The mindset of 'making your money work for you and not just working for your money' is difficult to embrace for most people in South Africa living from one paycheck to the next.
According to the Allianz Global Wealth Report 2019, approximately 10% of SA’s population is classified as middle class and earns more than R10 225 per month– a figure considered barely feasible to provide for one’s needs in the present, let alone setting aside for the future. The other 90% of the population is in dire need of good financial advice and cannot access it because they cannot afford it or don’t have enough to invest.
The financial advice they do receive isn’t holistic and is directed towards savings, life assurance or funeral cover needs and less so towards debt management and budgeting. A reason for this is that financial advisers do not make money from budgeting or debt management.
At the 2018 Morningstar Investment Conference, Alexander Forbes’ head of research, Anne Cabot- Alletzhauser, said that “up to now, the role of financial planning had been centred on the idea that if you stick to a financial plan and achieve it, everything else will fall into place, but this is not so”.
The role of the financial adviser of the future will not be about picking the best investments for you, but rather helping you improve your financial capability, she said. There is undoubtedly a need to get good, holistic financial advice and education to the masses and fintech could provide some of what is required.
Has fintech already improved access to financial advice?
Fintech has been researched and implemented to try and bridge the gap between financial advisers and the broader, less affluent population. The financial services industry has seen tremendous changes in the banking sector with the use of mobile and internet banking, and several robo- advisory platforms have also been launched but with varying success.
However, most of this technology has not managed to bring financial advice to the market it was intended to help, but rather optimised administrative processes for the minority of traditional investors who are already financially literate and engaged.
So as much as technology has had a big impact on the banking world, when it comes to good financial advice, there is still a lot more that needs to be done to find the right, scalable solution that will reach the masses. Having Google at everyone’s fingertips is not enough.
Who is being left out and what are their concerns?
An informal saving structure being utilised in SA is the stokvel. According to the National Stokvel Association in SA, there are roughly 810 000 active stokvel groups consisting of over 11m members and collecting an estimated R50bn annually. To contextualise these figures, nearly 40% of SA’s adult population belongs to a stokvel, according to the association.
After sitting with a group of ladies who run a stokvel, they explained that they would rather settle for informal ways of saving, investing and credit facilities because they felt deceived by the financial advice they had gotten previously.
They also noted that they would prefer to keep a close eye on their investments and manage them in a language that they understand. The interesting takeaway from my time with this stokvel was that there was undoubtedly a culture of saving already established, but the group lacked knowledge and trust to engage with a licensed financial adviser. This lack of trust is filtered down to younger generations who are also opting to settle for informal ways of saving.
Given the proliferation of mobile phones in SA, any fintech solution would have to be mobile. Anyone should be able to access financial advice via a mobile device and do so in an easy-to-understand and low-cost way. Putting an adviser in their pocket will improve transparency and give people peace of mind knowing where their money is and how it is being managed.
A Deloitte report on trends in wealth management suggests that clients increasingly“want to stay in control of their financial lives and understand the advice they receive”. This is even more important when addressing an undereducated mass population in rural SA.
To be easy to understand, the solution would need to meet each person wherever they are on their journey to financial stability. That means it probably also needs to be multilingual – providing guidance and education in a language that a client can understand – and provide guidance on how they can manage debt, their credit rating and draw up a budget.
Another consideration will be the products that are offered by the solution as they need to resonate with the people being served. For instance, it would be difficult for me as a black child to get my parents to invest in shares or funds that they have never heard of. Their understanding of wealth and investments is cattle, chickens and farming.
So instead of offering just traditional investment products, the solution may need to open itself up to alternative products that appeal to a broader audience; and regulators may need to create new structures to govern these less formal products and the advice surrounding them.
A big challenge for a solution operating at scale will be providing personalised financial advice that considers each client’s circumstances, but not at a loss to the adviser. In future, technology including artificial intelligence may hold the answer to this piece of the puzzle, but there are already ways in which some of the difficulties faced by financial advisers in providing scalable advice in a cost- and time-efficient manner are being addressed with intelligent and compliant client and adviser platforms.
Lastly, financial education should be one of the cornerstones of any solution as increasing a person’s financial capacity is vital to building trust.
According to Rudzani Mulaudzi from the University of Cape Town’s Graduate School of Business, the “financial education of stokvel members is essential to increase awareness of how better investment and management of the money could result in bigger benefits to members. Members need to be made aware oft he power of collaboration. A targeted education programme could enable stokvel members to transition in their thinking from being consumers to being investors and therefore begin to exhibit investor attributes and behaviours.”
In conclusion, financial advice can reach the masses. Every South African can get good financial advice from a solution that is a truly comprehensive financial services product. However, the financial services industry needs to be open to new ways of communicating and improve access to information so that transparent, up-to-date tools can be made available to the client.
It further needs to offer more straight-through processing options for numerous financial products (thereby relieving the administrative burdens faced by service providers) and restructure old products in new ways. Finally, it needs to embrace new ways to educate remotely and be more client- centric and understand the needs and traditions of many.
Gugulethu Siziba is a junior financial adviser at Wealthcraft.