Money Management (December 1, 2011)

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Vol.25 No.46 | December 1, 2011 | $6.95 INC GST

The publication for the personal investment professional

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FOFA TRANCHE 2: Page 5 | POPULATION – IT’S A BIG WORLD: Page 20

Banks to carry BOLR can as FOFA drives out planners

By Mike Taylor

Chart:

BUYER of Last Resort (BOLR) arrangements entered into decades ago are returning to haunt some of the major financial services institutions as growing numbers of older financial planners look to exit the industry in the face of Future of Financial Advice (FOFA) changes.

New research released by Wealth Insights has revealed the degree to which lucrative BOLR arrangements entered into during the heyday of the financial planning industry will now impose themselves on the bottom line of some of the banks and institutions such as AMP and AXA. Giving an indicator of the likely impact of those arrangements, the Wealth Insights research conducted over the past six months reveals that 15 per cent of advisers whose dealer groups are owned by the banks or AMP/AXA are likely to exercise their BOLR if the FOFA changes come into effect.

The same research reveals that another

Impact of the reforms on Buyer of Last Resort

15%

34%

Likely

No BOLR Likelihood to exercise BOLR

28%

13%

Evaluating

15 per cent of advisers whose dealer groups are owned by the banks or AMP/AXA are likely to exercise their buyer of last resort if the proposed reforms come into effect.

Another 13 per cent are weighing up their options.

38% Unlikely Source: Wealth Insights

13 per cent of those advisers are weighing up their options.

Wealth Insights managing director Vanessa McMahon said the research was based on a sample of 434 randomly recruited advisers from bank dealer groups or AMP/AXA. She said the results of the research needed to be weighed against the scale of the planning practices involved and the multiples which had been agreed at the time that the

BOLR arrangements were originally struck.

“When you weigh up those fundamentals, then you really do have to wonder about the strategic intent of the people within the banks and the major institutions who entered into the arrangements so many years ago,” McMahon said.

She said that given the terms and conditions of the BOLR arrangements, it was still possible for some planners to exit their practices on a pay-out based on a calculation of

five times value.

McMahon said she had been surprised by the number of planners surveyed by her company who had indicated their intention to exit the industry utilising the old BOLR arrangements on the basis of the Government’s FOFA changes.

She said some had indicated a definite exit post-FOFA, while others were waiting to see the final shape of the Government’s changes.

“Fifteen per cent say they are likely to exercise their BOLR if the reforms are passed through Parliament,” she said. “Another 13 per cent are waiting to see the detail of the reforms before they decide and are still evaluating their positions.”

McMahon said this meant that potentially up to 28 per cent of planners might exit the industry, indicating that the actual number might easily reach 15 per cent.

“That will certainly impact the bottom lines of some of the companies heavily exposed to legacy BOLR arrangements,” she said.

CFP students more than double in 2011

By Chris Kennedy THE number of students in Certified Financial Planner (CFP) aligned courses more than doubled in 2011 and the industry is now viewing graduate entrants more favourably, according to several experts.

The Financial Planning Association’s (FPA’s) head of professionalism Deen Sanders said that possibly the most significant development of 2011 was the April launch of the FPA Education Council. In just six months it had already done some serious work in developing a harmonised curriculum for financial planning across all educational institutions, he said.

That model curriculum, which will be going out to universities for consultation from December until February, will help institutions develop their programs and become Certified Financial Planner (CFP) approved institutions.

Sanders said students in CFP-aligned programs had increased from around 2,000 in the 2010 intake to around 5,000 in 2011, partly due to more institutions offering

Deen Sanders such courses.

AMP Horizons director Tim Steele said AMP would again be supporting its University Challenge in 2012. It is hoping to be able to start to embed the program in university courses to allow students to get academic credit for the work they undertake.

The industry is starting to think about education to the point where it is seen as a business enabler as opposed to a compliance requirement, Steele said.

“That’s a critical paradigm shift, that they can look at education as a way of enhancing their offering to clients, the advice they offer

clients, and supporting the growth of practices, as opposed to ‘I need to complete this training to meet my licensing obligations’,” he said.

Griffith University Associate Professor (Finance) and member of the Financial Planning Academics Forum, Dr Mark Brimble, said it was good that the educators were now working together with the industry to progress the agenda – rather than just talking about it.

The industry would increasingly be looking at degreequalified entrants as the norm because it realised it was good for their businesses, he said. In the past the industry tended to recruit graduates without specialised training, then send them off to do an extra diploma to get specialised qualifications, but it is now turning that corner, Brimble said.

“The industry is realising the value of those students in terms of their ability to work as trainees from day one,” he said.

Financial adviser and director at Synchron-aligned pracContinued on page 3

YEAR IN REVIEW

2011 rear view mirror THE past 12 months have seen the unfolding of major events in the financial services industry. Both tranches of the Future of Financial Advice legislation were tabled in the Parliament, while industry participants rush to meet the 1 July 2012 deadline.

Financial planning industry bodies have decided to fight the negative sentiment towards financial planners by way of launching advertising campaigns and focusing on adviser education.

There was quite a bit of activity on the mergers and acquisitions front, with the completion of the AMP/AXA merger, IOOF’s acquisition of dealer group DKN, and the Commonwealth Bank’s purchase of Count Financial, to name a few.

Year 2011 has also seen significant executive movements, with some nailing big new roles, while others stayed in-between gigs.

For more on events that shaped the financial services industry over the past year, turn to page 13.

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: Zeina Khodr Tel: (02) 9422 2198 zeina.khodr@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: Milana Pokrajac Tel: (02) 9422 2080 milana.pokrajac@reedbusiness.com.au Journalist: Tim Stewart Tel: (02) 9422 2210 Journalist: Andrew Tsanadis Tel: (02) 9422 2815 Journalist: Keith Griffiths Melbourne Correspondent: Benjamin Levy Tel: (03) 9527 7392 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: Marija Fletcher Sub-Editor: Daniel Winter 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.

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Ending 2011 as we began – uncertain

A

ustralian financial planners seem destined to end 2011 in much the same fashion they ended 2010 – uncertain about the fine detail of the regulatory regime which will underpin their industry for the next decade.

What became very obvious last week was that it may take until the middle of next year before the financial planning industry sees the final shape of the legislative and regulatory environment that will flow from the Government's Future of Financial Advice (FOFA) changes.

Notwithstanding the amount of time and effort expended by the financial services industry in dealing with the proposed policy changes, FOFA has always represented a second or third rank legislative priority for the Gillard Government. Thus, all focus in 2011 was on the carbon tax and the Mineral Resources Rent Tax (MRRT).

Given his much-reported political ambition and the role he plays in the Labor Party's factions, it is easy to forget that the Assistant Treasurer and Minister for Financial Services, Bill Shorten, is a junior minister who does not enjoy a seat at the Cabinet table with the likes of Prime Minister Julia Gillard, Treasurer Wayne

“

It follows that the FOFA changes were never something likely to reach finality in a Parliament focussed on the carbon tax and the MRRT in 2011.

”

Swan, or even Immigration Minister Chris Bowen.

Shorten’s lack of Cabinet seniority is therefore reflected in the level of priority given to the legislation he and his departmental officers generate. It follows that the FOFA changes were never something likely to reach finality in a Parliament focused on the carbon tax and the MRRT in 2011.

While Shorten has yet to indicate that there will be any changes to the timetable he and his advisers have linked to the introduction of the FOFA changes, there seems a better than average chance that the minister will need to grant an extension beyond 1 July 2012.

Such an extension would seem to be particularly necessary in circumstances where, at the time of writing, the minister had still not tabled the promised second tranche of his legislation, and when platform operators were making it clear that the consequent lack of certainty made it commercially risky to appropriately rework their architecture.

High levels of uncertainty and an element of commercial risk almost always attend legislative changes, but Shorten's approach to FOFA has proved particularly problematic for those seeking to plan and grow their businesses in the financial services industry – something which has been highlighted by his announcements around insurance in superannuation and annual fee disclosure statements.

These represented just two occasions on which the minister first announced an eleventh hour change to an important element of policy, only to later offer concessions on the basis that the Government might have gone a step too far.

It is on this basis that financial planners should look to enter 2012 planning for the worst, but hoping for the best.

– Mike Taylor

S&P

FUND AWARDS

2011 AUSTRALIA

2 — Money Management December 1, 2011 www.moneymanagement.com.au

News Bendigo Wealth acquires boutique practice

By Chris Kennedy BENDIGO Wealth recently purchased Melbourne-based boutique planning practice AIM Financial Services, representing the first financial planning acquisition for Bendigo and Adelaide Bank’s wealth management arm.

AIM will immediately rebrand as Bendigo Financial Planning and will be integrated into Bendigo Wealth’s standard financial planning offering, Bendigo stated.

Bendigo Wealth’s head of wealth markets Alex Tullio said the acquisition was the first step towards increasing the ability of the bank’s fee-for-service financial planning division to better service its 1.4 million retail customers.

“We’re committed to delivering a meaningful wealth offering to our customers and the broader market, and the acquisition of our first financial planning business is an important component in achieving this objective,” she said.

AIM’s 1,600 customers across two sites will be progressively introduced to the Bendigo style of banking, according to the firm’s principals Michael Duncan and Martin McGrath.

“We’re very comfortable transitioning our customers to an organisation that aims to be Australia’s leading customer-connected banking group and focuses on building and improving the prospects of our customers and communities,” Duncan said.

FOFA tranche contains unintended consequences

By Mike Taylor THE second tranche of the Government’s Future of Financial Advice (FOFA) legislation has received a very mixed reception from Australia’s major financial services organisations, with the Financial Services Council (FSC) suggesting the best interests test may prove unworkable and carry unintended consequences.

Among those unintended consequences is a limitation on the abillity of some financial services companies to provide scalable advice.

This contrasts with the attitude of the Financial Planning Association which, while expressing some concerns about the insurance

and soft dollar remuneration aspects of the bill, suggested it was broadly suppor tive of the financial planning profession.

The Association of Finanical Advisers (AFA) said the second tranche needed to be seen as simply the second piece in a legislative jigsaw, and expressed concern about its approach to insurance inside superannuation.

AFA chief executive Richard Klipin said the two tranches of legislation, seen as a total package, “represent the imposition of massive change for our industry and must be viewed that way”.

FSC chief executive John Brogden expressed his concern that the proposed best interests duty contained in

John Brogden the legislation might prove to be unworkable. He suggested it “undermines a core objective of the FOFA reforms – to increase the availability and accessibility of advice”.

“The FSC supports a best interest duty; however the legislation will create unprecedented uncertainty for con-

sumers and advisers,” he said.

“Our legal advice tells us this legislation would be very difficult to work with from the point of view of understanding what it means and how it would apply in practice.

“The best interest duty is the foundation of the entire reform package, and without a clear and objective measure to test whether an adviser has acted in the best interests of their client, advisers will be exposed to significant risk and the cost of advice will go up,” Brogden said. “To make matters worse, no reputable financial services provider will be able to offer scalable advice under this particular duty – this will be to the detriment of millions of Australians.”

CFP students more than double in 2011 Continued from page 1

tice Wealth Enhancers, Finn Kelly, was a finalist in the young achiever category of Money Management’s Fund Manager of the Year awards earlier this year, and was awarded the Association of Financial Advisers’ excellence in education award at its national conference in November.

Despite being just 27 and having spent seven years as an army officer, Kelly has an undergraduate degree (a Bachelor of Science in maths and physics), a post-graduate degree and four diplomas, including a Diploma of Financial Services in financial planning. “I literally haven’t stopped studying –whether it’s formal or nonformal – I think that’s the key, that ongoing education,” he said.

Kelly said he was disappointed that he was able to earn the right to be a qualified adviser with little more than a month’s hard work to achieve the diploma, leading him to continue to educate himself in other ways.

“What you get from a degree is almost what you apply with clients; everything we do is about setting goals

Finn Kelly and going on a journey – it’s not a quick fix,” he said.

Kelly said that if a qualification was a quick fix, it did not set a good example for clients. The amount of knowledge a planner needed regarding investments, and the soft skills involved in dealing with clients, could not all be taught in a short course, he said.

The gap between the older and younger generation also seemed to be closing, with both realising they had things they could learn from the other, Kelly said.

The stereotype of the older advisers having the soft skills and younger generation being technical specialists also seemed to be disappearing. www.moneymanagement.com.au December 1, 2011 Money Management — 3

News Patersons scores fully-integrated global equity markets capability

ASIC flags more surveillance next year

By Andrew Tsanadis

By Mike Taylor

PATERSONS Securities Limited has announced that UBS Platform Solutions Group has developed the first fully integrated global equities trading and investment administration capability.

The capability will provide Patersons with real-time trading access to global markets, utilising UBS’s global trading infrastructure and capabilities, including access to algorithmic trading and multi-market execution, the financial services firm stated.

“The process will follow Patersons normal domestic order capture process, which will then route the trade to UBS who will submit the trade to market,” said Patersons executive

chairman Michael Manford.

Leveraging UBS’s investment platform EquityLink, Patersons will also be provided with settlement and investment administration.

In addition to its arrangement with UBS, Patersons stated that it has entered into a new custodial service arrangement with RBC Dexia Investor Services, a company that has worked closely with UBS in relation to trading, settlement, custody and administration design and implementation.

“Together, we have developed seamless connectivity between Patersons, UBS and RBC Dexia that will result in a fully automated trade execution and investments administration solution for our clients,” Manford said.

New SMSFs unaware of risk

By Milana Pokrajac THE majority of new self-managed super fund (SMSF) investors are unaware of the risk they are exposed to and the complexities of running their own fund, according to data from Self Super Insurance.

Recent data from the insurer suggested the longer an investor ran a fund the more they became aware of the risks.

“Our market research found almost 30 per cent of SMSFs have limited awareness of their obligations and more

than half were only moderately aware,” said John Kelly, managing director of Self Super Insurance. “Being unaware of those obligations means a large proportion will inevitably breach these obligations.”

Recent data released by the Australian Taxation Office found most breaches involve improper documentation of loans, administrative breaches, contravening the ‘in-house asset’ rule by exceeding the 5 per cent cap or misunderstanding the exemptions.

“As the sector gets larger and even

4 — Money Management December 1, 2011 www.moneymanagement.com.au

more complex and some of the legislative reforms take effect next year, there are bound to be more risks to trustees that aren’t as apparent as the more familiar ones,” Kelly added.

Lack of knowledge of risks and obligations, Kelly added, would give rise to new trends in the market.

“Firstly the rise of the administrator, who will help manage the compliance responsibilities of an SMSF, and secondly the rise of the educator, as various groups establish themselves to amalgamate and disseminate information,” he said.

THE Australian Securities and Investments Commission (ASIC) has flagged that it intends undertaking a surveillance project around Residential Mortgage Backed Securities (RMBS) disclosure standards next year.

The surveillance project has been flagged by ASIC chairman Greg Medcraft, who told an Australian Securitisation Forum conference that both the regulator and Treasury were also considering the merits of providing regulatory backing for current industry standards.

Medcraft noted that new RMBS disclosure standards will come into effect from 1 January next year, and said ASIC would undertake a surveillance project to assess the uptake of the industry standards.

“Ultimately, these reforms are aimed at improving investor confidence in securitisation markets and this is in line with ASIC’s first key outcome of confident and informed investors and financial consumers,” he said.

The ASIC chairman said that while the regulator and the Treasury were considering the policy merits of providing regulatory backing to the changes, this would represent a departure from the current policy approach in the Corporations Law of focusing the disclosure regime on retail investors.

“Currently, there is no disclosure regime for financial products (such as RMBS and covered bonds) that are issued to wholesale investors,” he said.

“However, we note that in other major securitisation markets, prescriptive disclosure requirements are being considered.”

