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Is using an SMSF for property a million-dollar mistake? · 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. Welcome aboard everybody. Now, a lot of listeners
0:16
Speaker 1: are property investors, and a lot of them would have
0:19
Speaker 1: an idea of having their own superfund and putting property
0:22
Speaker 1: into that fund. It's a backbone basically of active independent investing.
0:26
Speaker 1: There has been for some time. But my guest today,
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Speaker 1: financial advisor James already says buying property inside a super
0:33
Speaker 1: fund is a million dollar mistake.
0:35
Speaker 2: Hi, James, HELLI James, lovely to chat night.
0:38
Speaker 1: Good to have you on the show. I don't know
0:40
Speaker 1: what you're going to say, but I imagine that there's
0:44
Speaker 1: no lack of demand. I think people want to put
0:46
Speaker 1: property in super funds. They have for a long time.
0:49
Speaker 1: They've had a success for a long time. But you've
0:53
Speaker 1: done an exercise, a numerical exercise. Basically, you dug deep,
0:57
Speaker 1: You've a made certain assumptions, you tested and tested it,
1:00
Speaker 1: and you have come to the conclusion that it is
1:03
Speaker 1: not worth doing. Just explain briefly why.
1:08
Speaker 2: Yeah, of course, well please alam it is step back
1:11
Speaker 2: just a moment, because it might be valuable to offer
1:13
Speaker 2: some context, which is that I embarked on this exercise.
1:16
Speaker 2: I'm a financial advisor. I embarked on this exercise open
1:18
Speaker 2: minded to the idea of doing this myself. Our super
1:22
Speaker 2: my superbalancers continue to grow, and I'm now at a
1:24
Speaker 2: point where it's a viable option, and so I thought,
1:27
Speaker 2: you know, I'm going to really run the details, run
1:29
Speaker 2: the numbers in as much detail as I can. And
1:32
Speaker 2: so that was what motivated me to do that. And
1:34
Speaker 2: when I put those numbers in and I accounted for
1:37
Speaker 2: all the costs that you incur inside of self managed
1:40
Speaker 2: superannuation fund, the thing that stood out to me is
1:42
Speaker 2: that you really need to hit it out of the
1:44
Speaker 2: park in terms of the asset that you buy to
1:46
Speaker 2: have any chance of outperforming your standard high growth superannuation
1:51
Speaker 2: fund that might be available through your industry super fund,
1:54
Speaker 2: for instance, let alone, if you're willing to take more
1:56
Speaker 2: risk and invest in gear type assets like I am.
2:00
Speaker 1: When you say i'll perform, you mean do you mean
2:03
Speaker 1: the rental return or the total return? Because obviously you'd
2:06
Speaker 1: have the capital gain, wouldn't you running So I presume
2:08
Speaker 1: you allowed for all that, did you.
2:10
Speaker 2: Yeah, that's right. Yeah, so the total return. I'm almost
2:14
Speaker 2: forty eight, and I ran the numbers to I see
2:17
Speaker 2: a raygrin on your face there.
2:18
Speaker 1: But because assurans hell, don't look a remotely like forty.
2:22
Speaker 2: Look at you, Yes, I assure you, I feel every
2:26
Speaker 2: bit of it. An then some. But when I was
2:29
Speaker 2: looking at this, the question was firstly, from now until
2:32
Speaker 2: fifty five? You know what would be better if I
2:35
Speaker 2: was to sell the asset at fifty five versus just
2:37
Speaker 2: continuing on the trajectory I am right now. And then
2:40
Speaker 2: similarly I also looked at this, we'll hold up. What
2:42
Speaker 2: about if I hold on till sixty current legislation media
2:46
Speaker 2: condition of release, which means you can access your super
2:48
Speaker 2: and then there are some real tax benefits of selling
2:50
Speaker 2: after that date, even after both of those things, including
2:53
Speaker 2: all the likely returns that we get using long term averages,
2:56
Speaker 2: the likely income we receive again using long term averages. James,
3:01
Speaker 2: it just didn't stuck up.
3:02
Speaker 1: It just didn't stuck up. It's funny. I thought you
3:03
Speaker 1: would tell me that the issue was reached. That was
3:12
Speaker 1: a part of time SMSF lending was mainstream. I don't
3:16
Speaker 1: know why it's moved so much to the margins, but
3:18
Speaker 1: it has, And so no one pays more. Right, no
3:21
Speaker 1: one pays more. No one pays a higher mortgage ate
3:24
Speaker 1: in Australia than a self managed super fund investor borrowing
3:29
Speaker 1: for property. Explain why that is and is that a
3:32
Speaker 1: key factor?
