Faculty of Business & Economic Sciences

Managing tomorrow

Study Guide 2023

Department of Management Practice

2nd Avenue and George Campuses

Principles of Financial Planning and Services

EBFP401

Advanced diploma: Financial Planning

Date of Implementation : 2023

Compiled by : Mr Theuns Mans

Presented by : Mr Theuns Mans

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VALUES ESPOUSED IN THE DEPARTMENT: MANAGEMENT PRACTICE

Staff and students affiliated to the Department Management Practice at the NMU
pledge to be guided in their actions and behaviours by the following Six Core Values:

Respect for Diversity - means understanding that each person is unique, recognising
peoples differences and understanding people, embracing and celebrating the rich
dimensions of diversity in NMU.

Ubuntu - means respecting fellow human beings, treat them fairly, disagree honestly,
enjoy their fellowship and work together for a common goal and help each other
achieve it. We commit ourselves to the tenets of ubuntu by recognising that “we are,
because others are”. We therefore treat one another with dignity and respect, and do
not entertain harassment, discrimination or incivility of any sort. We will interact with
our fellow students and with our staff in a timely, professional and responsible manner.
We expect the same supportive conduct from staff in their relations with students and
colleagues, both in the classroom and in any other area of interaction.

Excellence - means an individual's highest level of quality and his will to win, his
personal excellence. We commit ourselves to excellence in our academic work by
fulfilling and exceeding course requirements. We will make the time commitment
necessary to prepare properly, make meaningful contributions and participate in group
and class activities with thoroughness and dedication. We will be on time for all classes
and formal activities, and will turn all work in on time. We realise that the programmes
involve teamwork and accept the responsibilities associated with team membership.
We recognise that we are quantitatively judged by grades and minimum requirements.
We commit ourselves to consistently demonstrate excellence throughout our
academic studies, and to take the personal initiative to show comprehensive
development by graduation.

Environmental stewardship - means being more environmentally conscious in and

around our beautiful campus for the sake of our own health and enjoyment. We commit
ourselves to contributing to the sustainable economic, social and environmental
creation of value through our business and professional activities.
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Integrity - means doing the right thing, even if nobody is watching, having courage to
say no and courage to face the truth. We commit ourselves to academic integrity in
all our work, respecting the specific policies of the NMU and the broad concept of
academic honesty. Our work, whether done individually or through group activities, will
be accomplished through honest means. We therefore will not partake in plagiarism,
wilful misrepresentation of sources, and unethical assistance or input from unapproved
parties. We will not rob ourselves, or past, present and future graduates of the honour
and integrity that we all subscribe to. We support students and staff who fulfil their duty
by alerting the department and the School as well as the faculty to incidences of
academic dishonesty.

Social justice and equality - means being dedicated to the realisation of a socially
just, democratic society that promotes equality for all irrespective of race, gender, sex,
pregnancy, marital status, ethnic or social origin, sexual orientation, age, physical and
learning abilities, national origins, religion, conscience, belief, culture and language.
By cultivate living, learning and work environments that enable students and staff to
realise their full potential, without fear of discrimination or harassment. And by
developing our graduates as globally competent citizens who generate, apply and
transfer knowledge to contribute actively to advancing social justice, inclusion and
equality.
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SECTION 1
TOPIC PAGE NO
1. INTRODUCTION 5
2. PURPOSE OF THE MODULE 5
3. MODULE LEARNING OUTCOMES 5
4. CRITICAL CROSSFIELD OUTCOMES 6
5. LECTURER CONTACT DETAILS AND CONSULTATION TIMES 8
6. MODULE METHODOLOGY AND PRESCRIBED MATERIALS 8
7. ASSESSMENTS AND GRADING 9
8. STUDENT EXPECTED BEHAVIOUR 11
9. SYLLABUS GUIDE 11
SECTION 2
TOPIC PAGE NO
STUDY UNIT 1 14
STUDY UNIT 2 19
STUDY UNIT 3 24
STUDY UNIT 4 30
STUDY UNIT 5 36
SECTION 3
TOPIC PAGE NO
1. ANSWERS TO ACTIVITY QUESTIONS 37
2. INFORMATION ON PLAGIARISM 39
3. ASSIGNMENT INSTRUCTIONS 45
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SECTION 1

1 INTRODUCTION

Welcome to Principles of Financial Planning and Services. This module forms an

integral part and building block for the Advanced Diploma in Financial Planning course.
This module will introduce you to the basic principles of financial planning.

The major objective of this module is to introduce you to the legislation, taxation,
financial and investment planning processes a financial planner should understand.
This will not only enable you to make knowledgeable decisions but it will also form a
solid foundation for the other modules in the Advanced Diploma in Financial Planning
course.

This study guide will assist you to prepare for lectures, tests and examinations.
Important information regarding this module, such as the purpose of the module, units
of learning dealt with in this module, your lecturer’s contact details, prescribed
materials, and other useful further reading will be provided. The criteria for
assessments are also provided and to enable you to plan your studying effectively for
this module, a course programme is also provided in this study guide.

2 PURPOSE OF THE MODULE

To familiarize students with the financial planning body of knowledge that a financial
planning professional must be able to draw on to deliver financial planning services
to clients or when interacting with others in a professional capacity.

3 MODULE LEARNING OUTCOMES

After completing this module, the learner will be able to:

• Describe the fundamental aspects of the financial planning internal and external
environments.
• Describe the regulatory environment for the financial planning profession.

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• Consider and discuss the impact of compliance issues on the practice of

financial planning.
• Describe the process and the practice of financial planning.
• Investigate, calculate and analyse the income tax for an individual.
• Discuss behavioural aspects of financial planning applicable to the financial
planning engagement.
• Describe the investment planning components and process for an individual,
including asset types with due consideration of the economic principles
involved.
• Discuss and address client attitudes toward risk.
• Demonstrate ethical appreciation in dealings and relationships with clients and
third parties.

