Todd Stanford

There are a lot of considerations about buying property as an investment and the complexities increase when the purchaser is an SMSF. Importantly with an SMSF, there are a number of protocols and structures to consider in the purchase process.

This article will look at different funding strategies for SMSFs to consider, pros and cons of direct ownership and the mechanics of an SMSF buying the property.

1. Different funding strategies for an SMSF buying a property

There are different funding strategies for an SMSF buying a property, including:

• Straight out with cash (pooled, rolled in, contributed)
• Co-own ‘tenants in common’ with a member (does not need to be 50/50)
• Part cash, part debt (SMSF borrows 65%–70% of the property)
• Purchase units in an ungeared unit trust (that in turn holds the property)
  • Insufficient funds alone in super
  • Looking to acquire land to develop or subdivide
  • Allows the transfer of units (ownership) across to the SMSF over time (rules apply)
• Indirectly – via managed fund, or listed property ETF (Jerome)
• Property Development in SMSF? – It is possible but there are rules!

Investors need to discuss all of the options available when considering property investment with a qualified and experienced planner not just rely on the opinion of so-called property ‘experts’.

2. There are pros and cons of direct property ownership

Here are some of the key points:

PROs

• Super helps as source of funding for a deposit
• It can be tax effective
  • 15% max on net rent
  • 10% on capital gains if sold >12 months
  • 0% on both in pension phase (if <$1.6M)
• Pay-off loan with pre-tax dollars (up to $25,000 p.a.)
• Business real property works well if a business owner (secure your premises, contribution caps don’t apply for market rent, free up borrowing facilities to use elsewhere for expanding the business)

CONs

• Super law restrictions – sole purpose test (no personal or related party use), hard to renovate if little cash (unable to use borrowed funds) etc
• Total Super Balance Caps – $1.6M
• Not optimal for negative gearing
• Higher set-up & ongoing costs
• Forced sale of asset (to meet minimum mandatory pension, member leaves etc)
• Tenancy risk an issue if need cash
• Borrowing in SMSF is complex & high margin for error

3. How does an SMSF buy a property?

In conclusion, the SMSF structure does complicate the property purchase process compared to traditional property acquisition. However, if the investment proves worthy, then it could add significantly to the retirement assets available to the members of the SMSF.

By Todd Stanford, Senior Financial Planner

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Cybercrime is growing and no business or individual that interacts electronically can take their financial security for granted.

Every year, thousands of Australians and Australian businesses fall victim to online crime, or ‘cybercrime’. In the first three months of 2018 alone there were 14,189 reports made to the Australian Cybercrime Online Reporting Network (ACORN).

That was just the crimes that were reported and the financial services industry will always be a prime target.

“At Profile Financial Services, our IT systems, supplier contracts and internal policies place client data, as the single most important asset our business needs to protect. Each of these areas is reviewed on a regular basis and every staff member and supplier is bound by regulation, policies and rules of engagement in these areas.

“We see instances of fake and suspicious emails several times each week. Sadly, we have seen several, sophisticated examples in the industry in recent weeks. Diligence is the key around all client data and interactions,” said Lena Ridley, Head of Operations, Profile Financial Services.

Common types of attempted cybercrime in our industry include:

• Online scams or fraud
• Issues with buying or selling investments online
• Identity theft
• Attacks on computer systems
• Email spam and phishing
• Illegal and prohibited content

Profile Financial Services has clear avenues available re clients’ data:

• Personally telephoning a client who makes a request to move money
• Setting up multi-factor authentication requirements with our suppliers
• Having appropriate internal policies and training for staff around the collection, storing and use of data, IT and password security and office security
• Using external IT consultants to track activity in and out of our systems
• Maintaining up to date and business-relevant firewalls and security systems
• Blocking suspicious domain names and websites

Reporting concerns to relevant authorities, such as ACORN and the Australian Cyber Security Centre.

What can you do if an email looks suspicious?

• Check all details on emails appearing to be from your trusted source.
• Fake emails often contain small yet critical errors in people’s names or domain names.
• Consider the language used. Does the email ‘sound’ like the person you are corresponding with? – We have picked up several suspicious emails in the past because the language is not consistent with the client we know.
• Pick up the phone to verify the information or request.
• Do not respond to emails that look suspicious – This can allow additional information to be gleaned for malicious purposes.

