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Do You Need a Financial Adviser? The Truth About Picking and Being Chosen · The Money Puzzle

• 0:11
  Speaker 1: Hello and welcome to The Australian's Money Puzzle podcast. I'm
• 0:15
  Speaker 1: James Kirby, the wealth editor at The Australian. Welcome aboard, everybody.
• 0:20
  Speaker 1: I wanted to talk to you today. I want to
• 0:22
  Speaker 1: step outside the news cycle, if you like, and I
• 0:25
  Speaker 1: want to look at something that I think is pertinent
• 0:28
  Speaker 1: to every single listener to this show, because you are
• 0:31
  Speaker 1: listening to this show for information and observations. And I
• 0:36
  Speaker 1: have a lot of financial advisors on the show. And
• 0:39
  Speaker 1: I imagine there's no one on this show or no
• 0:42
  Speaker 1: one in the audience who would not benefit from good
• 0:47
  Speaker 1: financial advice. Now, the reality of it is that it's actually,
• 0:51
  Speaker 1: first of all, just sheer mathematics. There used to be
• 0:53
  Speaker 1: 30,000 advisors in Australia. Now there's 15,000, right? So it's
• 0:58
  Speaker 1: twice as hard as it used to be to find one. Secondly,
• 1:02
  Speaker 1: despite great efforts on the professional side, they have a
• 1:04
  Speaker 1: mixed reputation still. And that will always be the case, okay?
• 1:08
  Speaker 1: Because it's very hard to get it right. And every
• 1:10
  Speaker 1: advisor is different. And then on top of that, on
• 1:13
  Speaker 1: top of that, there is a, it's an ugly word, bifurcation,
• 1:17
  Speaker 1: all right? But there's a split going on in advice.
• 1:20
  Speaker 1: There was always a split in advice. Very top advisors
• 1:24
  Speaker 1: dealt with the wealthiest people. But that is becoming severe now.
• 1:28
  Speaker 1: And we're finding that it is harder to get an advisor...
• 1:34
  Speaker 1: And it's particularly hard to get an advisor if you're
• 1:37
  Speaker 1: not a multimillionaire. And I mean multimillionaire. That means you
• 1:40
  Speaker 1: have a million or so to spend. I don't mean
• 1:44
  Speaker 1: your house is worth a million. I mean you have
• 1:45
  Speaker 1: a million in the bank, ready to go in any direction.
• 1:50
  Speaker 1: So I wanted to talk to someone who really has
• 1:52
  Speaker 1: an overview on this, who does work at the top
• 1:55
  Speaker 1: of the market, but also has a helicopter view, if
• 1:59
  Speaker 1: you like, on the whole scene. It's someone I've had
• 2:02
  Speaker 1: on the show before. She's terrific to talk to. It's
• 2:05
  Speaker 1: Jackie Clark. How are you, Jackie?
• 2:06
  Speaker 2: Great, James. Wonderful to be back today.
• 2:09
  Speaker 1: Great to have you on board. We haven't talked for
• 2:12
  Speaker 1: a while, but one of the things that's happened, I think,
• 2:14
  Speaker 1: since we talked last, is this issue about the role
• 2:19
  Speaker 1: of an advisor. And there's been some big changes. And
• 2:23
  Speaker 1: one of the things that prompted this particular show and
• 2:26
  Speaker 1: the topic of this show is that I had come
• 2:29
  Speaker 1: upon something a few months ago, which seemed innocuous in
• 2:32
  Speaker 1: and of itself. And this was two advisors. It was
• 2:36
  Speaker 1: an industry note. And the industry note said, hey, guys,
• 2:39
  Speaker 1: the average advisor in Australia, they've dropped the number of
• 2:44
  Speaker 1: clients they have from 120 per person to about 99.
• 2:48
  Speaker 1: And it struck me, hey, hang on a second. That
• 2:50
  Speaker 1: means about one in six clients have been dropped, have
• 2:54
  Speaker 1: been dropped by their advisor. And I did some work
• 2:59
  Speaker 1: on it and it did get quite a lot of
• 3:00
  Speaker 1: attention because people were already aware that the advisory population
• 3:05
  Speaker 1: has been halved, if you like. And then on top
• 3:07
  Speaker 1: of that, those who are left are slicing their books back,
• 3:11
  Speaker 1: which means it's becoming very difficult. I want to ask you,
• 3:17
  Speaker 1: is that a reflection of what's happening now? I was
• 3:21
  Speaker 1: going to say, is it fair? But it's an unfair question.
• 3:24
  Speaker 1: But is it happening? Tell me, is it happening? Am
• 3:27
  Speaker 1: I exaggerating? And why?
• 3:29
  Speaker 2: Now, look, James, it's a great point that you raise.
• 3:34
  Speaker 2: There's a genuine scarcity of advisors, particularly for what we
• 3:38
  Speaker 2: consider the mum and dad population of Australia, those people
• 3:41
  Speaker 2: who actually might be paying that $ 5, 000 or $ 10, 000 a year.
• 3:45
  Speaker 2: It's actually quite frightening because the There's two sides to
• 3:48
  Speaker 2: this coin. Obviously, the cost of advice has become increasingly difficult.
• 3:54
  Speaker 2: So if you think of all the layers of regulation,
• 3:56
  Speaker 2: particularly over the last decade, are seeing advisors drop like flies.
• 4:00
  Speaker 2: So the reality is that providing advice to mum and
• 4:04
  Speaker 2: dad is no longer commercially viable. So it makes absolute
• 4:07
  Speaker 2: sense to me that people are dropping out of the market.
• 4:11
  Speaker 2: And unless you're shifting from retail to wholesale, which is
• 4:14
  Speaker 2: a whole other world again... there is a distinct drop
• 4:18
  Speaker 2: in the availability of advisors who actually have the time
• 4:22
  Speaker 2: to deliver what's required just under the regulations.
• 4:26
  Speaker 1: And you say people are dropping, but really they're being
• 4:28
  Speaker 1: dropped rather than voluntarily leaving.
• 4:32
  Speaker 2: I think there's a combination of factors there, but it
• 4:34
  Speaker 2: is becoming increasingly different. I'm also seeing mergers happen again
• 4:38
  Speaker 2: where firms such as financial planners and insurance brokers are
• 4:41
  Speaker 2: all coming back together to try and get some benefit
• 4:45
  Speaker 2: of the economies of scale, if you like, of a
• 4:47
  Speaker 2: total business and access to perhaps a greater variety of
• 4:50
  Speaker 2: clients who might exceed that minimum threshold somehow in the
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  Speaker 2: retail space?
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  Speaker 1: I know it's a brutal question, but I said at
• 4:58
  Speaker 1: the start, you want to have a million dollars or whatever.
• 5:00
  Speaker 1: I'll tell you a story. I was in, I was
• 5:03
  Speaker 1: somewhere the other day, and you know, I often get pinned,
• 5:07
  Speaker 1: as you probably get pinned. And someone said to me,
• 5:10
  Speaker 1: I've got And I think it was like $ 25, 000. And
• 5:14
  Speaker 1: they said, I've got $ 25, 000. I can't remember whether they
• 5:17
  Speaker 1: inherited it or something. And they said, could you recommend
• 5:20
  Speaker 1: a financial advisor? And I hate doing this. But I said, look,
• 5:27
  Speaker 1: I don't think you should go to a financial advisor.
• 5:29
  Speaker 1: Not that you shouldn't go, but I don't think you.
• 5:32
  Speaker 1: When you walk into a financial advisor, they're going to
• 5:34
  Speaker 1: look at you and they're going to say, $ 25, 000. Jesus Christ,
• 5:37
  Speaker 1: I'm wasting my time. I need to make $ 5, 000 from
• 5:39
  Speaker 1: this person.
• 5:42
  Speaker 2: Yeah, and I'm going to spend $ 5, 000 of my time
• 5:44
  Speaker 2: doing the compliance just to opt you in as a client,
• 5:47
  Speaker 2: which is the reality, unfortunately, that's been created as a
• 5:50
  Speaker 2: function of all this complexity, you could say. But the
• 5:54
  Speaker 2: other thing is, what do you get for $ 5, 000 a year, James?
• 5:59
  Speaker 2: And I think the reality is today, what advisors can
• 6:02
  Speaker 2: offer you is not much for that. Especially, I think,
• 6:05
  Speaker 2: since the reforms suggested that As advisors, you have to
• 6:09
  Speaker 2: get your clients to opt in every year. So whilst
• 6:13
  Speaker 2: we can no longer roll as a retail customer every year,
• 6:16
  Speaker 2: we have to opt in. That's more compliance and more
• 6:18
  Speaker 2: paperwork and administration. So if you're getting an annual review
• 6:23
  Speaker 2: and a chat, that's probably all your money is buying you,
• 6:26
  Speaker 2: which is incredibly disappointing. Yes. But I'm not saying that
• 6:31
  Speaker 2: about the advisors. They're trying to do a job, but
• 6:33
  Speaker 2: in an environment that's very constrained. And bang for your buck, right?
• 6:37
  Speaker 2: If you've got $ 25, 000 or, quite frankly, a million, does
• 6:40
  Speaker 2: it make sense for you to pay that every year?
• 6:42
  Speaker 2: I don't think so.
• 6:43
  Speaker 1: Well, you want to be making a fair bit for
• 6:45
  Speaker 1: it to be worth $ 5, 000 a year, right? Because you're
• 6:49
  Speaker 1: going to have to subtract the $ 5, 000 from whatever you make.
• 6:53
  Speaker 2: If you make 10% and you pay the tax, you
• 6:55
  Speaker 2: get where this is going.
• 6:57
  Speaker 1: Yeah, nowhere. So before we go into wholesale retail, I
• 7:02
  Speaker 1: know it's hard, but what's the number then? What's the
• 7:05
  Speaker 1: number that you think that the average financial advisor in
• 7:08
  Speaker 1: Australia wants to hear when you go in to talk
• 7:11
  Speaker 1: to them, excluding the value of your home?
• 7:15
  Speaker 2: Well, they want to know that they're investing at least
• 7:19
  Speaker 2: $ 1 million to $ 2 million.
• 7:21
  Speaker 1: That's a lot. That's a lot to have outside the
• 7:24
  Speaker 1: value of your home. Does that include your super, if
• 7:27
  Speaker 1: it was a self-managed super fund?
• 7:28
  Speaker 2: I would say, well, as a financial advisor, it would
• 7:32
  Speaker 2: include your super.
• 7:33
  Speaker 1: And obviously a self-managed super fund then. But you would
• 7:38
  Speaker 1: have to go in with the view that self-managed super
• 7:40
  Speaker 1: fund is open. to change. There's no point in going
• 7:43
  Speaker 1: to the advisor and saying, hey, listen, I like what
• 7:45
  Speaker 1: I'm doing. I've got it all lovely, diversified. I just
• 7:48
  Speaker 1: want to know what do you think about it? That's
• 7:50
  Speaker 1: kind of.
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  Speaker 2: Which goes a little bit full circle to possibly you
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  Speaker 2: and I are in a very similar boat. I would
• 7:55
  Speaker 2: get asked every week at least once for a referral
• 7:58
  Speaker 2: to a financial planner. And I go let's go 10
• 8:01
  Speaker 2: steps back let's actually have a look at back to
• 8:04
  Speaker 2: the basics what are you actually saving do you understand
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  Speaker 2: what your costs are and work out whether there is
• 8:10
  Speaker 2: a true sort of savings investment strategy that you've put
• 8:13
  Speaker 2: in place before we then start engaging and paying somebody
• 8:16
  Speaker 2: to actually take us on that next journey around taking
• 8:19
  Speaker 2: our hard-earned cash and putting it into an investment that
• 8:23
  Speaker 2: they then will charge you commission for their time.
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  Speaker 1: We've kicked off on a fairly sober note. Is there
• 8:31
  Speaker 1: circumstances where you can have less than that? And it
• 8:36
  Speaker 1: makes sense. I'm thinking in terms of the traditional argument
• 8:39
  Speaker 1: that you don't want to make mistakes at the start.
• 8:43
  Speaker 1: You don't want to go on the wrong track. You
• 8:45
  Speaker 1: don't want to make huge structural mistakes where you then
• 8:48
  Speaker 1: work for 20 years and realize, damn, I should have
• 8:51
  Speaker 1: had some advice 20 years ago. I'll give you an example.
