Latest / The Money Puzzle / Separately Managed Accounts: Advisers love them, but should you?

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Separately Managed Accounts: Advisers love them, but should you? · The Money Puzzle

0:10
Speaker 1: Hello, and welcome to the Australians Money Positive podcast. I'm
0:14
Speaker 1: James Kirkby. We welcome aboard everybody. I'm be keen to
0:17
Speaker 1: know if as an investor, you've been offered or maybe
0:22
Speaker 1: you're already involved with separately managed accounts, if you don't
0:27
Speaker 1: know what they are, it's this is a boom area
0:29
Speaker 1: right in financial advice right now. It is growing at
0:32
Speaker 1: a tremendous clip of about twenty five percent a year.
0:36
Speaker 1: The majority of new arrangements between advisors and new clients
0:40
Speaker 1: are going through this system of separately managed accounts. So
0:43
Speaker 1: if you haven't heard of them, you're going to hear
0:45
Speaker 1: of them very soon. We're going to try and describe
0:47
Speaker 1: what they are. But basically, you take control of the investments.
0:50
Speaker 1: They're your investments on your books, and you can manage
0:53
Speaker 1: the tax affairs, but everything else is managed by somebody else, Okay,
0:56
Speaker 1: all done for you. By that, I mean the advisor
0:59
Speaker 1: will find market professionals to run both the asset selection,
1:04
Speaker 1: the adjustments and tactical adjustments of that selection, and the
1:09
Speaker 1: very mundane business of administration. So it all sounds very
1:12
Speaker 1: attractive and it's very popular with everyone, it seems though,
1:16
Speaker 1: I just wonder if it's ideal for the investor. I
1:21
Speaker 1: have no doubts it's ideal for advisors and platforms and
1:24
Speaker 1: everybody else. I want to talk about that. I also will,
1:28
Speaker 1: possibly if we have some time, talk about inflation linked
1:31
Speaker 1: bonds and a few other issues with my guest today,
1:35
Speaker 1: who is Nathan Fradley, financial Advisor. He's been on the
1:38
Speaker 1: show before. He's plucky enough to come on again and
1:42
Speaker 1: talk about these issues. Nathan, how are you.
1:45
Speaker 2: I'm good, James. Thanks for having on.
1:47
Speaker 1: To elaborate on this, folks. I just want to say something.
1:50
Speaker 1: It's just a point I make on the show every
1:52
Speaker 1: now and again, and let me just make it once more.
1:55
Speaker 1: The risk for you as an investor is you must
1:59
Speaker 1: be very careful where information comes from and is someone
2:04
Speaker 1: selling a product? Are they a financial provider for instance?
2:07
Speaker 1: Are they a financial service provider? And if they are,
2:10
Speaker 1: then if there's a publication from them or a podcast
2:13
Speaker 1: from them, that's all fine, right, But they're not going
2:15
Speaker 1: to ask some of the questions that I ask on
2:17
Speaker 1: the show. I'll give you an example. I'm talking about
2:19
Speaker 1: these separately managed accounts. So I went this morning, let's
2:23
Speaker 1: just put it into Google what's a separately managed account?
2:26
Speaker 1: And I got an excellent summary on how they work
2:30
Speaker 1: and it was from Vanguard. Right, that's fine. Here's the thing.
2:35
Speaker 1: What did they not say? What questions did they not ask?
2:40
Speaker 1: Because nothing's perfect? Right, Nathan, you have the floor. Tell
2:46
Speaker 1: me about these separately managed accounts? Do you like them?
2:49
Speaker 1: I have no idea about the way with Nathan. I
2:51
Speaker 1: haven't asked him before the show.
2:52
Speaker 2: So what do you think I might not like friends
2:55
Speaker 2: for this episode? You know, I'm pretty diplomatic usually James
2:58
Speaker 2: relatively diplomatic. I like to sit on the fence. Sometimes
3:03
Speaker 2: they are really really good ways to have a portfolio
3:09
Speaker 2: put together with managers from different places, with as you said,
3:14
Speaker 2: the ability to keep the tax controlled a bit better
3:18
Speaker 2: than externally managing it. But in my view, and do
3:22
Speaker 2: I use them, yes? Do I think they're the greatest
3:25
Speaker 2: instance slash Bread. Before them, we had multi asset managed funds,
3:32
Speaker 2: or if you've got an industry super fund, your balanced
3:34
Speaker 2: option or your growth whatever it is, effectively the same thing.
3:40
Speaker 2: Can you adjust some you know, might be some slightly
3:43
Speaker 2: better tax outcomes or think it's sure, But at the
3:47
Speaker 2: core of it, you've got a portfolio being managed of
3:51
Speaker 2: various providers and assets, does it perform well? Does it
3:54
Speaker 2: cost a lot of money? I think what we can
3:57
Speaker 2: see happen is, especially with the world of finance and investments,
4:03
Speaker 2: is people will need to be involved. They create roles themselves,
4:06
Speaker 2: they take it clip they you know, that's a bit
4:09
Speaker 2: I'm not going to make friends with. There's fees come
4:11
Speaker 2: and left, right and center. Didn't add value? Is the
4:14
Speaker 2: question you've got to ask. And I think what seplate
4:16
Speaker 2: manager accounts have brought to the market is the ability
4:19
Speaker 2: for investors to access a lot of different ETFs and
4:22
Speaker 2: you know, get portfolios at lower costs that are really
4:25
Speaker 2: efficient and effective and get good returns. But they're not
4:28
Speaker 2: all cut from the same cloth, right, and sometimes it's problematic.
