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Vol.25 No.23 | June 23, 2011 | $6.95 INC GST
The publication for the personal investment professional
www.moneymanagement.com.au
SHORTEN DEFENDS FOFA: Page 4 | TOWER REBRANDS: Page 20
AXA reps happy to stay – for now By Chris Kennedy ALTHOUGH MLC has been open in its plans to target AXA-aligned planning firms that may be disenchanted following the bank’s merger with AMP, many of those businesses say they are happy to stay where they are and see how things progress under AMP. Money Management contacted a number of planning businesses licensed under AXA Financial Planning, Charter and Genesys, and of the seven practice principals who were prepared to speak about their current arrangements, all said they had no plans to transition away from AXA/AMP. Six of the seven said they had not so far been directly approached by MLC, but one Queensland-based principal who is an authorised Charter representative told Money Management that he had been
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Genesys has improved the way it deals with member firms in recent years, and it is hoped that level of support will continue under AMP.
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contacted “almost incessantly” by an MLC representative, by both phone and email. The woman had offered to fly him interstate to meet MLC executives, told him that MLC would be prepared to pay
EDUCATION
Putting the pieces in place AS the financial planning industry seeks to become a highly regarded profession, a number of obstacles need to be surmounted – not least ensuring that the appropriate educational underpinnings exist. Money Management examines the challenges confronting the industry and the varying strategies that are being pursued by both specialist education providers and the major institutions. FULL REPORT PAGE 16
cash for the business (although she did not specify an amount), and also told him AXA-aligned firms were joining MLC “left, right and centre,” he said. He had so far ignored the offers – which he said struck him as unprofessional – and was happy to go ahead with his planning business under AMP, he said. One Brisbane-based AXA Financial Planning (AXA FP) principal said he had been contacted about switching licences by several groups (including Professional Investment Services) in re c e n t m o n t h s, b u t h a d n o t b e e n contacted by MLC so far. He questioned what effect such a transition would have on his practice’s value, and said as far as he was concerned it was “business as usual” following the AXA/AMP merger. He said he had so far “thrown all the offers in the bin”.
A Sydney-based Genesys adviser said he had been “pleasantly surprised” by the level of support provided by AXA and the lack of issues in making the transition when AXA acquired Genesys in 2008. He said Genesys had improved the way it dealt with member fir ms in recent years, and he hoped that level of support would continue under AMP. In addition, a Geelong-based Charter principal, a Sydney-based Charter principal and two south Queensland-based AX A F P p r i n c i p a l s a l l t o l d Mo n e y Management that they had received no direct offers from MLC and would be happy to see how the new arrangements progressed under AMP. In a letter to MLC advisers last week, MLC and NAB Wealth executive general Continued on page 3
ANZ Wealth’s executive recruitment drive By Mike Taylor
ANZ Wealth, Advice and Distribution is embarking on a major recruitment campaign as it restructures is senior executive ranks ahead of what it sees as key changes to the Australian financial planning market. ANZ head of wealth, advice and distribution Paul Barrett said the company was recruiting to fill a number of new roles in the team, including head of practice-based financial planning, head of ANZ financial planning, head of sales, head of advice delivery, and head of distribution and transformation. Barrett said Jamie Sach had been appointed head of business management and Steve Cullen had been appointed as head of advice development. The restructure and recruitment campaign represent the first significant move by ANZ following its recruitment of Barrett from Colonial First State earlier this year. Bar rett has told Money Management the new head of practice-based financial plan-
Paul Barrett ning would be responsible for Millenium3, RetireInvest and Financial Services Partners – along with the dealer groups in which ANZ has an equity partnership such as Century and Fortnum. He said the head of sales would be responsible for platforms, investment and insurance, while the head of advice delivery would be responsible Continued on page 3
Editor
Reed Business Information Tower 2, 475 Victoria Avenue Chatswood NSW 2067 Mail: Locked Bag 2999 Chatswood Delivery Centre Chatswood NSW 2067 Tel: (02) 9422 2999 Fax: (02) 9422 2822 Publisher: Jayson Forrest Tel: (02) 9422 2906 jayson.forrest@reedbusiness.com.au Managing Editor: Mike Taylor Tel: (02) 9422 2712 mike.taylor@reedbusiness.com.au News Editor: Chris Kennedy Tel: (02) 9422 2819 chris.kennedy@reedbusiness.com.au Features Editor: Angela Faherty Tel: (02) 9422 2210 angela.faherty@reedbusiness.com.au Journalist: Milana Pokrajac Tel: (02) 9422 2080 Journalist: Ashleigh McIntyre Tel: (02) 9422 2815 Melbourne Correspondent: Benjamin Levy Tel: (03) 9509 7825 ADVERTISING Senior Account Manager: Suma Donnelly Tel: (02) 9422 8796 Mob: 0416 815 429 suma.donnelly@reedbusiness.com.au Account Manager: Jimmy Gupta Tel: (02) 9422 2850 Mob: 0421 422 722 jimmy.gupta@reedbusiness.com.au Adelaide Agent: Sue Hoffman Tel: (08) 8379 9522 Fax: (08) 8379 9735 Queensland Agent: Peter Scruby Tel: (07) 3391 6633 Fax: (07) 3891 5602 PRODUCTION Junior Designer/Production Co-ordinator – Print: Andrew Lim Tel: (02) 9422 2816 andrew.lim@reedbusiness.com.au Sub-Editor: Tim Stewart Sub-Editor: John Golledge Graphic Designer: Ben Young Subscription enquiries: 1300 360 126 Money Management is printed by Geon – Sydney, NSW. Published every week, recommended retail price $6.95 Subscription rates: 1 year A$280 incl GST. Overseas prices apply. All Money Management material is copyright. Reproduction in whole or in part is not allowed without written permission from the Editor. © 2011. Supplied images © 2011 Shutterstock. Opinions expressed in Money Management are not necessarily those of Money Management or Reed Business Information.
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Sectional groups signpost FOFA changes
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mid all the lobbying and horsetrading taking place around translating the Government’s Future of Financial Advice (FOFA) changes into legislation, there came news reports last week suggesting a group made up of the industry funds, consumer groups and the Australian Council of Trade Unions (ACTU) was ready to drop support for ‘opt-in’ if planners agreed to no longer charge assetbased fees. This report must surely have worried the Assistant Treasurer and Minister for Financial Services, Bill Shorten because, if true, it suggested Government legislation could be shaped by those controlling a group representing highly sectional interests. There is, of course, always a good deal of horse-trading between groups making representations to Governments, but it would seem most inappropriate for any one of those groups to suggest that legislation can be shaped by a series of expedient trade-offs between interested parties. What the Government is proposing is either good policy or it is not, with the elected members of the Parliament being the ultimate arbiters. Those observing who is indulging in the horse-trading around the FOFA changes
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Any changes to default funds within modern awards would have an influence on inflows into particular industry funds.
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might also reflect that some groups appear to be getting two bites of the cherry when it comes to stakeholder status within the Government’s broader consultative processes. The Australian Financial Integrity Network, which is made up of industry funds, a consumer group and the ACTU, appears to have gained itself a seat at a table already populated by the Industry Super Network and the Australian Institute of Superannuation Trustees. Observers might also note that broadranging discussion around the FOFA changes is taking place in parallel with a new debate about the default funds in the modern award process – something sparked by a controversy surrounding the performance and management of MTAA
Super over the past three years. Notwithstanding consistent urgings by the Federal Opposition that the status of modern award default funds needs (consistent with a Labor election promise) to be referred to the Productivity Commission, the Assistant Treasurer has signalled the matter is unlikely to be dealt with before next year. So on the one hand, the Government is looking to impose significant change on one section of the financial services industry while, on the other, it is delaying having the Productivity Commission deal with an issue affecting the superannuation savings of millions of Australian workers covered by Federal Awards. Just as the proposed FOFA changes have already served to alter the way in which many financial planners do business, any changes to default funds within modern awards would have an influence on inflows into particular industry funds. Where the collapse of Storm Financial can be seen to have been the catalyst for changes to financial planning, the same might be argued with respect to the underperformance of default funds under modern awards. The Government has an obligation to act. – Mike Taylor
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News
Disclose pay-for-ratings in FOFA, says van Eyk By Chris Kennedy INVESTMENT research firm van Eyk has called for disclosure of the pay-forratings research model to be included under fiduciary duty requirements in the Government’s Future of Financial Advice (FOFA) reform package. Related payments for product ratings listed in a Statement of Advice (SOA) should also be disclosed within annual disclosure statements required as part of a two-year opt-in process, according to van Eyk chief executive Mark Thomas. Many clients are not aware that the research their adviser relies on is provided under a pay-for-ratings model, and although it is currently disclosed it is buried within the very fine print of a SOA. Thomas proposed something akin to a wealth warning to investors who would
assume independence between a product provider and adviser, and said it needed to be made clear to investors so there was no confusion. Thomas said that a research house could not be selective and discerning throughout the research process if the product manufacturer was the paying client, rather than the adviser. It is important to be selective and recommend less than half the funds on offer, he said. “Above average returns cannot be achieved when the majority of strategies are reviewed and receive an investment grade rating. In most cases no more than one-third of the talent on offer is good enough to be recommended,” he said. “There are a lot of fund managers out there that are mediocre. If you recommend more than half the managers how
Mark Thomas can you beat the average? It’s mathematically impossible. As gatekeepers providing advice to financial advisers, with a view to achieve above average results relative to peers, you need to have a
reasonable gate,” he said. The payment method potentially impacts the sampling and unless you have an unbiased sampling methodology you can’t be capturing all of the talent, he said. The Australian Securities and Investments Commission (ASIC) has publicly questioned the pay-for-ratings research model, and has suggested that a userpays model may improve the quality of research used by advisers, according to van Eyk. Treasury said ASIC had looked into “key issues such as business models, conflicts of interest, disclosure/transparency and the quality of research” and the regulator is now considering “what measures (if any) it should put in place as a result of this work,” according to van Eyk.
AXA reps happy to stay Continued from page 1 manager, advice and marketing, Richard Nunn, confirmed that MLC was in discussions with AXA advisers about joining the MLC network. But the only payments being offered were one-off payments to buy out existing commercial arrangements that some advisers have in place with their current licensee, he wrote. Those payments were not linked to the sale of MLC products in any way, and MLC would not be paying ongoing volume-related payments to new advisers, he wrote.
ANZ Wealth’s executive recruitment drive for “next generation dealership services”. In an unusual move directly aimed at the commercial environment evolving out of the Future of Financial Advice changes, Barrett said it had been decided to create the position of head of distribution and transformation. He said the person appointed to the position would be responsible for providing guidance and leadership with respect to FOFA and the resultant regulatory environment. Commenting on the restructure and recruitment campaign, Barrett s a i d h e b e l i ev e d i t would create a solid foundation for ANZ to
ruled “outBarrett suggestions that ANZ might be contemplating making a bid for a dealer group such as DKN.
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www.moneymanagement.com.au June 23, 2011 Money Management — 3
News
FOFA balance is right, says Shorten By Mike Taylor
Bill Shorten
THE Assistant Treasurer and Minister for Financial Services, Bill Shorten, says the Government believes it has achieved the right balance with its Future of Financial Advice (FOFA) changes. In an address to a Financial Services Council (FSC) function in Canberra this week, Shorten not
only claimed the balance of the FOFA approach was right, he also exhorted the financial services industry to back the lifting of the superannuation guarantee to 12 per cent on the back of the Minerals Resource Rent Tax. Acknowledging that the Government had had some “useful and frank discussions” with the FSC, Shorten said: “When
it comes to financial advice, we think the FOFA package gets the balance right and is absolutely in the interests of consumers – giving them a better deal and building greater trust. “So we also think it’s in the longer-term interests of the financial services industry,” he added. The minister pointed to recent Treasury forecasts with respect to
Australian retirement, but made clear that they were dependent on lifting the superannuation guarantee to 12 per cent – along with efficiencies such as SuperStream. “This is why the Mineral Rent Resource Tax is so important to our nation’s future,” he said. “And here’s where the unacted-upon pressures get as concerning, as the reforms are compelling.”
ETFs to double in two years
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4 — Money Management June 23, 2011 www.moneymanagement.com.au
AUSTRALIA’S exchange-traded fund (ETF) market looks set to double in size by the end of 2013, with up to 80 funds, at a value of $10 billion, listed on the stock exchange by that time, according to BetaShares. Drew Corbett, head of investment strategy and distribution, said since July 2004 assets in ETFs have grown approximately 35 per cent each year, from $1 billion to over $5 billion across 54 products. However, he added that the bulk of the asset growth has come in the last two years as product proliferation has accelerated. Since 2009 the number of products has increased by approximately 160 per cent, which has driven assets under management to increase by over 200 per cent. “Product choice has been the major factor that has driven market growth in more developed ETF markets and Australia is starting to exhibit the same signals,” Corbett said. Corbett said the new products that would soon be listed included further currency, sector, strategy and stylebased ETFs, as well as other asset classes such as fixed interest. There will also be an introduction of specialist trading ETFs, such as short and leveraged products, he said. But Corbett warned that as more products are introduced, especially where different products track the same index, investors will need to look beyond comparisons of management expense ratios to see the full cost of ETFs. Corbett said the best way of evaluating all expenses associated with ETFs was to add the management expense ratio, tracking error and bid/ask spread to give a total cost analysis.
