GPL Financial Group GPL Partners

February 2021

Early access boosted interest in advice


Public interest in financial advice rose significantly in 2020, with consumers focusing their online searches on super topics as the government launched its COVID-19 early access scheme, according to new data from fund manager Allan Gray.



New research from the investment manager revealed that online searches related to financial advice increased by 18 per cent year-on-year in 2020, while media articles relating to advice increased by 61 per cent from 2019 to 2020.

Average monthly searches for “financial advice” increased from 12,100 in 2019 to 14,800 in 2020, according to the data, which was compiled by digital agency Kamber on behalf of Allan Gray.

Super was the most popular topic relating to advice, with seven of the 10 most popular articles relating to super. Many themes related to the government’s early access scheme, including ASIC action around unlicensed advice being given by real estate agents relating to the scheme, as well as the impacts of withdrawing super early.

The topic of unlicensed advice also rated more than 12,000 mentions on Twitter over the course of the year, driven by ASIC’s real estate action as well as Liberal MP Tim Wilson’s comments encouraging consumers to withdraw their super.

Other popular topics on Google relating to advice that were searched regularly in 2020 included ethics, conflicts of interest, strategy and retirement. Searches for each of these terms increased by more than 5,000 per cent year-on-year.

“It appears the pandemic caused us to pay closer attention to matters related to the preservation of our finances, now and into the future,” Allan Gray Australia chief operating officer JD de Lange said. 

“Superannuation was a topic focused on by publishers and readers alike as Australians engaged with and talked about the impacts and risks of the government’s early access scheme.”

Mr de Lange noted that while improper conduct in advice had remained a popular topic among consumers, most of the articles engaged with related to unlicensed advice given by real estate agents.

“Other articles about which generated substantial engagement included one describing the compound future impact of withdrawing $20,000 from superannuation today, and another mentioning that 500,000 Australians 30 years or younger had dipped into their superannuation,” he said.



03 February 2021


Retirees proceeding with downsizing plans as confidence rises


Downsizer contributions were the top query received by the BT technical services team in the December quarter, with many retirees looking to downsize for lifestyle and health reasons.



During the December quarter, one of the most frequent questions received by the BT technical services team, who fielded over 2,000 adviser queries, related to downsizer contributions.

BT technical consultant Tim Howard said clients looking to sell the family home are asking their advisers about what the impacts may be on their superannuation and age pension.

“During the worst of the pandemic, it seems many retirees stayed put and delayed any decision to move. With the pandemic situation mostly under control in Australia, along with positive news about the development of viable vaccines, retirees have been feeling more confident and are putting their plans in motion,” Mr Howard said.

Mr Howard reminded advisers that clients who are over the age of 65 may be eligible to make a downsizer contribution to their super fund, following the sale of their main residence. Advisers have been asking BT about the details on the eligibility criteria of this measure.

“The downsizer contribution will not count towards a client’s non-concessional contributions cap, so it can still be made even if they have a total super balance greater than $1.6 million. The contribution is, however, limited to $300,000 or the proceeds of sale, whichever is the lower amount,” Mr Howard explained.

“Advisers should keep in mind that clients need to make the contribution within 90 days of receiving the sale proceeds. While this time may seem sufficient at first, the process of buying and selling a home, along with tasks such as making family and healthcare arrangements, can mean that taking advantage of this contribution strategy is placed on the backburner.”

With moving house often a busy and challenging period, Mr Howard said the key is to plan ahead.

“Advisers can encourage their clients to discuss early in the process whether a downsizer contribution to super should be part of their financial plan,” he said.

The second most-received query was the impact of sales proceeds from the principal home on their eligibility for the age pension.

“If a client has sold their principal home, and is intending to use the sale proceeds to buy, build or renovate a new principal home, then the proceeds can be exempt under the assets test for 12 months — and therefore the sale may not adversely affect their age pension entitlement during that time,” he stated.

The technical services team also received a lot of queries regarding the superannuation guarantee amnesty.

