Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm
Speaker 1: James Kirby, the World editor at The Australian. Welcome aboard everybody,
Speaker 1: and we're not a news program, as you know, but
Speaker 1: we are alert to news as it happens. And just
Speaker 1: now there's a lot happening for investors around super around
Speaker 1: financial advice, and the landscape is altering quite quickly, and
Speaker 1: I think you know, to be a complete investor, you
Speaker 1: do need to be up to speed with what's happening.
Speaker 1: You don't need to know everything, you don't need to
Speaker 1: know all the macro and all the speculation, but you
Speaker 1: do need to know the terms in which you are investing,
Speaker 1: and that's what today's show will actually hinge on. You
Speaker 1: need to be up to speed. And my guest is
Speaker 1: very much up to speed on all things in this
Speaker 1: area because he's the editor in chief of the Cannexus Group.
Speaker 1: And the Cannexus is a financial publishing and information group
Speaker 1: but has all sorts of arms. It does some professional
Speaker 1: magazines by financial planners, for instance, and it has a
Speaker 1: Connexus Institute, which is a not for profit think tank
Speaker 1: and that issues reports in the area. His name is
Speaker 1: Alex Bikovich first time on the show. Lovely to have him.
Speaker 2: How are you, Alex can I James, thank you for
Speaker 2: having me.
Speaker 1: I've picked a good week to have you, haven't I
Speaker 1: really I don't think I've had as many calls from
Speaker 1: the general newsdesk all year as this week because there's
Speaker 1: so much happening. In fact, there's a Senate committee tomorrow
Speaker 1: on Super for instance, where they're hauling hauling the SeaBus
Speaker 1: Chairman Wayne Swan in front of them.
Speaker 2: At last, against his will.
Speaker 1: I believe against his will it would seem it would
Speaker 1: seem so. And there's been big news on the three
Speaker 1: million super tax, which was the biggest sort of policy
Speaker 1: change in Super some time this week, All sorts of
Speaker 1: things happening, So good to have you on. Look, why
Speaker 1: don't we start first of all with Super and what's
Speaker 1: happening around Super? Because I think people are I have
Speaker 1: to tell you that people are concerned about some of
Speaker 1: the issues in the industry funds. Every industry fund is different,
Speaker 1: but they're all running broadly the same way, and many
Speaker 1: of them Australian Super, Hester, UNI Super, they've all had
Speaker 1: cock ups from want of a better world in recent times.
Speaker 1: SeaBus is outstanding of course, because ASIK are taking them
Speaker 1: to court for delayed payments to on death benefits and disabilities.
Speaker 1: The APPA are also investigating them, So a whole bunch
Speaker 1: of issues around around them and people. Interestingly enough, as
Speaker 1: you'd probably know, Alex, a lot of journalists and media
Speaker 1: people were in Cebus because they were in the old
Speaker 1: media super which was hoovered up by Cebus in the
Speaker 1: way of these big funds.
Speaker 2: That's right. Yeah, I was a member of Media super
Speaker 2: myself before setting up a self managed superfund.
Speaker 1: Snap, so was I. But I could go back to
Speaker 1: two or six for that one. But here's the thing.
Speaker 1: What's your initial impression of this. Is it a year
Speaker 1: where we say this is the year the super funds
Speaker 1: actually had to professionalize and come to the table and
Speaker 1: sort out some of the issues that are not actually,
Speaker 1: in many occasions in the best interests of individual investors.
Speaker 2: Yeah, thanks, Jamee, And I like the way that you
Speaker 2: frame it at the outset. This is a week where
Speaker 2: a whole range of financial services policy debates, you know,
Speaker 2: political fights are coming to a head. But I'd probably
Speaker 2: say that every week in the last thirty years of
Speaker 2: compulsory super has been contentious and there have been big
Speaker 2: political issues just on the super funds themselves. You know,
Speaker 2: we are seeing more scrutiny from regulators. The way that
Speaker 2: the superannuation industry is regulated is really important to understand
Speaker 2: because it has two separate regulators, one that's prudential in
Speaker 2: opera and another one that covers conduct in ASSEIC and
Speaker 2: so no one has a full piece of the sector
Speaker 2: and they just each look at different little bits, but
Speaker 2: both of them are really looking, as is the Parliament,
Speaker 2: at the sort of growth and growth of industry super funds,
Speaker 2: which you'd have to say is one of the biggest
Speaker 2: developments in the Australian economy.
Speaker 1: Four trillion dollar industry now.
Speaker 2: Four trillion dollars is it's just ticked over in the
Speaker 2: last few days in terms of the public reporting of
Speaker 2: that does include the SMSF sector. But the important thing
Speaker 2: around super is not so much the number, but the
Speaker 2: fact that it has effectively a twelve percent maybe one
Speaker 2: day fifteen percent and your lie's growth rate right, so
Speaker 2: that pool really is never shrinking and I think that's
Speaker 2: the first thing to understand about why we're seeing this scrutiny.
Speaker 2: Partly it is just a function of the increasing size.
