COVID-19 Update: Friday 3rd April
We’re now all getting used to what is quite a different life - and world - than we’ve been accustomed to. Self-isolation and social distancing are new but very familiar terms. And someone walking through a supermarket wearing a face mask (if you are fortunate to venture out for some milk…or toilet paper) is no-longer an unusual sight. The learning curve we’ve all been on following this forced change has been momentous; showing us the significant adaptability and resilience of humans.
The magnitude of information (noise) relating to COVID-19 that is flowing around has increased exponentially as we try to come to terms with what is going to be a challenging period to navigate. As you know at FMD we encourage our clients to ignore the noise and focus on the long term, so in this update we will try to summarise rather than add to the noise.
The Health Situation
Primarily this remains a health crisis and while we are not experts in this area, we note that unfortunately there are rising numbers of COVID-19 cases in many parts of the world and a corresponding rise in fatalities. Some silver lining for the time being, is that isolation and distancing measures appear to be slowing the spread of the virus in a range of countries, if acted on early enough, which Australia and many other countries appear to have managed to do.
The Economic Situation
The economic impact from this crisis has been dissected from every angle. We have been juggling email inboxes full of investment updates providing different perspectives, none of which provide a panacea. However, summarising the most balanced views, the two key areas to focus on are:
- How long economies remain effectively shut down, which will depend on the health situation, primarily seeing a noticeable reduction in the spread of the virus; and
- Government and policy maker responses to support economic activity.
The first point above is still very much uncertain. We know governments are trying a range of tactics to stem the spread. How long these measures will be in place for and their ultimate impact remain unknowns, but we must take confidence that vital actions are taking place. Our own Prime Minister Scott Morrison has remarked that we should prepare for at least six-months of these conditions; something that may be truer than we all hope for.
Policy response around the world has been unprecedented in its scope and depth and as a result investment markets have been starting to settle after a period in March that was the most volatile in history.
Job Keeper Package
The most significant policy response in Australia since our last update is the JobKeeper Package for businesses and self-employed, where the Government will pay $1,500 per fortnight to support the retention of employees for businesses where revenues have been impacted by the downturn. This measure alone, is expected to cost the government $130bn. Other new measures include wage subsidies for trainees and efforts to keep child-care services operating.
Hibernation is fast becoming the norm. Allowing a fully functioning business, with employees, lenders (banks), suppliers, owners, profits, etc. to essentially stop for an uncertain period, is a massive experiment that has never been attempted before. For some businesses the pause will mean they will not survive. For others, they may be able to stumble through relatively unscathed. It will be mixed.
While not all of the policy measures will be perfect, the magnitude of the stimulus (in the order of $320bn from Treasury) and efforts by the Reserve Bank of Australia (ensuring low interest rates and that banks can continue to lend) to support businesses, individuals and the financial system are the ‘bazookas’ necessary and show a preparedness of policy makers to act quickly and with conviction in Australia – something other nations may look to follow.
FMD’s Portfolio positioning
Even with this, and possibly more support, we expect equity markets to remain volatile in the period ahead whilst there is uncertainty relating to the virus. Until the spread looks to be under control, markets will not truly be able to begin to consider what a recovery, following a mass global shut-down, may look like.
We are taking steps to ensure all our investment managers have fully reassessed their portfolios and that their investment approaches remain relevant in a period of economic hibernation.
Reassessing revenue, profit and dividend risks is something our equity managers are focused on. While our fixed interest managers are moving towards less risky sectors or borrowers.
We believe the range of managers you have exposure to are relatively well placed so we do not foresee significant changes for portfolios in the short-term, however we continue to closely watch equity, bond and currency markets for any opportunities or risks and will advise to make changes where we see either.
We further emphasise the value of diversification in uncertain times and maintaining exposure to a range of different asset classes, investment styles and fund managers that should enable you to ride through bouts of volatility that are likely to continue.
Actions you can take
Register for MyGov
One action we would encourage you to undertake today, if you haven’t already, is to register with MyGov (www.my.gov.au). The MyGov site allows you to access a range of Australian Government services, including the ATO, Centrelink, Medicare and your personal health records.
