the wealth perspective - PSG

THE WEALTH PERSPECTIVE FIRST QUARTER 2016

FIRST QUARTER 2016 | 1

Thinking differently is fundamental to our investment success. In doing so, we find opportunities in unlikely places, and grow these into success stories.

Contents Introduction - Corrie de Bruyn

2

Investment update - Adriaan Pask

3

Industry views - Lizé Visser

7

Investing and trading - Shaun van den Berg

8

Estate matters - Willie Fourie

9

Quarterly insight - Waldo Booysen

10


INTRODUCTION Corrie de Bruyn CEO PSG Wealth

In this edition, Adriaan Pask, Chief Investment Officer, considers current asset class valuations and sets out PSG Wealth’s tactical preferences. Lizé Visser, Executive Director Sales and Client-centricity, looks at the rise of robo-advice and how this compares to, and potentially complements, the traditional advisory model. Given recent capital gains tax increases, Shaun van den Berg, Head of Client Education, traces the evolution of endowments and highlights their renewed relevance. Waldo Booysen, Head of Direct Sales, delves deeper into the tax and estate planning benefits these products can offer. Finally, Willie Fourie, Head of Estate and Trust Services, considers the legal restrictions you need to understand when drawing up your will.

Welcome to our quarterly newsletter As always, we have tried to share topical articles that are both relevant and interesting. We hope that you find the content informative.

The new myPSG platform is up and running As communicated towards the end of last year, we consolidated and upgraded all of our secure transactional systems (such as ‘PSG Online’ and ‘Wealth Tracker’) and launched the new, integrated myPSG platform in December 2015.

myPSG offers easy and consolidated access to your wealth portfolio Not only does myPSG provide an intelligent dashboard view of all your PSG products, it also gives you the ability to view important information and documentation, such as FICA documents you have previously loaded on the old myPSG. By using a single login, you will be able to: • view all of your products and investment values, such as: -- share information -- fund information -- statements -- transactional instructions • access all PSG transactional screens without having to log in separately to each transactional system Viewing and transactional rights are set per account and have been carried through from the old platforms. Importantly, secure online access has also improved as the new myPSG platform provides a central verification and authentication process. This means that you only have to remember credentials for one site, which improves data security.

Please use the new platform and give us your feedback

received from clients and advisers who have activated their online profiles. We encourage all clients to actively use the platform and to please send us any feedback you might have. We want to make sure that we provide a state-of-the-art information and transactional platform that offers you all the functionality you need. To try the new myPSG platform, select the ‘Try our new secure site’ option from the login options on psg.co.za. You will then be directed to https://secure.psg.co.za. We have used your ID or entity registration number as your unique identifier (you may have used different usernames to gain access in the past). The first time you log in, you will need to reset your password. This is to ensure that this password meets the security standards. From then on, you will be requested to enter your ID or entity registration number and password. You may also reset your password at any time.

Farewell from me as CEO After almost 10 years in various executive roles within PSG Wealth, the time has come for me personally to make a change and take on a new challenge. I have decided to leave the corporate environment at the end of April, and will be joining the PSG Wealth Pretoria East adviser team. In my time at PSG Wealth I have made some great friends and worked with very talented people. I leave knowing that we have a great business, and that it remains in good hands. Marilize Lansdell, currently Head of PSG Life and PSG Invest, will take over as CEO of PSG Wealth. I, and the rest of the business, have full confidence in her. She is of course well supported by the PSG Wealth management team. I wish both her and her team all the best in taking this business to the next level.

Enjoy the read We hope you enjoy this edition of our newsletter.

We have implemented a number of enhancements and fixes since launching the new myPSG platform, based on feedback


INVESTMENT UPDATE Current views on asset allocation Adriaan Pask CIO PSG Wealth

Domestic equities experienced a decent quarter thanks to a strong recovery in asset prices during March. In contrast, the industrial sector was the only local mainstream sector that delivered a negative return. Financials and listed property were both up at the end of the quarter, and bonds generated strong returns due to a recovery in investment sentiment from December 2015. On the global front, offshore markets continued to show volatility: the S&P 500 in the US generated an astounding 6.78% in March alone, while the Japanese Nikkei 225, Chinese Hang Seng and German DAX indices were all negative for the quarter. Given prevailing economic and financial market conditions, this article sets out PSG Wealth’s tactical view on wealth management.

