Strategic Practice Audit for South African Financial Advisors

As a South African financial advisor, it's essential to clearly articulate your value proposition and identify the type of clients who will benefit most from your services. A practical way to assess whether your current practice aligns with your strategic goals is to audit your Assets Under Management (AUM) by product category. This includes:

• Living annuities

• Retirement fund assets

• Discretionary investments

• Endowment policies

This breakdown offers valuable insight into the composition of your client base and the nature of your advisory work. The key question to ask yourself is:

Are you satisfied with your current client and product mix, or do you want to make a strategic shift going forward?

Key Considerations for Strategic Reflection

1. Regulation 28 Constraints on Retirement Assets

Retirement assets (excluding living annuities) are subject to Regulation 28, which limits offshore exposure to 45%. This regulatory constraint can restrict your ability to implement your economic house view, especially if you favor offshore investments.

The Advisors Responsibility

You need to proactively manage client expectations around performance and diversification. Consider how you communicate the limitations and benefits of Regulation 28 portfolios, especially in volatile or underperforming local markets.

2. Ease of Transition to DFM Solutions

Retirement fund assets are generally easier to transition into a Discretionary Fund Manager (DFM) solution because switches within retirement products do not trigger Capital Gains Tax (CGT). In contrast, switching discretionary assets may result in CGT liabilities, which can be a barrier to change.

A Low-Friction Path to Model Portfolios

This makes retirement assets a strategic entry point for implementing model portfolios or DFMs, especially if you're aiming to scale your practice or improve investment consistency.

3. Client Stickiness and Retention

Retirement fund assets tend to be stickier, clients are less likely to move these assets away from their advisor compared to discretionary funds. This can serve as a defensive strategy, helping you maintain long-term relationships and revenue stability.

The Double-Edged Sword of Stickiness

If your practice has a high proportion of retirement assets, it may offer greater resilience during market downturns or competitive shifts. However, it also means you need to ensure ongoing value and engagement to retain these clients post-retirement.

Strategic Questions to Ask Yourself

• Does your current AUM mix reflect the type of clients you want to serve in the future?

• Are you leveraging product structures (like retirement funds) to optimize tax efficiency and investment flexibility?

• How are you positioning your advice in light of regulatory constraints?

• Are you using DFMs or model portfolios to streamline your investment process?

• What changes would you need to make to attract more of your ideal client type?