How to kill a conversation – ‘lets talk about super’

Gareth Daniels is an Authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee

Driving home from work last night there was a conversation the radio relating to super funds and how they perform relative to each other.

Many people would reach for the dial or press the button to change channels but the nerd in me resisted.

The item was a simple one; a firm has compiled independent research into the performance of super funds every year for the last five years and rates them accordingly on an annual basis.

The cynic in me listened intently for the criteria by which they had categorised the funds, but I had a bit of a ‘Wow!’ moment when they stated that they had looked at performance net of all fees and charges and had reached the overall conclusion that funds that charge lower fees typically outperformed funds that charged higher fees!

Further, in most cases, Australians would see a better performance from their super fund if they selected a low-cost index option that tracked the broader market rather than paying performance fees to active fund managers who fell short of the bench mark over the long-term.

Now I know I can be a bit sarcastic, but that ‘Wow!’ moment was genuine.

Simple, common sense advice can sadly be lacking in the superannuation space, frankly in financial planning in general. So when I hear it from an external source it jumps out at me and I realise that maybe we are not alone in our philosophies.

I downloaded the report that the firm produced, and a couple of key comments shouted at me from the pages;

Our research shows there is a clear correlation between high fees and long-term underperformance in super (The Fat Cat Funds Report Super Fund Guide 2018 page 3)

Poor fund performance comes predominantly from active management fees as well as higher administration and operating expenses than necessary (The Fat Cat Funds Report Super Fund Guide 2018 page 3)1

The funny thing is this information probably doesn’t surprise you. It is logical; it is common sense. So why don’t more of us follow it?

Like superannuation itself, the concept at the heart of following an index approach is BORING! We don’t want to talk about so its sits at the back of our minds. Over time we might not fully remember

why we are following that strategy anyway, particularly with the drip drip effect of other people’s opinions impacting on us. The reality is, what is there to talk about anyway?

Imagine the barbeque conversation;

“Yeah so I er um yeah paid no attention to my superfund again this year but as I track the broader Aussie market I got a nice steady long-term average return and I er um received a good level of fully franked dividends and I didn’t have to manage or worry about anything to get that…”

Well, that’s not very interesting is it? Not compared to the person who runs their self-managed super fund and trades shares daily and has a no recourse loan for the residential unit development that they are building up there in wherever and they had to meet with their accountant for three hours last week because there was some problem with the audit and now it seems like they might have to take that piece of art off the wall an put it storage because it “doesn’t really meet the sole purpose test after all”…. What?

Superannuation is an investment vehicle for you to set yourself up for the retirement lifestyle that you want. Research shows that a lower cost fund with an indexing approach will typically provide better long-term result than any other investment option. The point is that the more you pay in fees through more complex investment options the more likely that the long-term returns will be lower.

Our research shows that 96% of balanced super funds underperformed a simple low-cost index strategy after fees and taxes. This is consistent with research from Finalytiq4 which found similar results in the UK, and S&P Dow Jones whose SPIVA research shows that 80% of active Australian share fund managers have underperformed the index over 15 years. (The Fat Cat Funds Report Super Fund Guide 2018 page 35)

Why does superannuation need to be an interesting conversation anyway? Why does managing money have to be at all? Far more interesting is what you do with the time you have to enjoy life rather than worrying about money and what you spend your passive income on!

So how does any of this impact you? If you have made it this far through the article, then you have already met more than half of your required quota for paying attention to superannuation this year. Well done!

From here, check in with your adviser and (subject to your risk profile) determine your level of exposure to growth assets which should come via an index approach, balance that with your need for defensive assets and then ensure that you are on a fee favourable platform.

Simple but not easy I know; but it is common sense!

 

1 The Fat Cat Funds Report Super Fund Guide 2018 is produced by by Stockspot Stockspot Pty Ltd ABN 163 214 319 is a Corporate Authorised Representative (No. 453421) of Sanlam Private Wealth (AFS License No. 337927). They are a Robbo Advice firm and have no affiliation or connection to Income Solutions. We still believe that personal relationships are at the heart of quality financial advice, and have referenced the The Fat Cat Funds Report Super Fund Guide 2018 as an opinion piece.
Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product. Past performance is not a reliable guide to future returns. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.
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Income Protection Insurance

Gareth Daniels from Income Solutions

Authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee 

Are you looking at purchasing your first home or planning on starting a family soon? If so this is the perfect time to look at getting an income protection insurance policy in place or re-evaluating your current policy.

Buying a new home or starting a family, or both, is such an exciting time and you’re probably getting lots of different opinions from family and friends on what you should be doing, so let’s break down the facts.