Domestic equity In our view, domestic equities were slightly overvalued at the start of this year. Despite this, markets continued to rally and the first quarter of the year resulted in a 3.87% return from the FTSE/JSE All Share Index (ALSI). An improvement in sentiment, which was at very low levels at the start of the year but later bettered, drove the prices of most asset classes – including equities – higher over this period. According to our assessment, domestic equities remain about 30% overvalued relative to their historic yield. There are certainly still some expensive pockets in the market, and investors should expect continued volatility at current levels. That being said, skilled stockpickers should be able to find value in selected shares. We remain of the view that nimble investors will benefit from more frequent opportunities created by increased volatility. We are increasingly cognisant of the fact that there are some value traps on the local exchange – some shares are trading at very low price-earnings (P/E) ratios, but the earnings are in a cyclical decline. We feel that risks abound for the inexperienced investor, and that a fair assessment of macroeconomic factors is becoming increasingly important. In addition, as local economic strength is waning, we look for corporate balance sheets and debt structures that will be able to weather the storms. We expect smaller businesses as well as businesses with low cash balances, weak cash flows and high levels of debt to struggle in prevailing economic conditions. In light of the above, our positioning with regards to domestic equity remains as follows: • underweight interest rate-sensitive stocks and asset classes • underweight companies whose earnings rely heavily on domestic drivers

• underweight companies who rely on leverage to grow margins • overweight multi-national conglomerates with actively managed exposure to both developed and emerging markets • overweight companies with strong balance sheets and healthy cash flows • overweight firms that are expanding operating margins and gaining market share

Domestic listed property With regards to domestic listed property, our assessment of fair value shows that domestic property equity is now roughly 20% overvalued relative to its historic yield. In addition, we remain of the view that the interest rate cycle will impact domestic economic strength, affordability and sentiment. This will present headwinds for capital growth in the property sector. We therefore expect property yields to normalise on the back of capital value pressure. There are, however, always some exceptions. Selected property shares are experiencing growing yields, which may present some opportunities. Although broad-based property exposure is ill-advised at this stage, we do believe there are some shares that can make a contribution to a diversified portfolio. Where we hold listed property, we prefer to hold shares with the following characteristics: • low price-to-book values • low levels of debt/gearing and strong credit ratings • globally diversified portfolios, or shares that generate earnings abroad • utilisation of structures that offer superior liquidity and diversification properties, such as REITS • superior distribution growth track records


INVESTMENT UPDATE

Domestic bonds

During our previous quarterly review we stated that we expected interest rates to increase by 0.75% over the quarter. This is exactly what materialised. For the coming quarter we expect a 25 basis point hike in May and another 25 basis point hike in July. This is slightly less than what the South African forward rate curve is pricing in. The curve is pricing in a total increase of 80 basis points over this period.

Despite a surge in yields on the All Bond Index, the index aggregate yield still implies that this asset class remains generally overvalued. The implied premium is roughly 24%. With money market assets starting to offer some value, demand for bonds may dissipate in light of the increased risk of holding them. The relative risk-adjusted returns of bonds are also being compromised by higher interest rates on the horizon.

Cash is certainly starting to offer value, with a three-month fixed deposit currently expected to yield close to 8% in nine months’ time. We expect cash to play an increasingly important role in our portfolios over the coming months.

Until recently, the gross real yield on most short-dated money market assets was near zero, and on an after-cost, after-tax basis there was very little to be excited about. However, as rate hikes ensue at an increased pace, we expect this to change quite drastically over the coming months.

