Money Management (21 July, 2011)

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Vol.25 No.27 | July 21, 2011 | $6.95 INC GST

The publication for the personal investment professional

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FIDUCIARY DUTY GOOD FOR ADVISERS Page 4 | UNDERINSURANCE THREATENS RETIREES: Page 18

Instos may welcome C and D clients

By Chris Kennedy LOWER value clients who may lose access to advice in a fee-for-service environment stand to be picked up by large institutions that have the scale to service them.

There has been a substantial increase in the number of so-called ‘C and D’ clients for sale, in many cases in order to raise capital, according to Forte Asset Solutions director Stephen Prendeville.

The buyers of these books are firms that are either relatively new to the industry looking to get established, or large institutions such as MLC and AXA that are looking to attract talent and help new firms starting up within the business, he said.

The practice is a positive result for clients who may previously have been treated as legacy clients with no proactive service, but would now be likely to receive much more pro-active advice, Prendeville said.

Principal of consultancy firm Hunts’

Group, Anthony Hunt, said that many retail clients who are just sitting on an adviser’s book are the ones that will not be worth servicing in the new environment.

“It hinges on where you make that cutoff, where you say ‘is this one worth bothering about?’” he said.

Firms in that situation can look to offload such trail books to groups that are buying them up, such as MLC groups Garvan and Apogee, which have the scale to service them more effectively and also use them as client bases for new advisers, according to Hunt.

The other option is to improve the practice’s business model to make it more economical to retain those clients, he said.

Clients that can’t be on-sold will simply be lost if there is no rational business argument for retaining them, given the limited revenue stream they generate, Hunt said.

MLC’s general manager of advice solutions, Greg Miller, said that MLC had been buying and selling client books for around

Stephen Prendeville two years through its Connect For Growth program, where often the sellers were firms that were looking to release capital in the business or were unable to service certain clients for reasons including geography. The move to fees has been a key

Unleashing investors’ inner beasts

By Angela Welsh

THE competition between businesses analysing the risk tolerance and financial attitudes of clients is heating up, with newcomers starting to enter the market.

F inametrica, one of the first movers in the market, is now facing competition from a new company Innergi, which believes planners can provide better advice by engaging with their clients’ ‘money personality’.

Innergi’s aim is to gauge clients’ preferences, fears, values and goals in order to reduce potential stressors and increase commitment to investment strategies.

It does this using a Money Personality tool – a 40-question psychometric test which determines a person’s financial approach, before representing them as one of four animals: Owl, Dolphin, Monkey or Labrador.

The profiling system is the work of Innergi’s founders, Robert Skinner and Matthew Linner t. While the Money Personality tool was finalised just three months ago, Linnert said the concept has been used in principle for quite some time.

Super funds have been first to take up the Money Personality tool, with interested dealer groups set to follow.

“Where we sit in the market is

Paul Resnik towards the pointy end of innovative product. So we are looking for the early adopters and leaders in the industry,” Linnert said. “At this point in time we have reasonable usage in terms of a light version that we have, and it’s still early days in terms of full integration into planning practices,” he said.

Linnert said it was important that advisers receive the right training around the Money Personality tool, as the approach involves dealing with clients’ emotions.

FinaMetrica offers a different system for understanding investors’ financial attitudes, in this case, focusing on one

particular area: risk tolerance.

Co-founder Paul Resnik said his viewpoint was that clients may see risk as an opportunity, a thrill, an uncertainty or a danger – and that when planners become aware of these attitudes, they can have a more informed conversation with their clients.

After answering 25 questions about financial preferences and actions they would take in certain scenarios, and investors are given a score for how averse or accepting they are of risk.

A Financial Risk Profile follows, outlining details such as attitude to high and low risk investment decisions, market fluctuations, property loans and interest rates.

Resnik said demand for the product had grown over 25 per cent over the last year. “We now have 3,000 advisers in 15 countries using the system,” Resnik said. He added that more than 400,000 risk profiles had been completed since 1999.

Resnik said FinaMetrica’s clients are typically “high-end financial advisers and a few private banks – people who care about the long-term value of their client relationships, and making sure the client understands what they have taken on when they decide on a particular portfolio.”

driver of a lot of the movement, he added.

The buyers were often newer firms looking to get established, as well as graduates from MLC’s adviser scholarship and business school, he said.

Miller said MLC was not currently buying client books externally, with the sales contained within MLC’s network of dealer groups. However, he added the group would always look at opportunities if they came up.

Association of Financial Advisers chief executive Richard Klipin said the shift to fee-for-service would lead to advisers and practices that specialise in servicing C and D clients, with a growth opportunity presented to those that are prepared to move into this less crowded section of the market.

However, the losers will be the eight in 10 Australians who currently do not receive advice, as the Future of Financial Advice reforms will mean those consumers will be priced out of a closely connected advice relationship, Klipin said.

Boutiques reluctant to hire

By Milana Pokrajac THERE seems to be a sizeable gap between boutique dealer groups and major institutions in terms of financial planner recruitment this year, as the two sectors face different challenges ahead of the introduction of the upcoming regulatory changes.

While banks and major institutions seem to be hiring in bulk, experts claim non-bank a l i g n e d d e a l e r g r o u p s a re a p p r o a c h i n g recruitment with a certain degree of caution.

Ejobs Recruitment Specialists managing director Trevor Punnett, who mostly recruits for boutique dealer groups, said employer demand for financial planners and paraplanners had been dropping since the first mention of the Future of Financial Advice (FOFA) reforms, while back-office roles were most likely to be on the up.

This may be due to the fact that most dealer groups have not yet determined how costly the shift in their business and remuneration models will be, as well as the implementation of the proposed ‘opt-in’ requirement, Punnett said.

“In the past two years, [boutiques] have battened down the hatches. They’ve really been mindful of costs and haven’t been in expansion mode, because there has been the Continued on page 3

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FOFA squeezing smaller players out

I

t is now becoming increasingly clear that one of the major consequences of the Government’s Future of Financial Advice (FOFA) changes will be further industry consolidation and a diminution in the number of smaller dealer groups and individual financial planning practices.

This is not new information. Key executives in the financial planning industry, such as PIS general manager Grahame Evans and Count Financial chief executive Andrew Gale, have been warning of the impending consolidation and the re-emergence of the old tied agency model that dominated the financial services industry more than 20 years ago.

Indeed, as much as the financial planning industry rails against the Government’s proposed two-year ‘opt-in’ and the ban on life/risk commissions inside super, the industry’s greater concern should be the question of ‘graduated’ or ‘scaled’ advice and the recommendations which will shortly be released by the Australian Securities and Investments Commission.

There seems little doubt that unless dealer groups and financial planning practices have the necessary scale and infrastructure, they will find themselves excluded from the graduated advice arena – with

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“

Government policy decisions have seen the major banks extend their domination of the mortgage origination industry, and it would seem Government policy will create the same dynamic with respect to financial planning.

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the not inconsiderable spoils going to the major institutions and the industry funds.

The problem for smaller dealer groups and financial planning practices is that their exclusion from the graduated/scaled advice arena will not be a result of any unduly onerous regulatory requirements but, more likely, the limitations imposed by their inherent business models and lack of sufficient scale.

What is already obvious is that the very same industry superannuation funds that declined to utilise the regulatory relief around intra-fund advice will be lining up

to provide scaled advice. Equally, the major banks and institutions have also been finetuning their business models.

The bottom line where scaled advice is concerned is that while it may not generate significant immediate returns, it very often represents a stepping stone for the provision of arguably more remunerative comprehensive advice.

Given the urgency with which the Government is approaching the implementation of its FOFA changes, it is highly unlikely to pay any undue attention to the competition and structural issues that will flow from its legislative changes.

However, in circumstances where there seems a real danger that industry ownership and diversity will be diminished, there would seem a legitimate argument for the issue being referred to the Productivity Commission alongside a reference on default superannuation funds.

Government policy decisions have seen the major banks extend their domination of the mortgage origination industry, and it would seem Government policy will create the same dynamic with respect to financial planning. This is hardly a healthy or desirable outcome.

– Mike Taylor

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Half out of touch with their planner

By Mike Taylor NEW research has revealed the magnitude of the task confronting financial planners if the Government proceeds with a two-year opt-in arrangement under its Future of Financial Advice (FOFA) changes, with nearly half of those people who have used a financ i a l p l a n n e r f a i l i n g t o re m a i n i n contact.

The research, undertaken by Roy Morgan Research, found that of those people who had used a financial planner only 52.4 per cent were in contact at least on a yearly basis, and noted “this suggests that the remainder are not in an active relationship with their adviser”.

However, the same research did confirm that people who used an adviser were

“

The most popular method of payment for financial advice was via ongoing commission.

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generally happy with the outcome.

The Roy Morgan research, which also pointed to continuing confusion around the branding of the ‘big six’ planning groups and the question of independence, also suggested that commissionsbased remuneration remained a major

factor in the financial planning industry.

It said the most popular method of payment for financial advice was via ongoing commission, or as a percentage of investments, with 42.3 per cent of respondents who used financial advice reporting this method.

The Roy Morgan report said the next most popular method was pay per visit, with 39.6 per cent.

It noted that this figure was “not surprising given that the major licensee groups have already transitioned across to fee-for-service arrangements for clients since 1 July 2010”.

The Roy Morgan research was mainly based around superannuation, and noted that Australians who acquired their superannuation through financial planners were confused as to whether the planner they had used was aligned to a major financial institution or an independent dealer group.

“This is especially prevalent for the licensee groups owned by the ‘big six’ retail groups such as Garvan (NAB/MLC), Hillross (AMP), RetireInvest (ANZ) and Charter FP (AXA),” it said.

Boutiques reluctant to hire Continued from page 1 uncertainty over FOFA and the change of the business model,” Punnett said.

However, the financial planning industr y has claimed that many of the proposed changes would bring on extra administ ra t i v e b u rd e n s, a n d recruitment experts note reinforcing back-office teams is a way of preparing for the new regulatory environment.

On the other hand, the banking sector has remained strong on the hiring front, and large institutions are fighting the apparent skills shortage in financial planning by introducing their own recruitment programs.

The banks’ strong hiring intentions could be explained by the Australian Securities and Investments Commission’s push for the introduction of scaled advice, which the Federal Government is currently considering.

“If people don’t want to go to the boutiques because of the perceived costs or self-interests, they might go to the banks where they’ll get a lower cost service, and scaled service has just done what they want,” Punnett said.

Director of specialist recruitment group Profusion, Alison Loader, said t h a t i n s t i t u t i o n s w e re

Trevor Punnett increasingly focusing on growing their own talent.

AMP Horizons Academy offers courses for aspiring financial planners, including a 10-month work placement at one of the aligned dealer groups.

The academy will have 149 graduates this year, according to director Tim St e e l e, w h o re c e n t l y announced plans to double this number in the next couple of years.

Similarly, NAB Financial Planning launched its own recruitment program nine months ago, with several other courses also offered

by MLC Advice Education.

Colonial First State’s Institute of Advice offers training for new advisers, as well as professional development training for its existing advisers.

For more on recruitment trends, turn to page 14. www.moneymanagement.com.au July 21, 2011 Money Management — 3

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Fiduciary care in advisers’ best interests

By Chris Kennedy A HIGH level of fiduciary care towards clients is not just a regulatory requirement, but sensible risk management for advisers as well, according to Equity Trustees head of corporate fiduciary and financial services Harvey Kalman.

“Most advisers have always tried to act in the best interests of clients.

The difference now is that the ability to show that due care is taken will be

essential protection for when things go wrong again, as they inevitably will,” he said.

There will be another investment crisis at some stage and the recent emergence of aggressive litigation firms has made it easier than ever before for investors to take part in class actions, he said.

This means advisers need to understand and embrace their fiducial duty of care, acting in accordance with clients’ risk profiles and ensur-

ing clients understand what is being recommended to them, he said.

“It certainly adds another level of difficulty to the adviser role and creates an unenviable balancing act for them, between seeking returns and managing risk with a number of new considerations now needing to be taken into account,” he said.

An important factor for advisers to consider is the role of the responsible entity (RE) because if a small fund with an in-house RE collapses,

investors could argue the extra risk of a small RE meant the product should not have been recommended, Kalman said.

This does not mean advisers should only look at large institutional funds because some of the best returns are offered by small boutiques that have a strong alignment of interest between managers and investors, but the strength and structure of the RE is an important consideration, he said.

Harvey Kalman

Unlisted property stabilises in June: IPD

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By Ashleigh McIntyre

THE Australian unlisted core wholesale property fund market has stabilised, returning 2.2 per cent in the June quarter, according to the Mercer/IPD Australian Pooled Property Fund Index (PPFI).

This is up slightly from the 2.1 per cent return the market posted in March, and brings the total market return to 9.8 per cent for year to June after gearing and fees.

The average distribution yield for the sector as at June also remained steady at 5.8 per cent.

Anthony De Francesco, managing director of IPD in Australia and New Zealand, said the stabilisation of the market reflects moderating space fundamentals, a softening macroeconomic climate and unfavourable market conditions.

The index, which was recently revamped, now also provides fur ther transparency around which segments of the market are outperforming.

It found diversified funds outperformed over the year with a total return of 10.5 per cent, followed by office sector funds with 9.7 per cent, retail funds with 9.1 per cent and industrial funds posting 8.9 per cent.

It also found that as capital values increase and managers reduce exposure to debt, gearing levels across the index have declined. As at June, debt as a percentage of gross asset value stood at 14.6 per cent, down from 19.6 per cent a year ago.

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Ipac equity partner rebrands

Insider trading and ETFs problematic for ASIC

By Mike Taylor

WHILE eight advisers were banned last financial year, insider trading continues to b e a key f o c u s o f t h e Australian Securities and I nv e s t m e n t s C o m m i s s i o n (ASIC) market super vision, according to a new repor t released by the regulator.

The new report also revealed that exchange-traded funds (ETFs) had become an issue, particularly around pricing.

It said that of the 52 market matters referred to its deterrence section, 17 had related to insider trading.

ASIC said that it had observed an increase in referrals relating to the potential misuse of confidential information by persons employed by companies providing advice on mergers and acquisitions and other significant corporate transactions.

The regulator said that in addition to its focus on insider trading and market manipulation, it had been increasingly active in identifying problematic algorithms and working with market participants to ensure retail client orders for ETFs were appropriately priced.

“We identified a number of instances where index ETF orders were placed well away from the value implied by the underlying index,” it said.

“This resulted in the number of pre-emptive actions increasing from 14 in the previous reporting period to 22 in the current repor ting period.”

The ASIC data revealed that in the past financial year it had banned eight advisers from providing financial services for periods ranging from three to seven years, while it had obtained six insider trading verdicts and judgments.

By Chris Kennedy

Financial transaction tax worries Europeans

AT THE same time as Australian financial planners resist elements of the Government’s Future of Financial Advice package, financial services companies in Europe are opposing the imposition of a tax on financial transactions to fund European debt.

The level of resistance to the so-called ‘Tobin tax’ has been clear by the EDHEC-Risk Institute, which

has warned that the tax will result in a reduction in the trading of securities.

“The Tobin tax reduces speculative activity in financial markets, but this tax also drives away investors who provide liquidity, stabilise prices, and help in the price discovery process,” it said.

The EDHEC-Risk Institute analysis also warned that imposing a tax on financial transactions would present its own challenges, not least of which being the ability of regulators to distinguish between transactions related to fundamental business and those that a purely speculative.

“From the point of view of speculators, unless every country in the world introduced the Tobin tax, it would be easy to circumvent the tax by routing transactions through countries that do not impose the tax,” it said.

ADELAIDE-based ipac equity partner firm Portfolio P l a n n i n g So l u t i o n s h a s re b ra n d e d a s i p a c s o u t h australia.

The firm became an equity partner in 2006 and in the past five years has grown its funds under advice from $420 million to $1 billion.

