Challenges and opportunities for financial advisers in 2021

Challenges and opportunities for financial advisers

After a year of challenge, advisers might be hesitant to acknowledge that 2021 might prove to be more of a mirage rather than the promised land of calm that many had hoped for.

In 2020, advisers were asked to bear perhaps more than their fair share of challenges. Extreme market movements, ongoing regulatory pressure and uncertainty, and the need to quickly adapt to distanced client servicing as anxieties mounted over the market’s volatility, placed advisers in an almost impossible position.

Yet despite all of 2020’s trials and tribulations, the financial planning community triumphed. Advisers continue to do their many varied jobs, and now find themselves on the cusp of a year which they hope will provide some much-needed relief.

However, 2021 looms as a time in which advisers will again find themselves challenged by circumstances beyond their control, but not their capabilities. As ever, with great challenges come great opportunities.

Challenges

For advisers, the next 12 months will in large part be typified by a handful of ongoing challenges, particularly the difficulties associated with meeting the sector’s educational requirements and the provision of life insurance advice.

As advisers attempt to guide their clients through the economic recovery from COVID-19, the additional effort necessary to meet the education requirements is likely to push many dedicated practitioners out of the industry.

A lot of advisers are taking it personally. I don’t blame them. Having decades of experience and still needing to prove your worth with additional study – which may not be relevant to your specialisation – would be frustrating. As a result, we’re seeing an enormous amount of knowledge and capability exit the industry, robbing us of a generation of mentors to those just entering the profession.

Some of our industry’s most experienced hands are finding the hurdle just too high to jump, forcing years of nuanced understanding of portfolio construction out of the pool of advisers serving Australians.

For advisers who have made the decision to stick it out, 2021 will see them spend a large portion of their personal time on additional education, rather than with their families.

In the wake of the Royal Commission, the other major challenge for advisers in 2021 will be the provision of life insurance advice as commissions dry up. Younger clients with families and mortgages can’t afford to pay for life insurance premiums out of their own pockets, and many are turning to their superannuation balance as a funding mechanism. As we know, this has a profoundly negative impact on clients’ long-term balances, which means that it isn’t a sustainable exercise. But with clients not willing to pay out of their own pocket, it begs the question: how do we avoid a mass underinsurance problem?

My fear is that we are exacerbating an already sizeable issue. According to Rice Warner, Australia’s underinsurance gap is growing[1], and by cutting commissions in half – and close to zero – the only people who will be able to attain insurance advice will be those with the will and capacity to be able to pay for it. The reality of life is, people aren’t naturally interested in insurance, the case has to be made for its benefits.

Advisers can restructure their business to ensure that they only service clients who can afford to pay a fee, but the real loser at the end of the day is the Australian consumer and their dependents.

Opportunities

On the flip side, challenges often present opportunities. In 2020, advisers took the challenges before them and found ways to streamline their businesses and service clients more effectively, using adversity as an opportunity to re-orient their business around more efficient investment products such as managed discretionary accounts.

In much the same way, the challenges facing advisers in 2021 may yet prove to be significant opportunities for growth.

For instance, while it is true that overall the educational requirements are pushing many experienced advisers out of the profession, those who remain are the first in line to add orphaned clients to their book.

As a result, advisers will soon have a choice of clients to take on, which will ensure they serve those who are suitable for the advice they offer.

Recently released research[2] shows about four out of 10 Australians will seek financial advice over the next 12 months. While some of these opportunities may be small – and related to COVID-19 – some may be engagements with clients who hold a significant superannuation balance and are new to financial planning.

Currently, around 20 percent of Australians are advised in some fashion. By tapping into the 40 percent of the population who plan to seek advice, the breadth of opportunity to service clients widens by a significant margin, particularly in light of the industry’s shrinking pool of advisers.

As the industry professionalises, the new entrants to its ranks will come highly qualified, and hopefully with a greater skillset from the beginning of their careers. As a result, the public perception of advisers should improve to that of a professional consultant engaged to assist people in their financial affairs, in much the same way that a doctor is respected for the positive influence they can have on a person’s health.

With the market for advice shifting, 2021 may prove to be another strong opportunity for advisers to take some time to reshape their business model, examining their cost and time spent per client. Many advisers don’t spend time putting their business under the microscope in this way because of the mixed income stream model many have grown accustomed to.

In a user pays, fee-for-service world, it is crucial for advisers to understand how they can maximise the efficiency of their practice, including finding the right technological solutions to both suit and highlight the advice they give their clients.

While 2021 will bring its own unique set of challenges to advisers, the year ahead is also a valuable opportunity for those remaining in the industry to set themselves up for future success. Far from being concerned by the challenges in the year ahead, advisers should be energised by the opportunities for the sector – and their practice – to grow. Perhaps, after years of struggle, the coming year might finally bring some relief.


[1] Underinsurance in Australia 2020 – https://www.ricewarner.com/new-research-shows-a-larger-underinsurance-gap/

[2] CoreData Q4 2020 Trust in Financial Services survey

25 years and beyond with Lifespan Financial Planning

For more than 25 years Lifespan Financial Planning has helped advisers and their clients build a better future for themselves. This is the story of Lifespan’s first quarter of a century, and its plan to grow into the future.

