Money Management (July 28, 2011)

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Vol.25 No.28 | July 28, 2011 | $6.95 INC GST

The publication for the personal investment professional

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APRA PLEADS THE FIFTH ON MTAA: Page 5 | ISN HURTING COMPETITION, SAYS FPA: Page 11

ClearView and AMP share the honours

Mixed year for mid-tier sector TOP 100

By Milana Pokrajac

By Mike Taylor CLEARVIEW and AMP Financial Planning have taken out Money Management’s 2011 Dealer Group of the Year Awards.

ClearView was named the non-aligned Dealer Group of the Year, while AMP Financial Planning (AMPFP) was named the Institutional Dealer Group of the Year.

Mo n e y Ma n a g e m e n t d e t e r m i n e d t h e winners by utilising the market-leading Top 1 0 0 D e a l e r G r o u p s d a t a c o m p i l e d by research house DEXX&R and then applying a formula based on planner numbers, funds under advice, planner growth and retention, and the ratio of FUA per planner – with each factor carrying a different weighting.

In a year dominated by the major institutional players, AMPFP emerged as a narrow winner from Commonwealth Financial Planning, with AMPFP’s recruitment and retention methodology and its Horizons Academy

emerging as a key differentiator.

ClearView, the company that grew out of MMC Contrarian’s acquisition of Bupa Australia’s insurance and wealth management businesses, was adjudged the winner of the non-aligned Dealer Group of the Year category based on the positive data it managed to record across all the major criteria.

ClearV iew managing director Simon Swanson said he believed the win was attributable in large part to the advantages that flowed from the distribution networks afforded by the group’s strategic partnerships.

He believed its success was also owed to its structure as a life, wealth management and financial planning company.

“It is also undeniable that we have been assisted by an effective practice management system, and that is something we believe will be

MID-TIER dealer groups have turned in a mixed performance over the last 12 months as some grew faster than the more e s t a b l i s h e d p l ay e r s i n t h e market, while others have lost on a number of fronts, according to the 2011 Money Management Dealer Group of the Year survey.

The sur vey found that midlevel players in the mar ket, such as Sentry Financial Group a n d A o n H ew i t t F i n a n c i a l Advice, added more advisers to their ranks than Commonwealth F inancial Planning and AMP Financial Planning.

Seven out of the 10 dealer groups featured on the fastest growing list (see page 17) are medium-sized dealer groups

w h o , j u d g i n g by t h e g r o w t h rates, had shown positive sentiment ahead of the upcoming Future of Financial Advice reforms.

One of those is Synchron (sixth), which hired 32 advisers over the past year, despite its directors expressing concerns that the introduction of proposals such as the opt-in requirement and risk commissions ban within super would come at the expense of the advice industry and its clients.

On the other hand, mid-tier player AAA Financial Intelligence found itself third on the list of fastest shrinking dealer groups, losing 83 advisers.

Also on the list are institutionally owned Genesys Wealth Advisers, Hillross Financial Services, Securitor Financial Group and Macquarie Equities, with all but Securitor experiencing a big Continued on page 3

Continued on page 3

Planning industry critical of ISN findings

By Chris Kennedy RESEARCH used by the Industry Super Network (ISN) to support its advocacy of opt-in requirements has been panned by sections of the financial planning industry.

The Rice Warner study compares the cost of simple advice provided by Industry Funds Financial Planning (IFFP) to the cost of the same advice if it were provided within a retail super fund, using retail products and charging under an assetbased remuneration model, with the IFFP considerably cheaper in each of the five case studies assessed.

Financial Planning Association (FPA) chief executive Mark Rantall said he was concerned the data was being used out of context by the ISN to suit its own purposes.

“The use of that research is

totally unrealistic, it’s not comparing apples with apples,” he said. “Why the ISN would seek to attack advice based on this research or for any other reason is completely beyond us, and we don’t think it’s in the public’s best interests going forward.”

The study does not account for quality of advice or include any full holistic financial planning examples, but rather is a purely costbased comparison of superannuation product and advice costs.

“The ISN has sought to manipulate data to further their position around opt-in, which is totally inappropriate. It can be done for no other reason than for a scare campaign to the Australian public about financial planners, with a view to ensuring people go and see an industry superannuation fund,” Rantall said.

ISN chief executive David Whiteley told Money Management he was confident in the

David Whiteley research, which he said simply highlights the difference between someone paying for advice on a genuine fee-for-service basis versus what would happen if they were paying an ongoing assetbased fee.

Opt-in will ensure that those clients who are paying ongoing fees but not receiving any service will be prompted to make a deci-

sion, otherwise through inertia they will continue to pay for that service, he said.

Rantall said the research seemed to take the end result then attempted to retrofit the data to suit the end purpose.

Responding to suggestions that IFFP may have provided examples that suited the end result of the study, ISN strategy manager Robbie Campo said Rice Warner established the criteria for the examples, then asked IFFP to provide examples based on those criteria.

Rantall said that some of the assumptions are totally inappropriate and would not happen in the real world. The FPA is supportive of limited advice, but a person’s full financial situation needs to be taken into account, he said.

In one of the case studies a client’s negative gearing obligations are not taken into account,

but Campo said that the income/tax deductions are incidental to the advice provided and gearing strategies would need to be separately charged in both the IFFP and retail outcomes, meaning it was appropriate for Rice Warner to scope the assumptions the way they did.

Boutique Financial Planning Principals Group president Claude Santucci described the study as a farce.

“They’re saying that if you pay an up front fee that’s cheaper than ongoing fees. Well of course it is but to suggest that one is equivalent to the other is spreadsheet stupidity,” he said.

Both Rantall and Santucci said the ISN should be able to promote the benefits of industry super funds without attacking other parts of the industry.

For a more detailed analysis of the research, turn to page 13.

Editor

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Removing the ISN mask

T

he Financial Planning Association (FPA) has finally called a spade a spade. It has accused the Industry Super Network (ISN) of using its political influence and the Future of Financial Advice (FOFA) processes to further its own interests in the financial planning space by eliminating competition from independent financial planners.

The claim, made by FPA chief executive Mark Rantall, reflects the views of a large number of planners whose views have been widely canvassed in Money Management and elsewhere. However, unlike Rantall, many of those planners have also suggested the Assistant Treasurer and Minister for Financial Services, Bill Shorten, is in league with the ISN. Irrespective of where the Government or the Minister sit in terms of affiliations and allegiances, Rantall has made a very useful contribution in singling out the role of the ISN because it does, indeed, bear as many hallmarks of a political front organisation and a commercial umbrella as it does an industry lobby group.

In fact, ISN is a division of Industry Fund Services, which (along with Members Equity Bank) is a wholly owned subsidiary of Industry Super Holdings Pty Ltd – which is in turn owned by a number of industry

ABN 80 132 719 861 ACN 000 146 921

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

“

It is hard to know how the Australian Taxation Office would choose to treat the ISN for tax purposes.

”

superannuation funds. The degree to which members of those funds are aware of that ownership structure is uncertain.

Some key figures, such as current federal minister Greg Combet, have sat on the board of Industry Super Holdings Pty Ltd – but its most recent (2010) annual report reveals that the board consisted of former Treasury secretary Bernie Fraser, former Textiles Union boss Anna Booth, former Labor ministerial adviser Anne De Salis, former C–Bus chairman Sandy Grant, Macquarie Real Estate Equity Fund chairman Brian Pollock, former ANZ executive John Ries and industry funds stalwart and chair of Industry Funds Management, Garry Weaven.

Interestingly, leading business research house Ibisworld regards Industry Super Holdings as a competitor with the likes of Macquarie Bank, the Commonwealth Bank

and Challenger, which raises the question of whether Commonwealth Bank subsidiary CommInsure ought to be granted a seat at the Government’s FOFA lobbying table alongside ISN. While it is the job of the Australian Prudential Regulation Authority (APRA) to regulate superannuation funds, the structure, nature and activities of the Industry Super Network suggests that it ultimately falls outside the jurisdiction of APRA and, more likely, inside the jurisdiction of ASIC. Equally, it is hard to know how the Australian Taxation Office would choose to treat the ISN for tax purposes – as a commercial subsidiary of a vertically integrated financial services conglomerate, or as an industry representative grouping?

Then, too, should the Australian Competition and Consumer Commission (ACCC) be concerned about the manner in which the structures which give rise to the ISN and the way it then operates potentially distort competition in an important industry sector?

None of these issues have come even close to being addressed in any recent inquiries, and the ISN continues to wield its influence with seeming impunity.

– Mike Taylor

News ClearView and AMP AFSL holders earn more than aligned practices share the honours

By Milana Pokrajac

Continued from page 1 vital as groups seek to deal with the Future of Financial Advice [FOFA] changes,” he said.

AMPFP chief executive Michael Guggenheimer attributed his group’s win in the institutional space to its growth strategy.

He acknowledged that AMPFP had pursued a deliberate strategy of pursuing planner numbers but maintained that this had not been at the expense of quality.

In p o i n t i n g t o t h e changes emerging from the Government’s FOFA proposals, ClearView’s Sw a n s o n s u g g e s t e d i t

Simon Swanson would be important for dealer groups to ensure they were prepared to handle the opportunities a f f o rd e d by s c a l e d advice.

DEALER group-aligned financial planning practices earn slightly less per year than those with their own Australian Financial Services Licence (AFSL), according to a Macquarie Practice Consulting survey.

The group surveyed 109 financial planning practices, 40 per cent of which were with a mid-tier dealer group.

The 2011 Financial Planning Practices Benchmarking Survey revealed that for AFSL holders, revenue improved from $0.99 million in the 2009 financial year to $1.08 in 2010, while revenue for dealer groupaligned practices was slightly lower.

Overheads were high across the board, although they made up a slightly higher proportion of revenue

for dealer group AFSL practices (53 per cent) than own-AFSL practices (49 per cent) However, Macquarie Practice Consulting senior consultant Fiona Mackenzie said both maintained healthy gross profit margins, despite the challenges they face.

“With so much attention within the industry focused on the hurdles planning practices have to overcome, it seems that, against all the odds, financial advisers are pushing

through these challenges and making positive changes that are impacting their bottom line,” Mackenzie said.

With fee reform on the horizon, the survey also asked participants about what proportion of their revenue was currently made up of fees.

Fees account for around 70 per cent of revenues for practices with their own AFSL, which is up from 57 per cent from three years ago.

“For practices with a dealer group AFSL fees already make up over half of their revenue too,” Mackenzie said.

The survey asked advisers about their sentiment for the first time this year, finding advisers overwhelmingly felt positive about the future, with practices showing resilience and optimism ahead of the upcoming regulatory changes.

Mixed year for mid-tier sector Continued from page 1

drop in funds under advice (FUA).

However, this year’s To p 100 Dealer G r o u p s s u r v ey wa s dominated by institutions, particularly the big four banks, who h av e significantly ramped up their adviser number s as FUA grew as well.

This might be explained by the Australian Securities and Investments Commis- John Carnevale s i o n ’s p u s h f o r t h e introduction of scaled advice in a bid to make financial advice more accessible and affordable to clients.

AMP has officially introduced its scaled advice model after a 12-month pilot, while the big four are expected to follow suit – if they haven’t already.

Despite strong results in the institutional sector, jitters caused by global financial crisis remain, with a few players reporting a drop in FUA. One of those is Macquarie Equities, which experienced a $928 million drop in FUA over the past year – something the company attributed to “sideways moving markets”. Nevertheless, the group still has $38.9 billion under advice.

Another trend noted in the dealer group space this year was adviser churn within large financial services institutions.

Head of Colonial First State Institute of Advice, John Carnevale, recently told Money Management that a 20 per cent adviser turn-over rate was reported within the big four banks, which is why the instos are ramping up adviser support programs to retain more talent.

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www.moneymanagement.com.au July 28, 2011 Money Management — 3

News

Advisers call for lower platform costs

By Ashleigh McIntyre LOWER costs for consumers and efficient administration were the top two factors advisers would like their platform provider to improve, according to the latest platform research.

CoreData’s Platform Study found close to one-third of advisers (32 per cent) said lowering costs to investors was the number one factor they would like their platform provider to improve.

A further 15 per cent named administrative accuracy and efficiency, which topped the list in 2010, as the aspect they would most like improved.

Kristen Turnbull, head of advice, wealth and super, said the outcome reflected advisers’ focus on the Government’s remuneration and opt-in reforms.

“Advisers are looking to their platform providers to help them retain their client base by offering cost effective, efficient and high quality administration services,”

Turnbull said.

The study also found the majority of advisers (73 per cent) expect their existing platform provider to offer administration support to assist with ongoing opt-in requirements.

“The reforms present platforms a new opportunity to utilise their scale to assist advisers operating under the new requirements,” she said.

CoreData awarded AXA North the Platform of the Year title for 2011 for achieving the highest adviser satisfaction among

those who used it.

Last year’s winner, Colonial FirstChoice, came in second, followed by Macquarie Wrap.

The study was completed online between May and June 2011, with a total of 978 responses from financial advisers.

Bell FG profit down 24%

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By Milana Pokrajac

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

BELL Financial Group has reported $6.3 million in net profits for the six months to 30 June 2011 – down 24 per cent on the previous corresponding period.

The company announced its results on the Australian Securities Exchange, mainly attributing the profit loss to lower market movements, particularly in the second quarter.

However, there were also “one-off, non-cash losses associated with the disposal of legacy listed and unlisted options (held within Southern Cross Equities) previously received as part Equity Capital Market (ECM) fee income”.

Bell Financial Group’s member firm, Bell Potter, had recently taken unrestricted control of Southern Cross Equities and formally combined the two share broking businesses into the one Bell Potter brand.

Total consideration paid for the Southern Cross business would be around $70 million, consisting of approximately $40 million cash and 32 million Bell Financial Group’s shares, the company stated.

Despite the profit loss, ECM revenue improved from $10.5 million to $10.7 million, reflecting an increase in the number of completed mandates across all sectors.

The performance of the core operating business was also ahead of the previous corresponding businesses, according to the company announcement, which noted that “each of our wholly owned business units continued to trade profitably throughout what were difficult market conditions”.

News

APRA refuses to answer questions about MTAA Super

By Mike Taylor

ONE of Australia’s key financial regulators has refused to answer questions from a Parliamentary Committee relating to events surrounding MTAA Super, citing the limitations imposed by legislation.

The Australian Prudential Regulation Authority (APRA) has declined to substantially answer questions on notice from Liberal Senator David Bushby

Mathias Cormann

ASIC cuts 59 jobs THE Australian Securities and Investments Commission (ASIC) may have had its hands full with regulatory issues in the past 12 months, but it nonetheless imposed 59 redundancies at a cost of $3.153 million.

