Are you ready for the 2022 Financial Year? What you need to know and trends to watch out for.

End of Financial Year is a great time for investors to take stock and plan for the coming 12 months.

IR Department Account Director Juliana Roadley speaks to Morgans Reynolds Securities Private Client Adviser Patricia Tsicalas about the year that was 2021, as well as what to expect and how to prepare for the year ahead – covering one of the hottest topics going at the moment, the Australian Government’s upcoming changes to superannuation.

End of Financial Year is a great time for investors to take stock and plan for the coming 12 months.

IR Department Account Director Juliana Roadley speaks to Morgans Reynolds Securities Private Client Adviser Patricia Tsicalas about the year that was 2021, as well as what to expect and how to prepare for the year ahead – covering one of the hottest topics going at the moment, the Australian Government’s upcoming changes to superannuation.


Juliana: To call the last financial year a challenging year would be an understatement. For many of us it was tough enough getting through every day safely and securely, but when we have a look at the investment markets, whether we're talking about stocks, bonds or the cash market all the way through to housing, the art market, the luxury items market, or even car sales, valuations increase.

So what does that tell us about where people have been investing and what guidance does that give us for the financial year 2022? How can we be prepared well today? I have the pleasure of interviewing Morgan Reynolds Securities Private Client Advisor Patricia Tsicalas.

Hello there Patricia.

Patricia: Hi Juliana, thanks so much for having me

Juliana: Well look, let's get straight into it because there's a lot of questions that we could talk about here. Firstly, did you want to give some guidance to the people that are listening?

Patricia: Just first up, I just wanted to let all the listeners know that what we're talking about today is considered just general advice, so we're not taking into account anyone's personal circumstances or their needs. So, before rushing out and doing anything that we might be talking about, I suggest they go and get some personal financial advice.

[1:30] Juliana: Fantastic, now may I ask is there one thing that stuck in your mind or you come back to again and again from what you saw investors doing in regards to COVID-19, and how that was influencing their investment strategies in this financial year?

Patricia: Sure, so if we think back to March last year, the first reaction that we saw for clients was ultimately fear, you know, what's happening? The market on March 23rd took that huge dive. What's going to happen? Is, you know, the market falling out of bed, do I need to pull all of my money out of the bank, what do I do? And then there was this huge level of uncertainty at that point in time, and basically within a matter of weeks we've seen a real turnaround which was completely unexpected, there were talks of, you know, v shape, u-shaped, w-shaped recoveries. Well I guess we're really seeing more of a v to u-shaped recovery, which really wasn't expected and that was really spurred on by, first off, all the Government stimulus that was released. We've never seen anything like that before so that has really helped to hold markets up, it's held businesses up. So in Australia, think of things like Job Keeper, Job Seeker, that was unprecedented levels - and I hate that word, ‘unprecedented’, we're sick of hearing it, but it's really something we've never seen before. And so that was this wave of cash that helped to hold the market up and push it back up to the levels that we're seeing today.

[3:15] Juliana: Do you expect that trend to continue into 2022?

Patricia: Yes, so if we think about this low interest rate environment that we're in at the moment in Australia, here the Reserve Bank has set the official cash rate at 0.1, they've basically come out and said that it's expected to stay at that level for at least the next three years, so people are looking for a place to park their money, you can't park it in the bank like you used to. Anything linked to Government bonds is achieving terrible rates of return so it's forcing those probably more conservative investors into the market and that then means that people are unfortunately having to take a bit more risk, but it is helping the market stay afloat as such. So I wouldn't say, artificially... The market, if you think about the market in a PE range, it's typically always traded somewhere between sort of 15 and 18 times, we do expect because of low interest rates that PE ratio should increase so debt is obviously cheap but that has spurred on a lot of investment in markets. Which has pushed up markets globally.

[4:40] Juliana: Yes, and I suppose as we look towards what's going to happen next year, that financial year 2022, we know there has been a few superannuation changes to come into effect and there might be more to come over the next few years. And we've seen that there's a possibility of higher allocations for some people, age limits have been rising... What do you expect will happen to investments because of this and could you give us a little bit of information on those changes?

Patricia: Sure. So just looking at the contribution limits for the new financial year coming, so FY21/22, the Government has really tried to support, I guess, superannuation you know, ‘pension clients’. These rules change every year so it's important that investors are across what's going on. Always make sure that you're up to date with the current limits, talk to your accountant. For the new financial year coming, concessional contributions, which are those that are paid before tax … individuals are entitled to up to $27,500 per annum. That’s the limit that you can put into your super fund before tax. If you put in any additional amounts over and above this level you are subject to higher levels of tax, so just make sure that you're keeping on top of that.

[6.10] There’s a little bit more information on this slide here about Div 293 Tax, now that's what we call ‘high income earners’, people earning over $250,000, they are slapped with an additional rate of tax on their concessional contributions going in, so that's something to discuss with your accountant And then I guess probably, more importantly, and more so talking about non-concessional contribution,  so these are your after tax; These are the ones that are starting to increase each year, which are great for people approaching retirement. You might have lumpier amounts of cash, so up to age 65 you can contribute up to a $110,000 per annum after tax or using what we call the ‘bring forward’ rule. So for someone who may be about to turn 65, maybe they've sold an investment and they have quite a lumpy amount of cash to put into their super fund, they can contribute up to $330,000 in one year so that is averaged over three years. And then some of the newer things around these contributions: The Government is now being more lenient for older Australians so from age 65 up to age 75 you can make the $110,000 per annum non-concessional contribution and just to reiterate there the non-concessional contribution cap is four times the concessional contribution cap.

