While many people are debating whether the 2017 budget was good, bad or neither, to me one thing is clear - it depends. I am not going to debate the political angles and whether, overall, a “tax more, spend more” budget is in the best long term interests of the Australian economy. But if I look at just a few of the initiatives that impact household saving, such as first home ownership and downsizing, and the benefits of these initiatives, the answer is obviously dependent on individual circumstances. However, I say this with a spring in my step and a real sense of optimism over how this year’s budget will forever change advice in Australia. A big statement, I know, and to be entirely honest it is not wholly motivated by the budget. Certainly the housing crisis in Australia and our ageing population are huge drivers of change. However the First Home Super Saver Scheme and downsizer announcements have already had an impact. People are thinking about issues that they believed were well beyond them or looking to act as if they may be of benefit to them. Further these issues will make people think about their finances at the beginning and end of their careers and getting them more engaged in these matters. The First Home Super Saver Scheme means many super fund members who are currently not engaged will look at their fund, their balance, their investment strategy and indeed the insurances. In many cases this is 20 years earlier than they perhaps would have done previously, thinking about issues such as adequacy and longevity. In the case of the downsizing, this is becoming a real issue for many pre-retirees and retirees. And while I commend the Government for making the link across home affordability from first home buyer to empty nester, I don’t see the houses vacated being snapped up by new home buyers. But maybe there is a trading up knock-on effect? People will now be thinking about time horizons, the realities of their own personal budgets and the reality of a first home purchase. It will force Australians to challenge conventional thinking about home ownership and attitudes around how they should live in retirement. It will also mean they will take a closer look at their investment strategies in their super funds. I have previously mentioned the need for a “dual investment strategy” for super fund investors making use of the super saver scheme. And this was more to emphasise a point. While there is a deeming rate of 4.7 per cent, that is not the rate earned, it just serves to determine how much can be drawn for the first home deposit. So surely if I am withdrawing money from my super well before retirement age, and don’t want to crystalise losses from market movements, then I should ensure my strategy reflects that. So are you better off downsizing and possibly risk losing part of your pension as the profits into super still contribute to the assets test? The answer is, it depends. Many average Australians have been given something to think about, analyse, weigh up the pros and cons etc. But how many of us are really qualified to make educated decisions on what can be quite complex decisions? The need for quality financial advice to discuss and review the impacts of various goals and strategies to meet those personal and financial goals has never been greater. This budget has really emphasised the need for financial advice, from the time someone is considering buying a home, right through to retirement and beyond. In one night, financial advice has broken the myth that many Australians have, that finances can be dealt with one issue at a time, in isolation of each other. Age and personal circumstances must be considered when making any financial decision, and financial advisers are able to help Australians navigate myriad complex financial decisions. In this light, the affordability of advice is a key issue. As a profession we struggle on a day-to-day basis to meet the levels of compliance while keeping advice affordable for average Australians and more needs to be done to ensure the consumer is protected but the adviser is not overburdened with unnecessary administrative red tape. The tax deductibility of advice will help make financial advice an inherent part of the family budget discussion. If we are going to have a federal budget that is going to relate two major financial issues such as home ownership and retirement, and we want people to be able to navigate this correctly, advice needs to be affordable. It also needs to be relatable. The AFA continues to attract growing numbers of younger financial advisers, the very generation who will need financial advice to assess these budget impacts. The ability of our industry to reflect the community, to have similar experiences and shared responsibilities, will take advice to a new generation of Australians, who thanks to the budget, are going to need our help.
26 May 2017