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Is Regulation 28 detrimental to young people?

Siba Njoba, Masthead financial planner, on constructing a RA for someone in their 30s.


RYK VAN NIEKERK: Welcome to this Financial Advisor podcast: Moneyweb’s weekly podcast where I speak to leading financial advisors. My guest today is Siba Njoba. She is a financial planner at Masthead Financial Planning; she has been in the industry for five years and this includes a stint at Alexander Forbes as a financial planner. Siba, welcome to the Moneyweb studio. Let’s start with Masthead – it’s a very interesting initiative from Old Mutual, tell us about it, how it works and how you fit in there?

SIBA NJOBA: Thank you so much for having me in the studio today, Ryk. The Masthead offering basically lets us practice as independent financial advisors while using their Financial Services Board licence, so they are the licence holder and we are operating independently under them for the time being.

RYK VAN NIEKERK: So you are totally independent, you have your own financial advice business but you just plug into some of the regulatory services that they offer?

SIBA NJOBA: That is correct and the idea there is to build future-fit compliant businesses.

RYK VAN NIEKERK: So your big challenge obviously is to find clients – I think that is the challenge of every single financial advisor out there. What is your main premise to find clients and what value can you add to that client’s life as opposed to someone else’s?

SIBA NJOBA: I think finding clients is a big part of being an entrepreneur; you have to create opportunities even in the very tough economic climate that we find ourselves in. So to find clients you have to position yourself strategically, try to be a middle man, try to find clients where they are and let them find you as well. So it’s all about positioning in terms of your outcome from there.

RYK VAN NIEKERK: What do you mean by ‘positioning’? What are the practical things you do to try and attract the right client? Obviously from a client’s perspective it is critical to find the best advisor.

SIBA NJOBA: I would say be where the client is. For example a typical client segment for me would be … doctors, professionals, lawyers – so you have to be where they are. So for lack of a better word, you have to ‘hustle’ clients and that’s just how it is. That’s the beauty if being an entrepreneur: you have to run around and get the kind of client that you want.


Constructing a RA for a 30-something


RYK VAN NIEKERK: Let’s look at your investment approach and let’s use an example of a young person of 30 years old, who is starting to save for retirement, and your first pitch to that person is a retirement annuity (RA). How would you construct, in the current economic climate, the competition of the different funds within that RA?

SIBA NJOBA: Great question. You would first have to look at the client’s objectives, how much risk they are willing to take into this portfolio and also consider the investment time horizon, and after taking into account what the risk profile is we would then construct a portfolio….

RYK VAN NIEKERK: But let’s say the person has a 35-year window and wants to go very aggressive, how would you construct that?

SIBA NJOBA: I will answer this question cautiously, without naming any specific funds. So what you would do is you’d typically look at an equity allocation of about 63%; you’d give the client a bit of property exposure as well and you’d also give the client some cash and bonds exposure.

RYK VAN NIEKERK: In the current climate many advisors tend to be slightly more conservative, putting money in the money market where you actually see a 9% or 10%, which seems to be a lot less risky than the equity market currently.

SIBA NJOBA: Remember we are looking at this portfolio construction at a long-term view, so if you don’t move that client out or, for example, you if put the bulk of the client’s money in a very cautious or money market-orientated portfolio you are not doing that client any justice in the long term. So when you are constructing that portfolio, as much as markets are volatile right now, the end goal is to have a fairly aggressive portfolio in place, then that would be the approach that I would take.

RYK VAN NIEKERK: Don’t you think it would be prudent to change the portfolio as economic conditions change?

SIBA NJOBA: Definitely, a key thing as an advisor is to review the portfolio. So if, for example, this year we’ve gone more cash and bonds you’d definitely review that going forward.

RYK VAN NIEKERK: What are your views on going offshore?

SIBA NJOBA: You have to diversify the client’s portfolio. A bit of offshore would be in my allocation of the equity exposure. It won’t be local only, because we have a lot of uncertainty in our local market … I would never put a client’s money 100% in local equities only, I wouldn’t do that.

RYK VAN NIEKERK: Do you rely a lot on the asset allocation of the big fund managers? Let’s use Coronation, for example, they have significant research abilities. Sometimes it is an option to go into their broader equity funds that have a broader asset allocation, their Regulation 28 funds. Is that part of your strategy?

SIBA NJOBA: Definitely, especially for retirement funds and an RA, you’d look at Regulation 28-compliant funds. There are tools available in the market where you are able to check various portfolios, how they are correlated and so on. That you do when you are preparing your client’s proposal, so that would be part of the research that you would produce for this client.


Is Regulation 28 detrimental towards young people?


RYK VAN NIEKERK: What are your views on Regulation 28? I believe it is detrimental towards young people and it should be more applicable to people who have just retired.

SIBA NJOBA: Well, this is open for debate and in my personal opinion – I don’t know if it’s because I got into the industry and I’m so accustomed to Regulation 28 – I understand their thinking and why they implemented Regulation 28 in the first place. Remember that when they construct all these funds they construct them for everybody. So let’s look at a typical corporate and these are the funds available for the employees in this corporate, if we have constructed portfolios that are not aligned to a fund strategy in line with the Regulation 28 construct, if I could call it that, everybody would maybe then be exposed to too much equity. So then how do you manage that risk, especially when you don’t have advisors who these clients are consulting with on a one-on-one basis? So it’s not a one-size-fits-all; so you would then benefit from having a Regulation 28 policy in place.