Cybercrime is growing and no business or individual that interacts electronically can take their financial security for granted. If there is any belief that financial data has been compromised, from any source, take action immediately.

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Todd Stanford

Australia ranks third in the world for giving, with 73% of Australians making a charitable donation.

Todd Stanford assists his private clients at Profile Financial Services with advice and strategies surrounding their philanthropic endeavours. Todd outlines the options for structured charitable giving in Australia.

Charitable Foundations available

1. Private Ancillary Funds (PAFs)
2. Public Ancillary Fund or Charitable Trusts
3. Community Foundations – sub-funds, giving circles

What is a PAF?

A PAF is a type of private charitable trust established and operated in Australia. It is maintained under a Will or an instrument of trust (e.g. trust deed) under State or Territory law.

A private charitable trust or ‘PAF’ provides the most control over grant making decisions – and is very ‘hands on’. It can be ‘seen as a personal statement, even if only visible among a close-knit group’. ^[1]

To justify the ongoing administration costs, a private trust or PAF is recommended to have capital of at least $500,000.

How is a PAF structured and governed?
A PAF must have a company as the trustee and the company board is usually comprised of family members. It must contain at least one independent director (the ‘Responsible Person’).

PAFs are normally exempt from income tax and other federal taxes. They are also eligible to receive cash refunds of franking credits. Testamentary gifts made to a PAF also have Capital Gains Tax (CGT) exemption.

A PAF is endorsed by the Australian Taxation Office (ATO) as a deductible gift recipient (DGR) Item 2 so can receive tax deductible gifts.

PAFs are governed by ATO Guidelines and have Australian Charities and Not-for-profits Commission (ACNC) compliance obligations.

For smaller donations from $50,000, donating to a Public Ancillary Fund (PuAF) or a community sub-fund may be more effective.

What is a Public Ancillary Fund (PuAF)?

A PuAF is a communal tax exempt philanthropic trust that enables a number of donors to establish and name a ‘sub fund’ under the broader PuAF structure. With a sub fund, the donor does not need to worry about the trustee obligations and responsibilities associated with a Private Ancillary Funds (PAF) and can put their energy into choosing charities they would like to support.

Benefits of a Public Ancillary Fund

• Less money to establish – the PuAF acts as an aggregator to provide access to a deductible charitable foundation without the funds required for a PAF.
• Simple & less time consuming– as the trustee already exists and handles the administration, investment and compliance matters, the donor can focus on the granting.
• Quick to set-up – A sub-fund can be established immediately, as there is no requirement to set-up a new trust or trustee company. A donor simply opens a new ‘sub fund’. There is no cost to do this.
• Tailored – a donor can name the sub-fund and grants made to charities will refer to this name. Anonymous grants are also possible.
• Taxation benefits – the money donated to your sub-fund is usually tax deductible in the year of the donation (or can be spread over a period of up to 5 tax years). It is a tax-exempt structure, so the philanthropic dollar goes further.
• Portability – In certain circumstances, it’s possible to transfer assets from a PuAF into your own PAF down the track. It requires the approval of the Trustee and Australian Taxation Office (ATO).

Who can donate to a PuAF?

Anyone can donate to a donor ‘sub-fund’ and its purpose is to collect donations from the public. There are no limits on the amount that can be donated. This is contrasted to a PAF where a PAF must not solicit funds from the public and is limited in any one year from accepting donations exceeding 20% of the PAF value from non-associates of the founder.

There are many other ways to also give

There are many ways to contribute including making donations via Community foundations such as the Salvation Army which funds many community activities.

——

[1] Foundations for giving: Why and how Australians structure their Philanthropy’, QUT Business School – The Australian Centre for Philanthropy and Non-profit studies

The post How do you make your philanthropy (your structured giving) work best?​ appeared first on AdviserVoice.

With a sub fund, the donor does not need to worry about the trustee obligations and responsibilities associated with a Private Ancillary Funds (PAF) and can put their energy into choosing charities they would like to support.

