It’s around 9pm, Thursday, February 1, and I’m under the pump. I’m also at a local boozer having dinner with PJ, a colleague of mine.

Outwardly, I’m as calm as. Inwardly, the last thing I feel like is a beer and a chicken parma. I’m pre-occupied with an intractable situation regarding an estate and I’m hoping like hell the pennies drop soon. Very soon. As in, before close of business the next day.

The situation looks like this…

A client of mine has already been in and out of hospital a few times in recent months but now the prognosis is dire. No doubt about it.

The reason I’m feeling a tad anxious is because he doesn’t have a Lasting (Enduring) Power of Attorney in place and if he drifts out of consciousness again, I’m tipping there’ll be no coming back and then it will be too late to tie up some loose ends.

He delayed having a Will written for as long as possible because of a complicated family matter. And even though his estate planning includes a Testamentary Trust for tax and asset protection purposes, I know those who survive him are still vulnerable, and so does he. Which is giving him no end of headaches.

I’ve seen this movie before and it rarely ends well. It’s the worst blood sport of all.

After my client divorced he decided not to get back into the Sydney property market straight away because he thought it was overpriced, so he opted to rent for a while. Consequently, he had a lot of money sitting in cash plus some invested in the stock market.

Importantly, his children were non-dependents.

By 1.30am I’ve been back at my desk for over three hours and dinner with PJ is now a faint memory.

Worst of all, I’m no closer to a solution, so I decide to pull up stumps.

And then, just as I get out of my chair, ka-ching! The pennies fall that hard it’s almost deafening.

The answer seems so obvious I immediately think I’ve overlooked something. Not surprisingly, I spend the next hour combing my notes, going backwards and forwards looking for any holes and why the idea might not work.

At around 3am I fire off an email to my client and his solicitor and then fall into bed exhausted.

The Solution
By the time I emerge from my slumber, my client has sent me a reply, “Please Proceed!”

World War III has just been averted and I’m doing cart-wheels. (Figuratively speaking)

(I’ve also promised myself a quiet little sip after work).

In the meantime, the recommendation to my client looked like this…

“Liquidate all assets and gift proceeds to children immediately. I.e before you pass away”.

In a perverse sort of way, I think this gave him something to live for.

Literally, one week later he sat his children down together and explained what his intentions were before he gifted them the money.

The meeting was convened in his solicitor’s office where it could be fully recorded. I suggested this to help mitigate any possible recourse after his passing because one of the agitators causing most of the problems was a spouse.

(If you want to destroy a relationship as fast as possible, get a third party involved. It never fails).

By the time my client passed away, there was next to nothing to pass onto his estate and no grounds for a contest. It was one of the fastest probates ever.

Yes, there was a little bit in super but because super is a non-will asset, it didn’t matter so much. Plus, by the time the super was split up, everyone was familiar with the process.

Best of all, there wasn’t a peep from the spouse.

The Little Experiment
Since I began writing the Moowsletter, I was determined not to use it as a platform to sell stuff. I read a lot of posts and I cannot stand blogs that masquerade as sales letters. Its deceptive and deceitful.

However, and here comes the ‘but’, I recently had a client ask if we do estate planning and I immediately thought of that long summers night in early February.

It isn’t the first time, we get requests from subscribers like that all the time about different services.

So, what I thought I’d do between now and Christmas is share one ‘case study’ per month about different client scenarios to show subscribers what we do at Suncow without hard selling them.

It will look exactly like todays ‘case study’. Factual and honest and I promise it won’t be boring.

But if in your opinion the Moowsletter starts reading like a sales letter and loses its integrity, you have our express permission to complain and unsubscribe, immediately.

On the other hand, if the idea of a monthly ‘case study’ appeals to you, please let us know if there are any topics you would like us to cover.

Have a great weekend!

Adam

Back paddock – I just wanted to say a very big thank you to all those people who have recently shared some of our Moowsletters. Some of the shares have been to newspapers as well as other bloggers right across Australia.

Also, thank you for the feedback from our last Moowsletter – Haymaker. It was just a simple idea but the response blew me away. Thankyou!

Ted is a sheep grazier just out of Orange in Millthorpe, NSW. Great bloke, brilliant farmer.

The farm is a family operation plus they have one part-time worker named ‘Sterlo’. Sterlo’s a tad mad but he has a heart the size of a watermelon and you wouldn’t swap him for anyone. You need blokes like him when things are grim.

