A disconnect between the growth objectives and asset allocation of SMSF trustees

Self-managed superannuation fund (SMSF) trustees have high growth expectations for the next 12 months yet as many as 55 per cent have moved to a more defensive asset allocation amid continuing market volatility, according to AMP Capital.

Statistics from AMP Capital’s latest Black Sky Report show that while SMSF trustees expect a 10.9 per cent return on their portfolio this year (6 per cent capital and 4.9 per cent income), only 18 per cent of trustees have made changes to position their portfolio for growth.  This is, however, an increase of five percentage points from 2015.

Further to this, nearly half of SMSF trustees surveyed for the report say their aim is to have a fully diversified portfolio yet more than 50 per cent of their portfolio is invested in just one investment type outside of managed funds.

AMP Capital Head of Self-Directed Wealth and SMSF Tim Keegan said: “If trustees continue to be exposed to significant portfolio concentration risk and remain in more defensive assets without seeking financial advice, they may struggle to achieve their retirement goals.”

AMP Capital’s Black Sky Report is developed each year to provide a snapshot of trustee investment trends.  It also helps to arm financial advisers with insight and knowledge of where SMSF trustees are looking for specific advice.

The 2017 report has identified the biggest investment challenges for SMSF trustees as market volatility (according to 18 per cent of trustees surveyed), investment selection (11 per cent) and regulatory changes (10 per cent).

Mr Keegan said: “It’s clear that many SMSF trustees need help especially around portfolio construction and understanding the regulatory changes that are coming into play.  With nearly 60 per cent of SMSF trustees remaining open to using the expertise of a financial adviser, it’s clear this is a huge opportunity for advisers to tap into.”

The research also revealed that SMSF trustees continue to find managed funds attractive, with 47 per cent each investing approximately $280,000 in them.  Thirty per cent of SMSF trustees made their most recent managed fund investment after receiving advice from their financial planner.

Mr Keegan said: “There is an increasing appetite among SMSF trustees to invest in Australian equity funds, both active and passive.  Advisers can be proactive in recommending high-quality unlisted managed funds as well as introducing trustees to the increasing range of active exchange traded funds that are now available on the market.”

Active ETFs replicate managed fund strategies but are able to be bought and sold during the trading day like any share on the Australian Securities Exchange.  AMP Capital, in alliance with BetaShares, launched three active ETFs during 2016: the AMP Capital Dynamic Markets Fund, the AMP Capital Global Property Securities Fund and the AMP Capital Global Infrastructure Securities Fund.

According to Mr Keegan: “With expectations for growth at an all-time high, regulatory uncertainty at its peak and new products such as active ETFs becoming increasingly popular, there is more need than ever for SMSF investors to turn to financial advisers for support.”

For the third year in a row, AMP Capital has released the Black Sky Report, which uses research and data from leading research house Investment Trends to uncover the latest SMSF investor trends and insights.

The research is based on a quantitative online survey of nearly 800 AMP Capital SMSF investors conducted by Investment Trends.  The 2017 Black Sky Report can be downloaded here.

You’ve got to fight! For your right! … to fair banking

From The UK Conversation.

British governments have been trying to improve financial inclusion for the best part of 20 years. The goal is to make it easier for people on lower incomes to get banking services, but this simple-sounding target brings with it a host of problems.

A House of Lords committee will shortly publish the latest report on this issue, but the genesis of financial inclusion policy can be traced back to the late 1990s as part of the Labour government’s social exclusion agenda. The scope and reach of this strategy has since expanded beyond a focus on access to products and now seeks to improve people’s financial literacy to help them make their own responsible decisions around financial services.

The goal of increasing the availability of basic banking has become a tool for tackling poverty and deprivation worldwide, among governments in the global north and global south and among key institutions. In 2014, the World Bank produced what it described as the world’s most comprehensive financial exclusion database based on interviews with 150,000 people in more than 140 countries.

Retaliation? mobiledisco/Flickr, CC BY-NC-ND

Muddy waters

However, broad and enthusiastic acceptance of such policy efforts has prompted doubts about the simplistic narrative of inclusion and exclusion. This way of thinking does not capture the complexities of the links between the use of financial services and poverty, life chances and socio-economic mobility. It also ignores the sliding scale of financial inclusion, from the marginally included – who rely on basic bank accounts – through to the super-included with access to a full array of affordable financial services.

