1 00:00:10,000 --> 00:00:13,120 Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm 2 00:00:13,200 --> 00:00:17,040 Speaker 1: James Kirby, the World editor at The Australian. Welcome aboard everybody, 3 00:00:17,400 --> 00:00:20,639 Speaker 1: and we're not a news program, as you know, but 4 00:00:20,800 --> 00:00:24,720 Speaker 1: we are alert to news as it happens. And just 5 00:00:24,840 --> 00:00:30,520 Speaker 1: now there's a lot happening for investors around super around 6 00:00:30,520 --> 00:00:37,680 Speaker 1: financial advice, and the landscape is altering quite quickly, and 7 00:00:37,720 --> 00:00:40,120 Speaker 1: I think you know, to be a complete investor, you 8 00:00:40,200 --> 00:00:43,240 Speaker 1: do need to be up to speed with what's happening. 9 00:00:43,240 --> 00:00:45,040 Speaker 1: You don't need to know everything, you don't need to 10 00:00:45,080 --> 00:00:48,120 Speaker 1: know all the macro and all the speculation, but you 11 00:00:48,200 --> 00:00:52,280 Speaker 1: do need to know the terms in which you are investing, 12 00:00:53,080 --> 00:00:58,440 Speaker 1: and that's what today's show will actually hinge on. You 13 00:00:58,480 --> 00:00:59,880 Speaker 1: need to be up to speed. And my guest is 14 00:01:00,360 --> 00:01:03,120 Speaker 1: very much up to speed on all things in this 15 00:01:03,240 --> 00:01:06,639 Speaker 1: area because he's the editor in chief of the Cannexus Group. 16 00:01:07,080 --> 00:01:10,080 Speaker 1: And the Cannexus is a financial publishing and information group 17 00:01:10,080 --> 00:01:13,440 Speaker 1: but has all sorts of arms. It does some professional 18 00:01:13,480 --> 00:01:17,280 Speaker 1: magazines by financial planners, for instance, and it has a 19 00:01:17,319 --> 00:01:21,880 Speaker 1: Connexus Institute, which is a not for profit think tank 20 00:01:22,680 --> 00:01:25,800 Speaker 1: and that issues reports in the area. His name is 21 00:01:25,840 --> 00:01:28,680 Speaker 1: Alex Bikovich first time on the show. Lovely to have him. 22 00:01:28,720 --> 00:01:31,160 Speaker 2: How are you, Alex can I James, thank you for 23 00:01:31,160 --> 00:01:31,520 Speaker 2: having me. 24 00:01:31,920 --> 00:01:33,759 Speaker 1: I've picked a good week to have you, haven't I 25 00:01:33,840 --> 00:01:36,119 Speaker 1: really I don't think I've had as many calls from 26 00:01:36,160 --> 00:01:40,080 Speaker 1: the general newsdesk all year as this week because there's 27 00:01:40,120 --> 00:01:43,360 Speaker 1: so much happening. In fact, there's a Senate committee tomorrow 28 00:01:43,720 --> 00:01:48,000 Speaker 1: on Super for instance, where they're hauling hauling the SeaBus 29 00:01:48,080 --> 00:01:50,560 Speaker 1: Chairman Wayne Swan in front of them. 30 00:01:50,400 --> 00:01:51,880 Speaker 2: At last, against his will. 31 00:01:51,920 --> 00:01:54,880 Speaker 1: I believe against his will it would seem it would 32 00:01:54,880 --> 00:01:59,040 Speaker 1: seem so. And there's been big news on the three 33 00:01:59,080 --> 00:02:02,080 Speaker 1: million super tax, which was the biggest sort of policy 34 00:02:02,160 --> 00:02:04,920 Speaker 1: change in Super some time this week, All sorts of 35 00:02:04,960 --> 00:02:07,280 Speaker 1: things happening, So good to have you on. Look, why 36 00:02:07,280 --> 00:02:09,280 Speaker 1: don't we start first of all with Super and what's 37 00:02:09,280 --> 00:02:13,320 Speaker 1: happening around Super? Because I think people are I have 38 00:02:13,360 --> 00:02:16,360 Speaker 1: to tell you that people are concerned about some of 39 00:02:16,440 --> 00:02:20,040 Speaker 1: the issues in the industry funds. Every industry fund is different, 40 00:02:20,120 --> 00:02:23,519 Speaker 1: but they're all running broadly the same way, and many 41 00:02:23,600 --> 00:02:28,440 Speaker 1: of them Australian Super, Hester, UNI Super, they've all had 42 00:02:29,639 --> 00:02:32,160 Speaker 1: cock ups from want of a better world in recent times. 43 00:02:32,160 --> 00:02:35,200 Speaker 1: SeaBus is outstanding of course, because ASIK are taking them 44 00:02:35,240 --> 00:02:40,120 Speaker 1: to court for delayed payments to on death benefits and disabilities. 45 00:02:40,600 --> 00:02:43,760 Speaker 1: The APPA are also investigating them, So a whole bunch 46 00:02:43,840 --> 00:02:47,799 Speaker 1: of issues around around them and people. Interestingly enough, as 47 00:02:47,800 --> 00:02:50,919 Speaker 1: you'd probably know, Alex, a lot of journalists and media 48 00:02:50,960 --> 00:02:53,760 Speaker 1: people were in Cebus because they were in the old 49 00:02:53,800 --> 00:02:56,040 Speaker 1: media super which was hoovered up by Cebus in the 50 00:02:56,080 --> 00:02:57,160 Speaker 1: way of these big funds. 51 00:02:58,480 --> 00:03:00,600 Speaker 2: That's right. Yeah, I was a member of Media super 52 00:03:00,639 --> 00:03:03,360 Speaker 2: myself before setting up a self managed superfund. 53 00:03:03,600 --> 00:03:07,000 Speaker 1: Snap, so was I. But I could go back to 54 00:03:07,000 --> 00:03:09,359 Speaker 1: two or six for that one. But here's the thing. 55 00:03:09,639 --> 00:03:12,320 Speaker 1: What's your initial impression of this. Is it a year 56 00:03:12,360 --> 00:03:14,160 Speaker 1: where we say this is the year the super funds 57 00:03:14,200 --> 00:03:16,640 Speaker 1: actually had to professionalize and come to the table and 58 00:03:16,760 --> 00:03:19,799 Speaker 1: sort out some of the issues that are not actually, 59 00:03:20,520 --> 00:03:24,080 Speaker 1: in many occasions in the best interests of individual investors. 60 00:03:24,320 --> 00:03:26,239 Speaker 2: Yeah, thanks, Jamee, And I like the way that you 61 00:03:26,639 --> 00:03:30,120 Speaker 2: frame it at the outset. This is a week where 62 00:03:30,200 --> 00:03:33,840 Speaker 2: a whole range of financial services policy debates, you know, 63 00:03:33,960 --> 00:03:36,840 Speaker 2: political fights are coming to a head. But I'd probably 64 00:03:36,920 --> 00:03:39,480 Speaker 2: say that every week in the last thirty years of 65 00:03:39,480 --> 00:03:42,960 Speaker 2: compulsory super has been contentious and there have been big 66 00:03:43,000 --> 00:03:45,960 Speaker 2: political issues just on the super funds themselves. You know, 67 00:03:46,040 --> 00:03:49,840 Speaker 2: we are seeing more scrutiny from regulators. The way that 68 00:03:50,040 --> 00:03:53,840 Speaker 2: the superannuation industry is regulated is really important to understand 69 00:03:53,880 --> 00:03:57,760 Speaker 2: because it has two separate regulators, one that's prudential in 70 00:03:57,960 --> 00:04:01,440 Speaker 2: opera and another one that covers conduct in ASSEIC and 71 00:04:01,640 --> 00:04:04,000 Speaker 2: so no one has a full piece of the sector 72 00:04:04,040 --> 00:04:07,000 Speaker 2: and they just each look at different little bits, but 73 00:04:07,280 --> 00:04:10,520 Speaker 2: both of them are really looking, as is the Parliament, 74 00:04:10,840 --> 00:04:13,640 Speaker 2: at the sort of growth and growth of industry super funds, 75 00:04:13,680 --> 00:04:15,120 Speaker 2: which you'd have to say is one of the biggest 76 00:04:15,120 --> 00:04:17,360 Speaker 2: developments in the Australian economy. 77 00:04:17,680 --> 00:04:20,280 Speaker 1: Four trillion dollar industry now. 78 00:04:20,560 --> 00:04:23,359 Speaker 2: Four trillion dollars is it's just ticked over in the 79 00:04:23,400 --> 00:04:26,479 Speaker 2: last few days in terms of the public reporting of 80 00:04:26,520 --> 00:04:29,960 Speaker 2: that does include the SMSF sector. But the important thing 81 00:04:30,240 --> 00:04:32,880 Speaker 2: around super is not so much the number, but the 82 00:04:32,920 --> 00:04:35,920 Speaker 2: fact that it has effectively a twelve percent maybe one 83 00:04:36,000 --> 00:04:38,960 Speaker 2: day fifteen percent and your lie's growth rate right, so 84 00:04:39,080 --> 00:04:42,080 Speaker 2: that pool really is never shrinking and I think that's 85 00:04:42,120 --> 00:04:45,599 Speaker 2: the first thing to understand about why we're seeing this scrutiny. 