Property Rentvesting – By Phillip Richards

If not even COVID19 could slow down the juggernaut that is the Melbourne property market, then what can?

I speak to a lot of people who are looking for advice on how to break into the property market.

In fact, as a goals-based financial advisor, I spend a lot of time talking to people about property.

And whilst there is a wealth of investment opportunities outside of property that are worthy of consideration, there’s no denying that in Australia, the lust for bricks and mortar is very much a part of the national psyche.

We all want a place we can call our own.

Whether I’m helping someone attain their first or their 10th property, there is, in general, widespread disbelief at how strongly the Melbourne property market is performing after Victoria’s lockdown-riddled 2020.

Any hope first-home owners harboured of being able to access property on the cheap with all that money they saved by not travelling overseas or eating out with friends every second night have been dashed.

In the March quarter, house prices in metro Melbourne reached the $1 million mark for the first time, rising 8.8 percent from the previous quarter to $1,004,500.

That’s not to say that breaking into the property market is impossible for first-home buyers.

There are plenty of opportunities in the outer suburbs and regional areas.

The problem for many of these first-home buyers – who have perhaps grown up in Melbourne’s leafy inner-suburbs or who have been renting and living in some of Melbourne’s most in-demand pockets – is that they don’t want to live in these outer suburbs or regional areas.

And I should know because that just about sums me up.

I love living in the city.

It suits my lifestyle, my social network, and my work.

I need to be near the vibrancy of the city and so that is what I do.

I live in the city, where I rent a brilliant apartment that works within my budget and has all the amenities that I need, and I invest in property in the areas I can afford to buy property.

Would I live in Bendigo? As lovely a part of Victoria as Bendigo is, it’s not where I want to live personally.

But would I invest in a property in Bendigo, where the median house price rose by 9.9 per cent in the 12 months to December 2020?

You bet!

This is called ‘rentvesting’.

And I think it’s time we had a long, hard conversation about why more Australians should seriously consider doing it as well.

As Australians, we place an inordinate amount of pressure on ourselves to own the patch of dirt (or slice of sky if apartments are your thing) we live on.

It’s ingrained into us, as if it is the only measure of financial success.

But as part of a well-planned and executed financial strategy, reinvesting can be a fantastic way to enjoy all the benefits of property ownership, whilst living where you want to live.

By taking advantage of cheaper property prices in the outer suburbs or regional areas, you can attain an asset that is instantly cashflow positive, provides some great tax benefits and capital growth over the long term, whilst renting in the suburbs that you want to live in.

“Rent” is often seen as a bit of a dirty word.

People hate the idea of “paying someone else’s mortgage”.

However, there are also many positives that come with renting over the long-term, whilst investing in more affordable areas.

From my own experience, by committing to my lease for the long-term, I have negotiated a reduced rent with my landlord saving me significant money in the long-term.

I have also worked with clients to help implement strategies that incorporate rentvesting into a wider financial plan.

By using surplus savings and funds to invest in a stock portfolio that covers their rent, whilst their investment property (or properties) is providing a yield on top of the salary that they earn, we are helping clients kick significant financial goals.

If you or someone you know is interested in learning more about how rentvesting works, and how it might apply to you or your friend, please don’t hesitate to reach out and start a conversation.

– Phillip Richards (Managing Director & Financial Advisor)

The team at Endorphin Wealth and myself are passionate about helping people achieve their life goals with great financial planning. We are not licensed or owned by big banks and financial institutions, so the advice and wealth management we provide is always in our client’s best interests. We have the advantage of being able to access a range of products from different providers that can be tailored to our client’s goals and needs. We have offices located in Sydney and Melbourne, where you will be able to find a financial advisor that is suitable for you.

For an obligation-free conversation about your financial future, please contact us on 03 9190 8964 or at advice@endorphinwealth.com.au

5 Considerations in Choosing a Financial Advisor

1. Decide what you want/need from a financial advisor.

What you want and/or need from a financial advisor will depend on what stage in life you’re at, the amount of money you have (or don’t have!) and what it is that you wish to achieve.

The role of a financial advisor is to help you make financial decisions and plan your future. This could include advice about budgeting, investing, wealth strategies, superannuation, retirement planning, succession planning, estate planning, insurance and taxation.