Right now, Ted and everyone around him are going through one of the worst droughts on record. For some, it’s worse than the naughties. (2000-2010).

A few weeks ago, Ted took delivery of his seventh load of grain in as many months to hand feed his sheep. Each load costs about $15,000 and so far he’s $100k out of pocket. That’s basically all his profits for the year. Gone. Up in dust.

And just as we roll into the new Financial Year, Ted kicks things off with two empty hayshed’s and a bank of silos completely drained of grain. Not even enough to feed a stray mouse.

Naturally, Ted doesn’t want this Financial Year to be the same as the last so he has some big decisions to make:
1. Does he keep buying more feed hoping the drought will break soon? Or,
2. Does he begin selling stock because the drought may go on for years (knowing he will have to replace them later)? Or,
3. Does he look for greener pastures elsewhere and agist his sheep?

None of these questions are easy. If he buys more feed it increases his cost base, if he starts selling stock it reduces his earning capacity, and if he agists, it will increase his expenses but should also increase his income (hopefully).

Ironically, the financial markets are exactly the same. Do you buy, sell or hold when things go against you?

Wool or Beef?
This is not Ted’s first drought. He’s walked down this long and hopeless road a few times before.

His worst drought was his first back in the early nineties. It almost broke him.

At the time, he was running mostly beef cattle and only a few sheep.

Beef cattle are a good example of how most people purchase investments…they buy low and sell high.

When the seasons and markets are good, beef cattle can be a great earn for farmers. However, when a drought strikes and there’s little feed to fatten them, the returns for beef cattle can be very poor, enough to send a bloke to the wall.

Sheep are similar to beef cattle but with one significant difference.

At least once a year sheep need to be shorn which means the ‘wool clip’ provides the farmer with some predictable income. He may not make as much money as the beef producer in a good season (possibly) but at least his ‘clip’ gives him assured income.

Consequently, after Ted got badly knocked about during his first drought in the nineties, he decided to stop producing beef and focus on sheep.

Put simply, by focusing on wool production, Ted could budget according to his wool clip instead of the vagaries of the clouds and the beef markets.

Investing is the same.

Capital gain is great, but investment income like dividends and rental income is more important. It’s the only way you can manage the down side.

Everything cycles and it can feel like an eternity when you’re waiting for the clouds to appear again.

Predictable income is the only way out of the dust.

Have a great weekend!

Adam

Back Paddock – the title of this Moowsletter comes from one of my favourite poems by Murray Hartin, ‘Rain from Nowhere’.

Rain from Nowhere

His cattle didn’t get a bid, they were fairly bloody poor,
What was he going to do? He couldn’t feed them anymore,
The dams were all but dry, hay was thirteen bucks a bale,
Last month’s talk of rain was just a fairytale.

His credit had run out, no chance to pay what’s owed,
Bad thoughts ran through his head as he drove down Gully Road
‘Geez, great grandad bought the place back in 1898,
Now I’m such a useless bastard, I’ll have to shut the gate.’

‘Can’t support my wife and kids, not like dad and those before,
Christ, Grandma kept it going while Pop fought in the war.’
With depression now his master, he abandoned what was right,
There’s no place in life for failures, he’d end it all tonight.

There were still some things to do, he’d have to shoot the cattle first,
Of all the jobs he’d ever done, that would be the worst.
He’d have a shower, watch the news, then they’d all sit down for tea.
Read his kids a bedtime story, watch some more TV.

Kiss his wife goodnight, say he was off to shoot some roos.
Then in a paddock far away he’d blow away the blues.
But he drove in the gate and stopped – as he always had
To check the roadside mailbox – and found a letter from his Dad.

Now his dad was not a writer, Mum did all the cards and mail
But he knew the style from the notebooks that he used at cattle sales.
He sensed the nature of its contents, felt moisture in his eyes,
Just the fact his dad had written was enough to make him cry.

‘Son, I know it’s bloody tough, it’s a cruel and twisted game,
This life upon the land, when you’re screaming out for rain.
There’s no candle in the darkness, not a single speck of light
But don’t let the demon get you, you have to do what’s right.’

‘I don’t know what’s in your head but push the bad thoughts well away,
See, you’ll always have your family at the back end of the day.
You have to talk to someone, and yes I know I rarely did,
But you have to think about Fiona and think about the kids.’

‘I’m worried about you son, you haven’t rung for quite a while,
I know the road you’re on ’cause I’ve walked every bloody mile.
The date? December 7 back in 1983,
Behind the shed I had the shotgun rested in the Brigalow tree.’