86 00:04:45,640 --> 00:04:49,240 Speaker 2: Partly it is just a function of the increasing size. 87 00:04:49,360 --> 00:04:53,520 Speaker 2: You're talking about the world's third biggest pool of retirement assets, 88 00:04:53,600 --> 00:04:57,880 Speaker 2: despite US having a much smaller population than comparable nations. 89 00:04:58,240 --> 00:05:01,040 Speaker 2: And you're also talking about a pool of assets that's 90 00:05:01,240 --> 00:05:03,720 Speaker 2: twice the size of the Australian economy, which is really 91 00:05:03,800 --> 00:05:04,760 Speaker 2: hard to get your heaterin. 92 00:05:05,400 --> 00:05:08,279 Speaker 1: But here's the thing. I suppose people see these issues 93 00:05:08,880 --> 00:05:11,880 Speaker 1: and they are in super funds, and it's only natural 94 00:05:11,920 --> 00:05:17,960 Speaker 1: that people would say, will the investment performance of my 95 00:05:18,279 --> 00:05:24,400 Speaker 1: super be diluted or damaged or weakened by obvious weaknesses 96 00:05:24,560 --> 00:05:27,640 Speaker 1: in other parts of the funds? At c BUS, for instance, 97 00:05:28,000 --> 00:05:31,280 Speaker 1: you know, if they're delaying payments to death benefits and 98 00:05:31,520 --> 00:05:33,520 Speaker 1: treating people badly on that front, is that going to 99 00:05:33,600 --> 00:05:36,880 Speaker 1: hit my investment performance if I can't see if I 100 00:05:36,920 --> 00:05:40,360 Speaker 1: can't access a ORT or UNI super for some reason 101 00:05:40,400 --> 00:05:43,160 Speaker 1: because they've got some it cockup? Well have they got 102 00:05:43,160 --> 00:05:45,760 Speaker 1: it cockups in the investment department? And I think that's 103 00:05:45,760 --> 00:05:49,040 Speaker 1: what people are worried about. Well, yeah, what do you think? 104 00:05:49,080 --> 00:05:50,520 Speaker 1: What would you say to people who come up to 105 00:05:50,520 --> 00:05:52,560 Speaker 1: you on the street and say, I'm worried about my 106 00:05:52,600 --> 00:05:55,479 Speaker 1: industry fund because it's getting all sorts of bad publicity. 107 00:05:56,040 --> 00:05:57,960 Speaker 2: Well, the first thing I'd say is that it's awesome 108 00:05:58,000 --> 00:06:00,840 Speaker 2: they're engaged with the superannuation and what their fund may 109 00:06:00,920 --> 00:06:03,120 Speaker 2: or may not be doing. I think it's important to 110 00:06:03,160 --> 00:06:06,080 Speaker 2: hold them to scrutiny. They are fiduciaries, they have a 111 00:06:06,279 --> 00:06:09,240 Speaker 2: really strong legal obligation to members, and so you know, 112 00:06:09,320 --> 00:06:11,840 Speaker 2: it's great that we're holding them to account. There's two 113 00:06:11,880 --> 00:06:14,119 Speaker 2: separate issues that are really being looked at the moment. 114 00:06:14,160 --> 00:06:16,520 Speaker 2: The one is, as you say, really you could describe 115 00:06:16,520 --> 00:06:19,960 Speaker 2: as member experience the way that funds are engaging with 116 00:06:20,040 --> 00:06:24,200 Speaker 2: their members things like death benefit claims, insurance claims, and 117 00:06:24,240 --> 00:06:27,480 Speaker 2: there's a strong body of evidence that these things need 118 00:06:27,560 --> 00:06:30,479 Speaker 2: to improve. In terms of the links between that and 119 00:06:30,520 --> 00:06:33,840 Speaker 2: the investment performance, maybe you could argue that in so 120 00:06:34,040 --> 00:06:37,160 Speaker 2: far as people are leaving the fund and that therefore 121 00:06:37,720 --> 00:06:41,880 Speaker 2: that reduces the quantum of the assets that they can invest, 122 00:06:42,160 --> 00:06:44,160 Speaker 2: that could have a flow on effect. Or in so 123 00:06:44,360 --> 00:06:48,479 Speaker 2: far as it's distracting key C suite executives from the 124 00:06:48,520 --> 00:06:51,480 Speaker 2: fund to some of these other issues, then you know 125 00:06:51,520 --> 00:06:53,880 Speaker 2: you could argue that's having an effect. But really I 126 00:06:53,920 --> 00:06:57,160 Speaker 2: think you would want to in truth separate these kind 127 00:06:57,200 --> 00:07:01,440 Speaker 2: of member experience in communications issues which are really important 128 00:07:01,440 --> 00:07:04,640 Speaker 2: and which need to improve and which deserve scrutiny from 129 00:07:04,680 --> 00:07:09,039 Speaker 2: the investment performance. But the other area where the regulators 130 00:07:09,040 --> 00:07:10,720 Speaker 2: are cracking down and where we're seeing a lot of 131 00:07:10,800 --> 00:07:14,120 Speaker 2: media activity is on the governance. We're seeing this, of course, 132 00:07:14,200 --> 00:07:16,760 Speaker 2: most notably in the case of c BUS, where there 133 00:07:16,760 --> 00:07:20,040 Speaker 2: have been long standing ties to the CFMAU, the now 134 00:07:20,080 --> 00:07:24,520 Speaker 2: defunct trade union, infamous trade union, and these issues have 135 00:07:24,560 --> 00:07:27,520 Speaker 2: been bubbling away for a long time, not just in 136 00:07:27,520 --> 00:07:30,080 Speaker 2: industry super funds which are union link but right across 137 00:07:30,120 --> 00:07:33,200 Speaker 2: the sector. Who are the right people to be sitting 138 00:07:33,200 --> 00:07:36,320 Speaker 2: on the boards of these organizations, which is a really 139 00:07:36,400 --> 00:07:40,640 Speaker 2: powerful organization. What sort of competencies should they have and 140 00:07:40,880 --> 00:07:44,480 Speaker 2: what governance processes do they have in place to ensure 141 00:07:44,560 --> 00:07:47,680 Speaker 2: that they're investing in a way that's in line with members' 142 00:07:47,680 --> 00:07:50,400 Speaker 2: best interests That I think has a much more meaningful 143 00:07:50,400 --> 00:07:54,440 Speaker 2: and direct influence over the return that members are actually getting. 144 00:07:55,120 --> 00:07:57,200 Speaker 1: One of the things you mentioned there before, when we 145 00:07:57,200 --> 00:08:01,480 Speaker 1: talk about how much is in super a trillion dollars, 146 00:08:01,520 --> 00:08:05,360 Speaker 1: it just so happens. It just occurred. In the September quarter, 147 00:08:05,440 --> 00:08:10,040 Speaker 1: Ato figures that the SMSF sector has passed a trillion 148 00:08:10,080 --> 00:08:12,880 Speaker 1: dollars right, So there you go. Very roughly a quarter 149 00:08:12,960 --> 00:08:15,720 Speaker 1: of all the money in super is in the SMSs. 150 00:08:15,960 --> 00:08:19,120 Speaker 1: Do you self managed super funds? Many of our listeners 151 00:08:19,560 --> 00:08:23,800 Speaker 1: are interested in smsfs. They often write in and should 152 00:08:23,800 --> 00:08:26,400 Speaker 1: I start one, et cetera. We're always having a debate 153 00:08:26,400 --> 00:08:28,840 Speaker 1: about how much you should have in smsfs. But I 154 00:08:28,880 --> 00:08:30,640 Speaker 1: just want to ask you, do you think that this 155 00:08:30,720 --> 00:08:34,680 Speaker 1: will that this very this rocky period for the big 156 00:08:34,720 --> 00:08:39,120 Speaker 1: industry funds will benefit self managed super funds? And if 157 00:08:39,160 --> 00:08:41,600 Speaker 1: people leave interotry funds, I'm guessing they don't go to 158 00:08:41,640 --> 00:08:44,480 Speaker 1: another one. I'm guessing they actually do start an SMSF. 159 00:08:44,640 --> 00:08:45,760 Speaker 1: What's your experience there? 160 00:08:45,840 --> 00:08:47,800 Speaker 2: Look, there's a range of places where people go, is 161 00:08:47,840 --> 00:08:51,319 Speaker 2: my experience. And what the research would show is that statistically, 162 00:08:51,520 --> 00:08:55,480 Speaker 2: very few Australians switch funds at all. And that, you know, 163 00:08:55,520 --> 00:08:58,480 Speaker 2: because we have a default system, and the whole system 164 00:08:58,559 --> 00:09:01,040 Speaker 2: was set up by the unions and and buy the 165 00:09:01,120 --> 00:09:03,680 Speaker 2: people who were advocating for it to be a default 166 00:09:03,679 --> 00:09:06,200 Speaker 2: system that would work in the background while you were 167 00:09:06,200 --> 00:09:08,080 Speaker 2: living your life and you didn't have to really think 168 00:09:08,120 --> 00:09:10,760 Speaker 2: about So, you know, we have seen a slight uptick 169 00:09:10,920 --> 00:09:14,240 Speaker 2: in people switching out of funds in the last year 170 00:09:14,360 --> 00:09:16,680 Speaker 2: or so, and particularly see BUS in more recent times 171 00:09:16,840 --> 00:09:20,320 Speaker 2: has seen some outflows. You know, whether that's fair or not. 172 00:09:20,440 --> 00:09:23,320 Speaker 2: I don't think it's necessarily a reflection on the returns 173 00:09:23,320 --> 00:09:26,160 Speaker 2: they have or haven't been receiving. But I also don't 174 00:09:26,200 --> 00:09:28,200 Speaker 2: think it's I think it's a good thing that people 175 00:09:28,320 --> 00:09:31,360 Speaker 2: are paying attention to these governance issues. 