Domestic assets Current earnings yields versus long-term averages 14,00 11.9

12.00 10.00

8.2 6.9

7.0

6.00

6.6

4.9

4.5

4.2

4.00 2.00

9.0

8.2

8.00

4.6

4.5 3.6

2.4 1.3

1.1

0 Global cash

Global bonds

Global property

Global equities Average

Domestic cash

Domestic bonds

Domestic property

Domestic equities

Current

Source: PSG Wealth investment division


INVESTMENT UPDATE

Current earnings yields versus long-term averages – premiums and discounts 80% 72.9% 70% 60% 50%

47.2% 32.8%

40% 30%

24.1% 14.6% 9.9%

10% 0

20.4%

19.8%

20%

Global cash

Global bonds

Global property

Global equities

Domestic cash

Domestic bonds

Domestic property

Domestic equities

% Premium (+)/Discount (-) Source: PSG Wealth investment division

Global equity Global equity valuations give a mixed picture. The forward P/E ratios of developed economies seem to indicate that developed market equities may be fairly valued to slightly overvalued. The forward P/E ratios for developing economies appear undervalued. Strong economic recoveries in developed countries such as the US and UK should support further medium-term earnings growth. However, at this stage, poor economic growth in developing economies is not supportive of any positive outlook on earnings. The one forewarning to this assessment is that weaker emerging market currencies have made developing market assets more appealing to foreign investors, which may underpin some demand. Therefore, currency movements are likely to be one of the most significant factors to influence the success of these markets over the short term.

Global equities, although trading at a slight premium, remain the most attractive asset class in our minds. The underlying valuations remain sound and there are many quality firms to choose from. The biggest short-term risk for South African investors is the rand. That being said, there are many effective ways in which professional money managers can manage this risk effectively. We remain of the view that offshore equities remain attractive on a relative basis. Therefore, we are cautiously optimistic about defensive developed market equity returns and remain overweight in this asset class.

Global listed property From a valuation perspective, global listed property is still a more risk-efficient investment than global bonds. Global cash yields, although increasing, remain unattractive. Still, investors should be very cautious in this segment of the market. Extreme property price fluctuations in structures with high leverage or limited liquidity can hold severe capital consequences for investors.


INVESTMENT UPDATE

Global fixed interest and cash We are underweight in offshore fixed interest, as we believe that most of these asset classes do not sufficiently compensate investors for the inherent risks involved. Despite delays, we expect the rates and bond yields of the US Federal Reserve (the Fed) to normalise during the course of the year. Valuations on global bonds remain severely stretched on the back of unchartered monetary policy stimulus and subsequent capital flows to credit instruments. In the US, nominal and real 10-year treasury yields have been falling for the past

30 years, leaving both real and nominal yields historically low. Federal Open Market Committee research supports the view that current yields should increase by roughly 3% to normalise. Although recent statements by the Fed has implied a more dovish stance, rate normalisation will have to materialise at some point in the not-too-distant future. Global cash remains unattractive apart from its liquidity and nominal capital protection properties. For investors seeking offshore diversification, equities offer the best value over an investment horizon suitable for an offshore investment.

Asset classes – tactical asset allocation

EMERGING

DEVELOPED

South Africa

Global

Strategic asset allocation Tactical asset allocation Changes this month Overweight: Tactical recommendation to hold more of the asset class than specified in the strategic asset allocation

Neutral: Tactical recommendation to hold the asset class in line with its weight in the strategic asset allocation

Underweight: Tactical recommendation to hold less of the asset class than specified in the strategic asset allocation


INDUSTRY VIEWS Irrespective of whether it is online or face-to-face, financial advice counts

Lizé Visser Executive Director Sales and Client-centricity PSG Wealth

Self-service investment platforms enable investors to invest, grow and manage their money online, without necessarily involving face-to-face interaction with a financial adviser. But what does this mean for traditional face-to-face advice? At PSG Wealth, we believe personal advice is crucial to interpret the results delivered by the technology. It’s therefore important to understand that digital investment services are complementary to face-to-face advice, not a replacement for it, and that it’s crucial that you use the technology appropriately.

Automated digital investment services, known as robo-advice tools, are on the rise

Guidelines for using digital investment technology appropriately

These self-service investment platforms enable investors to invest, grow and manage their money online. On the most basic level, it involves entering your personal and financial information on the platform, including answering questions aimed at determining your appetite for taking on risk. Through algorithms, the system then processes the information and comes up with suggestions of suitable investment solutions in which you can invest. The entire process takes place between you and your computer – it may not involve any face-to-face interaction with a financial adviser.

