InvestSMART Radio April 26th Transcript
Financial guru and chairman of InvestSMART, Paul Clitheroe joins Steve Price talking money and the financial services commission.
Narrator: And now InvestSMART with Steve Price. Sponsored by InvestSMART, helping Australians grow and protect their wealth.
Steve: And a man whose life has been probably shaped around that phrase “don’t worry be happy,” Paul Clitheroe an old mate of mine and first known to you all for, how long ago was the Money show on Channel 9?
Paul: Ironically Steve I gave one of my first chats about money in the late 1970s on this very radio station. Money show ran from 1993 for about 11 years. But it was back in those cracking days, you might remember Steve, you look at the ratings you get like a million people in Sydney and people say that’s got to be rubbish. But I think people forget, no internet, no Foxtel but basically you were stuck to me on a Wednesday night on Channel 9. I think Koshy was doing a show on Channel 7, your and my mate Rossy Greenwood who was doing Healthy, Wealthy and Wise and we kind of had it wrapped up.
Steve: It’s funny you mention those three names: Ross Greenwood, David Kosh and Paul Clitheroe. I would be prepared to go out on a limb and say, and this is in the current climate of the Royal Commission we’ve seen, you three would be three of the most trusted names in talking about finance, personal investment, superannuation in the country.
Paul: Well look, I think that’s because the three of us actually recognised we’re not gurus. If you look at our stuff, I mean my stuff’s been a matter of public record for nearly forty years and my stuff is: spend less than you earn, if it looks too good to be true it will be, I reckon you should buy a property and pay it off and if you’re going to buy shares and hold it for 7 to 10 years, you’re probably just do not very - look it’s not exactly Albert Einstein.
Steve: It’s funny you say that. There’s an ad currently running, I think it’s on the TV. There’s a couple talking lovingly that they’ve just had this brilliant overseas holiday. But they borrowed the money to go on the holiday. Every time I see the ad, I think to myself if you can’t afford to go on an overseas holiday and pay for it out of your bank account – don’t go!
Paul: Mate honestly, if you’re a non-smoker, you’d be better off up taking smoking. At least you won’t live in poverty long into life.
Steve: But honestly, isn’t that the point? Our parents, imagine our parents going down to the Bank of South Australia and going “listen I want to take my wife to Venice can you lend me 5000 pounds?”
Paul: I think we probably haven’t gotten our minds around the fact that, obviously a lot going on in the world of banking these days, you know, the role of a bank and obviously what a bank sells is money. This of course is a way, borrowing to go on a holiday, what we’re banging on about here, basically it’s about selling money. But it’s selling money incorrectly – you and I both know it. We don’t need to say we’re old dinosaurs, I mean clearly to anyone that sort of stuff is nonsense. I think the reason why Koshy, who I have great regard for and Ross Greenwood also is fantastic, I think the reason why we’re around is because we’re not the people that’s going to say if you do this you’ll get 20% or if you do this … Steve, why do you think the three of us are still working for heaven’s sake? I think all three of us work to make a living. We all try pay our mortgages off and top up our super. There are no miracles out there Steve.
Steve: That’s a very good way to start the segment which we’re going to do each Thursday night at this time with you and some other regulars. You are now the chairman of a company called InvestSMART who are the sponsors of this segment.
Paul: They are.
Steve: So what is InvestSMART? Now we’re launching this new segment, we have this company as our sponsors with you as the chairman in a climate where everyone is being very suspicious of financial advice. So that says to me, the fact that I’ve agreed to do this and you want to come on and be the the chairman and the name behind InvestSMART that we’re talking about a very different product here then what is going through the Royal Commission currently.
Paul: Oh look, this is nothing to do with that, I’m more than happy to talk about that by the way, look the firm I started some 34 years ago, IPAC is a terrific, look I sold my shares in IPAC 16 years ago but the idea behind that firm 34 years ago when, you think the industry is pretty rough now, 34 years ago Steve, it was the wild west right?
Steve: Wilder than now?