Ad v i s e r n u m b e r s h a v e increased from six to 17 and staff numbers from 25 to 40 in the same period, largely due to four major acquisitions in that time, according to ipac.

Following those recent acquisitions the practice would now focus on organic g row t h , s a i d i p a c s o u t h australia executive chairman Lou Delfos.

The rebrand would allow the practice to take advantage of ipac’s national presence, leveraging its capabili t i e s i n a re a s s u c h a s marketing, he said.

Ipac chief executive Neil Swindells said the group was thrilled that Portfolio Planning Solutions had chosen to use the ipac brand in South Australia, descr ibing the

Lou Delfos move as a natural progression of the relationship.

“We are very open to the idea of Equity Partners using the ipac brand when the principals want to do so,” he said.

“To have the ipac name on their door reflects our confidence in the quality of the team and the excellent service they provide to clients.”

The equity partner program provides an effective way for ipac to enter new markets through an established local practice, he said.

Managers favour short position More disclosure on unlisted property

By Angela Welsh A SHORT duration bias was a major driver of returns in 2010, according to a report by Standard & Poor’s.

The S&P Australian Fixed Interest Sector Report found that managers held this short position in a trading environment where bond prices actually lifted as investors worried over rising European sovereign debts.

“For those [who] maintained their short position, the market eventually came back, enabling a recovery in their position,” S&P analyst David Erdonmez said. “Earlier losses were made up through the fourth quarter when rates began to reflect a more positive economic outlook,” he explained.

With the market being overweight, credit re m a i n e d a d o m i n a n t t h e m e. Ac t i v e managers continued to hold less in the treasury component of the composite bond index, in favour of credit.

This trend is likely to continue, the report stated, particularly if covered bonds come online, as this would make for a targeting of AAA-rated credit quality with a spread above Government bonds.

Erdonmez cautioned that “the competitiveness of cash funds continues to be

David Erdonmez questionable” given Australian banks’ current pricing of at-call accounts and term deposits.

Despite the range of features available with cash management trusts, Erdonmez said the high fee levels meant that investors were receiving “a benchmark return minus the better part of 100 basis points for the privilege”.

The Australian Fixed Interest Sector Report, together with reports for all funds rated as part of the review, are available on S&P’s subscriber website.

THE Australian Securities and Investments Commission (ASIC) has moved to improve the protections for retail investors involved in unlisted property schemes by lifting the disclosure requirements on such products.

The proposed new arrangements will see companies promoting such investments required to comply with benchmarks around gearing, related party transaction, valuations and distribution.

Commenting on the move, ASIC chairman Greg Medcraft said the proposals were aimed at improving the level of comparability and consistency of disclosure provided to retail investors.

“Our experience indicates that investors need better quality and relevant disclosure presented in a way best suited to investor understanding,” he said.

“Product Disclosure Statements must be worded and presented in a clear, concise and effective manner to help retail investors assess an offer and make informed investment decisions,” the ASIC chairman said.

Greg Medcraft He said that ASIC’s review of the sector had revealed that a number of key disclosures had not been adequately addressed including the risks associated with the borrowing maturity profile and the extent of hedging, detail about proper ty development activities, the basis of valuations and withdrawal rights and the risks associated with withdrawal arrangements.

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Shorten asked to ‘please explain’ on FOFA

By Mike Taylor

Brad Fox

THE Federal Government needs to produce independent evidence demonstrating how its Future of Financial Advice (FOFA) proposals will benefit consumers without impeding access to advice and without increasing red tape, according to Association of Financial Advisers (AFA) chief executive, Richard Klipin.

Klipin said his organisation wanted to know how FOFA would stop the sort of product failures that had prompted serial inquiries into the financial planning industry from happening again.

AFA president Brad Fox also weighed into the argument claiming that when the Government came to power it had promised evidencebased policy decisions.

“Where is the evidence that opt-in and a ban on commissions within superannuation address the problems?” he asked.

Fox said the Government had not yet modelled a case for how the FOFA changes would benefit consumers.

He said the Assistant Treasurer and Minister for Financial Ser vices, Bill Shorten had claimed the financial planning industry

had not convinced him with respect to their arguments against opt-in and the banning of commissions on life/risk within superannuation.

“Well, he hasn’t convinced us either,” Fox said.

Both Klipin and Fox exhorted financial planners to continue lobbying politicians across the country to extract key changes to the FOFA proposals.

Best low-fee managed funds: survey Hillross acquires Iris Financial Group

By Ashleigh McIntyre INVESTORS in managed funds need to pay more attention to the array of upfront and ongoing fees and learn how to best negotiate them down, according to new research.

Canstar Cannex has just completed its first review of managed funds in which it compared funds based on their appropr iateness for cer tain life stages of investors.

It compared over 150 large-cap and small-cap managed investment funds based on their suitability for seasoned investors looking for diversification, those starting out looking to accumulate wealth and those looking to supplement their regular income.

Some of the top performers for each category included BT’s Smaller Companies Fund, Celeste’s Australian Small Companies Fund, Aberdeen’s Australian Equities Fund, the All Star IAM Australian

Share Fund, and the BlackRock P Inv Australian Share Fund.

Canstar Cannex head of research Steve Mickenbecker said the research took into account all types of fees associated with funds and set these out in an easily digestible format for ordinary investors.

“There are contribution fees, adviser fees, administration fees, platform fees, buy spreads, sell spreads, switching fees, termination fees, and lastly, a performance fee,” he said.

“You might hear the argument that investors don’t care about fees if they are getting good returns and that is true. But, as we know, there are no guarantees.”

Mickenbecker said in order to reduce fees, retail investors could go through a financial planner where they could negotiate down fees, use a discount broker where they could receive a 100 per cent rebate on the upfront contribution fees, or negotiate fees directly with fund managers.

AMP-backed Hillross Financial Services has acquired dealer group Iris.

Hillross managing director, Hugh Humphrey said the deal would see all 37 Iris financial advisers in NSW, Victoria and Tasmania become Hillross authorised representatives from August.

He said the transaction would allow Hillross to take on all 12 Iris practices, 37 advisers and $2.2 billion in funds under advice.

“Iris offers Hillross a strong professional and cultural fit with an aligned target market and advice process that will significantly grow the Hillross business,” Humphrey said. “This represented one of the few opportunities to acquire a high quality non-institutionally aligned licensee of reasonable scale to join our business.”

He said that as part of the transaction, the 12 Iris practices would join the Hillross licensee, retaining

Bouris expands head office of Yellow Brick Road YELLOW Brick Road has expanded its head office retail team with four new appointments to suppor t the growth of the company to 70 licensees.

Glenn Kazich will join as the company’s new Queensland sales and development manager from ING Direct, where he was a business development manager. Kazich will be responsible for expanding the Queensland branch network through recruiting and supporting ‘wealth managers’.

Andrew Parsons has been appointed as the head of product development, responsible for the development and management of the Yellow Brick Road product suite.

Parsons came to the role from McGrath Real Estate where he worked in a consulting capacity. Prior to that, he headed up product development with Mark Bouris’s previous company Wizard Home Loans.

Angelo Rentzepis has joined the team as the BGL national business development manager, where he will work to expand the firm’s licensee network via the introduction of accounting practices by BGL – an accounting compliance software supplier. Rentzepis was previously a financial planning manager at Colonial First State.

Tim Wheeler also joins the company as the new marketing manager responsible for the

Hugh Humphrey their self-employed business model.

In the short term, two of the practices would move to a dual branding as they go through a process of client education, while the other 10 practices will all move immediately to the Hillross brand, Humphrey said.

RI Advice announces three new practices

By Chris Kennedy

offline marketing communications across the branch network. Wheeler was previously an account manager at Ogilvy Advertising, working on American Express.

In addition to its head office expansion, executive chairman Mark Bouris said Yellow Brick Road is currently recruiting experienced brokers looking to broaden their skill set into additional financial services sectors, including insurance, financial planning, superannuation, accounting and tax.

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

RI ADVICE Group has announced the addition of three new practices, bringing the group’s total number of advisers to 266 across 132 member firms, up from 200 advisers at the start of 2010.

The practices include Cleland McFarlane Selth, an established medium sized chartered accountancy firm in Adelaide; Insight Investment Services from Gladstone, Queensland (formerly part of accountancy-based group DKM) and former Genesys adviser Kevin Anderson from Chatswood in Sydney.

John Flanagan from Cleland McFarlane Selth pointed to RI Advice’s strong business and marketing planning process as a factor in his decision to move to RI. Andrew Ghea and Des Young from Insight Investment Services said the group’s resources and the expertise of the dealership team would help them manage the growth of the business.

Anderson cited the strong technology solutions and the expertise to assist in growing the business as some of the reasons he made the transition.

Peter Ornsby, RI’s head of practice development, said RI’s customised Xplan is proving to be a strong drawcard, adding that a good software system can be the difference between servicing 200 or 400 clients without hiring additional resources.

“We are very pleased to be partnering with these new groups and we see their appointments as a further vote of confidence in our ability to provide business growth for motivated planners,” he said.

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Asteron/CFS deal funds insurance through super

By Chris Kennedy ASTERON has partnered with Colonial First State’s (CFS’s) FirstChoice platform to help advisers continue to offer clients life insurance cover through their superannuation – even if a proposed ban on risk commissions through super is legislated.

Despite the ban outlined in the Government’s Future of Financial Advice (FOFA) reforms, clients will still need advice and the trend for insurance to be taken out through super will continue, according to Asteron executive general manager Jordan Hawke.

“As a life risk specialist, this partnership allows us to complete our offer for both risk and wealth advisers who wish to write retail insurance through platforms,” he said.

“Asteron offers advisers more flexibility and choice by allowing them to offer clients the convenience of paying premiums through the Colonial First State platforms, FirstChoice and FirstWrap,” Hawke added.

The deal allows clients to draw on their super account to pay for the insurance, and Asteron then sends a notice to CFS each month outlining the accounts that have been drawn on.

The facility of paying through an accumulated benefit has always been an option in the marketplace, but Asteron haven’t had a master trust to do that with previously, Hawke said.

As a manufacturer Asteron will need to work out how advisers will continue to get paid for providing advice if proposed FOFA reforms are passed, he said.

“We’ll work with FirstChoice to ensure clients still get good advice and access to a good product, and we’ll make sure that adviser gets paid in some shape or form,” Hawke said.

Jordan Hawke

Vow Financial to offer insurance services Planners in demand

By Milana Pokrajac

MORTGAGE aggregator Vow Financial, which has recently entered the financial planning space, will also start offering insurance services to its clients through its newly formed partnership with Allianz Australia.

The agreement between Vow and Allianz was completed in May, days after the mortgage broker set up financial planning practice Vow Wealth Management.

Vow chief executive officer Tim Brown said the partnership with

the insurance provider came as the company decided to diversify its source of income.

“In a difficult economic climate for brokers, it’s important that we find alternative sources of income for them – and that’s exactly what this partnership with Allianz achieves,” Brown said.

Allianz would offer all housingrelated insurance products to the clients of Vow’s brokers, while the company flags plans to enter into joint ventures with more ‘like-minded’ financial planning Tim Brown firms.

Genesys retains van Eyk

By Mike Taylor RESEARCH and ratings house van Eyk will continue its relationship with dealer group Genesys Wealth Advisers.

The re-signing of the research contract with Genesys was announced by van Eyk last week, with chief executive Mark Thomas saying he was pleased his company would be continuing its relationship with a company that had been a client for more than 20 years.

The re-signing of the arrangement between van Eyk

and Genesys is regarded as significant in circumstances where it lost a number of mandates last year, including that of Count Financial.

The re-signing has also occurred just weeks following the announcement of the sale by Zurich of competitor research and ratings house, Lonsec, to a Mark Carnegie-backed business which will also house superannuation research house, SuperRatings.

Commenting on the renewed deal, Genesys chief operating officer Andrew Alcock said it was based on mutual trust and respect built up over many years.

Govt showcases savings incentives

Bill Shorten

THE Federal Government has released a discussion paper detailing its policy proposal to provide a 50 per cent tax discount for interest income ear ned by low and middle income earners.

The Assistant Treasurer and Minister for Financial Services, Bill Shorten, claimed the introduction of the discount would benefit more than five million taxpayers, with particular benefits for low and middle income savers who were more likely to put their savings into banks, credit unions or building societies rather than investments.

He said a tax discount for interest income represented

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

an important step towards a more consistent taxation regime for savings, with individuals in 2012-13 being entitled to a tax discount equal to 50 per cent on up to $500 of interest income received, and from 1 July 2013 being entitled to the 50 per cent discount on interest income of up to $1,000.

Shor ten said the tax discount for interest income would improve incentives for individuals to put their money into interest-bearing savings accounts, reducing some of the discrepancies in tax treatment that cur rently exist between different investment and savings options.

in banking sector

EXPERIENCED financial planners and paraplanners are among the most in-demand candidates in the banking sector for the first quarter of the new financial year, according to the latest Hays Quarterly Report.

Wealth management candidates are being sought by banks to focus on servicing high-net-worth individuals, particularly with the growth within boutique wealth management practices and a focus on providing tailored wealth management solutions to clients, the report stated.

The activity is also creating demand for support staff, in particular paraplanners, according to Hays.

Other in-demand roles are corporate actions specialists and mortgage credit analysts, as well as mortgage operations roles, client service officers and relationship managers.

To attract candidates, banks are focusing on flexible work patterns and hours to improve employees’ work/life balance, and many employers are also partnering with specialist banking recruiters to target financial planners in particular.

More employers are also offering temporary-to-permanent opportunities in order to assess candidates before offering them a permanent position, the report found.

While there has been no significant increase in salaries, the shortage of candidates and specialties across most sectors will drive salaries up in the coming months, and bonuses have also resumed, the report found.

The top talent is now receiving multiple job offers and are able to choose from a number of options, Hays stated.

Morningstar appoints head of sales MORNINGSTAR Australasia has appointed former Macquarie Adviser Services strategic business manager Nigel Crampton as its new head of sales.

Crampton will report to Morningstar Australasia chief executive Anthony Serhan, who said the hire was important given the growth in the group’s capabilities in the Australia and New Zealand region in recent years.

“Nigel has extensive experience and understanding of clients in the adviser and institutional markets, and will complement our team greatly,” Serhan said.

Crampton will be responsible for sales and client relationship management in Australia and New Zealand for Morningstar’s investment

Anthony Serhan data, research, and software solutions for financial advisers and institutions, the group stated.

Crampton was at Macquarie Adviser Services for 14 years where he was responsible for distribution of the Macquarie Wrap platform in New South Wales, Morningstar stated.

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News Govt side-steps cost of life commissions ban Perpetual fund ‘on hold’

By Mike Taylor

THE Federal Government has sent a clear signal it will not be legislating to remove perceived conflicts of interest on superannuation fund boards, and has side-stepped the issue of whether banning commissions on life/risk inside superannuation will increase the cost of insurance.

The conflict of interest issue has been raised by the Federal Opposition with respect to some people holding multiple

positions on industr y superannuation fund tr ustee boards, but a Treasur y answer to a question on notice has ruled out any legislative remedies.

The Treasur y answer said that while the Government supported best practice in governance, it believed the matter should be “addressed, to the extent possible, by a voluntary industry code of governance and, where appropriate, by prudential standards”.

It said the Government

would consult with relevant stakeholders on design and implementation issues and this would provide an opportunity for best practice issues, including remuneration, to be raised if appropriate.

On the question of whether banning commissions on life/risk products inside super would increase costs, the Treasury answer said “we are not in a position to comment on the possible commercial outcomes of implementing legislative reforms”.

Half of clients want new advice: SuperSavvy A SUBSIDIARY of superannuation ratings house SuperRatings has published claims that while 60 per cent of its users have a financial adviser, 50 per cent of those people are looking for new advice.

