January Newsletter
In this edition:
Regulatory Compliance News
How Much Super Should I Have?
Adviser Numbers Expected to Fall Further
Advised Clients Receive More Payouts
Researchers weigh in on cryptocurrency
5 Financial Goals for 2021
Australian Regulatory Compliance News
2021 is the year that many of the Financial Services Royal Commission recommendations take effect.
In January we have already seen an extension to the prohibition of hawking of financial products, greater regulation of mortgage broker commissions, and a mortgage broker best interest duty. Extensions have been made to the ban on conflicted remuneration, licensing to insurance claims handling and settling, and a cap on commissions for add-on insurance for motor vehicles.
March will bring the expected change to Responsible Lending Obligations, and in April, we’ll start to see changes to credit risk management standards and an extension of unfair insurance contract terms.
In June, there’ll be amendments to the Anti-Money Laundering Act, likely a compensation scheme in respect of dispute resolution and an extension of banking executive accountability for superannuation and insurance.
July is likely to herald changes for small consumer credit contracts and consumer leases, further developments to financial advice regulation and an extension of licensing to debt management firms.
In October, we’ll see changes to requirements for breach reporting, reference checking for mortgage brokers and financial advisors and the requirement to notify clients of suspected misconduct. This will go hand in hand with new product design and distribution obligations, as well as changes to internal dispute resolution and a deferred sales model for add-on insurance. At the same time, there are likely to be changes in respect of electronic document execution and we’re going to be monitoring changes to the mandatory credit reporting regime and the e-payments code.
Other changes are currently being considered for the Privacy Act and Retail Payment Regulation.
Here's a video about the changes and a timeline.
Content from Bright Law (www.brightlaw.com.au).
How much super should I have?
Whether you’re 24 or 64, knowing how your super balance stacks up against others your age and what you should have at your age, can help you determine if you’re on track towards being able to fund a comfortable retirement.
How much super do I need for a ‘comfortable retirement’?
A good place to start is with the end in mind. For those wanting a ‘comfortable retirement,’ the average super balance at retirement should be around $640,000 for couples and around $545,000 for singles.
These figures presume no mortgage and accounts, for spending on things like renovations, dining out, and occasional holidays amongst other things.
What can I do if there’s a gap?
1. Get the basics of your super sorted.
2. Pay yourself back.
3. Start contributing as early as you can and as regularly as you can.
4. Consolidate your super accounts.
5. Add more to your super if you can.
6. Check in with your investment options over time.
Adviser numbers anticipated to fall further
An international wealth manager has predicted the Australian financial advice industry will suffer a further significant reduction during the next few years due to market pressures.
A recent survey from Wealth Insights Australia revealed one-third of advisers reported that they would leave the industry within the next two years, while Kaplan Professional believes it’s likely that only a few thousand more advisers will attempt the exam before the deadline.
According to the most recent FASEA figures, around 52 per cent of ASIC’s adviser register have passed the exam with just under a year until the deadline and six exam sittings left.
A number of factors currently affecting the financial advice sector in this country have been identified as the critical factors that will trigger additional exits from the industry, such as the new educational standards, a depreciation in the value of financial planning practices and ongoing revenue pressure.
“In an asset-based-fee world, the discussions were more investment focused and price was a function of assets under management. Today an advice plan needs a structuring fee and an ongoing management fee, both based on the value proposition offered by the adviser.” Allan Gray Australia chief operating officer JD de Lange said.
On a positive note, he recognised financial advice provided now is of much higher quality, which bodes well for the industry’s future.
“Advisers need to change their perspective. They are giving away what they should be charging for and charging for things they should be giving away,” Haintz said.
Read the whole articles from SMS Magazine and IFA.
Advised clients more likely to receive insurance payouts
The ‘Life Insurance Claims and Disputes Statistics - June 2020’ report supports the common view that advised clients are more likely to receive claim payments than non-advised clients.
One of the key take-outs is the important role advisers play in supporting clients through claims. APRA points to the likelihood that advised clients have clearer expectations of what their policies cover.
Researchers weigh in on cryptocurrency
The ‘Life Insurance Claims and Disputes Statistics - June 2020’ report supports the common view that advised clients are more likely to receive claim payments than non-advised clients.
Barely a week goes by without someone asking us if it’s a good idea to invest in Bitcoin. For us, the short answer is no, unless you’re a sophisticated high-risk investor with a deep knowledge of the asset.
While crypto currencies may have gained more legitimacy in the eyes of some investors, researchers who think critically about portfolio construction and financial products still don’t see a place for the likes of bitcoin in advised portfolios.
“We are seeing a lot of interest, but I can’t see any crypto being added to models or APL (approved product list) based on the preliminary work we have done,” says Lukasz de Pourbaix, Lonsec Investment Solution’s chief investment officer and executive director.
“I don’t understand why bitcoin has the value it does – the value is there because people are prepared to pay it but for no other reason,” says Brad Matthews of Brad Matthews Investment Strategies.
Michael Furey from Delta Research shared a similar sentiment, adding that lack of government backing and volatility means a lack of the trust required for it to be considered an appropriate form of currency.
“Even as a hedge to US Dollars or equities or as a diversifier, there still needs to be a positive return expectation which I currently can’t deduce,” Furey noted. “It is purely a supply and demand asset which appears to be no better than Dutch tulips at this point in time,” he says.
Read the full Professional Planner article.
5 financial goals for 2021
After a turbulent 2020, it’s time to buckle down and get serious about your goals and put a plan in place to achieve your financial targets. Here are 5 money goals to consider.
Stick to a budget
A budget is a tool to allow you to become more financially conscious and make decisions based on your goals. You may have to rethink your daily latte and your needs versus your wants, but in return you will have more control over your finances and stay focused on your long-term goals.
A budget can be achieved via:
A budgeting spreadsheet
Monitor your spending with a spreadsheet. There are many free budgeting spreadsheets, readily available online for your download and use, simply fill it in with your specified expenses and continue to refer back to it.
A digital envelope system
Funnel your money into ‘envelopes’ (separate bank accounts) such as bills, spending money and savings. This will give you a good indication of where you spend the most money and help to refine your spending on non-essential items. Don’t forget to include a provision for annual items such as vehicle registration and insurances.
Create an emergency fund
An emergency fund can act as your safety net in the event of an unexpected expense, ideally preventing you from going into debt. It can also provide peace of mind that you have a plan in place if you became unemployed or an illness or injury prevented you from working.
Eliminate debt
Whether it’s a student loan or credit card debt, take steps to eliminate debt once and for all. If you need help, consider the snowball method which involves paying off debt progressively from the smallest to the largest balance. Every time a debt is paid off, you then funnel the money that would have been used for that debt, to paying off the next in line.
Learn to invest
There is an abundance of resources in the market including books, podcasts & blogs to assist you in your learning venture, as well as taking opportunities to network and discuss techniques with established investors in-person or across social media platforms.
Increase your income
The Australian Bureau of Statistic’s Household Income and Wealth report, released July 2019, reflects that household income has stagnated and achieved practically no growth since 2013.
2021 may be the year to invest in stocks, start a business or go for a raise at work. Whatever method you decide to take to increase your income, ensure that you keep this goal in mind each day, taking daily, progressive steps to your desired outcome.
Read the full Tilly Money article…