July 2014

SMSF Specialists Investment Management Financial Planning Accounting

Thompson. Both Phil and Alastair each have over 30 years prac- ticing experience and are assisted by two recent accounting IN THIS ISSUE graduates, Kushal Sharma and Ivan Yeung as well as two further • GFM Accounting – get organised early! support staff, Miryam Schejtmen and Shimla Prasad. • CBA Financial Planning Scandal The constant frustration of many of our clients is that their • 2013/14 Financial Year – Another Bumper Year current accountants do not provide pro-active accounting • Jack Watt – Client of GFM since 1996 advice, rather “they go through the motions” without any real • Deeming of Account Based Pensions from thought of tax minimisation. The GFM Gruchy team work hard 1 January 2015 to ensure you get pro-active accounting. It is critically important you ensure your accounting affairs are well • Staff Profile – Denise Slattery structured and managed and you pay the least amount of • Upcoming seminar - Monday 18th August 2014 at tax possible. 12.00 noon – Estate Planning Creating Certainty • Superannuation, Centrelink Age Pension benefits Our accounting firm is not only able to help with personal & Personal Taxation impact from the 2014 Federal returns but can also assist with the following services: Budget – Seminar June 2014 • Partnership Returns • Upcoming new website launch • Family Trust Returns • “Best Interests Duty” – Who is your financial adviser • Company Tax Returns really working for? • Wealthy investors favour SMSF’s • Business Activity Statements • Do you know where you are going? • Bookkeeping Services • Compulsory Superannuation Guarantee Charge • Financial Statements With the end of financial year 2013/14 just finished, we are in a strong position to be able to assist you with your personal tax GFM ACCOUNTING: returns for those that want to get organised early and possibly GET ORGANISED EARLY! get their refund ASAP. By Paul Nicol If you would like to consider having us assist with your personal taxation affairs, please do not hesitate to give your adviser a In our March 2014 edition of Trade Secrets, we informed call and we can discuss how this would work with an estimate our clients that, effective from January 1, we acquired of the likely cost. specialist accounting firm P. Gruchy and Associates which has now been rebranded GFM Gruchy Accounting. CBA FINANCIAL PLANNING It has been a long term ambition of our business here at GFM to have the ability to offer our clients a full in-house “one stop” SCANDAL financial services offering encompassing both Financial By Tony Gilham Planning and Accounting. Our desire was very much “borne out” of how complementary good Financial Planning and There have been many investment and Financial Planning Accounting advice is. scandals over the last 10 years, but it would have been hard to imagine that Australia’s biggest financial institution, Whilst our Accounting acquisition is would potentially be the subject of a only relatively new, we have been pleas- Royal Commission into poor financial advice, fraud, forgery, antly surprised by the number of clients deception, and exotic high risk investments. who have expressed an interest in having us complete their personal We have all read stories regarding the collapse of Storm income returns. We also had several Financial, Westpoint, , Trio/Astarra, Sonray Capital clients who had not completed their Philip Gruchy and Great Southern Plantations, but we never once thought financial year 2012/13 returns contact that the mighty CBA would be mixed in with this group. us for which we quickly lodged and Back in May 2014, the ABC “4 Corners” programme, shone a completed these returns. These clients light on the Senate Economics Committee investigation into were extremely complementary of the shoddy practices by CBA Financial Planning, with a history accounting advice and service they going back to 2003. We watched the programme and received. concluded that it was the “biggest hatchet job” done on a public The two senior accountants of our company in Australia. The content of the programme could only have been aired on the ABC, as the other commercial TV firm are Philip Gruchy and Alastair Alastair Thompson