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  Speaker 1: Once upon a time, I was involved in a startup company.
• 8:59
  Speaker 1: And in the end, we were 10 years in this
• 9:02
  Speaker 1: company and it was great and it was terrific and
• 9:05
  Speaker 1: we sold and we all did fairly well, depending on
• 9:10
  Speaker 1: how much stock you had, of course. And I was
• 9:12
  Speaker 1: a minor shareholder, but I didn't have it in a
• 9:15
  Speaker 1: family trust or anything like that. And then, of course,
• 9:18
  Speaker 1: I went to a planner because I finally had something
• 9:21
  Speaker 1: to plan with. And they said, you might have had
• 9:23
  Speaker 1: this in the family trust. And I thought like, yeah,
• 9:26
  Speaker 1: but when we started, I hadn't anything. And a family
• 9:30
  Speaker 1: trust would have been, it was outside my realm, if
• 9:34
  Speaker 1: you like, at the time because I was up to
• 9:38
  Speaker 1: my eyes on loans and mortgages and everything else. But
• 9:42
  Speaker 1: the irony is that's when you need the advice, not
• 9:45
  Speaker 1: when you've made the money.
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  Speaker 2: Absolutely. Yeah. So there's that. And it's a really good point.
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  Speaker 2: And you and I have talked about that experience before.
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  Speaker 2: What you really want is very early on in life.
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  Speaker 2: And you know, I've talked about the personal finance village,
• 10:01
  Speaker 2: and it doesn't need to be a lawyer and a
• 10:03
  Speaker 2: chartered accountant and a financial planner. It needs to be
• 10:07
  Speaker 2: a group of trusted individuals who have possibly or more
• 10:10
  Speaker 2: likely more knowledge than you, perhaps in that particular area
• 10:14
  Speaker 2: that you're contemplating, whether it might be how do I
• 10:16
  Speaker 2: structure a new investment in this startup I'm doing, you
• 10:19
  Speaker 2: want to be surrounded by people and talking to people
• 10:22
  Speaker 2: about these issues because some people hold back, right? You're
• 10:24
  Speaker 2: supposed to know this stuff when you're in business, but
• 10:27
  Speaker 2: the reality is we've got other things to focus on.
• 10:30
  Speaker 2: So sooner rather than later, and I suggest, sure, a
• 10:33
  Speaker 2: financial planner can help you, but there may be other
• 10:36
  Speaker 2: earlier entry points in your network of people that can
• 10:39
  Speaker 2: advise you. I have no doubt that there are. There's
• 10:42
  Speaker 2: many more trusted experienced mates or family who can at
• 10:46
  Speaker 2: least get you part of the way and perhaps in
• 10:48
  Speaker 2: your case might have got you to a point of
• 10:49
  Speaker 2: saying before you went into that startup or actually in
• 10:52
  Speaker 2: an early period in your investment you could have transitioned
• 10:56
  Speaker 2: your entry price or whatever sweat equity you had in
• 11:00
  Speaker 2: there to a different structure that could have been even
• 11:03
  Speaker 2: more benefit and now I've got my tax hat on
• 11:04
  Speaker 2: of course but could have even been more beneficial to
• 11:07
  Speaker 2: you down the track it didn't have to be day
• 11:09
  Speaker 2: one but fairly quickly you playing in the right circles,
• 11:13
  Speaker 2: you could have certainly had some further advice that would
• 11:15
  Speaker 2: have cost you less than today's financial plan.
• 11:17
  Speaker 1: Yes, as you say, there's no point going in. There's
• 11:20
  Speaker 1: no point going in too late. I remember saying, well,
• 11:26
  Speaker 1: maybe I'll open one now. I was like, it's too
• 11:28
  Speaker 1: late now. All right. Okay, look, we're going to take
• 11:30
  Speaker 1: a short break. I really want to get into some
• 11:32
  Speaker 1: of the issues that we've talked before the show started.
• 11:36
  Speaker 1: We'll be back in a moment. Hello, and welcome back
• 11:59
  Speaker 1: to the Australian's Money Puzzle podcast. I'm James Kirby, and
• 12:02
  Speaker 1: I'm talking to Jackie Clark. And Jackie, I should have said,
• 12:06
  Speaker 1: your operation. I know you're, explain to our listeners. I
• 12:11
  Speaker 1: know you're very good, but they need to know. You're
• 12:13
  Speaker 1: an author, but also you're, it's hard to repin it, right?
• 12:17
  Speaker 1: Because you are a consultant, you're a board member, you're
• 12:19
  Speaker 1: an advisor to a family office. How do you describe yourself?
• 12:22
  Speaker 1: What's your elevator pitch?
• 12:24
  Speaker 2: Well, actually, I don't have one specifically. I have a
• 12:29
  Speaker 2: portfolio career. No, I obviously spent 20, almost 30 years
• 12:32
  Speaker 2: at Deloitte and then transitioned out, James. So a support
• 12:36
  Speaker 2: and accounting practice that I ran with a couple of
• 12:39
  Speaker 2: my former colleagues and, yes, consult to a number of
• 12:42
  Speaker 2: families and, yes, became an author and spending quite a
• 12:45
  Speaker 2: bit of time in the money space actually helping people
• 12:49
  Speaker 2: because I love it.
• 12:50
  Speaker 1: Might as well allow you to have a plug for
• 12:52
  Speaker 1: your book, which is still out there.
• 12:53
  Speaker 2: What's it called? Stop Worrying About Money. Only available on
• 12:57
  Speaker 2: Amazon these days and in great bookstores because.
• 13:00
  Speaker 1: Of book type sale. Stop Worrying About Money. And you
• 13:04
  Speaker 1: can get Jackie Clark's book out there if you'd like
• 13:07
  Speaker 1: to develop further what we're talking about here today. Oh, yes. Now,
• 13:11
  Speaker 1: just before we go into that whole issue about sophisticated
• 13:14
  Speaker 1: or retail, wholesale and etc., which is a breakthrough perhaps
• 13:18
  Speaker 1: for some listeners. or could be, I want to ask
• 13:20
  Speaker 1: you one other thing, because you're very experienced in this space.
• 13:23
  Speaker 1: The hope, the only hope, of everyday financial advice, available
• 13:30
  Speaker 1: perhaps easily enough that doesn't cost an arm and an egg,
• 13:35
  Speaker 1: will come, and there are plans afoot, to get it
• 13:38
  Speaker 1: from the big superannuation funds. And the big funds, by
• 13:41
  Speaker 1: the way, some of them, are where I think it
• 13:44
  Speaker 1: is Australian Super and ART They have teams, they are
• 13:48
  Speaker 1: getting ready and the minister basically getting, the minister will
• 13:51
  Speaker 1: sign it off sooner or later and the big super
• 13:54
  Speaker 1: funds will be able to give much more financial advice
• 13:56
  Speaker 1: than they do currently. Would you welcome them in? Do
• 14:01
  Speaker 1: you think that will be good or flawed?
• 14:05
  Speaker 2: It's a great question again. My answer is yes with
• 14:08
  Speaker 2: a very big but. And the but is that it's
• 14:12
  Speaker 2: conflicted advice. So I've already seen this at play In fact,
• 14:15
  Speaker 2: a family member recently was doing their June contribution. I said,
• 14:19
  Speaker 2: why don't you just give them a call, ask for
• 14:21
  Speaker 2: the advice to get that right. Husband was getting close
• 14:23
  Speaker 2: to what was 59 or 60. It was a really
• 14:26
  Speaker 2: good time to have a chat with them. So I
• 14:28
  Speaker 2: think there's absolutely a role for Big Super, but the
• 14:30
  Speaker 2: conflict is a real problem. And the other thing is,
• 14:33
  Speaker 2: is this going to boil down in time to some
• 14:36
  Speaker 2: call center type of vibe? It's hard to say, but
• 14:39
  Speaker 2: the reality is it's a very complex area. There is
• 14:43
  Speaker 2: a strong shortage of good technical superannuation advisors in particular,
• 14:48
  Speaker 2: but there's definitely a role for it. And I can
• 14:49
  Speaker 2: see at an entry point, phone call troubleshooting level, it
• 14:54
  Speaker 2: can be quite valuable.
• 14:56
  Speaker 1: They're talking about a very obscure term for it, non-relevant
• 14:59
  Speaker 1: advisors was the original thing. Then they talked about qualified advisors.
• 15:03
  Speaker 1: They'll come up with something else. But sooner or later,
• 15:05
  Speaker 1: they will have this sort of army of advisors. What
• 15:08
  Speaker 1: I want to ask you is articulate, if you would,
• 15:11
  Speaker 1: to everyone listening, what you mean by conflict of interest.
• 15:14
  Speaker 2: Yeah, it's really straightforward. If you've got half a million
• 15:17
  Speaker 2: dollars of your superannuation invested with that big industry fund
• 15:21
  Speaker 2: and their recommendation is, well, you should stay with us
• 15:24
  Speaker 2: and here's an additional product. Or you could change the
• 15:28
  Speaker 2: mix of your superannuation investment, possibly putting a member into
• 15:31
  Speaker 2: a more growth fund versus balanced or a yield, depending
• 15:35
  Speaker 2: on what path they're taking, all of which could generate
• 15:38
  Speaker 2: substantial revenue back to the super fund. So it's a
• 15:41
  Speaker 2: mega conflict. It's something that other advisors, it's very difficult
• 15:45
  Speaker 2: for them to do.
• 15:45
  Speaker 1: To put it another way, that fund will never say,
• 15:50
  Speaker 1: take your money out of the fund.
• 15:52
  Speaker 2: Precisely.
• 15:53
  Speaker 1: Precisely.
• 15:54
  Speaker 2: And actually, you sound like somebody who would be better
• 15:59
  Speaker 2: off X or Y, or maybe a self-managed super fund
• 16:02
  Speaker 2: is ideal for you now that you've reached this particular
• 16:04
  Speaker 2: level in your investment experience. They're not going to say that.
• 16:08
  Speaker 2: So there's things that will be left off the table
• 16:10
  Speaker 2: or that remain unsaid that you need to hear. And
• 16:13
  Speaker 2: that's again where it's not independent.
• 16:16
  Speaker 1: Yeah. But isn't there always an element of that? An
• 16:19
  Speaker 1: advisor will never say, hey, I'll tell you what, I've
• 16:21
  Speaker 1: just charged you $ 5, 000. And you know what? I think
• 16:24
  Speaker 1: you should do nothing. Would an advisor ever say that?
• 16:28
  Speaker 2: I'd like to think that before they sat down maybe
• 16:32
  Speaker 2: for the first coffee that they said, maybe we're not
• 16:35
  Speaker 2: right for you because of X, Y or Z. Yes, yes.
• 16:38
  Speaker 1: And I suppose being honest, that's probably more likely to
• 16:41
  Speaker 1: happen these days because they are actively cutting their lists.
• 16:45
  Speaker 1: Maybe there's a positive dimension to this. Yes, okay.
• 16:49
  Speaker 2: The one other thing, James, just on that comment too,
• 16:52
  Speaker 2: I did want to mention one other thing to you
• 16:54
  Speaker 2: is to realise in this history of advisor relationships and
• 16:58
  Speaker 2: the transition, remember the big banks have got out of
• 17:01
  Speaker 2: or transitioned out of retail a long time ago. They
• 17:05
  Speaker 2: saw these waves. They felt the cost of this coming
• 17:07
  Speaker 2: pretty much since 2020, or since the Royal Commission. So
• 17:10
  Speaker 2: they're ahead of the pack, realising that this was happening.
• 17:14
  Speaker 1: One other thing I want to ask you also, just
• 17:17
  Speaker 1: on the same thing, is you deal with very wealthy investors.
• 17:21
  Speaker 1: One of the things I've been reading in recent times,
• 17:25
  Speaker 1: reading consistently recently, and I wonder if it's really true,
• 17:30
  Speaker 1: is that I'm led to believe that wealthy Australians are
• 17:34
  Speaker 1: shifting their portfolio and their money, not just shares, but
• 17:40
  Speaker 1: all activity more and more outside Australia offshore. Is that
• 17:45
  Speaker 1: your experience?
• 17:46
  Speaker 2: I've got a number of different experiences in that space.
• 17:49
  Speaker 2: What I would say is that with the wealthy families
• 17:52
  Speaker 2: I work with, they're always looking for business opportunities offshore.