Under a one-off amnesty which ended on 7 September 2020, employers could self-correct historical underpayments of the superannuation guarantee (SG). The catch-up payments have resulted in some employees exceeding their concessional caps, leading to questions on how to resolve this problem, Mr Howard explained.

Advisers, he said, can apply to the ATO to disregard or re-allocate the payments to the financial year in which the contribution should have been made, for cap purposes.

“Importantly, if a client receives an excess contribution notice this year, they need to respond within the time prescribed,” he cautioned.

“If they know they are going to go over the cap, it’s best to make an application for an excess contributions determination ahead of time, and not wait for the notice.”

With the bill to increase the age at which a bring-forward non-concessional contribution can be made to super still stuck in Parliament, this topic has also generated a lot of queries.

According to the technical service team, the volume of adviser queries on this subject remains high, as advisers question whether the start date will be amended and whether a grace period will be put in place, and even whether the proposed legislation is still expected to become law.

“The legislative process has been delayed; however, there is still a high level of confidence that the critical component, regarding the bring-forward non-concessional contribution to super, will pass, as it’s not contentious,” Mr Howard said.

The other topic generating a lot of adviser queries was around the treatment of foreign assets, pensions and income streams.

“Many Australians maintain links to another country. Some own property overseas or receive a pension from a foreign government where they may have previously worked. Normally, they may travel to that country regularly and perhaps use their foreign-sourced income to fund their trips,” Mr Howard said.

“Due to the restrictions on travel during COVID-19, some may be leaving their income streams as is, while others are looking into selling their assets. Advisers are being asked how these will be treated by Centrelink in relation to clients’ eligibility for the age pension.”

Mr Howard explained that, generally, foreign assets and income streams are captured in Centrelink’s assessment for eligibility. However, the treatment can be different depending on the country, so, as always, it’s best to thoroughly check each client’s situation.



Miranda Brownlee
25 January 2021


The perks of staying invested


In times of severe market disruption 'doing nothing' often feels unacceptable. Surely such market movements means you have to respond.



Around this time last year, as with every year, forecasts of how investment markets would perform in 2020, were in abundance. Many prognosticated subdued global growth, with most estimating that 2020 would deliver positive returns, with geopolitical risk the main barrier to global growth.

In Australia, we anticipated muted economic growth at 2 percent and Australian equities were expected to deliver single digit returns with some market volatility expected.

None could have foreseen a global health pandemic that would culminate in the most pronounced economic shock in nearly ten decades.

And, undeterred by the earlier understandably incorrect predictions, many went on to forecast continued market declines as the pandemic unravelled. But as the year ended, the investment market scorecard for 2020 told a quite different story. The ASX closed out 2020 at just 1.4 percent lower than the start of 2020, after capping its best December quarter in history, the S&P 500 delivered an average return of 9 percent and the MSCI All Country World index of global shares was up almost 13 percent higher.

It is obviously no one's fault that most forecasts failed to predict market movements during a global pandemic and history has shown that it is almost impossible to reliably predict events and their impact on markets. But as investors we crave certainty and as humans we try to see order or patterns in what is happening.

In times of severe market disruption 'doing nothing' often feels unacceptable. Surely such market movements means you have to respond.

However, it should be acknowledged that investors effectively made an active decision by doing nothing in response to the ongoing market volatility. Perhaps it was a conscious decision in consultation with your financial adviser, or simply a matter of averting your eyes and focussing more on the challenges of working remotely, home schooling the kids or keeping a small business afloat.

But the last 12 months showed investors that 'doing nothing' and staying the course was the right thing to do by their portfolios. The caveat to that is the assumption that your portfolio has the appropriate asset allocation for your personal risk tolerance and is sufficiently well diversified to both cushion and capture market movements.

A concentrated portfolio in a specific sector would not have enjoyed the same outcomes as the broad market indexes.

Looking to 2021, perhaps we can use the lessons learnt from 2020 to help us navigate the year ahead.

Firstly, practising social distancing with your investment portfolio is a healthy undertaking that we should all implement. By all means, check your portfolio a few times a year and rebalance it if your goals or risk profile have changed. Otherwise, tune out the short-term noise and focus on your long-term investment goals. As vaccine rollouts give us hope that the tide is turning, uncertainty remains about the long-term economic impacts and the only real certainty is that other – as yet unforeseen – events will roil markets.

