Open banking: What this means for you and your data

Open banking: What this means for you and your data

Open banking is widely regarded as the most significant change in the retail banking landscape for decades but many of us have never heard of it. So what is it and how does it affect me?

Whilst the term originated from Europe, Australia passed the Consumer Data Right (CDR) legislation in August 2019 which gave consumers exclusive right to their own data and enabled them to choose whether to share it with third parties. In the following years the banks and other lenders were forced to securely share some of their banking data with other accredited data recipients (ADR). The types of data include details of home loans, investment loans, personal loans, transaction accounts, closed accounts, direct debits and scheduled payments, as well as payee data. It’s important to reiterate that this data cannot be shared without the consent of the customer.

So how does this change things?

By ensuring that consumers have exclusive right to their own data, according to the Australian Banking Association (ABA), benefits to customers will include;

  • Streamlining the application process for certain financial products
  • Saving significant time and administration when switching from one bank to another
  • The availability of more products tailored to your particular financial circumstances

The changes are aimed to promote more competition within the financial services industry providing smaller tech based emerging companies the data to efficiently design products that better suit their customers. Imagine applying for a loan or credit card where, in a few clicks, your savings and credit data is used to immediately approve your application and determine the rate you are offered. There is no need to provide any supporting documents and the lengthy processing delays which have hampered the industry for years are a thing of the past.

How secure is my data?

To receive and share your data an ADR must become accredited by the Australian Competition and Consumer Commission (ACCC) to ensure they have the required level of security and data privacy settings. This process can take as long as 4-6 months and involves significant upfront and ongoing legal and labor costs. For a long time the cost of accreditation, and ongoing regulatory maintenance, was seen as a barrier for smaller companies to access the data. To overcome this, last year the Australian government approved a representative model which will come into effect this month.

As mentioned earlier consumers will need to provide consent for ADRs to access their data and the information will be deleted or de-identified after a maximum of 12 months unless permission is once again granted. You can also withdraw your consent at any time and your data must be deleted immediately. Each company that you grant permission should always provide you with the following information:

  • What information you’re sharing and how it will be used
  • Who will have access to your data
  • How long they’ll have access to your data for
  • How you can manage and withdraw consents

When will I see the benefits of this?

The type of data available has been rolled out in phases since July 2020 but open banking is still considered to be in it’s infancy.

An important milestone will occur this month when joint accounts are brought under the scope of CDR. As you can imagine this represents a huge change for the mortgage industry where a significant proportion of loans are held in joint names.

From November 2022 energy companies will also need to provide customers with access to their usage and connection data. This will kickstart a future where comparing energy providers based specifically on your usage can be performed at the click of a button. It also gives future providers the opportunity to tailor your energy charges specifically for you.

As the number of data sources increase the consumer will progressively see the benefit but until then, with many data sources such as superannuation and investment accounts still unavailable, companies utilising the data will typically operate under a hybrid model combining open banking and traditional sources of information.

Steward Wealth’s Co-Founders named as ifa Excellence Award finalists 2021

Steward Wealth’s Co-Founders named as ifa Excellence Award finalists 2021

Anthony Picone and James Weir – Directors & Co-Founders of Steward Wealth have been named as finalists in the ifa Excellence Awards for SMSF Adviser of the Year & Industry Thought Leader of the Year.


The finalist list, which was announced on 24 August 2021, features over 210 high-achieving financial services professionals across 27 submission-based categories. 
 

The ifa Excellence Awards is the pinnacle event for recognising the outstanding achievements and excellence of exceptional professionals across Australia’s independent advice sector.  

The awards were created to acknowledge and reward the contributions of professionals leading the charge within the financial advice industry, noting their dedication to their profession. 

After the past year of uncertainty and challenges brought on by the pandemic, now more than ever, it’s important to stop and take a moment to celebrate both your accomplishments and those of your peers. 

 “At a time of change and upheaval for the industry, and after another year of business and family disruption as a result of COVID, it’s so important to take some time and recognise the achievements of the industry and the fantastic innovations that are going on inside advice businesses,” says ifa editor Sarah Kendell. 

“A huge congratulations to all of this year’s finalists for their outstanding dedication to client service through such a challenging time and the excellent examples they are setting for their peers around adaptation and success through adversity.”  

James Weir, Director and Co-Founder at Steward Wealth, said that he was extremely proud to be recognised and endorsed as a finalist in the ifa Excellence Awards 2021.  

“This recognition for our contribution to the financial planning industry reinforces the strength of our services and capabilities as we continue to grow. Highlighting our dedication to connecting with the community and engaging with clients,” Anthony Picone, Director and Co-Founder at Steward Wealth added. 

Looking for an industry endorsed SMSF advisor?

Find out more about our SMSF services below or call Steward Wealth today on (03) 9975 7070.

Make sure you claim your working from home tax deductions

Make sure you claim your working from home tax deductions

While it’s difficult to find any real positives during COVID-19, as a result of the quarantine requirements forcing so many people to work from home the ATO has introduced a new shortcut method for calculating related tax deductions.

The method is very straightforward. All you do is calculate the total number of hours you’ve worked from home during the COVID-19 period and multiply those hours by $0.80. The final amount is your tax-deductible expense claim. If there are two people working from home, you can both claim the $0.80 per hour. Record keeping is fairly basic, all you need to do is keep a record of the hours you have worked from home.

