Money Management (July 14, 2011)

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Vol.25 No.26 | July 14, 2011 | $6.95 INC GST

The publication for the personal investment professional

www.moneymanagement.com.au

HILLROSS TARGETS HIGH-NET-WORTHS: Page 4 | KEEPING INFLATION IN CHECK: Page 18

Clients will evaporate after FOFA, say planners

By Mike Taylor A SIGNIFICANT number of financial planners believe the implementation of the Government’s Future of Financial Advice (FOFA) changes will not only cost them money, but also lose them clients.

That is the bottom line of a survey conducted by Money Management last week, with a significant number of respondents claiming that the advent of the two-year opt-in would result in a loss of B and C clients.

The survey also confirmed a belief amongst planners that the administrative costs around the two-year ‘opt-in’ would be significant.

Asked what they believed would be the cost per client of handling the two-year optin, 18 per cent said it would cost $100 while a further 49 per cent said it would cost more than $100 per client, with 14 per cent suggesting it would cost in the order of $75 per client.

The survey outcome is significant because it follows on from suggestions made during recent Parliamentary Committee hearings that the Government no longer accepted the $100 per client industry estimate first refer-

Graph Adviser attitudes on FOFA What do you believe will be the cost per client of handling the Government’s two-year opt-in requirement?

49% 18%

44%

More than $100 per client $100 per client

14%

$50 per client 11%

10% 0

10

$25 per client 0

20 30 40 50 60 %

10

20

Yes, I will lose a proportion of B & C clients

44%

30

40

50

Yes, but only those clients with whom I have irregular contact anyway

7%

0

10

%

FOFA contains no benefits, just threats to my business FOFA has created both threats and opportunities

22%

No, I do not believe optin will significantly alter my client base

13% 10%

Do you believe FOFA has created opportunities or just threats?

Yes, but I will be actively focusing on just my A & B clients

32%

$75 per client

FOFA has its deficits but it has created opportunities for my practice 20

30 %

40

50

Source: Money Management

enced by Treasury officials.

The Money Management survey also suggested many financial planners expected to lose a proportion of their B and C clients as a result of the opt-in arrangements.

Asked whether opt-in would alter the make-up of their client base, 44 per cent of respondents said they expected to lose a proportion of their B and C clients, while a further 23 per cent said they would be actively focusing on just their A and B clients.

Thirteen per cent of respondents said they

FOFA could eliminate mid-tier firms

By Chris Kennedy

CONCERNS have been raised that midlevel planning firms could be eliminated in the wake of the Government’s Future of Financial Advice (FOFA) reforms.

In order to remain viable following the removal of volume-related payments, some planning businesses may need to either vertically integrate services by bringing platform or product offerings in house, or merge with other groups.

This shift has been highlighted by recent movements such as the merger between Snowball and Shadforth, Count Financial’s announcement that it would look to move strategic platform offerings in-house, and the proposed acquisition of DKN by IOOF. The restructure could see the disappearance of planning groups with between 25 and 250 advisers, according to Professional Investment Services managing director Grahame Evans.

Smaller licensees won’t have the resources to move offerings in-house the way Count plans to because mid-tier firms won’t have the appropriate scale to survive, he said.

Will the imposition of a two-year opt-in change the make-up of your client base?

Grahame Evans There is even a chance the industry could see smaller institutions like IOOF swallow up larger non-aligned groups such as Count, then in turn be swallowed up by larger institutions like AMP, eventually resulting in four major banks and one major life company with a range of smaller boutiques.

“That will mean the industry will be run by five big institutions, and that can’t mean a better outcome for consumers,” Continued on page 3

did not believe opt-in would significantly alter their client base, while a further 11 per cent said the only clients likely to be affected were those with whom they had only irregular contact anyway.

Confirming the planning industry’s generally negative view of the FOFA changes, the survey found that most respondents believed the Government’s proposals would have an overwhelmingly negative impact on their businesses.

Asked whether they believed FOFA had

created opportunities or just threats, 62 per cent of respondents said the changes contained no benefits and only threats.

However, 31 per cent of respondents acknowledged that while the FOFA proposals contained threats they had also created opportunities.

The results follow on from an earlier survey indicating strong support for the industry to pursue legal action challenging key elements of the FOFA proposals, particularly opt-in.

New hope for boutiques

By Lucinda Beaman A STAGNANT investment environment has stifled the oxygen of start-up capital and inflows for new investment businesses over the past year, particularly those wanting to stand without an institutional backer.

But researchers agree the continuing trend of consolidation among the industry’s bigger players may be the precursor to new boutique managers opening their doors.

St a n d a rd & Po o r’s h e a d o f f u n d research, Leanne Milton, and Morningstar co-head of fund research, Tim Murphy, agreed that the ones to watch over the coming six months will be the managers affected by UBS’s acquisition of ING Investment Management, one of the biggest independent investment managers in Australia, with the deal expected to close in the fourth quarter.

Meanwhile, Perpetual’s star stock picker and the man responsible for the group’s $6.1 billion Concentrated Equity Fund, John Sevior, made waves late last month when he indicated he may not return to his post at the helm of Perpetual’s Australian equities capabilities.

Perpetual shares took a dive as speculators considered whether Sevior would follow in the footsteps of Peter Morgan and Anton Tagliaferro in setting up his

Tim Murphy own shop, taking substantial numbers of investors with him. The hit on Perpetual’s share price once again highlighted the need for institutions to continue to create boutique structures within a bigger brand.

“So m e o f t h e m o re m a i n s t re a m managers have made significant progress in replicating some of the characteristics of the boutiques both in terms of creating the right alignment and Continued on page 3

Editor

Reed Business Information Tower 2, 475 Victoria Avenue Chatswood NSW 2067 Mail: Locked Bag 2999 Chatswood Delivery Centre Chatswood NSW 2067 Tel: (02) 9422 2999 Fax: (02) 9422 2822 Publisher: Jayson Forrest Tel: (02) 9422 2906 jayson.forrest@reedbusiness.com.au Managing Editor: Mike Taylor Tel: (02) 9422 2712 mike.taylor@reedbusiness.com.au News Editor: Chris Kennedy Tel: (02) 9422 2819 chris.kennedy@reedbusiness.com.au Features Editor: Milana Pokrajac Tel: (02) 9422 2080 milana.pokrajac@reedbusiness.com.au Journalist: Ashleigh McIntyre Tel: (02) 9422 2815 Cadet Journalist: Angela Welsh Tel: (02) 9422 2898 Melbourne Correspondent: Benjamin Levy Tel: (03) 9509 7825 ADVERTISING Senior Account Manager: Suma Donnelly Tel: (02) 9422 8796 Mob: 0416 815 429 suma.donnelly@reedbusiness.com.au Account Manager: Jimmy Gupta Tel: (02) 9422 2850 Mob: 0421 422 722 jimmy.gupta@reedbusiness.com.au Adelaide Agent: Sue Hoffman Tel: (08) 8379 9522 Fax: (08) 8379 9735 Queensland Agent: Peter Scruby Tel: (07) 3391 6633 Fax: (07) 3891 5602 PRODUCTION Junior Designer/Production Co-ordinator – Print: Andrew Lim Tel: (02) 9422 2816 andrew.lim@reedbusiness.com.au Sub-Editor: Tim Stewart Graphic Designer: Ben Young Subscription enquiries: 1300 360 126 Money Management is printed by Geon – Sydney, NSW. Published every week, recommended retail price $6.95 Subscription rates: 1 year A$280 incl GST. Overseas prices apply.

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Losing the tactical plot

A

s any good general ought to know, the key to achieving a strategic objective lies in having a sound understanding of the disposition of all the combatant forces.

If the Assistant Treasurer and Minister for Financial Services, Bill Shorten, had understood this relatively simple military fact, then it is entirely probable that he would today be much closer to achieving the central objectives of the Government’s Future of Financial Advice (FOFA) changes.

If he had only realised it, a window of opportunity existed in April for Shorten to gain grudging but nonetheless effective industry support for the key elements of FOFA. The major planning groups believed they had been making progress in their discussions with Treasury and the Government and there was a belief that enough compromises might be achieved to even make a form of ‘opt-in’ palatable.

All that changed the day Shorten outlined the Government’s final position on FOFA, which not only included the somewhat expected two-year opt-in but also included the ban on commissions on life/risk inside superannuation.

To coin the old military cliché, Shorten’s inclusion of the life/risk commissions ban

“

Shorten’s inclusion of the life/risk commissions ban within superannuation represented ‘a bridge too far’.

”

within superannuation represented ‘a bridge too far’. The Government might have been able to secure grudging industry acceptance of a two-year, three-year or even five-year opt-in, but it ruined its chances the day Shorten embraced the notion of banning commissions on life/risk in super.

The result has been that the Government’s pursuit of its FOFA agenda has moved from being a highly mobile campaign based on some pragmatic assessments of what is reasonably ‘doable’ into some old-fashioned trench warfare with the planning industry having ‘dug in’ to fend off what it sees as ‘twin nasties’.

Shorten indicated in his recent address to the Association of Financial Advisers (AFA) that the Government, having heard the arguments of the financial planning

industry, would not be changing its approach on opt-in or on life/risk commissions in super.

However, there is every indication that he is uncomfortable with the amount of pushback he has been getting from some sections of the financial planning industry, and the likelihood that it will be reflected in amendments imposed on the legislation he ultimately takes to the House of Representatives.

While recent surveys conducted by Money Management and others have suggested that financial planners are totally opposed to the FOFA package, this overlooks the reality that many of the proposed changes – such as a best interests requirement and fee-for-service – have already been embraced by the industry.

In these circumstances, Shorten might consider taking a leaf out of the playbook of former Prime Minister, Bob Hawke – the pragmatic industrial negotiator who understood that good legislative outcomes were delivered by understanding what needed to be achieved and then finding sufficient common ground among the key stakeholders.

Hawke would not have gone a ‘bridge too far’.

– Mike Taylor

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2 — Money Management July 14, 2011 www.moneymanagement.com.au

News

FOFA could eliminate Relief granted to service NZ clients mid-tier firms servicing “NewAdvisers Zealand clients

By Chris Kennedy

Continued from page 1

he said. “There is a grab for distribution that will be won by the institutions, and that will mean those advisers will be using a lot of what the institution says in the way of product.”

Evans also questioned the view that it is okay for product manufacturers to vertically integrate downstream, snapping up distribution channels, but not upstream from distribution to manufacturing.

“I can’t see any fairness in that approach, it’s discriminatory and there’s no basis for it,” he said.

This call was echoed by Matrix Planning Solutions managing director Rick Di Cristoforo. “Vertical integration is vertical, it doesn’t mean just downward or just upward,” he said.

Matrix has not left any options off the table in terms of strategy, including vertically integrating product or platform offerings, but any changes will depend on the draft FOFA legislation, he said.

This is not the preferred option, but dealer groups have an imperative to stay in business for the benefit of clients, and providing advice to clients also needs to remain the number one priority for advice groups, he said.

PIS already has a number of in-house funds

Rick Di Cristoforo management and platform offerings, but Evans was careful to point out that each was run by a separate team to the planning business and neither feeds into the other.

“We like to do things we’re best at and outsource things that are a non-core competency,” he added.

DKN chief executive Phil Butterworth said there is a continuing land grab for distribution by institutions.

He said DKN had been growing well organically and was looking to participate in some acquisitions but will now be one of those land grab opportunities for IOOF. This process will likely accelerate because there needs to be a drive towards scale and consolidation to ensure firms can drive efficiency through the advice program, he said.

A CONDITIONAL exemption has been granted for Australian advisers to be able to continue to service clients in New Zealand.

New laws in New Zealand effective from 1 July 2011 effectively prohibit Australian financial advisers from giving advice to anyone in New Zealand, even if it is in relation to their Australian financial affairs or Australian financial products, according to Holley Nethercote lawyers.

Advisers servicing New Zealand clients from this date may be in breach of the New Zealand financial advisers regime, the firm stated.

But on 30 June, in response to an application from Holley Nethercote to New Zealand government regu-

from this date may be in breach of the New Zealand financial advisers regime.

”

lators the Financial Markets Authority (FMA), an exemption was granted providing conditional relief from many of the obligations set out in the New Zealand legislation, the firm stated.

The Financial Advisers (Australian Licensees) Exemption Notice 2011 means Australian Financial Services Licensees can advise to New Zealand clients without having to adhere to all of the requirements of the New Zealand regime provided they meet certain requirements, according to Holley Nethercote.

Licensees would need to become a member of a suitable New Zealand dispute resolution scheme; register as a financial ser vice provider in New Zealand; appoint an agent for receiving notices in New Zealand; prepare wr itten notice to the FMA informing it that licensees will be acting in accordance with the exemption; and prepare a written disclosure for advisers to provide to New Zealand retail clients.

New hope for boutiques Future-proof your Of the options available, client’s retirement with few are as dependable Challenger annuities. as Challenger annuities.

Continued from page 1

For more on boutiques, turn to page 14.

While your clients may have become more cautious, their priorities, like preserving capital, generating reliable income and beating inflation over the long term, remain exactly the same.

12093/0611

incentives to retain their key stock pickers,” Milton said.

It’s a strategy groups such as Challenger have embraced, with great success. Challenger’s boutique stable is expected to hit $15 billion in funds under management in this year’s end of financial year results on the back of recent additions, including Alphinity Investment Management.

Of the new groups to open doors over the past year, including Avoca Investment Management, established by former UBS portfolio managers John Campbell and Jeremy Bendeich, additional financial and administrational support from a bigger player is a must.

But even those boutiques without an institutional partner are relying heavily on the big end of town for mandates, with most advisers and retail investors preferring to sit on the sidelines for now.

With capital and income payments guaranteed by an APRA-regulated life company, Challenger annuities provide regular income for terms from one to fifty years, or for life.

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www.moneymanagement.com.au July 14, 2011 Money Management — 3

News

Hillross targets growth, HNWs

By Chris Kennedy AMP-owned dealer group Hillross Financial Services is looking to significantly grow its business both organically and inorganically, and will continue to target high-networth clients, according to managing director Hugh Humphrey.

The group can achieve relatively aggressive double-digit practice growth through practice start-ups, targeted practice acquisitions and

also practice onboarding, where practices join Hillross from other licensees, Humphrey said.

In the current uncertain environment there’s a lot of interest in the Hillross proposition and the group is honing its skills in terms of onboarding and making sure it can integrate businesses smoothly, he said.

“We’re seeing a lot of activity within our practices at the moment, making smaller acquisi-

tions as planners think about their future in a post-[Future of Financial Advice] environment, and practice development,” he said.

The group will also seek to realise more value from AXA/AMP, with many advisers keen to access AXA’s North platform, with support also provided around technology and IT support, an adviser support helpdesk, administration and paraplanning – as well as help to streamline Statement of Advice produc-

tion by taking out duplication and repetition, and reducing the turnaround time on some of the logistics of providing advice, he said.

Hillross will also look to help its firms drive double-digit percentage revenue growth, he said.

The group will maintain its highnet-worth (HNW) and affluent client focus, with around $3 billion invested by the top 2 per cent of Hillross clients, he said. The group also maintains the highest funds under

Hugh Humphrey advice (FUA) per adviser of any group in the country at just over $40 million FUA per adviser, according to Comparator, he said.

Govt turns to Medicare

By Mike Taylor

THE Federal Government has again turned to Medicare to deliver a superannuation service – this time the administration of the compassionate early release of superannuation entitlements.

The Government earlier turned to Medicare to provide the administrative arrangements around its free superannuation clearing house facility for small employers.

The move has been welcomed by the superannuation industry with Association of Superannuation Funds of Australia (ASFA) chief executive, Pauline Vamos, saying the use of Medicare would make things easier for people suffering hardship and requiring compassion early release of super entitlements.

“It is a commonsense solution for early release to be administered by a body that already has a customer service operation in place as well as the appropriate systems to assess and deal with claims on compassionate grounds,” Vamos said.

Announcing the changes, the Assistant Treasurer, Bill Shorten, said Medicare had been managing the claims for almost six months under delegation from the Australian Prudential Regulation Authority (APRA).