4 CRITICAL CROSS-FIELD OUTCOMES

In addition to the specific module learning outcomes, students are expected to exhibit
the following graduate attributes:

• Collect, analyse, organise and critically evaluate information.

• Communicate effectively using visual, mathematical language, and/or IT skills

in the modes of oral and/or written persuasion.

• Demonstrate an understanding of the world as a set of related systems by

recognising that problem-solving contexts do not exist in isolation.

• Identify and solve problems in which responses display that decisions using
critical and creative thinking have been made.

• Work effectively as a member of a team, group, organisation, or community.

With regard to each study unit, you should be able to:

a) understand and state the essential content by naming and/or explaining the
relevant content (where possible with the aid of diagrammatic representations);

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b) identify the meaning reflected in the content by indicating the most acceptable or
correct possibility from various given alternatives (for example by answering
multiple-choice statements and identifying the meaning of key terms);

c) demonstrate the capability of establishing direct relationships, for example

between theory and practice, inter alia, by completing worksheets and finding
solutions to practical problems, answering direct questions on case particulars; and

d) generate solutions for any relevant extensive problems, inter alia, by gathering new
information, completing work assignments, analysing case studies or performing
critical analyses.

The activities indicated for each study unit are intended to cover the above outcomes.
Note that the bold-typed verbs, i.e., so-called capability verbs, reflect a hierarchy in the
learning process. Therefore, stating essential content represents the most basic or
most simple required performance and generating solutions to the most advanced or
most complex performance (See also Table 1).

TABLE 1: OUTCOME (CAPABILITY AND ACTION) VERBS AND MEANING

Capability Action Meaning
Understand Define Demonstrate understanding of facts and
Describe ideas by organising, comparing, translating,
Explain interpreting, giving descriptions and stating
List main ideas or important facts.
Name
Differentiate Differentiate This is the simplest form of intellectual skill
Distinguish requirement that demands insight and
Identify practice.
Identify Indicate This is a somewhat more advanced
Motivate intellectual skill that requires recognition and
Select identification of facts or concepts.
Knowledge is required both of the item to be
identified and the other items from which a
choice has to be made.
Analyse Contrast A somewhat more advanced intellectual skill
Categorise that intends to examine and break
Examine information into parts by identifying motives
Motivate or causes. This includes making inferences
(conclusions) and finding evidence to
support generalisation.
Evaluate Appraise This deals with presenting and defending
Compare opinions by making judgments about
Criticise information, validity of ideas, or quality of

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Interpret work based on a set of criteria. This requires

Determine insights and practice.
Generate Design The most advanced form of intellectual skill.
Formulate It is a form of higher-order-rule-application.
Compose It involves compiling information together in
Compile a different way by combining elements in a
Build new pattern or proposing alternative
Construct solution. Certain principles or procedures
Develop are known but new data is such that problem
solution is necessary.

Adapted from Quick Flip Questions for the Revised Bloom’s Taxonomy

5 LECTURER CONTACT DETAILS AND CONSULTATION TIMES

Second Avenue Campus Lecturer

Mr Theuns Mans

Email: Theuns.Mans@mandela.ac.za

Should you require any assistance or additional information, please speak to your
Class Lecturer. Make sure you know the name of your lecturer for the module(s) in
question and his/her relevant consultation hours.

Students are also reminded to consult the EBF401 Moodle site on a regular basis as
module information is continuously uploaded.

6 MODULE METHODOLOGY AND PRESCRIBED MATERIALS

The Advanced Diploma in Financial Planning course is presented as a semester

module at 2nd Avenue and George campuses. An overall learning outcome is stated in
this module. The module consists of a number of study units, each with specific
learning outcomes as per the overall learning outcomes of this module alluded to
above.

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CREDITS AND NQF LEVEL

The credits and NQF level for this module are as follows:
Credits: 15
NQF level: 7

Module code: EBFP401

Title: Principles of Financial Planning and Services

Study unit Title of study unit

1 The financial planning and services profession
2 Financial planning legislation and regulatory environment
3 Tax planning for individuals
4 Investment planning for individuals
5 Behavioural finance

The particulars of the prescribed textbooks are:

Botha, M. Geach, W. Goodall, A. du Preez, L. Rabenowitz, P. Rossini, L. (2022). South

African Financial Planning Handbook. Cape Town: LexisNexis

Additional reading to help you better understand certain topics:

Old Mutual Premiums & Problems (2022)

7 ASSESSMENTS AND GRADING

The following important information is highlighted:

Three assignments must be completed for this module. All three assignments are
compulsory for all students. Students who fail to submit all four assignments will not
be permitted to write the examination. Students will write Principles of Financial
Planning and Services examinations in June. The exam will be an open book, written
assessment of two hours duration.

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The methodology for assessment questions are as follow:

Comprehension: 40%
Novel Application: 40%
Analysis & Synthesis & Evaluation: 20%

The weighting for evaluations is as follows:

Calculating the class mark

Assignment 1 (10 Marks) 25%

Assignment 2 (10 Marks) 25%
Assignment 3 (20 Marks) 50%
CLASS MARK 100%

Calculating the exam mark

Exam (50 marks) 100%

Calculating the final mark

Class mark weight (CM) 40% (Mark obtained from the class mark above calculation)

Exam mark (EM) 60% (Mark obtained from the exam mark)

FINAL MARK (FM) 100% (CM + EM = FM)

Please note that the exam pass mark is 40% and that the minimum to qualify for a re-
exam is a final mark of 45%.

The following rules are applicable in cases where a student does submit an
assignments:
• If valid documentation is submitted by the due date (within three working days
of missing an assignment), that is, medical certificate/organised sport
letterhead/religious objection:

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Ø Consideration will be given to resubmit an assignment under exceptional

circumstances only;
Ø No other ‘special assignment’ will be allowed – no exceptions.
• If no medical certificate/organised sport/religious body’s letterhead is submitted,
or the sick test is not written:
Ø Get ‘0’ for the missed assignment.
Ø A second sick assignment WILL NOT be arranged.