Secondly, stay cost conscious. The coronavirus pandemic forced changes to household budgets, whether through a necessary tightening of the belt or through limited spending opportunities as a result of lockdowns. But as life returns to COVID normal, perhaps you will consider permanently keeping some items off the shopping list. Even a small reduction has a significant impact over the long term. The same goes for fees incurred on your investments. The more you pay in fees, the less you get to keep. And if you dipped into your superannuation account in 2020, consider directing some household savings to replenish the super portfolio.

Lastly, be prepared for the next bout of volatility. COVID-19 laid bare the truth for many. If the bear market of March 2020 and the subsequent impact to your portfolio felt more like a heart attack than some short term pain, perhaps now is a good time to re-evaluate your investment portfolio and establish if your asset allocation and investment strategy are aligned to your risk profile, investment objectives and investment time frame.

Ultimately, 2020 rewarded disciplined investors for ignoring the noise and staying invested in the financial markets amid the turbulence. And while past performance is no guarantee of future results, conventional wisdom would say that keeping an eye on the long-term and setting realistic expectations for returns will be the best course of action for any investment portfolio in 2021.

An iteration of this article was first published in The Australian Financial Review on 18 January 2021.



19 Jan, 2021
By Robin Bowerman
Head of Corporate Affairs, Vanguard Australia


Rollout of Director ID Numbers (DIN) is ahead of schedule


Director identification numbers may be introduced sooner than expected for SMSFs with corporate trustees, with the government moving quickly with the rollout of systems and processes, according to a technical expert.



In June last year, the government passed legislation containing an initiative which will require all directors, including directors of a corporate trustee for an SMSF, to obtain a director identification number (DIN).

SMSF Association deputy chief executive Peter Burgess previously explained that the DIN regime has been introduced to deter and detect phoenix activity which occurs when the controllers of a company deliberately avoid paying liabilities by shutting down an indebted company and transferring the assets to another company.

The government previously stated that the DIN regime would not commence until 12 June 2022, unless an earlier date is set.

Ahead of his presentation at the SMSF Association National Conference, Mr Burgess said while it is not clear exactly when the new DIN regime will kick in, the regime may be introduced sooner than originally expected.

“What we’re hearing is that the government is ahead of their scheduled rollout of the systems and processes that they need to put in place, so it could happen sooner than we think,” he said.

The regime, he said, needs to be introduced within two years of the bill being passed.

“It could actually happen before then, and once that happens, it will impact on SMSFs with corporate trustees,” he said.

“A person who is appointed a director within the first 12 months of the new regime’s operation will be given 28 days to apply for a DIN. After this transitional period ends, the standard rule applies; that is, a director must apply for a DIN prior to being appointed as a director.”

All existing directors in corporate entities will also need to get one of these DIN numbers, he said, with the time frame for that yet to be specified by the minister.

“What it means for the sector is that there will be an extra step when we’re setting up funds with corporate trustees. There will be the need to get that director identification number, which will just be an additional step in the process, and it might happen slightly faster than what was expected,” Mr Burgess explained.

Mr Burgess will be speaking about the DIN regime and a number of other regulatory and legislative developments happening in the SMSF sector in his session on day one of the SMSF Association National Conference.

The conference will be a virtual event this year held over two days on 16 February and 18 February.

The program this year will feature four plenary sessions, 21 concurrent sessions, two workshops and three specialist member-only sessions.

The conference case study features a well-known Australian family to help delegates apply SMSF theory to real-life client situations.

Mr Burgess said the case study script writers have done an exceptional job this year “bringing the national conference to life”.

“A new and differentiating feature this year is the case study sequel which makes reference to many of the sessions and speakers in a light-hearted and entertaining way which delegates are sure to enjoy,” he said.

“The case study sequel also provides useful information about many of the sessions on this year’s national conference program.”