Speaker 2: You're talking about the world's third biggest pool of retirement assets,
Speaker 2: despite US having a much smaller population than comparable nations.
Speaker 2: And you're also talking about a pool of assets that's
Speaker 2: twice the size of the Australian economy, which is really
Speaker 2: hard to get your heaterin.
Speaker 1: But here's the thing. I suppose people see these issues
Speaker 1: and they are in super funds, and it's only natural
Speaker 1: that people would say, will the investment performance of my
Speaker 1: super be diluted or damaged or weakened by obvious weaknesses
Speaker 1: in other parts of the funds? At c BUS, for instance,
Speaker 1: you know, if they're delaying payments to death benefits and
Speaker 1: treating people badly on that front, is that going to
Speaker 1: hit my investment performance if I can't see if I
Speaker 1: can't access a ORT or UNI super for some reason
Speaker 1: because they've got some it cockup? Well have they got
Speaker 1: it cockups in the investment department? And I think that's
Speaker 1: what people are worried about. Well, yeah, what do you think?
Speaker 1: What would you say to people who come up to
Speaker 1: you on the street and say, I'm worried about my
Speaker 1: industry fund because it's getting all sorts of bad publicity.
Speaker 2: Well, the first thing I'd say is that it's awesome
Speaker 2: they're engaged with the superannuation and what their fund may
Speaker 2: or may not be doing. I think it's important to
Speaker 2: hold them to scrutiny. They are fiduciaries, they have a
Speaker 2: really strong legal obligation to members, and so you know,
Speaker 2: it's great that we're holding them to account. There's two
Speaker 2: separate issues that are really being looked at the moment.
Speaker 2: The one is, as you say, really you could describe
Speaker 2: as member experience the way that funds are engaging with
Speaker 2: their members things like death benefit claims, insurance claims, and
Speaker 2: there's a strong body of evidence that these things need
Speaker 2: to improve. In terms of the links between that and
Speaker 2: the investment performance, maybe you could argue that in so
Speaker 2: far as people are leaving the fund and that therefore
Speaker 2: that reduces the quantum of the assets that they can invest,
Speaker 2: that could have a flow on effect. Or in so
Speaker 2: far as it's distracting key C suite executives from the
Speaker 2: fund to some of these other issues, then you know
Speaker 2: you could argue that's having an effect. But really I
Speaker 2: think you would want to in truth separate these kind
Speaker 2: of member experience in communications issues which are really important
Speaker 2: and which need to improve and which deserve scrutiny from
Speaker 2: the investment performance. But the other area where the regulators
Speaker 2: are cracking down and where we're seeing a lot of
Speaker 2: media activity is on the governance. We're seeing this, of course,
Speaker 2: most notably in the case of c BUS, where there
Speaker 2: have been long standing ties to the CFMAU, the now
Speaker 2: defunct trade union, infamous trade union, and these issues have
Speaker 2: been bubbling away for a long time, not just in
Speaker 2: industry super funds which are union link but right across
Speaker 2: the sector. Who are the right people to be sitting
Speaker 2: on the boards of these organizations, which is a really
Speaker 2: powerful organization. What sort of competencies should they have and
Speaker 2: what governance processes do they have in place to ensure
Speaker 2: that they're investing in a way that's in line with members'
Speaker 2: best interests That I think has a much more meaningful
Speaker 2: and direct influence over the return that members are actually getting.
Speaker 1: One of the things you mentioned there before, when we
Speaker 1: talk about how much is in super a trillion dollars,
Speaker 1: it just so happens. It just occurred. In the September quarter,
Speaker 1: Ato figures that the SMSF sector has passed a trillion
Speaker 1: dollars right, So there you go. Very roughly a quarter
Speaker 1: of all the money in super is in the SMSs.
Speaker 1: Do you self managed super funds? Many of our listeners
Speaker 1: are interested in smsfs. They often write in and should
Speaker 1: I start one, et cetera. We're always having a debate
Speaker 1: about how much you should have in smsfs. But I
Speaker 1: just want to ask you, do you think that this
Speaker 1: will that this very this rocky period for the big
Speaker 1: industry funds will benefit self managed super funds? And if
Speaker 1: people leave interotry funds, I'm guessing they don't go to
Speaker 1: another one. I'm guessing they actually do start an SMSF.
Speaker 1: What's your experience there?
Speaker 2: Look, there's a range of places where people go, is
Speaker 2: my experience. And what the research would show is that statistically,
Speaker 2: very few Australians switch funds at all. And that, you know,
Speaker 2: because we have a default system, and the whole system
Speaker 2: was set up by the unions and and buy the
Speaker 2: people who were advocating for it to be a default
Speaker 2: system that would work in the background while you were
Speaker 2: living your life and you didn't have to really think
Speaker 2: about So, you know, we have seen a slight uptick
Speaker 2: in people switching out of funds in the last year
Speaker 2: or so, and particularly see BUS in more recent times
Speaker 2: has seen some outflows. You know, whether that's fair or not.