176 00:09:32,040 --> 00:09:34,760 Speaker 1: Our listeners would wouldn't be typical and that they would 177 00:09:34,760 --> 00:09:37,800 Speaker 1: be paying That's why they listened to the show. So 178 00:09:38,240 --> 00:09:41,000 Speaker 1: here's the thing you were saying about the flow on effects. 179 00:09:41,000 --> 00:09:42,640 Speaker 1: So let's say money flows out of a fund. I'm 180 00:09:42,640 --> 00:09:44,960 Speaker 1: not going to pick any fund, but let's say one 181 00:09:45,040 --> 00:09:49,040 Speaker 1: fund it constantly has bad news a month after month, 182 00:09:49,440 --> 00:09:51,520 Speaker 1: and the money starts to flow out. That is, there 183 00:09:51,520 --> 00:09:54,760 Speaker 1: are net outflows, right, so there's more money going out. 184 00:09:55,000 --> 00:09:59,199 Speaker 1: And let's say their investment team were unchanged. What could 185 00:09:59,240 --> 00:10:03,200 Speaker 1: occur that what would be the problem that they'd have 186 00:10:03,240 --> 00:10:06,640 Speaker 1: to charge more to Is that it that their costs 187 00:10:06,800 --> 00:10:09,719 Speaker 1: would effectively have to go up because their revenue is 188 00:10:09,760 --> 00:10:11,679 Speaker 1: going down or how would it work well? 189 00:10:11,679 --> 00:10:13,640 Speaker 2: I think that would be a big decision to make. 190 00:10:13,679 --> 00:10:16,120 Speaker 2: And there's all sorts of regulations that would prevent them 191 00:10:16,280 --> 00:10:19,480 Speaker 2: from that being their first port of call, but it 192 00:10:19,600 --> 00:10:22,520 Speaker 2: changes their liquidity profile, right, So it means if you 193 00:10:22,640 --> 00:10:25,880 Speaker 2: are seeing people in outflow, it naturally changes the way 194 00:10:26,040 --> 00:10:28,160 Speaker 2: you invest because you need to be in a position 195 00:10:28,440 --> 00:10:30,520 Speaker 2: where you can pay people out. And the thing about 196 00:10:30,520 --> 00:10:33,400 Speaker 2: a lot of big industry super funds, particularly those that 197 00:10:33,440 --> 00:10:36,960 Speaker 2: have a very young membership base, is they invest in 198 00:10:36,960 --> 00:10:39,199 Speaker 2: a way where they don't expect to be paying people 199 00:10:39,200 --> 00:10:42,240 Speaker 2: out in pensions for many decades. On the whole, that 200 00:10:42,320 --> 00:10:45,640 Speaker 2: allows them to invest in venture capital, It allows them 201 00:10:45,679 --> 00:10:48,320 Speaker 2: to be a little bit more aggressive in the share market, 202 00:10:48,720 --> 00:10:50,840 Speaker 2: and so if they were to start to see outflows, 203 00:10:51,080 --> 00:10:54,200 Speaker 2: that would meaningfully change their investment behavior in that way. 204 00:10:55,120 --> 00:10:57,600 Speaker 2: The other thing is that you know, the size of 205 00:10:57,679 --> 00:11:01,120 Speaker 2: the poll obviously determines what sort of assets you can 206 00:11:01,120 --> 00:11:03,240 Speaker 2: invest in, and a lot of super funds have a 207 00:11:03,280 --> 00:11:08,160 Speaker 2: real preference, rightly or wrongly, for big unlisted assets like 208 00:11:08,280 --> 00:11:11,319 Speaker 2: airports and toll roads and things that you and they 209 00:11:11,440 --> 00:11:14,040 Speaker 2: co invest or they directly invest in these assets, not 210 00:11:14,080 --> 00:11:17,000 Speaker 2: always via a managed fund, So you know, to the 211 00:11:17,080 --> 00:11:19,920 Speaker 2: extent that was depleted, that would be a very real 212 00:11:19,960 --> 00:11:23,040 Speaker 2: difference in terms of their investment strategy. 213 00:11:23,040 --> 00:11:25,280 Speaker 1: Is it Does it concern you when you see occasionally 214 00:11:25,400 --> 00:11:29,280 Speaker 1: big losses in that onlisted area commercial property obviously are 215 00:11:29,320 --> 00:11:32,040 Speaker 1: several funds, but also occasionally, out of the blue, we 216 00:11:32,120 --> 00:11:35,240 Speaker 1: see big funds taking you know, a big hit on 217 00:11:35,679 --> 00:11:39,040 Speaker 1: obviously a big bet on something here and there. 218 00:11:39,600 --> 00:11:42,120 Speaker 2: It does consume me to some extent, because you know, 219 00:11:42,160 --> 00:11:43,920 Speaker 2: you never want to see a loss either by an 220 00:11:43,960 --> 00:11:47,520 Speaker 2: individual private household or by a major super fund. But 221 00:11:47,600 --> 00:11:50,240 Speaker 2: I think it's important to remember these funds are pretty 222 00:11:50,240 --> 00:11:53,760 Speaker 2: well diversified. And the other thing I mean, as a journalist, 223 00:11:54,000 --> 00:11:56,000 Speaker 2: you want to jump on these stories. We're right to 224 00:11:56,040 --> 00:11:59,440 Speaker 2: focus on them. But the thing I worry more about, James, 225 00:11:59,520 --> 00:12:02,600 Speaker 2: is actually that you've got this culture, particularly within the 226 00:12:02,640 --> 00:12:07,520 Speaker 2: big funds, of real cautiousness and political correctness, and they 227 00:12:07,559 --> 00:12:10,319 Speaker 2: don't want to be too they don't want to take 228 00:12:10,360 --> 00:12:14,079 Speaker 2: on any risks. They'd all happy, happily be fast followers, 229 00:12:14,360 --> 00:12:18,840 Speaker 2: but they don't innovate. I worry that therefore sometimes they're 230 00:12:18,880 --> 00:12:23,000 Speaker 2: missing opportunities frankly, where you know, the investors they've got 231 00:12:23,040 --> 00:12:25,560 Speaker 2: on start are very keen to pursue an opportunity, but 232 00:12:25,640 --> 00:12:28,480 Speaker 2: they're so scared of media Backlasher of getting it wrong, 233 00:12:28,920 --> 00:12:31,559 Speaker 2: and as your listeners will realize, getting it wrong sometime 234 00:12:31,720 --> 00:12:34,160 Speaker 2: is a really healthy and normal part of investing right, 235 00:12:34,160 --> 00:12:36,160 Speaker 2: and these are entirely well diversified. 236 00:12:36,320 --> 00:12:38,920 Speaker 1: You're talking strictly in the investment sense of getting an 237 00:12:38,960 --> 00:12:42,160 Speaker 1: investment as opposed to getting a process wrong like a 238 00:12:42,240 --> 00:12:46,800 Speaker 1: payouts or whatever. Payments Okay, on also on super it 239 00:12:46,880 --> 00:12:50,720 Speaker 1: would seem, and he says, I say this, folks carefully, 240 00:12:50,920 --> 00:12:55,080 Speaker 1: it would seem that for all the attention, for all 241 00:12:55,200 --> 00:12:58,800 Speaker 1: the what they used to call many calumintions of coverage 242 00:12:59,120 --> 00:13:03,880 Speaker 1: on the plan to introduce a new supertax of fifteen 243 00:13:03,920 --> 00:13:08,679 Speaker 1: percent on amounts over three million on believe it or not, 244 00:13:08,840 --> 00:13:13,520 Speaker 1: on realized gains, which was daft, I thought that plan 245 00:13:14,480 --> 00:13:18,880 Speaker 1: looks now like it's not going to happen. Alex, could 246 00:13:18,920 --> 00:13:21,240 Speaker 1: you tell us what you think at least is going on. 247 00:13:21,600 --> 00:13:23,920 Speaker 2: There's at least a chance that it happens about you know, 248 00:13:23,960 --> 00:13:25,920 Speaker 2: we're running out of time. We're in the last sitting 249 00:13:25,920 --> 00:13:28,839 Speaker 2: week of parliament, possibly the last sitting week of the 250 00:13:28,880 --> 00:13:31,320 Speaker 2: government's first term, depending on when we go to an election. 251 00:13:31,720 --> 00:13:34,680 Speaker 2: There's two different theories. One is that the shot clock 252 00:13:34,880 --> 00:13:38,679 Speaker 2: simply has run out and This is a pretty ambitious government. 