Gilham Financial Management Pty Ltd Suite 4 1221 Toorak Road, Camberwell VIC 3124 ABN 69 006 679 394 T: (03) 9809 1221 F: (03) 9809 2055 Australian Financial Services Licence No. 229401 [email protected] www.gilham.com.au channels would have lost all of their advertising revenue from 2008, but did absolutely nothing for 16 months thereafter. CBA, and probably the other banks as well. To date, CBA have paid $51 million in compensation to approx- Being closely involved in the investment and financial imately 1000 CBA Financial Planning clients, and are estimating planning sector, we had been well aware of the CBA financial that the compensation could go up to $250 million. planning problems for quite a few years, but were somewhat surprised at the significant size of the problem. We think that’s rubbish. We are writing about this sordid episode for the first time, With 400,000 CBA Financial Planning clients now offered a free but we suspect that this CBA scandal will go on for many years review, if only 5% of those clients are successful with their to come. review, then based on the compensation already paid, total compensation could easily be in excess of $1 billion. CBA Financial Planning profited over many years from the lucrative commissions paid on risky investment products But the biggest risk to CBA, is the reputational risk, and the fact pushed hard by the CBA management and financial that many good advisors that work in their system will leave, planners alike. to work for what would be “more ethical” Financial Planning practices. Many other advisors within the CBA network will be As a result of the Storm Financial collapse about six years pushed out, and there already has been a significant cleanout ago, the Government has been moving forward with new of management staff in the Financial Planning Division. Financial Planning regulations, basically getting rid of up front commissions, rebates, and other volume bonus It is terribly disappointing the financial planning industry and arrangements. In simple terms, the Financial Planning industry the reputation of many honest and skilful financial planners is is being pushed towards a fee basis, hopefully removing being tarnished by this scandal. embedded conflicts of interest. At GFM, we have no ownership or distribution alignment with CBA was also deeply involved in the collapse of Storm Financial, any bank or financial institution, we are self licensed and proud with the loss by ordinary Australians estimated at $3 billion. of that fact. Our staff are all salaried and not rewarded Litigation against CBA in relation to the Storm disaster is for aggressive sales for 3rd party referrals. We act first and estimated at $270 million paid out in 2013. foremost in the best interest of our clients, something CBA unfortunately did not. Greed and dishonesty, fraud, forgery, inappropriate advice and outrageous commissions, were at the heart of the CBA Financial Planning scandal. 2013/14 FINANCIAL YEAR: Bank tellers were getting bonus payments for directing bank ANOTHER BUMPER YEAR customers to an in-house Financial Planner, and it was reported By James Malliaros that one of the rogue planners, Don Nguyen, was paying a $400 cash referral fee to tellers if he got a client. Another great year for superannuation and personal investors, the second consecutive year of double digit returns for the The Senate report referred to “Commission driven advice”, and major asset classes, and basically all of the major investment an “aggressive sales culture”, and inappropriate and high risk sectors did well. products, forced upon, in many cases, elderly clients with very little understanding of what they were doing. The table below shows the performance of the five major asset classes for the last financial year, and then average returns over On the 3rd of July 2014, Ian Narev, CEO of CBA, offered all CBA the last 5 and 10 years. Financial Planning clients an “open review” of their file and investment portfolio, for clients that transacted with a CBA 2013/14 Last 5 Last 10 financial Planner between September 2003 and July 2012. Financial Years Years There are potentially 400,000 CBA Financial Planning clients Year involved. Australian shares (S&P/ 17.43% 11.20% pa 9.01% pa You would have noticed many of the full page ads that ran ASX 200 Accumulation in the daily papers in the first half of July. Index) Faced with the prospect of the Senate Report recommending International shares 20.30% 11.49% pa 3.92% pa a Royal Commission, Ian Narev was very quick with a full (MSCI World ex-Aus in apology to all past CBA Financial Planning clients. AUD) The Senate Report recommended a Royal Commission because A-REITs (S&P/ASX 200 11.06% 14.32% pa 2.33% pa of the systemic problem with in-house vertically integrated Property Accumulation Financial Planning businesses, where 85% of Financial Planners Index) in Australia work for an entity that is either fully or partly owned by a financial institution. Remuneration practices are heavily Cash (90 Day Bank Bills) 2.70% 3.83% pa 4.87% pa influenced by commission payments, management are chasing Bonds (UBS Composite 6.09% 6.89% pa 6.47% pa lucrative bonuses and are prepared to turn a blind eye to Bond Index) shoddy practices, and the “cover ups” at CBA was a major issue, completely disregarding the interests