Profile Blog

The statistics have begun to change coming out of the COVID-19 pandemic, according to new findings from Australian Investment Exchange Limited (AUSIEX).

The Australian provider has reported that SMSF growth has continued following the peak of the pandemic. However, most notably the shift has moved from self-directed to advised clients with a particular spike coming in September 2021.

According to AUSIEX, the advised book is 51.3 per cent of all SMSF accounts, the self-directed segment makes up 43.9 per cent and the remaining 4.8 per cent is attributed to advised wrap platform accounts.

“Self-directed investors who not long ago had the time to set up and manage the compliance obligations and direct their investments, may be finding themselves facing both challenging investment conditions and time poor once again,” AUSIEX CEO Eric Blewitt said.

“As a consequence, they may now be again seeing the value in and actively seeking professional advice.

“Advised clients are a distinct group within SMSF accounts and have regained ascendancy over new self-directed SMSF accounts in the second half of 2021.

Advised SMSF clients are far more likely than self-directed SMSF clients to trade ETFs and are also more bullish on AREITs, hybrids and exchange-traded physical commodities.”

Meanwhile, the number of millennial-advised SMSF clients has quadrupled in the last ten years, while females accounted for 28 per cent of new advised principal contact SMSF clients as at February 2022.

The figure is an impressive spike, given females made up just 18.5 per cent of new advised clients in 2012.

The findings come after this month’s SMSF Association 2022 national conference, where CEO John Maroney urged trustees to be cautious of technology changes in the sector.

Speaking at the event, Mr Maroney said that technology advances will benefit the sector, however, they “will be evolutionary, not revolutionary” and that “any change must benefit the SMSF trustee”.

“The building blocks for a strong integration between technological change – I include Artificial Intelligence (AI) in this – the advice community and trustees are in place, and now we must focus on maximising the benefits for both the industry and trustees,” he said.

 

 

Neil Griffiths
29 April 2022
smsfadviser.com

A recent Vanguard survey found that investors believed financial advice provides substantial portfolio, financial and emotional value, and got them closer to achieving their financial goals.

A recent Vanguard survey asked over 1,500 investors in the U.S. if they believed financial advisers add value, and more specifically, how much value in dollar terms.

It found that across the board, regardless of whether the advice was delivered by a human or via a digital channel, investors believed advice provided substantial portfolio, financial and emotional value, and got them closer to achieving their financial goals.

Here’s a breakdown:

Portfolio Value

Investors were asked two questions: 1) what they believe their investment performance was with a financial adviser and 2) what they believe it would have been without one.

The results were that human-advised clients believed their advisers added 5 per cent to their annual portfolio performance, while digital-advised clients believed advice added 3 per cent.

 

Financial Value

Investors also believe advice provides high financial value, with human-advised clients perceiving advice to add 16 per cent to their attainment of financial goals.

In dollar terms, this means clients with the median financial goal of one million dollars will be $160,000 closer to achieving it compared to unadvised investors.

For digital-advised clients, they believed advice to contribute 5 per cent to their attainment of financial goals, meaning they were $50,000 closer to achieving one million dollars than if they didn’t seek advice.

Emotional Value

The financial choices households must make have become more complex over time. By their nature, financial markets tend to be volatile, which may make investors anxious during market corrections. Trusted advice in times like these improves more than just returns, but it can also provide financial peace of mind and keep investors on track to achieve their goals.

It was found that human-advised clients reported a 56 per cent increase in their peace of mind when they engaged the services of a financial adviser. Digital-advised clients reported a 12 per cent increase.

Advisers add value

It’s evident from this research that investors derive significant value from financial advice and can greatly benefit from the investment expertise and coaching that professional guidance can offer.

From improving investment returns to achieving individual goals to emotional reassurance, financial advisers can support you on your investment journey.

 

 

Vanquard
20 Apr, 2022
vanguard.com.au

Around a quarter of the individuals being identified as high risk under the ATO’s new registrant program have compromised identities, said the ATO.

