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When good advice might also be the wrong advice

What motives people to save?
A shift towards financial coaching allows for a more holistic financial plan and is not purely goal-oriented. Picture: Shutterstock

Perhaps the most common piece of financial advice given to new investors is that when you set out, you need to have a goal. You must know what your destination is in order to make the right decisions about getting there.

It’s pretty sound advice. But it may also be the wrong kind of advice for a lot of people.

Talking about financial goals suggests having measurable figures that signal success or failure. They are a target in rands and cents.

However, the head of strategic markets at Allan Gray, Thandi Ngwane, believes that this isn’t something that resonates with many people.

“I spend a lot of time speaking to individuals who are new to investing and a key message to them is to pick a unit trust that aligns with their goals and time frames,” says Ngwane. “But quite often this acts as a barrier, as many people don’t think of their finances from a goal-oriented perspective.”

What are your intentions?

She believes that a much better motivator is to have tangible intentions. What is it that investing money will actually do for you?

“Ultimately, people are looking for peace of mind or happiness, and that is a far stronger motive for putting money away,” Ngwane says. “That is the intention we need to explore. We need to encourage investors to think of what they value and help them understand how investing can aid them in achieving that end.”

This is a message that might resonate particularly strongly with the current generation of savers. Sanlam recently highlighted its concerns about the low level of retirement provision being made by millennials.

According to the CEO of Client Solutions at Sanlam Employee Benefits, Viresh Maharah: “Millennials do not relate cognitively [or] emotionally with retirement because of the negative associations… and therefore they don’t engage with the process.”

Read: ‘Millennials most at risk of poor retirement outcomes’

Put another way, millennials generally do not see the sense in setting a retirement goal. It is outside of their frame of reference.

“In speaking about retirement, millennials often aren’t thinking in terms of financial goals,” Ngwane says. “But if you position it slightly differently, from an intent perspective, whether that is a shortened working life, happiness or flexibility to do what they want to do with their time, that’s often more of motivator.”

A plan without goals?

An important question this raises, is where this leaves financial planners. How does anyone create a financial plan without goals?

“I think the conversation does need to shift to dealing more holistically with clients and not just material goals,” Ngwane says. “In other parts of the world such as the US and Australia we’ve seen an increased shift towards behavioural coaching by financial advisors. The approach then is not so much about the hard facts around returns and so on, but about understanding the whole person and how their finances relate to their personal journeys.”

Similarly, advisors are currently expected to discuss things like asset allocation, volatility and benchmarks, but for most people these are abstract, and even meaningless concepts. What matters is whether they will have what they need to live the life they want to live.

“Benchmarks are a good example, particularly with individuals, because sometimes investors are looking to do better than the next person,” says Ngwane. “That is sometimes quite a fruitless benchmark. If you rather consider what your personal objectives are, what the intentions are that drive those outcomes, that’s more productive.”

Financial planners may therefore find that they play a far more meaningful role in being able to translate the necessities of a financial plan into what is actually meaningful for a client.

“Sometimes financial concepts are quite abstract and it’s difficult to understand how they tie into our behaviour as investors,” says Ngwane. “Ultimately our behaviour has a big influence on our investment outcomes. Trying to bring those two a little closer together involves a more holistic conversation, that is not as cut and dry as just returns and objectives.”

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I can understand that it is difficult, and close to impossible, to motivate people to become investors when their parents did not own property. People from socialist backgrounds assist one another by saving in stokvels for immediate expenses. It takes more than one generation of property ownership before people understand the concept of private property. Only then can they become owners of businesses by investing in listed companies. People whose parents owned property thinks differently from people from collectivist or socialist backgrounds.

We see the results on a daily basis. People burn property, demand property without paying for it, demand free education, and abuse people who do own property. This is not the mindset of an investor. This mindset basically guarantees perpetual poverty.

What motivates people to save ( …and invest in life insurance)?
– Ethical leadership of the country
– Faith and Trust in our institutions
– belief that the vehicle you are using to save is secure, ethical and fair
– a reasonable and stable inflation rate
– a reasonable return on investment without onerous capital gains penalties
– belief that there is a future ( for the country and the planet)
In my opinion!

Good points Mac, was having a discussion yesterday with a young guy about saving. Although he has an RA he was pretty cynical about getting anything worthwhile in 25 years time in SA money in SA, let alone Euro’s, USD etc.

I feel for him; my big capital, and reasonable income currently, is in a farm – I’m looking sick.

Why save/invest? I’d refer them to the FIRE movement for inspiration. Not being chained to your desk and forced to work, instead doing what you aspire to with meaning – that is a reason to save/invest.

I couldn’t agree more. “I think the conversation does need to shift to dealing more holistically with clients and not just material goals, … In other parts of the world such as the US and Australia we’ve seen an increased shift towards behavioural coaching by financial advisors. The approach then is not so much about the hard facts around returns and so on, but about understanding the whole person and how their finances relate to their personal journeys.” That’s called lifestyle financial planning and makes complete sense. Your money should be there to help you live the life you want to live, and the coaching process is around tradeoffs needed where your dreams and your financial ability don’t marry.

Often find that the way the South African investment industry view Financial Advisors differ significantly from actual client experience. Unlike the US or Aus many people in SA only have Funeral policies or Life cover. Utilizing the R33000 p.a. tax-free investment would already be a step in the right direction. A lot of emphasis is placed on risk profiling and documenting financial goals. This time could be better spent on helping individuals to just start saving. Once you have investments in place the financial goals will sort itself out.

Excellent. Pity the article could not be as succinct.

End of comments.

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