4:31
Speaker 2: Sometimes they're quite expensive, or they're just sold over sold,
4:34
Speaker 2: if that makes sense.
4:36
Speaker 1: Right. So it seems to me between the lines you're
4:38
Speaker 1: saying that they do suit some people at their best, Yeah,
4:41
Speaker 1: but perhaps not everybody. Why do you think ask Alan Kirkland,
4:45
Speaker 1: Conecty Commissioner at A has announced basically that he's going
4:48
Speaker 1: to ask some pretty hard questions of how all this works,
4:51
Speaker 1: and he has concerns about these structures and he has
4:54
Speaker 1: concerns about conflicts of interest if it's brought down the
4:58
Speaker 1: costs a bit, I'm genuinely has. The criticism is that
5:05
Speaker 1: there's new fees layered on here because everybody must get
5:09
Speaker 1: paid right as you see eclip the ticket along the way,
5:12
Speaker 1: any sort of structured product like that. So have the
5:16
Speaker 1: coast come down because it seems to me there's new
5:18
Speaker 1: fees that were in upaid before.
5:20
Speaker 2: I would say universally yes, Like across the whole you've
5:24
Speaker 2: got index options available on low cost accounts that good
5:30
Speaker 2: portfolios that perform well that you couldn't have done to
5:34
Speaker 2: a judicial managed fund structure, or if they did, they
5:36
Speaker 2: would have charged the same fees because they've now got
5:38
Speaker 2: to manage the trust. I think another advantage that we
5:42
Speaker 2: often don't think about is that an alternative to that
5:44
Speaker 2: is that the advisors in your account, your wrap account,
5:47
Speaker 2: your rest yourself, whatever it might be, recommend which investments
5:50
Speaker 2: to buy, and they act as portfolio managers. Whether they're
5:54
Speaker 2: good at it, skilled at it, or have the time
5:56
Speaker 2: to do it. Some do when they do a great job.
5:58
Speaker 2: A lot of them maybe don't have that time. So
6:01
Speaker 2: their ability to outsource that and know what's been done well.
6:04
Speaker 2: But independent of you know, just a large financial institution.
6:08
Speaker 2: It might be an investment consultant that doesn't have to
6:11
Speaker 2: use the same international share fund as the Australian chafund.
6:14
Speaker 2: It can genuinely build portfolios. There's some really good benefits
6:18
Speaker 2: in that. I do think, like with anything, and maybe
6:21
Speaker 2: this is where OSI's coming from, they're looking at it
6:23
Speaker 2: and going okay, but who's running it? What connection do
6:27
Speaker 2: you have? Is that we see a similar conversation with
6:30
Speaker 2: the managed discretionary accounts which is similar bit different.
6:33
Speaker 1: Which is a spin off of the same thing. Aren't
6:35
Speaker 1: they managed to counts? Yeah?
6:36
Speaker 2: Yeah, yeah, yeah. So you're effectively saying, is the financial
6:40
Speaker 2: advice firm also running a separate business that has these
6:42
Speaker 2: portfolios and they're clipping the ticket twice and of the
6:46
Speaker 2: investments they've gone into, is there any connection through that?
6:49
Speaker 2: And we've seen that with some of the controversies of
6:52
Speaker 2: recent super issues we've seen in the media lately. So
6:55
Speaker 2: I think that's probably the angle.
6:56
Speaker 1: Which ones are you thinking of there, like.
6:58
Speaker 2: Your sheeld master's trust and that kind of thing where
7:00
Speaker 2: you've got seemingly related parties left right and center.
7:04
Speaker 1: And seemingly autonomous but actually yeah, yeah connected. Okay, so
7:10
Speaker 1: at a sharper end, someone like Andy Dorock. I don't
7:12
Speaker 1: know if you know Andy Dorock. He's been on the show.
7:14
Speaker 1: He's a financial advisor. He says they're a colossal waste
7:16
Speaker 1: of money. That's pretty black and white, isn't it.
7:19
Speaker 2: Yeah, So I think it's tarnishing everything with one brush. Right.
7:23
Speaker 2: So I do a lot of work with clients who
7:25
Speaker 2: we just work with an industry fund in the low
7:28
Speaker 2: cost index option like great, awesome. But for some clients
7:31
Speaker 2: who are using wrap accounts or ReSm sfs where they
7:33
Speaker 2: want that it saves time, it saves money, maybe the
7:35
Speaker 2: advisor fees less, they can be advantages to it. I
7:39
Speaker 2: think it's courses for courses, But I don't think they're
7:42
Speaker 2: necessarily some grand game changing thing. I think they are
7:45
Speaker 2: a multi asset portfolio that we've seen before in a
7:49
Speaker 2: different light.
