WHEN WILL THE ADVISER CARNAGE STOP?
How many adviser suicides does it need for the Australian government is say “Enough!”.
According to AIOFP executive director, Peter Johnston, in a recent letter to Parliamentarians, 29 suicide deaths have occurred in our industry over the past five years. In the same letter, Peter also expressed concern that the 1st October 2022 exam deadline will cause further deaths.
Well that time has come! I received a call from this week from an adviser subscribed to my exam tutorial program, and she told me that one of her colleagues in the same licensee group, also off the adviser register and struggling to pass the exam, had taken his own life last weekend, leaving a young family behind.
This must stop!!
Although long periods of Covid lockdowns haven’t helped, the adviser exam has been a contributing factor. I talk to affected advisers every day and I know the adverse mental struggles they face, especially when their efforts to pass the adviser exam drag on for months and in some cases for 1-2 years.
In theory, a competency exam is fine but in practice it has been an unmitigated disaster. The quick-smart disappearance of FASEA attests to that; and nothing has changed under ASIC’s supervision. It is still exhaustingly long, arbitrary, overly-academic and laced with a style of questioning that many find difficult to cope with.
However, the bigger issue is the taking away a person’s living as the penalty for failing when they haven’t put a foot wrong in their professional life. That’s the last straw!
It is high time for the current government to take positive action.
ONLINE INFLUENCERS AND UNLICENSED PRODUCT ADVICE
Financial influencers (Finfluencers) are unlicensed people who discuss financial matters online and in some way influence their audience and or promote affiliate links. They have been in the news lately mostly because of a recent ASIC crackdown over concerns that many are providing unlicensed financial advice.
Not every statement made online by an unlicensed online influencer is a breach of the law but discussing any financial product or class of product online is definitely straying into dangerous territory.
In Australia, a financial services licence (AFSL) is required to provide a ‘financial service’. What constitutes a financial service is defined at s766A /RG 121.24 and includes ‘financial product advice’ which is subsequently defined at s766B / RG 121.25 as a recommendation / statement / opinion / report which is intended to influence, or which could reasonably be regarded as being intended to influence, a person making a decision in relation to financial products.
The presence of ‘financial product advice’ (as defined above) is pre-requisite to the definitions of both personal advice and general advice. That is, unless the advice is about a financial product AND that advice carries an intention to influence a client in relation to that financial product, the advice is neither personal advice nor general advice.
The part about considering one or more of the client’s relevant circumstances is only relevant once it has been established that the advice is ‘financial product advice’. It is only to determine whether ‘financial product advice is personal or general. The specifics of what is considered to be a financial product is defined at s764A /RG 121.20.
General advice is the type of advice that licensed advisers typically deliver in a group context where the product-related intent to influence exists but it is not aimed at any one particular client. Typical general advice settings include seminars, webinars, online posts, and emailing newsletters and product sheets to various client groups.
This type of activity by unlicensed influencers will attract the wrath of ASIC, particular ‘cash for comment’ product influencers.
If an influencer does cross the line into ‘financial product advice’, it is more likely to be general advice. A factual statement or comment made to a group audience, can quickly change to general advice with one ‘intent to influence’ comment, such as a stock tip. And it can easily escalate to personal advice by an ill-considered answer to an individual’s question.
All it takes is for the influencer to answer a product-related question asked by an audience member where the influencer’s reply takes into account one or more of the inquirer’s relevant circumstances. An example of such a loaded personal advice question is, “I am 65 and have just retired so is the type of EFT you are endorsing suitable for me?”
The problem for unlicensed ‘influencers’ is that many earn money from their online influencing activities, often from promoting affiliate links. If an influencer receives benefits or payment for their comments in relation to financial products, they are more likely to be providing financial product advice because receipt of payment indicates an intention to influence the audience.
Read ASIC INFO 269 ‘Discussing financial products and services online’ recently issued in March 2022.
It is Never too Late to Make a Difference
If you hope to self-fund your retirement and your superannuation is all you have, then you need to accumulate an amount of at least $500,000 and a lot more than that if possible. For homeowners, your super is likely to be the second only in value to your home. For non-home owners it could well become the highest value asset you own.
