Making sense of it all helping you gain insight and take control of your wealth creation gym. Hello listeners and welcome back to making sense of it all where we are talking all things wealth creation money management to Financial Freedom and everything in between. My name is Jared Brooks and I'm a director of within the financial advisory division here at Vincent's and I'm Brett prefers the director of superannuation advisory here have been since also ready to go for our first topic. I'm ready Jared it's good. So today's segments obviously will cover topic or topics. We've got a couple interesting ones there. I'm on my list. Anyway in-depth discussion will we Repor grain who's are also a director here at Vincent's within our forensic accounting division. Now, he'll be touching on all things Royal commission and financial advisory. He's got a wealth of knowledge We can question him on today, which will be very interesting is a bit of a character loves ER it's a very good discussion. Actually. Yeah should be good Michael Lee will deliver a tasty red review and finally, we'll wrap things up with an economic summary from. Dr. Iran kulish from Deloitte. It was a heavy read but some Interesting content in that one. Yeah, very interesting actually. So let's jump into topic or topics brat. So what's your first topical topic red? Well Jared, I've got a couple here that I just thought it might be of interest for our listeners. So the first one is around is more for our small employers that might be listening. There's this concept of single touch payroll. So that's where all employers basically have to pay employees using software that allows them to report both the wages and the superannuation to the tax office on a regular basis. So this is big brother playing a troll getting essentially live time real time data in relation to money that they're paying on behalf for two people. There's been some discussion around this notion of the robo debt recovery system that the tax office and Centrelink are using this is where they're getting this data from this is where they're doing their data matching their analytics so they can say hey you're earning more than what you said you were going to be so For we want to claim some of our money back. Yeah, it's going to be a plus for both sides though, right? It's going to be once you get through the clunkiness of it all as a tax agent. It's the transparency that data is fantastic because what it means is we can actually we have more transparency at what's going on, which is really good. But to me is this is almost the tip of the iceberg. Where is it going to be leading to? So are we going to be at a point in say five years where? I will no longer need to do with tax return because the Ico has all your data. They have everything. They already have your dividend income your interest income. They already know when you buy and sell properties. They do data analytics looking for unusual transactions that you shouldn't be able to afford for boat purchases. They go through credit card details. They're already analyzing something like a hundred and eighty billion transaction. Where each year the ACO actually has the largest Pewter Australia Peter of the Bureau of meteorology has the second largest. So the data that they're analyzing now is massive and I can actually see that the point where there will be. No need to do individual tax returns because ACL will have everything. Okay, I'd be pretty happy with that. Yeah. Well, the other thing that we missing is where you want to claim a deduction now, that's actually how New Zealand do it at the moment, but they are not basically in a lifetime data it just basing off some assumptions. So I think we are moving quickly to a point where it will literally be live, which from a revenue collection point of view is really interesting. So so I suppose the the take out though is really that employers. They've got to embrace this in theory. They should have been doing it from 1 July 2019 the tax office gave them a few months to get used to it and there's different ways that you can actually embrace doing it. So there are free free software. You can do it through normal accounting payroll systems. So the important thing is just talk to your advisor. They'll be able to steer you in what works best for you. Okay. The other thing I want to talk about just quickly is a new type of contribution that we've been able to make into Super since 1 July 2018 and that's called the downsizer contributions. So these are essentially where you are selling your main residence after age 65. To in theory downsize but you don't have to and you can add three hundred thousand dollars into Super and if it's join own property, then you can put in 600,000 regardless of work test and age and all those other requirements that normally apply. So there's been already over a billion dollars that's been contributed using this particular type of contribution. I think what's quite interesting Though is a lot of more a lot more people have tried to use it but they haven't actually been eligible because they either their haven't owned the property for 10 years and the contract sale date was wasn't after 1 July 2018 all the proceeds from the sale of the home when actually exempt from capital gains tax. So it was an investment property. If you don't meet those criteria, then you can't make it so already People have have done it and I think that it's a really good initiative to allow people to put money into Super when they sell their principal place of residence. And I think it's a great concept. Yeah, and what if you got shared? All right, I got three for us today little bit left of left a field on some of these more first one is there was a drone attack on a Saudi Arabian oil facility its sense of shock waves through the investment markets. That's for processing some spike in the some oil stocks, but it looks like they're going to be pretty big production back online sooner than we thought but what I really want to say talked to was drones where to from here. This is just crazy. Well, it's really interesting because I think it will alphabet or Google. They're actually starting to do drone deliveries now and again Logan is a pilot area. So if you want a coffee, so instead of ubereats and someone turning up in their little motor moped. It can be a drone that delivers it for you. Yeah, I think dominoes will be right on top of this. Yeah, I'm sure they would be now. The other one was there was someone has designed home their own. I don't know. You can't really call it a boat, but he's flown himself out across the water and gone fishing. He's hooked himself through the a chair and a drone and if he's got a VB in the side pocket, he's taking himself fishing. So so is is that could that be the future of drones essentially single person manned flight? It's interesting World very solid. We have enough troubles driving cars heading into be flying around exactly. So that was my first topical topic second. One was the bis Oxford economics property forecast predicts. Brisbane will see the greatest National gain in housing prices, but not from in for another couple of years until the remaining over supplies consumed. They're predicting a 20% Jump by 2022. So for someone like myself, I'm looking at the property markets. Seeing what's out there. I'll tell you what those kind of numbers below meal. Yeah, my perspective is always been Jarred that the Brisbane property Market typically has a big jump then it plateaus for a number of years and that it has a big jump again Plato's for a number of years. It doesn't seem to have the volatility that Sydney and Melbourne do it doesn't have the Peaks and troughs within ye like within a year than those markets. Do we typically are more of a quick burn we set for Years of quick burn we said for a few years so that doesn't really