Speaker 2: I don't think it's necessarily a reflection on the returns
Speaker 2: they have or haven't been receiving. But I also don't
Speaker 2: think it's I think it's a good thing that people
Speaker 2: are paying attention to these governance issues.
Speaker 1: Our listeners would wouldn't be typical and that they would
Speaker 1: be paying That's why they listened to the show. So
Speaker 1: here's the thing you were saying about the flow on effects.
Speaker 1: So let's say money flows out of a fund. I'm
Speaker 1: not going to pick any fund, but let's say one
Speaker 1: fund it constantly has bad news a month after month,
Speaker 1: and the money starts to flow out. That is, there
Speaker 1: are net outflows, right, so there's more money going out.
Speaker 1: And let's say their investment team were unchanged. What could
Speaker 1: occur that what would be the problem that they'd have
Speaker 1: to charge more to Is that it that their costs
Speaker 1: would effectively have to go up because their revenue is
Speaker 1: going down or how would it work well?
Speaker 2: I think that would be a big decision to make.
Speaker 2: And there's all sorts of regulations that would prevent them
Speaker 2: from that being their first port of call, but it
Speaker 2: changes their liquidity profile, right, So it means if you
Speaker 2: are seeing people in outflow, it naturally changes the way
Speaker 2: you invest because you need to be in a position
Speaker 2: where you can pay people out. And the thing about
Speaker 2: a lot of big industry super funds, particularly those that
Speaker 2: have a very young membership base, is they invest in
Speaker 2: a way where they don't expect to be paying people
Speaker 2: out in pensions for many decades. On the whole, that
Speaker 2: allows them to invest in venture capital, It allows them
Speaker 2: to be a little bit more aggressive in the share market,
Speaker 2: and so if they were to start to see outflows,
Speaker 2: that would meaningfully change their investment behavior in that way.
Speaker 2: The other thing is that you know, the size of
Speaker 2: the poll obviously determines what sort of assets you can
Speaker 2: invest in, and a lot of super funds have a
Speaker 2: real preference, rightly or wrongly, for big unlisted assets like
Speaker 2: airports and toll roads and things that you and they
Speaker 2: co invest or they directly invest in these assets, not
Speaker 2: always via a managed fund, So you know, to the
Speaker 2: extent that was depleted, that would be a very real
Speaker 2: difference in terms of their investment strategy.
Speaker 1: Is it Does it concern you when you see occasionally
Speaker 1: big losses in that onlisted area commercial property obviously are
Speaker 1: several funds, but also occasionally, out of the blue, we
Speaker 1: see big funds taking you know, a big hit on
Speaker 1: obviously a big bet on something here and there.
Speaker 2: It does consume me to some extent, because you know,
Speaker 2: you never want to see a loss either by an
Speaker 2: individual private household or by a major super fund. But
Speaker 2: I think it's important to remember these funds are pretty
Speaker 2: well diversified. And the other thing I mean, as a journalist,
Speaker 2: you want to jump on these stories. We're right to
Speaker 2: focus on them. But the thing I worry more about, James,
Speaker 2: is actually that you've got this culture, particularly within the
Speaker 2: big funds, of real cautiousness and political correctness, and they
Speaker 2: don't want to be too they don't want to take
Speaker 2: on any risks. They'd all happy, happily be fast followers,
Speaker 2: but they don't innovate. I worry that therefore sometimes they're
Speaker 2: missing opportunities frankly, where you know, the investors they've got
Speaker 2: on start are very keen to pursue an opportunity, but
Speaker 2: they're so scared of media Backlasher of getting it wrong,
Speaker 2: and as your listeners will realize, getting it wrong sometime
Speaker 2: is a really healthy and normal part of investing right,
Speaker 2: and these are entirely well diversified.
Speaker 1: You're talking strictly in the investment sense of getting an
Speaker 1: investment as opposed to getting a process wrong like a
Speaker 1: payouts or whatever. Payments Okay, on also on super it
Speaker 1: would seem, and he says, I say this, folks carefully,
Speaker 1: it would seem that for all the attention, for all
Speaker 1: the what they used to call many calumintions of coverage
Speaker 1: on the plan to introduce a new supertax of fifteen
Speaker 1: percent on amounts over three million on believe it or not,
Speaker 1: on realized gains, which was daft, I thought that plan
Speaker 1: looks now like it's not going to happen. Alex, could
Speaker 1: you tell us what you think at least is going on.
Speaker 2: There's at least a chance that it happens about you know,
Speaker 2: we're running out of time. We're in the last sitting
Speaker 2: week of parliament, possibly the last sitting week of the
Speaker 2: government's first term, depending on when we go to an election.
Speaker 2: There's two different theories. One is that the shot clock
Speaker 2: simply has run out and This is a pretty ambitious government.