Paul: Oh absolutely, Steve you got your license by sending in three cornflake packet tops and managed funds I think had 8% entry fees and 4%, oh Steve honestly. When we opened IPAC 34 years ago it was Australia’s first fee for service business. You know, we charge you fees for advice. People said like “what? What’s this fee for service idea?” But what’s happened is the world’s moved on and I’m still strongly supportive of a fee for service model where you’re getting quality advice from a quality, highly trained advisor and there’s plenty of good ones out there, despite what you’re seeing in the Royal Commission, it’s much better than it was 34 years ago. But obviously the issue there is that as you see a lawyer or accountant, it’s darn hard if you’ve got $10 000, $50 000 or $100 000 because if you come to me with that sort of full service hat on, I need to say, look Steve, I need to really spend eight or nine hours with you, I’m going to provide you with a full statement of advice. That’s my duty of care, my responsibility. I need to charge you 3 or 4 thousand dollars to do that. Now if you’ve got a large amount to invest or a large income I think you will say that investment is worthwhile. But there’s a whole bunch of folk who realise – I’m still all in favour of paying decent fees for decent advice – it’s cool, and I pay lawyers and all sorts of people decent fees – really cool with that. But there’s a whole bunch of Australians, bit like the Bunnings DIY trend I guess, and what’s really changed, and why InvestSMART, I looked at the company three years ago, I came along actually as an investor. And I thought this is an interesting company, what the heck is it doing? And so this whole idea of what is different to 34 years ago, and what is different is technology. And it’s not just InvestSMART by the way, there’s a bunch of interesting companies doing this sort of “roboadvice” stuff which sounds vaguely mysterious. What it really means in this world these days, in your own time you can go online, you can look at places like InvestSMART, you can go to their public website, you can see what they’re doing. If you want to you can pay $40 or $50 dollars a month and buy research if you wish. There are very low cost products there you can invest in, the thing I like most of all is their free portfolio manager. You’ve got to do this yourself by the way.
Paul: Yeah online, the reason why it’s cheap is because you’ve actually got to make an effort, it’s DIY okay? And so if I want to load some investments.
Steve: It’s like booking your own hotel on Wotif.
Paul: Basically yes. So if I want InvestSMART free portfolio manager to talk to me, which I’ve done, I need to go in and I need to put in my term deposit on NAB and I need to put in my BHP shares and blah blah blah. Once I’ve put it in, the artificial intelligence takes over and I get information about my investments. Now, what I find really interesting in these businesses of course, is because you’re not running an office, you’re a digital business. I am not saying this is for everyone, but I am saying it is a way in this world where returns are harder to find, it’s not that easy getting returns anymore. In my opinion, high fees are a drag on investment performance unless you got a lot of money and so what InvestSMART and similar businesses are doing is basically saying, look if you’re willing to go online, here’s education, here’s information, here’s research – if you like, you can pay a little bit of monthly money and you can get a lot of research and do your own thing completely. If you prefer for under 1%, which is a hell of a lot cheaper than out there in the retail world, if you want to you can come and invest in some of InvestSMART’s products. Why can we do it for under 1%? It’s no mystery Steve, we’re not running an office, we’re not running head offices and so on. So the simple reality is that I think, there’s a real place for what we’re calling digital information.
Steve: So InvestSMART is a combination of three different companies. This is the history of InvestSMART. It was originally founded in 1999 by Ron Hodge, Nigel Poole and Jim Noort
Steve: Offering management fund comparison information
Paul: Yeah research.
Steve: And investor tools. You had then Intelligent Investor got folded in that, which was founded in 1998 by John Addis. What do we know about John?
Paul: Yeah I look I think Intelligent Investor is probably the best known part of the business because you know for 20 odd years now, Intelligent Investor – it’s a subscription business. There’s a whole bunch of stuff you can do for free but if you want more detail you pay them either an annual fee or a monthly fee or whatever. So Intelligent Investor is pretty well known by itself. Look Steve, I think some 6000 subscribers have been subscribing for decades. What they’re getting from Intelligent Investor is detailed research on BHP and Coles-Myer and small companies and so on. So Intelligent Investor has got about 10 analysts in there and it’s really the engine room of the business if you like. Why does the business know anything? You don’t know anything without a team of smart research people and Intelligent Investor are the smart research people.
Steve: And then Eureka Report, which is looking at the wider reaches.
Paul: Yeah it’s more like, my Money magazine or the Money show. It was obviously founded by Alan Kohler. Eureka Report is much more of a broader, to be quite honest Steve, I’m probably more of a Eureka Report sort of reader than I am Intelligent Investor. The whole idea of a digital business is that it’s not a business saying “you will do this”. What a digital business says is “we can run a smorgasbord, come and have a look. If you want to read free stuff, feel free, play with the free asset allocation tools, play away.”
Steve: It’s like going onto the news.com website and if you don’t want to pay to be a subscriber you can read some of the stuff but you can’t read all of it.