• 17:56
  Speaker 2: So if we can park that, What I am seeing
• 17:59
  Speaker 2: perhaps with those that are more the investor style type,
• 18:02
  Speaker 2: post a sale event where there may be less in
• 18:05
  Speaker 2: their business and more as a wealthy investor, I'm definitely
• 18:08
  Speaker 2: seeing that diversification into things like international equities. Now people
• 18:12
  Speaker 2: aren't necessarily moving their money offshore, they're investing in funds
• 18:16
  Speaker 2: or other, have a direct access to some type of
• 18:18
  Speaker 2: international equity diversification. One of the things though that I
• 18:23
  Speaker 2: must caution people any of your listeners about, of course,
• 18:26
  Speaker 2: is the risk of inheritance tax offshore. So one of
• 18:29
  Speaker 2: the things I do see a lot is when my
• 18:32
  Speaker 2: clients go to help family members and send money offshore,
• 18:36
  Speaker 2: the risk of, particularly, let's just say the UK and
• 18:38
  Speaker 2: the US, where they have a really lively inheritance tax
• 18:42
  Speaker 2: or death tax, whatever you want to call it, in place,
• 18:45
  Speaker 2: there are multiple taxes that prevent, or certainly are ugly,
• 18:49
  Speaker 2: if you like, up to 40% tax on your death
• 18:52
  Speaker 2: if you've gifted money in a particular way or if
• 18:55
  Speaker 2: you've bought assets offshore. You want to be very careful
• 18:58
  Speaker 2: about your planning if you are sending money away. And
• 19:01
  Speaker 2: you just don't want it to fall into that other
• 19:04
  Speaker 2: tax net that brings that exposure to you or your family,
• 19:07
  Speaker 2: which unfortunately a lot of the case when people become
• 19:11
  Speaker 2: ultra wealthy, they tend to be older in Australia in
• 19:14
  Speaker 2: their 70s and 80s at a time where their demise
• 19:16
  Speaker 2: may be forthcoming and therefore the risks of inheritance tax
• 19:20
  Speaker 2: rise significantly. substantially.
• 19:23
  Speaker 1: Ah, I suppose that's all around the world, but I'm
• 19:25
  Speaker 1: just trying to identify the depth of this risk. If I,
• 19:29
  Speaker 1: as an ordinary everyday investor, went and said, the U.S.
• 19:34
  Speaker 1: is really good, the U.S. market always beats the Australian
• 19:37
  Speaker 1: market again and again, year after year, I'm going to
• 19:41
  Speaker 1: just actually buy directly into the US. Instead of buying
• 19:45
  Speaker 1: Australian listed ETFs, I'm going to buy US listed ETFs.
• 19:48
  Speaker 1: I'm going to park it in there for 20 years.
• 19:51
  Speaker 1: That doesn't expose me to inheritance tax in the US,
• 19:54
  Speaker 1: does it?
• 19:55
  Speaker 2: I wouldn't be sure that it doesn't because of the
• 19:58
  Speaker 2: asset being domiciled over there. But you can actually take it.
• 20:02
  Speaker 2: So it's worthwhile, again, considering the domicile of that investment
• 20:08
  Speaker 2: itself first. So I'd be talking to somebody before I
• 20:12
  Speaker 2: went anywhere near that.
• 20:13
  Speaker 1: What if I use a local broker? Like I use ComSec,
• 20:17
  Speaker 1: but I put everything through... Same, same. Yeah.
• 20:19
  Speaker 2: Same. I think where the difference is getting access from
• 20:22
  Speaker 2: here through an advisor here, you might be actually accessing
• 20:26
  Speaker 2: those markets in any case without necessarily putting your foot
• 20:29
  Speaker 2: in there. So if you start to go offshore yourself
• 20:31
  Speaker 2: specifically directly into a share market, you're actually... connecting a
• 20:37
  Speaker 2: profile in a foreign country where they'll ask for all
• 20:40
  Speaker 2: sorts of numbers and things that you might not have
• 20:42
  Speaker 2: at that particular time, creating a profile. It's a bit
• 20:44
  Speaker 2: different to buying into a particular asset here that has
• 20:47
  Speaker 2: that exposure. And I think what I have seen quite
• 20:50
  Speaker 2: a shift in is, and to be fair, the Aussie
• 20:52
  Speaker 2: stocks have underperformed. So people are definitely looking beyond our
• 20:57
  Speaker 2: ASX 200 for investments.
• 21:00
  Speaker 1: Is it percolating down? Is middle Australia, the mass affluence,
• 21:04
  Speaker 1: starting to actively look and seek to invest offshore not
• 21:10
  Speaker 1: just shares but literally to shunt their wealth to other
• 21:15
  Speaker 1: jurisdictions because that's what i'm reading.
• 21:21
  Speaker 2: I think it would be limited because of the risks
• 21:25
  Speaker 2: that are inherent in doing that and i'm not talking
• 21:28
  Speaker 2: about from a return perspective i'm talking more from a
• 21:30
  Speaker 2: global tax exposure perspective And perhaps it's what you don't
• 21:34
  Speaker 2: know if you've got an advisor who's not actually qualified
• 21:37
  Speaker 2: to contemplate that. And I do see people set up
• 21:40
  Speaker 2: structures overseas all the time and come to me and
• 21:42
  Speaker 2: they're all very well organized from an Australian point of view,
• 21:45
  Speaker 2: but they haven't actually contemplated what this means in the UK.
• 21:49
  Speaker 2: And I'm often looking at the end of life where
• 21:52
  Speaker 2: it comes back to bite you when you're no longer
• 21:54
  Speaker 2: here is what do we do with that asset now
• 21:57
  Speaker 2: that you're gone?
• 21:57
  Speaker 1: What do we do with that asset? what do others
• 22:01
  Speaker 1: do with that asset now that you're gone? All right,
• 22:03
  Speaker 1: we'll take a short break. Back in a moment. Hello
• 22:15
  Speaker 1: and welcome back to the Australian's Money Puzzle podcast. I'm
• 22:17
  Speaker 1: James Kirby talking to Jackie Clark. Now, Jackie is an
• 22:22
  Speaker 1: advisor and author and we've been talking, in a way,
• 22:25
  Speaker 1: we're talking big picture here, something we should do more often.
