Tag: money

Questions surround the CEO SleepOut Initiative

Profitability almost rhymes with philanthropy. It’s close, but not quite.

The for-profit CEO SleepOut Initiative took the South African philanthropy industry by storm in 2015, and now appears to have raised more than R50 million over three years for various charities.

It seemed a new fund-raising model had been born.

However, over the last three years, a few cracks appeared in the CEO SleepOut’s public edifice. A significant beneficiary abandoned a potentially lucrative three-year relationship after just one year, and the initiative interdicted the beneficiary from infringing its alleged copyright in a list of donors, claiming the beneficiary was using its intellectual property to compete with the initiative to raise money for charitable causes.

Some questions also emerged regarding financial transparency and how much money reached the destined beneficiaries.

Before this story continues any further, a few points need to be made.

Firstly, it is extremely difficult to write an article about fund-raising initiatives for charities, as it may harm future potential beneficiaries of such events. Even more so when the subject matter is a seemingly successful initiative.

Secondly, we make no allegations of financial impropriety. The information in this article comes from numerous interviews with key stakeholders and former employees, most of whom were not willing to speak on record.

Thirdly, it is concerning that the CEO SleepOut Trust has not been forthcoming with information or transparent about its finances.

The first interaction was in May this year, and despite many e-mail exchanges with the founder of the initiative, Alison Gregg, a number of questions remain unanswered.

Within this context, readers should draw their own conclusions. But first, some background.

Australian concept meets American business model

The CEO SleepOut initiative started a few years ago when Gregg brought the brainchild of Australian philanthropist Bernard Fehon to South Africa. The aim was to get C-suite executives out of their warm, luxury homes to spend a cold winter night on a pavement to reflect on those less fortunate than them and to raise funds for charity.

Gregg married this noble concept with the for-profit business model mooted by the international philanthropist Dan Pallotta who is seen as a pioneer of the for-profit philanthropy industry in the US.

Pallotta’s theory is that a business run on sound business principles with well-paid executives would do a better job at raising money than NPOs could do themselves, and his achievements are impressive.

His venture, Pallotta TeamWorks (PTW), raised a staggering $556 million in donor contributions between 1994 and 2002 through various multi-day, mass-participation events. After all expenses, a total of 55% or $305 million was paid to selected charities.

PTW, as a for-profit entity, charged 4.01% or approximately $22.8 million for its professional services. (PTW also publishes detailed information about every event showing significant transparency into how donor funds were used.)

Inaugural event a spectacular success

The first rendition of Gregg’s CEO SleepOut was in 2015, where the 58-year-old charity, Girls and Boys Town (GBT), was the sole beneficiary. It was a spectacular success.

A total of 246 CEOs of some of South Africa’s top companies camped out on the pavement next to the JSE in Sandton and raised a whopping R26 million for GBT – the single largest fund-raising event ever for a charity in South Africa.

The 2016 event was also successful. A total of 167 CEOs faced the cold tarmac of the Nelson Mandela Bridge and raised R20 million for the ASHA Trust, Columba Leadership and the Steve Biko Foundation.

The 2017 event, the SheEO SleepOut, was hosted in August at Constitution Hill where about 57 female CEOs spent a night in the cold, raising roughly R4.8 million between them for the Door of Hope. (These numbers have not been audited and confirmed.)

Overall, the three events are said to have raised more than R50 million for various charities, suggesting that a new era of charitable fund-raising has arrived.

Hairline cracks

But shortly after the 2015 event a few hairline cracks appeared.

GBT, the sole beneficiary of the 2015 event, severed ties with the initiative, despite an initial three-year understanding being in place. The break-up was less than amicable, with Gregg later taking GBT to court in 2017 for copyright infringement.

(The gist of the case was that GBT contacted several donors of the 2015 event from contact details captured during their financial administration process. The court found that this was in breach of copyright and ordered GBT to stop using the list and to delete it, and slapped the charity with a cost order. GBT strongly deny they did anything wrong, but have put an application for leave to appeal on hold due to concerns of mounting legal fees).

