Stephen Leppan - Talk Money

Time to invest on the NASDAQ

noreply@blogger.com (Stephen Leppan) — Thu, 16 Feb 2012 13:21:00 +0000

Buy, Buy, Buy

By Christian A. DeHaemer | Wednesday, February 15th, 2012

Remember the NASDAQ?

It was a big deal back in the late 1990s when it went up 330% in two years.

You may not have noticed, but it's up 133% since the bottom in 2009.

What intrigues me about the NASDAQ is that it is above its resistance level, as you can see by this one-year chart...

That's called a breakout — and is very bullish.

NASDAQ Breaks Out

But if you only read the standard news sites, like Yahoo! Finance or Bloomberg, you will find zero articles about it.

The NASDAQ is hitting 11-year highs with the next resistance level at 3,497, and nobody seems to have noticed...

In 1999, every television in every bar and restaurant was tuned to CNBC, and 11-year highs would have been leading the news!

Granted, the NASDAQ surge has to do with Apple (AAPL) going parabolic:

The Apple 540 February calls are up 310% today. That's a nice trade.

But it's not just Apple...

Check out stocks like Akamai Technologies (AKAM), which just gapped up:

Qualcomm (QCOM) has doubled in the last year or so.

Microsoft (MSFT) has gone from $16 to $32.

Intel (INTC) — which I've been telling you to buy for more than a year now — has gone from $13 to $27 and pays a fat dividend.

OCZ Technology Group (OCZ), which I recommended to my readers in Crisis & Opportunity, has gone from $4.50 to $9.14 since September.

Gold Demand Trends

noreply@blogger.com (Stephen Leppan) — Thu, 16 Feb 2012 11:03:00 +0000

New issue of Gold Demand Trends

Released today: Gold Demand Trends Q4 and Full Year 2011

Global demand for gold in 2011 rose to 4,067.1 tonnes (t) worth an estimated US$205.5 billion - the first time that global demand has exceeded US$200 billion and the highest tonnage level since 1997.
The main driver for this increase was the investment sector where annual demand was 1,640.7t up 5% on the previous record set in 2010 and with a value of US$82.9 billion.
The pre-eminent markets for investment demand in 2011 were India, China and Europe. Central banks continued the trend established in 2010 of being net buyers of gold.
Marcus Grubb, Managing Director, Investment remarked “What we can see from these 2011 figures is that there were two main factors driving the results: Asian growth and optimism on the one hand and western desire to protect assets against uncertainty on the other. Looking particularly at Asia, there was a major boost to the overall figures from the increase in Chinese demand, which is a trend that we see continuing over the next year. It is likely that China will emerge as the largest gold market in the world for the first time in 2012 demand terms. What is certain is that the long-term fundamentals for gold remain strong, with a diverse and growing demand base, coupled with constrained supply side activity.”

More...

Currency Report

noreply@blogger.com (Stephen Leppan) — Wed, 15 Feb 2012 10:46:00 +0000

Currency Trading - The Rand Report

Global Commentary

Technical Data on 9 February

Asia stocks rose the most in a month, the yen fell to a three-month low and metals rallied after China pledged to help resolve Europe’s debt crisis.

European officials ratcheted up the pressure on the Greek government to deliver budget cuts in exchange for a second bailout as they insisted that default is not an option.

Finance ministers cancelled a Brussels meeting slated for today and will hold a teleconference instead to prod Greece to do more to clinch an aid package worth 130 billion euros ($170 billion) along with about 100 billion Euros of debt relief from private bondholders. Greece needs the aid to make a 14.5 billion-euro bond payment on March 20.

Market Prices USD-ZAR

Open	7.7453
High	7.7687
Low	7.6772
Close	7.7453
Current Mid	7.6599
Change	-0.0620
% Change	0.800%
Volatility	20.07%

Trading Levels USD-ZAR

Resistance 3	7.8943
Resistance 2	7.8485
Resistance 1	7.8028

Pivot	7.7304

Support 1	7.6655
Support 2	7.6198
Support 3	7.5740


What to Watch


Traders View
Our view remains that the medium term outlook for continued ZAR strength is valid given supportive factors for the rand far outweighing any negatives. Look to sell into dollar strength. Range for the day 7.5900-7.7400

Single Discretionary Offshore Allowance - SARB

noreply@blogger.com (Stephen Leppan) — Mon, 30 Jan 2012 07:03:00 +0000

The SA Reserve Bank has recently announced that SA resident individuals may use their single discretionary allowance (R1m per calendar year) for foreign investment purposes without having to obtain a tax clearance certificate.

Previously, the said allowance covered the following :

- Donations to missionaries

- Maintenance transfers

- Monetary gifts and loans

- Travel allowance

- Study allowance

- Alimony and child support payments

- Wedding expenses and other special occasions

The position has now been broadened and foreign investments are included in the list of transactions.

Please note that if an individual makes use of the R1m Single Discretionary Allowance for a foreign investment no further funds will be accorded to the individual for the remainder of the calendar year for Travel,Study,etc.

The requirements for the transfer of the annual foreign investment allowance of R4m remain the same.

This change takes place with immediate effect.

Is the Gold Rush Over?

noreply@blogger.com (Stephen Leppan) — Fri, 27 Jan 2012 06:57:00 +0000

Nothing Can Stop the Gold Bull Market Profits
By Brian Hicks | Thursday, January 26th, 2012

At 11 years and counting, the bull market for gold has created more than its share of millionaires.

What's more, millions of investors have used gold to protect the value of their money.

Even the worst stock market crash in a hundred years is now just a blip on the ever-rising gold chart...

It's true: there's never been a better time to own gold and silver.

And if you haven't allocated some of your investment capital to gold, well, current prices are about as low as they'll be for 2012 and beyond.

And when you consider the reasons that investors are flocking to gold...

the debt situation in Europe
worldwide low interest rates
the near certainty of rampant inflation
U.S. dollar devaluation
record gold-buying in China
gold prices have rallied 11 years in a row

It's easy to see why prices will be higher in 2012 — and the year after that, and the year after that...

How high will gold prices go?

Morgan Stanley says $2,200 an ounce is coming this year.

Citigroup likes gold even more, forecasting a $2,400 price per ounce.

The problem is, while Citi and Morgan Stanley love to tell you how high gold prices will go, they never offer up the critical details on the very best way to profit from gold and silver.

But all that changes next week.

Because on January 31st at 6 p.m. EST, you'll get the expert answers to all of your most critical gold investment questions — absolutely FREE in just 15 minutes and from the comfort of your own home or office — in a groundbreaking video investment seminar called The Complete Gold and Silver Buyers Guide.

I've lined up one of the world's foremost gold experts for this investment event: a man with 34 years of gold investment experience; a man who's overseen $400 million dollars' worth of gold transactions — including exclusive distribution agreements with Great Britain, France, South Africa, Australia, Russia, and China.

They don't get any more connected than this man, so you know you're getting the very best advice...

