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the new school of super podcast series

Episode 20

The value of advice throughout retirement - part 2

September 2019

Josh van Gestel, Sunsuper's National Education Manager, joins Anne Fuchs, Head of Advice and Retirement, to discuss how financial needs may change throughout retirement, and our research, which shows the value of financial advice in helping a case study couple wind up their SMSF, take advantage of a Sunsuper Income account, and free them up to enjoy life in the latter years of their retirement.

Intro: Welcome to the New School of Super. A fresh look at money matters, your super and the things that could affect your financial dreams now and in future with Sunsuper's Chief Economist Brian Parker and Head of Advice and Retirement Anne Fuchs.

Anne Fuchs: Hello and thanks for listening. Welcome to the New School of Super, Sunsuper's podcast series covering investment markets, money matters, your super and helping you reach your retirement dreams. My name is Anne Fuchs, and I'm the head of Advice and Retirement here at Sunsuper and the team and I come to work every day to help our members access great quality financial advice because we know that when they do, they have the best possible chance of living a wonderful retirement. Now an old friend is back today, and he's been a guest on the show before: the fabulous Joshua van Gestel, our Sunsuper National Education Manager. Hello Josh!

Joshua van Gestel: Hi Anne, I take offence as being referred to his old, but anyway...

Anne Fuchs: Well, we're probably the same age and we're not old at all, we're fabulous. Just ask us, and we'll tell you all about it. It's wonderful to see that you're here. Brian is not here today, so we won't have the two of you competing for microphone space.

Joshua van Gestel: No, and I'm filling his very comfortable chair.

Anne Fuchs: Yes. Good, Good. Well, look, you know, last time we've spoken about when you've been on New School of Super, we've spoken about SMSF, the value of a buy, swimming and super. But what are we talking about today?

Joshua van Gestel: We're actually going to pick up on a few of those things. But before we do, I'm just going to make sure that our compliance team is happy. So before we start, I just need to let our listeners know that what we're going to talk about today is general information only, and that any advice that we may provide doesn't take into account your personal situation. You should always consider your own circumstances and think about getting personal advice before acting on anything we're talking about today. You can get a copy of our product disclosure statement from our website or just give us call on 13 11 84.

Anne Fuchs: You are sounding a little bit husky.

Joshua van Gestel: I am, and it wasn't a big night - it's man-flu unfortunately.

Anne Fuchs: Tail-end of it, but you're doing well. Thank you for being here. Look, you know if I can start by pointing out that financial advice really did cop a battering in the eyes of consumers, particularly during the Royal Commission, which is incredibly sad because we know at Sunsuper that great financial advice materially improves people's retirement outcomes.

Joshua van Gestel: That's right, and I think it's really important with that in mind, that the value of advice research that's been done - and what we're talking about today is actually a case to do with an older couple - that the research really does call out the importance of the advice and where good and trusted financial advice can make a difference. I think in this case, the other thing I'd pick up is that what we're going to discuss about in a moment also talks about the importance of that ongoing advice; that advice is not just simply a one=off conversation, but advice is something that has to change as your circumstances and your needs and your desires change as well.

Anne Fuchs: Yeah it's not unlike exercise. You know, I haven't exercised all winter and now we're in spring and I've been walking and my legs hurt, and that's because it shows I haven't been doing ongoing exercise and it's really no different to money?

Joshua van Gestel: Absolutely. Did you maybe just want to give some background for those people who maybe haven't listened to the previous podcasts on the value of advice research?

Anne Fuchs: Yes, sure. Look, we undertook this exercise, working with Core Data who's a very well regarded independent research house, to empirically prove, I guess that if you pay for financial advice that you will be wealthier as a consequence because to be blunt, that's the point of it. You're paying to improve and maximise your financial position. And so there have been now six case studies overall, that are all on the Dream Project on the Sunsuper website that you can access. The last wave of research that we did with Core Data was focusing on people who are later in life, and that it's not too late to be able to improve your situation.

