Money Management (April 21, 2011)

Print Post Approved PP255003/00299

Vol.25 No.14 | April 21, 2011 | $6.95 INC GST

The publication for the personal investment professional

www.moneymanagement.com.au

TRIO COMPENSATION EXCLUDES SMSFS: Page 5 | TARGETING THE RIGHT AGE GROUP: Page 24

FOFA reforms threaten smaller players

By Mike Taylor THE Federal Government’s Future of Financial Advice (FOFA) changes carry with them the genuine risk of benefiting the big banks, institutions and industry funds at the expense of mid-sized dealer groups and independent financial planners.

That is one of the key concerns to emerge from a Money Management roundtable with five senior players in the financial planning and funds management industry: Fiducian managing director, Indy Singh; Count Financial chief executive Andrew Gale, Colonial First State general manager of distribution Marianne Perkovic, Fidelity Investments chief executive Gerard Doherty, and Association of Financial Advisers chairman Brad Fox.

Each of the participants expressed concerns about the potential for unintended consequences to flow from measures such as the banning of volume rebates, with Gale saying he believed the Government really needed to work through the implications of its intended actions.

“I think some of the out workings would be that it would confer additional power to the vertically integrated organisations in the market,” he said. “It would also have a greater degree of disruption.

“I think some of the large licensees are well positioned to deal with that because they would basically change their business models – and especially looking at taking on platform manufacture or responsible entity type roles,” Gale said.

Andrew Gale However, he warned that while larger licensees might be able to accomplish such a strategy, he believed smaller to mid-size entities might find it more of a challenge.

“So I think a likely consequence if you went down the

purist model route is some industry consolidation and arguably the diminution of independence of advice in the marketplace, which I don’t think would be a great outcome,” Gale said.

“That’s not to say that’s not the path that the Government will or won’t go down ultimately but I think they really need to go in eyes wide open regarding what some of the flow on consequences are.”

Perkovic also urged the Government to move on any legislative changes with its eyes wide open.

“Without rebates and clarity around whether white label payments are included, the advice businesses will become product manufacturers. You will then have people whose core competency is to give advice and run the licence now having to be a product

manufacturer,” she said.

“There are some businesses like Indy’s that have done that and can do that, but there’s a lot of other businesses that don’t have that capability. So it will either lead to consolidation or a whole group of businesses running these products.

“If you have a think about what’s in the best interests of the clients, are they better off to have been an advice giver who got a rebate or an adviser that’s now become a product manufacturer? I think that would be a greater risk. So post FOFA and if rebates go, that will be the discussion we’ll have: is the industry reinventing itself, and are more product manufacturers coming?” Perkovic asked.

To read the complete FOFA roundtable , turn to page 14.

Mercer targets retail research Differing views about ‘best interest’ options

By Chris Kennedy

GLOBAL institutional investment consultant Mercer is looking to increase its competitive presence in the Australian retail research market by leveraging its institutional resources.

Gone are the days when research houses could just hand out passwords – they now need to be proactive when it comes to communicating new opportunities and avoiding the blow-ups, according to Mercer head of wealth management for Australia and New Zealand Brian Long.

The problem with local research houses is they can’t make money unless they charge for ratings or push product, Long said.

Mercer already rates 22,000 funds through its work in the institutional space, and just needed to map that for dealer groups, he said. “Things happen in insto first, and then they come to retail,” he added.

Specifically, Mercer would be targeting larger dealer groups and private banks.

Mercer already provides research for Macquarie’s global business, Credit Suisse, Deutsche and AXA, among others, he said.

Mercer believes its offering is aligned with other large retail wealth managers such as AMP and ANZ, and is in close negotiations with further groups, Long said.

Dealer groups are facing huge issues around consolidation, and if they’re looking to merge, Mercer has experts on product and platform rationalisation who could assist in that overall process, he said.

By Caroline Munro

Brian Long These kinds of groups also want assistance with platform and product design to help move up to the high-net-worth space, and support for adviser education systems and academies including tools, research portals and webcasts, Long said.

Potential changes to the income tax regime could make it more attractive to invest in overseas domiciled funds if the requirement to pay tax on unrealised capital gains is reduced. This means Mercer would be well positioned to advise on overseas funds that local researchers would not have looked at previously, Long said.

Continued on page 3

THE Treasury’s two ‘best interest’ duty options, offered up to the Future of Financial Advice Peak Consultation Group for discussion, have been met with a mixed response.

Treasury proposed two ‘best interests of the client’ options last month. The first option was: “To act in the best interests of the client and, if there is a conflict between the client’s interest and the interest of the person providing personal advice or the providing entity, to give priority to the client’s interest”; while the second option was: “To have proper regard to, and act in accordance with, the interest of the client and place the interests of the client above their own interests and the interest of the providing entity.”

Chief executive of the Financial Services Council (FSC), John Brogden, explained that the first option was outcomes-based, while the second option was process-based. He said the FSC preferred the second option because it meant that advisers as well as clients were protected by standard steps of practice, whereas the first option meant that what was in the best interests of the client was subjective and harder to assess.

Chief executive of The Trust Company John Atkin said the industry needed to

adopt a fiduciary duty obligation if it wanted to be seen as a profession. He said the first option, however, was the less compromised of the two, while the second option confused the issue because ‘best interests’ was not about the quality of advice.

“Fiduciary obligation is focused on avoiding conflicts of interest,” he explained. “The second option focuses more on the premise that if you’ve given them the correct advice, then it doesn’t matter – the adviser will always be at risk of being compromised because of their personal interest.”

Financial Planning Association (FPA) general manager of policy and government relations Dante de Gori said the FPA was reserving its judgement, because no detail had been given whether a best interest requirement would be imposed on licensees. However, he said the FPA was conscious of the direction going towards a duty of ‘best advice’ as opposed to a duty of ‘conduct’.

De Gori said the original intention was that advisers should always be placing the interest of the client ahead of their own. Whether the adviser adhered to a reasonable basis for advice was already covered by other legislation and should not be the focus, he said.

Continued on page 3

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.

Average Net Distribution Period ending Sept '10 10,183

mike.taylor@reedbusiness.com.au

A hands-off Budget?

I

t is now less than a month before the Treasurer, Wayne Swan, hands down his first Budget as part of a minority Gillard Labor Government.

And if the Treasurer is wise, then he will closely examine his first Budget as a part of a Rudd Labor Government and the problems that administration created by needlessly tinkering with superannuation – specifically, the concessional contributions caps.

Indeed, it would be worthwhile for Swan and Prime Minister Julia Gillard to reflect upon the long-running unintended consequences which can flow from illconceived policy and Budget decisions – with the changes to the concessional contribution caps being an outstanding case in point. The changes added only a negligible amount to the Budget bottom line, but the political fallout has been significant.

Now, of course, the Government has indicated it is prepared to review the excess contributions tax being imposed on taxpayers who, often unwittingly, have been found to be in breach of the concessional caps.

It follows that any changes to the excess contributions tax would be announced in

The Australian Labor “Party has arguably failed to deliver any significant policy improvements since it was returned to office in 2007.

”

the context of the Federal Budget – something that would be nothing more nor less than a tidying up of the badly thought through changes contained in a previous Budget.

For a party which, with some justification, claims considerable ownership of Australia’s superannuation system, the Australian Labor Party has arguably failed to deliver any significant policy improvements since it was returned to office in 2007. Rather, many of its efforts have served to reinforce concerns about the uncertain and tenuous nature of the underlying policy settings.

It is against this background of

perceived policy untidiness that the Assistant Treasurer and Minister for Financial Services, Bill Shorten, should move carefully with his decisions regarding the Future of Financial Advice (FOFA) changes.

As this week’s Money Management roundtable has made clear, the potential for unintended consequences flowing from the proposed FOFA changes considerably outweighs the risks that went with the Government’s earlier Budget tinkering with the concessional superannuation contribution caps.

While many of the proposed changes have merit, it is already clear that, improperly implemented, they carry with them the danger of actually contradicting the Government’s original policy intentions by further entrenching the dominance of the major banks, institutions and industry funds.

The Government can ill afford any further policy untidiness in the financial services sector, and the financial planning industry can ill afford the imposition of policy which runs counter to the provision of strongly independent advice.

– Mike Taylor

ABN 80 132 719 861 ACN 000 146 921

Have you been playing just one of our strings?

Just as a musician needs four strings to perform at their musical best, you need access to a complete suite of investment solutions to meet the financial needs of your clients.

Now you can find all of these solutions – cash, investments, margin loans and managed funds – in one place and from a company that epitomises service, reliability and trust.

The new home of Adelaide Bank, Leveraged Equities, Sandhurst Trustees and Trinity3 will make orchestrating your clients’ investment strategies easy.

Find out more about Bendigo Wealth at www.bendigowealth.com.au, call your Business Development Manager or phone 1800 018 018.

It’ll be music to your ears.

Bendigo and Adelaide Bank Limited ABN 11 068 049 178 AFSL 237879. (S33616) (03/11)

Incorporating

2 — Money Management April 21, 2011 www.moneymanagement.com.au

(S33616) (03/11)

Proudly part of

News

Contributions tax heightens alternative strategies

By Caroline Munro THE lowering of the super contributions caps may mean advisers have to look towards alternative investment strategies, like insurance bonds and gearing, to help their clients address a possible retirement savings shortfall, according to IOOF technical services manager Damian Hearn.

Hearn said while he believed there needed to be some legislative change around contributions caps and the hefty excess contributions tax, the industry could also adopt new strategies to help clients maximise their savings.

“If clients have had to reduce their contributions from $50,000 to $25,000, they’re effectively paying tax on an additional $25,000 at the marginal tax rate,” said Hearn.

He said advisers were starting to consider putting money into insurance bonds and gearing. While insurance bonds are not as tax efficient as super, money placed within insurance bonds could be used as security to enable investors to gear into the market, Hearn explained.

He agreed that this entailed greater risk and acknowledged that there was c u r re n t l y a re d u c e d a p p e t i t e f o r gearing among investors. However, the retirement shortfall was likely to force people to accept additional risk and engage in different investment strateg i e s t o m a k e u p f o r a re t i re m e n t savings shortfall.

Hearn said advisers were extremely concerned that clients were exceeding the contributions caps.

“You can see in a lot of advisers that they

“

The retirement shortfall is likely to force people to accept additional risk and engage in different investment strategies.

”

are diligent and they are giving good advice, but in some circumstances they are running into trouble with some of the strategies that they are running for clients,” said Hearn.

While advisers understood that data collection was critical, often clients did not provide important information because they felt it was irrelevant to the advice, said Hearn. Timing issues with employer contributions were another issue beyond the adviser’s control, which could lead to hefty excess contributions tax penalties.

“There’s sufficient complexity out there in doing super contribution planning strategies and working with clients’ accountants around it, that you can find yourself backed into a corner and there is no solution,” said Hearn.

Mercer targets retail research Continued from page 1

In terms of global resources, Mercer has 19,000 people in 42 countries, 1000 investment professionals in the investment consulting division, 80 researchers and 100 staff in Australia alone, Long said.

Morningstar co-head of fund research Tim Murphy said technology was a key focus in terms of targeting the dealer group market.

“With advisers usually being quite time poor, what they really need are a couple of tools that are simple to use, and give easy-to-understand but powerful output,” he said.

Also important is understanding what advisers need and what is important to them on a day-to-day basis, and being able to tailor your offering to them, he said.

Morningstar also has a large global presence, and Murphy said while a global research partner would help if overseas domiciled funds became more appealing, he expected the take up would be limited.

Lonsec, van Eyk and Zenith could not be reached for comment.

OneAnswer Frontier.

Paving the future path.

At OnePath, we’re committed to offering investment solutions that make it easier for you to do business and help your clients grow and protect what’s important to them on their path through life – like OneAnswer Frontier, a further improvement on our OneAnswer investment platform.

OneAnswer Frontier is a new range of simple, fee-for-service products offering outstanding value and efficiency to your business. OneAnswer Frontier keeps you ahead of the curve in three important ways:

Easier to use • A simplified flat pricing structure • Wholesale-style pricing that is available to a wide range of clients – meaning you can service their needs within one platform solution • Enhanced administration and servicing that helps simplify your business

Better features

Differing views about ‘best interest’ options Continued from page 1 The Association of Financial Advisers (AFA) government and policy chair, Christina Kalantzis, said the AFA would not comment on any particulars but it wanted to ensure that any best interests duty took into account the role of the licensee, its policies and procedures, as well as the relationship between the adviser and the client.

The AFA also wanted to ensure that the concept of ‘best interest’ was princi-

• A comprehensive menu with 80+ investment funds including the ANZ Flexible Term Deposit fund and OnePath Protected funds • Convenient access to our award-winning OneCare insurance and group cover options

Sharper pricing • Very competitive wholesale-style pricing that is uniform across all products delivering outstanding value to high and low balance clients • Competitive insurance premiums with a range of flexible remuneration options

OnePath (formerly ING Australia) is one of Australia’s leading investment, insurance and superannuation companies. To find out more, contact your Business Development Manager or visit onepath.com.au

onepath.com.au John Brogden ples-based and reflected what was already embodied in the current legal and regulatory framework, she said.

OneAnswer Frontier Personal Super and Pension is issued by OnePath Custodians Pty Limited (ABN 12 008 508 496, AFSL 238346 RSE L0000673).

OneAnswer Frontier Investment Portfolio is issued by OnePath Funds Management Limited (ABN 21 003 002 800, AFSL 238342). This information is general advice only. Before making any investment decisions, an investor should consider whether this product is appropriate for them and consider the relevant Product Disclosure Statement, available at onepath.com.au

www.moneymanagement.com.au April 21, 2011 Money Management — 3

News

Intra-fund advice no threat to planners: Shorten

By Milana Pokrajac

Bill Shorten

THE Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, has told financial planners that there is no need to compete with the intra-fund advice services offered by industry superannuation funds, as they cannot sabotage planners’ businesses.

“If you decide to continue to worry about the industry funds killing your business, while you do that I think you’ll miss out on a number of opportunities,” Shorten said.

Shorten’s comments followed a number of questions raised by planners about the industry super fund advice cross-subsidisation during the question and answer session at the Financial Planning Association’s (FPA’s) luncheon with the minister.

“How do we compete with industry funds, who cross-subsidise advice to members, when they quote figures of $200 or $300 for a transition-to-retirement strategy, which is then effectively paid for by the entire membership?” an FPA member asked.

Shorten responded by telling planners that intra-fund advice could not compete with the depth of strategies provided by financial planners.

“We did some research about the level of intra-fund advice that gets cross-subsidised. I don’t know how many of you have been to a retirement planning seminar by industry funds, but it’s pretty

general advice and I don’t think it’s the advice of such depth that you provide to individuals,” he said.

“I get the point about advice in general and cross-subsidisation.

Our view is that having the MySuper licence will make it a lot harder for everyone to provide cross-subsidies in the price they present to people.”

The industry super fund sector will not go without a challenge, either, according to Shorten, who reminded the audience that MySuper will also be available to the retail sector, which would create more competition.

During the question and answer session at the luncheon, some financial planners also raised concerns about the Government’s consultation process with planners or lack there of.

Fiducian managing director, Indy Singh, pointed out to the minister that no financial planners were represented on the Treasury’s superannuation panel and accused Shorten of not consulting with financial planners.