News
Law firm targets Guardian partners with AFA Goldman Sachs JBWere By Milana Pokrajac
By Mike Taylor LAW firm Slater & Gordon has posted national newspaper advertisements directly aimed at current and former clients of Goldman Sachs JBWere who may have lost money as a result of so-called ‘buy below the market’ (BBM) multiple exercise options contracts. The law firm’s advertising suggests it has been retained to consider the legal position of investors who may have suffered loss after entering into the BBM products. It said its investigation was focused on whether “Product Disclosure Statements, contracts, promotional materials and advice given by Goldman Sachs JBWere was defective, misleading and inaccurate”. The newspaper advertisements ask affected people to consider whether they want to consider attempting recovery of their losses. It says that Slater & Gordon is partnering with a litigation funding company – Litigation Lending Services – in the investigation.
SUNCORP-owned dealer group Guardian Financial Planning has formed a partnership with the Association of Financial Advisers (AFA), joining the AFA’s Licensee Partnership Program. Guardian was previously a principal member of the Financial Planning Association (FPA), but has cancelled its membership following the FPA’s recent changes, which allowed only individual financial planners the right to vote. Guardian executive manager Simon Harris said the dealer group was still working with the FPA in the same capacity as with the AFA.
Simon Harris “We just thought that it was the right time to join the AFA. There is obviously significant regulatory change and I don’t think it hurts to
have our voice heard in a number of different ways,” Harris said. “Our partnership with the AFA gives our advisers a stronger voice in the current dynamic and changing regulatory environment,” he added. Guardian stated the partnership would give the dealer group representation before the Government and regulators on policy issues, the opportunity to work with advisers around the country, and reduced membership fees for Guardian advisers. The partnership will also ensure that Guardian works collaboratively with the AFA’s Licensee Working Group, Harris said.
Structural change needed in Euro banks By Chris Kennedy BANKS and insurers in continental Eu r o p e c o u l d e n j oy s i g n i f i c a n t l y improved growth and revenue and unlock increased franchise value by a d o p t i n g n e w g row t h s t ra t e g i e s, a c c o rd i n g t o g l o b a l m a n a g e m e n t consultants Casey, Quirk & Associates. The institutions could unlock an additional 175 billion euros in franchise value from the asset managers by 2015, increase revenues by 24 per cent and add 2 trillion euros in new client money according to Casey Quirk’s white paper, Untapped Opportunity: Realizing Value in Continental Europe’s
Asset Managers. The new growth strategies include offering equity linked to long-term a s s e t m a n a g e m e n t p e r f o r m a n c e, which would help banks and insurers more effectively battle for talent, according to the paper. Other strategies included investing in distribution channels that are not affiliated with the parent banks and insurers, rationalising the suite of investment products offered, and determining whether to fully globalise or retrench to concentrate on select European markets, the paper found. “These changes will spur growth in continental Europe’s asset managers
and make them as competitive as their foreign counterparts, both at home and abroad,” said Casey Quirk partner and report co-author Kevin Quirk. The changes would also create significant value for the parent banks and insurers, which is critical in the crowded European marketplace, Quirk said. Op t i m i s i n g g row t h t h ro u g h t h e strategies outlined in the paper would boost the valuation of continental Europe’s asset management operations to that of listed money managers, through a combination of stronger asset gathering, higher fee realisation and greater efficiencies, according to the paper.
AMP Capital sees return to offshore property
Private equity outperforms AUSTRALIAN private equity and venture capital returned 7.3 per cent over 2010, outperforming most major relevant benchmarks, according to the Cambridge Associates LLC Australia Private Equity and Venture Capital Index. The S&P/ASX 300 returned 1.9 per cent in 2010, and the Private Equity and Venture Capital Index also outperformed this benchmark over three and five years, according to The Australian Private Equity and Venture Capital Association (AVCAL). AVCAL chief executive Dr Katherine Woodthorpe said it was
encouraging to see that funds raised in 2008, during the height of the global financial crisis, were already reporting strong interim performance numbers. “However, it remains to be seen how the evolving economic and regulatory climate will impact fundraising, investment and divestment activity going forward,” she said. This is the third quarterly report from the index, which is a result of a strategic partnership between AVCAL and Cambridge Associates, and covers 58 Australian private equity and venture capital funds.
WITH returns on the way back, now is the time for institutional investors to get back into offshore property assets – in particular, residential apartments in the US, according to AMP Capital Investors. We are already seeing the return of institutional investor appetite for property, according to John Dynon, fund manager for the AMP Capital Global Property Fund. There is a structural issue that is seeing diminishing availability of core domestic product, and with the superannuation guarantee set to rise from nine to 12 per cent, that availability will decrease further with greater super fund investment in available assets, Dynon said. Having been through a severe market correction now is the right part of the cycle to get into offshore property markets, and prices are currently compelling, he said. Many investors are also attracted by the current high value of the Australian dollar, which can buy more at the current rate, he said. In the US, job growth will repair consumer confidence and improve rental and vacancy rates, said David Rabin, the managing director of private real estate for Urdang, one of AMP Capital Investors’ property partners in North America. The coming several years represent a highly favourable real estate market entry point, and potentially the best buying opportunity since the 1990s, he said. The US is facing a wave of mortgage maturities, of which roughly half of the loans are estimated to be underwater, and the confluence of all these market conditions will create a variety of opportunities to acquire or invest in high quality properties at deep discounts from peak pricing, he said.
Andrew Conway
IPA joins AsiaPacific organisation THE Institute of Public Accountants (IPA), formerly the National Institute of Accountants, has announced it has been admitted to the Confederation of Asian and Pacific Accountants (CAPA). According to the IPA, CAPA is the world’s largest regional accounting organisation, representing 31 accounting organisations in 24 jurisdictions spanning half the globe. IPA chief executive Andrew Conway said the admission marked a huge milestone for the institute and was in line with the IPA’s strategy of growing its footprint in the Asia-Pacific region. “We are proud to join such a prestigious organisation that shares our vision for the development and enhancement of the accounting profession,” he said. “We look forward to sharing ideas and collaborating in the future on initiatives that will benefit all our members and the profession as a whole.” The IPA said CAPA’s mission was to provide leadership in the development, enhancement, and coordination of the accountancy profession in the AsiaPacific region, and to establish better communication among its members to encourage greater cross-border activities in accounting. The region covered by CAPA, spanning from Canada to Pakistan, features diverse economies with varying levels of maturity, and that diversity benefits all CAPA members, the IPA stated.
www.moneymanagement.com.au June 23, 2011 Money Management — 5
News
Advisers being disadvantaged by ASIC By Mike Taylor THE Australian Securities and Investments Commission (ASIC) has been accused of creating “a recipe for chaos” relating to its requirements for advisers seeking their own Australian Financial Services Licences. Smart Compliance principal Brett Walker has claimed ASIC’s insistence on production of RG146 certificates from such advisers represents a recipe for chaos, in what he describes as “the inevitable move away from the institutional dealer model”. “Recently we have attempted to convince ASIC that if an RG146 certificate cannot be located, it is simple logic that the adviser could not be on the ASIC Register or Authorised Representatives unless their dealer had assessed them to be RG146 compliant,” he said. However, Walker said ASIC had refused to accept the argument, and was insistent that the adviser produce a piece of paper that may have been issued almost 10 years earlier – and at a time when the adviser did not anticipate needing to produce it to ASIC
Brett Walker at some future point. “Some dealers are showing a real reluctance to look for their file copies, telling advisers who ask for them to go to the Registered Training Organisation [RTOs] that performed the RG146 assessment,” he said. “Some of these RTOs no longer exist or may
have simply destroyed older files.” Walker said the problems had been pointed out to ASIC which had responded that perhaps some clients should consider going exclusively wholesale, since RG146 only applies to retail clients. “Try telling someone with a large book of retail clients they can have their own AFSL provided they get rid of their retail clients. It makes no sense,” he said. Walker said that what was required was a protocol whereby, at a policy level, ASIC accepted that if someone had been listed on the ASIC register by their AFSL they had been assessed as being RG146 compliant prior to that listing. He said a statutory declaration sworn by the adviser might also give additional comfort. “The alternative is a situation where advisers who have already been assessed as competent and who have practised competently for years will have to retrain or obtain an individual assessment before they can move away from their current dealer,” Walker said.
QBE profit forecast defies disasters BIG general insurer QBE appears to have emerged better than most from the spate of natural disasters, forecasting last week that its net profit for the first half is currently expected to be 50-60 per cent higher than the US$440 million reported for the first half of 2010. While QBE acknowledged the impact of large catastrophe claims including the Queenland storms, Cyclone Yasi, the Victorian storms, the Christchurch earthquake, the Japan earthquake and eight major tornadoes in the US, it said large risk claims were in line with its targets. It appears that the impact of the natural disasters on the balance sheet were somewhat mitigated by strong investment performance, with net investment income being nearly five times higher to the end of May than the corresponding period in 2010.
Snowball snaps up 13% of Shadforth By Ashleigh McIntyre
THE directors of Shadforth Financial Group Holdings have led by example and accepted the takeover offer by Snowball Group for all of their shares, which account for a 13 per cent stake in the company. This is the first step towards the proposed merger of the two companies, which would see the two groups become a privately owned wealth management business with more than $14.3 billion in funds under advice, administration and management. Shadforth shareholders have also been offered 2.15 Snowball shares per Shadforth share, and have been urged to accept the offer by the closing date of 8 July, 2011. Snowball has said it intends to extend Shadfor th’s managed por tfolio and become the responsible entity of the firm’s core product funds if the merger is successful.
Investors return to private equity
Commenting on the year-to-date performance, QBE chief executive Frank O’Halloran said that while the unprecedented frequency and severity of catastrophes in the first five months had materially impacted a large number of insurers and reinsurers, QBE’s diversification and comprehensive reinsurance protections had enabled it to outperform the majority of its peers in the first half. However, he said that achieving the company’s targeted 2011 insurance profit margin would be largely influenced by the level of large risk and catastrophe claims incurred in the remainder of the year.
6 — Money Management June 23, 2011 www.moneymanagement.com.au
PRIVATE equity appears to be making a comeback among investors in the Asia Pacific, according to new data released by London-based Coller Capital. The company’s latest Global Private Equity Barometer has revealed that three times as many Asia-Pacific investors (30 per cent) are planning to increase their target allocation to private equity as reduce it (10 per cent). However, the barometer also reveals that allocations to private equity, while being nearly double those for the same period in 2009 and 2010, are well below those of 2007 and 2008. The Coller Capital research has also confirmed the degree to which investors opting for private capital are nonetheless seeking to play it safe, with more than half of their exposure in the Asia-Pacific region being to the “developed markets of Australasia, Japan and Korea”. Indeed, the data showed that 57 per cent of allocations were to ‘developed markets’, while 41 per cent was being directed to emerging markets such as China and India and just two per cent towards nascent markets such as Vietnam and Cambodia. Japan’s recent problems with natural disasters and a nuclear accident also appear to have impacted investor sentiment, with the Barometer revealing a net negative exposure to Japan over the next two years.
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News
Plan for Life confirms that markets are struggling By Mike Taylor THE latest Plan for Life data has served to confirm market caution, revealing a relatively subdued March quarter and “a fairly flat year where underlying investment markets generally struggled to find any really sustained and solid direction”. Of particular concern was an almost halving of cash trust business driven by the Government’s bank guarantee. The Plan for Life data revealed that gross
inflows grew by 7.8 per cent to $38 billion during the March quarter but noted that, year on year, they were down significantly by 22.4 per cent due mainly to a further halving of the remaining cash trust business during the year. The data revealed that Mercer (8.2 per cent), AMP (3.6 per cent), Commonwealth/ Colonial (2.6 per cent), BT (2.1 per cent) and National Australia Bank/MLC (1 per cent) were the only leading companies to report any growth, albeit modest to slight.
There’s more than one way to retire
Looking at all retail managed funds, the Plan for Life data revealed a 1.9 per cent increase over the year and concluded “this result probably better sums up the actual performance of the retail managed funds market, as it excludes the effect of the continued exodus out of cash trusts”. It said the cash trust business was almost halved during the year, down by 49.1 per cent as cash deposit type business continued to be moved into the banking system attracted by the Government guarantee.
Chris Kelaher
IOOF proposes to acquire DKN By Milana Pokrajac
New retirement solutions with the right growth assets Over 29 years Legg Mason Australian Equities has progressively built a suite of solutions to match the needs of Australian investors. Our latest innovations, the Legg Mason Australian Equity IncomeTrust and the Legg Mason Australian Real Income Fund, are tailor-made for Australian retirees seeking income. Legg Mason Australian Equity Income Trust Invests in listed Australian shares and aims to provide a sustainable income for retirees with in-built inflation protection. Legg Mason Australian Real Income Fund Aims to achieve a sustainable yield by investing in listed property and infrastructure, as well as utilities – entities that can increase their own revenues in line with inflation.
Want to know more? Freecall 1800 679 541 or visit www.leggmason.com.au
Performance. Experience. Stability.
Legg Mason Asset Management Australia Limited (ABN 76 004 835 849 AFSL 240827) trading as Legg Mason Australian Equities is part of the global Legg Mason, Inc. group. Legg Mason Asset Management Australia Limited makes no guarantee of capital or income returns. This document has not been prepared to take into account the investment objectives, circumstances or particular needs of a person. Before investing you should obtain a copy of the Product Disclosure Statement, “PDS”. A Product Disclosure Statement for the Legg Mason Australian Equity Income Trust and the Legg Mason Australian Real Income Fund can be obtained by contacting Legg Mason Asset Management Australia Limited on 1800 679 541.
8 — Money Management June 23, 2011 www.moneymanagement.com.au
IOOF has submitted a proposal to acquire all the shares in DKN it does not already own, via its wholly owned subsidiaries. According to the company’s announcement to the Australian Securities Exchange, the proposal consisted of an all-cash offer of $0.75 per DKN share to be effected by way of a scheme of arrangement and subject to conditions, including the unanimous support of the DKN Board members. IOOF noted there was no certainty that the proposal would lead to a transaction, but mentioned that the company had commenced confidential discussions with DKN. Managing director of IOOF Chris Kelaher said it made “strategic and c o m m e rc i a l s e n s e t o explore the options for accelerating the growth of DKN business under IOOF’s larger and vertically integrated wealth management model”. No m u r a a n d Bl a k e Dawson will act as I O O F ’s f i n a n c i a l a n d legal advisers.
