Author: Andrew O'Neil

Coronavirus: the investment impact in seven charts

This is an update from Schroders that you may enjoy.

At this time I feel it is good to point out that less than 15 months ago the Australian share market closed at 5533 points on Dec 17 2018. Today it closed at 5370 points so a little lower but not much lower.

It was uncomfortable on that day in December 2018 and that was due to USA China impending trade wars. No one seemed to worry as much as we were preparing for Christmas pandemonium rather than Corona Pandemic. Supplies of toilet paper and hand sanitiser were plentiful and not in too many peoples shopping baskets at that time.

The severity of this downturn has been rapid however we always think about your portfolio on the basis that what happens to you if the share markets fall by 20-30% as that happens all the time and it has happened in the past two weeks. It is uncomfortable to look at your portfolio however falls like this have happened before, they will happen again, they are not a surprise or unexpected and we will always be working with you to ensure that your portfolio is appropriate at all times to reduce the impact to you of these sharp falls.

Whilst they are not a surprise or unexpected you never know when they will actually happen or what the trigger will be and that is the case here as Covid19 was unheard off 4 months ago.

The economic slowdown from sickness and quarantine is not able to be quantified as yet and that will take time to work through however if we can all do our little bit to avoid unnecessary contact with too many others and that may include playing more golf, taking a walk in the park or along the beach with perhaps a swim in the ocean, inside the shark net and between the flags of course.

These things will contribute to good health whilst helping to avoiding Covid 19.

Financial Planner Education Requirements – Andrew ONeil

There has been a lot said about the new Financial Planner Education Requirements including the compulsory Financial Adviser exam.

All new Financial Planners need to complete this exam before they can start their professional year. All existing Financial Planners need to complete the exam before 1 January 2022 otherwise they will no longer be able to practice.

The good news for me, Andrew ONeil, is that i passed the compulsory exam in Sept 2019.

My 30 year career as an adviser will continue. That is not the case for a lot of current advisers.

If you are looking for a well educated Financial Planner with 30 years experience improving clients lives then contact us today. Remember Improving your Lifestyle is our Business.

Please note, the new education standards and operating environment for Financial Planners is seeing a sharp reduction in the amount of planners available. If you are thinking of using a financial planner in the future dont delay in making contact. Financial Planners will get harder to find in the next 5 -10 years however i will still be here to assist.

It is never too early to Start Planning.

Compare the Pair Financial Services Royal Commission Superannuation

The Financial Services Royal Commission will investigate superannuation funds next week. The usual large groups will appear, Bank owned funds, life office funds and others.

It would be fair to say anyone appearing at the Royal Commission has been savaged by Council investigating for the commission so it will be interesting to see what happens given the “Good Guys of Super” the Industry Funds will be appearing.

Is Commissioner Hayne getting the Industry funds to appear to show the others how they should be operating or will there be shocking revelations out of the Industry Fund camp as there has been from virtually every other person that has attended the Commission so far ?

Imagine the Commission doing there own Compare the Pair! Comparing one industry funds Balanced Pension fund with another Industry Fund Balanced pension? Imagine if one of the fund fees was 60% higher than the other fund. How would the Industry funds explain that, especially when they all piggy back off the one advertising campaign spruiking low fees. The community expectation would be that the fees of the Industry funds would be largely the same given the one generic advertising campaign.

Given 2 of the largest Industry funds are appearing imagine if the Commission lined up two Industry Fund Balanced pension funds with a Bank owned Balanced Pension Fund and the Bank owned fund had a lower cost than both of them and was nearly half the price of one of them.

Imagine if you were in a Pension fund and the most expensive investment option is the balanced fund. Given the balanced fund is generally the largest fund would the community expectation be that the balanced fund is the most expensive choice ?

I dont know what the commission will ask the super funds however i do hope they investigate some of the pricing of the Industry funds given the advertising campaign that the Industry fund network has been pursuing for a number of years.

One Editor of a financial publication wrote about how a financial planner was destroyed at the Royal Commission and one of the largest dealer groups has been shut down however the Super investigation should not become a Tit for Tat where Financial Planners may be hoping the Industry Funds get a touch up.

As a 30 year participant in this sector I am certainly hopeful that the Royal Commission will investigate without fear or favour and will bring light on any area that needs light shone on it no matter where the darkness is.

I have no doubt if there are bad things in a bank owned super fund then there will be big publicity and furore. I would expect the exact same thing to occur no matter where inappropriate behaviour may have occurred.

I would also like the Commission to investigate the profitability of the Industry Fund network given the Media constantly refer to the Industry Fund Network as the “Not for Profit” funds. The same media never referred to the pre listing AMP, National Mutual or Colonial as Not for Profit so why are the Industry Funds referred to as that? That is a media thing not an Industry Fund thing

With $600m in assets and over 5 million members i certainly hope the Industry Funds are making a very good profit so they can ensure they can maintain and improve their systems to manage their business and safely look after their customers.