“I’m sorry I haven’t consulted you directly, but I’ve spent a lot of time talking to a lot of planners, and if the FPA is prepared to take you to a meeting, you are welcome to come,” he said.

“I do talk to planners and I am standing in your corner for the promotion of your profession. But if that means that the only way I can create the profession is by simply agreeing with everything that everyone tells me, then I’m going to disappoint you.”

No quick-fix solution to flood cover, says IAA

By Caroline Munro

MAKING flood insurance compulsory or coming up with a common definition of flood will not necessarily mean that insurers will offer it – nor will it make insurance more affordable, according to chair of the Institute of Actuaries of Australia’s (IAA’s) general insurance practice committee, Peter McCarthy.

McCarthy said the issues around flood cover were very complex, and no silver bullet was going to address them. He said from an insurer’s perspective, even if steps were made by Government to make flood cover compulsory, it came down to a commercial decision. McCarthy noted that not all insurers offered flood cover, and if they did so it would obviously affect the cost of premiums.

“If insurers are going to offer flood cover, they would have to charge an additional premium for it,” he said, adding that the level of the premium would depend on how vulnerable the property in question was to flooding.

“A common definition of flood is just one step in a process that needs to be undertaken to be able to offer flood cover.”

Even if more insurers entered the market, people whose properties were prone to floods may find the premiums unaffordable, said McCarthy.

Divesification essential for fixed interest

By Benjamin Levy

“That’s a big issue in trying to get people covered for flood,” he said. “Having a definition of flood is fine, and it’s an important step, but that doesn’t actually mean that insurers can or want to offer flood cover.”

McCarthy said compulsory flood cover was a highly emotional subject and entailed tricky social policy issues. The IAA recently conducted a Natural Disaster Insurance Survey of 420 actuaries, which found that 55 per cent were against making flood insurance compulsory.

Many respondents felt that those at low risk would effectively be subsidising the high-risk households, discouraging individual responsibility.

The majority of respondents supported the existing risk-rated model for property insurance, while 73 per cent rejected community ratings for flood insurance and 53

per cent rejected premiums being subsidised for high-risk policy holders.

McCarthy said the survey revealed very disparate views on the issue among an informed subset of the community, which was evidence of its complexity.

The Australian Direct Property Investment Association (ADPIA) and GSA Insurance Brokers noted that the underinsurance issue did not only affect homeowners but also commercial property managers.

“Although the Government is now moving to standardise policy definitions, it is doubtful that any such standardisation could be introduced to ensure all commercial property managers are adequately covered,” said GSA chief executive, Paul Hines. He said despite changing business models the funds management industry had noted a reluctance among insurers to amend or broaden their product.

Platforms engaged in advertising war THE major investment platform providers have embarked on aggressive advertising campaigns this year in a bid to differentiate themselves from one another, but whether they are of actual value is questionable, according to Wealth Within marketing director and industry stalwart, Colin Owens.

Owens said this year’s advertising campaigns were the biggest in a number of years as the battle for market share between bankowned platforms rages on.

“I don’t think they can afford to marginalise their fees much more than what they already have, because they need every cent they get now through the door to make themselves profitable,” Owens said.

“[Bank-owned platforms] want market share and they want funds under management. At the moment, given the way the fees are, they’re not really making bucket loads of cash and they don’t want to lose the independent sector to boutique operators,” he said.

According to Owens, non-aligned dealer groups seem to be leaning towards the smaller platforms, which might be the reason for the big four’s advertising battle.

“They’re trying to differentiate themselves to attract external people, IFAs [independent financial advisers] and dealer groups, into their platforms and make it attractive for them to join forces.”

4 — Money Management April 21, 2011 www.moneymanagement.com.au

INVESTORS in the fixed income market need to make sure they diversify within the sector to avoid running into trouble from asymmetric risk/return characteristics, according to the head of fixed income and credit at Perpetual, Michael Korber.

Speaking at an Australian Institute of Superannuation Trustees seminar in Melbour ne, Korber said the key to investing in fixed income was to look after its asymmetric downside risk. “ We always emphasise in fixed income that it has a risk/return characteristic which is very asymmetric. The upside is a pre-defined coupon, which is a few per cent a year, but your downside is your entire capital,” he said.

Diversification was the key to managing that downside risk, Korber said.

“Occasionally you make a wrong decision, so diversification is critical. A lot of the problem with people is that they put a lot of their money into similar securities,” he said.

Diversification in fixed income is more important than in equities, Korber said.

“The measure of getting the benefit of fixed income is to understand risk and to manage risk well in these portfolios,” he said.

Investors should hold at least 100-200 fixed income securities to protect themselves against downside risk, Korber said.

Korber also warned that investors should only invest in the most transparent fixed income funds.

“The moment they start getting too complicated, don’t buy them. Fixed income is about predictability,” he said.

News

Trio compensation leaves SMSF investors in the cold

By Ashleigh McIntyre

Sharyn Long

THE collapse of Trio Capital and the subsequent lack of financial assistance for self-managed superannuation funds (SMSFs) has revealed a gaping hole in the compensation safety net for SMSF investors.

This has led to calls by the SelfManaged Super Fund Professionals’ Association of Australia (SPAA)

to set up a compensation scheme, similar to that of large super funds, to cover instances of fraud.

In last week’s announcement, the Minister for Financial Services, Bill Shorten, announced that only funds regulated by the Australian Prudential Regulation Authority (APRA) would be eligible for compensation.

The $55 million of financial assistance will be funded by way

of a levy on all APRA-regulated funds, which will then be distributed to the funds whose members require compensation.

But the 690 direct investors, of which 285 are SMSFs, were told they would not be eligible for compensation as there was no compensation scheme set up for these investors.

Instead, they were told to consider contacting the Financial

Keays loses dismissal court case

2A>K

,

:MHG

By Jayson Forrest

A CASE of unlawful dismissal brought against JPMorgan Chase by the former Australian head of its corporate derivatives marketing, Colin Keays, has been rejected in the Australian Federal Court.

In handing down his ruling last week in the case of Colin Keays v J.P. Morgan Administrative Services Australia Ltd, Justice Robert Buchanan found there was no evidence to support a breach of contract or unlawful dismissal of Keays by JPMorgan in 2008.

Keays, who was suing JPMorgan for over $6 million, argued that JPMorgan had poached him from Deutsche Bank in 2005 with a $500,000 signing bonus and an additional $450,000 performance bonus in the first year of his contract heading the foreign exchange desk.

However, Keays testified during the trial that in 2008 his position within the company was changed, where he was moved from the public side of the business to the private side, serving only JPMorgan clients.

Keays argued that this change drastically limited the customers he would deal with, thereby losing potential bonuses that were tied to revenue that he could bring in for the company.

Justice Buchanan, however, found that JPMorgan was well within its rights under its contract with Keays to dismiss him by giving him three months termination notice or pay in lieu of the notice. Justice Buchanan said the bank had stood by the terms of the employment contract.

Ombudsman Service.

Shorten was quoted as saying: “If people wish not to operate under those SMSF regulations, they’re free to become members of the APRA funds.�

SPAA chair Shar yn Long said that SMSF members should not be forced to turn to a potentially long and expensive court process to seek redress in cases of fraud.

!>LM =O>KMBL>F>GM

,:KD>MBG@ 3>:F

HG

:R

MA>

/:KD

2R=

G>R

8HNG@ <AB>O>K

The annual Money Management Fund Manager of the Year Awards recognises excellence in the funds management industry. This yearâ&#x20AC;&#x2122;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

www.moneymanagement.com.au April 21, 2011 Money Management â&#x20AC;&#x201D; 5

News

Fund managers see value in income equities

By Ashleigh McIntyre FUND managers have warned that blindly relying on growth stocks to provide outperformance will not work in the changing economic environment.

Investors Mutual Limited (IML) head of research Hugh Giddy said that while a ‘scattergun’ approach used to work, investors would need to be more discerning in a market that is being driven by leverage.

“The fundamental thing is that households and governments have too much debt and that debt environment means there is a real constraint on spending,” Giddy said.

“That’s an environment we see as being a pretty tepid environment for growth.”

He said that over the next five to 10 years, investors would need to be very selective about the types of stocks they owned.

“That’s not to say you have to have value stocks or growth stocks, but you have to own stocks that are really able to grow or deliver for you through income despite the lack of growth,” he said.

Giddy expected to see dividends making up a bigger percentage of overall market return than what investors are used to – which is currently around half of total return.

On the other side, Aubrey Capital

Management investment manager Lynne Thornton said growth equities were well positioned to outperform in 2011.

“We believe it is a year for growth equities as we see it as a year of inflation rather than recession, and equities rather than bonds.”

Thornton added that growth had outperformed income over the last 20 years, save for 2008 when the global financial crisis was a factor.

Direct property manages longevity risk

Richard Stacker

By Chris Kennedy

THE use of direct property within self-managed superannuation funds (SMSFs) could help to balance longevity risk and investment risk, according to a report from Charter Hall Direct Property and Strategy Steps.

For trustees moving from the accumulation phase to the pension phase it is important to limit investment risk, because if the value of a portfolio drops in a downturn any funds withdrawn serve to lock in those losses, according to Charter Hall Direct Property chief executive Richard Stacker.

As a result, many trustees move to a much more defensive allocation in retirement, but with life expectancies growing and many people expected to live 30 or more years beyond retirement age some allocation towards growth is necessary to maintain funds while allowing for some withdrawals, he said.

Direct property helps manage longevity risk because it provides attractive long-term returns compared to defensive assets such as cash and fixed interest, but has a much lower correlation to equities than listed property and is less volatile than growth assets such as equities, he said.

Commercial and industrial direct property is also far less susceptible to interest rate rises in the way residential property would be because it has a lower gearing ratio and the rent compared to turnover it low, he said.

6 — Money Management April 21, 2011 www.moneymanagement.com.au

Great value for More of your clients.

3.000%

FirstChoice Wholesale Personal Super

Average Retail Fund

2.000%

We’ve lowered the minimum investment on two of our leading platforms, giving more of your clients the ability to benefit from lower fees and great features 1.000%

which may have previously been out of reach. The minimum investment for FirstChoice Wholesale Personal Super is now only $1,500, reduced from $100,000 – and FirstWrap Plus is now only $20,000, reduced from $250,000.

0.000%

$20,000

$25,000

$50,000

$100,000

$250,000

$500,000

$750,000

$950,000

With these lower fees you and your clients still get all the features you’d expect plus a whole lot more on FirstChoice, including the fastest transactions in the platform market, great reporting, more flexible insurance and broad investment choice.

To find out more, contact your Business Development Manager, call 13 18 36 or visit colonialfirststate.com.au/lowerfees

The above chart shows fees for retail personal super funds at various account balances and compares fees for the FirstChoice Wholesale Balanced option, that has 70% growth assets, to fees for an average retail fund calculated using the included funds’ multi manager option with a 61-80% allocation to growth assets.

Source: Chant West Pty Ltd. The funds included in the calculation of fees for the average retail personal superannuation fund are the funds in the top 10 retail superannuation products either by assets under management or flows. Total fees include administration and investment fees but exclude standard commissions paid to financial advisers. The fees for retail funds do not include contribution fees which may be payable in addition to the fees shown above. Fees are at December 2010 and are gross of income tax of 15%. FirstChoice Wholesale Personal Super investment minimums are as at March 2011.

The investment fees include the performance fees for the most recent period over which they were disclosed. Transaction fees have not been included in the comparison.

For further information on this comparison visit colonialfirststate.com.au/lowerfees.

The Chant West data is based on information provided by third parties that is believed accurate at December 2010. Your objectives, financial situation and needs have not been taken into account by Chant West and you should consider the appropriateness of this information having regard to your objectives, financial situation and needs, and read the relevant Product Disclosure Statement, before making any decisions. Chant West’s Financial Services Guide is available at www.chantwest.com.au. Different fees and costs apply to other investment options. Fees and costs may change. Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (Colonial First State) is the issuer of interests in FirstChoice Wholesale Personal Super offered through the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557. Avanteos Investments Limited ABN 20 096 259 979, AFSL 245531 (Avanteos) is the issuer of interests in FirstWrap Plus and FirstWrap offered through the Avanteos Superannuation Trust ABN 38 876 896 681. This is general information only and does not take into account any individual objectives, financial situation or needs. Investors should consider the PDS available from Colonial First State before making an investment decision. Colonial First State and Avanteos are owned ultimately by Commonwealth Bank of Australia ABN 48 123 123 124 through the Colonial First State group of companies. Commonwealth Bank of Australia and its subsidiaries do not guarantee performance or the repayment of capital of Colonial First State or Avanteos. CFS1997/FPC/MM

News

Pre-budget calls for contribution cap relief

By Chris Kennedy THE National Institute of Accountants (NIA) and the Tax Institute have appealed to the Government to relax the strict conditions around contributions caps in the upcoming Federal Budget.

The NIA called on the Government to raise the current cap limits, which it said were too low for older Australians looking to retire in the next few years, while the Tax Institute said the penalties for those who unintentionally breached the caps were too severe.

The NIA said that pre-2008 amounts should be reintroduced and that all older

Robert Jeremenko

Australians should be able to access a higher contribution cap.

NIA chief executive Andrew Conway said Australians trying to maximise their retirement nest egg were most in need of Government support as they looked to make contributions above the superannuation guarantee level in the later stages of their working life.

If it was not possible to reintroduce the previous cap levels due to fiscal tightening, then Australians over 50 with low super balances should have other means of increasing their super, according to the NIA. The Tax Institute stated that while the

policy intent of contributions caps was correct, excess contributions made accidentally – sometimes by an employer rather than the taxpayer – could be taxed at up to 93 per cent.

Harsh penalties should apply to anyone trying to rort the system but the Government should change the legislation to ensure superannuation funds reject excess contributions without honest taxpayers being penalised, said Tax Institute senior tax counsel Robert Jeremenko.

Rules to reject excessive contributions can be combined with other integrity measures to ensure that caps are effectively policed, he said.

ASIC looks to increase disclosure on directors and key managers

By Caroline Munro

INCREASED disclosure around the history of company directors and key managers, including previous convictions or personal bankruptcies, is one of the proposals outlined by the Australian Securities and Investments Commission (ASIC) in its prospectus disclosure consultation paper.

ASIC stated that it sought to improve disclosure within com-

pany prospectuses used for initial public offerings or by those with listing intentions through various proposals set out in its recently released Prospectus disclosure: Improving disclosure for retail investors consultation paper. The improved disclosure requirements aim to improve the quality of information released on the proposed business model as well as the associated risks, making it easier for retail

investors to use prospectuses to make an informed decision, ASIC stated.

In its consultation paper, ASIC highlighted a number of shortcomings in the current disclosure requirements, one of which was the absence of complete disclosure on directors and key managers that lead or manage companies. ASIC proposed that prospectuses should explain the relevant expertise and skill of

directors and key managers, as well as any criminal convictions, personal bankruptcies, disqualifications or disciplinary action within Australia or other jurisdictions in the last 10 years. ASIC also proposed that an explanation be required if a manager or director was an officer of a company that went insolvent during or within 12 months after their term.

Another shortcoming identified

in current prospectus requirements was that risk disclosure was too general, ASIC stated. It proposed that all principal risks be highlighted, as a list of every conceivable risk may not necessarily help investors make an informed decision. ASIC noted that risk disclosure should be specific to that company, with an explanation of what is likely to happen if the risk actually occurs.

