As we seem to say every year… Where has the last 12 months gone?!
It is December once again and we are only a few short weeks away from celebrating a new year. As is customary of the season, we have prepared our FinSec reflections; a look at some of the stories that have shaped our year in 2019.
The year of the banks
2019 started with the banks in the headlines and looks set to end the same way.
The gruelling public hearings of the royal commission were laid bare in Kenneth Hayne’s final report. Of the Big Four banks, ANZ’s Shayne Elliot is the last man standing as scandals and public shaming claimed the bosses of Westpac and NAB (Commonwealth Bank’s Ian Narev exited in 2018). Millions of customers are sharing in a compensation bill that could hit $10 Billion, and as parliament passes new laws and an emboldened regulator ramps up court actions, we are guessing it is a year the big banks would rather forget.
For Australia, it presents a conundrum. Whilst we were all stunned by the sordid revelations emanating from the Royal Commission, like it or not the big four banks are crucial to our economy.
Australia’s major banks make up four of the seven biggest companies on ASX by market value. Many Australians directly own shares in the banks, while most have stakes through their superannuation funds. Between the four of them, they hold almost $1.4 trillion in mortgage debt, which is equivalent to about 80 percent of Australia’s annual economic output.
The bottom line is, there are a whole bunch of Australian superannuants relying on bank dividends to sustain their retirements. The bank’s ability to maintain profitability means they can lend, back small businesses to grow, employ people and ultimately support the economy.
We realise there will be plenty of bank bashing around the dinner table this holiday season we only heed ‘be careful what you wish for’.
Down, down, interest is down…
Both the Reserve Bank of Australia and the US Federal Reserve have lowered interest rates three times since June this year, a result of expectations for global economic growth lowering in response to developments such as the US-China trade war.
Whether or not central banks have had any success in smoothing the business cycle in this way remains a contentious subject. These are unprecedented times, have we developed an unhealthy relationship with interest rates? Australia faces this question and others as we enter the 2020s, having had no wake-up call in the form of a recession for almost three decades. Meanwhile, arguably there have been no meaningful reforms to taxation, the labour market, energy, communications, and other aspects of the nation’s affairs for over twenty years. Monetary policy is being asked to do all the work when perhaps fiscal policy and reforms should be taking the wheel.
On a lighter note, did you know… The original song made famous by the Coles advert ‘down, down, prices are down’ was first made famous by English rock band Status Quo, with the original lyrics ‘down, down deeper and down’. The guitarist featured in the Coles adverts is actually Status Quo’s own Rick Parfitt.
As we are all very familiar with, in 1912, The Titanic sunk and the huge loss of life spurred a number of reviews and inquiries, the largest of which was conducted by a US Senate Inquiry. It concluded, entirely reasonably, that the death toll would have been substantially lower if the Titanic had set to sea with a full complement of lifeboats. New regulations were developed for the ship building industry, existing boats were retrofitted to carry more lifeboats and new ships were redesigned to accommodate more.
One of the first ships to sail after this new regulation was the SS Eastland. On July 1915, just yards from her moorings on the Chicago River, she tilted alarmingly, took on water, and rolled over in just twenty-feet of water. While some lucky survivors were able to literally step from the upturned hull onto dry land, many less fortunate individuals were trapped below decks or thrown into the water. More than 800 people lost their lives. While the poor design of the ship and the owners’ failure to carry out tests were also to blame, it was the extra weight of the lifeboats that ultimately caused the Eastland to sink – Good intentions with unintended consequences.
When it comes to our Industry, despite the best intentions of the senators and regulators, at least in the short term, they have created a new framework of onerous compliance, over regulation, new education rules and poorly considered reform. Whilst at FinSec we are fortunate to have the power of scale, many do not. The cost of delivering advice has gone up, small firms are been forced to close their doors and the industry is facing a mass exodus of advisers.
At a time when Australian household debt is at an all-time high, these reforms become somewhat counterintuitive to the solution – Good intentions with unintended consequences.
The Word of the Year
As it turns out, words are important, it would be a challenge to deliver this email with hand gestures. Each year, new words arise or evolve to form a new meaning. Macquarie Dictionary selected ‘cancel culture’ as their word of the year for 2019. Definition, ‘calling for the boycotting of a public figure in response to controversial comments or allegations of misconduct’. It’s not hard to join the dots on this one!
Trump, Trade & Tariffs
Speaking of which it has been a big year for Trump. Right now he seems to be on a tariff bender. The first order of action was China. Quite literally a never-ending saga with Trump claiming only last week that he has no deadline for making a deal and that it “might be better to wait until after the 2020 election to do so”, only to tweet this week that we now have a phase 1 trade deal in place. Whether phase 2 talks happen remains to be tweeted…
He followed this up by threatening tariffs on French imports in response to a proposed French tax on US
tech giants like Google and Amazon Trump’s logic being that American companies should only be taxed by America. And more recently he has announced tariffs on Brazil and Argentina, claiming that they were hurting American farmers with their weakened currency.
If his twitter account is any indication of his stress levels, then they hit an all-time high in October with the President tweeting 1039 times for the month. Currently, he is still trending at nearly 29 tweets a day which is still well up from his norm of around 300 a month.
A little closer to home – As one chapter closes another begins.
After six years in the FinSec partnership and a whole career in the industry, in June, we wished Michael Balogh the best of luck for his onward journey into full retirement. Michael has witnessed huge changes to the financial services industry and has helped us shape the value system FinSec live and breathe today, he will be missed by the FinSec team and clients alike.
In November we also said farewell to Karen Eley. Ten years a partner, Karen has always been a passionate advocate of financial literacy for women. We commend her on her dedication to this cause and wish her the very best as she pursues this direction in a more formal manner as a financial coach.
But as one chapter closes another begins, and it is with great pleasure that we officially welcome new advisers Kon Antoniou and Russell Pratt to the FinSec Fold. Both Russel and Kon are experienced advisers who are recognised industry experts in their respected fields. Six months in and they are now firmly part of the furniture, however we look forward to watching as their positive contribution to the firm continues.
Principles to live by
Earlier this year a gentleman by the name of Marc Colquhoun visited our offices, by way of conversation he told us about a series of dinner parties he hosted many years ago. The guests were influential people, from all walks of South Australian life. At these dinners, he asked guests to provide their guiding principle for a successful life and compiled a list of maxims based on their answers. A treasure trove of simple wisdom we have included two of our favourites below and will share more in future publications.
“Embrace a giving philosophy it’s incredibly rewarding and inexpensive.”
“Look for solutions, don’t dwell on problems. Be the calmest in the most trying circumstances and surround yourself with positive energetic people.”
But, let’s not forget what is truly important at this time. The festive season reminds us once again of the importance of friends and family, of taking a well earned break and embracing the spirit of the season. We hope you take a brief moment to appreciate and enjoy this seasonal ‘break’ and may you all have a happy and safe new year. We look forward to seeing you next decade.
Seasons Greetings – From all the Team at FinSec Partners