2. Choose the type of financial advice that’s right for you.

It’s your choice on whether you get either general or personal financial advice from an advisor. This will depend on what you need.

General financial advice doesn’t account for your personal situation or goals, or how it might affect you personally.

Personal financial advice is tailored to your unique-to-you financial situation and goals and is designed to be in your best interests. Such personalised advice can include:

  • Scaled advice or “single-issue” advice— allows you to access cost-effective financial advice specific to what’s most important to you right now. For instance, you might just wish to get advice on how much you should contribute to super, or what to do with an inherited property.
  • Comprehensive financial advice— is tailored to your particular circumstances and objectives. Your advisor will help you to develop a plan to secure your financial future.
  • Ongoing advice— is essential as life doesn’t stand still for anyone. As personal or financial events change your world, the best way to stay up to date is to consult your financial advisor by way of regular monitoring and review of your financial plan and affairs.

3. Find a financial advisor.

It may seem to be an obvious consideration. However, this is a really important step in the process. There are a few options open to you for finding a licensed financial advisor, such as through:

  • A financial advice professional association, for instance – the FPA (Financial Planning Association of Australia)
  • Your lender or financial institution
  • A search on the ASIC (Australian Securities and Investment Commission) website’s Financial Advisors Register
  • Recommendations from people you know and whose opinions you respect and trust.

Researching your potential financial advisor is highly recommended. One of the first things to check is their FSG (Financial Services Guide). Their FSG will show:

  • The services they offer
  • How they charge
  • Who owns the practice
  • Any links to product providers
  • Their AFS (Australian Financial Services) licence number.

4. Meet your potential financial advisor.

Financial advisors don’t usually charge you for the first meeting. This presents a good opportunity for you to determine if they’re a “good fit” for you.

When you first meet with them, ask them about:

  • Their qualifications, main client type base and specialty areas
  • Their experience, e.g., the length of time that they have been practising as a financial advisor
  • Their fee structure
  • What information you’ll receive and how often
  • How they’ll consult you on decisions
  • How they’ll monitor and manage your investments
  • What commissions or incentives they receive from financial products and how they’ll choose products to recommend to you. Remember, this aspect of their fees should also be disclosed in their FSG.

A good advisor will get to know you, keep you informed, and help you achieve your goals. They’ll also discuss how much risk you’re comfortable with.

5. Assess your compatibility with them.

Your potential advisor might tick all the boxes regarding their experience, qualifications, fees and so on. Yet, if you can’t establish a rapport with them, the relationship is likely to fail. Ask yourself the following:

  • Do they give you immediate straight answers to questions that you put to them, or do they appear to avoid giving a direct answer when faced with a pointed question?
  • Do their values and principles appear to be aligned with your own?
  • Is their manner professional but friendly?
  • Do they listen to you attentively or is it that they appear to more concerned with telling you how good they are?
  • If you are meeting with them as a couple, do they give full attention to receiving feedback from both of you?
  • Finally, do you like them and feel comfortable in their presence?

Your final choice of financial advisor will be integral to achieving your financial/lifestyle goals. Choose carefully.

 

FOOTNOTE:

The Australian Securities and Investment Commission (ASIC) Rules and Regulations and in particular, REGULATORY GUIDE 175 (RG175) is one that all investors should be aware of.

RG175 is for persons who provide financial product advice to retail clients, and their professional advisors. It considers how certain conduct and disclosure obligations in Pt 7.7 and Div 2 of Pt 7.7A of the Corporations Act apply to the provision of financial product advice.

In summary, this Regulation states that an advisor must always consider the client’s relevant circumstances, that is, the objectives, financial situation and needs of a client that would reasonably be considered relevant to the subject matter of advice sought by the client.

 

Retirement Planning 1

Estate Planning for You, Your Family and Your Business

Estate Planning

It’s frightening to know that over 50% of the Australian adult population do not have estate planning in place. The most common reasons given by those who don’t are along the lines of “I just haven’t got around to it”. Often, it’s their view that they don’t have enough assets to warrant a Will.

The reality however is that everyone over the age of 18 should not only have a Will, but at the very least, two other estate planning documents as well. They are an Enduring Power of Attorney (EPOA) and an Advance Care Directive. So why? And what are these documents?