He said that while APRA was responsible for administering the early release arrangements, the function did not fit well with the regulator’s role.

Shorten said the Government believed the function would be administered more cost-effectively following formal transfer to an agency which had an efficient customer suppor t infrastructure.

4 — Money Management July 14, 2011 www.moneymanagement.com.au

News

New gaps identified in platform share offerings

By Milana Pokrajac

FINANCIAL planners have indicated platform providers are not delivering well enough on their direct share offerings, with planner satisfaction remaining flat in 2011, according to a new report released by researcher Investment Trends.

Investment Trends 2011 Planner Direct Equities Report found more than one-third of financial

IPA seeks legal privileges for tax advisers THE Institute of Public Accountants (IPA) has called on the Federal Government to extend legal privilege to tax advice provided by professional tax advisers.

Under current legislation, tax agents do not receive the same protection as lawyers, although they do advise on tax law.

The IPA argued such protection was long overdue, with the United States, United Kingdom and New Zealand having extended legal privilege to their professional tax advisers.

The IPA senior tax adviser, Tony Greco, said it was in the best interest of the public for professional tax advisers to have the same legal protections and safeguards as lawyers when it comes to tax advice.

“Consumers should be able to have frank and honest conversations with their tax accountant without worrying that their communications are not confidential and could be later subject to the Australian Taxation Office [ATO] oversight,” Greco said.

In 2007, the independent Australian Law Reform Commission recommended that privilege should be extended to tax advice created by an independent professional adviser who was a registered tax agent.

The IPA argued it was inconsistent that this class of professional advisers could not avail themselves of the same benefits as lawyers who provided legal advice and were granted the benefits of legal privilege.

“Tax practitioners are expected to provide professional advice to taxpayers; it is high time that the law reflected the importance of such advice and protected the parties in question,” Grego said.

planners preferred platforms over stockbrokers for direct share trading, but only 16 per cent of users rated the offering as ‘very good’.

According to investment analyst Recep Peker, platforms have improved satisfaction by fixing some of the shortcomings identified in previous surveys, but new gaps are fast emerging – particularly in areas around shares research, timeliness of data and pricing.

“We are also finding that planners are increasingly open to switching platforms for direct shares in 2011,” said Peker.

“With planners increasingly open to moving, platforms and brokers alike have the opportunity to compete for a growing slice of planners’ businesses through their direct shares offering.”

The survey also found planners were increasingly allocating to

direct share investments and were recommending them to a wider range of clients, particularly those with self-managed super funds and over $100,000 in investible assets.

Peker noted planner confidence on direct shares was growing, but that client demand remained the most common catalyst to further advice on this asset class (cited by 37 per cent, but down from 52 per cent).

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www.moneymanagement.com.au July 14, 2011 Money Management — 5

News AMP tops list of best pension funds open to all

By Ashleigh McIntyre AS the focus of retirees shifts from withdrawing superannuation as a lump sum to rolling it over into an account-based pension fund, research firm Canstar Cannex has named the top 10 pension options available to everyone.

The account-based pension funds that received a five-star rating were from AGEST Super, AMIST Super, AMP Flexible Super, BUSSQ, Energy Super, First State Super,

LUCRF Super, Media Super, MLC MasterKey Fundamentals and VicSuper.

Of the funds that scored a five-star rating, AMP Flexible Super’s Core and Select options were the only retail products to top the list for all types of balances, while First State Super topped the industry funds.

According to Canstar Cannex head of research Steve Mickenbecker, the firm compared 77 pension funds out of a universe of 350 based on low, medium and high super account balances. It eliminat-

Victorian finance broker banned for life

By Angela Welsh A VICTORIAN finance broker has been permanently banned from engaging in credit activities after she was convicted of fraud offences.

Kristy Ann Lake, the former director and secretary of Clearwater Financial Systems, received the Australian Securities and Investments Commission (ASIC) ban after pleading guilty in March this year to two charges of obtaining property by deception.

The case was heard in the Melbourne Magistrates Court in March this year, and Kew was found to have acted in breach of section 81 of the Crimes Act 1958 (Vic).

In May and July 2008, Lake submitted loan applications to two financial institutions, falsely using another person’s name. Each application was successful, and Lake managed to obtain a loan of $12,655 on the first occasion and $13,149 on the second.

The frauds were uncovered in late 2010 when loan providers contacted the person whose name was falsely used, after Lake had stopped making repayments. The matter was reported to Victoria Police and ASIC. Following Lake’s guilty plea in March this year, ASIC started the process to bar her from taking out any future loans.

Lake has the right to contact the Administrative Appeals Tribunal to request a review of ASIC’s decision.

6 — Money Management July 14, 2011 www.moneymanagement.com.au

ed those with restricted entry such as corporate, industry and employer funds.

“Our number one criterion was to compare only those funds which any one of us could join without going through an intermediary such as a financial planner,” Mickenbecker said.

The funds were further judged on 80 features, including the available investment options, payment options, continuance of insurance, availability of advice, performance and investment strategy.

News

OnePath program to help advisers through FOFA

By Milana Pokrajac

ONEPATH has launched a program called FutureReady, which is aimed at preparing advisers for the post-Future of Financial Advice (FOFA) environment.

T h e c o m p a ny s a i d t h e online “knowledge hub” would provide financial planner s with infor mation on

FOFA impacts for advice professionals and tools to guide them to successfully transition to fee-for-service.

ANZ general manager of advice and distribution, Paul Barrett, announced the program, saying the upcoming reforms would bring signific a n t c h a n g e t o m a ny aspects of the advice profession, affecting the way

advice is provided. “ We w o r k w i t h a l a r g e number of advice businesses across the country, and the FutureReady toolkit includes examples of things that we have seen work,” Barrett said.

“The program leverages our internal technical and regulatory specialist knowledge, as well as expertise

from the Encore Group,” he added.

The FutureReady program also includes an online stepby-step guide and toolkit to help advisers transition to a successful fee-for-ser vice business model.

Barrett said the program would be available to all advisers via the OnePath Adviser Advantage website. Paul Barrett

AUI refinances healthcare fund

By Chris Kennedy INVESTOR distributions in the Australian Unity Investments Healthcare Property Trust will be boosted by a $200 million refinancing loan, according to AUI. The new three-year loan is at a lower interest rate than the previous loan of the same amount, according to AUI. The new financing arrangements are provided by four top-tier banks, three of which took part in the previous facility, the group stated.

There was a good level of competition among the banks for the loan, showing that conditions had improved and demonstrating the quality of the assets, according to Carolyn Ireland, AUI’s head of capital markets.

Ireland estimated investor distributions would increase more than 1 per cent, taking the annual distribution close to 8 per cent.

AUI head of healthcare and retirement property funds Chris Smith predicted a standout year for healthcare property on the back of a positive first half of 2011 and strong overseas investor interest.

“Healthcare property has maintained its value very well and given investors excellent returns, despite the recent economic problems and softening property values in some sectors and locations,” he said.

The ageing population would generate ongoing elevated need for medical and health services with high long-term occupancy demand contributing to strong yield for investors, he added. www.moneymanagement.com.au July 14, 2011 Money Management — 7

News

Govt urged to tighten default fund rules PFA tips property funds growth

By Mike Taylor

EMPLOYERS should be required to give employees a role in selecting their default superannuation funds, and those funds should be reviewed at least every five years, according to law-based industry superannuation fund, Legalsuper.

At the same time as Government committees investigate the implementation of the Cooper Review recommendations including MySuper, Legalsuper has called on the Federal Government to tighten the rules

governing employer choice with respect to default funds.

Legalsuper chief executive Andrew Proebstl said that under current arrangements the primary legal obligation on employers was to select a default fund rather than to choose a ‘good’ default fund for their employees.

He said new rules were needed because most Australians continued to accept that the default fund chosen by their employer was the result of the employer having followed due process.

“By increasing transparen-

Andrew Proebstl cy and eliminating conflict of interest in the default fund appointment process, the Federal Government can improve the quality of Australia’s default funds and better align the default fund

chosen with the interests of employees who, ultimately, are owners of the accumulated retirement savings,” he said.

The call by the LegalSuper CEO has come at the same time as news reports have suggested the Australian Prudential Regulation Authority held concerns about the trouble-plagued industry superannuation fund MTAA Super over a number of years.

The reports also suggested the regulator’s 2010 review of MTAA Super had been “sharply critical” of the super fund’s conduct.

Enforceable undertakings for Trio directors

By Angela Welsh FORMER Trio Capital directors Rex Phillpott and Natasha Beck have entered into enforceable undertakings with the Australian Securities and Investments Commission (ASIC) with Beck also entering into a similar undertaking with the Australian Prudential Regulation Authority (APRA).

Trio was formerly the trustee of five superannuation entities and the responsible entity for 25 managed investment schemes. These included the Astarra Strategic Fund, comprised of hedge funds that had reported assets of $125 million in December 2009.

The Astarra fund invested in several overseas hedge funds, mostly based in the Caribbean. ASIC raised concerns about the legitimacy of these investments and commenced an investigation in October 2009, and Trio was placed into administration in December that year.

Phillpott was the chief executive

officer, director and secretary of Trio from October 2005. He was also on the r isk and compliance committee.

Phillpott has agreed with ASIC not to act as a director of any corporation or in any role within the financial services industry for 15 years.

Beck was non-executive director of Tr i o f ro m Ju n e 2 0 0 8 a n d w a s a member of the investment committee from September 2009. She has agreed with ASIC not to act in any role within the financial services industry for two years. She has also agreed not to act as director of any corporation for two years, with the exception of Rumi Holdings, a company of which she is the sole shareholder.

Beck has also acknowledged APRA’s concerns that she failed to carry out her duties properly as director of a superannuation trustee. She has further recognised the five-year disqualification period deemed to be fitting by APRA for the nature and extent of the concerns.

During this time, Beck would not be permitted to act as a trustee or as a responsible officer of a body corporate that is a trustee, investment manager or custodian of an APRA-regulated superannuation entity.

However, as Beck sought to resolve APRA’s concerns at an early stage and has agreed to cooperate with the investigation, APRA has agreed to accept her undertaking to remain out of the superannuation industry for four years. She may also be entitled to reduction of two years, subject to her continued assistance with the investigation.

The current enforceable undertakings follow the guilty plea of former Astarra Strategic Fund director and investment manager Shawn Richard. Richard is currently on bail awaiting sentence.

The Astarra fund wound up in April 2010, under a NSW Supreme Court order.

Since this time the liquidator of Trio has been unable to recover the vast majority of the investments made by the fund.

Wealthsure takes on Seagrims advisers

By Benjamin Levy DEALER group Wealthsure will take on a number of financial planners from suspended financial planning firm Seagrims as authorised representatives, and provide advice to the 4,000 Seagrim clients affected by the collapse of Astarra Strategic fund, according to Wealthsure managing director Darren Pawski.

Wealthsure is working closely with the Australian Securities and Investments Commission (ASIC) about taking on advisers formerly employed by Seagrims, Pawski told Money Management. Only those advisers who were found to be ‘clean’ by ASIC would be taken on by Wealthsure, Pawski said.

In a letter sent by Seagrim director Peter Seagrim to the group’s clients and obtained by Money Management, Peter Seagrim revealed that ASIC has

Darren Pawski decided to “temporarily” suspend the group’s AFSL licence due to the regulator’s concerns over negligent Statements of Advice (SOAs) and disclosure issues.

ASIC found that Seagrim had failed to adequately ascertain or record from 20 clients whether their personal financial circumstances had changed before making investment recommendations. This resulted in at least 20 negligent SOAs provided to those clients.

8 — Money Management July 14, 2011 www.moneymanagement.com.au

ASIC also found that Seagrims did not properly disclose the sharing of advertising expenses between the owners of the Seagrims Retirement Funds and Diversified Funds, otherwise known as Astarra. Seagrims also failed to disclose to clients the wages of Astarra’s administration staff who helped to process new client applications.

Concerns with Seagrim’s compliance processes were also raised by ASIC. Peter Seagrims informed clients that while the company was in suspension, its advisers would become corporate authorised representatives of Wealthsure.

Both Peter and Anne-Marie Seagrims will not work with Wealthsure, Pawski said.

ASIC has banned both Peter and Anne-Marie Seagrim from providing financial services for three years.

By Chris Kennedy

THE property funds management sector is preparing for a period of growth, planning capital raising, hiring and acquisitions, according to a Property Funds Association (PFA) member survey.

More than half of members are planning on raising capital in the next 12 months, half intend to make an acquisition in that period, and more than half are planning on adding new staff in the same period, said Robert Olde, president of the PFA (formerly the Australian Direct Property Investment Association).

The new hires are expected to be predominantly business development managers, as well as asset management and administration roles, according to the survey.

The results highlight that PFA members are positive about the market outlook and are looking to cater for investment demand, Olde said.

Of those looking to make an acquisition, 37 per cent intended to do so through the purchase of an asset, and 10 per cent planned to acquire a fund or a business – significantly down from the previous survey when 75 per cent of managers were looking at mergers and acquisitions activity, he said.

“We think this is a solid sign that stability and confidence are returning to the sector,” Olde said.

More than 70 per cent of those raising capital intended to invest in the office sector, 42 per cent in industrial property, 28.6 per cent in retail and 21.4 per cent in residential, the survey found.

Just over half of respondents would be looking to source capital from private investors, half from financial advisers and institutional investors, 42 per cent from high-net-worth and family office, and 42 per cent from self-managed superannuation funds, the survey found.

Several managers had reported successful capital raisings in recent months, which along with positive investor sentiment suggested that now may be the right time to re-enter the direct property market, Olde said.

Ascalon launches retail clean energy fund BT FINANCIAL Group boutique Ascalon Capital Managers has launched a retail version of its Arkx Investment Management clean energy fund.

The company announced the launch to retail clients last week, claiming it would give investors exposure to listed companies operating in clean and renewable energy sectors, including solar, wind, hydro and geothermal energy.

Commenting on the launch, Arkx managing director Geoff Evison said that with energy consumption growing quickly and governments around the world responding to climate change, pressure was building for fundamental structural, economic and social change in favour of clean energy.

The company claims the fund is suitable for investors with a long-term focus, with the objective being to outperform the MSCI World Index after the deduction of fees and expenses in Australian dollar terms over a rolling five-year period.

News

Most AXA practices signing welcome package

By Milana Pokrajac AMID continuing speculation that more of AXA’s practices are departing for MLC, it is understood that most of them have decided to stay, signing a socalled ‘welcome package’.

By signing the welcome package, most of AXA’s practices have agreed to receive volume bonus-type payments for three years under its value participation scheme.

The welcome package, which apparently comes with no addi-

Boutique firm joins Securitor BOUTIQUE planning firm Minchin Moore Private Wealth has joined BT Financial Group’s (BTFG’s) Securitor network, BTFG announced.

Minchin Moore Private Wealth is the result of a merger between existing Securitor firm Minchin Private Wealth, which was founded last year by lead adviser Mark Minchin, and an established Sydney-based practice founded by Peter Williams that operated under a different Australian Financial Services Licence, Securitor stated.

The firm consists of six advisers and three support staff, and advises on around $400 million on behalf of clients, according to Securitor.

Williams has 25 years of experience managing a financial advice practice catering to the needs of ultra high-networth clients, and in 1984 founded chartered accounting practice Williams Hatchman & Kean, now part of the publicly listed WHK group, Securitor stated.

Williams has brought his client book to the new firm, of which he is a co-founder, and BTFG head of dealer groups Ma t t E n g l u n d d e s c r i b e d t h e a c q u i s i t i o n a s a c o u p for Securitor.

“We are delighted to welcome Minchin Moore Private Wealth into the fold as the quality of the business is the right cultural fit with Securitor: a boutique advisory firm specialising in personalised strategic advice firmly focused on the needs of their clients,” Englund said.

Securitor is looking to organically grow practices as well as acquire new businesses but is focusing on quality without compromise, Englund said.

