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TECHNOLOGY ENABLEMENT ACROSS THE WEALTH MANAGEMENT VALUE CHAIN: THE MASS AFFLUENT OPPORTUNITY

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By Karine Marechal, Partner at e*finance consulting Reply

 

Market conditions are forcing financial institutions to find new models for growth. One of the largest identified gaps for growth is the underserved and overlooked mass affluent segment.

 

RICH, BUT POORLY SERVED

Despite showing enormous promise as a potential market, the mass affluent opportunity remains largely untapped. Traditionally, financial institutions have served either the retail market with a simple range of offerings or the high net worth market with a highly personalised, fee-based approach.

The mass affluent require more than a cookie-cutter approach to reach their financial goals but do not have the wealth to justify the time and expertise required by a personal one-to-one and face-to-face approach.

This has resulted in perhaps hundreds of millions of euros/pounds in missed opportunities for the mass affluent wealth management sector. Early attempts have fallen flat due to a lack of innovation in both product/service and approach. We have witnessed a number of financial institutions rush to market with a weak product offering and product-led marketing approach.

This approach has worked for retail consumers but falls way short of the wealth management needs of the mass affluent. What’s required instead is an approach that aligns the business model with the needs of the customer, leveraging tech and data to digitise processes that make offering a personalised approach cost-effective, useful to the customer, and profitable.

 

THE REAL WINNERS WILL BE THOSE THAT DELIVER REAL PERFORMANCE IN HELPING CLIENTS REACH THEIR INVESTMENT GOALS RATHER THAN PEDDLING PRODUCT FIRST

At the upper end of the scale, some private banks begin new relationships with mass affluent customers enthusiastically offering a personal service, with a long-term view of recouping costs and profiting over time. However, this doesn’t always happen and, when this does not materialise, they sometimes pull back, leaving both parties disappointed.

At the opposite end of the scale, retail banks usually fail to meet mass-affluent needs altogether through basic product offerings that disconnect with the mass affluent customer’s personal goals.

Fintech companies might have an advantage in tech and innovation, giving them a real chance at capturing this market first, however, to date, they have struggled to infiltrate and build trust with the mass affluent market. One reason for this is because, to enable massive growth in consumer numbers, they began by targeting the millennial market and now need to move towards the mass affluent who are predominantly Baby Boomers and Generation X.

 

THE COMPETITIVE MAP WILL BE REDRAWN OVER THE NEXT FEW YEARS

As leaders adopt better, more financially viable ways to explore the mass affluent territory, disrupting the business of laggards, we’ll see a new competitive landscape.

Those that grow will successfully address these three key issues:

How and when to replace face-to-face with a digitally-enabled offering (including via video-based advisory services, self-service centers, etc.);

How to attract and onboard new clients through digital channels, transitioning from ‘push’ to ‘pull’ marketing; and

How to create a new organisational culture that thrives around the new digital-based model, relinquishing the comfort of legacy business models that hold them back.

Of those three issues, how and when to use digital services is the keystone upon which the other issues rest.

 

HOW AND WHEN TO REPLACE FACE-TO-FACE AND VOICE-BASED PERSONAL SERVICE WITH A DIGITAL OFFERING

The goal here is to achieve a business model with a quasi-zero-marginal cost equation that will let the financial institution scale up to maximise the opportunity with minimal impact on operating expenses.

The opportunity for technology enablement across the customer value chain (client life cycle) differs at each stage, but there are clearly identifiable areas in which the industry has matured enough to find a new model palatable.

Offering a personalised user experience with outstanding service quality at scale using a quasi-zero-marginal cost model is now not only possible but highly desirable. What’s more, it has already proven successful.

One example we might point to is Valore Insieme; the first fee-based service for a large incumbent bank in Europe to be deployed in over 5,000 physical branches.

With tens of billions of euros already under management, the project has been a resounding success. The advisory service takes a holistic view of every mass affluent individual client’s wealth, assessing every financial asset to provide a personalised wealth protection, growth, and succession plan. The staff that service the clients require deep understanding of real estate, inheritance, protection, investments, and insurance. They are trained via a state-of-the-art advisory platform that supports the relationship manager in delivering a personalised advisory service to every client. Using technology, this provided an industrialised approach at scale and the success of the program has been immediate and emphatic.

Early results make it clear; those that succeed in capturing the lion’s share of the mass affluent market are the financial institutions that leverage technology to create scalable, personalised wealth management solutions that provide cost-effective value to customers without the need for expensive face-to-face relationships.

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What happens to your investments after your death?

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By Jaco Prinsloo, certified financial planner at Alexforbes

Financial planning regarding the succession of investments is rarely carried out, at least in South Africa. As a result, potential heirs are often not sure what to do or where to start to claim and settle a loved ones investments. In many cases, the family is unaware of the existence of an investment portfolio. With succession planning, the transfer of assets (whether property, your bank accounts, cars or investments) is facilitated.

