In my last article I discussed the behavioural concepts of TFSA’s vs that of a retirement fund. Today I want to look at the secondary benefit, being tax.

The tax on the two types of savings accounts are quite different. The purpose of the Tax-free Savings Account was to create a savings culture in South Africa with immediate access to funds. On the other hand, it came with a condition that your contributions will be limited, both annually and for your lifetime. This makes using it, for retirement purposes, impossible as the only option, especially for older clients.

The benefit is that your TFSA will remain tax free. Unlike your retirement funds which will one day pay you an income that will be subjected to income tax, you can withdraw from your TFSA free of tax. One needs to look at the picture both pre and post retirement.

With a TFSA, the growth of your investment will not be subject to future taxes, apart from Estate Duty. With your retirement fund, your growth is tax free until you change the nature, i.e. when you withdraw or when you start drawing an annuity. You get real cashflow from your tax deduction, should you qualify, which if used cleverly can be added to that growth in the future. Another alternative for the cash back into your hands is to add that into a TFSA with a long-term view. This way you will maximise the growth and the tax benefit over the long term, whilst working with a limited cash flow.

With a TFSA, the growth of your investment will not be subject to future taxes, apart from Estate Duty. With your retirement fund, your growth is tax free until you change the nature, i.e. when you withdraw or when you start drawing an annuity. You get real cashflow from your tax deduction, should you qualify, which if used cleverly can be added to that growth in the future. Another alternative for the cash back into your hands is to add that into a TFSA with a long-term view. This way you will maximise the growth and the tax benefit over the long term, whilst working with a limited cash flow.

At retirement you are able with convert your retirement fund into an income generating asset, paying you an annuity income which is subject to tax. Since it is subject to normal income tax you will be allowed to claim normal expenses such as medical aid, and if you have disallowed deductions of your retirement fund.

With a TFSA, you can convert it into a tax-free annuity stream, if you keep the funds in your TFSA and withdraw a regular income. Since this will not be taxable income, you cannot claim any tax deductions against this.

There is another aspect that should be considered if you are looking to change your retirement plan due to prescribed assets. Currently there is no law that prescribes where TFSA monies should be invested, but that does not mean it cannot change. Should government decide to change this, there will be some structural changes to TFSA, especially those with an equity exposure, which you want to include since you want to achieve inflation beating returns for the long term.

In short, one cannot simply only look at a TFSA to fund your retirement, and a balance can be reached between a retirement fund and a TFSA. Investing in a TFSA, currently, allows you to limit the impact of prescribed assets on your retirement savings.

There is no doubt that the COVID-19 pandemic had a severe impact on the Government’s budget. This linked with struggling state-owned enterprises (Known as SOE’s), Government bailout needs to collect money somewhere. During the pandemic, the social injustice of South Africa has just been highlighted bringing to light, more socialist solutions such as NHI, Social Security reform and more tax for the rich.

Prescribed Assets have been on the ANC agenda for some time, and now seems to be a great opportunity for Government to consider this. However, with the track record of government, this could severely impact the retirement planning of your clients. There are several factors that could impact the retirement outcome of your clients, and some of them does not have to do with the retirement planning you do for your clients.

We have seen that traditionally where there is a state pension, people tend to save less as their motivation and driver ultimately impacts their mindset to save. Adding prescribed assets are likely to have the same effect and have a direct impact on the willingness to save.

Most South African’s does not want to pay tax, not because it is something you must do, but rather due to our government’s inability to manage the taxes efficiently, corruption and misappropriation of funds.  The role of the financial advisor here is thus to ensure that client’s do not fall into this rebellious trap.

Traditional investments are fully taxable (both the income and the capital gain thereof) and will therefore not assist to encourage people to save. It is therefore that TFSA’s could pose a wonderful alternative, as the only real tax it will be subject to is estate duty.There are however two factors one would need to consider. The first being the investment limits. If your clients are used to save more, the conversation will be a completely different one. As people face pressures daily, savings less might be a short term out but will have a lasting long-term impact.

The Second is almost linked to the first. TFSA’s does not force and investor with the same discipline that a retirement annuity does in the sense that they have access to their funds. History has indicated to us that people do not preserve their funds when resigning from their employment, so they are likely to access the funds of a TFSA when they are under financial pressure.

The conversation financial advisors should have with their clients is no longer one of how much to save, but to save with a long term in mind. Conversations should be of a recurring and reminding nature to ensure that clients are constantly reminded of the end goal. Financial Advisors should also consider changes to their annual client reporting. Instead of focusing on the short-term return, it should focus on the long-term goal, what it means to the client’s and why the client started their investment in the first instance.

Many Financial Advisors and Planners currently need to determine what solutions they can implement to obtain their client’s signatures digitally, especially for clients who has limited technological experience.
Over the coming weeks, I will share my view on some of the tools available in the market. The first is an extremely popular choice, namely Adobe Sign or Adobe EcoSign. Adobe Sign allows you to send documents via email to your clients for their signature.