ATO deputy commissioner, superannuation and employer obligations, Emma Rosenzweig said that with the ATO seeing more and more instances of stolen identities being used to set up new SMSFs, identity fraud is an important feature of the ATO’s new registrant program for SMSFs.

The ATO’s new registrant program undertakes a risk assessment of individuals entering the SMSF sector and refers any entrants that are considered high risk for further scrutiny.

Ms Rosenzweig said around 25 per cent of the members identified as higher risk under the ATO’s risk assessment are being reviewed because the member has a compromised identity.

“That means a very high risk of fraud. We won’t stop doing that because that is a real risk to retirement savings with scams [on the rise],” she told delegates at the SMSF Association National Conference last week.

The ATO is seeing increased instances of fraudsters registering an SMSF, orchestrating a rollover from the victim’s APRA fund into a fund bank account controlled by them and then stealing the victim’s retirement savings, she warned.

“Once it’s gone, it’s virtually impossible to get it back,” she said.

“In the 2021 financial year, we identified increasing numbers of individuals that were victims of identity fraud, where SMSFs were registered without their knowledge or consent.

“Luckily, for most of these victims, we detected the fraud in time to protect their super. Unfortunately, however, a small few did get through.”

Ms Rosenzweig noted recent alerts issued by ASIC about scammers posing as financial advisers and offering a superannuation fund comparison service.

“These scammers use aggressive cold calling tactics promising unusually high investment returns facilitated through an SMSF,” she warned.

“To appear legitimate, they utilise company names, emails and fake websites that impersonate well-known Australian companies.”

The ATO’s use of alerts has helped prevent a number of fraudulent activities from occurring, she said.

“When a new SMSF is set up or a member is added to an existing SMSF, the ATO sends an alert via text message or email to the members of the SMSF. We also send an alert to members when changes are made to an existing SMSFs bank account, electronic service address or authorised contacts,” she reminded SMSF professionals.

“These alerts prompt the individual to get in touch with us if they are unaware of these changes, so we can stop the fund registration or the change of details from proceeding.”

While there has been debate around whether these alerts should go to the client or their adviser, Ms Rosenzweig said these alerts would always go to the client directly.

It is also important, she said, that clients are very careful with who they provide their identity and superannuation details to, particularly if they’re dealing with a third party who they’ve only engaged with online or over the phone.

“It’s also important to remind your clients to check that they’re dealing with a licensed financial adviser,” she added.

 

 

 

Miranda Brownlee

28 April 2022 

smsfadviser.com

What's the difference between value and growth investing, and how can you incorporate these investment factors into your portfolio?

Most investors in share markets seek both value and growth.

By seeking value, the objective is to find companies whose shares appear to be underpriced (cheap) relative to their earnings and growth potential.

By seeking growth, the objective is to find companies whose shares are expected to grow rapidly in recognition of their potential to increase earnings substantially.

The problem is, growth companies tend to be relatively expensive when compared to value companies because their shares are already on a growth curve.

Value companies are the opposite. Their shares are below fair value, usually because the conditions they need to thrive haven't yet materialised.

The last decade has been relatively challenging for value investors, because cheap (in value) companies have generally underperformed growth (expensive) companies.

Why has that been the case?

The answer largely comes down to the prevailing economic environment over the last 10 years. It was characterised by relatively low economic growth and record low interest rates.

In this type of environment, many investors gravitated to high growth-potential companies in search of future growth, including companies that have been spending most of their cash flow and not currently generating profits.

That's because the low interest rates available had given them the funding ability to grow their businesses significantly in order to generate higher profits down the track.

Over the last 12 to 18 months however, global economic conditions have shifted and they're continuing to do so.

The devastating impact of the COVID-19 pandemic over 2020 and 2021 forced governments around the world to introduce funding programs to help stimulate business activity and consumer demand.

Those activities have turbocharged global economic growth and have been a key factor behind a rapid surge in inflation levels. This, in turn, has already led some central banks to start lifting their official interest rates to dampen inflation.