Miranda Brownlee
28 January 2021


How to pass the diversification test


Diversification, spreading your money across a range of different assets rather than putting it all into one place, is one of the core principles of investment risk management. That's because investment returns from different assets are never consistent.



The Spanish writer Miguel de Cervantes Saavedra isn't widely regarded as a renowned investment strategist.

But it's in his most famous literary work Don Quixote, published in 1605, that one of the quintessential investment phrases, still widely used today, first emerges.

Through the novel's central character, he advises that it's never wise to put all your eggs in one basket.

Diversification, spreading your money across a range of different assets rather than putting it all into one place, is one of the core principles of investment risk management.

That's because investment returns from different assets are never consistent.

Let's take a look at some of the asset returns from the 2019-20 financial year. The best-performing asset was United States listed shares, which returned 9.6 per cent. The worst-performing asset was Australian listed property, which fell 21.3 per cent. Australian shares fell 7.2 per cent.

But if you compare those results with the previous year, it was a very different story. Australian listed property was the best performer, gaining 19.3 per cent. US shares delivered 16.3 per cent, and Australian shares 11 per cent.

When we reach the end of June this year the returns from equities are likely to reflect the strong rebound on share markets since the first quarter of 2020.

In other words, asset class returns are ever-changing. So, having your investment money in several asset pots, instead of just one, will invariably smooth out your overall returns over time.

The Australian story

There are various research reports and data sources that provide an indication of the diversification of Australian investors.

Data from the 2020 ASX Australian Investor Study shows around nine million Australians hold investments outside of their home and superannuation.

By median dollar value, according to the Australian Securities Exchange (ASX) data, residential investment property on average accounts for the biggest amount of total investor assets ($338,261). Other types of investment property account for a further $207,347.

Straight away, it's evident there is a definite investment preference towards physical properties.

About 6.6 million Australians do have market-listed investments, but the median-value holding of shares (outside of superannuation) is much lower than in investment property at just under $42,000.

The vast bulk of these are direct shareholdings in Australian-listed companies. Many investors have little, or no, exposure to global companies.

The median amount held in shares is also slightly lower than the $43,000 median amount invested in term deposit savings accounts.

Interestingly, the ASX research found that only three in 10 investors rated diversification among their key investment considerations, and many admitted their portfolios were not well diversified.

Another good diversification indicator is data from the Australian Tax Office that shows the investment allocations of self-managed superannuation funds.

The latest data available up to 30 June 2020 shows SMSFs had about 26 per cent of their total assets ($191 billion) in Australian shares.

They also had just over 21 per cent of their assets ($156 billion) invested in cash and term deposits, which at current interest rate levels is earning a return of between 0 per cent and 1.5 per cent.

Unlisted trusts, which by and large represent unlisted property securities, are third-highest in terms of total SMSF assets, accounting for around $86 billion of capital (11.7 per cent).

A third diversification indicator is monthly data from the Australian Prudential Regulation Authority.

It shows Australian households collectively have a massive $1.1 trillion deposited in savings account products, with the majority of that held by the country's four biggest banks earning very low returns.

Alternative asset allocations to savings accounts that typically earn higher returns include managed cash funds and fixed interest (bonds).

Getting the best mix

How you allocate your investment capital is one of the most important, and often difficult, decisions.

Your asset allocation strategy should always be in tune with your investment goals and your tolerance for taking risk.

Rather than trying to do it themselves, more and more people are investing across different asset classes such as Australian and international shares, listed property, fixed interest and cash using listed exchange traded funds (ETFs) and unlisted managed funds.

There are also pre-set diversified funds that cover multiple asset classes, which can be readily accessed on the ASX.

Like most things in life, successful investing is all about balance.

As we head further into 2021, why not review your investment balance to make sure you are not too heavily tilted towards one particular area (with too many financial eggs in one basket)?

Spreading your investments across a wide variety of assets creates a diversified portfolio, can help reduce the risk of loss, and creates a much smoother investment experience.

Diversification means you don't have to worry about trying to time the markets for the right time to invest, because you are always invested across a range of different assets.

If you're unsure of whether you do have the right assets mix, consult a licensed financial adviser for some professional guidance.