8 STUDENT EXPECTED BEHAVIOUR

It is mandatory for students to acquaint themselves with the university’s General Rules
that can be found in the General Prospectus of the NMU. Students are expected to
submit all four assignments for this module on time.
Students are expected to abide by the following NMU values:

• Respect for diversity

• Ubuntu

• Excellence

• Environmental stewardship

• Integrity

• Social justice and equality

9 SYLLABUS GUIDES:

WEEK OF Topic Reference

Week 08 Ø Necessary skills and competencies Unit 1
Lecturer notes
20 Feb – 26 Feb for financial planners Self-study (Reading)

Ø The six-step financial planning

process
Week 09 Ø Ethics and professional standards Unit 1
Lecturer notes
27 Feb – 05 March
Self-study (Reading)

Week 10 Ø The regulatory environment Unit 2

Lecturer notes
06 March – 12 March Ø Treating customers fairly Self-Study (Reading)

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Week 11 Ø Consumer Protection Act Unit 2

Lecturer notes
13 March – 19 March Ø The Financial Advisory and Self-study (reading)

Intermediary Services Act

Ø Anti-money laundering and counter-
terrorist financing
Week 12
20 March – 26 March Assignment 1
Week 13 Ø Income tax Unit 3
Lecturing (Teams)
27 March – 02 April Wednesday 17:00

Week 14 Ø Income tax Unit 3

Lecturing (Teams)
03 April – 09 April
Wednesday 17:00

Week 15
10 April – 16 April NMU Recess
Week 16 Ø Capital Gains Tax Unit 2
Lecturing (Teams)
17 April – 23 April Ø Donations tax Wednesday 17:00

Week 17 Ø Value added tax & Transfer duty Unit 2

Lecturing (Teams)
24 April – 28 April
Wednesday 17:00

Week 18
01 May – 07 May Assignment 2
Week 19 Ø The time value of money Unit 4
Lecturing (Teams)
08 May – 14 May Ø Investment risk and return Wednesday 17:00

Ø Investment theory
Ø Economics
Week 20 Ø Different asset classes & portfolio Unit 4
Lecturing (Teams)
15 May – 21 May management Wednesday 17:00

Ø Investment vehicles
Ø The investment planning process
Week 21 Ø Behaviour finance Unit 5
Lecturing (Teams)
22 May – 28 May
Wednesday 17:00

Week 22
29 May – 04 June Assignment 3
Week 23 - 26 Exam
05 – 30 June

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SECTION 2

UNITS OF LEARNING

STUDY UNIT 1: THE FINANCIAL PLANNING AND SERVICES PROFESSION

STUDY UNIT 2: THE FINANCIAL PLANNING LEGISLATION AND

REGULATORY ENVIRONMENT

STUDY UNIT 3: TAX PLANNING FOR INDIVIDUALS

STUDY UNIT 4: INVESTMENT PLANNING FOR INDIVIDUALS

STUDY UNIT 5: BEHAVIOURAL FINANCE

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UNIT 1: THE FINANCIAL PLANNING AND SERVICES PROFESSION

LEARNING OUTCOMES :

After studying this unit, the learner should be able to –

• Describe the processes and the practices of financial planning.
• Identify the competencies and skills necessary for someone in the financial
services industry.
• Develop a comprehensive understanding of the six-step financial planning
process.
• Demonstrate ethical appreciation in dealings and relationships with clients and
third parties.
• Understand the ethical and professional standards of the financial services
industry.
• Describe the fundamental aspects of the financial planning internal and external
environments.
• Explain how the internal and external environment can influence financial
planning.

Prescribed chapters in the South African Financial Planning Handbook:

Topic Chapter reference

Necessary skills and competencies for financial Chapter 1.2.
planners

The six-step financial planning process Chapter 1.4.

Ethics and professional standards Chapters 2.1. – 2.10.
Internal and external environment Chapter 1.2.5.3

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Introduction

This unit provides an introduction to the principles and practices of the financial
planning industry. This is important because the financial services industry in South
Africa has transitioned from a sales-orientated industry to a regulated and recognised
profession over the years. This requires financial planners to have certain skills and
competencies while following the six-step financial planning process. Furthermore,
regulation plays an important and mandatory compliance role in the day to day
activities of financial planners. The aim of regulations in the financial services industry
is to provide better protection for clients from unethical and incompetent financial
service providers.

Necessary skills and competencies for financial planners

The following competencies and skills are deemed to be important in the financial
services industry:
• Legal and technical competence.
• Building relationships and trust.
• Communication skills.
• Presentation skills.
• Research skills.
• Report writing.
• Relationships with complementary professionals.

The six-step financial planning process

The Financial Planning Institute (FPI) recommend that financial planners follow the six-
step financial planning process when engaging with clients. The six-step financial
planning process offers a standardised process to ensure that all clients are treated
fairly irrespective of their financial and life circumstances.

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The following diagram illustrates the six-step financial planning process:

Source: Financial Planning Institute of Southern Africa

Ethics and professional standards

Ethics are concerned with moral principles. In essence, if you are not willing to publish
the decisions you make in the media then you probably must question your own ethical
behaviour. Ethical behaviour is not always concerned with not breaking the law. In fact,
the Financial Planning Institute’s Code of Ethics require its members to comply with
the following ethical principles:

Principle 1:
Client first - always put the client’s interest first.

Principle 2:
Integrity - requires adherence to practices of honesty, fairness, consistency and
candour in all professional matters.

Principle 3:
Objectivity - requires intellectual honesty and impartiality.

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Principle 4:
Fairness - provide clients with what they are due, owed, or could legitimately expect
from a professional relationship.

Principle 5:
Competence - Attaining and maintaining a high level of knowledge, skills and abilities.

