1 00:00:10,020 --> 00:00:13,090 Speaker 1: Hello and welcome to the Australian's Money Puzzle podcast. I'm 2 00:00:13,130 --> 00:00:17,509 Speaker 1: James Kirby, the Wealth Editor at The Australian. Welcome aboard, everybody. Now, 3 00:00:17,530 --> 00:00:20,890 Speaker 1: we're not a news program, as you know, but we 4 00:00:21,130 --> 00:00:24,960 Speaker 1: are alert to news as it happens. And just now, 5 00:00:24,980 --> 00:00:31,760 Speaker 1: there's a lot happening for investors around super, around financial advice, 6 00:00:32,659 --> 00:00:37,979 Speaker 1: and the landscape is altering quite quickly. And I think, 7 00:00:38,000 --> 00:00:40,600 Speaker 1: you know, to be a complete investor, you do need 8 00:00:40,620 --> 00:00:43,420 Speaker 1: to be up to speed with what's happening. You don't 9 00:00:43,460 --> 00:00:45,360 Speaker 1: need to know everything. You don't need to know all 10 00:00:45,400 --> 00:00:48,580 Speaker 1: the macro and all the speculation, but you do need 11 00:00:48,600 --> 00:00:53,270 Speaker 1: to know the terms in which you are investing. And 12 00:00:53,710 --> 00:00:58,610 Speaker 1: that's what today's show will actually hinge on. You need 13 00:00:58,630 --> 00:01:00,510 Speaker 1: to be up to speed. And my guest is very 14 00:01:00,550 --> 00:01:03,490 Speaker 1: much up to speed on all things in this area 15 00:01:03,530 --> 00:01:08,069 Speaker 1: because he's the editor-in-chief of the Conexus Group. And Conexus 16 00:01:08,130 --> 00:01:10,500 Speaker 1: is a financial publishing and information group. It has all 17 00:01:10,560 --> 00:01:15,620 Speaker 1: sorts of arms. It does some professional magazines like Financial Planners, 18 00:01:15,660 --> 00:01:18,660 Speaker 1: for instance. And it has a Conexus Institute, which is 19 00:01:18,700 --> 00:01:24,780 Speaker 1: a not-for-profit think tank. And that issues reports in the area. 20 00:01:25,270 --> 00:01:28,009 Speaker 1: His name is Alex Vicovich. First time on the show. 21 00:01:28,050 --> 00:01:29,310 Speaker 1: Lovely to have him. How are you, Alex? 22 00:01:30,209 --> 00:01:31,419 Speaker 2: G'day, James. Thank you for having me. 23 00:01:32,010 --> 00:01:34,050 Speaker 1: I've picked a good week to have you, haven't I, really? 24 00:01:34,370 --> 00:01:36,209 Speaker 1: I don't think I've had as many calls from the 25 00:01:36,250 --> 00:01:40,030 Speaker 1: general news desk all year as this week because there's 26 00:01:40,069 --> 00:01:43,270 Speaker 1: so much happening. In fact, there's a Senate committee tomorrow 27 00:01:43,770 --> 00:01:48,490 Speaker 1: on super, for instance, where they're hauling, hauling the CBUS chairman, 28 00:01:48,690 --> 00:01:50,860 Speaker 1: Wayne Swan, in front of them at last. 29 00:01:51,170 --> 00:01:52,310 Speaker 2: Against his will, I believe. 30 00:01:52,690 --> 00:01:57,440 Speaker 1: Against his will. It would seem so. And there's been 31 00:01:57,620 --> 00:02:00,320 Speaker 1: big news on the three million super tax, which was 32 00:02:00,360 --> 00:02:03,170 Speaker 1: the biggest kind of policy change in super for some 33 00:02:03,250 --> 00:02:06,280 Speaker 1: time this week, all sorts of things happening. So good 34 00:02:06,300 --> 00:02:08,120 Speaker 1: to have you on. Look, why don't we start, first 35 00:02:08,160 --> 00:02:11,079 Speaker 1: of all, with super and what's happening around super? Because 36 00:02:11,100 --> 00:02:13,940 Speaker 1: I think people are, I have to tell you that 37 00:02:13,980 --> 00:02:17,279 Speaker 1: people are concerned about some of the issues in the 38 00:02:17,340 --> 00:02:20,580 Speaker 1: industry funds. Every industry fund is different, but they're all 39 00:02:20,639 --> 00:02:23,910 Speaker 1: run in broadly the same way. And many of them, 40 00:02:24,210 --> 00:02:30,720 Speaker 1: Australian super, HESTA, Uni super, they've all had for want 41 00:02:30,740 --> 00:02:33,399 Speaker 1: of a better word in recent times. CBUS is outstanding, 42 00:02:33,440 --> 00:02:36,340 Speaker 1: of course, because ASIC are taking them to court for 43 00:02:36,380 --> 00:02:41,260 Speaker 1: delayed payments on death benefits and disabilities. The APRA are 44 00:02:41,400 --> 00:02:45,720 Speaker 1: also investigating them. There's a whole bunch of issues around them. 45 00:02:45,780 --> 00:02:49,310 Speaker 1: And people, interestingly enough, as you probably know, Alex, a 46 00:02:49,370 --> 00:02:52,650 Speaker 1: lot of journalists and media people were in CBUS because 47 00:02:52,950 --> 00:02:55,070 Speaker 1: they were in the old media super, which was hoovered 48 00:02:55,110 --> 00:02:56,990 Speaker 1: up by CBUS in the way of these big funds. 49 00:02:58,480 --> 00:03:00,970 Speaker 2: That's right. Yeah, I was a member of Mediasuper myself 50 00:03:01,030 --> 00:03:03,230 Speaker 2: before setting up a self-managed super fund. 51 00:03:03,550 --> 00:03:06,829 Speaker 1: Snap. So was I. But I have to go back 52 00:03:06,970 --> 00:03:09,809 Speaker 1: to 2006 for that one. But here's the thing. What's 53 00:03:09,850 --> 00:03:12,510 Speaker 1: your initial impression of this? Is it a year where 54 00:03:12,550 --> 00:03:14,410 Speaker 1: we say this is the year the super funds actually 55 00:03:14,460 --> 00:03:16,980 Speaker 1: had to professionalize and come to the table and sort 56 00:03:17,060 --> 00:03:20,660 Speaker 1: out some of the issues that are not actually, in 57 00:03:20,700 --> 00:03:23,960 Speaker 1: many occasions, in the best interest of individual investors? 58 00:03:24,360 --> 00:03:26,320 Speaker 2: Yeah, thanks, James. And I like the way that you 59 00:03:26,620 --> 00:03:30,070 Speaker 2: frame it. At the outset, this is a week where 60 00:03:30,090 --> 00:03:34,700 Speaker 2: a whole range of financial services, policy debates, political fights 61 00:03:34,740 --> 00:03:37,700 Speaker 2: are coming to a head. But I'd probably say that 62 00:03:37,820 --> 00:03:40,380 Speaker 2: every week in the last 30 years of compulsory super 63 00:03:40,460 --> 00:03:43,960 Speaker 2: has been contentious and there have been big political issues. 64 00:03:44,180 --> 00:03:47,210 Speaker 2: Just on the super funds themselves, we are seeing more 65 00:03:47,270 --> 00:03:51,430 Speaker 2: scrutiny from regulators. The way that the superannuation industry is 66 00:03:51,510 --> 00:03:54,670 Speaker 2: regulated is really important to understand because it has two 67 00:03:54,750 --> 00:03:59,090 Speaker 2: separate regulators involved. One that's Prudential in APRA and another 68 00:03:59,160 --> 00:04:02,160 Speaker 2: one that covers conduct in ASIC. And so no one 69 00:04:02,180 --> 00:04:04,540 Speaker 2: has a full piece of the sector and they just 70 00:04:04,660 --> 00:04:07,900 Speaker 2: each look at different little bits. But both of them 71 00:04:08,320 --> 00:04:11,600 Speaker 2: are really looking, as is the parliament, at the sort 72 00:04:11,620 --> 00:04:13,940 Speaker 2: of growth and growth of industry super funds, which you'd 73 00:04:13,960 --> 00:04:16,060 Speaker 2: have to say is one of the biggest developments in 74 00:04:16,080 --> 00:04:17,299 Speaker 2: the Australian economy. 75 00:04:17,300 --> 00:04:20,080 Speaker 1: $ 4 trillion industry now. 76 00:04:20,080 --> 00:04:24,250 Speaker 2: $ 4 trillion, it's just ticked over in the last few 77 00:04:24,430 --> 00:04:27,170 Speaker 2: days in terms of the public reporting. That does include 78 00:04:27,190 --> 00:04:31,109 Speaker 2: the SMSF sector. But the important thing around super is 79 00:04:31,130 --> 00:04:33,330 Speaker 2: not so much the number, but the fact that it 80 00:04:33,410 --> 00:04:38,840 Speaker 2: has effectively a 12%, maybe one day 15% annualized growth rate, right? 