December Quarter Review

Economic Overview

The geopolitical risks that dominated for much of 2019 faded in Q4, supporting global share markets. Trade uncertainty faded with the US and China’s phase one trade deal announcement, while economic data remained stable. The trade deal, signed on January 15 means planned new tariffs will not be imposed, while US tariffs imposed in September on $120 billion Chinese goods will be reduced by half. The 25% tariffs on $250 billion of Chinese goods will remain. China also agreed to increase purchases of US goods, with agricultural produce highlighted.

The US Federal Reserve cut interest rates once in the quarter before indicating that “the current stance of monetary policy is appropriate”. The US economy expanded by 2.1% (annualised) in Q3. A result better than expected and stronger than Q2.

In the Eurozone, the confidence measure among German executives, improved in December, yet the Eurozone purchasing managers’ index remained unchanged at 50.6 in December – a level that indicates weak growth. Annual inflation was 1.0% in November, up from 0.7% in October but still well below the European Central Bank’s target of close to 2%. Christine Lagarde, in her first major speech as president of the European Central Bank, urged governments to boost public investment in order to increase domestic demand in Europe.

In the UK, the Latest GDP figures confirmed the economy had avoided entering a technical recession in the third quarter after contracting in the previous quarter. GDP growth was 0.4% quarter-on-quarter. Overall, the data suggests that the economy is coping with the uncertainty from Brexit. After the landslide election victory for the incumbent Conservative Party, the government is set to use its large majority to take the UK out of the EU by 31 January 2020, entering a transition period when the next stage of negotiations will begin

Japan’s economic data continued to show a significant divergence between the strength in service sectors and the weakness in manufacturing. There were also signs that the long-running trend towards an ever-tighter labour market had finally reached its natural limit. The main economic event for the quarter was the consumption tax increase on 1 October.

In Australia, the RBA cut the official cash rate to 0.75% in October. Despite predictions of further cuts, none eventuated during the quarter. Eyes now turn to the RBA’s first meeting in February. While the RBA noted in its December minutes that, “the Australian economy appears to have reached a gentle turning point” it also finished those minutes by noting, “the Board is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.”

Market Overview

Asset Class Returns

The following outlines the returns across the various asset classes to the 31st December 2019

Overall, it was a mixed quarter to top off an extremely strong year. The majority of the Q4 gains came from global shares. US markets pushed higher as trade uncertainty faded, while Eurozone markets advanced with better economic data emerging from Germany. Bond markets reflected the better mood in the quarter as government bond yields rose (prices fell) and corporate bonds performed well.

Across the year it was hard to miss a good return, both Australian and global shares returned 20%+ returns, while Australian listed property was pushing 20% and fixed interest was given a shot in the arm as yields fell and prices increased. The asset class doing no one any favours? Cash.

In the US, the tech sector was a major beneficiary of easing trade tensions. Energy companies, which had lagged the broader S&P 500 index in 2019, rallied as the oil price rose on lower-than-expected supply.

Eurozone shares notched a strong return in the final quarter of the year, with the region’s MSCI EMU index returning 5.1%. Listed companies were supported by better economic data from Germany as well as the phase one trade deal agreed by the US and China. Gains were led by sectors that generally fare well when the economy is strengthening; top performing sectors included information technology, consumer discretionary and materials.

UK equities performed relatively well, and domestically focused areas benefited significantly as they responded favourably to the reduction in near-term political uncertainty.

The Japanese market rose in each month of the quarter to record a total return of 8.6%. Asia ex Japan delivered a strong return in Q4, supported by easing geopolitical risk as the US and China reached a phase one trade deal. US dollar weakness also provided support to returns. Against this backdrop China, South Korea and Taiwan all outperformed. In Taiwan, strong performance from technology sector companies boosted returns, as earnings expectations were revised upwards following solid Q3 sales figures

Emerging market shares posted a strong gain in Q4, benefiting from easing geopolitical concerns. The MSCI Emerging Markets Index increased in value and outperformed the MSCI World.

After a double digit first half of 2019, you might say the ASX coasted home with lower returns in Q3 and a meek 0.75% return for Q4. Notably, it did pass its previous record high in November. Q4 was hampered by a weak December with concerns over Christmas retail figures, the strengthening Australian dollar and improving employment figures, which paradoxically became a negative with the ASX counting on the support of further interest rate cuts. Meanwhile, three of the four big banks, NAB, ANZ and Westpac, struggled through Q4 with either more scandal or cuts to earnings and dividends, proving another drag for the ASX in Q4.

