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How to find a financial advisor · The Money Puzzle

0:09
Speaker 1: Hello and welcome to the Australian's Money Puzzle podcast. I'm
0:13
Speaker 1: James Kirby, the wealth editor at The Australian. Welcome aboard, everybody.
0:17
Speaker 1: Someone I've wanted to have on the show for some
0:20
Speaker 1: time is Nathan Fradley. He's a leading financial advisor. He's
0:25
Speaker 1: unusual to the degree that he is an entirely independent operator.
0:31
Speaker 1: and as such is both a good advisor and a
0:34
Speaker 1: voice for the financial advice sector. And it's an ideal
0:39
Speaker 1: week to have him on because you probably know there's
0:42
Speaker 1: been some alleged changes to super put through Parliament, some
0:47
Speaker 1: simplification of financial advice, bureaucracy, if you like, which is
0:51
Speaker 1: supposed to cost us all less in the end, which
0:53
Speaker 1: would be good if it comes to pass. Importantly, big
0:55
Speaker 1: change with super, you know, the big super funds wanted
0:58
Speaker 1: to expand their advice offering, and Big Super gets what
1:02
Speaker 1: it wants normally, and it got what it wanted again
1:05
Speaker 1: this week because they're now allowed to expand advice. But
1:09
Speaker 1: not only that, they're allowed to charge for advice in
1:12
Speaker 1: the manner that they charge for most things, that is,
1:15
Speaker 1: in a pooled fashion. So if you've got $ 5 million
1:19
Speaker 1: in super or you've got $ 50 in super, you're probably
1:22
Speaker 1: going to pay the same fee with your Big Super fund.
1:26
Speaker 1: That's got all sorts of issues, but maybe it will
1:29
Speaker 1: widen financial advice for mass market. And that would be
1:35
Speaker 1: useful if it's good advice, if it's advice that pays
1:39
Speaker 1: off for the people who use it. We'll see. And
1:42
Speaker 1: I want to talk to Nathan about a whole bunch
1:44
Speaker 1: of things which are on the table, which would help you,
1:47
Speaker 1: I hope, find advice, find the best advice. and the
1:52
Speaker 1: optimum way of engaging, if you like, with financial advice.
1:55
Speaker 1: Because every single listener on this show, I would say,
1:59
Speaker 1: needs good advice, including myself. How are you, Nathan?
2:02
Speaker 2: I'm good, James. Thanks for having me.
2:05
Speaker 1: Now, Nathan Fradley, you operate under the corporate empire of
2:09
Speaker 1: Nathan Fradley Advice. That's unusual, isn't it? Just to be
2:13
Speaker 1: there by yourself, pay all your own fees, your own
2:16
Speaker 1: license fee, I expect, etc. That must be quite difficult.
2:19
Speaker 1: There's very few. Tell me, how many, what percentage do
2:23
Speaker 1: you reckon of all financial advisors in Australia, 15,000 of them,
2:28
Speaker 1: are independent in the sense that people might understand what
2:32
Speaker 1: that word means?
2:33
Speaker 2: So I think that the current number is about 200.
2:35
Speaker 2: And that's sort of meeting the definition which is labelled
2:40
Speaker 2: in the Corporations Act. And to be independent, you're receiving
2:44
Speaker 2: no commissions of any sort, which is only insurance commissions now.
2:47
Speaker 2: All investment commissions have been banned. But also no volume-based
2:51
Speaker 2: or any benefits that could influence your advice, which is
2:54
Speaker 2: sort of the questionable bit sometimes. Yeah.
2:57
Speaker 1: I mean, someone came up to me recently saying, torrent
3:01
Speaker 1: of strongly held views, let's put it that way, about
3:04
Speaker 1: our own list, the top advisors list, and was mentioning that, okay,
3:08
Speaker 1: there's no commission, but there's all these investment platforms now.
3:11
Speaker 1: They're really big and they dominate the space and that
3:15
Speaker 1: the advisors get fees from these platforms. And so they
3:20
Speaker 1: herd people into those platforms. Is that fair?
3:25
Speaker 2: No, there is no fees paid to the advisor or
3:30
Speaker 2: the advice company from a platform provider, what you might
3:32
Speaker 2: find is that they've been banned. What you might find
3:35
Speaker 2: is that they will have discounted cards, so rate cards.
3:38
Speaker 2: So if your clients will pay less to be on there,
3:41
Speaker 2: which can be a sticking point, because if I leave
3:43
Speaker 2: this advisor, my account becomes more expensive. So that's all
3:47
Speaker 2: that they run their fee through the account itself. But
3:50
Speaker 2: that fee is a normal, yeah, it's money out of
3:54
Speaker 2: an account paid to them. There's no behind the scenes
3:56
Speaker 2: fees with platforms anymore.
3:58
Speaker 1: Okay, so you reckon there's about 200 independent advisors out
4:04
Speaker 1: of 15,000. Those 200, do they cost more necessarily?
4:10
Speaker 2: This is the tricky part. So as much as I
4:12
Speaker 2: am an independent advisor myself, I don't think it makes
4:14
Speaker 2: me better than anyone else. And I think it depends
4:17
Speaker 2: on who you serve and what advice you provide. And
4:20
Speaker 2: so if you're providing a lot of risk or insurance advice,
4:23
Speaker 2: it's really hard to make that work on a fee basis.
4:26
Speaker 2: I've tried in the past. They get a discount on
4:29
Speaker 2: their insurance because you write the commission out. And then
4:32
Speaker 2: three years later, they come back and they just tweak
4:33
Speaker 2: a bit of the policy and you've got to charge
4:35
Speaker 2: a fee. It's like, oh, I didn't realize I'd have
4:37
Speaker 2: to pay because it's not something you're used to paying for.
