Business

PROPER ESTATE PLANNING IS ESSENTIAL AMIDST COVID-19 PANDEMIC

By Christel Botha, fiduciary services manager at Alexander Forbes

Paperwork and thinking about one’s death are both probably equally unpopular, but Covid-19 should serve as a reminder of your mortality.

Your will is one of the most important documents you will ever sign, yet, in spite of this, many people are unprepared when it comes to proper estate planning.

It contains your final wishes for the distribution of your assets and for the care of your loved ones after your death. It provides clear instructions and directions as to how assets that took a lifetime to accumulate – with both financial and sentimental value – need to be disbursed. It is in your family’s and your own best interests to make sure that you have a valid will in place.

Drawing up a simple will or updating your existing one can take less than an hour, and is often free of charge. To complete an application form, you will need the following details: personal details, marriage and divorce details, burial preferences, names and date of birth of any children, details of all local and offshore assets and liabilities, details of your assurance policies and details of how you want your estate distributed.

Details of your assets and liabilities are a guideline to the executor as to what exists at the time of drafting the will. You can also give this to your financial adviser for assessment of any possible gaps in the liquidity of your estate, as this will ensure there is sufficient cash in your estate to cover all debts and costs, bequests and maintenance obligations. It can also assist with proper estate planning.

It is possible to make provision for unborn children. You have the option of adding the child’s name later, should you wish. Your will can contain details of who you wish to appoint as guardian of your minor children in the event of your death. However, this is merely a wish and the person who is named would still have to complete a court application for legal guardianship.

You need to sign your will in the presence of two competent witnesses, who should be over the age of 14. A witness is attesting to your signing the will, they don’t have to know what the contents are as long as they are unbiased. Heirs, legatees or beneficiaries in the will or spouses, executors, trustees and guardians and or spouses may not witness this document. A blind person signing a will or someone making a cross or a fingerprint has to sign in the presence of two competent witnesses, as well as a Commissioner of Oaths whom has to certify the will.

It is important to review your will after getting divorced. If you pass away within three months after the divorce, your former spouse will be excluded from inheriting from your will. However, if you pass away after the three month period (following the divorce) and failed to amend your will, your former spouse may still benefit if so indicated in your will. If the intent is for your former spouse to still inherit from your will despite the dissolution of the marriage, it is best to clearly indicate this in your will.

It is not only after divorce that your will should be updated, but after every life-changing event, such as birth of children, marriage, death of partner or beneficiary, or after the disposal of assets specified in your will. You should review the document on an annual basis.

Codicils, an addition or supplement made at a later date that explains, modifies, or revokes a will or part of one, can often confuse matters in cases where many codicils exist and it has not been properly constructed. One should take great care when drafting a codicil to your Will. The suggestion will be to rather sign a new Will. Importantly, every new will you sign must revoke any previous will.

Once you are satisfied with your will and it has been signed by two witnesses, you will be given an original signed copy to keep and one original signed copy will be kept by the nominated executor for safe custody.

Business

LAST DAYS OF LIBOR? WHAT ASSET MANAGERS AND FUND ADMINISTRATORS SHOULD DO NEXT…

By: Sern Tham, Product Director, Temenos Multifonds

The replacement of LIBOR with new reference rates in 2021 is not a simple substitution – existing valuation systems will require an overhaul

LIBOR (the London Interbank Offered Rate) will be replaced with alternative reference rate by the end of 2021. This is a gamechanger for the financial services industry, particularly when you consider an estimated $350 trillion of financial instruments including bonds, loans, deposits and derivatives used LIBOR as the benchmark rate. Asset managers and fund administrators need to act now and start asking the right questions of their teams and their technology providers.

LIBOR is a forward-looking rate produced daily by the Intercontinental Exchange (ICE), and it is the lack of actual transaction data underlying LIBOR and other IBORs that made them so prone to manipulation. To avoid this risk, central banks around the world have established new ‘Risk-Free Rates’ (RFRs) that are backward-looking, based on actual transactional data of rates offered in liquid markets on the previous day.

The new RFRs that will replace LIBOR will change the way valuations are calculated. The result is wide-ranging consequences on operations, risk calculations and the way institutions will conduct business in the future. The new observed rates cannot simply replace LIBOR in a floating rate contract, because RFRs are based on observed overnight rates that are compounded over the period. In addition, different market conventions will be adopted to deal with lookback and lockout periods.

Therefore, to accurately reflect the value of the holdings once LIBOR is replaced by RFRs, asset managers and fund administrators will need to make sure their systems are capable of supporting the new methodology. Otherwise, investors buying and selling into a fund could be short-changed, leading to censure from regulators and clients alike.

Acting on the considerations listed below, will save any operational headaches once LIBOR has had its last dance. Asset managers and fund administrators must be aware of all the securities and contracts that are impacted. LIBOR’s role as the primary benchmark reference rate for trillions of dollars’ worth of financial instruments means it is deeply embedded in the financial industry. Firms must assess the scale of their exposure. This could be derivatives linked to LIBOR, cash instruments which reference it, or money market funds, which invest heavily in LIBOR rates. Mapping out all the affected instruments is an essential first step.