Saving even half a million dollars seems like an impossible task. But it is not necessarily, because you don’t have to save it all. You only have to save enough capital, and save it quickly enough and early enough to allow sufficient time for the law of compounding returns to kick in and do an ever-increasing amount of the work for you.
You may not realise it but your superannuation is invested in managed funds. It is also a compulsory, long term, regular savings plan operating in the lowest tax environment we have in Australia. It is fueled by the regular contributions that your employer makes on your behalf but there is another force at work behind the scenes. That is, a never-ending investment process. Growth returns and reinvested distributions (similar to dividend income) earned by your investment also cause your superannuation balance to increase. So your money makes money even though you may not be watching it.
Obstacles that get in the way of this money making process include:
- Breaks in employment i.e. no contributions
- Economic downturns (e.g. the GFC)
- High product fees and adviser fees
But by far the biggest obstacle to this money making process is owner neglect. There are ways of cushioning the adverse effects of an economic downturn, overcoming unemployment and reducing high fees. But neglecting your super for 30 years is guaranteed to lose you a fortune.
Let’s look at two fictitious examples.
EXAMPLE 1 – NEGLECT
Let’s say you are suddenly and magically aged 50 and on a salary of about $70,000. Your earliest access to your super is 10 years away. You have a total superannuation balance of $50,000, split between two funds. Your current employer contributes $1,400 each quarter (after 15% tax) to a fund which has $30,000 in it. Your other fund has $20,000 in it and now it is lonely and neglected since you changed jobs. Let’s assume the investment return in the neglected fund roughly equals the fees and other costs, so it doesn’t grow and it doesn’t go backwards. The fund to which your employer is now contributing on your behalf achieves a net annual return of 6% after all fees. After 10 years, your balance in this fund would grow to about $131,500 while the fund you neglect remains at $20,000. (I am being kind here because there is every chance that fees would eat into it). In this example, your total super at age 60 would be about $151,500.
Your first mistake was not consolidating your two funds into one. As a result, you have just blown the opportunity to earn a further $16,000. Why? Because the quarterly contributions of $1,400 were added to a fund with $30,000 in it instead to a fund with $50,000 in it. The law of compounding returns works a lot better on a higher balance, not just regular contributions. In your neglected fund you had neither working for you. The investment return that was actually working hard for you sadly had only 60% of your super to work with.
This example highlights the cost of owner neglect. It is not only neglect of scattered superannuation that hurts you financially. There is also widespread neglect when it comes to high fees, default investments, mismatched risk, poor growth & earnings, decreasing insurance benefits, static premiums, and no thought to possible beneficiaries. In most cases, all are accepted and none are ever questioned, regardless of the fact that every single one of these items is within your power to control and change to your advantage.
So when you are saving and investing, whether in superannuation or not, the seven (7) basic elements you need for the Law of Compounding Returns to work well for you, are:
1) A bigger balance is always better
2) Add more of your own money to it regularly
3) Injecting a lump sum will suddenly accelerate earnings
4) Allow it to run for a longer time, provided that the investment is going well
5) Every bit of investment return counts but you should be comfortable with the associated risk
6) Keep fees or costs as low as possible to achieve the desired result
7) Also think about who receives all this money if you pass away
EXAMPLE 2- LET’S DO A SUPER MAKEOVER
Now let’s assume the same starting circumstances (i.e. 50 years of age with $50,000 in super) but instead of ignoring your super and simply letting it drift along for 10 years, you finally see the light and decide to give it a makeover.
Firstly, you consolidate your entire $50,000 into one fund. You do some research and find that no two super funds are the same and if you look around, you can do very well for yourself. You also realise that the two funds you have aren’t suitable because one has high fees and the other is not portable. So decide on a personal super that is portable, meaning you can take it to every future employer. The fund has a good name; is simple to access and operate online; it has enough investment options for you to choose from; and it has a relatively low fee structure. Your employer is fine with the change because you do have the right to choose your own fund.
