Interest Rates

Thursday, January 07, 2016

As it had been widely expected the RBA left interest rates on hold at its February meeting.  This marks the ninth month in a row with the cash rate remaining at 2%.
While the RBA is less upbeat on the global economic outlook, particularly for emerging countries, and has acknowledged a further slide in commodity prices and reduced appetite for risk it seems more upbeat on the Australian economy at least in terms of information released over the last few months.
Inflation continues to be seen by the RBA as remaining low and it has also acknowledged slowing property price gains in Sydney and Melbourne.
While the RBA retained an easing bias on the back of the low inflation outlook, the balancing of more positive domestic developments against recent negative global developments clearly enabled it to remain on hold for now. However, the RBA is clearly concerned about recent global and financial market developments and is waiting for more information in order to be able to judge its impact on global growth and the Australian economy.
Our view remains the RBA will cut interest rates again this year reflecting the risks around the global economy, weaker than expected commodity prices, still subdued growth in Australia at a time when the contribution from housing construction is slowing, a more dovish Fed threatening a higher Australian dollar and continued low inflation. However, this may not come till April or May.
However, whether there is another rate cut or not from the RBA, it’s hard to see rate hikes any time soon.

So the period of low interest rates – with the cash rate at a record low and bank deposit rates at their lowest since the 1950s – is set to continue.


New Year Refections

Friday, January 01, 2016

Welcome back to the 2016 year.

Hopefully you had some time for yourself as well as family and friends.  It's hard to believe we are almost through the first month of the year.

If there is anything we as a business can do to assist with your financial planning requirements, or assist family or friends please don't hesitate to contact us.

We look forward to speaking with you throughout the year.

Don't be 'too concerned
Global stock markets have had a rough start to 2016, but there are at least six reasons to be optimistic.
The selling pressure in global share markets has intensified over the past week despite the delivery of some positive economic data in China (the December trade balance) and the US (December non-farm payrolls). Pessimism is rife as global stock markets reel from the falls since the beginning of the year, with the Royal Bank of Scotland (RBS) recommending to its clients that they "sell everything except high-quality bonds".
While the economic data released over the past month has on balance not been particularly upbeat, it has not been disastrous either and has only confirmed already well established views about where the growth dynamics are at, and what the risks to that outlook are.
The key issue is tightening global financial conditions

While no new data points have prompted analyst to question previously held assumptions, several ‘half issues’ have combined into the perfect storm to knock regional share markets off recent elevated levels. While China and oil are dominating discussions about what’s happening, we don’t believe they are at the epicentre of the volatility. Instead tightening US financial conditions that may constrain global growth are increasingly having investors question the sustainability of elevated valuations and optimistic earnings forecasts in regional share markets.
But there are six reasons investors should "not be too concerned".
Number 1:
The falls in Chinese shares are more to do with regulatory issues and currency than fears about the economy.  Recent economic data out of China has been mixed rather than outright negative. Our view remains that Chinese growth this year will come in around 6.0 to 6.5 per cent and ongoing stimulus measures appear to be gaining some traction in helping ensure this.
Number 2:
A US recession is "unlikely", which, historically, means that any slump in shares will be shorter and shallower than if there were a recession.  Most economic indicators in the US are okay highlighted by continuing strong jobs data which is serving to keep consumer spending firing even though the strong US dollar has damped US manufacturing.
Number 3:
"Okay" economic data out of China and the US combined with good Eurozone indicators suggest the global economy is unlikely to slip into recession.
Number 4:
The current situation is "very different" to the GFC because lower oil prices and commodity prices are providing a "huge boost" to consumers and most businesses.
Number 5:
Monetary policy remains "ultra-easy", with the US Federal Reserve "very unlikely" to undertake the four rate hikes its 'blue dots' are indicating in 2016.
Number 6:
The sharp falls in share markets have made valuations become "quite attractive".  The gap between the grossed up dividend yield on Australian shares, which is now nearly 7.0 per cent, and term deposit rates, around 2.5 per cent, is back to around its highest level since the GFC.
Yesterday is not ours to recover, but tomorrow is ours to win or lose.......
Lyndon B. Johnson

Action is the foundational key to all success.......
Pablo Picasso


How to avoid sexually transmitted DEBT!

Wednesday, December 02, 2015


There is a lot of noise in the public domain urging us to protect ourselves from STIs (sexually transmitted infections). We're encouraged to take off our rose-coloured glasses when it comes to new partners and to use protection.

Which is incredibly sensible advice and generally we all comply but when it comes to potential partners and our finances, it's another story entirely.