7:49
Speaker 1: Yes, okay, but it certainly brings the platforms in, doesn't it.
7:52
Speaker 1: It's certainly, and they're already pretty powerful. But in effect,
7:57
Speaker 1: what this trend means, folks, is that more money gets
8:03
Speaker 1: directed right to the big wealth platforms and basically the
8:06
Speaker 1: vanguards in the networks of this road that they get
8:09
Speaker 1: bigger and more important than they are es central to
8:10
Speaker 1: the system because the advisor, ultimately a platform is basically
8:15
Speaker 1: where all this goes, and then the investments are made
8:18
Speaker 1: off that are selected off that. I just want to
8:20
Speaker 1: ask you one thing about the platform and segueing here
8:22
Speaker 1: very slightly. Cash is going up. Hooray. Cash accounts are
8:27
Speaker 1: going up. Good to hear at last. You can get
8:31
Speaker 1: four and a half to five out there in cash
8:34
Speaker 1: at the moment, and it will go higher. I've seen
8:37
Speaker 1: reports that one of the problems inside the SMAs is
8:41
Speaker 1: the use of the wealth platforms. The wealth platforms in
8:43
Speaker 1: turn the cash on those platforms, they're charging fees for
8:48
Speaker 1: managing it, like one point four percent for managing cash.
8:51
Speaker 1: When you're managing cash, what do you do when you
8:53
Speaker 1: go in the morning. I'd love to know you go
8:54
Speaker 1: it at nine o'clock. Right, you're managing cash. You have
8:56
Speaker 1: a look, you say, that's pretty good. I'll tweak this, Okay,
9:00
Speaker 1: that text us up to half nine. What did they
9:02
Speaker 1: do the rest of the day for their fees.
9:04
Speaker 2: I suspect that the fee that's charged on cash and
9:09
Speaker 2: for those who don't know. They might get two percent,
9:11
Speaker 2: but you'll get half. So you don't see this like
9:13
Speaker 2: line item fee of one point five percent. You're just
9:16
Speaker 2: the amount of interest you get on the account versus
9:18
Speaker 2: what is claimed. But it is disclosed in the pds,
9:21
Speaker 2: and it should be disclosed in any advice documents and
9:24
Speaker 2: things as well.
9:24
Speaker 1: Oh, we hope.
9:25
Speaker 2: So if they didn't charge it, the fee would probably
9:28
Speaker 2: just be higher somewhere else. That's the kind of a like.
9:31
Speaker 2: I just think there's a cost that they've done it
9:32
Speaker 2: and for some reason they've decided it always gave me
9:35
Speaker 2: a bit of a funny feeling. It's very strange. Why
9:38
Speaker 2: would you just not pay the interest and charge a
9:40
Speaker 2: higher fee and make it cleaner. It's a very odd thing.
9:43
Speaker 2: Maybe there's a technical aspect to it from some actuary
9:46
Speaker 2: in one of the platforms, but I actually don't know.
9:48
Speaker 2: It is always a question that I've said, what's the
9:51
Speaker 2: purpose of this?
9:52
Speaker 1: Yeah, well, folks, I don't know either. If you can
9:54
Speaker 1: explain why someone has to charge a fee that on
9:57
Speaker 1: very large amounts would mean very large amounts for doing
10:00
Speaker 1: what would seem to be extremely little work in the
10:04
Speaker 1: conventional sense, Because I could not possibly know what could
10:07
Speaker 1: take you so much effort to manage cash. We will
10:10
Speaker 1: find out, hopefully somebody might tell us. We'll take a
10:12
Speaker 1: short break to something I want to zone in on
10:14
Speaker 1: which you're going to find very interesting, folks. Some big
10:16
Speaker 1: news coming through on self managed super funds this week
10:19
Speaker 1: and a few other developments which any investor should be
10:22
Speaker 1: a barresta back in a minute. Hello, Welcome back to
10:36
Speaker 1: The Australian's Money Positive podcast. James Kirby here with Nathan Fradley,
10:40
Speaker 1: financial advisor. He's been on the show before. Now Nathan,
10:44
Speaker 1: I'm going to bounce around here a bit because there's
10:45
Speaker 1: a couple of things I just want to bring people
10:47
Speaker 1: up to speed with and our listeners, assuming you're all
10:51
Speaker 1: diversified investors, which I know you are, folks. There's a
10:55
Speaker 1: couple of things have happened, and forgive us if we
10:57
Speaker 1: sort of roam from subject to subject here, I want
10:59
Speaker 1: to cover them. Okay, one thing is I don't want
11:02
Speaker 1: to get too into the thickets here, but self managed
11:05
Speaker 1: super funds the way it works of late, there has
11:09
Speaker 1: been a development. There was always a problem when companies
11:12
Speaker 1: went under. Financial service groups went under. The people who
11:17
Speaker 1: had got caught in those financial service groups had no
11:20
Speaker 1: one to claim from for this simple reason that the
11:24
Speaker 1: company was gone. So perhaps with the best of intentions,
11:28
Speaker 1: a unit was created called the CSL or the Compensation
11:32
Speaker 1: Scheme with Last Resort. However, since the day it started,
11:36
Speaker 1: it's been terribly controversial for the simple reason that they
11:38
Speaker 1: didn't fund it in an ideal fashion, and they also
11:41
Speaker 1: did some retrospective stuff. So where all the people who
11:43
Speaker 1: were caught on the Dixon Advisory disaster, for instance, they're
11:47
Speaker 1: able to claim under this fund. But the people who
11:50
Speaker 1: have to contribute to the fund, you know, they're saying,
11:52
Speaker 1: why should we pay for the sins of the past
11:55
Speaker 1: done by others? And there's been a real debate amount
11:58
Speaker 1: whether self managed super fund should be included in this.
