Like many financial advisers, Reine Clemow’s decision to jump ship from the financial planning arm of National Australia Bank to IFA-land was all about disassociating himself from the public disdain plaguing institutionally owned dealer groups following high-profile scandals such as CBA, Storm Financial and others.

Irreconcilable differences over proposed changes to representative agreements in 2014 were the final kick Clemow needed to sever his longstanding relationship with NAB. He subsequently established Gold Coast-based Acquira Wealth Partners, which is licensed under independently owned dealer group GPS Wealth.

“While NAB’s decision to let advisers turn their backs on commission-based remuneration as early as 2004 laid the ground work for our future fee-for-service advice model, I ultimately wanted to work with a non-bank aligned dealer group with similar values,” he explains.

Widening the focus

Moving into an environment unencumbered by a bank-control dealer group freed Clemow to focus on conflict-free ethical advice to clients, requiring more complex strategies. Decoupling advice from product meant that he could refocus on the value within the underlying advice and client outcomes. The decision to dial commissions back to zero also meant he could give clients a 30 per cent discount on insurance products.

“One of the many benefits of working with GPS Wealth was their strategic alliance with an accounting firm, with half our business now coming through referrals,” Clemow says. “It also allowed us to extend our energies beyond ‘bread and butter’ Baby Boomers and pay more attention to accumulators (between 40 and 50 years old) who now represent half our clients.”

While Baby Boomers remain a key focus, Clemow says managing their assets is often an easier proposition than with accumulators who are often juggling a more complex set of dynamics. Given that they’re usually better educated, and favour a DIY approach, Clemow spends more time uncovering the true aspirations of next-gen clients.

Refocus on accumulation

While unearthing what next-Gens want, beyond super and paying off debt, can be demanding, Clemow says it returns in spades if it leads to more committed clients. Similarly, while no one wants to do budgeting, Clemow explains that helping accumulators save a bit of ‘hurt money’ makes a difference long term.

Over the years, Clemow has also recognised the value of having intergenerational clients within one family. Given that adult children tend to trust their parents, he says, preparing a financial plan for the offspring of existing clients can also lead to greater next-Gen client loyalty.

Owing to the complexities around super, he says steering 20-something clients into micro-investing options, like Acorns or instalment gearing strategies, can be a good place to start for successful client engagement.

“Millennials are even smarter than Gen-X, and if we can build a relationship without robo-advice, it tends to enhance the overall relationship once parents pass on wealth.”

Case study: Reigniting super

He says that, when it comes to super, the younger the client, the less likely he can talk about it without them tuning out. And millennials aren’t the only ones. The GFC arguably altered people’s willingness to entrust money to advisers and Clemow says the constant tinkering with super regulations has only created greater investor indecisiveness.

Uncertainty about how to clear debt on their newly built home, and concerns over maximising the benefits of super, led Jenny Watts (51) and husband Andy (55), to take mum’s advice and pay her longstanding financial adviser, Clemow, a visit back in 2006.

With about a decade ahead of them before retirement, the Watts wanted to accelerate their super fund’s growth and their mortgage payments.

They’d been living in Jenny’s mother’s house rent-free as carers while their new home was being built. The new home would have its own granny flat, making it easier for Jenny to care for her mum’s future needs.

Jenny worked part-time for a not-for-profit organisation and had accumulated $120,000 within her Q-Super. Meantime, Andy who also worked for the Queensland Government had $520,000 within his Q-Super. Due to a conservative investment approach, their only other asset was $80,000 held within an NAB iSaver online savings account, and $30,000 in cash.

Like many, the Watts had a ‘when-in-doubt-do-nothing’ approach to their money. By default, Clemow says, surplus cash from their earnings was going into their offset account which, having equalled their loan balance, represented lost opportunity.

“We established that the Watts wanted to retire on an annual income of $75,000, which would allow for two visits annually to their daughter and grandkids in Scotland,” Clemow explains. “Based on their financial position at the time, this target was a huge stretch.”

Based on Clemow’s recommendation, Jenny and Andy decided to salary-sacrifice $10,000 and $20,000, respectively, which collectively reduced their tax by about 19 per cent.

“Despite the GFC, most clients heeded our advice to maintain their salary-sacrificing, and reaped the benefits,” Clemow says.

Clemow also encouraged Jenny to maximise a fringe benefit, tax-free allowance of $14,300, which went from her salary into the offset account fortnightly, and then to super as a non-deductable contribution. Given that claiming living expenses may not have maximised the opportunity, Clemow says loan repayments were a more practical approach.

A wrap on retirement

Both Jenny and Andy maintained their salary-sacrificing until 2011, at which time Andy retired at age 60. At time of retirement, Andy’s Q-Super (then worth $740,000) was rolled into an MLC wrap, consisting of a model portfolio, with 65 per cent in growth assets and the remainder in cash/defensive assets.

The beauty of a wrap, Clemow explains, is that it allowed Andy to separate income from growth and stream income to a cash account to fund pension payments. “It’s critical in the drawdown phase to have sufficient liquidity and, during the GFC, many in pension mode had to sell units at a loss to access cash,” he explains.

Being able to direct all the income from the equity/fixed income and feed it into a cash fund with a buffer of up to four years in income payments meant Andy avoided selling units at their most vulnerable. “This allowed us to choose the time for Andy to manually top up his reserves, and prevented unforeseen market disruption.”

With Andy now receiving $30,000 as an allocated pension and Jenny still working part-time, Clemow continued maximising Jenny’s super and tax-free fringe benefits allowance. When Jenny finally retired in March 2016, the proceeds of her Q-Super, (worth $500,000), brought their combined assets to $1.3 million.

SMSF and low-cost platform

To avoid incurring two sets of fees, Clemow recommended rolling Jenny’s Q-Super and Andy’s MLC wrap into a self-managed super fund (SMSF). Proceeds from Jenny’s mother’s estate took the total assets within their SMSF to about $1.8 million, well ahead of their initial $1.5 million target.

“As well as reducing fees by $2433 annually, the SMSF also delivered for Jenny and Andy’s wealth transfer objectives, with their two adult children likely to become future trustees.”

To ensure the Watts’ SMSF remains cheap to run, Clemow is operating it in conjunction with platform Hub24, and is accessing global and local equities via exchange-traded funds.

Given that they’ve gone from being worried about a major retirement shortfall back in 2006 to exceeding their expectations, Jenny says the outcome is beyond anything she thought possible.

“With about $78,000 in annual income, one of our biggest issues is remembering to spend it,” Jenny says. “While there’s nothing particularly sophisticated about our strategy, the discipline of a transition-to-retirement approach, together with some solid salary-sacrificing, put us in a financial position we never envisaged.”

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