An iteration of this article was first published by Canstar on 14 January, 2021.



By Tony Kaye
Senior Personal Finance Writer, Vanguard Australia

02 Feb, 2021


ASIC sounds warning around high-yield bond scams


The corporate regulator has warned of a rise in scammers targeting Australian investors by pretending to be associated with well-known domestic and international financial service firms.



The high-yield bond scams usually occur after an investor completes an online enquiry form expressing interest in receiving investment advice, often via a third party or comparison site.

Scammers pretend to be associated with well-known domestic and international financial service firms and send professional-looking fake prospectuses with unrealistically high returns.

ASIC also notes that other common tactics include falsely claiming investor funds will be pooled to invest in government bonds or the bonds of companies with AAA credit ratings, and falsely claiming the purchase price of the bonds is protected under the Commonwealth Governments Financial Claims Scheme.

ASIC acting chair Karen Chester has urged investors to be wary of claims that are “too good to be true”, noting that money lost to such scams are hard to retrieve, especially if scammers are based outside Australia.

“Interest rates globally are currently extremely low and expected to remain so for some time. If you see or receive offers of high-yield bonds, they are either high-risk or they may simply be bogus and a scam,” Ms Chester said.

“Investors searching for income-generating investments are at risk of being duped into buying these imposter bonds. Any prospectus offering incredible returns in today’s economic environment is likely to be just that: incredible.

“ASIC warns investors to be sceptical and make proper inquiries before investing.”

Ms Chester has also urged Australian investors to be careful with sharing their personal information online.

“We remind investors to check that they are actually dealing with the company they think they are dealing with,” she said.

“Do not share personal information online unless you can verify who is using the information and how it will be used. We are seeing a rise in suspicious websites that are simply lead generators for scammers.

“Ensuring investment products are true-to-label is front and centre for ASIC. While true-to-label covers all aspects of the investment product being offered, the foundation stone is basic truthfulness, and none more so than that the product issuer is actually who they say they are. This conduct is beyond not being true-to-label; it’s bogus-to-label.”



Jotham Lian 
29 January 2021

Taking a deeper dive into indexation of the transfer balance cap


With the recent indexation of the general transfer balance cap causing discussion around its complexities, technical experts take a deeper look into what will happen on 1 July.



From 1 July 2021, the transfer balance cap will be indexed to $1.7 million, which has introduced complexities around the member’s personal transfer balance cap (personal cap). Both Heffron and the SMSF Association have called for a need for a rethink in the method.

In a blog SuperGuardian analysed, looking at the winners and losers, the positives of the new transfer balance cap are clearly there for those still in accumulation with less than $1.7 million. 

“Similarly, those in a transition to retirement income stream who are yet to trigger a condition of release to move them to retirement phase will also be smiling, plus of course the peripheral benefits for those chasing spouse contribution rebates and government co-contributions,” SuperGuardian said.

“However, for those that have already used their full cap, there is little joy, and for those who have used part of their cap, welcome to the world of the indexed personal transfer balance cap.”

SuperConcepts executive manager SMSF technical and private wealth Graeme Colley said that the complexities start when anyone who has commenced a pension will have their own custom transfer balance cap, as only a proportion of the indexation increase will be added to their personal transfer balance cap. 

“This will also be an education exercise for each and every client who has used a small amount of their transfer balance cap,” Mr Colley said.

“However, for those who have used up all of their transfer balance cap of $1.6 million, no indexation will apply from 1 July 2021.”

SuperGuardian said for those that have already started a pension with $1.6 million, “it will be about thinking whether they are eligible to make more contributions because of their total superannuation balance and then whether it is worthwhile putting those extra contributions into the fund.”

“The problem with contributing once you have maxed out the cap is that all earnings on the contributions form part of the taxable component, so there may be some estate planning considerations. There are certainly some contribution strategies worth contemplating, but let’s save that for another post.”

“For those who previously started a pension for less than $1.6 million, there is the allure of indexing your personal transfer balance cap based on the unused cap space.

