FINANCE & EQUITY48

BusinessBrief December/January 2014/2015

CASH crunch continues!The average South African’s disposable income has declined for the first time since January, while de-population of the ranks of the lower middle class continued over the past three months. This is according to the latest BankservAfrica Disposable Salary Index (BDSI).

2014 has had two negative months of take-home pay so far. The average disposable salary

came in at R12 224 in August. While slightly lower than July, it remains 6.1% up on a year ago. With inflation at 6.4% in August, the actual salaries are weaker after the catch-up of pay increases from general government and state-owned enterprises. The BDSI shows that real salary increases are once again becoming constrained.

Tighten the belts even moreThe BDSI indicates retail sales may in the next month or two, be lower than July. The formal sector employee is less likely to afford as many or as expensive new cars as before. Wages may be increasing, but are not going to increase at the same rate as before.

The total value of salaries (including pensions and ultra-high income individuals) saw an increase of just over 7% to R44.8 billion. This, along with credit data, suggests that South Africans are not increasing their debt levels and are rather concentrating on paying the debt back. Confidence in low interest rates is also probably declining. In addition, the financial sector has become more careful in granting loans to the lower end of the market.

More people get more, but fewer blue-collar salariesThe number of people receiving between R50 000 and R100 000 in disposable income per month, grew by 24.5% year-on-year. The next highest category (between R25 000 and R50 000) grew by over 18%.

Those receiving less than R4 000 in

their bank account grew by 10.8%, but the largest category, those earning between R4 000 and R10 000, again declined by nearly 2.5% year-on-year.

An interesting fact is that the number of people earning between R4 000 and R10 000 per month now makes up 42.6% of the total, while those earning between R10 000 and R25 000 currently makes up 35.3% of the sample in the BDSI.

The category of those who earn between R25 000 and R50 000 is estimated to be 8.1%. Those taking home over R50 000 and up to R100 000 make up 1.5% of the total BDSI.

The lowest income category, namely those earning below R4 000, now reflects just over 13% of the estimated number of people in the BDSI. This means that more than 55% of South Africa’s working population, as reflected by the BDSI, earn less than R10 000 per month.

More people are earning higher salaries, while the bottom end of the middle class – those earning between R4 000 and 10 000, is de-populating. It is also quite clear that the growth in the number of accounts receiving over R10 000 is growing in double digits.

Although the BDSI does not include individuals earning over R100 000, it is interesting to note that this category has grown by 27.2% in August, year-on-year. This category has now seen growth of over 37% for the first eight months of 2014, over the same eight months of 2013. The trend of more people entering the higher income brackets is partly due to above-inflation increases within these categories.

An interesting trendA trend that needs further investigation over the next year is the decline in the number of employees earning between R4 000 and R10 000 as take-home pay, while categories above and below this range continue to see actual growth.

However, the fact that the category including those with a take-home salary of over R10 000 has grown from 34% to 44% in less than two years must be an indication of wealth creation in the South African formal sector. n

@mikeschussler

“More people are earning higher

salaries, while the bottom end of

the middle class – those earning between R4 000 and 10 000, is de-populating”

By Mike SchüsslerChief Economist Economists.co.za mike@economists.co.za

NEW PRINCIPLES for FINANCIAL instruments

BusinessBriefDecember/January 2014/2015

49FINANCE & EQUITY

The International Accounting Standards Board recently released a new accounting standard on financial instruments. The new standard is

expected to have a significant impact on how entities classify and measure financial instruments. It includes a new approach to impairment as well as a fundamentally revised method of hedge accounting.

Financial instruments are found on the balance sheets of most companies from the corner café to the large corporates. Examples of financial instruments include loans, trade receivables and trade payables, share investments, cash, bank overdrafts and more complex instruments such as interest rate swaps and forward exchange contracts.

The new standard, called IFRS 9: Financial Instruments, addresses all financial instruments and is applicable to entities who prepare their financial statements using IFRS.

Classification and measurement (excluding impairment)While the classification and measurement of financial liabilities has been left mostly unchanged, IFRS 9 has resulted in significant changes to the categories and categorisation of financial assets. The new categories for financial assets under IFRS 9 are: Amortised Cost, Fair Value through Other Comprehensive Income, and Fair Value through

Profit or Loss.The categorisation of financial assets has shifted to a principle-based system which centres around 2 principles: the business model the entity applies in managing its financial assets in order to generate cash flows and create value and whether or not the cash flows are solely payments of principal and interest.

ImpairmentThe new approach to impairment contained within IFRS 9 is known as the expected credit loss model. Under

the expected credit loss model it is no longer necessary for an impairment event to have occurred before credit losses are recognised. Rather, entities are required to continuously account for expected credit losses.