of their own clients. ASIC was tipped off regarding rogue financial planners, in October It’s almost hard to remember that just over 5 years ago, we economic growth and that seems to be working, but perhaps were at the tail end of the Global Financial Crisis, and the not as fast as central banks would have liked. outlook for all investment markets at the time was dire. But how quickly things change. Numbers over the last 10 years In the absence of any unforseen financial disruption, equity put Australian Equities on top, with an average compound and property markets should continue to produce better return of 9.01% pa, very impressive in this low interest returns than cash and fixed interest. rate environment. Australian shares JACK WATT: Australian shares did well, but last year was the first year where CLIENT OF GFM SINCE 1996 profit growth for Australian companies looked to be back on By James Malliaros track, with EPS growth across the board of around 11% for the year. Valuations for Australian shares are not stretched, Jack has kindly written the article below for Trade Secrets on with a P/E ratio at about 15.1x, and a grossed up dividend yield his life and his long term relationship with GFM. Jack is one of of around 6.1%, both attractive when compared to interest our oldest clients, having celebrated his 90th Birthday in April earning investments. this year. He has been a client for 18 years and is an active participant at our client seminars. We greatly appreciate International shares Jack’s contribution to Trade Secrets. Below is Jack’s story. For the second year in a row, International shares have comfortably outperformed Australian shares. Many large I was born on the 4th of April 1924. Two other good things global companies are growing their earnings at a faster rate happened that year, the Olympic Games were recommenced than Australia, buoyed by stronger economic recoveries than after World War 1 and Essendon won the AFL Football a stagnant Australian economy. Premiership. A-REIT’s My father was a returned soldier from the war and used his deferred pay as a deposit on a home in Dean Street Moonee The third successive double digit returns for A-REIT’s, and the Ponds. By the time I was born both my parents were in their best performing asset class over the last 5 years, coming off a mid 30’s. I was the second son of three children, an older very low base, after getting “trashed” during the GFC. brother and a younger sister. Cash Dad had started a small business in the Repair & Manufacture No surprises here, with the RBA cutting the official cash rate to of Dental Laboratory Equipment. As history has shown, times 2.5% in August 2013. And the RBA looks to be firmly “on hold”, were tough in the thirties and forties but the family had and it could be more than 12 months before we see any change enough of what we needed, if not, what we wanted. to the official rate. I had my first lesson in “saving”, in third grade. I was enrolled Bonds in the State Savings Bank school savings program and I would Bonds had a great run into the end of the financial year, with a often walk with my mother to pay the “Lodge Man” which 12 month rolling return moving up from 2.65% at the end of I learnt later was a form of medical insurance. April to 6.09% at the end of June. The rally was caused by bond I left school after passing my Merit Certificate Exam (at the yields shrinking after the US Federal Reserve indicated that second attempt), followed by one year at Junior Technical interest rates would remain lower for longer, and the European School. I was by this stage 16 years old. I started work with my Central Bank introducing a negative overnight cash rate in father who arranged for me to be an apprentice with another June. But with the current yield on Australian Government manufacturer as a fitter and turner. Wages when I signed Bonds at around 3.6%, the outlook for the next 12 months my indenture papers on the 10th of July 1940, were 1st year will almost certainly be sub 4% £0-15-00($1-50) per week, rising to £7-10-00($15.00) per week in my 5th year. Of course by the time I reached that 5th year inflation had pushed them higher. The Australian dollar finished the financial year at $US94.29c, up +1.60% over the year. The AUD reached a yearly high point Due to a dispute with my employer, who threatened to cancel of $US97.08c last October, but in the last six months, has been my apprenticeship, I went back to my father and finished stuck in a tight band between $US0.93c and $US0.94c. my time under him. Dad wanted me to take over and run the business but I was not suited to that role and eventually Commodity prices walked away from it, with only the experience. I had no Gold finished the year at $US1323.20 an ounce, up +7.17% for difficulty