Wills

As part of the overall estate planning process, a Will is designed to ensure that your assets are properly distributed to the people that you care about.

Without a Will, your wishes have no way of being known, and the administration of a deceased estate without a Will can be a complicated and expensive process for your next of kin.

In simple terms, there are two types of Wills – “simple” and “complex”.

A simple Will needs to contain some basic information. You as the testator (the person writing the Will) need to name a personal representative, or the person who will make sure that the Will instructions are carried out as written (the Executor). Then you name the people (called beneficiaries) who will receive your stuff (money, property, land, etc.)

A complex Will is often required to address issues such as:

  • Changing family situations (e.g., blended family)
  • Business ownership
  • Testamentary trusts
  • Protective trusts for incapacitated beneficiaries
  • Guardianship clauses
  • Maintenance of minor children
  • Provision for the children of prior marriages or relationships.

Did you know that there are some things that you can’t give to beneficiaries via your Will?

Your Will can generally only deal with assets that you own in your sole name or that you hold as “tenants in common” with other owners (e.g., land or property).

If you own real estate with another person as ‘joint tenants’ and you die, the property will transfer to the other joint tenant, and not form part of your estate. The same applies for shares or bank accounts in joint names. In both instances, this is very often the case with property and assets jointly owned by marital partners and are not assets that you can gift by your Will.

A properly constructed estate plan not only addresses those assets that pass via your Will. Other assets such as those held within a Trust or company that is not fully owned by you, or held within say, an SMSF (Self-Managed Super Fund) can’t be gifted through your Will.

You may be able to nominate in your Will a person to take control of the Trust however, your Will cannot distribute trust assets.

Of special significance is any superannuation asset. Superannuation is an asset that may or may not form part of your estate after you die. There are factors that will determine the outcome. For example, the type of Death Benefit Nominations (if any) made to the fund Trustees.

Depending on the rules of the fund, benefits can be made in the form of a lump sum, a pension/income stream (also subject to regulations) or both. A member can execute a “Binding Death Benefit Nomination” (BDBN) which directs the fund Trustee as to where and how (depending on the terms of the Trust Deed) proceeds are to be paid on their death.

Some of the advantages of having a BDBN include:

  • Keeping proceeds out of the estate and reducing the risk of a claim on the estate being made by a disgruntled beneficiary
  • Certainty that proceeds will be paid to the intended beneficiary
  • Minimising payment delays

It is vital to get appropriate advice from your financial advisor regarding the type of superannuation fund you have, what rules govern the fund regarding the treatment of your superannuation death benefits along with any nominations. The taxation implications pertaining to your death benefits should also be considered.

Accounting for all these issues will then allow you to make informed decisions for your super death benefits as part of your overall estate planning strategy.

If you run your own business, a significant part of your wealth may be tied up in the business. Your business assets may be held in various structures such as trusts, companies or partnerships, or even an SMSF.

Careful consideration should be given to who will take control of the entities that hold the business assets after the death or incapacity of a key individual in the business. Successful continuation of the business can be put in jeopardy if appropriate succession planning has not been put in place.

Failure to consider the impact of your death or incapacity on your business can also create problems for your personal estate. In particular, if there are loans between you and the business or if you have provided personal guarantees for business loans.

In consulting with your financial advisor, here are some considerations to make regarding your superannuation and/or business assets. For instance:

  • Do you have an up-to-date Binding Death Benefit Nomination in place for your superannuation fund?
  • Who do you wish to control your business, investment entity and assets?
  • Have Trust Deeds been reviewed or updated recently?
  • Have you reviewed your Company Constitution?
  • Are your business insurances up to date?
  • Do you have a buy/sell or other business succession agreement in place setting out the process if a business partner is incapacitated or dies?
  • Have distributions been made to you from a discretionary trust that remain unpaid, or have you loaned or contributed substantial amounts to a trust?

Power Of Attorney

A Power of Attorney (POA) is a legal document, which permits an individual to act on your behalf, when you can’t make decisions for yourself. This can include when you are travelling overseas, are hospitalised or impaired. You can appoint one or more people to look after your legal and financial affairs. This can help to ensure that they are managed in your best interests.

