An important aspect of the change to computerised investment advice is the reduced fees that makes professional knowledge far cheaper and more accessible.
The downside, as Bloomberg points out, is that there may be fewer investment advisers enjoying corporate hospitality and conventions in future so there may be other industries feeling the job losses too.
Deceased tycoon and embezzler Alan Bond’s life story provides a good parallel for Australia’s economic development
Last week convicted fraudster and one time Australian national hero Alan Bond passed away. In many respects Bond’s rise, fall and comfortable dotage tells us much about Australia today.
Originally born in England, Bond was a ‘ten pound pom’ – like this writer and two of Australia’s last three Prime Ministers – whose family took advantage of subsidised immigration programs to leave the cold climate and dismal British economy for sunnier, more prosperous parts.
Building the Australian dream
In Australia Bond prospered. On leaving school he became a sign writer and set up a business where he quickly gained a reputation for sharp practices and cutting corners. However as with much of his generation real wealth was to be made in property speculation.
As Australian cities expanded through the 1960s, developers and speculators were at the forefront of the nation’s economic growth. Perth, Bond’s home town, doubled in size between 1961 and 71 and the once dodgy sign maker made his mark as a wheeler and dealer as he traded properties and build his fortune.
As the 1980s began a cashed up Bond was ready to take advantage of the economic orthodoxy of the time that to compete internationally, Australian businesses had to consolidate domestically to gain the scale required to be global players.
Bond added to his claims in 1983 when he wrested the America’s Cup out of the cold dead hands of Long Island’s Newport Yacht Club. Suddenly businessmen were the national heroes and Australians, particularly politicians, fell over themselves to bask in the glow of the nation’s entrepreneurial summer.
Dancing on the world stage
Around the time of the America’s Cup win the newly elected Hawke Labor government deregulated the Australian banking industry providing a ready supply of hungry financiers prepared to fund the global ambitions of Bond and his contemporaries.
The rest of the decade saw Bond leading a wave of Australian entrepreneurs using easy money to build international empires. Bond himself ended up building one of Australia’s brewery duopoly, holding prime Hong Kong property, buying the nation’s most popular TV station and owning a Chilean telephone company.
Naturally much of his money ended up in Switzerland and Lichtenstein, something that would work in his favour early in the 1990s.
The larrikin streak
Bond’s disregard for the law, investors and anyone unfortunate to get between his cronies and a bag of money – politely described as a ‘larrikin streak’ by many – continued as regulators and governments indulged his behaviour.
One good example of the free pass he received from Australian regulators in the 1980s were his insider dealings with his then mistress Diana Bliss, the latter of whom exquisitely timed a purchase of a small energy exploration company stocks in 1988 a week before Bond Corporation announced a take over offer.
Regulators at the time dismissed any claim of insider trading after being assured that neither Bond nor Bliss would ever countenance such behaviour, the Sydney Morning Herald later reported.
When the luck runs out
Eventually the 1980s Australian economic miracle and the entrepreneurs leading it proved to be chimeras based upon property valuations. When the 1990 downturn hit, the rampaging Aussie business heroes all quickly fell as their overindebted empires collapsed.
Bond’s personal fortune however survived thanks to his judiciously salting away assets controlled by loyal advisors. His 1994 bankruptcy hearing ended in farce when he successfully convinced the court he was suffering dementia and couldn’t remember anything of his business dealings.
He couldn’t stay too far ahead of the courts however and ultimately Bond served two prison terms totalling four years for dishonestly pillaging companies to keep his operation afloat.
At the same time Bond was being chased through the courts, Australia’s banks were licking the financial wounds incurred from their irresponsible exposure to the nation’s entrepreneurs. The lessons they learned define modern Australia.
Bearing the brunt
The country’s small business community eventually bore the brunt of the Australian banks’ losses as lenders’ balance sheets were rebuilt through high interest rates, massively increased fees and charges and tightened lending criteria. Many of those high fees and rates continue to cripple Australian business twenty-five years later.
Adding to the Aussie small business sector’s woes, the 1998 Basel I Accords were coming into force favoring property lending over business finance. Increasingly it became harder for any Australian businessperson to raise money from local banks while property speculators were welcome.
Over the next twenty years the result was stark. One chart from the Macrobusiness website illustrates the huge growth in Australian residential property lending and the stagnation of business finance since 1991. Only at one stage, in 2008, has business lending matched the levels of the late 1990s.