You can see the complexity and contradictions clearly in innovations such as subprime products and high-cost payday lenders. They have made it increasingly difficult to draw a clear distinction between the included and the excluded. Mis-selling scandals and concerns over high charges have also shown us that financial inclusion is no guarantee of protection from exploitative practices.

Even the pursuit of better financial education offers a mixed picture. Critics have raised concerns that this shifts the focus away from structural discrimination and towards the individual failings of “irresponsible and irrational” consumers. There is a grave risk that we will fail to tackle the root causes of financial exclusion, around insecure income and work, if policy follows this route.

In the midst of this focus on customers, the government’s role has been reduced to supporting those education programmes and cajoling mainstream banks, building societies and insurers into being more inclusive.

Vested interests. The Square Mile in London. Michael Garnett/Flickr, CC BY-NC

Given the central role that financial services play in shaping everyday lives, a hands-off approach from the state is inadequate. It fails to address the injustices produced by a grossly inequitable financial system. Our recent research examined how the idea of financial citizenship might offer a route to improvements. In particular, we looked at the idea of basic financial citizenship rights and the role that might be played by UK credit unions, the organisations which, supported by government, seek to bring financial services to those on low incomes.

The idea of establishing rights was put forward by geographers Andrew Leyshon and Nigel Thrift in response to the growing lack of access to mainstream financial services. The goal would be to recognise the significance of the financial system to everyday life and set in stone the right and ability of people to participate fully in the economy.

That sounds like a laudable aspiration, but what could a politics of financial citizenship entail in practice?

Drawing on the work of political economist Craig Berry and researcher Chris Arthur, we argue that the policy debate should move on to establish a set of universal financial rights, to which the citizens of a highly financialised society such as the UK are entitled regardless of their personal or economic situation.

  1. The right to participate fully in political decision-making regarding the role and regulation of the financial system. This would entail, for example, the democratisation of money supply and of the work of regulators. Ordinary people would have to be able to meaningfully engage in debates about the social usefulness of the financial system.
  2. The right to a critical financial citizenship education. Financial education needs to go beyond the simple provision of knowledge and skills to understand how the financial system is currently configured. It should provide citizens with the tools to be able to think critically about money and debt, as well as the capability to effect meaningful change of the financial system.
  3. The right to essential financial services that are appropriate and affordable such as a transactional bank account, savings and insurance.
  4. The right to a comprehensive state safety net of financial welfare provision. This could include a real living wage to prevent a reliance on debt to meet basic needs and could go all the way through to the provision of guarantees on the returns that can be expected from private pension schemes.

Establishing this set of rights would be a major step towards enhancing the financial security and life chances of households and communities. The weight of responsibility would shift from individuals and back on to financial institutions, regulators, government and employers to provide basic financial needs. As one example, just as people in the UK are given a national insurance number when they turn 16, so the government and the banks could automatically provide a basic bank account to everyone at the age of 18.

The UK credit union movement does make efforts towards these goals, but it cannot fully mobilise financial citizenship rights largely due to its limited scale and regulatory and operational limitations. For the rights to work, they will need the support of the state, of financial institutions, regulators and employers. That would enable the country to build something less flimsy than the loose structure we have right now, which piles blame onto the consumer and relies on voluntary industry measures to pick up the slack.

Property prices continue to soar in an already hot market

From The NewDaily.

Latest property price figures have given home owners reason to celebrate and first home buyers even more reason for despair.

Latest data from CoreLogic Home shows prices in Australia’s main cities have leapt 3.7 per cent since the start of the year, with Sydney and Melbourne predictably higher than the national average.

Residential prices in the already-hot Sydney market jumped 5.3 per cent since January 1, with the median price hitting $950,000, and the median price for units now $740,000.

Melbourne property prices have risen 4.4 per cent this year, with the median house price at $710,000 and the unit price at $525,000.

Perth was the only capital where prices have fallen, down 1.1 per cent.

