IN THIS ISSUE
- Our 40th Anniversary Year
- 2013 – A Big Year Ahead
- Market Update: How have share markets performed so far?
- Case Study – Getting Started
- Staff Profile: Mai Davies
- Navigating the Aged Care System: Age Care Seminar – February 2013
- Christmas Cards and Charitable donations
OUR 40TH ANNIVERSARY YEAR
By Tony Gilham
Excitingly, July marks the 40th Anniversary of the formation of our business, started by a young 21 year old (almost 22) way back in 1973.
As ambitious and enthusiastic as I was back then, it was impossible to envisage the size and sophistication of the SMSF and Financial Planning business that we are currently running.
When I started out, I wanted to build a career in financial services, become good at it, and create long lasting business relationships with people who are interested in their financial security and wanting to do the best that they can. Well, in the second half of this year, we will be discussing superannuation and investments with people that have been reviewing their financial position with us for 40 years in a row.
Not only are we enormously proud of this 40 year milestone, we are also extremely grateful to those clients that have supported us and grown with us on this 40 year journey.
It’s amazing to think that in the next few years, we will have a handful of clients that are going into retirement, having started with us very early in their working lives, some only 22 or 23 at the time, having trusted us on their life long superannuation and investment journey.
The Origins of our Business:
Superannuation and Financial Planning
Back in 1973, financial markets in Australia were very simple and our economy was small and insular with superannuation dominated by the big life insurance companies, AMP, National Mutual, Colonial Mutual and MLC. Financial planning didn’t exist in 1973, individuals couldn’t invest in managed funds and personal superannuation wasn’t common.
After leaving school I started a science degree at Melbourne University, but I didn’t handle the transition from school to university very well and I thought it was about time to get a job, so a recruitment agency in the City got me an interview with “Legal and General” to work in their superannuation department (I had strong skills in mathematics, and anything to do with numbers was easy for me), even though I didn’t know what the word “superannuation” meant.
After being with Legal and General only a short time I wanted to do further study and enrolled in accounting and economics at Prahran Tech (now Swinburne University) and this kicked off a new 25 year career as a student, and I focused my studies on improving my superannuation knowledge and qualifications over this 25 year period.
One of my mentors at Legal and General, Ron Doig convinced me to make a start in the superannuation and life insurance business, and I kicked off on the 16th July 1973, as a self – employed “sole agent”, but back then, the financial services sector was very simple, mainly product based, and there was no such thing as an independent financial adviser and we all had to operate under a “sole agency contract” with a superannuation and insurance company.
I took on my first employee in mid – 1979, that young person only lasted a year, and was replaced by Linda Button (nee Hogan) in June 1980, and Linda worked for us for 12½ years before starting her family.
In 1982, we opened our own office in Louise Street (just off St Kilda Road), with 2.5 staff in the team and in 1984 we bought our first small office in 596 St Kilda Road (4 staff) and we stayed there for 10 years, before moving to the current office at 1221 Toorak Road, Camberwell in 1994 with 9 staff.
In 1995 we started setting up and managing self managed superannuation funds for our clients, quite early in the “SMSF boom”, and it is this part of the business that we now specialise in.
As the client base continued to grow, I needed to take on extra advisers, and it is fantastic that our current advisory team have all been with us over ten years with Paul joining us in July 1999 and Patrick and James in November 2001.
In 2013, we now have 18 staff on our team, and it’s amazing to think that 10 of us have been on deck for more than 10 years each.
Starting from scratch in 1973 wasn’t easy, and we have seen the highs and lows in financial markets and Government intervention over 40 years, but we are now a very proud SMSF and Financial Planning practice, quite unique in that we run a complete “end to end” SMSF service, and do everything (other than the auditing) in house.
Over 40 years, I have never ever considered doing anything else, other than talking to people about superannuation and financial planning.
Some of the big milestones – the first 40 years
I didn’t think much about it then, but 1973 and 1974 saw a very significant global recession, inflation went through the roof, and Australian equity markets had its worse downturn in 100 years.
Other notable landmarks over the 40 year journey were:
||Another big recession
||Paul Keating introduces a 30% lump sum tax on super contributions
||Introduction of capital gains tax
||Introduction of franking credits on Australian shares
||Another big recession
||The Bond market crash
||Tech Wreck (USA)
||Onset of Global Financial Crisis
The team at GFM
Over the years I am often asked as to why we have such good, dedicated and loyal staff members, and I scratch my head and answer honestly:- we think we have had a bit of luck on our side.