81 00:04:38,880 --> 00:04:41,820 Speaker 2: So that pool really is never shrinking. And I think 82 00:04:41,860 --> 00:04:44,900 Speaker 2: that's the first thing to understand about why we're seeing 83 00:04:44,940 --> 00:04:48,040 Speaker 2: this scrutiny. Partly, it is just a function of the 84 00:04:48,100 --> 00:04:52,330 Speaker 2: increasing size. You're talking about the world's third biggest pool 85 00:04:52,350 --> 00:04:56,520 Speaker 2: of retirement assets, despite us having a much smaller population 86 00:04:56,540 --> 00:05:00,020 Speaker 2: than comparable nations. And you're also talking about a pool 87 00:05:00,200 --> 00:05:03,099 Speaker 2: of assets that's twice the size of the Australian economy, 88 00:05:03,220 --> 00:05:04,860 Speaker 2: which is really hard to get your head around. 89 00:05:05,440 --> 00:05:08,230 Speaker 1: But here's the thing. I suppose people see these issues 90 00:05:08,910 --> 00:05:11,870 Speaker 1: and they are in super funds, and it's only natural 91 00:05:11,890 --> 00:05:18,130 Speaker 1: that people would say, will the investment performance of my 92 00:05:18,290 --> 00:05:23,670 Speaker 1: super fund be diluted or damaged or weakened by obvious 93 00:05:23,750 --> 00:05:27,570 Speaker 1: weaknesses in other parts of the funds. At CBUS, for instance, 94 00:05:27,950 --> 00:05:31,510 Speaker 1: you know, if they're delaying payments to death benefits and 95 00:05:31,550 --> 00:05:33,450 Speaker 1: treating people badly on that front, is that going to 96 00:05:33,470 --> 00:05:36,850 Speaker 1: hit my investment performance? If I can't see, if I 97 00:05:36,890 --> 00:05:40,789 Speaker 1: can't access AOT or UniSuper for some reason, because they've 98 00:05:40,830 --> 00:05:43,410 Speaker 1: got some IT cock up Well, have they got IT 99 00:05:43,450 --> 00:05:45,849 Speaker 1: cock-ups in the investment department? And I think that's what 100 00:05:45,870 --> 00:05:49,960 Speaker 1: people are worried about. What would you say to people 101 00:05:49,980 --> 00:05:51,400 Speaker 1: who come up to you on the street and say, 102 00:05:51,800 --> 00:05:54,260 Speaker 1: I'm worried about my industry fund because it's getting all 103 00:05:54,279 --> 00:05:55,440 Speaker 1: sorts of bad publicity? 104 00:05:56,060 --> 00:05:57,980 Speaker 2: Well, the first thing I'd say is that it's awesome 105 00:05:58,000 --> 00:06:00,800 Speaker 2: they're engaged with their superannuation and what their fund may 106 00:06:00,860 --> 00:06:03,109 Speaker 2: or may not be doing. I think it's important to 107 00:06:03,170 --> 00:06:06,110 Speaker 2: hold them to scrutiny. They are fiduciaries. They have a 108 00:06:06,270 --> 00:06:09,710 Speaker 2: really strong legal obligation to members. And so it's great 109 00:06:09,730 --> 00:06:12,630 Speaker 2: that we're holding them to account. There's two separate issues 110 00:06:12,650 --> 00:06:14,609 Speaker 2: that are really being looked at the moment. The one is, 111 00:06:14,790 --> 00:06:17,820 Speaker 2: as you say, really you could describe as member experience, 112 00:06:17,900 --> 00:06:20,980 Speaker 2: the way that funds are engaging with their members, things 113 00:06:21,040 --> 00:06:25,100 Speaker 2: like death benefit claims, insurance claims, and there's a strong 114 00:06:25,160 --> 00:06:29,000 Speaker 2: body of evidence that these things need to improve. In 115 00:06:29,040 --> 00:06:31,680 Speaker 2: terms of the links between that and the investment performance, 116 00:06:31,880 --> 00:06:35,670 Speaker 2: maybe you could argue that insofar as people are leaving 117 00:06:35,710 --> 00:06:39,969 Speaker 2: the fund and that then reduces the quantum of the 118 00:06:40,589 --> 00:06:42,930 Speaker 2: assets that they can invest, that could have a flow 119 00:06:42,970 --> 00:06:48,010 Speaker 2: on effect or insofar as it's distracting key C-suite executives 120 00:06:48,110 --> 00:06:51,010 Speaker 2: from the fund to some of these other issues, then 121 00:06:51,510 --> 00:06:53,850 Speaker 2: you could argue that's having an effect. But really, I 122 00:06:53,890 --> 00:06:57,150 Speaker 2: think you would want to, in truth, separate these kind 123 00:06:57,180 --> 00:07:01,400 Speaker 2: of member experience and communications issues, which are really important 124 00:07:01,460 --> 00:07:04,600 Speaker 2: and which need to improve and which deserve scrutiny from 125 00:07:04,660 --> 00:07:08,979 Speaker 2: the investment performance. But the other area where the regulators 126 00:07:09,020 --> 00:07:10,740 Speaker 2: are cracking down and where we're seeing a lot of 127 00:07:10,780 --> 00:07:14,080 Speaker 2: media activity is on the governance. We're seeing this, of course, 128 00:07:14,180 --> 00:07:16,820 Speaker 2: most notably in the case of CBUS, where there have 129 00:07:16,850 --> 00:07:21,950 Speaker 2: been longstanding ties to the CFMEU, the now defunct trade union, 130 00:07:22,210 --> 00:07:25,450 Speaker 2: infamous trade union. And these issues have been bubbling away 131 00:07:25,510 --> 00:07:28,470 Speaker 2: for a long time, not just in industry super funds, 132 00:07:28,510 --> 00:07:31,190 Speaker 2: which are union linked, but right across the sector. Who 133 00:07:31,310 --> 00:07:33,730 Speaker 2: are the right people to be sitting on the boards 134 00:07:34,210 --> 00:07:38,060 Speaker 2: of these organisations, which is a really powerful organisation? What 135 00:07:38,120 --> 00:07:42,270 Speaker 2: sort of competencies should they have and what governance processes 136 00:07:42,310 --> 00:07:45,770 Speaker 2: do they have in place to ensure that they're investing 137 00:07:46,190 --> 00:07:48,630 Speaker 2: in a way that's in line with members' best interests? That, 138 00:07:48,810 --> 00:07:51,670 Speaker 2: I think, has a much more meaningful and direct influence 139 00:07:51,750 --> 00:07:54,330 Speaker 2: over the return that members are actually getting. 140 00:07:55,210 --> 00:07:57,210 Speaker 1: One of the things you mentioned there before when we 141 00:07:57,250 --> 00:08:00,060 Speaker 1: talk about how much is in super, a trillion dollars. 142 00:08:01,520 --> 00:08:04,960 Speaker 1: It just so happens, it just occurred in the September 143 00:08:05,000 --> 00:08:09,560 Speaker 1: quarter ATO figures that the SMSF sector has passed a 144 00:08:09,610 --> 00:08:12,530 Speaker 1: trillion dollars, right? So there you go. Very roughly a 145 00:08:12,570 --> 00:08:15,630 Speaker 1: quarter of all the money in super is in the SMSFs. 146 00:08:16,530 --> 00:08:21,570 Speaker 1: Self-managed super funds. Many of our listeners are interested in SMSFs. 147 00:08:22,290 --> 00:08:24,630 Speaker 1: They often write in and ask, should I start one, 148 00:08:24,710 --> 00:08:26,880 Speaker 1: et cetera. We're always having a debate about how much 149 00:08:26,900 --> 00:08:29,080 Speaker 1: you should have in SMSFs. But I just want to 150 00:08:29,100 --> 00:08:34,390 Speaker 1: ask you, do you think that this rocky period for 151 00:08:34,410 --> 00:08:38,930 Speaker 1: the big industry funds will benefit self-managed super funds? And 152 00:08:38,990 --> 00:08:41,450 Speaker 1: if people leave industry funds, I'm guessing they don't go 153 00:08:41,510 --> 00:08:44,510 Speaker 1: to another one. I'm guessing they actually do start an SMSF. 154 00:08:44,630 --> 00:08:45,710 Speaker 1: What's your experience there? 155 00:08:45,809 --> 00:08:47,910 Speaker 2: Look, there's a range of places where people go. My 156 00:08:47,950 --> 00:08:51,209 Speaker 2: experience and what the research would show is that statistically 157 00:08:51,410 --> 00:08:55,500 Speaker 2: very few Australians switch funds at all. And that, you know, 158 00:08:55,520 --> 00:08:58,430 Speaker 2: because we have a default system and the whole system 159 00:08:58,450 --> 00:09:01,350 Speaker 2: was set up by the unions and by the people 160 00:09:01,410 --> 00:09:03,990 Speaker 2: who were advocating for it to be a default system 161 00:09:04,130 --> 00:09:06,390 Speaker 2: that would work in the background while you were living 162 00:09:06,410 --> 00:09:08,310 Speaker 2: your life and you didn't have to really think about. 163 00:09:08,740 --> 00:09:12,300 Speaker 2: So we have seen a slight uptick in people switching 164 00:09:12,700 --> 00:09:14,679 Speaker 2: out of funds in the last year or so, and 165 00:09:14,720 --> 00:09:17,960 Speaker 2: particularly CBUS in more recent times has seen some outflows. 