surprise me because a property Market has been pretty much plateaued for probably the last in seven eight years. So if you want to follow the seven year economic theory of boom and bust then we're about due for another upturn in our Market. Yeah. Well, I just hope it just doesn't lead to bit more fomo fear of missing out for some people. So we I look forward to potentially getting Hey property specialist on to the show to talk to people about that. Yeah, good idea. My third one which would be remiss of me not to talk to but we've tax time come and gone and people probably getting some refunds. Hopefully where to spend your refund. So from my perspective focus on debt. So paying off those credit cards repayments of a home loan or looking to put down some funds for that deposit may be starting an Investment Portfolio getting you your shares on the go on purchasing some some stocks. And a fourth one superannuation and number five is invest in yourself or others. So there's a gentleman by the name of Michael Norton who's a professor of Harvard Business School and he's term this phrase happy money is spent on buying experiences buying time or spending it on others. It was interesting to read. What about spending on yourself? That's not an experience look you and I probably have a beer and that'd be an enjoyable experience that be money. Well spent but that might be all I get back from I'll text so that was my three topic or topics. Excellent. I'm moving on to our next segment is our deep dive discussion. Today. We're joined with our special guest Paul Green Paul is a director here at Vincent's within our forensic accounting division. He has over 20 years experience in the financial advisory space and is regularly caught upon as an expert witness for Testimony in the courts Paul. Give us a bit of insight today in regards to the Royal commission and all things Financial advisory what the next couple of years will look like and what's the Value of financial advice. I'm looking forward to that discussion with green. It should be very interesting. It'll be a great discussion. Well, thanks for joining us today people. So I suppose as a starting point. Can you give us a bit of a summary around the Royal commission that we've just had into the financial services sector? Yeah sure breath firstly there were over 10,000 submissions received of those surprisingly only 12% related to superannuation 9% to financial advice 61% related to banking. So today we're obviously going to focus predominantly. Play on the superannuation and and financial advice. The final report was issued earlier this year 1 February the current government gave their response on the 4th of February largely supporting the recommendations of the royal commission the opposition then which carries less weight these days because the election is now passed. Gave their response later on in February also supporting broadly the recommendations of the commission. I guess when we look at the Royal commission, we need to be careful of a number of points. The first is generally the matters that they address were matters of concern. So there were problems of people had identified. So we're going to be careful to put it in perspective. If it's not a the recommendations whilst they are useful doesn't mean that the entire industry was corrupt. Yeah, that's rule providing inappropriate Vice eccentric Center. So we do need to be a bit mindful that we also need to be mindful that largely the Royal commission investigated the big Banks and the big financial institutions. Tushin such as A&P and they're uniquely placed compared to a lot of other advisers in the market in that they were both advisors and the products and and and and Investments that are recommending were also within their circle of influence. So they had far more significant conflicts of interest that they had to manage also their massive organization. So they're to manage and control what's essentially professional advice being provided by thousands of advisors Nationwide lots of challenges there and at obviously when you've got large organizations like that the risk of things going astray at an individual advisor level or even in a systematic way are obviously a lot higher than what a lot of other financial advisors in the this would be so we also I think we do need to be a little bit mindful of that. It will basically build and if they do damned if they don't because the banks they have shareholders so they have to try and do the best they can for their shareholders. So they put incentives in place to try and get their advisors to make more money, which therefore make more money for their shareholders. That those led to the ethical dilemmas that many had with all doing things. They shouldn't have been are you acting the clients Best in Class best interest? So it's I think trying to find that balance is where the bank's particularly in that those large financial institutions have really struggled because they were basically putting their own interests before that of the client. Yeah, I think either the remuneration models lent themselves to abuse where If we peel back what Financial advice is firstly it's advices to strategy and secondly it's advice as to if necessary what sorts of Investments you might make to help that help that strategy flow out when you are the the owner of product. There's a tendency particularly where you've got remuneration models. Based on its you know where there's incentives to actually sell more product. You've got this massive conflict where my sense of it was they race through the advice aspect of their contract with the client and jump straight into the investment or Insurance product sides. So they were selling not advising and I think that's one of the cultural things that In a sense has been identified but I think the challenge with the industry generally is you've got a number of hands trying to guide it. So you've got the regulation. So we've always had certain laws in the corporations act dealing with financial advice deals with stockbrokers. Any any product advisers. You've also got professional guidelines. So the Financial Planning Association The Institute of Taking Parts if you're prepared to Kanye they are they guiding as well. And then the third thing you've got which applies to everybody is the common law duties to actually act in the best interests of clients. And so the Royal commission is only really addressing the regulatory side of it. And so there's been responses. I guess that at a professional level as well. going forward and how that will work with the regulations to try to produce a lower risk environment for some of the systemic problems that these large organizations have had and it's not to say that small financial advisors haven't fallen foul of greed and and having the clients best interests reduced to a lower level below their Uterus and negligent advice will always be everywhere. So I think it's important that a client, you know, the buyer beware. Yes, they're mindful of who they're dealing with and I think later on we're going to have a chat about the sorts of things that our client should be thinking when they when they're choosing an advisor indeed once they've chosen advisor in engaging with absolutely. Do you think that the everything's now been handed down we've seen the outcomes that have come through with the government's response. Do you see anything changing? Yeah, I do. I mean I was a bit I was a bit disappointed that some of the penalties word word harsher for the organization. So the individual level certainly what I've noticed is coupled with the findings at Pura and assic have been given a war chest of money and I Certainly that assic are on the Witch Hunt. They are chasing people to the corners of the earth as we know the day. There's some like 96 advisors that they're investigating at them right now. So