Discretionary investment provider
Discretionary investment management is a form of investment management in which buy and sell decisions are made by a portfolio manager, or investment adviser, for the client’s account. The term “discretionary” refers to the fact that investment decisions are made at the portfolio manager’s discretion.
Investement mandate
An investment mandate is a set of instructions laying out how a pool of assets is invested. The mandate sets out rules to guide choices during investing. These rules then inform the actions of an investment manager.
Needs analysis
A financial plan is a document containing a person’s current money situation and long-term monetary goals, as well as strategies to achieve those goals. A financial plan begins with a thorough evaluation of the person’s current financial state and future expectations. It may be created by the investment manager or with the help of an independent financial advisor.
Asset Allocation
Asset allocation is an investment strategy that aims to balance risk and reward by apportioning a portfolio’s assets according to an individual’s goals, risk tolerance and investment horizon. The three main asset classes (equities, fixed-income, and cash and equivalents) have different levels of risk and return, so each will behave differently over time.
Active investment managers
The term ‘active management’ means that an investor, a professional money manager or a team of professionals is tracking the performance of an investment portfolio and making buy, hold and sell decisions about the assets therein. The goal of any investment manager is to outperform a designated benchmark while simultaneously accomplishing one or more additional goals such as managing risk, limiting tax consequences or adhering to environmental, social and governance (ESG) standards for investing.
Passive portfolios
Passive portfolio management, sometimes known as indexing, follows simple rules that try to track an index or other benchmark by replicating it. Those who advocate for passive management maintain that the best results are achieved by buying assets that mirror a particular market index. Their contention is that passive management removes the shortfalls of human bias and that this leads to better performance. However, studies comparing active and passive management have only served to keep the debate alive about the respective merits of either approach.
Voluntary savings
Investments that are made with free cash flow after the relevant taxes have been paid. No restrictions apply to how the capital can be invested or redeemed.
Compulsory savings
Investments that are made prior to tax being levied on a client’s income. Tax is paid on the income after the compulsory savings have been allocated. Regulation 28 of the Pension Fund Act dictates how compulsory savings can be invested. Once in a retirement net, limitations govern when these funds can be accessed.
Preservation Funds
Preservation Funds aim to protect and preserve pension and provident fund benefits for members exiting approved retirement funds. The investment remains free of any taxes if it transitions from a pension / provident fund into a preservation fund.
Retirement annuity (RA)
A retirement annuity, often referred to as an RA, is an investment product that helps individuals save for retirement in a tax friendly manner when they don’t belong to a Pension or Provident Fund. A client is only able to access his / her RA after the age of 55. If they choose to “retire” from the RA, after the age of 55, the RA is then converted to a living annuity. The client can access up to 1 / 3 rd. of the RA while the balance is converted into a living annuity.
Living annuity (LA)
A living annuity is created when you retire or withdraw out of a RA or preservation fund. A living annuity pays out on a monthly, quarterly or annual basis. The payment is made after tax is deduct at the source of the payment (by the platform provider). The withdrawal amount is set as a percentage of the capital and be adjusted annually on the anniversary of the living annuity. The withdrawal percentage needs to be set between 2.5% and 17.5% of the capital value. A living annuity is not governed by the pension fund act and therefore does not need to adhere to the prudential limits set for Retirement Annuities.
Tax free retirement savings account (TFSA)
An annual contribution can be made to a tax-free savings account. This contribution are not tax deductible but all gains inside the vehicle are free of all taxes. Strict limits apply to what can be contributed both annually and over an investor’s lifetime.
Highly geared
A company that has a large amount of debt compared to its share capital. A company with relatively high debt to equity are considered ‘highly geared’ and could possibly face financial difficulties if their profits fall or interest rates rise (assuming they don’t have fixed their cost of funding).
Bear market
A bear market is defined as a market that has corrected (declined) by 20.0% or more for a sustained period. This often, but not always, occurs when the economy is suffering, and investors are typically pessimistic. A bear market is the opposite of a bull market.
Alpha generation
Any security, (share, bond, derivative etc.) that generates excess returns or returns higher than a pre-selected benchmark with no additional risk when added to an existing portfolio of assets.
Investment proposal
An investment proposal can be considered a ‘record of advice’ that covers all the important aspects of a client situation prior to implementation of the investment mandate. It outlines what was covered in the financial needs analysis and gives a client enough information to make an informed decision about either accepting the investment manager / financial advisers proposal or not.
FICA documents
FICA is an abbreviation for the Financial Intelligence Centre Act. The Act was instituted in order to fight financial crime such as money laundering, fraud, tax evasion, terrorist financing activities and identity theft. It is a legal requirement to ensure all required client documentation is kept on record. A platform provider will not accept or release a client’s investments if the correct documentation has not been submitted.
Internal compliance documents
Certain compliance documents, such as a letter of introduction, specific terms and conditions associated with certain service level agreements need to be disclosed and highlighted to clients prior to taking on the client. These are standard documents that are designed to protect the client and ensure the investment manager / financial adviser adheres to specific requirements.
Mandate
An instruction given by an investor to an investment manager or financial adviser to manage a specific sum of money using a clearly designed strategy. It also refers to a set of guidelines and rules that are used for the purpose of managing a specific portfolio. A mandate is determined after a full needs analysis is done with the client. The client gives the final instruction by agreeing to the outcome of the needs analysis by signing both a broker’s appointment and mandate.
Financial Service Provider (FSP)
Financial Services Provider means any person, other than a representative, who as a regular feature of the business of such person - (i) furnishes advice; or (ii) furnishes advice and renders an intermediary service; or (iii) renders an intermediary service.