3:33
Speaker 2: Yeah, it's an enormous factor. And it's a double wammy too.
3:37
Speaker 2: So this really came about above a loss during the
3:40
Speaker 2: Royal Commission in Banking and Finance, and those conditions going
3:44
Speaker 2: through that process resulted in I presume the major banks,
3:49
Speaker 2: you know, the Big four, all looking at this and saying, hey,
3:51
Speaker 2: in a risk adjusted sense, lending money to superannuation funds
3:54
Speaker 2: is just dumb. You have this what's called a limited
3:57
Speaker 2: recourse borrowing agreement, which means as the bank, you're not
3:59
Speaker 2: actually able to attack the asset itself as you would
4:02
Speaker 2: with a traditional whether it's an investment property loan or
4:05
Speaker 2: a home loan. So there's less recourse and so as
4:08
Speaker 2: a result, they said, if we were going to play
4:09
Speaker 2: in this space, we'd have to increase rates a lot
4:11
Speaker 2: and a lot of them left. Now, that left a
4:13
Speaker 2: whole heap of second and thirdtier lenders. You know, for example,
4:16
Speaker 2: commonly right now you might get lending through pepper Money
4:18
Speaker 2: Liberty latrobe to access self meta superannuation funds and old debt,
4:24
Speaker 2: and of course when competition's down then you're not going
4:26
Speaker 2: to get sharp prices. Now, the consequence that we have
4:29
Speaker 2: here is not just that the rates are really high.
4:31
Speaker 2: On average, you'll probably pay somewhere between seventy let's say,
4:37
Speaker 2: two point seventy five and one percent higher than you
4:40
Speaker 2: would on your home loan rate. But James, it's also
4:43
Speaker 2: the fact that the tax deduction is so much poorer too,
4:46
Speaker 2: because the tax rate inside the superannuation fund is only
4:49
Speaker 2: fifteen percent.
4:52
Speaker 1: So the negative gearing isn't as good.
4:54
Speaker 2: Eh, it's nowhere near as powerful. That's rightever it would be.
4:57
Speaker 1: But wasn't that always the case? Wasn't it?
5:01
Speaker 2: Certainly? The tax rate absolutely. But if I think back
5:04
Speaker 2: to advising people in the twenty tens, for instance, it
5:07
Speaker 2: was really common for someone to say, I've got a
5:09
Speaker 2: self man and super fund with a property inside it,
5:12
Speaker 2: and I'm paying three point five percent. There was a
5:14
Speaker 2: little period there we could get almost exactly the same
5:17
Speaker 2: rate as home loan rates to two and a half
5:19
Speaker 2: percent for your SMSF debt. Yeah, and I can tell
5:22
Speaker 2: you when you were just for two and a half percent.
5:24
Speaker 1: Interest only sometimes yeah.
5:26
Speaker 2: Yeah, when you were just for two and a half
5:27
Speaker 2: percent interest, yeah, absolutely it works. But that's just the point.
5:30
Speaker 2: We're not in that environment anymore. We're in a higher
5:32
Speaker 2: for longer environment. Really nice to see some a little
5:35
Speaker 2: bit more reprieve coming through more recently, but these rates
5:38
Speaker 2: aren't going to come down rapidly the way we could expect.
5:41
Speaker 2: And even so today, right now, it doesn't stuck up.
5:45
Speaker 1: Okay, now let's look at it more close to you.
5:47
Speaker 1: So so it's a sort of swing factor as such,
5:49
Speaker 1: and if the banks came back in that might change.
5:52
Speaker 1: But you find other issues upfront. Transaction costs Obviously it
5:56
Speaker 1: was a powerful point to you. I mean, they're always
6:00
Speaker 1: there in property. So I'm just wondering in terms of
6:03
Speaker 1: ranking the weakness if you like up the proposal of
6:06
Speaker 1: investing in super property, how you might spell that out.