The skill and commitment amongst the people in our team is simply astonishing. It is very satisfying for me to get lovely comments from longstanding clients, and I know that our team is way above average, because I am constantly told that by other people in the industry that we get to know, and I love hearing about it.
The business of Gilham Financial Management is nothing more than the 18 people that have joined together in one common purpose – to do the very best they possibly can for all of our clients, in sorting out their superannuation, investments and financial planning.
What makes us different?
The people you see, talk to or send emails to, are what makes our practice so very different to virtually all other financial planning organisations. The stability and dedication of our team is simply outstanding. Many of our clients that have been with us for say 10 or 20 years, only know our office at Toorak Road, and they have basically seen the same people work with them over that last 10 or 20 year period. Amongst the people in our organisation, there is a genuine commitment to be “above average”, and for them, it’s not a job, it’s a career with an objective and a passion to serve our clients to the highest possible level.
The future (looks bright)
In 40 years of doing virtually the same thing, we have become quite skilled in what we do, the foundations are strong, we have a very loyal client base and a very knowledgeable and committed team and the future is very bright. Our objective is to keep getting better through innovation and hard work.
We are an SMSF specialist practice, and absolutely unique in what we do. We have:
Leading edge technical skills
Lots of “on the ground” experience
Provide an end to end service – all in house
We are independently owned - we make all our own decisions based on what is best for the client
With 40 years behind us (in July) we will be looking forward to our 50th Anniversary in 2023 and in the interim, we have some very big plans for 2013, which are at the forefront of ensuring we remain strong and vibrant.
2013 – A BIG YEAR AHEAD
By Paul Nicol
As a company we are particularly proud of the fact that during 2013 our business will have reached 40 years in operation. There would not be too many financial planning businesses with the longevity of ours, mainly due to the very hard work Tony put in during the formative years.
We are incredibly proud that we have unbelievably loyal clients and an extremely skilled team of staff, many of which have been with us well over 10 years.
Without doubt our longevity is a by – product of hard work, dedication, technical expertise and many critical strategic decisions we have made over the years.
As a financial planning business, we strongly believe we stand out from the very vast majority of our competitors for many reasons. These include:
Back in 2003, we decided it was incredibly important that we obtain our own Australian Financial Services Licence (AFSL). The implication of having our own AFSL is that we have no financial institution or dealer group that dictates which investments we recommend, or how our clients are invested.
Non institutionally aligned financial planning firms like ours are a dying breed. Financial institutions see great value in acquiring financial planning firms for distribution – that is, advisers recommending their products. Institutions have been incredibly aggressive in the acquisition of financial planning firms over the last 5 years, so much so that we believe less than 5% of the industry is not institutionally owned or aligned.
100% of our business is owned by staff and we plan to keep it that way.
It is an old cliché, but our clients are our business, and we understand this. When you deal with institutions, they are faceless; you really are a number. Our clients are not a number they are real people, with concerns, needs, objectives and goals. Our advice is personalised and the client always comes first.
At present we have 18 members of staff of which 10 staff have been with us more than 10 years. This is phenomenal no matter which way you look at it. The implication is our staff know our clients well and vice – versa.
Long term relationships are important to us. We have very many clients who have been with us well over 20 years and many 30 years or greater. We even still have our first couple of clients that came on board in 1973.
All our advisers are highly qualified and our senior support staff possess significant technical expertise. We are a Financial Planning Association (FPA) accredited Professional Practice, members of the Self Managed Superannuation Fund (SMSF) Professional Association of Australia (SPAA) as well as members of the Association of Independently Owned Financial Planners (AIOFP).
We aspire for the highest educational and practicing expertise possible.
The largest part of our business is Self Managed Super Fund (SMSF) management and advice. Our SMSF offering is fee for service. Our clients understand exactly what they pay and what they are paying for. This is critical to a client relationship of trust and transparency.
The real problem in our industry is there are too many fingers in the same pie. That is, too many individuals or companies that prosper from a client’s investments. On behalf of our SMSF clients we invest in direct shares, wholesale managed funds, hybrid securities, bonds, cash and fixed interest investments. We receive no commissions, kickbacks or incentives for any investment we recommend that are not disclosed.