During this special FREE video investment seminar, you'll learn how to:

Protect your wealth from the fall of the European Union
Insulate your investment from volatile gold prices
Enjoy TAX-FREE gold and silver profits
Profit from gold's upside, and protect yourself from the downside

And all you have to do to reserve your seat for this landmark investment seminar, The Complete Gold and Silver Buyers Guide, is click on the link below:

http://www.angelpub.com/gold-and-silver-buyers-guide

Reg 28 and Retirement Funds

noreply@blogger.com (Stephen Leppan) — Tue, 24 Jan 2012 09:28:00 +0000

Regulation 28 Note

The table below reflects the requirement for Regulation 28 compliance. Kindly compare your current holdings to that of the table below.

Conditions for Reg 28 Compliance:
  Equity holdings must be less or equal to 75%.
  Property holdings must be less or equal to 25%.
  Equity + Property must be less than or equal to 90%.
  Bonds and Cash holdings can be up to 100%.
  Foreign exposure must be less or equal to 25%.

SA Latest Unemployment Figures

noreply@blogger.com (Stephen Leppan) — Thu, 03 Nov 2011 10:16:00 +0000

Stats SA released the Labour Force Survey (LFS) for Q3 2011 yesterday. The LFS is a quarterly household survey specifically designed to measure the dynamics of employment and unemployment in South Africa, including the informal sector as well as small-scale subsistence farmers. The following is a summary of the key trends in the labour market as at Q3 2011 (see charts attached for further information).

In Q3 2011, there were 32.555 million people aged between 15 and 64 years in SA (up 120 000 relative to Q2 2011, and up 483 000 year-on-year).

Among these people:

17.761 million were economically active (up 98 000 relative to Q2 2011)

13.318 million were employed (up 193 000 relative to Q2 2011)

4.442 million were unemployed (down 96 000 relative to Q2 2011. The number of discouraged workers fell by 3 000 in the quarter)

This implies that the official unemployment rate is now down at 25.0%, compared with 25.7% in Q2 2011. This is a very welcome improvement, but at 25%, the unemployment rate is still extremely high by global standards. Using the expanded definition, the unemployment rate is still well above 30%; reflecting the high level of discouraged workers.

As mentioned above, the number of employed people rose by a very welcome 193 000 in Q3 2011 relative to Q2 2011. This gain in employment occurred mostly in the formal sector (+238 000). The agricultural sector also gained 26 000. In contrast, the informal sector shed 53 000 jobs, while private households lost 19 000.

Over the past year, the SA economy has added an relatively impressive 343 000 jobs. While this is still below the key target level of 500 000, it reflects a significant turnaround relative to recent years. All of the gains in the past year have been in the formal sector (+393 000). In contrast the informal sector has shed 12 000 jobs. There were also losses in agricultural employment (-16 000 in the past year) and domestic workers (-21 000 in the past year).

There remains a significant debate within South Africa regarding the accuracy of the various employment surveys. However, the current trend in the employment surveys suggest that at least SA is past the worst of the job-cutting cycle (see chart 3 attached) and could expect more meaningful gains in employment during the next couple of years. The key question is now how many jobs can SA create? The New Growth Plan has set a target of creating 5 million jobs over the next 10 year. The is a worthy target, but also a very ambitious target. Hopefully, SA’s economic policy will increasingly focus on how to encourage job creation in the private sector.

Clearly, job creation is not merely a function of interest rates or the cost of capital. Other important policies play a crucial role in facilitating job creation, namely fiscal (tax) policy, labour policy, education policy, competition policy, industrial policy, trade policy, exchange rate policy etc etc. Asking monetary policy to consistently solve all of SA’s economic woes is unfair and unrealistic. SA’s high unemployment requires a far more complete and bolder solution, that has the role of the private sector firmly at its core.

South Africa’s unemployment rate remains far too high by historical and international standards, and clearly contributes to much of the social tension and anguish experienced in South Africa on a daily basis. As we have stated on many occasions, increasing the number of people employed in South Africa has to be the number one economic/political/social objective.

The Budget in a nut shell

noreply@blogger.com (Stephen Leppan) — Fri, 28 Oct 2011 09:42:00 +0000

Overall, the Minister revised down his GDP growth estimate (especially for 2012 from 4.1% to 3.4%); including a downward revision to his growth estimate for fixed investment spending (for 2012 from 5.5% to 4.5%) - despite claiming that this is an “investment led budget”. It is clear that the performance of the SA economy has been negatively impacted by the poor global economic environment.

The estimate for the national deficit for 2001/12 has been revised up to -5.5% of GDP, compared with a budget of -5.3% of GDP. The projected deficits over the next couple of fiscal years have also been increased. For 2012/13 the budget deficit is now projected at -5.2% (was -4.8%), while for 2013/14 it is -4.5% (was -3.8%). The deficit estimate for 2014/15 is more encouraging at -3.3% of GDP, which sends the right message but much has to happen before that is achieved.

The estimate of tax revenue for 2011/12 has been reduced to reflect a projected revenue shortfall of R13 billion. Unfortunately, this shortfall could end-up being closer to R20 billion based on our own projections.

In order to reduce the budget deficit over the next 3 years the Minister has budgeted for revenue growth to average a fairly optimistic 11.0% a year (currently tax revenue is growing at around 7.4%); while the growth in government expenditure, which has experienced double-digit growth for a number of years, is projected to average a much reduced 8.4% a year for the next 3 years (with salary increases budgeted to rise by only 5% a year – which is not that realistic given the current upward trend in inflation). These projections appear somewhat optimistic given recent trends, implying that the government is likely to experience a higher budget deficit and larger borrowing requirement than is currently reflected in the MTBPS. Net government debt is forecast to reach 40% of GDP in fiscal 2015, which is still very respectable, but clearly contingent on the fairly optimistic revenue and expenditure projections.

The Minister is aiming to increasingly switch the focus of government expenditure initiatives away from consumption based spending to investment activity (including a R25 billion initiative to promote industry over the next 6 year). This is applauded, but the Minister is projecting that public sector infrastructure spending actually declines from 7.8% to 6.8% of GDP over the next three years.

There was little detail on the pending National Health Insurance, other than to indicate that National Health Insurance pilot projects will take place in 10 districts, in order to gauge the feasibility and scalability of proposals contained in the green paper.

Although SA’s fiscal position remains extremely favourable by global standards, and government purposely embarked on a counter-cyclical fiscal policy during the recent recession, the fiscal position could deteriorate more than projected if government is unable to curtail its current growth in consumption expenditure. It is also becoming increasingly urgent for SA to broaden its tax base through job creation. The Minister recognises the need to improve investment activity as well as government’s service delivery, and is clearly aware that tough policy choices will have to be made in order to create employment. However, the lower projected growth in investment spending is a concern, especially as it relates to the ongoing under-investment by provinces and local government

The role of Special Trusts in financial planning

noreply@blogger.com (Stephen Leppan) — Thu, 15 Sep 2011 10:10:00 +0000

A special trust is a trust created solely for the benefit of a person who suffers from a mental illness (as defined in The Mental Health Act), or, a person who suffers from any serious physical disability. This is known as a Type A Special Trust and has the following requirements:

The trustees may not have the discretion to pay income or capital to any other person whilst the qualifying beneficiary is still alive.
A qualifying person must as a result of the physical or mental disability not be able to manage his own financial affairs, or, if over the age of 18, not be able to provide for his own maintenance; and
The person must be alive on the last day of February of the relevant year of assessment - the trust will not qualify to receive the favourable tax treatment in the year that the qualifying person dies, and it will instead be taxed as a normal trust.
SARS must approve the trust deed as a Special Trust Type A and will register it accordingly.

