Key Discussion Points

July 2019

Key Discussion Points – July 2019 2019-07-30T08:31:30+10:00

 

NEWS & EVENTS

New & Combined Melbourne Office

Firstly, we are very pleased to now be co-located at one office here in Melbourne at Southbank with our combined Melbourne team of 60 (of 90 nationally) working together across;

  • Wealth Management
  • SMSF
  • Capital / Corporate Advisory
  • Accounting & Business Advisory, and
  • Centralised Services (Finance, HR, Operations, IT and Marketing)

The team are settling in well and the new office accommodates our Melbourne growth plans and our interstate teams. Please, if you get a chance to pop in for a coffee do so, it would be great to show you around and for you to meet more of the team. Our new location is Level 17, HWT Building, 40 City Road, Southbank, opposite Flinders Street Station.


Accountants Forum Follow-up

For those of our Partners that attended our recent event in Sydney in May, thank you for your time and contribution, we continue to follow-up on the agreed actions, including;

Business by Design for Business Advisory support for Accountants (Matt Murphy)

  • Matt has been in contact with attendees and has a number of meetings set-up to support you in your ambitions in this area 
  • If non Forum attendees would like to discuss Business Advisory support please just contact Matt 

SMSF support including administration / compliance, technical, checklists and CLASS software (Olivia Long and Karen Dezdjek)

  • Olivia and Karen speak to many of our Partner firms on a regular basis and are always available for a discussion on how to help improve and drive client outcomes and enable your firm, please do not hesitate to contact the SMSF team for assistance 

Confirm Minimum Wealth Management Ongoing Advice Fees (Simon Madder)

  • As discussed in our Forum, minimum ongoing advice fees will need to increase to address increasing compliance, legal, regulatory, levy, accounting & audit and IT related issues and costs, this would see an increase from the current minimum fee of $2,200
  • The Forum supported an increase from the current minimum to at least $3,300 or $4,400 pa, this minimum has now been updated in our FSG to $4,400 for existing clients and $5,500 for new clients (a separate more detailed note will follow this month providing full details and explanations on this minimum fee for service and the flexibility with which we have to apply it in a sensible and fair manner for clients)

More regular information sessions for Accountant Partners and Staff (Angelina Rigoli and Michelle Bromley plus your adviser team) 

  • One of the pieces of Forum feedback and more generally has been the flow of additional information on the simple wealth management and financial planning strategies that we regularly use to add value for our collective most common clients. We have been producing more content and information along these lines and advisers will be talking to this in our regular meetings with you, an example is this article ‘Capital Longevity in Retirement’ which Michelle wrote. This is one of the most common questions we get asked by clients, we will produce more of this style of content in coming months and talk with you about it 

Use of Industry Funds (Angelina Rigoli and the Investment Committee)

  • At our Forum we discussed the use of Industry Funds as we had recently approved an Industry Fund (Sunsuper) on our approved product list 
  • As part of our open approach to investment and administration solutions for our ideal clients and more typical clients, plus our best interests duty, we regularly review multiple solutions
  • As an advice firm we need to work with platform, administration and investment solutions that suit our clients’ needs and are transparent on what investments have been made for our clients, how and the timing, and ensure that the provider allows us to advise clients by enabling an open IT architecture, data flow and communication 
  • In not all circumstances are Industry Funds able to meet the requirements of transparency in order for us to provide our advice model to clients but we continue to keep an open mind and dialogue as the advice, administration, platform and investment community continues to converge and address clients’ needs
  • If you have clients that would like ongoing advice solutions and see value in our ongoing advisory service but are considering using an industry fund we would be pleased to speak with them, we can likely facilitate a solution for clients 

Program to share key accounting firm financial information amongst firms on individual accounting firm performance, highlighting where best practice exists and sharing of knowledge (Prime Finance team led by Simon Madder, Ben Priestly and Rory McLaughlin) 

  • a key theme of the Forum was the open sharing of information, knowledge, approach and challenges which occurred with great transparency and enthusiasm
  • a follow-up matter was how Prime may be able to assist with sharing comparative accounting firm financial data and key financial insights to help you improve firm performance and knowledge
  • this is a continuing item as is creating an online community for our firms potentially using ‘Workplace by Facebook’ which is a tool Prime currently uses internally to communicate amongst our team

If you have any queries or would like further feedback on any of these items please do not hesitate to contact your key advisory team, Angelina or I.

