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The changing role of financial advisors

I wouldn’t exclude equity but I would definitely not allocate as much as I did in the past given the volatility of those shares – Renee Eagar.

RYK VAN NIEKERK: Welcome to this Financial Advisor podcast, my guest today is Renee Eagar, she is a financial advisor at Brenthurst Wealth in Cape Town. Renee has had a long career in the financial services industry, she started her career in 1998 at TMA, before joining Investec a few years later as an investment consultant. One of her clients was none other than Magnus Heystek of Brenthurst Wealth and he then attracted her to Brenthurst in 2008 as a financial advisor. Renee, welcome to the show, tell us about how Magnus attracted you to Brenthurst?

RENEE EAGAR: I think initially when I was working for Investec I was an investment consultant for a good eight to nine years and while I was at Investec I studied for my CFP and it was always going to be a path that I was going to go down eventually and Magnus gave me the opportunity to do so. I always liked the Brenthurst philosophy, I loved the fact that they inform their clients via newsletters and I love the fact that they educate their clients via seminars. Magnus is obviously a very prominent investment advisor and he’s got a good rapport with clients, so I was very enticed to be part of the Brenthurst team. Although I had a similar opportunity from other advisors I always had a long-standing relationship with Magnus and I agreed with the whole Brenthurst philosophy. In those days when I joined there were three or four of us, now there are seven or eight of us, so the business has just grown and I’m very happy to be part of that team.

RYK VAN NIEKERK: You’ve been in the game for a few years, is it more difficult to provide advice today than, say, in the early 2000s? So much has changed in South Africa, has the role of the advisor within the context also changed?

RENEE EAGAR: That’s a good question, Ryk. I was just chatting to someone the other day and I was saying to them how difficult things have become. In the old days when you went to fund manager presentations and you chatted to clients there was always a degree of hope out there and the economists we dealt with had a clear view of how things were progressing in South Africa and where we were headed. What I find extremely tough at the moment is that even the economists and the fund managers who we deal with are very much conflicted, nobody has a clear path of where things are headed. I often think about it in terms of I’ve been seeing balanced fund performances and balanced fund exposure for the last 20 years of my life and what is scary for me is the first time in ten years I’ve actually seen the balanced fund struggling, trying to perform and trying to get growth. That worries me to a degree because I don’t think there are many people who know where we are headed at the moment and I think it’s extremely tricky in these times to try and navigate clients’ money.

Investing in money markets versus paying off a bond

RYK VAN NIEKERK: But what does that mean, is your advice maybe more conservative today than it was a few years ago?

RENEE EAGAR: Definitely, definitely, a simple example of that is a lot of clients come to me and say, Renee, what must I do, must I invest money in markets or must I pay off my bond? That’s a classical question we get. Five years ago a clear answer would be no, you must definitely invest. There was such room for growth. Now it becomes trickier and for me personally I am definitely following a more conservative approach with my clients. I do feel that every client is aggressive until they are losing money and then it’s not clear what their risk profiles are anymore. So I definitely am at this point in time going in a bit more conservatively with the clients who are in income-producing portfolios such as life annuities and things like that definitely down rating the equity into more cash and bond-type vehicles just for stability until we can see where things are properly headed.

RYK VAN NIEKERK: But within that advice context obviously asset allocation is critical, are there certain asset managers whose asset allocation models you like more than others?

RENEE EAGAR: I must say just given the outlook of markets you get some very aggressive fund managers, an example of that would be the Foord Balanced Fund and the Investec Managed Fund, those funds are a little bit more momentum-driven and a little bit more aggressive. So I would perhaps not use those as prominently as I did five years ago. I would look at fund managers like the likes of Prudential and Investec Opportunity Fund and stable funds like the Allan Gray Stable Fund, the Coronation Balanced Defensive Fund, the funds that have got a little bit less exposure to the South African equity market and funds that are designed to give you inflation-beating returns but with a lower risk element. So from my point of view definitely stick with those kinds of slowly up-ticking fund managers, as opposed to the momentum-driven managers where there can be a big dip, which clients just can’t stomach at the moment.

RYK VAN NIEKERK: So you would stick with the firms that have been in the game for a long time and hopefully they will be able to…

RENEE EAGAR: To navigate.

RYK VAN NIEKERK: Yes because, as you said before, the future is difficult to predict. How do you manage client expectations? I think the rule of thumb, and my perception at least, is that you’d like at the minimum 10% per year and I think it’s going to be difficult to achieve this year and next year as well.

