Meet your new clients

Expect some unexpected new clients, with troubling issues, over the next few months. That’s the situation many financial planners will face, as the Rudd government’s razor gang gets to work.

With a public service of almost 140,000, the government is one of the biggest direct employers in the country. It has also, at least until now, been the source of a fairly steady stream of lucrative consultancy contracts. The Howard government had been of spending about $360 million a year, on consultants.

But the new government is already between a rock and a hard place. It must reduce its spending, to curb inflation. But it must also keep its election promises, to preserve its credibility. That means that it will proceed with the $31 billion worth of staged tax cuts, which many believe might well be deferred. And it won’t cut excessive spending on private schools and middle class welfare, that should be prime targets, in any cost cutting program. These things are just too difficult, politically.

So what can it do? Look for soft targets, of course. Once again, we have a a new government with the public service in its sights. Just as the Howard government did when it first came to office, back in 1996.

There won’t be another bloodbath now, as there was then, when Howard slashed some 30,000 public service jobs.

But there will be severe trimming. The Finance Minister, Lindsay Tanner, already has two groups, particularly, in his sights. These are the Senior Executive Service and government contractors.

Both are soft targets. The SES, as it is known, has been one of the least accountable divisions of government, over the past decade or so.

Even the Treasury has resisted scrutiny in this area, arguing that would invade the privacy of its senior workers. So standard checks on the way public money is spent in this area has been weakened. But the SES is about to pay for its arrogance.

As Mr Tanner has noted, the SES has become bloated over recent years. He recalls that, just a few years ago,only 13 per cent of Australia’s Federal public servants were in this very privileged club. Now, though, that has blown out to 25 per cent. That growth was not accompanied by substantial signs of any matching improvement in the performance of the public service.

Governments of all persuasions are well aware that there is little public support for senior public servants. The old television comedy, Yes Minister, didn’t help them either.

The National Capital Authority, the Federal Department which manages key aspects of Canberra’s face to the world, has already been targeted. The Defence Department, which is a much harder target, has been exempted.

Mr Tanner has, all too apparently, decided that scattered targets are the easiest to deal with. That’s the pattern that can be expected, as his Razor Gang he heads, gets on with its work.

But there will, of course, be a human cost. The public servants who are “shaved” in this process, will be facing new realities. Their retirement plans will have to be revised. The contractors, hit by the government’s cuts, could well face even more severe problems. The smooth flow of work, to which they have become accustomed, will be interrupted. They will now face quite long waits, between projects.

With the private job market strong, at least for now, the issues arising from the dislocation these groups face, might well be less severe than they could have been, at other times.

They will, nevertheless, be both serious and complex. Financial advisers should prepare to meet these needs. Those who do, will find their clients grateful.

Markets:the “fundamentals”

Recent events on shaky world markets offer lessons for all investors.

But just what are those lessons? That is a question of some importance, right now.

Australia’s Investment and Financial Services Association has stepped in to offer some answers.

Its CEO, Richard Gilbert, says:”Investment markets move in cycles.

“And it is impossible to predict when a market will rise or fall.

“However, by looking at the past we can observe how markets usually perform.

“And that can help us to put market movements in perspective.”

His association has produced a pamphlet, which it called “Four Lessons from the Market.”

Summarised, they are:-

1. Markets move in cycles
2. Diversification reduces risk
3. Look at ‘time in the market’ not “timing the market” and
4. Start investing early, save regularly

It’s all a bit general, of course. And the old song, As Time Goes By, summarised much the same thoughts, very elegantly, many years ago. The key line in that song is unforgettable:-

“The fundamental things apply, as time goes by.”

Markets, after all, are just one more human relationship.

Naturally, there is a bit more to IFSA’s pamphlet, than we have been able to record here.

You can get the whole thing from www.ifsa.com.au

Early retirement:an unpleasant surprise?

Many Australians – particularly men – will be surprised by their own retirements, which might come earlier than they had expected.

Young men, especially, still hold to the traditional belief that they can safely plan to retire at the traditional age of 65.

However, new figures, produced by the Australian Bureau of Statistics, strongly suggest that this may not be so. Yet the bureau’s report is likely to be swamped, by all the bad news flowing from financial markets, right now.

That would be a pity. The bureau’s study, called Retirement and Retirement Intentions, should serve as a wake up call, for all people making long term financial plans.

The bureau reports, for example, that the average age of retirement, for Australian men, is now closer to 60 than 65. It’s 60.3, to be precise.

The average retirement age for women is lower, at 59.

Compulsory superannuation payouts will, generally, still be too small to fund a financially comfortable retirement. So a little advance planning, based on solid figures, rather than broad perceptions, is still as necessary as ever.

The bureau’s 56 page report, based on the findings of the 2006-07 Multi-Purpose Household Survey it conducted in 2006-07,is an excellent guide. It revealed that a no less than 42 per cent of Australians, who have chalked up their 45th birthdays, have already retired from the nation’s workforce.

That is some 3.1 million people.

Naturally, the likelihood of retirement rises with age. Only 6 per cent of 45-49 year olds had retired, at the time of the survey, but that increased to 23 per cent, among 55-59 year olds and 75 per cent of 65-69 year olds.

The bureau reported that sickness or injury often led to early retirement as did retrenchment.

The report’s catalogue number is 6238. For more detail, go to www.abs.gov.au

Growth:Access backs Stevens

Access Economics is backing Glenn Stevens’ prediction of good global growth, around trend levels, this year.

It says its assessment is that the world will post another year of good growth in 2008 as Asia’s momentum offsets US weakness.

That, broadly, is the view the RBA chief also took, in a speech he delivered in London last Friday.

But, perhaps wisely, Access is hedging its bets.

“The risks are rising fast,” the forecaster says in the latest issue of its Business Outlook, which it published today.

“We don’t forecast a US recession, but one is quite possible.” it adds.

“And both Japan and Europe have the wobbles.”

Access is advising its clients to keep watching commodity prices.

“…they will stumble if the globe does too,” it says.

Access says any weakness in global commodity prices might well be the first indicator of a potential problems.

And while Access still expects global growth to be strong, on balance, this year, it is also predicting some softening next year.

It warns, also, that Australia is presently loaded with “inflation risk.”