We look forward to the next Forum to be held in Melbourne within the next 6 months.


Wealth Management Promotions and Re-organisation

Prime’s advice model and operating structure continues to evolve to ensure we improve, the following changes are focused on;

  • delivering more immediate outcomes and improved client service
  • supporting team members more appropriately with the right level of resourcing
  • placing more focus on strategic advice whilst still supporting our transparent investment approach / methodology
  • implementing change in our operating and advice model post royal commission to remain progressive
  • substantially decentralizing the current client services and paraplanning Victorian pooled resources to a more direct structure to enable more timely advice
  • offering clearer and more defined career paths for more team members, plus
  • offering promotion in responsibilities to our most talented team members 

As part of the above there is also a change to our internal Wealth Management meeting structures that will see;

  • more focused internal team meetings on client deliverables around the whole of advice process and ongoing service
  • a Leaders, Partners and Directors Meeting fortnightly that drives prioritization in delivering client work (SoA’s, Reviews and Implementations), key operational matters and advice transformation
  • continuation of the fortnightly group Wealth Management Team meeting at noon on Monday’s 

In terms of some of the specifics and how this re-organization applies to the leadership in our Wealth Management operating team please find following;

  • Jonathan Bayes (JB) to focus on the Chief Investment Officer (CIO) role under a services contract
  • JB will continue to drive research, investment recommendations, client investment communications, presentations and video’s etc. JB will be a member of the investment committee (continuing to be Chaired by Mark Johnson) and a Prime authorized representative, but no longer Prime’s Wealth Management MD. Please find following JB’s weekly update from this week here.
  • I (Simon Madder) will take on the role as MD of Wealth Management in addition to my existing responsibilities
  • Angelina Rigoli is continuing in her role as Wealth Management GM and now Responsible Manager on Prime’s AFSL’s but her time is being freed up through this reorganisation
  • Enhanced reporting lines with additional team members reporting to Mark Johnson and Cameron Morcher (Partners and Investment Committee members) including key financial advisory team members plus Guy and Jordan as the internal investment team 
  • Both Guy and Jordan will have additional responsibility as part of the reorganisation of the way the investment team operates, and
  • Michelle Bromley being promoted to the national role of, Director – Strategy & Advice, this is a natural progression after Michelle’s recent promotion to Responsible Manager on Prime’s AFSL’s and Michelle will work with the entire advisory team to continue to progress our strategic advice

There are multiple other announcements that will follow in the following months with respects to promotion in responsibility, opportunity and better resourcing for teams and team members. Importantly, although this is referred to as a reorganization there are no redundancies, we are investing in the future, similar to what we have done in the last year with our SMSF team and in the last couple of years with our Capital & Corporate Advisory capability for Businesses and Business Owners as part of a total Wealth Management offering.

Once you have had a chance to consider this article, please do not hesitate to discuss it with myself, Angelina or Jono. 

CONTACT SIMON MADDER  CONTACT ANGELINA RIGOLI  CONTACT JONATHAN BAYES

FINANCIAL ADVICE & STRATEGY

His & Hers Super Balances

Written by Dylan Cresswell® – Private Client Adviser

In May 2019, I received a referral from a JV Accountant for one of their long-standing clients, a couple.

This couple had been attempting to receive financial advice from an industry fund Adviser. For various reasons, this advice process had taken over 6 months and hadn’t been implemented.

Upon meeting the clients, both aged 60, I learnt they had an expectation to retire in 3-5 years. They had 2 adult children, $200k of outstanding debts and both had Super in accumulation phase with balances of $2m for the Husband and $30k for the Wife.  

The Husband had and will likely always be the breadwinner and having only recently ceased and commenced a new job (hint 1 – condition of release) he was on a salary of $350k + Super + Bonus.  The wife had only returned to employment in the last few years and had taxable income of $65k.