I cannot wait for the hearings to begin.

The debate about Active Vs Passive investing

The Media debate about Active Vs Passive investing always revolves around the fees paid vs the returns generated however is the choice as simple as that today ? Passive investing has worked really well in the past however does that mean it will continue to do so in the future.

Passive investing strategies have been a huge beneficiaries of a comment attributed to Warren Buffett that if he was to give advice to others he would recommend investing in a S&P 500 ETF rather than have an active fund manager. This has given huge horsepower to the flow of funds to passive investing strategies based on a the comments of arguably the worlds greatest active investor and someone one that is very likely to have $0 of his own funds invested passively.

Read on;

The US share markets are at or close to record highs depending on what days you are looking at them. There are economic issues world wide be that slowly growing economies such as US, Aust and others, recessed economies through Europe or economies that were growing strongly and are now slowing eg China. There are geopolitical factors happening in the world. Brexit, Sabre rattling amongst some world leaders and outright war and skirmishes around the world.

That being the case why is the Vix index so low ? The Vix measures the volatility in the US share markets and it is telling us that today more than anytime in the past the investors are more confident or less worried about the future than ever before. Does that really make sense or are there other factors at play ? Perhaps investors are thinking there is no where else to invest that will give you the risk adjusted rates of return compared to equities. Surely Equity markets still have some risk involved ?  You don’t get that impression looking at the Vix as there is very little volatility on a historic basis which could be interpreted as very little concern about risk.

Perhaps the issue is that no one is thinking anymore in global share markets.
I was at a PD day recently where one of the global research houses where discussing Passive Funds management vs Active Funds management. They stated that in the US Passive investing through index funds and ETF’s accounted for nearly 50% of funds invested. Further they said of the 50% of actively managed funds 15% were invested so close to index weightings that it is hard to argue that the fund manager had any active position.

Given these numbers it could be said that up to 65% of the US market has funds that are being invested without any thought process behind what is being purchased. Perhaps the Vix is telling us not that the markets are not volatile anymore perhaps the Vix is saying that the passive investment strategy by sheer weight of numbers has over powered the active managers.

The volatility has gone as the underlying trend is up. New money is invested in equities due to the returns of shares compared to other asset classes such as cash and bonds and no one is thinking about how that new money is invested.
The Passive process is “More money to invest, the computer places the trades to purchase the shares according to the index weightings”  The profitability and growth of that profit in company X is one factor that is not considered in the Passive investment process and that is apparently now how the majority of money is being invested in the US share market.

Passive investing may be healthy and efficient as it is cost effective and technology has taken over from brains as has been the case in a lot of other industries. Interestingly though in times of extreme market volatility the regulator has mandated that computer trading must stop and brains must be engaged to make decisions.

If the weight of approx 65% of investment mandates are done on a passive basis no one is actually asking is company X really worth that ?

Indexing works very effectively when you have active managers and hedge funds taking active positions and arguing the point about what company X is worth. In that environment the index is the outcome of that price discovery debate and passive index strategies work really well and cost effectively. This has been outstandingly successful over many many years to the extent that indexing and ETF investing to track indexes has seen very strong inflow.
The key question is, “Now that the Passive Management fund flow has overwhelmed the Active management flow, can passive investing work as well now as the price maker due to their trading volume rather than passively following the market cost effectively?


Need for SMSF Specialist Advisers Growing Financial Standard

Jamie Williamson in the May 1st 2017 Edition of Financial Standard referenced research from the Comm Bank SMSF Report that the Need for SMSF specialist advisers is growing.

The research broke the SMSF investors/trustees into 4 sectors

The Outsourcer was one sector at 13% of SMSF’s and they are generally people that have low confidence in their own ability to make financial decisions and are willing to spend more on advice. It would have been good of the survey could have asked the obvious next questions. Why do you have a SMSF in the first place ? What was your key factor in the decision to set it up ?

It is certainly true that a lot of people are setting up SMSF and it would be interesting to see any published stats as to how many are being closed down on an annual basis.

The 3 other sectors of SMSF investor were

Coach Seekers (22%) who want to learn and are happy to pay to have someone teach them, the self directed investor (30%) and the Controller (35%)

The Controller is not going to engage an adviser as they want to do what they want which could be quite different to what an adviser recommends.

The self directed investor wants to do what they want eg self directed. What if they have an idea about buying a country property for the family holiday each year ? Will they respond favourably when the adviser counsels against that strategy ? What level of fee can an adviser charge to take the risk of potentially defending an action if the ATO makes a fund non compliant when the trustee acted against the advice of an adviser ?

