WARREN THOMPSON: Welcome to the Click-an-Advisor podcast. I have the great pleasure today of welcoming Thulisile Nkomo, private wealth manager with NFB Financial Services, to join me for the podcast. Good afternoon, Thulisile.
THULISILE NKOMO: Hi Warren, thank you so much for the invite.
WARREN THOMPSON: …Thulisile, let’s begin with your personal journey to becoming an independent financial advisor. Just tell us a little bit about your background and how you came to decide that you want to take your career forward in this particular field?
THULISILE NKOMO: I studied BCom accounting, because in school I was introduced accounting and I believed that I wanted to be an accountant. I started accounting in 2010. I worked for a company called NMG as a fund accountant and I still believed that I was made to do accounting but I realised that was limiting me in terms of client interaction.
So I joined NFB as an administrator in 2013 and I studied for a post-grad diploma in financial planning with the University of the Free State, where my journey started as a financial advisor. So I completed my post-grad diploma in financial planning in 2013 and then in 2014 I wrote my board exams with the FPI to be a certified financial planner. I worked as an administrator for about two years and then for the next two years I worked as a paraplanner, who gives assistance to a financial advisor, and then in 2016 I became a certified financial planner with the FPI, after I had my three years’ work experience and I’ve been an advisor since then.
WARREN THOMPSON: So you’re formally qualified, you’re a financial planner. What has surprised you about the job?
THULISILE NKOMO: I thought it was easy: I thought you sell a product to a client and you walk away. But what is nice about the job is you take clients on a journey, you get to know a client when they start working and you’re taking them on a journey to retirement. So that for me is very nice: dealing with the client, the client interaction. And it’s very personal: it’s not just about selling a product. It’s giving advice and sometimes you end up building relationships with those same clients.
WARREN THOMPSON: So was that part of the attraction for you, the client interaction gave you a greater degree of satisfaction than you would have got just working with numbers?
THULISILE NKOMO: With my job at the moment I get to change the way people see financial services. Because when I grew up, my mom had a lot of funeral policies and I was exposed to risk planning – where you are able to take care of your beneficiaries. If something happens to you there’s life cover that you can take out to make sure that your children are taken care of, or you’re protecting yourself against disability.
So I didn’t know anything about all those products. I remember in 2015 I was sold that product, but I didn’t even know what had been sold to me. So getting to understand all those products and the investments…. Before I joined the industry I was the kind of person where if I put away R100, I want to get R100 back. That’s what I wanted, but the industry has shown me that there is more to it – you’re changing people’s lives, you are taking them on a journey, you’re assisting them to get to retirement, making sure that they are protecting their wealth, protecting themselves against unforeseen events like death, disability and dread disease. So that for me has been very nice. I have enjoyed that part, changing people’s lives.
Review policies when you have children
WARREN THOMPSON: During the course of studying these subjects, and now that you’ve become a financial advisor, did it give you pause for thought in the way you managed your own money?
THULISILE NKOMO: True. I recently became a mother and I remember when I came back from my maternity leave the first thing I did was review my policy, because previously I had my mom as a beneficiary and now I had to think about my child: how do I make sure that I am providing for my child? So that was important.
The kind of business that we have makes sure that clients are taken care of because we have an estate planning division. So I had to draft a will and make sure that what I want for my child is provided for in the will and make sure that there’s sufficient cover so that if something happens to me her education will be taken care of, my debt will be paid off and my parents will also be taken care of. I see with a lot of cultures, there is something called ‘black tax’… I don’t see it as black tax, but [rather] it’s looking after your community, or looking after your elders. So if something happens to me I would want my child to be taken care of with the policy that I’ve taken out so the finances will be there to make sure that her education is taken care of and when she’s older there will be some money for her to start a new life. So it’s just making sure that I’m providing for her education and if the unforeseen happens she is taken care of, so those are the things that have made me change my life.
I used to see insurance as a waste of money. I remember when I joined the company and I saw someone paying a policy of R5 000 per month and I said ‘this person is mad. How can they pay so much for risk cover?’ But as much as we like to protect our cars, we also need to make sure that we are protecting our own assets, our ability to make an income – which is something that a lot of people are not doing, especially people who work on contracts. They don’t see that; they are happy to take more money home, they are not taking advantage of the benefits like taking out an RA (retirement annuity) to make sure that you’re providing for your retirement, having group life benefits, you’d have to do that yourself. So taking out disability policies, severe illness, so that if something happens to you there is some income to assist you to take care of yourself.
The importance of a will
WARREN THOMPSON: That’s very important. You touched on wills and I read the other day that the amount of people who actually have a will in the country is in the single digits, if I recall correctly. Why are we so averse to putting wills in place? Is it the psychological challenge of thinking about our own mortality, our own death, and having to plan beyond that, or why do you think it’s just not something that’s done as a course of business – like you pointed out, insuring your car? Have you got any idea about why people are so loathe to do a will?