The new firm also features new advisers Nick Mundy and Tom Jeffries, formerly with BT Financial Group, and operations manager Jenny Wong, formerly of AMP and Macquarie. The three join existing Minchin Private Wealth advisers Angus Sedgwick and Mark Minchin.

Williams said he wanted to join forces with a dealer group that would allow the firm to flourish within its own business model and that provided industry leading support services.

tional conditions of commitment, also includes discounted business loans from AMP Bank, as well as enhanced marketing and education support.

Rumours about a number of AXA practices switching over to MLC have surrounded the

AXA/AMP post-merger period, with a number of key executives also making the move.

Three managers from AXA’s senior ranks have moved to MLC and NAB Wealth’s retirement solutions team, after Andrew Barnett moved over to head up the retire-

ment solutions team. For more information on the new recruits, please refer to the ‘Appointments’ section on page 27.

Developed and emerging markets fall

By Chris Kennedy

DEVELOPED equity markets globally fell 1.79 per cent in June, but still fared better than emerging markets, which collectively fell 2.06 per cent for the month, according to Standard & Poor’s Indices.

Developed markets performance was boosted by leaders Germany and Japan, which each gained around 1.8 per cent, while many northern European markets underperformed, with Sweden the worst performer, down 5.29 per cent.

Emerging market performance in June was led by the Philippines, Malaysia and India, which each

improved more than 1 per cent, while at the other end Peru dropped 11.49 per cent and Morocco 5.75 per cent.

Despite last month’s figures, developed markets are up 4.26 per cent for the year to date led by a 14 per cent gain in France.

Emerging markets are down 2.23 per cent for the first half of this year, although predictably there was a far greater divergence in individual markets, ranging from Peru (down 25.41 per cent) to Hungary (up 20.63 per cent).

The results are based on the S&P Global Broad Market Index, which covers approximately 10,000 companies in 45 countries.

Accounting jobs up on 2010 ACCOUNTING jobs are up around 20 per cent compared to the same time last year, despite a slight dip in the month of June, according to Ambition’s Accounting Jobs Index.

Co n t ra c t a n d p e r m a n e n t accounting jobs for June 2011 were up nationally year on year by 19.3 per cent, indicating the underlying stability of the improving jobs market, Ambition stated.

T h e i n c re a s e w a s l e d by Melbourne (up 25.6 per cent) and Brisbane (up 23.1 per cent), with national growth strongest from November 2010 to March 2011 before a large dip in April.

That stall corresponded with a

recent dive in the stock market, said Gavin Houchell, managing director of Ambition Finance & Accounting. “ The supply of candidates is there but this is a demand-driven hesitation,” he said.

“We’ve seen the trend towards n e w j o b c re a t i o n c o o l i n g o f f .

Demand is the key driver at the moment but it’s currently a ‘wait and see’ scenario for employers,” Houchell said.

The recent dip in accounting job numbers is more like a temporary correction and Ambition is still optimistic about the second half of 2011, he said.

www.moneymanagement.com.au July 14, 2011 Money Management — 9

News Strong backing for FOFA challenge

By Mike Taylor A SIGNIFICANT number of financial planners want the industry to challenge key elements of the Government’s proposed Future of Financial Advice (FOFA) changes in the courts.

A survey conducted by Money Management has revealed 85 per cent of respondents believe a challenge needs to be mounted against the

FOFA proposals and, in particular, the two-year opt-in.

What is more, 80 per cent of those respondents have indicated they would be prepared to help fund such a challenge.

Money Management posed the issue of a legal challenge to the FOFA proposals following comments by Victorian regional planning principal, Brian Handley.

Westpoint directors charged

By Angela Welsh FORMER Westpoint directors Nor man Carey and Graeme Rundle have been charged on two breaches of the Corporations Act. If convicted, they face a maximum penalty of five years in jail for each offence.

The charges, brought by the Au s t r a l i a n S e c u r i t i e s a n d In v e s t m e n t s C o m m i s s i o n (ASIC), allege that the men contravened sections 184(2)(a) and 601FD of the Act. Specifically, ASIC alleges t h a t C a re y a n d R u n d l e breached their duties as offic e r s a t We s t p o i n t Ma n a g e ment, and Westpoint Corporation.

It is alleged that the breach-

es occurred when the two men executed deeds extending the time for Westpoint Corporation to exercise an option to purchase Perth’s Warnbro Fair Shopping Centre and adjoining land.

The allegations further state that these breaches involved a transfer of the option to purchase the shopping centre t o a C a re y f a m i l y t r u s t e e company, Bowesco.

Westpoint Management was the responsible entity for the managed investment scheme, Warnbro Fair Syndicate, which owned the shopping centre a n d s u r r o u n d s. C a re y a n d Rundle were officers at both Westpoint Management and Westpoint Corporation at the time of the alleged offences.

The Commonwealth Director of Prosecutions will bring the action before the cour t when the matter returns to Perth’s Magistrates Court on 15 July.

Rundle will be sentenced on two separate charges next month, after a jury found him guilty of making false or misleading statements to a financial institution.

The statements were made in support of $71 million credit facility application to fund a Westpoint development of the Scots Church project in York Street, Sydney.

T h e v e rd i c t w a s h a n d e d down on 24 June, and Rundle will be sentenced in the District Court of NSW on 12 August.

Carbon tax debate driving Aussie investors away

By Milana Pokrajac

UNCERTAINTY around the Government’s proposed carbon tax might be responsible for many Australians turning their green investment dollars towards offshore markets and away from energy projects in Australia.

Luxembourg-based private equity firm, Polaris Energy, reported it had received an increasing number of enquiries from Australians over the past nine months regarding investing in the renewable market in Europe.

Polaris Energy’s strategic adviser, Samuel Wilson, said it appeared that Australians who are interested in investing in renewable energy seek sustainable investments both from an environmental and market perspective.

“And despite any pending agreement on carbon taxation the uncer tainty won’t stop there,” Wilson said.

“There will still be debate with regards to commitment to renewable energy in the Australian market, with strong political resistance, resistance

BNP Paribas IP launches fixed income fund

By Ashleigh McIntyre

Doyle Mallett

BNP Paribas Investment Partners (BNPP IP) has launched a new fixed income capability in a bid to capture interest from investors seeking a more defensive option.

The BNP Paribas Asset Management Core Plus Fixed Income Fund will target superannuation funds and insurance companies, but will be available to retail investors through separately managed accounts (SMAs).

The SMA will invest in a portfolio of between 10 and 20 fixed income and hybrid securities, which BNPP IP said would be the first of its kind in the market available in that form.

The fund will be managed by an inhouse team led by Doyle Mallett and will invest mainly in Australian fixed income securities, with up to 20 per cent to be allocated to global fixed income.

The global allocation of the fund will be managed by New York-based Fischer Francis Trees & Watts, a specialist single and multi-currency fixed income investor that is owned by BNPP IP. Chief executive of BNPP IP Australia Robert Harrison said the advantage of this structure was that it gave the company an experienced team in Australia to run the portfolio, while being able to leverage the global credit research of the global firm.

Wraps perform in mixed markets DESPITE some mixed fortunes, the Australian Masterfund market has grown by 3.3 per cent, with all the major companies, except IOOF and Perpetual, recording some growth in the 12 months to the end of March.

The latest Plan for Life data has revealed the total Masterfund market gained $13.9 billion or 3.3 per cent in the 12-month period, with inflows of $104.3 billion

being significantly up on those for the previous 12month period.

However, it said outflows had also risen to $94.3 billion.

The Plan For Life data confirmed the dominance of platforms in the Mastertrust space, accounting for 50.1 per cent of the total market with $217.5 billion in funds under management.

It showed that inflows into platforms ($41.3 billion) made up 39.6 per cent of all

inflows, although significant outflows of $40.7 billion had also occurred.

It said four groups held over $20 billion in platform funds under management led by National Australia Bank/ MLC ($49.4 billion) and Commonwealth Bank/ Colonial First State ($48.9 billion).

The Plan for Life data said that wraps comprised 35 per cent of the total market accounting for $151.7 billion

10 — Money Management July 14, 2011 www.moneymanagement.com.au

in funds under management.

It said inflows of $50.3 billion comprised 48.2 per cent of the total, while comparatively lower outflows of $44 billion gave wraps 63.1 per cent of net fund flows.

The Plan for Life data analysis said BT Financial, National Australia Bank/MLC and Macquarie were the leading players in the market, with BT Financial holding 21.4 per cent of funds under management.

on tariffs, and consistent uncertainty at the domestic rebate level – all of which has been driving investors our way,” he said.

The European Union had agreed to binding targets to increase the share of renewable energy in 2007, with Italy introducing ‘feed-in-tariffs’ for solar, which is guaranteed for 20 years.

From this, Wilson said, Italy became the world’s secondbiggest solar market after Germany.

“This provides a great investment opportunity because the tariff rate is locked in for 20 years; so, there is a clear message from the Italian government to the market around its commitment,” he said.

Bell Potter completes Southern Cross integration

By Chris Kennedy

BELL Potter has formally combined the specialist institutional business of Southern Cross Equities with the retail distribution network of Bell Potter, three years after Bell Financial Group acquired Southern Cross.

Since then the two subsidiar y businesses have operated separately pending the completion of the three-year earn-out period for Southern Cross that has now expired, allowing Bell Potter to take unrestricted control of Southern Cross Equities.

Executive chairman of BFG Colin Bell said the integration gives the group a wholly Australian-owned, full-ser vice broking house.

“Charlie Aitken now heads up the wholesale business and Angus Aitken runs the institutional dealing desk, and James Unger is in charge of equity capital markets. A London office was established in early 2009 under Phillip Beard, and a Melbourne office was set up not long after, which Anton Whitehead has recently been brought in to manage,” Bell said.

“Steve Goldberg has recently joined us to head up the research team which has been rebuilt and strengthened. In total, Southern Cross has recruited about 30 new team members, spread over institutional dealing, corporate and research.”

The group has also recently appointed Dean Surkitt to head up retail and Matt Farr to run its Queensland offices, he said.

News

Borrowers look to fix rates

By Mike Taylor ONGOING speculation around rising interest rates appears to have convinced many Australians to lock-in to fixed rate home loans, according to the latest data from Mortgage Choice.

Ac c o rd i n g t o Mo r t g a g e C h o i c e, demand for fixed rate loans reached its highest level in five months in June, reaching 12.3 per cent of all approvals.

It said every state apart from South Australia had seen a rise in the appetite for fixed rate loans, with the largest increase occurring in Western Australia, where demand rose from 9.4 per cent in May to 14.2 per cent in June.

Commenting on the data, Mortgage Choice spokesperson Kristy Sheppard said constant speculation about interest rate rises occurring in the latter half of 2011 and beyond may have convinced a higher number of borrowers to simply lock in their rates.

She said July’s data would prove interesting because over the past month several lenders had reduced their fixed rates on home loans.

“Now t h e re’s o n e - t e n t h o f a p e r centage point between the average three-year fixed rate, traditionally the most popular with borrowers, and the average basic variable rate,” Sheppard said.

Industry funds finish ahead on allocations

Kristy Sheppard

York Capital to be wound up

By Milana Pokrajac T H E c o r p o ra t e re g u l a t o r h a s obtained orders to wind up York Capital Limited – a company once reported to have been taken over by for mer Fincorp director Graeme Byers.

T h e Au s t ra l i a n Se c u r i t i e s a n d Investments Commission (ASIC) established the company failed to lodge its financial reports and hold

annual general meetings for the past three years.

The Federal Court of Australia ordered that York be wound up and appointed Paul Burness as liquidator.

ASIC’s investigation also found York Capital failed to appoint the statutory minimum of three directors and comply with a court order dated 9 June 2009 which required financial accounts be lodged with ASIC within 28 days.

INDUSTRY funds’ generally lower allocations to unhedged investments and their higher exposure to unlisted assets will see them finish the financial year slightly ahead of retail master trusts, according to the latest data from Chant West.

Chant West principal Warren Chant is forecasting that the median growth fund will post a return of about 9 per cent for the year to 30 June.

He said some funds will have performed better than others, and that he was expecting an investment return range of between 7 per cent and 12.5 per cent.

However, Chant pointed to the fact that even with two years of positive returns, growth funds had still not repaired the damage imposed by the global financial crisis (GFC), with a further 6 per cent in returns needed to return to the levels achieved in late October, 2007.

He said that notwithstanding continuing market volatility, he expected growth funds to return to their preGFC levels in the new financial year.

www.moneymanagement.com.au July 14, 2011 Money Management — 11

SMSF Weekly Super returns still recovering from GFC

By Mike Taylor

Warren Chant

THE degree to which the global financial crisis (GFC) impacted Australian superannuation returns has been confirmed by the latest data released by research house, Chant West, which has revealed that even though returns have recovered by 30 per cent since early 2009, all the GFC losses have not been recovered.

According to Chant West principal Warren Chant, the median growth fund will post a return of about 9 per cent for the 2010-11 financial year, but this has not been enough to see fund members regain the lost ground.

ATO avoids trust ‘nightmare’ THE Institute of Public Accountants (IPA) has claimed the Australian Taxation Office (ATO) avoided an administrative nightmare by moving to provide assistance around the taxation of trust income for the 2010-12 financial year.

The IPA claimed the potential administrative nightmare would have occurred as a result of new legislation passed on 23 June enabling the streaming of franked dividends and capital gains for tax purposes.

“Unfortunately, the new rules required certain things to be done by trustees before 30 June which would have caused practical difficulties for tax practitioners and trustees,” it said.

“The ATO, to its credit, has introduced two administrative arrangements to help practitioners and trustees deal with the new legislative requirements,” the IPA said.

It said the first arrangement would see an extension of time for trustees to record a beneficiary’s entitlement to a franked distribution, and the second was that the ATO would not be selecting cases for review or audit in the 2010-11 financial year.

Commenting on the development, IPA senior tax adviser Tony Greco said the ATO had recognised the need to act quickly on the matter.

He said that as the end of the financial year had loomed, the changes might have caused an administration nightmare for trustees and tax practitioners.

“After falling 27 per cent during the G F C , g r ow t h f u n d s h a v e n ow returned 30 per cent since the end of February, 2009,” he said. “In normal times that would be quite impressive, but the damage done by the GFC has s t i l l n o t b e f u l l y re p a i re d , a n d a further 6 per cent is needed to get back to the pre-GFC levels achieved in late October, 2007.”

Chant has adopted a reasonably cautious approach to super returns over the remainder of the calendar year, suggesting there is “a reasonable chance that funds will again match or exceed the long-term expected return of 7 per cent”.

Retirement dilemma already confronting Gens X and Y AUSTRALIA’S Generations X and Y may need to adopt more aggressive financial risk strategies if they want to cover the cost of their own comfortable retirements, as well as covering off the social welfare platform for retiring baby boomers.

That is the analysis of national accounting firm, Chan & Naylor, with its partner and head of financial planning David Hasib saying that by not taking a more aggressive approach, Generation X and Ys’ investment portfolios could fall short on having the capital base required to fund the 30 years of postretirement life that many actuaries see as a near-term likelihood.

He said there existed a genuine risk that the current generation under the age of 40 would not have enough growth assets such as international equities and properties.

“While the Government is laying down the rules and encouraging Australians to seek professional advice, more fiscal education and a less conservative approach to financial market exposure is required to help today’s young pay the way for the future, including their own and potentially caring for elderly parents,” Hasib said.

“To an extent this should be acted on at the level of the individual; however, I also call upon financial planners and accounting firms to show better duty of care in educating their clients,” he said.

Property potential untapped by many SMSFs EVERYONE knows the stereotype of the ‘mum and dad’ investors who have set up their own DIY super funds and have managed to put one or two residential properties within it. But how much further does property investment within SMSFs go?

Quantum Financial Advisors director Tim Mackay said that while the stereotype held true, it was by no means the limit of property investment within self-managed super funds (SMSFs).

“We’re not just talking about mums and dads here,” he said.

“I’d argue that SMSF trustees and members who are also business owners are likely to have a particular interest here as well.

“So, in particular, the ability to get their own business

premises into their SMSF can be an attraction for many of our small to medium-sized business owners,” Mackay continued. “It gives them help in their business, but it also gives them the income that it throws up in retirement, depending on what sort of commercial property it is.”

