All set for the new financial year?


Making plans for the new financial year will help set you up for the next 12 months and beyond.

As this financial year draws to a close, now is the perfect time to take stock of your finances before the next one starts. And whether you’re still wrapping things up for FY18 or getting ready to launch into FY19 with a bang, there are plenty of ways to make tax time easier the next time around.

But more importantly, remember that each financial year brings you one step closer to retirement. That’s why it’s essential to make the most of your finances during your final years of employment.

Here’s four simple strategies to get your money working harder for you in the next 12 months.

1. Take care of your tax

The deadline for lodging your tax return each year is 31 October. But, if you get a tax agent or accountant to lodge it for you, a later deadline may apply. Rather than put it off until the last minute, why not get it out of the way earlier? That way, you can take your time to make sure you’re meeting your tax obligations and claiming all the deductions you’re eligible for.

If you usually have trouble tracking down all your paperwork, then why not make a financial new year’s resolution to keep better records throughout the next 12 months. By documenting your income and work-related expenses and storing your receipts and invoices in one easy-to-find-place, you’ll breeze through your next tax return.

2. Make the most of your money

Your super will probably be one of your most valuable income streams when you retire, so it can make sense to use your current earnings to maximise it as much as possible. Even if you can only contribute a little bit extra now, it could make a difference to the retirement lifestyle you’re able to afford.

An option is to contribute some of your before-tax pay directly into your super (known as salary sacrifice). Not only will you boost your super, you’ll potentially save on tax, with before-tax contributions in most cases attracting a tax rate of just 15%, instead of your usual marginal rate. Every financial year, you can deposit up to a maximum of $25,000 in before-tax (concessional) contributions before extra tax applies. This amount includes your employer’s compulsory Super Guarantee payments, any additional amounts you salary sacrificed and your personal tax-deductible contributions.

3. Increase your savings

If you’ve come into some extra cash in the current financial year – such as a work bonus or an inheritance – consider using this money to increase your retirement savings even further.

Each financial year, you may be able to make after-tax super contributions of up to $100,000 (or up to $300,000 during a three-year period, if you met the requirements of the ‘bring-forward’ rule). So, if you haven’t yet hit these caps and you have some money available, there’s still time to put it towards your super before 30 June.

Keep in mind that a ‘transfer balance cap’ was introduced from 1 July 2017 limiting the amount that could be transferred to a retirement phase income stream, such as an account-based pension, to $1.6 million. The balances of existing retirement phase income streams held at 30 June 2017, and the starting values of any commenced since then, counts towards this.

Any amounts over $1.6 million need to be transferred back to an accumulation phase super account or withdrawn from super. Otherwise a penalty tax will be applied, effectively removing the tax advantage of leaving the funds in the pension phase and in some cases providing further penalty.

Also from 1 July 2017, if you have a total super balance of $1.6m or more just prior to the start of a financial year, your after tax contributions cap will reduce to Nil. The amount you can contribute under the bring forward rule will also be reduced once your total super balance is $1.4 million or more.

4. Consider a TTR strategy

If you’ve reached your preservation age but aren’t yet 65, you might consider a transition-to-retirement (TTR) strategy. This allows you to draw a pension from your super before you retire.
You can use this strategy in three ways:

  • to get extra income before retirement – for example, to help pay off your mortgage
  • to ease back on your work hours, without taking a cut in pay
  • to boost your super, by salary sacrificing more of your income into super at the 15% tax rate (instead of your marginal rate), while drawing enough from your super to live on.

Before you start a TTR strategy, however, there are a few important things to consider. For instance:

  • if cutting back your work hours means you receive a lower income from your employer, this may also mean your employer’s compulsory Super Guarantee payments (valued at 9.5% of your income) are reduced as well
  • if you decide to enter a salary sacrifice arrangement, the combined total from your employee’s compulsory Super Guarantee payments, your salary sacrificed amounts and any other voluntary concessional contributions (eg, personal tax-deductible contributions) you make mustn’t exceed the $25,000 concessional contributions cap in any financial year
  • since July 2017, the earnings on assets that support TTR income streams are now taxed at 15%, instead of being tax-free.

A financial adviser can help you decide what option is right for you. They’ll work closely with you to tailor a financial plan for the coming year that will help put you on track to a comfortable retirement.

Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information. Colonial First State is also not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.

Using failure to fuel your future success

Looking out across an Atlantic beach.

To help us grow, sometimes we have to overcome our fear of failing – with this mind, here’s some ways you can use past failures to fuel your future success.