253 00:13:38,720 --> 00:13:40,800 Speaker 2: There's seventy pieces of legislation that they want to get 254 00:13:40,840 --> 00:13:43,760 Speaker 2: through this year. Clearly that won't happen, but there is 255 00:13:43,800 --> 00:13:47,719 Speaker 2: a view that given as your listeners will remember some 256 00:13:47,800 --> 00:13:50,520 Speaker 2: of the proposals they took to the last election, including 257 00:13:50,600 --> 00:13:54,680 Speaker 2: the franking credits proposal and the negative gearing proposal, anything 258 00:13:54,679 --> 00:13:57,920 Speaker 2: that scratches up on a tax, albeit one that should 259 00:13:57,920 --> 00:14:01,080 Speaker 2: only affect people with three million in their account or more. 260 00:14:01,360 --> 00:14:03,280 Speaker 2: There are some who think they're sort of scared of 261 00:14:03,280 --> 00:14:05,960 Speaker 2: the politics here, and you know, there were some They 262 00:14:06,000 --> 00:14:09,320 Speaker 2: don't have the bipartisan support for this and that makes 263 00:14:09,320 --> 00:14:12,199 Speaker 2: it very difficult. And partly that's because of the way 264 00:14:12,240 --> 00:14:14,400 Speaker 2: that they've drafted. And I totally agree with you that 265 00:14:14,440 --> 00:14:18,559 Speaker 2: the unrealized gains proposal is mad, as is the lack 266 00:14:18,600 --> 00:14:21,200 Speaker 2: of indexing here, so that one day this will capture 267 00:14:21,240 --> 00:14:23,120 Speaker 2: a very large number of Australians. 268 00:14:23,400 --> 00:14:26,440 Speaker 1: Yeah, every year captures more people with inflation. Okay, So 269 00:14:26,480 --> 00:14:31,200 Speaker 1: it looks like for now it looks extremely unlikely that 270 00:14:31,280 --> 00:14:34,360 Speaker 1: the three million tags will get through folks in this week, 271 00:14:34,520 --> 00:14:38,080 Speaker 1: and that would mean that it doesn't get through at 272 00:14:38,080 --> 00:14:40,400 Speaker 1: all until there's another sitting of parlems, which would be 273 00:14:40,440 --> 00:14:43,000 Speaker 1: co post elections. So one last thing on this, Alex, 274 00:14:43,680 --> 00:14:46,640 Speaker 1: I suppose they could bring it to the election and 275 00:14:46,680 --> 00:14:49,360 Speaker 1: then it would be an election promise, and then they'd 276 00:14:49,400 --> 00:14:52,040 Speaker 1: have a stronger chance, have a stronger mandate of getting 277 00:14:52,080 --> 00:14:54,120 Speaker 1: it through on the far side, especially if they cleaned 278 00:14:54,120 --> 00:14:57,080 Speaker 1: it up and amedded a bit more of a practical 279 00:14:57,360 --> 00:15:01,760 Speaker 1: attax as opposed to the sort of very complex dog's 280 00:15:01,760 --> 00:15:03,080 Speaker 1: breakfast of a plant is. 281 00:15:03,080 --> 00:15:05,880 Speaker 2: At the moment, they could, but I'd be very surprised 282 00:15:05,920 --> 00:15:08,160 Speaker 2: to see that, James, given they promised no changes to 283 00:15:08,240 --> 00:15:10,600 Speaker 2: super last time. I think they'd be more likely to 284 00:15:10,600 --> 00:15:12,240 Speaker 2: do the opposite, which would be not take it to 285 00:15:12,240 --> 00:15:14,920 Speaker 2: the election and then potentially introduced its subsequently. 286 00:15:15,080 --> 00:15:17,320 Speaker 1: All right, so they would bring it back, they just 287 00:15:17,360 --> 00:15:19,280 Speaker 1: wouldn't bring it to elections possibly. 288 00:15:19,440 --> 00:15:22,240 Speaker 2: I Actually, while this does affect superannuation and there's an 289 00:15:22,240 --> 00:15:25,680 Speaker 2: important precedent here, particularly for people who have SMSs, this 290 00:15:25,800 --> 00:15:28,960 Speaker 2: is not really a superannuation story. This is much more 291 00:15:29,040 --> 00:15:32,400 Speaker 2: a budget and tax story. It's about trying to shore 292 00:15:32,480 --> 00:15:34,560 Speaker 2: up the fiscal position in a way that they were 293 00:15:34,560 --> 00:15:37,400 Speaker 2: hoping would be inoffensive. But they're structured in a way 294 00:15:37,440 --> 00:15:40,920 Speaker 2: that has meant it's not billionaires here who are affected 295 00:15:40,960 --> 00:15:43,240 Speaker 2: by this. There's also plenty of regular farmers and small 296 00:15:43,280 --> 00:15:45,960 Speaker 2: business owners. So I think that's been either a misstep 297 00:15:46,200 --> 00:15:50,640 Speaker 2: in the drafting. You know, they didn't quite realize those 298 00:15:50,640 --> 00:15:52,040 Speaker 2: were the cohorts who would be affected. 299 00:15:52,360 --> 00:15:55,800 Speaker 1: Okay, Yeah, it's funny, isn't it. There Every government looks 300 00:15:55,800 --> 00:15:59,760 Speaker 1: for that inoffensive tax and unfortunately there's no such thing. Okay, 301 00:16:00,120 --> 00:16:11,040 Speaker 1: take a break. Hello, Welcome back to The Australian's Money Puzzle. 302 00:16:11,120 --> 00:16:14,040 Speaker 1: I'm James Kirby. I'm talking to Alex Vikovic. He's the 303 00:16:14,120 --> 00:16:16,880 Speaker 1: editor in chief of the CONNECTSUS group, and we are 304 00:16:16,920 --> 00:16:19,560 Speaker 1: talking news. We are talking very much news on the 305 00:16:19,600 --> 00:16:23,920 Speaker 1: run here for you the investor, because as I mentioned, 306 00:16:24,720 --> 00:16:28,000 Speaker 1: need to know this. It's worth hearing what's going on. So, 307 00:16:28,800 --> 00:16:32,000 Speaker 1: for instance, from that first segment there, I wouldn't be 308 00:16:32,040 --> 00:16:35,120 Speaker 1: waiting around for this three million super tax to the 309 00:16:35,160 --> 00:16:38,200 Speaker 1: extent that it affects you, or more pertinently, to the 310 00:16:38,280 --> 00:16:41,520 Speaker 1: effect to the extent that it might affect you someday 311 00:16:41,880 --> 00:16:44,680 Speaker 1: should you be successful and you're investing over the long term. 312 00:16:44,760 --> 00:16:48,200 Speaker 1: So let's just put that to one side for the moment. Similarly, 313 00:16:48,840 --> 00:16:50,880 Speaker 1: now I think this affects a lot of people. The 314 00:16:50,920 --> 00:16:53,960 Speaker 1: big troubles at the big industry funds. The issue, folks, 315 00:16:54,040 --> 00:16:56,960 Speaker 1: is for as an investor, the issue is can they 316 00:16:57,040 --> 00:17:02,200 Speaker 1: quarantine the ineptness and competence that's coming through on the 317 00:17:02,240 --> 00:17:04,720 Speaker 1: bureaucracy if you like, of the big funds from their 318 00:17:04,760 --> 00:17:08,560 Speaker 1: investment teams. I don't know. I don't know if they can. 319 00:17:08,880 --> 00:17:11,000 Speaker 1: They have so far, that's all I can tell you, 320 00:17:11,400 --> 00:17:13,119 Speaker 1: but I don't know if they can forever. I mean, 321 00:17:13,119 --> 00:17:16,080 Speaker 1: if a fund is completely inept in lots of ways, 322 00:17:16,320 --> 00:17:20,280 Speaker 1: it's likely to be superb in the investment department. Now, 323 00:17:21,800 --> 00:17:25,840 Speaker 1: you also published this professional planner magazine more than a 324 00:17:25,880 --> 00:17:28,359 Speaker 1: magazine the topic, it's a website, et cetera, and you 325 00:17:28,480 --> 00:17:34,359 Speaker 1: cover all the news there. Financial advice it too, is 326 00:17:34,440 --> 00:17:36,920 Speaker 1: sort of stuck in a bit of a political mire. 327 00:17:37,119 --> 00:17:39,679 Speaker 1: Isn't that There was a plan by the Minister Stephen 328 00:17:39,720 --> 00:17:43,360 Speaker 1: Jones to overhaul financial advice in a fairly significant way, 329 00:17:43,440 --> 00:17:45,640 Speaker 1: cut a lot of red tape and allowed the big 330 00:17:45,680 --> 00:17:49,680 Speaker 1: industry funds to expand what they offer in financial advice. 