Without meaning to, we can find ourselves behaving recklessly and exposing ourselves to something that is potentially just as damaging and long lasting as any STI. We risk catching an STD (sexually transmitted debt.)

Now you may be thinking you don't have any money so you can't possibly receive an STD. Or perhaps you're thinking your partner knows what they're doing when it comes to your finances (and you don't) so you feel safe.

Read more:


How much does a full nest cost?....

Sunday, November 01, 2015




The financial toll on parents of adult children living at home

Whether you put it down to laziness, housing affordability, lavish lifestyles or wider societal changes, today almost one in three people aged 18 to 34 live in the parental home. That’s a figure up from about one in five in the 70s1.

And once a young person does leave home, the chance that they’ll return at least once before age 35 is almost one in two2. For these adult children, this living arrangement comes with a host of benefits, many of them financial – such as rent-free accommodation, bills paid and food provided – and parents are paying up.

But how much exactly? And what is the long-term financial cost of letting your adult children continue to live at home?


Why is it happening?

Broader social and economic shifts have left many young people with few other options. In the past, you left  home to move in with partners or get a taste of independence. More of us finished school earlier, fewer went to university, and full-time work began sooner. 

With residential property prices now at 4.8 times annual income3, young people are faced with high housing costs, whether they’re looking to rent or buy. And the 21st century job market demands more qualifications and postgraduate study, leaving older graduates with big HECS debts.


Taking a toll on parents

The parents of these children are mostly in their 50s and 60s – an age when, traditionally, you should be preparing for retirement. But now, parents often cover the costs of board, food, utilities and private health insurance for their 20-something kids at home – with Australians over 50 spending $22 billion a year4 on their adult children.

That’s all money parents could be saving. Even if you’re doing it gladly, you may be missing out on opportunities – like selling the family home and downsizing, and investing the money elsewhere.

Instead parents have less disposable income, and might be working longer hours and delaying their retirement plans. And that’s not to mention the fact that adult children are missing out on important financial lessons in  budgeting and bill paying.


Transitioning to independence

Young people may not understand the pressures they are placing on their parents. You’re all adults, so have a conversation about it. Explain that you need to think more seriously about saving for retirement, and it’s time or them to take on more responsibility.

If you don’t already, have them pay board and their own share of utilities. You could also set a timeline for moving out, with a six-month deadline that gives them time to establish some savings.

It’s a tough situation. With rising living costs and tough job markets, you might be worried about your children’s ability to pay their own way outside of the home.

But by supporting adult children at home, you may also miss out on opportunities and risk eroding your retirement funds.





Australians short of money in retirement

Tuesday, October 27, 2015


AUSTRALIANS have fallen more then $800 billion behind where they should be if they want to be financially comfortable in retirement.  And the gap between what you have saved and what we need is growing by about 5 per cent per year, according to new figures from research group Rice Warner.  

AustralianSuper chief executive Ian Silk said older Australians were among the most disadvantaged.  Women too were at a disadvantage as they were paid less and spent most of the time out of work-force to raise babies.

"The many baby boomers retiring now have only had the benefit of compulsory superannuation.. for 23 years and it began at just 3 pre cent" he said "the system has several decades to go before it reaches full maturity".

Rice Warner releases a Retirement Savings Gap report each year with the Financial Services Council.  The latest published results for June 2014 show the gap grew from $727 billion to $768 billion in just 12 months.  Unpublished estimates put the figure at more then $800 billion at June 2015.

"fundamentally we are not saving enough"

The super shortfall is also effected by longer life expectancies and tougher age pension rules.

The latest ASFA Retirement Standard says a retired couple needs an annual income of $58,784 to live comfortably while a single needs $42,861. To achieve this a couple would need savings of $640,000 when starting retirement, while a single would need $545,000.

- Anthony Keane-



Splitting heirs - Estate planning after divorce

Saturday, October 24, 2015


Dissolving a marriage is undeniably tough, regardless of the circumstances. Your focus is on getting through  one day at a time, rather than planning for what could happen in the future.

It’s easy to overlook the importance of reviewing your estate planning when you’re overwhelmed by the endless paperwork created by splitting assets, resolving debts, restructuring property, negotiating custody,  and finalising financial support.

Many people assume that a separation or divorce automatically voids legal documents prepared during a  marriage. That’s not the case. So if your ex-spouse is the last person you want to give your assets to when you die – let alone be responsible for a life and death decision on your behalf – you need to get onto it…fast!