Almost everyone is afraid of failure, even if many of us know it’s an unavoidable feature of eventual success. The list of people who have achieved incredible things despite experiencing disasters is long.

The more famous examples include Steve Jobs (the Apple board once ousted him from his own company), J.K Rowling (multiple publishers rejected her Harry Potter pitch), and Jeff Bezos (he ran a dud online auction site before starting Amazon).

But those are big names – how does failure fit into a less high profile career?

Don’t be afraid of failure

Bri Hayllar, a psychologist and business coach at the Centre for Corporate Health in Sydney, says it’s worthwhile understanding that failure is possible and acceptable “because often the alternative is doing nothing”.

That being said, not every culture treats failure the same way. The United States has a deserved reputation for entrepreneurial success – and for tolerating failure. The theory goes that unless you have failed at least once, you probably have not tried hard enough.

In Australia, by contrast, failure is sometimes seen as a career killer – and this fear of crashing and burning can stifle innovation. So here are some tips to help overcome that fear.

Get in the right frame of mind

Hayllar says when people are in a very negative emotional state, it alters their cognitive processes – in a bad way. They shut down. On the other hand, those with a positive emotional state are more aware and more open to information, which in turn increases their creativity, problem-solving and decision-making skills.

“If we go into a job or a role thinking ‘I must protect myself, I must avoid risk, I mustn’t fail’ then we’re in that threat-negative space which is counterproductive to success.”


In Australia, failure is sometimes seen as a career killer – and this fear of crashing and burning can stifle innovation.


Learn from your setbacks

Of course, continual failure is not desirable. The key is to process errors and improve. Bill Gates and Paul Allen will forever be known as the creators of Microsoft.

They are less well known for Traf-O-Data, a failed attempt at using computerised data to improve traffic surveys for municipal governments. Their time on the project was not wasted, though; it taught them the skills to simulate how microprocessors work, a key element of Microsoft’s success.

As part of their learning process, Hayllar says people should be conscious of their statements. Avoid the temptation to say “I’m hopeless and I’ve failed”, and instead say “This project didn’t work, but what can I learn from it?”

Try and try again

Legend has it that Thomas Edison discarded thousands of prototypes before perfecting his light bulb.
Such resilience is a common story with successful people. Hayllar is a firm believer that effort, grit and determination trump intelligence. “For instance, we often see that really determined students will achieve more than the intelligent kids who don’t put in the effort.”

Just as artists don’t expect their first painting to be a masterpiece, we all need to appreciate that perseverance is required to achieve true success.

“You’ve got to have that grit to try again and keep doing things,” Hayllar says.



Putting the global “debt bomb” in perspective – seven reasons to be alert but not alarmed

Key Points

  • Global debt levels have reached new records.
  • Countries with very high gross debt to GDP include Japan, Belgium, Canada, Portugal and Greece. The main areas of rising debt since the Global Financial Crisis (GFC) have been public debt in developed countries (with more to come in the US) and private debt in emerging countries (and of course household debt in Australia).
  • Global debt is not as a big a concern as headline numbers suggest & debt to income ratios will tend to rise through time simply because of saving & investing.
  • Key signs to watch though are a broad-based surge in debt along with signs of excess such as overinvestment, rapid broad-based gains in asset prices and surging inflation and interest rates.


Here’s my forecast: “The global economy is going to have a significant downturn and record levels of debt are going to make it worse.” Sound scary enough? Put it in the headline and I can be assured of lots of clicks! I might even be called a deep thinker! The problem is that there is nothing new or profound in this. A significant economic downturn is inevitable at some point (it’s just the economic cycle), debt problems are involved in most economic downturns and such calls are a dime a dozen.

A standard scare now is that memories of the role of excessive debt in contributing to the GFC have worn thin and total global debt has pushed up to a new record high of over $US200 trillion – thanks largely to public debt in developed countries (with more to come in the US as Trump’s fiscal stimulus rolls out), Chinese debt and corporate debt (and household debt in Australia of course). Also, that its implosion is imminent and inevitable as interest rates normalise and that any attempt to prevent or soften the coming day of reckoning will just delay it or simply won’t work. However, in reality it’s a lot more complicated than this. This note looks at the main issues.

Global debt – how big is it and who has it?

Total gross world public and private debt is around $US171 trillion. Adding in financial sector debt pushes this over $US200 trillion but that results in double counting. Either way it’s a big and scary number. But it needs to be compared to something to have any meaning or context. A first point of comparison is income or GDP at an economy wide level. And even here new records have been reached with gross world public and private non-financial debt rising to a record of 233% of global GDP in 2016, although its fallen fractionally to 231% since. See the next chart.