331 00:17:51,080 --> 00:17:54,199 Speaker 1: Could you is it humanly possible to distill all that 332 00:17:54,280 --> 00:17:55,280 Speaker 1: and tell us what's going on? 333 00:17:56,040 --> 00:17:58,800 Speaker 2: Yeah, well, you're right that it is a difficult one 334 00:17:58,800 --> 00:18:01,720 Speaker 2: to distill because the crux of the problem with financial 335 00:18:01,760 --> 00:18:04,919 Speaker 2: advice is actually how complex the laws themselves are. So 336 00:18:04,960 --> 00:18:08,880 Speaker 2: it's no surprise that the debate around that complexity also 337 00:18:09,040 --> 00:18:12,520 Speaker 2: tends to be fairly complex. But basically it is what 338 00:18:12,560 --> 00:18:14,600 Speaker 2: we see in a lot of areas in the markets, 339 00:18:14,840 --> 00:18:18,679 Speaker 2: which is there is a genuine and probably very you know, 340 00:18:18,880 --> 00:18:21,880 Speaker 2: needed impulse by governments to regulate, which is what we've 341 00:18:21,920 --> 00:18:24,480 Speaker 2: seen over the last twenty years. There were a ranger 342 00:18:24,560 --> 00:18:27,119 Speaker 2: scandals that you've now you know that your paper was covering, 343 00:18:27,440 --> 00:18:30,600 Speaker 2: and as was I in the financial planning world, largely 344 00:18:30,640 --> 00:18:34,240 Speaker 2: in the kind of bank owned sort of structure that exists. 345 00:18:33,920 --> 00:18:36,800 Speaker 1: And the banks basically sorted that out by running and 346 00:18:36,840 --> 00:18:39,720 Speaker 1: they dumped it. Right, So we're left. But here's the 347 00:18:39,720 --> 00:18:43,879 Speaker 1: odd thing. There's fifteen thousand advisors left. There was thirty 348 00:18:43,920 --> 00:18:46,959 Speaker 1: thousand at the time of all the Fluid Commission, and 349 00:18:47,000 --> 00:18:49,160 Speaker 1: the fees are about five grand a year on an 350 00:18:49,160 --> 00:18:53,239 Speaker 1: ongoing basis for people. So anything you see that can 351 00:18:53,280 --> 00:18:55,000 Speaker 1: improve that situation happening. 352 00:18:55,040 --> 00:18:57,959 Speaker 2: Now, Yeah, Well, the first thing I'd say is in 353 00:18:58,000 --> 00:18:59,760 Speaker 2: the last couple of years, you know, we spoke earlier 354 00:18:59,760 --> 00:19:02,879 Speaker 2: about coming out of media super and going into an 355 00:19:02,960 --> 00:19:06,640 Speaker 2: SMSF myself. And one of the things that precipitated that 356 00:19:06,960 --> 00:19:10,679 Speaker 2: and came along with that was becoming a comprehensive advice client, 357 00:19:10,720 --> 00:19:13,520 Speaker 2: which I'm a big believer in, and I pay a 358 00:19:13,560 --> 00:19:15,000 Speaker 2: lot of money. I'm not a rich guy. I'm a 359 00:19:15,080 --> 00:19:18,240 Speaker 2: journalist like yourself, and I you know, I do pay 360 00:19:18,520 --> 00:19:21,280 Speaker 2: these exorbitant rates now for comprehensive advice, and I've got 361 00:19:21,280 --> 00:19:23,000 Speaker 2: to say, I think it's pretty good value. 362 00:19:23,119 --> 00:19:24,760 Speaker 1: So does it save you five grand a year? 363 00:19:25,000 --> 00:19:29,960 Speaker 2: At least it saves me five grand a year or more? 364 00:19:30,119 --> 00:19:34,160 Speaker 2: I would say, James in In avoided disputes with my spouse, 365 00:19:34,440 --> 00:19:37,560 Speaker 2: And I think that's really what it provides you is 366 00:19:38,280 --> 00:19:42,040 Speaker 2: you know, it provides peace of mind, It provides relationship benefits, 367 00:19:42,040 --> 00:19:42,920 Speaker 2: and all sorts of things. 368 00:19:43,040 --> 00:19:46,240 Speaker 1: Could you tell us what I don't just in nature? 369 00:19:47,080 --> 00:19:51,000 Speaker 1: The real benefits of paying for that advice in nature? 370 00:19:51,040 --> 00:19:54,480 Speaker 1: Are they tax Are they stopping you doing something? Are 371 00:19:54,480 --> 00:19:56,879 Speaker 1: they telling you something you didn't know? What is it? 372 00:19:57,000 --> 00:20:00,560 Speaker 2: I think it's primarily sort of lifestyle and psychology for me, 373 00:20:00,960 --> 00:20:05,880 Speaker 2: in terms of the knowing that there's a professional that's 374 00:20:05,880 --> 00:20:09,680 Speaker 2: in your court to help you through big life moments, 375 00:20:09,760 --> 00:20:13,679 Speaker 2: whether it's a pay rise, a redundancy, a change in 376 00:20:13,720 --> 00:20:16,800 Speaker 2: your situation and inheritance. And also, you know, we all 377 00:20:16,800 --> 00:20:21,200 Speaker 2: get flooded with these communications from fund managers and others. 378 00:20:21,240 --> 00:20:24,399 Speaker 2: If something does occasionally pique your interest, you know, having 379 00:20:24,880 --> 00:20:27,760 Speaker 2: a support staff to a financial advisor that you can 380 00:20:27,800 --> 00:20:31,600 Speaker 2: just quickly flick that to, I find that enormously helpful. 381 00:20:31,680 --> 00:20:33,919 Speaker 2: So I think it's just having someone in your corner 382 00:20:34,000 --> 00:20:36,080 Speaker 2: in what is even for those of us like you 383 00:20:36,119 --> 00:20:39,080 Speaker 2: and I who are paid to understand these things. It 384 00:20:39,160 --> 00:20:42,119 Speaker 2: is notoriously the complex, right, So that's the first thing 385 00:20:42,119 --> 00:20:43,760 Speaker 2: I'd say is I do think it's worth it at 386 00:20:43,800 --> 00:20:47,159 Speaker 2: the prices they're asking. The question is what model do 387 00:20:47,240 --> 00:20:50,640 Speaker 2: we come up with for regular workers, mums and dads 388 00:20:50,640 --> 00:20:53,080 Speaker 2: who will never be able to afford that, which increasingly 389 00:20:53,119 --> 00:20:55,840 Speaker 2: there's a large number in that pool right given cost 390 00:20:55,840 --> 00:20:58,240 Speaker 2: of living. And so it's funny you mentioned the banks 391 00:20:58,240 --> 00:21:00,920 Speaker 2: getting out. It's a controversial view and my personal view 392 00:21:00,960 --> 00:21:03,320 Speaker 2: is banks probably need to be part of the solution 393 00:21:03,600 --> 00:21:07,400 Speaker 2: because that is the organization that most Australians have their 394 00:21:07,440 --> 00:21:11,440 Speaker 2: primary financial relationship with. And yet, as you say, if 395 00:21:11,440 --> 00:21:13,920 Speaker 2: you walk into a bank branch tomorrow, or more likely 396 00:21:14,040 --> 00:21:16,760 Speaker 2: use your bank app and you ask for financial advice. 397 00:21:17,040 --> 00:21:20,040 Speaker 2: It's not clear what process is triggered, but what is 398 00:21:20,080 --> 00:21:22,600 Speaker 2: clear is most of the banks provide little if any 399 00:21:22,840 --> 00:21:26,040 Speaker 2: financial advice these days, and so the other one given 400 00:21:26,040 --> 00:21:28,240 Speaker 2: the banks have got little interest at least until the 401 00:21:28,280 --> 00:21:31,440 Speaker 2: laws change to make them more complex and less expensive 402 00:21:31,520 --> 00:21:34,760 Speaker 2: to comply. That other option that is coming up, which 403 00:21:34,800 --> 00:21:37,679 Speaker 2: the government's trying to do something about, is expanding the 404 00:21:37,720 --> 00:21:41,280 Speaker 2: options within your super fund, the amount of advice that 405 00:21:41,440 --> 00:21:43,760 Speaker 2: is provided by the fund and in the fund. And 406 00:21:44,080 --> 00:21:46,000 Speaker 2: that's a pretty good idea on paper. For the same 407 00:21:46,000 --> 00:21:48,840 Speaker 2: reason I just said. People have an existing relationship, they're 408 00:21:48,880 --> 00:21:51,760 Speaker 2: defaulted into this fund. A lot of their questions will 409 00:21:51,800 --> 00:21:55,320 Speaker 2: be about SUPER invariably, But given the politics we've just 410 00:21:55,320 --> 00:21:58,400 Speaker 2: spoken about and how contentious Super is, there's a lot 411 00:21:58,440 --> 00:21:59,840 Speaker 2: of issues associated with. 412 00:22:00,400 --> 00:22:04,720 Speaker 1: Is there anywhere nearer reality than in Parliament than. 413 00:22:06,200 --> 00:22:08,600 Speaker 2: I have had a few small achievements. It's fair to 414 00:22:08,640 --> 00:22:10,800 Speaker 2: say over the last couple of years they have wound 415 00:22:10,800 --> 00:22:14,160 Speaker 2: back a few small things. But most financial advice providers 416 00:22:14,200 --> 00:22:16,320 Speaker 2: would say that's not moving the dial. It's certainly not 417 00:22:16,400 --> 00:22:17,960 Speaker 2: helping them reduce their cost. 418 00:22:18,359 --> 00:22:21,520 Speaker 1: The idea of redrafting legislation to the point that the 419 00:22:21,560 --> 00:22:24,639 Speaker 1: big super funds can expand advice for every day investors. 