ACI004/TEA/MM/DPS/2

Think

Some fund managers think in boxes. Whatever asset class they work in, that’s their box. But the world doesn’t work like that. That’s why at AMP Capital we believe in thinking wide. We have over 250* investment brains covering every asset class that matters. Each one is a specialist but together we are something far greater. There’s no crystal ball that can see into the future so we offer the next best thing – being able to see right to the edges. 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.

8 — Money Management April 21, 2011 www.moneymanagement.com.au

News

Midwinter planning software aligns with North Divorce the

By Milana Pokrajac

FINANCIAL planning software provider Midwinter has released a new version of its Reasonable Basis software, which is aligned with recent changes to AXA’s North platform.

The new AXA North product now has eight administration fee tiering levels with discounts to the administration fee based on certain investment options selected.

According to Midwinter director for strat-

egy and technical services, Matthew Esler, the new fee structure made the North platform a much more complex product for advisers to model.

Esler said AXA North product fees and features were already loaded into Reasonable Basis 3.12, allowing for an automatic calculation of administration fee discounts – a process that he said would take a lot longer if done manually.

Reasonable Basis 3.12 will be available to existing customers by the end of April.

reason for valuations

By Caroline Munro

Matthew Esler

Lost superannuation accounts still growing

By Mike Taylor THE best efforts of consecutive Federal Governments to address Australia’s lost super problem appear to have fallen short, with new data revealing lost account balances are continuing to rise.

The new data, released by Sydney-based ratings house, SuperRatings, has revealed the number of small and lost accounts flowing to Eligible Rollover Funds (ERFs) grew

by an additional 106,000 last financial year.

According to SuperRatings, this brought the total number of accounts, as at 30 June 2010, to 6.1 million – representing around $5.4 billion in unclaimed superannuation.

What is more, SuperRatings claims that the fees being deducted by ERFs from the inactive accounts remain close to double those deducted by mainstream superannuation funds.

“This has allowed suppliers to strip an estimated $130 million from these accounts in the past financial year alone, due in part to Australians’ apathy and in part to a system that makes consolidating superannuation far too complicated, despite the best efforts of some of the better ERFs in the industry,” the SuperRatings analysis said.

The analysis also pointed out that under new regula-

tions that came into effect in October, 2010, the Federal Government would reap some benefits from lost and unclaimed super accounts with those with $200 or less being passed on to the Australian Taxation Office to eventually find their way to consolidated revenue.

It said it expected the proposed SuperStream arrangements and tax file number matching to improve the situation.

RADAR Results has noted a decrease in requests for financial planning practice valuations, although the reasons behind getting a valuation have changed significantly since the global financial crisis (GFC).

The number of valuations conducted

by Radar Results has fallen 31 per cent on 2010. However, the consultancy noted that the reasons for getting a valuation have changed, with the proportion of requests as a result of divorce and property settlements increasing dramatically. Radar Results noted that before the GFC, most valuations were for finance applications or for the lender to check on the equity-to-loan ratio – although few were for those reasons now, it added.

Changes to the shareholding between partners in a financial planning business were also now more prevalent reasons behind a valuation as younger partners sought to buy a larger stake in their planning business, Radar Results stated.

wide.

www.moneymanagement.com.au April 21, 2011 Money Management — 9

News

Family violence shouldn’t alter super rules ATO warns tax

By Mike Taylor THE rules around the early release of superannuation should not be altered to take account of family violence issues, according to the Association of Superannuation Funds of Australia (ASFA).

However, in a submission to the Australian Law Reform Commission, ASFA indicated it would not be opposed to the implementation of measures to protect members who had been

coerced into transferring contributions to their spouse.

The ASFA submission, discussing an issues paper about dealing with employment and superannuation within Family Law and Commonwealth Law, made clear that while the organisation would consider the matters raised in the issues paper, its initial reaction was the early release of super “should not be broadened to include family violence issues”.

The submission also vetoed the suggestion that fund trustees should be obliged to consider whether a transfer request to a spouse under the super splitting regime was made under coercion.

ASFA said that it did not consider it practical to expect the trustee to make enquiries about family violence before actioning a split, but conceded that the issue should be taken into account if a member then separately made contact with the trustee advising they had

been under duress.

The submission said ASFA had no objection to a claw-back provision being introduced to protect the interests of members who had been coerced into transferring contributions to their spouse.

But it said ASFA would be concerned to ensure that such a provision operated by way of a decision made by the Family Court or other Court and which directed the trustee to return the claw-back amount.

AMP Horizons welcomes education framework

By Milana Pokrajac WITH the Government promising to increase education requirements for financial planners through its Future of Financial Advice (FOFA) reforms package, the AMP Horizons Academy is bracing for the likely change, according to director Tim Steele.

Steele said while AMP Horizons had embraced some of the considerations that were being made by the regulators to raise the education standards for financial planners, the company still needed to position itself so it could operate in an environment of increased professional standards.

“Through the academy we already offer a professional year and we know that that’s one of the proposals that regulators and professional bodies like the Financial Planning Association are considering,” Steele said.

“And one of the enhancements we’re considering is actually mapping that experience to a formal qualification that will put

the planner on track for [the Certified Financial Planner designation],” he said.

The Australian Securities and Investments Commission (ASIC) recently released a consultation paper, CP153, which contains recommendations that all existing and new advisers complete a national competency exam followed by knowledge updates every three years, and be subject to ongoing continuing professional development requirements.

ASIC’s paper also proposed all new planners complete a mandatory professional year before being allowed to deal with clients unsupervised.

AMP Horizons Academy, which also served as one of AMP’s main recruitment tools, had 95 graduates in 2010 – 89 of whom currently work as financial planners at AMP. This year, 140 new planners will graduate from the academy, with Steele announcing plans to double this number in

Tim Steele the next few years.

The introduction of the professional year was a way of staying relevant and retaining the ability to provide an entry door to the industry for both new planners and career changes even after the changes were introduced, Steele added.

schemes more targeted, tailored THE Australian Taxation Office (ATO) has indicated it is close to initiating new legal action related to the promotion of illegal tax schemes.

The legal action has been signalled by the Tax Commissioner, Michael D’Ascenzo, who told a recent conference the ATO was getting close to commencing court proceedings during this financial year in relation to promoter penalty laws.

At the same time, the Tax Commissioner pointed to the evolution of tax schemes and the fact that the massmarketed schemes of the past had given way to the development of more tailored and complex arrangements.

He said that since the introduction of promoter penalty laws in 2006, the ATO detected a more conservative risk appetite within the bulk of the tax practitioner, financial adviser and finance sectors.

“The consequence of the changed environment has been that some entities have moved out of the market entirely, others changed their products and some have sought to go to ground,” D’Ascenzo said.

“The strong likelihood of being penalised for promoting tax exploitation schemes is deterring would-be promoters from engaging in dodgy behaviour, and encouraging others to curtail their activities.”

“However we are now seeing more tailored and complex arrangements on the landscape as opposed to the massmarketed ones of yesteryear,” the Tax Commissioner said.

Tyndall cautious about fixed interest

By Caroline Munro

Roger Bridges

SEVERAL risks, including Australia’s high employment rate, rising oil prices and political unrest, have resulted in Tyndall Investments adopting a short-term position in its fixed interest portfolio.

Head of fixed income, Roger Bridges, stated that the current investment boom and low unemployment in Australia provided for a strong outlook for the local bond market.

However, he warned of several risks, including high growth across many sectors aside from resources and Australia’s high employment rate that may become a headache if not managed properly.

“The high employment level means there is a lack of spare capacity in the job market and, in particular, there is little skilled labour available, which will impact on growth,” said Bridges.

“The Reserve Bank of Australia needs to slow some

sectors down if it is to manage inflation risk, so interest rates will inevitably rise, but the timing is still an unknown – which means that some uncertainty is affecting companies.”

He said other risks included the price of oil, which, in light of unrest in the Middle East and North Africa, could derail growth across the world. Policy decisions in the US also posed a concern as its Government grappled with unwinding the quantitative easing package without

reigniting inflation.

“In light of these considerations, at Tyndall we are positioning our portfolio with a slightly short term duration, and we are currently overweight in Commonwealth Government securities, which we usually avoid because of the liquidity premium,” said Bridges.

“We are also selling down semi-government securities which we see as having higher risk, and monitoring credit which is providing good value.”

Actuaries capable of meeting the needs of commissions debate

By Chris Kennedy

THE fees versus commissions debate doesn’t have to be an either/or scenario, and the actuarial profession is in a position to contribute to the solution, according to RGA managing director Pauline Blight-Johnston.

The debate is taking up a

large part of everyone’s time purely because commissions have the potential, in limited circumstances, to cause a conflict of interest, Blight-Johnston told the Institute of Actuaries of Australia conference in Sydney last week.

While a commission ban on investments would not be good for sales, there would still be a

10 — Money Management April 21, 2011 www.moneymanagement.com.au

‘pot of money’ advisers could take a fee from, meaning that it wouldn’t be the end of the world, she said.

But in a life insurance context there was no pot of money to take a fee from, and a system that required an upfront payment would take away from the industry’s ability to meet the needs of Aus-

tralians, Blight-Johnston said.

At a time when there was a chronic underinsurance problem there should be an effort to make that situation better, not worse, she added.

The mistake the industry was making was thinking the solution was either fees or commissions, but it didn’t have to be either/or, Blight-Johnston said.

There were myriad solutions, and the actuarial profession could contribute to finding the best solution, she added.

Those who sell advice need to be fairly rewarded, she said.

Blight-Johnston said that the question was: how do we reward people who sell advice, and what are the appropriate remuneration structures?

News Bendigo rebrands wealth management services Dealer groups

By Chris Kennedy BENDIGO and Adelaide Bank has brought its various wealth management services together under the single brand of Bendigo Wealth Management.

The new division brings together the group’s cash, margin lending, managed funds and superannuation businesses.

These include Adelaide Bank, Leveraged Equities, Sandhurst Trustees and its new low-cost investment platform Trinity3.

The division will be overseen by current executive of Bendigo wealth John Billington, who joined the bank six months ago from his role as IOOF general manager, portfolio solutions.

The changes were initiated based on feedback that suggested customers would like to be able to access a full suite of banking and investment products and services under the one umbrella, Bendigo stated.

John Billington “Bendigo Wealth as a brand will make it easier for our highly valued distribution partners to explain the product range to clients – and for clients to more easily make the connection to a financial services brand that they both recognise and trust,” Billington said.

The rebranding now connects the various products and services following several mergers, acquisitions and partnering arrangements in recent years, he said.

“We also want to make it easier for financial advisers to not only be able to see the full range of investment solutions we offer, but to make it easier for them when they are having conversations with their clients about our products,” he said.

The bank is currently looking to grow from its current level of around 70 advisers and 50 tier-one staff who are qualified to provide limited, over-the-counter advice, Bendigo stated.

Bendigo managing director Mike Hirst said: “The realignment and expansion of our wealth management operations will see us pursue opportunities that will position the group to manage a greater share of the growing Australian managed investment pool.”

Jail sentence for former Fincorp chief executive

By Mike Taylor

ONE of the men at the centre of one of Australia’s most significant recent financial services collapses, the former chairman and chief executive of Fincorp Investment Limited, Eric Krecichwost, has been sentenced to three and a half years’ jail with a

non-parole period of eight months.

Krecichwost was sentenced in the Parramatta District Court on three offences relating to breaches of the Corporations Act involving dishonest use of his position as a company director with the intention of gaining an advantage for himself and

others.

Krecichwost has also been disqualified from managing a corporation in Australia, including as a director of a company, for five years from the date of his release from prison.

Krecichwost was convicted of the offences in February after a jury found that in September

and October, 2003, he dishonestly signed three company cheques for $900,000, $825,000 and $1,980,000 to pay for services that were never provided.

It was alleged that Krecichwost personally received the majority of the proceeds of the cheques.

Managed investment trust tax changes deferred A RANGEof changes to the tax system governing managed investment trusts (MITs) has been pushed back a year to 1 July, 2012, the Government has announced.

The extra 12 months will allow MITs and other sectors of the financial services industry to make any necessary trust deed amendments and systems changes, Financial Services Minister Bill Shorten announced.

This came just a day after Shorten announced the current exemption of financial

planners from the tax agent services regime had been extended to 30 June, 2012, to allow time for the regulatory model to be developed.

The tax laws will also be amended to prevent income tax consequences that may arise from a resettlement where a MIT changes its trust deed to meet requirements under the new system, Shorten stated.

“These amendments will ensure MITs needing to amend their trust deeds, to be eligible for the attribution method of deter-

12 — Money Management April 21, 2011 www.moneymanagement.com.au

mining tax liabilities and deemed fixed trust treatment, are not deterred by income tax consequences from making the necessary amendments,” Shorten said in a statement.

The de minimis rule that allows MITs to carry forward ‘under and over’ distributions into the next income year without adverse taxation consequences will be changed from a dollar value per unit test to a percentage of net assets test.

tightening APLs

By Milana Pokrajac DEALER groups are increasingly scaling down their Approved Product Lists (APLs) and creating their so-called ‘best picks’, according to AMP Capital Investors head of retail distribution Ben Harrop.

Harrop said term deposits offered by banks had been very successful since the global financial crisis, and that dealer groups had started to think about new ways to shape their APLs to make t h e m m o re a t t ra c t i v e t o s p o o k e d investors.

“Dealer groups will still have a range of products on their APL, but they’re now saying there will be a core offering which will be around their model portfolios,” Harrop said.

Harrop believes financial planners have embraced the new trend, which he said was due to multiple layers of scrutiny applied to funds.

Many dealer groups have their inhouse research capabilities as well as ratings provided by research houses, which created at least two layers of filtering, according to Harrop.

“This is a change just from overly expansive APLs. People have been breaking them down, consolidating them down to be much more manageable,” he said.

However, Harrop said appearing on more top lists than usual could often backfire on fund managers.

“If there is the same Aussie equity manager on every list because they’re the same top pick from every researcher – all of the sudden you go from $2 billion to $10 billion – it’s going to be hard to return alpha. “ To date it hasn’t been the case because the beauty about this is that in this industry research houses have different views and factors they take into consideration,” Harrop added.

CapitalComment issues is the MLRs. And there was not a single engagement during the three-hour session on ASIC oversight on what FOFA would mean for ASIC. Perhaps this might be an issue at the next round of ASIC oversight.

Federal matters The Future of Financial Advice changes may be dominating the attention of the financial services industry but Richard Gilbert points out that the Government has a great deal more on its plate.

THE Federal Parliament sat for 15 days during the first three months of 2011. There has been a round of Additional Estimates by t h e p owe r f u l Se n a t e Ec o n o m i c s Committee, and an Australian Securities and Investments Commission (ASIC) oversight committee hearing by the Parliamentary Joint Committee on Corporations and Financial Services (PJC).

The financial services industry players would no doubt say that there is a high level of activity in Canberra, but in a parliamentary sense the level of engagement was not exactly running at a frantic pace. Question Time provides a useful measure of what is important when it comes to political and policy priorities. During the 15 or so House of Representatives Question Times in February and March, superannuation was the subject, albeit incidental, of just one question – which was on the mining tax. It seems that most of the hard yakka in Canberra in super and financial planning is being done by the workers in the bowels of Treasury, and in the Senate and its committees.

