GPL Financial Group GPL Partners

July 2018

The power of financial role models

Role models are important in many stages of life. Be it school years, on the sporting field or in your career, having a positive role model, someone to compare yourself to and measure your progress against, can be a powerful and positive influence.

         

 

But what about your financial position? Do you have someone that you compare your financial well-being against?

If so, are you ahead or behind?

For people approaching retirement a sense of financial security is important not just in monetary terms but also in terms of their overall sense of happiness and well-being.

Stepping off the employment treadmill can be both liberating and a recipe for heightened levels of anxiety.

At Morningstar's annual adviser conference in Chicago this month, Sarah Newcomb, their senior behaviour scientist, gave a presentation on what she terms “the comparison trap” and looked at research that shows where people believe they rank relative to others has a greater effect on happiness than their absolute level of income.

Interestingly, she also pointed to research that people who spend a lot of time on social media sites can have lower levels of well-being and life satisfaction.

The glib answer to this is to stop comparing ourselves to others – and perhaps cut down the social media time – but the counter to that is a body of research that identifies what Newcomb says is an innate need as humans. To assess our social and personal worth when there is no objective means to do so, we look to people similar to us to inform an assessment.

In common parlance we know that phenomenon as “keeping up with the Joneses”.

What is interesting about this discussion is that it is not simply about the dollars. There is a significant emotional component involved when we are discussing financial well-being. Newcomb says we all probably know someone who is financially well off but not as happy or content with their lot as you would expect.

Rather than saying stop to the natural human trait of comparison, what the Morningstar research has tried to do is look at ways investors – and their advisers – can reframe the mindset to make it a more positive process. Because our tendency is to compare ourselves to people who have more, in Newcomb's words most of us appear to be actively making ourselves feel bad about our own financial circumstances by always looking up at people who have more.

While the concept of a role model/mentor is something that is positive overall, what the Morningstar research is pointing to is the need to thoughtfully pick the person you are going to measure yourself against.

As Newcomb says, by changing the target and direction of our social comparisons, we can create more positive emotions with our finances. “This might not change your economic reality, but it could improve your quality of life. And feeling more secure with your financial well-being could have beneficial long-term effects by eliminating fear-based behaviours, such as performance-chasing and panic selling, which could put you in a better position to achieve long-term investing success.”

 
Written by Robin Bowerman
Head of Market Strategy and Communications at Vanguard.
26 June 2018
www.vanguardinvestments.com.au

 

Why SMSFs want estate-planning advice

An estimated 77,000 self-managed super funds (SMSFs) have unmet needs for advice on estate planning.

       

 

The 2018 Vanguard/Investment Trends SMSF Report confirms that estate planning is among the highest unmet needs for advice. This equates to 13 per cent of SMSFs at the time of the surveys – a percentage that would be markedly higher among funds with older memberships.

Further, the research found that 10 per cent of SMSF trustees had concerns about the ability of other members to manage their super funds following the death or serious illness of the most dominant fund member.

The recognition of tens of thousands of SMSF trustees that they need professional guidance with their estate planning is driven by an array of factors. These include the burgeoning number of baby boomers nearing or already in retirement, the large proportion of retirement money held by SMSFs, and greater longevity.

Some 47 per cent of SMSF members were aged over 60 in March 2018 and 20 per cent were aged over 70, according to tax office statistics released over the past week.

SMSFs hold almost 60 per cent of overall superannuation assets invested in retirement products, according to the Superannuation market projections report 2017, published late last year by consultants and actuaries Rice Warner. This percentage has been rapidly growing.

As at least a starting point for estate planning, it is critical for SMSF trustees (together with all super members) to understand who is eligible to receive their superannuation death benefits. Another fundamental is to understand how different eligible beneficiaries may be taxed differently.

Superannuation benefits cannot be left indefinitely in an SMSF following death – even if the beneficiary is your surviving spouse and a member of the same SMSF. The amount must be paid out as a lump sum or continue to be paid as reversionary pension.

As part of their estate planning, many SMSF trustees prepare for the possibility that the most active member of a fund dies first. This is particularly an issue for two-person SMSFs where one member may be much more involved with their super.

Changes to superannuation laws provide a further motivation for SMSFs to gain estate-planning advice.

Specialist superannuation editor Stuart Jones writes in the Thomson Reuters Australian Superannuation Handbook 2017-18: “From July 1, 2017, estate-planning considerations have been further complicated by the introduction of a pension transfer balance cap.

“The death of a member in the pension phase,” Jones adds, “is a high-risk time for a surviving spouse (or other dependant) in terms of their potentially breaching their own $1.6 million transfer balance cap.”

