Financial Planning

COVID-19 has created a great deal of uncertainty within the community. Job losses, rental vacancies, and time to dwell on our woes is freezing some people from acting. These are understandable and natural reactions. Human beings dislike uncertainty, so our natural reaction is to retreat from decision making and protect what they have; but it doesn’t have to be this way.

People who have a financial adviser are likely to be less anxious about an unknown future and more focused on their ideal financial future. With this in mind, here are my top seven reasons why now is a great time to seek financial advice.

1. You have time

The limitation of activities (particularly in Melbourne), less time commuting to work and less driving the kids around, means that you have time to commit to seeing an adviser.

At The Hopkins Group, we are conducting financial advice meetings online. This makes it easy for you. There is no travel to and from our office, there is no car parking, and best of all no traffic! This reduces the time commitment to the meeting time with your adviser. When you’re done, you can go back to doing whatever you were doing at home.

2. You can plan for your future

Major disruptions like the coronavirus force us to think about the future we want to have. Maybe you are thinking of a career change, maybe you have rekindled the long lost dream of self-employment or you’ve decided that a sea or tree change is for you.

Lockdown has allowed busy human beings to slow down and reassess our lives. A financial adviser can help you make the right financial decisions to allow your desired future to become a reality.Riding to work rather than driving the car could save you at least $100 per week ($5,200 per annum), drinking coffee in the office could save you $25 per week ($1,300), bringing lunch from home could save $50 per week ($1,300) – that’s $7,800 savings over a year! These small amounts add up.
New habits can be established. We all have habits that we fall back on in life, but if you have been out of your normal routine for the past couple of months, your usual habits most likely have been broken. This could be everyday things like buying a coffee every morning on the way to work, buying lunch every day, gambling, going to the pub or driving to work.

New habits take 21 – 63 days to form, depending on your personality, so give it time; but lockdown is an opportunity to develop new habits and behaviours that might be more beneficial to your long-term financial position. For example, riding to work rather than driving the car could save you at least $100 per week ($5,200 per annum), drinking coffee in the office could save you $25 per week ($1,300), bringing lunch from home could save $50 per week ($1,300). These small amounts add up. If you were to change all these habits you have just saved $7,800 in the year. This money, when invested well, additional mortgage repayments made or used to pay off the credit card, saves you heaps of money over the long-term.

4. You are living on less

Because of the virus, many of us who are still working, who used to go out to dinner, travel overseas and spend money too easily are probably finding it easy to save money. If you change your behaviour, this can be an opportunity to make the changes stick. The break from the past is a chance to make it a permanent savings habit rather than a temporary one. Small amounts of saving add up over time, especially if you have the right advice and the savings are directed for a better financial future.

5. Markets are volatile

Getting your investment strategy right now will allow you to benefit from the winners in the new economy. Investments are not set and forget. The right asset allocation makes a massive difference to your returns over time. The right exposures within asset classes add to your returns. Speak to your adviser today to review your investments.

6. Mortgage rates are low

If you have not refinanced, reviewed, or reworked your mortgage for five years, now is a great time. The competition among lenders is fierce. They are offering cash rebates, low rates, and cheap fixed rates for quality borrowers. If you have equity in your home, a stable income and are willing to change lenders, now is a great time. Fixed rates are the lowest versus fixed rates I have seen in my 20 year career. In many cases, fixed rates are 60 – 70 basis points lower than variable. That said, fixing is not for everyone, so speak with a mortgage specialist (like Loreen Dyer from The Hopkins Group) first to determine if fixing your rate will benefit you.

7. Tax advantages

The government has many schemes to support the economy. These range from JobKeeper and JobSeeker, to first home buyer schemes, self employed asset write offs, claiming deductions for home office expenses during lockdown and the home renovations scheme. If you are not on top of these, you are likely to miss out on benefits you are entitled to. A full-service advice firm like The Hopkins Group will make sure you do not miss out!

Financial advice is always valuable, but especially so during high uncertainty. Invest the time to have an initial (online) appointment with an adviser from The Hopkins Group, while you have time. There is no obligation, and you might find a way to live your dream future.

The internet is a portal to boundless information, but unfortunately not all of the information out there is helpful or honest. Worse still, there are people on the internet who will deliberately try to prey on your trust, with the promise of an incredible deal.