166 00:09:18,600 --> 00:09:21,620 Speaker 2: Whether that's Fair or not, I don't think it's necessarily 167 00:09:21,780 --> 00:09:24,780 Speaker 2: a reflection on the returns they have or haven't been receiving. 168 00:09:25,210 --> 00:09:27,110 Speaker 2: But I also don't think it's, I think it's a 169 00:09:27,130 --> 00:09:31,510 Speaker 2: good thing that people are paying attention to these governance issues. 170 00:09:32,090 --> 00:09:34,750 Speaker 1: Our listeners wouldn't be typical in that they would be 171 00:09:34,790 --> 00:09:38,220 Speaker 1: paying attention. That's why they listen to the show. So 172 00:09:38,250 --> 00:09:40,920 Speaker 1: here's the thing. You were saying about the flow on effects. 173 00:09:40,960 --> 00:09:42,600 Speaker 1: So let's say money flows out of a fund. I'm 174 00:09:42,640 --> 00:09:44,900 Speaker 1: not going to pick any fund. But let's say one 175 00:09:44,980 --> 00:09:49,700 Speaker 1: fund constantly has bad news month after month. and the 176 00:09:49,740 --> 00:09:53,179 Speaker 1: money starts to flow out. That is, there are net outflows, right? 177 00:09:53,210 --> 00:09:55,630 Speaker 1: So there's more money going out. And let's say their 178 00:09:55,670 --> 00:10:00,220 Speaker 1: investment team were unchanged. What could occur? Is it that 179 00:10:00,290 --> 00:10:04,100 Speaker 1: what would be the problem? That they'd have to charge more? 180 00:10:04,980 --> 00:10:08,320 Speaker 1: Is that it? That their costs would effectively have to 181 00:10:08,360 --> 00:10:10,380 Speaker 1: go up because their revenue is going down? Or how 182 00:10:10,400 --> 00:10:10,860 Speaker 1: would it work? 183 00:10:11,540 --> 00:10:13,640 Speaker 2: Well, I think that would be a big decision to make. 184 00:10:13,700 --> 00:10:16,000 Speaker 2: And there's all sorts of regulations that would prevent them 185 00:10:16,280 --> 00:10:19,470 Speaker 2: from that being their first port of call. But it 186 00:10:19,500 --> 00:10:22,590 Speaker 2: changes their liquidity profile, right? So it means if you 187 00:10:22,670 --> 00:10:25,850 Speaker 2: are seeing people in outflow, it naturally changes the way 188 00:10:26,050 --> 00:10:28,170 Speaker 2: you invest because you need to be in a position 189 00:10:28,470 --> 00:10:30,490 Speaker 2: where you can pay people out. And the thing about 190 00:10:30,510 --> 00:10:33,350 Speaker 2: a lot of big industry super funds, particularly those that 191 00:10:33,390 --> 00:10:36,930 Speaker 2: have a very young membership base, is they invest in 192 00:10:36,970 --> 00:10:39,150 Speaker 2: a way where they don't expect to be paying people 193 00:10:39,230 --> 00:10:42,270 Speaker 2: out in pensions for many decades on the whole. That 194 00:10:42,309 --> 00:10:45,590 Speaker 2: allows them to invest in venture capital. It allows them 195 00:10:45,630 --> 00:10:48,189 Speaker 2: to be a little bit more aggressive in the share market. 196 00:10:48,720 --> 00:10:50,780 Speaker 2: And so if they were to start to see outflows, 197 00:10:51,080 --> 00:10:54,240 Speaker 2: that would meaningfully change their investment behavior in that way. 198 00:10:55,120 --> 00:10:58,080 Speaker 2: The other thing is that the size of the pool 199 00:10:58,600 --> 00:11:01,620 Speaker 2: obviously determines what sort of assets you can invest in. 200 00:11:01,840 --> 00:11:04,699 Speaker 2: And a lot of super funds have a real preference, 201 00:11:04,780 --> 00:11:09,040 Speaker 2: rightly or wrongly, for big unlisted assets like airports and 202 00:11:09,130 --> 00:11:12,810 Speaker 2: toll roads and things that they co-invest or they directly 203 00:11:12,870 --> 00:11:15,330 Speaker 2: invest in these assets, not always via a managed fund. 204 00:11:15,770 --> 00:11:19,300 Speaker 2: So to the extent that was depleted that would be 205 00:11:19,340 --> 00:11:22,439 Speaker 2: a very real difference in terms of their investment strategy. 206 00:11:23,240 --> 00:11:26,059 Speaker 1: Does it concern you when you see occasionally big losses 207 00:11:26,400 --> 00:11:30,090 Speaker 1: in that unlisted area? Commercial property, obviously, several funds, but 208 00:11:30,140 --> 00:11:32,830 Speaker 1: also occasionally out of the blue, we see big funds 209 00:11:33,170 --> 00:11:36,270 Speaker 1: taking a big hit on what is obviously a big 210 00:11:36,309 --> 00:11:38,849 Speaker 1: bet on something here and there. 211 00:11:39,630 --> 00:11:42,449 Speaker 2: It does concern me to some extent because you never 212 00:11:42,490 --> 00:11:44,830 Speaker 2: want to see a loss either by an individual private 213 00:11:44,850 --> 00:11:47,780 Speaker 2: household or by a major super fund. But I think 214 00:11:47,840 --> 00:11:51,280 Speaker 2: it's important to remember these funds are pretty well diversified. 215 00:11:51,600 --> 00:11:54,120 Speaker 2: And the other thing, I mean, as a journalist, you 216 00:11:54,160 --> 00:11:56,360 Speaker 2: want to jump on these stories. We're right to focus 217 00:11:56,440 --> 00:11:59,359 Speaker 2: on them. But the thing I worry more about, James, 218 00:11:59,420 --> 00:12:02,540 Speaker 2: is actually that you've got this culture, particularly within the 219 00:12:02,600 --> 00:12:07,449 Speaker 2: big funds, of real cautiousness and political correctness. And they 220 00:12:07,510 --> 00:12:12,650 Speaker 2: don't want to take on any risks. They'd all happily 221 00:12:12,690 --> 00:12:16,450 Speaker 2: be fast followers, but they don't want innovate. I worry 222 00:12:16,490 --> 00:12:22,610 Speaker 2: that therefore sometimes they're missing opportunities, frankly, where the investors 223 00:12:22,630 --> 00:12:25,170 Speaker 2: they've got on start are very keen to pursue an opportunity, 224 00:12:25,500 --> 00:12:27,960 Speaker 2: but they're so scared of media backlash or of getting 225 00:12:28,000 --> 00:12:30,819 Speaker 2: it wrong. And as your listeners will realize, getting it 226 00:12:30,860 --> 00:12:34,320 Speaker 2: wrong sometimes is a really healthy and normal part of investing, right? 227 00:12:34,380 --> 00:12:36,080 Speaker 2: And these are highly well diversified. 228 00:12:36,320 --> 00:12:38,900 Speaker 1: You're talking strictly in the investment sense of getting an 229 00:12:38,950 --> 00:12:42,050 Speaker 1: investment wrong as opposed to getting a process wrong like 230 00:12:42,130 --> 00:12:43,510 Speaker 1: a payout or whatever payments. 231 00:12:43,530 --> 00:12:43,730 Speaker 2: Okay. 232 00:12:43,750 --> 00:12:48,020 Speaker 1: Okay. Also on super, it would seem, and he says, 233 00:12:48,200 --> 00:12:53,280 Speaker 1: I say this, folks, carefully, it would seem that for 234 00:12:53,520 --> 00:12:56,079 Speaker 1: all the attention, for all the, what they used to 235 00:12:56,120 --> 00:13:00,520 Speaker 1: call many column inches of coverage on the plan to 236 00:13:00,590 --> 00:13:06,630 Speaker 1: introduce a new super tax of 15% on amounts over 237 00:13:06,630 --> 00:13:10,250 Speaker 1: 3 million on, believe it or not, unrealized gains, which 238 00:13:10,309 --> 00:13:15,910 Speaker 1: was daft, I thought, that plan, looks now like it's 239 00:13:16,620 --> 00:13:19,960 Speaker 1: not going to happen. Alex, could you tell us what 240 00:13:20,000 --> 00:13:21,190 Speaker 1: you think at least is going on? 241 00:13:21,620 --> 00:13:24,120 Speaker 2: There's at least a chance that it happens, but we're 242 00:13:24,140 --> 00:13:26,059 Speaker 2: running out of time. We're in the last sitting week 243 00:13:26,120 --> 00:13:29,300 Speaker 2: of parliament, possibly the last sitting week of the government's 244 00:13:29,350 --> 00:13:31,390 Speaker 2: first term, depending on when we go to an election. 245 00:13:31,750 --> 00:13:34,610 Speaker 2: There's two different theories. One is that the shot clock 246 00:13:34,910 --> 00:13:38,690 Speaker 2: simply has run out, and this is a pretty ambitious government. 