Principle 6:
Confidentially - protect and keep client information confidential.

Principle 7:
Diligence - fulfilling agreed-upon professional commitments in a timely and thorough
manner.

Principle 8:
Professionalism - behaving with dignity and showing respect and courtesy to a client.

Internal and external environment

Financial planning takes place in a wide context that includes both external and internal
factors. External environment factors are usually not in the control of the client for
example a geopolitical event such as a war. The internal environment can be
controlled and include factors such as resources available. In the context of personal
financial planning, resources refers to for example the affordability of a client to
implement a financial plan.

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Activity 1

Answer the following two questions:

1. You are about to have the first meeting with a prospective client. Explain to the
client what he can expect during each phase of the six-step financial planning
process.

2. Explain the difference between ethical standards and regulations.

3. Various factors from the internal and external environment can influence
planning. List some of these factors for both the internal and external
environment.

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UNIT 2: THE FINANCIAL PLANNING LEGISLATION AND REGULATORY

ENVIRONMENT

LEARNING OUTCOMES :

After studying this unit, the learner should be able to –

• Describe the regulatory environment in the financial services sector.
• Consider and discuss the impact of compliance issues on the practice of
financial planning.
• Develop a thorough understanding of The Financial Advisory and Intermediary
Services Act.
• Develop a thorough understanding of anti-money laundering and counter-
terrorist financing.

Prescribed chapters in the South African Financial Planning Handbook:

Topic Chapter reference

The regulatory environment Chapters 3.1. – 3.4.
Treating customers fairly Chapters 3.5.
The Protection of Personal Information Act Chapters 3.7.
The Consumer Protection Act Chapters 3.9.
The Financial Advisory and Intermediary Services Act Chapters 4.1. – 4.14.
Anti-money laundering and counter-terrorist financing Chapters 5.1. – 5.5.
Additional reading
Financial Sector Regulation Act 9 of 2017
Protection of Personal Information Act 4 of 2013
Financial Advisory and Intermediary Act 37 of 2002
Consumer Protection Act 68 of 2008
The Financial Intelligence Centre Act 38 of 2001

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Introduction

This unit provides an overview of the regulatory environment in the financial services
industry. A thorough understanding of the legislation applicable to the financial services
industry is important. It is expected of all people within the financial services industry
to comply with this legislation. Failure to comply can result in hefty fines and even
imprisonment. However, on the flip-side, compliance with legislation will often result in
a more professional service being delivered to the end client.

The regulatory environment

The Financial Sector Regulation Act 9 of 2017 (FSR Act) establishes a system of
financial regulation through the Prudential Authority (PA) and the Financial Sector
Conduct Authority (FSCA). The PA is responsible for supervising the safety and
financial soundness of banks, insurance companies and other financial institutions
while the FSCA is responsible for supervising how financial services firms conduct their
business and treat their clients. The various regulatory bodies such as the South
African reserve bank, PA and FCSA all have different responsibilities within the
regulatory environment.

Treating customers fairly

Treating customers fairly (TCF) is an outcome based market conduct approach that
seeks to ensure that the outcomes of financial services provides are always in the best
interest of the end client. TCF has the following outcomes:

Outcome 1:
Consumers are confident that they deal with a firm where the fair treatment of
customers is central to the culture of the firm.

Outcome 2:
The products and services are designed to meet the needs of identified customers and
are marketed accordingly.

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Outcome 3:
Consumers are provided with clear information and are kept appropriately informed
before, during and after the point of sale.

Outcome 4:
Where consumers receive advice, the advice is suitable and takes account of their
circumstances.

Outcome 5:
Consumers are provided with products that perform as the firm has led them to expect.

Outcome 6:
Consumers do not face unreasonable post-sale barriers to changing a product,
switching a provider, submitting a claim or making a complaint.

The Protection of Personal Information Act

The main objective of the Protection of Personal Information Act 4 of 2013 (POPI or
POPIA) is to give effect to the constitutional right of individuals to protection against
the unlawful collection, retention, dissemination and use of personal information. Non-
compliance with the Act can result in fines, penalties and other administrative fees.
The Act provides certain conditions a firm must comply with when processing personal
information.

The Consumer Protection Act

The purpose of the Consumer Protection Act 68 of 2008 is to establish a legal

framework for a fair, accessible, efficient, sustainable and responsible consumer
market in South Africa. It is important to note that the Consumer Protection Act does
not apply to functions that are regulated by the Reserve Bank, FSCA or the PA. or that
fall under financial sector law like the FAIS Act.

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The Financial Advisory and Intermediary Services Act

The purpose of the Financial Advisory and Intermediary Services Act 37 of 2002 (the
FAIS Act) is to regulate the rendering of financial advisory and intermediary services
to clients.

Anti-money laundering and counter-terrorist financing

The Financial Intelligence Centre Act 38 of 2001 (FIC Act) provides a framework for
deterring the use of South Africa as an easy money laundering and terrorist financing
jurisdiction. Money laundering is defined in section 1 of the FIC Act as an activity that
is likely to conceal the true nature, source, location, disposition or movement of the
proceeds of unlawful activities. The aim of money laundering is to get the proceeds of
unlawful activities into the financial system in an effort to hide the true source of these
funds. Money laundering consists of the following stages:

Stage 1: Placement
Proceeds of crime enter the formal financial system.

Stage 2: Layering
Separating the funds from their criminal and illegal sources.

Stage 3: Integration
Funds become available to the criminal.

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Activity 2

1. Broadly explain the role and functions of the Ombud for Financial Services
Providers.

2. What can the potential consequences be for a Financial Services Provider that
does not comply with the POPI Act?

3. According the FAIS Act: what records should be kept and for how long?

4. What is the main difference between the Fit and Proper requirements for Key
individuals and an FSP (natural person) according to the FAIS Act?

5. List the details that must be disclosed to a client when replacing a financial
product as per Section 8(1)(d) of the General Code of Conduct.