2019 Take outs

As we’ve noted, it was hard to go wrong in 2019, unless you had a bank account stuffed with cash or a poorly diversified portfolio stuffed with bank shares – or worse, a combination of both! Major asset classes all delivered stellar returns and when combined into a balanced portfolio of 60% growth assets/40% defensive assets the return was 16.74% for 2019, after a 1.01% return in 2018. Remarkably, the 2017 return for such a portfolio was 8.17% and the 2016 return 8.01%.

How reliable is that consistency? The average annual return for this portfolio is 8.27% for the past decade. The worst return came in 2011 with a -1.00% return, with 2019 being the best. Which shows if you’re prepared to ride out the sub-par years the realignment can eventuate, along with the rewards.

The on again off again trade tensions have proven somewhat farcical. A sniff of negative would take the market down and a whiff of positive would drag it back upwards. When the trade issues move into the background it will be interesting where global markets will take their cues from next. The US presidential race will likely be a focus. Just remember 2016 and the damage Donald Trump was supposedly going to inflict on world markets.

Whatever the focus, it should remain as a matter of interest, not a matter of concern. 2019 was a reminder that we should never react because our expectations may not align with market responses. There was significant concern as 2018 ended. Economic momentum was slowing, earnings growth was in question and optimism was low.

2019 returns were unexpected and more than anyone could hope for.

Does it mean anything for 2020? No. 2020 will have no memory of 2019, just as 2019 had no memory of 2018.

The Magic of Timing the Market

Lately the stock market has been the topic of conversation amongst many people. I have one friend who kindly always makes sure he tells me when someone gives him the tip that the stock market is about to crash. I always ask him “Could he please tell us what day, week or even month it is going to happen. I need to know when in order for it to be useful information”. I also explain that I will also need to know when it has reached the bottom, because I will need to know when to buy back in to reap the rewards from this information. So far, whoever is giving him the tips has been unable to provide the timing information that we need.

Buying investments or switching between different asset classes at the right time is very difficult. History has shown that doing it reliably and repeatedly is next to impossible.

There is a misconception that some people are “in the know” and can therefore buy low and sell high at just the right moment. What most people fail to appreciate is that each day an average of $450 billion of equity trading occurs around the world. The vast majority of this training is undertaken by stockbrokers, fund managers and analysts that are very much “in the know”. All these “in the know” people are competing against each other to make profits, whilst charging their clients for the work they are doing. Each time one outperforms the market, one under-performs the market by the same margin. That’s a mathematical fact. The net result is that half of the people “in the know” do better than the market and half of them do worse than the market in any given week, month or year. Ahaa!! I’ve got it! If we could work out which of the “in the know” people were going to beat the market this year we could make some great returns... If we knew that we would really be “in the know” wouldn’t we!

Unfortunately, research shows that the chance of any one particular money manager beating the market 5 years in a row is about the same as the chance of flipping 5 heads in a row with a coin (about 3%). And that’s before you factor in the fees that the money manager (quite justifiably) charges for doing his or her work. Factor in fees of just 1% and the money manager’s chances are well under 1%.

So I believe the best strategy is to deal with a manager with a good track record of regular, consistent flipping, but someone that charges you the least for each flip of the coin and you’ll do better.

There’s an issue of course. And the issue is that all money managers are doing it for a living and are trying to charge what they can. I do not begrudge anyone charging for their time and effort. So when our 1% miracle manager flips 5 heads in a row he (or she) tends to make hay while the sun shines, knowing that they may very well flip 5 tails over the next 5 years! So they charge a premium for their ‘proven’ coin flipping skills whist they can get it which reduces the returns for the investor even further. You can bet pretty safely that if you seek out the “best performing funds of the last 5 years” you will be paying a premium with no greater chance of success than if you just stick with the manager you used last year providing his or her fees are reasonable.

History has shown that the best way to get great returns is to invest across a considered range of assets taking into account your objectives, take a long-term view and focus on keeping costs low.

This means avoiding trading costs, avoiding realised capital gains and finding investments with efficient fees. It means having an overall strategy that reduces tax, harnesses the long term returns from the companies and properties of the world and manages risks.

Needless to say, that’s what we do here! If you’d like to deal with someone that generates income from great strategy and financial education rather than from selling any particular products or investments then we’d love to hear from you.