Secondly, you decide on an investment mix with a level of risk you feel very comfortable with. As a result of this and and lower fees, you find that your total annual rate of return (after fees) has now increased to 7.0%. My point here is that 1% can make a big difference over many years and it doesn’t have to be achieved by taking on unwanted investment risk. You also realise that you have access to quality insurance cover that actually increases (with indexation) as you get older instead of decreasing to almost nothing at a time when you are most likely to need it. Like all insurance in super, the premiums are automatically deducted from your super account.
Thirdly, because you now know about the law of compounding returns, you realise that your 7% rate of return will make a greater difference on a larger balance, so you decide to increase the total balance of your fund to $100,000 to by adding a $50,000 lump sum as a non-concessional contribution. This simply means you add your own money. This could be from your savings, an inheritance or money from a property you sold.
Fourthly, because you only have one chance at making this 10-year period count towards your retirement, you also decide to salary sacrifice more of your gross salary into super. You ask your employer to contribute more for you. Although it will decrease your take-home pay, it will increase your retirement savings and lower your income tax. You will be paying more tax at 15% and less at your top marginal rate (32.5% in this example). So let’s assume that the quarterly contributions now made by your employer on your behalf increase from $1,400 to $1,700.
Lastly, you have thought about who should receive your money in the event you pass away, and you complete a valid Nomination of Beneficiary form and send it to the fund Trustee. You are not sure whether it should be binding or non-binding so you ask a financial adviser.
In this example, the result over the same 10-year period is a whopping $299,000. That is double the $151,500 you would have resulted in the neglect example. You had to change a few things to do it but you should feeling a lot better about facing retirement And there is more. Because you now realise that time invested is your friend, you decide to carry this strategy on for a further 5 years to age 65. Your balance grows to around $464,000. So how happy are you feeling now?
My examples are built on financial mathematics and general advice, and show you how it is possible to get near that $500,000 mark if you try.
So why is $500,000 my magic minimum target amount? Ok let’s say you retire at age 65 and decide to draw a pension income stream from your super. To receive it as a tax-exempt pension including no tax on investment earnings, you must draw a minimum amount each year equivalent to 5% of the 1 July opening balance of your fund each year. This minimum rises by 1% at 75 and a further 1% at 80. If you draw at least this minimum amount at age 65, 5% of your super disappears in that year.
However, it is still invested. That is why it is called an account-based pension. You draw until the money runs out. So as you can see, preserving your capital invested is a big deal. So it stands to reason if you make at least a 5% return on your money during the year, your super balance stays much the same.
I know that $25,000 (i.e. 5% of $500,000) isn’t a fortune, but with no debt, you can start to avoid starvation. If you can get a higher return on your money, such as 6% or 7% a year, then you can take a higher tax free pension draw (e.g. $30,000 & $35,000 respectively) without eating into you capital. Even if you only make 5% investment return and you draw 8% ($40,000) per year, your invested balance is dropping, but slowly and in a controlled way. Do you see what I’m getting at?
I won’t name names here but there are quite a few well known super funds that achieved 7% and a bit more last year in their balanced investment (mid-range risk) options; and their fee structure is quite low. I’m just saying … it is never too late to make a difference!
Cheers
Gary
Are you Short of Super?
If you are in your forties, you are already into the second half of your working life. Sooner or later, you will ask yourself if you have enough money to retire. The answer will probably be no.
According to ASFA, the mean average superannuation balance in the 2013-14 year for the 45-49 year age group was $119,500 (males) and $67,805 (females). If you are in this age group, you’re in the first generation of workers who have been in the compulsory Superannuation Guarantee (SG) system for all the past 25 years since it started in 1992. That’s the good news. Now for the bad news. You only have another 10-15 years before you are staring retirement in the face; and if your super isn’t a lot more than the averages above, you are seriously underfunded for retirement.
So here’s how the compulsory super system works. Employers are currently required to put away 9.5% of your gross wages into a superannuation fund for your benefit. So the first obvious point to note is that the system does not benefit everyone. It only benefits employed people because the compulsory obligation only rests with employers.
So to make the most out of the system (i.e. maximise your savings by the time you reach retirement) you probably should be male. I mean no disrespect to females but so many are clearly disadvantaged in the world of superannuation. Ideally, you need to be continuously employed on a full time basis for the entire 45 years of your working life on a very good salary. It would also help to work the entire 45 years for an employer (e.g. certain sections of the public service) who contributes more into your super than just the minimum 9.5%.