Joshua van Gestel: And I think in this case it's really important, because what we've got here is a case study that relates to a couple; Susan and Kevin. It's probably something that's a lot of people may actually need to start thinking about and considering, and that is where a lot of us undertake our own investment decisions - in Kevin and Susan's case, having a self manage superfund - that as they age, their ability and maybe their want to actually be so heavily involved in their own investment decisions needs to go on the back seat. What we've got here is a change in their health circumstances; Kevin, who who we know probably makes a lot of the decisions or goes on the front foot a lot with the investing for their self-managed super, he's really losing maybe some of that cognitive ability to maintain that. And he recognises, which I think is important, that we are seeing this become a very big issue, especially depending on how some of the self-managed super funds is structured. So the case study picks up on a couple of things there, both in terms of transparency of that investment and trust and responsibility. But also how can we just re-check in on their situation and what they want and actually make some changes there as well.

Anne Fuchs: And it's worthwhile calling out before we get into a bit of the detail, that the not only to Joshua's point about- Look, I'm sounding very formal, calling you Joshua aren't I?

Joshua van Gestel: Only my mother calls me Joshua.

Anne Fuchs: Yes, Josh's point around just removing complexity, which is particularly important, I think, as people are moving to the latter part of their life. But there is actually a material financial benefit in doing so as well, so they're not just removing complexity - they are in a position where they're better off for undertaking this strategy with their financial advisor.

Joshua van Gestel: And I think the most important thing here is that it also relieves their own commitment and allows there to be both that financial benefit, but also then to just focus again on Kevin's health. So I think where the other benefit of this was, in going through the advice discussion it also identified with them that they could start an allocated income stream, an account-based pension and that would actually, even in itself, take away a lot of that active decision making out.

Anne Fuchs: Absolutely, because, you know, our listeners would know that we have some highly qualified investment managers that could do that and have the capacity to do that much more than Susan and Kevin could.

Joshua van Gestel: Absolutely and it also means that it lets them go on autopilot a bit, that they know the investment to being managed, they know they're receiving their regular income payments. Again and allows them to have that focus on just where their lives are and what they're wanting to do.

Anne Fuchs: In this case study isn't unusual. These people, I would describe as everyday retirees and that they're wanting to downsize their home, they're wanting to be able to leave a bit of a legacy to their grandchildren and children, and see if they can help. And just also, while they're mobile and able to get around, spend some money and get overseas, have some holidays. And so really they're not extravagant goals that this couple and this case study is seeking to explore. But they do have a self-managed superfund. And there are lots of members we know at Sunsuper where the trend of unwinding an SMSF is certainly gaining momentum and quickly, and that's probably a reflection of an ageing population. But also probably post-Royal Commission world as well. Josh, you're our resident SMSF expert here at Sunsuper. If you're a member thinking about unwinding an SMSF like Susan and Kevin, what would be the first step that you would do to begin that process about whether that's the right thing for you?

Joshua van Gestel: As with setting up an SMSF, it can be very complicated to wind it up. It can have consequences around tax, it can have consequences around investments and how you're selling down investments and what you're doing with those. Just complications with the legal elements. So absolutely, the discussion first has to start with that advise, to make sure that firstly you're making the right decision to actually then see the position the funds in and make sure that everything can happen quite cleanly. But then it's also going to be involving either your SMSF administrator if you've got one or your tax agent. But there is going to be a lot of work in just winding that up.

Anne Fuchs: Well it sounds expensive, too.

Joshua van Gestel: There is an expense to it, but I would actually outweigh that to say that the initial expense of winding down an SMSF would be certainly recouped by having that money move into a superannuation fund much like Sunsuper. Often you'll see that the investment costs are lower, you'll see the administration costs are lower, you'll also see the savings and benefits just in that you're not investing your own time anymore. So I do think any of those costs are actually going to be recouped quite quickly.