here you're clearly they are on the Witch Hunt. Yeah, and and what I'm aware of at the moment is they're Prosecuting to the death. So in other words in I think prior to the Royal commission, they might have done a bit of a sweetheart deal with a each institution said I will look you know, we'll just Levy you are a modest fine or whatever the case may be the new regime post the Royal commission. They're actually striking people out. There's five year bands from advising. There's lifetime bans from advising. There's penalties to the the license holder as well. So rather just striking out the individual there's far more dire. This is the honors of licenses when they're appointing authorized reps to make sure they're putting the right people on I think that's been really useful is certainly in stamping out that selling culture and and flagrant disregard for clients best interests. Yes, the part that I think it's always hard to deal with is just day-to-day negligence where people are incompetent. Because that's not a willful act. It's not something that an organization encourages, but my view of the population of Australia in the population of advisers is there quite simply isn't enough competent advisors by a long way. What statistics is it something like only 20 percent of our population in Australia actually gets Financial advice. Hmm. So 80% of the market still even isn't even seeking Financial loss and Luger. Generation and it's interesting. You said that I pull because we're about to go through this whole new educational standard for financial advisors over the next few years and they're actually expecting about 30 to 35 percent of those advisers that are currently advising clients to basically stop practicing before out of the system. So that means we're going to have less advisors servicing clients and presumably because the compliance cost in the education cost is going up is going to be even more expensive to seek advice so that 20 Not drop to 15 potentially. So then so that's the corporate side of it. That's for the advisors. We've seen the penalties. So what it is, what does it mean for every day Aziz? Yeah. Well this might sound the tried but I actually don't think the Ray J more the way consumers deal with this should change much because if you go back over the years I've been involved in a lot of reviews of negligent advice. One of the key problems is what I just touched on before people who are either completely competent or in some other way a negligent now, it's hard to see to identify that because people don't have signs hanging on their chest saying on with competent eyes and another one so I mean kind of easier wouldn't it? So, I think it's there's there's a number of key things that you need. To to give some thought to now over the years the Financial Planning Association and their professional guidelines has not changed. The clients best interests have always been at the Forefront. We all those advisors absolutely if they've complied with the Professional Standards. So I would say to anybody who's talking to an advisor just try to understand their ethics. You know, what What they're actually thinking because a good advisor who was compliant 10 years ago will still be compliant with the regulations that are coming through the Royal commission and I say that because the regulations really are Co defying what good practitioners have been doing for many years as well. So from the consumers point of view certainly if they go to a large institution like a bank or an A&P or the like They will see a much thicker paperwork probably more invested time in the client. So the client won't be whisked in and whisked out of Exile heavy compliance focus a lot of compliance Focus, but if you're dealing with a really good competent professional advisor, they won't change much they'll still have easygoing conversations the process to get you to ultimately invest will be in a relaxed format. It won't be something where you meet them on. I day and all the sudden you're investing on Friday. If it takes you three months to get comfortable with the process a good adviser will be exactly the same as what they were some time ago. So I think it's largely going to be around. So I think a couple of things will happen obviously heavier compliance focus at the big institutions and that's going to potentially lead to an increase in the cost of actually delivering advice and Yankee career because these might fly Nicole that's right. I think the other thing is there will be a shortage of advisers as Brett said they'll be people who just leave they'll know that not that the game's up for some I'll say yes, the game's up on them. I've been selling when I should have been advising but there are others that say, you know what now? I'm not even up to the changes that are necessary to move into this new regime. So if I can find a young fellow who wants to buy my Business or then then I'll move on and so you can see that there's a lot of flex around with ownerships of businesses. But there's also this increase in education and then hopefully that's going to flow through to an improved quality of advice that's going to come from. Yeah, but I think I mean if you if you look forward at the faster your education program you're looking at three to five years and as I said, I think there's Such a shortfall of advisers that it could be a generation before we actually get the right pairing of the population that needs advice and a population of confident competent balances. But saying that they are bringing the component of the exam around fascia is at the ethical committee. We have to pass within the next couple of years that ethical Focus all advisors must be yes, then they'll be the educational standard and there's a lot of on ongoing ethical requirements around those those changes to 10 hours of Education each year on ethics. So to me that's a real focus of avoid enta fide as you're saying Paul that the ethics that the people of under that have had in giving advice could have meant to the pub test if I can put it that way they have it meant that the standard that should be expected of a competent advice. Yeah, and I think I think that focus is absolutely right in my experience. It's been the ethics that have failed a lot of people over the years have thought they're getting a certain service from their advisor and the advisors thought that they're giving a much narrower piece of advice and it's really at the foot of the advisor to make sure that everyone understands. What's what what the service offering is and if this Service offering fall short then the advisor must also advise why it's fallen short and who they might see to pick up the filling the Gap so I don't do any work in in mortgage broking but you would never leave the client without a proper review of of their loan position. If you are doing a proper financial plan, so you don't just Leave it on addressed. We don't leave the estate planning issues unaddressed. You might do it, but you are actually responsible. Ethically for making sure those things are touched off. So again, as I said, there was seem to have been a big rush to get to invest in people's money. Not only talking about think that's a common misconception. Yeah Marketplace that is financial advisor. If I'm wealthy that's the people who go seek Financial advice. That's just not the case. There's all those other aspects of an individual's life the debt management strategies our cash flow and we'll touch on those in podcast going forward, but the concept of just being focus on investments isn't the sole focus of a financial advisors roll. I mean again, I don't want to appear try but when you go I think when a clock goes and sees a financial advisor, they shouldn't be trying to get the best investment returns possible that that should not actually be their goal because There's plenty