Creating a Special Trust in your Will

In 2003, a second category of special trust, Type B, was recognised with the following requirements:

A trust created in terms of the will of a deceased person,
Solely for the benefit of trust beneficiaries who are relatives of the deceased,
And, where the youngest beneficiary has not yet reached the age of 21 years on the last day of February in a year of assessment - the trust will be taxed as a normal trust in the year in which the youngest beneficiary turns 21.
The trust beneficiaries must all be alive at the date of the death of the deceased - an unborn child may, however, also benefit.
A relative includes the spouse or anyone related to the deceased or his spouse within the 3rd degree of consanguinity, and includes an adopted child.
Each year the financial officer will submit the return to SARS confirming that the trust qualifies as a Type B Special Trust and request that it be taxed accordingly.

What are the tax consequences of Special Trusts:

All the income tax provisions that relate to trusts in general, apply to special trusts as well.
A special trust is taxed according to the rates applicable to natural persons (18% - 40%).
Exemptions and rebates applicable to natural persons are not applicable to special trusts.
Section 10A of the Income Tax Act, which allows the capital element of voluntary purchased annuity (VPA) to be exempt from tax, applies to Type A Special Trusts only.
The following CGT inclusions and exclusions applicable to individuals, also apply to special trusts:

The annual exclusion of R20 000.
Inclusion rate of 25%.
R1.5 million primary residence exclusion, and R2 million exclusion.
Personal use assets excluded.
Compensation for personal injury, illness or defamation of the trust beneficiary.
On the death of the trust beneficiary, for CGT purposes only, the status of the trust as a special trust is preserved until the earlier of the disposal of all the assets held by the trust or two years after the date of death of the beneficiary.

The marketing opportunities created with a Special Trust

Children with mental or physical disabilities need special care which can be provided either at home with specialised care-givers or at specialised institutions, both of which come at considerable costs. Should the parents pre-decease their special needs children, who will bear the financial burden for their child’s special needs? A policy on the lives of the parents either owned by the trust, or, owned by the parent with the trust as beneficiary can satisfy this need, alleviating the burden on surviving family members, also giving peace of mind to specialised institutions that fees will be provided for.

The use of a testamentary trust for minors is a must in every estate plan – particularly on the simultaneous death of both parents, or if the parents are divorced - on the death of either of the parents. There are benefits in providing for separate trusts for the children and the surviving spouse. Where the trust established for the surviving spouse is solely for the spouse’s benefit (with no discretion for the trustees to pay a third party during the spouse’s lifetime) then the assets transferred to that trust will still qualify for the section 4(q) deduction in the deceased spouse’s estate. The children’s trust will qualify for the favourable tax treatment as a Type B Special Trust, up until such time as the youngest child reaches the age of 21 (even though the general age of majority has been amended to age 18). Life assurance policies on the lives of the parents, payable to the testamentary trust to be established for the benefit of the minor children, can provide for the needs of the children as beneficiaries of the trust, creating financial stability and peace of mind.

15 September 2011

Disclaimer
Any legal, technical or product information contained on this webpage or document is subject to change from time to time and is not to be construed as advice by Liberty Life. Any recommendations made must take into consideration your clients’ specific needs and personal circumstances. This webpage and document(s) is a summary of the changes to the features of the product. If there are any discrepancies between this document and the contractual terms, the latter will prevail.

US President Obama presented his $447 billion American Jobs Act to congress last week.

noreply@blogger.com (Stephen Leppan) — Tue, 13 Sep 2011 07:21:00 +0000

On 9 September 2011, President Obama presented the American Jobs Act to Congress. The Act is effectively a $447 billion plan (around 3% of GDP) to create jobs in the US using a combination of tax incentives and infrastructure spending. The size of the plan is bigger than market analysts had expected, which was around $300 billion. Overall, the plan has merit and could help to boost the economy, meaningfully, in 2012. (It could also be argued that some of these initiatives should have been introduced some time ago, instead of initiatives such as the “cash for clunkers” deal).

The American Jobs Act has four key components:

Ø Tax Cuts to Help America’s Small Businesses Hire and Grow ($70bn)

Ø Putting Workers Back on the Job While Rebuilding and Modernizing America ($140bn)

Ø Pathways Back to Work for Americans Looking for Jobs ($62bn)

Ø More Money in the Pockets of Every American Worker and Family ($175bn)

Below is a very brief explanation of each major component:

1. TAX CUTS TO HELP AMERICA’S SMALL BUSINESSES HIRE AND GROW (total $70bn):

A payroll tax cut to businesses, with a focus on small employers ($65 billion).

Ø Extend the payroll tax cut to firms by cutting in half their payroll tax on the first $5 million in payroll. Next year, instead of paying 6.2% on their payroll expenses, firms would pay only 3.1%. The plan is to provide tax cuts for all firms, with focused relief on the 98% with less than $5 million in payroll.

Extend 100% business expensing through 2012 ($5 billion).

Ø The President is proposing an extension of the 100% expensing provision that he signed into law in December 2010, which rewards firms for making investments by allowing them to deduct the full value of those investments from their tax obligations through 2012. Extending 100% expensing for an additional year would put an additional $85 billion in the hands of businesses in 2012. Most of this relief would be recouped by the Treasury as businesses regain their strength.

2. PUTTING WORKERS BACK ON THE JOB WHILE REBUILDING AND MODERNIZING AMERICA (total $140bn):

Preventing Teacher Layoffs and Keeping Police Officers and Firefighters on the Job ($35 billion)

Ø Invest $35 billion to prevent up to 280 000 teacher layoffs and keep police officers and firefighters on the job. (As many as 280,000 education jobs are at risk in the upcoming school year due to continued state budget constraints).

Modernizing At Least 35 000 Public Schools – from Science Labs and Internet-Ready Classrooms to Renovated Facilities($30 billion)

Ø Substantial investments in school infrastructure, modernizing and upgrading America’s public schools. The range of critical repairs and needed construction projects would put hundreds of thousands of construction workers, engineers, maintenance staff, boiler repairman, and electrical workers back to work.

Immediate Investments in Infrastructure ($50 billion)

Ø In order to jumpstart critical infrastructure projects and create hundreds of thousands of jobs, the President’s plan includes $50 billion in immediate investments for highway, highway safety, transit, passenger rail, and aviation activities.

National Infrastructure Bank ($10 billion).

Ø To direct Federal resources for infrastructure to projects that demonstrate the most merit and may be difficult to fund under the current patchwork of Federal programs, the President is also calling for the creation of a National Infrastructure Bank (NIB).