in getting a job in the stainless steel sink industry and the year, but it’s way down on its record high point of nearly happily spent 38 years there (the rest of my working life), $US1900 in 2011 but the iron ore price is more significant for retiring in 1991. Over the last 15 years of my career, I enjoyed Australian investors, and our terms of trade, with the price several trips overseas to Europe and England for pre delivery dropping during the financial year by 18.74% to $US93.30 machinery trials. a tonne, its lowest point since December 2009. I married Isabel in 1947 and we had 2 children, Gordon who was The Short Term Outlook born in 1948 and Jacqueline in 1951. We got through a difficult On a simple valuation basis, everything looks good value period in the 50’s and 60’s and 70’s, when Isabel had some compared to cash and fixed interest. Historically low interest serious illnesses, our Medical Insurance was put to good use. rates around the world are being used to try and stimulate

www.gilham.com.au Page 3 of 8 TRADE SECRETS I would not hesitate to recommend GFM to anybody needing advice on their financial situation. We have always found all the staff to be most helpful and courteous. They provided tremendous support when Isabel passed away in December 2010. I have also enjoyed all the client seminars that I have been able to attend. I still have a small shareholding which I administer. I am a “contrarian acquirer”, buying when the prices are low and accumulating additional investments. I enjoy creating charts on the computer to follow the ups and downs and appreciate the fact that my adviser, James Malliaros will always answer my questions on the shares performance, investment markets and Centrelink.

DEEMING OF ACCOUNT BASED PENSIONS FROM 1 JANUARY 2015 By Patrick Malcolm

From 1 January 2015, deeming will apply to new account based pensions (ABPs), which, for many will result in a reduction in their Age Pension. To ensure the best outcome, it’s important to have your situation reviewed before 31 December 2014 and determine whether you will benefit from the grandfathering provisions that apply to ABPs commenced Jack’s 90th Birthday before 1 January 2015. By the early 80’s we had accumulated enough funds to invest The current way of treatment often results in a more favourable primarily in Friendly Societies. At around 1984/5 we made income test treatment of an ABP compared to investments in contact with Legal & General Insurance and met with Kate other financial investments, which can lead to higher social Jacobs. This was the start of the path that would lead me to security payments. Under the Centrelink and Department of Tony Gilham and the GFM team, one of the best paths we Veterans’ Affairs (DVA) income test, only pension payments have travelled financially. that exceed the deductible amount (purchase price less any commutation then divided by life expectancy) are assessable. When I retired, Kate recommended we take out an Immediate For instance, those who receive pension payments less than or Annuity and this is still paying out today. In 1995/96 Tony had equal to the deductible amount have nothing assessed under acquired a number of the Legal & General clients including us. the income test from the ABP. We transferred more funds into Tony’s care and following his recommendations we switched all of our available funds into a From 1 January 2015, ABPs will be added to the definition of number of investment portfolios. financial assets in social security legislation, which means they will be subject to deeming rules (along with other financial Whilst I was only in the financial position to consider financial assets) for both Centrelink and DVA income test purposes. planning advice in my mid 60’s, and whilst I was diligent Under the deeming provisions, all financial investments with my savings during my working life, I now understand the are assumed to earn a certain rate of income, regardless of importance of seeking financial advice early. It is never too the income actually generated. early to start and the value of good advice and mentoring is intangible. It’s important to note that there is no change to the asset test treatment of ABPs; the account balance will remain 100% Having now dealt with GFM for almost 20 years, I have come asset tested. to appreciate many unique aspects of GFM. Firstly, the longevity of our relationship is important to me. In a day and ABPs commenced prior to 1 January 2015 will retain their age where longevity of a relationship is less common, GFM current income test treatment where they are being provided have been a constant with my financial advice, as have the long to an individual that is receiving an eligible income support term staff of GFM. I also like dealing with an