4:41
Speaker 2: So it would be like getting a mortgage broker, charging
4:43
Speaker 2: a fee there, and then having to pay another fee
4:45
Speaker 2: in two years. It's just not normal. So I think
4:48
Speaker 2: that people who run businesses who have got a lot
4:52
Speaker 2: of clients that built up over years with insurance products,
4:54
Speaker 2: it's very hard to become independent because you have to
4:56
Speaker 2: get rid of all of that revenue. which is quite difficult.
4:59
Speaker 2: So I think it does play to the markets that
5:01
Speaker 2: you exist in and who you serve in your business.
5:04
Speaker 1: Okay. So the big news this week, obviously, is about
5:08
Speaker 1: the big super funds being given wider powers legislated in
5:14
Speaker 1: parliament by Stephen Jones, the minister, to offer financial advice. Interesting.
5:20
Speaker 1: This is happening, of course, just as CBUS, the super fund,
5:24
Speaker 1: is being, what can we say, the embattled super fund,
5:28
Speaker 1: which has regulatory investigations going on in parallel. I can
5:33
Speaker 1: name three, three different investigations going on at the same
5:37
Speaker 1: time at CBUS over all sorts of issues. The most spectacular,
5:41
Speaker 1: I suppose, being ASIC, taking them to court for delaying
5:44
Speaker 1: payments on death benefits and that sort of thing. But
5:48
Speaker 1: we won't tie them all with the same brush, the
5:50
Speaker 1: different big super funds. Do you think for our listeners
5:54
Speaker 1: who don't want to face five thousand dollars a year
5:57
Speaker 1: what will it be a good thing and what sort
6:01
Speaker 1: of caveat would you add to that.
6:02
Speaker 2: I i'm probably not the most sensational advice when it
6:07
Speaker 2: comes to this stuff i like to be pretty moderate
6:09
Speaker 2: i think what i don't like is the broad-based pricing
6:12
Speaker 2: that everyone pays for the advice access by few i've
6:14
Speaker 2: never been an advocate for that i think it devalues
6:16
Speaker 2: the what's been given And it also means those who
6:20
Speaker 2: don't use the services, who generally won't need to use
6:22
Speaker 2: the services, will be paying for those that don't like
6:23
Speaker 2: a lot of insurances and things like that. But what
6:25
Speaker 2: I would say is, I think there's something, I remember
6:28
Speaker 2: reading something recently, it's about half of all over 65-year-old
6:32
Speaker 2: super fund holders aren't in pension phase. So that's pension
6:36
Speaker 2: phase being the tax-free part. There's an enormous amount of
6:39
Speaker 2: people who maybe just needed a conversation that could be
6:42
Speaker 2: saving huge amounts in tax and And by way of reference,
6:46
Speaker 2: I think it's about 10 or 12% for SMSFs. People
6:48
Speaker 2: are a bit more engaged. So I think there's a
6:50
Speaker 2: lot of room here where people just need small transactional
6:55
Speaker 2: benefits that can be beneficial. I think where we're going
6:59
Speaker 2: to go wrong with this is around the messaging and
7:01
Speaker 2: around what's done around it and around some of the controls.
7:04
Speaker 2: So if you go to McDonald's, you expect a big back.
7:06
Speaker 2: You're not going to get a whopper. And that should
7:08
Speaker 2: be made very evident if you're getting advice from your
7:11
Speaker 2: super fund because that they're only going to give you
7:14
Speaker 2: advice on what they have. And for the most part,
7:17
Speaker 2: that's fine. But there is things like these retirement income
7:20
Speaker 2: products that will come to market very soon, which can't
7:22
Speaker 2: be broken very easily once set up. And that could
7:25
Speaker 2: be areas where I see problems.
7:27
Speaker 1: I mean, surely two things here. Surely the funds could
7:30
Speaker 1: simply send a letter to someone when they get to
7:32
Speaker 1: the age and say, hey, by the way, you should
7:35
Speaker 1: know at this stage, you know, a tax-free future is
7:38
Speaker 1: ahead of you because you've just passed preservation age. They
7:41
Speaker 1: don't even do that, no?
7:42
Speaker 2: They do, actually. They do.
7:45
Speaker 1: They do. What happens? Nobody reads them.
7:47
Speaker 2: So yeah, I remember chatting to someone at one of
7:50
Speaker 2: the big super funds back in just before 2020, and
7:52
Speaker 2: it was something like 92% of money left the fund
7:55
Speaker 2: when someone turned 65. So they had a big retention issue.
7:58
Speaker 2: It was a hospitality sort of sided group. The balances
8:02
Speaker 2: weren't enormous. People either pulled it out and paid off
8:04
Speaker 2: their mortgage, or they just didn't understand their super. They
8:06
Speaker 2: didn't understand what was there, and they didn't have a
8:08
Speaker 2: great advice component to keep people in either. So I
8:11
Speaker 2: think they've got a huge challenge on that, engaging people
8:13
Speaker 2: in their super. I think people are a lot more
8:14
Speaker 2: disengaged than we think. And they do actually do some
8:17
Speaker 2: of this. I think this is just an added benefit
8:19
Speaker 2: because like, hey, do you know you could do this,
8:21
Speaker 2: but it costs money, is friction. And if it's like
8:23
Speaker 2: it won't cost anything, it might encourage people to take
8:26
Speaker 2: advantage of this a bit more.
8:28
Speaker 1: And the other thing, of course, is if I go
8:31
Speaker 1: to you and you're independent, I'm assuming you're going to
8:34
Speaker 1: tell you or anyone like you, the 200 like you,
8:37
Speaker 1: And let's add more than that because there would be
8:41
Speaker 1: advisors we'd like to think who have people's best interests
8:43
Speaker 1: in mind and think in a holistic way. But if
8:47
Speaker 1: I go into a super fund and I say, you know,
8:50
Speaker 1: I'd like to put most of my money in gold
8:52
Speaker 1: or I'd like to put a third of my money
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Speaker 1: in gold and a third in cash and a third
8:56
Speaker 1: in something speculative, there's no way that fund is going
9:01
Speaker 1: to say yes to that. I expect, or if I say,
9:04
Speaker 1: I'd like to take half my money out and put
9:05
Speaker 1: it into an investment property, which I've got my eye on,
9:08
Speaker 1: and I'm an expert property investor and I really know
9:11
Speaker 1: how to do it. I'm going to prejudge them here,
9:15
Speaker 1: but I fall off my chair if a big super
9:17
Speaker 1: fund is going to suggest anything other than stay with
9:21
Speaker 1: the fund. Yes.
