The Financial Adviser

72 Pages·2016·15.6 MB·English

THE FINANCIAL
Vol 20 No. 38 | APRIL 2016
An official publication for members of the Association of Financial Advisers
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THE FINANCIAL Vol 20 No. 38 | April 2016
An official publication for members of the Association of Financial Advisers
Welcome to the April edition of CONTENTS
the Financial Adviser Magazine.
It has been a busy start to the
Professionalism and Leadership
year for financial advisers and it
doesn’t look like it will slow 4 Software is eating the world
down. On the events front 5 One bite at a time
thank you to the 1,300 advisers
11 On the policy front
that attended the extremely
32 Life Insurance Reforms
successful Genxt Connect Tour,
51 AFA Financial Literacy
and our state committees continue to promote our
Communities of Practice through 8 state based events
already hosted this year. Quality Advice Strategies
On the policy front, our leadership team continue to 65 Four factors driving volatility
advocate on your behalf to ensure we grow as a
profession and achieve outcomes that support you and
Adviser Performance
your clients. Our over-arching goal “Great Advice for more
Australians” will remain at the forefront of everything that 15 Income Protection cover – A journey of support
we do. Please go to page 11 to read the Policy update 31 The opportunity to be a coach, mentor and financial planner
and page 32 for the update on Life Insurance. 53 More than advice: how you can broaden your horizons
Looking forward we are preparing for the July National
Practitioner Roadshow and are also excited about the Business Performance
2016 National Adviser Conference, the most relevant
19 What Advice firms can learn from Silicon Valley
professional development event in the advice
23 What will get you LIF Fit
community calendar which is in Canberra in October.
The Early Bird Price is available now. The Conference 25 The true value of advice
program will assist advisers across our four learning 27 Six considerations for transforming your business with managed accounts
pillars: adviser performance; business performance;
practice performance; quality advice strategies; and
Member Services & Campus AFA
professionalism and leadership. We hope to see
you there. 20 A vision for financial adviser education – part 2
Our efforts to close the gap between unadvised
Communities of Practice
Australians and financial advisers continue with further
exciting announcements about Your Best Interests 17 Practitioner feature with PJ Byrne
(YBI) to be made in the near future. This is our consumer 28 How to differentiate yourself when you’re not that different
focused initiative to help educate Australians about the
29 Is the team ready for a new year?
value of financial advice. Also look out for the next
34 Genxt 10 years on…
edition of The Really Simple Guide to Money magazine,
which partners with the AFA and YBI and is on 38 Inspiring female leaders
newsstands in May. 56 Q & A with Karen Walmsley - FChFP
We welcome all feedback, so please feel free to email
me. I hope you enjoy this issue of The Financial Adviser. Feature Article
7 Essential retirement client conversation 2016
Karen Tinnelly
Events
[email protected]
 @AFA_Voice 35 Genxt Connect Tour
36 National Adviser Conference 2016 – Are you riding the wave?
41 Female Excellence in Advice Awards
58 Life Company of the Year Awards
The Financial Adviser APRIL 2016 3
Professionalism and Leadership //
BY DEBORAH KENT
AFA National President
INTEGRA Financial Services
Software is eating
the world!
This is a line that has stayed in my mind since returning from a recent study tour overseas.
My reaction is “Could this be true?” but as I reflect on that statement, I realise that we are living
in exciting times. Technology is changing the way we do everything in our lives; from how we
communicate and do business to software which can diagnose an illness in 24 hours
-something which has traditionally taken 6 days for doctors to receive results.
Fin-Tech and Robo-Advice is here. It was introduced as a solution
for those that wanted to invest small sums of money but this has
now transcended to quite significant investment amounts. As I
listened to a lecturer discuss the impact of software in the future I
consider the things that Robo-advice is not designed to do. The
things that separate it from personal financial advice. It cannot
provide advice for strategy and tax planning or identify the
emotional differences between couples and what money means to
them. It won’t be there to provide the hand-holding of a client
through market downturns and difficult times in their lives. Being
the voice of reason, that’s where we come in.
What Fin-Tech can do is make an adviser’s work life easier by
providing efficiency and security so that we can spend quality time
with our clients.
It is exciting to see how this plays out with so many advisers and
creative advice practices who are using technology to make a
difference in the way they do things. Their energy is truly infectious
as they show you what latest piece of technology they are using
and how they are using it bring them closer to their clients.