247 00:13:38,730 --> 00:13:40,750 Speaker 2: There's 70 pieces of legislation that they want to get 248 00:13:40,820 --> 00:13:43,730 Speaker 2: through this year. Clearly that won't happen. But there is 249 00:13:43,770 --> 00:13:47,770 Speaker 2: a view that given, as your listeners will remember, some 250 00:13:47,790 --> 00:13:50,500 Speaker 2: of the proposals they took to the last election, including 251 00:13:50,550 --> 00:13:54,620 Speaker 2: the franking credits proposal and the negative gearing proposal, anything 252 00:13:54,660 --> 00:13:57,859 Speaker 2: that scratches up on a tax, albeit one that should 253 00:13:57,900 --> 00:14:01,059 Speaker 2: only affect people with $ 3 million in their account or more, 254 00:14:01,380 --> 00:14:03,239 Speaker 2: there are some who think they're sort of scared of 255 00:14:03,260 --> 00:14:06,359 Speaker 2: the politics here. And, you know, they don't have the 256 00:14:06,480 --> 00:14:10,059 Speaker 2: bipartisan support for this, and that makes it very difficult. 257 00:14:10,550 --> 00:14:13,170 Speaker 2: And partly that's because of the way that they've drafted it. 258 00:14:13,250 --> 00:14:16,690 Speaker 2: I totally agree with you that the unrealized gains proposal 259 00:14:16,790 --> 00:14:19,600 Speaker 2: is mad, as is the lack of indexing here, so 260 00:14:19,640 --> 00:14:22,180 Speaker 2: that one day this will capture a very large number 261 00:14:22,220 --> 00:14:22,860 Speaker 2: of Australians. 262 00:14:23,320 --> 00:14:26,460 Speaker 1: Yeah, every year captures more people with inflation. Okay, so 263 00:14:26,500 --> 00:14:31,300 Speaker 1: it looks like, for now, it looks extremely unlikely that 264 00:14:31,330 --> 00:14:34,270 Speaker 1: the 3 million tax will get through, folks, in this week. 265 00:14:34,570 --> 00:14:38,040 Speaker 1: And that would mean that it doesn't get through at 266 00:14:38,180 --> 00:14:41,300 Speaker 1: all until there's another sitting of Parliament, which would be post-election. 267 00:14:41,360 --> 00:14:44,410 Speaker 1: So one last thing on this, Alex. I suppose they 268 00:14:44,470 --> 00:14:47,130 Speaker 1: could bring it to the election and then it would 269 00:14:47,170 --> 00:14:49,930 Speaker 1: be an election promise. And then they'd have a stronger 270 00:14:49,990 --> 00:14:52,470 Speaker 1: chance of a stronger mandate of getting it through on 271 00:14:52,510 --> 00:14:54,990 Speaker 1: the far side, especially if they cleaned it up and 272 00:14:55,130 --> 00:14:58,570 Speaker 1: amended a bit more of a practical tax as opposed 273 00:14:58,610 --> 00:15:02,420 Speaker 1: to the sort of very complex dog's breakfast of a 274 00:15:02,520 --> 00:15:03,620 Speaker 1: plan it is at the moment. 275 00:15:04,370 --> 00:15:06,630 Speaker 2: They could, but I'd be very surprised to see that, James, 276 00:15:06,650 --> 00:15:09,470 Speaker 2: given they promised no changes to super last time. I 277 00:15:09,490 --> 00:15:11,370 Speaker 2: think they'd be more likely to do the opposite, which 278 00:15:11,390 --> 00:15:13,210 Speaker 2: would be not take it to the election and then 279 00:15:13,250 --> 00:15:14,830 Speaker 2: potentially introduce it subsequently. 280 00:15:14,850 --> 00:15:17,440 Speaker 1: All right. So they would bring it back. They just 281 00:15:17,460 --> 00:15:19,220 Speaker 1: wouldn't bring it to election. Possibly. 282 00:15:19,240 --> 00:15:22,200 Speaker 2: I actually, while this does affect superannuation and there's an 283 00:15:22,240 --> 00:15:25,700 Speaker 2: important precedent here, particularly for people who have SMSFs, this 284 00:15:25,760 --> 00:15:28,990 Speaker 2: is not really a superannuation story. This is much more 285 00:15:29,130 --> 00:15:32,390 Speaker 2: a budget and tax story. It's about trying to shore 286 00:15:32,430 --> 00:15:34,510 Speaker 2: up the fiscal position in a way that they were 287 00:15:34,550 --> 00:15:37,100 Speaker 2: hoping would be inoffensive. But they've structured it in a 288 00:15:37,130 --> 00:15:40,500 Speaker 2: way that has meant it's not billionaires here who are 289 00:15:40,530 --> 00:15:42,960 Speaker 2: affected by this. There's also plenty of regular farmers and 290 00:15:43,000 --> 00:15:45,400 Speaker 2: small business owners. So I think that's been either a 291 00:15:45,440 --> 00:15:50,760 Speaker 2: misstep in the drafting. They didn't quite realize those were 292 00:15:50,780 --> 00:15:51,920 Speaker 2: the cohorts who would be affected. 293 00:15:52,380 --> 00:15:55,860 Speaker 1: Okay. Yeah. It's funny, isn't it? Every government looks for 294 00:15:55,880 --> 00:15:59,750 Speaker 1: that inoffensive tax. And unfortunately, there's no such thing. Okay, 295 00:15:59,890 --> 00:16:10,300 Speaker 1: we'll take a break. Hello, welcome back to the Australian's 296 00:16:10,360 --> 00:16:13,280 Speaker 1: Money Puzzle. I'm James Kirby. I'm talking to Alex Vicovich. 297 00:16:13,850 --> 00:16:16,830 Speaker 1: He's the Editor-in-Chief of the Connexus Group. And we are 298 00:16:16,890 --> 00:16:19,530 Speaker 1: talking news. We are talking very much news on the 299 00:16:19,590 --> 00:16:23,870 Speaker 1: run here for you, the investor, because as I mentioned, 300 00:16:23,890 --> 00:16:28,050 Speaker 1: you need to know this. It's worth hearing what's going on. So, 301 00:16:28,790 --> 00:16:31,960 Speaker 1: For instance, from that first segment there, I wouldn't be 302 00:16:31,980 --> 00:16:35,100 Speaker 1: waiting around for this 3 million super tax to the 303 00:16:35,160 --> 00:16:39,160 Speaker 1: extent that it affects you or more pertinently to the 304 00:16:39,200 --> 00:16:42,420 Speaker 1: extent that it might affect you someday should you be 305 00:16:42,500 --> 00:16:45,270 Speaker 1: successful in your investing over the long term. So let's 306 00:16:45,290 --> 00:16:48,250 Speaker 1: just put that to one side for the moment. Similarly, 307 00:16:48,650 --> 00:16:51,150 Speaker 1: I think this affects a lot of people. The big 308 00:16:51,190 --> 00:16:54,110 Speaker 1: troubles at the big industry funds, the issue, folks, is 309 00:16:54,130 --> 00:16:58,740 Speaker 1: as an investor, the issue is can they quarantine? the 310 00:16:58,910 --> 00:17:03,000 Speaker 1: ineptness and incompetence that's coming through on the bureaucracy, if 311 00:17:03,040 --> 00:17:05,679 Speaker 1: you like, of the big funds from their investment teams. 312 00:17:06,700 --> 00:17:09,040 Speaker 1: I don't know. I don't know if they can. They 313 00:17:09,080 --> 00:17:11,540 Speaker 1: have so far. That's all I can tell you. But 314 00:17:11,580 --> 00:17:13,520 Speaker 1: I don't know if they can forever. I mean, if 315 00:17:13,680 --> 00:17:16,469 Speaker 1: a fund is completely inept in lots of ways, it's 316 00:17:16,490 --> 00:17:21,970 Speaker 1: unlikely to be superb in the investment department. Now, you 317 00:17:21,990 --> 00:17:26,209 Speaker 1: also published this Professional Planner magazine, more than a magazine. 318 00:17:26,270 --> 00:17:28,869 Speaker 1: It's obviously, it's a website, etc., and you cover all 319 00:17:28,890 --> 00:17:34,729 Speaker 1: the news there. Financial advice, it too is sort of 320 00:17:34,830 --> 00:17:37,450 Speaker 1: stuck in a bit of a political mire, isn't it? 321 00:17:37,470 --> 00:17:40,670 Speaker 1: There was a plan by the Minister Stephen Jones to 322 00:17:40,850 --> 00:17:43,649 Speaker 1: overhaul financial advice in a fairly significant way, cut a 323 00:17:43,690 --> 00:17:46,389 Speaker 1: lot of red tape and allow the big industry funds 324 00:17:46,510 --> 00:17:51,710 Speaker 1: to expand what they offer in financial advice. Could you, 325 00:17:51,869 --> 00:17:54,490 Speaker 1: is it humanly possible to distill all that and tell 326 00:17:54,530 --> 00:17:55,210 Speaker 1: us what's going on? 327 00:17:56,030 --> 00:17:58,730 Speaker 2: Yeah, well, you're right that it is a difficult one 328 00:17:58,770 --> 00:18:01,710 Speaker 2: to distill because the crux of the problem with financial 329 00:18:01,730 --> 00:18:04,930 Speaker 2: advice is actually how complex the laws themselves are. So 330 00:18:04,970 --> 00:18:08,930 Speaker 2: it's no surprise that the debate around that complexity also 331 00:18:09,010 --> 00:18:12,530 Speaker 2: tends to be fairly complex. But basically, it is what 332 00:18:12,550 --> 00:18:14,490 Speaker 2: we see in a lot of areas in the markets, 333 00:18:14,859 --> 00:18:19,200 Speaker 2: which is there is a genuine and probably very needed 334 00:18:19,420 --> 00:18:22,100 Speaker 2: impulse by governments to regulate, which is what we've seen 335 00:18:22,530 --> 00:18:24,470 Speaker 2: Over the last 20 years, there were a range of 336 00:18:24,520 --> 00:18:28,139 Speaker 2: scandals that your paper was covering, and as was I, 337 00:18:28,560 --> 00:18:31,119 Speaker 2: in the financial planning world, largely in the kind of 338 00:18:31,200 --> 00:18:33,879 Speaker 2: bank-owned sort of structure that exists. 