The biggest issue facing planners, and by extension clients, next year will be the education standards that are still yet to be formally announced by FASEA.
This will cause enormous distraction through people taking time out of work to study, or working on an exit strategy and getting their businesses ready for sale. The unintended consequences have not been thought out well.
This is not helping by the constant personnel changes at FASEA and the late hour of reporting. The anxiety of what the final make up of the FASEA standards will be is high.
The other huge issue is that Chris Bowen MP has said that if elected, the Labor party will adopt all the recommendations from the Royal Commission, regardless. However, what the Labor party doesn’t understand is that the Royal Commission doesn’t have to take into account the economic ramifications of decisions made.
For clients, the major concern will be the consequences of a possible change of government and, with it, the changes to franking credit treatment and negative gearing, and their flow-on effect on superannuation and investment portfolio performance, as well as on house prices.
There is also a strong possibility of negative returns from global share markets, potentially driven by a U.S./China trade war.
In addition to managing client needs, as outlined above, advisers will need to contend with reduced risk commission rates, the possible removal of grandfathered remuneration and potentially, percentile fees.
At the same time, we will all need to commence preparation for the Financial Adviser Examination, as well as either the completion of a degree course or deciding to exit the industry.
This activity will, of course, lead to many advisers choosing to sell their business. Some already are, with a resultant downward pressure on business valuations.
All in all, 2019 could possibly be the most challenging year for advisers and clients since the impact of the GFC began to be felt a decade ago.
2019 is set to be a year of change. Not only because of the Federal Election, but we expect an increase in regulations as a result of the Royal Commission. Here are three key areas we believe will affect our clients in 2019:
Real estate – Auction clearance rates are at a six-year low. Lending criteria has been tightened and may tighten even further in 2019. These factors, combined with low wage growth, have many analysts predicting the continuing fall of housing prices in 2019. Many of our clients have had to bring forward their downsizing plans – taking advantage of the legislation that allows them to contribute $300,000 of proceeds to superannuation. Many of our younger clients are putting off purchasing their first home, in the hope that prices will continue to fall.
Share market volatility – We are closely monitoring market volatility and global events, such as potential U.S. interest rate increases and growing political tension with China, as they may affect investment portfolios. Cash has been king in our portfolios for some time, so we will work closely with our clients, analysing the merits of other potential investments.
Record low interest rates – In 2019, we will continue to advise our clients on how to use low interest rates to their advantage. By helping our clients cut costs, they can focus on repaying debt. This helps them live for today, but also plan for tomorrow.
Open banking data: From 1 July 2019, open banking will officially start in Australia and we can see from the reactions to ‘My Health Record’ that privacy is likely to be a concern for some clients. Beyond that, this is a game-changer for advice – we will finally have access to technology that will easily, and with little time/cost input, give us correct consolidated position statements, and be able to give insight into clients’ cashflow and subsequently, potential strategies associated with that.
Political plays: The number one thing on clients’ minds is a possible change in Government and how this is going to affect them personally. A potential Labor Government is catching headlines for a raft of policies, including the removal of imputation credit refunds, the removal of tax deductions for negative gearing, and halving the personal capital gains tax concession to 25 per cent. Clients are going to want to know how this affects their position.
The fee pressures are real: For clients, increasing compliance requirements will mean they inevitably pay more for advice. The implication is that clients with little spare cashflow will simply be unable to access the benefits of advice. For our business, increasing compliance costs, combined with the changes to revenue streams and the potential for caps on fees, mean that we will more than ever need to align our services provided with value to the clients.
I believe we will see a continuing trend with clients raising the issue of the high cost of private education for their children, which has continued to outstrip inflation year after year.
The continual tinkering with superannuation legislation and much broader coverage in the media continues to confuse clients in relation to what they may or may not be able to contribute, in particular the downsizer contributions and conditions surrounding this.
The Royal Commission has brought to light a plethora of areas in which financial institutions have not met the expectations of the community, thereby increasing nervousness for those clients associated with any of the institutions named.
At VISIS, we feel we are well-positioned for any changes that may flow down from the Royal Commission. We have always, and continue to, see compliance as an integral part of the financial planning process.
The proposed changes in relation to the franking credit system has several retiree clients concerned, as they rely on this tax refund to top up their existing income to meet increasing living expenses.