Similarly, Matrix Financial Planning managing director Rick Di Cristoforo said that under certain conditions, SMSF trustees with a decent amount of money were opening their eyes a little to the commercial side of property.

“So while there may be lower growth, it satisfies an income requirement that perhaps other sectors don’t cover,” he said.

“Most people talk about business real property and looking

Tim Mackay at residential, and that’s pretty much it – but within business real property, you generally see people putting their own business real property into it,” Di Cristoforo continued. “But there’s also this whole idea that I might not actually be operating in that business

12 — Money Management July 14, 2011 www.moneymanagement.com.au

unit that I own down the back of Baulkam Hills.

“I can, however, still invest in it via my SMSF because I’ve got enough cash to do so.”

Asked whether SMSF property investment extended to instruments like listed property trusts or real estate investment trusts, Mackay said that those wishing to maintain a diversified portfolio definitely had them in the mix.

“Our preference is actually via the ETFs [exchange traded funds] which invest in REITs,” he said. “And if they’re trying to get a diversified portfolio, they should definitely have some commercial property exposure in there.

“For us, having a low-cost ETF is probably one of the best ways of doing that.”

Rick Di Cristoforo

No set profile for SMSF trustees

By Damon Taylor

THERE is no definitive profile for people who choose to establish a self-managed super fund (SMSF), according to those providing advice into the sector.

Commenting on the debate about where SMSF trustees usually come from, Super Concepts technical manager Graeme Colley acknowledged that while both industry funds and retail master trusts may feel particularly hard done by when it comes to SMSF setups, new trustees can come from any sector.

“New SMSF trustees and members come from all sorts of funds,” he said.

“As people are retiring, they’re seeing that they’ve got enough accumulated in their fund and so, whether it’s a corporate fund or a retail or an industry fund, they’re transferring their money into the self-managed funds that they now find better suit their needs.

“If you talk to one sector like the industry funds or the retail funds, they’ll tell you that they’re being picked on and that all their losses are to self-managed funds. But from what we see, SMSF setups don’t distinguish between one and the other.”

Suggesting that the decision to set up an SMSF was far more related to the potential trustee’s personal circumstances than to the superannuation sector they had previously been serviced by, Matrix Financial Planning managing director Rick Di Cristoforo said that the only common theme he had seen emerging was education and understanding.

“Ear to the ground and trends-wise, its likely to be those middle-aged accumulators who are educated enough to understand the industry but have so far not actually taken control of their own superannuation fund,” he said.

“And I’ll give you an example. Personally, I’ve only just taken on an SMSF myself and the reasons for that have no relationship to the sector in which my superannuation was previously held.

“It’s simply because an event happened, a transaction’s happened, it was in my benefit and my adviser said ‘why don’t you do it?’”

InFocus ADVICE SNAPSHOT Total funds under management: $434 billion 15%

35%

50%

Wraps

The FOFA freight train While financial planners have warned that the FOFA changes will be significant, Mike Taylor reports that the Government does not see that as an impediment to achieving its ultimate policy objectives.

I

f some of those providing advice to the Government on the Future of Financial Advice (FOFA) proposals are to be believed, the ultimate impact on planners will be negligible and the benefits to consumers will be significant.

The Assistant Treasurer and Minister for Financial Service, Bill Shorten, has made clear the Government is now fixed on a course of delivering draft legislation that includes a two-year ‘opt-in’ requirement, and also bans commissions on all life/risk products within superannuation.

The minister has acknowledged that there will be some negative impacts on financial planners flowing from the Government’s approach, but while Treasury officials earlier this year referenced a cost of $100 per client with respect to opt-in, that figure is no longer being used by either departmental or Government spokesmen.

However, a survey undertaken by Money Management has not only served to reinforce the validity of the $100 figure, but has suggested many respondents believe it will cost a great deal more.

Asked what they believed the cost per client would be of handling the Government’s two-year opt-in, 67 per cent of respondents nominated a figure at either $100 or higher. Further, 49 per cent of those respondents suggested the cost would be higher than $100 per client.

The Money Management survey also revealed many planners expected to lose clients as a result of the changes – particularly B and C clients, something that would cause them to focus more closely on the retention of their A and B clients.

What financial planners need to understand, however, is that the Government is n ot going t o be unduly move d by th e knowledge that planners are going to have

to stump up $100 or more per client to fulfil their obligation to opt-in.

Indeed, the Government’s counter-argument is going to be that given it is a twoyear opt-in, it would seem not unreasonable for planners to spend $50 a year to stay in touch with their clients.

This much was made very clear by Shorten in his address to the Association of Financial Advisers last month when he said: “In relation to opt-in, I have chosen to make it a two year opt-in to reduce the a d m i n i s t ra t i v e b u rd e n o n a d v i s e r s.

However, we shouldn’t lose sight of the fact that opt-in is simply a requirement that the adviser check-in with their client on a regular basis and seek their agreement for ongoing fees.

“I believe it is no more than what a client is entitled to expect from a professional adviser acting in their best interests.

“I also believe that it is no more that what the best advice practices are already doing as regular contact brings its own rewards in terms of customer satisfaction.”

In other words, the Government sees opt-in as being little more than providing l e g i s l a t i v e b a c k i n g t o g o o d p ra c t i c e management.

While the draft legislation emanating from the FOFA proposals is expected to grandfather existing trailing commission arrangements, no one should be in any doubt about the manner in which the imposition of opt-in is intended to eliminate the culture of trailing commissions – the notion that planners can receive remuneration from clients with whom they have had virtually no contact.

Planner concerns about losing B and C c l i e n t s a re a l s o u n l i k e l y t o m ov e t h e Government in circumstances where the minister and many of those on the panels

advising him have been actively embracing the notion of scaled advice.

As Shorten put it: “We are determined to remove the red-tape that has prevented the provision of more affordable forms of advice – particularly simple or ‘piece by piece’ advice.

“The Future of Financial Advice will expand a new type of advice called ‘scaled advice’ which will particularly benefit individuals and families who may not currently have access to financial advice. This will allow advisers to expand their existing customer base by offering limited scope advice for those with simpler needs, such as younger people, at an affordable cost.”

Shorten said that, ultimately, “these reforms will encourage more Australians to seek financial advice and open up new revenue streams for financial planners”.

“We are creating a level playing field so that all financial advisers can provide consumers with scaled advice, both inside and outside superannuation,” he said.

Of course, the problem confronting many financial planners is that superannuation funds and the major financial institutions have already claimed the inside running with respect to the provision of scaled advice as a result of their membership and distribution network advantages.

The outcome would seem to be financial planners providing holistic and complex advice while the institutions and superannuation funds dominate in the scaled advice arena.

What the Money Management survey a p p e a r s t o c o n f i r m i s t h a t t h e F O FA changes will, as predicted, lead to a further rationalisation of the financial planning industry with many smaller and mid-tier practices feeling compelled to seek the security provided by larger organisations.

Platforms Master Trusts Source: Plan for Life/Asset International Australia as at 31 March 2011.

What’s on

AFA National Roadshow 19 July 2011 – WA; see website for other states Pan Pacific Perth, 207 Adelaide Terrace, Perth www.afa.asn.au

FSC Annual Conference 3-5 August 2011 Gold Coast Convention and Exhibition Centre www.ifsa.com.au

IPA: Tax – CGT & Main Residence Exemption 21 July 2011 IPA Training Centre, AHA House, 60 Hindmarsh Square, Adelaide www.publicaccountants.org.au

SPAA State Technical Conference 2011 9 August, 2011 – NSW; see website for other states The Menzies, 14 Carrington St, Sydney

AFA National Conference 23-25 October 2011 RACV Royal Pines Resort, Gold Coast www.afa.asn.au

www.moneymanagement.com.au July 14, 2011 Money Management — 13

Boutique fund managers

The best of both worlds The emergence of new boutique replicas within the safety of institutional structures mean fund managers can enjoy the benefits of boutiques without the headaches. Lucinda Beaman reports.

HE has spent the best part of two decades with Perpetual preempting the events that will see a company’s share price soar or plunge.

The fact that Perpetual’s star stock picker, John Sevior, became a market mover himself late last month has once again highlighted the need for institutions to continue to create boutique structures within a bigger brand.

The uncertainty over whether Sevior will stay or go when his six-month sabbatical ends in December this year was at least partly, if not largely, responsible for a sudden fall in Perpetual’s share price late last month – a drop that was significant enough to prompt the Australian Securities Exchange to ask the company to ‘please explain’.

The man responsible for Perpetual’s $6.1 billion Concentrated Equity Fund could be forgiven for getting itchy feet, having spent almost 18 years with the group – and the last 11 at the helm of its Australian equities capabilities. Perpetual has had its fair share of painful farewells – including with Peter Morgan as he left to set up 452 Capital in 2002, taking with him more than $2 billion in funds under management (FUM), and with Anton Tagliaferro, who went on to establish the highly successful Investors Mutual.

Of course, Perpetual isn’t the only one.

The former managing director and head of equities for UBS Global Asset Management, and highly respected investor, Paul Fiani, had the last laugh after leaving UBS in 2007 after his rejection of a private equity bid for Qantas. He

bounced back with boutique Integrity Investment Management, a company owned entirely by Integrity staff and boasting several billions in FUM. It’s taken a while, but most of the institutions have now learnt the lesson.

National Australia Bank and Westpac (via Ascalon and the listed BT Investment Group) have ramped up their boutique incubator business and partnerships in recent years. Challenger’s boutique stable has been gaining significant traction. The group’s FUM is expected to hit $15 billion in this year’s end of financial year results on the back of recent additions, including Alphinity Investment Management, Bentham Asset Management and Merlon Capital Partners.

Standard & Poor’s head of fund research, Leanne Milton, said at least some of the mainstream managers had made “significant progress in replicating some of the characteristics of boutiques in terms of incentives to retain their key stock pickers”.

“Having said that, there’s still a high

prevalence of boutiques among our four and five-star rated small cap managers in particular,” Milton said.

Admittedly, staff retention has been less of a headache for mainstream managers in recent years, with a stagnant investment environment stifling the oxygen of start-up capital and inflows for new investment businesses – particularly those wanting to stand without an institutional backer.

Despite the difficult environment, most boutiques have stood their ground.

The most significant boutique fund closure in 2010 was that of Peter Morgan’s 452 Capital. The $3 billion manager was hit by personal, rather than financial, challenges and was later taken over by Integrity Investment Management and Colonial First State’s Australian equities team.

Another group that disbanded was QIC’s Australian equities large-cap team, which Milton described as an in-house boutique.

Small cap manager Atom Funds Management was rolled into Eight Investment Partners in March this year,

Table 1 Weighing the case for boutiques Possible benefits

Possible disadvantages

Focused offering

Low economies of scale on fees

Performance driven

Narrow research resources

Accessible to clients

Less sophisticated IT systems

Personal ownership

Few client-facing resources

Quick decision-making

Operational risk

Strong ‘one-team’ culture

Modest financial strength

Willingness to limit capacity

Loosely defined business processes

Source: Mercer

14 — Money Management July 14, 2011 www.moneymanagement.com.au

while in 2010 Souls Funds Management was sold to Treasury Group, and later rebranded as Celeste, with the investment team having majority ownership.

Lonsec head of ratings, equity and property managed funds, Paul Pavlidis, said some of the financially weaker boutiques had been shut down, acquired or merged.

He pointed to examples including Patriot Asset Management, which was acquired by Ironbark Asset Management in 2010, and its sister company Patriot Managed Accounts, acquired by OC Funds Management. Australian-based international equities manager TechInvest also closed its doors last year, while Cannae Partners, led

by Hugh Giddy, merged into Investors Mutual.

Ones to watch

The most high-profile new boutique is Avoca Investment Management, the Australian-equities small-cap manager established by former UBS portfolio managers John Campbell and Jeremy Bendeich. The pair left their roles as portfolio managers for UBS’s Australian Small Companies Fund in April this year and, after a month’s break, emerged with Avoca, of which they are the majority owners. They took with them another UBS team member, Michael Vidler, and gained additional backing via their partnership with boutique incubator, Bennelong Funds Management.

In August last year, ING’s former lead portfolio manager, Sinclair Currie, moved to Challenger. In January this year, he launched a new boutique for the group, NovaPort Capital, alongside co-

Boutique fund managers

Portfolio manager profiles John Campbell, managing director, Avoca Investment Management Avoca: Established in May 2011, with managing director John Campbell and chief investment officer Jeremy Bendeich as majority owners, and Bennelong Funds Management as a minority partner.

Experience: I have worked in Australian equities for 22 years on both the sell and buy side, primarily in an equity research capacity. Prior to setting up Avoca, my most recent role was seven years as portfolio manager/analyst of the UBS Small Companies Fund.

My other relevant experience includes eight years at BT Australia as equity research analyst and head of equities proprietary trading; three years at Maple-Brown Abbott as an equity research analyst; and three years at Credit Suisse as director of research sales. Prior to working in financial markets I was employed as an auditor with PriceWaterhouseCoopers.

Investment philosophy: We believe the intrinsic value of any security is the present value of all its future cash flows. While capital markets tend to be more focused on near-term earnings and valuation ‘rules-of-thumb’ in pricing equities, such as [price/earning ratios] and dividend yields, Avoca utilises longer term and maintainable cash flows as the primary driver of its calculation of intrinsic value.

One of your best calls: In our recent investment management history at UBS, being relatively defensively positioned (and very underweight small resources in particular) heading into the GFC but then having the conviction to increasingly move to a significantly overweight position in economic cyclicals (including small resources) as the GFC progressed must count as one of our best overall portfolio calls.

Outlook for the year ahead: We remain relatively cautious on the prospects for Australian equities and small caps in particular. We believe inflationary pressures in China are mounting and

principal and portfolio manager Alex Milton and analyst Lachlan Hughes.

Another relative newcomer is Alphinity Investment Management. Alphinity was born out of a close-knit team of former AllianceBernstein analysts who left their former employer and established the boutique, also within Challenger’s stable, in July last year. Alphinity’s principal and portfolio manager, Johan Carlberg, took his entire team with him, ensuring the boutique had a smooth transition where ratings were concerned.

The high number of managers jumping ship to start boutiques has certainly slowed. But a continuing trend of consolidation among the industry’s bigger players may be the precursor to more boutique managers appearing over the next year, Milton said.

She pointed to the three boutiques to emerge following the Credit Suisse and Aberdeen merger in 2009, as well as the launch of Vinva Investment Management following the BlackRock and BGI merger.

Both Milton and Morningstar’s Tim Murphy agreed that the ones to watch over the coming six months will be the managers affected by UBS’s acquisition of the ING Investment Management, one of the biggest independent investment managers in Australia, with the deal expected to close in the fourth quarter.

With Sevior’s recent comments and the creation of the new UBS/ING investment giant in mind, researchers agree 2011 could again see some big name boutiques opening their doors. Whether or not institutions will retain a slice of the pie remains to be seen.

MM

David Pace, portfolio manager, Greencape Capital Greencape: Established in August 2006 by David Pace and Matthew Ryland.

Experience: 13 years at Merrill Lynch Investment Managers (MLIM), where I ran the MLIM High Conviction Strategy from its inception until April 2006.

Investment philosophy: Broadly, our philosophy is based around our qualitative assessments of the ability of management teams and/or business models to add or destroy value over time. The execution of the process relies heavily on our targeted and focused company visitation program.

One of your best calls: Map Airports has been a great performer for us over the past 12 months. This is a business that is a direct beneficiary of the ongoing structural heartache experienced by airlines (ie, falling real airfares, ongoing liberalisation of global routes and the massive investment in wide

John Campbell ultimately will force a more moderate rate of growth onto that country. This will have significant flow-on effects for Australia in particular and, in our opinion, will manifest in declining commodity prices and a falling Australian dollar, back to more sustainable levels for the longer-term.

Given small resources are very leveraged to commodity prices, more so than the larger, lower-cost producers like BHP and Rio Tinto, we see this sector as likely to underperform materially in the coming year. It follows that as small resource and energy stocks make up around 50 per cent of the S&P/ASX Small Ordinaries Index, we remain even more cautious on small caps than the overall market.

