WEBVTT - Is using an SMSF for property a million-dollar mistake? 0:00:09.920 --> 0:00:13.040 Hello, and welcome to The Australian's Money Puzzle podcast. I'm 0:00:13.160 --> 0:00:16.720 James Kirby. Welcome aboard everybody. Now, a lot of listeners 0:00:16.760 --> 0:00:19.320 are property investors, and a lot of them would have 0:00:19.440 --> 0:00:22.560 an idea of having their own superfund and putting property 0:00:22.560 --> 0:00:26.920 into that fund. It's a backbone basically of active independent investing. 0:00:26.960 --> 0:00:29.320 There has been for some time. But my guest today, 0:00:29.360 --> 0:00:33.520 financial advisor James already says buying property inside a super 0:00:33.520 --> 0:00:35.879 fund is a million dollar mistake. 0:00:35.960 --> 0:00:38.559 Hi, James, HELLI James, lovely to chat night. 0:00:38.880 --> 0:00:40.920 Good to have you on the show. I don't know 0:00:40.960 --> 0:00:44.720 what you're going to say, but I imagine that there's 0:00:44.760 --> 0:00:46.760 no lack of demand. I think people want to put 0:00:46.760 --> 0:00:49.360 property in super funds. They have for a long time. 0:00:49.400 --> 0:00:53.760 They've had a success for a long time. But you've 0:00:53.800 --> 0:00:57.560 done an exercise, a numerical exercise. Basically, you dug deep, 0:00:57.600 --> 0:01:00.040 You've a made certain assumptions, you tested and tested it, 0:01:00.440 --> 0:01:03.880 and you have come to the conclusion that it is 0:01:03.960 --> 0:01:06.959 not worth doing. Just explain briefly why. 0:01:08.280 --> 0:01:10.880 Yeah, of course, well please alam it is step back 0:01:11.000 --> 0:01:13.080 just a moment, because it might be valuable to offer 0:01:13.120 --> 0:01:16.240 some context, which is that I embarked on this exercise. 0:01:16.280 --> 0:01:18.800 I'm a financial advisor. I embarked on this exercise open 0:01:18.840 --> 0:01:21.440 minded to the idea of doing this myself. Our super 0:01:22.080 --> 0:01:24.160 my superbalancers continue to grow, and I'm now at a 0:01:24.160 --> 0:01:27.039 point where it's a viable option, and so I thought, 0:01:27.040 --> 0:01:29.440 you know, I'm going to really run the details, run 0:01:29.440 --> 0:01:31.960 the numbers in as much detail as I can. And 0:01:32.040 --> 0:01:34.600 so that was what motivated me to do that. And 0:01:34.880 --> 0:01:37.320 when I put those numbers in and I accounted for 0:01:37.840 --> 0:01:40.160 all the costs that you incur inside of self managed 0:01:40.200 --> 0:01:42.800 superannuation fund, the thing that stood out to me is 0:01:42.840 --> 0:01:44.240 that you really need to hit it out of the 0:01:44.280 --> 0:01:46.760 park in terms of the asset that you buy to 0:01:46.840 --> 0:01:51.480 have any chance of outperforming your standard high growth superannuation 0:01:51.560 --> 0:01:54.400 fund that might be available through your industry super fund, 0:01:54.400 --> 0:01:56.520 for instance, let alone, if you're willing to take more 0:01:56.600 --> 0:01:59.320 risk and invest in gear type assets like I am. 0:02:00.200 --> 0:02:03.600 When you say i'll perform, you mean do you mean 0:02:03.760 --> 0:02:06.440 the rental return or the total return? Because obviously you'd 0:02:06.440 --> 0:02:08.720 have the capital gain, wouldn't you running So I presume 0:02:08.760 --> 0:02:09.840 you allowed for all that, did you. 0:02:10.520 --> 0:02:14.120 Yeah, that's right. Yeah, so the total return. I'm almost 0:02:14.160 --> 0:02:17.440 forty eight, and I ran the numbers to I see 0:02:17.440 --> 0:02:18.760 a raygrin on your face there. 0:02:18.639 --> 0:02:22.240 But because assurans hell, don't look a remotely like forty. 