All eyes will be on South Africa in two weeks as it plays host to the 2010 World Cup and while the tournament is expected to give the country a financial boost, advisers such as Kruger International managing director Heinrich Kruger have been managing the nation’s finances for years.
Kruger says: “Financial services in South Africa has a very strong independent financial advisory market but there is also a strong institutional-based market and the two tend to pull against one another.”
Kruger began his career as a journalist but soon moved into stockbroking on the Johannesburg Stock Exchange. It was here where he saw a great need for financial advice in South Africa.
He says: “In 1998, after a market crash, one of my clients said he had lost 40 per cent of his wealth and I corrected him, as I assumed he meant his equity portfolio. He said, no, it was 40 per cent of his entire wealth. I asked him why he had put all his eggs in one basket and he told me he thought his pension fund was not big enough and had tried to play catch-up by putting all his cash in equities. I said that was extremely irresponsible but realised that a lot of my clients were in the same position.”
Kruger set up his own financial advice firm to help advise his stockbroking clients but also did it as an ideological stand against what he calls the “product-pushers”. These, he says, are rife in South Africa and are now targeting the lower-middles classes of the country who took the brunt of the credit crisis.
“A lot of people contact me because they have been affected by the recession – the ’middle’ middle class have been hit very badly. The ones with small bonds, mortgages on their homes and who owe a lot of money on their cars are losing their jobs because of retrenchments and the economy. We are seeing this a lot and it is really heartbreaking.”
The banks’ internal distribution channels call themselves financial advisers but they are nothing but product pushers
Kruger appears regularly on radio and TV shows to comment on South African financial services and through this, he is seeing a rise in clients who are struggling financially.
“I try and offer advice to these people but there is no way you can charge them a fee out of what they can invest.
“These people are out in the cold and will fall into the hands of the hawkers if we don’t help them. The banks’ internal distribution channels call themselves financial advisers but, as I always warn people, they are nothing but product pushers. The lower earners here do have to get help from banks, who do push the products on them as it is difficult for lower earners to get proper financial advice.”
Kruger charges a fee for his financial advice and is pleased to see that the South African regulator is following the FSA towards an eventual banning of commission. “I have been telling people for 12 years to not go to someone charging commission. At least, you should pay someone for his time and his expertise – as you would an attorney. But it is difficult to turn a big ship and one that has made a great deal of money for a lot of brokers over the years.”
But while Kruger is thankful for a robust South African regulator, he has similar concerns as his UK counterparts with regards to the rapid increase of bureaucracy.
He says: “Our regulator is made up of people who are not as sophisticated as the people who work for the UK body. We have first-world regulation but it is implemented by people who may not have first-world knowledge and expertise. It is becoming a monstrosity of a civil service organisation.”
Kruger’s concerns that South African regulation can be aimed too heavily at successful IFAs will also be familiar to British IFAs.
He says: “The big institutions get away with murder by using their power to get around things and by making it difficult for the regulator to understand. As a result, it would rather go for the easier targets – and that’s invariably IFAs such as myself.”
Kruger just celebrated his firm’s 10th anniversary and now has more than 1bn rand (£90m) under management for his clients. He is confident his business and financial services will grow as South Africa’s burgeoning middle classes in both the white and black communities start to borrow and save more money. He also plans to diversify his business by looking beyond Africa and offering global diversification for his clients.
“More South Africans want advisers who can restructure their wealth, not those who push products and live on the sales-related commission that comes from this. They want you to actually buy them the product with the best fit for their portfolio.
“As long as there are people earning money and getting rich, there is always potential for South African financial services. There is a lot of opportunities as we get more entrenched in other markets.”