6:11
Speaker 2: Of course, I guess you're right. The transaction costs are
6:15
Speaker 2: obviously painful when you buy a property, and for every
6:17
Speaker 2: property investor is likely to understand some of those challenges
6:20
Speaker 2: around not just stamp duty and conveyancing costs, but you know,
6:23
Speaker 2: perhaps you might have a buyers agent some of those
6:25
Speaker 2: other costs that you're incurring. Probably the overarchingly the biggest
6:30
Speaker 2: detriment to the argument of investing money inside a self
6:34
Speaker 2: manage superannuation if I'm buying a property, is that for
6:36
Speaker 2: the vast majority of Australians, the money's already invested. And
6:41
Speaker 2: it's a very important point if we consider your traditional
6:44
Speaker 2: residential property investor, who you might have enough equity in
6:47
Speaker 2: their existing home for instance, to say, right, maybe we
6:49
Speaker 2: can get an investment property. Well, that money's not invested
6:54
Speaker 2: right now. You know, you're certainly you're getting some benefit
6:56
Speaker 2: from perhaps offsetting against the home loan. But what we're
6:59
Speaker 2: doing is we're locking a new investment with its own features,
7:03
Speaker 2: whereas with a superannuation fund for most Australians, we are
7:08
Speaker 2: taking money out of an environment where the money is
7:11
Speaker 2: already professionally managed. And I'd like to imagine for most Australians,
7:15
Speaker 2: especially in the current economic climate, doing pretty well. And
7:19
Speaker 2: so when you take money out of that environment and
7:22
Speaker 2: then put it somewhere else, in order to outperform James,
7:25
Speaker 2: you really have to hit it out of the park
7:27
Speaker 2: with that investment to catch up on all those transaction
7:30
Speaker 2: fees and just get yourself ahead.
7:33
Speaker 1: You make that point that maybe you know in the
7:36
Speaker 1: last thirty years it might have worked, but you're very
7:39
Speaker 1: skeptical about Oh oh my gol. From here, I'm just
7:42
Speaker 1: quoting from your own post on this to my amazement,
7:45
Speaker 1: buying a property through a certain it is super fund
7:47
Speaker 1: would likely leave me more than a million dollars worse
7:50
Speaker 1: off over the next fifteen years compared to simply maintaining
7:54
Speaker 1: a high growth superannuation portfolio. I check the numbers, I
7:58
Speaker 1: check them again, and they were right. Okay, let's just
8:03
Speaker 1: play Devil's advocate here. Let's say there was a thumper
8:07
Speaker 1: of a stock market crash and I remember having a
8:10
Speaker 1: property in my SMSF in the GFC, and I was
8:14
Speaker 1: so so glad I had it because it was the
8:17
Speaker 1: only thing that wasn't at least in visibly falling through
8:21
Speaker 1: the floor. So what sort of a defense is that
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Speaker 1: for the proposal.
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Speaker 2: Oh, it's a great argument, and it's certainly something to
8:28
Speaker 2: be considered, because when I think about stock market crashes,
8:32
Speaker 2: my mindset is not if, but when they are part
8:35
Speaker 2: of investing in the equity market, and that's going to happen.
8:38
Speaker 2: Having said that, where we start to go now is
8:40
Speaker 2: around a non financial argument in the sense that there's
8:44
Speaker 2: the benefit the peace of mind of having the money
8:46
Speaker 2: in an asset that perhaps isn't as volatile. Now, if
8:49
Speaker 2: we have an individual year, if we said what's going
8:51
Speaker 2: to happen over the next three to five years, and
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Speaker 2: you had to make that decision, let's ignore transaction fees.
8:55
Speaker 2: Just because we're talking purely one versus the other. You
8:58
Speaker 2: could mount a better argument for property on the basis
9:01
Speaker 2: that it's less likely to be less volatile and less
9:04
Speaker 2: susceptible to you know, that big share market crash like
9:06
Speaker 2: the GFC or COVID and those sorts of collapses. But
9:10
Speaker 2: noting that when we're talking about a fifteen year time frame,
9:12
Speaker 2: which in theory is two full market cycles, Like let's
9:16
Speaker 2: reflect on fifteen years post GFC to twenty twenty two,
9:19
Speaker 2: for example, we know we had we'd had enough time
9:23
Speaker 2: for those returns to well and truly be washed out
9:25
Speaker 2: of the market. So over that longer term timeframe, which
9:29
Speaker 2: I think is the way that most Australians view their superannuation,
9:32
Speaker 2: I still know that we can rely on the numbers.
9:35
Speaker 1: Okay, right. I found the interesting one of the very
9:37
Speaker 1: interesting things you pointed out was that that issue of
9:42
Speaker 1: just to spell it out, the strategy could never recover
9:45
Speaker 1: from the huge upfront transaction costs, ongoing SMSF administration fees
9:50
Speaker 1: and property holding costs and higher interest rates on SMSF loans.
9:54
Speaker 1: That's so interesting. I think you were on top of
9:56
Speaker 1: all that. You didn't mention. You probably didn't have to mention.
9:59
Speaker 1: But something that comes up on the shore regularly is
10:01
Speaker 1: it's a lot more work to run a property than
10:03
Speaker 1: to run an ETF. I mean, what do you do
10:06
Speaker 1: with the ETF. You look at it now and again
10:07
Speaker 1: the numbers change ever so slowly. A property is it's
10:11
Speaker 1: a headache, right, if you've got it, it's a headache,
10:13
Speaker 1: but it's yeah, it spot on.