0:02:22.320 --> 0:02:26.120 Look at you, Yes, I assure you, I feel every 0:02:26.120 --> 0:02:29.880 bit of it. An then some. But when I was 0:02:29.919 --> 0:02:32.840 looking at this, the question was firstly, from now until 0:02:32.880 --> 0:02:35.280 fifty five? You know what would be better if I 0:02:35.360 --> 0:02:37.280 was to sell the asset at fifty five versus just 0:02:37.320 --> 0:02:40.440 continuing on the trajectory I am right now. And then 0:02:40.520 --> 0:02:42.880 similarly I also looked at this, we'll hold up. What 0:02:42.960 --> 0:02:46.040 about if I hold on till sixty current legislation media 0:02:46.080 --> 0:02:48.280 condition of release, which means you can access your super 0:02:48.320 --> 0:02:50.079 and then there are some real tax benefits of selling 0:02:50.160 --> 0:02:53.440 after that date, even after both of those things, including 0:02:53.720 --> 0:02:56.560 all the likely returns that we get using long term averages, 0:02:56.680 --> 0:03:01.280 the likely income we receive again using long term averages. James, 0:03:01.280 --> 0:03:02.080 it just didn't stuck up. 0:03:02.120 --> 0:03:03.880 It just didn't stuck up. It's funny. I thought you 0:03:03.880 --> 0:03:12.120 would tell me that the issue was reached. That was 0:03:12.160 --> 0:03:16.520 a part of time SMSF lending was mainstream. I don't 0:03:16.560 --> 0:03:18.560 know why it's moved so much to the margins, but 0:03:18.639 --> 0:03:21.680 it has, And so no one pays more. Right, no 0:03:21.760 --> 0:03:24.280 one pays more. No one pays a higher mortgage ate 0:03:24.440 --> 0:03:29.320 in Australia than a self managed super fund investor borrowing 0:03:29.400 --> 0:03:32.120 for property. Explain why that is and is that a 0:03:32.200 --> 0:03:32.760 key factor? 0:03:33.960 --> 0:03:37.160 Yeah, it's an enormous factor. And it's a double wammy too. 0:03:37.280 --> 0:03:40.320 So this really came about above a loss during the 0:03:40.400 --> 0:03:44.880 Royal Commission in Banking and Finance, and those conditions going 0:03:44.920 --> 0:03:49.120 through that process resulted in I presume the major banks, 0:03:49.120 --> 0:03:51.240 you know, the Big four, all looking at this and saying, hey, 0:03:51.240 --> 0:03:54.520 in a risk adjusted sense, lending money to superannuation funds 0:03:54.600 --> 0:03:56.960 is just dumb. You have this what's called a limited 0:03:57.040 --> 0:03:59.360 recourse borrowing agreement, which means as the bank, you're not 0:03:59.400 --> 0:04:02.119 actually able to attack the asset itself as you would 0:04:02.240 --> 0:04:05.240 with a traditional whether it's an investment property loan or 0:04:05.280 --> 0:04:08.160 a home loan. So there's less recourse and so as 0:04:08.200 --> 0:04:09.920 a result, they said, if we were going to play 0:04:09.920 --> 0:04:11.680 in this space, we'd have to increase rates a lot 0:04:11.720 --> 0:04:13.880 and a lot of them left. Now, that left a 0:04:13.880 --> 0:04:16.520 whole heap of second and thirdtier lenders. You know, for example, 0:04:16.560 --> 0:04:18.839 commonly right now you might get lending through pepper Money 0:04:18.920 --> 0:04:24.120 Liberty latrobe to access self meta superannuation funds and old debt, 0:04:24.120 --> 0:04:26.320 and of course when competition's down then you're not going 0:04:26.360 --> 0:04:29.400 to get sharp prices. Now, the consequence that we have 0:04:29.480 --> 0:04:31.640 here is not just that the rates are really high. 0:04:31.960 --> 0:04:37.120 On average, you'll probably pay somewhere between seventy let's say, 0:04:37.160 --> 0:04:40.000 two point seventy five and one percent higher than you 0:04:40.040 --> 0:04:43.040 would on your home loan rate. But James, it's also 0:04:43.080 --> 0:04:45.919 the fact that the tax deduction is so much poorer too, 0:04:46.120 --> 0:04:49.839 because the tax rate inside the superannuation fund is only 0:04:49.880 --> 0:04:50.600 fifteen percent. 0:04:52.480 --> 0:04:54.200 So the negative gearing isn't as good. 0:04:54.240 --> 0:04:57.479 Eh, it's nowhere near as powerful. That's rightever it would be. 0:04:57.520 --> 0:05:01.400 But wasn't that always the case? Wasn't it? 0:05:01.520 --> 0:05:04.080 Certainly? The tax rate absolutely. But if I think back 0:05:04.120 --> 0:05:07.560 to advising people in the twenty tens, for instance, it 0:05:07.600 --> 0:05:09.200 was really common for someone to say, I've got a 0:05:09.240 --> 0:05:12.320 self man and super fund with a property inside it, 0:05:12.360 --> 0:05:14.800 and I'm paying three point five percent. There was a 0:05:14.839 --> 0:05:17.080 little period there we could get almost exactly the same 0:05:17.120 --> 0:05:19.440 rate as home loan rates to two and a half 0:05:19.520 --> 0:05:22.560 percent for your SMSF debt. Yeah, and I can tell 0:05:22.600 --> 0:05:24.800 you when you were just for two and a half percent. 