News Second tranche gives scope to argue on volume rebates

By Mike Taylor FINANCIAL planning groups will have scope to prove some volume rebate arrangements are not conflicted, under the legislation introduced by the Government as the second tranche of its Future of Financial Advice (FOFA) changes.

Both the bill and attached explanatory memorandum make it clear that while all volume rebate arrangements will be regarded as conflicted, it will be open to those involved to prove otherwise.

The explanatory memorandum states: “Where a volume-based payment of this kind is made, section 963L requires the party alleged to have paid or accepted conflicted remuneration to prove that the payment is not conflicted remuneration. That is, if that party has paid or received a volume-based benefit of the type described, it will have to demonstrate that, in the circumstances, the benefit was not in fact conflicted remuneration.”

The Financial Planning Association (FPA) has welcomed elements of the second tranche of the legislation, with chief executive Mark Rantall saying the organisation supported the majority of the measures in banning soft dollar benefits because they mirrored existing FPA standards set by an industry benchmark.

“However we do not agree that location should be a factor – the FPA believes that if a

Mark Rantall financial planner can participate in a legitimate professional development conference, it should be irrespective of whether it is in Australia or overseas,” he said. “The FPA also has a concern with the definition of Group Risk and believes the current definition within the legislation could cause some unintended consequences and costs for consumers as a result.

“As a whole, the FPA believes that the reforms announced in FOFA Tranche 2 are supportive of the financial planning profession, our members and all Australians,” Rantall said.

Westpac restructures divisions W E ST PAC h a s a n n o u n c e d a n organisational restructure which sees the creation of two new divisions – Australian Financial Services and Group Services – and the recruitment of Royal Bank of Scotland chief executive, UK Retail, Brian Hartzer.

The changes see the departure of Rob Coombe as group executive, Westpac Retail and Business Banking.

The new Australian Financial Services division, which encompasses Westpac Retail and Business Banking, St George Banking Group, BT Financial Group and Banking Products and Risk management, will be led by Hartzer. He will take up his new position next year.

Group Services covers technology, banking operations, property services and legal, and will be led

by John Arthur.

Announcing the restructure today, Westpac chief executive Gail Kelly said the changes were part of a drive by the banking group to become Australia’s leading financial services organisation.

“Over the past four years, Westpac group has become a fundamentally stronger company,” she said.

“We have successfully implemented

Gail Kelly

the largest financial services merger in Australia’s history, put in place a customer relationship-focused business strategy and a distinctive multibrand approach.”

Kelly pointed to the next phase of the banking group’s strategy outlined in its results announcement earlier this month, including taking its multi-brand approach to the next level.

…5 years and still delivering Navigating up and down markets, Australian equity manager Greencape has consistently delivered outperformance…

1 year (%)

2 years (%) p.a.

3 years (%) p.a.

Greencape Wholesale Broadcap Fund

–5.49

–1.11

4.66

4.32

5.10

S&P/ASX 300 Accumulation Index

–8.71

–4.14

–0.10

–0.71

–0.17

3.22

3.03

4.76

5.04

5.27

Greencape Wholesale High Conviction Fund

–5.78

–2.21

3.08

5.11

6.02

S&P/ASX 200 Accumulation Index

–8.56

–4.09

–0.11

–0.68

–0.13

2.78

1.88

3.19

5.79

6.15

Outperformance

Outperformance

5 years Inception* (%) p.a. (%) p.a.

Performance is calculated after fees.

Greencape is a stable and experienced team of investment professionals, whose aim is to deliver superior, repeatable performance. Greencape’s focus is purely on investing.

*Inception: 11/09/06. Performance is calculated after fees and assumes reinvestment of distributions. Past performance is not a reliable indicator of future performance.

The information in this document is current as at 30 September 2011 and is provided by Challenger Managed Investments Limited ABN 94 002 835 592 AFSL No. 234 668 the issuer of the wholesale units in the Greencape Broadcap Fund ARSN 121 326 341 and Greencape High Conviction Fund ARSN 121 326 225. The information is general information rather than advice and does not take into account the investment objectives, financial situation and particular needs of an investor. Each person should obtain and consider the Product Disclosure Statement (PDS) for the Fund and consider whether or not the Fund is appropriate for them before deciding whether to acquire, continue to hold or dispose of units in the Fund. A copy of the PDS can be obtained from www.challenger.com.au.

12840/1111

www.greencapecapital.com • 1800 621 009

www.moneymanagement.com.au December 1, 2011 Money Management — 5

News

SG to rise as Govt gets MRRT Piersbridge Consultants

By Mike Taylor THE superannuation guarantee will rise from its existing 9 per cent to 12 per cent over the next eight years following the Government’s successful negotiation of its Mineral Resource Rent Tax (MRRT) legislation through the House of Representatives.

Federal Treasurer Wayne Swan confirmed passage of the legislation last week after lengthy discussions with the Greens which carried on until late Tuesday evening.

Confirming passage of the legislation, Swan pointed to the benefits for small business in terms of consequent tax concessions as well as the lifting of the superannuation guarantee.

“The proceeds of the mining tax will enable increased superannuation for Australian workers – delivering investment back into Australian companies and Australian jobs,” he said.

Swan claimed the increased superannuation would increase Australia’s savings pool by $500 billion by 2035 and provide extra superannuation for 3.6 million low-income earners.

The Greens provided their support for the legislation despite being urged by the Federal Opposition to seriously question the underlying revenue assumptions.

Shadow Assistant Treasurer Senator Mathias Cormann said Swan had consistently refused to release the commodity price and production

snapped up by rmg

By Tim Stewart

Wayne Swan volume assumptions used to estimate MRRT revenue, claiming that they were based on commercial-in-confidence data provided by the big three miners.

“So not only are the big three miners allowed to design the tax to suit their needs, they’re also the only ones allowed to know the Government’s mining tax revenue assumptions. That’s just not good enough,” he said.

PERTH-based practice rmg f inancial ser vices has increased its funds under advice to $660 million with the acquisition of Piersbridge Consultants.

The acquisition – the third so far this year for rmg – will provide the practice with more scale when it comes to risk insurance.

The advice arm of the Piersbridge, Precise Financial Planning, has already been incorporated into rmg – while the insurance business will continue to operate on a stand-alone basis for two years.

All of the former Piersbridge advisers are now licensed under Charter Financial Planning.

Piersbridge principal Ivan Cohen said succession planning was a major factor in the decision to merge with rmg. A 10-year age difference between the principals was an issue, and operating a medium-sized practice was “only going to get more difficult”, Cohen said. rmg principal Patrick Conion said rmg would be able to leverage the insurance capabilities of Piersbridge.

“The team has built a really impressive business.

Together we can continue to enhance our services to clients and take on the challenges of the future,” he said. rmg will continue to look for practices to acquire, Conion added.

Dividends not always a recipe for success

ASFA urges political support for higher SG

By Chris Kennedy

By Keith Griffiths

DESPITE the current clamour for high yielding stocks in a sluggish market, big dividend yields aren’t always a recipe for investment success, according to Goldman Sachs Australia’s head of Australian equities Dion Hershan.

Very often those big yields aren’t sustainable, and if people had bought a basket of high yielding stocks leading up to the global financial crisis in general those stocks were a train wreck, he said.

Hershan estimated around two thirds of the top 20 yielding stocks in the Australian market needed to cut their yields.

“You need to do more than scratch the surface and find out what is sustainable.

We’re conscious that the yield itself is not the answer,” he said.

Some sectors such as the banks are likely to maintain sustainable yields of around 7 per cent, and possibly the property trust sector which has been repaired considerably since the GFC, he said.

He said such stocks could appeal to personal investors such as self-managed super fund trustees because those yields are higher than what they would be likely to receive in a term deposit. But people would need to be careful they weren’t buying a company with a 6.5 per cent yield but whose profit would drop by 30 per cent in the next year, resulting in a drop in yields, he said.

AMID the Government’s eleventh hour efforts to gain support for its Mineral Resources Rent Tax, the Association of Superannuation Funds Australia (ASFA) urged parliamentarians to stop debating and support the increase in the superannuation guarantee (SG) on the basis of it being good for the economy, affordable, equitable and necessary.

ASFA chief executive Pauline Vamos said the existing 9 per cent SG would not be sufficient to deliver dignity in re t i re m e n t f o r t h e m a j o r i t y o f Australians.

Pointing to the current economic uncer tainty in Europe and the US, Vamos said: “The more people save today for tomorrow the more selfreliant they become in retirement”.

According to ASFA, increasing the SG to 12 per cent is affordable given the increase is to be phased in over eight years, and any foregone Pay As You Earn t a x re v e n u e w i l l b e o f f s e t by t h e increased revenue from taxation on super fund earnings.

As well, it argued the increase is equitable as the tax benefits for upper income earners are limited, there is a cap on SG contributions, and lower income earners will also soon receive the low-income tax rebate, further bolstering their super and improving the equity of the system.

Based on the expenditure needs in

Dion Hershan Hershan compared current market sentiment with the fourth quarter of 2008, when investors were clamouring for safety and buying companies with good balance sheets, good management teams and good yields. But when confidence turned in the marketplace in the first quarter of 2009 a lot of those stocks were left for dead, and the big oppor tunities were in some of the more cyclical names, Hershan said.

“We don’t have a cr ystal ball in terms of when things are going to turn but we are seeing some good longterm opportunities. It’s just going to require patience,” he said.

6 — Money Management December 1, 2011 www.moneymanagement.com.au

Pauline Vamos ASFA’s Retirement Standard, taking into account the age pension, a single retiree needs an account balance of about $430,000 in today’s dollars to support a comfortable retirement, while a couple needs around $510,000.

Additionally, according to a report by Allen Consulting Group (commissioned

by ASFA), an increase in the SG to 12 per cent would lead to a 0.33 per cent i n c re a s e i n ( re a l ) G D P by 2 0 2 5 , compared to the no-reform scenario.

“The Allen research provides strong support that a move from 9 to 12 per cent would be not only good for the retirement futures of current workers, but would also have no adverse affect on employers,” Ms Vamos said.

News

Government vows not to tax trusts as companies

By Mike Taylor THE Federal Government has released a new consultation paper on modernising the taxation of family trusts and declared it is not looking at taxing trusts as companies.

The declaration was made by Assistant Treasurer and Minister for Financial Services Bill Shorten, who claimed such a move was possible on the part of the Federal Opposition, and would represent a major departure from the current law.

Releasing the consultation paper, Shorten said it represented an opportunity for the trustees and beneficiaries of over 660,000 trusts to have the opportunity to have a say in their own financial future.

He said the interaction of the trust law and tax laws had been an ongoing issue for some time, and it was time to resolve it “for all the farmers and small businesses in Australia who use trusts to manage their financial affairs”.

The Treasury documentation attaching to the review pointed to five principles which would inform the review process: 1. Tax liabilities in respect of the income and gains of a trust should ‘follow the money’, in that they should attach to the entities that receive the economic benefits from the trust.

2. The provisions governing the taxation of trust income should be conceptually robust, so as to minimise both anomalous results and opportunities to manipulate tax liabilities.

Sydney man permanently banned by ASIC

3. The provisions governing the taxation of trust income should provide certainty and minimise compliance costs and complexity.

4. It should be clear whether amounts obtained by trustees retain their character and source when they flow through, or are assessed, to beneficiaries.

5. Trust losses should generally be trapped in trusts subject to limited special rules for their use.

The Treasury documentation said that, in addition to retaining the broad policy framework that currently applies to the taxation of trust income, the Government remained committed to i t s f i s c a l s t ra t e g y. T h e re f o re, a n y changes made as part of this process would have to be broadly revenue neutral.

APRA getting tougher on securitisation rules

By Milana Pokrajac THE financial services regulator has once again exercised its power to ban a person who has been convicted of fraud.

George Hawa from Sydney was per manently banned from the financial services industry after he was convicted of serious fraud and sentenced to four years and nine months in total behind bars, the Australian Securities and Investments Commission (ASIC) has announced.

ASIC has the right under the Corporations Act 2001 to ban a person who has been convicted of fraud.

While unlicensed to deal in financial products, Hawa allegedly induced people to invest money in the foreign exchange market, making false representations to his clients about the past performance of monies invested with him.

According to ASIC, he had used a so-called ‘marketing sheet’ that contained false information about the performance of investments.

“ASIC’s action against Hawa reflects the Commission’s commitment to ensuring consumer confidence in the financial services industry,” the regulator stated.

THE Australian Prudential Regulation Authority (APRA) has warned Australian banks, insurance companies and superannuation funds that it has become “considera b l y l e s s to l e r a n t ” o f their use of securitisation transactions.

APRA general manager policy, research and statistics Charles Littrell has used an address to the Australian Securitisation Forum this week to make clear the regulator’s concern, but adding that APRA believes securitisation is “more useful than dangerous”.

“But we have become considerably less tolerant

of the over-complication that crept into this financial product,” he said.

“We also observe that some ADIs have developed the habit of following the letter, not the spirit, of the prudential requirements applicable to securitisation.”

Littrell said APRA had undertaken a review of industr y compliance with the requirements around securitisation, and what it had found was not pleasing. Some in the market appeared t o h av e a d o p t e d a n approach of “what the rules allow” rather than “what is economically sensible”.

“A P R A r e g a rd s t h e basic concessions in securitisation, the ability to r e m ove a l l c a p i t a l r e qu i r e m e n t s o n t h e underlying assets, and the permission to pledge assets, as extraordinary benefits,” he said. “We do not propose to award these benefits to structures and issuers that do not merit them.”

Littrell pointed to APRA next year carrying out a complete review of its arrangements around securitisation. It suggested that any reforms were likely to feature a s i mple r a p p ro a c h b u t with more super visor y flexibility.

More than meets the eye Creation of investment ideas is eclectic in nature.

Apart from applying numerical skills, there is a constant input from observation of the changing social and political landscape. www.platinum.com.au | 1300 726 700

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www.moneymanagement.com.au December 1, 2011 Money Management — 7

News

Uncertainty surrounds Oakeshott on opt-in

By Mike Taylor

Richard Klipin

DESPITE having earlier this year indicated his concern about the two-year opt-in contained in the Government's Future of Financial Advice (FOFA) legislation, there is no certainty NSW Independent Rob Oakeshott will support key amendments to the Government's bills.

With the Assistant Treasurer and Minister for Financial Services Bill Shorten having told the recent Financial Planning Association

(FPA) national conference that he is in no doubt the FOFA bills will pass the Parliament, financial planners who have lobbied Oakeshott have confirmed the independent's refusal to commit to supporting amendments to the legislation.

Financial planners have targeted both Oakeshott and Tasmanian independent Andrew Wilkie with the objective of having them support the Federal Opposition in delivering key amendments to the FOFA bills, but neither politician

WITH responsible investment (RI) shaping as a big growth market, global investment manager AXA Investment Managers (AXA IM) is leading the way in the sector with its focus on transparency.

AXA IM commissioned independent exper t Deloitte to audit its six RI funds, with all of the funds found to be fully compliant with the United Nations Principles of Responsible Investment.

AXA IM Australia and New Zealand director Craig Hurt said the lack of a globally recognised set of RI standards meant that global investors were not being offered full transparency.

“Through our work with Deloitte and the expansion of our global RI initiatives, we aim to offer Australian institutional investors – and their individual members and investors – a wider opportunity to invest in strategies incorporating [environmental, social and governance] principles,” Hurt said.

AXA IM is also looking at adding a number of new metrics to assess RI issues.

In addition to the widely used carbon footprint metric, the firm will develop corporate governance, social and water metrics.

The company recently appointed Matt Christensen to the role of global head of responsible investment.

