By The Horns: A Bitcoin podcast about South Africa
By The Horns: A Bitcoin podcast about South Africa
The truth about financial advice in South Africa - with David Joshua
Follow David on LinkedIn - https://www.linkedin.com/in/david-joshua/
David's website - https://www.resonance.global/
SPONSOR: Bitcoin Only - https://bitcoinonly.io/
Discover the hidden truths of the financial advisory world with David Joshua, a sage expert from the trenches of Standard Bank, as we unravel the tangled incentives dictating investment advice in South Africa. This episode promises a treasure trove of insight, with David's expertise shining a light on the industry's conflicts of interest, and how you can navigate the murky waters of global investing. His book, "The South African's Guide to Global Investment," emerges as a beacon for those looking to expand beyond local markets, and together, we dissect the allure and realities of diversification in an interconnected global economy.
Amidst the financial noise, the enigmatic Bitcoin takes center stage. We examine its trajectory during economic tightening phases, its dance as both a speculative asset and a long-term investment, and its role as a diversification tool in your financial portfolio. This episode peels back the layers of Bitcoin's complex nature, highlighting its potential to hedge against economic instability and offer a level of control over personal wealth that traditional assets might not match. Listen closely as we ponder the fate of currencies like the South African Rand and speculate on the transformative power Bitcoin might wield over the next few decades.
The final act of our financial odyssey casts a spotlight on the personal responsibility one holds within the realm of wealth management. Through tales of missed Bitcoin boons and wisdom from unexpected sources, we scrutinize the traditional financial service industry's biases and conflicts. We debate the merit of advisors versus the empowerment of self-taught investment wisdom, stressing the importance of transparent and fair advisory relationships. Join us for a profound discussion that will not only challenge your perceptions of financial advice but also inspire you to take a more informed and proactive role in securing your financial future.
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Hello and welcome to another episode of Buy the Horns. Today I'm joined by David Joshua to discuss the absolute state of financial advice in South Africa. Now, some of you might know I used to be involved in this industry a few years back, so I know hard works from the inside from the inside the belly of the beast and David Joshua was even deeper inside of the belly of the beast than I was, so he knows what he's talking about. He has written a book about the South African guide to global investing, where he looks at the opportunities available for South Africans investing offshore. However, typically financial advisors do not provide South Africans with this type of advice, and that is simply because of the incentive structure that exists within the industry, which compels them to provide you with advice about products, which makes them money and does not really help your investment grow. So we go into this in depth in this interview, and if you really want to find out about what you're being told and what, more importantly, what you're not being told by financial advisors, then I'd advise you to stick around for this episode and give it a listen and, with that, over to David, enjoy.
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Speaker 1:Whether you need help setting up deep cold storage, multi-seged setting up wallets in your phone hardware wallets, we do it all, and Bitcoin payments especially. It's much better to earn Bitcoin than to buy Bitcoin. So incorporate Bitcoin payments directly into your business, get paid in Sats, and it's the best way to start sacking. So head over to BitcoinOnlyio today and get started. Ladies and gentlemen, welcome to another episode of Buy the Horns, a Bitcoin podcast about South Africa, and today I am joined by David Joshua. Joshua is a friend of mine and he has a very interesting background a transplant from England living in South Africa now, and is someone who knows quite a bit about the investment landscape in South Africa. David, welcome to the show.
Speaker 2:Thank you, ricky. It's wonderful to be here and thank you for your introduction. I've been in South Africa seven years now three and a half of those working in global investments on behalf of South Africans and, prior to that, a career working in investment management, asset management and helping people achieve their investment goals through a variety of different solutions and services, and I gather we're going to talk about some of those today.
Speaker 1:Yeah, absolutely. So before we jump into that, do you mind just give it like a bit of a broad clip notes overview of your career up until this point? What led you to where you are now?
Speaker 2:Certainly so. I grew up in an offshore finance centre, jersey. You can see the coast of France from it, but it's a British island a little bit like Gibraltar. I joined PricewaterhouseCoopers in trust at the turn of the century in the year 2000, and since then was working for Fidelity on their graduate scheme, hsbc in Mayfair as a discretionary wealth manager, santander and Latterley for Standard Bank, where I worked for a couple of years in Jersey and then came over to build the retail offshore investment distribution team. And then Latterley moved into a role for global distribution for Standard Bank's investment arm Merleville Douglas in Johannesburg.
Speaker 1:All right. So I don't think you get any deeper into the belly of the beast than what you were then, where you were so in an offshore, grew up in an offshore banking haven and then moved into the world financial space, bank space, offshore investment, and then made your way over to South Africa to distribute offshore investments right.
Speaker 2:That is right, and so I hired and trained and led a team and we were all over the country helping sell the bank's products, specifically selling through advisors. So, for instance, standard Bank has 500 advisors FNB all these banks have very similar systems where they rely on individuals to sell and distribute their services. So much of what I was doing, almost all of what I was doing was intermediated by financial advisors. Occasionally I would meet a high net worth client directly, but really I was supporting and training the financial advisors.
Speaker 1:Yeah, so I really want to get into this topic, but I just quickly want to discuss something before we jump on to the distribution model for how these products work. But during all this time when you were working in this realm, you wrote a book as well, right?
