At the Morningstar Investment Conference 2015 in Sydney on 21 May 2015, delegates were asked a series of questions prior to each session, and the results were presented. They provide a valuable insight into how financial advisers and other market professionals currently view opportunities in the market.

Here is a summary of each session, along with the results of each feedback question:

Asset allocation – Good value is even harder to find

Session introduction: While the global economy in aggregate is ticking along, economic growth has been varied – the United States has been leading the charge, and China slowing down, against a backdrop of benign inflation and very accommodative policy settings. Valuations across many asset classes look expensive when set against the expected outlook. The discussion centred on how much to allocate to Australian equities, the appropriate balance between cash and fixed interest, and where value can be found in what have been strongly-performing markets. 

Fund investing stream – Fixed interest: haven’t we been here before?

Many investors were caught off-guard as global bond yields reversed course and fell after the taper-induced jitters of 2013. Developed market government bond yields plumbed new depths, policy rates remain ultra-accommodative, and unconventional monetary stimulus is back in the headlines. Fixed income investors are again left wondering where to find value and how best to manage risk under these conditions. This session discussed fixed income markets and the implications for investors’ portfolios.

Fund investing stream – Exploring the case for alternatives

Alternatives are frequently touted as an effective portfolio diversification strategy, but how does this stack up? The session explored the case for using alternatives in client portfolios, what to look for and to avoid, how to build an alternatives portfolio allocation, and analyse current market trends.

Australian equities – What’s next for Australian equities?

The Australian sharemarket got the year off to a flying start in the first quarter of 2015. More strong returns from high-yielding stocks help compound the great returns of the last three years – but can this continue? Is it time to increase your clients’ exposure for the next leg-up, or are we due a pullback?

Portfolio construction – Putting it all to work

A recap and analysis of the major investment themes discussed during the day, from the top-down macro and asset allocation discussions to the bottom-up individual investment selection insights and the role of alternatives.

Global equities – Time for risk management, or faith in recovery?

After multiple years of strong gains, advisers would be right to doubt whether global equities is a good place for their clients’ next dollar. But relative underperformance in some regions over the past few years combined with a sustained decline in oil prices and persistently low bond yields make that analysis far from straightforward. A discussion on whether to batten down the hatches or look for good opportunities.

These results were reproduced with the permission of Morningstar. The information contained in this article is for general education purposes and does not consider any investor’s personal circumstances.

If instead of lavishing your guests with expensive wine at an outrageously over-priced location with a million flowers and expensive bands, you had headed down to the Registry Office and had a drink at the pub instead, this is how much your wedding day lump sum would be worth. Note – it’s best to be seated whilst doing this when you realise how much your wedding expenses would be worth now. There are two messages from this: the value of saving and the power of compounding.

The wedding calculator comes from Slate.com, and was sent to us by Jonathan Hoyle, Chief Executive Officer at Stanford Brown, whose own numbers are shown in the diagram.  

Financial advice in Australia has not been static. Fuelled by the superannuation guarantee system, the industry provides a wide range of services to investors; strategic advice, insurance, investment management, portfolio reporting, social security guidance, assistance navigating the superannuation and retirement systems, etc. The list goes on.

Unfortunately the infrastructure required to support financial planning services and regulation has grown unwieldy and costly. Most planners rely on cumbersome administration systems. A typical large practice financial planner is locked into a single or at best two or three investment platforms. This has reduced flexibility, and increased the cost of stand-alone investment advice.

A key part of the financial planning offer – investment advice – has become less tailored over the last 10 years. The need for better compliance, scalability and fee harvesting has meant that investors are often recommended benchmark-hugging model portfolios such as fund-of-fund offers, typically manufactured internally. The investment advice part of financial advice has become commoditised, making it less important as part of the overall financial advice value proposition.

What is the focus of ‘direct wealth’ or ‘robo’ advice?

Direct wealth is effectively a ‘cut out’ of the financial planning offer. It is not a ‘full-service’ offer, but concentrates on tailored strategic asset allocation and investment advice, without the complexity or cost of the complete financial planning administration and infrastructure.

In North America and the UK, direct investment advice is thriving. In these markets there is no problem with segregating investment advice from the broader financial advice offer.

There are three other important drivers of the growth of direct advice.

First, fees are coming down both in Australia and globally. But the cost of the complex investment platforms that Australian advisers are using means that these fees are not coming down quickly enough.

Second, smart phones have now been around for many years and we love them. They are always with us. For most Australians, young and old, this has become their primary conduit to information, purchasing of goods and services and interaction with friends and associates. Paper communication, talking face to face with people and even emails, are being replaced. This is a challenge for the traditional financial planning models that still seem to require endless paper and face-to-face meetings. In contrast, direct investment advice is easily completed using just a smartphone.

Third, we now have a better understanding of how investors think. Behavioural finance has alerted us to mental accounting where investors tend to think in ‘buckets’, however illogical that is. Unfortunately ‘bucket’ investing doesn’t quite fit with holistic financial advice – where there is usually one investment solution across a client’s entire portfolio.

This is the perfect environment for online direct wealth solutions.

More people need advice but are not willing to pay for it

As an example, take an investor with an SMSF. They have already paid for the superannuation framework and typically choose their own investments without the help of an adviser. This has worked well until recently; relatively accessible investments like term deposits and Australian shares have delivered good returns. Now, these self-directed investors are noticing that global markets and property have outperformed, while deposit returns have reduced dramatically and Australian shares have borne the brunt of the commodity market downturn.

Many SMSF self-directed investors have been hurt by their lack of diversification. They need advice about non-Australian markets and strategic asset allocation but are loathe to pay a financial adviser for the administration and strategic advice they don’t need.

The good news for SMSFs is that direct wealth or ‘robo’ advice can offer online tailored strategic asset allocation and security selection advice quickly, efficiently and at low cost. The trustee can receive a robust diversified portfolio in less than 10 minutes, using their phone or home computer. There is no need to pay for the extras that traditional financial advice provides (accepting that many other investors need these and are willing to pay for them) such as retirement strategy, budgeting, face-to-face meetings, costly administration and all that paper work.

Then there is the forgotten investor – perhaps an individual who has accumulated savings, received an inheritance or downsized their house. The money is not in superannuation, which is well catered for by financial advisers. This investor’s easily accessible choices are limited. They can put it into the bank, buy an investment property, buy some Australian shares or find a financial planner. The difficulty is that the financial planner will want to look at all of the investor’s portfolio in a holistic solution. Clearly, there is a role for such a broad offer, but many investors only want the money invested efficiently, not complete the work necessary for a 70 page Statement of Advice.

Direct wealth advice is the solution. Tailored strategic asset allocation and investment advice using online risk profiling includes quickly opening both a bank account and brokerage account, a process which can take many weeks with a financial adviser.

Direct investment advice is also more flexible for ‘bucket’ investing. Let’s assume that the investor splits their investment money into two buckets. The first bucket is a short term investment (say, 18 months), and the second bucket is more of a long term investment, say five years. The investor can open two accounts in the direct wealth channel, and simply alter the time frame for each account. This will produce tailored strategic asset allocation and investments to suit both buckets.

The other benefit of direct wealth advice is that investors have a transparent portfolio rather than the opaqueness of a multi sector balanced fund with many underlying managers. Using any device, investors can call up reports, see daily updates in portfolio value, redeem and invest additional funds. Direct wealth ‘robo’ advice is investment advice brought into the reality of our digital world.

Maggie Callinan is Chief Investment Officer of Indeksio, due to release in Australia in Q3/2015.

Fintech has captured the imagination of many financial services firms looking to leverage differentiating technology to accelerate their innovation. Nowhere is that more true than within the wealth and asset management sector.

Increasingly, financial services organisations are becoming technology services providers. While fintechs are seen by many as disruptive to traditional financial services businesses, in reality they present great opportunities for savvy organisations.

The early impact of fintech has already been felt by the banking sector, where traditionally large value chains and highly visible, commoditised products made it ripe for disruption. Bitcoin was an early mover and progress has also been relentless in peer-to-peer lending, with a range of new market offerings launched. Banks have found themselves on the back foot, forced to adapt to compete with new challengers.

There are clear lessons here for the wealth and asset management industry. Looking at how disruption has driven new cost models and customer experience in the banking sector can help create a framework for wealth managers’ adoption strategies. One message in particular stands out: disrupt yourself and do it now.

Why now?

Wealth and asset managers have so far enjoyed a level of insulation from fintech disruption. This has been the result of two key factors. Firstly, wealth and asset managers operate in a highly regulated, formal market. By its nature, this environment makes it hard for start-ups to get a foothold. Secondly, the nature of wealth and asset management products means they are not something that a typical consumer uses on a daily basis. Asset management operates differently from a cash or credit transaction. This level of complexity has made it difficult for start-ups to target the core factory of a wealth management firm. But, while these factors have provided a degree of security to date, there is no doubt that the value chain for the wealth and asset management industry is under threat.

Traditional and emergent fintechs

Traditional fintechs are large, established technology companies. They have built up industry knowledge over time, understand start-up principles and have the existing technology and a well-funded community of developers to support their aspirations.

The major upside with these large companies is their high visibility. There are opportunities here for wealth and asset management firms to form strategic partnerships that ensure they will be at the forefront of the wave of technology adoption these large players are driving.

The second type of fintechs are innovative firms with specific intermediation strategies. These are the disrupters with the ability to put elements of the traditional wealth management value chain under immediate threat. While it is unlikely these start-ups will steal core business in the short term due to the barriers mentioned earlier, the opportunities are immense and there is likely to be some consolidation in the market.

Low cost transaction platforms

As regulators apply continued pressure on increasing fee transparency across the industry, organisations with higher operating costs will become less attractive to consumers. The winners will be wealth managers who are adaptable, agile and have low cost models. These platforms are highly disruptive as the fee models are low and simple to understand. Most consumers want to maximise returns without passing income to the asset manager. In some overseas markets, new entrants have changed the revenue structure to leverage the inherent value in consumer data, rather than the trading fee. Under this model, they are able to employ aggressive advertising campaigns and upsell to other revenue-driving products.

If fintechs can cause a degree of intermediation in the value chain which reduces cost, then adopting a business model which uses the same or similar delivery models could be the strategic shift needed for an early adopter to change the game.

Transactional versus relationships

Fintech providers target two different types of client. The first is the transactional client, who is often defined by a fee for service arrangement. This type of client benefits from innovative technologies in self-service advice, payment processing and automated account management. The second type of client is relationship-based. They seek an ongoing personal relationship with their planner. Fintech can be used to enhance this relationship via integrated multi-channel communication, single customer view and ongoing risk mitigation.

Consumer experience and data analytics are key

The level of service consumers expect from their wealth and asset management providers is changing. Some new entrants in markets such as New Zealand are already capitalising on this, using real-time video chat and digitalised documentation to engage with their customers on hosted platforms. This solution is scalable and offers immense back-office opportunity, the capacity to reduce storage costs and paper use, restructure the organisation and bring increased efficiencies to the wealth management business model. It also has the added advantage of providing an immediate improvement in customer experience.

Other start-ups are experimenting with the use of social media insights to provide predictive analytics. Done well, this can provide the ability to determine emerging market sentiment and identify which stocks are going to become buy or sell opportunities ahead of the traditional stock market. It can allow for new types of risk management strategies and profiles to be defined, enabling wealth managers to respond to market sentiment and redress and balance the investment mix in their portfolio before anyone else. In a highly competitive market, adopting a solution like this could help attract new customers by maximising returns and improving the investment profile.

Mega-algorithms are coming

The rise of the robo-advisor is imminent, with pilots already running in Australia. Robo-advisors have the potential to impact the industry’s entire investment and scaled advice model, by turning the handling of consumer-managed portfolios into a computer-driven process. Considering how the use of robo-advisor models could change the way the wealth and asset manager advisory workforce is managed going into the next few years, wealth managers will need to deal with this level of change. Otherwise they may find their customers choosing the reliability and predictability robo-advisors can bring to their financial planning needs at a fraction of the cost, and switching to a competitor.

The way forward

Fintech will change wealth and asset management behaviour, and soon. The current regulatory framework provides some level of insulation, but the industry is not immune from market disruption. Preparing for the change requires new ways of thinking and a strategy, plus an operating model to support it. By taking a global view of what is happening in other markets and across the broader financial services sector, Australian wealth and asset managers can position themselves to capitalise on the opportunities fintech presents.

Anita Kimber is an advisory partner in EY’s Oceania Financial Services Office.

The views expressed in this article are the views of the author, not Ernst & Young. The article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Liability limited by a scheme approved under Professional Standards Legislation.

