Money Management (April 7, 2011) by Cirrus Media

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Vol.25 No.12 | April 7, 2011 | $6.95 INC GST

The publication for the personal investment professional

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BIG SUPER FUNDS LOOK TO INCREASE ADVICE: Page 5 | MARKET VOLATILITY: Page 24

Improve PI risk modelling: FPA By Caroline Munro THE Financial Planning Association (FPA) would like to see a better model used for pricing individual risk that would potentially bring down the costs of professional indemnity (PI) insurance, according to FPA chief professional officer Deen Sanders. The hardening of the PI insurance market has continued over the last few years, and the easing of certain requirements by the Australian Securities and Investments Commission (ASIC) has done nothing to bring down the cost of premiums, said Sanders. He addded that PI premiums in the last year alone have gone up between 10 and 20 per cent, even though there has not been the same level of claims activity. He also noted that since the inception of the FPA’s PRO PI service there had been no claims by members. “There is very little pricing for individual business risk, which is the model that we would like to see,” he said, adding that the FPA was disappointed w i t h t h e PI i n s u re r u n d e r w r i t i n g marketplace. “It’s much more of a blanket pooling approach, so all players

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Those practices that breach the law and go into involuntary administration could be catered for by a broader industry pool rather than needing to be met by a PI policy. - Deen Sanders

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Deen Sanders seem to be tarred with the same brush.” But Mega Capital managing director Michael Gottlieb said that insurance pricing went through cycles, adding that the last few years had seen a hardening of the market due to high claims frequency and severity. “We’re starting to see that cycle ease and we’re certainly not seeing the same level of increasing rates that we’ve seen over the last two years,” he said. He argued that risks were assessed

SMSFs not to be taken lightly By Chris Kennedy

INVESTORS should have a good reason to start up a self-managed super fund (SMSF) and have a significant starting balance. Otherwise, they should be in an industry or retail fund, or a managed fund, according to several industry commentators. The head of wealth management at HLB Mann Judd Sydney, Michael Hutton, said his firm generally looked at about $400,000 as a minimum starting balance. There needed to be a weight of money or a weight of money flowing in to start an SMSF, along with a specific reason, such as a desire to hold a specific investment that would not be available in a large fund, Hutton said. Clients with large balances who did not wish to be highly involved might be better off in a managed fund, although benefits included

Michael Hutton the extra flexibility around contributions caps for SMSFs with more than one member, he said. Chant West principal Warren Chant has said in the past that the minimum starting balance for an SMSF should be $1 million, based on the fact that a chief reason to start an SMSF would Continued on page 3

on an individual basis within parameters and that generally all forms of insurance were based on a pooling methodology. “This is arguably the only way that i n s u re r s c a n b u i l d u p a s u f f i c i e n t premium pool to pay claims,” he said. Gottlieb explained actuaries developed a model based on the claim activity in a sector, and then determined the premium amount required from that industry to satisfy the claims.

MARGIN LENDING

Diagnosing risk MARGIN lending has been under the hammer since the global financial crisis. The collapse of Storm Financial at the start of 2009 triggered a flurry of regulation, and is still sending shockwaves through the sector. As a result, growth in the sector is stagnant, with advisers and investors shying away from the perceived high risks associated with margin lending products. While industry figures have welcomed the new legislation, many also believe the sector is unlikely to see significant growth within the next 12 months. Instead, it is hoped the regulations will lead to a more focused and targeted approach to margin lending for educated investors who want to accelerate their wealth. FULL REPORT PAGE 16

“Generally this results in a range usually expressed as a percentage of revenue, and it is the role of the underwriters to determine the risk profile of each individual business and therefore apply the appropriate rate within the actuarially determined band,” he said. “There is pooling which may not be a perfect solution, but practically I’m not sure that there is another way.” Sanders said an industry compensation scheme might “address those clear market failures that have tended to discriminate against financial planning practices”. “Those practices that breach the law and go into involuntary administration could be catered for by a broader industry pool rather than needing to be met by a PI policy,” he said. Gottlieb said it would make a material difference if insurers had to pick up fewer claims, but he questioned how the scheme would be structured. He said it would make sense during periods of low claims activity. “But when the cycle turns, claims can be severe and frequent, and that’s what we’ve had in the last two years,” he said.

Editor

Reed Business Information Tower 2, 475 Victoria Avenue Chatswood NSW 2067 Mail: Locked Bag 2999 Chatswood Delivery Centre Chatswood NSW 2067 Tel: (02) 9422 2999 Fax: (02) 9422 2822 Publisher: Jayson Forrest Tel: (02) 9422 2906 jayson.forrest@reedbusiness.com.au Managing Editor: Mike Taylor Tel: (02) 9422 2712 mike.taylor@reedbusiness.com.au News Editor: Chris Kennedy Tel: (02) 9422 2819 chris.kennedy@reedbusiness.com.au Features Editor: Angela Faherty Tel: (02) 9422 2210 angela.faherty@reedbusiness.com.au Senior Journalist: Caroline Munro Tel: (02) 9422 2898 Journalist: Milana Pokrajac Tel: (02) 9422 2080 Journalist: Ashleigh McIntyre Tel: (02) 9422 2815 Melbourne Correspondent: Benjamin Levy Tel: (03) 9509 7825 ADVERTISING Senior Account Manager: Suma Donnelly Tel: (02) 9422 8796 Mob: 0416 815 429 suma.donnelly@reedbusiness.com.au Account Manager: Jimmy Gupta Tel: (02) 9422 2850 Mob: 0421 422 722 jimmy.gupta@reedbusiness.com.au Adelaide Agent: Sue Hoffman Tel: (08) 8379 9522 Fax: (08) 8379 9735 Queensland Agent: Peter Scruby Tel: (07) 3391 6633 Fax: (07) 3891 5602 PRODUCTION Junior Designer/Production Co-ordinator – Print: Andrew Lim Tel: (02) 9422 2816 andrew.lim@reedbusiness.com.au Sub-Editor: Tim Stewart Graphic Designer: Ben Young Subscription enquiries: 1300 360 126 Money Management is printed by Geon – Sydney, NSW. Published every week, recommended retail price $6.95 Subscription rates: 1 year A$280 incl GST. Overseas prices apply. All Money Management material is copyright. Reproduction in whole or in part is not allowed without written permission from the Editor. © 2011. Supplied images © 2011 Shutterstock. Opinions expressed in Money Management are not necessarily those of Money Management or Reed Business Information.

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ABN 80 132 719 861 ACN 000 146 921

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Appealing to natural justice

he Financial Ombudsman Service (FOS) no doubt believes it is doing a good job, and it is certainly operating within the guidelines laid down by the Australian Securities and Investments Commission (ASIC) – but its decisions should be just as subject to appeal as those made by ASIC itself. If a financial adviser or licensee is subject to sanction by ASIC, that person has the right of appeal to the Administrative Appeals Tribunal (AAT). Natural justice would suggest that decisions of the FOS should be similarly open to appeal, if not to the AAT then to another appropriate body or judicial authority. The FOS chief ombudsman, Colin Neave, is quite right in pointing out that his organisation is acting within the letter and intent of the legislation, regulation and guidelines under which it is required to operate. However, that does not mean the legislation, regulations and consequent guidelines are soundly based or that the absence of a right of appeal against a FOS decision does not represent a glaring oversight in need of address. Neave cannot simply assert that the decisions of his organisation are beyond

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The elephant in the room with respect to the lack of an appeals mechanism from FOS determinations is just how many of its decisions would have withstood the scrutiny of such an appeals process.

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reproach thanks to the technical and legal skills of its staff and members. If the decisions of the august jurists who sit on the bench of the State Supreme Courts can be appealed to the High Court of Australia, then it ought to follow that the absence of an appeals mechanism with respect to FOS is, at best, an oversight and, at worst, a denial of natural justice. Those who are calling for the right of appeal are neither renegades nor

cowboys, they are simply practitioners within the Australian financial services industr y who are concerned that a certain, negative perception is evolving amongst planners out of past determinations handed down by FOS. If Neave and his associates within FOS are confident of the “fair, legally robust and transparent” nature of their decisions, then they should have no issue with them being subjected to scrutiny by a higher judicial authority. Indeed, the elephant in the room with respect to the lack of an appeals mechanism from FOS determinations is just how many of its decisions would have withstood the scrutiny of such an appeals process. The establishment of an approved External Dispute Resolution scheme covering the financial planning industry represented good policy when it was introduced, and it represents good policy today. It would be even better policy if it allowed for an appeals process. It is probably too much to hope that this particular Government will facilitate the necessary change as part of the Future of Financial Advice process. – Mike Taylor

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3'(2 8$ 1 3'1$$ -$6 " 3$&.1($2 !$23 #5$13(2$,$-3 , 1*$3(-& 3$ , 8.4-& "'($5$1 The annual Money Management Fund Manager of the Year Awards recognises excellence in the funds management industry. This year’s awards will also incorporate the Business Development Manager of the Year Awards as well as three new categories - Best Advertisement; Marketing Team and Young Achiever. Go to www.moneymanagement.com.au/FMOTY to view the full entry criteria.

For more information contact Heather Lawson on (02) 9422 2791 or email heather.lawson@reedbusiness.com.au 2 — Money Management April 7, 2011 www.moneymanagement.com.au

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News

Government warned on super changes By Mike Taylor THE Federal Government has been warned that its proposed changes to concessional superannuation contributions caps for those aged 50 and over risks repeating the experience of the implementation of the Contributions Surcharge, when the implementation costs exceeded the revenue gained. The warning is contained in a strongly framed submission to the Federal Treasury from the Association of Superannuation Funds of Australia (ASFA), which not only refers to the administrative complexity of the current process around contribution

caps, but warns of increasing complexity and the risk of a rise in the number of contribution cap breaches. “Of particular concern is the potential that implementation of the announced change will re s u l t i n i n c re a s e d ATO [Australian Taxation Office] reporting costs for superannuation funds,” the submission said. “These costs will be borne by all fund members, not just the approximately 2.5 per cent of members that the Government has estimated will have access to the extended cap. “ASFA would be very concerned to not repeat the Contributions Surcharge experience where the

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A measure is to be implemented that will increase the complexity and the cost of administering superannuation.

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implementation costs for industry and the ATO were estimated to have exceeded the first year revenue gain of $500 million,” it said. The submission also noted that the implementation of the Better Super regime had shifted

the regulation and assessment of superannuation to a ‘contributions only’ basis, while implementation of the proposed new m e a s u re w o u l d “m ov e t h e system back to the pre-2007 situation of regulating both contr ibutions and benefits, making regulation both more complex and more costly”. “It seems somewhat incongruous that whilst implementing Stronger Super reforms aimed at reducing fund administration cost by improving back efficiency, a measure is to be implemented that will increase the complexity, and the overall cost of administering the superannuation system,” ASFA argued.

SMSFs not to be taken lightly Continued from page 1

be to hold a property – which often cost that amount or more. Individuals should only star t SMSFs if they wanted to own a property, enjoyed trading shares or had genuine estate planning reasons, he said. Lots of people have set up SMSFs on the advice of accountants when they had quite small amounts, but even if they’re well managed there are no monthly return figures and ver y few trustees know how to calculate returns, Chant said. Chant also questioned the advantages of having extra control because it meant either the trustee or their adviser had to do the asset allocation using data from research houses, whereas super funds had extensive resources, he said. The Association of Superannuation Funds of Australia chief executive, Pauline Vamos, said the major issue with SMSFs was how returns were measured and whether they were gross or net. “It’s very important that anyone who star ts an SMSF understands what the net returns are and what it costs. There is not enough understanding of the costs, returns and risk,” she said. SMSFs with balances

Warren Chant under $500,000 were more expensive to run than industry or retail super funds, according to Cooper Review data, she added. The Self-Managed Super Fund Professionals’ Association of Australia (SPAA) national technical director, Peter Burgess, said the issue of people star ting SMSFs who shouldn’t was becoming less of an issue as balances trended upwards. In 2004 the average SMSF balance was $247,000, but that is now closer to $500,000, he said. “We would suggest the right people are being put into these funds and that’s been the case for a number of years now,” he said. While the SPAA does not subscribe to a set minimum star ting balance, Burgess acknowledged there were many flat-dollar costs involved that made SMSFs more cost effective as their balance grew. www.moneymanagement.com.au April 7, 2011 Money Management — 3

News Money Management launches Retirement Incomes workshop By Jayson Forrest MONEY MANAGEMENT will be launching its series of high quality education workshops with a Retirement Incomes seminar scheduled for 7 June in Sydney. The Retirement Incomes workshop will feature a range of interactive sessions that will provide financial planners with

genuine alternatives to traditional retirement incomes strategies. The team at Money Management has put a lot of effort and thought into developing this workshop’s program. Dynamic and authoritative speakers have been selected to present on high-level topics that will provide planners with significant information they will be

able to use in their practices and with their clients. Topics featuring at the Retirement Incomes workshop include a review of the Productivity Commission’s report on ‘Caring for Older Australians’ and the likely effects this will have on the industry; top retirement incomes strategies that work, incorporating casestudies, and a review of some of

the lesser known strategies that planners should consider; a look at how financial planners should manage risk for retirees by looking at dynamic forms of asset allocation; and a review of the future trends and developments in retirement incomes, and what new products are likely to hit the market and when. Confirmed speakers include

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Peter Hogan (MLC Technical), John Zavone (AMP Capital), Assyat David (Strategy Steps) and Wendy Schilg (National Information Centre on Retirement Incomes). An early bird registration rate is now available at $180 for the full day workshop. For more information on topics and speakers, go to: www.moneymanagement.com/ seminars

Belinda Gibson

Related party rules tightened By Mike Taylor

Performance 28 February 2011

2 Year

5 Year Inception

% p.a.