When John Ardino started Lifespan Financial Planning in 1994, he wanted to be independent of the big institutions which dominated the wealth management industry.

“The catalyst was the desire to have my own advice firm and to service advisers and accountants who wanted to enter the field. I wanted to control my own destiny,” he says.

At the time, financial advisers would provide their clients with financial plans governed by what the Lifespan Chairman says were “fairly rudimentary” disclosure rules, instead of the robust and heavily regulated statements of advice handed to clients today.

For Lifespan Chief Executive Eugene Ardino, John’s son, the firm’s birth meant everybody in the family needed to do their part as the business got off the ground.

“I remember the family conversation, being told that we all needed to tighten our belts because we were starting a business, and I was probably old enough to understand it,” he says.

“Perhaps it was a few years later but I also remember helping out with some photocopying as Dad wrote Lifespan’s first compliance manual.”

As the firm grew and its initial band of a handful of advisers quickly became hundreds, the support team also needed to expand.

“There was a need for us suddenly to do marketing, which I’ve never been great at. I actually remember the kids helping me with emails and databases and stuffing letters into envelopes,” he says.

“But we needed help with other things like software and brokerage management. So, we brought people in. One of the first people we recruited was a brokerage manager who in fact only left us just recently.”

Eugene says that even now the firm is still experiencing growing pains, pointing to the planning industry’s constant change and the increasing influence of technology-based solutions.

But as the industry has changed, so too has Lifespan, John explains.

“We have far more servicing staff now. For many years we had about 20 staff, but the team is now substantially larger in order to deal with the many additional compliance requirements and the need to monitor compliance and advice documentation,” he says.

“For many years we might have only checked 1000 to 1500 plans a year, now we’re doing between 7000 and 8000 plans in a 12-month period. Some days we have 30 to 40 new Statements of Advice to check, so the number of in-house compliance and technical staff that are monitoring and checking plans and files has escalated dramatically in the last few years.”

For John, that increased compliance staffing is one of the major differences between Lifespan and other licensee groups.

“Some people don’t like compliance, and that’s a reason why some advisers don’t join us. But the way I look at it is that most advisers would rather be with a dealer group that ensures every adviser in the group maintains the best standards and quality,” he says.

“Our number of clients now reaches into the tens of thousands and our ability to attract these wonderfully substantial, highly committed practices that employ quality staff and look for the best available technology is very pleasing.”

For Eugene, rolling out the firm’s constantly growing Managed Discretionary Account (MDA) service in 2011 has proved key to the business’ success and serves as a key milestone.

“That helped the business transform,” he says.

The MDA service now manages more than $500 million in client funds and recently joined the Australian retail platform with the largest annual net flow[1], BT Panorama.

In a year that for many advisers was in part typified by market volatility, Eugene says Lifespan has received extremely positive feedback for its MDA service, which helped advisers by ensuring their investment decisions were more quickly implemented across the entirety of their client base to protect portfolios or take advantage of buying opportunities.

He adds that he was “quite proud” of the firm’s 20th annual conference in Darwin in 2018 and has revelled in seeing some of Lifespan’s adviser businesses grow into very successful, award-winning firms, such as Finnacle, CBD Risk Management and Endorphin Wealth Management, who all took out IFA Excellence Awards in 2020.

“It’s nice to have been able to share in that journey with some of our advisers,” he adds.

John says it’s Lifespan’s strong reputation as a trustworthy and straightforward dealer group that should take much of the credit for its continued growth despite the financial planning industry’s ongoing contraction.

“At the end of the day, we’ve still got advisers that have been with us for 25 years. I believe that our growth is explained by the quality and experience of our people, our realistic approach and the respect we have for our advisers and their professionalism and independence,” John says.

Eugene adds that Lifespan’s team has strong connections with its adviser group, which has helped ensure advisers stay with the firm for the long haul.

“Having the right governance and compliance frameworks in place and attracting the right advisers who fit our culture has been key for us. There’s a clear expectation when people join, so they know what they’re going to get from us and our client-centric, pro-compliance culture. There aren’t too many surprises and we treat our advisers like family,” Eugene says.

He adds that maintaining those core values of integrity and a human touch will be key to the firm’s success over the next 25 years.

“But also, we need to continue to evolve and be aware of all the things that need to be done to adapt with the industry and our clients as their lives change,” he says.

Eugene adds that the ability to have scale and the firm’s privately-owned structure – which he says is important to advisers – will figure heavily.

“With the cost of advice continuing to go up and the level of compliance continuing to increase, having scale and good technology to be able to offset some of those increases is really important,” he adds.

John points out that Lifespan has successfully managed to avoid the issues which have derailed larger advice organisations, such as numerous complaints and professional indemnity claims which cause PI excess and total costs to skyrocket. The firm has already announced that its recently renewed PI insurance agreement didn’t cause it to increase its PI levy for advisers, unlike others in the market.

In an industry of constant change, Eugene says technology will be key for Lifespan’s ongoing success.

“Technology is going to be a very important part of the puzzle that all businesses need to get right, so enhancing our information technology systems is key. But so too is the ongoing improvement of our managed discretionary account solution, because that is a great way that advisers can add efficiencies to their business, and continue to achieve great outcomes for their clients and themselves,” he says.