Standing between financial advisers and the fund managers recommended to clients is a research function, either internal staff or outsourced to a Research House. However, this research work is often under resourced, under appreciated, over worked and under paid and is not delivering to the extent that it should be. Many financial advice groups see the role of research as a compliance function, rather than a unique source of competitive advantage, and the role is considered a ‘cost centre’ rather than a ‘profit centre’.

How fund manager research is paid for

As a result of this constant pressure to reduce costs, Research Houses have developed sources of revenue which potentially compromise their independence if not managed properly:

1. They require fund managers to contribute to their revenue line by paying fees to be rated
2. They build multi manager products (eg van Eyk, although that did not work out so well)
3. They bundle services together for their customers.

All of these responses are natural in an environment where the owners of research businesses (and advice groups which purchase their services) are keen to grow their own shareholder value.

The issues that have been highlighted at IOOF’s research department can emerge when insufficiently resourced. These problems have forced their Managing Director, Chris Kelaher, to front a Senate Inquiry, whilst another individual has had his reputation left in tatters. PWC has been appointed (no doubt at vast expense, post facto) to review the total research function within IOOF. It’s a bad look, yet again, for a fine industry. But it would be folly to believe that the issues currently being investigated at IOOF are not occurring elsewhere. Did the IOOF research function expand sufficiently to deal with the multitude of acquisitions they had undertaken? Some other groups that I know have less than two people doing full time research, serving hundreds of advisers and thousands of end clients. They are under constant pressure to do more with less.

The research flywheel in motion

The ‘flywheel in reverse’ demonstrates the demise of research into fund manager abilities:

• Advice groups do not see research as a source of competitive advantage. Few have enough internal resources to manage the sheer complexity of the research task and over-rely on external Research Houses instead, who themselves are capacity constrained.
  .
• The ‘cost centre’ mentality flows down to the external Research Houses who have to survive on wafer thin margins to deliver a reasonable service. To cover the bulk of their operating costs, they require fund managers to pay to be rated or build products. It’s a flawed model but what is the commercial alternative? This shrinks the product pool to only those managers who can pay, versus all managers that should be given a chance to be rated (after sensible screening).
  .
• Because margins are so thin, one of two things Either the talent pool is of a lower relative standard because the Research Houses are competing for talent against higher paying brokers, bankers or fund managers etc OR, they can pay top dollar but have to have smaller teams. Maybe the answer is in the middle.
  .
• The end result? Lower quality of research, in time, to the detriment of the end investor.

Why should this component of the value chain have such poor economics, if we consider the role the research function fulfils? In summary, they have to be across global and domestic political and economic issues, have in-depth knowledge of the multitude of strategies available to investors (especially so in a ‘best interests’ world), know everything there is to know about fund managers in real time, emerging themes, product structuring, asset allocation, asset class valuations, direct equities, have views on ETFs, ETPs and LICs, specific fixed income offers, offer model portfolios and APL assistance, respond to individual adviser queries, do one off consulting jobs, research products not on the APL (a requirement of Regulatory Guide 175) and the list goes on and on.

These are highly complex undertakings. Why must they do all of these roles? Because the law states that this is what they are required to do.

Welcome to ASIC’s Regulatory Guides

Regulatory Guide 79 Research report providers: Improving the quality of investment research is a ripper of a read. The opening stanza begins with the following:

“Research report providers are important gatekeepers, preparing investment research for retail and wholesale investors. The quality of this research has a significant impact on the quality of advice retail investors receive.”

Focussing on the lack of resourcing in this function at the industry level, the following is highlighted in the guide:

• RG 79.38 – The constituent parts of a high-quality research service are the human and other resources applied to the research task.
  .
• RG 79.75 – As the complexity of some financial products increases, it is essential that research analysts have the requisite skills and experience supported by an appropriate level of supervision and adequate sign-off processes to produce high-quality research.
  .
• RG 79.76 – Human resources are a key input to research report providers’ processes and output. Research report providers should allocate sufficient resources to support the effective performance of their research staff.
  .
• RG 79.79 – To analyse financial products well, research report providers need to allocate appropriate resources to each research task. This includes allocating sufficient numbers of staff with suitable qualifications for the research task and setting appropriate timelines for the completion of tasks.

This function is not resourced enough to meet the objectives stated above and to do the role justice, and the organisation charts of the major Research Houses covering each asset class are not large.

As importantly, Regulatory Guide 175 also provides some important considerations:

RG 175.310 Advice providers often use research produced by external research report providers to identify products that may be suitable for their clients. This research may assist in the development of approved product lists or in the preparation of SOAs. Advice providers are expected to make inquiries and research the products that they give advice on.

So it is fine to partner with an external Research House to develop approved product lists (APLs) etc, but that is not enough. The advice group is also “expected to make inquiries“. But many advice groups have a simple APL process such as ‘If you have an investment grade or above rating from any of the major Research Houses, you can approach our advisers.’ Is this enough given the complexity of the task, and in light of RG79 and RG175? No, your honour, it is not.

Ian Knox, the Managing Director of Paragem, was recently quoted (‘Why consistent research governance is critical for licensees and advisers‘, July 19, 2015) on this subject:

“Paragem outsources its investment research to Lonsec, only accepting products onto its approved product list (APL) that are rated ‘recommended’ or higher by this research house. Investment managers with similar ratings from other research houses are not permitted automatic entry to its APL.”

Additionally, Ian then applies a ‘sniff’ test:

“My background, and time in the industry, allows me to have a little bit of a common sense ‘sniff’, if you like, around what’s right and what’s wrong … you get a few warning bells … Part-time research is dangerous. Filtering it when you have suspicions about something is more sensible … I manage risks once [the products] are there.”

Note that: part-time research or not adequately resourcing the function is ‘dangerous’.

Amongst the gloomy outlook, there are groups that have invested heavily in this important function. At the big end of town, groups like Perpetual and Westpac/BT have considerable teams. At the smaller end, there are examples of Independent Financial Advisers (IFAs) who have appointed highly capable people to their investment committees: groups like Paul Melling, WLM, Julliard, DMG, Stonehouse, Profile and MGD, and those supported by Atrium.

Where to from here?

• Firstly, for the good of the industry, and counterintuitively, for better economics, Research Houses should no longer be able to accept payments from fund managers. The industry needs to be rebased because it is subsidised in a conflicted way (although there is no evidence that this is leading to any negative biases). Having the function stand on its own two feet will focus the model on quality and the industry will know the true costs of providing such a service.
  .
• Secondly, the industry should consider having an internal ratio of people devoted to research relative to the size of their financial adviser force (but with some scale benefits). As such, every time a major dealer purchases another dealer, the research function would no longer be an automatic ‘synergy’ benefit. These costs could be passed onto clients if the evidence that superior research is worth the money, and I believe it is.
  .
• Thirdly, dealers should not be able to just rely on their Research Houses to fulfil this task (remember RG175). They should be required to employ their own teams, in line with the second recommendation. Where a dealer is small, it could work with other similarly-sized groups to pay for this function.
  .
• Finally, the industry needs to do a better job of showing how great research has avoided many of the blow-ups (more groups avoided Trio and Astarra than invested).

In conclusion, there are not enough human resources applied to research because the economics are so poor. Everyone is trying to save money in delivering a reasonable service, resulting in Research Houses cross subsidising their pure function, alongside advisor groups, who are also looking to save money in this area by “outsourcing” (abrogating) the research function.

It is time for change and that change may cost the industry more, but in doing so, it will lift the industry’s reputation and become a source of competitive advantage. The quality of this research has a significant impact on the quality of advice retail investors receive. And who doesn’t want that?

Andrew Fairweather is a Founding Partner of Winston Capital Partners.

For the asset-rich, cash-poor retirees who were too late into the superannuation system to build a decent balance, reverse mortgages seem the ideal product. Banks will lend between 15% and 35% (rising with age) of the value of residential property as a lump sum or income stream, and it may give a standard of living the age pension struggles to deliver. There’s no need to make loan repayments as the bank recovers the debt from the estate.

When Nobel laureate Robert Merton visited Australia in late 2014 to talk about retirement incomes, he argued the family home is no longer the treasure that must be passed on to future generations. “In retirement, it’s a financial asset,” he said as he pushed the potential of reverse mortgages in retirement plans.

So why have loan volumes been falling, with less than 40,000 reverse mortgages in Australia? The total market is only $3.6 billion, the average loan size is about $85,000 and the average age of the borrowers is 75.

A real-life example

My friend Susan (not her real name) was the perfect candidate and recently took out a reverse mortgage. Her house was almost paid off, but over her working life, she had not accumulated much additional savings. The single age pension per fortnight is $860. With a car and house to run, $60 a day does not go far. In retirement, she struggled to live the lifestyle she wanted, while her house was rapidly increasing in value. “I realised the only way I could get out of my financial problems without selling my home was a reverse mortgage.”

After reading as much as possible online, Susan went to see a financial adviser, who had never arranged a reverse mortgage. The broker he referred her to also had no experience. Eventually, she found a broker who negotiated a loan with BankWest. Many banks do not even provide the product, ANZ and Bank of Queensland the latest to drop it.

When Susan first went to draw some income, the branch staff told her she needed to withdraw the lump sum. This was unacceptable because having the residual cash in her bank account would affect her age pension entitlement. She had to convince them she only wanted money as she spent it.

Reasons for the product’s lack of popularity

What are other reasons for the product’s stigma, when the providers don’t educate their staff and the public perception is not favourable?

• The interest rate is about 1.5% higher than the normal home loan rate, currently about 6.5%, meaning the debt doubles in about 11 years. This is why the maximum loan is set at only 15% of the property value for someone aged 55 – they may live another 40 years!
• Lenders are concerned about behavioural issues such as cognitive decline, especially given the ages of many of the borrowers.
• Heirs to the estate see their asset being whittled away by interest and fees, and lenders worry about their rights being challenged. One banker told me this is the most significant risk in offering the product. The bank could be taken to court by the children claiming their ageing parents did not understand what they were doing.
• Over 90% of loans are variable rate, exposing the borrower to rising rates. Fixed rates would need to include break costs.
• With compounding, the debt will rise quicker than borrowers expect.

The Australian Securities & Investments Commission (ASIC) provides a reverse mortgage calculator on its MoneySmart consumer website. All lenders must use it to show prospective borrowers a range of outcomes.

ASIC even requires the lender to enquire about the consumer’s requirements and objectives, including the future need for aged care accommodation and consequences for reductions in the estate value. Susan does not recall this happening.

There are official guidelines on loan to valuation (LVR) ratios, stating that if a borrower is 60, an LVR over 20% is unsuitable unless the contrary is proved. Under rules legislated in 2013, the lender must also give a ‘no negative equity’ guarantee.

What is the money being used for? The top five uses are home improvements, debt repayments, regular income, travel and buying a car.

While every borrower needs to understand the risks, reverse mortgages may be an alternative to struggling through retirement after a lifetime of work and sacrifice.

Graham Hand is Editor of Cuffelinks. This article is for general educational purposes and anyone considering acting on the information should first consult a professional adviser.

Reader, John Witham, sent in the following suggestion after this article first appeared in The Australian. It’s a proposal aimed at assisting older Australians to access the equity in their homes to fund retirement. We welcome any feedback in the comments section.

Proposal

That the government introduces a National Equity Access Scheme for Older Australians who own their own homes.

Background

Many older Australians who have retired or who are approaching retirement own their own homes but have insufficient income to enjoy what they would consider to be a comfortable retirement.

Several banks offer ‘Reverse Mortgages’, which allow participants to obtain funds of up to a certain percentage of the value of their property and not make any repayments until the owner(s) die or sell the property.

The costs of taking out such a mortgage are significant and include: valuation fees, administration charges and stamp duty. The interest costs are also around 1.5% higher than those charged on a mortgage for a new home buyer.

Reverse mortgages are not broadly popular and it is quite possible that entering into such a mortgage is seen as a last resort to maintain solvency and, as such, may carry some form of stigma. While some potential beneficiaries may encourage their parents or other older relatives to take out a reverse mortgage because it will improve their living standards, others may discourage them from doing so because it will diminish their inheritance.

Australia has an ageing population and a large proportion of home owners reaching retirement age have insufficient superannuation to maintain a lifestyle similar to that which they had while they were working, despite no longer having to pay a mortgage. In such circumstances they tend to live relatively frugal lives and minimise their outgoings. As a group they are increasingly depicted as a financial drag on the economy.