12:01
Speaker 1: I don't think there should be, because you're taking your
12:05
Speaker 1: own risks autonomously as an independence investor. So the government
12:09
Speaker 1: this week has come up with a fight paper on
12:10
Speaker 1: all this, and basically Minister Melino, who's the relevant minister here,
12:15
Speaker 1: has come up with a pretty interesting scheme and he says,
12:18
Speaker 1: if self managed super funds want to be included in
12:21
Speaker 1: the compensation scheme of Last Resort, they'd have to contribute
12:24
Speaker 1: to a levy. What do you think of that? Nathan.
12:28
Speaker 2: I'm going to be nice and diplomatic on this one,
12:30
Speaker 2: but the compensation scheme of last resort is supposed to
12:33
Speaker 2: be a last resort and it always seemed like it
12:34
Speaker 2: was tapped first. But I suppose the issue here is
12:38
Speaker 2: that if you're a self managed super fund, you've taken
12:40
Speaker 2: to your point your own risks. You don't have the
12:43
Speaker 2: same mechanisms of complaint that you would if you were
12:46
Speaker 2: in another fund, So why are you paying for it?
12:50
Speaker 2: That's come about, I think also because the amount of
12:54
Speaker 2: money that needs to be paid out to people who
12:57
Speaker 2: have been wronged by frankly current financial products is exceeded
13:03
Speaker 2: the caps. There's an amount of money that they allocated
13:05
Speaker 2: financial advice industry is paid into it, and then the
13:08
Speaker 2: government sent around have said, well, we've got to spread
13:10
Speaker 2: that more evenly into other sectors, and it's broadened the
13:13
Speaker 2: whole sector. Everyone's contributing, so super funds, if you're not
13:16
Speaker 2: a self managed, will be contributing to it, and so
13:18
Speaker 2: self managed super falls into that. But yeah, you don't
13:21
Speaker 2: have that same protections that you necessarily do because it's
13:23
Speaker 2: regulated differently. I think it just flags more of the
13:26
Speaker 2: issue that the scheme itself. While intentionally let's help people
13:31
Speaker 2: who are wronged when there is no one they can
13:32
Speaker 2: go after, but is the scheme pursuing those people? Are
13:36
Speaker 2: they being regulated proper? There's all these other issues that
13:38
Speaker 2: pop up that says, well, in principle, sure, in practice
13:43
Speaker 2: it is terrible.
13:44
Speaker 1: Well, what do you think of the proposed solution for
13:45
Speaker 1: a self amounted super funds? Basically, folks, if you want
13:48
Speaker 1: to be covered by consumer legislation that doesn't naturally cover you,
13:52
Speaker 1: pay for it as insurance basically, so government insurance.
13:56
Speaker 2: Yeah, yeah, asuring everyone, which isn't that what the regulator
13:59
Speaker 2: should be done for.
14:00
Speaker 1: Do you think it's good or bad?
14:01
Speaker 2: I don't think it's good.
14:02
Speaker 1: I don't think it's good.
14:03
Speaker 2: I don't think it's perfect.
14:04
Speaker 1: Okay, there you know it doesn't think it's appropriate, fair enough,
14:06
Speaker 1: very good. Now I'm bouncing around the promise I would.
14:08
Speaker 1: Here's an interesting story AMP, which of late, by the way,
14:13
Speaker 1: has become there I say occasionally in the visives. They
14:17
Speaker 1: launched the first super lending product SMSF lending product that
14:21
Speaker 1: we had seen in the market four years, that is
14:24
Speaker 1: from traditional financial players, and now they've introduced a cash
14:29
Speaker 1: back offer. Oh alarm bells ring. I can remember someone
14:33
Speaker 1: saying to me many years ago, you know, in the future,
14:35
Speaker 1: banks will be offering cash back and holidays and freak
14:38
Speaker 1: from fireupoints. And I was like, oh, yeah, sure they will.
14:40
Speaker 1: Oh well, here we are many years later. But what
14:43
Speaker 1: about for your super Now here's the thing. So with
14:46
Speaker 1: the AMP Super cash back offer. If you join AMP Super,
14:49
Speaker 1: are you rnt AMP Super. It's linked with the rewards
14:53
Speaker 1: operator and you go and you spend money on your
14:58
Speaker 1: reward points and you get rewarded in cash, but you
15:04
Speaker 1: must put the cash into your super fund. Oh they're
15:08
Speaker 1: so clever, these people. What do you think of it, Nathan?