Source: IMF, Haver Analytics, BIS, Ned Davis Research, AMP Capital

The next table compares total debt for various countries.

Source: IMF, Haver Analytics, BIS, Ned Davis Research, AMP Capital
The next chart shows a comparison of developed world (DM) and emerging world (EM) debt – both public and private.

Source: Haver Analytics, BIS, Ned Davis Research, AMP Capital

It can be seen that the rise in debt relative to GDP since the GFC owes to rising public debt in the developed world and rising private debt in the emerging world. Within developed countries a rise in corporate debt relative to GDP has been offset by a fall in household debt, so private debt to GDP has actually gone down slightly. And a rapid rise Chinese debt (particularly corporate) has played a role in the emerging world.

Of course, it needs to be mentioned that measures of gross debt exaggerate the total level of debt. For example, because of government holdings of debt instruments via sovereign wealth funds, central bank reserves, etc, net public debt is usually well below gross debt. In Norway net public debt is -91% of GDP and in Japan it’s 153% of GDP. But as an overview:

  • Japan, Belgium, Canada, Portugal and Greece have relatively high total debt levels;
  • Germany, Brazil, India and Russia have relatively low debt;
  • Australia does not rank highly in total debt – it has world-beating household debt but low public & corporate debt;
  • Emerging countries tend to have relatively lower debt, but rising private debt needs to be allowed for particularly in China, where corporate debt is high relative to GDP.

The bottom line is that global debt is at record levels even relative to GDP so it’s understandable there is angst about it.

Seven reasons not to be too alarmed about record debt

However, there are seven reasons not to be too alarmed by the rise in debt to record levels.

First, the level of debt has been trending up ever since debt was invented. This partly reflects greater ease of access to debt over time. So that it has reached record levels does not necessarily mean it’s a debt bomb about to explode.

Second, comparing debt and income is a bit like comparing apples and oranges because debt is a stock while income is a flow. Suppose an economy starts with $100 of debt and $100 in assets and in year 1 produces $100 of income and each year it grows 5%, consumes 80% of its income and saves 20% which is recycled as debt and invested in assets. How debt, debt to income & debt to assets evolves can be seen in the next table.

Source: AMP Capital

At the end of year 1 its debt to income ratio will be 120%, but by the end of year 5 it will be 173%. But assuming its assets rise in line with debt its debt to asset ratio will remain flat at 100%. So the very act of saving and investing creates debt and {% rising debt to income ratios. 1 China is a classic example of this where it borrows from itself. It saves 46% of GDP and this saving is largely recycled through banks and results in strong debt growth. But this is largely matched by an expansion in productive assets. The solution is to spend more, save less and recycle more of its savings via investments like equity.
Third, the rapid rise in private debt in the emerging world is not as concerning as they have a higher growth potential than developed countries. Of course, the main problem emerging countries face is that they borrow a lot in US dollars and either a sharp rise in the $US or a loss of confidence by foreign investors causes a problem. This has started to be a concern lately as the $US is up 7% from its low earlier this year.

Fourth, debt interest burdens are low and in many cases falling as more expensive, long maturity, older debt rolls off. And given the long maturity of much debt in advanced countries it will take time for higher bond yields to feed through to interest payments. In Australia, interest payments as a share of household disposable income are at their lowest since 2003, and are down by a third from their 2008 high. There is no sign of significant debt servicing problems globally or in Australia.

Fifth, most of the post GFC debt increase in developed countries has come from public debt & governments can tax and print money. Japan is most at risk here given its high level of public debt, but borrows from itself. And even if Japanese interest rates rise sharply (which is unlikely with the BoJ keeping zero 10-year bond yields with little sign of a rise) 40% of Japanese Government bonds are held by the BoJ so higher interest payments will simply go back to the Government.

Sixth, while global interest rates may have bottomed, the move higher is very gradual as seen with the Fed and the ECB, Bank of Japan and RBA are all a long way from raising rates. What’s more, central banks know that with higher debt to income ratios they don’t need to raise rates as much to have an impact on inflation or growth as in the past.

Finally, debt alone is rarely the source of a shock to economies. Broader signs of excess such as overinvestment, rapid broad-based gains in asset prices and surging inflation and interest rates are usually required and these aren’t evident on a generalised basis. But these are the things to watch for.