“We want to continue to grow but maintain our soul and ability to really be a caring organisation that listens to its staff, advisers and service providers, and fosters an environment for great outcomes.”


[1] Plan For Life, Platform Wrap Report March 2020 data (net flow comparison performed excluding corporate super and on an individual platform basis) for the 12 months to March 2020. BT Panorama had the largest rolling annual net flow.

Eugene Ardino
Eugene Serravalle

IFA Excellence Awards 2020

There is no doubt that 2020 has been challenging, however at Lifespan we have continued to grow and support quality advice businesses, and this was recognised last Thursday night, with Eugene Ardino, Lifespan Financial Planning Chief Executive winning the Dealer Group Executive of the Year at the IFA Excellence Awards 2020. This is the second year in a row that we have won this award. This award was recognition of everything that Lifespan has achieved over the past year. We were also a finalist for the Dealer Group of the Year Award for the second year running.

Demonstrating the quality of the Lifespan adviser network, three Lifespan practices were also winners on the night. Congratulations to Finnacle – Transformation – Company of the Year, Lyndon Holland from CBD Risk Management, Client Outcome of the Year, and Glenn Malkiewicz, Endorphin Wealth Management awarded Goals-Based Adviser of the Year.

What an amazing result!

Trustees of SMSFs need to be on guard as ASIC monitoring continues

The number of Australians establishing SMSFs has been rising consistently since an amendment to the Superannuation Industry (Supervision) Act 1993 in 1999 allowed for SMSFs to be controlled by trustees rather than the federal government.

The Australian Prudential Regulation Authority’s recent statistics on SMSF funds showed there were 595,840 SMSFs operating in Australia, holding $712 billion in assets. The recent revelations from the banking royal commission around the lack of transparency of retail funds’ investments and their tendency to focus on profit rather than the interests of members is likely to only drive more people to set up their own funds.

But how well equipped are SMSF trustees to be managing their own retirement investments?

As part of further investigations in recent years, the Australian Securities and Investments Commission (ASIC) conducted an online survey of 457 SMSF members who had set up their own fund in the preceding five years. The results were published in two reports, “Report 575: SMSFs: Improving the quality of advice and member experiences” and “Report 576: Member experiences with self-managed superannuation funds”. The reports make for sobering reading.

The main reason for setting up an SMSF is greater control over investment decisions. According to ASIC, around one-third of SMSF trustees are naïve about what is required to run their own fund and the benefits of diversification.

In one case, an SMSF member, believing the property market was “over-inflated” and the stock market was too “risky”, held 100 per cent of their SMSF balance in cash with a view to investing in property “in maybe three or four years”.

Survey respondents reported misalignment of their expectations and actual experiences as SMSF members in a number of key areas, including:

  • costs to set up and run an SMSF,
  • time spent on administering an SMSF,
  • the unexpected complexity of running an SMSF, and
  • member understanding of SMSFs and their legal responsibilities as SMSF trustees.

 Costs of setting up and running an SMSF

Individuals looking to set up an SMSF need to factor in all costs to establish and run their SMSF including amounts to cover any initial and/or ongoing advice, as well as establishment costs, including the appointment of the trustee and registration of the fund.

Once established, there will also be the annual cost of running the fund, including accounting, auditing and reporting costs associated with ensuring the fund is compliant, and the ability for members to extract relevant information during any period of the financial year if needed.

What is the ideal starting balance for an SMSF?

At the heart of this question should be an examination of the client’s needs, goals and objectives: why does the client need an SMSF and would they be better served by a retail fund or even an industry fund?

Advisers should start with an exploration of the client’s ability to act as a responsible trustee. Do they understand their obligations as a trustee and do they have the time, interest and ability to ensure the fund is adequately serviced and remains compliant?

Cash-flow analysis, on both the fund’s proposed underlying investment assets and the overall fund itself (particularly where direct property may be part of the fund’s investment strategy), will also influence the suggested starting balance.

Time to spend on SMSF administration

The time required to manage and administer an SMSF will often depend on what type of investor the client is and how active they are when managing their SMSF investment portfolio. Having said that, 38 per cent of respondents in the ASIC survey said running an SMSF was more time consuming than they expected.

All SMSF trustees will need to undertake some level of regular investment research on their investment options. Hand in hand with this is the ongoing monitoring of the investment strategy and the performance of current and future investments. This may include the need to organise annual valuations of assets such as direct property investments.

Trustees also need to be mindful of the need to meet their regular reporting obligations, ensure the fund remains compliant and keep abreast of changes in regulation or super laws that may affect trustee responsibilities.

They need to appreciate that they remain responsible, and will be held accountable, for the compliance of their SMSF at all times.

Dealing with the complexity of running an SMSF

The main arguments against SMSFs relate to the complexity of running the fund and in meeting compliance obligations.

Trustees can certainly outsource many aspects of running a fund, but are obligated to ensure the investments selected for the fund remain appropriate. The ASIC survey revealed 6 per cent of SMSF members had not made any investments since setting up their SMSFs, with the most common reason being they had not yet found the right property to buy.