Christensen is a dominant

Shorten last week used his address to the FPA conference to signal that the Government was prepared to moderate its approach to the annual fee disclosure requirement, particularly with respect to existing clients and retrospectivity.

AFA chief executive Richard Klipin welcomed the minister's indication of a moderating of the approach around annual fee disclosure. He said while his organisation wanted to be constructive it remained concerned about consistency.

Large-cap Australian funds least active

AXA IM calls for responsible investment standards

By Tim Stewart

is understood to have given any firm commitments.

In the meantime, both the FPA and the Association of Financial Advisers (AFA) have been working on submissions to the Parliamentary Joint Committee on Financial Services, which is currently reviewing the FOFA bills.

The FPA and the AFA are united in opposing the first tranche of the FOFA bills, particularly with respect to opt-in and the last minute imposition of an annual fee disclosure requirement.

By Andrew Tsanadis

figure in the RI field, having held the position of founding executive director of the top European RI think tank Eurosif.

Christensen said that Australia’s $1.3 trillion superannuation sector would be a key driver of the Asian RI market, but he added that corporate governance, regulation and transparency were key factors in Asia.

“Global investors should abandon the box-ticking approach based on the application of a single set of corporate governance rules, and instead encourage Asian companies to embrace the spirit of good principles of corporate governance as their companies and economies evolve,” Christensen said.

LARGE-CAP Australian share funds are among the least active in the world when compared to other single-country and international share funds.

That’s according to Morningstar’s latest report which involved an analysis of 75 large-cap Australian share strategies and the degree to which ‘activeness’ in share funds has changed over the last three years.

The active share scores ranged from 25 per cent (highly index-aware) to over 80 per cent (highly active), with the optimal position for active share in risk/reward terms between the 40 and 60 per cent bracket, the paper stated.

“The average active share score has been on the upturn since the Australian share market’s bottom in March 2009, the most index-aware fund managers appearing to have become willing to take more active positions,” Morningstar stated.

A high active share score indicates greater potential for divergence from the benchmark but does not necessarily guarantee superior returns compared to Australian share funds with lower active scores. This is despite active share funds “in most cases”

charging more in fees than compared to less active funds, the report found.

According to Morningstar, the “tightlyconstrained and top heavy” nature of the S&P/ASX200 Accumulation Index at least partly accounts for the fact that on average most large-cap Australian share fund managers are making active decisions with only half of their portfolios.

In Morningstar’s list of Australia’s most active share funds, Lazard Select Australian Equity ranked first with an average active share score of 79.10. This was followed closely by SGH20 (78.9) and Perennial Growth High Conviction (76.7).

The least active Australian share fund was found to be Macquarie Australian Equities with a score of 25.20, followed by Advance Australian Shares Multi-Blend (30.2) and Blackrock Scientific Australian Equity (30.6), according to Morningstar.

Euro crisis enters final stage

Asian forum opens capital opportunities

By Milana Pokrajac

By Chris Kennedy

EQUITY investors should focus on highquality and defensive stocks in the next 12 months, as the Eurozone crisis enters what might be its final stage, according to global chief investment officer for equities at Fidelity Worldwide Investment, Dominic Rossi.

Rossi also believes investors need to keep a close eye on the bond yields of Belgium, Austria and France. Furthermore, a strong case can be made for corporate and inflation-linked bonds.

“Given we are talking about AAA sovereign nations now becoming involved, this has to be the final phase of the crisis, simply because there is nowhere else for contagion to spread,” Rossi said.

The attendant volatility in the current financial markets should also mark the last down-leg of this crisis, he said.

AUSTRALIAN financial services companies will have an opportunity to access Asian investors at the fifth Asian Financial Forum in Hong Kong in mid-January.

The forum will bring together around 2,000 business and government leaders from around the world, including a business mission of Australian delegates, according to the Australian mission leader David Thomas from Think Global Consulting.

Speaking at an Asian Financial Forum boardroom luncheon in Sydney, Thomas said the conference would provide opportunities for Australian financial services delegates to tap into Asian investors including venture capital companies, high net worth individuals and state-owned Chinese investment companies.

Delegates will be able to check the database of delegates and organise one-on-one meetings with the types of individuals or companies they are targeting, he said.

There will also be a ‘deal maker’ session which Thomas equated to a speed dating session, where

“The speed at which the crisis has moved from Italy to Spain and now core Europe has been alarming, but it also suggests a crescendo,” Rossi suggested. “The evolution of the crisis path now suggests a tipping point at which quantitative easing by the European Central Bank becomes palatable to Germany as the only option that avoids a Eurozone break up.”

8 — Money Management December 1, 2011 www.moneymanagement.com.au

delegates are rotated and have about 20 minutes with potential investors to sound them out.

Thomas said the conference would suit three different kinds of Australian financial services delegates: those looking to raise money from Chinese investors, companies or individuals for Australian projects including clean-tech, biotech, other technologies, property and agriculture; those looking to develop businesses in Asia and seeking potential customers, clients, business partners, and relationships on the ground; and those looking to do some research, refine strategies and develop local knowledge.

He said one of the success stories from the 2011 conference was APIR Systems. APIR managing director Andy Hutchings Broso said that conference had helped him to understand the regional nature of the Asian market and gave him the confidence to take the business overseas.

The conference program will discuss growth opportunities and challenges in the Asia-Pacific region, including issues such as global investment prospects, China opportunities, Japan’s reconstruction and green growth initiatives. It takes place on 16-17 January 2012.

News

Abbott reiterates opposition to SG raise

By Chris Kennedy THE Coalition does not and will not support compulsion in national savings, but will not repeal an increase in the superannuation guarantee (SG) from 9 to 12 per cent if it is passed, according to opposition leader Tony Abbott.

Abbott told a recent Financial Services Council (FSC) breakfast that the Coalition was not given much credit for

being interested in superannuation, but the party was interested in people’s retirement savings. However, he said his party was more interested in incentives than compulsion and in carrots rather than sticks when it came to encouraging people to save for their retirement.

Abbott acknowledged that it was important for the future of the country that people had adequate retirement incomes, particularly with an ageing

population. He also acknowledged that with a strong welfare safety net, people often did not save much.

“It is perhaps important that we have an element of compulsion if there is going to be the level of national saving that we would like to have,” he conceded.

He said the Coalition would always have an instinct and a preference for transparency, small business and deregulation, which he claimed were

often lacking in the system right now.

FSC chief executive John Brogden paid credit to the work done by Shadow Minister for Financial Services Mathias Cormann (who could not be at the breakfast due to another commitment) for learning everything he could about the financial services portfolio. Abbott said he was pleased that the industry had developed such a strong working relationship with Cormann.

Tony Abbott

Gold Coast director jailed for 7.5 years

By Milana Pokrajac A GOLD Coast director has been sentenced to more than seven years in jail for defrauding investors of $2 million, according to an announcement released by the Australian Securities and Investments Commission (ASIC).

ASIC alleged that former director of Water at Wooyung Unit Trust, Ro b e r t D a l e, i n d u c e d four investors to pay $2 million in total to acquire units in his trust for the development of property at Wooyung.

T h e i n v e s t o r s, w h o paid $500,000 each, told the Southport District Co u r t t h a t t h e y n e v e r received the promised units, while ASIC alleged Da l e u s e d s i g n i f i c a n t proportions of the investor funds for private purposes.

Following a four-week trial, Dale was found guilty of six charges of dishonestly gaining benefit and one charge of dishonestly applying property belonging to another.

He w i l l s e r v e a minimum of three years and two months, being eligible for parole on 15 January 2015. He will also be disqualified from being involved in the management of a corporation for five years.

“Building and enhancing confidence among investors is a key priority for ASIC; this includes taking action against directors who fail to fulfil their responsibilities,” said ASIC Commissioner Peter Kell, who welcomed the sentence. www.moneymanagement.com.au December 1, 2011 Money Management — 9

News ACCC gives Count/CBA deal green light

By Keith Griffiths THE Australian Competition and Consumer Commission (ACCC) has announced that it will not oppose the proposed acquisition of Count Financial by the Commonwealth Bank of Australia (CBA).

“The ACCC is satisfied that there is unlikely to be a substantial lessening of competition in any relevant market as a result of this proposed acquisition,” ACCC chairman Rod Sims said in a statement to the Australian Securities Exchange.

The ACCC conducted a comprehensive review,

including extensive market inquiries with participants in the financial planning, mortgage broking, banking, superannuation and insurance sectors, and was satisfied that CBA would continue to be constrained by a number of other significant financial planning dealer groups, mortgage broking firms and investment product providers, Sims said.

With respect to the supply of life insurance and superannuation products, the ACCC also concluded that the acquisition would not raise significant competition concerns in either of these sectors.

FPA most influential group, says Shorten

By Mike Taylor THE Assistant Treasurer and Minister for Financial Services, Bill Shorten, has declared the Financial Planning Association (FPA) has been the most influential planning body in terms of informing the direction of the Government on the Future of Financial Advice (FOFA) changes.

Addressing the FPA national conference in Brisbane, Shorten not only signalled the Government may be prepared to moderate its approach to mandatory fee disclosure statements as a result of feedback from the FPA, but that it also broadly endorsed the founda-

tion provided by the FPA’s code of professional conduct.

In what was interpreted as a direct slap at the more aggressive lobbying approach adopted by the Association of Financial Advisers, Shor ten said that while some people had tried to adopt a tough stance, it had been the FPA which had influenced the Government enormously. “ T h e F PA h a s h e l p e d to explain to us the issues and how they impact planners,” he said.

While not totally committing the Government to such a move, Shorten said the FPA had provided cogent reasons why the use of the term ‘financial

planner’ should be restricted within Corporations Law. O n t h e qu e s t i o n o f t h e eleventh hour inclusion of an annual fee disclosure requirement within the first tranche of the Government’s FOFA legislation, the minister said that on the basis of representations made by the FPA, the Government was prepared to retrospectively review the situation with respect to existing clients to ensure simplicity.

Shor ten said he believed the financial planning industr y needed to embrace the need for change and he was i n d o u b t t h a t t h e F O FA changes would pass through the Parliament.

FPA pushes for retirement planning focus

By Benjamin Levy THE Financial Planning Association (FPA) will encourage its members to focus more on retirement and post-retirement planning, according to FPA general manager of policy and government relations Dante De Gori.

Speaking at the FPA national conference, De Gori said aged care was a massive concern for the country as health and lifestyle improvements continued to increase life expectancies, and financial advice was critical to dealing with the issue.

“Undoubtedly, we will get to a stage where more aged care operators are going to be required, but also, fundamentally, the advice you provide in the context of retirement planning should also constitute what happens within retirement and post-retirement,” De Gori said.

Family and intergeneration advice can play a role in this space, where many clients’ parents need aged care, De Gori said.

De Gori reiterated calls for changes to tax laws and the Superannuation Industry Supervision Act to stimulate better product

Dante De Gori innovation to counter longevity risk issues.

Tax deductibility for advice would stimulate more Australians to seek financial advice, he said.

Rebates and offsets can be provided to help low-income earners who may not seek advice because of affordability issues, he said.

De Gori also urged FPA advisers to complement plans on the National Disability Scheme by providing the benefits and merits of life insurance to their clients so they don’t rely solely on the scheme.

10 — Money Management December 1, 2011 www.moneymanagement.com.au

Government to consult on OTC derivatives

By Chris Kennedy THE Government will consult with industry on regulations a ro u n d ove r- t h e - c o u n te r (OTC) derivatives, a process it said was underway before the collapse of MF Global h i g h l i g h te d t h e n e e d to strengthen client money protections.

Assistant Treasurer and Minister for Financial Services and Superannuation Bill Shorten has launched a discussion paper to consult with retail clients and industry stakeholders about how they are using client money accounts in relation to OTC derivatives transactions and whether retail investors are protected appropriately.

The paper, ‘Handling and use of client money in relation to over-the-counter derivatives transactions’, conside r s va r i o u s a s p e c t s o f Australia’s current regulatory regime for the keeping and handling of client monies, in particular the regulation of OTC derivatives, according to Shorten’s office.

Bill Shorten Shorten said that in light of the collapse of MF Global, t h e G ove r n m e n t i s n ow moving more quickly to consider these issues.

“These markets are less heavily regulated than onexchange derivatives markets, which have also seen ongoing strengthening of applicable reporting and reconciliation rules by [the Australian Securities and Investments Commission] in recent times,” Shorten said.

Advisers need to engage young dissatisfied investors

By Andrew Tsanadis

YOUNG investors, those who have only used a financial adviser for a short time, and those with minimal investments are the most dissatisfied when it comes to financial advice.

That’s according to the results of the latest Lifeplan Funds Management/University of Adelaide’s International Centre of Financial Services (ICFS) Financial Advice Satisfaction Index conducted last month.

The survey evaluated the responses of 410 investors in relation to their perception of trust and reliability of advisers; the perception of an adviser’s technical ability; and the perception of investment performance.

According to Lifeplan head Matt Walsh, the client categories that showed a decline in satisfaction across all three criteria were those aged under 30; those with less than $50,000 to invest; and those who had been with their adviser for less than two years.

Despite the survey being undertaken during a particularly

Matt Walsh volatile period for global markets, Walsh said advisers could do more to attract and retain clients in these categories rather than just waiting for markets to regain their stability.

“Perceptions of trust and reliability in particular are affected by regularity of contact with someone, how open and transparent they are, and whether they do what they say they will do.”

Experience Wealth Advice director Steve Crawford agrees with Walsh. He said that in regards to generation X and Y investors, advisers need to be in contact with their clients on

a monthly if not weekly basis.

Crawford said communication can be enhanced by using monthly e-newsletters, Facebook updates, or tweets on articles that clients need to read. He added that non-traditional technology such as software that gives real-time cashflow updates adds real value to the relationship with an age group that is par ticularly focused on managing their spending and savings.

In other results, the study found that clients who have been with their advisers for more than five years have a more favourable perception of financial advice because t h ey te n d to h ave h i g h e r levels of financial literacy than their younger counterparts, Walsh said.

Meanwhile, satisfaction l eve l s among fe m a l e investors were found to be g r e a te r t h a n t h a t a m o n g male investors. Walsh said this was particularly true of females under the age of 30.

“Female investors’ positive perception of advisers could signal an opportunity for advisers to expand their client base,” Walsh said.

SMSF Weekly ATO interpretive decision impacts stepchildren

By Damon Taylor T H E Au s t ra l i a n Ta x a t i o n O f f i c e ( ATO ) h a s re c e n t l y released an interpretive decision which is highly relative to self-managed super fund (SMSF) succession planning, a c c o rd i n g t o Br yc e Fi g o t , senior associate for DBA Lawyers.

The interpretive decision, ATO ID 2011/77, considers when a stepchild ceases to be a child of a stepparent and, more particularly, answers the question of whether a stepparent’s superannuation death benefits may be paid to

a stepchild if the stepparent i s d i v o rc e d f r o m t h e stepchild’s biological parent before death.

Ac c o rd i n g t o Fi g o t , t h e ATO ’s p o s i t i o n i s t h a t a stepchild ceases to be a dependant after the divorce, but he added that such a position had a number of important implications.

“Firstly, remember that an ATO ID is not the law,” he said. “However, assuming t h a t t h e v i e w i n ATO I D 2011/77 is correct (which DBA Lawyers believes it to be), the most obvious implication is that superannuation

fund trustees typically may not pay out a deceased stepp a re n t’s s u p e ra n n u a t i o n death benefits to a stepchild where divorce has occurred.

“This implication gives rise to a subsequent, less obvious, implication,” Figot continued. “Namely, non-biological children of superannuation fund members typically cease being beneficiaries of the fund upon divorce.”

Figot said that it may surprise many to learn that such a scenario was often very positive news for super funds.