We live in an age where you cannot afford to get left behind when it comes to new technology. However, if you are interested in using a digital investment tool, it’s crucial that you use the technology appropriately by considering: 1. how comfortable and competent you are when it comes to using technology 2. if you understand the assumptions and product set that underpins the investment tool – many tools are built to steer you towards a finite and specific range of products 3. the complexity of your financial situation, for example, number of current investments, income sources, variety of goals and their different timelines (such as saving for retirement versus saving for your children’s school fees) and any legal and technical aspects to your financial planning (such as tax-specific planning, setting up trusts or estate planning)

What does this mean for traditional face-to-face advice? The rise of robo-advice has sparked debates about its impact on the future of traditional financial advice. In this context, traditional advice is where investors have a personal relationship with a financial adviser who understands their goals, preferences, fears and family circumstances, and manages their wealth accordingly. On the one extreme, there are those who are sceptical about the reliability of technology and its limits in delivering a personalised service. They believe robo-advice will never replace the role of having a personal financial adviser. On the other hand, some believe robo-advice is enough to meet their needs.

At PSG Wealth, we believe technology can be complementary to face-to-face advice Although digital investment technology can be a helpful investment tool for some investors, personal advice is crucial to interpret the results delivered by the technology. In other words, robo-advice cannot completely replace the value of human interaction and engaging with an adviser who knows you personally and who can suggest the most appropriate products for your situation and needs. For investors who need advice on their wealth portfolio or certain aspects thereof, it would be prudent to view robo-advice as complementary to face-to-face advice, not as a replacement for it.

It is also important to be aware of the limitations of technology, because the output is only as good as the input. A digital system cannot take into account your attitude towards money (beyond a basic evaluation of your risk appetite), your personality, your family situation and any other temporary or permanent circumstantial factors. It will only process the information you can (and do) provide.

Personal financial advice, when needed, can improve investment outcomes and provide peace of mind Despite living in an age where so many things have been industrialised, money remains very personal and emotional. The state of your wealth is not a set of numbers and calculations. It is having peace of mind when your home needs emergency maintenance, it is giving your daughter her dream wedding, it is being able to provide your family with the best healthcare when illness strikes, and it is growing old with your spouse while enjoying the things you love. This is not to say that technology can’t play a role – it most certainly can. But for many people, having someone at their side to provide trusted personal and professional financial advice in times of need is invaluable. Despite its value-add, the role of technology is therefore inherently finite. FIRST QUARTER 2016 | 7

INVESTING AND TRADING The evolution of endowments – and why they’re now more relevant than ever

Shaun van den Berg Head of Client Education PSG Wealth

A new-generation endowment is an investment product that offers attractive tax benefits to investors in higher tax brackets who can stay invested for five years or longer. Unfortunately, many investors remain unsure or sceptical of investing in these products, due to the negative associations with old-generation endowments that traditionally charged high fees and offered lacklustre returns. However, given recent capital gains tax (CGT) increases, now may be the perfect time to consider including an endowment in your investment portfolio.

Old-generation life endowment policies explained

New-generation endowments allow you to structure your investment freely

Life insurance companies initially offered traditional endowments only, which are policies with both a life insurance and an investment component. You pay your contributions over the course of your policy term, for which you then receive life cover and have a lump sum paid out to you at the end of the set period. However, the portion of the premium allocated to life cover became larger over time due to the increased mortality experienced in the face of the AIDS epidemic. This often meant that little to nothing was invested. As a result, endowments without life cover were later introduced to separate life risk and investment risk. However, in many instances the endowments offered by life insurance companies may still pose high fees, especially in the form of early-termination penalties if you try to access your money before the end of the investment term. Furthermore, fees are often difficult to understand or determine.

Older-generation products often restrict investors to the funds offered by the life insurance company, although certain companies have started to make other funds available as well. In contrast, a new-generation endowment offers a far wider range of underlying investment options. For example, the PSG Wealth Endowment offers access to 484 unit trust investment options on the PSG Wealth platform, and you can switch freely between these at any time without cost. You are also not restricted to maximum levels of equity and offshore instruments, as is the case with retirement savings products. However, it is important to understand that the value of your investment is not guaranteed since it is linked to the market value of the underlying instruments you choose.