THULISILE NKOMO: My opinion is that people are not making as much money out of it, therefore, it’s not seen as big service that they want to give to clients. We want to make sure our clients are taken care of and whoever they want to benefit actually benefits [from a will].
My parents did not have a will, I had to assist them, so it also boils down to education. Some people are not really educated about such things, so you don’t know what you don’t know. Just because you don’t have a lot of money doesn’t mean you can’t have a will…. So we are changing the mindset of our clients to say that although you might not have a lot, but you just want to make sure that your beneficiaries are benefitting in the event of your death, so it boils down to distribution of wealth.
WARREN THOMPSON: That’s a very important point you make there, about it not being sold because it doesn’t pay a commission and so on. You’ve had experience now of working with clients, let’s start with their mistakes. What do you see are the most common mistakes people make in their personal financial affairs? You’ve talked about perhaps being under-covered, are there some other things there that you’ve picked up on that seems to be quite common?
THULISILE NKOMO: A lot of times I find that clients are just naturally nervous, which is normal, and when things are going well in the market that’s when people want to invest, but when times are hard everybody wants out. But they forget about the proposal. When we do a proposal for a client it’s all about your needs, your time horizon, your risk profile and your investment objective. So when times are hard people forget about that. So that’s why we as a business need to make sure that we manage our clients’ expectations. So the mistakes that they’re making are when times are hard they want to be in cash. But is that good?
You need to remember that we are on a journey and the journey doesn’t stop when times are hard. So as advisors we need to remove emotions from clients, because we need to be able to say we are in this for the long run – it’s not just for 12 months. But, like you said, you want us to take you to retirement, therefore, don’t worry, leave it in my hands. If there’s a need we have discussions with the client and we recommend changes, but until then we’re happy for our clients to stay the course, stick to their investment objective or their goal.
Recommended asset classes
WARREN THOMPSON: So even in a tough market like this, what are the asset classes that you recommend for people in their savings?
THULISILE NKOMO: Interesting question but it’s not up to me to recommend an asset class because it depends on each individual investor. If somebody wants to invest for 12 months then obviously you’d want them to be overweight cash, because cash will give them that certainty. But for long term, you’d look at both local and global equities.
Just because things are hard doesn’t mean you shouldn’t be invested. I find that in a lot of cases when you’re at the shops you’re happy to buy things when they’re on special but you don’t do that when it comes to investing.
When things are down, when the market is down, people don’t want to be in the market. They want to buy when they see growth in the market. So that’s one of the common mistakes that they make.
So it all depends on the time, the age, the investment objective and the goal of the client. Every client is different but at all times we need to keep in mind what the client wants.
WARREN THOMPSON: That idea of using something like an equity market, which over the long term is the best asset class to use for people who are saving for a goal in 20 or 30 years’ time, is that another one of the things that people don’t fully appreciate? The importance of putting your money into the right asset class, based on the type of financial goal. Do you find that people are too conservative with their money? They prefer to see more certainty in the short run than being able to accept the volatility that comes with investing in something like the stock market over the long run. Is that another common misconception of investors, that they prefer certainty over volatility, whereas the volatility serves them well in the long term?
THULISILE NKOMO: Unfortunately it just boils down to educating the client. So I think what’s important as financial advisors is that we need to educate our clients about the different asset classes – that although the equity market might be down in the short term, over time it has proven to outperform other asset classes. So what’s very important for us is educate the client. Just because you as a client come to me and say ‘I want to invest for five years’, you can’t come back in six months’ time and say ‘my investment is down’. So it’s all about educating the client and managing their expectations, which for us is very important.
WARREN THOMPSON: That’s been particularly tough of late because the performance of the markets hasn’t been great: I think it’s been sideways or marginally negative.
THULISILE NKOMO: I think for the past three years we have seen the JSE being mute – it has gone nowhere. The other day a client said ‘Naspers is doing well, don’t you think I should invest?’ I said ‘You have some exposure through unit trust funds’. It’s the noise that the media makes; it’s all about the noises that the investors are hearing, which actually influences their decision or their doubt in financial advisors. I think as part of the service we sell to our client we need to sell trust, which is priceless. So they need to trust us and we will be able to assist them to achieve their financial goal.
WARREN THOMPSON: What are your clients most worried about … what keeps them up at night?
THULISILE NKOMO: The risk of not having enough money for retirement, because half the time – especially with young people – …when they job-hop they don’t preserve their pension funds or provident funds, so they cash it. Then close to retirement the person realises ‘I’m close to retirement’, so that is very scary. People are not thinking about retirement, so a lot of people who are close to retirement are worried about how they are going to survive through retirement.