June Quarter Review

Economic Overview

It was a quarter of all-time highs in Q2 2019 as both the US S&P 500 index and Australia’s ASX All Ordinaries achieved new record highs, albeit with very different time frames between their past record highs and their new record highs. Most developed markets posted good returns during the quarter, despite some May declines. For the most part it seemed to be accommodating language from central banks helping underpin share market gains.

Uncertainty surrounding the US’ trade stance caused a May market wobble. However, investors were soon re-encouraged by continued dovishness from the Federal Reserve and indications of progress in trade tensions by the end of June. Comments from President Trump that his administration could impose tariffs on Mexican imports and extend the suite of goods that are taxed on import from China, caused a sharp market sell-off in May. In June, signs emerged of progress in talks with China, with Trump also “indefinitely suspending” the Mexican tariffs.

Eurozone Q1 GDP growth for was confirmed at 0.4% quarter-on-quarter. Annual inflation for June was stable compared to May at 1.2%. European Central Bank President Mario Draghi hinted that further monetary policy easing, such as new bond purchases, could be on the way if the eurozone inflation outlook fails to improve.

In the UK Theresa May resigned as leader of the Conservative Party and UK prime minister, taking a caretaker role on June 7th. The Conservative Party began the process of selecting its new leader. Despite a further extension of the Article 50 deadline to 31 October, there remains considerable uncertainty as to the path a new leader might wish to take. The negative impact of the original 31 March Article 50 deadline on the UK manufacturing sector became clearer. While GDP grew by 0.5% in Q1, in line with expectations, the Office for National Statistics revealed that the economy shrank by 0.4% in April, primarily due to a sharp fall in car production.

In Japan economic data was mixed, with the largest positive surprise seen in Japan’s growth rate for Q1 2019. This showed real GDP grew at an annualised rate of 2.1% whereas consensus expectations had called for a decline. The Bank of Japan left monetary policy, and the associated language, unchanged in the quarter.

In Australia, the LNP coalition surprised many pundits by retaining government during the May election. The election was followed by a sharp dose of economic reality as the Reserve Bank cut interest rates to a record low of 1.25%, noting domestic uncertainty stemming from household consumption. After being in a constant freefall since mid-2017, house prices appeared to stabilise in Melbourne and Sydney during June with 0.2% and 0.1% gains respectively for the month. Across Australia prices combined to fall 0.1% for the month and 1% for the quarter.

Market Overview

Asset Class Returns

The following outlines the returns across the various asset classes to the 30th June 2019.

US shares gained in Q2 and the S&P 500 set a new record high. More cyclical areas of the market, i.e. those that are most sensitive to the economic cycle, generally performed strongly. Financials, materials and IT all generated robust gains. Healthcare remains challenged by potential changes to pricing legislation, and more defensive (ie less cyclical) areas of the market made modest gains. Energy stocks largely declined.

Eurozone shares advanced in Q2 with a sharp drop in May sandwiched in between gains in April and June. Top performing sectors included information technology (IT), consumer discretionary and industrials. Sentiment towards trade-exposed areas of the market such as semiconductors and car makers ebbed and flowed over the quarter as trade tensions persisted. The lack of any further escalation in the trade wars in June helped the market to recover after May’s pull-back. UK shares also performed well. Areas of the market perceived to offer superior and defensible earnings growth extended the run of outperformance they have experienced since the beginning of 2019.

Japanese shares performed worse than the other main developed markets in the second quarter. The total return for the three months was -2.4%, primarily as a result of weakness in May. The yen strengthened against other major currencies, driven partly by its perceived safe-haven status at times of geopolitical risk, and partly as a result of changing interest rate expectations for the US.

Emerging market shares recorded a slight gain in a volatile second quarter. US-China trade tensions were rekindled in May as talks unexpectedly broke down, and both sides implemented new tariffs. However, hopes for a resumption of talks post the G20 summit in June, and rising expectations that the US Fed will cut interest rates, proved supportive later in the period. The MSCI Emerging Markets Index gained but underperformed the MSCI World.

In Australia

Back in Australia, the price index of the ASX All Ordinaries finally surpassed its previous high reached back in October 2007.  The Australian market was among the top performers globally, returning nearly 8% over the quarter and more than 11% for the financial year. The iron ore price continued to power the shareprices of major miners, BHP, Rio Tinto and Fortescue, while the market’s big dividend payers staged a relief rally in May as the prospect of Labor’s dividend imputation changes went away with Labor’s failure to win the Federal election.