New-generation endowments are more cost effective and flexible Endowments, especially those offered by investment platforms, have evolved over the years and many have become much more investor-friendly. Fees of new-generation endowments are now transparent, and there are no longer any surrender or early termination penalties attached to these products. There are, however, restrictions on the withdrawals you can make in the first five years: you are restricted to one interest-free loan or one surrender (some product providers, such as PSG Wealth, offer access to both). The maximum withdrawal during this period is limited to the capital amount invested plus interest at 5%. No restrictions apply after five years.

Endowments encourage disciplined saving South Africans are notorious for not saving enough. Endowments encourage disciplined saving, because you contribute regularly to build your investment up over time. The investment can then be used for a significant cash requirement (such as university fees) at the end of the five-year period.

Contributions are flexible You can choose to make a lump sum investment, regular debit order investments or a combination of the two. You can also add a lump sum at a later stage, provided it adheres to the ‘120%’ rule. This states that an additional lump sum contribution may not exceed 120% of the amount invested in either of the preceding two years (the higher of these two amounts will apply). If so, a new five-year restriction period is triggered.

High-income earners can benefit For high earners with marginal tax rates greater than 30%, an endowment is an attractive investment alternative. Endowments are taxed on income at a flat rate of 30%. This means that any interest income from the investment is taxed at 30%, compared to the maximum marginal rate of 41% for individuals. Investors also qualify for a lower CGT rate of 12.0%, compared to the maximum rate of 16.4% for individuals invested in a standard unit trust-based investment. Furthermore, if the endowment is part of a trust with only natural persons as beneficiaries, then CGT will be charged at an effective rate of 12.0%, compared to the 32.8% effective CGT rate for trusts. (Read more about the tax and estate planning benefits of endowments in Waldo’s article.) For more information on the PSG Wealth Endowment, please click here. It is also a good idea to get professional financial advice before you make any financial commitments.


ESTATE MATTERS Drawing up your will: certain restrictions apply Willie Fourie Head of Estate and Trust Services PSG Wealth

The general principle of freedom of testation is one of the cornerstones of the South African law of succession, which in turn sets out the rules for how your estate is dealt with upon your death. Freedom of testation allows you to do with your worldly possessions whatever you choose (provided that your actions are legal). However, there are a few important exceptions of which you should be aware.

You can allocate your assets freely in your will Freedom of testation means that you have full discretion when it comes to choosing who to leave your assets to in your will. This is in stark contrast to some European and other jurisdictions, where civil law forms the basis of succession law. In these jurisdictions, civil law imposes forced heirship. This prevents citizens from disinheriting certain people, such as a spouse or a child. If such a person is excluded from a will, they can claim a specified share of the deceased’s estate irrespective of the actual provisions in the will. Freedom of testation means that you can effectively disinherit any person, including a spouse or a child. However, there are certain important exceptions to this rule. In addition, the provisions of your will must always be legal and moral, and it must be possible to implement these provisions practically.

Exceptions to freedom of testation Exceptions to freedom of testation are all based on the generally accepted duty of support that a person has towards their spouse and dependants. There are three general exceptions: 1. claims for the maintenance of dependants 2. claims by a surviving spouse (in terms of the provisions of the Maintenance of Surviving Spouses Act) 3. claims in terms of the accrual system created by the Matrimonial Property Act Another limitation to your freedom of testation is that your will must comply with the provisions of the Constitution of South Africa. Any provision that is contrary to the requirements for an open and just society will be invalid.

Maintenance obligations Your obligation to maintain and support a child or spouse will be determined by considering your particular circumstances. The Children’s Act provides for the maintenance of minor children and states that it is obligatory to pay maintenance for your children until they reach the age of 18 years. After this age, the child can approach the court to extend the maintenance payments if they can show with good reason that the need still exists. A case in point would be a student at university, or any other acceptable reason, such as a mental or physical impairment that prevents the child from adequately providing for their own needs.