Benefits of a Public Ancillary Fund

• Less money to establish – the PuAF acts as an aggregator to provide access to a deductible charitable foundation without the funds required for a PAF.
• Simple & less time consuming – as the trustee already exists and handles the administration, investment and compliance matters, the donor can focus on the granting.
• Quick to set-up – a sub fund can be established immediately, as there is no requirement to set-up a new trust or trustee company. A donor simply opens a new ‘sub fund’. There is no cost to do this.
• Tailored – a donor can name the sub fund and grants made to charities will refer to this name. Anonymous grants are also possible.
• Taxation benefits – the money donated to your sub fund is usually tax deductible in the year of the donation (or can be spread over a period of up to 5 tax years). It is a tax-exempt structure, so the philanthropic dollar goes further.
• Portability – In certain circumstances, it’s possible to transfer assets from a PuAF into your own PAF down the track. It requires the approval of the Trustee and Australian Taxation Office (ATO).

Who can donate to a PuAF?

Anyone can donate to a donor ‘sub fund’ and its purpose is to collect donations from the public. There are no limits on the amount that can donated. This is contrasted to a PAF where a PAF must not solicit funds from the public and is limited in any one year from accepting donations exceeding 20% of the PAF value from non-associates of the founder.

Making grants

The minimum grant is four per cent of the opening 30 June value of the sub-fund each tax year. The Trustee will advise the amount. Any amount above this minimum is also possible. Grants are presented to the Trustee for approval. It is rare for the Trustee not to approve the grant, provided they meet the guidelines (below) and the grant does not exceed the financial capacity of the sub-account.

Grants must be to an eligible Deductible Gift Recipient (DGR) endorsed as DGR Item 1 by the ATO. The grant recipient must also be a registered charity with the Australian Charities and Not-for-profits Commission (ACNC). It is important to note that the Trustee has the final decision on grants. Thus, donors who establish sub funds are not entitled to direct, but only to recommend, the disbursement of these funds. A PuAF cannot distribute to another PuAF or PAF.

How much control does a donor have?

The Board of Trustees of the PuAF has complete control over all aspects of the investments held. The donor is free to choose the DGR recipients within the guidelines noted above and also to name their sub fund. There are also minimums imposed by Trustees for grant amounts (such as $1,000) and donations (for example $5,000). The Trustee may also undertake its own due diligence on the recommended charity before approving a grant recommendation.

What if I am an organisation?

Organisations can also set up and administer their own PuAF.

Organisations that may be interested include:

• Financial advisory firms (to provide a philanthropic option for their clients);
• Specific geographic-based communities (to benefit their own community organisations);
• Companies (to engage with staff and clients);
• Groups with a common interest (such as sporting groups or giving circles).

What does it cost?

Generally, the fee charged for a PuAF is 1%-1.5% p.a. of the value of the sub fund. This covers all aspects of running expenses such as administration, compliance and investment costs. We often recommend the Australian Philanthropic Services (PuAF) which has a single, all-inclusive fee of 1% p.a. They also have a grant-making service with templates and tools to facilitate and assist in the grant making process.

For more information, download the Philanthropy Australia Trustee Handbook.

By Todd Stanford, Senior Financial Planner

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A recent successful client welcome event was the culmination of several months of work integrating clients, systems and processes between the two businesses after their transaction completed on 1st May 2018.

Profile is a non-aligned boutique financial planning firm, established for over 30 years in Sydney. They’ve been on a steady growth path for many years, with new clients and planners joining at a measured rate. “We feel strongly that to be truly successful, we need to be able to attract great planners and clients as well as complete mergers and acquisitions”, said CEO Sarah Abood. “This transaction with onePlan is our largest yet, and it ticks all those boxes for us.”

The onePlan business brought clients in the Sydney area as well as a substantial regional presence, particularly in Mudgee and Dubbo. It also had an experienced team with strong client relationships. Keeping that team was an important goal for Profile, to ensure a smooth transition for clients. “We’ve had to really take time to ensure the clients and staff are comfortable and happy in a new and larger business,” said Abood. “By retaining the staff and local offices, clients can be sure the people who know them well are still looking after them and ensuring their interests are prioritised.”

For Principal and owner of onePlan Louise Scifleet, ensuring her clients had a sustainable succession solution was paramount.“I wanted to be sure that should I be hit by the proverbial, there would be continuity of support and advice for my clients”, says Scifleet.

