Why advice-led investing matters more than ever

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CIARAN RYAN: South African investors have more access to markets, products and information than ever before, so you’d think this would make the job of investing easier. That’s not always the case.

Investors are clearly overwhelmed with choice and are often left frozen in the headlights. So, many are turning to advice-led investing.

That’s where you seek advice from an expert before choosing a product. This is a more deliberate approach, grounded in planning, discipline, and ongoing adjustment.

We’re joined now by Renzi Thirumalai, chief investment officer at FNB Wealth and Investments, to look at some of these trends.

Hi Renzi, thanks very much for your time. Talk for a minute about this overwhelming choice facing investors. There are so many options now for the DIY investor, yet that doesn’t necessarily mean the outcome is going to be any better, does it? And why is that?

RENZI THIRUMALAI: Yes. Thanks for having me. You’re quite right, the access for investors has increased dramatically over the last decade or so.

In South Africa alone, we’ve got probably close to 2 000 unit trusts to choose from. You’ve got many asset classes, tens of thousands of instruments, there are all sorts of vehicles and styles.

This leaves you with this paradox. That choice can be a curse or a blessing, depending on how you look at it.

I think the challenge for people is that they’ve got access to all these building blocks, but without the necessary expertise to stitch it together into a coherent solution, you could potentially end up in something that’s not well constructed for your needs.

CIARAN RYAN: This is where it leads to advice-led investment, and clearly this has an edge, now walk us through how this works – advice-led investment.

RENZI THIRUMALAI: Sure, advice-led stands in contrast to product-led. So what we’re trying to do is make sure we understand the needs of a customer.

What are their circumstances? What are their family circumstances? What are their goals and objectives? Perhaps they want to save for the kids’ education, save for a family holiday, buy a new home, retire comfortably.

There are all these practical needs that clients have. What is their risk tolerance? What’s their relationship with money like?

So you stitch all of this together and then go through the different elements – because it’s not just an investment, it’s how do we structure the investment?

What kind of lending facilities have you got? We need a tax specialist to ensure that we’ve got it in the most efficient vehicle. If you’ve got a legacy to think about, you’ve got kids and so on, you need fiduciary expertise for estate planning.

So advice-led for us is this holistic conversation where we situate you with the right experts to give you good counsel on all of these different elements that then equate to a sound financial plan.

It’s not just upfront – it’s on an ongoing basis too. So it’s essentially us walking the journey with you along your path to financial freedom.

CIARAN RYAN: I presume these things are done preferably over a long period of time. If we circle this back to the DIY investor, we see this all too often where investors will switch from last quarter’s losing fund to the winning fund, only to see the winning fund then start to fade.

That brings up the whole issue of investor behaviour and how investors are often their own worst enemies, are they not? And maybe explain why that is.

RENZI THIRUMALAI: Yeah, so true. There’s actually a great quote from Charlie Munger, Warren Buffett’s number two. He said the first rule of compounding is never to interrupt it unnecessarily.

That’s probably more true than ever now, and I’ll come to why in a bit, but essentially the challenge is that money is emotional.

And we as human beings are emotional and we work hard for our money, and it’s natural then when you live in an information age, we’ve got all this information at our fingertips.

We feed you daily with information that says, ‘Donald Trump has done this’, ‘the gold price has done that’, ‘this stock has gone up’, ‘this is what’s going on’. This almost feels like a call to action.

So if I’m the man on the street and an investor and  I get all this information, it feels like I must now respond to this information. So it’s a completely natural response to say, well, I need to do something, I need to think about my portfolio.

Unfortunately, research has shown that investors who do not stay invested and who tinker and try to time the market invariably are unsuccessful versus the ultimate index outcome.

So had you just stayed invested, you would have done better. And it’s by some magnitude, so you would probably underperform by less than half, I would think, in terms of what you could have achieved.

It’s interesting because in every other aspect of our lives, we do delegate responsibilities to experts.

I just did a whole bunch of renovations at home, but of course we had the electrician in to do the lighting, and we had the builders in to do [building], and we had the woodworkers in to do [woodwork]. It’s still my wife’s and my vision that comes out, but you use the expertise to get to your outcome.