Whilst they had been somewhat engaged with their Super and retirement planning, they’d never made additional after-tax Non-Concessional contributions (hint 2 – Taxable Components), didn’t salary sacrifice nor had anyone reviewed how they were tracking for retirement, (hint 3 – value of advice). They were clearly wealthy, commercial, time poor and seeking advice in the final stages of their employment journey.

During our initial discovery meeting the clients set the following goals:

  • Retire from 3 years+
  • Retire debt free
  • Equalize Super Balances as far as possible
  • Maximize total Super Benefit in retirement to provide a minimum $150k income for Cash flow
  • Retain flexibility to adjust if retirement time frames decrease or extend

Upon further probing they decided to add:

  • Estate benefit considerations to if not at cost to their standard of living
  • Efficient personal taxation strategies 

Strategy pre 30 June 2019

  • Withdraw $718,000 from Husbands super
  • Contributed $118,000 into Wife’s Super ($18k Deductible, $100k Non-concessional)
  • Split 85% of Husbands FY18 Concessional Contributions $21,250

Strategy July 2019

  • Re-contribute $300,000 into Husbands Super – Non-Concessional (Balance on 30 June was $1,290,000)
  • Contribute $300,000 Non-Concessional into Wifes Super
  • Split 85% of Husbands FY19 Concessional Contributions $21,250 to Wife
  • Recommend Wife make personal deductible Contributions up to $25,000 cap
  • Husband commence ABP drawing min 4% to make additional lump sum repayments on outstanding debts $63,600

Benefits

Talk to your adviser about what retirement planning strategies you could employ to increase the longevity of your capital. Things you might want to think about include:

  • Husband’s Super $1.59m now in Account Based Pension with underlying tax rate reduced from 15% to 0%, first year & annual tax saving $11,500
  • Wife’s personal taxable income reduced, first year tax saving $3,150
  • Wife’s Super now materially higher at $481,000
  • Direct 4% min pension payment to lump sum repayments of debt, allows for all debts to be cleared within 3 years and opens up cash flow
  • Any excess funds in future years to be allocated to Wife’s Super to allow her to move closer to $1.6m Account Based Pension cap
  • In the event of Husband and Wife’s death, the benefits paid to their adult children will have avoided $119,000 in taxation (Re-contributed $700,000 * 17%)
  •  If employment extends beyond 3 year time frame, surplus Cash can be contributed to Wife’s Super before converting to an additional Account Based Pension on retirement
  • Allows the couple to focus on their family and employment whilst having comfort an Adviser is overseeing their retirement expectations, evolving strategies and asset allocation
  • Whilst not an initial objective they now invest across a portfolio of transparent true to label Asset Classes and investments (Cash, Hybrids, Credit Funds, Australian & International Shares & Property funds) upon discussion they appreciate the comfort this affords them over their prior multi-asset diversified “Growth” investment option.

Whilst our advice required a significant increase in fees, the value delivered was beyond the client’s expectations and was easily articulated to the clients. The husband did comment our strategy was far more rewarding than the proposal previously received.  From an ongoing engagement point of view, I was quite clear the clients could very well attempt to implement this strategic advice directly.  Pleasing the clients were able to see the core benefit of engaging in an ongoing advisory relationship being benchmarking to target objectives, continuous tweaking of strategies and risk mitigation to ensure their largest financial asset maintains preservation of capital and continuous passive income.

INVESTMENT ADVICE & MANAGEMENT

Monthly Commentary

Prime SMA

Global equity markets rebounded strongly in June with the MSCI World Index rising 6.6%.

US central bank dovishness and a dovish turn by the ECB drove equity markets higher.

The US outperformed as a slowdown in economic data led the Federal Reserve to announce a strong bias for easing in the medium term. The market is currently pricing in four rate cuts in the next 12 months.

European equity markets were similarly boosted as weak inflationary data drove the ECB to announce possible rate cuts and a return of QE.

The ASX200 Accumulation index added 3.7% in June and has now climbed higher every month this calendar year. 

The disconnect between equities and bonds continued with US 10-year Treasury notes falling below 2% whilst Australian 10-year government bonds tightened 13bps yielding an all-time low of 1.32%.

The weaker USD assisted Emerging Markets with China, Korea, Brazil and Hong Kong equities all advancing.