Concluding comment

History tells us that the next major crisis will involve debt problems of some sort. But just because global debt is at record levels and that global interest rates and bond yields have bottomed does not mean a crisis is imminent. For investors, debt levels are something to remain alert too – but in the absence of excess in the form of booming investment levels, surging inflation and much higher interest rates, for example, there is no need to be alarmed just yet.


Your 7-point guide to the First Home Super Saver scheme


The First Home Super Saver (FHSS) scheme may allow you to save more money to put towards buying your first home by using the tax advantages around super – here’s a guide to help you decide if it’s right for you.

1. What is the FHSS scheme?

From 1 July 2018, under the FHSS scheme, you can access your super to withdraw an amount of voluntary concessional (before-tax) and non-concessional (after-tax) superannuation contributions made since 1 July 2017, along with any associated earnings, to put towards buying your first home.

If you’re eligible under the FHSS rules, you can contribute a maximum for future withdrawal of $30,0001, plus associated earnings, with your contributions capped at $15,000 per year. Couples can combine forces and access a total of $60,000 of their eligible contributions, plus associated earnings.

By putting your money in super and not in a savings account, you can make the most of the 15% superannuation tax rate which in many cases may be less than your personal income tax rate, and could leave you with more money to put towards buying your first home.

2. What are associated earnings?

Associated earnings represent the interest or ‘deemed rate of return’ on your concessional and non-concessional FHSS contributions, calculated based on the 90-day bank bill rate plus three percentage points (shortfall interest charge rate).

You should also note that concessional contributions and associated earnings withdrawn will be included in your assessable income at tax time and taxed at your marginal tax rate minus a 30% non-refundable tax offset.

3. Are you eligible?

According to the Australian Taxation Office (ATO), you can start making super contributions from any age, but you can only request a release of amounts under the FHSS scheme once you are 18 years old, and if you:

  • have never owned property in Australia – this includes an investment property, vacant land, commercial property, a lease of land in Australia, or a company title interest in land in Australia (unless the ATO determines that you have suffered a financial hardship)
  • have not previously requested the ATO to issue a FHSS release authority in relation to the scheme.

Eligibility is assessed on an individual basis which means couples, siblings or friends can each access their own eligible FHSS contributions to purchase the same property. If any of you have previously owned a home, it will not stop anyone else who is eligible from applying.

4. Getting started by saving in your super

To get started, you can begin saving in super by choosing to make your own voluntary personal super contributions or by entering into a salary sacrifice arrangement with your employer.*
Please be aware that some employers may not offer salary sacrifice arrangements to their employees. Also, be mindful that there’s no change to the amount of money you can contribute to your super – the existing superannuation contribution caps still apply. Under the FHSS scheme, your contributions still count towards your contribution caps for the year in which they were originally made.

5. Accessing your money to buy your first home

It is important to note that you must apply for, and receive, your withdrawal under the FHSS scheme prior to entering into a contract to purchase or construct your first home – if you enter into a contract first you will be ineligible to make a withdrawal under the scheme.

When you are ready to receive your FHSS amounts, you need to apply to the Commissioner of Taxation for a FHSS determination and a release of your savings. You will be able to apply online from 1 July 2018 using your myGov account linked to the ATO.

Remember, the ATO – not your super fund – will decide what counts towards the FHSS scheme. As such, the ATO will tell you the total of eligible FHSS contributions you can take out, the associated earnings and how much tax will need to be withheld.

Once you have submitted your release of savings application, the ATO will issue a release authority to your super fund/s and your fund/s will send the requested release amounts to the ATO.

The ATO will then withhold the appropriate amount of tax, send the balance of the released amount to you and send a payment summary to you. This will show your assessable FHSS released amount, which is comprised of your voluntary FHSS contributions and any associated earnings on these contributions.

You need to include this amount as assessable income when completing your tax return for the financial year you request the release. The tax payable on this assessable amount will receive a 30% tax offset (any tax payable is also reduce by the estimate of tax withheld by the ATO).

6. Don’t forget, the ATO is watching

The ATO is in charge of ensuring any money withdrawn from your super fund under the FHSS scheme is used to buy your first home. It must have released an FHSS amount to you before you sign a contract to purchase or construct residential premises, otherwise you will be ineligible to make a withdrawal under the scheme.

Once the funds are released you have 12 months to enter into a contract to buy a residential premises. As it may take some time to release the money from the ATO to the super fund, it’s worth planning ahead.