‘See, I’d borrowed way too much to buy the Johnson place,
Then it didn’t rain for years and we got bombed by interest rates.

The bank was at the door, I didn’t think I had a choice,
I began to squeeze the trigger – that’s when I heard your voice.’

‘You said “Where are you Daddy?
It’s time to play our game, I’ve got Squatter all set up,
you might get General Rain.”
It really was that close, you’re the one that stopped me son,
And you’re the one that taught me there’s no answer in a gun.

‘Just remember people love you, good friends won’t let you down,
Look, you might have to swallow pride and get a job in town.
Just ’til things come good, son, you’ve always got a choice
And when you get this letter ring me, cause I’d love to hear your voice.’

Well he cried and laughed and shook his head then put the truck in gear,
Shut his eyes and hugged his dad in a vision that was clear,
Dropped the cattle at the yards, put the truck away
Filled the troughs the best he could and fed his last ten bales of hay.

Then he strode towards the homestead, shoulders back and head held high,
He still knew the road was tough but there was purpose in his eye.
He called for his wife and children, who’d lived through all his pain,
Hugs said more than words – he’d come back to them again.

They talked of silver linings, how good times always follow bad,
Then he walked towards the phone, picked it up and rang his Dad.
And while the kids set up the Squatter, he hugged his wife again,
Then they heard the roll of thunder and they smelt the smell of rain.

Jack is getting a little frustrated.

He came on board as a new client just before Christmas. At the time, I recommended he invest half of his funds now and leave the balance in cash, just to take advantage of a correction in the market.

We’re now six months down the track and he’s sick of waiting. The market is going nowhere so he just wants to invest the rest and get a better return than the 2.5% in a term deposit.

Again, I’ve encouraged him to sit tight because stock prices, especially in the US, are trading at a 30-40% premium, some much higher. Not only that, the market is entering the tenth year of a bull run (upward market). Bull markets usually last for nine years.

Jack then asks what will cause the market to enter cheaper territory again. i.e correct

I explain it could be a few things but quite honestly, it will be the thing we least expect. It always happens in an expensive market.

It’s what I call…

The Mosquito Effect.
Mosquitoes strike without warning. They’re indifferent to size as well. They don’t go for the biggest juiciest looking man, they generally go for certain blood types instead.

Market mosquitoes are the same. Market mosy’s are the cause of a correction you never saw coming. The cause you least expect.

Sometimes it’s impossible to know what the mosquito will be. You just need to know it’s out there lurking, but it’s only lurking for two particular blood types – the greedy and the impatient. Everyone else is immune.

To better explain my point to Jack, I share one of the best examples I have ever seen.

Pubs Drunk With Debt
Just over 10 years ago, the hotel industry was seen as the darling of the property sector. The thought was you could never go broke in a pub. Three reasons underpinned this theory:
• Pubs are brick and mortar assets
• Pokies were a license to print money
• The hotel sector was one of the most powerful lobbies in state government. i.e. untouchable

Consequently, every Johnny-come-lately started getting into the hotel game, including institutions such as the banks and retailers like Woolies. Such was their confidence, buyers paid 3-4 times what hotels were actually worth, mostly on borrowed money.

I remember one occasion when the ING bank rode into Newcastle strutting their stuff and shelled out $50,000,000 for 4 hotels. Everyone knew the hotels were only worth a third of what ING paid for them, but hubris got the better of them because they wanted to be big swingers in the hotel industry.

And then the unthinkable happened.

In July 2007, the no-smoking laws were introduced, and hotel gaming revenues literally dropped like a stone overnight. It wiped out a heap of hoteliers, especially the late comers into the market because they had taken out the biggest loans but now had less revenue to service their debts…on overpriced assets.

Not surprisingly, the likes of ING did their dough.

The mosquito was the NSW Govt. No one ever thought state parliament would touch the hotel lobby. But they more than touched it, they stung it like no one ever imagined.

The Upside
Whilst the hotel sector took one hell of a beating a lot of good came out of it as well. The whole sector became much more innovative resulting in some wonderful changes, especially around alfresco eating. As with every sector, the quality assets recovered and are now selling at all-time highs again.

The mosquito only stung those who paid overs for hotels and used cart loads of debt to fund them.

The Best Repellent
The best repellent for Jack right now is to sit tight. Have some money invested and the rest sitting in cash.

The easiest way to avoid being stung is not to let emotion overcome you. Every market has a mosquito just waiting to bite if you pay overs for an asset or borrow too much. And I guarantee you won’t see it coming.