Paul: There’s a subscription to read all of it. It really is. The roboadvice business is saying “by the way if you’re like Paul Clitheroe and you’d rather play golf whenever you get the chance and you would like us to do it for you, here are a range of very low cost products under 1% and we’ll do it for you if you like”. But the whole thing about the business is that you choose, you make the choice.
Steve: I should say by the way that InvestSMART have got some, and you’d be involved in these would you Paul, you’re touring around Queensland.
Steve: How much fun is that going to be? We’re on air all the way up to Cairns.
Paul: I know you are, yeah I’m up in Brisbane on Monday and then we are heading up the coast. And the reason for that by the way, bit of a laugh about that – someone ringing up saying “hey Paul you’re a digital online roboadvice company, why are you out talking to people?” and I say well one of the problems is that I like going out and talking to people.
Steve: Nothing like a roadshow. Old journos like you and me love going on the road.
Paul: I’m really fascinated in this new life of artificial intelligence and roboadvice and having artificial intelligence help you build your portfolio. Look it’s really cool stuff but the end of the day I’ve said to a couple of people and a couple of people have said to me “listen Paull, you know, we’ve looked at your stuff, your InvestSMART stuff is really good, we can see it’s honest, it’s transparent”, one Queensland bloke said “Paul, it’s no crap” and I thought good on you but the thing is people go “there’s online stuff, are you real people or what are you?” So to be perfectly blunt, the reason we’re starting on Monday in Brisbane is basically to let people put a face to the company and feel that we’re real people.
Steve: If you would like to register for any of these, Queensland listeners particularly those in Brisbane on Monday, Paul will be in town. You can go to investsmart.com.au and if you click on events, Monday 30 April Brisbane, 1 May, geez you’re moving quick, Rockhampton, Wednesday 2nd May Mackay, Thursday 3rd May Townsville, Friday 4th May Cairns and that ends in Cairns on Friday so Paul can have a weekend sailing around.
Paul: No I’ve told you we’re a completely transparent, open business, Steve Price and I’m going to always going to stand by that. No I’m only doing the Brisbane day.
Steve: You’ve lost your touch.
Paul: No, Ron Hodge and the team -
Steve: You’ve lost your touch. Friday ending in Cairns with a weekend of golf in Port Douglas what are you doing?
Paul: I’ve got to come back and do some work here! Cut it out Steve, I can’t play golf on Fridays like you and Greenwood.
Steve: You’re at the age where you need to organise these things better. Now, have you ever seen anything like this banking Royal Commission in your time in finance?
Paul: I’m dumbfounded Steve; I was expecting bad stories okay. The reason why I’d expect bad stories is that the same reason you do. People write to me at Money magazine and they email me at InvestSMART and they quite often go “listen Paul, this is not about your business but I really want to tell what’s happened to me” and you get these all the time right?
Paul: So you would think that a Royal Commission would pick up these bad stories but what’s really got me is the cultural issues Steve. It’s just as though a lot of organisations seem far more interested in protecting themselves than actually talking about the customer. So why didn’t I know this? I feel a bit, remember the bit after we got the GFC, after we had the CDOs, obviously in America we had the billions of poor quality mortgages being re-written, we all remember this, they were packaged up and sold to all sorts of people including local councils in Australia, billions of dollars lost, we fall into a GFC. I looked at that and I knew in America they were writing some crappy mortgages; why didn’t I predict the GFC which I did not. I predicted it after it happened. A bit like this Royal Commission, I’m sort of going crikey, and I’ve been in this industry for nearly 40 years now and I don’t know, I didn’t sense the depth of cultural problems Steve, and I’m absolutely gobsmacked.
Steve: So when you have something like a Storm Financial collapse.
Paul: Now that one I predicted and wrote about before it happened.
Steve: So when that happens, do you then convince yourself that these are one off rogue outfits. I mean, doesn’t that tend to make you think, well if there’s one Storm there’s got to be others.
Paul: Well the thing for me is that the stuff that I have got right. I mean the first time I did some TV.
Steve: Just remind people, what was Storm doing?
Paul: Well basically Storm was saying, look what we’re going to do here is Mr and Mrs smith you’ve got a- particularly around the Townsville area, that’s where they started. You’ve got a house worth $400 000, I’m being really quick here, you’ve paid it off, now what you’re going to do is borrow $200 000 to invest. And I’m sort of going oh bloody hell.
Steve: Against that house?