The relationship with media partner Primedia, which was seen as a pivotal contributor and name sponsor of the 2015 event’s success, also came to an end after the first event.

Sun International terminated its sponsorship following the 2016 event, despite previously committing to a three-year involvement, citing a strategic direction change as reason for the termination.

Several former employees of Gregg’s businesses Moneyweb spoke to, also expressed their discontent with their working environment.

One staffer, who was dismissed earlier this year, said staff turnover was close to 100% a year, and that virtually all the staff employed in 2016 had since left. Several of their replacement appointees have also been terminated or resigned.

It is important to note that there were significant structural and operational differences between the 2015 and 2016 events. The CEO SleepOut Trust could not acquire NPO certification prior to the 2015 event and could therefore not issue 18A tax certificates to donors, enabling donations to be claimed for tax.

GBT had such certification, and in 2015 GBT was in total control of the financial administration, from receiving donations to issuing 18 A certificates.

In 2016 this structure changed.

The CEO SleepOut Trust had by then received NPO certification and the financial administration moved to the Trust. The Trust took over full control of the event, including the responsibility to determine the quantum of funds to be paid out to beneficiaries after the event, and to actually pay these amounts.

The Trust was to be administered by trustees who would consult a Working Group consisting of various other stakeholders of the initiative. The 2016 event also saw Gregg’s new business The Philanthropic Collection Proprietary Limited (TPC) becoming involved. This business came about after Gregg converted her previous business Alison Gregg PR from a CC to a company. TPC was a for-profit enterprise and owned and managed all the CEO SleepOut events and trademarks. It would charge the CEO Sleepout Trust for the professional services it rendered, as Gregg’s PR business had done the previous year.

Compensation

One of the first questions asked of any philanthropic venture is how much of the donated money reaches the actual beneficiaries. This is even more so in the case of a for-profit fund-raising effort.

GBT’s audited statements for 2015 confirm that the initiative raised R26 million and that this amount was received directly into its bank account. The statements also confirm that GBT paid an amount of R1.3 million (ex Vat) to Gregg after the event, via her business Alison Gregg PR, as compensation. This amount was calculated as 5% of the R26 million raised.

Unfortunately, no audited or unaudited amounts are yet available for the 2016 event, as BDO is still busy with the audit process – six-and-a-half months after the Trust’s year-end, and more than a year after the event.

But there are unaudited amounts disclosed in the public domain. From the CEO SleepOut website it is clear that R20.2 million was raised in 2016 and R46.2 million for both 2015 and 2016.

The website also states a total of 75% of the R46.2 million was paid to beneficiaries and that this distribution “exceeds international norms of events of this nature”.

Thus, around R11 million was retained from the funds raised in 2016 to cover operational expenses and to allow for a profit for TPC. It also suggests, through the manner in which the amounts are disclosed, that a portion of the funds raised from the 2016 event was used to cover expenses related to the 2015 event. This amount excludes the R1.3 million already paid to Gregg the previous year.

In response to a question, Gregg denied that this assumption is accurate, but did not provide an explanation. This is relevant as the CEO SleepOut Trust took full administrative control of the event in 2016, and could therefore decide how much of the raised funds could be used to cover expenses.

The retained amount of R11 million is significant as it represents around 55% of the R20.2 million raised in that particular year.

How does this chime with international benchmarks for charity running costs? Research by Giving Evidence and Givewell in the UK provides the first empirical data on charity admin costs. It looked at 265 charities between 2008 to 2011 and found that charities recommended by Givewell spent an average of 11.5% of their costs on administration.

However, in response to an earlier question relating to the R11 million, Gregg said: “At the time (December 2016), we budgeted roughly R9 million in costs (over the 12-month period) and held back a further R3 million for the 2017 (and where relevant 2018) working capital requirements. This was on advice from our accountants. Depending on the reconciliation and final accounts, further payouts will be considered.”