If you release the money and do not buy a home within 12 months you either have to recontribute it back into your super or pay a FHSS tax penalty of 20% of the assessable amount released from super. If required you can apply to the ATO for an extension of time.

Additionally, you must notify the ATO if you either sign a contract to purchase or construct a home, or recontribute the amount into your super fund or you will be subject to the FHSS tax. You can make this notification from 1 July 2018. To find out more, visit the ATO’s website.

7. Consider the pros and cons before you take the plunge

Is the FHSS scheme right for you? While it may help you save more money to put towards buying your first home, it is a less flexible way to save than many options outside super. The FHSS scheme could also impact your future retirement savings. To better understand the potential pros and cons before taking the plunge, visit the ATO’s website for more information or speak to a financial adviser.


wealth creation

What Does Tennis Have to do With Wealth Creation?

How following the strategies of a tennis champion
can make you Wealthy

How did Roger Federer win the Australian Open and what does he have to do with wealth creation? He’s 35, had knee surgery 12 months ago, was ranked 17th and had to play 3 top ten players, just to get to the Final.
How about, Roger knows how to take care of business. He doesn’t wait until the second Set to win. He starts from the get-go.

Let’s look at some stats;
• Roger Federer won the first set of Every Match he played in the Australian Open.
• For the first three sets of every match, he won either two or three of the sets.
• Out of Seven games, he only played three five setters.
Basically, he doesn’t wait to win. He gets on with the job from the first serve. Sure he has some resistance from better players, especially in finals. But by winning the first set he sets the tone of the match, he controls the game. By moving early, Roger Federer gets the advantage.
Physically he is at an advantage because he doesn’t have to work as hard as he is playing less sets over the course of two weeks. At 35, each set adds up – especially come the Final.
Psychologically, he forces his opponents into a defensive position, where they have to adjust their strategy to compete with him. He is able to maintain composure throughout the Match, as he is always in front.
So how does this translate to being wealthy? Well, unless you’re a tennis pro this exact strategy probably doesn’t translate directly. But if you’re an average punter, there is an important lesson here.

Start Early.

Get ahead sooner rather than later. Don’t wait for the right time. Just do it. Wealth creation is a long term project.
Let’s look at a financial example. Sarah and Dave contribute $2,400 pa into an investment. The only exception is that Dave is going to start 10 years later. Now obviously, he is going to have a smaller balance at age 65 when they both retire, but how much is the scary part.

wealth creation

Just do it!

Sarah gets to retirement with a whopping $419,000, whereas as Dave only has $215,000.
That means $204,000 is the cost of delay!
Even crazier, the end balance for Sarah is generating $23,000 pa, compared to Dave who is pulling in just $12,000 pa. Sarah will get paid twice as much for her wealth creation in retirement as Dave will, just because she started ten years earlier.

Two key takeouts from our lessons in tennis.
One -If you want to be the local tennis pro – finish your games early (in time for a quick beer or maybe a round of golf in the afternoon) and give up the five setters (your knees will thank you for it).
Two – if you want to make money through investing, start early. Delaying a wealth creation plan will only cost you.

It's your future

What Value do you Put on Planning for Retirement?

We often come across people who know they should be thinking about the future, but are caught up in day-to-day life and not planning for retirement. They cannot see beyond the present and into the future and as such find it hard to comprehend what the future may hold.

Have you ever wondered why it is easier to buy a car than it is to save for retirement?

We know that the second a car rolls off the lot it significantly reduces in value. Compared to that your super is likely to actually increase in value over the life of the vehicle. Why then do people find it easier to buy a car?

Because of immediate gratification – we get something straight away.

After you’ve signed the paperwork and handed over a huge amount of cash, you get to enjoy your Brand New Shiny Car – all for you.

Sure your money is gone, but look at the car…

How do you feel about your shiny new car a month later? Or a year later?

You probably have gotten to the point of washing it once a month (yes, driving through a thunderstorm counts as cleaning), letting the kids eat in the back and you don’t mind if someone gets a bit of dirt on the upholstery. By this time the new car obsession is gone.

You see buying a car might provide satisfaction in the here and now, but it rarely holds value (in our minds and in the marketplace) for more than a year and is it really the best place for your money?


Planning for retirement

Planning for retirement on the other hand doesn’t usually give you immediate gratification, but it is a prudent place to invest.

We think that if we save a little more and add it to our super we’ll be right when we get to retirement age. But that’s the problem, we think we’ll be alright, but we don’t know.