The ATO can conduct a random audit of an SMSF at any time. The penalties for non- compliance are high and receiving a notice of non-compliance from the ATO usually has devastating tax consequences.

Understanding of SMSF concepts and legal responsibilities as a trustee

SMSF trustees are required to have a sufficient level of financial literacy to make investment decisions that are consistent with their fund’s investment strategy. However, ASIC’s advice review revealed 33 per cent of members did not know their SMSF was legally required to have an investment strategy. Even fewer than that (28 per cent) were aware SMSF trustees are required to consider the insurance needs of all members when drafting an investment strategy.

Clients should also be made aware they – not their financial adviser, accountant or lawyer –are legally responsible for their SMSF. A few simple questions during the initial interview will quickly determine whether a person has the requisite financial literacy to carry out the legal responsibilities of an SMSF trustee.

Just as important is recognising when clients no longer have the cognitive ability to function as an SMSF trustee. Assisting clients with succession planning and/or winding up their SMSF is crucial at this time.

More Australians seek understanding on early access to their superannuation

As individuals get closer to retirement, many are seeking further advice to help them better understand the circumstances required to allow them to access their superannuation savings, often with the desire to access their super at an earlier age. Many consumers often don’t  understand the rules and conditions necessary to allow for the release of their super savings.

According to a recent AMP report “In particular, many Australians don’t realise they can access super early if they change jobs between the ages of 60 and 65, even if they continue working in a new job, however, super benefits can be accessed as a tax-free lump sum during this period, or used to commence a retirement income stream, which receives both a tax exemption on earnings, and has no maximum pension restriction.” 

With respect to the desire to access super balances early, there are very limited circumstances when you can access your super early. These circumstances are mainly related to specific medical conditions or severe financial hardship.

Consumers need to be aware that some promoters claim to offer early access to your super by transferring your super into a self-managed super fund. These schemes are illegal and heavy penalties apply if you participate. Access to your superannuation outside of the traditional “retiree – commencement of pension” methods are limited and well policed by the regulators.

Access on compassionate grounds

You may be allowed to withdraw some of your super on compassionate grounds. Compassionate grounds include:

  • paying for medical treatment for you or a dependant
  • making a payment on a loan to prevent you from losing your house
  • modifying your home or vehicle for the special needs of you or a dependant because of a severe disability
  • paying for expenses associated with a death, funeral or burial of a dependant.

Access due to severe financial hardship

You may be able to withdraw some of your super if you have received eligible government income support payments continuously for 26 weeks and are unable to meet reasonable and immediate family living expenses.

A super withdrawal due to severe financial hardship is paid and taxed as a super lump sum. The minimum amount that can be paid is $1,000 (unless your super balance is less than $1,000) and the maximum amount is $10,000. You can only make one withdrawal from your super fund because of severe financial hardship in any 12-month period.

There are no cashing restrictions under severe financial hardship if you have reached your preservation age plus 39 weeks and you were not gainfully employed on a full-time or part-time basis at the time of application.

Access due to terminal medical condition

You may be able to access your super if you have a terminal medical condition.

A terminal medical condition exists if:

  • two registered medical practitioners have certified, jointly or separately, that you suffer from an illness, or have an injury, that is likely to result in death within a period (certification period) that ends no more than 24 months after the date of the certification
  • at least one of the registered medical practitioners is a specialist practising in an area related to your illness or injury
  • the certification period for each of the certificates has not ended.

Your fund must pay your super as a lump sum. The payment is tax-free if you withdraw it within 24 months of certification.

Access due to temporary incapacity

You may be able to access your super if you are temporarily unable to work or need to work less hours because of a physical or mental medical condition. This condition of release is generally used to release insurance benefits from a super fund.

You will receive the super in regular payments (income stream) over the time you are unable to work. A super withdrawal due to temporary incapacity is taxed as a normal super income stream.

Access due to permanent incapacity

You may be able to access your super if you are permanently incapacitated. This type of super withdrawal is sometimes called a ‘disability super benefit’.

Your fund must be satisfied that you have a permanent physical or mental medical condition that is likely to stop you from ever working again in a job you were qualified to do by education, training or experience.

At least two medical practitioners must certify this for you to receive concessional tax treatment.

You can receive the super as either a lump sum or as regular payments (income stream). A super withdrawal due to permanent incapacity is subject to different tax components.

Superannuation Balances less than $200

You may be able to access your super if your employment is terminated and the balance of your super account is less than $200, or if you have formerly lost super held by a super fund or by us that is less than $200.

Other questions often raised with advisers include:

  • How much can be contributed to super through non-concessional contributions?;
  • How transition to retirement pensions work?;
  • Understanding how the superannuation death benefit works; and
  • Understanding how total and permanent disability insurance works within superannuation.

Consumers should seek out advice from their financial planner for further information. 

Government needs to increase access to advice, not reduce it

The release of ASIC’s Report 627 Financial advice: What consumers really think, highlighted that among Australians who have received professional financial advice, 89% intend to get advice again in the future.

The report also revealed that almost four times as many Australians who received advice in the past 12 months had a ‘great deal of trust’ in their advisers compared to those people who had not received advice recently.

It was a resounding endorsement for the advice industry but one that is not reflected in the level of support it is currently receiving from the Federal government, which is standing by while the Australian financial advice industry is experiencing death by a thousand cuts.