Regarding the disclosure of the R1.3 million, Gregg stated: “It was disclosed to the 2015 Working Committee, in court papers, to Sars, to you, and would likely have been disclosed in GBT financials.”

What she will not divulge, however, is how much of the retained R11 million remains in the Trust and how much was paid to TPC, either as professional fees or to cover operational expenses or as licensing fees, and what profits were made by TPC.

Gregg wasn’t prepared to disclose unaudited amounts, but these will be confirmed once the audited statements of the Trust become available.

Trustees

The decision-making authority within the Trust is also concerning. The CEO SleepOut was registered in 2015 with four trustees. They were Gregg, Patricia Stewart, Dick Sher and Darren Olivier.

Moneyweb has been able to confirm that Stewart, Sher and Olivier have subsequently resigned as trustees, leaving Gregg as the only remaining trustee. Gregg failed to respond to several questions related to these resignations and whether any new trustees have been appointed.

It is not clear who decides on the allocation of funds to charity. In a published Q&A document on the website, it is stated that once the revenue was audited, “the allocation (net of costs and working capital requirements) is presented to the Trustees and the members of its Working Group who are comprised of Founding, Title, City, Media and Stakeholder Partner representatives and the Beneficiaries. After that process, the monies are paid out to the appointed Beneficiaries, with total transparency.”

From this, it is not clear how the decision-making process works and whether it is material that only one trustee, who is seemingly conflicted as she is also the owner of TPC, remains.

Many questions regarding the initiative are yet to be answered. Hopefully, more information will become available once BDO signs off the CEO SleepOut Trust’s financial statements. The philanthropy industry is built on a trust relationship and ultimate transparency entrenches this relationship.

By Ryk van Niekerk for MoneyWeb

 

South Africans rake in Airbnb profits

Airbnb has proved a lifesaver to many South African women hosts, giving an especially welcome financial boost to single mothers, according to latest statistics released by the hotel and guest lodge booking platform.

In the report Across the BRICS: How Airbnb connects the emerging economies, the platform detailed how the service contributed towards GDP in Brazil, Russia, India, China and South Africa.

“South Africa has seen the strongest growth in guest arrivals from BRICS nations at 380%, with explosive year-over-year growth in guests arriving from Brazil, by a factor of nine. South African hosts’ total income earned from BRICS-based guests ranks the highest of the five countries at $1.88m (about R24.3m),” the report read.

“The typical woman host in South Africa earned nearly $2 000 (R25 917.10) last year, more income than earned by the typical women hosts in other countries. More than 60% of women hosts in South Africa are Superhosts – hosts who are specially designated by Airbnb as hosting guests frequently, receiving a high number of five-star reviews, and being exceptionally responsive to guests and committed to reservations with 60% of South African women hosts with children, i.e., single mothers, use (sic) their Airbnb income to help them stay in their homes,” it said.

About 5.3 million Airbnb users from developing nations generated more than $467m over the past year, according to latest statistics released by the app.

The year-on-year growth rate of intra-BRICS  guest arrivals was reported at 134%, according to the study.

With interest in travel and tourism on the rise, reaching 10% of global GDP in 2017, Airbnb allows BRICS countries to benefit in their share of the income, said the report.

Airbnb is an online marketplace and hospitality service that helps people lease or rent short-term lodging including vacation rentals, apartment rentals, homestays, hostel beds, or hotel rooms with 97% of the listing price going directly to hosts.

By Kyle Venktess for Fin24

Eskom: we’re not broke

Eskom has lashed out at media reports that it was “broke”, saying it was confident it could keep going.

“Eskom refutes the notion that it is facing a cash crisis, and that it has only enough cash to last for the next three months,” it said in a statement.

“The company is confident that it will maintain sufficient liquidity to support its operations,” it added.

The state-owned enterprise said that it had noted weekend media reports about apparent financial problems.