0:05:24.760 --> 0:05:26.679 Interest only sometimes yeah. 0:05:26.520 --> 0:05:27.680 Yeah, when you were just for two and a half 0:05:27.720 --> 0:05:30.839 percent interest, yeah, absolutely it works. But that's just the point. 0:05:30.880 --> 0:05:32.839 We're not in that environment anymore. We're in a higher 0:05:32.839 --> 0:05:35.840 for longer environment. Really nice to see some a little 0:05:35.880 --> 0:05:38.719 bit more reprieve coming through more recently, but these rates 0:05:38.720 --> 0:05:41.000 aren't going to come down rapidly the way we could expect. 0:05:41.279 --> 0:05:44.560 And even so today, right now, it doesn't stuck up. 0:05:45.000 --> 0:05:47.200 Okay, now let's look at it more close to you. 0:05:47.320 --> 0:05:49.240 So so it's a sort of swing factor as such, 0:05:49.360 --> 0:05:52.559 and if the banks came back in that might change. 0:05:52.600 --> 0:05:56.599 But you find other issues upfront. Transaction costs Obviously it 0:05:56.720 --> 0:06:00.000 was a powerful point to you. I mean, they're always 0:06:00.040 --> 0:06:03.440 there in property. So I'm just wondering in terms of 0:06:03.880 --> 0:06:06.760 ranking the weakness if you like up the proposal of 0:06:06.800 --> 0:06:10.400 investing in super property, how you might spell that out. 0:06:11.640 --> 0:06:15.320 Of course, I guess you're right. The transaction costs are 0:06:15.320 --> 0:06:17.720 obviously painful when you buy a property, and for every 0:06:17.720 --> 0:06:20.560 property investor is likely to understand some of those challenges 0:06:20.600 --> 0:06:23.760 around not just stamp duty and conveyancing costs, but you know, 0:06:23.960 --> 0:06:25.680 perhaps you might have a buyers agent some of those 0:06:25.680 --> 0:06:30.200 other costs that you're incurring. Probably the overarchingly the biggest 0:06:30.839 --> 0:06:34.320 detriment to the argument of investing money inside a self 0:06:34.320 --> 0:06:36.880 manage superannuation if I'm buying a property, is that for 0:06:36.920 --> 0:06:41.359 the vast majority of Australians, the money's already invested. And 0:06:41.720 --> 0:06:44.320 it's a very important point if we consider your traditional 0:06:44.400 --> 0:06:47.440 residential property investor, who you might have enough equity in 0:06:47.480 --> 0:06:49.880 their existing home for instance, to say, right, maybe we 0:06:49.920 --> 0:06:53.880 can get an investment property. Well, that money's not invested 0:06:54.000 --> 0:06:56.760 right now. You know, you're certainly you're getting some benefit 0:06:56.760 --> 0:06:59.200 from perhaps offsetting against the home loan. But what we're 0:06:59.200 --> 0:07:02.680 doing is we're locking a new investment with its own features, 0:07:03.960 --> 0:07:08.080 whereas with a superannuation fund for most Australians, we are 0:07:08.120 --> 0:07:11.120 taking money out of an environment where the money is 0:07:11.200 --> 0:07:15.640 already professionally managed. And I'd like to imagine for most Australians, 0:07:15.720 --> 0:07:19.320 especially in the current economic climate, doing pretty well. And 0:07:19.400 --> 0:07:22.160 so when you take money out of that environment and 0:07:22.200 --> 0:07:25.559 then put it somewhere else, in order to outperform James, 0:07:25.600 --> 0:07:27.760 you really have to hit it out of the park 0:07:27.800 --> 0:07:30.800 with that investment to catch up on all those transaction 0:07:30.960 --> 0:07:32.760 fees and just get yourself ahead. 