Louise engaged a business broker and spent plenty of time researching potential buyers. With several options on the table, Louise chose Profile for a range of reasons: “They’re not aligned with an institution, a positioning many of my clients appreciate. And they have high client satisfaction across a range of different client types, which was important for me as particularly in the regional areas, it’s critical to have capabilities across High Net Worth, executives, agribusiness, mid-career stage as well as retirees.” Also important to Louise was the systematised nature of the business with automated workflows and systems in a paperless environment. “We are still going through the process of integration, ensuring that data and documents are fully migrated and processes seamless”, says Louise.

That process has been a little more complicated due to a serious accident suffered by Louise just days before completion. “Louise tripped and fell, breaking her ankle in three places”, says Abood. “She had to have major surgery and is still in rehabilitation. It really is showing the importance of having a paperless office and being fully cloud-based. We’ve been able to do quite a lot between us with videoconferencing and cloud systems that would be impossible otherwise. Luckily Louise is still full of energy and ideas, the accident has certainly not slowed down her mental pace at all!”

Both teams are looking forward to working together in a bigger business with more scale. “With over 35 staff now we need to re-think the way we do a lot of things,” says Abood. “We’re looking at implementing more technology in the business to ensure we’re growing sustainably and that we continue to reliably deliver to clients. Having four offices now adds some complexity, but staff across the business are also really enjoying the chance to visit and see how things are done elsewhere. One of the many advantages of scale is greater career and development opportunities for staff, and we’re really pleased we can offer that as part of our goal to attract the best people in our industry.”

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When I read about OBI, I can hear financial planners saying to themselves “yes, that’s what I do because that’s what financial planning is (and always has been) about.”

So why are people making such a big fuss over words and phraseology?

Most financial planners approach the advice process with the goal of understanding their client’s objectives and then formulate a plan to work toward the realisation of the stated goals and objectives over time. I did (and continue) to do so today, however, with one very important distinction … my clients now also understand, and can articulate why we are doing what we are doing.

One of the important tenets of OBI is that investment objectives need to be allocated specific timeframes. In doing so, clients begin to understand their portfolio as groups of funds set aside to meet specific objectives in specific timeframes. A sure-fire way to destroy wealth is to be forced to sell an asset at an inconvenient time, at a compromised price. The OBI approach ensures clients’ short-term income needs are covered using conservative assets such as cash, so that in times of market stress they are not forced to realise paper losses in order to pay the bills.

The three key risks that our clients identified they wanted addressed in their plan were:

1. Ensure I have sufficient cashflow to meet my required day-to-day living expenses
2. Ensure that I can meet unforeseen expenses as and when they may arise, without the need to have to sell longer term growth assets.
3. Ensure that I do not run out of money in my lifetime.

Profile set about building a tool (which we call Profile Pathways) that allows advisers to clearly demonstrate to a client how their stated objectives can be met by allocating their investment capital across agreed timeframes in a systemic manner. Further, it allows an adviser to demonstrate the level of risk that the client needs to undertake to meet their objectives.

“I believe that advisers are well credentialed to articulate why a client might need to increase their allocation to growth assets, to meet their objectives. However, I do not feel advisers are as adept at demonstrating situations where a client can take on less risk and still meet their objectives.” This is best demonstrated in the following client case study.

“Kathy (and her late husband Charles) have been clients since 2005. They were asset rich and income poor when we first met, and with retirement pending, they were seeking advice on how to restructure their financial situation to ensure that their retirement income objectives could be met.

“We provided them with a plan and duly implemented it over the years. In 2011, we formally adopted the OBI philosophy and introduced it to Kathy for her consideration. We explained the OBI philosophy by way of a “bucket diagram” (see below) which allowed Kathy to understand and appreciate why specific amounts were being allocated to each timeframe ‘bucket’,” said Phillip Win, Managing Director, Profile Financial Services.

Each of the buckets has a target rate of return that is used in the modelling. The underlying assets are selected for each of the buckets based on meeting that rate of return within a given timeframe. The underlying assets’ projected volatility is also considered. Because the Accumulation bucket has a higher target return and a longer timeframe than say, the Preservation bucket, it tends to hold more growth-oriented assets.

Kathy advised us of her required income in retirement and her anticipated capital expenditure over the foreseeable future. These inputs were then used to calculate the allocation to each bucket.

The following table illustrates the standard, recommended and current allocations to each of the buckets.

Each of the above outcomes resulted in Kathy meeting her stated objectives, however, you see that the ‘standard’ allocation would have resulted in her taking on more risk.