The National Equity Access Scheme for Older Australians

The proposed scheme includes the following features:

• Participants must have reached the age of retirement and must own their own home
• Participants will be provided with a line of credit equal to 4% of the value of their home upon joining the scheme
• A further 4% will be provided in each successive year and unused credit may be carried forward to future years
• It will be sponsored and guaranteed by the commonwealth government and administered through selected banks
• There will be no administrative fees
• Valuations will be taken to be the Capital Valuation used for setting council rates
• Stamp duty will be not be payable
• Maximum interest rates will be set by the government at a rate equal to the most favourable rates available to new home owners
• Regardless of how long the participants live the debt incurred will never exceed the current value of their home

Benefits of the scheme

The Scheme would enable participants to draw down an amount equivalent to 4% of the value of their home every year to supplement their ordinary income whether that be superannuation, a pension or both. A person or persons owning a home with a value of $500,000, would be able to supplement their income by $20,000 per year. For a couple on the age pension this would provide a major boost in terms of their standard of living.

Those who have some superannuation, may not need to draw down funds from the Scheme for several years. However, if they enter the Scheme upon retirement, their line of credit will build each year. For example a person who enters the Scheme at age 65 but does not draw down funds until the age of 70, will be able to access up to 20% of the value of the property at that time. This flexibility would help older house owners to afford necessary maintenance and upgrades to their homes, the replacement of major household appliances and the purchase of consumer goods.

It is probable that persons entering the Scheme will be less likely to require government assistance. For example they might decide that they can afford to continue with their private health fund coverage.

A major benefit of the Scheme is that it would transform potentially hundreds of thousands of older Australians from a perceived burden on the economy to a very significant consumer group. This would provide a significant boost to the economy as participants spend funds that would otherwise be retained in their properties to be spent by their beneficiaries 15-20 years into the future.

While the Scheme would certainly improve the living standards of the participants, reduce demands for government services and provide a boost to the economy, the most important benefit could be changes to the general perception of older people.

Older Australians will need to be convinced that it is not only sensible and safe to enter into the Scheme and that it is their right to spend some of the money that they have invested in their house over the years to maintain a reasonable lifestyle.

The proposed scheme would not be expensive to implement; the major outlay would most likely be the cost of promoting it. The participating banks would gain a very significant increase in business.

Somewhere in an industrial estate in Australia, three angel investors sit in lounge chairs at one end of a warehouse. It’s a big, open space with large windows, deliberately not welcoming or comforting. Beside each chair is a small table with a note pad and a glass of water. Two figures appear in the distance, and walk towards the angels. It’s a surprisingly long walk, and the angels watch each step. Two men stop next to a whiteboard, positioned about five metres in front of the sitting angels.

Angel 1 speaks first. “Welcome, James and John. As you know, you are here to pitch your startup business to us. You have one hour to convince us to invest. We are seeing five presentations like yours today, and I’ve personally heard thousands of new ideas like this, and invested in a couple of dozen. Over to you.”

“Thanks,” says James, his mouth dry, his fingers fidgeting with his wedding ring. “Our business provides online financial advice and investment implementation, focussed on the best outcomes for our clients, and is called ‘MyOutcome’. We’re looking for one million dollars for 20% of the business.”

Angel 2 can’t help jumping in, raising his eyebrows towards the other angels. “So you value your startup business at $5 million. This better be good. Why’s it called MyOutcome?”

John responds eagerly. The name was obviously his idea. “This is ‘roboadvice’. We checked Google Trends, and ‘outcome’ is the most rapidly rising word in financial advice. Financial planners now talk about customer ‘outcomes’, such as saving for a car or holiday, or retirement, or financial freedom. Not all that boring stuff like asset allocation and portfolio construction … they are a switch off for most people.”

“Let me explain,” James says. “Roboadvice is online, automated financial advice without the need for human intervention, and it will disrupt not only financial advisors but the entire wealth management industry. In the United States, the two market leaders, Betterment and Wealthfront, have attracted hundreds of millions of startup capital, and billions of dollars is already held in their funds. Our robo model works like this: the investor goes online and answers a series of personal questions about risk appetite, income and assets, then we run this through our algorithm analysis, which picks the most appropriate portfolio from three alternatives: aggressive, balanced, and conservative. Each of these portfolios has a different allocation to exchange-traded funds investing in bonds, domestic equities, global equities, property, plus a link to a bank account. We provide regular reports and daily valuations.”

Now it’s John’s turn. “It’s a complete package of risk analysis, advice and investment implementation. We have the team in place. One cofounder cuts the code, I am a Certified Financial Planner and I have designed the portfolios, and James here, he’s the CEO, we have outsourced the web design to The Philippines. And we’ve just been accepted into Australia’s leading fintech accelerator programme,” he says. “Any questions at this stage?”

Angel 1 has been scribbling notes on his pad, and he looks up, tapping his pen on the paper. “Tell me some numbers. How much do you charge, how many customers do you expect, what are your costs?”

John steps in front of the whiteboard, a blue pen in his hand, and starts writing. “The numbers are simple, really. The entry level, for investments of less than $2,000, is free. That’s how we introduce people to MyOutcome. Above this, we will charge an administrative fee of only $5 a month. The cost of our roboadvice model, including the risk analysis and asset allocation, is only 5 basis points a month. That’s only 0.05% a month on the balance of the account. It’s a completely new price point that will disrupt the industry, blow wealth management apart. In superannuation alone in this country, there is over $2 trillion. Only 0.1% of that is $2 billion. This brings financial advice to the masses at a price they can afford.” James and John look to each other and smile.

“Do you have any customers yet?” asks Angel 2.

“No, but we have 50 friends doing beta testing on our website, and they love it. We expect to launch within two months, and most of them will join. And the really exciting bit,” says James, pausing for effect, “… is that the marginal cost is zero. Once we reach critical mass, it’s all profit. Every new investor just adds to our income.”

Angel 2 is not smiling. “Do you realise that in an industry where the marginal cost is zero, the price of the product trends to zero. That’s why newspapers are free online, why blogs are free, why there’s so much content for free. The internet killed the newspaper industry because it’s possible to distribute information for free.”

Angel 3 speaks for the first time. “OK, you’re a startup with no revenue. Fine, but I think I’m missing something important. I understand how you can design a website with some simple questions to establish a person’s risk appetite. I understand how you can buy ETFs in the market, that’s all easy. But you are taking people’s money. That involves identity checks, compliance, tax file numbers, reporting, tax returns, security, firewalls. It takes years to design and establish the systems and procedures for all that. Your coding mate must be a genius.”

“Yes, he is a genius, but not in that way. We’ve outsourced all that admin work to a company called General50. It’s a platform many of the financial advisers use. You’re right, we would never do all that ourselves.”

“And who pays for that?” said Angel 3.

“That’s part of our competitive advantage. We have negotiated a great price with General50 and we pay for it from our margin. It will cost about 20 to 25 basis points, depending on volume.”

Angel 2 again fiddles with his pad and pen. “So let’s look at the numbers for someone with say $10,000. To start with, you charge them $60 a year, that’s 0.6% per annum.”

John jumps in. “But it’s a flat cost, so only 0.06% on $100,000.”

Angel 2 carries on calmly. “Plus you charge 5 basis points a month … a month … which is equivalent to another 60 basis points or 0.60% a year. Or did I mishear that? I’ve never heard of anyone quoting their management costs in per month terms. That was not 5 basis point per annum charged monthly, was it?”

“No,” said John. “Per month, 5 basis points per month. Oh, and plus GST.”

Angel 2 is now shaking his head. “So on $10,000 …” He waited, the numbers running through his head, somewhat puzzling him. “The fee is 0.6% plus 0.6%, which is 1.2%. Is that it, is there anything else?

“But remember, that covers the advice and the admin,” said James. “Financial advisers charge at least $300 an hour, and they can take hours to give people this type of advice.”

Now it was Angel 1’s turn again. “But MyOutcome is simple investment advice, choosing between one of three portfolios. Financial advisers look at estate planning, insurance, super contributions … a wide range of planning issues. That’s what people pay for.”

“Not the 80% of people who never see a financial planner. That’s who we’re aiming for,” says James.

“OK, so let’s accept this is only investment advice. Come back to my question. 1.2%, is that the total cost for a $10,000 investor?”

John circled some numbers on the whiteboard for emphasis. “Yes, that’s what we charge. Oh, plus GST plus the cost of the ETF, which will average about 30 basis points, or 0.3%. But that is paid in the price of the ETF, it’s disguised in the ETF price.”

Angel 3 raises his eyebrows in surprise. “It’s still a cost to the investor. It is subtracted from the index return. So the return on the investment is index minus 30 basis points. Which combined with your 1.2%, takes the total cost over 1.5% for someone with $10,000. Do you realise there are retail and industry funds out there, offered by the big players, with multisector funds online for only 65 basis points all-in, for amounts above $1,000. These funds come with call centre support, comprehensive reporting and online tools, a big balance sheet should they make a mistake and need to compensate the investor, the comfort of dealing with someone who has been there for decades … versus … versus … you and your mates and a pretty website.”

There is silence in the room. John is fiddling with the seam on his trousers, James is feigning a smile. James speaks first. “But no financial advice, no risk analysis.”

“Your so-called risk analysis is a few basic questions to find out their risk tolerance. You don’t know what the rest of their assets look like. You might as well just ask one question. Like, “How much exposure to the stock market do you want?” and go from there. I can go onto a big bank website, check what their fund does using my own assessment of risk, and off I go for less than half the price you’re charging.”

“But we will provide the investor with planning tools using our algorithm which shows their likely outcomes, and they can choose one with say 20% certainty, 50% certainty or 80% certainty, and we will change their portfolio accordingly,” said James.

“Don’t tell me, let me guess,” said Angel 3. “Using a Monte Carlo simulation. You run 10,000 scenario tests to predict the range of outcomes.”

“Correct,” says James, proudly.

“We don’t have time for this now, but you will underestimate outlier results. There have been three falls in the stockmarket of over 50% in the last 40 years, but a Monte Carlo simulation predicts one every million years. Your models will be wrong on the downside. But like I said, that’s for another day.”

Angel 1 steps in. “Guys, I’ve done some work on the leading robo in the US, Betterment. Let’s compare your business to theirs.” He takes a sheet of paper from his jacket pocket. “For over $10,000, they charge 0.25%, no admin fee. Over $100,000, it’s 0.15%. Their average balance is $25,000, which at 0.25%, is $62.50. A lousy $62.50 per customer.”

James jumped in. “With no marginal cost.”

Angel 1 continues. “Do you know what CAC is, the Customer Acquisition Cost?” He does not wait for an answer. “It’s the most overlooked cost in all technology businesses. You think ‘we’ll build it and they will come’. It’s not like that. Betterment has been in the market for six years …”

James again. “And they already have $2.7 billion US dollars.”

“James, you’re talking about six years in the United States for the highest profile roboadvisor in the country. Vanguard manages $3 trillion, Charles Schwab well over $2 trillion. TRILLION. They have cash flows each week greater than the entire roboadvice industry. Let me tell you how Betterment gets its clients. They realised they were probably competing for the person who does it themself, or can’t be bothered. So now it pays other websites a finder’s fee of $40 per account. That’s most of the $62.50 charged in the first year. Do you know it costs $40,000 to sponsor a major financial advice conference for a couple of days? How many customers will you have, how much will it cost to find them and how much will be in their accounts within say three years?”

“We already have 2,000 Twitter followers, a Facebook page with over 5,000 likes, and each of us has at least 1,000 connections on LinkedIn. Part of the money we raise will go to advertising. Our budget says we will attract 2,000 people a year with an average balance of $20,000. That’s $40 million a year. 2,000 lots of the flat fee of $60 is $120,000, plus 0.6% of management fee on $40 million is another $240,000. So that’s about $360,000 by the end of the first year, or a million dollars after three years. Once we cover our fixed costs, our returns grow exponentially.”

“How much a year will it cost to run your business?”

“Depends how quickly we hire extra staff, but we hope to keep it under $1 million in the first year. That’s why we’re doing the capital raising.”

“Have you ever heard of the 10X rule? Common in Silicon Valley?” asked Angel 3.

John and James look at each other. “No,” they say in perfect unison.

“The rule says that a new entrant in an industry must be at least 10 times better than current products to overcome the incumbent market leader. Email is more than 10X faster than mail, Amazon has more than 10X as many books as any book store, Wikipedia has more than 10X the entries of other encyclopaedias. The winners redefine the industry. Amazon destroyed Borders, Apple killed Nokia, Netflix over Blockbuster. Is anything you are doing unique or can it be quickly copied by anyone?”

John this time. “We have a great team, our website is full of amazing graphics, our outcome tools show how much money an investor will have in 20 or 30 years based on different probabilities. They can plan whether to work longer or save more, focussing on ‘my outcome’. It’s better than anything out there at the moment.”