of ways to produce higher returns. And that's to take higher risk. Now. The right outcome is not to have very poor Investments. But if you've got a if you've got the right strategy so your heads from a lot of Taxation. So using superannuation those sorts of things and you're not taking more risk than you actually need to meet your goals. That's the journey that most clients want to go and now of course There are people who if you're promising not promising that if historical return on the stock markets being 10 or 11 percent. There are people who want to get 15% Well, I don't know who they go to see because as you would know plenty of people he promised much higher returns can only generally deliver those with much higher risk. Now whether the client ultimately wants to take those risks that That's up to them but you can't promise higher returns at a lower risk that those those situations actually don't exist. I think I think people need to be a little bit careful that Financial advice is a journey. It's not stop picking or sector picking. We're not saying we're all out of property or all into shares and it's a long-term relationship. So we as a financial advisor, we have an obligation to understand your goals and objectives. Know where you're at now and put that into a statement of advice our recommendations that document that we do if it's normally a lengthy document given all the compliance background. It's not a set and forget your circumstances change and you need to have a relationship with an advisor going forward that you can adapt those strategies that you have based on where you are in life whether that's starting a family whether that's transitioning into retirement, whatever it might be and it's doing all those little trimmings along the way if you can get a client Align and they say they've got seven hundred and fifty thousand dollars in home loan and investment debt. If you can get them a half percent saving on that for the rest of their lives, that's good money manager, we're not taking and increasing the risk where we're minimizing the cost if there are better ways to hedge ourselves against taxation. So I have clients don't need money obviously trying to make lat there's larger possible. Superannuation showing the Clyde how doing those strategies produce hundreds of thousands of dollars of more retirement money. They're all big gains that come from using experts not from taking risk and a good advisor will make sure they can embrace all those opportunities and at least put them to the client and the client with the advisor can make sensible decisions about how they structure so I think couple key things your advisors there to help you make smarter decisions around what you do with your money and they're also there to give you Clarity on where you heading the future you communicate where you are now with your advisor and where you want to be the advisor fills the Gap along the way your he is there as your trusted relationship to go to so you need to be able to be open and honest with your advisor to go through that process and it's funny you say that because quite often on school hold information back particularly around estate planning because there are Better than don't want to open up the woods the issues that might be in the closet somewhere that they need to come out but they're almost embarrassed to but that can have a huge implication on that end outcome for that. If they need only puts, you know, they can give you that clear roadmap of where you're going and also be there is that accountability person and then some people get overwhelmed so they're there to help you take action. But I mean even when you were saying it's an ongoing path, And circumstances change. Somebody was asking me the other day. I was looking at Insurance matter. I said well in theory your insurance should actually go down every year because if I've got if at the moment I'm 53, and I'm working till I'm 65. The life insurance I need is to replace the financial contribution. I'll make to my family over the next 12 years. We're going to use time. It should actually be eleven-twelfths of water previously was and then 1012 sand etc. Etc. And clients have these policies that start off a million and a half when they're 30, and then when they 60 they're still paying Insurance on two million dollars because it's actually gone up each year and that's again is where an advisors import because an advisor would reassess your insurance needs and so will actually we don't need to pay for that. Say insurance this year actually had a needs to be 3500 are there might only be five hundred dollars, but we're an advisor. I think very handy is in making sure you are running the most efficient structure that you can going forward to meet you, which is the concept of I've earned a dollar. Does that dollar need to be spent on repaying debt? Does it mean put into Investments? Does it need to be put into Super? That's yeah, but that changes for every single person that is not the same strategy that can be put for Yourself bread or myself or your support? So that changes for every individual? Yeah, so pull in your view what constitutes poor advice then we'll pour advice is not having the discussion. We've just had so poor advice is so I've seen poor advice where estate planning on the data fact Vine is just two ticks. Do you have a will tick and Tig and what estate planning is very important bread. Is this a client? Should be put into a position where they take more risks with their Investments that they need to because somebody has asked this simple question. Do you want all your investment wealth handed down to the Next Generation. Do you want it to grow to be handed down to the Next Generation or are you happy for your million dollars when you retire to be only worth 300,000 when when you die because if we can actually Guardedly use some of your Capital to fund your living needs. You can either have a Higher Living need a Higher Living standard for the same risk, or you can have the same living standard but have less risk. So if you're a client if you're a client who is nervous, why would you take risk to give more to your beneficiaries if you're going to have a very Just lost 25 years of your life. And if you actually engage with the younger generation, they say you're crazy. Why would you be doing that for us where we going? Well enough well enough as it is. So there's a really simple thing, you know, I need to actually understand the client to properly give give that that type. But if you looked at those numbers that is a material here is a strategy that you take in with those two just that simple question of asking. What do you want left for your site? So I think I think a lot of poor advisors have presumptions about a client so clients walk in the door and they just see whatever they see and they start to advise to what they see rather than what they hear from the client. And so that's why I sort of suggesting that a client should be alert to somebody who needs them on Monday and is giving Investment advice on Friday that getting to know the client can take a long time and if you ask a client around that estate as soon as you rightfully said many of a very guarded it might take three months to break that client down but it's an it's a pretty important piece of information. It's in some ways like going to a doctor having to fess up all sorts of you can be things don't like zai Jian that you might feel very embarrassing and even if it's for those people that are might have it's okay. So you're 40 45 and you can have this level of uncertainty about how you progressed. And now we embarrassed if you haven't achieved the goals and objectives, so then to turn around talk to an advisor and say look I actually think feel like I'm falling short can be a bit of an embarrassing conversation. So if you're going