“Remember that the beneficiaries of a superannuation

Equities drive better super returns

By Mike Taylor

SELF-managed superannuation funds with a reasonable exposure to equities should have regained some ground in October, if new data released by specialist research houses Chant West and SuperRatings are a guide.

The Chant West data revealed the median growth fund grew by 3.1 per cent last month, while the SuperRatings data revealed 2.78 per cent growth for the median balanced option.

Chant West principal Warren Chant attributed the positive October figure to a share market rally based on optimism that European leaders had devised a workable plan to stem the sovereign debt crisis.

However he pointed out that markets had softened again this month as it had become clear the debt crisis had a long way to run.

Because of their higher exposure to

Warren Chant equities, retail master trusts out-performed industry funds in October, but Chant pointed out that industry funds were still the better performers over the longer-haul.

Despite the positive October performance, super returns remain in negative territory on a year-to-date basis.

Conventional funds can meet SMSF needs THE actions of conventional superannuation funds may have given rise to the growth in self-managed superannuation funds (SMSFs).

That is one analysis delivered to the Association of Superannuation Funds of Australia (ASFA) national conference earlier this month, but Institute of Chartered Accountants SMSF specialist Liz Westover believes there are a number of reasons for growth in the sector.

Westover said that among these is the growth in share ownership generated by demutualisations and privatisations in Australia, as well as recent stock market volatility.

“During stock market volatility when super fund balances were declining, many

Australians resented ‘paying’ someone else to lose their money and preferred to have a go at obtaining better returns themselves,” she said.

Westover said other types of funds had been inflexible and lacked choice around investments and options in retirement.

However she said there had been an improvement with respect to larger funds in recent years in terms of meeting their members’ needs and providing them with choices and flexibility.

“Larger funds have a great opportunity to offer up the benefits of SMSFs, without the responsibilities of being trustee,” Westover said. “If they can maximise these opportunities, they become a very attractive option for Australians saving for their retirements.”

fund are much broader than t h e m e m b e r s,” h e s a i d .

“Further, beneficiaries have v a r i o u s r i g h t s, s u c h a s compelling proper administration of the fund by the trustee, having the trustees act in good faith and inspecting trust documents, including the governing rules (eg, the trust deed) and trust accounts.

“Accordingly, children of a m e m b e r’s f o r m e r s p o u s e can’t use such rights to make a nuisance of themselves [or u s e t h e m a s l e v e ra g e i n a family law property settlement negotiation].”

Bryce Figot

SISFA urges higher contribution caps A RECENT submission made by the Small Independent Superannuation Funds Association (SISFA) to the Assistant Treasurer Bill Shorten has highlighted a number of areas of concern in matters relating to retirement policy.

Focusing on adequacy and contribution regulations in particular, the submission stated that while SISFA supported the policy direction of increasing compulsory superannuation to 12 per cent, it was strongly of the view that more was required.

“SISFA does not advocate an ‘open slather’ or ‘no limits’ approach,” the submission stated. “We hold a strong view that greater flexibility and imagination in accumulating wealth in super should be encouraged and embodied in legislation.”

To that effect, the suggestions made

by SISFA included higher contribution caps (both concessional and non-

concessional) and a more flexible approach to those caps in the form of a ‘rolling period cap’ or similar.

On the topic of contribution regulations, SISFA proposed that contributions be more dynamic and flexib l e, u s i n g t h e p o s s i b i l i t y o f a life-time cap, a rolling period cap or a single universal limit for life-time contributions as possible examples.

“Solutions in this regard could be a life-time cap on concessional/nonconcessional contributions to allow the savings of people to increase through higher contributions at times when their cashflow allows,” it said.

“Alternatively, move to a single universal limit for life-time contributions to super, irrespective of age.

“This is consistent with the theme of a later acceleration model for the making of higher contributions later in life.”

Multiport grows managed account FUA SELF-MANAGED superannuation funds (SMSFs) and managed accounts specialist Multiport has passed a milestone, declaring that it has reached $150 million in funds administered on its managed accounts service.

Multiport chief executive John McIlroy attributed some of the growth in the managed accounts ser vice to continuing uncertainty within investment markets.

“With the Future of Financial Advice (FOFA) reforms and ongoing market volatility causing many financial planners to look at ways to create or improve value for their clients, managed account solutions are being looked at more closely,” he said.

McIlroy said his company was providing a managed account service integrated with its SMSF administration solution.

John McIlroy

www.moneymanagement.com.au December 1, 2011 Money Management — 11

InFocus SUPER FUND PERFORMANCE SNAPSHOT Month ended 31 October 2011 DIVERSIFIED FUNDS

3.9 3.1 1.3

%

High Growth

%

Growth

%

Conservative

GROWTH FUNDS

2.8 3.8

%

Industry Funds

%

Master Trusts

Source: Chant West’s monthly superannuation fund performance survey – results to 31 October 2011

WHAT’S ON FPA Sydney Chapter Christmas Lunch 8 December 2011 Hilton, Sydney www.fpa.asn.au Chartered Secretaries Australia Annual Conference 4-6 December 2011 Sofitel Sydney Wentworth www.csaconference.com

24th Australasian Finance & Banking Conference 14-16 December 2011 Shangri-La Hotel, Sydney www.asb.unsw.edu.au

The Superfund Reform Summit 2012 7 February 2012 CQ Functions, Melbourne www.superfundreform.com.au

Effective Business Forecasting Conference 2012 14 February 2012 Park Royal Darling, Sydney www.cpaaustralia.com.au

The cost of playing by new rules The second tranche of the Government’s Future of Financial Advice legislation has laid out the remuneration and best interests ground rules for financial planners but, as Mike Taylor reports, much will depend on the attitude of those administering the new rules.

W

hen Assistant Treasurer Bill Shorten late last week introduced the second tranche of his Future of Financial Advice (FOFA) legislation to the House of Representatives, much attention was focused on its approach to fee disclosure and the best interests test.

That attention was entirely justified in circumstances where the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011 laid out the remuneration game rules to which the industry will have to adhere for the foreseeable future.

The bill gives financial advisers very little choice other than to adopt a fee-for-service approach. The only wriggle room it provides is the vague suggestion that there may be scope for them to prove that some forms of volume rebates are not conflicted.

It is assumed that proof that a volumerebate arrangement is not conflicted will need to be provided to the Australian Securities and Investments Commission.

The Government has explained its position in the explanator y memorandum attaching to the bill, which dealing with the issue of volume rebates states: Where a volume-based payment of this kind is made, section 963L requires the party alleged to have paid or accepted conflicted remuneration to prove that the payment is not conflicted remuneration.

That is, if that party has paid or received a volume-based benefit of the type described, it will have to demonstrate that, in the circumstances, the benefit was not in fact conflicted remuneration.

In an industry as complex and fast-evolving as the financial services industry, there are and will always be a wide range of remuneration arrangements. However, volumebased payments of the kind described in section 963L appear on the face of it to be inherently conflicted, since the financial adviser will have a financial incentive to maximise the value of the payments irrespective of the suitability of the products or investments for the client.

It would be legislatively impractical to define and categorise all remuneration arrangements precisely, and to prescribe in advance which are conflicted and which are not. Where there are volume-based benefit structures that are not inherently conflicted, this will be peculiarly within the knowledge

12 — Money Management December 1, 2011 www.moneymanagement.com.au

of those paying and receiving the benefits. It is therefore appropriate that those parties be required to demonstrate that the benefits are not conflicted.

It says something about the intent of the legislation that Division 4 of the bill is headed “Conflicted Remuneration” and describes “conflicted remuneration” to mean “any benefit, whether monetary or non-monetary, given to a financial services licensee, or a representative of a financial services licensee, who provides financial product advice to persons as retail clients that, because of the nature of the benefit or circumstances in which it is given: (a) could reasonably be expected to influence the choice of financial product recommended by the licensee or representative to retail clients; or, (b) could reasonably be expected to influence the financial product advice given to retail clients by the licensee or representative.

The bill then goes on to detail forms of monetary and non-monetary remuneration which are not regarded as conflicted, including general insurance and basic banking products.

The bill’s explanatory memorandum said the ban on conflicted remuneration included a ban on both monetary and non-monetary (soft-dollar) benefits. However, it said in relation to monetary benefits that there are areas the ban on conflicted remuneration does not apply to: • general insurance; • life insurance which is not bundled with a superannuation product; • individual life policies which are not connected with a default superannuation fund; and • execution-only (non-advice) services.

However it digs deep into the commercial structures which have underpinned dealer groups when, at section 963L, the heading states “Volume-based benefits presumed to be conflicted remuneration”.

The legislation states: “It is presumed for the purposes of this Division that a benefit of one of the following kinds is conflicted remuneration, unless the contrary is proved: (a) a benefit access to which, or the value of which, is wholly or partly dependent on the total value of financial products of a particular class, or classes: (i) recommended by a financial services licensee, or a representative of a financial services licensee, to retail clients, or a class

or retail clients; or (ii) acquired by retail clients, or a class of retail clients, to whom a financial services licensee, or a representative of a financial services licensee, provides financial product advice. (b) a benefit access to which, or the value of which, is wholly or partly dependent on the number of financial products of a particular class, or particular classes: (i) recommended by a financial services licensee, or a representative of a financial services licensee, to retail clients, or a class of retail clients; or (ii) acquired by retail clients, or a class of retail clients to whom a financial services licensee, or a representative of a financial services licensee, provides financial product advice.

While those analysing the second tranche believe the Government has provided some wriggle room by allowing scope to prove some volume rebate arrangements are not conflicted, the logistics of pursuing such an argument would seem likely to be both costly and time-consuming for those involved.

W h e re c l i e n t b e s t i n t e re s t s a re concerned, the second tranche introduced

by Shorten last week fulfilled many of the arguments which had been presented by the Financial Planning Association (FPA) amongst others by not requiring planners to go beyond what is currently regarded as reasonable professional conduct in the sense of knowing their client.

The problem for the FPA and other stakeholders in dealing with the introduction of the second tranche of the legislation is that, initially at least, they did not have the opportunity to peruse the usual explanatory memorandum attaching to the bill.

However when it was finally released, it described the legislation’s approach to the best interests test in the following terms: There is a general obligation on providers of advice to act in the best interests of the client.

This general obligation is supplemented by a provision setting out steps that, if the provider can prove they have taken, will be taken to satisfy the general obligation. These steps have been set out based on the specific conditions under which advisers currently operate. This approach is needed given the broad nature of a best interests obligation; it may allow a provider to demonstrate that it has complied with the obligation by proving it took certain steps.

Year in review

2011

REAR VIEW MIRROR

www.moneymanagement.com.au December 1, 2011 Money Management — 13

Year in review

2011

REAR VIEW MIRROR

Tim Stewart and Milana Pokrajac look back at major events that have shaped the financial services industry over the past year.

IT has been a fractious year in the financial services industry, with regulatory uncertainty and increasing industry consolidation taking a toll.

After an exhaustive (and exhausting) consultation process, the Minister for Financial Services and Superannuation, Bill Shorten, finally tabled the first Future of Financial Advice (FOFA) bills in Parliament on 13 October 2011.

Given the tortuous path the Government has taken on FOFA, it should have come as no shock to the industry that the Minister chose to add an undiscussed and contentious annual fee disclosure requirement into the Bill at the eleventh hour.

The inclusion of retrospective fee disclosure “flies in the face of grandfathering, and adds significant cost and administration to financial planning practices for little consumer benefit,” says Financial Planning Association (FPA) chief executive Mark Rantall.

Rantall said in October that the presence of the unexpected requirement meant the FPA could not support the Bill. However, he was pleased to hear Shorten appear to back down from the annual fee disclosure at the 2011 FPA Conference at the end of November.

“The reality is that if nobody talks to [Shorten] about issues and advocates for both consumers and financial planners he won’t reconsider them,” Rantall says.

In f a c t , t h i s i s n o t t h e f i r s t t i m e Shorten has introduced a controversial amendment to the FOFA legislation and then backed down after vocal lobbying by the industry.

On 28 April (after the final round of consultation) the Government unveiled its reforms, only to surprise the industry with an announcement that commissions on group and individual insurance would be banned inside super.

“Everyone then got very focused on trying to convince the Government that w a s n’t t h e r i g h t w a y t o g o, a n d we successfully achieved that objective,” says Association of Financial Advisers (AFA) chief executive Richard Klipin.

Shorten did indeed back down, and r isk commissions will now only be banned on group insurance within MySuper products. They will be permitted within Choice products.

Sticking to his guns One issue that Shorten is unlikely to back down on is the opt-in requirement in FOFA (ie, the requirement that planners contact their clients once every two years and ask them if they would like to continue the relationship). The industry has reacted furiously to opt-in, but thus far it has only managed to have it changed from an annual to a biennial obligation. Additionally, industry lobbying has ensured that opt-in will not be retrospective (ie, it will only apply to new clients).

Shorten isn’t the only person fighting the financial planning industry on opt-in.

The Industry Super Network (ISN) is waging a very vocal campaign against commissions, and the Government has controversially cited a questionable piece of ISN-commissioned Rice Warner research that claims implementing opt-in would only cost planners $11 per client.

“The work and the advocacy of the

14 — Money Management December 1, 2011 www.moneymanagement.com.au

Bill Shorten

Mark Rantall

industry fund movement, which is very well resourced and very formidable, is counter-productive. It’s shrinking the market and putting in doubt the confidence of Australians,” Klipin says.

Still, Klipin is more enthusiastic than others in the financial planning industry about getting opt-in scrapped.

“Opt-in is still in doubt. The fact that there’s been vigorous debate on that is a good thing, because FOFA is going to bring significant change to the industry,” Klipin says.

The AFA is far from happy with the current shape of FOFA. The reforms must be measured against two things, says Klipin: ensuring more people get access to financial advice, and increasing transparency.

“Our view since 28 April is that neither of these things will be achieved. Prices will go up, red tape will go up, and access will go down,” Klipin says.

He was especially concerned with the concept of ‘intra-fund’ advice that the Government has introduced.

“The danger of scaled advice is that it

Richard Klipin will return us to the days when product sales reigned, and advice was productled rather than client-led. That’s why the AFA has had a lot to say in such a forthright way about holding these FOFA issues to account,” Klipin says.

If the AFA has been “forthright” in its dealings with the Government, the FPA has been rather more politic in its lobbying efforts. Rantall describes the FPA as an “honest broker” in the FOFA debate, and emphasises the industry body’s desire to professionalise the industry.

“It’s now or never to evolve financial planning into a universally respected profession … all financial planners should have to sign up for an approved code of ethics and professional code of conduct,” Rantall says.

The FPA has completely re-engineered itself in order to prepare the way for a professional industry, Rantall says.

The FPA has pre-empted the Government’s fiduciary duty by establishing its own ‘best interest’ obligations, he adds.

As for the Government’s two ‘best interest’ duties – the duty to act in the

Year in review

YEAR IN REVIEW

best interests of one’s client, and the duty to put the interests of one’s client before one’s own – they have been generally accepted by financial planners, who are quick to claim that they already place their clients’ interests before their own.

Back to school Apart from opt-in, education too has become a real buzzword in the financial planning industry over the past year as the sector seeks to become a highly regarded profession.

Industry commentators have long argued that the entry-level bar for financial planners needs to be raised, and their voices became louder since the global financial crisis (GFC).

Earlier this year, voting members of the FPA have approved the Association’s three-year plan, which it said would ra i s e p ro f e s s i o n a l s t a n d a rd s a n d increase education requirements.

They have introduced two levels of practitioner membership: z Associate Financial Planner level, granted to those who had completed a

Diploma in Financial Services and are RG 146 compliant; hold an authorised representative status and have a minimum of one year approved practitioner experience; z Certified Financial Planner (CFP) level, which requires an undergraduate or masters degree, or a doctorate; completion of CFP certification programs, as well as at least three years approved practitioner experience.