The SuperRatings subsidiary, SuperSavvy, has made the claim in a newsletter sent to subscribers this week and has sought to use it as a means of driving people to its own advice offering.

The newsletter states: “Research shows that 60 per cent of you have a financial adviser. It also shows that 50 per cent of you are looking for new advice, which suggests you’re not very happy with the advice you’re getting.”

It adds that this “could be because you’re earning too little, paying too much in fees or you feel the advice isn’t impartial. Whatever the reason, you’d be well advised to get your advice from unbiased, independent Savvy advisers”.

The newsletter allows readers to click through to the SuperSavvy website where a page points to recent research conducted by

By Chris Kennedy PERPETUAL’S Wholesale Ethical SRI Fund has been placed ‘on hold’ by Standard & Poor’s Fund Services due to the departure of portfolio manager Simon Bridger.

Bridger will remain at Perpetual until September to oversee the transition of his responsibilities to new portfolio manager Nathan Parkin, who takes over immediately, S&P stated.

Parkin rejoined Perpetual in October 2010 as an analyst after seven years at 452 Capital, according to S&P. The ratings house will meet with Bridger and Parkin in the coming weeks to review the new arrangements and will look to resolve the fund’s ‘on hold’ status following that meeting, S&P stated.

Simon Bridger

Time to rethink inflation targeting: AllianceBernstein

By Milana Pokrajac

Reader’s Digest, and notes that superannuation fund managers and financial planners are not among the most trusted professions.

“Sadly, research shows that too many of us lack faith in our funds, in super and in financial advisers,” the website claims, and then points to the services of its own licensed advisers.

SuperRatings is now a part of the Mark Carnegie-linked Financial Research Holdings, which acquired ratings house Lonsec last month.

THE UK should adopt a broader monetary policy when it comes to targeting inflation, like Australia and China, according to AllianceBernstein economists in Europe.

The broader approach to monetary policy management, adopted by the People’s Bank of China (PBOC) and the Reserve Bank of Australia (RBA), bases its interest rate decisions on several factors, including money, credit and asset prices as well as consumer price inflation (CPI), according to economist Darren Williams.

Williams said the Bank of England’s narrow focus on CPI – while regarded as a spectacular success for most of the last two decades – did not prevent the biggest economic and financial collapse since the Great Depression.

“In fact, this focus may have contributed to it,” Williams said.

In his paper, Money Talks: Broadening

the UK’s Monetary Policy Framework, Williams pointed out that consumer prices in the UK rose 17 per cent between 1997 and 2007 from a purely CPI perspective.

“During the same period, however, broad money increased by 111 per cent, bank lending by 155 per cent, house prices by 197 per cent and stock market prices by 48 per cent,” Williams said.

“In short, this was one of the most inflationary periods in British economic history – the only indicator that didn’t show this was the CPI,” he added.

AllianceBernsteins Melbourne-based senior economist for Asia-Pacific, Guy Bruten, claimed the policy challenge to developed-market central banks posed by rising volatility might have been underestimated.

He agreed that a broad approach to managing financial and economic stability provided greater flexibility in a volatile environment.

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

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News Sales trumped by client satisfaction

By Mike Taylor THE quality of the larger financial planning sector will be improved by the major banks abolishing sale’s driven remuneration packages in favour of customer satisfaction feedback, according to accounting firm Chan & Naylor.

The accounting firm’s head of financial planning, David Hasib, said a move to eliminate the potential for unbiased advice in favour of quality based remuneration packages was overdue.

“The quality and delivery of advice is more important that product flogging to achieve a sales target,” he said.

Hasib said advisers owed it to their customers to identify the

most suitable products based on individual circumstances irrespective of commission.

“It is imperative that financial advice is always based on service quality and customer satisfaction as the outcome will have such a high impression on the financial futures of the client,” he said.

Hasib said the qualitative findings that would result from customer satisfaction surveys and mystery shoppers would be used to improve the quality of the financial planning sector as a whole.

“These reforms should advance the overall customer perception of financial advisers irrespective of whether advice comes from a bank or an independent institution,” he said.

Refinancing continues despite flat property market

By Angela Welsh

HOME owners are continuing to refinance their mortgages, even as the property rate remains flat, according to the latest Home Finance Index.

The index, by the Mortgage & Finance Association of Australia (MFAA) and Bankwest, surveyed more than 1,100 respondents, and revealed that one in four survey respondents (24.7 per cent) had refinanced their loan in the past two years. In the past year, 14.2 per cent of respondents had refinanced their loan. Both figures were an increase on the previous Home Finance Index, conducted in January.

“Even with a flat property market, there’s plenty of work for brokers who are talking to their clients,” MFAA chief executive Phil Naylor said. “In times of economic uncertainty, people with mortgages

Phil Naylor are looking at ways to make their loans more affordable,” he added.

Around 83 per cent of respondents considered it important to find out if a mortgage broker was a member of an industry body before deciding who would arrange a loan.

The index also showed that 45 per cent of those looking at borrowing or refinancing in the next

Carbon tax to boost green investments

By Chris Kennedy

Fiona Reynolds

THE carbon pricing scheme announced by Prime Minister Julia Gillard will lead to increased investment in clean energy and clean technology, according to the Australian Institute of Superannuation Trustees (AIST).

In welcoming the announcement, AIST chief executive Fiona Reynolds said the scheme would be the catalyst for addressing climate change and would provide long-term policy and investment stability for super funds.

Moving to a carbon price reduces investment uncertainty and means super funds can look to manage climate change without speculation on the price of carbon pollution, she said.

The three-year lead in would give businesses and investors adequate time to prepare for market-based pricing of emissions, she added.

Climate policy uncertainty has been a barrier to the country’s largest super funds collectively investing in clean energy and technology, according to an AIST/Climate Institute survey. A new survey aims to examine the carbon footprint of Australia’s largest super funds, the AIST stated.

Praemium cleared to operate in Jersey PRAEMIUM International has received approval from the Jersey Financial Services Commission to operate as an investment business in the Channel Islands.

Praemium International, a subsidiary of Praemium’s UK business Praemium Portfolio Services, will now be able to provide online investment administration and reporting services in the Channel Islands, and UK based firms will also be able to use the platform to service offshore clients, Praemium stated.

Praemium said it has identified significant demand for its discretionary platform service from advisers, discretionary managers and trust companies based in Jersey and other offshore jurisdictions.

“We have identified significant interest in our platform capability over the last 12 months from firms looking to enhance their investment services offshore. There are currently few alternatives that provide platform based solutions in this area,” said Praemium Group chief executive

Arthur Naoumidis Arthur Naoumidis.

“We see significant opportunity for a multi-currency platform which will provide access to investments managed either directly or within [qualifying recognised overseas pension schemes] and offshore bonds in many different jurisdictions.”

Firms such as London & Capital, which has already identified opportunities for its established practice areas to use the platform and plans to transfer funds to it, can now go live, Praemium stated.

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

three months would be most likely to select a variable home loan, a result similar to the last survey.

Fixed rate loans continued to be the least popular option, chosen by 16.3 per cent of respondents, although this was a slight increase on January’s figure of 15.5 per cent.

Around one in five of those surveyed (18.9 per cent) opted for a mixture of fixed and variable rates in the hope of getting the best of both options.

A majority of respondents (50.6 per cent) said interest rates were the key factor when selecting a mortgage product, a proportion far ahead of the next most important factor, fees and charges, selected by 15.5 per cent.

Bankwest head of specialist banking Ian Rakhit said the advantage brokers provide was “expertise and convenience, and above all else choice to the customer”.

Enhanced Investment Technologies awarded AMP Capital mandate

By Milana Pokrajac

AMP Capital Investors has awarded Enhanced Investment Technologies a US$1.3 billion mandate in a customised version of its Enhanced Global Core ex-Australia strategy.

Enhanced Investment Technologies would manage a global equities strategy benchmarked to the MSCI World ex-Australia Index and would draw from securities in the index to create a portfolio that would attempt to outperform the benchmark with equal or less risk.

The head of Australasia for Janus Capital Asia (Enhanced Investment Technologies’ parent company), John Landau, said the company had managed global portfolios since 2005 and subsequently began offering its global-ex capability with the launch of the Enhanced Investment Technologies’ Global Core ex-Australia and ex-Japan strategies.

Outside of Australia, the company operates under INTECH Investment Management LLC.

Consumers reject fee-for-service mortgage advice FEE-for-service may work in the financial planning arena but there appears to be significant consumer antipathy in the mortgage broking arena.

In a 2011 Fee for Service Survey, Mortgage Choice found that 61 per cent of the 1,050 potential property buyers surveyed said they refused to pay a fee for seeking advice from a mortgage broker.

When the hypothetical fee-for-service arrangement was altered, 24 per cent of respondents still said they would not consider paying a fee that was fully refundable upon the purchase settlement.

“It is no surprise that the survey respondents leaned very heavily towards not paying an upfront fee for assistance that is currently free,” Mortgage Choice chief executive Michael Russell said.

“Although more were willing to pay a refundable fee, the findings still left almost one in four refusing to even contemplate reaching into their wallet,” he added.

Russell said brokers must consider whether their individual businesses and the industry as a whole are in a strong

enough position to forego one-quarter of new business.

He said the survey confirmed the suspicion that “the industry is not sufficiently mature to introduce fees without penalising ourselves considerably”. Mortgage Choice has decided to postpone any action on the fee-for-service front until at least the next financial year.

Of those willing to pay, how much was considered reasonable?

The survey found that of the 39 per cent of those prepared to pay a fee-for-service, 50 per cent would pay between $1 and $250, 32 per cent said between $251 and $500 was acceptable, and 8 per cent would be comfortable paying between $501 and $750. The remaining 10 per cent would be willing to pay more than $750 for mortgage advice.

The Mortgage Choice Fee for Service Survey was commissioned to Ticketek Insights and ran online from 27 May to 6 June, 2011. The respondents were a sample of potential homebuyers from across all states and territories in Australia.

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News Downgrades dominate S&P large cap review NGS Super moves

By Chris Kennedy A NUMBER of downgrades feature in Standard & Poor’s Fund Services’ (S&P’s) review of four peer groups in its latest Australian equities large-cap peer group release.

Most ratings within the peer groups were affirmed but three funds were downgraded, along with one upgrade, one new rating and one fund reinstated from being ‘on hold’, according to S&P’s review of the income, multi-manager, quantitative, and unconstrained groups.

BT Geared Imputation W and BT Imputation Sh W funds were downgraded from the top five star rating to four stars because S&P has not yet had sufficient opportunity to build full conviction in new managers Jim Taylor and Andrew Waddington, S&P stated.

The CFS Imputation Fund was upgraded to four stars, primarily due to S&P’s

strong confidence in the depth of the team’s industry and stock research, as well as improved stability under the leadership of Marcus Fanning, S&P stated.

The CFS Acadian Wholesale Australian Equity fund was also downgraded to three

stars based on S&P’s lowered conviction in its ability to meet its performance targets.

“We did not identify a standout quantitative or multi-manager strategy, reflecting our modest conviction levels in these two peer groups,” said S&P Fund Services analyst James Gunn.

Quantitative managers have generally delivered improved performance outcomes over the past 18 months, and demonstrated a strong focus on implementing new and unique signals to address the problem of the “crowded trade”, where a large weight of quantitative money chases the same investment themes, he said.

“Nevertheless, we believe these enhancements need to be proven in a live environment over a longer period and currently we don't believe one manager is necessarily ahead of the pack,” he added.

Not all ETFs are the same

By Mike Taylor

INDUSTRY superannuation fund NGS Super has moved to boost its financial planning capacity with some key appointments.

The fund announced last week that it had appointed former Industry Fund Financial Planning executive Andrew Dunkerley as manager of financial advice and education while Maria Maganic and Darryn Studdert had been appointed as financial planners.

Commenting on his appointment, Dunkerley said the fund’s in-house financial planning offering would focus on encouraging members to become engaged in their own wealth creation strategies.

“We will also enhance our financial advice services by working on our existing telephone and faceto-face services, while developing an online advice model,” he said.

Studdert and Maganic join NGS Super from Mercer and both are Certified Financial Planners.

Aussie corporate insolvencies rise

By Milana Pokrajac

RESEARCH house van Eyk has discovered a common misconception in the market that all exchange-traded funds (ETFs) are the same, when in fact different structures, strategies and index methodologies are evident.

The researcher has published its Australian Shares ETF Review 2011, which lead analyst James Armstrong said revealed a number of diverging characteristics across what many may consider similar strategies.

“In particular, differing bid-ask spreads, NAV premium/discounts and degrees of overall liquidity were evident,” Armstrong said.

“These features can result in investment costs that are significantly different from what could be assumed based on only the stated management fee.”

Different structures, strategies and index methodologies can also result in significantly different levels of expected tax efficiency, Armstrong said.

The review also found that ETF-based income strategies struggled to provide an overall competitive product offering.

to expand planning

“While most income-based ETF products attempt to provide a higher level of tax efficiency, they generally have higher turnover and do not clearly address the issue of different investor tax rates and therefore can engage in practices that may be detrimental to certain classes of investors on an after-tax basis,” the researcher stated.

Van Eyk’s ETF Review covered three broad cap, two large cap, one small cap and three high dividend income ETFs, with only two receiving a ‘recommended’ rating.

The overall ratings considered secondary market transaction costs, fund liquidity and tax efficiency, along with the investment process, people and business management.

CORPORATE insolvencies in Australia are on the increase, according to new data released by the Australian Securities and Investments Commission (ASIC).

The data, released last week, has revealed that corporate insolvencies rose 4.4 per cent up to the end of May. According to the data, court liquidations rose by 8.6 per cent and director-initiated liquidations rose by 7.6 per cent.

However the senior executive leader of ASIC’s Insolvency Practitioners team, Adrian Brown said that by contrast, receivership and voluntary administration appointments had fallen.

Brown pointed out that despite suggestions that Western Australia was in the fast lane of a two-speed economy, it was also seeing its fair share of corporate insolvencies.

The ASIC data showed that while NSW dominated in terms of the number of external administration (41.2 per cent), the greatest increases were recorded in both Western Australia and the Northern Territory, with the ACT and Queensland actually recording decreases.

Five clear reasons to invest internationally with Five Oceans 1. Aims to deliver strong, consistent performance.

2. Benchmark unaware investment approach.

3. Reduced volatility via hedging.

4. Active currency management.

5. Diverse investment ideas.

12210/0711

For information on the Five Oceans World Fund visit www.5oam.com The Lonsec Limited (‘Lonsec’) ABN 56 061 751 102 rating (assigned May 2011) presented in this document is limited to ‘General Advice’ and based solely on consideration of the investment merits of the financial product(s). It is not a recommendation to purchase, sell or hold the relevant product(s), and you should seek independent financial advice before investing in this product(s). The rating is subject to change without notice and Lonsec assumes no obligation to update this document following publication. Lonsec receives a fee from the Fund Manager for rating the product(s) using comprehensive and objective criteria.

Challenger Managed Investments Limited ABN 94 002 835 592, AFSL 234 668 (CMIL) is the responsible entity and issuer of interests in the Five Oceans World Fund ARSN 117 060 769 (Fund). This advertisement is not intended to be financial product advice and does not take into account any person’s investment objectives, financial situation or needs. Accordingly, investors should consider these matters, the Fund’s product disclosure statement (PDS) and its appropriateness to them before making an investment decision. The PDS is available from www.challenger.com.au and should be considered prior to making an investment decision. Five Oceans Asset Management Pty Limited ABN 90 113 453 160 , AFSL 290 540 is the Fund’s appointed investment manager. www.moneymanagement.com.au July 21, 2011 Money Management — 11

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SMSF Weekly Changing SMSF trusteeships problematic, expensive

By Mike Taylor THE Cooper Review may have suggested that corporate trustees are preferable to individual trustees of self-managed superannuation funds (SMSFs) but the cost remains prohibitive.