This current economic environment is expected to favour the value stocks currently generating profits.

But it's expected to be less favourable for growth stocks, because higher interest rates are likely to diminish the value of their future potential profits.

Investing in value and growth

Both value and growth are two well-defined investing factors that influence the market performance of every company to greater or lesser degrees.

And it's relatively easy to invest in these and other factors through specific managed funds and exchange traded funds.

Factor-based funds use a rules-based actively managed approach to invest in companies that exhibit the specific characteristics aligned to their underlying factor strategy.

In doing this they essentially filter out companies that don't meet their particular investment criteria. Depending on the factor strategies chosen, they can deliver investment returns that are superior to the broader market over the long term.

These types of funds can be used to calibrate a portfolio through exposures to one or more factors, or as a total portfolio strategy to manage investment risk.

The key role of factors

Many investors used index funds as the core building blocks of their portfolio and complement their core equities holdings with satellite investments in factor-based funds.

Factors are academically tested drivers of long-term investment growth, and factor-based funds use systematic, logical and repeatable quantitative processes to stay true to the factors they've been designed to track.

Factor-based investing represents a dynamic tool designed to help investors achieve specific investment goals with even a modest allocation.

For example, they can target factors to seek outperformance, maintain equity market exposure while reducing volatility, or offset an undesired exposure in their portfolio.

Ultimately, whether you pick value over growth, or growth over value, comes down to your investment style and approach.

As with any type of active investment strategy, the essential elements remain talent, cost and patience.

The investment talent behind the development and implementation of a factor-based product strategy will be key to its long-term performance. So will cost. The lower the management expense ratio, the more you get to keep out of your total returns.

Direct targeting of factors through factor-based funds can offer the many benefits of traditional active fund investing but at a lower cost and with less manager risk.

But patience should not be overlooked in factor strategies. Factor timing is extremely difficult, and strategies that attempt to do so are ill-advised.

You therefore need to have patience over the long term to stick with a factor-based investment strategy.

 

Tony Kaye
20 Apr, 2022
vanguard.com.au

Amendments being made to contribution ruling TR 2010/1 may provide a fix to some of the significant issues with the non-arm’s length expenditure rules, said the SMSF Association.

Addressing the 2022 SMSF Association National Conference, SMSF Association deputy chief executive Peter Burgess said the changes to the non-arm’s length expenditure (NALE) rules would have much broader implications for the entire superannuation sector than was originally intended.

“In some circumstances, could result in all of the fund’s income being taxed at 45 per cent,” said Mr Burgess.

“Prior to the introduction of the NALE rules, we were certainly not coming across SMSF members who were undercharging for services provided to their fund as a deliberate strategy to circumvent the contribution caps or to artificially inflate the fund’s investment earnings.”

Mr Burgess said it is imperative that these rules are appropriately targeted and are fit for purpose.

“In our view, amendments are needed to exempt general expenses from these provisions, and ensure penalties only apply to expenditure shortfall amounts rather than to some or all of the fund’s income,” he explained.

Mr Burgess said it is the linking of the NALE to some or all of the fund’s income, and then applying penalties to that income, that could give rise to inappropriate and poorly targeted outcomes.

“Breaking this link and only penalising the shortfall amount is, in our view, an appropriately targeted legislative response,” he said.

“The penalty could be treating the shortfall amount as a taxable contribution or dealing with it through the contributions regime.

“So, the solution may well lie in the amendments the ATO are currently making to contribution ruling TR 2010/1, which is now expected to be released in the second half of 2022.”

Mr Burgess noted that the government had announced plans to amend the NALE rules to ensure they are operated as intended, an announcement that has been welcomed by the SMSF Association.

“We were pleased to see this announcement and we look forward to a bipartisan approach to addressing this issue and ensuring the rules work as intended”, he said.

 

 

Miranda Brownlee

26 April 2022 

smsfadviser.com

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