Speaker 2:Yeah, so the rule about writing a book is, if you go to read it and it doesn't exist, you get to write it. So I spent all my career in offshore global investments and we're going to come into that distinction in a little bit. But I moved over to South Africa and I wanted to read a book on South African global investments. It didn't exist. I'd spent my career doing it, and so writing is one of the great tools that until we say or write something, we don't actually know what we think. It was a very good exercise for me to understand the landscape and to really perfect and hone my work. And, yeah, I only submitted it to a couple of publishing houses, and Penguin Random House South Africa picked it up and so that got published, which was a really cool honour, and I've had some really lovely feedback. It's still generating responses now. I had a gentleman email me on Monday about it four years after I published it. So, yeah, it's lovely to be able to bring that knowledge into the world.
Speaker 2:And what's the book called? So the book is called the South Africans Guide to Global Investment.
Speaker 1:Right, so very topical. So basically explaining to South Africans what their options are and how you can invest globally.
Speaker 2:So it's more than that. It's more than that. So one of the strange things about South Africa is right. So when I worked in London for HSBC and I would meet clients, we didn't have a thing called global investments. The assumption was you were going to invest globally because you could, because the UK does not have exchange controls. As a South African, you have been conditioned to think exchange controls are normal. They are not. They exist in a handful of countries in the world.
Speaker 2:Most countries, you can do what you want with your money within reason, but South Africa.
Speaker 2:Obviously we have this history of apartheid and numerous other factors that contribute, but essentially, for many decades it's not been possible to move your money out of South Africa without first notifying the authorities. And so, whereas in the UK I would sit opposite someone who had, let's say, a million pounds that was the rough size of the clients 10 years ago Then we would automatically HSBC's model portfolios would just indicate that half your money is going to go into the rest of the world Asia, America, you know all of these places. And then, coming to South Africa, people have a very, very strong domestic bias, and that strong domestic bias, as I said, is because you have been conditioned to think it's normal that you can't move your money your money where you want to move it. So the first thing I really had to do with clients is to let them understand that, although I've written a book called the South Africans Guide to Global Investing, it should really be just called. Just be called the South Africans Guide to Investing. And we do that globally by default.
Speaker 1:Sorry, struggling to unmute myself there. Yeah, this is so. So I only aim to understand this, what you're talking about.
Speaker 1:When I worked in wealth management as well, and I'd never really thought much about capital controls, I didn't realize that it was actually such a thing. But that's the case for most South Africans. They just don't realize that they can actually invest offshore. And it's not that they don't think they can't invest in the S&P 500 or the FTSE or DAX or whatever. It's just those options that never presented to them. So they kind of get led down the garden path into investing into other things and it comes back down to the distribution model that we spoke about earlier and that most retail investors in South Africa invest through a financial advisor. They are advised on how to invest and because of capital controls and because these advisors work for the big life insurance companies or the big asset managers, they lead them down the path into investing in these South African assets.
Speaker 1:So you end up way overweight South Africa and people don't even really take advantage of their full allowance to invest offshore, which I think now has been increased, larger than what it was when I was there. I think it's about 30% or 40% now it's increased slightly, but most people don't even go near that. It's JSE and South African government bonds and all those things, and so you end up with a skew, like you say, and South Africa's GDP is a percentage of the world we like less than half a percent, so why invest 100% of your money into something that's smaller than half a percent? I think it's like 0.1% of the global GDP.
Speaker 2:Yeah, and you've already doubled down. You live in this country. Like you know, this is home and this is my home and obviously, as homes go, it's we're not quite sure if it's built on rock or sand and we're not sure how long that you know the foundations are going to last. There's a load of existential issues that come with living in South Africa, and one of the blessings it's given me is the ability to worry less because there's so much to worry about.
Speaker 2:So my point is you know you already got a big concentration risk, which is called your life in South Africa. So what you don't want to do is have all your investments here, because obviously diversification of risk is how you mitigate risk. And so you know you just sleep a lot easier knowing that your money isn't at risk of opening the newspaper to South African specific news and realizing that you know, in a space for short few months as happened in recent memory in Zimbabwe you know all your wealth has dissolved into fire paper. So you know there are real, real, real reasons why, specifically in South Africa, it's a really good idea not to invest in South Africa. Nothing against South Africa, it's just that we already have South African exposure by our way of living and therefore just to move our money around the world and make sure that we're not subject to any specific economic risk, aka a country making bad mistakes or just having a natural disaster hit it is is good strategy.
Speaker 1:Yeah, but okay. So the South African bull would say to you yes, but from 1995 until 2014, the South African stock market was like in the global top performers, performed really well and you would have beaten the S&P, etc. So it was probably a good idea to be invested in South Africa during that time.
Speaker 2:Okay. So I've got a really cool story. So I used to go around and visit South African financial advisors for a living that was what I did during the week and talked about offshore investments. And you would, I would typically find an older generation was less receptive, and that's just the way humans work. So one of them said to me and I love the way you use the word bull, he said he said, dave, maybe I'll do a South African accent, but it won't sound anything like it. But I said, david, let me give you a story. Right, I have a bull, an actual bull, a cow, and the cow is working great and it's giving me all this beautiful other bulls and cows and money and stuff.