10:15
Speaker 2: Yeah. And not to mention, of course, you know, with
10:16
Speaker 2: an ETF, because it's a lot more liquid, you can
10:19
Speaker 2: make more strategic decisions around it, like if there were
10:21
Speaker 2: a big crash, you could say, okay, well we're gonna
10:23
Speaker 2: I don't want to have that level of exposure anymore
10:25
Speaker 2: and so on, whereas you're less able to do that
10:28
Speaker 2: with a property. If I may, I would love to
10:30
Speaker 2: canvass one thing because when I put this out to
10:32
Speaker 2: the world. I had all manner of comments.
10:34
Speaker 1: So yeah, what was a response like, let's just let's
10:38
Speaker 1: put the property sort of, you know, the fervent property
10:40
Speaker 1: lovers to one side. What was the general response to you.
10:44
Speaker 2: There's a lot of gratitude for actually having shared the
10:47
Speaker 2: entire numbers of it, and not just saying, hey, here's
10:49
Speaker 2: how I here's my gut, but saying, like, the mats
10:52
Speaker 2: behind it is here, and if you want to play
10:53
Speaker 2: with the mats and adjust it, feel free. But here's
10:55
Speaker 2: the mats, and you know you can find that. You
10:57
Speaker 2: can find all that information online. But for the people
11:01
Speaker 2: that were critical of it, particularly in that property space,
11:03
Speaker 2: you know, most of them naturally had a property lean
11:06
Speaker 2: And I don't say that in a negative way. I
11:07
Speaker 2: actually with reflecting on their answers and looking at them closely,
11:12
Speaker 2: what they were really saying is, you've used the long
11:15
Speaker 2: term average, the thirty year long term average for property
11:18
Speaker 2: growth according to core Logic. It's the best long term
11:20
Speaker 2: data point I could find. And their argument was, we
11:23
Speaker 2: think that we can outperform that. We think if you
11:26
Speaker 2: go to a you go to a great buyers agent,
11:29
Speaker 2: and you buy the right asset, you can do a
11:32
Speaker 2: higher earnings rate than that and for what it's worth. James,
11:35
Speaker 2: I actually support that I have investment properties. I always
11:38
Speaker 2: go to a buyers agent when I do that. I
11:40
Speaker 2: absolutely believe in the value of getting professional advice there
11:43
Speaker 2: and paying for it. And to that end, I think overarchingly,
11:48
Speaker 2: the real thing that I want to drive and the
11:50
Speaker 2: motivation to put this out to the world, was to
11:53
Speaker 2: encourage Australians to be so much more scrupulous around the
11:56
Speaker 2: asset that is being purchased. If you are to do
11:58
Speaker 2: this saying it's impossible, I'm saying, yeah, your observation was
12:03
Speaker 2: for and most people most of the time.
12:05
Speaker 1: That's with most properties. It's a very bad idea to
12:08
Speaker 1: put it in an SMSF. Yeah, but you allow for
12:11
Speaker 1: exceptions because old properties or property is individual. As they say.
12:15
Speaker 2: Of course, if you had the good fortune to buy
12:17
Speaker 2: in Perth a few years ago, then you've got a
12:19
Speaker 2: totally different story and you can say it smashed the
12:21
Speaker 2: super funds despite them doing well. There's always exceptions, but
12:24
Speaker 2: for what Welcome your comments, James, But I often meet
12:27
Speaker 2: with people who have properties in their SMSF and it
12:30
Speaker 2: breaks my heart to see people that have purchased. You know,
12:33
Speaker 2: thirteen years ago. I bought this apartment in out of
12:36
Speaker 2: suburbs Melbourne. I spent five hundred grand on it thirteen
12:39
Speaker 2: years ago. It's worth exactly the same amount because it's
12:43
Speaker 2: the strategy might have been the right strategy, but the
12:45
Speaker 2: due diligence around the asset. They might have just taken
12:48
Speaker 2: the property consultant's word for it, or just bought one
12:51
Speaker 2: that was nearby that they knew was available. I cannot
12:54
Speaker 2: stress you enough. If you are looking to do this,
12:56
Speaker 2: you must be relentless about getting the right people on
12:59
Speaker 2: your team in the right research to say v sas
13:02
Speaker 2: an asset that's going to significantly outperform the long term
13:05
Speaker 2: trend of property more generally.
13:08
Speaker 1: Yeah, okay, and it's a big call. It's a big call.