The other very important piece of information that Australian consumers provided in this research was that the main reason they did not obtain advice was that it was too expensive.

And yet the industry is about to have a reform agenda thrust upon it that will greatly increase costs to the consumer.

The ASIC report also highlighted that advised consumers are more engaged with their financial affairs, have higher incomes and levels of education. If their interaction with advisers has improved their financial behaviour, then that is another reason to seek advice.

Either way, the government should be looking at ways to get more people into advice rather than increasing the barriers such as cost and creating trust issues by blaming advisers for things that are out of their control, such as product failures.

In the absence of strong government leadership, the mainstream media has filled the vacuum and been allowed to drive the narrative on this issue.

During the Royal Commission, the mainstream media focused on the horror stories that mostly came out of the wealth management arms of the large institutions without making the distinction between that model and the non-institution aligned financial planning model.

The ASIC report indicated that there was significant mistrust of financial advisers, but that it was mainly prevalent among people who had never received financial advice.

The only conclusion that can be reached from this is that those people who don’t trust advisers have formed that opinion from statements made by politicians and sensationalist mainstream media coverage. Actual recipients of advice remain overwhelmingly positive about their experiences with advisers.

This has had the effect of vilifying all 30,000 financial advisers in the industry when the over- whelming majority of them always act in the best interests of their clients to improve their financial circumstances.

This would indicate that the government has dropped the ball on this issue and our elected officials need to develop a better understanding of our industry before they destroy it, to the detriment of all Australian consumers.

My belief is that the negative perception of financial advisers can also be attributed to lack of understanding. As the ASIC report acknowledged: “Even limited knowledge of recent reforms (e.g. the Future of Financial Advice (FOFA) reforms or the professional standards re- forms for financial advisers) appeared to improve perceptions of the financial advice industry”.

To its detriment, the industry did not speak up in its own defence in the wake of the Royal Commission.

For example, planners themselves have no control over product failures but this fact was never part of the public debate.

The government has agreed to act on the recommendations of the Royal Commission, which were essentially motivated by public pressure to rectify the dysfunctional situations in the large financial institutions. But around half of the advisers not aligned with institutions ended up as collateral damage and by the time all the advice arms of the institutions are closed down or reduced in size, it will be many more.

These small business people, who invested their own savings to build a business, and al- most all of whom followed the rules to the letter, are suddenly looking down the barrel of a significant and permanent loss of income.

The recently announced legislation to remove trailing commissions from the industry has not given due weighting to the fact that commissions act as a vital funding mechanism for Australians who cannot afford to pay high fees to access financial advice.

In addition to a loss of commissions, increasing compliance, education and licensing costs are also cutting into advisers’ bottom lines, with some saying that revenues will fall by 30%. Most of these costs will have to be passed on to clients.

This upheaval is forcing many advisers out of the industry. Almost 3,000 advisers, around 10% left the industry in the first half of 2019 alone.

For those that remain, the stress is having a terrible impact. It is at the point where a few licensees actually have some of their financial advisers on a suicide watch list.

Furthermore, advisers who have successfully served their clients for 30 years or more have been told that they have to become degree qualified. Thankfully, the deadlines for completion were extended last week as a small concession.

All of this has advisers wondering what’s lying in wait for them around the next bend.

As Julie Bishop said in her address at the Association of Financial Advisers National Conference: “It’s so important that politicians and regulators understand the impact of legislation”. The Royal Commission certainly failed to recognise unintended consequences for the industry by focusing its efforts on stamping out misconduct and ignoring all other factors. The government owes it to the public to look at the broader effects of these reforms. ASIC’s Report 627 provided vital information in this regard that it would be negligent to ignore, as it highlights the fact that consumers are better off with financial advisers. We need a reform agenda that enables more Australians to seek advice, not less.

Why it doesn’t pay to pay off your uni debt

Australians who have racked up sizeable study debts should not rush to pay them back and instead should divert their money elsewhere, experts say.

The Higher Education Loan Program (HELP) debts are one of the cheapest forms of debts people can have because they do not attract interest charges.

Lifespan Financial Planning’s chief executive officer Eugene Ardino said Australians should be focused on paying down debts that attract interest.

“It should be a priority, all other forms of debt generally come with minimum repayments and you must repay them irrespective of whether or not you work,” he said.

“If you have any other debts I would be paying them off first. HELP debts are indexed at inflation on June 1 every year.

In 2019 they rose by 1.8 per cent.

Most credit cards attract rates around 20 per cent, followed by personal loans at often more than 10 per cent and home loan debt at about 4 per cent.

Those owing still owing debts at death, must have all their tax returns filed and once that is completed, any further outstanding HELP debt is wiped.

Financial comparison website RateCity’s spokeswoman Sally Tindall said the government had failed to do enough to encourage people to pay back their loans sooner.

“The government isn’t doing much to encourage people to clear their loan early,” she said.

“In 2017 they scrapped the 5 per cent bonus for voluntary repayments, and in doing so, they took a very large carrot off the table.”

But she warned Australians having a HELP debt could impact their ability to get other loans down the track.