News Chan & Naylor question FOFA outcomes Mortgage brokers to offer financial advice By Ashleigh McIntyre
By Chris Kennedy
SOME changes under the Government’s Future of Financial Advice (FOFA) reforms will not have the intended results, unfairly targeting the smaller players and favouring large institutions and industry funds, according to Chan & Naylor. Opt-in proposals did not take into account the amount of time required to build a relationship between an adviser and client, and for an adviser to demonstrate their value proposition, said David Hasib, a partner and head of financial planning at Chan & Naylor. The increased compliance costs would have the greatest impact on smaller planning firms and eventually push clients towards big banks and industry funds, at the expense of consumer choice and value, he said. “I believe it’s not about the consumer, it’s about controlling the $1.3 trillion in superannuation,” he said. Hasib also questioned the value of separate licensing regimes for accountants to offer strategic advice on self-managed super funds. “Creating a separate licensing regime, as opposed to having this simply fall under [Australian Financial Services Licensee] parameters, will create disjointed services, problems with compliance and ultimately further muddy the
waters in the mind’s eye of Australian consumers. In effect the Government is kicking an own goal when ironically their desired goal is simplicity,” he said. It’s possible that independent financial advisers (IFAs) will be forced to create their own product if rebates stop, which effectively gets around many of the changes, Hasib said – but he questioned whether this would be in the best interests of clients. “We’re missing the point. We could very easily blur the lines between what is a fund manager, platform, or dealer group. That’s not what IFAs are about, they’re not into admin of platforms and putting on fund managers,” he said. If the FOFA changes are enforced in their current form the government could be looking at a class action from IFAs to compensate for the destruction of an industry, Hasib said. The Government must adopt a more open-minded approach that considers both the customer as well as those serving the customer, he said. The industry itself also needed to do some work around providing a clear and transparent standard fee model; equally clear and transparent value propositions for advisers; abolishing product volume based rebates both to the dealer and adviser; and raising the level of education required to enter the industry, he said.
MORE mortgage brokers are looking to add financial planning to their skill set in a bid to future-proof their incomes, a new survey has revealed. A survey by financial services umbrella group Wealth Today at the Mortgage Finance Association of Australia’s national convention found the majority of respondents (68 per cent) believed mortgage broking on its own did not have a future.
Instead, respondents described the broker of the future as “a trusted finance professional providing their life-long clients with a full suite of services, including financial planning in addition to mortgage broking”.
Further to this, 64 per cent of brokers surveyed are considering adding financial planning to their suite of skills, while 28 per cent already have. Wealth Today general manager Michael Stephens said it has become obvious to brokers that diversifying is no longer an option, but has become a necessity. “It is exciting to see so many brokers gearing up to move their businesses to a more abundant future,” Stephens added.
BBY picks up StoneBridge By Mike Taylor STOCKBROKING and advisory house BBY is set to expand beyond its Sydney and Melbourne base with the acquisition of StoneBridge Group. BBY has announced it has acquired the StoneBridge private client adviser network – something that will see it expanding its footprint into Perth, Adelaide and the Gold Coast. BBY said it had signed a sale and purchase agreement with StoneBridge to acquire its private client adviser network, staff and product platforms.
BBY chief executive and managing director, Glenn Rosewall said the company had built market share on the strength of its corporate, research and institutional business, making the StoneBridge buy a strategic development and the creation of a significant new player in the Australian private client market. He said it was expected the StoneBridge teams would join BBY towards the end of next month. He added the advisers coming across from StoneBridge were providing excellent services in equities and options trading, futures, foreign exchange, contracts for difference and derivatives.
THIRTY-FOUR TURBULENT YEARS OF STEADY RETURNS. It’s hard to argue with the Perpetual Industrial Share Fund’s status as a ‘core’ fund. After all, it has a 34-year history and a track record of consistent returns above its benchmark*. With potential to provide tax-effective income and capital growth, it’s a fund designed to suit clients regardless of their stage in life. A proven way to help thrive through change as it happens.
SINCE 1886 MASTER CHANGE Contact your Perpetual Account Executive or phone us on 1800 062 725 to find out more www.perpetual.com.au/advisers/isf
This advertisement has been prepared by Perpetual Investment Management Limited (PIML) ABN 18 000 866 535, AFSL 234426. It is general information only and is not intended to provide you with financial advice. The relevant product disclosure statement (PDS), issued by PIML and available from our website, should be considered before deciding whether to acquire or hold units in Perpetual’s Industrial Share Fund (ISF). Past performance is not indicative of future performance. *The ISF (now marketed as Perpetual’s Wealthfocus Investments Industrial Share Fund) was first made publicly available in 1976 and its benchmark is the S&P/ASX 300 Industrials Accumulation Index.
www.moneymanagement.com.au June 23, 2011 Money Management — 9
News
Advisers and insurers fail to demonstrate value of cover By Milana Pokrajac
and were not advised on their life insurance – claimed they did not need advice. A further 44 per cent were not willing to pay fees for advice on life insurance or were not content with the fee structure, but AFA chief executive officer Richard Klipin said the remuneration model presented only part of the issue. “Mainly the issue is demonstrating value, communicating that to clients… [who have] the happy-go lucky approach and attitude,” Klipin said.
FINANCIAL advisers and the life insurance industry have failed in communicating the value of life cover to the majority of Australians and potential clients, new research has found. CoreData’s report Risking Everything, commissioned by the Association of Financial Advisers (AFA), found more than a third of those who bought their policy through their superannuation fund or direct from the insurer –
“Consumers ask: ‘Do I get what I want, do I know what I’m getting, do I know what I’m paying for and do I feel good about that value exchange?’ The research has shown time and time again that it’s not the payment method, it’s the combination of product and value,” he said. Moreover, the report stated risk specialists should understand that life insurance is not a key driver of the advice relationship, “so it may be best framed in the context of a broader
conversation about financial planning”. More than 90 per cent of those who were advised on their life insurance felt confident they understood what type and how much life cover they needed, around 10 percentage points more than those who never received advice about their life cover. Klipin said the AFA was also concerned about the fact that most Australians found their home and car insurance more important than Richard Klipin life cover.
Finance and accounting salaries rise By Ashleigh McIntyre
FINANCE and accounting practitioners have fared well in the latest round of salary surveys, receiving one of the highest pay increases across the board at 4.1 per cent. The Australian Institute of Management’s 2011 National Salary Survey found that while finance and accounting job families were at the high end of the pay increase spectrum, the wider finance, banking and insurance industry underperformed in the last financial year. As a whole, the industry sector only managed an average pay increase of 3.62 per cent in 2010-11, which was lower than the Australian average of 4 per cent. It was also one of the only industry sectors to record average salary movements lower than those in the previous year. However, this is forecast to rise to 3.79 per cent in the coming financial year, bringing the industry back in line with other sectors. Another interesting trend found across the board was the willingness of large companies to consider hiring staff from overseas to overcome skills shortages. Migrant workers are currently being recruited for 12.9 per cent of finance and accounting jobs in large companies, and 15.2 per cent in small companies. There are also more employees willing to risk changing employers, with the average rate of voluntary staff turnover for large companies increasing from 10.3 per cent to 12.6 per cent. This increasing volume of voluntary turnover has led to an upward spiral in businesses conducting succession planning for staff, the survey found.
investment in Australia’s health 21 healthcare properties
1
AIHW 2010. Health expenditure Australia 2008-09. Health and welfare expenditure series no. 42. Cat. no. HWE 51. Canberra: AIHW. 2Goss J 2008. Projection of Australian health care expenditure by disease, 2003 to 2033. Cat. no. HWE 43. Canberra: AIHW. *This information is intended to provide a broad summary of the Australian Unity Healthcare Property Trust. Investment decisions should not be made upon the basis of past performance, since future returns will vary. You should refer to the relevant Product Disclosure Statement (PDS) dated 25 June 2010 if you wish to know more about the product. A copy of the PDS can be obtained from the Issuer – Australian Unity Funds Management Limited ABN 60 071 497 115, AFS Licence No 234454 by calling 13 29 39 or visiting australianunityinvestments.com.au. You should consider the PDS in deciding whether to acquire, or to continue to hold the product. The properties featured in this advertisement are the RPAH Medical Centre and Manningham Medical Centre – they are owned by the Australian Unity Healthcare Property Trust.
10 — Money Management June 23, 2011 www.moneymanagement.com.au
News
Modern award default funds headed for inquiry By Mike Tayor THE future of modern award default superannuation funds appears headed to a Senate inquiry, with two key members of the Federal Opposition having expressed serious concern about members’ money being lost because it is being channelled towards underperforming funds. The move towards a Senate inquiry has gained momentum on the back of concerns that the automotive industrybased MTAA Super suffered significant
losses in the lead-up to the global financial crisis, but was nonetheless nominated as a default fund across a number of modern awards. Both the Opposition spokesman on Financial Services, Senator Mathias Cormann, and the Opposition whip in the Senate, Senator David Bushby, have expressed strong public concern at the manner in which particular industry funds have been allowed to dominate the default fund regime. Cormann has warned that the current
process favours union-based industry superannuation with the result that they now represent the top 10 most commonly listed default funds under modern awards. “These 10 funds are listed 330 times as default funds under modern awards, having been chosen through a secretive process riddled with undeclared conflicts of interest,” he said. “An anti-competitive process means Australian superannuants in default funds are not getting the best possible value from their super savings,” Cormann said.
The Opposition senator pointed to the fact the Labor Government had promised during the last election to initiate a Productivity Commission inquiry into the selection of modern award default funds and that a Senate-imposed deadline for a new default fund regime had expired at the end of May. Cormann said the Government’s failure to respond to the Senate or to refer the matter to the Productivity Commission represented “an abject failure of consumer protection”.
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 30 April 2011)* 1 year %
3 years % p.a.
5 years % p.a.
Since inception % p.a. (28 Feb 2002)
Distribution
6.60
7.02
7.83
9.36
Growth
1.24
(1.75)
2.40
3.43
Total
7.84
5.27
10.23
12.79
*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
The Lonsec Limited (“Lonsec”) ABN 56 061 751 102 rating (assigned September 2010) presented in this document is limited to “General Advice” and based solely on consideration of the investment merits of the financial product. It is not a recommendation to purchase, sell or hold the relevant product, and you should seek independent financial advice before investing in this product. The rating is subject to change without notice and Lonsec assumes no obligation to update this document following publication. Lonsec receives a fee from the fund manager for rating the product using comprehensive and objective criteria.
Super assets continue to grow strongly
AUSTRALIA’S superannuation assets continued to grow through the first quarter of this year, with the latest Australian Prudential Regulation Authority (APRA) data revealing that total estimated assets stood at $1.36 trillion at the end of the March quarter. APRA said that over the 12 months to March there had been an 8.6 per cent increase in total estimated superannuation assets, with industry funds leading the way, increasing by 4.4 per cent, followed by corporate funds with an increase in assets of 3.7 per cent and self-managed superannuation funds by 3.3 per cent. This compared to an increase in assets over the period of 3 per cent for public sector funds and just 2.3 per cent in retail funds. The APRA data confirmed that SMSFs continued to hold the large proportion of superannuation assets, accounting for 31.9 per cent, followed by retail funds with 27.3 per cent and industry funds with 19 per cent. Where rates of return were concerned for the quarter, public sector funds generated a return of 2.7 per cent, corporate funds generated a return of 2.5 per cent, industry funds generated 2.5 per cent and retail funds generated 1.9 per cent.
www.moneymanagement.com.au June 23, 2011 Money Management — 11
InFocus FUM SNAPSHOT Retail funds under management annual growth:
8.2% 3.6% 2.6%
Super fund planning: who benefits?
Mercer
AMP
Commonwealth/Colonial
-1.7% OnePath Australia
-8.3% Perpetual
-26% Macquarie
Source: Plan for Life
WHAT’S ON 2011 ASFA Policy Roadshow 28 June, 2011 38 Cavenagh Street, Darwin www.superannuation.asn.au NSW Women in Super event 28 June, 2011 Level 6, the Imax Theatre Complex 31 Wheat Road, Darling Harbour www.womeninsuper.com.au Young Planner Event 7 July, 2011 Mooloolaba Surf Lifesaving Club www.fpa.asn.au AFA National Forum and Masterclass 19 July, 2011 Pan Pacific Perth, 207 Adelaide Terrace, Perth www.afa.asn.au FSC Annual Conference 2011 3-5 August Gold Coast Convention and Exhibition Centre www.fscannualconf.org.au
As superannuation funds seek to move further into the provision of full service financial planning, a recent report prepared for the West Australian Government has raised some serious questions about what is really in members’ best interests.