The expected credit loss model applies a three stage approach to recognising expected credit losses: Stage 1: 12-month expected credit losses; Stage 2: lifetime expected credit losses; Stage 3: credit impaired lifetime expected credit losses. The model is expected to result in more timely recognition of credit losses.

Hedge accountingHedge accounting has been fundamentally revised in IFRS 9. The revisions align hedge accounting more closely with risk management practices of an entity. Like the categorisation of financial instruments, the new hedge accounting is a more principle-based method.

Effective dateThe new standard is effective for years beginning 1 January 2018 and is available for early adoption. If an entity elects to apply IFRS 9 early, it is required to apply all its requirements simultaneously. n

By Colin WheelerIFRS Manager MazarsColin.Wheeler@mazars.co.za

@Mazars_SA

NEW PRINCIPLES for FINANCIAL instruments

This will affect balance sheet ratios that are often used by banks both for pricing loans and as the basis

for debt covenants.

The US Securities and Exchange Commission has estimated the undiscounted value of future lease payments among US listed companies alone at more than US$1.25 trillion.

The implication is that restated balance sheets could result in companies breaking their debt covenants, in which case such loans may have to be repaid on demand. The exact nature of the final changes is still unclear, but what companies with business loans need to acknowledge is that this is a very real threat.

The uncertainty stems from differences of opinion between the two accounting standards bodies over how leases are to be reported on the balance sheet. The IASB has proposed a single model in which assets and liabilities are amortised on a straight-line basis using the effective interest rate, while the FASB has suggested separating between purchases and operating leases.

The latter method would result in a distinction between operating leases - defined as type-A leases - and loans on assets – type-B leases - in the income and cash flow statements. Current accounting rules allow companies to keep operating leases off the books, or to account for capital leases as debt.

These substantial changes could place companies in a difficult position if their balance sheets are significantly weakened.

Grant Thornton’s International Business Report (IBR) showed that 69% of South

Africa companies surveyed were aware of the proposed changes. This was up from the 52% in the first quarter of 2013.

Grant Thornton’s International Business Report (IBR) provides tracker insights specifically presenting perceptions into the views and expectations of over 12 500 privately held businesses surveyed in total per year across 44 economies on an annual basis. Data relating to Lease Accounting draws responses from more than 3,000 businesses globally in 45 economies in February 2014.

Despite the heightened awareness by SA business executives, the data indicates that 79% of local companies believed the changes would have no effect on their ability to comply with debt covenants which is rather concerning. This might be due to the belief that capitalised lease loans would possibly fall outside the computation of covenant ratios.

However, with nearly 67% of respondents having business loans and with 49% of them having debt covenants that could be payable on demand if they break these covenants, this is not a trifle matter.

As we don’t yet know which way this will go, it’s hard to refute the proposition that all businesses will be affected. If their borrowings or definitions of their borrowings will be affected by a new accounting convention, then most certainly the business will be affected. This talks to the point that each component of financing – capital goods, expansions, working capital, leases – will all require specific attention in financing agreements and not simply a blanket financing facility. n

Proposed changes to accounting standards that may have a material impact on company balance sheets threaten to catch unprepared companies off guard. The changes being mooted by the International Accounting Standards Board (IASB) and Financial Accounting Services Board (FASB) will require that all leases other than short-term leases be reported on the balance sheet.

By David ReubenPartner and Head of AuditGrant Thornton Johannesburgdavid.reuben@za.gt.com

@GrantThorntonZA

FINANCE & EQUITY50

BusinessBrief

LEASE accounting changes threaten!

December/January 2014/2015

A new KPMG International survey has found that 58% of family businesses are currently seeking external financing to fund their investment plans, but finding

the right strategic investment partner can be challenging.While family businesses create more than 70% of global GDP many say they find their fundraising options limited. Private Equity funding often requires the entire business to be sold to maximise value in the event of an exit, and corporate strategic partners often see any investment as part of a longer-term plan to secure full control. As a result of these limitations, many family businesses may not be maximising their growth potential.

It is estimated that there are up to 14mn High Net Worth Individuals around the world with around $53tn of wealth. Survey results show that the top priorities of HNWIs and Family Owned Businesses align, making this underutilisation surprising: HNWIs name long-term capital appreciation (37%) as their top driver for investment, while family businesses name long-term orientation towards investment returns as their top investor characteristic (23%).

Relations between family businesses and HNWIs in South Africa are exceptionally strong. Four out of five family businesses have already obtained direct investment from HNWIs – and all of them were positive about the experience.

The survey also found that family firms, in SA, were not just looking for a silent partner. All respondents were prepared for investors to offer advice and expertise – even offering a seat in the boardroom in one case. From the survey, education and awareness on the potential benefits of these partnerships have emerged as important first steps to link these two groups. This report has revealed some important misconceptions on the sides of both family members and HNWIs.