Hand on heart, we only recommend investments to our clients because we have researched the investment diligently and certainly not for the intent of some side payment. Again this forms the basis of a relationship of trust, transparency and acting in the client’s best interest.
All that said we have some very big plans in 2013.
As a company we are strongly of the belief we need to make some subtle changes to our business going forward to ensure further longevity. We also feel these changes are required to better represent the business we are now, and how we fit in the ever changing landscape of the financial planning industry. Having reached 40 years in business is no mean feat so to tie in with reaching this incredibly important milestone we aim to launch these initiatives during the year to tie in our with our 40 year anniversary celebrations.
The changes you will see throughout the year include:
During 2013 we are going to freshen up the image of the business through our branding. We have engaged the service of a graphic designer to “sharpen up” our image through our logo, branding, website and stationery. The aim of this exercise is for our corporate brand to be recognisable and distinctive, whilst at the same time representative of our core business and values. We plan to start to roll this out over the next couple of months. We hope that you will like the new look.
The trading name of our business – Gilham Financial Management, has served us particularly well during the first 40 years of our history but probably belies the current ownership structure of the business, the size of our company and what we actually do.
The general consensus of our team was the name Gilham sounds singular and gives the impression of being smaller than what we are, and the term financial management was not descriptive to what we actually do.
The new trading name of our business will be GFM Wealth Advisory. GFM is simply the acronym for “Gilham Financial Management” and Wealth Advisory is certainly more descriptive of the role we perform on behalf of our clients.
It is very important that our clients understand that whilst our trading name is changing, who we are, and what we do, will not change in any way. Our business is owned by several of the senior staff, and we have no external ownership. We are really altering the trading name to ensure the longevity of our business.
In line with the roll out of our new branding you will also see the change in our trading name.
We aim to heavily promote 3 areas of expertise under our advisory banner – SMSF Specialists, Investment Management & Financial Planning.
One of the real difficulties with financial planning advice is the extremely broad area of potential speciality and competencies that differ between financial planning practitioners. Without doubt our key area of expertise is SMSF’s but yet our current branding does not reflect this.
In essence, a large volume of the work we perform each day is around SMSF, investing and financial planning strategy work. Our 3 new business pillars will accurately represent what we do and the role we perform on behalf of our clients.
As a part of our rebranding we will be launching a new website by around the middle of the year. Our aim for the new website is to provide quality, updated content for the easy access of our clients and a reference point for new potential clients.
As a company we have been exceptionally proactive with our marketing through seminars, newsletters and emails. But we have been very slow in adopting social media.
We view social media as an opportunity to deliver content which highlights our expertise and competencies in a timely manner to our clients.
We aim to do this through Facebook, Twitter and LinkedIn.
Needless to say, delivery of quality content is important to us and the reality is our clients like to share this content with family, friends and colleagues. This is easily done through social media.
Our social media presence will be launched at approximately the same time as our website and we will be shortly collecting information from our clients as to their social media use.
As you can see 2013 is indeed going to be a very big one for our business.
As a team we are very proud of our longevity as a business and for the staff and clients who have been a large part of that longevity. We feel many of these changes we are planning are best completed during our 40th year, building on our history and knowledge, and continuing to advance into the 21st century.
HOW HAVE SHARE MARKETS PERFORMED SO FAR?
By James Malliaros
Over the last six months, investment markets globally have seen a distinct rotation out of cash and fixed interest (income) assets and into equities and property (growth) assets.
Investors have become more confident about global growth prospects and along with falling cash and bond yields and significantly less volatility in equity prices, share markets have had a strong run, and bond prices have fallen.
More of the same looks likely for the rest of the year, however recent price rises may have stretched some share market valuations and it is still difficult to predict whether bond yields will continue to rise.
Australian shares have joined in to the global share market rally, with the S&P/ASX200 Accumulation Index up 28.7% financial year to date. The financial sector, helped by a good reporting season from the banks, is up by 38.1% for the first eight months of the financial year. There were also good performances from the consumer discretionary sector (such as JB Hi – Fi) with a return of 28.1% and the consumer staples sector (such as Wesfarmers and Woolworths) with a return of 36.3% to the end of February.