There's a few sort of quirks to those rules so always keep in touch with your accountant. There are other caps inside your super fund especially around the 1.7 million cap, if you're over that amount within your super fund you're not entitled to these non-concessional contribution limits, so before making any contributions I always suggest speaking with your accountant to make sure that you're not going over any of your limits based on things that you may have done in prior years. But in a sense, it's good, the Government is trying to recognise that they don't want Australians to be solely reliant on things like Centrelink Aged Pension so they're being a little bit more lenient on what Australians can contribute into their super fund. Everyone's got a super fund in Australia, if you're a working Australian and predominantly majority of those funds is invested in the Australian stock market. That is something that we're seeing people pay far greater attention to as things go on. I guess people are becoming a little bit more savvy. They're realizing that they need to pay more attention to what's happening in their super funds. We're seeing a greater incidence of direct share access inside super funds, set ups of self-managed super funds, so it's definitely benefiting the market in that there's this huge amount of cash that people are starting to pay more attention to. They're not necessarily just leaving it up to the fund managers

[9:25] Juliana: Looking at all of those details, there's a lot there and a lot of people would be coming and asking their financial advisors to give them some insights about these changes, but how aware do you think the average person on the street, the average retail investor, the average sophisticated investor, or even the 708s, are at understanding these changes and how they will impact their investments?

Patricia: I think it's getting better in Australia. That education around superannuation and how important that is for retirement … the knowledge from the average retailer client is getting better. But what i would say is there's a lot there for people to take in, so a big chunk of my job is people coming to me and talking strategy around ‘okay, I've got 10 years until retirement, what are the rules, what can I put in, what can't I do’, and so there's a lot of discussion between advisors and accountants to make sure that we are sticking within the guidelines of what clients can and can't do with their super funds. I would say in general, probably just in the last five years, investors are getting more savvy and they understand these things a lot more than what they used to.

[11:20] Juliana: In the 2021 financial year we saw a lot of concerns, fear and caution, and we did have a lot of people saying that they were investing more short term. However, we saw a lot of money coming into the investment markets in many forms. Do you expect that this is going to continue this year, or, Patricia, what do you think is going to be some of the main trends that you're going to be seeing? Is index hugging still going to occur? Are people going to be just buying directly into ETFs? Are they looking for new opportunities, or do you think it'll be much of the same this year?

Patricia: I would think a lot of the easy money has been made in the last 12 months. I'm not sure that you're going to see suddenly our index move another 3000 points in the short space or, you know 12 months, so i think you'll see a bit of a switch back into those value investments, you know, the really big blue chip stocks. The banks obviously underperformed the last 12 months, there was a lot of nervousness around what the pandemic meant for the banks and their balance sheets, but they've proven that they're really resilient so think of those really big mature businesses that have been around a long time that pay good dividends - I think you'll see a lot of money flow back into those sorts of investments.

We're also seeing clients become really aware of ESG investing. So ethical, social, governance. That's a huge thing that we're seeing sort of ramp up now and I think that's going to continue into the future. We’re seeing lots of different software providers actually come out to the live financial advisors and other investment makers in the market and saying, look, we can offer you this ESG screening, so basically picking out the companies that are kicking goals in terms of their ESG and corporate structure. So I think that's going to be another theme. If we sort of track back a little bit, I think all these what we call ‘bubble sectors’ that we've seen… tech has been one … I think that's something that's going to continue but it may just soften a little bit going forward.

[13:20] Juliana: I've got one last question for you and as an investment advisor you may be a little bit biased about this. What do you think is harder: Is it harder for retail investors and sophisticated 708s to do it alone because of all the changes that are coming through regulation and tax, or do you feel, as you've just mentioned ‘platforms’ for yourself, all these new platforms that are out there for individuals and information sources that are popping up daily – are they making it easier or harder? Or do you find that more people feel that they're more time poor and they need to come to a service like yours?

Patricia: It's a really big mix, Julianna. You've got the likes of RAIZ and Stock Spot, which offer, I guess, convenience. It's all at your fingertips, everyone wants convenience nowadays, they want to be able to do things on their phone, on apps. One thing I would say to that is just be wary, not so much about the underlying investment or the app, but is it appropriate for you and your circumstance? I think there is a really big case for coming and seeing someone in person, a financial advisor such as myself, because you're going to get personalised advice, someone who can talk to you about your goals and objectives, and say are they realistic, are they not, how are you going to get there, what does that pathway look like, and also making sure that the investment strategy that you're going with is suitable. So if we think about cryptocurrency - that's a huge thing at the moment. We have clients bring this up every day, saying ‘Can I buy some, what is it? Dodgy coin or one of the bitcoins?’ And look, that's great, it's another alternative investment class and i'm sure some form of digital currency is going to be here to stay, so nothing against that but it's not a regulated market so we unfortunately can't invest in those sorts of investments for our clients.

Having said that, the average joe client on the street may not understand that, they may not understand the risks. Is it appropriate for their personal circumstance? Maybe, or maybe not. So I think there's no harm in having a face-to-face chat with someone and getting that personalised advice. You can't replace personalised advice with what we'd call ‘robo’ advice. So i would just be wary. There's a place for everything in each market, obviously cost is an issue for people as well, but I would just think about all the pros and cons of what it is you're doing and why.

Juliana: Thank you for your time today, Patricia and I look forward to talking to you in the future.

Patricia: Thanks so much Juliana, bye.