Here are the things I like about the Adobe Sign platform:

  • 1- You can customise the subject line and body of your email to your client.
  • 2- You can CC other users such as your assistant or the client’s spouse (if required)
  • 3- You can set the fields in the document that you need your client to complete and your client will be guided by the reminder stickers on the left of the screen.
  • 4- After the client has signed the document, it is stored to your adobe account and your client’s if they have one. Further to that the signed document is emailed to your client and they can download it directly after they have signed it. Everyone you CC’ed in the email will also get a copy of the same signed document.

What I do not like:

  1. There is no way to password protect the document so that it remains secure via email. Anyone with the link can open the document on your client’s behalf.
  2. There is no way to customise your email with your logo

The cost:
Adobe Sign allows you to send 2 documents free in a 30-day period.
• With a 12-month commitment price per user $ 11.49 (Approx R 206.82 p.m.)
• Month to month use, Price per user $ 17.24 (Approx R 310.32 p.m.)
For more on Pricing you can click here.

Alternative Adobe Subscriptions:
You can also subscribe Adobe Acrobat Pro plans that allows you to create forms and more with your PDF Documents, Turn scanned documents into editable, searchable PDFs and more. Adobe does offer a free 3- day trail for this option.
The subscription for a 12-month commitment is $ 17.24 per user per month (Approx R 310.32 p.m.)
For more on Pricing you can click here.

What does your client need?
Your client only needs an email address and an active internet connection.
It works on Laptops, Mobiles and Tablets.

User friendliness – Document sender 4.0/5
User friendliness – Document Receiver 4.8/5
Secure Platform 4.0/5
Customisation 3.0/5
Pricing Structure and flexibility 4.5/5
Overall Score 4.5/5

You can watch the how to video here.

As times become tough, people tend to be more desperate than usual. This leaves the door for scamsters wide open.

As people become more desperate, they are more likely to believe scam related messages. In the past, scam operators use to be easily identifiable by their poor choice of language. As the translation software becomes better, this is no longer the first way to identify a scam. Here are six important messages, in simple language, you should share with your clients.

  • Ask for help

When people are presented with opportunities, they tend to act first and then talk to their network of professionals. In our accounting firm, we continuously remind our clients that they should check with us fist if they receive any communication that is related to their taxes. We have saved so many of our clients by preventing their actions. SARS also has a link where people can check the latest scams. The page can be found here.

  • Protect your personal information

Your personal information is worth more than the small deposit/ fees that are often requested. With enough personal information they can impersonate you at financial institutions to perform transactions on your behalf. There is a huge black market for personal information that can be abused in various other ways.

  • Check the email address

No officially authority will use a Gmail, Hotmail, Yahoo, or free mailbox email address. Further to this, it is easy to display one name and the reply to address is different. If you click on the reply to button, and the address is different than the one you have received the mail, that is another waring signal. If no email address is displayed, double click on the email address to see what the actual email address is.

  • Do not open attachments

Sometimes email attachments contains small lines of codes that then enables hackers to access your computer. In some instances, they can transmit your information over an internet connection, activate your webcam and or computer’s microphone and in some instances, they can block access to your files and request a ransom to release your information.

  • Do not click on suspicious links.

Links that have a security certificate typically starts with https://. The s generally indicates a secure site. However, this is not the only safeguard. You should still consider the links and the contents of the emails before you click on them. You can set your browser settings not to allow automatic downloads, meaning that you will need to give explicit permission before any file can be downloaded. This will allow you an additional protection but is not a sure safeguard. You should thus exercise extreme caution before you click on any link.

  • Do not believe messages at face value

My favourite line on some of these scam mails is either the line that says this is not a scam, this is 100% guaranteed etc., or the one where they threaten you with legal action if you do not respond. Believing these messages at face value, especially if any of the above points has created some alerts for you, could cost your dearly.

Having the knowledge of possible risk factors and scams, will allow your clients to exercise caution and allow your clients to safeguard them in these difficult and desperate times. The golden rule of if it seems to be too good to be true, it is too good to be true.

Whilst South Africa celebrates freedom day today, I have been thinking what Freedom really means to me. We are a few days away from a staged release of our National Lockdown, many making ironic jokes about us being in Lockdown on Freedom day.

As a young financial planning professional, freedom to me means that I have the ability to run a business and work for an income without any restrictions. I am proud to say I am South African, a country that has been through so much. The reality is that we all have some scars from South Africa. Mine is a continuous one that is u able to heal.

As a professional, I have to continuously review my options and determine where I see myself and what I need to make it possible.

Every year when I review my strategies, I realize that I have so much to offer, so much to give, but the ones needing the help does not realize they need it, and those that realize that they do, seems to be intimidated by me.

I have a diverse range of skills, because I am a firm believer that I can achieve what ever I want to. I have a unique talent for learning and my #GallupStrenghfinder confirms this.

With so much knowledge that I am eager to share, is often questioned because I am a white young female, at least that is how I perceive it to be.

One factor that I constantly have to ask myself is whether or not, I want to leave my home, the place where my dreams were shaped and my foundation was laid, in order to ensure a better future for myself.