I think that’s where it sometimes goes wrong: you get this information and you can find potential solutions online and you look at it and think, okay, I want this outcome. But to create that outcome, you need the right skills to help you get there.

I think that’s where the client intervention comes in.

Because of this information age we live in and the ease of execution, you can easily log on to your phone, log into an app, press a few buttons and you think you’ve acted.

But timing the market is probably one of the few things that is just nigh on impossible to do, unfortunately.

CIARAN RYAN: Yeah, a very good point about the call to action. Every time you see some alarming piece of news about the gold price, or Trump making some announcement which is going to move the markets, you feel you’ve got to do something instead of probably just doing nothing.

Let’s talk about global investing; that is an area which is changing quite a lot with the years.

Now, just recently, there’s been an increase in the Special Discretionary Allowance (SDA), which means that South Africans can now, without any permission, send R2 million abroad instead of R1 million.

But again, there are a lot of moving parts to consider. You’ve got currency movements, you’ve got tax issues and various other things, and thousands and thousands of possible investments. So how do you, as an investor or an investment advisor, navigate this?

RENZI THIRUMALAI: Yes, it’s good to see. I actually started off my career working exclusively on the offshore investing side. At that point, we were really underappreciated. Your allowances were probably in the region of about 5%. Pension funds can now go to 45%.

So I’m glad to see that development.

Of course, in addition to the SDA that you referred to, R1 million to R2 million, in 2022 they changed the pension fund regulations, as I alluded to, to 45%.

That means almost half your assets now can go offshore and that then becomes quite a material decision.

It’s not as simple as in the past where you could just maybe pick a simple equity bond allocation or just equities and leave it there. With so much of your allocation going there, it’s more prudent now to be discerning and to think about how to allocate that capital.

The challenge is to do it effectively.

You need portfolio construction skills, you need currency skills, you need asset allocation skills, you need security selection skills, and you need some sort of structuring capability to understand what kind of vehicle or wrapper is best suited.

That’s just unlikely to be in the hands of a retail investor.

So in approaching the global investing problem, I would highly recommend that you consult your advisor. We have an entire team that supports the ultimate advisor that sees a client.

We have this expertise that sits in our investment team: people who have been doing this for decades and decades and have loads of experience. That then being packaged into a solution – not a product, but a solution for you – caters for all of this quite well.

So we’ve covered the currency side. We’ve covered the asset allocation side. We understand the client’s needs. We build a solution that talks to that client need.

You can think of it almost like an automatically updating solution because every day when we get this additional information, an investment team would look at it and decide whether it’s signals or noise. The noise we ignore and the signals we act on.

We’re practised at this, and it’s something that comes naturally to us. So I think the best sort of solution, like I alluded to earlier is,

we delegate activities and functions to experts in our other daily lives, so why not do it with investments as well?

CIARAN RYAN: Yeah, exactly. DIY medical help is often the most dangerous you can get. So why not in the investing field too? Finally, let’s wrap this all up together. What we’re talking about here is we want long-term success.

We don’t want to blow the lights out this year and then go backwards next year. So we’re looking for something that is going to be getting us towards our financial goals. Give us some of the guidelines and tips, if you can, for long-term success.

RENZI THIRUMALAI: I’ll make it fairly simple.

We have a simple mantra internally which is purpose, process, patience.

Be clear what your purpose is. What’s your financial goal? What are you aiming for? The process that then delivers on that goal needs to be consistent, repeatable. That, I believe, is the investment process we follow.

And the most important part is the patience, the patience of being disciplined to stay invested.

I quoted Munger earlier. To quote Buffett, when Jeff Bezos asked him why, if he’s so successful, don’t more people copy him? He said it’s because no one wants to get rich slowly.

That, unfortunately, is the most reliable solution: make a plan and stick to that plan.

That, I think, would be the most reliable contributor to long-term financial success.

CIARAN RYAN: Get rich slowly. Advice from Munger, no less. We’re going to leave it there. That was Renzi Thirumalai, chief investment officer at FNB Wealth and Investments. Thank you, Renzi.

RENZI THIRUMALAI: Thank you.

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