Yet, her investment capital would have grown more, however, this was not a stated objective and hence the recommendation to re-allocate the buckets to minimise risk and still meet the agreed objectives. The table suggests a decrease of 35% to the Accumulation bucket. The beauty of having Profile Pathways to illustrate the basis (or why) this was possible was invaluable.

“Each year, we re-run the model to ensure that the allocations remain appropriate and that any new objectives, and changes in markets, are accounted for in the model. This has resulted in there no longer being a need for Kathy to have any exposure to higher-risk Accumulation type assets to achieve her goals.

“Kathy feels comfortable knowing that excessive risk is not being undertaken to meet her objectives and she has no fear of running out of money in her lifetime,” said Mr Win.

The post Managing wealth to objectives appeared first on AdviserVoice.

Phillip Win

There are many financial planners who may not have formal studies and qualifications, but who have clearly demonstrated an ethical, professional attitude and behaved in a manner that has allowed them to forge strong relationships over many years. In many cases they are also maintaining Continuing Professional Development (CPD) at more than minimum standards.

However, there are also some financial planners who may have been attracted to the industry due to financial incentives and its (current) ease of entry. Some of these individuals have not demonstrated the behaviour expected of a person advising on a client’s life savings. This conduct is being revealed to the public via evidence in the Royal Commission into Financial Services.

Financial Planners are under the spotlight and FASEA is forcing many to consider their future in the industry.

Planners close to retirement

Many of those at the mature stage of their working lives are already considering retirement, and the FASEA requirements may well accelerate that. The industry may well be the poorer due to the drain of corporate memory. These clients will also need to be transitioned to a new financial adviser who is suitably qualified under the
FASEA standards. Will clients be happy?

The businesses of those retiring will need to be sold. This will require finance from a banking sector that has made it clear will be harder to borrow money from. The appetite for banks to lend to the financial planning sector is low, especially when you consider they are now looking to divest their wealth management businesses.

What will happen to practice valuations with a change in the demand and supply dynamics? If the sorts of numbers reported elsewhere in the media are true (some suggesting over 50% of planners may exit), this demand/supply imbalance could threaten the very thing financial planners have worked with their clients over the years to achieve – their own financial independence.

Far enough away from retirement to have to make a considered decision

There will be financial planners who do not hold a “related” degree who will need to undergo considerable additional study to meet the proposed FASEA standard by 1 January 2024. Even if a financial planner holds a related degree, they will still need to undertake a bridging course of 3 subjects, covering Chapter 7 of the Corporations Act, the FASEA Code of Ethics and a course of Behavioural Finance.

Financial Planners will need to assess if they wish to undergo the additional studies to stay in the industry. They will need to balance their existing work and family commitments with study requirements. Some may choose to exit, while others will take on the challenge.

The dynamics noted for planners close to retirement will play out for those choosing to not take up the study challenge, accelerating turnover in our industry.

How will FASEA impact your recruitment process and your business?

In short, it will be expensive. Partly because, for most firms, additional study time will be required for existing planners, and many firms will need to support some or all of the direct costs of the extra study, if they have an employee model. Even if this isn’t the case, extra study time is time away from supporting existing clients and helping the firm grow.

It’s also possible that the changes will increase wages costs of those planners who do meet the criteria. Planners exiting the industry because of the changes will create vacancies, and new entrants to the industry with the qualifications already complete will be in high demand – accelerating this trend.

Employers will need to ensure that prospective financial planners actually hold the qualifications they say they have, imposing additional checks and costs and slowing down the recruitment process. If the financial planner does not hold a related degree, the Practice may need to pay for the employee to get their degree and further studies, and support their professional year, in order to stay competitive in recruitment.

It will be very important to ensure that a Practice’s policy statement for study is robust and clear for employees.

Parting thoughts

I feel that much of the recent attempts to “formalise” codes of conduct and how financial planners should work with clients was all laid out when I joined the industry over 20 years ago. The code I signed up for was very clear on what was expected from me as a (then budding) financial planner.

up to, and be held account to, a short, unambiguous and robust code of conduct with this principal at its core irrespective of their association memberships.