With a new car purchase, we know exactly what we are getting and receive our car as soon as we hand over some cash. We have certainty. But with retirement (being so far into the future) we have no idea what our retirement will look like.

So, how do you get the best of both worlds – gratification and certainty?

We approach this by showing you your future financial position using your current situation and alternatives. We make it possible to see what your retirement looks like, 10, 20, 30 years down the track. We do this so that when you make a contribution to your super fund or decide to purchase an investment property, you know that this will ensure you can enjoy a comfortable retirement.

This regular review process allows for us to provide greater certainty to you and hopefully greater peace of mind. It allows for you to draw the connection between depositing funds to super and the benefit you will receive (albeit in the long term future).

Most importantly though, planning for retirement provides a sense of gratification today for making progress towards your long term future prosperity.

Frugal Insurance

What’s the difference between Health Insurance, Income Protection and Trauma Insurance?

We speak to a lot of people about insurance and they often don’t understand the difference between health insurance, income protection and trauma insurance.

One of the biggest reasons people often get confused is that while all of these insurances relate to a person’s health, they have a wide range of benefits which are often perceived as being similar, when in fact they are very different.

Benefits provided by Health Insurance, Income Protection and Trauma Insurance

Health Insurance

financial adviserHealth insurance provides a range of benefits, based on the level of cover you have. One of the biggest reasons for choosing health insurance is to avoid paying the Medicare Levy.

If you have a Comprehensive level of Health Insurance you may have an Extras package, which will provide you with additional benefits such as dental, optical, chiropractic.

Generally, the level of cover you hold determines a gap amount or a rebate amount. For example, you may receive a 55% rebate on regular dental check-ups. This rebate usually comes with an annual rebate amount – i.e you may be limited to claiming up to $500 pa on dental.

Effectively, Health Insurance relates to the expenses of health care.

Income Protection

Where Health insurance covers health care expenses, Income Protection covers your lost salary if you are sick or ill.

In fact, Income Protection simply provides you with a monthly cash amount, based on the level of cover you have taken out. So, if you are unable to work, because you are sick or ill, you will be paid the monthly benefit until you can return to work.

There is no mandate that states what you must spend your income protection benefit on. It could be medical expenses, it could be on food or the mortgage – it is entirely up to you.


Similarly, to income protection, trauma is a cash payment, that can be used for anything you wish. However, trauma is a lump sum payment that is generally reserved for critical illnesses, such as cancer, heart attack and stroke.

Trauma insurance works in conjunction with Health insurance to ensure you are not left out of pocket, when you are diagnosed with a major illness. While Health insurance may cover a lot of medical expenses, there are often limits or gaps, that can mean you are still required to pay for medical costs – not something you want to worry about when deciding to get lifesaving surgery!

Why should I have these insurances, if they are so similar?

While each of the insurances do have similar circumstances under which to claim, the benefits provided by each of these insurances varies widely;

  • Health Insurance: Covers medical expenses
  • Income Protection: Covers lost salary
  • Trauma insurance: Cover major illnesses & health insurance shortfalls

Rather than thinking of these as the same thing, it is best to think about them as complimentary policies that provide a total insurance health plan.

you get what you pay for

You Get What You Pay For With Financial Advice

In this 3-part blog series on financial advice, we look at the why it is hard to differentiate value between financial advisers, the limitations of company aligned advisers and whether you should go direct or not.  This is part 1 of the series.

For most people, it can be hard to identify the different value between financial products and services.

I think most of us find it difficult because most daily purchase decisions involve products (TV, home/ contents insurance, health insurance, new car, new home etc). In these situations, we make our decision based on brand, cost, online reviews, reading the product brochures and possibly doing some research. We take all these things into account and make a decision to purchase that product. Financial advice from an adviser is no different.

Purchasing a financial advice service or product on the other hand can be far more difficult to evaluate, mainly because you often don’t have a physical product to look at or the benefits and services being provided may not provide an immediate benefit, and in fact may cost even more money.

financial adviceLife Insurance is a good example of this. We apply now, start paying premiums for a product we don’t get to use now and in our mind (remember we don’t think anything will happen to us until we are old) we won’t get a benefit for years, and maybe never if we don’t make a claim.

For many of us we find it difficult to put a value on peace of mind, which is what insurance offers.

The same difficulty occurs when picking picking financial advice from a financial adviser. How do you evaluate the effectiveness of the service delivered to you by a financial adviser, today? You might have a good idea in 5 or 10 years’ time whether the advice was right for you – but how do you know today?