Different marital regimes in South Africa Your marital regime can have a significant effect on your estate and your spouse’s right to institute a claim for maintenance. There are three marital regimes recognised in South Africa: 1. in community of property 2. out of community of property, without the accrual system 3. out of community of property, with the accrual system

Your marital regime may determine your spouse’s right to maintenance The default marital regime in South African law is in community of property. This means that each spouse has an equal (half) share in the joint estate. Practically, even if you choose to disinherit your surviving spouse, they will not be left destitute as they already own half of your joint estate. This will also be taken into account if your spouse makes any further claim for maintenance against your deceased estate. However, if a marriage is out of community of property without the accrual system and the deceased chooses to disinherit their spouse, it could leave the spouse destitute if they have no alternate source of income. For this reason, Government enacted the Matrimonial Property Act in 1984. In doing so, it introduced the accrual system. With the accrual system, assets acquired before the marriage remain those of the individual spouses, but gains made during the marriage are equally shared when the marriage dissolves (either due to divorce or the death of a spouse). This is especially relevant if one of the spouses is not employed full-time, such as a mother who has chosen to run the household and care for the couple’s children. If you are married out of community of property and the accrual system applies, you will be unable to disinherit your spouse in your will.

A qualified adviser can help you to consider all relevant aspects Take care when drafting your will to make sure that it complies with all of your maintenance responsibilities. Our specialist fiduciary advisers can assist you to ensure that your will reflects both your wishes and obligations.


QUARTERLY INSIGHT Investing to outsmart death and taxes Waldo Booysen Head of Direct Sales PSG Wealth

On 23 February, Finance Minister Pravin Gordhan tabled South Africa’s 2016/17 Budget in Parliament. As part of this, he announced a number of tax amendments that will have a significant impact on investors in the South African economy. An important change to take note of is the increase in capital gains tax (CGT) inclusion rates, which could result in you paying higher taxes when you make a profit from the sale of an asset – including the sale of an investment instrument. This has resulted in renewed interest in new-generation endowments, which offer attractive tax benefits to investors with higher marginal tax rates.

CGT inclusion rates were increased for all investors

Tax-efficient investing can reduce the impact of higher CGT rates

From 1 March 2016, increased CGT inclusion rates apply for individuals, companies and trusts. CGT inclusion rates were increased as follows: • for individuals: up from 33% to 40% • for companies: up from 66% to 80% • for trusts: up from 66% to 80%

An endowment is an investment product with a minimum investment period of five years and fixed tax rates of 30% on income and 12% on taxable capital gains. This makes it particularly attractive for medium- to longer-term investors who are either individuals who fall in higher tax brackets (above 30% per year) or trusts with a tax rate of 41%. By investing discretionary money in an endowment as opposed to a standard unit trust-based investment, the effective CGT paid by investors who fall in the highest tax bracket (41% per year) decreases from 16.4% to 12.0%. Trusts benefit from a reduced CGT rate of 12.0% (compared to 32.8%), while both types of investors benefit from an 11.0% drop in tax on revenue income. These tax savings will be added to your capital value at the end of the investment term, thus offering a higher net return.

This means that the maximum applicable CGT rates (for investors in the highest tax brackets) are: • for individuals and special trusts: 16.4% • for companies: 22.4% • for other trusts: 32.8% The annual exclusion (capital gains for which no CGT is payable) is R40 000 for all taxpayers.

Higher CGT rates can detract from investment returns The question is, how does this affect you as an investor? The simple answer is that when you disinvest (withdraw) capital from any discretionary investment (an investment made with after-tax or non-retirement savings money), or when you switch between different underlying instruments in such an investment, you will pay more CGT. To make money available for you to withdraw or invest in other underlying instruments, you have to sell your existing underlying instruments. This qualifies as the sale of an asset, and you are therefore taxed on the proceeds. Due to higher CGT inclusion rates, the amount you receive after tax when your investment pays out will now be less than in previous tax periods. Individuals that fall within the highest tax bracket will pay 2.87% more in tax, companies will pay 3.92% more and trusts will pay 5.74% more. This can result in significantly lower investment returns over the long term.

This is illustrated on the next page. Assuming annual capital growth of 10%, an investor in the 41% tax bracket who invests R100 000 over five years could earn an additional return of almost 2% in an endowment due to the CGT saving. A trust taxed at the same rate could earn an additional 9%.

Considerations for your estate An essential question that often isn’t raised when it comes to investing discretionary money, is what happens when you pass away? The long and short of it is that the value of your investment is included in your estate, along with your other assets and liabilities. Why is this important? Simply put, the investment may be subject to estate duty tax (20%) and executor’s fees (up to 3.99% including VAT). The reason is that standard unit trust-based investments aren’t allowed to have beneficiaries listed, so the investment value is included in your deceased estate by default.