The regulator has told a Senate Estimates Committee that in the 12 months to the end of May it had imposed 59 redundancies, 43 of which were voluntary and 16 of which were involuntary.

Answering a question from the Opposition spokesman on Financial Services, Senator Mathias Cormann, ASIC also pointed to the possibility of further redundancies over the next three years.

However it said the redundancies would be dependent on the outcome of the ASIC Funding Review currently underway and being conducted in conjunction with Treasury and the Department of Finance and Deregulation.

ASIC said the review was expected to be concluded

by December, next year, for consideration as part of the 2012-13 Budget process.

There has been a widespread belief that ASIC will need to increase staffing and resources to accommodate the implementation of the Government’s Future of Financial Advice changes.

during Budget Estimates relating to problems associated with MTAA Super, including the regulator’s decision to appoint a special counsel and whether APRA had sufficient resources to conduct investigations.

Instead, APRA cited section 56 of the Australian Prudential Regulation Authority Act 1988 which it said precluded it “from disclosing information disclosed or obtained under or for the purposes of a prudential framework

law and relating to the affairs of a regulated entity”.

It said: “APRA is not even able to comment on whether or not the press speculation is accurate or not.”

Senator Bushby had asked APRA the nature of the mandate and powers it had conferred on a special counsel in relation to MTAA and the cost of appointing a special counsel.

He also asked how long APRA had

been taking a special interest in MTAA, beyond the regulatory effort allocated to a super fund of MTAA’s size, and what cost both salary and non-salary APRA had incurred.

Bushby also asked if the regulator was satisfied that the current MTAA Board of Trustees was a workable and cooperative body and, if not, what measures the regulator w o u l d t a ke t o e n s u r e m e m b e r moneys were protected.

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www.moneymanagement.com.au July 28, 2011 Money Management — 5

News Super rollovers compromise insurance: Maurice Blackburn

By Chris Kennedy PRESSURE to consolidate superannuation accounts could cause Australians to risk losing valuable insurance policies, Maurice Blackburn lawyers have warned.

Australians are regularly bombarded by advertising from financial services companies urging them to roll all their super into a single account, said Maurice

Blackburn associate Andrew Weinmann.

While this may be the best way to manage fees across several accounts, Weinmann cautioned people against dropping their insurance cover without first considering their individual and family needs.

“Many super funds contain insurance cover that is cheaper than personal insurance. The

cover can be lump sums, for death or total and permanent disability (TPD) or monthly payments for temporary disability,” he said.

Many group super funds such as industry funds provide automatic disability insurance cover (up to a certain limit) without the need for a health questionnaire, he said.

“This means that even if you have a pre-existing injury or sickness you can usually get insurance

cover and it won’t exclude cover for the pre-existing disability,” he said.

Consumers should always check the insurance within their

super fund before consolidating accounts because it could make a huge difference both financially and emotionally, Weinmann said.

Former Georgeson BDM charged with insider trading

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JUSTIN O’Brien, the former director of business development at shareholder consulting company Georgeson, has pleaded guilty to four charges of insider trading.

The charges concern O’Brien’s purchase of shares in four separate ASX-listed companies – North Queensland and Metals Limited, Westfield Group, Crane Group Limited and RP Data Limited – between 30 June 2010 and 11 January 2011.

The Australian Securities and Investments Commission (ASIC) alleges that O’Brien possessed inside information obtained during his time at Georgeson, a Computershare subsidiar y, concer ning major corporate transactions relating to four separate ASX-listed companies that were afterwards announced to the market.

ASIC’s Market Surveillance team identified the alleged trading in mid-January and commenced an investigation the following month. At that time, O’Brien was dismissed from his job following an internal investigation.

The matter has been listed for sentencing on August 5, when Commonwealth Director of Public Prosecutions will bring the case before the Supreme Cour t.

Bail has been granted provided O’Brien surrenders all passpor ts to ASIC.

News

Questions over draft phoenix legislation

By Chris Kennedy

NEW draft legislation designed to protect workers’ superannuation from phoenix companies has an excessively long lead in and also has vague requirements that could trap non-directors, according to Holding Redlich lawyers partner Jenny Willcocks.

Under the new legislation directors would be personally liable for unpaid superannuation guarantee (SG) payments from three months after the payment due date, while the Australian Taxation Office (ATO) could also target

incoming directors 14 days after their commencement as well as associates of directors.

Because the SG is only required to be paid quarterly and the Australian Taxation Office (ATO) can’t pursue directors until three months after the due date of the payment, a potential sixmonth gap from when the initial money is earned is created. This seems like a generous allowance and could easily be reduced to 30 or 60 days, Willcocks said.

Conversely, a new director only needs to have been in the role for 14 days to be targeted by the

ATO for overdue payments, and the onus is then on the incoming director to prove they were not aware that fraudulent activity was taking place, she said.

While this appears harsh, it seems to be aimed at incoming directors who are aware of the fraudulent activity and attempt to use this as an excuse, and it would be of more concern had if the ATO was not able to use its discretion in such cases, she added.

Under the draft legislation the ATO is also able to target the associates of directors of noncomplying companies, if the ATO

ATO clamps down on GST fraud

By Milana Pokrajac AUSTRALIAN Taxation Office (ATO) commissioner Michael D’Ascenzo has renewed his promise to clamp down on GST fraud and failure to report cash income, after a WA director was sentenced to jail.

A director from Western Australia, Joanne De Hollander, was sentenced to three years’ jail, with a non-parole period of 20 months for understating cash business sales by over $5.6 million.

She had also underpaid GST obligations by $514,000 for two companies of which she was the sole director.

D’Ascenzo repeated those actions were illegal.

“Doing the wrong thing towards your obligations insults those in the community, including other businesses who do the right thing – and that is just not fair,” D’Ascenzo said.

The ATO Tax Evasion Referral Centre received 44,000 contacts, including calls, letters, faxes and emails from the community relating to those who may be committing fraud.

The tax commissioner said 28 people were prosecuted for over $17 million worth of GST-

commissioner is satisfied that because of the individual’s close personal relationship with the director they knew or could reasonably have been expected to know of the company’s failure to make required payments.

But the ATO needs to ensure the associate has not tried to influence the director to make the missing payments, wind up the company or report the non-pay-

Opes Prime directors plead guilty to ASIC charges

By Ashleigh McIntyre

Michael D’Ascenzo related fraud offences.

The ATO had increased scrutiny of businesses deliberately not reporting cash income, with over 1.4 million small businesses evaluated against its risk detection systems.

“A key part of our Compliance Program is increasing our focus on non-complying taxpayers in the GST system, with $337 million provided in last financial year’s budget for this purpose; we are also focusing on those who fail to report some or all cash transactions,” D’Ascenzo said.

ment to the ATO, which means targeting associates may be difficult for the ATO to prove in many cases, Willcocks said.

Overall it is a positive move that the regulations are being tightened around potential phoenix activity, but the missing link is knowing how diligently this will be policed, although it is also possible that it may prove to be an effective deterrent, Willcocks said.

TWO former directors of Opes Prime Stockbroking, Lirim ‘Laurie’ Emini and Anthony Blumberg , have pleaded guilty to charges relating to dishonest conduct brought by the Australian Securities and Investments Commission (ASIC).

In the Supreme Court of Victoria, Emini pleaded guilty to two charges of dishonestly using his position as a director of Leveraged Capital with the intention of gaining an advantage, as well as one charge of recklessly failing to discharge his duties as a director of Opes Prime.

Blumberg pleaded guilty to one charge of using his position dishonestly with the intention of gaining an advantage for himself or someone else.

Emini’s bail has been extended until the date of his sentencing, which is

yet to be fixed, while Blumberg did not apply for bail and was remanded in custody.

The case against Julian Smith, director and co-founder of Opes, has been adjourned for trial in the Supreme Court on 11 April, 2012.

In March 2008, administrators and liquidators were appointed to Opes Prime. At the time, Opes and Leveraged Capital had more than 650 active client accounts and creditors were owed approximately $630 million.

In March 2009, ASIC announced it would provide the necessary releases to allow a settlement offer to be put to Opes Prime creditors.

This was approved in August 2009, and the schemes are expected to deliver a sum of $253 million to creditors. Dividends exceeding 37 cents have been paid by the scheme administrators.

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

News

BTIM acquires J O Hambro

By Mike Taylor

SMA take-up slow

By Milana Pokrajac

BT INVESTMENT Management Limited has moved to acquire London-based boutique active equity investment manager, J O Hambro Capital Management, for $314million.

BTIM announced to the Australian Securities Exchange today that the acquisition would be funded by a combination of equity, debt and cash.

BTIM chief executive, Emilio Gonzalez, said the acquisition aligned with his company’s long-term strategic objectives.

He said the acquisition would help drive growth, increase margins and enhance diversification.

“Our combined businesses will create a diversified investment management business with two powerful brands,” Gonzalez said.

“Importantly, the acquisition will make a meaningful contribution to earnings,” he

Emilio Gonzalez said. “It is expected to be earnings per share accretive in the first full year of ownership on a cash net profit after tax basis.”

J O Hambro is a privately owned boutique investment manager with $10.7 billion in funds under management and 84 employees.

SEPARATELY managed accounts (SMAs) play a greater role with planners who recommend them, but the adoption rate appears very slow, according to the new repor t by Investment Trends.

The 2011 Separately Managed Accounts Report, which was based on a survey of 900 planners, found SMA adoption had increased by only one percentage point to 18 per cent over the past year.

Although many have expressed interest in recommending SMAs, the conversion rate from intention to doing so was just one in 16 over the last year.

Investment Trends analyst Recep Peker said while this may sound low, it

ASIC imposes licence conditions on JB Global THE Australian Securities and Investments Commission (ASIC) has imposed conditions on the Australian Financial Services Licence of advisory firm JB Global Pty Ltd following concerns around advice provided on a number of capital protected and structured products.

The regulator announced that it had also obtained corrective disclosure from JBG Structured Investments in relation to the JB Global Income and Equity Accelerator Units Services 12, 14 and 15 Product Disclosure Statement (PDS), dated 29 November 2010, on which JB Global was the lead adviser.

ASIC said that in reviewing JB Global’s advice on complex structured financial products, it had identified cases of inappropriate advice, failure to

Greg Medcraft adequately investigate clients’ situations and inadequate consideration of the characteristics and risks of the structured products.

The regulator said it had also found instances of inadequate disclosure of adviser remuneration.

ASIC also pointed to deficits

with respect to marketing material utilised by JB Global and the nature of its PDS. Commenting on the concerns, ASIC chairman Greg Medcraft said the action with respect to JB Global had followed ASIC’s focus on structured product issuers and advisers.

“Investors must be able to confidently rely on the accuracy and appropriateness of information provided by product issuers and advisers,” he said. “Where that does not occur, ASIC will focus its resources and act appropriately, holding these important gatekeepers to account.”

ASIC said JB Global had agreed to implement a number of steps consistent with its new licence conditions including an independent review of 100 personal advice

files provided on structured products during 2009 and 2010, remediating any clients who may have received inappropriate advice and facilitating independent advice to clients to ensure earlier advice was appropriate.

The company has also agreed to the appointment of a legal firm to monitor certain advertising and marketing material to ensure that it is not potentially deceptive or misleading.

ASIC said JB Global had indicated its intention to change to a general advice model, and had also implemented training programs and other systems and procedures to address compliance risks that may have contributed to the issues relating to the advice and marketing materials.

Credit card debt hits record high: RBA

By Ashleigh McIntyre C R E D I T c a rd d e b t h a s h i t a n e w record of $49.41 billion in May, with three-quarters of credit cards now accruing interest, according to the latest figures from the Reserve Bank of Australia.

Total credit card debt has increased year-on-year by almost $2 billion, despite a slowdown in the number of new credit accounts opened from 35,000 in May 2010 down to 18,000 in May 2011.

Financial comparison website RateCity also compared the average purchase interest rate, which was found to have increased by 40 basis points to 17.30 per cent since May 2010.

RateCity chief executive Damian

Smith said that more concerning than the jump in credit card debt was the amount of debt now accruing interest. “ We’v e f o u n d t h a t c re d i t c a rd balances costing card holders interest increased by almost 6 per cent in May 2011 compared to May 2010.

“Card holders are not only being charged higher interest rates than last year, but they are also paying more in interest from bigger debts,” he said.

Smith said his company found the average credit card holder paid $35.70 in interest in May 2011, an increase of $2.10 from May 2010.

Smith also said the proportion of credit card debt from cash advances was concerning.

“In t h e ye a r t o Ma y 2 0 1 1 , c a s h advances totalled $10.7 billion. Even

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

though this is a smaller amount of cash taken out by card holders than in previous years, it still shows that too many credit card holders are re l y i n g o n g e t t i n g by u s i n g c a s h advances,” he said.

was a relatively good result considering the tough investment environment.

“The comparable rate for exchangetraded funds – a product clients typically find easier to understand – was just one in nine,” Peker said.

“Investor fear lingers near postglobal financial crisis highs, markets are volatile and both planners and dealer groups are trying to work out their strategy around upcoming regulatory reforms – these factors all contribute to making the adoption of new products quite difficult,” he said.

Despite this, Peker noted around 20 per cent of planners said they may start recommending SMAs to their clients over the next 12 months, estimating that they would have 16 per cent in their funds under management in SMAs by 2014.

Sunset capital director guilty of deception

By Chris Kennedy FORMER Sunset Capital director Gabrial Ne i l Pe n n i c o t t o f Me r m a i d Wa t e r s, Queensland, has been found guilty of a ra n g e o f c h a r g e s b r o u g h t by t h e Australian Securities and Investments Commission (ASIC) relating to dishonest share trading.

Pennicott was found guilty of a total of 23 charges including dishonestly using his position as a director, obtaining property by deception and obtaining financial advantage by deception, ASIC stated.

The charges relate to Pennicott transferring shares owned by companies he controlled at artificially inflated prices to change the balances of inter-company loan accounts between the companies to the value of $2,465,000.

Pennicott also transferred shares to repay amounts owed to lenders to a company he controlled in lieu of repaying the monies owed, to the value of $1.2 million; and transferred shares to himself at artificially inflated prices then onto another company he controlled, resulting in cash being paid to himself and another person to the value of $125,000, according to ASIC. Pennicott also sold artificially inflated shares to investors then obtained those shares for a company he controlled and to which the company was not entitled, to the value of $200,000, ASIC stated.

Pe n n i c o t t ’s c o - a c c u s e d Ja n L i , a former director of Sunset Capital, has pleaded guilty to breaching directors’ duties for taking part in the intercompany loans. Li received a 34-month suspended sentence and a three years good behaviour bond, as well as a $5,000 fine. Li has previously been banned by ASIC from the financial securities industry for eight years.