The future for financial advice is opening up before us and
Dr Jim Chalmers, shadow Minister for Financial Services
becoming more exciting as we move through this challenging
period of change. Australian’s are seen as market-leaders and early
adopters of new ideas in financial advice and I’m sure this comes
I love every day. As a business, we have had to constantly evolve to
from our history built on resilience and ingenuity. This is something
meet the changing needs of our clients, to re-engineer ourselves
we should be proud of.
and our service so that we continue to be relevant into the future.
How can we use technology, and how can we better educate our It takes time and energy but it is worth it.
clients? What regulation is needed to clearly distinguish between
So, “is software eating the world?”
personal and general advice, especially where fin-tech solution are
accessed direct by a client? Who is deemed to give the advice and Financial advice is about people celebrating life and fulfilling their
what consumer protections will be in place? The AFA is strongly of dreams. Software driven by algorythims can only go so far before it
the belief that the role of financial advisers will be as relevant as lacks the emotional intelligence that accompanies great advice.
ever in the future and the nexus of value will be where clients have I know I want to continue to be relevant to my clients and I am sure
uncertainty – where there isn’t a clear right or wrong answer. you do too. It is our people-skills that make the difference. Together,
Financial advisers will be differentiated from robo-advice by the advisers can embrace the changes in technology, the dynamics of
judgement they bring to complex and often emotional decisions. delivering advice and the voice we can create in the digital
landscape. Collectively let us showcase financial advice for all the
This year, I celebrate 20 years since establishing my own business.
positive outcomes we create for our clients and continue to
I reflect on the successes we have had during that time with our
demonstrate the value of good judgement as an advice professional.
clients, mapping out their life plan and ensuring they achieve their
dreams. I feel so blessed to be part of their journey, and do what  @AFA_Pres
4 The Financial Adviser APRIL 2016
Professionalism and Leadership //
BY BRAD FOX
AFA CEO
One bite at a time
As financial advisers continue climbing the mountain of change, it is time for our burgeoning
profession to make brave decisions.
It was in April 2014 that my 10 and 11 year old kids, my
wife and I set off on a four day hike of Mt Ringani on
the island of Lombok. It was to be a climb from around
1200m above sea level to the peak at 3,726m which we
would be attempting to reach for sunrise on the
morning of the second day.
It would mean getting up at 3.45am on day two and
hiking by head-torch to the summit – an ascent over
volcanic scoria – small rocks that resist every step by
sliding away under your feet as you step forwards and
upwards into them. This was a live volcano, smoking
and burning (and has since erupted) and the second
highest peak in Indonesia with an incredible crater-
lake 2,000m above sea level that also supports a
network of hot springs and natural spas.
I have reflected many times on this trip and what it driven by the challenge as we were. We passed people
meant for me to be with my family, and what the coming down the mountain that had aborted their
experience created for us as a family unit. I also think attempt that gave as reactions from “you guys are crazy”
about what it did for each of my kids in building to “parents shouldn’t have kids up here”. But we also
personal resilience and a sense of achievement. Over met people on days three and four that said it was
the 4 days we hiked for more than 38 hours in often seeing our kids doing it that kept them inspired to keep
treacherous conditions where a fall would have been going.... to continue to take on the experience.
life ending. We were wet most of the time from humidity Thank you for the self-indulgence to write a bit about
and tropical downpours, slept damp and exhausted. I my family and your patience to read this, but the
vividly recall my concerns for the kids’ safety, my elation emotions that the Mt Ringani climb with my family stirs
at their sense of achievement and my amazement at up in me are so similar to the emotions I feel when I
the way my daughter Teagan coped with a dose of think about the journey that financial advisers are
Bali-belly throughout the first two days whilst my son going through. You have been climbing your very own
James covered easily fifty percent more ground than Mt Ringani through the treacherous terrain of
the rest of us by pushing ahead and then coming back uncertain regulation, constant change,
to get us as we jungle-trekked on the first day. professionalisation and the global phenomenon of
Teagan and I talked a lot as she battled through those digital revolution. It makes Mt Ringani look tame.
first two days. We tackled the steepest climbs by I have seen adviser’s climbing the mountain of change
reflecting on the question: How do you eat an like my son James – scampering ahead, wanting to be
elephant? One bite at a time. As the track became the first to see what lies around the next bend.
