HEWISON Financial news, our views AND other issues Issue 31 ~ April 2010
uarterly THIS ISSUE • Economic Update 2010 • Binding Death Nominations • From the CEO’s Desk
• Client Survey 2009 How did we perform? • Staff News
Understanding the Terms We Use Inflation The overall general upward price movement of goods and services in an economy, usually as measured by the Consumer Price Index. Over time, as the cost of goods and services increase, the value of a dollar is going to fall because it will not buy as much as it previously could. Binding Death Nomination A binding death nomination is a written direction to the Trustee that sets out the dependants and /or legal personal representatives that you want to receive your benefit in the event of your death. Estate All assets owned by an individual at death, to be distributed according to the individual’s will. As superannuation is controlled by a trustee rather than an individual, it is not counted as an estate asset. Retirement planning As Australia ’s population ages, there will be less money in public coffers to provide pensions in the future. Retirement planning takes into consideration the amount of money you will need to live the life you have in mind. It’s not just a plan to create the wealth you will require, but also ways to manage your funds into retirement, with the right pensions or other strategies to make sure that your income is properly managed. Retirement planning can happen at any age. Starting planning for retirement early allows you to take advantage of the miracle of compound interest, where you savings earn interest on the interest!
Economic Update 2010 Story by Chris Morcom Director/Private Client Adviser Image by Zsuzsanna Kilian
n Economist’s job description – “the science of explaining tomorrow why the predictions you made yesterday didn’t come true”! We recently attended a Chief Economists Forum where the views of Australia’s key Chief Economists were heard. Overall they were quite positive on the future economic prospects for Australia, providing commentary on the following areas of note: Global Economic Growth Global economic growth will be OK, without being spectacular. The emerging markets of China and India are expected to continue their strong growth, while Europe and the US are predicted to be less so. Countries such as Greece are not expected to default on their sovereign debt. However, it is interesting to note that Greece’s 10 year bond yield rose to a record high in January to around 7% - an indication that global bond investors now demand a higher premium for lending to such countries. Australian Economic Growth Economic growth in Australia is set to continue, driven by demand for our exports to China, India and the developing Asian nations. Australia was resilient through the ‘global recession’ due mainly to past economic reforms, a well capitalised banking system, and a government budget position that easily allowed increased stimulation. Unemployment Unemployment is likely to fall over the year, driven by the better economic conditions.
Interest Rates Interest rates are likely to continue rising slowly throughout the year, as the Reserve Bank attempts to avoid rising inflation and also to prevent bubbles in property prices or sharemarkets. Inflation Inflation is unlikely to exceed 2.75% in 2010, although as the global economy continues its recovery inflation could be more of a problem in years to come – thanks to massive financial stimulus placed into economies around the world by governments and the retention of low interest rates. Sharemarket The Australian sharemarket is likely to enjoy a good year, with all economists predicting a higher finish to the market than at the start of this year. We can expect that volatility in all markets is likely to be higher, which will present investors with both challenges and opportunities. Property With demand for our exports being driven by commodities, there is also an expectation that property prices in Australia will operate on two speeds. In the commodity states (WA and Queensland) prices are expected to continue recovering, while in the South Eastern states rising interest rates are expected to impact the property market and could lead to a cooling of prices in these markets.Overall, the expectations are for an economic environment supportive of positive investment returns over the coming year. Continued Page 3
From the CEO’s Desk
conomic news continues to become more positive with the gradual emergence of most countries from economic recession. Here in Australia the picture continues to be bright with an expectation of a continuing high demand for resources and the development of greater production capacity.
Story by Glenn Fairbairn Director/Private Client Adviser | IMAGE BY SHHO
There is some speculation and concern about the eventual outcomes of the Henry Tax Review and the Cooper Superannuation Review. The government is keeping the Henry recommendations under wraps but the cynic in me says that the government is not going to introduce any major tax reforms this side of the federal election.
Binding Death Nominations
have a legal right to take action against Jane if she had breached her role as trustee and did not follow John’s binding death agreement.
We recently heard Jeremy Cooper talk about the super enquiry. One piece of good news is that he and his committee were well satisfied with the state of Self Managed Super Funds and there was unlikely to be any major changes in this area.
Nominations can include any dependant as defined under the Superannuation Law, which include your current spouse (including a defacto), your children (including adopted children), or a person financially dependent on you at the time of death. You can also nominate your Estate (your assets in your Will). This enables your Will to instruct how benefits are to be distributed upon your death.