Pennicott has previously been permanently banned by ASIC from the financial s e c u r i t i e s i n d u s t r y ov e r t h e s a m e offences. A plea hearing for the current charges is set for 26 August.

News

AMP Financial Planning launches scaled advice model

By Milana Pokrajac

AMP has officially launched its scaled advice service, My Money Choices, which is based on research and deveoped in consultation with AMP planners.

AMP director of advice Scott Machin said AMP took into account ASIC’s report released last year, which highlighted that scale and cost were barriers to accessing financial advice in Australia.

Research commissioned by AMP also showed similar results, indicating that almost half of Australians tend to avoid making financial decisions, and that providing simple advice encouraged the group to take action.

Machin said the new scaled advice model, which was launched after a 12month pilot, would improve access to financial advice for those seeking advice on only one specific issue, including insurance,

Carbon tax hits super

By Mike Taylor THE Government’s carbon tax proposals and the consequent increase in the tax-free threshold has significant implications for low income earners making superannuation contributions, according to the Association of Superannuation Funds of Australia (ASFA).

In a submission to the Treasury filed this month, ASFA has pointed out that while the higher tax-free threshold will alleviate the need for low-income earners to file a tax return, they will still be required to do so for the purpose of accessing a superannuation contribution rebate.

It said the issue would need to be considered as part of the implementation of the Government’s carbon price announcement.

The submission suggested one possible mechanism might for the Australian Taxation Office to use information from payment summaries issued by employers to establish eligibility for the rebate along with the use of tax return information.

ASFA also suggested that special administrative arrangements be considered for workers engaged under the disability services award.

“ASFA asks that consideration be given to the design of administrative arrangements that address the plight of these people such that they also can benefit from the rebate,” it said.

The superannuation group said it strongly supported the proposal to enable superannuation funds to compensate lowincome earners for the impact of contributions tax on their retirement savings.

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

superannuation, budgeting, and property.

“Scaled advice has the potential to bring more advice to more Australians. In circumstances where it is appropriate and suitable for the client’s needs, it is a model that could be embraced by both experienced and new planners,” Machin said.

My Money Choices will be offered by 500 AMP advisers at AMP Financial Planning and Hillross.

Scott Machin

News

FPA accuses ISN of killing planner competition

By Mike Taylor THE Financial Planning Association (FPA) has directly accused the Industry Super Network (ISN) of self-interestedly seeking to shut down competition from financial planners.

At the same time, the FPA has called for the ISN’s Future of Financial Advice (FOFA) involvement to be discounted as politically motivated.

In a direct hit at recent advertising paid for by the ISN, FPA chief executive Mark Rantall has described the advertisements as “fear mongering”.

“We know that it [the ISN] will stop at nothing to further its self-interested attempts to shut down competition, kill off financial planning services other than its own and extract maximum political advantage,” he said.

Rantall’s statement represents one of the

strongest issued by the FPA during the current debate about the Future of Financial Advice (FOFA) changes, and pointed to the fact that the ISN’s “fear campaign” had been launched amid the FOFA process.

He said the ISN needed to come clean about its own agenda, “which is the elimination of competition and destruction of sound financial advice and financial security for Australian”.

At the same time, Rantall called on the

ISN “to come clean with its private ‘collateral damage’ strategy in relation to killing off high quality financial planners delivering much-needed financial outcomes to their clients and communities every day around this nation”.

“Any submission made to the FOFA reform process by ISN must be discredited and seen for what it is: politically motivated self-interest with scant regard for working Australians,” he said.

With an ageing population our healthcare property trust is an investment for the ages As Australia’s population continues to age, there will be an increasing demand for quality healthcare services. For example, healthcare expenditure is projected to increase from $112.8 billion in 2008-091 to $246 billion in 20332.

The Australian Unity Healthcare Property Trust is uniquely positioned to capitalise on this spending (and provide solid returns) by investing in private healthcare property assets, such as hospitals, medical centres and aged care facilities.

Even at the height of the global financial crisis the Healthcare Property Trust remained liquid and delivered investors reliable returns. The Trust’s capital value has also remained resilient, reflecting the increasing need for healthcare facilities.

long term leases

In fact, the Healthcare Property Trust has had an outstanding performance track record, providing investors with consistent distributions for almost a decade.

Healthcare Property Trust - wholesale returns (as at 31 May 2011)* 1 year %

3 years % p.a.

5 years % p.a.

Since inception % p.a. (28 Feb 2002)

Distribution

6.61

7.02

7.83

9.27

Growth

1.38

(1.87)

2.28

3.42

Total

7.99

5.15

10.11

12.69

*Past performance is not a reliable indicator of future performance.

To invest in a healthcare property trust for the ages call 1800 649 033 or visit australianunityinvestments.com.au/hptfortheages

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Dale Gillham

Insider trading frustrates ASIC

By Milana Pokrajac

THE fact that insider trading still exists in such a technologically advanced society is a serious problem for the public and regulators, according to Wealth Within chief analyst Dale Gillham.

Gillham’s comments came days after the Australian Securities and Investments Commission (ASIC) released its Supervision of Market Participants report (January to June 2011), which found there were 23,494 trading alerts during the reporting period, with 121 matters requiring further consideration.

Of those, 17 matters involved potential insider trading and six involved market manipulation, according to ASIC. “We continually see ASIC working hard to prosecute suspected cases of insider trading involving investments in listed Australian companies, but the reality is that very few cases ever make it to court due to lack of evidence,” Gillham said.

“This is a serious problem in our market and one I believe most people are largely unaware even exists because very few cases ever appear in the headlines for legal reasons,” he added.

Gillham said he believed ASIC should be granted much broader powers of investigation, “and the industry needs to get behind them to help stamp out this practice”.

www.moneymanagement.com.au July 28, 2011 Money Management — 11

SMSF Weekly SMSF trustees value benefit retention

By Damon Taylor

Graeme Colley

OF THE many benefits cited with regard to the set-up of a self-managed super fund (SMSF), flexibility and control are constantly top of the list.

SMSF members are looking for control of their investments, the reduction of their fees and increased returns and, if all goes to plan, taking charge of their own superannuation does exactly that.

But why then do a large number of SMSF members maintain previous account balances with industry or retail funds? Why not consolidate?

For OnePath superannuation strategy manager Graeme Colley, such a decision is not about diversification or reluctance to amalgamate funds but rather a conscious decision to retain the ancillary benefits available within a previous fund.

“The reason why people won’t roll over some of their benefit, not all of it, is basically because of the insurance that might be in the other fund that they’ve been a member of,” he said. “For example, someone might be a member of a retail fund or an industry fund and the life cover that they’ve got in those funds might be pretty good.

“So in that situation, the smart decision, and the one they make, is to leave their money in that because insurance might cost them more in their SMSF.” Upon retirement, however, Colley said that rollovers were generally inevitable.

“So what we’re finding is that to amalgamate and consolidate benefits, people are rolling over to their SMSF because it allows them to start a pension from that fund,” he said. “And with that in place, they can then do that control thing which is the most important thing about being in a SMSF in the first place.”

SMSF satisfaction levels still high WHILE some might argue that those who are unhappy with the performance of their self-managed superannuation funds (SMSFs) only have themselves to blame, new research released by Roy Morgan Research suggests the picture is much more complicated than that.

The research, released last week, confirmed that SMSFs led the way when it came to member satisfaction, with 72 per cent being happy with the performance of their funds.

However, the research also points to the fact that, just like members of mainstream superannuation funds, the level of satisfaction is largely driven by the level of investment returns.

The better performing markets last year meant that satisfaction levels with respect to SMSFs rose from 68.5 per cent in 2009 to 72.9

per cent last year.

Also reasonably satisfied with their funds were those who were members of public sector funds, with 59.5 per cent, followed by industry funds with 54.3 per cent.

However the Roy Morgan research seemed to reflect the fact that retail master trusts had outperformed industry funds last year, with the increase in satisfaction levels among industry fund members being lower than that for retail master trusts.

Confirming satisfaction levels among SMSF trustees, the research found that those who had purchased superannuation products through an accountant were the most satisfied, followed by those who purchased directly through a financial institution.

Actuarial certificate data transfer on offer SPECIALIST software company Class Financial Systems has developed the ability to provide automated actuarial certificate data transfers for self-managed superannuation fund (SMSF) trustees.

The company announced last week that it had launched the new service in an alliance with actuarial firm, Bendzulla Actuarial.

Commenting on the move, Class Super chief operating officer Kevin Bungard said the development allowed all parties involved in actuarial certificates to simplify many of the manual and routine tasks that currently dominate the actuarial certificate process for SMSFs. He said the development allowed for faster SMSF administration.

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

“What is particularly unique about this solution is that it is the first in the market to offer real-time access to accountants, administrators, auditors and trustees,” Bungard said.

Bendzulla senior actuary Geoff Morley said the level of automation made SMSF administration more seamless and reduced the processing time.

Comfortable retirement costs more

By Mike Taylor THE cost of a comfortable retirement continues to rise in Australia, according to the latest data compiled by the Association of Superannuation Funds of Australia (ASFA).

The latest data, released last week, reveals that retirees will need more than $600 a year extra to live comfortably in retirement compared to last quarter.

It said a couple looking to achieve a comfortable retirement would now need to spend $54,562 a year, while those seeking even a modest retirement would need to spend $31,263 a year.

The reason for the higher costs facing retirees were rises in the cost of food, fuel and pharmaceuticals.

According to the ASFA research, the largest increases were recorded in Melbourne, followed by Sydney and Adelaide.

The ASFA Retirement Standard research deems a “modest lifestyle” in retirement to be better than the age pension, but still able to afford fairly basic activities.

It deems “comfortable retirement lifetime” as being one which enables an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through purchases such as household goods, private health insurance, a reasonable car and good clothes.

InFocus ISN research open to question The Industry Super Network has again used research it commissioned from Rice Warner to substantiate its arguments on opt-in but, as Chris Kennedy reports, many of the Rice Warner findings appear to fall well short of being truly representative assessments.

Separately managed accounts

16%

The proportion of personally managed FUA managed by planners who currently recommend SMAs as at May 2011

T

he Industry Super Network (ISN) recently re-released a study by Rice Warner Actuaries, and ISN chief executive David Whiteley is holding it up as proof that consumers need opt-in to be introduced to protect them from trailing commissions and/or assetbased remuneration.

The planning industry has responded by suggesting that the study is flawed, and that its conclusions are unrelated to its findings.

The study was commissioned by the ISN, and uses case studies from Industry Funds Financial Planning (IFFP), which along with the ISN is a division of Industr y Fund Services.

The study compares the cost of advice provided by planners at IFFP to the same advice provided by a retail super fund planner, using retail superannuation products and asset-based remuneration.

The five real-life case studies used in the analysis were provided by ISN stablemate IFFP. In each scenario IFFP charged on a feefor-service basis and the retail advice was indexed at 1.95 per cent per annum to account for ongoing product and advice costs. It was assumed in each case that investment performance would be identical prior to the deduction of fees. Unsurprisingly, in each case the industry fund model comes out a long way in front.

In the most extreme case, a 46-year-old man who makes $75,000 per year wishes to retire at 55. He does not own his home but co-owns two negatively geared investment properties with his sister. To meet his goals the IFFP planner identifies him as an aggressive investor, recommends he salary sacrifice $18,000 per year up until his retirement, and make a once-off non-concessional contribution of $112. The advice is based on his retirement expectations and does not take into account his gearing obligations in either case.

The estimated retail cost of $4,887 results from applying an asset-based fee on the entire portfolio for nine years and is almost 18 times the one-off $275 fee charged by the IFFP planner.

This is the statistic Whiteley is relying on when claiming that asset-based payments result in consumers paying up to 18 more times for advice.

The Rice Warner report openly states that it “does not evaluate the quality of the advice provided, nor the products recommended or selected to implement the advice”.

It also states that “while there are other elements of value obtained from all financial advice such as simplicity or peace of mind, these qualitative elements were outside the scope for measurement to be included in the model used”.

The report is also open about the fact that only simple advice is considered, and factors

ADVICE SNAPSHOT

12%

How this figure looked in the previous year (as at May 2010)

1 in 16

The conversion rate from intention to start recommending SMAs to actually doing so

1 in 9

The conversion rate from intention to recommend ETFs to actually doing so.

Source: Investment Trends

such as integration with business financial plans, complex family trust and estate matters, gearing, and investment instruments outside the superannuation arena are not considered.

Report author and Rice Warner director Richard Weatherhead told Money Management that his brief was not to consider the full range of possible advice circumstances, just to compare some typical IFFP advice outcomes against what might have occurred if the client had sought advice from an external adviser. The brief was also to assume advice outcomes would be the same in each scenario.

Weatherhead added that there is no evidence to suggest retail funds perform better in terms of investments and it would be hard to argue that the quality of advice is better in one segment than another.

Weatherhead also points out that there are retail super products, such as BT’s Super For Life, that would compare favourably in this study – a point conveniently and repeatedly ignored by Whiteley.

Given the list of exclusions, the parameters leave the possibility of only one outcome. Essentially the report proves that if you have two identical portfolios and take ongoing fees from one but not the other, the first portfolio will underperform.

The ISN press release states that opt-in will make advice up to 17 times cheaper – presumably by eliminating cases such as the hypothetical one outlined above.

This highly tenuous claim relies on the logic that once-off advice provided under limited advice by an industry super fund planner is always going to be directly equivalent, in quality and outcome over the longer term, to that provided within a retail super

fund charging an ongoing fee. It assumes these clients will receive no ongoing service and that they will never elect to opt-out of such a payment structure unless prompted to by an opt-in provision.

Whiteley told Money Management that he was confident the research stood up and that as a large organisation operating on a feefor-service basis, IFFP serves as a suitable proxy as a fee-for-service advice provider.

Whiteley said it was uncontested that many clients were still paying commissions without receiving advice and the report highlights the difference between someone paying for advice on a genuine fee-forservice basis with someone paying an assetbased fee.

The planning industry has expressed concern that the ISN has commissioned this research, placed its own strict parameters on what is being examined, and then used it to justify its argument while glossing over the exclusions. Whiteley argues that all the information is publicly available in the report, although it does not appear in press releases.

If there were evidence that these types of examples were actually occurring in a retail super fund scenario, and that the clients were unaware of the fees they were paying despite having the option of opting out, and these same consumers would elect not to opt-in if they were prompted to on a regular basis, that would constitute a coherent argument for opt-in.

But to claim that the industry needs optin because ongoing fees add up to more than a once-off payment draws a dangerously long bow for an organisation that tasks itself with representing millions of consumers in negotiations with the Government.