This year I again came to the conclusion that I am staying, there is simply no place like home, and this year I am choosing Freedom day to place the stake in the ground.

Freedom does not mean we can do as we please, neither does it mean that we should all be treated equal, because we are not born equal.

I recently am watched a series named “House of Cards”, and Kevin Spacey, as the President of the USA, said in a speach, “if you want a job, you will have a job.”

This got me thinking, what does freedom really mean?

I have revised my sentiment to say Freedom means that if you are willing to, and you have the right intentions, you should have the opportunity to make a difference using your skills, knowledge and talents. It should not be about your age, race, background, or gender.

Every business that has been successful has identified a shortcoming and fulfilled the need. That to me is simply a different definition of making a difference.

If you do the right things, for the real right reasons, you are free, no matter what. You just need to choose to be the one that puts your hand up every time, even when you are ignored. Your agility is what will set you apart in the end.

May you be blessed this freedom day, there are many changes awaiting us in the near future, you just need to want the opportunity enough to be able to see it.

When you heard the possibility of a lockdown in South Africa, be honest, there was some part of you that started to panic initially. That is a normal human response to the unknown. As humans, being he superior specie we all want control of something, because our personalities differ. The degree, however, is different.  

Here are 6 things tips to deal with your clients in these unprecedented times:

Don’t tell them not to panic

When you are upset, the last thing you want to hear from someone is calm Down, so why would we say this to someone who is panicking?  Instead of telling them not to panic, rather say it’s okay to panic, followed by your response you would have if you told them not to panic. This way, you give them a sense that you are in control and the reaction they have is normal. People like to know that their reaction to events is normal.

Give them the Facts

We are in a problematic situation, and no one knows how the future will pan out. We do not know what is coming and we do not know if lockdown will work the way the government envisages it to work. For now, you need to focus on what is important, keeping yourself and your family save. Trust that the plans we have put in place will materialise as they should. It is also important to remember that you are not alone, and fund managers are all considering their options and strategies. Where you do not know the facts, be sure that you leave them with the message that should anything change they will hear from you.

Give them comfort.

If you do life insurance or medical aids, assure them that the cover they have in place will cover them and their families. This a time to remind them why the solutions you have put in place remains so critical for this journey.

Be available; be visible

Remember that you should not use this as an excuse not to be available. If you cannot be available during their most trying times, they are ever likely to experience, you will break the trust with your clients that you have built on for so long.

If you are not available for whatever reason, ensure that you have provided them with alternatives and sufficient information.  You do not have to build up a library of information overnight, share information from your other business partners. I do however want to caution, that you need to ensure that you are comfortable with the information contained in whatever you share.

Take care of YOU

During a lockdown, you need to ensure that you take care of you. Your mental and social wellbeing is more important than you might realise at this time. One way of ensuring your mental wellbeing is taken care of is to plan. Plan your days, create your accountability measures and ensure that you touch base with others frequently.

Focus on the remainder of the year.

Whilst we do not know how long this is going to last, we do know that things are going to be different for the remainder of the year and the following years, we do need to plan and review our strategies. Parts of your strategies might still be implementable whilst other parts will need a complete refocus. Use this time, to think about how you are going to recover from this.

Barbara Mundell Consult (PTY)LTD provides professional consulting services to financial planning practices. Contact us should you need assistance in planning and managing your practice. We are a recognised FPI CPD Provider, providing customised CPD programmes. We will remain fully operational during the national shut down.

Following from my article Money is not about Money, I now pose the question to you, If it is not about money then why do we talk about money?

As Financial Planners we are great at telling people how to reach their goals. We teach them that they need to plan, protect their plan and how to do this is monthly savings, investments and payment of insurance premiums. 

The reason most people to not reach their goals is the lack of willpower and motivation. 

The goals can be realistic and challenging and in most instances, they are not easy for our clients to achieve. In the plan that we present to people, we generally require them to save a substantial amount of money, pay insurance premiums for something they might not use during their lives. 

As Financial Planners we are generally very passionate about Financial Planning, crunching the numbers for our clients. We are satisfied with the process when they have committed to the plan and implement our recommendations. Now what? 

A year pass and you check in with the client, and you again present numbers and we feel satisfied by the clients appreciating our efforts. Another couple of months down the line and the client has missed his debit order, now what? 

The reason is not that your planning was poor, it was not because of the client not buying into their(your) financial plan, but is more likely that the client has lost motivation and the willpower to continue. 

As financial planners, we need to help clients focus on the why as often as we can. The why is their own accountability measure of their dreams and goals. The why is the reason they made a sacrifice in the first instance is the reason they will remain dedicated and focused on the plan. 

Are you sure you get to their WHY? 

Find out more on how to ensure you get the why in my next article. 

*If you are in the Financial Planning Profession, reach out to find out more about how Barbara Mundell Consult(PTY) LTD help you change the experience and build trust. 

Barbara Mundell,CFP® BAP(SA)™
Barbara Mundell Consult (PTY)LTD

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