Fund position: We are significantly underweight small resource stocks, with that being offset by an overweight position to domestic industrials. We are fully invested in equities, however, as we believe clients pay us to invest in equities, not to asset allocate.

David Pace bodied craft such as the A380 – all good for passenger numbers).

Combine that with a best of breed

management team that is very focused on delivering shareholder value, and you have yourself a solid investment thesis.

Outlook for the year ahead: We typically don’t take strong macroeconomic views.

Instead we prefer to have a portfolio full of compelling bottom-up ideas. Broadly speaking, though, I think a muddlethrough scenario is most likely as we navigate through the inevitable consequences of ‘kicking the economic can’ down the road.

Fund positioning: The portfolio is heavily tilted towards stocks where a substantial portion of earnings growth is micromanaged and under the direct control of the management team. This can come in many forms, including successfully executing on the integration of a recent acquisition, or a compelling market-share story based on product differentiation and management excellence.

Table 2 Boutiques: Highlights and hazards Highlight:

Hazard:

They provide access to some of the most experienced investment staff. Often a portfolio manager at a boutique has previously established a record of success at another firm.

Is the balance right between fresh talent and ‘old hands’? What experience is there of actually running a business?

They provide access to some of the most motivated people in the industry. The task Is there a risk of personal goals overtaking a of setting up a boutique is not easy, and credibility and determination are common focus on client outcomes? features of those involved.

A smaller number of decision-makers mean that innovative investment solutions are likely to come to fruition more quickly.

Are these solutions developed with adequate ‘sounding boards’ and perspectives?

There is an absence of external primary owner(s) influencing the strategic running of the company with their own objectives or return requirements.

Does the boutique have industry-standard financial disciplines and processes?

Ownership of the firm by key staff can intensify incentives to perform and aid staff retention.

How are team members managed who underdeliver, yet are shareholders, and still benefit when the business is succeeding?

Source: Mercer

www.moneymanagement.com.au July 14, 2011 Money Management — 15

Boutique fund managers

Portfolio manager profiles Brian Eley, portfolio manager, Eley Griffiths Group Eley Griffiths Group: Founded by Br ian Eley and Ben Gr iffiths in January 2003.

Experience: 10 months at BT Investment Management, two years as joint head of small companies at ING Investment Management, seven years with Paterson Ord Minnett, and three years with LEK Consulting.

Investment philosophy: At the end of the day we’re looking to be a safe pair of hands. We are trying to get a good return without taking too much risk.

Obviously, equities as an asset class are risky, and most people view small caps as an even riskier segment of that. But with that comes the potential for greater returns. We’re trying to achieve the greater returns without taking on the greater risk.

One of your best calls: In the last 12 months one of our best calls was Equinox Minerals. It is a copper miner with a magnificent asset in Zambia, which produces more than 150,000 tonnes of copper per annum at a very acceptable cash margin.

That project has huge expansion potential, and Zambia is one of the better African countries to invest in.

During the year [Equinox] was firstly bid for by China Minmetals, and then that was trumped by Barrick

Brian Eley Gold. We cleaned up on that one quite nicely.

Outlook for the year ahead: I think that the very short term continues to be choppy, and we have conflicting bullish and bearish sentiment.

However, on a 12-month timeframe we are moderately optimistic. We feel that the growth drivers of China and a recovering US economy will more than counteract the issues of the European community.

Fund positioning: We are positioning our fund with low levels of cash, reasonable levels of resource exposure, and also high quality industrial stocks that have been oversold.

Monik Kotecha, chief investment officer, Insync Funds Management Insync: Formed in July 2009, with the global equity fund launched in October 2009.

Experience: 20 years in the industry, including three years in London for the Abu Dhabi Investment Authority, six years with BT as a senior portfolio manager in international equities and seven years at Investors Mutual Limited as senior portfolio manager.

Investment philosophy: Our core philosophy is that a concentrated portfolio of exceptionally high quality companies that deliver strong consistent dividend growth, especially when selected with an absolute value bias, will generate attractive long-term returns with lower levels of volatility.

One of your best calls: MasterCard is a good example of the sort of business we aim to hold.

It has pricing power and competitive advantage resulting in high operating margins, an asset-light business model that results in a high cash conversion and returns on invested capital. It also has good long-term secular growth prospects with a business model that is durable, scalable and global in nature.

The share has historically traded at between 20-30 times earnings, but the current uncertainty created a compelling buying opportunity and we were able to begin acquiring shares at around 13 times earnings, exceptional value for a business of its quality.

Outlook for the year ahead: We continue to operate in a very volatile economic and business environment, with excessive debt in

Monik Kotecha developed markets, rising inflationary trends and the risk of lower global growth in the years ahead compared to the past. We are in a structurally challenging environment, which may remain in place for an extended period of time.

Fund positioning:We believe that stock picking is going to be critical, and index funds may well disappoint as it is no longer a case of a rising tide lifting all boats. Companies that are operating in growing markets, which have low levels of debt, pricing power, and which generate significant amounts of free cash and give most of that back to shareholders, are likely to be winners in this environment.

Table 3 Performance Year to May 31, 2011 Insync Global Dividend Growth Fund: 4.07% MSCI World Ex Australia (AU$): 2.66%

Table 4 Australia’s top rated boutique funds 2011 Fund name Hyperion Australian Growth Companies Fund

Asset class Australian equities large cap

Researcher and rating Lonsec Highly Recommended

Relevant benchmark S&P/ASX 300

Solaris High Alpha Australian Equity Fund

Australian equities large cap

Lonsec Highly Recommended

S&P/ASX 300

Independent Franchise Partners

Global equities/ emerging markets

Lonsec Highly Recommended S&P 5 stars

MSCI World Ex Australia (AU$)

Pengana Emerging Companies Fund

Australian equities small/mid cap

S&P/ASX Small Ords Accum Index

Arnhem Australian Equity Fund

Australian equities large cap

Lonsec Highly Recommended Morningstar Highly Recommended Morningstar Highly Recommended

Greencape Wholesale Broadcap Fund

Australian equities large cap

Morningstar Highly Recommended

S&P/ASX 200 Accum Index

Greencape Wholesale High Conviction Fund

Australian equities large cap

Morningstar Highly Recommended

S&P/ASX 200 Accum Index

Integrity Australian Share Fund

Australian equities large cap

Morningstar Highly Recommended

S&P/ASX 200 Accum Index

Kinetic Wholesale Small Companies Funds Eley Griffiths Group Small Companies Fund

Australian equities mid/small cap

Morningstar Highly Recommended

S&P/ASX Small Ords Accum Index

Australian equities mid/small/micro cap

S&P/ASX Small Ords

Bentham Wholesale Syndicated Loan

Fixed interest

Morningstar Highly Recommended S&P 5 stars S&P 5 stars

16 — Money Management July 14, 2011 www.moneymanagement.com.au

S&P/ASX 200 Accum Index

Credit Suisse Leverage Loans Index (Hedged into AU$)

Benchmark returns 1 yr: 11.1% 3 yrs: (-)1.7% 5 yrs: 3.2% 1 yr: 11.1% 3 yrs: (-)1.7% 5 yrs: 3.2% 1 yr: 2.66% 3 yrs: (-)3.28% 5 yrs: (-)5.15% 1 yr: 18.07% 3 yrs: (-)4.77% 5 yrs: 2.50% 1 yr: 10.84% 3 yrs: (-)1.64% 5 yrs: 3.18% 1 yr: 10.84% 3 yrs: (-)1.64% 5 yrs: 3.18% 1 yr: 10.84% 3 yrs: (-)1.64% 5 yrs: 3.18% 1 yr: 10.84% 3 yrs: (-)1.64% 5 yrs: 3.18% 1 yr: 18.07% 3 yrs: (-)4.77% 5 yrs: 2.50% 1 yr: 18.07% 3 yrs: (-)4.77% 5 yrs: 2.50% 1 yr: 14.35% 3 yrs: 8.73% 5 yrs: 6.69%

Fund returns 1 yr: 4.1% 3 yrs: 5.6% 5 yrs: 6.1% 1 yr: 12.1% 3 yrs: 0.6% 5 yrs: n/a 1 yr: 9.72% 3 yrs: 4.56% 5 yrs: 1.59% 1 yr: 21.76% 3 yrs: 6.56% 5 yrs: 10.77% 1 yr: 6.33% 3 yrs: 0.67% 5 yrs: 3.88% 1 yr: 14.08% 3 yrs: 3.67% 5 yrs: N/A 1 yr: 11.88% 3 yrs: 2.02% 5 yrs: N/A 1 yr: 7.71% 3 yrs: 1.98% 5 yrs: N/A 1 yr: 31.82% 3 yrs: 1.58% 5 yrs: 10.98% 1 yr: 17.25% 3 yrs: 0.58% 5 yrs: 6.31% 1 yr: 15.75% 3 yrs: 10.84% 5 yrs: 8.48%

Outperformance 1 yr: (-)7.0% 3 yrs: 7.3% 5 yrs: 2.9% 1 yr: 1.0% 3 yrs: 2.3% 5 yrs: n/a 1 yr: 7.06% 3 yrs: 7.84% 5 yrs: 6.74% 1 yr: 3.69% 3 yrs: 11.33% 5 yrs: 8.27% 1 yr: (-)4.51 3 yrs: 2.31% 5 yrs: 0.70% 1 yr: 3.24% 3 yrs: 5.31% 5 yrs: N/A 1 yr: 1.04% 3 yrs: 3.66% 5 yrs: N/A 1 yr: (-)3.13% 3 yrs: 3.62% 5 yrs: N/A 1 yr: 13.75% 3 yrs: 6.35% 5 yrs: 8.48% 1 yr: (-)0.83% 3 yrs: 5.35% 5 yrs: 3.81% 1 yr: 2.38% 3 yrs: 3.04% 5 yrs: 2.70%

Boutique fund managers Paul Cuddy, chief executive, Bennelong Australian Equity Partners Bennelong Australian Equity Partners: Launched in July 2008 by co-founders Paul Cuddy and Mark East, as a joint venture with Bennelong Funds Management.

Experience: I joined the industry in 1989 working as a junior analyst for a large institutional investment management group.

Over the past two decades I have worked in various roles including head of equities, portfolio manager and investment analyst.

Investment philosophy: Stock prices are driven by earnings. The greatest returns come from companies that can deliver positive earnings surprises relative to market expectations. Investing in high quality companies helps achieve that objective while minimising the risk of negative earnings surprises.

One of your best calls: Over the past year we have benefited from an overweight position in the mining services sector. Campbell Brothers provides testing ser vices to the mining, environmental and industrial sectors. It is leveraged to increased mining exploration and production, as well as some recent acquisitions that are creating further shareholder value.

The stock has performed very well as the company has delivered strong results relative to peers and the broader market.

Outlook for the year ahead: Equity markets are struggling with the ‘twospeed economy’ that is d o m i n a t i n g h e a d l i n e s.

Many domestic industrial companies are facing tight monetary policy, increasingly cautious consumers, and a strong Australian d o l l a r, a n d r i s i n g c o s t s a re n’t b e i n g o f f s e t by revenue gains. Conversely, the outlook for resourcesrelated companies is more p o s i t i v e, w i t h m a n y companies well positioned to deliver positive earnings u p g ra d e s ov e r t h e n e x t couple of years.

Fu n d p o s i t i o n i n g : T h e p o r t f o l i o i s ove r we i g h t high quality stocks that we believe will deliver positive earnings surprises over the foreseeable future. We like selected mining services companies, together with some high quality industrial companies that we believe will buck the

downward trend of the ex-resources sector over the remainder of this year and into early 2012.

We have benefited from an “overweight position in the mining services sector. ”

Table 5 Performance Year to May 31, 2011 BAEP Ex-20 Fund: 28.90% (Benchmark: 13.27%) BAEP Concentrated Fund: 21.07% (Benchmark: 11.13%) BAEP Core Fund: 18.06% (Benchmark: 11.13%)

Paul Cuddy

A measured investment approach for retirement.

Primarily designed for pre-retirees and retirees to help them maintain their quality of life in retirement, the highly-rated Tyndall Australian Share Income Fund is also suitable for other investors seeking a tax-effective income stream with the opportunity for stable long-term capital growth.

Managed by the skilled and experienced Tyndall Australian equities team, the award-winning Tyndall Australian Share Income Fund uses the same rigorous intrinsic value investment style and research approach they’ve successfully used over two decades.

For more information on the

Tyndall Australian Share Income Fund visit www.tyndall.com.au/shareincome The value of an investment can rise and fall and past performance is no guarantee of future performance. Any information contained in this advertisement has been prepared without taking into account an investor’s objectives, financial situation or needs. Investment decisions should be made on information contained in a current Australian Equities Product Disclosure Statement (“PDS”) and its Supplementary PDS’ (“SPDS”). Applications to invest will only be accepted if made on an application form attached to a current SPDS available from Tyndall. The Responsible Entity of the Tyndall Australian Share Income Fund ARSN 133 980 819 is Tasman Asset Management Limited ABN 34 002 542 038 AFSL No 229 664 (trading as Tyndall Asset Management). ‘Tyndall’ means Tyndall Investment Management Limited ABN 99 003 376 252 AFSL No 237 563.

2256_MM

www.moneymanagement.com.au July 14, 2011 Money Management — 17

OpinionCPI

Keeping inflation in check

Stephen Hart examines the rising cost of living and ways to protect clients against a rise in both the consumer price index (CPI) and its volatility.

H

ouseholds are already feeling the pinch with higher petrol and utility prices. If these factors feed through to higher inflation, investors without a direct hedge against inflation risk will be experiencing a marked deterioration in their ability to meet future expense streams. Specifically, an elevation in inflation remains a serious risk for investors.

As outlined in my recent articles, inflation-linked bonds (ILBs) are the best available direct hedge against inflation with current returns rivalling equity returns. If prices of necessary household items continue to rise, investors can expect an elevation in the consumer price index (CPI) and an increase in the volatility of the CPI.

Household expenses

The pressure on household budgets has already been highlighted in a recent Westpac/Melbourne Institute Consumer Confidence sur vey. It revealed one component of the index expectations of family finances has deteriorated sharply over the past 12 months. Importantly, this component is now approaching low, possibly recessionary, levels. As Westpac chief economist Bill Evans remarked in a report titled Consumer sentiment edges lower, 18 May 2011: “We saw some disturbing movements in the components of the Index ... we note that the Family Finances Index is at its lowest level since July 2008 and there has only been one other read of the Index (June 2008) which has been lower since the early 1990s when families struggled in the aftermath of Australia’s last recession.”

Petrol and utility charges, being two important components of household spending, have risen substantially over the past 12 months. Utility charges have risen because of the long-overdue re-investment in underlying infrastructure. Petrol costs have risen because of perceptions over future global demand. Neither of these components is directly controllable 18 — Money Management July 14, 2011 www.moneymanagement.com.au

by the Reserve Bank of Australia (RBA).

The longer petrol prices are elevated, the more likely the price of oil will impact upon the broader price indices, including the CPI. On top of these rises the RBA has increased interest rates substantially over the past year. While expenses have risen, incomes have not risen sufficiently to compensate consumers and the household budget is being squeezed.

Investors who rely on fixed income streams need to plan for periods of higher inflation, especially in products and services that are needed for day-to-day living.

ILBs with coupons tied to the CPI provide a solution.

need a cash “flowInvestors that is protected against increases in the CPI, or their expenses will outstrip investment income.

”

Household income

Investors need a cash flow that is protected against increases in the CPI, or their expenses will outstrip investment income. Unlike investments in other asset classes, ILBs provide a direct solution. Equity returns suffer in high inflation environments and do not provide an effective inflation hedge in the short or medium term. Investing in Commonwealth and State Government ILBs can reduce your overall risk by around half while cutting investment return by

approximately 1.5 per cent (see figure 1).

