Here’s what you need to know this week: 

1. More super data – Since the pandemic took hold in March 2020, the number of new superannuation accounts added into myprosperity is up a massive 36% compared to the five months leading up to March. That is a substantial increase and is indicative of clients and their advisers paying closer attention to retirement portfolios.

2. Less super funds – Under the new early access rules, $29.4 billion has been withdrawn from Super. We don’t know what it will equate to in terms of the number of individual workers who will now have to rely on the age pension in retirement, but the good news is that the advice industry is in the best position to assist clients during this difficult time and ensure clients make good financial decisions. More here.

3. ASIC says get good advice, more often – ASIC says get good advice, more often – The corporate regulator will look to release further guidance facilitating easier provision of scaled advice, helping advisors provide recommendations around a single issue. More here.. 

4. Property – buy, sell or hold? First home buyers are making the most of falling prices, incentives and low interest rates. Many investors are being forced to sell and the number of investors in the market to buy has dropped 40%. More on how market conditions are rapidly changing. More here.

5. Dividends disappear– APRA has ruled that banks must limit dividend payout ratios to no more than 50%. In the past five years many have paid out at ratios of more than 80%. Morningstar has released a report on where dividend opportunities might be. The report sees the greatest opportunity for rising payout ratios and near-term dividend growth in the utilities, industrials (including defensive infrastructure names), and consumer defensive sectors. More here. 

In this final episode of myprosperity@home, Chris talks to world renowned motivational speaker and best-selling author, Chris Helder.

In Chris’ latest book, “Useful belief”, he shares strategies on how to effectively deal with our current reality. While “think positive” is a term that gets thrown around a lot when it comes to dealing with changed situations, pain or stress, it relies heavily on the emotional side of your brain. You might start your day off positively, but that can change in an instant if something comes undone. His advice is to consider “useful thinking”, which is a more pragmatic, practical and result driven approach. “It’s drawing a line in the sand once you’ve processed your grief, and thinking about what you can do to maximise productivity each day.” It may mean going a little deeper into your psyche to surface what you can actually control in the context of your current reality, but based on personal experience and the many positive responses received from his readers, he knows it works.

Watch the full episode below.

Last week we wrote about the impact Covid-19 is having with regards to household debt levels, evidenced by the huge spike in the value of liabilities tracked in myprosperity. In this past week, there has been a great deal of debate in the media around early access to superannuation, so we decided to mine our data for useful insights.

In myprosperity, a client can have their SMSF, Retail or Industry Super Fund wired up securely to receive real-time data feeds including updated transactions and balances on a weekly basis. Since the pandemic commenced in March 2020, the number of new superannuation accounts added into myprosperity is up a massive 36% compared to the five months leading up to March. That is a substantial increase and is indicative of clients and their advisers paying closer attention to retirement portfolios. There are however no specific trends we can see in terms of total dollar value movement in superannuation as an asset class. To us that’s no surprise given that clients using myprosperity have access to a financial adviser and are typically more financially secure, and less likely to have to dip into superannuation to get through the pandemic. But it may not be as clear cut as that given the deep economic impact that Covid-19 is having across all socio-economic groups.

In speaking with a number of advisers over the past week who are using myprosperity, opinions seem divided on the government’s decision to enable early access to superannuation. While approval is granted on a case-by-case basis, we hear stories of young people accessing it to purchase a property or worse still, splurge on luxury goods. This poses a real problem because to top up superannuation to pre-Covid levels could take several more years of work; effectively, to pay off that impulse buy. Many however, are experiencing real hardships and are justified in their reasons for accessing superannuation early, such as paying off debt or meeting mortgage repayments.

Some have criticised Scott Morrison’s emphatic cries that the superannuation being accessed is “their money”. That may be true, but the Superannuation Guarantee scheme was introduced in the early 1990’s to ease the burden on Age Pension and share the load of retirement savings. Now with $29.4 billion withdrawn, we don’t know what it will equate to in terms of the number of individual workers who will now have to rely on the age pension in retirement.

The good news is that the advice industry is in the best position to assist clients during this difficult time and ensure clients make good financial decisions. And, if early access to superannuation is going to help a distressed client, a well considered approach must be taken. As the economy bounces back, which it invariably will, catch up payments on superannuation contributions via salary sacrifice can be made 2-3 years down the track to ensure retirement plans are not impacted. Just like we have seen with debt levels, JobKeeper and now superannuation, we think that there has never been a more important time for clients to have a financial adviser to help guide them through these very difficult times.

1. We’re seeing a surge in debt levels recorded on the myprosperity platform.
Recorded debt has increased by almost 200 per cent since the beginning of 2020, to $12 billion in total. Since late 2019, the number of credit card accounts being used by clients has also increased by 80 per cent. More here.

2. Tech-enabled firms are seeing better exit valuations.
Practice owners are being urged to drop low-value clients alongside the release of the 2020 Financial Planning Practice Sale and Valuation Guide. Shedding unprofitable clients from their books was reported as one way to retain or indeed bolster the valuation of advice businesses. According to the article, it has become increasingly difficult for an adviser to be profitable when fees charged are under $3,000. More here.