While there are challenges on both sides, Family matters: Financing family business growth through individual investors reveals that both family businesses and HNWIs have an appetite for investment and could prove to be highly compatible partners. n

Family BUSINESS finance!

By Craig Steven-JenningsPartnerKPMG in South Africacraig.steven-jennings@kpmg.co.za

@KPMG_SA

There will always be two opinions when evaluating a business – that of the seller of the business,

and that of the buyer. A seller of the business, who may have spent many years, and put much blood, sweat and tears into building it, will try to emphasise the most positive aspects. If he cannot find much to be positive about in the last set of financial statements, he will find it in the future prospects of the business and build it into his price.

The buyer, on the other hand, is almost always skeptical about what is under the hood of the business, more wary about the future of the industry on which he is about to place a sizeable bet, and,

if nothing else, keen on a

bargain. His

valuation will inevitably be lower than that of the seller.

Net Asset Value, the sum of the market value of each of the business’s assets, was a method commonly used in the past. This however has largely fallen by the wayside because it does not take the potential of the assets to generate an income as a fully functioning business into account. In contrast, the Price Earnings method (p/e) think is most often used today, uses the ability of a business to generate a profit as the starting point of the valuation. The p/e ratio indicates how many years it will take to pay off the selling price of the business with the profits generated by it. A p/e of five, for example, means the selling price can be paid off in five years.

There are many aspects to consider, such as whether the business has just emerged from a less profitable year, yet showed excellent profit the previous two years. The parties involved then have to agree on how to weight each year to determine the profit potential of an ‘average’ year.

Often the record-keeping is neglected or, just as often, income is under-declared and personal purchases disguised as business expenses in order to pay less tax. While the business owner may enjoy a slight tax benefit for a while, when it comes to selling a business, it is almost impossible to convince a skeptical buyer that the profits were actually much higher.

Further factors, such as such conditional clauses, can also complicate the buying and selling of owner-managed

businesses. Small business owners often resist conditional clauses that don’t influence the price, but these can provide some level of assurance to the buyer which can be a selling point. One very sensible arrangement is to insist that the previous owner remains on in the business for a few months to help with the handover.

It is advisable for both the buyer and the seller to seek the professional services of an accountant and lawyer to help guide them through the difficult terrain in search of a fair compromise. Any well-qualified professional accountant should be able to provide good advice on how to value the business.

Sellers should strive to present their price on real facts and figures as much as possible, the basis of which is a complete and verifiable set of books. Buyers are right to be wary, not only about the financial statements presented to them, but also about the fact that track record is no guarantee for future performance of a business.

Occasionally the price paid for a business can be off-balance with any valuation done on paper because of some strategic consideration, such as to minimise the competition in the market. Such strategic moves are only for the most experienced of entrepreneurs – those who have learned both the science and the art of valuing a business. n

The science & ART of valuing SMEsAccurately evaluating how much a business is worth is the most challenging part of the buying and selling process for both the current small business owner and prospective business buyer, as the question: “What is the value of this business?” is one of those best answered by another question: “Who wants to know?”.

52 ASSETS & INVESTMENTSBusinessBrief December/January 2014/2015

By Gerrie van BiljonExecutive director Business Partners Limitedgvanbiljon@businesspartners.co.za

@BizPartnersLtd

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Act on misselling & malpractice

A new CFA Institute study, Redress in Retail Investment Markets, makes six recommendations for how retail investors can help to address malpractice in the

financial markets. The recommendations improve upon the traditional approach to supervision. Regulators should focus on punishing misconduct through fines by empowering retail investors and users of financial services to seek compensation when they are harmed by misconduct.

Effective mechanisms for investor redress have a central role to play in the revised Markets in Financial Instruments Directive (MiFID II), which the European Commission and the European supervisor (ESMA) are currently working on implementing. The new Commission and Parliament will be called to pay increasing attention to this dossier, at a time when the policy-making agenda shifts from financial stability to investor protection.

Convergently, SA’s Financial Services Board tabled the “Treating Consumers Fairly” (TCF) regulations recently. TCF is an outcome based regulatory and supervisory approach designed to ensure that specific, clearly articulated fairness outcomes for financial services consumers are delivered by regulated financial firms. One of six tenets specifically highlights that products and services marketed and sold in the retail market are designed to meet the needs of identified customer groups and are targeted accordingly, which indicates that market integrity and misselling is an issue agnostic of geography. Misselling remains a top concern for investors and in many countries, supervision has so far largely ignored redress and focused only on fining misconduct. Redress is central to market discipline, investor trust and participation in the financial markets.

The study sets out recommendations for European and national authorities to increase the availability and quality of redress mechanisms in retail financial markets:

• Ensure retail investors can access “out-of-court” alternative dispute resolution (ADR) by setting up industry-wide schemes with the ability to issue binding decisions and where participation is compulsory for services providers.