0:07:33.000 --> 0:07:36.280 You make that point that maybe you know in the 0:07:36.360 --> 0:07:39.280 last thirty years it might have worked, but you're very 0:07:39.280 --> 0:07:42.480 skeptical about Oh oh my gol. From here, I'm just 0:07:42.560 --> 0:07:45.600 quoting from your own post on this to my amazement, 0:07:45.600 --> 0:07:47.880 buying a property through a certain it is super fund 0:07:47.920 --> 0:07:50.400 would likely leave me more than a million dollars worse 0:07:50.440 --> 0:07:54.480 off over the next fifteen years compared to simply maintaining 0:07:54.800 --> 0:07:58.440 a high growth superannuation portfolio. I check the numbers, I 0:07:58.560 --> 0:08:03.760 check them again, and they were right. Okay, let's just 0:08:03.760 --> 0:08:07.000 play Devil's advocate here. Let's say there was a thumper 0:08:07.040 --> 0:08:10.760 of a stock market crash and I remember having a 0:08:10.840 --> 0:08:14.360 property in my SMSF in the GFC, and I was 0:08:14.440 --> 0:08:17.080 so so glad I had it because it was the 0:08:17.120 --> 0:08:20.960 only thing that wasn't at least in visibly falling through 0:08:21.000 --> 0:08:24.160 the floor. So what sort of a defense is that 0:08:24.320 --> 0:08:25.160 for the proposal. 0:08:26.000 --> 0:08:28.680 Oh, it's a great argument, and it's certainly something to 0:08:28.680 --> 0:08:32.880 be considered, because when I think about stock market crashes, 0:08:32.920 --> 0:08:35.760 my mindset is not if, but when they are part 0:08:35.760 --> 0:08:38.320 of investing in the equity market, and that's going to happen. 0:08:38.880 --> 0:08:40.920 Having said that, where we start to go now is 0:08:40.960 --> 0:08:44.280 around a non financial argument in the sense that there's 0:08:44.320 --> 0:08:46.520 the benefit the peace of mind of having the money 0:08:46.520 --> 0:08:49.400 in an asset that perhaps isn't as volatile. Now, if 0:08:49.400 --> 0:08:51.280 we have an individual year, if we said what's going 0:08:51.320 --> 0:08:53.080 to happen over the next three to five years, and 0:08:53.120 --> 0:08:55.640 you had to make that decision, let's ignore transaction fees. 0:08:55.640 --> 0:08:57.959 Just because we're talking purely one versus the other. You 0:08:58.640 --> 0:09:01.360 could mount a better argument for property on the basis 0:09:01.360 --> 0:09:04.080 that it's less likely to be less volatile and less 0:09:04.080 --> 0:09:06.880 susceptible to you know, that big share market crash like 0:09:06.920 --> 0:09:09.960 the GFC or COVID and those sorts of collapses. But 0:09:10.080 --> 0:09:12.439 noting that when we're talking about a fifteen year time frame, 0:09:12.480 --> 0:09:16.000 which in theory is two full market cycles, Like let's 0:09:16.160 --> 0:09:19.360 reflect on fifteen years post GFC to twenty twenty two, 0:09:19.520 --> 0:09:23.199 for example, we know we had we'd had enough time 0:09:23.280 --> 0:09:25.480 for those returns to well and truly be washed out 0:09:25.480 --> 0:09:29.040 of the market. So over that longer term timeframe, which 0:09:29.040 --> 0:09:31.760 I think is the way that most Australians view their superannuation, 0:09:32.360 --> 0:09:34.599 I still know that we can rely on the numbers. 0:09:35.200 --> 0:09:37.959 Okay, right. I found the interesting one of the very 0:09:37.960 --> 0:09:41.640 interesting things you pointed out was that that issue of 0:09:42.320 --> 0:09:45.400 just to spell it out, the strategy could never recover 0:09:45.520 --> 0:09:50.040 from the huge upfront transaction costs, ongoing SMSF administration fees 0:09:50.080 --> 0:09:54.120 and property holding costs and higher interest rates on SMSF loans. 0:09:54.280 --> 0:09:56.480 That's so interesting. I think you were on top of 0:09:56.520 --> 0:09:59.120 all that. You didn't mention. You probably didn't have to mention. 