Speaker 2:Why would I ever think about needing another bull or diversifying into anything else? And I said you know, suitsy fly and I might be saying that incorrectly, suitsy fly? He said yes, and I said now your bull is dead and you've lost everything. How do you feel, right? So one of the great mistakes humans make is extrapolating the past into the future, and in investments that's called, you know, like jumping on the tech wagon, the healthcare wagon, the specific country wagon. So, first of all, you, all it takes is one event and all your money is wiped out. Second of all, it's also these things go in cycles. Life is cyclical, and so if you see a chart that has gone up for 20 years, it's probably not a good time to invest in it, because the law of mean reversion applies.
Speaker 1:Yeah, absolutely. And I mean I think the South African bullocket in local equities can be explained by the fact that our equity market was constrained hecticly by by no foreign inflows really during apartheid and then post apartheid country opens up foreign capital flows in, obviously stock market booms, as does the housing market, right?
Speaker 1:So people's houses, I mean my dad told me his first house he bought in like 1983 or something. He paid like 7000 round for the house, you know. And then, right, it's insane. So the housing market boom, the stock market boom, now that was all because of liberalization. Fast forward to 2014,. The structural problems of reinvestment into the economy aka not being reinvested, aka money all being stolen by the ANC that slows down the economic engine, plus a bunch of bad policy decisions. All of a sudden the stock JSE is not performing better than global peers, performing significantly worse, and you've got ran devaluation in dollar terms as well. And then you've got the real estate market and the rest of the country slowing down kind of since about 2017. And it's only really the Western Cape that's still. That's still moving, with a few kind of other select regions in real estate.
Speaker 1:So that thesis, my opinion, has ground to a halt. And now the local, the local bulls, don't really have much to offer. And if you were and it's always retrospective, right so if you weren't invested offshore and now you try and reallocate, it's, you know, be playing catch up for a while, and you know, and all the while your round is devaluing.
Speaker 2:I think it's. You know, there's this problem about timing the market versus time in the market, and people want to. People want to come in at the bottom and they want to sell out at the top, and that requires a crystal ball, and those who use crystal balls are destined to always eat glass, right? So we would see a lot of knee jerk reactions and clients. And you know, look, just if I could give you one piece of advice about your money. Don't worry, make a decision based on the best information you have, which is diversification into different asset classes, different geographies, different currencies, different modalities, and then you just leave it, because the worst investors are the ones who think that they are in control. You are not in control. They're. You just not in control on any metric you choose to measure, and so you're investing for the long term.
Speaker 2:If you're not investing for the long term, then sincerely, you may as well go down to the race track and put some money on a horse, because then you're gambling right and speculating, and there's nothing wrong with speculating that there really isn't. If you need some money quickly, you need to speculate, but if you need some money to make you secure in a the fact that you have an emergency fund and be that you have something to retire on. Then that's called investing, and investing is a long term game and it's done through mostly diversification, with some concentration risk where you want it. You know, I'm all for having, I like the 80, 20 rule. 80% of it is generally diverse and then 20% of it you play with and you can make your own bets and you can see who does better and you know. But then again, even if you do do better, your concentration risk is extraordinary. And so just applying to these basic principles time in the market and diversified investments- yeah, so there's one.
Speaker 1:There's one issue that I see happening, though, with the diversification arguments, and that's that global investments have the perception of diversification but because of central bank monetary policy being the same all the way all around the world, that diversification has been taken away. So it's essentially all markets now respond to the Fed's monetary policy. So if the Fed tightens interest rates, loosens interest rates, that has an effect all over the world, on economies all over the world. So, for example, the Fed decides to tighten interest rates in South Africa, our reserve bank then also follows suit and sizes interest rates like you don't?
Speaker 1:You very rarely do you see central banks not moving in lockstep with each other anymore, because they don't have independent monetary policy anymore, because everything all comes down to the dollar and interest rates control the price of money and therefore they control what happens in stock markets and what happens in bond markets, even much more than stock markets. But so you get this concentration risk of all stock markets moving up and down kind of at the same time and all bond markets doing not quite all bond because the same thing, but they all follow the US bond market. So how much diversification do you really have by investing in the FTSE 100 and the DAX, australian Stock Exchange and the JSE plus the S&P 500, when they're all actually correlated. Yeah, you might as well just go to the S&P 500 and ignore the risk.
Speaker 2:Yeah, and I think it takes like 20 global stocks to achieve 90% diversification. So there are a number of ways you can do it, as long as you've got you're not stuck in one country let's just say Japan and then there's a nuclear accident or a tidal wave. These things have happened. So you just, you just. It doesn't take a lot to diversify. But, as you're saying, equity as an asset class is highly correlated. Even some of the asset classes that traditionally used to be thought of as not diversified, such as bonds, that everything is correlated except I mean, even Bitcoin is correlated, but I think it's even negatively correlated and it might be a good time to talk about. You know where Bitcoin fits in in terms of a diversified portfolio, because it's really fascinating in the sense that it's an asset class as well as a currency, as well as a hedge. It fulfills a number of functions which I don't, which you can no longer get anywhere else in financial markets.