“An outstanding HELP debt could potentially become a thorn in your side when you go to get a mortgage because the compulsory repayments can eat into your disposable income and potentially curb how much you can borrow,” Ms Tindall said.

University debt

  • AGE: 0-19 DEBT: $353m
  • AGE: 20-29 DEBT: $33.64b
  • AGE: 30-39 DEBT: $17.8b
  • AGE: 40-49 DEBT: $6.3b
  • AGE: 50-59 DEBT: $2.5b
  • AGE: 60-69 DEBT: $962m
  • AGE: 70+ DEBT: $315m
  • AGE: N/A DEBT: $44m

TOTAL: $62 billion

Source: ATO 2017/18 financial year, numbers rounded up

Mr Ardino said investing any excess money you had would be better down into the sharemarket than paying off HELP debts.

“For younger people you would be better to use excess savings and start an investment portfolio or potentially put the money aside to buy your first home,” he said.

But he warned the government that writing of HELP debt at death meant they were costing themselves money.

Market Volatility

Sudden Financial market movements can be unnerving for even the most hardened investor, and it’s difficult not to panic when trends in the market take a downturn. Unfortunately, it’s not unusual to see investors over react in volatile markets, unnecessarily selling various quality assets only to realise capital gains or even taking the extreme step to sell out of the market entirely.

Investors need to accept that investment markets can often be subject to periods of high volatility during which their confidence can be significantly tested.

So, what can investors better understand to help alleviate some of the concern during these downturns.

Firstly, that Volatility is a normal part of any investment cycle.

From time to time investors will react nervously to external forces such as changes in economic conditions, political uncertainty and prevailing business conditions. Financial markets dislike uncertainty, and investors are also prone to over-react to events that cloud the short-term outlook. Investor sentiment can be heavily influenced by the prevailing messages in the market, it is important to take a step back in these periods and keep a level head as there are traditionally opportunities in such conditions. Understanding investment cycles allows investors to begin to exploit lower prices rather than lock in losses by selling based on emotion rather than logic.

Market corrections can create attractive opportunities as a stock market correction can be a good time to invest in equities as valuations become more attractive, giving investors the potential to generate above-average returns when the market rebounds. Some of the worst historical short-term stock market losses were followed by a strong rebound.

Inexperienced Investors should also refrain from selling down their assets in their entirety with a view to re-entering the markets when conditions improve; those who remain invested typically benefit from the long-term uptrend in stock markets. When inexperienced investors try to time the market they can run the risk of denting future returns by being out of the market and missing the best recovery and the most attractive buying opportunities that are often a feature during periods of pessimism.

Understand the benefits of Diversification. Volatility can make Asset allocation very difficult to perfect as market cycles can be short and subject to bouts of volatility. Investors can spread the risk associated with specific markets or sectors by investing into different investment options to help mitigate the likelihood of concentrated losses. Defensive assets traditionally have a role in most investment portfolios. They are often used to help smooth the overall portfolios return and ensure other elements such as the liquidity of the portfolio, reducing any need to sell out of risker assets when values are diminished.

Don’t get lost in the emotional hype. Whether seeking to buy best performing assets or to sell down when times are at their toughest, don’t be swayed to what you see and hear around you as often the opportunity to gain value from these steps is often long gone. The key is not to react emotionally, don’t let the euphoria or undue negativity of the market cause you to compound the problem through a rash decision. One of the most serious investment implications of following the herd is that investors end up buying when prices are high and selling when prices are low.

Ensure you are reinvesting the income received through your investments to increase the overall return. Reinvesting dividends can provide a considerable boost to total returns over time, thanks to the power of compound interest.

To achieve an attractive total return, investors need to be disciplined and patient, with time in the market perhaps the most critical yet underestimated ingredient in the winning formula. Regular dividend payments also tend to support share price stability and dividend-paying assets can help protect against the erosive effects of inflation.

For some investors the need to generate regular stable income is of greater importance. While the value of the asset may fluctuate in volatile times, the value of investing in quality, dividend-paying assets for regular income remains of paramount importance. Sustainable dividends paid by high quality, cash-generative companies can be especially attractive, because the income element tends to be stable even during volatile market periods.

The benefits of regular investing also make sense. it makes sense to regularly invest a certain amount of money in a fund, for example each month or quarter. This approach is known as dollar cost averaging. While it doesn’t promise a profit or protect against a market downturn, it can help lower the average cost of fund purchases.

This approach may not make sense to the average investor however it is precisely at a time of reducing prices when some of the best investments can be made, because asset prices are lower and will benefit more from any market rebound.

What happens behind the scenes with quality fund managers that can be very successful during these times is Active investment. When volatility increases, the flexibility of active investing can be especially rewarding compared to the rigid allocations of passive investments. In particular, volatility can introduce opportunities for bottom-up stock-pickers, especially during times of market dislocation.

Remember, too, that the stocks you do not own in a fund can be as important as the ones you do own. There are companies in every stock market that are poorly managed or which suffer from fundamentally difficult outlooks; active managers can avoid these stocks. Moreover, the value added by avoiding some of the worst stocks in the market builds over cycles and with the passage of time, making research-driven active strategies particularly appealing for long-term investors.