6. List the details that should reflect in a record of advice?

7. Identify and explain the six control measures that FSPs must implement and
comply with aimed at detecting and investigating money laundering and
financing of terrorism activities according to the FIC act

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UNIT 3: TAX PLANNING FOR INDIVIDUALS

LEARNING OUTCOMES :

After studying this unit, the learner should be able to –

• Investigate, calculate and analyse Income Tax for an individual.
• Understand the calculation of Income Tax for an individual.
• Understand Donations Tax and why it is important in financial planning.
• Understand Capital Gains Tax and why it is important in financial planning.

Prescribed chapters in the South African Financial Planning Handbook:

Topic Chapter reference

Income Tax Chapters 25.1. – 25.18.
Donations Tax Chapters 26.1. – 26.7.
Capital Gains Tax Chapters 27.1. – 27.12.
Value-added tax Chapters 28.1. – 28.9.
Transfer Duty Chapters 29.1. - 29.9.
Additional reading
The Income Tax Act 58 of 1962
Value-Added Tax Act 89 of 1991.
Transfer Duty Act 40 of 1949.
Old Mutual Premium and problems: Chapters A1. – A55.

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Introduction

Although it is not generally expected from financial planners to do Income Tax

calculations for clients it is still important to have a thorough understanding of Income
Tax. The reason why a thorough understanding of Income Tax is important is that most
of the financial analyses that pass the desk of a financial planner will have some
element of tax to consider. Little tax knowledge on the side of the financial planner can
result in financial loss to the client. For instance, the simple task of switching an
investment portfolio to another may result in a Capital Gain for a client. If the client is
in a high marginal income tax bracket for that specific financial year this simple switch
might cost the client dearly in terms of tax. Who is to blame for this error? Most likely
the financial planner. Therefore, the importance of understanding tax planning must
not be underestimated for financial planners. In this unit tax planning for individuals are
unpacked relating to its importance for financial planners. Estate Duty will be explained
in a separate module.

Income Tax

The South African Financial Planning Handbook set out a step by step guide to
calculating the taxable income of an individual. Study the contents of this step by step
in chapter 25 of The South African Financial Planning Handbook.

Step by step guide to calculating a taxpayer’s normal tax payable

Step 1 Determine the gross income of the Rxxx
taxpayer.
Step 2 Subtract exemptions from the taxpayer’s (Rxxx)
gross income.
Step 3 Calculate the income of the taxpayer Rxxx
(Income = Gross Income – Exemptions).
Step 4 Subtract tax deductions. (Rxxx)
Step 5 Include any capital gains. Rxxx
Step 6 Include taxable portion of any business Rxxx
allowances.
Step 7 Apply relevant tax rate percentage. Rxxx

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Step 8 Derive at tax amount payable by the Rxxx

taxpayer.
Step 9 Deduct all applicable rebates. (Rxxx)
Step 10 Derive at the final tax amount payable by Rxxx
the taxpayer.

Source: Adapted from the South African Financial Planning Handbook (2022)

Donations Tax

Donations tax is payable on property disposed of, whether directly or indirectly, by any
donor who is a resident in South Africa. A donation is subject to a flat rate of 20% per
donation up to R 30 million and 25% for amounts that exceed R 30 million. To put
donations tax into perspective consider it as an Estate Duty before death. The reason
for this argument is that both Donations Tax and Estate Duty are wealth tax and not
tax on income. Wealth tax is a tax liability on your wealth and not Income. Normally a
person will become liable for wealth tax in the form of Estate Duty upon his death. But
to avoid wealth tax a donation before death might be a solution to reduce Estate Duty.
This is where Donations Tax comes in. The donor will be taxed on the Donations made
before his death. It is, therefore, no coincidence that Donations Tax and Estate Duty
are taxed at the same rate. Therefore, both Donations Tax and Estate Duty are a tax
on wealth. Study chapter 26 of the South African Financial Planning Handbook to gain
a thorough understanding of how Donations Tax is calculated.

Capital Gains Tax

Despite the word capital, Capital Gains Tax (CGT) is not a separate tax but actually
Income Tax. The reason for this is because the capital gain of a taxpayer is included
in his Income Tax calculation and he is taxed accordingly. This is in contradiction to
Donations Tax and Estate Duty which are taxed at a flat rate separately from Income
Tax. CGT was introduced with effect from 1 October 2001. This means that ALL gains
made on assets only after 1 October 2001 must be considered for the calculation of
CGT. Study chapter 27 of the South African Financial Planning Handbook in order to
gain an understanding of how to calculate CGT.

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The following diagram is an easy template to calculate CGT:

Capital Gains Tax calculation template

Asset description Market value Base cost Gain/loss Gain/loss Notes
included
Primary House R 1 500 000 R 500 000 R 1 000 000 N/A Not included
because gain
does not
exceed R
2 000 000
primary
residence
exclusion.
Subtotal Rx
Less rebate1 (R 40 000)
Inclusion rate – 40% Rx
Tax at marginal tax Rx
rate (45%)

It is very important to study how CGT is calculated and how this calculation differs
between entities and individuals. For example, gains up to R 2 000 000 is not included
for a primary house. But this exemption is not applicable to entities (except special
trusts). Does it then make sense to purchase a primary house in the name of a trust
from a CGT point of view?

Value-added tax

Value-added tax (VAT) is a tax levied at 15% on the value of all goods and services of
a taxable supply which has been supplied by a registered vendor in the course of an
enterprise.

Study chapter 28 of the South African Financial Planning Handbook in order to gain an
understanding of Value-added Tax.

Transfer Duty

Transfer duty is payable on the value of any property that is acquired by way of a
transaction or in any other manner.
Study chapter 29 of the South African Financial Planning Handbook in order to gain an
understanding of Transfer duty.