15:11
Speaker 2: When something is free, you're the product and something is free. Yeah, yeah,
15:16
Speaker 2: that's as soon as I say it, I'm like, okay, cool.
15:18
Speaker 2: How did they pay for that? Where's that cash coming from?
15:21
Speaker 2: It's probably coming from a higher fee you're paying somewhere else,
15:23
Speaker 2: or some form of advertising incentive or something else. Can
15:28
Speaker 2: someone gamify this? I hope? So someone's out there making
15:31
Speaker 2: They sit there on their points calculators and they've optimized it.
15:34
Speaker 2: But I would say, if you're looking at this and going,
15:36
Speaker 2: that's why I would choose a fund. I would probably
15:38
Speaker 2: choose it on the other factors. Would I end up
15:41
Speaker 2: more SUPER if I didn't get the cash back, or
15:43
Speaker 2: I had to spend money on certain things they told
15:44
Speaker 2: me to spend money on, and I just put that
15:46
Speaker 2: money into SUPER or had less fees or a variety
15:49
Speaker 2: of other things.
15:50
Speaker 1: That's a great point. That's a great point. So do
15:54
Speaker 1: you think there's a danger there that the decision to
15:57
Speaker 1: choose that fund is linked with the reward point? And
16:00
Speaker 1: if it is, what's wrong with that?
16:02
Speaker 2: Yeah, if it works for you, if it's things you're
16:05
Speaker 2: going to spend money on. Otherwise, and in comparison to
16:08
Speaker 2: a not doing that, what's the best scenario I could
16:10
Speaker 2: put myself in. I'm better off? Awesome, great, go forth,
16:15
Speaker 2: But you should be taking it on a relative basis.
16:18
Speaker 2: I think sometimes points systems of all descriptions create a
16:21
Speaker 2: false economy. They create this incentive that actually doesn't reward you.
16:26
Speaker 2: It just feels like it. It's a great story, it's
16:28
Speaker 2: a game, it's something we can be a part of,
16:30
Speaker 2: but we're not better off.
16:31
Speaker 1: It's an old game. Yeah, it was way back.
16:34
Speaker 2: People do it because it works. Companies keep doing it
16:36
Speaker 2: because it keeps working.
16:37
Speaker 1: So it does. Absolutely. Yeah, the whole issue of a
16:40
Speaker 1: reward I remember my dad used to say, and we
16:42
Speaker 1: pulled into a petrol station, is so, why are they
16:44
Speaker 1: giving us a free glass? Why are they giving us
16:47
Speaker 1: free drinking glasses? Whethern't they just cut the price of
16:49
Speaker 1: the petrol so well, I wasn't able to articulate the
16:53
Speaker 1: answer then I could now, So just to go back
16:55
Speaker 1: to that, what's the danger? Just spell out the danger
16:58
Speaker 1: if you would off superfies moving into this sort of area,
17:02
Speaker 1: even if you must put the money into super It's
17:04
Speaker 1: a question of choice, is it that you might choose
17:07
Speaker 1: to fund reward points rather than one without reward points,
17:10
Speaker 1: and that could be the wrong decision, Is that what
17:11
Speaker 1: you're leading?
17:12
Speaker 2: Yeah, you might end up with higher fees overall worse
17:15
Speaker 2: off despite the fact you got the points. You could
17:18
Speaker 2: have ended up I don't know what the fees are
17:19
Speaker 2: on the products. But potentially you canceled your old fund
17:22
Speaker 2: and you had insurances, then you didn't get them in
17:24
Speaker 2: the new fund, or you had a medical issue and
17:26
Speaker 2: now you don't have it, or you know, there's a
17:28
Speaker 2: range of maybe your default investment option because you didn't
17:31
Speaker 2: take that actual attention. It was more aggressive and market
17:35
Speaker 2: crashed and you panic can sell out and you end
17:37
Speaker 2: up losing more money. There's a chain of things that
17:39
Speaker 2: happen with all super changes. But I think what this
17:42
Speaker 2: is it's an unrelated incentive because on a standalone basis
17:45
Speaker 2: that was required. Ye. Like, it's a very competitive market.
17:48
Speaker 1: The price in everything, as you see, there's no price
17:51
Speaker 1: in everything. Nothing free. All right, you're not getting those
17:54
Speaker 1: rewards for free? Very good, very good answer. Okay, Because
17:59
Speaker 1: Nathan is advisor, because he's popular advice and been on
18:02
Speaker 1: the show before, I have kept several questions for him
18:06
Speaker 1: from Luke and Taylor and Mick. Back in a moment, Hello,
18:17
Speaker 1: Welcome back to The Australian's Money Puzzle podcast. James Kirby
18:21
Speaker 1: here with Nathan Fradley of Fradley Advice. Okay, none of
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Speaker 1: this is advice in the way of answers to the questions.