You can limit the powers the person has. For example, their ability to sell your property or manage your business affairs.

An Enduring Power of Attorney (EPOA) is a Power of Attorney document designed to continue to operate if you lose your mental capacity.

Both POA’s and EPOA’s give a person the power to act for you in legal and financial matters.

Advanced Care Directive

If you become mentally incapacitated, an Advanced Care Directive is a document that allows you to appoint a person, known as a “Substitute Decision Maker,” permitting them to make certain lifestyle and welfare decisions for you.

The Advanced Care Directive will include decisions in relation to lifestyle and accommodation. It may also include directions in relation to the medical treatment you are to receive should you become terminally ill.

You must sign an Advanced Care Directive whilst you are of sound mind. It will come into force if you are no longer able to manage your affairs due to loss of mental capacity.

Your financial advisor can assist you in ensuring that all relevant aspects of estate planning are addressed. It is likely that your advisor will require the services of other specialists to ensure that your estate is distributed correctly.

The team at Endorphin Wealth are passionate about helping people achieve their life goals with great financial planning. We are not licensed or owned by big banks and financial institutions. The advice and wealth management we provide is always in our client’s best interests. We have the advantage of being able to access a range of products from different providers that can be tailored to our client’s goals. We have offices located in Sydney and Melbourne, where you can find a financial advisor that is suitable for you.

For an obligation-free conversation about your financial future, please contact us on 03 9190 8964 or at advice@endorphinwealth.com.au

Your tolerance towards risk

One of the key steps in deciding which assets to invest in is determining your tolerance towards risk. As an investor, you need to decide how much risk is too much, for the return that you are trying to achieve. As potential returns from different asset classes increases, the underlying risk also increases. For asset returns in Australia, click here.

The asset types available to you typically fall into one of two categories: defensive or growth. Those in the defensive group (cash and fixed income) normally consist of a return and risk level lower than that of the growth group (property and equity). Also, growth assets tend to have higher capital gains than defensive assets. However, the volatility of returns (how much they differ from the average) is greater for growth assets.

Cash

Being the least risky asset class, cash can be invested at the current market interest rates such as those provided by banks. As there is virtually no risk, they grow at the risk free rate. Currently at a record low due to the coronavirus pandemic at just above 0%, these rates offer a sure, minimal return. Before 2020, the target cash rate set by the RBA has been between 2% and 3%.

Fixed income

Fixed income assets, also known as bonds, are a bit riskier than cash. As such, they offer a return that is slightly higher, depending on the issuer. With an average return over the past years prior to Covid-19 between 3% and 5%, these assets carry credit risk. This is the risk that the issuer (company) is unable to meet the timely payments to the holder (investor).

Property

As the least risky growth asset, property assets have been producing an average of between 5% and 7%. Averages in annual returns is highly related to the location of the property (cities, growing suburbs, etc.). The Australian housing market has been growing over the recent decades, with some saying that there is a housing price bubble.

Equity

The riskiest asset class in this list is equity, or shares. This includes both domestic and international shares, with average returns between 7% and 11%. With the greatest level of volatility, these assets carry the greatest risk but offer the highest potential returns. Diversification, the act of not putting all your wealth into one asset type/sector, is key when investing in equity. However, macro scale events such as Covid19 can cause widescale losses.

Your risk preferences are a guide

How willing you are to bear risk is vital in knowing which assets you should invest in. This is often linked to what life stage you are at. Completing a risk profile will help demonstrate your risk levels and how to allocate your wealth. Endorphin Wealth keeps your preferences in mind when helping you plan for the future that you want.

 

Here at Endorphin Wealth, we are not licensed or owned by the big banks and financial institutions, so the advice and wealth management we provide is always in our client’s best interests. We have the advantage of being able to access a range of products from different providers that can be tailored to our client’s goals and needs. We have offices located in Sydney and Melbourne, where you will be able to find a financial advisor that is suitable for you.

For an obligation free conversation about your financial future, please contact us on 03 9190 8964 or at advice@endorphinwealth.com.au

Financial advisers are finding it more costly and time consuming to be a solo operator.

Endorphin Inspire – Financial Advisors

There’s no denying it. The financial and time costs of running a financial advisory business as a solo operator for financial advisors are reaching unsustainable levels.