14.9%

24.4%

9.3%

12.9%

MSCI World Equities Index $AUD Outperformance after fees

7.4% 7.5%

10.4% 14.0%

-2.4% 11.7%

1.4% 11.5%

K2 Asian Absolute Return Fund

8.0%

23.3%

8.7%

12.6%

MSCI Asia Ex-Japan Index $AUD Outperformance after fees

6.4% 1.6%

19.9% 3.4%

3.8% 4.9%

5.2% 7.4%

K2 Select International Absolute Return Fund

KAM 30331

Since

1 Year

*Net of all fees

Past performance is not a reliable indicator of future performance. Fund returns are annualised compound rates, net of all fees, exclude individual taxes, assume dividends are reinvested, and consist of income and capital return. K2 Asset Management Ltd ABN 95 085 445 094 AFSL 244 393 (“K2”) is the issuer of the K2 Australian Absolute Return Fund ARSN 106 882 302, the K2 Asian Absolute Return Fund ARSN 106 882 384, and the K2 Select International Absolute Return Fund ARSN 112 222 465. K2 is not licensed to give ﬁnancial product advice and recommends you read K2’s product disclosure statement (available from K2), and consider whether these products are appropriate for you, before deciding to acquire an interest in any K2 fund. K2 and its related parties do not guarantee the repayment of capital or the performance of any K2 fund. The K2 funds’ portfolios can diverge signiﬁcantly from underlying market indices.

4 — Money Management April 7, 2011 www.moneymanagement.com.au

Growing trends such as China’s increasing hunger for luxury goods, the emergence of smart phones and mobile internet technology are resulting in strong performances by global equity funds. K2 has identiﬁed and tapped into these trends via stock selection and selective currency hedging. Consider the outstanding results for our K2 Select International and K2 Asian Absolute Return Funds. We believe now is the time to take advantage of these opportunities. For more information go to: www.k2am.com.au or telephone: 03 9691 6111

THE Australian Securities and Investments Commission (ASIC) has tightened the rules regarding related party transactions, issuing new guidance directly aimed at company directors. The new guidelines more clearly define the voting restrictions applying to directors involved in a related party transaction, and the exceptions and relief that the regulator may determine is appropriate. Commenting on the new regulatory guide, ASIC deputy chair Belinda Gibson said the regulator believed directors had to pay close attention to the quality of information members received about the commercial involvement of directors and other related parties in a company. “By definition, many related party transactions involve a conflict of interest,” she said. “Related parties are often in a position to influence the decision on a proposal, the terms under which it might proceed, and the sharing of economic benefits between stakeholders.” Gibson said investors who were making decisions about whether to acquire a security, or a managed investment product, were entitled to be fully informed about all ongoing related party arrangements with the entity.

News

Increased advice offering on super funds’ radars By Ashleigh McIntyre

David Whiteley

UP TO three-quarters of superannuation funds are looking to substantially increase their advice offering over the next three years, while almost a quarter will look to marginally increase their advice. The survey, undertaken by participants at the Conference of Major Superannuation Funds

(CMSF) on the Gold Coast, found that advice is certainly on the radar for funds looking to increase their services for members as a means of retention. But David Whiteley, chief executive of the Industry Super Network (ISN), told delegates the financial planning industry was concerned about the plans for growth. “It’s an irony lost on me that industry funds are now advertising

and promoting financial advice, when we have often been portrayed as being anti-advice – which has never been the case,” he said. Whiteley said that over the last few weeks, intra-fund advice had been portrayed as ‘McDonald’s advice’. “We need to ensure that advice provided by super funds … is not seen in any way as second rate or

substandard. “We have to consistently promote the benefits of the advice that we provide our members, as well as the appropriateness of the advice,” he said. Kay Thawley, chief executive of Industry Fund Services, said the best way for funds to achieve the expansion of their advice offering was through leveraging the workplace even further.

Aussies not ready to retire By Caroline Munro

THE majority of pre-retirees in Australia expect to work longer, while 39 per cent feel they are unlikely to meet their retirement income needs, according to CoreData research. CoreData’s Retirement Report, which revealed the results of a survey of 1,690 Australians aged over 55 conducted in February, showed that 69 per cent felt overwhelmed by their super and retirement finances, while 86 per cent planned to work part-time. One in three stated that they did not believe they had the ability to choose the date of their retirement, and thought they would be forced to work as long as possible. About 39 per cent said they were unlikely to meet their retirement needs. “Our research shows Australians in the pre-retirement phase are clearly overwhelmed by their approaching retirement,” said CoreData head of advice, wealth and superannuation, Kristen Turnbull. “The less knowledgeable and educated they are about their choices, the more likely they are to feel overwhelmed.” Turnbull said Australians were open to receiving assistance, information and reassurance through their super fund. “The findings show super funds and financial advisers need to do a better job engaging preretirees about the products and services available to them in retirement, since this is the time they most require assistance, information and reassurance,” she said.

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www.moneymanagement.com.au April 7, 2011 Money Management — 5

News

AXA announces new-look North By Milana Pokrajac JUST days before the completion of the AXA/AMP merger, AXA Australia has unveiled its updated North platform offer. The company said the updated platform had been developed based on adviser research and would address the changing landscape of both financial advice and client demographics. AXA’s general manager sales and

marketing, Adrian Emery, said the investment platforms of the future would also need to deliver different solutions for clients’ changing needs over their life. “Early in your life you will have significant human capital to protect, so long-term retirement funding is often considered a distant priority,” Emery said. “In this phase, income and life insurance is critical while investment options need to be simple ‘low

maintenance’ options.” As clients become more established and their discretionary income grows, their needs and priorities would change, according to Emery, as would be the case when they approach and enter retirement. He said the new North platform would address all four life stages, eliminating the need for advisers to move their clients into different platforms once their investment

strategy changes. North will now offer 144 funds, direct share trading and exchangetraded funds capabilities as well as 24/7 access to news and research. AMP’s managing director, Craig Meller, who had also been part of adviser briefings around the country, said that once the merger between the two businesses was complete, the North platform would be the first wrap owned by AMP.

Craig Meller

State Street adds ETFs By Chris Kennedy

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Past performance is no indication of future performance. *16.1% is the compound annual return for the Hunter Hall Value Growth Trust for 15 years to 28 February 2011. Initial applications for units can only be made on an Application Form found in the current Product Disclosure Statement for the Hunter Hall Value Growth Trust. Hunter Hall Investment Management Limited (AFSL: 219462) or any related entity does not guarantee the repayment of capital or any particular rate of return from the Fund. Investment returns have been calculated in accordance with normal industry practice utilising movements in the unit price and assuming the reinvestment of all distributions of income and realised profits. Performance data shown is net of all fees. This advertisement does not take into account a reader’s investment objectives, particular needs or financial situation. It is general information only and should not be considered investment advice and should not be relied on as an investment recommendation. © 2011 Morningstar, Inc. All rights reserved. Neither Morningstar, nor its affiliates nor their content providers guarantee the above data or content to be accurate, complete or timely nor will they have any liability for its use or distribution. Any general advice has been prepared by Morningstar Australasia Pty Ltd ABN: 95 090 665 544, AFSL: 240892 (a subsidiary of Morningstar, Inc.), without reference to your objectives, financial situation or needs.You should consider the advice in light of these matters and, if applicable, the relevant product disclosure statement, before making any decision. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/fsg.pdf. Hunter Hall won the AFR Smart Investor Blue Ribbon Awards in 2007, 2008 & 2010 in the International Small Cap shares category. 6 — Money Management April 7, 2011 www.moneymanagement.com.au

STATE Street Global Advisors (SSgA) has added a small cap exchange-traded fund (ETF) and two sector ETFs to service the growing Australian ETF market. The sector ETFs are a resources and a financials ETF, each based on the S&P/ASX 200 Index, while the small cap fund is based on the S&P/ASX300 less the S&P/ASX100. The financials ETF will exclude Australian real estate investment trusts and is aimed at investors who want exposure to growth cycles and higher franking credits with stable dividends. The small cap ETF is aimed at investors who want a slightly higher risk and return opportunity, the firm stated. Based on historical ASX data and extrapolating the growth seen in the US market in the past 10 years, SSgA predicted the Australian ETF market would grow from its current level of around $4.5 billion by around 50 per cent per year to more than $35 billion in 2015, according to SSgA’s senior managing director in Australia Rob Goodlad. With the proliferation of SMSFs it was important for SSgA to find products that were relevant to the retail market in Australia, he said. It is even possible some personal investors may be thinking it would be cheaper to organise their SMSF portfolios themselves using ETFs rather than pay an adviser on a fee-for-service basis to do it, he said. SSgA Australia senior product engineer Jonathan Shead said that by identifying key themes for the current market new products would attract more liquidity, hence being more efficient and more likely to last.

On average, the advisers who earn the most have one thing in common.

For the third year in a row, independent research has found ﬁnancial advisers working with MLC licensees (including Godfrey Pembroke, Garvan, Apogee and MLC FP) earn more on average than advisers in other major non-salaried dealer groups. The ﬁndings were part of Comparator’s annual benchmarking study into advisers in Australia’s leading licensees and the revenue they earn. It takes into account all volume rebates, fees and dealer splits paid.

MLC licensees support a fee for advice model and provide licensee services on a ﬂat-fee basis, with no dealer splits or volume rebates. The ﬁndings show that fees for advice on investments are good for the adviser and the investor. If you want to be part of this, please call 1800 552 049 or email business.growth@mlc.com.au

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News

SPAA rejects Govt approach to caps By Caroline Munro THE Self-Managed Super Fund Professionals’ Association (SPAA) has rejected the Federal Government’s proposal to raise the concessional superannuation contribution cap to $50,000 for all those over 50 with less than $500,000 saved. The SPAA stated that the raising of the cap should apply to all over 50s regardless of their super balance. The SPAA chief executive, Andrea Slattery, said an arbitrary and unindexed $500,000 balance threshold would be overly complex and impose unnecessary costs, and ran counter to the Cooper Review’s aim to improve efficiency. Slattery added that it would also discriminate against people who make voluntary nonconcessional contributions from after-tax dollars, and may also result in an increase in the number of people inadvertently breaching

the contribution caps. Some super members may also mistake the $500,000 threshold figure as an adequate amount for retirement, whereas research showed that retirees needed significantly more than that, she said. “As an alternative to the $500,000 threshold, SPAA has recommended the concessional cap be increased from $25,000 to a suitably higher amount for all individuals over age 50 to give them the opportunity to contribute more to super in the years leading up to retirement,” said Slattery. “If the Government decides to retain the $500,000 threshold, SPAA recommends that only concessional contributions and investment earnings be counted against it. Given that only concessional contributions and fund investment earnings are subject to concessional tax treatment, SPAA believes only the member’s concessional contributions should count against the $500,000 threshold.”

Andrea Slattery

MySuper size requirement bad for small funds By Ashleigh McIntyre

Tony Miller

AMP/AXA merger a reality THE merger of AMP and AXA Asia Pacific Holdings (AXA APH) Australian and New Zealand businesses has gone through. The cash component of the share scheme consideration has been dispatched and new shares issued to the AXA APH minority shareholders under the share scheme, AMP stated. Share scheme participants will receive the equivalent of $6.43 per share. AMP expected the purchase of AXA APH’s Asian business by AXA SA to be concluded by Friday, 1 April.

THE size and scale requirements for supporting a MySuper product could cause superannuation funds to consider unnecessary mergers in order to remain in the game. This comes as fund trustees are being urged to consider whether they have sufficient scale to support a MySuper fund, a requirement many believe will come down to sheer size and assets under management. Russell Actuarial senior consultant Tony Miller said he believed funds could not be judged on size alone, and that factors like potential growth, membership numbers, consistent out-performance, fee ratios and operating reserves all needed to be taken into account.

“If you just look at size alone, a lot of funds would have to start considering mergers. “A fund that would otherwise be quite capable of ser ving its membership could get pushed or encouraged or cajoled by others into merging when in actual fact they were a good solid fund in their own right,” Miller said. Other unintended consequences of creating an arbitrary size-based requirement for MySuper funds would be creating a barrier to entry for new funds, according to Miller. “While we agree trustees should ensure they have the scale benefits to support a MySuper option, focusing purely on current size may cause the industry to lose some of its better performers, to the detriment of members,” he said.

Conflicting agendas muddy super reform THE superannuation industry needs to put aside differences and wor k together on the impor tant reform issues to achieve a consensus or risk having the government make decisions for them, according to Stronger Super chair Paul Costello. “From a government perspective, a constructive consensus opinion is much easier to work with than people in corners disagreeing with each other,” Costello said. Where a consensus can’t be achieved, Costello said the Stronger Super Peak Consultative Group will document differences, and it will be up to the government to decide on the best course of action. Costello said this would not be the ideal option for the industr y, as it would take the reform agenda out of their hands. He added that it was also important for the industry to focus on the most important issues as there was only limited time before a paper must be handed to government. “We cannot deal with all the issues in this timeframe. We must achieve the key features that need to be responded to for changes in government policy like MySuper and governance,” he said. “It is important that we don’t get distracted by side issues,” he added.