I am concerned by the current proposal to not recognise the CFP Program (apart from possible subject exemptions). This program is high-quality and I believe it more than adequately meets the requirements of what FASEA is attempting to achieve. In my view it should be recognised as an accepted qualification for all those who have attained the program by study (rather than ‘grandfathered’ into the designation).

The FASEA proposals should also address financial planners’ CPD requirements. There is little to be gained to by studying Chapter 7 of the Corporations Law and then never reviewing it again. Behavioural finance is another subject that should form part of CPD components, not just be a one-off “tick-a-box” course.

I have a good friend who is a financial planner and to whom I would refer my closest and dearest family and friends. He does not have a related degree and is close to retirement. He is one of the best financial planners in our industry and yet he will need to make some serious decisions in the coming years on what he will do. He is technically superior to most planners I know and is a trusted advisor to his clients. Perhaps he is collateral damage and an unintended consequence of our industry on its journey to professionalise – but it’s sad to see such knowledge and talent go to waste.

By Phillip Win, Managing Director, Senior Financial Planner

The post How is FASEA impacting our industry? appeared first on AdviserVoice.

Jerome Bodisco

Objective-Based Investing (OBI for short) is an investment approach that seeks to align investments and portfolios with the client’s specific needs and objectives.  The result is one or more customised portfolios each designed to achieve a specific desired outcome over a defined period with a high probability of success.

The approach offers greater certainty to the client and allows financial planning to be conducted in a far more precise manner.

This is very much unlike common industry practice of matching products according to the nebulous notion of the client’s risk profile.

Why is it important?

OBI recognises that individuals are unique, with needs and objectives that are equally unique.  It is a complex financial problem to solve which partly explains why the industry at large has persisted with the traditional risk profiling approach to portfolio construction.

In our experience, not only do clients have several objectives and needs at any one time, but those goals also tend to change over time. Clients want and need investment portfolios and advice that addresses critical matters such as their need for security, an enjoyable lifestyle and a meaningful legacy. They also need those solutions to be flexible and regularly reviewed, recognising that circumstances, markets, priorities and goals are ever-changing.

The advantages? Clients receive an individually tailored solution which gives a greater level of confidence that their portfolio is likely to achieve their own financial goals. The approach also encourages the client to take a greater interest in their financial affairs and to work very closely with their planner through the years. This partnership approach increases the likelihood of success and reduces the possibility of disappointment or regret when markets fall or personal circumstances change.

Building an objectives-based investment strategy

Objectives based investing is an integrated set of activities which start and end with the client.

Step 1: Objectives come first. We start with identifying a client’s multiple objectives, translating them into dollars and specifying the timeframe within which they need to be met.
The planner must understand their clients’ investment objectives, psychology and behaviour, then construct, maintain and make the necessary adjustments to an investment plan over time that delivers to the client’s specifications. Success is not about out-performing competitors or the market, but about delivering to the client’s goals.

Step 2: This happens behind the scenes. It is generally impractical to develop a completely unique investment strategy for every possible client goal – so our investment team develops and regularly reviews ideas in 4 investment “buckets”. These are scalable solutions that enable us to focus on best of breed products and gain cost efficiencies through scale. Each ‘bucket’ has a different timeframe and target risk and return:

“Foundation” bucket: This includes an ‘emergency’ or working capital cash flow reserve aimed at meeting any capital or income needs for the next 3 years. It only invests in assets that are highly liquid (cash, bank bills etc.) or investments that have pre-defined liquidity constraints (term deposits), with essentially zero chance of capital loss.

“Preservation” bucket: This protects the purchasing power of assets from erosion by inflation and capital depreciation over the medium term (3-6 years). We include both income generating and growth assets that aim to deliver a consistent return above inflation. Asset allocation is dynamic, recognising changing market conditions and valuations.

“Accumulation” bucket: This targets a higher return than the Preservation bucket, over a longer-term horizon (6+ years). Capital preservation is still important but growth is the primary objective, using diversified assets with a stronger tilt towards equities.

“Acceleration” bucket: This one is for investors with a high understanding of asset markets, and a desire to be personally involved with their investments and to access unique opportunities not available to most investors. They must be comfortable with the typically higher risks of these investments. Assets are not allocated to this bucket until a client’s essential lifestyle needs have been met via more conservative approaches.

For each bucket, we develop and regularly review a number of investment options that we believe can deliver the required result for different types of client. These include fully implemented solutions, managed funds, and direct securities.

