ELEANOR BECKER: Welcome to this Financial Advisor podcast, our weekly podcast where I speak to leading financial advisors. My guest today is Andre Basson of Brenthurst Wealth Management. Welcome, Andre.
ANDRE BASSON: Thanks, Eleanor.
ELEANOR BECKER: Andre, give us a bit of background into Brenthurst: what does it specialise in and would you say there’s a specific client profile?
ANDRE BASSON: We specialise in investments, especially the global opportunity set, but we also do risk, estate planning, wills and fiduciary for clients. But the major focus is on investment.
ELEANOR BECKER: What is Brenthurst’s investment philosophy?
ANDRE BASSON: The big thing would obviously be to diversify, but we don’t have a cookie-cutter approach or one-size-fits-all. So we meet a client, assess their needs and then according to their needs or their willingness and ability to take risk, we would take a certain approach on asset allocation – so growth assets versus more conservative assets – and then within that we would diversify across investment styles, across geographies and even for some clients look at a different currency to invest in.
ELEANOR BECKER: That leads into my next question, just how involved are clients in their financial plans? Do they call you every second day or are most just interested in their annual review meeting?
ANDRE BASSON: It really depends on the client. Some clients want to have a hands-on approach and they do call us more regularly, or I have more interaction with them. Some clients just want me to tell them what to do and have nothing to do with the finances.
I really do like clients who take ownership of their finances: they would want a certain amount of leadership from us or from me as an advisor and they trust you to follow that, but I also want them to ask questions and I want them to feel involved.
It’s not a situation that a client would call us daily and if the market has some jitters they get nervous and call, but it’s also not a situation where we only send an email or review once a year.
ELEANOR BECKER: Especially given the current low-growth economy that we’re experiencing and the uncertainty in the political and economic future, I’m sure clients have a ton of questions. What types of questions are they asking you and are they nervous at the moment?
ANDRE BASSON: Yes, the more informed clients ask me about global concerns, global slow-down in growth or, as we have seen…global synchronised growth, everybody is very concerned about the trade wars between [US President Donald] Trump and [China President] Xi Jinping, so if America and China get into a spat then the whole world will bear the brunt of that.
But the more local investor, who is more focused on local news, will obviously be concerned about Eskom, the sovereign debt that South Africa has, corruption and they are also very concerned about the flat growth curve of the JSE in the past five years. So in that context we really want clients to know how we position portfolios, what speaks towards protection against trade wars or global growth and also protection against South Africa – especially debt or a possible downgrade.
Opportunities in SA cash and bonds
ELEANOR BECKER: Some local analysts are seeing opportunities on the JSE, given the fact that there are companies with low PEs at the moment. What opportunities do you currently see in the local market, if any?
ANDRE BASSON: In the local market we see opportunities in SA cash and bonds: you can get a good SA government bond or retail bond for 9%, 10%. Obviously unit trusts go into in-house funds, SA cash and bonds, and we really get a high interest rate if you compare it to inflation. So inflation is between 4% and 5%, and you get a really high interest rate on that; you can get a very high yield return at almost no risk. So if you use some SA in-house income funds you get a high return for very low volatility or low risk. It’s a very hard decision for a client to take a bet on the JSE if they get that high return from the income fund.
Given the long term, we don’t see SA cash and bonds as a parking space for the next 20 years. But for now, the next year or until we see some structural reform in South Africa, it’s a good place to be.
ELEANOR BECKER: Conversely, are there any sectors that you would be avoiding at this point?
ANDRE BASSON: We are very wary first of all about the manner in which [one invests]. I am a bit concerned … because I get a lot of clients who want to take a big bet on, let’s say, SA listed property because it’s taken a big dive. Until we see good fundamentals in that sector, we won’t allocate towards it. I do find that either clients get very scared and they want to jump ship completely, or they want to take a big bet because they lost a lot of money or didn’t get a lot of growth recently. So my advice is to stick to a long-term plan but we are sceptical about any asset class that is overly-exposed to the SA Inc. type of story. So we diversify and have a bit more focus on the global growth.
ELEANOR BECKER: One of your specialities is risk cover. Given the tough economic climate we find ourselves in, do you find that clients are cancelling or avoiding risk products – for example disability and income protection – or is the opposite true?
ANDRE BASSON: I don’t really see clients cancelling. I do see old clients or new clients who have been in the market for a long time, with regard to risk policies – they question whether they need it and it’s a bit scary that a lot of clients don’t actually understand what they have. So clients who have been in the right kind of product don’t cancel – they will just be critical about the amount that they need, are they over-insured, are they in the right kind of structure, but we don’t really see clients cancelling.
In the same sentence I will always tell clients, listen, my plan is just to put the basics in place for risk cover and invest the majority of your budget for financial planning towards an investment portfolio, and spend the least amount on risk cover. Clients who are not in that space either cancel or they just reduce their cover.
Essential investment products for new parents
ELEANOR BECKER: You’ve just become a dad, congratulations! One definitely looks at the world differently after becoming a parent, especially where your finances are concerned. What do you think are the most essential risk and investment products that new parents should be considering taking out?
ANDRE BASSON: It’s a privilege to become a dad and I do agree with you that you view the world very differently. I really think that finance should be a means to an end – so you need to ascertain what is the goal that you want to achieve and if you want to take care of your loved ones then the starting point is ‘does this cover investments, wills and so on?’