to be able to do it and it suddenly that but I was actually the conference last week and there was an advisor there who was talking about this sort of topic of Interest. Planning client actually telling them they will they do needs and wants are decline of been married for 14 years and then being clients of this financial advisor for 10 years plus and it wasn't until recently that the advisor found out the client actually had a 12 year old son to another lady even though be married for 14 years. So they've been an affair a couple of years in and yeah, they had a had a child outside of the marriage but that had never come through that's a massive estate planning issue that if the advisor doesn't know about it, then they can't plan for it. They can't be able contingencies implies. The think the other issue with poor advice is not telling it as it is. It's a lot of advisors. Try to keep keep the conversation comfortable. So by that, I mean you can you can have clients who come in who have absolutely no sense of where they are and there's our want to retire in two years and you look at the numbers and you say well, it's not invest not not not possible and so a poor advisor might try to make a small amount of money produce. Extraordinary amounts of of income or wealth over a short period of time to try to meet the clients wishes, but that's not good advice. The right advice is to say well, you know what you're actually x hundred thousand dollars short. So that's either going to mean your lifestyle needs to come down or you need to work longer now, that doesn't mean you need to work longer full-time. It might be that you need to work part-time for a number of years, but you work the numbers through sigh in a sensible in a sensible way here are your your options to try to retire and enjoy this type of Lifestyle not be the advisor shouldn't be fearful of telling a client something that they don't necessarily want to hear and I think that that can be a failing and I think the other failing is thinking you can do better managing people's money than somebody else that that that That's sort of in some cases. It can be an arrogance. In other cases. It can be just misguided belief that the institution you're with is has been a research paper, you know permanently than other institution as you all know, sometimes trading shares in a particular year will produce a much better gain than Just holding shares and then in other years holding shares reduces significantly better gains than trading shares its concept of payers active. And so you've got all these sort of styles and every dog has its day and I think clients really need to get away from that whole thing except reasonable returns playing with reasonable returns by plan it in it with a protection in their mind when they're Nearing retirement because once they retire there's no other incomes or cash flows that can prop up bad investment decision. So you want to try to stay that a bit mainstream II feel because the risk of our performing an average return is that you might significantly under perform an average return. So I as I say, I think there's plenty to be gained with an Is a trimming the edges and making the right decisions around superannuation. Hey, you might restructure your borrowing see getting more tax relief taking up lending facilities that have lower interest rates and the concept of holding particular Assets in individuals names whether it be in your sphere sure in your name is the simple concept of okay, we're going to buy this particular asset but it B shares or property. Where should it be held should be holding your name. No, I'm running a Business I might be at risk so the concept of just purchasing an asset provides. Those are all benefits of Chip with Comprehensive Financial advice. Yeah, and then even with people who've got more wealth as they enter retirement is than they need there's a whole lot of issues around how they might allow the Next Generation to benefit from some of that wealth, but protecting that money from that next generation of things will see you a lot of this coming through As is generational wealth transfer going to have holding a lot more conversations around the purpose behind These funds and how it transitions to that next Generation. So I think the new era of financial advice is starting to come through. So we've discussed the Royal commission the outcomes of that if someone's going to walk into a and see a financial advisor tomorrow, what are a few questions that you put two on to say, okay. This is some things you probably need to ask your advisor to know that this is going to be a trusted. Relationship and he and that individual is going to deliver me. Yeah, so I mentioned one earlier one was around the ethics of of the advisor. So without pointedly saying tell me about your ethics. You can probably understand it through asking them some questions about their history how they go about the advising process. I think a relatively pointed question would be To see the response from the advisor. If I only got strategy would you be happy only to give me strategy advice if I was to just get strategy advice from you I could then go do my own Investments and and not that you necessarily would but you did I think you get different types of responses. I think the remuneration is interesting as well if you're only being remunerated. For placing Investments then then then that advisors got a vested interest in placing the most amount of money the challenge with that is a lot of the old business value models for financial advisors used to be a multiple of funds under management. So if a client had half a million dollars if I could get them to borrow another half a million dollars through a margin loan. I would have the original Half million the extra half million that they invested through the margin line and the margin line itself would be counted as a half million. So I've actually traveled traveled the value of that clients that clients business. So we're clients sense that it's all about Russ to Investments and maximizing the amount of money invested. I think they should they should be alert to that. Obviously ask about their experience and qualifications, I think on the back of the royal commission. I wouldn't say you shouldn't go to a large institution. But the large institutions regardless of these new regulations still have major conflicts of interest by being advisors of a product and And the providers of the product so so the entire institution gets advisor fees, then they get product placement fees, then they get the advisor itself themselves get an ongoing fee and then the institution also gets a funds management fee. So there's there's incredible. Financial benefits that come to those large institutions by having you invest with them. But if we're you probably wouldn't advise those if you've got Clarity on those fish are active if that advisors come to you and they've got this is where everyone's taking their fees. Here is all the fee structure if you as the client is if you're happy with that and you believe that the service and the quality is there then I think that's still okay. That's fine. Yeah, but that you're an inexperienced client. What are you measuring that so I tell you that through the process we're going to take four percent. Yeah, what does that mean to you? You know, you've got no Benchmark. So the true disclosure would be to say I'm with a MP. We lies the only recommend A and P products the risks of me only providing advice in relation to A and P products is obviously you're only with A&P our fee structures. Look like this the average in the industry looks like this. So we're actually charging you more or less those sorts of advisors also need to it to make a true disclosure to a client would need to also advised of other advisors that don't necessarily use managed funds. And