Somewhat oddly at a time of growing optimism about the world economy, resource stocks such as BHP and RIO were relatively neglected, the S&P/ASX300 Resources Index up only 13.7% for the financial year to date.
The key question in the outlook for Australian shares remains how the economy, and corporate performance, will fare during an ongoing transition from the 'two – speed economy'.
The graph below illustrates the performance of these indices for the Financial Year to date ending 28 February 2013:
The Reserve Bank is predicting a slowdown in GDP growth in 2013 to a slower than usual 2.50%, with slowing resources investment and the high dollar weighing more heavily on the economy than a strengthening housing market and a potential investment pick up in the non – mining economy.
On a positive note, the latest profit reporting season has been going quite well, with many companies facing challenging conditions in 2013 but expecting some pick up in the economic outlook for 2014 and therefore improved earnings growth. This should provide a fairly supportive backdrop for Australian shares.
International equities rose strongly in the second half of November through to January. Although the pace of increase has dropped off more recently, the MSCI World Index (in $A) rose by 15.1% for the financial year to date. Most of this gain in foreign currency terms translated through into a solid performance in $A terms as well.
There have been good reasons for the improved performance of global equities. Monetary policy in the major economies has been set on 'ultra – easy' for some considerable time and investors are becoming more optimistic, as shown by the fall of the gold price and the ongoing decline in the VIX index, a measure of equity market volatility.
The US continues to grow at a moderate pace, decreasing fears of a relapse into slower growth or even back into recession. In addition, the fear of another financial crises, particularly in the Eurozone, have been mostly negated, with credit rating agencies having recently upgraded Ireland, and finally growth prospects in Asia in particular have been boosted.
None of this necessarily makes a positive outlook for world equity markets in 2013 a certainty. The US economy could be derailed by the issue of the Federal Government's debt ceiling and although the Eurozone may be less likely to have a sovereign default or banking system crisis, its structural growth challenges are formidable, particularly in France, Italy and Spain.
The 'great rotation' out of bonds into equities, as it has been dubbed, could mean that the recent strength of world equity markets more reflects a global wall of money looking for a new home than any sustainable lift in expected corporate profitability. However the slowdown in share price appreciation in February after January's sharp gains isn't necessarily all bad news as a more measured response to an improved outlook is more likely to mean better longer – term gains.
Looking ahead, there is enough positive news to support further gains, but investors need to be wary that the valuations are getting significantly stretched.
By Patrick Malcolm
Whilst a very large portion of our existing client base, as well as referrals from those clients are in the pre – retirement/retirement phase, we do get quite a few individuals and couples who are in the infancy of financial lives. Not surprisingly, many of these people are children, grandchildren, nephews, nieces, etc. of existing clients.
David and Hannah (not their real names) came into our office in May last year. David and Hannah have both successfully completed their tertiary qualifications and both had obtained employment in their chosen fields. Hannah was employed as a nurse, whilst David is an IT professional. Whilst Hannah was working full time, David is about to drop down to working two days per week whilst he undertakes further post – graduate study in Accounting and Finance. Hannah’s salary is $87,650 p.a. plus superannuation guarantee contributions, whilst David’s is $35,000 p.a. plus superannuation guarantee contributions whilst he is working two days per week. David will return to full time employment in July 2014.
Further relevant information is as follows:
David and Hannah have diligently saved $75,000 in the bank:
- This is in joint names and is not earning any interest
- However, they do have a personal loan of $30,000 that was used to purchase a car and pay for and an overseas holiday
Hannah has two industry superannuation accounts. David has an employer super fund.
- Each of them have nominal amounts of Term Life, TPD and Income Protection (with two year benefit periods) through their super accounts
Hannah has a HECS/HELP debt of $13,000
Hannah has concessional salary packaging available to her as she works at a public hospital however she is not making use of it at present
They are renting a one bedroom apartment in the inner city at a cost of $17,000 p.a.
David and Hannah have prepared a budget and calculated their cost of living at $49,000 p.a.
David and Hannah came to us primarily for a financial health check, just to see if they had everything structured as it should be. They also had a desire to purchase a principal residence however they were unsure if this was going to be possible with a reduced savings capacity over the next couple of years.