Anne Fuchs: Well certainly in the case study in the value of advice case study off around Susan and Kevin, that is certainly true where they've paid for that paid $3000 for that advice and $1500 ongoing. And as a consequence, they're well and truly over $300,000 wealthier in terms of their net earnings on the superannuation balance as a consequence of that strategy, but also they're earning $25,000 a year extra in terms of the drawdown income in their retirement income account. I would say that is an excellent return on $3000 and $1500 dollars a year.

Joshua van Gestel: And that's where I think- you alluded to earlier that we are seeing this increase in wind ups of SMSFs and there's probably gonna be two things that people have to think about. It is an investment to wind it up. The cost of winding it up is actually an investment to improve situations, certainly for Kevin and Susan. I think the second thing is, though, and this is something that is never discussed when you're establishing an SMSF, is what happens as you get older? What happens when you no longer want it, no longer can do it? What would be the implications on Susan in this case if Kevin no longer had the capacity or capability?

Anne Fuchs: What happens if they both passed away and they're leaving that to the kids? That could be really complicated.

Joshua van Gestel: So to your point, not only have they seen their financial situation improve as a result of this, but it has been an investment in that financial advice.

Anne Fuchs: And actually I have to stand corrected; I'm just looking at the research now, Josh, and it was actually $2000. So pardon me I didn't have my glasses on, and I'm still in denial about that as I hit my mid-40s and that we are both getting old.

Joshua van Gestel: I'm wearing glasses for the first time, too Anne so there you go.

Anne Fuchs: And what I love to about this case study listeners is that it very much reflects the advised versus the un-advised and what that really is seeking to point out. If Kevin and Susan did nothing and continued on and didn't get that advice about what their options were as they're ageing, what would have happened? What would be their trajectory vs getting that financial advice?

Joshua van Gestel: Absolutely so again, just to maybe summarise some of what we've discussed, that if they didn't have that advice, they'd still have an SMSF and it would be a burden. It would be an increasing burden that would continue regardless of Kevin's health. You'd also see that their main goal here for the advice or for them to have this new advice discussion, is their circumstances have changed - not just in Kevin's health but also their desire to help help their grandkids. That just would not occur if they didn't receive this advice. And I think if you look at what they want to achieve, the quest for the grandkids and to actually be able to focus on Kevin's time and health, absolutely advice has achieved that and provided a lot more financial benefit above that.

Anne Fuchs: And actually what isn't called out, as we live through extraordinary geopolitical times, is the complexity of investing in times like this. Where we're headed, we're in trade wars and Brexit and whatever else, and how Susan and Kevin would navigate that is not discussed in the research paper. But I do what I want to call it out. Look, Josh, are there any closing statements that you wanted to make to our members?

Joshua van Gestel: The only closing statement, this is an SMSF statement - this isn't specific to Kevin and Susan - is to really say the importance of again financial advice being that ongoing discussion. Let's pick up on when your needs change, your circumstances change, your capabilities and your requirements change. The value of advice is in the ongoing advice. It's not just a one off shop to your earlier point.

Anne Fuchs: Life is complicated, and as we know at Sunsuper that for our members the earlier they get advice, the wealthier and more secure they are. And when I say wealthier, I'm not talking rich here, what I mean is they are maximising and doing the most with their hard-earned retirement savings. You work hard all your life. It's your obligation to make the most of it. The early you do that- my analogy is putting on sun cream; if you wait too long to put on sun cream, there's only so much you. But you put it on from a young age will have beautiful porcelain skin. I say that because I have very porcelain skin that I must protect. So on that note, it's been a really great episode. It's been fun.

Joshua van Gestel: Thank you, Anne. Thanks for inviting me.

Anne Fuchs: And you have been a trooper knowing that you are suffering man-flu. Hashtag #pooryoupoorjosh. So thank you to our listeners again for joining us. It's been great, as always, and we look forward to you joining us in the New School of Super Soon.

Outro: This has been the New School of Super. For information and inspiration to help you plan your future, manager Super, and enjoy your retirement, visit sunsuper.com.au/thedreamproject. Or if you've got a superannuation or investment question, you'd like Brian and Anne to discuss, then get in touch at newschoolofsuper.com for it feature in one of our future New School of Super podcasts.

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