9:23
Speaker 2: So, I mean, firstly, I hope they don't suggest anything
9:26
Speaker 2: other than stay with the fund because that's outside of
9:28
Speaker 2: the scope of their work and licensing. I would like
9:31
Speaker 2: it to be really obvious that we can only do this.
9:34
Speaker 2: And I think if that's the case and people are
9:36
Speaker 2: fully aware of that, which is, I suppose, in different levels,
9:39
Speaker 2: I think that's great. I think then there should be
9:42
Speaker 2: a channel which says, okay, you need a greater level
9:44
Speaker 2: of service. A lot of the funds will have internal
9:46
Speaker 2: advice capability, but they should also recognize their own limitations
9:49
Speaker 2: and refer out as well. And I think that's probably
9:52
Speaker 2: an area we're going to see some challenging, who to
9:55
Speaker 2: refer to in some sense. Some of the funds do
9:57
Speaker 2: have some good processes in place on that already, but
10:00
Speaker 2: ultimately I think that's going to be the biggest challenge
10:03
Speaker 2: in this is people who needed more who didn't get
10:06
Speaker 2: what they actually needed which is often the case when
10:08
Speaker 2: people seek advice now and it's something we see in
10:11
Speaker 2: some of the AFCA determinations and things is people go
10:13
Speaker 2: in for one thing And that person, the advisor in
10:16
Speaker 2: front of them sets them up in a way that
10:17
Speaker 2: they understand or if something they're familiar with. But it
10:20
Speaker 2: may not have been something that could have been available
10:23
Speaker 2: to them outside of that, depending on the skill of
10:24
Speaker 2: the advisor. But I will say that's a minority advisor
10:27
Speaker 2: these days. It's vastly improved over the last year.
10:29
Speaker 1: And what about the obvious issue of competence or credibility
10:33
Speaker 1: or qualification? I'm tempted to the awful old joke, but
10:40
Speaker 1: it's got something in it which says, you know, financial
10:43
Speaker 1: product marketing. It's people who don't know what they're buying,
10:47
Speaker 1: dealing with people who don't know what they're selling. Now,
10:50
Speaker 1: you know, if you think about a big super fund
10:52
Speaker 1: and a call center, won't that be a danger that
10:56
Speaker 1: these people, and they can't even give them a name yet,
10:58
Speaker 1: who work in the funds will just know this tiny area,
11:02
Speaker 1: this script, basically. The person they're dealing with knows even less.
11:07
Speaker 1: Can we even call it advice?
11:09
Speaker 2: I mean, that's one step away from some automated and
11:12
Speaker 2: robo-based advice that already exists. And some of the retail
11:15
Speaker 2: funds have rolled this out. One of the large retail
11:17
Speaker 2: funds rolled it out at $ 88 a year recently. So
11:20
Speaker 2: I think there's a couple of parts to this. I
11:22
Speaker 2: think if you can get the scoping right, who you're
11:24
Speaker 2: dealing with, is there anything else? Can we actually give
11:27
Speaker 2: advice and follow the rules that are currently in place?
11:29
Speaker 2: Then I don't think that's necessarily going to be an issue.
11:32
Speaker 2: I also think this is a great opportunity to backfill.
11:34
Speaker 2: We've got 15,000 advisors that's halved in the last five years.
11:38
Speaker 2: We cannot, at the current position, we won't have advisors
11:41
Speaker 2: in 15, 20 years. They won't exist anymore. And so
11:44
Speaker 2: we need to find a way to get people experience.
11:47
Speaker 2: And the current pathway is you go for administrative assistant
11:50
Speaker 2: to all of a sudden full-fledged advisor. And there's a
11:52
Speaker 2: big gap in that too. There's a lot of challenges
11:54
Speaker 2: that come around that as well.
11:56
Speaker 1: Very good point. Very good point. I know they're so desperate.
11:59
Speaker 1: They are recruiting overseas for financial advisors. I know that
12:02
Speaker 1: the association is actively on the ground in India, for instance.
12:05
Speaker 1: trying to get people to become financial advisors in Australia.
12:09
Speaker 1: And as you say, there was 30,000, then there was
12:11
Speaker 1: 15,000 and the issue, there's no one coming through.
12:13
Speaker 2: Well, and the ones that are, a lot of them leave.
12:17
Speaker 2: So they get into the job and they go, this
12:18
Speaker 2: is not what I want to do. You know, it
12:21
Speaker 2: took me so long to get here. And yeah, now
12:24
Speaker 2: what do.
12:24
Speaker 1: I do next? Okay. So they may become training camps.
12:28
Speaker 1: I think so. In a good way. Yeah.
12:30
Speaker 2: I think so. I think obviously this comes with any
12:32
Speaker 2: of the issues that we see with large institutions trying
12:34
Speaker 2: to do anything at scale. you're going to, you have
12:37
Speaker 2: to have a lot of controls in place. No different
12:38
Speaker 2: to the banks doing exactly the same thing prior. Hopefully
12:41
Speaker 2: we've learned from our previous mistakes, but it's just a
12:44
Speaker 2: different area of large business doing something at scale. This
12:48
Speaker 2: could go really well. It could go really poorly. I
12:49
Speaker 2: just hope we keep an eye on it.