Speaker 2: There's seventy pieces of legislation that they want to get
Speaker 2: through this year. Clearly that won't happen, but there is
Speaker 2: a view that given as your listeners will remember some
Speaker 2: of the proposals they took to the last election, including
Speaker 2: the franking credits proposal and the negative gearing proposal, anything
Speaker 2: that scratches up on a tax, albeit one that should
Speaker 2: only affect people with three million in their account or more.
Speaker 2: There are some who think they're sort of scared of
Speaker 2: the politics here, and you know, there were some They
Speaker 2: don't have the bipartisan support for this and that makes
Speaker 2: it very difficult. And partly that's because of the way
Speaker 2: that they've drafted. And I totally agree with you that
Speaker 2: the unrealized gains proposal is mad, as is the lack
Speaker 2: of indexing here, so that one day this will capture
Speaker 2: a very large number of Australians.
Speaker 1: Yeah, every year captures more people with inflation. Okay, So
Speaker 1: it looks like for now it looks extremely unlikely that
Speaker 1: the three million tags will get through folks in this week,
Speaker 1: and that would mean that it doesn't get through at
Speaker 1: all until there's another sitting of parlems, which would be
Speaker 1: co post elections. So one last thing on this, Alex,
Speaker 1: I suppose they could bring it to the election and
Speaker 1: then it would be an election promise, and then they'd
Speaker 1: have a stronger chance, have a stronger mandate of getting
Speaker 1: it through on the far side, especially if they cleaned
Speaker 1: it up and amedded a bit more of a practical
Speaker 1: attax as opposed to the sort of very complex dog's
Speaker 1: breakfast of a plant is.
Speaker 2: At the moment, they could, but I'd be very surprised
Speaker 2: to see that, James, given they promised no changes to
Speaker 2: super last time. I think they'd be more likely to
Speaker 2: do the opposite, which would be not take it to
Speaker 2: the election and then potentially introduced its subsequently.
Speaker 1: All right, so they would bring it back, they just
Speaker 1: wouldn't bring it to elections possibly.
Speaker 2: I Actually, while this does affect superannuation and there's an
Speaker 2: important precedent here, particularly for people who have SMSs, this
Speaker 2: is not really a superannuation story. This is much more
Speaker 2: a budget and tax story. It's about trying to shore
Speaker 2: up the fiscal position in a way that they were
Speaker 2: hoping would be inoffensive. But they're structured in a way
Speaker 2: that has meant it's not billionaires here who are affected
Speaker 2: by this. There's also plenty of regular farmers and small
Speaker 2: business owners. So I think that's been either a misstep
Speaker 2: in the drafting. You know, they didn't quite realize those
Speaker 2: were the cohorts who would be affected.
Speaker 1: Okay, Yeah, it's funny, isn't it. There Every government looks
Speaker 1: for that inoffensive tax and unfortunately there's no such thing. Okay,
Speaker 1: take a break. Hello, Welcome back to The Australian's Money Puzzle.
Speaker 1: I'm James Kirby. I'm talking to Alex Vikovic. He's the
Speaker 1: editor in chief of the CONNECTSUS group, and we are
Speaker 1: talking news. We are talking very much news on the
Speaker 1: run here for you the investor, because as I mentioned,
Speaker 1: need to know this. It's worth hearing what's going on. So,
Speaker 1: for instance, from that first segment there, I wouldn't be
Speaker 1: waiting around for this three million super tax to the
Speaker 1: extent that it affects you, or more pertinently, to the
Speaker 1: effect to the extent that it might affect you someday
Speaker 1: should you be successful and you're investing over the long term.
Speaker 1: So let's just put that to one side for the moment. Similarly,
Speaker 1: now I think this affects a lot of people. The
Speaker 1: big troubles at the big industry funds. The issue, folks,
Speaker 1: is for as an investor, the issue is can they
Speaker 1: quarantine the ineptness and competence that's coming through on the
Speaker 1: bureaucracy if you like, of the big funds from their
Speaker 1: investment teams. I don't know. I don't know if they can.
Speaker 1: They have so far, that's all I can tell you,
Speaker 1: but I don't know if they can forever. I mean,
Speaker 1: if a fund is completely inept in lots of ways,
Speaker 1: it's likely to be superb in the investment department. Now,
Speaker 1: you also published this professional planner magazine more than a
Speaker 1: magazine the topic, it's a website, et cetera, and you
Speaker 1: cover all the news there. Financial advice it too, is
Speaker 1: sort of stuck in a bit of a political mire.
Speaker 1: Isn't that There was a plan by the Minister Stephen
Speaker 1: Jones to overhaul financial advice in a fairly significant way,
Speaker 1: cut a lot of red tape and allowed the big
Speaker 1: industry funds to expand what they offer in financial advice.
Speaker 1: Could you is it humanly possible to distill all that
Speaker 1: and tell us what's going on?
