Daniel Crump Financial Planning

12/07/2024

Compare the pair: Super fund returns

Super fund returns for the year ended June 2024 have been released, with some surprising results. Market darlings, Australian Super and CBus have underperformed, while out-of-favour retail funds, AMP and Colonial First State topped the charts.

So, what’s behind the performance results and what can retiree investors learn from them?

Surprising results

For close to two decades now, the industry funds have outperformed retail funds. But not this year. Australian Super’s default Mysuper option and managed only 8.5% for the 12 months ended June 2024.

According to SuperRatings, the median balanced super fund returned 8.8% for the financial year, up from 8.5% last year.

The industry funds were weighed down by heavy exposure to unlisted assets, particularly commercial property. Construction industry super fund, Cbus’ heavy exposure to unlisted property, dragged its returns down to 8.4%. Supply is outstripping demand for commercial property with structural changes to the workforce. Covid showed us that we don’t need to be in an office full-time to get work done. Greater regulatory scrutiny requiring funds to be more transparent with their valuations no doubt added to the burden.

Importance of international exposure

Meanwhile, retail funds benefited from their exposure to international markets, with technology and healthcare stocks performing particularly well.

Global equities were a key driver of returns. The Australian share market returned just 7.8% in the financial year, while the US market performed at 22.7% in the same period.

Heavy exposure to global equity markets, pushed Colonial First State’s and AMP’s financial year returns up to 12.1% and 11.1% in their default MySuper options, respectively.

But this success wasn’t just contained to the retail funds with some industry funds benefiting from high international exposure as well. The Australian Retirement Trust delivered 11.3% growth in its default option, while Aware Super was close behind with 11% returns.

Lesson for retirees

So, what can retirees learn from all of this? It pays to keep a balanced portfolio. The Australian share market represents 2% of stocks worldwide, so limiting exposure to the domestic market, doesn’t make sense. The home country bias convinces investors that it’s safer to invest domestically rather than abroad but that’s simply not the case. And last financial year showed us that there can be performance benefits to boot.

If you’d like to learn more about how to invest for strong returns, while managing risk, give us a call. We would love to help.

- Daniel Crump is an independent financial adviser

This article is general and does not consider your personal circumstances so it may not be appropriate to you. If you would like advice specific to you, please let us know at [email protected]

25/10/2023

Giving with warm hands

“Those who are happiest are those who do the most for others”.

Booker T Washington

According to a recent study commissioned by Fidelity and undertaken by research boutique MYMAVINS, most Australians want to preserve some of their wealth and give it to the next generation.

Almost 4 in 5 Australians aged 27 years or older believe sharing their wealth with the next generation is important. Over 3 in 5 feel a sense of responsibility towards managing their family's wealth for future generations.
Nest egg mentality

Almost 4 in 5 say they have a nest egg mentality; they avoid spending money to ensure they don’t run out.

This includes their super. Almost 3 in 5 plan to leave behind their super savings to their loved ones after they pass away.

This places them at odds with the retirement income system and the purpose of super within it. Australia’s three pillared retirement income system (super guarantee, personal savings and Social Security) is designed for super to be spent in retirement, not hoarded.

Free to choose

While 3 in 4 acknowledge that the money they have in super is designed to be spent during their retirement, most also strongly believe that it’s their money to do what they want with.

Most Australians looking to leave a financial legacy are looking to do so with warm hands, preferring to give while they are still alive rather than after they are dead. This can provide a well-timed leg up for their adult children when they could most do with the help, and of course they also get to experience the joy of giving.

But it complicates things because it raises questions about how much giving can be afforded and how to best organize the giving.

There’s also the push and pull of the right timing. It’s not just about who to give what, but also when. It can be tough to decide on the right time, as it may be too soon and could deprive the next generation of the joy from achievement. There is also the impact of giving on the age pension to be considered. For example, someone who gives money before they turn 62 won’t be penalised under the gifting provisions by the time they become eligible for the age pension at 67.

Communication is key

Navigating family dynamics can be difficult. But with open communication, careful planning, and even professional mediation, any family friction can be avoided.

At Daniel Crump Financial Planning we are independent advisers who can help you balance your desire to help family with your need to preserve enough money for yourself so that you can grow old with dignity.
If you’d like to know more, just reach out.

- Daniel Crump is an independent financial adviser

This article is general and does not consider your personal circumstances so it may not be appropriate to you. If you would like advice specific to you, please let us know at [email protected]

At Daniel Crump Financial Planning we are independent retirement planning specialists.