Have a great weekend!

Adam

P.s thank you for all the replies to the last Moowsletter – ‘Would You Pay Your Kids $1 a Day To Brush Their Teeth?’. It really struck a chord, especially with single parents.

Footnote – Jack is not his real name.

I know some things are easier said than done. And I also understand I have probably just put a big target on my back. But I want to give this idea a shot. You are most welcome to tell me what you think…. especially if you’re a parent!

Ellyse is a family friend. She is also a widow in her late thirties with three beautiful young children, all of whom are still at school. John passed away four years ago from cancer. He was 41. A great guy, hard worker, a fantastic father and husband.

Not surprisingly, life has been incredibly tough since John died. It’s not just the financial pressures but all the other pressures that come with wanting to be a good parent as well.

Kelly is the youngest, aged 7. She is button cute but unfortunately doesn’t have the same picture-perfect smile as her eldest sister, Emma. Not many do.

About two months ago, Ellyse took all three kids for a dental checkup and was shocked to learn Kelly needed four fillings. Ouch! It wasn’t just the cost of each filling (approx. $200 ea) but the shock of learning her kid’s dental health wasn’t what she thought. Someone was sneaking lollies!

Leading up to Easter was also a worry because some of the kid’s fondest memories of John were the Easter hunt every year. They loved it! Understandably she didn’t want to cut it out.

Ellyse was stuck. The poor thing had that look on her face of, ‘what do I do’? I really felt for her.

It then got me thinking.

What Would I Do If I Was In Ellyse’s Position?

What if Ellyse was to pay her youngest child $0.25 every time she brushed her teeth? $0.50 per day would equate to $182.50pa. About the same cost of a filling.

For her teenage children she could even offer them $1 per day ($30/mth) which could become their pocket money to spend on whatever…maybe a smart phone.

It might seem expensive but here’s my reasoning:

I. Keep the money in-house – pay your kids prevention money instead of giving the dentist cure money.

II. Build good habits – use this as an opportunity to teach kids that our results come from our rituals. Kids get paid to build good personal habits which ultimately benefit them. Like most things in life, rarely do bad results come from one mistake. They’re often an accumulation of a bunch of little things. Weight gain is a good example.

III. Nothing for nothing – if you are going to shell out pocket money for phones etc. why not get something in return? It would be a good opportunity to teach kids you don’t get something for nothing.

IV. Emphasise the importance of good health – it might seem odd to pay kids to look after themselves, but, it also emphasises the importance of it. You could even teach them how their diet, (vitamins and minerals) grows strong healthy teeth. Invaluable!

V. Savings plan – put a savings plan in place and incentivise them to save and not spend. It could be something as simple as saving 10% of everything they earn. There are lots of fun ways to be creative with savings. Start with a budget. Maybe even practice the law of tithing and donate 10% to a favourite charity. What a life lesson!

VI. Negotiate – yes there will be kids who cheat and try to cut corners. You were a kid once, you know how it works! Perhaps it could be a chance to teach children how to negotiate. Maybe put an offer on the table and talk it through together.

So, what do you think? Could this idea be implanted into a family or does it have too many holes in it? Maybe it just needs more polish? Or should it be extracted all together?

Chew it over and let me know what you think.

Have a great weekend!

Adam

This is a true story. Only the personal details have been redacted for privacy reasons.

Jack and Diane have been married for forty-three years. Jack is seventy-one and Diane sixty-eight. They have three children and seven grandchildren.

Diane works four days a week in a local business just because she enjoys the patter. Her wage is a bit of pocket money. Her three days off are filled with grandchildren, lunches, pilates, plus the usual home maintenance.

Diane is the sort of lady who is either doing something or thinking of what she’ll be doing next.

Jack retired about six years ago to get a hip replacement and according to Diane, it was the biggest mistake of his life.

Before he retired, Jack was the manager of a hardware store for thirty-six years. He was a ‘chippy’ by trade which made him a hand-in-glove-fit for the job.

But more importantly, the shop was his ‘network’. He knew exactly what the older builders wanted and what the younger builders needed, and they loved him for it.

However, Jack severely underestimated one thing; his job fed his soul. It gave him meaning and purpose.

I’ve Done My Bit
After he got fitted out with a new hip, Jack took six months off to get back on his feet again. Sadly, to help justify doing nothing, he joined the most dangerous club of all for retired men. The, “I’ve done my bit” club.

