Australian Unity - Reflections of 20 years in Advice and shaping the future
As Australian Unity marks 20 years in advice I was delighted to talk to Ross Johnston a financial adviser who played a key role, both as an adviser and in management capacity, in establishing Australian Unity’s advice licensee business and remains one of its most experienced and valued financial advisers today.
Matt Brown:
Thanks for your time Ross, I am keen to get your thoughts on how the delivery of advice has changed over the past twenty years. What are the things that have changed for the better? And how should the advice industry be thinking about the future given the events of the last few years?
Ross Johnston:
Matt it’s a pleasure to be asked to reflect on Australian Unity’s journey in financial advice.
One of the most important improvements in the last few years has been the raising of education standards – they are really at a whole new level. To work as a financial adviser today, you need a degree and a major in financial advice. If you don’t have a major, you need a masters. You then need to work at least a year under a qualified adviser and sit an entrance exam. The education standards are similar to practicing as a lawyer.
Consumers today are receiving advice from very highly qualified professionals. Financial advice can now legitimately call itself a profession, and Australians can have much more confidence in the advice they receive.
Back in 2005 when I joined Australian Unity, they already had a small financial advice business. In some ways it was ahead of its time because it integrated into the group’s health services at the time. In joining, I was asked to extend the business model by setting up Australian Unity’s advice licensee & related services.
Australian Unity has always, I believe, led the way on standards in advice. When I was involved in the establishment of the licensee some 17 years ago, we didn’t allow commissions on investments even though it was legal then. That was because we had a vision on where the industry would head and I believe that’s played a key part in its longevity.
Another area we banned outright was agribusiness. We took the view that any products sold on tax deductions and significant upfront commission was not a good investment and we saved clients a lot of pain as a result. I remember when some of these businesses came unstuck and I received a letter from the then head of advice thanking me for banning those investments. Australian Unity was ahead of the curve here because we put client best interests first.
When I consider the turmoil of the last few years, the positives definitely relate to education. However, we are now at a point where the compliance requirements are so complex and over the top that they miss the point completely. Matt, I know you are working closely within the industry, with submissions and various meetings with the Advice Quality Review and Law Reform Commission on how we can simplify the delivery of advice and that has to be the industry’s driving priority if we are serious about making advice more accessible for Australians.
At the moment, I have clients who are too scared to read the paperwork because the complexity frightens them. It’s hard to believe that we have ended up here, given the reviews and work done on getting the industry to the point it is. I would love to see us work with a one-to-two-page document that includes all of the key information that clients can understand and ask questions about.
An outworking of this complexity is cost, and I have seen some excellent advisers close their business because they weren’t able to employ two or more staff to manage the compliance effort.
It almost goes without saying, but we need to attract new advisers to the industry. It’s hard to believe that after losing 10,000 advisers nationwide since the Hayne Royal Commission, only 80 advisers have joined the industry in the last 12-months.
Matt Brown:
Mental health is an area that’s of significant concern for our industry and it is also an area where advisers play a huge role in helping their clients. We know that people find it easier to get help for financial problems than their mental health but we see the two going hand in hand. Can you talk about the role of the adviser in helping a client with their mental health?
Ross Johnston:
I have a client who is a psychologist and we talk a lot about the strong linkages between financial and mental health. She often says that there is a strong counselling element to the provision of financial advice, and we agree that making someone’s financial situation better almost always has a beneficial effect on his or her mental health.
I see this in practice a lot and recently helped a client who was being bullied at work. I could see that he was in a position to retire (earlier than he may have thought) and his financial situation gave him the option to resign, retire or take some time off and this actively dissolved the power of the bully.
We deal with death frequently too. I am in a situation currently where a long-standing client passed away recently and I just don’t know how her husband will survive without her. These are big issues, and advisers are often involved early in the piece as family members grapple with loss. In these situations, you really have to want to help people and also make sure you look after your own mental health too – get help if you need it.