• Provide guidance on the application of the consumer ADR Directive to financial markets.

• Increase transparency to foster awareness and comparability between schemes and jurisdictions.

• Strengthen the financial dispute resolution network (FIN-NET) with the capacity to monitor ADR schemes across the EU and to aggregate and publish all relevant information.

• Enable the relevant public authorities to set up special-

purpose ADR schemes in cases of mass detriment to investors.

• Develop a common supervisory approach in Europe regarding the monitoring of complaint handling, cooperation with ADR schemes, and the exchange of information.

A financial industry that better serves society must provide effective tools for investors to enforce their rights when faced with malpractice — especially as individuals increasingly rely on market solutions for their retirement incomes. The future of finance hangs, to a great extent, on delivering effective redress mechanisms for investors. n

By Nerina Visser Beta ExpertCFA South Africa Societynerinav@nedbankcapital.co.za

BusinessBriefDecember/January 2014/2015

53ASSETS & INVESTMENTS

@nerina_visser

With the debt burden increasing and interest rates rising, the need for sound

financial planning has become critical. Fortunately, people are starting to see the benefits of financial planning and the value of a competent financial planner in helping them achieve financial independence. As a result, a growing number of South Africans are looking for a professional who will act in their best interest, a fact highlighted in the recent global Comparator Research Survey, conducted by Financial Planning Standards Board (FPSB).

What companies are saying about the benefits of a competent financial planner?

According to the survey, 78% of companies surveyed in South Africa expect an increase in the number of people seeking professional financial planning advice in the short term, which is refreshing news for the economy. Consequently, the need for competent financial planners has awoken businesses to the value of a Certified Financial Planner professional with 50% expected to support their existing advisors in attaining CFP certification. This trend has been evidenced in the recent FPI Corporate Partner agreements between the Financial Planning Institute (FPI) and four of South Africa’s leading financial services institutions.

The CFP mark has become the business’ assurance that the professional is the most capable person for the job, due to their rigorous certification standards of qualification, experience and ethics. Accordingly, the CFP professional’s ability to competently address client needs was recognised by 80% of

companies who found that they have a positive impact on client satisfaction and benefit from increased client retention.

Not surprisingly, 80% of firms also indicated that these professionals:• have a higher rate of growth of assets

under management, • generate higher levels of revenue (and

profit) than advisors without the CFP accreditation, and

• present lower compliance and legal risks compared to those not certified.

How exactly are CFP professionals achieving such success?

CFP professionals understand the individual needs and financial situation of each client and offer a tailored approach, ensuring client satisfaction – a central goal of any business. This approach includes a comprehensive view of the person’s finances, advice on how to better manage these finances, and being instrumental in keeping them on track with their financial goals – which is probably the most difficult area to be disciplined in.

Not only can CFP professionals provide people with a much-needed roadmap for financial security, they are also able to support the business in better managing its own financial position. For example, there are a host of financial elements associated with business continuity that are often neglected and as such, could compromise the resilience of the business.

Financial planning is the most significant tool in lessening the impact of the economic downturn on both the consumer’s and business’ purse strings. Ultimately, financial independence will be the greatest contributor in relieving widespread financial pressures and uplifting the South African economy. n

As much as South African’s place emphasis on goals, they are generally bad at planning to meet their financial goals. In the context of an economy that is growing below its potential, a reality for most is that neglecting this aspect could result in undue financial pressure.

By Godfrey NtiCEOFPIGodfrey@fpi.co.za

@FPI_SANews

The CATALYST for stability!

54 ASSETS & INVESTMENTSBusinessBrief December/January 2014/2015

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For more information visit us atsbv.co.za, or call us on 011 283 2000.

Smart thinking. Secure solutions.

SBV FMCG Reatiler 275 mm x 70 mm_Beyond Money.indd 1 2014/10/17 1:53 PM

the exchange where it has a primary listing. The fast track listing process seeks to significantly reduce the time it takes to attain a secondary listing on the JSE.

The streamlined process means that a secondary listing on the JSE gives companies the opportunity to access South Africa’s deep pools of capital at a lower cost by eliminating a second round of administrative preparation for listing.

The process will also make it easier for multinational companies already operating in South Africa and the rest of the continent to list here. Companies can use a listing on the JSE as a springboard into other countries in Africa. International investors trading on the JSE are looking the opportunity to stock pick top African listings and companies operating in Africa can showcase themselves better on the JSE than on a large international exchange where they run the risk of disappearing in the crowd.