What’s on

CFA Institute Event: Australia Investment Conference 11 August 2011 Sofitel Wentworth, Sydney www.cfainstitute.org/australia2011

FPA CPD Breakfast 16 August 2011 Rydges, Melbourne www.fpa.asn.au

FEAL National Conference 10-11 August 2011 Park Hyatt, Melbourne www.feal.asn.au/events/

FINSIA Financial Services Conference 25 October 2011 Ivy Ballroom, 320 George St, Sydney www.finsia.com/events

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

www.moneymanagement.com.au July 28, 2011 Money Management — 13

Top 100 Dealer Groups

Page 16

Page 18

Page 22

Analysing the survey results

Top 100 Dealer Groups

Breaking down the Top 20

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

Top 100 Dealer Groups

ClearView a clear winner ClearView’s rapid growth in planner numbers and its high FUA per planner ratio has seen it named Dealer Group of the Year, writes Mike Taylor.

CLEARVIEW, the independent dealer group that grew out of MMC Contarian’s acquisition of Bupa Australia’s wealth management and insurance businesses, has been named Money Management’s Dealer Group of the Year for 2011.

The selection of ClearView was based on data collected as part of Money Management’s industry-leading Top 100 Dealer Groups survey, which was then subjected to a formula that weighed market growth, planner numbers and funds under advice.

In a year during which growth appeared to be dominated by the major institutions, ClearView emerged a clear winner in the non-institutional space based on its growth across all the criteria weighed in the Money Management process.

ClearView’s growth has been comparatively rapid, but in many respects reflects a strategy pursued by its managing director, Simon Swanson, which has involved consolidating a diverse set of insurance and planning assets under a single brand.

As well, as a former chief executive of CommInsure, Swanson has been successful in luring a number of key executives from the big insurer – the most recent being Todd Kardash as national sales manager.

One of the most recent reflections of the underlying ClearView strategy was the renaming of ComCorp Financial Advice to ClearView Financial Advice, which Swanson said was part of the unified brand strategy.

“A unified brand puts us in a much

“

Those strategic partnerships afforded us some unique opportunities and I believe we have been successful in leveraging that.

- Simon Swanson

”

stronger position when dealing with our partners as we will be able to work with them using one name and one licence.

We will also be able to offer our partners and their customers access to broader financial planning options through our combined planner network.”

While ClearView sits almost right in the middle of the Money Management Top 100 Dealer Groups survey in terms of both planner numbers and funds under administration, it propelled itself up the Dealer Group of the Year rankings on the back of its growth in planner numbers combined with its ratio of funds under

advice per planner.

Last year’s Money Management Dealer Group of the Year, ipac Security Services, emerged as the runner-up in 2011 largely based on its failure to match ClearView’s overall growth.

Commenting on his company’s success, Swanson said that as important as ClearView’s personnel had been in the outcome, its success was in large part attributable to the unique distribution network, which had been afforded by its strategic partnerships with Bupa and credit unions.

“When we established ClearView we recognised that those strategic partnerships afforded us some unique opportunities and I believe we have been successful in leveraging that,” he said.

Swanson said that beyond the advantages that flowed from the distribution networks afforded by ClearView’s strategic partnerships, he believed its success was also owed to its structure as a life, wealth management and financial planning company.

He confirmed that ClearView would be looking to move further into the life advice market in the second half of this year and would be looking to broaden its life offering over time.

As well, Swanson pointed to the company’s distribution network and said that, as a long-time backer of scaled advice, he believed ClearView was wellplaced to deliver such advice in the future.

“I have been a big supporter of scaled advice for years,” he said. “I have always believed there is a place for the provision of ‘light’ advice as mid-point to holistic advice.”

Growth strategy pays off for AMPFP AMP Financial Planning, Australia’s largest dealer group, is Money Management’s Institutional Dealer Group of the Year.

AMP Financial Planning (AMPFP) has been named Money Management Institutional Dealer Group of the Year for 2011.

AMPFP emerged as the clear winner of the award on the back of planner retention, planner growth and the ratio per planner of funds under administration (FUA) over the past 12 months.

The runner-up in this year’s Institutional Dealer Group Award was Commonwealth Financial Planning, which, while recording a strong performance in terms of the overall metrics, did not rate as strongly as AMPFP with

respect to overall planner turnover.

While AMPFP has once again been confirmed as Australia’s largest financial planning group, it is the first time it has emerged as a winner of Money Management’s Dealer Group of the Year survey.

Money Management this year decided to break the Dealer Group of the Year survey into two components – Institutional Dealer Group of the Year and non-aligned Dealer Group of the Year. This separation was based on the radical differences that emerged in the data collected as part of Money Management’s survey.

That data confirmed that most growth had occurred among institutional planning groups or those aligned to the major institutions.

Commenting on his company’s win, AMPFP chief executive Michael Guggenheimer pointed to the company’s strategy to grow its planner numbers, including its financial planning academy.

“AMP is pleased to be named Money Management Institutional Dealer Group of the Year,” he said. “One of our goals is to increase our advice footprint so we can help more Australians secure their financial future.

“To achieve this, we have a

strong focus on growing our planner numbers and quality advice. We spend a lot of time assessing any candidate who wants to join AMP Financial Planning, be they a career changer who is just starting in the profession or an experienced planner looking to join the strength of the AMP brand and offering.”

Guggenheimer said that while AMPFP believed it was great to be number one in the institutional arena, it was not something the company would be taking lightly – or for granted.

“We will be continually looking to improve our model and offering,” he said.

www.moneymanagement.com.au July 28, 2011 Money Management — 15

Dealer Group of the Year

Marshalling the troops As dealer groups prepare for the new regulatory environment, Benjamin Levy explains the story behind the results of the Top 100 Dealer Groups Survey.

AS the time nears for the Future of Financial Advice (FOFA) reforms to be introduced, the different strategies that the large dealer groups are implementing to deal with the new environment are being reflected in their adviser numbers.

According to Money Management’s Top 100 Dealer Groups statistics that have been compiled by DEXX&R, the numbers of advisers licensed under the large dealer groups have varied widely over the last 12 months.

Of the top 10 dealer groups, AMP Financial Planning (AMPFP), Commonwealth Financial Planning (CFP), NAB Financial Planning and Garvan have increased their numbers by 20 or more. AMPFP and CFP have grown by more than 50 advisers each as they prepare themselves for a jump in financial advice demand after FOFA. Dealer groups like Professional Investment Services (PIS), Count Financial and Securitor have taken the opposite approach.

Quality, not quantity, is the watchword for

them – and PIS and Count have dropped large numbers of advisers as a result.

However, Millenium3, RBS Morgans, and Charter Financial Planning have remained steady during the last year, with new hires or losses within single digit figures.

Growing in strength

AMPFP and CFP are two of the fastest growing dealer groups according to size this year. AMPFP added 56 financial planners on to its payroll since last year, retaining the number one spot in adviser numbers that it snatched from PIS last year.

AMP director of financial planning, advice and services Steve Helmich says there is a major undersupply of advisers in the market, and there is no limit to the number of financial planners AMP can employ.

“We need to help Australians secure their financial future, so to do that we need to have more financial planners giving more great advice,” Helmich says.

Most of the credit for the increase in AMP

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

advisers is due to the Horizons Academy.

Nearly 500 applications are made to the Academy, but only 32 people are chosen to enter.

“That selection process in itself is one of the reasons we have a higher retention rate of recruits than some of our competitors,” Helmich says.

There are also a number of independent financial planners and licensees that are attracted to AMP’s value proposition, according to Helmich.

While that has also contributed to the increase in advisers, it may level out over the coming months.

FOFA is an opportunity for AMP, not a challenge, according to Helmich.

“Some of the issues that are continually raised around FOFA will fade away. Where there is value [in advice], opt-in and fiduciary duties are built in anyway, because people are willing to pay for good service and good support,” he says.

Recruiting advisers to provide expert advice for more consumers leads to more

references for new clients, which in turn drives even more recruitment, Helmich says.

“It’s a really virtuous circle,” he adds.

CFP, which came third in terms of fastest growing dealer groups and also added the most advisers among the top 10 dealers, grew by 84 financial planners last year.

Approximately 48 advisers included in

Key points • In preparation for the FOFA changes, four of the top 10 dealer groups have boosted their adviser numbers.

• However, three of the top 10 dealer groups have shed advisers, focusing on quality over quantity.

• Mid-tier and smaller dealer groups have suffered over the last 12 months, shedding advisers.

Dealer Group of the Year that number are part of CFP’s Pathways program, which has been segregated from the CFP business in previous years due to its fledgling structure.

The rest of the growth in adviser numbers comes from CFP’s graduate program, which they are using to get an edge over other dealer groups that are struggling to find the next wave of talent, according to CFP general manager Neil Younger.

Last year CFP increased the number of graduates it accepts through the program to 35.

Graduates are placed into paraplanning as well as servicing planner roles under a mentorship program with CFP’s senior planners and planning managers. They aim to move them into branch planning roles in the future.

The amount of training and investment CFP puts into their new planners ensures that retention rates for their planners are among the highest in the industry, Younger says.

“Of our recruiting intake for the year, maybe 60 to 70 per cent are coming from someone else making a decision about changing their career,” he says.

The number of advisers coming in from independent dealer groups is also increasing, leading to a small portion of the gains CFP has seen in its adviser numbers this year.

“

Our focus is on active, productive and high quality practices and advisers – and that’s more important than absolute adviser numbers.

- Andrew Gale

”

ners than third-ranked Millenium3, this is the second year in a row that the total number of advisers has dropped. Approximately 300 left the group between 2009 and 2010 as PIS weeded out advisers who weren’t paying their way or weren’t serious about improving education standards in the dealer group. While PIS was also hiring planners during that period, if the trend continues it is likely they will drop to third place within three years. PIS currently has 1,227 authorised planners.

Count Financial has also been weeding out advisers over the last 12 months. While the group only lost 18 advisers in total between 2009 and 2010, that number has surged over the last year, with 112 advisers saying goodbye to the dealer group in 20102011.

Count managing director and chief executive Andrew Gale said Count didn’t regard absolute numbers of advisers as a meaningful indication of the performance of the dealer group.

“Our focus is on active, productive and

Doing more with less

Some dealer groups are going in the opposite direction and are doing more with less.

Two of the top 10 dealer groups lost large numbers of financial advisers this year.

PIS, despite losing 127 advisers from its ranks over the last 12 months, has managed to maintain its number two spot in terms of total adviser numbers, thanks to the large number of advisers it has licensed. It faced the largest losses in terms of financial advisers in the past 12 months.

Although PIS has nearly 300 more plan-

high quality practices and advisers – and that’s more important than absolute adviser numbers,” Gale says.

Much of the loss of financial planners is because of redundancies. Count is focused on building the size of its financial planning practices through tuck-ins.

“Sometimes you get consolidation of adviser numbers as part of that tuck-in activity,” Gale says.

Count Financial is also raising the minimum level of advice their representatives need to be involved in for the financial advice they offer to be economical for the adviser or dealer group. It has led to members who are straddling both financial planning and accounting abandoning the financial advice aspect of their work, causing a decrease in the number of Count’s financial planners overall.

However, Gale is adamant that Count has lost very few advisers to other licensees over the last year.

Despite the losses in numbers, Count has spent some time modernising and upgrading its financial advice and platform technology and is preparing to launch a recruitment drive for financial planners off the back of that.

“We wanted to be strengthening our planning technology and platforms before we embarked on significant recruitment,” Gale says.

Count will be searching for other accountancy-based planning practices to recruit to the group, he adds.

Mid-tier players suffering

The record is mixed among the mid-tier and small dealer groups over the last 12 months, with some doubling in size, while others have shrunk by almost half.

Sentry Financial Group and Aon Hewitt Financial Advice advisers have more than doubled over the last 12 months. Sentry added 202 advisers to boost its numbers to 379 planners, while Aon Hewitt came close behind with 179 planners hired, leaving it with 335. Other smaller players moved more sedately, ANZ owned RI Advice Group adding 68 planners, while Synchron grew by 32.

ClearView, Garvan Financial Planning, and Shadforth also hired more planners, adding 29, 27, and 19 respectively.

Other dealer groups have not fared so well. AAA Financial Intelligence, a mid-size dealer group with 213 advisers, was hit hard in the last 12 months, with 83 advisers leaving the dealer group.

Other mid size-dealer groups, such as Genesys Wealth, Hillross Financial Services, Securitor and Macquarie Equities all recorded drops in advisers of 56, 34, 27 and 26 respectively.

Some of the smaller dealer groups have suffered along with them. Chifley Financial Services lost 44 advisers during the last 12 months. FuturePlus Financial Services also lost 44, leaving it with 17 planners, and Bongiorno Financial Advisers has been left with only three advisers after losing 31 planners over the last year. MM

Figure 1 Fastest growing dealer groups Dealer Group

Adviser numbers 2011 379

Sentry Financial Group

2010 177

Aon Hewitt Financial Advice

156

335

179

Commonwealth Financial Planing

746

830

84

RI Advice Group

205

273

68

AMP Financial Planning

1423

1479

56

Synchron

163

195

32

Increase 202

Clearview Financial Advice

50

79

29

Garvan Financial Planning

467

494

27

NAB Financial Planning

577

597

20

Shadforth Financial Group

102

121

19

Figure 2 Fastest shrinking dealer groups Dealer Group

Adviser numbers 2011 1227

Professional Investment Services Pty Ltd

2010 1354

Count Financial

842

730

-112

AAA Financial Intelligence Ltd

213

130

-83

Genesys Wealth Advisers Pty Ltd

301

245

-56

Chifley Financial Services Limited

64

20

-44

Futureplus Financial Services Pty Ltd

61

17

-44

Hillross Financial Services Limited

316

282

-34

Decrease -127

Bongiorno Financial Advisers Pty Ltd

34

3

-31

Securitor Financial Group Ltd

468

441

-27

Macquarie Equities Limited

387

361

-26 www.moneymanagement.com.au July 28, 2011 Money Management — 17

Top 100 Rank Rank

Dealer Name:

2011 2010

Year

No of authorised representatives No of offices/ Number of

commenced: Total (2011)

Number

Number

Total no.