organisation which payment immediately before 1 January 2015. This treatment is independently owned and not aligned to any financial will continue to apply into the future provided that the existing organisation or bank. The advice is independent and objective. ABP continues and that an eligible income support payment continues to be received. Finally, GFM has not only assisted me with my financial affairs but has assisted my family with their financial planning needs. The reduction in pension experienced as a result of the GFM perfectly understand my family dynamics and has proposed deeming rules will be different for each individual provided wonderful advice to my family which is exceptionally and needs to be determined based on their individual important to me. circumstances, including the balance of their ABP, their current level of pension payments, and any other assessable income or assets. Of particular importance is the impact that higher deeming Q. Your family rates (more in line with historical averages) would have A. My family consists of my three children, Callum is 2, Mitchell under the proposed deeming rules. Deeming rates are set by is 5 and Daniel is 40. Opps, sorry Daniel is my husband. the Minister for the Department of Social Services and should reflect returns across a range of investment choices available Q. Favourite holiday destination? in the market. There is no set date that deeming rates and A. Having lived in the UK for a couple of years, I have been thresholds must change or be updated. Historically, the current fortunate enough to see some beautiful and interesting parts deeming rates of 2.0% and 3.5% are quite low; for instance of the world. Without a doubt my favorite destination is the deeming rates were 4% and 6% on 1 July 2008. Amalfi Coast in Italy. Positano is such a spectacular and Individuals who have money either in the accumulation phase beautiful place. I would have to say that Spain is a close or outside superannuation that are in receipt of the Age second though. Pension (or any other income support payment) on Q. Hobbies? 31 December 2014 should commence an ABP before 31 December 2014. If the additional pension income from A. As any parent with a young family would understand, I don’t the ABP is not required, the surplus income can be really have a great deal of time for any hobbies. When I do re-contributed back into super, subject to contributions caps get the opportunity I enjoy going to the gym and keeping fit. and eligibility to make super contributions is met. I recently completed my first fun run in the Mother’s Day Classic in May. For someone who is not a natural runner and As an example, if a couple receiving the Age Pension had whose style is more akin to Cliff Young than Steve Monaghetti, $250,000 in superannuation, (with assumed values of $20,000 this was a great achievement for me and I am looking forward in cars and $5,000 for contents), they will be $11 worse to completing more runs over the coming months. off a fortnight if they don’t commence ABPs before the 31st of December 2014 based on current deeming rates. However, Q. Favourite food/drink? if deeming rates returned to the levels seen in July 2008 A. With regards to favourite food, I am pretty much happy to (4% & 6%), they will be $129 worse off. eat anything, especially if I don’t have to cook it! My favourite drink would definitely be a nice glass of Sauvignon blanc or While the actual changes are easy to understand, trying to Sparkling. So if you have any spare bottles lying around at identify the right course of action to take advantage of the home, please feel free to drop them in to me. grandfathering opportunity is not straightforward and requires careful consideration. Q. Your proudest moment? If you have any queries, please do not hesitate to contact your A. It may sound clichéd, but without a doubt my proudest adviser. moments have been the birth of my two beautiful boys. And as they start to grow, I am sure that they will continue to provide Daniel and myself with many proud moments. I am not STAFF PROFILE: ashamed to say that I will be the embarrassing mum on the sideline cheering them on all the way. DENISE SLATTERY By Paul Nicol Q. What you’d like to do for fun? A. I enjoy anytime I get to spend with my family, heading out Denise joined Gilham Financial to dinner with friends to any of the wonderful restaurants that Management (now GFM Wealth Melbourne has, going to the movies (especially if it is not Advisory) in September 2005 having an animated movie). completed a Bachelor of Commence Degree and a Diploma of Financial Q. What sports do you follow? Services and having worked in the A. I am an Adelaide Crows supporter (and no I am not from industry for 10 years. In April 2008 Adelaide) however at the