Investors can achieve higher returns if they are willing to consider corporate ILBs. For example, Sydney Airport Finance ILBs bought in the secondary market in parcels from $50,000 can achieve 5.4 percentage points real return over CPI. Meaning, if CPI is 3 per cent, the total return would be 8.4 per cent.

While the volatility of return will be higher from an investment in Sydney Airport Finance in comparison with the UBS Government Index, the higher return compensates the investor for the additional volatility.

Investors are therefore presented with an opportunity to buy an effective hedge against inflation that does not dilute equity returns and substantially dampens the overall volatility of return across a portfolio.

CPI and volatility

Not only are we facing the prospect of further rises in inflation due to an elevation in commodity pricing (beyond the control of the RBA) the volatility of the CPI may also rise. Its volatility has been falling steadily since 1969 as shown in figure 2.

These results have also been shown in figure 3. Although this graph shows a trend of increasingly lower CPIs and lower CPI volatility, it can be argued that over the investment period of the next 20 years, the change in this trend since 1969 may well begin to reverse. If input prices such as fuel and utilities continue to rise, the upside risk to inflation outside the control of the RBA will increase. This possibility alone confirms the underlying rationale for investing in ILBs.

Conclusion

While figure 3 might normally lull investors into a state of complacency, recent experience with increasing expenses is sounding alarm bells – the effects of which are starting to have an impact upon household balance sheets.

The trend in the level and volatility of inflation has been one way for 30 years.

Elevation in utility prices and petrol prices is not something the RBA can adequately control which may mean a change in trend. This suggests that ILBs should be preferred to other investments.

Stephen Hart is head of planner services at FIIG Securities.

Figure 1 Inflation-linked bonds versus equities – 10-year period Atribute

UBS Gov ILB

ASX All ords acc

50% UBS Gov ILB/50% ASX All Ords

Risk Drop vs 100% Equities

Return Drop vs. 100% Equities

Start

30/04/01

30/04/01

30/04/01

30/04/01

30/04/01

Finish

29/04/11

29/04/11

29/04/11

29/04/11

29/04/11

Return An.

6.65%

10.00%

8.32

-

1.68

Risk An.

3.62%

19.17%

9.48

-

9.69

Ret/Risk

1.84

0.52

0.88

-

-

Source: FIIG Securities, UB, Barcap

Figure 2 Australian annual CPI and annual volatility of CPI Start

End

Period

Average Annual CPI (LHS)

Volatility of Annual CPI(RHS)

September 1969

March 1990

Period 1

9.26%

3.26%

March 1990

March 1995

Period 2

2.81%

2.01%

March 1995

March 2000

Period 3

1.91%

1.62%

March 2000

March 2005

Period 4

3.38%

1.34%

March 2005

March 2011

Period 5

2.97%

0.90%

Source: FIIG Securities, UB, Barcap

CPI and Volatility of the CPI

10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0%

3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5%

Period 1 (Sep. 69 Period 2 (Mar. 90 to Mar. 90) to Mar. 95)

Period 3 (Mar. 95 to Mar. 00)

Average Annual CPI (LHS)

Period 4 (Mar. 00 to Mar. 05)

Annual Volatility of CPI

Annual CPI

Figure 3 Recent performance of global banking stocks

Period 5 (Mar. 05 to Mar. 11)

Volatility of Annual CPI (RHS)

Source: FIIG Securities, RBA Note: LHS refers to the left hand axis in figure 2, and RHS refers to the right hand axis.

www.moneymanagement.com.au July 14, 2011 Money Management — 19

OpinionBonds

True blue bonds Why invest in term deposits or global bonds when you can invest in Aussie bonds and get a better return? Jeff Brunton reports.

S

ince the global financial crisis, many people have been taking a closer look at their investments in fixed income. The answer for many has been to invest in index funds. While this may be a rewarding strategy for other asset classes, when it comes to fixed income it does not make sense. Looking at the Barclays Global Aggregate, over 80 per cent of the index is in the United States, Europe and Japan (ie, the countries with the biggest debt).

Looking at the figure 1, we can see that fixed income benchmarks are inefficient and don’t make sense because the biggest borrower is rewarded by getting the

biggest index weight. Some investors want to invest passively in fixed income, but as a passive investor you are buying more debt from countries and companies that are issuing the most debt (ie, the biggest borrowers, not the best borrowers). This does not make sense. We believe in an active, rather than passive, approach to investing. Active management has the potential to add value through sector and stock selection.

Interest rates globally are at very low levels, meaning income generated from these bonds is very low. By only investing in the benchmark, investors are missing out on higher returns elsewhere. Addition-

Figure 1 Barclays Global Aggregate

ally, when interest rates inevitably normalise, the resulting capital losses will eat into the modest income being generated – and subsequently the total return will be low.

There will be fewer future interest rate rises here than in the rest of the world, since the Reserve Bank of Australia has done a lot of the heavy lifting already. In addition, due to higher growth prospects in this region versus other developed markets, Australian corporates have better potential for growth.

The opportunity to earn income with Australian investments, and in particular Australian credit, is much higher.

Interest rates being closer to normal suggests capital gains and losses will be muted, which means total returns will be relatively higher compared to the rest of the world.

Sticking close to home

Interest rate and economic cycles in Australia are different to the rest of the world. Due to Government stimulus and the Asia growth story, Australia has a healthier balance sheet – particularly at the Government level. Interest rates remain much closer to normal levels and are much higher than the rest of the developed world.

Figure 2 $10,000 invested from the peak of the term deposit market 13,000.00

Europe (34.48) Canada (3.28) Latin America (0.92)

End value: $12,416.67

12,500.00

12,000.00

Australia/New Zealand (1.45) 11,500.00

Asia & Pacific Rim (21.62) Africa (0.28)

End value: $11,644.04 11,000.00

Other (0.2) 10,500.00

Supranational (1.6)

US (36.06) Corporate Bond Fund

Source:: Barclay at March 2011 Source:: Barclay at March 2011

20 — Money Management July 14, 2011 www.moneymanagement.com.au

1 yr TD rolled each Jul

Jan-2011

Feb-2011

Oct-2010

Dec-2010

Nov-2010

Sep-2010

Jul-2010

Jun-2010

Aug-2010

Apr-2010

May-2010

Jan-2010

Mar-2010

Feb-2010

Dec-2009

Oct-2009

Nov-2009

Jul-2009

Sep-2009

Aug-2009

Jun-2009

Apr-2009

Mar-2009

May-2009

Jan-2009

Feb-2009

Oct-2008

Dec-2008

Nov-2008

Sep-2008

Jul-2008

Aug-2008

10,000.00

Middle East (0.11)

There is also protection on the possible downside. If markets were to turn down again, the higher starting point of interest rates in Australia means that as rates fell in response to a shock, Australian corporate bonds would deliver good returns due to the capital gains associated with the falling interest rates. This would act as a buffer against the inevitable widening in the credit spread.

For an Australian investor looking to use fixed income to diversify Australian equity risk, an Australian bond portfolio is more likely to give capital gains to offset capital losses in equities than a hedged international bond portfolio. This is because global markets are unlikely to move as much as Australian markets on the back of an Australian risk event, which means Australian fixed income is embedded with natural defensive characteristics. Furthermore, recent history shows an overweight exposure to corporate bonds also captures much higher excess returns relative to government bonds.

A defensive play

Rather than passively buying the debt of the biggest borrowers, why not search out the better borrowers, as you would in an equity portfolio? Look for borrowers in the right industries with sound fundamentals, strong financial positions and good management.

Investing actively is not only investing in better borrowers, but also increasing diversification within your portfolio. The

we mean by not defensive? We believe this approach is unlikely to deliver strong returns from fixed income when you need them the most. That is when other parts of your portfolio are under the most stress.

So having an active fixed income manager investing across over 100 individual bonds gives you a diversified portfolio with defensive characteristics needed to balance the risks you are taking in other parts of your portfolio.

“

Even though fixed income has delivered two years of exceptional performance, there are still risks in the world.

”

Why Australian fixed income now?

adage ‘don’t put all your eggs in one basket’ is crucial for bonds – much more so than equities. This is because, unlike equities, the best you can do with bonds is get your money back (plus interest) – but on the other hand, you could lose it all if a borrower were to default. So you need to spread your single name risk (ie, use more baskets).

We see a lot of investors who satisfy their income needs by holding a handful of term deposits and a couple of hybrids or bonds.

While we wouldn’t say that Australian banks are unsafe, as a professional investor, this approach is too risky – it is undiversified and not defensive. What do

Even though fixed income has delivered two years of exceptional performance, there are still risks in the world. Risk associated with the European sovereigns defaulting, the removal of the US stimulus without disruption, political upheavals, high oil prices, and natural disasters. This means that staying in fixed income is as important now as ever. Fixed income funds are the best diversifier against equities, because it is the duration that helps fixed income deliver positive returns when markets are falling. With banks still deleveraging and still working through the implications of Basel III, balance sheets for Australian corporates are in good shape and credit spreads still wide. In addition, income generated particularly in Australia is higher than what it typically would be. So now is still the time to be investing in Australian fixed income.

Jeff Brunton is AMP Capital’s head of credit markets.

Figure 3 Returns comparison

9.0% 8.0% 7.62%*

7.0% 6.0%

6.15%

6.00% 5.0% 4.0%

5.09%*

4.75%

3.0% 2.0% 1.0% 0.0%

RBA Cash Rate

Term Deposits 1 yr

3 yr Govt Bond

Term Deposits 3yrs

Corporate Bond Fund

Source:: RBA, AMP Capital Investors as at 30 April 2011 Notes: *Yield to maturity

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

OpinionMarkets Coming out of hibernation

Investors remain nervous and are still heavily invested in cash, but are they doing the right thing? How serious is the threat of macro issues, and when will it be the right time to go back into the market? Dominic McCormick investigates.

A

t the time of writing (late June 2011) investors remain nervous.

This is reflected in various investor surveys, declining consumer sentiment, the recent 10 per cent share market correction and the fact that the Australian market – along with most other markets if measured in Australian dollars – has gone nowhere for the last 20 months, despite high levels of volatility.

It is also reflected by the fact that cash and term deposits are clearly dominating investor preferences and allocations, and have done so for much of the period since the global financial crisis (GFC). Term deposits at banks have grown by $190 billion (73 per cent) in the last three years to April 2011 and $58 billion (13 per cent) in the last year.

Of course some of this preference for cash and term deposits is entirely rational. Available cash returns of 5 per cent per annum and term deposits above 6 per cent per annum are attractive in an environment where other asset classes are struggling. Australia is one of the few countries in the developed world where you can earn a decent real return – at least pre tax – from cash-related investments.

In my company’s defensive portfolios, term deposits were introduced as a component around 18 months ago for the first time in their eight-and-a-half year history. In contrast, I was recently in the United Kingdom where 0.5 per cent per annum cash rates and 4.5 per cent per annum inflation is leaving savers enormously frustrated – and leading to some dangerous activity as investors blindly chase yield in a range of other assets.

Yet it is worth questioning whether this risk aversion has gone too far, particularly following the most recent market weakness, increasing pessimism and near saturation coverage of the major macroeconomic challenges facing the global and local economies. The increasing risk is that some long-term investors responding to this environment are ending up with under-diversified portfolios which are almost totally reliant on cash and term deposits, and missing the better value now showing up in many investment areas.

Encouraging signs

Value in selected equities and equity markets is clearly improving, and return prospects look better than they have for

22 — Money Management July 14, 2011 www.moneymanagement.com.au

some time. Forward price/earnings (PE) multiples of most markets are now towards the lower end of historical ranges in the low teens, while some of the world’s best businesses are at the high single digit level.

However, it remains a confusing environment for investors. Some longer-term measures of valuation using trend earnings over extended periods remain above fair value. This partly reflects the current higher-than-normal level of profit margins and also the unusually severe earnings impact from the GFC. Further, with macro factors largely driving market indices in the short term – accentuated by the growing use of exchange-traded funds (ETFs) and other passive funds – there is a strong case that the better value is somewhat stock/sector specific, suggesting that good active funds rather than index/quasi-index funds are better placed to exploit the value appearing in many markets.

Still, the biggest asset allocation decision confronting most investors in the current challenging environment is whether, and when, they should move some funds from the perceived safety of cash and term deposits to more growth

oriented investments.

But what about the major macro risks that are so prominent? The list of key issues includes sovereign debt concerns in Europe and elsewhere, a possible China hard landing, a marked slowdown in the US economy (perhaps triggered by the end of the second round of quantitative easing, or QE2) and rising inflation globally (most obviously in emerging markets). Surely, these issues could cause a lot of damage to economies and equity markets, and are a valid reason to stay on the sidelines for now. But are these issues being too heavily emphasised? Are they already priced into markets?

Let’s look briefly (and rather simplistically) at the ‘bear’ and ‘bull’ cases for each of these key issues.

Sovereign debt

Bear case: Greece will default soon, causing a cascade effect leading to further problems in other countries as well as European and global banks. The Euro will partly break up, and global financial markets will freeze much like 2008. There will also be an increased focus on the sovereign debt concerns of other developed nations such as the US, UK and Japan.

common. While the problems facing the US economy are serious, corporate America is in good shape; and despite the end of second round of quantitative easing, monetary policy will remain loose for some time. Equities are cheap versus recent history.

Inflation

Bear case: Commodity prices and wage pressures are causing inflation pressures, especially in developing economies but increasingly in developed economies.

Short and long-term interest rates will have to rise, putting pressure on all asset valuations.

Bull case: Higher inflation is largely a temporary issue, with recent commodity price weakness having already eased this pressure somewhat. In any case, even with gradually rising inflation, real interest rates are likely to stay low to stimulate economies, thereby providing support for risky assets.

and in the financial and general media.

Bad news leads to poor investor sentiment, which leads to more bad news being reported. Perhaps it’s because the GFC showed starkly that very bad and almost unprecedented financial developments can occur. But now we seem to expect them every second month.

For most long-term “investors, excessive reliance on cash and term deposits is not a panacea for struggling portfolios.

”

Putting it into perspective

Bull case: Greece may or may not default, but who cares? Any problem banks will be bailed out, and the debt issues of other European countries will be resolved over time with modest flow-on impacts. The US and other indebted western countries will eventually act to solve their own sovereign issues.

China hard landing/major slowdown

Bear case: China is a bubble that is close to popping. Too much capacity in housing and infrastructure has been built, and the current tightening measures will cause a dramatic economic slowdown and asset price collapse. China’s banks will have a lot of bad debts. Commodity prices and particularly Australia will suffer badly as a result.

Bull case: Chinese authorities want and need a modest growth slowdown to ease temporary inflation pressures, and they are succeeding. This should enable the longer term secular growth story to continue. Commodity prices, while volatile, will remain well supported in the longer term.

US growth weakness

Bear case: The US is slipping into a doubledip recession. Housing prices have resumed their falls, and unemployment is likely to remain high. Profit margins in the US are unsustainable and bond rates need to rise given fiscal concerns.

Bull case: Mid-recovery slowdowns are

All these macro issues are clearly serious, and it makes sense to consider the potential impact of adverse scenarios where these issues significantly worsen and/or badly impact markets. It also makes sense to consider adding some hedges or certain investments to portfolios that could protect (or at least not suffer major damage) if the bear case plays out.

But it also seems to me that most of these issues are already well publicised, discussed and clearly at the forefront of investor concerns. Further, markets currently seem obsessed with the bearish/negative side of each of these issues. This suggests that bad outcomes from each are already at least partly priced into markets, although it is difficult to determine by how much. The possibility that these issues will be resolved positively – or have limited impact on most global markets or economies – is far overwhelmed by discussion of the potential damage they could do.

For these macro issues and risks to continue to drive share prices down, it is likely they need to worsen or new major negative issues need to emerge. If these issues don’t worsen, or even improve, the line of least resistance for many ‘risk’ assets is likely to be up when investor sentiment is so negative. Many investors have already reacted to these fears and made their portfolios more conservative. As one strategy piece on Asia, but applicable to all markets, questioned about the current environment: ‘How about upside risk for a change?’

