In this challenging state of our economy and increasing unemployment numbers, nearly 30% of over 35 year olds are feeling financially stressed, and one in five Australians say that they do not feel confident in managing their household finances.

In a recent IFA podcast episode hosted by Sarah Kendell was guest Anne Fuchs, head of advice and retirement, Sunsuper. They highlighted some research that Sunsuper commissioned back in July, during the peak of COVID-19, that surveyed 1500 “ordinary” Australians to help gain an understanding of what post-COVID advice might look like.

According to the survey, financial stresses that people in the 35 year old demographic are most concerned about include cashflow and budgeting; putting more into superannuation; paying off the mortgage; and saving for kids’ education. In addition to this, many people are feeling overwhelmed with their debt and want to find a course to help pay it down. Notably, there appears to have been an increased level of importance placed on having adequate “emergency money”, which is certainly a positive development as there has been plenty of evidence to show that many households spend more than they earn. No doubt the mass closure of various industries due to the onset of COVID gave many households a reality check to save for a rainy day, or in the context of COVID, a rainy year.

Superannuation continues to be a big focus for all demographics, with 40% of those surveyed saying they were not confident that they will have enough money when they retire. A notable trend arose in the 35 year old demographic, who also indicated they are becoming increasingly concerned about their retirement. Given that many Australians have accessed somewhere in the order of $42B in superannuation savings, this is evidently an area of growing concern. Furthermore, 28% of baby boomers feel it is too late to do anything about it, stating that they were “too embarrassed” to seek help on the issue and regretted not acting earlier.

The underlying problem here is that only one in ten Australians seek comprehensive advice on their finances. Which means 90% of the population are without any ongoing financial advice, even though 20% of the 45 year old demographic surveyed said they needed financial advice now more than ever. Again, if you take superannuation as one example of a person’s wealth profile, most don’t know where their money is being invested, what insurances are covered, and are likely to have multiple superannuation accounts. Ann Fuchs reported that people who use an adviser are seven times more likely to increase their voluntary contributions, and are twice as likely to have consolidated Super accounts. Overall that means they will possibly be about $200k better off at retirement. So we need to find a way to get younger people to engage advisers sooner and not wait until they are nearing retirement, at which time it is often too late to have any impact.

The good news, according to Anne Fuchs, is that the combination of the Royal Commission and Covid-19 has resulted in people across all demographics paying much more attention to their finances. To grow the pool of advised clients across Australia, Anne Fuchs recommends that advisers start small – with targeted advice, and build from there in order to develop trust with clients and demonstrate value in increments. There’s merit to this approach, and is best partnered with giving clients better visibility of their overall financial position through client portal technology. This is the key value that myprosperity delivers and is the best starting point for engaging any new or existing client. It is a simple, low cost, entry level way of giving clients a holistic view of their finances to drive better engagement in their whole-of-wealth journey. As an adviser, having access to real-time data across your entire client base gives you valuable insights, and importantly, allows you to achieve that efficiently and at scale.

Here’s what happened this week:

1. IIG has launched a new impact fund and is looking to raise $70 million to invest in sustainable and ethical projects. The Impact Alternatives Fund is targeting 6% to 10% per year in returns (before tax but after fees), of which 3% to 5% will be income distributed quarterly. More here.

2. Government is getting behind open banking. Fintech Business reported that a Senate committee on financial and regulatory technology had handed down its interim report with 32 recommendations to the government on how it can support the sector. It seems that the government does in fact appreciate the key role that technology plays in helping drive innovation and efficiencies in the financial sector. More here.

3. The next generation. It’s something, with 3 kids, Chris Ridd knows a thing or two about family life. He’s done a full rundown of what we should all be teaching the next generation about when it comes to money. More here.

4.The risks of investing in prestige property. Property is something Australians love but this week AFR contributor Richard Wakelin explains why high-end property might not be the best investment and it all has to do with the idea that bankers suspect there is a strong likelihood of major price falls and are being picky about who they’re lending to. More here.

5. The hidden risk in salary-sacrificing superannuation. As we navigate a recessionary environment some of the practices we took for granted in the good times need to be closely looked at. Given the increased risk of employers going into administration or receivership during a downturn, it may be worth some employees making personal deductible superannuation contributions rather than salary-sacrificing. More here.

It’s a bit of a challenge finding some good news stories at the moment, but there was a pearler last week worth a share.

In Fintech Business last week, it was reported that a Senate committee on financial and regulatory technology had handed down its interim report with 32 recommendations to the government on how it can support the sector. Many of you may not have been following this development, and perhaps fewer would appreciate the impact of this and why it is good news for the advice industry, so let me take you through the details.

It seems that the government does in fact appreciate the key role that technology plays in helping drive innovation and efficiencies in the financial sector. For example, one of the report recommendations was to modernise the Corporations Act requirements; enabling companies to hold virtual meetings, electronic execution/witnessing of documents and electronic shareholder communication permanently. Admittedly, technology like Zoom and Teams has been around for a while and is now a daily reality in our working lives, but it helps that the government is formalising their legitimacy in our industry.