A surviving spouse or dependant who had previously been well below the $1.6 million pension cap could “quickly find themselves” exceeding the $1.6 million cap with an excess transfer balance tax liability because of the deceased's super pension, he says.

Thorough estate planning by an SMSF and its members is a valuable legacy in itself.

 
Written by Robin Bowerman, Head of Corporate Affairs at Vanguard.
22 June 2018
www.vanguardinvestments.com.au

 

Super set to play bigger retirement role

Statistical evidence shows superannuation is likely to play a more significant role than it currently does in the retirement income space for Australians, a senior financial services executive has said.

         

 

Statistical evidence shows superannuation is likely to play a more significant role than it currently does in the retirement income space for Australians, a senior financial services executive has said.

“So right now only 42 per cent of everybody over 65 is on the full age pension,” Challenger retirement savings chairman Jeremy Cooper told attendees at the most recent Randstad Leaders Lecture Series event in Sydney.

“That includes people who are 95, so that includes people who really weren’t in super at all.”

According to Cooper, logic would then dictate 58 per cent are currently entirely looking after themselves financially in retirement or perhaps receiving a part age pension.

Figures he presented showed the number of Australians drawing a full age pension has decreased from 45 per cent in 2010 to its current level of 42 per cent.

“The trend of this idea of fewer and fewer people being on the full age pension is going to continue,” he noted.

“And ASFA (Association of Superannuation Funds of Australia) is projecting that, by 2025, 70 per cent of people will be looking after themselves in retirement.”

He pointed out this trend is already having a real impact on the country’s superannuation system.

“What it means is that super is going to be called on to provide, if I can put it this way, more age pension-like solutions for the people who either aren’t getting the age pension at all or who are only getting a bit of it,” he said.

“They are going to be looking in their portfolios for something that is like the age pension. Along with the other things that they do, they need the longevity risk protection of the stable income that the age pension provides.”

 

Darin Tyson-Chan
June 28, 2018
smsmagazine.com.au

 

Super savings gap for women stuck at 30%

While the gender gap in superannuation is improving, an economic index indicates women are still retiring with superannuation balances 30 per cent lower than men.

         

 

While the gender gap in superannuation is improving, an economic index indicates women are still retiring with superannuation balances 30 per cent lower than men.

The Financy Women’s Index for the June quarter indicates that women are still facing a gender pay gap of 15.3 per cent and a superannuation savings gap of 30 per cent at retirement age.

Financy Women’s Index is based on data from over 700 annual company reports (as well as monthly, quarterly, biannually, and biennially) and methodology from the Australian Bureau of Statistics, the Australian Securities Exchange, the ATO and the Australian Government Department of Education and Training.

Australian Super group executive Rose Kerlin said further work is still needed in the areas of equal pay, equality of opportunity and more equal sharing of family responsibilities to close the gap which results in too many women having insufficient savings to fund a comfortable retirement.

Dianne Charman, chair of AFA Inspire, said that the fact that many women work part-time is having a long term impact on their superannuation.

“The Financy Women’s Index importantly reminds us to work with women to raise awareness about how even a small contribution to superannuation will, over the long term, put women in a better position.”

Association of Financial Advisers chief executive Phillip Kewin said the latest Financy Women’s Index results indicate that progress towards creating positive and meaningful cultural change in the financial wellbeing of women in Australia is happening slowly.

“It is disappointing to see that, at 26.1 per cent, the financial and insurance services industry has the highest pay disparity of all industries,” said Mr Kewin.

 

www.smsfadviser.com
Miranda Brownlee
27 June 2018

ASIC issues alert over big gaps in SMSF trustee knowledge

       
 
ASIC's latest research concludes many SMSF trustees lack a basic understanding of their legal obligations and often fall prey to property spruikers, but the profession is already finding holes in the corporate regulator's surveying.
 
ASIC released two reports this week following a major review it conducted into the experiences Australians have when setting up and running SMSFs.
 
One of these reports, REP 576 Member experiences with self-managed superannuation funds, reveals the findings of an independent market research agency commissioned by ASIC, including 28 interviews with SMSF members, and an online survey with 457 SMSF members.
 
One of the key findings in the report was that many members lacked a basic understanding of their SMSF and their legal obligations as SMSF trustees.
 
For example, 33 per cent of members in the survey didn’t know that an SMSF must have an investment strategy and 30 per cent of members had no arrangements in place for their SMSF if something happened to them.
 
It also found that 29 per cent of members thought they were entitled to compensation in the event of theft and fraud involving the SMSF and that 19 per cent of members did not consider their insurance needs when setting up an SMSF.
 
Both the interviews and online survey revealed a tendency for some members to be unaware of either what their SMSF was invested in or how the investments were performing.
 
While 99 per cent of most new members remembered what they were invested in, nearly one in ten established members could not remember what they had invested in.
 