The table below details David and Hannah’s savings capacity over the 2011/12 Financial Year:
|Tax on Assessable Income
|Income after Tax & HELP
|Less: Loan Repayments
|Less: Lifestyle Income Requirement
We provided the following recommendations to David and Hannah:
Using the cash at bank ($75,000), they should look to pay out the personal loan ($30,000) as well and Hannah’s HELP debt ($12,385):
- The HELP debt is less than the $13,000 stated earlier as Hannah will receive a 5% bonus on the repayments
Before the 30th of June, they both needed to commence a First Home Saver Account and contribute an amount to it so they are entitled to the maximum of the 17% Government contribution
Even after using $30,000 to pay out the loan, $12,385 to pay out Hannah’s HELP debt and contributing funds to the First Home Saver Accounts, they will still have around $28,000 in the bank after completing Hannah’s tax return:
- Hannah will receive a tax refund of at least equivalent to her HELP repayment over the 2011/12 Financial Year
Hannah and David should open a high interest online savings account:
- This should be in David’s name whilst he is working part time as his tax rate is lower, rather than in joint names
- By making a monthly contribution of $200 or greater to the account, they will get bonus interest of 0.70% p.a.
Hannah should start making use of the $17,000 in salary packaging she has available to her to pay their rent
After the implementation of the recommendations above, David and Hannah’s savings capacity increased from the figure detailed previously to over $38,000 p.a. as per the table in the next column in the 2012/13 Financial Year, an increase of more than $24,000 p.a.
|Interest on Savings
|Less: Salary Packaging
|Net Income from Employment
|Tax on Assessable Income
|Income after Tax & HELP
|Less: Loan Repayments
|Less: Lifestyle Income Requirement
Additional recommendations we provided were as follows:
Hannah should consolidate her superannuation into the one industry fund to save fees
They should each have around $600,000 in Term Life and TPD cover inside their super funds
They should each have Income Protection outside the superannuation environment, with a benefit period to the age of 65 for 75% of their salary:
- By paying this premium 12 months in advance before the 30th of June 2012, they received the tax deduction in the 2011/12 Financial Year
The table below is an approximate of the tangible monetary benefits that Hannah and David obtained in the first year as a result of our advice:
|Value of Salary Packaging Rent
|Value of Government Contribution on First Home Saver Accounts
|Value of repaying HELP debt early
|Interest saved on personal loan
|Net interest on high interest online account
|Tax saved by having account in David's name
|Fees saved by consolidating Hannah's super
It is important to note that many of the savings generated aren’t of a once off nature. We’d estimate that the total value of the advice over around slightly more than two years to be more than $40,000.
We also made Hannah and David aware of a number of issues that are particularly relevant to their circumstances, such as:
The reduction in stamp duty concessions for first home buyers that are gradually being implemented in Victoria. By purchasing a property after the 1st of September 2014 (rather than after the 1st of January 2014), on a purchase price of $600,000, they will save an amount of $3,107; and
The First Home Owner Grant of $7,000
Due to their improved cash flow, we calculated that David and Hannah will have saved close to $130,000 by the 1st of July 2014, which will fund a 20% deposit on a purchase of up to $600,000, as well as covering the stamp duty applicable.
Assuming a mortgage of $480,000 and an interest rate of 8% p.a. (much higher than where we think rates will be over the medium term), with David returning to full time work in July 2014, David and Hannah would be able to knock their mortgage over in less than five years.
Whilst children aren’t on the horizon at present, we also made David and Hannah aware of some of the entitlements they may be eligible for, such as paid parental leave, family tax benefits, the baby bonus, child care rebates, etc. that may assist their cash flow when they want to start a family.
We take an enormous degree of pride in being able to assist friends and family of existing clients, particularly those that are getting started in a financial sense.
As you would no doubt be aware, any initial consultation for someone referred by an existing client is free of charge.
We really do appreciate all of those that have referred clients to our company over the last 40 years, and we continue to strive to do a good job for those that we are able to assist.
STAFF PROFILE: MAI DAVIES
By Paul Nicol
As a valued client of Gilham Financial Management, there would not be too many of you that have not had any contact with Mai.
Amazingly, (Tony cannot believe it) Mai joined Gilham Financial Management in 1984 and in 1988 proceeded on maternity leave for 6 years to start her family.
In 1994, when Mai’s children went to school, she returned to us and naturally is our longest serving employee, a record that will be impossible to beat.