12:51
Speaker 1: Okay. Very balanced view. All right. We'll take a short break.
12:56
Speaker 1: Back in a moment. Hello and welcome back to The
13:11
Speaker 1: Money Puzzle. I'm James Kirby and I'm talking to Nathan Fradley,
13:15
Speaker 1: financial advisor, independent financial advisor. Okay, Nathan, in terms of
13:20
Speaker 1: how someone optimizes their dealings with an advisor, if they
13:28
Speaker 1: can find one, A, B, if they can find a
13:30
Speaker 1: good one, C, if they can get in the door
13:32
Speaker 1: on the basis that there's a shortage, chronic shortage, really,
13:35
Speaker 1: and we haven't seen anything like this in any other areas.
13:38
Speaker 1: It's not like the number of lawyers have been cut
13:40
Speaker 1: in half or dentists or anything else. How does someone
13:43
Speaker 1: optimize their meeting with an advisor?
13:47
Speaker 2: I think the first thing, I'd say this, we just
13:49
Speaker 2: had our big conference and I said, I think I
13:51
Speaker 2: said this a hundred times, chatting to people. You can
13:54
Speaker 2: find a financial advisor that can solve your problems, but
13:57
Speaker 2: you should also find one that believes what you believe.
13:59
Speaker 2: I think if you can have a chat with them
14:01
Speaker 2: over the phone or in a Zoom and get a
14:03
Speaker 2: really good feel about who they are, Google them, see
14:06
Speaker 2: what podcasts would have been and articles have been quoted in,
14:09
Speaker 2: whatever that might be, social media they put out there,
14:11
Speaker 2: you can self-select a lot better because even though there's
14:15
Speaker 2: only 15,000 of us, the divergence in the way we
14:17
Speaker 2: operate is enormous. So if you want someone just to
14:19
Speaker 2: build a portfolio complex with shares and gold and all
14:22
Speaker 2: sorts of fun stuff, it's going to be vastly different
14:24
Speaker 2: than if you come to see me, for example, where
14:26
Speaker 2: I do a lot more lifestyle-based, strategic-based and I suppose
14:30
Speaker 2: hard moments, divorce, aged care, that kind of thing. So
14:33
Speaker 2: There's a real diversity in who you're dealing with and
14:35
Speaker 2: you've got to like them. And ideally, you're going to
14:37
Speaker 2: work with them for a very long time. So you
14:38
Speaker 2: better get along. And so I think, you know, having
14:41
Speaker 2: that alignment, particularly if you're a couple trying to find
14:43
Speaker 2: an advisor, that can be also a balance there. And
14:46
Speaker 2: then being prepared, the more you can give them, the
14:48
Speaker 2: more time you spend with them on valuable things, less
14:50
Speaker 2: time you spend with them running through your balance sheet.
14:52
Speaker 2: There's better bang for buck in that. And I'm sure
14:53
Speaker 2: they'll appreciate that. A client that is easy to work
14:56
Speaker 2: with is a client you work with more. So those
14:58
Speaker 2: two things, if you're a bit more organized, but also
15:00
Speaker 2: you found someone that that is your kind of person,
15:02
Speaker 2: I think they're really the best ways to find an advisor.
15:06
Speaker 1: Well, you've got to pay each time you check them out, don't.
15:08
Speaker 2: You, really? Depends. I think most advisors will offer some
15:11
Speaker 2: form of initial contact free charge. I do a 15-minute call, which,
15:16
Speaker 2: you know, if anyone hasn't figured out yet, it always
15:17
Speaker 2: goes to half an hour because I like to talk. But,
15:20
Speaker 2: you know, generally you have that as a bit of
15:21
Speaker 2: a vetting. They want to vet you, you want to
15:22
Speaker 2: vet them. I think that's really important.
15:25
Speaker 1: Do you think it's important to meet the person in person?
15:28
Speaker 2: If that's important to you. So, Nathan.
15:31
Speaker 1: What percentage would you think of your client base likes,
15:36
Speaker 1: insists on meeting you person to person?
15:40
Speaker 2: I don't think they would necessarily insist. I think it's
15:42
Speaker 2: a lot lower than you'd think. I like to meet
15:44
Speaker 2: them at least once. I think that's really important. If
15:47
Speaker 2: I could meet everyone multiple times, I would.
15:50
Speaker 1: Yeah, but once at least. Just once at least. To
15:52
Speaker 1: make the connection, is it? Or just to understand them?
15:56
Speaker 2: Yeah, you can understand someone much better with physical presence.
15:59
Speaker 2: It's just a factor. There's a disconnection that comes with,
16:02
Speaker 2: you know, being on a camera across from someone. And
16:05
Speaker 2: so I think that's important. There's also the aspect of,
16:07
Speaker 2: you know, we've got responsibilities around IDing our clients. So
16:11
Speaker 2: that's a big part of it too. Are they who
16:13
Speaker 2: they say they are?
16:14
Speaker 1: Are they a boss? Yeah, okay.
16:15
Speaker 2: Exactly. Yeah, yeah. So that's a big part of it
16:18
Speaker 2: as well. But I just, I would prefer, you know,
16:20
Speaker 2: that to be with all clients. I, you know, but
16:22
Speaker 2: because this is, we operate on a national level and
16:25
Speaker 2: work with people all over the country, sometimes it's not
16:27
Speaker 2: realistic as well.
16:29
Speaker 1: Is it delineated in relation to demographics and age? Yeah.
16:33
Speaker 2: Speaking to other advisors that work with a lot younger
16:34
Speaker 2: clients than I do, I'd say there's a lot more Zoom.
16:37
Speaker 2: And that's not just because they're used to the technology.
16:39
Speaker 2: It also is lifestyle. They've got an hour while the
16:42
Speaker 2: kids are putting the kids down before they're going to
16:44
Speaker 2: do this and that. They're trying to get multiple professionals
16:47
Speaker 2: in the same room at the same time.