The added scrutiny and educational requirements that directly result from the Financial Royal Commission are not necessarily a bad thing. After all, as financial advisors, we play a vital role in the lives of many Australians.

However, with rising costs for licensees and significantly additional requirements of time on financial advisors with the need to sit ethics exams and new units of study to continue operating, solo operators are finding themselves in the middle of a financial and time squeeze.

The result?

More time and money spend on ticking the required boxes to keep their doors open and less time spent on working on their clients and providing outstanding financial advice.

As Endorphin Wealth continues to grow, I find myself speaking to more and more financial advisors, looking to either sell their book or find employment.

For many of these advisors, the increasing time requirements of increased study and increased costs means they are facing some tough choices concerning how much they charge their clients and the amount of time they can allocate to everyone in their book.

As a result, many are now actively looking for a partner or a firm with which they can share their costs and risks to maintain a high quality of service at a competitive price or exiting the industry altogether.

Endorphin Wealth is no stranger to these challenges.

Alongside my experienced and committed team, in particular Director Rob Rich, we have spent hours determining our fees thoroughly and systematically.

However, unlike solo operators, we have the time to and the expertise to dedicate to this exercise because of the incredible team we have built.

As a firm that has grown to now include eight advisors, we also achieve economies of scale that give us increased negotiation power with all suppliers.

At Endorphin we’ve made no secret of our vision to be one of Australia’s best goals-based financial advisory firms.

With an operational team that covers all things compliance for our advisers and their clients, as well as an investment committee that is consistently vetting and learning about the newest opportunities and providing thoroughly researched recommendations and portfolio positioning.

We want to attract the best advisors and set them up so that they can do what they do best and provide their clients with award-winning financial advice tailored to their individual needs and goals.

But we also know that every financial advisor has different goals, wants and needs when it comes to financial advice in Melbourne & Sydney.

So at Endorphin we provide two distinct streams for financial advisors who are looking to spend more time advising their clients and helping them achieve their goals and less time running a business.

The Endorphin employment model caters for self-employed and employed advisors.

Already Self-employed advisors:

  • retain a majority portion of the revenue from their book, even into retirement
  • ability to co-brand and benefit from online leads generated by Endorphin Wealth
  • gain access to all the back-office and operational capabilities Endorphin has to offer
  • increase revenue due to more time for business development, clients and make significant savings on other business expenses

Currently Employed advisors:

  • potentially have access to a generous retainer for first 6 months
  • mentoring and support to get started in their own business and grow their client book

At Endorphin, we are incredibly passionate about helping our advisors make a tangible difference to their clients lives – helping them feel good about their future.

And we know that to do that, our advisors need to be resourced with the best available research, a first-class operations team and a team of experienced advisors who can lend additional support in the way of sharing their first-hand experience and expertise.

For further information about Endorphin Inspire, and opportunities in wealth management in Melbourne, Sydney and more, please contact Phillip Richards (Founder & Director) via phillip@endorphinwealth.com.au or 0477 004 455.

Wealth Management – Investing in North America 2

Market View Update

A short note on our market view and inflation expectations:

Despite tension between the downside risks from the Covid19 Delta variant, and ongoing supportive fiscal and monetary policy, Endorphin Wealth’s medium-term market view is still positive for risk assets such as Shares and Property.

Covid19 continues to drag down global supply chains. Vaccinations are taking longer than authorities had hoped to roll out. The clear downside risks to growth are driving concerns that the recovery has slowed and could falter. On the other hand, central banks have stayed committed to accommodative monetary policy, despite inflation moving higher. In the US, CPI inflation have recently remained at around 5%. This is well above the Fed’s targets.

The impact of the Delta variant has dragged down the global consumer and business confidence. In Australia, consumer confidence was 4.4% lower in August. Business confidence also plunged. In the US, consumer confidence plunged to a decade-low in August. This is a risk to the recovery if households begin to wind back their spending plans.

Endorphin’s market view is that the fall in confidence added to expectations that central banks will not begin tapering their accommodative support for some time to come. Equity markets are hence largely still looking forward to higher vaccination rates. This has seen the US S&P500 moved further into new record highs. It closed the week 0.7% higher and is now 19.0% higher year-to-date. Most developed economy equity markets at the moment are sitting on double-digit returns year-to-date, with many now at record high price levels.