moment they are more up and down Denise moved from her Para Planner than the share market. position to a Financial Planner position, looking after a number of our valued During the summer, I am a cricket widow with Daniel still clients. pulling on the pads for his cricket team, the Williamstown Imperials. Daniel’s dream is to have the opportunity to play During her time as a Financial Planner, Denise commenced her with Mitch and Callum at some point however unless the boys family and now has 2 beautiful boys, Mitchell and Callum. On show unbelievable promise in their cricketing abilities and are her return to work in January 2013, Denise requested a part playing senior cricket when they are 12 or Daniel continues to time position to raise her family and she has now returned as play in to his sixties, I can’t see this happening. Either way I a Senior Para Planner within the Para planning Team. . know that I have a lot of afternoon teas to make in the coming years. Denise has been an outstanding employee of our Company, and naturally Denise still has a close affiliation with a number Q. Best part of working at GFM of our valued clients that she looked after as a Financial Planner. A. I am extremely thankful and lucky that GFM has provided We are extremely fortunate to have Denise as a long term em- me the opportunity to combine raising my family and ployee of our company and at the same time support her while continuing to work in such a great organization. Tony, Paul and she raises her family. Patrick have been so accommodating and supportive of my return back to work after having Mitch and Callum. Here’s a quick Q and A with Denise, with some things that you may not know about her: www.gilham.com.au Page 5 of 8 TRADE SECRETS Further to that, I have the opportunity to work with a great to Superannuation and Account Based Pensions, Centrelink Age bunch of people who, whilst being dedicated to their roles and Pension and Benefits, and Income Tax Implications. our clients, we also have the ability to share a laugh together. I think that the length of service of the majority of GFM’s em- The number of changes proposed in the Federal Budget was ployees highlights what a great organization it is to work for. considerably more than previous budgets, and clearly, the Federal Government is cutting back on its provisions for future age pension benefits, meaning that individuals will be more UPCOMING SEMINAR: MONDAY responsible for their own retirement planning. 18TH AUGUST 2014 AT 12 NOON Tony Gilham provided an overview of the changes to Superannuation, Age Pension and Centrelink from the 2014 ESTATE PLANNING – CREATING Federal Budget and Patrick Malcolm covered a number of CERTAINTY case studies to highlight the important action items. By Mai Davies The feedback from the attendees was excellent. They found We are holding our next lunch seminar on Monday 18th August the presentation very informative and relevant. Although, there at 12 noon at Riversdale Golf Club in Mount Waverley on the was a lot of information covered on the night, many of our important topic of Estate Planning. clients commented on how well the presentation was explained and they were able to get a good understanding of content. Estate Planning is a complex area and is of particular interest to our clients. We have had many requests for a seminar on this Tony and Patrick covered the following topics: topic and feel it’s important to have an expert on Estate • New and proposed changes to Superannuation Contribution Planning share their knowledge with us. limits, concessional contributions and non-concessional Our special guest presenter is Andrew Lord, Principal of Lord contributions. Law who will give a general overview of Estate Planning. • The “deeming” of age based super pensions, effective from 1 January 2015, and how this will impact age pension benefits Andrew personally practices in the areas of Wills, Deceased and the Commonwealth Seniors Health Card. Estates and Enduring Powers of Attorney. • Getting your “Transition to Retirement” pensions and Age Tony Gilham will specifically focus on SMSF Estate Planning Based Pensions fully in order by 31st December 2014. Any issues. changes after that date will impact Centrelink Age Pension Benefits and the Commonwealth Seniors Health Card. This will be a very detailed and informative presentation, • Tax Effective Investing and the impact of the Temporary Andrew and Tony will discuss the following: Budget Repair Levy over the next three years. • Benefits of a good estate plan • Possible future changes to Centrelink Age Pension eligibility • Preparing a Will rules, including: • Common mistakes with Wills & Estate Planning • Gifting • Enduring Power of Attorney • Value of the principal place of residence • Testamentary