“But guys, there are hundreds of people like you in fintech hubs around Australia working on their own version of this. You’ll have a dozen competitors in your first year, and not just startups. Do you know that Blackrock, a major supplier of ETFs, just bought the Number 3 roboadvisor in the US for $150 million, a business called FutureAdvisor. This business only had a few million in revenue, no profits, but it had the systems. Blackrock has not bought it because they can make money from roboadvice. They want to direct people to their ETFs. The roboadvice will be free. How long before Blackrock roll it out here? And in the US with a market of investible assets of maybe $30 trillion, FutureAdvisor had gathered only $600 million in three years. The entire roboadvice funds in the US is less than one tenth of one percent of the market. You expect $120 million when most of that is locked up in the big banks, industry funds and self-managed super.”

“We know about all that,” scoffed James. “But there’s a massive backlash against banks flogging their own products. BlackRock can’t just sell its own funds. And you just proved how valuable our business is – when a big player pays $150 million for the technology instead of developing it themselves.”

“Nobody will worry about Blackrock selling its own ETFs when it’s free and just copying an index,” continued Angel 3. “It’s a commodity, they’re all the same. This is not pushing the product of an active manager who charges 200 basis points. If I invested in you, I’d worry there will soon be product in the market at a fraction of your price, yet you value MyOutcome at $5 million. Maybe, if one of the big guys panics and wants to buy some time, a neat website and some simple analytics, but that’s mainly their failing to be imaginative.”

Angel 2 had been quiet for a while. “Have you discussed this with any of the major players, the big banks for example?”

John laughs. “We don’t want them to know what we’re doing until we’re in the market. They know we’re the new kids on the block, the ones who will disrupt their industry.”

Angel 3 again. “One of the roles of an angel, even if we don’t invest, is to offer our guidance. I suggest you think far more B2B, that is Business to Business, and try to partner with one of the big guys. Your head is only in the B2C, or Business to Consumer, and the cost of finding consumers will chew all your capital. You will be on a continuous funding round trying to grow customers. In the most recent funding round, the Betterment CEO told his investors they would need to wait seven years for a return. Are you up for that?”

John and James looked at each other and nodded. James says, “We’re in this for the long haul. Whatever it takes.”

“So find a partner with existing clients. A major bank, a wealth manager, a super fund, maybe a national retailer, a newspaper, a financial newsletter with a big following … or your CAC will bury you.”

Angel 3 stood up and gave both James and John a business card. A glimmer of hope crossed their faces. “I love what you guys are doing. You could be like most of the other talented graduates who work for an investment bank or consultant and within a few years, you’d be earning half a million a year and set for life. Instead, you throw it all away and beg money from your family for your startup. The Next Big Thing. It’s wonderful and I hope it works for you. But sorry, guys, I’m out. Let me know when the all-in cost is less than 0.5%. That’s beating the retail and industry funds, or where they will go to soon, with their own analytics.”

Angel 1 jumps in. “Sorry, I’m also out. I hope you raise the capital before Blackrock and Schwab do the whole lot for free.”

John and James look at each other, then at Angel 2, their last remaining hope. He takes a long sip of a glass of water before speaking. “It’s an exciting journey you’re on, and I love that you’ve thrown away everything else to live your dream. If you work with me, I can get you the customers, but it won’t be direct to the market, waiting for people to visit your website. I’ll introduce you to the major players who want an offer for the clients they are currently turning away. You need me more than I need you, but I like what you’re doing. I’ll give you half a million dollars for 50% of MyOutcome. It will keep you going while I line up your clients.”

Five years later …

Graham Hand is Editor of Cuffelinks.

Assume you are an angel investor. Would you invest in this business? What else would you need to know? Who will be the winners and losers?

Please take part in our short survey and we will publish the results in a couple of weeks. (If reading this on mobile or tablet device, please go to our website or click on this link to complete the survey).

Create your own user feedback survey

It was an eye-opening conference. Under the auspices of the financial technology (‘fintech’) network started by Afiniation, 31 startups with ‘market-ready’ solutions presented their businesses to an eager audience of potential investors, customers and partners. It provided a snapshot of the digital disruption potential in wealth management and finance generally. Whereas other industries such as music, books, newspapers and videos have seen massive shifts to online services with severe revenue impacts, finance has to date been relatively unaffected.

The great, the good and the not-so-good

A curious routine spontaneously developed at my table. We would watch each presentation attentively, then everybody would look at each other and either give an approving nod, muttering some words like “That’s a good idea”, or frown doubtfully, saying “I don’t think so” or similar. And so it was possible to gain immediate market feedback on the quality of the idea.

My thoughts after the event were:

• As with entrants to any new activity, some fintechs will flourish and some will crash. It’s difficult to judge the winners because it only takes one large customer to support a business and it can flourish, but without that slice of luck, it can run out of money.
  .
• Although it is not easy to raise venture capital, there is money available for the right ideas, well executed (the total global investment in fintech is estimated at $270 billion). One experienced VC investor told me, “Always start by investing in the person, not the business.” Which I’m sure is true but it helps if it’s also a good idea.
  .
• Many large banks and insurance companies are watching this space and are keen to partner with new fintech ventures. I asked someone from a major bank why they would not just put a few people on a project instead of paying a startup. He said that by the time they called a meeting of the right people, organised papers, set time lines and deliverables, gained permission from every affected party and tried to run regular meetings, the whole project would become mired in politics, lost time and extra costs. Much easier to let a startup prove the concept and then throw a few million dollars at them. He said, “There’s too much S.H. in front of I.T.”

Deloitte research

It was good timing in the same week when Deloitte issued a comprehensive study, linked here, called ‘The Future of Financial Services: How disruptive innovations are reshaping financial services.’ It identifies six areas expected to experience changing customer demands and the rapid growth of fintechs:

• payments
• deposits and lending
• financial markets
• investment management
• capital raising
• insurance

It highlights innovations around cashless payments, crowdfunding, peer-to-peer lending and crypo-currencies that incumbents need to watch and reinvigorate their business models. Customers are familiar with online usage and solutions, and may embrace new entrants in a way that has not been possible in the finance industry before.

Presentations at the Afiniation Showcase

The list below shows the companies that presented with my understanding of what they do. Each business was given only seven snappy minutes to present. I am not involved in any of these businesses, and listing them here is not an endorsement, it is intended only to show the innovation and changes underway. Many of these companies are looking for venture capital funding.

Ignition Wealth – automated investment advice, making investing easy for everyone. Pitching B2B to advice groups more than B2C. Custody and execution remains in client system.

SuiteBox – Allows sharing of documents and interacting between users, including integrated video meetings. Improve the ways advisers engage with their clients, redefine the customer experience.

MyProsperity – Whole portfolio at your fingertips, including cars, loans, etc. All powered by data feeds, including rent statements, car values from Redbook, home values from RPData.

Einsights – Global business and data analytics, control decisions and amount of data using tools that think not do. Derive insights from data to take charge of your business.

My Angel Investments – Current focus on NZ, match investors with businesses (especially technology and engineering) under special NZ licence. Australia stymied by poor legislation.

Avoka – Approve personal loan in under two minutes, Avoka Transact creates world class sales experience, banking most important activity, build white label in a few days.

Cumulus Networks – Support open networking that is responsive and affordable, validated solution designs that empower people who use them.

BigFuture – Nudge people to a better understanding of their wealth, change the ways they live their lives to make their futures more sustainable, show what revealed preferences will look like.

Mclowd – SMSF services market place, core technology is free. Want to be ‘Elancer’ of SMSFs, creating a growing ecosystem by leveraging the crowd and cloud.

ML^2 – Online trading investment platform, especially derivatives and FX. CFDs and retail FX with links to brokers. What do I need to know to trade well?

Sharesight – Aggregate all your assets in online reporting, integrate with broker for immediate updates, set up historical trading and tax records, connect to Xero for reporting, open API.

Swipe – Converts documents into optimal format for reading and amending, 90% websites not optimised, such as annual reports presented in pdf form. Making reading documents easier.

MapMyPlan – Financial planning without financial planners, remove conflict of interest using virtual financial planner with no link to final product, demystify financial planning, single snapshot.

LAB Group – Application processes, connected onboarding, amalgamate product applications using forms linked to other providers. Data already entered, easier experience for customer.

Hashching – Online place to access home loans, they negotiate rates on behalf of borrower, even go back to previous lender to see if want to match. Other loan websites not a great experience.

Banqer – Online financial education for classroom, turns class into economy, we would grow the economy if people knew more about finance, motivate students with fake currency. (This business won the ‘Best in Show’ award).

Simply Wall St – Share investing infographics, not stock recommendations but explore company statistics with interesting pictures, able to visualise the ratios of over 10,000 companies.

DomaCom – Fractional property investing, matches buyers and sellers in any residential property, undertakes a book build to get to market price, like a syndication to create a secondary market.

SMSFCheck – Early stage analysis of SMSF investment strategy before go into adviser, shows range of returns and outcomes and asset allocations.

Listcorp – Platform that connects listed companies to private investors, paid for by company who maintain own profile online in consistent format, helps investor discovery process.

CapitalPitch – Platform that matches startups with investors as a capital-raising accelerator, structured six step process to show how to become worthy of the money, like an online adviser.

Stocklight – Investing app, research tool for listed companies, track ratios to find good investments using quantitative analysis inspired by Ben Graham’s value investing methods.

Adviser Intelligence – Manages everything advisers do, including insurance, investments, customer relationship data, office efficiency, client goals.

Serko – Corporate travel expense management system, records business expenses and cuts the cost of corporate travel.

StrykeTax – Simple tax return process allows submitting tax information to accountant using an app, review and sign online makingtax returns easier.

CapitalU – Online financial advice including comprehensive SOA using Yodlee to connect various accounts, recommends how much to save, how long to work and includes implementation.

Ezidox – Collects home loan documents and streamlines workflows involved in home ownership.

Paydock – Gateway agnostic low cost payments solution, including transaction processing, billing platforms and cloud payments, real-time notifications and automated engagement.

SuperEd – Build client engagement and financial literacy over time, democratising investment, people who receive financial advice are better off, parts of financial advice better done online.

Eight Wire – smart data migration onto the cloud quickly, reducing data errors and reducing costs, establishes connections when moving from on premises to the cloud.

Airdocs – self-service, cloud-based document delivery.

Graham Hand is Editor of Cuffelinks and attended the Showcase courtesy of Afiniation.

The results of the Cuffelinks roboadvice survey will be published next week. The survey remains open based on this article and we welcome more opinions.

A note from ASIC to Cuffelinks readers

In March this year, ASIC launched the Financial Advisers Register (FAR), the first comprehensive register of people who provide personal advice on investments, superannuation and life insurance.

The Register, which now has around 22,500 appointments, makes it easier for investors, employers and ASIC to find out where a financial adviser has worked, their qualifications, training, memberships of professional bodies and what products they can advise on.

In the last six months more than 150,000 people have searched the register to find out about a financial adviser. If you haven’t had a look yet, you can search on ASIC’s MoneySmart website. There is also information on MoneySmart about what questions to ask when choosing a financial adviser. If you have any questions regarding the FAR, please email far@asic.gov.au.

Licensees alert

The register is a major undertaking and has relied on licensees providing up to date information on their financial advisers. During the transition period ASIC did not impose late fees for changes.

Licensees should be aware that the transitional arrangements for the Financial Advisers Register and Authorised Representatives Register ended on 30 September 2015.

From 1 October 2015, new fees and notification periods will apply:

• Licensees will have 30 business days from the date of change to notify appointments
  .
• A fee of $29 will apply to update details or cease a representative
  .
• A $75 late fee will apply when a notification is less than one (calendar) month late
  .
• A $312 late fee will apply when a notification is over one (calendar) month late

Improvements to ASIC Connect

ASIC is also implementing some system improvements to ASIC Connect. From October 1 2015, licensees will be able to update all financial adviser and authorised representative details online.

This includes the ability to:

• update addresses
• nominate a business name
• update names and ABNs

There are also some changes to the invoice: fees will now show a representative’s name, and include the type of fee applied.

Further information about the end of transitional arrangements for the Financial Advisers Register are on www.asic.gov.au/far from 1 October 2015.

A few weeks ago, our article, Scenes from a roboadvice pitch to angel investors, presented a fictitious pitch by a roboadviser startup to venture capitalists. Judging by the thousands of times it has been read, it was passed around much of the roboadvice industry.

A Reader Survey was attached asking questions on the potential attraction of the investment, the features of a good roboadvice offer, who the likely providers of roboadvice will be and the background of the respondents.