Flight or Fight… or seek a third option

There are two principal behavioural biases that can kick in during times of market stress, causing investors to capitulate and sell at the wrong time for the wrong reasons: herding and loss aversion. The urge to do as others are doing is a particularly powerful bias in human behaviour that is not always helpful in investing.

More seriously, following the herd means that investors end up buying when prices are high and selling when prices are low. This is known as ‘chasing the market’ – a terrible investment strategy. In reality, it is typically better to do the opposite, buying when others are fearful and prices are low, and selling when other are greedy and prices are high. The best investors know this but for many of us, going against the herd feels very difficult as we have to fight our emotions.

The second bias, loss aversion, is one of the most significant behavioural biases that can affect investment. Experiments show that people take the safe option in gambles that involve gains, but take risk in gambles that involve losses, and that we feel the pain of a loss twice as deeply as the happiness from a gain.

In summary, feeling uneasy during times of volatility is only natural, however always try to remember to take a longer term view, and at the very least appreciate that if your asset allocation is aligned correctly to your risk profile, to a large extent your portfolio should reflect allocations that are already factoring in various levels of volatility that are normal in any investment cycle.

Why I’m a Financial Planner

Eugene Ardino, CEO of one of Australia’s largest privately owned financial advice licensees, Lifespan Financial Planning, shares the story of why he became a financial planner, what he loves about his career and his views on the findings of the Royal Commission.

My father, John Ardino, founded Lifespan Financial Planning in 1994. We now provide licensee services to more than 180 advisers with several $ Bil in funds under management.

It wasn’t a forgone conclusion that I would follow my father into the business. When I was younger I was always interested in the investment side of things and dealing with financial instruments generally. I used to come into the office in school holidays to assist with basic administration. After completing a degree in science with a major in mathematics, I eventually decided to take the plunge into financial planning. I started out as a business analyst, soon after that I became a qualified adviser and then spent a large amount of time in the compliance area, and I’ve never looked back.

But my father is a great mentor. I knew that I couldn’t go wrong if I entered the industry with him in my corner. He is still executive chairman of Lifespan and plays an active role in the business.

I suppose I had the right temperament for the industry in that I always liked dealing with people and hearing their stories. But my father taught me some simple but invaluable lessons about the delivery of financial planning that I still benefit from to this day.

The first was around the importance of communication in building trust with clients. The way in which you communicate sets the tone for everything else. If you don’t know the answer to a question, don’t be afraid to say that you’ll go away and do some research, rather than just shooting from the hip.

Clients will understand that you’re only human and won’t necessarily have the answer to every one of their questions. What they won’t appreciate is if you are not genuine with them. They will sense that more easily than you think.

But the importance of listening was definitely the most important lesson passed on by my father. If you never truly listen to what clients’ financial goals are, you’ll never truly be able to deliver these.

My father always said that in the first meeting with a client, they should do 80% of the talking. You should listen, rather than telling them what you think is important, because what is important is different for everyone.

As we have seen in the Royal Commission, reputation is everything in the financial advice industry. You can’t be successful in this business without a good reputation. We’re extremely proud of the reputation we have and work hard to maintain it. As we grow, we remain very conscious of not losing the soul of the business which is about placing client needs at the core of everything we do.

What keeps you interested in the business? What do you like about what you do?

I like the energy of it. I’m not the kind of person who thrives on routine – quite the opposite, in fact. I love that the industry is constantly changing and as licensees, we’re having to constantly evolve, adapt and innovate.

Year-on-year you can see that you’re making a positive difference to your clients’ lives. Often that’s through successive generations of a family. You go through everything with them – marriage, divorce, buying a house etc.

Engaging younger generations can be challenging but if parents are open to sharing financial information with their children, that definitely makes a difference. I’ve found that the families that are most engaged are those where the parents bring in the kids and include them in the conversation.

I really enjoy the interaction I have with industry participants and clients some of whom are now friends. I get a lot of satisfaction out of the client interaction.

As CEO I have lot of other responsibilities, but one of the main reasons I still see clients, apart from the fact that I enjoy it and find it rewarding, is that it keeps me in touch with what our advisers do on a day to day basis. It also allows me to keep abreast of how the needs of consumers change, which you can only really experience if you are meeting face-to-face with clients. I think I’m a much better CEO for having that client interation, although many executives do disagree with me.

The advice industry is still quite young, so looking for ways to improve the advice process, and introduce innovation, is also a passion for me. Whether that’s technological advancements in portfolio management, SOA generation or compliance, not just through software but through the use of instruments such as MDAs and other discretionary structures.

In any young industry it takes a long time to develop the best way of doing things. That creates an opportunity for people who are prepared to invest some time and thinking around new concepts and ideas.

I feel that we’ve had some success in this area, albeit with limited resources. We’ve done well with the MDA structures we’ve built. We’re also looking at better uses of technology for compliance and paraplanning.

Every time there’s change and new rules, not only do we have to learn them but we have to make sure that our advisers know them and we give them the tools to comply – and then we have to supervise and monitor them. It can be very frustrating and difficult at times but there is no opportunity without problems.