so we have clients that have direct share Investments with a lower management ratio than these These funds we also have clients that do have fun. Because that that suits that suits The Climb that's right. When you're talking to an advisor, you need to understand how narrow is the type of advice that I'm getting. So even if you're going to get an insurance policy and you're looking at say income protection or total and permanent so woman policies definitions are critical as to whether you'll get paid or not. This is unlike death where with death you're either dead or you're not ugly but that with tpd and Income protection. It's quite different which is why you want somebody in that space who can basically canvassed the entire field of products rather than five products that are housed by Commonwealth Bank or NAB or Cc or whoever the case might be. So trying to understand what they can advise on and more importantly what they can't do and what the implications Vacations are to you of what they can't advise on is important. So if you actually think that I would like shares. The Commonwealth Bank financial planner and IP financial planner can't give you that advice. Now if they're properly acting in your best interest. I'll tell you that and provide an opportunity to actually get that part of the advice as part of their overall offering so trying to understand what they do and what they don't do I think is pretty important. And so that goes to their their independence I guess and the breadth of the advice that they And then the other thing I'd ask I would always ask is about the cost structure. So what the cost structure looks like compared to other providers and and those sorts of things. So if you're if you're losing three or four percent through the through the structure that's a lot when the the types of returns in balanced funds the share markets only sort of 8 to 10% You're giving away a lot of money advisor fees. So talking to them about costs of think is pretty important. But to me, the number one question is can you pay that advisor to tell you to do nothing and by that, I mean you pay an advisor to look over all your Affairs and and can they be comfortable to tell you you know what? I think this is fine do nothing. Because I think they'd be a lot of people with experiences you've had money in the bank and they'll comfortable with money in the bank and the next thing they're invested in a fund because somebody's giving them a phone call sometimes doing nothing is the right advice. It's hard to give that advice because you know, it feels like there must be something to be done. But often times the right advice is to do nothing and if if the advisor can be Yoona rated for reviewing and coming up with a do-nothing advice. Then they probably don't have your best interest at heart. They're probably still have their own Financial interests ahead of yours, which could does put you in a precarious position. Yeah, and then really comes back to that old risk-return thing people at someone who's got eight million dollars and even if they just have that sitting in the bank and it's generating say eighty or a hundred thousand dollars a year of income if that's enough for them to live off then they don't need to do it now. No, and so you can have a lot of advisors think well, that's a waste. Yeah, but it's not a waste. It's not always for the client. Yeah, it might you might think it's a waste and you should never be in a position where you think, you know better for the client. I think that's that's pretty important. I mean, we we had a client. I remember one time it will during the GFC and their assets basically dropped by 40% credibly worried about it. I said, well the assets that you've got should continue to produce the income. You need to fund your lifestyle as it even if that drops off 10% you got you're still going to be comfortable and they walked away like a piano to be taken off their back. They were though just so relieved because I said that's how we've planned your strategy a strategy is that you will draw X dollars a year and the assets. We'll just move up and down with the way the market moves and ultimately at some point in the future, you know, they'll be passed on to the next generation. And so they are really retire is so they they did want their income to grow and that naturally meant that the assets ultimately would grow as well so that a lot of shares and they got I got moved around a bit, but that's how you should advise. Not not tell that. I'm we necessarily stock Traders and we're going to move money around every month to maximize again that that was never in this clients mind. They're in their mind. They he just wanted to know that he and his wife would still be able to go on holiday to to Spain or Italy was consistent reliable income can and that's what we set up and look it doesn't shoot the lights out. They know that but they also know That it's very solid in terms of producing what they want year after year. So, you know, hopefully it contributes to them having a happy retirement and you know, I mean Marcus to move up and down but now they're they're educated, you know, they're pretty comfortable with it. All right. Well that probably wrap things up. I will go through a summary grab me if I pick me up on anything that I might miss but so Royal commission, we've seen some big changes and Penalties handed down it has changed the face of advice and other aspects of the industry for every day Aziz. We will see some changes potentially increasing compliance. The client experience is going to change so they'll be probably a longer client experience and potentially the cost may increase as well. There is significant value in actually seeking professional adviser and the relationship there definitely but the key is having finding someone that you can build rapport. Get it get some clarity around the way in which their that these are structured and how the cost of feed through to you. But seeking out across and their ethics yeah going from there. So there's anything else you wanted to add bright? No fall. No no summary. It's pretty weather up there. I will thank you for joining us Paul. Our listeners have got some inside there inside. Yeah, so and that's the wrap. Thanks for thanks. So we have Michael back today for our very first tasting thanks for joining us Michael the thanks guys a novel. So what do we have today? Well, I went downstairs pulled out a bottle last night. I thought we'd start with a nice Shiraz from the Barossa area in South Australia this particular one. It's a The Dandy lion lion heart. It's a 2017 and you can probably pick this one up from 20. 80 bucks a bottle and then kind of Dan Murphys you might get a little bit late and he gave us one for you. I see my project. So look just as far as these tasting that's the way I just thought would do it and I mean, you know, you just sit there and more or less. It's just having a bit of it like they say a bit of a journey. So it's you know, having a look at it having a look at the color telling what you getting on your nose, you know, when you when you when you smell it and then eight Lee what's the sort of taste of it? So that's the best part for me. So this particular one let's let's just have a go with them a look and see what we think. So, I mean just looking at that and that's pretty dark. I mean, you know, it's a really rich sort of purples and a card Deep Purple, you know sort of almost black. So, you know, it's quite interesting and you have a look at him there and maybe just on the nose. I'm just getting these really strong sort of like blackberries, you know that sort of stuff and you actually getting a bit of that. You know that Finley spy. See sort of spicy thing. I mean, yeah we go there and tell us what you think. Yeah, I can certainly take smell those berries coming through. That's