It is the most effective way to update any of your personal circumstances for age pension, income or other support purposes and while you may not be eligible for benefits today, things are changing rapidly and the chances of contacting Centrelink via phone (should you be eligible) is near impossible at present.
If you haven’t already done so, reassessing your income requirements is worth considering given we can’t spend as much due to being largely home bound. One policy adjustment provided by the Government is the halving of the required minimum you must draw from your account-based pension for this and next financial year.
FMD’s own operations update
To date, the transition to working from home has been relatively seamless. We thank you all for your understanding if you have found it a little more challenging to reach us, as we all come to terms with the change we’ve been forced into. For those of you that have your FMD Review Meeting in the coming months, if you would like to have a video conference rather than a phone call, we encourage you to explore downloading Skype or Zoom on your mobile, tablet or laptop/PC. We can assist you with that at the time, if needed.
Please remember that having a good network around you providing emotional support is incredibly important as social isolation shows us just how much we require human to human interaction – even if it is as simple as a phone call. . As financial advisers, we’re here to help you feel as confident as you possibly can with what you wish to achieve financially, especially in periods of uncertainty like this.
COVID-19 Update: Tuesday 1st April
Life insurance companies resond to the COVID-19 outbreak
The Financial Services Council (FSC) have moved to reassure life insurance policy-holders that they will be covered for claims relating to Coronavirus.
All life insurance companies issuing policies in Australia subscribe to the FSC Code of Practice. According to the FSC, all subscribers to the code have confirmed there are no exclusions in their existing life insurance policies as at 11 March 2020 that would prevent the policy paying out for a death claim related to coronavirus, provided you follow Government travel advice.
If you have taken out new life cover since 11 March 2020 or are thinking of doing so, your adviser can help you understand whether there may be any policy exclusions or modifications related to COVID-19 which would depend on your specific circumstances.
We may see more headlines around this topic, but it's important to remember that insurance companies can only make changes that impact new policies and are fully disclosed at the time of underwriting. If you have any queries or concerns about your existing insurance arrangements, please contact your adviser.
COVID-19 Update: Friday 27th March
Contacting us as we work from home
We hope you and your families are safe and as comfortable as possible in these uncertain times.
To prioritise the safety of our teams following the escalation of the COVID-19 situation, all FMD Teams are now working from home. While we are well prepared to do this with minimal disruption, it is not quite business as usual and we have some suggestions to make it easier to contact us.
As always, your Adviser will be your first point of contact and the best way to contact them at present is via email and, if you want to chat, they’ll call you back as soon as possible.
However, you can also use the following numbers for assistance:
FMD Adelaide: 0429 467 154
FMD Brisbane: (07) 3852 1966
FMD Melbourne: (03) 9620 4633
In the Melbourne office, our receptionists Sophie and Suzi are continuing to manage phone calls but this may not be as seamless as normal. As a back-up, if you cannot get through, our receptionists have temporary mobile phones that will be monitored for messages throughout business hours. Phone 0429 326 055 and 0429 329 933.
We will continue to hold client meetings as scheduled, although these will be via telephone or video conferencing tools like Skype and Zoom.
FMD is continually monitoring the current climate and will respond where necessary to enact the relevant steps in our Business Continuity Plan. We will continue to communicate updates that are relevant to your needs via email and on our website.
The health and safety of our clients, our staff and our community are our priority and we thank you for continuing to work with us to minimise the risk of COVID-19. Please note these details for future reference and do not hesitate to contact us if you have any questions or concerns.
COVID-19 Update: Wednesday 25th March
Scammers taking advantage of uncertainty amid COVID-19 crisis
FMD has talked about scammers before, including what to watch out for and how to protect yourself.
Sadly, times of fear and uncertainty provide a great opportunity for scammers to target people at their most stressed and vulnerable. From selling false Coronavirus-related products online to phishing for personal details by impersonating legitimate organisations, scammers have been quick to capitalise on confusion created by the rapidly changing circumstances all Australians now face.