0:09:59.200 --> 0:10:01.000 But something that comes up on the shore regularly is 0:10:01.320 --> 0:10:03.240 it's a lot more work to run a property than 0:10:03.280 --> 0:10:06.160 to run an ETF. I mean, what do you do 0:10:06.240 --> 0:10:07.600 with the ETF. You look at it now and again 0:10:07.640 --> 0:10:11.120 the numbers change ever so slowly. A property is it's 0:10:11.120 --> 0:10:13.680 a headache, right, if you've got it, it's a headache, 0:10:13.880 --> 0:10:15.160 but it's yeah, it spot on. 0:10:15.440 --> 0:10:16.880 Yeah. And not to mention, of course, you know, with 0:10:16.920 --> 0:10:19.319 an ETF, because it's a lot more liquid, you can 0:10:19.320 --> 0:10:21.760 make more strategic decisions around it, like if there were 0:10:21.800 --> 0:10:23.840 a big crash, you could say, okay, well we're gonna 0:10:23.880 --> 0:10:25.800 I don't want to have that level of exposure anymore 0:10:25.840 --> 0:10:28.000 and so on, whereas you're less able to do that 0:10:28.040 --> 0:10:30.320 with a property. If I may, I would love to 0:10:30.360 --> 0:10:32.240 canvass one thing because when I put this out to 0:10:32.240 --> 0:10:34.440 the world. I had all manner of comments. 0:10:34.440 --> 0:10:38.000 So yeah, what was a response like, let's just let's 0:10:38.000 --> 0:10:40.480 put the property sort of, you know, the fervent property 0:10:40.480 --> 0:10:43.040 lovers to one side. What was the general response to you. 0:10:44.600 --> 0:10:47.120 There's a lot of gratitude for actually having shared the 0:10:47.280 --> 0:10:49.520 entire numbers of it, and not just saying, hey, here's 0:10:49.520 --> 0:10:52.240 how I here's my gut, but saying, like, the mats 0:10:52.240 --> 0:10:53.720 behind it is here, and if you want to play 0:10:53.720 --> 0:10:55.600 with the mats and adjust it, feel free. But here's 0:10:55.600 --> 0:10:57.560 the mats, and you know you can find that. You 0:10:57.559 --> 0:11:01.240 can find all that information online. But for the people 0:11:01.240 --> 0:11:03.920 that were critical of it, particularly in that property space, 0:11:03.960 --> 0:11:06.199 you know, most of them naturally had a property lean 0:11:06.280 --> 0:11:07.719 And I don't say that in a negative way. I 0:11:07.760 --> 0:11:11.760 actually with reflecting on their answers and looking at them closely, 0:11:12.200 --> 0:11:15.520 what they were really saying is, you've used the long 0:11:15.640 --> 0:11:18.480 term average, the thirty year long term average for property 0:11:18.520 --> 0:11:20.719 growth according to core Logic. It's the best long term 0:11:20.800 --> 0:11:23.760 data point I could find. And their argument was, we 0:11:23.840 --> 0:11:26.880 think that we can outperform that. We think if you 0:11:26.960 --> 0:11:28.920 go to a you go to a great buyers agent, 0:11:29.280 --> 0:11:32.040 and you buy the right asset, you can do a 0:11:32.120 --> 0:11:35.400 higher earnings rate than that and for what it's worth. James, 0:11:35.440 --> 0:11:38.240 I actually support that I have investment properties. I always 0:11:38.280 --> 0:11:40.440 go to a buyers agent when I do that. I 0:11:40.480 --> 0:11:43.040 absolutely believe in the value of getting professional advice there 0:11:43.080 --> 0:11:47.719 and paying for it. And to that end, I think overarchingly, 0:11:48.160 --> 0:11:50.120 the real thing that I want to drive and the 0:11:50.160 --> 0:11:52.880 motivation to put this out to the world, was to 0:11:53.640 --> 0:11:56.840 encourage Australians to be so much more scrupulous around the 0:11:56.920 --> 0:11:58.880 asset that is being purchased. If you are to do 0:11:58.960 --> 0:12:03.640 this saying it's impossible, I'm saying, yeah, your observation was 0:12:03.679 --> 0:12:05.120 for and most people most of the time. 0:12:05.720 --> 0:12:08.720 That's with most properties. It's a very bad idea to 0:12:08.720 --> 0:12:11.000 put it in an SMSF. Yeah, but you allow for 0:12:11.080 --> 0:12:15.040 exceptions because old properties or property is individual. As they say. 0:12:15.840 --> 0:12:17.600 Of course, if you had the good fortune to buy 0:12:17.640 --> 0:12:19.240 in Perth a few years ago, then you've got a 0:12:19.280 --> 0:12:21.240 totally different story and you can say it smashed the 0:12:21.240 --> 0:12:24.760 super funds despite them doing well. There's always exceptions, but 0:12:24.800 --> 0:12:27.640 for what Welcome your comments, James, But I often meet 0:12:27.640 --> 0:12:30.480 with people who have properties in their SMSF and it 0:12:30.520 --> 0:12:33.040 breaks my heart to see people that have purchased. You know, 0:12:33.160 --> 0:12:36.640 thirteen years ago. I bought this apartment