The role Mai has performed for the Business as Marketing and Client Services Manager has been simply outstanding.
Mai has been responsible for arranging client appointments for the financial advisers and it is in this role that she has built up such a rapport with a large number of our clients.
Mai also arranges all of the client seminars and client functions and clients often comment to me how friendly and helpful Mai is.
We have delved into our archives and we have located photos on Mai in 1986 and we must say that apart from a new hairstyle not much has changed in the last 27 years!
Here is a quick Q & A with Mai, with some things you may not know about her.
Q. Your Family?
A. We are a family of 6, hubby Graham, two kids – Mel and Matt and our two beautiful boys Billie and Ollie (Burmese Cats). People are often surprised to hear my kids are 24 and 23; they sure grow up fast!
Q. Your favourite holiday destination?
A. I love Hong Kong. It’s such a lively, vibrant place, fabulous shopping and wonderful food. One of my favourite areas is Soho; there are some amazing restaurants there. You may not know that I was born in Hong Kong and came to Melbourne at 9 months old.
Q. Your hobbies?
A Cooking, Boxing, Movies, Travel and Ten Pin Bowling
Q. Your Favourite food/drink?
A. I have many favourite foods as I enjoy trying different foods and flavours, especially hot and spicy. Really hard to choose a favourite food but currently it’s Thai and Japanese.
Q. A proudest moment?
A. I’m very proud of my daughter Mel for taking part in the World’s Greatest Shave this year. She will be shaving off all her hair on the 24th March and aiming to raise $20,000 for the Leukaemia Foundation.
Q. What do you like to do for fun?
A. When I’m away from work, I spend time with my family and friends, cooking, going to the movies, dining out, and keeping fit. I really enjoy my boxing classes and going to the 1,000 steps.
Q. Little known fact about yourself
A. I’m obsessed with my beautiful boys. My family knows the boys are number one and they love them too, so that’s ok. I also don’t watch TV.
Q. Any hidden talents?
A. My daughter says I’m a tornado in the kitchen, cooking several things at the one time and cleaning up as I go.
Q. Plans for the future?
A. Looking forward to our Girl’s trip to Paris in June 2014, my dearest friend is turning 50 and there’s a few of us going to celebrate in Paris.
Q. Best part of working at GFM
A. It’s the fantastic people I work with each day – both fellow team members and our clients. I really enjoy my work with our clients and have got to know them well over the years.
As an organization we are extremely blessed to have Mai as a valued member of our staff.
NAVIGATING THE AGED CARE SYSTEM: SEMINAR – FEBRUARY 2013
By Mai Davies
We recently held our first client lunch seminar for the year at Riversdale Golf Club with 84 clients and guests in attendance, covering the important and complex subject of Aged Care Planning.
With the aged population growing, it is becoming increasingly important to understand the issues surrounding moving to an aged care facility such as a hostel or nursing home.
Currently around 9% of Australians are aged 70 and over living in a hostel or nursing home, and this number is expected to increase significantly over the next 30 years.
Tony Gilham and Patrick Malcolm did the presentation and the feedback from the attendees was excellent.
Although it’s a complex subject, the attendees got to understand how the system works and the important issues to be aware of should the need arise for aged care, be it for a family member, friend or for themselves. Some of the comments from our clients:
“It really brought home the importance of forward planning & the need for financial advice in regards to preparing for Aged Care”
“Complex subject explained well by presenters. Enjoyed the session”
“Very complex subject well covered by Patrick's Case studies”
Tony and Patrick covered the following topics:
An overview of fees and aged care system including the differences between low care hostels and high care nursing homes.
Aged care framework
Different aged care options
Understanding negotiations with aged care facilities
Social security implications
The interaction of aged care with social security and tax legislation
Strategies and solutions
Some of the proposed changes recently announced by the government
Six case studies that helped illustrate a variety of situations and their outcomes.
If you were unable to attend the seminar and would like further information on this subject, you can bring it up with your adviser at your next review meeting, or let us know if you need assistance earlier than that.
CHRISTMAS CARDS & CHARITABLE DONATIONS
By Bryan Meehan
For the last 16 years, instead of sending Christmas cards, we have donated a comparable amount to charities. This initiative has been well supported by our clients.
The Christmas 2012 money has been donated to the follow charities as nominated by our clients: