Wednesday, 19 June 2019

How much do Australian Financial Planners make?

From ATO data for 2016/17 available via a SMH article the following breakdown of 'Financial Planner' taxable income by tax bracket:

2.69% earned up to $18,200 (537 people) - average income: $13,785
7.27% earned in range $18,201 - $37,000 (1,453 people) - average income: $32,320
38.91% earned in range $37,001 - $87,000 (7,775 people) - average income: $68,848
35.55% earned in range $87,001 - $180,000 (7,102) people) - average income: $130,107
15.58% earned over $180,000 (3,113 people) - average income: $409,680

Overall, about half the 'financial planner' taxpayers had a taxable income under $87,000, and roughly 15% had a taxable income above $180,000.

Average full-time taxable income for this job category is $132,694

And the total number of taxpayers with title 'Financial Planner' was 19,980 - this probably is lower than than the actual number of financial planners, as some registered planners (like me) may have multiple jobs and the job title reported is for their main source of income.

Taxable Income      # people    % of FP    % /w PHC    % w/ NGP    % w/ HD    avg HD
$0 - $18,200          537        2.69%      74%         21%         22%       $25,184
$18,201 - $37,000   1,453        7.27%      72%         13%         27%       $24,449
$37,001 - $87,000   7,775       38.91%      79%         17%         29%       $25,568
$87,001 - $180,000  7,102       35.55%      94%         18%         11%       $15,525
over $180,000       3,113       15.58%      99%         20%          3%       $13,735

PHC = private health cover
NGP = negatively geared property
HD = HECS debt

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Tuesday, 4 June 2019

The impact of the FASEA changes on accountant's 'SMSF advice'

One of the quirks of the Australian financial advice sector was that accountants had been able to offer financial advice limited to SMSFs in isolation. This made a sort of sense, as accounting clients would often seek guidance from their existing accountants when thinking about setting up an SMSF. And, after all, accountants had much higher educational and professional standards than the typical 'financial adviser', so they felt they were perfectly capable of giving advice with regards to SMSFs.

However, with the move towards 'Best Interests Duty' meaning that financial advice has to take into account the entire situation of a client, it no longer makes sense (or is appropriate) to give advice on how to setup a SMSF without taking into account the client's overall financial situation, goals, and other financial needs such as insurance, investing outside of superannuation, and the actual  investment allocations once the SMSF is setup.

Before 30 June 2016, accountants were permitted to provide advice on setting up and winding up an SMSF (and other product-related advice) under the so-called ‘accountants’ exemption’, which has now been repealed. Therefore, if accountants want to continue to offer 'advice' regarding SMSF they need to get registered as a financial adviser, and meet the educational requirements - including the new FASEA exam.


You would think that if the accountants that had previously been offering 'financial advice' with regards to SMSFs had been acting in the client's "best interests" by taking into account their holistic financial situation and needs when advising about establishing an SMSF, then passing the FASEA exam would not be particularly challenging. But apparently not so - a recent poll by SMSFAdviser indicated that only 25% of respondents planned to 'meet the new requirements and continue to give advice' (some of the respondents would have been registered financial planners, so this probably overstates the percentage of accountants that will 'upgrade' in order to be able to continue offer SMSF advice). While 23.3% of respondents said they would be unaffected by the new requirements (i.e. they don't provide any financial advice in conjunction with their accounting services), a whopping 29.7% intend to stop giving advice, and a further 22% were planning to retire by 2024 or leave the industry.

Overall, it looks like the changes will result in a much smaller cohort of accountants offering financial advice to their clients, which suggests there may be an increase in referrals of accounting clients to financial planners when they are in need of personal financial advice. Those accountants that do choose to 'upgrade' in order to be able to offer financial advice will be able to offer a more holistic service to their clients. Whether or not it makes economic sense is another matter... there is a lot of admin required when providing financial advice (eg. product comparisons and a written SOA) that isn't involved when 'only' providing accounting services.

On the other had, there has recently been a significant flow of clients away from SMSFs and into low-cost industry superannuation funds - which might indicate that some clients of accountants had been placed into SMSFs when it wasn't really appropriate for them. So perhaps the repeal of the 'accountants' exemption' was long overdue.