That is the bottom line of an analysis by Institute of Chartered Accountants SMSF specialist Liz Westover, who said that while a

number of benefits flowed from using a corporate trustee, the cost is usually too great.

She cited the benefits of using a corporate trustee as being greater flexibility in the types of benefits that can be paid, perpetual succession, administrative efficiencies, flexibility in estate planning and a reduction in the risk of mixing fund assets with personal assets.

However, she said that when people set up a SMSF, the cost of creating a corporate

trustee was usually too great compared with setting up the fund with individual trustees.

“The benefits of a corporate trustee are not necessarily immediate enough to compensate for the upfront cost,” Westover said.

However, she said that as the benefits became more apparent and as greater funds became available, many individual trustees might consider changing to a

corporate trustee.

Westover said that such changes could become complex, particularly administrative issues such as changing “ownership” of different types of assets, dealing with banks and stockbrokers, setting up new accounts, stamp duty, fees and other hidden costs.

Westover said that in such instances, the task of moving to a corporate trustee could prove quite daunting.

More SMSF trustee education required

By Damon Taylor

ON the back of Jeremy Cooper’s Super System Review, one of the hot topics for self-managed super funds (SMSF) was service provider competency and professionalism. And as SMSF ‘gatekeepers’, there have been significant efforts towards increasing their education, qualifications and professional standards as a consequence.

But what of SMSF trustees?

Though Cooper recommended against compulsory education, increasing the knowledge and competency of trustees cannot be overlooked and yet, according to Self-Managed Super Fund Professionals’ Association of Australia chair, Sharyn Long, trustee

Sharyn Long education continues to be an underdeveloped market.

“There’s certainly capacity for there to be more courses and seminars and information run for SMSF trustees,” she

said. “But generally, they’re already connecting with an adviser or an accountant or one of a number of various service providers and I think they get most of their knowledge and information from that network.”

Asked whether a relationship with a SMSF service provider such as a financial adviser or accountant was sufficient for trustee knowledge needs, Long answered in the affirmative but also pointed out that an understanding of their responsibilities was key.

“I think that relationship is sufficient and certainly SPAA has been an advocate of not having compulsory trustee training,” she said. “However, anyone who is looking at establishing a selfmanaged super fund really

needs to take some responsibility for having an understanding of how they operate, what their roles and responsibilities are and what the risks are, particularly associated with choosing an investment adviser, deciding where they place their investments and so on.

“Outsourcing and using that service network is one thing but it doesn’t diminish the trustee’s responsibilities in having an understanding as to how it operates,” Long continued. “And, on that basis, SPAA isn’t averse to there being more training available to trustees.

“If people have more knowledge and information and the standard of that information is better, then everyone’s a winner in that circumstance.”

Compliance dominates SMSF software AS the acknowledged growth sector of the superannuation industry, service provision to self-managed super funds (SMSFs) continues to be a highly competitive market.

The challenge is finding that competitive edge and, according to Warren Gibson, director of sales and marketing for Praemium, technology and software solutions can be exactly that.

Commenting on what was currently available in the way of SMSF software, Gibson said that most of the software available was aimed at compliance.

“So it’s compliance software and it’s predominantly used for completing funds’ annual returns,” he said. “The leader there is probably BGL, who have about a 70 per cent market share; then there’s the Supercorp products SuperVisor II and superMate, Reckon-owned Desktop Super and, finally, Class Super, which launched a couple of years ago.

“On the other hand, our product isn’t actually a compliance software package at all,” Gibson continued. “Our product is a portfolio administration service or, if you like, an asset register.

“So we don’t do compliance. What we do is integrate with existing compliance software suites so that you can then use our tool to look after the assets in your SMSF,

be they shares, managed funds, direct property, collectibles or whatever.”

And on the back of the significant growth that the SMSF sector experienced in recent years, Gibson said that software take-up, whether compliance-based or related to portfolio administration, had been impressive.

“On our own books, we’ve got around 18,000 SMSFs, which is about 4 per cent of the market,” he said. “And someone like BGL, on the other hand, they’ve probably got about 70 per cent of the market and maybe 4,000 accounting firms.

“Obviously there will be a few people out there still using the back of an envelope or spreadsheets and then doing this kind of stuff manually, but those are people who just haven’t picked up on the advantages

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

software solutions can provide or perhaps they just don’t want to pay for them,” Gibson continued. “Of course, it does depend on how many funds you’re looking after, how complex they are, how much time you want to put into it and whether you want to scale your business in that space.”

Yet while there are still SMSFs out there being administered using good old pen and paper, Gibson said that the majority of service providers had realised that having a scalable solution was vital.

“At a rate of somewhere between 2,000 and 3,000 SMSF start-ups every month, there’s no doubt that this is a growth market,” he said. “And accountants, being the traditional gatekeepers or the trusted adviser of most people, obviously want to keep a deep involvement in that market.

“But it’s a growth market for financial planners as well because these are people who are investing and planners provide strategic advice, planning and investment advice,” Gibson continued.

“These are, after all, people who tend to want more flexibility and control – they’re the ones who tend to want direct equities rather than managed funds.

“Whether accountant, financial planner or dedicated SMSF administrator, it’s a big market for all players concerned.”

Economic expansion sustainable BANK of New York Mellon chief economist Richard Hoey has pointed to the current global economic expansion remaining sustainable despite the continuing size of the US deficit and continuing European debt concerns.

In his latest economic update, Hoey said he expected “a sustained global economic expansion along with two sub-cycle patterns: a sub-cycle slowdown in economic activity and a sub-cycle peak in reported inflation (including food and energy)”.

“We expect the sub-cycle peak in reported inflation to occur in the context of a gradual upward drift in core inflation in many countries,” he said. “Economic growth should tend to be slow in countries suffering from a debt hangover and stronger in those countries without a debt hangover.

“We assume that the financial stresses in peripheral Europe will not disrupt the economic expansion in core Europe. We expect that the U.S. can avoid a serious disruption to its economy from the debt ceiling struggle by adopting a relatively loose mini-deal on future fiscal policy without the major near-term fiscal tightening that might restrain the economic expansion,” Hoey’s analysis said.

Discussing why he believed global growth could be sustained, Hoey said the main reason was the lagged impact of two years' of stimulative macroeconomic policy.

“Except in peripheral Europe, current levels for the natural rate of interest (the interest rate relative to nominal GDP growth) and the real interest rate (the interest rate relative to inflation) are stimulative in most countries,” he said.

Hoey said one consequence of two years of stimulative macroeconomic policy had been the “reliquification” of the corporate sector, where balance sheets had strengthened as profits have rebounded strongly and refinancing opportunities had been available on favourable terms.

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InFocus INVESTMENTS

SNAPSHOT Proportion of clients’ money planners invested in direct listed investments 30 25 20

28% 23%

15 10 5 0

2011

2010

Proportion of clients’ money invested in equities 50 40

42%

30

The cost of client engagement New research confirms consumers who use financial planners are generally happy with the service they receive but, as Mike Taylor reports, it also points to how many clients become disengaged from the planning process.

T

he degree to which the Government’s Future of Financial Advice ‘opt-in’ arrangements will impact financial planners, and run counter to consumer habits in Australia, has been revealed in a new study conducted by Roy Morgan Research.

The research, released last week, focused in large part on how consumers perceived financial planners and financial planning brands. However, it also revealed the degree to which the same consumers who appear to be disengaged with their superannuation are also likely to be disengaged with their financial planners.

While opt-in is all about requiring financial planners to proactively contact their clients at least once every two years, the Roy Morgan research has revealed just how much of a challenge this is likely to be.

The report showed that 39.7 per cent of Australians with superannuation had used a financial planner for their superannuation or investment needs at some point, and that the usage of financial planning increased with age. It also showed that many consumers were far from proactive in maintaining contact with their planners.

The report said that of those that had used a financial planner, only 52.4 per cent were in contact at least on a yearly basis.

“This suggests the remainder are not in an active relationship with their adviser,” the Roy Morgan report said.

The report, suggesting that more than 47 per cent of financial planning clients don’t proactively stay in touch with their planners, appears to confirm concerns that opt-in represents a much more significant hurdle than is being portrayed by either the Government or the industry superannuation funds.

In circumstances where recent research sponsored by the industry funds has suggested relatively low costs associated with opt-in, the Roy Morgan research points to some planning practices facing significant costs in trying to actively re-engage and draw positive responses from nearly half their clients.

It also tends to confirm the findings of a recent Money Management survey suggesting the cost of opt-in might run to more than $100 per client, and that it would actually result in the loss of many clients unless planners were prepared to expend significant amounts on re-establishing and maintaining contact.

Also running somewhat counter to the direction of the Government’s FOFA changes was the report’s findings with respect to planner remuneration. It found that the most popular method of payment for financial advice was “via ongoing commission, or as a percentage of investments, with 42.3 per cent of respondents who used financial advice reporting this method”.

It said the next most popular method was paying per visit, with 39.6 per cent, “which is not surprising given that the major licensee groups have already transitioned across to fee for service arrangements for clients since 1 July 2010”.

The Roy Morgan report will also surprise many critics of the financial planning industry with its finding that “while almost half of respondents who use financial advice are not in an active relationship with their adviser (ie, no contact for over 12 months), and a large proportion are paying via ongoing commission, the majority of Australians still feel that they are getting either good or fair value from their advisers”.

Confirming the outcome of other research, the Roy Morgan Research Retirement Plan-

ning Report found that “73.9 per cent of Australians who had used an adviser felt they received good or fair value, suggesting that most were happy with the overall service and outcomes they achieved from the service”.

The Roy Morgan research also confirms that it will be the major institutions and the industry funds who are the major beneficiaries of the Government’s proposals with respect to the provision of graduated advice, pointing to the fact that those most likely to use a financial adviser for holistic advice are both wealthier and older.

It found that people who used a financial planner (either aligned or independent) or an accountant to establish their wealth management product were more likely to be in the top two quintiles than those who rely on another source, such as an employer or through the institution directly.

“This suggests that there exists a need in the market for financial planning for the lower quintiles, for people who are in the wealth accumulation stage. However, as these consumers have a lower income and fewer funds under management, cost and how to pay for the advice would be a bigger consideration for this group compared to the more affluent,” the report analysis said.

It said initiatives such as the Financial Planning Association’s ‘Ask An Expert’ program, which offered free general advice for a little over a month each year to coincide with Financial Planning Week (held in May each year), and the growth in intra-fund advice being offered represented a step in the right direction, “but it remains to be seen if these programmes will be used by those who need it, or if they will simply be utilised by those who would have already used a financial planner”.

30%

20 10 0

2011

2010

Source: Investment Trends

What’s on

IPA Session: Australia’s Clean Energy Future – the Mechanics of Carbon 21 July, 2011 IPA Training Room, Level 6, 555 Lonsdale St, Melbourne www.publicaccountants.org.au

AFA New Year Social Event 4 August, 2011 Argyle Bar, 18 Argyle Bar St, The Rocks, Sydney www.afa.asn.au

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

Midwinter Annual Advice Roadshow 31 August – Melbourne; see website for other cities Hilton on the Park, Melbourne www.midwinter.com.au

MFAA Broker Symposium 31 August, 2011 The Sebel Parramatta, 350 Church St, Parramatta NSW www.mfaa.com.au

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

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Recruitment

Desperate times, desperate measures As the financial services sector braces for major change flagged by the Federal Government more than a year ago, companies within the industry are becoming increasingly vigilant when it comes to recruiting new financial planners. Milana Pokrajac reports.

Key points • Financial services may be among the top 10 best paid professions in the country, but uncertainty around FOFA and a softening economy is making employers wary.

• The extra paperwork required by the FOFA changes (especially the ‘opt-in’ requirement) will give back-office staff a boost.

• There is a constant argument in the industry about the benefits of education versus experience, but the Government’s reforms may formalise the level of education required by all planners.

• The presence of a skills shortage means that instos are growing their own talent.

Talented employees are also being offered attractive packages to increase staff retention.

DESPITE recent reports showing increasingly positive job outlooks for financial planners, the industry has taken a cautious approach to recruitment over the past 18 months – and the reasons for this are evident.

First, the Government’s proposed Future o f Fi n an ci al Ad v i ce ( F O FA ) reforms brought uncertainty to the financial planning sector, as dealer groups and smaller practices alike have yet to determine the exact costs of implementing the changes to their business and remuneration models – which could slow hiring activities for some.

And second, although the recovery from the global financial crisis (GFC) is well underway, markets are still volatile and investors are nervous, which spells an uncertain outcome for financial services companies in terms of short-term performance and profits. Experts claim this, too, could lead to more conservative

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

recruitment outlooks.

On the other hand, data from SEEK found the financial services industry is still among the top 10 highest paid industries in Australia – although this year’s salaries might not exactly surpass planner expectations.

The demand for highly experienced, quality financial planners remained consistently high. Skills shortages have become more apparent over the last six months and institutions are finding creative ways to fight this by growing and nurturing their own talent.

So, what are the trends for the year ahead and should prospective and existing planners prepare for the job hunting nightmares?

Stop and start ahead of FOFA Recruitment experts have all agreed there was less demand for financial planners and paraplanners over the past

year, along with other roles within the sector. 2010 has been ‘stop-and-start’ in terms of recruitment, with hiring activity constantly adjusting to the impact of market movements both locally and overseas, according to regional director of Hays Banking Jane McNeill and Profusion director Alison Loader. Companies have dragged this trend into 2011, albeit with more confidence.

“We’d be extremely busy and then some of our clients would put recruitment freezes in place, but it looks like a stronger market this year than it was last year,” Loader said.

However, the heated debate around FOFA could further contribute to lack of confidence in the next couple of months, as the draft legislation release date fast approaches. Managing director and financial planning recruitment manager at eJobs, Trevor Punnett, observed that retail banks were always advertising, but

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Recruitment services sector are administration officers and client service officers, along with other back-office staff. Ever since the Federal Government released the FOFA package, financial planners have claimed some of the proposals, especially the controversial ‘opt-in’ requirement, would cause a massive administrative burden on their businesses.

Regardless, they still need to ready themselves for additional requirements, reinforcing back-office teams.

E Jo b s m a n a g i n g d i re c t o r Tre v o r Punnett also observed that admin staff as well as client service officers were in the highest demand.

The demand for financial planners a n d e x p e r i e n c e d p a ra p l a n n e r s i s expected to rise, but the banking sector is also looking for business developm e n t m a n a g e r s a n d re l a t i o n s h i p managers, according to the Hays Salary Survey.

Experienced financial planners are always highly sought after, but industry newbies might find it tough to break into the industry – especially with some companies putting periodic recruitment freezes in place, as Alison Loader from Profusion pointed out. This leads us to one of the hottest topics of the year.

Education versus experience

financial planning firms outside this space have focused on shifting their revenue models and ensuring lower costs through technology and staff efficiencies.

“They have moved to really protect and consolidate their A and B client business and have not looked to expand their staff until they have a handle on those expenses and efficiencies,” Punnett said.

This might result in some financial planning firms not feeling confident enough to recruit big numbers until the industry gets full details on the upcoming reforms and a better picture of the costs associated with the changes.

Punnett did notice some firms felt that costs were under control and that near future, if not now, could be the time to invest in some expansion. Data from eJobs (see figure 1) shows the number of advertised roles in financial planning dropped significantly in December 2010, but there has been an apparent increase throughout 2011, which may point to an increase in confidence.

Win for back-office staff Certainly the big winners from the regulatory changes about to hit the financial

What matters more when it comes to financial planning: education or experience? Years in the industry, or a university degree?

Older advisers would definitely argue experience, while the younger kind would go for education. In what seems like an endless debate, recruitment experts claim the answer is simple: both.

“When seeking a financial planner, clients look at a multitude of skills and abilities – they do not just look at qualifications,” Punnett said.

“So whilst ‘on paper’, an appropriate degree clearly suggests a better qualification than a TAFE diploma (and from t h i s o n e m i g h t d e d u c e a b i t m o re academic ability and perhaps maturity), it might be that the latter has more charisma, presence, initiative, passion, drive, presentation and displays more professionalism,” he added.

Raw graduates with no financial planning experience find it more difficult to find a job in the industry, said McNeill, adding there is a shortage of candidates who are both qualified and have appropriate experience. Since banks and large instos in general stopped hiring trainee and associate planners dur ing the economic downturn, the shortage of appropriately trained and experienced candidates is now becoming evident, she added.

Although the industry has raised its expectations of financial planning candidates in response to legislative changes relating to educational compliance, attitude, communication skills and the team fit are equally important, according to Robert Walters’ Sara Harrison.

However, the shift of focus from experience to education might happen once the entry level bar is formally raised by the Federal Government, as recommended by the Australian Securities and Investments Commission.

The shortage of “appropriately trained and experienced candidates is now becoming evident. ” - Jane McNeill

Alison Loader “Having someone ‘up and running’ soonest is generally the objective, which often favours the experienced,” Punnett said. “But with the bar rising all the time on qualifications, these are becoming more important, and those with higher education will be more favoured.”

Instos growing their own talent ‘Skills shortage’ has become a buzzword in financial planning recruitment over the past 12 to 18 months, with the industry talent pool at dangerously low levels. This means institutions and boutiques would need to find more creative ways to seek out quality financial planners, especially those who are entering the industry.

Profusion’s Alison Loader said larger employers are focusing on growing their own talent, looking to address the issue of skill shortage in that way.

One such institution is AMP Horizons (formed in 2007), which offers a 12month ‘Professional Year’ featuring 10 weeks’ formal academic training and

nine months’ on-the-job experience working as a planner.

The academy had 95 graduates in 2010 – 89 of whom currently work as financial planners at AMP or one of AMP-aligned dealer groups.

D i re c t o r Ti m St e e l e t o l d Mo n e y Management in a recent interview that academy would have 140 new graduates this year, with plans to double this number in the next few years.

Nine months ago, NAB Financial Planning launched an education program aimed at recruiting people looking for a career in financial planning. The program trains new recruits and offers them support to gain their Advanced Diploma of Financial Services (ADFS). Once qualified, the new planners are given coaching within NAB Financial Planning and are then aligned with a senior financial planner as a mentor.

MLC had launched a new program in Continued on page 16

Crunching the numbers DATA from SEEK (see figure 2) indicates the financial services and banking industry remains in the top 10 highest paid industries, grabbing spot number nine (average salaries just over $80,000). However, several reports have indicated that average pay increases in the sector were among the lowest. The Australian Institute of Management National Salary Survey found banking, finance and insurance industries had an average pay increase of 3.62 per cent, lower than the Australian average of 4 per cent. It is forecast to increase to 3.79 per cent in 2011-12, but that would make it middle of the pack compared to other industry sectors.

Jane McNeill from Hays Banking said employers were reconsidering salaries as a result, but stressed that it did not mean employers would pay over-the-market rate.

“But as mentioned, the pressure points of positive hiring intentions (low unemployment and increased job vacancies), skills shortages (a shrinking talent pool has seen candidates start to move back into a position of power in the jobs market) and the widening gap between candidate and employer salary expectations will lead to salary pressure in the year ahead,” she added.

In fact, Hays Salary Survey found only 11 per cent of employers had increased salaries above 6 per cent, while less then half increased them by 3-6 per cent over the past year.

“Such low intentions are at odds with candidate expectations – particularly those of candidates in demand – and so we expect the gap between salary expectations to widen even further,” McNeill said.

It is also important to note that many advisers still receive commissions and sales bonuses on top of their base salaries.

In terms of different roles within the financial planning space, bank aligned planners in some cities around Australia receive higher salaries than those working outside of the banking sector (see figure 3).

Sydney, Melbourne, Brisbane and Darwin planners on average receive $10-15K less than bank-aligned advisers, while dealership managers get more rewarding salaries.

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

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Recruitment Continued from page 15 March, MLC Pathway to Advice Excellence, for those who are seeking to change careers and join the financial p l a n n i n g i n d u s t r y. It i s a f o u r- d a y course aimed at those working in sectors such as professional or financial services who are gaining their RG146 qualifications.

MLC Advice Education offers RG146 courses, as well as the Diploma in Financial Services and the ADFS. Over the last 12 months 517 individual students have enrolled with MLC Advice Education.

Others are nurturing existing talent by offering professional development programs and education workshops.

Macquarie Private Wealth has rolled out a training program that offers technical and product skills, practice development, required learning and compliance.

Similarly, Colonial First State (CFS) Institute of Advice offers training for both new and existing advisers, along

with a number of specialist programs for those who wish to specialise in areas such as self-managed super funds, aged care and direct shares.

Head of CFS Institute of Advice, John Carnevale, said the planner attrition rate within major institutions is around 22 per cent, with companies facing a major challenge in retaining key talent.

“This is why we are making sure planners are properly inducted and trained,” Carnevale said, adding providing the necessary support would hopefully keep key talent from leaving.

MLC’s Adviser Scholarship Program also offers its advisers professional development activities, including strategic advice, technical knowledge, ADFS and Certified Financial Planner qualifications and practice management.

“

Incumbents have preferred job security to going out to look at other roles.

- Trevor Punnett

”

Upside of skills shortage Staff turnover had already increased in 31 per cent of organisations within the financial services sector, and companies are responding with greater focus on employee retention. This means that

Figure 1 Financial planning industry advertised roles – national total

Source: eJobs

Tim Steele some financial planners are in for a treat.

Alison Loader said a big part of the planner retention strategy is talking to the staff, understanding what it is that’s actually important to them and delivering against that.

“What you’ll find is that … what’s important to a paraplanner might be completely different to what’s important to a financial planner, which in turn might be completely different to someb o d y w h o’s w o rk i n g i n t e c h n i c a l ,” Loader said.

This means that key talent will be in a position of power and will be able to demand better conditions in the workplace.

Figure 2 Job ad salary by classification – Australia

Bonus payments have also been more lucrative this year, according to Hay’s data.

However, Punnett argued employee retention was high this year, mostly thanks to the legacy left behind the GFC. “Incumbents have preferred job security to going out to look at other roles.

Employers have been doing better at keeping staff with better communication and attention given to staff wellbeing,” Punnett said.

Employers are still demanding highly skilled and qualified candidates who do not require a lot of training and development, but when it comes to interview these professionals, they are moving quickly because they are aware of the shortage of such talent, according to McNeill.

Employers were definitely not hiring out of necessity or urgency, Punnett said.

“They are waiting for the right people to emerge and are taking their time, which could be frustrating for both recruiters and job-seekers alike,” he said.

Associate director for banking and secretarial support, Sara Harrison, said clients would generally become more flexible with some of their requirements as skills shortages further emerges in financial planning, but in niche areas, such as tax, risk or senior positions, clients have been “happy to wait for the right person regardless of timeframe”.

Climbing the ladder

Source: SEEK

Figure 3 Salaries by state Salaries by state

Financial planner

Financial planner (bank)

Paraplanner

Senior paraplanner

Dealership manager

NSW - Sydney

$90-110K

$90-120K

$65-75K

$75-90K

$170-210K

VIC - Melbourne

$70-110K

$80-120K

$50-65K

$55-80K

$130-200K

QLD - Brisbane & Gold Coast

$75-105K

$70-120K

$55-75K

$$75-90K

$150-230K

SA - Adelaide

$95-120K

$85-120K

$70-85K

$70-85K

$130-170K

WA - Perth

$80-120K

$70-120K

$75-100K

$75-100K

$180-240K

ACT - Canberra

$70-120K

$75-120K

$70-90K

$70-90K

$90-130K

TAS - Hobart

$55-105K

$55-105K

$50-70K

$50-70K

$80-110K

NT - Darwin

$70-100K

$70-120K

$70-85K

$70-85K

$120-130K

Source: 2011 Hays Salary Guide

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

Since companies have taken a cautious approach to recruitment, every advertised position in the financial services sector is well thought out, so job security is high, according to experts.

Robert Walters’ Sara Harrison said organisations across the sector have continued to change, transform and merge, “which always brings about structural change, but this can result in as many positives as negatives”.

“The roles that are coming to market have generally been deeply considered and gone through multiple layers of sign-off, so they are certainly secure,” Harrison said.

In terms of career progression, things are looking up, with most dealer groups big and small using this as a

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Recruitment retention strategy.

“Most organisations now have a str uctured internal process that is followed prior to looking externally in the market,” Harrison said. She added this does not mean they are always successful, but that opportunities for p ro g re s s i o n , d e v e l o p ment and further training are becoming much more apparent.

continue to see that, but most people have got plans for growth over the next six to 12 months,” Loader said.

Sh e a d d e d t h e re m i g h t b e strategic times of the year where companies decide not to recruit, but this would not affect adviser recruitment as much as it will affect head office staff.

In terms of recruitment genera l l y, h i r i n g w i l l g o u p a s t h e market further recovers from the GFC both locally and globally,

according to McNeill.

Ha y s Re c r u i t m e n t f o u n d almost half of the surveyed employers in the sector plan to increase salaries, but not beyond planner expectations, which could prove ineffective if they wish to retain staff.

New entrants to the financial planning industry and paraplanners will, however, have to brace for rigorous training and high employer expectations as the talent pool shrinks.

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Beware: social media Networking has always been vital in the financial planning industry, with some people being much further advanced than others when it comes to utilising it as a recruitment tool.

Business networking websites such as LinkedIn are a very useful tool for networking and seeking out new talent, and experts believe this is most definitely a trend for the future.

Howe v e r, Pu n n e t t warned candidates that recruiters in the financial services space, just like in other sectors, also look up t h e i r Fa c e b o o k a n d Twitter profiles.

“We are certainly using [social media] as a way to check on candidates and it often gives us a reason not to employ,” he said.

Jane McNeill said the rise of the Internet and the increasingly important role technology now plays in the recruitment process does not mean the industry should steer away from the face-toface process.

“Taking the time to get to know someone is still crucial in identifying the right role for them and picking up the phone or meeting them in person just can’t be substituted,” McNeill said.

Twitter and iPhone/iPad applications have proved themselves to be very efficient in targeting the right audience and seeking out potential employees.

What next?

Although companies have become more vigilant as a result of the G F C a n d F O FA , h i r i n g i n t e n t i o n s a re u p a n d skills shortages will force e m p l oy e r s t o b e m o re flexible in terms of their expectations.

“The general feeling is that of cautious optimism and I think that they will www.moneymanagement.com.au July 21, 2011 Money Management — 17

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OpinionInsurance Unravelling the best laid plans

One of the biggest threats to a baby boomer’s retirement plans could be the underinsurance of their adult children. Kevin Goss explains why all family members must be adequately insured.

F

or years, the financial services industry has focused on the a d v i c e n e e d s o f t h e b a by boomer generation. To a large extent, the growth of our industry has depended on it.

Now it’s time for the baby boomers to commence their transition to retirement. In fact, the first wave of boomers has started retiring already.

So how well have we, as an industry, prepared them for what lies ahead?

To date, much of the advice directed at baby boomers has focused on ensuring they will have the right level of pension income for a comfor table retirement. We’ve also helped many of them protect themselves, and their estate plans, with life insurance.

Now, as they reach the pointy end of the financial planning journey, they’re entitled to feel like they’ve done everything they can to prepare for the next 20 or 30 years.

Unfortunately, one major threat that remains that can hijack even the bestlaid retirement plan: a financial crisis

caused by the death or disability of their adult children.

The flow-on effect of underinsurance A lot has been said and written about how Australia’s young families have inadequate levels of life insurance. But let’s take a look at how that underinsurance might play out in a real-life situation.

Sophia, a 32-year-old child care worker, gets diagnosed with multiple sclerosis. After coming to terms with t h e h o r r i f i c n e w s, a n d g a i n i n g a n understanding of the treatment plan she has in front of her, Sophia sits down with her parents to discuss her financial position.

So p h i a’s p a re n t s d i s c ov e r t h e i r daughter only has the minimum level of death and total and per manent disablement ( TPD) insurance inside her super fund. She has no trauma cover, and her employer doesn’t provide default salary continuance cover. Her private health insurance lapsed after

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

she neglected to pay her premiums, and she never got around to renewing it.

Like most parents, Sophia’s mum and dad want to help their daughter in any way they can. That includes inviting her to move back into the family home, and helping her cover her ongoing medical expenses.

In an instant, Sophia’s parents’ retirement plan is turned upside down. And despite the fact they had all of their own strategies and insurances in place, there’s absolutely nothing they can do about it.

The financial impact Let’s assume Sophia’s parents have $ 5 1 0 , 0 0 0 i n s u p e ra n n u a t i o n a n d $20,000 in liquid savings. They are both retired and over the age of 60, and they had budgeted on spending $45,000 per year between them.

Taking into account any age pension, an inflation rate of 3 per cent and an assumed 5 per cent investment return, their money can be expected to last 27.7 years.

Now let’s imagine they had to spend $400 per week on supporting Sophie over the next 20 years.

If t h i s we re t o h a p p e n , So p h i e’s parents could only maintain their $ 4 5 , 0 0 0 p e r a n n u m o f re t i re m e n t expenditure for 9.9 years – less than half the time they had planned for.

High stakes for families It’s one thing to imagine your client having to support an adult child who suffered a debilitating accident or illness. But imagine that child also had a partner and children, and they were the main breadwinner in their household.

The National Centre for Social and Economic Modelling (NATSEM) estimates it costs $537,000 to raise two children to age 21. When you consider the average superannuation balance for those aged 55 to 64 in 2007 was only $141,900 according to the Association of Superannuation Funds of Australia, the ability for many retirees or preretirees to take on that extra financial responsibility is clearly limited.

According to the Australian Bureau of Statistics, grandparents are already the largest providers of informal care in Australia – as they help their adult children overcome rising child care

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costs, and the need for many families to access dual incomes.

But caring and babysitting is one thing. Taking guardianship over grandchildren at that stage of their lives is probably the furthest things from the m i n d s o f g ra n d p a re n t s. It’s a l s o a scenario few will be financially prepared for.

Underinsurance among Gen X and Y As an adviser, you probably won’t be surprised to hear that underinsurance is particularly bad among young families – 95 per cent of which have insuffic i e n t c ov e r a c c o rd i n g t o t h e Lifewise/NATSEM Underinsurance Report.

Part of the reason for the enormous insurance gap in this age group is the fact that many people in their 20s and 30s are carrying a considerable amount of debt.

Even if they haven’t started a family yet, the children of baby boomers have grown up comfortable with the idea of using debt to achieve their goals. And to get into the housing market, they often have to take on considerable mortgages, which can take a decent bite out of their incomes.

Of course, all of this is sustainable when they’re working full-time, or

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accessing two incomes. But without adequate protection for their incomes, debts and dependants, many people in their 20s, 30s – and even 40s – are highly vulnerable to sickness and injury.

According to the 2010 IRESS Life Risk Report, a 32-year-old female has a 23 per cent chance of making a trauma, TPD or death claim by the age of 65. She also has a 47 per cent chance of suffering a disability that will keep her out of work for three months or more.

The question is – do the adult children of your baby boomer clients even know how precarious their financial position is? Do they realise what the absence of a personal life insurance strategy could mean for their parents’ retirement plans?

Protecting clients by protecting their children The intergenerational consequences of underinsurance have traditionally fallen outside the scope of financial advice.

However, when you consider how easily a financial crisis for adult children could undermine a retirement plan, it’s a conversation that’s worth having with your baby boomer clients.