This club is nasty, it ruins lives as well as marriages. It’s like an invisible wrecking ball.

Let’s look at what happened to Jack.

Jack did nothing for the first six months of retirement because he had a ‘good excuse’. Very soon, that six month ‘holiday’ became a new home, a habit, and Jack stayed there, eventually doing less and less every week.

He then started getting up late, spending more time in his PJ’s, and not having anything planned for the day. He moved about less, and slowly filled his time with more eating, TV and meaningless conversation. His soul was a shadow of its former self.

Slowly his mental state declined and his desire to do stuff began to fall away as well. As did the intimacy between he and Diane. The only thing he wanted to do was hang around the house and give Diane a chronic case of the ‘you-know-whats’. Her space was being invaded and not surprisingly, she couldn’t wait to get to work each day.

So, what happened to Jack?

Put simply, within the space of two years…

Jack went from being a steering wheel to a spare tyre.

He now has diabetes, depression, and a marriage that is growing further and further apart. She has an aching heart.

She has her week planned with work, pilates, friends, etc. and he has nothing.

I often wonder how many of those builders would love to hear his voice again, get an opinion, just one day a week. Or what if he rocked up to a building site one lunch to say ‘hi’.

And then there are the knock-on effects. His situation has also created tremendous concern for their children. The kids are worried about Diane and angry with Jack.

“I’ve done my bit” becomes a very selfish way of being. It starts as a holiday and slowly becomes a new home, a habit.

The Retirement Test
Some blokes are not going to like this test, but right now I’m thinking of the “Diane’s” of this world.

There are two things I think ALL blokes should do before they retire:

1. Old blokes lunch – they should do at least three different lunches with blokes who have already retired just to get an idea of how boring some of their lives are. (I warned you!)

2. One-year break – I think all blokes should have a year off (funded out of super) before they decide to retire permanently or completely. I’m not convinced that going from one extreme to the other is the right approach, and I’m not sure it’s healthy either.

When you’re green you grow, when you’re rip you rot.

So, whats the solution?

Kick Back, But Kick On.
The reason Jack fell into a hole, which he could easily get out of, is because he didn’t define a new role for himself in retirement. (BTW…hobbies and holidays are not it. Sorry).

At Suncow, we’ve been working on an idea which I think is a must for Baby Boomers as they transition into retirement. The aim is to redefine the role of retirement for blokes and put some genuine purpose back in to their lives.

The idea is called, ‘Kick Back, But Kick On. 

It’s simple enough to do but just enough for most men to scoff at. It goes like this…

Work 1 day/wk – I think every retired bloke should give his back to something, at least one day a week. It’s not about the money, it’s about reconnecting with the world in a purposeful way. It also makes you appreciate your days off as well.

Not only that, EVERY bloke I know has a great knowledge base they can offer others in some small (or large) way. Its much more valuable than they think and lots of us are willing to pay for it.

Hobby 2 days/wk– everyman needs a hobby. I think a good hobby should separate him from the usual grind but connect him with something that really invigorates his soul. And if that means he disappears into his cave for a few hours, two days/wk, he’ll be a better man for it. But hobbies must be consistent. What’s fun gets done.

Walk a country mile 3 days/wk – a good walk with at least one hill in it, three times a week is a must…and every day is even better. I also think a bit of resistance work (e.g. weights) to maintain bone density is equally important. Don’t make it fancy, just get going.

Mind matters – some sort of mental gymnastics each day such as reading, cross words, sudoku is vital. Even if it’s just for 20 minutes. Make it a habit and keep your marbles active.

The Difference
So, what was the ultimate difference between Jack and Diane? In a sentence, Jack just wanted to kick back, Diane wanted kick on. She filled her days with purpose. He thought he’d already done his bit.

Happy Mother’s Day!

Adam

Special thanks to Dr Taylor for being such a good bloke and a great sounding board for this Moowsletter.

Farm house – because it looks like being a cold Mother’s Day, I’ve got an idea. Why not bake this Apple Slice and have a round table about your own, ‘Kick Back, Kick On’ plan?

And if you’re not at that stage yet, enjoy the slice anyway. It’s a ripper and so easy to make.

Apple Slice
• 3 apples – peeled, cored and cut into 2-3cm cubes
• 2 cups of self-raising flour
• 1 cup sugar
• 125gm butter – melted
• 1 egg beaten

Method
1. Combine apples, sugar and flour into mixing bowl.
2. Combine butter and egg and then add to apple mix. Stir until well combined
3. Press into lined slice tray. Best tray is approx. 27x17x3cm
4. Bake 180 degree for 40-45min or until nice golden colour with thin crust appears
5. Sprinkle with cinnamon once baked.
6. Serve with cream and ice cream

As a 57-year-old, Donna McKenna just wanted to know how much she needed for retirement and if she’d have enough.

In other words, when could she stop working and fill her days with fun stuff like spending time with family, travel, plus all the other things she’d sacrificed during her very demanding career as a Fair Work Commissioner.

To help clear the fog, she went looking for an independent financial adviser who wasn’t tied to a big institution. Meaning, she didn’t want a parent company telling her adviser to shove their products, down her throat. She didn’t want the wholesaler telling the retailer what to do, like the banks.

Understandably, when she saw Sam Henderson hosting, ‘Your Money, Your Call’ on Sky TV, she naturally assumed she couldn’t do much better than him for advice.

But the advice she got in return, as she described it, was ‘risible’. It was more than laughable, it was disgraceful.

In short, Henderson wanted Ms McKenna to roll her money out of her current super fund where she stood to gain an extra $500,000 once she turned 60, into another product, which…wait for it…he owned!

I.e. Henderson wanted to be both the wholesaler and the retailer and collect a clip on both. This made his advice biased and a blatant conflict of interest.

But it gets better. He was also voted the Association of Financial Advisers (AFA), Financial Adviser of the Year in 2016. Plus, he also boasted of having a Master of Commerce degree, which he didn’t. It was a lie. He started the his Master’s degree but never finished it.

But it doesn’t stop there either.

The AFA tried to resolve this issue (McKenna vs Henderson) in secrecy and suppress any information from leaking out, because…get ready…of the potential reputational damage to Henderson and the AFA.

(Don’t worry, I had to read that statement a couple of times myself to make sure I had it right).

In the end, the cover-up became worse than the crime.

So how do you know if you can trust the man in the suit?

Butchers and Dietitians
At Suncow, we believe there are two types of advisers – Butchers and Dietitians.

A butcher will sell you whatever he has on offer (products), while the dietitian will recommend what’s best for you (pathways). In other words, the butcher has a bias and the dietitian doesn’t.

The butcher also prefers commissions because the more he sells the more he makes. The dietitian prefers fee-for-service.

So what sort of adviser do you think Sam Henderson was?

Sadly, he was both. The most deceitful type. He was a butcher masquerading as a dietitian. A commission-based adviser positioning himself as an independent, fee-for-service adviser.

And unfortunately, there are a few of them around.

So how do you know if the man in the suit is a butcher?

The Two Problems
Last week I said the two biggest problems in our industry are ‘vertical integration’ and ‘incentives’.

Vertical integration is where an adviser is both the wholesaler and the retailer. i.e. biased and has a conflict of interest.

Incentives for mine, are worse. By law, an adviser must disclose any incentives, but the problem is an adviser can still hide them. Worst of all, an adviser can say he’s ‘independent’ (i.e. doesn’t belong to a corporate) even though he might still be pushing a certain product because he’s being incentivised.

Therefore, if an adviser says he’s ‘independent’, ‘not aligned’ to any banks, or ‘doesn’t belong’ to a big corporate, it doesn’t mean a squirt. In fact, I would argue its worse because he’s able to promote whatever he likes, potentially.

(I’ve just made the banks look a little bit better, haven’t I? Sorry)

But don’t despair.

Incentive Detectors
Trying to find hidden incentives can be ‘needle and haystack’ stuff. The truth is, we could have a Royal Commission into almost any industry and it would dig up some nasty surprises.

Therefore, my suggestion would be to focus on the advisers behaviour more than the incentives. And here’s why. It’s very easy for someone to lie about their thoughts, it’s much harder for them to lie about their feelings. Eventually true feelings surface.

Consider a child. Ask them what they’re thinking and they’ll probably tell you what you want to hear. Ask them how they’re feeling, and you’ll most likely move a little closer to the truth.

Some Clues
Here’s a few things I’ve seen and heard over the years that might help determine if an adviser is incentive driven.

An adviser may show his true colours this way…

1. Wants your signature to go ahead asap
2. Wants control of all your money, even if it’s just a cash a/c.
3. Insists on investing all your money asap.
4. Insists on putting all your non-super investments on a platform or in a wrap a/c. Huge rip-off!
5. Pressures you into borrowing one of his or her products. E.g. buying a property ‘off-the-plan’ that only he or she has ‘exclusive’ access to.
6. Convinces you his or her product is the ‘best’ and therefore you should transfer everything over so it’s under his or her management.
7. Churning insurance policies because he’s found something better, but most likely hasn’t.