A
s a growing number of superannuation funds seek to enter the financial planning market, a report prepared for the West Australian Government has thrown up a range of issues that cannot be ignored by either the Federal Government or the Australian Prudential Regulation Authority (APRA). The report, Putting Members First – A Review of Public Sector Superannuation Arrangements, prepared by Commonwealth Public Servant, Rob Whithear, reviewed the activities of big West Australian public sector fund Government Employees Superannuation Board (GESB) and recommended it return to its core responsibilities, including exiting full-service financial planning arrangements. The executive summary of the report goes to the kernel of its findings – “that the GESB should focus on Government Employees Superannuation rather than being an active participant in well established superannuation and financial planning markets, competing directly with the private sector”. “The Report does not support the State Government funding the establishment of a financial services provider competing in that market,” the executive summary said. The findings of the report, while specific to the objectives of a Coalition West Australian Government and the activities of a public sector fund operating in that state will nonetheless resonate with many participants in the broader financial planning industry and raise questions about the extent to which superannuation funds are being allowed to provide advice and the terms on which that advice is being provided. In particular, it suggests that if the sole purpose test is not being broken by some funds, then it is certainly being bent. What will most interest the financial planning industry about the West Australian report is the manner in which it points to a strategy pursued by GESB in its bid to pursue additional revenues by entering the full-service financial planning market. There is, too, the suggestion that the super fund’s desire to expand its financial planning offering was driven as much by revenue requirements as the provision of member services. The fund’s desire to deliver a full-service
12 — Money Management June 23, 2011 www.moneymanagement.com.au
offering via a subsidiary company had its genesis in the initial decision to provide fundspecific advice to members in 2005. As member take-up of its advice offering gained traction and as other superannuation funds pursued their own objectives in the financial planning industry, the GESB trustee board in November 2008 sought a further $2.5million to expand into the broader wealth management market. The proposal was rejected by the State Treasurer in January 2009, and GESB was advised to constrain its operations to services set out in its original business case and within the scope of the Sole Purpose Test as administered by APRA. The Whithear report suggested that notwithstanding the State Government’s clear intention that the establishment of GESB Wealth Management (GESBWM) was founded on the basis that it would provide advice only to GESB members about GESB products, it had subsequently moved well beyond that brief. The review found that GESBWM was providing a range of advice which could be described as “full complex advice” and noted “the range of advice is consistent with what might be expected to be obtained from a full service financial advisory entity”. “A number of these services would only have a tangential relationship to superannuation, and the GESB schemes in particular,” it said. The report then quoted an APRA superannuation circular dealing with the application of the sole purpose test and, in particular, the following extract: “... fund sponsored programs, including financial planning services, which are targeted at broader, non-superannuation savings and investment opportunities, products or services, such as investment or tax advice and health insurance are inappropriate.” “Financial planning is now a service which many trustees are considering offering to members … if the service is aimed only at a member’s interest in the fund, such services would generally fall within the sole purpose test. If, however, broader advice is offered, it would be inappropriate for the cost to be borne by the fund.” The section of the report dealing with financial planning is revealing because many financial planning principals would be interested to
note the “the revenue model for GWM is based on charging clients an hourly rate of $290 per hour”. It said the business case prepared by GWM to move to a full advice model assumed that preparation of a Statement of Advice would take five hours. “During 2007/08 the preparation of a Statement of Advice (SOA) required 19 hours work. GESB advised that this had subsequently been reduced to 15 hours,” it noted. The report said the GESB business case also assumed that the first year of operation would attract 1,670 clients at charges of $250 per hour, resulting in income of $1,250 per SOA. It said actual income per client during 2007/08 was approximately $2,700 per SOA for 340 clients. However, it said this revenue per SOA continued to grow, with GESB reporting income per SOA as ranging between $3,500 and $4,500 each. The business clearly gained traction, however, with the report noting that GESB financial planners met with 348 members during the June 2009 quarter with the planners being engaged by members to provide 201 Statements of Advice as a result of those meetings. “Nearly 540 SOAs were prepared during the 2008/09 financial year, leading to revenues of $2.27million ($2.51million in Income Statement) for GESB Wealth Management for that year,” the report said. “GWM paid GESB $2.24million for the performance of services as GWM financial planners are actually employed by GESB. GWM pays GESB for financial planning services delivered to GESB members on behalf of GWM.” The report to the WA Government conceded that the desire to provide a full service financial advisory offering to GESB members was understandable and that “the expansion of the breadth of financial advisory services along the path to the planned mutualisation was also understandable”. “However, revenue forecast uncertainties, recourse risks to the State Government and mooted changes to the regulatory environment for financial advice suggest that this expansion involves significant risk. This risk is only exacerbated if considered in the context of uncertainty about the financial viability of GESB Wealth Management or in contemplation of potential claims against the State,” it said. “The recommendation contained in this Report that the planned mutualisation of GESB be cancelled, crystallises the above points and leaves the State in the potential position of being the long-term owner of a full service financial planning entity.” “The Review considers this is not in the interests of the State and that the Government should wind up GESB Wealth Management.”
Equities Trading Gearing Debt Optimisation Portfolio Administration Tax Reporting Cash Portfolio Construction IPOs & Placements
We’ll help you grow from the middle up. You may not recognise our name. But as a leading provider of wholesale investment solutions, we’re already at the centre of more than 10,000 advisers and 400 dealer groups, as well as some of Australia’s largest financial institutions. So why put us at the heart of your operation? Mostly because we can help you meet your clients’ increasing demands. From equities trading to gearing, portfolio administration and beyond, we can help broaden your offering. And grow in this rapidly changing market. For more, call 1300 360 896 or visit coreservices.com.au
Disclaimer: Share trading through Core Equity Services is a service provided by Australian Investment Exchange Ltd (“AUSIEX”) ABN 71 076 515 930 AFSL 241400, a Participant of the ASX Group. Core Equity Services is a trademark of the AUSIEX. AUSIEX is a wholly owned, but non-guaranteed, subsidiary of the Commonwealth Bank of Australia (“the Bank”) ABN 48 123 123 124 AFSL 234945. The Bank and its subsidiaries do not guarantee the obligations or performance of AUSIEX or the products or services it offers. AUSIEX is not an Authorised Deposit Taking Institution and its obligations do not represent deposits or other liabilities of the Bank. This information has been provided for Australian Financial Services Licence holders only. Please consider the appropriateness of the information provided in the PDS/T&C’s in regard to your client’s individual needs and circumstances. Products under the Colonial Geared Investments brand are provided by the Bank. CSL0088/MM
Retirement Incomes Workshop
Retirement Incomes Workshop ON June 7, Money Management presented its first CPD accredited education wor kshop on Retirement Incomes. Delegates heard from a range of speakers discussing everything from retirement income strategies, to longevity risk, dynamic asset allocation, and burgeoning oppor tunities in the aged care space. Two interactive panel sessions kept planners abreast of the latest issues with longevity products and strategies – both current and the next generation. Thank you to our sponsors Platinum sponsor Gold sponsor
Ageing Australia provides planning opportunities By Jayson Forrest GOVERNMENT spending on aged care is projected to increase from 0.8 per cent to 1.8 per cent of gross domestic product over the next 40 years, since the number of people of working age capable of supporting each Australian aged 65 and over will drop from five to only 2.7 people within the period. This was one of the key findings of the 2010 Intergenerational Report, with the subsequent Productivity Commission’s draft repor t on Car ing for Older Australians examining ways in which retirees and the G over nment can respond to the challenges of an ageing population and the future funding costs of aged care. In her presentation on Caring for Older Australians at the Money Management Retirement Incomes workshop, Strategy Steps director Assyat David outlined the challenges of an ageing population for financial planners and the opportunities aged care can provide to practitioners. David said Australia’s rapidly ageing population provided planners with unique client opportunities that to date have remained largely untapped in the aged care sector. These include: • The high cost and complexity of
Assyat David aged care will be the next major financial decision for clients after retirement; • The considerable lack of practical information and assistance for affected persons and their families places planners in an enviable position in which to help clients; • Financial planners are increasingly recognising the benefits of including aged care services into their client value proposition; and • Affected persons and their family turn to trusted professional service providers, such as lawyers, accountants and finan-
cial planners, for help and guidance. David said the aged care market would only continue to grow, but there were complexities within the sector that planners needed to navigate through with sensitivity. “Clients need to consider the home as a financial resource,” David said. “The Productivity Commission has recommended that the Government establish a Government-backed Aged Care Equity release scheme which would enable individuals to draw down on the equity in their home to contribute to the costs of their aged care and support,” she said. “The Productivity Commission also recommended that the Government establish an Australian Pensioners Bond scheme to allow age pensioners to purchase a bond from the Government on the sale of their primary residence.” David added this bond could reduce investable assets, which could be the only option to get an asset exemption. While the aged care market will provide planners with significant opportunities, David warned that the industry had to do more in terms of better long-term planning before and during retirement, and with planners needing to include aged care plans in their clients’ strategies.
ACI0004/GPS/MM/R/4
Think
AMP Capital Global Property Securities Fund. It’s not just one of our products, it’s a product of thinking wide. Our global property securities team talks to our fixed income team because they know what’s happening in the property debt markets. It allows us to put a more accurate price on things like expansions, mergers and refinancing. Thinking wide is more than a philosophy, it’s what we’ve been doing for over 40 years. The results speak for themselves – the highest ratings of three of Australia’s most respected ratings agencies and performance of 1.91% p.a. above benchmark*. Think wide – it can help you, and your clients own tomorrow. To find out more speak to your Key Account Manager, call us on 1300 139 267 or visit ampcapital.com.au Past performance is not a reliable indicator of future performance. *On-platform (Class A) performance since inception 29 November 2004 to 28 February 2011. Out performance is after fees, before tax and assumes distributions are reinvested. Important Note: AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232 497) (AMP Capital) is the responsible entity of the AMP Capital Global Property Securities Fund (Fund) and the issuer of the units in the Fund. To invest in the Fund, investors will need to obtain the current Product Disclosure Statement (PDS) from AMP Capital. The PDS contains important information about investing in the Fund and it is important that investors read the PDS before making a decision about whether to acquire, or continue to hold or dispose of units in the Fund. Neither AMP Capital, nor any company in the AMP Group guarantees the repayment of capital or the
14 — Money Management June 23, 2011 www.moneymanagement.com.au
Retirement Incomes Workshop
Getting the most from an SMSF income stream IN what proved to be one of the most popular sessions at the Money Management Retirement Incomes workshop, MLC Technical senior technical manager Peter Hogan provided planners with a very case-focused presentation on ‘Strategies in Superannuation Income Streams’. As part of his presentation, Hogan discussed how planners could maximise the benefits of a self-managed superannuation fund (SMSF) income stream. According to Hogan, paying an income stream from a SMSF has many advantages for the retiring member. Importantly, the commencement of a pension is itself not a taxable event. Any accrued but unrealised capital gains tax liability is reversed which is credited to the member’s account. Thereafter, there is no tax liability at the SMSF level on income and realised capital gains of those assets allocated to support the pension liabilities of the SMSF. A full cash refund of unused franking credits makes the investment in Australian shares an attractive one for members in pension phase when added to the cash dividend received. The formal commencement of the pension is very important as this marks the
date from which the above benefits apply. In order to start a pension, it is necessary to put in writing a request by the member to the trustees of the SMSF to start the pension on a particular day, outlining the frequency and size of the payment, details of the bank account to be paid into, tax file number of the member and whether the pension is to be reversionary. This commences the pension, even though the first pension payment may not be made until later in the financial year. The trustees must meet to consider the member’s request, be satisfied a condition of release has been met, and that the SMSF can pay a pension under the fund rules and resolve to formally pay the pension. This should all be minuted. Hogan added that a number of other procedural matters need to be dealt with by the trustees. However, one other important matter is the review of the SMSF’s investment strategy. As the fund’s liabilities now include pension payments, the trustees must ensure the investment strategy takes these new liabilities into account. The trustees have an obligation to invest within the investment strategy, but also to ensure that all of the fund’s liabilities can be met
Peter Hogan as they fall due. Sufficient cash should be held to meet those pension payments. If the trustees are of the opinion that the current investment strategy does not give them sufficient latitude to accommodate this change in fund circumstances, they should formally resolve to change the investment strategy to allow them to do so. A similar course of action, said Hogan, should also be followed by trustees where a request by a member to purchase a specific investment on behalf of that member is made, which members of SMSFs are allowed to make. The trustees are obliged to be satisfied that the specific investment requested is
within the current investment strategy (and is otherwise allowed under the general investment rules of superannuation legislation). If it is not, the trustees must refuse to acquire the investment unless the investment strategy is amended to accommodate the investment. Any change should be formally minuted. Hogan warned that any person, including investment advisers as well as trustees, who is involved in recommending or making an investment that is not within the investment strategy of the SMSF is liable for any loss which may result from making that investment under superannuation law.
wide.
performance of any product or any particular rate of return referred to in this document. While every care has been taken in the preparation of this material, AMP Capital makes no representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document and seek professional advice, having regard to the investor’s objectives, financial situation and needs.
www.moneymanagement.com.au June 23, 2011 Money Management — 15
Education
A steep
learning curve
Education has become a buzzword in the financial services industry. Angela Faherty takes a look at what the industry is doing to improve standards.
EDUCATION in the financial services industry has become something of a holy grail in recent years with more emphasis placed on specialised courses and training as the industry moves towards achieving a greater level of professionalism. While moves to make the industry a more highly regarded profession are well underway, education on a broader level is still in a state of flux, as the underwhelming standard of financial literacy among consumers continues to present the industry with challenges. Attempts at removing these obstacles are underway however, with the introduction of Government-funded initiatives aimed at spearheading the way for improved financial knowledge among consumers.
