RYK VAN NIEKERK: Welcome to this Financial Advisor podcast, my guest today is Marise Smit, she’s a financial planner at Brenthurst Wealth and is based at the Pretoria office of this firm, she has a BCom Honours degree and also a postgraduate diploma in financial planning. Marise, welcome to the show, we are currently seeing some exciting/depressing political developments and many people are quite nervous about what will happen in the next few months, what do you make of the current developments?
MARISE SMIT: Yes, it is strange times that we are living in, globally the focus is more on politics than what we are used to in the past and locally the news that we get is a bit upsetting, which does make us and our clients a bit worried about what to expect and it makes it more difficult to make investment decisions. Most people are just sitting on their money at the moment and waiting to see how things turn out. So it is a bit of a struggle at the moment but how we are positioning our clients’ portfolios at the moment is with all these happenings in mind, depending on their own risk profiles and objectives.
RYK VAN NIEKERK: So you are actively changing portfolios in reaction to what we are seeing on the political scene?
MARISE SMIT: It depends on each client and what they are expecting from the portfolios. So if they have a long-term horizon and we still believe their beginning strategy will still suit them over the long term I don’t think it’s necessary to make emotional, politically-driven decisions in their portfolios. Maybe in clients’ portfolios where they draw income it may be needed to position their portfolios a bit more conservatively to put a bit more constant returns in their portfolios for their income objectives.
RYK VAN NIEKERK: Brenthurst Wealth has always been advocating an international investment strategy and in many cases the advice has been take as much out as you can, within obviously the ambit of the allowances, I would imagine this rings true today, are you still giving out that advice?
MARISE SMIT: I’ve always been heavy on offshore investments but you also have to take into consideration each client’s individual needs, you can’t tell a client who needs an income withdrawal to put all their money offshore because they need to buy their bread and milk in rands. So it depends on each client’s objectives and risks because offshore investments are more risky, it’s not just because of offshore equities but also the rand exchange rate, which makes a big impact on the investments. So it would depend on the client’s investment needs as to how much we advise to invest offshore. But if that would suit the client, if they have a long-term outlook and also if their risk appetite is in line with our offshore portfolios it is good to diversify currently to offshore markets since there are so many more opportunities, we feel, and value currently in offshore markets than what we can get in South African markets.
Value in international markets
RYK VAN NIEKERK: Where do you see value in international markets?
MARISE SMIT: Currently there is a lot of talk about the US, it’s over-expensive and so forth, so we do diversify more globally, we’re currently trying to get more exposure to the Eurozone and we’re also still in big favour of biotech healthcare shares and technology. So we still feel there’s a lot of value in those companies, companies that you can see are going to be there for the next five or ten years and sectors where there’s a lot of innovation and research currently being done for the future, so there we find a lot of value at the moment.
RYK VAN NIEKERK: Which fund managers do you think are getting the foreign investments right? Obviously yields are very low on the cash markets, as you said earlier, especially the US seems to be quite expensive but the fund managers are specialists in this, so who do you prefer to manage or invest your clients’ money?
MARISE SMIT: Some of the fund managers we use are offshore fund houses but we also use local fund houses. The local ones we find do deliver exceptional returns even though they are based in South Africa but they have investment houses based offshore and we find that they do have a lot of returns for the clients. The offshore houses that we use in our portfolio are also ETF index trackers like BlackRock and locally we do use Investec offshore asset managers.
RYK VAN NIEKERK: The big ones, you said Investec, obviously the likes of Allan Gray and Coronation have always done well, what is your position on the local so-called boutique or smaller fund managers?
MARISE SMIT: Yes, as we’ve seen, there has been an increase in boutique, smaller fund managers but they do struggle to get the inflows into their funds. You still see the big fund houses like Allan Gray, Coronation, Foord, Investec, still dominating the market. I think it’s largely because these big fund houses have a historical track record and the capital needed for marketing, holding seminars and so forth, and they have a trust base almost with financial advisors to get the funding. I think the smaller fund managers are struggling, it’s not that they don’t deliver returns, I just don’t think they have as much exposure at the moment as the larger fund managers have in the market because of their marketing and so forth. But there are smaller fund managers that do offer exceptional historical returns but at the moment we focus a bit more on the larger fund managers just while waiting for the smaller fund managers to have a bit more of a track record to see if they stay with their mandate, stay with what they do in the funds. We’re still just testing that out before we can feel comfortable investing our clients’ funds in those smaller boutique funds, as you say.