At that point the Trustee will claim that the adviser should have advised them better and MADE them do the right thing.

There is plenty of consumers wanting advice and recent law changes mean advisers will see less clients. Why would an adviser choose to specialize in an area where the consumers by their actions have told you they dont want an adviser as a starting point? While things are going well in the SMSF the consumer will continue doing what they are doing blissfully unaware of any contraventions of the law that they are committing. When the brown stuff hits the air conditioning they will want someone to clean up the mess,  the tax penalties could be high and they will be sensitive to the adviser fees then just as they have been before.

The survey is correct. There will be growing issues in the SMSF sector and people will be required to assist.

It does not follow that it will make good business sense for a financial planning business to specialise in the SMSF sector when you consider the risks involved.

Under the law the Trustee of the fund is responsible for the fund. There would be less than 5% of Trustees of SMSF’s that fully understands their responsibilities and obligations to the members of their fund. They normally dont care saying we are the members and we wont complain however that is not how the law sees it.

When a Trustees become aware of an obligation that has been breached they then try to pass that responsibility to the adviser and the advisers best defence is not to get involved in the first place.

I can see that a lot more advisers will be needed to assist in this huge area in the future. I know a lot of advisers will enter this space due to the lure of the billions of dollars invested however i dont know how many will remain in the area long term when you allow for the risk reward of the sector.

The clients have all the reward in the SMSF sector which is how it should be however in relation to the risks they are taking, with the strong assistance of the regulators, the risks are being passed from the Trustees to the advisers which will not be a sustainable business proposition for most advice businesses long term.

Why Get a Financial Plan

A lot of people ask themselves Why get a financial plan ? What benefit would i get ?

Some good reasons include

You will feel better knowing you have a track to follow and you know where you are on that track.
You have confidence that your lifestyle is sustainable when you stop work.
You feel better as you know what actions you need to take to have your home loan repaid on a timely basis.
You will pay less income tax.
You will pay less interest on your loans
You will get more government benefits if you are entitled to some.
You will earn higher returns on your investments
You will have greater confidence in the sustainability of your lifestyle.
You can consider the disaster scenario’s and take action to protect yourself from those scenario’s.

As a summary you will have a lot more confidence in your future.

If you want more from your plan ask your planner to cover it and they will be happy to.

It is never too early to start planning so contact your planner now and take some strong steps along your path to prosperity.

When will I Retire ?

The Australian Bureau of Statistics conducted a survey in 2015 about the retirement plans of Australians. It has found that 71% of people said they intend to retire at age 65 or 66. The proportion of people that said that they would work beyond 70 has grown 4 fold.

Is this because we are enjoying our jobs more ? living longer ? the age pension is pushing out ? or we just dont have enough money to fund our lifestyle ?

Only you can determine what the answer is in your case however i think a lot of the people planning to work to 70 are doing it for economic reasons and not from a position of choice. When will you retire ?

Retirement is the day that you are working for fun. There is a range of very wealthy people that work beyond 60,70 and 80 because they want too not because they have too. Those people are actually retired as they can stop working and do what ever they like whenever they want to. They just choose to work. Assume you win $20m in lotto on the weekend. For most people that would be enough to sustain them and their families for 100 years however you may still choose to work because you want to. That is retirement.

Warren Buffett works because he enjoys his job. Bill Gates decided he had enough at Microsoft and now devotes his time, energy and considerable expertise and influence to great social causes in poor parts of the world.

You only have to listen to either of them speak to know they love what they are doing and will do it until they die. They have enough resources to do anything they want and they are spending their lives doing exactly what they want to do. A lot of people would say they are working full time at a great pace. They are both retired to my way of thinking.

Retirement is the day that you have enough money to fund your lifestyle and on that day you may stop work or continue the choice is yours.

Ask yourself When will i retire ? and What is my retirement plan?

Is Prison part of your Retirement Planning

I was reading an editorial in the Financial Standard April 4 2016. In a broader editorial about the UK pension system compared to Australia, editor Mark Smith referred to a report out of Japan where the aging population is a real issue and 40 years ahead of Australia. It was the Japanese section that sparked my interest in some of the retirement plans of the aging Japanese.

It appears that the low State pension the equivalent of $9,100 per year has lead to an interesting increase in the crime statistics in Japan.

There is significant growth in the shop lifting stats in the Elderly segment of the economy from 20.4% in 2005 to 35.1% in 2014. As you can imagine this growth in crime requires further explanation and the answers are revealing.

The report cited the crime wave is motivated by a desire to be locked up in prison where free food, accommodation and healthcare is provided.

What is your financial plan ?  It is never too early to start your Retirement planning.