That shift to an economy based upon property prices, particularly speculation on residential accommodation, has served Australia well with the nation not experiencing a recession since the 1990s downturn.
The Australian economic miracle
Australia’s success allowed Reserve Bank governor Glenn Stevens to sneer in 2010 that Microsoft founder Bill Gates’ warnings about the Australian economy lack of diversity were misguided and foolish – the mining boom coupled with never ending property price growth guaranteed the nation’s prosperity.
In this respect, all Australians have become Alan Bond. Just as the bold riders of the 1980s boom based their future on property valuations so too have Australian households and the entire economy thirty years later.
Hopefully for Australians in general it will end better than it did for Alan Bond in 1996.
One though should not weep too much for Alan Bond, after being released in 2000 he quietly rebuilt his empire and in 2008 BRW magazine estimated his wealth at $265 million and named him among the 200 wealthiest people in Australia.
Time will tell if Australians share the deceased tycoon’s luck but in a way we’ve all become little Alan Bonds now in our dependence upon the valuations of our real estate holdings and the indulgence of those financing our lifestyles.
It may well be having a few bob hidden away in Switzerland might the best way for Australia’s indebted homeowners to protect their future.
Chinese companies withdrawing from US stock markets is bad for both countries
The emergence of Chinese companies and their listing on US stock exchanges has been one of the features of the country’s rise over the last decade.
Now Reuters reports the tide may be turning as disaffected Chinese companies shift back to local stock market listings to counter what they believe are under valuations from US investors.
Two of the notable things about the Chinese stock markets have been the lack of transparency and their volatility.
It may be the current attractive valuations are part of that volatility with the Shanghai Composite stock index having more than doubled this year as opposed to the S&P 500 being up a comparatively disappointing five percent.
For Chinese companies, the relative transparency and discipline of US market listing rules also promised to raise their internal management standards.
The US markets also gained from the Chinese listings as these cemented the nation’s position as the world’s tech centre, with the attraction of American markets fading an opportunity opens for European and Asian exchanges.
Overall, the withdrawal of Chinese companies from US stock exchanges would be a shame for both countries as it makes each of them stronger.
Rodrigues’ point was tech startups have a very different set of needs to the local small business. “Bob down at the corner shops has been there for 10 years, and he’ll be there for another, he might sell milk, or office chairs, or even fix your watch,” he writes.
Technology startups on the other hand “have ambitions to become big companies, global empires. They are high-growth technology businesses and they are working on goods and services that you might not yet know you need.”
Silicon Valley’s greater fool model
Rodrigues’ comments come from the Silicon Valley Greater Fool mindset where the end game for investors is to flip the business to a bigger company or make out like bandits in a stock market listing. Under that model profitability doesn’t matter, “too early is considered a deterrent for investors looking at a business.”
Not making a profit is fine for a company promising unlimited future growth to the market or a flipper based on finding a greater fool but for most startups those lack of returns see all but a few spectacularly successful ones shrivel away as the company’s funds exhaust before the founders achieve their objective. For Bob the locksmith who doesn’t have a fall back option of returning to a management consulting job, he needs the income.
What’s more fallacious in Rodrigues’ piece is the idea today’s tech startups themselves will be great employers themselves. Even the successful ones haven’t proved to be job generators in the way traditional business have been.
For the traditional small business sector the risks aren’t insubstantial either as the majority of proprietors will barely make a living while risking their assets, time and often health – something understated by the motivational writers urging people to quit their jobs and prove themselves.
A lack of capital
For both the startup community and the small business sector the real challenges lie in being undercapitalised. Most startups will fail because of insufficient capital while the majority of small businesses never quite reach their potential because they lack the funds required to invest in the proper tools.
Much of this comes down to banks retreating from small business lending thanks to the ill thought out Basel rules that treat home mortgages as almost risk free which has discouraged any form of finance not backed by residential property.
In fact many of the challenges facing traditional small businesses such as high rents, unnecessary regulation and high labour costs are as much a problem for the thirty something renting a desk in a tech incubator as they are for 55 year old Bob who’s been running the local locksmiths for the last twenty years.
Misdirected government
Silly schemes like the Australian government’s depreciation scheme aren’t addressing this problem, indeed the Abbott administration’s intention is to provide a brief sugar hit to the nation’s GDP as small business owners buy new laptop computers and toolboxes. It does nothing to address the uncompetitiveness of Australian business or its attractiveness to local investors.