RENEE EAGAR: I honestly think that the days of double-digit returns are over, at least for the short term. But what makes a good portfolio for me is a client needs to have long-term horizon, you need to get their risk profile and their objectives spot on and you need to try and educate clients into not reacting emotionally to what is out there in the media. If you are looking at a solid kind of return you need up your cash weightings in your portfolio, there needs to be an exposure to bonds but it doesn’t mean to say that you shouldn’t include equities in the portfolio and you also can’t exclude offshore investing in a good portfolio. There are so many mixed views out there at the moment. I was at an investment forum just before the whole downgrade happened and a lot of the fund managers were saying that they were going to use the downgrade as a buying opportunity because for the last couple of years the market has been at such a high level that fund managers have battled to actively trade in and out of shares. So it’s not to say that you need to exclude equity but I do think a more conservative bias and in your asset allocation of your clients you would include more cash, bond-type vehicles, you would lower the equity weighting, you would give them a little bit of offshore and diversification is key going forward.

RYK VAN NIEKERK: But, Renee, what happens when you get the phone call from a client who says, listen, you’re putting me into bonds but since the beginning of the year the JSE has gained 7.5%. Why are you so defensive when the JSE is performing so well?

RENEE EAGAR: Sixty percent of the JSE is made up of rand hedge stocks and rand hedge stocks are basically local companies that have offshore earning potential and a lot of those stocks are actually up based on the rand weakness, so they actually look better from a valuation point of view. But, like I said before, I wouldn’t exclude equity but I would definitely not allocate as much as I did in the past just given the volatility of those shares. All these clients that we deal with compare us to cash-like returns and every client that I have ever dealt with has always said yes but the bank can give me 7.5% or the bank’s offering this product or that product. The bottom line is that one cannot compare equity-based investments with cash-like returns. Having exposure to equities over the longer term has always beaten cash. So it goes back to the fundamentals of long-term growth. You cannot invest for a period of 18 months and I think as long as you spend time on educating your clients about the risks involved they are always going to compare it against something but I think it’s managing the client’s expectation that is largely at play.

RYK VAN NIEKERK: Would you prefer actively managed funds over the index tracker funds?

RENEE EAGAR: I definitely personally, and Brenthurst as well, part of our view is that we prefer active management over passive management. I do feel that recently in the industry there has been a bias towards passive investing but we deal with a lot of companies who prove to us that active management over the long term has always been better than passive management. Yes, the fees are cheaper on passive investing but I find a lot of the clients can’t, particularly the client who we deal with, they can’t actually deal with the volatility of the passive management style. It doesn’t mean to say that we won’t include an index tracker fund into our portfolio, for example, but the basis of our portfolio is active over passive and it has worked well.

RYK VAN NIEKERK: Just lastly, could you explain your fee structure?

RENEE EAGAR: We generally charge an upfront fee depending on how much time we spend on doing client’s holistic investment planning, depending on certain factors like how much time is spent creating an investment plan for them but we, as Brenthurst, do have discretion as to how much we advise our clients. Personally I don’t ever take more than 1% upfront. From an ongoing point of view we charge 0.75% per annum and I must say that I do find a lot of advisors are closer to 1%. So it’s very seldom that I have clients trying to beat me down on our annual fee, I feel that we are very fair in our 0.75% ongoing. What clients don’t quite understand is that there are a lot of additional fees that come with a financial institution such as ourselves, we’ve got compliance costs, we’ve got all sorts of costs to make our business innovative and we spend so much time marketing and keeping our clients informed on radio, seminars, so we put a lot of those kinds of fees back into our business to educate our clients. We feel that 0.75% is very fair.

RYK VAN NIEKERK: Thank you, Renee. That was Renee Eagar, she is a financial advisor at Brenthurst Wealth in Cape Town.

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Renee Eagar

Brenthurst Wealth

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Ah well that’s me as a potential client. 1.75% fir what just to equal bench marks which I can do with almost zero cost index funds. No thanx

So if I understand this article correctly the Investment Advisors and the Economists are all at sea in a boat which is rudderless and they don’t have their cup a cha to read the tea leaves. I think it rather naïve that they can make statements about being in/out of equities because each time a clients sells out of his/her equities portfolio their are 2 events which occur – the sale generates brokerage and CGT, and when the coast is clear brokerage on returning to equities. No wonder so many people are skeptical towards Advisors, after all they can change their minds quicker than you can bail out of equities, and yet they still take their fees – an expression “shooting fish in a barrel” comes to mind

Don’t agree with your opinion of Foord Balanced Fund, and I certainly would not pay you 1,75 % to put me into Allan Gray Stable Fund.
No doubt this is table top advice and not client specific – but it doesn’t impress me.

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