Speaker 1:Yeah, yeah, so. So I think you and I have come this conclusion independently, because we both worked in the same line and I've seen all these issues and my take on on on Bitcoin is that you can't it's very difficult to define Actually how it fits in you can't have these neat box of like it's gonna move like this, like equities, because it's a risk-on asset, because, yes, in some scenarios it is a risk-on asset and it does move, like if they start printing money again, but coins gonna. But by the same token, it's a risk-off asset because it's not controlled by central banks and it's not linked in that way. So it's gonna be correlated until it isn't thesis, and when that point comes, who knows? But it will come because they will print a whole bunch more money and they have, they're gonna have to. You know they.
Speaker 1:They have been doing this tightening cycle and breaking everything and you know people, there's a weeping and a gnashing of teeth about this. I think it's necessary. You have to wash our bad investments that have been Happening because of loose monetary policy for 15 years. So you have to raise interest rates to get rid of these bad investments. But that's gonna break. Then hurt, hurt things in Israel, world consequences. You know people lose their jobs and you know that the markets go for a ball, but but coin is kind of throughout that entire period. But coin is has done really well and, like you say, if you take a long-term view on these things like a 10 year plus time horizon, then you've gone from zero. The Bitcoin was basically to now Drop down back to like, let's say, $40,000, like that's the best performing asset kind of all of all time. You know.
Speaker 2:Yeah, and I just you know also, again, speculating or investing what are you doing and how you doing it and what are you using to do it? You know the people who hold Bitcoin. It's a speculative. It's speculative in the sense that it goes up rapidly, a lot, but it's also an investment in the sense that if you are worried about hyperinflation which has happened before if you're worried about governments Reclaiming your money, like for instance in South Africa, your pension is a huge problem, like the government can just take it.
Speaker 2:They did it in Argentina. When the government runs out of money, it wants it from somewhere. So, like you know what. What are you using Bitcoin for? And as a long-term buy-and-hold asset, it goes up significantly. But it's also a diversification Against some of these other assets which you know there's nothing wrong with them, but we just don't know what happens. And so you know having all your money in the dollar. For 20 years now, people have been talking about the end of the dollar at some point, just as Rome fell, as Egypt fell, as all of, as a British Empire Falls, the American hemogeny will fall, and I don't know if that's in my lifetime or next year, but you know, having these asset classes that hedge against those things while producing, you know, fairly incredible returns. Is is a phenomenal addition to the investment landscape.
Speaker 1:Really yeah, no, hang on. And and the freedom that it gives you is another, is another big factor, especially for people who live, who live monastery free. People live in a repressive financial regime. We've got capital controls this, according to the government, this may be illegal to move your money, but the point is that the shit, it's the fan, and South Africa goes fools and barbie and you have to leave. What are you gonna do? Are you gonna you get?
Speaker 1:If you don't have Bitcoin, you have to leave your house, pension fund, your stock portfolio. You can't take any that with you. You know what I mean. The government's stopping you from taking all of that, whereas with Bitcoin, you are able to take a portion of your net worth, depending on how you allocate. You're able to remember 12 words get on a plane or swim across the river or jump on a boat and Leave with your wealth and take that wealth elsewhere when it has the same purchasing power. Like that's first, except for gold. That's a that's a global first, and gold comes with the custody risk of moving it right? People shake you down at the border. You try to leave South Africa with your net worth. Bet you, those, those customs officials in that scenario Are gonna be shaking you down to take your gold and trying to hide gold in your well, wherever you hide it.
Speaker 1:But it becomes a very useful tool in that scenario. And For other nationalities this sounds far-fetched, but for South Africans I think people realize that this is not such a far-fetched scenario and Well, at least have the insurance.
Speaker 2:It's useful and and also I mean I, I know one guy comes to mind. He's a billionaire and he lives in Canada and you know he, he uses, he controls as well through Bitcoin, because it's just easier and you know. So there's it. There's a couple of reasons. I mean South Africa is particularly pertinent. Number two you are, you have true ownership of your wealth and Bitcoin, from everything I can understand from it. And then also a wise person said to me See if you can recognize the quote, ricky, you know, if you, if you're South African, do you think over a 30 year timeline, bitcoin is gonna do better or the RAND is gonna do better, even just on a? What do I want to invest in? What do I want to have my money? You know, and and the rat and, by the way, if anybody Hasn't worked that out, ricky said that and I thought it was a very, you know, interesting statement because, just on a pure RAM basis, the Randy values and again, I've watched clients the RAND went from something like 16 to 24 at one point right when I moved over to South Africa, and obviously your purchasing power has just been decimated by cool it roughly 30% in the space of six months, and there's nothing to say that that that kind of those kind of Big falls do not continue, and the inverse is also true. But you know, as I was saying, bitcoin gives you peace of mind, it gives you true diversification, which you can't find in stock markets, and it also gives you massive upside.
Speaker 2:I remember, you know, you have those conversations where you think what if? Sliding doors conversations. I was in the Isle of man. I took a taxi from the airport, I was in my suit, I was working, and this taxi driver was like, oh, you work in investments. I was like, yeah, this was maybe 2015. And he said Bitcoin. He said get all your money in Bitcoin, guys driving a taxi. And I was like, whatever you know, and and I at the time I had a vested interest in not Thinking Bitcoin would do well, because he's not driving a taxi anymore.