Challenges for planners
One of the challenges facing the industry is the frequency with which legislative changes occur. Keeping abreast of these changes can be difficult but associations and fund managers are keen to help financial planners become indispensably informed by running road shows, technical workshops and conferences to advance professional development. Essentially, education among the financial planning community can be divided into three parts, says Deen Sanders, deputy chief executive at the Financial Planning Association (FPA). He says: “Broadly speaking, there are three types of education streams for financial planners. The first is regulatory which is governed by law. The second is professional education and the third is personal professional skills.” With such a vast spectrum to cover, it is little wonder that remaining familiar with
the range of educational developments in the sector is a job in itself, yet the popularity of courses and workshops across the industry illustrates that there is clearly a demand and thirst for knowledge among planners. A prime example is the FPA’s National Member Roadshow in March this year which attracted almost 2,000 financial planners across all 32 chapters Australiawide – an increase of 25 per cent in attendance compared to the 2009 roadshows. Demand for help with legislative changes has also become customary, says Sanders. He says the association has seen a growing demand for subject specific workshops as the move towards greater professionalism in the industry takes hold. “People are starting to ask more questions about specialisation pathways, such as fee-for-service transition workshops and specialist workshops on subjects such as aged care and estate planning,” he says. Although the FPA runs a series of events throughout the year to help its members stay familiar with industry developments, fund managers are also taking a vested interest in educating financial planners. For example, Aberdeen Asset Management has recently launched the first in a series of educational publications aimed at helping investors better understand the confusing world of fixed income. The three-part series, Investment Fundamentals: Everything you wanted to know about fixed income,aims to address the problems and confusion surrounding the complexities of the fixed income market, says Brett Jollie, managing director at Aberdeen Asset Management. He says: “Based on the adviser feedback we have been receiving, fixed income is one of the more complex asset classes and is greatly misunderstood. The aim of the
16 — Money Management June 23, 2011 www.moneymanagement.com.au
campaign is to explain the concept of fixed income as an asset class and the benefits it can offer investors.” Jollie adds that the Investment Fundamentals campaign will be a three-stage process which will focus solely on fixed income as an asset class. Part two is due for release in July and will cover the subject in greater depth, with the final part of the educational supplements due for release at the end of the year. “The first issue has addressed the basics of fixed income and is an attempt to explain the rationale behind fixed income as an asset class. The second guide will be based on the premise of understanding what fixed income can offer, how the asset class can be included in an investors’ portfolio,” he adds. Jollie says that while there are no set agendas for future issues of the publication, the firm’s intention is to continue to broaden the knowledge of advisers, particularly in the areas in which they demand more information. He adds that in addition to requests for information on specific asset classes, advisers are often looking to enhance their soft skills through professional development workshops, something to which the FPA has also committed on a long-term basis.
New blood
While continued professional development is an important cornerstone in the industry, attracting new recruits into the sector also presents something of a challenge. While the FPA and the government are working together to create an educational framework that will create a professional standard in the industry, other methods are being adopted to attract young recruits into the sector.
Key points • Legislative changes in the financial services industry occur swiftly and regularly, and remaining informed of these changes poses an ongoing challenge. • With the financial planning industry requiring a regular source of new talent as it strives to establish itself as a true profession, the concept of education as a key input factor becomes vital, says an industry insider. • Education within the industry falls into three general categories: (i) regulatory, which is governed by law; (ii) professional education; and (iii) personal professional skills. • The financial literacy of consumers remains a pivotal issue that needs to be resolved to make the way clear for the financial services industry to achieve its maximum potential. Getting new blood into the sector can be a challenge, however, yet a number of academies have opened up in recent years to attract new talent into the industry. The AMP Horizons Financial Planning Training Academy, which opened in October 2007, aims to recruit, train and develop the next generation of financial planners and drive professionalism in the industry. Since its launch, 347 graduates have gone through its program which entails a 12-month professional year encompassing 10 weeks of formal academic training and nine months ‘on the job’ experience working as a planner. The program offers training and development in the provision of financial advice and the curriculum has been created to fuse study with practice
Education
via classroom-based learning, e-learning and expert coaching. Tim Steele, director at AMP Horizons, says the aim of the academy is to continue the drive towards creating a professional financial planning industry. He says: “Given the changes in the industry and the focus on quality of advice, there is a need to fully embrace the march to professionalism. If the financial planning industry is to become a true profession, then it is vital to understand that education is the key to this. Our aim is to create a national centre for excellence.”
Steele adds that the academy has just completed its thirteenth intake of graduates, with two further intakes scheduled for later in the year. Following completion of the 10 weeks training at the academy, graduates have the option to become representatives of AMP Financial Planning and have the opportunity to work in the AMP Horizons full service financial planning practice. Those who complete the full professional year can either start an AMPFP practice or join an existing AMPFP practice. The success of the program is evident in the fact that the firm broadened its training scope in May this year by extending the reach of its program to include the ongoing education and development of its entire financial planner base. Since its inception, it had focused solely on the training of new candidates and the change follows a strategic review of AMP’s financial planning advice and services business. By opening up the service to existing AMP financial planners, advisers can now focus on their continued professional development and build up their existing knowledge, Steele says. “By broadening the training scope we can now provide ongoing continued professional development to those advisers currently in the industry. It is critical that the financial planning community retains and builds their technical knowledge over the course of their career,” he says. Steele adds that a key component of the AMP Horizons Academy is the ability to tailor programs to suit the personal experience of each planner. “There has been an increase in the demand for information about self-managed super funds (SMSFs) and requests to enhance soft skills, such as practice management and the ability to engage clients,” he says.
Government initiatives
With initiatives underway to help planners reach a professional status and improve the standing of financial planners across the board, there is still one element of education that remains a challenge: the financial literacy of consumers.
It has become increasingly apparent that educating consumers on all matters financial is imperative if the industry is to ever achieve its maximum potential, but overcoming this challenge is no mean feat. The industry has long been advocating the need to enhance financial literacy among consumers and while it is a slow process, it appears that the government is starting to show signs of moving in this direction. Superannuation, in particular, appears to have attracted much attention, as the compulsory contributions have brought the need for retirement planning to the forefront of people’s minds. This, coupled with the fact that the increasing prevalence of superannuation has led to more people having exposure to, and responsibility for, their retirement investments has resulted in the government introducing a number of initiatives to set the foundations for improved financial literacy among consumers. Earlier this year, the government launched its National Financial Literacy Strategy and the MoneySmart website, which replaced the old FIDO and Understanding Money websites. The revamped website saw the government pump $12 million funding into the scheme, with the aim of offering comprehensive information and online resources and contacts for those people who want to better manage their financial health. Speaking at the recent Money Management Retirement Incomes Seminar, the first in a series of educational workshops for financial planners, the Parliamentary Secretary to the Treasurer, The Honourable David Bradbury MP, said early signs show demand for information among consumers is clearly apparent. He said: “The early popularity of MoneySmart demonstrates that there is a real appetite among the community to learn more about personal finances. Already more than 250,000 individual users have logged on to the website and more than 100,000 people have downloaded the new MoneySmart iPhone app.” While the figures show there is certainly a hunger among consumers to better
David Bradbury
The early popularity of “MoneySmart demonstrates that there is a real appetite among the community to learn more about personal finances. – David Bradbury
”
manage their finances, additional measures are also in place to ensure financial literacy becomes ingrained in the consumer psyche. The previously mentioned National Financial Literacy Strategy provides a framework that will provide education through schools and other pathways, as well as create partnerships with the many sectors involved in Continued on page 19
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Education Continued from page 17
financial literacy in order to measure the impact and promote best practice. Similarly, further measures are being introduced in the form of the Australian Securities and Investments Commission’s initiative, Helping Our Kids Understand Finances program, which has received $10 million funding from the Gillard Government. The program will train 6,000 teachers and develop a range of resources to integrate financial literacy education into the Australian curriculum. “By targeting children early in their lives, we can build better awareness of the concepts of budgeting and saving and strengthen their ability to deal with more complicated financial products like credit, that are often linked to popular consumer items like mobile phones,” Bradbury said. Jollie agrees that the financial literacy of consumers is a big issue that needs to be addressed. He says: “The financial environment in Australia means we have a compulsory superannuation system, yet most people are unequipped to understand the dynamics of their investments. There is also a tendency not to use advisers which has to be resolved. Education has to start at school. Everyone goes to school and it is here that we can help to address the basics.”
financial literacy regime that is appropriate to the needs of the individual. At school you could start with mobile phone contracts and credit and adopting good financial behaviour. Things such as superannuation, life insurance and estate planning come later and at different stages of life,” he says. Steele agrees. “There is not one panacea to solve the financial literacy problem. Compulsory superannuation has increased
“
Education has to start at school. Everyone goes to school and it is here that we can help to address the basics. – Brett Jollie
”
consumer awareness of finances, but education should start in schools with topics such as managing debt. It should then continue through to community planners once schooling is complete,” he says.
The future
Education looks set to play a significant role in the future of financial planning as well as in the lives of consumers. The financial planning community appears to be address-
ing regulatory change as it moves towards achieving greater professionalism, while the government is collaborating with industry parties to ensure the creation of a framework that should go some way to improving the financial literacy of consumers. However, frequent changes to legislation and a disinterested audience in terms of consumers are challenges that need to be overcome if the battle is to be won. MM
Starting young
Tackling the issue of financial education by introducing the subject into school curriculums seems to be a popular concept, but will it really help solve the issue of consumer literacy? Opinion is divided. The government is clearly committed to implementing measures that will see the education process start in schools, but there remain a number of elements to consider. While Sanders agrees that more education is needed, he says the relevance of financial education at school level must be appropriate. “It is pretty hard to get a child to worry about planning for retirement, so therefore it is important to develop a www.moneymanagement.com.au June 23, 2011 Money Management — 19
Opinion
Change for the better Jim Minto reflects on the recent delisting of Tower Australia, and what it will mean for the company.
T
here has been and will continue to be a lot of change in the life insurance industry and, while I prefer to look ahead positively, I shall take this opportunity for some constructive reflection before considering the future. TOWER Australia continues to strive to be Australia’s leading life insurance company in terms of business partner service, customer service, products, costefficiency and technological leadership. However, the company is about to change in many respects. Formerly Australia’s only specialist life insurance company listed on the Australian Securities Exchange, TOWER Australia has now delisted and is 100 per
cent owned by Dai-ichi Life of Japan. Among the interesting historical aspects surrounding the changes in ownership TOWER Australia and its predecessor companies have had strong offshore ownership connections and the company, its advisers and customers have all generally benefited from these. Our time on the ASX was fairly brief. We listed at a value of approximately $500 million in November 2006; this justcompleted purchase by Dai-ichi Life saw the business valued at approximately $1.7 billion – not a bad result for shareholders. During this time, TOWER recorded significant growth in the Australian marketplace with its footprint in the retail life insurance space, through the independent
20 — Money Management June 23, 2011 www.moneymanagement.com.au
adviser channel, now appreciably bigger than in 2006. The ownership structure of the company also changed. Dai-ichi Life became involved in 2008 when it bought the 29.7 per cent shareholding owned by Guinness Peat Group (GPG). The partnership, drawing together the strength of TOWER Australia’s performance and the power of Dai-ichi Life, has been recognised by various external businesses. For advisers, the partnership brings built-in benefits. Dai-ichi Life itself is a life insurer with noteworthy historical origins and it is advantageous for TOWER Australia to be owned by an organisation that really understands life insurance culturally and wishes to make a positive contribution as a life insurer in the Australian market. Dai-ichi Life is a leading life insurer in Japan and a top-10 life insurer, globally as measured by premiums in force. TOWER Australia, its business partners and customers benefit significantly by being part of the Dai-ichi Life Group. Two organisations with tremendous longevity and history have linked with a commitment to leadership in the Australian life market. Dai-ichi Life wants TOWER Australia to
continue its drive under the strategy already in place. I would never underestimate the importance of the life insurance cultural alignment, since it is so different to other financial services. Having a 100 per cent shareholder that deeply understands its radical difference from banking and superannuation is of tremendous value to TOWER as we look to the future. Another positive change is that we are about to become TAL. TOWER Australia needed to change its name from TOWER by November 2006, as the name was owned by TOWER Limited in New Zealand. I am pleased about the change. TAL was our ASX ticker for the duration of our listing and many people, advisers, customers and staff, have called the company TAL over the years. Throughout the financial services industry we see acronyms, though in the long-term we want TAL to be much more than an acronym. We want it to be a name that represents leadership in life insurance for the benefit of Australians. The TAL name will be phased in during the remainder of 2011. However, the broader industry change is the Future of Financial Advice (FOFA).
Government-driven reviews around advice and superannuation have been continuing for well over two years now, and it will be even longer before they are fully implemented. The most controversial of these for the life industry are the FOFA proposals that have already been announced and for which legislation is proposed later this year. Following the spectacular Storm- and Westpoint-type failures in particular, there was always going to be some proposed change and the collective financial services industry has been attempting to mitigate any negative elements of these changes. These changes may be of great value to many people whose advice needs do not run to large disclosure documents and the related costs. I have been lobbying for several years for Australians to be able to access advice more easily and welcome the championing of the value of advice. For advisers, too, there are benefits. They will be able to address the less complex needs of many in the community without the need for the detailed advice requirements of the past. I am sure that many avoided getting financial advice because it was too complex. This can now change with the introduction of the ‘scaled’ model. Commissions on life insurance and superannuation have been topical and the financial services industry moved to remove commissions in superannuation through its charter, a very good move. The proposal to ban life commissions in superannuation created an immediate outcry. My v i e w i s t h a t t h e industry should be able to resolve the means of offering life insurance through superannuation using other remuneration models and we need to work on this as soon as possible. For example, we could have a fee structure for life insurance through superannuation, subject to approval of the fund trustee. The fee would be agreed by the client, paid by the life company to the adviser and added to the
base premium. Questions such as who is responsible for the fee if the policy lapses before the fee is fully repaid need to be resolved but models like this are possible, even if the one I have suggested as an option is not preferred. I shall leave it to the wider industry to thrash out all options and find a workable solution. I have read comments that
because of the commission ban advisers may choose not to write life insurance in superannuation, but divert client business outside superannuation. This suggestion really disappoints me, since it is simply not true of the vast majority of advisers. Advisers generally have supported the “best interests” proposal because they have always seen this as their proper role and approach.