1
Note that this rebate is different when CGT calculation is for a deceased. A deceased person has an R 300 000 rebate.

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Activity 3
Answer the following questions:

1. Different entities are liable for tax at different rates. With reference to a special
trust, explain how the beneficiaries of the trust will get tax on income.

2. How does the R 2 000 000 primary residence gains on capital work when a
house is owned by a couple married in community of property?

3. Contributions to retirement funds are deductible for Income Tax subject to

certain limitations. What are these limitations?

4. Consider the following facts regarding a South African resident who is 45

years of age, married out of community of property:

Income for the financial year:

Local interest received R 25 000
Foreign interest received R 5 000
Local dividends received R 10 000
Foreign dividends received R 5 000
Commission received R 1 000 000

Expenses allowed to claim for the financial year:

Home office R 45 000
Telephone and internet R 15 000
Retirement fund contributions R 360 000
Motor and travel expenses R 35 000
The taxpayer is the sole member of a medical aid with no out of pocket expenses for
the financial year for medical related reasons.

4.1. Calculate the tax liability of this taxpayer using current legislation.

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4.2. Assume that the taxpayer in this question had not contributed anything
towards a retirement fund. What will be the maximum this individual can
contribute toward a retirement fund for a tax benefit.

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UNIT 4: INVESTMENT PLANNING FOR INDIVIDUALS

LEARNING OUTCOMES :

After studying this unit, the learner should be able to –

• Understand the time value of money.
• Describe the investment planning components and process for an individual,
including asset types with due consideration of the economic principle involved.

Prescribed chapters in the South African Financial Planning Handbook:

Topic Chapter reference

The time value of money Chapters 8.1. – 8.10.
Investment risk and return Chapters 13.1 - 13.6.
Investment theory Chapters 14.1. – 14.6.
Economics Chapters 15.1. – 15.13.
Different asset classes Chapters 16.1. – 20.3.
Investment vehicles Chapters 22.1. – 22.9.
The investment planning process Chapters 24.1 – 24.7.
Additional reading
Old Mutual Premium and problems: Chapters B1. – B63.

Introduction
Investment planning for individuals consists of many elements. But for the financial
planner, the most important part is to realise that your role is the allocator of assets
and not the selection of securities. This means that the financial planner must have a
thorough understanding of the different asset classes and investment vehicles
available. Depending on the unique investment needs and goals of the client different
asset classes and investment vehicles will be suitable for different investors. Your
value add as a financial planner is to advice the client on the best possible investment
plan for his or her unique investment needs and goals.

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The time value of money

It is important to gain a thorough understanding of the time value of money. In practice

financial calculations that deals with the time value of money are not only applicable to
investment planning but also to estate planning and retirement planning. Estate
planning and retirement planning do not form part of this module, but it is important to
master the time value of money now already. Study chapter 8 of the South African
Financial Planning Handbook to gain a thorough understanding of the time value of
money.

Investment risk and return

Generally, the more investment risk a client a willing to take to more he should be
rewarded with a return on the investment. But more risk does always equate to a higher
return. In fact, the riskier an investment the more it tends to be volatile over the shorter
term. For example, equity investments can in one year deliver -30% return and 104%
return the in the next year. One way to reduce risk is to diversify between different
asset classes. The following are examples of investment risks:

Ø Inflation risk
Ø Interest rate risk
Ø Market risk
Ø Business risk
Ø Financial risk
Ø Liquidity risk
Ø Reinvestment risk
Ø Country risk
Ø Currency risk
Ø Systematic and unsystematic risk

Study chapter 13 of the South African Financial Planning Handbook to gain an

understanding of investment risk and return.

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Investment theory

Investment theories provide a framework within which investment decisions can be

made. Study chapter 13 of the South African Financial Planning Handbook to gain an
understanding of some of the different investment theories.

Economics

A financial planner should understand a few economic concepts in order to give quality
and sufficient advice to clients. For example, in the year 2022 inflation started to
increase around the world to levels that most central banks were not comfortable with.
In response, most central banks increased interest rates. This resulted in the
widespread selling of equity. As a financial planner it is important to understand the
fundamental reasons behind the decisions of central banks and why is influence the
investment market. Study chapter 15 of the South African Financial Planning
Handbook to gain an understanding of these important economic concepts.

Different asset classes

There are several asset classes that an investor can invest in. Each asset class comes
with its own risk and return characteristics. Study chapters 16 – 20 of the South African
Financial Planning Handbook to gain an understanding of the following asset classes:

The bond The equity

market market

Derevatives
The
and
property
alternative
market
investments

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Portfolio management

Portfolio management is the process of managing an investment portfolio. The aim of

portfolio management is to maximize a portfolio’s return given a certain level of risk.
Study chapter 21 of the South African Financial Planning Handbook to gain an
understanding of modern portfolio management.

Investment vehicles

An investment vehicle is a basket in which various asset classes such as bonds,

property and equity get invested in. As a financial planner, it is important to understand
the various investment vehicles available and their characteristic. For instance, in unit
3, it was illustrated that investing in a retirement annuity can result in a tax savings.
But a retirement annuity is not liquid. This means that funds from a retirement annuity
can only be accessed at the minimum retirement age of 55. Therefore, it would not be
wise to invest funds meant for an emergency in a retirement annuity just for the sake
of saving on tax. Study chapter 22 of the South African Financial Planning Handbook
to gain an understanding of the different investment vehicles available to investors.

The investment planning process

By following an investment planning process, a financial planner can ensure that a

client’s investment portfolio is structured appropriately according to the unique
investment needs and goals of a client. Again, your role as a financial planner is the
allocation of assets and not the selection of securities. The value-add of a financial
planner is, therefore, to follow an investment planning process with the aim to minimize
risk and maximize return within the goals and risk tolerance of a client. This means by
following an investment planning process like in the diagram below a financial planner
should structure an investment plan in such a way that it is appropriate for the unique
investment needs and goals of a client. This requires a thorough understanding of
various important aspects such as behavioural finance, taxation, different asset
classes with their risk and return characteristics and different investment vehicles.
Study chapter 24 of the South African Financial Planning handbook to gain an
understanding of the investment planning process. The investment planning process
is a way of applying the six-step financial planning process for investment planning.