Oil recovered from the previous month’s selloff as sanctions from the US on Iranian oil continue to drive supply and demand. WTI rallied 9% to trade $58 a barrel while Brent oil bounced nearly 5% to trade $64.

Iron ore climbed higher for the eighth consecutive month adding 4% to trade US$121/tonne. Supply side issues from both Brazil and Australia and rising demand from China and other emerging markets continue to boost the iron ore price.

Contributors to performance in June were BWX (BWX) and Telstra (TLS) which added 10% and 5.5% respectively. BWX traded higher on news UK investment firm Taloman Capital had become a substantial shareholder. We take comfort in this and the consolidation of BWXs share registry and continue to think the shares are worth more. TLS continued to benefit from the ACCCs decision to block the TPG and Vodafone merger, however we feel at these levels is starting to look fully priced.

Detractors from performance were Challenger (CGF) and Regis (REG) which fell 18% and 13%. CGF hosted an investor day and revised guidance to somewhere in the range of $545m-$565m. The current low interest rate environment is impacting CGF returns and whilst disappointed with the announcement, we remain confident CGF will benefit significantly in the longer term from the government’s Retirement Income Framework. REG downgraded its FY20 estimates and we also suspect some tax loss selling prior to EOFY was another reason for its weakness. REG pays a dividend of over 5% and we would look for shares to recover somewhat before considering selling them.

We were very active in the portfolios during June. We exited our position in Qube (QUB) and reduced our weight in TLS. We added to Pendal (PDL), Downer (DOW), Challenger (CGF) and BWX and established a new position in Reliance Worldwide (RWC) which we think has significant upside and now trades at a 2-year low. The Diversified Income SMA reduced some of its TLS and added to PDL, DOW and CGF. The Defensive Income SMA topped up existing holdings Artesian, Pimco and Ardea while the International SMA took up our VG1 rights and bought into the VGI IPO. On a risk profile performance basis our 5-year numbers continue to perform well against their respective benchmarks.

Risk Profile Portfolio Performance Figures as at 30 June 2019

Pre-Franking Credits:

Prime SMA – Model Portfolio Performance Figures as at 30 June 2019

Pre-Franking Credits:


Defensive SMA Commentary

Prime’s Australian Defensive Income Portfolio continues to perform well, returning 1.49% for the month of June and 5.72% for the 2019 financial year.

Bond markets have rallied globally on the back of weakening economic momentum, the ongoing trade war and expectations for rate cuts from central banks. 

Price changes in bonds are driven by the movement in various market interest rates, which are reflected in bond yields. When a bond is purchased, its price reflects the present value of its fixed future interest payments. As interest rates drop – as they have both here in Australia and globally – that fixed stream of future payments is now above market value and the bond price increases accordingly.

This has helped our exposure to the PIMCO Global Bond Fund (ETL0018AU/PMF03) and the Artesian Corporate Bond Fund (ETL8268AU).

The Ardea Real Outcome Fund (HOW0098AU/XARO) has used its relative value approach to benefit from the volatility in global interest rates. This has seen it return over 7% last FY and now 4.10% since inception, which is excellent for such a low volatility fund that’s target is to exceed inflation and cash rates.

Metrics Opportunities (MOT) payed its first distribution last week and is trading at a price above its net asset value, whilst Metrics Master Income Trust (MXT) and the La Trobe Financial – 12-month term account (LTC0002AU) continue to perform well. They have both delivered returns of over 5% for the past financial year.

Macquarie Income Opportunities Fund (MAQ0277AU/MIM01) performance has picked up a little in the past 12 months, delivering around a 4% return. This has been helped by their long duration exposure with falling rates.

As at 30 June 2019, Qualitas (QRI) had invested 86% of the Trust’s initial capital since listing. They are expecting to have achieved full deployment in the near future. They have forecast July’s distribution to be at or above 7% annualised, closer to their 8% annual income yield target. Qualitas have flagged that conditions so far this year have been a little challenging for them but now look to be stabilising.

 

SMSF

2019/2020 – Increased Concessional Cap above $25,000 for eligible Individuals

Written by Karen Dezdjek, Director – Wealth & Superannuation, SMSF

It’s the 2020 financial year and new contribution benefits are now in play.  

