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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. 

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.

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.

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.

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.