HIGHLY regarded Treasury official, Jim Murphy, who heads up Treasury’s markets operations, has no doubt been one such toiler. On Australia Day he was awarded a Public Ser vice Medal for ‘outstanding public service in developing public policy which delivered world’s best practice standards of corporate governance and financial system regulation, and in advising the Australian Government on its response to the global financial crisis’. Jim has been the first advice port of call for governments of all persuasions for more than 20 years – only interrupted with a short stint at the International Monetary Fund in Washington DC. He has been accessible to the

industry in a way that few other public servants could rival, and his candour and industry knowledge have been appreciated immensely. It would be difficult to find in the public service anywhere in the OECD world, an officer who occupied the ‘hot seat’ during the property trust failures, the bond crash, the tech boom correction, the millennium bug, the Asian financial crisis and more recently the global financial crisis – but Jim has been there.

THE Senate Economics Committee held its February Additional Estimates Hearings on Treasury, ASIC, the Australian Prudential Regulation Authority and the Australian Competition and Consumer Commission (ACCC). This committee is led by Senator Annette Hurley (Labor, SA) who has a reputation for being a fair and hard working committee chair. She retires from the Senate in July 2011 and will be a loss to the Committee. Parliamentary enthusiasts find the transcripts of these hearings to be a lively reading exercise, as are some of the answers to the 200 or so questions that are taken on notice.

BERNIE Ripoll, Member for Oxley, Qld, c o n t i n u e s t o c h a i r t h e P J C . Be r n i e i s another chair who is respected for his balance and objectivity. In a first, and coincidentally in the wake of the James Hardie judgement in the NSW Court of Appeal, the P J C t o o k e v i d e n c e f ro m t h e At t o r n e y General’s Department on the Model Litigant Rules (MLRs) as well as its views on ASIC’s adherence to the MLRs. In an interesting twist there was not a single mention of the high profile James Hardie case on which ASIC is seeking leave to appeal in the High Court, and one of the hotly contested

FOFA is a hot issue for the industry. The national dailies report on FOFA, but the real action is in the trade papers. Clearly, many in the financial planning industry feel unjustifiably threatened by the changes. The Money Management website’s lead article of 31 March, 2011 on FOFA attracted several comments, all of which contained fairly strong language on the opt-in and its out workings. Whoever is advising Minister Shorten on this one should set aside some time to read these comments, and others in the trade press, as they contain messages that reflect an apparently high level of frustration with FOFA. The financial planning industry is a fundamentally good one by OECD standards. Advice can be accessed via a number of different channels and there is intensely strong competition between institutions and funds. However, rules which set out in fine detail how a contract for the provision for a service should proceed run the risk of being overly onerous, impossible to police and attractive to somehow avoid.

As well, they could be expensive and work against financial advice being both affordable and accessible.

ONE of the interesting battles of the minds and tactics will occur in the Senate when it resumes for the 2011 Budget. The current Senate Notice Paper records the extant Se n a t e O rd e r s f o r t h e p ro d u c t i o n o f Government documents. The list is not a long one, since Gover nments usually respond promptly to such orders – not only as a mark of respect to Senate procedures, but also to avoid needless debate which takes up valuable time for legislation.

However, in relation to two Senate Orders on superannuation default fund arrangements and the provision of report to the Senate by the Productivity Commission (PC), the chairman of the PC has advised the Senate that it is not in a position to comply. When the Senate returns for the Budget sittings, there will no doubt be a debate on this matter led by Opposition shadow minister for superannuation, Senator Cormann.

The second motion agreed by the Senate includes the following paragraph: ‘Under section 49 of the Constitution the Senate has the undisputed power to order the production of documents necessary for its information, a power which encompasses documents already in existence and docum e n t s re q u i re d t o b e c re a t e d f o r t h e purpose of complying with the order’. One such order for the creation of a document occurred in relation to a corporate law bill, where the Senate made an order requiring the Australian Securities Commission to produce a report on the first two years of operation of certain amendments to the bill. The report was duly produced in 1998.

HNW SNAPSHOT High-net-worth investor stats

$1.1bn spent on primary investment advice

57% $420 $819

wish to recieve more advice million more to be spent on advice billion held in investible assets

Source: Investment Trends

What’s on Small Firms Forum 2011 for Accounting Professionals 2-4 May Bayview Eden, 6 Queens Road, Melbourne www.fmrcsmithink.com AIST’s Fund Governance Conference 4 May Swissotel, Sydney www.aist.asn.au/fundgov_ overview.aspx Successfully Selling Fee for Service 9 May 190-200 George St, Sydney www.fpa.asn.au Investor Roadshow – SMSFs 10 May – 8 June National http://www.asx.com.au/ resources/calendar.htm Money Management Fund Manager of the Year Awards 26 May

Richard Gilbert is a former CEO of the Investment and Financial Services Association (now known as the Financial Services Council).

Sheraton on the Park, Sydney www.moneymanagement.com. au/FMOTY

www.moneymanagement.com.au April 21, 2011 Money Management — 13

FOFA roundtable

Left to right: Marianne Perkovic, Mike Taylor

FOFA reforms roundtable Money Management recently hosted a roundtable about the effects of the Government’s proposed Future of Financial Advice reforms. The key concern of those present was that big banks, institutions and industry funds would benefit at the expense of mid-sized dealer groups and IFAs. MT Thank you everyone for joining us. We’ve reached a very interesting point with respect to financial planning and financial services generally.

We’re on the cusp of the minister making a statement with regard to the Future of Financial Advice (FOFA) reforms.

But the bottom line seems to be that the industry probably won’t get an entirely desirable environment to operate in, and the first thing on the list for most people here would be volume rebates and the form they’ll take after any legislation the Government imposes.

Andrew, what do you think will be the

situation confronting dealer groups and others in the post-FOFA environment?

AG Obviously the Government is going through its final deliberations on that and in terms of volume related payments there’s two primary models on the table.

One is the so-called purist model, which would prohibit all volume related payments.

The other one is the pragmatic model, which says if you’ve got volume related payments that conflict advice or have the potential to conflict advice they’d be prohibited – but if you have payments that don’t conflict advice and are in fact an

14 — Money Management April 21, 2011 www.moneymanagement.com.au

Present Mike Taylor

–

Managing editor, Money Management

Indy Singh

–

Managing director, Fiducian Portfolio Services

Andrew Gale

–

Chief executive, Count Financial

Gerard Doherty

–

Chief executive, Fidelity Investments

Marianne Perkovic –

General manager distribution, Colonial First State

Brad Fox

Chairman,Association of Financial Advisers

–

advantage to clients perhaps they should continue. So they’re the two primary models being looked at.

The Government really needs to work through what the implications are going to be if they pursue any particular path. I think one of the issues with the so-called purist model is some of the out workings of that. I think some of the out workings would be that it would confer additional power to the vertically integrated organisations in the market. It would have a greater degree of disruption.

Some of the large licensees are well positioned to deal with that because they would basically change their business

models – especially looking at taking on platform manufacture or responsible entity type roles. So larger licensees can do that, but it’s more challenging to smaller to mid size licensees.

A likely consequence if you went down the purist model route is some industry consolidation and arguably the diminution of independence of advice in the marketplace, which I don’t think would be a great outcome. That’s not to say that’s not the path that the Government will or won’t go down ultimately, but I think they really need to go in with their eyes wide open regarding what the flow on consequences are.

FOFA roundtable through platforms and Count has got that in place but it’s basically a margin which we’ve effectively determined.

There’s no conflicts involved, it doesn’t influence asset allocation, it doesn’t influence fund manager selection, it’s platform neutral, it’s product neutral, it’s transparent, it’s fully disclosed, it doesn’t conflict advice in any way. It’s simply that the margin that is involved in financing licensee activities is reflected through the platform mechanism, is fully disclosed, and doesn’t conflict advice.

Our contention would be that those sorts of arrangements are sound and are in the client’s interest because there is no conflicted advice – and you can tap into scale limits through accessing some of our large platforms.

MT Marianne, you’re coming from a different position from 18 months ago, how do you see it?

MT Indy, do you have a view?

IS Not much of a view because we don’t take volume rebates, we don’t pay volume rebates because of our model. But what we see is that it will always be difficult to distinguish between where the conflict arises, whether it’s a purist model or a conflicted model or a pragmatic model.

And the proof will lie eventually in how a dealer that is accepting a volume rebate can justify that payment.

In many instances in the past, from my discussions with people, it hasn’t exactly been disclosed fully because apparently it goes to a dealer.

And it might be much simpler to add to the total fee and explain to the client that the total fee is whatever the percentage of the rebate is added to the adviser fee, which then makes it much higher than what is represented. I think if it is not clearly disclosed, I think that’s an error.

You must disclose fully and I think that’s where the difficulty will rise.

AG If I can respond to that a little bit.

There are a range of business models out there and each of them, as you say, are slightly different. But there are certainly what are called volume rebate payments out there which are basically fee structures

MP Andrew’s comment about the Government needing to go in with its eyes wide open is a very clear one. Without rebates and clarity around whether white label payments are included, the advice businesses will become product manufacturers. You will then have people whose core competency is to give advice and run the licence now having to be a product manufacturer.

There are some businesses like Indy’s that have done that and can do that, but there’s a lot of other businesses that don’t have that capability. So it will either lead to consolidation or a whole group of businesses running these products.

If you have a think about what’s in the best interests of the clients, are they better off to have been an advice giver who got a rebate or an adviser that’s now become a product manufacturer? I think that would be a greater risk. So post FOFA and if rebates go, that will be the discussion we’ll have: is the industry reinventing itself, and are more product manufacturers coming?

IS Marianne, you’ve been involved with large scale financial planning and there’s been a move for a number of small or independent dealer groups to start clubbing together to force a platform operator to give them a rebate because they then have muscle of coming together. Isn’t it actually a function of their ability to survive? I mean, if they do not get these rebates, their survival comes into question because they don’t have the revenue.

So as you said, the Government needs to look very carefully or it will destroy the independent advisers who got together.

MP Under the current discussion on banning rebates there’s less choice for a consumer to go to an adviser, and they’ll be forced to become vertically integrated or institutionally owned. But that’s been brought to their attention many times. I get the feeling they don’t care about it.

IS There’s many other things too.

MP Yes, and a couple of the minister’s staff have made it clear in making comments about the fact that these businesses are such a small part of the indus-

Andrew Gale

Without rebates and “clarity around whether white label payments are included, the advice businesses will become product manufacturers.

- Marianne Perkovic

”

good thing because they’ve all just banded together to get a rebate. And institutions that pay rebates are actually – obviously I can talk about Colonial First State (CFS) – thinking about whether under this new environment, is it right for people to club together and get paid a rebate that is passed onto the adviser.

IS Is there a broader question that the dealer who’s got this disparate group of advisers doing pretty much what they like is abrogating their responsibility as a dealer?

MP It’s a bigger risk to the industry, yes.

try, change will force structural change, but it’s such a small part of the industry that they don’t seem to care.

ASIC scrutiny of aggregators IS So do you see problems with these structures of cooperatives that just got together to get a better fee from a platform?

MP Yes. ASIC has already come out to say that their focus for 2011 is to look at aggregated models and I think that’s a

AG I think one of the core issues is that if what you end up with is business models where in some cases the licensee or dealer function is disintermediated, then I think there’s some risk issues. Licensees and dealers exist for a reason and part of it is a scale advantage. But it’s also around risk and compliance, and quality assurance processes and constructing Approved Product Lists, and practice management and all those things.

If you set up a framework whereby some of that role gets diminished or is restricted by some of the regulatory changes in Continued on page 16

www.moneymanagement.com.au April 21, 2011 Money Management — 15

FOFA roundtable

Left to right: Brad Fox, Indy Singh, Andrew Gale

Continued from page 15 terms of the commercial model, then I think you actually increase the risk in the system by diminishing the role of the dealers and licensees. And I don’t think that point is clearly understood.

One of the points I’ve certainly submitted to some of these regulators and public policy makers is to look at the UK experience. There’s 20 years of experience there to look at. They brought in their Financial Services Act in the late 1980s, the intention of which was to increase the independence of advice. They set the hurdle so high in terms of what was independence of advice that it had precisely the opposite effect – you had a big shift towards aligned advisers, and a big reduction in independent brokers. And they’ve spent the last 20 years playing around with that system trying to clean it up.

Now whenever you’ve got regulatory change, one of the big issues is always the law of unintended consequences. They are absolutely at large with whether you’re talking about the volume-related payments or opt-in issues etc, thinking through the real consequences and some of the unintended consequences.

The same thing applies with opt-in.

Some people argue that opt-in isn’t actually in the client’s interest. I think there’s some very potent arguments as to why opt-in is actually against client interest.

Now some of the consumer representative bodies such as Choice and the like may not want to listen to those arguments closely – maybe that doesn’t resonate politically.

BF I’d like to make a comment. Minister Shorten said that he is a true believer of the law of unintended consequences and the Association of Financial Advisers’

Some people argue that opt-in isn’t actually in the “client’s interest. I think there’s some very potent arguments as to why opt-in is actually against client interest. ” Gale - Andrew

(AFA’s) view regarding volume bonus payments is that this is precisely the likely sort of thing we will see, because what we don’t need is increasing concentration in the marketplace. And the likely outcome of this is that it will put a real squeeze on the mid tier dealer group. And we tend to agree that we’ll see vertically integrated dealer groups creating their own product, which perhaps creates more bias around advice rather than less.

So if we’re going to put the consumer first, we need to separate product from strategy advice (knowing that at times there will be overlap) but we do need to separate that as much as we can. And having a well-preserved advice marketplace is the key and we don’t think volume payments will achieve that. By banning volume payments, we don’t think that will achieve that.

Valuing advice MT Gerard, you’re coming at it from a somewhat different perspective and I would like to think a dispassionate observer almost at this point. What’s your feel on where it’s going?

GD I’d make a couple of comments.

Firstly, Australia is well ahead of the world in heading down the path that it’s heading down. In the majority of countries,

16 — Money Management April 21, 2011 www.moneymanagement.com.au

commissions still live and volume rebates still live – and in large countries, with loads of money flow. So Australia is at the leading edge, or bleeding edge, of this.

We’re a much better quality financial planning world than the majority of countries (maybe the US I’d say is equal, maybe Canada) but well behind in other countries where products are still flogged with rebates. So I think we should be proud that we’ve got an industry that’s been able to progress so well.

As a bystander, I’ve seen this. If you play the devil’s advocate you’d have to ask, I listened to Brad’s comments there and I’m probably echoing some of what’s going on in the minds of regulators I talk to. If advice is so valuable, why can’t advice stand alone and justify a fee purely for advice alone? And that’s where this volume rebating comes from, whether it’s a good rebate or a bad rebate, it’s still a payment that’s coming from somewhere else to cover the cost of advice. So their thinking is: ‘Why can’t advice stand completely by itself if it’s so valuable?’

We’ve got to think through the way the regulator is thinking about this and argue against its perspective. I certainly think having product separate from advice is important, the question is, can advice live without product? Can you run an advice business without a product being able to

generate the fees? That’s the critical issue.