The report also raised the practice of screen scraping, a technology used by a number of fintechs, including myprosperity, that enables the capture of bank account data with customer consent for the provision of a service. In our case, Yodlee feeds pull consumer banking transactions into the portal’s cashflow and budgeting tools, facilitating better visibility and control over income and expenses. Screen scraping technologies are not a perfect solution but in the absence of direct and easily accessible APIs with banks, it has somewhat become the industry standard for getting access to consumer banking data.

In a government-backed initiative that came to the fore back in 2017, Open Banking and more recently the Consumer Data Right legislation aims to open up access to banking data and pave the way for greater innovation and competition, something a number of banks have previously resisted. In fact, the Fintech Business article spoke about an ongoing rift between Commonwealth Bank bank and fintech startup, Raiz, whereby CBA had reportedly been running campaigns against them and other fintechs threatening to block access, citing fraud risk and other scare tactics. The reality is that the underlying service via Yodlee is used by more than 600 financial institutions globally, and even ASIC acknowledged that they could not point to a single breach related to the service.

I’ve long been an advocate for Open Banking, which over time will see more direct methods of accessing data from bank accounts. Macquarie Bank is one such financial institution who beat the Big 4 to the punch back in 2017 when they announced support for Open Banking.

So the good news is, the committee concluded that an “outright ban on screen scraping is not prudent at the present time, and that in many cases, these practices are enabling companies to innovate and provide competition in the financial services sector”.

Developments such as these bode well for the advice industry, and while more needs to be done to move forward with Open Banking in Australia, it certainly is a step in the right direction. Going forward, technology adoption amongst advisers and their clients is only going to increase. With more than 600 fintechs operating in the Australian market, the choice of innovation is better than it has ever been, and having government policy and legislation helping to validate and support it is a great thing.

Coming off Father’s day, and in light of the challenging economic circumstances we find ourselves in, I thought I’d broach the subject of financial advice for kids. I have three children aged 20, 19 and 15. The topic of money and finances has featured in numerous family conversations along our journey through life, so maybe these learnings can help when you decide to have conversations on money matters with your kids too. Here are my six pieces of advice or in some cases, learnings.

Managing money

Many of us are inconsistent in how and when we provide pocket money to our kids. If they are to learn how to manage money, we need to ensure that the supply (pocket money) is consistent and predictable. For a few years I found myself forgetting to stump up the $10 or $20 on a Friday night, only to be reminded a couple of weeks later that I was in arrears with no clear recollection of who I had or hadn’t paid. Bad form Dad. A much simpler approach is to use an app like Spriggy, which is a fantastic pocket money app that I discovered about 5 years ago. If you haven’t seen it, check it out. It provides your child with their own debit card account where they can transact electronically, including via the Apple Wallet, making it available at any EFTPOS enabled retailer. Note that any liquor outlets are universally blocked. Money is automatically transferred to their nominated Spriggy account at set times from a secure parent wallet, so you never miss a payment. It also includes the ability to allocate jobs, set savings goals, and best of all, you can see what your kids are spending their money on.

Forming good savings habits

There is nothing revolutionary about this one. Just encourage your kids to save some money and don’t spend it all at once. It seems easy, but we all know these days that many people spend everything they earn, and increasingly more are spending more than what they earn. Teaching our children to put money away for a rainy day or to save for something more substantial than what their weekly pocket money can afford them is important. Learning to save at least 10% of what they earn from a young age will help them form good habits as they get older, and eventually move into the workforce.

Pitfalls of credit cards

One of my biggest concerns about the nature of the younger generations, is their desire for everything right now – that immediate gratification. It seems the days where you’d save up over weeks or even months to be able to afford that much wanted item is long gone. Increasingly, young people are getting access to credit cards to purchase items before they have earned the money. This problem is only getting worse with the rise of buy now, pay later platforms such as Afterpay and Zip Money. No doubt there is a place for these services but the rise in consumer debt is a growing socio-economic challenge, and many young people are going to learn the hard way; eventually paying well over the purchase price of an item by having to service late payment fees. For me, I have encouraged my two adult boys, in particular the one who is working full-time, to steer clear of credit cards. Perhaps one day when he travels overseas he will get a credit card but for now he is saving his money. In any case, as a 20 year old in lockdown in Melbourne there really is very little to spend your money on 🙂

Learning how to negotiate

This is about understanding the value of money but also ensuring that your kids build up their negotiating skills by seeking out a bargain that sees their dollar go further. A fun experiment I tried some years back when on holidays with the family in Bali was to give my kids some Indonesian Rupiah to go and buy themselves a gift. It was fascinating to see how quickly they embraced the whole negotiating process with various street merchants and even how one of my boys learned that walking away would almost certainly guarantee an immediate drop in price of the sunglasses he was looking to buy. I’m pretty sure those sunglasses barely made it through the ensuing summer but the memory of that experience has certainly endured.

