interest rates to their highest level since. 2008 and officials are expected to raise rates a further two times this yea
The Quarterly FINANCIAL NEWS, OUR VIEWS AND ISSUES | ISSUE 63, APRIL 2018
Economic Update By Gladys Seah Associate Private Client Adviser The global economy has experienced its fair share of difficulties in the first quarter of 2018 but it’s important to take it with a grain of salt, block out the noise and focus on your long-term investment strategy.
Globally Under the new leadership of Jerome Powell, the United States Federal Reserve has raised interest rates to their highest level since 2008 and officials are expected to raise rates a further two times this year. The Fed’s key interest rate now sits at a range of 1.5% – 1.75%, making it the first time in 18 years that it has crossed Australia’s official cash rate, buoyed by a bullish US economic outlook, low employment and rising wages. According to economists, Australia’s reliance on the US has declined since the GFC and China is becoming Australia’s most important trade partner. Given that Australia’s economy is less aligned with the US, the RBA will be keeping a close watch on the Australian Dollar to monitor the impact of rising interest rates. In February the global sharemarket took a dive after the US market reached its peak and fell by as much as 10%, having its worst week in two years. As Director/Private Client
Adviser, Nathan Lear, pointed out in his recent blog – market corrections are not uncommon and it’s important to note the S&P 500 and ASX200 have rebounded.
strong population growth expected and low interest rates, some experts have the view that the housing market will continue to remain stable.
Homebase
Commissioner Kenneth Hayne led the Banking Royal Commission in its first public hearing in March. The nation’s biggest banks were given ten days to provide information of any misconduct committed in the last five years. The landmark inquiry has revealed that National Australia Bank (NAB) has paid over $100 million in commissions to thousands of people for successful lending referrals through their ‘introducer program’ and ANZ were also found to have overcharged interest on their customers’ home loans for a decade due to ‘processing errors’. It appears the commission has now turned its focus onto Australia’s massive home loan market. Only time will tell if there is more dirty laundry to be aired.
March was all about Labor’s new policy to abolish cash refunds for franking credits. This would affect those with Australian shares – particularly the self-funded retirees and people on zero or low marginal tax rates. After an uproar, Labor subsequently announced to spare all pensioners from this crackdown. Our advice for others is not to panic. The election is a long way off and there’s no guarantee Labor will retain this policy – or even take power. In regards to this issue I recommend reading Director/ Private Client Adviser Chris Morcom’s blog on our website from 20 March, ‘Franking Credits Fiasco’. According to REA Group, housing prices in Melbourne and Sydney are set to fall in 2018 as Australia’s property cycle enters a downward phase – yet a crash is unlikely. Sydney’s housing market has fallen by 2.5% this year, the steepest drop in a decade, while Melbourne continued to show strength and resilience. A crackdown on interest-only loans and the tightened lending standards has contributed to the downward turn. The tides are indeed slowly turning but with
The Hewison Perspective At Hewison Private Wealth we stress the importance of putting your money in high quality investments. With that said, I leave you with one of my favourite quotes from investment guru Warren Buffet: “Successful investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time.” www.hewison.com.au | (03) 8548 4800
From the MD’s Desk
What I learnt from buying my first property
By Andrew Hewison
By Travis Schindler, Associate Private Client Adviser
I recently returned from my second annual Global Innovation Tour to the United States. The purpose being to gain ideas and insights from companies into innovative systems, processes and strategies that will ultimately drive a better experience for our clients.
It’s the great Australian dream and now the dream is mine. Becoming a property owner was something I had long been working towards and last year, at 26, I purchased my first property.
Some of the best ideas come from companies outside of financial planning and wealth management. One of the most interesting was Amazon, who are focused on improving their artificial intelligence (AI) technology, otherwise known as Amazon Echo. You may know of Echo, or Alexa, as a voice activated home pod device however Amazon believes it can also provide great benefits in the office, enabling staff to be more efficient and effective and ultimately provide faster turnaround times to client requests.
For between two to three years I put as much of my income towards a deposit as I could. In the beginning I had no structured savings plan. I muddled along and accumulated some savings but there were leakages! To maximise your savings you need a structured savings plan. And start now!
Some of the best insights are not always the biggest and shiniest. One New York City adviser religiously contacts his clients after a meeting to ensure they received value, along with requesting feedback on future improvements. The lesson here is that all too often we try to solve many of our clients’ problems and improve client experience without asking the most important person themselves, the client. I would also stress that as with last year’s trip, the message was clear – Robo advice in isolation is dead. Technology will continue to play a pivotal role in service delivery but the human relationship is here to stay. This is just the way we like it.
It was a steep learning curve, so I thought I’d share some tips for anyone thinking about buying their first property.
1. Structure your savings and start now! Save for the deposit and avoid Lender’s Mortgage Insurance (LMI). LMI is lost money.