We attach the full survey results linked here.

Thanks to all the people who responded. The numbers were not as big as expected due to a dodgy survey link on the first day.

We have opened the full text of the responses because the comments are at least as valuable as the bare statistics.

A few highlights:

• 75% of respondents said they would not invest, while 24% said they would at a lower entry price than the initial valuation. This seems like a promising result for the availability of venture capital at a price.
• The negative comments focus on competitors undercutting the offer and the lack of a ‘moat’.
• The requirements of a good robo offer are extensive, with 88% expecting portfolio allocation recommendations, 62% wanting educational material and 66% investment implementation.
• There was no consensus on who is most likely to succeed in this space, although only 18% responded ‘nobody’.

A software developer advised us last week that he has a list of 41 ‘roboadvice’ offers either in the market or under development in Australia. There will be a lot of activity in this space, in many different forms.

Graham Hand is Editor of Cuffelinks. The Survey is released for general information and no responsibility is accepted for any of the opinions.

Trust. It’s at the heart of finance. Trust is that special property that bends time, allowing for the provision of a good, service or facility today on the strength of a belief that the other party will honour its financial obligation to make payment at or before some later date.

So central is trust to finance that the word ‘credit’ has its origin in the Latin crédere, which means to believe (and from which credo is also derived). The sudden collapse of trust in finance can be catastrophic, as demonstrated dramatically by the demise of the 158-year-old Lehman Brothers in the space of a few short months during 2008.

If the existence of trust lubricates the wheels of commerce and its absence acts as a retardant, then clearly being ‘trusted’ is economically advantageous. So just what makes one profession more trusted in the eyes of the public when compared to another?

Trust across professions – a survey approach

Unlike temperature or barometric pressure the measurement of trust resides not in the domain of physics but in sociology. Trust tends therefore to be measured by surveys that rank occupations across a scale from least trusted to most. One Australian example is the annual Roy Morgan Image of Professions Survey, run continuously since 1987 and expanding from an original 19 occupations to 30 now.

The Roy Morgan Survey respondents score people in various occupations for honesty and ethical standards using one of five possible responses; Very High, High, Average, Low or Very Low. A selection of these occupations appears in the table below, ranked highest to lowest for 2015.

The percentage of respondents rating each occupation as “Very High” or “High” for ethics and honesty for 2015 were:

Source: Roy Morgan Image of Professions Survey.

The results are unequivocal. Nursing is the most ethical and honest profession for the 21st year in a row. It’s quite a gap to the next most trusted professions at 84%, jointly held by pharmacists and doctors, with teachers rounding out the top four.

And what of professions connected to finance, commerce and investing?  Accountants fare relatively well, sitting in the top half in 11^th spot. Lawyers sit mid-pack, holding 15^th on 31%, whilst financial planners sit two below lawyers in 17^th place on an ‘approval’ score of 24%.

Other professions are clearly perceived as being less trustworthy. Amongst these are stockbrokers (26^th), insurance brokers (27^th) and finally in last place, car salespeople at a score of 4, a position held for 28 years in succession.

Why are nurses so trusted?

Part of the answer might lie in the high standard of training and education required. Most states require a minimum three year tertiary qualification to become a registered nurse. Further, once qualified, trainee nurses are under strict supervision, gradually increasing the range of treatments and medication they are allowed to administer as their experience builds.

Nursing is also a profession with a rich history of compassion, empathy and service. From Florence Nightingale tending the wounded in the Crimean War to the volunteers who battled the recent Ebola outbreak, nursing is a profession emphatically linked to the service of others over the advancement of self.

Can financial planners bridge the gap to nurses?

It’s clearly a long haul from 24% to 92%. Financial planning’s cause hasn’t been helped by a series of advice scandals over the past several years, some involving Australia’s largest financial institutions. In the wake of these scandals, the laws governing the provision of advice have been strengthened. Yet these are only part of a greater shift that must occur if financial planning is to sit amongst the truly trusted professions.

If you’re in a profession struggling with trust and credibility, nursing is a model of professionalism worth aspiring to. Modern nursing has a clear and unbroken lineage to the pioneering work of The Lady with the Lamp, as Florence Nightingale came affectionately to be known.

Nightingale was not a nurse by training. How could she be when no such training existed in mid-1800s Britain? She was in equal parts social reformer and statistician. Among her many contributions was the development of the pie chart to illustrate numerical proportion. With this and other novel data visualisation techniques she conveyed information vital to both the Crimean War effort and public hygiene more generally, and for her efforts became the first female member of the esteemed Royal Statistical Society.

Nightingale is best remembered, however, for establishing the foundations of the nursing profession in 1860. The principles she espoused; of service, diligence and compassion, together with a body of knowledge based on scientific observation and measurement, still resonates in the Nightingale Pledge which, although modernised since its first incarnation in 1893, remains at the core of nursing’s code of ethics in most jurisdictions.

Earning trust, and keeping it

Professions who find themselves not as universally trusted as nursing might first seek to focus on finding their reason for being, a reason other than the accrual of monetary benefits and material possessions. Unlike financial planning, nursing suffers little in the way of principal/agent effects. These effects present themselves when a person tries to simultaneously serve two parties with opposing interests. It is fair to surmise that in any hospital the patient, loved one, doctor, nurse and hospital board are all pulling in the same direction – a speedy recovery and discharge.

Perhaps the last word on trust is best left to the father of modern economics, Adam Smith, who in his 1759 work The Theory of Moral Sentiments, suggested that one should seek not to be praised but instead first to be worthy of praise.

In a similar vein, if financial planners wish to emulate the trusted status of nurses they should seek first not to be trusted, but to be worthy of trust. The pie chart, a tool used by financial planners the world over to sell complex investment concepts to clients, was after all first perfected by the lady who wrote the book on trust.

Harry Chemay is a former Certified Financial Planner who previously practised as a specialist SMSF advisor and as a consultant to APRA-regulated superannuation funds. He is CEO and co-founder of the automated investment service at www.clover.com.au.

Cuffelinks’ article, “Scenes from a roboadvice pitch to angle investors” provoked much comment. There was an air of cynicism in the feedback that roboadvice would never really replace current incumbents. The client acquisition costs (CAC) were too high and those with existing franchises would prevail.

But predicting the future is very difficult and even futurists, while entertaining at corporate conferences, have limited success. The Washington Post recently ran an article about what people in the 1900s thought the 2000s would look like. Their predictions were comical.

The financial industry is locked in its current mindset and sees no immediate danger. But we forget that there are many more institutions that touch the mass market, probably materially more effectively than financial service companies. Who said Coles, Qantas or Telstra can’t take a crack at our industry? Roboadvice will materially reduce the cost of entry for many players. Traditional providers will need to be wary of disrupters buying a minority stake in a roboadvice start-up and offering very low-cost product to their sizeable client base.

Here is my prediction how an ordinary person may relate to financial services in the near future, having been tempted away from traditional providers. As with the people in the 1900s, my imagination is constrained by what I know is technologically available now. But there is a huge amount being refined by the day.

A glimpse at a possible future for Tracy

It’s raining outside as Tracy catches the 400 bus from Randwick Hospital to Bondi Junction. It’s been a long shift as a nurse, her energy spent on a full ward with the usual number of distressed patients and family.

Sitting on the bus Tracy looks at her iPhone and sees a few messages from friends and a couple of notifications on NursePlus. The first notification advises Tracy of new job positions at the nearby St Vincent’s Hospital and the second notification tells her that her total wealth changed by $3000 last month and to click through to see why.

The NursePlus app is an increasing favourite of Tracy’s since she downloaded it three months ago. Her friend recommended it to her and by registering Tracy was in the draw for two tickets to the upcoming Cold Chisel concert.

NursePlus keeps Tracy in touch with the major events occurring in her industry including changes in accreditation rules, union activity, and nurse discussion blogs and chats. Tracy particularly likes the special deals, including discounted tickets, Coles specials and women’s fashion.

NursePlus shows how Tracy and her husband spend their money in an easy to understand way. She is impressed with NursePlus’s ability to combine transaction data from her Credit Union with those from her husband’s Westpac account. As she thumbs through the expenditure categories Tracy realises how much repairs and maintenance are now costing on the second car. “Time to sell”, she thinks.

No wonder NursePlus is prompting her to save more if she wants to retire at 65. That’s only five years away. Tracy has played with NursePlus’s retirement tool and realised she could come up short. NursePlus has shown her she has at least a 25% chance of not having sufficient superannuation if she wants to go on her overseas trips every three years and give $50,000 to her daughter to help with her house deposit in a couple of years’ time.

Tracy decides to transfer her super to NursePlus. She thinks, “Why not?” Tracy never visits her old superannuation fund website and NursePlus seems more in tune with her personal and financial needs. Tracy could never afford one of those fancy financial planners and NursePlus provides all she needed.

To move her super, Tracy uploads a picture of her driver’s licence and Nurse’s ID. She electronically signs her authorisation to allow NursePlus to manage the funds transfer. With a push of a button Tracy knows NursePlus will handle all of the paperwork. These days, electronic signing and authorisation make life so much easier, she thinks.

Tracy feels in control

For the first time in her life, Tracy feels in control of her finances. She can see where she can make savings and if she is on track to retire. She can see on one screen what she has in the bank, super fund, term deposits and that rental property she owns. She can even see her frequent flyer miles and flybuys.

Tracy sees another notification from NursePlus. There is a ‘two-for-one’ offer at the Event Cinema at Bondi Junction. She hits the button to buy the tickets. Tired as she is, a night out at the movies sounds great. As Tracy relaxes on the bus, she wonders if her husband has signed up to BusinessPlus, the accounting app she showed him.

Donald Hellyer is Chief Executive of BigFuture. See www.bigfuture.com.au.

The impact of digital innovation has been felt in many parts of the global economy and the financial planning sector is not immune. Recent turbulence in the advice industry, coupled with an increasingly engaged and digitally-aware public, has created the perfect environment for digital disruption. Technology has a key role to play in improving the availability and consistency of financial advice and one area in particular that has been receiving a lot of interest is the use of roboadvice.

While the term robo-advisor could be taken to imply a robot or algorithmic digital tool designed to perform all of the tasks of an adviser, Australia has yet to see a roboadvice tool which comes close to offering the full services of a traditional financial adviser. The scope and sophistication of financial planning software and online calculators is increasing, but they are still essentially support tools or algorithms. If we look to the US, where the phrase robo-advisor was coined and where they have had the most success, we see that the majority of these services focus on portfolio construction and rebalancing. However, this activity is a very narrow subset of what is usually referred to in Australia as advice – that is, assessing an individual’s financial position and proposing holistic strategies to improve that position – so we are a long way from replacing human advisers with machines.

Benefits and limitations of the robo-advice model

Complex advice algorithms have many benefits, but they also have their limitations. To illustrate the challenges in bridging the gap between algorithmic roboadvice tools and the more holistic work of a financial adviser, we have explored a typical, seemingly simple, advice scenario.

Suppose an advice client currently has a mortgage on their family home and is considering the following two options:

• Making prepayments on the mortgage to pay if off sooner; or
• Entering into a salary sacrifice arrangement to build up their superannuation savings.

To provide insight into the level of complexity required to deal with what appears to be a relatively simple question, we illustrate the results of our algorithmic calculations in the figure below.

Note: This chart was constructed using many different assumptions about various client types and economic assumptions and should not be relied upon for financial advice. It is provided for illustration only. For example, we have assumed that client age is a proxy for remaining mortgage term.

As the chart shows, there is no one-size-fits-all solution. For many people – such as those who are closer to paying off their mortgage and are on higher marginal tax rates – paying off their mortgage with free cash flow may not be the optimal strategy. They could stand to be in a better financial position at retirement if they were to salary sacrifice this free cash flow instead. Conversely, younger individuals on lower marginal tax rates may be better off financially if they elect to prioritise paying off their mortgage.

Not a trivial calculation

Even by restricting our analysis purely to the objective of maximising net wealth at retirement, arriving at the best solution for the client is not a trivial task and requires the exploration of multiple scenarios to arrive at an appropriate strategy. While this can be achieved with commonly available planning tools, it is a time-consuming process, especially if a high degree of accuracy and consistency is required. This provides an opportunity for ‘next-generation’ algorithmic tools that can perform the mechanical operations quickly and in a way that gives the adviser confidence in the accuracy and consistency of the results. The adviser would then be able to generate a reliable strategy and talk the client through it in one sitting.