Whilst stock markets have taken a breather over the past five months or so after a strong recovery over the previous six months, we see this as healthy. Our view is that the strong rebound following the March 2009 market low point was a correction of under-valued shares. The next phase of market growth will reflect the increase of intrinsic value due to improved trading conditions from economic recovery. Our concentration right now is the continued re-balance and restructure of client portfolios to try to ensure that we are in “the right place at the right time” to take advantage of a growth in company earnings. It is interesting to hear all the industry noise surrounding the shift from commissions to fees and the issue of fiduciary duty. Frankly, we shake our heads in collective disbelief. As far as we are concerned, we have always had a fiduciary duty to our clients, that is, to always put our client’s interests before our own and not to have conflicts of interest.
nbeknownst to many, most death benefit nominations made by members of superannuation funds are not binding on the superannuation fund trustee. This means that, upon your death, the trustees of a superannuation fund may exercise a discretionary power to determine how your death benefit is paid and to whom. These nominations are referred to as “Non Binding Nominations”. John has two children, Jane aged 25 and Brian aged 21. John has nominated Jane as the executor of his estate and both children as equal beneficiaries of his superannuation benefits under a non binding nomination. John dies. As executor, Jane steps into John’s role as trustee and has 100% control of the decision to pay the superannuation benefit. Jane’s de-facto influences her to ignore John’s wishes and she pays the full superannuation benefit to herself. Brian was aware of his father’s nomination however as the legislation allows Jane to make the decision as trustee, Brian has no recourse to lodge a complaint with the Superannuation Complaints Tribunal. Obviously the above state of affairs is not what John intended. What could John have done to remove any uncertainty about who receives his superannuation benefit upon his death? Assuming John’s superannuation fund trust deed allowed it, John could have made a Binding Death Nomination. This would have ensured John’s superannuation benefits were paid as he instructed. If John had made a valid binding death nomination it would have removed the trustee discretion and Jane would have been required by law to follow the nomination. Brian would
Binding Death Nominations make Superannuation Estate Planning more precise and effective.
Binding death nomination’s need to be witnessed by two independent individuals and are only valid for 3 years. Because of this limit, you need to make a new nomination, or confirm an existing binding nomination every 3 years. A nomination can be revoked or changed at any time by sending your Super Fund a new binding nomination. If the Binding Nomination expires and is not properly renewed, benefits are paid at the discretion of the trustee of the Superannuation Fund. If you have a Self Managed Superannuation Fund, you can go one step further and establish a ‘Binding Death Agreement’. Like Binding Death Nominations, a Binding Death Agreement binds the trustee to follow a member’s nomination. However a Binding Death Agreement is embedded into the Self Managed Superannuation Fund’s trust deed and does not need to be updated every three years. To obtain more information regarding Binding Death Nominations and Binding Death Agreements please contact your Private Client Adviser.
Story by Andrew Hewison – Director/Private Client Adviser
Client Survey 2009 How did we perform? According to the feedback received, very well! Clients may recall that in the 4th quarter of last year you were sent a confidential survey asking you to rate Hewison & Associates performance in a number of key areas. We are proud to report that the feedback we received was extremely positive, as seen below: Adviser ratings: • 94% of respondents rated the accessibility and responsiveness of Hewison Advisers as excellent. • 96% of respondents rated the attentiveness and trustworthiness of Hewison Advisers as excellent. • 94% of respondents marked the Hewison administration team as excellent in the areas of professionalism, friendliness and meeting of expectations. • In the 12 months leading to October 2009, 84% of respondents said that they were satisfied that their affairs had been looked after.*
• When asked if they would refer other family, friends, or colleagues, 96% responded with ‘yes’. * It is universally understood that the 12 months preceding October 2009 were challenging on many fronts. Whilst we feel that an 84% satisfaction rating is a great result under the circumstances, we are committed to achieving a 100% satisfaction rating from our clients. We would like to take this opportunity to thank all of our clients for taking the time to complete our survey. Our priority is to strive to provide a continually better service to our clients. We welcome all feedback at all times. Thank you. Action: Hewison Advisers are available to you, the client, as often as you wish. They are available via phone, email, or in person at all times. As a bare minimum we recommend an annual face to face review meeting. Advisers are constantly reviewing client portfolios and are in contact with clients if changes are required.
• 99% feel that they have received value for money.
Of course what we really hope to achieve from our surveys are comments and suggestions for improvement in all areas of our business. Some of the feedback was: Online reporting Whilst our portfolio reporting was rated as a key strength, it was suggested that a graphical representation of the portfolio movements would be beneficial. Action: We are currently working with our programmers to develop even more advanced portfolio reporting. Access to previous quarterly reports to better assess performance. Action: Access to previous quarterly reports is now available. It was conveyed that due to the formatting of some reports, they were a little difficult to read. Action: Currently being investigated by our programmers and will be re-designed in a simpler format. Adviser There was a level of confusion in relation to Adviser availability and how often clients could/ should meet with their Adviser.