Meanwhile, Hobart remains the cheapest market with median house prices at $365,000 and unit prices at $306,500.

The news comes a week after former Liberal leader John Hewson declared Australia was experiencing a property bubble and also follows a Reserve Bank statement noting there had been “a build-up of risks associated with the housing market”.

The bank referred to rising property prices in Melbourne and Sydney, the “considerable” number of apartments coming onto the market over the next few years, resurgent growth in investor lending, and household debt rising faster than household income.

CoreLogic also reported that the proportion of settled auctions — a key benchmark of demand — was also up.

The national auction clearance rate jumped to 77.1 per cent in the week to March 26, from 74.1 per cent the previous week and well up from the 70.9 per cent in the same week in 2016.

But home buyers could soon find themselves squeezed from two sides, as interest rates rise for both owner-occupiers and investors.

“There’s only one way for interest rates to go in my reading, and that’s up,” Martin North, analyst with Digital Finance Analytics, told The New Daily.

“I’ve believed for some time that by the end of the year interest rates on owner occupied housing loans will rise by 25 to 50 basis points and for investor housing it will be between 75 to 100 basis points. That is irrespective on any moves the Reserve Bank might make on rates.”

The escalation that has seen mainland capital house prices rise 13.1 per cent in a year and as much as 19.8 per cent in Sydney is putting pressure on buyers despite low rates.

“Around 20 per cent of all owner-occupiers are suffering mortgage stress, and if rates were to rise one percentage point that would rise to 24 per cent, Mr North said.

CoreLogic’s data also showed that there were 3147 auctions last week— the second highest so far in 2017, and up from 2916 the previous week.

 – with AAP

AMP Bank Lifts Mortgage Rates

AMP Bank has announced changes to its mortgage lending rates for both owner occupiers and investors.

Effective 3 April 2017, variable interest rates for interest-only loans for existing customers will increase by 15 basis points for owner-occupied loans and 28 basis points for investment loans.

In addition, effective 31 March 2017 for new customers and 3 April 2017 for existing customers, owner occupied principal and interest variable rate loans will increase by 7 basis points. As a result, the AMP Bank Professional Pack owner occupied variable rate loan will increase to 3.92% p.a. for new customers for loans of $750,000 and above.

AMP Bank is encouraging customers with interest-only loans to switch to principal and interest repayments where appropriate. Until 30 June 2017, AMP Bank will waive the switch fee for customers moving to principal and interest repayments.

Sally Bruce, Group Executive AMP Bank commented: “We are managing our portfolio in a very active market but are committed to providing competitive rates to our customers to help them achieve their property goals.

“We also want to encourage customers to move to principal and interest repayments where it’s appropriate, as there is a great opportunity to access lower interest rates and repay your loan faster.

“Our decisions on rates are not taken lightly and reflect wholesale funding costs, the need to maintain a balanced portfolio and the market environment,” she said.

Mortgaged Households, Vital Statistics

We have pulled out the latest data on residential mortgaged households, incorporating the latest mortgage increases and market valuations. So today we run over the top-level vital statistics.

To explain, our market model replicates the industry, across all lenders banks and non-banks and looks beyond the performance of just the securitised mortgage pools (as some of the ratings agencies report). It is looking from a “household in” perspective, not a “lender out” point of view.

To start, we look at the average home price, and average mortgage outstanding across the states, plotted against the relative number of households borrowing.  NSW has the largest values, and thus mortgages, on average. But note that WA runs ahead of VIC though in the west prices are falling.

Next we look at average loan to value (LVR) marking the market value to market, and the latest loan outstanding data. NSW has the highest LVR on average, at ~75%. We also plot the average loan to income (LTI) and again NSW has the highest – at more than 6x income.

Then we look at debt servicing ratios, where again NSW leads the way on average at more than 23% of income, even at these low rates. VIC and WA are a little lower but still extended. Finally, we look at estimated probability of 30-day default, projecting forward to take account of expected economic conditions, interest rates and employment. WA has the highest score, followed by SA. NSW is a little lower, thanks to relatively buoyant economic conditions. That could all change quite quickly, and as highlighted the high leverage in NSW suggests that risks could become more elevated here.