Additional material sourced from Schroders and DFA Australia.

This material is provided for information only. No account has been taken of the objectives, financial situation or needs of any particular person or entity. Accordingly, to the extent that this material may constitute general financial product advice, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation and needs. This is not an offer or recommendation to buy or sell securities or other financial products, nor a solicitation for deposits or other business, whether directly or indirectly.

Increase to the Work Bonus Scheme means more income for retirees

The Commonwealth Government Work Bonus Scheme allows people on the Age Pension to earn an amount of $250 per fortnight that does not count towards their Income Test, and hence does not affect or reduce their Age Pension payment.

It’s a great idea aimed at keeping ‘oldies’ motivated and active. It’s well known that a little bit of enjoyable, meaningful work, especially with other people you like, is very healthy for you at any stage in life, but particularly as you get older. It also helps stretch out the super balance and, in the end, achieves the double benefit of more money for the individual and less cost to the government.

All of the above reasons make part-time work in retirement an important part of our financial strategies for clients over the age of 65. The effects on your financial future and well-being are enormous.

I also advise small businesses to look for older people wanting part time work to fill spots where they need experience, reliability and skills. I never cease to be amazed at the quality of people we get applying for part time positions. It seems very common for top quality people to get to the stage where they work because they want to, rather than have to, and have a great deal to offer. And all with a great attitude. Last year we had a full time position that we just couldn’t fill. In the end we tried advertising it as part time and took two applicants. One did 2 days and the other did 3 days and together they are amazing.

However, the latest government figures tell us that only about 150,000 pensioners are using the Work Bonus Scheme. That’s only about 6% of Age Pension recipients.

Maybe the numbers will increase a little bit come July 1st this year, as the threshold is being increased to $300 per fortnight. That’s $7,800 per year, in most cases, tax free and ‘Pension Reduction’ free.

Another change is that you will now be able to claim the Work Bonus if you are self-employed. It used to be that the income had to come from employment but now sole traders and self-employed business owners can claim it also.

And if you think it’s a good idea but the thought of a visit to Centrelink is too much for you, don’t worry, it’s applied automatically to your income. You will only need to tell Centrelink you’re working and they will do the rest.

Review of 2018

Economic Summary

Global equities posted sharp declines in the December quarter, delivering their worst yearly performance in seven years largely on the back of the final three months. The major concerns were global trade, slowing economic growth and the US Federal Reserve’s plans for further interest rate rises. Government bond yields generally fell (prices rose), reflecting the broad uncertainty.

In the US, the US-China trade dispute also continued to hamper investor optimism. The Federal Reserve (Fed) raised interest rates in December on continued stability in economic data. The labour market remained extremely strong. However, the central bank grew otherwise more dovish in tone, signalling a more cautious view for coming months.

GDP growth forecasts were revised down for 2019, with inflation projections also adjusted downwards. Warnings from several notable firms – most significantly from Apple – also fanned fears that earnings growth may slow.

In the Eurozone, data pointed to slowing momentum in the EU economy. The flash composite purchasing managers’ index for December showed business activity slowed to the weakest level in over four years. The index came in at 51.3, down from 52.7 in November.

The “gilets jaunes” protests in France and weak demand for new cars were factors weighing on activity. As expected, the European Central Bank confirmed the end of its bond-buying program in December and reiterated that interest rates would remain on hold “at least through the summer of 2019”.

In the UK, despite the uncertainty, and the risk of a recession in the event of a “no deal” Brexit, the economy continued to recover from the very poor start to 2018. UK Q3 GDP growth came in at 0.6% quarter-on-quarter as expected, up from 0.4% in Q2 and the fastest pace since Q4 2016.

More recent data, however, has been volatile: UK retail sales disappointed in October, falling -0.5% month-on-month, but bounced back very sharply in November, increasing by 1.4% month-on-month, which was significantly above consensus expectations. UK households enjoyed an acceleration in wage growth and lower inflation over the period.

In Japan, little changed during the quarter. The Bank of Japan’s regular policy committee meetings resulted in no change to monetary policy, as expected. Economic news was somewhat mixed, but all the data needs to be viewed in the context of a succession of natural disasters in Japan which caused some slowdown in activity followed by a relatively strong rebound in subsequent months.