The report also suggests that many SMSF still don’t understand the importance of diversification with two thirds or 66 per cent of participants in the online survey indicating that their SMSF is invested in only one type of asset.
 
“In total, 22 per cent of members had invested only in property, 16 per cent had invested only in shares, 8 per cent had invested only in managed funds, 5 per cent had invested only term deposits, and 3 per cent had invested only in collectibles,” said the report.
 
“Around one in three members had no investments outside of their superannuation. Of those who did, which was 62 per cent of members, the most common type of investment was their own home at 65 per cent, followed by shares at 50 per cent and other investment properties 45 per cent.”
 
It was also clear from the online surveys that a number of members had been prompted to establish a SMSF from property one-stop shops.
 
The survey revealed that seven per cent of new members and five per cent of established members had been prompted to set up an SMSF by property one-stop-shops.
 
“Property one-stop-shops generally made contact by cold calling or by having already helped the member to buy a property before recommending that the member set up an SMSF to buy a second or third property,” the report stated.
“Trust was established through testimonials, referral programs or special events providing opportunities to network with ‘like-minded’ people.”
 
Members who used property one-stop-shops expressed they had only made property investments within their SMSF with the only exception to this being some new members who said they had put their money in a high-interest bank account while waiting for their off-the-plan properties to be built, ASIC said.
 
The survey also found that the cost and time of setting up and running an SMSF did not always align with member expectations.
 
While the survey indicated that the cost of setting up and running an SMSF was “about as much as expected” for almost three in five members or 59 per cent, for 32 per cent of members the costs were greater than initially expected.
 
The survey also found that 38 per cent of members found running their SMSF to be more time consuming than expected, compared with 15 per cent of members who found it less time consuming than expected.
 
While the results are concerning, the SMSF Association has been quick to point out its limitations. 
 
Notably, SMSFA said a high number of files that ASIC viewed as non-compliant did not indicate a risk of financial detriment. Rather, they attracted the regulator’s scrutiny for not meeting record keeping and process requirements.
 
“Similarly, ASIC’s definition of financial detriment to an SMSF member is subjective and is difficult to evaluate without the member’s view being known,” SMSFA said. 
 
 
 
Miranda Brownlee
28 June 2018
www.smsfadviser.com
 

SMSFs: Our ‘hardest’ jobs

What are the hardest aspects of running your self-managed super fund (SMSF)?

       

 

Do they include keeping track of the seemingly-constant regulatory changes, handling the impact of those changes, choosing investments or handling your fund's paperwork and administration?

If you name dealing with the changing regulations and choosing investments as your two hardest jobs, you are among hundreds of thousands of other SMSF trustees.

Alternatively, you may find yourself in the fortunate position of considering there are no hard aspects of running your SMSF.

The 2018 Vanguard/Investment Trends SMSF Report survey, released during the past week, asked SMSF trustees to list the hardest aspects of running an SMSF. (Multiple responses were permitted.) Their responses included:

  • Keeping track of changes in rules and regulations (27 per cent).
  • Choosing investments (26 per cent).
  • Dealing with the impact of regulatory changes (21 per cent). (A number of survey responses overlap, particularly concerning regulatory change and investment selection.)
  • Handling paperwork and administration (18 per cent).
  • Understanding regulatory changes (17 per cent).
  • Paying for accounting fees and charges (16 per cent).
  • Finding time to research investments (13 per cent).
  • Having concerns that other fund members cannot manage my SMSF if I'm unable to do so (10 per cent).
  • Completing / submitting my EOFY regulatory/tax returns (10 per cent)
  • Finding time to plan and review for my SMSF (9 per cent).

Interestingly, more than quarter of SMSF trustees do not find any aspect of running their fund hard.

The findings that many SMSF trustees have difficulty choosing investments and in dealing with regulatory change partly explain another finding from the survey that a large proportion of SMSFs recognise that they have unmet needs for professional advice.

Investment Trends estimates that 276,000 SMSFs – out of 593,000 funds in existence at the time of the survey – have unmet needs for advice.

By placing responses into clusters of similar types of advice, the researchers estimate that 136,000 SMSFs have broad unmet needs for advice on tax and super,128,000 for advice on investment selection and 110,000 for advice on post-retirement planning.

An estimated 77,000 funds have an unmet need for advice specifically on inheritance and estate planning, which falls under the broader category of post-retirement planning.

The survey responses may prompt SMSF trustees to think more about what aspects of running their funds are the toughest, given their circumstances. And then to logically plan what they are going to do about it.

Next week: Why SMSF trustees want estate-planning advice.

 

Written by Robin Bowerman, Head of Corporate Affairs at Vanguard.
18 June 2018
www.vanguardinvestments.com.au