“While this sounds exciting, it really doesn’t leave much scope for indexation if the previous pension was commenced with any amount just shy of $1.6 million. Sure, if someone commenced a pension for $800,000, then they are going to get at least half of the indexed amount, but it’s critical people understand how the indexation works.”

BT head of technical services Bryan Ashenden said that where a person has already commenced a superannuation retirement income stream before 1 July 2021, their transfer balance cap will be increased proportionately, by reference to the amount of the gap they have between the amount assessed to their cap and the existing $1.6 million general cap. 

So, for example, if a person has $1.2 million assessed currently to their transfer balance account, this is a gap of $400,000 — or 25 per cent of the permissible amount. 

“A person in this position would, from 1 July 2021, receive an increase to their individualised cap amount of $25,000 — or 25 per cent of the cap increase of $100,000 — bringing their personal transfer balance cap limit to a new limit of $1.625 million from 1 July 2021,” he said.

“However, to complicate matters that little bit more, the gap — or ‘unused cap amount’ — is determined based on the highest amount that has ever been assessed to the person’s individual transfer balance account.

“So, for example, if a person had previously maxed out their cap with a superannuation pension commencement value of $1.6 million, but has subsequently withdrawn as a lump sum $200,000 from their pension, even though the amount assessed to their cap will have reduced by that same $200,000 (given a current transfer balance account balance of $1.4 million), they will have no ‘unused cap amount’ available, as it is determined by the highest ever amount assessed.”

Mr Ashenden said that one bit of good news will be that the ATO will automatically calculate the revised cap amounts from 1 July 2021 and it will be visible to clients through their myGov account.

“For clients that have not, or do not commence a superannuation income stream before 1 July 2021, they will receive the full increase with a future transfer balance cap of $1.7 million,” he said.

“For clients who have the potential to maximise their transfer balance cap into the future, but are considering now the option to commence an income stream, the benefits of waiting until 1 July 2021 to commence it should be considered, albeit balanced by the potential need to commence accessing funds today. The option of some lump sum withdrawals in the interim may be an alternative consideration.”

Looking ahead, Accurium outlined common scenarios which will be seen in the differences between proportionate entitlement and no entitlement in personal transfer cap indexations.

In regard to no entitlement indexation, Accurium gave an example of Fran who started an account-based pension (ABP) in her SMSF on 1 December 2017 with $1.6 million. On 1 July 2018, she partially commuted her ABP for an amount of $400,000.

“The balance of her transfer balance account just before indexation on 1 July 2021 is $1.2 million, being the credit of $1.6 million from the commencement of her ABP on 1 December 2017, less the debit of $400,000 from the partial commutation on 1 July 2018,” Accurium stated.

“While Fran’s transfer balance account is less than $1.6 million just prior to indexation of the transfer balance cap, as her highest transfer balance account balance prior to indexation was $1.6 million, she is not entitled to any indexation and her personal transfer balance cap remains $1.6 million.

“However, Fran will have cap space available to start a new retirement phase income stream to the value of $400,000.”

In regard to proportional entitlement, Accurium gave a scenario of Terry who first commenced a retirement phase income stream, an ABP, on 1 September 2020 with an amount of $1.4 million. 

“There are no other events in Terry’s transfer balance account prior to 1 July 2021. Terry’s unused cap percentage is 12.5 per cent, being the unused cap amount of $200,000 as a percentage of his transfer balance cap of $1.6 million at 30 June 2021,” Accurium said.

“Terry’s personal transfer balance cap would then be indexed by 12.5 per cent of $100,000; that is, $12,500.

“Terry’s personal transfer balance cap after indexation of the general transfer balance cap on 1 July 2021 will be $1,612,500.”



Tony Zhang
05 February 2021


The real value of advice


The right words of advice – whether it be from friends or family, business mentor, sports coach – can have lasting impact on the way we lead our lives, manage our businesses. The same holds true for financial advice.



Good advice is valuable.

The right words of advice – whether it be from friends or family, business mentor, sports coach – can have lasting impact on the way we lead our lives, manage our businesses.