RYK VAN NIEKERK: But don’t you think regulations, for example Regulation 28, does not allow you to be very innovative in the ways you construct plans for your clients?

SIBA NJOBA: I agree completely but, again, in a retirement fund space, yes, I agree with that, but we can have voluntary savings. So you can look at this clients and say, okay, because we have Regulation 28 for this RA it will be capped at 75% for your equity exposure but for your unit trusts let’s go all out. So you can then say to your client that instead of putting any more money into your RA let’s rather shift it to unit trusts where you can get maximum equity exposure, so that is how I would go about it.

RYK VAN NIEKERK: But we live in very interesting political times. Do you get some of your clients phoning you and saying ‘things are really going south here, we need to change our plan, we need to maybe move as much as we can offshore,’ which is a pretty common theme? How do you interact with your client and try to calm down the nerves and not to act on emotion?

SIBA NJOBA: Again, I think as with the question you asked earlier about the 30-year old, I said to you that I would construct my portfolio with the end in mind. I’m giving you a long-term strategy and this is what we need to stick to because right now we’re going into the market in a very volatile time and, again, considering that we’ll be reviewing this portfolio annually this is the strategy that we’re putting in place and let’s give it time to play out.

RYK VAN NIEKERK: It’s actually quite ironic because if you invest in unit trusts the lower the unit cost the more units you get, you actually only want the fund to be at its highest when you actually retire. Do you think many investors appreciate that, so that when the markets go down and you have a long-term horizon it’s actually beneficial?

SIBA NJOBA: When investing there’s this principle called rand cost averaging, so for me I would say that this is our strategy, follow it. Markets will fluctuate and at different times in a market cycle you will be getting more units or less units depending on what the market movement is, so I would not encourage timing the market, definitely not, so we’d stick to the strategy. If you benefit from more units as and when, that would be great. But we stick to the investment strategy that we’ve provided for you because, remember, I have considered everything, your entire circumstance, and this is the portfolio scenario that we would have for you. I would not time it as the market goes up and down.


Boutique asset managers


RYK VAN NIEKERK: Hope and greed is not a good investment strategy. Let’s talk about fund managers. You are linked to Masthead, which is obviously owned by Old Mutual but you are totally independent, you can approach any fund manager. What is your view on boutique asset managers, the smaller ones that may offer a slightly different investment approach to the big ones like Coronation, Allan Gray and the like?

SIBA NJOBA: That’s such a great question. Your smaller boutique asset managers come with a totally different management style and that’s what the industry needs – it needs transformation; it needs new ideas. So if we encourage that and understand the fund manager’s philosophy and if they apply it correctly, we see the returns and they are making their targets in terms of what they had agreed to, like they had a CPI plus five target. If they meet their target then great, excellent. Again, your more mature asset managers are capped to a great degree, so we need room for your smaller boutique asset managers where we could also allow for diversity in the asset manager space. So I am open to seeing what the smaller boutique companies are doing, as long as my investment strategy is prudent and is in line with my clients’ objectives I will look at it.


Researching funds to invest in


RYK VAN NIEKERK: But there are, I think at the last count, 1 500 funds open to South Africans and most of them are linked to the JSE, where we have around 400 listed companies and investable companies around 200, if I’m generous. So it’s critical to pick, number one, the right fund manager and, number two, the right fund, and it can be challenging. How do you do your research into which funds you would like to channel your clients’ money into?

SIBA NJOBA: Great question. There are various tools. For example, I’ve got a tool that I use that will check the risk profiling of each fund manager, their strategy, as well as the mandate. Then looking at what you want to do for your client when you are constructing this portfolio for them you look – for example, with this particular tool I use – you would maybe be able to compare a Coronation Balanced Fund versus an Allan Gray Balanced Fund. It shows you what the performance was and so on. So by the time you get to say ‘I’m going to go with this’ you can substantiate, even to the client, ‘I have chosen this fund on these grounds’. So I use the tools available.


Choosing a financial advisor


RYK VAN NIEKERK: Just coming back to the actual advice, South Africans are interesting people and very diverse, what would your advice be to – let’s go back to the 30-year old – how should that person go about picking a financial advisor? What should that person look for?

SIBA NJOBA: First of all you want to look at qualifications, you want to look at what is this financial advisor’s value-add, what are they promising me and also you want to look at the number of years of experience that they’ve got. Not that I’m discounting the younger financial advisors and saying that they are not credible, but it’s important for me, even as an advisor, when I sit down with a client I sell them who I am, selling my qualifications, my experience and so on.

RYK VAN NIEKERK: But it’s a long road to walk with a client and you will be responsible for the lifestyle of that person once he or she retires, it’s a big responsibility.

SIBA NJOBA: Definitely, even with my clients that I retire, the relationship that I build with them is not at a point of sale only. I focus more on the contact and post-sale service because that for me is where you get the most value from the client-planner relationship – you don’t just leave your client once you are done with the transaction.

RYK VAN NIEKERK: Just lastly, within Masthead there are many different financial advisors, do you consult each other and talk about possible solutions for, for example, one of your clients?

SIBA NJOBA: So it’s like asking for opinions basically, if you don’t know something then you ask and you find out. So I’m of that view, if I’m struggling with something I’d find out and do my research.

RYK VAN NIEKERK: Thank you, Siba, for coming in today and good luck with your operation within the Masthead business and I wish you great success.

SIBA NJOBA: Thank you so much, Ryk.

RYK VAN NIEKERK: That was Siba Njoba, she is from Masthead Financial Advisors.



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