There are many ways to do this. I used a spreadsheet to track my savings and worked backwards from what my end savings target was. This allowed me to understand how much of my income I needed to save to build the deposit I wanted. Saving became so much easier when I had a clearly defined cash flow strategy in place. When money came in, I knew how much of that pay packet went to savings, living expenses and what was left for spending.
A conveyancer helps with the settlement and title transfer by ensuring you meet all legal obligations and that your rights are protected. On settlement day, you’ll thank yourself for investing in a quality team.
4. Know what you’re buying and who you’re buying it from Although this applies to any type of property purchase, I bought a property off the plan with significant stamp duty savings available (not the only reason for the purchase). I did my research on the developer and the builder. Research is imperative when purchasing something that is essentially just a hole in the ground.
Lenders look for genuine savings. Time and repetition are crucial.
If buying a property off the plan, keep in mind that a bank valuation takes place just before settlement and can be less than the price you agreed to pay for the property say 12 or 18 months before. If the valuation comes in below the contract price, you might be required to put up a larger deposit at the last minute to satisfy the lending criteria.
2. Understand your borrowing power. Be patient and research the market
5. Understand the costs involved and stress test your financial position
I looked at every online borrowing capacity calculator that I could find. While these calculators are generic and not the best indictors of your actual borrowing power, I was left with the feeling I needed to save more every time I clicked “calculate how much I can borrow”. This motivated me to save more and be patient.
Before purchasing a property, understand the costs involved at every stage. Upfront costs include stamp duty, transfer fees, loan establishment fees, mortgage registration fees and conveyancing fees. On settlement day, there could also be adjustments such as owner’s corporation fees and council and water rates.
After some time, I had a rough understanding of what my purchasing power was and spent countless hours sifting through online property ads, redefining my criteria for the ideal property. I went to inspections, talked to people and researched the market. When my savings became more substantial, I engaged the services of a mortgage broker.
Stress testing what your financial situation could look like after settlement is important because the costs of running a property and maintaining a loan today can change dramatically over short periods of time. Stress testing involves understanding how financially prepared you are to cope with scenarios such as a rise in interest rates, a fall in income, maintenance costs or a rise in utilities such as electricity.
3. Surround yourself with experienced professionals With the help of an experienced mortgage broker and professional conveyancer, who worked together as my team and had my back, I was protected from making a lot of rookie mistakes. Going directly to a bank to arrange financing can be time consuming and restrict your www.hewison.com.au | (03) 8548 4800
options. Mortgage brokers can often obtain lower interest rates and are paid by the lender, not the borrower. Make sure your broker has your best interest at heart, referrals from friends and family are a good starting point.
Conclusion Buying my first property was a rollercoaster ride full of lessons and reality checks but with careful planning and surrounding myself with the right people I was able to ensure a great outcome.
What are the costs of aged care? By Chris Morcom, Director / Private Client Adviser Clients frequently ask, “What are the financial costs associated with aged care?” Quite often the ensuing discussion involves our clients’ parents or family members, rather than our clients themselves. Aged care can be complicated. It’s good to understand the general process for getting access to care. First, the intended recipient needs to undergo an assessment by the Aged Care Assessment Team / Service (ACAT/ACAS). This can be arranged via your GP or can be requested directly with ACAT/ACAS. The assessment determines the level of care required and must be done before you can access government subsidised home care packages or residential care.
In-Home Care Most people want to remain independent for as long as possible. For those needing some extra support, home care packages can be of assistance. Once assessed, you need to search for a service provider in your area that can provide the services you need. The www.myagedcare.gov.au website is a good place to start or you can call the government help line on 1800 200 422. How much you pay will depend upon your assessable income. Advice from your financial adviser can help quantify these costs for you. The costs for home care packages are: › Basic Daily Fee (paid by everyone): $10.32 per day ($3,766.80 per annum) PLUS › Income Tested Fee (paid by those whose income exceeds certain thresholds). The maximum Income Tested Fee is $29.63 per day ($10,785.85 per annum) The income test thresholds are different for singles, couples, and those couples who are separated by illness. This test is performed by the Department of Human Services or Veterans Affairs via a comprehensive form.
Residential Care Once a person can no longer remain at home, residential care is often the answer. There are three main types of fees associated with residential care: 1. Costs of Accommodation 2. Daily Care Fees 3. Extra Service Fees
1. Costs of Accommodation The cost of accommodation is expressed as a lump sum, called a Refundable Accommodation Deposit (RAD). These are generally in the range of $400,000 – $600,000 but could be higher or lower depending on the aged care facility.
Those entering residential care have the choice as to whether this amount is paid: › In full as a lump sum › Partially paid as a lump sum OR › Paid as a daily fee, called a Daily Accommodation Payment (DAP). The DAP is calculated by multiplying the lump sum RAD by the statutory interest rate, currently 5.77%. So, for a RAD of $500,000, the equivalent DAP would be $28,850 per annum or $79.04 per day. The RAD is refunded in its entirety when the resident leaves the residential care facility.