339 00:18:33,920 --> 00:18:36,840 Speaker 1: And the banks basically sorted that out by running, and 340 00:18:36,880 --> 00:18:39,700 Speaker 1: they dumped it, right? So we're left with, here's the 341 00:18:39,740 --> 00:18:44,369 Speaker 1: odd thing. There's 15,000 advisors left. There was 30,000 at 342 00:18:44,410 --> 00:18:47,530 Speaker 1: the time of all that Royal Commission. And the fees 343 00:18:47,609 --> 00:18:50,010 Speaker 1: are about five grand a year on an ongoing basis 344 00:18:50,050 --> 00:18:53,600 Speaker 1: for people. Is there anything you see that can improve 345 00:18:53,640 --> 00:18:55,160 Speaker 1: that situation happening now? 346 00:18:55,980 --> 00:18:58,070 Speaker 2: Yeah, well, the first thing I'd say is in the 347 00:18:58,090 --> 00:19:00,570 Speaker 2: last couple of years, we spoke earlier about coming out 348 00:19:00,630 --> 00:19:03,990 Speaker 2: of media super and going into an SMSF myself. And 349 00:19:04,330 --> 00:19:07,530 Speaker 2: one of the things that precipitated that and came along 350 00:19:07,550 --> 00:19:11,050 Speaker 2: with that was becoming a comprehensive advice client, which I'm 351 00:19:11,090 --> 00:19:14,010 Speaker 2: a big believer in. And I pay a lot of money. 352 00:19:14,050 --> 00:19:15,990 Speaker 2: I'm not a rich guy. I'm a journalist like yourself. 353 00:19:16,390 --> 00:19:20,820 Speaker 2: And I do pay these exorbitant rates now for comprehensive advice. 354 00:19:20,840 --> 00:19:22,960 Speaker 2: And I've got to say, I think it's pretty good value. 355 00:19:23,119 --> 00:19:25,440 Speaker 1: So does it save you five grand a year, at least? 356 00:19:26,580 --> 00:19:30,200 Speaker 2: It saves me five grand a year or more, I 357 00:19:30,240 --> 00:19:34,580 Speaker 2: would say, James, in avoided disputes with my spouse. And 358 00:19:34,619 --> 00:19:39,000 Speaker 2: I think that's really what it provides you. It provides 359 00:19:39,040 --> 00:19:42,480 Speaker 2: peace of mind. It provides relationship benefits and all sorts 360 00:19:42,530 --> 00:19:42,850 Speaker 2: of things. 361 00:19:43,090 --> 00:19:47,580 Speaker 1: Could you tell us what, just in nature... The real 362 00:19:47,900 --> 00:19:51,820 Speaker 1: benefits of paying for that advice in nature? Are they tax? 363 00:19:52,420 --> 00:19:55,060 Speaker 1: Are they stopping you doing something? Are they telling you 364 00:19:55,100 --> 00:19:55,980 Speaker 1: something you didn't know? 365 00:19:56,940 --> 00:20:00,399 Speaker 2: I think it's primarily sort of lifestyle and psychological for 366 00:20:00,420 --> 00:20:05,810 Speaker 2: me in terms of knowing that there's a professional that's 367 00:20:05,890 --> 00:20:09,660 Speaker 2: in your court to help help you through big life moments, 368 00:20:09,740 --> 00:20:13,659 Speaker 2: whether it's a pay rise, a redundancy, a change in 369 00:20:13,700 --> 00:20:17,399 Speaker 2: your situation and inheritance. And also, we all get flooded 370 00:20:17,460 --> 00:20:21,740 Speaker 2: with these communications from fund managers and others. If something 371 00:20:21,800 --> 00:20:26,439 Speaker 2: does occasionally pique your interest, having a support staff to 372 00:20:26,480 --> 00:20:29,060 Speaker 2: a financial advisor that you can just quickly flick that to, 373 00:20:29,140 --> 00:20:32,560 Speaker 2: I find that enormously helpful. So I think it's just 374 00:20:32,619 --> 00:20:34,899 Speaker 2: having someone in your corner in what is, even for 375 00:20:34,920 --> 00:20:37,410 Speaker 2: those of us like you and I who are paid 376 00:20:37,450 --> 00:20:41,060 Speaker 2: to understand these things, it is notoriously the complex, right? 377 00:20:41,080 --> 00:20:42,740 Speaker 2: So that's the first thing I'd say is I do 378 00:20:42,760 --> 00:20:45,199 Speaker 2: think it's worth it at the prices they're asking. The 379 00:20:45,240 --> 00:20:48,500 Speaker 2: question is, what model do we come up with for 380 00:20:48,859 --> 00:20:51,340 Speaker 2: regular workers, mums and dads who will never be able 381 00:20:51,359 --> 00:20:54,480 Speaker 2: to afford that, which increasingly there's a large number in 382 00:20:54,500 --> 00:20:57,139 Speaker 2: that pool, right, given cost of living. And so it's 383 00:20:57,200 --> 00:20:59,940 Speaker 2: funny you mentioned the banks getting out. It's a controversial view. 384 00:20:59,980 --> 00:21:02,700 Speaker 2: My personal view is banks probably need to be part 385 00:21:02,720 --> 00:21:06,150 Speaker 2: of the solution because banks That is the organization that 386 00:21:06,210 --> 00:21:10,140 Speaker 2: most Australians have their primary financial relationship with. And yet, 387 00:21:10,440 --> 00:21:12,639 Speaker 2: as you say, if you walk into a bank branch 388 00:21:12,720 --> 00:21:15,359 Speaker 2: tomorrow or more likely use your bank app and you 389 00:21:15,440 --> 00:21:19,260 Speaker 2: ask for financial advice, it's not clear what process is triggered. 390 00:21:19,600 --> 00:21:22,140 Speaker 2: But what is clear is most of the banks provide little, 391 00:21:22,200 --> 00:21:25,679 Speaker 2: if any, financial advice these days. And so the other one, 392 00:21:25,820 --> 00:21:28,120 Speaker 2: given the banks have got little interest, at least until 393 00:21:28,160 --> 00:21:30,780 Speaker 2: the laws change to make them more complex and less 394 00:21:30,840 --> 00:21:34,470 Speaker 2: expensive to comply with, That other option that is coming up, 395 00:21:34,570 --> 00:21:37,530 Speaker 2: which the government's trying to do something about, is expanding 396 00:21:37,570 --> 00:21:40,990 Speaker 2: the options within your super fund. The amount of advice 397 00:21:41,170 --> 00:21:43,510 Speaker 2: that is provided by the fund and in the fund. 398 00:21:43,630 --> 00:21:45,760 Speaker 2: And that's a pretty good idea on paper for the 399 00:21:45,800 --> 00:21:48,400 Speaker 2: same reason I just said. People have an existing relationship. 400 00:21:48,660 --> 00:21:51,500 Speaker 2: They defaulted into this fund. A lot of their questions 401 00:21:51,560 --> 00:21:55,160 Speaker 2: will be about super invariably. But given the politics we've 402 00:21:55,180 --> 00:21:58,090 Speaker 2: just spoken about and how contentious super is, There's a 403 00:21:58,150 --> 00:22:00,110 Speaker 2: lot of issues associated with that. 404 00:22:00,410 --> 00:22:04,530 Speaker 1: Is that anywhere nearer reality in Parliament? 405 00:22:04,550 --> 00:22:08,810 Speaker 2: They have had a few small achievements, it's fair to say, 406 00:22:08,950 --> 00:22:10,910 Speaker 2: over the last couple of years. They have wound back 407 00:22:11,230 --> 00:22:14,330 Speaker 2: a few small things, but most financial advice providers would 408 00:22:14,369 --> 00:22:16,629 Speaker 2: say that's not moving the dial. It's certainly not helping 409 00:22:16,670 --> 00:22:17,930 Speaker 2: them reduce the cost. 410 00:22:18,359 --> 00:22:21,540 Speaker 1: The idea of redrafting legislation to the point that the 411 00:22:21,560 --> 00:22:25,020 Speaker 1: big super funds can expand advice for everyday investors, where's 412 00:22:25,060 --> 00:22:25,379 Speaker 1: that at? 413 00:22:26,400 --> 00:22:29,869 Speaker 2: Well, that's currently, there's an exposure draft. There's draft legislation 414 00:22:29,900 --> 00:22:32,550 Speaker 2: being written at the moment. The problem is the lobbyists 415 00:22:32,630 --> 00:22:34,889 Speaker 2: around this space just don't agree at all on what 416 00:22:34,930 --> 00:22:37,770 Speaker 2: the model should look like. And the dispute, James, is 417 00:22:37,830 --> 00:22:41,310 Speaker 2: around whether or not funds should be able to collectively 418 00:22:41,369 --> 00:22:43,400 Speaker 2: charge their members for the advice. 