Ian Alabakis, of Alabakis Chartered Accountants, told us the shortcut method is a special arrangement for COVID that was originally due to finish in June, but it can now be applied up until 30 September 2020.

This means, you will be able to use the shortcut method to calculate your working at home expenses for the period from:

  • 1 March 2020 to 30 June 2020 in the 2019–20 income year, and
  • 1 July 2020 to 30 September 2020 in the 2020–21 income year

Ian says the ATO may extend this period, depending on when work patterns return to normal and added that in most cases, if you are working from home as an employee, there will be no capital gains tax (CGT) implications for your home.

What you can’t claim

If you’re working from home because of the COVID-19 lockdown, you generally can’t claim:

  • Expenses such as mortgage interest, rent, insurance and rates
  • Coffee and other general household items
  • Costs related to children’s education

More details are available from the ATO.

Could it be Europe’s time to shine?

Could it be Europe’s time to shine?

Over the past 10 years, US shares have delivered more than double the returns of European shares. That relative outperformance has become so extreme it is currently four standard deviations above the 50-year average, with 17% of the 102% outperformance coming in just the four months since the end of February.

 

Chart 1: The outperformance of US vs European share market returns has reached extreme levels
Chart 1: The outperformance of US vs European share market returns has reached extreme levels

Why the outperformance?

 

 Earnings growth: over the long-term share markets are driven by earnings, so it should come as little surprise that US companies have delivered more than double the earnings growth of their European counterparts over the past 10 years.

 

Chart 2: US earnings growth has been more than double Europe ex-UK over the past 10 years
Chart 2: US earnings growth has been more than double Europe ex-UK over the past 10 years

Growth stocks vs value stocks: the past 10 years has seen the greatest performance gap on record between ‘growth stocks’, which include companies with higher revenue and earnings growth forecasts, and ‘value stocks’, those companies that tend to have lower forecast growth for revenue and earnings and therefor trade on lower price to earnings (PE) ratios. This is in large part explained by record low interest rates making anything with growth look extraordinarily attractive.

 

Chart 3: growth stocks have outperformed value stocks by the greatest margin on record over the past 10 years
Chart 3: growth stocks have outperformed value stocks by the greatest margin on record over the past 10 years

Europe’s weighting to ‘value sectors’, (in this case consumer goods, financials and industrials), is a hefty 52%. In the US, those three sectors have a total index weighting of 29%.

The tech stocks: the best performing growth sector has been technology and most of the world’s leading IT and social media companies are, of course, based out of the US. As a consequence, the S&P 500 has a 27% weighting to the IT sector, and Vanguard’s US IT ETF has returned 20.3% per annum for the past 10 years.

By contrast, not only is Europe’s weighting to IT a mere 6%, but the iShares Europe Technology ETF has returned only 12.6% per annum for the past 10 years. So Europe cops the double whammy of a smaller weighting and lower returns..

Higher GDP growth: in the wake of the GFC, European leaders became obsessed with an austerity-driven approach to re-establishing economic order and fiscal spending was constrained in an effort to reduce public debt. Meanwhile, although the US talked about fiscal restraint, there were huge spending programs soon after the GFC and then the Trump administration pushed through tax cuts on top of that.

The upshot is that over the past 10 years, at almost 5%, the US’s average budget deficit as a proportion of GDP was close to double that of Europe’s, and GDP growth has been 50% higher at 2.3% vs 1.6%. Of course, there were other factors involved, but economies face a real headwind when government spending is low and companies’ and households’ willingness to borrow isn’t high enough to offset it.

Valuations

Having risen so strongly for 10 years, the US share market is now a lot pricier than almost all other markets. The Cyclically Adjusted PE Ratio (CAPE), which aims to account for inflation and the business cycle, for the US currently sits at 30 and for Europe it’s 19.

It’s important to remember the CAPE ratio provides absolutely no help about when, or arguably even if, a market will rise or fall, it’s simply an indicator of relative value. However, Damien Hennessy of Heuristics Investment Systems says, “We’ve been advising our clients to consider a tactical overweight position in favour of European shares over US on the basis that the US’s economic tailwinds may have played out, together with the uncertainty of the approaching election.”

A catalyst

Trying to forecast what the catalyst might be to cause the US and European share markets to converge is pure guesswork, but there are a couple of clear candidates.

Last week the European Union had what has been described as a breakthrough moment when a A$1 trillion recovery package was approved. There are still some hoops to jump through before final approval, but the fact it has even been proposed is a huge step toward finally using fiscal policy to support growth rather than relying on lower and lower interest rates.

Meanwhile, in the US, the Whitehouse and Congress are still negotiating some kind of extension to the government support programs that have underpinned a bounce back in consumer spending, but which are set to expire at the end of July. Given Trump faces an election and is trailing in the polls, he will presumably stop at nothing to make sure there is an extension of some kind, but it’s already so late there will almost certainly be a gap in household payments. This is very likely to show up in consumer confidence and spending.

Finally, as Hennessy point out, in past recoveries following a bear market, value stocks have tended to outperform growth by 5-7% over a 6-12 month period.

As always, when things look this extreme, it doesn’t mean you sell all your US exposure and switch it into Europe. You could have said they were extreme two years ago and you’d have missed out. It does mean, however, you might consider reweighting to reflect that four standard deviations is an awful lot.