16:48
Speaker 1: It's very difficult.
16:49
Speaker 2: Demographic guy tends to work with. is a little bit easier,
16:52
Speaker 2: and they also prefer it. When you suggest, and look,
16:54
Speaker 2: I really want to meet in person, oh, absolutely, please.
16:57
Speaker 1: We want to do that.
16:58
Speaker 2: So yeah, I think it's definitely demographic-based.
17:00
Speaker 1: Okay. I want to ask you one other thing before
17:01
Speaker 1: we go to the break, which is an entirely different
17:04
Speaker 1: subject matter, but I know it's something that we said
17:07
Speaker 1: we'd talk about and you are interested in. ESG investing, environmental, social,
17:13
Speaker 1: and governance issues, which were so dominant for a couple
17:19
Speaker 1: of years there. By that when I say they're dominant
17:21
Speaker 1: I mean the concept was dominant of ESG and slowly
17:25
Speaker 1: but surely it sort of percolated through the investment system
17:29
Speaker 1: to the advisor base where clients were saying we want
17:32
Speaker 1: to invest in an ESG fashion where we're happy with
17:37
Speaker 1: those issues environmental, social and governance issue of the investments
17:42
Speaker 1: we make. Now It seems to me just as the
17:45
Speaker 1: financial advisor regime had grappled with it all and had
17:48
Speaker 1: a sense of it, there's a blowback on ESG, mostly
17:53
Speaker 1: coming out of the US, but also coming out of
17:55
Speaker 1: places that ESG started, like the EU, on the basis
17:59
Speaker 1: that it lacked definition, on the basis that it was abused.
18:05
Speaker 1: And some of it was an entire charade. We had greenwashing,
18:07
Speaker 1: if you know what I mean. So where are advisors
18:10
Speaker 1: and their clients on that whole ESG issue now?
18:13
Speaker 2: I think there's multiple parts that form this. It's a
18:16
Speaker 2: complex answer. One of them is that I think you're
18:19
Speaker 2: seeing a decrease in demand from if you're breaking people
18:22
Speaker 2: into the pragmatists versus the believers versus people that aren't
18:24
Speaker 2: going to do it at all. The believers are still
18:26
Speaker 2: going to be really invested in this. I think that
18:28
Speaker 2: the pragmatists are looking at their budgets. They're looking at
18:30
Speaker 2: their interest rates and their mortgages and their repayments. And
18:33
Speaker 2: they're going, I need to take care of myself before
18:36
Speaker 2: I think outside of myself. And so we really saw
18:38
Speaker 2: that as rates ramped up. That's starting to change. We're
18:41
Speaker 2: seeing a shift in demand again back. And whether that's
18:43
Speaker 2: a broader political concern as well, but that's definitely shifting.
18:47
Speaker 2: But then the other side, we had every fund and
18:49
Speaker 2: their dog was running some form of ESG RR strategy
18:52
Speaker 2: because it was marketable. A lot of funds, you can
18:55
Speaker 2: understand ESG itself is just a risk metric. It's looking
18:57
Speaker 2: at more data points that could have material impact on decisions.
19:02
Speaker 2: But that became a marketable point. And if we weren't
19:05
Speaker 2: marketing it and they were, what are we going to do?
19:07
Speaker 2: So everyone started talking about it. And even in recent weeks,
19:10
Speaker 2: we've seen some of the bigger funds that did some
19:12
Speaker 2: of the most promotion pulling their more ESG products or
19:15
Speaker 2: just renaming them. They're still doing all of the same
19:18
Speaker 2: stuff behind the scenes. They're just not marketing it anymore.
19:21
Speaker 2: And I think that speaks to the maturity of the
19:23
Speaker 2: industry as well. I think it's less of a shiny
19:24
Speaker 2: object now and it's just become normalized, which is what
19:27
Speaker 2: a lot of us are saying was going to happen
19:28
Speaker 2: eventually anyway. So I think those are the aspects. The
19:31
Speaker 2: greenwashing thing is really interesting when you've got a lot
19:33
Speaker 2: of large companies that said they were going to do
19:35
Speaker 2: a lot. But haven't and are just pulling their statements,
19:39
Speaker 2: pulling you. And sometimes it's because they're physically impossible to
19:42
Speaker 2: meet what they were talking about. And that's a factor
19:44
Speaker 2: as well. So it's more complex than that, but that's
19:46
Speaker 2: probably as simple as I can bring it in.
19:48
Speaker 1: Yeah, okay, it's interesting. I love, I won't say I love,
19:51
Speaker 1: but I'm absolutely intrigued by the theory about defense spending,
19:56
Speaker 1: that defense spending fits within ESG because you want a
20:00
Speaker 1: peaceful nation that can defend itself. So you never know
20:03
Speaker 1: which way that argument goes. One other thing that just
20:06
Speaker 1: struck me there, as you mentioned about, and I imagine
20:08
Speaker 1: this is relevant, that... People do get more focused on
20:13
Speaker 1: hard numbers and returns when the cost of living goes
20:17
Speaker 1: up and they do behave differently and they probably judge
20:21
Speaker 1: in a more severe fashion. All the variables around investing.
20:24
Speaker 1: It's just interesting. I just noticed yesterday that we did
20:27
Speaker 1: something on the 40-year mortgage has arrived. And the 40-year mortgage,
20:32
Speaker 1: whatever else it means, it's actually a response to people
20:35
Speaker 1: pushing out their mortgages. because of cost of living and
20:38
Speaker 1: finding ways to keep going. So you see how behavior
20:41
Speaker 1: changes when cost of living lifts. And I imagine, I
20:45
Speaker 1: don't want to be so facetious as to say ESG
20:47
Speaker 1: is something that you are more willing to do when
20:50
Speaker 1: you're richer. But when you have less money, I imagine
20:54
Speaker 1: you get a little bit more sober and demanding on
20:57
Speaker 1: ESG definitions and what exactly you're getting and more suspicious
21:03
Speaker 1: about greenwashing.