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The following diagram illustrates the investment planning process in conjunction with
the 6-step financial planning process:
The six-step financial planning
process
Step 1: Establish and define a
relationship with the client.
Step 2: Collect the client’s information
Step 3: Analyse and assess the client’s
financial status.
Step 4: Develop the financial planning
recommendations and present them to
the client.
Step 5: Implement the client’s financial
planning recommendations.
Step 6: Review the client’s situation.
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Practical implication
Determine the objectives of the client.
This includes investment goals and risk
tolerance.
Gather information such as debt, tax
situation, lifestyle and current
investment portfolio.
Analyse and develop an investment plan
based on steps 1 & 2. At this stage the
allocation of assets is determined.
Present the investment plan to the
client.
Implement the investment plan.
Review and rebalance the investment
portfolio regularly based on the client’s
needs and circumstances.
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Activity 4
Consider the following case study and answer the questions that follow:
Your client is 25 years of age. He has just finished university with no debt and has
started a full-time job earning a salary of R 25 000 per month after tax. He has no
other income. He also does not have any dependents. He approached you with the
following concerns:
• His employer does not provide pension benefits. He, therefore, has no
retirement planning currently in place. This is important to him. He can put
aside R 3 750 for this.
• Given the fact that he has only recently started working, he has no funding
available for emergencies. He can put aside R 2 000 per month for this.
• He would like to buy his own house at some point and would like to save for
a deposit. He can put aside R 3 000 per month for this.

Questions:

1. What are the investment goals of the client?

2. What is the most suitable investment vehicle(s) for the client for each of the
investment goals (explain why these investment vehicles are the most
appropriate)?

3. How would you allocate the client’s funds between Money Market, Equity and
a Balanced Unit Trust Portfolio? Explain the risk and return characteristics of
your choices with reference to the client’s risk profile and identified investment
goals.

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UNIT 5: BEHAVIOURAL FINANCE

LEARNING OUTCOMES :

After studying this unit, the learner should be able to –

• Discuss and address a client’s attitudes towards risk.
• Discuss behavioural aspects of financial planning applicable to the financial
planning engagement.

Prescribed chapters in the South African Financial Planning Handbook:

Topic Chapter reference

Behavioural finance Chapters 23.1 – 23.11.

Introduction
Behavioural finance has a very important role to play in the financial planning process.
Throughout this whole study guide, the focus has been on technical elements that form
part of the financial planning process thus far. However, it is also important as a
financial planner to understand your client’s attitude toward both risk and money. Study
chapter 23 of the South African Financial Planning Handbook to gain a better
understanding of behavioural finance.

Activity:
In your own words explain why it is important for financial planners to take not of the
different attitudes and beliefs of clients towards risk and money?

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SECTION 4

1 ANSWERS TO ACTIVITY QUESTIONS

UNIT 1 ACTIVITY 1

Question 1
Step 1: Client engagement - Introduction and having a high level discussion
regarding the needs of the client. At this point the financial planner must determine if
can assist the client with the client’s specific needs.

Step 2: Collect the client’s information – Identify the client’s personal and financial
qualitative and quantitative needs, objectives and priorities.

Step 3: Analyse and assess the client’s financial status – Analyse the needs of the
client and provide the client with a written quotation or cost estimate.

Step 4: Identify suitable financial planning strategies and develop the financial
planning recommendation and solution: Agree with the client, in writing, on the
product and/or services to be implemented.

Step 5: Implement recommendations: Implement the agreed products or services.

Step 6: Review the client’s situation: Review and re-evaluate the client’s situation
as agreed.
Reference: South African Financial Planning Handbook (Chapter 1.4)

Question 2
Ethical standards does not always refer to an act that is deemed to be against the law.
But a golden rule to follow is that if you are not willing to publish in the media what you
are about to do it is most likely unethical. For example letting a client sign an
uncompleted application to be completed by your secretary at a later stage.
Regulations on the other hand are clearly defined in law and enforceable by authority.
For example requirements to identify a client according to the FICA Act.

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Question 3
External factors influencing financial planning:
Ø Unexpected events, for example, Covid-19;
Ø Changing economic conditions;
Ø Changing political climate.

Internal factors influencing financial planning:

Ø Vision
Ø Mission
Ø People
Ø Organisational structure

Reference: South African Financial Planning Handbook (Chapter 1.2.5.3)

UNIT 2 ACTIVITY 2

Question 1
The Ombud for Financial Service Providers provides the role to facilitate mediation and
resolutions of complaints from financial customers. For example the Ombudsman for
Long-term Insurance plays a role in receiving and considering complaints in a quick
and inexpensive manner between a subscribing member of the industry and one of the
following parties: a policy holder; a successor title; a beneficiary; a life insured; or
premium payer.
Reference: South African Financial Planning Handbook (Chapter 3.4.10)

Question 2
The consequences with non-compliance of the Act could result in regulatory fines of
up to R 10 Million, prison sentence of up to 10 years, civil litigation costs, damages
awards, regulatory audits as well as reputational damage.
Reference: South African Financial Planning Handbook (Chapter 3.7)

Question 3
The following documents must be kept for a minimum of five years:
Ø Known premature cancelation;

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Ø Complaints received;
Ø Continued compliance with fit and proper requirements;
Ø Cases of non-compliance;
Ø As a general rule all the documents relating to the advice that has been
rendered should be kept for the prescribed period.
Reference: South African Financial Planning Handbook (Chapter 4.8.2)

Question 4
In addition to the fit and proper requirements of a Key Individual, FSPs (Natural person)
must be financially sound.
Reference: South African Financial Planning Handbook (Chapter 4.10)

Question 5
Refer to chapter 4.11.2.4.1.1 of the South African Financial planning handbook for a
complete overview of this section of the Act.