Alternative rates are already being published by the Federal Reserve Bank of New York, the European Central Bank, the Bank of England and Switzerland’s SIX Exchange. Regulators including the Financial Conduct Authority in the UK have emphasized the importance of early preparation for the transition.

Because the shift to the new reference rates will happen on an instrument-by-instrument basis, asset managers and fund administrators also need an overview of when instruments mature. If they have instruments tied to the LIBOR rate that mature after 2021, they need to be clear on when they will migrate to the new rates in order to meet the current deadline for the end of 2021.

Calculating valuations differently will be the biggest change for asset managers and fund administrators. Firms should not assume their systems are going to cope with this change. The bigger the size of assets involved, the more complex the change will likely be. Accounting, collateral management and middle office derivatives programs should all be stress-tested to ensure the fund’s entire ecosystem can cope with the change.

Finally, the clock is ticking fast. Firms will need to have a solution in place by the end of 2021, which means the timeframe for action is shrinking. Starting with assessing their exposure and then upgrading and testing systems, the transition will take time. Upgrades should be completed in early 2021 to allow testing to start by mid-year, ensuring firms are in a place of strength before the deadline. Firms must act now to ensure their systems are ready for the end of 2021.

Business

THE ROLE OF THE CFO IN ILLUSTRATING THE SUCCESS OF DIGITAL TRANSFORMATION

Tim Scammell, Finance, Treasury and Risk Solutions at SAP

It’s no secret that there are changes occurring within the modern corporation. While roles were evolving as a result of the move to digitisation and automation prior to Covid-19, the pandemic has further accelerated this movement as executives face new challenges. The most obvious is of course, the volatile economy we’re facing which has been the primary focus of the CFO within businesses. According to a recent survey, three-quarters of CFOs expect the pandemic to have either a ‘significant’ or ‘severe’ negative effect on their business in the next 12 months. But the same Deloitte report highlights that for CFOs, business transformation is a top priority, with a strong focus on digitisation and automation.

As such, we’re seeing the role of the CFO change most drastically. While the traditional demands of product evolution and revenue generation remain unchanged, they are also now playing a pivotal role in the wide-ranging ramifications of digitisation in terms of evaluating new dimensions like customer experience, channel management, IoT, blockchain and the associated compliance and legal exposures that lurk within the digital economy. CFOs are therefore vital in pushing digital transformation forward for several reasons and business executives would be wise to harness their skills in the journey.

Translating compliance and regulatory concerns

The digital journey is undoubtedly an exciting one, and for many industries, it’s a much-needed overhaul to ensure relevancy and success. However, it’s easy to get caught up in the excitement of implementing new programmes, products and services without thinking about the more mundane aspects. Primarily, the associated necessities that come with any new business operation, like regulation and compliance for example. However, the CFO is uniquely poised to tackle this dichotomy due to their ability to drive digital transformation forward but also deal with the more ‘analogue’ world aspects. The CFO is still dealing with the demands of regulatory reporting, tax, and compliance, which demand significant manual intervention and judgment.

As such, the CFO has the ability to break down the tension between the digital and analogue. The broader C-Suite is often focused on shaping the future and is grappling with the changing landscape of a hyper-competitive digital economy whilst pursuing the resulting revenue opportunities. Aspects like compliance normally don’t fit into this fast-paced thinking. As such, businesses should be harnessing the ability of the CFO to translate the actions of the C-Suite implementing digital transformation initiatives into a different language, one that satisfies stakeholders and legislative requirements. This translation demands the talents of an excellent communicator who understands the digital journey the company is undertaking and can articulate the consequences of these decisions using the analogue languages of compliance and regulatory reporting.

Pulling on past experiences

Not only can this best of breed, digital-savvy CFO make this translation due to their understanding of the digital and analogue worlds of compliance, but their extensive experience in building governance models should be maximised by the business too. CFOs are well versed in feeding the necessary information to decision-makers, particularly when it comes to unpredictability. The successful transition to a digital company is accelerated by observing how operational risk reacts to the unpredictable nature of the digital market. As such, organisations should bring the CFO into the digital transformation journey early in the planning stages as they are able to use their experiences to best plan for potential operational risks. What’s more, they can then plan for the resulting avalanche of data that these digital business models generate and navigate a way of ingesting and processing this information.

Highlighting success

But this dynamic can only be achieved when the CFO is able to integrate data from across the organisation to produce the numbers they require for decision making. Such a platform will only exist when businesses make a dedicated effort to bring the CFO into digital transformation plans early so that they can explicitly coordinate actions and create a harmonised view of all aspects of performance, in the digital market.

Through this harmonisation of information, contemporary CFOs are critical to the great digital transformation as the insights obtained from big data and associated technological challenges are all manifested in the numerical results collected by the finance team. Financial results that track the impact the digital revolution has on the company’s competitive landscape and revenue projections. Financial results that enable a confident executive team to drive decisions that result in positive outcomes.

Clearly, the digital-savvy CFO is under a tremendous load. They occupy a wholly unglamorous position in the executive team and one where the consequences of failure could quickly derail the digital transformation of the company. Yet, if the CFO is given the means to draw together the right information, from a large number of sources, they can aggregate this quickly, and with the correct analysis, will be able to covert this governance to a strong position in the digital economy.