We will update the market model again next month, and track movements across the states. Be warned, averages of course tell us something, but the relative spreads across segments and locations are more important. But that, as they say, is another story!

Auction Clearances Higher

CoreLogic says the amount of auction activity across the capital cities increased this week, up from 2,916 last week to 3,147 this week; the largest number of auctions since the last week of February 2017 when 3,301 auctions were held. This time last year was the Easter long weekend, so auction volumes were substantially lower, with 554 homes taken to auction across the combined capital cities. This week’s preliminary weighted average clearance rate across the combined capitals was 77.1 per cent, increasing from 74.1 per cent over the previous week and up from 70.9 per cent one year ago. Sydney saw the highest preliminary clearance rate across the cities at 81.1 per cent, while across the remaining cities; clearance rates increased week-on week with the exception of Brisbane and Perth where clearance rates fell.

Mortgage fraud increasing year on year

From Australian Broker.

The number of cases of mortgage fraud has been on the rise, with brokers warned to look out for falsified documents supplied by clients seeking unsuitable loans.


“Unfortunately, fraud continues to increase year on year,” said Paul Palmer, Connective’s compliance support manager, at the aggregator’s professional development day in Sydney on Thursday (23 March).

“The technological advancements of digital applications enable people to create documents or change existing documents to be more and more authentic looking.”

The aggregator has seen statements that lenders could only identify as fraudulent because they had no record of issuing them, Palmer said.

“Obviously, you can’t expect brokers to pick that up. Fortunately for us, most people trying to commit fraud aren’t that good. They always make spelling mistakes, a typo, or they get their mathematics wrong.”

As fraud investigations are inherently unpleasant for both broker and aggregator, Palmer urged a proactive rather than reactive approach.

To do this, he suggested brokers undertake all due diligence, meet required responsible lending obligations, cross check & verify all documents provided by the customer, and look for inconsistencies.

“We see a lot of differences in fonts, in key financial data, and also, as I said, a lot of mathematical areas. Run their payslips through the pay calculator and you’ll be amazed at how often that finds something.

“One of the biggest ones I found over the past 12 months is where there were two payslips and they forgot to change the accrued annual leave entitled from payslip to payslip; which we would expect to change. It’s a very common mistake.”

If it is impossible to meet the customer face-to-face, Palmer encouraged brokers to mitigate any risks by becoming familiar with conditions that lenders set up to accept remote broker-client meetups.

“From our perspective, a good thing is to get certified ID. Through Skype or Facetime conversations, get a snapshot of their ID. It fulfils an obligation to show you actually know who you’re dealing with.”

Finally, Palmer warned brokers to put themselves in the right mindset when it comes to fraud.

“Don’t think that you can’t get caught,” he said. “Unfortunately, there’s been a significant increase in the amount of referrals looking to give loans to mortgage brokers. In particular new-to-industry brokers have been targeted by people who have clients that can only service or get a loan through submitting fraudulent documentation.”

He urged brokers to do due diligence on their referrers as well.

“Make sure you’re comfortable with them as people, make sure they’re people you do your own business with yourself, and don’t trust anything they give you more than anything provided by your clients. In some ways, you need to be more skeptical.”

St George Lifts Mortgage Rates

St George has followed the other majors with lifts in variable mortgage rates, and those with investment loans are hit the hardest. They are also offering a “free” switch from interest only to principal and interest repayments until June.

Effective on 8 May 2017, St George will be increasing the following variable rates for:

  • Owner Occupier Interest Only Home Loan variable rates: by 0.08% to 5.50% per annum (comparison rate 5.67% per annum*)
  • Residential Investment Principal & Interest Home Loan variable rates: by 0.23% to 5.78% per annum (comparison rate 5.95% per annum*)
  • Residential Investment Interest Only Home Loan variable rates: by 0.31% to 5.98% per annum (comparison rate 6.15% per annum*)

*Comparison rates are based on a loan of $150,000 over a term of 25 years.

Australia is adding an extra million people every three years

From The New Daily.

Thursday was a demographer’s dream. That’s when the Australian Bureau of Statistics released Catalogue No. 3101.0, which contains a whole bunch of thrilling data.