Of course with 2008 still fresh in many memories there is much fear of a re-run of the GFC. You can see it in the way a potential Greek default is described as Europe’s ‘Lehman moment’. But there is a key difference: a Greek default clearly is expected, whereas a disorderly Lehman failure clearly wasn’t. Greek bonds are already fully pricing in some form of default within the next couple of years.

‘Tis an ill wind

It seems a legacy of the GFC is a greater focus on negative news among investors,

This is not to downplay the very real risks to the global economy and financial markets that include, but are not limited to, the risks discussed above. But some things have changed since the GFC. Much of the private financial leverage around investments that led to the GFC being so violent for financial markets has already been significantly reduced or unwound.

While this has been replaced by a major public debt problem in some countries, authorities have become much more focused on resolving the problems. There is no certainty that the problems will be resolved smoothly, but it is reasonable to suggest that the authorities have a plan B if things become disorderly quickly.

Further, while some of these macro issues are certainly likely to be major problems for the global economy at some point in coming years, they may not necessarily be problems in the near term. For example, a severe slowdown in China is inevitable at some point – and it seems unlikely we will get a resolution to the sovereign debt issues of most indebted western nations without some serious pain. But these events could be years away, and even when they occur they may or may not badly impact financial markets.

Major crises typically start in environments of complacency and excessive optimism, not the current high levels of caution and pessimism.

It would therefore not surprise me if markets experienced a strong rally out of the current pessimism. That is not to suggest that such a rally would be the beginning of a multi-year uptrend or that such a gain would even be fully sustained, but for those who have largely given up on growth assets the current pessimism seems to offer an attractive window to add for the longer term.

The shortcomings of cash

Now is also an appropriate time to highlight that cash and term deposits will not be good investments in all future scenarios. While perceived as ‘risk-free’ assets, there are times when they are a poor

investment in a portfolio. And this is not just that the current premium over official cash rates that banks are willing to pay to attract deposits is unlikely to last.

One such scenario is where inflation takes off to much higher levels and current term deposits and cash look poor in real terms (ie, after inflation). Some suggest that if this happened, cash and term deposit rates would rise in response, but there is no guarantee of this. Just look to the examples in Australia’s history where cash returns in real terms were significantly negative (eg, much of the 1970s), or even countries now such as the UK where cash rates are 4 per cent below the current inflation rate.

Another scenario is where the Australian growth outlook deteriorates quickly (perhaps with a major China slowdown) and cash and term deposit rates fall quickly and sharply, following big cuts from the Reserve Bank of Australia. Ironically, such a scenario may eventually be quite positive for growth assets. This is because falling interest rates and a lower Australian dollar support the local share market (and unhedged overseas returns), and investors become starved of return in cash/term deposits and stampede for the attractive yields on offer in many shares.

For most long-term investors, excessive reliance on cash and term deposits is therefore not a panacea for struggling portfolios, despite the case for maintaining a reasonable exposure now. As usual, a dynamic approach reacting to the available opportunities and prospects makes sense.

As we head into what have historically been the more difficult months for share markets, there seem to be plenty of excuses for investors to sit on their hands and hold cash. But markets have a tendency of moving in ways that cause the most number of investors the highest level of regret, and in my view a sharp rally that leaves many investors behind would be such a move.

Now, in my view, it is therefore a good time to be taking advantage of growing pessimism to add selectively to equities for the long term. Such additions could be staged and targeted at periods of serious weakness. If one or more of the major macro challenges described above does cause a further major market selloff, investors may well get an opportunity, and should be in a position to add more, at even lower levels.

But there is no certainty such major selloffs will occur. Those investors complacently boasting about how comfortable they are in cash and term deposits are at risk of being the last to move, only prepared to buy when the macroeconomic environment ‘feels’ much better, which will almost certainly be at significantly higher prices. By then, much of the good value and the better prospective returns from many equities will be gone. The current dilemma for investors and advisers is highlighted by the words of Warren Buffett: “Investing is simple, but not easy”.

Dominic McCormick is the chief executive officer of Select Asset Management Limited.

www.moneymanagement.com.au July 14, 2011 Money Management — 23

Retirement Planning Personal deductible contributions: it’s all in the timing Rachel Leong explains how the retirement date, withdrawals and the timing of Section 290-170 notices can have a great impact on the amount of deductions that can be claimed for clients with deductible contributions as part of their financial plan.

T

he ability to claim a deduction on personal contributions to super may help many eligible individuals reduce their taxable income. When approaching retirement, the retirement date can affect the ability to claim a deduction on contributions in the current financial year. However, all individuals should take care to ensure that 290-170 notices are provided before certain events and that they are aware of the maximum amount that can be claimed. Otherwise, they may miss out on claiming a deduction on some or all of the contribution, or worse, a significant tax liability may be created by exceeding the contribution limits.

Who can claim?

An individual who is deemed an employee for super guarantee (SG) purposes and has less than 10 per cent of total assessable income, reportable fringe benefits and reportable employer superannuation contributions attributable to employment, is eligible to claim a deduction on personal contributions to super.

However, if an individual is not involved in employment-related activities (as an employee) they do not have to satisfy the 10 per cent test.

Those who qualify to claim a deduction on personal contributions include retired, unemployed, self-employed and substantially self-employed people.

Timing of retirement

If an individual is retiring this year, they should consider what the optimal retire-

Case study 1 - Retirement date It is the beginning of August and Tina, age 60, is thinking about retiring soon.

She earns $25,000 per annum from her part-time job (of which she has an agreement in place to salary sacrifice $10,000 per annum) and also expects to receive dividends of $15,000 (fully franked) and trust distributions of $10,000 this year.

ment date is. The retirement date may affect their ability to make personal deductible contributions for the current financial year (see case study 1).

Contributions from 1 July 2011

From 1 July 2011, if withdrawals/rollovers are made to another accumulation account, it is assumed that part of the withdrawal/rollover is funded from the contribution.

Note that super funds may choose to apply this approach as part of their administrative practise for the 2007-08 and later financial years, however it is only mandatory from the 2011-12 financial year.

There are two steps that need to be followed to calculate the maximum amount that can be claimed as a deduction for a particular financial year.

They are: 1. Calculate the amount of tax-free component rolled/withdrawn, and

24 — Money Management July 14, 2011 www.moneymanagement.com.au

= $1,250

Salary sacrifice this year to date

= $833

Franked dividends expected this year = $15,000 + ($15,000 x 30/70) = $21,429 Trust distributions expected this year

Timing of 290-170 notices

A valid 290-170 notice must be submitted before a contributions splitting application is made or a pension has commenced. If any part of the contribution is used to commence a pension, none of the contribution can be claimed as a deduction.

In addition, for contributions made in the 2010-11 financial year where rollovers (to another accumulation account) or withdrawals were made, the amount that can be claimed is limited to the lesser of the contribution made that year and the tax-free component remaining (see case study 2).

Salary received this year to date

= $10,000

Expected total assessable income, reportable fringe benefits and reportable employer super contributions this year (if retired today) = $33,512 Amount attributable to employment

= $1,250 + $833 = $2,083

Income attributable to employment total income

=

$2,083 $33,512

= 6.22% (less than 10%).

Therefore, if Tina retired now, she would be able to make personal deductible contributions into super.

How much longer can Tina work and still claim deductions on personal contributions to super?

10% =

total amount attributable to employmenttotal income (total amount attributable to employment + $21,429 + $10,000)

Therefore, total amount attributable to employment = $3,492* to stay under the 10% threshold. approx 1.68 months =

$3,492 $2,083

Tina could continue to work for approx 20 days longer and still satisfy the 10% test.

If she worked longer, she would not meet the 10% test and would not be able to claim a deduction on personal contributions into super (unless she increases non-employment income this year).

Note: in the following financial year, Tina will be eligible to

*x = total amount attributable to employment x = 0.1 (x+$21,429 + $10,000) = 0.1 x = 0.1x + $3,143 x=

$3,143 0.9

= $3,492

make personal deductible contributions without the need to satisfy the 10% test as she will be retired.

2. Calculate the maximum amount of deductible contributions for the year.

The two steps are demonstrated in case study 3. However, the calculation is more complicated when there is more than one withdrawal/rollover in the financial year of contribution (see case study 4).

Excess contributions tax

If individuals attempt to claim a higher level of personal deductible contributions than they are eligible for, they may inadvertently breach the non-concessional

contribution limit (see case study 5).

Conclusion

The retirement date, withdrawals/ rollovers and the timing of 290-170 notices can greatly affect the amount of deductions that can be claimed. Individuals should take great care when personal deductible contributions are part of their financial plan, as an error may have substantial negative tax implications.

Rachel Leong is a technical services consultant at Suncorp Life.

Case study 2 - Contributions before 1 July 2011 Pia has a superannuation interest valued at $180,000 ($80,000 tax free and $100,000 taxable). Pia makes a $50,000 personal contribution in March 2011 which is, at that stage, a non-concessional contribution that would be counted as part of contributions segment (and therefore the tax-free component). Her total superannuation account balance is subsequently $230,000 ($130,000 tax free, $100,000 taxable).

Pia, if eligible, could at this point in time lodge a section 290-170 notice to claim a deduction of up to $50,000, that is, any amount up to the amount she has made as a personal contribution in that year.

If before lodging a 290-170 notice, Pia rolled over $210,000 in May, leaving $20,000 ($11,304 tax free and $8,696 taxable), she could only lodge a valid notice for an amount up to $11,304 of the $50,000 contributions made in this financial year.

Case study 3 - Contributions made from 1 July 2011 (single withdrawal) Nigel, age 55, makes the following superannuation transactions in the 2011-12 financial year: Total super interest

$120,000

Contribution

$150,000 $270,000

Rollover to another accumulation account Balance remaining

- $50,000

$220,000 *$33,333 =

($30,000 tax-free component)

Case study 4 - Contributions made from 1 July 2011 (multiple withdrawals) Case study 4 – contributions from 1 July 2011 (multiple withdrawals) Frederick is eligible to claim a deduction on personal contributions to super. Below is a summary of Frederick’s superannuation transactions for the 2011-12 and 201213 financial years:

2011-12 Starting balance on 1 July 2011

$300,000

($100,000 tax-free component)

Contributions made up to 1 Sept 2011

$6,000

($106,000 tax-free component)

Withdrawal on 1 Sept 2011

-$80,000

Contributions from 1 Sept 2011

($27,712* withdrawn from tax-free

$226,000

component), $78,288 remaining tax-free component – step 1)

$30,000

($108,288 tax-free component)

– 30 June 2012 Balance remaining

$256,000 *$106,000

x $80,000 = $27,712

$306,000

2012-13 Balance on 1 July 2012

$256,000

($108,288 tax-free component)

Contributions made from

$15,000

($123,288 tax-free component)

1 July 2012 to 1 December 2012

$271,000

Withdrawal on 1 December 2012

-$60,000 $211,000

($27,296^ withdrawn from tax-free component, $95,992 remainin tax-free component – step 1)

Contributions made from 1 December 2012 to 30 June 2013

$21,000

Balance remaining

$232,000

($116,992 tax-free component)

^ $123,288 ($180,000 tax-free component)

x $60,000 = $27,296

$271,000

($33,333 tax-free component rolled* Step 1) ($146,667 tax-free component) $50,000 x $180,000 $270,000

Step 2: calculate the maximum deductible contributions

The following calculation must be done for each withdrawal after the contribution is made, to determine the amount still held by the fund: tax-free component after withdrawal* x contributions / tax-free component before the withdrawal concerned * Withdrawals made before submission of the 290-170 notice

Step 2:

Assuming Nigel is eligible, he could give a valid deduction notice for an amount up to $122,223. That amount is worked out as follows:

Withdrawal on 1 September 2011 $78,288 x $6,000

rollover tax-free component before rollover

x contribution

$146,667 $180,000

x 150,000 = $122,223

= $4,431

Withdrawal on 1 December 2012 $95,992 x ($4,431 + $30,000)

$106,000

$123,288

= $26,808

Maximum deductible contributions for the 2011-12 year: Note: the withdrawal made in the 2012/13 financial year affects the amount that Frederick can claim as a deduction in the 2011-

Case study 5 - Exceeding contribution limits Terry, self-employed, age 52, made personal contributions of $200,000 in the 201011 financial year. He has also contributed $450,000 in the 2011-12 financial year.

He believes he can claim a deduction for $50,000 of the contributions made in 2010-11, however due to a rollover to another accumulation account, he is only able to claim a deduction of $30,000 for that year. Therefore, for 2010-11, his concessional contributions are $30,000 and his non-concessional contributions are $170,000.

This means that he has triggered the bring-forward provisions for non-concessional contributions.

At this point, Terry does not have an excess contribution problem. However, as he has already made $450,000 personal contributions in 2011-12 for which he could only claim up to $50,000 as personal deductible, this results in total nonconcessional contributions of $570,000 ($170,000 + $400,000) over the three-year period from 2010/11–2012/13. Therefore, Terry has excess non-concessional contributions of $120,000, with a tax liability of $55,800.

12 financial year as only a proportion is still held by the fund.

Withdrawal on 1 December 2012 $95,992 x $15,000 $123,288

= $11,679

Maximum deductible contributions for the 2012-13 financial year: Note: the withdrawal made in the 2011-12 financial year does not affect the amount that Frederick can claim as a deduction in the 2012-13 financial year. This is because the contributions concerned were made after the withdrawal on 1 September 2011.

Further contributions of $21,000 are made in 2012-13 financial year after the withdrawal on 1 December 2012. Therefore maximum deductible contributions for the 2012-13 year are $11,679 + $21,000 = $32,679.

www.moneymanagement.com.au July 14, 2011 Money Management — 25

Toolbox Granting powers of attorney

Estate planning is not just about executing wills and distributing assets upon an individual’s death; it should also include the possibility of mental or legal incapacity during a client’s lifetime. CommInsure’s Jeffrey Scott reports.

I

f your client loses the capacity to make decisions without an enduring power of attorney or guardianship appointment in place, control of decisions over a client’s property, medical treatment and lifestyle may be handled by an unsuitable or unsatisfactory person. Alternatively, such control may have to be determined by a state or territory tribunal.

A power of attorney is an important, practical and useful legal solution that not only provides peace of mind – it can also avoid costly and complex legal problems.

It is a legal document that allows a person, company or body corporate to appoint an agent to act on their behalf. The person delegating the power is known as the principal (or sometimes donor or grantor) and the person receiving the power is known as the attorney (or donee, grantee or even agent). The relationship between the principal and attorney is that of principal and agent.

As with wills and intestacy law, legislation governing powers of attorney is state and territory-based, and each jurisdiction has its own act. This can present a problem where a power of attorney granted in one state may not give the attorney the power to act in another jurisdiction (or restricts those powers).

Once an unlimited power of attorney is granted, the attorney – and it can be more than one person – has the exclusive power to act in the capacity of the principal. Therefore, the attorney can enter into contracts, buy and sell property and make other decisions regarding the principal’s financial affairs and property. Powers of attorney can be quite broad or very restrictive in what

powers are given to the attorney.

A power of attorney does have some exclusions. For instance: • A principal cannot instruct an attorney to do anything illegal; • An attorney does not have the power, on behalf of the principal, to prepare a will, to vote in an election or referendum, or consent to marriage; and • Once nominated, the attorneys cannot appoint someone else to assume their powers or responsibilities, unless this has been specified in the power of attorney.

There are two main types of power of attor ney available in all states and territories: • General powers of attorney; and • Enduring powers of attorney.

General powers of attorney

A general power of attorney can be set up to give the attorney the authority: • To do exactly one thing; • To do a restricted range of things; or • To allow the attorney to make any financial or legal decisions on the principal’s behalf.

A general power of attorney with limited powers is usually granted to cover a specific event for a fixed period of time. For instance, your client Sam, who intends to travel overseas, may want to make a general power of attorney, and the person (or organisation) appointed as attorney can make financial decisions on his behalf while he is away. This could include selling shares or property or signing a legal agreement. The general power of attorney would normally be revoked after Sam returned.

General powers of attorney remain

26 — Money Management July 14, 2011 www.moneymanagement.com.au

valid only while the principal has mental capacity. If the principal becomes mentally incapacitated and therefore legally incompetent, the power of attorney ceases to be active.