Step 3: Is to construct the investor’s unique investment portfolio. This is done by the planner and involves matching the client’s unique goals with the appropriate investment bucket, or combination of buckets.  Profile uses proprietary modelling software to facilitate this exercise, to optimise and customise the portfolio mix.  To do this, we look at 4 key elements of the client’s objectives:

When will cash be required? This can be to fund income, or for specific individual goals (such as an overseas trip, business, home or car purchase, gifts to family members and so on). For our not-for-profit clients, investments might be required to support specific charitable works over a number of years.

What rate of return is required? For clients in the accumulation phase where little or no withdrawal is expected until retirement, we calculate the return needed to hit the goal, taking into account regular expected contributions.

What level of involvement is desired? Some clients are looking to completely delegate investment decision-making, whereas others are keen to be deeply involved. Different types of investment will be needed depending on this factor.

What level of risk is the client comfortable with? If a client’s tolerance for risk is incompatible with the risk required to achieve their goals, it will cause problems down the track!
Importantly, this process is re-run at least yearly for our clients. No effective plan is static and we must take account of clients’ changing goals and needs, and changes in markets.

Conclusion

Profile constructs tailored portfolios and solutions that have a high probability of meeting client goals.

Profile Financial Service’s Objectives Based Investing framework has been instrumental in delivering desired outcomes and achieving the individual financial goals.

By Jerome Bodisco, Head of Investments

The post What is Objectives-Based investing? appeared first on AdviserVoice.

While some of the news may not shock you, there are some key takeaways that clients of financial planners should be critically assessing.

What is a Fee Disclosure Statement (FDS)?

The Future of Financial Advice (FoFA) reforms that came into effect from 1 July 2013 introduced the concept of a Fee Disclosure Statement (FDS). The objective of the FDS was to disclose fees paid by a client to a financial service provider over a 12-month period from a set “anniversary date.”

This means that you if you been a client of a financial planner since 1 July 2012, you should have received a minimum of five Fee Disclosure Statements.
It is important to note that the requirements of a FDS not only include the fee payable, but also the services that the financial planner agreed to deliver to you for the fee payable.

I have not received an FDS, can you please explain why?

Your relationship with your financial planner (and how the financial planner is remunerated) may be based on an insurance policy, or an old investment policy, where commissions are built into the cost structure. These commissions are not required to be disclosed in a FDS. However, you are entitled to know what commission your financial planner does receive by simply asking.

If you engage your financial planner on a 12-month basis and you agree to renew your fee each year by signing a new agreement and payment facility, you will not receive a FDS.

If you have a direct debit arrangement in place with no end date, you should still receive an FDS. This is because the fee would continue to be paid to the financial planner beyond the 12-month period if either of you are unable to meet or execute the new agreement.

What has the Financial Services Royal Commission exposed?

The FoFA reforms were intended to give clients the information to reassess each year whether the fee they have paid their financial planner was worth paying for the services received.

The Royal Commission has exposed the fact that some Australians have been paying a fee and received no service. Indeed some clients may not have had an opportunity to assess if they wish to re-engage with their financial planner because they may not even have received an FDS.

What should I do?

You should receive statements for your investments and insurances directly from the institution providing the products. If a financial planner is “attached” to a financial product, it will be referenced in those statements. The noted financial planner may be receiving remuneration and until you contact them and ask them how much and what services they are providing for the remuneration they are receiving; the gravy train will continue.

It is important to note that if you do decide to remove the financial adviser from the policy/investment, the cost of the investment may not decrease! In some cases, that fee may merely be redirected to the financial institution administering and managing the policy/investment. Sometimes this is just policy of the institution, other times there are real systems & structural barriers to changing this (especially for legacy products). Either way, an alternative is to transfer the policy to a financial planner who actually delivers a decent service for the money.

Without exception, our clients seek to grow and protect their wealth. The starting point is to take responsibility for your financial wellbeing and undertake a financial health check. If you have the time and inclination, you can do it yourself. Or you can seek the services of a financial planner who can clearly demonstrate that they deliver a valuable service in return for the fees they earn

After all, you work hard to accumulate wealth and it’s only fair and reasonable that if you pay someone to work with you, that you can assess if the service is worth paying for.