03/10/2023

Busted: Three myths about financial planning

The first week of October is Financial Planning Week and the first Wednesday in October is International Financial Planning Day. In preparation, the global Financial Planning Standards Board commissioned Australian boutique research firm MYMAVINS to undertake research on the value of financial planning.

The research was audacious in that it the first of its kind at scale. The online survey involved over 15,000 participants across 15 different countries. The perceptions and experiences of unadvised people were compared with people who have an active relationship with a financial planner.

Along the way three common misconceptions about financial planning amongst the unadvised were uncovered.

Myth #1: Financial planning is only for the rich

One of the most common cited reasons people give for why they don’t access financial planning services is a perception that they don’t have enough money, or enough complexity in their finances.

But everyone has complexity in their lives and people benefit from professional advice regardless of their wealth. They enjoy a higher quality of life, are more confident with their finances and are more satisfied with their wealth.

In Australia, three in four clients earning $120,000 or less per year who work with a financial planner feel financially secure, which is higher than unadvised consumers on the same level of income.

Myth #2: Financial planning is only needed at retirement

Another common misconception about financial planning is that it is needed only at retirement. While Financial planning can solve the retirement conundrum “how much can I spend today and still be responsible for the future?”, it pays to start earlier.

In the study nine in 10 Gen Ys who work with the financial planner agreed that it has left them better off financially.

Myth #3: Financial planning cost more than it’s worth

The third myth uncovered involves perceived value. Do the intangible and tangible benefits of advice outweigh the tangible and intangible costs?

Well, the evidence from this study is that for most people there is value in financial planning services. Four in five clients of financial planners say the benefits of financial planning outweigh the costs.

At Daniel Crump Financial Planning the findings of this study do not surprise us. We see the transformational positive impact of financial planning every day.
The fact is when clients have higher financial well-being, it tends to improve other areas of life. The result? We enjoy higher emotional and physical well-being and higher quality of life, generally.

If you’d like to know more, just reach out.

- Daniel Crump is an independent financial adviser

This article is general and does not consider your personal circumstances so it may not be appropriate to you. If you would like advice specific to you, please let us know at [email protected]

At Daniel Crump Financial Planning we are independent retirement planning specialists.

21/09/2023

How much is too much insurance

Older Australians may be wasting their money by retaining old life insurance policies. In this article, Daniel Crump explores why it’s so important to review your policies.

In recent years, the number of financial planners practising has reduced from 28,000 to just under 16,000. Many of those who left the industry were risk specialists, modern day life insurance agents. It is estimated that the number of clients left unadvised, or orphaned, by this exodus of financial advisers is approaching 1 million.

As independent financial planners, we are often approached by these previously advised clients, to review where things are at. On balance, we see more opportunities than not to reduce or cancel costly insurance policies, saving clients thousands of dollars in wasted premiums and commissions every year.

Things change

Life is full of uncertainties and it is important to be prepared for unforeseen circumstances. Insurance plays an important role here by providing protection against a risk event. It does this by transferring the financial consequence of an adverse event away from the individual and onto the insurance company.

But even the best advice goes stale over time. As we age and experience life events, risks change, typically reducing over time. Children grow up and leave home, mortgages are extinguished and as we draw closer to retirement we have less future income to protect.

While this is happening, the costs of insurance are skyrocketing. As we age, the risk event we are insuring against, for example death or disability becomes statistically more likely. In reflection of the increased risk it is taking, the insurance company will increase the premium, or reduce the cover benefits, or it will do both.

Uneconomic policies

As independent financial advisers, we do not accept product commissions structured through insurance policies. That means we are not rewarded in any way for how much insurance you hold. Free of that conflict, we can objectively assess your insurance cover and the risks to your circumstances.

The fact is, as we approach retirement, most life insurance policies become uneconomic and inefficient. The risk of your premature death becomes usurped by the risk that you will live too long, and run out of money in retirement.

It is much wiser to spend a dollar saving for retirement than on insurance you don’t need anymore. And if we advise that you should keep your policies, then we can turn off the commissions to your previous adviser and you can spend the savings on your retirement instead of theirs.

In the last few years of your career, every dollar counts. Many of us retire earlier than we plan to for reasons outside of our control: our personal health wanes, we are required to care for a loved one, or we just get the sack.

At Daniel Crump Financial Planning we can show you how to make most of your financial circumstances, no matter where you find yourself.