And they’re posing the question, surely you should be able to do that. But there needs to be a long transition. So if you’re going to introduce a world like that you don’t do it quickly, you do it gradually.

AG I think if you’ve got payment structures, either from fund managers or platforms, which go through to advisers that either conflicts advice or has the potential to conflict advice, which in many cases it would, then those sort of arrangements shouldn’t exist in the industry because they do have the potential to influence advice. So in the main I think advice by the adviser will still stand on its own with explicit advice fees and some base fees or retainers. The issue is if you then also have a licensee function, what’s the commercial model that is going to apply for funding a licensee function? And there’s a couple of models there. One could be that there’s an explicit margin for licensees and that gets bundled in with the advice margin and that’s fully disclosed, that’s one model.

Another model is that you’ve got a margin for licensees that they determine and if a lot of the advice is executed through platforms – as long as that’s on a platform neutral basis and it’s not related to volume targets or anything like that, in other words its non conflicted – that’s another model that can apply. So I think the advice portion provided by the adviser is already largely stand-alone and explicit. Obviously there’s an opt-in/opt-out issue to sort out. But part of the model is how do you fund some of the licensee functions and one of the risks with the purist model is that that becomes a lot less transparent in vertically integrated organisations.

Continued on page 18

Equities Trading Gearing Debt Optimisation Portfolio Administration Tax Reporting Cash Portfolio Construction IPOs & Placements

We’ll help you grow from the middle up.

You may not recognise our name. But as a leading provider of wholesale investment solutions, we’re already at the centre of more than 10,000 advisers and 400 dealer groups, as well as some of Australia’s largest financial institutions.

So why put us at the heart of your operation? Mostly because we can help you meet your clients’ increasing demands. From equities trading to gearing, portfolio administration and beyond, we can help broaden your offering. And grow in this rapidly changing market.

For more, call 1300 360 896 or visit coreservices.com.au

Disclaimer: Share trading through Core Equity Services is a service provided by Australian Investment Exchange Ltd (“AUSIEX”) ABN 71 076 515 930 AFSL 241400, a Participant of the ASX Group. Core Equity Services is a trademark of the AUSIEX. AUSIEX is a wholly owned, but non-guaranteed, subsidiary of the Commonwealth Bank of Australia (“the Bank”) ABN 48 123 123 124 AFSL 234945. The Bank and its subsidiaries do not guarantee the obligations or performance of AUSIEX or the products or services it offers. AUSIEX is not an Authorised Deposit Taking Institution and its obligations do not represent deposits or other liabilities of the Bank. This information has been provided for Australian Financial Services Licence holders only. Please consider the appropriateness of the information provided in the PDS/T&C’s in regard to your client’s individual needs and circumstances. Products under the Colonial Geared Investments brand are provided by the Bank. CSL0088/MM

FOFA roundtable

Left to right: Mike Taylor, Gerard Doherty

Continued from page16 GD I was going to go on and say that the challenge to me is the licensee. You could probably have a world of advisers who are purely paid on advice with no conflict, but how does a licensee – particularly one outside the vertically integrated group – survive?

You could argue firstly do we need them to survive and I think the answer is yes. And then how should they survive, their raison d’être is advice, not product. And that’s once again the regulator saying: ‘Hang on, isn’t the licensee part of the advice function?’. So the people who choose to take advice have to pay for the licensee and all that goes with that and the advice.

So I understand how the regulator thinks and from the sidelines you can see why they’re asking those questions, but that takes us as I say right to the bleeding edge globally. And what would worry me is if you did it quickly you’d drop a whole bunch of licensees out which drops a whole bunch of financial planners out, and we end up with a world that’s got five or six very large industry funds and five very large banks and insurance companies.

AG So the potential irony is that the initial concern was around conflicted advice or biased advice, and the outcome of the process is if you went down that path you end up with a significant increase in the vertically integrated, which probably by definition means I guess more independent advice and a greater degree of advice which is oriented to in-house institutions.

G D The argument against that is there’ll be no advice that’s anything but

“

The biggest issue for me is where does the dealer fit in all of this, because the dealer is not currently sharing the advice fee – they’re making their fees elsewhere.

- Gerard Doherty

independent. All advice must be independent. By the definition of the fiduciary role it must be independent.

MP The main point is businesses like Count, Andrew’s business, that sit in that independent space now become product manufacturers, and that’s okay, who have to be forced to come up with their own funds, their own model portfolios, their own ETFs, etc. So ultimately then the losers are stand-alone investment businesses and others because they’re not going to outsource that or use best of breed. For them it’s going to be about looking at where that revenue has got to come from.

AG That’s just best quality Marianne.

MP I know.

IS I would like to make a point. The point really is conflicted advice and I think we’ve made a mountain out of a molehill because there’s been few instances of conflicted advice but magnified to a substantial degree. You talked about an adviser charging and being independent.

Let me put the point before you: how many people would go to a GP if they had to pay the cash or the cheque by

18 — Money Management April 21, 2011 www.moneymanagement.com.au

”

themselves? It’s a collection mechanism.

The Government collects from us and pays the GP. The GP does not have to be charging because of a drug or a product, and the drug manufacturers don’t have to disclose how much each percentage or every little component of a drug costs.

There’s a drug in France that I had something to do with years ago. But there are reports of 500 to 1000 people who have died taking this drug. So are they suing the doctor or are they suing the product manufacturer? They’re suing the product manufacturer.

I say one thing all the time, I’m saying how far is the responsibility taken by the Financial Services Council, and ASIC, because rarely ever has it been found that an adviser has got into trouble because a product has not failed. Very rarely. It’s only got to be bad strategy. And there has to be a sense of responsibility there but they just walk away from it.

When a product fails the financial planner is the softest target and we will always be attacked in spite of the good work we do. So when an adviser says he would like to charge a percentage, we’ve had Chris Bowen who’s the minister come out and say an asset-based charge is allowed.

ASIC has put out a statement on its website saying ‘do not trust an adviser who

charges an asset-based fee’. Well, I’d love to see a Wikileak on it. Where is Julian Assange when we need him? Who actually got these guys to put it on the website and what right do they have independently and unilaterally to do that when 80 per cent of the industry is already involved in this. So I don’t believe that it’s always the fault of the adviser.

You have lawyers and you would know when they manage a deceased estate they charge a percentage; you have a real estate agent who sells your property who charges a percentage; you have a person who produces a loan for you for a mortgage, they charge a percentage. What’s wrong with us?

GD I wasn’t saying any of that, I was simply saying that the regulator wants to see that advice is separated from the product decision. And the issue that the whole thing raises, the biggest issue for me is where does the dealer fit in all of this, because the dealer is not currently sharing the advice fee – they’re making their fees elsewhere. But under the rebate, if rebating goes, then that whole model is tipped upside down.

AG I think the difficulty is that when public policy makers or regulators seek to start getting involved and determining which particular business models are endorsed or legitimate or valid in their view and which may not be, and they make that as an explicit or an implicit decision, I think that’s a dangerous decision to get to in terms of public policy.

They’re saying let’s get the principles right.

Principle number one should be non-

FOFA roundtable conflicted remuneration and payment structures. We shouldn’t have remuneration and payment structures and commercial models which conflict advice. If you’ve got that as one fundamental principle, you’ve got a second fundamental principle which is the best interest that is still being defined.

But if you’ve got a best interest obligation to have proper regard to a client’s circumstances, to give them appropriate advice and in the event of a conflict you put the client’s interest ahead of the adviser’s interest, if you’ve got that framework in place and you’ve got non-conflicting commercial models, they’re the two fundamental underpinnings. And it then goes on to say if you’ve got those underpinnings, what’s the need for something like an opt-in which can be shown to be not in the client’s interest and what’s the need to be basically giving blessing to certain commercial models and limiting the other ones, rather than just sticking to the principles.

Intra-fund advice

Once those sort of things surface it’s tarred not against the super fund it will be tarred against advisers generally as an occupation. So it concerns us greatly that they may get far more than they bargained for in terms of what gets through in advice.

IS I tend to agree with Brad in that you can’t have partial advice, you can’t have half-baked advice, you need holistic and complete advice. And a financial planner in the commercial sector has to go through some serious regulatory requirements, including as Gerard said about fiduciary responsibility where their liabilities are not just $500 but $200,000, which is something a financial planner would

You can’t have partial “advice, you can’t have halfbaked advice, you need holistic and complete advice.

- Indy Singh

”

MT Brad I’ll throw to you. I notice today that you guys were out saying once again that in this whole debate that advice provided in the form of intra-fund advice ought to be treated in the same way under the FOFA changes as any other advice. I take it that’s based on your belief that the dispensation that was offered for intrafund was not appropriate in the first place anyway?

Indy Singh BF A couple of elements to that Mike.

One is that when we go to the charging structures of some of the Industry Super Network members there is free financial advice that goes above and beyond RG200 exclusion that is available to any member who calls up and chooses to accept that advice. In those models we would suggest that in the administration fee there’s a means of paying which is a percentage of fund, which is the same way most advisers are paid.

But the percentage of what they’re paying is obviously been allocated for the fund generally to provide these advisers on a salary, they’re available to all members. So by inference, every member of that fund is paying something for financial advice whether they receive it or not.

So wouldn’t it then be reasonable to expect every member of that fund paying some portion of their ongoing cost for advice to also be subject to an opt-in regime?

The second part would be that in a level playing field debate the exclusion available there is they’re extended to too many segments of so called simple advice. We think that has an enormous potential to cause a further negative view of financial advice as a whole.

Hypothetically, you can imagine the story on Today Tonight. Someone sought advice. They did it over the phone. They got a bit of advice on a transition-toretirement strategy at this point, perhaps a bit on salary sacrifice at another point, another bit around estate planning, another bit around insurance and somehow it all ends up pear shaped.

They end up on Today Tonight saying: ‘Look, I went to all the trouble, I got financial advice, and look what’s happened to me’.

earn in a few years no matter what people might think.

The Government doesn’t fully understand the difference between what they’re trying to push for the industry funds and the unions in terms of intra-fund advice to compete with the commercial sector and the way that we in the commercial sector actually have a contract with our clients to provide a certain level of advice.

And to meet that commitment through an agreement with the client.

There’s a lot of difference between corporate superannuation where an adviser may not see one member out of 5,000, but where we come from it’s a oneon-one personal contract. And I can’t understand – as I think Andrew referred to in the opt-in situation – how a Government can interfere with my contract with my client.

AG Just on the advice models, I’ve got a slightly different perspective on that one.

I think intra-fund advice has got a very valuable role to play, especially within super funds, where people have got simple enquiries and advice requirements relating to their current superannuation interest if it’s contained to that, and I think that’s a valuable role.

What we want to be doing is increasing access to advice for all Australians and I think that means there’s a whole range of advice models that are legitimate and valid. So I think intra-fund advice has a role to play, as does limited, scoped and comprehensive advice.

If anything, I think intra-fund advice should be extended to being an intraadvice concept. And for a lot of advisers they can actually use that framework to

look after their clients, especially clients with smaller contribution levels and smaller account balances. They actually can have the same framework which applies under the class order exemption within super funds. It’s important that something similar to this is available to advisers, especially those who look after their clients.

I think it’s the case that for middle Australia, the most common form of advice five years out is going to be what I would call serial limited advice, a series of limited bits of advice. So we just need to make sure that the framework and consumer protections we’ve got in place for that sort of thing apply. Now there’s a couple of key principles here.

The reality is a lot of the super funds, especially the industry funds, are running a subsidised advice model. There’s a large portion of them that offer intra-fund advice on a no-cost basis and there’s a significant portion which offer scoped advice or limited advice also on a free basis. Now it is a subsidised model and it’s not transparent. So there is a real issue about a non-level playing field, because this is a margin that all the super fund members are paying for advice that is provided to a portion and it’s not transparent. And if the Government is true to its principles it should really sort that out.

Secondly, if you’re going to have a best interests obligation in terms of duty of care which the industry is working through at the moment, it’s important that the duty of care concept applies right across the advice level and it suits what’s called stratified advice models.

It’s not just that there’s a duty of care

requirement that applies for comprehensive advice – there’s a duty of care obligation that applies to limited or scoped advice and also for intra. You can scope the advice up front in your discussion with the client as to whether it’s intra or limited or comprehensive, but within that scope you need to then fulfil the best interest obligation.

BF The difficult thing with scoping is clients don’t understand the terminology.

MP I think as an industry we’ve just got to improve because at the end of the day I think you’ve got to sit back and say there’s only 20 per cent of Australians who currently get advice and how do we reach that 80 per cent. So in the business that I run we have a limited advice ASFL that just focuses on clients with simple advice needs.

This is continuing to be more and more popular throughout our dealerships because clients are saying: ‘I don’t necessarily need to sit across a table and go through my whole life story and have this full page document plan come out. Today all I need to know is where do I put this money that I saved or what superannuation options do I have’. And I think probably more advice businesses need to have a look at how to extend and offer those capabilities.

There’s a lot of cross-subsidisation. We cross subsidise in our industry, industry funds are cross-subsidising, but we have to just work out how we can leverage and use and continue to get the intra-fund advice extended to advisers to make that easier.

I think that’s got to be the focus of associations and the industries.

MM

www.moneymanagement.com.au April 21, 2011 Money Management — 19

OpinionProperty

Weathering the storm Martin Hession takes a look at the property market and finds it is tracking well in spite of the recent natural disasters.

D

espite the impact of floods and storms since the beginning of the year, and overall economic uncertainty following events in Japan and the Middle East, the major property sectors are generally sound – with the market skewed towards undersupply in most capital cities.

As a result, property markets are expected to achieve solid growth this year, and the evidence from the first quarter of the year supports this view.

In particular, office markets are expected to perform well due to sustained employment levels and lack of construction in most city centres in recent years.

Melbourne and Adelaide currently retain the strongest market fundamentals, while Sydney should see improved growth levels later in 2011 since vacancy levels are trending downwards.

In Perth and Brisbane, continued demand for office space has surprised the industry.

These markets are generally recovering more quickly than anticipated from the economic downturn, although there remains some uncertainty about the effect of the flooding in Brisbane.

However, the January NAB business survey showed Queensland recorded stronger business confidence levels, with

expectations that rebuilding will spur business activity. So even in this market, fundamentals for office property are looking healthy.

The weakest of the city markets remains Canberra, which has increasing supply levels. This, in turn, leads to stagnant or contracting rents. Indeed, a further softening of yields is expected throughout 2011.

This is exacerbated by Government steps to reduce costs by reducing staff levels or moving into smaller office spaces.

Industrial and retail property Meanwhile, the industrial and retail property markets are both showing positive signs.

The only potential threat to these sectors is an increased number of properties coming onto the market as the banks look to force the sale of distressed assets, placing downward pressure on prices. This trend will play out for the remainder of 2011 but should start to tail off in the latter half of the year.

With industrial property, there has been little speculative activity in Melbourne and Sydney. This has resulted in tighter supply with limited new stock forecast to become available in the short-term due to funding constraints. Such circumstances create the best underlying property fundamentals in those markets as supply is only being

20 — Money Management April 21, 2011 www.moneymanagement.com.au

added to meet actual demand. The market for existing space remains patchy, with occupier growth more or less exclusive to new facilities.

In the retail market, turnover has tapered recently and consumer sentiment has become more cautious. Retail investment yields remained largely stable in recent months, with slight tightening seen across the Sydney prime central business district market.