However quick and accurate they may be, algorithms on their own are not enough as there are many variables that must be addressed, some of which are subjective. For example, the algorithm used to generate the output above does not capture liquidity preferences, the risk of breaks in employment, possible changes in salary, bequest motives or other sources of uncertainty, such as a potential spike in interest rates. While some of these considerations can be addressed by developing smarter algorithms, others require higher level thinking. An example of this would be factoring in an individual’s preference to reduce their leverage as quickly as possible, to achieve greater peace of mind. This is more than a numerical optimisation exercise; it requires human-like intelligence.

Who will be the winners?

What does this mean for the future of robo-advisors? We expect to see the development of greatly enhanced algorithmic tools to support advisers, with benefits including:

• Speed and efficiency of advice
• Reduced cost to serve and increased proportion of the population serviced by the advice industry
• Increased consistency of advice and the potential to enhance documentation and record keeping
• The retention of advice data in readily-accessible digital formats to assist with compliance functions, client engagement and trend identification.

As for the term roboadvice, while great for headlines, it is a little unhelpful when it comes to understanding the reality of the advantages that automated algorithms can bring to the advice industry.

We are still many years away from robo-advisors having sufficient artificial intelligence to replace financial advisers. However advisers do need to acknowledge that they are part of a rapidly changing industry which is adopting algorithmic tools of increasing sophistication. This is both a great opportunity, as well as a threat to those unable to adapt quickly. Early movers who take advantage of these advances in technology will attract more clients, increase productivity, drive down costs and serve previously unadvised segments of the market.

As with many technological advances, the ultimate winners are likely to be the end consumers. With such a large portion of the population currently unadvised, and no let-up in the complexity of our financial system, this can only be a good thing.

Steven Nagle is a partner in EY’s Oceania financial services practice. Anthony Saliba is a manager in EY’s Oceania actuarial services practice.

The views expressed in this article are the views of the authors, not Ernst & Young. The article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Liability limited by a scheme approved under Professional Standards Legislation.

The stories of people moving into a retirement community and suffering buyer regret years later when they realise what they get back have been well told. The ABC’s 7.30 programme highlighted the issue again recently with a story about children who had seemingly done the right thing and read the agreement yet were shocked at the actual cost when their mother’s unit was sold six years later and the village operator received circa $76,000.

Such stories also contribute to the other type of buyer regret – people who wish they had made the move sooner.

Understand the arrangements before you move

No matter which type of regret, it is too late to do anything about it now. You can’t wind back the clock and move into the village sooner and if you are at the point of leaving the village it is too late to negotiate a different financial arrangement. What they needed was to identify the village or villages that would meet their lifestyle needs and have the legal and financial aspects explained to them well before they moved in.

Of course, that’s easier said than done as many of the legal and financial arrangements are complicated.

Let’s start at the start.

Retirement communities can be broadly grouped into Retirement Villages and Over 55 Communities (sometimes called Manufactured Home Parks). Retirement Villages operate under the relevant state or territory legislation, often The Retirement Villages Act, which sets age requirements and deals with some but not all financial arrangements. A small number operate under residential tenancy laws. Over 55’s, on the other hand, operate under caravan park or residential tenancies arrangements or a combination of the two.

The legal contract for a Retirement Village unit can take a number of forms, from strata title to the more common leasehold and licence arrangements. In some cases, company share and unit trust arrangements give the right to occupy a unit in exchange for the purchase of shares in a company or units in a trust. In an Over 55’s community, the contract is over the land rather than the unit – the purchaser owns the unit and has a leasehold or lease over the land. Of course, there is a big difference between having a 12 month lease and having a 99 year leasehold arrangement. It also creates the interesting situation of being a homeowner and a tenant at exactly the same time.

Costs associated with different structures

Whether the person lives in a Retirement Village or an Over 55’s community, the form of legal ownership will dictate their rights and responsibilities in relation to their unit and the costs associated with it while they live in the community and after they leave – so it’s important to understand.

The costs can be broken down into the ingoing, the ongoing and the outgoing.

The ingoing is the amount the person pays for their right to occupy their unit together with other costs such as contract preparation fees or stamp duty.

The ongoing costs will include the expenses associated with the facilities and management of the community. In a Retirement Village, these are often called general service charges or recurrent charges and in Over 55 communities they are known as site fees as well as the resident’s own personal expenses. In many retirement communities the operator delivers (or engages with external providers to deliver) extra services, such as domestic help, meals and in some cases, care. These services are normally offered on a user pays basis and are in addition to the other costs. Residents are normally responsible for their own utilities as well. Making a budget that incorporates all the costs including pension entitlements, rent assistance and other income is a good idea.

The cost of leaving a retirement community normally causes the greatest confusion. There are many different exit fee models, most based on either the purchase price or the sale price and are for a percentage multiplied by the number of years the resident stays in the village. A common model historically has been 3% per year for 10 years based on the sale price. In more recent times, exit fee models have tended to be higher, and anywhere between 35% and 45% is not uncommon.

What many people fail to appreciate is that there is more to the exit fee calculation than just the percentage-based cost, often referred to as the Deferred Management Fee or DMF. There can be sales commissions to the village or to an agent and refurbishment costs to bring the unit up to the current standard within the village. Understanding all of the fees and charges and putting them into dollar terms is important, although it often involves the imperfect science of predicting how long the resident will live in the village and what their unit will be worth when they sell.

The Retirement Living Handbook

To help people navigate the maze and avoid some of the traps, Noel Whittaker and I have teamed up again to write The Retirement Living Handbook. It covers the important aspects of moving to a retirement community from finding the right retirement community to the different forms of legal contract and financial arrangements through to the impacts on pension entitlement and eligibility for rent assistance. There’s more than a dozen case studies from Australian retirement communities so you can see how the theory plays out in practice.

We will be hosting a book launch in Sydney on Monday 19 October 2015 and would like to extend a personal invitation to Cuffelinks readers to attend. The event will be held at 2pm at Club Central, 2 Crofts Ave in Hurstville. Noel and I will be sharing our top tips and you can have your copy of the book signed. To rsvp call 1300 855 770.

Rachel Lane is the Principal of Aged Care Gurus and oversees a national network of financial advisers specialising in aged care. This article is for general educational purposes and does not address anyone’s specific needs.

Fights over wills provide an appalling insight into the bitterness, anger, and recrimination that can tear families apart. Even when quite small sums are at stake, adult children, ex-spouses, stepchildren and others will stop at nothing. It’s enough to make a person turn in her grave.

A recent report shows why increasing numbers of Australians are challenging wills in court: they’ve a good chance of success. Judges and mediators are able, in effect, to re-write a person’s will. They can even ignore a parent’s written statement that explains why this ingrate daughter or that callous son is to get nothing.

The report called Having the Last Word? is the result of a major investigation under the aegis of the University of Queensland into will-making and contesting wills. (It’s fascinating reading). It found 74% of cases challenged in court resulted in the will being changed, and 87% of those that went before a mediator. No wonder law firms appeal to would-be clients with advertisements that ask “Have you been left out of a will?”

The high level of contesting wills – particularly evident in NSW – can destroy family harmony forever and for generations, and whittle away the estate’s value in costly legal fees. Many of you probably know this. The study found 18% of those involved in a dispute said family relations had been poor before the contents of the will were disclosed but this rose to 26% afterwards. The report’s authors recommend measures to reduce the level of fights over wills. But the lawyers and others consulted were pessimistic.

“Some people have an unhealthy sense of entitlement and don’t respect the wishes of the will maker,” one told them. “You can’t draft documents or legislation to change that.”

Trawling through some cases that went before the NSW Supreme Court in recent years, I was mesmerised by the ghastly family dynamics on display. In one case a woman cut her stepdaughter out of her will, and explained in a statement: “I make no provision in my will for [DM] who claims to be a daughter of my late husband as she has ill-treated both myself and my late husband for many years and has made no attempt to contact or have anything to do with me.”

In this case DM convinced the judge it was her father’s and stepmother’s conduct that had caused the rift. [“My stepmother] is a horrible person,” DM said. “They [shut] the door in my face for 47 years.” She was awarded $75,000. Her legal costs that came out of the estate were $55,000.

In another case two daughters were cut out of their father’s will because, according to the statement he left, “they make no attempt to contact me either by telephone or in person. No cards are sent to me either at Christmas or my birthday… I do not feel obliged in any way to make any provision out of my estate for their benefit.” The daughters were awarded $9,665 and $7,750 because the judge did not believe the father’s complaints were valid. The father’s friend, who was to inherit the small estate, spent $16,500 or 25% of its value, defending the action. This is madness.

It turns out we’re not entirely free to give away the family silver to whomever we want. Our freedom is balanced by laws that allow courts to ensure family members (and others) who fit the criteria are adequately provided for out of the estate.

Irrational and punitive parents and spouses can treat family members unfairly in their will, or come under malign influences. But lawyers such as Lesa Bransgrove, of Bransgroves Lawyers, believe the balance has tilted too far against the will maker. “What we’re seeing is a view in the courts that the responsibility of parents goes beyond the time when children are dependants,” she said.

Judges had expressed a view that the community expected estates could be used to help adult children in retirement if they had no superannuation, provide them with a deposit on a home, or assist with the education of grandchildren.

The Queensland University study found a will is widely regarded as a means to distribute “family money”. Not many Australians leave bequests to charity in their will (Muslims are the exception here); and if they do, charities report court challenges from family members are common. The view of wills as “family money” may be fostering a “sense of entitlement” by family members, and fuelling the challenges, the report says. There’s some evidence “some family members are greedy rather than being in need.”

Professor Linda Rosenman, one of the report’s authors, said: “It’s probably almost impossible to draw up a ‘contest proof’ will. It would be more useful to address the family dynamics at the time of making the will rather than leaving it for the family to ‘fight out’ after death.”

Elder law specialist Rodney Lewis says he didn’t believe it was too easy to contest a will and attributed the high success rate to lawyers having already screened out weak cases. To avoid feuds, Lewis urges will makers to communicate with their family. Where they’re departing from equal distribution – or giving a motza to the dog home – make sure everyone understands the reasons. Writing a statement of explanation is not a total waste of effort in the event of court action, he says. “But any defects in logic or errors of fact will undermine its authority.”  So take care.

Adele Horin was the social issues journalist with the Sydney Morning Herald for 18 years prior to her ‘retirement’. This article was first published on Adele’s blog (adelehorin.com.au), and is reproduced with her permission. Adele is recovering from an operation for cancer and we wish her the best.

A Cuffelinks reader has asked about the options and opportunities for the younger generation to financially assist their parents. He says:

“People in my situation would be curious about tax-effective ways of giving money to parents:

• Any tax schemes (such as spouse contributions) applicable between parents and their adult children
• Centrelink implications of any strategies
• Ensuring that in the event of early death/TPD of an adult child, that parents receive some or all of the insurance/inheritance/estate payouts regardless of the marital status of the child.

Using myself as an example, let’s say I die – my understanding is that my wife would receive all of my assets and any insurance payouts as she is my spouse. However, my wish is that my mother, father and wife each receive an equal share of my wealth if I die early. How do I ensure this?”

This question is not addressed much in Australia as it’s usually the other way around with parents helping out or passing on wealth to their adult children. However, this reader is Asian where the younger, working generation is pulling out of poverty and gaining affluence, so more people will want or need to assist financially-strained parents. Please note, I only refer to Australian laws for the purposes of this article.

There are no specific strategies or tax-effective schemes that I can think of to gift money to your parents. Tax is not payable on gifts either by the receiver (the parent) or the giver (you). Of course, if you need to sell assets to make the gift, then capital gains tax could apply.

It is probably the estate planning and Centrelink effects that are more important than the tax issues in most cases.

An important starting point would be to determine the reason for the gift. Is it to help with everyday expenses, to give them a roof over their head, to buy a specific item such as a car or a holiday, to provide an income stream or to pay for aged care?

Next, ask what should happen with the money or gift if or when they die? If you want to ensure that it flows back to you or to your beneficiaries such as your spouse and children, then this should be provided for in your parents’ will.

Money into superannuation

If they meet the required age and work test criteria, superannuation is a tax effective way to give money to your parents. It can be used to provide a tax-free income stream in an ‘account-based’ pension.

However, super comes with two major problems:

• Once the money is in your parents’ superannuation account, you lose control over it. Your parents nominate where the money goes on their death, and they can change this nomination any time. Even if you hold an Enduring Power of Attorney for your parents, if they still have capacity, you must act in accordance with their wishes, so this does not give you the power to make or change a nomination without their consent.
  .
• If your parents are over age 65 OR start an income stream with the superannuation balance, it will be counted in in Income and Assets tests and could affect their age or other pensions.

Since a parent must satisfy the work test to make contributions if they are over 65, it may be better to help with super before this time.