Speaker 2: Yeah, well, you're right that it is a difficult one
Speaker 2: to distill because the crux of the problem with financial
Speaker 2: advice is actually how complex the laws themselves are. So
Speaker 2: it's no surprise that the debate around that complexity also
Speaker 2: tends to be fairly complex. But basically it is what
Speaker 2: we see in a lot of areas in the markets,
Speaker 2: which is there is a genuine and probably very you know,
Speaker 2: needed impulse by governments to regulate, which is what we've
Speaker 2: seen over the last twenty years. There were a ranger
Speaker 2: scandals that you've now you know that your paper was covering,
Speaker 2: and as was I in the financial planning world, largely
Speaker 2: in the kind of bank owned sort of structure that exists.
Speaker 1: And the banks basically sorted that out by running and
Speaker 1: they dumped it. Right, So we're left. But here's the
Speaker 1: odd thing. There's fifteen thousand advisors left. There was thirty
Speaker 1: thousand at the time of all the Fluid Commission, and
Speaker 1: the fees are about five grand a year on an
Speaker 1: ongoing basis for people. So anything you see that can
Speaker 1: improve that situation happening.
Speaker 2: Now, Yeah, Well, the first thing I'd say is in
Speaker 2: the last couple of years, you know, we spoke earlier
Speaker 2: about coming out of media super and going into an
Speaker 2: SMSF myself. And one of the things that precipitated that
Speaker 2: and came along with that was becoming a comprehensive advice client,
Speaker 2: which I'm a big believer in, and I pay a
Speaker 2: lot of money. I'm not a rich guy. I'm a
Speaker 2: journalist like yourself, and I you know, I do pay
Speaker 2: these exorbitant rates now for comprehensive advice, and I've got
Speaker 2: to say, I think it's pretty good value.
Speaker 1: So does it save you five grand a year?
Speaker 2: At least it saves me five grand a year or more?
Speaker 2: I would say, James in In avoided disputes with my spouse,
Speaker 2: And I think that's really what it provides you is
Speaker 2: you know, it provides peace of mind, It provides relationship benefits,
Speaker 2: and all sorts of things.
Speaker 1: Could you tell us what I don't just in nature?
Speaker 1: The real benefits of paying for that advice in nature?
Speaker 1: Are they tax Are they stopping you doing something? Are
Speaker 1: they telling you something you didn't know? What is it?
Speaker 2: I think it's primarily sort of lifestyle and psychology for me,
Speaker 2: in terms of the knowing that there's a professional that's
Speaker 2: in your court to help you through big life moments,
Speaker 2: whether it's a pay rise, a redundancy, a change in
Speaker 2: your situation and inheritance. And also, you know, we all
Speaker 2: get flooded with these communications from fund managers and others.
Speaker 2: If something does occasionally pique your interest, you know, having
Speaker 2: a support staff to a financial advisor that you can
Speaker 2: just quickly flick that to, I find that enormously helpful.
Speaker 2: So I think it's just having someone in your corner
Speaker 2: in what is even for those of us like you
Speaker 2: and I who are paid to understand these things. It
Speaker 2: is notoriously the complex, right, So that's the first thing
Speaker 2: I'd say is I do think it's worth it at
Speaker 2: the prices they're asking. The question is what model do
Speaker 2: we come up with for regular workers, mums and dads
Speaker 2: who will never be able to afford that, which increasingly
Speaker 2: there's a large number in that pool right given cost
Speaker 2: of living. And so it's funny you mentioned the banks
Speaker 2: getting out. It's a controversial view and my personal view
Speaker 2: is banks probably need to be part of the solution
Speaker 2: because that is the organization that most Australians have their
Speaker 2: primary financial relationship with. And yet, as you say, if
Speaker 2: you walk into a bank branch tomorrow, or more likely
Speaker 2: use your bank app and you ask for financial advice.
Speaker 2: It's not clear what process is triggered, but what is
Speaker 2: clear is most of the banks provide little if any
Speaker 2: financial advice these days, and so the other one given
Speaker 2: the banks have got little interest at least until the
Speaker 2: laws change to make them more complex and less expensive
Speaker 2: to comply. That other option that is coming up, which
Speaker 2: the government's trying to do something about, is expanding the
Speaker 2: options within your super fund, the amount of advice that
Speaker 2: is provided by the fund and in the fund. And
Speaker 2: that's a pretty good idea on paper. For the same
Speaker 2: reason I just said. People have an existing relationship, they're
Speaker 2: defaulted into this fund. A lot of their questions will
Speaker 2: be about SUPER invariably, But given the politics we've just
Speaker 2: spoken about and how contentious Super is, there's a lot
Speaker 2: of issues associated with.
Speaker 1: Is there anywhere nearer reality than in Parliament than.
Speaker 2: I have had a few small achievements. It's fair to
Speaker 2: say over the last couple of years they have wound
Speaker 2: back a few small things. But most financial advice providers
Speaker 2: would say that's not moving the dial. It's certainly not
Speaker 2: helping them reduce their cost.
Speaker 1: The idea of redrafting legislation to the point that the
Speaker 1: big super funds can expand advice for every day investors.