Speaker 2:Eat, right, right, he is not driving a taxi anymore because he was right. He, he, you know, he made millions and millions and millions of dollars of very marginal investments, relative, and you know what. What I'd like you to understand is the people you meet in the financial service, its industry, have a vested interest in talking Bitcoin down or ignoring it because they can't monetize it, or at least fewer than can. And Let me compare and contrast that when you walk into a financial advisor, they can charge you and I've seen this regularly Three, but they are encouraged by their managers and their corporations to charge you three percent upfront commission on your investment. Okay, so I'll give you an example. And and look, there are good financial advisors out there I really like I have a couple. If you want their names, you can email me and I'll introduce you them.
Speaker 2:I don't get anything for that, but I know a couple, all right most of them are trained how to sell and they want training how to sell and they want to sell because, at the end of the day, they take pride in their profession sales people and they sell Financial products rather than give clients the solutions and services that are right for them. Now, that's just the way things are set up. I'm not even saying it's good or bad. It's just the way the world is. And you get that when you go to buy a car, you get that even when you go to see a dentist, a dentist is probably going to try and upsell you stuff, right? So I'm not, I'm not say. What I am telling you is that, a the financial services industry has an agenda. B they will try and take as much commission from you as possible, which I do disagree with.
Speaker 2:In the UK, right, you, you pay, because we had the financial services review after all the miss selling and all the Bad, bad, bad malpractice, we got our fees down to. Basically, you will pay 1% all in. If you go and invest with let's just use invest. I have a few friends who work there and I know their fees. 1%, all in, that's what you're paying your advisor, your wealth manager, the stock pickers. Da, da, da, da da da. 1%, 0.9 something here. The financial advisor will take 3% upfront, then the fund manager will take 2% to manage the fees. You're losing 5% per year. Now the caveat to that is, you will still do better with a financial advisor managing your money. Then you will doing it on your own. That's what studies show.
Speaker 2:Okay, so financial advisors definitely have their place, but the problem is, if you Don't Understand that the industry is not there to give you love and light and it's there to make money off you primarily, and, at the same time, fulfill your financial goals, then you were giving money away and leaving on the table, and I've seen I've seen people invest tens of millions of round and not get any scale of economies from it, which, which you know, created issues within the organization.
Speaker 2:I saw it in, but not to the point where the financial advisor was penalized, because they are trained to ask you for 3% upfront, and so the best thing you can do is just ask, is just get two financial advisors to ask you what the lowest that they can offer you is and go with the one who charges the lowest, provided they're both competent. But just to wrap this up, when you get into the Bitcoin realm, from what I understand, from my limited interaction with advisors around it, you know there's a lot less of this commission scalping and this upfront Reaping of other people's money. So, ricky, what's your experience with that?
Speaker 1:And exactly exactly what you've just described, and so the I think it goes a bit further. It goes a bit further than that, though, in terms of our cities in South Africa. So so my father-in-law used to work for investing in the UK and, exactly like you described, they had this issue in the UK in the 80s, where the people charging upfront commission and they realized this is a this has got all kinds of perverse incentives. It could bad outcomes people losing money, not the investments on growing. So we need to change this.
Speaker 1:And they move to like an hourly models. You pay an advice and, hourly, an hourly rate, and then the asset managers like to say they get like less than 1% all in, so that that takes away a lot of the moral hazard. But in South Africa it's it's the opposite. They still use the old model that they use in the US, which they scrapped, and they keep talking about trying to bring in this new model of fee based model where you pay per hour, but it hasn't happened yet because there's so much inertia within the industry here to not do that. And why I say it's not just just just sorry to interrupt you, it's also, if you just think about the demographics, socio demographics of South Africa.
Speaker 2:A lot of people just can't afford to pay by the hour. So they did. It just isn't the same scenario as the UK, and they thought about changing it seven years ago. They're not going to change it because it just doesn't work, so we are stuck with this. Sorry to interrupt you, ricky, yeah, so, so, exactly so.
Speaker 1:So they looked at this RDR, what they called it, and this RDR and they basically it's the conclusion that it'll kill the industry, it will a lot of financial advisors or lose their jobs. So we'll rather keep milking the consumer than punished history. And if that doesn't tell you anything about how the revolving door between regulators and the industry Works, then you probably won't go and get it. But this is exactly what happens. So the problem goes even deeper than that. In my experience was with the different product types that advisors sell, and there's different commission structure attached to different product types, and typically the product which is the cheapest for the customer makes the advice of the least amount of money. So if it's the cheapest for the customer, by and large it's the cheapest for the customer. So if it's the cheapest for the customer by and large, it's going to be better for the customer in the long term, because these fees compound over time. So what ends up happening is advisors are incentivized to sell you products which make them the most amount of money, which often have no bearing on your financial well-being, and so how they do this is they. Long ago they cottoned on that. They can create these structured products in South Africa, typically held in an endowment structure, as opposed to the newer age ones which are held in a unit trust or mutual funds structure. And these endowment structures they would sell them as a hey, they're tax efficient at certain investment amounts.
