Southern Charter Entrepreneur School Module 1


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A Retirement Case Study and decisions facing a wealth manager in South Africa.

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Southern Charter Entrepreneur School Module 1

  1. 1. Entrepreneur Program<br />Investment planning 101<br />Investing in an Annuity<br />Presented by<br />Mark Thompson<br />
  2. 2. Investment Planning 101<br />Investing in an Annuity for retirement income<br />Module Objective - <br />1) Understand and know your client fully, draft a balance sheet.<br />2) Establish and agree on your clients risk profile and financial needs, <br />3) More specifically his income requirement, is it reasonable?<br />4) Explain and agree on available annuity options in simple terms, <br />5) Explain and agree on the tax and investment strategy going forward, <br />6) Recommend the most cost effective investment platform that your client trusts and is comfortable with.<br />7) Summarise your discussions and agreements in a written signed proposal<br />
  3. 3. Case study – John Retires <br />After meeting with the client we gain the following information:<br /><ul><li>John had 30yrs service with last employer
  4. 4. Offered consulting work
  5. 5. Small bond on the house R35 500
  6. 6. Small Debt on the car R12 325
  7. 7. Married to Joy - who is a practicing private beautician
  8. 8. Post retirement medical aid paid for by the company
  9. 9. John loves sailing, Joy loves cooking in Italy!
  10. 10. Available Pension Fund capital after tax free cash withdrawal of R 2 810 031
  11. 11. John requires an income of R12 000pm
  12. 12. Interest / Guaranteed rate 15%</li></li></ul><li>Case Study - John Retires > Gaining further information<br />To gain a further understanding of John‘s needs and potential risks <br /> We do a SWOT analysis on our client, enquire and note;<br /><ul><li>Strengths - Strong balance sheet? EG no debt, or debt?</li></ul> ability to work and earn an income?<br /><ul><li>Weakness - Health? Maybe overweight? Not fit? Enough income? </li></ul> Extra drain on income?<br /><ul><li>Opportunities - Has a skill which adds value? May work longer, travel? re-locate? Potential future income?
  13. 13. Threats - Consider Inflation, political uncertainty, financial scams!</li></li></ul><li>At this stage, what conclusions can you<br />draw about John? What type of guy is he? Conservative risk averse? Or Risk taker? Conclude and agree on income required and risk profile.<br />
  14. 14. 1<br />2<br />3<br />At this stage you may wish to take your client through this schematic<br />
  15. 15. 1) How much cash do you <br />Need Mr Client?<br />1<br />2<br />3<br />2)How much debt to settle?<br />3)How much for your disaster fund?<br />4)Do the tax calculation<br />5) Are their any plan limits?<br />6) Where are you going to invest the<br />cash<br />
  16. 16. Retirement Funds - new retirement and death tables<br />Effective date - 1 March 2011<br />Note - Applies to involuntary retrenchment retirement benefits and severance benefits<br />
  17. 17. Retirement funds - provident funds to disappear!<br />
  18. 18. 1<br />2<br />3<br />1)How much income does Southern Charter Financial Services need? <br />2) Is it reasonable? Will he deplete his capital?<br />3) Discuss our investment strategy<br />4) Agree on objective - Yes?<br />5) Discuss where we are in the interest rate<br />cycle.<br />
  19. 19. Asset Allocation is Everything<br />Ongoing research indicates that:<br />92% of performance comes from Asset Allocation, <br />6% from stock picking, and 2% from market timing<br />Determinants of Performance - Brinson et al Financial Analysts Journal<br />
  20. 20.
  21. 21. Achieving Optimal Asset Allocation on the Efficient Frontier<br />LONG TERM (LAST 60YRS)<br />ANNUALISED REAL RETURN<br />
  22. 22. In the worst market in living memory<br />Period - One year ending 30th September 2009<br />Fund Ranking<br />Southern Charter<br />Defensive +3.61%<br />1/54<br />Prudential Low Equity Category<br />Southern Charter<br />Balanced -8.79%<br />3/40<br />Prudential Medium Equity Category<br />Southern Charter<br />Growth - 13.28%<br />1/17<br />Prudential High Equity Category<br />Personal Finance<br />Source<br />JSE All Share<br />Index - 25.72%<br />Our Asset Allocation strategy Protects on the Downside<br />
  23. 23. Our funds have delivered JSE beating returns since inception<br />
  24. 24. 1<br />2<br />3<br />Annuity Option Strategy<br />Discuss and explain both annuity options<br />Pros and cons and get agreement<br />On the risks of both options.<br />Decide and recommend a course<br />of action taking the clients<br />Feelings into account<br />How old is your wife?<br />Do you want to leave anything<br />To your kids?<br />Lets talk about beneficiaries<br />
  25. 25. Living Annuities<br /><ul><li>Beneficiary choice on death of annuitant: Annuity or lump sum
  26. 26. lump sum proceeds received or accrued from a living annuities will be taxed according to the retirement tax tables
  27. 27. No minimum drawdown required - maximum remains 17.5%
  28. 28. Only natural persons as beneficiaries. EG no Trusts</li></li></ul><li>Solve the following Case Studies<br />Problem One - John retires when interest rates are high {15%} Inflation 10%<br />Problem Two - John retires today<br />Problem Three - identify what documentation is needed to be professional and compliant in both instances<br />Problem Four - What else would you suggest?<br />
  29. 29. Questions<br />
  30. 30. We are with you for the long haul!<br />A wealth creation partnership.<br />
  31. 31. Case Study - John<br />
  32. 32. <ul><li>Case study - John Retires 10yrs later</li></ul> Retirement Capital R2 862 493<br /> Gross Retirement Income - R19 653pm<br />John has R180 000 in his Money Market account<br /> Joy has R280 000 in her Money Market account<br /> Joy still consults as a beautician<br />John and Joy maintained and improved their lifestyle<br /> they still live in Constantia, drive the same cars, <br /> and travel overseas once a year!<br />
  33. 33. Southern Charter Financial Services (Pty) Ltd. is an Authorised Financial Service Provider.<br />The content of this presentation and any information provided may be of a general nature and may not be based on any analysis of the investment objective financial situation or particular needs of the client. (as defined in the Financial Advisory Intermediary Services Act) As a result, there may be limitations as to the appropriateness of any information given. It is therefore recommended that the client first obtain the appropriate legal, tax, investment or other professional advice and formulate an appropriate investment strategy that would suit the risk profile of the client prior to acting upon such information and to consider whether any recommendation is appropriate considering the client’s own objectives and particular needs. <br />Any opinions, statements and any information made, whether written, oral or implied are expressed in good faith.<br />