• 22:29
  Speaker 1: And the issue that we're always talking about on the show,
• 22:31
  Speaker 1: but we never really stand back and examine it, which
• 22:33
  Speaker 1: is about financial advice. How does it work? What do
• 22:37
  Speaker 1: they want from you? What are the realities when you
• 22:40
  Speaker 1: go looking for an advisor? First of all, when you
• 22:42
  Speaker 1: find one, how much do you have to pay? And
• 22:44
  Speaker 1: is it worth paying that $ 5, 000 a year? And what
• 22:47
  Speaker 1: should you expect? Now, I want to explain something that
• 22:51
  Speaker 1: Jackie brought up at the start of the show, which
• 22:52
  Speaker 1: is really interesting. There's two layers to financial advice in Australia.
• 22:57
  Speaker 1: And when we're talking about it and when you read
• 22:59
  Speaker 1: about it, it's mostly about mom and dad, right? It's
• 23:01
  Speaker 1: mostly about the general person and all the issues they
• 23:04
  Speaker 1: have with financial advice. The problem that the advisor has
• 23:07
  Speaker 1: with the average investor is that that person is classified
• 23:11
  Speaker 1: as retail. Because they're classified as retail, there is a
• 23:16
  Speaker 1: zillion parts of regulation that they must satisfy to satisfy
• 23:21
  Speaker 1: the regulators that they're doing the right thing. Now, you
• 23:25
  Speaker 1: don't have to go through all that, and not everyone does,
• 23:30
  Speaker 1: because you can qualify as a wholesale investor or what
• 23:36
  Speaker 1: they call a sophisticated investor. Advisors love sophisticated investors because
• 23:41
  Speaker 1: they don't have to do the paperwork, and it means
• 23:45
  Speaker 1: they have more money, but almost as much it means
• 23:47
  Speaker 1: they don't have to do as much paperwork. So, Jackie,
• 23:49
  Speaker 1: first of all, let's tell people what is the legal
• 23:52
  Speaker 1: definition of a Sophisticated investor. So money-wise, you need to
• 23:56
  Speaker 1: have either $ 2. 5 million in assets. Of net assets. Of
• 24:04
  Speaker 1: net assets. Now, does it actually exclude your family home legally?
• 24:09
  Speaker 2: No.
• 24:10
  Speaker 1: No, it doesn't. I mean, it should, right? But it doesn't. Okay.
• 24:13
  Speaker 1: So there you are. Everybody in Sydney is halfway there already.
• 24:18
  Speaker 1: On the average price.
• 24:20
  Speaker 2: You forgot about the mortgage that most... Oh, the.
• 24:23
  Speaker 1: Mortgage is subtracted. The mortgage is subtracted.
• 24:26
  Speaker 2: Yeah.
• 24:26
  Speaker 1: Oh, fair enough. So there's two criteria, two ways of
• 24:28
  Speaker 1: getting into this category. Two and a half million in assets.
• 24:32
  Speaker 1: That could include your house, but it must be minus
• 24:34
  Speaker 1: your debts. Okay. Keep that in mind. Jackie, if you
• 24:38
  Speaker 1: have a self-managed super fund, that's entirely included, right?
• 24:41
  Speaker 2: Taken into consideration.
• 24:43
  Speaker 1: So that might be the way that most people would
• 24:45
  Speaker 1: get in. Alternatively, and I imagine for many people listening
• 24:49
  Speaker 1: to this show, this is much, much more important. If
• 24:52
  Speaker 1: you earn 250 grand a year or more, you're also
• 24:57
  Speaker 1: able to satisfy this. That doesn't mean your salary doesn't
• 25:00
  Speaker 1: have to be 250 grand, by the way. If you
• 25:02
  Speaker 1: earn it, right? So if you have 200 but you
• 25:07
  Speaker 1: make 50 from something else, it doesn't matter what it is.
• 25:10
  Speaker 1: If you had an investment property or whatever, that gets
• 25:12
  Speaker 1: you over the line as well. So it doesn't matter
• 25:15
  Speaker 1: where the income comes from as long as you get
• 25:17
  Speaker 1: over this. As long as you can get an accountant
• 25:19
  Speaker 1: to tick the box that says you made 250 grand
• 25:21
  Speaker 1: in the last two years. So they're the two ways in. Now,
• 25:25
  Speaker 1: it's not quite nirvana when you get past that point,
• 25:29
  Speaker 1: but tell us how it is very different.
• 25:33
  Speaker 2: It's a really good conversation to have because some people
• 25:36
  Speaker 2: might not realize that they satisfy the wholesale test. You
• 25:40
  Speaker 2: have just an access to a much more vast network
• 25:45
  Speaker 2: of advisors who are perhaps more qualified to and understand
• 25:50
  Speaker 2: certainly a greater diversity of assets and opportunities for you.
• 25:54
  Speaker 2: Plus a lot of them aren't cookie cutter either. So
• 25:57
  Speaker 2: rather than having what every mum and dad has in
• 26:00
  Speaker 2: the rest superannuation fund, you might find that you get
• 26:03
  Speaker 2: access to quite different investments and you can participate in
• 26:07
  Speaker 2: more things as a wholesale investor. So it's a bit
• 26:10
  Speaker 2: like being led into a new community, not a secret community.
• 26:14
  Speaker 2: It's one that's quite accessible to Australians now. You are
• 26:17
  Speaker 2: right too. I do find that there is still a
• 26:20
  Speaker 2: lot of admin. So the fees go up, the prices
• 26:23
  Speaker 2: go up, people charge you a percentage for managing your money.
• 26:27
  Speaker 2: It's perhaps a little bit different in some respects.
• 26:31
  Speaker 1: So it doesn't cut down the paperwork?
• 26:33
  Speaker 2: No, it doesn't really. I think it just cuts down
• 26:36
  Speaker 2: the barriers to entry, which is there are certain assumptions
• 26:39
  Speaker 2: made about you in the way our financial services regulations
• 26:42
  Speaker 2: are created and that mean that the advisor sort of
• 26:45
  Speaker 2: comes in at a higher point, that you're assumed to
• 26:48
  Speaker 2: have slightly higher knowledge as well. In fact, you're signing
• 26:50
  Speaker 2: away that you do have greater knowledge, as the term implies,
• 26:55
  Speaker 2: sophisticated investor.
