ELEANOR BECKER: Welcome to this financial advisor podcast, our weekly podcast where I speak to leading financial advisors. My guest today is Devon Card, a director and shareholder at Crue Invest. Welcome, Devon.
DEVON CARD: Thanks for having me, Eleanor.
ELEANOR BECKER: Let’s start with Crue Invest: it’s one of the few local companies with the FPI Approved Professional Practice accreditation. Can you explain what this is and how Crue qualifies for it?
DEVON CARD: The FPI is the Financial Planning Institute of Southern Africa; they are the recognised professional association for financial planners. So being recognised as an FPI Approved Professional Practice involves going through a whole stringent accreditation process conducted by the FPI themselves. It just reinforces that our standards in terms of knowledge, expertise and ethical conduct are amongst the best in the country and the accreditation just underlines our commitment to upholding the highest professional standards, as well as incorporating international best practices.
Clients worries and relationships
ELEANOR BECKER: What’s keeping your clients up at night currently?
DEVON CARD: I’d like to say it’s just the poor returns in the market that our clients are worried about, but unfortunately it seems to be going a bit deeper than that. While it isn’t everyone, there seems to be a growing concern among our clients as to whether or not there’s actually a future for them here in this country. So while we at Crue don’t actually believe that the country is headed that way, there is unfortunately such a big presence of bad news thrown around the internet, TV and radio, it’s difficult to blame someone for feeling that way about the country.
ELEANOR BECKER: Are you finding that you’re having to advise on financial emigration at all?
DEVON CARD: Yes, specifically in the last 18 months that’s been one of the biggest questions that’s come up in our reviews with clients. It’s not necessarily that they want to leave the country right away, they just want to understand what their options are around financially emigrating from South Africa. So yes, we are definitely seeing a growing concern and consideration to financial emigration.
ELEANOR BECKER: Especially in this environment, what does it take for you as a financial advisor to build long-term relationships with your clients?
DEVON CARD: I think it comes down to one thing and that’s trust. I would say this is the key thing to a healthy long-term relationship between the client and advisor. We come across too many clients who’ve had or have heard of a friend or a family member having a bad experience with a so-called broker trying to sell them unnecessary policies and masking it as advice. So us as advisors need to show our clients, through consistently advising them in their best interest, that they can trust us. Once this trust is built, this is when you can definitely have a long, successful relationship with your clients.
ELEANOR BECKER: How do you build trust with them?
DEVON CARD: It’s a difficult question and it’s not one that’s tangible. Each client is different. Some clients feel that they can trust their advisor when there’s consistent service, [you’re] responding to emails timeously, making sure that you answer their questions and don’t try to hide anything from them. I think to try and get across to the client that you have their best interest at heart, that’s the biggest step to building that trust with a client.
Women tend to be risk averse
ELEANOR BECKER: On a slightly different slant, this is women’s month. What would you say are some of the wealth-building challenges that women face?
DEVON CARD: This is an interesting one. There have been quite a few studies in this regard and one of the recent ones shows that women still allow their partners or spouses to take charge of household finances (2019 UBS Global Wealth Management report).
In fact, the study showed that 55% of millennial women in long-term relationships or marriages did not actually get involved in the couple’s money management and were happy to leave the job to their male partners.
Another challenge is that women tend to save rather than invest; they tend to want to preserve their capital, rather than pursue investment growth strategies. One of the other points that came out of the study is that women are often the primary carers for the children or their aged parents or other family members, and this can actually affect their ability to generate income and ultimately save.
ELEANOR BECKER: Just given that stat, would you say women are more risk averse than men, given that they’d rather save than invest?
DEVON CARD: Yes. It comes from that whole gender gap, where women are told that they have to save and preserve their capital, whereas men are encouraged to go out and invest. I would definitely think that these stats lend to that factor that women are potentially more risk averse.
ELEANOR BECKER: There are a lot of deeper issues here. How should women address these challenges or at least attempt to?
DEVON CARD: Firstly, women should definitely try to make it a priority to shoulder the financial burden together with their partners, regardless of who earns what in the relationship. In the study, 20% of women will actually find themselves solely responsible for the family’s finances at some point in their lives, whether it’s through death, divorce or other circumstances, and it makes sense for them to be involved from the very beginning.
So although women tend to invest less often, they actually make better investors than men: they transact less often, follow advice and are more likely to stick to a long-term plan. Women should, therefore, be encouraged to invest more aggressively for the long term, rather than opting for just a cautious savings strategy.
In terms of their role as mothers and carers, women should think very carefully before entirely giving up their careers to have children. With the speed at which technology is advancing, coupled with the unemployment rate at the moment, women face serious challenges when attempting to re-enter the workforce after giving birth and taking a few years off to look after their children.
Pension and provident funds and the default strategy
ELEANOR BECKER: One of your other focus points is employee benefit solutions. I’d imagine many employees sign up for [company pension and provident funds] and, besides receiving a yearly statement, that’s their only involvement until they leave the company or retire. How much say can employees actually have over their funds and how they’re invested, and how involved should they be?