420 00:22:24,760 --> 00:22:28,560 Speaker 2: Where's that at, Well, that's currently there's an exposure draft, 421 00:22:28,600 --> 00:22:31,800 Speaker 2: there's draft legislation being written at the moment. The problem 422 00:22:31,840 --> 00:22:34,119 Speaker 2: is the lobbyists around the space just don't agree at 423 00:22:34,160 --> 00:22:36,439 Speaker 2: all on what's what the model should look like. And 424 00:22:36,480 --> 00:22:40,240 Speaker 2: the dispute James is around whether or not funds should 425 00:22:40,240 --> 00:22:43,880 Speaker 2: be able to collectively charge their members for the advice. 426 00:22:43,640 --> 00:22:45,639 Speaker 1: Which is what they want, right, that's what they want. 427 00:22:45,960 --> 00:22:48,560 Speaker 2: That's what they want. Apparently they haven't said so publicly. 428 00:22:48,600 --> 00:22:51,240 Speaker 2: It's important to say, but that's what my sources suggest, 429 00:22:51,280 --> 00:22:54,000 Speaker 2: and that's what it is believed they are advocating for 430 00:22:54,119 --> 00:22:54,720 Speaker 2: in private. 431 00:22:55,200 --> 00:22:58,200 Speaker 1: Logic would suggest that's how they always want to do things, 432 00:22:58,320 --> 00:22:59,240 Speaker 1: isn't it really. 433 00:22:59,160 --> 00:23:01,560 Speaker 2: And it's important to that is how the existing model 434 00:23:01,800 --> 00:23:04,320 Speaker 2: works for what's called intrafund advice, which is a much 435 00:23:04,600 --> 00:23:06,639 Speaker 2: narrower scope form of financial advice. 436 00:23:06,720 --> 00:23:09,720 Speaker 1: Okay, and it's explained to listeners what's wrong with that? 437 00:23:11,359 --> 00:23:13,119 Speaker 2: Well, it depends on your frames of reference. 438 00:23:13,600 --> 00:23:15,280 Speaker 1: What people say is wrong with that? 439 00:23:15,560 --> 00:23:18,280 Speaker 2: Yeah, I mean what's wrong with that is that one 440 00:23:18,280 --> 00:23:21,159 Speaker 2: of the main findings of the Banking Royal Commission, if 441 00:23:21,200 --> 00:23:24,120 Speaker 2: people remember, was this idea of fees for no service, 442 00:23:24,400 --> 00:23:27,600 Speaker 2: where people were paying out fees for advice or for 443 00:23:27,680 --> 00:23:30,280 Speaker 2: investment services and then not receiving the benefit of that. 444 00:23:30,800 --> 00:23:33,119 Speaker 2: And critics would say, this is the same thing where 445 00:23:33,400 --> 00:23:35,840 Speaker 2: you're a super fund member, you don't feel you need advice, 446 00:23:35,960 --> 00:23:37,960 Speaker 2: or you don't even know they offer advice, and yet 447 00:23:37,960 --> 00:23:41,760 Speaker 2: you're subsidizing somebody else's advice. Some people take issue with 448 00:23:41,760 --> 00:23:42,680 Speaker 2: that on principle. 449 00:23:42,760 --> 00:23:45,000 Speaker 1: Okay, and you're subsidizing somebody who's in there asking them 450 00:23:45,000 --> 00:23:47,600 Speaker 1: on a hundred questions, and you're both paying the same rate, 451 00:23:47,720 --> 00:23:50,320 Speaker 1: whether you're both paying the same rate always, whether you 452 00:23:51,080 --> 00:23:54,399 Speaker 1: access it or not. Okay, very interesting, all right. I 453 00:23:54,440 --> 00:23:56,520 Speaker 1: think that's probably all we can see on financial advice. 454 00:23:56,560 --> 00:23:59,080 Speaker 1: It's worth bringing people up to date on that. It's 455 00:23:59,119 --> 00:24:01,879 Speaker 1: a pretty interesting area of folks. I think, just to 456 00:24:01,880 --> 00:24:06,880 Speaker 1: make one final point on that, the industry, for all 457 00:24:07,000 --> 00:24:10,520 Speaker 1: the talk around it, is very much stuck for now 458 00:24:10,920 --> 00:24:14,680 Speaker 1: with a model which is highly regulated and surveys which 459 00:24:14,760 --> 00:24:18,200 Speaker 1: for all of late have shown that they are saying 460 00:24:18,280 --> 00:24:20,840 Speaker 1: the planners are saying that more than fifty percent of 461 00:24:20,880 --> 00:24:24,199 Speaker 1: their costs are to do regulation as opposed to give 462 00:24:24,320 --> 00:24:29,199 Speaker 1: new advice. That's no good. That has to improve, but 463 00:24:29,560 --> 00:24:32,280 Speaker 1: it isn't something of a political quagmar Okay back in 464 00:24:32,320 --> 00:24:44,199 Speaker 1: a moment with some questions. Hello, Welcome back to the 465 00:24:44,200 --> 00:24:48,800 Speaker 1: Australians Money Puzzle podcast. I'm James Kirby talking to Alex Pikovic, 466 00:24:49,080 --> 00:24:52,399 Speaker 1: who's the editor of chief at the Kennexus Financial Group 467 00:24:53,040 --> 00:24:57,040 Speaker 1: and someone who is very much across particularly across the 468 00:24:57,040 --> 00:25:00,600 Speaker 1: goings on if you like the big picture about advice 469 00:25:00,640 --> 00:25:04,920 Speaker 1: and super in the market, and particularly in Canberra, which 470 00:25:05,000 --> 00:25:08,080 Speaker 1: is currently a course in its last sitting week of 471 00:25:08,359 --> 00:25:12,520 Speaker 1: Parliament where they're trying to squash seventy bills squeeze seventy 472 00:25:12,560 --> 00:25:15,359 Speaker 1: bills through. Let's say, let's say that they won't get 473 00:25:15,400 --> 00:25:17,879 Speaker 1: seventy bills through in the next few days. That's for 474 00:25:17,920 --> 00:25:20,120 Speaker 1: sure be interesting to see if they get anything in 475 00:25:20,160 --> 00:25:23,119 Speaker 1: relation to our world as investors through that would make 476 00:25:23,160 --> 00:25:25,280 Speaker 1: a difference to us. We cover that in the first 477 00:25:25,320 --> 00:25:30,280 Speaker 1: two segments. Now, some interesting questions. Lofty LOFTUI high Lofty. 478 00:25:30,600 --> 00:25:33,080 Speaker 1: I have a question about tax and super. I'm invested 479 00:25:33,119 --> 00:25:36,679 Speaker 1: primarily in low cost index funds through an industry super fundable. 480 00:25:36,720 --> 00:25:39,280 Speaker 1: There you are. I heard recently that taxes with help 481 00:25:39,280 --> 00:25:42,520 Speaker 1: from returns to provide for future capital gains. Is this true? 482 00:25:43,600 --> 00:25:46,040 Speaker 1: And who do this not cause a measurable tax drag 483 00:25:46,080 --> 00:25:48,800 Speaker 1: on the portfolio over the long term? He tells us 484 00:25:48,840 --> 00:25:52,520 Speaker 1: how much he has whether he should start SMSF. I 485 00:25:52,560 --> 00:25:54,199 Speaker 1: think we might as well put the figure in. I 486 00:25:54,200 --> 00:25:56,320 Speaker 1: don't like normally doing this, but you don't know who 487 00:25:56,359 --> 00:25:58,520 Speaker 1: Lofty is, and nor do I don't have his surname, 488 00:25:58,600 --> 00:26:01,159 Speaker 1: and this is never advised. This is always information. But 489 00:26:01,240 --> 00:26:03,000 Speaker 1: he's got half a minute, which is that sort of 490 00:26:03,000 --> 00:26:05,359 Speaker 1: a moult that would have you starting to think about 491 00:26:05,359 --> 00:26:09,240 Speaker 1: whether you should start them. Two parts to that question. 492 00:26:09,320 --> 00:26:12,320 Speaker 1: The first part is about the how they deal with 493 00:26:12,359 --> 00:26:14,480 Speaker 1: capital against tax and the big super funds, and they 494 00:26:14,520 --> 00:26:16,480 Speaker 1: play a game on that where they give you a 495 00:26:16,480 --> 00:26:18,719 Speaker 1: bonus if you stay and you lose it bit if 496 00:26:18,760 --> 00:26:23,320 Speaker 1: you don't, so nothing. It's not it is how it works, Lofty, 497 00:26:25,280 --> 00:26:28,000 Speaker 1: and that's you have to go with it or not 498 00:26:28,080 --> 00:26:30,000 Speaker 1: go with it. That's how they do it. Is that right, Alex? 499 00:26:30,040 --> 00:26:31,199 Speaker 1: Have you any issue with that? 500 00:26:31,800 --> 00:26:35,479 Speaker 2: Yeah? That's right. And I'm glad you gave the figure, James, 501 00:26:35,480 --> 00:26:38,560 Speaker 2: because when it comes to sfs, the figure is important, 502 00:26:38,640 --> 00:26:41,119 Speaker 2: or at least it's seen to be important, so that 503 00:26:41,200 --> 00:26:43,920 Speaker 2: you're right, I would say that shouldn't be the determining 504 00:26:44,080 --> 00:26:47,400 Speaker 2: factor really of whether you set up an SMSF. I mean, 505 00:26:47,400 --> 00:26:49,560 Speaker 2: I know, for me personally, it certainly wasn't about reaching 506 00:26:49,560 --> 00:26:52,159 Speaker 2: a certain threshold and then crossing over. For me, it 507 00:26:52,240 --> 00:26:55,080 Speaker 2: was about wanting to invest in a particular asset that 508 00:26:55,160 --> 00:26:58,200 Speaker 2: I couldn't through my through my up regulated super fund. 509 00:26:58,200 --> 00:27:01,320 Speaker 2: So it's very much a personal to see. I'd also say, 510 00:27:01,359 --> 00:27:04,320 Speaker 2: you know, I like the way Lofty is already thinking. 