3. $15b underestimated.
The government now expects around $42 billion to be removed from the super system as a result of the early release scheme, having revised up its initial estimates of $27 billion at the start of the scheme.
More here.

4. Avoiding greenwashing.
According to Morgan Stanley data US investors had $US4 trillion held in sustainable investment products at the end of last year. It’s a growing market but one that has limited regulation in terms of how green or how sustainable an investment is. However, some tighter restrictions could be on the way. More here.

5. CBA has increased the amount it is putting aside to pay back customers who received poor financial advice by $300 million, taking its total bill to $834 million.
More here.

As Australians increasingly turn to financial advisers to help navigate the COVID-19-induced downturn, myprosperity is seeing record quantities of debt recorded on our platform.

Up nearly 200% since the start of the year, recorded debt on the myprosperity platform is now more than $12 billion. There’s also been an estimated 80% increase in credit card accounts added to the platform since late 2019.

The myprosperity portal is used by advisers and households to track assets and liabilities so that better decisions can be made regarding a person’s entire wealth situation. The platform is used by more than 35,000 households in Australia.

“As Australia copes with this recession, many are turning to their accountant or financial adviser to find a way through these challenging times. The increase in liabilities recorded on the myprosperity platform, combined with climbing usage figures, demonstrates that there’s growing concern over managing debt. People are seeing the need to keep on top of their money during these tough times,” myprosperity founder Peter McCarthy said.

“For households, we’ve seen a significant spike in requests around assistance in financial management, retirement and estate planning, highlighting the increase in concern around financial health. These troubling times suggest people are looking for advice to help stem the loss and shore up their financial future.”

Tim Munro, Founder of Change Accountants said, “We support many business owners across varying sectors of the economy including the hospitality industry which has been smashed by the lockdowns. When COVID-19 hit, like many advisers, we were inundated with requests from clients seeking help with their finances, from applying for Jobkeeper and Jobseeker to drawing up weekly or monthly cashflows to help them get through. It’s been a really busy and challenging time. Technology has played a vital role in enabling us to engage with, and undertake reviews of many more clients than would otherwise have been possible in the traditional face-to-face world.”

As Australia headed into its first lockdown earlier this year, myprosperity experienced soaring usage of its platform as more advisers and accountants moved to work remotely. myprosperity has again seen the usage of its platform increase as many Australians move to manage their wealth more closely and many advisers continue to work remotely. The use of online forms – or digital fact finds, tax checklists and onboarding forms – which help advisers digitise the engagement process by eradicating paper to streamline data collection, has increased by over 500% since December 2019.

Ifa last week reported that practice owners are being urged to drop low-value clients alongside the release of the 2020 Financial Planning Practice Sale and Valuation Guide. Shedding unprofitable clients from their books was reported as one way to retain or indeed bolster the valuation of advice businesses. According to the article, it has become increasingly difficult for an adviser to be profitable when fees charged are under $3,000. Hence, books with clients at or below this level struggle to attract more revenue, with many unable to be sold at all. It is unfortunate that the (unintended) consequence of the Royal Commission reform is fewer Australian households will have access to an adviser.

Impact of the Royal Commission

Back in 2018 when the impact of the Royal Commission was just starting to be felt, one financial planner, who we will call Bob, had a small advice business and decided to exit the industry late that year. His business serviced mainly middle-income clients and was arguably more of a lifestyle proposition, and with the scrapping of trail commissions, impending FASEA standards and accelerating professional indemnity insurance premiums, he decided he would get out and sell his client book. His fee for service clients, which was the smaller part of his book, was traded at about 2.5-3.0x revenue, and grandfathered commissions from insurance policies at about 1.5x. On top of that, he was able to sell his AFSL some months later and so made a complete exit. At that time he wasn’t overly thrilled with the result based on multiples that would have been achieved some 5 years earlier, but in light of what we are seeing today I suspect he is quite happy he exited when he did.

Unfortunately for the industry and his clients, Bob was actually a really good adviser but, typical of many smaller financial advisers, was reliant on low value clients with trail commissions on insurance policies and other financial products. To add to his challenges, Bob was a technology laggard. I suggested to him back in 2018, that a platform like myprosperity could help him capture and identify whole-of-wealth opportunities across his base, and it would also allow him to deliver his services more efficiently. In fact, it would enable him to handle a higher volume of clients with the same resources. Unfortunately, Bob did not want to change. The highly manual nature of Bob’s practice meant he could not scale and hence improve profitability, and when the fallout of the Royal Commission hit, running a sustainable business became unachievable.

Where the opportunities lie

Bob’s story is not an isolated case. We are seeing a growing number of capable advisers exit the industry due to their struggle to operate profitably. Client profitability will continue to be an important focus for the advice industry, and will separate the successful firms from others. The outlook from Centurian shows a growing number of Practice Principals are cleansing their books of unprofitable clients and ensuring demonstrable profit margins, before they decide to sell.

Advisers investing in technology that can demonstrate a transition to digital engagement with clients, along with meaningful efficiency gains, will be the ones that prosper. And unlike Bob, if they decide to exit the industry, can do so at a premium.