Buying your parents a home

Joint Tenants

If you buy your parents a home and want to retain some control, one option is to buy it in joint names with you as one of the owners. This means it is held by each of you jointly and equally and does not form part of your parent(s) estate, so long as they predecease you. On the death of one joint tenant, the surviving joint tenant(s) split the shares equally. If there’s only one other tenant, they inherit the whole share.

In theory this means that you will own the asset entirely upon the death of your parents. However, if you predecease one or both of them, your share goes to them and you have lost control. There is no guarantee that it will end up back in your estate.

From a Centrelink point of view, your parents will be treated as ‘homeowners’ and the property will be exempt from the Income and Assets test.

Owning the property yourself

Buying a home in your own name and allowing your parents to live there rent free would provide more certainty in terms of where the asset ends up.

Centrelink would treat your parents as ‘non-homeowners’ which imposes a higher Asset Test threshold than homeowners. The property is not assessed as an asset of theirs.

On balance, from both an estate planning and Centrelink point of view, it may be best to own the house yourself rather than buy it in their name, however be aware that if you have borrowed to buy the house, negative gearing benefits may not be available as you are not receiving market rate rental income from the property.

Gifts and paying expenses

A simpler way to help out may be to give occasional gifts or pay their ad hoc expenses from time to time. From the “Guide to Social Security Law”:

Buying a gift such as a car in your parent’s name will be treated as an asset by Centrelink/DVA.

Paying for aged care

It is not unusual for family members such as adult children to pay for their parents’ accommodation costs in an aged care facility. These facilities charge an upfront amount called a Refundable Accommodation Deposit (RAD) often amounting in the hundreds of thousands. Whilst paying this RAD for a parent won’t affect their age pension, it may result in them paying higher ongoing fees in the facility known as ‘means-tested’ fees as the RAD is counted for the calculation of this fee, so take that into account.

Your early death

Now to briefly address the final question of distributing wealth to parents in the event of your early death. The first step is to make sure you have an up to date will. If you have a will and then get married, the will may be invalid so make sure it is updated after marriage.

Take care here. If your wife and family have not been adequately provided for, there may be grounds for a Family Provision claim. In the drafting of your will, make sure your wishes and the reasons for them are very clear, and ideally you should explain the context to your spouse and children.

Insurance and superannuation payouts are generally dealt with by beneficiary nomination forms rather than the will. Unless your parents are considered your ‘dependants’ under both the superannuation and tax laws, it is generally more tax effective for your spouse to receive your super balances.

It’s best to seek advice if looking to provide substantial financial assistance to your parents. There are other important issues which we will explore in a subsequent article.

Alex Denham is a Financial Services Consultant and Freelance Writer. This article is general information and does not consider the personal circumstances of any individual and professional advice should be obtained before taking any action.

We believe robo-advisers will be paradigm-changing, but that doesn’t mean they have a free pass to success. They must overcome six significant challenges if they are to evolve into profitable financial services businesses:

1. Changing perceptions of financial advice

For a large group of consumers, investment advisers are self-interested and greedy, financial markets are rigged and corrupt and their money is better off being self-invested into real estate, gold and other real assets. This widely-held perception of the finance industry is deserved.

There have been far too many financial services scandals that prove these theories, from an outright fraud like Bernie Madoff through to a local adviser churning an unsophisticated client through a procession of high brokerage-fee products. Meanwhile, the global markets collapse of 2008 left many investors wary and untrusting of the entire financial market framework. They would rather buy real estate that they can see and touch.

The financial advice industry has failed to make a convincing argument to justify its value to consumers. The industry has struggled with the intangibility of advice, the potential uncertainties of outcomes should markets crash and perceptions of greed among the people running the ‘system’. The impact is that most people don’t want to pay for financial advice.

2. Establishing trust

In financial planning, human interaction has traditionally been vitally important. As many a salesperson knows, selling something that is intangible requires the establishment of trust. This is problematic, because trust in the planning industry is low.

Trust is defined as “a psychological state comprising the intention to accept vulnerability based upon positive expectations of the intentions or behaviours of another” (Rousseau, Sitkin, Burt, & Camerer, 1998).

Repeated surveys around the world show financial advisers sit towards the bottom of the trust ladder. How do robo-advisers show they are trustworthy? To show you are trustworthy, you must display the behaviours that will lead people to trust you.

Three important requirements are:

• Competence in the matters in which competence is claimed and required
• Reliability, by doing the things as expected and promised, and
• Honesty and transparency in dealings with customers.

To convince the broad public that it can be trusted, a robo-adviser will be required to invest in processes and marketing to tell the story of how and why they are trustworthy.

Established brands and the large end of town already have customer bases into which to market to achieve scale while also having the marketing budgets and communication channels needed to attract new business to a robo-adviser.

3. Advice and guidance gaps

‘Advice gaps’ arise when people who could benefit from financial advice do not receive it because:

• Their level of assets is too low to viably warrant the attention of a financial adviser, or
• They are not prepared to pay a fee to receive advice.

In the US, the desire to maximise planner profits makes accessing a financial planner high compared with the rest of the world. US advisers focus almost exclusively on what would be regarded as high wealth clients in the rest of the world.

In the UK, financial advice is generally more readily available to the middle classes – what might be termed the ‘mass affluent’. The dollar figure required to access a basic service is driven significantly by the regulatory framework. Ironically, rules that were introduced to protect consumers now deny many of those people any service at all as the costs of regulatory compliance are too high to make them financially viable clients.

It is, perhaps, a logical conclusion to see robo-advisers as the solution to the advice gap as they have scalability and can service customers at low cost. Some people see robo-advisers ‘democratising’ financial advice, making it available to all.

By definition, those in advice gaps have lower investable asset balances, which means, per customer, lower income for the robo operator. Robo-advisers need profitable clients, but to acquire them as clients they need to invest serious marketing money, which is why existing big players have advantages over new entrant start-ups no matter how well funded. The exception is perhaps those providing a B2B robo white-label platform for existing distributors.

4. Economic influences

Around the world, wealth is being squeezed into upper economic groups, with corresponding falls in income and wealth for the middle and lower economic groups.

The loss of the middle range investor means that an increasing number of service providers are marketing to a shrinking pool of affluent investors, albeit that each of those customers comes bearing a larger pool of assets.

At the same time, there might be increased demand for robo-advisers that focus on providing budgeting tools and cash-flow forecasting, as these issues are of more significance to lower economic groups than questions of investment.

5. Cost of acquiring clients

Robo-advisers need clients to operate and the cost of acquiring (CAC) clients in financial services is high.

To us, this is the elephant in the robo-adviser room that is seldom discussed – which we believe is a strategic failure of the highest order.

Acquisition costs include the costs of initially finding a prospect and then converting those prospects into clients, with the inevitable attrition rate that those conversions incur. When total costs are compared to clients gained the results can be surprisingly high. Lucian Camp calculates the cost of acquiring a client in the UK to be around £200 (US$312).

This cost is beyond the means of many advisory firms, which is why they grow slowly – largely through word-of-mouth referral. In the past, they might have relied on product manufacturers and distributors to provide them with marketing support. Under new regulations in the UK, such supports are now largely no longer possible. But they continue to thrive in the US marketplace. In a world where former specialties have become commoditised, being able to make a financial product or service no longer makes you special as it once did.

Where, in the past, you may have been able to extract an economic rent because you occupied a position of advantage, market forces have now equalised you. Today, the ability (knowledge) and capacity (cash-flow) to quickly market financial products to scale is what separates successful financial services businesses from the ‘also-rans’.

It does not matter if you arrive at the marketplace with a better mousetrap if that trap is hidden where the mice cannot find it. Cheese – in the form of marketing, advertising and promotion – will help to attract them. But cheese isn’t cheap. Robo-advisers are very good at servicing customers, but do nothing to attract customers.

6. Behavioural biases

It is human nature to want it now. But it is also human nature to make plans for the future, including saving money. Of course, the two natures quickly come into conflict. You want a holiday now – but spending the money will reduce your pension in 30 years’ time.

More often than not your ‘present’ self will defeat your ‘future’ self. The future loss is so far away that it is diminished, but the present benefit is NOW! “Pack your swimsuit, honey, we are going to the beach.”

There is good reason to believe that robo-advice systems might do a much better job than human systems at helping people confront and manage this ‘present-day’ bias, by allowing them to visualise the impact of financial decisions made now projected into the future.

As ever when there are challenges, those who are successful will find new solutions and build the scale critical for success, while many others will fall by the side.

Paul Resnik is a co-founder of FinaMetrica, which provides psychometric risk tolerance testing tools and investment suitability methodologies to financial advisers in 23 countries.

This article continues from Alex Denham’s, ‘Providing financial assistance to parents’, and is in response to a reader’s request to delve further into this little-explored theme. It focusses on what happens when circumstances change or where financial arrangements are challenged by other family members.

Parents are often giving a ‘leg up’ to their children, whether a gift to put a deposit on a house, guarantee a bank loan for a new business or the like. What happens if the ‘leg up’ is from the child to the parent, particularly in the event of marital or family breakdown? The following scenarios illustrate the main considerations:

Marital breakdown

Suppose a son has supported his parents by purchasing an investment property with them, and he has paid their bills and other essentials on an ad hoc basis. The son’s marriage has broken down. Will his now ex-wife be able to make a ‘claim’ on the assets or money given to the son’s parents?

The answer is mixed. The issue in a marital breakdown is a division of assets based on a number of factors and largely depends on the facts of the marriage, such as length, earning capacity of each spouse, whether there are children of the marriage dependant on one spouse and so on.

The paying of bills ad hoc in this scenario is unlikely to be included in calculating the ‘pool of assets’.

It is arguable that the investment property, as it is held as joint tenants, might not form part of the ‘pool of assets’. However, I am of the opinion it would be difficult if not impossible for the son’s share of the property not to be included in a calculation of the ‘pool of assets’.

This doesn’t give the wife a claim on the property however, when all the assets are being divided. I would be of the view that the value of the son’s share in the property would be included in calculating the pool and may affect how other assets, such as money held in bank accounts, are divided. 

Changes among siblings’ own financial circumstances

Suppose three siblings purchase a property for their parents to live in. What happens if, due to loss of employment, one of the siblings stops making the mortgage payments, or one wishes to exit and be bought out?

To answer these questions, it is essential to examine the agreement when the siblings entered into this purchase.

Unfortunately, few people think about this at the time of purchase but they really should. There should be an agreement in writing and with each party obtaining proper and independent legal advice. This may sound unnecessary in family situations, but it is not uncommon for people’s circumstances to change through no fault of their own, leading to family discord.

As I often say to my clients, if everyone knows the rules beforehand, then disputes later are minimised or avoided all together.

So the answer to these questions will depend on the agreement in place. If nothing is in writing, then what was discussed before the property was purchased cannot be verified. If no discussions were had, then it’s an even bigger mess.

Essentially, if there is a mortgage over the property then all owners will have agreed to be liable for the mortgage, usually jointly and severally, and one or all are liable. So if some siblings aren’t paying the mortgage then the other siblings will need to make up the difference. If the mortgage goes into default, it will affect all of the sibling’s credit rating.

If one sibling wishes to exit the situation, then usually the other siblings will buy their share. It is usually based on a market value of the property at the time of the sale and requires the agreement of all owners.

Can they sell to someone else? Yes, but only with the consent of the other owners. If there is a mortgage, then the mortgagee’s consent will be required as well.

If agreement cannot be reached, then I see little choice but for the property to be sold and the proceeds divided amongst the siblings. The obvious problem is that mum and dad will be homeless.

Planning at the beginning is the key to avoiding headaches and arguments at a later date.

Unequal contributions within the family and inheritance

Another common issue is where one child helps the parents out more financially than the other children. On death, one child may feel entitled to more of the estate. This feeling of entitlement however, is not entirely accurate when it comes to administering the estate.

The parents’ will should largely address these issues. If the child gave money to the parent, then that is a nice gesture, but it was a gift. It is not intended to be repaid by that child inheriting a larger portion of the estate.

If it’s a loan, then the loan should be in writing before death and be reflected in the parents’ will, recording that the estate will repay the loan.

A parent may leave a larger portion to one child over another to reflect the contributions made before death, but this situation usually causes more trouble than it is worth. It is likely that unless there was careful discussion and agreement before death, a claim on the estate by the child with the smaller portion will eventuate, which will lead to unnecessary stress and legal fees.

I again would say planning is the key with prior agreement as to what the money means and whether it will be ‘repaid’ by the estate of the parents.