Speaker 2: Where's that at, Well, that's currently there's an exposure draft,
Speaker 2: there's draft legislation being written at the moment. The problem
Speaker 2: is the lobbyists around the space just don't agree at
Speaker 2: all on what's what the model should look like. And
Speaker 2: the dispute James is around whether or not funds should
Speaker 2: be able to collectively charge their members for the advice.
Speaker 1: Which is what they want, right, that's what they want.
Speaker 2: That's what they want. Apparently they haven't said so publicly.
Speaker 2: It's important to say, but that's what my sources suggest,
Speaker 2: and that's what it is believed they are advocating for
Speaker 2: in private.
Speaker 1: Logic would suggest that's how they always want to do things,
Speaker 1: isn't it really.
Speaker 2: And it's important to that is how the existing model
Speaker 2: works for what's called intrafund advice, which is a much
Speaker 2: narrower scope form of financial advice.
Speaker 1: Okay, and it's explained to listeners what's wrong with that?
Speaker 2: Well, it depends on your frames of reference.
Speaker 1: What people say is wrong with that?
Speaker 2: Yeah, I mean what's wrong with that is that one
Speaker 2: of the main findings of the Banking Royal Commission, if
Speaker 2: people remember, was this idea of fees for no service,
Speaker 2: where people were paying out fees for advice or for
Speaker 2: investment services and then not receiving the benefit of that.
Speaker 2: And critics would say, this is the same thing where
Speaker 2: you're a super fund member, you don't feel you need advice,
Speaker 2: or you don't even know they offer advice, and yet
Speaker 2: you're subsidizing somebody else's advice. Some people take issue with
Speaker 2: that on principle.
Speaker 1: Okay, and you're subsidizing somebody who's in there asking them
Speaker 1: on a hundred questions, and you're both paying the same rate,
Speaker 1: whether you're both paying the same rate always, whether you
Speaker 1: access it or not. Okay, very interesting, all right. I
Speaker 1: think that's probably all we can see on financial advice.
Speaker 1: It's worth bringing people up to date on that. It's
Speaker 1: a pretty interesting area of folks. I think, just to
Speaker 1: make one final point on that, the industry, for all
Speaker 1: the talk around it, is very much stuck for now
Speaker 1: with a model which is highly regulated and surveys which
Speaker 1: for all of late have shown that they are saying
Speaker 1: the planners are saying that more than fifty percent of
Speaker 1: their costs are to do regulation as opposed to give
Speaker 1: new advice. That's no good. That has to improve, but
Speaker 1: it isn't something of a political quagmar Okay back in
Speaker 1: a moment with some questions. Hello, Welcome back to the
Speaker 1: Australians Money Puzzle podcast. I'm James Kirby talking to Alex Pikovic,
Speaker 1: who's the editor of chief at the Kennexus Financial Group
Speaker 1: and someone who is very much across particularly across the
Speaker 1: goings on if you like the big picture about advice
Speaker 1: and super in the market, and particularly in Canberra, which
Speaker 1: is currently a course in its last sitting week of
Speaker 1: Parliament where they're trying to squash seventy bills squeeze seventy
Speaker 1: bills through. Let's say, let's say that they won't get
Speaker 1: seventy bills through in the next few days. That's for
Speaker 1: sure be interesting to see if they get anything in
Speaker 1: relation to our world as investors through that would make
Speaker 1: a difference to us. We cover that in the first
Speaker 1: two segments. Now, some interesting questions. Lofty LOFTUI high Lofty.
Speaker 1: I have a question about tax and super. I'm invested
Speaker 1: primarily in low cost index funds through an industry super fundable.
Speaker 1: There you are. I heard recently that taxes with help
Speaker 1: from returns to provide for future capital gains. Is this true?
Speaker 1: And who do this not cause a measurable tax drag
Speaker 1: on the portfolio over the long term? He tells us
Speaker 1: how much he has whether he should start SMSF. I
Speaker 1: think we might as well put the figure in. I
Speaker 1: don't like normally doing this, but you don't know who
Speaker 1: Lofty is, and nor do I don't have his surname,
Speaker 1: and this is never advised. This is always information. But
Speaker 1: he's got half a minute, which is that sort of
Speaker 1: a moult that would have you starting to think about
Speaker 1: whether you should start them. Two parts to that question.
Speaker 1: The first part is about the how they deal with
Speaker 1: capital against tax and the big super funds, and they
Speaker 1: play a game on that where they give you a
Speaker 1: bonus if you stay and you lose it bit if
Speaker 1: you don't, so nothing. It's not it is how it works, Lofty,
Speaker 1: and that's you have to go with it or not
Speaker 1: go with it. That's how they do it. Is that right, Alex?
Speaker 1: Have you any issue with that?
Speaker 2: Yeah? That's right. And I'm glad you gave the figure, James,
Speaker 2: because when it comes to sfs, the figure is important,
Speaker 2: or at least it's seen to be important, so that
Speaker 2: you're right, I would say that shouldn't be the determining
Speaker 2: factor really of whether you set up an SMSF. I mean,
Speaker 2: I know, for me personally, it certainly wasn't about reaching
Speaker 2: a certain threshold and then crossing over. For me, it
Speaker 2: was about wanting to invest in a particular asset that
Speaker 2: I couldn't through my through my up regulated super fund.