Following the vote on the FPA’s new strategy, a new Planning Education Council was created, which began the development of a harmonised national university curriculum for financial planning.

It is hoped that within three years, there will be more educational pathways and offerings to suit members in the achievement of university qualifications.

Australian Security and Investment Commission too, has responded to industry-wide calls for higher education standards for financial planners.

In its consultation paper [CP 153] on the assessment and professional devel-

1)

Sticking to his guns

2)

Back to school

3)

Advertising weapon

4)

Come together

5)

Revolving door

6)

Shifting platforms

Shorten remained persistent on opt-in.

Industry supports proposed educational requirements, concerned about overburdening.

Both the FPA and the AFA unveiled their new ad campaigns.

2011 has seen major mergers and acquisitions in financial services.

Some executive moves shook the industry.

Platforms adapt to a changing market.

“

Both campaigns aim to present financial planning as a respected profession and improve the overall image of the industry; but whether they will have enough funds to match ISN’s efforts remains to be seen.

”

opment framework for financial advisers, ASIC proposed all new and existing financial planners be subject to a national exam to ensure they possess the necessary competencies. The proposed framework also includes a mandator y “professional year” for all new advisers, as well as a so-called knowledge update review requirement that would be completed every three years.

If passed, these requirements would present a sizeable step up from the Regulatory Guide 146 requirements, which could often be fulfilled during a two-week course.

However, although he supports the raising of the professional standards within the sector, Klipin said the amount of legislative and regulatory changes could easily overburden planners.

“The greater concern we have across all of these changes is the quantity of change coming through and the pressure it will put on small businesses to adjust and to change,” he said in an earlier interview Continued on page 16

www.moneymanagement.com.au December 1, 2011 Money Management — 15

Year in review Continued from page 15 with Money Management.

However, some institutions – particularly AMP and MLC – have dedicated a great deal of resources to increasing education standards within their financial planner networks.

Advertising weapon The collapse of Storm Financial and the Westpoint Group some years ago did not do any favours for the public image of the financial planning industry; neither did the ever successful anti-commissions campaign “Compare the Pair”, launched by the Industry Super Network.

Various surveys done over the past year found only two in five people use a financial adviser, that the cost of financial advice was seen to be too high, while trust in planners was too low.

At their national conferences in 2010, both the FPA and the AFA have proposed to their members the launch of an advertising campaign which would aim to improve the image of financial planning in the eyes of the public.

Since then, their respective members have voted in favour of this proposal, and both associations have launched their advertising campaigns earlier this year.

The FPA’s 30-second ad focuses on p ro f e s s i o n a l i s m , c o m p a r i n g i t s members to pilots, doctors and lawyers.

But the AFA had taken a slightly different approach. What was initially going t o b e a “Ma k e a Pl a n” a d v e r t i s i n g campaign later evolved into the “Your Best Interest” reality series. The AFA has recently launched its pilot episode, p re s e n t e d a n d n a r ra t e d by f o r m e r Channel 7 presenter, Naomi Robson.

The video focused on the value of advice and the role of a financial planner in clients’ wealth creation.

Both campaigns have been paid for and approved by Association members.

Earlier this year, FPA chief Mark Rantall said its ad campaign would cost up to $15 million over five years, with CFP members to be levied by $220 each per year, while general and future advisers would pay an additional $100.

In addition, the FPA will contribute $500,000 per year from its own reserves.

Rantall said the Association expected its professional partners to come through with the same amount of money for the campaign.

While a similar funding model might be a possibility in the future, the AFA’s campaign funding has so far been purely based on voluntar y contr ibutions.

Richard Klipin told Money Management that some firms have contributed in the order of $10,000, while others have committed to lesser amounts.

Both campaigns aim to present financial planning as a respected profession and improve the overall image of the industry; but whether they will have enough funds to match ISN’s efforts remains to be seen.

Come together The imminent FOFA reforms have arguably led to an increasing amount of consolidation in the financial services industry.

The year began with the completion of AMP’s acquisition of AXA Asia Pacific,

there was a flurry “of While movement on the mergers and acquisitions front, there was even more activity when it came to executive comings and goings.

”

which came after a $13.3 billion bid by NAB was blocked by the Australian Competition and Consumer Commission in 2010.

Later in 2011, Count Financial agreed to be taken over by the Commonwealth Bank in a deal worth $373 million. The merger took CBA’s number of advisers from 1,220 to 1,850 – making it the second biggest player in the wealth management industry.

Zurich exited the financial research business by selling Lonsec to the Mark Carnegie-backed company Financial Research Holdings in June.

Snowball Group and Shadforth Financial Group announced their intention to merge in May. The merged entity, with the proposed name SFG Australia, announced a net profit after tax of $25.4 million in August.

DKN Financial Group was taken over

by IOOF holdings in October, in an acquisition worth $115 million that delivered IOOF about 700 planners (including 110 under the Lonsdale banner).

BT Investment Management looked outside Australia for its expansion, with the purchase of UK-based boutique active equity investment manager J O Hambro Capital Management for $314 million.

Matrix Planning Solutions has put 100 per cent of its shares up for sale to an external investor, a move that Matrix managing director Rick Di Cristoforo said had “significant support” from both shareholders and advisers.

U B S Gl o b a l A s s e t Ma n a g e m e n t finalised its takeover of ING Investment Management Australia in October, leading to the redundancies of 36 of the 120 ING staff, according to one source.

A M P- b a c k e d Hi l l ro s s Fi n a n c i a l Services acquired the dealer group Iris in July. Hillross managing director Hugh Humphrey said the acquisition would allow Hillross to take on all 12 Iris practices, 37 advisers and $2.2 billion in funds under advice.

The revolving door While there was a flurry of movement on the mergers and acquisitions front, there was even more activity when it came to executive comings and goings.

The first big news of the year was the appointment of former ING Investment Management Asia Pacific boss Chris

16 — Money Management December 1, 2011 www.moneymanagement.com.au

Rick Di Crisfotoro

Chris Ryan

Marianne Perkovic

Leanne Milton Ryan to the role of chief executive at Perpetual in January.

Ryan replaced David Deverall, who announced his intention to leave Perpetual in 2010.

AMP’s big acquisition this year cost AXA Asia Pacific chief executive Andrew Penn his job. It wasn’t all bad news for Penn though – he received a termination payment of $9 million which, together with his $8 million in options, a m o u n t e d t o a t o t a l p a yo u t o f |$17 million.

Paul Barrett left his role as general manager of Colonial First State’s (CFS’s) advice business in February to head up ANZ’s advice division. The vacated role

at CFS was subsequently filled by the promotion of Marianne Perkovic.

Wilson HTM underwent a big shakeup as chief executive David Groth stepped down after a year in the role. While Andrew Coppin continues to hold the role of managing director, the firm has yet to find a replacement chief executive.

In March, managing director of Treasury Group Mark Burgess announced his resignation following his appointment to the Future Fund Management Agency.

He continued in his role at Treasury Group until 24 June 2011.

Former partners Alan Kenyon and Steve Prendeville parted ways in May, forming their own practice sales businesses.

Year in review Kenyon now runs Kenyon Partners, while Prendeville heads Forte Asset Solutions.

Arthur Naoumidis resigned as chief executive of the financial services platform Praemium in August. His sudden departure saw him replaced with the company’s largest shareholder, Michael Ohanessian.

Following the integration of Snowball Group into Shadforth Financial Group, the company announced that Snowball chief executive Tony McDonald would leave the merged entity on 4 October 2012. He will remain at the company for the next 10 months to oversee the integration of the two groups.

After the acquisition of DKN by IOOF, DKN chief executive Phil Butterworth departed the company on 21 October 2011. After a month of speculation, it was announced by BT Financial Group that Butterworth – along with members of his team from DKN and Lonsdale – would be in charge of a BT advice business unit that includes the established Magnitude brand.

Kar ma Wilson depar ted the AMP Capital Investors Asian Equities team in the middle of 2011, leaving Jonathan Reoch and Ragavan Sivanesarajah as acting co-heads.

Shifting platforms Shifting client and planner demands have resulted in numerous changes within the platform sector.

Ever since the first mention of the FOFA legislation, there has generally been a greater focus on cost, and platform providers have responded with either the introduction or announce-

“

Australian financial planners and their clients have had to live with higher than normal levels of market volatility for much of the past three years as both a consequence and a by-product of the GFC.

”

ment of lower-cost offerings.

Both AXA and MLC have segmented their target markets into two categories: high net worth and majority investors.

But it’s not just the planners who are coming to platforms with shifting demands. Retail investors are still thirsty for cash and other defensive assets, prompting platform providers to introduce offerings more popular than those of managed funds.

Just under a year ago, OneAnswer introduced six new ANZ term deposits, generating over half a billion dollars since, while BT had $3 billion in term

deposit inflows since 2009. Bonds, direct equities, exchange traded funds and separately managed accounts are also proving to be a hit.

But with the FOFA deadline fast approaching, platform providers seem to be struggling the most in terms of meeting the 1 July 2012 implementation date.

Major players in the sector have expressed concerns over the past year that with the lingering FOFA uncertainty around things like grandfathering and opt-in, there is not much time left to develop compliant administration systems to cater for financial planners.

Colonial First State’s Peter Chun and IOOF’s Renato Mota have agreed that delaying some of the FOFA elements to coincide with the MySuper implementation date in 2013 would result in a much more beneficial outcome for platforms, planners and clients.

In a d d i t i o n , w i t h t h e re m ova l o f c o n f l i c t e d re m u n e ra t i o n m o d e l s – volume-based repayments passed down to dealer groups and volume based shelf-space fees coming from fund managers would no longer be permitted – comes a great deal of pressure to secure distribution channels.

As mentioned above, some of the big acquisitions include IOOF’s purchase of DKN, and CBA’s proposed purchase of Count. However, even smaller, noninstitutionally owned platform providers are making their moves. Managing director of netwealth, Matt Heine, recently confir med the company’s acquisition of Paragem Dealer Services, while HUB24 added seven new dealer groups to its client list.

MM

Markets still wobbly

By Mike Taylor

AUSTRALIAN financial planners and their clients have had to live with higher than normal levels of market volatility for much of the past three years as both a consequence and a by-product of the GFC. But in 2011 the main contributor to that market volatility has been debt - European sovereign debt and the US debt ceiling.

Indeed, while the year started on a reasonably positive note, it did not take long for the economic and market commentators to start discussing “PIGS” – Portugal, Ireland, Greece and Spain – the Eurozone economies deemed to face the greatest challenges with respect to sovereign debt.

It was Greece which was first to hit the debt wall and the ripples it generated across global markets were commensurate with the degree to which the European Community struggled to come to terms with providing a bail-out. That struggle continues.

Similarly, while the US Congress agreed in August to lift the nation’s debt ceiling after weeks of political brinksmanship, the underlying issue has not gone away and continues to be a factor in market activity, with a view that a similar debate will occur next year.

The impact of both the European and US debt issues on the Australian share market was evi-

denced by a steep decline which saw it descend through 4,000 points to levels not seen since the depths of the GFC. According to ASX data, the ASX 200 Index started January 2011 at around 4,753.9 and had descended to 4,008.6 by the end of September, having broken through the 4,000 barrier on a number of occasions.

According to data collected by specialist research house Wealth Insights, there has been a strong correlation between the ASX 200 and client sentiment, which in turn, has been feeding into adviser sentiment.

Wealth Insights managing director Vanessa McMahon said this correlation between the share market and sentiment had been evident throughout the period since the start of the GFC. Continuing volatility has also been factored into the forward outlooks of the major banks and institutions, with Westpac, NAB, ANZ and the Commonwealth Bank each pointing to the manner in which it had impacted investment performance, and was likely to continue to do so into 2012.

As well, one of the most recent meetings of the Reserve Bank board saw them discussing “extreme market volatility which reflected fears about a slowdown in the global economy and escalation of sovereign debt tensions in the United States and Europe”. These concerns had led to particular focus on the financial strength of MM European banks.

www.moneymanagement.com.au December 1, 2011 Money Management — 17

OpinionInfrastructure The age of uncertainty The decision by the Reserve Bank of Australia to cut interest rates by 25 basis points last month might result in good news for both investors and the markets, according to Paul Williams.

O

n the first Tuesday in November each year, Flemington Racecourse hosts what has become famously known as ‘the race that stops a nation’. During the Melbourne Cup festivities this year, the Reserve Bank of Australia (RBA) did its bit to get the nation going again.

As punters eagerly awaited the result of the photo finish in the big race, Australian households and corporate borrowers were already rejoicing at the RBA’s 25 basis point cut in policy interest rates. The first rate cut in Australia in more than two and a half years is sure to provide some relief to home owners. Businesses, too, are likely to benefit from an expected boost to consumer sentiment and an increase in consumer discretionary spending power.

But what does this mean for investors?

RBA Governor Glenn Stevens’ statement accompanying the announcement highlighted the recent moderation in the pace of global growth, flagged Europe as a key concern and noted the recent financial market turmoil may result in “a period of precautionary behaviour by firms and households”.

Such precautionary behaviour has been evident for some time, with households around the world saving more and starting to pay down debt. This heightened aversion to risk and consequent household deleveraging is the natural aftermath of a multi-year credit boom and subsequent downturn, which could have important implications for investment markets.

Research conducted by Bank of America Merrill Lynch found that previous periods of household deleveraging around the world lasted six years on

Chart 1:

Comparative cashflow growth

20% 15% 10%

average. In share markets over this time: • Dividends accounted for a much larger share of returns than during normalised periods, with over half of total returns derived from dividends during deleveraging compared to the historic average of less than one-third; • Defensive securities outperformed, whilst banks and industrials tended to underperform; and • Returns were lower and volatility higher than the historical norm.

We believe an investment in the publicly traded equity securities of stable, income producing global infrastructure

EBITDA Growth (Year over Year) 14% 9%

13% 10%

9%

8%

9%

12% 9%

5% 3%

5%

10%

9% 8%

9%

Dividends accounted for a much larger share of returns Infrastructure companies own and operate long-lived assets that provide essential services, such as toll roads, airports, sea ports, oil and gas pipelines, electricity transmission lines, water pipelines and treatment plants and communication towers.

Most offer dividend yields ranging from 2.5 per cent to 7 per cent, with a number

Chart 2:

15%

13%

companies may be one solution to navigating through this period of continued uncertainty, risk aversion and household deleveraging.

Now to look at each of these points in more detail.

10% 8%

6%

13.2%

12% 9.7%

8.7% 7.8%

-7%

-10%

2%

Global Infrastructure

Global Equities

5.0%

5.9%

4.0%

4%

-5%

6.8% 5.4%

6%

-1%

Infrastructure securities can be thought of as ‘no boom – no bust’ securities due

Historical total return by asset class

8%

0%

Defensive securities outperformed

14%

10%

4%

delivering over 10 per cent. Importantly, these dividends are backed by stable, long-term cashflows that are less impacted by the broader macroeconomic environment than typical broad market equities. Such stability is depicted in Chart 1, with infrastructure securities realising positive cashflow (earnings before interest, taxes, depreciation, and amortisation) growth each year over the past decade, even during the 2008 global financial crisis. This has translated into weighted average dividend growth of 5.8 per cent per annum over the past five years.

0.5%

0%

-12%

-2%

-15% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

2010 2011E

As of 30 June 2011. Global infrastructure EBITDA growth is derived using the constituents of the Dow Jones Brookfield Global Infrastructure Index on 31 December 2010 and is calculated from 30 December 2000 through 30 June 2011. Note: Median EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation).