They would not generally divert business just to make sure they get paid a commission. Removal of tax benefits on life insurance and introduction of Financial Services Reform (FSR) are just two examples of major changes to which advisers have had to adapt. The industry will adapt to this life commissions in superannuation issue and advisers will continue to represent the interests
of their clients strongly. I am proud of the tremendous value life insurance delivers to Australians and the role played by advice and I remain very positive about the future for our wider industry. After all, change can be good if it is managed in the right way for the best outcome. Jim Minto is the managing director of TOWER Australia.
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ResearchReview Identifying key risks Research Review is compiled by PortfolioConstruction Forum in association with Money Management, to help practitioners assess the robustness and disclosure of each research house – especially given the transparency they expect of the funds they rate. This month, PortfolioConstruction Forum asked the research houses: What are the key risks your firm assesses when rating funds/products/capabilities, and why? Lonsec
The risks that Lonsec considers when researching unlisted investments include: • Leverage – the differing volatility and liquidity characteristics of the underlying asset classes, since appropriate leverage levels are not standard across asset classes and may change under different market conditions; • Liquidity – both at portfolio and security specific level; • Counterparty – this is a risk that may not be adequately rewarded (eg, by a paid premium), but is necessary in functioning asset markets. Lonsec believes it should be fully assessed and diversified by using a number of different and, preferably highly rated, counterparties; • Concentration – while concentrated portfolios have the potential to generate higher returns, these returns may be more volatile and the portfolio may carry higher degree of factor risk; • Credit – the credit worthiness of a corporation or corporation’s debt issues; • Related party exposure – the extent to which a portfolio is used to seed related party interests is a significant risk and can create a potential conflict of interest, particularly where not supported by a strong investment case; • Currency – Lonsec’s currency risk rating conveys the extent to which capital and income are affected by currency fluctuations; • Corporate – Lonsec’s corporate risk rating highlights the relative stability of, and level of resources available to, the investment manager (ie, not the result of a full financial due diligence on the financial viability of the manager); • Capital volatility – takes into consideration the duration, credit, structure, political and other risks of a product’s underlying holdings; • Income volatility – where a fund objective is to deliver a specified level of income, Lonsec assesses the likelihood of the underlying assets being able to consistently meet that defined level of income; and, • Third party service providers – particularly important for hedge funds and other non-traditional asset classes where operational risks are deemed to be high. Lonsec assesses the quality of prime brokers, administrators, custodians, auditors and legal functions to ensure they are adequately resourced and experienced to provide such services. When researching direct property, Lonsec also examines of a number of operational,
financial, liquidity and management risk factors relating specifically to the project. As part of Lonsec’s risk assessment, the financial performance of the parent group of the responsible entity/manager is examined. If the manager is part of a group listed on the Australian Securities Exchange, Lonsec will have access to the publicly available financial statements and operational announcements. If the group is a privately owned entity, similar financial information will be requested and taken into consideration (whether supplied or not) in the assessment of whether to approve a project for rating. In addition, Lonsec tracks the performance of all of the manager’s other relevant property or infrastructure funds – firstly, in terms of actual versus forecast distribution, and secondly, total returns versus appropriate benchmark.
and benchmark? What have been the key elements in achieving this performance (ie, detailed attribution analysis)? Is there evidence that the investment approach has changed and if so, how?; • Present (portfolio analysis) – what is the manager’s current stance, as reflected in their portfolio? Is the portfolio consistent with the identified philosophy and process in terms of risk, style biases, capitalisation, sector and stock themes? Is the portfolio appropriately positioned to be able to meet the performance objective?; and • Future (potential analysis) – is there any change in the level of confidence in the manager’s ability to achieve the performance objective set? The research process will be looking for triggers such as change in organisational structure or personnel, changes in strategy, performance.
Mercer
Morningstar
Mercer uses a four-factor framework to rate managers and funds, including evaluating risk. • Idea generation – looks for qualitative indications that sustainability of idea generation could be at risk. Assessment areas include size of team versus the investment universe, team dynamic and quality of leadership, and ability to grasp and adapt to changing market dynamics; • Portfolio construction – risk assessment covers whether a manager is aware of the various over/underweightings in the portfolio and that those positions are intentional, and whether the process highlights to the team when positions are unintentional and a process to deal with this. Quantitatively, portfolio holdings are examined to assess various risk exposures relative to the benchmark, to the manager’s history, and to peers. For bond portfolios, the manager must demonstrate its internal risk tools, and we also assess how the manager uses derivatives, and manages currency and market exposure; • Implementation – assesses the risk that the manager is losing value when moving from a theoretical portfolio to an actual portfolio through trading; and • Business management – assesses the risk of any change to management structures and incentive compensation plans that could erode the firm’s standing in the marketplace or its ability to attract talent. On an ongoing basis, risk is assessed quarterly including the following areas: • Past (performance analysis) – what has been the performance against objectives
22 — Money Management June 23, 2011 www.moneymanagement.com.au
Morningstar did not provide an appropriate response to the question.
Standard & Poor’s
Standard & Poor’s Fund Services (S&P) considers multiple dimensions of risk when rating funds. These include investment team-related risks (including experience and skill), key person risk, team turnover, and the ramifications of these on the manager’s capability. S&P also assesses whether the team is adequately resourced relative to the demands of its investment process to ensure decisions are supported by a robust and repeatable decision-making framework. Investment risk exists at the underlying asset class and portfolio-construction levels. Funds are analysed in peer groups based on asset classes to help investors understand the different risk/return characteristics and to compare like with like. S&P considers whether the level of risk being taken is compatible with the returns and investment objectives. S&P’s process evaluates how fund managers manage risk, their adherence to their internal risk control measures, and whether they can demonstrate a clear understanding of where the portfolio risks lie. Areas assessed include portfolio constraints around asset allocation, securities, sectors, and regions (if applicable) and how these are monitored. In addition, risk analysis covers style biases; portfolio concentration/diversification; use of derivatives; constraints for short selling and leverage; and liquidity, currency and market-
specific risks. An area of focus is the overall risk management capability and whether the manager has quantitative risk systems in place or is solely reliant on qualitative risk assessment. S&P investigates how the systems are used in the investment process. Understanding a portfolio’s risk characteristics allows S&P to gauge the suitability of certain strategies and the underlying investments for particular types of investors (S&P’s fund ratings do not take into account any particular person’s financial or investment objectives, financial situation or needs). Quantitative analysis helps S&P’s analysts assess whether the manager’s stated investment and risk-management processes are reflected in historical performance. Net performance is evaluated on a risk-adjusted basis relative to benchmark, absolute, and relative to peers. While S&P’s ratings reflect a forward-looking assessment of the manager, S&P assesses the risks the manager has assumed to generate a particular level of past return and whether the past returns achieved are commensurate with the risk level. A variety of statistical ratios over various time periods are used to gain a comprehensive view of the potential risk/reward payoff and whether the manager is staying true to label. All fund managers rated are required to complete a periodic business sustainability survey. This focuses on financial risk associated with the fund manager, including profitability of the business, corporate structure, compliance, and corporate governance and business strategy. This survey helps S&P assess the probability of the manager remaining viable, particularly if it is not yet profitable. Finally, S&P’s analysts also explore operational risk factors, particularly in the alternatives sector where many boutique firms undertake complex investment and trading strategies, and are exposed to counterparty and custody risks. Corporate structure, governance, and compliance practices are key to ensuring appropriate segregation of duties, and policies should be in place to reduce the potential risk of loss resulting from inadequate or failed internal processes, systems, human factors, or external events.
Van Eyk
Van Eyk’s research process takes into account many different types of risk. Firstly, van Eyk’s risk ratings give a better sense of investment risk in itself, highlight-
ing the uncertainty of investment outcome and the potential risk of loss of investment principal. For risk ratings, both market risk and strategy risk are classified from high to low. Market risk, or beta, is common to active and passive strategies investing in the same asset sector or sub-asset sector. Strategy risk, or alpha, is the risk resulting from active investment management. Both types of risk ratings together give a sense of how a strategy might perform in variable financial environments. Our second view of risk is in comparison with a strategy’s investment potential. This focuses on the risk-return trade off that a fund presents relative to its peers, and – all else being equal, including van Eyk’s view of risk – higher ratings tend to be given to strategies that van Eyk’s analysts believe will be able to generate relatively high returns with less risk. In fact, the traditional measures we use to rate active managers – people, process and business management – each contain elements of this risk-return trade off, even though they may not be quantifiable. For example: is an investment team unmotivated or unstable? Is an investment process too rigid or mechanical? Does a strategy’s fee hinge on a benchmark that does not match its investment objective? These are all examples of risk that could be assessed by an analyst and potentially form part of a strategy’s overall rating. Van Eyk also uses quantitative measures to analyse all managers. These include a strategy’s excess returns over time, the volatility of returns and excess returns, and a strategy’s performance in both up and down markets. We also look at how an equity strategy’s performance has varied over time, including how a strategy’s style (in its actual portfolio holdings) compares with how the manager has described itself. We view a significant difference between the two as a potential investment risk, and would be inclined to seek more information from the manager to explain the difference. For fixed income strategies, we consider a strategy’s risk-return trade off compared with its peers, analysing all of the applicable performance and style attributes we use for equities, as well as measures that are specific to this type of manager, including duration, credit and sector risk, among others. Finally, for alternative strategies, which encompass equity, fixed income, currency and other markets, we use a number of measures specific to each. Exchange-traded funds (ETFs) have an entirely different set of identified risks. We look at factors that would affect an investors’ result, including the liquidity risk of the underlying securities in the ETF, as well as primary and secondary market liquidity in the ETF itself.
Zenith Investment Partners
Zenith reviews a wide range of factors when assessing the risks of a fund/product, grouped into two broad categories. Qualitative risk factors • Investment personnel – the assessment of the investment team responsible for the management of the fund/product is the most important factor in assessing the risks of a fund/product and carries the highest
weighting in our risk assessment process. The risk factors assessed here include the experience, qualifications and structure of the investment team (including key person risk). An assessment needs to be made of the reliance on the individuals within the investment team and what impact this would have on the management of the fund/product if the key person/people were to leave. This consideration has become much more of an issue with the emergence of many more boutique fund managers over the past six to seven years. • Investment process – the investment process applied in the management of the fund/product is also assessed for risk. That is, is the process well articulated, transparent and understood by all members of the investment team or reliant on the subjective judgment and decision-making of a single portfolio manager? If it is the latter, this would be considered higher risk than a well articulated process applied by multiple experienced people that could be continued even in the event of a key person departure (eg, Perpetual Australian Equities Team). The manager’s investment style is also assessed as a risk factor as very specialised and/or extreme investment styles can be out of favour for long periods of time and as a result can lead to extended periods of underperformance. • Organisational structure and stability – with the emergence of the plethora of boutique investment managers over recent times, assessment of a manager’s business and ownership structure has become increasingly important. Aspects such as balance sheet strength, profitability adequate working capital, and fund size and funds under management are all key risk factors assessed. From this perspective, managers that display low levels of working capital, poor profitability and low levels of funds under management are considered high risk and would not achieve strong ratings. In addition, complex and/or nontransparent ownership and shareholder structures are also considered high risk, as this can lead to corporate instability. • Portfolio construction and management – the assessment of portfolio construction guidelines and constraints for a fund/product is a major contributor to the assessment of a fund/product’s risks as this provides an insight into the likely diversification or concentration of the portfolio holdings including maximum stock weighting; maximum ownership of a security (by market cap); maximum sector weight; maximum country/region weight; and, required security liquidity. Quantitative risk factors From a quantitative perspective the key risk factors assessed include volatility and downside deviation, and consistency of returns. Volatility (as measured by standard deviation) and downside deviation are much more important measures of risk than measures such as beta and tracking error because loss of capital is much more important to investors than deviation from a benchmark. Consistency of returns is also an important measure of risk because, when rating a fund/product, the more consistent its return profile, the more similar different investor’s return experience will be.
The residential property puzzle Australian residential property does not behave like other investment classes, writes Tim Farrelly. He explains why this is the case, and makes some forecasts about the future direction of the sector.
M
uch has been written about the apparent ability of the Australian residential housing market to defy normal investment principles. Using Occam’s razor (ie, the simplest explanation is often the best), the key determinants of future returns for any asset are growth in income and price to earnings (PE) ratios. Both have little to no relevance when attempting to forecast returns on residential property. The PE ratio for property (value divided by net rents) has hovered in the 40 to 70 range for years. And growth of rents over time often seems to bear little or no semblance to growth in prices.
Not a normal market?
Why does the residential property market seem to defy all normal investment principals? Put simply, it is not a normal market. In a normal market, investors buy the assets they believe are most likely to give high returns, and sell assets they expect
to give low returns. In a normal market, if something appears likely to rise in price, investors want to own it; if it looks like it might fall in price, they stampede to the exits. In contrast, the residential property market is dominated by homeowners (ie, people who primarily want shelter, which, along with food, is a basic human need). Do supermarket shoppers stampede for the exits if they believe that prices are too high? No, they simply adjust their shopping list and keep buying – what they buy may change, but they keep buying. The majority of homeowners are just the same. Consider a pair of homebuyers after their first day of house hunting. Invariably, they return home deflated, disbelieving how little their money buys them. The strategy becomes clear – they work Continued on page 24
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www.moneymanagement.com.au June 23, 2011 Money Management — 23
ResearchReview Continued from page 23
“
A substantial lift in population density in our major cities would have to be accompanied by a massive boost in spending on infrastructure.
out the maximum they can possibly spend and then go looking for the ‘least worst’ place they can buy for that amount. What do they spend? Whatever the bank will lend them. Compare that to a canny equities investor who has spent some time studying the market and concluded that stocks seem very expensive. Is it likely this investor would head down to the local bank manager to beg for the biggest loan the manager is willing to advance, in order that the investor can maximise his/her exposure to the sharemarket? But that is what happens every day, over and over again, in the residential property market. So why do housing prices seem so high? Farrelly’s believes it is because the demand for housing is greater than the supply – and, in such an environment (when simply staying out of the market is not an option for most) the only thing that limits the price paid is the supply of money (ie, the amount banks are willing to lend). In deciding how much they’ll lend, a bank looks at how much income the borrower earns and where current mortgage interest rates are, and use that information to calculate how much debt a potential borrower can safely service. So, when potential buyers’ earnings rise or interest rates fall, they can borrow more; similarly, if interest rates rise, the banks reduce the amount they are willing to lend. Of course, homebuyers don’t automatically pay more for a given property just because they have had a pay rise. However,
”
in the medium-term, the impact of thousands of buyers, all making similar assessments, will gradually move house prices up when average weekly earnings rise, or if interest rates fall. Similarly, prices should fall, after a suitable lag, when interest rates rise.