Canadians see Australia’s commissions removal as a fail

This article by Mike Taylor in Money Management Nov 26 2015 regarding how the Canadians see Australia’s removal of commission as a fail is discussing the advantages that the commission system has over a fee for service business structure for some consumers. ONeil Financial Planning runs predominantly on a fee for service basis however this is an issue that has resonated with me for a number of years.

Under the commissions system a consumer could see an adviser and pay very little or nothing for the plan and then the adviser would get paid on the implementation of the recommendations. The consumer does not need to pay anything upfront for the advice and if you dont like the advice when received you are free to walk away and see someone else. Normally you can see two or three advisers and then proceed with the plan that you feel bests suits the outcomes that you are looking for.

In this case the cost of implementing the overall recommendations could be $3-5,000 however it is only paid once to the adviser who you felt best understood your goals and reflected those with recommendations that you could see achieved the outcomes that you wanted.

Under the fee for service model you generally pay upfront for the plan and you are obligated to pay for the plan whether you like the advice or not. When you then consider that the plan may cost $3-4,000 with a $1,000 implementation fee the overall cost is largely the same however you can not get two or three opinions as you can do under the Commission model.

On this level and forgetting anything else the consumer is biased toward the commission model as it is the only way that you can see a few planners to see who best connects with you.

At the 2005 FPA conference there was a CFP day on the day before the conference and the then Deputy Commissioner of ASIC Jeremy Cooper was presenting an open forum with the advisers.

During question time i asked him about shadow shopping and whether the ASIC ever asked the shadow shoppers which advisers they saw and why. He said they did not seek that feedback from the shadow shoppers.

I wanted to ask a few more questions around this subject however i was asked to sit down by the MC so i wasnt able to discuss any of these issues in the ASIC Open Forum with advisers.

ASIC Shadow shoppers are real consumers looking for real advice and the only instructions that the ASIC give them is that they must see 3 or 4 advisers.

That being the only requirement it could cost a shadow shopper between $9,000 and $20,000 to see the planners that the ASIC require them to see. As a result you can imagine they see planners that are giving free plans and that is because this consumer is biased toward the commission model.

The Canadian research highlights the same issues and that is that the fee for service model makes it expensive for the average person or the young person to see and adviser. I am not saying that the commission model is good and as stated previously we charge for our advice as that is where the value is to you however that does not mean that it is easy to pay for the advice.

We are happy to advise all clients including younger people and the plan fees can be an issue that needs to be addressed with them.

We have had a few cases with clients where we charge our usual fees for advice and we then arrange a suitable payment schedule that is acceptable to us and the client. This ensures that the clients receive good advice and we can get paid and stay in business so we can assist our clients long term.

This issue highlights the importance of asking your friends, parents or people that you respect who they deal with for their financial matters. You need to get onto a professional adviser with integrity the first time and that is best done by having a strong introduction by someone you respect and trust.

It is never to early to start planning.

Important changes to the Centrelink age pension in 2017

From 1 January 2017, there are some important changes to the Centrelink age pension changes that could impact your benefits and warrant some pre-emptive action.

What’s changing?

The lower asset threshold that determines your eligibility for the full Centrelink age pension will increase. This threshold varies, depending on your relationship status and whether or not you own a home. It is also indexed periodically by the Government. To find the current thresholds visit .

The age pension payable will also be reduced by $3, for every $1,000 you hold in assets above this threshold. The current reduction amount, known as the ‘taper rate’, is $1.50 per $1,000.

How will these changes impact your entitlements?

Currently, your age pension entitlements are assessed under both an income and assets test and the impact of these assets test changes will depend on a range of factors. Generally speaking, you will:

not be impacted if your assessable assets are well below the current and 2017 thresholds, at which the full pension entitlement starts to reduce
receive higher payments if you only have assets which are not classified as ‘financial investments’, and your age pension entitlement is determined by the assets test
receive lower payments if your financial investments are above the current threshold whereby the full pension starts to reduce, but below the amount that will apply from 1 January 2017, and lose your entitlement altogether if your assets exceed the threshold from 1 July 2017 where the age pension payments will cease completely.

Broader implications

The thresholds apply exclusively to home-owning couples and the dollar values would be different if you are single and/or not a home-owner. The best way to determine how you may be affected is to make an appointment with your adviser to review your financial position. The earlier you do this, the more you may be able to take advantage of strategies that could retain your current entitlement, increase your entitlement and improve your overall financial position.

Strategies that could help you

Strategies you may benefit from could include:

  • improving or upgrading your home
  • pre-paying your funeral expenses, and
  • gifting money within the permitted limits to relatives or others.

But great care should be taken when considering strategies that could dramatically lower your assessable assets, as they may be short-sighted. For example, if the income test deeming rates (which are at historically low levels) were to rise significantly the benefits of reducing your assessable assets, could be reduced considerably. To find out how the changes could impact you and discuss strategies that may assist you, contact your Adviser.

Source: NAB Group