Yes, an adviser can find a cheaper insurance premium, get a better interest rate or save some tax – but what about long term planning, like ensuring you have sufficient super to pay for your retirement – you won’t know until you retire.

Because great advice can be hard to identify, people often choose an adviser, or a financial services product, based on the short-term information of price. The rationale is that without knowing why one should pay more for a particular financial adviser, many will opt for the cheapest – but this can be dangerous.

Lower priced planners generally have limitations of on the types of advice they can offer or the brand of products they can recommend. They may have to sell a particular number of financial products to meet sales quotas or they may have a vested interest in ensuring you do not move your money from the administration of their employer.

This means that while you are getting financial advice, you are not getting the financial advice that is right for you, individually.

In the following post we look at the limitations of company aligned advisers and how this can impact the financial advice you receive.

income protection insurance

What is Income Protection?

As part of delivering advice to clients we are frequently asked about the various insurance covers we recommend. We have put together a list of our 7 most common questions about income protection, to help you understand it a little better.

Is Income Protection Tax Deductible?
The premiums you pay for your income protection policy are generally tax deductible, if they are paid by you personally. However, if the premium was paid for from a business account or from a superannuation fund, then the premium would not be tax deductible to you personally.
Importantly, because the premium is tax deductible the income you generate from any policy claim is considered as taxable income.

income protection insuranceWhy do I need income protection – I have sick leave (and what about the Disability Pension?)
Sick leave should always be considered as part of an income protection policy. For example, if you have built up a lot of sick leave (and annual leave/long service leave) this can be taken into consideration when the policy is recommended to you.
However, while you may have sick leave/annual leave for the short term, not many people have sick leave that pays them until they reach age 65. This is where Income Protection is beneficial – as it can pay out for many years after you cease working as a result of illness or accident.

As for the disability support pension – this amount is very minimal and it is unlikely this will be anywhere near what you received previously if you have been working full time for a number of years. As at October 2016, the maximum disability pension for a single person, including the maximum Pension and Energy supplement, was $877.10* per fortnight or $438.55 per week. For many people this amount will not be sufficient to meet the ongoing expenses of the lifestyle they currently live.

Can I hold it in my Super Fund?
It is possible to have your income protection held in a super fund. While your premiums will be paid for from your fund, the policy you hold may not be as comprehensive, compared to if you held it personally. The downside here is that it is harder to successfully make a claim.
However, there are options available to get the best policy and have a portion of your premium paid for from your fund.

Why should I supply full medical history when applying for the policy?
Because you can claim on your income protection for both accident and illness most insurers require an understanding of your medical history, before insuring you so they can offer you the right premium in line with your health.

Some insurers do not ask for this information upfront – leaving it until you make a claim. This means you may find out the policy is no good – after it’s too late.
Our suggestion is you complete the full medical questionnaire when applying for the policy and you know where you stand in relation to what you are covered for and more importantly what you are NOT covered for

How can I reduce my premium?
There many ways to reduce your premium and it comes down to a discussion between you and your adviser. But there are common ways to reduce your premium.
1. increase your waiting period (the time you have to be off work before claiming) or
2. decrease the benefit period (time the insurer pays you after making a claim).
3. Reduce the amount you are covered for
You can ask your adviser to shop around for a better premium with another provider. You can also look at having a portion of your income protection in your super fund – but don’t forget this will erode your retirement savings.

Do Insurance companies actually pay claims?
One of the important roles of an adviser is to monitor which companies are performing well and paying claims. After all, an adviser who recommends a particular company is in effect putting their reputation on the line. No adviser wants to see a legitimate claim knocked back.
Experience suggests that claims do get paid, and often. Unfortunately, stories about non-claims are common in the media, but rarely are these stories countered with the number of claims that are paid. However, most reputable insurers do publish their claim statistics, to give advisers and consumers an idea of how much has been paid out in the past 12 months. In recent years the larger insurance companies have EACH paid out in excess of $800 million every year in claims for life/TPD/criticall illness and Income Protection insurance.

How much cover can I get?
As a rule, you should be able to get up to 75% of your income insured without too much hassle. It is even possible to get your super contributions insured as well, bringing your total insurable income to around 84% of your salary package. If you have extra things such as a car or other bonuses an adviser can talk to the insurer for you and negotiate the maximum insurable amount.
If you own a business you may even be able to cover some of your regular expenses, such as utilities and rent.




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What exactly does a financial adviser do?

One of the main reasons that most ordinary Australians don’t approach a financial adviser to assist them is that they don’t know what we do.