If property is involved, then the child’s investment or loan to the parents should be reflected in the ownership. For instance, where the child owns a share of the property or there is a mortgage granted over the property in favour of the child, the death of the parents will not affect that child’s investment.

In the absence of documentation to outline the situation, in my view, the money will be treated as a ‘gift’ and recovery from the estate would be difficult if not impossible.

Summary

Not all situations are straightforward and each matter will be determined on the facts. Documents outlining the intention and agreement of all parties may seem unnecessary when family is involved, however, courts are full of family members fighting about money.

If everyone knows their obligations and rights from the beginning, in my experience, most disputes are quickly resolved, or avoided all together.

Melanie Palmer is a Partner of Palmers Legal. This article contains general information only and does not consider the personal circumstances of any individual. Professional advice should be obtained before taking any action.

A common perception in finance is that the risk in growth assets, like equities, declines over a longer investment horizon. Recent research by consulting economists, Drew, Walk & Co into the equity risk premium (ERP) shows that even over the long run, equity investing is like a chocolate wheel: there are plenty of winners, but also losers. Retirees should not assume that the volatility of equity returns will be smoothed out over time, not even over 20 years. Retirees need to factor this into their goals for retirement income.

What is the ERP?

The ERP is the additional return that investors require, on average, for taking the extra risk of investing in equities, over and above any risk-free return (the government bond return). If investors do not expect to receive this additional return, they won’t invest in the risky asset.

The ERP has been labelled the most important variable in finance and is used in a number of applications. Just about every decision in finance has a link to the ERP.

Unlike a long-term bond, where an investor can hold to maturity and receive a known term premium, the equity premium is unknown in advance and is far from certain. The challenge for investors and superannuation fund members is the range of actual equity return outcomes, compared to the originally expected ERP.

The (un)predictable equity risk premium

In their paper, Drew, Walk & Co explore whether investing in equities in previous 20-year periods was adequately rewarded for the risk taken. They calculated the historical equity return (out)performance over various periods in a range of jurisdictions. The report concludes, among other things, that the equity return (out)performance:

• is uncertain, and its timing and magnitude are unpredictable
• has shrunk in recent history to below its long term average in Australia
• was only 1% per annum for the last 20 years.

The flaw of averages

Traditionally, the ERP is calculated by averaging the entire period of available historical data, and this average is then used to make an assessment of future returns. In using such an average, people miss the fact that an Australian retiree household is planning for roughly 30 years, which is obviously well short of the 115 years since 1900.

Long-run historical average returns can be flawed because:

• They are not an indicator of future outcomes.
• There are potential survivorship biases, where losses incurred in failed companies are not properly included.
• The early history reflects the benefit of Australia emerging as a financial economy. Since WWII, Australian equities have actually performed lower than prior decades and in line with other major global markets.
• Most people do not get the average outcome. Around 50% will do better and a similar proportion will do worse.

In addition, retirement is different, because most retirees:

• Need to spend their capital and so are impacted by sequencing risk.
• Segment their retirement capital over a range of time horizons within their retirement timeframe, to meet their investing and spending goals.
• Won’t have an unbroken exposure to equities for decades.

Time doesn’t diversify equity risk

Most people assume that 20 years is long enough to get the ‘long-run average’, however the research indicates that there are a wide range of potential outcomes, even when they can stay invested for 20 years.

Only with hindsight, at the end of the 20 years, will a retiree find out their premium (if any) for taking equity risk over that period.

Figure 1 shows the frequency of the 20-year historical equity return (out)performance. The graph shows that Australia performed better in the first half of the 20th century, when it would still have been an emerging economy rather than the fully developed market economy it is today. There have been 14 periods of 20 years in Australia where the equity return outperformance exceeded 10% per annum, but they were mostly before WWII (shown in light green).

Figure 1: Distribution of 20-year Australian outperformance

The typical retiree needs some equity exposure

Even though equity investing is volatile over the long range, most retirees typically have the time horizon and risk tolerance to invest in at least some equities and they are likely to benefit from the premium. This is why the great majority of account-based pensions already have a generous exposure to equities.

A retirement risk management strategy

But what do retirees do about the equity risk? What happens when something goes wrong? Instead of adopting a conventional ‘set and forget’ approach, well-advised retirees work with a risk management strategy for their equity exposure in retirement. The idea of having a safety strategy is common in everyday life, and when it comes to investing in risky assets, retirees should be no different.

Using a long-term bucket for equities in retirement is one strategy that is sometimes used. However, as equity outperformance is uncertain over 20 years, a retiree will not have certainty about how much will be in the bucket after even as long as 20 years.

Portfolio allocation in retirement

Starting with Chhabra (one of the early papers that advocated goals-based investing rather than efficient frontier targeting), there has been a distinctly different approach for making asset allocation decisions in retirement. This approach is to consider the full range of the retiree’s objectives and goals. Instead of trying to meet all targets with one investment decision, a goals-based approach will segment the main objectives. The approach is similar to the asset-liability matching practised by many insurance companies and defined benefit funds around the world.

Matching objectives enables a retiree (or their adviser) to consider the risk/reward trade-off that is represented by the ERP and select a suitable allocation of risk for each objective. For example:

• Generating income for life to meet essential spending needs will generally have a limited exposure to risky assets, as the objective is to maintain a minimum standard of living for life.
• Investing for spending on holidays and luxuries later in retirement can have a higher allocation to growth assets.

Under this approach, retirees with differing objectives, but the same wealth, age and risk tolerance will actually have different asset allocations.

Spinning the chocolate wheel in retirement

Retirees should think about investing as being like spinning the chocolate wheel shown. This has been assembled using the global historical numbers, the average of which roughly matches the forward projections for the ERP made by Drew, Walk & Co. in their paper.

Figure 2: Chocolate wheel of global historical average annual equity return outperformance over-20 year periods

This ‘chocolate wheel’ reminds retirees that the average annual outperformance that might be expected over a 20-year investment period is not certain. It will not be a guaranteed rate. Most outcomes are attractive returns, but the risks are broader than what Australian history alone suggests.

Conclusion

For investors and retirees today, care needs to be taken drawing conclusions from long-term averages when planning for the future. In addition, a set and forget approach will not ensure that a retiree’s exposure to equities risk will be appropriately mitigated.

Jeremy Cooper is Chairman of Retirement Incomes at Challenger, and chaired the Super System Review (the ‘Cooper Review’). Drew, Walk and Co.’s full report, is available at www.challenger.com.au/equityriskinretirement

Benjamin Franklin’s statement that nothing in life is certain but death and taxes remains relevant after 200 years. As a result of an ageing population and increasing household wealth for older generations, Australia faces the largest intergenerational wealth transfer in history in the coming decades. This has significant policy implications, but at a personal level, raises many challenges also. How do we prepare for the inevitable, and do the best for our loved ones?

Facing one’s mortality is rarely an enjoyable or engaging experience. Many would prefer to believe they will live forever, or at least long enough to justify putting off consideration of the implications of their death. Others feel uncomfortable discussing or even thinking about wealth and its implications for their estate. The consequences of a head-in-the-sand approach, however, are often dramatically less benign than the deceased may have presumed. Instead of leaving a secure or empowering legacy, they may bequeath angst, conflict and considerable expense. Feuding families and disappointed potential beneficiaries are a lawyer’s best friend; even those who can amicably settle an estate may still struggle with the cost and administrative burden of a non-existent or ineffective will.

Motivation to address the issue

This is not just thinking or talking about money. It is your legacy to the world and the potential contribution to other people (or the community or the planet) in the future. A vision of the future you would like to create can help to frame a positive outcome from a potentially depressing process. Alternatively, consider that you are simply reducing the future burden on loved ones. If you have a spouse who is refusing to engage, you may need to go it alone and hope that your persistence will motivate them to act. Set a deadline to have your affairs in order, not too far in the future, and stick to it. Make an appointment with an estate planning professional if necessary.

In addressing your estate planning needs, consider both your objectives (what you want to achieve) and your strategy (how you plan to achieve it). While the most perfectly-designed estate plan has little value if it has not been documented, similarly, a perfectly drafted but ill-considered will may not support those who will ultimately rely on it. This article provides a framework for determining your estate planning objectives. Part 2 will consider strategy alternatives, including the structures, professionals and documentation required to ensure your wishes are met.

Estate planning checklist

The amount of time and thinking needed for this process is not the same for everyone: a 40-year-old with young children and a mortgage will plan differently from a 65-year-old who owns their own home and has several million dollars in investments. Similarly, those with complex personal lives, particularly blended families, will have more challenging decisions to make than those with simple affairs.

Here’s a useful framework for your estate planning objectives.

1. Consider all potential eventualities. These include your death (sadly this one’s a certainty), and physical or mental incapacity (such as dementia, long term illness or permanent injury). Many people prepare thoroughly for what will happen on their death, but do not consider a lengthy period of declining mental and physical capacity that may erode capital otherwise intended for their estate, or expose them to unscrupulous individuals. For younger people, injury or illness could have devastating financial consequences. Consider a protection plan for ensuring your needs are met if you no longer have capacity to make your own decisions, and insurance to ensure your dependants are financially secure in the event that you are no longer able to earn an income or due to substantial medical costs. Some of these decisions can be made independently (such as preparing Enduring Powers of Attorney so someone you trust will make decisions if you can’t); others should be considered together (life insurance should form part of your overall estate plan).

2. Ensure your needs are met. Many older people care greatly about providing for their children and grandchildren, and yet may not have considered their own needs for retirement and aged care. This can result in tragic circumstances where the elderly are financially dependent on the age pension and receive little recognition from the children (or others) who have benefitted from an early inheritance. Once an asset has been given away, it is generally the property of the recipient and the giver has renounced their rights to compensation, even if their circumstances change and they now require support. In addition, Centrelink and the Department of Veterans Affairs have specific rules for assessing gifts and other forms of ‘deprivation’ which can result in a reduced social security entitlement for the giver. Have a clear view of what you need to live a comfortable lifestyle, and determine what you can give only once these needs have been met. This doesn’t mean you can’t help others, it simply means taking care to do it prudently, as we will discuss in more detail in Part 2.

3. Consider the legacy you would like to leave. This should speak to your personal values most of all. Your beneficiaries will likely to be top of mind, so identify every person you wish to provide for, as well as those causes that are dear to you. Bill and Melinda Gates, for example, have invested their wealth in charitable programmes and innovations in healthcare and education for developing countries, while leaving a (proportionately) small inheritance for their children. Contrast this with the poor outcomes of ‘trust fund babies’, where children inherit vast fortunes which they are often ill-equipped to manage. For some, a legacy will be as simple as ensuring their grandchildren have a private school education while others may have grander objectives, such as preserving land for environmental causes.

4. Prioritise your objectives. Planning for the ideal scenario on your death may require compromises. Can you achieve all of your objectives with the available resources? If you are eroding your capital during your retirement, you may need to adjust your arrangements over time. It can be challenging providing for your dependants equally when they clearly have different needs. Providing for young children or a child with a disability, for example, is very different to providing for financially secure adult children. Blended families can create significant challenges. Adult children from a first marriage may have lesser needs than young children of a second marriage, but desire an equal share of the estate. They can also resent large bequests to very recent new spouses or partners. Similarly, family businesses can create disparities where one or more children or family members have made different contributions to the business without being adequately compensated or with expectations of receiving a disproportionate share of the business on your death. Finally, one or more children may make a disproportionate contribution to your care if you become physically or mentally incapacitated.

Seek professional advice if you are concerned or your scenario is particularly complex. Succession planners and estate planning experts can give you guidance and assist with counselling and conflict resolution once you choose to engage with potential beneficiaries.

5. Review. While your estate plan is ultimately a reflection of your wishes, the most positive outcomes are likely to occur when all beneficiaries are informed and prepared for what’s to come. Your spouse will preferably be assisting with the process; ideally you will reach a mutually beneficial agreement as to how you’ll look after each other and your children or others. If there are areas of contention, however, it is best to discuss these openly and engage a professional if you’re having trouble reaching agreement (if nothing else, to avoid costly litigation at a later date).

While you are under no obligation to change your plans as a result of other’s concerns or wishes, they may raise legitimate concerns and have alternatives or strategies you hadn’t considered. An informed conversation will also help to keep relationships intact in the future.

Once you have considered your objectives and your legacy, the process of preparing and documenting your estate plan becomes easier.

Part 2 will help you understand the various strategies for achieving your goals and avoiding the pitfalls that can create emotional and financial stress for those you care about.

Gemma Dale is the Head of SMSF Solutions at National Australia Bank. This information is general only and does not take into account the personal circumstances or financial objectives of any reader. Readers should consider consulting an estate planning professional before making any decision.