The JSE has satisfied itself with the disclosure and regulatory approach of the accredited exchanges. The World Economic Forum (WEF) has ranked South Africa in first place for the regulation of our securities exchange for the past five years and we believe the fast tracking listing process does not compromise the high standard of regulation we have set for ourselves in any way. n

JSE listing requirements

As part of the amendments to the Listing Requirements, it has also introduced a fast track listing

process to make it quicker and easier for companies already listed on certain international exchange to secondary list on the local bourse.

The new fast track listing process allows international companies, who have already been admitted to certain other major stock exchanges for a period of at least 18 months, to place a secondary listing on AltX or the JSE’s Main Board. The following exchanges are accredited by the JSE for the fast track listing process:

• Australia Stock Exchange • London Stock Exchange • New York Stock Exchange (NYSE) and

NYSE Euronext • Toronto Stock Exchange

Companies listed on the above exchanges and making use of the fast track listing process do not need to produce a prelisting statement and, instead, will only release a prelisting announcement. This announcement contains certain disclosure items pursuant to the Listings Requirements and details of the actual listing on the JSE, which is then read in conjunction with the company’s latest published information (including its annual report) which has been prepared in accordance with the requirements of

The JSE has made global amendments to its Listings Requirements which were announced to the market on 29 August 2014. These amendments will result in the issue of a whole new service issue, Service Issue 18.

By Donna OosthuyseDirector: Capital MarketsJSEdonnao@jse.co.za

@JSE_Group

Banks MUST restore trust!The recent failure of African Bank, and the subsequent Moody’s downgrading of all South African banks, indicates a serious lack of trust in the compliance culture of our banking system.

Realistically, no other South African bank suffers from the systemic rot that seems to have

been in play at African Bank over the last several years. According to a recent exposé in Die Burger, African Bank has been guilty of over two hundred transgressions of the National Credit Act. Why was the failure of the bank not predicted, whether by the auditors, the National Credit Regulator (NCR) or the South African Reserve Bank, and why was meaningful action was not taken to stop these practises?.

Moody’s downgrade is harsh, and arguably, uncalled for. It will add significantly to the cost of capital for the banks, and for government – costs that will be passed on to the tax payer and the borrower. One must assume that it is based on their belief that African Banks’ lending practises, and the lack of any significant consequence prior to the collapse may be replicated in other lenders.

Compliance projects are grudge purchases. Executive management has a fiduciary responsibility to minimise unnecessary costs and, in some cases, this may lead to a culture of compliance with the bare minimum letter, rather than the spirit of the law. The complexity of risk management, combined with the need to allow each bank to adapt to their unique circumstances, means that the specifics of compliance, particularly related to the specifics of risk reporting, are open to interpretation.

For many banks, data governance and data quality are still seen as tactical solutions, delivered by IT in the data warehouse, rather than as strategic initiatives designed to ensure trust in

the banking system. Once trust has been lost, these disciplines may be part of the solution to winning trust back.

Documented and shared data policies define the culture of the organisation. Under what circumstances may a loan be granted and what data must be captured to ensure these circumstances have been met? Data quality rules can be implemented to identify and deal with transgressions immediately, or to prove compliance and reduce the monthly reporting burden. The failure of African Bank may herald an increased focus on enforcement of legislation, as both auditors and regulators seek to regain the trust of the international community. For banks, customer data quality may need to be improved to ensure accurate total exposures can be measured, and to ensure accurate daily reporting to the credit regulators. New international legislation such as Foreign Account Tax Compliance Act (FATCA), Dodds Franks and the Basel III BCBS 239 “Principles for effective risk data aggregation and risk reporting” are adding to the compliance burden.

An international trend being replicated in SA is the appointment of a Chief Data Officer (CDO) to take responsibility for data compliance. Yet, this role may prove to be a poisoned chalice if the CDO has to rely on IT for data quality and governance support. Data management is a specialist skill that is not often a characteristic of the typical IT professional. Internationally, the CDO drives Data Governance and Data Quality as a business function that relies on key business stakeholders to define and implement data governance policies, data quality rules and the like. The CDO cannot afford to place her success in the hands of IT but must find tools that are accessible to business data

owners and stewards. External reporting burdens require flexibility, agility and, most importantly, urgency. Business must be able to interpret changes in risk results on a month-by-month basis, adapt existing reports to meet changing circumstances, measure and report on risk data quality, and explain variations to regulators in order to regain trust.

South African banks are well regulated and we should not expect another catastrophic failure similar to African Bank any time soon. However, the reputation of the South African banking system must be restored. The data management aspects of compliance can no longer be regarded as surplus to requirements. Banks must improve the way in which they govern and manage the quality of key risk data if they are to restore international trust. n

By Gary AllemannManaging DirectorMaster Data Managementgary@masterdata.co.za

56 BANKING & INSURANCEBusinessBrief December/January 2014/2015

@gary_alleman

BusinessBrief_Menu137x210.indd 1 18/09/2014 11:35

The South African Institute of Chartered Accountants (SAICA) encourages people to familiarise

themselves with the Second Draft Demarcation Regulations before they are finalised.