Others worry about if they die too soon will their kids be taken care of, or if they are disabled how will they survive or pay off debt? So those are the things that are keeping clients awake. The increased cost of living at retirement and the medical aid. If you look at medical aids over the past few years it has increased more than inflation, so increased medical costs and some clients at retirement might have to depend on the State. I say to a client, ‘You are earning R20 000 now, will you survive on a grant from the government?’ So those are the things that we constantly have to remind them that you can actually prevent this by making sure that you start saving early.
WARREN THOMPSON: What is the process that you undertake with clients? Lead us through from the first meeting where you meet a potential or prospective client. What is the process that you as a firm and as a financial planner follow before you get to the solutions and the recommendations that you make to them.
THULISILE NKOMO: The first thing we do is we meet the client, we get all their details, their assets, their debt and their retirement funds because sometimes people don’t think of their retirement fund as an asset. From there we discuss with the client to say what is your investment objective, what do you want out of this and from there we take the information, we go back and we assess to make sure.
So we look at everything: does the client have a will? Is the client saving for retirement? So we do the retirement planning, we do risk planning and investment planning. So we will analyse all that to say to a client at retirement how much would you like to retire, how much would you like to receive as an income? … if you had to be disabled how much would you like to receive as an income? If you had to die how much would you like to leave as an income for your family? From there we do the analysis to establish what their portfolio would be at death, at retirement, as well as their investment objective if what they want to achieve is doable, then we do quotes for them.
We don’t charge a fee for planning, so we’ll do the proposal and say ‘this is your shortfall at retirement, this is your shortfall at disability’ and then in terms of retirement we’ll make a recommendation to say that we recommend that maybe you start maybe an RA or a tax-free savings account. So we’ll do the quote and go to the client and say this is your financial position, at death, retirement and disability this is what we recommend.
It’s up to the client to say I accept your recommendation or walk away. So we don’t charge clients and if the client is happy then they will sign the proposal, the application and then we submit it to the institution, and then at a later stage we send them the statements. So everything is disclosed up front.
WARREN THOMPSON: So you’re not taking a fee for the advice, for the financial planning?
THULISILE NKOMO: That is in the quote, the products that we offer to the client factor that in. So we are an asset-based fee company that charges a percentage of assets under management. Then you get other products like risk products, which is an up-front fee structure, so that’s how that is factored in.
WARREN THOMPSON: Okay, great. [Regarding] the share of assets that are invested outside of South Africa and investments in South Africa, is there a hard and fast rule that you look at there? If you have a person who is saving for retirement do you say to them if you expect to live in South Africa upon retirement then you should invest roughly 60% or keep 60% of your investment exposed to the rand and South African investments and 40% to offshore market? Are there any hard and fast rules that you apply there?
THULISILE NKOMO: No, there isn’t – it all depends on the clients. Some clients just want to invest 100% offshore and then you find other clients who are invested in retirement savings are already invested in 25% offshore. A lot of clients will just ask for it, otherwise it just depends on the client’s long-term horizon and their investment goals. So if a client is long term then because of the global market being volatile you’d want the client to save for the long term in those asset classes because offshore investment remain volatile at times.
WARREN THOMPSON: In closing, you as a financial advisor with your child, what are the rules about money, maybe five rules for money that you’d like to teach your child during the process of growing up? Obviously assuming that she doesn’t become a financial advisor herself, what advice would you like to give her about managing money?
THULISILE NKOMO: With my child the first thing I’m going to teach her is start saving early, it can be R500, it doesn’t matter but start saving early, so I’ll teach her to save. I’ll teach her to live for tomorrow because half the time people are living for today, so you save now and you look at yourself, if she’s a young professional she needs to protect herself, so she needs to make sure she’s protecting her assets, be it car insurance, her health, so that I will also teach her. Allow the advisor to actually give you advice because they are professionals, they have the knowledge, hence, people go to them. A lot of times people don’t want to pay to go to an advisor, they prefer to do it themselves but it’s better to go to somebody who will assist you.
WARREN THOMPSON: Does that help take the emotion out of the money, by talking to an advisor?
THULISILE NKOMO: I think so, I think it’s better that way, it gives you peace of mind, you sleep and let the advisor do the worrying about your money. So trust the advisor, they have the knowledge. It’s very important to keep the client’s needs before your own, it’s not about the money but it’s about the journey that you take your clients on and the education that you give to that person who does not know much about the financial market, as much as they say they do. But what’s important is educate the clients that is very important for me.
WARREN THOMPSON: Great, we are going to have to leave it there. Thank you very much for your time, Thulisile.
THULISILE NKOMO: Thank you so much.
WARREN THOMPSON: That was Thulisile Nkomo, private wealth manager at NFB Financial Services.