steep requiring us to literally climb with hands, knees They are the early adopters of new technology in their
and feet we said we must be eating the elephant’s toe advice, they have strong social media profiles, they
nails. As we slipped and ground our way through wet embrace additional qualifications and they can sense
mud with over 100 metre vertical drops to our side we that the benefits of becoming a recognised profession
said this must be the gristle from around the are just around the corner.
elephant’s knees. And when the vista opened up and
But I have also seen and spent time with advisers that
the clouds cleared to show the ocean, the Gili Islands
are climbing the mountain of change like Teagan. They
and Bali in the distance we were eating metaphorical
are taking one bite at a time and they are successfully
elephant eye-fillet.  @AFA_CEO
eating the elephant, albeit slowly. They are overcoming
We passed people on our way up – people that were one obstacle and then moving to the next, but it is still
much fitter and stronger than us but perhaps not as progress towards the summit.
The Financial Adviser APRIL 2016 5
Professionalism and Leadership //
Each battle won, like updating your CRM system, introducing FDS’s
and Opt-In, starting a client e-newsletter even if it is only half yearly
at first – this is all progress. Most importantly these advisers are not
standing still, and even more importantly they have not given in to
the daunting size of the challenge. They are winning “one bite at
a time”.
Unfortunately, I have also seen advisers paralysed with fear and
indecision half way up the mountain, uncertain whether the view
from the top is worth the climb; whether the anguish and
consequence of giving in is easier to tolerate than the pain of
continuing to the peak. If we reflect for a moment, you will be able to
recall some point in time in your life when you have experienced a
massive point of uncertainty.
It may have been at a point in a relationship with a spouse, or
perhaps with a valued client. It could have been in sport, or when
studying for a qualification. Perhaps it was your career, or a
partnership in a business.
It was the point where you just didn’t know whether it was worth
continuing on as you were or whether it was time to take a
different path.
I really encourage you to pause for a moment and find that time
when you were stuck in a place of indecision and remember what it
felt like; how it affected you. How it affected those around you.
And think about those that helped you.
In the climb towards professionalism some advisers are
experiencing this right now. The climb has become increasingly
tougher with some feeling that an increase in minimum
education requirements is just one burden too many. Or the
changing of risk advice remuneration represents an unpassable
obstacle. Or that compliance is like volcanic scoria – it seems
like you take three steps forward only to then slide two steps
back.
Indecision is a destabilising, disparaging and caustic mind-set.
It drains us of emotional and physical energy. It affects those
around us. It chews up time and it eventually erodes the
opportunities that sit within our reach. It produces blame, anger
and regrets.
When faced with indecision Brian Fitzpatrick from Headspace
says it is time to be either safe or brave. Being brave is to step
forward, to decide that the effort is worth making; that
embracing change has rewards that playing safe can never
deliver. In sport the saying is that you miss every shot that you
don’t take. The same is true in careers and in business.
As a burgeoning profession we are taking the shot right now.
We are making changes, putting in the effort, playing brave and
moving forward to be better recognised and respected
collectively by the Australian people for our advice and the value
that we bring into their lives.
As to the summit of Mt Ringani…we had a view that was
to-die-for. We had a fire, we watched the sun rise and we shared
an incredible moment reflecting on the climb, the view, the
achievement, the hurdles overcome and the emotional bond of
being a family.
Our AFA family is approaching our summit – our chance to
reflect on the journey, the view, the achievement of climbing the
mountain of change and opportunity that we are facing. We
need to embrace those that are rushing ahead, and we need to
bind together and encourage those that need to climb “one bite
at a time” to take the next step forward and leave indecision and
fear behind. To be brave.
6 The Financial Adviser APRIL 2016
Feature Article: Quality Advice Strategies //
BY ANDREW LOWE
Head of Technical Services, Challenger Limited
Essential retirement
client conversation
in 2016
Recent and future legislative changes could impact your clients’ retirement income. These
changes create opportunities to provide advice for new clients.
Age Pension
With about 75% of people over 65 on some kind of government pension1, the Age Pension
provides ‘bedrock’ income for many retirees. As such, a high priority for many retirees will be
discussions around changes to the Age Pension rules, what those changes mean to them and
importantly the strategies available to help them continue to meet their retirement goals.
This year, discussions are likely to centre on the following three key
Age Pension Asset Legislated Estimated
changes.