And here’s another behaviour which is subtle, but in my opinion speaks volumes. If an adviser feels compelled to use big words all the time to try and impress you, it usually means one of two things: (i) his ego is more important than you, or (ii) big words are all he has. i.e. he’s all hat and no cattle.

The main point to remember is this; if an adviser is hard nosed about ‘product’, he’s more likely to be a butcher than a dietitian.

To that end, I should also say this. As our clients can attest, we rarely wear suits. Meaning, we don’t think any more or less of someone who does, especially other advisers. There is no denying, a nicely cut suit or a beautiful dress with matching shoes can look stunning.

The Suncow brand is deliberately low key for a reason, we just like the down to earth approach. A steak sandwich and a cold beer would mean more to me than champagne and caviar. And if I was asked to cook the steak, I couldn’t be happier. We’d be friends for life.

So long as the respect is there for both sides, that’s all that matters. In fact, if more people had of started that way, there probably wouldn’t have been a Royal Commission either.

Have a great weekend!

Adam

p.s. sorry this is longer than usual, the Royal Commission did it to me Your Honour.

Back paddock – did you know a crocodile can run down a horse over 40m from a standing start and a kangaroo can outrun a greyhound over any distance?

And how about this one. If a cheetah runs at top speed for more than 45-50 seconds they run the risk of cooking their own brain?

(I never wanted to be a cheetah anyway).

Source: David Attenborough

Before you pick up your spears, let me make one thing very clear.

Suncow Wealth is a Fee-For-Service practice, we do not do commissions.

As such, I am not here to defend those practices who operate on a commission-based model. They can fight their own ugly battles, of which there are plenty right now.

Instead, the purpose of this Moowsletter is to identify the root cause of those planning firms who have been exposed in the Royal Commission (RC) and how consumers can better protect themselves.

And while we’re at it, I should also decipher the difference between fee-for-service and commissions.

Fee-for-service is just a flat fee or a fixed payment usually made on a periodic basis. It’s a bit like a phone ‘plan’. You know exactly how much you’re going to pay each month unless you go ‘over’.

Commissions are a percentage-based fee and the reason they have such a bad name is because the more assets you have under management (AUM), the more you pay. They’re like a ‘second tax’.

The reason we prefer fee-for-service at Suncow is because it’s much more transparent and clients can see exactly what they’re paying for.

And even though commissions could be likened to something that stinks and sticks to the bottom of your shoe, that’s not where all the problems are stemming from in this RC.

The problems are much more visceral and harder to find, unless you know where to look.

Meet…

The Two Dogs
The problems creating most of the pain for consumers could be likened to two dogs hiding in the bushes waiting to pounce. The first dog is…

Vertical Integration – this dog has teeth like knives and should be put down asap. It bites like this.

For the banks to maximise their profits, they’ve created their own factory of financial products (investments and insurance) and then flogged them down the channels through their bank branches.

But the problem is, it’s made their financial advice biased and a blatant conflict of interest. The client’s best interests have been made secondary and the banks put first. And on top of that are the commissions, but it’s not really the commissions that have created all the damage. It’s the blatant bias created by vertical integration.

Let me give you two good examples of bias that have come to my attention this week through a very good friend of mine.

Said mate works for a boutique fund manager who I’ll simply refer to as ‘Best Blokes Funds Management’.

Recently, Best Blokes approached AMP about recommending one of their funds to their clients, but AMP asked for a ‘distribution’ fee in return. Best Blokes made it clear they don’t do business that way and said ‘no’ to AMP’s request.

Instead, AMP chose another fund who was willing to pay a ‘distribution’ fee even though their performance was inferior to Best Blokes…and then happily recommended it to their clients.

And then there is MLC. Said mate ran into the same problem with this mob as well.

MLC is owned by NAB and when Best Blokes approached MLC, they knocked back Best Blokes fund because…wait for it…they were worried Best Blokes performance would show up the NAB investment managers, even though their clients would have been better off.

But I’m tipping it was both. MLC were worried about their own precious managers being shown up plus the loss of fees.

And then we have this dog…

Incentives – this one isn’t as obvious and can be even harder to detect, suffice to say, it’s alive and well and riddled with fleas. I’ll touch on this one in a later Moowsletter and show you how to flush the incentives and vertical integration out.