Everybody else is at a distinct disadvantage and will worse off at retirement. The system isn’t as kind to part time and casual workers, simply because they generally aren’t at work as much. The system doesn’t place the same obligation on self-employed business people (i.e. who trade in their own name) to many tend to ignore it. It most unkind to disabled, sick and injured people; and females raising children because they are largely absent from the workforce.
So if your superannuation is likely to be your only source of money saved in your name when you reach retirement then you have some work to do. Although superannuation isn’t the only way to save for retirement, it is the most tax effective way. If you are over 60, legally retired, and in so-called pension phase by drawing an income stream from your superannuation, you should be in a completely tax-free environment. That is why people in the know try so hard to get as much money as possible into their super prior to retirement, and why the government tries ever harder to restrict them.
So the first step is to start with these 5 home truths:
- Your super is actually your money; it is just not available to you at the moment
- To retire on super alone, you will probably need an amount as much as, if not more than the value of your house
- You do have control, so you can add to it, make changes to it or even change funds
- Your employer is only obliged to deduct super for you and put it somewhere, that’s all
- It is your money so it is YOU who is expected to MANAGE it
Ten to fifteen years is enough time to make a significant difference to your super but you should act now. Now that you have a reason to hurl yourself into action, call me and I will show you how to give your super a 6-Part Makeover.
Cheers
Gary
Relationship-saving Money Strategies
Unfortunately, the December – January holiday period is not a happy time for everyone because it’s a time when many people decide to separate from their partner. With year-end reflection and new-year resolution, it’s often seen as the opportunity for a fresh start.
If you believe the statistics, money is at the root of separation more often than not. Whether or not it is the real underlying cause, arguing over money is still cited as a leading cause of stress in relationships. I guess that’s not surprising as money impacts almost every aspect of our lives.
Lack of money and high debt levels are common during the home-making and child-raising years. Rent or mortgage plus the cost of raising children adds a lot to family expenses while household income can be further stretched by child care costs. However, lack of money is only one of many contributing factors; one which couples working as a team towards shared goals can improve over time.
Some of the other serious relationship stressors are centred on the differences in attitudes and behaviours of each partner where money is concerned. It is a subject that is rarely discussed at the start of a relationship and indeed may not even exist then, yet these differences can manifest as growing feelings of anger and frustration. Over time, it can drive couples apart rather than together.
Five (5) very common examples are:
- one partner is a saver while the other fritters away money
- one partner resents the other’s spending on health and wealth threatening substances like cigarettes, alcohol or recreational drugs
- one partner uses money to control the behaviour of the other
- one partner hides money for a secret purpose or external activities
- one partner secretly diverts money and covers up debt to fuel a gambling addiction
A couple of these behaviours sound extreme but they are much more common than you think, especially gambling addiction. With easy access and endless opportunities, this is fast becoming a scourge on Australia’s personal finances.
Instead of ignoring the signs and chalking it all up to experience, there are some things you can do to address these frustrations. If you do, you’ll have a much higher chance of building a much more solid financial foundation which is a lot harder for money-related stress to erode into irreconcilable differences.
Here are seven (7) simple key relationship-saving money strategies I have distilled from 20 years of talking to people about managing money:
- Be open about money, discuss money attitudes and behaviours
- Be aware of everything impacting on your household finances and share the responsibility
- Make the time to plan whatever a happy future means to you; and set goals accordingly, both shared and individual
- Make a budget; it will show you the financial path to achieving your goals and also help you set required savings and spending patterns
- Have money in your own name in addition to any joint account
- Hold cards in your own name, not as a secondary to your partner
- Embrace your passions and dodge money-draining addictions
The real issue here is pursuing a happy life. When problematic money behaviours present as diversions and roadblocks on the path to happiness, people eventually start looking for alternative ways around the problem. Don’t let this happen in your relationship.
Paying more attention to fundamental money issues can help to remove distractions and roadblocks. It doesn’t guarantee you’ll be happy or that you will stay together forever but it could be one less major cause of stress on your relationship.