Speaker 1:But the reality is for most people they're not tax efficient and you end up paying this massive upfront fee and then you can't move your money for five years. So not only we paid like a 3% upfront, you can't move your money for five years without paying exit penalties, and then the advisor ends up getting this big commission. So if you were to invest 100,000 rand, he's going to get 3,000 rand upfront and then you can't move your money for five years or you pay another penalty on top of that. But the advisor doesn't explain that to you. He just tries to show this product to you as being the best as tax efficient Because he's made 3,000 rand, opposed to the trust or mutual fund product where he'll make 0.5% upfront and you can move your money whenever you want. There's no lock in periods. It's much cheaper and more efficient. He doesn't want to sell that because he's going to make 500 rand out of that as a price of 3,000.
Speaker 2:Right, and I'm very. If there's one thing I detest in this country's financial services, financial advice industry, its structure products. And the reason is okay, so Ricky's just explained. There's upfront commission. They're getting paid in their next month a massive amount of money. You know, let's just say let's call it a million round, right? So now all of a sudden, 30,000 round is coming into the bank account, but they're also getting trail off this. So they're going to get paid for every year that you stay invested. And what they're going to say to you is listen, why invest in the S&P 500? It's very risky. It goes up and down. We've got a structure product and it's going to invest in options in the S&P, but your money is guaranteed to stay at 100% at the end of five years.
Speaker 2:There's no downside for you.
Speaker 1:There's no watermark.
Speaker 2:Right, right, and they'll use all these terms like high watermark, right, and you know, for the average person who does not like risk and, all things being equal, rather get all their money back plus more at the end of five years, sounds amazing. They're very easy to sell. They're so easy to sell. So not only are they really easy to sell, not only do they make financial advice with the most money by a long way, but the problem is, on almost all time periods apart from like the Great Depression and the Second World War, if you'd left your money in a market for about seven years, you always do better than if you do anything else. Right, it's an axiom of investing. And if you hit the Great Depression, shame, shame. But for most of the time, almost all the time, you just put your money in and you buy and hope, and, as Ricky says, you buy a tracker which is passive and global, because that's kind of what you can do and you can do other stuff. But the less you pay, the less, the more you make. Essentially Now, these financial.
Speaker 2:If we could have a miss selling scandal in South Africa, it would be around structured products, because clients have left so much on the table and my job used to be selling global investments and I used to come up against structured products internally and I would tell advisors what the right thing to do was and they would go. Yeah, I know, but I ultimately have a duty of care to my family and structured products will make the most money and they're so easy. And also, after five years, I never have a bad conversation because markets have never gone down. And so there's all these reasons why. So I just don't.
Speaker 2:You know, leonardo da Vinci said that simplicity is the ultimate sophistication. Right, structured products are the most complex things you can do with your money and you are paying people at every level to insert complexity and take your money. So, please, if you do anything, just invest. Also, you're not invested in real assets. It's not your money, it's the bank's money and it's financial wizardry. There's just a load of risks. Just keep it simple buy real assets and hold them for a long time.
Speaker 1:And that's exactly it, and the moral hazard, like you say, comes from. The advisor has to choose between his well-being and his client's well-being and he's always gonna choose his own well-being and you can't fault him for that, because that's human nature. The issue comes in where they misrepresent that to the customer and that's where I really have a problem with it and that's essentially why I left the industry Was just seeing the blatant misrepresentation and then you see the advisors. So take myself as an example here. Go and do all this research about like offshore assets that I can invest my client's money into. Like the most cost efficient structure they're using, like ETF trackers. How do we bring their fee down as much as possible so the customer can make money? Because me, the fool that I was, used to think that a financial advisor's job is to advise your clients on their finances, turns out that's not what the job is about at all. It's how I take the money out of your customers pocketed into your own pocket as often as possible.
Speaker 2:And so at these big firms, right, and it doesn't matter which firm you think of, think of a financial advice brand. They, their top advisors, are taken on holidays to locations Formula one racing in Dubai. You know baseball in New York, like whatever right, they're treated like royalty. They have fleets of classic cars. That's how much money you can make in financial advice. You can own several classic cars. Now, who's paying for the classic cars?
Speaker 2:And I've met, you know, the financial advisor that do the right thing and live, you know, and they have abundance in their life, but they just do the right thing by their clients. I've met kind of a handful of people that I would invest my money with and I've met far more who would be on the classic car track. So, you know, just also have a look what car your financial advisor drives. Have a look what watch they're wearing, All of these things, because all of that is coming from somewhere and it's not necessary. You know, to be a successful financial advisor. You can have a beautiful life and what have you, but if you are fixated on getting your next classic car, then it's going to feed into decision making that they offer their clients.
Speaker 1:And the issue that I really took with it was that if all the good financial advisors that are, by my metrics, good that are being right by their clients and trying to save the clients actually get the client the best deal possible and get their clients money to grow as best as possible in that current framework, they are not the ones being celebrated by firms, they're not the ones being taken on trips to Dubai. They're the ones getting shot for that by their managers being like dude, there goes my holiday bonus. This guy was investing five million rand. You come into a unit trust instead of into an endowment. We could have each made 50 grand out of this. Instead we made 500 bucks. What are you doing, you idiot?