Here are a few things you should consider:

Update your will

While you are separated (not yet legally divorced), your existing will is still valid and will be enforced. So if you  pass away, your ex-spouse will still receive everything you had intended when you were happily married. That  often equates to almost everything you own.  Divorce affects your will differently depending on where you live in Australia. In some places, divorce automatically makes your will invalid. In others, any provisions or gifts for your ex-spouse in your will become void.  Even though your ex-spouse is excluded (which may be one of your key objectives) it changes the distribution of your estate in a way that you may not be happy with.  It’s often best to make a new will clearly stating your wishes for your estate.

Appoint a new Executor

 If you had nominated your ex-spouse as the Executor of your will, this nomination also becomes void on divorce. Without an Executor, the Court will appoint someone to administer your estate, which could mean your estate is not handled in the way you wished. Wouldn’t you feel better knowing that someone you trust will be responsible for winding up your personal affairs?

Rethink your beneficiaries

When you set up many of your assets, you would have been asked to name a beneficiary – the person you would like your asset to be paid out to in the event of your death. It’s likely that you nominated your ex-spouse, so it’s time to change it. Start with your superannuation and life insurance, then check with your financial adviser if there are others that need attention.

Delegate a new power of attorney

 It’s also important to change your power of attorney nomination if it was previously allocated to your exspouse. Your power of attorney may make decisions on your financial, legal and health matters if you can’t make them yourself. Delegate this power to someone you trust – a parent, friend, sibling, or an adult child.

Divorce is never easy. And when it feels like the world as you knew it has collapsed around you, you might find comfort in restoring order to the foundations of your future. There’s nothing more important than protecting yourself, your children, and any others who depend on you.

Your financial adviser can help you with your estate planning. However, you should also consult a legal adviser.


Same Sex Families Financial Affairs

Friday, October 16, 2015

Modern Families


Almost half a million Australians identify as gay or bisexual, many of whom are in long-term relationships.  Although same-sex marriage hasn't been legislated in Australia , changes to tax and and family laws in 2008 - such as the inclusion of same-sex partners in the definition of 'spouse' - means same-sex couples have almost all the same legal rights as heterosexual couples in a de facto relationships.

The United States might have legalised same-sex marriage, but when it comes to tax and estate planning there are different rules in every US state.  In Australia, these rules are more similar across the states.  So what do same-sex couples need to considering when it comes to tax and estate planning in Australia.



Putting saving strategies in place

The 2011 census found that people in same-sex relationships were generally better educated, had higher incomes, and were less likely to have children living with them than heterosexual couples.  Consequently, they tend to have stronger cash flow, fewer expenses and more savings - and just as much need for good advice when it comes to managing their money.


Making the most of tax and super benefits

Of course, not every same-sex couple will be so well off.  The 2008 laws make a number of benefits available to same-sexed couples, including:

  • the dependent spouse tax offset
  • family tax benefits
  • benefits of Medicare levy calculations if one partner is a low-income earner

If a relationship breaks down, the transfer of assets is also subject to the same tax rules as for de facto heterosexual couples.

Same-sex couples receive the same superannuation entitlements as married or de facto heterosexual couples. including super splitting, after-tax contributions, and tax-fee death benefits.  Whether you're in a same-sex or heterosexual relationship, it's essential to submit binding nomination forms, to guarantee your partner will receive your super when you die.

And be aware - although same-sex couples are entitled to all theses benefits, private and industry super funds are not obligated to offer them.  Check with your fund, and be open to switching to one that recognises your relationship.


Planning for parents

With legal issues around parenthood, estate planning might be the most complex part of financial planning for same-sex couples with children.  Children of same-sex parents can only be the biological child of one parent.  If that parent dies, custody of the child could be given to the deceased partner's family, so it is important that the other parent is legally named as the child's guardian.

Similarly, couples could designate new caretakers and draw up an estate plan for their child in the event that both were to die.  Its even more important to ensure guardianship, wills and powers of attorney are all up to date.

Every family is different, and each couple have their own needs and goals.  And it's just as important for same-sex couples to seek profession advice when you're planning ahead for your future.


Issues surrounding Buy / Sell Agreements

Wednesday, October 07, 2015




Lately we have had a few queries and concerns from some advisers regarding this issue and given there so many SMSF being established out there some may not be compliant as a couple of advisers had picked recently after reviewing clients insurance arrangements.

The last thing anyone would want is for their SMSF to be in breach of the sole purpose test which can have enormous repercussions via the ATO on this fund via penalties plus the adviser / accountant that has provided the advice for the non compliant structure. 
As always, we hope you find this information useful and remember, educating is  key with all your financial decisions.

Can your clients use their SMSF to fund their buy sell agreement?