Total FUA:

of FPA

of clients:

31/03/11 ($m) Salary % +

Total (2010)

practices

Paraplanners: of CFPs:

17,245

16,238

9,376

2,174

1,036

3,700

2,594,487 $419,718

members:

Planner remuneration (% remunerated on each basis) Commission Fee:

Salary

commission %

%

%

%

1

1

AMP Financial Planning

2005

1,479

1,423

775

603

44

439

>700,000 $42,571.58

n/a

n/a

n/a

n/a

2

2

Professional Investment Services

1996

1,227

1,354

1,220

186

n/a

247

n/a

$21,000.00

n/a

n/a

n/a

n/a

3

4

Millennium3 Financial Services

1999

846

841

391

n/a

various

69

n/a

$7,600.00

n/a

60%

40%

n/a

4

5

Commonwealth Financial Planning

1984

830

746

1,079

123

96

143

n/a

$26,296.00

82%

n/a

n/a

12%

5

3

Count Financial

1981

730

842

2

131

n/a

80

n/a

n/a

n/a

n/a

n/a

n/a

6

6

NAB Financial Planning (excl.Private Wealth Planners) 1987

597

577

465

32

43

133

n/a

$11,914.97

n/a

n/a

n/a

n/a

7

7

RBS Morgans

502

496

59

34

11

34

300,000

$32,000.00

50%

10%

35%

5%

8

10

Garvan Financial Planning/MLC Financial Planning 1997

494

467

317

n/a

n/a

128

n/a

$10,967.00

n/a

n/a

n/a

n/a

9

8

Charter Financial Planning

2005

472

480

198

n/a

n/a

180

n/a

$10,705.97

n/a

44%

56%

n/a

10

9

Securitor Financial Group

1986

441

468

237

n/a

n/a

138

n/a

$9,378.00

n/a

n/a

n/a

n/a

11

11

Financial Wisdom

1986

440

428

205

3

126

183

n/a

$8,516.00

n/a

n/a

n/a

n/a

12

13

WealthSure

2001

424

n/a

147

n/a

0

n/a

n/a

n/a

n/a

n/a

n/a

n/a

13

12

Westpac Financial Planning

1986

412

402

35

n/a

72

72

220,560

$17,758.00

100%

n/a

n/a

n/a

14

27

Sentry Financial Group

n/a

379

177

7

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

15

14

Macquarie Equities

1983

361

387

9

n/a

9

38

456,289

$38,032.00

98%

n/a

n/a

2%

16

15

AXA Financial Planning

2005

346

367

198

n/a

n/a

107

n/a

$6,414.38

n/a

49%

51%

n/a

17

34

Aon Hewitt Financial Advice

2000

335

156

224

0

20

53

300,000

$4,000.00

10%

35%

35%

10%

18

14

ANZ Financial Planning

2003

298

311

713

38

43

71

186,852

$9,815.00

0%

0%

0%

0%

19

16

Hillross Financial Services

1987

282

316

113

n/a

n/a

130

170,000

$9,977.62

n/a

n/a

n/a

n/a

20

24

RI Advice Group

n/a

273

205

155

112

100

95

112,000

$9,980.00

50%

5%

40%

5%

21

21

Bridges Financial Services

1985

263

266

68

12

76

175

53,874

$8,026.00

0%

0%

95%

5%

22

19

Genesys Wealth Advisers

1991

245

301

112

n/a

n/a

80

n/a

$8,474.32

n/a

n/a

n/a

n/a

23

18

Lonsdale Financial Group

1985

209

219

n/a

81

n/a

65

n/a

n/a

n/a

n/a

n/a

n/a

24

30

Synchron

1998

195

163

195

20

9

20

>70,000

$975.00

0%

90%

10%

0%

n/a

25

29

Ord Minnett

1984

188

169

13

18

8

18

n/a

$19,844.00

n/a

n/a

n/a

n/a

26

23

AFS Group

1995

188

211

84

n/a

25

n/a

100,000

n/a

n/a

n/a

n/a

n/a

27

26

Godfrey Pembroke

1981

184

180

75

n/a

n/a

82

n/a

$4,229.00

n/a

n/a

n/a

n/a

28

25

Financial Services Partners

1999

171

179

0

n/a

n/a

n/a

n/a

$3,000.00

n/a

n/a

n/a

n/a

29

32

Apogee Financial Planning

1994

171

160

107

n/a

n/a

37

n/a

$2,619.00

n/a

n/a

n/a

n/a

30

31

WHK Financial Planning

2003

163

162

74

n/a

n/a

75

37,234

$7,164.00

100%

0%

0%

0%

31

33

Guardian Financial Planning

2001

143

146

80

11

8

15

n/a

$1,300.00

0%

95%

5%

0%

32

38

State Super Financial Services Australia

1990

142

130

15

142

0

82

46,739

$9,247.00

n/a

n/a

n/a

100%

33

36

Suncorp Financial Services

1989

130

143

212

10

n/a

n/a

70,584

$2,861.00

43%

57%

0%

0%

34

35

Infocus Securities Australia

2002

130

147

73

40

n/a

33

32,007

$3,200.00

n/a

0%

90%

n/a

35

22

AAA Financial Intelligence

1998

130

213

4

10

6

10

n/a

$862.00

40%

20%

40%

n/a

36

n/a

Bendigo Financial Planning

1999

128

n/a

448

70

6

10

25,000

$1,091.13

n/a

n/a

n/a

100%

37

37

Lifespan Financial Planning

1994

122

133

111

n/a

n/a

n/a

20,000

$1,500.00

n/a

75%

25%

n/a

38

43

Shadforth Financial Group

Merged 2008 121

102

13

90

27

80

16,000

$8,023.00

100%

n/a

n/a

n/a

39

39

My Adviser

1995

121

116

n/a

n/a

n/a

n/a

n/a

$100.00

n/a

n/a

n/a

n/a

40

41

St George Financial Planning

1996

115

108

12

n/a

31

31

46,000

$2,814.70

0%

0%

0%

100%

41

28

Meritum Financial Group

2004

113

112

69

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

42

48

Total Financial Solutions Australia

2003

109

134

1

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

43

40

Consultum Financial Advisers

2006

106

106

67

n/a

n/a

31

n/a

$3,000.00

20%

35%

35%

10%

44

44

Matrix Planning Solutions

1999

103

96

45

n/a

24

39

n/a

$2,600.00

0%

5%

95%

0%

45

n/a

Snowball Group

1999

101

105

29

40

10

33

55,000

$4,640.00

n/a

n/a

n/a

100%

46

45

Perpetual Trustee Company

1886

101

85

6

38

23

29

7,000

$8,800.00

100%

n/a

n/a

n/a

47

46

Futuro Financial Services

2002

93

90

60

n/a

n/a

21

n/a

$2,500.00

n/a

n/a

90%

n/a

48

88

Yellow Brick Road Investment Services / YBR

2007

89

n/a

68

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

Securities / Yellow Brick Road Wealth Management 49

63

Pivotal Financial Advisers

2004

85

80

1

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

50

n/a

Madison Financial Group

1983

80

80

38

n/a

n/a

n/a

n/a

$2,500.00

n/a

5%

75%

20%

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

Top 100 Transition to Other

PI insurer

Fee for Service

Next Dealer Conference Location

Shareholders

Planning software

Research providers

Date

%

Managed Investments

Risk

Managed Investments Risk

n/a

Yes

Vero

Canberra

January 2012

AMP

Coin

Coin

van Eyk

n/a

n/a

Yes

Lloyd’s London

Cairns

August 2011

UBS Nominees, Count Investments,etc

Xplan

Xplan

Lonsec

Plan for Life

n/a

Yes

Axis/Vero

n/a

n/a

ANZ Banking Group

Xplan

Xplan

Morningstar

In-house

6%

Yes

Self

Gold Coast

November 2011 Commonwealth Bank of Australia

Coin

Coin

Morningstar

Rice Warner

n/a

n/a

Vero

Brisbane

March 2012

ASX listed

Xplan

n/a

Lonsec

IQM

100%

Yes

Self

n/a

n/a

National Australia Bank

Visiplan

Visiplan

Lonsec

DEXX&R

n/a

Soon

Chartis

Brisbane

September 2011 RBS Australia, RBS Morgans Holdings

Coin

Coin

Morningstar

Omnium

100%

Yes

CGU

n/a

n/a

National Australia Bank

Adviser Central

VisiPlan

Lonsec

DEXX&R

n/a

Yes

CGU

San Francisco

March 2012

AMP

DRAFT

Xplan

Mercer

Xplan

n/a

Yes

Axis

Melbourne

April 2012

Westpac

AdviserNETgain

IQM+

S&P

IQM+

n/a

Yes

Marsh P/L et. al.

Hong Kong

November 2011 Commonwealth Bank of Australia

Coin

n/a

Morningstar

Plan for life

n/a

n/a

Vero

Port Douglas

October 2011

n/a

n/a

n/a

n/a

n/a

Yes

n/a

Yarra Valley

November 2011 Westpac, HSBC Custody Nominees

Coin

Lifesaver

S&P

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

Self

n/a

n/a

Macquarie Group

Coin

Coin

Macquarie

Rice Warner

Darren Pawski, Stan Kaminski, David Bertram

n/a

Yes

CGU

San Francisco

March 2012

AMP

DRAFT

Xplan

Mercer

Xplan

10%

Yes

Vero

n/a

n/a

Aon

Xplan

Xplan

Lonsec

IQM+

100%

Yes

ANZ Cover Insurance

TBA

TBA

ASX listed

Coin

Coin

Lonsec

Plan For Life

n/a

Yes

n/a

Canberra ACT

January 2012

AMP

Coin

Coin (with INC)

van Eyk

Rice Warner

n/a

Yes

Austbrokers Countrywide Hobart

April 2012

ANZ Banking Group

Xplan

Xplan

Mercer

IRESS

0%

Yes

Axis

Fiji

February 2012

IOOF Holdings

VisiPlan

VisiPlan

Internal

Xplan

n/a

Yes

Chubb,Axis

TBA

February 2012

Practice principals,AMP

Xplan

Xplan

van Eyk/Adviser Edge In-house

n/a

Yes

CGU

Fiji

October 2011

DKN Financial Group

IRESS (Xplan)

IRESS

Lonsec

IRESS

0%

Soon

CGU

n/a

n/a

Paul Riegelhuth, Don Trapnell, John Prossor

Xplan

Xplan

n/a

n/a

n/a

No

Axis

TBA

TBA

IOOF holdings, J.P. Morgan

VisiPlan

VisiPlan

Morningstar

n/a

n/a

Yes

Broker

Bangkok

April 2012

Advisers

Xplan

ProPlanner

Lonsec,Adviser Edge

ProPlanner

100%

Yes

CGU

n/a

n/a

National Australia Bank

Adviser Central,VisiPlan

Adviser Central

Lonsec

DEXX&R

n/a

Yes

Axis/Vero

n/a

n/a

n/a

Xplan

Xplan

van Eyk

n/a

100%

Yes

CGU

n/a

n/a

National Australia Bank

Adviser Central

VisiPlan

Lonsec

DEXX&R

0%

Yes

Axis/QBE International

TBA

October 2011

Acorn Capital Limited, Fisher Funds Management et.al

Coin

Coin

Prescott Securities

Rice Warner

0%

Yes

Vero

Hawaii

n/a

Suncorp

Coin

Coin

van Eyk

INC

n/a

n/a

Chartis & Ace

n/a

n/a

SAS Trustee Corportation (STC)

Proprietory

n/a

Russell Investments

n/a

0%

Yes

Chubb

n/a

n/a

Suncorp

Coin

Coin

van Eyk

INC

10%

Yes

AIG

Glenelg

October 2011

Darren Steinhardt, management and advisers

Platformplus

Platformplus

Morningstar

Midwinter

n/a

Yes

Vero

Cairns

October 2011

Errol Rabaud, Lifestyle Asset Management

Coin

Cannex

van Eyk

van Eyk

n/a

Yes

Chubb, Lloyd's London

Melbourne

TBA

Bendigo Bank

Xplan

Xplan

Lonsec

IQM

n/a

Yes

Vero

Cairns

May 2012

John Ardino & Family Trust

Xplan

ProPlanner

van Eyk

ProPlanner

n/a

Yes

Dexta

National

November 2011 Directors & Staff

In-house

IQM+

Morningstar

IQM+

n/a

Yes

Dual

Peppers Kingscliff November 2012 Michael Summers, Plan B Group Holdings

Xplan

Xplan

n/a

n/a

0%

Yes

No

Noosa

Westpac

AdviserNETgain

AdviserNETgain

S&P

IQM+

n/a

n/a

Axis/Dual

n/a

n/a

National Australia Bank

Xplan

Xplan

Lonsec

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

Yes

Axis/Liberty/Chubb

n/a

n/a

IOOF Holdings

Xplan

Xplan

Lonsec

Xplan

n/a

Yes

Chartis/APUA

Sydney

November 2011 Advisers, management

Xplan,Coin,Midwinter,MoneyOne

Xplan, Coin, Midwinter Morningstar

n/a

n/a

Yes

Dexta Corporation

Sanctuary Cove

October 2011

Advisers and management

Xplan

Xplan

Officium Capital

n/a

n/a

No

Chubb

Sydney

TBA

Perpetual

Xplan

n/a

In-house

In-house

10%

Yes

Liberty

Vanautu

October 2011

Highfield Group

n/a

n/a

S&P

IQM+

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

Vero

North QLD

October 2011

Genesis

Coin

Coin

Lonsec

n/a

Nov/Dec 2011

www.moneymanagement.com.au July 28, 2011 Money Management — 19

Top 100 Rank Rank

Dealer Name:

2011 2010

Year

No of authorised representatives No of offices/ Number of

commenced: Total (2011)

Number

Number

Total no.