for sure. So, yeah, it's a you know, it's it's pretty pretty interesting sort of on the nose that men give me a little bit of a taste. It's just after five o'clock. Everything's alright so willed it is anyway, so I may just pasting that. I mean that's that's pretty true to medium body, you know medium to full bodied man, and it's got the very similar. It's got that sort of real to the main search plumie. It's you know, sort of, you know with sort of like that Licorice and a bit of spice in it. So that's what I'm getting and then it's not very really nice actually. Yeah, it's so it's you know, it's good. I mean just on the palate it's you know, it's actually I think it's You know, this is going to you know to 2007 a you can still taste. It's pretty young when I'm not sure exactly. You know, how well the the sort of thing would keep it term. Did you say that you think you can use to see if as if those flavors came out a bit more or yeah, I definitely I mean, like I said, you know, that's a pretty pretty good for a you know, 2020 Buckle of Y. And so I think I think I picked up. Case only five or six of them right there. And yeah now that's that that is actually that is quite good. That's really really good. Very nice. I mean, it's on the dry side of sweet, isn't it? Yeah. Yeah now it is I mean, but yeah, I mean you taste them again and and smell that again you cheese it those dark berries really coming through guys. All right. Well, I think I'll be heading down to the Barossa shortly. Thank you very much, Michael. We look forward to our next episode sounds good guys get their base model. J so next let's jump into our economic summary provided by Deloitte was your takeaway from here bread. Probably the two negative yields. What the hell are they? Yeah and trade War. Yeah looks like negative yields is I find fascinating because not that long ago. We're hearing how we were having these the bond markets were in negative or producing negative yields. That means we're having a recession because that's been a predetermined for the last Pro Mini recessions that it means that one's coming. Yes. Now I would have thought that if the GFC is taught us nothing that history does not predict 8 the future and that sometimes there is just a new Norm. Is this just a new Norm right this low interest rate environment? Yeah, even you know, like when I was growing up when I was 17, I remember when I had a term deposit. Posit that gave me an interest rate of 18 percent now and Home Loans were 22% If you would have at that time to do any one that you could go and borrow money to buy a house that had an interest rate with a 2 or a 3 in front of it. They just laughed at you. Yeah, that's right. Yeah. So is this just a part of a new cycle? Is it because we never actually dealt with the GFC properly. So instead of it being the normal. Coming out of a recession. We've just got this lows Slow Burn. Is that enough wood burner or downward burn? We don't really know you so here is Jerry obviously, we're not in this negative yield environment yet, but they're talk in this economic article that Germany France and Japan are the three countries that are now issuing and have significant amounts of negative yield yielding debt. What does that mean for the individuals over there? I will and the an individual over there. They going to the bank and actually borrowing and the bank's paying them money to go and buy a house or use funds. Well the goal ultimately I suppose let's take it back a step banks have to borrow money from somewhere. So typically they will borrow Banks from another country. So here in Australia the Commonwealth Bank for argument sake they will Source whatever money they need either from The Reserve Bank of Australia. Or they will go overseas and borrow money from a bank in America or a foreign country or something by so the cost that they get to borrow out of that be one or two percent. So, you know Australia, yep is then lead has a direct impact to what they did and can charge the consumer, correct? So obviously if so, let's keep it simple. Let's say they're borrowing from you from The Reserve Bank, and that's when the half percent at the moment. So that means that there R cost of funds before thinking about they're paying staff paying the having the branches paying for the Ivory Towers and every Capital City all that sort of thing is one half percent then they have to factor in how much profit or recovery do we need to make on those expenses so we can actually have a viable business right and paste shareholders and do all those sort of things that we have to do now at the moment. I've got it now. Jack interest rate. This is called 4% for the sake of the argument. So that means that if half a percent of that 4% is their Prophet one and a half percent is the cost of funds 2% Is there running the business, you know, so it's simplistic form that's how to design to work. So if we ever get to a point of having negative interest rates from The Reserve Bank in Australia, it just means that that first one and a half percent crops, so instead of being One and a half percent if it's negative point five, then in theory the four percent that I'm borrowing from The Reserve Bank a sorry that I'm borrowing from the Commonwealth Bank drops to two percent. Yeah, which then leads this downward spiral where we have negative interest rate environments it they drop interest rates to try and stimulate the economy. And that's your people out there and spending there's no buffer there anymore notice we go into negatives. There's no buffer. Yeah that actually go about stimulating the economy of something. Well, it's essentially there's two types of economic. Theory so you have monetary policy and fiscal policy. So this is monetary policy. How do you drive consumer Behavior through essentially letting them borrow money cheaply? Yeah. Now the risk is with monetary policy that we have a lot of Regulation as we've already heard from ball grain most of the recommendations from the Royal commission were actually based on the banking side of the system now. The bank's can't assume that interest rates will always stay at 2% or whatever. It is at some point. You've got to repay with interest. So even now interest rates at 4% they assume a 7% interest rate. So that's now that's changed. So they've dropped that buffer. Yeah. Yeah, but they you stay still there. Assuming interest rates will rise at some point. Yes, I have to do that's right. So you still have to repay the capital you still have to repay whatever interest rate it is so much. Trade policy Works to an extent because regulation still kicks in and compliance still has an overarching influence in here in my mind and people still need to actually spend the money and not that they're saving not save it. So you mentioned before Jared you're looking at buying a house. So if let's say you go and buy a house today. You've got it was good enough impetus. Therefore you want to do that. That's right. So is that property? My property prices going up is that interest rates being low? Is it a combination of all these things it all comes into that that investment mix if you like as to what makes a good decision. Yeah. They're hoping that people will ultimately they might want to upsize them. I want to do Renovations on their homes in Australia. We've seen a massive uptick in people. Rather than replacing houses. Yes, and some of that is probably because it's it's cheaper and easier. You don't have the all the on cost of real estate agents stamp Duty or transfer Duty and all that sort of redundant at the end of the day the interest of dropped. There's more Dollar in your pocket. Yeah. So therefore you go and spend it on your property you bring in the painter you bring in the plumber they make money then they go spits about trying to generate some that flow of income and cash or around the