Buy sell insurance protects business owners and their respective estates. It provides funding for the business owner’s exit from the business as a result of an involuntary event such as: death, terminal illness, TPD or specified traumatic condition.   When coupled with a buy sell agreement, it helps ensure all parties get what is rightfully due and in the best interest for the continued success of the business.

That is, the remaining business owners can purchase or obtain the exiting owners share of  the business (thus retaining control) and the exiting business owner (or their estate in the case of death) receives the proceeds of the insurance policy.

As such, buy sell insurance policies are generally owned and paid for by the owner. This method of ownership has a number of advantages including: simplicity, scalability, portability and is exempt from CGT.   However, some clients have chosen to fund buy sell insurance via their SMSF, possibly to help with cash flow or because they believe it to be more tax effective. Many have debated whether or not this breaches the sole purpose test.  

Summary of circumstances

A member of an SMSF and his brother run a business through a company in which they are the only two shareholders. The SMSF’s only other member is the Member’s spouse and the SMSF has a corporate trustee.

To ensure they have a succession plan in place for the company, the Member and his brother enter into a buy-sell agreement which requires:

• The SMSF to purchase a life insurance policy over the life of the Member with the insured amount based on an agreed market value of the Member’s interest in the company.

• The company to make additional employer contributions to the SMSF to be used to pay the premiums on the policy.

• On the death of the Member, the following will happen: 
    -    Insurance proceeds are to be paid to the SMSF’s Trustee     

    -    Trustee will add the proceeds to the Member’s account     

    -    Trustee will then pay all of the benefits of the deceased Member (including the insurance proceeds) to the Member’s spouse

    -    Member’s shareholding in the company will be transferred to the Member’s brother and the Member’s spouse will relinquish all claims on the

    -    Member’s shareholding in the company

Consequently, under the buy-sell agreement, the SMSF is required to purchase a life insurance policy that wouldn’t otherwise have been acquired and the brother would obtain full ownership and control of the company on the Member’s death without paying any consideration.

Reasons for decision

Sole Purpose Test

The SMSF’s purchase of the life insurance policy in accordance with the term of the buy-sell agreement does not meet the sole purpose requirements of section 62 of the SISA.  The sole purpose test generally prohibits trustees from providing any benefits that do not align with a core purpose (ie providing retirement or death benefits) or certain ancillary benefits such as invalidity benefits.

The ATO also specified that the sole purpose test requires exclusivity of purpose. However, the test may still be satisfied where an SMSF provides benefits that are considered incidental, remote or insignificant.

In this particular case, although the SMSF is allowed to be maintained for the provision of death benefits, the sole purpose test was breached as the insurance policy was only acquired because of the buy/sell agreement and the brother (a non-member of the SMSF) would receive significant benefits in the form of not having to pay for the insurance premiums and, in the event of the Member’s death, receiving 100% ownership of the company without paying any consideration. These benefits could not be considered incidental, remote or insignificant.

Provision of financial assistance to the Member’s brother

Paragraph 65(1)(b) of the SISA prohibits a SMSF trustee or investment manager from assisting a member or relative of a member using SMSF resources and therefore providing financial assistance.   The ATO found that the arrangement in this case breached the prohibition on providing financial assistance to a member or relative due to the significant nature of the benefits provided to the brother (ie the payment of premiums and total ownership of the company without paying any consideration as mentioned previously).


The ATO has provided a clear warning to advisers and their clients when considering the use of SMSFs to purchase buy sell insurance. Itconfirms that the sole purpose test may be breached in these circumstances and legal advice should be sought before proceeding.

We strongly advise discussing with your financial advisor before entering such agreements. 




Key Findings - Insurance Literary Report

Thursday, October 01, 2015


Following on from our post 9 September, where we looked at some statistics around Aussies trusting their insurance needs to their superfunds.

We felt it necessary to highlight a number of other issues to have come out of the Insurance Literary Report.

 Key findings include:

• Many Australians (17 per cent) do not know if they have trauma cover.

Almost 40 per cent did not know that being diagnosed with a terminal illness is a trigger for a life insurance payout.

• Less than 10 per cent said they ‘went with their gut feeling’ when choosing how much cover to purchase.

• Over 40 per cent said they weren’t sure if they could buy travel insurance through their superannuation, with 8 per cent believing they could buy this type of insurance through their super.

• Nearly 57 per cent didn’t know if term life insurance purchased via their superannuation fund was tax deductible, or if term life insurance bought outside of superannuation is tax deductible.


Point 2 was very interesting.  Please contact us should you wish to discuss any of the findings highlighted.




Why The Dollar Is Behind Foreign Money Pulling Out

Tuesday, September 22, 2015


The tanking dollar may be good news for the economy, but you might forgive Aussie shareholders for not breaking out the bubbly.