Best wishes in money and happiness
Gary
Four life Changing New Year Resolutions
Are you are looking for a NEW YEAR RESOLUTION that can actually change your life? Try these four 2017 money kick-start resolutions.
If you want accumulate more money, then pay off your credit card and start saving. That’s what resolutions 1 & 2 are about. However, don’t forget about protecting yourself. Keeping what you’ve got is just as important as building more. So resolutions 3 and 4 will help avoid a mess when things go wrong. Number 3 (insurance) is always subject to affordability but if you can do 1 & 2 (above) well, you will be able to afford it. So are my top 4 resolutions for 2017 in a bit more detail:
- PAY OFF YOUR CREDIT CARD – this should be a no-brainer. All that money wasted making repayments to a bank could be saved and used to increase your own wealth. I know that many will say, “Easier said than done!”, but you just need to work on a different mindset where a credit card is not your default means of payment. It’s about breaking old ‘buying and paying’ habits and starting new ones. The best way to start is to be a scrooge for a while. It won’t take long to adjust and, before you know it, you won’t feel as much struggle to repay growing debt; and as it reduces, you will begin to notice that have more money available.
- SAVE FOR A GOAL – if you can’t think of a goal, then save for a rainy day fund that you can use in case of emergency. It only takes a few weeks of being out of work, or a couple of critical break downs, like the car and fridge, to put a few thousand dollars on your credit card at a time when you can least afford it. Wouldn’t it be good to have some savings to call on instead? Even if you have a period of clear sailing with no emergencies, it’s great to have that feeling of ‘money in the bank’. Then you can use the money to achieve some future goal without having to use a credit card.
- INSURE YOURSELF AND YOUR INCOME – Only about one third of Australian adults have adequate personal insurance and the automatic provision of insurance benefits in superannuation accounts for a lot of that. It’s sad that two thirds of us rank ourselves behind our our house and car in terms of importance. But bad things still happen regardless, and it’s only a matter of when. Those who do adequately insure themselves realise that they are the ‘geese who lay the golden eggs’. They are the rainmakers and the providers of the house and car. Clearly, it is people not things that should be protected first. And when you tell me there is no value in personal insurance, let me tell you from experience that some of the most heartening moments in my life have been the smiling faces and looks of utter financial relief as the insurance money arrives; always at a time of crisis and always when the money is needed the most.
- MAKE A WILL – these are your instructions on who receives money and property owned by you personally. Don’t assume that, in the absence of a will, everything you own automatically goes to your spouse. There is a standard formula of distribution is Queensland (and similar in other States) and if you don’t have a will, it will be applied. So see a solicitor and make a will, and your beneficiaries will generally receive their inheritance with minimum fuss and cost. If you don’t make a will, the Queensland Public Trustee office will administer your estate and this service is not free. It will be a much slower and more costly process, and your beneficiaries may not be as you’d expect.
For more on how to make money work for you, follow my blog at http://garyweigh.com/
If you would like to ask questions about any of this, feel free to call me. There is no charge or obligation.
Happy New Year
Gary
How to Have a Happy, Money Worry-free Christmas
Love and money should be mutually exclusive concepts at any time, and especially at Christmas. You don’t have to spend money to show someone that you love or care about them. You, your presence in the moment, your willing engagement and a genuine smile will be the best gift you have ever given.
There is no need for a pile of expensive gifts. For anyone over the age of twelve, Christmas is not about presents so there should be a reduced need for expensive, guilt-fuelled shopping expeditions.
The final week store rush is nothing but stress. Crowds, lack of parking, high prices and poor spending discipline generally don’t make for a happy holiday period.
On the other hand, relaxation, peacefulness and humanity are the makings of a much more enjoyable Christmas day, and when combined with a budget lunch, can create some much loved traditions and great memories.
Also if you keep a lid on your spending, your Merry Christmas won’t turn into an unhappy new year when your credit card statement arrives. And you won’t be facing the New Year in turmoil.
As I am writing this, my wife and daughter-in-law are sitting in the cool air-conditioning having fun making the most beautiful handmade decorations from simple A4 printer paper. A little paint and sparkles from the local craft shop and we have the best looking Chrissy decorations ever.