In December, the Reserve Bank of Australia (RBA) once again held the official cash rate at 1.5%, extending Australia’s longest ever stretch without a rate move to 28 months. RBA Governor Philip Lowe noted that global economic expansion was continuing, but there were ‘some signs of a slowdown in global trade, partly stemming from ongoing trade tensions.’

Even with continued low rates, there was no sign of an end to the property price falls in some mainland capitals, with Sydney recording the biggest annual decline since May 1983, according to CoreLogic.

Persistent concerns over the US-China trade conflict and the pace of US interest rate hikes dominated sentiment across Asia ex Japan. The darkening global economic outlook further troubled investors. Notably, China’s economy recorded its weakest quarterly growth since the global financial crisis. Industrial production and retail sales also slowed more than expected, heightening growth concerns.

Market Summary

Asset Class Returns

The following outlines the returns across the various asset classes to the 31st December 2018.

The December quarter did the majority of the damage in 2018, though over the full year returns were still positive in the majority of asset classes. Most balanced and diversified portfolios would have held their ground over the course of the year.

In the US equities declined materially in Q4 – with especially steep falls in December – due to fears over economic momentum and slower earnings growth. The US-China trade dispute also continued to hamper investor optimism. The large cap S&P 500 index outperformed the small & mid cap Russell 2500 index (-16.7%), but still declined by -13.5%.

Europe and the UK weren’t spared the December quarter damage, with both markets recording double digit falls over the period. It was the same story, worries over rising US interest rates, trade tariffs, slower Chinese growth and Brexit combined to form a difficult environment for risk assets like shares. The defensive sectors of communication services and utilities – often perceived as safe havens due to their stable earnings throughout the cycle – were the only sectors to register a positive return.

For the Australian market, the 3% fall for the year was its first decline since 2011, with again most of the damage done in the December quarter. In sector terms, financials, communication services and energy stocks were among the worst performers for the year in Australia and globally, while gains were made in healthcare, IT and real estate investment trusts (REITs).

Finally, emerging markets ended down around 5% for the year—although this followed a robust 27% gain in 2017

Can you learn anything from 2018

While 2018 was a rougher year for equity markets than we have seen in recent years, with volatility periods at the start and end of the year, a longer-term perspective shows the virtues of a patient approach. The chart below shows the growth of wealth from a dollar invested in a 50% growth, 50% defensive portfolio over the past 20 years. The past year is highlighted towards the end of the line.

While market volatility can create anxiety for some investors, the record shows that reacting emotionally and changing long-term investment strategies in response to immediate news and short-term declines can prove more harmful than helpful and to highlight this, 2019 has resumed with something of a market recovery.

As we’re in a new year, the media’s focus has turned to speculating about possible developments for the year ahead. Recently, we have seen many opinions about the possible outcome of trade tensions, Brexit, interest rate cycles, geopolitics and commodity prices.

While it is natural to have an opinion on any of these issues, it is worth remembering that all these views and expectations from market participants are already built into prices. The news that moves prices changes every day. And even if you could forecast events, you still need to anticipate how the market will react.

You might have more luck with tonight’s lotto numbers.

What's all this talk about Franking Credits?

Labor’s proposed change to franking credit refunds on dividends has provoked quite a debate in a short space of time.

For a quick primer, under the imputation system, companies who pay franked dividends to shareholders can pass on a tax credit for company tax already paid. When shareholders receive the franking credits, they can be used to offset other income tax liabilities.

When shareholders have low or no taxable income, such as those drawing a super pension, franking credits may be paid out as cash refunds. This doesn’t matter whether your pension income is $18,000 or $180,000.

Where people stand on it will likely be determined by any benefit derived from it. Investors need to be aware while much of the focus has been on individual shares, this will also have an affect on pension returns if they’re holding funds that have franking credits paid to them. In that respect, we would have many affected clients and given we work for our clients, it’s a change we’re not in favour of.

With that in mind, some of those being profiled as affected by the change haven’t exactly helped their cause. There’s a strange phenomenon in the Australian media where the moment someone is about to feel the pain of a government change they immediately claim ‘battler’ status.

Whether by accident or by design, the media has mostly focused itself on tales of woe from retirees living in affluent NSW suburbs who have decent levels of wealth and income. One retiree claimed to be ‘just scraping by’ on $86,000 per annum while admitting he kept a holiday property for his children to use.

These profiles are hardly likely to win the hearts and minds of younger voters who are the target of Labor’s argument that only the well-off will be affected. Unfortunately, there are plenty on significantly lower incomes, with fewer assets, who gain a nice bump from their cashbacks and will feel a lot more pain.