ATO should get MySuper to take lifecycle approach clearing house

AS MYSUPER forces trustees to look at catering to the masses with their default fund, many will look to lifecycle investing to meet members’ needs. Speaking at the Conference of Major Superannuation Funds (CMSF), Towers Watson Australia managing director Andrew Boal said he believed many funds would look to lifecycle investing for their default option, as not every member could be serviced by a one-sizefits all approach. “Funds need to have an answer when it comes to lifecycle investing. “I’m not that fussed about which solutions a fund chooses, but for MySuper, the fund has to have a default so that if the member doesn’t know what to do with their money when they reach a certain age then something happens automatically that they can then opt out of,” he said. Michael Drew, managing

director of QIC Lifecycle Strategies, said typical balanced ‘default’ funds did not take into consideration rolling time periods. This meant the risk at certain ages and during a certain period in time (such as the global financial crisis) were not considered, making lifecycle investment an important factor for trustees to consider. However, one of the challenges to having a fund with a lifecycle investment focus as a MySuper fund could be the need for transparency, according to Boal. “If you are moving between 80 per cent equities to 20 per cent equities then the cost is going to change and so you have to report those costs to members in a way they will understand,” he said. Boal said that while lifecycle investing might not be for every fund, it was important for trustees to consider all options

8 — Money Management April 7, 2011 www.moneymanagement.com.au

By Mike Taylor

Michael Drew when it came to servicing the mass market. “They won’t get advice, or very little, and this is the most important decision they will probably ever have to make. Helping them manage that for the mass market is the critical thing,” he said.

THE superannuation contributions clear ing house established within Medicare should be transferred to the Australian Taxation Office (ATO). That is the recommendation of the chief executive of superannuation administration company AAS, John McMurtrie who told the Conference of Major Superannuation Funds (CMSF) such a transfer made good sense. He said the Medicare clearing house was doing good work for employers with fewer than 20 workers but did not represent an instinctive choice. McMurtrie said that in circumstances where the ATO handled BAS reports and withholding tax it represented a natural home for the clearing house. Further, he claimed employers were more likely to access a clearing house based in the ATO. McMurtrie also called for a June 30, 2015 date for the abolition of cheque processing in the super industry and a 2013 date for the abolition of paperbased transactions.

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News

Count targets small business financing By Caroline Munro

Andrew Gale

COUNT Financial has formed an alliance with Centrepoint Finance, which will expand Count’s asset finance service to small business clients and help it overcome funding issues as a result of the global financial crisis (GFC), according to chief executive Andrew Gale. “The GFC restricted our existing asset finance sources, which meant Count’s members were sometimes forced to send their small business clients elsewhere,”

said Gale, who added that the new alliance would significantly increase the number of available asset finance lenders. Centrepoint chief executive, Stephen Day, said the group was delighted that it had been chosen to assist Count advisers and their clients in sourcing asset finance products, “notwithstanding the current market sentiment”, he added. “The emphasis that lenders now place on reporting means the accountant’s role in getting funding approved is vital,” he said.

Excess contribution tax targets wrong people THE severe tax penalties for excess super contributions are not necessarily targeting the people the Australian Taxation Office (ATO) intends, according to the director of Keep it Simple Super, Julie Taylor. Taylor’s business offers self-managed super fund (SMSF) administration and compliance support, and she highlighted the case of a blue-collar worker who may face a 46 per cent tax penalty of his entire retirement savings. Panicked by the loss of thousands of dollars ever y week from his superannuation account

during the market downturn, the man set up an SMSF. Ignorant of the law he withdrew his savings and placed it into his SMSF instead of rolling the money over, incurring an excess contribution penalty tax. Taylor said an application had been sent to the ATO to show discretion as the man faced serious financial hardship. However, she was not certain whether the ATO could show discretion in this case. Taylor believed that instances of those unintentionally breaching contributions caps was likely to worsen, since not only had

the contributions caps been lowered, but the ATO appeared to have broadened the definition of what a contribution constituted. She said that things that in the past the industry would not have considered remotely as contributions were being brought into doubt as a result of the wording of new tax rulings. “That really makes the adviser’s job more difficult, because they are trying to provide for something that they have no control over,” said Taylor. “You just don’t know how much of a buffer you have to leave there. And

what if their clients were trying to get the most in? Were the advisers doing the best by their clients if they left a buffer for something that may never happen?” Taylor said the statistics showed that more people were getting caught out, and yet they were most often the ones who had no intention of breaching their caps. She said this created a disincentive to contribute. The case of the blue-collar worker was not only an example of this, but also highlighted the need for greater education and advice regarding super and especially SMSFs, Taylor added.

Global equities looking attractive By Tim Stewart WITH price to earning (PE) ratios falling dramatically over the last decade, now is the time to buy global stocks, according to Insync Funds Management senior portfolio manager Bob Desmond. Desmond pointed in particular to US equities: “Over the last 10 years large cap global shares have gone from being wildly overpriced to reasonable value. This is seen by the S&P500 moving from a PE of 35 times

to a current PE of 14 times,” he said. The drop in the PE ratio had resulted in a paltry return from the S&P500 of 1.3 per cent per annum, he added. But the key factor that should push investors towards US equities was the rerating of the Australian dollar, which had gone from 50 US cents in 2001 to parity today, Desmond said. To illustrate his point he gave the example of Microsoft shares. They had a PE ratio of 50 in 2001, whereas they have fallen to 10 in 2011.

“This shows for each dollar invested in the company, an Australian investor is getting 10 times more ‘bang for his buck’. Investors as a group are always looking and always want to buy ‘what has gone up’,” he said. In 2000, investors were fleeing from resources companies and emerging markets, and instead buying technology and US large cap stocks – and 10 years later they are doing the opposite, Desmond said.

High barriers to group risk market By Ashleigh McIntyre SMALLER companies thinking of dabbling in group insurance should think again, since high barriers to entry and small margins make the sector increasingly a playground for big insurers. The $3.1 billion group insurance sector is increasingly being shared among fewer and fewer insurers, according to key industry players speaking at the 2011 Conference of Major Superannuation Funds (CMSF). The top two group insurers

now hold approximately 33 per cent of the market, while the top four have increased their share from 54 to 64 per cent – a total of $1.8 billion in premiums, up from $1 billion in 2007. Damien Mu, chief distribution and marking officer for AIA, said he found the figures unsurprising as he was seeing a specialising of group risk in the market. “Group risk used to be seen as a poorer cousin, but now there is a genuine need for specialisation, with a need for infrastructure, separate invest-

ment and products and services, as well as technology to support the group insurance channel,” he said. Head of group market and actuarial at OnePath, Robin Knight, said he felt that as the sector went through specialisation, it was being faced with the need to make big investments in technology. “It’s almost an all or nothing. Are you going to spend the $20 million plus to play in that market? “It’s harder for the smaller players faced with those decisions to get the scale to justify

10 — Money Management April 7, 2011 www.moneymanagement.com.au

Damien Mu the spending for specialist services. It’s a lot easier if you are a bigger player to spread the cost of the technology across different areas of the business,” Knight said.

Macro issues cloud equities outlook By Jayson Forrest DESPITE the Australian sharemarket (as measured by the S&P/ASX300 Accum u l a t i o n In d e x ) o n l y re t u r n i n g a modest gain of 1.9 per cent over the 2010 calendar year, Australia remains vulnerable to recent global events, with continued uncertainty surrounding the macroeconomic environment expected to cloud the outlook in 2011. This was one of the key findings to emerge in Lonsec’s latest Large Cap Australian Equity Fund sector review, which included 36 active funds within the peer group that it considers ‘mainstream’ funds. According to Lonsec investment a n a l y s t A n d re w S c i f o, l a s t ye a r’s Australian sharemarket could best be described as “lacking direction in 2010, w i t h l a rg e d e v i a t i o n s i n m o n t h t o month performance”. Scifo said the second half of 2010 saw the re-emergence of the resources sector, which outperformed relative to industrials, and small and mid-cap stocks outperformed relative to large cap stocks. “A k e y f a c t o r i n f l u e n c i n g f u n d performance during 2010 was the disparity in returns delivered by small, medium and large cap stocks,” Scifo said. “Some of the better performing funds for the year exhibited a bias towards smaller stocks.” Another trend to emerge last year was the continued move towards lowcost, passive alternatives in Australian equities, with retail fund flows towards active strategies being relatively flat. “ T h e i n c re a s i n g p o p u l a r i t y o f exchange-traded funds and the availability of separately managed accounts has created increased competition for the traditional managed fund,” Scifo said. However, looking for ward, Scifo warned that the key macro factors likely to affect the Australian market this year include “the recent events in Japan, impediments to US recovery, China’s inflationary pressures, ongoing European debt issues and the high Australian dollar [for exporters]”.

News

SG rise linked to Mineral Resource Rent Tax: Shorten By Mike Taylor

Bill Shorten

THE Assistant Treasurer and Minister for Financial Services, Bill Shorten, has made clear that delivering an increase in the superannuation guarantee to 12 per cent is inexorably tied to the delivery of a Mineral Resource Rent Tax (MRRT). Addressing the Conference of Major Superannuation Funds (CMSF) on the Gold Coast, Shorten

asked superannuation fund trustees to drive home the message that passage of the MRRT legislation was directly linked to ensuring Australians did not grow old in poverty. He described the MRRT as “a really good tax” based on the special prosperity of the mining boom. “They [the mining companies] can afford it, but Australians can’t afford to grow old poor,” Shorten said.

In doing so, Shorten and the Government appear to have stepped away from the promise of the Hawke and Keating Governments that the superannuation guarantee always needed to be viewed as a non-wage benefit rather than as a tax. Shorten, referring to the policies of the “Gillard/Swan Government” said he did not believe that a decent retirement issue should be a partisan political issue.

“It is not a partisan issue, it is an Australian issue,” he said. The minister exhorted CMSF delegates to direct some of their time and attention to prosecuting the benefits of the MRRT as a means of underwriting the increase in the superannuation guarantee to 12 per cent. He said that to do so would be to ensure that they would not regret in the future that they had not done enough.

AllianceBernstein acquires Aussie business By Caroline Munro

GLOBAL fund manager AllianceBernstein LP announced it will acquire full ownership of AllianceBernstein Australia, in which it is an equal jointventure partner with AXA Asia-Pacific Holdings. The announcement came following

an agreement with AMP that AllianceBernstein LP would acquire AXA’s 50 per cent share once AMP completed its acquisition of AXA. “This is an investment we are delighted to make,” said AllianceBernstein Australia chairman and chief operating officer of AllianceBernstein LP, David Steyn.

“Australia is the fourth-largest market for managed funds in the world. We see a long and secure future for the firm here, providing global and domestic investment services to both institutional and retail clients.” The Australian business is AllianceBernstein’s fourth largest source of assets under management.

Trustees must work with Government NOT-FOR-PROFIT superannuation fund trustees have been warned that if they do not agree on fund governance guidelines they risk having them imposed by the Government. The Australian Institute of Superannuation Trustees (AIST) released the draft guidelines last week, but the organisation’s chairman, Gerard Noonan, admitted there had been disagreement and divisions. The AIST’s call for support for a voluntary principlesbased approach stands in contrast to industry fund calls for financial planners to be subject to a tighter regulatory approach directly overseen by the Australian Securities and Investments Commission (ASIC).

Opening the Conference of Major Superannuation Funds on the Gold Coast, Noonan argued a voluntary, principles-based code had to be preferable to one imposed by the Government. “We have to agree on a voluntary code because, if we don’t, the Australian Prudential Regulation Authority (APRA) will step in to impose a Governance code,” he said. Noonan said he felt sure a voluntary, principles-based approach was in the best interests of the industry and would garner the respect of the current Government and future Governments.

AMP upgrades risk insurance AMP has launched a range of product upgrades and new service initiatives across its retail and group insurance offerings, following similar moves by its competitors. The main changes have been to its retail trauma and income protection cover, as well as the group offering. The trauma insurance upgrade included changes to five key trauma definitions, including angioplasty and cancer, according

to AMP head of wealth protection products, Michael Paff. “Cancer is the most common form of trauma claim with 6 per cent of AMP claims in 2010 attributed to cancer, so we wanted to broaden the cover available to our customers,” Paff said. AMP has also increased the maximum monthly benefit under the ‘guaranteed future insurability’ feature for income protection from $1,000 to $1,500. The insurer also added the occupationally

acquired HIV and Hepatitis B or C as part of the inbuilt trauma feature. Covering both retail and group insurance is the launch of an online claims concierge service – an extension of the phone-based service launched in May last year. The product upgrades and new service initiatives will come into effect immediately and will be offered to all new as well as over 170,000 existing customers at no additional cost.

Fiona Reynolds

Lift super guarantee regardless of MRRT: AIST By Mike Taylor THE superannuation industry wants an increase in the superannuation guarantee to 12 per cent, with or without the implementation of a Mineral Resource Rent Tax (MRRT), according to Australian Institute of Superannuation Trustees (AIST) chief executive Fiona Reynolds. Reynolds has told a Q&A session at the Conference of Major Superannuation Funds (CMSF) on the Gold Coast that notwithstanding the Assistant Treasurer Bill Shorten’s call for superannuation industry support for an MRRT, her organisation was simply supporting an increase in the SG. “We are not saying we want a mining tax – we want an increase in the super guarantee. If the MRRT fell over we’d still want an

increase in the super guarantee,” she said. Earlier, the chief executive of AllianceBernstein, Michael Bargholz, said he could see the logic in using the profits from the mining boom to fund improved superannuation. However, Bargholz also warned that there existed a risk of the proposed new MySuper regime creating a “housing commission version of superannuation in Australia”. At the same time, the managing director of Franklin Templeton in Australia, Marie Wilton, warned there was a danger that the appropriate delivery of a workable MySuper could be jeopardised by the “big personalities” involved in the debate. “They are adopting adversarial positions that could threaten reform,” she said.