Project Rebuild: Putting People Back to Work Rehabilitating Homes, Businesses and Communities($15 billion)

Ø The bursting of the housing bubble and the Great Recession that followed has left communities across the US with large numbers of foreclosed homes and businesses, which is weighing down property values, increasing crime, and standing in the way of economic recovery. In these same communities there are also large numbers of people looking for work, especially in the construction industry, where more than 1.9 million jobs have been lost since the beginning of the recession in December 2007. The President is proposing Project Rebuild to help address both of these problems by connecting Americans looking for work in distressed communities with the work needed to repair and repurpose residential and commercial properties.

3. PATHWAYS BACK TO WORK FOR AMERICANS LOOKING FOR JOBS (total $62bn):

Reform Unemployment Insurance System to Provide Greater Flexibility, While Ensuring 6 Million People Do Not Lose Benefits ($49 billion)

Ø Equip the unemployment insurance (UI) system to better address the current long-term unemployment challenge.

Tax credits for businesses that hire the long-term unemployed ($8 billion)

Ø A special bonus credit of up to $4 000 for firms that hire the long-term unemployed.

Investing in Low-Income Youth and Adults ($5 billion)

Ø Strategy to expand employment opportunities for communities that have been particularly hard hit by the recession, and that may take longer to get back on their feet due to greater income losses and smaller savings than higher-income workers.

4. MORE MONEY IN THE POCKETS OF EVERY WORKER AND FAMILY PROVIDING TAX RELIEF TO 160 MILLION WORKERS (total $175 billion):

Cutting Payroll Taxes in Half for 160 Million Workers Next Year ($175 billion)

Ø The President’s plan will expand on the tax cut enacted in December by cutting employees payroll taxes in half next year. Rather than having 6.2% of their wages deducted in Social Security taxes, workers will pay only 3.1% next year. This extension will provide a payroll tax cut worth $175 billion to American workers in 2012.

Unfortunately, it is hard to make a complete assessment of the effectiveness of the stimulus, since it is unknown how much of it will actually be adopted and, if so, how it will be funded. As it stands, the plan would have a significant impact on US GDP growth in 2012, which is currently projected at only around 2%, but the chances of the plan being fully adopted and funded would only be around 50/50 given the divided nature of the US Congress.

noreply@blogger.com (Stephen Leppan) — Tue, 06 Sep 2011 09:44:00 +0000

The year so far: the hunt for yield

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At last Justice for Improper Advice

noreply@blogger.com (Stephen Leppan) — Mon, 05 Sep 2011 08:49:00 +0000

‘Improper advice’ costs pensioner a million

September 4 2011 at 12:15pm
By Bruce Cameron

Illustration: Colin Daniel

“Father Christmas will pay the money back.”

That is the response of a still-registered financial adviser, Johan Leodolf Swanepoel of Durbanville, to Personal Finance, when asked about an order by the Financial Advice Ombud, Noluntu Bam, that he along with two others repay a pensioner in KwaZulu-Natal more than R1 million, including interest, for advising her to invest it in yet another failed property syndication scheme, which had projected returns of 30 percent a year.

Swanepoel initially advised Mrs MJC in 2006 to invest in two Liberty Life investment products, earning him R54 000 in commission, but two years later he advised her to switch her investment to a property syndication, which earned him another R44 820 in commission.

The switch of investments also cost Mrs MJC almost R45 000 in early surrender penalties.

Gerry Anderson, the deputy chief executive of the Financial Services Board (FSB) in charge of marketing, says the Financial Advisory and Intermediary Services (FAIS) compliance department is considering the determination by the ombud, and will take “any requisite regulatory action, including withdrawal of the Financial Service Provider’s (FSP) licence”.

Bam has ordered Swanepoel and the property syndication directors, Daniel Lourens Erasmus and Johannes Gerhardus Erasmus, to jointly or severally repay Mrs MJC her money.

Interviewed after the determination was issued this week, Swanepoel, who still operates as an FSP from Durbanville in the Western Cape, repeatedly declined to answer questions about the determination and why he sold the product to Mrs MJC. When asked whether he would be repaying the money, he said he was in contact with the property syndication company.

When it was pointed out that the company was unlikely to repay the money as it no longer exists, Swanepoel replied that “Father Christmas will repay the money”.

Daniel Erasmus of Visvanger Avenue, Featherstone Estate, Gauteng, and Gerhardus Erasmus of Stewart Crescent, Waverly, Bloemfontein, were directors and key individuals of Property Spec (Pty) Ltd, which sponsored the syndication Pacific Coast Investment 97, commonly known as Propspec.

Propspec Investments, the marketing arm of the company, held a licence as an FSP. Swanepoel was also apparently registered as a representative of Propspec Investments, which at some stage claimed to be entitled to sell shares and debentures. This despite the fact that on Swanepoel’s own licence he was not authorised to sell either.

When Bam checked with the FSB, however, she found that Swanepoel was not registered as a Propspec representative. She was then told he was registered with an associated company, Seesa, as a representative, but the registration was only recorded two months after he advised Mrs MJC to invest in the syndication.

Bam also found that the Propspec syndication was not an authorised FSP, and Swanepoel was not authorised to sell the syndication product at the time. Both, she says, were in contravention of the FAIS Act.

In February 2008, Swanepoel advised Mrs MJC to invest R747 000 in the syndication – at that stage an undeveloped property. Later that year she invested a further R23 110 and R75 000.

Bam says the funds were derived from two linked Liberty policies – a Multi-Access Investment Plan and an Investment Builder Plan.

Bam says that Swanepoel failed to comprehend the risks of the property syndication investment and did not properly advise Mrs MJC of the risks and costs involved.

In her ruling, the ombud said inescapable conclusion was that the advice provided by Swanepoel was “commission-related”.

The two Erasmuses are also named in the determination because, as key individuals in terms of the FSP licence issued in terms of FAIS, they were responsible for ensuring that Swanepoel was properly registered and skilled as well as checking on the advice he provided – all of which they failed to do.

Bam ordered that all the money invested in the scheme plus the Liberty surrender penalties plus interest at 15.5 percent a year be paid jointly and severally by Swanepoel and the Erasmuses.

CONTACT

You can contact the office of the Ombud for Financial Services Providers, Noluntu Bam, on 012 470 9080, fax to 012 348 3447, or email info@faisombud.co.za