But for younger clients you are specifically in a space where you are still building wealth in your career; you don’t have a lot of wealth at the moment, so obviously you need to look at life cover if you want to leave money to kids and not leave them financially vulnerable if you die at a young stage….
But you’d also look at proper income protection and lump sum disability. So look at the amount of debt you have to cover, should you become disabled and you’re unable to work.
There are many ways to structure it, but the point I want to make is that you need to look after yourself financially because if you are strong enough, you can take care of other people. But if you don’t take care of you, you can’t take care of others as well. So I did say in the previous question that you want to spend the least amount on risk cover, but for young people who are still growing in their career, you really need to look at proper income protection and also life cover. Especially in the area that we work in, people with professional careers, they pay a lot less for their cover.
ELEANOR BECKER: Very interesting. You mentioned wills, regarding estate planning what do you think are the most important factors to consider as a parent wanting to leave a legacy for your children?
ANDRE BASSON: It’s really shocking to see the stats of how few people have a proper will in place and if you don’t have a will the people who you leave behind will have a lot of red tape to go through. So it’s really important to have a will and to structure it in the correct way. You need to look at guardians: who are the guardians for your children if you die together with your spouse. If you had to die on your own, you would look at how much life cover you would want to leave for your wife so that she can be in a position to take care of your kids.
With reference to the first example, if you and your wife are in a car accident and you leave the kids behind, who is going to be the custodian of that capital that you leave and in what structure?
So we would recommend a testamentary trust and that can unwind at the age of the kids [who] can be, for instance, 18, 21 or 23. But I really recommend that you speak to a fiduciary specialist in this regard.
It’s not that difficult, it’s just really neglected and to be quite honest, in my opinion, there’s not a lot of money to be made with wills, so there’s not a lot of importance placed on it when you speak to clients. It’s one of the basics that you need to put in place and it’s a no go to not have one.
The importance of financial advisors
ELEANOR BECKER: We have National Wills Week coming up in September, where at least the industry is trying to educate people about this.
In today’s age where most information is a click away, why is having a financial advisor necessary? I think you have hinted at it quite a lot in this interview.
ANDRE BASSON: I’m not saying that you must have a financial advisor. I do see some clients or people who want to do their own stuff and that’s okay, I’m not forcing anybody. When we had the baby it was so great to speak to a specialist and a person who can guide you through the emotions. They can give you specialist advice, which you can also look up on Google, but there’s a person who you can speak to. So I always advise clients that there are two things that you need to be aware of when you look at finance and that’s fear and greed, and that’s actually just your emotions. So you just need someone to take you by the hand and go through the emotions. What actually happens in practice is that when I speak to a couple, one of the two will be financially savvy, the other one [won’t] worry about the finances, as long as there’s enough at the end of the month. But what if that person is the one who is left behind? Then you need someone to take them by the hand, someone they can trust and who can guide them through the events in life.
The other thing that I do find is that if you do everything on your own there is nobody to hold you accountable. So if the market falls 40%, let’s say like after the great financial crisis, and you don’t understand what’s happening – you don’t understand quantitative easing, quantitative tightening and you don’t understand all the jargon out there – if you don’t have somebody to hold you accountable to stick to your plan, then it might be easier to make the wrong decision.
ELEANOR BECKER: One thing I find is that it’s quite difficult to find a financial advisor….What should you look for in an advisor?
ANDRE BASSON: What I would not look for is someone who is just like a sneaky salesman. You need to listen to your gut feeling. I think there is not just one person out there who can help you – there might be a couple of people who you can associate with or connect with. You need to have a gut feeling; you need to have trust in this person; you need to see that they have knowledge and skill. And I think it’s important that somebody would be part of a team, because you’re also entrusting an individual but something can happen to that individual and is there continuity because you want to build a relationship for the long term, 20 or 30 years. So I would look at somebody that you can trust, somebody who is part of a reputable organisation and I think it’s also important to have an independent setup, where people are not driven by sales, but people who are driven by a passion for the job and a passion to help people, and I think that there are people out there who can help you in that regard.
ELEANOR BECKER: Lastly, [how would one distinguish between good and bad advice]?
ANDRE BASSON: The worst financial advice would be anything that pushes you … this is a great opportunity but you need to make a decision now. So anything that makes you feel you need to make a hasty decision, anything that’s bad advice, anything that’s focused only on selling I think is not good advice. I think if you pick up that whatever someone is selling to you is for their benefit and not yours, I think that’s bad advice.
I think good advice would be to your benefit. [If] the financial advisor would benefit along the way, while that should be the case it shouldn’t be the main objective. I think good advice would also be an advisor who eats their own cooking: so you can ask them to show you their investment portfolio, you don’t need to look at the values, you just need to look at the funds. So I would need to invest your money the same way I do with mine and with that you get a high level of integrity. Also, good advice would be outcome-based; I always tell clients that money is a good servant but a bad master, so money should serve you. So if I ask you when do you have enough money, people don’t get a number. If they do get to a number it’s not enough. But if I tell you, listen, I can help empower you to take care of your loved ones, or I can help you to get enough capital for retirement, you [can] work out a number. So if you have the correct outcome and you build towards that then I think that’s also good advice. It’s not something airy-fairy, something grey and it immediately becomes black and white and tangible for you.
ELEANOR BECKER: That was Andre Basson of Brenthurst Wealth Management.