Going back before the GFC, everyone that gave financial advice was deemed to be doing a reasonable job because everything you invested in went up in value. You didn’t have to be a great adviser or fund manager in order to generate good returns for your clients. It’s only when things started to get difficult that some advisers were shown up and opportunities arose for those who did their jobs well.

The industry is now moving in the right direction but we can’t afford to rest on our laurels or we will just stagnate and cease to progress. Our team is always challenging each other and trying to improve.We’re certainly always looking at ways to grow the business but in a very measured way – never at all costs and never if it means compromising on our standards of client service.

As well as my father’s advice, I’ve had the benefit of being mentored by some of our more experienced advisers. We try to impart some of the knowledge we’ve gained to our younger advisers as well. And I learn from them too. Many of our Millennial advisers have some really interesting initiatives like using YouTube videos to engage clients. This form of communication is perfectly natural to these ‘digital natives’.

Our mentoring is not always structured – it’s primarily about always being available to pass on my experience and what I have learned from others, in helping them improve their businesses and themselves professionally.

Ultimately, I think the keys to success in this industry are really listening to what your clients’ goals are, developing an understanding of what you’re good at and knowing when to bring in expertise to do the rest.

Consumers’ thoughts on Financial Advice

With the Royal Commission into Banking and Financial Services taking (only) a negative view on some of the primary providers of advice, there have been several recent attempts to garner the opinions of the average Australian consumer to determine what they think about financial advice in order to help bring a client-centric focus back to these examinations.

 The IFA and Momentum Intelligence (a highly regarded industry publishing house) have recently carried out Client Experience Surveys and, along with the recent release of ASIC Report 627 Financial advice: “What consumers really think”, each report seemingly espouses the value of advice and asserts a deep endorsement for the majority of the adviser community. The results have provided additional insights into Australians attitudes, perceptions and priorities in relation to financial advice.

 Advice Clients

The release of ASIC’s 627 Report highlighted that among Australians who had received professional financial advice, 89% intended to get advice again in the future.

The report also highlighted that almost four times as many Australians who received advice in the past 12 months had a ‘great deal of trust’ in their advisers compared to those people who had not received advice. This was mirrored in the IFA Client Experience Survey where Ninety-four per cent of the 1,008 Australians who currently engage a financial adviser, said they were satisfied with their financial adviser.

The ASIC report also highlighted that advised consumers are more engaged with their financial affairs, have higher incomes and levels of education. If their interaction with advisers has improved their financial behaviour, then that is another reason to seek advice.

When it comes to fees, around 50 per cent of advice clients have gaps in clarity on what their fees are paying for. Half of all advice clients surveyed said they “always” know what their fees are paying for, while the remaining 50 per cent have various levels of knowledge gaps around what their adviser fees can be

attributed to, with 35 per cent knowing “most of the time”, 3 per cent “about half the time”, 8 per cent “sometimes” and 3 per cent “never”.

The royal commission has dented client perceptions of the industry but not so much on their adviser. Three-quarters of advice clients said their perception of the financial planning industry have been impacted by the Hayne royal commission. However, only 28 per cent of advice clients said their perceptions of their adviser have been impacted by the royal commission.

Non-advice Clients

The Client Experience survey also explored the attitudes, perceptions and priorities of 311 Australians who do not currently engage a financial adviser.

It was found that most non-advised clients don’t completely understand the services advisers offer. Seventy-one per cent of non-advised clients had gaps in understanding what services advisers offer. Further, 56 per cent of non-advised clients agreed with the statement, “I am not sure how a financial adviser could help me”.

The other very important piece of information that Australian consumers provided in the ASIC research was that the main reason individuals did not obtain advice was that advice was too expensive. And yet the industry is about to have a reform agenda thrust upon it that will greatly increase costs to the consumer.

The Survey found that Fifty-five per cent of non-advised clients who previously had an adviser quoted “cost” as the reason for ceasing the engagement. In addition, 44 per cent of non-advised clients agreed with the statement “I cannot afford

the cost of a financial adviser”. However, the survey noted that the statement is contextual and respondents were not provided a cost to evaluate, which means that they are applying their own experiences and are potentially uninformed in how much it costs to engage an adviser. Other reasons cited included the performance of investment/financial products (38 per cent), communication skills (18 per cent) and technical skills (18 per cent).

The ASIC report indicated that there was significant mistrust of financial advisers, but that it was mainly prevalent among people who had never received financial advice.

The only conclusion that can be reached from this is that those people who don’t trust advisers have formed that opinion from statements by politicians and mainstream media coverage. It could not be from people who have received financial advice because the overwhelming majority of them were positive about their experiences with advisers.

The negative perception of financial advisers can also be attributed to lack of understanding. As the ASIC report acknowledged: “Even limited knowledge of recent reforms (e.g. the Future of Financial Advice (FOFA) reforms or the professional standards reforms for financial advisers) appeared to improve perceptions of the financial advice industry”.

These surveys have provided helpful insights into how, in the aftermath of the royal commission, financial advisers are still held in high regard. The surveys also give vital understandings on how advisers could further enhance the advice process by better understanding advice clients, and highlighting the expectation gaps of fees and services in the advisers’ offering.

The results of these examinations have had the effect of complimenting financial advisers, with the overwhelming majority of them seen to be acting in the best interests of their clients to improve their financial circumstances.