The draft demarcation regulations seek to address concerns that certain health insurance products in the long- and short term insurance markets could be harmful to medical schemes by enticing younger and generally healthy members to opt out of medical scheme cover. The health insurance products under contention include hospital cash back plans, where the insurer pays out a certain cash amount per day spent in hospital and medical expenses shortfall for expenses not covered by the medical scheme.

The draft demarcation regulations recognise the role that health insurance products play, and support the continued sale of gap cover and hospital cash plans, provided that the design, sale and marketing of these products are complementary to medical schemes.

The SAICA medical schemes project group submitted its comments to the National Treasury, saying they “remain strongly supportive of the objective to avoid further destabilisation of the medical schemes environment, and is appreciative of the introduction of regulatory changes to ensure that health insurance products do not compete with or undermine medical schemes.”

The draft demarcation regulations

still contain certain ambiguities and areas for clarification. This is crucial to ensure undesirable products from entering the market and equally preventing desirable health insurance products from market penetration.

If the regulations are implemented in their current form, the design of medical aid schemes will be such that members do not have the benefit of life-long cover, and have to top those up with health insurance products provided by long- and short term insurers to fill this gap. n

What product are YOU buying?

By Tshegofaco RametsiProject director of assurance SAICAtshegofacor@saica.co.za

@saica_ca_sa

57BANKING & INSURANCE BusinessBriefDecember/January 2014/2015

The key to ensuring that debit orders are correct is by using written mandates that

authorise a company to process debit orders on a client account on a regular basis.

It is important to note that banks fulfil the function of a payment facilitator. A debit order is therefore not a contract between the customer and the bank, but an agreement between the account holder and

an external company.

Typically, debit orders are instituted against accounts when a company has agreed on dates and amounts that are to be deducted from its accounts. An agreement is put in place with the collector of the debit order, and a debit order name is placed on the account. Deductions then begin.

The recent attention paid to unauthorised debit orders appearing on customers’ statements does not make this form of payment untrustworthy or inefficient.

Although the spotlight has recently been placed on unauthorised deductions through questionable debit orders, these incidents make up a small percentage of debit order transactions that are processed by banks.

Disputes about debit orders often arise because there is no written mandate from the customer authorising the service provider to deduct a set amount for a certain period. Against this requirement, is the reality that more and more instructions for debit orders are being placed verbally with businesses that contact

customers directly.

The first port of call for a customer disputing a debit order should therefore be directly to the company providing the service. This company should be able to prove, through a recorded conversation, that the debit order was verbally authorised. If the company originating the debit order cannot provide the necessary proof, the customer should then declare a dispute and request a refund of the money paid out. The Payments Association of South Africa (PASA), responsible for managing payment systems in South Africa, alone, monitors about 30 million debit orders, with a value of about R72 billion, on a monthly basis.

The best course of action, however, is to stress that a verbal exchange is not enough to authorise debit order transactions. Customers should insist that a written debit order mandate is sent through so it can be authorised in writing with both parties holding copies of the agreement. It is important to note, however, that the easiest way of ensuring that disputes do not occur is for the beneficiary of the debit order and their customers to have written, mutually agreed mandates in place. n

Although recent actions taken to tighten up debit order rules will undoubtedly reduce the incidence of disputed deductions from accounts, there is still a mutual responsibility for both the service provider and the customer to ensure that debit orders are correctly authorised.

By Ethel NyembeHead of Transactional Products & Services Business Banking Standard Bank Ethel.Nyembe@standardbank.co.za

58 BANKING & INSURANCEBusinessBrief December/January 2014/2015

Legitimate debit orders?

“Disputes often arise because

there is no written mandate from the customer”

@SB_BizConnect

Are YOU ready for SAM?

S ince the Financial Services Board (FSB) first published their roadmap for the Solvency and Assessment Management (SAM) in 2010,

traditional insurers have dedicated resources to develop their systems and processes in preparation for the SAM regime. But as captive and niche insurers typically have little to no full time employees, skilled or available outsourced service providers play an important role in the development phase and providing continuous support in implementation. This begs the question of whether captive and niche insurers are keeping pace with the onerous requirements of SAM implementation.

As a board member of a captive or niche insurer you need to be circumspect as to whether you are realistically on track to meet the deadlines contained in the SAM roadmap. The size and complexity of the insurer obviously plays a role and proportionality is taken into account by the FSB, but compliance with SAM is inevitable. Whether the FSB or the Reserve Bank will be the one with the stick, penalties will be levelled against non-compliant companies. And ultimately the board members will carry the can for risk governance. As a board member you should start asking yourself some of these questions:

• Do you understand what the drivers are to determine SCR and Technical Provisions (TP) based on the QIS?