- Daniel Crump is an independent financial adviser

This article is general and does not consider your personal circumstances so it may not be appropriate to you. If you would like advice specific to you, please let us know at [email protected]

At Daniel Crump Financial Planning we are independent retirement planning specialists.

15/09/2023

Fantastic day in Mudgee yesterday, catching up with the other independent advisers in the Catalpa community. If you would like to see how truly independent advice can improve your financial wellbeing, give us a call, we'd love to help. Credit to Mick Bowman for the fantastic shot of the Mudgee sunset!!

12/09/2023

Beautiful day in Bathurst today! One of the best things about my job is getting out of the office and seeing clients all over the Central West. If you’d like help reviewing your super, call us today and we can arrange a meeting at your place, I’d love to help.

29/08/2023

What the future holds - It’s a shame money doesn’t buy happiness, because from a financial perspective the future looks bright. .

Treasury released its latest intergenerational report this month and it makes for fascinating reading. With the luxury of a 40-year outlook, the report lifts above the distraction of day-to-day noise. Instead, it analyses the macrotrends that will drive the economy and the retirement income system in the long-term.

Robust growth outlook

Australia has enjoyed an extraordinary period of prosperity in recent years. Like most other advanced economies, the growth outlook for the next 40 years is slower than what we’ve experienced in the past 40. That said, the economy is still expected to grow by an average of 2.2% per year after inflation. By 2063 real incomes are projected to be 50% higher and the economy is projected to be around 2 ½ times larger than today.

Super to play a bigger role

The Australian super system is already the fourth largest in the world, and it hasn’t even reached maturity yet. In about 20 years people facing retirement will have contributed 9% or more every year of their careers. As the super system matures, reliance on the age pension will reduce and it will behave as a supplement to maintain standards of living where required.

With the super guarantee increasing to 12% per annum, we expect to see the super system continue to grow for decades. By 2063 it is expected to grow from 116% of Australian economic output to 218%. That will make it difficult to find quality Australian assets to invest in, so super funds will increasingly be looking at opportunities abroad.

Homeownership and retirement

The falling rates of homeownership amongst Generation Y will have long-term impacts on the retirement system and change the nature of how money is withdrawn. Owning our home outright in retirement provides much-needed stability, security and peace of mind. We expect that more Australians will retire with active mortgages and they will access more of their super to extinguish them.

The Easterlin paradox

In the past 70 years real incomes in the United States have tripled. Yet economist Richard Easterlin found that the trend in happiness has been flat or even slightly negative over that same period.

The fact is that people get used to having more income and higher living standards over time. Slowly getting richer with everyone else doesn’t make you happy.

At Daniel Crump Financial Planning we can reduce your financial stress and improve your financial well-being. But better still, we can help you use your money to stay connected with the people you care about most and engaged in the activities and causes you’re most passionate about.

And that’s where happiness lies.

- Daniel crump is an independent financial adviser

This article is general and does not consider your personal circumstances so it may not be appropriate to you. If you would like advice specific to you, please let us know at [email protected]

At Daniel Crump Financial Planning we are independent retirement planning specialists.

22/08/2023

Cracking day in Mudgee yesterday! Was great to catch up with some of my clients in Mudgee yesterday, providing independent advice to help maintain confidence and live a fantastic retirement. Already looking forward to my next visit. If you think you could benefit from genuinely independent advice, give us a call, we'd love to help!

14/08/2023

SKI club: Why it’s losing its members

Spending the Kids’ Inheritance (SKI). Every retiree jokes about it. But in our recent experience, Australian retirees are turning their minds to helping family members financially. They are more concerned about the impact of the rising cost of living on their families than themselves.

Young families are doing it tough right now. Escalating house prices and rentals, combined with the highest inflation in decades, and unprecedented increases in interest-rates are causing young families to experience financial stress.

Financial stress destroys lives

Financial stress is bad news for families and the community. Research has shown that when we experience financial stress we drink more, sleep less, and we are more likely to experience conflict and be involved in abusive personal relationships.

And that’s why some of our retiree clients are investigating gifting some money to children and grandchildren.

More to life than money

Most of us approach retirement feeling anxious, concerned about not having saved enough. We worry about the money running out prematurely.

But a few years into retirement, a funny thing happens to most of us. We settle into our lifestyles and start to get confidence that we will be okay. We learn that our life satisfaction in retirement doesn’t depend on how much money we have or spend. Instead, we’re happiest when we are spending time with the people we care about most and when we are working on the causes we are passionate about. We learn that we have enough.