• 26:57
  Speaker 1: And the harsh reality of it is, as I understand,
• 27:01
  Speaker 1: and we have the list, obviously, the top 100 financial
• 27:04
  Speaker 1: advisors list, which we publish every year, which, by the way,
• 27:07
  Speaker 1: is going to 150 this year. When it comes out
• 27:10
  Speaker 1: in November. And you'll see that they all have their minimum.
• 27:15
  Speaker 1: They will say there's a minimum. But as I understand,
• 27:18
  Speaker 1: many of them, especially at the upper end, they just
• 27:21
  Speaker 1: want sophisticated investors. They just don't want the complication. A
• 27:25
  Speaker 1: lot of advisors say, hey, let's make life easy for ourselves.
• 27:27
  Speaker 1: Let's just have wholesale investors, sophisticated investors. Is that what's
• 27:32
  Speaker 1: going on?
• 27:34
  Speaker 2: Yeah, that's actually a good point because what you'll find
• 27:36
  Speaker 2: is even though you get in the door, then they say, oh,
• 27:39
  Speaker 2: the minimum investment for this particular asset is.
• 27:43
  Speaker 1: $ 500, 000.
• 27:43
  Speaker 2: And some of them think a little bit more about networks.
• 27:48
  Speaker 2: So say, for example, if you're a lawyer in a
• 27:50
  Speaker 2: law firm and a couple of you get together, they
• 27:52
  Speaker 2: might take you on board as a client where you
• 27:54
  Speaker 2: all put $ 100, 000 in. But it's big licks then. I'm
• 27:58
  Speaker 2: in situations where you can do $ 10, 000 and $ 15, 000 investments
• 28:02
  Speaker 2: in a sophisticated investor relationship, but the total invested sum
• 28:06
  Speaker 2: is then half a million or a million and so on.
• 28:11
  Speaker 1: Explain, if you could, to listeners what it is they
• 28:14
  Speaker 1: could invest in that really is worth it to get
• 28:19
  Speaker 1: over the line as a sophisticated investor.
• 28:23
  Speaker 2: You mean?
• 28:23
  Speaker 1: By the way, I don't think it's IPOs. which they
• 28:29
  Speaker 1: seem to throw at you once you're qualified.
• 28:32
  Speaker 2: No, I think, James, to be honest, it's just, again,
• 28:36
  Speaker 2: it's dependent on their network. So who are they spending
• 28:39
  Speaker 2: time with? What's their investment committee look like? Because this
• 28:42
  Speaker 2: is the other thing. The size of these organisations, some
• 28:46
  Speaker 2: of them, we're not talking about J.P. Morgan, but we could,
• 28:49
  Speaker 2: But if you're talking about more private operators, they might
• 28:52
  Speaker 2: have an investment committee that puts particular investments through quite
• 28:56
  Speaker 2: a significant process to determine whether that's suitable for their clients,
• 29:00
  Speaker 2: of which you then have access. So there's nothing consistent,
• 29:05
  Speaker 2: I would suggest, about what stepping into the realms of
• 29:09
  Speaker 2: sophisticated or wholesale investing means you get access to particular
• 29:14
  Speaker 2: things you can't otherwise do.
• 29:16
  Speaker 1: You would think logically that the big mega brands, the
• 29:19
  Speaker 1: global names, Macquarie to that because they are a global bank,
• 29:24
  Speaker 1: they will sell themselves as having access to your top-notch
• 29:31
  Speaker 1: independent advisor who has 10 or 15 people on the staff.
• 29:36
  Speaker 1: They say, the big brands were saying those guys can't
• 29:39
  Speaker 1: compete with us because we've got this machine this global
• 29:43
  Speaker 1: machine is it is that true.
• 29:47
  Speaker 2: It is because they also create their own, they custom
• 29:51
  Speaker 2: their own investments with their own relationships and networks to
• 29:55
  Speaker 2: sort their own profit and loss and balance sheet out
• 29:58
  Speaker 2: and they give you the opportunity to join them in
• 30:01
  Speaker 2: that investment. And it can be very good.
• 30:06
  Speaker 1: Well, people often get minced in these big global firms
• 30:10
  Speaker 1: too just as fast as they get minced by the
• 30:12
  Speaker 1: inadequacies of an independent company. advisor who might have been
• 30:17
  Speaker 1: good when they were 35 but has got a bit
• 30:19
  Speaker 1: dopey or soft or just doesn't care anymore because their
• 30:23
  Speaker 1: career they've made loads and they don't whatever the issue
• 30:26
  Speaker 1: is how do you steer between those two you.
• 30:29
  Speaker 2: Can do what i do is i say i don't
• 30:31
  Speaker 2: want any product that you're in what else have.
• 30:34
  Speaker 1: You got to expand that a little bit i don't
• 30:38
  Speaker 1: quite understand what that means So.
• 30:40
  Speaker 2: If an advisor is presenting to you a number, let's
• 30:43
  Speaker 2: say they give you five to ten investment opportunities and
• 30:46
  Speaker 2: you say, which ones are you in? Which one is
• 30:48
  Speaker 2: the firm in? Which one is the firm participating in?
• 30:52
  Speaker 2: So you start to understand up the tree where– because
• 30:56
  Speaker 2: you also find that in the tiers of these things,
• 30:58
  Speaker 2: people get different pricing benefits, some of which you may
• 31:01
  Speaker 2: not anticipate in coming in as an entry-level wholesale investor.
• 31:05
  Speaker 2: So unfortunately, there's far too much complexity in all this
• 31:08
  Speaker 2: for the average Joe to understand anyway. You're relying.
• 31:13
  Speaker 1: Yeah, but you could still– anyone who thinks it through,
• 31:17
  Speaker 1: it's very similar to the broker who says– we've got
• 31:20
  Speaker 1: a really good IPO coming down the line, which we
• 31:23
  Speaker 1: happen to be putting to the market, which we happen
• 31:26
  Speaker 1: to be getting fees from. And you say, what are
• 31:29
  Speaker 1: any other IPOs that you're not involved in? It's the
• 31:31
  Speaker 1: same sort of thinking, right? Yeah, it is.