Source: AMP Capital Brookfield Pty Limited research and estimates; FactSet, Dow Jones Brookfield Global Infrastructure Index, Merrill Lynch Global Quantitative Strategy, MSCI, IBES, Worldscope.

18 — Money Management December 1, 2011 www.moneymanagement.com.au

-4%

-1.7% -3.8%

Global Listed Infrastructure Global Equities Global Bonds

-6% 1-Year

3-Year (Annualised)

5-Year (Annualised)

As of 30 September 2011 and shown in US Dollars.

Source: Barclays Capital Inc., Bloomberg; Dow Jones; European Public Real Estate Association.

8-Year (Annualised)

to the inherently defensive nature of the infrastructure asset class. Infrastructure assets serve as the foundation for basic, irreplaceable public services, which are necessary to support economic and social activity. As a result, they are less impacted by economic cyclicality.

Electricity transmission companies such as ITC in the U.S. or Red Electrica in Spain, for example, own and operate high voltage lines carrying electricity from power stations to cities. Their revenues are guaranteed by regulation, and have no sensitivity to the amount of electricity used by households or commercial properties.

Infrastructure assets are often owned in perpetuity and subject to regulatory contracts, or underpinned by long-term concessionary agreements lasting 25 to 99 years. This framework supports visibility on future real earnings, with price increase provisions often embedded to e n s u re a p re d i c t a b l e a n d g row i n g return over time.

Transurban’s concession agreement for the M1 motorway in Sydney, for example, regulates toll increases at the greater of either the consumer price index or 1 per cent per quarter for the remaining life of the concession, which currently stands at 37 years.

Further, the typical features of high barriers to entry, monopoly-like pricing

power and modest ongoing operational and maintenance expense often translate into high operating margins once an asset becomes operational. This creates significant free cashflows which can be used to support dividend distributions.

Whilst defensive as a whole, the infrastructure asset class is comprised of sectors with varied degrees of defensiveness. The demand for water pipelines and electricity transmission lines, for example, remains relatively stable throughout economic cycles, whereas passenger and freight volumes (which drive the demand for airports and seaports) are much more closely tied to regional or global economic activity.

Through active management, a portfolio of global infrastructure securities can be adapted according to the growth prospects and prevailing market conditions in each sector and geography. In addition to offering an attractive yield, an active strategy can also provide diversification and enhance the opportunity to deliver sound capital growth.

Global Infrastructure index has outperformed global equities over every rolling three-year period since inception of the index in 2002 (see Chart 2).

In this ‘new normal’ environment of lower returns and higher volatility, investors may rightly focus on risk-adjusted returns. On this metric, too, the global infrastructure securities asset class has delivered relative to the broader equity markets, as shown in Chart 3 below.

Of course, past performance is not necessarily a good predictor of future returns. We strongly believe, however, that the fundamental attributes of the global

Chart 3:

infrastructure securities asset class makes it an appealing investment proposition, well-suited to today’s uncertain and volatile environment.

As households continue to delever and governments globally work through their significant fiscal imbalances, an asset class which offers strong, growing dividend yields and the opportunity for capital growth is certainly one that warrants attention.

Paul Williams is an investment specialist for global property and infrastructure securities at AMP Capital.

Risk-adjusted returns: three-year rolling Sharpe ratio

3.00 2.50 2.00

Global Infrastructure Global Equities

1.50 1.00 0.50 0.00

Returns were lower than normal and volatility higher Whilst still relatively nascent, the global infrastructure securities asset class has consistently delivered strong total returns relative to both equities and bonds. Indeed, the Dow Jones Brookfield

-0.50 -1.00 -1.50 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 As of 30 September 2011. Source: AMP Capital Brookfield research, FactSet, Bloomberg, Dow Jones Brookfield Global Infrastructure Index

www.moneymanagement.com.au December 1, 2011 Money Management — 19

OpinionPopulation

It’s a big world after all Tom Stevenson examines investment implications as the global population hits the seven billion mark.

T

he global population has hit the seven billion mark, having grown by a full billion people since 1999.

The overwhelming driver of this growth has come from developing countries and this will remain the case – as will the general trend for urban populations to expand at the expense of rural populations.

This has many implications for investors as the world’s consumer base expands rapidly and the demand for finite resources increases.

The demographic paradox The split between population growth in the developed and developing world is stark. Much like their economic growth rates, developing countries’ populations are growing considerably faster than developed ones. This is because developed countries have already undergone a demographic transition: a progression from the high birth and mortality rates of a pre-industria l i s e d e c o n o m y t o l ow b i r t h a n d mortality rates. The enablers have been the rising wealth and better healthcare which allow people to live longer.

This is the demographic paradox: as a nation’s wealth increases, its birth rate falls – a phenomenon that has prompted some people to point out that a government’s best tactic to tackle a high birth rate is to encourage economic growth.

Many developing countries are, of course, experiencing faster economic growth which is increasing the amount of people in the global middle class. In time, with continuing economic growth, we can

expect many emerging economies to undergo their own demographic transitions as families protect their wealth by having fewer children.

Some implications First and foremost, a larger global population increases the demand for finite resources, particularly food, water and energy. These resources have already experienced strong demand and price increases in recent years as emerging markets have grown and begun to consume – not just produce – a growing share of the world’s resources.

The investment implications are myriad: we highlight the impact on food and the potential for companies to sell to a rapidly expanding consumer base.

More people, more food, more fertiliser The World Bank estimates that demand for food will rise by 50 per cent by 2030, largely as a result of population growth, as well as rising affluence and changing diets.

Population growth poses a serious challenge for food production, particularly in light of the fact that the amount of arable land in the world is being reduced due to industrialisation and urbanisation.

With a growing number of mouths to feed yet declining arable land, we have some strong fundamentals that point to the need to increase crop yields. However, changing diets in the developing world add an extra dynamic to the mix.

Economic growth and rising affluence in developing countries is allowing huge

20 — Money Management December 1, 2011 www.moneymanagement.com.au

numbers of people to improve their diets by adding more protein, namely meat and dairy products. The demand for more protein has a significant indirect impact on grain. Livestock is reared on grain feed, making production heavily resource intensive. Indeed, it takes seven kilograms of grain to produce just one kilogram of meat.

In a world growing ever hungrier for meat, the need for more grain and better yields is clear.

Much of the arable land in the developing world is inefficient and significant gains in yields can be made via the use of fertilisers. Higher commodity prices mean that farmers are making healthy profits and can afford to buy fertilisers. The demand for, and the price of, fertiliser is likely to grow strongly over the next decade.

A number of stocks can be expected to benefit from the world’s growing need for food. Fertiliser stocks are one of the most direct beneficiaries of the need to increase crop yields. Stocks such as Potash Corp, Uralkali, Industries Qatar and Mosaic outperformed significantly during the last episode of food inflation, when many of these themes first caught investor attention. Valuations are now more reasonable, yet the long-term fundamentals remain very attractive.

A consumer revolution Over the next few decades, the number of people considered to be in the ‘global middle class’ is projected to more than double, from 430 million in 2000 to 1.2 billion in 2030 (or from 7.6 per cent of the

Female spending patterns Female labour participation rates have grown steadily in emerging markets in line with economic growth. Rates of female participation in East Asia are higher than in developed economies. This is significant as women have distinctive spending patterns including the purchase of cosmetics, fragrances and toiletries. Brazil is already the world’s third largest market for these products and Natura Cosmeticos and Genomma International are two of the leading domestic firms.

Household goods and electricals Higher incomes are also allowing the purchase of a range of household goods from freezers to televisions and computers. We have identified Gome as a leading electrical retailer in China that is well placed to compete against local and international brands.

Automobiles Many new entrants to the emerging middle class are increasingly able to purchase their first car assisted by the availability of credit in most emerging markets, while higher income consumers particularly in China are trading up to western European models made by BMW and Volkswagen. Brilliance China Automotive Holdings is BMW’s Chinese partner and likely to benefit from the German company’s fast sales growth in the country.

BYD is another interesting domestic car company in China, which is innovative in the electrical segment.

Financial Services Penetration of financial services is low relative to developed markets but growing rapidly.

Sberbank in Russia and Banco Bradesco in Brazil are taking advantage of the growing market for simple mortgages and loans.

Advertising While western consumers grow a little resistant to direct advertising, forcing companies to be ever more innovative, multinationals are using time-tested aspirational advertising to build their brands in emerging markets. For instance, brewing company Diageo has made great strides in the promoting their Guinness product in African markets. Nigeria has recently become the largest market for Guinness in the world by volume. world’s population to over 16 per cent).

Most of the new entrants will come from just two countries – China and India – where private consumption has been growing rapidly in recent years. In fact, to put the source and magnitude of this growth in perspective, the World Bank predicts that by 2030, 93 per cent of the global middle class will be from developing countries.

This bare fact alone is the reason why companies from all over the world are at pains to develop a presence in emerging markets. They want to capture rates of consumption growth that are unimaginable in mature western economies.

As incomes grow, consumption patterns change as the proportion that is spent on basic necessities diminishes. And as the

proportion of income spent on discretionary consumption rises, so too does the allure of having the coolest fashion items or the latest mobile phone.

while, Nestlé seems set to be a beneficiary of growth in the confectionery market as emerging consumers develop a ‘sweet tooth’.

Changing diets

Beverages

There is a clear relationship between higher income and changing food expenditure. As incomes rise, the percentage of income spent on food declines as discretionary spending rises. However, the actual value of food spending increases as consumers trade up to higher protein and more expensive foods such as meat and dairy. Food producers like Brazil Foods (one of the world’s largest producers of processed meat) and dairy producers like China Mengnui are examples of the many local beneficiaries of this theme. Mean-

Due to the relative lack of safe drinking water, emerging markets like Brazil and Mexico are among the world’s largest bottled water customers by volume. In Mexico bottled water consumption per person is twice that of the US. Companies like Danone, the global leader in bottled water by volume, are benefiting from this demand. Soft drink and beer consumption is also increasing and both Western and other companies like Coca-Cola, Pepsico, Ambev and Grupo Modelo are seeing strong growth in revenues.

Internet Internet access is growing very quickly in developing countries, with many consumers accessing the internet solely on a smart phone rather than a personal computer. Internet penetration in China is already relatively high in the industrialised coastal areas but is expected to hit 51 per cent nationally in 2013 from 35 per cent currently. Tencent is the largest social networking site in China with a 75 per cent market share of China’s internet user base.

It offers a wide range of services that have strong monetisation potential. There is a world of opportunity out there.

Tom Stevenson is the investment commentator at Fidelity Worldwide Investment.

www.moneymanagement.com.au December 1, 2011 Money Management — 21

OpinionBankruptcy Before, during and after Troy Smith outlines what bankruptcy is, when it should be filed for and what income and assets would be available to creditors.

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s speculation mounts that we may face another global financial crisis, it is reasonable to expect there is likely to be an increase in those experiencing financial and emotional difficulties. In rare situations some may experience severe financial difficulties and may even be faced with bankruptcy. What is bankruptcy, and more importantly for someone facing bankruptcy, what income and assets are made available to creditors?

Insolvency Insolvency is the situation where a person is unlikely to pay their debts. In many cases a person who is insolvent may be able to pay their debts over a longer period or by restructuring their financial arrangements.

Just because a person is insolvent does not mean they will be declared bankrupt. Bankruptcy is considered to be the last option after other alternatives are seriously considered. Under the bankruptcy legislation there are three possibilities for a person facing insolvency - debt agreements, personal insolvency agreements and bankruptcy. Each of these arrangements is used for a different purpose.

Bankruptcy Those who are unable to pay their debts and unable to come to an agreement with their creditors may petition for bankruptcy. Alternatively, creditors may apply to the court for bankruptcy on a debtor.

Where a person is declared bankrupt, a trustee is appointed to administer the person’s pre-bankruptcy assets and liabilities. The trustee has the power: • To sell assets of the bankrupt as at the date of bankruptcy; • To mandate amounts from income earned after bankruptcy above a particular amount (such as from employment income and superannuation pensions); and • To investigate the financial affairs of the bankrupt to recover property or money which has been transferred to someone else for inadequate consideration.

Bankruptcy generally lasts for three years, although it could be extended. A permanent record of all bankrupts is kept on the National Personal Insolvency Index. Those who are bankrupt generally cannot leave the country unless they have written permission from their bankruptcy trustee.

Debt agreements A debt agreement is used when a debtor is unable to pay their debts as they fall due. A debt agreement is made between a debtor and creditor to try and reach an achievable and sustainable repayment agreement. The agreement may involve periodic payments or the payment of a lump sum which is equal to or less than the full amount of the debt. A debt agreement is a legally binding agreement and is an alternative to bankruptcy.

Personal insolvency agreement A personal insolvency agreement (PIA) will allow a debtor to come to an agreement with creditors without being declared bankrupt. Under a PIA the debtor must be insolvent and the debtor in Australia (or has a connection with Australia). A PIA involves appointing a trustee to take control of property and to put forward a proposal to creditors. The benefit of a PIA is that there are no income or assets limits, and it acts as an alternative to declaring bankruptcy.

set by the Government and updated twice yearly.

bankruptcy trustee. He may come to an agreement to pay the amount in a number of instalments (weekly/fortnightly/monthly).

Case study Income There are no restrictions on how much income you can earn after you are declared bankrupt. However, some income may be paid to the trustee if your ‘assessable income’ exceeds a certain threshold.

Some items included as assessable income are salary and wages, fringe benefits, business profits and some pensions/benefits. A full list of assessable income can be obtained from a debtor’s bankruptcy trustee.

To determine the amount of income that is paid to a bankruptcy trustee, the following formula is applied: Assessed income less actual income threshold 2 Assessed income takes into account the gross amount of income, less any taxation and Medicare levy. The actual income threshold factors in the dependants of the bankrupt. The threshold is

22 — Money Management December 1, 2011 www.moneymanagement.com.au

Damian (56) is unable to meet his debts, which have become unmanageable after a divorce. He is single with no dependants, earning a salary of $64,500. He is declared bankrupt and wants to know how much of his income is paid to the bankruptcy trustee.

Step 1: Calculate assessable income Salary income $68,500 Less income tax $14,100 Less Medicare levy $ 1,027 Less Flood levy $ 93 Assessed income $53,280 Step 2: Trustee determines the actual income threshold amount (AITA) AITA with no dependants $47,265.40 Step 3: Trustee applies the formula ($53,280 - $47,264.40)/2 = $3,007.80 Damian is required to pay $3,007.80 to his

Assets A trustee may sell some assets to pay off debtors, known as divisible assets. These include houses, apartments, land, shares and investments.

However, certain assets, known as exempt assets, cannot be accessed by a bankruptcy trustee. These include household and personal items, tools used to earn income (up to $3,500 as at 20 September, 2011), vehicles (up to $7,050 as at 20 September, 2011), and superannuation. For a full list of divisible and exempt assets please refer to www.itsa.gov.au.

Superannuation Amounts held in superannuation generally will not become part of the property of the bankrupt that is divisible among creditors. This applies for both amounts held in accumulation phase and/or in pension phase in the fund.

Where a contribution is made with the intention of defeating creditors, the

contribution can be recovered by a bankruptcy trustee. Provided below are situations whereby contributions may be successfully recovered by a bankruptcy trustee: • If at the time the contribution was made, the person was, or was about to become, insolvent • If the contribution in question was not in accordance with a ‘pattern of contributions’ • If the bankrupt contributes to their own superannuation and/or that of a third party • If a person other than the bankrupt makes contributions for the benefit of the bankrupt.

Payments from superannuation A lump sum payment from a superannuation fund is generally protected from a bankr uptcy tr ustee, even if the payment is received on or after the date of bankruptcy.