For example, one of my clients was attracted to an advertisement featuring Dick Smith and Andrew Forest about their success in trading Bitcoin. The ad promised high returns and simplicity, to make money from trading the cryptocurrency. The use of successful people added to the credibility of the promotion, so my client gave their email address and phone number to access more information.

Later that day, an affable man from the company behind the advertisement rang my client telling them that they too could make money trading cryptocurrency. The man did not push for money on the first call. He explained what he does, how he does it, and why it is easier to make money trading cryptocurrencies than shares because there are less people trading and market movements are simpler to spot.

Over several phone calls the man from the Bitcoin trading company proved his credibility and asked my client to transfer $250 to show how well their computer trading can make money. Over several phone calls, they were told how well the computer trading program was going and how much money was made. The $250 had grown to $400 and it all sounded easy. My client was sceptical, so they asked for the money to be returned – and, it was. This was followed by more calls, including a call to speak with my client’s spouse, and a further request for more money to be sent.

My client obliged by sending the $400 that had been returned plus an additional $600 so the trader could make more money. The man on the end of the line explained that there was a better way than computer trading. He was a specialist trader and wanted my client to be one of his personal clients. Under this proposed arrangement, the man would trade cryptocurrency on my client’s behalf with 5% per month returns. The catch? To access this level of support, the minimum buy in was $50,000.

This where my client asked me to speak with the man to see if it is legitimate. I quickly told my client that this was a scam and that when they sent the larger amount of money, it would never be returned. I researched the scam online and sent them information about the scams and how they work.

This is a classic example of why scams are so effective. False advertisements draw you in with fake endorsement by celebrities. In this example, the person on the other end of the phone presented as knowledgeable, confident, likeable, and trustworthy. They started out by getting my client to agree to small actions, knowing that once small actions are agreed to, it is easier to get you to take bigger actions. They attempted to allay concerns by sending $400 back to show that they are legitimate. They were willing to speak to their spouse and their adviser to show credibility. Luckily, we intervened before it was too late for my client – but sadly, that’s not the case for everyone.

The ACCC recently released its Target Scams report for 2019, writing that a total of $634m reported as lost in the year, an increase of 34% over 2018. This includes all scams, such as romance and dating, and business email scams. Investment scams alone reportedly make $126m of this share, however the ACCC believes this number is significantly lower than the true amount lost.

The impact of scams is significant. Emotional distress, loss of self-confidence, lost time and energy in extricating yourself from the scam and coming to terms with the loss. Older Australians may also lose independence if family limit their access to money to protect them.

One of the ways to reduce the number of scams out there, and to prevent others from falling for the same mistake, is to tell people about your experience. This is the reason for writing this article.

The Hopkins Group aims to provide the best advice to grow your wealth. Often, this involves advising against actions that are likely to result in loss. One of the best ways we can grow your capital is avoid losing money. A permanent loss of money significantly damages your wealth. There are no magic tricks to get your money back or to boost your returns to compensate for your loss – but we can learn from mistakes and help others to avoid making them.

Scamwatch is a government website which has a range of information about scams and how to avoid them. They suggest the following to protect yourself.

• Learn about clickbait and avoid engaging with it.
• Do your own research and consult with independent experts before making investment decisions.
• If a price seems too good to be true, check for hidden catches.

If you are tempted by an attractive investment email but are not sure of its legitimacy, please speak with your adviser at The Hopkins Group, undertake your own independent research into scams and assess the opportunity with an understanding how much you can lose, rather than how much you can make.

Can you believe the end of financial year 2019/20 is almost upon us?

Amongst all the distraction and chaos we are simplifying everything this year with our top 10 strategies you may wish to discuss with your financial adviser or accountant before 30 June.

1. Top Up Your Super Contributions

2. Bring Forward Super Contributions

3. Make a Spouse Contribution

4. Get a Government Co-Contribution

5. Lodge Your Deduction Notice

6. Review Salary Sacrifice Arrangements

7. Pre-Pay Expenses & Crystallise Losses

8. Defer Income & Gains Until July

9. Gather Your Receipts

10. Meet Minimum Pension Standard

Maximising Super Contributions – Financial adviser

If you’re under 65 or otherwise eligible to contribute to super, you should think about maximising your contributions. However, there are limits on how much you can contribute – generally, up to $25,000 pa from ‘before tax’ money (e.g. employer and salary sacrifice contributions). We can discuss your assessable income, potential tax deductions associated with topping up your super and determine if this strategy suits your circumstances.