419 00:22:43,720 --> 00:22:45,500 Speaker 1: Which is what they want, right? That's what they want. 420 00:22:45,940 --> 00:22:48,560 Speaker 2: That's what they want, apparently. They haven't said so publicly, 421 00:22:48,600 --> 00:22:51,220 Speaker 2: it's important to say, but that's what my sources suggest 422 00:22:51,260 --> 00:22:54,060 Speaker 2: and that's what it is believed they are advocating for 423 00:22:54,119 --> 00:22:54,720 Speaker 2: in private. 424 00:22:55,210 --> 00:22:58,130 Speaker 1: Logic would suggest that's how they always want to do things, 425 00:22:58,270 --> 00:22:58,910 Speaker 1: isn't it, really? 426 00:22:59,170 --> 00:23:01,170 Speaker 2: And it's important to note that is how the existing 427 00:23:01,210 --> 00:23:04,010 Speaker 2: model works for what's called intrafund advice, which is a 428 00:23:04,030 --> 00:23:06,690 Speaker 2: much narrower scope form of financial advice. 429 00:23:06,710 --> 00:23:09,680 Speaker 1: Okay, and explain to listeners what's wrong with that. 430 00:23:11,420 --> 00:23:13,520 Speaker 2: Well, it depends on your frames of reference. 431 00:23:13,580 --> 00:23:15,120 Speaker 1: What people say is wrong with that. 432 00:23:15,560 --> 00:23:18,260 Speaker 2: Yeah, I mean, what's wrong with that is that one 433 00:23:18,300 --> 00:23:21,139 Speaker 2: of the main findings of the Banking Royal Commission, if 434 00:23:21,180 --> 00:23:24,050 Speaker 2: people remember, was this idea of fees for no service. 435 00:23:24,450 --> 00:23:27,600 Speaker 2: where people were paying out fees for advice or for 436 00:23:27,640 --> 00:23:30,180 Speaker 2: investment services and then not receiving the benefit of that. 437 00:23:30,840 --> 00:23:33,080 Speaker 2: And critics would say this is the same thing, where 438 00:23:33,400 --> 00:23:35,820 Speaker 2: you're a Superfund member, you don't feel you need advice 439 00:23:35,900 --> 00:23:37,899 Speaker 2: or you don't even know they offer advice, and yet 440 00:23:37,920 --> 00:23:41,679 Speaker 2: you're subsidizing somebody else's advice. Some people take issue with 441 00:23:41,700 --> 00:23:42,620 Speaker 2: that on principle. 442 00:23:42,760 --> 00:23:45,040 Speaker 1: Okay, and you're subsidizing somebody who's in there asking them 443 00:23:45,040 --> 00:23:48,250 Speaker 1: 100 questions, and you're both paying the same rate. You're 444 00:23:48,270 --> 00:23:51,590 Speaker 1: both paying the same rate always, whether you access it 445 00:23:51,650 --> 00:23:54,790 Speaker 1: or not. Okay, very interesting. All right. I think that's 446 00:23:54,810 --> 00:23:56,890 Speaker 1: probably all we can say on financial advice. It's worth 447 00:23:56,930 --> 00:23:59,470 Speaker 1: bringing people up to date on that. It's a pretty 448 00:23:59,530 --> 00:24:03,000 Speaker 1: interesting area, folks. I think just to make one final 449 00:24:03,060 --> 00:24:07,960 Speaker 1: point on that, the industry for all the talk around 450 00:24:08,000 --> 00:24:11,640 Speaker 1: it is very much stuck for now with a model 451 00:24:11,660 --> 00:24:15,990 Speaker 1: which is highly regulated and surveys, which for all of 452 00:24:16,030 --> 00:24:18,889 Speaker 1: late have shown that they are saying, the planners are 453 00:24:18,930 --> 00:24:22,540 Speaker 1: saying that more than 50% of their costs are to 454 00:24:22,560 --> 00:24:26,260 Speaker 1: do regulation as opposed to giving you advice. That's no good. 455 00:24:26,460 --> 00:24:30,320 Speaker 1: That has to improve. But it is in something of 456 00:24:30,340 --> 00:24:43,510 Speaker 1: a political quagmire. OK, back in a moment with some questions. Hello, 457 00:24:43,550 --> 00:24:46,470 Speaker 1: welcome back to the Australian's Money Puzzle podcast. I'm James 458 00:24:46,510 --> 00:24:50,439 Speaker 1: Kirby talking to Alex Vicovich. who's the editor-in-chief at the 459 00:24:50,500 --> 00:24:55,660 Speaker 1: Conexus Financial Group and someone who is very much across, 460 00:24:55,810 --> 00:24:59,010 Speaker 1: particularly across the goings-on, if you like, the big picture 461 00:24:59,550 --> 00:25:03,830 Speaker 1: about financial advice and super in the market and particularly 462 00:25:03,890 --> 00:25:06,810 Speaker 1: in Canberra, which is currently, of course, in its last 463 00:25:06,850 --> 00:25:10,790 Speaker 1: sitting week of parliament where they're trying to squash 70 bills, 464 00:25:11,780 --> 00:25:15,340 Speaker 1: squeeze 70 bills through. Let's say that they won't get 465 00:25:15,340 --> 00:25:18,060 Speaker 1: 70 bills through In the next few days, that's for sure. 466 00:25:18,080 --> 00:25:20,100 Speaker 1: It'll be interesting to see if they get anything in 467 00:25:20,140 --> 00:25:23,100 Speaker 1: relation to our world as investors. Through that would make 468 00:25:23,140 --> 00:25:25,240 Speaker 1: a difference to us. We covered that in the first 469 00:25:25,280 --> 00:25:30,180 Speaker 1: two segments. Now, some interesting questions. Lofty, L-O-F-T-Y. Hi, Lofty. 470 00:25:30,619 --> 00:25:33,030 Speaker 1: I have a question about tax and super. I'm invested 471 00:25:33,090 --> 00:25:36,649 Speaker 1: primarily in low-cost index funds through an industry super fund. Well, 472 00:25:36,670 --> 00:25:39,250 Speaker 1: there you are. I heard recently that tax is withheld 473 00:25:39,270 --> 00:25:42,410 Speaker 1: from returns to provide for future capital gains. Is this true? 474 00:25:43,740 --> 00:25:46,129 Speaker 1: And would this not cause a measurable tax drag on 475 00:25:46,150 --> 00:25:48,889 Speaker 1: the portfolio over the long term? He tells us how 476 00:25:48,930 --> 00:25:52,750 Speaker 1: much he has, whether he should start SMSF. I think 477 00:25:52,830 --> 00:25:54,330 Speaker 1: we might as well put the figure in. I don't 478 00:25:54,369 --> 00:25:56,609 Speaker 1: like normally doing this, but you don't know who Lofty 479 00:25:56,650 --> 00:25:58,689 Speaker 1: is and nor do I. Don't have his surname. And 480 00:25:58,730 --> 00:26:01,400 Speaker 1: this is never advice. This is always information. But he's 481 00:26:01,440 --> 00:26:03,500 Speaker 1: got half a million, which is that sort of amount 482 00:26:03,680 --> 00:26:05,639 Speaker 1: that would have you starting to think about whether you 483 00:26:05,660 --> 00:26:09,620 Speaker 1: should start SMSF. Two parts to that question. The first 484 00:26:09,660 --> 00:26:12,659 Speaker 1: part is about the collection. how they deal with capital 485 00:26:12,700 --> 00:26:14,700 Speaker 1: gains tax in the big super funds. And they play 486 00:26:14,980 --> 00:26:16,890 Speaker 1: a game on that, where they give you a bonus 487 00:26:16,950 --> 00:26:19,189 Speaker 1: if you stay and you lose it if you don't. 488 00:26:20,010 --> 00:26:27,050 Speaker 1: So it is how it works, Lofty. And you have 489 00:26:27,070 --> 00:26:28,610 Speaker 1: to go with it or not go with it. That's 490 00:26:28,650 --> 00:26:30,149 Speaker 1: how they do it. Is that right, Alex? Have you 491 00:26:30,170 --> 00:26:31,190 Speaker 1: any issue with that? 492 00:26:31,810 --> 00:26:35,420 Speaker 2: Yeah, that's right. And I'm glad you gave the figure, James, 493 00:26:35,460 --> 00:26:38,580 Speaker 2: because when it comes to SMSFs, the figure is important, 494 00:26:38,600 --> 00:26:41,620 Speaker 2: or at least it's Seen to be important. So you're right. 