2. Daily Care Fees The cost of an individual’s care is met by daily care fees. Everyone must pay the Basic Daily Care Fee of $50.16 per day ($18,308.40 per annum). There is also a means tested daily care fee, the amount of which is dependent on the financial situation of the person entering care (and their partner). The amount payable depends on the both the amount of assets and income. The maximum payable for a means tested daily fee is $245.62 per day but this is subject to an annual maximum of $26,964.71.
Importantly, there is a lifetime cap on the amount of means tested fees payable by a person for aged care services. Once the total means tested fees paid reaches $64,715.36, the means tested fee reduces to zero… permanently. This lifetime cap includes both income tested fees paid for home care packages, as well as means tested fees paid for residential age care.
3. Extra Service Fees These are fees paid for services provided by the residential aged care that are above and beyond those basic services required under government legislation. The amount paid will depend upon the services accessed, and not all facilities can charge such fees.
Final points Obtaining financial advice prior to lodging any forms with the Department of Human Services or agreeing to a fee arrangement is crucial. Often there are steps that can be taken to restructure financial affairs prior to lodging forms to ensure the cost of care is optimised for each person. The maximum lifetime cap for means tested fees should provide comfort to all that there is a cap to the amount that aged care will cost an individual in their lifetime.
Hewison Foundation
Sheree Sriwarti
The Hewison Foundation raises funds to support community programs that assist the disadvantaged, including victims of domestic violence.
will be rolling out to an additional 120 participants. Financial support from the Hewison Foundation contributes, in part, to this innovative program.
Our long term partner is the Sacred Heart Mission, based in St Kilda. Specifically our support flows through to the Women’s House and the Mission’s ‘Journey to Social Inclusion’ program. ‘Journey to Social Inclusion’ aims to break the cycle of homelessness through a commitment to long term housing and intensive support services. The ‘Journey to Social Inclusion’ program recently secured the state’s first Social Impact Bond and the program
Our first fundraising activity for the year is looming, in the form of the Hewison Foundation Golf Day on Friday, 20 April. Teeing off at Woodlands Golf Club in Melbourne’s illustrious Sandbelt will be 100 keen golfers. Would you like to join us? We will be playing the friendly Ambrose format, which means you don’t have to be Jack Nicklaus to enjoy a round! Contact Clare if you’d like to reserve your place.
Client Services Assistant Hi, my name is Sheree. I joined Hewison Private Wealth (HPW) last year, direct from the banking industry. At HPW I’m really enjoying getting to know clients better and using my detail oriented approach to assist each person. When I’m not working I pursue an active lifestyle. I also enjoy exploring new cultures and destinations – I love learning about new people and places.
Ina Budiono Client Services Manager Good to “meet” you. My name is Ina and I’ve recently joined the Client Services Team. I have a Bachelor of Business and have spent many years in the superannuation and finance industry. Outside of work I enjoy spending time with my teenage children, bushwalking and reading. I look forward to working with you in the future.
Wealth Creation & Protection Forum In March we held a Wealth Creation & Protection Forum to assist clients and their family members with strategies to begin their wealth journey. At Hewison we believe wealth management is an intergenerational issue and it’s never too early to start making a plan and creating one’s wealth. Held at the Westin Hotel the evening had over 100 people registered to attend. The room was buzzing. To begin we had Olympic
Cassy’s baby Client Services Manager, Cassandra Drysdale, welcomed the adorable Oliver into the world in January. Cassy is enjoying the wonders of a new family and will return to Hewisons next year.
champion, Nicole Livingstone inspire the audience with her tales of Olympic stardom and more recently, her Women’s AFL experience. Andrew held the floor with a topic named ‘Life by Design’. Glenn and Nathan – aka the Money Mentors – took people through financial considerations for the various life stages between 20-50 years. And Chris, Andrew and Marcus (our Risk Adviser) held a Q&A on Insurance Protection.
Hewison Family BBQ A perfect summer Saturday in February was delivered by Mother Nature for our annual Hewison Staff Family BBQ. And as you will have noticed if you’ve been in the office recently, our family is growing! We took over the nearby Fawkner Park and enjoyed time to relax out of the office. The snags sizzled, the dogs ran the perimeter and the children were entertained by a face painter.
Congratulations Travis At HPW we believe our advisers should obtain the highest levels of education and training. We’d like to congratulate Associate Private Client Adviser, Travis Schindler, who recently completed his Master of Financial Planning.
Level 8/417 St Kilda Road Melbourne VIC 3004 Phone (03) 8548 4800
[email protected] | www.hewison.com.au
The information contained in this publication is general in nature and not intended as personal advice. Please obtain advice from your financial planner before acting upon this information.