Unfortunately, vertical integration and incentives make commissions look like angels. Commissions just make something expensive (potentially), it’s the other two that have created all the damage because they drive a very different behaviour.

Put simply, ‘commissions’ and ‘fee-for-service’ have almost become a veil for the real issues. Meaning, an adviser could masquerade as a fee-for-service adviser but still be driven by incentives and vertical integration.

Therefore, and dare I say it, any discussion about commissions almost becomes extraneous, unfortunately.

But I promise to show you how we can navigate our way through this mess. I’ve got a cute little ‘sketch’ you can hang on the wall at home above your bed. It’s a real special!

Have a great weekend!

Adam

p.s. Last week I said this week’s Moowsletter would be, ‘Who’s the Man in The Suit’ but it ran for pages, of which this is an extract. ‘The Suit’ might make an appearance next week. Also I apologise the last two Moowsletters have been a bit negative however there have been some important distinctions to make about where innocent consumers are being done over that I think people should be aware of.

Let’s get the ugly stuff out of the way first.

On two separate occasions I have publicly opposed a Royal Commission into the banks because I didn’t believe it was the best way to clean out the filth that has surfaced this week. You can see my posts here and here. (Remember Jane who wanted to spit in my face?)

For mine, RC’s are like speeding camera’s. Everyone slows down so they don’t get caught and then as soon as they’ve passed the camera they floor it! There’s no policing afterwards and it turns every RC into a joke. It’s just window dressing.

So, after what has emerged this week, have I changed my mind?

Yes and no.

Yes, because its worse than I expected. Disgusting and shocking would be an understatement.

No, because I doubt anything will change.

Let’s go back to December to illustrate my point.

For months and months, Malcolm Turnbull and Scott Morrison vehemently opposed a RC and then on November 30, 2017, the PM stood at the lectern like a big soft banana and announced a RC… because the banks asked him to.

The banks thought it would generate some good PR by acknowledging they had some problems, even though the banks would also control the terms of reference for the RC. I.e. the student would outline the rules for the headmaster.

But on Monday, the school of rorts got a new Principal and the Commissioner, Honourable Kenneth Hayne QC, began ripping the scab off an old public wound and the pus just oozed out. The findings have been vile.

For example, former AMP CEO Craig Meller, redacted ‘an independent’ report by lawyers Clayton Utz no less than 25 times to cover up the blatant misconduct of AMP’s wealth division as well as to exonerate himself of any wrong doing. (BTW…the trusted few at Clayton Utz who signed off on this are just as complicit and should be also impeached).

And then there was the CBA planner who continued charging client fees 10 years after the client had passed away.

And, and, and…

Sadly, there’s plenty more stories where those came from.

So How Could the Banks Get Away With This?
Simple. They knew ASIC would never stand up to them. ASIC are that weak they couldn’t pull the skin off a rice pudding.

And that has been my point all along. Why have a RC if there’s no policing afterwards? Its like poking your tongue out at the speed camera as you drive past. Who’s going to catch you?

Where Will The Rage Go?
This RC will do nothing but make people’s stomach’s churn and get them white hot under the collar. It will get people enraged but the rage won’t go anywhere.

Here’s proof. What hard measures have you seen put in place following the RC’s into institutional sexual abuse or union corruption to make sure it doesn’t happen again?

White collar crime, sexual abuse and union corruption all have one thing in common. The pre-meditation of their behaviours is well planned, carefully executed and far reaching. The effects of a few are suffered by many.

This RC will be rendered useless if ASIC doesn’t grow a spine and some teeth.

So Where Does This Leave The Consumer?
Again, don’t expect anything to change. Over the next few months you’ll hear plenty from Messers Turnbull and Shorten but it won’t amount to anything.

Mr Turnbull will make plenty of generic, nebulous statements about nothing and then do even less.

Meanwhile, Mr Shorten will be in front of every other camera pretending to be Mother Theresa…all the while (conveniently) forgetting he was once the subject of a Royal Commission himself.

And remember this. When Storm Financial collapsed in 2009 and Bill Shorten was the Minister for Financial Services and Superannuation, he constantly knocked backed the idea of a Royal Commission.

But don’t despair, everything will be ok. I have a Moowsletter already lined up for next week called, ‘Who’s The Man In The Suit?’

I’ll be sharing three or four tips to help you identify if an adviser truly has your best interests at heart.

That’s the ugly stuff out of the way. Things start getting beautiful next week.

Have a great weekend!

Adam