Enduring powers of attorney

An enduring power of attorney is more important for estate planning purposes.

These appointments can help clients plan for the future when they have lost the power to make rational decisions – in other words, to understand consequences, take responsibility and weigh up risks and benefits.

Unfortunately, nobody knows when illness or injury will strike, and whether the event will impact on mental capacity.

With the prevalence of motor vehicle and other accidents along with Australia’s increasingly ageing population, combined with the impact of Alzheimer’s, dementia and other diseases, it is clear that enduring powers of attorney will become even more important in the future.

Enduring powers of attorney may apply to financial, medical and lifestyle decisions. It all depends on the jurisdiction.

All Australian states and territories have enduring powers of attorney for financial matters. The legislation in each jurisdiction varies significantly when it comes to medical and lifestyle decisions. In South Australia and Victoria a person can appoint a medical attorney. In New South Wales, Queensland, Tasmania and Western Australia a person can appoint an enduring guardian who can make certain medical decisions on behalf of that person. The Northern Territory currently has no medical powers of attorney or guardianships, but an Office of Adult Guardianship and the Public Guardian can appoint guardians after a person has lost legal capacity.

All jurisdictions in Australia now recognise valid Advance Care Directives, which document a person’s decisions about future medical, surgical and dental treatment and other health care.

Who can make a power of attorney?

In general, a principal must be 18 years of age and legally competent. In other words, the principal understands the nature and effect of the power of attorney, in terms of what the attorney can do when making decisions and the impact of this decision-making.

Who should be appointed as the attorney?

In some jurisdictions, the attorney must be at least 18 years of age. This is a requirement if the attorney is to sign contracts, for instance. The one standard requirement is the attorney must be legally competent. In choosing a person for an enduring power of attorney, some points need to be considered. This person is being given considerable power and the choice should not be made lightly.

People often appoint relatives, a close friend or an independent person such as an accountant, lawyer or doctor as the attorney. You can also appoint a trustee company, but there will invariably be fees associated with this. You wouldn’t

normally pay a relative a friend to be an attorney, but a professional person would normally charge for this as for any service. An attorney should be a person who you trust and who understands the decisions you would be likely to make in certain circumstances.

Will the person be available when needed?

An enduring power of attorney may not be exercised for many years, so an older person may not be the right choice. Don’t make assumptions. It may be difficult for a family member or close friend to be objective about making decisions, particularly where a medical enduring power of attorney (or power of enduring guardianship) is available.

On the other hand, it may be prudent to appoint an adult daughter who is prepared to look after an elderly parent in her own home. This would be a good idea as failing to set up a power of attorney could result in a state tribunal placing the elderly parent in a nursing home to preserve family harmony (if another adult child thought that nursing home care would be a better idea).

Check that the person you want to appoint is happy to be an attorney. There is no point selecting someone who does not want to take on this role. Check whether you can appoint more than one attorney. In most jurisdictions, you can appoint more than one and they can act: • Jointly, where both attorneys must agree for the decision to be valid; • Severally, where either attorney may make a decision independently of the other; and/or • As a substitute or alternative attorney (who can make a decision if the original attorney is unavailable or no longer able to perform this role).

When can an enduring power of attorney be revoked?

In most states and territories an enduring power of attorney can be revoked upon: • The death of the principal or the attorney; • Revocation revoked by the principal, or by a later enduring power of attorney; • The legal incapacity of the attorney; • The retirement of the attorney (in some jurisdictions this can only be done with the leave of the Supreme Court); • The bankruptcy of the attorney and (sometimes) principal; or • The order of a Supreme Court judge.

As with all important legal documents there are certain other formalities to be observed with powers of attorney, which again differ according to the jurisdiction, including: who can and cannot witness, when the document needs to be registered, and whether an attorney needs to formally accept the appointment.

With regard to powers of attorney executed in other states or territories, most jurisdictions have now passed legislation recognising these powers of attorney, to the extent that the powers they give do not contradict the local relevant legislation.

Jeffrey Scott is executive manager for business growth services at CommInsure.

Appointments

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

MLC and NAB Wealth recruited three new members to its retirement solutions team.

Recent additions include Paul Stratton, Michael Tobin, and Remi Bouchenez, with others to join later this year.

All three have worked for AXA’s North platform, with Stratton as head of platform development, Tobin as head of product development and Bouchenez as risk manager structured solutions.

In MLC and NAB Wealth’s retirement solutions team, Stratton has come onboard as head of product operations, Tobin becomes head of product development and Bouchenez is now head of financial risk management.

The team is headed up by Andrew Barnett, who joined MLC in January this year, also from AXA’s North team.

ANZ has appointed former BT Financial Group general manager of finance and legal, John Frechtling, as chief financial officer for OnePath and head of finance for ANZ Wealth.

Frechtling has more than 20 years experience in financial services, having previously worked as a chief financial officer for BT Financial Group and Westpac Banking Corporation in Australia

Move of the week PROFESSIONAL Investment Services (PIS) founder, Robbie Bennetts, will undertake a part-time role within the group, moving away from his full-time duties as of 31 July.

The group announced Bennetts entered into a contract with PIS and will provide input as an adviser to the Board, coordinate and manage the group’s conferences and develop new opportunities to market Robbie Bennetts financial advice to potential clients.

Bennetts’ future role had been agreed following the group’s merger with Centrepoint Alliance, after which PIS became listed on the Australian Securities Exchange.

Centrepoint managing director Tony Robinson described Bennetts as a “true pioneer in the spirit of creating footprints rather than following existing ones”.

“Robbie Bennetts has built the PIS Group into a successful and significant part of the financial services industry in Australia and other countries,” he said.

and New Zealand.

He was most recently general manager of finance and legal at BT Financial Group, where he was responsible for the merger of the BT and St George wealth finance and legal operations.

ANZ Wealth managing director, John Van Der Wielen, said Frechtling’s experience in wealth and banking coupled with his background in large-scale businesses would make him a strong

addition to the team.

Frechtling commenced his role on 4 July.

PREMIUM Investors has announced it will add industry veteran Lindsay Mann to its board.

Mann was selected to assist with the company’s strategy of delivering solid dividends to shareholders.

Premium chairman Tim Collins, who announced the appointment,

Opportunities FINANCIAL PLANNER Location: Sydney Company: Commonwealth Bank of Australia (CBA) Description: Commonwealth Financial Planning is looking for a financial planner to join its Wealth Management group. You will be responsible for building relationships and sales within your designated area as well as providing customers with exceptional customer service and financial advice.

You will have access to a wide variety of resources to help you achieve your targets and goals, and a dedicated support network to assist you with everything from administration to legal and technical issues.

To be successful in this role you will need to be RG146-compliant. You will also have proven your performance capabilities in financial planning, customer relations and sales, and have demonstrated your high level of communication skills.

To apply, please visit moneymanagement.com.au/jobs or contact Commonwealth Financial Planning on 1800 989 696.

FINANCIAL ADVISER Location: Melbourne Company: IPA Description: A privately owned financial services provider with over $3.5 billion of assets under administration is looking to employ a number of

said Premium’s goal required an active and highly specialised investment approach.

Mann joined the financial services industry 36 years ago and was formerly chief executive officer (Singapore) and regional head Asia for First State Investments – the Asian business of Colonial First State Global Asset Management.

Prior to this, Mann was chief executive officer of AXA Investment Managers in Hong Kong.

He is currently an independent director of BRIM Asian Credit Fund, a Cayman Islands domiciled hedge fund managed by Singapore-based Blue Rice Investment Management and he is an independent member of the compliance committee of Aviva Investors Australia.

THE newly appointed chief executive officer of Bravura Solutions, Tony Klim, has also been appointed to the role of managing director, the software provider has announced.

Klim was appointed the company’s chief executive officer in May, with his role of managing director effective from 30 June.

Bravura reported it had entered into a new employment agreement with Klim, who will receive a £350,000 ($525,000) fixed salary.

Meanwhile, Russell Investments

has selected Bravura’s Sonata software to administer the firm’s retail products, with the two companies signing an initial fiveyear contract.

Russell had also confirmed Sonata may be expanded for global use, with plans to implement other Bravura solutions to increase operational efficiency.

CENTURIA Capital Limited has hired Peter McDonagh as head of reverse mortgages. McDonagh brings 30 years of experience to the role, including expertise in managing mortgage services teams and high-volume mortgage administration operations with up to 90 staff.

Before joining Centuria, McDonagh worked as performance improvement and quality adviser in National Australia Bank’s (NAB) group business services. Prior to this, he held the position of funding coordinator homeside service at NAB. McDonagh’s experience also includes senior roles within the Commonwealth Bank of Australia’s (CBA) mortgage services business in Melbourne, and more recently he held a contract role as team leader of exceptions processing at Australia Post. His new role will be based at Centuria’s Melbourne office.

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

experienced and professional financial advisers, who will be responsible for providing effective financial planning advice to the company’s clients, while also attracting new clients.

The role will entail all aspects of financial advice, client interaction, compliance and administration and is critical to the success of the Financial Advisory team.

The position will suit professionals with a minimum of three years of financial advisory experience, are RG146 compliant, and are familiar with a broad range of financial planning strategies. Excellent results through undergraduate studies are essential.

The successful applicant will be given an opportunity to work with a team of industry specialists and will be provided with career advancement opportunities. A competitive salary is also on offer, as well as bonuses and additional non-monetary incentives.

To register your interest in this role, please visit www.moneymanagement.com/jobs

JUNIOR PARAPLANNER Location: Canberra Company: Bluefin Resources Description: A leading accountancy firm that is due to rapid expansion is are seeking graduates interested in pursuing a career in financial planning.

The position will encompass all aspects of paraplanning, client interaction, compliance and administration, and is critical to the success of

the financial planning team.

If you are a graduate and have a genuine passion for building a career in financial planning working for a fantastic organisation then this is the role for you.

To find out more about this opportunity, please contact Toby Walsh from Bluefin Resources on (02) 9270 2645 or visit www.moneymanagement.com.au/jobs

fund manager or AFSL. Knowledge of financial planning software and familiarity with corporations law as it applies to advisers is also necessary.

Please apply by emailing your resume to Rob McCann, general manager, Patron Financial Advice: mccann@patronfa.com.au or visit www.moneymanagement.com.au/jobs

STATE MANAGER

Location: Sydney Company: Wealthy & Wise Lifestyle Planning Description: Wealthy & Wise Lifestyle Planning is looking to add a senior sales adviser to the team.

The ideal candidate will have at least two years of financial services exposure as well as investment property experience, and will work in areas including risk insurance, direct equities and managed investments.

You will have substantial autonomy, but also plenty of support from the company marketing platform, around which you will build your day.

The remuneration package is based on experience, but revolves around performance.

Ultimately you will become an all-round professional adviser gaining accreditations and meaningful certification in the first two years.

For more information, visit moneymanagement.com.au/jobs, or email your résumé to: the chief executive officer, Wealthy and Wise Lifestyle Planning, mail@wealthyandwise.com.au

Location: Melbourne Company: Patron Financial Advice Description: Patron is an established Australian Financial Services Licensee (AFSL) located in Sydney, and is looking for someone keen to become a senior staff member of a growing AFSL, commence dealer operations in a new region, and join an organisation that will provide a leading remuneration package and further career opportunities.

The successful candidate will commence as state manager, Victoria, working closely with the general manager on recruiting new financial planning and risk advisers in the state. The role will require full state manager responsibilities in the areas of compliance, practice support, assisting advisers with new client strategies, and business planning.

A Diploma of Financial Services is a minimum requirement, and financial services industry experience is essential, preferably in a life company,

SENIOR ADVISER – PROPERTY AND FINANCE

www.moneymanagement.com.au July 14, 2011 Money Management — 27

Outsider

“

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

A hostile reception OUTSIDER must confess to having been a follower of the Rugby League State of Origin series ever since its inception – largely as a result of having been thrown a free ticket to the first-ever match at Brisbane’s Lang Park. Such boons are sometimes granted to lowly hacks.

It follows, therefore, that Outsider has some sympathy for those members of the financial services industry who go to great lengths to attend all such matches – particularly those willing to travel from their Sydney homes to Brisbane to be abused by ‘fun-loving’ Queenslanders wearing maroon.

Perhaps this explains why when Outsider made a quick phone call to Paragem’s Ian Knox, he located his quarry in what some might have

described as a ‘compromising’ position.

You see, Knox and a few of his mates had flown to Brisbane for the 2011 State of Origin decider and they were canny enough to know that turning up to Lang Park (aka Suncorp Stadium) in business suits and blue ties was likely to stir up some strong feelings among the natives.

Thus, when Outsider phoned Knox, the Paragem chief had to confess that he had been caught in a state of undress – somewhere between a Sydney business suit and a pair of jeans.

Outsider presumes Knox then donned a blue jumper – either way, the Queenslanders had the last laugh.

Out of context

“We take ASIC’s numbers, we take our numbers, we cut the head off a chicken and check the entrails”

The Financial Planning Associa-

tion’s method for calculating the exact number of planners within Australia is part science and part voodoo,

Wining and dining OUTSIDER is famous throughout the financial ser vices industr y for his unwavering appetite for high quality journalism. But Outsider haughtily refutes suggestions that this dedication shares a symbiotic relationship with one of Outsider’s other great passions: the long lunch.

Outsider will confess, however, that an old-fashioned salubrious long lunch does wonders for flagging enthusiasm levels during the tough times – although suggestions Outsider would attend the opening of an envelope are wide of the mark.

After a rather long GFC-induced hiatus, Outsider was predictably delighted with the triumphant return of the decadent lunch in 2010 – but has been somewhat distressed by

according to the association’s chief professional officer Deen Sanders.

“You can’t fall when you’re already on the floor.”

BT’s Chris Caton dismisses fears of a US double-dip recession.

“When we hear a company say they have a competitive its noticeable regression in 2011.

Perhaps it was the flattening of the stock market after a buoyant recovery, maybe industry uncertainty in the midst of a wave of regulations.

Nevertheless, Outsider has noted an alarming number of boardroom briefings around a plate of sandwiches and, even more disturbingly, the return of the 11am ‘coffee briefing’.

But Outsider would like to congratulate two particular financial services

institutions for maintaining the lofty standards they set last year through the current slump. Outsider does not wish to name – and thereby risk shaming – the organisations concerned. After all, ‘never bite the hand that feeds’ is one of Outsider’s many mantras.

Instead, he would rather just doff his hat to the gents responsible, with a nudge and a wink. They know who they are, so keep up the good work lads.

Memorable faces OUTSIDER has always relied on his good looks and witty charm to get by in life. From scoring his first job as a rookie re p o r t e r r i g h t t h r o u g h t o taking Mrs O off the market, his piercing eyes and impeccable sense of style have always been a hit with the ladies.

But, having used this technique time and time again, Outsider realises that there are times when appearance alone is not enough.

That’s why when ANZ launched its new advertising campaign starring the rather

dapper looking Simon Baker as his character from The Mentalist, Outsider couldn’t help but feel slightly confused.

The ad features Baker speaking in an American accent about what his Australian audience wants – for our bank to be “fully interactive, predictive, nonrestrictive” and even “mildly addictive”.

While Baker’s dashing good looks are sure to be a hit with those of the fairer sex, Outsider questions whether the decision to hire a fictional character to spruik the bank’s tagline, “We live

28 — Money Management July 14, 2011 www.moneymanagement.com.au

in your world”, was a wise one.

Outsider hears that apparently many of those ‘twits’ on the inter-webs weren’t particularly happy with the accent, proclaiming they would prefer to hear the rugged tones of Baker’s natural Australian drawl.

But Outsider wonders whether even that would have been enough to cut through to viewers. Perhaps ANZ should have done away with the looks altogether and splurged on some real Aussie talent of the likes of Bert Newton’s calibre. Now that’s a face that’s hard to forget.

advantage in dealing with the Government, that’s usually a very good sign to steer clear.”

Colonial First State Global Asset Management’s senior portfolio manager David Gait shares some of his unwritten rules of responsible investing.