RANDS AND SENSE
By Abdallah Moosa
Blanket financial advice is the notion that the best financial advice suits everyone. The problem with this is people, their lives, and their circumstances are unique. They have different histories and face different prospects, and because of this, advice that would be in everyone’s favour is very hard to come by. The mistake many people make is to assume that great financial advice given to a friend or family member should apply to them too.
We live in an era where the majority of the media we consume is digital, and a great deal of it comes in the form of social media – think Twitter, Facebook, Reddit, Instagram and TikTok. Social media platforms are now the proverbial “global town square”, where almost everyone is free to share their views and opinions. The glaring truth is that the risk of misinformation is at an all-time high.
How qualified is a finfluencer?
In South Africa, financial advice is regulated, meaning that what constitutes advice and who can give it, is controlled. However, social media influencers, also known as “finfluencers”, often dish out guidance under the banner of “this is not advice”, but many of their followers do not fully understand that what they’re saying may not be legitimate – and may even cause harm to their financial well-being.
In most cases, these finfluencers have no credible qualifications or experience – they don’t understand the intricacies of ever-evolving financial products, markets, or risk. On top of this, what they dish out is often generalised and shared to a blanket audience, meaning that it may not be suitable to some or all.
Finally, their motives are conflicted, as these influencers are not rewarded for the quality of their advice and the success of their clients. Instead, they stand to gain by amassing followers and views, without any oversight on what they preach. Combined, this may be a recipe for disaster for anyone who is trying to start their financial well-being journey.
When details matter
As an example, saying everyone who is saving for retirement should make use of a retirement fund vehicle, like a retirement annuity fund or pension or provident fund, is an example of blanket advice that would not be suitable for everyone. Based on the 2023 tax-year income tax tables from the South African Revenue Service, if you earn less than R7 600 per month, and receive no other sources of earnings or investment gains, you should be paying no income tax. If you contributed to a retirement fund vehicle, you would not get any income tax relief, as you are not paying any income tax to begin with. However, you will face the restrictions associated with a retirement fund, like restricted access or investments subject to Regulation 28 (which limits exposure to higher-risk investments).
What may be more suitable for you, is a Tax-Free Savings Account (TFSA), which gives the same tax relief on investment growth as a retirement fund, without any of the withdrawal or underlying investment restrictions. The TFSA does come with its own restrictions, like an annual contribution limit of R36 000 and a lifetime contribution limit of R500 000. If you are only able to save about R1 000 per month for retirement, you would only reach the current lifetime limit in about 41 years.
However, if you are someone that does not have the self-control to leave your earmarked retirement savings untouched, the restrictions of a retirement fund may impose the discipline needed. TFSAs and retirement funds also have different treatments on death, which may influence which is better suited to you.
Advise me if you know me
Although a simple and narrow example, it shows the nuances of people’s circumstances and behavioural traits that need to be considered before imparting advice. It is truly understanding the client’s end needs, wants, psychology and circumstances that can be the difference between value-adding and destructive advice.
Before you accept advice that you have read on social media, ask if the person who wrote it really knows what they are talking about – and more importantly, if they really know you.
Abdallah Moosa is an actuary and financial planner at Fiscal Private Client Services.