But remember the turkey illusion

So, many of us may be considering helping our children or grandchildren with their finances. Typically, this may be a deposit into their bank account, payment of a substantial once-off purchase, like a new refrigerator, or payments of a regular expense, like school fees.

But don’t be like the Christmas turkey which is most confident that it will be fed and cared for again the next day on the night before it dies.

When you’re deciding how much to gift, keep in mind that retirement is long and the costs in the later years are uncertain. Sometimes the last two years of life are the most expensive. Unexpected expenses may include healthcare, home-care and aged care.

And don’t expect substantial age pension increases within five years. While you can give away as much as you like, there are limits on how much you can give away and increase your age pension entitlement. You can gift up to $10,000 each financial year, subject to a maximum gift of $30,000 over five financial years. If you exceed these limits, the amounts gifted in excess will be counted under both the assets and income test.

At Daniel Crump financial Planning we can show you how much you can responsibly transfer to the next generation, while preserving your own future.

This article is general and does not consider your personal circumstances so it may not be appropriate to you. If you would like advice specific to you, please let us know.

At Daniel Crump Financial Planning we are independent retirement planning specialists.

06/08/2023

Inheritance tax: Is the tax office a beneficiary of your super?

Officially, it has been 40 years since Australia abolished the formal Inheritance Tax, or death tax. But we think that’s bunkum. There is tax payable on super when you die and leave your money to your adult children.

Fortunately, a recent rule change can help. But only if you engage and act.

Truth in labelling

Australia still has death taxes payable on super death benefits. When you leave your super to a child who is over 18, tax will usually be payable on the benefit they receive. And the amount can be hefty. Tax is generally payable at the rate of 17% on the ‘taxable component’. The taxable component is balance of your saved employer contributions, salary sacrifice contributions, and any earnings or capital gains on your investments.

Let’s look at a simplified example. If a retiree who has never made after-tax contributions to their super dies with a $500,000 balance (taxable component), only $415,000 will wind up in the hands of adult children. The rest, $85,000, will go straight to the tax office.

That sounds like a death tax to us.

The opportunity

The good news is that with careful tax planning, you can prudently reduce the super inheritance tax.

The superannuation contribution rules now allow everyone under 75 years of age to contribute to super, even without working. They can even access the ‘bring forward’ provisions and contribute up to 3 years’ worth of after-tax contributions in one transaction. That is up to $330,000.

Remember to recycle

We can manage your super death tax by ‘recycling’ or re-contributing your super. If you’re over 60 any withdrawals from your super are tax-free, and when you re-contribute those withdrawals, they will be classified as after-tax contributions. After-tax contributions do not form part of your taxable component, so there is no tax payable on this amount when you die.

So, let’s revisit the previous simplified example. Let’s say I take advice and withdraw $330,000 from my super tax free and re-contribute it before I’m 75. If I was to die with the same balance of $500,000, my taxable component would be reduced to $170,000 and the super death tax payable would be reduced to $28,900. That’s a tax saving of over $56,000.

Benefits of active advice

At Daniel Crump Financial Planning we don’t lock our clients into ongoing service arrangements. But that doesn’t mean financial planning is a set and forget exercise. Advice goes stale over time and needs to be re-visited to make the most of opportunities.

The changes to the superannuation contribution rules are a case in point.

If you’d like to know more about logical ways to manage your tax, give us a call.

Daniel Crump is the founder of Daniel Crump Financial Planning. This article is general and does not consider your personal circumstances. If you would like advice specific to you, give us a call on 0418 148 622.

At Daniel Crump Financial Planning we are independent retirement planning specialists.

29/05/2023

Man in the Mirror: How community will transform financial planning

A tourist is travelling through Ireland. He stops a local and asked for directions to Dublin. The local earnestly responds: “Well, Sir, if I was going to Dublin, I wouldn’t want to be starting from here”.

There’s wisdom in the answer. It’s not enough to know where you are going; you have a much better chance of reaching your destination if you’re well-placed from the outset.

Financial planning has been trying to be recognised as a legitimate profession for years. So, how is it tracking and is it close to achieving its objective?

Well, I wouldn’t want to be starting from here.

Most clients want independent and unbiased advice

Research consultancy, MYMAVINS, recently asked over 400 Australians about financial advice. The research uncovered high unmet demand for independent advice. More than nine in 10 Australians (92%) agree that it is important that financial advice is independent and unbiased.