However, it said that, because it was making an official announcement on its finances this coming Wednesday, “Eskom is not in a position to respond comprehensively to the specific issues raised at this stage”.

The power utility said that “external auditors have confirmed Eskom as a going concern, and as a result the company sees these reports as being inaccurate and misleading…

“It is important to reiterate that Eskom is not facing any liquidity challenges.”

The parastatal also said it wanted to highlight certain points, including that “whilst Eskom’s financial position has always been supported by significant reliance on debt and borrowings, its improved overall financial and operational performance over the last two years has led to an improved balance sheet”.

Eskom said it had “sufficient government guarantees” in order to be able to carry out its funding plan. It also had “maintained access to capital markets and raised committed funding”.

‘Eskom may not be able to pay salaries’

The Sunday Times newspaper published an article on Sunday in which it claimed that, according to financial statements it had seen, Eskom only had enough money to last approximately three months.

According to the weekly publication, Eskom has R20bn left, but has proposed to pay millions in bonuses, including to former CEO Brian Molefe and suspended acting chief executive Matshela Koko.

This week, Fin24 reported that, late last Monday, Eskom postponed its financial results presentations which had been due to take place last Tuesday.

Earlier this month, external auditors SizweNtsalubaGobodo reported the state utility to the Independent Regulatory Board of Auditors for apparent irregularities.

Koko has been on special leave since May, pending an investigation into an apparent conflict of interests, while a legal battle continues into the reinstatement and subsequent removal of Molefe.

On Sunday, the DA called on Public Enterprises Minister Lynne Brown to reject the proposed multi-million rand bonuses for the executives, past and present.

“The fact is that Eskom may not be able to pay salaries to its 49 000 employees come November,” said DA MP Natasha Mazzone in a statement.

Recent controversy

Here is a list of some recent controversies Eskom has been embroiled in.

  • Boiler tender worth R4-billion set aside

At the end of June‚ the Johannesburg High Court set aside a R4-billion tender given to Chinese firm Dongfang to replace a boiler at Mpumalanga power station Duvha.
Losing bidders‚ Murray and Roberts and General Electric‚ which had put in much cheaper bids than the Chinese firm‚ approached the Johannesburg High Court to have the tender set aside. Price was supposed to be a factor in the choice‚ Eskom had said.

  • Eskom paid Trillian R266-million without invoices

The Trillian report‚ released recently by advocate Geoff Budlender‚ SC‚ found millions were paid by Eskom to Trillian without proof any work was done for the power utility.
One invoice was for the broken boiler station that Dongfang had won a bid to fix. The boiler remains broken.
Budlender linked the Trillian company to the Guptas because their associate Salim Essa owns 60% of Trillian.

  • US firm acts

US auditing firm McKinsey has taken steps against its SA director‚ Vikas Sagar‚ after he wrote letters saying McKinsey was doing work for the company‚ something the company denies took place. The action taken against Sagar is part of a probe that is looking into Eskom contracts given to a Gupta-linked company.

  • Tegeta‚ Eskom and the Guptas

The Guptas received a R600 million pre-payment for coal from Eskom and used this money to buy the Optimum Coal mine.
Eskom said this was a pre-payment‚ but former Public Protector Thuli Madonsela said in her State of Capture report that this prepayment was irregular.

  • CEO Brian Molefe resigned‚ retired‚ rehired‚ rescinded

Molefe announced he was stepping down as Eskom CEO in November 2016 in the wake of the Tegeta incident and Madonsela report.
In May‚ he returned to Eskom as CEO‚ saying he had just retired.
After Public Enterprises Minister Lynne Brown was forced to explain his reappointment‚ she filed an affidavit saying he had never retired but had taken “unpaid leave”.
The scandal led to the Eskom board firing him at the end of May

  • Revelations in the Denton report‚ published in the Financial Mail

Eskom wasted about R200m over two years by failing to negotiate proper discounts with diesel suppliers. The company paid billions to companies without having received proper invoices‚ in many instances paying for services without evidence of having received the supplies for which it was paying.
Eskom contributed to its own financial problems‚ and contravened the Public Finance Management Act by failing to put proper controls in place.
It consistently overpaid for diesel‚ coal‚ logistics and other contracts.
Eskom employees diverted business opportunities to themselves at the expense of the utility.