Trusts • Superannuation Lump Sums withdrawn prior to age • Role & Responsibilities of Executor pension age • Asset protection for beneficiaries • Obvious action points from the 2014 Federal Budget. • What Happens to your superannuation on death If you were unable to attend the seminar and would like a copy • The best superannuation/SMSF Beneficiary options of the presentation emailed to you or if you would like to arrange an appointment with your adviser to discuss how the • Tax Treatment of Superannuation Death Benefits changes will impact your situation and any strategies that can These seminars are very popular and if you would like to attend be undertaken, please let me know and I will arrange it for you. and have not yet reserved a place, please call Mai or Maree on 9809 1221 to reserve your place. UPCOMING NEW WEBSITE LAUNCH SUPERANNUATION, By Mai Davies CENTRELINK AGE PENSION BENEFITS & PERSONAL www.gfmwealth.com.au TAXATION IMPACT FROM We have been working on the rebranding to GFM Wealth Advisory and our new website over the last few months and THE 2014 FEDERAL BUDGET: we are getting very close to completion. We are very excited SEMINAR JUNE 2014 to announce the upcoming launch of our new website at the By Mai Davies beginning of August. Keep a look out from the 1st August.

We recently held our first evening seminar for the year at Not only will our website have a fresh new look, it is easy to Riversdale Golf Club with 98 clients and guests in attendance, navigate and contains interesting, informative and up to date covering the Impact from the 2014 Federal Budget in relation We’ve known for some time that the big financial institutions keep acquiring privately owned dealer groups, and it’s still quite astonishing to see the concentration of the financial advice industry in the hands of the large Australian financial institutions.

The ownership of the top 50 dealer groups in Australia is as follows: 6 AMP Ltd – 6 separate groups 5 National Bank 5 IOOF Ltd 4 ANZ Bank 4 Commonwealth Bank 4 Bank 4 Other Australian banks 6 Other financial institutions 8 Independently owned 1 Listed on the ASX 3 Not disclosed

It’s not surprising that AMP owns a dealer group (effectively a sales force used to sell in-house products), but it might be articles. It’s an excellent source of information for both our somewhat of a surprise to some that AMP operates six dealer existing clients and prospective new clients. groups under different names, including Charter, Hillross, Genesys, AXA Financial Planning and IPAC Securities. The You will be able to access our newsletters such as Weekly Email, others that also operate multiple dealer groups have them Super Smart and Trade Secrets, a variety of Strategy Papers under other names as well. and Case Studies. Looking through the top 50, we can see the following: There will also be regular updates on our Blog so you can keep abreast of important topics of interest and our upcoming • 9 of the top 10 dealer groups are owned by the big four banks seminars. There is a lot more to see when it’s live and we invite and AMP you to check it out. We welcome your feedback, so feel free to • 18 of the top 20 dealer groups are owned by financial send us a message using the Contact Us page. institutions Once our new GFM Wealth Advisory website is launched, we • The big four banks, AMP and IOOF control 28 of the top 50 will have a redirect from our current website to our new dealer groups website. For our clients that currently access their portfolio • There are 9,997 advisers that represent the top 50 dealer information by using a personal login, there will be no change groups in Australia, and only 1,085 (or 10.85%) don’t to your access. This is available on our new website. represent a financial institution.

“BEST INTERESTS DUTY”: WHO WEALTHY INVESTORS FAVOUR IS YOUR FINANCIAL ADVISER SMSF’S REALLY WORKING FOR? By Patrick Malcolm By Bryan Meehan A soon to be released analysis of superannuation trends con- firms the popularity of self managed super funds (SMSF) Once a year, one of the financial industry magazines (owned among high net worth (HNW) individuals. by a large research house) does a detailed survey on the top 50 “dealer groups” in Australia. A dealer group must hold an The study found 29% of investors with a super portfolio valued Australian Financial Services Licence, and then it appoints between $250,000 and $500,000 had an SMSF. “authorised representatives” to provide investment and financial planning advice to clients on its behalf. The dealer This jumped to 47% of investors for those that had a portfolio groups are then ranked in size based on the number of value between $500,000 and $1,000,000. advisers, with AMP Financial Planning Pty Ltd being the biggest individual dealer group in Australia.