2011 is expected to continue to be tough for retailers, which in turn will make it more difficult for landlords to negotiate rental increases. Nevertheless, rental growth is expected to be in line with retail sales growth, forecast to be 3 per cent over 2011.

Opportunities for buying retail properties are likely to be driven by property specifics rather than geographic considerations.

Overall, with little new development on the horizon, the retail sector is expected to withstand the presently difficult retailing conditions and we should see yields compress over the next three years.

Healthcare buildings One dynamic centre of interest is healthcare. Significantly increased interest in healthcare property in Australia is still evident, as offshore investors seek to acquire whole portfolios of healthcare property. This will lead to a general tightening of capitalisation rates, and will in turn lead to increased property values in the medium term.

Demand from healthcare service providers for high profile, well-located properties also

continues to increase. Such factors underpin the rental levels and provide a positive investment position for buyers seeking to enter the property market.

Historically, the performance of healthcare property has been more stable than other property sectors. This proved to be the case even during the economic downturn, and the underlying fundamentals suggest that healthcare property will continue to perform strongly.

This is due to several factors, including the specific assets in the healthcare sector, the types of tenants it attracts, and the unique environmental factors in which it operates, not least of which are Australia’s ageing population and ongoing Government funding commitments.

For instance, many healthcare properties – including hospitals and nursing homes – need to be built or fitted out to defined specifications, which makes them relatively scarce. Tenants tend to stay put for longer periods (the average tenancy for a private hospital is 20 years).

Demand for dedicated facilities will only increase as the Federal Government provides incentives for Australians to take up private healthcare.

These factors combine to make the outlook for healthcare property particularly strong, and now is a good time for investors to consider taking advantage of the opportunities in this sector.

Martin Hession is head of property at Australian Unity Investments.

OpinionInsurance emotionally capable of managing the process on their own.

Finally, a planner has a vested interest in any claim their client is currently or potentially making as it is likely to have an impact, to a greater or lesser extent, on their client’s existing financial plan.

Claims process checklist

Staking your claim

Simon Stanton explains why financial planners should not leave themselves out of the insurance claim process.

A

common Australian greeting is ‘How are you going?’. But most people don’t expect a response to the question – especially when the person they’ve asked is experiencing health problems.

The same cannot be said for financial planners, who have a vested interest in being all ears when it comes to their client’s personal circumstances, as they may indicate potential eligibility to make an insurance claim or alter their financial plan.

AMP data shows that 70 per cent of insurance claims are notified by the financial planner. However, less than 50 per cent of planners actually work with the insurer on the claim.

Although planners take the time to recommend the right insurance product initially, many may not realise the importance of playing a part in the claim process.

However, helping clients during the claims process is fundamental to a planner’s role of ensuring the best financial future possible for their clients.

There are two very basic things a planner should know well: their client, and the product they have recommended. The ability to both identify and manage a claim through to completion draws on their

detailed knowledge of both. A planner’s involvement in a client’s insurance claim is therefore essentially an extension of their service to their client. It also adds an additional level of due diligence to the process.

Since the outcome of any claim could seriously alter or even derail a client’s existing financial plan, involvement in the process seems not only logical, but also vital.

Adding value A planner should always be on the lookout for a potential claim event in their discussions with their client. A client may not recognise the significance of an injury or illness themselves, so the planner’s combined knowledge of the client’s situation and their insurance products is crucial.

For example, a client may casually mention to their planner over the phone that they recently broke their arm, not realising that they may be able to claim for this condition. A planner can help the client understand their contractual rights in practice, not just when they recommend the insurance product in the first instance.

Secondly, the planner can make sure the client is prepared before they discuss their claim with a claims assessor by explaining the process to them, what is involved and

making sure they have all the facts and information required for their first conversation with the assessor.

For example, the claims assessor may request accurate financial data to determine the level of monthly benefit for an income protection claim. In this instance, the financial planner could help instruct the client’s accountant on these requirements in advance. This saves time and money if, for example, incorrect instructions are given to an accountant and also ensures the assessor receives all required information to progress the claim.

While the client and the “insurer have the most direct relationship, including the financial planner can ensure a smooth process.

”

Once the client has lodged their claim, their planner can ensure the process runs smoothly by acting as an intermediary between their client and the assessor to resolve any issues. This ensures the best outcome for their client and is especially important if the client is not physically or

• Have regular conversations with your client over the phone or on email – don’t just wait for the annual review. Checking in regularly and asking open-ended questions can unearth information the client may not even realise is relevant, like a change in job, a pay rise, or a recent injury or hospital stay. The latter may trigger a conversation about their potential eligibility to make an insurance claim, depending on what cover they have; • Once you have identified a claim event, the more information you can glean from the client before they speak with the claims assessor, the better. Ensuring they have all documentation and data required will help them deliver what is needed to have their claim processed in a timely and efficient manner; • Once your client has lodged a claim, track the claim to ensure it stays on course and any issues are resolved early. Some insurers allow planners to ‘opt in’ receive a copy of all correspondence between the insurer and their client. This is an easy way to ensure you stay on top of your client’s claim; • If an issue does arise between the claimant and the insurer, act as the intermediary and liaise with both parties to resolve any problems and provide the insurer with the information they need; • Once the claim has reached its finality, this is a good time to revisit your client’s financial plan. Whether the client receives income protection, which may be a reduced amount to their salary, or a lump sum, or nothing at all, they will need to work with you to adjust to any changed financial circumstances. This may include advice around what to do with a lump sum payment, how to finance medical bills or how to continue paying the mortgage on a reduced income; and • Review the claim process with your client. Were they happy with the insurer?

Were they happy with their insurance product? Did they think the process went smoothly?

Financial planners can play a valuable role in the insurance claim process. While the client and the insurer have the most direct relationship, including the financial planner can ensure a smooth process – with all parties working together to deliver the best outcome for the client.

Assisting a client through the claim process is an extension of a planner’s advice and service. Planners have the experience and knowledge necessary to ‘demystify’ the process for their client.

Supporting a client through the claim process can be a critical part of a planner’s journey with that client, working towards their financial future, and addressing any bumps in the road along the way.

Simon Stanton is head of claims, wealth protection products at AMP.

www.moneymanagement.com.au April 21, 2011 Money Management — 21

OpinionPrivateEquity

Clearing the air

Alexander McNab looks into the private equity market and explains the risks, potential upside and misconceptions that accompany the sector.

P

rivate equity is an asset class that is familiar to most institutional investors – major institutions have long used an allocation to private equity as a way to enhance returns and reduce overall portfolio risk. Recent changes in the Australian wealth management market are leading to an increasing focus on private equity among individual investors and financial planners, and allocations to alternative investments (and private equity in particular) are rising.

This creates a need for a greater level of understanding about the asset class, its risk and return characteristics, and the role that it can play in investors’ portfolios.

private equity managers to take a mediumterm view on business performance.

Investee companies are not subject to continuous disclosure or half-year reporting requirements, so management teams can make decisions that are in the longterm interests of the company, without fear of short-term share price fluctuations; • Private equity investors take meaningful equity stakes in the companies in which they invest, exercising significant influence over the strategy and operations of the business, and taking board seats to oversee and control the company’s performance; and • Private equity investors invest with a medium-term exit horizon, planning to hold the business for three to five years before selling the business at a profit.

What is private equity?

As its name suggests, private equity involves investing in private companies (ie, those not listed on public equity markets like the Australian Stock Exchange). Private equity includes a range of investment strategies (including venture capital, leveraged buy-outs, and growth capital), all of which share three common characteristics: • Investing in private companies allows

Private equity: risk and return Private equity has historically generated strong returns for investors. As table 1 shows, Australian private equity managers have achieved higher returns than both the S&P/ASX 300 Index and the S&P Small Ordinaries Index over one, three, five and 10 year periods.

The superior returns from private equity investment in Australia are consistent with

22 — Money Management April 21, 2011 www.moneymanagement.com.au

the experience in other markets, and underpinned by three features of the private equity model: • A robust investment process that involves rigorous due diligence on potential investees; • An active approach to investing, with private equity managers actively guiding the businesses in which they invest; and • The ability of private equity managers to attract high quality management teams to the businesses in which they invest, and to align their rewards tightly to the success of the business.

returns is in contrast to listed equity fund managers, where managers tend to revert over time to the performance of the index.

This combination of dispersion and persistence of returns makes it important for investors to select private equity fund managers carefully.

Another key difference between private equity and other asset classes is the liquidity profile of the investment. Private equity funds invest in private companies with a three to five year exit horizon, and as a result are illiquid and closed-ended.

Investors considering an allocation to

Table 1 Private equity: A comparison Australian private equity returns

Year to date

1 year

3 years

5 years

10 years

2.24%

17.19%

-0.41%

7.46%

7.95%

S&P/ASX 300 Index

-10.09%

13.05%

-8.05

4.49%

6.95%

S&P/ASX Small Ordinaries Index

-12.98%

11.18%

-14.20%

2.74%

6.20%

Australian Private Equity

Pooled, end to end return net of fees, expenses and carried interest to 30 June 2010 Source: Cambridge Associates/AVCAL, June 2010

A feature of private equity investing that distinguishes it from other asset classes is the importance of manager selection.

Private equity exhibits a much greater ‘dispersion of returns’ (ie, the difference in returns between top quartile and bottom quartile fund managers) than other asset classes. In addition, private equity features ‘persistence of returns’ (where top quartile fund managers tend to remain in the top quartile over time). This persistence of

private equity should ensure that their overall portfolio construction provides them with sufficient liquidity to meet their likely personal circumstances.

Private equity has an important role to play in the portfolios of institutional and high-net-worth investors. In addition to generating superior returns, private equity introduces an important element of diversification in portfolios – with returns being relatively uncorrelated with public equity

markets. As a result, an allocation to private equity can enhance overall portfolio returns while reducing overall portfolio risk.

investors with relatively large superannuation balances are looking for opportunities to diversify outside conventional equities, property, fixed income and cash allocations.

Private equity fund managers are responding to these important changes in the market by broadening their fundraising strategies. More and more private equity managers are exploring ways to introduce their offering to a broader range of investors, including SMSFs, high-networth individuals and financial planning clients. Leading financial planning groups are increasing their allocations to private equity, and independent research houses are beginning to provide ratings on retail private equity funds. Over time, this will improve access to private equity funds among financial planners and their clients.

Some common misconceptions Private equity is an asset class that attracts a significant amount of media attention, not all of it balanced or well informed. As a result, a number of misconceptions about private equity have arisen.

1. Private equity is only for institutional investors Historically, private equity was the preserve of institutional investors and ultra high-net-worth individuals. Institutional investors have long seen the return and diversification benefits of alternatives (including private equity), and global institutional allocations to alternatives are expected to increase to 20 per cent of overall portfolios by 2012, with private equity making up one quarter of this allocation to alternative investments.

However, private equity is also becoming an increasingly important source of returns and diversification for individual investors. Globally, high-net-worth investors are increasing their allocations to alternatives (including private equity) from 6 per cent to 8 per cent of their portfolios.

In Australia, this trend is being reinforced by the increasing prevalence of SMSFs, where

2. The GFC was hard on private equity The global financial crisis (GFC) was a testing time for investors across many asset classes. It is commonly believed that private equity was an asset class badly affected during the crisis, perhaps due to the number of high-profile private equity investees that experienced financial distress. While private equity was not immune from the downturn in conditions, recent performance data does not support the view that private equity was worse affected than any other asset class.

“Additional research from the US suggests that private equity-backed companies weathered the GFC better than other businesses. ”

3. Private equity is a debt-driven model Private equity is often perceived in the market as an asset class that relies on high levels of leverage to generate returns.

However, a detailed analysis of private equity returns from 1989 to 2006 conducted by Bain & Company indicates that only one-third of returns from private equity were attributable to leverage. The primary driver of returns over that period was from increases in the operational performance of the underlying businesses and, less importantly, increases in earnings multiples.

On the up

In fact, as the performance data previously quoted demonstrates, private equity has outperformed both the ASX 200 index and the ASX small caps index during the GFC. Additional research from the US suggests that private equity-backed companies weathered the GFC better than other businesses. According to Bain & Company, the default rate in for private equity backed companies was less than half that of other companies with similar credit ratings.

39%

Private equity as an asset class has a long history of enhancing returns and reducing portfolio risk for institutional investors. However, with recent changes in the Australian wealth management market, the profile of private equity is increasing among individual investors and financial planners. This is being reflected in greater allocations to private equity across this segment of the wealth management market, a development that will most likely work to the long-term benefit of an important set of Australian investors.

Alexander McNab is a strategy director at Blue Sky Private Equity.

* off the cover price of Money Management

Vol.24 No.37 | October 7, 2010 | $6.95 INC GST

The publication for the personal investment professional

www.moneymanagement.com.au

National Australia Bank declines stake in PIS: Page 4

|

Technology driving industry innovation: Page 18

Planners accept the inevitable

By Mike Taylor

Graph: Adviser Sentiment

Mobility the next technology frontier

By Caroline Munro

IMPROVING online capability is only the start of technological innovation in the financial services sector, with the next milestone being mobile capacity, according to technology leaders in the industry.

The financial services industry is nearing a mature phase in terms of online capability and the next big mountain to climb is mobility, according to AXA Australia’s general manager for digital business, Cam Cimino.

“For our industry, mobility is in its infancy,” he said. “I haven’t seen many applications that I think are of great value to the user at this point. I think there are great opportunities in that space and as the devices become easier to use in a business format rather than in an end-user format, we expect

Print Post Approved PP255003/00299

Continued on page 3

60

53

40

38

31

24

20

15

16

0

22

15

-3

-9 -19

-20

-31

-36

-40

10

10

10

l 10

p

Ju

Se

09

09

09

b

ay

Fe

M

ct O

Dec

08

09

08

l 09 Ju

b

ay

Fe

M

08 b

ct O

Ap

Fe

r 08

-60 Dec

AUSTRALIAN financial advisers appear to have shrugged off at least some of the gloom that saw sentiment descend to lower levels between April and August this year.

The latestWealth Insights adviser sentiment snapshot for September has seen sentiment returning to levels similar to those recorded at the close of last year, but still well below the peak achieved in late January and early February and less than half that recorded at the peak of the market in February 2008.

The new Wealth Insights data, released exclusively to Money Management, appears to reflect planners’ acceptance of the realities flowing from the Federal Election and a growing confidence in their ability to adapt to a new fee-for-service environment.

The degree to which planners are accepting the inevitability of the move to fee-forservice has also been reflected in data compiled by Colonial First State (CFS) from flows into its FirstChoice platform.

Source: Wealth Insights

Announcing last week that FirstChoice had grown to become the largest platform in the space, CFS chief executive Brian Bissaker also pointed to data indicating that fewer planners were utilising those elements of the platform delivering commissions.

He said the flow to what was regarded as the fee-for-service options now stood at around 60 per cent.

Wealth Insights managing director Vanessa McMahon said the data around the flows on the FirstChoice platform tended to

FINANCIAL PLANNING SOFTWARE

Software sector headed for change THE financial planning software market is headed for some major adjustments, with product innovation and simplification the likely results of recent market upheaval.

Following a sustained period of regulatory review and market uncertainty as a result of the global financial crisis (GFC), the financial planning software sector is now in a state of transition, according to market players.