The ACCC's Scamwatch has already received 94 reports of Coronavirus-related scams and expect that number to rise. Since the Federal Government announced measures to allow people to access their superannuation in recent days, scammers have been impersonating superfunds in calls and emails asking Australians to confirm their super account details.
CEO of the Association of Superannuation Funds of Australia, Dr Martin Fahey, took to the media to urge people to be careful not to give any personal details to unsolicited callers and reiterated that superfunds won't be contacting consumers directly relating to this measure. He urged people to be wary of emails or text messages claiming to be from experts.
For more information on scams and how to make a report and where to get help, visit www.scamwatch.gov.au/news.
COVID-19 Update: Monday 23rd March
What the latest stimulus relief package could mean for you
The Australian Government continues to announce measures to support Australians and the economy in response to COVID-19. Following on from our last update, outlined below is a summary of the most relevant measures announced.
Superannuation - Income stream drawdown rates
To avoid unnecessary selling of investments while markets are low, there will be a temporary 50% reduction to the drawdown rates you’re required to withdraw from your superannuation pension account. These reductions will apply for the rest of this financial year and for the 2020/21 financial year.
|Minimum pension payments|
Less than 65
Action to take: Clients with adequate cash reserves may benefit from reducing their superannuation pension payments. Please speak to your adviser if this applies to you.
Reduction in deeming rates for Centrelink Recipients
For clients who have a Centrelink benefits and are ‘income tested’ a further reduction in deeming rates was announced on 22 March. The deeming rates will reduce as follows:
|Current||From 1 May 2020|
|Lower deeming rate||1.0%||0.25%|
The deeming thresholds are unchanged at $51,800 (single) and $86,200 (couple) which are generally indexed on 1 July each year. The rates will take effect from 1 May 2020, and any additional entitlement will be paid from 1 May 2020.
Action to Take: No action required.
Centrelink Assets Test
As noted previously, for those who are ‘asset tested’ for Age Pension or Disability Support Pension purposes, given the selloff in the share market over the last month, you may find that once Centrelink reassess the value of your assets (shares, account-based pensions etc.) your Age Pension entitlements may increase.
Access to super
Access to superannuation savings will be broadened where you’re in financial distress because of the Coronavirus. If you’re eligible you’ll be able to access up to $10,000 before 30 June 2020 and an additional $10,000 from 1 July for approximately three months.
To be eligible, you must meet one of the following conditions:
- you’re unemployed
- you’re eligible to receive Jobseeker Payment, Youth Allowance (jobseekers), Parenting Payment, Special Benefit or Farm Household Allowance
- on or after 1 January 2020, you were made redundant, your hours of work reduced by at least 20%, or if you’re a sole trader, your business was suspended or your turnover reduced by at least 20%.
Applications will be through MyGov from mid-April. and you’ll need to certify that you meet one of the above eligibility requirements. Payments will be tax-free and amounts received will not impact Centrelink or DVA entitlements.
Stimulus Payments - 2 x $750 cash payments
Now two payments of $750 each will be paid to eligible income support recipients and concession card holders. As outlined in our earlier communications, the first tax-free payment will be available to eligible income support recipients as at 12 March 2020 and is expected to be automatically paid to eligible recipients from 31 March 2020.
The second payment will be available to those who aren’t eligible for the Coronavirus supplement (see below) and will be automatically paid from 13 July 2020.
The Coronavirus supplement of $550 per fortnight will be paid to new and existing recipients of:
- JobSeeker Payment
- Youth Allowance (Jobseeker)
- Parenting Payment
- Farm Household Allowance, and
- Special Benefit.
The supplement will be paid over the next six months and will be paid automatically with the person’s ordinary fortnightly entitlement. It will be paid from 27 April.
Fast tracking benefit payments
If you apply for a social security benefit or concession card and your claim is related to COVID-19, some of the ordinary eligibility rules and waiting period rules may be waived. The assets test will also not be applied when determining entitlement to JobSeeker Payment, Youth Allowance (Jobseeker) and Parenting Payment for six months. The income test will continue to apply.