• 31:34
  Speaker 2: And sometimes you can decide that you back their decisions,
• 31:38
  Speaker 2: you back their research. We have to anyway as a client,
• 31:41
  Speaker 2: but there's other parts of their research you might decide
• 31:43
  Speaker 2: I'd rather remain, again, independent of that. What else have
• 31:46
  Speaker 2: you got? And a lot of firms will promote independent
• 31:49
  Speaker 2: investment opportunities for you. So it's just good to understand
• 31:53
  Speaker 2: what their approach to it is themselves.
• 31:55
  Speaker 1: I hope I've asked the right questions. I'm just wondering,
• 31:58
  Speaker 1: before we finish, you mentioned how you get pinned and caught,
• 32:05
  Speaker 1: and so do I all the time. I have an
• 32:08
  Speaker 1: easy answer. So someone says, if I feel that it's
• 32:12
  Speaker 1: not going to make sense, I do say to them, listen,
• 32:15
  Speaker 1: I don't think you should spend the money. I don't
• 32:17
  Speaker 1: think you'll get value out of it. If I think
• 32:18
  Speaker 1: they can, and they say, can you name an advisor?
• 32:21
  Speaker 1: I say, anyone on the advisors list we publish, or
• 32:25
  Speaker 1: any advisor who's been on my show, I think they're
• 32:29
  Speaker 1: good enough to talk to you. They're my two answers.
• 32:32
  Speaker 1: In terms of what you want to tell the listeners
• 32:34
  Speaker 1: about interacting with advisors, trying to find one, having one,
• 32:39
  Speaker 1: trying to manage the relationship. Is there anything you think
• 32:42
  Speaker 1: we haven't covered or haven't pointed out?
• 32:45
  Speaker 2: Actually, well, the thing that we have historically covered is, again,
• 32:49
  Speaker 2: making sure that you don't fall into the trap Melissa
• 32:52
  Speaker 2: Caddick's customers did. So go back, making sure that if
• 32:55
  Speaker 2: you are talking to somebody, they've got the right qualifications.
• 32:59
  Speaker 2: Really serious point. You'll find their names listed somewhere. You
• 33:03
  Speaker 2: want to make sure that they have the qualifications. I
• 33:05
  Speaker 2: think the most important thing too is your own preparation.
• 33:08
  Speaker 2: Like don't waste a financial advisor's time if you don't
• 33:11
  Speaker 2: have your own house in order, knowing what you spend
• 33:14
  Speaker 2: every month, what you've got saved, what you've got prepared
• 33:17
  Speaker 2: to reinvest. Don't waste their time because you're only wasting
• 33:21
  Speaker 2: your own time and money. This is a great opportunity
• 33:23
  Speaker 2: to develop your own financial literacy, not just in the
• 33:27
  Speaker 2: office of a financial advisor. Like do your own homework
• 33:31
  Speaker 2: and be prepared. And I think the last point is
• 33:34
  Speaker 2: It's never too late to start and you can start
• 33:36
  Speaker 2: as early as you like, but build your network up.
• 33:38
  Speaker 2: We don't invest with people that aren't qualified, obviously, but
• 33:45
  Speaker 2: you can certainly be talking to your network about understanding
• 33:48
  Speaker 2: and building again your literacy up about all these things
• 33:50
  Speaker 2: so that when you do eventually make the decision to
• 33:54
  Speaker 2: go into a financial advisor's office and you feel like
• 33:56
  Speaker 2: you're comfortable, you develop rapport with them, just whatever you do,
• 33:59
  Speaker 2: make sure they've got the right qualifications. And at the
• 34:02
  Speaker 2: same time, make sure you've got that rapport with them
• 34:04
  Speaker 2: where you feel comfortable to be open and honest about
• 34:07
  Speaker 2: the things that you're worried about with money so that
• 34:09
  Speaker 2: they can then help guide you on the investment part.
• 34:12
  Speaker 2: Because you're already going in with a good level of
• 34:15
  Speaker 2: knowledge and you're very clear on where you're at. Because
• 34:17
  Speaker 2: a lot of people walk in and this is how
• 34:19
  Speaker 2: I prepare. People come to me, I need a financial planner, Jackie.
• 34:22
  Speaker 2: I say, hang on a minute. Let's work out what
• 34:25
  Speaker 2: you've got first. And that's the bit that people think,
• 34:28
  Speaker 2: they close their minds and want to just hand it
• 34:30
  Speaker 2: over to somebody. And I don't think you want to
• 34:31
  Speaker 2: be paying somebody an hourly rate to do that. You
• 34:34
  Speaker 2: want to get things ordered, get your house in order,
• 34:36
  Speaker 2: as I say in my book, right at the start. Terrific.
• 34:39
  Speaker 1: All right. Very good. Hey, thank you very much, Jackie.
• 34:42
  Speaker 1: I'll give you the floor to name the title of
• 34:44
  Speaker 1: the book again.
• 34:45
  Speaker 2: Stop worrying about money.
• 34:47
  Speaker 1: Stop worrying about money by Jackie Clark. Stop worrying about
• 34:51
  Speaker 1: money and worry about whether the financial advisor you're dealing
• 34:54
  Speaker 1: with is good enough for you and whether that amount,
• 34:59
  Speaker 1: and at least we know what the amount is, right?
• 35:01
  Speaker 1: The average is 5,000 a year. Does that make sense
• 35:03
  Speaker 1: to you? Does that make sense with the amount of
• 35:05
  Speaker 1: money you're going in the door with? Keep that in mind. Okay, terrific. Hey,
• 35:08
  Speaker 1: thank you very much, Jackie. Wonderful to have you on
• 35:10
  Speaker 1: the show.
• 35:11
  Speaker 2: Thanks, Shane. It's great to be back.
• 35:14
  Speaker 1: We'll talk again. Okay, folks, keep those correspondence rolling in.
• 35:20
  Speaker 1: Do remember, if you can, mention the show to someone
• 35:23
  Speaker 1: you know. We really appreciate that. Today's show was produced
• 35:26
  Speaker 1: by Leah Samango, and our email is themoneypuzzle at theaustralian.com.au.
• 35:31
  Speaker 1: Thank you.
• 35:44
  Speaker 2: Thank you.