The same holds true for financial advice. The right advice can deliver more than just a better investment outcome. Think peace of mind heading into retirement, lower stress in a relationship and possibly even higher levels of happiness.

The need for advice ought to be beyond dispute. Yet it is not.

The value of advice ought to be well understood. Yet it is not.

With an ageing population and growing pool of superannuation assets the financial advice industry ought to be thriving. Yet it is not.

The Financial Services Council recently released a research report titled the Future of Advice prepared by the independent research and actuarial firm Rice Warner. While the report is aimed at advancing the public policy debate on the financial advice industry it contains some strong learnings for individual investors.

The report rightly identifies the challenges consumers face in managing their financial position and points to the need for advice in order to maximise income and avoid financial difficulties. A task made harder by the interplay of tax, super and social security regimes.

The research has modelled a range of cameos to assess the value of advice and estimates that those who obtain advice accumulate more than three times more assets after 15 years than those who make their own decisions (including doing nothing)”.

That is a significant financial payoff and is in line with proprietary research by Vanguard titled Adviser's Alpha that independently researched the impact of advice and estimated the value about 3% in improved net return.

The value of the advice is not always for the wealthy or in the complexity. The Rice Warner paper says the greatest cumulative increase in funds at retirement when advice is taken at younger ages comes from asset allocation advice. Regardless of wealth level for an individual aged 40 about half the value of the advice is derived from simple advice in respect of savings.

Indeed individuals who are in the low socio-economic wealth bands are expected to gain more from advice than those who are wealthy. That reflects the tendency of those individuals to save less of their disposable income and allocate assets to safe but low-yielding asset classes such as cash and term deposits.

The Rice Warner research makes a strong case for the tangible, financial benefit of getting advice – with one important caveat. Costs matter.

The modelling of the impact of advice was done on a before-fees basis because fees vary widely across the industry. Importantly, the research showed that advice fees of 1% of a portfolio value would likely be a “net detractor” in purely financial terms.

There is considerable public policy discussion around the so-called “advice gap” which refers to the gap between those who could benefit from advice and those who actually receive it. During the Royal Commission into Financial Services poor and unethical practices within the industry were publicly exposed and as a result there has been considerable restructuring of the advice industry with major banks withdrawing as major players in the market along of with the number of individual financial planners falling as some choose to simply exit the industry.

Not surprisingly after the revelations from the royal commission the regulatory focus was heightened around investor protection. The financial planning industry today looks quite different today to five years ago – conflicted remuneration has been banned, a best interest's duty introduced and educational and professional standards are in the process of being lifted.

But the very measures meant to protect consumers are impacting the cost and complexity of providing advice and the Rice Warner report calls out the fundamental problem that the law regards most financial advice as complex and risky for consumers. So “simple advice has the same complex and lengthy processes as high-risk advice,” according to Rice Warner.

Consider the components that are required to provide a financial plan:

Fact find
Fee disclosure statement
Statement of Advice
Record of advice
Opt-in requirement (where this an ongoing fee arrangement)

The result is that the complexity of delivering advice has driven up costs and as a result it is the middle ground where the “advice gap” has widened and that in part is because the cost of delivering the advice is much higher than consumers are prepared to pay.

The FSC/Rice Warner study has recommended a new model with the aim of simplifying the advice delivery structure and making it more affordable.

The proposal is separating Personal Advice into two categories – simple personal advice and complex personal advice.

Simple advice would deal with well understood financial needs and products. Complex personal advice would cover things that are known to be complex and/or risky but also include areas where specialised advice skill are required such as derivatives or self-managed super funds.

Whether the FSC/Rice Warner proposal is the best solution is up for debate with regulators, policy makers and the industry. ASIC has kick started this discussion in asking for feedback on the roadblocks towards the delivery of good-quality affordable personal advice. What is clear though is that it is a debate worth having in order to ensure mainstream Australian investors can get both the right level of advice at an affordable price and the long-term benefits that good advice can provide.

An iteration of this article was first published in The Age / Sydney Morning Herald on 19 Jan 2021.


By Robin Bowerman
Head of Corporate Affairs, Vanguard Australia
25 Jan, 2021