26 Giffard Street
Williamstown 3016
Ph. 03 9397 7275
Fax. 03 9397 1734
Mobile. 0428 310 165
Email. reidcont@tpg.com.au
ABN: 65 111 801 079
www.reidconsultants.com.au

31st October 2007

What is Fortus and why did you join?

Will it make any difference?

It has made a difference already, where representation has helped push along the progression of SEQUAL lenders to tightening conditions of the ‘no negative equity' guarantee making it more transparent. All Fortus members are SEQUAL accredited. I expect Fortus will provide a level of assurance to seniors that they are dealing with appropriately accredited specialists who act in their interests, similar to what a FPA or CPA designation provides.

I see you have extensive qualifications, do all Fortus members?

All Fortus members meet minimum standards of education and training. We are all SEQUAL accredited, all are members of a relevant professional body and hold a minimum Certificate IV financial qualification. In my case I have accounting and financial planning qualifications as well.

From your website, you have written a number of newsletters on specific topics?

I have come across a lot of advice given to seniors that made little sense to me. As an accountant by profession, I do a lot of financial modeling and scenarios, so I put that into practice to see if I could provide more factual based information to help people make choices. For instance, common advice given by some financial press commentators (and solicitors) is to downsize. There may be good reasons to downsize, but often the financial aspects just do not stack up and seniors are worse off and will leave less to beneficiaries than if they stayed in their home and used an equity release product.

There has been much criticism of the reverse mortgage product with some financial commentators recommend using a Line of Credit facility and investing those funds in the share market. Again I wanted to see under what set of circumstances this would be a better solution. It can be, but the risks are far greater.

Why shouldn't seniors go direct to a SEQUAL lender?

Some SEQUAL lenders do deal directly with the public, others will refer you back to accredited brokers. You will find some (not mentioning which Bank) staff don't even know they have a reverse mortgage product. A specific provider will sell you their own product, irrespective of whether it suits your needs. Fortus members are accredited with most, if not all providers in this market including Home Reversion Schemes and Shared Appreciation Mortgages. We will discuss alternatives and work with you to find a solution that suits your needs.

What do you say about the Choice article (02/07) and overselling?

I am sure it happens to an extent but like anything, I am not sure the full picture emerged either. I know when I talk to people, irrespective of whether they are seniors or first home buyers, I will always try to build a safety net into the financial structure. It may be $10k or it may be more as appropriate. Am I overselling? Technically the answer is Yes. With the advances in product flexibility offered by lenders, I will suggest that seniors set up for what they need now, a lump sum and/or income stream then set aside a cash reserve facility of $10k or $20k, as appropriate to them and their lifestyle. It is to cover the medical emergency or the hot water bursting or car breakdown or sudden travel. Depending on the lender, there may be very little or no additional incentive to me for this facility, but it is to provide that piece of mind comfort for the borrower.

When it comes to finances, some people do not know what they need longer term, so my approach is to try to establish with them what is likely and structure their finances so it is flexible enough that they don't have to refinance every 2.3 years at a cost. Seniors need to be cautious of the advice they are receiving and think critically of who is providing it and what benefit they may obtain. Mortgage brokers could benefit from over-selling as their commission may be higher but they do not normally have anything to do with investment of surplus funds. Financial Planners have more of a conflict of responsibilities as they do gain from investment.

Why do seniors need it?

I give talks to groups such as Probus and almost always get asked, ‘I have worked hard all my life to pay-off a mortgage and now you want me to get another one?'

My answer is in two part:

• for older folk, 70's and 80's they invariable do not have any superannuation as we know it sitting in a retail or industry fund as they did not have access to this during their working life, their home is their superannuation. They now have a way to access the cash in the home. Almost like a superfund, they can take a lump sum and/or an ‘income' stream. Pre May '06, superannuation pensions were designed to be drawn down and used by the end of our life expectancy, so the concept is familiar and people are comfortable with that. A house, in one sense, is just another form of a financial asset.
• the second part is not what I want, it is about what they want and the lifestyle or choice they deserve. For those on a government aged pension, living off a pension is just hard work as it is set at a subsistent level. The costs of basic living are going up far quicker than official CPI figures.

For some, it is about being able to help their children or grandchildren now with a warm heart, perhaps when they need it, rather than a cold hand from the grave. Perhaps it is to help pay for education, it may be to help with a deposit for the first home, or to help fund a wedding. It could be for a holiday to take the grandchildren to the Gold Coast while you are still able and active.

Beneficiaries?

My first experience of the seniors market was when my father-in-law asked I come and listen to a presentation by a ‘Money For Living' sales person some years ago. What I heard made me cringe (this was before I started in mortgage broking) having to use their lawyers only; wouldn't disclose who owned the company; what was their financial backing was etc. just made it sound suspect and fortunately my parents-in-law did not proceed. I then found out that my parents also had a reverse mortgage. My reaction was – good for them, it is their money and they should be reaping the rewards for years of struggle and work bringing us up.

The research and my experience is that children generally support and encourage their parents to spend on themselves and enjoy their lives. The banking system has changed and we as children (I am 50) no longer need that inheritance to obtain the 30% deposit our parents and grandparents did to buy their first home.

No Negative equity?

While SEQUAL has played an important role in bringing in a Code to help protect seniors, I don't think there has not been enough informed commentary in the financial press on this issue and its likelihood. Too much scare campaign and not enough substance. I go back to my financial modeling and if the property market goes up on average by about 4% per annum, (this is half the 30 year averages) existing equity is essentially maintained. Any higher than 4% and equity increases.

Consider the other side for a minute, the lenders themselves. They may not get an cash return for up to 30 years, so they will want to make sure they are unlikely to suffer a loss. The reason they lend at such strict age percentages or loan to value ratios is that they have done the actuarial studies and set these percentages in their favour to make sure they do get an adequate return. They certainly do not want to be shown on 60 Minutes either as dispossessing an elderly couple due to this product.

Do you deal only with Over 60's?

Seniors equity release products are designed for the 60+ age group. For the 50+ group who are contemplating retirement and wondering whether their current wealth is sufficient, we can assist them work out what their likely outcomes are based on their current position. There are a number of ways to create wealth and in some of the newsletters on my website, we discuss these. There are two key elements to consider, the assets class itself and the financial decision.

I also help people who are or wanting to become financially independent through property investment. Jan Somers, in her early book, relates the story of a mid 70 year couple who decided to invest in property ‘for when they get old'. For a 50 year old, a ten year strategy of multiple property investment could make an enormous difference to retirement assets. As a 60 year old, you could incorporate senior equity release products into this strategy

Give me a call to find out whether this type of product would work for you and what could you borrow based on available cash flow and value of your property. We will work with your accountant or advisor to structure a solution that suits your needs and circumstances. We take the approach of looking at your long term goals and working to find a solution through finance for you. This appointment is no-cost and is obligation free, call – 03 9397 7275