Note that Centrelink were already overwhelmed by the bushfire response, so new applicants are being encouraged to claim online via MyGov wherever possible. While you can make phone claims the wait times are horrendous.
Mortgage repayment freeze
While banks are prepared to offer repayment pauses during this period, the loan repayment will be capitalised, so this isn’t ideal unless there is significant financial distress, so please speak with your adviser.
A series of initiatives for business investment have been developed including:
- Banks to provide payment deferral for eligible small business loans.
- Coronavirus Guarantee Scheme where the Government will guarantee 50% of the value of new loans.
- Additional lump sum payments of between $20,000 and $100,000 to assist with operating expenses of employers in small to medium sized businesses and not-for-profit organisations.
- Instant asset write-off threshold increased from $30,000 to $150,000 and broadened to cover businesses with an annual turnover of up to $500 million for the current financial year (up from $50 million.)
- Accelerated depreciation of 50% will apply to eligible assets until 30 June 2021 to businesses with an aggregated turnover of less than $500 million
- Employers with apprentices and trainees can apply for a subsidy of 50% of the employee’s wage.
Measures to support small to medium businesses are comprehensive and ongoing, so please visit https://treasury.gov.au/coronavirus/businesses for the latest detailed information.
Additional measures announced include:
- Support for regions and communities impacted by the virus with reliance on tourism, agriculture and education
- Administrative relief provided by the ATO for certain tax obligations, such as lodging tax returns and activity statements, which will be assessed based on individual circumstances, and
- Comprehensive health package of $2.4 billion.
You may wish to contact the ATO's Emergency Support Infoline on 1800 806 218 or visit their COVID-19 web page.
To find out more about these and any other issues or concerns you may have, please contact your FMD adviser.
COVID-19 Update: Wednesday 18th March
The Australian Government’s response to COVID-19
In addition to the wide-ranging community health initiatives implemented in relation to COVID-19, the Australian Government has also announced further economic responses totalling $17.6 billion. To protect the economy by maintaining confidence, supporting investment and keeping people in jobs, we expect that there will be ongoing measures and initiatives announced as the implications of the spread of the virus become evident.
At the time of writing, the Government’s economic response was targeted at four key areas:
- Delivering support for business investment
- Cash flow assistance for employers
- Stimulus payments to households to support growth
- Assistance for severely affected regions
Below is a summary of the initiatives that may have the most significance to you, our clients.
Stimulus payments to households to support growth
The main measure for individuals is a one-off payment of $750 to pensioners and welfare recipients such as those on Newstart. To be eligible, you must be residing in Australia and be receiving income support payments or hold a concession card on 12 March 2020, including Pensioner Concession Card, Commonwealth Seniors Health Card, Veteran Gold Card.
The one-off payment will be paid automatically from 31 March 2020 by Services Australia or the Department of Veterans’ Affairs. Over 90 per cent of payments will be made by mid-April 2020.
Centrelink Income Test – reduction in Deeming rates
On 12 March 2020 the Government announced changes to the deeming rates (the rate of income Centrelink deem to be received from certain assets like your cash, shares, managed funds to generate).
The lower rate dropped to 0.5% (from 1%) and the upper rate dropped to 2.5% (from 3%).
The proposed deeming rates are summarised in the following table:
|Proposed Deeming Rate||Single Pensioner||Pensioner Couple (Combined)#|
|0.5%||First $51,800 ($259)||First $86,200 ($431)|
# At least one member receives a pension.
For those receiving the Age Pension or Disability Support Pension, if you are currently ‘income tested’ this could lead to an increase in your Age Pension entitlements.
Centrelink Assets Test
It is also worth noting that for those who are ‘asset tested’ for Age Pension or Disability Support Pension purposes, given the selloff in the share market over the last month, you may find that once Centrelink reassess the value of your assets (shares, account-based pensions etc.) your Age Pension entitlements may increase.
