A recent survey has revealed a range of insights into how black consumers are saving and investing, how they are accumulating funds towards retirement, as well as their attitudes towards financial advice.
The research was conducted by The Collaborative Exchange and the Association of Black Securities and Investment Professionals (ABSIP), which represents black professionals across the financial services sector, not only stockbroking and asset management.
Unfortunately, the full research report is the property of the sponsors – Assupol, Momentum and Mianzo Asset Management – so The Collaborative Exchange’s chief executive, Kevin Hinton, was able to share only a high-level view of the findings.
The research had a quantitative and a qualitative component.
In the quantitative component, ABSIP’s membership base was asked to complete an online survey, where 321 members across all provinces provided their insights. To be eligible for the survey, participants had to have household earnings of at least R20 000 a month. Most respondents were in the upper-income brackets, and 78% of the respondents had an Honours or a Bachelor’s degree.
For the qualitative component, The Collaborative Exchange interviewed 40 financial advisers throughout South Africa, with an equal mix of black and white advisers (60% male and 40% female) and spanning all financial adviser types (bank financial advisers, large corporate independent financial advisers, and medium to small independent financial advisers).
Adviser preferences
According to the quantitative research, nearly 66% of respondents said they did not care about the race of the person who provides them with financial advice, while almost 24% want to be advised by a black person and 10% prefer to be advised by someone who speaks their language.
Most consumers who were using a financial adviser said they were satisfied with the service they were receiving and trust the advice they are given. However, those consumers who did not use a financial adviser said they did not know what the role of a financial adviser was and had no interest in seeking their services.
More than 60% of the respondents were happy for their investment funds to be invested in both South African companies and international companies, whereas only 14.7% want to invest only in South African companies, because they want to grow the local job market.
Inflation-beating returns was the respondents’ primary investment objective, with less than 2% saying they want to invest in socially responsible companies that take care of the environment.
The survey revealed that black consumers are consciously saving towards retirement (87% of respondents) but are worried they are not accumulating enough.
Contrary to what some might expect from a survey of professionals and upper-income earners, more than 42% of respondents said they were contributing to a stokvel.
Most respondents are self-directed when saving and investing, using “new age” technology platforms to access shares/investment securities. Given the high preference towards self-directed investments, platforms such as Twitter and TikTok play a strong role in influencing investment decisions.
More than 71% of respondents agreed with the statement that the industry is “not solving for” the savings and investment needs of their communities in South Africa. As this was a quantitative survey, it was not possible to interrogate what respondents wanted the industry to do in this regard. However, some 56% of respondents said there should be greater access to financial advice, 26% want better savings and investment products, and 10% want better retirement products.
Regulations are an obstacle
The qualitative research conducted among financial advisers found that black advisory businesses are increasingly growing their client base but believe the industry is not doing enough to ensure the success of black independent financial advisers, because complex industry regulation, and the cost thereof, is restricting new entrants and limiting the reach of incumbents.
Hinton said the quality of young black financial advisers entering the industry as independent financial advisers is impressive. The Asisa Academy is bringing a new financial adviser to the fore. “However, this is solving for a microcosm of the need that exists. Most South Africans do not have access to quality independent financial advice.”
He said new regulatory and fee commission dispensations, where industry commissions have been replaced by “as and when fees”, makes it very challenging for someone to enter the financial planning industry and survive financially.
“This means that access to financial advice may be the luxury of the wealthy only, further increasing the divide of unequal wealth distribution in South Africa.”
White financial advisory firms were actively recruiting black financial advisers as they look towards increased client diversity and potential BEE regulations.
Despite this, less than 5% of white advisers’ clients are black. On the other hand, some 30% of black advisers’ clients are white, which is probably because black advisers who worked for large, established companies often bring some of their white clients with them when they set up their own advisory businesses.
Established firms rely on referrals
Larger and more established white advisory companies tend to rely on referrals to grow their client base, as opposed to actively seeking new clients. This was not the case with younger advisers, who were using media channels, such as publishing articles online and advertising on vernacular radio stations, to grow their business.
Low levels of financial literacy, coupled with complex documentation, industry jargon and complex fee structures, were all impediments that financial advisers faced in advising black clients.
Financial advisers still struggle to get black clients to shift savings from low-interest-yielding and inflation-destroying products, as the concept of “capital growth” via unit trusts is still not well understood.
There is bias among black clients towards products with guarantees, not only with bank products but also when buying a pension (life annuities are favoured over living annuities).
Banks and life offices remain the main medium whereby black consumers access financial advice, because they have broad geographical reach and brand resonance. There is a clear preference for using brands that have a physical presence (branch) in the community.
When it comes to buying life insurance, a key influence is the extended family’s experience with a brand of funeral insurance. Consumers avoid brands where they have a bad experience, either because of mis-selling or because the policyholder did not understand the product.