Speaker 2: So it's very much a personal to see. I'd also say,
Speaker 2: you know, I like the way Lofty is already thinking.
Speaker 2: You know, if they're invested in low cost index funds
Speaker 2: through an Apple regulated fund, that already indicates to me
Speaker 2: that they are taking some control of what's called a
Speaker 2: choice product effectively or an investment option with then a fund,
Speaker 2: and you're starting to get closer to the reality of
Speaker 2: what an SMSF feels and looks like anyway, if you
Speaker 2: want so. It's clearly not a totally default option that
Speaker 2: that Lofty's gone with here. So if they're already accustomed
Speaker 2: to low cost funds, then you know that probably sets
Speaker 2: you up well for an SMSF in some ways, because
Speaker 2: that's one way to sort of. There are higher costs
Speaker 2: of course associated with the running of the fund and
Speaker 2: the auditing and the tax accounting that you probably need.
Speaker 2: And so if you're in low cost index funds by preference,
Speaker 2: well then you can use some of that, you know,
Speaker 2: that revenue that you might otherwise be spending on active
Speaker 2: management and put it towards the running of the fund
Speaker 2: is one thing to consider. But as you say, James,
Speaker 2: I certainly wouldn't take tax advice from a journalist, So
Speaker 2: I'd be going to get I'd be going to get
Speaker 2: professional advice.
Speaker 1: Yeah, to anyone who's start, Certainly anyone out there, if
Speaker 1: you're going to start, you must Yeah.
Speaker 2: And but I think the point to make is the
Speaker 2: motivations for setting one up. And for me personally, it's
Speaker 2: that freedom and control and willingness to spend your time
Speaker 2: running a fund. I think that needs to be a
Speaker 2: primary motivator, regardless of if you've got fifty grand in
Speaker 2: there or five million.
Speaker 1: And as I always say to Lofty and all the
Speaker 1: Lofties out there, you've got to be prepared to fill
Speaker 1: out a lot of forms right forever. Hey, is there
Speaker 1: a figure that you personally feel a person would need
Speaker 1: any fund to start an SMSF.
Speaker 2: Look, it's really contentious right as it gives its guidance.
Speaker 2: I think that actually some of these figures are overstated.
Speaker 2: I think the amount of money is not a problem,
Speaker 2: and plenty of experts I speak to increasingly with technolog
Speaker 2: which can bring the cost of servicing the particularly if
Speaker 2: you are already spending on, for example, a good accountant
Speaker 2: or professional advice. I think you could have well less
Speaker 2: than five hundred thousand dollars and run a good self
Speaker 2: managed super fund, but only if you've got the financial
Speaker 2: literacy and the appetite to do it all.
Speaker 1: So you're saying like, if somebody was really invested, if
Speaker 1: you like, in their own financial future, and were numerous
Speaker 1: and capable and obsessed with low cost, then they could
Speaker 1: start one from much much less. Is there a rock
Speaker 1: bottom figure of which you say, listen, it's not feasible.
Speaker 2: Look, I mean it really depends. I mean, if you're
Speaker 2: spending more on the running of the SMSF than you
Speaker 2: are in the returns, then obviously that's not a good
Speaker 2: position to be in as a super fund. You know,
Speaker 2: I certainly have spoken to myself millennial investors, for example,
Speaker 2: who might only have one hundred thousand dollars in super
Speaker 2: and run perfectly good, self managed super fun ones that
Speaker 2: are you know, well governed and competitive with the upper
Speaker 2: regulated system. So that's not advice, but I think much
Speaker 2: less around the number itself.
Speaker 1: So there you are, you see you if you you
Speaker 1: want to be making, if you think about it, if
Speaker 1: it's five thousand, on't going for advice. And also what
Speaker 1: it costs, you know, really unless you're unless you're bringing
Speaker 1: in you know, five and a half or six, you
Speaker 1: have to subtract that from what you make. So keep
Speaker 1: that's what you've got to do, guys, keep that in mind.
Speaker 2: I would just add, James, you do see the opposite
Speaker 2: as well, right, I know, I've heard of quite a
Speaker 2: few multimillionaires who have recently, you know, cashed in their SMSF,
Speaker 2: shut it down and moved back into an app regulated
Speaker 2: fund due to the ease with which they you know,
Speaker 2: they don't want to spend as much time anymore running
Speaker 2: the fund, or because there's a particular apper regulated industry
Speaker 2: fund or retail fund that they're that they're keen on.
Speaker 2: So it does happen both ways.
Speaker 1: Yeah, And there's a point of which people might say,
Speaker 1: they might have started fund at forty and they might
Speaker 1: be seventy eighty and they say, oh, you know, it's
Speaker 1: all too hard. I can't do this anymore for a
Speaker 1: variety of reasons. And I'm not just saying mental decline.