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Speaker 1: They are for information only. But here's the one close
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Speaker 1: to your heart, Nathan. I know you often opine on
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Speaker 1: this issue. Matt asks people don't pay for financial advice
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Speaker 1: due to a costing five thousand dollars plus to get
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Speaker 1: a boring statement of advice document, Well, they won't pay it. Perhaps, Matt,
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Speaker 1: now AI can generate all this within minutes. Could the
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Speaker 1: advisor process now be meet with the client, feed that
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Speaker 1: into AI. Advisor spends an hour reviewing, signing off, spend
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Speaker 1: an hour with the client to discuss things. The client
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Speaker 1: can then decide if they want to continue on four
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Speaker 1: hours to get someone to a starting point of advice
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Speaker 1: they can actually use, and maybe that could be two
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Speaker 1: grand instead of five grand. What are your thoughts, clear
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Speaker 1: question AI? Any evidence whatsoever? It's bringing down the cast
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Speaker 1: of financial advice to consumers.
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Speaker 2: I think it is, and I think what we'll see
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Speaker 2: is that financial advice is increasing in costs every year,
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Speaker 2: so it's not that coming down. I think it was
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Speaker 2: eighteen percent was the most recent one, and that's the average,
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Speaker 2: which means a bunch of people are charging a lot
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Speaker 2: and some people are lowballing at the front end. It
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Speaker 2: will absolutely drive down some of the costs. I love
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Speaker 2: Matt's idea. I think this will be a thing and
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Speaker 2: for people who need simple episodic advice, go awesome. It's
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Speaker 2: going to be fantastic and we should really see an
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Speaker 2: improven here. It should open up new business types that
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Speaker 2: do this, which will enable more people to get advice.
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Speaker 2: I think, unfortunately it's not quite where Matt mentions it,
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Speaker 2: like I wish it was good enough to do where
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Speaker 2: we're up to. It's still yeah, but I think it's
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Speaker 2: the underlying thing that I find interesting here, and you
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Speaker 2: were alluding to it before for listeners. I do a
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Speaker 2: bit of work with the advice industry on this is
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Speaker 2: this idea of this boring document and this that you're
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Speaker 2: buying a statement of advice, and when you get advice,
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Speaker 2: you don't buy a statement of advice if it's being
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Speaker 2: sold to you as a lot of money. Because it
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Speaker 2: takes me a long time to write this hundred page document,
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Speaker 2: there's no requirement for it to be one hundred pages.
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Speaker 2: The advice should be beneficial to you. It should be supportive.
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Speaker 2: It should be you have no less time, willingness, and
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Speaker 2: expertise to do great. If you're paying for a document,
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Speaker 2: that's a problem. It should drive down the document costs
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Speaker 2: and hopefully we'll see at least a stabilizing of price
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Speaker 2: is probably what I would say.
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Speaker 1: Yeah, yeah, perhaps, well hopefully all right, Taylor t y
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Speaker 1: L inflation link bonds are being promoted heavily. Are they
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Speaker 1: suitable for the retail investor? Oh? Great question, very common?
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Speaker 1: Not common? What can you say? Temporarily popular, suddenly the
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Speaker 1: flavor of the month. Not quite at the level of SMAs.
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Speaker 1: But then they are a particular products. So inflation link bonds, folks,
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Speaker 1: is a bond whereby the coupon or the ratio gates
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Speaker 1: is linked to inflation. Sounds great, doesn't it sounds marvelous?
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Speaker 1: How could you go wrong? Well, we've said then the
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Speaker 1: answer to the second last question, the price and everything
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Speaker 1: tell us about inflation bonds, and whether if I walked
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Speaker 1: into you, Nathan and said, I've been reading about inflation
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Speaker 1: link bonds, Gosh, what could go wrong? They sounds great?
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Speaker 1: Give me a whole pile of them, give me one
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Speaker 1: hundred thousand birth please. What would you say?
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Speaker 2: I think that's an irony to an inflation link bond,
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Speaker 2: because bonds are linked to interest rates, and interest rates that.
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Speaker 1: Important. Yeah, but expanded listeners, if you would their distinction.
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Speaker 2: The idea is to they are a very adjustable bond
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Speaker 2: that moves with inflation. So if inflation is going really high,
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Speaker 2: you're going to get a better return. Inflation falls, you
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Speaker 2: got to get a lower return. Instead of it being
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Speaker 2: tied to a cash rate, it's tied to the rate
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Speaker 2: of CPI. So I suppose brings you closer to the risk. Behaviorally,
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Speaker 2: instead of wearing about interest rates, I'm actually wrung out
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Speaker 2: the cost of living. If I'm providing income over long
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Speaker 2: periods of time and retirement and I'm worried about inflation,
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Speaker 2: I could hedge that bet. So behaviorally could be a
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Speaker 2: very good thing. Are they suitable for a retail investor?
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Speaker 2: Retail investors should have diversified portfolios for a range of
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Speaker 2: different assets, and if they happen to form part of that,
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Speaker 2: great By that, I mean if you came into me
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Speaker 2: and said, you know, Nathan, I want to put all
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Speaker 2: this money into just this thing, You're either not a
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Speaker 2: retail investor or you probably shouldn't put all your money
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Speaker 2: into just that thing. So are they a good investment
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Speaker 2: option potentially? Are they suitable for retail investors a stand
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Speaker 2: alone I'd say no.