www.gilham.com.au Page 7 of 8 TRADE SECRETS 70% of people with a portfolio balance of between $1,000,000 COMPULSORY and $2,500,000 had their own SMSF, and 84% of investors with a portfolio of $10,000,000 or more had their own super fund. SUPERANNUATION GUARANTEE CHARGE The survey determined that there were 310,000 HNW investors By Bree Hallett in Australia (generally more than $1,000,000 invested outside of the family home), and 231,000 of those were using an SMSF. Compulsory superannuation, the Superannuation Guarantee We think the crossover point to make an SMSF a viable Charge, commenced from July 1992 at 3%, and is currently alternative is around $250,000, and not only do you have 9.5%. There is a fair amount of evidence to show that the cost increased flexibility with your own fund, total costs in most of compulsory superannuation contributions is not borne cases are lower than having your superannuation fund assets by the employer, but is in fact borne by the employee in a managed by an institution. trade-off for wage costs. The proof is in the first 10 years of the compulsory retirement income scheme, when super went from 3% of wages up to 9% for everyone involved. The DO YOU KNOW WHERE YOU ARE wages share of national income didn’t budge during this implementation period. It was 55.2% of national income in GOING? June 1992, before the super levy kicked in. By June 2003, By Tony Gilham when the final 1% went into super accounts, the wages share was 54.8% of national income. Most new cars now have satellite navigation built into the car (sometimes an inexpensive option to add on), there’s satellite Mr Shorten maintained his position, expressed recently, that navigation built into every iPhone, and this technology is also superannuation increases were “clearly part of a pay rise”, and available in products such as “Tom Tom” and “Navman”, usually would not be paid for by employers. He repeated statements less than $200. that employees should view the increase in compulsory super- annuation contributions as a deferred pay rise. It’s a simple way of charting exactly where you want to go in unfamiliar territory. Business groups have warned that employers will be forced to shoulder the burden of a lift in compulsory superannuation to But it doesn’t happen with superannuation. In research 12%, cancelling out the company tax cuts flowing from the conducted by “Investment Trends” in March 2012, they found mining tax. But Super Minister Bill Shorten maintained that the that almost 70% of Australians have no specific destination in rise – to be phased in by 2020 – would be absorbed in real wage mind for their retirement savings or income levels. rises “and therefore never borne by employers”. Compulsory We ask our clients, as we go through the financial planning superannuation contributions will increase from 9.25% to process, what type of income would they like to have in 12% from the start of the 2014 financial year, with the amount retirement, perhaps from age 60 or 65. We ask about this up to 12% in the 2019/20 financial year. figure in present-day dollars, and responses usually between $50,000 and $80,000 a year are common, which seems quite Financial Year Super Guarantee (%) reasonable to us. 2014/15 9.5% Of course we’ve got to take future inflation into account, because if you’re aged only 40 or 45, with 20 years to 2015/16 9.5% retirement, the actual amount of money you will need in 2016/17 9.5% retirement will be higher than today because of future inflation. For example, a retirement income of say $50,000 in today’s 2017/18 9.5% terms would require $90,000 a year in 20 years’ time, assuming a 3% inflation rate. Anyone planning for a successful 2018/19 10.0% retirement should have a solid idea of the type of retirement 2019/20 10.5% income that they would require, it’s then relatively simple for us to project that figure into the future using an assumed 2020/21 11.0% inflation rate, and then work backwards to determine the amount of money that you need to save every year in 2021/22 11.5% order to achieve the target of that anticipated retirement income in retirement. 2022/23 and later years 12.0%

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