Support for businesses
For those running small businesses there is added incentive to spend with an increase in the instant asset write-off, while cash flow assistance will also be provided aiming to help businesses retain employees.
For more information on the Australian Government response to COVID-19 visit the Department of Health website at www.health.gov.au or https://www.pm.gov.au/media/economic-stimulus-package.
FMD will be keeping a close eye on any further developments but if you have any questions in the meantime, please feel free to contact your adviser for more information.
COVID-19 Update: Monday 16th March
We hope everyone in our community is managing through the current situation as best they can. Below is the latest information on how we are continuing to monitor the implications of COVID-19 for all our clients and staff.
Our key priorities are:
- the health of our clients and staff;
- providing continuity of management for your financial affairs; and
- maintaining the quality of our service delivery.
While our team has not been directly impacted by the virus, it is not quite business as usual and we have made a few changes based on the latest Australian Government and World Health Organisation advice.
- We are in the process of rescheduling all client meetings to telephone or video conference for the foreseeable future.
- If staff show any symptoms, they are required to self-quarantine.
- We have implemented enhanced hygiene procedures to limit the spread of the virus.
- Non-essential travel has been restricted.
- We have postponed or cancelled all imminent client and external events.
- Clients can continue to contact their adviser at any time over the phone or via email.
- Meetings can take place via Skype, Zoom, Microsoft Teams or on the phone.
- FMD advisers and staff all have remote access and can continue to work securely and productively from offsite locations.
- The FMD Investment Committee and your adviser will still be able to enact all client portfolio transactions as per normal.
These are unsettling times, but FMD remains in an extremely strong position to support our clients and manage their investments with the continuity, calm and rigour they expect. This is an evolving situation that we will continue to monitor and keep our clients informed of any material changes.
In the meantime, if you would like to discuss any of the above in more detail, please do not hesitate to contact your adviser.
COVID-19 Update: Friday 13th March
As we anticipated, markets have exhibited more volatility in the past week with ongoing concerns relating to Coronavirus shutdowns, exacerbated by a tiff between Russia and Saudi Arabia in the oil market.
The cancellation of some events and disruption to travel plans looks to be the next phase for the Coronavirus issues, which is unsettling and will impact economic activity, but it won’t last forever.
Of course, we understand that substantial negative moves in equity markets can be difficult to endure, but the impact on FMD portfolios is lessened by our focus on diversification. Our clients' portfolios will generally include cash, fixed interest, property and other assets that are not as volatile as the equity markets are currently.
So we strongly encourage keeping a level head and maintaining diversified portfolio positions. Reacting to the negativity by selling is something we advise against but anyone concerned should reach out to their adviser.
Governments are beginning to step in and provide stimulus, while central banks are likely to revisit interest rates to provide further support. Both measures aim to ensure money keeps flowing to consumers and companies as business activity slows. Once the virus spread moderates, we’re confident that business activity will resume, and markets will return to more rational behaviour.
Most retirees shouldn’t see too much impact to income flows at this stage, as cashflows from most companies and investments are expected to be maintained. For larger cash requirements which would require an investment sell down, it may be worth pausing on that spend for the time being.
However, for those with money to deploy, there will be some opportunities to invest into high-quality investments ahead.
We reiterate that for investors, maintaining broad diversification and exposure to high quality assets is important. The FMD Investment Committee (IC) is meeting more regularly to ensure our investment positioning remains appropriate. At this stage minor changes are being considered; however, no changes will be finalised until signs of volatility ease.
FMD’s own plans for managing COVID-19
From a client service perspective, FMD has plans in place to ensure business continuity in case of an office closure or an extended lock-down. If you have a face to face meeting booked with us, we look forward to welcoming you to our office, but we can hold meetings over the phone or via video conference if you would prefer. Please rest assured your adviser and our entire team will remain accessible via email or phone throughout the period ahead, in case you do need to make contact.
COVID-19 Update: Friday 6th March
Markets took their time to digest what investment implications there may be relating to the outbreak of the Coronavirus. Until this past week, there was optimism that it would be effectively constrained to the originating source in mainland China. Now that we are seeing increasing cases throughout the world, market optimism has swiftly disappeared and turned to fear.