DEVON CARD: Luckily the regulations are changing slightly in this space, enabling employees with a pension or provident fund to become more involved and engaged in their pension fund. A while ago what used to happen is you would have someone enter the corporate, they know they’re going to work there for the next 30 to 35 years and they get faced with a simple decision, like would they like to invest in a conservative or an aggressive fund for their pension fund.
Unfortunately, without proper education, stats say that most people entering into that pension fund tick the cautious option. Unfortunately, if that’s the option that you choose you could be faced with a situation where you have less than half of what someone who picked the aggressive option has.
Luckily, as I said, regulations have changed. There’s something called Regulation 37, where there’s a default strategy that has to be put into place for all pension funds and the trustees have to make sure that these default strategies are reasonably priced, appropriate and well communicated to all the members. That strategy is there for any member who doesn’t want to choose [their] investment strategy.
But what we’ve found now with all these pension and provident fund schemes is that there’s actually a lot of choice [for] the actual employees themselves on an individual basis.
We really encourage these members to really understand what their options are and assess their own personal financial situation before selecting their investment strategy.
Someone who is entering the marketplace at, let’s say, 30, 35-years-old, has a completely different investment horizon to someone who’s exiting the marketplace at, say, 65.
So, yes, while there will be default strategies put in place, there should be a whole arrangement of investment options [for] these employees and they should definitely look at considering their options with an advisor who can look at their whole holistic financial plan before making that decision.
ELEANOR BECKER: What are your biggest challenges with your clients when it comes to retirement planning?
DEVON CARD: I would say the most difficult thing that I deal with at the moment is the motivation side of things, when it comes to actually saving towards your retirement. Typically there are two main excuses that we come across from our clients. The first one is that clients say ‘I know that I need to keep working forever, so I’m just going to work until I drop, so there’s no need to really save for retirement’. [Secondly] when we show clients how much they should be saving to meet their retirement goals, it actually acts as a demotivator and they realise that they can’t save everything, so they’d rather save nothing at all.
So that’s the biggest hurdle: actually motivating someone to just start saving, just get going, even if it’s a small amount that they’re putting away each month. What ends up happening is after a couple of years that client sees that just by chipping away each month, they’ve actually accumulated a fair amount of savings. That actually acts as a motivator and we start seeing their behaviour change towards saving. All of a sudden they’re able to find an extra couple of hundred rand a month here and there, by cutting back expenses or actually realising that retirement could be a potential goal for them and they become self-motivated. That’s the biggest hurdle, to get the client to actually become motivated to save towards retirement.
ELEANOR BECKER: So it’s a bit of a snowball effect.
DEVON CARD: Yes, exactly.
The importance of an emergency fund
ELEANOR BECKER: You recently wrote an article for Moneyweb on why having an emergency fund is so important. Why do we need one?
DEVON CARD: An emergency fund is very important for a number of reasons, I would say the main one is that it acts as a barrier between the client and debt. …when these unforeseen events happen – for example a vet bill or you need new tyres for your car or even booking a last-minute plane ticket – if a client doesn’t have that emergency fund available, what ends up happening is the client dips into credit or takes out a personal loan to cover these costs. And, again, that has a snowball effect but in the other way and they start building this debt to cover costs.
Saving for an emergency fund also acts as a discipline, so someone who gets used to saving in an emergency fund, builds up this discipline, which is then a habit, and that can help towards their other financial goals like retirement, for example.
ELEANOR BECKER: So how do you start saving towards such a fund?
DEVON CARD: There are a few simple steps that we recommend and the first one is just to find a very reliable financial institution; it could be your bank or a unit trust platform like a money market fund.
Make sure that the money is very accessible – you don’t want to use these accounts where the money gets locked away for 30 days or 90 days, for example. It must be a transactional account that you can access quite easily.
Once you’ve found that institution, you pick an investment strategy that is at least inflation matching, so that sits around CPI 4.5%, 5%, so that your money at least grows in line with inflation.
Once you’ve found those two factors, the institution and the fund that you’re going to invest in, it’s as simple as just committing to a monthly saving that you’re comfortable with. It’s always advisable to have an end goal in mind, so whether that is three months of your expenses, six months or a full year, have that goal in mind and once you get to that goal you can stop the debit order. When you dip into that emergency saving account, just restart the debit order until you get back up to that level of savings.
Save first, spend after
ELEANOR BECKER: Lastly, what would you say is the best and the worst financial advice you ever received?
DEVON CARD: I think the best and worst comes hand-in-hand. The best advice I ever received was to save first and spend after. I look at how many people say it’s fine, I earn more than I spend, therefore, I’ll just save what I have left each month. Unfortunately, we live in a world where your big corporates are spending billions of dollars on advertising, just to try and get us to part with our spare cash.
So the best advice and my motto is to save first with a debit order as your salary comes into your account and then you can spend the rest of your money completely guilt-free.
ELEANOR BECKER: So it almost becomes an expense that you’ve budgeted for.
DEVON CARD: Yes, exactly.
ELEANOR BECKER: That was Devon Card, a director and shareholder at Crue Invest.