By Phillip Win, Managing Director, Senior Financial Planner

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Todd Stanford

“To give away money is an easy matter and in any man’s power. But to decide to whom to give it and how large and when, and for what purpose and how, is neither in every man’s power nor an easy matter.” (Aristotle c. 384 B.C. to 322 B.C.)

This article on planned giving structures covers the most rewarding part of philanthropy – giving the money away! (Otherwise known as grant making). This covers grant making as it applies to a Private Ancillary Fund (PAF).

There is no single right way to grant. Grants can be for general purposes or to support specific projects or programs.

How much to give?

During each financial year, a PAF must make a minimum distribution of at least 5% of the market value of the Fund’s net assets as at 30 June of the previous financial year.
If any of a Fund’s running expenses are paid out of the Fund’s assets or income, its minimum distribution for that tax year must be $11,000 or 5% as calculated above, whichever is greater.

No distribution is required during the financial year in which the Fund is established.

A PAF can apply to the Commissioner of Taxation to lower the minimum distribution rate for a financial year (but not to zero).

What makes up the 5%?

A distribution includes the provision of money (capital or income), property or benefits in kind.

If the Fund provides property or other benefits, the market value of the property or benefit provided is to be used in determining if the 5% minimum distribution has been met.

An example of benefit in kind is if a PAF leases office space to a grant recipient at a discount to the market price. The fund is providing a benefit whose market value is equal to the discount.

It is typically more administratively difficult to give property or benefits in kind as the ATO market valuation rules must be adhered to.

Distributions do not include expenses of the PAF.

To whom can a PAF give?

PAFs exist to support eligible Deductible Gift Recipients (DGRs) as defined in their Trust Deed. Eligible DGRs are charitable organisations endorsed as DGR Item 1 by the Australian Taxation Office (ATO).

You can check an organisation’s tax status by searching by name on the Australian Business Register using the ABN Lookup website: www.abn.business.gov.au, the ACNC

Register www.acnc.gov.au or request the charity provide their ATO DGR Endorsement Notice.

In no circumstances can PAFs distribute to other PAFs or Public Ancillary Funds. They must distribute to “doing” DGR Item 1 entities (because a tax deduction is already allowed for donations made into the PAF).

Philanthropy Australia provide the following broad range of grant recipients:

• organisations providing immediate relief to those afflicted by poverty, sickness or disadvantage,
• organisations advancing education or the fine arts, and
• organisations and research projects to identify new ways to solve long term medical, social or environmental problems.

Timing

The minimum distribution must be made by 30 June each year. Rather than wait until year end Directors are encouraged to give as much lead time as possible and start thinking about what cause they will support and whether it is for the long- or short-term.

Grant making support

It can be a daunting exercise in researching and selecting which charity to support while also ensuring the grant money is being used wisely.

Rather than ‘going alone’ the PAF can engage the services of a specialist. We recommend Australian Philanthropic Services. Their grant- making service has templates and tools to facilitate and assist in this process including a Giving Compass, Make a Difference workshop for children 7 – 17 and design/documentation of a Giving Strategy Roadmap. Further details here.

Tips on Giving

1. Involve the family – get the next generation to help out by ‘pitching’ to the Directors on charities they are passionate about. Carve out part of the distribution for this
2. Do your research: 75 percent of donors in the USA don’t do any research. Take the time to research the charity’s mission, programme and finances.
3. Don’t be faked out by a name: Many charities have similar-sounding names. That doesn’t mean they perform equally well. Again, do your research.
4. Get specifics: If a charity is helping the homeless, for example, find out how and where the organization is concentrating its efforts.
5. Verify status: Not everyone asking for donations represents a tax-exempt
6. Concentrate your giving: If you find a well-run charity that is doing good work for a cause you care about, consider putting all of your charitable eggs in one basket. If you spread the wealth, you risk making less of an impact.

Keep in mind

Remember receipts need to be obtained from grant recipients as evidence of the distribution and for the PAF’s auditor.

Avoid a shortfall in the annual distribution. Any shortfall must be rectified and penalties may be imposed by the ATO.

Directors of a PAF are encouraged to apply a similar degree of diligence, skill and care to grant making as they do to investment matters.

By Todd Stanford, Senior Financial Planner

Sources: The Chronicle of Philanthropy, Giving USA, Corporation for National & Community Service

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