Source: News24; timesLive
Image credit: National Geographic

Office Depot has announced the results of an educator productivity survey whose findings uncovered the minimum cost of US teacher time spent researching and buying supplies for their classrooms is more than half a billion dollars.

“We are proud to partner with public and private schools around the country to reduce educators’ out-of-pocket expenses and time spent sourcing classroom supplies through our classroom enablement programs and print services instructional materials solutions.”

The non-profit Center for College & Career Readiness and Office Depot’s Committed to Learning initiative recently surveyed more than 2 800 educators regarding purchasing and researching needed supplies for use in the classroom.

An average teacher’s salary is more than $55,000 per year (roughly $26 per hour) and there are more than 3.5 million full- time teachers in the US, therefore based upon the results of the survey, the costs of researching and purchasing classroom supplies could reach over $500 million.

A few key findings from the survey:

  • Nearly 70% of respondents indicated that a central purchasing hub would save time and money when buying classroom supplies;
  • 42% of the educators surveyed reported purchasing classroom supplies every month;
  • More than 30% indicated they spend more than 10 hours every year researching and buying supplies for the classroom; and
  • 50% of the educators surveyed preferred to purchase classroom supplies online.

Office Depot partners with school districts from Connecticut to California to bring strategic planning expertise and a team of education experts to help plan, produce and deliver classroom materials, allowing educators to save time in the classroom. Through www.officedepot.com, educators have access to an easy-to-use central purchasing hub that helps with streamlining buying decisions.

“These survey findings show the increased demand for educator support when it comes to researching and purchasing classroom supplies,” said Becki Schwietz, senior director of growth strategies for Office Depot.“We are proud to partner with public and private schools around the country to reduce educators’ out-of-pocket expenses and time spent sourcing classroom supplies through our classroom enablement programs and print services instructional materials solutions.”

Office Depot collaborates with school districts and other educational institutions through the company’s Committed to Learning initiative, which offers educators access to a national team of curriculum and instruction experts across disciplines. Through the Committed to Learning initiative, the company partners with school districts to meet their strategic goals by providing instructional solutions and access to experts that enrich the learning experience in the areas of personalized learning, project-based learning and innovative learning spaces, culture and wellness, instructional resources, and supplies.

With South Africa’s economy under intense pressure and the fallout of socio-political uncertainty impacting significantly on investment, the business climate is volatile to say the least. However, while most companies are holding back on spending and are looking to save, the reality is that it is a mistake to overlook the critical importance of workforce management solutions to optimise processes and optimise businesses in tougher times in particular.

This is the view of Guenter Nerlich, MD of AWM360 Data Systems, the leading provider of Human Capital Management (HCM) focused workforce management solutions.

Nerlich agrees with the broader market sentiment that the economy reflects stagnant to no growth (0%) and this is has put a block on investment. He also agrees that many international businesses are reluctant to invest further ‘on home soil’ and are looking to rather extend their operations and businesses abroad.

The air of apprehension that has engulfed most sectors is beginning to smother industry, strengthened by political infighting, discourse and disharmony between key stakeholders including Finance Minister Pravin Gordhan and President Jacob Zuma.

There is also growing concern over the country’s ability to avoid an official financial downgrade by global rating agencies.

So as complex as the situation may be and as serious, the reality facing businesses is that they cannot afford to hold back on investment in technology. “

“You must spend money first to save money,” says Nerlich. “A major part of the problem is that many companies are on a knife-edge – they feel trapped by the economic difficulty and become immobile, which is very dangerous. The fact is that during times of difficulty and volatility, businesses must be proactive and not sit back… sitting on the proverbial fence is not an option,” Nerlich says.