That Rodrigues wants to create a schism between the tech startup community and the small business sector is regrettable, it only confirms in many people’s minds that technology is for geeks and not ‘ordinary people’.
In truth a nation’s business community needs a level playing field, one that doesn’t give preferential treatment to one form of activity over others – be it property speculation, tech startups or dog walking franchises.
While there are genuine differences between the startup sector and the small businesses community – in the same way there are differences between Bob’s locksmiths, Jane’s cafe or Sarah’s dog walking franchise – there is need for businesses divided in asking for equal and fair treatment from government, banks and large corporations.
Having a united voice for all entrepreneurs, however modest their ambitions, is far more important than single groups pleading for special treatment.
The notable thing about the projects at the conference was how many had not only been successful crowdfunding projects but had also smashed their targets.
The lesson from that is a successful campaign has to catch the imagination and excitement of the crowd, not just be a worthy idea.
How many if these products end up being successful remains to be seen, the test will be how accurately the founders have estimated their costs.
If it were just the enthusiasm of the funders, then the projects are almost certain to succeed.
Last week’s expansion of depreciation allowances for Aussie businesses is an opportunity to refresh your company’s tech
In last week’s Federal budget the biggest news for business was the expansion of the accelerated depreciation limits where items up to $20,000 can be immediately claimed as a tax deduction.
While this was a reversal of the previous budget that slashed the previous allowance, it was welcome news for businesses looking at replacing older tools and equipment or investing in new technology.
One of the notable things about business technology is companies have a habit of holding onto older equipment long beyond what should have been its use by date.
The consequences of using old technology are real, the older equipment is often not as fast as the newer kit which affects productivity and unpatched software is often the way malware finds its way into a business.
Point of sale risks
Earlier this week computer security vendor Trend Micro held their Cybercrime 2015 breakfast in Sydney where the director of the company’s TrendLabs Research division, Myla Pilao, described some of the threats facing businesses.
One of the top risks were Point Of Sale systems (POS) where Trend Micro’s research had found over a third of US retailers had malware on their cash registers, in Australia it was six percent.
Most of those infected POS terminals would be older units with many of them being software running on out of date versions of Windows that haven’t been patched or upgraded since they were bought a decade ago.
Similar problems exist with older workstations, internet routers and even photocopiers where the technology has moved on and security holes discovered. Basically old equipment holds businesses back and exposes them to risks.
Now the carrot of an immediate tax deduction gives Australian businesses an opportunity to refresh their technology. So what is the technology, smart company managers and owners should be spending their money on?
Kick out your desktops
“If it ain’t broke, don’t fix it” is the mantra for most business IT and desktop computers are the best example of this. In most companies as long as the word processing software or accounting package works the PCs continue to be used.
With the withdrawal of support for the decade old Windows XP operating system last year, many older computers started being a liability in a business so now is the time to replace them.
Consider tablets
It may not be necessary to replace the old desktop computer with new ones, for many job roles a tablet computer is often a better choice. With cloud technologies increasingly being adopted there’s less of a need for a grunty PC sitting on each staff member’s desk.
Upgrade the router
One of the areas where businesses often compromise is with their internet access. Having an old, cheap router designed for home use is just not good enough for companies who rely upon being connected.
A new business grade router will improve office internet access along with resolving most of the security issues older equipment is notorious for.
Going mobile
If you’re struggling on old mobile phones, now might be the time to upgrade to the latest smartphone. Amongst other things this will improve your office productivity, particularly if you combine the investment with some of the cloud services that make working on the road a lot easier.
Cloud services are not part of the depreciation rules as they are usually subscription models and this shows the weakness in the Federal government’s thinking.
Indeed for those vulnerable Point of Sale systems, a cloud based service running on tablet computers is probably a better solution than most server and PC based packages.
A lack of vision
The ‘ladies and tradies’ theme of the budget shows the Federal government is stuck in with the vision that Australian businesses are mainly mom and pop service operations in the traditional trades and professions.
While the depreciation changes are welcome they do little to help startups or companies in emerging industries and for the economy in general will provide not much more than a GDP ‘sugar hit’ for retailers’ cash registers as we buy imported equipment for our businesses.
For the Australian economy in general, the move really only benefits Gerry Harvey who can buy a few more racehorses from his stores’ and his rich mates who can afford some more expensive wine fuelled brawls in Sydney waterside restaurants.
Australian businesses owners need to be demanding better thought out policies from a government that claims to be friendly to industry. The economy is changing and 1970s style tax benefit is not the way to prepare for a changing world.