• Do you know the difference between the standard model and simplification method contained in the QIS?

• Do have a risk rating methodology and risk register

to evaluate the material risks and can you project the future impact of these risks on your SCR?

• Have you developed and implemented your risk management policies?

• How your selection of assets affected the SCR?• Do you have a governance framework with control

functions and resources to execute, monitor and report the results of ORSA?

• Are the people that fulfil head of control functions qualified and experienced to provide assurance?

• Have you embedded the results of the QIS3 to prepare for the SAM parallel runs?

• Are you comfortable that you have the right resources to complete and submit the QRT’s?

If your answer is ‘no’ to some of these questions, it could mean that you might not be ready for implementation and the fast tracking of your activities is critical. n

59BANKING & INSURANCE BusinessBriefDecember/January 2014/2015

By Magda KendallHead of Risk Advisory and Captive Solutions Aon South Africamagda.kendall@aon.co.za

@Aon_SouthAfrica

The problem is that this idea perhaps isn’t wrong. There definitely is some truth to this

and a lot of agency work adds to this perception; we’re sometimes our own worst enemy. Start by imagining a world without advertising. The true and compelling reason marketing and advertising exists in the modern day is that companies, new start-ups or large behemoths, believe they have or offer something better or more interesting than their competitors.

Once they have it or find it, they would like to tell people about it. (Companies that waste, yes waste, money on advertising vanilla products blow my mind every day; rather spend the money on designing products the customer wants).

With the amount of information available online through social media, forums and general reviews, anyone who does the slightest bit of research can protect themselves from buying a bad product, and poor companies are no longer able to hide behind good advertising. So, a good product is fast becoming a hygiene factor. A great product tends to sell itself (Apple) and we often say, the best form of advertising is product.

The sad truth, though, is almost everyone advertises. And the bigger companies spend a lot more money doing so than the innovative little companies can afford. So, and this is where it gets interesting, the little companies are forced to innovate and push the boundaries and grow interesting challenger brands and build niche communities and ambassadors and brand loyalists.

In other words, advertising is a result of competition. The more competition there is in an industry, the more big companies need to advertise and the more the smaller companies need to innovate to gain a share

of the pie. So what about a world without advertising?

Let’s look at the flipside, and amazingly, there is a real world example of this. Cuba, because of governmental control in what goes on the shelf, has no or very little competition for most products. And because of it, there is very little need to advertise and there is hardly any advertising in Cuba.

Without competition, we find a world with no advertising. And without advertising, we would find a world with no competition. Advertising is the result of healthy competition. And healthy competition, in the consumers’ world, is a fantastic place to be.Competition drives entrepreneurship, innovation, interesting products and new designs. Competition forces everyone to try make things different and better.

Without competition, only the big brands would survive. And they would very likely become lazy and fat and rich. And the little guys would suffer. And innovation would slow down. And consumers would be a lot worse off because of it. A world without advertising would be a horrible place to be. Now, what I would really like is a world without bad, wasteful advertising. n

A WORLD without advertising...?

There is a misconception around advertising where it is seen as a marketer sitting in an ivory tower engaged in a supreme form of psychological trickery to fool the unsuspecting consumers into buying a product they don’t need.

By Dean Oelschig Owner Halodean@brandhalo.co.za

60 MARKETING & SELLINGDecember/January 2014/2015BusinessBrief

@deanoelsch

“Without competition, we find a world with no advertising. And without advertising,

we would find a world with no competition”

IMM_GSM_BusinessBrief C.indd 1 11/13/14 11:15 AM

Fewer and fewer consumers believe the messages that are being put out by traditional

advertising messaging.

Marketing is neither transparent nor authentic by nature. Consumers are starting to care less about what companies are selling and more about why they are selling what they do. This purpose-driven trend paired with more astute consumers, has resulted in the move towards more honest marketing

– authentic marketing.

Unlike traditional advertising, authentic marketing looks internally to determine what the organisation stands for beyond just making profit; what is its purpose? To determine organisational

direction and core values, business partners and key company executives need to define; ‘what is it we stand for that will never change, even if it proves to be a disadvantage at times’?

This approach gives communication direction in terms of what is ‘right’ or ‘wrong’ for the organisation. It also creates long-lasting relationships with consumers, which ultimately paves the way for a successful and sustainable business. Authentic marketing is less about the touch-points weaved into an organisation’s marketing strategy or campaigns, and more about the stories that are told by the organisation. To this point, these stories should not be artificial, but rather an extension of the businesses’ self-expression.