While the market remains dominated by larger players such as Coin and Iress, smaller players are keen to seize their share of the market and address the growing needs of planners looking to transform their businesses.

However, with many practices reluctant to change their planning software because of legacy and business planning issues, gaining ground may not be that simple.

Full report page 18

confirm the feedback provided by planners during focus groups conducted by Wealth Insights.

She said planners had accepted the inevitability of the need to shift to a fee-forservice model and were adjusting their commercial models accordingly.

McMahon said the focus groups had also revealed the degree to which planners were conscious of the pressure on fees and were acting to keep them contained.

“But they recognise that there are only two areas they can act on fees – platforms and the member expense ratio [MER],” she said.

“There has not been a lot of relief with respect to platform costs, so the focus has been on MER,” McMahon said. “That explains recent adviser preference for indexed funds, exchange traded funds and direct shares.

“Putting aside the performance of indexed funds, the recent preference exhibited by planners has also had a lot to do with fees,” she said.

Money Management is the leading weekly independent financial services newspaper providing accurate, informative and insightful editorial coverage of the Australian Financial Services market.

Subscribe to Money Management for 1 year for only $199.

CALL 1300 360 126 OR GO TO www.moneymanagement.com.au to place your order

*All savings are based on the cover price of Money Management and savings quoted are off the newsstand price.

Offer Code MO11OP01

www.moneymanagement.com.au April 21, 2011 Money Management — 23

OpinionInsurance

Hitting the right target Col Fullagar examines what advisers need to know when dealing with clients in different age groups.

I

nsurers like to claim they are particularly competitive when it comes to selecting ‘target markets’. A recent poll of several insurers led to claims along the lines of: ‘A prime area of strength for us is term insurance where the benefit amount is in excess of $1 million,’ or ‘Our offering for occupations such as farmers is very strong’.

It would not be unusual for advisers to target people for whom they feel the greatest level of empathy, that is, the traditionally popular market of professionals aged 35 to 55.

The reasons for targeting particular groups include factors such as: • The large number of potential clients, which in turn may be a factor of the gross number or a lack of competitors; • The level of wealth and disposable income enjoyed by the particular market, which translates into a heightened need and market for risk insurance; and • Geographic proximity, which might reflect a strong, broad distribution or a concentration in a particular region.

When it comes to clients who appear to satisfy all of the above factors, and some in addition, it would be difficult to find a better qualified group than the over 55s.

The opportunity The number of Australians in the age group 55 to 75, according to the Australian Bureau of Statistics (ABS), is shown in table 1. Note that the total number of people in this age group is close to 22 per cent of the population. Also, 35 to 55s are not much larger, making up around 6 million people or close to 28 per cent of the population.

Table 1 55-75 age group Age

Number (million)

55 – 59

1.306

60 – 64

1.170

65 – 69

0.869

70 – 74

0.686

Total:

4.031

Source: ABS – Estimated Resident Population 30 June, 2009

The average net wealth and disposable income of the over 55s is shown in table 2.

We don’t need the ABS to tell us that while people over 55 are more concentrated in some areas, they are well represented in all areas.

There is no better demonstration of the importance and size of this particular market than the constant warnings we are being given about the ageing population and the inability of those coming after them to fund for their needs, which of course leads into the most important of all considerations.

The need Is there a compelling need and a realisation of that need by members of the over 55s market?

There would be little argument about the need for risk insurance when it comes to ‘working’ Australians over age 55, since their needs fall into the traditional personal and business areas.

But priorities change over time, so the need to protect future income (as distinct from current income) becomes more critical. Future income translates as retirement savings.

If a 35 year old was disabled and unable to work for an extended period of time, this may well have a devastating effect on any retirement savings already made. However, the good news is this person is likely to have many years left to retirement in which to recover their position.

But someone over 55 who is disabled and unable to work for an extended period does not have this luxury. Thus, the protection of their future lifestyle/retirement savings is of critical importance.

The various superannuation protection options that can be added to income protection insurance policies may well move up the priority list.

Even after retirement, however, some of the traditional risk insurance needs will continue: • Asset protection – Many retirees will still have a mortgage on their home or they will have borrowings against investment properties;

The risks

Table 2 Net worth and income for over 55s Age

• Estate protection – Issues such as estate equalisation and the funding of bequests to children and charities may have to be considered; • Partner protection – Leaving sufficient liquid assets such that someone’s life partner is able to maintain their lifestyle; • Medical care – The risk of suffering a major medical trauma or a sickness or injury that will severely disable, increases exponentially with age. Without proper funding, expenses associated with medical care and rehabilitation could severely damage a lifetime of asset accumulation or force someone into a less than optimal health care facility; and • Final expenses – The costs associated with funerals can easily run into tens of thousands of dollars.

Going further, it is not just the over 55s that will have a need for risk insurance protection – it is their children and grandchildren. If an adviser is doing the right thing by one group this would naturally increase the likelihood of being introduced to others.

It may even be that parents and grandparents could see the funding of insurance premiums for their family as one way of showing their love and support – not to mention reducing the need for family members having to look to parents and grandparents for financial support should sickness or injury impact on their own financial position.

Premium funding by the over 55s would potentially cover all the risk insurance needs but it may be particularly appropriate for grandparents offering protection by way of child trauma insurance.

Net worth

Income

Couple, 55-64

$895,000

$1,000/week

Couple, 65 and over

$714,000

$645/week

Single, over 65

$437,000

$377/week

Source: ABS – Net worth for life cycle groups 2003 – 2004

24 — Money Management April 21, 2011 www.moneymanagement.com.au

Notwithstanding the above needs, it is necessary to sound a special word of caution when dealing with the over 55s.

Product knowledge The products available and the facilities

within those products that satisfy the risk insurance needs of younger clients tend to be more ‘mainstream’. As a result, the adviser’s knowledge of those products is such that misunderstandings about them are less likely to occur.

Impact of error While advisers will naturally take a considerable amount of care in making a recommendation to younger clients, on average these clients will be better placed to obtain alternative or additional cover so that, if a mistake occurs, it is less likely to be irredeemable.

On the other hand, there is a need for an even greater level of care when dealing with clients over age 55. If an error occurs in the giving of advice to this group, recovery from that error may be impossible for the client and very expensive for the adviser.

Client expectation The over 55s have been around longer and experienced more and so are likely to have a higher expectation of their adviser both in the areas of the advice itself and also the services that are offered. This expectation may well extend to quality assistance if a claim is made.

It is not unreasonable that this expectation should exist. After all, the premiums being paid are likely to be considerable.

Underwriting issues There is a greater chance of issues arising that will be material to underwriters (eg, health problems that will lead to cover being loaded or excluded). In addition there will be the complexity of assessing factors such as increased levels of assets, liabilities and investment income.

Therefore, if putting insurance in place and particularly if replacing one policy with another, the clients understanding of the duty of disclosure takes on even more critical importance.

ment in order to enable claim payment to occur prior to the client dying.

At the time of claim, the correcting of errors is difficult at best and sometimes impossible.

On the positive side, over 55s are less likely to be engaging in some of the more hazardous activities enjoyed by their younger contemporaries.

Claims Risk reflects in premiums and thus, in the same way that premiums for the over 55s increase, so does the chance of making a claim – and with it, the risks associated with an ‘unsuccessful’ claim.

‘Unsuccessful’ doesn’t just imply that the criteria for payment were not met. All parties – the client, the adviser and even the insurer – will have a certain amount of dread that when a claim is made, an unexpected problem will arise.

The problem may be something that could not reasonably have been envisaged even with the wisdom of hindsight and thus it is outside the control of anyone.

On the other hand it may be that either a genuine mistake has occurred or the client’s circumstances have altered resulting in the adviser recommendation being seen as less than optimal: • An income protection insurance policy on an indemnity basis when agreed value would have been more appropriate; • A total and permanent disability (TPD) policy replaced several years before included an exclusion to cover that did not exist in the previous cover; or • A stand-alone trauma insurance policy that the client thought contained death cover.

‘Unsuccessful’ for an over 55 may mean that the claims process was not in line with their reasonable expectation (eg, a multimillion dollar death claim being unexpectedly and sometimes unnecessarily delayed while claims requirements were obtained).

A recent example was the delaying of a terminal illness claim for many weeks while a ‘mandatory’ but unjustified Health Insurance Commission report was obtained.

Eventually the insurer waived the require-

Policy expiry Policies can end for various reasons, such as premiums not being paid. However, they also end when the policy expires – either as a result of the client reaching the policy expiry date, or the client taking some other action such as permanently stopping work.

As clients draw closer to the policy expiry date, there is a growing importance for the precise date of expiry to be known and communicated.

An income protection policy or a business expenses policy may have been promoted by the insurer, understood by the adviser and presented to the client as being renewable to age 65. However, if the policy expiry date is the policy anniversary prior to age 65, this may be anything up to 12 months earlier (eg, if the policy anniversary was the 1st January and the client’s 65th birthday was the previous 31 December).

If clients are looking to work to age 65 and they need their insurances to continue working with them, the clients are unlikely to be impressed if the cover ends earlier than they want it to.

With retirement ages being extended, it may be necessary for the adviser to plan client needs several years in advance. For example, income protection insurance policies with benefit periods to age are available, but there will be age limits as to when an application for them can be made.

Waiting until the client’s existing policy is about to expire before replacing it may be too late.

Claim payments The vast majority of income protection insurance policies in place have a benefit period ‘to age 65’ and it is not unreasonable that they would be promoted in this way.

Unfortunately, when a claim is being paid under a policy with a benefit period ‘to age 65’ this does not necessarily mean benefit payments will continue to age 65. There is usually a policy provision that states claims payments cease when the policy expires which, as indicated, may be one day after the client turns age 64.

With the larger average benefit amount that will exist for the over 55s, the ‘loss’ to the client could be considerable and not just financial (eg, the early cessation of a business expenses claim could endanger the financial viability of the client’s business).

If the duration of claim payments is not in line with the client’s expectation and need, disputes may ensue.

Loss of policy facilities Not only does the policy itself have an expiry date, but various facilities within it have their own expiry date that may be related to the client’s age or actions the client may take.

Examples might include: • Guaranteed insurability options ending at age 55; • Automatic indexation increases ending at age 65; or

• A lump sum insurance waiver of premium ceasing at age 70.

Some policies provide for the level of cover to reduce after a certain age, for example, TPD reducing to a pre-set amount after age 65.

Alternatively, some policies provide for the insured benefit amount under TPD to reduce by 20 per cent each year from age 60 through to age 65. If the client is not aware of this or if there are any avoidable delays in claim assessment this could lead to the client receiving a nasty and unexpected surprise when their claim proceeds are paid.

In addition to the insured benefit amount potentially reducing at or from a pre-set age, it is common for the nature of the cover to also alter. For example, TPD cover may change from an occupation assessment basis to a basis revolving around the inability to perform a number of the activities of daily living.

An adverse client experience caused by the unexpected activation of a policy facility can lead to disputes in much the same way as an unexpected policy expiry.

“With the ageing population and the extension of the retirement age, it is inevitable that more clients will need risk insurance protection for longer periods. ”

Changes in premium type While some advisers might set up a client’s long-term insurances on a level premium basis, the more astute adviser will appreciate that level premium policies generally revert to stepped premium at certain predetermined ages (eg, age 65 or 70).

When this occurs, a level premium set up at age 35 for $1,000 a year may well jump to $20,000 a year when it alters to stepped.

A call from the adviser to the client the month prior to this occurring is unlikely to impress. It may be that a strategy several years before the automatic conversion will need to be developed and implemented.

This strategy may include identifying ways to set up funding vehicles, streamlining cover or, if necessary, reducing the level of cover.

Litigation While there is a heightened need for care by the adviser when dealing with over 55s, the good news is that if the adviser has been successful on the investment side of the clients financial planning, at least the client will be able to afford the best legal representation available should something go wrong with the risk insurance advice.

The adviser may have worked with a client over many years and developed a sound friendship as a result. Unfortunately, it is likely that this friendship will be set aside either deliberately, because of the client’s anger over what has occurred or as a matter of necessity, since this is the only way for the client to access compensation from the adviser’s professional indemnity insurance.

The facilities Having sounded the appropriate words of opportunity and warning, what are some of the risk insurance products and facilities available to and impacting the over 55s?

A request sent to twelve insurance companies recently for details of their ‘offering for older folks’ generated nine responses.

The products and facilities offered included maximum application ages for insurances as high as: • Term – age 75; • TPD and trauma insurance – age 68 but on a restricted activities of daily living (ADL) basis; • Income protection and business expenses insurance – age 60. For income protection insurance, after age 65, the benefit period will reduce to one or two years. Maximum levels of cover also revert to around $20,000 a month; and • Specialised income protection – age 69.

These typically would have a two-year benefit period, total disability only, maximum benefit amount of $6,000 a month.

The products and facilities offered included maximum expiry ages for insurances as high as: • Term – age 100; • TPD and trauma insurance – age 70 then converts to ADL; • Income protection insurance – age 70; • Business expenses insurance – age 65; and • Specialised income protection – age 75; As mentioned above, ‘age’ should be read as ‘policy anniversary prior to age’ in some cases.

The future With the ageing population and the extension of the retirement age, it is inevitable that more clients will need risk insurance protection for longer periods – and it is inevitable that more advisers will start to work and specialise in the over 55 market.

While there are some products available to satisfy the risk insurance needs of this group, the range is somewhat pitiful when compared to what is available to the more popular traditional markets. Dare it be suggested that this lack of insurance options may be contributing to an underinsurance problem for the over 55s?

Possibly in the future more insurers will see merit in moving some of their product development focus from the continual tweaking of mainstream products and instead make available a greater range of quality products for the over 55s – after all, the executives running the insurance companies aren’t getting any younger.

Col Fullagar is national manager,risk advice at RI Advice.

www.moneymanagement.com.au April 21, 2011 Money Management — 25

Toolbox Strategic thinking Kristian Wangvisutkul answers some commonly asked SMSF investment strategy questions, and outlines the Stronger Super announcements that could impact future requirements.

S

elf-managed superannuation fund (SMSF) trustees are required under section 52(2)(f) of the Superannuation Industry Supervision (SIS) Act to formulate and give effect to an investment strategy that has regard to the whole circumstances of the fund.

The overriding purpose of the investment strategy is to ensure the trustees make informed investment decisions that satisfy the sole purpose test. This generally means the fund must be maintained primarily for the purpose of providing retirement benefits to members, or to their dependants if a member dies before retirement.

The Government will “undertake a review of leverage in two years, covering all types of super funds.

”

What factors should trustees consider?

The key factors SMSF trustees should consider when formulating the investment strategy include the: • Members’ ages, years until they plan to retire, retirement income goals, risk profiles and assets in and outside super; • Potential risks and returns from different investments; • Fund expenses and liabilities that need to be met; and • Benefits of diversification.

Is there a prescribed format?

While there is no strict template that needs to be followed, the investment strategy should: • Reflect the purpose of the fund and the member’s circumstances; • Set out the fund’s investment objectives; and • Detail the investment methods that

will be adopted to achieve the objectives.

It also needs to be in writing, and should be reviewed periodically.

What should an investment objective look like?