QUARTERLY INSIGHT

Opening value

Assumed annual investment growth*

Term

Closing value

Investment value after tax Individual**

Trust ***

Standard unit trust-based investment

R100 000.00

10%

5 years

R161 051.00

R151 038.64

R141 026.27

Endowment

R100 000.00

10%

5 years

R161 051.00

R153 724.88

R153 724.88

R2 686.24

R12 698.61

1.78%

9.00%

Difference in investment value Additional return created within the endowment * Only capital growth is used within this example; interest and dividends are excluded ** Individuals in the highest tax bracket of 41% with an annual exclusion of R40 000 already exhausted *** Trusts that are taxed at 41% with all the beneficiaries being natural persons Source: PSG Wealth

Endowments allow you to appoint beneficiaries

Endowments can ease the tax burden for you and your beneficiaries

When you appoint beneficiaries, the value of your investment is paid directly to them. Alternatively, a beneficiary has the option of continuing with the investment. This means that executor’s fees are not payable on the investment amount. The endowment will still be a deemed asset in your estate and will be subject to estate duty tax of 20%. However, there will be a saving on executor’s fees of up to 3.99% of the investment amount if you appoint a beneficiary.

‘In this world nothing can be said to be certain, except death and taxes.’ Benjamin Franklin. This statement unfortunately remains true, but with an endowment you can reduce the tax burden on your investment, and your estate. For more information on the PSG Wealth Endowment, please click here.


Disclaimer PSG Wealth is a brand underneath PSG Konsult Ltd, which consists of the following legal entities: PSG Multi-Management (Pty) Ltd, PSG Securities Ltd, PSG Fixed Income and Commodities (Pty) Ltd, PSG Scriptfin (Pty) Ltd, PSG Invest (Pty) Ltd, PSG Life Ltd, PSG Employee Benefits Ltd, PSG Trust (Pty) Ltd, and PSG Wealth Financial Planning (Pty) Ltd. Affiliates of the PSG Konsult Group are authorised financial services providers. The opinions expressed in this document are the opinions of the writer and not necessarily those of PSG Konsult Group and do not constitute advice. Although the utmost care has been taken in the research and preparation of this document, no responsibility can be taken for actions taken on information in this document. Should you require further information, please consult an adviser for a personalised opinion. Collective Investment Schemes in Securities (CIS) are generally medium- to long-term investments. The value of participatory interests (units) may go down as well as up and past performance is not a guide to future performance. CIS are traded at ruling prices and can engage in borrowing and scrip lending. A fund of funds is a portfolio that invests in portfolios of collective investment schemes, which levy their own charges, which could result in a higher fee structure for these portfolios. Fluctuations or movements in the exchange rates may cause the value of underlying international investments to go up or down. A schedule of fees and charges and maximum commissions is available on request from PSG Collective Investments (RF) Limited. Commission and incentives may be paid and if so, are included in the overall costs. Forward pricing is used. The portfolios may be capped at any time in order for them to be managed in accordance with their mandate. Different classes of participatory interest can apply to these portfolios and are subject to different fees and charges. Figures quoted are from I-Net, Stats SA, SARB, © 2016 Morningstar, Inc. All Rights Reserved for a lump sum using NAV-NAV prices net of fees, includes income and assumes reinvestment of income. PSG Collective Investments (RF) Limited is a member of the Association for Savings and Investment South Africa (ASISA) through its holdings company PSG Konsult Limited. Conflict of Interest Disclosure: The fund may from time to time invest in a portfolio managed by a related party. PSG Collective Investments (RF) Limited or the Fund Manager may negotiate a discount on the fees charged by the underlying portfolio. All discounts negotiated are reinvested in the fund for the benefit of the investor. Neither PSG Collective Investments (RF) Limited nor the Fund Manager retain any portion of such discount for their own accounts. PSG Multi-Management (Pty) Ltd (FSP No. 44306), PSG Asset Management (Pty) Ltd (FSP No. 29524) and PSG Collective Investments (RF) Limited are subsidiaries of PSG Group Limited. The Fund Manager may use the brokerage services of a related party, PSG Securities Ltd.