Raising this topic with your clients can help spark an important conversation

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“

By encouraging your clients to talk to their adult children about life insurance, you can help break down the ‘taboo’ nature of this topic.

”

between them and their adult children.

At the very least, this can get Generations X and Y thinking about the need for life insurance – something they may not have done already.

From an adviser’s perspective, the introduction of life insurance to the next generation can also have important implications for your business.

The dangers of a weighted business As I mentioned, baby boomers have driven the growth of our industry for decades. And while some advisers are already targeting Generation X and Y with some success, the majority of advice practices would still have a client base that’s heavily weighted towards baby boomers.

What does this mean for the sustainability of our industry, and the long-term

value of your business? When all the baby boomers who want financial advice have received financial advice, where will our next wave of clients come from?

Your clients’ children are potentially one of your most valuable referral sources. With the level of trust you’ve built with their parents, you would make a natural choice for young adults looking to investigate their options.

By encouraging your clients to talk to their adult children about life insurance, you can help break down the ‘taboo’ nature of this topic. Not only will this be great for the financial security of the next generation, it will also help you safeguard everything you’ve been working towards for their parents.

Kevin Goss is head of insurance sales at OnePath.

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OpinionMarkets

The state of play With talk of interest rate rises shifting to the possibility of a rate cut, Dr Ron Bewley weighs up the outlook for asset classes in Australia and abroad.

J

une was definitely a month of mixed signals. It started with the Reserve Bank of Australia stating its intent to raise interest rates twice this year, and ended with more sober comments and the market pricing in a rate cut. It would seem the balance is right for one rate increase later in the year. Market economists – unlike the money market – are still going for a bit more than one rise.

The dollar fell to just above US$1.04 on this sentiment but rapidly jumped up nearly three cents. Some of this optimism (if we can call it that) is due to the Greek parliament passing ‘austerity measures’.

Retiring at 50 on a pension based on 95 per cent of the last wage might become a thing of the past – but not without some more rioting.

The real problem is unlikely to go away.

What Europe is trying to do is prevent the ratings agencies triggering a default. If they do, all the credit default swaps, which serve as insurance against such an event taking place, will have to be paid. If the

agencies believe the restructuring is voluntary they might let it go to the keeper. But who would voluntarily take a 30 per cent payment now in cash, 20 per cent at some unspecified time and the remaining 50 per cent in 30 years? Sounds like a Greek default to me.

The one thing that was really overplayed in Australia was the gross domestic product (GDP) release. Since half of Queensland’s mines were under water, the fall in exports was technical and not demand driven.

When the mines are back on track we should see a bumper number to cancel out the negative. But journalists writing stories on the worst GDP figure in decades did fill some space.

Commodities prices also saw some big swings. Gold came off its high to fall to $1,500 and lifted back up a little again.

Oil was off a high of $113 down to $90 before another kick up. The US did release some oil reserves onto the market to get some stability at home before the driving season and, of course, the

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

upcoming election campaign.

Our stock market slumped 10 per cent in the second quarter of 2011 but ended the month will a small rally. Broker forecasts have not been revised downwards.

The August reporting season will be a ‘show and tell’ of massive proportions. Until then, any behaviour is fair game. A solid reporting season should see a nice rally and make the ‘go away in May’ crowd feel pleased.

The one sector that does look a bit exposed is consumer discretionary (ie, David Jones, Harvey Norman, etc). Are Australian consumers going to permanently demand more favourable margins?

So with another financial year behind us and not much positive action on our stock market, we do need relief from the dollar.

The second round of quantitative easing (QE2) in the US has ended, so the ‘trainer wheels’ on the US economy are off. The deadline for both sides to agree on lifting the debt ceiling to avoid a US default is 2 August. But with a debt of around 100 per cent of GDP and rates close to zero, the US

can afford repayments – but what if rates jumped up to 5 per cent? What would happen to US growth then? Thankfully, for us, China is looking in control at least for a few years to come.

Australian equities While we seem hopelessly adrift from the performance of the US stock market, the difference can still be accounted for by the exchange rate. The end-of-financial-year rally on the back of the Greek vote on its austerity measures put 4,600 back in the picture. So much for the technical analysts who claimed if we breached 4,477 it would be all doom and gloom. We breached it twice but bounced back strongly.

Broker forecasts have remained very stable over the month – implying a capital gain of about 15 per cent over the next 12 months – providing our dollar stays where it is or falls. While we have the market very underpriced – and the fear gauge and volatility are all good – the bruising some investors took in

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prices slipped a little over the year. There is no boom to slow down or bubble to burst.

Currency At the end of June, the Aussie reached a 26year high against the UK pound sterling.

Against the US dollar there has been even more turbulence than normal but, at least, the recent $1.10 peak should not be breached again soon. Interestingly, the Financial Review survey for the rest of the calendar year has no forecast above $1.10 – except from a Financial Review columnist.

There is some leaning toward a falling dollar, with $1.02 being the median forecast for Christmas and $0.95 the low forecast.

“

There is no clear economic or political path that seems destined to take us far forward, and there seems to be no coherent and compelling alternative.

”

Again, it all depends on what the US does.

If it moves, $0.95 might seem high, but who can predict what the US government will do 12 months out from an election?

There is no clear economic or political path that seems destined to take us far forward, and there seems to be no coherent and compelling alternative. Perhaps that is the stuff of minority governments.

Everyone is, or should be, worried about how to deal with the two-speed economy.

We didn’t do well in the wake of the 70s mining boom and the Dutch had the ‘Dutch Disease’ named after them for their similar problem of dealing with the profits from the North Sea gas inflow in the 1970s.

China There hasn’t been much good or bad commentary about China in June, and that’s a good thing. We all need some stability in our lives and that, for the time being, is China. While no one can say with any degree of certainty how long the China story will last, it seems like more than five years and that is long enough for us to get our houses in order.

US President Obama appears to be getting a little edgier over the failure to reach a compromise over the debt ceiling decision due before 2 August to side-step a default.

If it is just a game of brinkmanship on both sides then it is a game that is not helping the global economy. In three months, it will be three years after the Lehman Brothers collapse. While Greek and US defaults are of a different nature, any default is a bad thing.

The US economy is travelling at a bit more than a limp. Some positivity was taken for one weak month in house prices after many months of falling prices. Restoration of the US economy has to be slowed down by the shadow of their debt mountain. But, thankfully, no one significant is talking about double dips and the like. It will just be a long hard slog for them.

Europe Oil

recent months might make them a bit slow to take up the challenge.

or not it does fall, some additional shortterm volatility seems likely.

Foreign equities

Bonds

The USA’s S&P500 finished the month at about 1,300 – or where it was in June 2008 when our index was 900 points higher than it was at the end of June this year.

There seems to be less good news out of the US, but there is a lack of bad news too. The concern is what will happen to the US market after QE2 stopped on June 30. Management of debt rollover will continue and some speculate the Federal Reserve is ready and willing to jump back in if needs be.

Much of the world has been living in a world of mounting debt and fiscal challenges. When QE2 started it was often referred to as the ‘Bernanke put’. There was, in effect, a put option (or ‘floor’) under the S&P500 due to the Federal Reserve’s chairman, Ben Bernanke. There has to be some concern that the US market might fall without QE2. Whether

Sovereign bonds are typically returning very little or are too risky to go near. On the other hand, Australian corporate bonds seem to suffer neither of these shortcomings. But with term deposits in some cases above 6.5 per cent, is it necessary to look further for a low-risk income stream?

Interest rates The Governor of the RBA, Glenn Stevens, must be about the only person who thinks we need one or two rate rises this year – but even he softened his view towards the end of June. The mining boom isn’t going to soften any time soon, but fiddling with interest rates isn’t going to change the adverse impact of that sector on the rest of us. Outside of resources, few are doing well and some retailers are doing badly. A rate increase now could only hurt sentiment and cause further hoarding of cash. House

Oil dramatically fell from over $110 to under $100 in days at the beginning of May and dipped down to $90 in late June, only to finish our financial year a few dollars higher.

The US government released some supplies to the market in order to take some pricing pressure off the table. It only released one day’s supply for the world to slash prices – but, importantly, that was enough to account for lost production from Libya and the rest.

Gold Gold peaked at $1,557 on June 22 only to fall to $1,500 three days later. That hasn’t stopped some commodities traders talking up silver prices that remain well off their peak.

Australia The Senate produced a report against the mining tax at the end of June, and few politicians were popular in the opinion polls.

James Dunn, a media commentator, put the National Broadband Network (NBN) case very succinctly. It took ages to dismantle Telstra’s monopoly in communications only to create a new monopoly, the NBN, to take over. The Greens are chest-beating as they take the balance of power in the Senate.

The UK is seemingly coping with its problems and is pushing forward, while Germany remains the powerhouse.

It is hard to see the single currency remaining intact forever but it is equally hard to see anyone let a country run free.

The chaos that would follow an exit by Greece and a 50 per cent devaluation of the drachma would eclipse any of the rioting we have seen to date. This problem was foreseeable in general before the union.

Currency union without fiscal and political union is a union with much less chance of success than matrimony.

The rest of world Japan got a nice reading of its industrial production as it recovers from its manmade and natural disasters. It is hard to work out what impact Japan’s problems had on the world economy – but at least they are now coming out of the woods.

New Zealand can’t win a trick – two more big earthquakes and even a Chilean ash cloud to compound their problems.

Hopefully the Rugby World Cup will help them rebuild.

Dr Ron Bewley is an investment consultant with Infocus Money Management.

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ResearchReview

The biggest hurdles Research Review is compiled by PortfolioConstruction Forum in association with Money Management, to help practitioners assess the robustness and disclosure of the funds research houses. This month, PortfolioConstruction Forum asked the research houses: What, in your firm’s view, is one of the big challenges facing the Australian funds research industry at present, and why?

Lonsec

Mercer

The primary challenge for fund research houses is to ensure they get their ratings correct and to publish high quality and timely research supporting their recommendations. The biggest challenge to the funds research industry, like a number of professional services industries, is to articulate the value of its offering and the positive role that research houses play in the industry. Research houses have had mixed success in articulating their value to subscribers. This is a key issue given research, by its nature, is labour intensive and costly to produce. Much of the attention is focused on research house fund ratings, but the value added through research services such as asset allocation advice, model portfolios and thought pieces is often missed in the discussion around the cost and value of fund research house offerings.

At this time, many larger advice groups are embracing research, building up their in-house research teams as well as entrenching strong relationships with external research houses. However, some smaller practices and individual planners are less engaged with research providers. Perhaps this dynamic is symptomatic of the broader issues within the different levels of the advice industry, including the impacts of Future of Financial Advice (FOFA) in relation to potential regulatory change, as well as ongoing market volatility. This uncertainty appears to be impacting smaller advice groups the hardest. These are the groups where research houses can be best placed to assist in providing a value adding service.

One of the biggest challenges facing the funds research industry is building confidence among advisers so that they feel comfortable once again advising their clients to invest in the equities market and other growth investments. Mercer is seeing a lot of risk aversion in the industry, with planners scarred by losses in the global financial crisis (GFC), attracted by high interest rates for cash investments, and wary of high fees for low performance. But shying away from growth investments such as equities makes it harder than ever to deliver returns for clients. Moreover, there are ways to effectively manage and investigate risk in the market while still generating returns above inflation and cash in the medium term. We would like to see greater awareness of these approaches in the retail investment market, as well as more development of suitable products based on them. These include: • Low volatility investments: the safe end of the market. A low volatility equity strategy plays an important part in portfolio construction by helping to moderate risk levels – particularly in a portfolio with exposures to more volatile assets such as emerging markets and small cap

Grant Kennaway is Lonsec’s executive director for research.

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

equities. These ‘low-vol’ stocks are generally good quality companies in mature industries, with little or no debt, and a strong track record. The concept at work here is that these stocks win by not losing. Even though they’re unlikely to generate high returns in a rising market, they’re less likely to fall as far and fast when the market declines, and they benefit from the flight to quality investment behaviour during periods of market stress. Over the long term, this lower volatility counterbalances the higher volatility of growth investments.

• Indexation: an index-tracking investment based on market capitalisation, while traditionally favoured, may not always deliver on strong returns. These investments are susceptible to backward-looking bias and can be overweight in certain company stocks. They can also be prone to asset bubbles. That’s not to say that the idea that market capitalisation-weighted indices should be ignored altogether, but Mercer believes there are better alternatives to the market-cap approach. Market cap-weighted indices assume the value of a company based on the number of shares multiplied by the price of those shares – but we all know shares can be mispriced, driven by

‘animal spirits’ rather than rational investors assessing the underlying value of the business.

The answer is to construct an index of shares that does not use the market price of those shares as one of its inputs.

The alternatives to market-cap or pricebased approaches seek other, more stable measures of the true value of a company and use these value-weights as the basis for index-construction.

Gross domestic product-weighted indices are one option; another is to size each company according its fundamental value rather than its share price.

A value-weighted approach overcomes some of the more serious flaws of the market cap-weighted index, and investors should give serious consideration to managers who provide such an alternative.

Ultimately, advisers can’t avoid growth investments forever if they want to deliver growth and diversification to their clients. However, there are strategies they can follow to manage the risks that are associated with growth investments, and Mercer would like to see more of these options being offered to the retail end of the industry.

Luke Fitzgerald is Mercer’s principal for wealth management and investment consulting in Australia/NZ.

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Standard & Poor’s Along with the force of change wrought by the GFC, the wellpublicised Future of Financial Advice (FOFA) reforms and the proposed commissions and volume rebates ban are driving a variety of responses from the wealth management industry.

These reactions include: • The concentration of distribution, with marginalised financial planning groups swallowed by larger groups, and platforms rationalised; • Increased vertical integration of financial planning groups to include platform and/or product to capture or retain margin; • Sh r i n k i n g o f Ap p rov e d Product Lists and more business b e i n g d r i v e n t h ro u g h m u l t i manager products and centrallydesigned model portfolios to better manage risk; • Increasing infatuation with cheap beta through exchangetraded funds and more direct c o n t r o l t h r o u g h s e p a ra t e l y managed accounts and direct equities;

Zenith Investment Partners Having worked in the retail research industry at multiple research organisations over the past 20 years, I believe the biggest challenges faced by the research industry remain the same: firstly, maintaining a sustainable business and business model, and secondly, attracting and retaining experienced, qualified and highly competent research analysts in order to provide financial advisers with quality research and investment ratings on investment products.

On the first point, while there has been much media focus and attention on the business models of retail research providers – and, to a lesser extent, asset consultants – one only has to look at the two business models used by the research industry to recognise that an investment research business cannot be sustained on a user-pays model alone.

The first business model, which is most popular with institutional asset consultants, is operating implemented consulting or multi-manager investment products alongside investment research. In this model, research ratings and/or consult-

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• Growth in internal research teams, after recognising that the ‘know your product’ responsibility rests with the licensee; and • Co n t i n u e d p re s s u re o n vendor fees, including thirdparty research houses.

In St a n d a rd & Po o r’s Fu n d Services’ view, the single biggest issue facing the Australian funds research industry is how these industry dynamics will ultimately affect the competitive landscape for independent providers of research – and more specifically, how third-party research houses need to evolve to remain differentiated, high-value and competitive.

Possible ways that research houses can change and adapt to add more value include: • Reducing qualitative fund coverage if fewer investment products are in demand; • Improving depth of analysis, ideas generation and monitoring, including more timely research, better alerting of changes, more contextual information around investor suitability, more targeted

ing services are sold to institutional investors such as corporate superannuation funds while the output of the firm’s investment research is also used to construct multi-manager funds for investors – including the firm’s research subscribers – to invest in. This model allows the asset consulting or research firm to generate management fees from the multi-manager products, which are a percentage of the funds under management in the funds. This model has potential conflicts which must be managed, such as an incentive to provide managers with strong investment ratings where they agree to manage money cheaply for the multi-manager business, or providing research subscribers with free or discounted research for a predefined level of support (ie, investment) in the multimanager products.