Total FUA:

of FPA

of clients:

31/03/11 ($m) Salary % +

Total (2010)

practices

Paraplanners: of CFPs:

17,245

16,238

9,376

2,174

1,036

3,700

2,594,487 $419,718

members:

Planner remuneration (% remunerated on each basis) Commission Fee:

Salary

commission %

%

%

%

51

n/a

ClearView

1987

79

50

41

39

6

25

41,226

$1,476

n/a

n/a

40%

60%

52

n/a

Industry Fund Financial Planning

1994

75

73

36

12

30

40

62,784

$7,750.00

n/a

n/a

n/a

100%

53

51

Capstone Financial Planning

2002

70

70

n/a

n/a

n/a

n/a

n/a

$2,000.00

n/a

n/a

n/a

n/a

54

56

Financial Planning Services Australia

1985

68

61

29

n/a

12

15

n/a

$1,130.00

0%

n/a

71%

19%

55

n/a

NAB Private Wealth Advisory

1999

66

n/a

23

28

6

14

1,400

$1,362.00

n/a

n/a

n/a

n/a

56

62

Australian Unity Personal Financial Services

2001

66

51

37

26

2

20

3,992

$1,008.00

n/a

n/a

79%

21%

57

54

The Financiallink Group

2004

63

64

1

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

58

58

Magnitude Group

2002

62

60

18

18

20

40

n/a

$1,794.00

n/a

n/a

n/a

n/a

59

68

Gold Financial

2005

59

43

50

10

4

10

35,000

$500.00

20%

75%

5%

0%

60

55

The Salisbury Group

1999

57

63

46

n/a

0

n/a

30,000

n/a

n/a

n/a

n/a

n/a

61

61

Risk and Investment Advisors Australia

2004

56

55

38

5

n/a

5

n/a

$600.00

n/a

80%

17%

3%

62

52

Elders Financial Planning

n/a

54

67

45

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

63

73

Centric Wealth Advisers

2004

52

39

4

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

64

66

PATRON Financial Advice

2007

50

47

50

14

4

12

17,000

$0.60

n/a

30%

70%

n/a

65

67

Dixon Advisory & Superannuation Services

1986

49

43

4

1

35

2

3,800

$3,800.00

n/a

n/a

100%

n/a

66

59

Premium Wealth Management

2000

46

61

21

n/a

4

10

n/a

n/a

5%

n/a

95%

n/a

67

60

Mercer Wealth Solutions

1990

46

60

11

19

26

54

14,572

$2,502.00

n/a

n/a

n/a

100%

68

65

ipac Securities

1983

44

48

5

50

7

33

9,167

$2,102.00

n/a

n/a

n/a

100%

69

69

WB Financial Management

1996

42

43

17

23

5

15

13,000

$630.00

9%

0%

44%

47%

70

74

Fiducian Financial Services

2003

42

63

42

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

71

76

FYG Planners

2000

41

37

27

24

13

19

6,400

n/a

0%

0%

100%

0%

72

75

Remunerator Financial Services

2004

40

39

1

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

73

77

Insight Investment Services

2007

38

37

4

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

74

70

Integrity Financial Planners

2005

37

41

17

18

7

11

n/a

n/a

n/a

15%

85%

n/a

75

82

IRIS Financial Group

2005

36

34

16

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

76

79

Morrison Carr

2003

35

35

31

25

0

20

10,500

$1,500.00

0%

35%

65%

0.%

77

n/a

Addwealth Financial Services

2002

33

34

1

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

78

84

BW Financial Advice

2009

32

33

n/a

n/a

6

1

n/a

$153.00

n/a

n/a

n/a

100%

79

78

Avenue Capital Management

2001

31

36

18

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

80

83

Quadrant Securities

n/a

30

34

14

n/a

n/a

7

n/a

$423.76

n/a

n/a

n/a

n/a

81

n/a

Strategic Planning Partners

n/a

26

10

2

n/a

9

7

2,000

$800.00

95%

5%

n/a

n/a

82

85

Benwest Investment Services

2004

26

31

1

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

83

86

Financial Technology Securities

2006

25

27

10

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

84

95

Ballast Financial Management

2001

25

17

25

3

1

2

n/a

$350.00

10%

65%

20%

0%

85

91

Health Super Financial Servcies

2005

23

19

n/a

n/a

6

n/a

4,500

$660.00

n/a

n/a

n/a

100%

86

87

Partnership Financial Services/

2002

21

22

1

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

Plan B Wealth Management 87

92

Wealth Managers

n/a

20

19

15

1

7

14

36,545

$1,111.00

0%

40%

55%

5%

88

53

Chifley Financial Services

2004

20

64

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

89

57

Futureplus Financial Services

2004

17

61

1

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

90

90

Ozplan Financial Services

2002

16

20

7

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

91

96

Equity Financial Services Australia

2004

15

17

14

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

92

98

The Principal Edge

1989

14

14

1

4

3

4

450

$520.00

100%

n/a

na

n/a

93

n/a

OAMPS Life Solutions

2002

13

12

11

0

0

2

10,651

$95.00

0%

90%

10%

0%

94

99

Moneylink Financial Planning

2004

13

13

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

95

97

BDO Kendalls Wealth Management

2003

13

15

3

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

96

n/a

Primeplan Securities

2003

12

5

2

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

97

n/a

Novatax

2003

12

12

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

98

n/a

SMF Wealth Management

n/a

10

11

3

10

1

6

36,361

$1,154.00

0%

0%

0%

100%

99

n/a

Moneytree Partners

2006

10

9

2

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

100

100

Byron Capital

2005

8

11

2

n/a

5

6

n/a

n/a

n/a

n/a

n/a

100%

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

Top 100 Transition to Other

PI insurer

Fee for Service

Next Dealer Conference Location

Shareholders

Planning software

Research providers

Date

%

Managed Investments

Risk

Managed Investments Risk

n/a

Yes

Dual

TBA

March 2012

Clearview Group Holdings

Xplan

Xplan

S&P

S&P

n/a

Yes

Chubb

Melbourne

February 2012

Industry Super Holdings

Xplan

Zurich

Morningstar

n/a

n/a

Yes

CGU

n/a

n/a

n/a

Xplan

n/a

Lonsec

n/a

n/a

Yes

Chartis/Liberty

Gold Coast

October 2011

netwealth Investments

Xplan

Xplan

S&P

n/a

100%

Yes

Self

n/a

n/a

National Australia Bank

Adviser Central/VisiPlan

VisiPlan

Lonsec

DEXX&R

n/a

Yes

Willis

Gold Coast

August, 2011

Australian Unity

Xplan

Xplan

Lonsec

Xplan

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

Yes

Vero/Axis

Melbourne

April 2012

Westpac

Xplan/AdviserNETGain

n/a

S&P

n/a

0%

Yes

Vero

Adelaide

October 2011

Peter Storey, Bernie Toohey

Midwinter

Midwinter

van Eyk

Xplan/IQM

n/a

Yes

Broker

TBA

TBA

Advisers,AFS Group, directors

Xplan

ProPlanner

Lonsec/Adviser Edge

ProPlanner

n/a

Yes

Chartis/Dual

Shanghai

TBA

Grant Scalmer

Xplan

Xplan

Mercer

Xplan

n/a

n/a

Axis/Vero

Darwin

August 2011

Millennium 3 Financial Services, Elder Rural Services

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

Yes

Chartis

Hawaii

March 2012

n/a

Coin

INC/Coin

S&P

INC/Coin

n/a

n/a

Vero/Dual

n/a

n/a

Dixon Family & Staff

Dixon Admin Platform

Dixon SMSF Admin

Dixon In-house

Dixon In-house

n/a

Yes

Chartis/Vero/Liberty

Vietnam

April 2012

n/a

Coin

Coin

Zenith

n/a

n/a

n/a

n/a

n/a

n/a

Marsh and McLennan Companies

Xplan

Xplan/IQM

Mercer

n/a

n/a

Yes

Lloyds London

n/a

February 2011

AMP

In-house

n/a

In-house

n/a

n/a

Yes

Lloyds

Gold Coast

August 2011

Graham Meredith, Murray Wilkinson et.al

Xplan

Xplan

Lonsec

Xplan

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

0%

n/a

Chubb

Coogee Beach

August 2011

Advisers

Xplan

Xplan

van Eyk

Xplan

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

AXIS

n/a

n/a

Privately Held

Xplan

n/a

Lonsec

ProPlanner

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

0%

Yes

Chartis

n/a

n/a

Dennis Cardakaris

Midwinter

n/a

Lonsec

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

Self

Gold Coast

October 2011

Commonwealth Bank of Australia

Xplan

Xpan

S&P

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

Yes

Chubb,Axis

TBA

February 2012

AMP

Xplan

Xplan

In house

In-house

n/a

No

n/a

n/a

n/a

AMP

SBS

IRESS

ipac

IRESS

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

Yes

APUA

n/a

n/a

Wayne Blazejczyk

In-house

Coin

S&P

Coin

n/a

n/a

AIG

n/a

n/a

Health Super Fund

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

0%

Yes

Axis

Fiji

February 2012

IOOF Holdings

Xplan

Xplan

In-house

Xplan

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

Yes

AHA/Chartis

n/a

September 2011 n/a

n/a

Xplan

n/a

None

0%

Yes

Wesfarmers Insurance

Sydney

August 2011

Wesfarmers

Coin

Coin

AXA Jigsaw

AXA Jigsaw

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

0%

Yes

Axis

Fiji

March 2011

IOOF Holdings

Xplan

Xplan

Internal

Xplan

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

VisiPlan

n/a

Evans and Partners

AIA

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

Dealer Group of the Year

The top end of town With increased volatility, there have been many changes in the dealer group space, both in terms of adviser numbers and funds under advice. Angela Welsh reports on events at the top of the table.

THIS was a year dominated by the large institutions, both in terms of adviser numbers and total funds under advice. Dealer groups backed by institutions exper i e n c e d t h e m o s t g row t h , a n d competed among themselves to a t t ra c t a d v i s e r s a n d g row t h e i r market share. With planners unsure of how the Government’s Future of Financial Advice (FOFA) reforms will roll out, uncertainty was the order of the day.

Planner toss and churn

Top 20 Funds under advice Rank 2011 Rank 2010

Dealer name

Total FUA

Total FUA

31/03/11 ($m)

31/03/10 ($m)

1

2

AMP Financial Planning

$42,572

$38,600

2

1

Macquarie Equities

$38,032

$38,960

3

5

RBS Morgans

$32,000

$19,000

4

3

Commonwealth Financial Planning

$26,296

$25,203

5

4

Professional Investment Services

$21,000

$20,500

6

7

Ord Minnett

$19,844

$16,500

7

6

Westpac Financial Planning

$17,758

$17,588

8

8

NAB Financial Planning

$11,915

$12,975

9

11

Garvan Financial Planning/ MLC FP

$10,967

$10,504

10

12

Charter Financial Planning

$10,706

$10,425

11

14

RI Advice Group

$9,980

$9,099

12

9

Hillross Financial Services

$9,978

$10,800

13

NA

ANZ Financial Planning

$9,815

n/a

14

NA

Securitor Financial Group

$9,378

n/a

15

18

State Super Financial Services Australia

$9,247

$8,282

16

15

Perpetual Trustee Company

$8,800

$8,800

17

16

Financial Wisdom

$8,516

$8,637

18

13

Genesys Wealth Advisers

$8,474

$9,284

19

19

Bridges Financial Services

$8,026

$8,000

20

20

Shadforth Financial Group

$8,023

$7,800

(excluding Private Wealth Planners)

Source: DEXX&R

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

Lonsdale Financial Group, Genesys Wealth Advisers and Australian Financial Group Financial Planning all dropped off the Top 20 list, not due to a noticeable decline in adviser numbers, but because other dealer groups upped the ante.

In ter ms of overall number of advisers, AMP Financial Planning (AMPFP) retained its chart-topping position this year, with a total of 1,479 advisers as at March 2011. This position had become even more significant since AMP acquired AXA earlier this year.

AMPFP managing director Michael Guggenheimer said the growth in adviser numbers was due to AMP’s “strong planner proposition that is attracting both new and experienced planners,” with the Hor izons Academy supporting consistent hiring.

Next in line in this year’s Top 20 was Professional Investment Services (PIS), with 1,227 advisers. Even with a reduction of 127 advisers compared to the previous year, the firm stayed at number two when ranked by overall planner numbers.

Millennium3 Financial Services moved forward one place between 2010 and 2011, while Commonwealth Financial Planning (CFP) made a more dramatic leap of 86 advisers.

However, one of the biggest jumps in the Top 20 was that of Sentr y Financial Group, which introduced an additional 202 advisers to its team and surged forward to 14th place – up from 27th place the previous year.

Aon Hewitt more than doubled its number of advisers, growing from 156 to 335, which allowed the group to jump from 34th to 17th place.

Although Count Financial shed 112 advisers and dropped two places (which may be attributed to the dealer group floating off part of its operations into Count Plus), the dealer group still maintains one of the top positions on the table.

GFC jitters remain

After coming out on top last year in terms of funds under advice (FUA), Macquarie Equities slid back to second place, with a $928 million dip in FUA. Despite this, the group still

advised on over $38 billion, but the dramatic change in FUA during this period was directly correlated to market movement over that time, according to head of Macquarie Private Wealth, Eric Schimpf.

“This is along with some routine internal activities to review and close dor mant accounts that were no longer being used by our clients,” he explained.

“During sideways moving markets like we are seeing now, what we are hearing from our clients is that they value quality advice and insights from experts about what is happening in financial markets and the global economy,” he added.

Volatile markets haven’t stopped AMPFP, which topped the rankings for total FUA with almost $42.6 billion in funds as at end of March 2011. This was an increase of over $3.9 billion from last year’s figure.

“We have seen an increase in our planner numbers and an increase in planner productivity, which has been a major contributor to the growth in AMP Financial Planning’s funds under advice,” Guggenheimer said.

PIS came in fifth with $21 billion of FUA – a figure $500 million higher than last year’s FUA. However, the group slipped back one place on its 2010 ranking.

Group managing director Grahame Evans said there has been virtually no market movement for the year, with the group writing about $1.1 billion in new investments during that time.

“It has been a bit of a non-event this year, if I could put it that way – no help from the market, inflows have been down substantially on what they were,” while outflows haven’t helped the situation, Evans said.

Another contributor was that the firm “has not been acquiring any businesses so that increase is just organic all the way through,” according to Evans.

RBS Morgans increased its previous year’s total by an impressive 68 per cent, boosting its funds from $19 billion to $32 billion year-on-year.

This allowed the firm to leapfrog a couple of dealer groups to take out third place.

CFP gained 4 per cent in FUA in the year, but was pushed back to fourth place by strengthened competition.

Younger identified two factors for the growth in FUA, adding the group had experienced “a certain degree of attribution to market, but not a lot over the last 12 months”.

“The other component of growth was reflected in our net flow position of new dollars for the year, which is really predicated on access to the Commonwealth Bank client base,” Younger explained. MM

OpinionChina

Bull in a China shop Many investors are bullish about China’s growth prospects, but over-investment in unproductive asset classes by the Chinese authorities should be ringing alarm bells, writes Robert Keavney.

D

espite the failure of socialism in Eastern Europe, which culminated in the dismantling of the Berlin Wall, a large proportion of Australian investment professionals currently believe that centrally controlled, command economies provide the greatest long-term growth potential – at least so far as China is concerned.

I first visited China 18 years ago and was stunned by the speed and scale of what was unfolding. This was probably well ahead of most in focusing on the China phenomenon, so I have not been a chronic China sceptic.

However, China’s economy has become artificial, and is therefore unsustainable.

A road to nowhere?

We are constantly regaled with reports of how many new roads, railways, cities and power stations are being built every

year. This, China advocates want us to believe, is a sign of a healthy economy and a dazzlingly attractive investment opportunity.

But let me pose a question: if China built twice as many roads and cities next year as it currently plans to, would t h a t m a k e i t t w i c e a s s t ro n g a n economy and twice as attractive an investment opportunity as it currently is? Those who believe that the scale of China’s construction is sufficient proof of its economic strength would have to conclude that redoubling the scale of its construction would be evidence of redoubled strength. But this makes no sense.