Don’t invest in stuff you don’t understand

A few weeks ago, I was a little surprised when my 15 year old approached me and said that her friend’s brother was interested in chatting with me about the share market and how it all worked. When I enquired further, it turned out that some of his friends were getting involved in the share market, assumably through older adult siblings. On the surface I thought it was good that they were taking an interest in investing but the reality is that when you look at what is driving the share market today, particularly in the tech sector, it is first-time retail investors piling into the market in the hope of making a quick dollar. From someone who learned the hard way during the tech wreck of 2000 (that’s another blog topic), investing or as the case may be, gambling your money on something you fundamentally don’t understand is likely to end in tears.

Financial literacy & the value of advice

It probably won’t come as a surprise that I am a huge advocate for the advice industry. While my kids are still too early in their financial journey to need an advisor, I have shared with them various aspects of my own financial decisions and the reasoning behind those so that they’re exposed to it as much as possible through me. It’s a great opportunity to talk through those challenges, without all the detail, and to help them understand that things are often complex or that it is OK if you don’t understand all the details and need to turn to someone who does. Helping our kids understand that financial literacy along with having access to good paid advice are important factors as you travel through life and face various challenges, and of course great opportunities, along the way.

So there you have it. A few basic tips from my well trodden journey, which I am sure many of you out there are far more qualified than me to impart on the next generation of financial advice clients.

Here’s what happened this week:

1. Financial planners are under pressure to continuously show value to their clients. One of the best ways to do that is to help clients make better financial decisions. There are three habits you can start to instil in clients to see their wealth grow, these include: encouraging them to review their financial situation regularly (myprosperity can help with that one!), evaluate the reasons behind spending decisions (did they really need that extra car and all the costs that came with it?), and finally, allocate money only to financial instruments the client understands. There’s more here.

2. Working from home? Adviser John Rowbottam from Shadforth recounts his experience of increased video conferencing and the blurring of family and work life as he acclimatizes to working from home. Sound familiar? There’s more here.

3. Is there really an advisor exodus going on? According to new research from Investment Trends the number of Australian advisors has actually held steady over the past decade. While most accounts show adviser numbers have dropped 15% from 27,329 in 2019 to 23,173 in 2020, Investment Trends research director Recep Peker points out that the 2019 figure was artificially inflated by adviser flocking to get themselves on ASIC’s financial adviser register in order to avoid doing FASEA’s professional year – inflating the numbers by 10%. More here.

4. Earnings season is done and dusted and what have we learned? Well, Mark Draper, financial adviser with GEM Capital Financial Advice says: “With around 70 per cent of companies either not issuing future earnings guidance or withdrawing earnings guidance – coupled with some market sectors trading on extremely high valuations – the job of assessing investment value is difficult. The best opportunities ahead are less likely to be found in this year’s reporting season stars.” More here.

5. Bank of America reveals a shocking stat showing why traders should stay invested during tough times — or risk missing out on massive gains. Missing out on the market’s 10 best trading days per decade since the 1930s means the difference between a portfolio gaining 17% over the period or surging 16,166%, according to the team. More on that incredible stat here.

COVID-19 is accelerating the adoption of technology across the whole-of-wealth industry, but even before the global pandemic hit there were already systemic changes underway and Boston Consulting Group (BCG) makes a strong case for that in this insightful 32-page report, The Future of Wealth Management – A CEO Agenda.

There were several trends mentioned in the the report but here are the top four that really spoke to the importance of technology adoption:

Personalisation: This will be key to success and BCG point to the “winners” being the firms that are able to reach each client at the right time with the right offer or advice. They go on to say that “personalising consistently and at scale in these ways will require a 360-degree understanding of the client, superior data analytics, and the ability to move easily between personal and digital channels.”

Understanding clients: Further to the above, wealth management providers need to adopt direct and systematic methods of collecting and analysing client feedback. BCG contend that advisers will need to develop “mechanisms to capture information across the client life cycle, be it from product use, transaction data, risk profiles, meeting reports, or notes about personal circumstances.

Talent acquisition: Change management and the adoption of technology is going to require staff that understand tech. The report recommends that whole-of-wealth providers “attract a broader array of (staff) profiles, including advisers and analysts with expertise in digital offerings, data science, and behavioural economics.”

Data and digital: There is a need for advisers to commit to technology and not treat it as a trial or experiment. There is a wide gap between those confessing that they could not run their business without technology through to those dipping their toe in the water by testing it with a few clients. Recently, that has started to change. In recent times, usage of the myprosperity platform has skyrocketed by 200-300% across various features such as partner logins, digital signing, and assets/liability tracking.

This has confirmed to us that partners are now starting to take the need for digital adoption seriously. As BCG best articulates this challenge, “Don’t experiment. Wealth management providers must fully integrate digital technologies and data into their business and operating models or risk being left behind.”