The second business model is more popular with retail research providers where a component of their revenue is derived from fund managers. This may be in the form of charging managers for product ratings, for fund data services, for advertising and promotion of ratings, or

model portfolio solutions, and better ways to electronically deliver content so it is embraced by users; • Extending and deepening risk analysis, including operational and counterparty risk; • Improving the engagement models with financial planning businesses to eliminate obvious overlaps with internal research teams, filling important analytical gaps, addressing new requirements, and helping those teams better service their adviser base; • Expanding services to accommodate the trend to beta and direct investment; • Providing more broad-based c o n s u l t i n g s e r v i c e s, m ov i n g beyond investment strategy to i n c l u d e b u s i n e s s s t ra t e g y, product construction, and risk management as financial planning businesses re-set their client value propositions, and • Building stronger separation of cross-subsidising business lines where they exist (eg, ratings, investment advice, investment product, data and tool services)

for attendance at research firm conferences. Again, there are potential conflicts of interest that must be managed with this business model (such as providing favourable ratings to managers who subscribe or pay for the services).

In both instances, it’s important to understand that these business models are effectively subsidising the cost of financial advice to the consumer. The reason for this is that in a true user-pays system, advisers would be charged more for research services in order for the research business to be sustainable and a going concern – the increased cost of which would ultimately be passed on by the adviser to the consumer. While there is no doubt there are potential conflicts of interest with both business model structures, the reality is, if research firms provide poor research and strong ratings on weak investment products, advisers will not subscribe to that firm’s research and the business would ultimately fail.

In my experience, the second biggest challenge is attracting and retaining experienced, high quality staff in order to produce quality research and ratings for

to improve transparency and analytical objectivity, and removing the lingering perception of conflicts of interest.

On balance, the need remains for a robust, independent thirdparty funds research industry. As many of the wealth management industry reactions noted above could be described as premature, unresolved, or transitor y, we believe that the path ahead for research houses – much like the financial planning industry – will be clearer once the FOFA reforms are legislated. Still, in our view, we a l t h m a n a g e r s a n d t h e i r clients will always seek and pay for investment research that drives performance and/or provides deep insight, both of which are essential to the investment decision-making process.

Throughout the history of the capital markets, money-making ideas are front and central to success.

Mark Hoven is the managing director of Standard & Poor’s Fund Services.

advisers. The financial services industry is a highly paid industry, and research businesses compete with fund managers and other parts of the industry for talent.

In par ticular, it can be difficult to compete with the salaries and other incentives offered by fund managers to experienced and talented financial services professionals for investment personnel and business development roles. The retention of quality analysts remains a very real and constant challenge for research businesses.

David Wright is the director of Zenith Investment Partners.

Morningstar Morningstar did not provide a response to the question.

Van Eyk Van Eyk did not provide an appropriate response to the question.

In association with

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ResearchReview Van Eyk Research

Research round-up PortfolioConstruction Forum asks the major funds research houses for an update on the state of the market and their most recent projects.

Lonsec • Since the global financial crisis (GFC), the behaviour of banks in Australia and overseas has reshaped the way investors source income from their investments, according to Lonsec. Banks have been the major beneficiaries of these investment flows, via the humble ter m deposit. However, term deposit rates in Australia will drift lower, Lonsec writes in a recent Perspective, and the case for term deposits comprising a significant component of a defensive investment portfolio will become less compelling.

• Given the dislocations and upheaval in global financial markets since the GFC, active fixed income managers are better placed to add value than they have been for a number of years, according to Lonsec. “While it is true that the fee load on index funds is cheaper, in the case of Australian fixed interest funds, the difference is little more than 10 basis points,” Lonsec notes in its latest income sector review. “With the exception of Macquarie True Index (which delivers the exact return of the index without regard for fees), index funds are aiming to deliver the benchmark return less fees of around 0.26 to

0.29 per cent, whereas the average active Australian fixed interest manager aims to deliver the benchmark plus 0.5 to 1 per cent before fees of around 0.40 to 0.51 per cent. Similarly in global fixed interest, passive index style managers aim to deliver the benchmark minus fees of 0.31 to 0.34 per cent versus active management fees from 0.45 per cent.”

In addition, Lonsec observed that some of the highest buy/sell spreads were applied to index style funds.

Mercer • Constructing portfolios with in-built levers to control potential inflation and deflation outcomes is a critical aspect of portfolio construction today, according to a new paper from Mercer. The research house argues that to effectively protect against deflation or an inflation breakout, portfolios need to be flexible and ready to a tilt to a more diverse range of assets. While there is a good argument for diversification into inflation/deflation hedging assets (precious metals, proper ty, infrastr ucture, commodities, timber/agriculture), Mercer notes many of these assets are quite expensive currently. Real estate

and infrastructure, though not the most explicit hedges, are probably the most reasonably pr iced at present, the researcher believes.

Standard & Poor’s Fund Services • Investors are demanding more competitive offerings from the alternative strategies multi-asset sector, according to Standard & Poor’s Fund Ratings’ latest review of the sector. The classic fund of hedge fund model – offering investors a diversifying set of alpha managers, albeit at a higher cost and with reduced liquidity – is being challenged, especially where performance has been poor, the report observes. “Some products using singlemanager multi-strategy and active multimanager models that incorporate tactical exchange-traded fund [ETF] and index-like allocations have outperformed the alpha manager fund of hedge fund model,” the report notes. S&P added it expects offerings that fail to compete in terms of active oversight, transparent risk management, product-level liquidity, and competitive fees to lose out to the growing competition from newer funds designed from the ground-up to deliver on these features.

Released in June • Lonsec – Month in review • Lonsec – Australian equity long/short sector review • Lonsec – Income sector review • Mercer – Monthly market review • Morningstar – Monthly economic update • Morningstar – ETF monthly • Morningstar – Australian listed property sector review • S&P – Monthly economic and market report • S&P – Multi-manager alternative strategies sector review

• Art investment funds are steadily increasing in size and might soon become a mainstream alternative asset class, according to a new report from van Eyk. While the number of art funds whittled down dramatically after the GFC, it has begun to increase once again. “In absolute terms, art is a real asset,” according to van Eyk. “As gross domestic product and the economy grow, so does the value of artwork; art assets are often mispriced, allowing for ‘buy and hold’ strategies; art is not susceptible to inflation, acting as a natural hedge; and, classic art works by historically famous artists often hold tremendous value given that they cannot be recreated, providing good diversification against other financial assets.” On the downside, art investments are often illiquid and expensive, limiting the ability of the average investor to gain exposure, there is no regulator, and art does not produce a cash flow.

• Van Eyk has appointed Matthew Olsen as head of ratings, effective immediately. Olsen will lead a team of 12 analysts covering van Eyk’s investment research efforts. Olsen joined van Eyk in January 2011. Van Eyk’s head of research, John O’Brien, will move to focusing on van Eyk’s strategic research unit including its investment outlook and strategic asset allocation research, as well as sitting on the Blueprint Investment Committee.

Zenith Investment Partners • Zenith has launched an investment consulting division, Zenith Investment Solutions, which will grow the researcher’s existing tailored investment solutions for financial advisory firms via model portfolios, investment committee services, fund selection and asset allocation advice. In addition, it will offer product solutions advice to advisory firms looking to establish their own products, and offer a range of consulting services to fund managers. The management of Zenith’s existing adviser research website and research report suite will also fall under the management of this division.

• Zenith has appointed Bronwen Moncrieff as senior investment analyst with overall responsibility for international equities, Australian equities small cap, infrastructure, and Australian REIT and global REIT funds reviews. In addition, Steven Tang has been promoted to senior investment analyst with overall responsibility for Australian equities large cap, Australian fixed interest, international and diversified fixed interest, and diversified funds.

Upcoming in July • Van Eyk – Investment outlook report • Van Eyk – Australian equity ETFs sector review • Van Eyk – Infrastructure securities sector review • Zenith – Monthly market report • Zenith – Monthly economic report • Zenith – CTA/macro sector review • Zenith – A-REIT sector review • Zenith – Global REIT sector review

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

• Lonsec – Australian equities concentrated review • Lonsec – Hedge funds review • Lonsec – Mortgage funds review • Lonsec – Global emerging markets and Asian equities reviews • Lonsec – Global long/short review • S&P – Australian fixed interest sector review • Van Eyk – Australian equities SMA sector review • Zenith – Global equities sector view • Zenith – Global equities long/short sector review

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Putting the brakes on Amid mounting evidence that China’s economy is on the verge of a slowdown, it is time to reduce commodities exposures, writes Chris Watling.

T

here is an increasing risk that China’s economy will slow more than expected. Its yield curve is close to inversion (ie, signalling a meaningful growth slowdown) and official short-term interest rates have also moved meaningfully higher in recent months (while unofficial shadow banking rates are reportedly many times higher than official rates). Leading economic indicators are slowing: PMI surveys continue to slow, while car sales are contracting and copper imports are falling. Inflation is also yet to be brought convincingly under control – although the debate on this is mixed.

Of particular note, Chinese Premier Wen Jiabao said in the Financial Times in June that: “The overall price level is within a controllable range and is expected to drop steadily.” In contrast, the China Securities Journal (a government-sponsored publication) “believes that inflation in June is very likely to exceed 6 per cent year on year” while other sources, including Reuters, have cited Chinese central bank officials as stating that “The People’s Bank of China will continue to increase interest rates and bank reserve requirement ratios until it sees three consecutive months of decline or stability in consumer prices”. Meanwhile, the bubblelike nature of China’s housing and construction boom enhances the risk that the slowdown will become unmanageable.

A more significant than expected slowdown in China would undoubtedly have knock-on effects for commodities, given China’s dominance in most global commodity markets. It would also have meaningful knock-on effects on a number of key emerging market commodity producers (Chile, Peru, South Africa and Kazakhstan, among others) as well as a handful of developed world commodity producers – in particular Australia, Canada and Norway.

In contrast, though, while the Western economies would not be immune to a Chinese slowdown given its major contribution to global growth each year, they are much better placed to weather that slowdown than key emerging market commodity producers. In particular, the likely sharp fall in the oil price that would accompany such a slowdown (and is currently accompanying it), will benefit the US and other western households.

We believe it’s prudent to reduce commodities allocations on a one to two year view (in our model, from 15 per cent to 5 per cent) with most of that in gold as a hedge against major policy error and continued long-term money creation, and redistributing some of that commodities weighting into equities (up 5 per cent to 57 per cent in our model) – especially western equities – as well as cash (up 5 per cent to 10 per cent).

Commodities will fare poorly

Western equities are attractive

Liquidity is less plentiful Our analysis suggests that a key driver of commodity prices in recent years has been money creation (ie, quantitative easing programs in the US in particular, but also the UK, Japan, China in its own form, and the Eurozone). With the end of the second round of quantitative easing (QE2) in June, liquidity is less plentiful. As such, a key support for the recent upward price momentum in commodities is removed.

Economic expansion is set to continue Despite recent soft economic data, key macro indicators continue to support an expectation of an ongoing economic expansion. In particular, the US (and western) yield curve remains steep, credit and monetary conditions remain loose, and US car sales continue to trend higher while companies continue to throw off plentiful cash flow – all conditions which point to economic expansion and not recession (and all indicators which have correctly forecast, ahead of time, all US recessions these past 40 years).

Other near-term indicators also suggest that this US expansion has become increasingly self-sustaining. For example, after contracting from July 2008 through September 2010, US consumer credit grew each of the next seven months. US consumer intentions to buy a car and house have increased sharply in the first half of 2011 and US job creation, as well as chief executive officers’ intentions to increase their employment in the next six months, have also both improved over the past six to nine months (despite recent poor US non-farm payroll data). Added to that, the oil price spike in February and earlier this year, has, in large part, eased in recent weeks.

QE3 is unlikely any time soon In particular, in its April 2011 economic projections, the Federal Reserve removed much of its tail-risk deflation forecast.

That, coupled with economic weakness, had been a key justification for its QE program. In its June 2011 forecast update, the Federal Reserve maintained those higher inflation forecasts. Added to that, as discussed below, there is increasing evidence (despite the recent economic soft patch) that the US recovery is selfsustaining.

The Chinese economy is slowing Given it is the key consumer of most commodities – especially base metals and some agricultural products – a slowdown in China’s economy will impact global commodity prices. For example, China accounts for most of the growth in global copper demand this past decade. The same can be said of steel, aluminium, lead and tin. Added to that, there is strong evidence of a bubble in Chinese residential and commercial construction (where much of the base metals are consumed).

Further evidence, for example, of Chinese ghost cities (constructed but empty) continues to emerge while property valuations are excessive and bubble like, and supply is plentiful.

Equities are cheap While valuations, per se, are not the best forecasting tools for equities on a one to two year view, they are of interest if the economy is expanding and relative valuations are compelling. In particular, US and other western equities are very attractive relative to government bonds, US high-grade corporate bonds, US high yield corporate bonds and cash. Against US government bonds, and given the recent weakness in equity markets and strength in bonds, the yield pick-up (that is, equity risk premium)

is back at record high levels (in excess of 7 per cent). US equities currently yield more than US high yield (ie, junk) corporate bonds. Against real cash rates, equities are also very attractively priced.

Medium-term models are at key buy levels Over and above the valuation message favouring western equities, there are also a number of medium-term models which suggest a meaningful equity rally is likely from around current levels, highlighting this time as a key tactical entry point for adding more equity risk.

In particular, a number of sentiment indicators, which had been bullish and therefore on contrarian sell a number of months ago, are back at key buy levels. The AAII sentiment bullish index, for example, is back at the low levels last visited in September 2010. Consensus sentiment and equity advisory optimism are also both at multi-month lows. Equities are also meaningfully oversold both on an absolute basis, and also relative to bonds – against bonds, for example, equities are two standard deviations oversold (note, that typically occurs once a year). Other medium-term indicators are giving a similar message.

Relative to emerging equities, western equity markets are cheap, are still benefitting from minimal or no monetary tightening (unlike Asia) and are less vulnerable to falling commodity prices. In contrast, a number of the emerging markets are vulnerable to falling commodity prices and a temporarily slower Chinese economy.

Chris Watling is chief executive officer of London-based Longview Economics and a regular speaker at the PortfolioConstruction Forum Conference each August.

In association with

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

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Toolbox Changes to Work Bonus rules Gemma Dale explains how the new Work Bonus rules that took effect on 1 July this year will benefit eligible pensioners.

The old rules Before 1 July 2011, when a pensioner was entitled to the Work Bonus, only 50 per cent of the first $500 of their fortnightly gross employment income was counted in assessing their pension entitlement. This meant that Centrelink would disregard up to $250 in employment income per fortnight when applying the income test.

However, the rules caused angst amongst some working pensioners. This was particularly the case for those who earned lower wages or did seasonal work, as case studies 1 and 2 illustrate.

Case study 1 A pensioner who earned $500 per fortnight from employment in 2010-11 would have received a concession benefit of $250 per fortnight, while a pensioner who earned $250 would have only received a benefit of $125 per fortnight.

Case study 2 In 2010-11, a pensioner who earned $500 per fortnight from employment for a whole year would have received a total concession benefit of $6,500 (ie, $250 x 26). Conversely, a pensioner who earned the same total income of $13,000 over four fortnights would have only received a total benefit of $1,000. This was because they would have received the maximum benefit of $250 for each of the four fortnights they worked and no benefit in the remaining 22 fortnights.

The new rules To address these anomalies and provide greater flexibility for eligible pensioners, two key changes were made that took effect on 1 July this year.

Eligible pensioners will be credited with a Work Bonus of $250 per fortnight regardless of how much (or little) they earn from employment or their work patterns.

