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Bold Brantam shows how it’s done in the after life

• In the old days, most investments were wrapped in insurance policies

● Cranston is a Financial Mail associate editor.

Business Day rarely gets as much response as it did from my recent column on financial advisers. It characterised this cohort as loud-mouthed, beerswilling extroverts who were not bright. It is a stereotype that derives from my early years covering the industry. It was a time when the majority of personal investments were wrapped in insurance policies. And as the saying went, “insurance was sold and not bought”.

The life offices were honest in those days — they called the sales process “distribution”, not “advice”. The pinnacle of achievement wasn’t the investment returns of clients but the volume of policies sold. The top prize was to join the “Million Dollar Round Table”, giving agents and brokers the chance to go to the annual conference in somewhere fun like Las Vegas or New Orleans. The conference was a big party. Forget hearing about useful topics like improving your client’s asset allocation. Instead it was a slew of motivational speakers coming up with inspirational phrases such as “Only YOU can make it happen”.

A few brave souls tried to break the mould. It was not easy to move from life insurance wrapped endowment policies and retirement annuities, as they paid upfront, assuming the client would pay premiums for the full term, typically 10 years. One pioneer, Fincorp, has disappeared somewhere in the bowels of Alexander Forbes. Another is now Citadel, now more of a fully integrated institution than an old-school financial adviser, more a fully staffed hospital than a GP.

Brantam, started in 1987, was one of the first breakaways from the upfront life policies, and it remains like a GP practice. Founding partners Derek Sumption and Paul Argent are still there. The third partner retired (young) in 2013. It hasn’t moved from its modest premises since 1991, in Jan Smuts Avenue, behind the local McDonald’s.

Sumption says Brantam took a considerable knock in the first year by opting for as-and-when, unit trust-based investment instead of the upfront fees of life policies. Its turnover in the first year was R72,000. “Our annual cheque was delivered by messenger on August 15 every year and we would bank it and then divide it up so that it would pay expenses each month until the next cheque arrived.”

When the linked product industry emerged from 1993 Brantam was one of the first proponents of unit trust-based retirement annuities.

Several people claim to be the originator of the living annuity. Instead of buying a fixed pension from a life office, these products are made up of a basket of unit trusts from which there is an annual drawdown. They were provided by one of the early linked product businesses, TMA, and Brantam partnered them. Living annuities have been controversial as they do not offer a guaranteed income, but they are probably suitable for most of Brantam’s clients.

Brantam abandoned its wrap funds or model portfolios more than 20 years ago when they became subject to capital gains tax. Unit trusts proved far more efficient. It now has six unit trusts, in which it acts as multimanager, as well as an offshore fund based in Guernsey.

Brantam has been conservative when it comes to more unusual products. It was a vocal opponent of tank container investments in the 1990s, which Sumption says were designed to make money for the promoter, and it has consistently avoided structured products.

Its competitors, which did not build up genuine investment expertise, have had to rely on a new cottage industry, the discretionary fund managers (DFMs). This could put the independent financial adviser’s business model in danger. What if their clients get the chance to go straight to DFMs or opt for a low-cost index-based solution?

There is a lot of complacency about the Outvest cheap index investments, a partnership between Outsurance and Core Shares. How can independent financial advisers (IFAs) take it on if they don’t own their investment process and instead are simply spoon-fed their investment process by DFMs?

I think we can all respect the noninvestment side of an IFA’s job. We could all do with a financial coach to keep us on the right track. But there are plenty of life coaches and psychologists who can do that part of the job as well or even better. In any case there are times to change asset allocation. It is no good an IFA telling a client to keep calm and do nothing. That comes with a huge opportunity cost.

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2021-05-14T07:00:00.0000000Z

2021-05-14T07:00:00.0000000Z

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