I know from experience that my financial advice and assistance work starts in January when two powerful forces combine. They are debt regret from excessive Christmas spending and the resolution to turn over a new leaf as 2017 unfolds.
Not everyone will change. For most, their resolutions will simply evaporate into lost wishes as work and home routines take over. Humans excel at habit behaviour even when their habits are bad habits, so most will manage to slide by as they have always done.
But a few will stick it out for longer and start to see the benefits of their new financial resolution.
It is those few I will be there for, to help, advise and encourage.
I would love it if you were one of them.
Merry Christmas
Gary
An Interesting Savings Product No One Knows About
I want to tell you about a little known savings and investment product called the Investment Bond. It also goes under the names of Growth Bond and Insurance Bond. It is generally available from Friendly Societies and Insurance Companies.
It is a 10-year non-superannuation product with an underlying investment in managed funds that offers tax concessions without requiring your money to be locked up until you retire. Tax is paid by the product issuer at the company tax rate, and after 10 years there is no further tax to pay.
This can be major benefit to high income earners and it doesn’t really disadvantage lower income earners either. If you do withdraw money inside the 10-year period, it means you may pay some extra tax depending on your personal tax position.
There is a restriction on money going in, but nothing like the current superannuation caps. After you put your money in the first year, you can’t put in more than 125% of what went in the year before. This requires a little planning in advance to make the most of your tax-concessional savings each year.
The Investment Bond has a few other benefits worth mentioning that can make it very useful, depending on your circumstances:
- Additional retirement savings to supplement superannuation
The Investment Bond is an obvious retirement saving supplement to superannuation. The current low and dropping contribution caps mean a big restriction for many people saving for their retirement; especially older people who are saving hard after the kids move out of home.
- Tax efficient savings on behalf of children
The Investment Bond allows you to save and invest on behalf of a child for any purpose (e.g. education, travel, home deposit). The money will automatically transfer to the child at the ‘vesting age’ you nominate, without being exposed to penalty taxes imposed on unearned income received by minors; as would be the case with an ordinary managed fund.
- Estate planning features
The Investment Bond has the estate planning features of a life insurance policy but without any insurance cover. This means that you can nominate one or more people as beneficiaries in the event of your death. And that can be anyone, not just the restricted few available in super. The proceeds are paid directly to the beneficiaries you nominate without going through your will; and without the imposition of any additional taxation that can apply with ordinary managed funds and superannuation investments. For split, blended and conflicted families, this could be the ideal solution you didn’t know about.
Although it’s good to be aware of what’s out there in the financial market place, please don’t rush out to sign up to any investment you don’t understand without getting professional advice. This product may or may not be appropriate for you. Like all investments it has an element of risk. So if you would like to know more, please talk to me first or ask for a Product Disclosure Statement from one of the providers.
Happy saving
Gary
What would you do?
Did you know that your 40’s is the dangerous decade for onset of chronic health conditions? For most families, this is the peak decade of home-building, child-raising, and carving out a career. It is a busy and stressful time so it is no surprise that in the fifth decade of life, the engine splutters or one of the other vital body systems needs attention.
So what would do for money if your health or your partner’s health failed? How would you school your kids and pay the mortgage if one of you was laid up for months, and even off work for a couple more years to recover?
Heart problems, stroke or a battle with cancer would do it. So would a compound arm or leg fracture as a result of an accident.
I know from experience that most families can’t go more than a few weeks without income. Every cancer survivor that I’ve known has had an average 2-year, $20,000 out-of-pocket struggle, often without income (i.e …. who thinks about work when diagnosed with cancer?). And that’s with top hospital cover in place. You see It’s the long period of after-hospital treatment, care and rehab that costs you money.
I can also tell you from my own experience that it doesn’t take a heart attack to floor you as far as work goes. Heart arrhythmia and a slowly deteriorating aortic valve kept me breathless for the better part of 5 years. It’s really difficult to work when all you want to do is lie down. Two catheter ablations finally fixed the electrical circuit and a bit later, a valve replacement fixed the plumbing and life is great again, But surgery was the last resort after years of trying many other non-invasive treatments.
Cheers
Gary
M: 0408 756 531
E: gary@garyweigh.com