Whilst the balance of a super fund in pension phase is generally protected, income payments (such as pension payments) are assessed as income in the hands of the bankrupt. This means that these payments are taken into account when determining if any

Being made bankrupt is a “matter that should be

income contributions should be paid to a bankruptcy trustee.

avoided at all costs if possible, and there are a number of alternatives that could be considered.

Case study

”

Damian was a bankrupt who was required to pay $3,007.80 of his income to his bankruptcy trustee. He is having difficulties meeting his cost of living, paying his rent, and paying his bankruptcy trustee. He decides to commence a transition to retirement (TTR) pension using $150,000 of his super, and draw down the maximum pension payment of $15,000 (100 per cent taxable).

By commencing a TTR pension and drawing down a pension payment of $15,000, Damian’s payments to the trustee have increased from $3,007.80 to $9,110.30, which is an increase of $6,102.50.

Summary

Step 2: Trustee determines the AITA AITA with no dependants $47,265.40

Being made bankrupt is a matter that should be avoided at all costs if possible, and there are a number of alternatives that could be considered. Anyone facing bankruptcy needs to be aware that a trustee will be appointed to manage debts up to the time of being declared bankrupt. In addition, income earned by the bankrupt after bankruptcy, and certain assets of the bankrupt, may be used or sold by the bankruptcy trustee to pay creditors. Amounts held in a superannuation fund for the bankrupt are generally protected from being available to creditors. However, the receipt of a pension by a bankrupt from a superannuation fund should be considered carefully, to avoid drip-feeding your retirement benefits into creditor’s pockets.

Step 3: Trustee applies the formula ($65,485 - $47,264.40)/2 = $9,110.30

Troy Smith is the technical services manager at OnePath.

Step 1: Calculate assessable income Salary income $68,500 Pension payment $15,000 Less income tax $16,595 Less Medicare levy $ 1,252 Less Flood levy $ 168 Assessed income $65,485

www.moneymanagement.com.au December 1, 2011 Money Management — 23

Toolbox

What about the kids?

Jennifer Brookhouse outlines the issues to consider when deciding whether a superannuation death benefit going to a child should be paid as an income stream or into a testamentary trust.

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superannuation death benefit can be paid as an income stream to a dependant (as defined in the Superannuation Industry (Supervision) Act). A child of the deceased fund member meets this definition if, at the time of the member’s death, the child is: • Less than 18 years of age • Aged 18 to 25 and financially dependant upon the member, or • Aged 18 or older and a disabled child The income stream paid to the child (excluding a disabled child) can only be paid until the child reaches age 25. At age 25, the income stream must be commuted and any remaining capital is paid as a tax-free lump sum. An income stream payable to a disabled child can continue to be paid regardless of age.

An account-based pension (ABP) or other superannuation income stream paid to a child can be either: • A continuation of a superannuation income stream which was being paid to a member before their death (ie, reversionary), or • Commenced from super held in the accumulation phase.

In order for a pension to be paid from benefits held in the accumulation phase, the super fund must be able to pay an income

stream. Some providers allow a binding death benefit nomination to specify both the beneficiary and the form of the benefit.

This provides the client with control over how the benefit will be paid.

Clients should keep the nomination upto-date. The trustee only confirms the nomination’s validity at the time of the client’s death. If there is no binding nomination and the trustee indicates the child will be paid a lump sum, it is worthwhile writing and requesting the death benefit be paid as an income stream. In some cases the trustee will only pay a lump sum. However, this could only happen by making sure that all possible options have been considered.

the superannuation death benefit when received by the testamentary trust depends on who the underlying beneficiaries are.

If all beneficiaries are tax dependants, the amount is received by the trust tax-free. If any of the beneficiaries are non-tax dependants, the total amount of the superannuation death benefit is treated as if received by a non-financial dependant.

Care needs to be taken to ensure the testamentary trust beneficiaries are tax dependants. Consideration may be given to having more than one testamentary trust or limiting the beneficiaries of the testamentary trust receiving the superannuation death benefit to ensure the amount is tax-free.

Establishing a testamentary trust

Strategy considerations

A testamentary trust is established from instructions in a client’s will. It is important to have a solicitor correctly draft the will to ensure the testamentary trust achieves the client’s goals and objectives. In some cases, the will may be drafted to give the executor the option of creating a testamentary trust rather than making it compulsory.

A death benefit paid from superannuation to a tax dependant is tax-free. A superannuation death benefit must be first paid to the deceased’s estate before being directed to the testamentary trust. The taxation of

Taxation of income When comparing testamentary trusts and child ABPs, one aspect to consider is the taxation of income received, which is summarised below.

24 — Money Management December 1, 2011 www.moneymanagement.com.au

Child ABPs The taxation of the income paid from an ABP to a child will depend on the original owner’s age (see Table 1, opposite page) as the child will be under age 25.

Income from an ABP is also eligible for the Low Income Tax Offset (LITO) of up to $1,500.

Testamentary trust Income distributed from a testamentary trust to a child under 18 is taxed at adult marginal rates. This income is also eligible to receive the LITO of up to $1,500. The penalty tax rates applying to unearned income do not apply to distributions from testamentary trusts.

Testamentary trusts are usually discretionary. This gives the trustee discretion to decide which beneficiaries receive income or capital and the timing. This also allows the trustee to direct income or capital in a tax-effective manner. Generally, a trust will distribute all income to beneficiaries. Any income not distributed will be taxed in the hands of the trustee at 45 per cent. Income received by the beneficiary is taxed at ordinary marginal rates and the Medicare Levy and Flood Levy may be payable.

Comparison of taxation In the example provided in Table 2, although the income from the testamentary trust has a tax liability, other factors (eg, control and asset protection) may outweigh the additional tax liability.

Also, the additional tax may be only a short-term implication, as the income stream paid to the child must be commuted by age 25 unless they are

Control A key question to ask clients is ‘when do you want the child to have control of the funds?’

While a child is under age 18, a Power of Attorney can assist with the management of an ABP. A child will have control of funds held in an ABP from age 18.

The child can decide to commute the pension to a lump sum at any time from 18.

This may not be the ideal time for the child to have access to the capital. If commuted, all remaining capital is received. Partial commutations are not permitted for death benefit income streams to a child.

The rules of a testamentary trust may specify that capital cannot be distributed to a child until a particular age, such as 21, 25 or older. The rules may leave it to the trustee’s discretion to determine when capital is payable. This discretion would enable a trustee to consider the child’s circumstances before paying out the capital, rather than relying only on the child turning a particular age.

Asset protection upon relationship breakdown

disabled. If not, the capital is paid to the child and any earnings are taxed at the child’s marginal rate.

A testamentary trust allows the asset to remain within the family bloodline. For example, a future spouse of a child would not be a trust beneficiary.

The assets in the testamentary trust may be considered a financial resource for the division of assets upon a relationship breakdown. The asset of the trust will not form part of the assets of the relationship (unless the child is the sole beneficiary) and cannot be divided as part of a property settlement.

The capital in an ABP must be paid by age 25. This becomes capital in the child’s name and may form part of the relationship assets.

This exposes this amount to being divided if the relationship breaks down.

Asset protection upon bankruptcy Anti-detriment payments An anti-detriment payment may be added to a death benefit paid as a lump sum to the child (including via the estate to a testamentary trust). The lump sum may be paid from the accumulation phase or the commutation of a pension.

While the anti-detriment payment increases the lump sum payable, it is not payable if the death benefit is paid as an income stream. Only lump sum death benefit payments will attract an anti-detriment payment. Death benefits received as a lump sum must be received in cash and leave the super environment.

Note that the anti-detriment is a voluntary payment. Not all super funds will pay an anti-detriment payment and some funds, such as self-managed superannuation funds (SMSFs), may not be able to make the payment.

While the possibility of bankruptcy may be an important consideration, it may be difficult to measure when the beneficiary is a child. Normally, consideration would be given if the beneficiary was in a high-risk profession (eg, company director, doctor or small business owner).

Assets held in a testamentary trust are protected from potential creditors (unless the child is the sole beneficiary). If using a testamentary trust for bankruptcy protection, ensure the trustee has discretion on the distributions of income and capital.

Also ensure there are other beneficiaries of the trust (who are also tax dependants at the time the trust is established) to ensure the superannuation benefit is received taxfree and an anti-detriment payment is made.

The level of protection from bankruptcy is not clear in relation to superannuation income streams. Income received from an

Table 1 Taxation of income paid from ABP to a child

Table 2 Comparison of taxation

Age of original owner at death Under age 60

ABP income Testamentary trust distribution Tax liability Less tax offsets: • Pension • LITO Tax payable

Over age 60 Source: MLC

Taxation of pension income (from taxed scheme) • Tax-free component is tax-free • Taxable component is taxed at MTR and receives 15% tax offset Tax-free (regardless of components)

Source: MLC

ABP may be available to repay creditors. The lump sum the child may receive (either by voluntary or compulsory commutation) is not accessible only if the lump sum is received after bankruptcy.

Beneficiaries with special needs A child may have special needs which may warrant access to capital to be restricted beyond age 18. In this case, a testamentary trust would be a more appropriate option.

Examples of special need beneficiaries include those who are spendthrift or have a gambling, alcohol or drug addiction. Capital in an ABP is accessible from age 18, as this is when the child has legal control over the account.

Cost and trusteeship The cost and benefits of the strategy must be considered. The cost of the ABP may include the management fees charged by the retail superannuation fund. SMSFs will have other fees.

For SMSFs, consideration should be given to who will be the child’s legal personal representative (LPR) while under age 18. The LPR will act as the trustee on behalf of the child and participate in the running and decision-making of the SMSF. Ensure the trustee is someone who understands the client’s wishes. As trustee of the super fund, the client wants to ensure that the SMSF will continue to operate efficiently; for example, that trustees are able to reach agreement on issues.

A testamentary trust is a legal structure and will need to satisfy certain requirements, such as completing annual tax returns. The trustee may need to seek professional advice (eg legal, accounting, financial planning), and the costs paid by the trust should be compared to the strategy benefits.

Clients should also carefully consider who is nominated as the trustee and appointer of the testamentary trust. The trustee will be responsible for managing the money until payable to the child. The trustee needs to understand what the client is hoping to achieve, and details should be provided in the will or deed of wishes.

The appointer is able to remove the trustee and replace that person with another person. Again, carefully consider who this person will be and their understanding of the client’s objectives.

Conclusion When estate plans are being made and children are potential beneficiaries, it’s important to weigh up the advantages and disadvantages of child ABPs and testamentary trusts and consider the ‘what ifs’.

Jennifer Brookhouse is a senior technical consultant with MLC Technical Services.

ABP $20,000 N/A $2,100

Testamentary trust N/A $20,000 $2,100

$3,000 $1,500 Nil

N/A $1,500 $600

Briefs IN a major overhaul of its MasterKey Fundamentals platform, MLC have lowered administration fees and added a range of investment options.

The new pricing structure will see the administration rate cut by an average of about half for balances up to $200,000.

A fee cap has also been introduced for balances above $1.4 million, meaning they won’t pay more than $3,500 for administration, stated MLC. Along with doing away with monthly account fees, MLC MasterKey general manager Dean Thomas said the changes would make the platform significantly more competitive for clients and financial advisers.

ANZ Wealth has announced that it intends to extend its new eBroking Exchange service to cover nonaligned financial planners.

Describing the service as a comprehensive package to develop a successful succession plan, ANZ general manager, advice and distribution Paul Barrett said the package was aimed at assisting aligned planners to get the full value for their business if they decided to sell.

As part of the succession package, ANZ Wealth offers planners a practice funding facility, eBroking Exchange including free access to an online marketplace, succession plan analysis and access to valuation support.

Barrett said the group had received strong feedback for the enhanced service, which he said ANZ Wealth was planning to expand to non-aligned planners looking to sell their business into an ANZ-aligned dealer group.

RATINGS house Standard & Poor’s Fund Services has announced there will be no change to the three-star rating on the Russell Enhanced Income Fund, despite BNY Mellon Asset Management’s decision to close its boutique Australian equities business, Ankura Capital.

Ankura was managing the equivalent of 19.5 per cent of the fund’s total portfolio, and following notification Russell Investment Management had repatriated that portion of the fund, S&P stated.

The ratings house added that the funds had been invested in a separate mandate that largely replicated the Russell High Dividend Australian Shares Index and would “remain so until a replacement fund manager is contracted”.

Assuming a new manager is appointed over the short-term, S&P stated it does not believe the changes would adversely impact the manager’s ability to achieve the objectives of the fund.

www.moneymanagement.com.au December 1, 2011 Money Management — 25

Appointments Move of the week BRIAN Hartzer has been appointed chief executive of Westpac’s new Australian financial services division.

The announcement is part of the group’s new management structure.

Hartzer has more than two decades of banking experience, including responsibility for a number of retail, commercial banking and wealth management businesses worldwide.

Before joining Westpac, he was ANZ’s group managing director personal division, which comprised the bank’s retail banking, regional and rural banking, consumer finance, mortgages, investment and insurance products, and banking products businesses.

In 2008, Hartzer was appointed ANZ’s chief executive officer Australia and, in the following year, joined the Royal Bank of Scotland in the UK as chief executive officer UK retail, wealth and ulster.

In other Westpac appointments, John Arthur has moved into the position of chief operating officer, while Jason

Centric Wealth has appointed Investec Bank’s managing director telecom, media and technology Phil Kearns as its chief executive officer, commencing 12 December 2011.

Centric chairman David Shein said Kearns has been the driving force in building Investec’s client base and introducing new investment products, including aircraft and wind farm investment funds. Kearns has also been responsible for managing significant transactions in the wealth advisory industry, Shein said.

Centric’s chief financial officer Chris Powell will take on the additional role of chief operating officer. Powell was previously regional CFO of Zurich Financial Services Australia and New Zealand, and was also chairman of Lonsec.

Shein said that with the appointments of Kearns and Powell, Centric now had a complete senior management team in place.

MTAA Super has announced the appointment of Leeanne Turner as chief executive officer, effective immediately.

For the past four years, Turner was MTAA’s deputy CEO, and her appointment follows a comprehensive internal and external search that was conducted with the assistance of an executive search firm.

Prior to joining the superannuation provider, Turner was CEO of AvSuper.

Commenting on her new role, MTAA chairman John Brumby said Turner has sound business and administrative insight, expertise in managing compliance issues and strong communication skills.

“Leeanne’s appointment reflects her skills and track record within the superannuation industry,” he said.

As part of a range of board and execu-

Jason Yetton Yetton has been appointed group executive, Westpac retail and business banking, and will commence his role immediately.

Yetton has worked in a variety of senior leadership roles, including three years spent as chief executive officer commerce BT Unit Trust at BT Financial Group.

THE Self Managed Super Fund Professional’s Association of Australia (SPAA) has announced the appointment of Carolyn Baker as a member of the board.

SPAA chairman Sharyn Long said Baker’s appointment will boost the technical expertise and deepen the accounting expertise on the Association’s board.

Baker has been a member of SPAA for over eight years, and is currently a SPAA SMSF specialist advisor and a member of the Association’s regulatory subcommittee.

Baker is the founder and principal of Queensland boutique accounting and consulting firm CJ Baker & Associates.

Before joining SPAA, she was a manager of the audit and financial services division of PricewaterhouseCoopers, as well as the business services and superannuation division of Ernst & Young.

“Carolyn's expertise in accounting, audit and SMSF advice, coupled with her business experience from building her own practice, means the SPAA Board will be well equipped to continue to improve the quality of advice in the industry,” said Long.

26 — Money Management December 1, 2011 www.moneymanagement.com.au

Commenting on their appointments, Crowe Horwath Sydney chief executive Darren O’Brien said that Leach and Neale have extensive experience, particularly in the energy and resources sectors. He said that with their appointments the tax advisory team in Sydney now has a total of four new principals.