What is Income Protection Insurance?

Essentially, it pays up to 75% of your income if you are unable to work due to injury or illness. If you have debt, dependants, or both. We all know that whether your income is coming in or not, the bills still need to be paid. It is advisable to have income protection insurance to help pay those bills and support your loved ones in unforeseen circumstances.

When paying your income protection insurance, you have main 2 options, paying through your superannuation fund or paying directly from your income.

Paying through your super fund

If you choose to pay your income protection through your super fund, it will cover the premium giving you more money in your pocket to pay for other things. This strategy is useful if you are trying to pay down your mortgage or have school fees to pay as the premium is coming from your superannuation, not your wage, so there is more money in your pocket to pay down your mortgage or pay for childcare or school fees.

However, there can be some restrictions on claims, dependant on your policy, we advise that you speak to your financial advisor to clarify these specifics.

Paying income protection from your wage

Alternatively, you can pay your premium straight from your wage, and in many cases, this can prove a greater tax deduction compared to the tax rebate that will be paid into your super fund.

For example, take the average Australian wage of $60,000. This person will pay around 32.5% tax each financial year (not including the Medicare levy). If they pay their income protection insurance from their wage they will get back about 32.5% of that premium at tax time.

How do I know if I have the right cover?

These days everyone has a super fund, and you may have a level of income protection insurance by default, however this policy may not be right for your personal situation. So, feel free to grab your super fund statement and come in for a coffee and a chat and we can look at the right coverage for your current situation.

 

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.

The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. 

Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.

Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product.

 

 

 

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The Goal of the Purple Box Discussion

WHYUnless you choose to live the life of a hermit, it is an inevitable fact that you are always meeting new people. Some meetings are just fleeting passages in your life, some become lasting and leave an imprint on your own little journey.  As I grow older I am becoming more conscious of these chance encounters. When these people come into your life, for whatever reason I often wonder to myself, “How did this person get to where they are in the world?’. Now this can go both ways, this person could be achieving unbelievable feats that you would have never have thought possible, or more often than not the situation can be quite the opposite. We all know that person that we felt was destined for so much more, but for whatever reason they just haven’t been able to figure out what their path is.
In effect, when we as advisers sit down and have the Purple Box discussion with our clients, we specifically focus on the individual developing themselves in a manner that will benefit their life, careers and business exploits. We have learnt that when a client is able to successfully invest in themselves, their ability to ‘create wealth’ increases exponentially. We genuinely want the people that work with us to be that person that is achieving the unbelievable. But why do some achieve, and not others? James Allen’s “As A Man Thinketh” goes a long way towards explaining in my mind why some people achieve everything they want, while others are left floundering.  Although Allen (1864-1912) never achieved great fame or wealth, his works continue to influence people around the world today. His collection of thoughts highlight how powerful our minds truly are. Allen’s underlying argument is that a man is literally what he thinks, his character being the complete sum of all his thoughts. Allen effectively states, if you choose to think noble thoughts, your actions will eventually become noble and vice versa.

“A man should conceive of a legitimate purpose in his heart, and set out to accomplish it. He should make this purpose the centralizing point of his thoughts. It may take the form of a spiritual ideal, or it may be a worldly object, according to his nature at the time being; but whichever it is, he should steadily focus his thought-forces upon the object, which he has set before him.”

When I read this passage I think of those people I know who are doing the same thing day in day out, never moving forward but consoling themselves with the idea that they are okay because they don’t seem to be moving backwards.

As an adviser, we see it in their faces when they aren’t quite content with life. People will not often tell you, but you get that sense. That sense of confusion and frustration, that anxiety that they aren’t quite where they thought they would be. After every Purple Box Discussion, I believe there is but one objective: It is critical that our clients leave with a goal in mind, an agreed upon centralizing point of thought.

As Allen mentions, it can be anything. Is it that promotion they have always wanted, or that University Degree that always seemed too far away? Do you want to buy a new Caravan so you can sneak off as you please? Or simply, do you wish to be the best parent you can possibly be? It doesn’t matter what it is, just that it is something. When I reflect on the greatest achievers that I have met, they all seem to have one thing in common. It is the fact that they keep on moving forward, no matter how far away that destination maybe. They pick out a mountain on the horizon and start walking towards it. By the time they get to the base of the mountain, they realise the mountain isn’t so big after all.

If you would like to book a time to have a Purple Box discussion with me or find out more about how we can help your dreams come to life, call (03) 5232 1200 to arrange a time to catch up.

Kane Leersen, Financial Planner

Please note: The advice in this article is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information.

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