Website: www.faisombud.co.za

Leading Indicator records positive growth for SA

noreply@blogger.com (Stephen Leppan) — Wed, 24 Aug 2011 09:25:00 +0000

SA leading economic indicator recorded positive growth in June 2011

The SA leading economic indicator for June 2011 was released yesterday by the Reserve Bank, and recorded a rise of 1.8%m/m, after declining for three consecutive months. Overall, despite the rise in June, the SA leading indicator has clearly lost momentum and is signaling a meaningful slowdown in domestic economic activity.
The increase in June was broad-based, with 7 out of the 10 data series measured during the month improving, while the other 3 declined. Out of the indicators that rose during the month, the largest contribution came from residential building plans passed, particularly for flats and townhouses. There was also a marked increase in the twelve-month percentage change in job advertisement space, largely due to the low base that was created in June 2010 as a result of the hosting of the FIFA World Cup. The major negative contributors were the prices of all classes of shares traded on the JSE, as well as the interest rate spread.
On an annual basis the rate of change in the leading indicator improved to +3.6%y/y; up from -0.2%m/m in May 2011. Overall, the annual rate of change is well down from a recent peak of 24.2%y/y in April 2010 (see chart attached).
The slowdown in the domestic economy, certainly relative to the surprise growth of 4.8%q/q in Q1 2011, has become very noticeable in the past few months; both in terms of anecdotal comments from domestic businesses, as well as some sector specific economic data. This weakening in economic activity is partly due to the fall-off in activity levels in most major economies (hence a downward revision to the global growth outlook, see previous notes), as well as a loss of growth momentum in real household incomes and a lack of investment spending and job creation locally.
SA’s GDP growth rate is, therefore, expected to slow meaningfully in the quarters ahead, certainly relative to the 4.8%q/q achieved in Q1 2011. This amounts to a loss of momentum in the pace of the economic recovery; but not a return to recession conditions. It will, however, help the Reserve Bank to keep interest rates on hold for an extended period, despite higher inflation.
As would be expected, the SA leading indicator has a good correlation with the OECD leading indicator (with a short lag). SA’s leading indicator tends to lag the global economic cycle, both into a slowdown/recession as well as into a recovery, but by only about 1 to 3 months. Importantly, this relationship appears to have gotten stronger over the years (mainly due to the increased globalisation of South Africa) and the lag has tended to shorten from around 6 months a decade ago to around 1 to 3 months currently.
The SA leading economic indicator is compiled by the SA Reserve Bank and released once a month. It consists of 12 sub-indicators, namely:

Opinion survey of volume of orders in manufacturing
Opinion survey of stocks in relation to demand: Manufacturing and trade
Opinion survey of business confidence: Manufacturing, construction and trade
Composite leading business cycle indicator of major trading-partner countries: Percentage change over twelve months
Commodity prices in US dollars for a basket of South Africa’s export commodities: Six-month smoothed growth rate
Real M1 money supply (deflated with the CPI): Six-month smoothed growth rate
Prices of all classes of shares: Six-month smoothed growth rate
Number of residential building plans passed for flats, townhouses and houses larger than 80m2
Interest rate spread: 10-year bonds less 91-day Treasury bills
Gross operating surplus as a percentage of gross domestic product
Job advertisements in the Sunday Times newspaper: Six-month smoothed growth rate
Opinion survey of the average hours worked per factory worker in the manufacturing sector

Download the presentation slides

Emerging market inflation vs interest rates

noreply@blogger.com (Stephen Leppan) — Thu, 11 Aug 2011 14:55:00 +0000

Many emerging economies have not rushed to dampen the current rise in inflation within their markets, opting instead to raise interest rates very gradually (see chart attached). These countries have started to experience negative real interest rates. This policy choice is partly because most of the rise in inflation has been driven by food and fuel, with core inflation moving only modestly higher. In addition, there is an expectation/view that some of these inflationary pressures will dissipate into 2012, in particular food inflation.

In Dollar terms, agricultural prices have been trending noticeably lower in the past few months, helped by a supply response in many countries. In July 2011, agricultural prices remained a massive 46.7% above the level that prevailed a year ago. However, the price pressure has moderated this year, with prices down 11.9% relative to the peak in early March 2011.
In addition, emerging market central banks are becoming increasingly concerned about the weakening state of the global economy, especially within developed economies.
This gradual monetary policy response from most emerging market central banks is not lost on the SA Reserve Bank, and it is clear that the Reserve Bank can afford to hold off on hiking SA interest rates while they digest incoming information, especially the most recent economic and market development in the US and Euro-area.
Interestingly, despite the rise in inflation, emerging markets bonds have done quite well in 2011, helped by the ongoing global search for yield. In contrast, equity markets have struggled. Foreign ownership in many emerging market local currency bond markets is at record levels (including SA). These market would obviously be vulnerable to a change in global economic sentiment – but in the meantime the current trend is firmly intact.
Download the presentation slides

Rand Slumps to the US $

noreply@blogger.com (Stephen Leppan) — Wed, 10 Aug 2011 13:31:00 +0000

Johannesburg - The rand was weaker in early trade on Wednesday, as investors remained skittish about the outlook for global growth and a bond auction later in the day kept pressure on longer dated fixed-income yields.
The rand was down more than 1% against the dollar, after a sharp spike on Tuesday when it traded at a year low of R7.50 before coming back to close at R7.1050.
Government bonds were under pressure from the weaker currency and an auction later in the session where Treasury has offered R2.1bn worth of 2031 and 2036 government paper.
The auction, usually held every Tuesday, was delayed by a national holiday on August 9. Results of the sale are due after 09:00 GMT when the auction closes.
The yield on the four year note was only one basis point higher at 7.14%, while the longer 2026 bond gave up 7.5 basis points to 8.36%. It fell 13.5 basis points earlier in the session.
"The FOMC said they will keep rates on hold at least until 2013 that's the one reason why the front end is being bought. The expectation is that rates in South Africa will stay flat as well," said Marten Banninga, a bond trader at World Wide Capital Securities in Johannesburg.
The coming auction was also putting pressure on longer yields, he said.
The yield spread between the 2015 and 2026 bonds hit a record high of 123 basis points.
Dealers say the market is very volatile but fair prices should be set during the session.
The rand traded 0.51% weaker by 07:07 GMT, after hitting R7.1890 in the session so far. Analysts do expect a further recovery in the rand from the R7.50 level.
"Early trading action this morning is taking the pair higher and it is quite conceivable that this move heads back up toward the R7.20/2500 area before reversing proper," Tradition Analytics said in a note.

Liberty Earnings Up

noreply@blogger.com (Stephen Leppan) — Mon, 08 Aug 2011 08:52:00 +0000

Liberty lessons pay - income up

Focus on quality insurance book working with improving persistency, even in lower end of the market that Liberty had been slow to penetrate

SURE KAMHUNGA

Published: 2011/08/05 07:34:21 AM

LIBERTY was no longer chasing market share growth at the expense of profitability as it used the lessons from its disastrous performance in 2009 to grow a strong business, CEO Bruce Hemphill said yesterday.

An exercise started almost two years ago to restructure the business, tighten processes, cut costs and write quality business was now paying off, he said when he released Liberty’s interim results to June in Sandton.

Liberty is keen to put behind it the disastrous performance of the first half of 2009, when losses exceeded R1bn due to a spate of lapse rates and a mistimed hedging strategy.

Liberty reported a 17,2% rise in normalised headline earnings to R1,2bn boosted by an increase in indexed new business (excluding contractual increases) of 6,4% to R1,98bn from R1,86bn last year.

Mr Hemphill said the lessons of that period had been well learnt, and were being put into practice. The focus on a quality insurance book was working as shown by improving persistency rates, even in the lower end of the market, which he admitted Liberty had been "slow off the mark" to penetrate.

"I have found out that we have good and enormous talent in the organisation to solve some of the problems (we have faced)," said Mr Hemphill. "We have combined this talent with new talent and I think we are building a strong team because this is business which requires proper planning, structures and processes."

He said Liberty’s other key revenue streams, among them asset manager Stanlib, were also registering growth, with its headline earnings rising to R190m from R164m. The Africa operations were gaining traction, and would be boosted by the agreement with parent Standard Bank to sell bancassurance products using its branch network.