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Speaker 1: Right, So between the choice for the first time user
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Speaker 1: who've never had bonds before in said I want some
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Speaker 1: bonds in my portfolio, and I want them to be
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Speaker 1: infliction in bonds is to risk too narrow.
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Speaker 2: I think it's they're a purpose driven instrument, right, So
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Speaker 2: what you should be asking is not just a good investment,
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Speaker 2: but over my investments, how am I funding my goal? Whatever?
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Speaker 2: Am I building wealth for the future farm retirement? How
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Speaker 2: my funding may income now? And how do these form
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Speaker 2: part of the overarching strategy? A single investment instrument should
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Speaker 2: not be your strategy.
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Speaker 1: Okay, yes, very good? All right. I think we'll come
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Speaker 1: back to that sometime if you are more interested in folks,
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Speaker 1: let's have some more questions honored. But I think at
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Speaker 1: the very start of that answer, Nathan sort of nailed it.
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Speaker 1: Really they're a creation of the bond market. But really
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Speaker 1: your bond portfolio should be exactly that and is exactly
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Speaker 1: that anyway. But I want to remove in that interest rates,
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Speaker 1: which are highly influenced by inflation. If you had a
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Speaker 1: spectrum of bonds and you had a bond ladder as
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Speaker 1: such as they say, then that in many ways should
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Speaker 1: be well able to cover the issues that are allegedly
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Speaker 1: solved by inflation ring bonds. Is that too simple?
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Speaker 2: Yeah? I think diversified is better than trying to solve
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Speaker 2: a specific issue, right, yeah. I mean, yes, if you've
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Speaker 2: got high rates and high inflation, your new bonds are
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Speaker 2: going to be issue in higher prices anyway, So they're
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Speaker 2: they're intrinsically linked. They definitely could have a purpose to
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Speaker 2: the right kind of person. But I think it's the
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Speaker 2: wrong focal point. You're looking at. The wrong thing, is my.
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Speaker 1: Own Okay, very good. What they say a little knowledge
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Speaker 1: is a dangerous thing, Okay, Mick. It is reasonable to
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Speaker 1: expect that your average retail fund over the long term
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Speaker 1: is sitting on a large capital gain at say an
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Speaker 1: average air fund. So why in relation to division two
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Speaker 1: nine six, that's a new super tex to people who
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Speaker 1: have a self managed super fund get to reset and
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Speaker 1: retail funds do not. I think you might mean big
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Speaker 1: funds make big super which is a retail and industry funds.
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Speaker 1: Industry funds obviously dominate. I think the short answer is
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Speaker 1: that they couldn't, that their data doesn't allow them to
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Speaker 1: do so precisely, so they to do a best gain estimate.
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Speaker 1: I think that's the answer.
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Speaker 2: Yeah. I like your distinction, though, firstly, James, I do
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Speaker 2: I appreciate that like retail fund this idea of retail
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Speaker 2: is this marketing thing that was invented at some stage.
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Speaker 2: There is group which is your industry and some retail,
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Speaker 2: and then there is rap which is different again I
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Speaker 2: think structurally as well with your group funds, because every
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Speaker 2: the way they are built, it's a whole of pool approach.
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Speaker 2: So each year unrealized capital gains are effectively crystallized. You
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Speaker 2: don't get to accumulate unrealized capital gains like you wouldn't
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Speaker 2: a self managed fund or a wrap account. There's some
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Speaker 2: variations within some products, but I think that's probably a
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Speaker 2: mechanism of the fund itself as well, that it's there.
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Speaker 2: Isn't that accumulation because it's not there, it is constantly
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Speaker 2: being crystallized.
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Speaker 1: Yes, so they operate on entirely different lines basically, Mick,
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Speaker 1: Daniel Seifman. It is super fun. To that extent. There
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Speaker 1: is a legitimate, if occasionally controversiallyst vanish for some of
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Speaker 1: the things they do, including how they will account for
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Speaker 1: division two ninety six, which is of course a reality. Now,
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Speaker 1: all right, thank you for that question, Mick. Okay, final
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Speaker 1: one from Luke and I brought this up, but I
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Speaker 1: wanted to ask you, Nathan because he had more to it.
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Speaker 1: Than I read initially, Luke says, what does self insuring mean?
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Speaker 1: Is it just saving up enough liquid money or assets
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Speaker 1: in case you ever needed for what you are self
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Speaker 1: insuring for? Okay, self insuring? What am I to ask you, Nathan,
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Speaker 1: just to elaborate on the question, is if we take
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Speaker 1: it that self insuring is basically not having insurance for
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Speaker 1: some particular purpose and knowing that you have enough money
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Speaker 1: or accumulating enough money so that you save a hell
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Speaker 1: of a lot each year by not paying insurance on that.
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Speaker 1: What's your view on that? And are there parts of
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Speaker 1: the investor's life that you think are feasible to self insure?