Speaker 2:And Ricky, like that, you have to get sign off in most organizations. If you're not charging 3% upfront commission, you have to write a motivation why you're not. This person works in financial services, is not willing to pay because they understand. So like the default from the top is to scout the client for the maximum possible. Now I can promise you, if I'm coming to you with 10 million rand and you're charging me 3% upfront, you are not working 300,000 worth, so years worth of salary for many people and you've done maybe a day's worth of work. So the incentive structures it's not the people, it's the organization and the people that fight against it.
Speaker 1:a few and far between, just like in any kind of society 100%, and so that brings me to the next point of the conversation. So you and I both decided to bow out of this industry because I think we both have the same moral quandary where we're like we can't do this, this is not for us. So what are you doing with yourself and your time now that you're not advising people on global investments?
Speaker 2:So I work in leadership development, so I was blessed enough to see a lot of different leadership styles in my life and I've worked with some of the most extraordinary leaders imaginable. I've also worked with people who just don't seem to have any, who left a lot to be desired, and going into organizations I lecture for Henry Business School, africa, on issues like executive communication, emotional intelligence, psychological safety, which is how we can include and ensure that people are innovating and attaining high performance. So, interestingly, google in 2015 looked at what constitutes what ingredients create a high performance team, and it wasn't expertise, experience, a players. It was actually this thing called psychological safety, which is a set of values which, if we use, like equality of turn taking, like rewarding interpersonal, risk putting your hand up to the CEO and saying I don't think that's a good idea, encouraging those kinds of conversations.
Speaker 2:So a lot of what I'm doing now is helping C-sweets and teams become more high performing, innovate more and also create the conditions for engagement at work, because it used to be, the culture was unknowable. We didn't know what worked. Now we have empirical evidence for the first time ever from Google as well as Harvard Business School and MIT, and so what I do is I provide evidence-based data-driven insights and behavioral change for corporates that understand the pace of change is the benchmark at which they have to succeed against, and to change means being agile, and to be agile is culture. It's how we interact with each other, and so I'm blessed enough to be able to go into these organizations and just say, look, this doesn't just make sense from a humane perspective, which is obviously a big bonus, but it also to create high performance and innovation. There is a template, there is a blueprint, and that's what I offer people now.
Speaker 1:So a bit of a change from what you used to do. And how do you feel waking up in the morning doing what you do today versus seven years ago?
Speaker 2:Thank you, ricky. Yeah, I mean I work. It's interesting, Sometimes I tell people I don't really work, but in actual fact I work all the time. So it's true what they say when you find your vocation, it's a gift and it pays you. You're passionate about it, your energy flows. But also, if I wake up at five in the morning, I wanna be working, I wanna be doing these things and also just knowing that my integrity isn't being pulled in different directions, which and again, it's not a financial services thing. This is the way the world works, and being able to show people a model that not only enhances creativity and innovation and performance, but also creates more engagement and more inclusion, is a real, real gift.
Speaker 1:Yeah, yeah, absolutely. And, and you know, looking at people in the five years down line, um, where you've engaged them and they've used your services and then, five years later, they like, dave, your, your services are fantastic. Uh, our institution organizations has grown. We've learned so much from it. Versus having a conversation with your client five years down line who you sold a structured product to and they've cotton onto the fact that, oh, wow, this, you'd have to offer me this. There were other options that you never told me about my money.
Speaker 1:Yeah, yeah, more different conversation, Right.
Speaker 2:Yeah, yeah. And look, luckily, I've always been on the other side of the fence to structure products, um, but you know, as you say, uh, the just bringing it back to wealth and investments. You know just just everything that you you do. Just benchmark it against the S and P 500 tracker returns, just because that that's the default. Explain to me why you're not doing that in a low inflation and re environment, and you know what. What you'll find is quite often, yeah, and if you are in any of these products, just understand the complexity in the layering is not good for you, it's good for someone else, it's unnecessary, you know. And if the S and P collapses, in all sincerity, we have other problems to to worry about, you know. So, yeah, um, the, the, the idea that we can do the right thing and just teaching people that also, the lovely thing about this whole precept of um leadership development is it actually pays to do the right thing over the longterm.
Speaker 2:And, um, one of the things I really feel for the financial advisors who work in corporate, I'll give you an example. It was Wells Fargo and they came in and they said, right, cross selling is the key. We have like the most clients in America, and you know, we have clients globally. We're not going to get any more clients, so what we need to do is we need to cross sell. So what they did was they said the average person has five products. We're going to move that up to seven, and then nine and then 11. Right, so this was their growth drive to shareholders.
Speaker 2:And what ended up happening was and, and, at some instances, twice a day, people would be called on to see if they were hitting target. Like they really drove these people. Can you imagine what that's like? The pressure you're under to call up clients, and so what people? What financial advisors ended up doing was setting up phantom bank accounts, investing people into phantom products, so that the numbers ticked up and everybody thought it was amazing. And then, a couple of years later, people realized that all you've done is drive people to do unethical things so they can ultimately keep their jobs, you know. So these, these pressures that we have on us, are not good for anybody over the long term. And I, you know I love to do the right thing. Philosophy and I also. Again, I think that's why Bitcoin is so empowering, because it comes with this idea that it's your wealth, it's no one else's and you're not intermediated.