in out of 0:12:36.640 --> 0:12:39.640 suburbs Melbourne. I spent five hundred grand on it thirteen 0:12:39.720 --> 0:12:43.280 years ago. It's worth exactly the same amount because it's 0:12:43.320 --> 0:12:45.360 the strategy might have been the right strategy, but the 0:12:45.480 --> 0:12:48.440 due diligence around the asset. They might have just taken 0:12:48.520 --> 0:12:51.120 the property consultant's word for it, or just bought one 0:12:51.120 --> 0:12:54.000 that was nearby that they knew was available. I cannot 0:12:54.000 --> 0:12:55.959 stress you enough. If you are looking to do this, 0:12:56.080 --> 0:12:59.560 you must be relentless about getting the right people on 0:12:59.600 --> 0:13:01.960 your team in the right research to say v sas 0:13:02.000 --> 0:13:04.880 an asset that's going to significantly outperform the long term 0:13:05.040 --> 0:13:07.080 trend of property more generally. 0:13:08.000 --> 0:13:10.640 Yeah, okay, and it's a big call. It's a big call. 0:13:10.679 --> 0:13:12.079 All right, we'll take a short break. We'll be back 0:13:12.080 --> 0:13:25.360 in a moment. Hello and welcome back to the Australians 0:13:25.440 --> 0:13:28.520 Money Puzzle Podcast. I'm James Kirby and I'm talking to 0:13:28.640 --> 0:13:31.920 James O'Reilly. Now I should have introduced James more fully 0:13:32.040 --> 0:13:36.000 at the start. James works with Northeast Well that's his group. 0:13:36.040 --> 0:13:40.960 He's responsible investment advocate as well and on top of that, 0:13:41.240 --> 0:13:45.160 the host of the Australian Retirement podcast, which is quite 0:13:45.200 --> 0:13:46.920 well known, and that is why, of course he's been 0:13:46.960 --> 0:13:51.600 so smooth and articulate in his responses and segment one 0:13:51.679 --> 0:13:54.559 because he has his own podcast all right now, James, 0:13:54.720 --> 0:13:57.520 one of the questions that I normally have questions at 0:13:57.520 --> 0:13:59.160 the end, but I have a question and it's kind 0:13:59.200 --> 0:14:00.959 of in there in the a while, and I wanted 0:14:00.960 --> 0:14:03.559 someone to answer it. I was waiting for someone basically 0:14:03.559 --> 0:14:06.040 to come along who could answer it. It's from Pete 0:14:06.040 --> 0:14:08.679 and he asks a very simple question, what really is 0:14:08.720 --> 0:14:13.000 ethical investing? Now? That's something we could go all over 0:14:13.040 --> 0:14:15.680 the place on and it's a movable feast to some extent. 0:14:16.400 --> 0:14:20.720 There are new government labeling laws coming in in Australia, 0:14:20.760 --> 0:14:22.840 which is a good thing to really try and define 0:14:22.840 --> 0:14:26.840 it and stop the greenwashing. But in your world financial advice, 0:14:27.040 --> 0:14:31.440 responsible investing, how does that basically take shape? If you've 0:14:31.440 --> 0:14:33.120 got that on your shinkle outside of the door, I'm 0:14:33.120 --> 0:14:37.720 a responsible investment advocate, does it? I presume some people 0:14:37.800 --> 0:14:39.600 say that's not my kind of thing. I just want 0:14:39.600 --> 0:14:42.840 the best results. But when people come through the door 0:14:43.720 --> 0:14:47.200 on that proposal, how is it different? From anyone else. 0:14:48.880 --> 0:14:50.800 Yeah, thanks mate, but very thank you for the kind 0:14:50.840 --> 0:14:54.760 words back there. So our philosophy, the way that it's 0:14:54.840 --> 0:14:59.120 different is that where possible, we are going to be 0:14:59.280 --> 0:15:03.320 seeking to look at your capital responsibly and specifically sustainably 0:15:03.760 --> 0:15:06.320 is our mandate. Now, I say where possible, because as 0:15:06.360 --> 0:15:09.280 you've pointed out, people all have different values and different 0:15:09.280 --> 0:15:11.120 things that they want to they want to focus on. 0:15:11.560 --> 0:15:14.440 There was a wonderful study done by the RIBA, which 0:15:14.480 --> 0:15:18.040 is the Responsible Investment Association of Australasia, and they do 0:15:18.120 --> 0:15:20.040 an equivalent sort of this study every year and it 0:15:20.080 --> 