21:04
Speaker 2: I would say it's more related to– I think it's
21:07
Speaker 2: more detailed than that. I think it's behaviorally. It's the
21:10
Speaker 2: old Maslow's hierarchy of needs. Until you've taken care of
21:14
Speaker 2: where you are, your security, your safety, your family, your
21:16
Speaker 2: social needs, it's harder to think of others.
21:19
Speaker 1: But you might never get there. I mean the flip
21:21
Speaker 1: side of that is at what point– so it doesn't
21:26
Speaker 1: happen at 20. It doesn't happen at 30.
21:29
Speaker 2: It doesn't have to happen. It's the thought process of, yeah,
21:33
Speaker 2: if you look at, say, during COVID, post-COVID, people were
21:36
Speaker 2: saving more than they ever had. Rates were low. They
21:38
Speaker 2: weren't necessarily safer or better off. They just felt safer
21:41
Speaker 2: or better off. The messaging that they were receiving was that.
21:44
Speaker 2: And if you tie that back in, healthcare stocks and
21:46
Speaker 2: tech was doing really well, both overrepresented in responsible and
21:49
Speaker 2: ESG portfolios. Then you see, you know, energy crisis for
21:54
Speaker 2: multiple reasons, but, you know, obviously some geopolitical ones. And
21:58
Speaker 2: all of a sudden, that shifted. And the people who
22:00
Speaker 2: were in it for the returns, not just for the
22:03
Speaker 2: ethics or the morals or whatever sits behind it, moved
22:06
Speaker 2: because they were tested. And I think there's always going
22:10
Speaker 2: to be an aspect of that that's cyclical. There's people
22:11
Speaker 2: that are going, if everyone's into this, I'm into it
22:13
Speaker 2: because I can see money here. There's people going, well,
22:16
Speaker 2: maybe I should think about it. Oh, I've changed my mind.
22:17
Speaker 2: And there's people that are just going to be like,
22:19
Speaker 2: I still stand by. I have nothing to do with this.
22:22
Speaker 2: And what this is differs. It could be a difference
22:24
Speaker 2: between nuclear or non-nuclear. It could be weapons or not
22:27
Speaker 2: weapons because of the exact reasons you've said, which is
22:29
Speaker 2: always the challenge in this space.
22:30
Speaker 1: Okay. Very interesting. Very interesting. Interesting, too, about you mentioned nuclear,
22:35
Speaker 1: which actually, formally, fits in to the environmental because it's
22:39
Speaker 1: the least worst option, etc. An argument for another day. Okay.
22:43
Speaker 1: Back in a moment, folks. Some really interesting questions coming up,
22:46
Speaker 1: and Nathan is ideally placed, I hope, to answer them.
22:48
Speaker 1: All right. Back in a minute. Hello, welcome back to
23:01
Speaker 1: the Australian's Money Puzzle. I'm James Kirby and I'm talking
23:04
Speaker 1: to Nathan Fradley, financial advisor and well-known voice on financial
23:10
Speaker 1: advice matters and industry issues and how this financial advice
23:17
Speaker 1: industry is represented in the public eye, as he mentioned.
23:20
Speaker 1: And he's the first person to say this. that if
23:23
Speaker 1: it keeps going the way it's going, there won't be
23:25
Speaker 1: any financial advisors. There's about as many being recruited. I'm
23:29
Speaker 1: being facetious, but the numbers are something like, there's something
23:33
Speaker 1: like priests. That is, there is so few being recruited
23:36
Speaker 1: that they're all getting older. You better get some young
23:39
Speaker 1: people in there and maybe the super funds coming in
23:43
Speaker 1: will allow the industry to replenish in a fashion that
23:48
Speaker 1: people will start in those big funds start to know
23:51
Speaker 1: what they're talking about, grow, become advisors. That used to
23:55
Speaker 1: be how it worked. And a lot of the advisors
23:58
Speaker 1: that you know today that are on our top 150 list,
24:02
Speaker 1: they started in big banks and insurers in the days
24:06
Speaker 1: before those big banks and insurers blew it, basically, by
24:10
Speaker 1: advocating a sales culture, which absolutely blew up and ended
24:13
Speaker 1: up with the Royal Commission once upon a time. Okay, now,
24:16
Speaker 1: first question, Andrew. If I understand correctly... When your super
24:20
Speaker 1: is converted to retirement phase, you no longer pay tax
24:24
Speaker 1: on earnings or capital gains tax for a total super
24:27
Speaker 1: balance below 1.9. Bang on, Andrew. So why wouldn't every person,
24:33
Speaker 1: once they reach preservation age, that's okay, that's when you
24:36
Speaker 1: can retire everybody. Why wouldn't they transfer all their super
24:41
Speaker 1: into a pension phase and open up a second super
24:44
Speaker 1: account in accumulation if they are still working come to
24:48
Speaker 1: some agreement with their employer to stop full-time and work, say,
24:52
Speaker 1: 35 hours a week. How about 39 instead of 40?
24:56
Speaker 1: And then carry on contributing to the fund. The benefits
25:00
Speaker 1: would be that your super in retirement phase is tax-free.
25:05
Speaker 1: The 4% to 5% minimum withdrawal from the super account
25:08
Speaker 1: in pension phase could be redirected straight back into your
25:11
Speaker 1: super in accumulation phase. All very elaborate and, to my respect,
25:18
Speaker 1: at first glance, all entirely legal and possibly sensible. Andrew,
25:23
Speaker 1: this is never advice, information only. Nathan, what do you
25:26
Speaker 1: think of that particular construction?
25:29
Speaker 2: I missed one detail.
25:31
Speaker 1: Ah, what is that?