Before joining Crowe Horwath, Leach and Neale advised medium to large companies on investment structures, transactions and implementations, as well as the Government’s recent mining and carbon taxes.

Norville has considerable industry experience, including over eight years spent as a director of a transaction advisory practice for one of the big four accounting firms. Before that he was a derivatives trader for ten years in several global investment banks in the UK. “Darryl’s industry experience gives him an extremely practical and client-centric perspective on transaction advice,” said Crowe Horwath Perth chief executive Geoff Kidd.

MACQUARIE Private Wealth has appointed Mark Chartres as senior investment adviser to its Melbourne office.

Specialising in equity strategies, Chartres brings six years’ experience within the broking industry, which has included working with Asian institutional clients.

Macquar ie Pr ivate Wealth state manager for Victoria Malcolm Cameron said Chartres’ appointment will help to boost Macquarie’s advice offering in Victoria.

tive changes, MTAA has also announced the appointments of Vicki Allen and Susanne Dahn as independent members of the board and Philip Perdikaris as an employer representative.

STANDARD & Poor’s (S&P) has appointed four analysts to its fund services division.

Josh Hall (appointed associate director) and Matthew Conacher (appointed rating specialist) will join the team in S&P’s Sydney office.

Leader Simatupang will be located in S&P’s Melbourne office and has taken on the rating analyst role. Joining Simatupang in Melbourne is Madeline Yang, who has been added to the Wealth Management Services team as research analyst.

Before joining S&P, Hall was Challenger’s head of research, and previously held research positions with Perpetual, Genesys Wealth Advisers, and PricewaterhouseCoopers. In his new role, he will be primarily responsible for equities.

Conacher will also focus on equities, having previously held various roles with MLC, including funds research analyst for the MLC/360 team, change management analyst, investment analyst for the MLC retail product team and business analyst for the JANA business services team.

Simatupang will work across various asset classes, and was previously a research analyst providing analytical support to S&P’s Wealth Management Services. Before joining S&P, she worked as a research analyst for IOOF’s dealerships and platforms.

Yang will provide quantitative and generalist analytical support to S&P’s wealth management services. Yang was previously a senior performance analyst at Mercer Investment Management.

Please send your appointments to: andrew.tsanadis@reedbusiness.com.au

Stuart James ABERDEEN has appointed Stuart James to the newly-created role of deputy head of distribution as part of an internal restructure of its Australian distribution business. Reporting to managing director and head of distribution Brett Jolie, James will manage the daily operations of Aberdeen’s distribution functions. He previously led client services and retail business development teams in the UK and Australia.

Following a recommendation to integrate Aberdeen’s institutional retail business development teams and services into a single division, Alex Haynes has been appointed head of business development.

Meanwhile, Amanda Young has been appointed to head of client services for the integrated team.

“The new structure better aligns our distribution efforts and makes the best use of the skills and experience of our entire distribution team,” said Jolie.

CROWE Horwath has bolstered its tax advisory and corporate finance teams with the appointment of Chris Leach, Sam Neale and Darryl Norville.

Leach will take on the role of principal and Neale has been appointed associate principal of the tax advisory team in Sydney. Meanwhile, Norville joins the company’s corporate finance practice in Perth as principal.

IBBOTSON Associates Australia has announced the appointment of Matthew Esler as head of adviser services.

Reporting to Ibbotson general manager investment services Chris Galloway, Esler will be responsible for leading the devel-

Matthew Esler opment of Ibbotson Associates Australia’s investment capabilities and solutions, and managing the firm’s relationships with financial advice practices.

Esler was most recently Midwinter Financial Services’ executive director, strategy and technical services, where he currently remains as non-executive director. He was previously Advance Asset Management’s head of technical, and before that, served as Zurich Financial Services Australia’s technical manager.

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

COMMERCIAL ANALYST/SENIOR ACCOUNT EXECUTIVE Location: Adelaide Company: Terrington Consulting Description: An Australian bank is seeking a commercial analyst to provide risk and credit support to a major client group portfolio.

The successful candidate will join a team of professional bankers and contribute to the maintenance and growth of a significant client portfolio.

In this role, you will be responsible for researching and preparing detailed credit submissions, liaising with existing portfolio clients, conducting reviews and identifying opportunities to improve existing portfolio service levels.

You will have an accounting/audit background and have previous experience in credit within the SME or commercial banking sector.

To find out more and to apply, visit www.moneymanagement.com.au/jobs.

RESIDENTIAL LENDER Location: Adelaide Company: Terrington Consulting Description: A successful retail bank is looking for a driven, relationship-focused residential lender.

In this role, you will be responsible for generating and capitalising upon referrals in order to ensure that there is a strong flow of new business while maintaining an existing client base.

You will be supported by state-of-the-art technology and systems and have access to a wide range of products and services to ensure a competitive advantage in approval turnaround time.

To be successful, you will need excellent business development and rapport-building skills.

Financial services experience will be highly regarded but applicants will also consider candidates with proven relationship management and business development skills.

The candidate will receive full training and support and will be rewarded with an outstanding remuneration package.

To find out more and to apply, visit www.moneymanagement.com.au/jobs.

BUSINESS DEVELOPMENT MANAGER/RELATIONSHIP MANAGER Location: NSW Company: Terrington Consulting Description: Following significant business expansion, a successful Australian-owned bank is seeking a number of experienced and relationship-driven business development managers.

You will be capable of driving growth, building brand equity and providing holistic and tailored advice while building your own client portfolio.

Opportunities

The successful candidate will have a solid understanding of credit risk and a proven track record of driving expansion with minimal support.

To find out more and to apply, visit www.moneymanagement.com.au/jobs.

market reputation and referrals from its accounting arm will provide further opportunity to grow your portfolio.

Candidates will have experience in successfully managing and growing a client base and understanding of a range of financial planning strategies, services and products, including direct investments, gearing and superannuation. CA/CPS qualifications will be highly regarded.

To find out more and to apply, visit www.moneymanagement.com.au/jobs, or contact Myra at Terrington Consulting - 0422 918 177 / (08) 8423 4466, myra@terringtonconsulting.com.au

documentation for the production of SOAs; building and maintaining client relationships; and maintaining compliance procedures.

You will be results-driven and have a strong desire and passion for providing high quality customer service. You will also be RG-146 compliant.

This is a part-time position with a view to full-time employment as work-load increases.

To find out more and to apply, visit www.moneymanagement.com.au/jobs, or contact Myra at Terrington Consulting - 0422 918 177 / (08) 8423 4466, myra@terringtonconsulting.com.au.

CLIENT SERVICES MANAGER

FINANCIAL PLANNER

FINANCIAL PLANNER

Location: Adelaide Company: Terrington Consulting Description: An Adelaide-based financial services firm is looking for a relationshipfocused and highly professional client services manager.

In this role you will be assisting the planner to maintain and build client relationships; become the key contact for clients; provide administrative support as needed; prepare financial planning documentation and client reviews; and manage compliance procedures.

You will have experience with financial planning processes and have the ability to maintain client relationships. Previous experience using Xplan or similar planning solutions would a distinct advantage.

To find out more and to apply, visit www.moneymanagement.com.au/jobs, or contact Myra at Terrington Consulting - 0422 918 177 / (08) 8423 4466, myra@terringtonconsulting.com.au.

Location: Far North Coast, NSW Company: Terrington Consulting Description: A financial services firm is seeking an experienced and established financial planner.

The firm has excellent brand and market reputation and you will be rewarded with a highly competitive salary package and incentives. You will also have access to research, professional facilities, established systems and an opportunity to grow your portfolio.

In this role you will be engaged in a range of financial services offerings, including stockbroking, strategic planning, superannuation, SMSF, insurance, portfolio management and fixed interest.

You will have several years experience delivering to a diverse range of clientele. You will also have proven sales skills and networking capabilities.

To find out more and to apply, visit www.moneymanagement.com.au/jobs, or contact Myra at Terrington Consulting - 0422 918 177 / (08) 8423 4466, myra@terringtonconsulting.com.au.

Location: Hong Kong Company: ipac Asia Description: An international financial advice and investment group is looking to hire a financial planner for its Hong Kong office.

In this role you will be responsible for portfolio and risk management and will provide financial planning advice for retirement, children’s education, insurance, and employee benefits and business continuity.

The successful candidate will receive an attractive base salary and bonus package; have the opportunity to attend overseas conventions; be involved in comprehensive professional training programs and have access to ongoing personal growth and development support; and engage with a wide range of product choices and excellent back office support.

To find out more and to apply, visit www.moneymanagement.com.au/jobs, or forward your resume to the ipac human resources department, vivian.chan@ipac.com.hk

AMP HORIZONS ACADEMY Location: Australia-wide Company: AMP Horizons Academy Description: AMP is accepting applications for its 2012 AMP Horizons Academy 12-month training program.

The paid traineeship begins with a 10-week course at the AMP’s academy in Sydney.

Graduating as a competent financial planner, you will be provided with a position in your home state and receive additional on-the-job training for nine months in an AMP Horizons practice, and be mentored by experienced financial planners throughout the year.

The successful applicants will have a Diploma of Financial Services (Financial Planning) or be RG146-compliant.

You will be rewarded with a fast-tracked career in the company and a competitive training salary.

To find out more and to apply, visit www.moneymanagement.com.au/jobs, or contact AMP – 1300 30 75 44

SENIOR FINANCIAL ADVISER/EQUITY PARTNER Location: Adelaide Company: Terrington Consulting Description: A leading South Australian business advisory company is seeking a senior financial planner for a long-term opportunity and a pathway to equities or equity upfront.

In this role, you will be working with an existing portfolio of clients, and the company’s

FINANCIAL PLANNER/EXISTING BOOK SENIOR FINANCIAL PLANNER Location: Adelaide Company: Terrington Consulting Description: A financial institution is searching for a senior financial planner to work with a portfolio of high net worth clients.

You will have the opportunity to grow your own portfolio referral networks and be rewarded with a highly competitive salary and career development opportunities.

You will have several years experience in providing senior financial advice to sophisticated clients, and proven sales and networking capabilities.

Should the current position be unsuitable to you, you will be notified of new opportunities as they become available.

To find out more and to apply, visit www.moneymanagement.com.au/jobs, or contact Myra at Terrington Consulting - 0422 918 177 / (08) 8423 4466, myra@terringtonconsulting.com.au.

JUNIOR PARAPLANNER Location: Adelaide Company: Terrington Consulting Description: A financial services organisation is seeking an energetic, service-orientated junior paraplanner.

In this role, you will be responsible for assisting in preparing/amending

Location: Adelaide Company: Terrington Consulting Description: An international financial services organisation is interested in speaking to a financial planner with an existing book/client base.

You will be offered succession, equity, outstanding earning potential and excellent support.

To find out more and to apply, visit www.moneymanagement.com.au/jobs, or contact Myra at Terrington Consulting - 0422 918 177 / (08) 8423 4466, myra@terringtonconsulting.com.au.

FINANCIAL ADVISER Location: Adelaide Company: SFR Advisory Description: An advisory firm is seeking a financial adviser to join its office in Perth.

The independent firm operates its own CPA tax practice, has its own in-house SMSF administration service, and works within a FOFA framework.

The firm also has an in-house investment committee and is technologically wellequipped.

For more information and to apply, visit www.moneymanagement.com.au/jobs, or contact Garth Lovelace for a confidential interview.

www.moneymanagement.com.au December 1, 2011 Money Management — 27

Outsider

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

Shake, rattle … and yawn BEING a reptile of the industry media rather than a journalist employed by a reputable metropolitan daily broadsheet, Outsider accepts that he may not be seeing the big picture.

Thus, he concedes that he may have been missing something when, on the same day the Assistant Treasurer and Minister for Financial Services, Bill Shorten, tabled the second tranche of his Future of Financial Advice legislation, he read a headline in one of Australia’s most reputable daily broadsheets suggesting financial planners were being subject to a ‘shake-up’ by the imposition of a best interests test.

“

Out of context

“The mind boggles, but of course in the twilight zone of the Opposition, anything goes.”

Treasurer Wayne Swan questions

the wondrous land of the Opposition

Outsider is wonder ing whether this is the same best interests test pursued by the Financial Planning Association and the Association of Financial Advisers over many months, and the same

best interests test that seemed to fit pretty closely with the standard operating procedure already employed by many financial advisers.

While being a humble reptile of the industry media,

Outsider still recognises the degree to which the facts can get in the way of a story – and how some of his brethren will write in the best interests of generating a headline.

in a speech to the House of Representatives.

“What is interesting is that the Opposition have had more positions on superannuation

Sounding fishy OUTSIDER happened to find himself in New York at just the same time Australian newspaper reports were raising questions about the appointment of Greg Medcraft as chairman of the Australian Securities and Investments Commission (ASIC), given his former employment by Societe Generale before the Global Financial Crisis.

In view of the level of controversy that seemed to be bubbling in Australia, Outsider made some discreet inquiries in and around Wall Street and noted that while his questions seemed to pique a certain amount of interest regarding the man sitting atop the Australian regulator, only a very few people seemed familiar with his career in the Big Apple.

Outsider came home to discover that, while ‘Greg Who’s’ career might not have been a cause celebre in New York, it had

than are in the Kama Sutra.”

Swan compares the Opposition’s zealous disapproval of the superannuation guarantee levy with another passion.

certainly become the subject of debate in the Australian Senate, where some hard questions were asked about why the Government did not follow normal procedure by advertising the position and having the Treasury do some serious due diligence.

According to the answer provided by Finance Minister Senator Penny Wong, this was because Treasurer Wayne Swan had received approval from Prime Minister Julia Gillard that an exemption be granted.

“I am advised that Treasury undertook a

review of all possible candidates, including market soundings, and advised that Mr Medcraft was the preferred candidate for the position. Treasury advised that, since Mr Medcraft was highly qualified, it was preferable not to advertise the position, to minimise disruption at ASIC and to facilitate a seamless changeover,” Senator Wong said.

Outsider’s fishing experience tells him that soundings are less effective when you’re seeking to make a catch in deeper waters.

Time to KISS off, Gene?

OUTSIDER has noted over the years that the financial services industry is filled with all kinds of colourful characters. Some are career planners, some are high flying execs, some earn their crust poring over the stock market, others find their way in from completely unrelated fields, including careers as professional sportspeople.

But it’s possible that none of them are quite as colourful as KISS bassist Gene Simmons, who it seems has turned his hand to doling out financial advice and selling insurance.

Outsider read recently that the 62-year-old rock legend, he of the famous tongue and bedder of 5000 ladies (or so he claims), spoke to students at the London Business School. Outsider understands that it is Simmons’ reputation as a successful entrepreneur rather than his famed prolific interactions with the fairer sex that earned him this honour.

Simmons also has a new role selling life insurance policies to

the rich and famous through Cool Springs Life Equity Strategy, although the group’s target demographic of people with a net worth greater than $20 million just rules Outsider out of their calculations.

Given his success in business and marketing, there is no doubt Simmons would be a wealth of knowledge – and Outsider was curious to hear what gems he would have to share.

Outsider’s curiosity was rewarded with the following nuggets of brilliance: “Without profit you can’t feed your family. I’m going to give you the secret of success. Live like a squirrel. Eat as much as you can and bury the rest.” Fair enough, but surely there’s more to becoming ludicrously rich?

Well yes, there was also this: “The worst thing a man can do, financially and biologically speaking, is to get married.” Ah, so that’s where it all went wrong!

28 — Money Management December 1, 2011 www.moneymanagement.com.au

“I made the mistake of reading APRA’s prudential paper last night, and I was so overstimulated and excited I wasn’t able to sleep.”

Journalist Kerry O’Brien errs with his bedtime reading material at the ASFA conference.