Here at Endorphin Wealth, we are not licensed or owned by the big banks and financial institutions, so the advice we provide is always in our client’s best interests. We have the advantage of being able to access a range of products from different providers that can be tailored to our client’s goals and needs.

For an obligation free conversation about your financial future, please contact us on 03 9190 8964 or at advice@endorphinwealth.com.au

Endorphin Wealth welcomes Mecki Ansari

We’re very excited to announce that Endorphin Wealth has expanded the team in Sydney – welcoming Mecki Ansari as Senior Financial Adviser. Mecki joins us with over 12 years of experience in the financial services industry, and is a fully qualified financial adviser who is also currently pursuing a Masters of Financial Planning.

I specialise in offering comprehensive investment management and retirement planning advice to individuals who are ready to be mentored by a professional.

I am passionate about being a personal finance coach for my clients and helping them build towards their dream retirement. I only act in the best interest of my clients and provide unbiased advice and recommendations.– Mecki Ansari

Mecki Ansari

Mecki has already impressed us with her professionalism and dedication to helping Endorphin Wealth provide goal-based advice to our clients. See below her LinkedIn profile and her email if you would like to find out more about the services Mecki provides.

Mecki Ansari | LinkedIn

mecki@endorphinwealth.com.au

Is My Super Under-performing?

 

Everyone worries whether their super is under-performing. Our clients often raise questions around over-payment in fees or under-performing super investments. According to findings released by the Australian Prudential Regulation Authority (APRA), more than a million Australians have invested $56.2 billion combined in “under-performing” superannuation funds.

“Pass” or “Fail” grades has been given to a total of 76 MySuper investment options. The results revealed 17 per cent of Australia’s 76 MySuper products were under-performing. This is based on APRA’s testing up to August 31, 2021.

Despite almost 84% of products passed the performance test, APRA is more concerned about the funds that did not pass. Under the Your Future, Your Super Bill reforms passed in June, funds must now let members know about their under-performance. Funds could reject clients if they fail to meet APRA’s standards again next year.

Also, APRA has increased its supervision of trustees with products that failed the test. They have asked that they provide a report showing the causes of their under-performance. They also need to show how they plan to address them. Trustees have to watch their products closely and report important information to APRA. This includes data relating to the movement of members and the outflow of funds.

Why are Super Funds under-performing?

Your super fund could be under-performing due to a multitude of reasons.  However, high fees and bad investment options are usually the reason that’s stopping you from retiring with more money in the future. Most people have also reported that choosing the ‘default option super’ that is a median bottom-quartile fund, has cut their retirement savings by almost half, compared to if they chose a median-top quartile fund.

Which Super Funds are under-performing?

The 13 listed funds that ‘failed’ APRA standards are listed below. It is important to note that some of our clients are invested with these companies, however, they have not invested in the default ‘MySuper’ investment options that have been under-performing. We recommend tailored portfolios that have performed much better previously with lower fees.

  • AMG Super – AMG MySuper,
  • Commonwealth Bank Group Super – Accumulate Plus Balanced,
  • Energy Industries Superannuation Scheme-Pool – Balanced MySuper,
  • Colonial First State FirstChoice Superannuation Trust – CFS FirstChoice Superannuation Trust,
  • Labour Union Co-Operative Retirement Fund – MySuper Balanced,
  • Maritime Super – MySuper Investment Option,
  • Retirement Wrap – BT Super MySuper,
  • ASGARD Independence Plan Division Two – ASGARD Employee MySuper,
  • Australian Catholic Superannuation and Retirement Fund – LifetimeOne,
  • The Victorian Independent Schools Superannuation Fund – VISSF Balanced Option (MySuper Product),
  • Boc Gases Superannuation Fund – BOC MySuper,
  • AvSuper Fund – AvSuper Growth (MySuper), and
  • Christian Super – My Ethical Super.

If you are with one of the under-performing funds, then we’d be happy to have a conversation with you about reviewing your super funds and finding the best solution for you moving forward.

Please contact Endorphin Wealth today for advice via phone at  (03) 9190 8964 or at advice@endorphinwealth.com.au .