25:32
Speaker 2: So you're spot on. You're spot on except once you
25:35
Speaker 2: are 60, to access your super, you have to finish
25:39
Speaker 2: an employment. An employment. You can't just drop hours. You
25:43
Speaker 2: can't go part-time. You have to finish an employment now.
25:47
Speaker 2: So that means just decreasing your hours doesn't meet that definition.
25:52
Speaker 2: And there's a pretty good argument to say living your
25:54
Speaker 2: employer and then being hired again two weeks later is
25:57
Speaker 2: probably early access of superannuation issues.
26:00
Speaker 1: Has anyone ever been fined or stopped doing that?
26:06
Speaker 2: I don't know the answer to that. But what I
26:07
Speaker 2: do know is there is a really high number of
26:10
Speaker 2: people over 60 operating at the voting booths that only
26:16
Speaker 2: work for a day. Sorry, elaborate.
26:22
Speaker 1: What do you mean? What are you trying to say there?
26:23
Speaker 2: Well, if they had an employment and then they ceased
26:25
Speaker 2: that employment, then they've met a condition of release.
26:28
Speaker 1: Oh, yeah, yeah.
26:30
Speaker 2: I see. So that's the bit that he missed. Once
26:32
Speaker 2: you're 65, it doesn't matter. You can do it straight away.
26:34
Speaker 2: But as we spoke about earlier, 50% of people don't still.
26:38
Speaker 2: So your sentiment is 100% bang on, Andrew. You just
26:40
Speaker 2: missed one little detail.
26:42
Speaker 1: All right. Sounds like a good advisor could help someone
26:45
Speaker 1: like that navigate how to do this. If it was legitimate,
26:51
Speaker 1: I would say.
26:53
Speaker 2: I had someone literally two weeks ago who had an
26:55
Speaker 2: advisor for a very long time, 67 and wasn't in
26:58
Speaker 2: pension phase. So sometimes things are just missed, unfortunately, as well. Yeah.
27:03
Speaker 1: Okay. Well, it sounds like Andrew isn't going to miss
27:05
Speaker 1: it or all the Andrews out there.
27:06
Speaker 2: All right.
27:07
Speaker 1: Okay. Now, very good. Steve, I've been enjoying and learning. Good, Steve.
27:13
Speaker 1: One thing I see is advertising all the time for platforms.
27:18
Speaker 1: I think he means trading platforms. I'm interested in trading
27:21
Speaker 1: a little myself for diversification and is often said on
27:25
Speaker 1: your podcast to spice it up. I don't say that.
27:28
Speaker 1: That sounds like James Gerard. By having an angle where
27:31
Speaker 1: I am directly involved. However, there are many scams out there.
27:37
Speaker 1: Having some solid and trusted recommendations would be a good start.
27:40
Speaker 1: To begin and understand and practice theories and approach safety,
27:44
Speaker 1: I wanted to try something without real risk and I'm
27:47
Speaker 1: ready to take the plunge. to see if it's for me.
27:50
Speaker 1: Thoughts on this. Okay, Steve and all the Steve's out there.
27:54
Speaker 1: Trading is an really different game than investing. And I
28:00
Speaker 1: see the, I see people who trade and I've talked
28:04
Speaker 1: to people who trade and I find them very interesting.
28:07
Speaker 1: And I find that they're not particularly interested in, I'll
28:11
Speaker 1: give you, I can tell you a story. I met
28:13
Speaker 1: a guy one time who traded BHP. This was his thing.
28:16
Speaker 1: He traded BHP day and night. And I said, wow,
28:19
Speaker 1: this guy's going to be really interesting. He's going to
28:21
Speaker 1: know all about BHP. I started talking about BHP at
28:24
Speaker 1: the time, who was the CEO, what they were doing,
28:25
Speaker 1: their policies, you know, different commodities and the balance between
28:29
Speaker 1: iron ore and copper and everything else. And he wasn't
28:32
Speaker 1: remotely interested in all that. He was just interested in
28:35
Speaker 1: the trading passions. There was the head and shoulders forming.
28:38
Speaker 1: There was this, there was that. And it struck me
28:40
Speaker 1: that it's just completely different. So, difficult question, Nathan Fradley.
28:46
Speaker 1: Is there... A safe, sensible way into trading for someone
28:53
Speaker 1: who's never done it.
28:56
Speaker 2: I mean, I think you're bang on and thank you
28:57
Speaker 2: for taking a lot of words out of my mouth.
28:59
Speaker 2: There's a big difference here. I don't mean to do that. No,
29:02
Speaker 2: it's great. I'm glad I left to say it. I
29:04
Speaker 2: feel like I'm a downer. I think if your retirement
29:07
Speaker 2: is otherwise locked in for 90, 95% of your money
29:12
Speaker 2: and this brings you personal satisfaction, then it's a hobby
29:15
Speaker 2: and see it that way. If you get a bit
29:17
Speaker 2: extra money out of it, great. You can ride that.
29:18
Speaker 2: If you lose it, it doesn't derail everything. Great. I'd
29:21
Speaker 2: like to note, firstly, if you're seeing Instagram ads for
29:24
Speaker 2: trading platforms and fun things that seem sexy, the sexier
29:27
Speaker 2: it is, probably the less likely you should be taking
29:30
Speaker 2: part in it. Trading is not sexy. It's boring. It
29:34
Speaker 2: might be fun for certain people, but it's not a
29:36
Speaker 2: sexy thing. But I would also say that if you're
29:38
Speaker 2: looking for diversification, it's also not necessarily speculative stocks. You
29:43
Speaker 2: could have an index fund for the majority of your
29:45
Speaker 2: Australian holdings and note that half of it is 10 stocks.
29:49
Speaker 2: So you buy some other companies that you like to rebalance.
29:52
Speaker 2: It's a very different thing to trying to fund speculative
29:55
Speaker 2: micro caps. So I think there's a lot of good
29:58
Speaker 2: information out there. But generally, if it's the old too
30:01
Speaker 2: good to be true, saying probably rings true with this.
