in a money market and I would slowly transition out of that into shares just to give you that stable growth into the portfolio. So I wouldn’t park it there for ten years, that’s the wrong thing to do but just to give you a transition into the portfolios.
RYK VAN NIEKERK: Thank you, Wouter. That was Wouter Fourie of the Pretoria-based firm, Ascor Independent Wealth Managers