RYK VAN NIEKERK: Welcome to this Financial Advisor podcast, where I speak to South Africa’s leading financial advisors. Today I have Craig Torr of the Cape Town-based Crue Invest with me in studio. He is a CFP (certified financial planner) and one of the founding members of Crue Invest, back in 2004. Craig, welcome to the Moneyweb studio.
The business is 15 years old: tell us a bit about this journey and what you currently specialise in.
CRAIG TORR: Thank you, Ryk. It doesn’t feel like we’ve been around 15 years, it seems to have gone by a lot quicker than that. When we set up in 2004, it was my wife and I who were the founders of the business and we wanted to do financial planning the right way. It was a time when FAIS (Financial Advisory and Intermediary Services Act) was about to be implemented, so we understood what the implications were and we saw that as creating a great opportunity in the marketplace, simply because we saw a lot of resistance to that in the general broker market. So we saw a huge opportunity to do things differently at that point in time.
RYK VAN NIEKERK: But what is the right way? We’ve seen a lot of financial regulations thrown at advisors and in many cases it seems like a tick-box approach. How do you do it differently than the other guys?
CRAIG TORR: It’s very simple at the end of the day: you have to begin with a client in mind and if you base everything you do on how you would want to be treated as a client, then it’s very easy from there. The difficulty, however, is how do you build a remuneration model that makes that possible to sustain – and that’s the challenge that I think the greater industry faces. But if you begin with that principle in mind and you work back from there that, in our view, is the only way to do it.
RYK VAN NIEKERK: Do you get many clients or prospective clients walking through the door, knowing more about your cost structure than they actually do about financial planning or investments? Do you think there’s an overemphasis on fees?
CRAIG TORR: Sometimes there is and I think a lot of the time people are driven to look for the cheapest alternative because they think that’s going to result in the best outcome for them and they’re not really looking at the entire value proposition. That is obviously of concern because that will diminish the possibility of them meeting their lifestyle objectives.
So we are quite keen to ensure that they see the whole picture, the holistic picture, and we obviously position our value-add in that way, so that they can make informed decisions about whether they see any value in paying the fees that we quote them. And, they also have the advantage of being able to opt out at any stage, should they feel they are not getting what we promised them up front.
So we really do hang our hats on the advice that we offer and we really are required to consistently and continuously show value, otherwise we are essentially out of a job; we are off their payroll.
RYK VAN NIEKERK: What is your fee structure?
CRAIG TORR: It’s quite complex because there are different needs from different clients, but it typically reverts back to being remunerated on assets under management, on a sliding scale. We’ve looked at charging by the hour; the downside of that is it creates a perverse incentive like we’ve seen in the legal and medical professions. Not to pick on any other profession, but we don’t see that there’s an incentive for the client to make use of us for decisions that could potentially be to their disadvantage. So they would end up withholding advice or not paying for the advice if working on that model. Whereas if they know they are effectively paying us on a retainer, they’re more inclined to make contact with us to seek our advice on the important decisions that they need to make.
RYK VAN NIEKERK: You’ve been in the business, Crue Invest, for 15 years and a lot has changed during [that time]. Has the depressed economic outlook and poorly-performing markets in South Africa … changed the way you provide advice or structure plans?
CRAIG TORR: Not really. I think we were quite well coached in our early stages of providing investment advice on setting expectations low and setting expectations at a reasonable level, but also coaching clients on the fact that markets go through cycles and there will be long periods of time where markets will underperform. We tended to say to clients: ‘when’ things go badly, not ‘if’.
In our view we prepare them quite well for these types of events that we’ve seen take place over the last four or five years, which has served us well and served the clients well. I think that’s the key issue because they haven’t made knee-jerk decisions and haven’t reacted on a knee-jerk basis. So I think if they are well educated up front and they know that there are going to be good and bad periods that make it a lot easier for them to get through these bad periods and stay invested and stay in the game.