13:10
Speaker 1: All right, we'll take a short break. We'll be back
13:12
Speaker 1: in a moment. Hello and welcome back to the Australians
13:25
Speaker 1: Money Puzzle Podcast. I'm James Kirby and I'm talking to
13:28
Speaker 1: James O'Reilly. Now I should have introduced James more fully
13:32
Speaker 1: at the start. James works with Northeast Well that's his group.
13:36
Speaker 1: He's responsible investment advocate as well and on top of that,
13:41
Speaker 1: the host of the Australian Retirement podcast, which is quite
13:45
Speaker 1: well known, and that is why, of course he's been
13:46
Speaker 1: so smooth and articulate in his responses and segment one
13:51
Speaker 1: because he has his own podcast all right now, James,
13:54
Speaker 1: one of the questions that I normally have questions at
13:57
Speaker 1: the end, but I have a question and it's kind
13:59
Speaker 1: of in there in the a while, and I wanted
14:00
Speaker 1: someone to answer it. I was waiting for someone basically
14:03
Speaker 1: to come along who could answer it. It's from Pete
14:06
Speaker 1: and he asks a very simple question, what really is
14:08
Speaker 1: ethical investing? Now? That's something we could go all over
14:13
Speaker 1: the place on and it's a movable feast to some extent.
14:16
Speaker 1: There are new government labeling laws coming in in Australia,
14:20
Speaker 1: which is a good thing to really try and define
14:22
Speaker 1: it and stop the greenwashing. But in your world financial advice,
14:27
Speaker 1: responsible investing, how does that basically take shape? If you've
14:31
Speaker 1: got that on your shinkle outside of the door, I'm
14:33
Speaker 1: a responsible investment advocate, does it? I presume some people
14:37
Speaker 1: say that's not my kind of thing. I just want
14:39
Speaker 1: the best results. But when people come through the door
14:43
Speaker 1: on that proposal, how is it different? From anyone else.
14:48
Speaker 2: Yeah, thanks mate, but very thank you for the kind
14:50
Speaker 2: words back there. So our philosophy, the way that it's
14:54
Speaker 2: different is that where possible, we are going to be
14:59
Speaker 2: seeking to look at your capital responsibly and specifically sustainably
15:03
Speaker 2: is our mandate. Now, I say where possible, because as
15:06
Speaker 2: you've pointed out, people all have different values and different
15:09
Speaker 2: things that they want to they want to focus on.
15:11
Speaker 2: There was a wonderful study done by the RIBA, which
15:14
Speaker 2: is the Responsible Investment Association of Australasia, and they do
15:18
Speaker 2: an equivalent sort of this study every year and it
15:20
Speaker 2: always seems to say about the same thing, which is
15:22
Speaker 2: words to the effect of around ninety percent of Australians
15:25
Speaker 2: expect that their financial advisor should be considering responsible investment
15:29
Speaker 2: as part of their overall philosophy. And what that speaks
15:33
Speaker 2: to I believe, and I think it's reinforced with the
15:34
Speaker 2: way that we serve people, is that the vast majority
15:37
Speaker 2: of Australians would like to have some sort of focus
15:40
Speaker 2: on responsible investing if it were tabled to them as
15:44
Speaker 2: part of the overall advice process. But unfortunately with financial advice,
15:48
Speaker 2: as far as I'm concerned, my experience is far less
15:52
Speaker 2: than a quarter of the time. Is it tabled and
15:55
Speaker 2: or properly tabled to say, have you given thought to
15:58
Speaker 2: investing in line with your values? And they're particular things
16:01
Speaker 2: that you would like to either focus on or are
16:03
Speaker 2: the things that you would like to exclude and not
16:05
Speaker 2: be invested in. And that's what we want to afford
16:08
Speaker 2: people to.
16:08
Speaker 1: Do today, oh, yesterday or this week. How does that
16:11
Speaker 1: make a difference. Are either certain investments that are off
16:13
Speaker 1: the table and are there certain investments or behaviors that
16:18
Speaker 1: you actively seek to follow?
16:21
Speaker 2: Yah, our default is as in without When we have
16:26
Speaker 2: someone that says, yes, I'm open minded to investing money responsibly,
16:29
Speaker 2: but I don't have any really strict views around the
16:31
Speaker 2: sort of things I'd like to include and exclude. Is
16:34
Speaker 2: to use what's called the United Nations Sustainable Development Goals.
16:38
Speaker 2: A lot of listeners might have heard of the expression SDGs,
16:41
Speaker 2: and that's these sustainable development goals have been to put forward.
16:44
Speaker 2: There are sixteen of them by the United Nations. Things like,
16:47
Speaker 2: for example, poverty, education, and a whole heap of important
16:51
Speaker 2: fundamental things that should hopefully result in a better planet.