Not that the regular reshuffling of the rules around retirement hasn’t been a bipartisan act. As we all remember, the Liberals and the Greens joined together to tighten up pension eligibility only last year.

There have been the usual groans (like with the pension changes) of “why did we bother saving and investing” from some quarters. While the frustration is understandable, no matter the government fiddling, wealth will always provide options in life. Wealth will fund a better lifestyle than one without. And there’s no question, wealth will mean someone will be better able to take care of themselves in retirement than someone without wealth. So keep saving and keep investing, it's the best defence against having the goal posts moved.

"Stock Markets Crash" - Let's get some clicks on our website....

Well, it’s happened, or it’s happening. The correction that we’ve been told has been coming every month since January 2017, arrived. It's been great for getting clicks on websites and selling a few newspapers (do they still print those). Billions 'WIPED OFF' the market! The billions that have been wiped off so far were only WIPED ON since November last year.

Is it over? Probably not, but so far it's quite normal and unexciting.

Normal?

Yes normal. 2017 was an extremely rare year where the entrants to world equity markets enjoyed a free pass to the park and none of the rides had any bumps, jumps or scares. The biggest decline happened early in 2017 and then equity markets happily chugged upwards

How should you deal with this correction? Well it depends on your investment time-frame and your personal objectives, but for most people, you should ignore it.

Like all downward movements there are the regular tea leaf readings, inferences about past crash behaviour being an indicator of the future along with the unveiling of scary stats and charts reminding us of uncharted territory. I particularly like it when those holding gold start screaming that the end of the capitalist world is coming.

In other words, we’re expected to believe it’s eerily similar to 1987, 2008 and the great depression, but it has the possibility to be much worse!

Last Friday’s fall on the Dow Jones was 666 points. Tuesday’s fall was 1175 points. Ouch! To put that fall in some sort of perspective, the Dow Jones wasn’t even worth 1175 points until April 1983. 35 years later the whole weight of that index is a 4.6% daily loss.

Could a correction become a bear market or a crash? Always possible. However, time has shown almost no corrections go further to become crashes. Given enough time, most turn into buying opportunities.

It’s usually a recession that sets off serious bad times in equities. So why are sharemarkets falling when we have the opposite economic conditions in the world’s biggest economy? It’s because investors are reacting to what that growing economy means – inflation and interest rate increases.

Rates fell to historic lows in the financial crisis and have only recently started to rebound. Low rates make investors turn away from fixed interest and cash to embrace shares. With the ‘risk free rate’ rising, shares get re-priced such that the ‘equity premium’ (the extra you get for taking on the risk of shares instead of fixed interest and term deposits) is maintained.

At the same time, an expanding economy means companies will expect greater long-term growth and will expect corporate profits to remain robust.

As usual, if the rough times aren’t over, don’t sell the good stuff that have served you well in hopes of avoiding market carnage. If you are inclined to, remember there is no way you’ll know when to buy again. Despite a correction often being the best time to buy, many investors don’t have the fortitude to don their floaties and enter the choppy water to grab a bargain.

Last year’s stability was an anomaly. Now it’s back to normal programming.

This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs.

Ethical Organisations and Individuals - You must have both!

I saw a presentation from Major General Jim Molan yesterday about ethical leadership. Amongst many other things, Jim Molan was the Chief of Operations for the multinational Forces in Iraq in 2004. As you can imagine, leading forces in Iraq posed many management and ethical issues.

One of his key statements was that for ethical conduct to be assured, an ethical view must be held by both the organisation and the individuals within it. If either fail, the outcome will be compromised.

From a financial planning point of view I take two things from this:

1.       The importance of our organisation being actively and visibly ethical to ensure the people within it can and will act in our clients’ best interests at all times, and

2.       That regardless of how dedicated and pure of heart an individual planner is, if they work for an organisation that rewards bad behaviour in order to achieve it's own goals, that is what you are going get.

As a privately owned financial planning company, we tend to go on and on about being ‘non-conflicted’. This means we are one of the 15% of financial planners in Australia (and Bathurst) that aren’t controlled by the big four banks or AMP. This means we don’t have sales targets, we don’t share ownership with any fund managers, platform providers or insurance companies. We don’t have a share price to think about and no-one exerts any pressure on us in terms of volume or revenue. We answer to no-one but our clients. This makes an enormous difference in the advice we give.

Thanks Jim!