Speaker 1:Yeah, you know, I, I remember that Wells Fargo story of them opening the fines and bank accounts, but I didn't know the reason why they were doing it. I thought they were trying to just show they had more customers. But actually we're just saying is they're trying to show that their customers had more product lines? Yeah, they were, oh man.
Speaker 2:And there's the pressure.
Speaker 1:Yeah, so much pressure.
Speaker 2:So much pressure. Yeah, when you read the interviews with people afterwards that you know people were just saying, like, it's not that I wanted to make more money, I just wanted to keep my job, and they were very brutal on firing people, you know. So again, the culture became one of do what we tell you, don't worry about what the right thing is and and and again. Unfortunately, whenever we deal with big corporates, we have to understand that while they're there to offer us, we also have to be able to make our own decisions, and this, this is a huge thing. Okay, so me and my friend, we used to sit in London and we used to say why do people pay us? Like, genuinely, you can do this all yourself online.
Speaker 2:And the reason people paid us was because they wanted to outsource responsibility. And there's nothing wrong with outsourcing responsibility, because you want someone to talk to you every year about your wealth, but you have to understand you don't get to outsource responsibility for your financial future. Right, and I'm telling you, you just put it all in a diversified portfolio of equities with some Bitcoin and any other bits you want. That's your prerogative. If you're thinking that people in your life are always who, you don't know who you pay money to, who work with big organizations. Big organizations are going to do the right thing by you always, then you've not been paying attention.
Speaker 1:Yeah, absolutely, man. I couldn't agree more like it comes onto personal responsibility. If you want to take personal responsibility, then the world is your oyster. You can really make some dramatic changes and you can make a lot more money hard and taking that responsibility might be like, okay, I need to go and learn about the nature of global investments. Maybe you should read Josh's book Learning about the nature of these things.
Speaker 1:It does take personal responsibility and a lot of people are like I'm too busy, I got kids to look after. I'm just not going to do that. I'd rather pay a financial advisor, and I think that the take away from this discussion, at least from my perspective, is that your default position with a financial advisor in South Africa not the UK so much, but in South Africa because of the nature of the way the game works here the default position should be that they are going to take you for a ride and you're not going to be getting the best value. You know they're not going to be doing anything illegal with your money, but they're not going to be giving you the best value, and you could do you find better value out there if you do it yourself or if you've managed to find an advisor that you pay by the hour. That's probably a good way to actually do this is pay someone by the hour If you want to assess that responsibility and then at least not paying this massive chunk and you're paying him fairly for his time.
Speaker 2:Yeah, and again I would just say you know the initial commission structure you get offered is going to be a high ball and you know, depending on the wealth you bring. Look, if you have 10,000 round to invest and they charge you 3% commission, then that's fair because and you know this is the this is the predicament in this country. You know many people, 10,000 round is is an extraordinary amount to invest and 3% on that does actually probably mean that you get a better deal versus the financial advisor. But now, let's say you have a million round to invest and there's 3% upfront doesn't take a huge amount of work to invest a million round on your behalf, probably. And there are ongoing trail fees and all of these things. So just, you know, be mindful and and you know, a lovely thing to do is just say look, I'm going to speak to another financial advisor and I'm very cost sensitive, give me your best quote and I'll compare the two and I'm not going to negotiate, and then you can negotiate afterwards. But you know, just making sure that you give people the opportunity to give you their bet, because many financial advisors don't want to take you for a ride.
Speaker 2:It's pressure from the top. They would much rather do the right thing, but you just have to understand the environment that banks work in. They exist to create money and, in South Africa, to implement transformation. And I'm being deadly serious, it's very weird. You go work in a UK corporate, right? They just they exist to make money, essentially in South Africa. They exist to make money, but they also exist to implement transformation, which creates this whole other complexity and subculture around it. So, yeah, just just just be mindful of what you're paying and have an honest conversation with the advisor. And, as I said, it's not their fault, it's it's, it's the environment they're in and many of them will do the right thing by you if you give them the opportunity.
Speaker 1:Yeah, yeah, for sure. All right, Josh, this has been great. Tell me where can people track you down online if they want to find out more about you? I know you're. You post lots of good things on LinkedIn, create some great group of thoughts. Yeah, where can people find you?
Speaker 2:Yeah, cool. Thank you, ricky. I've enjoyed this too, and LinkedIn is the best place. I post something once a week there which is hopefully thoughtful and motivating and inspiring or insightful, something or one of the above. And yeah, my name is David Joshua. My company is called Resonance, so if you type that in, you may well find me. I split my time between Jersey, the UK and South Africa and very blessed to be sitting in South Africa, in Help Bay at the moment, enjoying an amazing December, and I hope the same for you and yours during this festive period.
Speaker 1:Absolutely, david. Thank you so much for the time and I'm sure you and I will be catching up again soon, hopefully over a piece of gammon and right on.
Speaker 2:Thank you, ricky, thank you listeners, goodbye.