Key drivers of housing prices
If this view of the market is correct, then prices should move up and down at about the same rate as property affordability over the medium term. Affordability is proportional to average weekly earnings divided by home loan interest rates. As earnings grow, households can afford to service larger loans and so property becomes more affordable. Similarly, lower interest rates also make property more affordable. As shown in Figure 2, there is quite a lag between changes to the median and
Figure 1 Increases in median housing prices, rents and affordability Component
Sydney
Melbourne
Brisbane
Adelaide
Perth
Price increase (% pa)
7.5
6.4
8.1
3.4
8.9
Affordability increase (%pa)
7.2
7.2
7.2
7.2
7.2
Rental increase (%pa)
2.6
2.3
4.5
2.1
3.9
Inflation (%pa)
5.1
5.1
5.1
5.1
5.1
Price increase (% pa)
10.0
9.6
9.1
9.8
9.8
Affordability increase (%pa)
8.6
8.7
9.0
8.4
8.7
Rental increase (%pa)
2.2
4.0
3.9
5.1
6.1
Inflation (%pa)
2.4
2.4
2.4
2.4
2.4
1985-1995
changes in affordability. This makes sense. Buyers don’t all rush out and pay more the first day interest rates fall. It takes a while to work through to prices paid. But in the longer term, affordability has moved much more in line with actual prices than have either rents or inflation. Over the most recent five years, outside of the Sydney market, prices have moved much more quickly than the affordability framework would have suggested (see Figure 1). We believe this is due to a variety of factors, including the market not yet digesting the interest rate hikes of the past year, and some lingering effects of the First Home Owner Grant. In the long term, affordability gives a good guide to price behaviour, both conceptually and in practice. Note: this framework is predicated on the idea that there is a shortage in the supply of housing and that homeowners will pay whatever they have to so long as the shortage of housing remains. This relies on continued population growth in the major
Tim Farrelly is principal of specialist asset allocation research house, farrelly’s, available exclusively through PortfolioConstruction Forum.
Figure 2 Median home prices vs affordability – Sydney 800
1995-2005
700
Affordable value
4.1
10.1
6.9
7.9
400 300 200 100
2.1
2.3
4.1
2.6
5.3
Rental increase (%pa)
9.0
7.5
7.0
6.2
10.5
Inflation (%pa)
3.0
3.0
3.0
3.0
3.0
Median Price
500
8.1
Affordability increase (%pa)
Source: REIA, RBA, farrelly’s analysis
600 House prices ($000)
2005-2010 Price increase (% pa)
cities, as well as councils continuing to limit the density of dwellings and the release of land for development. Without insufficient supply, this model falls down and prices would begin a long slow slide back to more conventional valuation levels. This is what happened when the Japanese population stopped growing in the early 1990s: Japanese residential property prices began a slow but steady fall that has them nearly 60 per cent lower than their peak 20 years ago. It’s a frightening possibility – but an unlikely one. Triggers that could cause such a change include a freeze on immigration or a change in policy on population density in the cities – but these scenarios are unlikely any time soon. The resources boom will lift the need for immigration and, in any event, current demographics suggest increasing demand for housing out to 2040 at least. A substantial lift in population density in our major cities would have to be accompanied by a massive boost in spending on infrastructure to support the large increase in population in those areas – something councils and state governments seem fiscally ill-equipped to do. A more likely possibility is that the resources boom will result in a major population shift away from Sydney, Melbourne, Adelaide and, possibly, Brisbane. If this occurs, expect mayhem in the property market as prices return (slowly, but inexorably) to levels more akin to conventional investment valuations. It’s yet another reason to watch the way the various arms of Government tackle the issues created by the resources boom.
0 1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Source: REIA, RBA, farrelly’s analysis
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Research round-up PorfolioConstruction Forum asks the major research houses about their most recent projects and appointments. Lonsec
• Lonsec has been acquired by Financial Research Holdings (FRH), which has also purchased industry super fund rating firm, SuperRatings. FRH is a new research company owned by SuperRatings’ managing director Jeff Bresnahan and former chief executive Jason Clarke (now MD of FRH), along with Lazard Australia private equity adviser, Mark Carnegie. The company aims to become “Australia's best full financial services research and investment execution platform for advisory and dealer groups, and the wider superannuation and wealth management industry”. • Inflation is, and will be, one of the key issues for investors to consider when assessing their investment strategy over the next ten years, according to Lonsec which has published a report on assets to include in portfolios to hedge against inflation risk. “There is no silver bullet when it comes to protecting portfolios from inflation”, the research house writes in a recent Perspective. “There are, however, some asset classes that exhibit characteristics that will provide a degree of inflation protection,” the report notes, citing commodities, infrastructure, inflationlinked bonds and equities (particularly those targeting growth areas). In particular, commodities exhibit a high beta to inflation and are also a portfolio diversifier versus equities and bonds. Lonsec warns that the list of available commodities funds in the retail market is quite limited. “Lonsec has been comfortable to achieve indirect exposure to Commodities via an allocation to global macro strategies, as well as indirectly via Australian equity funds,” the report concludes.
placed a very conservative valuation on currency, shifting [its rating] from unattractive to very unattractive.” • Mercer has introduced two new international fixed income universes – absolute return and total return. Strategies included in the Absolute Return category are benchmark-agnostic and designed to deliver a positive return in all market environments, are designed to have low/stable absolute volatility and will generally target returns of cash, plus 2 to 4 per cent per annum. Strategies included in the Total Returns category are also benchmark-agnostic but have an unconstrained approach to fixed income investing, may have a higher correlation to spread sectors and risk assets, and have less downside protection than an Absolute Return strategy.
Van Eyk has boosted its “distribution team with new hires Adam Coughlan, Angela O’Connor (business development manager) and Karlena Burnett (client services co-ordinator).
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Mercer
• Investors should maintain an overweight position in overseas shares relative to overvalued bonds, according to Mercer. Mercer’s medium-term view remains biased to overseas currency-exposed assets which should remain overweight. “With the Australian dollar at a post-float high against the US dollar close to $1.10, we are currently experiencing a sweet spot of strong commodity prices and rising interest rate differentials. However, this strength will be hard to sustain once US interest rates begin to rise, and there are downside risks to commodity prices in the mediumterm,” said David Stuart, head of Mercer’s dynamic asset allocation team. “This isn’t expected until 2012, but if the US dollar turns, it could also impact commodity prices and put significant downward pressure on the Australian currency over the next one to three years. Therefore we have
Morningstar
• Morningstar is introducing a new global fund ratings scale, including in Australian and NZ. Funds will be assigned one of five ratings: AAA, AA, A, Neutral or Negative, based on five underlying ratings criteria of people, process, parent, performance and price. “The move to a common rating system will further emphasise the global depth of our fund research, and make it easier for the growing number of our clients who use our research across multiple markets,” local CEO Anthony Serhan said. The new ratings model is scheduled to be rolled out globally in September.
Standard & Poor’s
• Australian fixed interest funds (including credit, high yield income and fixed interest peer groups) provided benchmark-beating returns net of fees in 2010, according to S&P. The exceptions were index managers BlackRock and Vanguard, and the benchmark-agnostic Vianova. “The returns were all above the benchmark net of fees and in line with, and in most cases, above objectives on a gross basis,” said S&P Fund Services analyst David Erdonmez. “Investors are paying for active returns and for 2010 have been receiving them. In our view, this has clearly been a good time to be in actively managed funds as there have been and continue to be a number of opportunities to add value through duration, curve, sector, and security calls.” • Australian mortgage funds are still experiencing redemption pressure and a lack of positive funds flow, according to S&P Fund Services. “The status of the sector is only slightly more positive than that at the time of our last review,” S&P noted in its latest report on the sector. “Managers of liquidity-constrained funds continue to face significant difficulties in balancing the competing interests of investors.” Credit quality continues to be patchy.
Van Eyk
• Chinese stagflation could be a potential threat to global growth, according to van Eyk. “While China has been hiking its reserve ratio in a move to staunch money supply and inflation, this has been largely ineffective in controlling inflation,” the firm said in a recent discussion note. “Chinese stagflation can be a potential risk to global growth,” van Eyk warns, adding that a stagflation scenario could be due to several factors, including monetary overtightening causing sluggish economic growth, introduction of a power tariff from June 1 causing higher inflation in the nearterm and driving down industrial output, and high unemployment in urban areas and inflated housing rental, fuel and food prices leading to greater social unrest. • Van Eyk has boosted its distribution team with new hires Adam Coughlan, Angela O’Connor (business development manager) and Karlena Burnett (client services co-ordinator).
Zenith Investment Partners
• Melbourne-based dealer group Securinvest Financial Planners has selected Zenith as its principal research adviser. Securinvest is an independent Australian Financial Services licensee with around 17 authorised representatives, has its own
dealers licence and life insurance brokers licence as well as its own accounting practice. Zenith will initially provide research to the head office business, which has nine advisers. • Zenith has appointed Chris Huang as a data analyst. Huang joins Zenith from the Australian Stock Report, where as a research analyst, he conducted fundamental and technical analysis on variety of financial securities, and was responsible for providing general investment advice to retail clients and assisted them with trading requirements.
Reports released in May
• Lonsec – Month in Review • Lonsec – Quarterly Listed Income Journal • Lonsec – Hybrid property sector review • Lonsec – Perspective: Destination India • Lonsec – Perspective: When big is not beautiful • Lonsec – Perspective: Instalments and protected loans • Mercer – Monthly market review • Mercer – Quarterly market valuation summary • Mercer – Federal budget review report • Morningstar – Monthly economic update • Morningstar – ETF Monthly • Morningstar – Global listed property sector review • S&P – Monthly Economic and Market Report • S&P – Australian fixed interest sector review • Van Eyk – Investment Outlook Report • Van Eyk – NZ equities review • Zenith – Monthly Market Report • Zenith – Monthly Economic Report
Upcoming in June
• Lonsec – Global long/short review • Lonsec – Global emerging markets review • Lonsec – NZ property and equity review • Lonsec – Au equity long/short review • Lonsec – Infrastructure securities review • Morningstar – Australian listed property review • Morningstar – Alternatives review • S&P – Au Eq large cap review • Van Eyk – Au Eq ETF (broad market index) review • Van Eyk – Au Eq SMA review • Zenith – CTA/Macro sector review • Zenith – Property securities review • Zenith – Global equities long/short review
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www.moneymanagement.com.au June 23, 2011 Money Management — 25
Toolbox Avoiding SMSF tax traps Craig Day reveals some timely advice on how to avoid the end of financial year SMSF traps.
W
ith the end of the financial year fast approaching selfmanaged super fund (SMSF) trustees and their advisers need to be aware of any issues that could impact the taxation or compliance of their fund. Here are a couple of tips and traps to consider. Tip: Record the amount and timing of indirect contributions In taxation ruling TR 2010/1 Income tax: superannuation contributions, the Australian Taxation Office (ATO) defines a contribution as anything of value that increases the capital of a superannuation fund provided by a person whose purpose was to benefit one or more particular members of the fund or all members of the fund in general. This could include situations where the capital of the fund has been indirectly increased, such as where: • A third party has paid an expense on behalf of a fund and the third party is not reimbursed by the fund; • A third party forgives a debt owed by the superannuation fund; and • A third party increases the value of an asset owned by the fund. For example, where an SMSF’s accounting and audit expenses were paid by a related company, the fund would be considered to have constructively received a contribution, as its liability for those expenses will have been extinguished. In this case, as the amount was paid by an entity other than the member or the member’s spouse or parent, the contribution would be treated as a concessional contribution and would count towards the member’s concessional contribution cap. Trustees therefore need to take care to capture these amounts and include them in the fund’s member contribution statement, which makes up part of the fund’s annual return. Advisers will also need to take care to take these amounts into account when providing any super contributions advice to an SMSF member to avoid a breach of the client’s contribution cap(s).