16:55
Speaker 2: And so, especially in today's day and age, there are
16:58
Speaker 2: some wonderful tools that a enable portfolios to be really
17:01
Speaker 2: easily screened to say, well, what's in this portfolio. We've
17:05
Speaker 2: got this ABC High Growth fund, for instance, where's the
17:08
Speaker 2: money invested? What are the companies actually doing within that fund?
17:12
Speaker 1: Are you comfortable that the definitions that are used in
17:14
Speaker 1: the screening really reflect what you and your scient have
17:18
Speaker 1: been talking about.
17:19
Speaker 2: That is a very good question. I think that we're
17:21
Speaker 2: getting a lot better at this. You mentioned at the
17:23
Speaker 2: beginning that we are seeing in a wonderful way a
17:26
Speaker 2: much heavier focus and a much stricter focus around doing
17:30
Speaker 2: exactly what you say is on the tin. And we've
17:32
Speaker 2: seen examples in the past where you have a particular
17:35
Speaker 2: fund that says, here are the things that we want
17:37
Speaker 2: to screen out of, and then you look at the
17:39
Speaker 2: constituents of the fund and say, well, how do we
17:40
Speaker 2: have this position in it, for example, because that doesn't
17:43
Speaker 2: belong here. So I'm comfortable in the sense that we
17:48
Speaker 2: I think we do a reasonable amount of due diligence here,
17:50
Speaker 2: but also I emphasize here that the focus d' especially
17:55
Speaker 2: given the responsible investing. As far as I'm concerned, it's
17:57
Speaker 2: still early in its journey focuses on progress rather than perfection.
18:02
Speaker 2: You know, and I've explained to many members before, we
18:05
Speaker 2: will do our level best. If we uncover that there's
18:07
Speaker 2: a particular fund that's investing in a particular way that's
18:09
Speaker 2: at conflict with what your perceptions are, we will either
18:13
Speaker 2: prictic we'll let you know about or address it as
18:15
Speaker 2: soon as we as soon as we can. But broadly
18:18
Speaker 2: we're in a better spot.
18:20
Speaker 1: Okay, hopefully that's useful to you, Pete. I mean, in
18:22
Speaker 1: practical terms, with an advisor, at least it becomes they
18:26
Speaker 1: in turn, in trying to implement or overlay ethical investing
18:31
Speaker 1: on an advisory package, if your life for an individual,
18:33
Speaker 1: they're depending to some extent on labeling and screening, and
18:37
Speaker 1: these are practical aspects inside financial planning. The problem and
18:41
Speaker 1: the backlash largely over ESG and that broader area of
18:46
Speaker 1: ethical investing, reflected by Trump in particular and the US administration,
18:50
Speaker 1: was that, I mean, some people don't agree with it
18:53
Speaker 1: at all, obviously, but people who are neither particularly devoted
18:57
Speaker 1: on either side. The labeling has been an issue, and
19:01
Speaker 1: there has been greenwashing, and it has been easy to
19:03
Speaker 1: talk investments and to jump on the bandwagon. Basically, there
19:06
Speaker 1: is a strong ray turn in the Europe particularly on this,
19:10
Speaker 1: and the Albanese government is also changing and bringing in
19:14
Speaker 1: stricter labeling laws, and that hopefully was start to clarify
19:17
Speaker 1: and make it all easier and more believable, I think
19:20
Speaker 1: for everybody in the near future perfectly then interesting that
19:25
Speaker 1: whole piece around ethical investing, I mean, one of the
19:28
Speaker 1: things that comes up all the time is how the
19:32
Speaker 1: whole industry operates. I have a question also from Carl,
19:35
Speaker 1: which is not a million miles away. We had Liam
19:38
Speaker 1: Short on the show a while ago and he was
19:40
Speaker 1: warning about these free superviews. I wonder sometimes about ethical
19:44
Speaker 1: investing in relation to financial advice, that if we could
19:47
Speaker 1: at least stamp out bad behavior, that that would be
19:51
Speaker 1: a win. Let the investment industries figure out the labels.