495 00:26:42,100 --> 00:26:44,980 Speaker 2: I would say that shouldn't be the determining factor, really, 496 00:26:45,040 --> 00:26:47,419 Speaker 2: of whether you set up an SMSF. I mean, I 497 00:26:47,440 --> 00:26:49,609 Speaker 2: know for me personally, it certainly wasn't about reaching a 498 00:26:49,640 --> 00:26:52,270 Speaker 2: certain threshold and then crossing over. For me, it was 499 00:26:52,330 --> 00:26:55,210 Speaker 2: about wanting to invest in a particular asset that I 500 00:26:55,250 --> 00:26:58,590 Speaker 2: couldn't through my upregulated super fund. So it was very 501 00:26:58,630 --> 00:27:01,570 Speaker 2: much a personal thing. decision i'd also say you know 502 00:27:01,590 --> 00:27:04,500 Speaker 2: i i like the way lofty is already thinking you 503 00:27:04,520 --> 00:27:08,119 Speaker 2: know if they're invested in low-cost index funds through an 504 00:27:08,200 --> 00:27:11,180 Speaker 2: app regulated fund that already indicates to me that they 505 00:27:11,240 --> 00:27:12,760 Speaker 2: are taking some control. 506 00:27:12,359 --> 00:27:15,830 Speaker 1: Yes they're active they're in what's called. 507 00:27:15,590 --> 00:27:18,629 Speaker 2: A choice product effectively or an investment option within a 508 00:27:18,670 --> 00:27:21,750 Speaker 2: fund and you're starting to get closer to the reality 509 00:27:21,790 --> 00:27:24,850 Speaker 2: of what an smsf feels and looks like anyway if 510 00:27:24,890 --> 00:27:27,340 Speaker 2: you want so it's clearly not a totally default option 511 00:27:27,859 --> 00:27:31,320 Speaker 2: that Lofty's gone with here. So if they're already accustomed 512 00:27:31,359 --> 00:27:34,629 Speaker 2: to low cost funds, then that probably sets you up 513 00:27:34,670 --> 00:27:37,409 Speaker 2: well for an SMSF in some ways, because that's one 514 00:27:37,470 --> 00:27:41,010 Speaker 2: way to sort of, there are higher costs, of course, 515 00:27:41,050 --> 00:27:43,690 Speaker 2: associated with the running of the fund and the auditing 516 00:27:43,730 --> 00:27:46,229 Speaker 2: and the tax accounting that you probably need. And so 517 00:27:46,250 --> 00:27:49,290 Speaker 2: if you're in low cost index funds by preference, well, 518 00:27:49,310 --> 00:27:52,149 Speaker 2: then you can use some of that revenue that you 519 00:27:52,190 --> 00:27:55,240 Speaker 2: might otherwise be spending on active management and put it 520 00:27:55,280 --> 00:27:57,850 Speaker 2: towards the running of the fund is, is one thing 521 00:27:57,890 --> 00:28:01,070 Speaker 2: to consider. But as you say, James, I certainly wouldn't 522 00:28:01,109 --> 00:28:05,389 Speaker 2: take tax advice from a journalist. So I'd be going 523 00:28:05,410 --> 00:28:06,409 Speaker 2: to get professional advice. 524 00:28:06,609 --> 00:28:09,949 Speaker 1: Certainly, yeah. To anyone who starts, certainly anyone out there, 525 00:28:09,970 --> 00:28:13,610 Speaker 1: if you're going to start an SMSF, you must. Yeah. 526 00:28:14,170 --> 00:28:16,189 Speaker 2: But I think the point to make is the motivations 527 00:28:16,210 --> 00:28:18,790 Speaker 2: for setting one up. And for me personally, it's that 528 00:28:18,890 --> 00:28:23,109 Speaker 2: freedom and control and willingness to spend your time running 529 00:28:23,150 --> 00:28:25,430 Speaker 2: a fund. I think that needs to be a primary motivator, 530 00:28:25,760 --> 00:28:28,340 Speaker 2: regardless of if you've got 50 grand in there or 531 00:28:28,340 --> 00:28:29,000 Speaker 2: 5 million. 532 00:28:29,780 --> 00:28:31,800 Speaker 1: And as I always say to Lofty and all the 533 00:28:31,820 --> 00:28:34,160 Speaker 1: Loftys out there, you've got to be prepared to fill 534 00:28:34,200 --> 00:28:38,430 Speaker 1: out a lot of forms forever. Hey, is there a 535 00:28:38,450 --> 00:28:43,550 Speaker 1: figure that you personally feel a person would need in 536 00:28:43,590 --> 00:28:45,410 Speaker 1: a fund to start an SMSF? 537 00:28:45,910 --> 00:28:49,660 Speaker 2: Look, it's really contentious, right? As it gives its guidance. 538 00:28:50,120 --> 00:28:53,160 Speaker 2: I think that actually some of these figures are overstated. 539 00:28:53,620 --> 00:28:56,520 Speaker 2: I think the amount of money is not, a problem 540 00:28:56,640 --> 00:29:00,290 Speaker 2: and plenty of experts I speak to increasingly with technology, 541 00:29:00,370 --> 00:29:03,830 Speaker 2: which can bring the cost of servicing the, particularly if 542 00:29:03,890 --> 00:29:06,890 Speaker 2: you are already spending on, for example, a good accountant 543 00:29:07,070 --> 00:29:09,810 Speaker 2: or professional advice, I think you could have well less 544 00:29:09,870 --> 00:29:13,840 Speaker 2: than $ 500, 000 and run a good self-managed super fund. But 545 00:29:13,970 --> 00:29:17,760 Speaker 2: only if you've got the financial literacy and the appetite 546 00:29:17,800 --> 00:29:18,280 Speaker 2: to do it all. 547 00:29:18,460 --> 00:29:21,660 Speaker 1: So you're saying like if somebody was really invested, if 548 00:29:21,680 --> 00:29:27,560 Speaker 1: you like, in their own financial situation, future and were 549 00:29:27,740 --> 00:29:32,920 Speaker 1: numerate and capable and obsessed with low cost, then they 550 00:29:32,940 --> 00:29:35,720 Speaker 1: could start one for much, much less. Is there a 551 00:29:35,760 --> 00:29:39,160 Speaker 1: rock bottom figure of which you say, listen, it's not feasible? 552 00:29:40,060 --> 00:29:42,560 Speaker 2: Look, I mean, it really depends. I mean, if you're 553 00:29:42,580 --> 00:29:45,560 Speaker 2: spending more on the running of the SMSF than you 554 00:29:45,660 --> 00:29:48,100 Speaker 2: are in the returns, then obviously that's not a good 555 00:29:48,140 --> 00:29:50,560 Speaker 2: position to be in as a super fund. You know, 556 00:29:50,640 --> 00:29:54,510 Speaker 2: I certainly have spoken to myself, millennial investors, for example, 557 00:29:54,570 --> 00:29:56,090 Speaker 2: who might only have $ 100, 000 in super and run perfectly good. 558 00:29:59,090 --> 00:30:03,330 Speaker 2: self-managed super funds that are, you know, well-governed and competitive 559 00:30:03,650 --> 00:30:06,290 Speaker 2: with the upper regulated system. So that's not advice, but 560 00:30:06,330 --> 00:30:08,950 Speaker 2: I think much less around the number itself. 561 00:30:09,360 --> 00:30:11,300 Speaker 1: So there you are. You see, if you want to 562 00:30:11,320 --> 00:30:14,160 Speaker 1: be making, if you think about it, if it's 5,000 563 00:30:14,160 --> 00:30:18,160 Speaker 1: ongoing for advice and also other costs, you know, really, 564 00:30:18,240 --> 00:30:21,140 Speaker 1: unless you're bringing in, you know, five and a half 565 00:30:21,200 --> 00:30:24,140 Speaker 1: or six, you should subtract that from what you make. 566 00:30:24,550 --> 00:30:26,550 Speaker 1: So that's what you got to do, guys. Keep that 567 00:30:26,590 --> 00:30:26,810 Speaker 1: in mind. 568 00:30:27,270 --> 00:30:29,080 Speaker 2: I would just add, James, you do see the opposite 569 00:30:29,100 --> 00:30:30,980 Speaker 2: as well, right? I know I've heard of quite a 570 00:30:31,020 --> 00:30:35,600 Speaker 2: few multimillionaires who have recently, you know, cashed in their SMSF, 571 00:30:35,620 --> 00:30:37,980 Speaker 2: shut it down and move back into an upper regulated 572 00:30:38,040 --> 00:30:41,380 Speaker 2: fund due to the ease with which they, you know, 573 00:30:41,400 --> 00:30:43,300 Speaker 2: they don't want to spend as much time anymore running 574 00:30:43,360 --> 00:30:47,360 Speaker 2: the fund or because there's a particular upper regulated industry 575 00:30:47,440 --> 00:30:50,550 Speaker 2: fund or retail fund that they're keen on. So it 576 00:30:50,610 --> 00:30:51,460 Speaker 2: does happen both ways. 577 00:30:52,030 --> 00:30:53,950 Speaker 1: Yeah. And there's a point at which people might say 578 00:30:53,990 --> 00:30:56,120 Speaker 1: they might have started a fund at 40 and they 579 00:30:56,150 --> 00:30:59,900 Speaker 1: might be 70, 80. And they say, oh, you know, 580 00:31:00,120 --> 00:31:01,880 Speaker 1: it's all too hard. I can't do this anymore for 581 00:31:01,900 --> 00:31:04,620 Speaker 1: a variety of reasons. And I'm not just saying mental decline. 