Introduction from Mark Jurgens
As we have now passed the 21st of June, our winter solstice, we are officially in the second half of winter and soon the cold weather will be over.
In this edition of “In Touch” I would like to raise awareness of Environmental Social Governance (ESG) standards. ESG standards are becoming a significant consideration of environment conscious investment world:
- Environmental: Climate change, Carbon Emissions, Deforestation, Pollution and Waste, Natural Resources.
- Social: Labour Management, Health & Safety, Product Liability, Stakeholder Opposition, Social Opportunities.
- Governance: Business Ethics, Corporate behaviour, Anti-competitive Practices.
Many offshore investment companies offer mutual funds that employ and consider ESG criteria their investment practices and decision-making. When seeking out investment opportunities for long-term sustainability and minimising financial risk, these offshore companies are seriously focused on investing in companies with values that match their own and who are committed to ESG standards.
Old Mutual recently launched South Africa’s first ESG Index funds:
Old Mutual MSCI World ESG Index Feeder Fund; and Old Mutual MSCI Emerging Markets ESG Index Fund. These Index tracker funds replicate the performance of top international companies which show the highest ESG commitment. Index or passive funds are generally less expensive than actively managed unit trust funds.
From research, it has been found that the consumer is positive and in favour of supporting ESG- friendly companies. When we look at tracker funds and stock markets, we will see that ESG-Committed companies have outperformed their peers in the same type of industry over the last 5 years, a trend which we believe will continue.
We have had requests from a few clients who are aware of and are keen to support ESG related companies. Should you wish to find out more or discuss the options of investing in ESG funds, you are always free to contact me.
A New Mindset to Wealth Creation and Preservation - Alan Botha
Many investors contribute to retirement funds during their entire working lives, however, statics published, suggest that most retirees don’t retire with financial security. The introduction of new regulations known as retirement default options are designed to improve this outcome. The regulation, introduced in September 2017 and implemented on the 1st of March 2019, compels all retirement funds to adopt a set of default options to preserve savings before retirement and to provide an income option in retirement.
Currently, most fund members are not exercising preserving savings. They cash in their savings, incurring additional tax and seriously compromising their ability to generate a decent income in retirement. The government and the retirement fund industry hope that this will improve as the new regulations also compel funds to counsel members on their options when withdrawing from a fund or retiring. While these regulations should help in ensuring better outcomes for retirees by reducing some of the behavioural issues of cashing in retirement funds early, I cant help but think it is merely addressing the symptom and not the actual underlying cause of the behaviour.
The behaviour relates to general education around financial literacy, which Stanley Fallaw, a long-term researcher of wealth trends, defined as “the knowledge of or ability to use personal financial management practices and methodologies”. Advice on money often boils down to simplistic messages about budgeting, understanding compound interest and avoiding debt. Research suggests that financial decision – making depends as much on values, expectations, emotions, and family experiences, as information learned at school.
In short, the way people interact with money is highly complex and as the world evolves, it may become more complex. An insatiable appetite for instant gratification and consumerism suggests that investors have lost sight on what is considered meaningful to them and the appropriate ability to disseminate the difference between “nice to haves” and “must have” purchases.
Thinking about the future is incredibly important when it comes to managing money and considering future consequences and a willingness to delay gratification in favour of longer-term goals is key. In turn, self-control and conscientiousness is the process by which we control our thoughts, feelings, and behaviours. Being aware of our decisions is also important. These are the kinds of thought processes necessary for good financial decision-making.
As Carly Sawatski suggests, “Instead of only focusing on values laden advice about what makes a wise financial decision (such as avoiding debt), rather use questioning techniques to stimulate and guide your thinking”. These could include:
• Reasons: What are your reasons for making that decisions?
• Evidence: Can you convince me that is the best decision?
• Argument: What would someone who disagreed with you say?
• Impact on others: Will your decision affect anybody else?
• Consequences: What might happen next?
These questions engage people to think about what drives them and what all their available choice might be. A period to reflect on the decision made will also reinforce learning and improve any future decision-making ability.
We believe the above information ties into our most critical role to play as advisers, where we remove the emotion and biases from financial decision making, exploring alternatives from various angles with critical questioning, to ensure we make thew best decisions in collaboration with our clients.
Short Term News Update – Greg Brits
With the current economic times we find ourselves in, we have noticed a definite increase in Commercial Crime i.e. companies experiencing financial losses as a result of theft and fraud by employees, computer fraud, computer viruses, extortion, fraudulent transfer instructions to financial institutions, this to name just a few examples. Theft by employees is a general exclusion under most sections of a commercial insurance policy and can be covered under the fidelity section or by a separate commercial crime policy:
In more detail, a commercial crime policy covers the following scenarios:
Computer Fraud: The insured is hacked, the hacker gains access to their banking profile and transfers the insured’s funds to themselves. Alternatively, the fraudster obtains the insured’s banking log-in details through a phishing campaign.
Extortion: For example, the insured or a staff member is threatened with physical harm unless a ransom is paid.
Contractual Penalties: when checking a stock delivery for a specific customer’s order, the insured finds stock missing due to employee theft. He is then unable to make delivery to his customer in accordance with their contract and incurs contractual penalties. These are payable under the Commercial Crime Policy.
Fraudulent Transfer Instruction: In the case where an impersonator gives instruction for payment to be made from a company’s bank account, and the bank’s security checks fail to determine this, the impersonator receives the funds. Although it can be argued that the illegitimate party, the client can claim back from the crime policy and we subrogate against the bank’s insurers. Historically these incidents have not been as prevalent and cover not taken up. We would encourage clients to contact our offices should they wish to add this Commercial Crime Cover.
General Maintenance
During the winter months is the best time to inspect roofs for general maintenance. Insurers are becoming more reluctant to pay out claims for resultant damage from maintenance related causes.
Vacant Buildings
An owned property being left vacant – i.e. has no furniture in it – may it be while letting the property and in the process of changing tenants; or when selling a property you have vacated while awaiting transfer to the new owners to be finalised, it is imperative that you advise us of this to ensure continues cover. All insurers exclude cover on vacant properties unless otherwise agreed. This is due to the increase in vandalism and theft while properties are left vacant.
Investec Global Select Investment Conference
Mark and Alan attended the Investec Global Select Investment Conference in London recently. Some of the world’s foremost asset managers, business leaders and industry experts shared their insightful ideas with delegates.