Speaker 1: I'm just saying they started the fund because they wanted
Speaker 1: to have a million dollars in super and now they have,
Speaker 1: and I may say, but I don't have to do
Speaker 1: all that work anymore. Okay, we're slightly running out of time.
Speaker 1: I'll just jump to one last question from Russell. It's hard,
Speaker 1: Russell says, it's hard. It's still hard to understand the
Speaker 1: risk of private credit. The sheer market is easy to understand.
Speaker 1: Any day you can drop twenty five percent or more.
Speaker 1: I like the way you put that, Russell, and it
Speaker 1: grows at an average of nine to ten percent per
Speaker 1: anamal for the very long term. What would be the
Speaker 1: black swan events that's severely or wipe out your investments? Hey, Russell,
Speaker 1: they're black swan events. We don't know what they are.
Speaker 1: That's the whole thing. They're black swans. I don't mean
Speaker 1: to be facetious, but that's it. That's the nature of it.
Speaker 1: If I could tell you what the black swan events were,
Speaker 1: I'd have a hedge fund.
Speaker 2: We don't know what they are, Jane's, but arguably, by
Speaker 2: it's very nature, we know what they are in the
Speaker 2: share market better than we know what they are in
Speaker 2: private credit. So that's the first thing that I'd say
Speaker 2: is the clue is in the title, and the fact
Speaker 2: that these are effectively loans that are not connected to
Speaker 2: public markets means by their very nature they are more opaque.
Speaker 2: It is less You're less able to work out what
Speaker 2: they're really worth, You're less able to obtain reliable research.
Speaker 2: And I'm not saying people shouldn't invest in private credit.
Speaker 2: It's the hottest asset class in the world for a reason,
Speaker 2: right But that reason is that you can generate a
Speaker 2: return at the moment, or at least we've been able
Speaker 2: to over this past cycle, and that return is based
Speaker 2: on the risk involved, and so very much with private credit,
Speaker 2: there are very real risks that the investors wear. The
Speaker 2: thing to think about mostly in private credit, in my view,
Speaker 2: is less a black swan event that might affect the
Speaker 2: market or the underlying loans, but more about the competency
Speaker 2: of the asset manager involved, assuming there is one involved,
Speaker 2: and if there's not, then I think that's a bit
Speaker 2: of a red flag for me, because you do see
Speaker 2: at the institutional level asset managers who truly do specialize
Speaker 2: in this space and have done it for hundreds of years,
Speaker 2: and they've been through lots of different credit cycles, and
Speaker 2: that would give me a little bit more comfort. But
Speaker 2: even then, let's not pretend lending is easy, right credit
Speaker 2: Swiss was doing this for hundreds of years before it
Speaker 2: came unstuck. This is not an easy thing and it
Speaker 2: sometimes gets misconstrued.
Speaker 1: Do you think the chances of the everyday investor getting
Speaker 1: into a good fund are slimmer now that it has
Speaker 1: become I do the hotest?
Speaker 2: I definitely. I definitely think personally the best way to
Speaker 2: access private credit is probably through a large institutional investor
Speaker 2: where they are through economies of scale. So you know,
Speaker 2: the superfunds themselves are really loading up on private credit,
Speaker 2: not always in a good way. I mean, there are
Speaker 2: some examples. Australian super for example, is now doing its
Speaker 2: own direct lending in Europe without an asset manager. That
Speaker 2: worries me a little bit. I don't know what Australian
Speaker 2: super certainly doesn't have hundreds of years experienced doing that.
Speaker 2: But nonetheless, I think if you want the returns from
Speaker 2: private credit, doing so in a large diversified institutional environment
Speaker 2: is probably a better way to do it in an
Speaker 2: SMSSPH or as a private investor. There's still plenty of
Speaker 2: good private credit funds out there, but I also worry
Speaker 2: that some of the problematic funds that are most likely
Speaker 2: to be exposed if there was a black swan event,
Speaker 2: they are trying to raise capital from retail and wholesale avestors.
Speaker 2: So I certainly think that regular listeners to this who
Speaker 2: are being attracted by the sort of ten percent plus
Speaker 2: returns on offer or whatever, this is definitely an area
Speaker 2: where you know, if it looks too good to be true,
Speaker 2: or if it you know, these are not bonds, it
Speaker 2: needs to be really well understood and it's a hot market,
Speaker 2: but I'd be cautious.
Speaker 1: Okay, terrific, terrific. Thank you very much and thanks very
Speaker 1: much for coming on the show.
Speaker 2: Alex.
Speaker 1: Really good to have you. Alex Pikovich there from the
Speaker 1: CONNECTSUS Financial Group, Thanks Alex, Thanks Jows. I'd like to
Speaker 1: thank Leah samuelgluehod heroic work to get on TAK, not
Speaker 1: so much to produce the show, but to get to
Speaker 1: the point of producing the show today. So thank you
Speaker 1: Leah in particular, and let's have some emails please the
Speaker 1: money puzzle at the Australian dot com dot au. Talk
Speaker 1: to you soon.