Economic Update 2010 (Continued from Cover Story) Company Reporting Season We have now finished the corporate The February company reporting season saw most of Australia’s listed companies file their halfyear profit results. Reported earnings were slightly better than expected, with most companies reporting growth in net profit. One of the features of the season was continued cost cutting to retain margins in the face of lower revenues. It is expected that earnings will grow in the next half of the year, with stronger growth expected through the next financial year. The dollar value of dividends paid reduced slightly, reflecting conservative cash
management by companies in the face of lower earnings. It is expected that this reporting season was the inflection point of this cycle, and that earnings growth will drive higher dividends in the coming year. Wesfarmers provided the market with one of the biggest positive surprises of the season. Its 23% rise in retail earnings was well ahead of expectations. There is still plenty of room for improvement in the Coles Food & Liquor division, while their Bunning’s profit result again stood out.
is very strong and compares favourably with company’s domestic and international peers. Currently trading 24% below its underlying valuation according to our research, the long term outlook for this company remains positive. We remain optimistic for the coming year with an improving economic outlook feeding into higher corporate profits. As always, we will continue to re-balance investment portfolios so as to take advantage of opportunities as they arise.
QBE reported an increase in half year profit after tax to $1.97 billion, and an increase in their dividend to 66 cents per share. The result
Save the Date
Hewison to host a ‘super strategies and networking evening’ for clients, family and friends Over the next two decades almost $70 billion of intergenerational wealth will change hands in Australia, but many will lose out due to lack of planning and low levels of understanding – particularly when it comes to their superannuation and the rules governing death taxes and benefits.
and death taxes. Superannuation plays a large role in family wealth creation strategies. Without the right planning and structures in place your beneficiaries could stand to see a lot of your hard earned super balance paid out in taxes or value lost when they are forced to sell down superannuation fund assets.
Hewison & Associates is hosting a ‘Super strategies and networking’ evening to help our clients - and their friends and family - to navigate the complex area of superannuation
Given that this is an area where family members – not just the superannuation fund trustee or member - have a role to play we’re inviting our clients to bring their family
members, or friends who would benefit from hearing more about this topical issue. This session will be relevant to SMSF trustees and members of superannuation funds wanting to ensure they get the most out of super in their lifetime, and for their families. Full event details will be emailed to you soon but in the meantime, please save the date and spread the word to your friends and family: Melbourne: Wednesday 26th May, 6pm Sydney: Thursday 27th May, 6pm
Simon Curtain – Master Class In the last edition of Hewison Quarterly we congratulated Chris Morcom on being named one of the top 50 Advisers in Australia, in the 2010 AFR Smart Investor Masterclass. We are proud to announce that another Hewison Senior Client Adviser, Simon Curtain,
was also named in the this prestigious group. We would like to take this opportunity to congratulate Simon on this impressive achievement.
Nadia’s new role We have created the new role of “Technical PA” which Nadia has undertaken. This role will entail providing technical and personal assistant support to our Senior Advisers for which Nadia has commenced studying for a Diploma on Financial Planning.
Welcome Bridget Bridget Blackmore has joined us in the role of Receptionist and takes on responsibility for our electronic filing.
Denise Denise Poole, a highly talented Portfolio Manager here at Hewison & Associates, will commence maternity leave from 26 March 2010. We wish Denise all the very best for the safe arrival of her first child and hope it is not too long before we have her back on deck.
Here’s a minute of
Hewison Annual BBQ February saw most of the Hewison team and their families descend onto John & Helen Hewison’s house for the annual Hewison BBQ. It was a fantastic day, with the weather warm enough for quite a few to end up having a swim in the inviting pool. Thanks again to John and Helen for their hospitality – a fun day was had by all.
Clare Kerber PA to CEO
a) Where were you born? Melbourne
i) Where did you work previously? Challenge Recruitment
b) Where did you go to school? Sacred Heart College Kyneton
j) Who/what do you admire most? My Father
c) What do you do for fun? Shopping, Gardening, Entertaining and dining out
k) Who are 4 people in the world you would most like to invite for dinner? 1. Barack Obama 2. Robert Pattinson 3. Sarah Murdoch 4. My sister
d) What is your favourite book? Twilight! e) What is your favourite music? House or chill out f) What is your favourite food? Thai Food g) What is your favourite movie? Message in a bottle h) How long have you been at Hewisons? 10 Years this year
Level 4, 102 Albert Road, South Melbourne VIC 3205 P (03) 9682 1900 | F (03) 9682 5999 firstname.lastname@example.org | www.hewison.com.au
l) What are your hobbies? Reading, listening to music and gardening m) What is it you enjoy most about your role @ Hewisons? Lots of variety, the clients and the people I work with
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.