Test threshold threshold for cut-off
full Age Pension threshold
1. Since 1 January 2016, deduction amounts
Single, homeowner $250,000 $547,000
for defined benefit income streams are
Single, non-homeowner $450,000 $747,000
capped at 10%
Couple, homeowner $375,000 $823,000
Until 31 December 2015, the deduction amount (DA) for the
Centrelink/Department of Veteran Affairs (DVA) assessment of Couple, non-homeowner $575,000 $1,023,000
defined benefit (DB) income streams was equal to the tax-free
Couple, illness homeowner $375,000 $969,000
component of the annual income payment. Since 1 January 2016
the DA is capped at 10% of the annual income payment. Couple, illness non-homeowner $575,000 $1,169,000
It is important to note that the change captures DB income streams
paid from a public sector or other corporate DB super fund where 3. From 1 July 2017 Age Pension age will no
the pension generally reflects years of service and final salary
longer be 65
(where the DA is greater than 10%), with the exception of:
The Age Pension age will increase for those turning 65 from 1 July
• MilitarySuper
2017 to 65.5 with those born in later years increasing gradually to 67
• Defence Force Retirement and Death Benefits Scheme (DFRDBS)
as follows:
• Defence Force Retirement Benefits Scheme (DFRBS)
Person born Will turn Age Pension age at
2. From 1 January 2017 the Assets Test
1 January 1949 to 30 June 1952 65 years
threshold and taper rate will change
1 July 1952 to 31 December 1953 65 years and 6 months
From 1 January 2017 the Assets Test lower thresholds will increase
and the taper rate will double from $1.50 per $1,000 per fortnight to 1 January 1954 to 30 June 1955 66 years
$3 per $1,000 per fortnight, resulting in the asset cut-out threshold
1 July 1955 to 31 December 1956 66 years and 6 months
reducing substantially.
On or after 1 January 1957 67 years
The Financial Adviser APRIL 2016 7
Feature Article: Quality Advice Strategies //
Adviser opportunity 1 Adviser opportunity 2
Clients affected by the 1 January 2016 DB changes are likely to see 1 January 2017 changes to the Assets Test will impact some retirees
an increase in their level of Centrelink/DVA assessable income, more than others.
leading to a reduction in the Age Pension entitlement for some
For example, couple homeowners with $823,000 of assessable
retirees. As such, for clients looking to improve their Age Pension
assets on 1 January 2017 will lose about $14,500 per annum
entitlement, it will be important to review their other financial
combined in Age Pension while couple homeowners with less than
assets in light of their Centrelink/DVA treatment.
$300,000 of assets are unlikely to see a change in their entitlement.
For example, where a client’s Age Pension entitlement is determined For those who see a reduction in their entitlements, it will be
under the Income Test, reducing the amount they have invested in important to discuss how they can continue to meet their cash flow
financial assets (which are deemed) can help reduce their Centrelink/ requirements. In doing so, it will be important to consider the
DVA assessable income and improve their pension entitlement. impact of investment strategies on the client’s long-term income
needs, their estate planning wishes and liquidity goals.
Investment strategies that can help in reducing deemed financial
assets include: The type of investment strategies to help a client improve their Age
• Purchasing personal/exempt assets, as Centrelink/DVA does not Pension entitlement will vary depending on which Centrelink/DVA
attribute those assets with any assessable income. test applies. For those assessed under the Income Test, investment
strategies which can reduce their overall level of Centrelink/DVA
• Investing in assets that produce lower assessable income than
assessable income will help improve their Age Pension entitlement
deemed income. For example, lifetime annuities or an insurance
(see adviser opportunity 1 above).
bond inside a trust.
If a client is assessed under the Assets Test, identifying investment
strategies that can reduce their overall level of Centrelink/DVA
Example 1:
assessable assets will be a key consideration. For instance this
John is 65, single and has $300,000 of deemed assets. This
could include:
generates $9,021 per annum of assessable income for social
• Bringing forward improvements/renovations to the family home
security purposes. If the $300,000 was instead invested in a
which may in turn help reduce ongoing living costs or increase
Challenger liquid lifetime annuity2 it would generate no
comfort in retirement.
Centrelink/DVA assessable income since the $15,000 annual
• Investing up to $12,250 into funeral bonds for each person (or a
payment is less than the $15,608.74 deduction amount.
maximum of $12,250 if jointly owned by a couple).
8 The Financial Adviser APRIL 2016
Feature Article: Quality Advice Strategies //
Proposals still being debated in parliament
Although it is important to understand how changes that have been
legislated can impact retirement plans, of equal importance are the
proposals still being discussed which can also drive certain
decisions now.
Below are further changes that can impact a retiree’s Age Pension
entitlement but are yet to be legislated.