Investment is the backbone of an economy and when there is restriction, there is contraction – it squeezes the life out of investors, according to AWM360 Data Systems and this is very worrying.

“Effectively South African companies are sitting on capital that would otherwise be spent on investment. What we are advocating is that businesses free up their capital and commit to investment in solutions that boost workflow and reinforce HR and systems and directly contribute to the bottom line earnings, that is an investment in the future,” Nerlich continues.

He believes while South Africa’s labour force continues to feel the pinch of economic hardship and resources become more scarce, the need for solutions that optimise work systems, help businesses handle data, analytics, cloud migration, the Internet of Things and digital transformation, will only increase.

Time is money

The Basic Conditions of Employment Act (BCEA) sets the fundamental conditions of service for all employment situations, ranging from the domestic to, with variations, the industrial.

When it comes to hours worked per week in business, particularly overtime, the BCEA is precise – the maximum normal working time allowed is 45 hours per week, any overtime is voluntary and may only be worked in agreement between employer and employee.

Nicol Myburgh, head of HR Business Unit at CRS Technologies, an HR and HCM specialist services provider, offers a broad perspective on the matter and the company’s view, which, as he explains, is only a guideline.

Myburgh says there are terms and conditions that have to be taken into consideration – including the fact that the above regulation excludes lunch breaks. “Lunch breaks are, by law, not defined as working time and will therefore be unpaid,” and does not mean the employee must work 45 hours per week normal time.

“The normal working hours are determined by mutual agreement between employee and employer, in this aspect the act only provides the maximum limit of 45 hours, and does not mean the employee MUST work 45 hours per week normal time. The statutory limitation of 45 hours per week means that the employee may not work more than 45 hours per week normal time,” says Myburgh.

As CRS Technologies explains all overtime is voluntary and may only be worked by agreement between employer and employee.

Labour legislation is also clear on overtime, defined as time worked in excess of the normal working hours. “The maximum permissible overtime is three hours per day or 10 hours per week. The employee must be paid at one and a half times his/her normal wage rate except for Sunday work and work on public holidays, which must be paid at twice the normal wage rate. The employees aren’t necessarily paid for overtime, instead by mutual agreement, they can be granted time off in lieu of payment calculated by the same formula mentioned above,” Myburgh continues.

By mutual agreement

However, this segment of the law is only applicable to employees earning below the earnings threshold, as determined by the Minister, and is currently R205 433,30.

As CRS Technologies executives explain, overtime payment or time off in lieu thereof for employees earning above this threshold is not compulsory, but rather a mutual agreement between employer and employee.

Employees earning above the threshold for overtime who are not compensated by employers have the right to refuse to participate in overtime work.

While it is true that each industry has its own variations and is governed by specific dynamics, legislation regulating overtime is applicable irrespective.

“No employee may work more than 45 hours per week normal time and the no employee may work more than 10 hours per week overtime. However, while the BCEA sets the fundamental minimum rules, there are legislated variations based on sectoral or industry operational requirements. A sectoral determination, a Bargaining Council Main agreement or a union agreement, etc. may bring about variations on the conditions mentioned above since these documents are viewed as extensions of the act. These are known as delegated legislation,” says Myburgh.

CRS Technologies refers to the security industry as an example.

The company explains that Sectoral Determination 6: Private Security Sector, regulates among other conditions the maximum normal working hours to 48 hours per week for a security officer.

“and the Metal and Engineering Industries Bargaining Council regulates the conditions for employees operating in the industry, among other conditions the ordinary hours of work shall not exceed 40 in any one week for employees on day shift and/or night shift or employees working on the two and/or three-shift system,” Myburgh explains.

A further example is the retail industry, where overtime provisions allow for extended shopping hours.

