Facing the future

Helping financial planners adapt to change


Executive of Business Development at PPS Investments since 2017, Shaun Ruiters is responsible for looking after the investment channel, which comprises the linked investment service provider or administration company, multi-manager solutions and, going forward, asset management solutions. This entails taking a hands-on approach to creating a space for intermediaries to adapt to a changing landscape.

Ruiters explains, “At my previous employer, my role was a lot more around strategy for distribution, for positioning asset management functionality or propositions to intermediaries. My role here is to build a strategy and implement via an investment distribution channel based on what the intermediaries’ attributes are for their specific businesses.”

As a unit trust administration business, PPS Investments offers intermediaries multiple solutions, with a veritable shopping list of different asset managers such as Allan Gray, Coronation, PPS Multi-Manager and others. “The business model is to partner with intermediaries around building solutions for them by utilising our distribution force, investment administration functionality and investment capabilities.”

For Ruiters, intermediaries and financial planners are the life-blood of the company: “We are 90% intermediated, with an end client base of some 35 000 clients for PPS Investments, 90% of which have come via an intermediary. Our market is mainly professional clients with at least a four-year degree that work in specific industries.”

Ruiters illustrates further: “Let’s say a 50-year-old client is looking to grow his retirement by adding more contributions to his retirement annuity; his financial planner will build a financial plan for him and then speak to one of our investment specialists as to how to execute that specific plan, not only buying the retirement annuity but also talking to us with regards to which investment styles will best fit the client’s risk or cash flow profile. Once that’s concluded, the investment will be done on PPS Investments as the linked investment service provider. Our multi-manager will assist him in actually building a portfolio for his client.”

Financial planners stand to benefit greatly from this relationship, not least because of the way the intermediary landscape has changed over time. Not only has the compliance burden grown out of proportion, but the amount of products now available in the unit trust industry can be bewildering, with in excess of 1500 unit trusts to choose from.

“Choosing a specific investment style or investment portfolio for the need of the client is becoming a lot more to do with understanding exactly how different asset managers work and what can work from the viewpoint of the client’s need. Financial planners should be a lot more equipped to match the client’s need to a specific outcome and then utilise a business like ours to help research and execute the right solution for his client.”

Financial planners often style themselves as financial wellness coaches; PPS Investments effectively provides financial planners with a coaching service. The distribution team engages with financial planners to ascertain their needs with regard to ease of business and product understanding, as well as total client attributes.

“If he’s got a younger client base or an older client base, they will try to understand those needs and then bring in our multi-management team to suggest appropriate solutions. The financial planner can then utilise our unit trusts or, if their practice is big enough, we can build specific solutions for their clientele as well,” explains Ruiters.

Change on the horizon

The intermediary landscape is changing, with significant implications for the manner in which financial planners run their business. In particular, the Financial Service Board’s Retail Distribution Review white paper is looking at the how intermediaries and their clients work within the value chain.

“The conversation is turning towards choosing between remaining independent or taking on a partner to cover the compliance burden and the investment solutions,” says Ruiters. “Over the last few years, quite a few intermediaries have migrated away from being independent into what is deemed a registered financial advisor space. Each case has different needs, so we’re starting to build propositions for either side. Independents may require fiduciary services, whereas planners that have joined a company may require investment solutions and assistance in understanding the unit trust landscape better.

“Consequently, we’ve set up a fiduciary business to assist our independent brokers that utilise PPS Investments to build out that component of their practice a bit better; in the portfolio construction space our multi-manager has also started partnering with intermediaries around building specific solutions for their practice.

Another change is that the market is becoming ever more competitive. For example, the retirement reform default legislation promulgated in 2017 will make it compulsory for pension funds or employee schemes to have default options.

“Take preservation funds,” says Ruiters. “In the past, employees would often opt out of a pension fund and take the money or go into a preservation fund on the retail side, so moving from the institutional to the retail space. In the near future, all funds will need to set up their default solutions – a default preservation fund, a default living annuity and a default investment solution on the institutional or employer side. The potential ramifications are that the money flow may stay on the institutional side and intermediaries will have to see how to work in their umbrella space as well.

“We see this as a positive move in totality, but we also want to be able to assist our intermediaries in adapting to work on the institutional side. It’s not the same – instead of working with individuals, you have to work with boards of trustees. Currently, we’re researching how we can sharpen our intermediaries’ value proposition in the institutional space.”

Rise of the robots

Digital technology is already having a major impact on the investment landscape, now that clients have the option to invest directly via so-called robo advisors. “This has definitely started playing out in South Africa as well,” says Ruiters. “The Millennial professional may not want to see their financial advisor at all.

As digital technology progresses, the ability to conduct transactions easily and quickly is becoming ever more important. At the same time, technology is making it possible to provide different, more creative solutions – and PPS is determined to stay ahead of the curve.

“We are investing quite heavily in technology, first and foremost to facilitate easier business for our intermediary partners with their clients, along with offering tools that can assist the practice and the end-client,” Ruiters elaborates.

With the equity market having been quite stagnant for the two and a half years prior to June 2017, new trends are playing out in the asset management space. “An example would be smart-beta solutions, which is a passive investment that invests in a specific style – you can buy an index that tracks the value fundamentals at 50 basis points relative to a value fund at 1.5,” Ruiters explains.

“The thinking is that the index could yield 90% of the return of the value fund, and you’re paying cheaply for it as well. Then there are alternative investments, like retail hedge funds. Many clients are starting to think about all of these different kinds of investments. Ultimately, technology enables you to offer them at a very cheap fee and with the use of a tool, which is very enticing for investors who want to get into the market quickly,” concludes Ruiters.

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This edition

Issue 72