19:53
Speaker 1: But Carr's question says, for instance, on a recent show
19:58
Speaker 1: with Liam Short, where Liam was warning about the marketing
20:02
Speaker 1: of free super reviews, James, you said nothing is free
20:07
Speaker 1: in financial services. Carl says, I just want to highlight
20:10
Speaker 1: that financial counselors are a free service and people experiencing
20:14
Speaker 1: financial hardship can contact the National Debt helpline, whether it's
20:19
Speaker 1: one or several sessions with the financial counselor, they're highly experienced,
20:23
Speaker 1: passionate group of professionals who make a real difference. Okay,
20:28
Speaker 1: thank you, Carl. In fact, we've had a financial counselor
20:31
Speaker 1: on the show. Rob Burgess was on some time ago,
20:35
Speaker 1: but more generally, James. Because because you're a financial advisor,
20:37
Speaker 1: James O'Riley, and because you are a responsible investment advocate there,
20:44
Speaker 1: do you think that ethical investing as it applies to
20:47
Speaker 1: financial advice. It seems to me they never seem to
20:50
Speaker 1: be able to stamp out the bad guys. And we've
20:52
Speaker 1: had the first Guardian affair this year. We've had quite
20:56
Speaker 1: a spectacular string of embarrassments and scandals in financial advice
21:00
Speaker 1: this year. It seems, I mean, can it ever be
21:02
Speaker 1: stamped out? Is that the ethical challenge really in financial advice? Yeah?
21:07
Speaker 2: I suppose it is, James, in the sense that you're right,
21:10
Speaker 2: We've taken a lot of steps already as far as
21:12
Speaker 2: I'm concerned, in order to make sure that financial advice
21:15
Speaker 2: is better delivered. There's now higher standards around becoming a
21:18
Speaker 2: financial advisor. The requirement to get a degree to complete
21:21
Speaker 2: an exam which really dials into financial advice. You know,
21:23
Speaker 2: these things are these mechanisms were designed to weed out
21:26
Speaker 2: people simply just slipping into the profession with the license
21:30
Speaker 2: they got from their weedies box then and then performing
21:35
Speaker 2: or doing work that wasn't in client's best interest. I
21:39
Speaker 2: think we can get a lot better at this is
21:41
Speaker 2: my initial answer. And like with First Guardian for example,
21:45
Speaker 2: that was as far as I'm concerned, that was a
21:48
Speaker 2: known issue for a long time before it actually came
21:51
Speaker 2: to the fore of becoming this enormous issue that it
21:54
Speaker 2: is now. Now, you know, there's a lot of ways
21:56
Speaker 2: that potentially you can address that. One of the obvious
21:58
Speaker 2: ones is to whether it's giving acid more control, giving
22:02
Speaker 2: them more information more regularly, and enabling them to more
22:05
Speaker 2: quickly look at any financial advisors practice or a licensee
22:09
Speaker 2: and say, okay, we've got concerns. Now we're going to
22:11
Speaker 2: deep dive into this a little bit more. I would
22:14
Speaker 2: love the day. I love to imagine a day where
22:17
Speaker 2: there is none of this going on in financial advice.
22:19
Speaker 2: But also I've got a healthy dose of cynicism too,
22:23
Speaker 2: and I think that when you've got environments where people
22:25
Speaker 2: are trusting others with their money. There's always going to
22:28
Speaker 2: be a level of unscrupulous behavior.
22:30
Speaker 1: Maybe that's a more pragmatic aspiration that it's like becomes
22:33
Speaker 1: like the law or accountancy, where yes, there are scandals,
22:37
Speaker 1: it's just not a scandalized profession. And maybe financial advice
22:42
Speaker 1: is inching towards that, though unfortunately this year would not
22:45
Speaker 1: seem to be a year where it make grip progress.
22:46
Speaker 1: All right, we have some very good questions. In fact,
22:49
Speaker 1: just a question which we want to do with the
22:51
Speaker 1: third segment. But it's really interesting and I haven't heard
22:54
Speaker 1: this question before. It's from Drew and it picks up
22:57
Speaker 1: on something that I think it's going to become a
22:59
Speaker 1: really shoe because of the creep, if you like, of
23:03
Speaker 1: the superannuation guarantee, which is is there a point where
23:06
Speaker 1: you really shouldn't be forced to save for super when
23:12
Speaker 1: you have more than enough? Back in a moment, Hello,
23:23
Speaker 1: Welcome back to The Australian's Money Puzzle podcast. James Kirby
23:26
Speaker 1: and James O'Reilly, who is from the North East Wealth
23:32
Speaker 1: Group on the show and also from the Money from
23:35
Speaker 1: the Australian Retirement podcast and a regular podcaster himself. Our
23:40
Speaker 1: guest this week, the questions from Drew. You've seen it, James,
23:43
Speaker 1: let me read it out. I've tried to edit it
23:45
Speaker 1: as much as I can. I think it's really good.
23:47
Speaker 1: Here goes. I'm forty three, and I've had a successful
23:50
Speaker 1: career and always been a high income earner with superannuation
23:56
Speaker 1: benefits that exceed the compulsory contributions by employers. I'm fortunate
24:02
Speaker 1: to have a good superbalance. Suffice to say, if I
24:06
Speaker 1: was to stop contributing to my Super, the compounding interest
24:09
Speaker 1: would take my balance above three millions. So he's going
24:11
Speaker 1: he's going to hit the new tax sooner or later.