Question 6
Refer to chapter 4.11.2.4.2 of the South African Financial planning handbook for a
complete overview of this section of the Act.

Question 7
The control measures are:
Ø Customer due diligence;
Ø Duty to keep record;
Ø Financial sanctions;
Ø Reporting duties and access to information;
Ø Measures to promote compliance by accountable institutions;
Ø Referrals and supervision.
Reference: South African Financial Planning Handbook (Chapter 5.4.4)

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UNIT 3 ACTIVITY 3

Question 1
For income tax purposes of a trust qualifies as a special trust the rates applicable to a
natural person will be applicable to a special trust.
Reference: South African Financial Planning Handbook (Chapter 25.5.1)2

Question 2
A couple married in community of property effectively both owns half a portion of the
property. When selling the property it means that both spouses realise their half portion
of the capital gain and therefore has their own R 2 000 000 primary residence rebate
to use on capital gains as a result of selling the property.

Question 3
The total deduction allowed must not in a year of assessment exceed the lesser of:
Ø R 350 000
Ø 27,5 percent of the higher of the person’s:
(i). Remuneration as defined in paragraph 1 of the Fourth Schedule; or
(ii). Taxable income as determined before allowing any deduction under this
section and sections 6quat(1c) and 18A; or
Ø The taxable income
(i). allowing any deductions under this section and sections 6quat(1C) and 18A;
and
(ii) the inclusion of any taxable capital gain.
Reference: South African Financial Planning Handbook (Chapter 25.10.3)

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Question 4
Step 1: Determine the net profit from income activities related to commission income.
This calculation will take into account deductions directly related to commission inome
received.

Step 2: Calculate the tax liability. Note that the net income calculated in step 1 is now
part of the total calculation to derive at the tax liability.

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Question 5

The total deduction allowed must not in a year of assessment exceed the lesser of:
Ø R 350 000
Ø 27,5 percent of the higher of the person’s:
(i). Remuneration as defined in paragraph 1 of the Fourth Schedule; or
(ii). Taxable income as determined before allowing any deduction under this
section and sections 6quat(1c) and 18A; or
Ø The taxable income
(i). allowing any deductions under this section and sections 6quat(1C) and 18A;
and
(ii) the inclusion of any taxable capital gain.

Therefore: R 950 000 x 27,5% = R 261 250

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UNIT 4 ACTIVITY 4

Question 1

The investment goals of the client are as following:

Ø Save for retirement
Ø Save for an emergency
Ø Save for a deposit on a house

Question 2
The most suitable investment vehicles for the client is as following:
Ø Save for retirement - Retirement Annuity because the client has a long-term
investment horizon here and the funds does not have to available immediately.
Ø Save for an emergency (Emergency fund) – Savings account because the
client can afford losses on a short-term investment and money must be
available in a short period of time.
Ø Save for a deposit on a house Unit Trust Investment or Tax Free Savings –
client has a medium term horizon here and funds does not have to be available
immediately.

Question 3
The investment goals of the client are as following:
Ø Retirement Annuity: Investing mostly in equity because the client has a long
investment time period and can take to risk associated with equity investment
in return for potential high investment returns.
Ø Savings account – Money Market investment because the client has a short
investment time period and funds should be available immediately. Money
Market investment offers a lower return for the “safety” that the investment is
not high risk and funds available upon call.
Ø Unit Trust Investment or Tax Free Savings - Balanced diversified investment
portfolio between different asset classes. This will ensure that the client still get
enhanced returns over time better than money market but at a risk lower than
equity market. This is an investment almost in the middle between Money
Market and Equity.

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UNIT 5 ACTIVITY 5

Question 1
Behavioural finance places clients with their motivations and expectations at the centre
of the financial planning process. It finds application in all the stages of the financial
planning process. This is important because to treat a client fairly you will have to know
how they make decisions, their risk tolerance, level of financial literacy motivations and
beliefs. Not only will this influence the financial products recommended to the client but
also the level of trust between the financial planner and client. For example if a client
has a very low tolerance for risk and low level of education it does not make sense to
invest the money of such a client in an equity portfolio. Instead an investment portfolio
with lower risk might be more appropriate such as a guaranteed return type of
investment.

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2 INFORMATION ON PLAGIARISM

It is extremely important that you understand the importance of avoiding plagiarism in

any of the work submitted in fulfilment of your course requirements. Disciplinary action
will be taken against any student who plagiarises the work of another.

The following extract on plagiarism is taken directly from the official NMU Copyright
services website from an article entitled Copyright and Plagiarism: Short guide for
students. Students must familiarise themselves with this document:

WHAT IS PLAGIARISM?

Plagiarism is similar to copyright infringement in that one is unlawfully using the work of
another person. Plagiarism occurs when an individual uses the words or ideas of another
person as if it were his/her own and without giving acknowledgement of the actual
source. Even if the source is mentioned it must be made clear when the work is being
quoted and what your own contribution is. The work that was plagiarised does not even need
to be a copyright protected work to amount to plagiarism.

R. D. Mawdsley, in an article Academic Misconduct: Cheating and Plagiarism, 1994

(Topeka: NOLPE) defined plagiarism as follows: “Plagiarism: This consists of offering as
one’s own work the words, ideas or arguments of another person, without appropriate
attribution by quotation, reference or footnote. Plagiarism occurs both when the words of
another are reproduced without acknowledgement, and when the ideas or arguments of
another are paraphrased in such a way as to lead the reader to believe that they originated
with the writer.”

3 ASSIGNMENT INSTRUCTIONS

There are three assignments in total for this module. Two consist out of multiple choice
questions and one a written case study. The assignments is prepared in such a way
to encourage you to read more on the different topics and outcomes being covered.
The format of the assignment questions is also designed to prepare you for the written
exam. The assignment will be in electronic format and due dates will be communicated
to you.

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