Today I want to focus on investment and the succession planning of investments, specifically discretionary investments, compulsory investments and policies. The type of investment will determine how the assets and proceeds get distributed, so we first need to look at the different investment types:

Discretionary investments

Discretionary investments are any investment you make with after tax money at your own discretion. Discretionary investments include:

  • Unit trusts
  • Money market accounts
  • Fixed deposits
  • South African retail bonds
  • Share portfolios
  • Tax free savings accounts

Jaco Prinsloo

These investments will form part of your estate and will be subject to estate duty and executor’s fees. However allthou a tax-free savings account forms part of your estate there are no executor’s fees payable. The proceeds from the investments will be distributed as per your Will to your nominated beneficiaries after your estate has been settled. Because these investments form part of your estate the investments will be “frozen” and no transaction or changes can be made to the investments until the proceeds are paid to the estate.

Investment and Life Policies

Life insurance is a type of insurance contract where you agree to pay premiums to keep your life cover active. If you pass away, the life insurance company will pay the life cover benefit directly to your nominated beneficiaries, which can be a person or your estate.

You also get investment policies like living annuities and endowment policies where the investment value pays to the nominated beneficiaries on your passing. One benefit of investment and life policies is that it does not form part of your estate, which means no estate duty and the proceeds get paid directly to your nominated beneficiaries giving them access to cash while they wait for the estate to be wind up. Making it an essential part of anyone’s overall financial plan.

Compulsory investments

Compulsory investments are investments which are compulsory with some employers. Working for some companies you might be required to be part of a provident or pension fund as part of your employment contract. Compulsory investments might also offer some tax benefits but investors have limited access to their money and these investments are governed by Regulation 28 stipulating where and how you can invest. Compulsory investments can be summarised as “retirement funds” and include:

  • Pension fund
  • Provident fund
  • Retirement annuity fund
  • Preservation funds

The proceeds from retirement funds are distributed as per Section 37C of the Pension Fund Act.

Which means the trustees of the fund will use their discretion to distribute the proceeds of your retirement savings to insure all dependents and beneficiaries receive equal and fair benefits. Belonging to a retirement fund you will be required to nominate beneficiaries but its important to remember the beneficiary nomination is seen as a guide to the trustees or a “wish list” and the ultimate decision on how the benefits get distributed lies with the trustees of the fund.

As shown above, it is important to keep your Will and nominated beneficiaries updated on your policies and retirement funds. So how to plan for succession?

The first step is to talk to your family members about your investments and the administrator of these investments. Secondly you can create an organised folder with all the documentation of your investments, policies, copy of your Will and personal documents like your ID copy and bank statements. Your family does not need to know the value of the investments but the knowledge of the investments and where to find all your important documents will make it easier for them to start the claim process. Speak to a certified financial planner for advice on your beneficiary nominations and to formalise your wishes in a document, thus setting up a will.

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Finance

YOUR PARTNER SHOULDN’T BE YOUR RETIREMENT PLAN

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By Buhle Langa, certified financial planner at Alexforbes

Financial independence is important during any person’s lifetime, at all stages.

By starting to plan for your retirement early in your working life, you can maintain your standard of living in your retirement years. While a life partner can be wonderful, they should not be considered as a part of your retirement plan as they may not even have saved sufficiently to meet their own requirements.

Women tend to live longer than men, and since research shows they generally earn less, this means that they need to save more, for longer, than their male counterparts.

It is important to familiarise yourself with how you were married and what the terms are should the marriage end either in divorce or death. If you are married in community of property, both you and your spouse’s assets will form part of your deceased estate and your spouse will automatically, by law, be entitled to 50% of the combined assets.

You can be married out of community of property with or without the accrual system. Being married without accrual is the easiest system to work with in your will and estate; your assets remain your own and you may deal with your assets as you wish with no claim from your surviving spouse.

Buhle Langa

Often, a home will be registered in one partner’s name while the other contributes to the bond repayments. If you are not married or are married out of community of property, ensure that you have a written cohabitation agreement. These financial contributions can be difficult to prove if the relationship ends, leaving the one partner with no claim to the property.

Having sufficient planning in place for both parties is always advisable, and each party should have their own savings and investments. A tax-free savings account is a great place to start, allowing you to save up to R36 000 a year without paying tax on the growth.

Increasing your contributions to your work retirement fund will help you accumulate larger savings for your retirement. To take advantage of the benefits of compound interest and avoid a hefty tax liability, it is also advised to keep your retirement savings invested when changing jobs. When leaving your employer, a number of tax-free options are available to you and one should seek financial advice in order to understand which of these is the best choice for you:

  • Transferring your savings to your new employer fund
  • Transferring your savings into a retirement annuity fund
  • Transferring your savings into a preservation fund
  • Keeping your funds invested within your previous employers retirement fund through a paid up status (not contributing further to the fund).

Each of the options noted have varying implications such as when you would be able to access the retirement funds either through resignation, dismissal or retirement and whether you are able to continue contributing towards the fund, therefore each individual person would need to seek financial advice from an accredited financial advisor so as to determine which option would best suit their individual needs.

Regular consultations with a certified financial planner will ensure that you are on track for a secure retirement.

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