One of the highlights is that, as of September last year, Australia had 24.22 million people, an increase of about 348,000 in just 12 months. That’s broadly equivalent to adding the combined population of Hobart and Darwin.

This growth rate is relatively high by western standards. We’re still a popular destination for migrants with net overseas migration (the difference between arrivals and departures) contributing 55 per cent of total growth. The rest is provided by natural increase (the difference between births and deaths).

But it’s not unprecedented. We’re expanding at 1.5 per cent a year, which is below that of 2007-2009 and 1950-1970 when growth exceeded 2 per cent.

At a state level, Victoria was the big winner adding some 125,500 new residents, followed by New South Wales (110,000) and Queensland (68,000). Over the 12-month period, Victoria broke through the six million mark. For comparison, if Victoria was a US state it would rank 18th just behind Indiana.

The impact of net overseas migration is not evenly distributed. New South Wales, which houses 32 per cent of Australia’s population, attracts almost 40 per cent of net overseas migration, while Victoria with around 25 per cent of the nation’s population, punches well above its weight with 36 per cent. The vast majority settle in either Sydney or Melbourne.

Another interesting element is movement between the states. Each year, people move, for a host of reasons, interstate. The difference between those arriving and those leaving is termed ‘net instate migration’ and over the years state premiers have frequently attached their economic management credentials to positive figures.

At present, Victoria and Queensland are the ‘winners’, Tasmania and the two territories can claim a draw, while New South Wales, South Australia and Western Australia are the ‘losers’.

Some of these trends are fairly well established, others relatively new. For example, at the height of the mining boom, Western Australia was a net importer of people from the other states. With the boom a distant memory, it’s now a net exporter.

Lest Victoria get too cocky, it should be remembered that in the 1980s and early ’90s, when many thought the state was in almost terminal decline as a so-called ‘rust belt’ state, net outflows (mainly to NSW and Qld) were in the tens of thousands a year.

Australia is also ageing, which will have longer-term ramifications. Life expectancy is greater and our fertility rate is below replacement.

We’re not as bad as Europe, where in some countries population decline is imminent. But it’s still a very real issue that has governments mindful of the fiscal implications of a society where more of us are older than 65.

Even in the few years from 2012 to 2016, the proportion of the Australian population aged 65 and over increased from 14.14 to 15.27 per cent, while the proportion aged 24 and under declined from 32.48 to 31.92 per cent.

Finally, the ABS gave us some predictions of future population and the number of households required to accommodate it.

By 2036, we’re projected to increase to 32.4 million and, by 2056, to 39.8 million.

Most of that growth is expected to be in the big cities, with Sydney increasing from almost five million in 2016 to 6.6 million in 2036 and to 8.12 million in 2056, and Melbourne growing from 4.6 million in 2016 to 6.4 million in 2036 and to 8.16 million in 2056.

Notice something?

Yep, by 2056 Melbourne is projected to have overtaken Sydney.

Will it happen?

It could, but it’s not guaranteed. Melbourne has been gaining on Sydney for many years now, but a range of economic, social and cultural factors could threaten that. Back in 1991 few people would have foreseen Melbourne becoming Australia’s growth capital.

In any event, Sydney has large centres of population on its doorstep (the Central Coast, Blue Mountains, Wollongong and even the Hunter Valley region) that could potentially be called into play if Melbourne began to mount a serious challenge.

Chris McNeill is a demographer and urban economist with Essential Economics, a consulting firm specialising in the economic analysis of people, places and spaces.

Auction Run Continues

The latest preliminary data from Domain shows continuing momentum in today’s auction results.

Sydney achieved a clearance of 80.2% compared with 76.7% last week, and 61.4% last year. The volumes are also up. In Melbourne, clearance was 79.5%, higher than the 75.3% last week and nationally, clearances were at 78% compared with 73.8% last week.

Our surveys suggest that investors are rushing to purchase ahead of the upcoming budget in May, as they fear the generous tax breaks may disappear. First time buyers are being beaten to the punch.

Brisbane achieved 47% on 138 auctions, Adelaide 64% on 79 scheduled and Canberra 77% on 78.