Monthly Archives: January 2017

Equity critical when recruiting financial execs

Today we’re chatting to Grant Robson and Richard Angus from The Finance Team. The Finance Team is a professional consultancy specialising in the provision of experienced financial executives on a part time, interim or project basis. Last year The Finance Team ran a survey entitled mind the gap, gaps in resourcing your finance department. We’re here with Grant and Richard to talk through the survey and see what we can learn from some of the key insights.

GRANT ROBSON: As you mentioned in your introduction, The Finance Team is a professional consultancy, we’re not really a recruitment company as such. We employ our own professionals who we then utilize in the market to provide an interim part-time financial executive solution. So we were very interested to go to the market and find out the elements that we believe are very important in terms of how companies go about making these selections.

There were only five basic questions, to ensure that we were on the right track in terms of our reading of what we think the market finds very important when it comes to placing top notch, experienced financial executives. So that was the rationale behind why we conducted the survey.

JESSICA HUBBARD: Where was this survey run and who were your respondents?

GRANT ROBSON: The survey was run in conjunction with Moneyweb. Moneyweb sent out a link to the survey in the Moneyweb Morning Coffee (recently rebranded as MoneywebNOW) newsletter and then we also conducted the survey at the Finance Indaba in October 2016, which I think drew about 5 000 financial professionals to the event and whoever wanted to come through and do the survey was more than welcome to come through. Readers and listeners of Moneyweb were also invited to come and complete the survey.

JESSICA HUBBARD: So let’s dive into some of the key findings that came out of it, anything particularly surprising or unexpected?

GRANT ROBSON: I think before we even go into the results it’s really important to just note that the majority of the respondents were from SME companies, so smaller companies with turnover of less than R500 million and less than 200 employees, so I think that’s a really important element. You can expect to get different results from larger companies and I think at a later stage we will do another survey targeted at those larger corporates. But for now, it’s mainly smaller companies that answered, there were different categories, which I’ll ask Richard to go through. And because it was open to a large range of individuals, we then limited the results of the survey to those who we believe are the ones who make the call in terms of who gets employed in the company. Richard, if you can just go through that quickly.

RICHARD ANGUS: In terms of those roles, we looked at the chief executive role, the chief financial officer, then also the group financial manager role because they’re often charged with filling holes in a bigger organisation and then also financial managers themselves, because they often have to plug gaps in their team or across associated people and other teams. Then we also had a very small percentage, as Grant indicated earlier, of human resource managers, we only had about 4% of them, just due to the nature of the survey and where it took place.

Interestingly, of the people who responded, 44% were in the chief executive officer role, so we are talking to people who are actually the key decision-makers. So we’re talking about the people who are actually making the calls for their own businesses and for that mid-corporate size – staff below 200 and turnover below R500 million.

Policies with guaranteed maturity values

Some investors who have received payouts from Old Mutual’s Insured Investment Plan (“Versekerde Beleggingsplan”) or similar Flexi policies may qualify for an “ex gratia” payment where the payouts differed from the guaranteed maturity values in the original policies.

Guaranteed maturity values are not to be confused with projected maturity values, which were frequently used as marketing gimmicks in the past. In most cases projected maturity values were based on growth rates of around 12% to 15%, resulting in more than double the guaranteed maturity values, creating the expectation that final payout values would be higher than the guaranteed maturity values, subject to annual premium adjustments. The Pension Funds Adjudicator questioned the usefulness of projected values some years ago and highlighted the problems caused by not adjusting projected future fund values to the realities of a lower-inflation and lower-return environment.

A Moneyweb reader, Jan Heyneke, who invested in three of the Insured Investment Plan policies with Old Mutual during the early 1990s, recently realised that the payouts he received fell well short of the “guaranteed” maturity values.

His policy documents stipulate that if premiums increased in line with the Premium Adjuster (“Premie-Aanpasser”) annually, the guaranteed maturity values would be applicable at the maturity dates.