Yet, according to the SuperGuide Independent Financial Adviser Directory, there are only 135 truly independent financial advisers Australia wide. That is less than 1% of the 16,000 advisers currently practising in Australia. Why are there so few independent financial advisers when that is clearly what consumers want?

There are legal restrictions on using ‘independent’ to describe your financial planning practice. No one who receives commissions, asset-based fees, gifts or any other form of alternative remuneration from product providers can call themselves independent. No one who has restrictions on the product range they can recommend can call themselves independent. And no one has who has a relationship with a product issuer can call themselves independent.

The trouble is the payment of commissions, asset-based fees, and alternative remuneration happen every day in financial services. And 1% of advisers can’t really expect to easily change the system that 99% of advisers rely on to sustain the economics of their practices.

Need for independent, unbiased advice

That’s a shame because the entire financial system is stacked against the everyday Australian. It’s hard for them to make good financial decisions because the system is so complex. They need to find someone they can trust; someone who avoids conflicts of interests so they can serve their clients wholeheartedly.

Professionals take personal responsibility

It would be easier to join with the 99%.

George Bernard Shaw said “The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.”

No, we’re not going to join the 99 per cent. We choose independence. We choose excellence. We choose to avoid conflicts. We choose transparency. We choose to behave in a trustworthy manner. We choose to be thorough and to fight the human inclination to take shortcuts. We choose to serve.

Encouragement from community helps

Even the unreasonable ones need encouragement to stay the course. That’s why we formed the Catalpa community; like-minded advisers who have made themselves accountable to us and us to them.

Day by day more advisers are choosing to serve their clients the way they want to be served. Personal commitment remains key. The late Michael Jackson said it best 35 years ago, “And no message could’ve been any clearer / If you wanna make the world a better place / Take a look at yourself and then make a change.”

This article is general and does not consider your personal circumstances so it may not be appropriate to you. If you would like advice specific to you, please let us know.

At Daniel Crump Financial Planning we are independent retirement planning specialists.

24/03/2023

Global banking turmoil and your super

It all started a couple of weeks ago with the collapse of mid-tier US institution Silicon Valley Bank. Soon another mid-tier bank in the US, Signature Bank, collapsed.

If you have been brave enough to look at your super balance in the past few days you will know that the share market has since fallen more than 5% and is now trading at four months lows. In that two weeks markets have fallen because the recent turmoil in banking has spooked investors who remember the pain of the Global Financial Crisis 13 years ago.

Things got a whole lot spookier last weekend when top tier global banking institution Credit Suisse was bailed out by the Swiss government in a deal that prioritised shareholders over bond holders and was then folded into arch-rival UBS.

So, are we right to be spooked? Are we about to experience a second Global Financial Crisis? In the words of Yogi Berra, “Is this déjà vu all over again?”

Not according to the people in the know.

US banking system sound and resilient

In his press conference when increasing interest rates for the ninth time, the chairman of the Federal Reserve, Jerome Powell moved to reassure markets by describing the banking collapses as “isolated incidents” and the banking system as “sound and resilient”.

Australian banks are unquestionably strong

Here in Australia, the assistant governor described Australian banks as “unquestionably strong”, with the banks’ capital and the liquidity positions being well above the regulator’s required levels.

Still, the banking turmoil is far from good news for the global economy which is already at risk of recession. We expect to see credit in the banking system tighten as institutions become more conservative, which will in turn reduce business and consumer spending, further hindering global economic growth.

Investment outcomes are more important than super fund returns

As independent financial planners who specialise in retirement, we know that while volatility is a normal part of investing, it is the enemy of the retirement portfolio. Most retirees are both short and long-term investors and are required to sell assets to fund living expenses from time to time.

Retirees should avoid selling quality assets at depressed prices at all costs.

At Daniel Crump Financial Planning, we employ a framework that compartmentalises your money into buckets that are invested according to their purpose. This bucketing approach, when supported by a continuous planning cycle, involves judicious rebalancing, where we seek to take profits while avoiding crystallising losses. In this way, your investment outcomes disconnect from the ups and downs of your super fund’s returns during turbulent times.

So, you can have confidence to spend today knowing that you’re still being responsible for the future.

Daniel Crump is the founder of Daniel Crump Financial Planning. This article is general and does not consider your personal circumstances. If you would like independent advice specific to you, give us a call on 0418 148 622.

At Daniel Crump Financial Planning we are retirement planning specialists. It is all we do.