582 00:31:04,640 --> 00:31:06,980 Speaker 1: I'm just saying they started the fund because they wanted 583 00:31:07,000 --> 00:31:09,300 Speaker 1: to have a million dollars in super. And now they have. 584 00:31:09,480 --> 00:31:10,840 Speaker 1: And I'm saying, well, I don't have to do all 585 00:31:10,860 --> 00:31:13,340 Speaker 1: that work anymore. OK, we're slightly running out of time. 586 00:31:13,360 --> 00:31:15,510 Speaker 1: I'll just jump to one last question from Russell. 587 00:31:16,710 --> 00:31:17,110 Speaker 2: It's hard. 588 00:31:17,710 --> 00:31:21,320 Speaker 1: Russell says it's hard. It's still hard. to understand the 589 00:31:21,380 --> 00:31:24,980 Speaker 1: risk of private credit. The share market is easy to understand. 590 00:31:25,260 --> 00:31:28,080 Speaker 1: Any day it can drop 25% or more. I like 591 00:31:28,100 --> 00:31:30,080 Speaker 1: the way you put that, Russell. And it grows at 592 00:31:30,120 --> 00:31:33,030 Speaker 1: an average of 9% to 10% per annum over the 593 00:31:33,070 --> 00:31:36,850 Speaker 1: very long term. What would be the black swan events 594 00:31:37,110 --> 00:31:41,990 Speaker 1: that severely damage or wipe out your investments? Hey, Russell, 595 00:31:42,310 --> 00:31:45,310 Speaker 1: they're black swan events. We don't know what they are. 596 00:31:45,470 --> 00:31:49,130 Speaker 1: That's the whole thing. They're black swans. I don't mean 597 00:31:49,170 --> 00:31:52,540 Speaker 1: to be facetious. But that's it. That's the nature of it. 598 00:31:53,400 --> 00:31:55,600 Speaker 1: If I could tell you what the Black Swan events were, 599 00:31:55,800 --> 00:31:56,660 Speaker 1: I'd have a hedge fund. 600 00:31:56,800 --> 00:31:59,440 Speaker 2: We don't know what they are, James, but arguably by 601 00:31:59,480 --> 00:32:01,790 Speaker 2: its very nature, we know what they are in the 602 00:32:01,830 --> 00:32:03,790 Speaker 2: share market better than we know what they are in 603 00:32:03,830 --> 00:32:05,870 Speaker 2: private credit. So that's the first thing that I'd say 604 00:32:06,030 --> 00:32:08,990 Speaker 2: is the clue is in the title. And the fact 605 00:32:09,070 --> 00:32:13,620 Speaker 2: that these are effectively loans that are not connected to 606 00:32:13,680 --> 00:32:17,020 Speaker 2: public markets means by their very nature, they are more 607 00:32:17,140 --> 00:32:20,580 Speaker 2: opaque and you're less able to work out what they're 608 00:32:20,600 --> 00:32:25,200 Speaker 2: really worth. You're less able to obtain reliable research. And 609 00:32:25,240 --> 00:32:27,540 Speaker 2: I'm not saying people shouldn't invest in private credit. It's 610 00:32:27,580 --> 00:32:30,240 Speaker 2: the hottest asset class in the world for a reason, right? 611 00:32:30,300 --> 00:32:33,700 Speaker 2: But that reason is that you can generate a return 612 00:32:34,040 --> 00:32:35,760 Speaker 2: at the moment, or at least we've been able to 613 00:32:35,840 --> 00:32:38,440 Speaker 2: over this past cycle. And that return is based on 614 00:32:38,480 --> 00:32:41,680 Speaker 2: the risk involved. And so very much with private credit, 615 00:32:41,740 --> 00:32:45,060 Speaker 2: there are very real risks that the investors wear. The 616 00:32:45,080 --> 00:32:47,440 Speaker 2: thing to think about mostly in private credit, in my view, 617 00:32:47,520 --> 00:32:50,020 Speaker 2: is less a black swan event that might affect the 618 00:32:50,060 --> 00:32:53,380 Speaker 2: market or the underlying loans, but more about the competency 619 00:32:53,500 --> 00:32:56,520 Speaker 2: of the asset manager involved, assuming there is one involved. 620 00:32:56,560 --> 00:32:58,790 Speaker 2: And if there's not, then I think that's a bit 621 00:32:58,830 --> 00:33:01,690 Speaker 2: of a red flag for me. Because you do see 622 00:33:01,830 --> 00:33:05,910 Speaker 2: at the institutional level, asset managers who truly do specialize 623 00:33:05,970 --> 00:33:08,350 Speaker 2: in this space and have done it for hundreds of years, 624 00:33:08,390 --> 00:33:11,130 Speaker 2: and they've been through lots of different credit cycles. And 625 00:33:11,150 --> 00:33:13,130 Speaker 2: that would give me a little bit more comfort. But 626 00:33:13,250 --> 00:33:16,360 Speaker 2: even then, Let's not pretend lending is easy, right? Credit 627 00:33:16,400 --> 00:33:18,720 Speaker 2: Suisse was doing this for hundreds of years before it 628 00:33:18,900 --> 00:33:21,550 Speaker 2: came unstuck. This is not an easy thing and it 629 00:33:21,590 --> 00:33:22,930 Speaker 2: sometimes gets misconstrued. 630 00:33:23,410 --> 00:33:25,890 Speaker 1: Do you think the chances of the everyday investor getting 631 00:33:25,970 --> 00:33:30,270 Speaker 1: into a good fund are slimmer now that it has 632 00:33:30,330 --> 00:33:32,580 Speaker 1: become the hottest? 633 00:33:32,630 --> 00:33:35,720 Speaker 2: I definitely think, personally, the best way to access private 634 00:33:35,760 --> 00:33:39,440 Speaker 2: credit is probably through a large institutional investor where they 635 00:33:39,540 --> 00:33:42,990 Speaker 2: are through economies of scale. So, you know, the super 636 00:33:43,010 --> 00:33:47,170 Speaker 2: funds themselves are really loading up on private credit. Not 637 00:33:47,210 --> 00:33:49,360 Speaker 2: always in a good way. I mean, there are some examples. 638 00:33:49,410 --> 00:33:52,140 Speaker 2: Australian super, for example, is now doing its own direct 639 00:33:52,280 --> 00:33:55,780 Speaker 2: lending in Europe without an asset manager. That worries me 640 00:33:56,060 --> 00:33:58,720 Speaker 2: a little bit. I don't know what, Australian super certainly 641 00:33:58,760 --> 00:34:02,360 Speaker 2: doesn't have hundreds of years of experience doing that. But nonetheless, 642 00:34:02,760 --> 00:34:05,340 Speaker 2: I think if you want the returns from private credit, 643 00:34:05,660 --> 00:34:09,109 Speaker 2: doing so in a large diversified institutional environment is probably 644 00:34:09,120 --> 00:34:11,759 Speaker 2: a better way to do it. In an SMSF or 645 00:34:11,800 --> 00:34:15,060 Speaker 2: as a private investor, there's still plenty of good private 646 00:34:15,080 --> 00:34:18,419 Speaker 2: credit funds out there. But I also worry that some 647 00:34:18,440 --> 00:34:20,900 Speaker 2: of the problematic funds that are most likely to be 648 00:34:20,960 --> 00:34:23,920 Speaker 2: exposed if there was a Black Swan event, they are 649 00:34:23,960 --> 00:34:27,220 Speaker 2: trying to raise capital from retail and wholesale investors. So 650 00:34:27,370 --> 00:34:29,969 Speaker 2: I certainly think that regular listeners to this who are 651 00:34:29,989 --> 00:34:33,190 Speaker 2: being attracted by the sort of 10% plus returns on 652 00:34:33,250 --> 00:34:36,790 Speaker 2: offer or whatever, this is definitely an area where, you know, 653 00:34:36,830 --> 00:34:39,000 Speaker 2: if it looks too good to be true or if it, 654 00:34:39,050 --> 00:34:41,790 Speaker 2: you know, these are not bonds. It needs to be 655 00:34:41,830 --> 00:34:44,770 Speaker 2: really well understood. And it's a hot market, but I'd 656 00:34:44,790 --> 00:34:45,250 Speaker 2: be cautious. 657 00:34:45,670 --> 00:34:48,730 Speaker 1: Okay. Terrific. Terrific. Thank you very much. And thanks very 658 00:34:48,750 --> 00:34:50,660 Speaker 1: much for coming on the show, Alex. Really good to 659 00:34:50,680 --> 00:34:56,820 Speaker 1: have you. Alex Vicovich there from the Connexus Financial Group. Thanks, Alex. Thanks, James. 660 00:34:57,380 --> 00:35:00,940 Speaker 1: I'd like to thank Leah Samoglu, who did heroic work 661 00:35:01,360 --> 00:35:03,629 Speaker 1: to get on, not so much to produce the show, 662 00:35:03,650 --> 00:35:05,750 Speaker 1: but to get to the point of producing the show today. 663 00:35:06,270 --> 00:35:10,320 Speaker 1: So thank you, Leah, in particular. And let's have some emails, please. 664 00:35:10,719 --> 00:35:14,560 Speaker 1: themoneypuzzle at theaustralian.com.au. Talk to you soon.