Liberty had also acquired a 57% shareholding in CfC Insurance Holdings for R199m, which would provide a launch pad into East Africa.

Mr Hemphill said he was not in a rush to make more acquisitions and preferred to make the CfC investment work first before seeking other assets to buy.

In the property sector, Liberty wanted to use its experience of developing and managing shopping malls and commercial properties to expand into Africa.

Rival Old Mutual is the market leader in the life insurance segment, and its own interim results today should confirm this trend.

But Sanlam recently warned that the business environment remains challenging and that it is unlikely to book strong earnings growth similar to that achieved in the second half of last year.

Estate Implications of Fixed Property

noreply@blogger.com (Stephen Leppan) — Wed, 27 Jul 2011 09:15:00 +0000

Practical implications of unforeseen costs:

Where the deceased had fixed property/properties in his estate, the cost of bequeathing these can be very high. Unforeseen and unplanned costs of bequeathing can have the detrimental effect that the estate or the beneficiaries might be forced to sell assets to cover these costs. In extreme circumstance it might result in the sale of the very asset bequeathed, thus defying the purpose of the deceased’s last wish. This, however, can be avoided with proper and timeous planning.

Options available to clients and cost thereof:

Where a client has immovable properties, for example, the following three options will be available, with the respective cost implications:

	Option A Properties bequeathed to trust in will, at death of owner	Option B Properties are transferred to a trust, while owner is still alive	Option C Properties bequeathed to spouse at owner’s death
Estate Duty	20%	None if no loan outstanding or 20% on outstanding loan account	None, section 4(q) Estate duty liability postponed until death of the spouse
Executor’s Fees	3,5% plus VAT	None	3,5% plus VAT
CGT	10% approximately	10% approximately	None (Rolled Over) Postponed until death of spouse
Transfer Fees (on or after 23 February 2011)	None	R 0 – R 600 000: 0% R 600 000 – R1 000 000: 3% of the value above R 600 000 R1 000 001 to R1 500 000: R12 000 plus 5 % of the value above R1 000 000 R1 500 001 and above: R37 000 plus 8% of the value exceeding R1 500 000	None
Total Costs	33,5%	10% plus estate duty on loan account and transfer fees	3.5% but estate duty and CGT postponed

Option A appears to be expensive, so how can this problem be solved? In taking out a whole life policy all the liquidity requirements, including CGT, estate duty, executor’s fees and the liabilities of the estate can be taken care of.

No additional benefits should be added on this policy, only life cover, as the intention is only to cover costs and liabilities upon the death of the planner and at no other time. The beneficiary on this policy should be the estate to ensure that the executor has sufficient cash to settle all costs. As the policy can lead to additional executor’s fees and estate duty, provision should be made for this by increasing the sum insured accordingly (divide by 0.76808).

Although this option may appear to be expensive it may in fact be the cheapest option if the costs are financed through life cover.

Option B this option might appear to be a cheaper option but bear in mind that CGT needs to be paid on the transfer of the assets into the trust which may have a serious impact on the planner’s cash flow. In practice, often the cash is not readily available for the planner to exercise this option. The advantage of this option is that the planner limits or caps the growth of the asset in his personal estate.

Option C might seem like the least expensive route to take, but take note that it is only the least expensive at the time of the death of owner. At the death of the surviving spouse estate duty, CGT and executor’s fees are payable and that for purposes of CGT specifically, the base cost will be that which would have applied on the death of the first spouse. This option is preferred where the planner does not have the capital available for option A or B and/or where the planner is not insurable. Usually it can be recommended that life cover be taken out on the life of the spouse to cover all the above mentioned costs.

(Note: An individual’s primary residence would be exempt up to the value of R2 000 000.00. A gain of R1 500 000 will be exempt if the value is more than R2 000 000.00)

Conclusion

Make sure your clients are aware of the full consequences of costs of bequeathing fixed assets and choose the best option suited to their personal circumstances. Instead of being driven by the costs involved, make certain that the planning is based on the client’s objectives and that the costs are catered for, through life cover, where possible.

South Africa Equities set to Rally in 2nd Half of 2011

noreply@blogger.com (Stephen Leppan) — Wed, 06 Jul 2011 10:56:00 +0000

S. African Shares to Gain 10% to 15% By Yearend on Economy, Investec Says

By Stephen Gunnion - Jul 5, 2011 6:34 PM GMT+0200

South African equities may rise as much as 15 percent this year as the global economy starts to improve and concern eases that China may curb growth to control inflation, according to Investec Asset Management.

The Cape Town-based money manager has reduced the cash element and raised the equities portion in its Discovery Balanced Fund to 70 percent from a “neutral” weighting of 65 percent six weeks ago, Chris Freund, an Investec Asset Management portfolio manager, told reporters in Johannesburg today. African securities account for 76 percent of the fund.

The MSCI Emerging Markets Index of stocks has gained 4.1 percent since Greece’s parliament on June 29 approved an economic austerity plan, key to avoiding a default, and after U.S. manufacturing unexpectedly expanded at a faster pace in June. Inflationary pressures in China are under control, Premier Wen Jiabao said in comments posted on the government’s website today. South Africa’s FTSE/JSE Africa All Share Index rose for an eighth day in the longest winning streak since November 2009.

“Markets were looking for an excuse to bounce and did so last week on the back of the Greek parliament voting in favor of further austerity measures,” Freund said. “People are so defensively positioned that if we start to get some strong data consistently then the market is going to rally quite hard. I personally think we are good for another 10 to 15 percent this year from this point.”

The South African benchmark equity index closed at 32,254.24 as of 5:30 p.m. in Johannesburg. The gauge is up 0.4 percent for 2011 and is 2.5 percent lower than its record-high close of 33,094.06 set on Feb. 14.

Risks

The Discovery Balanced Fund (DISBALA) has gained 2.5 percent so far in 2011 and 17 percent from a year ago, ranking in the 84th and 91st percentiles, respectively, according to data compiled by Bloomberg News.

While a number of risks remain, including the U.S. housing market and slower Chinese and European growth, equity valuations globally are not “overcooked,” said Freund, who manages 25 billion rand ($3.7 billion) in pension fund portfolios and mutual funds, including the Discovery Balanced Fund.

Freund is also raising the portion of South African bond holdings. He didn’t give further details. His biggest equity holdings in South Africa include Sasol Ltd. (SOL), Compagnie Financiere Richemont SA, BHP Billiton Plc, MTN Group Ltd. (MTN), SABMiller Plc (SAB), FirstRand Ltd. (FSR), Mondi Plc, Anglo American Plc (AAL), Exxaro Resources Ltd. (EXX) and Imperial Holdings Ltd. (IPL)

To contact the reporter on this story: Stephen Gunnion in Johannesburg atsgunnion@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

Increase in CPI for May 2011

noreply@blogger.com (Stephen Leppan) — Thu, 23 Jun 2011 08:49:00 +0000

The increase in SA's consumer price index (CPI), which is used by the South African Reserve Bank (SARB) for its inflation target, was 4.6% year on year in May from 4.2% year on year in April, Statistics SA said on Wednesday.