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Monday, 3 June 2019

Net Worth: May 2019

"Sell in May and go away" - one of the old stock market sayings that hadn't been reliable in recent years, but certainly would have been worth heeding towards the end of May 2019. My overall net worth declined by $39,729 (-1.72%) during May, which isn't much fun considering it is around half my annual after-tax salary, or the equivalent of my total expected start-up/running costs for my financial planning business for two years! The decline in the stock markets saw my geared share portfolio decline by -$8,310 (-3.71%) and my retirement savings decline by -$18,695 (-1.78%). While the rate of decline in the Sydney housing market appears to be slowing, our estimated house price was down by -$12,956 (-1.75%), the size of the drop being partly due to no sales data being available last month (so this was essentially two months of price change in one hit). The election result and the likely cut in interest rates by the RBA will hopefully put a floor under Sydney house prices.

The ongoing trade war between the US-China is expanding to include Europe and Mexico (Trump seems to think Tariffs are a multi-purpose blunt instrument to beat everyone into submission) is starting to look like it could bring an end to the US economic growth cycle just as the global economy is quite anemic. So in the current situation it doesn't look like the rest of 2019 is going to be particularly kind to my net worth situation.

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Its fashionable to denigrate the rich

I recently posted about the criticism that had been leveled at some French billionaires when they gave generously to the Notre Dame restoration campaign. It seems that rather than being seen as altruistic, charitable giving by 'the rich' is nowadays often derided as being either a) pretentious ("see how much I can afford to give"), b) meaningless ("oh well, they can afford it, can't they?"), or c) evidence of the 1% problem ("no-one should have that much money!").

An article in today's SMH showed a similar vein of disdain when reporting that a charity fund-raiser had 'only' raised $3m for a worthy cause: "But before we send out the cheer squad, let's be real - that's chump change when the room is collectively worth around $25 billion."

Now, while $3m is only 0.012% of the net worth of the participants, that isn't actually too small an amount for a one-off fund-raising event. Just consider, an 'average' Sydney home-owner that doesn't have too large a mortgage will have a net worth of at least $1m. So this sort of giving is equivalent to an 'average Joe' making a $120 donation when the Red Cross or Salvos come knocking at their door, or spending $120 at a silent auction at a school Fete. This wouldn't be a huge amount, but it is still well north of the usual $10 or $20 amount (or less) people often give to charity at one time (indeed, the median charitable donations annual total for Australian taxpayers is only $200 or so). So I'm not sure that describing this quanta (0.012% of NW) of giving as 'chump change' would be warranted when talking about the average person. So why deride similar levels of giving by 'the rich'?

Criticizing people for philanthropy doesn't seem either nice nor productive - it is more likely to make them not bother to turn up at fund-raisers than to make them donate more. In any case, this particular article seemed to be motivated by the reporter not being invited to attend the event.

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Wednesday, 29 May 2019

FASEA Exam for financial planners

The new, mandatory examination for Financial Planners in Australia has finally kicked off - bookings for the June session of examinations opened earlier this month and close at 5pm on Friday 31st May. I decided to enrol in the exam (I'm booked in for Sunday 23rd June), as I *should* know all the required material already, having recently completed the DFP and done financial planning and ethics subjects at uni in the past six months. There will also be some preparation materials available via Kaplan (which my AFSL provides in order for their authorised reps to complete the annual CPD requirement), which will give me a chance to revise thoroughly. The exam is being run by ACER (UNSW) and costs $594 - hopefully I pass the exam on the first attempt, as although you can resit the exam it will cost another $540+GST (ie $594) each time!

Although the exam will be held every three months this year and every two months during 2019, I've seen mention that you will only be able to register for an exam if you haven't sat for one within the past three months - and since registrations close a couple of weeks before the exam session commences, this would mean that if you fail the June exam you couldn't register for the next session in Sep 2018. And during 2019 you would only be able to resit after four months, not two.

In any event, existing (registered) financial planners have to pass the exam before 1 Jan 2021, or they will then have to pass the 'new planner' registration requirements - which would include doing 12 months of supervised professional experience!

The exam 'pass' mark is 'credit level' (ie. 65%), but as the exam (70 Qs to do in 3 hr 15 mins, after 15 mins 'reading time') consists mostly of multiple choice questions I'm hoping it isn't too hard compared to a typical university exam. It probably will be a bit of a shock to existing planners that have been in the industry for many years and don't have any tertiary qualifications. The exam is also 'open book' in terms of having the relevant statutory materials available (presumably on the dedicated computers that the exams are being run on during 2018-19.

Anyhow, as soon as I finished off my uni exam on 11th June I'll get stuck into revising for the FASEA exam. Then I'll have to get cracking on finishing off the ADFP I've also enrolled in (but haven't yet started).