Well I’m about to tell you what we can do for you.
Lets start by saying that we want to work with you to help you create and protect the lifestyle you want, whether that is now or in 15 years time.
At your first meeting with any good financial adviser will build rapport getting to know you and what you would like to achieve. This meeting is all about determining whether I can help you, and because most financial journey are a long plans we need to be able to get along. We are your financial partners after all.

During this meeting we will discuss some /all of the following depending on what stage in life and what you want to seek advice on;
• Your future goals and objectives are discussed
• Your existing super and investments
• Your existing personal insurances
• Your existing wills or Estate plans along with the relationships and health of your children/grandchildren and parents
• Your cashflow and employment situation
• Your existing debts
• We explain the financial planning process, and some of the reasons why we prepare a statement of advice ( SOA) which needs to be presented to you before we can implement anything that we recommend.
• Our initial and ongoing fees

Build a future with a financial adviser

After the first meeting with a financial adviser you decide whether you want to build your financial future with us. If you do then it’s onto the 2nd meeting…….. this is where we delve a little deeper into your situation to collect as many facts about your current personal and financial position, as well as outlining your future goals and objectives in detail.

Some of this information I might have already gathered at the initial meeting or I might have given you some homework to gather for this meeting such as; completion of a household budget or thinking about those big ticket items you want to spend money on such as house reno’s, car upgrades, kids education or that overseas holidays.

We then go away and gather all the information from external sources. We sit down and discuss the some of the strategy options we could use to help you achieve those future goals and objectives. This will also require us to research different products and possibly obtain insurance quotes. During this process we may also need to speak with you again to clarify or discuss some new information that we have become aware of.

financial adviserThen we commence the process of preparing the Statement of Advice (SOA).
First we enter all the information you have provided us with into our specialised software. This enables us to determine the best outcome for you as we are able to compare all the strategies/options we are considering for you. With this software we can look at the effect these strategies will have on over your financial lives (for 25-30 years), including cashflow, taxation, super and investment balances and Centrelink benefits.
The next stage involves us preparing the SOA for presentation
The 3rd Meeting with you is generally to present the SOA which outlines
• Our recommendations
• Any other strategies we may have considered and why we didn’t use them
• How these strategies will help you achieve your stated goals
• Our fees and the fees of any products we have recommended

At the conclusion of this meeting you can either agree to proceed with our recommendations or take the document home to read over. Our recommendations aren’t acted upon until you have signed the appropriate “authority to proceed”.

It’s now that we assist you in completing any required applications and putting those recommendations into place. It’s at this time something happens.
You’ve created a better financial future for you and your family. That’s about all you need to do, we will look after your applications from here.

We submit all your paperwork required, we follow up your applications with the product providers and make sure they are actioned correctly. We have no time-frame on how long this will take to be completed but you can rest assured that during this process we will keep you informed along the way providing you with updates on things such as; the stage of your applications, ensuring your super fund rollovers are processed and quickly, if money has been received or expected to be deducted, if and when you should expect to receive payment from any income product, if an insurance application has been accepted or if you are required to do any medical tests.

The office staff are as equally important to the whole SOA process as the financial planner. They have strong relationships with companies through the industry, they assist with the implement your recommended changes being done the right way and with you doing as little as possible. Yes, that is right, as little as possible.

How often will you be in touch with your financial adviser?

The next contact with me, your Financial Adviser will usually be at your first review usually 6 or 12 months after we have presented the SOA. This review process will continue with your approval and consent to any fees.

We have now started our long term relationship. This will require commitment from both you and us. Your commitment is to stay true to the long term goals and agree to meet with us on a regular basis. We will commit to work hard for you doing all of those financial calculations most people find tedious (we don’t, it’s what we do), dealing with all the different product providers and translating all of that financial jargon into simple terms that you can easily understand.

We maintain up to date with product, legislative and strategy changes by meeting ongoing industry education requirements.
While it is important to set up our recommendations correctly it is just as important that we continue to meet and review the investment/ superannuation and insurances you have. Reviews will take into account any changes to your personal and financial position, changes to your original goals and objectives, changes to any government laws and/or legislation and last but not least the current state of the global financial and geopolitical situation.

There you have it………and you thought we only looked after life insurance.

Give us a call for a free initial consultation and let us take some of the weight off your shoulders as you negotiate your way through life. Remember, what most people find time consuming, tedious and annoying we do every day, all day. So let an experienced financial adviser discuss what we can do for you.

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