511 00:27:04,440 --> 00:27:07,520 Speaker 2: You know, if they're invested in low cost index funds 512 00:27:07,800 --> 00:27:10,760 Speaker 2: through an Apple regulated fund, that already indicates to me 513 00:27:10,880 --> 00:27:15,639 Speaker 2: that they are taking some control of what's called a 514 00:27:15,720 --> 00:27:18,960 Speaker 2: choice product effectively or an investment option with then a fund, 515 00:27:19,080 --> 00:27:21,879 Speaker 2: and you're starting to get closer to the reality of 516 00:27:21,880 --> 00:27:25,000 Speaker 2: what an SMSF feels and looks like anyway, if you 517 00:27:25,080 --> 00:27:28,040 Speaker 2: want so. It's clearly not a totally default option that 518 00:27:28,040 --> 00:27:31,440 Speaker 2: that Lofty's gone with here. So if they're already accustomed 519 00:27:31,440 --> 00:27:34,480 Speaker 2: to low cost funds, then you know that probably sets 520 00:27:34,480 --> 00:27:36,520 Speaker 2: you up well for an SMSF in some ways, because 521 00:27:36,560 --> 00:27:40,680 Speaker 2: that's one way to sort of. There are higher costs 522 00:27:40,680 --> 00:27:42,879 Speaker 2: of course associated with the running of the fund and 523 00:27:42,920 --> 00:27:45,960 Speaker 2: the auditing and the tax accounting that you probably need. 524 00:27:46,000 --> 00:27:48,960 Speaker 2: And so if you're in low cost index funds by preference, 525 00:27:49,160 --> 00:27:51,000 Speaker 2: well then you can use some of that, you know, 526 00:27:51,400 --> 00:27:54,119 Speaker 2: that revenue that you might otherwise be spending on active 527 00:27:54,119 --> 00:27:56,879 Speaker 2: management and put it towards the running of the fund 528 00:27:56,960 --> 00:27:59,760 Speaker 2: is one thing to consider. But as you say, James, 529 00:27:59,760 --> 00:28:03,320 Speaker 2: I certainly wouldn't take tax advice from a journalist, So 530 00:28:03,480 --> 00:28:05,640 Speaker 2: I'd be going to get I'd be going to get 531 00:28:05,640 --> 00:28:06,439 Speaker 2: professional advice. 532 00:28:07,160 --> 00:28:10,119 Speaker 1: Yeah, to anyone who's start, Certainly anyone out there, if 533 00:28:10,119 --> 00:28:13,680 Speaker 1: you're going to start, you must Yeah. 534 00:28:13,760 --> 00:28:15,560 Speaker 2: And but I think the point to make is the 535 00:28:15,600 --> 00:28:18,640 Speaker 2: motivations for setting one up. And for me personally, it's 536 00:28:18,680 --> 00:28:22,560 Speaker 2: that freedom and control and willingness to spend your time 537 00:28:22,840 --> 00:28:24,520 Speaker 2: running a fund. I think that needs to be a 538 00:28:24,520 --> 00:28:27,800 Speaker 2: primary motivator, regardless of if you've got fifty grand in 539 00:28:27,840 --> 00:28:29,040 Speaker 2: there or five million. 540 00:28:29,720 --> 00:28:31,840 Speaker 1: And as I always say to Lofty and all the 541 00:28:31,840 --> 00:28:34,200 Speaker 1: Lofties out there, you've got to be prepared to fill 542 00:28:34,240 --> 00:28:38,360 Speaker 1: out a lot of forms right forever. Hey, is there 543 00:28:38,360 --> 00:28:43,440 Speaker 1: a figure that you personally feel a person would need 544 00:28:43,480 --> 00:28:45,520 Speaker 1: any fund to start an SMSF. 545 00:28:45,880 --> 00:28:49,640 Speaker 2: Look, it's really contentious right as it gives its guidance. 546 00:28:50,120 --> 00:28:53,200 Speaker 2: I think that actually some of these figures are overstated. 547 00:28:53,560 --> 00:28:56,560 Speaker 2: I think the amount of money is not a problem, 548 00:28:56,600 --> 00:29:00,240 Speaker 2: and plenty of experts I speak to increasingly with technolog 549 00:29:00,360 --> 00:29:03,920 Speaker 2: which can bring the cost of servicing the particularly if 550 00:29:03,920 --> 00:29:06,960 Speaker 2: you are already spending on, for example, a good accountant 551 00:29:07,080 --> 00:29:09,880 Speaker 2: or professional advice. I think you could have well less 552 00:29:09,880 --> 00:29:12,640 Speaker 2: than five hundred thousand dollars and run a good self 553 00:29:12,640 --> 00:29:15,840 Speaker 2: managed super fund, but only if you've got the financial 554 00:29:15,840 --> 00:29:18,320 Speaker 2: literacy and the appetite to do it all. 555 00:29:18,440 --> 00:29:21,719 Speaker 1: So you're saying like, if somebody was really invested, if 556 00:29:21,720 --> 00:29:28,200 Speaker 1: you like, in their own financial future, and were numerous 557 00:29:28,240 --> 00:29:33,120 Speaker 1: and capable and obsessed with low cost, then they could 558 00:29:33,160 --> 00:29:35,960 Speaker 1: start one from much much less. Is there a rock 559 00:29:36,000 --> 00:29:39,200 Speaker 1: bottom figure of which you say, listen, it's not feasible. 560 00:29:40,040 --> 00:29:42,600 Speaker 2: Look, I mean it really depends. I mean, if you're 561 00:29:42,600 --> 00:29:45,600 Speaker 2: spending more on the running of the SMSF than you 562 00:29:45,640 --> 00:29:48,120 Speaker 2: are in the returns, then obviously that's not a good 563 00:29:48,160 --> 00:29:50,560 Speaker 2: position to be in as a super fund. You know, 564 00:29:50,600 --> 00:29:54,480 Speaker 2: I certainly have spoken to myself millennial investors, for example, 565 00:29:54,520 --> 00:29:57,200 Speaker 2: who might only have one hundred thousand dollars in super 566 00:29:57,560 --> 00:30:00,360 Speaker 2: and run perfectly good, self managed super fun ones that 567 00:30:00,440 --> 00:30:04,080 Speaker 2: are you know, well governed and competitive with the upper 568 00:30:04,120 --> 00:30:07,240 Speaker 2: regulated system. So that's not advice, but I think much 569 00:30:07,320 --> 00:30:09,080 Speaker 2: less around the number itself. 570 00:30:09,320 --> 00:30:11,040 Speaker 1: So there you are, you see you if you you 571 00:30:11,120 --> 00:30:13,640 Speaker 1: want to be making, if you think about it, if 572 00:30:13,640 --> 00:30:16,960 Speaker 1: it's five thousand, on't going for advice. And also what 573 00:30:17,080 --> 00:30:19,520 Speaker 1: it costs, you know, really unless you're unless you're bringing 574 00:30:19,560 --> 00:30:22,720 Speaker 1: in you know, five and a half or six, you 575 00:30:22,760 --> 00:30:25,040 Speaker 1: have to subtract that from what you make. So keep 576 00:30:25,120 --> 00:30:26,960 Speaker 1: that's what you've got to do, guys, keep that in mind. 577 00:30:27,200 --> 00:30:29,120 Speaker 2: I would just add, James, you do see the opposite 578 00:30:29,120 --> 00:30:30,960 Speaker 2: as well, right, I know, I've heard of quite a 579 00:30:31,000 --> 00:30:35,600 Speaker 2: few multimillionaires who have recently, you know, cashed in their SMSF, 580 00:30:35,640 --> 00:30:38,040 Speaker 2: shut it down and moved back into an app regulated 581 00:30:38,080 --> 00:30:41,360 Speaker 2: fund due to the ease with which they you know, 582 00:30:41,480 --> 00:30:43,400 Speaker 2: they don't want to spend as much time anymore running 583 00:30:43,400 --> 00:30:47,320 Speaker 2: the fund, or because there's a particular apper regulated industry 584 00:30:47,480 --> 00:30:49,960 Speaker 2: fund or retail fund that they're that they're keen on. 585 00:30:50,080 --> 00:30:51,680 Speaker 2: So it does happen both ways. 586 00:30:52,040 --> 00:30:54,000 Speaker 1: Yeah, And there's a point of which people might say, 587 00:30:54,000 --> 00:30:56,360 Speaker 1: they might have started fund at forty and they might 588 00:30:56,400 --> 00:31:00,240 Speaker 1: be seventy eighty and they say, oh, you know, it's 589 00:31:00,280 --> 00:31:01,920 Speaker 1: all too hard. I can't do this anymore for a 590 00:31:02,000 --> 00:31:04,640 Speaker 1: variety of reasons. And I'm not just saying mental decline. 