economy to stimulate it. Yeah, and if that's the theory of monetary policy we fiscal policy. Basically, it's the government spending money. Yeah, so infrastructure, so, you know, we've heard the last few budgets you had I want to spend ten billion dollars doing all these different projects. Well, that's all great. But that I will takes a lot of time, you know, it'll cross River Rail is a great example in Brisbane. Yeah. Yeah. We've been talking about this for a number of years so I can be finished. I don't think until 2024 which will already Re going to be at a point that it's it's needed so to speak because there's already congestions on those train lines are stuff out there. That's for sure. And this is some of the problems that governments don't want to spend money until they really have to and by that point. Typically it's already past the point. So they're building for what we needed not what the future allows like. Yeah, and then that feeds into this whole notion of productivity gains. So a productivity gain can be as simple as getting people to work quicker so they can actually be productive in their days environment. Right? So if it takes you half an hour to get to work now in five years time if it takes you one hour, you've lost half an hour each way an hour a day. That's a productivity loss. You know, that makes sense. So that's what when the so when they talk about productivity gains that some of its as simple as building infrastructure to move people around more efficiently so they can be productive in their lives. Is that being earning money or spending money? Yeah. Well, I certainly don't think this will be the last time we hold a conversation around these negative interest rates around for it's going to be around for a lot longer. I would expect I think it should be a topic we discussed more. Well, that's right Lee you hear Donald Donald Trump putting a lot of pressure on the FED in America saying he wants zero interest rates over there. Yeah, there's the FED started to increase interest rates and then the economy started to turn and I hang on maybe we shouldn't be doing this. So they've stopped probably a good lead-in trumpy. What's he up to with China trade Wars? So lots of white doesn't he drive the markets every day Trump comes out with a tweet their Market goes one way or another it's creating significant volatility, but from reading this I'm getting a better understanding what the trade will actually means and I'll touch on it as we go but it's the uncertainty the uncertainty leads to people sitting on their hands and not taking action. So with over there you've got Dave you got two big Power houses. They're going for it. Trump's words to 15 percent tariff on white goods China retaliates and does something else but what it does lead to is that a small business in the u.s. Might be importing goods from China today to then create a new product and then try and sell that on sell that to arrest people around the world. So if they don't have certainty on how much those import costs are going to be mmm, they could soon as they do they could go. Okay. Well we might go to another Other country and we'll import our goods from somewhere else because we've now got stability on how much it costs and we've got no water margin needs to be on our product. And therefore we know what we can then charge the market whilst that's fluctuating around and the two governments are speculating on what that looks like that uncertainty is what leads to concerns around the economy and a potential the big are words recession because it stifles that growth and I think that some of the driver behind what Trump's trying to achieve in some regards Is he is he doesn't necessarily believe in a free market. So he doesn't believe that everyone throughout the world Chevelle the bond sold stuff with no impediment. He wants to have a manufacturing base in America. Yeah, the whole purpose is to bring manufacturing back into the u.s. Exactly now, which is all well and good but ultimately people the American Consumer will pay more for the goods and services that they care. Currently receiving because it costs more to produce. So if it costs more they can they're paying more for it. That's where the recession potentially leads to because are they learning anymore? Probably not. Yeah, that's right. So all of a sudden people they can't afford to buy whatever which it was that they have been buying because it's now more expensive so they don't so people stop spending. So it almost has a negative correlation to what he's trying to achieve. My mind anyway, I hope you sorted out sooner rather than later. But I think this is going to be like the native interest rates. I think we'll be reading about this in the economic section for a yeah. Well, it's come a lot of it comes back to if we could get him off Twitter. I think that everything would become a lot calmer. It's probably true. Is it almost easy and economic policy via 280 characters, you know, it's fascinating. It's we've never had an economic environment like it. Between the two essentially balls of the global economy essentially butting heads one doing it via Twitter the other one doing it as a retaliation and then obviously in the back room of got this whole brexit stuff going on and whatever that's going to look like in the impacts that's going to have on the two biggest European economies being Germany and the UK. That's right the from a global point of view. There's a lot of uncertainty in the world economy what that's I mean for us here in Australia who really knows what's inside. Nobody knows how that flows through. Look at the moment. I think our exports are actually up because China is getting stuff from Australia as opposed to America so it can be a positive but it's that uncertainty. It's a now it's certainly an interesting read and I'm sure we'll be touching on that further in due course, but I think that's pretty well the summary for today Road. I think so Jeremy. It's been a interesting discussion has been so we look forward to you joining us next episode. On making sense of it all we will dive into the financial foundations of wealth creation. So remember the insight and take control. Thanks Brad. Thanks Jared. The information contained in this podcast should not be interpreted as advice. It is General in nature and is not take into account your individual financial situation or needs and should not be relied upon before making any investment insurance tax property or financial decision. We recommend you consult with a licensed professional advisor. Do you consider your unique circumstances guests appearing on this podcast may have a commercial Russian ship with the companies mentioned
The 12 month long Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry gained a lot of attention into the shortcomings of the Australian financial services sector. Hear from Vincents Forensic Services Director, Paul Green, as to what it means for the Australian consumer and the sector as a whole. Join our hosts Brett Griffiths, Superannuation Director, and Jarred Brooks, Financial Advisory Director, each month as they help you gain insight and take control of your wealth creation journey. Connect with Brett on LinkedIn: https://www.linkedin.com/in/brettgriffiths/ Connect with Jarred on LinkedIn: https://www.linkedin.com/in/jarredbrooks/ Reach out to us at makingcentsofitall@vincents.com.au or on LinkedIn with any questions, feedback or topic requests. It is general in nature and does not take into account your individual financial situation or needs and should not be relied upon. Before making any investment, insurance, tax, property or financial decision we recommend you consult with a licensed professional adviser to consider your unique circumstances. Guests appearing on this podcast may have a commercial relationship with the companies mentioned. 