With the boom of social media the power has shifted from the organisation to the consumer, which is why it is very hard to hide behind unauthentic marketing, because the truth will always reveal itself. Sustainability through authentic marketing requires businesses to reward loyal followers, and to be consistent, charitable and honest, with proof of what the organisation claims. n

Sustainability through AUTHENTICITY

61MARKETING & SELLING BusinessBriefDecember/January 2014/2015

@dot_good

By Michael BarettaManaging director[dot]GOODmichael@dotgood.co.za

TIPS for a SUCCESSFUL sales teamAny company that wants to run a successful sales

team that delivers sustainable results needs to create an environment where employees feel

positive, motivated, empowered and confident.

Top tips for running a great sales operation:

• Choose the right people from the start Create a set of formal assessments based on experience that help separate strong candidates from less promising ones early in the interviewing process. Given the costs of training and the risks of sharing your intellectual property, you don’t want to only identify a culture mismatch after you have hired and trained someone.

You want people who can foster deep, lifelong relationships with customers and who are willing to work as if they are working for themselves.

• Create a culture of learningSalespeople want to feel that they have a career. They also want to develop in their positions and grow as people. Invest continuously in employees’ growth and development. Many become interested in eventually moving into management or into other roles in the organisation. It’s important to provide opportunities for them to mature as business people.

Formal and informal learning programmes have a major impact on commitment, performance and retention of sales staff. Spend a lot effort on training, coaching and mentoring.

• Measure performancePerformance management is also important - and this goes beyond tracking how salespeople are performing

against their sales targets. Track many elements of your sales team’s performance on dashboards - this gives us insight into where they are doing well and where they could improve. The measurement of performance is possibly the most important element of running a great sales operation.

• RecognitionIt is important to give lots of recognition to sales staff. Give public and personal recognition for the behaviours that exemplify culture and values. Examples of such behaviours include going the extra mile to care for someone going through a difficult time, being innovative, providing amazing customer service, or over performing against targets. Hold monthly one-on-ones between salespeople and their managers. Direct feedback and positive recognition is invaluable to career progression.

Running a good sales team is about finding the right talent, nurturing it - and here’s the hard part, retaining it. It’s important for salespeople to be driven and have an entrepreneurial spirit, yet we mustn’t lose sight how important it is for them to fit into the company’s culture. Look for that mixture of ambition, with an eagerness to embrace a culture of learning. Furthermore, customer knowledge and business flair is what make a sales team world-class. n

By Sandra SwanepoelSales directorSage VIPSandra.Swanepoel@sage.com

@SageVIPpayroll

62 MARKETING & SELLINGDecember/January 2014/2015BusinessBrief

63MARKETING & SELLING BusinessBriefDecember/January 2014/2015

The future of brand marketing – if it has one – has been put up for debate following a recent marketing industry event called to examine key frustrations and controversies affecting the professionals who bring goods and services to the South African consumer.

BRAND marketing’s future?

Potentially explosive topics were deliberately tabled by the Brand Council of South Africa

(BCSA). There’s an opportunity to explore hot issues such as the pace of transformation in ad agencies and marketing departments, the perceived lack of marketing industry thought-leadership, marketing’s capacity to drive societal change and whether marketing even warrants discussion.

Does marketing have a future? Is it a business function with limited scope and value or does it matter? Clearly, the BEE context has the potential to sharpen any discussion of marketing’s role and importance. Twenty years after black South Africans got the vote, do they have a voice in how marketing and advertising businesses are directed?

The involvement of black South Africans at every level in brand development and strategy represents a huge opportunity to add value by getting as close as possible to our market. But the question

must be asked ‘Is the value-add being realised or even pursued?’ A review of progress is warranted and some would say long overdue. Another industry controversy centres on branding in the boardroom. Some question whether the discipline is even understood by main board directors let alone properly discussed.

Certainly, the annual Brand Barometer survey reveals a growing perception that marketing lacks thought-leaders who can ensure marketing becomes a business driver rather than a bolt-on accessory. The post-recession corporate priorities appear to be operational efficiency, cost-savings, job cuts and the return on funds employed.

In this environment, does marketing’s capacity to drive top-line growth, jobs growth and economic growth get enough attention? Do South African businesses – and marketers – do enough to drive growth, job creation and economic revival? These are big

issues and it’s a hopeful sign that marketing professionals are widening the discussion.

An internal conversation within the marketing ‘family’ hardly moves us forward. It was therefore encouraging that the Brand Council decided to open the forum to CEOs, managing directors and executive directors from some of South Africa’s leading companies. To get South Africa working at full capacity we need to optimise marketing’s contribution to national growth. If we’re to move forward it’s important to initiate a high-level exchange of views involving decision-makers from the corporate sector as well as marketing professionals. n

By Ivan MorokeCEOTBWA\Hunt\Lascaris & Chairman of the Brand Council of South Africaivan.moroke@tbwa.co.za

63MARKETING & SELLING BusinessBriefDecember/January 2014/2015

@TBWAAfrica