24:13
Speaker 1: Here's his key point. Every year I exceed the cap
24:16
Speaker 1: and I have to pay the fifteen percent on the
24:21
Speaker 1: amount over and this is this division two nine three,
24:24
Speaker 1: which is basically a high income earner super tax. But
24:28
Speaker 1: he says, with limitations on Super and penalties for being
24:32
Speaker 1: a high income earner, I would like your opinion on
24:35
Speaker 1: the idea of opting out of compulsory super if your
24:37
Speaker 1: balance is high enough, and take that payment as part
24:40
Speaker 1: of your salary. I see where you're coming from, Drew.
24:45
Speaker 1: There's a point now where the twelve percent compulsory super
24:48
Speaker 1: is pushing people over into penalized areas already, pushing them
24:52
Speaker 1: into that division two nine three already if people are
24:55
Speaker 1: familiar with that. But the bigger point that Drew was
24:57
Speaker 1: asking is in the compulsory supersystem. The idea was to
25:02
Speaker 1: let everyone make sure they have some super, which was great.
25:05
Speaker 1: We get to the point at twelve percent where a
25:07
Speaker 1: lot of people are being mandatory super contributions where their
25:14
Speaker 1: money could be better spent elsewhere, or at least some
25:17
Speaker 1: of it, because it probably more than covers for their
25:20
Speaker 1: retirement comfortable retirement by the numbers at least. What do
25:23
Speaker 1: you think, James Riley?
25:25
Speaker 2: Wow, great question, Dre Thanks very much for putting it forward.
25:29
Speaker 2: And also great that you're doing well. It looks like
25:31
Speaker 2: things are going really well for you. So hats off
25:33
Speaker 2: team mate.
25:33
Speaker 1: Yes, at forty three, he's in a good position. This
25:35
Speaker 1: certainly sounds.
25:36
Speaker 2: Like not bad at all.
25:38
Speaker 1: Yeah. I think it's a genuine issue. And all right, okay,
25:41
Speaker 1: you know, no one's going to march in the streets
25:42
Speaker 1: about it, of course, but this is an investment and
25:46
Speaker 1: wealth show. We will talk about it. So what do
25:49
Speaker 1: you think.
25:50
Speaker 2: Well, there's two things that stand out to me. The
25:52
Speaker 2: first one is the financial argument for it, and then
25:54
Speaker 2: the second is the broader argument in terms of what's
25:57
Speaker 2: the purpose of superannuation system. Let's start with broader argument,
26:01
Speaker 2: because yes, as you've eloquently pointed out, the purpose of
26:04
Speaker 2: that superannuation system was to ensure that Australians had were
26:08
Speaker 2: self funding their own retirements, and especially in the years
26:11
Speaker 2: gone by, the superannuation system was far more advantageous in
26:15
Speaker 2: terms of concessional tax and what you could do there
26:17
Speaker 2: to encourage that more Australians saved for their own retirement.
26:20
Speaker 2: So if we're using that lens only, then it makes
26:24
Speaker 2: perfect sense in my mind's eye for there to be
26:25
Speaker 2: a certain number level whereby you say, well, actually you're
26:29
Speaker 2: good here, and it now becomes never becomes optional.
26:31
Speaker 1: I might just pick it, but we're running out of time,
26:34
Speaker 1: so I think we might just leave that there. No,
26:37
Speaker 1: we will leave that there for our listeners to chew on.
26:40
Speaker 1: I think you've answered it very succinctly, and Drew has
26:42
Speaker 1: put it very well, and it's an issue I think
26:45
Speaker 1: that would come up again, folks. If the super guarantee
26:49
Speaker 1: mandatory charge has gone to twelve percent, is there a
26:52
Speaker 1: point at which you shouldn't be made put money into
26:56
Speaker 1: super if you don't need it. I mean, I would
26:58
Speaker 1: have thought it was pretty obvious the answer. Let's see
27:01
Speaker 1: what you have to say. The email is the Money
27:05
Speaker 1: Puzzle at the Australian dot com dot Au. Very good, James, Alright,
27:10
Speaker 1: sorry we've run out of time. Well, great to have
27:11
Speaker 1: you on the show. From Northeast Wealth and the Retirement Podcast.
27:15
Speaker 1: We'll talk again.
27:16
Speaker 2: Thanks James, really grateful to be here.
27:18
Speaker 1: Lovely to have you on the show. Okay, let's have
27:20
Speaker 1: some more emails The Money Puzzle at the Australian dot
27:23
Speaker 1: com dot Au. Talk to you soon.