Paul: Against the house, but they took the $200 and used that as a deposit on a margin loan and so you might have been using the $200 as a deposit on your investment portfolio and maybe borrowing $400 on top of your $200. So Steve, for a while there while the going is good and we’re in the boom, you’ve got people who have borrowed $200 and technically they’ve got $600. Now, Steve you and I have seen this and the things I have got right over my many many years in this industry is things like a State Mortgage what were they offering? They were offering you ridiculously high returns and pretending no risk. Pyramid building society. Then we had a whole bunch of these finance companies offering to you mortgages paying 9, 10, 11, 12 % when the rest of us can get 2% from the bank. So basically what we’ve got here is a continuation which really frustrates me. It’s part of the education process that InvestSMART is part of, and what you’re doing here tonight. When are we going to get to the point where if you see something offering a really high return, we Australians tend to go oh great but why aren’t we saying if it looks too good to be true, it must be. There’s got to be a catch.
Steve: It’s the same thing as someone rings from “I’m from Nigeria you’ve won the lottery.”
Paul: Well people fall for that as well!
Steve: That’s my point. You can’t protect people sometimes from themselves. I know someone, I won’t use their name, clearly, who got sucked into the Storm thing. Lost everything, had spent 40 years working hard and investing smart and then got sucked into the whole Storm thing and lost the lot.
Paul: I actually got huge flak from Storm investors, I was on radio saying this thing is going to be a disaster you’ve got.
Steve: It was a Ponzi scheme.
Paul: They are gearing on gearing; you are gearing risk on risk. So while the market goes up, your risk on risk is a multiplier. So I was going, I had people from Townsville ringing up saying “Paul Clitheroe we’re so disappointed in you, it’s people like you who are trying to keep ordinary folk poor”. And I go, no, no, no, no, because the one thing I will say and it certainly sits around my chairmanship of InvestSMART, is that any decent company will say is that if you want decent risk at all, buy yourself a term deposit. We can help you with that, pays 2.4, 2.6%. Now if someone says, does InvestSMART have ideas we could make a couple of extra % yes we do have ideas, where you’ll make not 20% Steve, where you’ll make an extra few % but like any decent digital company will say that to get that you are taking more risk. Let’s talk about the risk you’re taking and are you going to sleep at night with that. Because at the end of the day, I cannot breach that basic law of gravity.
Steve: Some people like my dearly departed Dad would never ever have invested in anything because he didn’t want to take the risk.
Steve: So the money is in the bank which is in a term deposit.
Paul: And that’s probably risky as well because of inflation and taxation.
Paul: That’s interesting isn’t it?
Steve: You know we talk about the cowboys like Storm and Pyramid. Were you absolutely gobsmacked at the way AMP were behaving?
Paul: I need to disclose that I sold my firm to Axis 16 years ago, and Axis is now part of AMP. So my old business is in there, but it’s IPAC. So I’m very conscious about transparency and disclosure. So basically the thing there is that I was particularly surprised, this Clayton Utz report issue.
Steve: Independent legal advice.
Paul: And the issue with ASIC. What I can certainly say, and I read like anyone else, obviously the revelation of the Royal Commission about what the regulator is being told and so on. Steve the one thing this is going to do, I got to tell you I was a bit unsure about the Royal Commission into banking to be quite honest and people saying to me publically with my media hat on, I was going look I think we’ll probably learn what we know already. What I’m really a bit gobsmacked by is that we’re learning stuff we didn’t know and what I’m particularly interested in is that what is the response going to be.
Steve: And part of that the problem is that now that we’ve opened this can of worms, to use that dreadful old cliché, the can is bottomless. This could go on for a long time.
Paul: It could do as long as we’re learning new stuff Steve, I think that in a sense in this very short period of time. All of us, every Australian knows enough to go hang on a second something’s gone wrong here. And the only thing I hope doesn’t happened is that it gets dragged on for two or three years. I’m not convinced we’ll get new learnings, if you know what I mean. So in a sense what I’m looking forward to, I’ve got no doubt we’re going to learn more things as this rolls on by the way, this is nearly compulsory viewing for me, I run the blog on my phone all day, I still run the blog.
Steve: Compulsory live streaming of the Royal Commission.
Paul: I can’t believe some of the stuff I’m hearing.
Steve: You need to get a life.
Paul: It’s better than parliament Steve, give me a break.
Steve: That’s true.
Paul: But basically what I’m really interested in, okay these revelations are going to come out we’re getting the hang of this now, now what I’m getting fascinated by what is the response. I think consumers want fair advice at a fair price and I think the world is going to have to change Steve.
Steve: It’s great to have you on board as a regular with us, thanks very much for coming in Paul.
Steve: InvestSMART will join us every Thursday night at 9 o’clock. We’ll have a group of their experts in talking to you.