If the pensioner doesn’t earn $250 in a fortnight: • No employment income is assessed; • The unused Work Bonus is credited to an ‘income bank’ up to a maximum of $6,500 (which will take up to 26 fortnights to accumulate); •The accumulated credits can be used to offset future assessable employment income exceeding $250 per fortnight; and

“

Pensioners who don’t work in a given fortnight will benefit from the Work Bonus for the first time.

”

• The opening balance for eligible pensioners will be nil before the start of the period containing 1 July 2011.

The implications Pensioners with regular employment income If a pensioner earns more than $250 per fortnight from employment, only the income exceeding this threshold will be assessed under the income test (see case study 3).

Case study 3 In 2010-11, a pensioner with employment income of $400 per fortnight would have received a Work Bonus concession of $200 and $200 would have been assessed. From 1 July, the standard bonus of $250 will mean only $150 is included in the income test.

If the pensioner earns less than $250 per fortnight from employment, all the earnings will be disregarded and whatever remains of the $250 benefit will accrue in the income bank for future use (see case study 4).

Case study 4 In 2010-11, a pensioner with employment income of $200 per fortnight would have received a Work Bonus concession of $100 and $100 would have been assessed. From 1 July, no employment income will be assessed and $50 will be credited to the income bank.

Pensioners doing seasonal work From 1 July 2011, pensioners doing seasonal work will benefit from the flat $250 per fortnight Work Bonus in every fortnight, not just those in which they

work (see case study 5).

Case study 5 In case study 2, a pensioner who earned $13,000 in four fortnights in 2010-11 would have received a total Work Bonus concession of $1,000. However, in 201112, they will receive a bonus of $250 per fortnight for the 22 fortnights they don’t work. This amount will accrue in their income bank and reduce their assessable income in the fortnights they do work. In these fortnights they will also benefit from the flat $250 concession.

Pensioners not working Pensioners who don’t work in a given fortnight will benefit from the Work Bonus for the first time. They will be able to accrue the $250 per fortnight concession in their income bank (up to a maximum of $6,500) and use this money to reduce any future employment income.

Pensioners with fluctuating incomes Some pensioners will have fluctuating employment incomes and periods where they don’t work at all. Case study 6 outlines the implications this could have for the income test and income bank.

Case study 6 In the first fortnight of 2011-12, if a pensioner earns $100 from employment, no wages will be included in the income test and $150 will accrue in their income bank. In the second fortnight, if they earn $350, $100 will be deducted from their income bank after allowing for the standard credit of $250. As a result, no employment income will be assessed and the income bank will be reduced to $50.

In the third fortnight, if they earn $400, after allowing for the standard credit of $250 and the $50 left in their income bank, $100 of employment income will be assessed. Finally, in the fourth fortnight, if they earn no employment income, the standard credit of $250 will be added to their income bank to use in the fifth or subsequent fortnight.

Transitional rate pensioners If a pensioner is on the transitional rate that came into effect on 19 September 2009, a ‘notional’ concession balance will be maintained so that when the pensioner eventually moves to the new rate, they will have the same balance as if they had always been on the new rate.

Gemma Dale is head of MLC Technical Services.

Table The Work Bonus rules in practice Fortnight

Wages earned

Standard Work Bonus credit

Income bank credit used

Wages assessed

Income bank credit

1

$100

($250)

Nil

Nil

$150

2

$350

($250)

($100)

Nil

$50

3

$400

($250)

($50)

$100

Nil

4

Nil

($250)

Nil

Nil

$250

Source: MLC

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

Briefs MACQUARIE Private Wealth has launched a training and education program for its advisers, which is designed to help with client servicing and business development.

The program is based around the five key areas, including technical and product skills, professional development, practice development and compliance.

Head of Macquarie Private Wealth, Eric Schimpf, said the program would be available to Macquarie’s advisers around Australia, and would be delivered through both face-to-face seminars and a webinar series.

The technical training is said to focus on ensuring advisers get everything out of technology, while the seminars would offer education on product types and structures, as well as specific market sectors and industries.

THE Asian arm of Aberdeen Asset Management has launched its third closed-ended property fund of funds targeting institutional investors.

The fund aims to create a diversified por tfolio of best-in-class proper ty funds in the region, including mature markets like Japan, Australia and Singapore, as well as emerging markets like China and India.

It aims to invest across the risk spectrum from core to opportunistic strategies, with a target gearing of 50 to 60 per cent and returns of 13 to 17 per cent per annum.

Aberdeen is looking to raise between US$300-$400 million from investors worldwide, in addition to the sum of around $1 billion it already manages in Asian property.

Five investment managers will administer the fund, under the discretion of the head of property for Asia Pacific, who is based in Singapore.

TRILOGY Funds Management has launched a new unlisted, singleasset proper ty tr ust that will invest in a modern office building in the northwest Sydney suburb of Epping.

The Trilogy Epping Commercial Office Income Trust is a closedended trust with low gearing and potential for both rental and capital growth.

The fund is targeting annual returns of more than 9 per cent for the first two years of the trust’s five-year life.

Trilogy deputy chairman Rodger Bacon said the tr ust should appeal to investors seeking exposure to the above average yields currently available through metropolitan office property.

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Appointments

Please send your appointments to: angela.welsh@reedbusiness.com.au

BL ACKROCK Australia has appointed Albert Daniels to lead investment communications for the asset management firm. Daniels will chair BlackRock’s editor ial board in Australia, and will partner with the firm’s fund managers to deliver thought leadership and market insights to clients.

BlackRock chief executive Da m i e n Fr a w l e y said the appointment of Daniels was consistent with the company’s commitment to make BlackRock’s intellectual capital available to clients in every major market.

“Alber t’s appointment demonstrates our commitment to deepening client relationships through accelerated knowledge sharing,” he added.

Daniels joins BlackRock from Alliance Bernstein, where he led investment communications from 2004. He brings over 18 years of experience in the funds management industry to the new role.

Earlier this year, the company established the BlackRock Investment Institute, a global platform that aims to leverage BlackRock’s knowledge of markets, asset classes and client segments to generate investment insights to improve the firm’s ability to

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serve its clients. The institute hosts a series of events through the BlackRock Investment For um designed to foster debate on key investment themes.

BT Financial Group’s Licensee Select has appointed Simon Dutton to the role of manager, operations and service delivery.

The licensee solution provider’s national sales manager, David Hunt, said “unprecedented growth” was the reason for the new hire.

Dutton will be responsible for the smooth delivery of products and ser vices to the company’s clients.

“Simon will focus on working closely with our key stakeholders to support the continued growth of the Licensee Select business,” Hunt said. “At the same time, he will have responsibility for ensuring that the ongoing delivery of products and services to our clients is both efficient and effective,” he added.

With more than 12 years of financial services experience, Dutton brings skills in project and stakeholder management, as well as business process improvement. In addition, he has experience in sales and

Move of the week DEALER group Professional Investment Services (PIS) has announced a restructure of support for risk-focused practices with a number of new appointments – an initiative the group claims will help all practitioners providing risk advice tackle the underinsurance problem.

Following the recent appointment of Peter Nielsen as regional risk manager for Queensland and New South Wales, PIS has announced the creation of risk practice development manager roles in NSW, QLD, Victoria, Tasmania, SA and WA. PIS head of risk Mark Stubbings said the new structure would strengthen risk-focused practices at a state level and provide regional oversight and strategy through Peter Nielsen and David Spiteri in Victoria/Tasmania, SA and WA. “General insurance brokers, financial planners and accountants are much more aware of the consumer benefits of focused and specialised life insurance advice,” Stubbings said.

Along with the new structure, PIS announced the launch of Partnership Program for advisers, offering business solutions, client engagement activities and cultural exchange, Stubbings added. Peter Nielsen

distribution support.

Dutton was most recently a senior member of the AdviserN E T g a i n business with BT Financial Group and has held various roles with AMP Financ i a l Pl a n n i n g and A s g a rd Wealth Solutions.

CENTURIA Capital Limited has appointed a new group tax manager, Yujita Chaudhri. The appointment is one of a series

of moves since Centur ia’s rebranding exercise earlier this year. The initiatives aim to position the company to meet ambitious growth targets across its unlisted property and financial services portfolios.

“A critical factor in achieving our three year strategy is to broaden and deepen the talent we have on board and Ms Chaudhri’s appointment is an impor tant par t of this,” Centuria Capital chief financial

Opportunities PARAPLANNER Location: Sydney Company: Acctpro Financial Services Description: This financial planning business based in a medium sized accounting firm is looking for a paraplanner for an immediate start.

The successful candidate will work closely with the financial planner and provide paraplanning and support services as well as implementations. Ideally you will have at least two years of experience in the financial planning/services environment, and will have completed the Diploma of Financial Services (or equivalent) as a minimum. You will have a sound understanding of self-managed superannuation funds, retirement, taxation, estate planning, asset allocation and wealth protection. A strong knowledge of XPLAN or other financial planning software is desirable.

For more information and to apply, please visit www.moneymanagement.com.au/jobs or contact Katriel Warlow-Shill on (02) 83834444.

SENIOR PARAPLANNER Location: Melbourne Company: FS Recruitment Solutions Description: This high-net-worth accounting business is now seeking an experienced senior paraplanner to join its team. An increase in business activity has created this position,

officer Matthew Coy said.

Chaudhri brings to the role more than 14 years of experience in taxation and business services both in Australia and overseas. She held previous positions with PricewaterhouseCoopers, ResMed and OneSteel. She has also run her own public accounting practice with a client list including Adidas, Oracle and Henkel.

Chaudhri will be based in Centuria’s Sydney office.

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

which will see you helping the managing director/business owner in taking care of his client base.

As a senior paraplanner, you will be responsible for the construction of comprehensive Statements of Advice ranging from wealth accumulation strategies to selfmanaged superannuation funds (SMSFs), direct equities and managed funds. You must have sound technical skills, as you will be required to create and modify templates. You must also be an excellent communicator, as you will be involved in client meetings. Once you have proven your skills and professionalism, career progression will be available.

To apply for this opportunity, please visit www.moneymanagement.com.au/jobs or contact Kiera Brown at kbrown@fsrecruitmentsolutions.com.au or 0409 598 111.

FINANCIAL PLANNER Location: Sydney Company: Commonwealth Bank of Australia 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 www.moneymanagement.com.au/jobs or contact Commonwealth Financial Planning on 1800 989 696.

RELATIONSHIP MANAGER Location: Sydney Company: Randstad recruitment Description: One of Australia’s major banks is currently recruiting, and is seeking to fill the position of relationship manager.

Japanese speakers are wanted for this role.

The successful candidate will manage a portfolio of customers by building relationships as a trusted adviser. You will source new clients through building your own relationships through internal or external contacts and by utilising the bank’s marketing initiatives to establish a quality referral network.

Ideally, you will have experience in lending and wealth, the ability to develop strong relationships

with customers, as well as knowledge of asset and liability portfolios within credit and bank guidelines. An RG146 is desirable, or the intention of gaining the qualification upon commencement of your new role.

If you are interested in applying for this position, please visit www.moneymanagement.com.au/jobs or email your résumé to lisa.nader@randstad.com.au

SENIOR INSURANCE ADVISER – BUSINESS AND PERSONAL Location: Sydney Company: Randstad recruitment Description: A global banking organisation has an opportunity for a specialist insurance adviser to join their team. In this role you will be given access to a large number of financial advisors and their client base. You will be able to offer insurance advice in the form of personal and business insurance. You will also be in touch with aligned accounting firms and other divisions in the business, and have access to a legacy book to help you develop business contacts.

This role will suit an ambitious selfmotivated adviser with a strong knowledge of business protection and personal insurance. An RG146 is essential.

To apply for this role, please visit www.moneymanagement.com.au/jobs or contact Mahesh Rawal on (02) 8298 3844.

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

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Outsider

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

Caped crusaders OUTSIDER must admit to o c c a s i o n a l Wa l t e r Mi t t y moments – usually involving imaginary golfing triumphs or having enough money to upgrade his modest car to a Mercedes with gull-wing doors.

Notwithstanding claims to the contrary, Outsider also likes to keep a low public p ro f i l e a n d i s m o re t h a n h a p py f o r re a d e r s t o s e e nothing more of him than the weekly photograph that

accompanies this column.

Many think they know who he is, few have guessed right.

Thus, he is all admiration of the chaps over at the socalled ‘Financial Knowledge Centre’ at Innergi who have published a photograph on their website of two dudes wearing masks, capes and their underpants outside of their trousers.

Outsider cannot be sure, but he assumes they are the company’s founders – and

he really wonders whether such an image will build confidence in the minds of those thinking of using the service.

In fact, without wanting to give too much away, Outsider has not seen someone wearing that sort of get-up since a certain managing director confessed he had a ‘little secret’, or since young Master O was about eight years old and had just seen the late Christopher Reeves

“It’s simply not possible to sell everything.”

playing Superman.

Outsider reckons it takes real courage to wear your undies over your trousers – and you’re even braver when those undies are Y-fronts.

Deputy finance minister of Greece,

Pantelis Economou, talks privatisa-

tion in parliament, as reported in the Guardian.

“News International, Mr Murdoch’s British subsidiary, helped put [British PM David Cameron] in office but is currently about as politically popular as a basket of snakes at a summer picnic.”

Disrupted digestion IT should come as no surprise that Outsider has always lived by the age-old saying “the best things in life are free”.

Being a journalist, Outsider had little choice but to eke out cheaper sources of entertainment, which is probably why he earned himself the reputation of being a luncheon-lover of the most formidable kind.

That said, it would be wrong to suggest Outsider would leap at any old opportunity for a free lunch.

There are certain requirements a lunch must meet before Outsider would deign to attend. The restaurant must have at least two hats, a menu that is indecipherable to the common folk, and above all else, it must have something nice to look at.

It is Outsider’s usual fashion to stipulate these requirements before

“

Out of context

The New York Times on the British PM.

attending an event, but on a recent occasion, he felt he had dined with these particular associates so often at the same waterfront restaurant that it did not require mentioning – even when they decided to switch venues.

Outsider’s logic was fast proved wrong though, when he turned up at the restaurant to be greeted by what can only be described as a stressinducing vista.

While Outsider was digesting his

three-cour se meal of swordfish, pheasant and a decadent chocolate fondant, he was forced to look upon a frenzied group of people hitting and kicking the air through the window – to wit, a bloody fitness centre.

Although it is Outsider’s humble opinion that should the urge to exercise overcome one it is best to lie down until the urge passes, he still managed to finish the last gulp of fondant without making too much of a scene.

“Other companies we saw filled the classic Japanese role: a large, boring, low-return company with a spicy story attached to what is sadly a minor part of the business.”

AXA Framlington’s economist Mark Tinker pinpoints the tiny chapter he actually likes in the predictable narrative of Japanese companies.

A call to alms DESPITE Outsider at various times being referred to as a scrooge, a grinch and a miser, he is actually not completely averse to reaching into his pocket for some loose change when someone shakes a Salvos collection box in his general direction.

As such he is prepared to doff his cap with an air of vague approval towards the team from Professional Investment Services (PIS), who saw fit to discipline rogue advisers at their recent conference in Las Vegas with fines that were to be passed on to the Salvation Army.

Outsider was somewhat stunned to hear that the supposedly reputable reps from PIS were even capable of committing such heinous crimes as text messaging during

keynote sessions, forgetting their name tags or in some cases even missing flights.

On the other hand, Outsider is glad to hear that the fines, totalling around $4,200, are going to a good cause – benefiting those affected by the Christchurch earthquake, Japan tsunami and Australian floods and cyclone. If Outsider had a heart, it would be warmed.

And although $4,200 may seem like small change across the 1,200-strong PIS adviser base, it certainly dwarfs the actual small change the Salvos get when Outsider takes Mrs O out for brunch on a Sunday morning.

Outsider just hopes the sinners in question have learned a valuable lesson.

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

PIS CEO Greg Whimp presenting the donation to the Salvation Army representative.