The trustees should set an objective for the fund that is both measurable and achievable. Ideally, the objective should include a long-term return target, which may be expressed in percentage or dollar terms. It should also reflect members’ willingness to accept any short-term fluctuations in the value of the fund’s investments should they occur.

Should the investment strategy prescribe an asset allocation?

While this is not a legal requirement, best practice would be to specify a percentage (or range of percentages) that the fund can invest in each asset class.

The asset allocation should reflect the fund’s investment objective. Where rangebased asset allocations are used, they should not be so wide that they are neither measurable nor meaningful.

Can the fund invest in a single asset?

Some SMSFs invest entirely or primarily in a single asset (or asset class). A common example is where an SMSF acquires the trustees’ business premises.

Where an SMSF has a single asset, it should be reflected in the investment strategy and the trustees should consider the lack of diversification such a strategy could provide, as well as the liquidity issues that could arise.

The investment strategy should also outline how the fund will address these issues. For example, the fund could use earnings from the single asset or new contributions to meet expenses and diversify the portfolio over time.

Can the fund have more than one investment strategy?

If there are two or more fund members with significantly different situations (eg, different ages, investment balances or risk profiles) it may be appropriate to have a separate investment strategy for

26 — Money Management April 21, 2011 www.moneymanagement.com.au

each fund member.

Alternatively, the fund could have one investment strategy that takes into account the collective needs and preferences of all fund members, which will be easier to administer.

How frequently should the investment strategy be reviewed?

The legislation doesn’t prescribe a frequency for reviewing the investment strategy. However, best practice would be to conduct a comprehensive review at least annually, or more frequently if required.

There are a range of events that could trigger the need for the investment strategy to be reviewed and amended accordingly. Examples include when: • A new member joins the fund; • Existing members make significant contributions; • The fund needs to pay a benefit to a member; • A member’s circumstances change; • There are significant movements in investment markets; • The fund doesn’t meet its stated investment objectives during a particular period, or • The legislation changes.

Stronger Super Late last year, when the Government released its ‘Stronger Super’ response to the Cooper Review, it made some announcements that have the potential to impact SMSF investment strategies, if legislated.

Additional factors for trustees to consider The Government has provided ‘support in principal’ for the recommendation that trustees take into account additional factors when formulating their investment strategy. These include: • The expected costs of the strategy, including those at different levels of any interposed legal structures and under a variety of market conditions; • The taxation consequences of the strategy, in light of the circumstances of the fund, and to ensure that trustees

consider those taxation consequences when giving instructions in mandates to investment managers; and •The availability of valuation information that is both timely and independent of the fund manager, product provider or security issuer.

The Government will consult with relevant stakeholders regarding the design and implementation of these additional factors.

Insurance in super The Government has announced it will ‘support’ the recommendation that the investment strategy operating standard be amended so that SMSF trustees are required to consider life and total and permanent disability insurance for SMSF members as part of their investment strategy.

Borrowing in super The Government will undertake a review of leverage in two years, covering all types of super funds. This review will determine what impact leverage has had on the super industry and whether such arrangements should be permitted to continue.

In-house assets The Government has agreed that SMSFs can maintain an in-house exposure of up to 5 per cent of the fund’s total market value. The Cooper Review had recommended that in-house assets be prohibited.

Collectables and personal use assets The Government has announced it will continue to allow SMSFs to invest in collectables and personal use assets, provided they are held in accordance with tightened legislative standards.

These legislative standards will be developed in consultation with industry and will apply to new investments from 1 July 2011, with all holdings of collectables and personal use assets to comply by 1 July 2016.

Kristian Wangvisutkul is a technical consultant with MLC Technical Services.

Appointments

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

K2 ASSET Management has expanded its business for the second time this year and opened a Perth-based office, appointing Steven Bell as regional manager.

The move followed the opening of the company’s Sydney branch in January 2011.

Bell, who has been appointed to lead the WA business, has 15 years of financial services experience and was most recently a partner in the boutique financial planning firm Vantage Wealth Management.

Prior to this, he held senior business development and state manager roles with BT Financial Group.

CLEARVIEWWealthhas lured a key staffer away from CommInsure, announcing Todd Kardash as its new national sales manager.

Kardash was head of adviser services distribution at CommInsure and his recruitment reflects the fact that Clearview managing director, Simon Swanson previously headed up CommInsure.

Swanson said Kardash would play a lead role in the development of the company’s growth in the independent financial adviser market.

Prior to joining CommInsure, Kardash was part of the team that set up the NAB Insurance dealer group.

Kardash’s departure from

CommInsure follows on from that of Simon Harris who was recruited to Asteron-owned Guardian Financial Planning as executive manager.

FORMER OnePath business development manager (BDM) and Money Management’s 2010 BDM of the Year, Lyndall James, has joined van Eyk Research in the same role.

James will be tasked with the responsibility of growing both existing and new relationships with adviser businesses and intermediaries across Australia for the van Eyk Blueprint Series.

Van Eyk chief executive officer, Mark Thomas, said recruiting “someone of the calibre of Lyndall as our national business development manager is a great addition to the team”.

Before joining van Eyk, James worked as an investment and platform BDM for OnePath for 18 months.

She has also worked for the Commonwealth Bank, Associated Planners and AXA, having spent time at National Bank/MLC Group as a BDM for four years.

GLOBAL funds management group BlackRock Investment Management has made three appointments to its retail team,

Move of the week FORMER Australian Ethical head of sales and marketing, Paul Harding-Davis, had been appointed as the general manager of Premium Wealth Management.

Harding-Davis takes over from Helen Bridgewood, who has retired after 10 years with Premium.

He has nearly 30 years of business development and marketing experience, which also includes roles at Glebe Asset Management and Absolute Capital, and a long stint at Zurich Financial Services.

His focus at Premium will include both managing the day-to-day operations of the group and the recruitment of new member firms. Harding-Davis also has experience in managing operations and compliance, providing leadership and strategic direction, according to Premium.

which the company said were aimed at building closer relationships with advisers and research gatekeepers.

Dr Zaffar Subedar, previously a research analyst with AMP Financial Planning, has joined BlackRock as a research relationship manager.

Subedar will work with research houses, planners and dealer groups to focus on where BlackRock best adds value to retail client portfolios.

Matthew Young, has been appointed vice president NSW/ACT and account manager with BlackRock’s Global Client Group, which provides service and support to advisers. Previously he was with Colonial First State for nine years in various roles, including NSW/ACT Business Develop-

ment Manager.

Kanish Chugh, recently joined BlackRock as the business development associate for the NSW retail team. He came to BlackRock from the media industry, most recently with the Australian Financial Review’sonline subscriptions team and earlier at Insto’s capital and financial markets newswire service.

THE Self-Managed Super Fund Professionals’ Association of Australia (SPAA) has announced a number of board changes, which will see the promotion of director Andrew Hamilton to vice chair.

Hamilton replaces Graeme Colley, who will remain as a director and chair of the regulatory

Opportunities SENIOR SPECIALIST

Location: Sydney, NSW Company: ASIC Description: ASIC is Australia’s corporate, markets and financial services regulator. This position, for which you will get a 12-month contract, is part of the Financial Literacy, Consumers, Advisers and Retail Investors team, which is responsible for influencing licensee behaviour to comply with the Corporations Act and other financial services legislation.

In this role, you will provide strategic guidance and technical and analytical support for the Assessment and Professional Development of Financial Advisers project. You will also plan and oversee the work for the implementation of a revised training regime.

Successful candidates will need to have at least eight years of experience in the financial planning industry behind them, as well as past experience in AQT, VET and RTO framework.

This position is a Designated Security Assessed position and requires successful National Security clearance.

For more information and to apply, go to careers.asic.gov.au/mm and search by reference number 215742.

FINANCIAL ADVISER

Location: Melbourne Company: Helm Recruitment Description: One of Australia’s leading privately

Paul Harding-Davis

committee, according to the SPAA. Other changes include the introduction of technical strategist Louise Biti as a director.

SPAA board chair, Sharyn Long, said the appointments would improve the association’s ability to contribute to the policymaking process and promote higher selfmanaged super fund (SMSF) adviser standards.

Long said Hamilton and Biti’s contributions to the SPAA board were important as the SPAA worked towards higher standards and broader SMSF policy objectives, and as it navigated legislative and market-related change.

Long said the board also looked forward to Colley’s continued input.

For more information on these jobs and to apply, please go to www.moneymanagement.com.au/jobs owned financial advisory firms has witnessed a sustained period of growth, providing an exciting new opportunity for a financial adviser with a business development focus.

Forming part of a highly regarded and dynamic team, you will promote a full service offering to high-net-worth (HNW) clients including comprehensive financial advice, retirement planning, client administration, stockbroking, lending and general and life insurance.

To be successful in this role, you will possess a track record in business development gained within financial planning or private wealth management/banking together with significant experience in providing tailored financial advice to HNW clients. A track record in building new business, a strong network and relevant financial services qualifications such as DFP/CFP will be assumed.

To discuss this role further, please contact Brendon Jukes at Helm Recruitment on (03) 9018 8001.

RISK CONSULTANT

Location: Melbourne Company: Doquile Perrett Meade Description: Doquile Perrett Meade is a financial services firm that prides itself on its vision and the client retention rate of over 95 per cent.

This role will see you consult predominantly

to medical professionals, providing expert advice and guidance around all aspects of their personal risk protection needs, including – life, trauma, total and permanent disablement and income protection.

You must have a passion for life insurance, coupled with relevant experience and a thorough understanding of the strategies associated within this specialised area of financial planning. You have a mature attitude, an ability to work autonomously, excellent relationship management skills, RG 146 qualification and have ideally completed your Diploma of Financial Planning.

Should you require further information, please contact Irene Pappas, Manager HR & Group Operations on (03) 9621 7000.

SENIOR PARAPLANNER

Location: Melbourne Company: Bluefin Resources Description: A highly reputable bank has created a new opportunity for a senior paraplanner who has at least three years of paraplanning experience.

The bank offers comprehensive financial advice to a broad spectrum of clients, with a main focus on HNW clients. We are looking for a senior paraplanner with experience in managed funds, risk, super, SMSF, tax-effective strategies and estate planning.

To be considered you will have at least three years paraplanning experience, a

completed Diploma of Financial Planning Certificates I-IV and the ability to work autonomously as well as in a team. COIN software experience will be highly regarded, as well as your strong communication skills.

Attractive remuneration package and excellent prospects await the successful candidate.

For more information, visit www.moneymanagement.com.au/jobs

FINANCIAL PLANNER

Location: Canberra Company: Bluefin Resources Description: A national bank seeks an experienced financial planner who has proven experience providing face-to-face holistic advice to clients.

Ideally, you will have completed a Diploma in Financial Planning I-VI or I-IV as an absolute minimum.

The ideal candidate will be very sales driven and excellent at relationship building, bringing in new business and closing deals.

Apart from providing financial advice to customers, your role will also involve providing business superannuation advice to small business owners, liaising with underwriters, life insurance administrators, adviser support consultants and other financial institution staff members.

To find out more about this opportunity, visit www.moneymanagement.com.au/jobs

www.moneymanagement.com.au April 21, 2011 Money Management — 27

Outsider

“

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

Ineligible bachelors AS many of you would know, Outsider is quite the dapper gentleman. And being a gentleman means that one must present a certain level of dignity on all occasions.

But it seems that this is not a sentiment held by everyone in the financial services industry.

When John Brogden, chief executive of the Financial Services Council, introduced the guest speaker for the Insurance Conference luncheon earlier this month, Outsider couldn’t help but feel that he undermined his industry.

The guest for the day was none other than ex-magazine editor for Cosmopolitan, Mia

Freedman. And as if the presence of a beautiful young lady in the room wasn’t enough to make everyone in insuranceland feel like ugly ducklings, Brogden decided to take it one step further.

As Freedman took the stage, Brogden introduced her to his esteemed guests by quipping: “There aren’t many entrants for the Bachelor of the Year Awards here today!”

While Outsider concedes that the room was mostly full of older gents with round physiques, he does think there is more to being attractive to the opposite sex than the ability to remove one’s clothes and pose in compromising positions.

Out of context

“I can’t count. I just run a very big super fund.”

Speaking at the Association of

Superannuation Funds of Australia

luncheon, chief executive of First State Super Michael Dwyer couldn’t make

Why, there must be something to be said for cufflinks, fast cars and big bank accounts. Or how else would half the room have attracted

their mates?

Sadly for Mrs O, Outsider being a journo means she must settle for his dashing good looks alone.

Crime and punishment OUTSIDER is such an admirer of inappropriate humour that if it were a crime, he’d have been sentenced to prison long ago. Because of it, needless to say, he often receives murderous looks from Mrs O across dinner tables at family and social gatherings.

Which is why Outsider is comforted in the fact that he is not alone. Another guilty party came to light during the question and answer session at the Financial Planning Association’s luncheon with the Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten.

The culprit was Fiducian’s managing director Indy Singh who, while posing a question to the minister, cracked what is now known as ‘the Bruce Lee joke’.

“Bruce Lee, the actor, once said that his style of fighting is the art of fighting

without fighting. Is your style of consultation the art of consultation without consultation?”

Outsider was not sure whether the audience applauded the question itself or Singh’s witty ways, but Mr Shorten was not amused.

The luncheon was quickly transformed into a classroom full of naughty pupils (financial planners) being lectured by their teacher (Bill Shorten) about appropriate behaviour and respect towards those with authority.

In fact, despite not having spent an afternoon in detention for several decades, Outsider would suggest to Mr Shorten that if he grows weary of the political game there may be several private schools across the country that could do with a disciplinarian of his ability.

Collective amnesia EVERY man and his dog already knows that the Government’s proposed opt-in arrangements have not received much love from the financial planning community. As a scribe who has been prolific on this very topic, Outsider had been given the impression from his readers’ comments that planners would rather quit the industry than become subject to such ‘burdensome’ and ‘pointless’ arrangements.

This is why Outsider was stunned when he realised the opt-in proposal was not even mentioned at the Financial Planning Association’s luncheon with the Financial Services minister

Bill Shorten last week – neither by the minister, nor by the planners who attended the event.

When the question and answer session began, Outsider thought a perfect opportunity had presented itself for planners to ask all those questions about opt-in they have indirectly been asking the Government through media, using yours truly as some sort of a soundboard.

However, planners seemed to have been so much more interested in other issues flowing from the Future of Financial Advice package that optin was simply forgotten.

When a young scribe – who current-

28 — Money Management April 21, 2011 www.moneymanagement.com.au

ly enjoys the privilege of basking in Outsider’s years of experience on a daily basis – later questioned Mr Shorten as to whether he was expecting greater debate around opt-in, the minister replied that he had all his responses ready and was amazed that he hadn’t needed to use them.

Perhaps if Mr Shorten realised all he had to do to avoid discussing a potentially prickly subject was raise a bigger, redder rag to the bull, he would have tried that approach a long time ago. Outsider for one is curious to see how big and red that rag can get before the latest round of reforms is complete.

up his mind whether it was four, five or six languages that one of his panellists spoke.

“Yes, my name is Mia Freedman and I do not have life insurance.”

This opening statement may not have been the best way for Freedman to win the hearts of insurance company delegates, but it sure got their attention.

“He barracks for Essendon but we won’t hold that against him.”

ASFA chair of the Victorian compliance discussion group Paul Curtin introduces the senior manager of supervision at APRA, Gordon Walker.