MySuper not precluded from financial advice

Paul Costello

THE provision of financial advice with respect to MySuper is not entirely off the agenda, according to the chairman of the Government’s Stronger Super peak consultative group, Paul Costello. Costello told the Conference of Major Superannuation Funds (CMSF) on the Gold Coast last week that while the Government’s response to the Cooper Review recommendations clearly ruled out fully-fledged financial advice with respect to MySuper, this was not necessarily the

end of the issue. He said that there was clearly a need for people to engage, and that this was something that needed to be accommodated. Costello said that while it was clear that the costs associated with comprehensive advice could not be included in any MySuper product, this does not prevent members acting on their own behalf. He said that the advice issue was therefore not

at end with respect to MySuper “It is a subtle process to calibrate but we are working on that,” Costello said. The peak consultative group chairman had earlier warned CMSF delegates that they should not allow themselves to be distracted by the costsaving elements of MySuper, but on returns. “Do not fall into the trap of delivering the lowest cost product – that would be inconsistent with value for money,” he said.

www.moneymanagement.com.au April 7, 2011 Money Management — 11

News

FOS rubbishes planner calls for appeal process By Benjamin Levy THE Financial Ombudsman Service (FOS) has hit out at recent industry suggestions that planners should have the right to appeal against determinations brought against them by the Ombudsman. In a FOS statement sent to Money Management, Chief Ombudsman Colin Neave expressed surprise at recent comments by planners that they should be able to appeal determination decisions against them to the High Court in the case of large amounts of compensation. Some advisers also suggested that FOS was operating on unwritten law, and was allowed to award too much compen-

sation to consumers in determination cases. Neave defended FOS’s Ombudsmen and panel determinations as “fair, legally robust and transparent” and decided by individuals with years of industry and legal experience. Neave said he was “astounded” at industry claims that cases were being decided by people without any legal training. “All FOS Ombudsmen are selected on the basis of their legal experience and many years of industry experience. In addition, FOS has a large team of legally trained staff who handle complains on behalf of consumers and small business,” Neave said. Most of their consumer representatives are also legally qualified and industry representatives are experienced prac-

titioners, Neave added. FOS’s decision-making process was designed to meet Australian Securities and Investments Commission guidelines, Neave said. “It is a requirement of ASIC Regulatory Guide 139 that an approved External Dispute Resolution Scheme is able to make binding decisions,” Neave said. FOS expects advisers to adhere to their legal obligations and to give advice that meets industry standards, he added. FOS Ombudsman for Investments, Life Insurance and Superannuation Alison Maynard said that in all cases, FOS considered the relevant law and investigated the legal obligations of advisers, good industry practice and what was “fair under the circumstances”.

Attitude towards super improving, but gaps in knowledge remain By Caroline Munro

AUSTRALIANS have the right attitude towards their super, but many are still not aware of the additional services their fund provides, according to research by the Australian Institute of Superannuation Trustees (AIST) and Russell Investments. The research was released at the same time as AIST and Russell launched their inaugural Super Engagement Index, which enables super funds to track member engagement. The research revealed that 85 per cent of respondents agreed that super was important to their retirement, and six in 10

placed importance on it, said managing director of corporate superannuation at Russell Investments, Geoff Peck. The research also revealed that many put super on par or ahead of most other financial and investment decisions, he added. “The findings from the research show the work being done by the industry is starting to have an effect and not just with those approaching retirement,” he said. “Although older members place more importance on superannuation, saving for retirement is a life-long journey and many are recognising it needs to be a priority as soon as we start working.” AIST chief executive Fiona Reynolds said

Geoff Peck

one-third of the survey respondents were aware of the proposal to raise the super guarantee to 12 per cent. The survey also revealed the level of concern among super members that they would not have saved enough for retirement. Over half of respondents in each of the age groups over 46 years felt their super balance was low and time was running out, and 31 per cent were not confident their retirement income goals were on track. “Longevity risk is a concern for many fund members so it’s concerning 36 to 45year-olds – a crucial time for saving for retirement – are not making the time to engage with their super,” said Reynolds.

ACI004/BRA/MM/DPS/4

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Some fund managers think in boxes. Whatever asset class they work in, that’s their box. And when they think, they only think inside that box. But the world doesn’t work like that. That’s why at AMP Capital Investors we believe in thinking wide. Before we look at an opportunity, we look beyond that opportunity – we look around it, above it, below it. We have over 250* investment brains spread across every asset class that matters, managing $98 billion* of funds. Thinking wide is more than a philosophy, it’s what we’ve been doing for over 40 years. Think wide – it can help you and your clients own tomorrow. To find out more speak to your Key Account Manager, call us on 1300 139 267 or visit ampcapital.com.au *as at 31 December 2010. AMP Capital Investors Limited ABN 59 001 777 591 AFSL 232 497. An investor should, before making any investment decisions, consider the appropriateness of the information in this document and seek professional advice, having regard to the investor’s objectives, financial situation and needs.

12 — Money Management April 7, 2011 www.moneymanagement.com.au

News

ISN campaign simplistic

Planners treading carefully

By Milana Pokrajac

By Chris Kennedy

THE Association of Financial Advisers (AFA) has hit back at the industry super funds’ campaign against adviser fees, saying their approach is simplistic and draws attention away from their own conflicted fee structures. The AFA national president, Brad Fox, responded to the Industry Super Network (ISN)-commissioned research released recently, which asserted consumers would be $82,000 better off over a 40-year period without paying fees to financial advisers, by saying that was a “blatant attempt to shift attention away from industry funds’ own opaque administration fees”. “That’s less that the cost of a cup of coffee and a biscuit a day, and yet the difference that strategic financial advice can make to a client’s financial situation over the same period of time can translate to much higher superannuation balances and significantly better protection against the financial impact of early death, disablement and serious illness,” Fox said. Fox said the industry funds’ rhetoric purposely ignored the impact and value of strategic financial advice to further its own agenda. “It’s hypocritical on their part to argue for transparency around adviser remuneration when they do not themselves disclose

FINANCIAL planners and fund managers are wary of risks in the global economy, but are still open to market opportunities and looking at how to get clients into more active investments. These were among the findings from live surveys conducted at van Eyk’s recent conference in Sydney among more than 400 planners and fund managers. Asked to choose from four potential economic scenarios, a majority still believed there is around a 25 per cent possibility of a hard landing for the global economy as a result of a slowdown in China, a sovereign

Brad Fox how they are spending the admin fees they charge their members,” Fox said. “The wages of call centre advisers providing intra-fund advice to members must be paid somehow. If not from member fees, then how?” Responding to the ISN chief David Whiteley’s recent comments about the ‘crisis of confidence’ in the financial planning industry, Fox said the AFA-commissioned consumer research issued last year found exactly the opposite.

credit crisis in Europe and natural disasters in Japan. A majority of respondents said there was a less than 30 per cent chance of a ‘strong growth, low inflation’ scenario evolving over the next year, while throughout the day attendees lowered their expectations of a strong developed market growth outlook from a 22 per cent chance down to 17 per cent. The anticipation of a high inflation scenario or of a ‘muddle through’ scenario featuring continued deleveraging, saving, quantitative easing and low interest rates, together represented a probability of nearly two-thirds in respect to the likely investment environment by the end of the day.

Bank sales targets under fire By Caroline Munro THE Reserve Bank of Australia (RBA) missed a key issue when it advised banks to expect lower credit growth: banks’ propensity to push debt through employee sales targets, according to the Finance Sector Union (FSU). The FSU’s acting national secretary, Rod Masson, said the RBA clearly had concerns about the high levels of personal debt, but it missed the problem that banks continued to push debt. The FSU’s statement followed the release of the RBA’s biannual Financial Stability Review, which advised banks to accept changed market conditions. The review warned that attempts to sustain earlier rates of domestic credit growth could induce banks to take more risks. Masson stated that volume-based sales targets, like Westpac’s ‘Deal a Day’ expectation, ran counter to the RBA’s advice.

wide.

www.moneymanagement.com.au April 7, 2011 Money Management — 13

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Important information: This publication has been prepared for distribution to professional financial advisers only and is intended to provide general information. It is not intended to be distributed or made available to existing or potential investors. AXA Australia does not authorise the distribution of this publication to or use by existing or potential investors. It is not intended to take the place of professional financial and taxation advice and you should not take action on specific issues in reliance on this information. AXA Australia products will only be accepted on receipt of an online application form accompanying a current Product Disclosure Statement (PDS). This information is provided for persons in Australia only and is not being provided for the use of any person who is in any other country. north.axa.com.au North Service Centre GPO Box 2915 Melbourne VIC 3001. Telephone: 1800 667 841. Wealth Personal Superannuation and Pension Fund ABN 92 381 911 598. Trustee: N.M. Superannuation Pty Ltd ABN 31 008 428 322 AFS Licence No. 234654. Member of the Global AXA Group.

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Reduction in cost of business

27 16 Keeping investment ethical 15 14

Lower cost

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Few Australians would endorse investing in human misery but, as Azhar Abidi writes, investors need to be conscious of precisely where their money is being directed.

hen I was growing up in Pakistan, they came begging at our door, or they would accost us at traffic lights and hover at the car window until the lights changed. They were victims of cluster bombs from the Soviet occupation of Afghanistan. Sometimes they would push their broken bodies along in a little trolley that you could hear rattling down the road. Some of them were stunningly beautiful children, but what was most striking about them was their missing limbs: a hand, a foot, or a leg. Cluster bombs have been used in Afghanistan, Iraq, Lebanon, Vietnam, Laos and every other major conflict since World War II. They have caused incredible suffering and leave behind a deadly legacy even after the conflict is finished. The bomb itself consists of many – often hundreds – of small explosive bomblets. They are like landmines, but worse because they have a wide area of effect. They remain live for decades after the conflict and since they are often brightly coloured, children mistake them for toys and pick them up. In Laos, nearly 40 years after the war, American cluster bombs lie scattered across the countryside rendering it uninhabitable. In Lebanon, Israeli cluster bombs dropped in 2006 still claim victims today. Australia will soon ratify the Convention on Cluster Munitions – a landmark international treaty that prohibits the use, production, stockpiling and trade of cluster bombs. The Government is rightly taking measures to honour this Convention with the Criminal Code Amendment (Cluster Munitions Prohibition) Bill, but it has a loophole. There is no prohibition on investments in companies that produce cluster bombs. The Bill makes it illegal for a person or bank to provide financial assistance to, or invest in, a company that develops or produces cluster munitions – but only where that person or bank intends to assist, encourage or induce the devel-

opment or production of cluster munitions by that company. This drafting implies that financial assistance is illegal only if it is provided for the purpose of cluster bomb production. In other words, while direct financial assistance for cluster bomb production may be deemed illegal, indirect financial assistance to a company that produces cluster bombs will still be regarded as legal under this provision. The fact is that none of the companies making cluster bombs source their finance directly. None of them advertise that they are raising money to produce cluster bombs. They are diversified conglomerates with interests in areas like aerospace, defence and electronics. They raise money through corporate loans, syndicated loans, bond issues and share placements, and they allocate this money to their operations as they see fit. Their financing is indirect. Unless there is a mechanism to restrict weapons’ producers from using such financing towards the production of cluster bombs, the legislation will not be effective in complying with the spirit of the Convention, which is to ban these weapons. The Australian Council of Super Investors (ACSI) was the only investor group at the hearing of the Senate Foreign Affairs, Defence and Trade Committee last week seeking to close this loophole. Among the non-government organisations, we drew some surprised looks from the senators. It is not often that they hear investors asking to be regulated, but it may be necessary because otherwise, ethical and moral concerns can be overlooked by the industry. In a groundbreaking report produced by IKV Pax Christi (the Netherlands) and Netwerk Vlaanderen (Belgium) in April 2010, 146 financial institutions from 15 countries around the world have been identified as providing over US$43 billion worth of investments and financial services to seven producers of cluster bombs. This is an appalling indictment of the finance and banking sector.

The fact that ACSI was campaigning in Canberra in recent weeks is not surprising. In 2007 a documentary, The Cluster Bomb Feeling, sparked debate in the Netherlands when it drew attention to the fact that many Dutch pension funds had investments in companies that produced cluster bombs. ACSI represents the interests of over 39 not-for profit super funds that manage over $250 billion of Australian retirement savings for two-thirds of the Australian workforce. The organisation is only too well aware of the reputational risk that this issue poses. Banks, brokers and fund managers cannot afford to be complacent either. There are seven publicly listed companies overseas that produce these weapons. How many of them are lending money to these companies, trading their shares, and putting the savings of ordinary Australians to finance what they do? Without legislative prohibition, how many of them will carry on providing finance to these companies? Of course, some enlightened boards may choose to divest, but many will do nothing, even when public opinion is against them. The Bill offers Australia the opportunity to cut off the supply of Australian capital to these companies once and for all. This is not a radical proposal. New Zealand, Ireland, Luxembourg and Belgium have all introduced legislation to ban providing financing towards and investment in cluster munitions. Simply, the Bill should prohibit the direct and indirect financing of companies involved in the production of cluster munitions. An amendment in line with the recommendations made by the Joint Standing Committee on Treaties in August 2009 will fix this loophole. Requiring Australian institutions to comply with this prohibition should not be onerous. It would be a missed opportunity if Australia ratifies the Convention but does not prohibit indirect investment in companies making cluster bombs. We are one of the world’s largest pension markets. Surely we can do better than have our retirement savings tainted by human suffering. Azhar Abidi is a member of the Committee of Management, ACSI and Director, Responsible Investment at Industry Funds Management. The views in this article are the author’s own.

Smaller number of platforms

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Lower cost options on the platform

Source: Investment Trends: Planner Business Model report

What’s on Life Risk – positioning and optimising client cover 12 April, 2011 Level 1, 440 Collins St Melbourne www.fpa.asn.au

IMAP Breakfast Series: Empowering IFAs beyond FOFA 13 April, 2011 Level 7, 333 Collins Street, Melbourne www.imap.asn.au

Small Firms Forum 2011 for Accounting Professionals 2-4 May, 2011 Bayview Eden, 6 Queens Road, Melbourne www.fmrcsmithink.com

AIST’s Fund Governance Conference 4 May, 2011 Swissotel, Sydney www.aist.asn.au/fundgov_ overview.aspx

Money Management Fund Manager of the Year Awards 26 May, 2011 Sheraton on the Park, Sydney www.moneymanagement.com.au /FMOTY

www.moneymanagement.com.au April 7, 2011 Money Management — 15

Margin lending

No margin for error Collapsing institutions and a loss of wealth have combined to give the margin lending industry a bad reputation. Angela Faherty explains why increased legislation and a more targeted approach could get the sector back on track. SINCE the collapse of Storm Financial at the beginning of 2009, the margin lending market has come to something of a standstill. Fraught with complexities and possessing a questionable reputation, margin lending as a practice has come under a great deal of scrutiny from regulators, advisers and investors alike. The fallout from the Storm saga illustrated the perils of margin lending for those who are uneducated about the workings of the stock markets. Clients who took out large margin loans in a bid to accelerate their returns found themselves with considerable debt when the markets plummeted and failed to bounce back to pre-global financial crisis (GFC) levels. Stemming from this, a flurry of regu-

latory reforms were introduced with the aim of protecting investors from the risks associated with margin lending and the volatility associated with gearing as a practice. While the i n t r o d u c t i o n o f t h e re f o r m s w a s designed to protect consumers from the perils of such high-risk investments, it would seem the regulations w e re s o s t r i n g e n t t h e y s t i f l e d t h e market, resulting in a fairly stagnant market for the past two years. A l t h o u g h t h e re g u l a t i o n s we re a reaction to the devastation caused by the collapse of Storm, many would argue they are also crucial to the future success of the sector. As with all financial services products, margin loans are not for everyone. Therefore, enforcing regulations that ensure clients are well advised about the benefits and the

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pitfalls seems to be common sense in the current economic climate.

Key points • • • •

Licence to margin lend

One debate that continues to rage in the financial services arena, however, is whether planners actually want to advise on margin loans given the problems that have arisen in the past. According to figures released by the Australian Securities and Investments Commission (ASIC) late last year, only 781 licensees applied for margin lending authorisation as of November 2010. Opinion among the advisory community varies as to why licence applications are so low. Some cite the inability to secure professional indemn i t y c ov e r f o r m a rg i n l e n d i n g a s a reason to steer clear of the products,

The GFC exposed the danger margin loans pose to uneducated investors. Reserve Bank figures show that margin lending debt has fallen significantly. If used properly, margin loans can be used to accelerate wealth creation. Tightening regulations make it unlikely the sector will grow quickly in the future.

while others simply state it is due to the conservative nature of advisers or the simple fact that the product is not for everyone. Whatever the reason, it appears that conservatism is continuing to reign among the advisory community – even for those with a credit licence, according to Innoinvest Consulting principal Su-King Hii. He says that many plann e r s a p p l y i n g f o r a c re d i t l i c e n c e include margin lending products on their application, yet shy away from actually selling the products. “A lot of planners include margin lending products when applying for a

Margin lending

licence and they do it for the purpose of having the option to advise on them in the future,” he says. “However, a lot of them, even though they have advised on margin loans previously, are shying away because they are awaiting the outcomes of court cases and the fallout from the margin lending debacle that we experienced post and during the GFC.” Indeed, there has been a great deal of change in the regulatory environm e n t s i n c e t h e c o l l a p s e o f St o r m Financial, so it is understandable that advisers are treading with caution. Last year, those wishing to continue to lend or advise on margin loans were given a six month window from 1 February t o 3 0 Ju n e t o a p p l y t o A S I C f o r a n Australian Financial Services Licence (AFSL). Failure to do so meant that those not licensed had to cease to provide or advise on margin loans. In addition, new responsible lending requirements were also imposed on margin lenders. The legislation also sought greater protection for consumers by providing direct access to external dispute resolution services, as well as providing clarity about responsibility for notifying clients in the case of a margin call. All these changes have created anxiety in the market both among advisers and consumers, says Hii. “There are a lot of factors affecting the margin lending market at the

moment, such as the Government’s [Future of Financial Advice] reform which talks about statutory fiduciary duty as well as the suitability assessments under the margin lending provisions,” he says. Hii adds that the feedback he has been receiving from advisers is that they are simply taking a step back from margin lending and have either stopped offering the products to clients or are making referrals to specialists confident in the sector. Investors are also reluctant to take out margin loans, according to recent f i g u re s f r o m t h e Re s e r v e B a n k o f Australia that show the total margin lending debt fell to $17.7 billion by September 30 2010, down from $18.8 billion on 30 June. This was the lowest debt level since March 2005. Despite figures showing growth in the margin lending market has come to a halt, ANZ head of investment lending David Crundall says the firm has witnessed solid growth over the past 12 months. He attributes this to the conservative approach adopted by ANZ when it comes to lending. “Si n c e t h e re c ov e r y o f t h e s t o c k market post-GFC, we have captured greater market share and I think one of the main reasons for that is historically, our client base is relatively conservative. Our credit losses in investment loans during the GFC were insignificant and we have been very careful who we lend to. Our retail book means we lend smaller loans rather than the larger stock lends that are available,” he says. Despite the growth seen at ANZ, Crundall admits the market is unlikely to be heading for a period of accelera t e d g r ow t h i n c u r re n t e c o n o m i c conditions, and says it is likely to be at least a year or so away from r ising strongly. However, he says during this time ANZ plans to focus on streamlining its investment lending products and processes and gearing itself up for continued growth.

“

Margin loans are a good vehicle for wealth acceleration for those who know what they are doing and have a sound knowledge of equity markets. - David Crundall

”

whom a margin loan is not really suitable, you actually end up with a much smaller and more appropriate client base,” he says.

The future

With tighter regulations and r ules c o n t i n u i n g t o g ov e r n t h e m a r g i n lending sector, it is unlikely the sector

will grow at any great speed in the near future. However, this is not necessaril y a b a d t h i n g . Mu c h o f t h e f u ro re surrounding the margin lending sector has been the result of bad advice and bad judgement – and the result has been stringent rules, tighter regulations and reluctance from advisers and investors to get involved. Yet most industry players agree there was always a need for legislation and welcome the new proposals to tighten rules and offer greater protection to consumers, particularly in the shadow of the GFC. “As a business we are fully supportive of the new regulations and have always been conservative in our approach. We plan to continue this,” says Crundall. Hii also welcomes the legislation and says it should help to eliminate product pushing and ultimately benefit the adviser community as well as consumers. He says: “The market is still in the early stages of the new regime and I think the balance is just right in that all advisers are required to be licensed or authorised and carry out suitability checks on their clients. “That said, I don’t think now is the time to add more regulations. The industry is going through a waiting period. Everyone wants to see the dust settle before deciding whether the regime is working.” MM

Education

D i s c u s s i o n s o f g r ow t h i n a s e c t o r plagued by negative press may seem odd, but the financial services industr y is confident of the role margin lending can play during the wealth accumulation stage. It is getting this message across to consumers that appears to present the biggest challenge. “People really need to understand the product,” says Hii. “If you use it c o r re c t l y, yo u c a n a c c e l e ra t e yo u r wealth creation. Ultimately, it is a case of educating the clients and educating the public about this particular product.” Crundall agrees: “Margin loans are a good vehicle for wealth acceleration for those who know what they are doing and have a sound knowledge of equity markets. However, it is important to understand they are not for everyone. “Fo r e x a m p l e, a re t i re e s e e k i n g financial advice is looking to preserve wealth not accelerate it, so a margin loan would not be suitable. Once you start eliminating those clients for www.moneymanagement.com.au April 7, 2011 Money Management — 17

Margin lending

The more things change Many in the industry feel that the legislation targeting margin lending has only served to make investors more fearful of the practice. Ashley McIntyre reports.

argin lending became a dirty word after the collapse of Storm Financial. Legislation is currently under revision to fix the mistakes of the past, but it remains to be seen whether the sector will ever truly recover. Slater & Gordon practice group leader in Brisbane, Damian Scattini, says that although legislation is in the works, it can’t change human nature. “There will be some other Storm on the horizon – that’s just a fact. There are always people trying to gain from the system,” he says. Even once legislation is introduced, Scattini feels that these retrospective measures will never be enough to fully protect consumers. “Like in many things, people fight the last war. So this will have an effect to stop someone being ‘Stormified.’” If a person falls into the same trap, Scattini says, it will effectively become their own fault. However, there he says there is no way to stop similar schemes in the future. “There will always be some other way to relieve people of their hard-earned savings,” he says. The chair of the parliamentary inquiry into the financial services industry, Bernie Ripoll, says that while that may be the case, regulation is a very important step in protecting consumers. The biggest change for margin lending so far, Ripoll says, has been that for the first time it is regulated at a Commonwealth level and it is now under the supervision of the Australian Securities and Investments Commission (ASIC).

“

The capacity for a margin loan for people who don’t fully appreciate or understand its features and its downsides is a very dangerous tool. - Bernie Ripoll

”

There have also been a range of other measures such as updates to the RG146 qualification to include margin lending, as well as need for a specific margin lending approval for Australian Financial Services Licences (AFSL). But more changes to legislation are yet to come with the proposed introduction of the Government’s Future of Financial Advice (FOFA) reforms, which is largely based on the Ripoll Inquiry. Ripoll says that these changes have, and will, go a long way to addressing the problems that arose out of the collapse of Storm Financial. Those problems included the fact that

many people involved in the collapse didn’t even know they had a margin loan, which Ripoll says he found very disconcerting. “Also, a lot of people didn’t understand what a margin loan was, what it meant and what would happen in the event of a share market collapse or fall.” It is this lack of understanding and engagement with investments that FOFA is trying to target, he says. “But that doesn’t mean that people can’t still get themselves into trouble,” he says. “The capacity for a margin loan for people who don’t fully appreciate or understand its features and its downsides is a very dangerous tool.” This perception of margin loans as ‘dangerous’ has created a fear of borrowing to invest, which when combined with tightening regulations, has led to a slump in funds going into the sector. But Eric Blewitt, general manager Bendigo and Adelaide Bank subsidiary Leveraged Equities, believes that margin lending should still be considered as part of any long-term wealth accumulation strategy. “I think the general fear of borrowing to invest, while it is appropriately cautious, in the majority of cases is unfounded. “There is good value in the market and if people are dealing with advisers to put together a long-term strategy, it should definitely be discussed,” Blewitt says. “So long as you understand the risks and you can meet the appropriate contingencies to not only service the debt but, if required, pay back part of the debt, then it should at least be considered.” Blewitt believes that margin lending is simply the enabler to invest – the problem lies with advisers and lenders to ensure that the product is appropriate for the client. Scattini agrees that it is up to advisers and lenders to ensure the person they are giving advice to has the capacity to understand what they are doing, but that ultimately it

Bernie Ripoll comes down to getting independent advice. “Storm has been very topical and it has made people sceptical of the advice given to them by financial planners, which is unfortunate because there is nothing wrong with financial planners, per se, it’s the unethical ones who are the problem,” Scattini says. He hopes the changes from commissions to a fee-for-service will take away the incentives for schemes like this to happen. “Fee-for-service has to be a sensible thing, as that makes it clear whether [a planner] is a salesperson or a professional – and that’s the crux of the matter,” Scattini says. But Ripoll believes he is already seeing a change in the financial services industry, which is working to make amendments to procedures ahead of legislative changes. “I don’t know if it’s said often or if it is said at all, but we really need to congratulate the whole financial services sector. They really have adopted this, they have accepted that change was necessary and they have done a great job,” Ripoll says. “I think that cultural shift is as important as the regulation itself.” MM

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18 — Money Management April 7, 2011 www.moneymanagement.com.au

OpinionSMSFs offer superannuation fund. Then, when the member is an Australian resident again, those benefits rolled into the SMSF.

Effects of non-compliance

This article, so far, has focused on strategies to stop an SMSF from becoming noncomplying. The significance of these strategies is that if an SMSF were to become noncomplying, it would result in adverse tax consequences for the SMSF. These consequences are broadly outlined below. • The market value of the SMSF as at the end of financial year before it became noncomplying, less the value of any undeducted contributions, is included in the assessable income of the SMSF for the year it became non-complying; • The concessional tax rate of 15 per cent is lost and the SMSF’s taxable income will be taxed at the highest marginal tax rate (currently 45 per cent); and • The Commissioner may impose the general interest charge and penalties, where applicable.

No discretion for non-compliance

SMSFs and residency laws Bryce Figot and Nathan Papson provide a practical guide for overseas SMSF members.

he number of self-managed superannuation funds (SMSFs) in existence is steadily increasing. Additionally, many industries are moving towards a more ‘global’ workforce, which means there will be a rise in Australians being based overseas for work purposes. It therefore follows that many SMSF members will be moving overseas for work purposes. There are a number of factors that advisers should consider when they hear their clients with SMSFs are moving overseas. This article outlines some of the requirements in order to keep the fund as a complying superannuation fund and avoid adverse tax consequences.

Residency requirements

Where an established SMSF has a member who will be based overseas, the SMSF must continue to meet the definition of an Australian superannuation fund for the purposes of the Income Tax Assessment Act 1997 (‘ITAA 1997’) for the fund to continue as a complying superannuation fund. There are three rules that must be considered. These are outlined below. Rule 1 – established in Australia Either the SMSF must be established in Australia, or any asset of the SMSF must be situated in Australia. This rule is almost always met. Rule 2 – central management and control The central management and control of the SMSF must ordinarily be in Australia. Because Central Management and Control

isn’t defined in the ITAA 1997, its definition has evolved from case law. Case law defines central management and control as being where the real business is carried on (De Beers Consolidated Mines Ltd v Howe [1906] AC 455, 458), and the location where the SMSF’s operations are controlled and directed (Koitaki Para Rubber Estates Limited v FCT (1941) 64 CLR 241, 248). The Commissioner has agreed with this interpretation and has issued guidance that is in line with the case law above. He has stated that the strategic and high-level decision-making processes must remain in Australia. Some of these processes include: • Formulating the investment strategy for the fund; • Reviewing and updating or varying the fund's investment strategy as well as monitoring and reviewing the performance of the fund's investments; • If the fund has reserves: the formulation of a strategy for their prudential management; and • Determining how the assets of the fund are to be used to fund member benefits. Further, the Commissioner is of the view that the day-to-day operations of the fund’s activities will not necessarily constitute central management and control. Rule 3 – contributions There are a number of rules concerning the concept of an ‘active member’ (a member who makes contributions to the SMSF). If no contributions are made by any of the members of the SMSF during the time an SMSF member is based overseas, then this rule will be satisfied. We recommend that

specific advice be sought if contributions are planned to be made while any SMSF member is a non-resident of Australia.

Implementation

Strategies can be put into place in order to meet the requirements of rules 2 and 3 above. Enduring power of attorney A common strategy to keep the SMSF’s central management and control in Australia is for the overseas member to execute an enduring power of attorney in favour of an Australian resident. The nominated attorney can also act in the non-resident’s place as a trustee (or director of a corporate trustee) of the SMSF without contravening the trustee–member rules (Superannuation Industry (Supervision) Act 1993 (Cth) s 17A(3)(b)(ii)). As mentioned above, the nominated attorney must undertake the strategic decisions of the SMSF, which may include re-formulating the SMSF’s investment strategy and taking an active role with asset managers, bankers and the fund’s administrators. They must not act as a ‘mere puppet’ of the SMSF member, otherwise the central management and control of the SMSF may be considered as not being in Australia and the SMSF could be rendered non-complying.

Exercise caution with contributions

We have outlined above that it is possible for contributions to be made to an SMSF without it becoming non-complying, while one of the members is a non-resident of Australia. We recommend that caution is exercised and advice is sought before any contributions are made for an SMSF in this situation. A conservative approach would be to cease all contributions while a member is a non-resident of Australia. Contributions could instead to be made to a large public

Ordinarily, where an SMSF is to be made non-complying, the taxpayer can request that the Commissioner exercise discretion regarding whether the SMSF is non-complying, by considering a range of factors (see ATO Practice Statement Law Administration 2006/19 at paragraph 34). However, where a notice of non-compliance is issued by the Commissioner for the reason that the SMSF fails to meet the definition of an Australian superannuation fund, the Commissioner (or any Tribunal) does not have the power to exercise a discretion. In CBNP Superannuation Fund v Commissioner of Taxation [2009] AATA 709, an audit contravention report for an in-house asset breach was reported to the Commissioner. Upon further investigations, the Commissioner found that the fund was not a resident superannuation fund and issued a notice of non-compliance for this reason. The taxpayer requested a review by the AAT and ultimately argued that the Tribunal should be able to exercise discretion in relation to the fund being non-complying. Although the Tribunal Member sympathised with the trustee of the fund, it found that no discretion was available and held that the fund did not satisfy the definition of resident superannuation fund.

What to do

Advisers should act swiftly if they have clients with SMSFs who are to be posted overseas in the near future. A small amount of planning (and appropriate structuring) before the member leaves for overseas can avoid an SMSF from become non-complying and also save a significant amount of tax. Where an adviser becomes aware of, or inherits, an SMSF which has a non-resident member, the arrangements for this SMSF should be reviewed to ensure compliance with the residency requirements. If there appears to be a contravention, expert advice should be sought to see if any other avenues exist. Nathan Papson is a lawyer and Bryce Figot is a senior associate at DBA Lawyers.

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OpinionBonds

An alternative to super Insurance bonds are undergoing something of a renaissance, writes Sarina Raffo. She explains the benefits they offer clients.

nsurance bonds were a popular investment in the 1980s, and they are currently enjoying renewed interest – possibly due to an ever-changing landscape, and the perceived complexity and limitations of superannuation. An insurance bond can complement superannuation investment or even be an alternative to superannuation in your clients’ investment portfolios. They can also be appealing from a taxation, estate planning and Centrelink perspective. An insurance bond is a type of managed fund offered by insurance companies. It comprises a life insurance policy with both an investment and an insurance component. Insurance bonds have traditionally been recommended for high-income earners who are looking for tax-effective investments. They are also commonly used for education funds for children or grandchildren. However, they can also be an alternative to superannuation. In this article, we will look at situations where an insurance bond may be preferable to superannuation.

Contribution rules

Both superannuation and insurance bonds are subject to contribution rules. Super Anyone under age 65 can contribute to superannuation, however some funds may

impose restrictions on minors opening superannuation accounts. A work test must be satisfied between age 65 and 75. There are also limits on the amount of concessionally taxed contributions that can be made. Insurance bonds An individual must be age 16 to take out an insurance bond in their own name, but there is no maximum age. Parents and grandparents can own a bond for the benefit of a minor. There is no limit on the initial investment amount in an insurance bond. Subsequent contributions to an insurance bond are limited to 125 per cent of the previous year’s investment amount. Exceeding the 125 per cent amount, or stopping and then resuming annual investments, restarts the 10-year tax-free period. An insurance bond may be a good option for individuals who are unable to meet the work test or are over age 75 or under age 16. Similarly, an insurance bond may be appropriate where an individual has exceeded their superannuation contribution limits.

Taxation

Super While nothing can beat superannuation in terms of overall tax efficiency, insurance

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bonds can also offer significant tax benefits and, importantly, simplicity. Concessional superannuation contributions are subject to 15 per cent contributions tax upon entry to the fund. Investment earnings are taxed at 15 per cent and this tax is paid by the fund (not by the member). Individuals on marginal tax rates of 37 per cent (over $80,000 per annum) and 45 per cent (over $180,000 per annum) can make a tax saving of 22 per cent or 30 per cent. Most tax is effectively deferred until withdrawal of benefits from the superannuation environment. Benefit payments prior to age 60 are concessionally taxed and are tax-free from age 60. Insurance bonds The investor does not receive the earnings generated by insurance bonds as income. Instead, the earnings are reinvested. They are only taxable upon withdrawal prior to the first 10 years and are tax-paid on or after 10 years. Insurance bond income is taxed internally within the bond at a rate of 30 per cent (this may be lower if franking credits and other tax offsets apply). Investments made after the first year under the 125 per cent rule do not need to be invested for the full 10 years for the earnings to be tax-free. Additional tax is only payable by the investor if a withdrawal is made within 10 years of the investment. Investors receive a 30 per cent tax offset on the assessable portion of any withdrawal. Individuals on lower tax rates can apply the offset to reduce tax on other income. All the investment income from a withdrawal in the eighth year is included in assessable income and taxed at the

investor’s marginal tax rate. Two-thirds of the investment income is included in assessable income in the ninth year, and one-third of the investment income is included in assessable income in the tenth year. Insurance bonds offer an obvious tax advantage for higher income earners. Individuals on marginal tax rates of 37 per cent and 45 per cent can make a tax saving of 7 per cent or 15 per cent. However, the tax savings available through super investment are higher.

Access to funds

Super Superannuation is generally preserved until retirement from the workforce after preservation age (55-60). Superannuation can be drawn down as an income stream whereas withdrawals from an investment bond can only be in the form of a lump sum. A person’s age determines the minimum drawdown from a superannuation income stream. For example, a person under age 65 must draw down 4 per cent (2 per cent in 2010-11) of their account balance each year. Insurance bonds Insurance bonds can overcome the main drawback of superannuation: preservation. Part or all of an investment in an insurance bond can be withdrawn at any time (subject to any minimum balance requirement). However, the tax implications should be considered if withdrawals are made before 10 years.

Centrelink treatment

An insurance bond can have an advantage over superannuation for some income-test sensitive clients. Structuring an insurance bond in a private trust can potentially increase Centrelink benefits under the

income test and may also reduce aged care costs. An insurance bond held within a discretionary trust will not generally produce taxable (and therefore Centrelink assessable) income. Income is only assessed based on the amount distributed to trust beneficiaries. An insurance bond (outside a trust) is classified as a ‘financial investment’ for Centrelink purposes and is therefore fully assets tested and subject to deeming. Superannuation only counts as an asset and is deemed from age pension age.

treatment for a minor is the same as that for an adult. By investing in an insurance bond, penalty tax rates normally applied to a minor’s investment income can be avoided.

Simplicity

Insurance bond income need not be declared in tax returns and is not included in the investor’s assessable income. This may therefore reduce Medicare levy and allow the investor to qualify for tax offsets and family tax benefits. While there are some key rules around insurance

bonds, they are not nearly as complex as superannuation rules and investors are less likely to be subject to legislative risk.

Conclusion

The features of insurance bonds such as their tax, estate planning and Centrelink benefits make them a valuable strategic tool in financial planning and a real alternative to superannuation for some clients. While superannuation is seen as a superior savings vehicle, insurance bonds may be more

appropriate for those affected by contribution rules and limits or preservation issues. Insurance bonds can also be attractive to a wide range of people including those on higher marginal tax rates, those who wish to avoid the complexity of including bond earnings in their tax returns and those who receive a large windfall (eg, recipients of an inheritance, a lottery win or a redundancy payout). Sarina Raffo is a technical services consultant at Suncorp Life.

Estate planning

From an estate planning perspective, insurance bonds can be superior to superannuation where a client’s only beneficiaries are non-dependants (eg, adult children or parents). Superannuation rules restrict who can receive a death benefit, and tax law restricts who can receive death benefits tax-free. An insurance bond can overcome these limitations as they allow the proceeds to be paid tax-free to any beneficiary (including non-dependants). Multiple beneficiaries can be nominated on an insurance bond and this ensures that the proceeds will go directly to the person(s) nominated and bypass the estate. This can be particularly important in the case of separated/divorced parents. It also means the proceeds cannot be subject to challenge by disaffected family members. An insurance bond, being a life insurance policy, can also provide protection for bankrupts against claims by creditors.

Savings for children

Superannuation may not be an appropriate vehicle for saving for children/grandchildren due to access issues. In contrast, insurance bonds can be an excellent savings vehicle for children. They can be set up as advancement policies with ownership transferring (generally free of capital gains tax) to a child or grandchild at a predetermined age. Switching ownership does not reset the original purchase date in regard to the 10-year tax rule. Insurance bonds provide a tax-advantaged environment for minors as the tax www.moneymanagement.com.au April 7, 2011 Money Management — 21

Observer more responsible. The Reserve Bank of Australia is not hell-bent on debasing our currency to be ‘competitive’, and interest rates are close to normal. However, it is not as if Australia would be immune from a crisis of confidence in the US or paper currencies generally.

Has the horse bolted?

The Midas touch Despite negative forecasts, gold has managed to retain its value during turbulent market conditions. Dominic McCormick explains why this metal remains the one to watch.

n 24 March gold reached a record high of $US1,446 per ounce. If gold ends 2011 positive it will be the 11th consecutive yearly rise. Yet there was little media coverage about this new record or heightened discussion of what has been the most consistent bull market of the 21st century. To the extent that views on gold are highlighted, they are more likely to be suggesting that gold is in a bubble about to bust. At the recent PortfolioConstruction Markets Summit ‘Bubble Bubble toil and trouble’ a panellist, in summing up the day, suggested that of all the asset classes discussed, gold was the only one likely to be in a bubble. Surely I am not the only one that finds this situation surprising. How can such a prominent financial variable which has been in a bull market for more than a decade, rising over five times through that period, still be either largely ignored or quickly labelled a bubble about to bust by the vast majority of the mainstream investing industry? It’s not as if most of those calling it a bubble now were actively recommending/investing in gold at much lower prices in the early 2000s and are now telling their investors to exit. No, back then most of those sceptics were totally disinterested and uniformed about gold. Today, while interested in jumping on the ‘gold is a bubble’ bandwagon they remain just as uninformed regarding what is driving this bull market.

Is gold a bubble?