Trap: Fail to retain evidence of in-specie contributions Where a member makes a contribution to a fund by way of a transfer of listed shares or business real property, TR 2010/1 confirms that the contribution will be made when the fund obtains ownership of the asset. The ATO accepts that ownership of the asset, and therefore the making of the contribution, can occur at the time the fund becomes the beneficial owner of the asset and that beneficial ownership can be acquired earlier than legal ownership. A fund will become the beneficial owner of an asset when it obtains all the required transfer forms in a registrable form along with any other documentation required to procure registration as the legal owner of the asset. For example, for an in-specie contribution of listed shares, where a trustee takes possession from a member on 30 June of a properly executed off-market share transfer in registrable form, but the company share register is not amended until 3 July, the contribution will be made on 30 June. However, the ATO has warned that it will treat any in-specie contribution as being made when the super fund is registered as the legal owner of the asset unless the trustees (and contributor) retain sufficient evidence, such as: • Minutes of any trustee meeting held to accept an in-specie contribution; • The relevant transfer forms; and • Any other record of when the transfer took place to identify precisely when the fund obtained beneficial ownership. Therefore, SMSF trustees should ensure they retain sufficient records of any yearend in-specie contributions to evidence in which financial year the contribution was made. Failure to do so could impact a member’s ability to claim a deduction on a contribution and/or the year in which the amount will count against the member’s relevant contribution cap. Tip: Acknowledge receipt of valid deduction notice For a member to be eligible to claim a tax deduction on a personal contribution the
26 — Money Management June 23, 2011 www.moneymanagement.com.au
member must provide a valid notice to the trustee of their intention to claim a deduction on the contribution within certain time frames and the trustee must acknowledge that notice. An SMSF trustee should therefore ensure they acknowledge the receipt of any deduction notice in writing back to the member. The acknowledgement should confirm the date of the contribution, the amount of the contribution and the amount the member wishes to claim as a tax deduction. The member should then keep the confirmation notice with their tax records to avoid the risk that a deduction for a contribution is denied. Trap: Pre-pay 12 months of interest expenses on a limited recourse loan While individuals and small businesses are able to claim an immediate deduction where they pre-pay up to 12 months of interest expenses on an investment or business loan, this does not apply to super funds, including SMSFs. Under the pre-payment rules where an SMSF trustee pre-paid interest on a limited recourse loan, the pre-payment would be apportioned over the period to which it relates and would only be deductible in the relevant year. For example, if a trustee pre-paid interest on a loan that would accrue during the 2011-12 financial year on 15 June 2011, 100 per cent of the payment would be apportioned to the 2011-12 year and would only be deductible in that year. Tip: Assess the fund’s in-house asset levels Where the total level of a fund’s in-house assets exceeds 5 per cent of the net market value of the fund’s assets at the end of the financial year, the trustees will be required
Where an SMSF has in“house assets the trustees should assess the value of those assets against the 5 per cent in-house asset limit in the lead up to the end of the financial year.
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to sell down the amount of the excess within 12 months. Therefore, where an SMSF has in-house assets the trustees should assess the value of those assets against the 5 per cent inhouse asset limit in the lead-up to the end of the financial year. Where the fund will be close to, or exceed, the 5 per cent inhouse asset limit at 30 June, the members may wish to consider making additional personal contributions to dilute the level of the fund’s in-house assets prior to 30 June. Craig Day is senior manager, technical services at Colonial First State.
Appointments
Please send your appointments to: milana.pokrajac@reedbusiness.com.au
PROFESSIONAL Investment Services (PIS) has reinforced its risk team with the appointment of Peter Nielsen, who will have the geographic responsibility for the dealer group’s life insurance operations in Queensland and New South Wales. As new regional risk manager, Nielsen will be tasked with supporting the growth of key risk practices, as well as recruiting suitable risk practices to take advantage of referral opportunities through PIS’s network of advisers and accountants. PIS noted that Nielsen, who will report to head of risk Mark Stubbings, had extensive experience in the life insurance and independent financial advice markets.
ZENITH Investment Partners has recruited two new team members, with Bronwen Moncrieff joining the company as senior investment analyst within the asset class research team, while Christopher Huang will be the new data analyst. Moncrieff would take up a senior position within the Zenith research team with overall managerial responsibility for international equities, infrastructure, Australian equities small caps, and Australian and global REITs funds. She had previously held senior analyst roles with several firms,
Move of the week FOUNDER of Australian Unity Funds Management and an industry veteran, Craig Dunstan, has been appointed a non-executive director of investment firm Wealth Within. Wealth Within executive director and founder Dale Gillham announced the appointment and said Dunstan would provide “his wealth of experience through attending board meetings and providing strategic input to the management of the company”. Dunstan spent over 25 years in the financial services industry in Australia, during which he founded Australian Unity Funds
including Lonsec, Russell Investments and the Future Fund. Huang, who joined the team as a data analyst, moved from the Australian Stock Report where he conducted fundamental and technical analysis on a variety of financial securities.
FORMER Mercer senior manager, Angie Mastrippolito, has been recruited by Professional Financial Services (PFS) as its principal. Mastrippolito is a consulting actuary specialising in complex defined benefit and pension funds, assisting with strategy, insurance and actuarial matters. PFS director John Newman welcomed Mastrippolito to the company and said her appoint-
Management, real estate investment manager MacarthurCook and National Mutual subsidiary ACC Fund Management. He previously held a role as a board member on the Asian Public Real Estate Association and is currently a non-executive director and member of the investment committee of Australia Scholarship Group Friendly Society, among other roles. “Dunstan will bring with him a great depth of knowledge and experience, and this will help us break new ground with the group’s offerings taking our business forward to where we know it can be,” Gillham said.
ment would strengthen the PFS superannuation practice. She joined from Actuaries in Super and she had previously been a principal at both Mercer and Watson Wyatt.
RISK management and consulting firm Aon Risk Solutions has appointed mergers and acquisitions insurance specialist Jennifer Richards to lead the transactional liability division of its mergers and acquisitions solutions team. Richards would be responsible for management of the transaction liability team in the Pacific region and will work with the broader Aon leadership team to drive the strategic development of Aon’s global mergers and acquisi-
tions practice. Richards joined Aon from Chartis, where she held the role of senior vice president within its executive liability team. She had also practiced corporate and securities laws at Sidley Austin LLP in New York. Aon Risk Solutions chief commercial officer, Jason Disborough, said Richards would commence her new role at the company in early July.
RUSSELL Investments has expanded its team with two new hires and announced intentions to double its investment consulting business in the next three years. Former head of research at van Eyk Research, Dr Jerome Lander,
Opportunities FINANCIAL PLANNER Location: Hong Kong Company: ipac Asia Description: ipac Asia is an international financial advice and investment group that has been helping clients achieve their financial and lifestyle goals in Asia since 2002. We are looking for entrepreneurial and top calibre candidates to join our Hong Kong team to offer holistic financial solutions. You will be involved in retirement planning, investment and portfolio management, risk management, and other financial planning services. Tertiary education or above with a minimum of three years financial planning or relevant experience is compulsory. You will need to be self-motivated and with strong business development ability. In return, you will be provided with an attractive base salary and excellent bonus/commission package. To express your interest in these exciting opportunities, please forward your resume to our Human Resources department at vivian.chan@ipac.com.hk
FINANCIAL PLANNER Location: Wangaratta, VIC Company: National Australia Bank Description: NAB Financial Planning has established a solid reputation for providing
Craig Dunstan had moved to Russell as director of consulting, while Migara Alles joined the company as an investment consulting analyst. Head of consulting and advisory services in Australia for Russell Investments Greg Liddell said the new hires came amid increased institutional demand for advice, as the investment environment grows more complex. Lander had also served as the head of international equities and diversified assets at Credit Suisse Asset Management. Alles moved from the wholesale banking division of National Australia Bank and will be based in Melbourne. The new hires bring Russell's Australian consulting and advisory team to 18.
For more information on these jobs and to apply, please go to www.moneymanagement.com.au/jobs quality professional advice. Your focus will be on servicing, retaining and providing ongoing advice to clients, retaining existing referral arrangements and prospecting new opportunities through your strong business development expertise. Your ability to engage and build lasting relationships with your clients will lead to success in our culture of high performance at NAB. In return we offer a competitive remuneration package, uncapped bonus incentives, plus ongoing professional development and paraplanning and administration support. Ideally, you will have completed your ADFS (FP) or equivalent, and possess solid planning experience demonstrating a proven sales ability. Tertiary degrees in a business-related field will also be highly regarded. To apply online and for more information visit www.moneymanagement.com.au/jobs
SENIOR PARAPLANNER Location: Parramatta, NSW Company: Equiti Financial Services Description: Through recent expansion, Equiti Financial Services has created an opportunity for a senior paraplanner to join its team. Primarily, the paraplanner will be responsible for providing professional and operational support to senior advisers through
the preparation of advice documents using XPLAN and researching trends in financial planning and investment markets that include industry and legislative changes. You will also be required to assist the head of financial advisory with the paraplanning team workload and provide training opportunities and support. The successful candidate will be minimum RG146 qualified with an extensive understanding of all aspects of the financial planning process and at least two years experience. For more information and to apply, visit www.moneymanagement.com.au/jobs
SENIOR FINANCIAL PLANNER Location: Perth, WA Company: Hays Recruitment Specialists Description: This emerging financial services company is currently in the process of expanding their financial planning presence in Perth. Currently, a requirement exists for a senior financial adviser to come on board in a permanent capacity. As a senior financial adviser, you will be responsible for the development and maintenance of client relationships and for building strong relationships with accounting practices in order to identify clients who may have financial planning requirements. Due to the nature of the position, you will
require excellent communication skills as well as the ability to establish a strong rapport with all potential clients. To be successful for this position, you will have extensive experience in a similar position. You will have your ADFS and be working toward your CFP qualification if you are yet to obtain it. For more information and to apply, please visit www.moneymanagement.com.au/jobs
SENIOR FINANCIAL PLANNER Location: Newcastle, NSW Company: Key Recruitment Description: Our client, based in Newcastle is currently seeking to appoint an experienced holistic financial planner to their team. Your varied role will include servicing and reviewing existing clients, as well as sourcing new business through the established referral sources. You will need a minimum of four to five years holistic financial planning experience, RG146 as a minimum qualification, with the CFP designation being highly regarded. In return for your experience, you will be offered a generous salary package, including an uncapped commission structure and career opportunities, including equity potential. For more information and to apply, please visit www.moneymanagement.com.au/jobs
www.moneymanagement.com.au June 23, 2011 Money Management — 27
Outsider
“
A LIGHT-HEARTED LOOK AT THE OTHER SIDE OF MAKING MONEY
Arise, Sir Outsider OUTSIDER for one has never felt truly appreciated for all the hard work he does. Whether it be sitting on his ergonomic chair writing up the latest financial services gossip, or helping Mrs O out around the house by lifting h i s f e e t w h i l e s h e’s v a c u u m i n g , Outsider always puts 100 per cent into everything he does. That’s why when some of his industry colleagues were recognised for their efforts in the business of making m o n e y by n o n e o t h e r t h a n He r Majesty the Queen, Outsider felt a slight twinge of jealousy. Among those who had honours bestowed upon them were founding chairman of the Australian Securities and Investments Commission Alan Cameron, chairman of Rothschild Australia Trevor Rowe and First State
Super chief executive Michael Dwyer. Goldman Sachs vice-chair man Alastair Lucas also made an appearance on the list, along with long-time financial adviser of DSA Financial and charity man Darryl Seccombe. While Outsider must, of course, say he commends these fellows on their hard efforts (lest he be accused of perpetuating the myth that is tall poppy syndrome), he can’t help but ponder whether Her Majesty is applying lofty criteria for handing out such honours. That said, such criteria have never bothered Outsider, and so he has made it his mission to be duly rewarded in next year’s ceremonies. Perhaps he could finally get some recognition for his long-standing services to the golfing community.
No free lunches OUTSIDER has, unfortunately, become quite familiar with impulse purchases and needless shopping sprees. After all, he has lived with Mrs O for a number of years and learnt quite quickly that she is not in the habit of asking for a price. However, none of this could even remotely compare to a money splurge he read about in the paper the other day. At a recent charity auction in New York, an anonymous bidder paid $2.5 million for a steak lunch with billionaire and an investment guru, Warren Buffett, during which any topic chosen by the winner would be discussed. Unless Mr Buffett agreed to provide advice on how to become uber-rich and the steak was sprinkled with diamond dust, Outsider would struggle to understand why someone would spend that much money on a lunch. After recovering from vertigo inflicted by this figure, Outsider decided Mr Buffett’s company was definitely too expensive. In fact, it is so expensive that the $31,000 paid by the lobby group Get Up! for lunch with the Prime
“I came across a client with a wine collection in his SMSF. He proposed to pay himself seven bottles a week as his pension.” MLC Technical’s Peter Hogan could see the lighter side of what some investors may consider to be the
perfect retirement incomes strategy.
“For some unexplainable reason, retirees always seem to end up living by the sea, wearing far too much linen.” AMP Capital Investors’ David Dix shares his sea-change observations at the Money Management Retirement Incomes workshop.
“Good evening friends. And welcome to Parliament House – the place that Lonely Planet lists as Number 28 in their ‘116 things to do in Canberra’.” Speaking at the Financial Services Council dinner in Canberra, Finan-
Minister Julia Gillard now seems miniscule. However, for those who are looking for a better deal but still wish to share a table with an extremely charismatic and good-looking fellow, Outsider only charges a couple of hundred dollars. Throw in another $100 and he might just show you his leopard-print G-string.
Braving the elements ANYONE who knows Outsider understands that he is a man who enjoys his human comforts – his well-stuffed chesterfield, his leather ottoman, the odd snifter of single malt and, of course, the occasional Romeo y Julieta cigar. Thus, he doffs his hat to the managing director of the insurer TAL, Jim Minto, who, despite last week’s incessant Sydney rain and a lingering cold, determined that he would participate in the annual ‘CEO Sleepout’. Outsider really did wonder about Minto continuing with the Sleepout in circumstances where the weather forecast for the Emerald City on the night in
Out of context
question could best be described as ‘inclement’. However your humble correspondent was then reminded of the fact that Minto hails from New Zealand’s deep south – a corner of the world where the famous Hokanui bootleg whisky continues to be produced from illicit distilleries, and where a brew called Speights is the beer (laxative) of choice, and where it has been known to snow in December and January. As Outsider understands it, Minto hails from either Southland or Otago in New Zealand, two provinces where the men are men – and the sheep are nervous.
28 — Money Management June 23, 2011 www.moneymanagement.com.au
cial Services Minister Bill Shorten reveals there are 27 more exciting things to do in Canberra than visiting Parliament House.