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Lagging my 'stretch' benchmark

One 'benchmark' that I use for evaluating how well I am doing at increasing my net worth is the cut-off amount for the annual 'rich list' of the 200 wealthiest Australians - I compare my NW to 1% of the cut-off figure. The latest 'rich list' will come out this Friday, but they have already announced that the cut-off amount for being included in the list has increased to A$472m this year. So my 'benchmark' aspirational figure is A$4.72m for the end of 2018 (the list takes several months to compile, so I compare the annual figure to my previous year-end NW estimate).

Unfortunately my NW has lagged this benchmark during 2018. I'm guessing this is mostly due to:

1. A large fraction of my NW is tied up in our home, so the deflation of the Sydney (and Australian) residential real estate bubble has had a major negative impact on my net worth

2. Although the exact make up of the 'rich list' won't be known until Friday, looking at some of the names that have dropped out of the 'top 200' suggest that many traditionally rich families, while doing OK during 2018, were surpassed by the rapidly rising fortunes of several people involved in the Australia 'tech' industry. The founders of Atlassian are one example.

I don't expect 2019-2020 will be particularly good for my NW either, as I will be spending quite a bit of my cashflow on my uni studies and the running costs of my new financial planning business. Hopefully by the time I finish off my masters degree at the end of 2020 (or early 2021) my business income will at least be sufficient to cover running costs (even if I'm not still not drawing any 'salary' from the business). In 2021 the business will either be running profitably, or I'll shut it down. And in 2021 if I enrol in a PhD in financial planning the uni fees may be covered by RTP (research training program) funding.

If my business does start to generate profits from 2021 onwards, I may start to make some progress relative to the 'rich 200' benchmark.



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Sunday, 26 May 2019

2018 was a bad year for billionaires

According to the Wealth-X Billionaire census the number of billionaires world-wide declined by 5.4% to 2,604 during 2018, and their total wealth also declined by 7% to $8.6 trillion last year.

The Pacific region, which includes Australia, did worse than average, with the number of billionaires declining by 6.3% (to 30) and their wealth declining by a massive 14% (to $64 billion) during 2018.

Overall, billionaires account for only 1% of all Ultra-High Net Worth (UHNW) individuals (defined as those with $30 million in net worth). However, they accounted for 28% of UHNW total wealth.

One interesting aspect of this is that 'wealth distribution' is actually a lot more 'equitable' amongst UHNW individuals than, for example, wealth distribution globally (where the top 1% of global population have at least 50% of the total wealth). Of course, this is largely due to the fact that no UHNW have a negative net worth, whereas the global population includes many people with negative net wealth (are in debt), or zero net wealth.

Australia is under-performing in terms of how many billionaires we have - our GDP ranks 13th, but we are not in the top 15 countries in terms of number of billionaires. This may of course reflect the much cherished belief that Australia is a more 'egalitarian' society than many other countries.

While not many people will feel much sympathy for billionaires having a tough 2018, it will have some adverse 'trickle down' effects - after all, the most popular hobby amongst billionaires is philanthropy, with over 50% known to be actively involved in philanthropic giving - often via educational grants, scholarships are so on. A recent example was Robert Smith paying off all student loans for the class of 2019 graduating from his Alma Mater (as is often the case when rich people engage in charitable giving, this immediately resulted in some criticism - the Washington Post wrote a piece questioning whether this act of charity was fair on those students (or their parents) that had saved and paid for their education without going into debt). Another recent example was the immediate, large donations of several French billionaires towards the restoration of Notre Dame cathedral after the recent fire. This, too, was promptly criticised - some on the basis that it was an example of Western privilege (i.e. it was easy to raise donations to restore a Western cultural icon, yet little had been raised to restore the damage done to Palmyra done by ISIS), and others simply objected on the basis that the generous donations provided another example that billionaires have more money than they need, or 'deserve'.

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Saturday, 25 May 2019

How 'fair' was Labor's policy to increase redistribution by raising taxes on the 'top end'?

One of the things I found most irritating about Labor's election campaigning was their constant assertion that raising taxes to spend on more 'redistribution' to reduce inequality was 'fair', and that the coalition policy to provide some income tax relief to those on above average wages was terribly unfair. I suppose it all depends on how you define 'fair'.

According to Labor, greens and other 'progressive' parties, any inequality of incomes or assets in 'unfair' and the role of government policy is to play Robin Hood - taking from 'the rich' and giving to 'the poor'. The confuse to goal of equal opportunity with that of equal outcomes.