0:15:22.120 always seems to say about the same thing, which is 0:15:22.160 --> 0:15:25.320 words to the effect of around ninety percent of Australians 0:15:25.720 --> 0:15:29.920 expect that their financial advisor should be considering responsible investment 0:15:29.920 --> 0:15:33.000 as part of their overall philosophy. And what that speaks 0:15:33.040 --> 0:15:34.840 to I believe, and I think it's reinforced with the 0:15:34.880 --> 0:15:37.200 way that we serve people, is that the vast majority 0:15:37.240 --> 0:15:40.280 of Australians would like to have some sort of focus 0:15:40.520 --> 0:15:44.360 on responsible investing if it were tabled to them as 0:15:44.400 --> 0:15:48.080 part of the overall advice process. But unfortunately with financial advice, 0:15:48.520 --> 0:15:52.560 as far as I'm concerned, my experience is far less 0:15:52.600 --> 0:15:55.360 than a quarter of the time. Is it tabled and 0:15:55.520 --> 0:15:58.520 or properly tabled to say, have you given thought to 0:15:58.600 --> 0:16:01.120 investing in line with your values? And they're particular things 0:16:01.120 --> 0:16:03.760 that you would like to either focus on or are 0:16:03.760 --> 0:16:05.800 the things that you would like to exclude and not 0:16:05.840 --> 0:16:08.360 be invested in. And that's what we want to afford 0:16:08.400 --> 0:16:08.840 people to. 0:16:08.800 --> 0:16:11.040 Do today, oh, yesterday or this week. How does that 0:16:11.040 --> 0:16:13.160 make a difference. Are either certain investments that are off 0:16:13.200 --> 0:16:18.640 the table and are there certain investments or behaviors that 0:16:18.720 --> 0:16:20.040 you actively seek to follow? 0:16:21.640 --> 0:16:26.240 Yah, our default is as in without When we have 0:16:26.280 --> 0:16:29.440 someone that says, yes, I'm open minded to investing money responsibly, 0:16:29.480 --> 0:16:31.680 but I don't have any really strict views around the 0:16:31.720 --> 0:16:34.440 sort of things I'd like to include and exclude. Is 0:16:34.480 --> 0:16:38.440 to use what's called the United Nations Sustainable Development Goals. 0:16:38.640 --> 0:16:41.000 A lot of listeners might have heard of the expression SDGs, 0:16:41.280 --> 0:16:44.520 and that's these sustainable development goals have been to put forward. 0:16:44.560 --> 0:16:47.320 There are sixteen of them by the United Nations. Things like, 0:16:47.320 --> 0:16:51.560 for example, poverty, education, and a whole heap of important 0:16:51.600 --> 0:16:55.000 fundamental things that should hopefully result in a better planet. 0:16:55.280 --> 0:16:58.520 And so, especially in today's day and age, there are 0:16:58.560 --> 0:17:01.280 some wonderful tools that a enable portfolios to be really 0:17:01.360 --> 0:17:05.040 easily screened to say, well, what's in this portfolio. We've 0:17:05.080 --> 0:17:08.119 got this ABC High Growth fund, for instance, where's the 0:17:08.160 --> 0:17:11.720 money invested? What are the companies actually doing within that fund? 0:17:12.000 --> 0:17:14.359 Are you comfortable that the definitions that are used in 0:17:14.400 --> 0:17:18.280 the screening really reflect what you and your scient have 0:17:18.320 --> 0:17:19.040 been talking about. 0:17:19.680 --> 0:17:21.480 That is a very good question. I think that we're 0:17:21.480 --> 0:17:23.320 getting a lot better at this. You mentioned at the 0:17:23.320 --> 0:17:26.480 beginning that we are seeing in a wonderful way a 0:17:26.680 --> 0:17:30.320 much heavier focus and a much stricter focus around doing 0:17:30.400 --> 0:17:32.800 exactly what you say is on the tin. And we've 0:17:32.800 --> 0:17:35.680 seen examples in the past where you have a particular 0:17:35.720 --> 0:17:37.520 fund that says, here are the things that we want 0:17:37.560 --> 0:17:39.119 to screen out of, and then you look at the 0:17:39.160 --> 0:17:40.840 constituents of the fund and say, well, how do we 0:17:40.840 --> 0:17:43.399 have this position in it, for example, because that doesn't 0:17:43.400 --> 0:17:47.560 belong here. So I'm comfortable in the sense that we 0:17:48.040 --> 0:17:50.240 I think we do a reasonable amount of due diligence here, 0:17:50.560 --> 0:17:54.960 but also I emphasize here that the focus d' especially 0:17:55.040 --> 0:17:57.280 given the responsible investing. As far as I'm concerned, it's 0:17:57.280 --> 0:18:02.280 still early in its journey focuses on progress rather than perfection. 