For months foreigners have been aggressively selling down their exposure to our stockmarket – and to the big banks in particular. It's a trend that has accelerated over the past few weeks and the continued downward momentum in our currency is much to blame.

Yes, I know it's not an especially deep insight to say that falling prices are due to selling. But understanding who has been selling and why is useful information, particularly when you're trying to figure out whether you should be buying into the dips, holding off for deeper falls or simply getting the hell out.

Global investors own around 45 per cent of our equity market, on ABS data, and the impact of offshore institutions pulling away from Australia is an underappreciated and underreported aspect of the ASX's recent correction. In the deluge of information it's hard for investors to know what to focus on. But cutting through the noise, the selldown by international investors is the big thing to watch.

As head of equity sales in Sydney at Citi, Scott Harris has a rare overview into the movement of institutional money in and out of the local sharemarket. Harris agrees that large offshore investors are playing a significant role in the poor performance of stocks in recent weeks and months.

"In the last two weeks our offshore flows data is the heaviest it's been all year," he says. "And most specifically, the bank flow is the weakest we've seen all year, in as much as it's been the most heavily skewed to selling from offshore."

First, some context: an overseas investor reporting in US dollars has seen the market value of their exposure to the ASX 200 drop by a third over the past year – that's triple the loss incurred by locals like me and you. The difference, of course, is the Aussie dollar, which over that period has dropped from over US90¢ to US70¢.

"Historically foreign investors have looked for stability in the Australian dollar," Scott says. "They are far more comfortable with the level of the dollar now but they'll look for more stability in it."

The selling in the local market was just part of a global story.

Over the week to August 26, which included China's "Black Monday" and the worst day on the local exchange since the GFC, investors globally pulled close to $US30 billion ($43 billion) from equity funds: the largest single weekly outflow on record, according to Citi research.

It's no wonder that Australia, as the developed world's most leveraged economy to China's economic slowdown, has been hard hit.

So what is a local investor to make of all this? Well, so far, it looks like we've been buying.

Arnie Selvarajah is the boss of online broker Bell Direct. He reckons the recent market volatility has "woken up" his retail investor customer base.

Bell Direct had three "record days" from Friday, August 21, with each day bigger than the day before, Selvarajah says, with the ratio of buying to selling "two and a half to one". Normally that ratio is "fairly balanced".

So as foreign institutions have been selling, Aussies have been happy to buy. That may help explain why our market has see-sawed between losses and gains, as buying from locals – including, presumably, the professionals, based on a slew of articles describing them as shrewdly "snapping up bargains" – is offset by what may have been the even greater weight of offshore selling.

So where to from here?

If offshore heavy hitters are a material driver of the ASX's weakness, then recent talk of the currency trading into the 50s is a poor sign indeed. Predicting how low the dollar will go is a fraught business, but be prepared for lower. And if that sparks more flight of capital overseas, then don't do all your dough now; we could see more price falls.

That said, global funds were underweight in Australia coming into the year, and are even more so now. But there may be a lower bound for how far portfolio managers are prepared to move away from their benchmarks. Citi's Harris estimates offshore investors' funds having around 16 per cent of their money in Australia at the start of 2015, against a 23 per cent weighting for the benchmark MSCI Asia ex-Japan index.

The other reason for hope is that Australia remains, and is likely to remain for the foreseeable future, a high-yield market in a low-yield world. At some stage global investors will have to recognise that what at first looks an Asian regional problem is, in fact, a global one, and that the sharp slowdown in China's economy has had knock-ons to the rest of the world.

We've already seen the US Fed wondering whether it should delay raising rates, despite the American economy firmly on a recovery path. This week a member of the Bank of Japan said the country looks increasingly unlikely to hit the bank's two-year inflation target, which means its quantitative easing program looks set to roll on indefinitely. ECB boss Mario Draghi on Thursday night unveiled a revamp of quantitative easing and signalled officials might expand stimulus. The IMF warned this weekend's meeting of the G20 finance ministers in Turkey that China's problems had a high risk of dragging on global GDP growth.

Against that background, our sharemarket's 5 per cent net dividend yield – by far the highest in the developed world, and from a AAA-rated economy to boot – may start looking better and better to international investors.

Of course there are risks – China being the biggest. And there will be volatility, particularly as the "will they? won't they?" debate around the Fed staggers on.

But if a foreign investor, worried about the currency, wants to sell us shares in a big bank or Telstra with an attached gross dividend yield of 8 per cent or above, well … it's hard to say no. 
- Patrick Cummins - AFR