The six red flags of a money scam

Consumers should treat any offer of an above market return on their investment with suspicion, regardless of whether it is promised in cash, interest, income or capital gains, warns Justus van Pletzen, CEO of the Financial Intermediaries Association of Southern Africa (FIA).

FIA would like to warn consumers against “wasting their money on so-called ‘get rich quick’ schemes”.

“Wealth is generated through hard work and smart investing and there is no way that you will turn a few hundred rand into a fortune over a few months – those who try soon find themselves out of pocket,” says Van Pletzen.

He says the SA Reserve Bank (Sarb) is investigating more illegal deposit taking scams than ever before.

The common feature of a “get rich quick” scheme is a promise of an unrealistic return while the common emotions driving a consumer’s decision to participate in such schemes include desperation, greed and the fear of missing out.

The perfect Ponzi scheme must do two more things: It must be able to demonstrate that the unrealistic return is being achieved and it must have a clever explanation as to how the scheme generates so much more return than mainstream asset managers or banks.

“One of the saddest things about local scams is that they often lure in the old and vulnerable who are desperate to supplement declining retirement incomes due to the current low interest rate environment,” says Van Pletzen.

He provides six red flags that may signal a Ponzi or pyramid scam:

Abnormally high returns
Steer clear of investment schemes that offer abnormally high returns – and treat the phrase “guaranteed return” with a measure of suspicion too.
Consumers usually understand the concept of higher risk for higher returns as this is a fundamental principle of investing. But consumers do not understand that the returns being offered by Ponzi or Pyramid scheme crooks are way off the charts.
For example, South African investors can expect around 7.0% a year in cash (low risk) or 15% a year in the stock market (high risk) over five years. You should be highly suspicious of any product or opportunity that promises a return that is higher than the country’s top asset managers can generate.
Remember that no return is ever “guaranteed” in the world of investments and that even the most modest of investments carry some risk. The guaranteed products offered by large and respected financial institutions are based on solid actuarial models and involve a complex trade-off between risk and reward.

Vague business models
Steer clear of investment schemes that are based on vague business or investment models.
Before you invest you should make sure that you understand how the returns are generated.
You should never fall for claims from the Ponzi crooks that the investment or business model is “confidential” or “too complex” for you to understand. The bottom line is that if you do not understand the product you should not invest.

More participants
Avoid investment schemes that rely on you bringing in more participants in order to generate a return.
This is a classic trait of both Pyramid and Ponzi schemes, with the former requiring you to bring in additional participants to qualify for any return.
Legitimate investment tools do not require you to bring in more participants. It is also common knowledge that new participants to a scheme will eventually dry up, resulting in a total collapse or implosion of the scheme.

Undue pressure
Steer clear of investment schemes that place you under undue pressure to invest.
If you are being pressured to make the initial investment – or are frequently encouraged to increase the size of your investment – then beware.

Complex foreign exchange
Take care when considering offshore investments that rely on complex foreign exchange transactions and shifting money across borders.
All of the warning signs given above are compounded when the opportunity requires your cash to be taken offshore into banks that are outside of the South African regulator’s reach.

Too good to be true
If it is too good to be true, it usually is.
Any investment with a high rate of return that is says to be “guaranteed” should be treated with suspicion – if it looks too good to be true, it usually is.

“People who plan carefully for their financial futures are less likely to fall victim to a Ponzi or Pyramid scheme, because they have more realistic return expectations and a better understanding of how the savings and investments industry works,” says Van Pletzen.

“The desperation that lures many older persons into ‘get rich quick’ schemes can be avoided by saving sensibly throughout you working years and reaching retirement with enough to support yourself through retirement.”
In his view the best protection when making an investment is to transact with a reputable financial institution with assistance from a licensed financial adviser, financial planner or insurance broker.

“In this way you can transact in confidence because both the financial services provider and adviser must be registered with or licensed by the Financial Services Board (FSB) and subject to the many rules and regulations put in place specifically to protect consumers,” he says.

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