If your spouse isn’t earning much, you can consider giving their super a boost. If your spouse earns below $37,000 you might be able to claim a spouse contributions tax offset of up to $540 when you contribute $3,000 to their super.

While it’s generally too late to enter into a salary sacrifice arrangement for employment income earned in the current financial year, you should review your future arrangements for the coming 2020/2021 financial year to ensure they’re effective.

Bring Forward Expenses and Defer Income – Accountant

If you think you might earn less next year, you would generally want to think about bringing forward tax deductible expenses and deferring assessable income.

You can pre-pay up to 12 months of expenses such as interest on an investment loan. This applies to deductible work-related expenses like insurance premiums for income protection policies too. If you’re planning on buying a new work-related tool (e.g. adding to your professional library or tools of trade) it’s immediately deductible if it costs less than $300.

If you’ve realised a capital gain during the year, you might want to consider bringing forward the disposal of an asset carrying a capital loss to offset capital gains.

Deferring income can be problematic, but worth considering if you are certain that you’ll earn less next financial year.

Get your admin in order

It’s a good idea to start gathering your paperwork, including those pesky little donation and incidental receipts, so you’re ready to meet your accountant early in the new financial year.

What to do now?

Book your phone or video meeting with a financial adviser or accountant from The Hopkins Group. This week we can find out if any of the 10 strategies listed above might need further consideration in light of your personal circumstances.

In the next few weeks, a change is coming to the way insurers sell income protection, as a result of losses experienced by the industry.

Income protection in Australia is considered one of the best policy conditions in the world and although some people think insurers don’t pay out, they often do, and have arguably been too generous in some of their disbursements. In certain situations, policy holders were better off on claim than returning to work, with no financial incentive to return to the job.

Over the last five years insurers have collectively lost around $3.4 billion through the sale of income protection and its resultant claims. With large losses and higher than ever claim numbers, the change had to come.

For insurance to be more affordable and sustainable, the Australian Prudential Regulation Authority (APRA) announced on 2 December 2019 that insurers will cease selling agreed value policies.

This was brought on by the life insurance industry’s ongoing failure to design, price and manage significant premium increases in excess of what policy holders would have expected at the commencement of their contract.

APRA did not want insurers to pay more than the customer’s income and wanted the insurer to avoid offering policies with fixed terms and conditions of more than five years.

What does this mean for you?

From 1 April 2020, new income protection insurance policies will only offer indemnity cover by insures like MLC Life, Clearview, AIA Australia and TAL.

If you have an existing income protection policy with agreed value, then you will not lose this feature, but you may find you can’t replace the policy with another insurer that has agreed value as an option.

You can, however, reinstate, cancel and replace to change ownership and lower or increase the agreed income cover without losing this feature.

What is agreed value?

Agreed value is just that, an agreed amount on income cover (providing you have evidence of that income at the time you took out the cover), even if years later your wage drops below the agreed amount. This agreed amount ensures you can rely on an amount of cover if you’re unable to work due to sickness.

What about indemnity?

Income protection with indemnity is usually a cheaper premium option, but unlike agreed value, this type of product only pays a monthly benefit amount up to a limit providing you earned that amount at time of claim. Normally an insurer would go by the last 12 months of income you have earned and pay you up to 75%.

For example, if you earn $100,000 p.a. and have indemnity cover for $6,250 p.m. then you have not lost any monthly benefit. But if you only earned $60,000 that year then you would only be paid 75% of $60,000 or $3,750 p.m., which is an effective loss of $2,500 p.m. Over 20 years this could amount to $600,000 of lost benefits.

Other changes

Other changes to policy conditions, such as policy term, may also be required by APRA but these are yet to be quantified and embedded in the insurer’s obligations. Suffice to say there could be additional changes from 1 April 2020 to these types of policies.

What’s next?

For those that have income protection insurance, some will have features that will no longer be offered in the future. This change may cause you to be stuck with a policy instead of allowing you the flexibility of replacing it with a similar product if there was a better insurer premium offer available. Some policy holders with indemnity may also find themselves in a situation where they have cover they can’t fully claim against, because their income is lower than the benefit amount.

If you have an income protection insurance policy with agreed value in place, speak to The Hopkins Group about what this change might mean for you and to discuss your options.