The reality of any true major asset bubble is that it eventually sucks in a large proportion of the investing population and the broader consensus and media doesn’t recognise it as a bubble until well after it bursts. That is not happening here, at least not yet. Gold will almost certainly end as a bubble (and we are likely closer to the end of the bull market than the beginning), but the current investor participation levels, market dynamics and sentiment don’t seem to indicate a bubble about to bust. While the gold exchange-traded funds have attracted significant support in recent years they still represent a small fraction of the money invested globally in money market funds, often earning close to zero interest. Gold equity funds are not attracting massive inflows nor growing rapidly in number. It is true that gold shares and funds that invest in them have lagged recently (and at other various times in the bull market) but they have still been one of the best sectors of the sharemarket over the last decade. Most of the gold sceptics just don’t get gold because they keep looking at the wrong thing. They keep staring at a pile of rare, shiny metal and wonder why people are willing to pay more than $US1,400 an ounce for it. They really should be looking at the massive volume of paper dollars that the US central bank can effectively print out of nothing; the various central banks’ manip-

22 — Money Management April 7, 2011 www.moneymanagement.com.au

ulation of short-term (and long-term) interest rates, towards or below the level of growing inflation; and the dismal fiscal and debt situations of many western governments, driven partly by the unwillingness of flawed political systems to say ‘enough is enough’. Gold is a barometer of the level of confidence in central bankers and governments, and that confidence remains at low and declining levels, especially in the key US economy. And it seems unlikely that this confidence will be resurrected in the near term. Indeed, only a series of crises are likely to spur actions to solve these issues. Ironically, it is many of the commentators dismissing gold who continue to pay reverence to the unstable and flawed global monetary system around the US dollar and the false ‘safe haven’ of US treasuries that are helping to delay the very crisis the US needs to force appropriate change. All this is not saying gold will definitely keep going up from here. But have investors and their advisers globally adequately challenged themselves about the possible economic/investment scenarios in coming years and whether they should have gold exposure? If there was a 1 per cent chance of hyperinflation in the US how would investors protect themselves? What if that risk were 5 per cent, or 10 per cent? Maybe this is less of an issue in Australia, where the Federal Government has been

‘It’s too late’ is a common argument against investing in gold now. “Gold was a GFC [global financial crisis] play only – there is no need for gold now,” one of the fund manager panellists at the PortfolioConstruction Markets Summit said. But why has gold risen almost 40 per cent since March 2009, when many believe the GFC bottomed? Clearly there is more to it than that. Part of the answer may be that the GFC hasn’t finished yet, as ongoing sovereign debt issues illustrate. I think a big part of it is that many just lump gold in with other commodities and feel they probably are already getting enough commodity exposure through shares and other investments. While gold struggles to attain converts, the broader commodity story is attracting strong demand even from institutional investors through various index and enhanced index products. The key problem with this approach is that gold is very different to commodities generally. Gold is a monetary asset, and has been for thousands of years – even though this is not always officially recognised as such. Nearly all of the production through history still exists, and only a small proportion of gold is used in the manufacture of goods. Most is held as investment or store of value either by private investors or central banks. Many see these attributes as negatives, but the key point is that gold is a monetary asset. Most other commodities are perishable, get consumed or made into other things that are consumed; and while these attributes are put forward as their advantage over gold as an investment, it is this ongoing need for commodities that has encouraged humans to become much more efficient in producing and consuming them though history. Humans have been remarkably successful in becoming more efficient in producing commodities (eg, more grain from less land, fatter cows, etc). As a result, commodity prices generally tend to fall in real terms over the long term. Gold, in contrast, has managed to retain its real value over long periods of history.

Wise words

The arguments were well summed up in a recent piece by Dylan Grice of Société Générale entitled Why this commodity-sceptic value investor likes gold. Humans have devoted their ingenuity to producing and consuming commodities more efficiently. So while commodities can have very strong rises over a period of years or even decades in history, simply buying most commodities forever as an investment doesn’t make a lot of sense. This is especially the case when the very act of many investing in commodities in recent years has changed the market structure of commodity futures and reduced the ‘roll yield’ (one of the key components of commodity returns historically). Grice highlights the key difference in the

dynamics of the key drivers to gold versus commodities generally: “For our ability to pass knowledge down through the generations applies only to the physical sciences. In the realms of social decisionmaking, where humility and realism are so often the dupe of hubris and self-delusion, each generation is always condemned to relearn the mistakes of generations past. It is the systematic tendency towards precedented folly which is such a fascinating feature of our financial heritage.” Gold derives its demand from the level of confidence in other money alternatives and the stability of financial systems generally. Our ingenuity may make us more efficient producing and consuming commodities, but it has done nothing to prevent financial crises, which continue to occur regularly through history and are arguably becoming larger and more destructive. The inability of the key people at central banks and governments to predict or even be aware of the increasing risks of crises highlights this. Indeed, there is no point looking to the central banks for guidance about whether buying gold is a good idea. Many western central banks sold gold all the way down to the $US250 bottom and it is only recently that central banks as a whole have turned into net buyers. If history is any guide, they are likely to be aggressive buyers when the market tops. Central banks’ warped thinking on gold was recently highlighted by the Dutch central bank’s decision to order a local pension fund there to sell its entire 13 per cent allocation to gold on the basis that such a large allocation to a volatile commodity was “inconsistent with the interests of the funds participants”. Would it be more consistent to instead put it into ‘safe’ government bonds of its Euro partners like those of Ireland, Spain, Portugal or Greece? Clearly even some central bankers don’t understand gold’s monetary value. If we accepted central banker’s recommendations on where to invest, US housing would have been a sound investment in recent years and the GFC wouldn’t have happened.

The way things stand

It is true that gold will be a very poor asset to hold at some point in the future. But this will most likely be when we have both central bankers and politicians committed to preserving the value of their currencies rather than debasing them, and only when the western political system moves away from the notion that more debt and inflation is always the easy way out. The end of the second round of quantitative easing in the US (QEII) and the pressure on the country to rein in its monetary experiment of

recent years is likely to significantly increase volatility in the gold market, as participants weigh judgment about whether the central bank and US government really can move towards ‘normality’ without significantly higher inflation or a fiscal crisis. We hope that they can get it right, in which case gold will be one of our poorer performing investments. But we would be going against the lessons of history if we didn’t continue holding some goldrelated exposures as a hedge against humanity’s consistent ability to make a mess of things.

Grice sums it up this way: “Shorting mankind’s ingenuity isn’t a smart thing to do. But ingenuity isn’t wisdom. And shorting mankind’s ability to absorb wisdom … well, aren’t you silly if you don’t? With less of the technological risk you’re taking when you buy any other part of the commodities complex, gold is the oldest, purest and simplest way.” Dominic McCormick is chief investment offficer at Select Asset Management.

www.moneymanagement.com.au April 7, 2011 Money Management — 23

OpinionMarkets

Shaken to the core?

Following the recent devastation in Japan, Ron Bewley asks: What does it take to shake our market?

started writing this article on the morning of 15 March – just hours before the panic following the ra d i a t i o n w a r n i n g f o r Ja p a n’s nuclear reactors. At that point, we had seen the tragedies and misery inflicted on the people of Japan and beyond for four days, but it was the potential nuclear core meltdown that took the S&P/ASX 200 down by over 100 points during lunch. My p o i n t w a s g o i n g t o b e q u i t e s t ra i g h t f o r w a rd – t h e f a c t s o n t h e behaviour of the market don’t match what I hear and read in commentaries. Let’s start with something called crosssectional volatility. It sounds like a mouthful but it is just a simple measure of how stock returns move together or otherwise on a given day. If returns move largely together, this type of volatility will be low. If returns start

going in all directions, this volatility is high. I took data from each day starting in April 1985 for the top 200 stocks of that day. Thus, the universe of stocks evolves over time with the composition of the S&P/ASX 200. This statistic is then calculated as the weighted standard deviation of stock returns on a given day – and the weights are the market capitalisations of each stock. Since these numbers bounce around a bit, I have then taken the average over the quarter. In previous research, I have found this type of volatility to be very useful as a leading indicator of the traditional (time series) stock market volatility. I show these data in figure 1. There are sharp peaks around the 1987 stock market crash and the global financial crisis (GFC). Cross-sectional volatility

24 — Money Management April 7, 2011 www.moneymanagement.com.au

“

It is hard for a fund manager to beat the market when stock returns tend to move together.

”

was also quite high for a number of years around the Asian crisis (1997-98), the ‘tech wreck’ (2000) and September 11 (2001). There was a smaller blip during our last recession 20 years ago in 1990-91. Perhaps the real surprise is how low cross-sectional volatility was at the close of March 14th 2011. In fact, there has only been one quarter when this type of volatility was lower – and even t h a t w a s o n l y s l i g h t l y l owe r. If I compare figure 1 with the S&P/ASX 200 (using a log scale) in figure 2, I see a reasonable correspondence between low cross-sectional volatility and strong bull runs. So didn’t our market get started after the GFC? Well volatility hasn’t been that low for long. Memories have to heal but behaviour already has. It is hard for a fund manager to beat the market when stock returns tend to move together. As the use of exchangetraded funds and index funds increase, cross-sectional volatility is likely to trend down. An orderly market is what we want. I show the traditional measure of

Figure 1 Quarterly averages of cross-sectional volatility

Cross-sectional Cross-sectional volatility volatility

4.0% 3.5% 3.0% 2.5% 2.0% 1.5%

05 20

99 19

1.0%

Source: Woodhall Investment Research (2011 Q1 to 14th March)

Figure 2 End-of-quarter S&P/ASX 200 price index 9.0

Log Logscale scale

8.5

8.0

7.5

7.0

6.5 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 Source: Thomson Reuters (DataStream)

In p re - G F C d a y s t h e i n d e x w a s contained in this range 66 per cent of the time – the ‘normal’ range. Not only had fear fallen from its GFC highs but, until Friday 11 March, it was arguably lower than normal – certainly well within the range most of the time. What now remains to be seen is how much fear – and the other types of volatility – will be generated by the radiation levels in Japan. That is not a topic that an econometrician or financial analyst can answer. But what I can say is that, despite what has gone on in the world during the first quarter of 2011, the market is behaving more calmly than it ever has. There is a good chance our market will survive intact. There would have been almost no chance of that if these natural disasters and geopolitical events had taken place two years ago. As I finish writing, the market has closed on 15 March less than 100 points down – on a day when there was a near meltdown. Dr Ron Bewley is an investment consultant with Infocus Money Management.

Source: Woodhall Investment Research

Figure 4 The fear index

Fear Index

market volatility in figure 3 for each day from January 2009 to the close of March 14, 2011. The solid black line is the median level of volatility during the GFC and then the post-GFC period. The top dotted line is a simple extension of the GFC level, while the lower dotted line is the median level of volatility pre-GFC. Volatility was well and truly back down to pre-GFC days until the earthquake and tsunami devastated Japan on Friday 11 March, 2011. But even in these first two days, volatility was only a little higher – hardly abnormal. When we consider that our senses had been b a t t e re d by f l o o d s, c yc l o n e s, t h e Christchurch earthquake, and countless uprisings in North Africa and the Middle East, where was the volatility? People talk about volatility, but you just can’t find it when you try to measure it. My fear index is a measure of excess volatility in the stock market, and it seems to lead the options prices measures that are tied to the Chicago Board Options Exchange Market Volatility Index ( VIX). I show this measure in figure 4 together with two dotted lines.

Annualised Volatility

Figure 3 Daily estimates of times series volatility

Source: Woodhall Investment Research

www.moneymanagement.com.au April 7, 2011 Money Management — 25

Toolbox Bringing up baby The introduction of paid parental leave last year enables parents to claim a fortnightly allowance for their recently born child. David O’Connell explains the eligibility criteria, and compares the new scheme to the Baby Bonus.

he Federal Government recently introduced the Paid Parental Leave (PPL) scheme, which pays a fortnightly allowance to the primary carer of a newborn baby or recently adopted child where they have given up work to look after the child. The scheme is available for those parents whose child was born or adopted on or after 1 January, 2011.

Eligibility

To be eligible for the scheme, the carer making the claim must have an adjusted taxable income – including fringe benefits, reportable super contributions and total net investment losses – of less than $150,000 in the previous financial year. The claimant must also meet the scheme work test, which requires them to have worked continuously for at least 295 days (approximately 10 months) in the 392 days (approximately 13 months) before the birth or adoption. “Working continuously” has been defined as not having a period of eight weeks where the claimant neither performed one hour of paid work in a day nor received one hour of paid leave in a day. The carer need not have been employed full-time to be eligible for the scheme. Part-time and casual workers are also eligible as are self-employed persons and contractors. In addition, the claimant must have substantially stopped working – either by leaving employment or going on leave to initially claim the benefit – and must remain off work to continue to receive it. While they can “keep in touch” with their employment for up to 10 days and continue to receive the benefit, the activities that can be performed are limited to those which facilitate a return to that employment after the period of leave. The examples quoted include an employee doing a short course and a self-employed person organising a repair.

Payment

The rate of payment is equivalent to the national minimum wage (currently $570

per week) and is paid for a maximum of 18 weeks, resulting in a potential total payment of $10,260. If the carer returns to work before the 18 weeks are up, the entitlement will cease and will not restart if they subsequently go on leave again. Any unused portion of the 18 weeks may be used by the carer’s partner, provided they meet the relevant conditions.

“

When choosing whether to receive the PPL or the Baby Bobus, clients should consider the tax consequences and Family Tax Benefit consequences of each.

”

Currently, these payments are made by the Family Assistance Office (FAO). However, from 1 July, 2011, the FAO will forward the payments to the claimant’s employer and the employer will pay it on to the employee as part of their normal payroll process. An important point to note is the PPL payments are unaffected by any other paid leave the employer is entitled to. For example, an employee entitled to receive paid maternity leave from their employer would be able to receive that payment and the PPL payments. Employees entitled to both should consider delaying the receipt of one of the payments, since doing so may result in a lower tax liability.

Baby Bonus

The PPL scheme was designed to replace the Baby Bonus, however due to differences in eligibility criteria and tax treatment, some parents would have been better off under the old scheme. To avoid

this situation, the Baby Bonus is still available – and if a parent is eligible for both, they can choose which one to receive. The Baby Bonus is paid to carers who have an adjusted taxable income of less than or equal to $75,000 in the six months after the birth or adoption of the child. If the carer is a member of a couple, the couple’s combined income is used. The Baby Bonus is paid in 13 payments of $407.23 per fortnight ($5,294 in total).