Having many clients in the legal profession, I have seen the unrelenting pressure placed on senior practitioners to continue to deliver higher and higher financial returns to the firm. Mental health is getting more air time and I hope this discussion around awareness continues to grow in 2019.
When it comes to our clients, 2019 is going to be no different to 2018 or any other year.
They’re going to have kids, change jobs, start businesses, travel, buy forever homes, pay debts, improve spending habits and much more. They’re also going to try and navigate the never-ending curve balls that life throws their way and reduce many of the stresses that money can cause.
We’re going to be in their corner, helping them live the best life they can, with the resources they’ve got. We’ll be making sure they have great context for big life decisions, stay accountable and avoid the big mistakes that could hold them back.
As a business, at Verse we’re going to focus really heavily on:
– Enhancing the client experience;
– Simplifying our operations to enable growth; and
– Creating and sharing content online to help educate and inspire people to take control of their finances.
The investment, legislative or political climate is going to have little effect on these things. Despite so much discussion about likely changes in the advice industry, we’re remaining focused on what we can control. We can control our collective effort to help our clients get more of what they value, improve the experience we provide, and promote the positive impact of great advice and coaching.
This time last year I was preparing clients for a down turn in financial markets. That conversation is still continuing, despite U.S. markets reaching another all-time high in September 2018. With U.S. interest rates having risen this year and further rises expected in 2019, share market volatility is anticipated to continue. With this backdrop, managing client expectations is paramount.
The upcoming Federal election and a potential change of government could also impact clients over the second half of 2019, with the mooted changes to franking credit refunds for non-age pensioners prior to March 2018, the reduction in capital gains tax concessions, negative gearing on established properties for new investors from 1 July 2019 being abolished, and higher income taxes for high income earners among some of the policy changes announced so far.
The Labor party has also said it will adopt all the changes from the Royal Commission into misconduct and this may have an impact on financial advisers and clients, but more likely beyond 2019.
The advisers’ exam will also put additional burdens on advisers during 2019 for those who are choosing to remain in the profession beyond 2020. So, the next 12 months will be exceedingly busy.
Following the interim report of the Royal Commission, ASIC has become more pro-active, so compliance matters will be more prominent during 2019 and beyond.
The upcoming 12-month period looks to be an exciting time to be in the financial advice profession.
Our industry has been subject to a significant level of change, disruption and public attention over the past 12-months. This includes issues such as the Royal Commission, the Federal Budget, the incoming minimum education standards, proposed regulatory changes and disruptive technology.
Whilst change seems to be one of the only constants within our dynamic industry, there has been a heightened level of uncertainty over the past year largely in relation to the outcome of the Royal Commission and what the minimum education standards for advisers will be. Having these issues in the rear-view mirror will allow advisers to focus on the bigger picture moving forward: servicing clients and their needs, goals and objectives.
For clients, they may continue to face increased levels of volatility as we continue to see key issues play out, such as rising debt levels, Brexit, property prices, the unpredictability of President Trump, Chinese investment entering new markets, and disruptive technology.
We need to be conscious that what worked well in the past may not necessarily work well in the future.
We therefore need to continually review and improve on what we do, as well as keeping abreast of changes within our industry and the broader economy, if we want to continue to provide clients with optimal solutions and be their key advisers.
The key issues for our practice in 2019 will be technology and compliance.
Technology is a big one for us, as it seems like our industry is undergoing a constant evolution in regards to the new tools available and how this helps us deliver advice. I believe that you must stay up to date to stay relevant.
We are always experimenting with new ideas, software and applications that might help us to deliver our advice more efficiently and in a more ‘client friendly’ manner. Although we try a lot of new things, it’s only about one in 10 new ideas that are actually implemented. A big advantage of being a boutique practice is the ability to make quick changes to our processes without disrupting the business too much.
I also think compliance will become a bigger focus for us in 2019.
Our practice has grown rapidly over the last few years, but I wouldn’t mind taking a step back from growth to ensure that our business is as compliant as possible and that our existing client base continues to receive a high-quality service.
With the fallout from the Royal Commission, there will be an increased focus on the quality of advice and we’d like to ensure that we are implementing best practice where possible.
Overall, I think it’s a great time to be in advice and I’m looking forward to 2019.