CPI was 0.5% month on month from 0.3% in April.

The CPI was expected to have ticked up to 4.3% year on year, according to a survey of leading economists by I-Net Bridge. Forecasts among the eight economists ranged from 4.3% to 4.5%.

Stats SA noted the food and non-alcoholic beverages index increased by 7.1% between April and May. The annual rate increased to 6.1% in May from 4.8% in April.

Liberty Life is Awarded Best Insurer of the Year

noreply@blogger.com (Stephen Leppan) — Fri, 10 Jun 2011 10:51:00 +0000

We have always held the view that our cornerstone product, Lifestyle Protector, is the best quality product on the market, meeting the risk protection needs of customers. This was recognised last night when we won the FIA Award for Long-Term Insurer of the Year in the Risk Product Category. This is an exceptional achievement! We recently launched new innovations on this product that have also been well received by the market.
In addition, the group's investment expertise was recognised with STANLIB winning the top position in the Investment Product Supplier of the Year. Congratulations to STANLIB for achieving outstanding recognition.
Liberty was also runner up in the Long-term Insurer of the Year - Recurring Savings category and Investment Product Supplier of the Year - Retail Investments. Our Corporate team were also shortlisted in the Employee Benefits Product Supplier of the Year category. This confirms our holistic approach to delivering risk and investment solutions is delivering what intermediaries need for their customers.
For the past 13 years, the FIA annual award has recognised companies that render the best level of service to intermediaries who, in turn, are able to convert that to the benefit of their customers. Liberty is honoured to be recognised by the FIA. The criteria for the awards is based on adviser satisfaction of the product, delivery, service and relationship with the insurer. This demonstrates the important partnership that exists between our advisers and staff in delivering exceptional value and benefits to our customers.

South Africa Major Tax Law Changes

noreply@blogger.com (Stephen Leppan) — Mon, 06 Jun 2011 09:27:00 +0000

Major tax law changes

June 5 2011 at 12:20pm
By Bruce Cameron and Laura du Preez

The government is pressing ahead with significant reforms to the country’s retirement-funding system to improve competition, thereby reducing the cost of retirement products. It is also changing how contributions to retirement funds will be taxed.

The changes are detailed in the omnibus Taxation Laws Amendment Bill, released this week, which contains other proposals that could result in your having to rethink your financial plan. The affected products include:

Dividend income funds

The days of tax-free dividend income funds are numbered. The Taxation Laws Amendment Bill puts a stop to dividend income unit trusts by declaring that the returns are in effect interest payments and will be subject to income tax. In effect, this will convert the existing dividend income funds into money market funds but with poorer after-tax returns than normal money market funds.

There are four dividend income funds, with about R45 billion in assets under management, that cost the fiscus billions of rands in unpaid tax.

In an explanatory memorandum to the Bill, the National Treasury says that dividend income funds use various strategies “to disguise otherwise taxable interest as tax-free dividend income”.

The strategies include the creation of preference shares, dividend cessions or banks merely providing guarantees of one sort or another through special purpose vehicles/companies. The types of special purpose vehicles that are used to switch what should be taxable interest income into tax-free dividend income vary, but all of them are unacceptable, Keith Engel, the chief director of legal tax design at the National Treasury, says.

Consultations with the collective investment schemes industry over the future of dividend income funds are still under way, Engel says. “We are aware the issue needs very careful consideration.”

Engel gave the assurance that there will be no retrospective tax on the returns earned by investors in dividend income funds. The treatment of the income flows on dividend income funds is due to take effect on April 1 next year, simultaneously with the introduction of dividends tax.

Deductions for medical expenses

The Taxation Laws Amendment Bill proposes changing the tax deductions that you can claim for contributing to a medical scheme to a tax credit – an amount by which you reduce the tax you pay rather than your taxable income.

The credit will be equal to between 30 and 33 percent of the rand amounts that you are currently allowed to deduct from your taxable income for medical scheme contributions. The Bill proposes that the change be made effective from next year.

If approved, the effect on scheme members is that higher-income earners who are on a tax rate above about 30 percent will pay more tax, whereas lower-income earners on tax rates lower than about 30 percent should see a tax benefit.

The Bill proposes increasing the maximum amounts that you can deduct from your taxable income for medical scheme contributions for the 2011/12 tax year to R720 a month each for the member and the first dependant you register and R440 a month for each additional dependant.

The explanatory memorandum to the Bill says that if the proposed tax credit system had been introduced in this tax year (2010/11), the tax credit allowed would be R216 a month each for the member and the first dependant and R144 a month for each additional dependant.

The memorandum says there will be a supplementary credit for taxpayers over the age of 65, who can currently claim all their medical expenses against tax.

The National Treasury says that it will issue a discussion document next week that will clarify the policy on deductions for medical expenses, including out-of-pocket medical expenses.

Risk life assurance policies

The Bill establishes in law the basic principles for how the benefits paid on risk life assurance products – for example, death and disability cover – will be taxed in the hands of beneficiaries.

Peter Stephan, the senior legal adviser at the Association for Savings & Investment SA, says that, in the past, practice notes issued by the South African Revenue Service determined whether the proceeds of a risk policy benefit would be taxable or non-taxable in the hands of the beneficiary. Now, the taxation of risk policy benefits will be included in the Income Tax Act.

The underlying principles are that if premiums are paid with:

* After-tax money, then the proceeds will be tax-free in the hands of the beneficiary; and

* Pre-tax money, then the proceeds will be taxable in the hands of the beneficiary. This applies mainly to policies such as unapproved group life schemes, key man policies and other employer/employee contracts where an employer has paid the premiums and has claimed them as a deduction against taxable income.

Other changes in the Bill

* Foreign dividends, which are currently taxable except for the R3 700 of the annual interest exemption that you can apply against these dividends, will become subject to tax at 10 percent once dividends tax becomes effective on April 1 next year.

* Tax concessions for those receiving annual payments from the Road Accident Fund (as the fund moves away from lump sum payments) from March next year.

* An extension of the tax breaks for murabaha financing and provision for the government to issue a sukuk – a government bond that is shariah-compliant.

* Turnover tax for small businesses will be made more attractive.

Dollar Demand Knocks Rand

noreply@blogger.com (Stephen Leppan) — Thu, 12 May 2011 06:37:00 +0000

Dollar demand knocks rand

May 11 2011 18:15 Reuters Print this article | Email article

Risk aversion weighs down rand

Rand weaker, euro debt woes weigh

Eurozone debt worries drag down rand

Rand, bonds start week slightly firmer

Rand steady against dollar

Rand steadies against dollar

Stanlib Property Income Fund

noreply@blogger.com (Stephen Leppan) — Wed, 11 May 2011 11:59:00 +0000

Stanlib Property Income Fund

Is it time to fix your bond's interest rate?

noreply@blogger.com (Stephen Leppan) — Thu, 05 May 2011 08:56:00 +0000

With the recent fuel price increases, inflation increases on the horizon then perhaps it is time to consider fixing your bond's interest rate. According to FNB, if you fix your bond for 12 months you will pay an additional 35 basis points. If the first rate hike is 50 basis points in November that could be a smart move.