30:03
Speaker 2: And also, like, why are you doing it? What are
30:05
Speaker 2: you really looking for here?
30:07
Speaker 1: He's looking to make money, I expect. If you're just.
30:11
Speaker 2: In it to make money, I don't know if it's
30:12
Speaker 2: the greatest. There's people who are paid a lot of
30:15
Speaker 2: money with Bloomberg terminals and CFA degrees who aren't able
30:19
Speaker 2: to make more money. So, yeah, I would question whether
30:21
Speaker 2: it was your self-attribution that resulted in that outcome.
30:24
Speaker 1: Just not to stamp it out entirely, I would say
30:26
Speaker 1: to listeners that if you know something very well, hypothetically,
30:31
Speaker 1: let's say you were in gold mining all your life
30:35
Speaker 1: and you really know gold mining and you know about
30:38
Speaker 1: gold and you've watched it for years, then, you know,
30:43
Speaker 1: you might, for instance, take out an option on a
30:46
Speaker 1: gold miner that you know very well, a call option,
30:50
Speaker 1: a put option. You might tiptoe in there where you
30:53
Speaker 1: have a reasonable chance of adding value or adding something
30:59
Speaker 1: or knowing something more than the vast majority. Because by definition,
31:03
Speaker 1: that's what trading implies. And if you don't know something
31:07
Speaker 1: other than the vast majority, then you're betting. And feel
31:11
Speaker 1: free to bet. I mean, off you go, but know
31:13
Speaker 1: what you're doing, that you're betting out there. That's my
31:16
Speaker 1: overarching comment to everyone on that one. Okay, we have
31:19
Speaker 1: a few questions. I want to keep going. But thank you, Steve.
31:23
Speaker 1: Thank you, Andrew. Daniel. I have a reasonable amount of
31:26
Speaker 1: equity and would like to use my principal loan to
31:29
Speaker 1: invest in shares through borrowed funds. Are you able to
31:32
Speaker 1: explain the difference in debt recycling versus just increasing the
31:36
Speaker 1: size of the existing loan and splitting the increased amount
31:39
Speaker 1: to invest for tax purposes? Complex question. What's he really
31:43
Speaker 1: trying to say there?
31:45
Speaker 2: Yeah, I think I know what he's saying. This is
31:47
Speaker 2: really hard to explain without a whiteboard, but we're going
31:50
Speaker 2: to try.
31:50
Speaker 1: Have a go.
31:51
Speaker 2: So gearing or borrowing to invest is the first step here.
31:54
Speaker 2: It's very separate from debt recycling itself. And effectively what
31:57
Speaker 2: we're talking about here is when you have a loan
32:00
Speaker 2: and you borrow against that loan or you borrow from
32:03
Speaker 2: that facility and you invest, if you're investing in order
32:07
Speaker 2: to earn an income, then that loan becomes tax deductible.
32:10
Speaker 2: It's not what that loan is secured against that defines
32:13
Speaker 2: its deductibility. It's the purpose of where that money goes.
32:16
Speaker 2: So that's the first part. So if you're in a 45%
32:18
Speaker 2: tax bracket, and you took out $ 100, 000 loan and you
32:22
Speaker 2: invested it and that loan was 10%, it's going to
32:26
Speaker 2: cost you 5.5% after tax. So that's sort of the
32:28
Speaker 2: way to think about it. That's the first part. Debt
32:31
Speaker 2: recycling is effectively trying to increase the amount of deductible
32:35
Speaker 2: debt and decrease the non-deductible debt, but your net debt
32:39
Speaker 2: position is the same. So a really simple example of
32:43
Speaker 2: this might be you've inherited $ 100, 000 and you want to
32:46
Speaker 2: invest it. So you invest $ 100, 000 straight away just from
32:49
Speaker 2: your pocket and you've got a mortgage of, say, half
32:51
Speaker 2: a mil. Or you put the $ 100, 000 on the mortgage,
32:54
Speaker 2: take it out, and then invest it. So now you've
32:57
Speaker 2: got the same amount of investment, the same amount of debt,
33:00
Speaker 2: but you've recycled $ 100, 000 of it from non-deductible to deductible.
33:04
Speaker 2: Your overall cash flow position should be better because you're
33:07
Speaker 2: paying less interest, net of tax. And what a debt
33:11
Speaker 2: recycling strategy then is, all your cash flow, your dividends,
33:14
Speaker 2: your normal surplus that you would otherwise invest goes on
33:16
Speaker 2: to your non-deductible, and then you draw it out of
33:19
Speaker 2: the deductible, and keep investing. And the argument is you
33:21
Speaker 2: would pay off your debt faster because your net cash
33:23
Speaker 2: flow was better. That's the simplest way I can explain it.
33:27
Speaker 1: Yeah, no, it's good. That's a very good explanation. And
33:29
Speaker 1: I would say to people, explore that. Explore debt recycling.
33:33
Speaker 1: Optimize it. Okay, very good. None of that was advice,
33:36
Speaker 1: of course. It's all general. Thank you very much, Daniel
33:39
Speaker 1: and Andrew and Steve, for those very good questions. I
33:44
Speaker 1: think we are running out of time, Nathan. So we
33:46
Speaker 1: might just leave it there. Lovely to have you on.
33:48
Speaker 1: Thank you very much.
33:50
Speaker 2: Thanks, James.
33:51
Speaker 1: That was Nathan Fradley, folks. Nathan Fradley, Financial Advice. We'll
33:55
Speaker 1: hear from him again, I'm sure. Let's have some correspondence,
33:59
Speaker 1: themoneypuzzle at theaustralian.com.au for all your emails, questions, observations, complaints.
34:09
Speaker 1: And thank you very much to Leah Samoglou for producing
34:12
Speaker 1: today's show. Talk to you soon. Thank you.