If the Tahitian government covered half the surface of the island in new roads over the next 12 months, would t h a t m a k e i t a m o re s u s t a i n a b l e economy and a more attractive investment opportunity? Or would it be an

island that spent too much money on roads? Analysis of the economic benefit of this new Tahitian infrastructure would be required before forming a view on whether the spending was appropriate and justified.

Surely this same analysis should be undertaken about China’s new infrastructure. Knowing that they are building massively is not enough information to determine the underlying health of the economy.

It is widely understood that there is a massive migration to the cities taking place, involving hundreds of millions of people. Undeniably, a great scale of d e v e l o p m e n t m u s t b e re q u i re d t o house these people and provide them with essential services.

However, the question is whether the infrastructure spend taking place today is appropriate for this purpose. Is it still too little, or could it be too much? One

must have a view on this to understand whether China’s growth is sustainable.

Making the case

There is growing evidence that China is over-investing on a massive scale.

There are reports of the construction of cities with almost nobody living in them. Anyone interested in doing some satellite research on this can use Google Maps to view Ordos, Kangbashi, Dantu, Zhengzhou New District, Erenhot etc. and then view Beijing; zooming in reveals a stark difference. Beijing’s streets are chock-a-block with cars. The newer cities’ roads are almost empty.

Why would they build empty cities? We’ll return to this.

Actually we do not need to do any investigation to confirm that there is excessive construction, as China’s official Continued on page 24

www.moneymanagement.com.au July 28, 2011 Money Management — 23

OpinionChina Supporting these concerns, Fitch estimates that private debt is now almost 150 per cent of GDP, nearly four times the level of the average emerging economy.

It would appear there are clear and present threats to China’s banking system.

Continued from page 23 statistics make it overtly clear.

America’s gross domestic product (GDP) primarily consists of private consumption, which traditionally contributes more than two thirds of the total. It is normal in most countries that consumption is the main component of GDP. However, approximately half of China’s GDP is investment and the proportion has been steadily growing.

Conversely, personal consumption has been a steadily shrinking proportion of GDP for many years and is currently around the mid 30 per cent range.

Note that, in this context, ‘investment’ does not have its usual meaning. For our purposes we can loosely consider it to mean the construction or purchase of non-financial assets (‘investment’ includes all construction, the purchase of housing but not the purchase of shares, bonds, etc).

According to the Absolute Return Letter (February 2011), published by Absolute Return Partners: “China has in recent years invested to an extent never before experienced anywhere in the world. To have fixed assets representing nearly 50 per cent of GDP is unprecedented ... It goes without saying that when you have too much capacity, the return on invested capital will ultimately prove disappointing. But China is not a capitalist economy where one needs to think about petty things like that (or so they seem to think).”

In a market economy, over-investment is punished by falling prices. If too many industrial properties, power stations or any other assets were built, the over-supply would cause prices to fall. Responding to this, construction would slow down or cease until the surplus supply was cleared and prices began to strengthen.

However, Chinese authorities are not bound by market forces. The primary motivation of the ruling party in China is to stay in power. They believe the best way to ensure this is to facilitate an increase in the living standards of the population. Thus they are motivated by the creation of jobs. And massive construction projects require many people employed – even if the construction is surplus to needs.

Thus, applying normal economic criteria, capital is being massively misallocated in China. Economic growth that is based on the disregard of return on capital cannot be sustained indefinitely.

Asianomics’ report India’s State of Confusion describes the inadequate return on capital in relation to China’s listed equity market, noting that most of the largest companies on the Shanghai index are state-owned. Asianomics reports that the return on equity of Chinese shares from 2002 to 2009 was half that of India, and suggests that many Chinese companies are failing to preserve the real value of capital. It warns that investors will not continue to supply capital to value-destroying companies.

We can conclude this section on the

An Asian Ponzi scheme?

describes China’s GDP figures as ‘man made’ “andKeqiang ‘for reference only’. ”

artificiality of China’s growth story by an extreme example. If some country’s GDP was 100 per cent investment, with nil private consumption (and with other components of GDP contributing nil), it would be a desperately poor nation – no matter how mammoth the scale of the investment. Why then is China’s growth, which is 50 per cent investment, seen as implying a sustainably strong economy and a beguiling investment opportunity?

Questioning the numbers

There are great difficulties in assembling accurate data for such a massive emerging nation as China. This was highlighted by the divergent estimates by various authorities of the quantum of loans from banks to local governments at the end of 2010. The National Audit Office estimated CN¥8.5 tr illion, the China Banking Regulator y Commission suggested it was CN¥9 trillion, while the People’s Bank of China stated it was CN¥14 trillion.

The highest estimate is 60 per cent greater than the lowest, so it is reasonable to conclude that no one in China knows exactly how many loans exist from banks to local governments. And surely this is not the only vague economic statistic in China. This suggests that accurate quantification of the risks in the banks’ loan portfolios is impossible.

One fact which is known is that China’s growth has been strong and relatively stable for many years. How do we know? The Chinese authorities have published their growth rates. But are they a reliable source? Is one allowed to wonder if they might have fibbed?

The Absolute Return Letter reports a leaked document, published by

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

Wikileaks. This quotes Li Keqiang, who is being tipped as China’s next Prime Minister. Keqiang describes China’s GDP figures as “man made” and “for reference only”.

He goes on to suggest that a more realistic picture of China’s growth rates could be found in electricity consumption, rail freight volumes or bank lending. Annual electricity consumption since 1995 suggests a much more volatile economy than official statistics.

Published annual GPD over that period has been in the 8 per cent and 14 per cent range.

Annual growth in electrical consumptions has ranged from 1 per cent to 22 per cent per annum. Note that there has been strong average growth in electricity consumption over this period. The point to understand is that there is inaccuracy, and an element of PR, in China’s published data.

Blowing bubbles

One of the causes of the GFC was the housing collapse in the USA, triggering defaults on sub-prime mortgages. At its over-priced peak, American house prices were 6.5 times average disposable income. Tokyo’s housing bubble at the end of the 1980s was even more overpr iced, at eight times disposable income. However, the Absolute Return Letter claims that residential properties in Beijing and Shanghai are now trading above 20 times disposable income.

No doubt someone will build a case that this time is different, but the only rational response to this statistic is extreme caution. And as the GFC has just demonstrated, collapsing property prices undermine bank balance sheets.

China’s economy has elements of a Ponzi scheme. As long as they continue construction on an always increasing scale – surplus to requirements, ignoring market price as the arbiter of value and being indifferent to whether an adequate return is achieved on capital – the economy will maintain its strong growth.

However, at some time, economic reality will reassert itself. The consequences of this are not likely to be pleasant. I am making no short-term forecast.

Who can know when a Ponzi scheme will founder? Perhaps it will be an outbreak of inflation that forces a policy change.

Even without excessive investment, China’s growth rate would exceed most developed nations. It needs to be stressed that, over the very long term (multi decades), it is possible that China’s re-emergence as a global power may continue, though they face the same demographic challenge which has contributed so much to Japan’s malaise.

In any case, in the meantime, they must face the consequences of having artificially over-stimulated their economy.

During the inevitable period of readjustment, Australia may pay a price for our over-dependence on the resource sector.

With China having become one of the largest economies in the world it is easy to forget that it remains an emerging nation, with all the attendant risks that implies. This includes significant volatility of markets. Any participants in the investment industry during the bursting of the dot com bubble will remember the implosion of the tech-heavy Nasdaq index. In the year to October 2008, the Shanghai index fell more rapidly than the Nasdaq had done.

Several studies have found there was no historical relationship between economic growth and equity returns in emerging nations. This undermines the simplistic investment manta often heard in recent years: the BRIC nations (Brazil, Russia, India and China) have high growth, so invest in them.

In the case of China I believe there is an identifiable r isk to satisfactor y returns, while ever China’s growth is pumped up by over-investment.

This leaves us with a question: the next time someone presents evidence of the staggering amount of construction in China, should that encourage investment in China or scare it off? I am in the scared camp.

But perhaps some believe that authoritarian, command economies have a good track record.

Robert Keavney is an industry commentator.

Toolbox

Your most important assets Col Fullagar explains the ins and outs of keeping your clients’ income and assets well covered.

W

hen it comes to getting cover for high-net-worth clients, seasoned risk insurance advisers know that the biggest challenge is on the financial side rather than the medical side.

Nowhere is this more evident than when it comes to income protection insurance and the delicate relationship between the desire on the part of the client to obtain maximum protection and the desire on the part of the insurer to avoid anti-selection.

For all clients there is the issue of cover not being available in excess of 75 per cent of earned income, since this would impact on the motivation to return to work – which would in turn impact on the frequency and duration of claims.

This restriction remains in place until the client has earned incomes of around $250,000.

As earnings increase beyond this figure, the maximum benefit amount is further reduced along the lines of 75 per cent of the first $250,000 of earnings, 50 per cent of the next $150,000 and 25 per cent of any balance.

The stated logic is that the purpose of the insurance is to protect a reasonable – but not luxurious – lifestyle.

At around this point, two further restrictions start to appear, encapsulat-

ed in the insurer’s attitude towards unearned income and assets.

The presence of unearned income and assets can quickly lead to a reduction or even elimination of available cover under income protection insurance.

The concern of the insurer is that if cover is made available to a client with significant levels of unearned income and assets, the client might be tempted to feign a disability, convert their assets into investment income and live very nicely off it – along with the income protection benefit payment.

The adviser and the client, however, are likely to see the position quite differently.

As far as they are concerned, earned income, unearned income and assets may all need to be protected if they are underpinning the client’s current and future lifestyle.

One of the great skill-sets of risk insurance advice is being able to identify and obtain the necessary insurance notwithstanding the insurers underwriting guidelines.

Earned income

In regards to the client’s earned income it has already been noted that a sliding scale of available benefits will exist.

These scales differ somewhat between insurers. However, the example above

is reasonably typical.

I f t h e i n s u re r h a s a n ov e ra l l maximum monthly benefit amount of $30,000, the insurer is effectively indicating that they are unwilling to insure earned income in excess of $790,000 (ie, ($250,000 x 0.75 + $150,000 x 0.5 + $390,000 x 0.25)/12 = $30,000) In the absence of any other complications, in the above example, the client would have access to $30,000 a month to age 65 on an agreed value basis.

Some insurers may consider cover in excess of these levels. However, the excess cover would be available only on an indemnity basis with a maximum benefit period of two to five years.

Care should be taken because insurers will likely have an earned income cut-off point. For example, if income exceeds $1 million, cover is not available at all – not even the initial $30,000 a month.

The assumption being made by the insurer is that a client with this level of earned income is almost certainly going to have significant levels of unearned income and assets. This means the client would fall foul of the previously stated concern (ie, they would convert everything into unearned income).

Figure 1

As unlikely as it may seem, however, this is not necessarily the case.

Thus, for example, if a client had earned income in excess of the insurer’s cut-off figure but there was little or no unearned income or few assets, the inability of the client to work because of a sickness or injury would immediately damage their lifestyle.

If the client was in this position, the adviser may be able to make a compelling case to the insurer to put in place cover through to age 65 for at l e a s t s o m e o f t h e c l i e n t’s e a r n e d income.

Unearned income

Unearned income is generally considered to be income that is not related to the personal exertion of the client such that, even if the client were sick or i n j u re d a n d u n a b l e t o w o r k , t h e unearned income would continue to be received.

The position in regards to reducing available income protection insurance for clients with material levels of unear ned income differs between insurers. The position of four was reviewed.

Continued on page 26

Maximum benefit amount

Earned income = $200,000 Unearned income = $50,000 (1) Total income = $250,000 75 per cent of total income = $187,500 (2) Maximum monthly benefit amount = (2) – (1) or $187,500 – $50,000 = $137,500 or $11,500 a month. www.moneymanagement.com.au July 28, 2011 Money Management — 25

Toolbox Continued from page 25 • Insurer 1 indicated that unearned income would be offset when it was m o re t h a n 1 0 p e r c e n t o f e a r n e d income; • Insurer 2 set the figure at 15 per cent; • Insurer 3 set the figure at 25 per cent and • In s u re r 4 i n d i c a t e d u n e a r n e d income would be offset if the monthly benefit amount being applied for was more than $20,000.

Insurers 1, 2 and 3 each applied a similar approach to applying the offset.

The earned and unearned incomes were added together. The maximum benefit amount for the total was calculated from the sliding benefit amount scale and then the unearned income w a s d e d u c t e d f r o m t h e re s u l t a n t amount (see figure 1).

Insurer 3, however, had a further rule: where unearned income was greater than 75 per cent of earned income or $150,000 (whichever was the lesser), income protection insurance was not available.

In s u re r 4 i n d i c a t e d t h a t t h e i r approach would depend on individual circumstances.

Insurers appear to take a generalist a p p r o a c h i n re g a rd s t o u n e a r n e d income (ie, their attitude is driven by the amount of unearned income rather t h a n t h e s o u rc e o f t h e u n e a r n e d income).

Unearned income can be derived from two sources. Firstly, a source for which there are no material maintenance costs, for example: • Interest and dividends; • Pensions; and • Royalties.

Unearned income derived from these sources would not be endangered if the client was disabled and unable to work; thus it does not need protecting by way of income protection insurance.

Secondly, unearned income can be derived from sources for which there are maintenance costs (eg, an investment property for which the maintenance costs might include debt repayments, rates, repairs, etc).

Unearned income derived from these sources will be endangered if the client is disabled and unable to work. The endangerment arises to the extent that the maintenance costs are dependent on the continuation of the client’s earned income.

The risk exposure for the client who has unearned income coming from sources for which there are maintenance costs is that the continuation of the unearned income is dependent on the asset remaining in place, and it is also dependent on the maintenance costs being met.

Thus, if the inability of the client to work would lead to an inability of the client to pay the maintenance costs, then a case could be made that income protection insurance was needed to the extent that the maintenance costs could not be met. This amount would constitute the benefit amount under the policy.

Briefs

There is clearly the potential for anti-selection with “clients who have high levels of earned and unearned income and large amounts of assets. ”

The period of time protection was needed would be driven by the period of time the asset would be retained if the client was disabled and unable to work. Thus, for example, with an investment property, retention might be for a period of five years to enable sale of the property at an optimal time.

The capital realised from the sale might be reinvested but this time it would likely be in an asset that while producing unearned income it did so without the need for maintenance costs.

The above period of time would be reflected in the benefit period under the income protection insurance policy.

Assets

Assets are possessions of the client that have a capital value. However, the following are generally excluded: • The place of residence; • Furniture and fittings in the place of residence; • Motor vehicles except luxury or vintage vehicles; and • Superannuation.

The underwriting guidelines in regards to assets and income protection insurance differ between insurers, However, most insurers will simply state that if assets, net of those above, e xc e e d a c e r t a i n a m o u n t ( e g , $ 3 million), income protection insurance is not available.

Again, this generalist approach may fail to fit in with the client’s reality.