591 00:31:04,680 --> 00:31:07,000 Speaker 1: I'm just saying they started the fund because they wanted 592 00:31:07,000 --> 00:31:09,200 Speaker 1: to have a million dollars in super and now they have, 593 00:31:09,440 --> 00:31:10,760 Speaker 1: and I may say, but I don't have to do 594 00:31:10,800 --> 00:31:13,400 Speaker 1: all that work anymore. Okay, we're slightly running out of time. 595 00:31:13,440 --> 00:31:17,360 Speaker 1: I'll just jump to one last question from Russell. It's hard, 596 00:31:17,680 --> 00:31:21,320 Speaker 1: Russell says, it's hard. It's still hard to understand the 597 00:31:21,440 --> 00:31:25,040 Speaker 1: risk of private credit. The sheer market is easy to understand. 598 00:31:25,200 --> 00:31:27,440 Speaker 1: Any day you can drop twenty five percent or more. 599 00:31:27,800 --> 00:31:29,600 Speaker 1: I like the way you put that, Russell, and it 600 00:31:29,640 --> 00:31:32,520 Speaker 1: grows at an average of nine to ten percent per 601 00:31:32,520 --> 00:31:35,760 Speaker 1: anamal for the very long term. What would be the 602 00:31:35,800 --> 00:31:42,000 Speaker 1: black swan events that's severely or wipe out your investments? Hey, Russell, 603 00:31:42,240 --> 00:31:45,360 Speaker 1: they're black swan events. We don't know what they are. 604 00:31:45,480 --> 00:31:49,160 Speaker 1: That's the whole thing. They're black swans. I don't mean 605 00:31:49,200 --> 00:31:52,640 Speaker 1: to be facetious, but that's it. That's the nature of it. 606 00:31:53,360 --> 00:31:55,600 Speaker 1: If I could tell you what the black swan events were, 607 00:31:55,760 --> 00:31:56,720 Speaker 1: I'd have a hedge fund. 608 00:31:56,720 --> 00:31:59,440 Speaker 2: We don't know what they are, Jane's, but arguably, by 609 00:31:59,480 --> 00:32:01,800 Speaker 2: it's very nature, we know what they are in the 610 00:32:01,840 --> 00:32:03,800 Speaker 2: share market better than we know what they are in 611 00:32:03,840 --> 00:32:05,880 Speaker 2: private credit. So that's the first thing that I'd say 612 00:32:06,040 --> 00:32:09,080 Speaker 2: is the clue is in the title, and the fact 613 00:32:09,080 --> 00:32:13,560 Speaker 2: that these are effectively loans that are not connected to 614 00:32:13,640 --> 00:32:17,720 Speaker 2: public markets means by their very nature they are more opaque. 615 00:32:17,880 --> 00:32:20,320 Speaker 2: It is less You're less able to work out what 616 00:32:20,400 --> 00:32:25,080 Speaker 2: they're really worth, You're less able to obtain reliable research. 617 00:32:25,120 --> 00:32:27,360 Speaker 2: And I'm not saying people shouldn't invest in private credit. 618 00:32:27,440 --> 00:32:30,000 Speaker 2: It's the hottest asset class in the world for a reason, 619 00:32:30,080 --> 00:32:33,120 Speaker 2: right But that reason is that you can generate a 620 00:32:33,200 --> 00:32:35,680 Speaker 2: return at the moment, or at least we've been able 621 00:32:35,720 --> 00:32:38,320 Speaker 2: to over this past cycle, and that return is based 622 00:32:38,360 --> 00:32:41,760 Speaker 2: on the risk involved, and so very much with private credit, 623 00:32:41,760 --> 00:32:45,040 Speaker 2: there are very real risks that the investors wear. The 624 00:32:45,120 --> 00:32:47,520 Speaker 2: thing to think about mostly in private credit, in my view, 625 00:32:47,600 --> 00:32:50,040 Speaker 2: is less a black swan event that might affect the 626 00:32:50,080 --> 00:32:53,440 Speaker 2: market or the underlying loans, but more about the competency 627 00:32:53,480 --> 00:32:56,600 Speaker 2: of the asset manager involved, assuming there is one involved, 628 00:32:56,600 --> 00:32:58,800 Speaker 2: and if there's not, then I think that's a bit 629 00:32:58,840 --> 00:33:01,640 Speaker 2: of a red flag for me, because you do see 630 00:33:01,800 --> 00:33:05,959 Speaker 2: at the institutional level asset managers who truly do specialize 631 00:33:06,000 --> 00:33:08,400 Speaker 2: in this space and have done it for hundreds of years, 632 00:33:08,400 --> 00:33:11,080 Speaker 2: and they've been through lots of different credit cycles, and 633 00:33:11,120 --> 00:33:13,120 Speaker 2: that would give me a little bit more comfort. But 634 00:33:13,200 --> 00:33:16,360 Speaker 2: even then, let's not pretend lending is easy, right credit 635 00:33:16,400 --> 00:33:18,760 Speaker 2: Swiss was doing this for hundreds of years before it 636 00:33:18,880 --> 00:33:21,520 Speaker 2: came unstuck. This is not an easy thing and it 637 00:33:21,600 --> 00:33:23,000 Speaker 2: sometimes gets misconstrued. 638 00:33:23,440 --> 00:33:25,960 Speaker 1: Do you think the chances of the everyday investor getting 639 00:33:25,960 --> 00:33:30,280 Speaker 1: into a good fund are slimmer now that it has 640 00:33:30,400 --> 00:33:31,560 Speaker 1: become I do the hotest? 641 00:33:31,960 --> 00:33:35,040 Speaker 2: I definitely. I definitely think personally the best way to 642 00:33:35,080 --> 00:33:38,720 Speaker 2: access private credit is probably through a large institutional investor 643 00:33:39,000 --> 00:33:42,160 Speaker 2: where they are through economies of scale. So you know, 644 00:33:42,560 --> 00:33:46,760 Speaker 2: the superfunds themselves are really loading up on private credit, 645 00:33:47,040 --> 00:33:48,719 Speaker 2: not always in a good way. I mean, there are 646 00:33:48,720 --> 00:33:51,520 Speaker 2: some examples. Australian super for example, is now doing its 647 00:33:51,560 --> 00:33:55,280 Speaker 2: own direct lending in Europe without an asset manager. That 648 00:33:55,320 --> 00:33:58,200 Speaker 2: worries me a little bit. I don't know what Australian 649 00:33:58,240 --> 00:34:01,200 Speaker 2: super certainly doesn't have hundreds of years experienced doing that. 650 00:34:01,520 --> 00:34:04,720 Speaker 2: But nonetheless, I think if you want the returns from 651 00:34:04,760 --> 00:34:08,560 Speaker 2: private credit, doing so in a large diversified institutional environment 652 00:34:08,640 --> 00:34:11,040 Speaker 2: is probably a better way to do it in an 653 00:34:11,120 --> 00:34:14,040 Speaker 2: SMSSPH or as a private investor. There's still plenty of 654 00:34:14,080 --> 00:34:17,560 Speaker 2: good private credit funds out there, but I also worry 655 00:34:17,680 --> 00:34:20,640 Speaker 2: that some of the problematic funds that are most likely 656 00:34:20,719 --> 00:34:23,400 Speaker 2: to be exposed if there was a black swan event, 657 00:34:23,640 --> 00:34:26,800 Speaker 2: they are trying to raise capital from retail and wholesale avestors. 658 00:34:26,840 --> 00:34:29,880 Speaker 2: So I certainly think that regular listeners to this who 659 00:34:29,920 --> 00:34:32,680 Speaker 2: are being attracted by the sort of ten percent plus 660 00:34:32,719 --> 00:34:35,800 Speaker 2: returns on offer or whatever, this is definitely an area 661 00:34:35,880 --> 00:34:38,320 Speaker 2: where you know, if it looks too good to be true, 662 00:34:38,640 --> 00:34:41,239 Speaker 2: or if it you know, these are not bonds, it 663 00:34:41,400 --> 00:34:44,240 Speaker 2: needs to be really well understood and it's a hot market, 664 00:34:44,280 --> 00:34:45,400 Speaker 2: but I'd be cautious. 665 00:34:45,640 --> 00:34:48,759 Speaker 1: Okay, terrific, terrific. Thank you very much and thanks very 666 00:34:48,800 --> 00:34:49,799 Speaker 1: much for coming on the show. 667 00:34:49,840 --> 00:34:50,160 Speaker 2: Alex. 668 00:34:50,239 --> 00:34:52,680 Speaker 1: Really good to have you. Alex Pikovich there from the 669 00:34:52,719 --> 00:34:57,840 Speaker 1: CONNECTSUS Financial Group, Thanks Alex, Thanks Jows. I'd like to 670 00:34:57,920 --> 00:35:02,279 Speaker 1: thank Leah samuelgluehod heroic work to get on TAK, not 671 00:35:02,360 --> 00:35:04,160 Speaker 1: so much to produce the show, but to get to 672 00:35:04,200 --> 00:35:06,719 Speaker 1: the point of producing the show today. So thank you 673 00:35:06,840 --> 00:35:10,799 Speaker 1: Leah in particular, and let's have some emails please the 674 00:35:10,880 --> 00:35:14,239 Speaker 1: money puzzle at the Australian dot com dot au. Talk 675 00:35:14,280 --> 00:35:14,680 Speaker 1: to you soon.