How does it operate?

From 1 July 2018, superannuation members who have a Total Super Balance of less than $500,000 as at 30 June 2018 and are eligible to receive concessional contributions, are now able to contribute the unused portion of their concessional cap from the 2019 financial year. 

This means they can now contribute up to $50,000 for the year ending 30 June 2020.

This is the first financial year these changes take effect, and members can carry forward up to five years’ worth of unused concessional contributions if their balance is below $500,000.  After 5 years this opportunity will expire so it is very much a use it or lose it scenario.

What contributions are eligible?

Eligible contributions must be concessional in nature.  They can come from either a salary sacrifice arrangement with the members employer or be made as a personal deductible contribution throughout the year. 

This is a significant benefit for people that have a taxable income in excess of $263,000 as those who receive more than $25,000 mandated employer contributions may have the ability to avoid the excess concessional contribution assessments by utilising this strategy.

It also appears that eligible members who receive more than $25,000 mandated employer contribution may have the ability to avoid the excess concessional contribution assessments.

How do I check eligibility?

Members can check their Total Super Balance via the myGov website to assess whether they are eligible.  Checking the year to date contributions should be verified directly with the respective super providers to see what they have received during the financial year.  Pay slips should not be used to verify contributions due to the potential timing difference on when the super fund physically receives the contribution.

Who Benefits?

The benefits of using this strategy is that it allows people who may have fluctuating incomes such people in business or an individual returning to the work force after parental leave to catch up on previously lost concessional contributions.   

This is also a tremendous strategy for eligible members who receive an inheritance and want to get more into super.  Alternatively, a member may sell a personal investment and realise a large capital gain.  Being able to make additional concessional contributions will enable them to reduce their taxable income.

Other Considerations

Keep in mind additional contributions will also be caught by the Divisional 293 tax.  The impact of this tax should be considered when making the decision to utilise unused concessional contributions.

If you would like further information please feel free to call either Olivia Long or myself.

CONTACT KAREN DEZDJEK CONTACT OLIVIA LONG 

 

ACCOUNTING SUPPORT

FY19 Tax Reports Webinar

To assist you in preparing FY19 tax compliance documents for your clients, we recently hosted a brief webinar where a Macquarie Group representative provided step-by-step instructions through accessing tax reports via these platforms.

If you missed it or would like to view it again, click below.

WATCH WEBINAR


R&D and EMDG Updates

Written by Brendan Brown, Partner – Accounting & Business Advisory

R&D

R&D tax incentive applications for the tax year ended 30 June 2019 can now be lodged.

The last date for lodgement is 30 April 2020.

Eligible applicants can potentially obtain a cash rebate of up to 43.5% of eligible expenditure where their grouped annual turnover is less than $20m.

EMDG

Export Market Development Grant (EMDG) applications for the tax year ended 30 June 2019 can now also be lodged.

The last date for lodgement is 28 February 2020 using Prime’s extended lodgement approval.

Eligible applicants can potentially obtain a grant of 50% of eligible expenditure.

The maximum grant is $150,000 and is subject to a tranching system.

The first tranche has been set at $40,000 and applicants go into a pool for the remainder of their entitlement.

Last year the 2nd tranche payout factor was approximately 26% but we are hoping to see this increase with an additional $20m committed to the EMDG pool by the government.

July is a busy period for both of the above programs.  Generally the quicker you get your claim in the quicker you get paid!

For any enquiries or support:

CONTACT BRENDAN BROWN CONTACT SIMONE QUIN

 

CONTACT US

Disclaimer: This information on this page contains general advice and is been prepared by Primestock Securities Limited ABN 67 089 676 068, AFSL 239180 (‘Prime’) . Prime accepts no obligation to correct or update the information or opinions in it. This information does not take into account your objectives, financial situation or needs. Before acting on this information, you should consider whether it is appropriate to your situation. It is recommended that you obtain financial, legal and taxation advice before making any financial investment decision. You should obtain and read the relevant Product Disclosure Statement (PDS) of any financial product discussed in any articles mentioned before making any decision to acquire it. Prime is bound by the Australian Privacy Principles for the handling of personal information.