A s s e t s t h a t g e n e ra t e u n e a r n e d income to the client have already been considered above.

Assets that do not generate revenue

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

but which may or may not enjoy capital growth need to be considered in a similar way to assets that generate unearned income.

In other words, if the particular asset does not require the expenditure of m a i n t e n a n c e c o s t s, i t w i l l n o t b e endangered if the client was disabled and unable to work. Thus it does not need protecting by way of income protection insurance.

If, however, the asset does require the expenditure of maintenance costs, it may be endangered if the client was disabled and unable to work – and thus i t m a y n e e d p ro t e c t i n g by w a y o f income protection insurance.

Once again, the way in which protection is needed is that those maintenance costs that rely on the ongoing earned income of the client constitute the benefit amount and the period of time the asset would be retained constitutes the benefit period.

While there is clearly the potential for anti-selection with clients who have high levels of earned and unearned income and large amounts of assets, the position is not necessarily as clearcut as the insurer’s underwriting guidelines would indicate.

By understanding the reasons behind the insurer’s position and then identifying any actual risk exposure within the client’s financial plan, the adviser is better able to make the case to the insurer such that appropriate cover might be made available.

Col Fullagar is the national manager of risk insurance at RI Advice Group.

SPECIALIST financial planning coaching company Elixir Consulting has launched a service designed to help planning companies determine whether they are ready to handle the Government’s proposed Future of Financial Advice (FOFA) changes.

The ser vice stress-tests the reliance of firms on trailing commissions as well as providing assistance in explaining and implementing changes to make practices ‘FOFAready’.

Elixir Consulting managing director Sue Viskovic acknowledged that while a lot of advisers were taking a ‘wait and see’ approach to FOFA, others were looking to begin the process of adapting their businesses.

She said her company’s approach was intended to allow advisers to cut through the ‘noise’ of FOFA and get answers specifically designed for their business.

RUSSELL Investments has launched a new website, Helping Advisers, which aims to provide practice management support for planners as they adapt to the proposed regulatory reforms.

The website will target three key areas – economic and market information, investment and portfolio strategies, as well as business management tips, according to John Nolan, Russell’s practice development manager, intermediaries.

The site comes two months after the launch of Russell Practice Management (RPM), a service designed to help Australian planners enhance their advice model.

“Given the critical changes that are taking place in the industry, Australia was the logical next location to offer RPM and Helping Advisers,” Nolan said.

AUSTRALIAN-owned mortgage funder, FirstMac Limited, has offered to buy back the outstanding residential mortgage-backed security (RMBS) bonds issued in the firm’s Bond Series 2-2004 Trust.

The bond series was issued in August 2004 for a total of $500 million and has an option for FirstMac to exercise a clean up buy back, or call, when the outstanding principal on the bond reached 20 per cent of the original issue.

The buyback will be made on 22 August 2011 when the bond will have around $95 million in principal capital outstanding. The margins of the bonds are materially below current market funding costs.

“We are honouring all call commitments in our deals as they were originally sold, despite the fact that new funding will be more expensive for the company,” FirstMac managing director Kim Cannon said.

Appointments

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

Matt Lawler YELLOW Brick Road (YBR) has appointed former executive general manager for NAB Broker, Matt Lawler, as chief executive – with the main aim of facilitating the company’s rapid growth plans.

Lawler has over two decades of experience in financial services, and has held senior positions with MLC and NAB, as well as directorships at Godfrey Pembroke, the Financial Planning Association and the Mortgage and Finance Association of Australia.

YBR has also announced its strategic alliance with Nine Group looks set to go ahead. The deal will see Nine take a 19.9 per cent share in the company worth almost $13 million through its subsidiary Pink Platypus.

Half of the shares will be paid for by a cash settlement, while free advertising will be provided for the other half across Nine’s

television stations, magazine platforms and on the Ticketek platform over a five-year period.

The proceeds from the issue of shares will enable YBR to continue its branch network expansion more aggressively, as well as provide YBR with an advertising platform to enhance the growth of the company’s brand, a statement said.

Nine has also been issued with a series of performance options, which if exercised, will give Nine an additional 5 per cent share of YBR on a fully diluted basis. This is intended to motivate Nine to give maximum value for the free advertising, YBR stated.

The agreement is still subject to shareholder approval, and it is expected that a shareholder meeting will take place before 31 August, 2011.

CENTURIA Capital has announced the appointment of Anne Hamieh as manager of marketing and distribution – financial services.

Hamieh previously held senior roles in relationship management and marketing at Wilson HTM and Next Financial, and most recently headed up the company’s dealer group distribution area. In addition to this, she has worked in analyst, planning and business development roles with AMP. Centuria chief executive John

Move of the week BT INVESTMENT Management (BTIM) has appointed two senior account managers, Nicole Aubrey and Bain Swanson, to its wholesale sales team.

Aubrey will manage relationships with BTIM’s key financial planning dealer group and platform clients in NSW, while Swanson, who will be based in Brisbane, will manage the company’s relationships with dealer groups and advisers in Queensland.

Aubrey joins BTIM after eight years with Investors Mutual Limited (IML), where she most recently held the position of national account manager, and, prior to this, state manager NSW/ACT and business development manager.

Aubrey has also worked at the Commonwealth Bank of Australia (CBA) as a financial consultant.

Swanson has 25 years of financial services experience, including senior roles across sales,

McBain said Hamieh’s “understanding of what drives planners and dealer groups will add a new dimension to our team as we continue to expand our offering in this space”.

The new role will also include the promotion and positioning of Centuria’s investment bonds and new products, McBain added.

Hamieh’s arrival is the third senior appointment at Centuria Capital since March when the company underwent a major rebrand. The change from the company’s previous name was designed to strengthen the

Opportunities BUSINESS DEVELOPMENT ASSOCIATE – FUNDS MANAGEMENT Location: Melbourne Company: Kaizen Recruitment Description: An outstanding opportunity exists for an up-and-coming business development professional to join this global funds management business. Key aspects of the position include working in a team-based environment, making outbound calls to financial advisers, identifying sales opportunities and building long-term client relationships.

The ideal candidate will have previous sales experience within funds management or financial services. You will have a relevant business degree, and possess outstanding communication skills, a demonstrated working knowledge of the investment management industry, as well as the ability to multi-task and work to a deadline.

To learn more about this position and to apply, please visit www.moneymanagement.com.au/jobs or contact Matt McGilton at Kaizen Recruitment on (03) 9095 7157.

FINANCIAL PLANNER Location: Perth Company: ANZ Financial Planning Description: ANZ Financial Planning (ANZFP) is

compliance, research, development and practice management. He joins BTIM from Infocus Money Management, where he has worked in the roles of national distribution manager, and before that, national dealership manager.

Swanson has also held senior roles at IOOF Investment Management, including regional dealership manager and Queensland manager – Perennial Investment Partners. Prior to this he held senior positions at Suncorp and AXA/National Mutual.

BTIM head of sales and marketing Martin Franc said Aubrey and Swanson both brought a significant depth of experience to the team, and would bolster efforts to support advisers and dealer groups alike.

The ASX-listed company had over $34.5 billion in funds under management as at 30 June 2011.

BTIM is majority owned by the Westpac Group.

group’s profile as a diversified fund management business across a range of property funds, insurance and investment bonds.

T. ROWE Price has expanded its Australian team with the appointment of a new client and consultant relations manager.

Jack Kewalram will be responsible for managing relationships with local research houses, select asset consultants and clients across both institutional and third party distribution sectors.

Kewalram has 15 years of

experience in financial services, having held roles at Schroders, Mercer Investment Consulting and Citibank Australia.

Murray Brewer, director of Australia and New Zealand investment services, said the appointment would provide greater client and consultant service across a broader range of strategies.

Vista Chan has also been appointed as client operations manager for the Asia-Pacific ex Japan business, with responsibility for new client take-on and partnering with client relationship managers.

For more information on these jobs and to apply, please go to www.moneymanagement.com.au/jobs a key area of ANZ’s Wealth business, and is now seeking a financial planner who will be responsible for the provision of comprehensive financial planning services and advice. Reporting to the practice manager, you will assist clients to plan for their financial goals by providing strategies, access to a diversified product range and ongoing services. You will also identify and analyse business opportunities, and build internal and external relationships to promote services. You will have completed, or made a significant attempt towards completing a tertiary qualification in a business-related field. In addition you will require an ADFS, and must be progressing towards your CFP qualification.

For more information and to apply, please visit www.moneymanagement.com.au/jobs

three years of experience in financial planning.

You will have experience in developing referral partners and ideally have established networks.

The practice in Five Dock is looking to fill a similar role; however, in this case, you will have the opportunity to mine an existing database for contacts. For the role in Beverly Hills, a wellestablished practice is looking for a highly educated financial planner wanting to build a long term career in the family-run business. You will be degree qualified and hold an ADFP. For more information, please visit www.moneymanagement.com.au/jobs, or contact Matt Grech either by phone on 0408 299 888 or email: jobs@iproconsulting.com.au

FINANCIAL PLANNERS

Location: Sydney Company: Kaizen Recruitment Description: Due to continued growth in their Australian operations, this global wealth management business requires a business development associate to support their wealth management team. To be successful in this role, you will have experience within the financial services industry, and will demonstrate proficiency in using retail platforms. You will have a relevant bachelor’s degree, and possess finely

Location: Sydney Company: iPro Consulting Description: Experienced financial planners are needed to fill positions at three practices within the Sydney suburbs of Five Dock, Norwest, and Beverley Hills. The practice in Norwest has joint venture arrangements with accounting firms and is looking to grow its business by recruiting a high performing financial planner. The ideal candidate will have DFP 1-6 as a minimum and at least

BUSINESS DEVELOPMENT ASSOCIATE – WEALTH MANAGEMENT

tuned communication skills. Genuine career development opportunities are available to the right candidate.

To express interest in this position, please visit www.moneymanagement.com.au/jobs or contact Kaizen Recruitment on (03) 9095 7157.

PARAPLANNER Location: Sydney Company: Acctpro Financial Services Description: This financial planning business based in a medium sized accounting firm is looking for a paraplanner available to start immediately. 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 DFS (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 and 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) 8383 4444.

www.moneymanagement.com.au July 28, 2011 Money Management — 27

Outsider

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

From the outside looking in RUBBING shoulders with financial services types, Outsider is no stranger to extreme wealth – if only as a voyeur. Outsider often dreams of what he might do should fortune come upon him. Why, with that much dosh, Outsider might be forgiven for stocking up on supply of scotch and cigars – and retiring from his duties as a faithful copy boy.

But, idle dreams aside, he has resigned himself to a more sensible existence. Short of his daily caffeine infusion and the odd long lunch, Outsider rarely splashes out.

Instead, he busies himself reading about other people’s ascent or demise.

One such individual, who seems endless-

“

ly on the up, is Steve Jobs. Well, so the twits on the inter-webs have noted yet again. Jobs seems oblivious to the stagnant markets that financial planners have been a little m i f f e d a b o u t t h i s q u a r t e r, a s Ap p l e’s newest-release gizmos keep raking in the billions.

Outsider understands that Apple has sold so many ‘i-things’ of various sorts that it is now worth more than Goldman Sachs.

Should Goldman ever wish to sell out, the twits have noted, Apple could buy them at their current market price and still have billions left over. Now that’s a position Outsider would rather occupy than observe.

An accidental comedian

Out of context

“This is the most humble day in my life.”

News Corp chairman and chief

IT might be a sign of his encroaching old age, but it is with increasing frequency that Outsider finds himself struggling for a name when trying to admonish his own children for stealing the television remote – let alone trying to remember the name of the rookie reporter he’s yelling at.

So it is with great empathy that he must divulge the same thing is happening to some other industry folk, whose age might be starting to get the better of them.

At a recent luncheon for the Association of Superannuation Funds of Australia, global partner at Mercer, Russell Mason, had the privilege of introducing the three panellists for the day’s discussions on infrastructure.

But after introducing the first two panellists with the flair and favour their positions deserved, Mason stumbled at the third, only managing the first name of Mark ‘I’ve forgotten your surname’ Rogers of Colonial First State Global Asset Management.

If that wasn’t bad enough, Outsider cringed when poor Mason then mixed up Mark’s name with another panellist, further fuelling the laughter of the crowd.

To Outsider’s relief, Rogers didn’t take offence to the mistake – quipping, “I was racking my brain to come up with a joke to tell today, but funnily enough I didn’t need to, because it turns out I am the joke”.

executive, Rupert Murdoch, is

apparently grounded by appearing before a UK Parliamentary Committee.

“I do provide backing vocals from time to time.”

Association of Superannuation Funds of Australia (ASFA) director of research, Ross Clare, may not be known as the ‘voice of super’ like his chief executive Pauline Vamos – but he’s happy to chime in when necessary.

“I dunno, I went to a BBQ and my mate made some money out of property, so I thought it would be a good idea” Some clients’ reasons for wanting to gear a property into their selfmanaged super fund are vague at best, according to Ironstone Group chief executive Sean Preece.

A well regulated response ONE of Outsider’s favourite television comedies was the brilliant Yes Minister.

Why? Because Outsider was working in Canberra at the time and found the scriptwriting to be a brilliant reflection of the reality he was witnessing day to day.

You see, bureaucracies and bureaucrats are much the same the world over and notwithstanding some attempts at modernisation, Outsider was last week pleased to note that at least some Government departments and agencies still adhere to the old maxim that what Parliamentarians don’t know won’t hurt them.

Outsider is referring, of course, to the Australian Prudential Regulation Authority (APRA) and what he regards as one of the greatest non-answers to a

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

question on notice he has ever read.

In circumstances where the media and a healthy portion of the financial services industry has been doing a lot of talking about the controversy swirling around MTAA Super, Liberal Senator David Bushby chose Senate Estimates to ask the cardigan-wearing regulators of APRA a series of questions relating to how it was handling issues relating to the MTAA. Having taken 12 questions from Bushby on notice, and notwithstanding the power of the Parliament, APRA chose to ‘plead the fifth’ (or should that be the 56th) on eight of the questions on the basis that under Section 56 of the Australian Prudential Regulation Authority Act 1988, it was “precluded

from disclosing information disclosed or obtained under or for the purposes of a prudential framework law and relating to the affairs of a regulated entity”.

Yes Minister’s Sir Humphrey Appleby would have been proud. After all, on Outsider’s reading of Section 56 it represents one of the best ‘get out of jail free’ cards ever afforded to a Government agency – particularly a regulator.

Outsider suggests that Senator Bushby and other loyal members of Her Majesty’s Opposition might care to consider some strategic amendments to the APRA Act and, while they’re at it, they may choose to reflect upon the large salaries paid to those sitting on the board of APRA and who is paying those salaries.