RYK VAN NIEKERK: Do you see knee-jerk reactions? You get many different types of clients: one would be somebody who only pitches up for the meeting once a year and then seems to be very surprised at what he or she sees, and then the other person may be phoning you weekly, complaining about short-term developments.
CRAIG TORR: We invest heavily in our clients in that take-on stage, making sure that we educate them: showing them past trends, history, how markets have performed, not just locally but globally over the past ten, 20, 100 years, as much data as we’ve got, just to prep them for those instances. So we find that we’re in a fortunate position in that we don’t get that many calls, emails, concerns, when things go badly. We’re quite fortunate in that regard.
RYK VAN NIEKERK: But that’s an ongoing process to educate people of where their plans stand within the current environment. How often do you do that?
CRAIG TORR: So it depends again on the client. In certain years they will need our advice and interaction more – we call those the transition years: so when they are transitioning out of, for example, full employment into retirement, or selling a business, or going through a life-changing event like a divorce or a marriage and so on. But typically it’s once a year for the long-term retiree, who needs to make a decision around living annuity drawdowns, tax implications and so on. So those types of discussions would typically happen annually. Obviously there’s a lot of interaction with those clients during the course of the year, but that’s more on an ad hoc basis and then there’s obviously the regular communication strategy that our business embarks on with those clients.
Clients taking money offshore for the wrong reasons
RYK VAN NIEKERK: One topic that is probably high on the agenda of any investor is how much money to put offshore. We’ve seen the local market underperform international, especially US, markets for several years now and there is a perception that [you should] take as much out as you can. How do you see this debate?
CRAIG TORR: We get quite concerned when clients want to take money abroad for the wrong reasons. So we, again, go back to the basics and the basics really, in our view, are what are your reasons for wanting to take money abroad? Is it for greater returns, is it to diversify? We explain to them how much diversity there is in their current investment strategy; most of them are pleasantly surprised at how invested they already are in the global economy.
We get quite cautious about the timing of when people want to take money offshore – it’s generally at the wrong time.
It’s like the purchase of Bitcoin: people only want to buy it when they’ve heard how well it’s done, but when they hear how badly it’s done they are not interested. That just talks to understanding the psychology of money and understanding how people make financial decisions: that we’re not really hardwired to make good financial decisions, we’re almost hardwired to do the wrong thing.
RYK VAN NIEKERK: What would be a wrong reason to take money out?
CRAIG TORR: When the news is at its worst is typically when people want to run and that’s proven to have been the very worst time to have taken money offshore. We don’t need to look much further back than 2001 to realise what that decision would have done to erode people’s wealth and that was really on the back of fear.
So we’ve got to be very mindful that as human beings we are hardwired to fight or to flight when there’s bad news; when we’re being hunted down by a lion we are not hardwired to stand there and face it. Unfortunately investment markets require us to do exactly the opposite of what we are hardwired to do.
RYK VAN NIEKERK: Yes, don’t invest based on hope, greed or fear and hope probably is the most dangerous one. Just lastly, asset allocation is also critical. How much responsibility do you take for asset allocation or do you bunt it to asset managers?
CRAIG TORR: We do bunt it to asset managers. We believe our focus is on understanding what a client’s lifestyle objectives are, lifestyle dreams, and we then outsource to a multi-manager the building of the portfolio, depending on what sort of return the client is able to stomach from a risk perspective and what return the client would need to meet their retirement objective or their investment objective. So really taking those two measures, we then outsource the building of that portfolio and the asset allocation to a multi-manager who would construct that on behalf of our clients.
RYK VAN NIEKERK: Craig, thank you for coming in and good luck with the future.
CRAIG TORR: Thanks very much, Ryk, it’s been an absolute pleasure.
RYK VAN NIEKERK: That was Craig Torr. He’s a CFP and a founding member of Crue Invest, a Cape Town-based financial advice firm.