We already have a progressive tax system, which ensures that those that can 'afford' to pay for the country's essential services does so, and also ensures that social welfare is provided to those in need. Does it need to be even more progressive? I doubt that many people realise how progressive it already is. I came across an interesting 'fact check' that was done back in 2015 when Hockey (then treasurer) made a statement that 50% of all tax was paid by the top 10% of the working population. The fact check confirmed this. But what I find even more interesting is that a phenomenal 98% of all income tax is paid by the top 50% of the working ie. those earning more than an average wage!

Whether or not it is 'fair' that 98% of the funding (in terms of income tax) to run the country is provided by only half the population (ie. the other half are basically free-loaders), I can't see how increasing that tax burden even more in order to hand out additional 'support' to the bottom half is 'fair'.

In any case, fairness (or unfairness) of redistribution is in the eye of the beholder. Those voters who will end up paying more taxes and not receive any direct benefits will tend to vote against such policies, and those who won't foot the bill, but will receive substantial benefits, tend to think it is a great idea (and self-evidently 'fair'). It is also the reason why younger voters (who often pay little or no tax) tend to vote more to the 'left' and older voters (in peak earning/taxpaying years or retired after a lifetime of paying taxes) tend to vote more 'left'.

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Thursday, 23 May 2019

Shorted Tesla in my CFD account

I decided to short Tesla again yesterday (not sure if the trade was executed, as I placed it while the markets were closed, so it depends what happens with the US market overnight). Last time I did so Tesla was up around $300/share, but rebounded after a dip, so I closed out. I should have kept my short position, as since then it has been in a remorseless downtrend. If my order gets executed, I'm hoping that Tesla won't make a miraculous turnaround - at the moment they seem to be counting on cost-cutting and a sudden increase in market share to stem their negative cashflow crisis before it runs out (they apparently have about 10 months worth of cash, after the recent $2B injection).

If things don't turn around, one Telsa-watching commentator has predicted the share price could drop to $10 (why not say $0?). I don't expect it to do that (unless Tesla looks like going broke and ends up being acquired by one of the 'real' car companies), but I'm hoping that it hasn't reached bottom yet. We'll see how things turn out.

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Wednesday, 22 May 2019

RBA governor tries his hand at blame-shifting

Apparently the RBA governor has 'gone political' and given a post-election speech suggesting that the government ought to look at other ways to lower unemployment (such as increased infrastructure spending or industrial reforms to boost employment growth), rather than rely on the RBA cutting interest rates:
https://www.smh.com.au/politics/federal/how-good-is-that-rba-decides-it-s-time-for-some-real-policies-20190521-p51pmv.html

However, there seems to be an opinion that recent low unemployment levels may (after a lag of around a year) lead to higher inflation:
https://www.businessinsider.com.au/kangaroo-curve-australia-unemployment-rate-inflation-nairu-2018-11

So I'm not sure that lowering unemployment should be a priority for the RBA or government, given that unemployment is getting pretty close to the rate that occurs naturally from a certain proportion of people always being in transition from one job to another.

Given recent moves by the RBA to put their previous inflation target band on the back burner (having failed to keep underlying inflation within the target) and instead focus on lowering unemployment, it seems that this might be a bit of self-interested bias by the RBA. Having found achieving their inflation target 'too hard', they've decided to shift the focus to unemployment rates, and then wash their hands of that too, but saying that there isn't much scope to cut rates any further, so its now the government's responsibility to do something.

Given the supposed sanctity of the RBA being independent in terms of setting interest rates free from government interference, it seems a bit inappropriate for the RBA governor to now be offering the newly re-elected government 'helpful' advice on where their budget priorities and IR policies should head.

There are of course aspects of unemployment that still need to be addressed: underemployment (those in one of more casual or part-time jobs that would really like to be working full-time in a permanent position), regional unemployment, youth unemployment, indigenous unemployment, age discrimination in employment and so forth. But focusing on getting the 'headline' rate of unemployment below 5.x does not seem to be valid 'top priority'. Especially if that could lead to a break-out in inflation.

This shift in RBA focus from inflation targets to the unemployment suggests the 'recency effect' is at work - tending to give excessive weight to the latest information. Having now 'beaten' inflation to such an extent that it is often below the lower limit of the RBA's own 'target band', the RBA might be assuming that (high) inflation can't reoccur. An over-emphasis on getting unemployment rates even lower may risk inflation taking off again. It could also happen at just the wrong time - when the US-China trade war could potentially reverse the decades long trend in cheap Chinese products 'exporting' deflation to the developed countries.

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