It also notes that the total premium would automatically be adjusted with inflation annually “as determined by Old Mutual” and that if the premium-adjustment rate on the policy matched the inflation rate, Old Mutual would determine the increases at its discretion.

In January this year, as Heyneke was about to get rid of the policy documents after the policies matured, he realised that they referred to a “guaranteed maturity value” and that the payments he received fell well short of these values. In fact, he received amounts of between 12% and 24% less than the guaranteed values respectively, totalling about R75 000.

Following several engagements with his broker and in an effort to determine why the payments differed from what was seemingly guaranteed values, Heyneke wrote to Old Mutual to get clarity.

Initial correspondence from Old Mutual included a standard document stating: “As this rate [CPI] cannot be predetermined an illustrative rate is used in the calculation of future values… to provide the client with an illustration of what the GMB [guaranteed maturity amount] would be based on this 12% assumption.”

Old Mutual seemed not to differentiate between projected values and guaranteed values, specifically where it determined the annual premium adjustments, Heyneke says.

Shortly after he presented a copy of an original policy document to the insurer his bank advised that Old Mutual had made three payments to his bank account. Closer examination revealed that the payments reflected the difference between the guaranteed maturity values and the amounts previously paid.

A letter Old Mutual sent to Heyneke explained that a “management decision” was taken to pay the difference between the guaranteed values and the amounts previously paid.

Money mistakes advice

TUMISANG NDLOVU: Tonight we get into our personal finance topic, talking about money mistakes to avoid in your 30s. CEO at CrueInvest, Craig Torr, joins us for tonight’s topic. Let’s define what money mistakes are.

CRAIG TORR: Those are your typical mistakes that you tend to make early on in life and just continue making those bad decisions and they obviously compound upon one another through a lifetime.

TUMISANG NDLOVU: What then are some of the most common money mistakes made by those in this particular age group, and I speak for myself at this tender age of 32.

CRAIG TORR: I think the one that jumps out at us is the cost of the wedding and that tends to set most married couples back quite far in their financial planning. There’s a lot of pressure obviously to live up to expectations of it being a great day and family involved and so on but one needs to be quite careful about the costs involved in putting that day together.

TUMISANG NDLOVU: The advice then there would be how do you then say no to pleasing everybody else and pleasing your own pocket to ensure that going forward you don’t actually run into a ditch where money is concerned?

CRAIG TORR: I think it’s about communication and being open and honest and having those discussions in advance and also involving the family, depending on who’s going to be paying for the wedding as well. It differs from scenario to scenario but all too often we see young couples really overdoing it on that wedding, possibly where the parents are not in a financial position to assist to the extent that they would like to. So it’s really about communication and affordability, those would be the two important issues to take into consideration.

TUMISANG NDLOVU: Still on the big expenses in terms of one’s life at this stage of 30 going upwards, things such as cars or your first property, how do you then make sure that you navigate around this and don’t make mistakes in this particular process?

CRAIG TORR: I think again the car and the property are two very different decisions, the property is very much a lifestyle decision, there’s a lot of emotion attached to it, it’s typically the home that you are going to raise kids in and so on. We’d be more comfortable to stretch the budget on that one as opposed to the cars, where those cars are depreciating assets that cost a considerable amount of money. So if we were to compromise on one we would look at advising to rather compromise on the car than on the house because failure to do so could result in you having to move more often than is necessary and that also comes with its built-in costs.

TUMISANG NDLOVU: What’s there to be said then about the small stuff, I know one of my bad habits is coffee, biltong that I don’t really need and when you calculate the cost of this at the end of each month you realise that you’ve spent quite a lot of money. Cigarettes are also an issue, it’s a lot of money if you calculate it over 12 months.

CRAIG TORR: Absolutely, I think you’ve hit the nail on the head, you do need to be cognisant of those little things like the day-to-day expenses, the cool drinks, the sandwiches that could all be reduced by planning a little better, making your own food or whatever it might be, maybe eating more healthy and so on.