Comparing payments

When choosing whether to receive the PPL or the Baby Bobus, clients should consider the tax consequences and Family Tax Benefit consequences of each. The PPL payments are taxable income, and as well as potentially increasing the parent’s tax liability, the payment will be assessed as income when calculating the Family Tax Benefit. In contrast, the Baby Bonus payments are not taxable. While the PPL provides a much greater potential benefit (up to $10,260) than the Baby Bonus ($5,294), there are situations where a parent entitled to the maximum PPL would be better off taking the Baby Bonus, as the following case study illustrates.

Case study

Sharon leaves her employment late 2010 for the birth of her second child, who is born on 1 January, 2011. She plans to be a stay-at-home mum for the foreseeable

future to look after her two young children. She expects her employment income to be $37,000 for the financial year and her husband, Tony, earns $65,000 per annum. They are entitled to either the PPL or the Baby Bonus and the following table compares their tax situation under each payment. Even after tax, the PPL provides the greater benefit, however the increase in the taxable income will also reduce their Family Tax Benefit entitlements. In this case, if Sharon and Tony took the Baby Bonus, they would receive a Family Tax Benefit Part A of $1,927. However, by taking the PPL, they would lose all entitlement. Therefore, when everything is taken into account, they would be $603 better off by taking the Baby Bonus.

Conclusion

An interesting point is there is a situation where a carer can receive both payments (in the case of multiple births). For example, a parent of newborn twins could take the PPL for one twin and the Baby Bonus for the other. In summary, while the higher payment from the PPL would appear initially to give the greater benefit, consideration should be given to taking the Baby Bonus, which in some situations results in a better net benefit. David O’Connell is head of technical services at Fiducian Portfolio Services.

Table 1 Paid parental leave versus Baby Bonus Sharon’s income

Paid parental leave ($)

Baby Bonus ($)

Employment income

37,000

Paid parental leave

10,260

Taxable income

47,260

37,000

Income tax

(7,627)

(3,985)

39,633

33,015

Net income (before Family Tax Benefits)

39,633

38,309

Difference

1,324

After-tax income Baby Bonus

5,294

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Appointments

Please send your appointments to: milana.pokrajac@reedbusiness.com.au

TYNDALL Investments has recruited Aaron Russell as its new national key account manager. Russell will be responsible for building and maintaining relationships with financial planners and intermediaries in NSW, ACT and Western Australia. Russell’s appointment followed the recent promotion of Andrew Julius, who previously held the position, to Tyndall’s head of retail. Russell joined the company from Vanguard Investments, where he was a business development manager. He started his career as a financial planner in the United Kingdom and worked as an equities investments specialist with Charles Schwab Stockbrokers before moving to business development roles.

joining his team. Parsons moved to NAB from boutique wealth manager First Unity, where he was managing director. He has previously worked with private clients at BT before becoming Invesco chief executive officer for Australia and New Zealand and moving onto Deutsche Bank. McCreery has been appointed head of private clients at NAB Private Wealth, having moved from Credit Suisse Private Bank AG Australia, where she was a market leader. She began her career at Citibank investment bank and was posted to Singapore. McCreery also managed client portfolios at Prudential Private Bank in Singapore, before moving to UBS Wealth Management AG Singapore.

NATIONAL Australia Bank (NAB) Private Wealth has expanded its capabilities in Australia, snatching talent from international banks. The former head of private wealth management division at Deutsche Bank in Australia, Michael Parsons, has been appointed general manager for NSW and ACT, with Anna McCreery from Credit Suisse

SYNCHRON has appointed business strategist Michael Harrison as independent chair. Harrison has been Synchron’s business strategy and marketing consultant since 2007 and has previously consulted Citibank, the STAR Alliance Network, the Australian Competition and Consumer Commission and Zurich Financial Services. Synchron director Don Trap-

Move of the week THE managing director of Treasury Group, Mark Burgess, has resigned following his appointment to the Future Fund Management Agency. Burgess has been appointed general manager of the Future Fund Management Agency, which is responsible for the development of recommendations to the Future Fund Board of Guardians on the most appropriate investment strategy for each fund and for the implementation of these strategies. Burgess will remain with Treasury Group until 24 June and former managing director, David Cooper, will work in an interim executive capacity alongside him during this transition, according to chairman Mike Fitzpatrick.

nell said he was looking forward to Harrison’s more formal involvement in the business. “Michael has made an enormous contribution to Synchron and in many ways has helped us reinvent the business to successfully retain our highly valuable senior advisers while also attracting and engaging with younger advisers,” Trapnell said.

CLEARVIEW has appointed Chris Robson as its general counsel and company secretary. Robson will head up Clearview’s legal, secretariat and corporate

governance functions. Robson has over 20 years of experience in the financial planning industry. He spent the last eight years as general counsel and group company secretary at Challenger. Before that, he worked for Barclays, the Commonwealth Bank and the Australian Securities and Investments Commission in legal roles.

ASTERON has appointed ING’s Khanh-vy Ho to the role of Victorian sales manager. She will be tasked with increasing the insurer’s

Opportunities FINANCIAL PLANNER

Location: Sydney Company: ANZ Description: ANZ Financial Planning is looking to recruit a financial planner who will be responsible for the provision of comprehensive financial planning services and advice. You will work on a fee-for-service basis and report to a practice manager. Specifically, you will provide strategies, access to a diversified product range and ongoing services. You are expected to have extensive knowledge of the financial planning industry, with a strong focus on managed investments and insurance strategies. Personally, you display highlevel influencing skills, strong business planning skills, exceptional communication, proven client management skills and come with a track record of performance. Academically you will have completed, or made significant progress towards completing a recognised tertiary qualification in a businessrelated field such as business, commerce or accounting. You have also completed ADFS and are progressing towards your CFP qualification. Please send applications on www.anz.com/careers quoting ref number: AUS110934. For a confidential discussion, please call Sue Cusdin on (02) 9226 4567.

BUSINESS ANALYST – FUNDS MANAGEMENT Location: Melbourne

Mark Burgess profile in Victoria’s independent financial adviser market. Ho’s role will include assisting advisers with their wealth protection strategy and suitable solutions, and providing marketing assistance. Ho, who will report to Asteron’s Victorian state manager Paul Chapman, joined the company from ING where she was a senior business development manager in its Victorian sales team. Over the past decade, she had also worked for MetLife, AXA and AMP in business development and client service positions.

For more information on these jobs and to apply, please go to www.moneymanagement.com.au/jobs

Company: Kaizen Recruitment Description: Our client is a leading funds management business and is currently seeking an experienced business analyst to assist with a back office systems implementation. Reporting to head of operations, you will be responsible for engaging with front office investment teams to assist with the conceptual design of data and reporting requirements with the aim to improve their portfolio reporting capability. The ideal candidate will have previous experience working as a business analyst within a funds management business with a solid understanding of middle office processes and performance calculations for different asset classes. Previous experience with funds management systems HiPortfolio, Charles River or Simcorp Dimensions will be highly desirable. If you are interested in learning more about this opportunity then please contact Kaizen Recruitment on (03) 9095 7157.

REGIONAL PLANNER MANAGER

Location: Sydney, Melbourne Company: AMP Horizons Description: Due to business growth we have two exciting opportunities for a regional planner manager to join us at AMP Horizons Financial Group in the Docklands, Melbourne and St Leonards, Sydney. Working closely with another regional

planner manager and reporting to the head of practice, this role will see you utilising your financial planning knowledge with your coaching, mentoring and leadership skills. To be successful in this role you will have a thorough understanding of financial planning and hold your CFP or ADFS/DFS qualifications. You will have experience of managing salaried financial planners and have a strong coaching focus throughout your career. For more information and to apply, head to our careers site at www.amp.com.au/careers and apply by entering job reference 5780512 or visit www.moneymanagement.com.au/jobs

HEAD OF CASH MANAGEMENT

Location: Melbourne Company: Kaizen Recruitment Description: Our client has created an opportunity for a manager to head up their cash management team. The cash management team deals with FX and cash management trust products. The role is to coach, mentor and lead a team of highly experienced professionals within an operational context. You will be able to review, understand and clear reconciliation breaks; communicate and manage expectations authoritatively with external clients and internal counterparts; and provide inspiration and leadership to a team of junior staff. The ideal candidate for this role must have a

solid understanding of cash management processing and operational flow as well as proven experience leading teams. This role is available immediately so please apply right away by visiting www.moneymanagement.com.au/jobs. If you have any questions please feel free to email davidmay@kaizenrecruitment.com.au

FINANCIAL PLANNER

Location: Hong Kong Company: ipac Description: Our professional and clientfocused team is looking for a top-calibre financial planner to join it in Hong Kong. In this role, you will offer all-round financial solutions and be responsible for providing lifestyle financial planning advice, investment and portfolio management, risk management, retirement planning, insurance and employee benefit planning, as well as business continuity and succession planning. In return, you will get an attractive salary and bonus packages. To be successful, you must be tertiary educated or above with a minimum of three years financial planning or relevant experience. You must also be self-motivated, have leadership qualities, be able to develop business and have had a stable employment history. For more information and to apply, forward your résumé to vivian.chan@ipac.com.hk or visit www.moneymanagement.com.au/jobs

www.moneymanagement.com.au April 7, 2011 Money Management — 27

Outsider

“

A LIGHT-HEARTED LOOK AT THE OTHER SIDE OF MAKING MONEY

A potent remedy

Out of context

“Qantas is getting the most out of this merger.”

AS an old hack from the Canberra Press Gallery, Outsider fondly recalls his days reporting on the antics of our e l e c t e d re p re s e n t a t i v e s. It g o e s without saying that he likes to keep his ear out for the odd bit of political scandal or faux pas. So it was with a good measure of relief to Outsider and the long suffer-

ing voters of the emerald state, that NSW Liberal leader Barry O’Farrell managed to bring a bit of comic relief to an otherwise decidedly beige state election campaign the other week. While out on the hustings, O’Farrell visited a Chinese herbalist. Nothing strange there, you’d think. O’Farrell then asked the herbalist

for a remedy for ‘a winning election’. The herbalist suggested all manner o f e xo t i c i n g re d i e n t s a n d s t a r t e d reaching for the rhino horn. “No, no,” replied O’Farrell. “I said ‘election’.” Boom-tish! It would seem the Coalition’s recent win in NSW delivered O’Farrell both.

Subtle as a steamroller

AMP managing director Craig Meller

explained just how much travel between Sydney and Melbourne was needed to finalise the AXA/AMP merger.

“I’ll get through my part quickly, so I can eat when others take over.” AXA general manager of sales and marketing,Adrian Emery,did not want his medium rare to go cold just because

THOSE who know Outsider well are aware of his uncontrollable habit of saying exactly what he thinks, especially to the faces of others – which is why Mrs O always carries a muzzle in her purse. But it seems Outsider is not alone in this habit and, unfortunately, Mrs O wasn’t at hand when Money Management managing editor Mike Taylor spoke his mind this time at the Conference of Major Superannuation Funds on the Gold Coast – much to the horror of a good number of public relations professionals. While addressing a room

filled with fund trustees and spin doctors during a ‘Meet the Trade Press’ session, Taylor was asked how the funds could better work with journos to get their mugs in this esteemed publication. Being nothing if not blunt, Taylor promptly told delegates the best answer to working with the media was: “Don’t spend $180 an hour on a PR firm when you can pick up the phone and call us for a measly 30 cents.” Although no uproar was heard from those PR consultants lucky enough to be sitting in the audience, Outsider can only imagine it

was probably more out of fear than from having nothing to say. But instead, they saved up their comments for Taylor’s poor offsider, who was immediately inundated with complaints about feeling shocked and offended by Taylor’s highly unwarranted sledging. But while the offsider was busy dealing with distressed doctors of spin, Outsider couldn’t help but notice that as Taylor strode out of the conference room he had the look of a man dusting his hands together as if to say ‘my work here is done’.

he had to present new features of the North platform to a bunch of journalists.

“That’ll be Paul Keating calling to tell me I’m wrong ... or maybe it’s mum.” Bill Shorten joked with delegates at the Conference of Major Superannuation Funds that the person on the other end of his ringing phone was probably calling about the Government’s decision to tie the lifting of the super guarantee to the Mineral Resources Rent Tax.

Worth the wait? OUTSIDER is the first to acknowledge that a Federal Minister’s diary is a pretty crowded place but he also knows that ambitious politicians will always find ways to press the flesh and gab to those who really matter. So he can only assume that the Assistant Treasurer and Minister for Financial Services, Bill Shorten, was so keen to press the flesh and gab to delegates at the Conference of Major Superannuation Funds on the Gold Coast last week that he forgot the gig clashed with a Cabinet meeting (things will no doubt change when he calls the Cabinet meetings). The result was that when it came to kick-

ing off the opening plenar y of the conference, delegates had to make do with being addressed as ‘comrades’ by the chairman of Australian Institute of Superannuation Trustees and former journo, Gerard Noonan, whose reference to ‘comrades’ might have meant more had he not previously earned a generous Fairfax editor’s salary. Noonan assured the delegate comrades that the minister would address them that afternoon, but events in Canberra once again got the better of Shorten because of a longer than expected Parliamentary question time. He finally fronted the delegates in the ballroom at Jupiter’s Casino at 7pm

28 — Money Management April 7, 2011 www.moneymanagement.com.au

while they washed down finger food with a healthy supply of alcoholic beverages. And just as the minister was getting into stride with a speech littered with historical allusions and references justifying the Government’s decision to link the rise in the superannuation guarantee to the imposition of a Minerals Resource Rent Tax, his mobile phone went off prompting him to the quip that “it’s probably Paul Keating telling me I’m wrong”. The minister may have been a little less flippant if he had heard the number of comrades standing near Outsider who said they wished the “bloody minister” had taken Keating’s call.