For 18 months you will pay an additional 70 basis points. Maybe not such a bad option. The first rate hike will put you nearly in the money and if Barclays Wealth's predictions of 200 basis points is correct, you could be paying 130 basis points less than a prime-linked mortgage for a while.

For 24 months you will pay 115 basis points extra, and if you want to fix your mortgage for five years you will pay an additional 225 basis points. That will actually increase your mortgage by 25%, which is steep but it could pay off if we see sustained higher interest rates until 2016.

But the really smart move is to take the 225 basis point increase the bank would charge you (R1 875 on R1-million) and pay that into your mortgage every month -- you will be paying off capital, not interest, so therefore increasing your asset base, not the bank's.

It will take at least 18 months to two years for actual interest rate hikes to reach that level, and if they surpass it, the equity you have built into your mortgage will give you credibility with the bank if you need to renegotiate.

The worst thing you can do is nothing. Interest rates are going up and you need to bulletproof your finances now.

Reg 28 and Retirement Funds

noreply@blogger.com (Stephen Leppan) — Tue, 26 Apr 2011 09:08:00 +0000

New reg 28 and your investments

April 24 2011 at 12:45pm
By Laura du Preez

New retirement annuity (RA) policies have to comply with the revised regulation

All retirement fund policies issued after April 1 this year must comply with regulation 28.
Policies bought before April 1 will be allowed to continue as they were before regulation 28
was revised.

Christo Terblanche, the head of product development at Allan Gray, says that Allan Gray
and,he expects, other large product providers will continue to offer the range of funds that
are available to retirement fund members now. However, your investments into these funds
will have to comply with the new regulation 28.

Providers that cannot monitor compliance with regulation 28’s investment limits may,
however, be forced to restrict their underlying fund offerings to those that comply with the
revised regulation 28 – such as asset allocation funds that comply with
regulation 28’s guidelines.

Mark Kitching, the general manager at Aims, says that Aims will limit its offering
to retirement fund clients to collective investments that comply with regulation 28
and to more conservative funds in the fixed-interest sub-categories.

This may limit your ability to structure more aggressive portfolios or select specialist funds,
he says.

Underlying investments for RAs or other retirement funds may have to change
to comply with regulation 28

Existing regulation 28-compliant funds will adapt to the revised investment limits.

Money market funds may also have to adapt. At a recent National Treasury
presentation on regulation 28,it was pointed out that, as they near retirement,
many RA members cash out of their underlying investments and move
into a money market fund.

In terms of the Collective Investment Schemes Control Act, a money market fund can have up
to 30 percent of the fund exposed to money market instruments from a single bank.

However, regulation 28 restricts retirement funds to an exposure of 25 percent of the fund
to a single issuer of investment instruments.

Adri Messerschmidt, a senior policy adviser at the Association for Savings &
Investment SA, says it is likely that money market funds will be separated into
those that comply with regulation 28 and those that do not, and only compliant funds
will be offered to retirement funds and their members.

Changes to policies will trigger the need for you to comply

The revised regulation 28 states that any investments that you have made before April 1
in terms of the previous regulation 28 can remain compliant with the earlier version
of the regulation.

This means that fund members whose investment choices allow them to breach
the investment limits at member level will be allowed to keep their investments as they are.

If you have a debit order into a fund with an investment choice that does not comply
with the revised regulation 28, you may continue to make those ongoing investments.

However, should you increase your contributions above the historic annual increase,
switch underlying funds or make an ad hoc top up to your contributions after April 1,
this will be regarded as a substantive change to your investment contract,
and it will trigger the need for your investments to comply with revised regulation.

Roland Grabe, the chief investment officer at Old Mutual’s Symmetry Multi-Manager,
says you may want to consider “ring-fencing” your existing holdings to ensure that
no changes are made to them.

If you are forced to bring your investments in line with regulation 28,
it may not always be at a suitable time.

For example, as offshore equities are currently generally regarded as
offering better value than local ones, now is not a good time for members to
reduce over-the-limit exposure to 25 percent of their savings,
Marius Fenwick, the chief operating officer of Mazars Financial Services, says.

If your policy becomes non-compliant

Market movements could result in your policy becoming non-compliant.
In terms of the revised regulation 28, your fund will be expected to report
this breach to the Financial Services Board, and you will be expected to
bring your investments back in line within 12 months.

Product providers may want the right to keep your investment in line

Your fund will be responsible for ensuring that any retirement fund policy bought after
April 1 this year complies with the revised regulation 28,
and your fund will probably expect you to give it the right to rebalance your investments
if they breach the levels allowed by regulation 28.

Product providers will have to ensure that, once your underlying investments
are in breach of regulation 28, any further investment you make –
for example, your next monthly contribution – is not invested in a way
that it exacerbates the breach.

For example, if you have breached the permitted equity investment level of 75 percent of the fund,
your future contributions should not be invested in equities until your equity level falls below
75 percent.

Terblanche says that the Allan Gray RA and preservation fund rules already cater for rebalancing
in the event that a fund breaches the regulatory limits.

Allan Gray will notify fund members who become non-compliant with the revised regulation 28.
Only if they have not rectified the breach within 12 months will the administrator rebalance
the portfolio on the member’s behalf.

Kitching says that it will be a challenge for linked-investment services providers to manage
the investments of fund members who are making regular contributions into funds
or portfolios that do not comply with regulation 28.

He says the administrator would be prohibited by the Financial Advisory and
Intermediary Services Act from making unilateral changes to the member’s portfolio.

Johann de Wet, the head of business solutions, and Elsjemar Bronn,
a legal adviser at Sanlam’s Glacier, says retirement funds might refuse to accept unit trust
fund units when transfers take place between funds in terms of
section 14 of the Pension Fund Act if the transfers will result in the accepting fund
not complying with regulation 28.

Messerschmidt says that complying with the revised regulation 28 introduces a massive
administrative burden for product providers and administrators of funds with
member-level investment choice. This could result in increased costs,
De Wet and Bronn point out.

Item	% change
Oil Prices	+50.7%
Food Prices	+32.0%
Metal Prices	+29.9%
Cotton Prices	+27.1%

Stephen Leppan - Talk Money

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Is the Gold Rush Over?

Reg 28 and Retirement Funds

SA Latest Unemployment Figures

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The role of Special Trusts in financial planning

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US President Obama presented his $447 billion American Jobs Act to congress last week.

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At last Justice for Improper Advice

‘Improper advice’ costs pensioner a million

Leading Indicator records positive growth for SA

SA leading economic indicator recorded positive growth in June 2011

Emerging market inflation vs interest rates

Rand Slumps to the US $

Liberty Earnings Up

Liberty lessons pay - income up

Estate Implications of Fixed Property

Practical implications of unforeseen costs:

Options available to clients and cost thereof:

Conclusion

South Africa Equities set to Rally in 2nd Half of 2011

S. African Shares to Gain 10% to 15% By Yearend on Economy, Investec Says

Risks

Increase in CPI for May 2011

Liberty Life is Awarded Best Insurer of the Year

South Africa Major Tax Law Changes

Major tax law changes

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