The Social Services and Other Legislation Amendment (2014
Budget Measures No. 5) Bill 2014
This bill was introduced into parliament on 2 October 2014 and has
not yet passed either house. It has three main proposals:
1. Gradually increase Age Pension age to age 70
2. From 1 July 2017 maintain the Income Test-free areas for three
years for most pensions, including the Age Pension.
3. From 1 July 2017 reduce the deeming thresholds to $30,000 for
singles (currently $48,600) and $50,000 for couples (currently
$80,600) and maintain these thresholds until 1 July 2020 when
they will be indexed.
Social Services Legislation Amendment
(Budget Repair) Bill 2015
This bill was introduced on 2 December 2015 and proposed to
reduce the period during which Age Pension can be paid outside
Australia at the basic rate from 26 weeks to 6 weeks. After 6 weeks
continuously overseas, it is proposed that a person’s Age Pension
would be adjusted based on the length of the pensioner’s
• Prepaying funeral expenses.
Australian working life residence.
• In cases where the spouse is below Age Pension age, consider
contributing money to their superannuation fund.
• Bringing forward any future gifts (up to $10,000 annually and Proposal to align the assessment the former
$30,000 over five years). home with the aged care rules
• Investing in a lifetime annuity which provides the retiree with
In the Mid-Year Economic and Fiscal Outlook (MYEFO) released on
regular income with the benefit of a reducing asset value.
15 December 2015, the Government proposed to align the
assessment of the former home for Age Pension with the aged care
Adviser opportunity 3 assessment.
It is also worth remembering that retirees who lose their Age If legislated, this would mean that for new aged care residents from
Pension entitlement (even briefly) will also lose the grandfathering 1 January 2017, rental income would be assessed for Age Pension
status of any pre 01/01/2015 ABP with the ABP deemed under the purposes as well as aged care purposes, regardless of how the
Income Test going forward. This is because grandfathering requires: resident chooses to pay for their accommodation.
• the ABP to have commenced before 1 January 2015, and There was no mention however of removing the automatic
• the ABP owner receiving an eligible social security payment two-year exemption on the former home under the Assets Test
(such as the Age Pension) before 1 January 2015 and upon entry into residential aged care.
continuously thereafter.
Losing the Age Pension also means losing the Pensioner
Concession Card. However, where the Age Pension is lost because
of the 1 January 2017 changes, the client will automatically be
entitled to the Commonwealth Seniors Health Card (CSHC) and
exempt from the CSHC Income Test. 1Department of Social Services, Department of Veteran Affairs, Australian Bureau
of Statistics and Challenger estimates (2014-15).
 Tip: Grandfathering is not impacted by partial withdrawals or 2Based on a Challenger Liquid Lifetime quote as at 14/01/2016 with a 90%
withdrawal guarantee, monthly payments, nil indexation, no adviser fees,
partial rollovers from the ABP, so those needing extra funds may be
voluntary withdrawals allowed.
able to access their ABPs without affecting the grandfathered status.
The Financial Adviser APRIL 2016 9
Providing aged care
advice is now
a little easier.
New
Challenger
CarePlus.
1800 331 782 challenger.com.au/careplus
Demographic trends mean more and more clients technical guide explaining the intricacies of CarePlus,
will be coming to you for advice about aged care. As a specialised calculator that makes it easy to work out
you know, this can be a complex area. To help you help aged care costs and Age Pension entitlements, a handy
them, Challenger has developed a tailored solution called reference guide to aged care rules
CarePlus, and a wide range of tools and resources to help with worked examples, and a plain English guide to share
you get up to speed in aged care planning. These include with clients. If you’d like to help your clients with the
webcasts presented by Challenger’s Head of Technical move into aged care, we can help you. To get started,
Services, case studies covering a range of scenarios, a visit www.challenger.com.au/careplus to find out more.
This information is provided by Challenger Life Company Limited ABN 44 072 486 938, AFSL 234670
(Challenger Life) the issuer of Challenger CarePlus Annuity and Challenger CarePlus Insurance (together referred
to as CarePlus). This is general information only and is not intended to be advice. Investors should consider the
CarePlus product disclosure statement available at www.challenger.com.au and the appropriateness of the product
to their circumstances before making an investment decision. The word ‘guaranteed’ refers to payments Challenger
Life promises to pay under the relevant policy document.
21100/CHL2622-FP/0316
10 The Financial Adviser APRIL 2016