I am also mindful of the impact of turbulent financial markets and the impact of this on clients. I can’t predict the future but I think markets are going to fall a lot further over the coming months, especially in the US and we need to help people manage through this, keep people safe and focused on reality. Our approach is to manage our clients’ portfolios conservatively (no crypto or ‘get rich quick’ schemes) and that plays into supporting a person’s financial and overall wellbeing.
Matt Brown:
Ross, I am interested to hear about your 30-year career in advice, why you continue to do what you do, what gets you out of bed in the morning and how you managed during Melbourne’s 261 days in lockdown?
Ross Johnston:
I do what I do because I love my clients and I am at a fortunate point in my career where I have built a book of clients who also happen to be great people and our interactions are enjoyable.
It’s not lost on me that clients are reliant on me and that brings a closeness that you don’t have with other professions. Having knowledge of someone’s financial situation is a personal and privileged position to be in. I know how my clients vote, I know their values, I get the whole picture.
During lockdown, I spent a lot of time on the phone. Most of our clients are older and not tech savvy and they valued the interaction. Some clients called me because they were bored, others called to check on how I was going, it’s a two-way street.
Matt Brown:
Can you talk about the most important ways you help your clients and the difference your advice has made over the years?
Ross Johnston:
For my retiree clients, the best help I can give is to prevent them from stressing about anything in retirement. They know I will keep them safe. I discourage them from looking at their investments all of the time and to steer clear of the media. They know they won’t run out of money and they know we aren’t going to take risks.
My job is to make their capital last longer and when the crashes inevitably occur we will get them through it. We talk a lot about high returns equaling high risk and as we brace for continued market volatility, we are in a good position to ride out the storm.
For our younger clients, insurance makes a big difference. We arranged life insurance for a couple with two young children in Ballarat. When the wife and mother was diagnosed with terminal cancer, we had in place insurance of $2 million which enabled the husband to leave his job, clear the mortgage and spend time looking after his children. People don’t like talking about young people dying but we see it happen and the right insurance can be a huge support for families dealing with life’s greatest challenges.
We also helped a client who was diagnosed with bowel cancer at 50. He had forgotten I had arranged trauma insurance and when he wasn’t able to work for a year he received a pay-out of $140,000 and his income protection policy paid 75% of his salary. This insurance was able to cover the significant out of pocket medical costs for treatment and gave him the option to get treatment overseas – even though he didn’t need it. He’s now made a full recovery.
Helping a 55-year old single woman buy her first home after a marriage separation was a highlight. We used the then transition to retirement strategy to help her get her first mortgage and she was able to pay it off over eight years. She is now on the aged pension and owns her own home, which she didn’t believe was possible before we got involved. Note here that the TTR strategies today have been scaled back, but we can use this strategy for apartments or units as part of a retirement village where the price point is more accessible.
Matt Brown:
What are your top tips for people, given your three decades of experience in advice.
Ross Johnston:
Depending on the stage of life you are in, don’t just chase big returns. The higher the return, the higher the risk and that’s how people get caught up in bubbles. Be aware of the risk of every investment.
Don’t go into too much debt to invest. We see people borrow to invest at the wrong time in markets. I know a number of people who have borrowed to go into crypto and are oblivious to the risk. During the pandemic there has been a raft of people setting up self-managed funds and investing everything in crypto and many have lost it all.
Don’t get caught up on costs. The cheapest investment option is not always the best option. Some management expense ratios will be higher than others because of their investment strategy. For example, I have clients in a fund at the moment that on face value could be considered expensive, but the fund employs a hedge to reduce downside risk its killing it at the moment performance wise because of the volatility. We would prefer people to focus on risk not cost.
Property can be a very risky investment. The biggest financial disasters I have seen in the last thirty years relate to property investment. We don’t often hear these stories but there are people who bought property, sight unseen, during the resources boom that are now worth nothing and they are left with 100% of the debt. We also talk to clients about developer risk if a property developer goes broke, Australia’s property market isn’t regulated and you lose everything. We also advise caution when buying property off the plan and paying attention to the commission paid to the developer.
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