Younger versus older investment advisors
RYK VAN NIEKERK: Marise, you are still quite young, does your investment advice approach differ from the older generation’s advice?
MARISE SMIT: Each advisor does have their own approach on how they approach a client and get information and so forth. My own personal approach is that I try to get the bigger picture of the client’s individual needs, I don’t just try and push a product on them, as it was in the 80s and 90s for example, I get a bit more personal information from the client to make sure that the advice I give isn’t just once-off but that I can provide it throughout the whole process and build a relationship with that client. I feel that it’s very important these days to provide that personal touch and I find that clients do appreciate that.
RYK VAN NIEKERK: Do you see a difference in approach or from, say, prospective new clients to see a younger person sitting in front of them or do they prefer somebody older?
MARISE SMIT: You still get those clients who want to see a grey-haired experienced man also and just the gender as well in front of them but then you do get more and more clients feeling comfortable after they know that you’ve got the qualifications and after they have spoken to you and they can see that you do know what you’re talking about. So you have to put them more at ease and that takes a bit more time but after you’re over that bridge I think there’s no difference to how the client feels towards a younger or an older advisor.
RYK VAN NIEKERK: I know the Brenthurst approach and it’s a very collective approach, you get together once or twice a year and then you discuss exactly what the best investment options are. So is the advice pretty homogenous or do you actually have the ability to divert from that and provide your own advice or advise clients differently?
MARISE SMIT: That’s what I like about Brenthurst is it’s not each advisor for themselves, we have a collective view on how to approach clients, how to approach their investments and it’s not that I say I think all the guys are old fashioned, I’m not going to follow what you do, I’m going to go my own way. That’s not at all how it works, we work together as a team and, like you say, we sit together regularly and on a weekly basis we have conference calls and talk about our funds and management styles. So it is a more collective approach, it’s not each to their own.
Brenthurst fee structure
RYK VAN NIEKERK: What is the Brenthurst fee structure?
MARISE SMIT: I think we are competitive with the fee structure in that our annual management fee, 0.75%, which is also negotiable because recently we launched our own fund of funds range, Cautious, Balanced and Worldwide Flexible, and within those funds, of course, it’s Brenthurst Fund of Funds so there’s already a fee part in those funds. So if we find that those funds are appropriate for a client’s investment then we are more flexible on our annual fee because there is already a fee worked into the fund of funds but overall we charge 0.75% and I think that’s very competitive. You’ll find a lot of managers asking the maximum of 1%. I think the managers, like I say now with the fund of funds, either find houses that also have their own fund of funds, they do have more space to provide lower annual fees. So that’s why we are more flexible on the annual fee within our fund of funds. Then we do sometimes, depending on the case and how much comprehensive planning is involved, charge an upfront fee but that is up to the advisor and personally I never ask more than 1% on an upfront fee.
RYK VAN NIEKERK: I think many clients or investors are more aware of the fee structures and are more concerned about fees than performance, is that normally a big debate or an agenda item when you engage prospective new clients?
MARISE SMIT: Yes but overall with any client conversation we at Brenthurst make a point to discuss the fees and to make sure that they do understand the fee structures of Brenthurst but also to understand how the fee structures work in general, so that if they go and see other managers then they do understand what fees are applicable. So clients do appreciate that, that we are upfront with our fees and we explain it fully and it’s disclosed in black and white as well. We find that after we’ve discussed the fees for some of the clients it’s the first time that somebody has taken the time and explained the fee structure for them. So they do appreciate that and I think because they understand it better and they understand why the fees are there they don’t feel the need to negotiate as much and don’t feel that they’re being done in or something like that.
RYK VAN NIEKERK: Do you have a fixed-fee option for a financial plan, as opposed to one if you become a client and there’s a commission payable?
MARISE SMIT: It depends on the product but mostly with the unit trust-based products it is annual fees, so it’s not common that we would charge just a once-off fee, except if it’s like a fixed interest investment for five years, otherwise I don’t see how you can justify a fee. With fixed interest investments I don’t see how you can justify an annual fee if there’s nothing that you can change on the investment for that five-year fixed period on interest-based investments. So with those it’s just a once-off fee, no annual fees that I personally can justify on that but those are negotiable with clients but otherwise with unit trust-based fees it is annual fees.
RYK VAN NIEKERK: Thank you, Marise. That was Marise Smit, she is a financial planner at Brenthurst Wealth and she is based at the group’s Pretoria office.