What is the Social Challenge?

Over the past two decades, South Africa has experienced a consistent decline in saving rates, with the current rate standing at 16.3%, making it one of the lowest in the world. Saving rates play a crucial role in driving investment and, consequently, economic growth. The Gordan Institute of Business Science highlights that promoting domestic savings, particularly among households, holds significant potential for fostering elevated economic growth. Surprisingly, a recent study conducted by Kantar, a leading data analytics firm, challenges the commonly held belief that South Africans are not interested in saving. The study reveals that most South Africans do want to save and understand the importance of doing so. However, they face challenges due to the complexity and intimidation associated with formal savings offerings. Additionally, they lack understanding of how specific savings products can facilitate their financial growth.

Our Response:

The Fund's investment in EFG has accelerated the implementation of EFG's BBBEE strategy, specifically in expanding the market access for their services to a broader demographic in South Africa. Summit has played an active role in supporting EFG by identifying black industry experts and vital investment opportunities that are instrumental in driving the strategy. Furthermore, Summit has taken the initiative to assist EFG in developing robust ESG and ESMS practices.

Who Are the Stakeholders?

According to the 10X South African Retirement Reality Report 2020, almost half (49%) of South Africans still require a retirement plan. Among those who claimed to have some form of retirement plan, 75% expressed concerns about whether their savings would be sufficient to sustain their post-retirement lifestyle or remained uncertain about this matter. Furthermore, an analysis conducted by Alexander Forbes Member Watch in 2019 revealed that 50% of members are projected to retire with a replacement ratio of less than 20%, significantly below the recommended threshold of 70% or higher.

What is the Impact?

EFG's focus is to improve financial inclusion for more South Africans. Much of the EFG/Summit Value Add Action Plan is dedicated to expanding this impact by improving the accessibility of its financial savings products, advice, and platforms to a broader population. Specifically, the focus is on reaching previously disadvantaged individuals (PDIs) and small to midsize asset managers who face barriers in accessing the market due to cost and regulatory constraints.

EFG has established a BCI platform that enables investment managers to create savings products in the form of Collective Investment Scheme Funds. They currently have a network of 171 Retirement Fund Advisors. They are also working towards transforming the industry by training young, black financial advisors through its Wealth Academy Internship programme, who will be able to promote greater financial inclusion for their clients, especially previously disadvantaged persons. These young RFAs will remove the language and cultural barriers, providing clients with the knowledge they need to save and invest confidently.

Job Creation:

EFG has created 86 new jobs since the investment, with 58 additional women employees, including 36 black women. The company aims to increase the number of RFAs through training, recruitment, acquisitions, and partnerships in the coming years.

Community Upliftment:

Efficient Wealth has expanded its client base significantly, serving over 87,200 clients compared to the initial 35,323 clients at the time of investment. This marks a substantial increase of 51,899 clients during the Funds' investment period. Among these clients, 67% (58,046) possess some type of savings product. Notably, during the Fund's investment, 30,514 new clients have invested in savings products through Efficient Wealth.

Transformation, Diversity & Inclusion:

Through the Fund's investment, EFG has achieved a transformation in its ownership structure, with 37.4% being black-owned and 10.7% black women-owned. EFG has implemented a BBBEE strategy aiming to reach at least Level 5 recognition by 2023. The board comprises 37% women, including 20% black women. The company has seen an increase in the percentage of black women employees from 16.5% to 20.5% since the Fund's investment.

What if Efficient Group Did Not Exist?

As the largest independent financial adviser network in South Africa, EFG provides essential financial advice and savings products to households. To increase its impact, recent initiatives include establishing Efficient Corporate to serve institutional clients and acquiring a stake in a black-owned RFA firm focused on providing financial planning services to predominantly PDIs.

The absence of companies like EFG would result in reduced access to financial advice, limited availability of tailored savings products, diminished support for previously disadvantaged individuals.

What is the Risk?

The company actively engages in improving various ESG risks by adhering to the IFC's Performance Standard 1 (Risk Management) and following the Plan, Do, Check, Act principles. Efficient's compliance and governance standards are aligned with King IV, and ESG values are integrated into employee induction and monthly training. Efforts are made to reduce travel, paper usage, and energy wastage. The ESG Committee reports to the Audit Risk & Compliance committee and the board, ensuring regular monitoring of risks and impacts. Additionally, EFG has adopted SASB (Sustainability Accounting Standards Board) issues within its combined assurance and risk reporting framework.