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Speaker 1: I put forward life insurance, for instance, to someone who's
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Speaker 1: over fifty five, And are the parts that you should
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Speaker 1: never even think about self insuring?
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Speaker 2: If you can self insure everything, you should do that.
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Speaker 2: So at its core, with insurance, all we are doing
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Speaker 2: is saying I lack the resources to fund this event,
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Speaker 2: so I'm going to pull a little bit of money
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Speaker 2: with a lot of other people and transfer my risk.
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Speaker 2: And if one of it goes wrong, one of our
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Speaker 2: ships carrying goods across the sea instead of us all
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Speaker 2: carrying one item, we've shared our stuff. If we lose one,
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Speaker 2: at least the rest of our product arrives. Right, That's
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Speaker 2: where it comes from. In the same way, if I
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Speaker 2: am fifty five, I've got no mortgige and I've got
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Speaker 2: enough in souper that if i could never work again,
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Speaker 2: I might not be as well off, but I'll be okay.
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Speaker 2: Do I need disability insurance? Yeah? Probably not. That should
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Speaker 2: be the aim with all insurance. You should look at
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Speaker 2: the risks you have and say, if this happened, could
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Speaker 2: I afford it? If my car was in an accident,
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Speaker 2: could I afford a two thousand dollars access Or do
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Speaker 2: I need to pay more per month because I can
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Speaker 2: only afford a five hundred dollars excess.
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Speaker 1: If I hit a ferrari, if I write off another
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Speaker 1: guy's ferrari, another person's ferrari, Yeah.
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Speaker 2: You should probably have insurance unless you've got enough money
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Speaker 2: that you could just pay for the ferrari.
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Speaker 1: I know if I had one myself. But let's the
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Speaker 1: realistic about it. It's been said on the show that
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Speaker 1: there are parts that of insurance that are more likely
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Speaker 1: and more useful to certain insurance press or practically so,
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Speaker 1: income protection insurance and life insurance stand out. What's your view?
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Speaker 2: I would say the way I do it is I
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Speaker 2: look at the Miami is the clients have no insurance,
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Speaker 2: but they might need it. So in the event that
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Speaker 2: you passed away, what do you want to see happen?
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Speaker 2: Who do we what deaths we need to clear? How
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Speaker 2: much income do we need to come in all that
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Speaker 2: kind of stuff? What do we have now? What's the gap?
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Speaker 2: That's insurance? Income protection is a little different. If you
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Speaker 2: couldn't work, but you couldn't access super what other resources
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Speaker 2: do you have. If you've got two income household and
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Speaker 2: one of you couldn't work, but you can more than
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Speaker 2: afford the household, then your need for income protection decreases
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Speaker 2: in the shorter term. In the long term, it still
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Speaker 2: might be a thing because it might impact your plans.
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Speaker 2: So I would say, is exactly the same light to say, well,
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Speaker 2: can we get to a point where we don't need this?
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Speaker 2: That should be the aim, which is the same place
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Speaker 2: as being financially independent and be able to retire. Funnily enough,
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Speaker 2: it's probably a similar thing. If we go and extend ourselves,
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Speaker 2: We're going to go and upgrade the house or do
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Speaker 2: a knockdown, rebuild and take on more debt. Now we
29:31
Speaker 2: have a bigger gap. So there's points in your life
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Speaker 2: you'll have a greater risk, usually young children. And then
29:37
Speaker 2: when the kids hit high school age where they can
29:39
Speaker 2: get themselves around a little bit more and they can
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Speaker 2: take private trandsport, it goes down. And then when they
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Speaker 2: move out it goes down again. We pay for a house,
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Speaker 2: it probably drops right back. But all your resources, what's
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Speaker 2: available to you in that event? And can I fund
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Speaker 2: this myself? And then look at the cost and go, well,
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Speaker 2: could I afford the ferrari? It's going to cost me
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Speaker 2: two thousand dollars to not have to worry about it,
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Speaker 2: just going to spend the money on the insurance. Like
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Speaker 2: there's that trade off of value as well. But I
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Speaker 2: think it should be an aspiration we should all have.
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Speaker 1: See that's very interesting. Absolutely, we should all have a
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Speaker 1: twenty eighth to forty eight They say, of course it's
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Speaker 1: the period where you might need it, but there are
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Speaker 1: long periods before twenty eight and after forty eight you
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Speaker 1: may not need much of it. Great to hear that
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Speaker 1: confirm by a financial advisor. Thank you very much. Nathan
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Speaker 1: Fradley of Fradley advice. Lovely to have you on the show.
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Speaker 1: Great to have you as always. I we'll have you
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Speaker 1: again as soon as we can. Thank you, Thank you,
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Speaker 1: Jef And that was Nathan Fradley. Folks, keep the emails
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Speaker 1: and the questions running on. They good questions today. I
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Speaker 1: love when we have a sort of full spectrum of
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Speaker 1: financial and investment questions, which we certainly had today. So
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Speaker 1: thank you, Matt Taylor, Mick Luke. Let's have some more
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Speaker 1: at the Bunny Puzzle at the Australian dot com dot
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Speaker 1: au and today's show was produced by Tiffany Dimak.