0:18:02.720 --> 0:18:05.040 You know, and I've explained to many members before, we 0:18:05.080 --> 0:18:07.360 will do our level best. If we uncover that there's 0:18:07.359 --> 0:18:09.840 a particular fund that's investing in a particular way that's 0:18:09.840 --> 0:18:13.080 at conflict with what your perceptions are, we will either 0:18:13.119 --> 0:18:15.000 prictic we'll let you know about or address it as 0:18:15.040 --> 0:18:18.280 soon as we as soon as we can. But broadly 0:18:18.440 --> 0:18:19.639 we're in a better spot. 0:18:20.000 --> 0:18:22.719 Okay, hopefully that's useful to you, Pete. I mean, in 0:18:22.760 --> 0:18:26.600 practical terms, with an advisor, at least it becomes they 0:18:26.640 --> 0:18:30.720 in turn, in trying to implement or overlay ethical investing 0:18:31.200 --> 0:18:33.480 on an advisory package, if your life for an individual, 0:18:33.800 --> 0:18:37.080 they're depending to some extent on labeling and screening, and 0:18:37.119 --> 0:18:41.480 these are practical aspects inside financial planning. The problem and 0:18:41.520 --> 0:18:46.200 the backlash largely over ESG and that broader area of 0:18:46.240 --> 0:18:50.520 ethical investing, reflected by Trump in particular and the US administration, 0:18:50.840 --> 0:18:53.200 was that, I mean, some people don't agree with it 0:18:53.240 --> 0:18:57.400 at all, obviously, but people who are neither particularly devoted 0:18:57.440 --> 0:19:01.359 on either side. The labeling has been an issue, and 0:19:01.400 --> 0:19:03.320 there has been greenwashing, and it has been easy to 0:19:03.400 --> 0:19:06.440 talk investments and to jump on the bandwagon. Basically, there 0:19:06.520 --> 0:19:10.400 is a strong ray turn in the Europe particularly on this, 0:19:10.760 --> 0:19:14.119 and the Albanese government is also changing and bringing in 0:19:14.160 --> 0:19:17.800 stricter labeling laws, and that hopefully was start to clarify 0:19:17.800 --> 0:19:19.959 and make it all easier and more believable, I think 0:19:20.040 --> 0:19:24.800 for everybody in the near future perfectly then interesting that 0:19:25.080 --> 0:19:28.560 whole piece around ethical investing, I mean, one of the 0:19:28.600 --> 0:19:32.520 things that comes up all the time is how the 0:19:32.560 --> 0:19:35.880 whole industry operates. I have a question also from Carl, 0:19:35.960 --> 0:19:38.040 which is not a million miles away. We had Liam 0:19:38.040 --> 0:19:40.879 Short on the show a while ago and he was 0:19:40.920 --> 0:19:44.679 warning about these free superviews. I wonder sometimes about ethical 0:19:44.680 --> 0:19:47.160 investing in relation to financial advice, that if we could 0:19:47.160 --> 0:19:51.080 at least stamp out bad behavior, that that would be 0:19:51.119 --> 0:19:53.800 a win. Let the investment industries figure out the labels. 0:19:53.800 --> 0:19:58.600 But Carr's question says, for instance, on a recent show 0:19:58.640 --> 0:20:02.440 with Liam Short, where Liam was warning about the marketing 0:20:02.480 --> 0:20:07.000 of free super reviews, James, you said nothing is free 0:20:07.040 --> 0:20:10.520 in financial services. Carl says, I just want to highlight 0:20:10.560 --> 0:20:14.359 that financial counselors are a free service and people experiencing 0:20:14.359 --> 0:20:19.200 financial hardship can contact the National Debt helpline, whether it's 0:20:19.280 --> 0:20:23.000 one or several sessions with the financial counselor, they're highly experienced, 0:20:23.080 --> 0:20:28.360 passionate group of professionals who make a real difference. Okay, 0:20:28.560 --> 0:20:31.120 thank you, Carl. In fact, we've had a financial counselor 0:20:31.160 --> 0:20:34.560 on the show. Rob Burgess was on some time ago, 0:20:35.080 --> 0:20:37.719