Despite the recent decline in South African households’ net wealth shown by the latest South African Reserve Bank Bulletin, Standard Bank’s data reveals that there is a subset of high-income consumers who continue to save and invest. These clients – generally earning over R1 million annually – have been cushioned by their prior savings and investments habits.
Chiko Manokore, Standard Bank’s Head of Personal & Private Banking South Africa, credits these clients’ resilience in tough economic times to sound financial advice, which is why Standard Bank is enhancing access to financial advisory services. The Bank, which boasts one of the largest advisor networks in the country, is now targeting clients with monthly incomes exceeding R360,000 per annum to offer tailored financial guidance.
“If only I had known, is a common expression used when one has made financial decisions that in retrospect should have been executed differently or not at all. What we see with this resilient cohort is that through financial advice, they were able to take advantage of opportunities that presented themselves in equity, money markets and other savings and investment categories” says Manokore.
These clients have invested in unit trusts, money market funds, and property, which has helped them maximise returns in the current high-interest-rate environment. Furthermore, multi-asset funds and offshore investments have gained popularity among this cohort, allowing them to maximise returns, reduce volatility across asset classes, and hedge against currency fluctuations, according to Standard Bank data.
This trend is also evident among high-income clients across the 14 Southern, Western, and Eastern African countries where Standard Bank operates as a retail bank outside of South Africa. In regions with high lending rates – where prime interest rates can exceed 20% – these clients have found valuable opportunities in investment-grade and government bonds and money market funds. Although property prices have remained subdued, both commercial and residential real estate continue to be an important investment vehicle for this group.
Growing popularity for offshore
Offshore investments have become increasingly popular among these clients in recent decades. Standard Bank’s Offshore Banking services, which includes saving and investment accounts in major currencies, a wide range of investment solutions and property, has had significant take up from high-income earners in South Africa and Africa at large, as they look to broaden their portfolios locally and internationally.
“This diversification is crucial given the volatility of emerging market currencies and the need to secure returns during uncertain times. Recent events – such as shifting positive South African investor sentiment post-elections, recent election outcomes in the UK, and the first U.S. president in nearly 50 years not seeking re-election – create market volatility, highlighting the importance of a diversified portfolio, investment advice and maintaining a disciplined financial plan over time,” says Manokore.
No financial planning
While the high-income cohort tends to cope better in this high interest rate, high cost of living environment, Manokore worries that there’s still a large proportion that’s managing finances in their own terms without the appropriate qualified financial advice.
“We see that those individuals don’t always end up with their intended financial outcome because of not being aware of the implications and consequences of their financial decisions. Sometimes consumers don’t understand the sequence in which they take out debt will affect them, the difference between wealth creating debt and unsustainable debt or the benefits of compounding for example,” says Manokore.
He’s even more worried about their appreciation of the concept of preserving and protecting their wealth, that they’ve worked so hard to create and securing it for the next generation. He adds: “Many South Africans in this cohort of clients come from humble beginnings, some inherited wealth and have no Will in place to say how that wealth should be transferred or managed if something suddenly happened to them,” added Manokore.
The Standard Bank’s insights show that while high-income consumers who invest have fared better during the current challenging economic climate, many still lack professional financial guidance. To address this gap, the Bank is using its vast capability of solutions backed by the largest advisor network, to provide access to financial advisors and bankers for their clients, to bridge the gap and ensure wealth creation, protection and preservation and a wealthier South Africa and African continent at large.
Street Jolly
South Africa is placed 14th in a list of 21 countries ranked by international companies as top prospective investment destinations for 2012 to 2014, according to the 2012 World Investment Report by the UN Conference on Trade and Development (Unctad).