The headlines seem frightful, which is the media doing a good job of catastrophising the situation. There will be negative growth consequences and real impacts to company earnings, and while the depth and breadth are hard to judge currently, it could be expected to have a short duration and thereafter, activity should return to its previous path.
From an infection point of view, we are not qualified to comment on the spread and likely control of the virus; much of this still seems uncertain even for the experts to confirm. As such, uncertainty is prevailing, which is an investment market's greatest fear. Yet, one could expect, once the spread of the virus slows and the worst moves beyond us, that activity will return to prior levels, and possibly quickly. It's unlikely that demand will slow too much for goods and services that we all rely on, much of which is reliant on Chinese supply chains, that are the most impacted by enforced shutdowns to control the virus’ spread. The further flow on effects are now what investment markets are grappling with and we’re seeing a swift change in investor sentiment to a much more risk-averse position.
In these periods, risky investments that can be liquidated quickly are the most negatively affected. It’s a challenge that some investors can’t cope with and they begin to follow the herd and sell as well. Markets are resilient, as are humans ultimately, and joining the herd and selling at these times is, in our view, one of the last things that is worth pursuing.
From a valuation (or fundamental) perspective, equities weren’t cheap heading into this uncertainty. At the same time, defensive assets were also expensive. High quality bonds, US currency and in some cases, gold are sought after assets and are seeing strong demand in this ‘risk-off’ period. Defensive assets are now becoming even more expensive which could create different issues once equity volatility settles. While market corrections are difficult to sit through, it puts markets on a more sustainable path in the longer-term.
Trying to find the right time to exit and the right time to enter any investment market is incredibly difficult and should be done with caution. Generally, where investors hold well diversified portfolios of quality assets you should remain fully invested and avoid alarmist newspaper headlines and try not to check your account balances on a regular basis.
Frankly we expect to see bad economic data and company updates in the weeks and months ahead given the measures taken to control the virus’ spread - locking people down in their homes for days has obvious impacts on production and spending. We could finally see a technical recession in Australia for the first time in 30-odd years. Companies will provide market updates in the foreseeable future which will acknowledge the spread and negative impacts the slow activity is having.
What we do know, is that there will be a point that new infection rates will slow and activity will resume. In fact, we’re already seeing some of this through China, where road traffic is returning, and business as usual is restarting. Also, to assist the recovery, once government focus moves from containment to returning to normal, if the recovery remains sluggish, we could expect central banks and governments to try to stimulate growth. This will occur via interest rate cuts or providing incentives to get people spending again. In one of the worst affected zones, Hong Kong, “helicopter money” (cash handouts) is already occurring. In other locations, interest rates can still be cut, including in Australia and the US.
Through the latter part of 2019, FMD’s Investment Committee made some adjustments to investment portfolios, adding more defensive assets to reduce some equity market risk given the strong market performance last year. In some cases, gold was also added. We've also been keeping our portfolios broadly diversified seeking returns from a range of different asset classes and investment styles. We remain confident in this approach and believe this will assist portfolios in being able to weather the worst of the uncertainty that is upon us.
We advise investors to remain calm but aware of the current heightened concern in markets. Now, as always, is a time to remain focused on looking through uncertainty and volatility, remain focused on what is in your control and ignore the noise.
General advice disclaimer: This article has been prepared by FMD Financial and is intended to be a general overview of the subject matter. The information in this article is not intended to be comprehensive and should not be relied upon as such. In preparing this article we have not taken into account the individual objectives or circumstances of any person. Legal, financial and other professional advice should be sought prior to applying the information contained on this article to particular circumstances. FMD Financial, its officers and employees will not be liable for any loss or damage sustained by any person acting in reliance on the information contained on this article. FMD Group Pty Ltd ABN 99 103 115 591 trading as FMD Financial is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977. The FMD advisers are Authorised Representatives of FMD Advisory Services Pty Ltd AFSL 232977.